Digital Banking Investments Will Unlock Midwest Market Opportunities

Key Takeaways

• Recent acquisitions, digital investments, and fee-based business expansion position ONB for long-term earnings growth, improved efficiency, and greater client retention.
  
• Conservative credit management and operational integration support strong capital ratios and stable earnings, with demographic trends boosting demand for wealth services.
  
• Conservative loan growth, CRE exposure, limited geographic reach, incremental tech upgrades, and regulatory uncertainty create hurdles for stable revenue and long-term competitiveness.

Catalysts

Operates as the bank holding company for Old National Bank that provides consumer and commercial banking services in the United States.

• The recently closed Bremer Bank partnership, completed ahead of schedule, has significantly expanded ONB's balance sheet and capital position, supporting both current earnings momentum and future loan growth; this positions ONB to benefit from ongoing migration and economic strengthening in its Midwest/South footprint, driving long-term revenue and EPS growth.
  
• ONB's strong performance in expanding its fee-based businesses (wealth, mortgage, and capital markets) and well-controlled expenses-along with increasing organic noninterest income-are supported by the demographic shift of the aging U.S. population, which is likely to further boost demand for wealth management and trust services, generating higher recurring revenue and improving earnings stability.
  
• Strategic investment in digital banking infrastructure, highlighted by recent technology hires and ongoing upgrades, is enabling ONB to scale services efficiently, enhance client experience, and capitalize on the sector-wide shift toward digital and data-driven banking; this should drive greater noninterest income, improve net margins, and increase client retention over time.
  
• Successful integration and synergy realization from acquisitions (specifically, the Bremer merger and retention of CRE loans previously planned for sale) is unlocking operational efficiencies and margin expansion, contributing to improved return on equity and tangible book value per share-metrics that may be underappreciated in the current valuation.
  
• Conservative credit management and proactive portfolio discipline (evidenced by declining criticized/classified loan balances and well-above-peer charge-off ratios) mitigate credit risk and support above-peer capital ratios, providing a solid foundation for sustainable earnings growth as the company leverages secular tailwinds in its key regional markets.

Old National Bancorp Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Old National Bancorp's revenue will grow by 24.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 29.1% today to 40.0% in 3 years time.
• Analysts expect earnings to reach $1.5 billion (and earnings per share of $3.0) by about July 2028, up from $551.6 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.9x on those 2028 earnings, down from 15.0x today. This future PE is lower than the current PE for the US Banks industry at 11.9x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.92%, as per the Simply Wall St company report.

Old National Bancorp Future Earnings Per Share Growth

Risks

• Heightened competition in the commercial real estate (CRE) and commercial loan markets is leading Old National Bancorp (ONB) to be more conservative on loan growth, positioning them at the lower end of their guidance range; this may constrain future revenue growth and create potential headwinds for top-line expansion.
  
• ONB retains significant exposure to commercial real estate loans, including $2.4 billion in CRE previously slated for sale but now held on the balance sheet, maintaining vulnerability to CRE market downturns that could increase credit losses or require higher loan loss provisions-negatively affecting net earnings and margins.
  
• The bank's strategic focus remains within the Midwest and markets acquired through Bremer, resulting in continued limited geographic diversification; this concentration increases susceptibility to regional economic slowdowns or demographic shifts (e.g., aging or outflowing populations), potentially dampening loan demand and threatening revenue stability.
  
• While leadership discusses a strong technology stack and ongoing investments, there is reliance on incremental improvements rather than transformative digital innovation or leapfrogging competitors, meaning ONB could fall behind more aggressive fintechs and larger banks with heavier technological investments-raising long-term risks to customer retention and potentially eroding both fee and interest income growth.
  
• Although management describes the current regulatory climate as "constructive," there remains industry-wide uncertainty about future regulatory thresholds, compliance costs, and potential for more burdensome ESG, cybersecurity, and risk management obligations; any increase in regulatory burden could disproportionately raise ONB's operating expenses and compress profitability for mid-sized regional banks.

Valuation

• The analysts have a consensus price target of $26.227 for Old National Bancorp based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $28.0, and the most bearish reporting a price target of just $23.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.7 billion, earnings will come to $1.5 billion, and it would be trading on a PE ratio of 9.9x, assuming you use a discount rate of 6.9%.
  
• Given the current share price of $22.31, the analyst price target of $26.23 is 14.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.