Old Second Bancorp(US:OSBC)2026-01-22 16:02Financial Data and Key Metrics Changes - Net income for Q4 2025 was $28.8 million, or $0.54 per diluted share, with a return on assets (ROA) of 1.64% and a return on average tangible common equity (ROTCE) of 16.15% [4] - Excluding certain adjusting items, net income was $30.8 million, or $0.58 per diluted share, with tangible book value per share increasing to $14.12 [5] - The tax equivalent efficiency ratio was 53.98%, with a notable improvement in the efficiency ratio adjusted to 51.28% [12] Business Line Data and Key Metrics Changes - The net interest margin (NIM) was exceptionally strong at 5.09%, reflecting a 41 basis points increase year-over-year [6] - Total loans decreased by $12.4 million from the previous quarter, with tax equivalent loan yields declining by 11 basis points [8] - Non-interest income saw a slight decrease compared to the prior quarter but increased compared to the previous year, driven by wealth management fees and service charges on deposits [11] Market Data and Key Metrics Changes - The loan-to-deposit ratio increased to 93.9% as of year-end, compared to 91.4% last quarter [7] - The total cost of deposits decreased to 115 basis points from 133 basis points in the prior linked quarter [6] - The allowance for credit losses on loans was $72.3 million, or 1.38% of total loans, down from 1.43% in the previous quarter [9] Company Strategy and Development Direction - The company aims to optimize its balance sheet and reduce reliance on wholesale funding while allowing higher-cost deposits to run off [12] - Loan growth is targeted in the mid-single digit range for the upcoming year, with a focus on organic growth and integration of previous acquisitions [16][66] - The management expressed optimism about future performance and opportunities, emphasizing the strength of the bank [17] Management's Comments on Operating Environment and Future Outlook - Management noted that unemployment and GDP forecasts remain stable, with no significant changes in assumptions [10] - The company expects elevated charge-offs in the power sports portfolio due to the nature of the business, but the contribution margin is at a multi-year high [9][22] - Management is optimistic about the first half of 2026, citing a strong pipeline for loan production [53] Other Important Information - The company completed its integration efforts from previous acquisitions, which contributed to improved performance metrics [13] - Non-interest expenses decreased significantly, with a notable reduction in acquisition-related costs [11] Q&A Session Summary Question: Are cost savings fully captured or is there a tail end into 2026? - Management indicated there is a tail end into 2026, with employee benefits expected to rise due to inflationary trends [19] Question: What is the expected net charge-off pace for the power sports portfolio? - Management expects a higher net charge-off rate due to the nature of the power sports business, with $4.5 million of the $6 million charge-off related to this portfolio [21][22] Question: What are the expectations for loan growth in the power sports vertical? - Management anticipates slightly less than mid-single digit growth in the power sports vertical [36] Question: Can you provide insights on the profile of a typical power sports borrower? - The average cycle score for the power sports portfolio is 730, with a busy season from March through the second and third quarters [42] Question: What is the outlook for share repurchases? - Management expects to begin share repurchases in the near term, indicating a lack of price sensitivity [62]