How Does Old Second Company Work?

How is Old Second outperforming peers in Chicago?

Old Second Bancorp entered 2025 with total assets near $5.85 billion, driven by Old Second National Bank’s shift from community lender to regional financial leader. Its strong Tier 1 capital ratio and expansion across Northern Illinois underpin steady growth and risk-managed profitability.

Old Second converts local deposits into higher-yield commercial loans while investing in digital channels and community relationships to sustain margins and customer retention.

How does Old Second Company work? It sources low-cost retail deposits across 30+ branches, underwrites commercial and consumer loans with conservative credit standards, and augments revenue via fee services and digital banking; see Old Second Porter's Five Forces Analysis.

Old Second Bancorp operates a relationship-centric model combining local decision-making with advanced digital capabilities, serving SMEs and high-net-worth clients via retail banking, commercial lending, and wealth management.

Relationship-Centric Model

Local credit officers authorize tailored C&I and CRE loans, shortening time-to-close while preserving personalized service and market knowledge.

Hybrid Distribution

A mix of physical branches and enhanced digital channels supports broad accessibility and drives cross-sell of deposits, loans, and wealth services.

Low-Cost Funding

As of mid-2025 non-interest-bearing demand deposits account for roughly 32% of total deposits, underpinning net interest margin and operational efficiency.

Tech and Fintech Partnerships

Internal tech teams plus fintech integrations streamline loan origination, credit scoring, and treasury management, reducing processing times and risk exposure.

Core operations emphasize targeted lending and deposit growth, supported by wealth management and scalable tech; this combination defines Old Second Company operations and its business model.

Operational Highlights

Key elements of how Old Second Company functions focus on credit agility, deposit mix, and channel integration, delivering value to SMEs and affluent clients.

• Commercial lending: customized C&I, CRE, and construction lines with local underwriting.
• Deposit strategy: high share of non-interest-bearing accounts at 32% mid-2025.
• Distribution: branch footprint plus mobile/online platforms for onboarding and servicing.
• Technology: proprietary and partner solutions for faster origination and improved risk assessment.

For comparative context and competitor positioning see Competitors Landscape of Old Second, which complements this explanation of Old Second Company services and process.

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Old Second Company’s revenue is driven primarily by interest spread across its $4.1 billion loan portfolio and supplemented by fee-based services; in 2025 Net Interest Income comprised approximately 82% of net revenue while non-interest income made up about 18%.

Net Interest Income

NII comes from the spread between yields on loans and cost of deposits/borrowings, underpinned by a NIM near 4.65%.

Loan Mix

Loans are diversified: 45% commercial real estate, 28% commercial & industrial, 27% residential/consumer, balancing yield and credit risk.

Wealth & Trust Fees

Wealth management oversees over $1.3 billion in AUM, generating recurring advisory and trust fees that stabilize revenue.

Deposit & Account Fees

Service charges on deposit accounts and debit-card transaction fees provide steady non-interest income streams.

Mortgage & Transaction Fees

Mortgage banking and transaction processing contribute meaningful fee revenue tied to origination and servicing volumes.

Treasury Management Pricing

Tiered pricing for treasury services to corporate clients creates recurring, less rate-sensitive fee income and supports cross-selling.

Revenue optimization focuses on margin management, fee diversification and client wallet expansion through cross-sell; see strategic context in Mission, Vision & Core Values of Old Second.

Monetization Tactics & Priorities

Key tactics target stable fee growth, improved loan yields, and higher client share-of-wallet across business lines.

• Maintain asset-sensitive balance sheet to capture higher yields as rates stabilize.
• Expand treasury management tiered-fee adoption among commercial clients.
• Increase cross-selling of wealth services to commercial loan customers to raise fee penetration.
• Optimize deposit pricing to preserve NIM while managing liquidity and funding costs.

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Key milestones include a transformational merger, targeted lending expansion, and sustained operational gains that sharpen the company’s competitive edge in community banking.

Major Integration

The 2021 integration of West Suburban Bancorp doubled suburban Chicago presence, unlocking branch rationalization and cost synergies that strengthened market share.

Operational Efficiency

By 2025 the bank reached an efficiency ratio of 52.4 percent, driven by back-office automation and consolidation of overlapping locations.

Specialized Lending

Expanded niche lending teams focused on healthcare and non-profit financing, reducing earnings volatility and improving loan portfolio resilience.

Deposit Franchise

A granular, loyal core deposit base minimizes reliance on wholesale funding, providing a funding cost advantage versus peers.

The firm’s business model couples community-bank relationships with modern technology investment to deliver omnichannel services while preserving a conservative balance sheet.

Competitive Edge and Risk Management

Competitive strengths include brand equity spanning 150 years, superior deposit economics, and technology leadership among community banks.

• Efficiency ratio at 52.4 percent places the company in the top decile of peers by 2025
• Allowance for credit losses increased proactively to 1.25 percent of total loans to bolster the balance sheet
• Deposit-driven funding lowers net interest expense and shields net margin from market shocks
• Omnichannel digital platform supports customer onboarding and retention, aligning Old Second Company operations with national competitors

For historical context and company background see Brief History of Old Second.

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Old Second Bancorp holds a leading market share among independent community banks in the Chicago‑Naperville‑Elgin MSA, focused on mid‑market commercial clients; it faces competition from large national banks and regional peers while managing CRE concentration and digital transformation needs.

Industry Position

Old Second Company operations center on mid‑market commercial banking in Illinois, leveraging local expertise to capture a top share among independent community banks in the MSA. The business model emphasizes relationship lending, deposit gathering, and fee income from treasury and mortgage origination.

Competitive Landscape

Competition includes national giants like JPMorgan Chase and regional banks such as Wintrust Financial, yet Old Second Company functions effectively by niche focus and client intimacy, keeping net interest margin and noninterest income competitive versus peers.

Risks

Key risks include concentration in commercial real estate—notably office and retail—and the need for ongoing capital expenditure for digital capabilities to prevent customer churn to neo‑banks and fintechs. Analysts monitor CRE exposure and credit metrics closely.

Operational Priorities

Management prioritizes disciplined capital allocation, maintaining a robust dividend payout, and selective M&A aligned with culture and financial criteria while scaling digital‑only deposit products and expanding residential mortgage presence.

Recent metrics (YE 2025 guidance and latest reported): Old Second reported total assets approaching $5.7 billion (2025 preliminary), CET1 and leverage ratios above regulatory minimums, and continued ROA/ROE within peer median ranges; CRE represented a material but manageable portion of loans per investor presentations.

Future Outlook & Strategic Actions

Outlook emphasizes organic growth, digital scale, and mortgage expansion with a target to exceed the $6 billion asset milestone through retained earnings and selective deals while protecting shareholder returns.

• Scale digital‑only deposit products to capture younger demographics and reduce funding cost.
• Expand residential mortgage operations as housing market normalizes to diversify loan mix away from CRE.
• Maintain dividend discipline and capital buffers to support growth and regulatory resilience.
• Pursue opportunistic M&A that fits strict cultural and financial thresholds to accelerate strategic goals.

For a focused revenue and business model breakdown, see Revenue Streams & Business Model of Old Second

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