Prepared remarks
Welcome to the Old National Bancorp Fourth Quarter and Full-Year 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 statements legend in the earnings release and presentation slides. The company's risk factors are fully disclosed and discussed within its SEC filings. In addition, certain slides containing non-GAAP measures, which management believes will 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 Nation's Chairman and CEO, Jim Ryan for opening remarks. Mr. Ryan?
Good morning. Old National reported strong results for the fourth quarter and the full-year this morning. In 2024, we successfully navigated a challenging environment while maintaining an offensive growth strategy, investing inclined, facing key support talent, and remaining opportunistic for new acquisitions. Our basic banking strategy has served us well. A hallmark of this strategy is our focus on low-cost core deposits, which grew by approximately 10% in 2024, funding a corresponding 10% growth in loans. Since 2022, total deposits and loans have experienced a compounded annual growth rate of 8%. Our total cost of deposits finished the year at 1.93%, driven by a 93% down beta on our exception price deposits. Our peer-leading deposit franchise, disciplined loan growth, strong credit quality, well-managed expenses, and dedicated team members, who are committed to serving our clients and communities, enabled us to exceed our expectations as we began 2024.
Our full-year results can be found on slide four. GAAP earnings per common share for the year were $1.68 with adjusted earnings per common share of $1.86. Our adjusted return on average tangible common equity was 16.9% and our adjusted return on average assets was 1.14%. Notably, the adjusted efficiency ratio stood at 52%. At the same time, our net charge-offs were low at 17 basis points. Our tangible book value per share also grew by 8% year-over-year, and our total shareholder return significantly outperformed the KRX and our executive peer group in 2024. During the first half of 2024, we successfully closed and converted CapStar Bank and Old National Bank, strengthening our presence in Nashville and other high-growth Southeastern markets. Later in the year, we announced our partnership with Bremer Bank, enhancing our presence in the upper Midwest and expanding our footprint across Minnesota, North Dakota, and Wisconsin.
We have recently filed our S-4 with the SEC and our regulatory applications to the OCC and the Federal Reserve in connection with our partnership. A forthcoming community growth plan will accompany this partnership too. After a recent visit with Bremer team members, I can report the genuine enthusiasm for our combination. We are excited to collaborate with the executive team and our new team members as we start the integration process. We still anticipate closing the partnership by midyear and completing our integration in the latter half of the year, with 100% of the cost savings projected to be realized in 2026. In summary, our 2024 EPS results were more resilient than most peers in a challenging year, thanks to our relentless focus on fundamentals, growth of core deposits, strong underwriting practices, and disciplined expense management. John will provide our official 2025 outlook at the end of his prepared remarks.
Looking ahead, I’m confident in our ability to navigate changes in short-term interest rates, shifts in the yield curve, and overall economic conditions as we have for the past 190 years. I want to take a moment to discuss two leadership changes announced in this morning's news release. As mentioned in the release, our President and COO, Mark Sander, will retire on June 30. Mark has been an invaluable partner over the past few years. Although my time working alongside Mark has been brief, compared to his lengthy and distinguished career, his steady leadership has played a significant role in Old National's transformation into a high-performing bank. He has helped solidify our position as one of the premier banks in the country. I would also like to acknowledge Mark's lasting impact on the Chicago land community, where he's been a prominent banking leader and a dedicated community advocate.
On behalf of all of us at Old National, I express our gratitude for his daily embodiment of our organizational values. We have begun searching for Mark's successor and will consider internal and external candidates. Additionally, we announced today that Dan Hermann, a highly respected business leader and a significant contributor to our corporate board for the past five years, has succeeded Becky Skillman as our lead independent director. On behalf of our executive leadership team and the board, I want to thank Becky for her invaluable guidance in this role since 2016. On a personal note, she has been an exceptional mentor and partner during my tenure as CEO. I'm pleased to share that she will continue to serve as a key member of our corporate board. I want to emphasize how fortunate we are to have Dan as our Lead Independent Director. He brings a wealth of leadership experience and I'm confident that our board will continue to excel under his guidance, providing strong support to our executive leadership team. Thank you. With that, I will now turn the call over to John to discuss the quarter results in more detail.
Thanks, Jim. Turning to slide five, we reported GAAP 4Q earnings per share of $0.47, excluding $0.02 per share of merger charges adjusted earnings per share were $0.49. Results were driven by net interest income and margin that were in line with our expectations, strong fee income, and a favorable tax rate partially offset by incentive true-ups. Credit remained benign with normalized levels of charge-offs, and our return profile, as measured on assets and on tangible common equity, remained high. On slide six, you can see our fourth quarter balance sheet, which highlights stability in our liquidity and continued improvement in our capital position. Total deposit growth over the last year has again allowed us to organically fund loan growth while minimizing borrowings. Since 2022, our 8% CAGR in both loans and deposits has exceeded industry growth. As Jim mentioned, we grew our tangible book value per share by 8% over the last year.
We also accreted nearly 70 basis points of CET1 for the year ending 2024 with a strong CET1 ratio of 11.38%. We continue to expect that we will accrete capital at a faster pace than most. These liquidity and capital levels continue to provide a strong foundation which strengthens our position as we begin 2025. On slide seven, we show trends in our earning assets. Total loans decreased 1.6% annualized from last quarter with strong production in our commercial book offset by $600 million of outsized payoffs and lower line utilization. For the full-year, we saw total loans grow 10% or 4% excluding CapStar. Quarterly new loan production rates are in the 7% range and marginal funding costs are in the high 3% range. The investment portfolio was consistent with the prior quarter and duration is now just over 4%. We have approximately $1.5 billion in cash flow expected over the next 12 months. Today, new money yields are currently running approximately 180 basis points above back book yields on securities and fixed-rate loans.
The repricing dynamics in both loans and securities support our expectation that net interest margin will be stable to improving in 2025. Moving to slide eight, we show our trend in total deposits. Core deposits, excluding brokered, continue to grow and were up nearly 2% annualized as we remain focused on growth in this key funding source. Non-interest bearing deposits were 24% of core deposits consistent with third quarter levels. Private banking and community deposits were up during the quarter while public funds saw normal seasonal decreases. Our broker deposits decreased approximately $200 million and at 3.7% as a percentage of total deposits, our use of brokered remains less than half peer levels. The total loan-to-deposit ratio was 89% consistent with last quarter. With respect to deposit costs, the 17 basis point decrease in deposit rates, compared to the prior quarter played out as we expected, and total deposit costs steadily decreased in the quarter, consistent with Fed actions.
Our spot rate on total deposits at December 31 was 193 basis points. Moreover, our exception price deposits have experienced a 93% down beta since we started lowering rates in that book in early 2Q. Our fourth quarter total deposit beta came in at 28%, which was in line with our expectations and accelerated over the course of the quarter. Overall, we are highly confident in the execution of our deposit strategy and it continues to unfold as expected. We are prepared to proactively respond to future Fed actions in the evolving environment while staying focused on driving above peer deposit growth at reasonable costs. As we have mentioned in past calls, we remain front-footed with respect to client acquisition. Slide nine provides our quarter end income statement. We reported GAAP net income applicable to common shares of $150 million or $0.47 per share, excluding $0.02 per share of merger related expenses or adjusted earnings per share or $0.49.
A quick note on taxes. This quarter included additional tax credit benefits, which were partially offset in the operating expense line and also benefited from the resolution of certain tax matters. Without those items, our FTE tax rate would have been in line with the 25% we had guided. Moving on to slide 10, we present details of our net interest income and margin. Net interest income was relatively stable as expected and net interest margin was likewise flattish as lower deposit costs and higher accretion were offset by increased pay downs and lower line utilization. Year-over-year we again showed deposit growth that essentially kept pace with asset generation while maintaining a low total cost of funding. Slide 11 shows trends in adjusted non-interest income, which was $96 million for the quarter and above our expectations. Our primary fee businesses performed well with wealth, mortgage, and bank fees ahead of expectations, while capital markets declined as a result of lower CRE production.
Other income benefited from $8 million of discrete items. As a reminder, looking back to third quarter, other income was also elevated by approximately $3 million, primarily related to market valuation gains. Continuing to slide 12, we show the trend in adjusted non-interest expenses of $269 million for the quarter. This was slightly higher than expectations due to a $5 million year-to-date performance-driven incentive accrual true-up, as well as $1.2 million in higher tax credit amortization that is offset within the tax line that I mentioned earlier. Run rate expenses remain well controlled, and we again generated positive linked quarter operating leverage. On slide 13, we present our credit trends, which reflect the quality of both our commercial and consumer portfolios. Total net charge-offs were 21 basis points and a low 17 basis points, excluding 4 basis points related to PCD loans.
The non-performing loan ratio and delinquency ratios were relatively stable from last quarter. The fourth quarter allowance for credit losses to total loans, including the reserve for unfunded commitments was 114 basis points, up 2 basis points from the prior quarter. Consistent with third quarter, our qualitative reserves incorporate a 100% weighting on the Moody's S-2 scenario with additional qualitative factors to capture the possibility of grade migration. 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 14 presents key credit metrics relative to peers. We remind you again that our proactive approach to credit monitoring has led to above peer levels of NPLs, but delinquency and charge-off ratios that are below peer averages over time. We have long-practiced conservatism here, and we continue to believe that the results will speak for themselves.
On slide 15, we review our capital position at the end of the quarter. Again, all regulatory ratios increase, driven by strong retained earnings. The increase in rates at the intermediate points of the yield curve led to a modest decrease in TCE and tangible book value per share, given a $142 million link quarter AOCI headwind. Despite that headwind, tangible book value was up 8% year-over-year, and we expect AOCI to improve approximately 15% or $110 million over the next 12 months. Slide 16 includes updated details on our rate risk position and net interest income guidance. NII is expected to be relatively stable in the first half of 2025, excluding the impact of two fewer days in the first quarter, and then increasing in the back half of the year with the benefit of fixed asset repricing, growth, and the anticipated closing of our Bremer partnership. Our assumptions are listed on the slide, but I would highlight a few of the primary drivers.
First, we assume two rate cuts of 25 basis points each, which is one cut more than the current forward curve. Second, we anticipate our total deposit beta to accelerate from 28% in 4Q to approximately 40% as we move through 2025 in line with our terminal up betas. And third, we expect the non-interest bearing mix to remain stable at 24% of total core deposits. Importantly, our guidance would be unchanged for one cut or no cuts as our balance sheet remains neutrally positioned. On slide 17, we include our outlook for the first quarter and full-year 2025. With the exception of loan growth, all guidance includes Bremer and assumes a July 1 close. We believe current pipelines support full-year loan growth of 4% to 6%, which is expected to ramp up over the course of the year. We anticipate continued success in the execution of our deposit strategy and expect to meet or exceed industry growth in 2025.
Other key line items are highlighted on the slide. At the midpoint of the range on these lines, you'll note that we expect full-year results that yield earnings per share above the current analyst consensus estimates, and again feature positive operating leverage, a peer-leading return profile, good growth and fees, controlled expenses, and normalized credit. In summary, 2024 results were excellent with run rate fourth quarter results in line with our expectations. We remained on offense and we continue to demonstrate our ability to execute against strategic priorities. First, we organically grew deposits at a sufficient pace to fund our asset generation. Both deposits and loans were ahead of overall industry growth rates. 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 in the low-50s.
Fourth, our credit remained resilient, and we believe we have ample reserve coverage along with a well-diversified and granular loan book. And fifth, we are continuing to compound tangible book value per share, which was up 8% year-over-year. With those comments, I'd like to open the call for questions.
Thank you. We will now begin the question-and-answer session. Your first question comes from Ben Gerlinger from Citi. Your line is open.
Good morning, Ben.
Questions and answers
Good morning. Seems like you guys got a good start to the year. When you think about the guidance that you laid out for expenses, this is more of a clarification question than anything. Are you backing out any CDI or any sort of non-core other than the merger-related expenses for closing?
Yes, Ben, just the merger-related expenses are backed out. Everything else is fully loaded.
Got you. Okay, helpful. And then when you think about the outlook for ‘25 and ‘26, you already have the kind of the table set in front of you here with the closing and then back half of the year is just the game plan is already laid out? We think about this capital allocation with AOC coming back and the deal price incredibly well. Is there anything that you guys can do in the medium term, either outside of just core growth, either share repurchase, or just anything about allocation over the next 12, 18, 24 months?
Yes, I think it's a bit early for us to decide on capital allocation. Our top priority will always be growth. However, I believe we will have more flexibility regarding capital if things go as we expect. By mid-year, we should be in a better position to provide clearer insights on capital management moving forward.
Got you. Now if I could sneak one more in, it seems like loan growth across the banking industry is still a little bit muted, but there seems to be some green shoots? Are you guys seeing anything within your book, either geographically or lending, like, I mean, between any sub-sectors of C&I or CRE, per chance, that could be a little bit more of a leading indicator for improved growth, not just for you guys, just kind of what you're hearing from commentary on your clients you serve?
Hey, Ben, it's Mark. I would say we are cautiously optimistic, which is how we have guided our outlook. Coming off a quarter with significant payoffs and reductions in line utilization makes us a bit more careful about our growth expectations for the first quarter, but we believe the underlying fundamentals remain strong. This confidence supports our full-year growth projection of 4% to 6%.
Gotcha. That's helpful. Appreciate it. Thank you.
Your next question comes from a line of Scott Siefers from Piper Sandler. Your line is open.
Good morning, guys. Thanks for taking the questions.
Good morning. Good to hear from you, Scott.
Yes, likewise. Let's see. Maybe, John, first question for you. So you've got a good strong NII outlook for the year? I was hoping you could help us to understand a little more of the nuance of the standalone margin in coming quarters. I mean, certainly see everything on slide 16 with the broad assumptions. But just when you think about ONB on a standalone basis, I think you said stable to improving this year for the margin. I think you were talking standalone, but sort of big puts and takes as you see them. In other words, what would be sort of the potential choke points that you'd worry about, and by contrast, maybe things where you think things could come in a little better as you look out over the year?
Yes, hey Scott. Yes, you're correct. When I said stable to improving, I am talking about ONB kind of core underlying. I think when we look out into this year, what drives that is our ability to continue to grow assets, right? So loan growth will be important there. And then the fixed asset repricing dynamics are favorable to us today. A little bit of steepness in the curve versus what I mean, heck, we've been living inverted for a long time here, right? So, steepness in the curve and improvement in the belly is certainly something that I think could help us out a little bit, providing a little bit of a tailwind.
Perfect. Okay, great. Thank you very much.
Thanks, Scott.
Your next question comes from the line of Jared Shaw from Barclays. Your line is open.
Thanks, good morning everybody.
Good morning, Jared.
Going back to Ben's discussion about capital, the CET1 ratio is very strong and continues to increase. You mentioned some of the positive factors influencing this. I understand you plan to wait before exploring alternative uses of capital. What capital level do you think is necessary for the model in light of the new administration, the updated regulatory landscape, and the better-than-expected credit situation? Do you believe this model can eventually drop back down to 10% or lower for CET1?
Well, that's a good question. And the reality is I don't think we have the answer to that question yet. I think we need to have some more time, you know, through the year to have better optics into that. Capital is running a little bit ahead of our own internal expectations. So that's a good thing. I think that also gives us some flexibilities. We think about, you know, the Bremer partnership and the balance sheet optimization. Maybe we can end up with more assets in the balance sheet than we originally modeled just because capital comes in a touch stronger there. And then obviously we have other stakeholders out there, right? You have the rating agency's view of that and to the extent that that view, you know, changes over time, I think that's something that we'll have to watch for. So we'll try to manage all the stakeholders and importantly, you know, our shareholders and understand that we want to have the right amount of capital, but not too much capital; and so that'll be the needle that we'll try to thread as we get just more clarity as the year unfolds here.
Okay thanks and then you know on NII and beta, should we be thinking that deposit beta is sort of a linear move through the year or is there maybe an expectation that it's not so much linear? And then I guess within that, how sensitive is your NII expectation to the long end of the curve?
Yes, that's a good question. I'd love to say that it's going to be linear. I don't know that it plays out exactly that way, but I think, you know, point to point over the course of the year, we fully expect that we're going to capture what we gave up on upside beta. We will capture on down beta over the course of the year. We're working hard on doing that. In any given quarter, it could come in a little bit better, a little bit worse, but I think for modeling purposes, linear is probably a pretty good guesstimate.
Okay, and then just the sensitivity to long in rates, you know, with the longer end being up over the year…
Yes, sorry. That was the second part to that question. Sorry about that, Jared. Yes. I think, you know, our real sensitivity is really – it's barely a curve for the most part. You know, a couple of portfolios are going to reprice off of the 10-year, mostly that would be in the consumer side of the house, but our real sensitivity is barely a curve. So kind of think three-year, five-year point of the curve.
Okay, thanks. And just finally for me, what's the accretion expectations within that NII guide for 2025?
In total? So, we had… Yes, accretion ran a little bit heavy in the fourth quarter. That was in part due to the accelerated paydowns that we referenced. We expect that that drops to about $10.5 in the first and second quarter. And there's a schedule on that in the back. And then we'll update that schedule with the full Bremer piece of it once that becomes clear. But I think for now, I would just go back to what we announced with the deal announcement in terms of accretion of the back half of ‘25 on the Bremer piece.
Great. Thanks a lot.
Thanks, Jared.
Your next question comes from a line of Brendan Nosal from Hovde Group. Your line is open.
Hey, good morning.
Good morning. I'm doing well. Thank you.
Just to circle back to the loan growth guide, I'm just kind of curious if you could unpack that a little bit around how much you need to see paydowns and line utilization pressure ease off to help you get to that guide versus how much is going to be a pickup in originations?
I'd say this way Brendan, our production is still solid and strong, and our pipeline at $2.7 billion gives us plenty of ammunition, so to speak, to grow this 4% to 6%. So yes, if we see $600 million a quarter of outsized payoffs, that will be a headwind that will be tough to fight. But it would be very unusual for us to see that. There's really outsized this quarter like we haven't seen before. So I think you get any bit of normalcy in paydowns and in line utilization, I think that 4% to 6% is a really good guide.
Yes. Okay. Perfect. Maybe more for me. If I just look at average earning assets outside of the loan piece, I mean, average cash and average securities were up a fair bit this quarter. So there was some liquidity build that helped the NII number. Just kind of curious in the guide for NII, how much non-loan earning asset growth you have contemplated?
I think it will be pretty flat. I don't think we're going to build the securities book. And this quarter was probably a little bit of liquidity drag, all else equal, because of the paydowns that we run.
Yes, okay. Fantastic. Thank you for taking the questions.
Your next question comes from the line of Terry McEvoy from Stephens. Your line is open.
Hi, thanks. Good morning.
Good morning, Terry. Hopefully, you're warmer than we are here in Indiana.
Not much. First off, congratulations to Mark on your retirement. I enjoyed working with you over the last two decades. Jim, what are your thoughts on filling that role? I know you mentioned it briefly in your prepared remarks. How important is it to have someone with a Chicago area background, considering the franchise there?
I would start with, well, it's incredibly important to have leaders sitting right there in Chicago. Obviously, it's the biggest part of our franchise. And we're going to have succession that's going to happen over the next handful of years, as expected is kind of normal succession. We'll make sure that we have our fair share of leaders sitting right there in Chicago. That's important, I'm heading there this afternoon as we speak. This is a place that we spent an awful lot of time in. We've got a lot of resources dedicated and we'll work through all the succession that will ultimately happen across their entire footprint. But I believe in having leaders in those markets. I would add Minnesota to that; we've got a number of leaders today in the Twin Cities area, and we continue to have leaders there. So it's yet to be determined exactly how this all plays out. But to your point, Mark has been an amazing partner. It's been important to us. It really helped us execute on our partnership not only in Chicago, but across our entire company. And big shoes to fill. The good news is we think we have some internal candidates, and we will go on to see just as we're a large organization and the complexities of our organizations continue to change and see what's available to us out there.
And Terry, I'll just add, I thank you for your kind comments. I appreciate it. I've enjoyed working with you and so many people on this line and get a little bit more time. I'm not going anywhere for a bit. So more work to do over these next five months.
Good to hear. And Jim, you guys are no stranger to M&A with your time in ONB. Your thoughts on just new administration, more buyers at the table. How does that change pricing, which the last couple of deals appear to have worked in your favor? Are you hearing anything at all about that $100 billion threshold maybe moving higher under the new administration?
It's difficult to fully grasp all the upcoming changes and their potential impact on the $100 billion regulatory threshold that the new acting chair of the FDIC discussed in their recent guidance. We're trying to take it all in. One of the major challenges related to that $100 billion mark is the Total Loss-Absorbing Capacity (TLAC), which I believe will be reviewed. This could present an interesting opportunity for banks approaching that threshold. Currently, we are not close to that level and have no immediate plans to reach it. However, as we look forward, this is something we are monitoring. Regarding pricing, I still feel there are only a few strong buyers for potential partnerships. Our experience shows that if partners are willing to look beyond initial costs and focus on future value creation, success can follow, though that mindset can be difficult to achieve. We've demonstrated that this approach leads to partnerships that excel after the initial phase. It's essential that all parts function cohesively. There is hope that the approval processes will become more efficient, which has not been a major issue. However, the key will still be finding partners committed to making long-term investments in each other, and pricing will play a significant role in ensuring that these partnerships perform well after the announcement.
Great, thanks again Jim. And a quick modeling question for John. Can you just remind me what percentage of your securities are floating rate today?
I think we'll need to follow up on that quickly, but I don't consider it a significant issue.
We'll come back to you hope for the call here.
13%.
Perfect.
13%. Thank you.
13%. Okay, thanks guys. Goodbye.
Thanks, Terry.
Your next question comes from Jon Arfstrom from RBC Capital Markets. Your line is open.
Well, we know we're warmer than the Twin Cities this morning. So we're grateful for that.
Yes, you are. Yes, you are. Just can you talk a little bit more about the payoff trends, just kind of anything unusual to call out? I mean, I know you said it was abnormally large, but anything to call out there?
There was a bit more activity in the capital markets and some refinancing in the secondary market, including a few larger transactions that are unlikely to happen again. Overall, there was some increased activity in the secondary market, along with a couple of significant deals that influenced the totals.
I think the borrowing of the secondary market, right is helpful. That's generally a good thing for us. I mean, yes, we might see some increased payoffs as people access the capital markets. But I think, generally speaking, we won a good healthy capital markets section. So while maybe a little bit of short-term disappointment in the balance sheet didn't grow exactly like we thought we said market production was still really good. It's just with the line utilization being off and a couple of unique transactions that just hit us towards year-end here. But I think that's generally a favorable thing for all financial institutions.
Yes, I agree. Is there any update on the non-performers and those that have been classified and criticized? I'm curious about your overall assessment of credit moving forward.
Yes, we feel good about credit. It's continued to normalize and our activity was kind of equal on both sides. We moved some things out and continue to see some migration as we get through the end review cycle. So kind of a quiet quarter on credit right where we expected it to be.
Okay. Good. And then do you have anything on Bremer? Just curious what kind of feedback you're getting and updated thoughts now that you're not working in the dark at night keeping it quiet updated thoughts on what you expect from the combination?
I want to emphasize that we spent a couple of days there last week, and the executive team and leaders we met were extremely enthusiastic about this partnership. I truly believe they are eager to explore growth and investment opportunities in their franchise, aiming to enhance a great organization even further by combining our strengths. The talent we found on both the client-facing and support sides is impressive, which is essential as we expand and seek more skilled individuals. After last week, my excitement has only grown compared to when we approached the announcement towards year-end. I remain impressed by the talent and capabilities of the people involved. Looking ahead, I see great potential for leadership opportunities in Minnesota, North Dakota, and Wisconsin, particularly for those who can lead significant parts of our franchise from the Twin Cities. This is a remarkable opportunity for us that I believe we will recognize as a pivotal moment in our transformation.
Okay thank you.
Thanks.
Our next question comes from the line of Chris McGratty from KBW. Your line is open.
Great. Good morning.
Good morning, Chris.
First off, Mark, I want to congratulate you on your retirement. It has been wonderful working with you over the years. John, I have a question regarding slide 16. Can you provide insights on the quarterly cadence of net interest income? I think I understand why it was down about 10% in the first quarter due to the accretion you mentioned earlier. Could you clarify the ramp in Q2? Is that mostly due to the significant resets in the back book, with a $15 million increase in the second quarter?
Yes. Don't forget too that there's two less days in 1Q, so we get those two days back in 2Q, which is a helper, right? And it's back book repricing a little bit of growth.
Okay. Regarding the mid-year closing and the CRE loans, you've mentioned the possibility of selling or not transferring them. Is there a broader assessment of the balance sheet at this time, including potential securities restructuring? Do you have the capital to do this, and is there a willingness to consider something more that you may not be ready to disclose yet that could enhance some net interest income?
No, I don't think so. I think what's on the table is we will take a hard look at their investment advantage of purchase accounting marks to reposition that likely on day two. And then the CRE sale that we highlighted. To Jim's point, capital came in better this quarter than what we had expected; depending on ultimately where things kind of move around over the next six months, we might be able to do more or less of that, but we'll continue to look at that one closely.
Yes. I would say other than kind of normal balance sheet adjustments that we've done in every single one of our past partnerships; don't expect a big balance sheet transformation here. We just don't need it, quite frankly. I think we're sitting in a pretty good spot to deliver the balance sheet we thought we were going to deliver when we started this process.
Okay. So it seems to that you're going to keep capital for growth first and foremost, and then the buyback would certainly need to come into the narrative in the back half of the year, early '26.
Yes. I'm not quite sure we ever get really paid back for doing big balance sheet transformations. So I just think all things being equal, still deliver the capital balance sheet we thought we were going to deliver when we started out.
All right, great. Thank you.
Thanks.
And there are no further questions at this time. I'd like to turn the call back over to Jim Ryan for closing remarks.
Well, we're all huddled here cold with heaters on trying to navigate this polar vortex. We hope you guys are all staying warm and really appreciate your support. The whole team will be here all day to answer any follow-up questions you have. Have a great day.
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 9682-197. This replay will be available through February 4. If anyone has additional questions, please contact Lynell Durchholz at (812) 464-1366. Thank you for your participation in today's conference call.