Old Second Bancorp's Q3 2025 Performance: A High-Margin NII Model Underpins Growth Potential

In the third quarter of 2025, Old Second Bancorp demonstrated a compelling blend of revenue resilience and strategic execution, positioning itself as a standout player in a banking sector marked by divergent performances. While the broader industry navigated rising expenses and uneven profitability, Old Second's focus on expanding net interest income (NII) and improving capital efficiency has allowed it to outperform peers in key metrics, despite short-term headwinds from acquisition-related costs.

A High-Margin NII-Driven Model

Old Second's Q3 2025 net interest and dividend income surged to $82.8 million, a 28.9% increase from the prior quarter and a 36.6% jump year-over-year according to financial reports. This outperformance reflects the company's aggressive leveraging of a high-margin NII model, bolstered by a 20-basis-point expansion in its net interest margin to 5.05%. Such growth contrasts with the broader sector, where aggregate net income for U.S. banks rose by 13.5% quarter-on-quarter to $79.3 billion, driven largely by reduced provision expenses and large-scale acquisitions. Old Second's ability to grow NII independently of macroeconomic volatility underscores its disciplined balance sheet management and pricing power in loan portfolios.

Efficiency Ratio: A Temporary Drag

Despite its NII strength, Old Second's tax-equivalent efficiency ratio of 64.46% according to earnings data lags behind the industry average of 61.2% for major U.S. banks in Q3 2025 according to market intelligence research. This gap is attributable to one-time acquisition costs from the Evergreen Bank Group, which inflated noninterest expenses to $63.2 million-a 45.5% increase from the prior quarter. However, the company's tangible equity ratio of 10.41% according to earnings call transcripts and stable return on average tangible common equity (6.16%) according to earnings data suggest that these costs are being absorbed without compromising long-term profitability.. For context, Ameris Bancorp improved its efficiency ratio to 49.19% in Q3 2025, highlighting that Old Second's current ratio is not indicative of systemic inefficiency but rather a temporary drag from strategic expansion.

TBVPS Growth: A Vote of Confidence

Old Second's tangible book value per share (TBVPS) increased during the quarter despite acquisition costs according to earnings data, a feat that aligns with the performance of top-tier regional banks like Fifth Third Bancorp (FITB), which reported a 7.3% year-on-year TBVPS rise to $21.66. While Old Second's TBVPS growth figures are not explicitly quantified in its disclosures, the company's ability to maintain equity value amid elevated expenses signals strong capital management. This is critical in a sector where TBVPS growth has become a proxy for shareholder value creation, particularly as investors increasingly favor banks with resilient capital structures.

Strategic Positioning in a Fragmented Sector

Old Second's performance highlights a broader trend: regional banks that prioritize NII expansion and disciplined cost management are outpacing peers reliant on fee income or asset-light models. The company's 6.16% return on average tangible common equity exceeds the sector's 1.27% return on assets (ROA) according to quarterly banking profiles, underscoring its superior capital allocation. Meanwhile, its 5.05% net interest margin outpaces the industry average, which remains constrained by competitive pressures in lower-yielding markets.

Conclusion: A Buy for Long-Term Investors

While Old Second's efficiency ratio currently trails the sector average, its Q3 2025 results demonstrate that the company is executing a high-margin NII strategy with long-term durability. The acquisition-related costs are likely transitory, and the TBVPS growth-mirroring the trajectory of top-performing peers like FITB-suggests that the company is building equity value for shareholders. For investors seeking exposure to a regional bank with a clear strategic vision and operational resilience, Old Second Bancorp presents a compelling case.