8-K - OSBC - Equibles

United States

Securities And Exchange Commission Washington, D.C. 20549

FORM 8-K

Current Report

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 26, 2022

(Exact name of registrant as specified in its charter)


Delaware	000-10537	36-3143493
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

37 South River Street Aurora , Illinois **** 60507 (Address of principal executive offices) (Zip code)

( 630 ) 892-0202 (Registrant’s telephone number, including area code)

N/A

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐ **** Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 under the Securities Act (17 CFR 230.405) or Rule 12b-2 under the Exchange Act (17 CFR 240.12b-2).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Securities registered pursuant to Section 12(b) of the Act:

<br><br>
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	OSBC	The Nasdaq Stock Market

Item 2.02 Results of Operations and Financial Condition

On October 26, 2022, Old Second Bancorp, Inc. (the “Company’s”) issued a press release announcing its financial results for the third quarter ended September 30, 2022. A copy of the Company’s press release is attached as Exhibit 99.1.

Item 9.01 Financial Statements and Exhibits


Exhibit No.		Description
99.1		Press Release of Old Second Bancorp, Inc. dated October 26, 2022

104		Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document)

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


	OLD SECOND BANCORP, INC.


Dated: October 26, 2022	By:	/s/ Bradley S. Adams
		Bradley S. Adams
		Executive Vice President and
		Chief Financial Officer

Old Second Bancorp, Inc



(NASDAQ:OSBC)		Exhibit 99.1

Contact:	Bradley S. Adams	For Immediate Release
	Chief Financial Officer	October 26, 2022
	(630) 906-5484

Old Second Bancorp, Inc. Reports Third Quarter 2022 Net Income of $19.5 Million,

or $0.43 per Diluted Share

AURORA, IL, October 26, 2022 – 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 2022. Our net income was $19.5 million, or $0.43 per diluted share, for the third quarter of 2022, compared to net income of $12.2 million, or $0.27 per diluted share, for the second quarter of 2022, and net income of $8.4 million, or $0.29 per diluted share, for the third quarter of 2021. Adjusted net income, a non-GAAP financial measure that excludes pre-tax amounts of $650,000 of acquisition related costs, net losses of $411,000 from branch sales, as well as $923,000 of pretax gains on the sale of our VISA credit card portfolio and a land trust portfolio, all related to our acquisition of West Suburban Bancorp, Inc. (“West Suburban”) on December 1, 2021, was $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.

The increase in net income in the third quarter of 2022 was primarily due to net interest and dividend income of $55.6 million, which increased $10.3 million from the second quarter of 2022 primarily due to loan growth and market interest rate increases, and increased $33.0 million from the third quarter of 2021, as West Suburban loan and securities income, net of interest expense on acquired deposits, was included in the third quarter of 2022. The third quarter of 2022 also included a $548,000 pre-tax mark to market gain on mortgage servicing rights (“MSRs”), compared to a $82,000 pre-tax gain on MSRs in the second quarter of 2022, and a $282,000 pre-tax loss on MSRs in the third quarter of 2021.

Operating Results

●Third quarter 2022 net income was $19.5 million, reflecting an increase in earnings of $7.3 million from the second quarter of 2022, and an increase of $11.1 million from the third quarter of 2021. Adjusted net income, a non-GAAP financial measure that excludes acquisition-related costs, net of gains on branch sales, 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, was $19.6 million for the third quarter of 2022, an increase of $5.8 million from adjusted net income for the second quarter of 2022. There was no adjustment to net income for the quarter ending September 30, 2021.

●Net interest and dividend income was $55.6 million for the third quarter of 2022, an increase of $10.3 million, or 22.8%, from the second quarter of 2022, and an increase of $33.0 million, or 145.7%, from the third quarter of 2021.

●Interest and dividend income for the third quarter of 2022 was $58.0 million, an increase of $10.6 million from the second quarter of 2022, and an increase of $33.2 million from the third quarter 2021. Growth in interest and dividend income in 2022 reflected the market interest rate increases in 2022, as well as the inclusion of West Suburban loan and securities income.

●Interest expense for the third quarter of 2022 was $2.4 million, an increase of $314,000 from the second quarter of 2022, and an increase of $266,000 from the third quarter of 2021. The year-over-year increase in interest expense stems primarily from an increase in interest bearing deposits and the interest paid on short-term FHLB 1

advances during the third quarter of 2022, which were partially offset by the pay down of $10.2 million of notes payable and other borrowings.

●	We recorded a net provision for credit losses of $4.5 million in the third quarter of 2022, compared to a net provision for credit losses of $550,000 in the second quarter of 2022, and a $1.5 million release of provision expense in the third quarter of 2021. The increase in the net provision in the third quarter of 2022 was primarily driven by a $244.3 million increase in total loans, growth in credit line utilization, as well as consideration given to macroeconomic factors, such as rising market interest rates, inflation and changes in the unemployment rate.
●	Noninterest income was $11.5 million for the third quarter of 2022, an increase of $2.3 million, or 24.8%, compared to $9.2 million for the second quarter of 2022, and an increase of $2.2 million, or 23.1%, compared to $9.3 million for the third quarter of 2021. The increase from the prior quarter was primarily due to an increase in net mortgage banking income of $1.1 million, as well as a $1.2 million increase in other income due to a gain on a Visa portfolio sale and a gain on the sale of a land trust portfolio. Service charges on deposits increased for the third quarter of 2022 by $333,000 compared to the prior quarter and increased by $1.3 million compared to the third quarter of 2021. Card related income in the third quarter of 2022 was $2.7 million, a decrease of $314,000 from the second quarter 2022, and an increase of $1.0 million over the third quarter 2021. These increases in the third quarter of 2022, compared to the third quarter of 2021, were partially offset by a decrease in net mortgage banking income of $1.1 million, primarily due to a decline in the volume of mortgages being originated due to rising market interest rates in 2022.
---	---
●	Noninterest expense was $36.0 million for the third quarter of 2022, a decrease of $1.3 million, or 3.4% compared to $37.2 million for the second quarter of 2022, and an increase of $13.9 million, or 62.6%, compared to $22.1 million for the third quarter of 2021. The decrease from the second quarter of 2022 is the result of a decline in conversion-related data processing fees as well as a reduction in salary and employee benefit expense, partially offset by higher occupancy, furniture and equipment expense and card related expenses. Contributing to the year over year increase was $650,000 of acquisition costs in the third quarter of 2022 primarily in data processing and other expense, as well as a $411,000 net loss on branch sales. In addition, growth in salaries and employee benefits and occupancy, furniture and equipment expenses were recorded in the third quarter of 2022, primarily stemming from the additional employees and branches due to the West Suburban acquisition, as well as higher salary rates being paid in 2022.
---	---
●	We had a provision for income tax of $7.1 million for the third quarter of 2022, compared to a provision for income tax of $4.4 million for the second quarter of 2022 and a provision for income tax of $2.9 million for the third quarter of 2021. The increase in tax expense for the third quarter of 2022 over both prior periods was due to an increase in pre-tax income.
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●	On October 18, 2022, our Board of Directors declared a cash dividend of $0.05 per share payable on November 7, 2022, to stockholders of record as of October 28, 2022.
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President and Chief Executive Officer Jim Eccher said “We are extremely pleased with our results this quarter. Our net interest margin is approaching four percent, loan balances are up 13% year to date through September 30, 2022, deposit trends are performing as expected and operating expenses remain well controlled. Our efficiency ratio in the third quarter was approximately 52% on a core basis and reflects not only the cost saves from our most recent acquisition, but also tremendous success in realizing returns on the investments in lending teams and sales people over the last twelve months. Credit remains very well behaved, though we remain mindful and diligent in monitoring trends both within the portfolio and more broadly. Third quarter return on average assets and return on average equity were 1.29% and 16.7%, respectively, and represent a return to the type of performance we had been accustomed prior to the pandemic.

“The return of relatively higher market interest rates has allowed us the opportunity to demonstrate the strength of the franchise that we are building here at Old Second. Asset repricing should remain robust in the coming quarters which will allow for further improvement in our core trends including additional expansion in the net interest margin. Deposit repricing is expected to remain excellent but will be modestly higher in the near future as we take the necessary steps to protect our greatest strength. The speed of interest rate changes this year does pose certain challenges as demonstrated by the unrealized loss position of our securities portfolio. However, we believe we have been extremely cautious and managed the risk relatively well. We remain invested at the short end of the yield curve with a weighted average portfolio duration at September 30^th^ of 2.65 years. We currently estimate that approximately half of the current loss position will have reversed in that time assuming the current yield curve remains consistent and spreads in the market persist. I am hopeful that we will begin delivering book value growth commensurate with our financial performance in the near future. We are excited for the future and believe we have the resources and momentum to focus on growth and building a better Old Second for our stockholders and communities.” 2

Capital Ratios


	Minimum Capital		Well Capitalized
	Adequacy with		Under Prompt
	Capital Conservation		Corrective Action		September 30,		June 30,		September 30,
	Buffer, if applicable^1^		Provisions^2^		2022		2022		2021
The Company
Common equity tier 1 capital ratio	7.00	%	N/A		9.16	%	9.35	%	12.99	%
Total risk-based capital ratio	10.50	%	N/A		11.99	%	12.27	%	17.80	%
Tier 1 risk-based capital ratio	8.50	%	N/A		9.68	%	9.91	%	14.10	%
Tier 1 leverage ratio	4.00	%	N/A		7.70	%	7.24	%	9.81	%

The Bank
Common equity tier 1 capital ratio	7.00	%	6.50	%	11.60	%	12.24	%	15.65	%
Total risk-based capital ratio	10.50	%	10.00	%	12.64	%	13.25	%	16.69	%
Tier 1 risk-based capital ratio	8.50	%	8.00	%	11.60	%	12.24	%	15.65	%
Tier 1 leverage ratio	4.00	%	5.00	%	9.24	%	8.94	%	10.83	%

^1^ Amounts are shown inclusive of a capital conservation buffer of 2.50%.

^2^ The prompt corrective action provisions are only applicable at the Bank level.

The ratios shown above exceed levels required to be considered “well capitalized.”

Asset Quality & Earning Assets

●	Nonperforming loans totaled $52.9 million at September 30, 2022, $42.1 million at June 30, 2022, and $29.0 million at September 30, 2021. Nonperforming loans with a total net book value of $23.8 million were acquired through our acquisition of West Suburban in December 2021. Credit metrics reflected increases in nonperforming loans due to the acquisition in the fourth quarter of 2021, and management is carefully monitoring loans considered to be in a classified status. Nonperforming loans, as a percent of total loans were 1.4% at September 30, 2022, 1.2% at June 30, 2022, and 1.5% at September 30, 2021.
●	OREO assets totaled $1.6 million at both September 30, 2022 and June 30, 2022, compared to $1.9 million at September 30, 2021. In the third quarter of 2022, we had no transfers to OREO from loans and we sold one property with a total net book value of $63,000. Nonperforming assets, as a percent of total loans plus OREO, was 1.4% at September 30, 2022, 1.2% at June 30, 2022, and 1.7% at September 30, 2021.
---	---
●	Total loans were $3.87 billion at September 30, 2022, reflecting an increase of $244.3 million compared to June 30, 2022, and an increase of $2.0 billion compared to September 30, 2021. The increase from the linked quarter was due to growth in commercial, leases and commercial real estate loans, net of paydowns, in the third quarter of 2022. Increases in the year over year quarter were due to the acquisition of $1.50 billion of loans in the West Suburban acquisition. Average loans (including loans held-for-sale) for the third quarter of 2022 totaled $3.75 billion, reflecting an increase of $244.3 million from the second quarter of 2022 and an increase of $1.86 billion from the third quarter of 2021.
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●	Available-for-sale securities totaled $1.61 billion at September 30, 2022, compared to $1.73 billion at June 30, 2022, and $715.2 million at September 30, 2021. Total securities available-for-sale decreased compared to the linked quarter due to paydowns and maturities of $83.1 million and $41.2 million in unrealized losses during the quarter. No securities were sold in the third quarter of 2022. The growth in the year over year period is due to our acquisition of West Suburban in the fourth quarter of 2021. The unrealized mark to market loss on securities totaled $131.0 million as of September 30, 2022, compared to $89.8 million as of June 30, 2022, and an unrealized mark to market gain of $19.5 million as of September 30, 2021, due to market interest rate increases as well as changes year over year in the composition of the securities portfolio.
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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, 2022						June 30, 2022						September 30, 2021
	Average			Income /		Rate	Average			Income /		Rate	Average			Income /		Rate
	Balance			Expense		%	Balance			Expense		%	Balance			Expense		%
Assets
Interest earning deposits with financial institutions	$	131,260		$	663	2.00	$	426,820		$	782	0.73	$	523,561		$	203	0.15
Securities:
Taxable		1,525,258			9,116	2.37		1,610,713			6,786	1.69		476,935			1,854	1.54
Non-taxable (TE)^1^		178,090			1,686	3.76		181,386			1,642	3.63		186,515			1,603	3.42
Total securities (TE)^1^		1,703,348			10,802	2.52		1,792,099			8,428	1.89		663,450			3,457	2.07
Dividends from FHLBC and FRBC		19,565			261	5.29		20,994			263	5.02		9,917			114	4.56
Loans and loans held-for-sale^1, 2^		3,753,117			46,642	4.93		3,508,856			38,267	4.37		1,889,696			21,358	4.48
Total interest earning assets		5,607,290			58,368	4.13		5,748,769			47,740	3.33		3,086,624			25,132	3.23
Cash and due from banks		56,265			-	-		53,371			-	-		29,760			-	-
Allowance for credit losses on loans		(45,449)			-	-		(44,354)			-	-		(28,639)			-	-
Other noninterest bearing assets		377,850			-	-		374,309			-	-		185,415			-	-
Total assets	$	5,995,956					$	6,132,095					$	3,273,160

Liabilities and Stockholders' Equity
NOW accounts	$	612,174		$	148	0.10	$	604,176		$	102	0.07	$	534,056		$	96	0.07
Money market accounts		967,106			157	0.06		1,054,552			155	0.06		355,651			66	0.07
Savings accounts		1,186,001			75	0.03		1,213,133			90	0.03		451,829			47	0.04
Time deposits		459,925			335	0.29		469,009			265	0.23		331,482			330	0.39
Interest bearing deposits		3,225,206			715	0.09		3,340,870			612	0.07		1,673,018			539	0.13
Securities sold under repurchase agreements		33,733			10	0.12		34,496			9	0.10		46,339			15	0.13
Other short-term borrowings		5,435			44	3.21		-			-	-		-			-	-
Junior subordinated debentures		25,773			285	4.39		25,773			284	4.42		25,773			286	4.40
Subordinated debentures		59,265			546	3.66		59,244			547	3.70		59,180			547	3.67
Senior notes		44,546			728	6.48		44,520			578	5.21		44,441			673	6.01
Notes payable and other borrowings		10,989			111	4.01		13,103			95	2.91		21,171			113	2.12
Total interest bearing liabilities		3,404,947			2,439	0.28		3,518,006			2,125	0.24		1,869,922			2,173	0.46
Noninterest bearing deposits		2,092,301			-	-		2,120,428			-	-		1,029,705			-	-
Other liabilities		34,949			-	-		32,636			-	-		53,370			-	-
Stockholders' equity		463,759			-	-		461,025			-	-		320,163			-	-
Total liabilities and stockholders' equity	$	5,995,956					$	6,132,095					$	3,273,160
Net interest income (GAAP)				$	55,569					$	45,264					$	22,618
Net interest margin (GAAP)						3.93						3.16						2.91

Net interest income (TE)^1^				$	55,929					$	45,615					$	22,964
Net interest margin (TE)^1^						3.96						3.18						2.95
Interest bearing liabilities to earning assets		60.72	%					61.20	%					60.58	%

^1^ Tax equivalent (TE) basis is calculated using a marginal tax rate of 21% in 2022 and 2021. 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.

^2^ Interest 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 fees of $750,000, $588,000, and $1.8 million for the third quarter of 2022, second quarter of 2022, and the third quarter of 2021, respectively. Nonaccrual loans are included in the above stated average balances.

Net interest income (TE) was $56.0 million for the third quarter of 2022, which reflects an increase of $10.3 million compared to the second quarter of 2022, and an increase of $33.0 million compared to the third quarter of 2021. The tax equivalent adjustment for the third quarter of 2022 was $360,000 compared to $351,000 in the second quarter 2022, and $341,000 for the third quarter of 2021. Average interest earning assets decreased $141.5 million to $5.61 billion for the third quarter of 2022, compared to the second quarter of 2022, due to decreases in interest earning deposits with financial institutions and securities, partially offset by an increase in loans and loans held-for-sale. Average interest earning assets increased $2.52 billion in the third quarter of 2022, compared to the third quarter of 2021, primarily due to our West Suburban acquisition. Average loans, including loans held-for-sale, increased $244.3 million for the third quarter of 2022, compared to the second quarter of 2022, and increased $1.86 billion compared to the third 4

quarter of 2021. The yield on loans for the third quarter of 2022 increased 56 basis points compared to the second quarter of 2022 and increased 45 basis points compared to the third quarter of 2021.

A decrease of $88.8 million in the average balance of securities for the third quarter of 2022, compared to the second quarter of 2022, was offset by the increase in market interest rates, as increasing yields on our variable rate securities resulted in an increase of $2.4 million to interest income (TE). Significantly higher average balances and higher yields in the third quarter of 2022, compared to the third quarter of 2021, resulted in a $7.3 million increase in interest income (TE) on securities in the third quarter of 2022. The average yield on total securities available-for-sale increased 45 basis points year over year. We acquired $1.07 billion of securities with our acquisition of West Suburban in December 2021, and securities activity in the third quarter 2022 consisted of $83.1 million of paydowns, calls and maturities, and $519,000 of purchases. Our overall yield on tax equivalent municipal securities was 3.76% for the third quarter of 2022, compared to 3.63% for the second quarter of 2022 and 3.42% for the third quarter of 2021.

The yield on average earning assets increased 80 basis points in the third quarter of 2022, compared to the second quarter of 2022, and increased 90 basis points compared to the third quarter of 2021. Changes in the interest rate environment impact the portfolio at varying intervals depending on the repricing timeline of loans, as well as the securities maturity and purchase activity.

Average interest bearing liabilities decreased $113.1 million in the third quarter of 2022, compared to the second quarter of 2022, driven primarily by a $123.7 million decrease in money market accounts, savings accounts, and time deposits. Average interest bearing liabilities increased $1.54 billion in the third quarter of 2022, compared to the third quarter of 2021, primarily driven by a $1.55 billion increase in interest bearing deposits from our acquisition of West Suburban, partially offset by a $12.6 million decrease in repurchase agreements, and a $10.2 million decrease in notes payable and other borrowings. The decrease in deposits from the second quarter of 2022 are attributable to customer usage of funds, and we paid down $1.0 million of notes payable in the third quarter of 2022. The cost of interest bearing liabilities for the third quarter of 2022 increased to 28 basis points compared to 24 basis points for the second quarter of 2022 and decreased 18 basis points from 0.46% for the third quarter of 2021. An increase in our average noninterest bearing demand deposits of $1.06 billion in the year over year period has assisted us in controlling our cost of funds stemming from average interest bearing deposits and borrowings; cost of funds, which includes the impact of noninterest bearing deposits, totaled 0.18% for the third quarter of 2022, compared to 0.15% for the second quarter of 2022 and 0.30% in the third quarter of 2021.

Our net interest margin (GAAP) increased 77 basis points to 3.93% for the third quarter of 2022, compared to 3.16% for the second quarter of 2022, and increased 102 basis points compared to 2.91% for the third quarter of 2021. Our net interest margin (TE) increased 78 basis points to 3.96% for the third quarter of 2022, compared to 3.18% for the second quarter 2022, and increased 101 basis points compared to 2.95% for the third quarter of 2021. The increases year over year were due primarily to the increased level of market interest rates over much of the past seven months, the related rate resets on loans and securities during the past year, and a decrease in our cost of funds. 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 2022
Noninterest Income	Three Months Ended										Percent Change From
(Dollars in thousands)	September 30,			June 30,			September 30,				June 30,			September 30,
	2022		****	2022		****	2021			****	2022		****	2021
Wealth management	$	2,280		$	2,506			$	2,372			(9.0)			(3.9)
Service charges on deposits		2,661			2,328				1,368			14.3			94.5
Residential mortgage banking revenue
Secondary mortgage fees		81			50				240			62.0			(66.3)
MSRs mark to market gain (loss)		548			82				(282)			568.3			(294.3)
Mortgage servicing income		514			579				572			(11.2)			(10.1)
Net gain (loss) on sales of mortgage loans		449			(262)				2,186			(271.4)			(79.5)
Total residential mortgage banking revenue		1,592			449				2,716			254.6			(41.4)
Securities (losses) gains, net		(1)			(33)				244			N/M			N/M
Change in cash surrender value of BOLI		146			72				406			102.8			(64.0)
Card related income		2,653			2,965				1,624			(10.5)			63.4
Other income		2,165			924				610			134.3			254.9
Total noninterest income	$	11,496		$	9,211			$	9,340			24.8			23.1

N/M - Not meaningful.

Noninterest income increased $2.3 million, or 24.8%, in the third quarter of 2022, compared to the second quarter of 2022, and increased $2.2 million, or 23.1%, compared to the third quarter of 2021. The increase from the second quarter was primarily driven by $1.1 million of growth in residential mortgage banking revenue that is attributable to an increase in mark to market gain on MSRs of $466,000, as well as a $449,000 net gain on the sale of mortgage loans, compared to a net loss of $262,000 on the sale of mortgage loans in the second quarter of 2022. The variance in mortgage banking is derived from the changing rate environment experienced during the second and third quarters and the resultant negative impact on interest rate lock commitments, as well as further increases in the fair value of mortgage servicing rights during the third quarter. Increases were also noted in service charges on deposits of $333,000, and in other income of $1.2 million primarily due to a $743,000 pretax gain on a Visa portfolio sale and a $180,000 pretax gain on the sale of a land trust portfolio, as compared to the linked quarter. These increases in noninterest income in the third quarter of 2022, compared to the second quarter of 2022, were partially offset by a $226,000 decrease in wealth management fees, and a $312,000 decrease in card related income.

The increase in noninterest income of $2.2 million in the third quarter of 2022, compared to the third quarter of 2021, is primarily due to an increase of $1.3 million in services charges of deposits, an increase of $1.0 million of card related income, and pretax gains on the sale of the Visa credit card portfolio and the land trust portfolio reported in other income. These gains were partially offset by a $1.1 million decline in residential mortgage banking revenue due to increases in interest rates effecting the mortgage banking origination volume and related derivative, offset by an increase in the fair value of mortgage servicing rights and a $260,000 decline in the cash surrender value of BOLI.

Noninterest Expense


										3rd Quarter 2022
Noninterest Expense	Three Months Ended									Percent Change From
(Dollars in thousands)	September 30,			June 30,			September 30,			June 30,		September 30,
	2022		****	2022		****	2021		****	2022	****	2021
Salaries	$	14,711		$	15,995		$	9,630		(8.0)		52.8
Officers incentive		2,787			1,662			1,212		67.7		130.0
Benefits and other		3,513			3,675			2,122		(4.4)		65.6
Total salaries and employee benefits		21,011			21,332			12,964		(1.5)		62.1
Occupancy, furniture and equipment expense		4,119			3,046			2,418		35.2		70.3
Computer and data processing		2,543			4,006			1,477		(36.5)		72.2
FDIC insurance		659			702			211		(6.1)		212.3
General bank insurance		257			351			301		(26.8)		(14.6)
Amortization of core deposit intangible asset		657			659			113		(0.3)		481.4
Advertising expense		83			194			107		(57.2)		(22.4)
Card related expense		1,453			1,057			662		37.5		119.5
Legal fees		212			179			455		18.4		(53.4)
Consulting & management fees		607			523			248		16.1		144.8
Other real estate owned expense, net		22			87			25		(74.7)		(12.0)
Other expense		4,365			5,113			3,148		(14.6)		38.7
Total noninterest expense	$	35,988		$	37,249		$	22,129		(3.4)		62.6
Efficiency ratio (GAAP)^1^		53.08	%		67.07	%		68.73	%
Adjusted efficiency ratio (non-GAAP)^2^		51.90	%		62.73	%		66.47	%

^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, 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, and nonrecurring gains on the sale of Visa 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 2022 decreased $1.3 million, or 3.4%, compared to the second quarter of 2022, and increased $13.9 million, or 62.6%, compared to the third quarter of 2021. The decrease in the third quarter of 2022 compared to the second quarter was primarily attributable to $650,000 of West Suburban acquisition-related costs for the third quarter of 2022 compared to $3.3 million for the second quarter of 2022. Acquisition-related costs in the third quarter of 2022 included $90,000 in data processing expense, compared to $1.7 million in the second quarter of 2022, primarily due to acquisition-related core system conversion costs. Partially offsetting the decrease in noninterest expense was an increase in occupancy, furniture and equipment costs of $1.1 million in the third quarter of 2022, compared to the prior quarter, due to net losses on branch sales during the quarter. Finally, our card related expense increased in the third quarter of 2022, compared to the second quarter, due to growth in customer transactions and related volume charges.

The year over year increase in noninterest expense is primarily attributable to an $8.0 million increase in salaries and employee benefits, a $1.7 million increase in occupancy, furniture and equipment, a $1.1 million increase in computer and data processing expense, and a $1.2 million increase in other expense. Officers incentive compensation increased $1.6 million in the third quarter of 2022, compared to the third quarter of 2021, as incentive accruals increased in the current year due to the acquisition of West Suburban, as well as growth in our commercial lending team. Employee benefits expense increased $1.4 million in the third quarter of 2022, compared to the third quarter of 2021, due to increases stemming from additional employees from our acquisition of West Suburban. The increase in occupancy, furniture and equipment expense year over year was due to the addition of 34 West Suburban branches in late 2021. The $1.1 million increase in computer and data processing expense was primarily due to core system conversion costs relating to the West Suburban acquisition. Finally, the increase in other expense was due primarily to growth in bill payment services, consulting fees and commercial loan related costs, primarily due to acquisition-related costs in the third quarter of 2022. 7

Earning Assets


							September 30, 2022
Loans	As of						Percent Change From
(dollars in thousands)	September 30,		June 30,		September 30,		June 30,		September 30,
	2022		2022		2021		2022	****	2021
Commercial	$	888,081	$	806,725	$	321,548	10.1		176.2
Leases		251,603		230,677		162,444	9.1		54.9
Commercial real estate – investor		941,910		834,395		420,853	12.9		123.8
Commercial real estate – owner occupied		876,951		870,181		445,301	0.8		96.9
Construction		176,700		170,037		108,690	3.9		62.6
Residential real estate – investor		59,580		61,220		45,497	(2.7)		31.0
Residential real estate – owner occupied		220,969		207,836		108,343	6.3		104.0
Multifamily		322,856		310,706		160,798	3.9		100.8
HELOC		116,108		120,138		82,021	(3.4)		41.6
Other^1^		14,576		13,155		12,447	10.8		17.1
Total loans	$	3,869,334	$	3,625,070	$	1,867,942	6.7		107.1

^1^Other class includes consumer and overdrafts.

Total loans increased by $244.3 million at September 30, 2022, compared to June 30, 2022, and increased $2.0 billion for the year over year period. Loan growth of $2.0 billion in the year over year period was driven by the acquisition of West Suburban, as well as loan growth in 2022 which primarily consisted of commercial, leases, commercial real estate-owner occupied, construction and multifamily loans. As required by ASU 2016-13, per adoption of the Current Expected Credit Losses accounting standard (“CECL”), the balance (or amortized cost basis) of purchased credit deteriorated loans (or “PCD loans”) acquired in our acquisitions are carried on a gross basis (rather than net of the associated credit loss estimate), and the expected credit losses for PCD loans are estimated and separately recognized as part of the allowance for credit losses.


										September 30, 2022
Securities		As of								Percent Change From
(dollars in thousands)		September 30,			June 30,			September 30,		June 30,		September 30,
	****	2022		****	2022		****	2021		2022	****	2021
Securities available-for-sale, at fair value
U.S. Treasury		$	211,097		$	214,820		$	4,070	(1.7)		N/M
U.S. government agencies			55,963			57,896			33,575	(3.3)		66.7
U.S. government agency mortgage-backed			127,626			141,836			17,818	(10.0)		616.3
States and political subdivisions			224,260			233,652			238,952	(4.0)		(6.1)
Corporate bonds			9,543			9,543			4,992	-		91.2
Collateralized mortgage obligations			587,846			641,498			165,414	(8.4)		255.4
Asset-backed securities			219,587			259,622			189,338	(15.4)		16.0
Collateralized loan obligations			173,837			175,549			61,029	(1.0)		184.8
Total securities available-for-sale		$	1,609,759		$	1,734,416		$	715,188	(7.2)		125.1

N/M - Not meaningful.

Our securities portfolio totaled $1.61 billion as of September 30, 2022, a decrease of $124.7 million from $1.73 billion as of June 30, 2022, and an increase of $894.6 million from $715.2 million as of September 30, 2021. The decrease in the portfolio during the third quarter of 2022, compared to the prior quarter, was driven primarily by $83.1 million of calls and pay downs on securities held as well as the effect of rising interest rates and widening credit spreads, which resulted in a $41.2 million decrease in the portfolio’s market value. Purchases during the third quarter of 2022 totaled $519,000, and there were no sales during the quarter. A loss of $1,000 was recorded on the call of securities during the quarter. The increase in the securities portfolio in the year over year period was primarily due to $1.07 billion of securities acquired as part of our acquisition of West Suburban. The portfolio currently consists of high quality fixed-rate and floating-rate securities, with all except one rated AA or better, displaying an effective duration of approximately 3.0 years.

Asset Quality


										September 30, 2022
Nonperforming assets	As of									Percent Change From
(dollars in thousands)	September 30,			June 30,			September 30,			June 30,	September 30,
	2022		****	2022		****	2021		****	2022	2021
Nonaccrual loans	$	32,126		$	35,712		$	27,520		(10.0)	16.7
Performing troubled debt restructured loans accruing interest		22			1,108			199		(98.0)	(88.9)
Loans past due 90 days or more and still accruing interest		20,752			5,274			1,233		293.5	N/M
Total nonperforming loans		52,900			42,094			28,952		25.7	82.7
Other real estate owned		1,561			1,624			1,912		(3.9)	(18.4)
Total nonperforming assets	$	54,461		$	43,718		$	30,864		24.6	76.5



30-89 days past due loans and still accruing interest	$	8,197		$	24,681		$	2,829
Nonaccrual loans to total loans		0.8	%		1.0	%		1.5	%
Nonperforming loans to total loans		1.4	%		1.2	%		1.5	%
Nonperforming assets to total loans plus OREO		1.4	%		1.2	%		1.7	%
Purchased credit-deteriorated loans to total loans		2.1	%		2.3	%		0.3	%

Allowance for credit losses	$	48,847		$	45,388		$	26,949
Allowance for credit losses to total loans		1.3	%		1.3	%		1.4	%
Allowance for credit losses to nonaccrual loans		152.1	%		127.1	%		97.9	%

N/M - Not meaningful.

Nonperforming loans consist of nonaccrual loans, performing troubled debt restructured loans accruing interest and loans 90 days or more past due and still accruing interest. PCD loans acquired in our acquisitions of West Suburban and ABC Bank totaled $79.7 million, net of purchase accounting adjustments, at September 30, 2022. PCD loans that meet the definition of nonperforming loans are included in our nonperforming disclosures. Nonperforming loans to total loans was 1.4% for the third quarter of 2022, 1.2% for the second quarter of 2022, and 1.5% for the third quarter of 2021. Nonperforming assets to total loans plus OREO was 1.4% for the third quarter of 2022, 1.2% for the second quarter of 2022, and 1.7% for the third quarter of 2021. Our allowance for credit losses to total loans was 1.3% for both the third quarter of 2022 and the second quarter of 2022, and 1.4% for the third quarter of 2021.

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


										September 30, 2022
Classified loans		As of								Percent Change From
(dollars in thousands)		September 30,			June 30,			September 30,		June 30,		September 30,
	****	2022		****	2022		****	2021		2022	****	2021
Commercial		$	31,722		$	31,577		$	467	0.5		N/M
Leases			235			2,005			4,423	(88.3)		(94.7)
Commercial real estate – investor			28,252			30,407			8,718	(7.1)		224.1
Commercial real estate – owner occupied			42,698			28,715			7,211	48.7		492.1
Construction			1,347			1,238			4,898	8.8		(72.5)
Residential real estate – investor			1,285			1,246			1,154	3.1		11.4
Residential real estate – owner occupied			3,929			3,785			4,508	3.8		(12.8)
Multifamily			1,982			1,336			2,327	48.4		(14.8)
HELOC			2,278			2,853			1,215	(20.2)		87.5
Other^1^			2			2			2	-		-
Total classified loans		$	113,730		$	103,164		$	34,923	10.2		225.7

^1^Other class includes consumer and overdrafts.

N/M - Not meaningful.

Increases in classified loans since September 30, 2021, were driven by our acquisition of West Suburban and the resultant increase in total loans during the fourth quarter of 2021. The $10.6 million increase from the linked quarter is due to one large loan being moved from watch to problem accruing status in Commercial real estate – owner occupied.

Allowance for Credit Losses on Loans and Unfunded Commitments

At September 30, 2022, our allowance for credit losses (“ACL”) on loans totaled $48.8 million, and our ACL on unfunded commitments, included in other liabilities, totaled $5.4 million. In the third quarter of 2022, we recorded provision expense of $4.5 million based on strong loan growth, our assessment of nonperforming loan metrics and trends, and estimated future credit losses. The third quarter’s provision expense consisted of a $3.5 million provision for credit losses on loans, and a $973,000 provision for credit losses on unfunded commitments. We recorded net charge-offs of $68,000 in the third quarter of 2022, which reduced the ACL. In the second quarter of 2022, we recorded provision expense on loans of $1.3 million, based on our assessment of nonperforming loan metrics and trends and estimated future credit losses, which was offset by a $780,000 reduction in our reserve on unfunded commitments, primarily due to an updated analysis of line utilization rates over the past twelve months. These two entries resulted in a $550,000 net impact to the provision for credit losses for the second quarter of 2022. In the third quarter of 2021, a $1.5 million release of provision expense was recorded due to revised expectations of future credit losses after one year of the COVID-19 pandemic. Our ACL on loans to total loans was 1.3% as of September 30, 2022, and June 30, 2022, compared to 1.4% as of September 30, 2021.

The increase in our ACL on unfunded commitments at September 30, 2022, compared to June 30, 2022 is driven by a $973,000 provision expense in the quarter primarily due to additional line utilization in the third quarter of 2022, partially offset by $223,000 of accretion recorded during the quarter. The ACL on unfunded commitments totaled $5.4 million as of September 30, 2022, $4.7 million as of June 30, 2022, and $2.2 million as of September 30, 2021.

Net Charge-off Summary


Loan Charge–offs, net of recoveries	Quarters Ended
(dollars in thousands)	September 30,		% of	June 30,		% of	September 30,		% of
	2022		Total ^2^	2022		Total ^2^	2021		Total ^2^
Commercial	$	20	29.4	$	44	17.6	$	(2)	(0.8)
Leases		178	261.8		-	-		4	1.7
Commercial real estate – Investor		105	154.4		225	90.0		83	35.0
Commercial real estate – Owner occupied		(75)	(110.3)		(7)	(2.8)		(2)	(0.8)
Residential real estate – Investor		(8)	(11.8)		(5)	(2.0)		(7)	(3.0)
Residential real estate – Owner occupied		(113)	(166.2)		(22)	(8.8)		(18)	(7.6)
Multifamily		(63)	(92.6)		-	-		183	77.2
HELOC		(35)	(51.5)		(31)	(12.4)		(28)	(11.8)
Other^1^		59	86.8		46	18.4		24	10.1
Net charge–offs / (recoveries)	$	68	100.0	$	250	100.0	$	237	100.0

^1^Other class includes consumer and overdrafts.

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

Gross charge-offs for the third quarter of 2022 were $484,000, compared to $386,000 for the second quarter of 2022 and $369,000 for the third quarter 2021. Gross recoveries were $416,000 for the third quarter of 2022, compared to $136,000 for the second quarter of 2022, and $132,000 for the third quarter of 2021. Continued recoveries are indicative of the ongoing aggressive efforts by management to effectively manage and resolve prior charge-offs.

Deposits

Total deposits were $5.28 billion at September 30, 2022, a decrease of $61.5 million compared to $5.34 billion at June 30, 2022, primarily due to declines in our savings, NOW, and money market accounts of $76.6 million and a decrease in time deposits of $4.8 million, partially offset by an increase in demand deposits of $19.9 million. Total deposits increased $2.57 billion in the year over year period, driven primarily by the $2.69 billion of deposits acquired with our West Suburban acquisition in December 2021.

Borrowings

As of September 30, 2022, we had $25.0 million in other short-term borrowings due to a short-term FHLB advance. As of June 30, 2022, and September 30, 2021, we had no other short-term borrowings, primarily due to sufficient deposit levels to meet short-term funding needs.

We were indebted on senior notes totaling $44.6 million, net of deferred issuance costs, as of September 30, 2022. We were also indebted on $25.8 million of junior subordinated debentures, net of deferred issuance 10

costs, which is related to the trust preferred securities issued by our statutory trust subsidiary, Old Second Capital Trust II. Subordinated debt totaled $59.3 million as of September 30, 2022, consisting of $60.0 million in principal issued on April 6, 2021, net of debt issuance cost of $725,000. As of September 30, 2022, compared to June 30, 2022, notes payable and other borrowings decreased $1.0 million and is comprised of $10.0 million outstanding on a $20.0 million term note we originated to facilitate the March 2020 redemption of our trust preferred securities and related junior subordinated debentures issued by Old Second Capital Trust I.

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,” “trend,” “momentum” or other statements that indicate future periods. Examples of forward-looking statements include, but are not limited to, statements regarding the economic outlook, our expectations around our mortgage banking expenses and run rate, loan growth, pipelines and customer activity, statements regarding our expectations with respect to our acquisition of West Suburban, statements regarding our expectations with respect to the yield curve, and statements regarding the potential for expanded margins and future growth. 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, including, but not limited to, due to the negative impacts and disruptions resulting from the COVID-19 pandemic on the economies and communities we serve, which has had and may continue to have an adverse impact on our business, operations and performance, and could continue to have a negative impact on our credit portfolio, share price, borrowers, and on the economy as a whole, both domestically and globally; (2) the rate of delinquencies and amounts of charge-offs, the level of allowance for credit 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 may affect our 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) with respect to the acquisition of West Suburban, the possibility that the anticipated benefits of the transaction, including anticipated cost savings and strategic gains, are not realized when expected or at all, including as a result of the impact of, or problems arising from, 11

the continued integration of the two companies or as a result of other unexpected factors or events; and (8) 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 27, 2022, at 11:00 a.m. Eastern Time (10:00 a.m. Central Time) to discuss our third quarter 2022 financial results. Investors may listen to our call via telephone by dialing 888-506-0062, using Entry Code 439125. 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 November 3, 2022, by dialing 877-481-4010, using Conference ID: 46648. 12

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands)


		(unaudited)
		September 30,		December 31,
	****	2022		2021
Assets
Cash and due from banks		$	64,903	$	38,565
Interest earning deposits with financial institutions			51,251		713,542
Cash and cash equivalents			116,154		752,107
Securities available-for-sale, at fair value			1,609,759		1,693,632
Federal Home Loan Bank Chicago ("FHLBC") and Federal Reserve Bank Chicago ("FRBC") stock			19,413		13,257
Loans held-for-sale			1,297		4,737
Loans			3,869,334		3,420,804
Less: allowance for credit losses on loans			48,847		44,281
Net loans			3,820,487		3,376,523
Premises and equipment, net			77,301		88,005
Other real estate owned			1,561		2,356
Mortgage servicing rights, at fair value			11,461		7,097
Goodwill			86,478		86,332
Core deposit intangible			14,323		16,304
Bank-owned life insurance ("BOLI")			105,642		105,300
Deferred tax assets, net			49,620		6,100
Other assets			54,209		60,439
Total assets		$	5,967,705	$	6,212,189

Liabilities
Deposits:
Noninterest bearing demand		$	2,098,144	$	2,093,494
Interest bearing:
Savings, NOW, and money market			2,726,596		2,868,928
Time			456,619		503,810
Total deposits			5,281,359		5,466,232
Securities sold under repurchase agreements			35,497		50,337
Other short-term borrowings			25,000		-
Junior subordinated debentures			25,773		25,773
Subordinated debentures			59,275		59,212
Senior notes			44,559		44,480
Notes payable and other borrowings			10,000		19,074
Other liabilities			52,528		45,054
Total liabilities			5,533,991		5,710,162

Stockholders’ Equity
Common stock			44,705		44,705
Additional paid-in capital			201,700		202,443
Retained earnings			289,126		252,011
Accumulated other comprehensive (loss) income			(98,389)		8,768
Treasury stock			(3,428)		(5,900)
Total stockholders’ equity			433,714		502,027
Total liabilities and stockholders’ equity		$	5,967,705	$	6,212,189

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,
	****	2022		****	2021		****	2022		****	2021		****
Interest and dividend income
Loans, including fees		$	46,614		$	21,315		$	121,209		$	64,337
Loans held-for-sale			22			39			111			132
Securities:
Taxable			9,116			1,854			21,071			5,301
Tax exempt			1,332			1,266			3,946			3,832
Dividends from FHLBC and FRBC stock			261			114			677			342
Interest bearing deposits with financial institutions			663			203			1,714			432
Total interest and dividend income			58,008			24,791			148,728			74,376
Interest expense
Savings, NOW, and money market deposits			380			209			1,124			667
Time deposits			335			330			877			1,239
Securities sold under repurchase agreements			10			15			30			67
Other short-term borrowings			44			-			44			-
Junior subordinated debentures			285			286			849			850
Subordinated debentures			546			547			1,639			1,064
Senior notes			728			673			1,791			2,019
Notes payable and other borrowings			111			113			309			355
Total interest expense			2,439			2,173			6,663			6,261
Net interest and dividend income			55,569			22,618			142,065			68,115
Provision for (release of) credit losses			4,500			(1,500)			5,050			(8,000)
Net interest and dividend income after provision for (release of) credit losses			51,069			24,118			137,015			76,115
Noninterest income
Wealth management			2,280			2,372			7,484			6,912
Service charges on deposits			2,661			1,368			7,063			3,784
Secondary mortgage fees			81			240			270			834
Mortgage servicing rights mark to market gain (loss)			548			(282)			3,608			(202)
Mortgage servicing income			514			572			1,612			1,646
Net gain on sales of mortgage loans			449			2,186			1,682			7,802
Securities (losses) gains, net			(1)			244			(34)			246
Change in cash surrender value of BOLI			146			406			342			1,163
Card related income			2,653			1,624			8,194			4,737
Other income			2,165			610			3,949			1,637
Total noninterest income			11,496			9,340			34,170			28,559
Noninterest expense
Salaries and employee benefits			21,011			12,964			62,310			39,366
Occupancy, furniture and equipment			4,119			2,418			10,864			7,188
Computer and data processing			2,543			1,477			12,817			4,079
FDIC insurance			659			211			1,771			604
General bank insurance			257			301			923			854
Amortization of core deposit intangible			657			113			1,981			348
Advertising expense			83			107			459			262
Card related expense			1,453			662			3,044			1,881
Legal fees			212			455			648			645
Consulting & management fees			607			248			1,746			914
Other real estate expense, net			22			25			97			138
Other expense			4,365			3,148			14,829			8,989
Total noninterest expense			35,988			22,129			111,489			65,268
Income before income taxes			26,577			11,329			59,696			39,406
Provision for income taxes			7,054			2,917			15,906			10,295
Net income		$	19,523		$	8,412		$	43,790		$	29,111

Basic earnings per share		$	0.43		$	0.30		$	0.98		$	1.01
Diluted earnings per share			0.43			0.30			0.97			0.99
Dividends declared per share			0.05			0.05			0.15			0.11


Ending common shares outstanding	44,572,544	28,707,737	44,572,544	28,707,737
Weighted-average basic shares outstanding	44,565,626	28,707,737	44,509,072	28,925,612
Weighted-average diluted shares outstanding	45,221,541	29,230,280	45,210,216	29,458,806

Old Second Bancorp, Inc. and Subsidiaries

Quarterly Consolidated Average Balance

(In thousands, unaudited)


			2021											2022
Assets	****	1st Qtr		****	2nd Qtr		****	3rd Qtr		****	4th Qtr		****	1st Qtr		2nd Qtr		****	3rd Qtr
Cash and due from banks		$	28,461		$	29,985		$	29,760		$	34,225		$	42,972	$	53,371		$	56,265
Interest earning deposits with financial institutions			359,576			499,555			523,561			587,721			635,302		426,820			131,260
Cash and cash equivalents			388,037			529,540			553,321			621,946			678,274		480,191			187,525

Securities available-for-sale, at fair value			532,230			614,066			663,450			1,032,273			1,807,875		1,792,099			1,703,348
FHLBC and FRBC stock			9,917			9,917			9,917			11,042			16,066		20,994			19,565
Loans held-for-sale			8,616			4,860			4,908			4,271			6,707		3,050			2,020
Loans			2,006,157			1,926,105			1,884,788			2,388,746			3,397,827		3,505,806			3,751,097
Less: allowance for credit losses on loans			34,540			31,024			28,639			34,567			44,341		44,354			45,449
Net loans			1,971,617			1,895,081			1,856,149			2,354,179			3,353,486		3,461,452			3,705,648

Premises and equipment, net			45,378			44,847			44,451			59,796			87,564		84,599			80,239
Other real estate owned			2,213			2,053			1,930			1,954			2,399		1,850			1,578
Mortgage servicing rights, at fair value			4,814			5,499			5,020			5,555			8,218		10,525			10,639
Goodwill			18,604			18,604			18,604			19,340			86,332		86,332			86,333
Core deposit intangible			2,115			1,998			1,883			6,747			15,977		15,286			14,561
Bank-owned life insurance ("BOLI")			63,259			63,633			64,008			78,217			105,396		105,463			105,448
Deferred tax assets, net			8,228			7,782			6,487			9,273			10,689		27,154			31,738
Other assets			42,877			40,952			43,032			106,880			54,412		43,100			47,314
Total other assets			187,488			185,368			185,415			287,762			370,987		374,309			377,850
Total assets		$	3,097,905		$	3,238,832		$	3,273,160		$	4,311,473		$	6,233,395	$	6,132,095		$	5,995,956

Liabilities
Deposits:
Noninterest bearing demand		$	937,039		$	1,012,163		$	1,029,705		$	1,200,445		$	2,099,283	$	2,120,428		$	2,092,301
Interest bearing:
Savings, NOW, and money market			1,237,177			1,301,444			1,341,536			2,091,380			2,893,508		2,871,861			2,765,281
Time			399,310			359,635			331,482			370,919			495,452		469,009			459,925
Total deposits			2,573,526			2,673,242			2,702,723			3,662,744			5,488,243		5,461,298			5,317,507

Securities sold under repurchase agreements			82,475			67,737			46,339			47,571			39,204		34,496			33,733
Other short-term borrowings			-			1			-			-			-		-			5,435
Junior subordinated debentures			25,773			25,773			25,773			25,773			25,773		25,773			25,773
Subordinated debentures			-			56,081			59,180			59,201			59,222		59,244			59,265
Senior notes			44,389			44,415			44,441			44,468			44,494		44,520			44,546
Notes payable and other borrowings			23,330			22,250			21,171			20,090			19,009		13,103			10,989
Other liabilities			37,801			36,553			53,370			68,314			60,818		32,636			34,949
Total liabilities			2,787,294			2,926,052			2,952,997			3,928,161			5,736,763		5,671,070			5,532,197

Stockholders' equity
Common stock			34,957			34,957			34,958			38,248			44,705		44,705			44,705
Additional paid-in capital			121,578			120,359			120,857			148,528			202,828		202,544			201,570
Retained earnings			242,201			251,134			258,944			260,181			258,073		267,912			284,302
Accumulated other comprehensive income (loss)			14,496			13,971			14,965			10,986			(3,074)		(49,151)			(63,216)
Treasury stock			(102,621)			(107,641)			(109,561)			(74,631)			(5,900)		(4,985)			(3,602)
Total stockholders' equity			310,611			312,780			320,163			383,312			496,632		461,025			463,759
Total liabilities and stockholders' equity		$	3,097,905		$	3,238,832		$	3,273,160		$	4,311,473		$	6,233,395	$	6,132,095		$	5,995,956

Total Earning Assets		$	2,916,496		$	3,054,503		$	3,086,624		$	4,024,053		$	5,863,777	$	5,748,769		$	5,607,290
Total Interest Bearing Liabilities			1,812,454			1,877,336			1,869,922			2,659,402			3,576,662		3,518,006			3,404,947

Old Second Bancorp, Inc. and Subsidiaries

Quarterly Consolidated Statements of Income

(In thousands, except per share data, unaudited)



	2021												2022
	1st Qtr		****	2nd Qtr		****	3rd Qtr		****	4th Qtr		****	1st Qtr		2nd Qtr		****	3rd Qtr
Interest and Dividend Income
Loans, including fees	$	22,207		$	20,815		$	21,315		$	26,328		$	36,366	$	38,229		$	46,614
Loans held-for-sale		55			38			39			33			57		32			22
Securities:
Taxable		1,615			1,832			1,854			2,867			5,169		6,786			9,116
Tax exempt		1,307			1,259			1,266			1,273			1,317		1,297			1,332
Dividends from FHLB and FRBC stock		115			113			114			114			153		263			261
Interest bearing deposits with financial institutions		92			137			203			224			269		782			663
Total interest and dividend income		25,391			24,194			24,791			30,839			43,331		47,389			58,008
Interest Expense
Savings, NOW, and money market deposits		241			217			209			294			397		347			380
Time deposits		500			409			330			271			277		265			335
Securities sold under repurchase agreements		31			21			15			15			11		9			10
Other short-term borrowings		-			-			-			-			-					44
Junior subordinated debentures		280			284			286			283			280		284			285
Subordinated debentures		-			517			547			546			546		547			546
Senior notes		673			673			673			673			485		578			728
Notes payable and other borrowings		123			119			113			108			103		95			111
Total interest expense		1,848			2,240			2,173			2,190			2,099		2,125			2,439
Net interest and dividend income		23,543			21,954			22,618			28,649			41,232		45,264			55,569
(Release of) provision for credit losses		(3,000)			(3,500)			(1,500)			12,326			-		550			4,500
Net interest and dividend income after (release of) provision for credit losses		26,543			25,454			24,118			16,323			41,232		44,714			51,069
Noninterest Income
Wealth management		2,151			2,389			2,372			2,421			2,698		2,506			2,280
Service charges on deposits		1,195			1,221			1,368			1,624			2,074		2,328			2,661
Secondary mortgage fees		322			272			240			210			139		50			81
Mortgage servicing rights mark to market gain (loss)		1,113			(1,033)			(282)			1,463			2,978		82			548
Mortgage servicing income		567			507			572			534			519		579			514
Net gain (loss) on sales of mortgage loans		3,721			1,895			2,186			1,498			1,495		(262)			449
Securities gains (losses), net		-			2			244			(14)			-		(33)			(1)
Change in cash surrender value of BOLI		334			423			406			227			124		72			146
Card related income		1,447			1,666			1,624			1,579			2,574		2,967			2,653
Other income		450			577			610			1,129			862		922			2,165
Total noninterest income		11,300			7,919			9,340			10,671			13,463		9,211			11,496
Noninterest Expense
Salaries and employee benefits		13,506			12,896			12,964			18,325			19,967		21,332			21,011
Occupancy, furniture and equipment		2,467			2,303			2,418			6,395			3,699		3,046			4,119
Computer and data processing		1,298			1,304			1,477			3,859			6,268		4,006			2,543
FDIC insurance		201			192			211			371			410		702			659
General bank insurance		276			277			301			360			315		351			257
Amortization of core deposit intangible		120			115			113			296			665		659			657
Advertising expense		60			95			107			81			182		194			83
Card related expense		593			626			662			657			534		1,057			1,453
Legal fees		55			135			455			460			257		179			212
Consulting & management fees		417			250			247			4,091			616		523			607
Other real estate expense (gain), net		36			77			25			29			(12)		87			22
Other expense		2,709			3,131			3,149			3,609			5,351		5,113			4,365
Total noninterest expense		21,738			21,401			22,129			38,533			38,252		37,249			35,988
Income (loss) before income taxes		16,105			11,972			11,329			(11,539)			16,443		16,676			26,577
Provision for (benefit from) income taxes		4,226			3,152			2,917			(2,472)			4,423		4,429			7,054
Net income (loss)	$	11,879		$	8,820		$	8,412		$	(9,067)		$	12,020	$	12,247		$	19,523

Basic earnings per share (GAAP)	$	0.41		$	0.30		$	0.30		$	(0.27)		$	0.27	$	0.28		$	0.43
Diluted earnings per share (GAAP)		0.40			0.30			0.29			(0.26)			0.27		0.27			0.43
Dividends paid per share		0.01			0.05			0.05			0.05			0.05		0.05			0.05

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,
	2022		****	2022		2021
Net Income
Income before income taxes (GAAP)	$	26,577		$	16,676	$	11,329
Pre-tax income adjustments:
Merger-related costs, net of gains on branch sales		1,061			2,131		-
Gains on the sale of Visa and land trust portfolios		(923)			-		-
Adjusted net income before taxes		26,715			18,807		11,329
Taxes on adjusted net income		7,091			4,995		2,917
Adjusted net income (non-GAAP)	$	19,624		$	13,812	$	8,412

Basic earnings per share (GAAP)	$	0.43		$	0.28	$	0.30
Diluted earnings per share (GAAP)		0.43			0.27		0.29
Adjusted basic earnings per share excluding acquisition-related costs (non-GAAP)		0.44			0.31		0.30
Adjusted diluted earnings per share excluding acquisition-related costs (non-GAAP)		0.43			0.31		0.29


	Quarters Ended
	September 30,			June 30,			September 30,
	2022		****	2022			2021
Net Interest Margin
Interest income (GAAP)	$	58,008		$	47,389		$	24,791
Taxable-equivalent adjustment:
Loans		6			6			4
Securities		354			345			337
Interest income (TE)		58,368			47,740			25,132
Interest expense (GAAP)		2,439			2,125			2,173
Net interest income (TE)	$	55,929		$	45,615		$	22,959
Net interest income (GAAP)	$	55,569		$	45,264		$	22,618
Average interest earning assets	$	5,607,290		$	5,748,769		$	3,086,624
Net interest margin (GAAP)		3.93	%		3.16	%		2.91	%
Net interest margin (TE)		3.96	%		3.18	%		2.95	%


	GAAP									Non-GAAP
		Three Months Ended									Three Months Ended
	September 30,			June 30,			September 30,			September 30,			June 30,			September 30,
	2022			2022			2021			2022			2022			2021
Efficiency Ratio / Adjusted Efficiency Ratio

Noninterest expense	$	35,988		$	37,249		$	22,129		$	35,988		$	37,249		$	22,129
Less amortization of core deposit		657			659			113			657			659			113
Less other real estate expense, net		22			87			25			22			87			25
Less acquisition related costs, net of gain on branch sales		N/A			N/A			N/A			1,061			2,132			425
Noninterest expense less adjustments	$	35,309		$	36,503		$	21,991		$	34,248		$	34,371		$	21,566

Net interest income	$	55,569		$	45,264		$	22,618		$	55,569		$	45,264		$	22,618
Taxable-equivalent adjustment:
Loans		N/A			N/A			N/A			6			6			4
Securities		N/A			N/A			N/A			354			345			337
Net interest income including adjustments		55,569			45,264			22,618			55,929			45,615			22,959
Noninterest income		11,496			9,211			9,340			11,496			9,211			9,340
Less securities (losses) gains		(1)			(33)			244			(1)			(33)			244
Less MSRs mark to market gain (loss)		548			82			(282)			548			82			(282)
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			39			19			108
Noninterest income (less) / including adjustments		10,949			9,162			9,378			10,065			9,181			9,486

Net interest income including adjustments plus noninterest income (less) / including adjustments	$	66,518		$	54,426		$	31,996		$	65,994		$	54,796		$	32,445
Efficiency ratio / Adjusted efficiency ratio		53.08	%		67.07	%		68.73	%		51.90	%		62.73	%		66.47	%