ONB - Old National's Strong 2nd Quarter Driven by Robust Commercial Loan Growth and Net Interest Margin Expansion

EVANSVILLE, Ind., July 26, 2022 (GLOBE NEWSWIRE) --

CEO COMMENTARY :

SECOND QUARTER HIGHLIGHTS ² :

¹ Non-GAAP financial measure that management believes is useful in evaluating the financial results of the Company – refer to the Non-GAAP reconciliations contained in this release ² Certain comparisons to prior period are not meaningful due to the full quarter impact of the merger with First Midwest Bancorp, Inc. ("First Midwest") ³ Includes loans held for sale ⁴ Includes consumer and residential real estate loans

RESULTS OF OPERATIONS

Old National Bancorp ("Old National") reported second quarter 2022 net income applicable to common shares of $111.0 million, or $0.38 per diluted share.

Included in the second quarter were pre-tax charges of $36.6 million related to the February 15, 2022 merger with First Midwest. Excluding these charges and debt securities gains from the current quarter, adjusted net income was $134.6 million, or $0.46 per diluted share.

LOANS
Robust broad-based commercial and consumer loan growth.

• Period-end total loans ³ were $29.6 billion at June 30, 2022, up 17.0% annualized from $28.4 billion at March 31, 2022, driven by strong commercial and consumer loan production.
• PPP loans decreased $123.8 million to $81.6 million at June 30, 2022, compared to $205.3 million at March 31, 2022.
• Excluding PPP loans, total loans increased 19.1%, annualized, and total commercial loans increased 17.9%, annualized.
• Total commercial loan production in the second quarter was $2.2 billion; period-end commercial pipeline totaled $5.9 billion.
• Consumer loans grew $86.0 million, or 12.9% annualized, to $2.8 billion and residential mortgage loans grew $372.9 million, or 26.1% annualized, to $6.1 billion, driven by strong production which was partially offset by acquired transactional portfolio run-off.
• Average total loans in the second quarter were $28.9 billion, an increase of $8.1 billion from the first quarter of 2022, driven by the full quarter impact of the merger with First Midwest, as well as organic loan growth.

DEPOSITS
Strong deposit franchise with stable balances.

• Period-end total deposits were $35.5 billion at June 30, 2022, consistent with $35.6 billion at March 31, 2022.
• The gradual deployment of commercial and retail deposits was partially offset by the seasonal increase in municipal deposits.
• On average, total deposits in the second quarter increased to $35.8 billion, compared to $26.9 billion for the first quarter of 2022, due primarily to the full quarter impact of the merger.
  

NET INTEREST INCOME AND MARGIN
Strong loan growth, the higher rate environment and the full quarter impact of the merger favorably impact net interest income and margin.

• Net interest income on a fully taxable equivalent basis increased to $341.8 million in the second quarter of 2022 compared to $226.6 million in the first quarter of 2022, driven by the full quarter impact of the merger, loan growth, higher interest rates, higher accretion income, and an additional day in the quarter.
• Net interest margin on a fully taxable equivalent basis increased 45 bps to 3.33% compared to 2.88% in the first quarter of 2022.
• PPP interest and net fees combined were $1.7 million, or less than 1 bp of net interest margin, in the second quarter of 2022 compared to $3.7 million, or 3 bps of net interest margin, in the first quarter of 2022.
• Accretion income on loans and borrowings was $35.0 million, or 34 bps of net interest margin, in the second quarter of 2022 compared to $15.9 million, or 20 bps of net interest margin, in the first quarter of 2022.
• Interest collected on nonaccrual loans was $3.2 million, or 3 bps of net interest margin, in the second quarter of 2022 compared to $1.1 million, or 1 bp of net interest margin, in the first quarter of 2022.
• Cost of total deposits continue to be low at 0.06%, increasing 1 bp in the second quarter of 2022 and the cost of total interest-bearing deposits increased just 2 bps to 0.09%.

CREDIT QUALITY
Strong credit quality continues to be a hallmark of the Old National franchise.

• Provision expense in the second quarter of 2022 was $9.2 million, compared to $97.6 million in the first quarter of 2022, which included $96.3 million of Current Expected Credit Losses ("CECL") Day 1 non-purchased credit deteriorated ("non-PCD") provision expense related to the allowance for credit losses established on acquired non-PCD loans as a result of the merger with First Midwest.
• Net charge-offs in the second quarter were $1.8 million, or 2 bps of average loans, compared to net charge-offs of $2.8 million in the first quarter of 2022, or 5 bps of average loans.
• 30+ day delinquencies were 0.17% at the end of the second quarter, down from 0.34% at the end of the first quarter.
• Non-performing loans improved as a percentage of total loans to 0.78% from 0.88% at the end of the first quarter due to the merger.
• Loans acquired from previous acquisitions were recorded at fair value at the acquisition date. As of June 30, 2022, the remaining discount on these acquired loans was $131 million.
• The allowance for credit losses stood at $288.0 million, or 0.97% of total loans at June 30, 2022, compared to 0.99% at March 31, 2022.

NONINTEREST INCOME
Increase driven by the full quarter impact of the merger.

• Total noninterest income for the second quarter of 2022 was $89.1 million, an increase of $23.9 million from the first quarter of 2022, driven by the full quarter impact of the merger.
• Mortgage banking revenue was impacted by the higher rate environment, lower gain on sale margins and a higher mix of portfolio production.
• Other income higher primarily due to equity investment returns and recoveries on previously charged-off acquired loans.
  

NONINTEREST EXPENSE
Increase due primarily to full quarter impact of operating costs associated with the merger; efficiency ratio improved.

• Noninterest expense for the second quarter of 2022 was $277.4 million and included $36.6 million of merger-related charges, as well as $1.5 million of tax credit amortization.
• Excluding these items, adjusted noninterest expense for the second quarter was $239.3 million, compared to $172.9 million in the first quarter of 2022, up due primarily to the full quarter impact of the merger, as well as higher incentive accruals reflective of strong performance.
• The second quarter efficiency ratio was 62.7%, while the adjusted efficiency ratio was 53.9% compared to 57.7% for the first quarter of 2022.
  

INCOME TAXES

• On a fully taxable equivalent basis, income tax expense in the second quarter was $29.3 million, resulting in a 20.3% FTE tax rate, compared to 15.2% in the first quarter of 2022, reflective of higher pre-tax net income.
• Income tax expense included $1.5 million of tax credit benefit.

CAPITAL AND LIQUIDITY
Capital ratios remain strong.

• Preliminary total risk-based capital was 12.03% and preliminary regulatory Tier 1 capital was 10.63%, impacted by strong loan growth, partly offset by retained earnings.
• Tangible common equity to tangible assets was 6.20% at the end of the second quarter compared to 6.51% in the first quarter of 2022, driven by the higher rate environment's impact on unrealized losses within the investment portfolio.
• The Company did not repurchase any shares of common stock during the quarter.
• A low loan to deposit ratio of 83.2%, combined with existing funding sources plus available unencumbered, high-quality collateral, provides strong liquidity.

HEALTH SAVINGS ACCOUNTS SALE
As previously disclosed on June 27, 2022, Old National Bank, a wholly-owned subsidiary of Old National Bancorp, entered into a Custodial Transfer and Asset Purchase Agreement with UMB Bank, n.a. (“UMB”), pursuant to which UMB will acquire Old National Bank’s business of acting as a qualified custodian for, and administering, health savings accounts. Old National Bank serves as custodian for health savings accounts comprised of both investment accounts and deposit accounts. Upon completion of the sale, UMB will pay Old National a premium on deposit account balances transferred at closing, or approximately $95 million based on June 30, 2022 balances. Subject to customary closing conditions and regulatory approval, the parties anticipate completing the sale in the fourth quarter of 2022.

NON-GAAP RECONCILIATIONS
See the "Use of Non-GAAP Financial Measures" section presented later in this release for a discussion of these non-GAAP financial measures.

⁴ Tax-effect calculations use management's estimate of the full year FTE tax rates (federal + state)

⁵ Provision for Credit Losses adjustment refers to the initial increase in allowance for credit losses required
on acquired non-PCD loans through the provision for credit losses as a result of the completed merger

CONFERENCE CALL AND WEBCAST
Old National will host a conference call and live webcast at 9:00 a.m. Central Time on Tuesday, July 26, 2022, to review second quarter 2022 financial results. The live audio webcast link and corresponding presentation slides will be available on the Company’s Investor Relations web page at oldnational.com and will be archived there for 12 months. To listen to the live conference call, dial U.S. (844) 200-6205 or International (929) 526-1599, Access code 498391. A replay of the call will also be available from noon Central Time on July 26 through August 9. To access the replay, dial U.S. (866) 813-9403 or international +44 (204) 525-0658, Access code 946843.

ABOUT OLD NATIONAL
Old National Bancorp (NASDAQ: ONB), the holding company of Old National Bank, is the sixth largest commercial bank headquartered in the Midwest. With approximately $46 billion of assets and $28 billion of assets under management, Old National ranks among the top 35 banking companies based in the U.S. and has been recognized as a World’s Most Ethical Company by the Ethisphere Institute for eleven consecutive years.  Since its founding in 1834, Old National Bank has focused on community banking by building long-term, highly valued partnerships with clients and in the communities it serves. In addition to providing extensive services in retail and commercial banking, Old National offers comprehensive wealth management, investment, and capital market services. For more information and financial data, please visit Investor Relations at oldnational.com .

USE OF NON-GAAP FINANCIAL MEASURES
The Company's accounting and reporting policies conform to U.S. generally accepted accounting principles ("GAAP") and general practices within the banking industry. As a supplement to GAAP, the Company provides non-GAAP performance results, which the Company believes are useful because they assist investors in assessing the Company's operating performance. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in the tables of this release.

The Company presents EPS, the efficiency ratio, return on average common equity, and return on average tangible common equity, all adjusted for certain notable items. These items include the CECL Day 1 non-PCD provision expense, merger related charges associated with completed acquisitions, and net securities gains. Management believes excluding these items from EPS, the efficiency ratio, return on average common equity, and return on average tangible common equity may be useful in assessing the Company's underlying operational performance since these items do not pertain to its core business operations and their exclusion may facilitate better comparability between periods. Management believes that excluding merger related charges and the CECL Day 1 non-PCD provision expense from these metrics may be useful to the Company, as well as analysts and investors, since these expenses can vary significantly based on the size, type, and structure of each acquisition. Additionally, management believes excluding these items from these metrics may enhance comparability for peer comparison purposes.

The Company presents loans excluding PPP loans. Management believes that excluding PPP loans is useful as it facilitates better comparability between periods. PPP loans are fully guaranteed by the Small Business Administration and are expected to be forgiven if the applicable criteria are met. Additionally, management believes excluding PPP loans from this item may enhance comparability for peer comparison.

Income tax expense, provision for credit losses, and the certain notable items listed above are excluded from the calculation of pre-provision net revenues, adjusted due to the fluctuation in income before income tax and the level of provision for credit losses required. Management believes pre-provision net revenues, adjusted may be useful in assessing the Company's underlying operating performance and their exclusion may facilitate better comparability between periods and for peer comparison purposes.

The Company presents adjusted noninterest expense, which excludes merger related charges, ONB Way charges and amortization of tax credit investments. Management believes that excluding these items from noninterest expense may be useful in assessing the Company’s underlying operational performance as these items either do not pertain to its core business operations or their exclusion may facilitate better comparability between periods and for peer comparison purposes.

The tax-equivalent adjustment to net interest income and net interest margin recognizes the income tax savings when comparing taxable and tax-exempt assets. Interest income and yields on tax-exempt securities and loans are presented using the current federal income tax rate of 21%. Management believes that it is standard practice in the banking industry to present net interest income and net interest margin on a fully tax-equivalent basis and that it may enhance comparability for peer comparison purposes.

In management's view, tangible common equity measures are capital adequacy metrics that may be meaningful to the Company, as well as analysts and investors, in assessing the Company's use of equity and in facilitating comparisons with peers. These non-GAAP measures are valuable indicators of a financial institution's capital strength since they eliminate intangible assets from stockholders' equity and retain the effect of accumulated other comprehensive loss in stockholders' equity.

Although intended to enhance investors' understanding of the Company's business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP. In addition, these non-GAAP financial measures may differ from those used by other financial institutions to assess their business and performance. See the previously provided tables and the following reconciliations in the "Non-GAAP Reconciliations" section for details on the calculation of these measures to the extent presented herein.

FORWARD-LOOKING STATEMENTS
This communication contains certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, descriptions of Old National’s financial condition, results of operations, asset and credit quality trends, profitability and business plans or opportunities. Forward-looking statements can be identified by the use of the words "anticipate," "believe," "contemplate," "could," "estimate," "expect," "intend," "may," "outlook," "plan," "should," and "will," and other words of similar meaning. These forward-looking statements express management’s current expectations or forecasts of future events and, by their nature, are subject to risks and uncertainties. There are a number of factors that could cause actual results or outcomes to differ materially from those in such statements. Factors that might cause such a difference include, but are not limited to: the continued impact of the COVID-19 pandemic on our business as well as the business of our customers; competition; government legislation, regulations and policies; ability of Old National to execute its business plan, including the completion of the integration related to the merger between Old National and First Midwest and the achievement of the synergies and other benefits from the merger; changes in economic conditions which could materially impact credit quality trends and the ability to generate loans and gather deposits; failure or circumvention of our internal controls; significant changes in accounting, tax or regulatory practices or requirements; new legal obligations; disruptive technologies in payment systems and other services traditionally provided by banks; failure or disruption of our information systems; computer hacking and other cybersecurity threats; other matters discussed in this communication; and other factors identified in our Annual Report on Form 10-K for the year ended December 31, 2021 and other filings with the Securities and Exchange Commission. These forward-looking statements are made only as of the date of this communication and are not guarantees of future results or performance, and Old National does not undertake an obligation to update these forward-looking statements to reflect events or conditions after the date of this communication.