Welcome to the Old National Bancorp third quarter earnings conference call. This call is being recorded and has been made accessible to the public in accordance with the SEC's regulation FD. The audio webcast and corresponding presentation slides can be found on the investor relations page at oldnational.com and will be archived there for 12 months. Thank you for joining us. Thank you for joining us. Good morning. Good morning.

Earlier today, Old Nash reported another record quarter with third quarter EPS of 66 cents and new records in net income, adjusted diluted EPS, and adjusted efficiency ratio. These results reflect the strength of our franchise and disciplined execution of our strategy. Growing profitable relationships, funding that growth of core deposits, maintaining strong credit standards, and operating efficiently. Growth remained healthy and balanced with strong deposit growth and continued expansion of both C&I and CRE lending. Active portfolio management moderated reported loan growth during the quarter. Despite the increased competition, we remained disciplined and pursued opportunities that met our pricing, relationship, and credit hurdles. These results reflect our consistent focus on full relationships, sensible pricing, strong underwriting, and core deposit funding. Revenue trends remain constructive with continued growth in net interest income and broadly stable fee income performance. As John will discuss, we believe the current rate environment is modestly helpful to net interest margin going forward. Operating discipline remained a clear strength. We delivered record efficiency while reducing adjusted expenses from the prior quarter, even as we continued to invest in technology, AI, process improvements, and talent. This balance supports strong current returns and durable shareholder value. Credit quality remains stable and consistent with our expectations. We continue to manage credit proactively, maintain rigorous underwriting standards and stay close to our clients. Our diversified portfolio and straightforward banking model continue to serve us well. Our capital position remains strong, supported by continued significant capital generation and tangible book value growth. Thank you for joining us today. Two in Cleveland and two in Columbus. Important expansion markets where we believe our brand and go-to-market strategy will resonate. We also added leaders in our fintechs, FX, and food and beverage businesses, broadening capabilities that support key strategic priorities. We are pleased with the caliber of talent we attracted and developed during the quarter. We will continue to invest selectively in high quality bankers and specialized expertise where we see attractive opportunities to drive organic growth, deepen client relationships and expand fee income. In summary, this was another record quarter with disciplined growth, exceptional efficiency, stable credit and strong capital. We remain focused on the fundamentals that create durable shareholder value, profitable organic growth, deeper client relationships, disciplined investment, and strong risk management. I want to thank our team members for their continued commitment to our clients and one another. With that, I'll turn the call over to John to discuss the quarter's financial results in more detail.

As Jim mentioned, we delivered a strong quarter, highlighted by record earnings and efficiency, very strong deposit growth, and many more. We also reported balance loan growth, disciplined expense management, stable credit performance and meaningful capital return to shareholders. Beginning on slide five, we reported GAAP 3Q earnings per share of 66 cents. Less than $1 million of merger related expenses were offset by a similarly sized valuation gain on the settlement of the legacy Bremer pension plan. Excluding these, our adjusted earnings per share were also 66 cents. Results were driven by strong deposit and disciplined loan growth, and well-controlled expenses. Credit remained normalized with 24 basis points of non-PCD charge-offs. Our profitability profile remained top decile as compared to our peers with return on assets of 1.37% and return on tangible common equity of 19.6%. Capital finished the quarter with CET1 over 11% and we grew tangible book value per share 5% year over year. but for the impact of higher rates on AOCI, tangible book value would have increased an even stronger 13% annualized from the prior quarter. We continued to return capital to shareholders through cash dividends and share repurchases in the third quarter with a combined payout ratio of 62% of net income to common. On slide six, you can see our quarterly balance sheet trends underscoring continued strength in our liquidity and capital positions. Driven by strong deposit growth, our loan to deposit ratio declined to 89% and the CET1 ratio remains above 11%. Again, we compounded tangible book value per share year over year, despite the impact of merger charges and the increased pace of capital return. We repurchased $100 million or 3.9 million shares during the current quarter and $327 million or 13.4 million shares over the last year. As we've stated in the last several quarters, we continue to believe that the best investment we can make today is in ourselves. On slide seven, we show trends in earning assets. Total loans grew 3% annualized from last quarter and 7% annualized year over year. This growth was led by our commercial portfolio with CNI up 12% and CRE up 3% year over year. Production this quarter was balanced across our commercial book and remained predominantly floating rate. The next few quarters should be supported by a pipeline of $4.4 billion, up 6% from a year ago. The investment portfolio declined due to rate-driven market valuation with new purchases coming on at higher yields. We expect $1.8 billion in cash flow over the next 12 months. Today, new money yields are approximately 6%, which are well above backbook yields of 4.2%. Loan growth, ongoing repricing across both loans and securities, and deposit pricing discipline supports continued growth and spread revenue into the fourth quarter. Moving to slide eight, we show trends in deposits. Period end total deposits increased 11% annualized, primarily driven by $1 billion of organic increases in business accounts and seasonal strength in public funds. Non-interest-bearing deposits grew $182 million and represent 22% of total deposits. Like our loan pipelines, deposit pipelines remain healthy. Both total deposit costs and interest-bearing deposit costs increased eight basis points linked quarter. We remained on offense with respect to client acquisition in a competitive deposit environment. The spot rate on total deposits was 187 basis points at September 30th. Overall, our deposit strategy outperformed our expectations even after adjusting for normal seasonal strength in public funds. Slide 9 shows our quarterly income statement trends. As I mentioned earlier, adjusted earnings per share were a record 66 cents for the quarter and our profitability remains peer leading. Moving on to slide 10, we present details of our net interest income and margin. NII grew 4% annualized from two Q levels. Total margin was down modestly in the quarter with rate, volume, and day count benefits offset by increased funding costs. We anticipate fourth quarter growth in NII dollars to be supported by continued earning asset generation, disciplined deposit growth, fixed asset repricing, and the slightly higher mix of floating rate loans. We remain well positioned to the forward curve, and based on current spot rates for loans, deposits, and securities, and assuming a static balance sheet, we would expect a two basis point positive impact to margin, all else equal. Slide 11 shows trends in adjusted non-interest income, which was $128 million for the quarter. Core banking, wealth, and capital markets fees continue to perform well, while mortgage fees reflect some softness given the rapidly changing rate environment. Continuing to slide 12, Adjusted non-interest expense was $355 million for the quarter. Run rate expenses remain well controlled, driving positive operating leverage both quarter over quarter and year over year while delivering a record low 44.9% adjusted efficiency ratio. As Jim mentioned up front, we continue to invest in top talent across our footprint in both commercial and wealth. Third quarter saw a strong pull through from the talent pipeline with many of these hires happening late in the quarter. I'll discuss the anticipated expense impact on our outlook slide. On slide 13, we present our credit trends. Total net charge-offs were 27 basis points or 24 basis points excluding charge-offs on PCD loans. Criticized and classified loans declined 9% this quarter and are down 16% from a year ago. Non-accrual loans remained relatively stable linked quarter at 92 basis points of total loans, but are likewise down meaningfully from 123 basis points last year. The third quarter allowance for credit losses to total loans, including the reserve for unfunded commitments, was 120 basis points, down one basis point from the prior quarter, primarily driven by charge-offs on PCD loans and improved credit quality. On slide 14, you can see our strong capital position at the end of the quarter. Tangible book value per share was up 5% year over year. Overall regulatory capital ratios were up modestly linked quarter, with strong earnings absorbed by loan growth and continued share repurchases. Previously mentioned, we repurchased $100 million of common stock during the third quarter, and we have $177 million remaining under our program. Slide 15 includes our outlook for the full year 2026. Our overall expectations remain unchanged from the guidance that we first provided in January of this year. We continue to expect positive operating leverage, growth in tangible book value, and EPS growth exceeding 15%. We expect to achieve these results even as we have navigated a markedly different operating environment over the course of the year and our 2026 estimates proved to be durable. As you can see, we believe our year-to-date results and current pipeline continue to support full-year loan growth of 6% to 8%. You'll recall that we increased this range last quarter given the strong performance in the first half of the year. With three key results and a focus on striking the right balance between growth of full relationships that come with sensible pricing and credit discipline, We now expect mid-single-digit growth for the fourth quarter, which would bring us to the lower end of the annual range. Our NII guidance is unchanged. Obviously, the exact path of NIM and NII in the fourth quarter will be dependent on balance sheet growth dynamics, the shape of the yield curve, the production mix, and the deposit landscape. However, we believe our balance sheet is well-positioned to the forward curve and, as previously mentioned, our spot margin is up slightly from 3Q levels. That said, given the year-to-date results, mathematically we expect full-year NII to come in on the lower end of the stated range, with 4Q NII dollars expected to show continued growth from 3Q levels. Our fee income guidance, which had also been increased earlier in the year, remains unchanged. We expect our core fee businesses to continue to perform well, with mortgage fees softness likely to continue in 4Q amid the rising rate environment and seasonal factors. Our outlook for expenses is likewise unchanged and given year-to-date results is now expected to fall near the lower end of the annual range. Robust hiring at the end of the third quarter is expected to run rate into 4Q and next year. The outlook for credit and tax rates are also unchanged. Finally, we expect to fully utilize the remaining buyback plan opportunistically over the course of the current authorization, which runs through the end of February 2027. In aggregate, We continue to expect 15% plus EPS growth, positive operating leverage, peer leading profitability, normalized credit, and sustained growth in tangible book value per share. Importantly, the durability of that outlook has now been tested across three consecutive quarters of volatility in the operating environment. It is held and it is expected to result in record EPS for 2026. To close, this was a strong quarter for Old National. Record earnings, record efficiency, very robust deposit growth, improving credit trends, and continued capital return. These are not one-time results. They are the direct output of the franchise we have built. A franchise with peer-leading profitability, sustainable growth, a diversified and growing fee income platform, and a capital base that gives us the flexibility to invest in talent and technology while returning meaningful capital to shareholders. We're not just performing well today, We are investing to ensure Old National is an even stronger company in 2027 and beyond. With those comments, I'd like to open the call for your questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. If you would like to submit a question on the webcast, please press star one as a reminder. Please stand by while we compile the Q&A roster. Your first question is from Daniel Tomeo with Raymond James. Your line is now open. Please go ahead.

Thank you. Good morning, everyone. Maybe just starting. Yeah, good morning. Maybe just starting on the margin, John. The guidance, I think you said up two basis points is your thoughts for the fourth quarter, if I'm not mistaken. and then I think I saw on the slide deck that the spot rate was up two basis points at the end of the quarter. So implying kind of stable in the fourth quarter. Just trying to think through where the trend goes from here. I mean you've been talking about that continuing to move up. Is that still the overall thought that the margin would be kind of moving higher from here? Is the fourth quarter just kind of some impact from rising deposit costs following the The hike in September and anticipation for one in December. Maybe you could just talk through the margin dynamics.

Yeah, for sure. The two basis points spot that we talked about is what it would look like right here, right now, today, not factoring in anything else for what might come later this year. Really based on, you know, sort of Fed Fund futures and forward curve, probably we're going to get a little bit more help, and that'll be modestly beneficial, I think, to the quarter. So I think in general for 4Q, we could expect to see NII dollars continue to move up. I think that'll have, you know, as opposed to the 592 level that we were at in 3Q, probably has a six in front for 4Q, and then a margin that'll expand a couple of basis points from here.

From the 3Q average level, correct? The 352? Yeah.

Yeah, correct. The 352 today would be 354. And if we get a little bit more help, it would be even better than that. And so I think the expectation of a modest improvement in margin is probably the right way to be thinking about 4Q.

Got it. Okay. Thank you, John. And then maybe just digging into the deposit pricing, if I can for a second, was this A little bit more, I mean, you know, the margin was down a bit in the quarter. Was the deposit pricing or the rise in deposit cost more than you guys expected? And then just looking in, zeroing in on the money market and checking account, it looked like you had a decent increase there. If you could just kind of give us a little color on what drove that, that'd be helpful.

Yeah, so eight basis points in the quarter, four basis points of that was just the growth that we put on. and that growth is coming on a little bit more expensive than probably what we would have thought earlier this year. But, you know, we've been talking all year about it's a competitive environment for deposits. We're staying on our front foot. We're very interested in continuing to grow deposits in line with our earning asset growth. The other factor in this quarter is a little bit, usually three cues, seasonal strength in the public fund side of things. And those can be a touch pricier. That had a couple of basis points impact on the quarter's deposit costs. but I think overall we're in really good shape continuing to fight it out in a competitive environment and interested in growing core client deposit. And I think, look, when you look year on year, CNI up 12%, those don't all show up on day one and Tim and team are really actively getting after it in terms of getting deposits in the bank.

So the increase in the money market and checking was not so much repricing as it was, or maybe some repricing, but it was more incremental. Is that what you're saying?

Yeah, I think a lot more incremental. Back book, we continue to work hard.

Okay. All right. Well, thanks for the call. I appreciate it. I'll step back.

Your next question is from David Chiaverini with Jefferies. Your line is now open. Please go ahead.

Hi, thanks for taking the questions. Good morning. So on the loan side, can you talk about the pipelines? It sounds like up nicely versus a year ago, 6%. I guess to the extent you can talk about how much higher rates in this backdrop is impacting loan demand of your clients.

Sure, good morning, David. Yeah, we talk to our clients every day and we continue to be impressed with their ability to navigate the uncertainty in the rate environment. And we don't see a change in demand right now for commercial lending. We continue to be optimistic about the pipelines. We see good growth in the pipelines and feel good about where they're at and where they're trending.

And would you say it looks like CNI has a bit more momentum than CRE. Is that the expectation? for the next few quarters as well?

Yes, I think that's a fair way of saying it. We've got really strong CNI results. John mentioned we're up 12% year over year. Our pipelines in CNI continue to look good. We're investing in talent and capabilities there that I think have us well positioned in the market. You know, I think when you think about the interest rate environment going forward, you'll see that impact CRE, I think, as an industry. but we feel like we're very good in the CRE space. We're consistent in that space. The market knows that we consistently execute there. So we'll continue to see growth in CRE, but I think CNI will continue to outpace it.

And relatedly, the 19 commercial relationship managers that you brought on, are they focused more on CNI than CRE or do they kind of offer kind of both products?

Yeah, the majority of those bankers that we hired are going to be primarily focused on C&I bankers. We have a great CRE team that we continue to increase and improve. But for the most part, the majority of those 19 bankers are going to be C&I focused in our metro markets.

Very helpful. Thank you. Thank you. Your next question is from Brendan Nozal from Havdi Group. Your line is now open. Please go ahead.

Good morning, everybody. Thanks for taking the questions. Good morning. Maybe to shift gears here to capital, I'm just kind of curious if this quarter's fair TCE position, just following the AOCI drag, lessens the enthusiasm for how you think about shared purchase going forward?

No, not at all, Brendan. I think we have plenty of both red cap and gap cap. You know, we feel good about where we are, especially against the risk that we take on the balance sheet. I think no change to plans. Continue to expect to execute the $177 million that's left on the repurchase authorization. Maybe a little bit more opportunistically over the balance of this, but we would expect to exhaust that.

Okay, perfect. Maybe shifting gears to this quarter's commercial hires. I haven't heard you folks talk about Ohio in a long time, but now you've got four new people on the ground there. Maybe just talk about the opportunity that Old National has kind of in those markets and what you ultimately want to accomplish there.

Oh, thank you. And well, just personally speaking, I've spent 30 years in Northeast Ohio personally and professionally, so I feel like I have a Good understanding of the market, the talent. And when you think about Cleveland and Columbus, they're very similar to our other large Midwestern cities. You know, strong C&I, middle market, manufacturing, the types of business banking clients that we think we are very well positioned to continue to grow. So they're markets we know well. We know the talent that we hired. We think there's opportunities in those markets to expand, and we feel our story resonates very well there. So we're excited about the opportunity.

Okay, great. Thanks for taking my questions.

Your next question is from Brandon Rudd with Stevens Inc. Your line is now open. Please go ahead.

Morning. Thanks for taking my questions. I guess if I could start, you can mention new loan originations are focused more on the I'm just kind of curious what that blended new origination yield is compared to the roll-off rate of about 5.1% on page 10.

Yeah, compared to the back book, fixed repricing, so fixed to fixed is going to be well north of 100 basis points, but fixed into what we've been putting on is kind of 100 basis points against the back book. We've got, again, to remind you, 4.6 billion, a fixed rate coming out of the loan portfolio. And then on the securities side, you didn't ask about securities, but I'll give it to you anyway, 1.8 there, and that's, you know, 180 basis points or better in terms of what we're putting on there. In terms of yields themselves, up five basis points, linked quarter. It's up closer to 10 basis points on a spot basis. And again, I think if we get the, forward curve and Fed moving the way that the market expects it to, we would see a lift starting in November on that book. The float mix on the balance sheet has shifted a little bit over the last year, and so we'll get a little bit of a helper there.

Got you. Okay, thank you. And I think you mentioned the increase in deposit costs more related to new growth rather than back book repricing. and I know your guide doesn't include an additional rate hike but when you think about this hiking cycle kind of what are your initial expectations for interest bearing or total deposit betas as you work through these hikes?

Yeah I think look interest bearing should show pretty good growth this quarter up 182 million bucks you know we're pleased with that absolutely I think the more CNI business that we're doing the more shots on goal we have and with the with companies for operating accounts. And we intend to grow that bucket. I think in terms of cash sorting, everybody that's gonna sort has sorted. We've been in a cash sorting environment for the last three plus years at this point. So I wouldn't expect too much to change on that. The other thing that's kind of interesting about us, the median balance for our total deposits are 3,800 bucks. If you rip out the CDs, it's closer to $3,000. like there's just not a lot to do with sorting uh uh and so uh you know I think I think where we are in terms of mix is probably going to be pretty stable okay sorry and I guess I was I was asking more more more more about the betas on incremental rate hikes from here all right your expectations there there's nothing Nothing that we see in our book today that changes our expectation. We were 40% up, we were 40% down. I think based on what we see in our back book today, our expectation would be that we would be about in line with what the historical average has been. The interesting thing out of that exception book, though, is that our turn in the book and our retention there has been way better than what we thought. And so maybe there's a little bit more opportunity to kind of test and learn in that. But again, we want to stay focused on growth and deposits.

Got it. Okay. Thanks very much.

Your next question is from Brian Foran with Truist. Your line is now open. Please go ahead.

Hey, I've got a bunch of investor inbound questions just on the deposit growth. So hopefully I can just hit through them real quick. I mean, obviously the 11% annualized is a great result. But first, do you happen to have the brokered balance at the end of 3Q? Did that contribute at all to the growth?

Brokered was actually down in the quarter. It was a really strong organic quarter for us. I would say a billion was kind of organic. And then we had a win in the public side. It was a little bit of a larger deposit relationship. And then the normal seasonal strength in public funds added probably 450 million or so to the quarter's balance.

Perfect. That was my second question on. Then back to the question about the money market growth. I see on the website there's a 385 promo. I'm not sure when that started. Any chance you've got a breakdown of how much of the growth was from that promo offer?

That one we might have to follow up with you after. I'm not sure that I have that number handy.

Got it. And then the last one, just on the legacy Bremer footprint, I mean, I've never loved the FDIC market share reports and, you know, I'm very cognizant that things like rehousing commercial deposits can move things a lot. You know, but some people pointed to this year at Princeton, I believe, at a 2.9% share for Old National. at least in the Minneapolis MSA and last year it was 3.5. Can you kind of walk through how you think about how the Bremer footprint is doing? Do you think there's been any share erosion or maybe is it things like moving some corporate relationships to the national headquarters or something like that?

Yeah, that is exactly what's going on. That summary of deposits report is... I would describe that thing as directionally correct, but specifically wrong. And how you household municipal deposits, broker deposits, large corporate deposits can sort of swing that around in any given year. And yeah, so I think underneath the surface, the core Bremer franchise, I would describe as very stable.

And we've seen a pickup in the pipelines from our legacy Bremer footprint that lead us to believe strongly that the results going forward will continue to be stable and we'll be able to build and grow those markets as well.

Got it. I'm not sure you'll answer this one, but I'll try. Some people have pointed to the margin and consensus reaching 365 or so by second half next year. Any thoughts on what you think a normalized or achievable margin over time is or, well, maybe I'll just leave it like that and let you decide.

I think that the curve, should it play out, will be helpful for us, modestly helpful. And so I think that we can see improvement in 4Q and then maybe sustained improvement into 27. But we'll come back in January and refresh you on that set of assumptions.

Thank you for taking my seven-part question.

Your next question is from Nathan Race with Piper Sandler. Your line is now open. Please go ahead.

Hey guys, good morning. Thanks for taking the questions. I was hoping just to walk through some of the takes from a loan growth perspective in the quarter. You know, I think you're coming off a record loan pipeline coming out of June. um yet you know I think Jimmy alluded to some portfolio optimization in the quarter um so just curious kind of what you saw in terms of kind of a payoff and uh production uh I'm sorry from a payoff perspective in the quarter and just any thoughts on why you know the pipeline and an afford queue is down from a commercial perspective uh 20 or so uh

Morning, Nathan. Thanks for the question. Yeah, we feel very good about where we landed the quarter. You know, when you think about navigating the competitive landscape, having strong pricing discipline, which allowed us, as John mentioned, to increase loan pricing by five basis points and 10 basis points in our spot rates. You know, that said, we delivered 3% loan growth for the quarter, and we feel good about our ability to hit our increased loan growth range for year end. Speaking on payoffs, we had a couple of payoffs on the CRE side. I think when you have projects and you see rates going up, there's going to be some payoffs and paydowns there. We had a couple of those that happened right near quarter end. But like I said, we feel good about the pipelines, our conversion rates, and our ability to continue to grow loans at Equip that we've provided guidance on. So feel good about where we're at and good about where we're going.

Okay, that's helpful. And John, I appreciate you speaking to kind of the lower end of the NAI guide for the quarter, but maybe just looking to expenses as maybe an offset relative to maybe more conservative thoughts from a top line perspective there. But, you know, is it fair that maybe expenses come in at kind of the low end of the expense guide for the year? Obviously really good cost controls in the quarter, but just curious on kind of how you see the expense run rate turning into 4Q.

Yeah, I think you've got it read correctly there. I think, you know, when you look at that range, 1435 to 1455 on the year, our expectation would be at the low end of that range. I think we do take off as compared to 3Q. And again, a lot of the hiring that we did was kind of back end loaded in this quarter. So 4Q will run higher than 3Q. But absolutely, we think for the year, we're going to end up at the low end of that prior annual guide.

And one thing I would share back on the loan growth, you know, our line utilization for the quarter was slightly down. So we think there's some embedded, you know, demand that we'll see that pick up as, you know, C&I companies are looking to build inventory and other items. So we think that's also could be a tailwind for us going forward.

Okay, great. And then just going back to some of the commercial hires in the quarter, lastly, it seems like good momentum there. Just curious to what extent, if any, you're having some attrition with some of your commercial bankers, maybe seeing some competitors pay up more for talent these days, or do you kind of expect kind of continued net growth in kind of your commercial banker producer headcount as we get into next year, or are you seeing kind of increased competition for kind of some of the high-quality competitors?

Yeah, I mean, the market is very aggressive right now for talent. You know, from a timing perspective, as we're sitting here in October, you know, I would expect that to wane by, you know, for year end in Q1 until bonuses are paid out. But it's very competitive and we feel we're doing a very good job of being proactive to keep our top bankers and, you know, continue to give them a platform to succeed. As far as adding new bankers on a net basis, yes, that'll continue to be the plan to invest in top talent and continue to grow our banker base. We see an opportunity for our story to resonate in the market very well. The conversations we're having, the talent that we're talking to, I think, are excited about the opportunity and we'll continue to have those conversations and look to grow net bankers up as we move forward.

Okay, great. I appreciate all the color.

Thanks, guys. Your next question is from Janet Lee with TD Cowan. Your line is now open. Please go ahead. Morning, Janet.

Good morning. Given the seasonality of public deposits in the third quarter, it seems like it may come down a little. in the fourth quarter. What is the implication on the deposit cost? Because on the slides, it says spot rate of 187, which is a bit of an increase versus the average. But if the deposit growth on the public side moderates a bit, could that help on the magnitude of the deposit increase in the fourth quarter being a little bit less and the third quarter and spot rate. Could it be below the spot rate of 187 or is that too optimistic?

I would say that that's probably optimistic. I do think those, you know, muni flowing out could help deposit costs by a couple of basis points, two basis points, three basis points, something like that. and that's, again, kind of normal seasonal flows. So those are still sitting there the early part of this quarter, but they flow out.

Got it. And the 40% beta you mentioned, that's on the interest-bearing deposits?

No, total.

Total. Got it. I heard your message around your intent to use up all of the remaining buyback authorization. That'll go forward. Is there a good target payout ratio that you keep in mind? You did 62% on a combined basis. Is that a good level on a go forward?

We haven't really targeted a combined payout ratio. But I think, look, the fact is we're putting up returns on tangible common equity in the high teens. Those are sort of peer leading sort of profitability. So we stack capital up very, very quickly. And we would continue, our plan certainly would be to continue to return that capital to shareholders. So, you know, I think that's been running 60-ish percent plus minus the last couple of quarters. And, you know, we'll re-rack things and come up with a new authorization in February.

Okay, got it. Thank you.

Sure. Your next question is from Timur Braziler with UBS. Your line is now open. Please go ahead.

Hi, good morning, everyone.

Good morning.

On the CD side or on the time deposit side, I'm just wondering some of the growth there, if you're able to lock in duration and maybe capture some of the, albeit higher costs, lock that in for a little bit longer here, if that customer appetite is. is maybe changing and then maybe more broadly in terms of how you're thinking about deposits I mean what matters more just being in a higher for longer environment in terms of where deposit costs might go or do you still ultimately think that thinking of a beta is the right way to think about ultimately where deposit costs can end up yeah thanks the uh absolutely we we

We put on some CDs this quarter, and I think that's going to look really smart in a quarter or two or three or four. You know, our thoughts in this quarter was that the funding curve was probably in front of the Fed, and leading in was probably a good thing to do in 3Q, so we did. And I think we'll get benefit from that, you know, 1Q, 2Q of next year. I think in terms of higher for longer, on balance, it's modestly helpful as we've spelled out. And that's kind of a function of balance sheet mix and ALCO. So we've sort of pivoted ever so slightly asset sensitive here over the last couple of quarters. You know, the impact on deposit costs, I think higher for longer suggests that it's going to stay competitive for longer. And again, you know, our stated objective is grow deposits in line with earning assets. And so we'll stay competitive.

Okay. And then maybe a follow up on the expense question from before. So your unchanged guide to your point does imply a step up in expenses in 4Q. But thinking kind of low point versus mid versus high, is there Is there any kind of granularity or any kind of insight you can give on where within that range we can end up on expenses in the fourth quarter and what could take it away from kind of the lower end of the range into something more middle or upper end?

Yeah, I think middle or upper end is very unlikely. I mean, if I were going to, if you were going to force me to kind of pick a number, I would say take the 355 in the 3Q and add and Ish Tuitt for 4Q just on the hiring and then normal kind of year-end factors. And that would probably be as good a place as any to kind of land.

Great. Thank you.

Your next question is from John Arfstrom with RBC Capital Markets. Your line is now open. Please go ahead.

Hey, good morning. Morning, John. Question for you guys on the competitive environment and lending and the pipelines. How competitive is it out there? And then on the pipeline numbers, would you describe the pipeline right now as full or healthy? Or does your gut tell you that pipeline goes higher or lower over time based on what you're seeing?

Sure. Thanks, John. Yeah, I would say it's certainly competitive out there. and I don't think that's going to change anytime soon. I feel pipelines are solid. I never feel they're full. They can always get better. But I think what we're hearing from our clients is that demand is going to continue. And I think as I said earlier, I think they're navigating, our clients are navigating uncertainty better than ever. I think people are used now to a high degree of uncertainty and people are continuing to invest through that. As we continue to add new bankers, you know, those bankers, it takes a quarter or two to ramp up pipelines. I'm very pleased with the pipelines we already have. In fact, we have a couple of signed term sheets already from new hires that we just made this quarter. So I feel very good about the pipelines where they're at today, but I feel like there is upside going forward to continue to grow those pipelines as we continue to add bankers and grow and build capabilities on the corporate banking and specialty banking side.

John, I would just add, Tim and the leadership team have done a really good job making sure that the pipeline is really clean. And to the extent that we don't believe there's a full relationship available to us or it's going to be harder to come by, we're cleaning those out of the pipeline. We're not looking at those opportunities to the extent we don't think it's going to meet our pricing hurdles and there's just too much competition. We're cleaning those out of our pipeline. So I feel really good about the work that Tim and the entire commercial leadership team have done to have a really even better pipeline going into the year end that's high quality more so than even the past.

Okay, good. Of course, Jim, since you have the mic, the one question that hasn't been asked, what are your thoughts on M&A from here? I know that people talk about Bremer, but I'm looking at a 19.5% ROTC and 15% EPS growth. seems like it's worked. What kind of an appetite do you have and any interest at all?

Thanks, John. We appreciate that. We do believe it's worked and we have a lot of empirical evidence to suggest that we've created real shareholder value over the multiple deals we've done in the organization. You know us as good as anybody or better than most and you can see that. But having said that, I think there's a time and place and I don't think this is the time or place for us to thinking about more M&A. Obviously the market's a little bit difficult too with rising rates and everybody's really focused in on day one tangible value dilution. And quite frankly, we don't need it to support the kinds of returns we're putting up. We don't need it for the growth we're putting up. I think growing organically and going out and being very active in the hiring and talent front, I think has allowed us to stay really front footed. That's where we're gonna spend our time and effort. and there may be a time where M&A might make sense but I don't see it in the foreseeable future here. I think it's just sticking to our knitting and doing the things we know really well and honestly as we talked about the investment in ourselves you know the returns that John's able to put back through the buyback program are really strong and that makes a lot of sense and I think investors obviously are supportive of that but I also just think taking the time to invest back in ourselves and continuing to build The foundation to be a larger organization will put us in a really good position. And if that makes sense in a couple of years to think about M&A again, but it's not something we spend any time on today.

Okay. All right. Thank you. Thank you. Your next question is from Chris McGrady with KBW. Your line is now open. Please go ahead.

Great. Good morning. Good morning, Chris. Hey, Jim. John, for you on the deposits, listening to the call, it reminds me of kind of what you did during the last cycle where you kind of got the bad news out of the way with the deposit repricing and everyone caught up. Obviously, every cycle is different. Is there an element of that repeating itself?

I don't know that I would say that there's an element of that repeating itself. I think the quarter was a great growth quarter for deposits. you know, half of that deposit cost increase was on that growth. And, you know, it's a competitive environment out there, right? You know, maybe to the extent that we're seeing deposit costs increase, I don't think we're wildly out of line with what I've seen from other reporters. And I think if people are interested in growing deposits, they're going to be paying for it, right? So...

Okay. Worth a shot. Thanks. And then... For kind of putting the pieces together, is operating leverage based on the cross currents right now, is that something that's in the cards, you know, over the beyond the quarter into next year?

It's, as you know, and again, you know us for a long time, right? It's a philosophical question. I think we've got, look, you know, obviously this quarter's results were a little bit softer on top line. We've got some pressure in the mortgage business. We've got some pressure on NII. But I think when you look at the forward curve, we've got more tailwinds than headwinds there. And so that should set up a better revenue environment and we're working hard on expenses.

As you know, Chris, I mean, this is a real focus of ours. We've been really disciplined. between John, Tim and I, we have regular arm wrestling matches over how much we can afford to invest versus how much we need to let drop to the bottom line. I think we're striking the right balance between investing in the future, which means investing in growth and also driving positive operating leverage. We've said we can't be holding to this really low operating efficiency level forever. We're going to have to continue to invest in ourselves. obviously to the extent that you know John's pointed out if to the extent that we get benefits from rates and that allows us a little bit more flexibility but we're striking the right tension to deliver the right strong shareholder returns but also deliver in a really efficient way but I never want to sacrifice our future for lack of investment and you know especially when we did we have such an awesome opportunity to continue to tell our story and there is actually nobody better at telling our story to relationship managers than Tim has been So we need to take advantage of that while we can and continue to grow the business and make the right long-term decisions.

Okay, great. Thank you. Your next question is from Jared Shaw with Barclays. Your line is now open. Please go ahead.

Hey, thanks. Good morning. I guess, you know, maybe just on the capital side, you continue to see, you know, really strong CET1 capital with the growth, even with the buyback. How should we think about a target capital ratio, especially sort of given the potential tailwinds coming out of the regulatory side as we go forward?

No target has been set, but super comfortable with where we are, right? Northern 11% CET1 feels like a ton of capital for the risk that we take on the balance sheet. If those changes in Basel III go in as written, I think we get probably a rough top 100 basis points of additional CET1, and that may allow us to reconsider the size of the repurchase authorization when we get to that in February.

Okay. And then on the fee income side, you know, any... New Initiatives, or how should we think about sort of the trajectory of the income growth as we exit the year?

Feel great about where we are in the core banking fees, wealth management, and capital markets. Mortgage, obviously, a little bit of softness, just given the rate environment, and then we've got normal seasonality in 4Q. I don't think mortgage is going to be a big grower for us next year. The good news there is that there's an obvious and easy expense offset because everybody that works in mortgage is variable comp in terms of production. And if it's soft enough, we've got some other levers that we can pull in terms of the fixed cost piece of that business. Tim, I don't know if you wanted to add some color on some of the initiatives that we've got in other parts of the bank.

Yeah, we continue to invest in our non-interest income businesses. I think about specialty banking. I think about corporate banking. You know, we've made investments, FX, FinTech, syndications, wealth management, really across the board, either in people and or the platform, and are continuing to do that as we look at 27. So I think you'll continue to see investments in the businesses, and we feel good about where the pipelines are today and where we see them going short of, you know, the rate environment as it relates to mortgage.

Your next question is from Anthony Ellion with JP Morgan. Your line is now open. Please go ahead.

Morning. Thank you. On expense, you're pointing us to the lower end of the range. You called out earlier your efficiency ratio is a record low 45%. How do you think about maintaining that efficiency ratio at that level while you keep investing in some of the areas you call out on slide 12?

We have for a really long time been good about driving expense out of the bank in the back and middle office and just kind of how we move things around. And we take those dollars and recycle them into revenue generation and some client-facing technology. So this is a path that we've been on for, heck, 10 years, maybe more than that. And I think what you're seeing in the efficiency ratio is really the result of the scale that we tacked on with Bremer and realizing, you know, those one-time saves or not one-time saves, those expected saves dropping to the bottom line of the run rate, right? So I think that that's what's allowed us to sort of drive efficiency ratio sub 50. We'll continue to work at it real hard. We work at it every year.

Thank you. And then your adjusted ROTC has been around 20% for several quarters now. Does this feel like the right level where the company should be operating at, or do you see upside from here, given your earlier comments on the levers the company has to rising rates? Thank you.

I would add, like, hey, we feel really good about where we're at from a profitability perspective. And, you know, to the extent that we get a little help, you know, on the revenue side, there's possibility to be higher here but you know I think we're leading most of our peer group with those kinds of numbers we feel like this is a great spot to be in and run at and and you know we're obviously working every day to continue to improve our overall profitability but we won't let the you know we won't stop investing in our business to continue to have it grow so that that's just you know again the tension we find ourselves in every single day is the ability to invest and maintain that high degree of operating efficiency and have long-term growth in our business.

Thank you.

Your next question is from Terry McAvoy with Wells Fargo. Your line is now open. Please go ahead. Good morning, Terry. Welcome back, Terry. Thanks. Good morning, everybody.

Morning.

Thank you.

If I think about 19 bankers or RMs, they could eventually, in theory, support a multi-billion dollar bank. And I think Capstar was, I haven't had a chance to look, but call it $3 billion. So my question is, how do you think about an earn back on new hires? And then just as a follow-up, were any of those new hires maybe upgrades where there is a cost savings or some cost savings component to it?

Thank you.

Terry, I can take the earn back question and then Tim will clean this up. You know, for commercial talent, our earn backs tend to be very quick. And very quick, I mean, like inside a year, year and a half. On the wealth side, when we hire new wealth people, that can be a little bit extended because it's harder for them to move relationships. But the right commercial talent, we have said for a long time, pays for itself very, very quickly.

Yeah, on that 2619 of those bankers were net new seven replacements for the total of 26 new just to give you that breakdown. Yeah, you know, as far as expectations, you know, what I will tell you is we are very disciplined in who we are hiring and we're looking to hire bankers that we know are top performers in markets that we know our story resonates very well. and I think if you've seen the expansion markets in our history and our track record of going into new markets, because we have that approach, we've been very successful and I think we've been successful quickly and I expect that to continue. As we look at the pipelines that are already growing and building from the new bankers we've hired, we feel very good about them to be able to pay for themselves and then some and when you think about the business they're bringing on, that core C&I business, they're coming with primacy and good core operating, Not interest-bearing deposits. That is sticky business that provides recurring revenue that helps build that top line. And we feel very good about the trajectory of that growth as well as the bankers that we've hired and their ability to pay for themselves very quickly.

You know, I think we've done a really good job focusing in on quality over quantity. And that quality, though, comes at a price. As Tim said, these are top performers in the marketplaces. I think the also interesting fact is many of those folks are going to sit across from Tim and I and John and others right here at headquarters. You know, we're very hands on in this process, both from a recruiting perspective and telling our story perspective of making sure these are going to be really great fits for us, you know, from a cultural perspective. And I think that's helped us make sure that the people we hire stick around last long and are really productive right out of the gate. and I'm not sure how other banks approach it, but we want to make sure we get the best of the best that come workforce.

And just building on that point, you know, the discipline we have, we are hiring bankers that for the most part, one of our leaders, usually me or one of my directs, have worked with them directly. So we know not just what they're producing, we know how they're producing it. And we know the types of clients that they're going after with primacy in mind. and sustainable recurring revenue from delivering the entire bank and a collaboration perspective as well. So we feel good about what they'll do, not just in C&I, but driving our wealth business and driving other areas of the bank based on client need. That's great.

Thank you very much.

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

Well, thank you all for having so much interest. This may be a record duration for a long time. Everybody's high level of interest and detailed questions. Of course, we're going to be around all day to take any follow up questions. And Joel, thank you for all your hard work to make sure we had a successful call. Have a great day, everyone.

Thank you so much, Jim. 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. If anyone has any additional questions, please contact Lynell Durchholz Thank you for your participation in today's conference call.