Old Second Bancorp Q3 2026 Earnings: Wider Margin and Better Credit Metrics Lift Profit

Old Second Bancorp (NASDAQ: OSBC) reported Q3 2026 net interest income of $84.0 million, up from $82.8 million a year earlier, while diluted EPS rose to $0.56 from $0.18 for the quarter ended September 30, 2026. Net income reached $28.9 million as the tax-equivalent net interest margin widened and credit provisions fell, although deposit runoff and concentrated commercial charge-offs remained important counterpoints.

Core Earnings Data

GAAP net income increased from both Q2 2026 and the prior-year quarter. Sequentially, net income rose from $28.2 million to $28.9 million, while diluted EPS increased from $0.54 to $0.56.

The underlying sequential comparison was steadier: non-GAAP adjusted net income slipped to $28.5 million from $28.7 million, and adjusted diluted EPS remained at $0.55. Year over year, lower credit-loss provisions and noninterest expenses accompanied the substantial improvement in reported profit.

Net interest margin is presented on a fully tax-equivalent basis and is a non-GAAP measure. The remaining income-statement figures in the table are reported GAAP results.

Profitability and Expense Drivers

Tax-equivalent net interest margin increased four basis points from Q2 to 5.27%. Loan yields rose three basis points, more than offsetting a five-basis-point decline in investment yields and a two-basis-point increase in the cost of funds to 1.23%. Net interest income consequently increased $720,000 from the previous quarter.

Noninterest income decreased 1.44% sequentially to $13.1 million. Mortgage banking income benefited from a $623,000 mortgage-servicing-rights mark-to-market gain, compared with a $152,000 loss in Q2, but this was offset by a $673,000 decrease in the cash surrender value of bank-owned life insurance.

Noninterest expense increased 0.72% from Q2 to $51.6 million. Salaries and employee benefits rose $743,000, while occupancy, marketing, professional fees, and loan-related legal expenses also increased. A decrease of $868,000 in other expenses provided a partial offset. The reported efficiency ratio moved up to 52.34% from 51.72%, while the non-GAAP adjusted efficiency ratio rose to 52.06% from 50.80%.

Credit Metrics Improved, but Charge-Offs Remained Concentrated

Most headline credit-quality measures improved materially from Q2. However, management said loan losses remained higher than desired because of one previously identified commercial relationship, while the $6.8 million provision included the effect of powersport loan losses and isolated commercial charge-offs.

The $17.2 million decline in nonaccrual loans reflected $9.1 million of net principal paydowns, $6.2 million of full charge-offs, and $3.3 million of partial charge-offs, partly offset by $1.4 million of additions. The improvement therefore came from both borrower repayments and the recognition of losses through charge-offs.

Net charge-offs related to powersport loans totaled $3.1 million. Non-powersport charge-offs were primarily tied to two commercial loans within a single relationship, leaving credit concentration as an area investors should continue to monitor despite the lower problem-loan balances.

Loans, Deposits, and Capital

Total loans declined $7.8 million from Q2 to $5.24 billion, primarily because of lower commercial and investor commercial real estate balances. Average loans, including loans held for sale, increased only $4.0 million to $5.23 billion, indicating limited balance-sheet loan growth during the quarter.

Deposits fell $117.1 million, or 2.15%, to $5.33 billion. Both noninterest-bearing and time deposits declined as higher-rate brokered deposits and exception-priced time deposits assumed from Bancorp Financial rolled off. Average interest-bearing deposits decreased $55.5 million, while average noninterest-bearing deposits fell $22.6 million. Deposit costs increased two basis points to 1.02%, and greater use of average Federal Home Loan Bank overnight borrowings contributed to the higher overall cost of funds.

Stockholders’ equity decreased $24.3 million to $878.6 million. The decline reflected $39.2 million of additional treasury stock associated with repurchases, an $11.5 million increase in unrealized losses on securities and swaps, and $3.6 million of declared dividends, partly offset by quarterly net income.

Old Second repurchased 1,533,104 shares at an average price of $25.76, reducing capital by $39.5 million including excise taxes. Tangible common equity to tangible assets declined to 11.00% from 11.19%, while the company’s common equity Tier 1 ratio was 13.13%. The board also declared a $0.08 quarterly dividend, a 14% increase, payable November 9, 2026, to shareholders of record on October 30.

Recent Insider Transactions

The supplied Yahoo Finance summary shows 44 shares purchased across two transactions and 225,120 shares sold across 11 transactions during the previous six months, resulting in net sales of 225,076 shares. Among the ten most recent reported entries, nine were sales and one was a stock grant; these disclosures show transaction activity but do not establish the insiders’ reasons.

Risks for Investors to Monitor

• Concentrated credit losses: Two commercial loans within one relationship accounted for most non-powersport charge-offs, while powersport loans generated $3.1 million of net charge-offs.
• Deposit runoff and funding costs: Deposits declined 2.15% sequentially, and both deposit costs and the overall cost of funds increased by two basis points.
• Limited loan growth: Period-end loans decreased, while average loans increased only modestly, potentially limiting net interest income growth if the trend persists.
• Interest-rate sensitivity: Rate movements affected investment yields, mortgage-servicing-rights valuations, bank-owned life insurance, funding costs, and accumulated unrealized losses in equity.
• Capital allocation pressure: Share repurchases and higher unrealized securities losses reduced stockholders’ equity and the tangible common equity ratio despite quarterly earnings.

Summary

Old Second’s Q3 2026 results combined modest sequential earnings growth with a much stronger year-over-year profit comparison. Margin expansion, lower provisions, and sharply reduced problem-loan balances supported the quarter, but the quality of the credit improvement must be viewed alongside concentrated commercial charge-offs. Deposit runoff, rising funding costs, limited loan growth, and the capital impact of repurchases and unrealized securities losses are the main items to watch in subsequent quarters.