Old Second Bancorp, Inc. Reports Third Quarter 2023 Net Income of $24.3 Million,

or $0.54 per Diluted Share

AURORA, IL, October 18, 2023 - Old Second Bancorp, Inc. (the "Company," "Old Second," "we," "us," and "our") (NASDAQ: OSBC), the parent company of Old Second National Bank (the "Bank"), today announced financial results for the third quarter of 2023. Our net income was $24.3 million, or $0.54 per diluted share, for the third quarter of 2023, compared to net income of $25.6 million, or $0.56 per diluted share, for the second quarter of 2023, and net income of $19.5 million, or $0.43 per diluted share, for the third quarter of 2022. Adjusted net income, a non-GAAP financial measure that excludes Visa portfolio and land trust portfolio gains on sale, Visa portfolio liquidation and deconversion costs, and any merger related costs, as applicable, was $24.8 million, or $0.55 per diluted share, for the third quarter of 2023, compared to $25.6 million, or $0.56 per diluted share, for the second quarter of 2023, and $19.6 million, or $0.43 per diluted share, for the third quarter of 2022. See the discussion entitled "Non-GAAP Presentations" below and the tables beginning on page 17 that provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

Net income decreased $1.2 million in the third quarter of 2023 compared to the second quarter of 2023. The decrease was primarily due to the increase of $1.0 million in provision for credit losses, and an increase in noninterest expense of $2.6 million in the third quarter of 2023, which were partially offset by a $1.7 million increase in noninterest income and a $1.3 million decrease in provision for income taxes. Net income increased $4.8 million in the third quarter of 2023 compared to the third quarter of 2022, primarily due to an increase in net interest income of $7.5 million year over year due to rising market interest rates and a $1.5 million decrease in provision for credit losses. The increase in net income in the third quarter of 2023 was partially offset by a $1.6 million decrease in noninterest income and a $1.4 million increase in noninterest expense. The third quarter of 2023 was impacted by a pre-tax net loss on the sale of securities of $924,000, compared to pre-tax net losses on the sale of securities of $1.5 million and $1,000 in the second quarter of 2023 and the third quarter of 2022, respectively. In addition, the third quarter of 2023 was also impacted by $629,000 of deconversion and liquidation costs from the 2022 sale of our Visa credit card portfolio.

Operating Results

● Third quarter 2023 net income was $24.3 million, reflecting a $1.2 million decrease from the second quarter 2023, and an increase of $4.8 million from the third quarter of 2022. Adjusted net income, as defined above, was $24.8 million for the third quarter of 2023, a decrease of $776,000 from adjusted net income for the second quarter of 2023, and an increase of $5.2 million from adjusted net income for the third quarter of 2022.
● Net interest and dividend income was $63.0 million for the third quarter of 2023, reflecting a decrease of $550,000, or 0.9%, from the second quarter of 2023, and an increase of $7.5 million, or 13.4%, from the third quarter of 2022.
● We recorded a net provision for credit losses of $3.0 million in the third quarter of 2023, compared to a net provision for credit losses of $2.0 million in the second quarter of 2023, and a net provision for credit losses of $4.5 million in the third quarter of 2022.
● Noninterest income was $9.9 million for the third quarter of 2023, an increase of $1.7 million, or 20.1%, compared to $8.2 million for the second quarter of 2023, and a decrease of $1.6 million, or 14.1%, compared to $11.5 million for the third quarter of 2022.

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● Noninterest expense was $37.4 million for the third quarter of 2023, an increase of $2.6 million, or 7.4% compared to $34.8 million for the second quarter of 2023, and an increase of $1.4 million, or 4.0%, compared to $36.0 million for the third quarter of 2022.
● We had a provision for income tax of $8.1 million for the third quarter of 2023, compared to a provision for income tax of $9.4 million for the second quarter of 2023 and a provision of $7.1 million for the third quarter of 2022. The effective tax rate for each of the periods presented was 25.1%, 26.9%, and 26.5%, respectively.
● On October 17, 2023, our Board of Directors declared a cash dividend of $0.05 per share payable on November 6, 2023, to stockholders of record as of October 27, 2023.

Financial Highlights

Quarters Ended

(Dollars in thousands)

September 30, 2023

June 30, 2023

September 30, 2022

Balance sheet summary

Total assets

$

5,758,156

$

5,883,942

$

5,967,705

Total securities available-for-sale

1,229,618

1,335,622

1,609,759

Total loans

4,029,543

4,015,525

3,869,334

Total deposits

4,614,320

4,717,582

5,281,359

Total liabilities

5,225,598

5,369,987

5,533,991

Total equity

532,558

513,955

433,714

Total tangible assets

$

5,659,858

$

5,785,028

$

5,866,904

Total tangible equity

434,260

415,041

332,913

Income statement summary

Net interest income

$

63,030

$

63,580

$

55,569

Provision for credit losses

3,000

2,000

4,500

Noninterest income

9,877

8,223

11,496

Noninterest expense

37,423

34,830

35,988

Net income

24,335

25,562

19,523

Effective tax rate

25.09

%

26.91

%

26.54

%

Profitability ratios

Return on average assets (ROAA)

1.67

%

1.73

%

1.29

%

Return on average equity (ROAE)

18.21

20.04

16.70

Net interest margin (tax-equivalent)

4.66

4.64

3.96

Efficiency ratio

50.08

46.84

53.08

Return on average tangible common equity (ROATCE)

22.80

25.30

21.87

Tangible common equity to tangible assets (TCE/TA)

7.67

7.17

5.67

Per share data

Diluted earnings per share

$

0.54

$

0.56

$

0.43

Tangible book value per share

9.72

9.29

7.47

Company capital ratios 1

Common equity tier 1 capital ratio

11.00

%

10.29

%

9.16

%

Tier 1 risk-based capital ratio

11.52

10.80

9.68

Total risk-based capital ratio

13.84

13.16

11.99

Tier 1 leverage ratio

9.62

8.96

7.70

Bank capital ratios 1, 2

Common equity tier 1 capital ratio

12.49

%

11.70

%

11.60

%

Tier 1 risk-based capital ratio

12.49

11.70

11.60

Total risk-based capital ratio

13.57

12.83

12.64

Tier 1 leverage ratio

10.43

9.70

9.24

​

1Both the Company and the Bank ratios are inclusive of a capital conservation buffer of 2.50%, and both are subject to the minimum capital adequacy guidelines of 7.00%, 8.50%, 10.50%, and 4.00% for the Common equity tier 1, Tier 1 risk-based, Total risk-based and Tier 1 leverage ratios, respectively.

2 The prompt corrective action provisions are applicable only at the Bank level, and are 6.50%, 8.00%, 10.00%, and 5.00% for the Common equity tier 1, Tier 1 risk-based, Total risk-based and Tier 1 leverage ratios, respectively.

2

Chairman, President and Chief Executive Officer Jim Eccher said "Old Second reported strong results in the third quarter as we earned $24.3 million in net income, ROAA of 1.67% and ROATCE of 22.80%. Adjusting for merger related expenses, the gain on the land trust sale and Visa portfolio related items, our earnings per share increased by 28% over the third quarter 2022. Our tangible book value per share has increased by more than 30% over the last year and capital ratios continue to build very quickly with our tangible common equity ratio increasing by 50 basis points on a linked quarter basis to 7.67%. Our focus over the near term will continue to be on assessing risks both within the loan portfolio and more broadly and optimizing the earning asset mix while reducing our overall sensitivity to interest rates. We believe the ability to deliver exceptional returns and compound book value, at a time when marginal spreads in deposit and lending markets are tight, illustrates the quality of the franchise we have built. With a strong balance sheet, low-cost granular funding and continuing excellent overall profitability, Old Second is well positioned for the remainder of 2023 and beyond."

Asset Quality & Earning Assets

● Nonperforming loans, comprised of nonaccrual loans plus loans past due 90 days or more and still accruing, and, prior to January 1, 2023, performing troubled debt restructurings, totaled $63.6 million at September 30, 2023, $61.2 million at June 30, 2023, and $52.9 million at September 30, 2022. Nonperforming loans, as a percent of total loans, were 1.6% at September 30, 2023, 1.5% at June 30, 2023, and 1.4% at September 30, 2022. The increase in the third quarter of 2023 is driven by the downgrade of a few credits during the quarter, due primarily to office-related loans within the commercial real estate-investor portfolio and debt service coverage shortfalls.
● Total loans were $4.03 billion at September 30, 2023, reflecting an increase of $14.0 million compared to June 30, 2023, and an increase of $160.2 million compared to September 30, 2022. The increase year over year was largely driven by the growth in leases, commercial real estate-investor, construction, and multifamily portfolios. Average loans (including loans held-for-sale) for the third quarter of 2023 totaled $4.01 billion, reflecting a decrease of $29.3 million from the second quarter of 2023 and an increase of $257.7 million from the third quarter of 2022.
● Available-for-sale securities totaled $1.23 billion at September 30, 2023, compared to $1.34 billion at June 30, 2023, and $1.61 billion at September 30, 2022. The unrealized mark to market loss on securities totaled $120.5 million as of September 30, 2023, compared to $112.4 million as of June 30, 2023, and $131.0 million as of September 30, 2022, due to market interest rate fluctuations as well as changes year over year in the composition of the securities portfolio. During the quarter ended September 30, 2023, securities sales of $65.6 million resulted in net realized losses of $924,000, compared to sales of $74.0 million during the quarter ended June 30, 2023, which resulted in net realized losses of $1.5 million, and no security sales for the quarter ended September 30, 2022, with a loss of $1,000 on the call of securities. We may continue to sell strategically identified securities as opportunities arise.

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Net Interest Income

Analysis of Average Balances,

Tax Equivalent Income / Expense and Rates

(Dollars in thousands - unaudited)

Quarters Ended

September 30, 2023

June 30, 2023

September 30, 2022

​

Average

Income /

Rate

Average

Income /

Rate

Average

Income /

Rate

Balance

Expense

%

Balance

Expense

%

Balance

Expense

%

Assets

Interest earning deposits with financial institutions

$

49,737

$

659

5.26

$

50,309

$

643

5.13

$

131,260

$

663

2.00

Securities:

Taxable

1,125,688

8,946

3.15

1,231,994

9,930

3.23

1,525,258

9,116

2.37

Non-taxable (TE)1

169,523

1,687

3.95

172,670

1,692

3.93

178,090

1,686

3.76

Total securities (TE)1

1,295,211

10,633

3.26

1,404,664

11,622

3.32

1,703,348

10,802

2.52

FHLBC and FRBC Stock

35,954

597

6.59

34,029

396

4.67

19,565

261

5.29

Loans and loans held-for-sale1, 2

4,010,859

62,705

6.20

4,040,202

61,591

6.11

3,753,117

46,642

4.93

Total interest earning assets

5,391,761

74,594

5.49

5,529,204

74,252

5.39

5,607,290

58,368

4.13

Cash and due from banks

57,279

-

-

56,191

-

-

56,265

-

-

Allowance for credit losses on loans

(54,581)

-

-

(53,480)

-

-

(45,449)

-

-

Other noninterest bearing assets

384,059

-

-

379,576

-

-

377,850

-

-

Total assets

$

5,778,518

$

5,911,491

$

5,995,956

Liabilities and Stockholders' Equity

NOW accounts

$

576,138

$

440

0.30

$

600,957

$

312

0.21

$

612,174

$

148

0.10

Money market accounts

720,488

1,767

0.97

762,967

1,245

0.65

967,106

157

0.06

Savings accounts

1,027,987

351

0.14

1,073,172

185

0.07

1,186,001

75

0.03

Time deposits

466,250

1,982

1.69

436,524

1,156

1.06

459,925

335

0.29

Interest bearing deposits

2,790,863

4,540

0.65

2,873,620

2,898

0.40

3,225,206

715

0.09

Securities sold under repurchase agreements

24,945

27

0.43

25,575

7

0.11

33,733

10

0.12

Other short-term borrowings

427,174

5,840

5.42

402,527

5,160

5.14

5,435

44

3.21

Junior subordinated debentures

25,773

245

3.77

25,773

281

4.37

25,773

285

4.39

Subordinated debentures

59,350

547

3.66

59,329

546

3.69

59,265

546

3.66

Senior notes

-

-

-

44,134

1,414

12.85

44,546

728

6.48

Notes payable and other borrowings

-

-

-

-

-

-

10,989

111

4.01

Total interest bearing liabilities

3,328,105

11,199

1.34

3,430,958

10,306

1.20

3,404,947

2,439

0.28

Noninterest bearing deposits

1,867,201

-

-

1,920,448

-

-

2,092,301

-

-

Other liabilities

53,164

-

-

48,434

-

-

34,949

-

-

Stockholders' equity

530,048

-

-

511,651

-

-

463,759

-

-

Total liabilities and stockholders' equity

$

5,778,518

$

5,911,491

$

5,995,956

Net interest income (GAAP)

$

63,030

$

63,580

$

55,569

Net interest margin (GAAP)

4.64

4.61

3.93

Net interest income (TE)1

$

63,395

$

63,946

$

55,929

Net interest margin (TE)1

4.66

4.64

3.96

Interest bearing liabilities to earning assets

61.73

%

62.05

%

60.72

%

1 Tax equivalent (TE) basis is calculated using a marginal tax rate of 21% in 2023 and 2022. See the discussion entitled "Non-GAAP Presentations" below and the tables beginning on page 17 that provides a reconciliation of each non-GAAP measures to the most comparable GAAP equivalent.

2Interest income from loans is shown on a tax equivalent basis, which is a non-GAAP financial measure as discussed in the table on page 17, and includes loan fee expense of $780,000 for the third quarter of 2023, and loan fee expense of $242,000 and $588,000 for the second quarter of 2023 and the third quarter of 2022, respectively. Nonaccrual loans are included in the above stated average balances.

The increased yield of 10 basis points on interest earning assets compared to the linked period was driven by higher yields on loan originations than those in the previous period as well as repricing within the existing variable rate portfolios for securities available-for-sale and loans. Changes in the market interest rate environment impact earning assets at varying intervals depending on the repricing timeline of loans, as well as the securities maturity, paydown and purchase activities.

The year over year increase of 136 basis points on interest earning assets was driven by significant increases to benchmark interest rates as well as strong loan growth throughout the period, specifically within the leases, commercial real estate and multifamily portfolios, as these loan segments generally produce the greatest yield. The increases in

4

benchmark interest rates impacted yields on the securities portfolio through the inverse relationship between interest rates and market value coupled with maturities and strategic sales of lower yielding assets, as we work to increase the weighted average yield in the portfolio.

Average balances of interest bearing deposit accounts have decreased steadily since the third quarter of 2022 through the third quarter of 2023, from $3.23 billion to $2.79 billion, with decreases reflected in all deposit categories excluding time deposits. We have continued to control the cost of funds over the periods reflected, with the rate of overall interest bearing deposits increasing to 65 basis points for the quarter ended September 30, 2023, from 40 basis points for the quarter ended June 30, 2023, and from nine basis points for the quarter ended September 30, 2022. A 32 basis point increase in the cost of money market funds for the quarter ended September 30, 2023 compared to prior linked quarter, and a 91 basis point increase compared to the prior year like quarter were both due to select deposit account exception pricing, and drove a significant portion of the overall increase. Average rates paid on time deposits for the quarter ended September 30, 2023 increased by 63 basis points and 140 basis points in the quarter over linked quarter and year over year quarters, respectively, primarily due to CD rate specials we offered.

Borrowing costs decreased in the third quarter of 2023, compared to the second quarter of 2023, primarily due to the redemption of the senior notes as of June 30, 2023, partially offset by an increase in average short-term borrowings of $24.6 million stemming from increased average FHLB advances over the prior quarter. The increase of $421.7 million year over year of average FHLB advances was based on daily liquidity needs. Subordinated and junior subordinated debt interest expense were essentially flat over each of the periods presented. Senior notes had the most significant interest expense decrease, as we had redeemed all of the $45.0 million senior notes, net of deferred issuance costs, in June 2023, resulting in senior notes having no balance after that time. In February 2023, we paid off the remaining balance of $9.0 million on the original $20.0 million term note issued in 2020, resulting in notes payable and other borrowings having no balance after that time.

Our net interest margin (GAAP) increased three basis points to 4.64% for the third quarter of 2023, compared to 4.61% for the second quarter of 2023, and increased 71 basis points compared to 3.93% for the third quarter of 2022. Our net interest margin (TE) increased two basis points to 4.66% for the third quarter of 2023, compared to 4.64% for the second quarter of 2023, and increased 70 basis points compared to 3.96% for the third quarter of 2022. The increase in the third quarter, compared to the prior quarter, is primarily due to the growth in interest income due to the rising interest rate environment, and a decrease in borrowing interest expense due to the redemption of the senior notes in June 2023. The increase in the third quarter, compared to the prior year like quarter, is primarily due to an increase in market interest rates, and the related rate resets on loans and securities during the past year, as well as continuing loan growth relative to a more modest increase in costs of interest bearing liabilities. See the discussion entitled "Non-GAAP Presentations" and the tables beginning on page 17 that provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

5

Noninterest Income

3rd Quarter 2023

Noninterest Income

Three Months Ended

Percent Change From

(Dollars in thousands)

September 30,

June 30,

September 30,

June 30,

September 30,

2023

2023

2022

2023

2022

Wealth management

$

2,475

$

2,458

$

2,280

0.7

8.6

Service charges on deposits

2,504

2,362

2,661

6.0

(5.9)

Residential mortgage banking revenue

Secondary mortgage fees

66

76

81

(13.2)

(18.5)

MSRs mark to market gain

281

96

548

192.7

(48.7)

Mortgage servicing income

519

499

514

4.0

1.0

Net gain on sales of mortgage loans

407

398

449

2.3

(9.4)

Total residential mortgage banking revenue

1,273

1,069

1,592

19.1

(20.0)

Securities losses, net

(924)

(1,547)

(1)

40.3

N/M

Change in cash surrender value of BOLI

919

418

146

119.9

529.5

Card related income

2,606

2,690

2,653

(3.1)

(1.8)

Other income

1,024

773

2,165

32.5

(52.7)

Total noninterest income

$

9,877

$

8,223

$

11,496

20.1

(14.1)

N/M - Not meaningful.

Noninterest income increased $1.7 million, or 20.1%, in the third quarter of 2023, compared to the second quarter of 2023, and decreased $1.6 million, or 14.1%, compared to the third quarter of 2022. The increase from the second quarter of 2023 was primarily driven by a $204,000 increase in residential mortgage banking revenue, a $623,000 decrease in securities losses, net, based on strategic sales, a $501,000 increase in the cash surrender value of BOLI, and a $251,000 increase in other income primarily due to contract incentives achieved on brokerage activities, as well as various recoveries on prior year sold mortgage claims.

The decrease in noninterest income of $1.6 million in the third quarter of 2023, compared to the third quarter of 2022, is primarily due to an increase in security losses, net, of $923,000 on strategic sales for the quarter ended September 30, 2023, a decrease of $267,000 on mortgage servicing rights mark to market gains, and a $1.1 million decrease in other income due to a $743,000 pretax gain on a Visa credit card portfolio sale and a $180,000 pretax gain on the sale of a land trust portfolio recorded in the third quarter of 2022. These decreases were partially offset by a $773,000 increase in the cash surrender value of BOLI due to market interest rate changes.

6

Noninterest Expense

3rd Quarter 2023

Noninterest Expense

Three Months Ended

Percent Change From

(Dollars in thousands)

September 30,

June 30,

September 30,

June 30,

September 30,

2023

2023

2022

2023

2022

Salaries

$

17,279

$

16,310

$

14,711

5.9

17.5

Officers incentive

2,773

2,397

2,787

15.7

(0.5)

Benefits and other

3,063

3,091

3,513

(0.9)

(12.8)

Total salaries and employee benefits

23,115

21,798

21,011

6.0

10.0

Occupancy, furniture and equipment expense

3,506

3,639

4,119

(3.7)

(14.9)

Computer and data processing

1,922

1,290

2,543

49.0

(24.4)

FDIC insurance

744

794

659

(6.3)

12.9

Net teller & bill paying

534

515

504

3.7

6.0

General bank insurance

300

306

257

(2.0)

16.7

Amortization of core deposit intangible asset

616

618

657

(0.3)

(6.2)

Advertising expense

93

103

83

(9.7)

12.0

Card related expense

1,347

1,222

1,453

10.2

(7.3)

Legal fees

97

283

212

(65.7)

(54.2)

Consulting & management fees

549

520

607

5.6

(9.6)

Other real estate owned expense, net

(27)

(98)

21

72.4

(228.6)

Other expense

4,627

3,840

3,862

20.5

19.8

Total noninterest expense

$

37,423

$

34,830

$

35,988

7.4

4.0

Efficiency ratio (GAAP)1

50.08

%

46.84

%

53.08

%

Adjusted efficiency ratio (non-GAAP)2

48.82

%

46.49

%

51.90

%

1 The efficiency ratio shown in the table above is a GAAP financial measure calculated as noninterest expense, excluding amortization of core deposits and OREO expenses, divided by the sum of net interest income and total noninterest income less net gains or losses on securities and mark to market gains or losses on MSRs.

2 The adjusted efficiency ratio shown in the table above is a non-GAAP financial measure calculated as noninterest expense, excluding amortization of core deposits, OREO expenses, and acquisition-related costs, net of gains on branch sales, Visa credit card portfolio liquidation and related deconversion costs, as well as any merger related costs, if applicable, divided by the sum of net interest income on a fully tax equivalent basis, total noninterest income less net gains or losses on securities, mark to market gains or losses on MSRs, gain on the sale of our Visa credit card and land trust portfolios, and includes a tax equivalent adjustment on the change in cash surrender value of BOLI. See the discussion entitled "Non-GAAP Presentations" below and the table on page 18 that provides a reconciliation of this non-GAAP financial measure to the most comparable GAAP equivalent.

Noninterest expense for the third quarter of 2023 increased $2.6 million, or 7.4%, compared to the second quarter of 2023, and increased $1.4 million, or 4.0%, compared to the third quarter of 2022. The increase in the third quarter of 2023 compared to the second quarter of 2023 was attributable to a $1.3 million increase in salaries and employee benefits, primarily due to an increase in salaries and the officer incentive accrual. Also contributing to the increase in the third quarter of 2023 was a $632,000 increase in computer and data processing costs as the second quarter reflects software contract incentives, and a $787,000 increase in other expenses primarily due to $629,000 of liquidation costs recorded from the September 2023 Visa credit card portfolio deconversion, which we sold in the third quarter of 2022 and continued to service through the third quarter of 2023. Partially offsetting the increase in noninterest expense in the third quarter of 2023 was a $186,000 decrease in legal fees, as the second quarter of 2023 experienced higher legal costs due to senior debt redemption, the proxy filing, and benefit plan reviews.

The year over year increase in noninterest expense is primarily attributable to a $2.1 million increase in salaries and employee benefits, primarily due to an increase in salaries due to higher wage rates in the current year. Also contributing to the increase was a $765,000 increase in other expense, which was primarily due to $629,000 of liquidation and deconversion costs recorded on the Visa credit card portfolio liquidation in the third quarter of 2023. Partially offsetting the increase in noninterest expense in the third quarter of 2023, compared to the third quarter of 2022, was a $613,000 decrease in furniture and equipment expenses, a $621,000 decrease in computer and data processing expenses, and a $115,000 decrease in legal fees, all stemming from acquisition related costs that were recorded in the third quarter of 2022.

7

Earning Assets

September 30, 2023

Loans

As of

Percent Change From

(Dollars in thousands)

September 30,

June 30,

September 30,

June 30,

September 30,

2023

2023

2022

2023

2022

Commercial

$

834,877

$

820,027

$

888,081

1.8

(6.0)

Leases

354,827

314,919

251,603

12.7

41.0

Commercial real estate - investor

1,047,122

1,080,073

941,910

(3.1)

11.2

Commercial real estate - owner occupied

809,050

824,277

876,951

(1.8)

(7.7)

Construction

202,546

189,058

176,700

7.1

14.6

Residential real estate - investor

53,762

55,935

59,580

(3.9)

(9.8)

Residential real estate - owner occupied

227,446

218,205

220,969

4.2

2.9

Multifamily

372,020

383,184

322,856

(2.9)

15.2

HELOC

102,055

102,058

116,108

(0.0)

(12.1)

Other1

25,838

27,789

14,576

(7.0)

77.3

Total loans

$

4,029,543

$

4,015,525

$

3,869,334

0.3

4.1

1 Other class includes consumer loans and overdrafts.

Total loans increased by $14.0 million at September 30, 2023, compared to June 30, 2023, and increased $160.2 million for the year over year period. Loan growth of $160.2 million in the year over year period was driven by growth in leasing, commercial real estate - investor, construction, and multifamily loans.

September 30, 2023

Securities

As of

Percent Change From

(Dollars in thousands)

September 30,

June 30,

September 30,

June 30,

September 30,

2023

2023

2022

2023

2022

Securities available-for-sale, at fair value

U.S. Treasury

$

216,777

$

214,613

$

211,097

1.0

2.7

U.S. government agencies

55,821

55,981

55,963

(0.3)

(0.3)

U.S. government agency mortgage-backed

104,569

115,140

127,626

(9.2)

(18.1)

States and political subdivisions

220,100

229,534

224,260

(4.1)

(1.9)

Corporate bonds

4,961

4,882

9,543

1.6

(48.0)

Collateralized mortgage obligations

386,679

407,495

587,846

(5.1)

(34.2)

Asset-backed securities

66,916

134,319

219,587

(50.2)

(69.5)

Collateralized loan obligations

173,795

173,658

173,837

0.1

(0.0)

Total securities available-for-sale

$

1,229,618

$

1,335,622

$

1,609,759

(7.9)

(23.6)

Our securities portfolio totaled $1.23 billion as of September 30, 2023, a decrease of $106.0 million from $1.34 billion as of June 30, 2023, and a decrease of $380.1 million since September 30, 2022. The portfolio decrease of $106.0 million in the third quarter of 2023, compared to the prior quarter-end, was due to security sales of $65.6 million, which resulted in a net realized loss of $924,000, as well as paydowns of $29.6 million. Net unrealized losses at September 30, 2023 were $120.5 million, compared to $112.4 million at June 30, 2023 and $131.0 million at September 30, 2022. The year over year decrease in net unrealized losses is due to changes in the market interest rate environment as well as the impact of security sales undertaken to further reduce the portfolio's interest rate sensitivity. The portfolio continues to consist of high quality fixed-rate and floating-rate securities, with more than 99% of publicly issued securities rated AA or better.

8

Asset Quality

September 30, 2023

Nonperforming assets

As of

Percent Change From

(Dollars in thousands)

September 30,

June 30,

September 30,

June 30,

September 30,

2023

2023

2022

2023

2022

Nonaccrual loans

$

62,116

$

60,925

$

32,126

2.0

93.4

Performing troubled debt restructured loans accruing interest 1

N/A

N/A

22

N/A

N/A

Loans past due 90 days or more and still accruing interest

1,485

308

20,752

382.1

(92.8)

Total nonperforming loans

63,601

61,233

52,900

3.9

20.2

Other real estate owned

407

761

1,561

(46.5)

(73.9)

Total nonperforming assets

$

64,008

$

61,994

$

54,461

3.2

17.5

30-89 days past due loans and still accruing interest

$

28,219

$

12,449

$

8,197

Nonaccrual loans to total loans

1.5

%

1.5

%

0.8

%

Nonperforming loans to total loans

1.6

%

1.5

%

1.4

%

Nonperforming assets to total loans plus OREO

1.6

%

1.5

%

1.4

%

Purchased credit-deteriorated loans to total loans

1.5

%

1.6

%

2.1

%

Allowance for credit losses

$

51,729

$

55,314

$

48,847

Allowance for credit losses to total loans

1.3

%

1.4

%

1.3

%

Allowance for credit losses to nonaccrual loans

83.3

%

90.8

%

152.1

%

N/A - Not applicable.

1 As of January 1, 2023, the Company prospectively adopted ASU 2022-02, Topic 326 "Troubled Debt Restructurings ("TDRs") and Vintage Disclosures", which eliminated the need for recognition, measurement and disclosure of TDRs going forward.

Nonperforming loans consist of nonaccrual loans and loans 90 days or more past due and still accruing interest. Prior to January 1, 2023, nonperforming loans also included performing troubled debt restructured loans accruing interest. Purchased credit-deteriorated ("PCD") loans acquired in our acquisitions of West Suburban and ABC Bank totaled $61.2 million, net of purchase accounting adjustments, at September 30, 2023. PCD loans that meet the definition of nonperforming loans are included in our nonperforming disclosures. Nonperforming loans to total loans was 1.6% as of September 30, 2023, 1.5% as of June 30, 2023, and 1.4% as of September 30, 2022. Nonperforming assets to total loans plus OREO was 1.6% as of September 30, 2023, 1.5% as of June 30, 2023, and 1.4% as of September 30, 2022. Our allowance for credit losses to total loans was 1.3% as of September 30, 2023, 1.4% as of June 30, 2023, and 1.3% as of September 30, 2022.

The following table shows classified loans by segment, which include nonaccrual loans, PCD loans if the risk rating so indicates, and all other loans considered substandard, for the following periods.

September 30, 2023

Classified loans

As of

Percent Change From

(Dollars in thousands)

September 30,

June 30,

September 30,

June 30,

September 30,

2023

2023

2022

2023

2022

Commercial

$

18,298

$

22,245

$

31,722

(17.7)

(42.3)

Leases

574

974

235

(41.1)

144.3

Commercial real estate - investor

54,126

57,041

28,252

(5.1)

91.6

Commercial real estate - owner occupied

55,292

38,495

42,698

43.6

29.5

Construction

17,263

116

1,347

N/M

N/M

Residential real estate - investor

1,502

1,714

1,285

(12.4)

16.9

Residential real estate - owner occupied

3,627

3,660

3,929

(0.9)

(7.7)

Multifamily

1,141

1,191

1,982

(4.2)

(42.4)

HELOC

1,434

2,152

2,278

(33.4)

(37.1)

Other1

-

-

2

-

(100.0)

Total classified loans

$

153,257

$

127,588

$

113,730

20.1

34.8

N/M - Not meaningful.

1 Other class includes consumer loans and overdrafts.

9

Classified loans as of September 30, 2023 increased $25.7 million from June 30, 2023, and $39.5 million from September 30, 2022. The net increase from the second quarter of 2023 was driven by two additions totaling $17.6 million in commercial real estate - owner occupied, two additions totaling $17.3 million in construction, and offset by $6.8 million charged off in commercial real estate - investor. Remediation work continues on these three credits, with the goal of cash flow improvements with increased tenancy. Reductions in commercial and multifamily classified loans were noted in the third quarter of 2023 from the linked quarter and prior year like quarter due to ongoing remediation efforts.

Allowance for Credit Losses on Loans and Unfunded Commitments

At September 30, 2023, our allowance for credit losses ("ACL") on loans totaled $51.7 million, and our ACL on unfunded commitments, included in other liabilities, totaled $2.9 million. In the third quarter of 2023, we recorded provision expense of $3.0 million based on historical loss rate updates, loan growth, our assessment of nonperforming loan metrics and trends, and estimated future credit losses. The third quarter's provision expense consisted of a $3.0 million provision for credit losses on loans, and a $11,000 reversal of provision for credit losses on unfunded commitments. The decrease in unfunded commitments was primarily due to an adjustment of historical benchmark assumptions, such as funding rates and the period used to forecast those rates, within the ACL calculation. We recorded net charge-offs of $6.6 million in the third quarter of 2023, which reduced the ACL. The majority of the third quarter charge offs were specific to two borrowers within commercial real estate on which we had existing specific allocations within the ACL of $4.7 million at June 30, 2023. The second quarter 2023 provision expense of $2.0 million consisted of a $2.4 million provision for credit losses on loans, and a $427,000 reversal of provision for credit losses on unfunded commitments. We recorded net charge-offs of $505,000 in the second quarter of 2023. In the third quarter of 2022, we recorded provision expense of $4.5 million based on our assessment of nonperforming loan metrics and trends and estimated future credit losses. We recorded net charge-offs of $68,000 in the third quarter of 2022, which reduced the ACL. Our ACL on loans to total loans was 1.3% as of September 30, 2023 and 1.4% as of June 30, 2023, and 1.3% as of September 30, 2022.

The $235,000 decrease in our ACL on unfunded commitments at September 30, 2023, compared to June 30, 2023, was driven by a $11,000 reversal of provision expense in the quarter discussed above, as well as purchase accounting accretion on unfunded commitments recorded during the quarter. The ACL on unfunded commitments totaled $2.9 million as of September 30, 2023, $3.1 million as of June 30, 2023, and $5.4 million as of September 30, 2022.

Net Charge-off Summary

Loan charge-offs, net of recoveries

Quarters Ended

(Dollars in thousands)

September 30,

% of

June 30,

% of

September 30,

% of

2023

Total 2

2023

Total 2

2022

Total 2

Commercial

$

8

0.1

$

298

59.0

$

20

29.4

Leases

(95)

(1.4)

(7)

(1.4)

178

261.8

Commercial real estate - Investor

6,754

102.4

51

10.1

105

154.4

Commercial real estate - Owner occupied

23

0.3

198

39.2

(75)

(110.3)

Construction

(100)

(1.5)

-

-

-

-

Residential real estate - Investor

(3)

-

(5)

(1.0)

(8)

(11.8)

Residential real estate - Owner occupied

(25)

(0.4)

(36)

(7.1)

(113)

(166.2)

Multifamily

-

-

-

-

(63)

(92.6)

HELOC

(35)

(0.5)

(24)

(4.8)

(35)

(51.5)

Other 1

70

1.0

30

6.0

59

86.8

Net charge-offs / (recoveries)

$

6,597

100.0

$

505

100.0

$

68

100.0

1 Other class includes consumer loans and overdrafts.

2Represents the percentage of net charge-offs attributable to each category of loans.

Gross charge-offs for the third quarter of 2023 were $6.9 million, compared to $733,000 for the second quarter of 2023 and $484,000 for the third quarter of 2022. Gross recoveries were $339,000 for the third quarter of 2023, compared to $228,000 for the second quarter of 2023, and $416,000 for the third quarter of 2022. Continued recoveries are indicative of the ongoing aggressive efforts by management to effectively manage and resolve prior charge-offs.

10

Deposits

Total deposits were $4.61 billion at September 30, 2023, a decrease of $103.3 million, or 2.2%, compared to $4.72 billion at June 30, 2023, primarily due to a decline in savings of $47.0 million, followed by a decrease of $35.0 million in non-interest bearing deposits and $29.3 million in money markets. The bulk of the linked quarter decline in deposit balances occurred in August 2023 and is consistent with seasonal historical trends related to tax payments and commercial customer business volumes. Total quarterly average deposits decreased $659.4 million, or 12.4%, in the year over year period, driven by declines in our average demand deposits of $225.1 million, and savings, NOW and money markets combined of $440.7 million. In general, the bulk of the decline in deposits year over year can be characterized as rate sensitive with significant flows and transfers into investing activities, materially offsetting the significant expansion in those same accounts in the immediate aftermath of the pandemic.

Borrowings

As of September 30, 2023, we had $435.0 million in other short-term borrowings due to short-term FHLB advances, compared to $485.0 million at June 30, 2023, and $25.0 million as of September 30, 2022.

During the second quarter of 2023, we redeemed all of the $45.0 million senior notes that were due in 2026. This senior debt issuance carried an interest rate of 9.39% at the time of redemption, and upon redemption, the related deferred debt issuance costs of $362,000 were also recorded as interest expense, resulting in an effective cost of this debt issuance of 12.85% for the second quarter of 2023.

Non-GAAP Presentations

Management has disclosed in this earnings release certain non-GAAP financial measures to evaluate and measure our performance, including the presentation of adjusted net income, net interest income and net interest margin on a fully taxable equivalent basis, and our efficiency ratio calculations on a taxable equivalent basis. The net interest margin fully taxable equivalent is calculated by dividing net interest income on a tax equivalent basis by average earning assets for the period. Consistent with industry practice, management has disclosed the efficiency ratio including and excluding certain items, which is discussed in the noninterest expense presentation on page 7.

We consider the use of select non-GAAP financial measures and ratios to be useful for financial and operational decision making and useful in evaluating period-to-period comparisons. We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding certain expenditures or assets that we believe are not indicative of our primary business operating results or by presenting certain metrics on a fully taxable equivalent basis. We believe these measures provide investors with information regarding balance sheet profitability, and we believe that management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, analyzing, and comparing past, present and future periods.

These non-GAAP financial measures should not be considered as a substitute for GAAP financial measures, and we strongly encourage investors to review the GAAP financial measures included in this earnings release and not to place undue reliance upon any single financial measure. In addition, because non-GAAP financial measures are not standardized, it may not be possible to compare the non-GAAP financial measures presented in this earnings release with other companies' non-GAAP financial measures having the same or similar names. The tables beginning on page 17 provide a reconciliation of each non-GAAP financial measure to the most comparable GAAP equivalent.

Cautionary Note Regarding Forward-Looking Statements

This earnings release and statements by our management may contain forward-looking statements within the Private Securities Litigation Reform Act of 1995. Forward looking statements can be identified by words such as "should," "anticipate," "expect," "estimate," "intend," "believe," "may," "likely," "will," "forecast," "project," "looking forward," "optimistic," "hopeful," "potential," "progress," "prospect," "remain," "continue," "trend," "momentum," "remainder," "beyond," "and "near" or other statements that indicate future periods. Examples of forward-looking statements include, but are not limited to, statements regarding the economic outlook, loan growth, deposit trends and funding, asset-quality trends, balance sheet growth, and building capital. Such forward-looking statements are subject to risks, uncertainties, and other factors, which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements, (1) the strength of the United States economy in general and the strength of the local economies in which we conduct our operations may be different than expected; (2) the rate of delinquencies and amounts of charge-offs, the level of allowance for credit

11

loss, the rates of loan growth, or adverse changes in asset quality in our loan portfolio, which may result in increased credit risk-related losses and expenses; (3) changes in legislation, regulation, policies, or administrative practices, whether by judicial, governmental, or legislative action; (4) risks related to future acquisitions, if any, including execution and integration risks; (5) adverse conditions in the stock market, the public debt market and other capital markets (including changes in interest rate conditions) could have a negative impact on us; (6) changes in interest rates, which has and may continue to affect our deposit and funding costs, net income, prepayment penalty income, mortgage banking income, and other future cash flows, or the market value of our assets, including our investment securities; (7) elevated inflation which causes adverse risk to the overall economy, and could indirectly pose challenges to our clients and to our business; (8) any increases in FDIC assessment which has increased, and may continue to increase, our cost of doing business; and (9) the adverse effects of events beyond our control that may have a destabilizing effect on financial markets and the economy, such as epidemics and pandemics, war or terrorist activities, essential utility outages, deterioration in the global economy, instability in the credit markets, disruptions in our customers' supply chains or disruption in transportation. Additional risks and uncertainties are contained in the "Risk Factors" and forward-looking statements disclosure in our most recent Annual Report on Form 10-K, and Quarterly Reports on Form 10-Q. The inclusion of this forward-looking information should not be construed as a representation by us or any person that future events, plans, or expectations contemplated by us will be achieved. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

Conference Call

We will host a call on Thursday, October 19, 2023, at 11:00 a.m. Eastern Time (10:00 a.m. Central Time) to discuss our third quarter 2023 financial results. Investors may listen to our call via telephone by dialing 888-506-0062, using Entry Code: 243040. Investors should call into the dial-in number set forth above at least 10 minutes prior to the scheduled start of the call.

A replay of the call will be available until 11:00 a.m. Eastern Time (10:00 a.m. Central Time) on October 26, 2023, by dialing 877-481-4010, using Conference ID: 49156.

12

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands)

(unaudited)

September 30,

December 31,

2023

2022

Assets

Cash and due from banks

$

55,548

$

56,632

Interest earning deposits with financial institutions

53,485

58,545

Cash and cash equivalents

109,033

115,177

Securities available-for-sale, at fair value

1,229,618

1,539,359

Federal Home Loan Bank Chicago ("FHLBC") and Federal Reserve Bank Chicago ("FRBC") stock

35,830

20,530

Loans held-for-sale

2,297

491

Loans

4,029,543

3,869,609

Less: allowance for credit losses on loans

51,729

49,480

Net loans

3,977,814

3,820,129

Premises and equipment, net

76,472

72,355

Other real estate owned

407

1,561

Mortgage servicing rights, at fair value

11,461

11,189

Goodwill

86,478

86,478

Core deposit intangible

11,820

13,678

Bank-owned life insurance ("BOLI")

108,187

106,608

Deferred tax assets, net

44,051

44,750

Other assets

64,688

56,012

Total assets

$

5,758,156

$

5,888,317

Liabilities

Deposits:

Noninterest bearing demand

$

1,862,659

$

2,051,702

Interest bearing:

Savings, NOW, and money market

2,273,671

2,617,100

Time

477,990

441,921

Total deposits

4,614,320

5,110,723

Securities sold under repurchase agreements

25,894

32,156

Other short-term borrowings

435,000

90,000

Junior subordinated debentures

25,773

25,773

Subordinated debentures

59,361

59,297

Senior notes

-

44,585

Notes payable and other borrowings

-

9,000

Other liabilities

65,250

55,642

Total liabilities

5,225,598

5,427,176

Stockholders' Equity

Common stock

44,705

44,705

Additional paid-in capital

201,553

202,276

Retained earnings

377,320

310,512

Accumulated other comprehensive loss

(90,619)

(93,124)

Treasury stock

(401)

(3,228)

Total stockholders' equity

532,558

461,141

Total liabilities and stockholders' equity

$

5,758,156

$

5,888,317

13

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

(In thousands, except share data)

(unaudited)

(unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2023

2022

2023

2022

Interest and dividend income

Loans, including fees

$

62,665

$

46,614

$

181,436

$

121,209

Loans held-for-sale

29

22

60

111

Securities:

Taxable

8,946

9,116

29,611

21,071

Tax exempt

1,333

1,332

4,007

3,946

Dividends from FHLBC and FRBC stock

597

261

1,273

677

Interest bearing deposits with financial institutions

659

663

1,887

1,714

Total interest and dividend income

74,229

58,008

218,274

148,728

Interest expense

Savings, NOW, and money market deposits

2,558

380

5,449

1,124

Time deposits

1,982

335

3,802

877

Securities sold under repurchase agreements

27

10

43

30

Other short-term borrowings

5,840

44

13,345

44

Junior subordinated debentures

245

285

805

849

Subordinated debentures

547

546

1,639

1,639

Senior notes

-

728

2,408

1,791

Notes payable and other borrowings

-

111

87

309

Total interest expense

11,199

2,439

27,578

6,663

Net interest and dividend income

63,030

55,569

190,696

142,065

Provision for credit losses

3,000

4,500

8,501

5,050

Net interest and dividend income after provision for credit losses

60,030

51,069

182,195

137,015

Noninterest income

Wealth management

2,475

2,280

7,203

7,484

Service charges on deposits

2,504

2,661

7,290

7,063

Secondary mortgage fees

66

81

201

270

Mortgage servicing rights mark to market gain (loss)

281

548

(148)

3,608

Mortgage servicing income

519

514

1,534

1,612

Net gain on sales of mortgage loans

407

449

1,111

1,682

Securities losses, net

(924)

(1)

(4,146)

(34)

Change in cash surrender value of BOLI

919

146

1,579

342

Card related income

2,606

2,653

7,540

8,194

Other income

1,024

2,165

3,286

3,949

Total noninterest income

9,877

11,496

25,450

34,170

Noninterest expense

Salaries and employee benefits

23,115

21,011

67,161

62,310

Occupancy, furniture and equipment

3,506

4,119

10,620

10,864

Computer and data processing

1,922

2,543

4,986

12,817

FDIC insurance

744

659

2,122

1,771

Net teller & bill paying

534

504

1,551

3,245

General bank insurance

300

257

911

923

Amortization of core deposit intangible

616

657

1,858

1,981

Advertising expense

93

83

338

459

Card related expense

1,347

1,453

3,785

3,044

Legal fees

97

212

699

648

Consulting & management fees

549

607

1,859

1,746

Other real estate expense, net

(27)

21

181

96

Other expense

4,627

3,862

12,104

11,585

Total noninterest expense

37,423

35,988

108,175

111,489

Income before income taxes

32,484

26,577

99,470

59,696

Provision for income taxes

8,149

7,054

25,966

15,906

Net income

$

24,335

$

19,523

$

73,504

$

43,790

Basic earnings per share

$

0.55

$

0.43

$

1.65

$

0.98

Diluted earnings per share

0.54

0.43

1.62

0.97

Dividends declared per share

0.05

0.05

0.15

0.15

Ending common shares outstanding

44,684,987

44,572,544

44,684,987

44,572,544

Weighted-average basic shares outstanding

44,675,489

44,565,626

44,653,451

44,509,072

Weighted-average diluted shares outstanding

45,428,409

45,221,541

45,390,218

45,207,992

14

Old Second Bancorp, Inc. and Subsidiaries

Quarterly Consolidated Average Balance

(In thousands, unaudited)

2022

2023

Assets

1st Qtr

2nd Qtr

3rd Qtr

4th Qtr

1st Qtr

2nd Qtr

3rd Qtr

Cash and due from banks

$

42,972

$

53,371

$

56,265

$

56,531

$

55,140

$

56,191

$

57,279

Interest earning deposits with financial institutions

635,302

426,820

131,260

50,377

49,310

50,309

49,737

Cash and cash equivalents

678,274

480,191

187,525

106,908

104,450

106,500

107,016

Securities available-for-sale, at fair value

1,807,875

1,792,099

1,703,348

1,576,004

1,503,619

1,404,664

1,295,211

FHLBC and FRBC stock

16,066

20,994

19,565

19,534

24,905

34,029

35,954

Loans held-for-sale

6,707

3,050

2,020

1,224

813

1,150

1,641

Loans

3,397,827

3,505,806

3,751,097

3,877,004

3,931,679

4,039,052

4,009,218

Less: allowance for credit losses on loans

44,341

44,354

45,449

48,778

49,398

53,480

54,581

Net loans

3,353,486

3,461,452

3,705,648

3,828,226

3,882,281

3,985,572

3,954,637

Premises and equipment, net

86,502

73,876

71,947

72,220

72,649

72,903

74,707

Other real estate owned

2,399

1,850

1,578

1,561

1,508

1,132

472

Mortgage servicing rights, at fair value

8,218

10,525

10,639

11,322

11,127

10,741

11,066

Goodwill

86,332

86,332

86,333

86,477

86,477

86,477

86,477

Core deposit intangible

15,977

15,286

14,561

13,950

13,327

12,709

12,119

Bank-owned life insurance ("BOLI")

105,396

105,463

105,448

105,754

106,655

107,028

107,786

Deferred tax assets, net

10,689

27,154

31,738

50,533

42,237

37,774

39,072

Other assets

55,474

53,823

55,606

53,909

48,599

50,812

52,360

Total other assets

370,987

374,309

377,850

395,726

382,579

379,576

384,059

Total assets

$

6,233,395

$

6,132,095

$

5,995,956

$

5,927,622

$

5,898,647

$

5,911,491

$

5,778,518

Liabilities

Deposits:

Noninterest bearing demand

$

2,093,293

$

2,119,667

$

2,092,301

$

2,083,503

$

2,002,801

$

1,920,448

$

1,867,201

Interest bearing:

Savings, NOW, and money market

2,899,497

2,872,622

2,765,281

2,680,767

2,560,893

2,437,096

2,324,613

Time

495,452

469,009

459,925

450,111

434,655

436,524

466,250

Total deposits

5,488,242

5,461,298

5,317,507

5,214,381

4,998,349

4,794,068

4,658,064

Securities sold under repurchase agreements

39,204

34,496

33,733

33,275

31,080

25,575

24,945

Other short-term borrowings

-

-

5,435

44,293

200,833

402,527

427,174

Junior subordinated debentures

25,773

25,773

25,773

25,773

25,773

25,773

25,773

Subordinated debentures

59,222

59,244

59,265

59,286

59,308

59,329

59,350

Senior notes

44,494

44,520

44,546

44,572

44,599

44,134

-

Notes payable and other borrowings

19,009

13,103

10,989

9,978

5,400

-

-

Other liabilities

60,819

32,636

34,949

51,753

51,279

48,434

53,164

Total liabilities

5,736,763

5,671,070

5,532,197

5,483,311

5,416,621

5,399,840

5,248,470

​

​

Stockholders' equity

Common stock

44,705

44,705

44,705

44,705

44,705

44,705

44,705

Additional paid-in capital

202,828

202,544

201,570

201,973

201,397

200,590

201,344

Retained earnings

258,073

267,912

284,302

301,753

324,785

346,042

368,732

Accumulated other comprehensive loss

(3,074)

(49,151)

(63,216)

(100,817)

(86,736)

(78,940)

(84,167)

Treasury stock

(5,900)

(4,985)

(3,602)

(3,303)

(2,125)

(746)

(566)

Total stockholders' equity

496,632

461,025

463,759

444,311

482,026

511,651

530,048

Total liabilities and stockholders' equity

$

6,233,395

$

6,132,095

$

5,995,956

$

5,927,622

$

5,898,647

$

5,911,491

$

5,778,518

Total Earning Assets

$

5,863,777

$

5,748,769

$

5,607,290

$

5,524,143

$

5,510,326

$

5,529,204

$

5,391,761

Total Interest Bearing Liabilities

3,582,651

3,518,767

3,404,947

3,348,055

3,362,541

3,430,958

3,328,105

15

Old Second Bancorp, Inc. and Subsidiaries

Quarterly Consolidated Statements of Income

(In thousands, except per sharedata, unaudited)

2022

2023

1st Qtr

2nd Qtr

3rd Qtr

4th Qtr

1st Qtr

2nd Qtr

3rd Qtr

Interest and Dividend Income

Loans, including fees

$

36,366

$

38,229

$

46,614

$

55,170

$

57,210

$

61,561

$

62,665

Loans held-for-sale

57

32

22

19

12

19

29

Securities:

Taxable

5,169

6,786

9,116

10,495

10,735

9,930

8,946

Tax exempt

1,317

1,297

1,332

1,341

1,337

1,337

1,333

Dividends from FHLB and FRBC stock

153

263

261

259

280

396

597

Interest bearing deposits with financial institutions

269

782

663

461

585

643

659

Total interest and dividend income

43,331

47,389

58,008

67,745

70,159

73,886

74,229

Interest Expense

Savings, NOW, and money market deposits

397

347

380

776

1,149

1,742

2,558

Time deposits

277

265

335

571

664

1,156

1,982

Securities sold under repurchase agreements

11

9

10

10

9

7

27

Other short-term borrowings

-

-

44

436

2,345

5,160

5,840

Junior subordinated debentures

280

284

285

287

279

281

245

Subordinated debentures

546

547

546

546

546

546

547

Senior notes

485

578

728

891

994

1,414

-

Notes payable and other borrowings

103

95

111

137

87

-

-

Total interest expense

2,099

2,125

2,439

3,654

6,073

10,306

11,199

Net interest and dividend income

41,232

45,264

55,569

64,091

64,086

63,580

63,030

Provision for credit losses

-

550

4,500

1,500

3,501

2,000

3,000

Net interest and dividend income after provision for credit losses

41,232

44,714

51,069

62,591

60,585

61,580

60,030

Noninterest Income

Wealth management

2,698

2,506

2,280

2,403

2,270

2,458

2,475

Service charges on deposits

2,074

2,328

2,661

2,499

2,424

2,362

2,504

Secondary mortgage fees

139

50

81

62

59

76

66

Mortgage servicing rights mark to market gain (loss)

2,978

82

548

(431)

(525)

96

281

Mortgage servicing income

519

579

514

518

516

499

519

Net gain (loss) on sales of mortgage loans

1,495

(262)

449

340

306

398

407

Securities losses, net

-

(33)

(1)

(910)

(1,675)

(1,547)

(924)

Change in cash surrender value of BOLI

124

72

146

376

242

418

919

Card related income

2,574

2,965

2,653

2,795

2,244

2,690

2,606

Other income

862

924

2,165

1,294

1,489

773

1,024

Total noninterest income

13,463

9,211

11,496

8,946

7,350

8,223

9,877

Noninterest Expense

Salaries and employee benefits

19,967

21,332

21,011

24,263

22,248

21,798

23,115

Occupancy, furniture and equipment

3,699

3,046

4,119

4,128

3,475

3,639

3,506

Computer and data processing

6,268

4,006

2,543

2,978

1,774

1,290

1,922

FDIC insurance

410

702

659

630

584

794

744

Net teller & bill paying

1,907

834

504

485

502

515

534

General bank insurance

315

351

257

298

305

306

300

Amortization of core deposit intangible

665

659

657

645

624

618

616

Advertising expense

182

194

83

130

142

103

93

Card related expense

534

1,057

1,453

1,304

1,216

1,222

1,347

Legal fees

257

179

212

225

319

283

97

Consulting & management fees

616

523

607

679

790

520

549

Other real estate expense, net

(12)

87

21

34

306

(98)

(27)

Other expense

3,444

4,279

3,862

3,885

3,637

3,840

4,627

Total noninterest expense

38,252

37,249

35,988

39,684

35,922

34,830

37,423

Income before income taxes

16,443

16,676

26,577

31,853

32,013

34,973

32,484

Provision for income taxes

4,423

4,429

7,054

8,238

8,406

9,411

8,149

Net income

$

12,020

$

12,247

$

19,523

$

23,615

$

23,607

$

25,562

$

24,335

Basic earnings per share (GAAP)

$

0.27

$

0.28

$

0.43

$

0.53

$

0.53

$

0.57

$

0.55

Diluted earnings per share (GAAP)

0.27

0.27

0.43

0.52

0.52

0.56

0.54

Dividends paid per share

0.05

0.05

0.05

0.05

0.05

0.05

0.05

16

Reconciliation of Non-GAAP Financial Measures

The tables below provide a reconciliation of each non-GAAP financial measure to the most comparable GAAP measure for the periods indicated. Dollar amounts below in thousands:

Quarters Ended

September 30,

June 30,

September 30,

2023

2023

2022

Net Income

Income before income taxes (GAAP)

$

32,484

$

34,973

$

26,577

Pre-tax income adjustments:

Merger-related costs, net of losses/(gains) on branch sales

-

29

1,061

Liquidation and deconversion costs on Visa credit card portfolio

629

-

-

Gains on the sale of Visa credit card and land trust portfolios

-

-

(923)

Adjusted net income before taxes

33,113

35,002

26,715

Taxes on adjusted net income

8,307

9,419

7,091

Adjusted net income (non-GAAP)

$

24,806

$

25,583

$

19,624

Basic earnings per share (GAAP)

$

0.55

$

0.57

$

0.43

Diluted earnings per share (GAAP)

0.54

0.56

0.43

Adjusted basic earnings per share excluding acquisition-related costs (non-GAAP)

0.55

0.58

0.44

Adjusted diluted earnings per share excluding acquisition-related costs (non-GAAP)

0.55

0.56

0.43

Quarters Ended

September 30,

June 30,

September 30,

2023

2023

2022

Net Interest Margin

Interest income (GAAP)

$

74,229

$

73,886

$

58,008

Taxable-equivalent adjustment:

Loans

11

11

6

Securities

354

355

354

Interest income (TE)

74,594

74,252

58,368

Interest expense (GAAP)

11,199

10,306

2,439

Net interest income (TE)

$

63,395

$

63,946

$

55,929

Net interest income (GAAP)

$

63,030

$

63,580

$

55,569

Average interest earning assets

$

5,391,761

$

5,529,204

$

5,607,290

Net interest margin (GAAP)

4.64

%

4.61

%

3.93

%

Net interest margin (TE)

4.66

%

4.64

%

3.96

%

17

GAAP

Non-GAAP

Three Months Ended

Three Months Ended

September 30,

June 30,

September 30,

September 30,

June 30,

September 30,

2023

2023

2022

2023

2023

2022

Efficiency Ratio / Adjusted Efficiency Ratio

Noninterest expense

$

37,423

$

34,830

$

35,988

$

37,423

$

34,830

$

35,988

Less amortization of core deposit

616

618

657

616

618

657

Less other real estate expense, net

(27)

(98)

21

(27)

(98)

21

Less acquisition related costs, net of losses/(gains) on branch sales

N/A

N/A

N/A

-

29

1,061

Less liquidation and deconversion costs on Visa credit card portfolio

N/A

N/A

N/A

629

-

-

Noninterest expense less adjustments

$

36,834

$

34,310

$

35,310

$

36,205

$

34,281

$

34,249

Net interest income

$

63,030

$

63,580

$

55,569

$

63,030

$

63,580

$

55,569

Taxable-equivalent adjustment:

Loans

N/A

N/A

N/A

11

11

6

Securities

N/A

N/A

N/A

354

355

354

Net interest income including adjustments

63,030

63,580

55,569

63,395

63,946

55,929

Noninterest income

9,877

8,223

11,496

9,877

8,223

11,496

Less securities losses

(924)

(1,547)

(1)

(924)

(1,547)

(1)

Less MSRs mark to market gains

281

96

548

281

96

548

Less gain on Visa credit card portfolio sale

N/A

N/A

N/A

-

-

743

Less gain on sale of land trust portfolio

N/A

N/A

N/A

-

-

180

Taxable-equivalent adjustment:

Change in cash surrender value of BOLI

N/A

N/A

N/A

245

111

39

Noninterest income (excluding) / including adjustments

10,520

9,674

10,949

10,765

9,785

10,065

Net interest income including adjustments plus noninterest income (excluding) / including adjustments

$

73,550

$

73,254

$

66,518

$

74,160

$

73,731

$

65,994

Efficiency ratio / Adjusted efficiency ratio

50.08

%

46.84

%

53.08

%

48.82

%

46.49

%

51.90

%

N/A - Not applicable.

Quarters Ended

September 30,

March 31,

September 30,

2023

2023

2022

Adjusted Return on Average Tangible Common Equity Ratio

Net income (GAAP)

$

24,335

$

25,562

$

19,523

Income before income taxes (GAAP)

$

32,484

$

34,973

$

26,577

Pre-tax income adjustments:

Amortization of core deposit intangibles

616

618

657

Net income, excluding intangibles amortization, before taxes

33,100

35,591

27,234

Taxes on net income, excluding intangible amortization, before taxes

8,304

9,578

7,228

Net income, excluding intangibles amortization (non-GAAP)

$

24,796

$

26,013

$

20,006

Total Average Common Equity

$

530,048

511,651

$

463,759

Less Average goodwill and intangible assets

98,596

99,186

100,894

Average tangible common equity (non-GAAP)

$

431,452

$

412,465

$

362,865

Return on average common equity (GAAP)

18.21

%

20.04

%

16.70

%

Return on average tangible common equity (non-GAAP)

22.80

%

25.30

%

21.87

%

18

Attachments

Disclaimer

Old Second Bancorp Inc. published this content on 18 October 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 18 October 2023 20:03:36 UTC.