Old National (ONB) Q1 2025: Tangible Book Value Rises 13% as Bremer Integration Accelerates
Old National’s first quarter showcased disciplined deposit and loan growth, margin stability, and a material increase in tangible book value, setting the stage for the Bremer Bank integration two months ahead of plan. Management’s guidance and capital flexibility now position ONB to navigate macro uncertainty and optimize its balance sheet faster than peers. Investors should watch how ONB deploys its capital surplus and manages commercial real estate exposure post-close.
Summary
- Balance Sheet Leverage Expands: Strong capital and early Bremer close provide optionality for loan sales and growth.
- Deposit Cost Discipline Holds: Exception pricing and brokered mix management drive lower deposit betas than peers.
- Strategic Flexibility Emerges: Higher day one capital enables ONB to offset macro headwinds and outperform industry peers.
Performance Analysis
Old National’s Q1 results delivered on core metrics, with net interest income (NII) and margin in line with expectations, aided by loan and deposit growth that outpaced industry averages. Tangible book value per share rose 5% sequentially and 13% year-over-year, reflecting both retained earnings and improved capital ratios. The Common Equity Tier 1 (CET1) capital ratio climbed to 11.62%, up 86 basis points from a year ago, granting ONB significant balance sheet flexibility as it prepares for the Bremer Bank acquisition closing on May 1.
Deposit cost management was a standout, with a 17 basis point decline in total deposit cost and a cumulative beta of 37%, outperforming peer banks. Loan growth was modest at 1.5% annualized, but pipelines remain robust, and management expects growth to ramp through the year. Non-interest income benefited from a $4.8 million gain on commercial real estate (CRE) loan sales, while fee businesses (wealth, mortgage, capital markets) remained stable despite volatile markets. Expense control persisted, with adjusted non-interest expense below guidance, supporting positive operating leverage.
- Capital Position Strengthens: CET1 and tangible book value both improved, driven by deposit growth and retained earnings.
- Deposit Beta Outperformance: Exception pricing and short-duration brokered deposits yielded lower cost of funds than peers.
- CRE Exposure Managed: Loan sale flexibility and conservative reserve build offset macro and sector uncertainty.
Credit quality remained resilient, with net charge-offs at expected levels and a qualitative reserve overlay for global trade and macro risks. Management’s proactive stance on credit, including higher reserves and conservative portfolio pruning, positions ONB defensively as uncertainty persists.
Executive Commentary
"Our strong deposit franchise and solid loan growth drove results for the past quarter. Our net interest income and margin performance met expectations. Non-interest income benefited from the gain on sale of some previously acquired loans and from higher fees from mortgages and service charges. Our discipline expense management is reflected in our efficiency ratio."
Jim Ryan, Chairman and CEO
"Total deposit growth over the last year has again allowed us to organically fund our loan growth while minimizing our borrowings and broker deposits. We grew our tangible book value per share by 5% as compared to last quarter and by 13% over the last year. We ended the quarter with a strong CET1 ratio of 11.62%, up 86 basis points from a year ago."
John Moran, Executive Vice President & CFO
Strategic Positioning
1. Bremer Bank Integration and Capital Optionality
The early close of the Bremer Bank acquisition (May 1 instead of July 1) provides ONB with an immediate boost in scale, particularly in the upper Midwest. Management emphasized that higher-than-expected day one capital (30 basis points above initial models) and better underlying Bremer performance create optionality in managing commercial real estate loan sales. This flexibility allows ONB to retain more high-yielding assets or selectively prune the portfolio as macro conditions evolve.
2. Deposit Strategy and Funding Cost Control
Deposit growth and pricing discipline remain central to ONB’s funding strategy. Non-interest bearing deposits held steady at 23% of core deposits, and the use of brokered deposits (3.8% of total) is less than half the peer average. Exception pricing, a method of adjusting rates for specific depositors, and short-term brokered time deposits have enabled ONB to lower costs while maintaining funding stability. Management expects further reductions as rates move and the exception book is repriced.
3. Credit Quality and Reserve Management
ONB continues to emphasize conservative credit practices, maintaining above-peer non-performing loan (NPL) ratios but below-peer charge-offs and delinquencies. The allowance for credit losses was increased to reflect global trade and economic uncertainty, now representing nearly 150 basis points (including acquired loan discounts). Management’s proactive approach to reserving and client selection supports resilience in a volatile environment.
4. Loan Growth and Pipeline Visibility
Commercial loan pipelines are up 30% year-over-year, with accepted loans up 50%. While management tempers expectations due to macro uncertainty and more competitive CRE markets, the robust pipeline provides confidence in achieving mid-single digit loan growth for 2025, with growth expected to ramp through the year.
5. Expense Discipline and Operating Leverage
Cost control remains a differentiator, with run-rate expenses below guidance and positive operating leverage quarter-over-quarter. Management’s focus on professional fees, FDIC assessments, and tax credit amortization has created room for reinvestment in strategic markets, such as Nashville, without sacrificing efficiency.
Key Considerations
ONB’s Q1 performance and strategic moves provide a foundation for long-term value creation, but the environment remains fluid. The following considerations are essential for investors evaluating ONB’s positioning:
- Bremer Integration Execution: Early close and cultural alignment are critical to achieving anticipated scale and earnings benefits.
- Balance Sheet Flexibility: Higher capital levels give ONB unique levers to manage CRE exposure and support growth if macro conditions deteriorate.
- Deposit Cost Management: Ongoing exception pricing and brokered deposit strategies will be tested as rates shift and peer competition intensifies.
- Credit Vigilance: Conservative reserving and selective loan portfolio pruning are prudent, but macro shocks could still pressure asset quality.
Risks
ONB’s outlook is subject to several external and internal risks, including persistent macroeconomic uncertainty, global trade disruptions, and potential volatility in commercial real estate markets. Management’s guidance assumes a stable rate environment and continued deposit cost discipline, but unexpected Fed actions, competitive funding pressures, or a material deterioration in credit could challenge these assumptions. The integration of Bremer also carries execution risk, particularly in aligning systems and culture across an expanded footprint.
Forward Outlook
For Q2 2025, ONB guided to:
- Bremer Bank closing on May 1, two months ahead of plan, boosting reported NII and operating leverage.
- Loan growth guidance (ex-Bremer) of 4–6% for the full year, with growth expected to accelerate in the second half.
For full-year 2025, management maintained guidance:
- Earnings per share in line with current analyst consensus, with positive operating leverage and fee growth.
Management highlighted several factors that influence guidance:
- Flexibility to adjust commercial real estate loan sales post-close based on capital and market conditions.
- Deposit cost trajectory and funding mix as key levers for margin and NII performance.
Takeaways
ONB’s Q1 demonstrates balance sheet strength, operational discipline, and a strategic edge from the Bremer acquisition.
- Capital Surplus as a Strategic Lever: Higher CET1 and tangible book value give ONB room to navigate macro headwinds and optimize portfolio composition.
- Deposit Beta and Cost Control: Exception pricing and brokered deposit management underpin margin stability and peer outperformance.
- Bremer Integration and Growth Pipeline: Early close and robust loan pipelines set the stage for above-industry growth, but execution and macro vigilance remain key.
Conclusion
Old National enters the Bremer Bank integration phase with a fortified balance sheet, peer-leading deposit cost management, and a disciplined approach to credit and expenses. While macro uncertainty persists, ONB’s capital flexibility and robust pipelines position it to outperform, provided integration and credit risks are managed effectively.
Industry Read-Through
ONB’s results reinforce several themes for the regional banking sector: Balance sheet optionality and capital discipline are critical advantages as banks face rate volatility and uncertain loan demand. Deposit cost management, through exception pricing and brokered mix discipline, is emerging as a key differentiator in margin performance. CRE exposure remains a sector-wide concern, but ONB’s flexibility in loan sales and provisioning offers a template for peers. The accelerated Bremer integration underscores the value of scale and footprint expansion, but also highlights the execution risks that come with large bank mergers in a challenging environment.