Old National Bancorp (ONB) 2020 Q2 法說會逐字稿

Welcome to the Old National Bancorp Second Quarter 2020 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. Before turning the call over, management would like to remind everyone that as noted on Slide 2, 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 to differ from those discussed. 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 would now like to turn the conference over to Jim Ryan for opening remarks. Mr. Ryan?

Thank you, Dorothy. Good morning. I hope this call finds all of you and your families safe and healthy. We are pleased with our second quarter results and the ongoing implementation of the ONB Way strategic initiatives, including our recent announcement regarding our technology partnership with Infosys. We have begun our transition to return to the workplace, including reopening our lobbies and bringing our team members back to the office, but admittedly, we are slowing down our transitions as the number of positive cases are increasing across our footprint. Our lobbies remain open, and we are committed and focused on the health and safety of our team members, clients and communities. I would also like to thank our team members for their hard work and dedication of serving our clients and communities in this challenging environment.

Starting with Slide 3. Our second quarter net income was $51.7 million, including $3.7 million in after-tax ONB Way charges. Adjusted net income was higher at $55.1 million, which includes $22.5 million in provision for expected credit losses and $2.1 million in provision for unfunded commitments. These provisions are consistent with the most recent Moody's economic forecast. Brendon will fill you in on all the details.

End of period total loans increased by $1.3 billion, primarily due to PPP loan funding and commercial real estate growth. Our commercial production, excluding PPP loan production, was $658 million, slightly higher than the first quarter. Line utilization dropped to 26% due to line payoffs and an increase in new unused lines of credit. Core deposit growth of $1.9 billion funded by PPP proceeds and higher savings rates were a bright spot. Net interest income was higher from PPP income, which offset the impact from lower interest rates. Mortgage and capital markets revenue continued to be exceptionally strong and offset COVID-related lower deposit service charge and interchange income. We continue to achieve lower expenses as we execute on the ONB Way initiatives. Our adjusted efficiency ratio for the quarter was under 54%.

Year-over-year operating leverage improved by almost 600 basis points. Our credit quality metrics improved during the quarter, but we expect that losses will ultimately materialize once the stimulus and deferral programs run their course. We still don't completely appreciate the depth of the crisis, but we believe our historically strong underwriting practices, diverse and greater loan portfolios and Midwest footprint should help us weather the impact better than most.

We continue to share with our Board of Directors multiple economic forecast and various stress tests. As a result, we don't anticipate any other capital actions, and we expect to maintain our current dividend. We're still open for business, and we're extending new credit. We manage for the long term. Our balance sheet and capital markets -- our balance sheet capital markets are strong. Our market is diverse and our experienced team will help us manage through this challenging time. I'm confident that we will emerge even stronger on the other side.

Moving to Slide 4. I want to update you on our recently announced technology partnership with Infosys. As a part of the ONB Way, we hired outside experts to help us examine our current technology infrastructure, investments and talent. The technology investments required for financial services are only accelerating, and we recognize the need for a strong partner to help us maximize the benefits from those increased investments. This multiyear technology partnership will fund those accelerated investments in technology infrastructure, improve our training and development opportunities and increase our innovation. We are confident that over time this partnership will significantly enhance our client experiences and provide even greater scale to grow our bank efficiently and effectively.

Not only is Infosys a leading global information technology company, they are also making a $245 million investment in the State of Indiana, with plans to hire 3,000 workers, and they are building their U.S. training center in Indianapolis. I'll now turn the call over to Daryl.

Thank you, Jim. I will begin my portion of this morning's presentation on the top half of Slide 5, where we lay out for you our exposure to what we believe will be the most vulnerable segments of our commercial portfolio. With regard to the particular industries noted, you can see that none of the 6 identified vulnerable segments exceeds 2.3% of total loans and the total exposure of all of these identified segments are just 7% of total loans. We believe that a critical factor in determining the staying power of our borrowers in this very challenging economic environment is not only the level of capital each of these borrowers brought into this downturn but also the ability to raise additional capital, if needed. In that regard, to the extent that they are forgiven, PPP loans represent outside equity contributions to our borrowers. And especially with respect to these vulnerable industries, we imagine that these capital injections are going to be instrumental in assisting our borrowers in navigating through the current crisis.

If we're correct in our assessment of the criticality of having access of outside capital sources, it is interesting to note that we approved over $203 million in PPP loans to borrowers in these 6 vulnerable industry segments, which represent just shy of 25% of the total pre-PPP loan outstandings of these industries. We continue to work through the portfolio to rate our borrowers on their pre-COVID strength in the areas of liquidity, capital, the ability to service debt obligations and loan structure as a baseline for understanding to what extent the current pandemic could impact those borrowers. As we begin to receive interim financial results from our borrowers, we will use that information to further inform our understanding of the underlying strengths or weaknesses in each individual relationship and take actions as appropriate.

With respect to the retail side of the loan portfolio, the chart at the bottom of Slide 5 provides some information around retail product exposures and a proxy of credit quality based upon average FICO scores. Delinquencies and losses in these portfolios, as a whole, are performing better than they did through the first half of last year but we are very guarded in our review of those trends, given the level of payment deferrals granted and the fact that we have had a moratorium on most repossessions for 4 months.

Moving to Slide 6, we provide more information on deferrals, showing that we have booked deferrals on 14% of our commercial book and roughly 3% on each of the consumer and residential mortgage portfolios equating to an 11% deferral rate on the entire portfolio. First-time deferral requests have slowed to a trickle, and we are just now beginning to consider request of extensions of any first round 90-day deferrals. To the extent...

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requesting deferral period extensions, we have had the -- or we will have the opportunity to spend a bit more time analyzing extension requests than we did on the front end. And we'll use the baseline information on liquidity, capital, debt serviceability and loan structure that I mentioned earlier to ensure that we use this window of opportunity to strengthen credits where we can in consideration of any further concessions.

Moving to the bottom half of Slide 6, we're pleased to report that we have extended in excess of $1.5 billion in Paycheck Protection Program loans to over 9,200 borrowers. As you can see from the chart, almost 80% of the loans extended were to entities or individuals where PPP loan size fell in $150,000 or less category, affirming our position as a large bank with a community focus.

There has been a team of individuals that have spent significant hours in building out their forgiveness process for these loans, which we'll be ready to be utilized by our clients once the SBA is open to receiving those requests.

On Slide 7, we provide an overview of credit quality measures. 30-plus day delinquencies at 17 basis points fell to levels not seen for at least 20 years in this organization. As I mentioned earlier, it is critically important to keep in mind that borrower resistance in the form of PPP loans, payment deferrals and SBA loan payment supplements have certainly helped to damper any increase in delinquencies we might have seen absent this assistance. It is yet to be seen what impact any wind-down of these programs might have on delinquency rates going forward.

Net charge-offs in the quarter fell to more historically normal levels. Net charge-offs in the period were slightly more than $0.5 million or 2 basis points of average loans. Nonperforming loans fell 12 basis points in the quarter in small part due to a slight decline in nonperforming balances, but mostly as a result of increased loan balances associated with the Paycheck Protection Program.

In the final section of this Slide 7, we look at the historical relationship of net charge-offs to nonperforming loans. While on a somewhat increasing trend due to higher fourth quarter 2019 and first quarter 2020 losses, you can see the significant difference between Old National and our peers when it comes to this particular metric.

With that, I'll turn the call over to Brendon.

Thank you, Daryl. Before turning to the quarterly financials, we would like to provide an overview of our allowance for credit losses. Our CECL model assumptions were again derived from the Moody's baseline forecast which is now projecting higher for long unemployment and a sharper initial decline in GDP compared to our first quarter assumption. This updated economic outlook is the primary driver of the $22 million reserve increase this quarter. Our current ACL to loan ratio, including PPP loans, stands at 94 basis points. Excluding PPP loans, our allowance to loan ratio would be 105 basis points. I would also like to remind you that we continue to carry $62 million in unamortized credit marks from our acquired portfolio in addition to the allowance held on these loans. While these marks will not directly offset charge-offs, any remaining mark will accrete through margin upon resolution. The fiscal stimulus and relief programs have been an effective mitigant to credit losses in the near term. However, there is still a great deal of uncertainty regarding the path of the virus, future government actions and the long-term health of the economy, all of which could impact future reserve needs. That said, our reserve levels reflect the current economic outlook and is our best estimate of the credit losses in the portfolio today.

Turning to the quarter on Slide 9. Our GAAP earnings per share was $0.32, and our adjusted earnings per share was $0.33. Adjusted earnings per share excludes $4.9 million in ONB Way-related charges.

Moving to Slide 10. We are pleased with our quarterly adjusted pretax, pre-provision net revenue, which was 7.6% higher year-over-year and 19% higher over prior quarter. This improvement was driven by increased fee income led by our mortgage and capital markets businesses as well as a reduction in adjusted operating expenses, resulting from good execution of our ONB Way initiatives. Despite the challenging interest rate environment, we improved operating leverage by 576 basis points year-over-year.

Slide 11 shows the trend in outstanding loans and earning asset mix. End-of-period loans increased $1.3 billion quarter-over-quarter due to $1.5 billion in PPP loans. Commercial real estate loans grew at a 9% annualized rate, while C&I loans, excluding PPP, were down $201 million due to decreases in revolving line utilization. Commercial activity continued to be strong with total production excluding PPP, of $658 million and an end-of-period pipeline totaling $2.7 billion. Loan yields, excluding PPP, were 3.96% for the quarter, reflecting the full impact of the decline in short-term rates, coupled with lower new business rates, which averaged 3.09%. The investment portfolio yield was down 8 basis points quarter-over-quarter to 2.63%, with new purchases yielding 1.56%.

Moving to Slide 12. Both period end and average deposits increased during the quarter as a significant amount of PPP loan funds were deposited and remained on the books at quarter end. Deposits also benefited from a broad increase in savings rates as well as seasonal increases in public funds. Our total cost of deposits declined from 34 basis points in the first quarter to a low 17 basis points in Q2. While we continue to look for opportunities to reduce funding costs, most of our planned rate actions are now complete. Line deposit costs fell 24 basis points to 1.1%, and we expect this trend to continue for several quarters as the majority of our CD book reprices within the next 12 months.

Overall, we are pleased with the results of our deposit pricing strategy, as it resulted in a meaningful reduction in deposit costs while maintaining our core client base.

Next on Slide 13, you will see the detailed changes in our second quarter net interest income and corresponding margin. Net interest margin declined 17 basis points quarter-over-quarter and was generally in line with our expectations. PPP loans contributed approximately $7 million to net interest income, but had a negative 5 basis point impact on interest margin. Excluding the impact of both PPP loans and accretion, net interest margin was 3.07% compared to 3.16% in Q1. The reduction in core earning asset yields, which were down 22 basis points, was only partially offset by a 13 basis point reduction in funding costs. This trend in our margin will likely continue as our earning assets reprice in this lower long-term rate environment.

Slide 14 shows trends in adjusted noninterest income. Our second quarter adjusted noninterest income was $58 million and represents a $6 million increase over prior quarter. The primary driver of this improvement came from our mortgage business. Mortgage revenue was $17 million in Q2, which represents a $6 million increase over prior quarter and a $10 million increase over Q2 2019. Mortgage production was a record $656 million, with 34% coming from the purchase category. The pipeline also remains a strong $567 million heading into the third quarter. Please note, we did take an $800,000 impairment charge to our MSR portfolio in Q2 that is netted against our mortgage revenue. The capital markets lines business remains a bright spot as interest rate swaps continue to be very attractive to clients.

Our wealth business benefited from seasonal tax prep fees this quarter. The lower equity market values did have a modest negative impact on both investment and trust revenues. As expected, bank fees were down $3 million compared to prior quarter, driven by a significant decrease in overdraft presentments. Interchange income also came under pressure in Q2, but has rebounded nicely from its mid-quarter low point as spending patterns slowly returned to normal with our local economies reopened.

Next, Slide 15 shows the trend in adjusted noninterest expenses, which reflects our ongoing focus on expense management. ONB Way charges were $4.9 million this quarter, which is slightly better than the $6 million we projected. Adjusting for these ONB Way charges and tax credit amortization, noninterest expense was down $7 million quarter-over-quarter. Our ONB Way expense initiatives have resulted in a 16% year-over-year reduction in branches and 11% year-over-year reduction in FTEs. Also worth noting is that our second quarter noninterest expenses included an increase in our allowance for unfunded commitments of $2.1 million. Our adjusted efficiency ratio for the quarter was a low 53.8% and represents a 552 basis point improvement over Q1.

As I wrap up my discussion on the quarter, here are some key takeaways. We are pleased with our overall performance as the fundamentals of our core business were strong. Commercial production was solid. Our fee businesses continue to perform well, particularly our mortgage and capital markets lines, and we delivered on the promised expense savings we outlined in our ONB Way strategic plan.

Slide 16 includes thoughts on our outlook for the remainder of 2020. We ended the quarter with a healthy $2.7 billion commercial pipeline, but economic uncertainty may impact pull-through rates and mute loan growth in the near term. The impact on our net interest margin to the short end of the curve is now largely behind us, but historically, low long-term rates will continue to put pressure on asset yields as our loan and investment portfolios reprice at lower coupons.

Funding costs will move marginally lower as borrowings and CDs reprice at maturity, but we do not expect this will be sufficient to offset declines in asset yields. PPP loans will also impact our margin going forward. These loans carry a 1% coupon and an average fee of approximately 3% and will continue to be accretive through margin on a level yield over their 2-year terms. As loans are forgiven, any remaining fee will be accretive to income immediately. The timing of loan forgiveness is still uncertain, but we don't expect significant [pay-ups] to begin until late this year.

Several fee items will also likely come under pressure from the economic slowdown. Our wealth management and investment businesses have seen a decline in the valuation of our assets under management that will impact revenue in the near term. Overdraft fees were down sharply in the quarter and may take some time to recover to pre-crisis levels. The mortgage market has proven more resilient than we expected, but will still be subject to the typical seasonal declines in the back half of the year. We are slightly ahead of our planned 2020 ONB Way expense initiatives and have now realized a large portion of the savings promised this year.

The Infosys partnership is expected to generate approximately $5 million in onetime charges associated with upgrading our IT infrastructure and will be recognized over the next several quarters. We would also like to give you an update on our current capital position and outlook. We accreted an additional 30 basis points of CET1 capital, ending the quarter at a healthy 11.7%. And I would also reiterate that based on current capital levels and our outlook on earnings, we believe we will continue to outearn our dividend. We've also recently updated our stress test model, and under the CCAR severely adverse scenario, we remain well capitalized at the lowest point in the 9-quarter horizon. Our liquidity position also remains very strong, with our low loan-to-deposit ratio of 84%, strong cash and unencumbered security position and various sources of liquidity, we have plenty of flexibility to respond to future funding needs.

Lastly, we have provided some guidance on our full year 2020 tax rate, which is expected to be approximately 20.5% on an FTE basis and 16% on a GAAP basis. As we previously reported, project delays caused by COVID-19 have impacted the timing of our other historic tax credit projects that we anticipated would be completed this year. Those projects have recently restarted, and barring additional delays, the project could be placed in service by year-end. These projects are completed in Q4, we will take the full tax credit amortization and corresponding tax benefit in that quarter.

With that, we're happy to answer any questions that you may have, and we do have the full team here, including Jim Sandgren.

(Operator Instructions) Our first question comes from the line of Scott Siefers with Piper Sandler.

Just wanted to ask one question on the reserve. I mean, the credit numbers are excellent, of course, and you guys have such a solid history. But the only area where Old National looks light is just on the reserve-to-loan ratio? I feel like I know you guys well enough to understand the nuance, but just any thought you might have had to perhaps, say, ramping up the qualitative reserve, just given the uncertainty in the outlook? Or sort of what were the factors that got you to this as the appropriate level?

Sure. So obviously, Scott, we built our models based on historical results, and we run the Moody's baseline forecast through and trust that the models are accurate and appropriate given the economic outlook. I will say that we also did add some additional qualitative reserve to the model this year. But we feel really, really comfortable with where our reserve levels stand, given the economic forecast that Moody has provided.

Yes, Scott, I don't know. It's hard to know exactly what the right answer is in this kind of environment. And we think we've provided an appropriate amount given our history of our portfolio and our granular nature of the portfolio, the diverse nature of the portfolio. So the Board and management are very comfortable with where our reserve stands today.

Okay. Perfect. I appreciate that color. And then, Brendon, just maybe I think since none of us has really gone through a credit cycle with sort of credit marks the way they are. You are at $62 million credit mark. To what extent is that indeed available to absorb loss? I think you touched on it in your prep remarks, but just any additional color you could add would be great.

Yes, the accounting won't allow you to specifically offset a charge-off. But that -- but those credit marks are on the books and will accrete through earnings and available to help fund provisions in the event we need it as we go forward. And if the loan is resolved -- if the loan is charged off, we will accrete that credit mark straight to earnings in that period, although the geography will be different.

Our next question comes from the line of Chris McGratty with KBW.

Brendon, if I could start with you on the PPP program. Just looking for a couple numbers and then a couple outlook questions. I think you said in your prepared remarks, 3% average fee. What's the total fees that are yet to be realized aside from the 1%?

So it's just shy of $44 million left to be accretive, taking about $3 million...

Okay. And so -- and the average balance of the PPP loans in the quarter, do you have that?

The average balances. I don't have that -- oh, average for the balance of the entire portfolio, $1.1 billion, sorry, [I think I didn't have it].

Okay. So if I think of the -- roughly, I think you said $6 million in the quarter of total revenues from the PPP. Most of that would be the 1%. What do you -- I guess, how do we think about the cadence of that $44 million?

Yes. The $6.6 million that we took in the quarter was roughly split between fees and coupon. And we love to get as much of this into 2020 as we can, where Jim Sandgren has a process to be proactive with our borrowers. I think they are anxious to get this behind them as well. But until the FDA gives us a way to submit these, we're all a little uncertain. Obviously, there's been extension to the time to allocate eligible expenses, and so we're not sure, but our best thought is that this is more a fourth quarter and beyond income event.

Okay. And then last question on the PPP. The deposits that are associated with it. Can you just speak to the trajectory of the stickiness of those deposits? And do we just assume as the loans run kind of a 1:1? Or how are you viewing those, the surge in deposits?

Yes, Chris, this is Jim. It's hard to say, but I would assume, certainly in the quarter that you will start to see some of those balances run down as they are being used for the reasons they have been provided. So I -- it's hard to say 1:1, but I would think we'd start seeing those balances reduce in the quarter.

Okay. And then my last one, and I'll jump out. Brendon, you talked about the margin, just the long end being just the environment being not great for the group. If I take the core, core margin, I think it was around 9 basis points of compression. Do we assume a lesser degree of pressure because we've now felt the short end? Or is it -- are you messaging that we should see similar pressure in the back half of the year or quarter?

Yes. So I think for the -- in the near term, next several -- next couple of quarters, I think a similar trend down where it's probably appropriate, but then we'll begin to flatten from there. But the longer this curve exists, I think we'll continue to see some pressure for some time going forward. And Chris, maybe just one other point to your prior question. The buildup in deposits associated with PPP was roughly half of the $1.9 billion increase that came from PPP.

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

Maybe start with a question on Slide 5. The vulnerable industries, as you guys describe them, changed from the first quarter to the second quarter? A few kind of came out and a few new ones were put in, like CRE, kind of, senior housing. Could you just talk about, over the last 3 months, how you've looked at those loan portfolios and why you made the decision to, say, remove transportation and add senior housing?

Yes, Terry, this is Daryl. The transportation segment, we put that on because right out of the box, there seemed to be a lot of talk about transportation. As we went back and looked at our portfolio, most of that transportation exposure is in hauling, either short-term hauling or load hauling within individual regions. So we just didn't see much deterioration there. As we pulled that out, we also looked at our senior housing portfolio, which up before the COVID crisis had shown just a little bit of weakness, and so we thought, if you think about that particular industry, it's difficult to bring new clients into the assisted living just because of the COVID. And there's been lots of different protocols. They were struggling with finding employees before the crisis. It's just difficult increased cost associated with this industry. So we thought, you know what, we just really need to be keeping our eyes on that. And so we thought it was more appropriate to swap those 2 out, just to give you a better picture of where our vulnerabilities might be going forward.

Terry, I'd tell you, the entire leadership team goes through these portfolios, credit by credit, looking at the current disposition, any potential future downgrades. And so we're spending an awful lot of time focused in on it and feel as good as we can today about those credits. But we do spend an awful lot of time making sure that we're managing this portfolio appropriately.

And then as a follow up, maybe, I mean, we're seeing weakness in service charges, interchange revenue just across the industry. Any way you can put some numbers behind maybe when and how much it bottomed out, the recovery, through kind of the second quarter as it progressed? And what your thoughts are now that there's been some kind of taking some steps back on the opening and some closures in some of your core markets? And what that could mean to this fee line?

Terry, this is Brendon. I can help you with the service charges. So overdraft really drove most of our service charge decline, and we have not seen a meaningful rebound. It's been down and has basically remained down, and that's approximately $2 million for that shortfall we felt in Q1 to Q2. We don't expect that to change. As far as interchange income, it's probably $0.25 million, $0.5 million worth of headwind in Q2, but that has rebounded really back to fairly normal levels. So I don't think that will be a concern going forward for us.

I think the service charges, obviously, are being impacted by the stimulus programs and the extended benefits. And to the extent that those continue on into the future, you'll probably still see that line item under pressure. But to the extent that they will start winding down, I think you might see a return to normal.

Your next question comes from the line of Jon Arfstrom with RBC Capital Markets.

Daryl, maybe a question for you on Slide 6. You talked about the second round of deferral discussions is starting to occur. Give us an idea of what you're thinking in terms of what this slide might look like a quarter from now? I know you said that the activity has slowed pretty dramatically, but talk a little bit about what you're seeing in terms of the flow coming in for a second round?

Yes, Jon, great question. If you'll kind of recall our last call, we basically split about 50-50 on deferrals greater than 90 days and deferrals less than 90 days. We've got about half the deferrals that are coming back in. And it is a little slower than I had thought, maybe on the front end, although I don't know that I would extend kind of that thinking to the fact that maybe a lot of those 90 days don't ask for extensions. So it's yet to be seen there. I think new extension or new deferral request if based upon the last 30 or 60 days, I just don't think we're going to see significantly higher requests. So I don't know that you're going to see higher percentages of these portfolios than what we have now. If that answers your question.

Yes, Jon, I would also add. As we've gone through these, we've seen many of these early requests, we're planning for the worst-case scenario. The worst case in terms of rent collection, whether it be commercial or individual rents. And we are -- as we go through these loans one by one, we're hearing pretty positive things about their ability. So I'm hopeful that as we go through these renewals or as these mature, that we'll go back to a normal cadence with our borrowers.

And then another challenging question, I guess, as well, but you kind of alluded to it earlier. In terms of the reserves and provision outlook, are you saying that your reserves today reflect some of the individual stresses that you're seeing in the portfolio as well? Or is it just more of using the Moody's overlay and making some modest adjustments to that. So it's more of a macro approach that makes sense? Is it macro or loan by loan?

So certainly, we're using the Moody's as a macroeconomic factor overlay, but we use all of our individual asset quality ratings, LTVs, all the individual borrower characteristics, which generally the migration patterns have been very strong, even through this crisis. So we are using granular loan portfolio data in our assumptions.

Okay. So a chance that provision backs off a bit, if a lot of those Moody's numbers if we're in the ballpark.

If the Moody's scenario plays out, I think -- I don't think we'll see a meaningful reduction in the reserve, but it should be -- it should prove out the reserve is adequate to the losses in our portfolio.

And then I guess one more, in a positive way, the pipeline hanging in there, curious on the dynamics and the drivers of that. We're all obviously focused on credit, but just curious on the new business pipeline. That one kind of peaked my attention.

Yes, Jon, this is Jim. I'll take that one. Really encouraged by the size of the pipeline, but maybe more encouraged by the category. So the accepted category which traditionally, we get 90%, 95% of those loans across the finish line. That has stayed stable quarter-over-quarter. Where we did see some growth in the pipeline was in the proposal stage. So anecdotal feedback from our borrowers through our commercial RMs is that, that folks have a little bit more clarity. They're optimistic for the second half of the year. Our pull-through rates were down a little bit, certainly, in the second quarter. So we'll see if projects continue. But people are talking about acquisitions, still talking about some growth. So we'll see.

I'm very encouraged about what could happen in the third quarter, but we'll have to just wait and see how things play out. But pretty well split between commercial real estate and C&I.

Jon, I'd also add, all 3 segment leaders have been really focusing on what can they do to help our clients and what can we do to continue to grow each one of those businesses. So while the second quarter, early parts of second quarter, were probably distracted with PPP production and things like that, we're really focused in on kind of coming back and working hard, making sure we're serving our clients and looking for opportunities to grow each one of those segments.

Your next question comes from the line of David Long with Raymond James.

As it relates to the PPP, the duration of those loans, are you amortizing the fees, assuming you don't get forgiveness over 2 years? Or do you have some that are in the 5-year category?

We are amortizing these all over the 2 years now in that project.

Got it. Got it. And then the -- just overall deposit trends, if I can get a little bit more color there. Obviously, the PPP, maybe a little bit of a headwind. The public funds maybe a little bit of a headwind here in the third quarter. Can you grow deposits in the third quarter? Maybe just talk about broader trends.

I think the trends will be fairly stable with what you've seen in the past. But we just saw increased savings rate across every category, every product type, business, personal and public in the quarter. And I think Jim alluded to these comments earlier as stimulus payments sort of draw down and PPP funds gets kind of forgiven and redeployed, we'll start to see that come down, and then we'll probably return back to normal -- normal deposit trend growth.

And there are no further questions at this time.

Great. Well, we appreciate you all joining us today. We hope you have a great day. And as usual, we are available for any follow-ups, please don't hesitate to reach out. Thank you very much.

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 website at oldnational.com. A replay of the call will also be available by dialing 1 (855) 859-2056, conference ID code 7973414. This replay will be available through August 2. If anyone has any additional questions, please contact Lynell Walton at (812) 464-1366. Thank you for your participation in today's conference call.