00:06 Hello. Welcome to the Old National Bancorp Third Quarter twenty twenty one Earnings Conference Call. This call is being recorded and has been made accessible to the public in accordance within 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 twelve months. 00:30 Management would like to remind everyone that certain statements on today’s call maybe forward-looking in nature and are subject to certain risks and uncertainties and other factors that could cause actual results to differ from those discussed. The company’s risk factors are fully disclosed and discussed within its SEC filings. 00:51 In addition, certain slides contain non-GAAP measures, which management believes provide more appropriate comparisons. The non-GAAP measures are intended to assist investor’s understanding of performance trends. Reconciliation for these numbers are contained within the appendix of the presentation. 01:10 I’d now like to turn the call over to Jim Ryan for opening remarks. Mr. Ryan, you may begin?

01:16 Good morning. Starting on slide four, we are pleased to share our third quarter results and an update on our partnership with First Midwest Bank. I would categorize this quarter's results as right on plan. Earnings per share were zero point four three dollars and net income was almost seventy two million dollars. During the quarter, commercial loans, excluding PPP loans grew at a strong seven point four percent on an annualized basis with one billion dollars in new production. 01:44 We also ended the quarter with a robust two point seven billion dollar commercial pipeline. Core deposits grew nicely by three hundred and twenty seven million dollars during the quarter. Our net interest margin was stable. Capital markets and wealth management revenue were strong and mortgage revenue rebounded from last quarter. Expenses were well managed and down slightly, primarily due to one-time benefits from incentive and real estate tax accruals. 02:10 Credit quality metrics remain benign with another quarter of net recoveries. Adjusted ROATCE was a strong fifteen point one six percent and the adjusted efficiency ratio was fifty point four percent. During the quarter, we've worked hard with our clients on the PPP forgiveness process. Ninety five percent of Round 1 loan has been forgiven by the SBA, and we already have fifty one percent of Round 2 loans through the forgiveness process. Remaining fees totaled fourteen million dollars. 02:41 Most of our reported credit quality metrics improved during the quarter. We have reduced our reserves consistent with our modeling as a result of the improving economic conditions. We still have approximately thirty two percent of reserves supported by qualitative adjustments given the long term impacts from the pandemic, expectations for higher inflation, persistent labor supply and supply chain challenges. As we gain additional clarity around these…

05:51 Thank you, Jim. Turning to slide six. Our GAAP earnings per share and our adjusted earnings per share were both zero point four three dollar. Adjusted earnings exclude one point four million dollars in early merger related charges, which were largely offset by one point two million dollars in debt securities gains. 06:08 Slide seven shows the trend in commercial loans and the related commercial pipeline and production trends, all excluding the impact of PPP loans. Q3 represents our fifth consecutive quarter for organic loan growth and over that year, commercial outstandings have grown eleven percent. 06:23 Our strong commercial production of one billion dollars was once again led by Louisville and Minnesota markets with all other region posting quarter-over-quarter growth. On balance sheet production was also well balanced by product, with a sixty-forty split between CRE and C&I respectively. 06:40 Commercial activity remained strong throughout the quarter, and we are heading into Q4 with a very healthy two point seven billion dollars pipeline with almost eight hundred million dollars in the accepted category. 06:51 Turning briefly to pricing, new money yields on commercial loans increased from prior quarter, which meaningfully narrowed the gap between new production and portfolio yields. The investment portfolio increased two hundred and sixty three million dollars this quarter as deposit growth once again outpaced total loan growth. We continue to put much of our excess liquidity to work in our investment portfolio with new money yields of one point six two percent and a portfolio duration well within five years. 07:17 Moving to slide eight, both period end and average deposit balances increased nicely from Q2 levels, with most of the growth coming from business clients in the non-interest bearing demand category. Total cost of deposits for the quarter was unchanged at six basis…

12:42 Thank you. [Operator Instructions] Our first question comes from the line of Ben Gerlinger with Hovde Group. Your line is open.

13:04 Hey. Good morning, guys.

13:05 Good morning, Ben.

13:07 I just wanted to take a moment, let's assume that the deal closes in the fourth quarter, which you probably will. So there's going to be a lot of noise integration over the next, so let's call it six months. So are there any areas in which you feel like there is a low-hanging fruits or opportunity to grow loans outside of Chicago? I know that the Minnesota market was an area of pretty healthy growth and that playbook post those two deals couple of years ago, it seems to be chugging right along. So I was kind of curious if you could talk about some the opportunities that you see that present themselves right away and kind of what you are focusing on that two to three year goal, either footprint wide or Chicago it selves?

13:54 Yes, Ben. This is Jim Sandgren. Yes, you're exactly right, Minnesota continues to be a bright spot and we see that as opportunity to grow in the future. Louisville, Kentucky continues to be really good for us, Indianapolis and some of those markets. I know Jim talked a little bit about St. Louis, which is a newer market for us, which have seen some nice growth. And then obviously, with our partners for First Midwest, I mean, we see big upside when we get together with them in the Chicago area, bigger balance sheet. So looking forward to really growing throughout the footprint. 14:29 Yeah. And I think Ben, one of the things that attract us from First Midwest is they have spent more time and they are ahead of the game in terms of building out some niche verticals. I think those niche verticals help us. We can export those across our footprint and maybe give us new opportunities that we weren't looking at today. And I think we can continue to use that bigger balance sheet across the entire footprint to create new opportunities for us.

14:54 Got you. That's helpful. And then in terms of the net interest income, it seems like everything was moving in the right direction. If you look at the momentum perspective, mortgage rebounded well continues to be strong. I was curious is there any areas in which you are kind of doubling down in reinvestment. I know that there are some recent hires in wealth management. Capital markets continues to perform well. Is there any areas in which it's potentially punching above its weigh? We could see some reversion to the mean or is everything kind of operating as is, and we should expect similar results for the next year or so?

15:34 Long term, we continue to believe wealth management as a source for us as well as the treasury management business coupled with a strong commercial business, which means capital markets as well. I think those are the three areas that we continue to believe. Mortgage will just be cyclical, and it'll just drive along with everybody else's mortgage business, but those three areas in particular and we really haven't seen the benefits of our new hires in that wealth management business yet. We're carrying the cost for those new hires and it's not only the three new hires we just talked about, but we've been in a pretty consistently hiring in that area. And so long term, we believe we're going to drive higher than our trend line kind of growth in those areas.

16:14 Got you. Okay. That's helpful color. I will step back in the queue. Congrats on a solid quarter.

16:20 Thanks. Good to see you got first again.

16:24 Thanks.

16:26 Thank you. Our next question comes from the line of Scott Siefers with Piper Sandler. Your line is open.

16:33 Sorry, Scott.

16:35 Jim, I'll just add the -- list of ways I've disappointed people. So well, no appreciate your talking the question. Just as we sort of look at this -- the strong loan growth you guys have been generating. Just curious if you could maybe make a comment or two about what your commercial lenders are seeing in terms of things like pricing and structure and how you guys are responding to that?

17:03 Sure.

17:04 Yes, Scott. This is Jim again. It's really competitive out there. But the good news that we've talked on a number of the last few quarterly calls is that we've been out calling and working with our customers and prospects and building really strong relationships. So I’d tell you credit structure is getting a little crazy. So, we continue to stay disciplined there. Pricing, I think we're doing a good job leading our pricing hurdles quarter-over-quarter. So, it's tough right now. There's no doubt about it. But again, I think because of the strong relationships we've had and in fact, we’ve been out following throughout the pandemic and as we came through it, I feel like that's helped kind of support the growth and I think we're set up on the fourth quarter with a really nice pipeline and a nice accepted portion of that pipeline as well, so pretty encouraged.

17:56 And Scott, you know as well. I mean, we'd gladly give up a few points of growth to stick to our discipline around pricing and structure. So we're going to play a long game here, make sure we stay true to our history and roots.

18:10 Perfect. Okay. Thank you. And then just switching gears a little hiring talent away from some of your competitors that's been a big part of this story over the last couple of years. Just was curious if you can maybe add some comments about what you're seeing in terms of costs to attract new talent and if you could speak to sort of the notion of wage inflation overall within the bank?

18:33 Yeah. That's a good question. We're certainly not immune to wage inflation at all levels. And we intentionally raised our minimums a year ago. And so a lot of that cost is built into our current run rates. And clearly going out and attracting high caliber talent away is more expensive than kind of the average price we pay today. So -- but we think again these are long term investments that we believe are going to pay high dividends. And so we're willing to make those investments and just be really thoughtful and deliberate about it. And we have got a great story to tell and that story resonates so well with so many people today, where they can see themselves being successful in our organization and being able to take care of the clients and really do their best work. And so we keep telling that story, the price that we have to pay is not unreasonable and we think it's good for the long term health of our company.

19:35 Perfect. All right. Thank you guys very much. I appreciate it.

19:39 Thanks, Scott.

19:41 Thank you. Our next question comes from the line of Terry McEvoy with Stephens. Your line is open.

19:47 Good morning, Terry.

19:48 Hi. Good morning, everyone. Jim, maybe start with a question for you. You've been involved in a lot of M&A transactions with your time at Old National Bank. Could you just talk about just the level of discussions with regulators? How in-depth are they as it relates to getting First Midwest closed, just given the size and the structure and essentially what I'm getting at is maybe a soft way of asking, what is the risk that the MOE gets postponed given changes in the regulatory landscape?

20:18 It's really hard to tell Terry. There is an outstanding questions we have with any regulatory agencies in particularly the Fed, obviously, we have OCC approval. And I think like many other bank holding companies, we’re in the queue and we're just waiting for that approval process. We think we've answered any questions they have for us and I really don't have any other feedback and they're not waiting on any new information from us. So we're just going to continue to be patient and thoughtful. I think the most important point though is we continue to work on integration efforts, which are really scheduled to happen in the second quarter. So, none of that work stops. We continue to build relationship through each other. We continue to strategic planning with each other. So, none that really stops, we just keep moving forward and we'll wait for -- be patient and wait for the final regulatory approval and then as soon as we get that will close shortly thereafter.

21:10 Appreciate that. And then as a follow-up, you use to provide average loan size within the commercial portfolio. I'm just wondering has that changed following, the ONB way and industry verticals and are you competing now kind of an up market for larger deals that's contributing to some of the -- at least the dollar growth that we're seeing in the commercial portfolio?

21:33 Yes, I'll give some high level commentary and let Jim get into details. But it's certainly on average higher. Just as we entered larger metropolitan markets most notably when we entered Wisconsin and Minneapolis specifically, I think we've just seen that trend to move higher. Even having said that I still think it's pretty granular on average. And today, Jim, we're running – what was the average recently.

21:57 So for C&I, we're about three hundred thousand dollars from a portfolio perspective and commercial real estate about little over nine hundred thousand dollars. So, to your point still very granular.

22:08 Great. Thank you guys.

22:10 Thanks, Terry.

22:11 Thank you. Our next question comes from the line of Chris McGratty with KBW. Your line is open.

22:18 Good morning, Chris.

22:20 Hey, good morning, everybody. Jim, I think I want to start with loan growth typically when MOEs get announced, there's a little bit of market apprehension about pro forma growth rate. You guys had solid growth First Midwest had a little bit of growth this quarter. How are you thinking about the pro forma profile of the company, especially with the economy recovering?

22:44 No. I think both organizations are going up every day. Go out, talk to its clients, service communities, right and loan growth will be somewhat dependent on kind of the status of the economy, right? But I think the loan growth that we've been putting up from producing is the kind of loan growth we ought to be able to put up and produce in a normal kind of economy or even slightly warm economy that we have today, right? So while we haven't given any specific guidance, I think what you see is what we should continue to produce. We do think there again, -- there's upside relative to the total balance sheet and our whole limits will potentially increase in the future plus leveraging those industry verticals. So I think there's great opportunities for us to continue to grow the loan portfolio.

23:29 Okay. And then on the deposit growth you and some of your peers, I think have spoken about just the surprise factor of the deposit sale on balance sheet to continuing to come in. With that confidence, can you speak to kind of the pace of investments as securities investments you might make, you've grown on the bond book a little bit in the last couple of quarters. Just trying to see an outlook for that? Thanks.

23:50 Yeah, Chris. We continue to put the excess cash to work. We're actually sitting a little more cash this quarter than last quarter and will be thoughtful as we put that to work given the outlook on rates. But our buy is just to put more money to work than us.

24:08 Great. And then maybe if I could sneak one in on, once you close the deal, you guys have a ton of capital maybe updated thoughts on returning capital through buybacks?

24:18 Yes. Our capital priorities will remain the same, look at the current valuation, we've think there's a great opportunity to return. Return money to investors to see a share repurchase. We have an authorization outstanding today that will take us through the end of the year and we'll be looking for an opportunity to make use of that.

24:39 Okay. Thank you.

24:43 Thank you. I'm showing no further questions in the queue.

24:47 Well, thank you all for your support. As usual, Lynell and Brendon and the whole team is available to take any follow-up questions. Thanks again and have a great day.

24:59 Ladies and gentlemen, this concludes Old National’s call. Once again, a replay along with the presentation slides will be available for twelve months on the Investor Relations page of the Old National website, oldnational.com. A replay of the call will also be available by dialing 855-859-2056. Conference ID Code is 4242648. This replay will be available through November 2nd. If anyone has additional questions, please contact Lynell Walton at 812-464-1366. That’s 812-464-1366. Thank you for your participation in today's conference call. You may now disconnect.