Old National (ONB) Q4 2025 earnings review
Record Profits Fueled by Synergies, Despite Deposit Leakage
Old National closed a transformative 2025 with record adjusted earnings, driven largely by the successful integration of Bremer Bank. Adjusted EPS accelerated to $0.62, up 5% sequentially and 27% YoY, as the bank realized significant cost savings—pushing the adjusted efficiency ratio down to a stellar 46.0%. However, the 'basic banking' narrative showed cracks: while loans grew, core deposits shrank by 3.2% annualized in Q4 due to public fund outflows, forcing a slight reliance on wholesale funding.
🐂 Bull Case
The adjusted efficiency ratio improved dramatically to 46.0% from 58.8% in Q3 (and 51.8% a year ago). This confirms the Bremer Bank cost synergies are fully materializing, driving positive operating leverage.
Total loans grew 6.4% annualized to $48.8B, driven by strong commercial production ($3.5B in Q4, up 25%). The commercial pipeline remains robust at $4.8B, signaling continued momentum.
🐻 Bear Case
Despite a narrative of 'core deposit growth,' Q4 data shows core deposits contracted 3.2% annualized. The bank relied on flat total deposits ($55.1B) only by offsetting outflows with other funding sources.
Net charge-offs (NCOs) rose to 0.27% of average loans (up from 0.25% in Q3 and 0.21% a year ago). While not alarming, the trend is steadily negative.
⚖️ Verdict: 🟢
Bullish. ONB is executing a textbook M&A playbook: slashing costs and driving efficiency (46%) while maintaining loan growth. The core deposit dip is a monitorable blemish on an otherwise pristine quarter.
Key Themes
Bremer Synergies Drive Efficiency
Accelerating. The efficiency story is the highlight of the quarter. Adjusted noninterest expense dropped to $364.8M (from $376.5M in Q3) while revenue grew. The adjusted efficiency ratio compressed to 46.0%, placing ONB in the top tier of peer performance. This validates the Bremer integration strategy.
Deposit Composition Shift
Decelerating. Core deposits fell 3.2% annualized in Q4, a sharp reversal from the 'growth' narrative touted for the full year. This was attributed to seasonal public fund outflows, but it forced the bank to maintain liquidity via other means. Loan-to-deposit ratio crept up to 89%.
Commercial Engine Firing
Stable. Commercial loan production surged 25% to $3.5B. Total commercial loans grew by nearly $480M in the quarter. With a pipeline up 15% to $4.8B, the bank is successfully deploying its increased balance sheet capacity.
Credit Normalization Continues
Decelerating. Net charge-offs increased to 27 bps (vs 24 bps prior). While non-accrual loans actually improved (dropping to 1.07% from 1.23%), the rising charge-off rate suggests that the 'clean-up' of acquired portfolios or normalizing credit cycle is realizing actual losses.
Noninterest Income Softness
Decelerating. Excluding one-time pension items and securities gains, noninterest income fell 3.7% QoQ. While Capital Markets hit a record ($13M), it wasn't enough to offset declines in 'Other Income' which normalized from elevated Q3 levels.
Capital Build & Buybacks
Accelerating. The bank repurchased 1.1 million shares in Q4. Even with this capital return, the Tier 1 Common Equity ratio expanded 6 bps to 11.08%. This robust capital generation supports both organic growth and continued buybacks.
Other KPIs
Accelerating. Up 4% from $231.3M in Q3 and up significantly from $156M in 24Q4. The scalability of the platform post-merger is evident in the bottom line.
Stable. Up 1 basis point QoQ. Benefit from lower funding costs (deposit costs down 17 bps to 1.80%) was largely offset by lower asset yields.
Accelerating. Up from $13.15 in Q3 and $11.91 a year ago (+15% YoY). Creating genuine shareholder value despite merger noise.
Key Questions
Core Deposit Trajectory
Core deposits contracted 3.2% annualized this quarter, attributed to 'seasonal public funds.' Can you quantify the seasonal impact versus underlying client behavior, and do you expect a return to positive core deposit growth in Q1 2026?
Credit Cost Outlook
Net charge-offs have ticked up for three consecutive quarters (0.24% -> 0.25% -> 0.27%). Is this the new run-rate for the combined entity, or do you expect this to stabilize below 25 bps in FY26?
Sustainability of Efficiency Gains
The adjusted efficiency ratio hit 46.0%, a significant improvement. Is this level sustainable as you reinvest in the business, or should we model a bounce back toward 50% in 2026?
Noninterest Income Pressure
Adjusted noninterest income was down 3.7% sequentially. Outside of Capital Markets, which lines of business are seeing the most pressure, and what is the catalyst for reversal in 2026?
FY26 Guidance
The release did not provide explicit FY26 guidance. What are your expectations for Loan Growth, Net Interest Income trajectory, and Expense growth for the full year?