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OS

OLD SECOND BANCORP INC (OSBC)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered strong profitability: net income $21.8M and diluted EPS $0.48; adjusted diluted EPS $0.50 after $0.8M merger costs and $0.53M MSR mark-to-market loss .
  • Net interest and dividend income rose to $64.2M (+2.1% q/q; +7.6% y/y) with tax-equivalent NIM at 4.85% and efficiency ratio at 55.99% .
  • S&P Global consensus was beaten: EPS actual $0.50 vs $0.478* and “Revenue” actual $72.6M vs $63.7M*, indicating a broad-based beat; EPS reflects adjusted presentation while GAAP diluted EPS was $0.48 .
  • Management highlighted margin durability, capital strength (CET1 13.77%) and integration of Evergreen Bank Group (closed July 1) as near-term catalysts; Q3 margin outlook “flat ±10 bps” with earnings bias “slightly higher” for Evergreen .

What Went Well and What Went Wrong

What Went Well

  • Net interest and dividend income increased to $64.2M (+$1.3M q/q; +$4.5M y/y) on higher security yields and stable deposit costs; TE NIM at 4.85% with GAAP NIM 4.83% .
  • Noninterest income improved q/q (+$0.7M), led by card income (+$304K q/q) and BOLI cash surrender value (+$192K q/q) .
  • Asset quality stable: nonperforming loans declined to 0.8% of total loans; ACL/NPL rose to 135% from 124% in Q1; net charge-offs fell to $0.8M from $4.4M in Q1 .
  • CEO: “exceptional margin performance and disciplined operating efficiency… CET1 13.77%, loan-to-deposit 83%, cash and marketable securities >23% of assets” .

What Went Wrong

  • Noninterest expense remains elevated y/y (+$5.5M), driven by salaries/benefits (+$3.5M), CDI amortization, data processing, and legal/other costs including FRME and Bancorp Financial transactions .
  • MSR mark-to-market loss of $0.53M and merger-related expenses of $0.81M reduced reported EPS versus adjusted EPS .
  • Deposits fell $54M q/q (1.1%) with run-off in June across savings, NOW, demand, and time deposits; average demand deposits remain lower y/y .

Financial Results

Income and Profitability (vs prior periods)

MetricQ2 2024Q1 2025Q2 2025
Net Interest & Dividend Income ($M)$59.690 $62.904 $64.234
Noninterest Income ($M)$11.127 $10.201 $10.898
Net Income ($M)$21.891 $19.830 $21.822
Diluted EPS ($)$0.48 $0.43 $0.48
NIM (TE, %)4.63 4.88 4.85
Efficiency Ratio (GAAP, %)53.29 56.46 55.99
ROAA (%)1.57 1.42 1.53
ROATCE (%)17.66 14.70 15.29

Balance Sheet Snapshot

MetricQ2 2024Q1 2025Q2 2025
Total Assets ($M)$5,662.700 $5,727.686 $5,701.294
Total Loans ($M)$3,976.595 $3,940.232 $3,998.667
Total Deposits ($M)$4,521.728 $4,852.791 $4,798.439
TCE/TA (%)9.39 10.34 10.83
CET1 (%)12.41 13.47 13.77
Loan/Deposit Ratio (%)87.9 81.2 83.3

Asset Quality & Reserve

MetricQ2 2024Q1 2025Q2 2025
Nonperforming Loans ($M)$46.866 $34.791 $32.247
NPL / Total Loans (%)1.2 0.9 0.8
ACL on Loans ($M)$42.269 $41.551 $42.990
ACL / Loans (%)1.1 1.1 1.1
Net Charge-offs ($M)$5.794 $4.353 $0.785

Segment/Category Detail

  • Loans by Segment (period-end) | Segment ($000s) | Q2 2025 | |-----------------|---------| | Commercial | $718,927 | | Leases | $524,513 | | CRE – Investor | $1,118,782 | | CRE – Owner-Occupied | $652,449 | | Construction | $251,692 | | Resi – Investor | $50,976 | | Resi – Owner-Occupied | $220,672 | | Multifamily | $333,787 | | HELOC | $111,265 | | Other | $15,604 | | Total | $3,998,667 |

  • Noninterest Income mix (Q2 2025) | Category ($000s) | Q2 2025 | |------------------|---------| | Wealth Management | $3,103 | | Service Charges | $2,788 | | Secondary Mortgage Fees | $84 | | MSR Mark-to-Market | $(531) | | Mortgage Servicing Income | $472 | | Net Gain on Mortgage Sales | $550 | | Change in BOLI CSV | $690 | | Card Related Income | $2,716 | | Other Income | $1,026 | | Total | $10,898 |

  • Noninterest Expense mix (Q2 2025) | Category ($000s) | Q2 2025 | |------------------|---------| | Salaries & Benefits | $26,950 | | Occupancy/F&E | $4,477 | | Computer & Data Processing | $2,692 | | FDIC Insurance | $642 | | Net Teller & Bill Paying | $670 | | General Bank Insurance | $328 | | Core Deposit Intangible Amortization | $1,022 | | Advertising | $320 | | Card Related Expense | $1,489 | | Legal | $388 | | Consulting & Management | $527 | | OREO Expense, net | $35 | | Other Expense | $3,879 | | Total | $43,419 |

Estimates vs Actual (S&P Global)

MetricConsensus (Q2 2025)Actual (Q2 2025)
Primary EPS Consensus Mean ($)0.47833*0.50*
Revenue Consensus Mean ($M)63.66*72.63*

Values retrieved from S&P Global. GAAP diluted EPS reported $0.48 ; adjusted diluted EPS $0.50 .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Interest MarginQ3 2025Not provided“Flat ±10 bps” outlook; margin to remain “exceptionally strong”Maintained constructive outlook
ROA2026 (post-integration steady state)Not providedComfortable around ~1.50% in stable rate scenarioIntroduced
Loan GrowthFY 2025Not providedLow-to-mid single-digit growth possibleIntroduced
Evergreen IntegrationQ4 2025 timingN/AConversion expected early-to-mid Q4; cost saves on target; earnings “biased slightly higher”Affirmed/Positive
DividendQ3 2025Prior $0.06/shareDeclared $0.06/share payable Aug 4, 2025Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024, Q1 2025)Current Period (Q2 2025)Trend
Margin/NIM durabilityNIM (TE) stable 4.68% in Q4; expanded to 4.88% in Q1 as FRME deposits lowered funding costs NIM (TE) 4.85%; guidance “flat ±10 bps” with durable margin through year; long-term margin floor raised to ~4.25%Improving/durable
Deposit costs & fundingQ4: FRME branches boosted deposits; reduced FHLB borrowings Q2: modest deposit run-off; Evergreen standalone cost of funds expected down 30–70 bps over next quarterImproving mix
Loan growth & pipelinesQ1: Leases and CRE investor growing; overall loans down q/q Q2: strongest origination quarter in 2+ years; growth in construction and leases; low-mid single-digit growth seen for 2025Strengthening
Asset qualityQ4: aggressive resolution, OREO write-downs; NPLs down Q2: NPL ratio 0.8%; ACL/NPL coverage up; single healthcare owner-occupied downgrade in Oregon with strong collateral 70% LTVStabilizing
M&A/IntegrationQ1: Announced Evergreen; strategic consumer lending capabilities Q2: Closed July 1; cost saves on target; earnings bias slightly higher; conversion early-mid Q4Positive execution
Technology/Consumer lending—FreedomRoad Financial (OSNB division) enabling instant online credit approvals via Finio on Cycle/ATV Trader, supporting powersports lending growthStrategic enhancement
Macro/tariffsQ1: Rate environment improved NIM Q2: Modeling considers tariff volatility; management does not expect rate cuts; margin less sensitive to cuts than beforeBalanced stance

Management Commentary

  • CEO: “Old Second reported another quarter of strong results… tax equivalent net interest margin was strong at 4.85% and the efficiency ratio… 55.99%. Tangible book value per share continues to compound… CET1 13.77%, loan to deposit ratio of 83%” .
  • On Evergreen: “We believe the transaction will add meaningful consumer lending capabilities and enhance the flexibility and profitability of Old Second’s balance sheet… extremely excited to welcome Evergreen Bank customers and employees” .
  • CFO: Margin outlook “flat ±10 bps” for Q3; “very bullish that our margin will remain at exceptionally strong levels” and long-term NIM floor ~4.25% vs prior ~4.0% .
  • On ROA: “I would feel very comfortable with a 1.50% ROA” in a stable-rate environment .

Q&A Highlights

  • Evergreen integration and cost trajectory: conversion early-to-mid Q4; operating expense run rate normalizes by Q4 reporting; cost saves tracking on target with slightly higher earnings expectations .
  • Deposit costs and funding: Expect Evergreen’s standalone cost of funds to decline 30–70 bps next quarter; reduced wholesale funding and repositioned securities support margin durability .
  • Margin sensitivity to potential rate cuts: Previously 4–7 bps per 25 bp cut; now ~25% lighter on pro forma; guidance for Q3 margin “flat ±10 bps” despite curve volatility .
  • Credit outlook: One $1M C&I charge-off fully reserved; powersports lending loss rates can run <1%–1.5% but with ~9% average coupons on new assets; healthcare owner-occupied classified credit in Oregon with 70% LTV, no expected loss .
  • Capital actions: Repurchased ~327K shares at ~$18 in a privately negotiated transaction post-quarter .

Estimates Context

  • Q2 2025 EPS: S&P Global consensus $0.47833* vs actual $0.50*; company reported GAAP diluted EPS $0.48 and adjusted diluted EPS $0.50 .
  • Q2 2025 “Revenue”: S&P Global consensus $63.66M* vs actual $72.63M*; company’s reported components were net interest & dividend income $64.23M and noninterest income $10.90M .
  • Implication: Street likely revises EPS/Revenue trajectories modestly higher given margin durability and Evergreen positive bias.
    Values retrieved from S&P Global.

Key Takeaways for Investors

  • Clear beat vs S&P Global consensus on EPS and “Revenue”; underlying strength came from higher net interest income, card fees, and disciplined expense management even with MSR/merger headwinds .
  • Margin durability is a central narrative: NIM (TE) at 4.85% with guidance “flat ±10 bps” and a raised long-term margin floor (~4.25%); this supports multiple expansion if sustained .
  • Evergreen adds scalable consumer lending (powersports) and improves balance-sheet flexibility; cost saves on track and earnings bias “slightly higher” for 2H25—watch Q4 conversion milestone .
  • Asset quality trends are stable with lower net charge-offs and improved ACL/NPL coverage; single healthcare credit classified but well-collateralized at ~70% LTV .
  • Deposits dipped in June; monitor funding mix as management targets lower Evergreen cost of funds and maintains strong CET1 13.77%/TCE 10.83% .
  • Capital returns: recent 327K share repurchase at ~$18 indicates confidence; dividend maintained at $0.06 per share .
  • Near-term trading: catalysts include Q3 margin print vs “flat” guide and Evergreen integration disclosures; medium-term thesis centers on durable NIM, disciplined credit, and specialty lending growth .