Old Second Bancorp NASDAQ: OSBC reported first-quarter 2026 GAAP net income of $25.6 million, or $0.48 per diluted share, as the company highlighted strong net interest margin performance but acknowledged elevated charge-offs and a softer turn in certain credit metrics.
Quarterly results and profitability metrics
Chairman, President and CEO James L. Eccher said return on assets was 1.51% for the quarter. He also cited a return on average tangible common equity of 14.2% and a tax-equivalent efficiency ratio of 52.4%.
Excluding adjustments tied to mortgage servicing rights (MSR) valuation and costs associated with the 2025 acquisition of Bancorp Financial and its subsidiary Evergreen Bank Group, Eccher said net income was $26.0 million, or $0.49 per diluted share.
Eccher said tangible book value per share rose to $14.35 at March 31, 2026, up from $14.12 at year-end 2025. The tangible equity ratio increased to 11.07% from 11.02% in the prior quarter. Common Equity Tier 1 capital was 13.13%, up from 12.99% in the linked quarter but down 34 basis points from the year-ago period.
Net interest margin strength, funding mix, and balance sheet trends
Management emphasized net interest margin resilience. Eccher said Old Second posted a tax-equivalent net interest margin of 5.14% in the first quarter, up five basis points from the prior quarter and up 26 basis points from the year-ago quarter.
COO and CFO Bradley S. Adams said net interest income fell modestly from the fourth quarter, a result he described as “pretty unusual,” while net interest income rose $18 million, or 29%, from the first quarter of 2025. Adams said tax-equivalent loan yields declined five basis points quarter-over-quarter, while securities yields increased four basis points. The cost of interest-bearing deposits decreased 15 basis points from the prior quarter.
Eccher said cost of deposits was 105 basis points in the first quarter, compared to 115 basis points in the linked quarter and 83 basis points a year earlier. He added that tax-equivalent income on average earning assets decreased $4 million from the prior quarter, while interest expense on average interest-bearing liabilities declined $2.1 million.
On funding and balance sheet positioning, Eccher said the company continued reducing reliance on wholesale funding by allowing legacy Evergreen brokered CDs to run off and by repricing higher-cost deposits. Adams added that deposit runoff was “largely concentrated in high-beta, effectively wholesale deposit categories as planned.”
Average loans decreased $70 million, or 1.3%, quarter-over-quarter, according to Adams, while average deposits declined $162 million. Eccher said total loans fell $66.9 million from the prior quarter and noted the loan-to-deposit ratio was 93.2% at March 31, 2026, compared with about 94% the prior quarter and 81.2% a year earlier.
Credit performance: charge-offs, nonperformers, and reserves
Credit costs were a key theme in the quarter. Eccher said first-quarter earnings were impacted by $9.8 million of net loan charge-offs. He attributed the majority of charge-offs to three areas:
- A $3.9 million commercial real estate investor charge-off tied to an office property in downtown Chicago, which he said saw vacancy and an updated valuation approximately 50% lower than prior estimates. Eccher said the property now cash flows adequately at the new carrying value following a restructuring.
- A $1.3 million commercial and industrial (C&I) charge-off in the warehousing and distribution space, where he said cash flow deteriorated over the last year.
- $3.9 million of net charge-offs related to the Powersports business, which Eccher said was “a relatively higher than normal level” due to seasonality and continued softness in consumer lending.
Eccher said asset quality trends “softened” during the quarter, with non-performing loans increasing $22.7 million, though classified assets declined $2.8 million. In response to analyst questions, Eccher said the increase in nonperformers included “an uptick in some…substandard accruing loans,” led by a C&I relationship that he said is cash-flow dependent and has been pressured by supply-chain disruption and tariff issues.
The allowance for credit losses (ACL) on loans was $72.1 million at March 31, or 1.39% of total loans, compared with $72.3 million, or 1.38%, at year-end, according to Eccher. Provision expense increased $6.5 million from the linked quarter to $9.5 million, which Eccher said was largely driven by the Powersports charge-offs and the two larger credits referenced earlier. Asked about the reserve outlook, Eccher said maintaining the ACL ratio around current levels was “plus or minus…a reasonable expectation.”
Eccher also said the company’s modeling incorporated global risks, including “global tariff volatility” and “the war in Iran,” and that unemployment and GDP forecasts used in loss assumptions were “fairly static” from the prior quarter.
On office exposure more broadly, Eccher said office real estate valuations remain under pressure, but Old Second’s office portfolio represents “a little over 3.5% of the loan book,” with 68% loan-to-value based on updated appraisals and $3 million classified. He noted one participation loan acquired through past deals remained an area of focus.
Powersports performance, loan growth outlook, and capital return
Management described the Powersports portfolio as facing elevated loss levels but producing strong profitability. In response to questions about charge-off expectations, Eccher said Powersports losses would likely remain “a little more elevated than what we normally report,” while also indicating loss content should “trend lower in the coming quarters due to normal seasonality.” He pointed to what he called an “8.3%…net contribution margin after charge-offs” in the segment during the quarter.
EVP Darin Campbell, head of National Specialty Lending, said underwriting had been tightened “a little,” but not materially, emphasizing a focus on “net contribution margin” and overall profitability. Campbell said a product mix shift—between endorsed OEM programs and higher-priced non-endorsed products—has supported profitability even as charge-offs moved higher. He also said first-quarter 2026 FICO scores for new production improved to 743 from 735 in the first quarter of 2025, and he expected charge-off rates to come down “a little bit” over time, though “not…materially” given the portfolio mix strategy.
On growth, Adams said the loan pipeline remained strong despite seasonally slower originations and borrower reluctance tied to “pricing challenges due to tariffs” and uncertainty related to war. He reiterated a target of mid-single-digit loan growth for the remainder of the year. Eccher separately said the company was anticipating “low- to single-digit growth through the balance of the year.” When asked about pricing competition, Eccher said commercial real estate is “fiercely competitive,” while spreads in C&I and leasing remained acceptable. He also said Powersports yields could come down due to competition, while management remained “bullish” on maintaining a margin “around 5%.”
Old Second also continued returning capital. Adams said the company repurchased 1.2 million shares at an average price of $19.63, increasing treasury stock by $23.1 million and enhancing EPS by about $0.01 in the quarter. He said the company was a little more than halfway through its current authorization and expected to remain active. In Q&A, Adams said he saw no reason buybacks could not continue at similar levels and indicated he would intend “to refile another authorization in short order” after completion, citing ample capital flexibility.
Eccher closed by calling the quarter “mixed,” particularly due to the two larger credit issues, while stating that “the rest of the bank is performing exceptionally well” and that the company’s earnings power remains “extremely strong.”
About Old Second Bancorp NASDAQ: OSBC
Old Second Bancorp, Inc is a bank holding company based in Aurora, Illinois, serving businesses and consumers through its primary subsidiary, Old Second National Bank. The company provides a broad range of commercial and retail banking services across the suburban Chicago marketplace, supported by a branch network and online platforms designed to meet the financial needs of local communities.
In its commercial banking division, Old Second offers lending solutions that include lines of credit, term loans, equipment financing and commercial real estate financing.
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