Old Second Lifts Profit as Lending Margin Expands
The bank’s tax-equivalent net interest margin widened nine basis points to 5.23%.
Old Second Bancorp (OSBC), the Illinois bank holding company, reported a 29.1% increase in second-quarter net income as higher lending income and a wider margin outweighed elevated credit costs.
Profit rose to $28.2 million from $21.8 million a year earlier and increased 10.1% from the first quarter. Diluted earnings were $0.54 a share, up from $0.48 in both comparison periods. Adjusted earnings rose to $0.55 a share from $0.49 sequentially and $0.50 a year earlier.
Net interest income increased 2.7% from the first quarter and 29.7% from a year earlier to $83.3 million. The margin extended a run of quarterly gains from 5.05% in the third quarter of 2023 and 5.09% in the fourth quarter. Loan yields rose 12 basis points sequentially to 6.91%, while total funding costs increased two basis points to 1.73%.
Lower deposit pricing helped contain those funding costs. Deposit costs fell five basis points to 1.00%, including an 18-basis-point decline in time-deposit costs. Total deposits decreased 2.16% sequentially to $5.44 billion as higher-rate acquired brokered and exception-priced deposits rolled off, while short-term borrowings rose to $375.0 million from $200.0 million.
Loans increased 1.2% from the first quarter to $5.25 billion and stood 31.2% above the year-earlier level. Commercial balances led the sequential growth, rising $68.2 million, while owner-occupied and investor commercial-real-estate loans declined. Noninterest income climbed 5.0% sequentially to $13.3 million, supported by higher wealth-management and bank-owned life-insurance income.
Credit measures improved from the first quarter, though losses remained above year-earlier levels. Nonperforming loans fell to $56.5 million from $75.5 million, and loans 30 to 89 days past due dropped 55.0% to $22.5 million. Net charge-offs eased to $9.25 million from $9.78 million but remained sharply above $785,000 a year earlier, while the provision declined to $7.5 million from $9.5 million.
Operating efficiency strengthened as the efficiency ratio fell to 51.72% from 52.40% sequentially and 55.99% a year earlier. Tangible book value increased to $14.77 a share even after Old Second repurchased 732,000 shares, and the company maintained its quarterly dividend at $0.07 a share. Old Second also redeemed $30.0 million of subordinated debt, leaving the improvement in credit quality and funding costs to carry more of the earnings trajectory.