10-Q: Old National Bancorp Reports Q2 2025 Results Amid Bremer Acquisition Integration

Old National Bancorp's second quarter 2025 results reflect significant growth in assets, loans, and deposits driven by the Bremer Financial Corporation acquisition, despite a GAAP net income decline due to merger-related expenses and credit loss provisions.

Summary

• Net income applicable to common shareholders for Q2 2025 was $121.4 million, or $0.34 per diluted common share, a decrease from $140.6 million ($0.44 per diluted common share) in Q1 2025.
• Adjusted net income applicable to common shareholders (non-GAAP) for Q2 2025 was $190.9 million, or $0.53 per diluted common share, an increase from $145.5 million ($0.45 per diluted common share) in Q1 2025.
• Total assets increased by $17.4 billion to $71.0 billion at June 30, 2025, compared to $53.6 billion at December 31, 2024, primarily due to the Bremer acquisition.
• Total deposits rose by $13.5 billion to $54.4 billion at June 30, 2025, with organic growth (excluding Bremer and brokered deposits) at 1% annualized.
• Total loans (net of unearned income) increased by $11.6 billion to $47.9 billion at June 30, 2025, with organic loan growth (excluding Bremer) at 4% annualized.
• Net interest income increased by $127.1 million to $514.8 million in Q2 2025 compared to Q1 2025, driven by the Bremer acquisition, organic loan growth, and higher asset yields, partially offset by higher funding costs.
• Provision for credit losses was $106.8 million in Q2 2025, including $75.6 million for CECL Day 1 non-PCD provision expense related to acquired non-PCD Bremer loans and unfunded commitments.
• Noninterest income increased by $38.7 million to $132.5 million in Q2 2025, including a $21.0 million gain from the freezing of benefits of the Bremer pension plan.
• Noninterest expense increased by $116.3 million in Q2 2025, including $41.2 million in merger-related expenses.
• Net charge-offs to average loans were 0.24% in Q2 2025, up from 0.16% in Q2 2024.
• Nonaccrual loans increased by $146.7 million from December 31, 2024, to June 30, 2025, with $126.8 million attributed to the Bremer acquisition.
• The allowance for credit losses on loans increased to $565.1 million at June 30, 2025, from $392.5 million at December 31, 2024.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive. While GAAP net income declined due to significant one-time acquisition costs and credit provisions, the underlying adjusted performance shows strong organic growth in loans, deposits, and net interest income. The strategic acquisition significantly expands the company's scale. However, increased net charge-offs, nonaccrual loans, and the company's liability-sensitive position in a potentially falling rate environment introduce some caution.

Positives

• Adjusted net income per diluted common share increased to $0.53 in Q2 2025 from $0.45 in Q1 2025, indicating strong underlying operational performance excluding one-time acquisition costs.
• Significant growth in total assets, loans, and deposits driven by the strategic acquisition of Bremer Financial Corporation.
• Organic loan growth was strong at 4% annualized, excluding acquired Bremer loans.
• Organic deposit growth (excluding Bremer and brokered deposits) was 1% annualized.
• Net interest income increased substantially due to the Bremer acquisition and organic loan growth.
• Noninterest income saw a significant increase, boosted by the Bremer acquisition and a $21.0 million gain from the Bremer pension plan.
• Capital ratios remain strong and exceed regulatory minimums, with Old National Bank meeting the 'well-capitalized' definition.
• The efficiency ratio improved to 55.80% in Q2 2025 from 57.17% in Q2 2024, indicating better cost management relative to revenue generation.

Negatives

• GAAP net income applicable to common shareholders decreased to $121.4 million in Q2 2025 from $140.6 million in Q1 2025.
• Merger-related expenses totaled $41.2 million in Q2 2025, impacting profitability.
• A substantial provision for credit losses of $106.8 million was recorded in Q2 2025, largely due to the $75.6 million CECL Day 1 non-PCD provision for acquired Bremer loans.
• Net charge-offs to average loans increased to 0.24% in Q2 2025 from 0.16% in Q2 2024.
• Nonaccrual loans increased to $594.7 million at June 30, 2025, from $448.0 million at December 31, 2024, primarily due to the Bremer acquisition.
• Capital ratios, including Tier 1 common equity and total capital, slightly decreased from December 31, 2024, to June 30, 2025, following the acquisition.
• The company's net interest income sensitivity analysis indicates it is liability sensitive, meaning net interest income is projected to decrease more significantly in a falling interest rate environment.

Risks

• Competition in the banking industry could adversely affect financial performance.
• Changes in government legislation, regulations, and policies, including trade and tariff policies, could impact operations.
• Unanticipated changes in liquidity position, including access to funding sources, pose a risk.
• Changes in economic conditions and economic/business uncertainty could materially impact credit quality trends and the ability to generate loans and gather deposits.
• Inflation and governmental responses to inflation, such as increasing interest rates, could affect the business.
• Market, economic, operational, liquidity, credit, and interest rate risks are inherent in the business.
• The ability to successfully manage credit risk and the sufficiency of the allowance for credit losses are critical.
• Expected cost savings, synergies, and other financial benefits from the Bremer merger may not be realized within expected time frames, or integration costs/difficulties could be greater than anticipated.
• Potential adverse reactions or changes to business or employee relationships could result from the completion of the merger.
• The impact of purchase accounting for the merger, or changes in assumptions for fair value and credit marks of acquired assets/liabilities, could affect financial results.
• Potential impact of future business combinations on performance and financial condition, including integration challenges and diversion of management attention.
• Failure or circumvention of internal controls, operational risks, or risk management failures by the company or third parties (e.g., data processing, cybersecurity, vendor issues, 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.
• The effects of climate change on the company and its customers, borrowers, or service providers.
• The impacts of pandemics, epidemics, and other infectious disease outbreaks.
• Approximately $811.0 million (2% of total loans) of non-owner-occupied commercial real estate loans mature within 18 months with an interest rate below 4%, posing renewal risk in a changing rate environment.

Future Outlook

The company anticipates completing the majority of system conversions related to the Bremer acquisition in mid-October 2025. Management views stress testing as an integral part of risk management and strategic planning, evaluating decisions related to pricing, loan concentrations, capital deployment, and mergers and acquisitions. The company is currently evaluating the impact of the recently signed One Big Beautiful Bill Act (OBBBA) on its consolidated financial statements but does not believe it will have a material impact.

Management Comments

• Our results for the second quarter of 2025 include two months of Bremer operations and reflect organic growth in total loans, deposits, and net interest income, disciplined expense management, and strong credit quality and capital.
• Management actively takes balance sheet restructuring, derivative, and deposit pricing actions to help mitigate interest rate risk.
• Management believes that it is standard practice in the banking industry to present net interest margin and net interest income on a fully taxable equivalent basis and that it may enhance comparability for peer comparison purposes for both management and investors.
• Management believes the company has the ability to generate and obtain adequate amounts of liquidity to meet its requirements in the short-term and the long-term.

Industry Context

The banking industry continues to navigate a dynamic interest rate environment, with the Federal Reserve holding rates steady in Q2 2025 but decreasing them compared to Q2 2024. Old National Bancorp's significant acquisition of Bremer Financial Corporation positions it as the fifth largest commercial bank headquartered in the Midwest by asset size, reflecting a trend of consolidation within the regional banking sector. The increase in nonaccrual loans and net charge-offs, while partly acquisition-driven, highlights broader credit quality pressures that some banks may face. The company's active use of derivatives to manage interest rate risk is a common strategy in the current market.

Comparison to Industry Standards

• Old National Bank's applicable investor commercial real estate loans as a percentage of its Tier 1 capital plus the allowance for credit losses attributable to loans and leases remained below the regulatory guideline limit of 300% at 265% as of June 30, 2025.
• Old National and its bank subsidiary exceeded all regulatory minimum capital requirements at June 30, 2025, with Old National Bank meeting the regulatory definition of 'well-capitalized'. For example, Old National's Tier 1 capital to total average assets (leverage ratio) was 9.26% compared to a minimum of 4.00%, and its Common equity Tier 1 capital to risk-weighted total assets was 10.74% compared to a minimum of 7.00%.
• The company's credit ratings from Moody's Investors Service (Long-term: Baa1 for Old National, A1 for Old National Bank; Short-term: P-1 for Old National Bank) indicate a strong credit profile relative to industry peers, supporting its ability to acquire funding at competitive prices.

Corporate Governance

Legal Proceedings

• At June 30, 2025, there were certain legal proceedings pending against the Company and its subsidiaries in the ordinary course of business. Management does not expect any potential liabilities from pending litigation to have a material adverse effect on the Company's business, financial position, or results of operations.

Stakeholder Impact

• Shareholders: Experienced short-term GAAP earnings dilution due to acquisition costs but saw an increase in adjusted earnings. The stock repurchase program indicates a commitment to shareholder returns. The acquisition significantly increased the number of outstanding common shares.
• Employees: The Bremer acquisition led to an increase in full-time equivalent employees (5,313 at June 30, 2025, from 4,066 at December 31, 2024). The freezing of benefits of the Bremer pension plan resulted in a gain for the company, but implies changes for former Bremer employees' benefits.
• Customers: The acquisition of Bremer and CapStar expands the company's geographic footprint and service offerings, particularly in the Midwest and Southeast regions, potentially offering more comprehensive banking services.
• Creditors: The company's strong capital ratios and liquidity position, as well as stable wholesale funding as a percentage of total funding, suggest continued financial stability and ability to meet obligations.

Next Steps

• Complete the majority of system conversions related to the Bremer acquisition by mid-October 2025.
• Continue to evaluate the impact of the One Big Beautiful Bill Act (OBBBA) on consolidated financial statements.
• Ongoing monitoring of credit quality, macroeconomic factors, and loan composition to manage provision expense.
• Management will continue to use stress testing to evaluate decisions relating to pricing, loan concentrations, capital deployment, and mergers and acquisitions.

Key Dates

Recommendation

The company's strategic acquisition of Bremer Financial Corporation significantly expands its scale and market presence, driving substantial growth in assets, loans, and deposits. While this acquisition led to a short-term decline in GAAP net income due to one-time merger-related expenses and a large CECL Day 1 provision, the adjusted earnings show a positive underlying operational trend. Capital ratios remain robust, exceeding regulatory minimums. However, the increase in nonaccrual loans and net charge-offs, partly due to the acquisition, warrants close monitoring. Furthermore, the company's liability-sensitive position in its interest rate risk profile presents a potential headwind in a declining interest rate environment. Given the mixed signals of strategic growth with short-term integration costs and some credit quality concerns, a 'hold' recommendation is appropriate for investors to observe the successful integration of Bremer and the trajectory of credit quality and interest rate sensitivity.

Keywords

Banking, Financial Services, SEC Filing, 10-Q, Quarterly Report, Acquisition, Merger, Bremer Financial Corporation, Loans, Deposits, Net Interest Income, Credit Quality, Allowance for Credit Losses, Capital Ratios, Interest Rate Risk, Liquidity, Commercial Real Estate, Wealth Management, Capital Markets