OLD NATIONAL BANCORP /IN/ (ONB) stock intrinsic value fair value estimate & owner earnings analysis

Old National Bancorp (Evansville, Indiana) is a commercial bank with 346 banking centers across the Midwest and Southeast. At the end of 2025 it held $55.1 billion of deposits and $48.8 billion of loans: $22.1 billion commercial real estate, $15.0 billion commercial, $8.5 billion residential and $3.3 billion consumer. Growth has come mostly from acquiring other banks with its own stock: First Midwest (February 2022), CapStar in Nashville (April 2024) and Bremer, based in Minnesota (May 1, 2025, about $1.3 billion, including 50.2 million new shares). The share count has roughly tripled since 2016, from about 128 million to 389.7 million, which is why per-share earnings have lagged the growth in the bank's size. How we measure earnings. For a bank we use cash earnings per share after the cost of loan losses and stock compensation, with the swings in receivables, payables and mortgage loans originated for sale taken out. Loan loss provisions are kept as a recurring cost, discount accretion on acquired loans is not counted until the cash arrives, and the $16.1 million a year of preferred dividends is deducted because it is paid ahead of common holders. On that basis per-share earnings were $1.34 in 2021, $1.10 in 2022, $1.91 in 2023, $1.64 in 2024 and $1.59 in 2025. We use the three years after the First Midwest merger greatly enlarged the bank (2023 to 2025); their median is $1.64. 2022 is set aside as the merger year. The $78.7 million of 2025 amortization on purchased deposit relationships is non-cash and is not charged, so the fading value of those relationships is carried in the cautious growth assumptions below rather than in the earnings level. Starting point for the next twelve months. Owner earnings fell 3.2% in 2025 ($1.64 to $1.59), yet we start the base case at $1.95, 22.8% above 2025. The reason is specific and dated: Bremer closed on May 1, 2025, so 2025 holds eight months of its earnings but carries about $75.6 million of loan reserves set up for the acquired Bremer loans and unfunded commitments; 2026 holds twelve months with no repeat of that charge. The first-quarter 2026 report corroborates the step: net income $233.7 million ($0.59 per diluted share, against $0.44 a year earlier) and, on our measure, about $0.54 per share, or $2.15 a year, with credit provisions of $34.9 million and net charge-offs of $32.0 million, in line with the 0.21% to 0.27% of loans the bank reported in each of the five quarters to December 2025. We start below that run-rate. We have only the first-quarter 2026 report in hand; later quarters were not reviewed. Base case, $36.04. Owner earnings of $1.95 in the first year, growing 3.5% in the second year and tapering to 2.0% by the tenth, reaching about $2.48. We credit this growth because loans grew 5% in 2025 excluding Bremer and the bank retains most of its earnings, paying only $0.56 a share in dividends, unchanged for 2023 to 2025. We credit nothing for further acquisitions, margin expansion or new products. Growth is not free: holding capital against growing loans takes roughly $0.48 per share of retained earnings in the first year, so only about $1.47 of the $1.95 counts as distributable. After year ten we hold earnings flat at about $2.48 with no growth, on the strength of a $55 billion deposit base and a record of positive earnings through the 2009 credit cycle. Roughly $13.0 of the value comes from the first ten years of distributable cash and $23.1 from the flat earnings that follow. A bank's deposits and borrowings are its raw material and interest is already deducted from earnings, so no separate debt is subtracted. Bear case, $24.72. This is built on the 2008 to 2010 credit cycle. Old National's own record: net charge-offs rose from 0.87% of loans in 2008 to 1.37% in 2009 and earnings fell from $0.95 to $0.14 per share (company earnings release, January 2010); losses for U.S. banks as a whole peaked above 2%. Today 45% of the loan book is commercial real estate, including $2.7 billion of office loans with $49.2 million already on non-accrual. We assume about $1.6 billion before tax of credit costs above normal over 2027 to 2029, front-loaded because reserves are booked ahead of charge-offs (about $3.25 per share after tax in total), and core earnings 8% lower in 2027 and 2028. Owner earnings run $1.85 in 2026, then minus $0.12 in 2027, $0.68 in 2028, $1.10 in 2029 and $1.60 in 2030, a lasting shortfall against the $1.85 before the cycle, because after 2008 it took the bank until about 2016 ($1.05 a share) to regain its 2008 earnings. Growth afterwards is 1.5% a year and earnings are flat after year ten at about $1.72. Earnings after these costs roughly equal the dividend through the cycle, so tangible capital stays about level (it is 7.72% of tangible assets today) and we do not assume a share issue at trough prices. The bear value is above tangible book value of $13.71 a share because the bank earned a profit even in 2009 and a $55 billion deposit franchise keeps earning once the losses are absorbed. Bull case, $41.37. First-quarter 2026 earnings of $2.15 a year hold with credit costs staying near current levels, and growth runs 4.5% tapering to 2.5%, close to the 5% organic loan growth just demonstrated; earnings are flat after year ten at about $2.92. No windfall is assumed. What would make us wrong. If 2026 earnings stay at the $1.64 median rather than stepping up, the base value would be about $29.80. A credit cycle worse than 2009 on the commercial real estate book, funding that costs more ($6.2 billion of Federal Home Loan Bank advances and $9.7 billion of time deposits reprice), or further stock-funded acquisitions that add shares faster than earnings (the pattern since 2016) would all hurt. Tangible common equity is 7.72% of tangible assets, a thin cushion. About $0.7 billion of pre-tax unrealized losses on available-for-sale securities does not flow through earnings but is already reflected in tangible book value. Our previous estimate used a different earnings measure and its figures are not comparable. Margin-of-safety price, $19.50. We are fairly but not completely sure of the earnings level: three years of reported results sit at $1.59 to $1.91 and one quarter points to $2.15, so we used $1.95. The worst plausible outcome is a commercial real estate downturn like 2009, which this bank survived with its quarterly dividend cut to $0.07 and with earnings per share not regaining their 2008 level until about 2016. Its structure would survive that, but the shares could trade near tangible book value of about $14 at the trough. If we are wrong about the 2026 step-up or about credit, the shares could be worth $25 to $30 rather than $36. The price assumes a holding period of about three years, with the $0.56 dividend (about 2.9% of the margin-of-safety price) paid while earnings of $1.95 are about 10% of that price. From $19.50 the base case implies roughly 27% a year over three years, and the bear case implies about 12% a year if its recovery is recognised by the end of year three, while a value near tangible book at the trough would imply a loss.