Strategic Integration and Shareholder Value: Old National Bancorp's Bremer Bank Acquisition in a High-Rate Environment

In the ever-evolving landscape of regional banking, strategic acquisitions are not just about scale—they're about reshaping a company's DNA to thrive in challenging environments. Old National Bancorp (NASDAQ: ONB) has executed one such transformative move with the acquisition of Bremer Bank, completed on May 1, 2025. This integration has not only expanded its balance sheet but also fortified its position as a capital-efficient, credit-disciplined, and growth-oriented institution in a high-interest-rate climate. For investors, the question is no longer if this strategy will pay off—it's how much it will accelerate shareholder value.

Capital Efficiency: A Pillar of Resilience

Old National's acquisition of Bremer Bank is a masterclass in capital efficiency. The merged entity now boasts $70.98 billion in total assets, with deposits surging to $54.4 billion and loans climbing to $48.0 billion. This growth was achieved while maintaining an adjusted efficiency ratio of 50.2%, a metric that underscores the company's ability to control costs even during integration.

The key to this efficiency lies in disciplined expense management. Despite $41.2 million in merger-related expenses, Old National's noninterest expenses were tightly controlled at $343.6 million, avoiding the bloated overhead that often accompanies large-scale acquisitions. Additionally, the bank's Common Equity Tier 1 (CET1) ratio remains robust at 10.74%, a 50-basis-point buffer above expectations. This strong capital position allows Old National to forgo commercial real estate loan sales—a move that preserves forward earnings power and enhances risk absorption capacity.

Credit Discipline: A Shield Against Downturns

In a high-interest-rate environment, credit discipline is the difference between survival and collapse. Old National's post-Bremer integration metrics are a testament to its conservative underwriting standards. The bank's provision for credit losses stood at $106.8 million in Q2 2025, but this was largely driven by a one-time CECL Day 1 adjustment. Net charge-offs, meanwhile, remained impressively low at 24 basis points of average loans, with nonaccrual loans at a manageable 1.24% of total loans.

The bank's loan portfolio is also well-diversified, with commercial and industrial loans comprising 31% and commercial real estate loans at 45%. This mix ensures that no single sector can disproportionately impact credit quality. Moreover, a loan-to-deposit ratio of 88% provides ample liquidity, reducing reliance on volatile funding sources. For investors, these metrics signal a bank that is prepared to weather economic headwinds without sacrificing long-term growth.

Growth Momentum: Fueling the Next Phase

The Bremer acquisition has unlocked a new era of growth for Old National. The bank's commercial loan pipeline has surged by 40% quarter-over-quarter to $4.8 billion, a clear indicator of demand in its expanded markets. The integration of Bremer's $11.5 billion in acquired loans has also provided a springboard for organic growth, with Old National's loan portfolio expanding by 3.7% annualized outside of the acquisition.

Geographic diversification is another tailwind. Bremer's presence in Minnesota, North Dakota, and Wisconsin complements Old National's Midwest and Southeast operations, creating a national footprint with localized expertise. This expansion has already driven a 14% year-over-year increase in tangible common book value to $12.60, a critical metric for long-term shareholder value.

The High-Interest-Rate Playbook

Old National's success in a high-rate environment hinges on its low-cost deposit franchise. Total deposit costs are a mere 193 basis points, with core deposits rising by $11.6 billion post-acquisition. This cost advantage has allowed the bank to expand its net interest margin (NIM) to 3.53%, a 26-basis-point improvement from Q1 2025. In an industry where NIM compression is the norm, Old National's ability to grow margins is a standout differentiator.

The bank's forward-looking guidance further reinforces its optimism. For Q3 2025, it anticipates net interest income of $575 million and noninterest income of $120 million. Full-year 2025 net interest income is projected between $2,065 million and $2,095 million, with end-of-period loan growth expected to reach 2-4% in Q3. These numbers suggest a company that is not only surviving but thriving in the current rate environment.

Investment Implications

For investors, Old National's Bremer integration represents a rare confluence of strategic execution and financial discipline. The bank's capital efficiency, credit resilience, and growth momentum position it as a standout in the regional banking sector. While peers struggle with margin compression and credit risks, Old National is leveraging its scale to drive returns.

The upcoming system conversion in mid-October 2025 will likely unlock further value, as Bremer operations are fully integrated into Old National's infrastructure. This milestone could catalyze a re-rating of the stock, particularly if the bank continues to outperform on its adjusted efficiency ratio and CET1 metrics.

Final Takeaway: Old National Bancorp's Bremer acquisition is a textbook example of how to build long-term shareholder value through strategic integration. With a capital-efficient model, disciplined credit culture, and a growth engine primed for a high-rate environment, the bank is well-positioned to deliver consistent returns. For investors seeking a high-conviction regional bank play, ONB offers a compelling case where fundamentals align with execution.

This analysis is based on Q2 2025 financial disclosures and integration updates provided by Old National Bancorp. Investors should conduct further due diligence and consult with a financial advisor before making investment decisions.