Old National Bancorp (NASDAQ:ONB) reported robust financial results for the third quarter of 2024, surpassing earnings and revenue forecasts. The company's earnings per share (EPS) came in at $0.49, outpacing the forecasted $0.46. Revenue reached $489.95 million, slightly above the anticipated $486.89 million. Following the announcement, ONB's stock rose 2.49% in premarket trading, reflecting investor confidence in the company's performance and outlook.
Key Takeaways
- Old National Bancorp beat EPS expectations with $0.49 against a $0.46 forecast.
- Revenue also exceeded projections, reaching $489.95 million.
- The stock price increased by 2.49% in premarket trading.
- Strong core deposit growth and reduced borrowings were highlighted.
- Positive economic growth in the Tennessee market was noted.
Company Performance
Old National Bancorp demonstrated solid performance in Q3 2024, reflecting strategic growth in core deposits and a disciplined approach to loan expansion. The company reported a 10.1% annualized growth in core deposits and a 2.7% annualized increase in total loans. This growth was supported by a strong economic environment in Tennessee, where the company continues to invest. Additionally, the company's focus on fee income businesses and treasury management contributed to its robust performance.
Financial Highlights
- Revenue: $489.95 million, slightly above the forecast.
- Earnings per share: $0.49, surpassing the $0.46 forecast.
- Net income: $140 million.
- Adjusted return on average tangible common equity (ROATCE): 16.8%.
- Adjusted return on assets (ROA): 1.13%.
Earnings vs. Forecast
Old National Bancorp's actual EPS of $0.49 exceeded the forecast of $0.46 by approximately 6.5%. Revenue also surpassed expectations, coming in at $489.95 million compared to the anticipated $486.89 million. This performance marks a positive deviation from forecasts and aligns with the company's historical trend of meeting or exceeding market expectations.
Market Reaction
In response to the earnings report, Old National Bancorp's stock rose 2.49% in premarket trading, reaching $23.50. This increase reflects investor optimism and positions the stock close to its 52-week high of $23.76. The stock's performance is consistent with broader positive market trends, particularly within the banking sector.
Outlook & Guidance
Looking ahead, Old National Bancorp projects continued growth in loan and net interest income (NII) for the full year, in line with original expectations. The company anticipates two rate cuts of 25 basis points each and expects a total deposit beta of around 30%. Strategic investments in the Tennessee market and fee income businesses are expected to drive future growth.
Executive Commentary
CEO Jim Ryan emphasized the company's focus on fundamentals, stating, "We remain focused on the fundamentals." CFO John Moran highlighted client acquisition efforts, noting, "We're on our front foot with respect to client acquisition." These comments underscore the company's commitment to strategic growth and market expansion.
Q&A
During the earnings call, analysts inquired about potential capital returns through buybacks in 2025 and the company's investment strategy in fee income businesses. Executives expressed a cautious yet opportunistic approach to talent acquisition and confirmed expectations for credit normalization, which is not indicative of significant weakness.
Risks and Challenges
- Rising competitive pressures in lending and deposit gathering.
- Economic uncertainties, particularly related to election outcomes.
- Potential impacts of anticipated rate cuts on net interest margins.
- Market saturation in key growth areas like Tennessee.
- Ongoing need for strategic investments to maintain growth momentum.
Full transcript - Old National Bancorp (ONB) Q3 2024:
Conference Operator: Ladies and gentlemen, welcome to the Old National Bancorp Third Quarter 20 24 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?
Jim Ryan, Chairman and CEO, Old National Bancorp: Good morning. Earlier today, Old National reported our Q3 2024 results with earnings per share in line with expectations. These solid Q3 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 Q3 highlights on Slide 4, we reported GAAP earnings of $0.44 per common share and our adjusted EPS was $0.46 Our adjusted ROATCE 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 non interest bearing deposits growing nearly $100,000,000 during the quarter. Our total cost of deposits for the quarter remains at a low 2 25 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 Q2 of 2024 and 21% year over year. In summary, our Q3 2024 earnings evidence another strong quarter for Old National.
We remain focused on the fundamentals, continuing 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.
John Moran, CFO, Old National Bancorp: Thanks, Jim. Turning to slide 5, you can see our Q3 balance sheet, which highlights continued improvement in our liquidity and our capital position. Total (EPA:TTEF) 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-seven percent range and marginal funding costs in the low 4% range support our expectation that net interest income will grow modestly in 4Q 2024.
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 4 years. We have approximately $2,000,000,000 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 $100,000,000 increase in non interest 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 and 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 $140,000,000 or $0.44 per share.
Reported earnings include $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 non interest income, which was $94,000,000 for the quarter and above our expectations.
Our primary fee businesses all performed well with bank fees ahead of expectations, mortgage benefiting from seasonality and a modest improvement in production and capital markets benefiting from CRE production. Continuing to slide 11, we show the trend in adjusted non interest expenses of $263,000,000 for the quarter. Expenses remain 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 non performing loan ratio increased 8 basis points due mostly to poor borrowers in unrelated sectors that we are actively monitoring. The 3rd 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 (NYSE:MCO) S2 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 S2 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 4th quarter. Our assumptions are listed on the slide, but I would highlight a few of the primary drivers. First, we assume 2 rate cuts of 25 basis points each consistent with the forward curve. 2nd, we are now anticipating a declining rate total deposit beta of approximately 30% and a non interest bearing to total deposit mix that remains 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 Q4 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 non interest 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 with Q3 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. 2nd, our adjusted return profile remains top quartile against peers at 17% on tangible common equity. 3rd, we remain disciplined on expenses driving positive operating leverage and an adjusted efficiency ratio of 51%. 4th, 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 5th, 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.
Conference Operator: And thank you. We will now begin the question and answer session. And your first question comes from the line of Scott Siefers with Piper Sandler. Your line is open.
Scott Siefers, Analyst, Piper Sandler: Good morning, guys. Thanks for taking the question. Good morning, Scott. Good morning. Hey, likewise.
You too. Thank you. So, just wanted John, appreciate the comments on the sort of the full year NII. I guess the Q4 in particular, the expectation may be a little lighter than what we had hoped 90 days ago. The fact 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 $2,000,000,000 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 Q4 expectation and just sort of main levers additionally that you would see allowing it to do so?
John Moran, CFO, Old National Bancorp: Perfect. Yes. Scott, your suspicion is right on the NII guide. Really, it's a touch on the 5 year point of the curve, belly of the curve being a little bit lower is driving that outlook. And then on securities, roughly $2,000,000,000 in cash flow coming off of that book over the next 12 months.
Pickup 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.
Unidentified Speaker: Okay. Perfect.
Scott Siefers, Analyst, Piper Sandler: And then maybe if you John, if you could expand a little on some of the reserving comments, just in particular trying to get my arms around, why credit costs a little higher this quarter and expected to be so, at least relative to what I would have anticipated next quarter. Is this something that will continue for a little while? Or is it kind of a transitory catch up? How should we think about those sort of dynamics?
John Moran, CFO, Old National Bancorp: I think it's just normalization of credit here. I think for the year, we sort of tightened the range on the guidance, but it's still I think at the beginning of the year, we were saying 15 to 20 basis points on charge offs. We're now sitting at 17 to 20 basis points on charge offs. So I don't think that there's any real difference in our expectation around loss content. And the provision that you saw in the quarter was kind of covering charge offs and building a little bit of reserve.
Unidentified Speaker: Okay. All right, perfect. Thank you guys very much.
Jim Ryan, Chairman and CEO, Old National Bancorp: Thanks, Scott.
Conference Operator: And your next question comes from the line of Brendan Nosal with Hovde Group. Your line is open.
Brendan Nosal, Analyst, Hovde Group: Hey, good morning folks. Hope you're doing well. Thanks, Brandon. Let me just 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? Thanks.
John Moran, CFO, Old National Bancorp: Yes, Bernie, 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'll be the key factor next year.
Brendan Nosal, Analyst, Hovde Group: Okay, perfect. 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?
Mark, Executive, Old National Bancorp: No. I think you hit it and I'm happy with your first option, Brendan, which is it's normalization of credit and 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.
Unidentified Speaker: All right, fantastic. Thank you for taking the questions.
Jim Ryan, Chairman and CEO, Old National Bancorp: Thanks, Brennan.
Conference Operator: And your next question comes from the line of Ben Gareliemer with Citi. Your line is open.
Jim Ryan, Chairman and CEO, Old National Bancorp: Hey, Ben. Hey, good
Unidentified Speaker: morning, guys. Good morning. Good morning, Ben. Can you guys talk through your appetite for kind of hiring and where you might be targeting? It's more so obviously a 25%, believe in the 26% question.
But again, like from the balance sheet perspective, you seem pretty well situated for the current rate outlook. I'm just kind of appetite on hiring and any trends you might want to highlight?
Mark, Executive, Old National Bancorp: 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 our 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.
Jim Ryan, Chairman and CEO, Old National Bancorp: I might add on top of that, as we think about talent acquisition, we're particularly paying attention to our fee income businesses. You think about treasury management, you think about our wealth management businesses, those are businesses that again have a little bit longer earn back on the hires, but we think are the right long term investments for us, particularly as we just transition to sort of larger institution, have more opportunities in that space. And so that's an area, as Mark says, we have plenty of balance sheet growth and don't feel like we need to have more relationship managers there to grow the balance sheet. However, on those fee income business, there will be continued opportunities for us to be successful.
Unidentified Speaker: Got you. That's helpful. And then when you think about the integration going forward kind of, let's call it the Southeast, are kind of is there any additional cost savings now that you kind of have the integration in place, you kind of have your lay of the land, anything that you would want to potentially call up as incrementally more positive on growth or thoughts on any additional expense costs, just now that you have your feet under you here?
John Moran, CFO, Old National Bancorp: 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 $30,000,000 annually. And we expect that that will be fully realized in the Q4. I think if anything, we're looking to invest in that market.
That's a great market. And I don't know if Mark would add or Jim would add. Yes.
Jim Ryan, Chairman and CEO, Old National Bancorp: I would just say, I haven't spent a lot of time
John Moran, CFO, Old National Bancorp: down there. It seems like I'm down there a
Jim Ryan, Chairman and CEO, Old National Bancorp: few times a month and it's unique. And our core legacy Midwestern markets oftentimes were a 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.
Unidentified Speaker: Got you. That's helpful color. I appreciate it. Thanks guys.
Jim Ryan, Chairman and CEO, Old National Bancorp: Thanks Ben.
Conference Operator: And your next question comes from the line of Terry McEvoy with Stephens. Your line is open.
Terry McEvoy, Analyst, Stephens: Thanks. Good morning, everyone. Maybe, John, let's start with a question for you. Did the $400,000,000 guide for NII in the 4th quarter, does that assume $13,000,000 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?
John Moran, CFO, Old National Bancorp: 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. In fact, when the Fed moved 50 basis points, Mike Lloyd and team had program A and program B, one was ready to go for 25 basis points, one was ready to go for 50 basis points.
When we got 50 basis points, they pressed the button and that went in that afternoon, right? And so, we're ready to move very, very quickly and we'll remain agile.
Terry McEvoy, Analyst, Stephens: Thanks. And then as a follow-up, could you discuss any common themes among the increase in non accrual loans? I think there was 4 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 Q3 results?
Mark, Executive, Old National Bancorp: Yes. I'll take those in reverse, Terry. It's Mark. Given the environment, we moved to a more conservative posture in our risk 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 borrowers have 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. So 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 non accruals, there were 4 larger credits. When I say larger, you got to think about that relatively speaking, larger for us.
Those 4 credits were all in the $12,000,000 to $25,000,000 range. So each one is a manageable level. Each was on our radar screen before they moved into non accrual. And again, it's just reflective of our granular portfolio, I think. One was a downgrade from the SNC exam, a C and I credit out of the CapStar portfolio.
The other 3 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 non performing book, I think there's decent underlying value in the real estate and demand for those properties. So even though our non accruals are up, our charge off guidance hasn't moved. We think in Q4, we'll still be in that 20 to 25 basis points.
Terry McEvoy, Analyst, Stephens: Great. Thanks, Mark, and thanks for taking my questions.
Jim Ryan, Chairman and CEO, Old National Bancorp: Thanks, Terry.
Conference Operator: And your next question comes from the line of Jared Shaw with Barclays (LON:BARC). Your line is open.
Jared Shaw, Analyst, Barclays: Hi, good morning. Thanks. Maybe just looking at the guide for fee income, it sort of looks like it's implying an $8,000,000 decline versus Q3. Anything specifically driving that? Or is that just a little bit of seasonality?
And how should we be thinking about sort of the jumping off point as we look next year on fee income?
John Moran, CFO, Old National Bancorp: Yes. Hey, Jared. Yes, it was, I think a little bit seasonality in some of the lines that are subject to that, right? Mortgage will probably be a little bit softer in the Q4. Capital Markets had a really strong 3Q.
I don't know that I would necessarily count on that one run rating. And then in other, other, there was a couple of little things that kind of broke our way in 3Q that I don't know are necessarily run ratable.
Jared Shaw, Analyst, Barclays: Okay. Thanks. And then, how should we be thinking about your thoughts and view on capital build here? It certainly seems like we're going to continue to see capital building, especially CET1, plenty of capital for the organic growth side. Is there an opportunity to supplement that with buybacks or any other capital actions?
John Moran, CFO, Old National Bancorp: Yes. So 11% CET1, we're starting to and we're going to rebuild capital very quickly, right? Left unchecked, we'll tack on 100 basis points plus minus a year on that ratio. So I think as we get into next year, certainly there's an opportunity to kind of think about buyback. We're a little bit sensitive to earn back on that.
And every quarter, we kind of talk about dividend with the Board.
Jared Shaw, Analyst, Barclays: Okay. Thanks.
Brendan Nosal, Analyst, Hovde Group: Thanks, Jared.
Conference Operator: And your next question comes from the line of Chris McGratty with KBW. Your line is open.
Brendan Nosal, Analyst, Hovde Group: Hey, good morning.
Jim Ryan, Chairman and CEO, Old National Bancorp: Jim or John, positive operating leverage
Chris McGratty, Analyst, KBW: you talk about a lot and
Brendan Nosal, Analyst, Hovde Group: you talked about your low-fifty efficiency ratio. How do we think about just the cadence
Unidentified Speaker: of those with the forward curve and
Brendan Nosal, Analyst, Hovde Group: the investments in the growth? Any material change as we get into 2025?
Jim Ryan, Chairman and CEO, Old National Bancorp: No, I think we just keep running the playbook. And to the extent that we have the ability we're obviously sensitive to our expenses and we know hopefully some of that expense base is inside our control. As you know though, Chris, we've really been trying to manage for the long term here and we're going to continue to invest in ourselves, both from a risk management governance perspective, but also from an offensive relationship management perspective. And we're going to continue to make those type of investments. But I am sensitive to revenue growth to help offset any of those investments we make.
And sometimes the investments we make, I mean, as we talked about some of the fee income businesses, the returns are a little bit longer than maybe some of the other businesses like the balance sheet. But we've done a pretty good job of managing those trade offs and expect us to continue to make those same types of calls in 2025.
Chris McGratty, Analyst, KBW: Thanks for that. Any use of capital related to your fee income initiatives
Brendan Nosal, Analyst, Hovde Group: and even a deal in the next year?
John Moran, CFO, Old National Bancorp: No. Yes, I don't
Jim Ryan, Chairman and CEO, Old National Bancorp: see anything coming to future that's material of any nature. But again, we just know that that's an area as I think about treasury management and wealth management, we have the right to win. And clearly mortgages is mortgage and there's been some volatility around that and we like the production we're at today and hopefully it will continue to grow. But I think it's at an inflection point around the 6% kind of 30 year rate. But those 2 other businesses, treasury and wealth are ones that we have the right to win.
We have some long term gains. We have high expectations around the growth of those businesses, and we're going to continue to build in those businesses specifically.
Unidentified Speaker: Okay, great. Thank you.
Mark, Executive, Old National Bancorp: Thanks, Chris.
Conference Operator: And your next question comes from the line of David Long with Raymond (NSE:RYMD) James. Your line is open.
Chris McGratty, Analyst, KBW: Thanks. Good morning, everyone.
Unidentified Speaker: As you're talking about
Chris McGratty, Analyst, KBW: As you're talking about the positive operating leverage and that being a goal, how does that revenue growth impact how quickly you may invest in, say, Tennessee where you see some great growth opportunities? Do you need to have positive operating leverage? Or can you if revenue growth maybe doesn't come in, are you still going to put the dollars forward in that market?
Jim Ryan, Chairman and CEO, Old National Bancorp: Yes. I think that's an area we got to continue to invest in. That is again, like I said earlier, the growth dynamics there are unlike any other part of our franchise where we have low share obviously, but there's high growth. In other parts of our market, we have low share and maybe the growth in total is not as high. So I think we'll prioritize investments in that newer part of our franchise.
And I would say continue in some of our expansion markets as well. Those are going to be key continued investments. And I would rather give up a little bit of the expense side for kind of longer term growth. And I think we've been able to kind of navigate those trade offs on a pretty adept basis and continue to deliver earnings and return profile that you all expect.
Chris McGratty, Analyst, KBW: Yes. Thanks, Jim. And then my second question is related to loan growth. And as far as customer demand, what do you think are the biggest catalysts out there in the marketplace to increase commercial customer loan demand?
Mark, Executive, Old National Bancorp: Yes, David, it's Mark. I think just removal of uncertainty, right? As the soft landing is becoming a little bit more coming clear into focus, I guess, people I think are the cautiousness that we've seen is starting to abate a little bit. And then people just kind of hang on the election stuff and they want to get past the election. So they just talk a lot about that and not that they're frozen, but I think it's making people a little more hesitant.
So I think once we get a little more clarity on those two issues, you'll see. That said, you're starting to see activity and people refinance things out in the CRE markets. You're seeing longer term lenders take things out at pretty aggressive rates. So you're starting to see there's sources out there and demand needs to catch up a little bit.
Jim Ryan, Chairman and CEO, Old National Bancorp: David, I would add Mark and Jim have done an excellent job kind of leading us through this different environment since the spring of 2023. And our expectations have definitely risen in terms of what we want full relationships, deposit growth. So I think that client selection has played a really important part of maybe an all but slower quarter for the 3rd quarter than we see in the back half of the year, the first half of the year, but that was quite intentional. We want to ensure that we get we hit our hurdle rates in terms of the economic pricing and that we bring a full relationship to the table. And we're much less willing to bet that it will come and we want to make sure it's there upfront.
Chris McGratty, Analyst, KBW: Got it. Thanks, Mark. Thanks, Jim. Appreciate the insight. Thanks, David.
Conference Operator: And your next question comes from the line of Jon Arfstrom with RBC Capital Markets. Your line is open.
Jim Ryan, Chairman and CEO, Old National Bancorp: Hey, good morning. Good morning, Jon.
Jim Ryan, Chairman and CEO, Old National Bancorp0: Just a quick follow-up on that. Is it more competitive, do you think? You're talking about risk adjusted return hurdles on lending, but is it more competitive? Is that what's driving your intentional comment? Or is it something else?
Jim Ryan, Chairman and CEO, Old National Bancorp1: Hey, John. This is Jim Sandgren. No, I think we're starting to see the competitive pressures just picking up a little bit over the last quarter. So, we're still fighting and we have the right to win in all the spaces that we do business in because of our relationships. So, but it's picking up both on the lending side and the deposit gathering side.
So again, I like our chances. We like our chances to win and we're doing just that.
Unidentified Speaker: Okay.
Jim Ryan, Chairman and CEO, Old National Bancorp0: Okay. Thank you on that. John, maybe for you on the I like that exception pricing chart, the one on Slide 7 and then 22 as well. But how quickly is that gap closing? And would you say the reasons for the initial exception pricing have faded quickly or maybe are no longer there?
John Moran, CFO, Old National Bancorp: I think we can close the gap. Look, clearly, we've sort of crested here on both total deposits and the exception book. But again, John, I mean, we're going to stay on offense. I mean, we if somebody else is out there flashing a 50% down beta, I view that as Old Nationals opportunity. I think we're very much interested in continuing to have deposits keep pace with our loan generation.
And so we're still putting on good spread, right? And as long as that's the case, we'll stay on offense on deposits.
Unidentified Speaker: Okay. All right.
Jim Ryan, Chairman and CEO, Old National Bancorp0: And then last one on credit again, maybe hard to answer this, but when I look at the delinquency and non performing trends, I think they're still obviously manageable. But what's the signal you want to send us? Are you expecting the growth to flatten out, to continue to go up a little bit over time? Or are you seeing some of this stuff start to crest as you look forward? Thanks.
Mark, Executive, Old National Bancorp: John, it's Mark. I'll start with the delinquencies. That bumped a little bit this quarter based on the CapStar conversion. It's really administrative issues. So that I think is a non event honestly.
I think that will come that it's still at a decent level now and it will come back down in Q4. Relative to further risk rating migration, I mean, we could still see some. I mean, it's possible. But I think our potential problems are well known and closely monitored. And so while we could still see some downgrades, I think there is a lot of things that will mitigate the downgrade activity.
Frankly, our conservative and proactive approach in identifying them early. This expectation for a soft landing, which we're starting to see manifest itself already in some upgrades as well, interest rate cuts and just our aggressive efforts to reduce that book. So again, we could see some, but I think we'll manage it well. Okay.
Jim Ryan, Chairman and CEO, Old National Bancorp0: All right. Thank you very much.
Jim Ryan, Chairman and CEO, Old National Bancorp: Thanks, John.
Conference Operator: And we will take a follow-up question from Scott Siefers with Piper Sandler. Your line is open.
Scott Siefers, Analyst, Piper Sandler: Thanks guys. Just sort of a top level strategic question. Jim, as you build capital so quickly, just hoping to get any updated thoughts on how M and 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, would the preference be to stay on the path of increasing tangible book value or would we look to deploy some of that into any acquisitions?
Jim Ryan, Chairman and CEO, Old National Bancorp: Yes. I think what we've said is any future M and 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.
Unidentified Speaker: Perfect. Okay, good. Thank you very much.
Jim Ryan, Chairman and CEO, Old National Bancorp: Thank you for the question, Scott.
Conference Operator: And there are no further questions at this time. I'd like to turn the call back to Jim Ryan for closing remarks.
Jim Ryan, Chairman and CEO, Old National Bancorp: 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.
Conference Operator: 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 1,586, six zero zero. This replay will be available through November 5th. If anyone has additional questions, please contact Lynelle Dirkols at 812 464-1366.
Thank you for your participation in today's conference call.
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