Ladies and gentlemen, welcome to the Old National Bancorp Third Quarter 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 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 contain 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. Mr. Ryan?

Good morning. Earlier today, Old National reported our third quarter 2024 results with earnings per share in line with expectations. These solid third quarter results were driven by our ability to execute on our organic growth strategy and invest in new markets and talent in our footprint. Our results were also driven by the strong organic deposit growth, prudent loan growth, durable margin management and focused efforts in growing our fee income businesses. Moving to our third quarter highlights on Slide 4. We reported GAAP earnings of $0.44 per common share, and our adjusted EPS was $0.46. Our adjusted ROA TCE for the quarter was 16.8% and our adjusted ROA was 1.13%. Our adjusted efficiency ratio was a low 51.2%. Our core deposit growth was strong at 10.1% annualized with our noninterest-bearing deposits growing nearly $100 million during the quarter. Our total cost of deposits for the quarter remains at a low 225 basis points, and we were already taking advantage of recent Fed actions, which John will touch on later in his comments. Meanwhile, our commercial loans were up 4.1% annualized due to disciplined client selection. Growing our tangible common book value per share remains a top priority, rising 8% since the second quarter of 2024 and 21% year-over-year. In summary, our third quarter 2024 earnings evidenced another strong quarter for Old National. We remain focused on the fundamentals, continue to fund loan growth with low-cost core deposits, effectively managing credit, creating positive operating leverage through disciplined expense management, and consistently growing tangible book value per share. With that, I will now turn the call over to John Moran.

Thanks, Jim. Turning to Slide 5, you can see our third quarter balance sheet, which highlights continued improvement in our liquidity and our capital position. Total deposit growth over the last year has again allowed us to organically fund loan growth while reducing our borrowings. As Jim just mentioned, we grew our tangible book value per share by 21% over the last year and by 8% from the prior quarter. We ended the quarter with a strong CET1 ratio of 11%, and we continue to expect that we will accrete capital at a faster pace than most. Our liquidity and capital levels continue to provide a strong foundation, which positions us well as we finish 2024. On Slide 6, we show our earning asset trends. Total loans grew 2.7% annualized from last quarter, in line with industry performance with strong production in our commercial book in the quarter, partly offset by payoffs. We remain focused on full relationships and structure at prices that meet our risk-adjusted return requirements. Quarterly new loan production rates in the mid-7% range, and marginal funding costs in the low 4% range support our expectation that net interest income will grow modestly in 4Q '24. The investment portfolio increased 3% in the quarter due to reinvestment of cash flows and positive changes in fair values with duration decreasing to just under four years. We have approximately $2 billion in cash flows expected over the next 12 months. New money yields are currently running approximately 110 basis points above back book yields on securities and approximately 175 basis points above back book yields on fixed rate loans. Moving to Slide 7. We show our trend in total deposits, which grew 8.5% annualized from 2Q. Core deposits ex-brokered were up an even better 10% annualized, and we saw a nearly $100 million increase in noninterest-bearing deposits in the quarter. Commercial and community deposits were up and public funds saw normal seasonal increases. Our brokered deposits decreased, and at 4.2% as a percentage of total deposits, our use of brokered remains well below period levels. We did see a 9-basis point increase in deposit rates compared to the prior quarter as we remained on offense with respect to client acquisition, and we drove our loan-to-deposit ratio below 90%. Total deposit costs decreased in September, consistent with Fed actions and our spot rate at September 30 was 212 basis points. Moreover, our exception price book has seen a 90% down beta since we started lowering rates in that book in early 2Q. This was in line with our expectations. Overall, we are highly confident in the execution of our deposit strategy, and it continues to unfold as we expected. We are prepared to proactively respond to future Fed rate actions in the evolving environment while staying focused on driving above peer deposit growth at reasonable costs. Slide 8 provides our quarter end income statement. We reported GAAP net income applicable to common shares of $140 million or $0.44 per share. Reported earnings included $0.02 per share of merger-related and separation expenses. Excluding these items, our adjusted earnings per share was $0.46. Moving on to Slide 9. We present details of our net interest income and margin. Net interest income grew as expected, while net interest margin was essentially unchanged as increases in asset yields and accretion were offset by deposit costs. Year-over-year, we again showed deposit growth that essentially kept pace with asset generation while maintaining a low total cost of funding. Slide 10 shows trends in adjusted noninterest income, which was $94 million for the quarter and above our expectations. Our primary fee businesses all performed well with bank fees ahead of expectations, mortgage benefiting from seasonality in a modest improvement in production and capital markets benefiting from CRE production. Continuing to Slide 11, we show the trend in adjusted noninterest expenses of $263 million for the quarter. Expenses remained well controlled, and we generated positive-linked quarter operating leverage. On Slide 12, we present our credit trends, which reflect the quality of both our commercial and consumer portfolios. Total net charge-offs were 19 basis points and a low 16 basis points excluding 3 basis points related to PCD loans. The nonperforming loan ratio increased 8 basis points, due mostly to four borrowers in unrelated sectors that we are actively monitoring. The third quarter allowance for credit losses to total loans, including the reserve for unfunded commitments was 112 basis points, up 4 basis points from the prior quarter. Risk rating migration over the last several quarters has been driven by the effects of higher interest rates and a more conservative posture in our risk rating framework. While the grade migration has resulted in an increase in our quantitative reserves, our total qualitative reserves are unchanged from the prior quarter. Qualitative reserves now incorporate a 100% weighting on the Moody's S-2 scenario with additional qualitative factors to capture the possibility of further grade migration. This is logical as greater conviction comes into focus that a hard landing scenario is unlikely. Moreover, the S-2 scenario assumes an unemployment rate that is 70% higher than current levels and negative GDP. Also, we remind you that our allowance for credit losses plus the discount remaining on acquired loans to total loans now stands at nearly 160 basis points. Slide 13 presents key credit metrics relative to peers. As you can see, our proactive approach to credit monitoring has led to above peer levels of NPLs, but delinquency and charge-off ratios that are well below peer averages over time. We have long practiced conservatism, and we continue to believe that the results speak for themselves. On Slide 14, we review our capital position at the end of the quarter. All ratios increased, driven by strong retained earnings. In addition, the rate environment further aided TCE build. Slide 15 includes updated details on our rate risk position and net interest income guidance. NII is expected to increase modestly in the fourth quarter. Our assumptions are listed on the slide, but I would highlight a few of the primary drivers. First, we assumed two rate cuts of 25 basis points each, consistent with the forward curve. Second, we are now anticipating a declining rate total deposit beta of approximately 30% and a noninterest-bearing to total deposit mix that remained stable at 24%. We continue to believe that we have positioned the balance sheet well and we have maintained our neutral rate risk position. Slide 16 includes our outlook for the fourth quarter and the full year of 2024. You can see the details in the chart, but it is worth pointing out that our full year outlook for pre-provision net revenue remains unchanged from the initial expectations we shared with you in January of this year, and our outlook proved more durable than many peers. Full year loan growth and NII are expected to be right in line with those original expectations, while higher fee income is expected to be partially offset by higher noninterest expenses. Net charge-offs are in line with our original range, while provision expense is slightly higher than originally expected as a result of grade migration driven by our proactive approach to credit management. In summary, year-to-date 2024 results have been excellent with third quarter results in line with our expectations and strong performance metrics. More importantly, we continue to demonstrate our ability to execute against our strategic priorities. First, we are driving organic deposit growth to fund our asset generation. Second, our adjusted return profile remains top quartile against peers at 17% on tangible common equity. Third, we remain disciplined on expenses, driving positive operating leverage and an adjusted efficiency ratio of 51%. Fourth, our borrowers remain resilient as evidenced by non-PCD net charge-offs of just 16 basis points. And we believe we have ample reserve coverage along with a well-diversified and granular loan book. And fifth, we are continuing to rapidly compound tangible book value per share, which was up 21% year-over-year. With those comments, we'd like to open the call for your questions.

And your first question comes from Scott Siefers with Piper Sandler. Your line is open.

John, I appreciate the comments on the sort of the full year NII. I guess the fourth quarter in particular, the expectation may be a little lighter than what we had hoped 90 days ago. The fact that it's sort of just a function of what happened with the belly of the curve since then as well as the different timing of the Fed moves. But would love to hear in your words anything that has changed? And then I know you touched on like the $2 billion of cash flows over the next 12 months. If you can maybe offer any updated thoughts on sort of how powerfully the NII base could advance from the fourth quarter expectation, and just sort of main levers additionally that you would see allowing it to do so?

Yes. Scott, your suspicion is right on the NII guide. Really, it's a touch on the five-year point of the curve, belly of the curve a little bit lower is driving that outlook. And then on securities, roughly $2 billion in cash flow coming off of that book over the next 12 months. Pick up there about 110 basis points against the back book. So certainly, that will be helpful. And we would anticipate plowing most of that just right back into the securities book. At the margin, there could be a touch if loan growth comes in stronger, maybe we let that come in just a little bit. But I think most of that will go back into securities at this point.

Okay. Perfect. John, could you elaborate a bit on the reserving comments, specifically regarding why credit costs are higher this quarter and expected to remain elevated compared to my initial expectations for next quarter? Is this likely a longer-term trend, or is it more of a temporary adjustment? How should we view these dynamics?

I believe we are seeing a normalization of credit. For the year, we have refined our guidance range. Initially, we projected charge-offs to be between 15 to 20 basis points, and now we are expecting around 17 to 20 basis points. I don’t see any significant change in our expectations regarding loss content. The provision you noticed this quarter was intended to cover charge-offs and to build a small reserve.

And your next question comes from the line of Brendan Nosal with Hovde Group. Your line is open.

To start off here, looking a little further out on kind of the margin and NII dynamics. I heard your comments again this quarter on a relatively rate neutral balance sheet positioning. Maybe just offer some thoughts on how you expect the NIM to traject across 2025. If we end up getting the forward curves, like, let's say, 200 basis points or so of cuts by the end of next year?

Brendan, I think what you're seeing here is kind of bottoming in 3Q, 4Q, probably up a little bit, our bias would be up a little bit. I think our bias in 3Q was kind of stable to down a little bit, and that played out, right? I think as we look out into 2025, de-inverting in the yield curve and continued growth in the underlying franchise are going to be helpful for us. And look, I think that's helpful for us. It's helpful for the whole industry, right? So, I think that will be the key factor next year.

Okay. Perfect. Maybe one more for me. Just kind of looking at the charge-off rate on the SPCD kind of core loan book, seeing a little bit higher numbers over the past two quarters. Just wondering how you would characterize that. Is that still well within the framework of normalization off of a low base? Or is it indicative of perhaps some gradual weakening?

No. I think you hit the nail on the head with your first option, Brendan, which is, it's normalization of credit and it's still well within our guidance. As John said, we started the year at 15% to 20%. We're now 17% to 20% for the full year, and so as credit normalizes, I think that's just what you're seeing.

And your next question comes from the line of Ben Gerlinger with Citi. Your line is open.

Can you discuss your plans for hiring and the areas you might focus on? Although this relates more to 2025 or even 2026, it seems that from a balance sheet perspective, you're in a good position given the current rate outlook. I'm interested in your hiring intentions and any trends you would like to mention.

Ben, this is Mark. I would answer it this way. I think we're open and opportunistic, but we don't need to do anything, really. We like the team that we have. We think we can outgrow industry loan growth. I think our deposit performance, growth performance has been terrific and all of our teams are focused on that. So, I don't think we need to do anything, but we will continue to look to opportunistically fill in good talent, we say it all the time, pays for itself quickly and so if people come along. But we're also watching expenses closely. And so, we're not looking to that talent unless just that great opportunity comes along.

Yes. Additionally, as we consider talent acquisition, we are particularly focused on our fee income businesses. When considering treasury management and our wealth management sectors, these are areas that entail a longer return on investment for new hires, but we believe they are the right long-term investments as we transition into a larger institution with more opportunities in that space. As Mark mentioned, we have adequate balance sheet growth and do not feel the need to add more relationship managers to support that growth. However, there will continue to be opportunities for success in those fee income businesses.

That's helpful. As you consider the integration moving forward in the Southeast, are there any additional cost savings now that the integration is established and you have a better understanding of the situation? Is there anything you would highlight that could positively impact growth or lead to further expense reductions now that you are settled in?

No. I think you'll see the full run rate reflected in 4Q in terms of the saves that we highlighted for CapStar. Just to remind you, those are around $30 million annually, and we expect that, that will be fully realized in the fourth quarter. I think if anything, we're looking to invest in that market, it's a great market. And I don't know if Mark would add or Jim.

Yes. I would just add I've spent a lot of time down there. It seems like I'm down there a few times a month, and it's unique in our core legacy Midwestern markets. Oftentimes, we're part of the economic engines that are making those communities successful. And down in Nashville and Tennessee broadly, really, you just have to be there. There's just plenty of organic growth opportunities for us and we need to be in a position to take advantage of that. And so, as John said, I think we'll continue to invest there. It's unlike any other part of our franchise where the economic growth is still incredibly strong.

And your next question comes from the line of Terry McEvoy with Stephens. Your line is open.

Maybe, John, let's start with a question for you. Did the $400 million guide for NII in the fourth quarter, does that assume $13 million of accretion? And then how are you thinking about the deposit beta over the next several quarters? I know on the slide you said 30% total deposit beta by the end of this year, but what's your insight beyond the end of 2024?

Yes. So, the accretion piece, yes, roughly stable. So, you've got the right number there for 4Q. In terms of beta, I think 30% probably allows us still some room to play offense, and we've been unapologetic about that. We're on our front foot with respect to client acquisition, and we really want to continue to fund organically our loan growth. I think where we'll get the most beta, and we've been saying this for a couple of quarters now, and it's playing out exactly as we had expected, it's really in that exception price book. And there, we expect to see roughly 85% down beta, and we've been able to move that very quickly.

And then a follow-up. Could you discuss any common themes among the increase in nonaccrual loans? I think there was four specific borrowers as well as the increase in classified loans. And anything to do with the recent Shared National Credit exam that showed up in third quarter results.

I'll take those in reverse, Terry, it's Mark. Given the environment, we move to a more conservative posture in our risk rating framework this year, which drove that negative migration overall. We're now looking at our primary source of repayment debt service coverage almost exclusively in our risk ratings. And so as far as we've absorbed a full year of the 500-basis point increase in rates, coverage ratios have tightened, particularly in CRE. We still feel good about secondary sources of repayment, guarantors and collateral. But these sources no longer factor into our risk ratings. But they obviously influence loss content, which we still believe is generally low across our special mention and substandard loans. Specifically, to the nonaccruals, there were four larger credits. When I say larger, you got to think about that relatively speaking, larger for us. Those four credits were all in the $12 million to $25 million range. So, each one is a manageable level, each was on our radar screen before they moved into nonaccrual. And I guess it's just reflective of our granular portfolio, I think. One was a downgrade from the SNC exam, a C&I credit out of the CapStar portfolio. The other three were different segments of CRE. So, no trend, no geography, just unique issues to each individual credit. And again, I'll just say, like most of our nonperforming book, I think there's decent underlying value in the real estate and demand for those properties. So even though our nonaccruals are up, our charge-off guidance hasn't moved. We think in Q4, we'll still be in that 20 to 25 basis points.

We will now take a follow-up question from Scott Siefers with Piper Sandler. Your line is open.

Just had a sort of a top level or strategic question. Jim, as you build capital so quickly, just hoping to get any updated thoughts on how M&A might fit into the picture. Last quarter, I recall getting the impression that deals were not high on the list of preferences. But as you look ahead with the preference fee to stay on the path of increasing tangible book value or would we look to deploy some of that into any acquisitions?

Yes. I think what we've said is any future M&A opportunities really have a high hurdle. And as we try to convey, we've got plenty of organic growth opportunities today that we just need to execute on. However, to the extent that there are opportunities that come along and exceed those very high hurdles we have in place, I think all of our shareholders will want us to look at those things opportunistically. But at the end of the day, we are very focused on long-term shareholder value creation. And anything we look at has to meet those pretty high hurdles we put in place.

And there are no further questions at this time. I'd like to turn the call back to Jim Ryan for closing remarks.

Well, we appreciate your participation. And as usual, the team will be around all day to follow up with any questions. Have a great day.

Ladies and gentlemen, 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 (800) 770-2030, access code 1586600. This replay will be available through November 5. If anyone has additional questions, please contact Lynell Durchholz at (812) 464-1366. Thank you for your participation in today's conference call.