Old Second Bancorp's Q2 2025: Unraveling Contradictions in Margins, Expenses, and Growth Strategies

Margin sensitivity to interest rate changes, Evergreen acquisition impact on core expense run rate, loan growth expectations, bank's appetite for M&A, and expense growth targets are the key contradictions discussed in Old Second Bancorp, Inc.'s latest 2025Q2 earnings call.



Financial Performance and Margin Stability:
- Old Second Bancorp reported net income of $21.8 million or $0.48 per diluted share in Q2 2025, with a return on assets of 1.53%.
- Despite challenges from MSR mark-to-market losses and merger-related expenses, the company maintained margin stability, with the tax equivalent efficiency ratio at 54.54%.
- The stability was due to a strong net interest margin and effective cost management.

Loan Growth and Diversification:
- The company experienced an increase in total loans of $58.4 million during Q2 2025, driven by growth in construction and lease portfolios.
- Loan-to-deposit ratio increased to 83.3%, reflecting a strong deposit base.
- Growth was supported by a diversified loan portfolio and robust demand in certain sectors, such as leasing and commercial real estate.

Evergreen Bank Acquisition:
- The acquisition of Evergreen Bank was noted to be accretive, with Evergreen's performance exceeding initial expectations.
- The acquisition is anticipated to drive cost savings and earnings growth, with the company targeting slight increases in financial performance.
- This optimism is due to Evergreen's strong asset mix and better-than-expected profitability.

Capital Management and Share Repurchase:
- Old Second Bancorp added $1.78 to tangible book value over the last 12 months, reflecting strong capital performance.
- Subsequent to the quarter-end, the company repurchased 327,000 shares, indicating confidence in the stock's value.
- The capital position remains strong, and management continues to explore capital return opportunities.