Old National (NASDAQ:ONB) held its first-quarter earnings conference call on Wednesday. Below is the complete transcript from the call.
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Access the full call at https://events.q4inc.com/attendee/600426932
Summary
Old National reported first quarter 2026 earnings that exceeded both internal expectations and analyst estimates, showing strong loan growth and controlled expenses.
The company focused on organic growth and capital returns, repurchasing shares and investing in talent, with record commercial pipelines and a strong talent pipeline.
Financial highlights include a GAAP EPS of $0.59 and adjusted EPS of $0.61, with an 8% annualized loan growth and a CET1 ratio over 11%.
The company maintained a peer-leading adjusted efficiency ratio of 46% and sees the potential for stable to improving net interest income and margin over 2026.
Old National remains confident in its full-year guidance, expecting high-end loan growth, fee income performance, and continued operating leverage with focused investments in AI for efficiency.
Full Transcript
OPERATOR
Ladies and Gentlemen, welcome to the Old National Bancorp First Quarter Earnings Conference Call. This call is being recorded and has been made accessible to the public in accordance with the SEC’s Regulation FD corresponding presentation slides can be found on the Investor relations page at oldnational.com and will be archived there for 12 months. Management would like to remind everyone that certain statements on today’s call may be forward looking in nature and are subject to certain risks or uncertainties and other factors that could cause actual results or outcomes to differ from those discussed. The Company refers you to its forward looking statement legend in the earnings release and presentation slides. The Company’s risk factors are fully disclosed and discussed within its SEC filings. In addition, certain slides containing non-GAAP measures which management believes provide more appropriate comparisons. These non-GAAP measures are intended to assist investors understanding of performance trends. Reconciliations for these numbers are contained within the appendix of the presentation. I’d now like to turn the call over to Old National’s chairman and CEO Jim Ryan for opening remarks.
Jim Ryan (Chairman and CEO)
Mr. Ryan, good morning. Earlier today Old National reported first quarter 2026 earnings that exceeded our internal expectations and analyst estimates. We carried strong momentum into the year and our performance in the first quarter reinforces our confidence in the full year plan. This quarter demonstrates disciplined execution as we have reliably delivered quarter after quarter. We delivered robust loan growth powered by continued strength in our core deposit franchise and disciplined funding management in a highly competitive market. We controlled expenses and generated strong fee income which helped offset net interest income pressure from typical seasonality and the recent sub debt issuance. Credit performance remains solid supported by healthy liquidity and capital levels. We also acted decisively on capital returns, repurchasing shares during the quarter, including reducing Otto Bremer’s trust position in Old National and we intend to deploy the remaining authorization over the course of the program. Bottom line, we are executing and we expect to keep building from here. Our priorities remain clear, Drive organic growth and return capital shareholders. Organic growth starts with talent and we are investing accordingly. We recently announced a strengthened commercial leadership team, promoting proven internal leaders and adding experienced bankers from several super regional institutions. Our team is focused every day on winning new clients and deepening existing relationships and building the next generation of bankers. Our commercial pipelines are at record levels and our talent pipeline is as strong as it has ever been. We are also accelerating efficiency and scalability through technology and AI investments, supporting positive operating leverage. As a result, we delivered a record adjusted efficiency ratio that remains in the top decile of our industry on the operating environment. The quarter brought higher for longer rate outlook and continued industry uncertainty. Old National is built for this backdrop. Our balance sheet remains neutral to the short end of the curve. Our granular low cost deposit base helps contain funding costs and our strong underwriting and straightforward community banking model positions us to perform through volatility. Importantly, nothing we are seeing changes. Our outlook loan pipelines are at record levels, momentum is building and we remain confident in our full year expectations to close. We’re off to a great start in 2026 and we’re executing against our commitments. Our focus remains on organic growth and disciplined capital return. This is not a time where we need acquisitions to achieve our objectives. I want to thank our team for delivering a strong quarter and for staying relentlessly focused on our clients. With that, I’ll turn the call over to John to walk through the quarter’s financial results in more detail.
John
Thanks. As Jim mentioned and as summarized on slide 4, we delivered another strong quarter and a solid start to the year reflecting continued momentum in organic growth, disciplined expense management, stable credit performance and increased capital return with robust capital levels. Beginning on slide 5, we reported GAAPfirst quarter earnings per share of $0.59 excluding $0.02 of merger related expenses and a non cash expense associated with the final distribution of a legacy First Midwest pension plan. Adjusted earnings per share were $0.61. Results were driven by better than expected loan growth and fee income along with well controlled expenses. Credit remained stable with less than 20 basis points of non pcd charge offs. Our profitability profile as measured by return on assets and on tangible common equity remained top decile versus our peers. Capital finished the quarter with CET1 over 11% and we grew tangible book value per share, 6% annualized and 11% year over year despite absorbing the majority of Bremer one time charges better than expected balance sheet growth and returning capital to shareholders in dividends and share repurchases. Specifically, during the first quarter we returned $151 million to shareholders. On slide 6 you can see our quarterly balance sheet trends underscoring strength in our liquidity and capital positions. Our loan to deposit ratio remained 89% and the CET1 ratio is comfortably north of 11%. Again, we compounded tangible book value per share year over year. Despite the impact of the Bremer close merger charges over the past year and the increased pace of capital return. We repurchased 3.9 million shares during the current quarter and 6.1 million shares over the last year with dividends and repurchases. Our combined Payout ratio was 64% of first quarter adjusted net income to Common as we’ve stated in the last several quarters, the best investment we can make today is ourselves. On slide 7 we show trends in earning assets. Total loans grew 8% annualized from the last quarter, led by 16.9%. Annualized growth in C&I production was diversified across our commercial book and the next few quarters should be supported by record high pipelines of five and a half billion dollars, up nearly 14% from year end levels. The investment portfolio was essentially unchanged from the prior quarter, with portfolio purchases offset by changes in fair values. We expect approximately $2.4 billion in cash flow over the next 12 months. Today, new money yields are running about 83 basis points above back book yields on securities. Strong loan growth, ongoing repricing across both loans and securities, and continued deposit pricing discipline support stable to improving net interest income and net interest margin over the course of 2026. I would point out that the first quarter was impacted by two fewer days, our sub debt issuance in late January and the spread dynamics inherent in this quarter’s loan production, which was skewed decidedly toward near investment grade floating rate C and I Moving to Slide 8 we show trends in deposits. Total deposits increased 4.2% annualized, primarily driven by commercial and retail growth and partially offset by seasonally lower public funds balances. As a reminder, first quarter is the low point for our public funds deposits, with those balances typically rebuilding over the second and third quarters. Non interest bearing deposits declined slightly to 23% of total deposits from 24% in the prior quarter, partly reflecting the seasonal factors I just mentioned. Despite remaining on offense with respect to client acquisition in a competitive deposit environment, we were able to decrease total deposit costs by 8 basis points and lowered interest bearing deposits and even better, 14 basis points. Linked Quarter we achieved an approximate 93% beta in our exception price book in conjunction with the Fed cuts in the fourth quarter. These actions resulted in a spot rate of 170 basis points on total deposits at March 31. Overall, our deposit strategy performed as we expected and we successfully achieved the down rate beta that we had targeted for this rate cycle. Slide 9 shows our quarterly income statement trends. As I mentioned earlier, adjusted earnings per share were $0.61 for the quarter and our profitability remains peer leading. Moving to slide 10, we present details of our net interest income and margin, both of which reflect my prior comments around day count, the nature of this quarter’s loan production and the impact of our sub debt issuance. You’ll note that we remain neutral to short term interest rates and we have a total of nearly $8 billion in fixed rate loans and securities expected to reprice over the next 12 months. Slide 11 shows trends in adjusted non interest income which was $122 million for the quarter exceeding our guidance. While most of our fee businesses performed in line with our expectations, we again saw better than expected performance within mortgage despite typical seasonal patterns in that business and within capital markets. In both cases this was driven by the mid quarter dip in rates continuing to slide. 12. Adjusted non interest expense was $354 million for the quarter. Run rate expenses remain well controlled and we generated positive operating leverage both quarter over quarter and year. Over year we reported a record low 46% adjusted efficiency ratio and we have now realized 100% of the $111 million of annual run rate cost saves that were anticipated with Bremer. On slide 13 we present our credit trends. Total net charge offs were 26 basis points or 19 basis points excluding charge offs on PCD loans. Criticized and classified loans increased $113 million this quarter as Bremer loans transitioned to Old National’s asset quality framework. Consistent with our due diligence expectations. Legacy Old national upgrades partly offset this increase. Non accrual loans to total loans decreased modestly the fourth consecutive quarter of improving performance trends due to active portfolio management. The first quarter allowance for credit losses to total loans including the reserve for unfunded commitments was 122 basis points, down 2 basis points from the prior quarter, primarily driven by charge offs on PCD loans and loan growth in lower risk portfolios. Consistent with the fourth quarter. Our qualitative reserves incorporate a 100% weighting on the Moody’s S2 scenario with additional qualitative factors to capture global economic uncertainty. Lastly, given the continued focus on loans to non depository financial institutions, we’d again like to emphasize that our exposure is de minimis. All said NDFIs are approximately 1% of total loans. All are performing and like other businesses that we bank, most are long standing client relationships. Slide 14 presents key credit metrics relative to peers. As discussed in past calls, we’ve historically experienced a lower conversion rate of non-performing loans to net charge-offs as compared to our peers driven by our approach to credit and client collection. That continues to be the case and we remain comfortable around the credit outlook. On slide 15 you can see our capital position at the end of the quarter. Regulatory ratios in tangible common equity were stable linked quarter as strong retained earnings were offset by the robust quarterly loan growth Share repurchases and merger related charges. Still, tangible book value per share was up 6% linked quarter annualized and 11% year over year. Our peer leading profitability profile continues to generate significant capital which opened the door for capital return late last year. As previously mentioned, we repurchased 3.9 million shares of common stock during the first quarter and have $383 million remaining under our program. Lastly, of note, while not yet finalized, we would clearly expect a capital benefit under the proposed capital rule changes. This would mainly come from reductions in RWA treatment within our mortgage book and changes to the treatment of unfunded commitments over one year. Obviously, these changes, if finalized, could present meaningful capital optionality. In any case, we feel confident in our plans to continue to execute on our buyback plan which runs through the end of February. Slide 16 includes our outlook for the full year 2026 which is unchanged from our prior guidance. We believe our current pipeline supports full year loan growth of 4 to 6% and based on the results of the first quarter we suspect we may trend to the higher end of this range. We anticipate continued success in the execution of our deposit strategy and expect to meet or exceed industry growth in 2026 generally in line with our asset growth. Our NII guidance remains unchanged and our balance sheet remains neutrally positioned to short term interest rates. Obviously, the exact path of NIM and NII in 2026 will depend on growth dynamics, the shape of the yield curve, the absolute level …
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