Old National Bancorp - Earnings Call - Q2 2025

Executive Summary

• Adjusted EPS of $0.53 beat S&P consensus by ~$0.01 (2.3%), while GAAP EPS was $0.34 given Day 1 CECL, merger charges, and a pension gain; S&P “revenue” missed by ~14% due to the CECL provision flowing through vendor methodology. Q2 “Primary EPS” actual 0.53 vs 0.518 consensus; “Revenue” actual $534.7M vs $624.3M consensus (S&P Global)*.
• Operating momentum was strong: NIM (FTE) expanded 26 bps to 3.53%, total revenue (FTE) rose to $654.4M, fee income strengthened, and deposits/loans expanded with Bremer; efficiency improved on an adjusted basis.
• Guidance: management raised 2025 NII and fee income guidance; expects 4–6% full‑year organic loan growth ex‑Bremer (lower end), and reiterated a neutral rate stance with two 25 bp cuts in the base case.
• Catalysts: (1) sustained NIM expansion and deposit cost discipline, (2) Bremer integration/on-time October system conversion, (3) potential capital return discussion post-conversion (buybacks “on the horizon”), and (4) credit normalization staying benign vs peers.

What Went Well and What Went Wrong

• What Went Well

  • Margin/earning asset growth: NIM (FTE) rose to 3.53% (+26 bps q/q) on Bremer, organic loan growth, and securities repositioning; NII (FTE) reached $521.9M. “We expect NII and NIM will continue to grow in the second half of 2025” (CFO).
  • Fee momentum: Noninterest income was $132.5M ($111.6M ex pension gain), with strength in wealth, mortgage, and capital markets; adjusted PPNR improved to $289.9M.
  • Deposit franchise: Deposits rose to $54.4B (core +$11.6B including Bremer); total deposit costs held at 1.93% (+2 bps); loan/deposit ratio improved to 88%.
  • Quote: “Old National’s impressive second quarter results were achieved through… Growing our balance sheet, expanding our fee-based businesses, and controlling expenses.” – CEO Jim Ryan.

• What Went Wrong

  • Reported “revenue” miss vs S&P: Vendor “revenue” fell short (CECL Day 1 $75.6M reduces S&P’s revenue construct), yielding a headline miss despite strong FTE revenue and PPNR growth (S&P values)*.
  • Elevated provision and integration costs: Provision rose to $106.8M (incl. $75.6M CECL Day 1); merger-related charges were $41.2M, partially offset by a $21.0M pension gain.
  • Competitive loan market: Management’s organic loan growth bias to the lower end of 4–6% reflects heightened CRE competition and disciplined pricing/structure.

Transcript

Speaker 4

Welcome to the Old National Bancorp Second Quarter 2025 Earnings Conference Call. This call is being recorded and has been made accessible to the public in accordance with the SEC's Regulation FD. Corresponding presentation slides can be found on the Investor Relations page at oldnational.com and will be archived there for 12 months. Management would like to remind everyone that certain statements on today's call may be forward-looking in nature and are subject to certain risks, uncertainties, and other factors that could cause actual results or outcomes to differ from those discussed. The company refers you to its forward-looking statement legend in the earnings release and presentation slides. The company's risk factors are fully disclosed and discussed within its SEC filings. In addition, certain slides contain non-GAAP measures, which management believes provide more appropriate comparisons. These non-GAAP measures are intended to assist investors' understanding of performance trends.

Reconciliations for these numbers are contained within the appendix of the presentation. I'd now like to turn the call over to Old National's Chairman and CEO, Jim Ryan, for opening remarks. Mr. Ryan?

Speaker 2

Good morning. Earlier today, Old National Bancorp reported impressive second quarter earnings and announced the appointment of Tim Burke as our new President and COO. Today is Tim's first day with us, and we've opted not to include him on the call to allow him time to get oriented. Mark Sandgren's last day is also today. Mark will always be a part of the Old National family, and I am incredibly grateful for his partnership. Thank you, Mark. We wish you the absolute best in retirement. Tim and his family are relocating from Northeast Ohio, and he has dedicated nearly 30 years of his banking career to serving clients and communities right here in the Midwest. Most recently, he held an executive position at a super regional bank where he oversaw a comprehensive range of commercial banking services across 12 Midwestern markets, including those in Illinois, Indiana, and Michigan.

I am confident that Tim possesses the experience, energy, optimism, and passion necessary to ensure that Old National Bancorp continues to outperform our peers, exceed our clients' expectations, strengthen our communities, and deliver outstanding returns for our shareholders. I look forward to the positive impact that he will undoubtedly make in the months and years to come. Now back to our quarterly results. We met or exceeded all of our previous guidance for the second quarter. These impressive results were driven by a strong focus on the fundamentals, growing our balance sheet, improving our fee-based businesses, and maintaining well-controlled expenses. Furthermore, we were pleased to close our partnership with Brammer Bank ahead of schedule on May 1. We remain on track for the systems conversion of Brammer to occur in mid-October. Net charge-offs fell within our expected range.

We made meaningful progress in portfolio management by reducing legacy criticized and classified assets by 9% and improving our allowance for credit losses by eight basis points to 1.24%. Our CET1 ratio was better than expected at 10.74%. Our tangible book value increased by 14% year over year despite the impact of our Brammer partnership. In a moment, John will walk you through the quarterly results in more detail. We have also provided information regarding the merger accounting associated with Brammer. John will compare our modeled expectations at announcement to where we stood at closing. Across the board, our expected results are better than our original expectations. We have a long history of meeting or exceeding our merger model assumptions, and this partnership is no exception. In summary, we are well positioned for the remainder of the year, benefiting from a larger balance sheet and a stronger capital position.

Our second quarter results demonstrate our ability to deliver consistent, high-quality earnings in any environment, and our newest partner further strengthens our position. With over 190 years of experience navigating uncertainty, we are committed to controlling what we can to exceed the expectations of our clients, communities, and shareholders. Thank you. I will now turn the call over to John to discuss the quarterly results in more detail.

Speaker 8

Thanks, Jim. Beginning on slide four, we reported GAAP 2Q earnings per share of $0.34. Excluding $0.19 of net merger-related expenses, adjusted earnings per share were $0.53, which is an 18% increase over the prior quarter and a 15% increase year over year. Net merger-related expenses include the following pre-tax items: $76 million of CECL Day One non-PCD provision expense and $41 million of merger charges, partially offset by a $21 million gain associated with freezing the legacy Brammer Bank pension plan. Results were driven by the additional two months of Brammer Bank operations, organic growth in loans and deposits, margin expansion, growth in fee income, and well-controlled expenses. Credit remained benign, with a reduction in legacy criticized and classified loans and normalized levels of charge-offs. Our return profile, as measured on assets and on tangible common equity, remained high.

Lastly, our capital position is solid with CET1 at 10.47%, approximately 50 basis points higher than we expected. On slide five, you can see our quarterly balance sheet trends, highlighting stability in our liquidity and our strong capital position. Our balance sheet also reflects the close of the Brammer Bank partnership on May 1. On a combined basis, our deposit growth over the last year has continued to allow us to fund our loan growth. We grew tangible book value per share by 14% over the last year, even with the impact of the Brammer Bank close reflected in this quarter's numbers. A favorable stock price, lower rate marks, and organic capital generation between announcement and close, combined with strong retained earnings at Brammer Bank and the Day One repositioning of their securities portfolio, all contributed to the higher than expected CET1 ratio.

Given our capital levels are higher than we modeled at the time we announced Brammer Bank last November, we have significant flexibility around our balance sheet, leaving us in a position to retain all CRE loans that we had originally contemplated selling. On slide six, we show trends in our earning assets. Period end loans increased $11.5 billion. Excluding Brammer Bank, total loans grew 3.7% annualized from last quarter, which was in line with our 2Q guidance. Production for the quarter was strong throughout our commercial book, which drove 4.6% annualized growth in this portfolio, excluding Brammer Bank. Of note, our CRE book was down, and this quarter was particularly strong for CNI. Quarterly new loan production rates are in the high 6% range, and marginal funding costs are in the mid 3% range.

The investment portfolio increased $3.4 billion from the prior quarter, due primarily to Brammer Bank as well as the reinvestment of cash flows and favorable changes in fair values. Shortly after deal closing, we repositioned Brammer Bank's investments, which improved our total portfolio yield, duration, and risk-weighted assets. We expect approximately $2.3 billion in cash flow over the next 12 months. Today, new money yields are approximately 110 basis points above backbook yields on securities, as the repositioning of the Brammer Bank book lifted our backbook. The repricing dynamics in both loans and securities, combined with loan growth and the Brammer Bank partnership, support our expectation that net interest income and net interest margin will continue to grow in the second half of 2025. Moving to slide seven, we show trends in deposits. Total deposits increased $13.3 billion, and core deposits ex-brokered increased $11.6 billion.

Excluding Brammer Bank, core deposits were up just under 1% annualized. Non-interest-bearing deposits represent 25% of core deposits, up 2% from first quarter levels. Business non-interest-bearing and public funds increased, while community deposits had normal seasonal outflows related to tax payments. Our brokered deposits increased due to Brammer Bank, and at 6% of total deposits, our use of brokered continues to be below peer levels. The loan to deposit ratio was 88%, down 1% from last quarter. With respect to deposit costs, the two basis point linked quarter increase in our cost of total deposits played out as we expected due to the close of Brammer Bank. Our spot rate on total deposits at June 30th was 193 basis points. Moreover, our exception price deposits, which now include Brammer Bank, represent 36% of total deposits. Overall, we remain confident in the execution of our deposit strategy.

We are prepared to proactively respond to the potentially evolving rate environment while staying on offense with new and existing clients to drive above peer deposit growth at reasonable costs. Slide eight shows our quarterly income statement trends. As I mentioned earlier, adjusted EPS were $0.53 for the quarter, with all key line items in line or modestly better than our prior guidance. Moving on to slide nine, we present details of our net interest income and margin. Net interest income and margin increased as we had expected and guided, driven primarily by Brammer, organic loan growth, and repositioning of the Brammer securities portfolio. Slide 10 shows trends in adjusted non-interest income, which was $112 million for the quarter. All line items showed increases reflecting Brammer and organic growth in our primary fee-based businesses.

On an organic basis, we were pleased with our growth in wealth management, mortgage services, and capital markets. Continuing to slide 11, we show the trend in adjusted non-interest expenses of $344 million for the quarter, reflective of two months of Brammer operations. Run rate expenses remain well controlled, and we generated positive operating leverage year over year. On slide 12, we present our credit trends. Total net charge-offs were 24 basis points, or 21 basis points excluding charge-offs on PCD loans. Our non-accrual loans as a percentage of total loans declined five-fifths during the quarter. Importantly and positively, criticized and classified loans decreased $254 million, or approximately 9% excluding Brammer, reflective of the focus on active portfolio management that we have discussed in prior calls.

The fourth quarter allowance for credit losses to total loans, including the reserve for unfunded commitments, was 124 basis points, up 8 basis points from the prior quarter, primarily driven by Brammer. Consistent with the first quarter, our qualitative reserves incorporate a 100% weighting on the Moody's S2 scenario, with additional qualitative factors to capture global economic uncertainty. Slide 13 presents key credit metrics relative to peers. Our proactive approach to credit monitoring has led to above peer levels of non-accruals but below peer averages in delinquency and charge-off ratios over time. A steadfast approach to client selection, conservative structuring, and our proactive stance on workouts have long been hallmarks of Old National Bancorp's credit discipline. This, in part, explains our lower non-accrual to NCO conversion rates. It is also worth noting that roughly 60% of our non-accruals are from acquired books with appropriate reserves and/or marks.

In addition, roughly 60% of our non-accrual loans are paying principal and interest or interest only, and approximately half of our classified and criticized assets are in commercial real estate, where we continue to have confidence in collateral values and the quality of our sponsors. On slide 14, we review our capital position at the end of the quarter. All regulatory ratios decreased linked quarter due to the close of the Brammer partnership. As already explained, our CET1 ratio of 10.74% came in approximately 50 basis points stronger than we had expected post-Brammer. Tangible book value per share was up 14% year over year, and we expect AOCI to improve approximately 6% or $37 million by year-end. Slide 15 provides a comparison of our Brammer partnership assumptions at announcement, first close.

Overall, we closed two months earlier than expected, adding to our 2025 earnings momentum with financial metrics tracking to exceed the expectations we set at announcement. Higher capital and lower purchase accounting marks shortened the TBV earnback by approximately half a year, and as we look to 2026, a larger balance sheet with the $2.4 billion in CRE that we had previously contemplated selling is expected to offset the lower marks from an earnings perspective. As previously mentioned, we restructured the majority of Brammer's $3.4 billion securities fund. This action increased the book yield from 2.85% to 5.54%, reduced total duration from 6.4% to 4.7%, and improved RWA density from 19% to 13%. This is now cash yield as opposed to accounting yield. A quick word on loan accretion income.

We view the rate component as locked in and repeatable, similar to how we would think about the accretion in our investment portfolio if we had decided not to restructure that book. The credit marks added only one basis point to our net interest margin this quarter. Old National legacy loan yields were up 10 bps, and even with the newly marked Brammer loans reflected in our numbers, our current origination yields are 65 basis points above our backbook yields. Slide 16 includes updated details on our rate risk position and net interest income guidance reflecting the close of Brammer on May 1st. NII is expected to increase on the addition of Brammer, the benefit of fixed asset repricing, and continued growth. Our assumptions are listed on the slide, but I would highlight a few of the primary drivers.

First, we assume two cuts of 25 basis points each, which aligns with the current forward curve. Second, we assume a five-year treasury rate that stabilizes at 4%. Third, we anticipate our total down rate deposit beta to be approximately 40%, which is in line with our terminal up rate betas. Fourth, we expect a non-interest-bearing mix to remain relatively stable as a percentage of core deposits. Importantly, our guidance would be unchanged for one Fed cut or no cuts as our balance sheet remains neutrally positioned to short-term rates, and the addition of Brammer did not materially alter our rate risk position. Slide 17 includes our outlook for the third quarter and full year 2025. With the exception of loan growth, all guidance includes Brammer.

We believe our current pipeline supports full-year loan growth, excluding the impact of Brammer, of 4% to 6%, but likely toward the lower end of that range given first half results, current competition, the uncertain geopolitical environment, and active portfolio management. 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. Note that we have increased NII and fee income guidance with our other lines unchanged. At the midpoint of the ranges, you'll also see that we expect full-year results that yield earnings per share in line with current analyst consensus estimates and again feature positive operating leverage and a peer-leaning return profile with good growth in fees, controlled expenses, and normalized credit.

As we note at the bottom of the slide, uncertainty surrounding global economic and trade activity and a macroeconomic outlook, which has dragged on longer than we would have hoped, could widen the range of possible outcomes this year with respect to both growth and rates. That said, our larger balance sheet with the Brammer partnership creates a meaningful positive offset. In summary, echoing Jim's opening comments, we had a strong first half of 2025. We remained on offense with growth in both loans and deposits. We showcased growth in fee income and disciplined expense management. We continued to execute against our deposit pricing strategy, and we maintained strong credit quality. Finally, we closed our Brammer partnership two months earlier than originally expected on May 1 and welcomed our newest team members and clients. I join Jim in welcoming Tim Burke to Old National.

I look forward to partnering with him to continue driving the success of the organization. With those comments, I'd like to open the call for your questions.

Speaker 4

At this time, I would like to remind everyone, in order to ask a question, please press star followed by the number one on your telephone keypad. Your first question comes from the line of Scott Siefers with Piper Sandler. Please go ahead.

Morning, Scott.

Speaker 5

Morning, guys.

Hey, thanks for taking the question. Jim, was hoping you could maybe just make some broader comments on kind of client sentiment, how they're feeling about these things these days. Then either Jim or John, was hoping you could sort of expand upon John's loan growth outlook comments just regarding full-year growth being maybe toward the lower end of the organic range. I guess I ask because some others are beginning to get a little more constructive. Interesting to hear you all a touch more cautious. Is that a function of demand or pricing or all of the above?

Yeah, maybe I'll start and then ask the team to jump in here. You know, from my perspective, we feel really good about the first half and our ability to kind of navigate some, you know, less than clear times. We're hearing competition really heating up here, particularly in the commercial real estate world. I think that just, you know, shades our conservatism on the loan growth estimates. We're just not going to go compete on price. We're not going to go compete on structure. We're not going to give up on the fundamentals that we think really matter here in this kind of market. I think that's why we're just a little bit more cautious about kind of our full-year outlook, where maybe others are maybe more optimistic about it. We saw good CNI growth for the quarter, which we're really pleased with.

That's an area we've been spending a lot of time on. To the extent that maybe it's a little bit more competitive in the commercial real estate market, maybe we can make it up a little bit for it. I think that's just where we're at. Jim Sandgren had a little bit on client sentiment. Jim, you want to talk a little bit about sentiment here lately? We know we just did a survey here.

Speaker 8

Yeah, sure, Scott. We recently surveyed. We do this typically annually with all of our clients. While there's still a lot of uncertainty out there, I think economic optimism is on the rise. I think our clients continue to be cautiously optimistic about their abilities to grow and invest in their businesses. I think there's some really encouraging things there. When you think about tariffs and trade policies, it certainly had less of an impact than originally thought. There might have been a little bit of inventory build early in the second quarter, but now that some of that clarity has come, we've seen that kind of normalize. I think optimistic, but given some of the increased competition, I think that's why we're looking at the lower end of the range.

Speaker 5

Scott, it's John here. One other thing I might just add to that is a little bit of this is just a math equation, right? If you take the TriNet loan sale out of the first quarter results, we were kind of 4% in the first quarter. Second quarter here, we're just below 4% annualized. To hit the top end of the range, mathematically, it would suggest that we got to do kind of 8% growth in 3Q, 4Q, and we just don't see that materializing given the competitive environment that Jim and Jim just referenced.

Yeah, got it. That all makes sense, and I appreciate the sort of the inside baseball on it. Let's see, John, maybe it was something you could kind of walk through the linked quarter increase in NPAs. I'm talking about just dollar values there. It can always be a little tricky when there's a merger involved, at least from the outside to understand what's happening at the legacy versus the combined companies. I know the bulk of your non-accruals in the aggregate are from acquired books, but just maybe this sequential increase, if you could address that, please.

Yeah, so dollar-wise, a lot of that is just Bremer Bank coming into the fold. Actually, on a, you know, against the entire balance sheet, NPAs as a % are down a little bit, feel good about where we are. It's really just a little bit of noise on closing the deal.

Terrific. Okay, good. Thank you, guys. Appreciate it.

Thanks, Scott.

Speaker 4

The next question comes from the line of Ben Gerlinger with Citi. Please go ahead.

Good morning.

Good morning, Ben. Good to hear from you.

You guys went through a lot of numbers. I'm apologizing if I missed it. I know you said the new loan yield versus backbook. I was curious, could you just provide the spot rate on either loans or bonds?

Speaker 8

Yeah, spot rate versus what was sitting in the average balance sheet on this quarter. If you were to reflect a full quarter of Brammer, we'd be looking probably 7 basis points higher than what was reported on securities, 5 basis points higher than what was reported on loans. New money yields, you know, if you look at kind of 85% floating on loans, 15% fixed, the weighted average there gets you kind of high sixes, call it 6.8, and on securities, we're mid-5s in terms of new money. Yeah.

Yeah, helpful. I hate to ask the loan question first, but okay, moving more towards the strategy perspective, when you think about kind of growth relative to the CRE loan sale not happening and then also capital, it seems like you're in a better capital position from the post-deal flows and then the non-CRE sale kind of eats up into a little bit of that capital. The growth in the back half of the year seems steady, by no means as robust as some peers, but I'm totally fine with that. What do you think about just capital deployment? I know you said earnings projections are basically in line with consensus. To me, it's like you're two turns below peers with a projected ROC that's basically 200+ bps better than peers.

Is a buyback something we could expect this calendar year, or is it kind of more so just building capital at this point?

Speaker 5

I would lean you towards our past comments. I think we are interested in building a little bit of capital here, and we've got a little bit of wood to chop with respect to our conversion here, happening later this year. We are much, much closer to that decision today than we thought we would be just given capital came in so much better. I think it's something that's definitely on the horizon for us, and we're going to take a hard look at it, but nothing to report right now. Really focusing on just getting through the conversion and getting off to a really strong start for next year.

Yeah, that's helpful. Thanks, guys.

Thanks, Ben.

Speaker 4

The next question comes from the line of Chris McGratty with KBW. Please go ahead.

Hey, good morning.

Speaker 5

Morning, Chris.

Jim or John, just more broadly, what's the deregulatory environment mean for Old National Bancorp? From here, obviously, there's an expense equation, but I'm interested in kind of your opinion there. Thanks.

Yeah, I would say it's very constructive, right? I mean, the conversation and tone is, you know, look, we've always enjoyed incredibly positive relationships with all of our regulators, but it's just that much more constructive today for us going forward as an industry and us as Old National. I think we're a couple of months away from kind of really fully understanding it, you know, how any regulatory thresholds might change. That all seems like that's on a positive trajectory, the best we can tell. I think they're really close to filling out all of the agency heads, which will just allow the industry to move forward. I've been personally involved with the ABA and the NBC, as you know, working on deposit insurance reform, which I think is really important for the mid-sized space. We'll continue to push for those reforms.

I would just say all of this is, all this tone is very much constructive. All the same rules still apply, broadly speaking. There's no free passes anywhere, but it is more constructive. I think it'll allow our industry to maybe grow, you know, where we want to grow going forward.

Thanks for that. Just as a follow-up, you mentioned thresholds. I mean, you've previously talked about not wanting to flirt with $100 billion in assets. Does that evolve over the next, you know, 6 to 12 months? Is that something, you know, you're obviously working on the integration, but do deals opportunistically make it more likely?

I would just point back to some of our previous comments. We're really focused on organic growth. We obviously got one in the hand here that we've got to get across the finish line and execute well. We're off to a great start there. It's one of those things. There's nothing in our playbook right now. There's nothing we're looking at. I would just assume not test that water. I don't know what the thresholds are going to look like going forward. The good news is we don't have to do anything, right? We've got great organic growth opportunities. We've got top decile profitability ratios across the board here. We've got lots of flexibility just to continue to run this place and grow organically.

If the perfect pitch comes along and it makes a ton of sense, something like Brammer where it just made an absolute home run sense, we would absolutely have to take a look at that, as you would expect. We're not interested in going and testing those waters anytime soon. I do think we need several more months before we understand exactly what that new landscape is going to look like.

Perfect. Thanks, Jim.

Thanks. Appreciate the interest, Chris.

Speaker 4

Your next question comes from the line of John Moran with RBC Capital Markets. Please go ahead.

Hey, thanks. Good morning.

Hey, John. Good to hear from you.

Yeah, thanks. Just a question back on the loan growth guide. John, you use the term active portfolio management. I'm curious what you mean by that. I'm also curious on the characteristics of the CRE loans that you had planned on selling that you now may not sell. Does that fit typical ONB characteristics? Just kind of all in one, active portfolio management in that $2.4 billion. Thanks.

Speaker 8

Yeah, absolutely. Active portfolio management, John, when you look at the reduction in classified and criticized out of the legacy Old National book this quarter, roughly half of that was from total payoffs or refis away from the bank. We think that there's still some more of that to come, right? We've talked about this for several quarters now, really deal by deal, loan by loan, getting in there and working that book. We remain really focused on that work, and I think that'll continue to be a feature in the back half of this year. With respect to the $2.4 billion in commercial real estate loan sales, very much similar to the way that we underwrote and the way that we think about real estate, there could still be something opportunistically that we could trim.

I think that would look more like what we did in the first quarter with the CapStar TriNet book than something bigger or broader that we had originally contemplated back in November.

Okay, good. Fair enough. You may have touched on this, but on slide 16, you flagged the $10.4 billion in time deposit maturity. Can you walk through some of the metrics around that again in terms of the cadence and the cost of rolling off and the replacement costs?

Yeah, sure. The bigger chunk of that actually comes in the next quarter, a little over $5.5 billion in the next quarter, and then about $3 billion in 4Q. In aggregate, you know, there's going to be a little bit of a pickup on that book as it rolls. The bigger opportunities are in our brokered buckets. That's about $2.4 billion next quarter that's hanging out in mid-fours, and that would roll with a more significant opportunity for us in terms of repricing down.

Okay. Any idea of the magnitude on that, just ballpark?

On the brokered piece, $2.4 billion in the next 90 days, $4.50 is the current deal.

Okay, thanks a lot. I appreciate it.

Thanks, John.

Speaker 4

Your next question comes from the line of Brian Ferran with Truist Securities. Please go ahead.

Hi. Just to make sure I understand the EPS comments on the deal slide. Two things. One, when you say it's modestly better than originally assumed, and I know it's early days, so you probably even haven't fully got into a lot of the underlying business, is it just the $2.4 billion at the current moment, CRE loan sale, $2.4 billion that's changed in that EPS assumption, or is there anything else you're signaling in terms of other deal accretion that's better?

Speaker 8

No, not signaling anything in addition. It's just the $2.4 billion in commercial real estate offsetting, and then just a little bit better than what was originally in the model on the rate mark.

Got it. The rate mark being a little lower, so less TAA, right?

Correct. Correct. Yep.

Just the base we're talking about, I mean, I think in the deal presentation, it was $2.60 of EPS in 2026. It seems like the Old National side is more or less tracking. Can we just say $2.60 plus a little bit for this CRE sale is kind of the updated number?

I think that's fair to say, Brian. Yep.

Okay, I guess that's it. Yeah, I think that's the only question I had. Thank you.

Speaker 5

Thanks, Brian. Thanks.

Speaker 4

Your next question comes from the line of Jared Shaw with Barclays. Please go ahead.

Speaker 5

Morning, Jared.

Morning. Hey, thanks. I guess the only one left for me is just on the fee income guide and the outlook there. Anything to call out in terms of seeing strength? I mean, is a lot of that just coming from a little bit of a stronger mortgage base than expected, or anything special to think of there?

Speaker 8

Yeah, I think I can get it right. Mortgage was pretty good this quarter. Wealth continues to track along nicely as well. You know, look, capital markets for us continues to be a pretty, it's a small but good business for us. This quarter looked good there, and we're encouraged by the results there. Yeah, I think in terms of outlook, relatively, you know, other than the upside captured from this quarter, relatively unchanged on the back half of this year.

Great, thanks a lot.

Speaker 5

Thanks, Jared.

Speaker 4

Your next question comes from the line of Terry McEvoy with Stephens. Please go ahead.

Speaker 5

Good morning, Terry.

Hi. Good morning, everybody. Maybe just the first question. Why wasn't the second half 2025 net interest income outlook increased given the decision to hold the CRE loans, or will we see more of that lift in 2026?

Speaker 8

There are a couple of dynamics at work there, Terry, right? The CRE loans coming in are very much offsetting, kind of dollar for dollar, the lower marks that were ultimately realized as compared to what we had announced.

On page 15, the positive earnings per share, when you talk about the larger balance sheet offsets those marks, I guess that's behind my question. I'm trying to true up that sentence there.

Right. If you run that math out, there's a rough top $100 million in lower rate mark and a $50 million lower credit mark that was realized. If you were to build that schedule out and look at what would have come from that mark in the back half of 2025, the $2.4 billion in commercial real estate offsets the foregone income on the accretion marks.

Perfect. Thanks for that. I noticed you hired a new Chief Investment Officer earlier, maybe July 1, I think. Could you just talk about the technology investments? Jim, you made some comments about continuing to invest and meet your clients' needs. Any commentary there would be helpful.

Speaker 5

Yeah, thanks, Terry. Matt Keane joined our organization. He was actually recently hired as the CIO at Bremer Bank. Ironically, we were in the market looking for a new CIO. Our current one's going to retire here towards the end of the year, and we had one sitting there in Minnesota. Matt is a great, you know, we did a search far and wide, and Matt turned out to be the best possible candidate for us. I think we feel really good about his experience. Quite frankly, we're actually able to continue to build and invest in the IT team right there in Minnesota. We've just found great talent sitting there, given the other larger institutions that are already there, plus the Fortune 500 companies. That's a nice win for us.

As we've done early assessments around all of our technology, I think we feel really good around our technology stack. We continue to look for ways to build out a stronger ecosystem for the wealth management and the bankers to move kind of seamlessly across those platforms. Treasury management is an area we continue to invest in and look for ways to be better, particularly as we think about going upstream towards that upper middle market, ways to connect more deeply within their systems. We don't see any large gaps in any of our systems. We've got a long list, like everybody else does, of investments we want to make, but nothing that's stopping us from being successful and building core, deep relationships with our clients. That's the good news. As we become a larger institution, we'll continue to invest in our own infrastructure, particularly around data.

We're obviously looking at AI very intensely right now and how AI could help shape all of our technology. Again, no gaps anywhere there, just an opportunity to continue to be better as we go forward. I think Matt is the right person to help lead us in that effort. We're excited about that. Obviously, we have that technology partner emphasis, which also comes alongside us and helps us really kind of think through a lot of our technology and ways to get more efficient, more effective. I think it's just all really positive and really glad to have Matt. Now we got Tim on the team as of today. We got a full team and ready to go.

Great. Thanks for taking my questions.

Thanks, Terry. Good to hear from you.

Speaker 4

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

Speaker 5

Thanks, Eric. As usual, we appreciate everybody's interest and appreciate the great questions. The whole team, John, Mike, Lynell, Scott, we're all going to be available for questions all day. Look forward to catching up with everybody. Have a great afternoon.

Speaker 4

This concludes Old National Bancorp'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 Bancorp's website, oldnational.com. A replay of the call will also be available by dialing 800-770-2030, access code 939-4540. This replay will be available through August 5. If anyone has additional questions, please contact Lionel Dircolls at 812-464-1366. Thank you for your participation in today's conference call.