Breaking Down Old Second Bancorp, Inc. (OSBC) Financial Health: Key Insights for Investors

You're looking at Old Second Bancorp, Inc. (OSBC) and seeing a confusing picture: a GAAP net income of just $9.9 million for Q3 2025, a steep drop from the prior quarter, but don't let that headline number scare you away from the underlying strength. The acquisition of Bancorp Financial on July 1st created a lot of one-time accounting noise, but the adjusted net income tells the real story, climbing to a healthy $28.4 million for the quarter. This strategic move immediately bulked up the balance sheet, pushing total loans to $5.27 billion as of September 30, 2025, an increase of $1.27 billion driven by the acquired portfolio. Plus, the Net Interest Margin (NIM)-the core measure of a bank's lending profitability-expanded to a strong 5.05%, up 20 basis points from the previous quarter. The core business is defintely working. We need to break down how OSBC is managing this post-merger integration, because the near-term risks in their new powersport loan segment are real, but the opportunity for long-term earnings accretion is significant.

Revenue Analysis

You need to know where Old Second Bancorp, Inc. (OSBC) is actually making its money, and the direct takeaway here is that their revenue is heavily concentrated in traditional banking activities, but the recent acquisition has been a major tailwind. For the third quarter of 2025, the company reported total revenue of $95.88 million, driven primarily by a significant jump in interest income.

The primary revenue source for Old Second Bancorp, Inc. (OSBC) is, unsurprisingly for a bank, Net Interest and Dividend Income (NII). This is the profit from lending money versus the cost of funding those loans, like paying interest on deposits. Noninterest Income, which includes fees and service charges, makes up the rest, but it's a smaller, defintely growing piece of the pie.

Here's the quick math on the Q3 2025 revenue mix, which clearly shows the dominance of NII:

Growth Rate and Acquisition Impact

The year-over-year revenue growth rate is striking, but you have to look past the headline number to see the real story. Total revenue for Q3 2025 increased by a massive 34.7% compared to the same quarter last year. That's not organic growth alone; it's largely due to the strategic acquisition of Bancorp Financial, Inc. (and its subsidiary, Evergreen Bank Group), which closed on July 1, 2025.

This acquisition is the significant change in revenue streams. Net Interest and Dividend Income jumped 36.6% year-over-year, and Noninterest Income rose 23.9%. The acquisition boosted interest-earning assets, including loans, which directly feeds the NII line. This kind of inorganic growth is a clear action to scale quickly in the Midwest banking market. If you want to dive deeper into who is betting on this strategy, you should check out Exploring Old Second Bancorp, Inc. (OSBC) Investor Profile: Who's Buying and Why?

Noninterest Income Breakdown

While Net Interest Income is the engine, the Noninterest Income segment provides diversification and stability. It's important to see where those fees are coming from, as they are less sensitive to interest rate fluctuations. In Q3 2025, noninterest income was $13.1 million, with the following key segments contributing:

• Wealth management fees were $3.52 million.
• Card related income brought in $2.74 million.
• Service charges on deposits totaled $2.92 million.
• Net gain on sales of mortgage loans was $0.62 million.

The consensus estimate for the full 2025 fiscal year revenue is approximately $332.1 million, which suggests a strong final quarter is expected to round out the year. This steady fee income, plus the new scale from the acquisition, puts Old Second Bancorp, Inc. (OSBC) in a solid position, even if the net interest margin (NIM) starts to compress in a shifting rate environment. One strong quarter doesn't make a year, but it sets the pace.

Profitability Metrics

You want to know if Old Second Bancorp, Inc. (OSBC) is making money efficiently, especially after the Bancorp Financial acquisition in Q3 2025. The direct takeaway is this: OSBC's core profitability, measured by its pre-provision net revenue (PPNR) margin, is strong and generally outperforms the regional bank average, but the Q3 GAAP net income was temporarily hit hard by acquisition-related costs.

For a bank, we look at Total Revenue (Net Interest Income plus Noninterest Income) as the proxy for Gross Profit, and Pre-Provision Net Revenue (PPNR) as the Operating Profit-it shows core earnings power before setting aside money for potential loan losses (provision) and taxes. This is a crucial distinction right now.

• Q2 2025 Adjusted Net Profit Margin: A very healthy 30.4%.
• Q3 2025 Adjusted Net Profit Margin: A strong 29.6%, showing core profitability held up post-merger.
• Q3 2025 GAAP Net Profit Margin: A low 10.3%, due to one-time costs.

Margin Trends and Core Earnings Power

The trend in core profitability is generally positive, but the Q3 2025 GAAP (Generally Accepted Accounting Principles) figures are distorted by the merger. Old Second Bancorp, Inc.'s GAAP net income was $21.8 million in Q2 2025, but dropped to $9.9 million in Q3 2025. This drop was primarily due to a significant $13.2 million day-two provision for credit losses and $11.5 million in transaction-related expenses tied to the Bancorp Financial acquisition.

Here's the quick math on core operating strength, using Pre-Provision Net Revenue (PPNR) as your operating profit proxy, which strips out those volatile loan loss provisions and taxes:

The jump in Total Revenue in Q3 to $95.9 million is a direct result of the acquisition, which is a good sign for future scale. The PPNR Margin dipping to 34.1% in Q3 is a temporary reflection of the immediate increase in noninterest expense to $63.2 million before cost synergies are fully realized. You should focus on the $32.7 million in PPNR, which is the highest of the year, showing the combined entity's increased earning power.

Operational Efficiency and Industry Comparison

Old Second Bancorp, Inc. demonstrates superior operational efficiency and profitability compared to industry benchmarks, especially when you look at the adjusted numbers. The Efficiency Ratio (Noninterest Expense as a percentage of Total Revenue) is a key measure of cost management; lower is better. The industry average for FDIC-insured institutions in Q1 2025 was around 56.2%.

Compare that to Old Second Bancorp, Inc.'s performance:

• Q2 2025 Efficiency Ratio: A very healthy 55.99% (GAAP).
• Q3 2025 Efficiency Ratio: 52.1% (Adjusted, excluding acquisition costs).

The adjusted 52.1% efficiency ratio in Q3 is excellent and well below the industry average, indicating disciplined operating efficiency even as the company integrates a major acquisition. The Q2 Return on Average Assets (ROA), a measure of net profit per dollar of assets, was 1.53%. This significantly outpaced the aggregate US banking industry ROA of 1.16% in Q1 2025. This is a defintely strong performance. For more on the strategic rationale behind this growth, you can review the Mission Statement, Vision, & Core Values of Old Second Bancorp, Inc. (OSBC).

What this estimate hides is the potential for Q4 2025 to show a cleaner, higher net profit margin as the one-time acquisition costs are fully absorbed and the new, larger revenue base takes hold. The core engine is running hot, but the credit provision and transaction costs were a one-time drag on the bottom line. Finance: track the Q4 2025 Adjusted Net Income closely for the final profitability picture.

Debt vs. Equity Structure

You need to know how Old Second Bancorp, Inc. (OSBC) funds its growth, and the short answer is that they lean on deposits, but their recent capital moves show a smart balance between debt and equity. As a bank, its balance sheet is naturally liability-heavy because customer deposits are liabilities, but the real test of financial health lies in its core debt and capital ratios.

The company's capital position remains strong following its major acquisition in the third quarter of 2025. Old Second Bancorp, Inc.'s Common Equity Tier 1 (CET1) ratio-a key measure of a bank's ability to withstand financial stress-stood at a healthy 12.44% as of September 30, 2025. This is a strong figure, especially when you compare it to the weighted average Tier 1 leverage ratio for US regional banks, which was around 10.11% as of June 30, 2025.

Balancing Debt and Capital Post-Acquisition

The July 1, 2025, acquisition of Bancorp Financial was a textbook example of balancing debt and equity to finance a deal. The company used a significant equity component, issuing 7.9 million common shares to the acquired shareholders, which provided $140.5 million of fresh capital. This move immediately boosts the equity side of the balance sheet, helping to absorb the new assets and liabilities from the merger.

On the debt side, the acquisition and subsequent balance sheet management led to a clear shift in borrowings. As of September 30, 2025, the company reported $165.0 million in new other short-term borrowings, primarily short-term Federal Home Loan Bank (FHLB) advances, compared to zero short-term borrowings just a quarter earlier. Additionally, the long-term debt structure was impacted by $15.0 million of long-term FHLB advances assumed with the acquired entity. Here's the quick math on their core borrowings:

• Short-Term FHLB Advances: $165.0 million
• Long-Term FHLB Advances: $15.0 million
• Total Core Borrowings: $180.0 million

This mix shows a willingness to use short-term debt for immediate liquidity needs, while simultaneously bolstering long-term capital with a substantial equity issuance. To be fair, the company is also looking ahead; management noted a subordinated debt issue they plan to address in 2026, which is a common form of long-term, regulatory-friendly bank debt.

The Real Leverage Metric: Capital Ratios

For a bank, the traditional debt-to-equity ratio (Total Liabilities / Shareholders' Equity) is high because deposits-which hit $5.76 billion at September 30, 2025-are technically liabilities. Instead of that abstract number, focus on the CET1 ratio of 12.44%. This tells you that Old Second Bancorp, Inc. has a deep capital cushion, well above regulatory minimums and ahead of the regional bank average. It means they have a defintely solid buffer to handle loan losses or economic downturns, which is what matters most in banking. If you want to dive deeper into who's driving these capital decisions, you should check out Exploring Old Second Bancorp, Inc. (OSBC) Investor Profile: Who's Buying and Why?

Liquidity and Solvency

You need to know if Old Second Bancorp, Inc. (OSBC) can cover its near-term obligations, and for a bank, that means looking beyond the typical corporate liquidity metrics. The headline current and quick ratios look high, but the real story is in the composition of its balance sheet and cash flow, especially following the July 1, 2025, acquisition of Bancorp Financial.

Here's the quick math on the most recent trailing twelve months (TTM) data, which shows a strong theoretical liquidity position, though these traditional ratios are often less relevant for a financial institution like Old Second Bancorp, Inc. (OSBC).

The current ratio (current assets divided by current liabilities) of 6.73 and the quick ratio (a stricter measure) of 6.73 are both very high. This suggests exceptional short-term coverage, but for a bank, a more meaningful measure is the asset quality and the Exploring Old Second Bancorp, Inc. (OSBC) Investor Profile: Who's Buying and Why? of its loan book. The true test of liquidity is the ability to meet deposit withdrawals and fund loan growth.

Working Capital and Balance Sheet Health

Working capital trends for a bank are better analyzed through its loan-to-deposit ratio and the sheer volume of liquid assets. As of the second quarter of 2025, Old Second Bancorp, Inc. (OSBC) reported a strong loan-to-deposit ratio of 83%. This means the bank is not overly reliant on wholesale funding and is primarily funding its loans with stable customer deposits. Plus, its cash and marketable securities were in excess of 23% of total assets at the end of Q2 2025, which is a significant buffer. The total cash reported most recently was $120.88 million. That's a defintely solid cushion.

Cash Flow Statement Overview

The cash flow statement for Old Second Bancorp, Inc. (OSBC) for the trailing twelve months (TTM) shows a clear picture of its operations and growth strategy, heavily influenced by the 2025 acquisition. The primary cash flow movements are:

• Operating Cash Flow: $102.02 million TTM. This positive figure shows the core banking business is generating a healthy amount of cash from its day-to-day activities.
• Investing Cash Flow: $337.67 million TTM. This large positive figure is unusual for a bank and is likely driven by the sale of securities or other assets to fund the Bancorp Financial acquisition, or a significant decrease in lending activities.
• Financing Cash Flow: While a specific TTM figure isn't provided, the acquisition and the declaration of a $0.07 per share cash dividend in Q3 2025 indicate active management of financing and capital allocation.

The TTM free cash flow, reported as a negative $-1.35 for Q3 2025, suggests that the capital expenditures and dividend payments slightly outpaced the cash generated from operations, likely due to the integration costs and capital deployment associated with the Bancorp Financial deal. The acquisition, which closed in July 2025, caused a significant jump in noninterest expense and provision for credit losses in Q3 2025, which temporarily pressured net income and, consequently, cash flow. The liquidity position is strong, but the near-term cash flow is being actively managed to integrate the new business.

Valuation Analysis

You're looking at Old Second Bancorp, Inc. (OSBC) and wondering if the market has it right. The direct takeaway is that, based on key metrics, Old Second Bancorp, Inc. (OSBC) appears to be undervalued compared to its peers and its own historical fair value, especially when looking at the analyst consensus and forward-looking earnings.

As a seasoned analyst, I see a classic regional bank story: solid book value but a stock price that has been a bit flat. The stock's closing price as of November 17, 2025, was $17.67. Over the last 52 weeks, the stock price has actually decreased by -3.30%, which is a headwind, but it also means the valuation multiple is attractive right now. The 52-week range tells the story of volatility, with a high of $19.46 and a low of $14.14.

Decoding Valuation Multiples: P/E and P/B

When you break down the core valuation ratios, Old Second Bancorp, Inc. (OSBC) looks cheap. The trailing price-to-earnings (P/E) ratio is 11.82, which is the current stock price divided by the last four quarters of earnings per share. More importantly, the forward P/E, which uses the expected earnings for the coming year, drops to just 9.60. This suggests the market hasn't fully priced in the expected earnings growth, a clear sign of potential undervaluation.

For a bank, the price-to-book (P/B) ratio is defintely critical; it compares the stock price to the company's net asset value. As of the second quarter of 2025, Old Second Bancorp, Inc. (OSBC)'s P/B ratio stood at 1.15, based on a book value per share of $15.95. This means you are paying only $1.15 for every dollar of the company's net assets, which is a reasonable entry point for a healthy regional bank.

Dividend and Analyst Sentiment

The dividend profile is stable and conservative, which is what you want in a bank. Old Second Bancorp, Inc. (OSBC) offers an annual dividend of $0.28 per share, resulting in a dividend yield of 1.57%. The payout ratio-the percentage of earnings paid out as dividends-is very low at 16.92%. This low ratio means the dividend is well-covered and there's plenty of room to reinvest capital back into the business or increase the payout later. It's a sign of financial strength.

Wall Street is also on your side here. The analyst consensus on Old Second Bancorp, Inc. (OSBC) is a clear Buy. The average 12-month price target from analysts is $21.63, which suggests an upside of over 21% from the recent trading price. That's a strong vote of confidence from the professional community, particularly after the Q3 2025 earnings beat. If you want to dig deeper into who is buying, check out Exploring Old Second Bancorp, Inc. (OSBC) Investor Profile: Who's Buying and Why?

• Analyst consensus is a strong Buy.
• Average 12-month price target is $21.63.
• Implied upside is over 21%.

Here's the quick math: if the stock simply hits the analyst target of $21.63, you're looking at a solid return, plus the dividend yield. The low P/E and P/B ratios, combined with a 'Buy' rating, point to a stock that is currently mispriced, presenting an opportunity for a value-oriented investor.

Risk Factors

You need to know the near-term risks for Old Second Bancorp, Inc. (OSBC) are primarily centered on credit quality deterioration in specific loan segments and the financial drag of integrating a major acquisition. The core takeaway is that while the Bancorp Financial acquisition grew the balance sheet, it also introduced significant, immediate credit and operational costs that compressed Q3 2025 net income.

The external risks are the usual suspects for a regional bank: interest rate volatility and the specter of a consumer recession. Honesty, the biggest internal risk right now is executing the integration of Bancorp Financial, which closed on July 1, 2025, without further earnings disruption.

Near-Term Credit and Acquisition Risks

The most immediate financial pressure comes from credit quality, specifically in their specialty lending. Old Second Bancorp, Inc. recorded a net provision for credit losses of $19.7 million in the third quarter of 2025. Here's the quick math: that's a massive jump from the $2.5 million recorded in the prior quarter, and it's a clear signal of rising risk.

This spike was driven by two main factors. First, a $13.2 million day-two provision for credit losses was recorded on non-PCD (Purchased Credit Deteriorated) loans from the Bancorp Financial acquisition. Second, there was a $6.5 million increase in provision expense related to organic loan growth and charge-offs, particularly in the powersports and lease segments. That's a defintely a segment to watch.

• Nonperforming loans hit $48.0 million at September 30, 2025.
• This represents 0.9% of total loans, up from 0.8% at June 30, 2025.
• The provision expense increase in Q3 2025 was $17.2 million compared to Q2 2025.

Operational and Financial Headwinds

The Bancorp Financial acquisition, while strategically important for scale, created significant noise in the Q3 2025 financials. Net income dropped sharply to $9.9 million, down from $21.8 million in Q2 2025. This decrease was largely due to two things:

• A $10.3 million increase in interest expense, driven by higher deposit and borrowing balances from the acquired entity.
• Noninterest expense soared to $63.2 million, a 45.5% increase from the prior quarter, due to transaction-related expenses.

What this estimate hides is the one-time nature of some of these costs. Adjusted net income, which strips out these items, was actually stronger at $28.4 million for Q3 2025. Still, the integration risk remains, and the company has to prove it can realize the expected synergies (cost savings and revenue growth) from the merger.

Mitigation and Forward Strategy

Old Second Bancorp, Inc. is taking clear actions to manage these risks and position itself for the future. The primary mitigation for credit risk is the substantial increase in the allowance for credit losses (ACL) on loans, which rose to $75 million, or 1.43% of total loans, at September 30, 2025. This cushion helps absorb future losses.

Strategically, management is focused on capital allocation and growth. They are guiding for low single-digit organic loan growth for the full year 2025, aiming for stable net interest margins (NIM). They are also actively exploring deposit-focused merger and acquisition (M&A) opportunities, which would help lower their cost of funds and address the interest expense pressure. For a deeper dive into the bank's overall financial picture, you can read more here: Breaking Down Old Second Bancorp, Inc. (OSBC) Financial Health: Key Insights for Investors.

Here is a snapshot of the Q3 2025 financial impact:

Growth Opportunities

You want to know where Old Second Bancorp, Inc. (OSBC) goes from here, especially after a busy 2025. The direct takeaway is this: the recent, large-scale acquisition has fundamentally changed the bank's size and competitive position in the Chicago market, and the financial estimates reflect that jump.

Acquisition-Fueled Scale and New Markets

The biggest growth driver for Old Second Bancorp, Inc. in 2025 was the strategic combination with Bancorp Financial, Inc. and its subsidiary, Evergreen Bank Group. This wasn't just a simple merger; it was a calculated move to gain scale and market share. The deal closed on July 1, 2025, and the systems integration was successfully completed in October 2025, which is defintely fast work.

This single action created the second largest community bank under $10 billion in assets in the competitive Chicago market. The pro forma balance sheet, as of March 31, 2025, shows a combined entity with approximately $6.98 billion in assets and $5.95 billion in deposits. Plus, the acquisition brought in a new, higher-yielding asset class: the powersport loan segment, which is a key product innovation that diversifies the loan portfolio and boosts interest income.

Future Revenue and Earnings Trajectory

Analysts are mapping out a solid path for the bank, largely on the back of this expanded footprint and the successful integration. The market expects the bank to outpace the industry. For the full 2025 fiscal year, the consensus estimates are clear:

• Consensus Revenue Estimate: $293.58 million
• Consensus Earnings Per Share (EPS) Estimate: $2.02

Here's the quick math: revenue is forecast to grow at an average of 7.8% per annum over the next two years, which is actually ahead of the 7.1% growth forecast for the broader Banks industry in the US. This is a growth story driven by inorganic expansion and the accretive nature of the acquired assets, which have already exceeded initial earnings accretion estimates.

Competitive Edge and Financial Strength

Old Second Bancorp, Inc. is positioned for sustained growth because it's starting from a place of financial strength and disciplined operations. The bank's conservative approach to risk is a major competitive advantage in a volatile environment. You can see this in the numbers:

The successful integration of Evergreen Bank Group's $1.4 billion in assets is projected to provide an internal rate of return of over 20% on the deployed excess capital. That's a powerful return on investment (ROI) that should continue to drive shareholder value and fund future strategic opportunities. The expansion has given them the scale to prioritize investments in technology and growth, which is critical for long-term competitiveness. You can read more about their underlying philosophy here: Mission Statement, Vision, & Core Values of Old Second Bancorp, Inc. (OSBC).