OSBC Net Income Plummets 57% Amid Soaring Credit Loss Provisions

TL;DR

**OSBC's Q3 earnings are a red flag, with credit losses spiking and net income cut in half – time to be cautious.**

AI Summary

OLD SECOND BANCORP INC reported a significant decline in net income for the three months ended September 30, 2025, falling to $9.871 million from $22.951 million in the prior year, a 56.9% decrease. This was primarily driven by a substantial increase in provision for credit losses, which surged to $19.653 million from $2.000 million, and a rise in total interest expense to $21.300 million from $15.494 million. Total interest and dividend income, however, increased to $104.075 million from $76.072 million, largely due to a rise in loan interest income to $91.301 million from $64.528 million. The company's total assets grew to $6.991 billion as of September 30, 2025, up from $5.649 billion at December 31, 2024, partly due to the acquisition of Bancorp Financial, Inc. on July 1, 2025, which added $140.520 million to stockholders' equity. Loans, net of allowance, increased to $5.189 billion from $3.937 billion, while total deposits rose to $5.760 billion from $4.768 billion. Noninterest expense also saw a considerable increase, reaching $63.163 million compared to $39.308 million in the same quarter last year, reflecting higher salaries and employee benefits and computer and data processing costs.

Why It Matters

This filing reveals a challenging quarter for OLD SECOND BANCORP INC, with a sharp drop in net income and a significant increase in credit loss provisions. For investors, this signals potential headwinds in asset quality and profitability, especially given the competitive banking landscape and rising interest rate environment. Employees might see increased pressure on performance as the company navigates higher expenses and a more cautious lending outlook. Customers could face tighter lending standards or changes in service offerings as the bank focuses on risk management. The broader market may view this as an indicator of increasing stress within the regional banking sector, particularly concerning loan portfolio health and the impact of recent acquisitions on financial stability.

Risk Assessment

Risk Level: high — The risk level is high due to the dramatic 882% increase in provision for credit losses, from $2.000 million in Q3 2024 to $19.653 million in Q3 2025, indicating significant deterioration in loan portfolio quality. Additionally, net income decreased by 56.9% year-over-year, from $22.951 million to $9.871 million, highlighting a substantial hit to profitability despite revenue growth.

Analyst Insight

Investors should consider reducing exposure to OSBC or initiating a short position given the significant increase in credit loss provisions and the sharp decline in net income. Monitor future filings closely for trends in asset quality and the integration success of Bancorp Financial, Inc., as these will be critical to any potential recovery.

Financial Highlights

debt To Equity

N/A

revenue

$104.075M

operating Margin

N/A

total Assets

$6.991B

total Debt

$275.027M

net Income

$9.871M

eps

$0.19

gross Margin

N/A

cash Position

$116.525M

revenue Growth

+36.8%

Revenue Breakdown

Key Numbers

• $9.871M — Net Income (Q3 2025) (Decreased 56.9% from $22.951M in Q3 2024)
• $19.653M — Provision for Credit Losses (Q3 2025) (Increased 882% from $2.000M in Q3 2024)
• $104.075M — Total Interest and Dividend Income (Q3 2025) (Increased from $76.072M in Q3 2024)
• $21.300M — Total Interest Expense (Q3 2025) (Increased from $15.494M in Q3 2024)
• $6.991B — Total Assets (Sept 30, 2025) (Increased from $5.649B at Dec 31, 2024, partly due to acquisition)
• $5.189B — Net Loans (Sept 30, 2025) (Increased from $3.937B at Dec 31, 2024)
• $5.760B — Total Deposits (Sept 30, 2025) (Increased from $4.768B at Dec 31, 2024)
• $63.163M — Total Noninterest Expense (Q3 2025) (Increased from $39.308M in Q3 2024)
• $0.19 — Basic Earnings Per Share (Q3 2025) (Decreased from $0.52 in Q3 2024)
• 52,669,224 — Common Stock Shares Outstanding (Nov 4, 2025) (Reflects current outstanding shares)

Key Players & Entities

• OLD SECOND BANCORP INC (company) — Registrant
• Bancorp Financial, Inc. (company) — Acquired entity
• SEC (regulator) — Securities and Exchange Commission
• $9.871 million (dollar_amount) — Net income for Q3 2025
• $22.951 million (dollar_amount) — Net income for Q3 2024
• $19.653 million (dollar_amount) — Provision for credit losses for Q3 2025
• $2.000 million (dollar_amount) — Provision for credit losses for Q3 2024
• $6.991 billion (dollar_amount) — Total assets as of September 30, 2025
• $5.649 billion (dollar_amount) — Total assets as of December 31, 2024
• $140.520 million (dollar_amount) — Stockholders' equity added from Bancorp Financial acquisition

FAQ

Risk Factors

• Increased Provision for Credit Losses [high — financial]: The provision for credit losses surged by 882% to $19.653 million in Q3 2025 from $2.000 million in Q3 2024. This significant increase indicates a deterioration in loan portfolio quality or a more conservative outlook on future credit performance, directly impacting net income.
• Rising Interest Expense [medium — financial]: Total interest expense increased by 34.7% to $21.300 million from $15.494 million year-over-year. This suggests higher funding costs, potentially due to increased reliance on more expensive deposit types or wholesale funding, squeezing net interest margins.
• Significant Increase in Noninterest Expense [high — operational]: Noninterest expense rose by 59.9% to $63.163 million from $39.308 million. This is attributed to higher salaries, employee benefits, and computer/data processing costs, likely driven by the acquisition of Bancorp Financial, Inc. and investments in technology.
• Impact of Acquisition on Equity and Goodwill [medium — financial]: The acquisition of Bancorp Financial, Inc. added $140.520 million to stockholders' equity and $37.002 million to goodwill ($130.262M as of Sept 30, 2025 vs $93.260M at Dec 31, 2024). While expanding the balance sheet, it also introduces integration risks and potential future impairment charges for goodwill.
• Interest Rate Sensitivity [medium — market]: As a financial institution, the company is exposed to interest rate risk. Changes in interest rates can affect the net interest margin, the fair value of securities, and the overall profitability. The increase in interest expense highlights this sensitivity.
• Regulatory Compliance and Capital Requirements [medium — regulatory]: As a bank holding company, OSBC is subject to various federal and state banking regulations. Changes in regulatory requirements, capital adequacy rules, or compliance failures could impact operations and profitability.

Industry Context

Old Second Bancorp operates within the highly competitive U.S. regional banking sector. The industry is characterized by increasing consolidation, technological disruption, and evolving regulatory landscapes. Banks are facing pressure to enhance digital offerings, manage rising operational costs, and navigate a dynamic interest rate environment. Profitability is heavily influenced by net interest margins, loan growth, and effective risk management.

Regulatory Implications

As a bank holding company, OSBC is subject to stringent regulatory oversight from agencies like the Federal Reserve and state banking authorities. Compliance with capital adequacy ratios, liquidity requirements, and consumer protection laws is paramount. The recent acquisition may trigger increased scrutiny and require adherence to specific integration and reporting standards.

What Investors Should Do

1. [object Object]
2. [object Object]
3. [object Object]
4. [object Object]

Key Dates

• 2025-07-01: Acquisition of Bancorp Financial, Inc. — Significantly expanded the company's asset base and equity, contributing to balance sheet growth but also increasing expenses and integration complexity.
• 2025-09-30: End of Q3 2025 — Period for which the reported financial results, including a sharp decline in net income, are presented.
• 2024-12-31: End of Fiscal Year 2024 — Provides the comparative balance sheet figures for asset and liability growth.
• 2024-09-30: End of Q3 2024 — Provides the comparative income statement figures, highlighting the significant year-over-year decline in net income and increase in provisions.

Glossary

Provision for Credit Losses

An expense set aside by a financial institution to cover potential losses from loans that may not be repaid. (A substantial increase in this provision directly reduced net income, indicating management's concern about loan portfolio quality.)

Goodwill

An intangible asset that arises when a company acquires another company for a price greater than the fair value of its identifiable net assets. (The acquisition of Bancorp Financial, Inc. led to a significant increase in goodwill, reflecting the premium paid for the acquired entity.)

Core Deposit Intangible (CDI)

An intangible asset representing the value of a bank's stable, low-cost core deposits over market rates. (The CDI increased, reflecting the deposit base acquired, and is amortized over time, impacting noninterest expense.)

Bank-Owned Life Insurance (BOLI)

Life insurance policies owned by a bank on the lives of its key employees or directors, often used for employee benefit plans or to offset costs. (BOLI assets represent a significant portion of the company's other assets and contribute to earnings.)

Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) Stock

Stock required to be held by member institutions to access services and funding from these quasi-governmental entities. (An increase in this stock indicates a greater reliance on or utilization of services from these entities, potentially for liquidity or funding.)

Year-Over-Year Comparison

Compared to the prior year's third quarter, Old Second Bancorp Inc. experienced a substantial 56.9% decline in net income, falling to $9.871 million. This was primarily driven by an 882% surge in the provision for credit losses to $19.653 million and a 34.7% increase in total interest expense to $21.300 million. While total interest and dividend income grew by 36.8% to $104.075 million, largely due to loan growth, the increased expenses and provisions significantly eroded profitability. Total assets grew by 23.8% to $6.991 billion, partly due to the acquisition of Bancorp Financial, Inc., which also contributed to a rise in goodwill and noninterest expenses.

Key Financial Figures

• $1.00 — 4 shares of common stock outstanding at $1.00 par value per share. Table of Contents

Filing Documents

• tmb-20250930x10q.htm (10-Q) — 8385KB
• tmb-20250930xex31d1.htm (EX-31.1) — 17KB
• tmb-20250930xex31d2.htm (EX-31.2) — 17KB
• tmb-20250930xex32d1.htm (EX-32.1) — 10KB
• tmb-20250930xex32d2.htm (EX-32.2) — 9KB
• tmb-20250930x10q001.jpg (GRAPHIC) — 16KB
• 0000357173-25-000091.txt ( ) — 32414KB
• tmb-20250930.xsd (EX-101.SCH) — 99KB
• tmb-20250930_cal.xml (EX-101.CAL) — 122KB
• tmb-20250930_def.xml (EX-101.DEF) — 487KB
• tmb-20250930_lab.xml (EX-101.LAB) — 873KB
• tmb-20250930_pre.xml (EX-101.PRE) — 679KB
• tmb-20250930x10q_htm.xml (XML) — 9827KB

Financial Statements

Financial Statements 5 Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 47 Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Quantitative and Qualitative Disclosures about Market Risk 73 Item 4.

Controls and Procedures

Controls and Procedures 74 PART II Item 1.

Legal Proceedings

Legal Proceedings 75 Item 1.A.

Risk Factors

Risk Factors 75 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 75 Item 3. Defaults Upon Senior Securities 76 Item 4. Mine Safety Disclosure 76 Item 5. Other Information 76 Item 6. Exhibits 77

Signatures

Signatures 78 2 Table of Contents CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This report and other publicly available documents of Old Second Bancorp, Inc. ("Old Second" or the "Company") contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act, including, but not limited to, management's expectations regarding future plans, strategies and financial performance, regulatory developments, industry and economic trends and estimates and assumptions underlying accounting policies. Forward-looking statements also include expectations regarding the outlook and anticipated strategic and financial benefits resulting from the completed acquisition of Bancorp Financial, Inc. ("Bancorp Financial" or "BFI"). Forward-looking statements are based on our current beliefs, expectations and assumptions and on information currently available and, can be identified by the use of words such as "expects," "intends," "believes," "may," "will," "would," "could," "should," "plan," "anticipate," "estimate," "possible," "implies," "likely" or the negative thereof as well as other similar words and expressions of the future. Forward-looking statements are subject to risks, uncertainties and assumptions that are difficult to predict as to timing, extent, likelihood and degree of occurrence, which could cause our actual results to differ materially from those anticipated in or by such statements. Potential risks and uncertainties include, but are not limited to, the following: our ability to execute our growth strategy; negative economic conditions such as inflation or tariffs that adversely affect the economy, real estate values, the job market and other factors nationally and in our market area, in each case that may affect our liquidity and the performance of our loan portfolio; risks with respect to our ability to successfully expand and integrate businesses and operations that we acquire, as well as our ability to identify an

– FINANCIAL INFORMATION

PART I – FINANCIAL INFORMATION

Financial Statements

Item 1. Financial Statements Old Second Bancorp, Inc. and Subsidiaries Consolidated Balance Sheets (In thousands, except share data) (unaudited) September 30, December 31, 2025 2024 Assets Cash and due from banks $ 53,099 $ 52,175 Interest earning deposits with financial institutions 63,426 47,154 Cash and cash equivalents 116,525 99,329 Securities available-for-sale, at fair value 1,157,480 1,161,701 Federal Home Loan Bank Chicago ("FHLBC") and Federal Reserve Bank Chicago ("FRBC") stock 28,282 19,441 Loans held-for-sale 1,463 1,556 Loans 5,265,014 3,981,336 Less: allowance for credit losses on loans 75,037 43,619 Net loans 5,189,977 3,937,717 Premises and equipment, net 87,714 87,311 Other real estate owned 6,416 21,617 Mortgage servicing rights, at fair value 9,549 10,374 Goodwill 130,262 93,260 Core deposit intangible ("CDI") 24,927 22,031 Bank-owned life insurance ("BOLI") 129,057 112,751 Deferred tax assets, net 33,374 26,619 Other assets 76,728 55,670 Total assets $ 6,991,754 $ 5,649,377 Liabilities Deposits: Noninterest bearing demand $ 1,738,028 $ 1,704,920 Interest bearing: Savings, NOW, and money market 2,763,990 2,315,134 Time 1,258,232 748,677 Total deposits 5,760,250 4,768,731 Securities sold under repurchase agreements 24,290 36,657 Other short-term borrowings 165,000 20,000 Junior subordinated debentures 25,774 25,773 Subordinated debentures 59,531 59,467 Notes payable and other borrowings 14,812 - Other liabilities 75,412 67,715 Total liabilities 6,125,069 4,978,343 Stockholders' Equity Common stock 53,015 44,908 Additional paid-in capital 340,108 205,284 Retained earnings 512,131 469,165 Accumulated other comprehensive loss, net ( 32,294 ) ( 47,748 ) Treasury stock ( 6,275 ) ( 575 ) Total stockholders' equity 866,685 671,034 Total liabilities and sto

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements (Dollar amounts in thousands, except per share data, unaudited) Note 1 – Basis of Presentation and Changes in Significant Accounting Policies The accounting policies followed in the preparation of the interim consolidated financial statements are consistent with those used in the preparation of the annual financial information. The interim consolidated financial statements reflect all normal and recurring adjustments that are necessary, in the opinion of management, for a fair statement of results for the interim period presented. Results for the period ended September 30, 2025, are not necessarily indicative of the results that may be expected for the year ending December 31, 2025. These interim consolidated financial statements and accompanying notes are unaudited and should be read in conjunction with the audited financial statements and notes included in Old Second Bancorp, Inc.'s (the "Company") annual report on Form 10-K for the year ended December 31, 2024. Unless otherwise indicated, dollar amounts in the tables contained in the notes to the consolidated financial statements are in thousands. Certain items in prior periods have been reclassified to conform to the current presentation. The Company's consolidated financial statements are prepared in accordance with United States generally accepted accounting principles ("GAAP") and follow general practices within the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the consolidated financial statements. Future changes in information may affect these estimates, assumptions, and judgments, which, in turn, may affect amounts reported in the consolidated financial statements. Refer to Changes in Significant