Old Second Bancorp Inc (OSBC) Q2 2025 Earnings Call Highlights: Strong Net Income Amidst ...
Return on Assets: 1.53%.
Return on Average Tangible Common Equity: 15.29%.
Tax Equivalent Efficiency Ratio: 54.54%.
Tangible Equity Ratio: Increased by 49 basis points to 10.83% from last quarter.
Common Equity Tier 1: 13.77%, up from 13.47% last quarter.
Net Interest Margin: Decreased 3 basis points to 4.85% from last quarter.
Total Cost of Deposits: 84 basis points for the second quarter.
Loan-to-Deposit Ratio: 83.3% as of June 30.
Total Loans Increase: $58.4 million from last quarter.
Allowance for Credit Losses on Loans: Increased to $43 million or 1.08% of total loans.
Noninterest Income: Wealth management fees increased by $324,000 or 11.7%; service charges on deposits increased by $280,000 or 11.2%.
Noninterest Expense: $1.1 million less than the prior linked quarter.
Average Deposits Increase: $51 million or 1.1% quarter-over-quarter.
Share Repurchase: Approximately 327,000 shares repurchased in a privately negotiated transaction.
Warning! GuruFocus has detected 5 Warning Sign with OSBC.
Release Date: July 24, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Old Second Bancorp Inc (NASDAQ:OSBC) reported a strong net income of $21.8 million or $0.48 per diluted share for the second quarter.
The company's return on average tangible common equity was 15.29%, indicating strong profitability.
The tangible equity ratio increased by 49 basis points from the previous quarter, showing improved capital strength.
Net interest income increased by $1.3 million or 2.1% compared to the prior quarter, reflecting strong margin performance.
The acquisition of Evergreen Bank is expected to enhance profitability, with the bank performing ahead of initial expectations.
Negative Points
The second quarter earnings were impacted by a $531,000 MSR mark-to-market loss and an $810,000 charge in merger-related expenses.
Net interest margin decreased by 3 basis points compared to the previous quarter.
The loan-to-deposit ratio increased to 83.3%, indicating a higher reliance on deposits for loan funding.
Noninterest expense increased by $5.5 million year-over-year, driven by higher salaries, employee benefits, and occupancy costs.
The integration of Evergreen Bank is expected to result in a 'messy' next quarter with acquisition-related expenses.
Q & A Highlights
Q: What is the expected timing for the Evergreen Bank conversion, and what is the anticipated expense run rate? A: Bradley Adams, CFO and COO, stated that the conversion is expected to occur in the early to mid-fourth quarter. By the time they report the fourth quarter, the operating expenses should be closer to the final run rate, with the first quarter of the next year being relatively clean.
Q: Can you provide more details about the owner-occupied CRE that was classified? A: James Eccher, CEO, explained that it stems from a large healthcare transaction in Oregon. They do not foresee a loss as they are in a strong collateral position with a 70% covered loan-to-value. The facility had restrictions from the state of Oregon, but these have been lifted, and cash flow is expected to improve.
Q: How are commercial clients feeling about growth and loan closures given the current economic climate? A: James Eccher noted that commercial clients are handling tariff uncertainty well, though CapEx appetite has been muted. There is growth in leasing and commercial real estate, with a strong second-half pipeline expected, especially with the Evergreen Bank's powersports area.
Q: What is the outlook for charge-offs, especially with the Evergreen acquisition? A: James Eccher mentioned that while powersports lending can have higher loss rates (1% to 1.5%), the portfolio's average coupon is around 9%, which balances the risk. Bradley Adams added that a 30 basis point charge-off rate going forward is reasonable.
Q: How will the margin respond to a potential 25 basis point Fed rate cut? A: Bradley Adams expressed skepticism about a rate cut this year, noting that the margin is less sensitive to rate changes due to balance sheet movements. He estimated a 4 basis point impact per 25 basis point cut, but emphasized that internal adjustments are more influential.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
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