Old Second Bancorp’s Q1 Report: A Fortress of Liquidity and Credit Discipline

Old Second Bancorp (OSBC) just dropped a Q1 earnings report that’s screaming “buy” for value investors. This regional bank isn’t just standing firm—it’s building a moat around its liquidity and credit quality. Let’s dig into the numbers and see why this could be a top pick for 2025.

Liquidity: A Rock-Solid Foundation

The first thing that leaps off the page is Old Second’s loan-to-deposit ratio of 89%—a number that’s held steady quarter-over-quarter. This means deposits are more than keeping pace with loans, reducing reliance on costlier borrowings. But wait, there’s more: deposits themselves are growing at a 2.1% annualized rate, with noninterest-bearing deposits making up 23% of core deposits. These are the “free money” accounts that fuel low-cost funding.

And here’s the kicker: the bank’s CET1 capital ratio hit 11.62%, up 86 basis points from last year. That’s not just a buffer—it’s a fortress. Add in $1.7 billion in expected cash flows from its investment portfolio over the next 12 months, and you’ve got a liquidity machine.

Credit Quality: Prudent, Predictable, and Improving

Old Second isn’t just strong on the liquidity front—it’s cleaning up its credit ledger. The nonperforming loan (NPL) ratio dipped to 0.9%, a far cry from the 1.6% it reported a year ago. Sure, there’s a slight uptick from Q4’s 0.8%, but management blames that on two specific commercial loans, not systemic rot.

The real star here is the allowance for credit losses (ACL), which sits at 116 basis points of total loans. When you add in discounts on acquired loans, total reserves hit 150 basis points—a level that would make even the most risk-averse investor smile. Net charge-offs? A meager 24 basis points, with delinquency ratios improving.

The Bremer Bank Deal: A Game-Changer

Old Second’s pending acquisition of Bremer Bank, set to close in May, isn’t just about size—it’s about optionality. The deal will boost deposits and diversify funding sources, but here’s the twist: stronger-than-expected capital levels mean Old Second can cut planned commercial real estate loan sales by $2.4 billion. Translation? More loans on the books generating interest income.

The Bull Case: Why This Is a Buy Now

Let’s break it down:
- Liquidity Strength: A loan-to-deposit ratio under 90%, robust capital, and minimal brokered deposits (just 3.8%) mean Old Second can weather any storm.
- Credit Prudence: ACLs at 150 basis points, combined with disciplined underwriting, suggest minimal surprises.
- Strategic Flexibility: Post-Bremer, the bank can pivot from CRE sales to organic growth, boosting net interest income.

Old Second’s tangible book value per share rose 15% year-over-year to $12.88, a sign that equity is growing—and that’s before the Bremer deal closes.

The Bear Case? There’s Little Here

Critics might point to the slight NPL uptick or the Fed’s potential rate cuts squeezing margins. But Old Second’s deposit beta of 37% (vs. industry averages north of 50%) means it can keep costs low even as rates drop. Plus, with $1.7 billion in liquid investments, it’s ready for anything.

Conclusion: A Bank Built to Last

Old Second Bancorp’s Q1 report isn’t just a win—it’s a blueprint for stability in a volatile market. With liquidity metrics at rock-solid levels, credit reserves bulging to 150 basis points, and a strategic acquisition that adds both scale and flexibility, this is a bank that’s insulated from the worst of economic headwinds.

The numbers don’t lie: CET1 at 11.62%, deposit growth outpacing loans, and NPLs halved year-over-year make OSBC a standout in the regional banking sector. This isn’t just a “hold”—it’s a buy for investors looking to park cash in a financial fortress.

In a market where fear sells, Old Second is proof that discipline and foresight still win.