Old National Bancorp (ONB) Earnings Call Transcript & Summary

Thank you for being here this afternoon. We have our last fireside chat of the day. We have Jim Ryan and John Moran from Old National. We were just talking about your schedule today. I think these guys are worn out.

Well, compliments to the whole team, Jon, and 25 individual companies and 29 investors showed up. So really full day. So thank you for a great schedule.

That's a full day. I won't ask you anything you haven't been asked of. Just for the benefit of generalists, we have a lot more generalists here, and we have a lot more people listening online. Give us an overview of Old National.

Yes. Obviously, coming off really a record-setting and transformational year in 2025, record earnings. And coming off our Bremer partnership, which may have been one of the most important partnerships we've done in my tenure at the company, which is now 25 years and really solidified our position in Minnesota and the Twin Cities specifically, taking the #3 market share and I just feel like obviously, a lot of energy and effort goes into any kind of partnership. And this one in Twin Cities was particularly large and had an interesting history and background, but that really set us up for some significant success, I think, in 2026. Despite having record years in 2025 with all of the momentum heading into '26, I think we expect -- I think the Street estimates are somewhere around 15% earnings growth estimates year-over-year with high teens return on average tangible common equity, a sub 50% efficiency ratio. And I'm going to get these numbers directionally correct, about a 1.4% return on average assets. So we feel really good about where we stand. At the same time, it's a lot of work still every single day. You got to go out there. I just did this as a part of our annual review for our Board of Directors. I made 52 market visits last year. So I was out a lot in addition to meeting with investors, in addition to working with the industry trade association that I work with. And -- but it was a super energizing year, and I expect a year 2026 to be much the same. I think one of the highlights and advantages that we have is that we're really connected to our team members and markets. And when I show up and make that phone call or text stack client, or stay connected to a team member when something happens in their lives. I think that differentiates ourselves, and that's a really attractive value proposition. The other thing that happened last year that's significant to us is we -- our President, Mark Sander, retired, and we brought in a new President and COO in Tim Burke, who joined us from a super regional in the Midwest, and he is off to a really strong start, 7 months into the role, really strong start. And the reason why I highlight that is that I really think that he's been focused incredibly on our organic growth opportunities that are in front of us. And when you're integrating a large institution like Bremer, you're pretty distracted, right? A lot of those 52 market visits I made were in the Minnesota and North Dakota footprint. And Tim is coming in now and being able to really stay focused in on the organic growth opportunities, both in terms of hiring new people, but also client relationships. And I think that's really going to differentiate ourselves. We have a number of succession that's going to happen in our commercial business in the coming years. Our CEO of Commercial is retiring April 1. Tim is really good about rethinking how do we continue to grow our own people, but also he brings some fresh talent into the organization to be a better bank. So I think we're entering 2026 in a really strong position. I think we're going to exit 2026 in an even better position, particularly around -- we think around our commercial growth opportunities, which none of that's contemplated in the outlook that we provided for 2026. So I can't be more excited about where we stand this year. And it won't always be a straight line to success. And you wake up one morning, and we've got a military action that's taken place and you got oil going one direction and -- so you have these things that happen. But I would say that our clients and our company is really resilient, and they're able to navigate a lot of these different challenges have been thrown at us in the last handful of years. So I'm pretty bullish that we'll figure this one out, too. And it looks like maybe oil is a little bit better behaved today than it has been. So that's a good sign, too.

We'll get to that. I just want to make one comment. People say that Cassidy and I tour as much as Taylor Swift, but I'm going to have to change it to travel as much as Jim Ryan.

There you go.

It's an amazing -- I know you've always been a road warrior. I know that.

Well, again, I think that's what differentiated a bank like Old National, where the senior management is going to be there to back our team members, but they're also going to be out there visiting with clients, and that makes a real difference, as you know, at the end of the day. This business is built on relationships. When banks forget that this is a people business and those people drive relationships, that's when we mess it up. That's the most important thing we can do as an organization is focus on the people and those relationships they bring.

What do you think of the economy today? How do you feel about the economic activity in your markets? Maybe touch on some of the volatility, if that has an impact at all in terms of your clients?

Yes. I would just say, heading into the year, we thought it was going to be a solid year. I think we put loan growth targets out there about 4% to 6% for the year. I don't think that's heroic. I think we're on pace as an industry to hit those type of numbers. We're not in the habit of providing mid-quarter guidance. But I think as an industry, if you follow the HA data, I think our industry is going to be in that space. I think the economy is doing well. I mean it's too early to tell how much of what happened last Sunday, a week ago, Sunday, has on the economy. Certainly, oil prices, if they stay elevated for a long period of time, will have some impact. But I think our clients are really good at navigating challenges that come ahead of them. And -- so I don't think -- as I see it today, I'm not expecting a dramatic impact. And certainly, I think our clients are adept at navigating these things. What else would you add to that, John?

I think things are good and maybe tracking even a little bit better than what we would have thought. Pipelines are good. Activity is good. And to Jim's point, I mean, probably a little bit too soon to figure out if the last 10 days changes that, but the year is off to a good start.

Yes. Okay. How about the competitive environment? You're in a lot of different markets, and I know it's hard to generalize, but just lending competition, and we'll talk about funding in a couple of minutes.

But I'll kick it off. We really pride ourselves in having really consistent credit standards. And so when times are good, we have the same standards than when times are really difficult. And I think that consistency with our clients really matters, that approach really matters with our relationship managers. And so there were times -- and Jon, I know you can appreciate this when there were a lot of banks that were on those risk-weighted asset diets and had sworn off certain asset classes, particularly commercial real estate. And we were able to make a lot of inroads with just that consistency of kind of always being in the market. And we tend to have a fairly tight box. And if it fits a box, we're going to continue to do that despite what the environment looks like. And I think that allowed us to enjoy some maybe outsized growth during those periods of times. Today, it's clear everybody is back in the market. Everybody is competing for I think one of the banks mentioned that today and at the conference here, everybody is back competing for that same type of business. So it's competitive. We're still winning our fair share. But nonetheless, I think it's as consistently competitive market as I've seen probably in the last handful of years.

Any particular categories of loans?

I think it's across the board. I think everybody is fighting for every single relationship. There were discussions today in some of our one-on-one meetings about -- is it areas where there's disruption? Is it areas where there's large banks? Is there areas where there are small banks? It's all of the above. Like every single place, we see competitive dynamics just tightening up a little bit. But again, I think a testament to our team and some of the markets, we're continuing to win our fair share.

Okay. On Bremer, you touched on it, and we don't have to spend a lot of time on it, but it was a big deal. Transformational, I would say. Makes you a much larger bank. What is left to do, integration conversion, things like that? Where are you at? And what are you the most positive on as you look forward in terms of the footprint there?

Yes. I would suggest we're in the late innings. The systems integration went exceptionally well and lots of proof points around that. I think we're still in the late innings of any time you're integrating 2 teams, 2 cultures, particularly -- it's one thing when you have no existing team members that are there, and that adds a set of complexity, but it adds a different set of complexity when you have 2 different teams you're trying to meld together and bring the best of those teams together. In some ways, it's easier. In some ways, it's maybe more challenging. But I'd say we're in the late innings. And it takes a couple of years for everybody to feel like they're hitting their strides. There's an awful lot of change that happens. There's a lot of change for clients you got to help navigate. There's a lot of change for team members you got to navigate. And change is difficult. It doesn't matter whether it's positive change or negative change. Change is difficult for most people. So I think we're doing really well. We're really pleased with how it's all come together. John always reminds investors that we bought it at the right price. And so that's super helpful and allows for things not to go exactly perfectly all the time. I guess the other thing I'd mention, the thing that I'm really pleased about is when we look at some of the areas outside the Twin Cities and often North Dakota and parts of Wisconsin, we're really pleased with those markets. Not every, I think, potential partner would have had the same view of some of those markets. I -- there's a little bit of a joke in our company that I've been to Fargo in February now a few times. And that's a fun trip for me to do. I just got done speaking at the Fargo Economic Summit, and I really enjoy that opportunity. And John and I laughed because you could drop yourself off in the middle of Indiana or Fargo, North Dakota, and they'd really look like the same kind of markets. And so we think those are some of the really surprising parts and the parts that I think we're really going to be able to take advantage of as an organization.

I think I mentioned my 90-year-old father has his Bremer baseball hat that he wears periodically.

We got to give him an old national hat.

No, I might have to disclose it. Gift. I'll make sure I do that if you give me one. John, talk a little bit about deposit competition, how you're thinking about the margin trajectory from here? And the puts and takes in terms of the outlook.

Yes. Look, I think deposits are -- continue to be very, very competitive, but I think rational everywhere that we are. So there's not a promo rate out there that I look at and say, I don't understand what they're thinking. But I think it continues to be a competitive environment for funding. And I think that that's probably a good sign that people see decent asset growth out there, right? And -- so I would characterize it as sustained competition, highly competitive, but still very rational. In terms of trajectory on margin, look, I've joked around a couple of times today. It was -- I think Ben Franklin has said death and taxes. John Moran is going to add a third one. The forward curve will be wrong. And so that has not played out the way that we would have hoped in terms of steepness in the belly of the curve. Things are still pretty flat there. And I think some help on that, some steepness in the curve would be beneficial for -- not just for Old National Bank, but for the banking industry.

Do you have a preference at the short end, what you'd like to see happen?

We're pretty neutral to short in terms of how it goes but steepness in belly would be good.

While John points out, we're relatively neutral on the short end of the curve, I think one of the challenges we see to the extent that there are less Fed cuts than maybe originally anticipated, I think that's keeping those promo rates up there a little higher than longer. If we saw more rate cut expectations, I think some of the promos would have come down a little bit faster. I think that's creating a little bit of tough competition for the marginal dollar of deposits.

Okay. It's interesting. It seems like it's a little more competitive in the Southeast and some of the other markets versus more rational where you're at. what it seems like.

And there are some markets that John points out where we're being -- we're leading the market in some of those instances where we have small market share and don't have to worry about repricing our back book. So we can be the thorn in the side of some organizations too.

Yes. Okay. Okay. Also on the revenue topic, the fee income guide suggests some decent momentum, confidence level in achieving those targets? And what are the kind of the key drivers of that?

We feel really good about what's going on the fee side. I think one thing that we've talked a little bit about is just capital markets in the back half of last year was really, really strong. I don't think that, that's going to run rate forever, but certainly feel good about where we are on the fee side. I think we're seeing good growth in wealth. We're going to see mortgage being -- continue to be a pretty good business for us, and we're investing a lot in treasury management, which I think could be a longer-term upside for us. So feel really good about where we are on fees.

Anything you need to do differently as a $70 billion bank on the fee side? Maybe it is treasury and capital markets, but how do you think about that?

Yes, I think building out both those businesses in more robust ways. One of the things that I think is an incremental opportunity for us is we've been slowly building out kind of the mid-corp space that historically, as you know, our footprint was this business banking, small commercial market. And we don't have any national businesses, as you know. So I think with Tim's leadership and thinking about how we can build that out, I think that necessitates us building out more robust treasury management services for the larger corporate clients, but also some probably broader capital markets capabilities, too.

Are you getting looks at larger clients now with a larger balance sheet?

Absolutely. Absolutely. And I think it's -- we'll continue to take those opportunities. Obviously, we want to be smart. We want to make sure that we can earn a full relationship. It just doesn't want to be a credit-only facility. And -- but -- so we want to make sure we have the products and services to earn that full relationship as well. But I think it's also incumbent upon us to continue to hire relationship managers and the credit teams to be able to support those types of clients.

Okay. Pre-Bremer, we used to talk a lot more about wealth as a driver of the outlook. What's the strategy today? And how important is that to the outlook?

No, I think it's much the same. I really do. There was a period of time where most of our business would be branch-driven type of business and traditional fiduciary type business. Today, increasingly, we have the opportunity regularly to earn the investment management business, the high net worth individuals. That's a bigger part of our business than it ever has been. And I think that's really a function of putting the right people in place, putting some extra products and services in that can serve that constituency. But I've been really pleased with that. And that business is growing, I think, mid- to upper single digits kind of consistently year in, year out, which I don't think is necessarily a trend for everybody in our business where some people have maybe given up on that. I really see that as a continued area of growth for us an important driver. I would just also add, as we're on the fee income line, the mortgage business. I mean that's a business I'm a big believer in. Again, we're in footprint origination. We're not afraid to use our balance sheet where it makes sense and we can drive private banking type relationships with it. And obviously, each year continues to build. There were periods of time we thought we might give up on the mortgage business, but the reality is it's been a nice fee income source for us. it's growing each year, and hopefully, it will be even better this year.

Okay. We can -- we'll get to M&A in a minute here, but I want to go back to some of the opportunities you've had to hire talent across the footprint. What's the strategy? Where are you hiring? How big is this opportunity for you?

There was a period of time coming off of COVID that I think we were leading some of our peer set in terms of the numbers of people we were hiring. We had a great story to tell then. We still have that great story to tell today. But after a CapStar integration and a Bremer integration, it takes a lot of management time and distraction, having some natural succession that happens. I think we got a little bit less focused on that in the last year or so. So Tim's new energy and my continuous push towards talent. This is a talent business, as we said earlier, Talent will always win the day. So for us to go off and tell our story, that story is a bank that it's a growing bank. It's an entrepreneurial bank. We've got young leadership. We've got high performance to support you, a really consistent credit policy. All of those things, I think, are attractive in places where we're trying to hire out of the super regionals and the national banks who can bring a client set with them. Maybe it's a little bit more sophisticated client set on average for us to go off. We want to make sure we're there to support them. But the difference is that we're in this place that we're a little bit easier to do business with. We're a little bit more nimble. We're a lot more consistent, both in terms of leadership at the top, but also just our approach to being in certain assets or being in the pricing mechanisms right. We haven't had some of the issues that some of our peers have faced over the years. And so I think that's a really great story to go off and tell. Tim does an exceptional job telling it. John and I reinforce that. If we hire 50 new people this year, 40 of them will sit across from me before they come through those doors and we hire them. I am super involved in that process. I think that's a critical part. Not every CEO wants to take that kind of time to do that, but I think that hands-on approach makes sure 2 things: a, we make sure we get the right people in the door; and then b, they have the support from the top of the house all the way down. I think that's our value proposition for those individual relationship managers, but also their clients that they bring.

Okay. John is the CFO that has to say no on things. Talk a little bit about balancing all of this, remind us of your expense expectations, kind of where you're spending money, where you're funding places to save money?

Yes. So let me back up and just kind of say every year, when we walk into a cut of budget, positive operating leverage is sort of a guiding philosophical principle, right? And I think clearly, '26 versus '25 will put up a lot of positive operating leverage. We've got a great efficiency ratio. I think that we can self-fund a portion of what Jim and Tim are looking to do for sure, by -- we've got several higher ticket kind of retirement opportunities in front of us and then better management and accountability out of kind of folks that might be a little bit less productive or toward the end of their careers, right? And so I think we've got an opportunity to self-fund a portion of that growth. And then, look, frankly, the right -- particularly in commercial lending, the right RMs pay for themselves very, very quickly.

And as I told everybody, I hope I have to come to you, Jon, and you -- some of our investors in the back half of the year and say, "Hey, sorry, we missed some of our expense guidance because we're really successful in hiring people." That's a good story to tell. Everybody I've told that story to this. I absolutely will take that all day long, focused on organic growth. And that is the core strategy for us. And I think I will gladly make that ask if we get there.

Yes. Okay. Just last couple of things on expenses. Is AI scary? Is it an opportunity? I mean you play it forward and people think that it's a threat to like suburban office. But on the other hand, that would suggest greater operating efficiencies in the bank. How do you think about it broadly?

I think we're all trying to figure that out. The Board recently asked me, so how do you see AI affecting the bank in 2 to 3 years? And that's a really hard question to have an honest assessment over that. I think there are a lot of positive things that are going to come from that. There are probably some things that we're not going to like they're going to come out of that. It's really too hard to tell. I mean, like every other institution, we're deploying AI as fast as possible. And I think that -- I think we're trying to figure out how to exactly monetize that. How do we take those savings? If I can create 10% or 20% more savings out of your day, are you just a more productive, happy employee? Or is there a way for us to monetize that? I think we're still trying to figure out can we truly drive revenue off of AI investments. I do think -- John said this really well. As we think about the opportunities to be a bigger bank and being a bigger bank means we have more sophisticated risk management infrastructure, I think AI will lessen the cost for us. And whether that threshold is $100 billion or some other number north of that, nonetheless, we need to continue to make investments in ourselves and AI will help us do it faster and probably cheaper than maybe some of our peers had it when they had to cross some of those regulatory thresholds. So I think it is both an opportunity and a potential risk to our industry. It's hard to tell how they exactly weigh each other out. But I think I'm more bullish on the long-term opportunities for banks like Old National because I think it allows us to maybe win or at least get up to speed faster than some of our largest peers had to do in terms of the investments they had to make in technology.

Okay. You mentioned $100 billion. I was going to skip over it. But anything to note on that? I mean you're not close. It feels like it's going to get raised. But...

Yes, I think like everybody else, we're waiting to see. And I feel like that's coming relatively soon.

Yes. Okay. Okay. Credit, any updates on credit quality and how you're feeling about the portfolio?

No, we feel really good about credit. Look, as you know, we've moved $750 million of classified and criticized over the last 18 months. Charge-offs didn't really even blip at all. I think we know where our potential problems are. We don't feel like there's anything that's keeping us up at night.

Okay. Not a big deal for you, but give us an update on NDFI exposure and how you're thinking about it.

D minimis, less than 1%. The handful of credits that we do have been in the bank forever. They're all performing. Long-term relationships to a couple of equipment finance businesses. But yes, nothing to see here.

The interesting little thing is for our industry, that's been a catch-all bucket. And I think everybody has something different in that bucket than each other.

Yes. No, it's hard to categorize, I would say. M&A I know what the answer is in the near term, but you've obviously -- you kind of grew up in it throughout your career, and you've turned this into a pretty incredible company with a lot of momentum. But what's your thinking on M&A today? What's your kind of medium- to longer-term thinking on M&A for the company?

Yes. I think today, I've been very clear, the best investment we can make is in ourselves. I think we're trading at something less than 9x current earnings. And until that -- until -- I wouldn't even think about M&A until it's something well north of that. But the reality is we don't -- we use M&A to solve some challenges for us. We needed more diversity in our markets. We needed higher growth potential. We needed better scalability in the organization. And we've been able to achieve that. Again, I think if the Street is true, we're going to see high teens ROTCE, the sub-50% efficiency ratio. We're not trying to solve a succession problem. We're not trying to solve a growth problem. We're not trying to solve a balance sheet problem. So I think the good news is we don't have to do any M&A to continue to be successful. And quite frankly, I don't think a majority of our shareholders want us to do M&A in this environment, particularly given where we're trading at. So what we try to do, and I'm sure this is next on your list, but we tried to thread that needle between the capital return story and the M&A story. If M&A is not going to be a use of capital, how do we do that? And we can talk about that in a minute. I think long term, I mean, objectively, Old National, to your point, is a better, more profitable company because of M&A. Having said that, the boxes are really tight today. And I don't see it -- as the CEO, obviously, I try to have a relatively long horizon, but I don't see it in the near term. And quite frankly, I'm not seeing a lot of activity in our marketplace. I'm just not seeing a lot of things that are being -- I mean, I think there's things that have been for sale for a long time, and those continue to be for sale, but I'm not seeing a big wave coming, at least in the Greater Midwest today that even want to participate that we had. But again, we're not trying to solve any problems. And I think the organic growth story for Old National will provide the -- coupled with again, I'm sure you're going to get to this topic, the capital return story.

Let's talk about that. Obviously, you have increased authorization out there and you've moved the dividend. And what's -- philosophically, what are you thinking there? And how aggressive would you like to be?

Yes. So last year was a year of rebuilding our capital coming off the Bremer purchase accounting marks and things like that. And so this year, it's about organic growth. We were trying to thread the needle in terms of growing our capital back to levels that we were really comfortable with. And I think we've achieved those type of levels. And so John and I discussed about how do we make it crystal clear. We got some feedback from some investors about if you're growing your capital base, one could assume that maybe you want to use that for future M&A. And we were trying to suggest we didn't need to do that. So we obviously increased our authorization from $200 million to $400 million. One thing we're also able to accomplish is that Auto Bremer Trust is a large shareholder of ours. We're able to work with them. We have the right of first refusal and they do with us as well. But we did a small transaction on behalf of them to solidify the fact that they don't intend to sell big parts of their position with us. And so I think that was another part of the important story about a potential overhang from them. But we feel really good about our ability to both grow capital, albeit maybe it's slightly lower than we had been, but also return capital back much quicker pace than we had in the prior years and then use the rest for organic growth.

Yes. Okay. Okay. Anything else that comes up frequently in investor meetings that we haven't touched on? I think it's been pretty exhaustive, but anything else you want to comment is a very positive message, very optimistic message.

Yes, one thing we're super excited about is this stablecoins have been a big topic. Old National Bank with 4 other regional banks, super regional banks are participating. In fact, First Horizon, I'll mention them because they were just on stage ahead of us, is working on this thing called the carry network, which is going to be a tokenized deposit network as an opportunity to compete in the payment innovation space. We're super excited about the potential what that could bring to us. And just we want to -- I think it's great that a bank like Old National even at $70 billion can potentially compete in some of this really higher-end innovation.

Yes. You should pull it all together. That's good. Smart. Well, thank you for being here.

Great.

Great message. Appreciate you guys being at the end of the day and at the end of a very long day for you.

Thanks, John. Thanks to RBC, too.

Thank you.