Executive Summary / Key Takeaways

• Strategic Expansion & Balance Sheet Strength: Old National Bancorp (ONB) has solidified its position as a leading Midwest regional bank, significantly expanding its footprint and asset base to $71 billion through strategic acquisitions like Bremer Bank, which closed ahead of schedule. This has bolstered its balance sheet and capital position, exceeding initial expectations.
• Disciplined Financial Performance: The company delivered strong Q2 2025 results, marked by robust net interest income growth (up 21.2% YOY to $902.4 million YTD), disciplined loan and deposit growth, and effective expense management, leading to a 55.80% efficiency ratio and positive operating leverage.
• Evolving Technological Edge: ONB is actively investing in its technology infrastructure, focusing on enhancing client and team member experiences through a seamless ecosystem, advanced data analytics, and exploring AI, positioning itself for long-term efficiency and deeper client relationships.
• Prudent Credit Quality & Capital Management: Despite macroeconomic uncertainties, ONB maintains benign credit quality with proactive risk management, evidenced by a 124 basis points allowance for credit losses. Its CET1 ratio of 10.74% provides significant capital flexibility, enabling strategic decisions like retaining previously contemplated commercial real estate loan sales.
• Positive Outlook with Cautious Growth: Management anticipates continued net interest income and margin growth in the second half of 2025, supported by the Bremer integration and fixed asset repricing. Full-year organic loan growth is projected at 4-6%, with deposit growth expected to meet or exceed industry averages, despite a competitive lending environment.

A Legacy of Resilience Meets a Future of Growth

Old National Bancorp, established in 1834, stands as a testament to enduring financial strength and adaptability. With over 190 years of history, the company has consistently demonstrated its ability to thrive through various economic cycles, evolving into the fifth largest commercial bank headquartered in the Midwest and ranking among the top 25 banking companies in the United States. This long-standing presence is built upon a foundational strategy emphasizing low-cost core deposits, disciplined loan growth, and a deep commitment to community relationships.

ONB operates as a single reportable segment, offering a comprehensive suite of commercial and consumer banking services, private banking, wealth management, and capital markets solutions primarily across the Midwest and Southeast regions. This integrated approach allows the company's Chief Operating Decision Maker to assess performance and allocate resources holistically, driving a unified strategy across its diverse offerings.

In a competitive landscape dominated by larger regional players like Fifth Third Bancorp (FITB), PNC Financial Services Group (PNC), Regions Financial Corporation (RF), and KeyCorp (KEY), ONB carves out its niche through a steadfast focus on personalized service and deep local market penetration. While some competitors may boast greater scale or more advanced digital platforms, ONB's strength lies in its robust community brand and the loyalty it cultivates through long-term relationships. This qualitative advantage often translates into enhanced pricing power in local markets and stronger customer retention, providing a stable foundation for revenue generation.

However, ONB is not static in its pursuit of competitive advantage. The company is actively investing in its technological capabilities to bridge any gaps with more digitally advanced rivals. Matt Keen's appointment as Chief Information Officer on July 1, 2025, signals a strategic pivot towards leveraging technology as a core enabler for business success. Keen, previously CIO for Bremer Bank, is tasked with shaping and executing ONB's technology roadmap, focusing on building a "stronger ecosystem for wealth management" and enabling bankers to "move seamlessly across those platforms." This initiative aims to enhance operational efficiency and deepen client engagement.

Furthermore, ONB is committed to investing in treasury management solutions to connect more deeply with upper middle-market clients' systems. The company is also "intensely looking at AI" to shape its technology, indicating a forward-thinking approach to innovation. While specific quantitative benefits of these technological investments are not yet fully disclosed, the strategic intent is clear: to improve client and team member experience through data and analytics, thereby strengthening ONB's competitive moat by fostering efficiency, driving growth, and supporting its relationship-centric model. This evolving technological foundation is crucial for ONB to maintain its competitive edge against rivals who may have faster innovation cycles or broader digital reach.

Strategic Expansion and Financial Momentum

ONB's recent history is marked by strategic acquisitions that have significantly amplified its scale and market presence. Following the successful integration of CapStar Financial Holdings in April 2024, which bolstered its Southeastern footprint, the company completed its transformative acquisition of Bremer Financial Corporation on May 1, 2025, ahead of schedule. This partnership added approximately $16.3 billion in total assets, $11.1 billion in loans, and $12.9 billion in deposits, substantially enhancing ONB's scale and density across Minnesota, North Dakota, and Wisconsin. The system conversion for Bremer is on track for mid-October 2025, promising further integration benefits.

The financial impact of the Bremer acquisition is already evident. For the six months ended June 30, 2025, net interest income surged by 21.2% year-over-year to $902.4 million, comprising 80% of total revenues. This increase was primarily driven by the addition of Bremer's operations, coupled with organic loan growth and higher asset yields. The company's period-end total deposits grew to $54.4 billion, with core deposits (excluding Bremer and brokered) up 1% annualized. Loans, excluding held-for-sale, increased by $11.5 billion to $47.9 billion, with organic growth (excluding Bremer) at a healthy 4% annualized. New loan production rates are in the high 6% range, while marginal funding costs are in the mid-3% range, indicating favorable spreads.

Noninterest income also saw a substantial increase, growing 37.3% year-over-year to $226.3 million for the first half of 2025. This was fueled by the Bremer acquisition and organic growth across fee-based businesses. Wealth and investment services fees rose 13.5%, mortgage banking revenue jumped 46.5% due to higher originations and loan sales, and capital markets income soared 52.3%, primarily from commercial real estate client interest rate swap fees. Notably, other income included a $21 million gain from freezing the Bremer pension plan and $4.2 million in net gains from commercial loan sales.

Despite the significant integration costs associated with the Bremer acquisition, noninterest expense increased by a more controlled 19.8% year-over-year to $653.2 million for the six months ended June 30, 2025. This reflects ONB's disciplined expense management, which contributed to a 55.80% efficiency ratio in Q2 2025 and continued positive operating leverage. The effective tax rate for Q2 2025 decreased to 19.50% from 22.50% in Q2 2024, benefiting from an increase in tax credits.

Prudent Risk Management and Capital Strength

ONB's commitment to credit quality remains a cornerstone of its strategy. Management emphasizes a proactive approach to credit monitoring, conservative structuring, and active workout strategies, which have historically resulted in below-peer averages in delinquency and charge-off ratios, even with above-peer levels of non-accrual loans. Approximately 60% of current non-accrual loans stem from acquired books with appropriate reserves, and roughly 60% are still paying principal and interest or interest-only. About half of the classified and criticized assets are in commercial real estate, where the company maintains confidence in collateral values and sponsor quality.

The allowance for credit losses on loans stood at 124 basis points of total loans at June 30, 2025, an increase of 8 basis points from the prior quarter, primarily driven by the Bremer acquisition. This included a $90.4 million allowance for acquired purchased credit deteriorated (PCD) loans and $69.1 million for non-PCD Bremer loans. Qualitative reserves incorporate a 100% weighting on the Moody's S2 scenario, with additional factors for global economic uncertainty, reflecting a prudent stance. Net charge-offs were 24 basis points in Q2 2025, or 21 basis points excluding PCD loans, remaining within normalized levels.

The Bremer acquisition significantly strengthened ONB's capital position, with the CET1 ratio reaching 10.74% at June 30, 2025, approximately 50 basis points higher than originally expected post-merger. This robust capital level provides "significant flexibility" and "balance sheet optionality." As a direct result, ONB decided to retain the $2.4 billion in commercial real estate loans that were initially contemplated for sale. This strategic decision, combined with lower purchase accounting marks, is expected to offset foregone accretion income and shorten the tangible book value earnback period by approximately half a year, contributing positively to earnings in 2026.

The company actively manages market risk through an asset-liability model that quantifies net interest income sensitivity to various interest rate scenarios. Cash flow and fair value hedges, including interest rate swaps, collars, and floors, are employed to mitigate interest rate risk. Liquidity risk is managed through strategic and contingency plans, ensuring the ability to fund growth and meet obligations. ONB's available liquid funds and borrowing capacities underscore its strong liquidity profile.

Outlook and Strategic Trajectory

Looking ahead, Old National Bancorp is poised for continued growth and enhanced profitability in the second half of 2025. Management projects full-year organic loan growth (excluding Bremer) to be in the 4-6% range, likely towards the lower end given increased competition, particularly in commercial real estate. However, the company's disciplined approach to client selection and focus on risk-adjusted returns will remain paramount. Deposit growth is expected to meet or exceed industry averages, supported by a proactive client acquisition strategy and an anticipated total down-rate deposit beta of approximately 40%.

Net interest income and margin are expected to continue growing in the second half of 2025, driven by the full impact of the Bremer partnership, favorable fixed asset repricing dynamics, and ongoing organic growth. The company's balance sheet is positioned neutrally to short-term rates, implying that the NII guidance remains robust even with one or no further Fed rate cuts. Full-year results are anticipated to yield earnings per share in line with current analyst consensus estimates, featuring positive operating leverage and a peer-leading return profile.

ONB's strategic focus extends beyond immediate financial metrics. The company is committed to continuous investment in its talent and technology. The appointment of Tim Burke as President and COO and Matt Keen as CIO underscores this commitment, aiming to further enhance operational excellence and client-centric innovation. While uncertainties surrounding the global economic and trade outlook persist, ONB's expanded balance sheet and strategic partnerships are expected to provide a meaningful offset. The company's rapid capital generation also puts share repurchases "on the horizon," though the immediate focus remains on integrating Bremer and optimizing the balance sheet for long-term value creation.

Conclusion

Old National Bancorp is executing a compelling growth narrative, leveraging its deep historical roots and disciplined banking fundamentals to expand strategically across the Midwest and Southeast. The successful, ahead-of-schedule integration of Bremer Bank has significantly enhanced its scale, capital strength, and earnings power, positioning the company for sustained financial performance. This strategic expansion, combined with a prudent approach to credit risk and an evolving commitment to technological innovation, underpins ONB's ability to generate consistent, high-quality earnings.

As ONB moves forward, its focus on organic growth, efficient operations, and a robust capital base, supported by its expanding technological capabilities, will be critical differentiators. The company's ability to maintain its strong community-centric model while embracing digital advancements and strategic acquisitions creates a powerful investment thesis. Investors looking for a resilient regional bank with a clear growth trajectory, strong financial discipline, and a commitment to long-term shareholder value should consider Old National Bancorp's compelling story.