Old Second Reverses a Quarter of Net Interest Income Decline
Net interest and dividend income rose 2.69% to $83.3 million as the tax-equivalent margin reached 5.23%.
Old Second Bancorp (OSBC), the parent of Old Second National Bank, reversed a first-quarter drop in net interest and dividend income in the second quarter of 2026, lifting the line to $83.3 million from $81.1 million.
The turn in the core earning engine was the quarter’s defining operating shift. In the first quarter, net interest and dividend income had fallen $1.9 million, or 2.30%. In the second quarter it rose $2.2 million, or 2.69%. Net income was $28.2 million, or $0.54 a share, versus $25.6 million, or $0.48 a share, in the first quarter.
The tax-equivalent net interest margin expanded nine basis points to 5.23% after a five-basis-point expansion in the prior quarter. Loan yields rose 12 basis points on higher average loan balances, and investment yields rose six basis points on maturities and paydowns of lower-yielding securities. Cost of deposits fell five basis points to 1.00%, including an 18-basis-point decline in the cost of time deposits. Cost of funds rose two basis points on remaining subordinated debt and $213,000 of accelerated issuance costs tied to a partial $30.0 million redemption of the original $60.0 million subordinated debt.
Total loans increased $60.6 million to $5.25 billion, led by commercial, construction, multifamily, powersport, and other, including consumer. Average loans, including held-for-sale, were $5.22 billion. Total deposits declined $120.3 million, or 2.16%, to $5.44 billion. Savings and money market fell seasonally, and time deposits dropped as higher-rate brokered and exception-priced time deposits assumed from Bancorp Financial rolled off. Average interest-bearing deposits fell $81.7 million, while non-interest-bearing deposits rose $7.0 million.
The provision for credit losses fell $2.0 million to $7.5 million from $9.5 million, after a $6.5 million increase from $3.0 million in the prior quarter. The second-quarter provision was driven by powersport charge-offs and larger-than-normal commercial and commercial real estate charge-offs concentrated in two relationships. Nonperforming loans declined $19.0 million to $56.5 million from $75.5 million, and nonperforming loans to total loans fell to 1.08% from 1.46%. The decline reflected paydowns, upgrades, payoffs, $8.7 million of 90-day past-due accruing loans renewed, and $5.8 million of charge-offs. Classified loans fell to $132.1 million from $148.6 million. Criticized loans to total loans declined to 3.05% from 3.64%. The allowance for credit losses on loans was 1.34% of total loans and 124.60% of nonperforming loans.
Noninterest income increased $631,000, or 5.00%, to $13.3 million from $12.6 million. Wealth management, BOLI cash surrender value, and debit-card fees were higher; other income was lower on powersport dealer charge-backs. Noninterest expense rose $1.0 million, or 2.08%, to $51.3 million from $50.2 million, after a $2.7 million, or 5.15%, decline in the prior quarter. Salaries and benefits rose $430,000. Other expense rose $712,000 on litigation and powersport gap-insurance refunds. The efficiency ratio improved 68 basis points to 51.72% from 52.40%, following a 158-basis-point improvement in the prior quarter. The adjusted efficiency ratio was 50.80%.
Return on average assets was 1.65%, compared with 1.51%. Return on average tangible common equity was 15.58%. Tangible common equity to tangible assets rose to 11.19% from 11.07% despite a repurchase of 732,183 shares at an average $21.08, a $15.4 million capital reduction net of excise taxes. The company’s common equity tier 1 capital ratio was 13.28% at June 30, 2026. The board declared a cash dividend of $0.07 a share, payable August 10, 2026. Chairman, President and Chief Executive Officer Jim Eccher said the company was positioning itself to deliver better results to stockholders over the last half of the year.
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