Old Second Bancorp, Inc. (OSBC): 5 FORCES Analysis [Nov-2025 Updated]

You're looking at Old Second Bancorp, Inc. right after that July 2025 acquisition, trying to figure out if the new footprint is truly defensible. Honestly, the competitive reality is tough: we're fighting for deposits in a tight 5.05% net interest margin environment, meaning your suppliers-like core processing vendors-hold real leverage because switching costs are huge. Meanwhile, customers with large loans can easily shop national lenders, and FinTechs are definitely chipping away at niche segments you just bought. Below, I've mapped out all five forces, giving you a clear-eyed view of the near-term risks and where OSBC needs to focus its strategy from here.

Old Second Bancorp, Inc. (OSBC) - Porter's Five Forces: Bargaining power of suppliers

When looking at Old Second Bancorp, Inc. (OSBC)'s suppliers, we are primarily talking about those who provide the bank with its necessary funding-depositors-and the critical third-party services that keep the lights on and the regulators satisfied. In late 2025, the power dynamic for these suppliers is quite pronounced, driven by market interest rates and regulatory demands.

Depositors hold power due to competition for funding in a 5.05% net interest margin environment.

Depositors, especially those with balances above the FDIC insurance limit, definitely hold leverage right now. You saw Old Second Bancorp, Inc. report a tax-equivalent net interest margin (NIM) of 5.05% for the third quarter of 2025. That strong NIM means the bank is earning well on its assets, but it also means depositors know their money is valuable. To keep funding costs in check, Old Second Bancorp, Inc. reported a total cost of deposits at 1.33% for the same quarter. That spread is what the bank lives on, so retaining deposits is key, which gives depositors negotiating power on rates.

The composition of the deposit base shows where the pressure points are. Uninsured deposits are a key area where depositors can move funds quickly if pricing isn't competitive. Here's a quick look at the deposit structure as of September 30, 2025, in thousands:

The bank's loan-to-deposit ratio stood at 91.4% as of September 30, 2025. That relatively high ratio suggests that Old Second Bancorp, Inc. is putting most of its core funding to work, which means any significant outflow from depositors would immediately pressure liquidity and potentially force reliance on more expensive wholesale sources.

Technology and core processing vendors have high power due to the high cost of switching systems.

Your core processing and critical technology vendors are definitely in the driver's seat. When you rely heavily on a single vendor for core banking functions, you get locked in. Honestly, switching becomes too expensive and disruptive. Migrating data, rewriting integrations, and retraining users-it can take months or years to fully transition away from a deeply embedded system. Vendors know this; once you're locked in, they have significant pricing power at renewal time. To be fair, poor contract management across the industry is costing businesses a staggering $2 trillion per year globally, which underscores why you need strong clauses in these technology agreements. You need to push for cost transparency and firm termination rights in every contract renewal.

The leverage these suppliers hold is evident in the difficulty of changing providers. Key considerations for Old Second Bancorp, Inc. when dealing with these mission-critical suppliers include:

• Assessing the true cost of data extraction.
• Negotiating caps on annual price increases.
• Requiring at least a 90-day notice before any price changes.
• Avoiding automatic renewals that require an opt-out.

Wholesale funding sources (e.g., FHLB, brokered deposits) can demand higher rates based on market liquidity.

When core deposits are tight or loan demand is high, Old Second Bancorp, Inc. turns to wholesale funding, and those providers can certainly demand higher rates based on market conditions. Wholesale funding, which the bank defines as brokered CDs, non-reciprocal interest-bearing transaction accounts, plus Federal Home Loan Bank (FHLB) advances, becomes a crucial lever. As of September 30, 2025, the bank had an excess brokered CD capacity of $732,951 thousand. This capacity is a buffer, but tapping into it means paying market rates, which are higher than core deposit costs.

While FHLB advances across the system saw a 6% decrease to $693.5 billion as of September 30, 2025, the cost of that funding is dictated by the prevailing market liquidity and the collateral pledged. Old Second Bancorp, Inc. explicitly uses wholesale funding to match maturities on long-term fixed-rate loans, locking in a spread, but this strategy exposes them to the immediate pricing demands of the wholesale market during funding stress.

Regulatory compliance vendors and consultants have increased leverage due to rising scrutiny on regional banks.

The regulatory environment in 2025 has definitely increased the leverage of compliance and risk management vendors. Vendor management remains a top regulatory focus for examiners this year. Regulators are scrutinizing how well banks assess, monitor, and manage third-party relationships, particularly concerning non-financial risks like compliance and operational resilience. This heightened focus means Old Second Bancorp, Inc. must invest in robust third-party risk management processes.

The increased scrutiny means that consultants and specialized compliance technology providers can command higher fees because their services are now directly tied to passing regulatory examinations. Banks must demonstrate they are following the interagency guidance issued in mid-2023, which covers everything from due diligence to ongoing monitoring. If onboarding a new compliance vendor takes too long, or if the vendor's reporting doesn't align with new supervisory expectations, the risk to Old Second Bancorp, Inc. rises significantly.

The key actions you should see management taking involve strengthening governance around these external partners:

• Mapping the current vendor ecosystem for risk and spend.
• Ensuring vendors meet evolving ICT security standards.
• Validating that internal audit functions can effectively check vendor performance.

Finance: draft 13-week cash view by Friday.

Old Second Bancorp, Inc. (OSBC) - Porter's Five Forces: Bargaining power of customers

You're analyzing Old Second Bancorp, Inc. (OSBC) and seeing clear evidence that customers hold significant leverage, especially in pricing sensitive areas like deposits and lending. This power stems from low friction to move money and the availability of alternatives.

Retail and commercial depositors have low switching costs, driving rate competition for deposits. The total cost of deposits for Old Second Bancorp, Inc. (OSBC) reached 1.33% for the third quarter of 2025, a notable increase from 0.84% in the prior linked quarter, showing the immediate impact of rate-sensitive customers seeking better yields. To combat this, Old Second Bancorp, Inc. (OSBC) is actively promoting special Certificates of Deposit (CDs) with Annual Percentage Yields (APYs) as high as 3.50% for a 6-month term, requiring a minimum deposit of $1,000 to earn that rate. Still, the pressure remains high because customers can easily move funds to online-only banks offering higher yields, or to competitors offering better promotional rates. Honestly, that 1.33% cost of funds is a direct reflection of this customer leverage.

Large commercial borrowers can easily shop for better loan rates from national or non-traditional lenders. While Old Second Bancorp, Inc. (OSBC) saw its average yield on interest-earning assets increase by 66 basis points compared to the linked period, partly due to higher interest rate consumer credits, the underlying loan portfolio acquired from Bancorp Financial had an average yield of 8.65% prior to accretion. This suggests that for larger, more sophisticated borrowers, Old Second Bancorp, Inc. (OSBC) must price its loans competitively against a broader, national market, which limits margin expansion on that segment.

Customers increasingly prefer digital self-service, reducing reliance on physical branch network loyalty. The broader market trend shows that a significant majority of consumers, 77 percent, prefer managing accounts through a mobile app or computer. Furthermore, among Millennials and Gen Z, 45 percent report they only bank digitally. Old Second Bancorp, Inc. (OSBC) is responding by integrating features like support for digital wallets, but this shift means that branch convenience, once a strong differentiator, now carries less weight in customer retention decisions.

Wealth management clients have many alternative providers, increasing fee pressure on Old Second Bancorp, Inc. (OSBC)'s trust services. Although Old Second Bancorp, Inc. (OSBC)'s Wealth management revenue for Q3 2025 was $3.52 million, beating the estimate of $3.12 million, the competitive landscape is fierce. For context on the competitive fee environment, alternative providers in the wealth space often structure fees with upfront sales charges up to 5% of the investment amount or trailer fee sharing up to 75% of the management fee. This intense competition from specialized firms means Old Second Bancorp, Inc. (OSBC) must continuously justify its fee structure through superior service or unique product access.

Here's a quick look at some key Old Second Bancorp, Inc. (OSBC) Q3 2025 performance metrics that reflect customer interaction and market pricing:

The pressure from customers manifests in several key areas you need to watch:

• Deposit rates are actively being bid up; cost rose 48 basis points in one quarter.
• Digital-first customers expect seamless integration, like mobile wallet support.
• Loan pricing is constrained by national lender alternatives.
• Wealth management clients shop for fee transparency and product access.

What this estimate hides is the exact breakdown of retail versus commercial deposit costs, which would give a clearer picture of where the rate competition is sharpest. Finance: draft 13-week cash view by Friday.

Old Second Bancorp, Inc. (OSBC) - Porter's Five Forces: Competitive rivalry

You're looking at a market where scale matters, and Old Second Bancorp, Inc. operates right in the thick of it-the dense Chicago-area banking landscape. The rivalry here is fierce, pitting Old Second Bancorp, Inc. against both the massive national banks that command huge market share and a multitude of smaller, nimble community banks. This competitive intensity is why strategic moves, like the July 2025 acquisition of Bancorp Financial, Inc., are necessary to keep pace.

The sheer size of the competition is evident when you look at Old Second Bancorp, Inc.'s balance sheet post-integration. The Q3 2025 average loans hit $5.22 billion. While this represents a significant jump-an increase of $1.26 billion from the linked second quarter of 2025-it still competes against institutions with assets measured in the hundreds of billions. The acquisition, which closed on July 1, 2025, immediately positioned Old Second Bancorp, Inc. to become the second-largest community bank in the Chicago market among those with assets under $10 billion, boasting combined assets of approximately $7.1 billion on a proforma basis as of March 31, 2025.

The aggressive M&A environment signals that scale is a primary defense against rivalry. Analysts were predicting an increase in mergers and acquisitions throughout 2025 as banks sought to build scale to keep up with technological advancements. Old Second Bancorp, Inc.'s own transaction, valued at approximately $197 million, was a direct response to this pressure, aiming to enhance lending capabilities and market footprint.

The battle for funding sources is a key indicator of rivalry, and the data shows Old Second Bancorp, Inc. is leaning heavily on its loan book following the merger. The loan-to-deposit ratio (LDR) is a critical metric here, showing how much of the bank's funding is tied up in loans. You can see the immediate impact of the acquisition:

That jump in the LDR from 83.3% in Q2 2025 to 91.4% by September 30, 2025, shows that loan growth from the acquisition outpaced deposit growth in that quarter, increasing the pressure to attract and retain core funding.

This pressure on deposits reflects a broader industry shift in 2025. The competition for customer funds is moving away from simple rate wars, which can erode margins, toward more sophisticated methods. Banks are realizing that to secure sticky, low-cost deposits, they need to win the relationship, not just the rate sheet. This means:

• Focusing on data and analytics to drive personalization.
• Revamping traditional engagement models against digital-first neobanks.
• Leveraging AI for better customer service and underwriting.

For Old Second Bancorp, Inc., integrating the acquired consumer lending portfolio, which includes the new powersport loan segment, means they must now compete on service and data-driven offerings to secure the necessary deposit base to fund that growth, all while facing off against larger, better-resourced national players.

Old Second Bancorp, Inc. (OSBC) - Porter's Five Forces: Threat of substitutes

The threat of substitutes for Old Second Bancorp, Inc. remains substantial, driven by agile, technology-enabled competitors offering comparable, and sometimes superior, services for both lending and deposit gathering.

Non-traditional lenders are capturing a growing share of loan growth from middle-market and small businesses

Private credit funds and independent finance companies are actively reshaping capital structures, particularly in the middle market. PitchBook data indicates that private credit's market share in middle market lending grew from 20% in 2018 to 35% in 2023, a trend projected to reach 40% by 2025. Non-bank lenders financed 85% of U.S. leveraged buyouts in 2024, an increase from 64% in 2019. Furthermore, traditional bank lending to non-bank financial institutions-their competitors-reached $1 trillion in 2024, representing a 16% annualized growth rate over the preceding five years. Loans to non-depository financial institutions made up 8.5% of all bank loans at the end of 2024.

Here's a quick look at the scale of these substitute lending markets:

FinTech platforms offer specialized lending, payment processing, and digital-only banking services

The broader FinTech ecosystem presents a significant threat across multiple banking functions. The U.S. Fintech Market size is projected to be valued at US$95.2 Bn in 2025, with an expected Compound Annual Growth Rate (CAGR) of 14.7% through 2032. For lending specifically, the Global Fintech Lending Market size was valued at USD 589.64 billion in 2025, with a projected CAGR of 16% through 2035. Nearly 68% of borrowers globally prefer digital lending platforms due to faster approvals. In the U.S., the payment service type within the fintech market is expected to hold over 35% share in 2025.

• Fintech platforms enhance credit scoring using AI, with 57% integrating ML for accuracy.
• Digital lending platforms offer on-demand, convenient financial services.
• Banks themselves are a dominant end-user of fintech, holding over 40% share in the U.S. market in 2025.

Credit unions provide tax-advantaged alternatives for both consumer deposits and loans

Credit unions compete directly for both sides of Old Second Bancorp, Inc.'s balance sheet. By the fourth quarter of 2024, U.S. credit union assets reached $2.33 trillion, rising 2.4 percent year-over-year. Total loans at credit unions reached a record $1.66 trillion, a 2.8 percent rise for the year ending Q4 2024. In commercial lending specifically, credit union commercial loans outstanding surged by 24.5% in 2022, more than double the growth rate reported by banks. For deposits, referred to as shares, total deposits at credit unions nudged up 3.4% in 2022. Looking toward 2025, TruStage calls for 6% growth in both loan and share (deposit) categories for credit unions. Depositors are becoming more rate-sensitive, meaning traditionally low-paying share accounts may migrate to higher-yielding instruments, even in a falling rate environment.

Investment products and money market funds substitute for traditional, low-yield bank deposits

Money Market Funds (MMFs) serve as a direct, cash-like substitute for bank deposits, especially when yields are attractive. In the U.S., MMF assets reached $7 trillion in 2024. As of November 25, 2025, total MMF assets increased by $45.51 billion to $7.57 trillion for the preceding six-day period. This total is segmented, with Retail MMF assets at $3.03 trillion (up $1.83 billion) and Institutional MMF assets at $4.53 trillion (up $43.69 billion). The competitive dynamic is clear: on average, from 1995 to 2025, a one-percentage-point increase in bank deposits is associated with a 0.2-percentage-point decline in MMF assets. This substitution effect is stronger, about 1.5 times the full-sample estimate, in tight-cash environments. Still, MMFs are not guaranteed investments, and the principal invested is capable of fluctuation.

Old Second Bancorp, Inc. (OSBC) - Porter's Five Forces: Threat of new entrants

You're looking at the competitive landscape for Old Second Bancorp, Inc. (OSBC) as of late 2025, and the threat of new entrants is definitely evolving. The traditional barriers to entry remain high, but the nature of the threat is shifting from de novo community banks to agile, technology-first players. Honestly, for a regional player like Old Second Bancorp, Inc., understanding this dynamic is crucial for near-term strategy.

High regulatory and capital requirements create a significant barrier for new traditional bank charters. Starting a bank from scratch means meeting stringent minimums. For instance, Old Second Bancorp, Inc.'s own bank-level Common Equity Tier 1 capital ratio stood at 13.14% as of Q3 2025. This is well above the minimum regulatory adequacy guideline of 7.00% for that ratio, plus the required 2.50% capital conservation buffer. A new entrant needs to raise and maintain this level of capital, which is a massive undertaking in terms of time and initial investment.

The threat is primarily from digital-first FinTech companies that bypass branch costs and regulatory hurdles-or, increasingly, embrace them strategically. The global fintech market revenue is projected to hit $394.88 billion in 2025, growing significantly faster than traditional banking; global fintech revenues jumped 21% in 2024 compared to the financial sector's 6% growth. This growth fuels their ability to challenge incumbents. We are seeing a clear trend where these firms are going for full charters, with 20 such filings submitted through October 3rd, 2025, an all-time high.

New entrants can target niche segments, like the powersport lending OSBC gained in the Bancorp acquisition. This specialized focus allows them to build deep expertise and customer loyalty where larger, generalist banks might be less aggressive. Consider the powersports market itself, valued at $34.51 billion in 2025 globally. Fintechs like Octane Lending, Inc. already service over 4,000 dealer partners in that space. If a new fintech targets a specific lending vertical with superior technology, they can quickly capture market share without needing a full branch network.

The perceived safety of the four biggest U.S. banks post-2023 crisis creates an implicit barrier for new regional players. When customers prioritize stability, they often default to the largest institutions, making it harder for a newly chartered or smaller regional bank to attract deposits quickly. The volatility seen in the 2025 DFAST stress test results, which complicates capital planning for many institutions, only reinforces this flight to perceived safety among depositors.

Here's a quick look at the competitive pressure points from these new entrants:

• Fintech revenue growth in 2024 was 21% vs. traditional bank growth of 6%.
• 20 new bank charter filings by fintechs in 2025 through early October.
• 69% of listed fintechs were profitable in 2024, up from less than 50% the prior year.
• Nubank reported 122.7 million customers across its markets as of August 2025.

To put the capital hurdle in perspective for you, here is how Old Second Bancorp, Inc.'s capital stacks up against the regulatory floor:

The threat isn't just about starting up; it's about scale and specialization. The fact that Old Second Bancorp, Inc. had to integrate a $1.4 billion bank holding company, Bancorp Financial, on July 1, 2025, shows that inorganic growth is often the only way to quickly match the scale these new entrants are aiming for. Finance: draft 13-week cash view by Friday.