Old Second Bancorp(OSBC) - 2025 Q3 - Quarterly Report

Financial Performance - Net income for Q3 2025 was $9.9 million, or $0.18 per diluted share, down from $23.0 million, or $0.50 per diluted share, in Q3 2024[177] - Adjusted net income for Q3 2025 was $28.4 million, compared to $24.0 million in Q3 2024[177] - Noninterest income for the third quarter of 2025 increased by $2.2 million, or 20.3%, compared to the second quarter of 2025, driven by growth in wealth management and other income sources[209] - The company reported net income of $51.5 million in the first nine months of 2025, partially offset by $8.6 million in dividends paid[266] Acquisition of Bancorp Financial - The acquisition of Bancorp Financial was completed on July 1, 2025, with a total consideration of $189.4 million, including 7.9 million shares of Old Second common stock and $48.9 million in cash[173] - Bancorp Financial had approximately $1.43 billion in total assets, $1.19 billion in total loans, and $1.23 billion in total deposits at the time of acquisition[173] - The systems conversion for Bancorp Financial was successfully completed in October 2025[173] - The company realized a death benefit of $430,000 on BOLI in the third quarter of 2025, contributing to the increase in noninterest income[210] - The company experienced net cash inflows of $10.5 million from the acquisition of Bancorp Financial in July 2025[276] Income and Expenses - Noninterest expense increased by $23.9 million in Q3 2025, largely due to acquisition-related costs and adjustments[177] - Noninterest expense for Q3 2025 increased by $19.7 million, or 45.5%, compared to Q2 2025, and by $23.9 million, or 60.7%, compared to Q3 2024[215] - The increase in Q3 2025 noninterest expense was driven by $11.5 million in acquisition costs related to Bancorp Financial, accounting for 59.8% of the quarterly increase[215] - Salaries and employee benefits rose by $12.8 million in Q3 2025, with $8.4 million attributed to change in control, retention, and severance payouts from the Bancorp Financial acquisition[215] Loans and Credit Quality - Total loans increased by $1.28 billion as of September 30, 2025, compared to December 31, 2024, driven by $1.19 billion from the Bancorp Financial acquisition and $72.3 million in organic growth[182] - Nonperforming loans increased by $17.7 million to $48.0 million at September 30, 2025, from $30.3 million at December 31, 2024, but decreased by $4.3 million from $52.3 million at September 30, 2024[236] - The allowance for credit losses increased to $75.0 million as of September 30, 2025, compared to $43.6 million at December 31, 2024[239] - The provision for credit losses on loans was $19.7 million in the third quarter of 2025, primarily due to the inclusion of the powersport loan portfolio and related charge-offs[248] Capital and Ratios - All capital ratios were above regulatory requirements as of September 30, 2025, indicating a strong capital position[176] - The common equity tier 1 capital ratio was 12.44% as of September 30, 2025, exceeding the minimum requirement of 7.00%[267] - The tangible common equity to tangible assets ratio improved to 10.41% at September 30, 2025, compared to 10.04% at December 31, 2024[270] Deposits and Liquidity - Total deposits reached $5.76 billion as of September 30, 2025, reflecting a $991.5 million increase from $4.77 billion at December 31, 2024, and a $1.29 billion increase from $4.47 billion at September 30, 2024[260] - The average rate paid on total deposits increased by 19 basis points due to the higher cost profile of deposits acquired from Bancorp Financial[262] - As of September 30, 2025, the company's cash on hand liquidity totaled $116.5 million, an increase of $17.2 million compared to December 31, 2024[273] Interest Income and Margin - Net interest and dividend income increased to $82.8 million in Q3 2025 from $60.6 million in Q3 2024, primarily due to the acquisition of Bancorp Financial and organic loan growth[179] - The net interest margin increased to 5.03% in Q3 2025, up 41 basis points from 4.62% in Q3 2024, driven by the Bancorp Financial acquisition and higher security yields[193] - Net interest income (GAAP) for the nine months ended September 30, 2025, was $209,913 million, up from $180,051 million in 2024, representing a year-over-year increase of 16.6%[205] Market Conditions - The Federal Reserve Board reduced the Federal Funds target rate by 50 basis points in 2025 to a range of 3.75% - 4.00%[281] - The annual U.S. inflation rate for September 2025 rose to 3.0%, up from 2.7% in the previous quarter[287]