Old National Bank has been treading water for the past six months, recording a small loss of 1.3% while holding steady at $21.73.

Is now the time to buy ONB? Find out in our full research report, it’s free.

Why Does Old National Bank Spark Debate?

Tracing its roots back to 1834 when Andrew Jackson was president, Old National Bancorp (NASDAQ: ONB) is a bank holding company that provides commercial and consumer loans, deposit services, wealth management, and treasury solutions primarily throughout the Midwest region.

Two Things to Like:

1. Net Interest Income Skyrockets, Fueling Growth Opportunities

Net interest income commands greater market attention due to its reliability and consistency, whereas one-time fees are often seen as lower-quality revenue that lacks the same dependable characteristics.

Old National Bank’s net interest income has grown at a 28.1% annualized rate over the last five years, much better than the broader banking industry and faster than its total revenue. Its growth was driven by both an increase in its outstanding loans and net interest margin, which represents how much a bank earns in relation to its outstanding loan book.

2. Forecasted Efficiency Ratio Shows Stronger Profits Ahead

Topline growth carries importance, but the overall profitability behind this expansion determines true value creation. For banks, the efficiency ratio captures this relationship by measuring non-interest expenses, including salaries, facilities, technology, and marketing, against total revenue.

Markets understand that a bank’s expense base depends on its revenue mix and what mostly drives share price performance is the change in this ratio, rather than its absolute value. It’s somewhat counterintuitive, but a lower efficiency ratio is better.

For the next 12 months, Wall Street expects Old National Bank to rein in some of its expenses as it anticipates an efficiency ratio of 46.6% compared to 55% over the past year.

One Reason to be Careful:

Low Net Interest Margin Hinders Flexibility

The net interest margin (NIM) is a key profitability indicator that measures the difference between what a bank earns on its loans and what it pays on its deposits. This metric measures how efficiently one can generate income from its core lending activities.

Over the past two years, we can see that Old National Bank’s net interest margin averaged a subpar 3.4%, meaning it must compensate for lower profitability through increased loan originations.

Final Judgment

Old National Bank has huge potential even though it has some open questions, but at $21.73 per share (or 0.9× forward P/B), is now the right time to buy the stock? See for yourself in our in-depth research report, it’s free.

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