Old National Bancorp(US:ONB)2021-07-20 15:25Financial Data and Key Metrics Changes - Adjusted earnings per share were $0.41, while GAAP earnings per share were $0.38, reflecting specific merger charges and debt securities gains [9][3] - Adjusted return on average tangible common equity was 14.6%, and the adjusted efficiency ratio was just under 58% [3] - Net interest income increased by $1.8 million quarter-over-quarter, primarily due to strong commercial loan growth [11] - Net interest margin climbed three basis points to 2.91% from the prior quarter [11] Business Line Data and Key Metrics Changes - Commercial loans, excluding PPP loans, grew by 11% during the quarter, with commercial production of $1.1 billion being the second highest on record [3][9] - Adjusted non-interest income was $51 million in Q2, a decrease of $4 million from Q1, primarily due to lower mortgage banking revenue [12] - Non-interest expense was $121 million, consistent with expectations and Q1 guidance [13] Market Data and Key Metrics Changes - Average deposits increased by 11%, while the growth in period-end balances moderated [11] - The investment portfolio increased slightly as deposit growth outpaced total loan growth [10] Company Strategy and Development Direction - The company is focused on integrating with First Midwest Bank, emphasizing cultural alignment and strategic fit [7] - Management is optimistic about loan growth, supported by a healthy $2.6 billion commercial pipeline [19] - The company plans to continue investing in talent, particularly in wealth and commercial sectors, which may slightly increase expenses in the latter half of the year [5][21] Management's Comments on Operating Environment and Future Outlook - Management noted that credit quality metrics remain benign, with total 30-day delinquencies falling to nine basis points [15] - The company expects continued pressure on net interest income due to the low interest rate environment, but this may be mitigated by earning asset growth [19] - Management remains cautious about the economic outlook, maintaining larger than normal qualitative reserves until more clarity is achieved [18] Other Important Information - The company has reduced reserves due to improved economic forecasts and stimulus programs, but still holds approximately 30% of reserves supported by qualitative adjustments [4][18] - The merger integration efforts are underway, with over 350 team members involved [7] Q&A Session Summary Question: Loan growth sustainability - Management attributes consistent loan growth to strong relationship banking and being proactive in client engagement during the pandemic [25][26] Question: Managing balance sheet growth vs. net interest margin - The company maintains strict risk-adjusted return hurdles for loans and continues to see strong spreads despite the low rate environment [28] Question: Competitive dynamics in commercial lending - Management acknowledges increased competition but remains disciplined in credit structure, with a robust pipeline for the second half of the year [36] Question: Impact of regulatory changes on merger approval - No changes or additional feedback from regulators have been noted, and the company continues to proceed with the merger [38] Question: Bond portfolio growth and reinvestment rates - The company plans to grow the investment portfolio as excess liquidity allows, with new business rates slightly down from previous averages [44] Question: Changes in commercial real estate outlook - Management believes the impact of the pandemic on commercial real estate will take time to fully materialize as leases expire [60] Question: Credit quality discussions with First Midwest - The transition between the two banks is expected to be smooth due to similar approaches to loan risk [65] Question: IT spending strategies post-merger - No material changes in IT spending are anticipated, with continued investment in technology deemed necessary for the combined organization [66]