Old National Bancorp’s SWOT analysis: midwest bank’s stock poised for growth

Old National Bancorp (NASDAQ:ONB), a prominent Midwest regional bank with a market capitalization of $7.68 billion, has been making strategic moves to strengthen its market position and enhance shareholder value. The company’s recent acquisition of Bremer Financial Corp and its consistent financial performance have caught the attention of analysts and investors alike. According to InvestingPro, nine analysts have recently revised their earnings estimates upward for the upcoming period, signaling growing confidence in the bank’s prospects. This comprehensive analysis examines Old National’s strengths, challenges, and future prospects in the evolving banking landscape.

Financial Performance and Market Position

Old National Bancorp has demonstrated resilience and growth in recent quarters, maintaining a healthy revenue growth rate of 3.29% and trading at a P/E ratio of 12.01. The company’s fourth-quarter results for 2024 were reported as strong, with analysts noting positive trends in revenue and operational efficiency. InvestingPro data reveals the bank has maintained an impressive 43-year streak of consecutive dividend payments, currently offering a 2.71% yield. The bank’s market capitalization stood at approximately $7.997 billion as of January 2025, reflecting investor confidence in its business model and growth strategy.

Analysts project earnings per share (EPS) of $2.16 for the first fiscal year and $2.59 for the second fiscal year, indicating expectations of continued profitability. These projections are supported by the bank’s guidance for 2025, which suggests a low- to mid-single-digit core operating leverage over the next two years.

One of Old National’s key strengths has been its ability to grow deposits organically. Analysts have highlighted the bank’s success in leveraging higher deposit betas at competitors as an opportunity to differentiate itself and attract new customers. This strategic approach has contributed to the bank’s stable core trends and consistent outlook.

Acquisition of Bremer Financial Corp

In November 2024, Old National Bancorp announced the acquisition of Bremer Financial Corp for $1.4 billion. This strategic move is expected to significantly enhance the bank’s market presence and financial position. The deal, valued at approximately 1.00x price to tangible book value (P/TBV) and a 2025 estimated price-to-earnings (P/E) multiple of 9.7x excluding cost savings, is seen as reasonably priced compared to similar transactions in the industry.

Analysts anticipate that the Bremer acquisition will lead to several benefits for Old National:

1. Enhanced profitability through an expanded core deposit footprint

2. Improved net interest margin (NIM) by approximately 20 basis points upon deal closure, expected in mid-2Q25

3. Potential cost savings and synergies

The acquisition is structured using a forward sale mechanism, similar to previous deals in the industry. This approach is viewed positively as it supplements capital without significantly diluting current shareholders’ value.

Growth Strategy and Market Expansion

Old National Bancorp’s management has demonstrated a clear focus on growing market share within the banking industry. The Bremer acquisition is a testament to this strategy, as it positions the bank for enhanced profitability and market performance in the coming years.

Analysts expect accelerating loan growth going into 2026, particularly in the Commercial & Industrial (C&I) lending segment. This growth is balanced by slower trends in Commercial Real Estate (CRE), which may present both opportunities and challenges for the bank.

The company’s ability to maintain stable margins while benefiting from higher purchase accounting accretion has been noted as a positive factor. This, combined with well-managed expenses and increased core fees, contributes to a favorable outlook for Old National’s financial performance.

Credit Quality and Risk Management

While Old National has shown strength in many areas, analysts have observed mixed credit trends in recent reports. However, these trends are generally considered manageable, indicating that the bank’s risk management practices are effective.

The bank’s focus on stable and higher-quality results going forward suggests a commitment to maintaining a strong credit profile. As the integration of Bremer Financial Corp progresses, investors will likely pay close attention to how Old National manages potential credit risks associated with the expanded loan portfolio.

Outlook and Future Prospects

The outlook for Old National Bancorp remains generally positive, with analysts anticipating stable and consistent performance in the coming years. The successful integration of Bremer Financial Corp is expected to be a key driver of growth and profitability improvement. InvestingPro’s comprehensive analysis indicates a GOOD overall Financial Health Score of 2.5, suggesting strong fundamentals. For deeper insights into ONB’s valuation and growth potential, including exclusive ProTips and detailed financial metrics, investors can access the full Pro Research Report, one of 1,400+ deep-dive analyses available on InvestingPro.

Analysts project that the benefits of the Bremer deal will become increasingly visible, supporting the bank’s financial metrics and market position. The anticipated improvement in net interest margin and the potential for cost synergies are factors that could contribute to enhanced shareholder value.

However, the bank faces potential challenges, including:

1. Integration risks associated with the Bremer acquisition

2. Economic uncertainties that could impact loan demand and credit quality

3. Competitive pressures in the banking sector, particularly in deposit gathering and loan pricing

Despite these challenges, Old National’s strategic positioning and consistent operational performance provide a solid foundation for future growth.

Bear Case

How might integration challenges from the Bremer acquisition impact ONB’s performance?

The integration of Bremer Financial Corp into Old National Bancorp’s operations presents potential risks that could affect the bank’s near-term performance. Mergers and acquisitions in the banking sector often face challenges such as:

1. Technology integration issues: Combining different IT systems and platforms can be complex and costly, potentially leading to operational disruptions.

2. Cultural differences: Merging two distinct corporate cultures may result in employee dissatisfaction and productivity losses.

3. Customer retention: There is a risk of customer attrition during the transition period, especially if service quality is perceived to decline.

4. Unexpected costs: Integration expenses may exceed initial estimates, impacting the projected cost savings and synergies.

These factors could temporarily strain Old National’s resources and potentially impact its financial performance in the short term. If integration challenges persist, they may delay the realization of expected benefits from the acquisition, affecting investor confidence and the bank’s stock performance.

What risks does ONB face in the current economic environment?

Old National Bancorp operates in a dynamic economic landscape that presents several risks:

1. Interest rate volatility: Fluctuations in interest rates can impact the bank’s net interest margin and overall profitability.

2. Economic slowdown: A potential recession could lead to reduced loan demand and increased credit defaults.

3. Regulatory changes: Shifts in banking regulations may require operational adjustments and increased compliance costs.

4. Competitive pressures: Intensifying competition from both traditional banks and fintech companies could squeeze margins and challenge customer retention.

5. Cybersecurity threats: As digital banking becomes more prevalent, the risk of cyber attacks and data breaches increases.

These economic and industry-specific risks could potentially impact Old National’s loan growth, credit quality, and overall financial performance. The bank’s ability to navigate these challenges will be crucial in maintaining its market position and delivering value to shareholders.

Bull Case

How could the Bremer acquisition enhance ONB’s market position and profitability?

The acquisition of Bremer Financial Corp presents significant opportunities for Old National Bancorp to strengthen its market position and improve profitability:

1. Expanded market presence: The deal enhances ONB’s footprint in the Midwest, potentially leading to increased market share and economies of scale.

2. Diversified revenue streams: Bremer’s business mix may complement ONB’s existing operations, providing opportunities for cross-selling and new product offerings.

3. Improved deposit base: The acquisition is expected to expand ONB’s core deposit footprint, potentially lowering funding costs and improving net interest margin.

4. Cost synergies: By combining operations, ONB may realize significant cost savings through operational efficiencies and elimination of redundancies.

5. Enhanced technological capabilities: Integrating Bremer’s systems may accelerate ONB’s digital transformation efforts, improving customer experience and operational efficiency.

These factors could contribute to improved financial performance, with analysts projecting an increase in net interest margin by approximately 20 basis points upon deal closure. The successful integration of Bremer could position Old National as a stronger competitor in the regional banking landscape, potentially leading to higher profitability and shareholder returns. Based on InvestingPro’s Fair Value analysis, the stock is currently trading near its fair value, suggesting balanced market pricing. Investors seeking to evaluate similar opportunities can explore our comprehensive undervalued stocks and overvalued stocks lists for additional investment ideas.

What factors support ONB’s potential for sustained growth in the coming years?

Several factors indicate potential for sustained growth at Old National Bancorp:

1. Strong organic deposit growth: ONB’s ability to attract deposits, even in a competitive environment, provides a stable funding base for future lending activities.

2. Consistent loan growth: Analysts project accelerating loan growth into 2026, particularly in the Commercial & Industrial segment.

3. Operational efficiency: The bank’s focus on expense management and improved operating leverage suggests potential for margin expansion.

4. Strategic acquisitions: ONB’s track record of successful acquisitions, including the Bremer deal, demonstrates its ability to grow through M&A activities.

5. Market positioning: As a regional bank with a strong Midwest presence, ONB is well-positioned to capitalize on local market opportunities and relationships.

6. Technological investments: Ongoing efforts to enhance digital banking capabilities could improve customer acquisition and retention.

7. Economic recovery: As the economy continues to recover, ONB may benefit from increased loan demand and improved credit quality.

These factors, combined with management’s focus on profitable growth and market share expansion, support the potential for Old National Bancorp to achieve sustained growth in the coming years. The bank’s ability to execute its strategy while managing risks will be key to realizing this growth potential.

SWOT Analysis

Strengths:

• Strong organic deposit growth
• Successful track record of strategic acquisitions
• Stable core financial trends
• Well-managed expenses and operational efficiency
• Strong presence in Midwest markets

Weaknesses:

• Mixed credit trends, although considered manageable
• Potential integration challenges from recent acquisition
• Slower growth in Commercial Real Estate lending

Opportunities:

• Enhanced market position and profitability from Bremer acquisition
• Accelerating loan growth projected for 2026
• Potential for cost synergies and operational efficiencies
• Expansion of digital banking capabilities

Threats:

• Economic uncertainties and potential recession risks
• Intense competition in the banking sector
• Regulatory changes and compliance costs
• Cybersecurity risks and technological disruptions
• Interest rate volatility impacting net interest margins

Analysts Targets

• Truist Securities: Buy rating (May 12th, 2025)
• Barclays (LON:BARC): Overweight rating, $25.00 price target (April 23rd, 2025)
• Barclays: Overweight rating, $27.00 price target (January 22nd, 2025)
• Citi Research: $27.00 price target (December 17th, 2024)
• Barclays: Overweight rating, $26.00 price target (November 26th, 2024)
• RBC Capital Markets: Sector Perform rating, $23.00 price target (October 23rd, 2024)
• Barclays: Overweight rating, $24.00 price target (October 23rd, 2024)

This analysis is based on information available up to May 22nd, 2025.

InvestingPro: Smarter Decisions, Better Returns

Gain an edge in your investment decisions with InvestingPro’s in-depth analysis and exclusive insights on ONB. Our Pro platform offers fair value estimates, performance predictions, and risk assessments, along with additional tips and expert analysis. Explore ONB’s full potential at InvestingPro.

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