Accretion income declined to $2.6 million, contributing 12 basis points to net interest margin, down from 17 basis points in the prior quarter.
Allowance for credit losses grew $9.4 million to 1.13% of total loans, aligning closer to peer median of 1.17%.
Annualized loan growth was 11% compared to the linked quarter.
Annualized net charge-off rate improved to 43 basis points from 52 basis points, with small ticket leasing charge-offs declining but remaining elevated at 11.51%.
Book value per share grew 1%, and tangible book value per share increased 2% from the prior quarter.
Capital ratios declined slightly due to loan growth outpacing earnings net of dividends, but tangible equity to tangible assets ratio remained stable at 8.3%.
Classified loans declined slightly to 1.89% of total loans.
Deposit balances declined 1% due to seasonal factors, with retail CDs growing $39 million.
Deposit balances declined 1% or $98 million, with seasonal fluctuations in governmental deposits and growth in retail CDs.
Diluted earnings per share were $0.59 for Q2 2025.
Efficiency ratio improved to 59.3% from 60.7% in the prior quarter.
Fee-based income was relatively stable, with a 1% decline from the linked quarter due to annual performance-based insurance commissions recognized in Q1.
Investment portfolio grew by $140 million with higher yielding bonds at 5.3%, slightly above target range.
Investment portfolio grew by $140 million, with higher yielding bonds improving overall yield.
Loan growth was balanced across categories, including commercial and industrial, residential real estate, construction, commercial real estate, premium finance, and consumer indirect loans.
Loan portfolio delinquency improved with 99.1% current compared to 98.5% last quarter.
Loan to deposit ratio increased to 86% from 83% due to loan growth and seasonal deposit declines.
Net charge-offs were $7 million, down from $8.1 million in the prior quarter, with small ticket leasing charge-offs decreasing but still elevated.
Net interest income increased by over $2 million, with net interest margin expanding 3 basis points to 4.15%.
Noninterest expense declined 1% from the linked quarter to $70.4 million, within guided range.
Noninterest expense declined 1% from the prior quarter to $70.4 million, within guided range.
Nonperforming assets increased slightly to 49 basis points of total assets, driven by premium finance portfolio administrative delinquencies.
Pre-provision net revenue exceeded consensus estimates.
Provision for credit losses increased by $6.5 million to $16.6 million, driven by net charge-offs, increased reserves, CECL model refresh, and economic forecast deterioration.
Provision for credit losses totaled $16.6 million, up $6.5 million from the prior quarter, driven by net charge-offs and increased reserves.
Tangible equity to tangible assets ratio remained stable at 8.3%.
Impact of Rising Interest Rates on Mortgage Portfolio and Earnings
Management highlighted that higher interest rates have positively influenced investment income and mortgage persistency, contributing to strong earnings despite a slight decline in net income from $204 million to $195 million year-over-year.
The company benefits from a high-quality insured portfolio with embedded equity, which reduces default-to-claim transition probability, providing a buffer against potential credit deterioration.
The second quarter saw a 3% increase in U.S. mortgage insurance in force to $247 billion, with a stable weighted average FICO score of 746, indicating maintained credit quality amid rising rates.
Persistency remained high at 86%, supported by nearly half of the portfolio having a note rate of 5% or lower, which is expected to sustain elevated levels in the near term.
Management emphasized that the macroeconomic environment, including interest rates, is favorable for the company's buy, manage, and distribute operating model, enabling high-quality earnings.
Early Closure and Impact of Bremer Bank Partnership
Old National closed its partnership with Bremer Bank two months earlier than expected, on May 1st, ahead of the original schedule.
The early close contributed to positive earnings momentum for 2025 and shortened the tangible book value earnback period by approximately half a year.
The partnership resulted in a larger balance sheet and improved capital position, with the CET1 ratio exceeding expectations at 10.74%.
Repositioning of Bremer's securities portfolio increased the book yield from 2.85% to 5.54%, reduced duration from 6.4 to 4.7, and improved RWA density from 19% to 13%.
Dafinchi