Old Second Bancorp Inc reported Q2 2026 net income of $28.2M, missing estimates by $0.02, with a strong net interest margin of 5.23% despite $9.2M in charge-offs.
Old Second Bancorp Inc. reported Q2 2026 net income of $28.2 million, or $0.54 per diluted share, missing the consensus estimate of $0.56. The earnings were impacted by $9.2 million in net loan charge-offs, reflecting ongoing credit challenges but offset by a strong net interest margin of 5.23%.
Key Takeaways
- Net income was $28.2 million, down from $28.7 million in Q1 2026, and slightly below the consensus of $28.5 million.
- Net loan charge-offs totaled $9.2 million, including significant write-offs from commercial real estate and PowerSports loans.
- Net interest margin improved to 5.23%, a 9 basis point increase from the previous quarter, driven by higher yields on loans.
- Tangible book value per share rose to $14.77, up from $14.35 in Q1 2026.
- Non-performing assets decreased by $19 million, indicating improved credit trends despite elevated charge-offs.
Credit Quality Challenges and Improvements
Despite the reported net charge-offs, Old Second Bancorp experienced a positive shift in credit quality metrics during Q2 2026. Non-performing assets declined by $19 million, with classified assets reducing by $16.5 million. The allowance for credit losses on loans was $70.4 million, representing 1.34% of total loans, down from 1.39% in Q1 2026.
“The reduction in special mention loans by 30% gives us optimism about future credit trends,” said Jim Ecker, Chairman and CEO.
However, the bank still faced challenges, particularly with a $3 million charge-off related to a commercial and industrial loan in the warehousing and distribution sector, attributed to declining cash flow. Additionally, a charge-off of $2.8 million from a commercial real estate loan highlighted ongoing pressures in that market segment.
Strong Margin Performance Amid Market Pressures
The company reported a net interest margin of 5.23%, up 38 basis points year-over-year, aided by rising loan yields and declining deposit costs. This margin performance contrasts with previous expectations of a slight contraction, illustrating a robust response to the current interest rate environment.
Brad Adams, COO and CFO, noted, “The margin increase primarily stemmed from interest rate increases along the curve, which we had not anticipated.” Total interest income rose significantly, reaching $83.3 million, a 30% increase year-over-year, while total cost of deposits fell to 1.00% from 1.05% in the prior quarter.
| Metric | Q2 2026 | YoY | QoQ |
|---|---|---|---|
| Net Income | $28.2M | -7% | -2% |
| Net Interest Margin | 5.23% | +38 bps | +9 bps |
| Charge-offs | $9.2M | N/A | N/A |
Guidance and Outlook
Looking ahead, management provided guidance for loan growth in the low to mid-single digits for the year. Despite current market pressures, the company remains optimistic about its growth prospects.
Adams indicated, “We expect to maintain strong performance in our loan and deposit pipelines, with a focus on strategic growth opportunities.” He also mentioned that the bank’s capital position allows for continued stock repurchases, with a new plan to buy back approximately 2.5 million shares by June 30, 2027.
Analyst Q&A Highlights
During the Q&A session, analysts inquired about the bank's credit outlook and margin sustainability. Nathan Race from Piper Sandler pressed on the future of charge-offs, to which Ecker responded that a reduction in special mention loans is a positive indicator for the coming quarters.
Race also asked about margin trends, and Adams suggested that while they anticipate some contraction, the bank's strong capital position mitigates risks related to margin pressures.
Frequently Asked Questions
Did Old Second Bancorp Inc beat earnings estimates in Q2 2026?
No, Old Second Bancorp reported earnings of $0.54 per share, missing the consensus estimate of $0.56 by $0.02.
What were the net loan charge-offs for Old Second Bancorp in Q2 2026?
The company reported net loan charge-offs of $9.2 million in Q2 2026, primarily driven by commercial and industrial loans.
How did Old Second Bancorp's net interest margin perform in Q2 2026?
The net interest margin improved to 5.23%, a 9 basis point increase from the previous quarter and a 38 basis point increase from the prior year.
What is the guidance for loan growth at Old Second Bancorp for the remainder of 2026?
Management guided for loan growth in the low to mid-single digits for the remainder of 2026, despite competitive market conditions.
What is the status of Old Second Bancorp's stock buyback program?
The company has initiated a new plan to repurchase approximately 2.5 million shares by June 30, 2027, continuing its focus on returning capital to shareholders.
As the company navigates ongoing credit challenges, the focus on maintaining a strong margin and managing loan growth will be critical in the upcoming quarters. This analysis is based on public earnings call materials and is not investment advice.
