Old National Bancorp’s Earnings Call Signals Durable Upside

Old National Bancorp ((ONB)) has held its Q4 earnings call. Read on for the main highlights of the call.

Old National Bancorp Charts Record Year as Integration, Credit and Capital All Hit Their Stride

Old National Bancorp’s latest earnings call carried a distinctly upbeat tone, reflecting record adjusted profitability, strong capital generation, improving credit quality and a mostly seamless integration of the Bremer partnership. Management acknowledged a few near-term drags—including merger-related charges, seasonal deposit flows, and only partially realized cost saves—but emphasized that core performance, tangible book value growth, and earnings power are running at what they described as top-tier levels heading into 2026.

Record Profitability and Efficiency

Old National delivered one of its strongest quarters to date, with fourth-quarter adjusted EPS of $0.62 (versus GAAP EPS of $0.55), up 5% from the prior quarter and 27% year over year. Profitability metrics were equally robust: adjusted return on average tangible common equity was close to 20%, while adjusted return on assets reached 1.37%. The bank also posted a record low adjusted efficiency ratio of 46%, underscoring tight cost control and revenue growth that outpaced expenses. These figures position Old National among higher-performing regional peers on core earnings power and operational discipline.

Capital Strength and Tangible Book Value Growth

Capital and book value trends underscored the company’s financial resilience. Tangible book value per share rose 4% sequentially and roughly 15% over the past year, while the CET1 capital ratio has been rebuilt to above 11%. Tangible common equity improved by about 20 basis points versus the prior quarter. Management also leaned into capital return, repurchasing 2.2 million shares over 2025, including 1.1 million in the late fourth quarter. The combination of strong internal capital generation, balance sheet strength, and ongoing buybacks supports a shareholder-friendly narrative as Old National exits a heavy integration phase.

Loan Growth and Production Momentum

On the asset side, Old National showed healthy loan momentum. Total loans grew at a 6.4% annualized pace from the prior quarter, with loan production up 25% and the pipeline expanding nearly 15% quarter over quarter. This reflects improving demand and the bank’s ability to win new business despite a still-competitive lending environment. Management’s guidance supports full-year 2026 loan growth in the 4%–6% range and 3%–5% growth in the first quarter alone, signaling confidence that current production and pipeline levels will translate into sustained balance sheet expansion.

Deposit Mix and Liquidity Remain Solid

Funding metrics remain a bright spot. The loan-to-deposit ratio stands at a manageable 89%, leaving room to fund further growth without pressuring liquidity. Noninterest-bearing deposits increased to 26% of core deposits from 24% in the prior quarter, providing a low-cost funding base as rates evolve. Brokered deposits are still relatively modest at 6.7% of total deposits, lower than many peers, suggesting Old National is not overly reliant on wholesale funding. Importantly, the spot cost of total deposits fell 17 basis points quarter over quarter to 1.68% at year-end, a meaningful improvement in the current rate backdrop.

Net Interest Income and Repricing Tailwinds

Net interest income and margin both rose as management had previously guided, and the bank sees further upside from asset repricing. New-money yields on securities are about 94 basis points above the existing portfolio yields, and Old National expects around $2.9 billion in securities cash flows over the next 12 months that can be reinvested at these higher rates. Coupled with loan growth and active deposit management, this is expected to support modest net interest margin expansion in 2026. The repricing dynamics—higher new-money yields on both loans and securities—give Old National a structural tailwind for core revenue growth even if interest rates drift lower from recent peaks.

Fee Income Upside and Expense Discipline

Beyond spread income, fee businesses showed solid traction. Adjusted noninterest income reached $126 million in the quarter, exceeding guidance as mortgage and capital markets activities outperformed expectations. On the cost side, adjusted noninterest expense came in at $365 million, demonstrating continued discipline despite integration work and inflationary pressures. The combination of revenue growth and controlled costs produced positive operating leverage year over year, reinforcing the bank’s narrative of improving efficiency and scalable earnings.

Improving Credit Metrics and Conservative Reserves

Credit trends were clearly favorable. Criticized and classified loans declined by about $278 million—or roughly 8%—versus the prior quarter, while nonaccrual loans fell around $70 million, a 12% improvement. Total net charge-offs were 27 basis points of average loans, or 16 basis points excluding purchased credit-deteriorated loans, levels that remain manageable and well within normal ranges. The allowance for credit losses, including unfunded commitments, stood at 124 basis points of loans, down only 2 basis points quarter over quarter. Management emphasized that reserve levels still embed conservative qualitative overlays, suggesting the bank is not aggressively releasing reserves despite better credit migration.

Bremer Integration Adds Scale and Funding Strength

The Bremer partnership emerged as a strategic win, with management highlighting a smooth systems conversion and integration. The deal strengthens Old National’s presence in Minnesota and adds attractive funding sources in North Dakota, enhancing geographic reach and deposit diversity. Initial cost saves are already flowing through, with approximately 28% of expected Bremer-related savings realized in the fourth quarter. Full run-rate savings are anticipated by the first quarter of 2026, positioning the bank for further efficiency gains and incremental earnings benefits from the combined platform.

Merger-Related Charges and Other One-Time Costs

Not all of the quarter’s story was clean. The Bremer transaction brought about $140 million of merger-related charges year to date, which weighed on GAAP results and required adjustments to present underlying performance. These one-time items explain much of the gap between GAAP and adjusted metrics such as EPS and efficiency ratio. Management framed these as largely behind the company now, with the focus shifting from absorbing integration costs to harvesting cost synergies and capitalizing on the expanded franchise.

Gradual Reduction in Reserve Coverage

Reserve coverage edged down slightly as underlying credit improved. The allowance for credit losses to total loans, including reserves, declined 2 basis points to 124 basis points quarter over quarter. Management commentary, combined with loan growth guidance, implies a modest decline in the reserve ratio over time as criticized and classified loans continue to trend lower. Importantly for investors, the bank is not signaling aggressive reserve releases, but rather a gradual normalization in coverage aligned with healthier portfolio metrics.

Deposit Seasonality and Tactical Use of Brokered Funding

Core deposits excluding brokered balances declined about 3% on an annualized basis in the quarter, a move largely attributed to seasonal drops in public fund deposits. To bridge this temporary gap, Old National modestly increased its use of brokered deposits, which rose but still represent only 6.7% of total deposits—below the levels seen at many regional competitors. Management presented this as a tactical and seasonal funding decision rather than a structural shift in the deposit strategy, pointing to an otherwise solid core deposit mix and improving noninterest-bearing share.

Near-Term NII and Margin Headwinds from Day Count

Despite favorable repricing trends, near-term net interest income and margin will face a technical drag from the calendar. Management noted that the first half of 2026 will be modestly pressured by fewer days in the first two quarters, which mechanically reduces NII even if underlying spreads and volumes are healthy. This timing issue affects the phasing of earnings rather than the full-year trajectory, but it is an important nuance for investors modeling quarterly results and interpreting early-2026 performance.

Merger Cost Saves Still in Transition

Expense productivity is not yet at its full post-merger potential. Only about 28% of the anticipated Bremer-related cost saves were captured in the fourth quarter, leaving a significant portion to be realized in the near term. Management expects the remaining savings to be fully in place by the first quarter of 2026, implying that reported expense levels should step down and efficiency should continue to improve. For shareholders, this means additional operating leverage and earnings upside still to come as integration moves from execution to optimization.

Guidance: Loan Growth, Margin Tailwinds and Capital Returns in 2026

Looking ahead, Old National guided to another year of balanced growth and rising earnings power in 2026. The bank expects loans to grow 3%–5% in the first quarter and 4%–6% for the full year, supported by a solid pipeline and strong production. Net interest income is projected to rise, with net interest margin stable to modestly improving, though first-quarter results will be affected by two fewer days. Management’s outlook assumes two 25-basis-point rate cuts, a five-year Treasury yield around 3.75%, and a roughly 40% cumulative deposit beta in a down-rate scenario, with noninterest-bearing deposits staying roughly stable. Fully realizing Bremer cost saves in early 2026 is expected to drive positive operating leverage and provide room for more active share repurchases. Repricing tailwinds from approximately $5.0 billion of new loan volume at higher yields and $2.9 billion of securities cash flow are set to support revenue growth, while capital ratios and credit metrics remain strong.

In sum, Old National’s earnings call painted the picture of a regional bank emerging from a heavy integration year with stronger profitability, a fortified balance sheet, and improving credit quality. While merger-related charges, seasonal deposit trends and short-term day-count impacts cloud some near-term comparisons, the underlying trends in earnings, efficiency, and capital returns are positive. For investors focused on sustainable growth and disciplined risk management, Old National signaled that it is well-positioned to convert recent strategic moves—particularly the Bremer deal—into durable shareholder value in 2026 and beyond.