8-K: Old National Bancorp Exceeds Q2 Expectations

Old National Bancorp reports strong second-quarter 2025 results, exceeding expectations across key financial metrics and successfully integrating the Bremer acquisition.

Summary

• Old National Bancorp (ONB) reported adjusted earnings per diluted share of $0.53 for Q2 2025, an 18% increase from Q1 2025 and 15% from Q2 2024.
• Adjusted net income applicable to common shares was $191 million, up 32% from Q1 2025 and 33% from Q2 2024.
• The company completed the acquisition of Bremer Financial Corporation on May 1, 2025, which strengthened its presence in Minnesota and the surrounding Midwest markets.
• Total assets increased to $70,980 million, up 32% from Q1 2025 and 34% from Q2 2024.
• Total deposits reached $54,358 million, a 32% increase from Q1 2025 and 36% from Q2 2024.
• Total loans grew to $47,980 million, up 32% from Q1 2025 and 32% from Q2 2024.
• Excluding Bremer, total loan growth was 3.7% annualized, with commercial loan growth at 4.6% annualized.
• The CET1 capital to RWA ratio stood at 10.74%, exceeding expectations set at the Bremer announcement.
• Tangible common book value (TBV) per share increased to $12.60, up 14% year-over-year.
• Adjusted return on average tangible common equity (ROATCE) was 18.1%, and the adjusted efficiency ratio was 50.2%.
• Net interest income (FTE basis) was $522 million, a 33% increase from Q1 2025.
• The net interest margin (FTE basis) increased by 26 basis points to 3.53% compared to Q1 2025.
• Total deposit costs were 193 basis points, reflecting a low-cost deposit franchise.
• Criticized and classified loans, excluding Bremer, declined by $254 million, or 9%.
• The allowance for credit losses was $595 million, or 1.24% of total loans, including a ~4% reserve on purchased credit deteriorated (PCD) loans.
• Net charge-offs were 0.21% excluding PCD loans.
• The company maintains a neutral rate risk position with 59% of loans being variable/floating-rate and 93% repricing within 3 months.
• Outlook for Q3 2025 includes net interest income of approximately $575 million and noninterest income of approximately $120 million.
• Full-year 2025 outlook for net interest income (FTE) is updated to $2,065 $2,095 million, an increase from previous guidance.

Sentiment

Score: 9

Explanation: The filing indicates exceptionally strong performance, with key financial metrics exceeding expectations, successful integration of a major acquisition, robust capital levels, and a positive outlook. The company demonstrates strong credit quality and operational efficiency relative to peers, signaling a very healthy financial position and strategic execution.

Positives

• Adjusted EPS of $0.53 and adjusted ROATCE of 18.1% demonstrate strong profitability and efficient use of capital.
• Successful and earlier-than-anticipated completion of the Bremer acquisition, with deal financial metrics exceeding initial expectations.
• CET1 capital to RWA ratio of 10.74% exceeded expectations, providing significant balance sheet flexibility.
• Tangible common book value per share increased by 14% year-over-year, indicating strong shareholder value creation.
• Significant growth in total assets (32% QoQ), total deposits (32% QoQ), and total loans (32% QoQ) driven by the Bremer acquisition and disciplined organic growth.
• Maintained a low-cost deposit franchise with total deposit costs of 193 bps and 75% of core deposits having tenure greater than 5 years.
• Strong credit quality metrics, including low net charge-offs (0.21% excluding PCD loans) and a 9% decline in criticized and classified loans (excluding Bremer).
• The company's credit risk profile is low relative to peers, with significantly lower 3-year and 15-year cumulative net charge-offs.
• The company is building capital faster than peers, with a higher equity retention rate.
• Positive outlook for full-year 2025 net interest income and noninterest income, indicating continued earnings growth.

Negatives

• Reported EPS of $0.34 was lower than Q1 2025 ($0.44) and Q2 2024 ($0.37) due to merger-related charges and CECL Day 1 provision.
• Provision for credit losses increased significantly to $107 million in Q2 2025 from $31 million in Q1 2025, primarily due to the CECL Day 1 non-PCD provision expense of $76 million related to the Bremer acquisition.
• Nonaccrual loans increased to 1.24% of total loans in Q2 2025 from 0.94% in Q1 2025, and 30+ day delinquency increased modestly due to the Bremer acquisition.
• Held-to-maturity (HTM) securities have pre-tax unrealized losses of $456 million (~$342 million net of tax).

Risks

• Competition within the financial services industry.
• Impact of government legislation, regulations, and policies, including trade and tariff policies.
• Ability to successfully execute the business plan.
• Unanticipated changes in liquidity position, including access to sources of liquidity and capital.
• Changes in economic conditions and economic/business uncertainty, which could impact credit quality trends, loan generation, and deposit gathering.
• Inflation and governmental responses to inflation, including increasing interest rates.
• Market, economic, operational, liquidity, credit, and interest rate risks associated with the business.
• Ability to successfully manage credit risk and the sufficiency of the allowance for credit losses.
• Risks that expected cost savings, synergies, and financial benefits from the Bremer merger are not realized within expected timeframes, or integration costs are greater than expected.
• Potential adverse reactions or changes to business or employee relationships resulting from the merger.
• Impact of purchase accounting with respect to the merger, or changes in assumptions used for fair value and credit marks.
• Potential impact of future business combinations on performance and financial condition, including integration challenges and diversion of management's attention.
• Failure or circumvention of internal controls.
• Operational risks or risk management failures by the company or critical third parties, including data processing, information systems, cybersecurity, technological changes, vendor issues, business interruption, and fraud.
• 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 information systems, computer hacking, and other cybersecurity threats.
• Effects of climate change on the company and its customers, borrowers, or service providers.
• Impacts of pandemics, epidemics, and other infectious disease outbreaks.

Future Outlook

The company anticipates Q3 2025 net interest income (FTE basis) of approximately $575 million and noninterest income of approximately $120 million. For the full year 2025, net interest income (FTE basis) is projected to be between $2,065 million and $2,095 million, an upward revision from previous guidance. Noninterest income is expected to be $435 million to $455 million, also an upward revision. Noninterest expense is projected to be $1,340 million to $1,360 million, unchanged from prior guidance. The net charge-off ratio is expected to be between 0.20% and 0.30%, and provision for credit losses between $115 million and $125 million (excluding Bremer day 1 non-PCD double count), both unchanged. The company assumes two Fed rate cuts of 25 bps each in October and December 2025, a 5-year Treasury rate of ~4.0%, and a declining rate total deposit beta of ~40%. The company expects accumulated other comprehensive income (AOCI) to recover approximately 6% by year-end 2025.

Management Comments

• Our primary strategic objective is to be a top quartile performing basic bank that is a primary, trusted partner to our clients in the communities we serve, and a highly respected, highly valued employer that continually empowers our team members to grow, develop and succeed.
• The Bremer partnership brings earnings growth and meaningful balance sheet flexibility given capital outperformance.
• Maintaining a neutral rate risk position provides net interest income stability to Fed rate actions.

Industry Context

Old National Bancorp's strong Q2 2025 performance, particularly its successful integration of Bremer Financial Corporation and robust capital position, positions it favorably within the regional banking sector. Amidst ongoing economic uncertainties and potential interest rate shifts, the company's focus on a low-risk balance sheet, diversified loan portfolio, and low-cost deposit base aligns with prudent strategies for navigating a dynamic banking environment. The emphasis on core deposit growth and efficient operations reflects a broader industry trend towards strengthening foundational banking services while managing credit risk effectively.

Comparison to Industry Standards

• Old National Bancorp's 3-Year Cumulative Net Charge-Offs / Average Loans of 0.25% is significantly lower than the peer average of 1.89%, indicating superior credit quality.
• The 15-Year Cumulative Net Charge-Offs / Average Loans for ONB is 0.45%, substantially below the peer average of 5.69%, demonstrating long-term credit discipline.
• ONB's Risk-Weighted Assets / Total Assets at 75% is lower than the peer average of 86%, suggesting a less risky asset composition.
• The company's 2Q25 adjusted ROATCE of 18.1% and adjusted efficiency ratio of 50.2% are described as 'top quartile' compared to peers, highlighting strong profitability and operational efficiency.
• ONB's brokered deposits represent 3.8% of total deposits in 2Q25, which is lower than the peer average of 6.0% (1Q25), indicating a more stable and less reliance on wholesale funding.
• The average core account balance for ONB is $16,000 for accounts under $250,000, compared to the peer average of $25,000, and $1.0 million for accounts over $250,000, compared to the peer average of $1.5 million, suggesting a more granular and diversified deposit base.

Management Changes

Corporate Governance

Stakeholder Impact

• Shareholders: Positive impact due to strong financial performance, increased tangible book value per share, higher adjusted EPS, successful acquisition integration, and a robust capital position, potentially leading to increased share price and continued dividends.
• Employees: Positive impact through the company's strategic objective to be a highly valued employer that empowers team members to grow, develop, and succeed, as well as the integration of Bremer employees.
• Customers: Positive impact as the company aims to be a primary, trusted partner, offering a low-cost deposit franchise and diversified loan products.
• Communities: Positive impact through the company's commitment to strengthening communities, as highlighted in its Community Action Report.
• Creditors: Positive impact due to the company's strong capital position (CET1 of 10.74%) and low-risk balance sheet, indicating a strong ability to meet financial obligations.

Next Steps

• Systems conversion related to the Bremer partnership is planned for mid-October 2025.

Key Dates

Recommendation

Old National Bancorp's Q2 2025 results demonstrate exceptional financial health and strategic execution. The successful integration of Bremer Financial Corporation has significantly boosted key metrics, with adjusted EPS and ROATCE exceeding expectations. The company maintains a robust capital position, superior credit quality compared to peers, and a stable, low-cost deposit base. The positive outlook for future earnings, coupled with a disciplined approach to risk management and a commitment to shareholder value, positions ONB for continued growth and outperformance. These factors make it a highly attractive investment for seasoned investors and institutions.

Keywords

Regional Bank, Financial Services, Banking, SEC Filing, Earnings Report, Merger Integration, Credit Quality, Deposits, Loans, Capital Ratios, Net Interest Income, Efficiency Ratio, Shareholder Value, Corporate Governance