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): April 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))

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 April 19, 2023, Old Second Bancorp, Inc. (the “Company’s”) issued a press release announcing its financial results for the first quarter ended March 31, 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 April 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: April 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	April 19, 2023
	(630) 906-5484

Old Second Bancorp, Inc. Reports First Quarter 2023 Net Income of $23.6 Million,

or $0.52 per Diluted Share

AURORA, IL, April 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 first quarter of 2023. Our net income was $23.6 million, or $0.52 per diluted share, for the first quarter of 2023, compared to net income of $23.6 million, or $0.52 per diluted share, for the fourth quarter of 2022, and net income of $12.0 million, or $0.27 per diluted share, for the first quarter of 2022. Adjusted net income, a non-GAAP financial measure that excludes net pre-tax gains totaling $306,000 from branch sales, was $23.4 million, or $0.52 per diluted share, for the first quarter of 2023. 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.

There was no material change in net income in the first quarter of 2023 compared to the fourth quarter of 2022. This was primarily due to the increase of $2.0 million in provision for credit losses and a decrease in noninterest income of $1.6 million in the first quarter of 2023, which were offset by a $3.8 million decrease in noninterest expense. Net income increased $11.6 million in the first quarter of 2023 compared to the first quarter of 2022. The first quarter of 2023 also included pre-tax net losses on the sale of securities of $1.7 million and a $525,000 pre-tax mark to market loss on mortgage servicing rights (“MSRs”), compared to pre-tax net losses on the sale of securities of $910,000 and a $431,000 pre-tax mark to market loss on MSRs in the fourth quarter of 2022, and a $3.0 million pre-tax gain on MSRs in the first quarter of 2022.

Operating Results

●	First quarter 2023 net income was $23.6 million, reflecting no material change from the fourth quarter 2022, and an increase of $11.6 million from the first quarter of 2022. Adjusted net income, a non-GAAP financial measure that excludes acquisition-related costs, net of gains on branch sales, was $23.4 million for the first quarter of 2023, a decrease of $691,000 from adjusted net income for the fourth quarter of 2022, and an increase of $7.5 million from adjusted net income for the first quarter of 2022.
●	Net interest and dividend income was $64.1 million for the first quarter of 2023, reflecting no material change from the fourth quarter of 2022, and an increase of $22.9 million, or 55.4%, from the first quarter of 2022.
---	---
●	We recorded a net provision for credit losses of $3.5 million in the first quarter of 2023, compared to a net provision for credit losses of $1.5 million in the fourth quarter of 2022, and no net provision for credit losses in the first quarter of 2022.
---	---
●	Noninterest income was $7.4 million for the first quarter of 2023, a decrease of $1.6 million, or 17.8%, compared to $8.9 million for the fourth quarter of 2022, and a decrease of $6.1 million, or 45.4%, compared to $13.5 million for the first quarter of 2022.
---	---
●	Noninterest expense was $35.9 million for the first quarter of 2023, a decrease of $3.8 million, or 9.5% compared to $39.7 million for the fourth quarter of 2022, and a decrease of $2.3 million, or 6.1%, compared to $38.3 million for the first quarter of 2022.
---	---

●	We had a provision for income tax of $8.4 million for the first quarter of 2023, compared to a provision for income tax of $8.2 million for the fourth quarter of 2022 and a provision of $4.4 million for the first quarter of 2022.
●	On April 18, 2023, our Board of Directors declared a cash dividend of $0.05 per share payable on May 8, 2023, to stockholders of record as of April 28, 2023.
---	---

Financial Highlights


	Quarters Ended
(Dollars in thousands)	March 31, 2023			December 31, 2022			March 31, 2022
Balance sheet summary
Total assets	$	5,920,283		$	5,888,317		$	6,223,791
Total securities available-for-sale		1,455,068			1,539,359			1,816,450
Total loans		4,003,354			3,869,609			3,402,370
Total deposits		4,897,220			5,110,723			5,544,545
Total liabilities		5,423,413			5,427,176			5,757,473
Total equity		496,870			461,141			466,318

Total tangible assets	$	5,820,751		$	5,788,161		$	6,121,820
Total tangible equity		397,338			360,985			364,347

Income statement summary
Net interest income	$	64,086		$	64,091		$	41,232
Provision for credit losses		3,501			1,500			-
Noninterest income		7,350			8,946			13,463
Noninterest expense		35,922			39,684			38,252
Net income		23,607			23,615			12,020
Effective tax rate		26.26	%		25.86	%		26.90	%

Profitability ratios
Return on average assets (ROAA)		1.62	%		1.58	%		0.78	%
Return on average equity (ROAE)		19.86			21.09			9.82
Net interest margin (tax-equivalent)		4.74			4.63			2.88
Efficiency ratio		47.52			52.44			72.70
Return on average tangible common equity (ROATCE)		25.54			27.80			12.86
Tangible common equity to tangible assets (TCE/TA)		6.83			6.24			5.95

Per share data
Diluted earnings per share	$	0.52		$	0.52		$	0.27
Tangible book value per share		8.90			8.10			8.19

Company capital ratios^1^
Common equity tier 1 capital ratio		9.91	%		9.67	%		9.73	%
Tier 1 risk-based capital ratio		10.43			10.20			10.33
Total risk-based capital ratio		12.79			12.52			12.85
Tier 1 leverage ratio		8.56			8.14			7.00

Bank capital ratios ^1, 2^
Common equity tier 1 capital ratio		11.98	%		11.70	%		12.74	%
Tier 1 risk-based capital ratio		11.98			11.70			12.74
Total risk-based capital ratio		13.10			12.75			13.83
Tier 1 leverage ratio		9.83			9.32			8.61

^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^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 first quarter as we earned $23.6 million in net income, an ROAA of 1.62% and an ROATCE of 25.54%. Capital levels continue to build quickly with 59 basis points of expansion in the tangible common equity ratio to 6.83% and 10% linked quarter growth in tangible book value per share. Adjusting for merger related items, our earnings per share increased by 44% over first quarter 2022. This robust earnings growth demonstrates the strength of our core deposit franchise highlighted by 186 basis points year over year, and 11 basis points over the linked quarter, of expansion in our net interest margin. Loans increased $133.7 million in the first quarter, or 3.5% through March 31, 2023, and we remain confident in our ability to generate and profitably fund loan growth in the remainder of 2023. The efficiency ratio in the first quarter was approximately 47.5% on a GAAP basis and reflects not only success in achieving cost saves but also reaching milestone profitability on significant investments in lending teams and sales people over the last fifteen months.

“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. I believe Old Second has among the very best and most granular deposit bases in the industry. We bank grandkids and grandparents and everyone in between. Over 98% of the customers that walk through our doors are fully guaranteed by FDIC insurance and we have but a few accounts that feature more than $5 million in deposit balances. Deposit balances that are uninsured, or not collateralized, are less than 20% at Old Second, compared to an industry average of approximately 50%. The average Old Second personal checking account was opened 14 years ago and has a balance of approximately $2,200. Our funding base is mature, stable and features a preponderance of lower balance accounts - accounts that people use to live their daily lives. Regardless, we will never forget that our customers place their trust in us and that all balances, large and small, are payable upon demand. We maintain a conservative and short asset duration that means our balance sheet is transitioning smoothly into a world of higher interest rates and that we can quickly summon the liquidity needed to meet any potential emergency, large or small. Asset repricing should continue in the coming quarters which will allow for additional improvement in our core trends. Deposit repricing is expected to remain excellent but modestly higher than cycle to date performance as we respond to competitors and take the necessary steps to protect our greatest strength.

“Continuing strong results should allow us to continue to compound book value and build capital back to our targeted levels by the end of this year. As we progress through the year, we will look to continue to reduce high cost debt on the balance sheet, evaluate share repurchase opportunities and optimize the earning asset mix in order to fund loan growth in a more competitive deposit market. We remain mindful and diligent in monitoring credit trends within the loan portfolio but remain confident in overall trends. The first quarter featured an approximate $32 million increase in nonaccrual loan balances, two thirds of which can be attributed to our most recent acquisition. These loans can be characterized as office and healthcare related and have been on our radar for quite some time. We have been stress testing maturing loan balances at higher rate levels for well over a year now and are encouraged by the results and trends we see in the portfolio.”

Asset Quality & Earning Assets

●	Nonperforming loans, comprised of nonaccrual loans, past due 90 days or more and still accruing, and, prior to January 1, 2023, performing troubled debt restructurings, totaled $64.5 million at March 31, 2023, $32.9 million at December 31, 2022, and $38.0 million at March 31, 2022. Nonperforming loans, as a percent of total loans were 1.6% at March 31, 2023, 0.9% at December 31, 2022, and 1.1% at March 31, 2022. The increase in the first quarter of 2023 is driven by a small number of relationships within the commercial real estate - investor and commercial real estate-owner occupied portfolios.
●	Total loans were $4.00 billion at March 31, 2023, reflecting an increase of $133.7 million compared to December 31, 2022, and an increase of $601.0 million compared to March 31, 2022. The increase in the year over year quarter was largely driven by the growth in commercial, commercial real estate-investor, and multifamily portfolios. Average loans (including loans held-for-sale) for the first quarter of 2023 totaled $3.93 billion, reflecting an increase of $54.3 million from the fourth quarter of 2022 and an increase of $528.0 million from the first quarter of 2022.
---	---
●	Available-for-sale securities totaled $1.46 billion at March 31, 2023, compared to $1.54 billion at December 31, 2022, and $1.82 billion at March 31, 2022. The unrealized mark to market loss on securities totaled $105.6 million as of March 31, 2023, compared to $123.5 million as of December 31, 2022, and $49.4 million as of March 31, 2022, due to market interest rate increases over the past year as well as changes year over year in the composition of the securities portfolio. Year to date unrealized losses were less than year end 2022 due to sales of securities and lower yields at the 3-year part of the curve, where our portfolio duration is. The lower rates increased the market values of our securities. During the quarter ended March 31, 2023 securities sales of $66.2 million resulted in net realized losses of $1.7 million, and sales of $27.7 million during the quarter ended December 31, 2022 resulted in net realized losses of $910,000; there were no sales for the
---	---

quarter ended March 31, 2022. 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
	March 31, 2023						December 31, 2022						March 31, 2022
	Average			Income /		Rate	Average			Income /		Rate	Average			Income /		Rate
	Balance			Expense		%	Balance			Expense		%	Balance			Expense		%
Assets
Interest earning deposits with financial institutions	$	49,310		$	585	4.81	$	50,377		$	461	3.63	$	635,302		$	269	0.17
Securities:
Taxable		1,330,295			10,735	3.27		1,404,437			10,495	2.96		1,612,635			5,169	1.30
Non-taxable (TE)^1^		173,324			1,693	3.96		171,567			1,697	3.92		195,240			1,667	3.47
Total securities (TE)^1^		1,503,619			12,428	3.35		1,576,004			12,192	3.07		1,807,875			6,836	1.53
FHLBC and FRBC Stock		24,905			280	4.56		19,534			259	5.26		16,066			153	3.86
Loans and loans held-for-sale^1, 2^		3,932,492			57,228	5.90		3,878,228			55,195	5.65		3,404,534			36,428	4.34
Total interest earning assets		5,510,326			70,521	5.19		5,524,143			68,107	4.89		5,863,777			43,686	3.02
Cash and due from banks		55,140			-	-		56,531			-	-		42,972			-	-
Allowance for credit losses on loans		(49,398)			-	-		(48,778)			-	-		(44,341)			-	-
Other noninterest bearing assets		382,579			-	-		395,726			-	-		370,987			-	-
Total assets	$	5,898,647					$	5,927,622					$	6,233,395

Liabilities and Stockholders' Equity
NOW accounts	$	601,030		$	242	0.16	$	623,408		$	225	0.14	$	599,481		$	89	0.06
Money market accounts		833,823			828	0.40		901,950			477	0.21		1,098,941			170	0.06
Savings accounts		1,126,040			79	0.03		1,155,409			74	0.03		1,201,075			138	0.05
Time deposits		434,655			664	0.62		450,111			571	0.50		495,452			277	0.23
Interest bearing deposits		2,995,548			1,813	0.25		3,130,878			1,347	0.17		3,394,949			674	0.08
Securities sold under repurchase agreements		31,080			9	0.12		33,275			10	0.12		39,204			11	0.11
Other short-term borrowings		200,833			2,345	4.74		44,293			436	3.91		-			-	-
Junior subordinated debentures		25,773			279	4.39		25,773			287	4.42		25,773			280	4.41
Subordinated debentures		59,308			546	3.73		59,286			546	3.65		59,222			546	3.74
Senior notes		44,599			994	9.04		44,572			891	7.93		44,494			485	4.42
Notes payable and other borrowings		5,400			87	6.53		9,978			137	5.45		19,009			103	2.20
Total interest bearing liabilities		3,362,541			6,073	0.73		3,348,055			3,654	0.43		3,582,651			2,099	0.24
Noninterest bearing deposits		2,002,801			-	-		2,083,503			-	-		2,093,293			-	-
Other liabilities		51,279			-	-		51,753			-	-		60,819			-	-
Stockholders' equity		482,026			-	-		444,311			-	-		496,632			-	-
Total liabilities and stockholders' equity	$	5,898,647					$	5,927,622					$	6,233,395
Net interest income (GAAP)				$	64,086					$	64,091					$	41,232
Net interest margin (GAAP)						4.72						4.60						2.85

Net interest income (TE)^1^				$	64,448					$	64,453					$	41,587
Net interest margin (TE)^1^						4.74						4.63						2.88
Interest bearing liabilities to earning assets		61.02	%					60.61	%					61.10	%

^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 $730,000 for the first quarter of 2023, and loan fee income of $917,000 and $1.6 million for the fourth quarter of 2022 and the first quarter of 2022, respectively. Nonaccrual loans are included in the above stated average balances.

The increased yield of 30 basis points on interest earning assets compared to the linked period was driven by new higher yield originations than those in previous periods as well as repricing within the existing variable rate portfolio. Further gains were earned by replacing older, lower yielding securities with higher rate securities through a mix of maturities, and strategic purchases and sales. Changes in the market 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. 4

The year over year increase of 217 basis points on interest earning assets was driven by significant increases to benchmark rates as well as strong loan growth throughout the period specifically within the commercial and commercial real estate portfolios. 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 first quarter of 2022 through the first quarter of 2023 from $3.40 billion to $3.00 billion, with these decreases reflected in all categories aside from NOW accounts which increased nominally. We have continued to control the cost of funds over the periods reflected, with the rate of overall interest bearing deposits increasing by eight basis points to 25 basis points from 17 basis points as of December 31, 2022, and from eight basis points as of March 31, 2022. A 19 basis point increase in the cost of money market funds as of March 31, 2023 compared to December 31, 2022, and 34 basis points compared to March 31, 2022 were both due to select exception pricing and drove a significant portion of the overall increase. Time deposits saw the next largest increase of 12 basis points and 39 basis points in the quarter to date and year over year periods ending March 31, 2023, primarily due to CD rate specials we offered.

Borrowing costs increased in the first quarter of 2023 primarily due to the increase in average short term borrowings stemming from FHLB advance growth of $157.0 million since year end 2022, and average growth of $201.0 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 interest expense had the most significant interest expense increase, as this issuance references three month LIBOR, and rising market interest rates resulted in a 111 basis point increase to 9.04%, from 7.93% as of December 31, 2022, and a 462 basis point increase from 4.42% as of March 31, 2022. In February 2023, we paid off the remaining balance of $9.0 million on the original $20.0 term note issued in 2020, reducing notes payable and other borrowings.

Our net interest margin (GAAP) increased 12 basis points to 4.72% for the first quarter of 2023, compared to 4.60% for the fourth quarter of 2022, and increased 187 basis points compared to 2.85% for the first quarter of 2022. Our net interest margin (TE) increased 11 basis points to 4.74% for the first quarter of 2023, compared to 4.63% for the fourth quarter of 2022 and increased 186 basis points compared to 2.88% for the first quarter of 2022. The increase in the current quarter, compared to both prior quarters, 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 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


										First Quarter 2023
Noninterest Income	Three Months Ended									Percent Change From
(Dollars in thousands)	March 31,			December 31,			March 31,			December 31,		March 31,
	2023		****	2022		****	2022		****	2022	****	2022
Wealth management	$	2,270		$	2,403		$	2,698		(5.5)		(15.9)
Service charges on deposits		2,424			2,499			2,074		(3.0)		16.9
Residential mortgage banking revenue
Secondary mortgage fees		59			62			139		(4.8)		(57.6)
MSRs mark to market (loss) gain		(525)			(431)			2,978		21.8		(117.6)
Mortgage servicing income		516			518			519		(0.4)		(0.6)
Net gain on sales of mortgage loans		306			340			1,495		(10.0)		(79.5)
Total residential mortgage banking revenue		356			489			5,131		(27.2)		(93.1)
Securities losses, net		(1,675)			(910)			-		84.1		N/M
Change in cash surrender value of BOLI		242			376			124		(35.6)		95.2
Card related income		2,244			2,795			2,574		(19.7)		(12.8)
Other income		1,489			1,294			862		15.1		72.7
Total noninterest income	$	7,350		$	8,946		$	13,463		(17.8)		(45.4)

N/M - Not meaningful.

Noninterest income decreased $1.6 million, or 17.8%, in the first quarter of 2023, compared to the fourth quarter of 2022, and decreased $6.1 million, or 45.4%, compared to the first quarter of 2022. The decrease from the fourth quarter of 2022 was primarily driven by a $765,000 increase in securities losses, net, based on strategic sales and a $551,000 decline in card related income primarily due to decreased activity. These decreases in noninterest income in 5

the first quarter of 2023, compared to the fourth quarter of 2022, were partially offset by a $195,000 increase in other income driven by credits received from a few vendors related to prior year service discounts.

The decrease in noninterest income of $6.1 million in the first quarter of 2023, compared to the first quarter of 2022, is primarily due to a decrease of $4.8 million in residential mortgage banking revenue due to increases in market interest rates in the year over year period reducing mortgage banking origination volume and related derivative revenue, as well as an increase in security losses of $1.7 million on strategic sales for the quarter ended March 31, 2023. These decreases were partially offset by a $350,000 increase in service charges on deposits, and a $627,000 increase in other income driven by a few vendor credits related to prior year billings and volumes of activity.

Noninterest Expense


										First Quarter 2023
Noninterest Expense	Three Months Ended									Percent Change From
(Dollars in thousands)	March 31,			December 31,			March 31,			December 31,		March 31,
	2023		****	2022		****	2022		****	2022	****	2022
Salaries	$	16,087		$	17,487		$	15,598		(8.0)		3.1
Officers incentive		1,827			3,876			994		(52.9)		83.8
Benefits and other		4,334			2,900			3,375		49.4		28.4
Total salaries and employee benefits		22,248			24,263			19,967		(8.3)		11.4
Occupancy, furniture and equipment expense		3,475			4,128			3,699		(15.8)		(6.1)
Computer and data processing		1,774			2,978			6,268		(40.4)		(71.7)
FDIC insurance		584			630			410		(7.3)		42.4
Net teller & bill paying		502			485			1,907		3.5		(73.7)
General bank insurance		305			298			315		2.3		(3.2)
Amortization of core deposit intangible asset		624			645			665		(3.3)		(6.2)
Advertising expense		142			130			182		9.2		(22.0)
Card related expense		1,216			1,304			534		(6.7)		127.7
Legal fees		319			225			257		41.8		24.1
Consulting & management fees		790			679			616		16.3		28.2
Other real estate owned expense, net		306			34			(12)		N/M		N/M
Other expense		3,637			3,885			3,444		(6.4)		5.6
Total noninterest expense	$	35,922		$	39,684		$	38,252		(9.5)		(6.1)
Efficiency ratio (GAAP)^1^		47.52	%		52.44	%		72.70	%
Adjusted efficiency ratio (non-GAAP)^2^		47.66	%		51.29	%		61.92	%

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 first quarter of 2023 decreased $3.8 million, or 9.5%, compared to the fourth quarter of 2022, and decreased $2.3 million, or 6.1%, compared to the first quarter of 2022. The decrease in the first quarter of 2023 compared to the fourth quarter of 2022 was attributable to a $2.0 million decrease in salaries and employee benefits, primarily due to reductions in the officer incentive accrual, partially offset by an increase in employee benefits and other stemming from payroll taxes and 401k matching expense related to annual bonus payments made in the first quarter of 2023. In addition, a $1.2 million decrease in computer and data processing costs was recorded in the first quarter of 2023, compared to the linked quarter, primarily due to timing of software contracts and incentives. Noninterest expense was further increased by a $269,000 OREO valuation reserve recorded on two properties in the first quarter of 2023.

The year over year decrease in noninterest expense is primarily attributable to a $4.5 million decrease in computer and data processing expenses and a $1.4 million decrease in net teller & bill paying expense, both stemming from acquisition related costs in the first quarter of 2022 from our West Suburban acquisition. Partially offsetting the decrease in noninterest expense in the first quarter of 2023, compared to the first quarter of 2022, was a $2.3 million 6

increase in salaries and employee benefits and a $682,000 increase in card related expenses. Officer incentive compensation increased $833,000 in the first quarter of 2023, compared to the first quarter of 2022, as incentive accruals increased in the current year due to growth in our commercial and sponsored finance lending teams year over year.

Earning Assets


							March 31, 2023
Loans	As of						Percent Change From
(dollars in thousands)	March 31,		December 31,		March 31,		December 31,		March 31,
	2023		2022		2022		2022	****	2022
Commercial	$	851,737	$	840,964	$	695,545	1.3		22.5
Leases		285,831		277,385		211,132	3.0		35.4
Commercial real estate – investor		1,056,787		987,635		748,267	7.0		41.2
Commercial real estate – owner occupied		870,115		854,879		873,292	1.8		(0.4)
Construction		174,683		180,535		165,558	(3.2)		5.5
Residential real estate – investor		56,720		57,353		62,846	(1.1)		(9.7)
Residential real estate – owner occupied		217,855		219,718		203,118	(0.8)		7.3
Multifamily		358,991		323,691		298,686	10.9		20.2
HELOC		104,941		109,202		120,241	(3.9)		(12.7)
Other^1^		25,694		18,247		23,685	40.8		8.5
Total loans	$	4,003,354	$	3,869,609	$	3,402,370	3.5		17.7

^1^Other class includes consumer loans and overdrafts.

Total loans increased by $133.7 million at March 31, 2023, compared to December 31, 2022, and increased $601.0 million for the year over year period. Loan growth of $601.0 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 and multifamily loans.


										March 31, 2023
Securities		As of								Percent Change From
(dollars in thousands)		March 31,			December 31,			March 31,		December 31,		March 31,
	****	2023		****	2022		****	2022		2022	****	2022
Securities available-for-sale, at fair value
U.S. Treasury		$	214,734		$	212,129		$	220,563	1.2		(2.6)
U.S. government agencies			56,703			56,048			59,036	1.2		(4.0)
U.S. government agency mortgage-backed			121,938			124,990			153,148	(2.4)		(20.4)
States and political subdivisions			233,506			226,128			236,408	3.3		(1.2)
Corporate bonds			9,762			9,622			9,683	1.5		0.8
Collateralized mortgage obligations			454,106			533,768			696,513	(14.9)		(34.8)
Asset-backed securities			189,753			201,928			274,941	(6.0)		(31.0)
Collateralized loan obligations			174,566			174,746			166,158	(0.1)		5.1
Total securities available-for-sale		$	1,455,068		$	1,539,359		$	1,816,450	(5.5)		(19.9)

Our securities portfolio totaled $1.46 billion as of March 31, 2023, a decrease of $84.3 million from $1.54 billion as of December 31, 2022, and a decrease of $361.4 million since March 31, 2022. The portfolio decrease of $84.3 million in the first quarter of 2023, compared to the prior year-end, was due to security sales of $66.2 million, which resulted in a net realized loss of $1.7 million, as well as paydowns of $37.4 million, partially offset by purchases of $4.2 million. Net unrealized losses at March 31, 2023 are $105.6 million, compared to $123.5 million and $49.4 million at December 31, 2022 and March 31, 2022 respectively. The decrease in net unrealized losses is due to changes in the market interest rate environment as well as repositioning of the portfolio through strategic sales of older lower yielding securities and purchases of higher yielding securities. The portfolio currently consists of high quality fixed-rate and floating-rate securities, with all except one security rated AA or better, displaying an effective duration of approximately 3.2 years.

Asset Quality


										March 31, 2023
Nonperforming assets	As of									Percent Change From
(dollars in thousands)	March 31,			December 31,			March 31,			December 31,	March 31,
	2023		****	2022		****	2022		****	2022	2022
Nonaccrual loans	$	63,561		$	31,602		$	35,973		101.1	76.7
Performing troubled debt restructured loans accruing interest ^1^		N/A			49			1,242		N/A	N/A
Loans past due 90 days or more and still accruing interest		966			1,262			743		(23.5)	30.0
Total nonperforming loans		64,527			32,913			37,958		96.1	70.0
Other real estate owned		1,255			1,561			2,374		(19.6)	(47.1)
Total nonperforming assets	$	65,782		$	34,474		$	40,332		90.8	63.1



30-89 days past due loans and still accruing interest	$	24,770		$	7,508		$	20,835
Nonaccrual loans to total loans		1.6	%		0.8	%		1.1	%
Nonperforming loans to total loans		1.6	%		0.9	%		1.1	%
Nonperforming assets to total loans plus OREO		1.6	%		0.9	%		1.2	%
Purchased credit-deteriorated loans to total loans		1.8	%		2.0	%		2.7	%

Allowance for credit losses	$	53,392		$	49,480		$	44,308
Allowance for credit losses to total loans		1.3	%		1.3	%		1.3	%
Allowance for credit losses to nonaccrual loans		84.0	%		156.6	%		123.2	%

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 $71.0 million, net of purchase accounting adjustments, at March 31, 2023. PCD loans that meet the definition of nonperforming loans are included in our nonperforming disclosures. Nonperforming loans to total loans was 1.6% for the first quarter of 2023, 0.9% for the fourth quarter 2022, and 1.1% for the first quarter of 2022. Nonperforming assets to total loans plus OREO was 1.6% for the first quarter of 2023, 0.9% for the fourth quarter of 2022, and 1.2% for the first quarter of 2022. Our allowance for credit losses to total loans was 1.3% for the first quarter of 2023, the fourth quarter of 2022, and the first quarter of 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.


										March 31, 2023
Classified loans		As of								Percent Change From
(dollars in thousands)		March 31,			December 31,			March 31,		December 31,		March 31,
	****	2023		****	2022		****	2022		2022	****	2022
Commercial		$	22,662		$	26,485		$	29,267	(14.4)		(22.6)
Leases			906			1,876			2,641	(51.7)		(65.7)
Commercial real estate – investor			52,615			27,410			8,809	92.0		497.3
Commercial real estate – owner occupied			37,545			40,890			13,259	(8.2)		183.2
Construction			241			1,333			3,185	(81.9)		(92.4)
Residential real estate – investor			1,702			1,714			1,544	(0.7)		10.2
Residential real estate – owner occupied			3,618			3,854			4,862	(6.1)		(25.6)
Multifamily			3,348			2,954			1,369	13.3		144.6
HELOC			2,635			2,411			1,669	9.3		57.9
Other^1^			2			2			3	-		(33.3)
Total classified loans		$	125,274		$	108,929		$	66,608	15.0		88.1

^1^Other class includes consumer loans and overdrafts.

The $16.3 million increase in classified loans since December 31, 2022, was driven by the addition of $25.2 million classified loans in commercial real estate – investor, primarily due to three large credits, two of which are office buildings and one is an assisted living facility. Remediation work continues on these three credits, with the goal of cash 8

flows improvements with increased tenancy. Reductions in commercial and commercial real estate – owner occupied loans were noted in the first quarter of 2023 from the linked quarter due to ongoing remediation efforts.

Allowance for Credit Losses on Loans and Unfunded Commitments

At March 31, 2023, our allowance for credit losses (“ACL”) on loans totaled $53.4 million, and our ACL on unfunded commitments, included in other liabilities, totaled $3.8 million. In the first quarter of 2023, we recorded provision expense of $3.5 million based on historical loss rate updates, loan growth, our assessment of nonperforming loan metrics and trends, and estimated future credit losses. The first quarter’s provision expense 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. The decrease in unfunded commitment was primarily due to a slight reduction in construction unfunded levels combined with changes in the construction loss rate which resulted in a decline of $689,000; and a reduction of $413,000 in the commercial substandard portfolio due to two upgraded credits. We recorded net charge-offs of $740,000 in the first quarter of 2023, which reduced the ACL. The fourth quarter’s provision expense consisted of a $1.6 million provision for credit losses on loans, and a $74,000 reversal of provision for credit losses on unfunded commitments. We recorded net charge-offs of $940,000 in the fourth quarter of 2022. In the first quarter of 2022, we recorded no net provision expense based on our assessment of nonperforming loan metrics and trends and estimated future credit losses. We recorded net charge-offs of $293,000 in the first quarter of 2022, which reduced the ACL. Our ACL on loans to total loans was 1.3% as of March 31, 2023, December 31, 2022, and March 31, 2022.

The $1.3 million decrease in our ACL on unfunded commitments at March 31, 2023, compared to December 31, 2022 is driven by a $1.2 million 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 $3.8 million as of March 31, 2023, $5.1 million as of December 31, 2022, and $5.7 million as of March 31, 2022.

Net Charge-off Summary


Loan Charge–offs, net of recoveries	Quarters Ended
(dollars in thousands)	March 31,		% of	December 31,		% of	March 31,		% of
	2023		Total ^2^	2022		Total ^2^	2022		Total ^2^
Commercial	$	(124)	(16.8)	$	(8)	(0.9)	$	-	-
Leases		873	118.0		191	20.3		-	-
Commercial real estate – Investor		(17)	(2.3)		776	82.6		213	72.7
Commercial real estate – Owner occupied		(2)	(0.3)		(2)	(0.2)		113	38.6
Residential real estate – Investor		(19)	(2.6)		(7)	(0.7)		(10)	(3.4)
Residential real estate – Owner occupied		(10)	(1.4)		-	-		(83)	(28.3)
Multifamily		-	-		(6)	(0.6)		-	-
HELOC		(29)	(3.9)		(38)	(4.0)		(35)	(11.9)
Other^1^		68	9.3		34	3.5		95	32.3
Net charge–offs / (recoveries)	$	740	100.0	$	940	100.0	$	293	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 first quarter of 2023 were $1.0 million, compared to $1.1 million for the fourth quarter of 2022 and $514,000 for the first quarter of 2022. Gross recoveries were $282,000 for the first quarter of 2023, compared to $136,000 for the fourth quarter of 2022, and $221,000 for the first 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 $4.90 billion at March 31, 2023, a decrease of $213.5 million, or 4.2%, compared to $5.11 billion at December 31, 2022, primarily due to a decline in our noninterest bearing demand deposits of $101.6 million, followed by a decrease of $100.9 million of savings, NOW and money markets combined. The bulk of the linked quarter decline in deposit balances occurred in January 2023 and is consistent with seasonal historical trends. Deposit trends in February and March were essentially unchanged and net account growth improved significantly in the first quarter relative to trends throughout 2022 following the close of the West Suburban acquisition. Total average deposits decreased $489.9 million, or 8.9%, in the year over year period, driven by declines in our average demand deposits of $90.5 million, and savings, NOW and money markets combined of $338.6 million. In general, the bulk of the decline in 9

deposits year over year can be characterized as rate sensitive with significant flows and transfers into investing activities following significant expansion in those same accounts in the immediate aftermath of the pandemic.

Borrowings

As of March 31, 2023, we had $315.0 million in other short-term borrowings due to a short-term FHLB advance, compared to $90.0 million at December 31, 2022 and no short-term borrowings outstanding as of March 31, 2022.

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” 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, asset-quality trends, pipelines and customer activity, 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; (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 will 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, April 20, 2023, at 11:00 a.m. Eastern Time (10:00 a.m. Central Time) to discuss our first quarter 2023 financial results. Investors may listen to our call via telephone by dialing 888-506-0062, using Entry Code 510290. 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 April 27, 2023, by dialing 877-481-4010, using Conference ID: 47930. 11

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands)


		(unaudited)
		March 31,		December 31,
	****	2023		2022
Assets
Cash and due from banks		$	50,860	$	56,632
Interest earning deposits with financial institutions			52,162		58,545
Cash and cash equivalents			103,022		115,177
Securities available-for-sale, at fair value			1,455,068		1,539,359
Federal Home Loan Bank Chicago ("FHLBC") and Federal Reserve Bank Chicago ("FRBC") stock			30,205		20,530
Loans held-for-sale			946		491
Loans			4,003,354		3,869,609
Less: allowance for credit losses on loans			53,392		49,480
Net loans			3,949,962		3,820,129
Premises and equipment, net			72,547		72,355
Other real estate owned			1,255		1,561
Mortgage servicing rights, at fair value			10,784		11,189
Goodwill			86,478		86,478
Core deposit intangible			13,054		13,678
Bank-owned life insurance ("BOLI")			106,850		106,608
Deferred tax assets, net			37,845		44,750
Other assets			52,267		56,012
Total assets		$	5,920,283	$	5,888,317

Liabilities
Deposits:
Noninterest bearing demand		$	1,950,144	$	2,051,702
Interest bearing:
Savings, NOW, and money market			2,516,170		2,617,100
Time			430,906		441,921
Total deposits			4,897,220		5,110,723
Securities sold under repurchase agreements			27,897		32,156
Other short-term borrowings			315,000		90,000
Junior subordinated debentures			25,773		25,773
Subordinated debentures			59,318		59,297
Senior notes			44,611		44,585
Notes payable and other borrowings			-		9,000
Other liabilities			53,594		55,642
Total liabilities			5,423,413		5,427,176

Stockholders’ Equity
Common stock			44,705		44,705
Additional paid-in capital			200,121		202,276
Retained earnings			331,890		310,512
Accumulated other comprehensive loss			(79,100)		(93,124)
Treasury stock			(746)		(3,228)
Total stockholders’ equity			496,870		461,141
Total liabilities and stockholders’ equity		$	5,920,283	$	5,888,317

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

(In thousands, except share data)


		(unaudited)
		Three Months Ended March 31,
	****	2023		****	2022		****
Interest and dividend income
Loans, including fees		$	57,210		$	36,366
Loans held-for-sale			12			57
Securities:
Taxable			10,735			5,169
Tax exempt			1,337			1,317
Dividends from FHLBC and FRBC stock			280			153
Interest bearing deposits with financial institutions			585			269
Total interest and dividend income			70,159			43,331
Interest expense
Savings, NOW, and money market deposits			1,149			397
Time deposits			664			277
Securities sold under repurchase agreements			9			11
Other short-term borrowings			2,345			-
Junior subordinated debentures			279			280
Subordinated debentures			546			546
Senior notes			994			485
Notes payable and other borrowings			87			103
Total interest expense			6,073			2,099
Net interest and dividend income			64,086			41,232
Provision for credit losses			3,501			-
Net interest and dividend income after provision for credit losses			60,585			41,232
Noninterest income
Wealth management			2,270			2,698
Service charges on deposits			2,424			2,074
Secondary mortgage fees			59			139
Mortgage servicing rights mark to market (loss) gain			(525)			2,978
Mortgage servicing income			516			519
Net gain on sales of mortgage loans			306			1,495
Securities losses, net			(1,675)			-
Change in cash surrender value of BOLI			242			124
Death benefit realized on BOLI			-			-
Card related income			2,244			2,574
Other income			1,489			862
Total noninterest income			7,350			13,463
Noninterest expense
Salaries and employee benefits			22,248			19,967
Occupancy, furniture and equipment			3,475			3,699
Computer and data processing			1,774			6,268
FDIC insurance			584			410
Net teller & bill paying			502			1,907
General bank insurance			305			315
Amortization of core deposit intangible			624			665
Advertising expense			142			182
Card related expense			1,216			534
Legal fees			319			257
Consulting & management fees			790			616
Other real estate expense, net			306			(12)
Other expense			3,637			3,444
Total noninterest expense			35,922			38,252
Income before income taxes			32,013			16,443
Provision for income taxes			8,406			4,423
Net income		$	23,607		$	12,020

Basic earnings per share		$	0.53		$	0.27
Diluted earnings per share			0.52			0.27
Dividends declared per share			0.05			0.05


Ending common shares outstanding	44,665,127	44,461,045
Weighted-average basic shares outstanding	44,619,118	44,461,045
Weighted-average diluted shares outstanding	45,316,598	45,161,715

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

Securities available-for-sale, at fair value			1,807,875			1,792,099			1,703,348			1,576,004			1,503,619
FHLBC and FRBC stock			16,066			20,994			19,565			19,534			24,905
Loans held-for-sale			6,707			3,104			2,020			1,224			813
Loans			3,397,827			3,505,806			3,751,097			3,877,004			3,931,679
Less: allowance for credit losses on loans			44,341			44,354			45,449			48,778			49,398
Net loans			3,353,486			3,461,452			3,705,648			3,828,226			3,882,281

Premises and equipment, net			86,502			73,876			71,947			72,220			72,649
Other real estate owned			2,399			1,850			1,578			1,561			1,508
Mortgage servicing rights, at fair value			8,218			10,525			10,639			11,322			11,127
Goodwill			86,332			86,332			86,333			86,477			86,477
Core deposit intangible			15,977			15,286			14,561			13,950			13,327
Bank-owned life insurance ("BOLI")			105,396			105,463			105,448			105,754			106,655
Deferred tax assets, net			10,689			27,154			31,738			50,533			42,237
Other assets			55,474			53,769			55,606			53,909			48,599
Total other assets			370,987			374,255			377,850			395,726			382,579
Total assets		$	6,233,395		$	6,132,095		$	5,995,956		$	5,927,622		$	5,898,647

Liabilities
Deposits:
Noninterest bearing demand		$	2,099,283		$	2,120,428		$	2,092,301		$	2,083,503		$	2,002,801
Interest bearing:
Savings, NOW, and money market			2,893,508			2,871,861			2,765,281			2,680,767			2,560,893
Time			495,452			469,009			459,925			450,111			434,655
Total deposits			5,488,243			5,461,298			5,317,507			5,214,381			4,998,349

Securities sold under repurchase agreements			39,204			34,496			33,733			33,275			31,080
Other short-term borrowings			-			-			5,435			44,293			200,833
Junior subordinated debentures			25,773			25,773			25,773			25,773			25,773
Subordinated debentures			59,222			59,244			59,265			59,286			59,308
Senior notes			44,494			44,520			44,546			44,572			44,599
Notes payable and other borrowings			19,009			13,103			10,989			9,978			5,400
Other liabilities			60,818			32,636			34,949			51,753			51,279
Total liabilities			5,736,763			5,671,070			5,532,197			5,483,311			5,416,621

Stockholders' equity
Common stock			44,705			44,705			44,705			44,705			44,705
Additional paid-in capital			202,828			202,544			201,570			201,973			201,397
Retained earnings			258,073			267,912			284,302			301,753			324,785
Accumulated other comprehensive loss			(3,074)			(49,151)			(63,216)			(100,817)			(86,736)
Treasury stock			(5,900)			(4,985)			(3,602)			(3,303)			(2,125)
Total stockholders' equity			496,632			461,025			463,759			444,311			482,026
Total liabilities and stockholders' equity		$	6,233,395		$	6,132,095		$	5,995,956		$	5,927,622		$	5,898,647

Total Earning Assets		$	5,863,777		$	5,748,823		$	5,607,290		$	5,524,143		$	5,510,326
Total Interest Bearing Liabilities			3,576,662			3,518,006			3,404,947			3,348,055			3,362,541

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
Interest and Dividend Income
Loans, including fees	$	36,366		$	38,229		$	46,614		$	55,170		$	57,210
Loans held-for-sale		57			32			22			19			12
Securities:
Taxable		5,169			6,786			9,116			10,495			10,735
Tax exempt		1,317			1,297			1,332			1,341			1,337
Dividends from FHLB and FRBC stock		153			263			261			259			280
Interest bearing deposits with financial institutions		269			782			663			461			585
Total interest and dividend income		43,331			47,389			58,008			67,745			70,159
Interest Expense
Savings, NOW, and money market deposits		397			347			380			776			1,149
Time deposits		277			265			335			571			664
Securities sold under repurchase agreements		11			9			10			10			9
Other short-term borrowings		-						44			436			2,345
Junior subordinated debentures		280			284			285			287			279
Subordinated debentures		546			547			546			546			546
Senior notes		485			578			728			891			994
Notes payable and other borrowings		103			95			111			137			87
Total interest expense		2,099			2,125			2,439			3,654			6,073
Net interest and dividend income		41,232			45,264			55,569			64,091			64,086
Provision for credit losses		-			550			4,500			1,500			3,501
Net interest and dividend income after provision for credit losses		41,232			44,714			51,069			62,591			60,585
Noninterest Income
Wealth management		2,698			2,506			2,280			2,403			2,270
Service charges on deposits		2,074			2,328			2,661			2,499			2,424
Secondary mortgage fees		139			50			81			62			59
Mortgage servicing rights mark to market gain (loss)		2,978			82			548			(431)			(525)
Mortgage servicing income		519			579			514			518			516
Net gain (loss) on sales of mortgage loans		1,495			(262)			449			340			306
Securities losses, net		-			(33)			(1)			(910)			(1,675)
Change in cash surrender value of BOLI		124			72			146			376			242
Card related income		2,574			2,967			2,653			2,795			2,244
Other income		862			922			2,165			1,294			1,489
Total noninterest income		13,463			9,211			11,496			8,946			7,350
Noninterest Expense
Salaries and employee benefits		19,967			21,332			21,011			24,263			22,248
Occupancy, furniture and equipment		3,699			3,046			4,119			4,128			3,475
Computer and data processing		6,268			4,006			2,543			2,978			1,774
FDIC insurance		410			702			659			630			584
Net teller & bill paying		1,907			834			504			485			502
General bank insurance		315			351			257			298			305
Amortization of core deposit intangible		665			659			657			645			624
Advertising expense		182			194			83			130			142
Card related expense		534			1,057			1,453			1,304			1,216
Legal fees		257			179			212			225			319
Consulting & management fees		616			523			607			679			790
Other real estate (gain) expense , net		(12)			87			21			34			306
Other expense		3,444			4,279			3,862			3,885			3,637
Total noninterest expense		38,252			37,249			35,988			39,684			35,922
Income before income taxes		16,443			16,676			26,577			31,853			32,013
Provision for income taxes		4,423			4,429			7,054			8,238			8,406
Net income	$	12,020		$	12,247		$	19,523		$	23,615		$	23,607

Basic earnings per share (GAAP)	$	0.27		$	0.28		$	0.43		$	0.53		$	0.53
Diluted earnings per share (GAAP)		0.27			0.27			0.43			0.52			0.52
Dividends paid per share		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
	March 31,			December 31,		March 31,
	2023		****	2022		2022
Net Income
Income before income taxes (GAAP)	$	32,013		$	31,853	$	16,443
Pre-tax income adjustments:
Merger-related costs, net of gains/losses on branch sales		(306)			617		5,335
Adjusted net income before taxes		31,707			32,470		21,778
Taxes on adjusted net income		8,326			8,398		5,858
Adjusted net income (non-GAAP)	$	23,381		$	24,072	$	15,920

Basic earnings per share (GAAP)	$	0.53		$	0.53	$	0.27
Diluted earnings per share (GAAP)		0.52			0.52		0.27
Adjusted basic earnings per share excluding acquisition-related costs (non-GAAP)		0.52			0.54		0.36
Adjusted diluted earnings per share excluding acquisition-related costs (non-GAAP)		0.52			0.53		0.36


	Quarters Ended
	March 31,			December 31,			March 31,
	2023		****	2022			2022
Net Interest Margin
Interest income (GAAP)	$	70,159		$	67,745		$	43,331
Taxable-equivalent adjustment:
Loans		6			6			5
Securities		356			356			350
Interest income (TE)		70,521			68,107			43,686
Interest expense (GAAP)		6,073			3,654			2,099
Net interest income (TE)	$	64,448		$	64,453		$	41,587
Net interest income (GAAP)	$	64,086		$	64,091		$	41,232
Average interest earning assets	$	5,510,326		$	5,524,143		$	5,863,777
Net interest margin (GAAP)		4.72	%		4.60	%		2.85	%
Net interest margin (TE)		4.74	%		4.63	%		2.88	%


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

Noninterest expense	$	35,922		$	39,684		$	38,252		$	35,922		$	39,684		$	38,252
Less amortization of core deposit		624			645			665			624			645			665
Less other real estate expense, net		306			34			(12)			306			34			(12)
Less acquisition related costs, net of gain on branch sales		N/A			N/A			N/A			(306)			617			5,335
Noninterest expense less adjustments	$	34,992		$	39,005		$	37,599		$	35,298		$	38,388		$	32,264

Net interest income	$	64,086		$	64,091		$	41,232		$	64,086		$	64,091		$	41,232
Taxable-equivalent adjustment:
Loans		N/A			N/A			N/A			6			6			5
Securities		N/A			N/A			N/A			356			356			350
Net interest income including adjustments		64,086			64,091			41,232			64,448			64,453			41,587
Noninterest income		7,350			8,946			13,463			7,350			8,946			13,463
Less securities losses		(1,675)			(910)			-			(1,675)			(910)			-
Less MSRs mark to market (loss) gain		(525)			(431)			2,978			(525)			(431)			2,978
Taxable-equivalent adjustment:
Change in cash surrender value of BOLI		N/A			N/A			N/A			64			100			33
Noninterest income (excluding) / including adjustments		9,550			10,287			10,485			9,614			10,387			10,518

Net interest income including adjustments plus noninterest income (excluding) / including adjustments	$	73,636		$	74,378		$	51,717		$	74,062		$	74,840		$	52,105
Efficiency ratio / Adjusted efficiency ratio		47.52	%		52.44	%		72.70	%		47.66	%		51.29	%		61.92	%


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

Net income (GAAP)	$	23,607		$	23,615		$	12,020

Income before income taxes (GAAP)	$	32,013		$	31,853		$	16,443
Pre-tax income adjustments:
Amortization of core deposit intangibles		624			645			665
Net income, excluding intangibles amortization, before taxes		32,637			32,498			17,108
Taxes on net income, excluding intangible amortization, before taxes		8,570			8,404			4,602
Net income, excluding intangibles amortization (non-GAAP)	$	24,067		$	24,094		$	12,506


Total Average Common Equity	$	482,026			444,311		$	496,632
Less Average goodwill and intangible assets		99,804			100,427			102,309
Average tangible common equity (non-GAAP)	$	382,222		$	343,884		$	394,323


Return on average common equity (GAAP)		19.86	%		21.09	%		9.82	%
Return on average tangible common equity (non-GAAP)		25.54	%		27.80	%		12.86	%