Old Second Bancorp, Inc. is a bank holding company headquartered in Aurora, Illinois, that serves as the parent company for its wholly-owned subsidiary, Old Second National Bank. The bank operates through 53 banking centers primarily located in the western and southern suburbs of the Chicago metropolitan area, providing a wide range of commercial banking, retail banking, and wealth management services.

Business Overview and History

Old Second Bancorp was founded in 1981 and has since grown to become a prominent community bank in the Chicagoland region. In its early years, the company focused on establishing itself as a community bank, offering a full range of deposit products, lending services, and trust and wealth management offerings to retail and commercial customers in its local market. Over time, Old Second expanded its footprint through organic growth and strategic acquisitions.

The company faced significant challenges during the 2008 financial crisis, working diligently to strengthen its balance sheet and credit quality. In the aftermath of the crisis, Old Second encountered heightened regulatory requirements and scrutiny, which led to the enhancement of its risk management practices and internal controls. Despite these hurdles, the company maintained its commitment to serving local communities and supporting small businesses.

In recent years, Old Second has concentrated on diversifying its revenue streams, growing its commercial and industrial lending portfolio, and optimizing its earning asset mix. The company has also invested in technology to improve customer experience and operating efficiency. These strategic initiatives have enabled Old Second to deliver consistent financial performance, with strong earnings, robust capital levels, and improving asset quality in recent years.

In 2024, Old Second completed the acquisition of five Illinois branch locations from First Merchants Bank, expanding its footprint in the southeast Chicago metropolitan statistical area. This transaction added approximately $268 million in deposits and $7.1 million in loans to the company's balance sheet. Prior to this, Old Second had grown organically and through select acquisitions, including the 2021 purchase of West Suburban Bank and the 2018 acquisition of ABC Bank.

Today, Old Second operates as a diversified financial institution, with commercial and industrial (C&I) lending, commercial real estate (CRE) lending, mortgage banking, and wealth management services comprising its core business lines. The company's loan portfolio is heavily weighted toward CRE, which accounted for 67.2% of total loans as of December 31, 2024, down from 68.8% a year earlier. C&I and lease financing receivables make up another 32.8% of the loan book.

Financial Performance and Ratios

Old Second Bancorp has demonstrated solid financial performance in recent years, despite the challenges posed by the COVID-19 pandemic and the evolving interest rate environment. For the full year 2024, the company reported net income of $85.3 million, or $1.87 per diluted share, compared to $91.7 million, or $2.02 per diluted share, in 2023. The decline in net income was primarily due to a higher provision for credit losses and increased noninterest expenses related to the First Merchants branch acquisition.

The company's return on average assets (ROAA) was 1.51% in 2024, down from 1.58% in 2023, while its return on average equity (ROAE) decreased to 13.63% from 17.70% over the same period. Old Second's tangible common equity to tangible assets ratio, a key measure of balance sheet strength, improved to 10.11% as of December 31, 2024, up from 8.56% a year earlier.

Old Second's net interest margin (NIM) remained relatively stable, increasing to 4.68% in the fourth quarter of 2024 from 4.64% in the third quarter, and 4.62% in the fourth quarter of 2023. This performance was driven by the positive impact of rising interest rates on the company's variable-rate loan and securities portfolios, as well as the reduction in funding costs following the First Merchants branch acquisition.

Credit Quality and Risk Management

Old Second has placed a strong emphasis on maintaining a high-quality loan portfolio and prudent risk management practices. As of December 31, 2024, the company's nonperforming assets ratio stood at 0.92%, down from 1.29% a year earlier. The allowance for credit losses on loans was 1.10% of total loans, compared to 1.09% at the end of 2023.

During 2024, Old Second made progress in resolving problem credits, with substandard and criticized loans decreasing by 31% or $58 million from the prior quarter. Classified and nonaccrual loan balances also improved significantly on both a year-over-year and linked-quarter basis. The company's provision for credit losses decreased to $12.8 million in 2024, down from $16.5 million in 2023, reflecting the improved credit quality of the loan portfolio.

Looking ahead, Old Second's management team remains focused on proactively addressing any emerging credit risks and maintaining a conservative approach to lending. The company's exposure to higher-risk sectors, such as hospitality and retail, is limited, and it continues to closely monitor macroeconomic conditions and their potential impact on its loan book.

Merger and Acquisition Activity

In February 2025, Old Second announced a definitive agreement to acquire Bancorp Financial, Inc. and its wholly-owned subsidiary, Evergreen Bank Group, in a cash and stock transaction valued at approximately $197 million. The merger is expected to strengthen Old Second's position in the Chicago metropolitan area, adding approximately $1.2 billion in assets, $1 billion in deposits, and 17 branch locations to the combined company.

The transaction, which is subject to customary regulatory approvals and Bancorp Financial shareholder approval, is anticipated to close in the third quarter of 2025. Old Second expects the merger to be accretive to earnings per share and to generate cost savings and revenue synergies that will enhance the company's profitability and long-term growth prospects.

In addition to the Bancorp Financial acquisition, Old Second has remained active in evaluating other potential merger and acquisition opportunities that align with its strategic objectives and risk profile. The company's strong capital position and liquidity provide it with the flexibility to pursue value-enhancing transactions that can expand its customer base, product offerings, and geographic footprint in its core Midwest markets.

Financials

Old Second Bancorp's financial performance has been solid, with consistent earnings and a strong balance sheet. The company's total revenue for 2024 was $297.9 million, with net income of $85.3 million. Total assets stood at $5.6 billion as of December 31, 2024. The company's net interest income for 2024 was $244.5 million, while noninterest income totaled $46.2 million. Old Second's efficiency ratio for 2024 was 55.8%, indicating effective cost management.

For the fourth quarter of 2024, Old Second reported revenue of $75.3 million and net income of $19.1 million. This represented year-over-year growth of 4.6% in revenue and 4.8% in net income compared to Q4 2023. The increase in revenue and net income was primarily due to higher interest income and fee income, partially offset by higher interest expense and provision for credit losses.

The company's annual operating cash flow for 2024 was $131.5 million, while free cash flow stood at $120.8 million. Old Second's debt-to-equity ratio was 0.03, reflecting a conservative capital structure. The current ratio and quick ratio both stood at 60.69, indicating strong short-term liquidity.

Liquidity

Old Second Bancorp maintains a strong liquidity position, with various sources of funding available. As of December 31, 2024, the company had $1.2 billion in available borrowing capacity from the Federal Home Loan Bank and other sources. The bank's loan-to-deposit ratio was 87.5%, providing a stable funding base for its lending activities. Additionally, Old Second held $99.3 million in cash and cash equivalents, further enhancing its liquidity position. The company also has a $30 million unused line of credit available for additional liquidity if needed.

Lending Activities and Deposit Products

Old Second provides a broad range of commercial and retail lending services. As of December 31, 2024, the loan portfolio was composed of commercial loans (20.1%), leases (12.4%), commercial real estate investor loans (27.1%), commercial real estate owner-occupied loans (17.2%), construction loans (5.1%), residential real estate investor loans (1.2%), residential real estate owner-occupied loans (5.2%), multifamily loans (8.8%), and home equity lines of credit (2.6%).

The company's total loan portfolio decreased by 1.5% year-over-year to $3.98 billion as of December 31, 2024, primarily due to declines in the commercial, commercial real estate owner-occupied, and multifamily loan portfolios. Old Second originated approximately $1.03 billion in new loans during 2024, excluding renewals. The company's nonperforming loans decreased to 0.8% of total loans as of December 31, 2024, compared to 1.7% at the end of 2023, reflecting improved asset quality.

On the deposit side, Old Second offers a full range of products and services, including consumer and business checking accounts, savings accounts, money market accounts, and time deposits. Total deposits increased by 4.3% to $4.77 billion as of December 31, 2024, primarily due to increases in NOW accounts, money market accounts, and time deposits, partially offset by decreases in noninterest-bearing demand deposits and savings accounts.

Wealth Management

Old Second provides a wide range of wealth management, investment, agency, and custodial services for individual, corporate, and not-for-profit clients. As of December 31, 2024, the company had approximately $1.98 billion in assets under administration and/or management. Wealth management fee income increased by 16.6% year-over-year in 2024, driven by growth in advisory and estate fees.

Human Capital Resources

Old Second Bancorp employs 877 full-time equivalent employees as of December 31, 2024. The company has a long-tenured workforce, with 35% of employees having over 10 years of service and 26% having at least 15 years of service. Old Second has implemented programs to support employee development and retention, which has contributed to its low turnover rates.

In 2024, the company focused on fostering strong relationships among employees and with the communities it serves through various initiatives, such as an all-staff after-hours event, a minor league baseball outing, and partnerships with organizations like Junior Achievement. These efforts aim to build a positive corporate culture and enhance employee engagement.

Geographic Markets and Industry Trends

Old Second operates primarily in Cook, DeKalb, DuPage, Kane, Kendall, LaSalle, and Will counties in Illinois, with 53 banking locations in the western and southern Chicago metropolitan area. The company does not have significant operations outside of this regional footprint.

The banking industry has seen moderate growth in recent years, with a compound annual growth rate (CAGR) of assets around 3-4% for small to mid-sized banks. Profitability and net interest margins have been impacted by the interest rate environment, a trend that Old Second has navigated successfully through its diversified business model and focus on maintaining a strong capital position.

Outlook and Guidance

For 2025, Old Second is targeting loan growth in the mid-single digit range and operating expense growth of 4-5% (excluding non-recurring items). The company expects a "slow drift down" in net interest margin, potentially to the $4.35-$4.40 range if the Federal Reserve cuts rates further. Old Second plans to fund loan growth primarily through cash flows from its securities portfolio, which is expected to generate around $250 million in 2025.

The company remains open to M&A opportunities, with a focus on targets between $500 million to $4 billion in assets. Old Second is also open to share repurchases at current valuation levels, reflecting confidence in its financial position and future prospects.

Conclusion

Looking ahead, Old Second Bancorp is well-positioned to navigate the evolving banking landscape in the Midwest. The company's focus on prudent risk management, balanced growth, and strategic M&A activity has enabled it to deliver consistent financial performance and maintain a healthy balance sheet.

While the interest rate environment and macroeconomic conditions will likely present ongoing challenges, Old Second's experienced management team, diversified business model, and commitment to serving the needs of its local communities position the company for continued success. As the company integrates the Bancorp Financial acquisition and explores additional opportunities for expansion, investors can expect Old Second Bancorp to remain a stalwart among community banks in the Chicago metropolitan area and the broader Midwest region.