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OS

OLD SECOND BANCORP INC (OSBC)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered solid profitability amid elevated credit costs: Net income was $19.1M ($0.42 diluted EPS) vs. $23.0M ($0.50) in Q3 and $18.2M ($0.40) in Q4 2023; tax-equivalent NIM rose to 4.68% and ROAA was 1.34% .
  • Margin resilience and deposit acquisition offset funding costs: TE NIM increased 4 bps q/q to 4.68% as FRME branch deposits lowered FHLB advances; loan-to-deposit ratio improved to 84% from 89% in Q3 .
  • Asset quality improved sharply: Nonperforming loans fell 42% q/q to $30.3M (0.8% of loans), though net charge-offs were $4.9M driven by an $8.6M C&I charge-off; management expects further NPA reduction early 2025 .
  • Expense pressure from transaction/OREO costs: Noninterest expense rose $5.0M q/q (to $44.3M) on FRME-related costs and $1.7M OREO write-downs; adjusted EPS was $0.44 vs. $0.51 in Q3 .
  • Catalysts ahead: Authorized $39.1M buyback (Dec 2024), dividend raised to $0.06 in Q4/Q1, active M&A dialogue, and mid-single-digit loan growth targeted for 2025; Wall Street consensus from S&P Global was unavailable for estimate comparisons .

What Went Well and What Went Wrong

  • What Went Well

    • “Exceptional profitability” and strengthening capital: TE NIM stable at 4.68%; TCE/TA improved to 10.04%; ROATCE 13.79% .
    • Asset quality inflected positively: Nonperforming loans down to 0.8% of loans; criticized/classified loans declined meaningfully vs. Q3 and YoY .
    • Funding mix improved post-FRME: Deposits up $303M q/q; other short-term borrowings fell to $20M from $335M; L/D ratio moved to 84% .

  • What Went Wrong

    • Elevated credit losses and OREO expense: Net charge-offs $4.9M (C&I charge-off $8.6M); OREO valuation expense $1.7M; provision increased to $3.5M .
    • Noninterest expense spike: +$5.0M q/q driven by transaction-related costs, legal fees, data processing, and OREO write-downs; efficiency ratio worsened to 57.12% (GAAP) .
    • Margin outlook guided modestly down with rate cuts: Management expects NIM drift lower in 2025 if cuts continue (to ~4.35–4.40 with two cuts), despite resilience .

Financial Results

MetricQ2 2024Q3 2024Q4 2024
Net Interest Income ($M)$59.7 $60.6 $61.6
Noninterest Income ($M)$11.1 $10.6 $11.6
Provision for Credit Losses ($M)$3.8 $2.0 $3.5
Noninterest Expense ($M)$37.9 $39.3 $44.3
Net Income ($M)$21.9 $23.0 $19.1
Diluted EPS ($)$0.48 $0.50 $0.42
Effective Tax Rate (%)25.01 23.11 24.68
Margins & RatiosQ2 2024Q3 2024Q4 2024
NIM (TE, %)4.63 4.64 4.68
ROAA (%)1.57 1.63 1.34
ROATCE (%)17.66 17.14 13.79
Efficiency Ratio (GAAP, %)53.29 53.38 57.12
TCE/TA (%)9.39 10.14 10.04
Balance SheetQ2 2024Q3 2024Q4 2024
Total Assets ($M)$5,662.7 $5,671.8 $5,649.4
Total Loans ($M)$3,976.6 $3,991.1 $3,981.3
Total Deposits ($M)$4,521.7 $4,465.4 $4,768.7
Total Equity ($M)$619.3 $661.4 $671.0
Asset QualityQ2 2024Q3 2024Q4 2024
Nonaccrual Loans ($M)$42.0 $52.2 $28.9
Nonperforming Loans ($M)$46.9 $52.3 $30.3
OREO ($M)$6.9 $8.2 $21.6
ACL to Loans (%)1.1 1.1 1.1
Net Charge-offs ($M)$5.79 $(0.16) (net recoveries) $4.90

Segment Loan Mix (Balances)

Category ($M)Q3 2024Q4 2024q/q %
Commercial$814.7 $800.5 (1.7%)
Leases$458.3 $491.7 7.3%
CRE – Investor$1,045.1 $1,078.8 3.2%
CRE – Owner-Occupied$718.3 $683.3 (4.9%)
Construction$206.5 $201.7 (2.3%)
Residential – Investor$50.3 $49.6 (1.5%)
Residential – Owner-Occupied$208.2 $206.9 (0.6%)
Multifamily$375.4 $351.3 (6.4%)
HELOC$102.6 $103.4 0.8%
Other$11.7 $14.0 19.4%
Total Loans$3,991.1 $3,981.3 (0.2%)

KPIs

KPIQ2 2024Q3 2024Q4 2024
Loan-to-Deposit Ratio (%)88 89 84

Estimates vs Actuals

  • Wall Street consensus from S&P Global was unavailable at time of query; comparisons to estimates cannot be provided. Values from S&P Global were not retrievable due to system limits.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
NIM trajectory2025“Modestly down” with 7 bps per 25 bp cut; branch acquisition to mitigate Q1 starting ~4.62%; ~7 bps per 25 bp cut; if two cuts, ~4.35–4.40; margin resilience above ~4.20 Maintained/refined
Operating Expense GrowthFY 20253%–5% 4%–5% Slightly higher floor
Loan GrowthFY 2025Low/mid-single digits in 2H 2024 Mid-single digits targeted in 2025 Maintained into 2025
Charge-offsFY 2025Provision ~$2M/quarter; reserve ~1% (color) Net charge-offs 10–20 bps expected; hope to do better New quantitative range
DividendQ4/Q1$0.05/share (Q2) $0.06/share declared Jan 21, 2025, payable Feb 10, 2025 Raised
Capital Return (Buyback)Since Dec 2024N/A$39.1M authorization; FRB non-objection received Dec 16, 2024 New program

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4)Trend
Margin outlookQ2: Flat to slightly down; 5–7 bps per 25 bp cut . Q3: Modestly down; deposit deal to mitigate .Q4: TE NIM 4.68; Q1 starting ~4.62; ~4.35–4.40 if two cuts; above ~4.20 absent cuts .Slight downtrend if cuts resume; resilient baseline.
Loan growthQ2: Pipelines highest in 18 months; low/mid-single-digit 2H24 . Q3: Cautious given spreads .Mid-single-digit loan growth targeted for 2025; loan purchases possible .Improving pipelines; disciplined pricing.
Asset qualityQ2: Net charge-offs $5.8M; office resolved; nonaccruals down 23% q/q . Q3: Net recoveries; criticized flat; special mention down .Nonperforming loans down 42% q/q; C&I bankruptcy-driven charge-off; OREO write-down for sales; expecting further NPA reduction .Broad improvement; clean-up ongoing.
M&A/Capital returnQ2: Build capital; buyback on table . Q3: Favorable M&A environment; branch deposits; buyback in place .Active discussions; buyback not price sensitive; $39.1M authorization .Optionality maintained; accretive focus.
Deposit pricing & fundingQ2: Aggressive market pricing; mix shifting to time deposits . Q3: Seasonality; still aggressive pricing .FRME deposits lowered borrowings; L/D improved; deposit growth in Q4 .Funding cost relief via acquired deposits.

Management Commentary

  • CEO perspective: “Old Second reported strong results in the fourth quarter of 2024 with exceptional profitability… classified and criticized loans have declined meaningfully both year over year and linked quarter… we are well positioned to capitalize on growth opportunities” .
  • Margin and funding: “Tax equivalent net interest margin was 4.68%… funding costs decreased primarily due to deposits acquired from First Merchants… loan-to-deposit ratio at 84%” .
  • Capital and returns: “Old Second continues to build capital… buyback is in place and is on the table… discussions [on M&A] are active and ongoing” .
  • Credit clean-up: “We recorded an $8.6M charge-off on a C&I loan… OREO valuation expense of $1.7M… expect further substantial nonaccrual improvement in the near term” .

Q&A Highlights

  • Margin path: With two additional cuts, NIM could trend to ~4.35–4.40; absent further cuts, management expects better than ~4.40; Q1 starting point ~4.62 .
  • Expense framework: 2025 operating expense growth targeted at 4%–5%; FRME ops added ~$0.4M in December .
  • Capital deployment: $250M bond portfolio cash flow in 2025 can fund loan growth; flexible to buy loans (e.g., 5/1 jumbo ARMs) if returns are attractive .
  • M&A stance: Active discussions; buyback not price sensitive at current levels; target deal size ~$0.5B–$4B .
  • Credit outlook: 2025 net charge-offs guided to 10–20 bps; no major new red flags; OREO sales expected near term .

Estimates Context

  • Wall Street consensus (S&P Global) for Q4 2024 EPS and revenue was unavailable at time of query due to system limits, so we cannot assess beats/misses vs. street. We recommend re-checking S&P Global consensus to update trading context and revision risk.

Key Takeaways for Investors

  • Margin resilience with improved funding mix stands out: TE NIM up q/q to 4.68% and L/D improved to 84% post-FRME deposits—watch Q1 starting NIM (~4.62) and Fed path for drift .
  • Asset-quality momentum is favorable: nonperforming loans fell 42% q/q; expect further NPA reduction early 2025 despite isolated C&I bankruptcy charge-off—de-risking story intact .
  • Expense normalization a 1H25 focus: transaction/OREO costs bloated Q4 expenses; core OpEx guided to 4%–5% growth for 2025—monitor efficiency ratio trajectory .
  • Capital optionality is a catalyst: $39.1M buyback authorization plus active M&A dialogue provides multiple pathways for accretion; discipline on pricing remains a theme .
  • Loan growth targeted mid-single digits in 2025 with bond cash flows funding—loan purchases are in-scope; watch spread discipline and competitive pricing .
  • Short-term trading: Near-term narrative hinges on margin drift vs. rate cuts, OREO sales closing, and credit normalization; any M&A/buyback execution could re-rate shares.
  • Medium-term thesis: High-quality deposit base, improving asset quality, and flexible capital deployment underpin ROE durability; curve normalization and prudent growth should sustain profitability.

All information above is sourced from Old Second’s Q4 2024 8‑K press release and exhibits, and Q2–Q4 2024 earnings calls and filings. Citations provided inline.