Welcome to the Old National Bancorp Fourth Quarter and Full Year 2020 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 as noted on Slide 2, 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 to differ from those discussed. 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 provides more appropriate comparisons. These non-GAAP measures are intended to assist investors' understanding of performance trends. Reconciliation of these numbers are contained within the appendix of the presentation. I would now like to turn the call over to Jim Ryan for opening remarks. Mr. Ryan?

Good morning and Happy New Year. I hope this call finds all of you and your families safe and healthy. We are really pleased with our fourth quarter and full year 2020 results. Despite all the challenges that came our way this last year, we stayed focused on the health and safety of our team members, we successfully executed the ONB Way transformation, and we remained dedicated to serving our clients and communities. We also continued to invest in new talent and further strengthened our client experiences and technology. I am pleased to say that we’ve delivered on the run rate savings we promised from the ONB Way. As a result of the ONB Way, FTEs and branches are lower by 16% each, and we were able to reduce other overhead costs. We were also able to achieve better than trend line growth from our commercial segment in 2020, and we plan to execute additional ideas in 2021 to drive higher revenue. Starting on Slide 3, our 2020 highlights included earnings per share of $1.36. When adjusted for the ONB Way charges, earnings per share were $1.50. Adjusted return on average tangible common equity was 14.6%. Adjusted operating leverage improved by 460 basis points, and our adjusted efficiency ratio was 55.6%. We also set several new records during 2020, including record commercial loan production, record mortgage production, record capital markets revenue, and obviously we had strong efficiency in core deposit growth. Next on Slide 4, our fourth quarter earnings per share was $0.44 per share. Adjusted EPS was $0.46. I was particularly pleased with our quarterly loan production of $1.2 billion. End of period commercial loans, excluding PPP loans, increased 22% on an annualized basis. The loan growth was split equally between C&I and CRE. Growing our loan portfolio and improving our earning asset mix will help us preserve net interest income. End of period core deposits increased by 11% driven by checking and savings account growth. We did have a small net recovery this quarter, but maintained the overall reserve. We continued to use qualitative factors to offset improvements in the economic data, believing that there's still a fair amount of uncertainty with the economy and the pandemic. Net interest income, excluding PPP, increased because of the loan growth and better mix. Non-interest income was down slightly due to seasonal declines in mortgage but held up better than previous fourth quarters. Most of our reported credit quality metrics were relatively benign during the quarter, but as we have previously stated, we expect that credit metrics could worsen and losses will ultimately materialize after any stimulus and deferral programs run their course. We continue to proactively downgrade some of the most pandemic-exposed loans into the watch asset quality ratings and are still meeting weekly to review credit quality loan by loan. We continue to believe that our historically strong and consistent underwriting practices, our diverse and granular loan portfolios and our Midwest footprint should help us weather the impact better than most. I'm really excited about the team members we’ve hired during 2020. We continue to have a good pipeline of opportunities too. We have a great story to tell and we have strong interest from people wanting to join our team. We have hired and expect to hire more in wealth management, private banking, commercial treasury management, and key support team members. As we disclosed last quarter, these hires will cost us approximately $5 million year-over-year, but should drive higher revenue from these growth initiatives. A quick thought about capital. We plan to maintain our buyback authorization throughout the year. We will balance the benefits of buybacks versus M&A opportunities. I suspect there will be M&A opportunities that will present themselves during the year. We are getting more comfortable that we could put a credit mark on somebody else's loan portfolio, but we will continue to be an active looker and a selective buyer. With those remarks, I will now turn the call over to Brendon.

Thank you, Jim. Turning to the quarter on Slide 5, our GAAP earnings per share was $0.44 and our adjusted earnings per share was $0.46. Adjusted earnings excludes $3.6 million in ONB Way related charges. Moving to Slide 6, we are pleased with our full year adjusted pre-tax, pre provision net revenue, which was 10% higher year-over-year. And despite the challenging 2020 operating environment, we generated 460 basis points of positive operating leverage. Slide 7 shows a trend in outstanding loans and earning asset mix. End of period loans decreased slightly quarter-over-quarter driven by payoff of $536 million in PPP loans. Excluding the impact of PPP, end of period commercial loans increased $473 million driven by record commercial production of $1.2 billion. The strong commercial growth this quarter was aided by higher than average pull through rates and funding levels. We're also pleased with our loan growth mix this quarter, which is well balanced between C&I and CRE. Production yields were slightly lower quarter-over-quarter, which was the result of a few larger high credit quality clients with relatively low coupons with strong risk adjusted returns. The $2.1 billion quarter-end pipeline reflects typical seasonal declines, as well as the unusually high pull-through rates of our record third quarter pipeline. We believe the current pipeline with over $560 million in the accepted category should lead to another good quarter of production. The investment portfolio also increased in the quarter as deposit growth outpaced loan growth. We are taking a disciplined approach to putting excess liquidity to work, including adding some protection if rates were to rise. Lower rates on new purchases continue to impact our total portfolio yield, which is down 14 basis points to 2.31%. Moving to slide 8, period-end and average deposits increased during the quarter by 9% and 13% respectively. Growth was largely concentrated on our existing personal checking accounts, but we were also continuing to win new deposit relationships in the business and public segments that added meaningfully to this quarter's growth. Turning to pricing, our total cost of deposits declined from 13 basis points in the fourth quarter to 9 basis points in Q4. Both time deposits and borrowing costs were meaningfully lower in the quarter and will continue to fall but at a moderate pace. Overall, we are pleased with our deposit repricing efforts that have resulted in a significant reduction in deposit costs while maintaining our core client base. Next, on Slide 9, you will see details of our net interest income and margin. Net interest income increased $16 million quarter-over-quarter, largely due to an increase of $14 million in PPP-related interest and fees from the forgiveness of approximately $500 million in loans. Excluding the impact of PPP, net interest income increased $2 million quarter-over-quarter due to strong commercial loan growth and active management of our funding costs. The net interest margin also benefited from PPP fees, adding an additional 31 basis points over the prior quarter. Core margin excluding accretion and PPP was 2.88% in the fourth quarter compared to 2.96% in Q3. This eight basis point decline was in line with our expectations, and was partly the result of the lower new business rates I referenced earlier. However, we also experienced a significant uptick in liquidity, and that while neutral in interest income has put additional pressure on net interest margin. Future PPP payoffs coupled with stable deposit balances could amplify this impact in 2021. Like these pressures on margin, we expect earning asset growth to help stabilize and interest income. Slide 10 shows trends in adjusted non-interest income. Adjusted non-interest income of $58 million in the fourth quarter was slightly lower than the $60 million we recorded in Q3. The $2 million decline was primarily driven by seasonal factors in our mortgage business. Despite the slight decline, mortgage revenues outperformed our expectations with a record fourth quarter production of $531 million and a record year-end pipeline of $361 million that is more than double the year-end 2019 level. Our capital markets also had another strong quarter posting $7 million in revenues, a $2 million increase over the prior quarter. Next slide 11 shows a trend in adjusted non-interest expenses. Adjusting for ONB Way related charges and tax credit amortization, non-interest expense was $129 million. The increase in expenses was largely driven by incentive approvals that reflect the outstanding 2020 financial performance. Also impacting this quarter’s expenses were the timing of miscellaneous professional fees and community investments. Several smaller items make up the remainder of the quarter-over-quarter variance and are not expected to return. Given the number of moving parts this quarter, we thought it would be helpful to provide additional details on our Q1 expense expectations. Reductions in incentives and other expenses, along with the typical adjustments for seasonal payroll taxes should result in non-interest expense of approximately $118 million in the first quarter. Merit increases will go into effect in April and will not impact expenses until Q2. We also want to provide a brief recap on the top safe we outlined as part of our ONB Way strategic plan. We've delivered on the $36 million in annualized expense savings we promised in 2020, including $26 million in personnel costs, and $6 million in branch/facilities expenses. We're also beginning to see the results of our revenue initiatives, particularly in the recent above trend growth and commercial loans in capital markets revenues. Additional revenue initiatives in our wealth and treasury management segments are well underway, and we look forward to discussing the results of these projects as they progress. As I wrap up my comments here are some key takeaways. We are very pleased with the results of the quarter and the full year. Record commercial loan production led to significant earning asset growth. Our mortgage and capital markets businesses finished their record-breaking years with a strong fourth quarter and we delivered on the promise, ONB Way expense savings. With that, I will turn it over to Daryl to discuss credit.

Thank you, Brendon. The first update I want to share this morning is likely our final one regarding the initial phase of our client relief programs as they are winding down. We previously reported that we granted some form of deferral on just under $1.3 billion in loans, which was about 10% of our portfolio. By the end of the most recent quarter, the amount of loans still in deferral had fallen to $64 million, representing around half a percent of the total portfolio. Although we continue to receive deferral requests from consumers, we do not consider them to be excessive in the current environment. Requests from commercial borrowers have significantly decreased, especially following the announcement of the new stimulus aid package. We successfully secured round one PPP funds for our clients, originating nearly 10,000 loans totaling over $1.5 billion. By year-end, we had approximately 6,100 PPP loans with a balance of $960 million still on our books from the first round of the program. As of late last week, we submitted over 5,800 PPP loans for forgiveness, amounting to just over a billion dollars in total balances. Out of those submissions, around 5,300, totaling $636 million, have been approved and paid by the SBA. Among the 5,800 forgiveness submissions, 73 were loans exceeding $2 million, and we only originated 116 of these higher dollar loans. It is encouraging to note that we received our first approval for forgiveness for this specific group of loans last week. The remaining fees on PPP loans not yet recognized in income were $17 million. The trends in major credit quality indicators are outlined on slide 13. Delinquencies fell to 15 basis points of the total portfolio this quarter. We noted increases in both our commercial and industrial and residential mortgage portfolios, while we continue to observe a rising trend in delinquencies within our indirect auto portfolio. Regarding charge-offs, we achieved a net recovery of three basis points this quarter, leading to a total charge-off rate of two basis points for the entire year 2020. Non-performing loans increased as expected this quarter, primarily due to downgraded relationships that exhibited weaknesses before the pandemic. In simpler terms, aside from loans that were already showing weaknesses prior to the pandemic and our relatively small exposure to hotels, we have not seen significant movement of other credit relationships into the non-performing category. The first round of stimulus payments certainly contributed positively, and we expect the second round will also provide support. I want to emphasize that we are observing the migration of credits that were not in a significantly weakened state at the beginning of the year into special mention and substandard categories due to the current economic challenges. Consequently, we believe the rate at which credits flow into the non-performing category will largely depend on the U.S.'s ability to efficiently roll out vaccinations and the timeline for consumers to return to their pre-pandemic spending behaviors. Clearly, the longer it takes to reach a pre-pandemic state, the more financial difficulties our borrowers may encounter. We think that in the near term, an ongoing increase in risk assets is indeed a possibility. Slide 14 highlights the industries we believe warrant closer attention in the current economic climate. Our exposure to these sectors has not changed significantly and remains around 7% of total loans. As we mentioned last quarter, while we recognize that these industries may be disproportionately affected right now, we are still willing to originate new credits in these categories for the right borrowers and suitable purposes. The chart on slide 14 shows the breakdown of our consumer portfolio alongside the average FICO scores. There has been little change in this portfolio since our last update. We continue to monitor our consumer portfolio closely and will persist in our efforts to assist borrowers who have lost their jobs during the pandemic. We believe that the new round of financial stimulus will support us in this effort. As a closing note, I think it’s fair to acknowledge that the results we have reported in recent quarters are not as dire as we had initially feared back in March. We had expected a more significant rise in loans moving to the non-performing category. The combination of government stimulus programs, cost-cutting measures by our borrowers, and innovative adjustments by many clients have been instrumental in preventing more borrowers from defaulting. While the pandemic's impacts are extending longer than any of us anticipated, we are hopeful that the second round of stimulus will provide crucial support to our borrowers until the pandemic concludes. The timing and manifestation of losses in 2021 remain very uncertain. We anticipate higher loss rates in 2021, but the extent of those increases will depend largely on how swiftly we can achieve economic recovery.

Thank you, Daryl. On slide 15, you will see the details of our fourth quarter allowance of $131 million, which was unchanged from Q3. The improving economic forecasts derived from Moody's baseline led to a $19 million decrease in reserve needs. We added a similar offsetting amount for qualitative reserves that reflects the ongoing uncertainty of the economy and the charge-off timing. Although the economic outlook continues to improve, we believe it's prudent to maintain a reserve level until we have more clarity on the path of the virus, vaccination rollout and the efficacy of the latest stimulus package. Excluding PPP balances, our allowance of loan ratio was 102 basis points, and is an appropriately conservative estimate of the credit risk in our portfolio today. I would also like to remind you that we continue to carry $51 million in unamortized marks from our required portfolios. While these marks will not directly offset charge-offs, any remaining mark will accrete through margin upon resolution. Slide 16 includes thoughts on our outlook for 2021. We ended the quarter with a healthy albeit seasonally lower $2 billion commercial pipeline, which includes $560 million in the accepted category. Expected core earning asset growth and reduced funding costs should lead to stable net interest income and net interest margin could come under pressure from additional excess liquidity. The PPP loan forgiveness process continues to go well, and we expect run-off and the recognition of the related $17 million and unamortized fees will be concentrated in the first half of 2021. We expect our fee businesses to continue to perform well. We are encouraged by the great momentum in mortgage evidenced by the strong year-end pipeline, but performance will still be subject to industry trends. The strong commercial activity and rate environment should help maintain a high level of performance in our capital markets business. Department service charges continued to lag historical levels, and the promise of additional stimulus could further delay the return of this revenue. Other fee lines are expected to be stable in the near term as our revenue initiatives and wealth and treasury management take shape later in the year. We provided guidance on Q1 expenses of $118 million, which includes the investments in talent we discussed last quarter as well as some additional marketing and technology spend. Lastly, a brief update on taxes. As we previously reported, a couple of large historic tax credit projects were placed in service in Q4. These projects accounted for most of the increase in tax credit amortization in the quarter, with a net income benefit of approximately $1 million. Regarding 2021, we expect a reduction in the volatility caused by our tax credits as we've worked through the last of the remaining one year historical tax credit commitments. In total, we are expecting approximately $5 million in tax credit amortization for the year with a corresponding full year effective tax rate of approximately 20%. With that, we are happy to answer any questions that you may have. We do have a full team here, including Jim Sandgren.

The first question comes from Ben Gerlinger with Hovde Group.

Hey good morning guys.

Good morning, Ben, how are you?

I am doing well. You guys seem to have a pretty solid 2020, so congratulations on that. I was wondering if you could take a step back and look at a little bit of a bigger picture on the ONB Way. 2020 was largely focused on expense management, and you did a lot of heavy lifting throughout the year, and then 2021 was kind of scheduled to have a lot more of that revenue growth. Granted when you guys released the plan, a lot of events have taken place since then around the world. So, I was wondering if you could just talk around potential timing of when things could come to fruition in terms of revenue and any opportunities that you might see now that there has been some disruption in the market that you currently have your footprint in?

I think those are all good observations, Ben, and many of the commercial treasury wealth management initiatives are just kind of full steam ahead. It's really about putting the right talent in place to go out and execute those. There are some technology improvements in particularly our treasury management business that we'll continue to work on throughout the year. And we knew it was going to take a better part of 2021 to really implement those initiatives, get those people on board hired and trained up, and there are some initiatives around small business and some consumer initiatives that quite frankly, we're not quite ready to put in place, but we continue to build the technology to support those initiatives, so those are a little bit longer runway than we anticipated. If we had a more normal economy, we would have anticipated executing those this year. But having said that, big bulk of the treasury managed commercial wealth is just on pace and scheduled to happen throughout 2021.

Okay, great. That's helpful. My other question is related to capital usage. I know your stock is up about 45% since the lows around September and October. In your prepared remarks, you mentioned that mergers and acquisitions present more opportunities now, especially with a stronger currency. I was wondering if you have any thoughts on future acquisitions. Your last three acquisitions were around $2 billion each, and they have been focused on regions like Wisconsin and Minnesota. Are there other areas or different sizes you're considering? Lastly, could you discuss the loan portfolio of the acquired bank? Are there specific concentrations you're looking to strengthen, or is it more agnostic to their existing loan portfolio?

I believe we are still drawn to banks that share a similar business mix and model as ours. We remain very comfortable in the Midwest. Regarding size, those Plan A opportunities continue to make up about 10% to 20% of assets. However, as we've consistently stated, we are open to exploring other options if they provide the right balance between enhancing shareholder value and further strengthening our company. It's important to note that we are not currently reviewing a book or preparing to announce any transaction soon. It was quite difficult to envision assigning a credit mark to someone else's balance sheet during the middle of last year. We are becoming more comfortable with defining the potential losses and believe we are closing the gap between the bid and ask prices compared to six months ago. We anticipate that opportunities will emerge throughout the year, and we will be ready to capitalize on those opportunities, continuing to pursue deals that are beneficial for our shareholders and that contribute to further strengthening our company.

Got you. Thanks. That's all for me. I appreciate the time. And then congrats on a solid quarter and year.

Thanks, Ben. Appreciate it.

The next question will come from line of Scott Siefers with Piper Sandler.

Mr. Siefers, you were a little short this morning here. You got beat out.

Jim, I don't know what happened. I mean, if you're asking me do I feel humiliated because I'm getting old.

No. But you know Ben is a little bit younger. And you know he just had the edge on you this morning.

He's entering a new phase. I’ve reached my peak. It's a tough realization for me, but I’ll aim to improve next quarter. I appreciate you taking my question. I wanted to get your thoughts on loan growth. If we exclude the PPP, it's incredibly strong compared to the HA data and what competitors are showing. Jim, I’m curious about your perspective on how much of this growth comes from your customers and organic demand versus market share opportunities, and where you're seeing the most growth geographically.

I'll share my thoughts briefly and then Jim can elaborate. Much of the growth we experienced in the fourth quarter stems from the hard work we put in during the middle of the year. As Daryl mentioned, and Jim will echo, we concentrated on client outreach. This summer, Jim and I participated in numerous client meetings, securing opportunities that were previously held by larger firms, partly due to policy changes that affected some of their major clients. We capitalized on these chances, engaging both long-term and new clients. It was a combination of existing opportunities and new ones. Jim can provide more details, but we were really pleased with our focus on our clients throughout the year. Thanks to our historically strong underwriting practices, we weren't overly concerned about potential issues and could maintain our concentration on effective underwriting.

Yes, I think that's well said. I think the commitment through the ONB Way to commit to segments and to really align our skill sets with what our customers need certainly helped out as well. Really, from a production standpoint, geographically, Minnesota again, led the way. We're really pleased with the continued efforts of our Minnesota RM demand continue to see strong growth from Louisville and Indianapolis among others. So again, a lot of the growth was throughout the footprint, but kind of concentrated in those two areas. And while the pipeline's down a little bit seasonally, and obviously huge production in the fourth quarter feel good about. First quarter, I think our accepted categories, about $200 million higher than it was at this time last year. Plus we do have a number of commercial construction advances over 800 million that are still left to be advanced off. So I feel like we have some tailwind but certainly our RMs are committed to grow in that pipeline, as we typically do at this time. So optimistic.

Perfect. Okay, good. Thank you for that color. And then separately, I know, we're still very early in this new round of PPP program. But just curious, what kind of demand are you guys seeing for it? What role do you expect you guys will play, etcetera? Just I guess any top-level thoughts that just be curious?

Yes, Scott. Right now, we're really seeing some nice demand. So we did a soft opening with our portal on Friday. Already, we've seen over 600 applications average loan size about $150,000. Our RMs are doing a lot of very proactive outreach to our round one clients that took advantage. We're also doing a lot of focus on minority-owned, women-owned businesses, nonprofits. So we anticipate a lot of demand, obviously, a smaller pool, and we have to show that 25% reduction in revenues, quarter 2020 over 2019. That being said, I think we're going to see a lot of opportunities not only to help our customers, but to bring in some new clients to the bank. So far, pretty good start.

Yes. It's got to be not on average. We expect the loan balances to be relatively small. I mean, it is kept at $3 million. And so the total impact of our organization will be much smaller than the initial round. But as Jim said, in terms of shared numbers of loans, I think there'll be a fair amount of numbers of loans, but the dollar size of those loans will be relatively small, and the overall income impact will be much, much smaller in 2021 than it was in 2020.

Yes. All right. Perfect. Thank you guys very much. Appreciate it.

Thanks, Scott. Better luck next time.

The next question comes from the line of Chris McGratty with KBW.

Good morning, Chris.

Good morning, everybody. Brendon, I have a clarifying question about the net interest income guide. Can you tell me if that excludes both accretion and the PPP impact, or is it one or the other?

Yes. Chris, if you're referencing the 2.88% that I talked about in my opening comments. Yes, that excludes both PPP related interest and fees and accretion.

Okay. And so, the outlook comment that suggested a little bit of pressure on margins, but stable net interest income. Is that kind of the core, core excluding both accretion and PPP?

Absolutely.

And on that, you've got a really low loan to deposit ratio. And you've had a lot of success with deposit growth. How do I think about the borrowings that are on your balance sheet? The need to keep them on the balance sheet this year, in kind of balancing the loan to deposit against the loan growth outlook?

Yes, Chris, great question. We are looking for opportunities to continue to optimize the funding side of our balance sheet. There are some levers we can pull. But I would not expect that number to change materially over the next several quarters.

Okay. Jim, regarding your question about M&A, you mentioned that plan A is 10 to 20. In the past, you've indicated a willingness to pursue a transformational deal or have been more open to it. Is that something the board would consider?

Look, we have to do our fiduciary job. If it makes sense for the shareholders, and we think we can create long term value out of it, we will absolutely consider it. We need to be open to those things. But we know how difficult they are. And they're going to have a higher bar for us given the execution risk around that. But the board and management would have to consider if it was the right thing to do.

Okay, great. And then, just a couple housekeeping. Could you just provide the remaining one-timers related to the ONB Way, if there are any? And then the $17 million of PPP fees? Is that just the fees? And then we should add on the 1% coupon? Or is that all in?

Yes, the $17 million in PPP fees only represents the fees and does not account for the interest impacts for the remaining amounts in Q1 and Q2. As for ONB Way, we are nearly finished with most of the work. There may be some minimal amounts appearing in Q1 and Q2, but they are expected to be relatively small at this point.

Okay. Awesome. Thank you.

Thanks Chris.

The next question will come from Terry McEvoy with Stephen.

Good morning, Terry.

Good morning, everyone. I'm used to coming after Scott. So nothing new on my end this morning. But thanks for taking my questions. First of all, I just want to make sure I understand the expense commentary. I mean, pretty straightforward, the $118 million for the first quarter. So I guess my question is, how much of that $5 million year-over-year increase from the new hires is in that 118? And if it's not all in there, how should we think about growing that number? And then, same question for kind of the annual merit increase in the second quarter. I think last call, you may be quantified that. If you could just remind me, the best way to think about that starting in 2Q? Thanks.

Yes. We talked about $5 million impact for all the investments. And so, about a quarter of that is represented in your Q1 number. So the remainder of that will happen over the course of the year. And in terms of merit, it's about $1.2 million, $1.5 million per quarter beginning in Q2.

And then just my follow up here, if I look at the reserve ratio, at the end of the first quarter it was called 86 basis points now, over 1%, ex PPP loans. Once you have a little bit more clarity and certainty about the economic outlook and just feel more comfortable there, do you think that ratio goes back to where it was? You call it day one, or it was after the first quarter ended?

Yes. Terry, I don't think it goes back to day one. I think the economic outlook that we'll experience at the end of this crisis will probably not be as rosy as it was back in January 1st when we put it together. So my guess is we ended at a level higher than day one, but probably not meaningfully lower than we are today.

And then, just one last question. I know this came up earlier. Given the acquisition that is occurring in some of your core markets, and in some of the cost savings numbers that have publicly been talked about. Would you be interested maybe at the end of this year, and really ramping up some of your hiring, maybe in excess of what you were thinking about before that news happened? And if so, maybe what markets do you think present the best opportunity for that? Thank you.

Yes. We will continue to be an opportunistic place to hire folks for. And we have feelers out in all of our markets trying to look for the best possible talent. There's still a fair amount of disruption from the largest banks in our footprint. And sometimes it's difficult to serve your clients and some of those organizations. And so we'll continue to look for that. And so while we know we've kind of quantified this initial round of hire, really supporting the ONB Way initiatives, we really continue to be an optimistic hire. And I don't expect that those hiring would have a material impact on our overall expense numbers. So we'll continue to look for those great opportunities. Minnesota continues to represent great opportunities for us. Michigan continues to represent great opportunities for us. Louisville, places like that, continue to represent great opportunities. So we're absolutely willing to go off and hire in excess of our original plans if it makes sense for long term growth for the company.

That's great. Thanks again.

Thanks, Terry.

The next question will come from one of Jon Arfstrom with RBC Capital Markets.

Good morning, Jon.

Hey, good morning. Good morning. Brendon, maybe a question for you on mortgage banking. You talked about the pipeline being twice what it was a year ago. But what's the message you're sending on some of the near term mortgage trends? Can you keep pace with the kinds of numbers you put up in the fourth quarter? Do you expect it to fade a bit?

Yes, Jon. No real clear message other than to say we ended the year really great. So I think, typically, we should be able to outperform Q1 of last year, just given the year-end pipeline. But we will not be immune to the headwinds and tailwind of the mortgage business in aggregate. I think our mortgage business continues to follow those industry trends. But I think we'll be off to a good strong start in Q1.

I think we were finishing up last year, I mean, there's a fair amount of uncertainty. Can 2021 be as robust as 2020? And I think many of the models out there had really strong 2021 in terms of mortgage fee income, where the MBA forecasts show, maybe down 20% at one point in time. So, I think there's just kind of balance there. I mean, to be truthful, we're not quite sure what mortgage volumes will look like. We were anticipating a down year, but we've been calling that down year for the last few years, to be honest with you. So, it's hard to know. We were just really pleased, our fourth quarter ended really strong. And hopefully, we'll maintain some of the momentum going into the first quarter.

Okay, good. Fair enough. And then, back on the reserve, just a follow up. The qualitative piece of it. Just curious if you could help us think through that. What are maybe the top couple qualitative factors that maybe you can't get your arms around the cost of that qualitative increase?

I think Jim, Daryl, and I all mentioned it. It's really the path of this virus, the vaccination rollout, and maybe more importantly, the timing of charge-off, and the delayed recognition. And until we have some clarity around that it's challenging for us at this point to release reserves in any meaningful way.

Okay. That kind of leads to my last one here, the follow up. You talked a little bit about indirect auto delinquencies up a little bit. And I guess that's maybe understandable with kind of the stimulus pause. But have you seen any other new problems or anything unexpected? And I understand the qualitative piece of it, but anything new or surprising that you're saying? Or is it just generally things are getting better?

Yes, Jon, Daryl here. No, there really isn't anything in the portfolio. We've got that slight increase in delinquencies and indirect. If I had to search and search, the only thing that is remotely surprising to us in our consumer portfolio is the defaults related to deaths. And I don't think it's COVID related necessarily, but we've cracked it over the last several years. And at least in our portfolio, we have some defaults related to that. But as we look through the rest of the portfolios, there really is not anything at this point in time. That's surprising to us, which may in itself be surprising.

Okay. And the general view is that new stimulus generally helps to push out losses. Do you think, Daryl, that all the stimulus and what we're seeing in what you're thinking right now, that all the stimulus that we have, and is probably yet to come flattens the losses?

Yes. I’m maybe in a little different camp. If the vaccinations can take hold, I think this next round of pain, how big it is, could not only just push out losses, they could also serve to reduce to a certain extent the loss content that we have in our portfolio. So I'm a little more bullish on that.

Which, you know, is pretty rare for Daryl.

I know. I'm shocked. But I mean you can, Daryl. I mean, you can. But I think it's positive. So okay. Thanks for all the help. I appreciate it.

Thanks, Jon.

The next question comes from David Long with Raymond James.

Good morning, David.

Good morning, everyone. Thank you for taking my question. Regarding commercial real estate, I'm interested in what you're hearing from your customers about their space needs as we emerge from this pandemic. Specifically, over the next three to six months, are you gaining any insights on whether customers plan to expand their space or reduce it due to more people working from home? I'm curious about any information you have from your discussions with customers right now.

Yes, I think it's a little too early to tell regarding the dynamics of working from home versus office space. We don't have significant exposure to office properties, and we've been cautious as we approach this situation. However, we are closely monitoring the retail sector. In the multifamily space, we've experienced considerable growth and are being very strategic about securing the right deals in the right markets with the right borrowers. We continue to have those discussions, but it remains too soon to determine the exact trends for businesses regarding work from home and the required office space. We've also heard differing opinions; while some believe that people will continue to need office space, there could be a demand for more office space but for fewer individuals. There are many factors at play right now, and we are waiting to see how everything unfolds.

David, I would just share anecdotal conversations I've had with CEOs across our footprint. And while everybody was talking about the virtues of working from home last year, I think as the year started closing out, there was a lot of CEOs that had some fatigue around the work from home and the productivity around the work from home, and maybe while it worked really early on, it's been more challenging here as of late. And just the desire for people or social by nature to get together and be more collaborative. So I think there's balance in the conversation today. I agree with Jim, it's too early to tell about what happens to our portfolio. But I don't think if the virtues that everybody's been working from home and anywhere they want to work. Maybe in the Midwest, maybe different than maybe other parts of the country. But I don't think that will mean a big impact to Old National's portfolio.

Got it. Thanks, guys. Appreciate the color. That's all that I had.

Thanks, David.

We are currently not taking any more audio questions. Do the speakers have any final remarks?

Well, Nicole, thank you for your hosting today. And thanks to everybody for joining us. As always, we are here and available to take further follow up questions. Happy New Year and thanks everybody for joining us today.

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 1855-859-2056. Conference ID code 6389837. This replay will be available for February 2nd. If anyone has any additional questions please contact Lynell Walton at 812-464-1366. Thank you for your participation in today's conference call.