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): July 19, 2023

(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))

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

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. ☐

Item 2.02 Results of Operations and Financial Condition

On July 19, 2023, Old Second Bancorp, Inc. (the “Company’s”) issued a press release announcing its financial results for the second quarter ended June 30, 2023. 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 July 19, 2023

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: July 19, 2023	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	July 19, 2023
	(630) 906-5484

Old Second Bancorp, Inc. Reports Second Quarter 2023 Net Income of $25.6 Million,

or $0.56 per Diluted Share

AURORA, IL, July 19, 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 second quarter of 2023. Our net income was $25.6 million, or $0.56 per diluted share, for the second quarter of 2023, compared to net income of $23.6 million, or $0.52 per diluted share, for the first quarter of 2023, and net income of $12.2 million, or $0.27 per diluted share, for the second quarter of 2022. Adjusted net income, a non-GAAP financial measure that excludes net pre-tax losses totaling $29,000 from branch sales, was also $25.6 million, or $0.56 per diluted share, for the second quarter of 2023, compared to $23.4 million, or $0.52 per diluted share, for the first quarter of 2023, and $13.8 million, or $0.31 per diluted share, for the second quarter of 2022. See the discussion entitled “Non-GAAP Presentations” below and the tables beginning on page 16 that provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

Net income increased $2.0 million in the second quarter of 2023 compared to the first quarter of 2023. The increase was primarily due to the increase in interest and dividend income of $3.7 million, the decrease of $1.5 million in provision for credit losses, and a decrease in noninterest expense of $1.1 million in the second quarter of 2023, which were partially offset by a $4.2 million increase in interest expense. Net income increased $13.3 million in the second quarter of 2023 compared to the second quarter of 2022, primarily due to an increase in net interest income year over year due to rising market interest rates. The second quarter of 2023 was impacted by the recognition of $362,000 of deferred issuance costs related to the early payoff of approximately $45.0 million in senior debt on June 30, 2023, and a pre-tax net loss on the sale of securities of $1.5 million, compared to pre-tax net losses on the sale of securities of $1.7 million in the first quarter of 2023, and pre-tax net losses on the sale of securities of $33,000 in the second quarter of 2022.

Operating Results

●	Second quarter 2023 net income was $25.6 million, reflecting a $2.0 million increase from the first quarter 2023, and an increase of $13.3 million from the second quarter of 2022. Adjusted net income, a non-GAAP financial measure that excludes acquisition-related costs, net of gains on branch sales, was $25.6 million for the second quarter of 2023, an increase of $2.2 million from adjusted net income for the first quarter of 2023, and an increase of $11.8 million from adjusted net income for the second quarter of 2022.
●	Net interest and dividend income was $63.6 million for the second quarter of 2023, reflecting a decrease of $506,000 from the first quarter of 2023, and an increase of $18.3 million, or 40.5%, from the second quarter of 2022.
---	---
●	We recorded a net provision for credit losses of $2.0 million in the second quarter of 2023, compared to a net provision for credit losses of $3.5 million in the first quarter of 2023, and a net provision for credit losses of $550,000 in the second quarter of 2022.
---	---
●	Noninterest income was $8.2 million for the second quarter of 2023, an increase of $873,000, or 11.9%, compared to $7.4 million for the first quarter of 2023, and a decrease of $988,000, or 10.7%, compared to $9.2 million for the second quarter of 2022.
---	---

●	Noninterest expense was $34.8 million for the second quarter of 2023, a decrease of $1.1 million, or 3.0% compared to $35.9 million for the first quarter of 2023, and a decrease of $2.4 million, or 6.5%, compared to $37.2 million for the second quarter of 2022.
●	We had a provision for income tax of $9.4 million for the second quarter of 2023, compared to a provision for income tax of $8.4 million for the first quarter of 2023 and a provision of $4.4 million for the second quarter of 2022.
---	---
●	On July 18, 2023, our Board of Directors declared a cash dividend of $0.05 per share payable on August 7, 2023, to stockholders of record as of July 28, 2023.
---	---

Financial Highlights


	Quarters Ended
(Dollars in thousands)	June 30, 2023			March 31, 2023			June 30, 2022
Balance sheet summary
Total assets	$	5,883,942		$	5,920,283		$	6,005,543
Total securities available-for-sale		1,335,622			1,455,068			1,734,416
Total loans		4,015,525			4,003,354			3,625,070
Total deposits		4,717,582			4,897,220			5,342,855
Total liabilities		5,369,987			5,423,413			5,556,639
Total equity		513,955			496,870			448,904

Total tangible assets	$	5,785,028		$	5,820,751		$	5,904,231
Total tangible equity		415,041			397,338			347,592

Income statement summary
Net interest income	$	63,580		$	64,086		$	45,264
Provision for credit losses		2,000			3,501			550
Noninterest income		8,223			7,350			9,211
Noninterest expense		34,830			35,922			37,249
Net income		25,562			23,607			12,247
Effective tax rate		26.91	%		26.26	%		26.56	%

Profitability ratios
Return on average assets (ROAA)		1.73	%		1.62	%		0.80	%
Return on average equity (ROAE)		20.04			19.86			10.66
Net interest margin (tax-equivalent)		4.64			4.74			3.18
Efficiency ratio		46.84			47.52			67.07
Return on average tangible common equity (ROATCE)		25.30			25.54			14.21
Tangible common equity to tangible assets (TCE/TA)		7.17			6.83			5.89

Per share data
Diluted earnings per share	$	0.56		$	0.52		$	0.27
Tangible book value per share		9.29			8.90			7.80

Company capital ratios^1^
Common equity tier 1 capital ratio		10.29	%		9.91	%		9.35	%
Tier 1 risk-based capital ratio		10.80			10.43			9.91
Total risk-based capital ratio		13.16			12.79			12.27
Tier 1 leverage ratio		8.96			8.56			7.24

Bank capital ratios ^1, 2^
Common equity tier 1 capital ratio		11.70	%		11.98	%		12.24	%
Tier 1 risk-based capital ratio		11.70			11.98			12.24
Total risk-based capital ratio		12.83			13.10			13.25
Tier 1 leverage ratio		9.70			9.83			8.94

^1^^^Both 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

^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.

President and Chief Executive Officer Jim Eccher said “Old Second reported strong results in the second quarter as we earned $25.6 million in net income, ROAA of 1.73% and ROATCE of 25.30%. Adjusting for merger related items, our earnings per share increased by 81% over the second quarter 2022. Our performance over the last year has been driven by the strength of the core deposit franchise we have built here at Old Second. Stable funding costs combined with quality loan growth have resulted in 146 basis points of expansion in our tax equivalent net interest margin over the same quarter last year. The efficiency ratio in the second quarter of 2023 was 46.8% on a GAAP basis and reflects strong balance sheet management, expense discipline in an inflationary environment and successful investments in lending teams and sales people over the last eighteen months.

“We are exceptionally pleased with our financial performance thus far in 2023 but we remain focused on the little things, such as receiving fair risk adjusted returns on our investments in a time of increasing funding costs while constantly assessing risks both within the loan portfolio and in the broader economy. To that end, we are continuing to build capital quickly and remain focused on optimizing the earning asset mix and reducing our overall sensitivity to interest rates in a prudent manner. Balance sheet growth over the remainder of the year is expected to be minimal and deposit funding costs are expected to increase modestly as we respond to competition in our markets. Any additional interest rate increases would benefit Old Second but not to the degree of prior increases. Tangible book value per share is compounding nicely and we are nearing targeted capital levels less than two years after a significant acquisition and following a period of significant volatility in interest rates. We look to finish the second half of the year on a strong note and effectively position Old Second for the years ahead.”

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 $61.2 million at June 30, 2023, $64.5 million at March 31, 2023, and $42.1 million at June 30, 2022. Nonperforming loans, as a percent of total loans, were 1.5% at June 30, 2023, 1.6% at March 31, 2023, and 1.2% at June 30, 2022. The decrease in the second quarter of 2023 is driven by the upgrade of a few credits during the quarter, due to improved borrower financial performance and debt service coverage enhancements.
●	Total loans were $4.02 billion at June 30, 2023, reflecting an increase of $12.2 million compared to March 31, 2023, and an increase of $390.5 million compared to June 30, 2022. The increase year over year was largely driven by the growth in commercial, leases, commercial real estate-investor, and multifamily portfolios. Average loans (including loans held-for-sale) for the second quarter of 2023 totaled $4.04 billion, reflecting an increase of $107.7 million from the first quarter of 2023 and an increase of $531.3 million from the second quarter of 2022.
---	---
●	Available-for-sale securities totaled $1.34 billion at June 30, 2023, compared to $1.46 billion at March 31, 2023, and $1.73 billion at June 30, 2022. The unrealized mark to market loss on securities totaled $112.4 million as of June 30, 2023, compared to $105.6 million as of March 31, 2023, and $89.8 million as of June 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 June 30, 2023, securities sales of $74.0 million resulted in net realized losses of $1.5 million, compared to sales of $66.2 million during the quarter ended March 31, 2023, which resulted in net realized losses of $1.7 million, and one security sold for the quarter ended June 30, 2022 that resulted in a loss of $33,000. We may continue to sell strategically identified securities as opportunities arise.
---	---

Net Interest Income


Analysis of Average Balances,
Tax Equivalent Income / Expense and Rates
(Dollars in thousands - unaudited)

	Quarters Ended
	June 30, 2023						March 31, 2023						June 30, 2022
	Average			Income /		Rate	Average			Income /		Rate	Average			Income /		Rate
	Balance			Expense		%	Balance			Expense		%	Balance			Expense		%
Assets
Interest earning deposits with financial institutions	$	50,309		$	643	5.13	$	49,310		$	585	4.81	$	426,820		$	782	0.73
Securities:
Taxable		1,231,994			9,930	3.23		1,330,295			10,735	3.27		1,610,713			6,786	1.69
Non-taxable (TE)^1^		172,670			1,692	3.93		173,324			1,693	3.96		181,386			1,642	3.63
Total securities (TE)^1^		1,404,664			11,622	3.32		1,503,619			12,428	3.35		1,792,099			8,428	1.89
FHLBC and FRBC Stock		34,029			396	4.67		24,905			280	4.56		20,994			263	5.02
Loans and loans held-for-sale^1, 2^		4,040,202			61,591	6.11		3,932,492			57,228	5.90		3,508,856			38,267	4.37
Total interest earning assets		5,529,204			74,252	5.39		5,510,326			70,521	5.19		5,748,769			47,740	3.33
Cash and due from banks		56,191			-	-		55,140			-	-		53,371			-	-
Allowance for credit losses on loans		(53,480)			-	-		(49,398)			-	-		(44,354)			-	-
Other noninterest bearing assets		379,576			-	-		382,579			-	-		374,309			-	-
Total assets	$	5,911,491					$	5,898,647					$	6,132,095

Liabilities and Stockholders' Equity
NOW accounts	$	600,957		$	312	0.21	$	601,030		$	242	0.16	$	604,937		$	102	0.07
Money market accounts		762,967			1,245	0.65		833,823			828	0.40		1,054,552			155	0.06
Savings accounts		1,073,172			185	0.07		1,126,040			79	0.03		1,213,133			90	0.03
Time deposits		436,524			1,156	1.06		434,655			664	0.62		469,009			265	0.23
Interest bearing deposits		2,873,620			2,898	0.40		2,995,548			1,813	0.25		3,341,631			612	0.07
Securities sold under repurchase agreements		25,575			7	0.11		31,080			9	0.12		34,496			9	0.10
Other short-term borrowings		402,527			5,160	5.14		200,833			2,345	4.74		-			-	-
Junior subordinated debentures		25,773			281	4.37		25,773			279	4.39		25,773			284	4.42
Subordinated debentures		59,329			546	3.69		59,308			546	3.73		59,244			547	3.70
Senior notes		44,134			1,414	12.85		44,599			994	9.04		44,520			578	5.21
Notes payable and other borrowings		-			-	-		5,400			87	6.53		13,103			95	2.91
Total interest bearing liabilities		3,430,958			10,306	1.20		3,362,541			6,073	0.73		3,518,767			2,125	0.24
Noninterest bearing deposits		1,920,448			-	-		2,002,801			-	-		2,119,667			-	-
Other liabilities		48,434			-	-		51,279			-	-		32,636			-	-
Stockholders' equity		511,651			-	-		482,026			-	-		461,025			-	-
Total liabilities and stockholders' equity	$	5,911,491					$	5,898,647					$	6,132,095
Net interest income (GAAP)				$	63,580					$	64,086					$	45,264
Net interest margin (GAAP)						4.61						4.72						3.16

Net interest income (TE)^1^				$	63,946					$	64,448					$	45,615
Net interest margin (TE)^1^						4.64						4.74						3.18
Interest bearing liabilities to earning assets		62.05	%					61.02	%					61.21	%

^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 16 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 16, and includes loan fee expense of $242,000 for the second quarter of 2023, and loan fee expense of $730,000 and $588,000 for the first quarter of 2023 and the second quarter of 2022, respectively. Nonaccrual loans are included in the above stated average balances.

The increased yield of 20 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 206 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 commercial, leases, 4

and commercial real estate portfolios, as these loan segments generally produce the greatest yield. The increases in 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 and timely purchases of higher yielding securities, as we work to increase the weighted average yield in the portfolio.

Average balances of interest bearing deposit accounts have decreased steadily since the second quarter of 2022 through the second quarter of 2023, from $3.34 billion to $2.87 billion, with these decreases reflected in all deposit categories. We have continued to control the cost of funds over the periods reflected, with the rate of overall interest bearing deposits increasing to 40 basis points for the quarter ended June 30, 2023, from 25 basis points for the quarter ended March 31, 2023, and from seven basis points for the quarter ended June 30, 2022. A 25 basis point increase in the cost of money market funds for the quarter ended June 30, 2023 compared to prior linked quarter, and a 59 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 June 30, 2023 also increased by 44 basis points and 83 basis points in the quarter over linked quarter and year over year quarters, respectively, primarily due to CD rate specials we offered.

Borrowing costs increased in the second quarter of 2023, primarily due to the increase in average short term borrowings of $201.7 million stemming from growth in average FHLB advances over the prior quarter, and an average increase of $402.5 million year over year 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 increase, as this issuance references three month LIBOR, and rising market interest rates as well as recognition of $362,000 of deferred issuance costs upon redemption resulted in a 381 basis point increase to 12.85% for the quarter ended June 30, 2023, compared to 9.04% for the quarter ended March 31, 2023, and a 764 basis point increase from 5.21% for the quarter ended June 30, 2022. On June 30, 2023, we redeemed all of the $45.0 million senior notes, net of deferred issuance costs, which were originally due in 2026. 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) decreased 11 basis points to 4.61% for the second quarter of 2023, compared to 4.72% for the first quarter of 2023, and increased 145 basis points compared to 3.16% for the second quarter of 2022. Our net interest margin (TE) decreased 10 basis points to 4.64% for the second quarter of 2023, compared to 4.74% for the first quarter of 2023, but increased 146 basis points compared to 3.18% for the second quarter of 2022. The decrease in the current quarter, compared to the prior quarter, is primarily due to increases in interest expense from FHLB advances and the redemption of the senior notes. The increase in the current 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 16 that provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

Noninterest Income


										2nd Quarter 2023
Noninterest Income	Three Months Ended									Percent Change From
(Dollars in thousands)	June 30,			March 31,			June 30,			March 31,		June 30,
	2023		****	2023		****	2022		****	2023	****	2022
Wealth management	$	2,458		$	2,270		$	2,506		8.3		(1.9)
Service charges on deposits		2,362			2,424			2,328		(2.6)		1.5
Residential mortgage banking revenue
Secondary mortgage fees		76			59			50		28.8		52.0
MSRs mark to market gain (loss)		96			(525)			82		118.3		17.1
Mortgage servicing income		499			516			579		(3.3)		(13.8)
Net gain on sales of mortgage loans		398			306			(262)		30.1		251.9
Total residential mortgage banking revenue		1,069			356			449		200.3		138.1
Securities losses, net		(1,547)			(1,675)			(33)		(7.6)		N/M
Change in cash surrender value of BOLI		418			242			72		72.7		480.6
Card related income		2,690			2,244			2,965		19.9		(9.3)
Other income		773			1,489			924		(48.1)		(16.3)
Total noninterest income	$	8,223		$	7,350		$	9,211		11.9		(10.7)

N/M - Not meaningful. 5

Noninterest income increased $873,000, or 11.9%, in the second quarter of 2023, compared to the first quarter of 2023, and decreased $988,000, or 10.7%, compared to the second quarter of 2022. The increase from the first quarter of 2023 was primarily driven by a $621,000 increase in mortgage servicing rights (“MSR”) mark to market gains, a $128,000 decrease in securities losses, net, based on strategic sales, and a $446,000 increase in card related income primarily due to increased activity. These increases in noninterest income in the second quarter of 2023, compared to the first quarter of 2023, were partially offset by a $716,000 decrease in other income driven by credits received in the first quarter of 2023 from a few vendors related to prior year service discounts.

The decrease in noninterest income of $988,000 in the second quarter of 2023, compared to the second quarter of 2022, is primarily due to an increase in security losses of $1.5 million on strategic sales for the quarter ended June 30, 2023. These decreases were partially offset by a $660,000 increase in net gains on sales of mortgage loans and a $346,000 increase in the cash surrender value of BOLI due to market interest rate changes.

Noninterest Expense


										2nd Quarter 2023
Noninterest Expense	Three Months Ended									Percent Change From
(Dollars in thousands)	June 30,			March 31,			June 30,			March 31,		June 30,
	2023		****	2023		****	2022		****	2023	****	2022
Salaries	$	16,310		$	16,087		$	15,995		1.4		2.0
Officers incentive		2,397			1,827			1,662		31.2		44.2
Benefits and other		3,091			4,334			3,675		(28.7)		(15.9)
Total salaries and employee benefits		21,798			22,248			21,332		(2.0)		2.2
Occupancy, furniture and equipment expense		3,639			3,475			3,046		4.7		19.5
Computer and data processing		1,290			1,774			4,006		(27.3)		(67.8)
FDIC insurance		794			584			702		36.0		13.1
Net teller & bill paying		515			502			834		2.6		(38.2)
General bank insurance		306			305			351		0.3		(12.8)
Amortization of core deposit intangible asset		618			624			659		(1.0)		(6.2)
Advertising expense		103			142			194		(27.5)		(46.9)
Card related expense		1,222			1,216			1,057		0.5		15.6
Legal fees		283			319			179		(11.3)		58.1
Consulting & management fees		520			790			523		(34.2)		(0.6)
Other real estate owned expense, net		(98)			306			87		(132.0)		N/M
Other expense		3,840			3,637			4,279		5.6		(10.3)
Total noninterest expense	$	34,830		$	35,922		$	37,249		(3.0)		(6.5)
Efficiency ratio (GAAP)^1^		46.84	%		47.52	%		67.07	%
Adjusted efficiency ratio (non-GAAP)^2^		46.49	%		47.66	%		62.73	%

N/M - Not meaningful.

^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 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 17 that provides a reconciliation of this non-GAAP financial measure to the most comparable GAAP equivalent.

Noninterest expense for the second quarter of 2023 decreased $1.1 million, or 3.0%, compared to the first quarter of 2023, and decreased $2.4 million, or 6.5%, compared to the second quarter of 2022. The decrease in the second quarter of 2023 compared to the first quarter of 2023 was attributable to a $450,000 decrease in salaries and employee benefits, primarily due to reductions in employee benefits expense related to a decline in group insurance premiums and payroll taxes, partially offset by an increase in salaries and the officer incentive accrual. Also contributing to the decrease in the second quarter of 2023 was a $484,000 decrease in computer and data processing costs as the first quarter of 2023 included additional costs due to timing of software contracts and incentives. Noninterest expense was further decreased in the second quarter of 2023 as there was no OREO valuation adjustment recorded compared to a $269,000 OREO valuation reserve recorded on two properties in the first quarter of 2023, reflected in other real estate owned expense, net. 6

The year over year decrease in noninterest expense is primarily attributable to a $2.7 million decrease in computer and data processing expenses and a $319,000 decrease in net teller & bill paying expense, both stemming from acquisition related costs in the second quarter of 2022 from our West Suburban acquisition. Partially offsetting the decrease in noninterest expense in the second quarter of 2023, compared to the second quarter of 2022, was a $466,000 increase in salaries and employee benefits and a $593,000 increase in occupancy, furniture and equipment expenses. Officer incentive compensation increased $735,000 in the second quarter of 2023, compared to the second quarter of 2022, as incentive accruals increased in the current year due to growth in our commercial and sponsored finance lending team staffing year over year, as well as loan growth in the year over year periods.

Earning Assets


							June 30, 2023
Loans	As of						Percent Change From
(dollars in thousands)	June 30,		March 31,		June 30,		March 31,		June 30,
	2023		2023		2022		2023	****	2022
Commercial	$	820,027	$	851,737	$	806,725	(3.7)		1.6
Leases		314,919		285,831		230,677	10.2		36.5
Commercial real estate – investor		1,080,073		1,056,787		834,395	2.2		29.4
Commercial real estate – owner occupied		824,277		870,115		870,181	(5.3)		(5.3)
Construction		189,058		174,683		170,037	8.2		11.2
Residential real estate – investor		55,935		56,720		61,220	(1.4)		(8.6)
Residential real estate – owner occupied		218,205		217,855		207,836	0.2		5.0
Multifamily		383,184		358,991		310,706	6.7		23.3
HELOC		102,058		104,941		120,138	(2.7)		(15.0)
Other^1^		27,789		25,694		13,155	8.2		111.2
Total loans	$	4,015,525	$	4,003,354	$	3,625,070	0.3		10.8

^1^Other class includes consumer loans and overdrafts.

Total loans increased by $12.2 million at June 30, 2023, compared to March 31, 2023, and increased $390.5 million for the year over year period. Loan growth of $390.5 million in the year over year period was driven by originations of loans with new lending groups, such as the sponsor finance team, recorded within commercial loans, as well as growth in leasing, commercial real estate – investor, construction, and multifamily loans.


										June 30, 2023
Securities		As of								Percent Change From
(dollars in thousands)		June 30,			March 31,			June 30,		March 31,		June 30,
	****	2023		****	2023		****	2022		2023	****	2022
Securities available-for-sale, at fair value
U.S. Treasury		$	214,613		$	214,734		$	214,820	(0.1)		(0.1)
U.S. government agencies			55,981			56,703			57,896	(1.3)		(3.3)
U.S. government agency mortgage-backed			115,140			121,938			141,836	(5.6)		(18.8)
States and political subdivisions			229,534			233,506			233,652	(1.7)		(1.8)
Corporate bonds			4,882			9,762			9,543	(50.0)		(48.8)
Collateralized mortgage obligations			407,495			454,106			641,498	(10.3)		(36.5)
Asset-backed securities			134,319			189,753			259,622	(29.2)		(48.3)
Collateralized loan obligations			173,658			174,566			175,549	(0.5)		(1.1)
Total securities available-for-sale		$	1,335,622		$	1,455,068		$	1,734,416	(8.2)		(23.0)

Our securities portfolio totaled $1.34 billion as of June 30, 2023, a decrease of $119.4 million from $1.46 billion as of March 31, 2023, and a decrease of $398.8 million since June 30, 2022. The portfolio decrease of $119.4 million in the second quarter of 2023, compared to the prior quarter-end, was due to security sales of $74.0 million, which resulted in a net realized loss of $1.5 million, as well as paydowns of $30.9 million. Net unrealized losses at June 30, 2023 were $112.4 million, compared to $105.6 million at March 31, 2023 and $89.8 million at June 30, 2022. The year over year increase 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 all except one publicly issued security rated AA or better, and displaying an effective duration of approximately 3 years.

Asset Quality


										June 30, 2023
Nonperforming assets	As of									Percent Change From
(dollars in thousands)	June 30,			March 31,			June 30,			March 31,	June 30,
	2023		****	2023		****	2022		****	2023	2022
Nonaccrual loans	$	60,925		$	63,561		$	35,712		(4.1)	70.6
Performing troubled debt restructured loans accruing interest ^1^		N/A			N/A			1,108		N/A	N/A
Loans past due 90 days or more and still accruing interest		308			966			5,274		(68.1)	(94.2)
Total nonperforming loans		61,233			64,527			42,094		(5.1)	45.5
Other real estate owned		761			1,255			1,624		(39.4)	(53.1)
Total nonperforming assets	$	61,994		$	65,782		$	43,718		(5.8)	41.8



30-89 days past due loans and still accruing interest	$	12,449		$	24,770		$	24,681
Nonaccrual loans to total loans		1.5	%		1.6	%		1.0	%
Nonperforming loans to total loans		1.5	%		1.6	%		1.2	%
Nonperforming assets to total loans plus OREO		1.5	%		1.6	%		1.2	%
Purchased credit-deteriorated loans to total loans		1.6	%		1.8	%		2.3	%

Allowance for credit losses	$	55,314		$	53,392		$	45,388
Allowance for credit losses to total loans		1.4	%		1.3	%		1.3	%
Allowance for credit losses to nonaccrual loans		90.8	%		84.0	%		127.1	%

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 $64.1 million, net of purchase accounting adjustments, at June 30, 2023. PCD loans that meet the definition of nonperforming loans are included in our nonperforming disclosures. Nonperforming loans to total loans was 1.5% as of June 30, 2023, 1.6% as of March 31, 2023, and 1.2% as of June 30, 2022. Nonperforming assets to total loans plus OREO was 1.5% as of June 30, 2023, 1.6% as of March 31, 2023, and 1.2% as of June 30, 2022. Our allowance for credit losses to total loans was 1.4% as of June 30, 2023, and 1.3% as of both March 31, 2023 and June 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.


										June 30, 2023
Classified loans		As of								Percent Change From
(dollars in thousands)		June 30,			March 31,			June 30,		March 31,		June 30,
	****	2023		****	2023		****	2022		2023	****	2022
Commercial		$	22,245		$	22,662		$	31,577	(1.8)		(29.6)
Leases			974			906			2,005	7.5		(51.4)
Commercial real estate – investor			57,041			52,615			30,407	8.4		87.6
Commercial real estate – owner occupied			38,495			37,545			28,715	2.5		34.1
Construction			116			241			1,238	(51.9)		(90.6)
Residential real estate – investor			1,714			1,702			1,246	0.7		37.6
Residential real estate – owner occupied			3,660			3,618			3,785	1.2		(3.3)
Multifamily			1,191			3,348			1,336	(64.4)		(10.9)
HELOC			2,152			2,635			2,853	(18.3)		(24.6)
Other^1^			-			2			2	(100.0)		(100.0)
Total classified loans		$	127,588		$	125,274		$	103,164	1.8		23.7

^1^Other class includes consumer loans and overdrafts.

Classified loans as of June 30, 2023 increased $2.3 million from March 31, 2023, and $24.4 million from June 30, 2022. The net increase from the first quarter of 2023 was driven by a $3.6 million addition in commercial real estate – investor and two additions totaling $2.2 million in commercial real estate – owner occupied. 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 second 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 June 30, 2023, our allowance for credit losses (“ACL”) on loans totaled $55.3 million, and our ACL on unfunded commitments, included in other liabilities, totaled $3.1 million. In the second quarter of 2023, we recorded provision expense of $2.0 million based on historical loss rate updates, loan growth, our assessment of nonperforming loan metrics and trends, and estimated future credit losses. The second quarter’s provision expense 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. 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 $505,000 in the second quarter of 2023, which reduced the ACL. The first quarter 2023 provision expense of $3.5 million consisted of a $4.7 million provision for credit losses on loans, and a $1.2 million reversal of provision for credit losses on unfunded commitments. We recorded net charge-offs of $740,000 in the first quarter of 2023. In the second quarter of 2022, we recorded provision expense of $550,000 based on our assessment of nonperforming loan metrics and trends and estimated future credit losses. We recorded net charge-offs of $250,000 in the second quarter of 2022, which reduced the ACL. Our ACL on loans to total loans was 1.4% as of June 30, 2023 and 1.3% as of March 31, 2023 and June 30, 2022.

The $650,000 decrease in our ACL on unfunded commitments at June 30, 2023, compared to March 31, 2023, was driven by a $427,000 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 $3.1 million as of June 30, 2023, $3.8 million as of March 31, 2023, and $4.7 million as of June 30, 2022.

Net Charge-off Summary


Loan Charge–offs, net of recoveries	Quarters Ended
(dollars in thousands)	June 30,		% of	March 31,		% of	June 30,		% of
	2023		Total ^2^	2023		Total ^2^	2022		Total ^2^
Commercial	$	298	59.0	$	(124)	(16.8)	$	44	17.6
Leases		(7)	(1.4)		873	118.0		-	-
Commercial real estate – Investor		51	10.1		(17)	(2.3)		225	90.0
Commercial real estate – Owner occupied		198	39.2		(2)	(0.3)		(7)	(2.8)
Residential real estate – Investor		(5)	(1.0)		(19)	(2.6)		(5)	(2.0)
Residential real estate – Owner occupied		(36)	(7.1)		(10)	(1.4)		(22)	(8.8)
HELOC		(24)	(4.8)		(29)	(3.9)		(31)	(12.4)
Other^1^		30	6.0		68	9.3		46	18.4
Net charge–offs / (recoveries)	$	505	100.0	$	740	100.0	$	250	100.0

^1^Other class includes consumer loans and overdrafts.

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

Gross charge-offs for the second quarter of 2023 were $733,000, compared to $1.0 million for the first quarter of 2023 and $386,000 for the second quarter of 2022. Gross recoveries were $228,000 for the second quarter of 2023, compared to $282,000 for the first quarter of 2023, and $136,000 for the second quarter of 2022. Continued recoveries are indicative of the ongoing aggressive efforts by management to effectively manage and resolve prior charge-offs.

Deposits

Total deposits were $4.72 billion at June 30, 2023, a decrease of $179.6 million, or 3.7%, compared to $4.90 billion at March 31, 2023, primarily due to a decline in money markets of $67.8 million, followed by a decrease of $58.2 million in savings and $52.5 million in non-interest bearing deposits. The bulk of the linked quarter decline in deposit balances occurred in April 2023 and is consistent with seasonal historical trends related to tax payments and commercial customer business volumes. Total quarterly average deposits decreased $667.2 million, or 12.2%, in the year over year period, driven by declines in our average demand deposits of $199.2 million, and savings, NOW and money markets combined of $435.5 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. 9

Borrowings

As of June 30, 2023, we had $485.0 million in other short-term borrowings due to short-term FHLB advances, compared to $315.0 million at March 31, 2023 and no short-term borrowings outstanding as of June 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.

During the first quarter of 2023, we paid off a $9.0 million term note payable upon maturity as of February 24, 2023. The note payable carried an interest rate of 6.32% at maturity. Please see Notes 9 and 10 of our Annual Report on Form 10-K for the year ended December 31, 2022, for further discussion of our borrowings.

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 6.

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 16 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,” “nearing” 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 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 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 10

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, July 20, 2023, at 11:00 a.m. Eastern Time (10:00 a.m. Central Time) to discuss our second quarter 2023 financial results. Investors may listen to our call via telephone by dialing 888-506-0062, using Entry Code 444016. 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 July 27, 2023, by dialing 877-481-4010, using Conference ID: 48609. 11

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands)


		(unaudited)
		June 30,		December 31,
	****	2023		2022
Assets
Cash and due from banks		$	59,466	$	56,632
Interest earning deposits with financial institutions			53,144		58,545
Cash and cash equivalents			112,610		115,177
Securities available-for-sale, at fair value			1,335,622		1,539,359
Federal Home Loan Bank Chicago ("FHLBC") and Federal Reserve Bank Chicago ("FRBC") stock			36,730		20,530
Loans held-for-sale			1,218		491
Loans			4,015,525		3,869,609
Less: allowance for credit losses on loans			55,314		49,480
Net loans			3,960,211		3,820,129
Premises and equipment, net			72,797		72,355
Other real estate owned			761		1,561
Mortgage servicing rights, at fair value			11,041		11,189
Goodwill			86,478		86,478
Core deposit intangible			12,436		13,678
Bank-owned life insurance ("BOLI")			107,268		106,608
Deferred tax assets, net			39,827		44,750
Other assets			106,943		56,012
Total assets		$	5,883,942	$	5,888,317

Liabilities
Deposits:
Noninterest bearing demand		$	1,897,694	$	2,051,702
Interest bearing:
Savings, NOW, and money market			2,368,033		2,617,100
Time			451,855		441,921
Total deposits			4,717,582		5,110,723
Securities sold under repurchase agreements			31,532		32,156
Other short-term borrowings			485,000		90,000
Junior subordinated debentures			25,773		25,773
Subordinated debentures			59,339		59,297
Senior notes			-		44,585
Notes payable and other borrowings			-		9,000
Other liabilities			50,761		55,642
Total liabilities			5,369,987		5,427,176

Stockholders’ Equity
Common stock			44,705		44,705
Additional paid-in capital			200,963		202,276
Retained earnings			355,219		310,512
Accumulated other comprehensive loss			(86,186)		(93,124)
Treasury stock			(746)		(3,228)
Total stockholders’ equity			513,955		461,141
Total liabilities and stockholders’ equity		$	5,883,942	$	5,888,317

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

(In thousands, except share data)


		(unaudited)						(unaudited)
		Three Months Ended June 30,						Six Months Ended June 30,
	****	2023		****	2022		****	2023		****	2022		****
Interest and dividend income
Loans, including fees		$	61,561		$	38,229		$	118,771		$	74,595
Loans held-for-sale			19			32			31			89
Securities:
Taxable			9,930			6,786			20,665			11,954
Tax exempt			1,337			1,297			2,674			2,615
Dividends from FHLBC and FRBC stock			396			263			676			416
Interest bearing deposits with financial institutions			643			782			1,228			1,051
Total interest and dividend income			73,886			47,389			144,045			90,720
Interest expense
Savings, NOW, and money market deposits			1,742			347			2,891			744
Time deposits			1,156			265			1,820			542
Securities sold under repurchase agreements			7			9			16			20
Other short-term borrowings			5,160			-			7,505			-
Junior subordinated debentures			281			284			560			564
Subordinated debentures			546			547			1,092			1,093
Senior notes			1,414			578			2,408			1,063
Notes payable and other borrowings			-			95			87			198
Total interest expense			10,306			2,125			16,379			4,224
Net interest and dividend income			63,580			45,264			127,666			86,496
Provision for credit losses			2,000			550			5,501			550
Net interest and dividend income after provision for credit losses			61,580			44,714			122,165			85,946
Noninterest income
Wealth management			2,458			2,506			4,728			5,204
Service charges on deposits			2,362			2,328			4,786			4,402
Secondary mortgage fees			76			50			135			189
Mortgage servicing rights mark to market (loss) gain			96			82			(429)			3,060
Mortgage servicing income			499			579			1,015			1,098
Net gain (loss) on sales of mortgage loans			398			(262)			704			1,233
Securities losses, net			(1,547)			(33)			(3,222)			(33)
Change in cash surrender value of BOLI			418			72			660			196
Card related income			2,690			2,965			4,934			5,532
Other income			773			924			2,262			1,793
Total noninterest income			8,223			9,211			15,573			22,674
Noninterest expense
Salaries and employee benefits			21,798			21,332			44,046			41,299
Occupancy, furniture and equipment			3,639			3,046			7,114			6,745
Computer and data processing			1,290			4,006			3,064			10,274
FDIC insurance			794			702			1,378			1,112
Net teller & bill paying			515			834			1,017			2,741
General bank insurance			306			351			611			666
Amortization of core deposit intangible			618			659			1,242			1,324
Advertising expense			103			194			245			376
Card related expense			1,222			1,057			2,438			1,591
Legal fees			283			179			602			436
Consulting & management fees			520			523			1,310			1,139
Other real estate expense, net			(98)			87			208			75
Other expense			3,840			4,279			7,477			7,723
Total noninterest expense			34,830			37,249			70,752			75,501
Income before income taxes			34,973			16,676			66,986			33,119
Provision for income taxes			9,411			4,429			17,817			8,852
Net income		$	25,562		$	12,247		$	49,169		$	24,267

Basic earnings per share		$	0.57		$	0.28		$	1.10		$	0.55
Diluted earnings per share			0.56			0.27			1.08			0.54
Dividends declared per share			0.05			0.05			0.10			0.10


Ending common shares outstanding	44,665,127	44,562,068	44,665,127	44,562,068
Weighted-average basic shares outstanding	44,665,127	44,499,395	44,642,250	44,480,326
Weighted-average diluted shares outstanding	45,424,418	45,246,736	45,370,806	45,204,460

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		****
Cash and due from banks		$	42,972		$	53,371		$	56,265		$	56,531		$	55,140	$	56,191
Interest earning deposits with financial institutions			635,302			426,820			131,260			50,377			49,310		50,309
Cash and cash equivalents			678,274			480,191			187,525			106,908			104,450		106,500

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
FHLBC and FRBC stock			16,066			20,994			19,565			19,534			24,905		34,029
Loans held-for-sale			6,707			3,050			2,020			1,224			813		1,150
Loans			3,397,827			3,505,806			3,751,097			3,877,004			3,931,679		4,039,052
Less: allowance for credit losses on loans			44,341			44,354			45,449			48,778			49,398		53,480
Net loans			3,353,486			3,461,452			3,705,648			3,828,226			3,882,281		3,985,572

Premises and equipment, net			86,502			73,876			71,947			72,220			72,649		72,903
Other real estate owned			2,399			1,850			1,578			1,561			1,508		1,132
Mortgage servicing rights, at fair value			8,218			10,525			10,639			11,322			11,127		10,741
Goodwill			86,332			86,332			86,333			86,477			86,477		86,477
Core deposit intangible			15,977			15,286			14,561			13,950			13,327		12,709
Bank-owned life insurance ("BOLI")			105,396			105,463			105,448			105,754			106,655		107,028
Deferred tax assets, net			10,689			27,154			31,738			50,533			42,237		37,774
Other assets			55,474			53,823			55,606			53,909			48,599		50,812
Total other assets			370,987			374,309			377,850			395,726			382,579		379,576
Total assets		$	6,233,395		$	6,132,095		$	5,995,956		$	5,927,622		$	5,898,647	$	5,911,491

Liabilities
Deposits:
Noninterest bearing demand		$	2,093,293		$	2,119,667		$	2,092,301		$	2,083,503		$	2,002,801	$	1,920,448
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
Time			495,452			469,009			459,925			450,111			434,655		436,524
Total deposits			5,488,242			5,461,298			5,317,507			5,214,381			4,998,349		4,794,068

Securities sold under repurchase agreements			39,204			34,496			33,733			33,275			31,080		25,575
Other short-term borrowings			-			-			5,435			44,293			200,833		402,527
Junior subordinated debentures			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
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
Total liabilities			5,736,763			5,671,070			5,532,197			5,483,311			5,416,621		5,399,840

Stockholders' equity
Common stock			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
Retained earnings			258,073			267,912			284,302			301,753			324,785		346,042
Accumulated other comprehensive loss			(3,074)			(49,151)			(63,216)			(100,817)			(86,736)		(78,940)
Treasury stock			(5,900)			(4,985)			(3,602)			(3,303)			(2,125)		(746)
Total stockholders' equity			496,632			461,025			463,759			444,311			482,026		511,651
Total liabilities and stockholders' equity		$	6,233,395		$	6,132,095		$	5,995,956		$	5,927,622		$	5,898,647	$	5,911,491

Total Earning Assets		$	5,863,777		$	5,748,769		$	5,607,290		$	5,524,143		$	5,510,326	$	5,529,204
Total Interest Bearing Liabilities			3,582,651			3,518,767			3,404,947			3,348,055			3,362,541		3,430,958

Old Second Bancorp, Inc. and Subsidiaries

Quarterly Consolidated Statements of Income

(In thousands, except per share data, unaudited)



	2022												2023
	1st Qtr		****	2nd Qtr		****	3rd Qtr		****	4th Qtr		****	1st Qtr		2nd Qtr		****
Interest and Dividend Income
Loans, including fees	$	36,366		$	38,229		$	46,614		$	55,170		$	57,210	$	61,561
Loans held-for-sale		57			32			22			19			12		19
Securities:
Taxable		5,169			6,786			9,116			10,495			10,735		9,930
Tax exempt		1,317			1,297			1,332			1,341			1,337		1,337
Dividends from FHLB and FRBC stock		153			263			261			259			280		396
Interest bearing deposits with financial institutions		269			782			663			461			585		643
Total interest and dividend income		43,331			47,389			58,008			67,745			70,159		73,886
Interest Expense
Savings, NOW, and money market deposits		397			347			380			776			1,149		1,742
Time deposits		277			265			335			571			664		1,156
Securities sold under repurchase agreements		11			9			10			10			9		7
Other short-term borrowings		-			-			44			436			2,345		5,160
Junior subordinated debentures		280			284			285			287			279		281
Subordinated debentures		546			547			546			546			546		546
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
Net interest and dividend income		41,232			45,264			55,569			64,091			64,086		63,580
Provision for credit losses		-			550			4,500			1,500			3,501		2,000
Net interest and dividend income after provision for credit losses		41,232			44,714			51,069			62,591			60,585		61,580
Noninterest Income
Wealth management		2,698			2,506			2,280			2,403			2,270		2,458
Service charges on deposits		2,074			2,328			2,661			2,499			2,424		2,362
Secondary mortgage fees		139			50			81			62			59		76
Mortgage servicing rights mark to market gain (loss)		2,978			82			548			(431)			(525)		96
Mortgage servicing income		519			579			514			518			516		499
Net gain (loss) on sales of mortgage loans		1,495			(262)			449			340			306		398
Securities losses, net		-			(33)			(1)			(910)			(1,675)		(1,547)
Change in cash surrender value of BOLI		124			72			146			376			242		418
Card related income		2,574			2,967			2,653			2,795			2,244		2,690
Other income		862			922			2,165			1,294			1,489		773
Total noninterest income		13,463			9,211			11,496			8,946			7,350		8,223
Noninterest Expense
Salaries and employee benefits		19,967			21,332			21,011			24,263			22,248		21,798
Occupancy, furniture and equipment		3,699			3,046			4,119			4,128			3,475		3,639
Computer and data processing		6,268			4,006			2,543			2,978			1,774		1,290
FDIC insurance		410			702			659			630			584		794
Net teller & bill paying		1,907			834			504			485			502		515
General bank insurance		315			351			257			298			305		306
Amortization of core deposit intangible		665			659			657			645			624		618
Advertising expense		182			194			83			130			142		103
Card related expense		534			1,057			1,453			1,304			1,216		1,222
Legal fees		257			179			212			225			319		283
Consulting & management fees		616			523			607			679			790		520
Other real estate expense, net		(12)			87			21			34			306		(98)
Other expense		3,444			4,279			3,862			3,885			3,637		3,840
Total noninterest expense		38,252			37,249			35,988			39,684			35,922		34,830
Income before income taxes		16,443			16,676			26,577			31,853			32,013		34,973
Provision for income taxes		4,423			4,429			7,054			8,238			8,406		9,411
Net income	$	12,020		$	12,247		$	19,523		$	23,615		$	23,607	$	25,562

Basic earnings per share (GAAP)	$	0.27		$	0.28		$	0.43		$	0.53		$	0.53	$	0.57
Diluted earnings per share (GAAP)		0.27			0.27			0.43			0.52			0.52		0.56
Dividends paid per share		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
	June 30,			March 31,		June 30,
	2023		****	2023		2022
Net Income
Income before income taxes (GAAP)	$	34,973		$	32,013	$	16,676
Pre-tax income adjustments:
Merger-related costs, net of (gains)/losses on branch sales		29			(306)		2,131
Adjusted net income before taxes		35,002			31,707		18,807
Taxes on adjusted net income		9,419			8,326		4,995
Adjusted net income (non-GAAP)	$	25,583		$	23,381	$	13,812

Basic earnings per share (GAAP)	$	0.57		$	0.53	$	0.28
Diluted earnings per share (GAAP)		0.56			0.52		0.27
Adjusted basic earnings per share excluding acquisition-related costs (non-GAAP)		0.58			0.52		0.31
Adjusted diluted earnings per share excluding acquisition-related costs (non-GAAP)		0.56			0.52		0.31


	Quarters Ended
	June 30,			March 31,			June 30,
	2023		****	2023			2022
Net Interest Margin
Interest income (GAAP)	$	73,886		$	70,159		$	47,389
Taxable-equivalent adjustment:
Loans		11			6			6
Securities		355			356			345
Interest income (TE)		74,252			70,521			47,740
Interest expense (GAAP)		10,306			6,073			2,125
Net interest income (TE)	$	63,946		$	64,448		$	45,615
Net interest income (GAAP)	$	63,580		$	64,086		$	45,264
Average interest earning assets	$	5,529,204		$	5,510,326		$	5,748,823
Net interest margin (GAAP)		4.61	%		4.72	%		3.16	%
Net interest margin (TE)		4.64	%		4.74	%		3.18	%


	GAAP									Non-GAAP
		Three Months Ended									Three Months Ended
	June 30,			March 31,			June 30,			June 30,			March 31,				June 30,
	2023			2023			2022			2023			2023				2022
Efficiency Ratio / Adjusted Efficiency Ratio

Noninterest expense	$	34,830		$	35,922		$	37,249		$	34,830			$	35,922			$	37,249
Less amortization of core deposit		618			624			659			618				624				659
Less other real estate expense, net		(98)			306			87			(98)				306				87
Less acquisition related costs, net of (gains)/losses on branch sales		N/A			N/A			N/A			29				(306)				2,132
Noninterest expense less adjustments	$	34,310		$	34,992		$	36,503		$	34,281			$	35,298			$	34,371

Net interest income	$	63,580		$	64,086		$	45,264		$	63,580			$	64,086			$	45,264
Taxable-equivalent adjustment:
Loans		N/A			N/A			N/A			11				6				6
Securities		N/A			N/A			N/A			355				356				345
Net interest income including adjustments		63,580			64,086			45,264			63,946				64,448				45,615
Noninterest income		8,223			7,350			9,211			8,223				7,350				9,211
Less securities losses		(1,547)			(1,675)			(33)			(1,547)				(1,675)				(33)
Less MSRs mark to market gain (loss)		96			(525)			82			96				(525)				82
Taxable-equivalent adjustment:
Change in cash surrender value of BOLI		N/A			N/A			N/A			111				64				19
Noninterest income (excluding) / including adjustments		9,674			9,550			9,162			9,785				9,614				9,181

Net interest income including adjustments plus noninterest income (excluding) / including adjustments	$	73,254		$	73,636		$	54,426		$	73,731			$	74,062			$	54,796
Efficiency ratio / Adjusted efficiency ratio		46.84	%		47.52	%		67.07	%		46.49	%			47.66	%			62.73	%


	Quarters Ended
	June 30,			March 31,			June 30,
	2023			2023			2022
Adjusted Return on Average Tangible Common Equity Ratio

Net income (GAAP)	$	25,562		$	23,607		$	12,247

Income before income taxes (GAAP)	$	34,973		$	32,013		$	16,676
Pre-tax income adjustments:
Amortization of core deposit intangibles		618			624			659
Net income, excluding intangibles amortization, before taxes		35,591			32,637			17,335
Taxes on net income, excluding intangible amortization, before taxes		9,578			8,570			4,604
Net income, excluding intangibles amortization (non-GAAP)	$	26,013		$	24,067		$	12,731


Total Average Common Equity	$	511,651			482,026		$	461,025
Less Average goodwill and intangible assets		99,186			99,804			101,618
Average tangible common equity (non-GAAP)	$	412,465		$	382,222		$	359,407


Return on average common equity (GAAP)		20.04	%		19.86	%		10.66	%
Return on average tangible common equity (non-GAAP)		25.30	%		25.54	%		14.21	%