Executive Summary / Key Takeaways

• Old National Bancorp demonstrates resilience and strategic execution through disciplined organic growth in loans and low-cost core deposits, coupled with value-accretive M&A, positioning it for enhanced scale and earnings power.
• The successful integration of CapStar and the anticipated closing of the Bremer Financial acquisition significantly expand the company's footprint in high-growth Midwest and Southeast markets, providing meaningful balance sheet flexibility and earnings upside.
• Strong financial performance in Q1 2025, marked by solid loan/deposit growth, stable net interest income and margin, controlled expenses, and resilient credit quality, underscores the effectiveness of its fundamental banking strategy in a challenging environment.
• Management's outlook anticipates continued positive operating leverage, peer-leading return metrics, and rapid capital accretion, supported by fixed asset repricing, strategic investments in fee income businesses, and the benefits of the Bremer partnership.
• While macroeconomic uncertainty and higher interest rates present ongoing credit and market risks, Old National's proactive risk management, conservative underwriting, and ample reserve coverage provide a solid foundation.

A Foundation of Discipline and Growth

Old National Bancorp, the sixth largest commercial bank headquartered in the Midwest and ranking among the top 30 banking companies in the United States with consolidated assets of $53.9 billion at March 31, 2025, has built its long history on a fundamental banking strategy centered on low-cost core deposits and disciplined loan growth. This approach has proven effective, contributing to an 8% compounded annual growth rate in both total deposits and loans since 2022, outpacing overall industry expansion. The company operates primarily across the Midwest and Southeast regions, with a strategic focus on building deep client relationships through its community banking network.

In a competitive landscape populated by larger regional players like Fifth Third Bancorp (FITB), Regions Financial Corporation (RF), and Huntington Bancshares Incorporated (HBAN), Old National differentiates itself through its strong community presence and a notable advantage in the cost of its deposit base. While competitors like FITB and HBAN may hold an edge in digital capabilities and operational efficiency, evidenced by reports of 10-15% faster loan processing times for HBAN due to better tech integration, Old National's lower cost of total deposits (1.90% spot rate at March 31, 2025) provides a competitive lever. This cost efficiency, with interest-bearing deposit costs running 10-15% lower than some peers, allows for a more favorable funding structure, supporting profitability even when competing on loan pricing. The company's technology focus, while not featuring a single, unique product technology, centers on enhancing operational efficiency, digital platforms, and utilizing data analytics for risk management and strategic decision-making, aiming to narrow the gap in processing speed and digital offerings over time.

Strategic Expansion and Operational Strength

Old National's growth trajectory has been significantly shaped by strategic acquisitions that have expanded its geographic reach and enhanced its capabilities. The successful integration of CapStar Financial Holdings (CSTR), completed in April 2024, bolstered the company's presence in the high-growth Nashville market and the broader Southeast. This partnership added approximately $3.1 billion in assets and $2.6 billion in deposits at closing, strategically positioning Old National in vibrant new markets and identifying opportunities in areas like wealth management.

Building on this momentum, the pending acquisition of Bremer Financial Corporation, anticipated to close on May 1, 2025, represents another transformative step. This transaction, valued at approximately $1.4 billion, is set to significantly increase Old National's scale and density in the Upper Midwest, adding a substantial deposit and loan base across Minnesota, North Dakota, and Wisconsin. Management views this partnership as a key driver for future balance sheet growth, earnings power, and enhanced shareholder value, providing meaningful flexibility in an uncertain economic environment. The forward sale agreements for common stock entered into in anticipation of the Bremer closing demonstrate a proactive approach to funding the transaction.

The company's operational performance in the first quarter of 2025 reflected the benefits of its strategic focus. Net income applicable to common shareholders was $140.6 million, or $0.44 per diluted common share ($0.45 adjusted), demonstrating resilience despite a challenging backdrop. This performance was supported by solid loan growth, which increased by 1.5% annualized (excluding sales) to $36.41 billion, and deposit growth, up 2.1% annualized to $41.03 billion. Net interest income stood at $387.6 million, with a net interest margin of 3.27%, meeting management's expectations. Noninterest income saw a healthy increase to $93.8 million, benefiting from a gain on the sale of commercial real estate loans and higher fees from mortgage banking and service charges, partly offset by lower company-owned life insurance income. Disciplined expense management contributed to a favorable efficiency ratio, with noninterest expense decreasing compared to the prior quarter, even while absorbing merger-related costs.

Navigating Risks and Maintaining Credit Discipline

While Old National's strategic initiatives and operational execution are strong, the company operates within an environment subject to various risks, particularly credit and market risks influenced by macroeconomic conditions and interest rate fluctuations. The increase in criticized and classified assets to $2.8 billion at March 31, 2025, up $344.1 million from year-end 2024, reflects the impact of macroeconomic factors and the higher interest rate environment on borrowers. Under-performing assets also saw a modest increase, reaching 1.32% of total loans.

However, management emphasizes a proactive and conservative approach to credit risk. Net charge-offs, while higher year-over-year, remained within the expected range at an annualized 0.24% in Q1 2025. The allowance for credit losses on loans increased to $401.9 million, incorporating global trade and economic uncertainty, and provides ample coverage relative to nonaccrual loans. The company's detailed analysis of its loan portfolio, particularly commercial real estate, highlights diversification by property type, geography, and loan size, with key segments like office and multifamily showing manageable credit metrics (e.g., average office DSCR of nearly 1.5x, weighted average LTV of 64%). Management actively monitors pending maturities, especially in non-owner-occupied CRE, and believes its underwriting practices provide a sufficient cushion against rate changes. Market risk, primarily interest rate risk, is actively managed through balance sheet strategies and derivative instruments, positioning the company neutrally to short-term rate movements. Liquidity is also closely monitored, with ample capacity available through deposits, wholesale funding, and capital markets access.

Outlook and Value Creation

Old National's outlook is optimistic, underpinned by the anticipated benefits of the Bremer acquisition and continued organic momentum. Management expects net interest income to increase in 2025, driven by the addition of Bremer's balance sheet, the favorable repricing of fixed-rate assets onto higher yields, and ongoing loan growth. This outlook is supported by assumptions including potential Fed rate cuts aligning with the forward curve and a continued decrease in deposit betas. The company's balance sheet is positioned to perform well across various rate scenarios.

Strategic investments in fee income businesses, such as wealth management and capital markets, are expected to contribute to revenue diversification and growth. Expense discipline remains a priority, aimed at generating positive operating leverage and maintaining a peer-leading efficiency ratio. Capital levels are strong, with a CET1 ratio of 11.62% at Q1 2025, and are expected to accrete rapidly, providing flexibility for future growth and potential capital deployment actions like share repurchases in the latter half of 2025 or 2026, after the Bremer integration is complete. Compounding tangible book value per share remains a central focus for long-term shareholder value creation.

Conclusion

Old National Bancorp is executing a clear strategy focused on building scale and enhancing profitability through a combination of disciplined organic growth and strategic, value-accretive acquisitions. The successful integration of CapStar and the imminent closing of the Bremer partnership are pivotal steps that will significantly expand the company's market presence and financial capacity. Despite facing macroeconomic headwinds and competitive pressures, Old National's foundational strengths in low-cost deposit gathering, conservative credit management, and operational discipline, supported by ongoing technology investments, position it favorably. The outlook for increased net interest income, continued expense control, and robust capital generation underscores the potential for ongoing value creation for ONBPP shareholders as the company leverages its expanded footprint and executes its strategic priorities in the coming periods.