Midwest regional bank Old Second Bancorp (NASDAQ: OSBC) met Wall Streets revenue expectations in Q4 CY2025, with sales up 29.9% year on year to $95.54 million. Its non-GAAP profit of $0.58 per share was 8.1% above analysts’ consensus estimates.

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StockStory’s Take

Old Second Bancorp’s fourth quarter delivered results that aligned with Wall Street’s revenue expectations, while non-GAAP earnings per share outpaced analyst forecasts. Management attributed the quarter’s performance to strong net interest margin, prudent cost control, and ongoing benefits from the integration of recent acquisitions. CEO Jim Eccher noted that the company’s “exceptionally strong net interest margin at 5.09%” was a key driver, alongside an increased tangible equity ratio and steady asset quality. However, management also highlighted higher net charge-offs in the Powersports portfolio, acknowledging, “losses given default are running a bit higher than we expected,” though they emphasized contribution margins in that segment remain robust.

Looking ahead, Old Second Bancorp’s outlook centers on maintaining stable margins, controlling expense growth, and achieving mid-single-digit loan growth, while managing credit risk in the Powersports segment. COO and CFO Brad Adams indicated that expense growth will be moderated by cost saves from previous integrations, but inflationary pressures in employee benefits are expected. Management also highlighted the importance of optimizing the bank’s funding mix as brokered deposits run off. Eccher stated, “We’re very bullish on our 2026 performance,” pointing to a strong loan pipeline and further improvements in the Powersports business as potential catalysts.

Key Insights from Management’s Remarks

Management credited robust net interest margin, integration progress, and focused growth strategies for shaping the quarter’s outcome and setting the stage for future performance.

• Powersports portfolio dynamics: Management emphasized that although net charge-offs rose in the Powersports loan book, the segment’s higher yields and contribution margin outweighed elevated losses. CEO Jim Eccher described the business as “very good,” noting contribution margin is at a multi-year high and anticipating continued profitability despite higher charge-offs in the current rate environment.
• Net interest margin resilience: The bank maintained an above-5% tax-equivalent net interest margin, driven by a favorable funding mix and disciplined deposit cost management. Adams highlighted that the current funding structure, including a temporary reliance on brokered deposits, supports margin resilience amid shifting interest rates.
• Loan growth and headwinds: While organic loan production was strong, run-off in acquired commercial real estate participations—particularly from West Suburban—offset growth. Eccher observed that pipeline activity is at its highest in several quarters, supporting optimism for mid-single-digit loan growth in the coming year.
• Expense management and integration: Noninterest expenses declined, reflecting the completion of integration-related costs from the Evergreen acquisition and other cost-saving initiatives. Adams stated that expense growth should remain modest, aided by branch closures and ongoing efficiency improvements.
• Asset quality trends: Asset quality remained generally stable, with a slight increase in nonperforming loans and classified assets. Special mention loans declined significantly, signaling early-stage improvement, though management cautioned that some credit normalization is expected as economic conditions evolve.

Drivers of Future Performance

Old Second Bancorp’s management expects stable margins, measured loan growth, and careful expense control to guide results, while credit discipline and funding optimization remain priorities.

• Loan growth opportunities: Management targets mid-single-digit loan growth, supported by a robust pipeline across multiple verticals. Eccher noted that strong production in the fourth quarter and early 2026 positions the bank well, though runoff in legacy portfolios will remain a headwind.
• Margin and funding mix: Adams expects net interest margin to hold near current levels, with further improvements reliant on completing the transition away from higher-cost brokered deposits. The funding mix will be closely managed as wholesale funding is replaced by core deposits over time.
• Expense and credit risk management: Expense growth is anticipated to remain moderate, with inflationary pressures in benefits partially offset by cost saves from prior integrations and branch closures. Management remains vigilant on credit risk—particularly in Powersports—expecting elevated but manageable charge-offs while monitoring classified and special mention loan trends.

Catalysts in Upcoming Quarters

In the coming quarters, our analysts will be monitoring (1) the pace of core deposit replacement as brokered funding continues to run off, (2) the trajectory of net charge-offs and contribution margins within the Powersports portfolio, and (3) the ability to sustain mid-single-digit loan growth against the backdrop of legacy portfolio runoff. Execution on expense control initiatives and early signs of asset quality improvement will also be closely watched.

Old Second Bancorp currently trades at $19.68, down from $21.47 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free).

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