OSBC

Business Context and Reporting Period

Company: Old Second Bancorp, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2026
Business Overview: Old Second Bancorp is a bank holding company headquartered in Aurora, Illinois, operating through its subsidiary, Old Second National Bank. The company provides commercial and consumer banking services, including lending, deposits, and wealth management, primarily in the Chicagoland area. A significant event impacting the current period was the July 1, 2025, acquisition of Bancorp Financial, Inc., which added approximately $1.43 billion in assets and $1.20 billion in loans to the portfolio.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Net income for the three months ended June 30, 2026, increased to $28.2 million from $21.8 million in the same period of 2025. This growth was primarily driven by the Bancorp Financial acquisition, which increased loan interest income by approximately $53.4 million year-over-year.
• Expense Increases: Noninterest expense rose $7.8 million (18.0%) year-over-year to $51.3 million, largely due to increased salaries, benefits, and operational costs associated with the acquired entity.
• Provision for Credit Losses: The provision increased significantly to $7.5 million for the quarter (from $2.5 million in Q2 2025) due to higher charge-offs, including a $6.8 million charge-off in the commercial real estate-investor portfolio and $4.3 million in commercial loans.
• Deposit Trends: Total deposits decreased $151.4 million to $5.44 billion from December 31, 2025, primarily due to the runoff of higher-rate brokered time deposits acquired from Bancorp Financial.
• Asset Quality: Nonperforming loans increased to $56.5 million (1.1% of total loans) from $52.8 million at year-end 2025, driven by the addition of larger commercial relationships to nonaccrual status.

Guidance, Outlook, and Risks

• Capital Position: The Bank remains "well capitalized," exceeding all regulatory minimums. The Tier 1 leverage ratio was 12.05% and the total risk-based capital ratio was 14.77% as of June 30, 2026.
• Interest Rate Risk: The balance sheet is moderately asset-sensitive. Management expects net interest income to benefit from rising interest rates, though actual results depend on customer behavior and deposit pricing.
• Stock Repurchases: The company completed a $43.9 million repurchase program in May 2026 and authorized a new program in June 2026 to repurchase up to 2.55 million shares for up to $61.2 million through June 30, 2027.
• Risks and Contingencies:
  • Credit Risk: Continued volatility in the economic environment, including inflation and geopolitical conflicts (Ukraine, Iran), may impact borrower performance and collateral values.
  • Regulatory Risk: Changes in banking regulations, capital requirements, and accounting standards (e.g., ASU 2025-08 regarding purchased loans) could impact financial reporting and operations.
  • Operational Risk: Risks related to cybersecurity, data privacy, and the integration of acquired systems remain key focus areas.

Key Facts for Investor Verification

• Acquisition Integration: Verify the ongoing integration of Bancorp Financial, specifically the runoff rate of acquired brokered deposits and the performance of the acquired powersport loan portfolio.
• Commercial Real Estate Exposure: Monitor the $6.8 million charge-off in the commercial real estate-investor portfolio and the status of the two specific office properties cited as drivers of the provision increase.
• Nonperforming Assets: Track the trend of nonperforming loans, which rose to 1.1% of total loans, and the adequacy of the Allowance for Credit Losses (ACL) coverage ratio (124.6% of nonperforming loans).
• Liquidity Management: Confirm the reliance on Federal Home Loan Bank (FHLB) borrowings, which increased to $375 million, to offset deposit outflows.
• Dividend Policy: Note the declared dividend of $0.07 per share for the quarter, payable August 10, 2026.