Old Second Bancorp, Inc. (OSBC): PESTLE Analysis [Nov-2025 Updated]

You need a clear picture of the external pressures on Old Second Bancorp, Inc. (OSBC) right now, and the landscape is definitely complex, balancing regulatory tightening against slowing loan demand projected amid a 1.8% US GDP growth forecast for 2025. As your analyst, I've distilled the Political, Economic, Sociological, Technological, Legal, and Environmental factors-the PESTLE view-into actionable insights so you can see exactly where the next big credit risk or growth opportunity for OSBC is hiding. Keep reading to see the specific forces shaping their strategy.

Old Second Bancorp, Inc. (OSBC) - PESTLE Analysis: Political factors

Increased regulatory scrutiny on regional banks post-2023 failures, impacting capital requirements.

The political fallout from the 2023 bank failures, like Silicon Valley Bank, has defintely increased regulatory scrutiny across the entire banking sector, even for institutions below the $100 billion asset threshold. While the most stringent new rules, such as the proposed long-term debt requirements, primarily target banks with over $100 billion in assets, the general supervisory tone from the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) is stricter.

Old Second Bancorp, Inc. (OSBC), with approximately $5.7 billion in assets as of June 30, 2025, is not directly subject to the highest-tier capital hikes. However, the regulatory pressure still influences operational costs and strategic decisions, particularly around mergers and acquisitions. The good news is that OSBC maintains a strong capital buffer, which provides a significant political and financial cushion.

Here's the quick math on OSBC's capital strength as of the second quarter of 2025:

Maintaining a CET1 ratio of 13.77% is well above the minimum, which helps mitigate political risk by signaling financial stability to regulators and the market. This strong position allowed the company to deploy excess capital for the Bancorp Financial acquisition, which closed in the third quarter of 2025.

Federal Reserve interest rate policy creates uncertainty for Net Interest Margin (NIM).

The Federal Reserve's (Fed) interest rate policy remains the single largest political-economic factor influencing OSBC's profitability. The Fed held the target range for the Fed funds rate steady at 4.5% for much of 2025, but the political and economic debate around future cuts creates volatility for the Net Interest Margin (NIM).

The Fed's Summary of Economic Projections (SEP) in mid-2025 indicated a median dot plot pointing to additional rate cuts, with some forecasts suggesting a total of 50 basis points of cuts before the end of the year. This anticipated easing cycle puts pressure on NIM, as the yield on new loans will decrease faster than the cost of deposits, which have become stickier.

For OSBC, the NIM was already showing signs of this pressure in the second quarter of 2025, decreasing by 3 basis points compared to the prior linked quarter, despite improving 22 basis points year-over-year. The political uncertainty around the timing and magnitude of future cuts makes balance sheet optimization a constant challenge.

Potential for new federal administration to shift Consumer Financial Protection Bureau (CFPB) enforcement focus.

The Consumer Financial Protection Bureau (CFPB) has undergone a significant shift in its supervision and enforcement priorities in 2025, which directly impacts a consumer-facing bank like Old Second Bancorp, Inc. The new administration's focus is on reducing the regulatory burden while targeting specific, measurable consumer harms.

The key changes in the CFPB's 2025 priorities are clear:

• Reduce the overall number of supervisory exams by 50%.
• Shift supervision focus back to depository institutions (banks) from non-banks.
• Prioritize cases involving actual fraud and tangible harm to consumers.
• Focus on getting money back to consumers (redress) rather than imposing penalties to fill the Bureau's fund.

This shift means that while the total number of regulatory events may decrease, the focus on depository institutions increases the risk of targeted enforcement actions for OSBC in areas like mortgage origination, fraudulent overcharges, and data furnishing violations under the Fair Credit Reporting Act (FCRA). The bank must ensure its compliance framework is exceptionally strong in these specific areas, especially with the integration of the acquired Bancorp Financial operations.

Illinois state politics influence local economic development and tax incentives for businesses.

As a bank headquartered in Aurora, Illinois, OSBC's commercial lending and overall business environment are heavily influenced by state politics and economic development policy. The Illinois state government, under Governor JB Pritzker, passed the 2026 budget bill (HB2755) in mid-2025, which includes significant tax incentives aimed at boosting local business activity-a positive for OSBC's client base.

The new and expanded tax credits create a more favorable environment for commercial loan demand, particularly in the manufacturing and development sectors. The key programs include:

• Advancing Innovative Manufacturing (AIM) Tax Credit: A new, non-refundable credit for manufacturers making capital investments of $10 million or more. The credit tiers range from 3% to 7% of the total investment, which encourages large-scale projects that may require commercial financing from banks like OSBC.
• Economic Development for a Growing Economy (EDGE) Tax Credit: This program, which provides corporate tax credits for job creation and capital investment, was expanded. It now offers a credit of up to 75% of the income tax withholdings of new jobs created in an underserved area.

These incentives, coupled with an historic investment of $500 million for site readiness initiatives, signal a political commitment to fueling business growth. This translates directly into a stronger pipeline for OSBC's commercial and industrial (C&I) lending division, which is a core part of its strategy.

Old Second Second Bancorp, Inc. (OSBC) - PESTLE Analysis: Economic factors

The economic environment for Old Second Bancorp, Inc. in 2025 is defined by a slowing growth backdrop that pressures loan volume while rising funding costs squeeze the Net Interest Margin (NIM). You need to watch your CRE book closely as operating expenses continue to climb.

It's a tightrope walk for regional banks right now.

Projected US GDP growth of 1.8% for 2025 slows loan demand in core markets

You are facing a noticeable deceleration in overall economic activity, with the consensus projection for full-year 2025 US real GDP growth settling around 1.8%, down from the prior year's pace. This slower growth directly translates to softer demand for new credit across your primary markets in Illinois. When the economy sputters, businesses delay expansion plans, and consumers become more cautious about taking on new debt, which directly impacts your loan origination pipeline.

Here's what that slower growth means for your balance sheet:

• Loan demand softens across commercial and consumer segments.
• Slower GDP growth constrains potential loan portfolio expansion.
• Credit quality stress could emerge later if unemployment ticks up.

What this estimate hides is the regional variation; some of your specific suburban markets might still see modest growth, but the national trend dictates caution.

Net Interest Margin (NIM) compression risk as deposit costs rise to 3.50% in 2025

This is where the pressure really mounts on your profitability. Even if the Federal Reserve has paused rate hikes, or even started cutting, the cost of your funding-your deposits-is still repricing upward. We are looking at a scenario where the average cost of deposits for institutions like Old Second Bancorp, Inc. could hit 3.50% this year due to intense competition for sticky, core funding. Remember, your Q2 2025 tax-equivalent NIM was a very healthy 4.85%, but if deposit costs climb faster than asset yields reprice, that margin compresses fast.

We need to track the speed of deposit beta-how much of the Fed's rate changes pass through to your depositors.

The key dynamic is the lag:

• Deposit rates lag on the way up, but often lead on the way down.
• Higher funding costs directly erode Net Interest Income (NII).
• Maintaining a low cost of funds is your primary defense.

Commercial Real Estate (CRE) exposure remains a key credit risk, especially in office and retail sectors

The CRE sector is the elephant in the room for many regional banks, and Old Second Bancorp, Inc. is no exception. While you managed to bring your exposure down to 273.3% of Tier 1 capital plus allowance for credit losses at the end of 2024, the underlying asset values, particularly in older office buildings and certain retail segments, are still under stress. You need to be rigorous with your underwriting and stress testing on these specific sub-sectors.

The risk isn't just in the loan balance; it's in the collateral value upon maturity or default.

Key CRE Risk Metrics to Monitor:

The Q3 2025 increase in nonaccrual loans, driven partly by one commercial real estate investor relationship, shows this risk is active, not just theoretical.

Inflationary pressures continue to drive up operating expenses, constraining efficiency ratios

Even with inflation cooling, the stickiness of wage growth and general service costs means your noninterest expenses are climbing. You reported a noninterest expense of $63.2 million in Q3 2025, a significant jump from $39.3 million in Q3 2024, partly due to the acquisition, but underlying cost inflation is real. This rising expense base makes hitting that excellent 55.99% efficiency ratio you saw in Q2 2025 much harder to maintain throughout the fiscal year.

You have to squeeze every dollar of efficiency out of the combined entity.

Actions to counter expense creep:

• Aggressively pursue post-merger cost synergies.
• Automate routine compliance and back-office tasks.
• Control non-essential technology spending.

If onboarding and integration delays persist past 14 days, the expected cost savings from the Bancorp Financial merger will definitely be harder to realize on schedule.

Finance: draft 13-week cash view by Friday.

Old Second Bancorp, Inc. (OSBC) - PESTLE Analysis: Social factors

You're looking at how people's habits and the makeup of your customer base are changing, and honestly, it's driving a lot of the hard decisions in banking right now. For Old Second Bancorp, Inc., this means balancing the need to be digitally slick with the reality of serving a geographically shifting, yet locally focused, customer base.

Growing customer demand for seamless digital banking experiences over traditional branch visits

The shift is undeniable; customers want banking in their pocket, not in a line. In the US as of 2025, a significant 77 percent of consumers prefer managing their accounts through a mobile app or a computer. This isn't just a preference for younger folks; even with that, the sheer volume of mobile transactions is projected to top $796.68 billion this year alone. If you're still pushing paper, you're fighting a losing battle on convenience, and you're missing out on the 20% to 40% cost savings that digital tools offer banks. We need to make sure our digital offering is top-tier, or we risk losing customers who see a better experience elsewhere.

Here's the quick math: if 80% of millennials demand digital, and they are a huge segment of future wealth builders, our app experience is now a core product feature, not just a nice-to-have.

Demographic shift in the Chicago collar counties requires tailored wealth management and mortgage products

The population map around Chicago is redrawing itself, and Old Second Bancorp, Inc. needs to follow. Historically, people moved out to the collar counties (like DuPage, Kane, and Will) from Cook County. While Cook County still holds about 61 percent of the metro population, around 5.2 million people as of 2022 estimates, the overall metro area is seeing growth driven by migration. This means the suburban customer base is maturing, likely requiring more sophisticated wealth management services and larger, perhaps more complex, mortgage products than a purely urban or rural focus would suggest. What this estimate hides is the age of those moving; we need data on the median age in Kendall County versus the city to truly tailor offerings.

Increased focus on local community reinvestment and Environmental, Social, and Governance (ESG) mandates

Community focus remains crucial, especially for a bank like Old Second Bancorp, Inc. that operates regionally. Your recent overall outstanding rating on the Community Reinvestment Act (CRA) evaluation is a huge asset, showing regulators you are meeting local credit needs. Plus, the recent integration of Bancorp Financial and welcoming Evergreen Bank customers in October 2025 means you've expanded your footprint and, therefore, your CRA obligations. Customers and stakeholders are watching ESG more closely now; they want to see tangible investment in the communities you serve, not just compliance checkboxes. We need to quantify our 2025 community investment dollars to back up that outstanding rating.

Talent wars for skilled technology and compliance professionals drive up wage costs

This is where the rubber meets the road on your digital strategy-you can't build great tech or navigate complex regulations without the right people, and they are expensive. While the general salary increase for the Financial Activities Industry cooled to a projected 3.8 percent merit budget for 2025, specialized roles are a different story. Mid-career compliance analysts could see raises between 8 percent and 12 percent, and senior tech roles demanding AI or cloud skills are commanding premiums of +10-15 percent on top of the average tech salary of $112,521 in 2025. If onboarding takes 14+ days, churn risk rises because those top performers have multiple offers waiting. We are defintely paying a premium to keep our tech and compliance teams fully staffed.

Here is a snapshot of the social pressures impacting Old Second Bancorp, Inc. staffing and customer expectations in 2025:

Finance: draft 13-week cash view by Friday.

Old Second Bancorp, Inc. (OSBC) - PESTLE Analysis: Technological factors

You're looking at a technology landscape that is moving faster than ever, and for a bank like Old Second Bancorp, Inc., keeping pace isn't optional-it's survival. The core challenge is balancing the cost of catching up with the risk of falling behind the fintechs and larger players. We need to think about technology not as a cost center, but as the engine for future revenue and security.

Need for significant investment in Artificial Intelligence (AI) for fraud detection and process automation

The threat landscape is evolving, and frankly, old rules-based systems just can't cut it anymore. Fraudsters are using AI to create hyper-realistic scams, meaning your defenses must be smarter. Industry-wide, 90% of financial institutions are now using AI to speed up fraud investigations and spot new tactics in real-time. For Old Second Bancorp, Inc., this means moving beyond simple transaction monitoring to predictive analytics. Think about your Q1 2025 noninterest expense, which was $44.5 million; a significant portion of that needs to shift toward AI tools that can analyze behavior across all channels to reduce false positives, which can erode customer trust quickly. AI is the only way to keep up with AI-driven crime.

Accelerated adoption of mobile and online loan origination platforms to compete with fintechs

Customers expect the same speed from you that they get from a digital-only lender, and that means loan origination has to be seamless. We see this trend everywhere: about 46% of U.S. consumers used digital lending or finance apps in 2025. Plus, 72% of U.S. adults report using mobile banking apps as of 2025. If your mortgage or commercial loan application process still requires too much paper or too many in-person visits, you are losing business. The action here is clear: push hard on mobile-first platforms that automate underwriting and decisioning. Speed wins customers.

Cybersecurity spending is non-negotiable, projected to increase by 15% in 2025

This is the one area where you absolutely cannot pinch pennies. With threats escalating, especially those augmented by generative AI, a strong defense is the price of entry. While global security spending is projected to rise by about 12.2% in 2025, for a bank like Old Second Bancorp, Inc., given the required focus on resilience, a targeted increase of 15% in your cybersecurity budget for 2025 is the realistic floor. This money needs to go toward advanced tools like Security Web Gateways and better third-party risk management, not just patching old holes. It's about building digital resilience, not just checking a compliance box.

Here's a quick look at where that increased security spend should be focused, based on industry priorities:

Core system modernization is essential to reduce legacy infrastructure costs and improve data analytics

You are likely running on some older core systems, and honestly, they are killing your agility and your bottom line. Research suggests that banks often spend around 78% of their total IT budget just maintaining legacy core systems. That is money that isn't going toward better data analytics or new customer features. Modernizing to a cloud-native core can slash operational costs by 30-40% in the first year for some institutions, and it unlocks the real-time data needed for those AI fraud tools we just talked about. If onboarding takes 14+ days because of batch processing, churn risk rises.

The key benefits you need to target from modernization include:

• Reduce legacy infrastructure overhead costs.
• Improve data quality for better analytics.
• Increase operational efficiency by up to 45%.
• Enable faster product time-to-market.

Finance: draft 13-week cash view by Friday, specifically modeling the capital outlay required for a phased core modernization assessment.

Old Second Bancorp, Inc. (OSBC) - PESTLE Analysis: Legal factors

The legal landscape for Old Second Bancorp, Inc. is getting denser, especially with the recent merger closing in 3Q25. You need to watch regulatory scrutiny closely, as even a mid-sized bank like you, with pro forma assets around $7.1 billion following the Bancorp Financial, Inc. acquisition, is subject to intense focus on compliance hygiene. Honestly, the biggest risk here isn't a single massive lawsuit, but the cumulative cost of keeping up with all these rules.

Stricter enforcement of Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) compliance rules

Regulators continue to hammer on BSA/AML compliance, and this isn't slowing down in 2025. Your filings already note that deficiencies in your policies, procedures, or systems-or those of acquired entities like Evergreen Bank-can trigger serious liability, including fines or restrictions on your acquisition plans. Remember the Corporate Transparency Act (CTA) rules that FinCEN started rolling out? Those beneficial ownership disclosures mean your due diligence process has a whole new layer of required scrutiny. If onboarding takes 14+ days, churn risk rises, but if your KYC (Know Your Customer) process misses a CTA filing, regulatory risk spikes.

Here are the key compliance areas demanding your attention right now:

• Maintain robust KYC/CIP processes.
• Ensure third-party vendor oversight is tight.
• Stay current on CTA reporting requirements.
• Review SAR (Suspicious Activity Report) sharing protocols.

Data privacy regulations, like state-level consumer protection acts, increase compliance complexity

You're definitely dealing with a compliance headache from the states. In 2024, nine new states passed comprehensive data privacy laws, bringing the total to 21 states with such regulations taking effect or being enforced in 2025. This patchwork means your customer data handling must conform to multiple, sometimes conflicting, state-level consumer protection acts. You must adhere to the federal Gramm-Leach-Bliley Act (GLBA) requirements for providing annual privacy notices and maintaining a comprehensive information security program, but state laws like the California Privacy Rights Act (CPRA) can impose stricter rules, like those concerning sensitive data use. It's a constant balancing act.

Ongoing litigation risk related to loan servicing and foreclosure practices remains constant

Litigation risk is a persistent cost of doing business, and for Old Second Bancorp, Inc., it's concrete right now. You are facing a class action settlement hearing on August 1, 2025, regarding those 'APPSN Fees' (overdraft fees charged when an available balance was sufficient at authorization but not at posting). That hearing will determine if the settlement is approved. Furthermore, while the pace of new overdraft/NSF fee class actions has reportedly slowed in 2025, the legal theories-like those based on 'Available vs. Ledger Balance'-are still being tested in the broader industry. The acquisition also shifts your loan mix, increasing consumer lending exposure to about 21% of total loans pro forma, which brings its own set of servicing scrutiny risks.

Potential changes to the Dodd-Frank Act's $50 billion asset threshold for enhanced supervision

You are currently operating well below the historical $50 billion threshold for enhanced prudential standards (EPS) under Dodd-Frank, as your pro forma assets are around $7.1 billion. However, there is significant legislative noise in 2025 about resetting these static thresholds due to inflation. Some proposals floated in Congress suggest raising the supervisory threshold from $10 billion to $25 billion or even $50 billion. Here's the quick math: a $100 billion institution in the past is functionally equivalent to about $124 billion in 2025 dollars, making current markers outdated. If the threshold for enhanced supervision moves up, it could reduce regulatory burden for banks that grow into that range, but for now, you operate under existing rules, which are being tailored based on risk profile categories (I through IV).

Here is a snapshot of where Old Second Bancorp, Inc. stands relative to some key legal/regulatory benchmarks as of early 2025:

Finance: draft 13-week cash view by Friday.

Old Second Bancorp, Inc. (OSBC) - PESTLE Analysis: Environmental factors

You're looking at the environmental landscape for Old Second Bancorp, Inc. (OSBC) right now, and honestly, the regulatory picture just got a little less clear, even as physical risks in the Midwest are becoming more tangible.

Increasing pressure from investors and regulators to disclose climate-related financial risks (CRFR)

Regulators have recently shifted their stance, which is a big deal for how you think about compliance. On October 16, 2025, the Federal Reserve, FDIC, and OCC jointly withdrew the interagency guidance on Climate-Related Financial Risk Management that previously targeted large institutions with over $100 billion in assets. They are now saying existing safety and soundness rules cover these emerging risks.

Still, don't mistake this for the pressure going away. Investors are still demanding transparency, often aligning with frameworks like the Task Force on Climate-Related Financial Disclosures (TCFD). What this estimate hides is that while federal mandates for the biggest players might be easing, investor scrutiny on mid-sized banks like OSBC for material risks is likely to continue, especially given the industry trend toward disclosure.

Physical risks from extreme weather events in the Midwest could impact collateral values and loan defaults

The Midwest, where Old Second Bancorp, Inc. operates across its 55 locations following the Evergreen integration, faces real, measurable physical risks. The Federal Reserve Bank of Chicago is actively researching how the geographic risk of flooding and other weather-related disasters impacts access to mortgage and business loans.

If severe weather events-like the increased frequency and severity seen nationally in 2024-damage properties securing your loans, the collateral value drops, which directly increases your potential credit loss. Here's the quick math: a sharp decline in commercial real estate prices, as seen in the Fed's severely adverse stress test scenario for 2025, is a direct analog to what a localized, severe weather event could cause to your portfolio's underlying security.

Opportunity to finance green infrastructure and energy-efficient commercial property loans

While the regulatory focus has wavered, the market opportunity for green finance is clearly growing globally. Peer banks are actively pursuing this; for example, some are holding green bonds and financing LEED certified commercial real estate projects.

For OSBC, this means looking at your existing commercial real estate lending book. You should be mapping out how much of that portfolio could be upgraded or newly financed with energy-efficient standards. This isn't just about public perception; it's about financing assets that are inherently more resilient to future physical risks and potentially qualify for favorable terms through emerging green finance structures.

Internal focus on reducing energy consumption in the branch network to meet sustainability goals

With 55 branches now operating under the Old Second National Bank name across the Chicagoland area, operational efficiency is a direct lever for environmental impact reduction. While I don't have OSBC's specific 2025 energy consumption numbers, industry leaders are setting aggressive targets, such as sourcing 100% renewable electricity for operations by 2025.

Your internal actions matter, especially since regulators still expect you to manage all material risks, including operational ones. Reducing energy use in your physical footprint cuts operating costs and builds a demonstrable track record of environmental stewardship for stakeholders. It's a tangible action you can control right now.

Here is a quick snapshot of the environmental factors impacting your bank:

Finance: draft 13-week cash view by Friday.