Old National's 4th Quarter and Record Full-Year Results Supported by Strong Deposit Franchise, Stable Credit Quality and Well-Managed Expenses

EVANSVILLE, Ind., Jan. 23, 2024 (GLOBE NEWSWIRE) --

Old National Bancorp (NASDAQ: ONB) reports 4Q23 net income applicable to common shares of $128.4 million, diluted EPS of $0.44; $134.6 million and $0.46 on an adjusted¹ basis, respectively. Full-year net income applicable to common shares of $565.9 million, diluted EPS of $1.94; $599.2 million and $2.05 on an adjusted¹ basis, respectively.

CEO COMMENTARY:

FOURTH QUARTER HIGHLIGHTS²:

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 Comparisons are on a linked-quarter basis, unless otherwise noted ³ Includes loans held-for-sale
⁴ Includes the provision for unfunded commitments

RESULTS OF OPERATIONS
Old National reported fourth quarter 2023 net income applicable to common shares of $128.4 million, or $0.44 per diluted common share.

Included in fourth quarter results was a $21.6 million pre-tax gain on sale of Visa Class B restricted shares, as well as pre-tax charges of $19.1 million for the FDIC special assessment and $9.9 million of merger-related and other expenses. Excluding these transactions and realized debt securities losses from the current quarter, adjusted net income¹ was $134.6 million, or $0.46 per diluted common share.

DEPOSITS AND FUNDING
Stable low-cost deposits including normal seasonal patterns in public funds.

• Period-end total deposits were $37.2 billion at December 31, 2023, consistent with prior quarter; core deposits increased 0.4%; include normal seasonal patterns in public funds which decreased ~$340 million.
• On average, total deposits for the fourth quarter were $37.2 billion, an increase of 1.4%.
• Granular low-cost deposit franchise; total deposit costs of 185 bps and a cycle to date total deposit beta of 35% (interest-bearing deposit beta of 47%).
• A loan to deposit ratio of 89% at December 31, 2023, combined with existing funding sources, provides strong liquidity.

LOANS
Broad-based disciplined commercial loan growth.

• Period-end total loans³ were $33.0 billion at December 31, 2023, up 1.0% from September 30, 2023.
• Total commercial loan production in the fourth quarter was $1.3 billion; period-end commercial pipeline totaled $1.7 billion.
• Average total loans in the fourth quarter were $32.8 billion, an increase of $116.9 million from the third quarter of 2023.
  

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

• Provision⁴ expense in the fourth quarter of 2023 was $11.6 million, compared to $19.1 million in the third quarter of 2023, reflecting net charge-offs, loan growth, as well as economic factors.
• Net charge-offs in the fourth quarter were $9.7 million, or 12 bps of average loans compared to net charge-offs of 24 bps of average loans in the third quarter of 2023.
  • Excluding PCD loans that had an allowance for credit losses established at acquisition, net charge-offs to average loans were 3 bps for the fourth quarter of 2023.
• 30+ day delinquencies as a percentage of loans were 0.22% at December 31, 2023, compared to 0.18% at September 30, 2023.
• Non-performing loans as a percentage of total loans were 0.83% compared to 0.80% for the third quarter of 2023.
• Loans acquired from previous acquisitions were recorded at fair value at the acquisition date. As of December 31, 2023, the remaining discount on these acquired loans was $79.0 million.
• The allowance for credit losses, including the allowance for credit losses on unfunded commitments, stood at $338.8 million, or 1.03% of total loans at December 31, 2023, compared to $336.9 million, or 1.03% of total loans at September 30, 2023.
  

NET INTEREST INCOME AND MARGIN
Lower net interest income and margin compression reflective of the rate environment.

• Net interest income on a fully taxable equivalent basis¹ decreased to $370.5 million in the fourth quarter of 2023 compared to $380.9 million in the third quarter of 2023, driven by higher funding costs, partly offset by loan growth and higher rates on interest-earning assets.
• Net interest margin on a fully taxable equivalent basis¹ decreased 10 bps to 3.39% compared to the third quarter of 2023.
• Accretion income on loans and borrowings was $6.2 million, or 6 bps of net interest margin¹, in the fourth quarter of 2023 compared to $7.5 million, or 7 bps of net interest margin¹, in the third quarter of 2023.
• Cost of total deposits was 1.85%, increasing 24 bps and the cost of total interest-bearing deposits increased 31 bps to 2.53% in the fourth quarter of 2023.

NONINTEREST INCOME
Increased wealth fees offset by lower mortgage fees, capital markets income, and other income.

• Total noninterest income for the fourth quarter of 2023 was $100.1 million and included a $21.6 million pre-tax gain on the sale of VISA B restricted shares.
• Excluding realized debt securities gains/losses for both periods and gain on sale of Visa Class B restricted shares for the fourth quarter of 2023, adjusted noninterest income for the fourth quarter was down 2.3% compared to the third quarter of 2023, due to lower mortgage fees, capital markets income, and other income, partially offset by an increase in wealth fees.

NONINTEREST EXPENSE
Disciplined expense management.

• Noninterest expense for the fourth quarter of 2023 was $284.2 million and included $19.1 million of FDIC special assessment charges and $9.9 million of merger-related and other charges.
• Excluding these items, adjusted noninterest expense for the fourth quarter was $255.2 million, compared to $238.5 million for the third quarter of 2023; increase was driven by $10 million in higher performance-driven incentive accruals and $5 million in higher amortization of tax credit investments.
• The efficiency ratio¹ was 59.0%, while the adjusted efficiency ratio¹ was 53.8% for the fourth quarter of 2023 compared to 51.7% and 49.7%, respectively, for the third quarter of 2023.
  

INCOME TAXES

• Income tax expense in the fourth quarter of 2023 was $36.2 million, resulting in an effective tax rate of 21.5% compared to 23.1% in the third quarter of 2023. On an adjusted fully taxable equivalent ("FTE") basis, the effective tax rate was 24.2% in the fourth quarter compared to 25.3% in the third quarter.
• Income tax expense included $6.7 million of tax credit benefit.

CAPITAL
Capital ratios remain strong.

• All regulatory capital ratios grew in the quarter with preliminary total risk-based capital up 32 bps to 12.64% and preliminary regulatory Tier 1 capital up 29 bps to 11.35%, driven by retained earnings.
• Tangible common equity to tangible assets was 6.85% at the end of the fourth quarter compared to 6.15% in the third quarter of 2023.

VISA CLASS B RESTRICTED SHARES GAIN
During the fourth quarter of 2023, the Company recognized a $21.6 million pre-tax gain on sale of Visa Class B restricted shares in noninterest income. Prior to the sale, the shares were carried at zero cost basis due to uncertainty surrounding the ability of the Company to transfer or otherwise liquidate the shares. At December 31, 2023, the Company does not hold any remaining Visa Class B restricted shares.

FDIC SPECIAL ASSESSMENT
On November 16, 2023, the FDIC finalized a rule that imposes special assessments to recover the losses to the Deposit Insurance Fund (“DIF”) resulting from the FDIC’s use, in March 2023, of the systemic risk exception to the least-cost resolution test under the Federal Deposit Insurance Act in connection with the receiverships of Silicon Valley Bank and Signature Bank. The total of the assessments for Old National Bank is estimated at $19.1 million, and such amount was recorded as an expense in the quarter ending December 31, 2023.

RETIREMENT OF MIKE SCUDDER
Mike Scudder will retire as Executive Chairman and as a director of the Company as of January 31, 2024, and Jim Ryan will succeed to the position of Chairman of the Board of Directors, as contemplated by the Bylaws of the Company. Mr. Ryan will continue to serve as Chief Executive Officer of the Company as well as Chairman of the Board and Chief Executive Officer of Old National Bank.

CONFERENCE CALL AND WEBCAST
Old National will host a conference call and live webcast at 9:00 a.m. Central Time on Tuesday, January 23, 2024, to review fourth quarter 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. (888) 300-3045 or International (646) 568-1027, access code 5258325. A replay of the call will also be available from approximately noon Central Time on January 23, 2024 through February 6, 2024. To access the replay, dial U.S. (800) 770-2030 or International (647) 362-9199, Access code 5258325.

ABOUT OLD NATIONAL
Old National Bancorp (NASDAQ: ONB) is the holding company of Old National Bank, which is the sixth largest commercial bank headquartered in the Midwest. With approximately $49 billion of assets and $29 billion of assets under management, Old National ranks among the top 30 banking companies headquartered in the U.S. Tracing our roots to 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 at the end of this release.

The Company presents EPS, the efficiency ratio, return on average common equity, return on average tangible common equity, and net income applicable to common shares, all adjusted for certain notable items. These items include gain on sale of Visa Class B restricted shares, FDIC special assessment expense, contract termination charges, merger-related charges associated with completed and pending acquisitions, gains/losses on sales of debt securities, expenses related to the tragic April 10 event at our downtown Louisville location ("Louisville expenses"), property optimization charges, gain on sale of health savings accounts and the current expected credit loss ("CECL") Day 1 non-PCD provision expense. 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.

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 FDIC special assessment expense, contract termination charges, merger-related charges, property optimization charges, Louisville expenses, as well as adjusted noninterest income, which excludes the gain on sale of Visa Class B restricted shares, gain on sale of health savings accounts and gains/losses on sales of debt securities. Management believes that excluding these items from noninterest expense and noninterest income 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 (the “Act”), notwithstanding that such statements are not specifically identified as such. In addition, certain statements may be contained in our future filings with the SEC, in press releases, and in oral and written statements made by us or with our approval that are not statements of historical fact and constitute forward‐looking statements within the meaning of the Act. 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," "continue," "could," "estimate," "expect," "intend," "may," "outlook," "plan," "potential," "predict," "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, including, but not limited to: competition; government legislation, regulations and policies; the ability of Old National to execute its business plan; unanticipated changes in our liquidity position, including but not limited to changes in our access to sources of liquidity and capital to address our liquidity needs; changes in economic conditions and economic and business uncertainty which could materially impact credit quality trends and the ability to generate loans and gather deposits; inflation and governmental responses to inflation, including increasing interest rates; market, economic, operational, liquidity, credit, and interest rate risks associated with our business; our ability to successfully manage our credit risk and the sufficiency of our allowance for credit losses; the ability to complete, or any delays in completing, the pending merger (the “Merger”) between Old National and CapStar Financial Holdings, Inc. (“CapStar”), including the ability of CapStar to obtain the necessary approval by its shareholders, the ability of Old National and CapStar to obtain required governmental approvals of the Merger and the ability to satisfy all of the closing conditions in the definitive merger agreement; the expected cost savings, synergies and other financial benefits from the Merger not being realized within the expected time frames and costs or difficulties relating to integration matters being greater than expected; potential adverse reactions or changes to business or employee relationships, including those resulting from the completion of the Merger; the potential impact of future business combinations on our performance and financial condition, including our ability to successfully integrate the businesses and the success of revenue-generating and cost reduction initiatives; failure or circumvention of our internal controls; operational risks or risk management failures by us or critical third parties, including without limitation with respect to data processing, information systems, cybersecurity, technological changes, vendor issues, business interruption, and fraud risks; significant changes in accounting, tax or regulatory practices or requirements; new legal obligations or liabilities; 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; the effects of climate change on Old National and its customers, borrowers, or service providers; political and economic uncertainty and instability; the impacts of pandemics, epidemics and other infectious disease outbreaks; other matters discussed in this communication; and other factors identified in our Annual Report on Form 10-K for the year ended December 31, 2022 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, performance or outcomes, 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.