Midwest regional bank Old Second Bancorp (NASDAQ: OSBC) reported revenue ahead of Wall Street’s expectations in Q1 CY2026, with sales up 28.1% year on year to $94.09 million. Its non-GAAP profit of $0.49 per share was 4.7% below analysts’ consensus estimates.

Is now the time to buy OSBC? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Old Second Bancorp’s first quarter was marked by robust revenue growth but increased credit costs, which weighed on profitability and drove a negative market reaction. Management pointed to elevated loan charge-offs—most notably from the powersports portfolio and select commercial real estate exposures in downtown Chicago—as the primary causes of weaker non-GAAP profit. CEO James L. Eccher described the quarter as “mixed,” citing disappointment with credit trends but highlighting the bank’s “exceptionally strong” net interest margin and core franchise performance. Management also noted that some credit issues stemmed from broader economic pressures and sector-specific headwinds, such as declining office property valuations and consumer softness in powersport lending.

Looking ahead, management expects loan growth to resume at a modest pace, with pipelines building across core commercial and powersports business lines. CFO Bradley S. Adams indicated that net interest margin should remain healthy near current levels, even as some competitive pressure may compress yields. The bank plans to maintain focus on managing credit quality, with loan charge-offs in powersports expected to moderate due to seasonality and tighter underwriting. As Eccher stated, “We think losses will trend lower in coming quarters,” while Adams emphasized continued discipline in expense management and capital deployment, including ongoing share repurchases and a target for mid-single-digit loan growth for the rest of the year.

Key Insights from Management’s Remarks

Management attributed first quarter performance to higher net interest margin and resilient core banking operations, offset by elevated credit losses in certain loan segments and ongoing macroeconomic pressures.

• Elevated credit costs: The quarter saw higher loan charge-offs, mainly from the powersports portfolio and a large commercial real estate office loan in downtown Chicago, driven by sector-specific headwinds and updated collateral valuations. CEO James L. Eccher acknowledged, “We are obviously disappointed in the level of charge-offs in the quarter, but otherwise trends…remain excellent.”

• Net interest margin resilience: Net interest margin (NIM) was a key positive, rising to 5.14%. Management described this as “exceptional margin performance,” enabled by disciplined pricing and reduced cost of deposits, even as loan and deposit balances declined slightly.

• Nonperforming loans and asset quality: Nonperforming loans increased, primarily due to a single commercial and industrial relationship affected by supply chain disruptions and tariffs. However, management highlighted that overall classified assets declined, and collateral positions remain strong in downgraded credits.

• Deposit and funding strategy: The bank continued to allow higher-cost, wholesale deposits to run off, decreasing its reliance on brokered certificates of deposit (CDs) from the legacy Evergreen Bank acquisition. This shift is expected to support long-term funding stability and margin preservation.

• Expense control and capital management: Noninterest expenses fell from the prior quarter, aided by lower acquisition costs and ongoing efficiency initiatives. The bank remained active with its share repurchase program, buying back 1.2 million shares, while maintaining a strong capital position and tangible equity ratio.

Drivers of Future Performance

Old Second Bancorp’s outlook is shaped by expectations for stable net interest margins, gradual improvement in credit costs, and disciplined expense growth as key drivers of performance this year.

• Loan growth and pipeline recovery: Management anticipates low- to mid-single-digit loan growth over the remainder of the year, with commercial and powersports pipelines showing signs of strengthening. CEO James L. Eccher expects growth to be “pretty broad-based,” spanning commercial real estate, C&I, and leasing segments, while powersports lending is projected to recover from seasonal lows.

• Credit cost moderation: While recent quarters have seen higher-than-normal charge-offs—especially in powersports—management believes losses will trend lower due to seasonality and recent underwriting adjustments. Eccher said, “We think loss content will probably trend lower in the coming quarters,” and the allowance for credit losses ratio is expected to remain stable barring significant deterioration in asset quality.

• Margin and expense discipline: CFO Bradley S. Adams projects net interest margins to remain around 5% even amid competitive pressures, with modest expense growth targeted at 3-4% for the year. The company is also focused on continuing share repurchases as capital levels allow, balancing growth with capital returns.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will monitor (1) the pace and composition of loan growth across commercial and powersports portfolios, (2) whether net charge-offs and nonperforming loans begin to stabilize or decline as management expects, and (3) the impact of continued expense discipline and share repurchases on capital ratios. Broader economic and industry factors, such as commercial real estate trends and consumer lending demand, will also be key indicators to watch.

Old Second Bancorp currently trades at $20.10, down from $21.21 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free).

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