Old Second Bancorp, Inc.

What they do

The Company operates through its wholly-owned subsidiary, Old Second National Bank, a national banking organization headquartered in Aurora, Illinois. It offers traditional retail and commercial banking, treasury management, and fiduciary and wealth management services through 54 banking centers in Cook, DeKalb, DuPage, Kane, Kendall, LaSalle and Will counties in Illinois. Its wealth platform includes a registered investment advisory business, personal and corporate trust administration, and employee benefit plan administration. It focuses on individual customers and small to medium-sized businesses in its market area.

Revenue drivers

• Net interest income — The primary revenue source, the difference between interest earned on loans and investments and interest paid on deposits and borrowings; second quarter 2026 net interest and dividend income was $83.3 million, up $2.2 million or 2.69% linked quarter, with a fully tax-equivalent NIM of 5.23%.
• Wealth management — Trust, advisory, personal trust and estate fees; generated $13.2 million in 2025, up 15.9% from 2024, making it the largest fee category reported.
• Service charges on deposits and card related income — Deposit service charges were $11.3 million in 2025 (+10.3%) and card related income was $10.6 million (+5.0%), with growth tied partly to deposits and card income acquired in the First Merchants and Bancorp Financial acquisitions.
• Residential mortgage banking — Includes secondary mortgage fees, mortgage servicing income, net gains on loan sales and MSR mark-to-market; total revenue was $2.6 million in 2025, down 21.2% from $3.3 million in 2024 on a $1.9 million MSR mark-to-market loss.

Recent performance

Second quarter 2026 net income was $28.2 million, or $0.54 per diluted share, compared with $25.6 million, or $0.48 per diluted share, in the first quarter of 2026. Net interest and dividend income rose $2.2 million, or 2.69%, and NIM expanded nine basis points to 5.23%; noninterest income rose 5.00% to $13.3 million while noninterest expense rose 2.08% to $51.3 million. The provision for credit losses was $7.5 million versus $9.5 million in the prior quarter; return on average assets was 1.65% and ROATCE 15.58%. Loans increased $60.6 million to $5.25 billion, and nonperforming loans fell $19.0 million to $56.5 million. The efficiency ratio improved 68 basis points to 51.72% and the ACL to total loans was 1.34%, with ACL to nonperforming loans of 124.60%.

Strategy

Management completed the Bancorp Financial, Inc. acquisition on July 1, 2025, adding approximately $1.43 billion of assets, $1.20 billion of loans and $1.23 billion of deposits, with systems conversion finished in October 2025. It describes the measurement period as closed as of June 30, 2026, with all acquisition-related expenses reported. The bank emphasizes relationship banking with individuals and small to medium-sized businesses, and a wealth management platform spanning advisory, trust and employee benefit services. During the second quarter of 2026 it repurchased 732,000 shares and grew tangible book value per share at a double-digit annualized rate. Its board declared a $0.07 per share dividend on July 21, 2026, payable August 10, 2026.

Risks

• Geographic concentration in Illinois — The franchise is concentrated in the Chicago suburbs, and the 10-K notes Illinois continues to face severe fiscal challenges that could raise state taxes, push businesses out of the state, or deter new employers.
• Credit losses in commercial lending — Second quarter 2026 charge-offs largely stemmed from one downtown Chicago office credit and one cash-flow-dependent commercial relationship, showing vulnerability to individual large credits.
• Interest rate and prepayment risk — Mortgage servicing rights mark-to-market losses widened to $1.9 million in 2025 from $723,000 in 2024 due to changes in market interest rates and prepayment speeds.
• Expense growth from acquisitions — Noninterest expense rose 27.7% in 2025 to $204.0 million, driven by a $26.6 million increase in salaries and employee benefits, and the 2025 GAAP efficiency ratio rose to 57.91% from 54.36%, though the adjusted ratio was flat at 53.15%.

Outlook

Management said second quarter 2026 results were exceptionally strong across the board and that the company is positioned to deliver even better results over the last half of the year. It cited adequate reserves, with ACL to total loans of 1.34% and ACL to nonperforming loans of 124.60%.