Old National Bancorp (NASDAQ: ONB) reported stronger fourth-quarter earnings on Tuesday, supported by disciplined expense management, stable credit quality and modest loan growth, as pressure on funding costs eased late in the year.
The Evansville, Indiana-based regional lender said net income applicable to common shareholders rose to $212.6 million, or 55 cents per diluted share, in the three months ended Dec. 31, compared with $149.8 million, or 47 cents per share, a year earlier. Earnings increased 19% from the third quarter.
Excluding merger-related charges, a pension plan loss tied to the Bremer transaction and other one-time items, adjusted net income was $241.0 million, or 62 cents per share, up from 49 cents per share in the fourth quarter of 2024.
Net interest income stabilizes as deposit costs ease
Net interest income on a fully taxable equivalent basis increased to $588.8 million from $399.9 million a year earlier, reflecting growth in earning assets and lower deposit costs, partly offset by lower asset yields. Net interest margin rose 1 basis point sequentially to 3.65% and was up 35 basis points from the prior-year period.
Total deposit costs declined 17 basis points from the third quarter to 1.80%, as competition for deposits eased and the bank benefited from its granular, low-cost deposit base. Management said more than 70% of deposits were insured, and exception-priced deposits represented about 36% of total balances.
Total revenue on a fully taxable equivalent basis was $698.6 million, down slightly from the third quarter but sharply higher than a year earlier.
Non-interest income mixed; expenses fall sharply
Non-interest income fell to $109.7 million from $130.5 million in the prior quarter, largely due to a $15.9 million pre-tax pension plan loss related to the termination of the Bremer pension plan. Excluding that item, non-interest income was supported by record capital markets revenue and higher mortgage banking fees.
Non-interest expense declined to $386.3 million from $445.7 million in the third quarter, reflecting lower merger-related costs and savings associated with the Bremer integration. Adjusted non-interest expense fell to $364.8 million, helping drive the adjusted efficiency ratio to a record 46.0%, compared with 48.1% in the prior quarter and 58.8% a year earlier.
“Old National’s strong fourth-quarter earnings punctuate an exceptional year that set new organizational records for adjusted earnings per share, net income and efficiency ratio,” Chairman and Chief Executive Jim Ryan said in a statement.
Loan growth led by commercial lending
Loan growth was led by commercial lending. Period-end total loans increased by $768.8 million, or 6.4% on an annualized basis, to $48.8 billion. Commercial and industrial loans rose $477.5 million, while commercial loan production totaled $3.5 billion during the quarter.
Management said the commercial loan pipeline ended the year at $4.8 billion, up 15%, reflecting steady borrower demand despite continued economic uncertainty.
Total deposits were $55.1 billion at quarter-end, up 0.6% on an annualized basis, as growth in private banking and community deposits was partly offset by seasonal outflows of public funds.
Credit quality remains stable
Credit quality remained stable. Net charge-offs were $32.1 million, or 27 basis points of average loans, compared with 24 basis points in the previous quarter. Excluding purchased credit deteriorated loans, net charge-offs were 16 basis points.
Nonaccrual loans declined to 1.07% of total loans from 1.23% in the prior quarter, while 30-day delinquencies rose modestly to 0.22%.
The provision for credit losses increased to $32.7 million from $26.7 million in the third quarter, reflecting loan growth and economic assumptions. The allowance for credit losses stood at $605.2 million, or 1.24% of total loans.
Capital strengthens; outlook steady
Capital levels strengthened during the quarter. The preliminary common equity Tier 1 ratio rose to 11.08%, while tangible common equity to tangible assets increased to 7.72%. Tangible book value per share climbed to $13.71, up 15% from a year earlier. The bank repurchased 1.1 million shares during the quarter.
For full-year 2025, Old National reported net income applicable to common shareholders of $653.1 million, or $1.79 per share. On an adjusted basis, earnings were $808.6 million, or $2.21 per share.
Looking ahead, management said it expects net interest income to remain relatively stable in 2026, assuming two Federal Reserve rate cuts during the year, supported by a largely neutral interest rate risk position.
Reasons to Pass on Old National Bancorp (ONB)
- CRE Concentration Risk: Notable commercial real estate exposure persists despite stable metrics, exposed to office weakness, refinancing and valuation pressures.
- Deposit Growth Lags: +0.6% annualized deposits reflect funding fragility amid outflows and competition for low-cost core balances.
- Charge-Offs Ticking Up: 27 bps net charge-offs vs. 24 bps prior quarter; core at 16 bps signals normalizing credit stress.
- Rising Provisions: $32.7M credit loss provisions (+23% q/q) tied to loan growth and economic caution.
- Rate Cut Margin Squeeze: NIM stable at 3.65% assumes Fed easing; deeper cuts risk compression if yields lag deposit repricing.
- Fee Income Volatility: Reliant on cyclical capital markets, mortgages; prone to economic/market swings.
- Regional Sector Drag: Midwestern focus hit by deposit flight, CRE regs, tepid non-commercial demand.
- Post-Rally Valuation: +15% tangible book value, buybacks cap upside after earnings beat.
- Commercial Loan Skew: Growth skewed to C&I limits diversification vs. consumer/fee buffers.
- Merger Tail Risks: Bremer integration costs linger despite 46% efficiency ratio gains.