Old National Bancorp (NASDAQ:ONBPP) is the sixth largest commercial bank headquartered in the Midwest, with a strong presence across the region and a growing footprint in the Southeast. The company's history dates back to 1834, making it one of the oldest and most established banking institutions in the region. Over the decades, Old National has navigated various economic cycles and industry changes, emerging as a resilient and diversified financial services provider.

Business Overview and History

Old National Bancorp was founded in 1834 in Evansville, Indiana, where the company maintains its corporate headquarters and principal executive office. The bank has expanded its reach over the years through organic growth and strategic acquisitions, establishing a presence in key Midwestern and Southeastern markets, including Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, North Carolina, Tennessee, and Wisconsin.

A significant milestone in Old National's history occurred in 1982 when the company transitioned to become a financial holding company. This strategic move allowed Old National to diversify its offerings beyond traditional banking services, paving the way for future growth and expansion. Over the following decades, Old National executed more than 50 mergers and acquisitions, strategically growing its franchise and geographic footprint.

The 2008 financial crisis presented a significant challenge for Old National, as it did for many financial institutions. However, the company successfully navigated the economic downturn, maintaining solid capital levels and credit quality. This experience strengthened Old National's resilience and risk management practices, positioning it well for future challenges.

In recent years, Old National has invested heavily in technology and digital capabilities to enhance its customer service and operational efficiency. The company has also maintained a strong emphasis on risk management, adhering to prudent underwriting standards and maintaining a diversified loan portfolio. These efforts have contributed to Old National's ability to weather various economic cycles and industry disruptions throughout its 190-year history.

Throughout its long journey, Old National has remained committed to its community banking roots, actively supporting the local markets it serves. The company's culture of integrity and focus on creating value for both customers and shareholders has been a guiding principle in its growth and success over the decades.

Business Segments

Old National Bancorp operates through its wholly owned banking subsidiary, Old National Bank, and provides a wide range of services primarily throughout the Midwest and Southeast regions of the United States. The company's business activities are categorized into two main segments: Commercial Banking and Consumer Banking.

Commercial Banking: This segment includes commercial and industrial loans, commercial real estate loans, and agricultural loans. Commercial loans are made primarily for the purpose of financing equipment acquisition, borrower expansion, working capital, and other general business purposes. Commercial real estate loans are offered to real estate investors, developers, and builders, and are secured by first mortgages on commercial properties such as multi-family, retail, industrial, and other non-residential properties. Agricultural loans are made to finance the operations of farms and other agricultural businesses.

As of December 31, 2024, the commercial loan portfolio totaled $10.29 billion, representing 28.4% of the total loan portfolio. The commercial real estate loan portfolio stood at $16.31 billion, making up 44.9% of total loans. The credit quality of the commercial and commercial real estate loan portfolios is closely monitored by Old National, with non-accrual loans in these segments totaling $353.37 million, or 1.2% of total loans.

Consumer Banking: This segment includes residential real estate loans, home equity loans and lines of credit, indirect auto loans, direct consumer loans, and other consumer lending products. Residential real estate loans are primarily 1-4 family mortgage loans, both fixed-rate and adjustable-rate. Home equity loans and lines of credit are secured by 1-4 family residences. Indirect auto loans are originated through automobile dealerships, while direct consumer loans include loans secured by personal property as well as unsecured personal loans.

The residential real estate loan portfolio amounted to $6.80 billion, or 18.7% of total loans, as of December 31, 2024. The consumer loan portfolio, including indirect, direct, and home equity loans, totaled $5.89 billion, or 16.2% of the total loan book. Non-accrual loans in the consumer segment were $90.23 million, or 1.5% of consumer loans.

Financial Snapshot

Old National Bancorp has demonstrated strong financial performance in recent years, weathering the challenges of the COVID-19 pandemic and navigating the evolving interest rate environment. In 2024, the company reported GAAP earnings per common share of $1.68, with adjusted earnings per share of $1.86. The bank's adjusted return on average tangible common equity was a robust 16.9%, while its adjusted return on average assets stood at 1.14%.

The company's deposit franchise has been a key strength, with total deposits growing by approximately 10% in 2024, funding a corresponding 10% increase in loans. Old National's efficient deposit strategy has allowed it to maintain a relatively low total cost of deposits, finishing the year at 1.93% with a 93% down beta on its exception-priced deposits.

Old National's credit quality has remained resilient, with net charge-offs at a low 17 basis points for the full year. The bank's allowance for credit losses on loans, including the reserve for unfunded commitments, stood at 114 basis points as of December 31, 2024, providing ample coverage for potential credit risks.

The company's capital position also remains strong, with a Common Equity Tier 1 (CET1) ratio of 11.38% at the end of 2024. This level of capitalization provides Old National with the flexibility to support organic growth, execute strategic acquisitions, and return capital to shareholders through dividends and share repurchases.

For the most recent quarter (Q4 2024), Old National reported revenue of $489.95 million and net income of $153.87 million. The company's overall loan portfolio has shown steady growth, increasing 10.0% year-over-year to $36.29 billion as of the end of 2024. The allowance for credit losses on loans stood at $392.52 million, or 1.08% of total loans, reflecting the company's prudent risk management practices.

The company's adjusted efficiency ratio stood at 52% for the full-year 2024, demonstrating Old National's focus on operational efficiency. Additionally, tangible book value per share grew by 8% year-over-year in 2024, highlighting the company's ability to create value for shareholders.

Liquidity

Old National Bancorp maintains a robust liquidity position, ensuring its ability to meet customer needs and navigate potential market disruptions. The bank's strong deposit base, coupled with its diverse funding sources, provides a stable foundation for its operations. Additionally, Old National has access to various liquidity facilities and maintains a portfolio of high-quality liquid assets, further enhancing its ability to manage short-term cash flow needs and longer-term funding requirements.

Outlook and Guidance

Looking ahead to 2025, Old National has provided guidance that suggests continued momentum and resilience. The company expects full-year loan growth in the range of 4% to 6%, with a ramp-up in growth over the course of the year. Deposit growth is also expected to meet or exceed industry levels, driven by the bank's disciplined approach to client acquisition and deposit strategy.

In terms of net interest income, Old National anticipates relative stability in the first quarter of 2025, excluding the impact of two fewer days. For the full year, the company expects net interest income to increase in the back half of the year. This projection factors in the anticipated closing of the Bremer Financial acquisition, as well as the bank's assumptions regarding future interest rate changes and deposit pricing dynamics.

The company's guidance also points to continued expense discipline, with an expected adjusted efficiency ratio in the low-50% range. This focus on operational efficiency, combined with the anticipated synergies from the Bremer integration, should contribute to positive operating leverage and a peer-leading return profile.

Old National expects earnings per share for 2025 to be above the current analyst consensus estimates. The company also anticipates good growth in fees, controlled expenses, and normalized credit conditions. These factors, combined with the expected positive operating leverage, should support Old National's goal of maintaining a peer-leading return profile.

Risks and Challenges

As with any financial institution, Old National Bancorp faces a variety of risks and challenges that could impact its long-term performance. These include macroeconomic factors, such as changes in interest rates, economic conditions, and geopolitical events, which can affect the bank's net interest margin, loan demand, and asset quality.

Additionally, the company's growth strategy, which includes both organic expansion and strategic acquisitions, carries integration risks and the potential for increased regulatory scrutiny. The successful execution of these initiatives will be crucial to Old National's continued success.

Old National also operates in a highly competitive environment, with both traditional banking institutions and emerging fintech players vying for market share. The company's ability to adapt to technological advancements and evolving client preferences will be a key determinant of its long-term competitiveness.

Despite these challenges, Old National Bancorp has demonstrated a track record of resilience and adaptability, navigating various economic and industry cycles over its nearly 200-year history. The company's diversified business model, prudent risk management practices, and disciplined approach to growth have positioned it well to weather future uncertainties and capitalize on emerging opportunities.

Conclusion

Old National Bancorp is a resilient Midwestern bank with a storied history and a growing presence across the region and Southeast. The company's strategic acquisitions, such as the mergers with First Midwest Bancorp and CapStar Financial Holdings, have strengthened its commercial banking capabilities, expanded its geographic reach, and enhanced its talent pool. Looking ahead, the pending acquisition of Bremer Financial Corporation is poised to further solidify Old National's position in the upper Midwest.

Despite the challenges posed by macroeconomic conditions and a competitive landscape, Old National has proven its ability to navigate turbulent times and deliver consistent financial performance. With a strong deposit franchise, disciplined credit underwriting, and a focus on operational efficiency, the bank is well-positioned to continue creating value for its shareholders and serving the needs of its clients in the years to come.

The company's diversified loan portfolio, balanced between commercial and consumer lending, has contributed to its financial performance and stability. As Old National moves forward, its commitment to prudent risk management, technological innovation, and community engagement will likely remain key drivers of its success in the evolving banking landscape.