EX-99.1 2 tmb-20240124xex99d1.htm EX-99.1 Old Second Bancorp, Inc

Graphic

(NASDAQ:OSBC)

Exhibit 99.1

Contact:

Bradley S. Adams

For Immediate Release

Chief Financial Officer

January 24, 2024

(630) 906-5484

Old Second Bancorp, Inc. Reports Fourth Quarter 2023 Net Income of $18.2 Million,

or $0.40 per Diluted Share

AURORA, IL, January 24, 2024 – 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 fourth quarter of 2023.  Our net income was $18.2 million, or $0.40 per diluted share, for the fourth quarter of 2023, compared to net income of $24.3 million, or $0.54 per diluted share, for the third quarter of 2023, and net income of $23.6 million, or $0.52 per diluted share, for the fourth quarter of 2022. Adjusted net income, a non-GAAP financial measure that excludes nonrecurring litigation related expenses and Visa portfolio liquidation and deconversion costs, as applicable, was $19.1 million, or $0.42 per diluted share, for the fourth quarter of 2023, compared to $24.8 million, or $0.55 per diluted share, for the third quarter of 2023.  See the discussion entitled “Non-GAAP Presentations” below and the tables beginning on page 17 that provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent. Noteworthy items impacting fourth quarter 2023 results include a $1.2 million litigation reserve related to prior years’ overdraft fee compliance and $1.3 million in expense related to the fair value of mortgage servicing rights.

Net income decreased $6.1 million in the fourth quarter of 2023 compared to the third quarter of 2023. The decrease was primarily due to the increase of $5.0 million in provision for credit losses, a $1.3 million increase in interest expense, and a decrease in noninterest income of $1.1 million in the fourth quarter of 2023, which were partially offset by a $397,000 decrease in noninterest expense and a $1.4 million decrease in provision for income taxes. Net income decreased $5.4 million in the fourth quarter of 2023 compared to the fourth quarter of 2022, primarily due to an increase in provision for credit losses of $6.5 million and a decrease in net interest income of $2.9 million year over year due to rising market interest rates, which also resulted in an $8.8 million increase in interest expense. These decreases to net income in the fourth quarter of 2023 were partially offset by a decrease in noninterest expenses of $2.7 million. The fourth quarter of 2023 was minimally impacted by a pre-tax net loss on the call of securities of $2,000, compared to more significant pre-tax net losses on the sale of securities of $924,000 and $910,000 in the third quarter of 2023 and the fourth quarter of 2022, respectively.

Operating Results

Fourth quarter 2023 net income was $18.2 million, reflecting a $6.1 million decrease from the third quarter 2023, and a decrease of $5.4 million from the fourth quarter of 2022.  Adjusted net income, as defined above, was $19.1 million for the fourth quarter of 2023, a decrease of $5.7 million from adjusted net income for the third quarter of 2023, and a decrease of $4.9 million from adjusted net income for the fourth quarter of 2022.
Net interest and dividend income was $61.2 million for the fourth quarter of 2023, reflecting a decrease of $1.8 million, or 2.8%, from the third quarter of 2023, and a decrease of $2.9 million, or 4.5%, from the fourth quarter of 2022.
We recorded a net provision for credit losses of $8.0 million in the fourth quarter of 2023, compared to a net provision for credit losses of $3.0 million in the third quarter of 2023, and a net provision for credit losses of $1.5 million in the fourth quarter of 2022.    
Noninterest income was $8.7 million for the fourth quarter of 2023, a decrease of $1.1 million, or 11.6%, compared to $9.9 million for the third quarter of 2023, and a decrease of $217,000, or 2.4%, compared to $8.9 million for the fourth quarter of 2022.

1


Noninterest expense was $37.0 million for the fourth quarter of 2023, a decrease of $397,000, or 1.1% compared to $37.4 million for the third quarter of 2023, and a decrease of $2.7 million, or 6.7%, compared to $39.7 million for the fourth quarter of 2022.
We had a provision for income tax of $6.7 million for the fourth quarter of 2023, compared to a provision for income tax of $8.1 million for the third quarter of 2023 and a provision of $8.2 million for the fourth quarter of 2022. The effective tax rate for each of the periods presented was 26.9%, 25.1%, and 25.9%, respectively.
On January 16, 2024, our Board of Directors declared a cash dividend of $0.05 per share payable on February 5, 2024, to stockholders of record as of January 26, 2024.

Financial Highlights

Quarters Ended

(Dollars in thousands)

December 31, 

September 30, 

December 31, 

2023

2023

2022

Balance sheet summary

Total assets

$

5,722,799

$

5,758,156

$

5,888,317

Total securities available-for-sale

1,192,829

1,229,618

1,539,359

Total loans

4,042,953

4,029,543

3,869,609

Total deposits

4,570,746

4,614,320

5,110,723

Total liabilities

5,145,518

5,225,598

5,427,176

Total equity

577,281

532,558

461,141

Total tangible assets

$

5,625,104

$

5,659,858

$

5,788,161

Total tangible equity

479,586

434,260

360,985

Income statement summary

Net interest income

$

61,235

$

63,030

$

64,091

Provision for credit losses

8,000

3,000

1,500

Noninterest income

8,729

9,877

8,946

Noninterest expense

37,026

37,423

39,684

Net income

18,225

24,335

23,615

Effective tax rate

26.92

%

25.09

%

25.86

%

Profitability ratios

Return on average assets (ROAA)

1.27

%

1.67

%

1.58

%

Return on average equity (ROAE)

13.18

18.21

21.09

Net interest margin (tax-equivalent)

4.62

4.66

4.63

Efficiency ratio

50.82

50.08

52.44

Return on average tangible common equity (ROATCE)

16.43

22.80

27.80

Tangible common equity to tangible assets (TCE/TA)

8.53

7.67

6.24

Per share data

Diluted earnings per share

$

0.40

$

0.54

$

0.52

Tangible book value per share

10.73

9.72

8.10

Company capital ratios 1

Common equity tier 1 capital ratio

11.37

%

11.00

%

9.67

%

Tier 1 risk-based capital ratio

11.89

11.52

10.20

Total risk-based capital ratio

14.06

13.84

12.52

Tier 1 leverage ratio

10.06

9.62

8.14

Bank capital ratios 1, 2

Common equity tier 1 capital ratio

12.32

%

12.49

%

11.70

%

Tier 1 risk-based capital ratio

12.32

12.49

11.70

Total risk-based capital ratio

13.24

13.57

12.75

Tier 1 leverage ratio

10.41

10.43

9.32

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.

2


Chairman, President and Chief Executive Officer Jim Eccher said “Profitability at Old Second remains exceptionally strong and balance sheet strengthening continues with our tangible common equity to tangible assets ratio increasing by 86 basis points linked quarter to 8.53%.  We believe we are being proactive in addressing commercial real estate loans facing deterioration from higher interest rates, declining appraisal values and cash flow pressures.  Importantly, the total of substandard and criticized loans are now at their lowest levels since June 2022 as we have seen previously identified loans work toward resolution and the pace of downgrades has improved dramatically.  The loan portfolio, exclusive of office CRE and healthcare, has remained well behaved and we remain confident in our credit quality overall.  Absent a significant recession, I am optimistic that this quarter will mark the inflection point in our asset quality trends as we have seen the bulk of our loan portfolio reprice and transition into the current interest rate environment. This expectation comes despite Old Second maintaining an economic view that is significantly more cautious than consensus market forecasts. Our focus therefore remains on assessing and monitoring risks within the loan portfolio and optimizing the earning asset mix in order to reduce our overall sensitivity to interest rates.  Net interest margin trends are stable and income statement efficiency remains at record levels. Marginal spreads in deposit and lending markets remain exceptionally tight but balance sheet flexibility and the expectation for continuing record efficiency gives me confidence we are well positioned to deliver another strong year in 2024. I look forward to the opportunity to demonstrate the strength of the franchise we have built.”

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 $68.8 million at December 31, 2023, $63.3 million at September 30, 2023, and $32.9 million at December 31, 2022.  Nonperforming loans, as a percent of total loans, were 1.7% at December 31, 2023, 1.6% at September 30, 2023, and 0.9% at December 31, 2022.  The increase in the fourth quarter of 2023 is driven by the downgrade of a few credits during the quarter, due primarily to office-related loans and assisted living properties within the commercial real estate-investor portfolio and debt service coverage shortfalls.
Total loans were $4.04 billion at December 31, 2023, reflecting an increase of $13.4 million compared to September 30, 2023, and an increase of $173.3 million compared to December 31, 2022. The increase year over year was largely driven by the growth in leases, commercial real estate-investor, and multifamily portfolios.  Average loans (including loans held-for-sale) for the fourth quarter of 2023 totaled $4.02 billion, reflecting an increase of $5.6 million from the third quarter of 2023 and an increase of $138.3 million from the fourth quarter of 2022.  
Available-for-sale securities totaled $1.19 billion at December 31, 2023, compared to $1.23 billion at September 30, 2023, and $1.54 billion at December 31, 2022.  The unrealized mark to market loss on securities totaled $84.2 million as of December 31, 2023, compared to $120.5 million as of September 30, 2023, and $123.5 million as of December 31, 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 December 31, 2023, there were no securities sold, however $55.9 million of maturities and calls resulted in net realized losses of $2,000, compared to sales of $65.6 million during the quarter ended September 30, 2023, which resulted in net realized losses of $924,000, and security sales of $27.7 million for the quarter ended December 31, 2022, which resulted in net realized losses of $910,000.  We may continue to sell strategically identified securities as opportunities arise.

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Net Interest Income

Analysis of Average Balances,

Tax Equivalent Income / Expense and Rates

(Dollars in thousands - unaudited)

Quarters Ended

December 31, 2023

September 30, 2023

December 31, 2022

Average

Income /

Rate

Average

Income /

Rate

Average

Income /

Rate

Balance

Expense

%

Balance

Expense

%

Balance

Expense

%

Assets

Interest earning deposits with financial institutions

$

47,865

$

616

5.11

$

49,737

$

659

5.26

$

50,377

$

461

3.63

Securities:

Taxable

1,027,366

8,329

3.22

1,125,688

8,946

3.15

1,404,437

10,495

2.96

Non-taxable (TE)1

164,655

1,674

4.03

169,523

1,687

3.95

171,567

1,697

3.92

Total securities (TE)1

1,192,021

10,003

3.33

1,295,211

10,633

3.26

1,576,004

12,192

3.07

FHLBC and FRBC Stock

34,371

647

7.47

35,954

597

6.59

19,534

259

5.26

Loans and loans held-for-sale1, 2

4,016,480

62,793

6.20

4,010,859

62,705

6.20

3,878,228

55,195

5.65

Total interest earning assets

5,290,737

74,059

5.55

5,391,761

74,594

5.49

5,524,143

68,107

4.89

Cash and due from banks

57,723

-

-

57,279

-

-

56,531

-

-

Allowance for credit losses on loans

(50,023)

-

-

(54,581)

-

-

(48,778)

-

-

Other noninterest bearing assets

396,297

-

-

384,059

-

-

395,726

-

-

Total assets

$

5,694,734

$

5,778,518

$

5,927,622

Liabilities and Stockholders' Equity

NOW accounts

$

563,603

$

595

0.42

$

576,138

$

440

0.30

$

623,408

$

225

0.14

Money market accounts

692,720

2,200

1.26

720,488

1,767

0.97

901,950

477

0.21

Savings accounts

985,614

517

0.21

1,027,987

351

0.14

1,155,409

74

0.03

Time deposits

497,472

2,833

2.26

466,250

1,982

1.69

450,111

571

0.50

Interest bearing deposits

2,739,409

6,145

0.89

2,790,863

4,540

0.65

3,130,878

1,347

0.17

Securities sold under repurchase agreements

28,526

51

0.71

24,945

27

0.43

33,275

10

0.12

Other short-term borrowings

390,652

5,429

5.51

427,174

5,840

5.42

44,293

436

3.91

Junior subordinated debentures

25,773

290

4.46

25,773

245

3.77

25,773

287

4.42

Subordinated debentures

59,372

546

3.65

59,350

547

3.66

59,286

546

3.65

Senior notes

-

-

-

-

-

-

44,572

891

7.93

Notes payable and other borrowings

-

-

-

-

-

-

9,978

137

5.45

Total interest bearing liabilities

3,243,732

12,461

1.52

3,328,105

11,199

1.34

3,348,055

3,654

0.43

Noninterest bearing deposits

1,838,325

-

-

1,867,201

-

-

2,083,503

-

-

Other liabilities

63,971

-

-

53,164

-

-

51,753

-

-

Stockholders' equity

548,706

-

-

530,048

-

-

444,311

-

-

Total liabilities and stockholders' equity

$

5,694,734

$

5,778,518

$

5,927,622

Net interest income (GAAP)

$

61,235

$

63,030

$

64,091

Net interest margin (GAAP)

4.59

4.64

4.60

Net interest income (TE)1

$

61,598

$

63,395

$

64,453

Net interest margin (TE)1

4.62

4.66

4.63

Interest bearing liabilities to earning assets

61.31

%

61.73

%

60.61

%

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

2 Interest income from loans is shown on a tax equivalent basis, which is a non-GAAP financial measure as discussed in the table on page 17, and includes loan fee expense of $922,000 for the fourth quarter of 2023, loan fee expense of $780,000 for the third quarter of 2023, and loan fee income of $916,000 the fourth quarter of 2022. Nonaccrual loans are included in the above stated average balances.

The increased yield of six basis points on interest earning assets compared to the linked period was driven by repricing within the existing variable rate portfolios for securities available-for-sale. 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 66 basis points on interest earning assets was driven by significant increases to benchmark interest rates as well as strong loan growth throughout the period, specifically within the leases, commercial real estate and multifamily portfolios, as these loan segments generally produce the greatest yield. The increases in benchmark interest rates impacted yields on the securities portfolio through the inverse relationship between interest

4


rates and market value coupled with maturities and strategic sales of lower yielding assets, as we work to increase the weighted average yield in the portfolio.

Average balances of interest-bearing deposit accounts have decreased steadily since the fourth quarter of 2022 through the fourth quarter of 2023, from $3.13 billion to $2.74 billion, with decreases reflected in all deposit categories, excluding time deposits. We have continued to control the cost of funds over the periods reflected, with the rate of overall interest-bearing deposits increasing to 89 basis points for the quarter ended December 31, 2023, from 65 basis points for the quarter ended September 30, 2023, and from 17 basis points for the quarter ended December 31, 2022. A 29 basis point increase in the cost of money market funds for the quarter ended December 31, 2023 compared to prior linked quarter, and a 105 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 December 31, 2023 increased by 57 basis points and 176 basis points in the quarter over linked quarter and year over year quarters, respectively, primarily due to CD rate specials we offered.

Borrowing costs decreased in the fourth quarter of 2023, compared to the third quarter of 2023, primarily due to the decrease in average other short-term borrowings of $36.5 million stemming from a decrease in average FHLB advances over the prior quarter. Partially offsetting the decrease in borrowing costs in the fourth quarter of 2023 was the increase in average securities sold under repurchase agreements of $3.6 million. The increase of $346.4 million year over year of average FHLB advances was based on daily liquidity needs. Subordinated and junior subordinated debt interest expense were essentially flat over each of the periods presented. Senior notes had the most significant interest expense decrease, as we had redeemed all of the $45.0 million senior notes, net of deferred issuance costs, in June 2023, resulting in senior notes having no balance after that time. In February 2023, we paid off the remaining balance of $9.0 million on the original $20.0 million term note issued in 2020, resulting in notes payable and other borrowings having no balance after that time.

Our net interest margin (GAAP) decreased five basis points to 4.59% for the fourth quarter of 2023, compared to 4.64% for the third quarter of 2023, and decreased one basis point compared to 4.60% for the fourth quarter of 2022.  Our net interest margin (TE) decreased four basis points to 4.62% for the fourth quarter of 2023, compared to 4.66% for the third quarter of 2023, and decreased one basis point compared to 4.63% for the fourth quarter of 2022.  The decrease in the fourth quarter, compared to the prior quarter, is primarily due to the growth in interest expense due to the rising interest rate environment and its effect on interest bearing deposits. The decrease in the fourth quarter of 2023, compared to the prior year like quarter, is primarily due to an increase in market interest rates, and the related increase in costs of interest-bearing liabilities. See the discussion entitled “Non-GAAP Presentations” and the tables beginning on page 17 that provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

5


Noninterest Income

4th Quarter 2023

Noninterest Income

Three Months Ended

Percent Change From

(Dollars in thousands)

December 31, 

September 30, 

December 31, 

September 30, 

December 31, 

    

2023

    

2023

    

2022

    

2023

    

2022

 

Wealth management

$

2,600

$

2,475

$

2,403

5.1

8.2

Service charges on deposits

2,527

2,504

2,499

0.9

1.1

Residential mortgage banking revenue

Secondary mortgage fees

58

66

62

(12.1)

(6.5)

MSRs mark to market (loss) gain

(1,277)

281

(431)

(554.4)

(196.3)

Mortgage servicing income

495

519

518

(4.6)

(4.4)

Net gain on sales of mortgage loans

366

407

340

(10.1)

7.6

Total residential mortgage banking revenue

(358)

1,273

489

(128.1)

(173.2)

Securities losses, net

(2)

(924)

(910)

99.8

99.8

Change in cash surrender value of BOLI

541

919

376

(41.1)

43.9

Card related income

2,511

2,606

2,795

(3.6)

(10.2)

Other income

910

1,024

1,294

(11.1)

(29.7)

Total noninterest income

$

8,729

$

9,877

$

8,946

(11.6)

(2.4)

Noninterest income decreased $1.1 million, or 11.6%, in the fourth quarter of 2023, compared to the third quarter of 2023, and decreased $217,000, or 2.4%, compared to the fourth quarter of 2022.  The decrease from the third quarter of 2023 was primarily driven by a $1.6 million decrease in residential mortgage banking revenue, a $378,000 decrease in the cash surrender value of BOLI, and a $114,000 decrease in other income, partially offset by a $922,000 decrease in security losses, net, based on strategic sales in the third quarter of 2023 compared to none during the fourth quarter of 2023.

The decrease in noninterest income of $217,000 in the fourth quarter of 2023, compared to the fourth quarter of 2022, is primarily due to an increase of $846,000 on mortgage servicing rights mark to market losses, a $284,000 decrease in card related income, and a $384,000 decrease in other income. These decreases were partially offset by a $197,000 increase in wealth management income, a $908,000 decrease in security losses, net, based on strategic sales in the fourth quarter of 2022 compared to none during the fourth quarter of 2023, and a $165,000 increase in the cash surrender value of BOLI due to market interest rate changes.

6


Noninterest Expense

4th Quarter 2023

Noninterest Expense

Three Months Ended

Percent Change From

(Dollars in thousands)

December 31, 

September 30, 

December 31, 

September 30, 

December 31, 

    

2023

    

2023

    

2022

    

2023

    

2022

 

Salaries

$

16,738

$

17,279

$

18,268

(3.1)

(8.4)

Officers' incentive

1,450

2,773

3,095

(47.7)

(53.2)

Benefits and other

3,217

3,063

2,900

5.0

10.9

Total salaries and employee benefits

21,405

23,115

24,263

(7.4)

(11.8)

Occupancy, furniture and equipment expense

3,817

3,506

4,128

8.9

(7.5)

Computer and data processing

2,291

1,922

2,978

19.2

(23.1)

FDIC insurance

583

744

630

(21.6)

(7.5)

Net teller & bill paying

564

534

485

5.6

16.3

General bank insurance

301

300

298

0.3

1.0

Amortization of core deposit intangible asset

603

616

645

(2.1)

(6.5)

Advertising expense

383

93

130

311.8

194.6

Card related expense

1,338

1,347

1,304

(0.7)

2.6

Legal fees

228

97

225

135.1

1.3

Consulting & management fees

556

549

679

1.3

(18.1)

Other real estate owned expense, net

218

(27)

34

907.4

541.2

Other expense

4,739

4,627

3,885

2.4

22.0

Total noninterest expense

$

37,026

$

37,423

$

39,684

(1.1)

(6.7)

Efficiency ratio (GAAP)1

50.82

%

50.08

%

52.44

%

Adjusted efficiency ratio (non-GAAP)2

48.76

%

48.82

%

51.29

%

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, litigation expense, and acquisition-related costs, net of gains on branch sales (as applicable), Visa credit card portfolio liquidation and related deconversion costs, as well as any merger related costs, if applicable, divided by the sum of net interest income on a fully tax equivalent basis, total noninterest income less net gains or losses on securities, mark to market gains or losses on MSRs, gain on the sale of our Visa credit card and land trust portfolios, and includes a tax equivalent adjustment on the change in cash surrender value of BOLI.  See the discussion entitled “Non-GAAP Presentations” below and the table on page 18 that provides a reconciliation of this non-GAAP financial measure to the most comparable GAAP equivalent.

Noninterest expense for the fourth quarter of 2023 decreased $397,000, or 1.1%, compared to the third quarter of 2023, and decreased $2.7 million, or 6.7%, compared to the fourth quarter of 2022.  The decrease in the fourth quarter of 2023 compared to the third quarter of 2023 was attributable to a $1.7 million decrease in salaries and employee benefits, primarily due to a decrease in the officer incentive accrual and to a lesser extent various components of salary expense.  Also contributing to the decrease in the fourth quarter of 2023 was a $161,000 decrease in FDIC insurance due to a reduction in total assets assessed.  Partially offsetting the decrease in noninterest expense in the fourth quarter of 2023 was a $311,000 increase in occupancy, furniture and equipment, a $369,000 increase in computer and data processing, a $290,000 increase in advertising expense, and a $245,000 increase in OREO related expenses due to two additions to OREO during the fourth quarter of 2023 quarter totaling $4.9 million.

The year over year decrease in noninterest expense is primarily attributable to a $2.9 million decrease in salaries and employee benefits, primarily due to a decrease in various components of salary expense as well as officers’ incentives. Also contributing to the decrease was a $311,000 decrease in occupancy, furniture and equipment, a $687,000 decrease in computer and data processing, and a $123,000 decrease in consulting and management fees. The elevated expense totals in the fourth quarter of 2022 were driven by the final merger-related costs recorded stemming from the West Suburban acquisition in December 2021. Partially offsetting the decrease in noninterest expense in the fourth quarter of 2023, compared to the fourth quarter of 2022, was a $253,000 increase in advertising expenses, a $184,000 increase in OREO related expenses, and a $854,000 increase in other expenses due to a $1.2 million litigation expense recorded in the fourth quarter of 2023 for a pending overdraft fee compliance claim.

7


Earning Assets

December 31, 2023

Loans

As of

Percent Change From

(Dollars in thousands)

December 31, 

September 30, 

December 31, 

September 30, 

December 31, 

    

2023

    

2023

    

2022

    

2023

    

2022

 

Commercial

$

841,697

$

834,877

$

840,964

0.8

0.1

Leases

398,223

354,827

277,385

12.2

43.6

Commercial real estate – investor

1,034,424

1,047,122

987,635

(1.2)

4.7

Commercial real estate – owner occupied

796,538

809,050

854,879

(1.5)

(6.8)

Construction

165,380

202,546

180,535

(18.3)

(8.4)

Residential real estate – investor

52,595

53,762

57,353

(2.2)

(8.3)

Residential real estate – owner occupied

226,248

227,446

219,718

(0.5)

3.0

Multifamily

401,696

372,020

323,691

8.0

24.1

HELOC

103,237

102,055

109,202

1.2

(5.5)

Other1

22,915

25,838

18,247

(11.3)

25.6

Total loans

$

4,042,953

$

4,029,543

$

3,869,609

0.3

4.5

1 Other class includes consumer loans and overdrafts.

Total loans increased by $13.4 million at December 31, 2023, compared to September 30, 2023, and increased $173.3 million for the year over year period.  Loan growth of $173.3 million in the year over year period was driven by growth in leasing, commercial real estate – investor, and multifamily loans.  

December 31, 2023

Securities

As of

Percent Change From

(Dollars in thousands)

December 31, 

September 30, 

December 31, 

September 30, 

December 31, 

    

2023

    

2023

    

2022

    

2023

    

2022

Securities available-for-sale, at fair value

U.S. Treasury

$

169,574

$

216,777

$

212,129

(21.8)

(20.1)

U.S. government agencies

56,959

55,821

56,048

2.0

1.6

U.S. government agency mortgage-backed

106,370

104,569

124,990

1.7

(14.9)

States and political subdivisions

229,335

220,100

226,128

4.2

1.4

Corporate bonds

-

4,961

9,622

(100.0)

(100.0)

Collateralized mortgage obligations

392,544

386,679

533,768

1.5

(26.5)

Asset-backed securities

66,166

66,916

201,928

(1.1)

(67.2)

Collateralized loan obligations

171,881

173,795

174,746

(1.1)

(1.6)

Total securities available-for-sale

$

1,192,829

$

1,229,618

$

1,539,359

(3.0)

(22.5)

Our securities portfolio totaled $1.19 billion fair market value as of December 31, 2023, a decrease of $36.8 million from $1.23 billion as of September 30, 2023, and a decrease of $346.5 million since December 31, 2022. The portfolio reduction of $36.8 million in the fourth quarter of 2023, compared to the prior quarter-end, was due to maturities and calls of $55.9 million as well as paydowns of $25.6 million, partially offset by the effects of declining interest rates which increased fair market value. Net unrealized losses at December 31, 2023 were $84.2 million, compared to $120.5 million at September 30, 2023 and $123.5 million at December 30, 2022. The year over year decrease in net unrealized losses is due to changes in the market interest rate environment as well as the impact of security sales undertaken to further reduce the portfolio’s interest rate sensitivity. The portfolio continues to consist of high quality fixed-rate and floating-rate securities, with more than 99% of publicly issued securities rated AA or better.

8


Asset Quality

December 31, 2023

Nonperforming assets

As of

Percent Change From

(Dollars in thousands)

December 31, 

September 30, 

December 31, 

September 30, 

December 31, 

  

2023

  

2023

  

2022

  

2023

2022

Nonaccrual loans

$

67,583

$

62,116

$

31,602

8.8

113.9

Performing troubled debt restructured loans accruing interest 1

 

N/A

 

N/A

 

49

N/A

N/A

Loans past due 90 days or more and still accruing interest

 

1,196

 

1,209

 

1,262

(1.1)

(5.2)

Total nonperforming loans

 

68,779

 

63,325

 

32,913

8.6

109.0

Other real estate owned

 

5,123

 

407

 

1,561

N/M

228.2

Total nonperforming assets

$

73,902

$

63,732

$

34,474

16.0

114.4

30-89 days past due loans and still accruing interest

$

13,668

$

28,486

$

7,508

Nonaccrual loans to total loans

1.7

%

1.5

%

0.8

%

Nonperforming loans to total loans

1.7

%

1.6

%

0.9

%

Nonperforming assets to total loans plus OREO

1.8

%

1.6

%

0.9

%

Purchased credit-deteriorated loans to total loans

1.4

%

1.5

%

2.0

%

Allowance for credit losses

$

44,264

$

51,729

$

49,480

Allowance for credit losses to total loans

1.1

%

1.3

%

1.3

%

Allowance for credit losses to nonaccrual loans

65.5

%

83.3

%

156.6

%

N/A - Not applicable.

N/M - Not meaningful.

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 $55.7 million, net of purchase accounting adjustments, at December 31, 2023.  PCD loans that meet the definition of nonperforming loans are included in our nonperforming disclosures.  Nonperforming loans to total loans was 1.7% as of December 31, 2023, 1.6% as of September 30, 2023, and 0.9% as of December 31, 2022. Nonperforming assets to total loans plus OREO was 1.8% as of December 31, 2023, 1.6% as of September 30, 2023, and 0.9% as of December 31, 2022. Our allowance for credit losses to total loans was 1.1% as of December 31, 2023, and 1.3% as of September 30, 2023 and December 31, 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.

December 31, 2023

Classified loans

As of

Percent Change From

(Dollars in thousands)

December 31, 

September 30, 

December 31, 

September 30, 

December 31, 

    

2023

    

2023

    

2022

    

2023

    

2022

Commercial

$

8,414

$

18,298

$

26,485

(54.0)

(68.2)

Leases

818

574

1,876

42.5

(56.4)

Commercial real estate – investor

43,798

54,126

27,410

(19.1)

59.8

Commercial real estate – owner occupied

54,613

55,292

40,890

(1.2)

33.6

Construction

17,155

17,263

1,333

(0.6)

N/M

Residential real estate – investor

1,331

1,502

1,714

(11.4)

(22.3)

Residential real estate – owner occupied

3,216

3,627

3,854

(11.3)

(16.6)

Multifamily

1,775

1,141

2,954

55.6

(39.9)

HELOC

1,664

1,434

2,411

16.0

(31.0)

Other1

-

-

2

-

(100.0)

Total classified loans

$

132,784

$

153,257

$

108,929

(13.4)

21.9

N/M - Not meaningful.

1 Other class includes consumer loans and overdrafts.

9


Classified loans as of December 31, 2023 decreased by $20.5 million from September 30, 2023, and increased by $23.9 million from December 31, 2022. The net decrease from the third quarter of 2023 was mostly driven by seven loans that had principal charge offs, totaling $15.8 million, seven loans that were upgraded totaling $11.8 million, and two loans that were transferred to OREO, totaling $4.9 million. These decreases in classified loans in the fourth quarter were offset by $18.6 million of additions, primarily driven by three loans in commercial real estate – owner occupied which totaled $11.1 million and seven loans in commercial which totaled $4.2 million.  Remediation work continues on these credits, with the goal of cash flow improvements with increased tenancy.  Reductions in commercial classified loans were noted in the fourth quarter of 2023 from the linked quarter due to ongoing remediation efforts.

Allowance for Credit Losses on Loans and Unfunded Commitments

At December 31, 2023, our allowance for credit losses (“ACL”) on loans totaled $44.3 million, and our ACL on unfunded commitments, included in other liabilities, totaled $2.7 million.  In the fourth quarter of 2023, we recorded provision expense of $8.0 million based on historical loss rate updates, loan growth, our assessment of nonperforming loan metrics and trends, and estimated future credit losses. The fourth quarter’s provision expense consisted of a $8.0 million provision for credit losses on loans, and a $6,000 provision for credit losses on unfunded commitments.  The increase in ACL on 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 $15.5 million in the fourth quarter of 2023, which reduced the ACL. The majority of the fourth quarter charge offs were specific to seven borrowers within the commercial real estate portfolio on which we had existing specific allocations within the ACL of $2.5 million at September 30, 2023. The third quarter 2023 provision expense of $3.0 million consisted of a $3.0 million provision for credit losses on loans, and a $11,000 reversal of provision for credit losses on unfunded commitments. We recorded net charge-offs of $6.6 million in the third quarter of 2023. In the fourth quarter of 2022, we recorded provision expense of $1.5 million based on our assessment of nonperforming loan metrics and trends and estimated future credit losses.  We recorded net charge-offs of $940,000 in the fourth quarter of 2022, which reduced the ACL. Our ACL on loans to total loans was 1.1% as of December 31, 2023 and 1.3% as of September 30, 2023 and December 31, 2022.

The $143,000 decrease in our ACL on unfunded commitments at December 31, 2023, compared to September 30, 2023, was driven by purchase accounting accretion of $149,000 on unfunded commitments recorded during the quarter, partially offset by $6,000 of provision expense in the quarter discussed above.  The ACL on unfunded commitments totaled $2.7 million as of December 31, 2023, $2.9 million as of September 30, 2023, and $5.1 million as of December 31, 2022.

Net Charge-off Summary

Loan charge–offs, net of recoveries

Quarters Ended

(Dollars in thousands)

December 31, 

% of

September 30, 

% of

December 31, 

% of

2023

Total 2

2023

Total 2

2022

Total 2

Commercial

$

71

0.5

$

8

0.1

$

(8)

(0.9)

Leases

(8)

(0.1)

(95)

(1.4)

191

20.3

Commercial real estate – Investor

4,951

32.0

6,754

102.4

776

82.6

Commercial real estate – Owner occupied

10,443

67.5

23

0.3

(2)

(0.2)

Construction

-

-

(100)

(1.5)

-

-

Residential real estate – Investor

(3)

-

(3)

-

(7)

(0.7)

Residential real estate – Owner occupied

(8)

(0.1)

(25)

(0.4)

-

-

Multifamily

-

-

-

-

(6)

(0.6)

HELOC

(17)

(0.1)

(35)

(0.5)

(38)

(4.0)

Other 1

31

0.3

70

1.0

34

3.5

Net charge–offs / (recoveries)

$

15,460

100.0

$

6,597

100.0

$

940

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 fourth quarter of 2023 were $16.0 million, compared to $6.9 million for the third quarter of 2023 and $1.1 million for the fourth quarter of 2022.  Gross recoveries were $491,000 for the fourth quarter of 2023, compared to $339,000 for the third quarter of 2023, and $136,000 for the fourth quarter of 2022.  Continued recoveries are indicative of the ongoing aggressive efforts by management to effectively manage and resolve prior charge-offs.  

10


Deposits

Total deposits were $4.57 billion at December 31, 2023, a decrease of $43.6 million, or 0.9%, compared to $4.61 billion at September 30, 2023, primarily due to a decline in savings of $32.2 million, followed by a decrease of $30.9 million in money markets and $27.8 million in non-interest bearing deposits. The large decreases were partially offset by an increase of $49.9 million in certificates of deposit. The bulk of the linked quarter decline in deposit balances occurred in October 2023 and is consistent with seasonal historical trends related to tax payments and commercial customer business volumes. Total quarterly average deposits decreased $636.6 million, or 12.2%, in the year over year period, driven by declines in our average demand deposits of $245.2 million, and savings, NOW and money markets combined of $438.8 million. In general, the bulk of the decline in deposits year over year can be characterized as rate sensitive with significant flows and transfers into investing activities, materially offsetting the significant expansion in those same accounts in the immediate aftermath of the pandemic.  

Borrowings

As of December 31, 2023, we had $405.0 million in other short-term borrowings due to short-term FHLB advances, compared to $435.0 million at September 30, 2023, and $90.0 million as of December 31, 2022.  

Non-GAAP Presentations

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

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

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

Cautionary Note Regarding Forward-Looking Statements

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

11


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

Conference Call

We will host a call on Thursday, January 25, 2024, at 11:00 a.m. Eastern Time (10:00 a.m. Central Time) to discuss our fourth quarter 2023 financial results.  Investors may listen to our call via telephone by dialing 888-506-0062, using Entry Code: 675276.  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 February 1, 2024, by dialing 877-481-4010, using Conference ID: 49609.

12


Old Second Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands)

December 31, 

December 31, 

    

2023

    

2022

Assets

Cash and due from banks

$

55,534

$

56,632

Interest earning deposits with financial institutions

44,611

58,545

Cash and cash equivalents

100,145

115,177

Securities available-for-sale, at fair value

1,192,829

1,539,359

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

33,355

20,530

Loans held-for-sale

1,322

491

Loans

4,042,953

3,869,609

Less: allowance for credit losses on loans

44,264

49,480

Net loans

3,998,689

3,820,129

Premises and equipment, net

79,310

72,355

Other real estate owned

5,123

1,561

Mortgage servicing rights, at fair value

10,344

11,189

Goodwill

86,478

86,478

Core deposit intangible

11,217

13,678

Bank-owned life insurance (“BOLI”)

109,318

106,608

Deferred tax assets, net

31,077

44,750

Other assets

63,592

56,012

Total assets

$

5,722,799

$

5,888,317

Liabilities

Deposits:

Noninterest bearing demand

$

1,834,891

$

2,051,702

Interest bearing:

Savings, NOW, and money market

2,207,949

2,617,100

Time

527,906

441,921

Total deposits

4,570,746

5,110,723

Securities sold under repurchase agreements

26,470

32,156

Other short-term borrowings

405,000

90,000

Junior subordinated debentures

25,773

25,773

Subordinated debentures

59,382

59,297

Senior notes

-

44,585

Notes payable and other borrowings

-

9,000

Other liabilities

58,147

55,642

Total liabilities

5,145,518

5,427,176

Stockholders’ Equity

Common stock

44,705

44,705

Additional paid-in capital

202,223

202,276

Retained earnings

393,311

310,512

Accumulated other comprehensive loss

(62,781)

(93,124)

Treasury stock

(177)

(3,228)

Total stockholders’ equity

577,281

461,141

Total liabilities and stockholders’ equity

$

5,722,799

$

5,888,317

13


Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

(In thousands, except share data)

Three Months Ended December 31, 

Year Ended December 31, 

    

2023

    

2022

    

2023

    

2022

    

Interest and dividend income

Loans, including fees

$

62,751

$

55,170

$

244,187

$

176,379

Loans held-for-sale

31

19

91

130

Securities:

Taxable

8,329

10,495

37,940

31,566

Tax exempt

1,322

1,341

5,329

5,287

Dividends from FHLBC and FRBC stock

647

259

1,920

936

Interest bearing deposits with financial institutions

616

461

2,503

2,175

Total interest and dividend income

73,696

67,745

291,970

216,473

Interest expense

Savings, NOW, and money market deposits

3,312

776

8,761

1,900

Time deposits

2,834

571

6,636

1,448

Securities sold under repurchase agreements

50

10

93

40

Other short-term borrowings

5,429

436

18,774

480

Junior subordinated debentures

290

287

1,095

1,136

Subordinated debentures

546

546

2,185

2,185

Senior notes

-

891

2,408

2,682

Notes payable and other borrowings

-

137

87

446

Total interest expense

12,461

3,654

40,039

10,317

Net interest and dividend income

61,235

64,091

251,931

206,156

Provision for credit losses

8,000

1,500

16,501

6,550

Net interest and dividend income after provision for credit losses

53,235

62,591

235,430

199,606

Noninterest income

Wealth management

2,600

2,403

9,803

9,887

Service charges on deposits

2,527

2,499

9,817

9,562

Secondary mortgage fees

58

62

259

332

Mortgage servicing rights mark to market (loss) gain

(1,277)

(431)

(1,425)

3,177

Mortgage servicing income

495

518

2,029

2,130

Net gain on sales of mortgage loans

366

340

1,477

2,022

Securities losses, net

(2)

(910)

(4,148)

(944)

Change in cash surrender value of BOLI

541

376

2,120

718

Card related income

2,511

2,795

10,051

10,989

Other income

910

1,294

4,196

5,243

Total noninterest income

8,729

8,946

34,179

43,116

Noninterest expense

Salaries and employee benefits

21,405

24,263

88,566

86,573

Occupancy, furniture and equipment

3,817

4,128

14,437

14,992

Computer and data processing

2,291

2,978

7,277

15,795

FDIC insurance

583

630

2,705

2,401

Net teller & bill paying

564

485

2,115

3,730

General bank insurance

301

298

1,212

1,221

Amortization of core deposit intangible

603

645

2,461

2,626

Advertising expense

383

130

721

589

Card related expense

1,338

1,304

5,123

4,348

Legal fees

228

225

927

873

Consulting & management fees

556

679

2,415

2,425

Other real estate expense, net

218

34

399

130

Other expense

4,739

3,885

16,843

15,470

Total noninterest expense

37,026

39,684

145,201

151,173

Income before income taxes

24,938

31,853

124,408

91,549

Provision for income taxes

6,713

8,238

32,679

24,144

Net income

$

18,225

$

23,615

$

91,729

$

67,405

Basic earnings per share

$

0.40

$

0.53

$

2.05

$

1.51

Diluted earnings per share

0.40

0.52

2.02

1.49

Dividends declared per share

0.05

0.05

0.20

0.20

Ending common shares outstanding

44,697,917

44,582,311

44,697,917

44,582,311

Weighted-average basic shares outstanding

44,694,200

44,578,830

44,663,722

44,526,655

Weighted-average diluted shares outstanding

45,409,232

45,228,212

45,395,010

45,213,088

14


Old Second Bancorp, Inc. and Subsidiaries

Quarterly Consolidated Average Balance

(In thousands, unaudited)

2022

2023

Assets

    

1st Qtr

    

2nd Qtr

    

3rd Qtr

    

4th Qtr

    

1st Qtr

2nd Qtr

    

3rd Qtr

4th Qtr

Cash and due from banks

$

42,972

$

53,371

$

56,265

$

56,531

$

55,140

$

56,191

$

57,279

$

57,723

Interest earning deposits with financial institutions

635,302

426,820

131,260

50,377

49,310

50,309

49,737

47,865

Cash and cash equivalents

678,274

480,191

187,525

106,908

104,450

106,500

107,016

105,588

Securities available-for-sale, at fair value

1,807,875

1,792,099

1,703,348

1,576,004

1,503,619

1,404,664

1,295,211

1,192,021

FHLBC and FRBC stock

16,066

20,994

19,565

19,534

24,905

34,029

35,954

34,371

Loans held-for-sale

6,707

3,050

2,020

1,224

813

1,150

1,641

1,709

Loans

3,397,827

3,505,806

3,751,097

3,877,004

3,931,679

4,039,052

4,009,218

4,014,771

Less: allowance for credit losses on loans

44,341

44,354

45,449

48,778

49,398

53,480

54,581

50,023

Net loans

3,353,486

3,461,452

3,705,648

3,828,226

3,882,281

3,985,572

3,954,637

3,964,748

Premises and equipment, net

86,502

73,876

71,947

72,220

72,649

72,903

74,707

78,472

Other real estate owned

2,399

1,850

1,578

1,561

1,508

1,132

472

2,004

Mortgage servicing rights, at fair value

8,218

10,525

10,639

11,322

11,127

10,741

11,066

11,317

Goodwill

86,332

86,332

86,333

86,477

86,477

86,477

86,477

86,477

Core deposit intangible

15,977

15,286

14,561

13,950

13,327

12,709

12,119

11,502

Bank-owned life insurance ("BOLI")

105,396

105,463

105,448

105,754

106,655

107,028

107,786

108,616

Deferred tax assets, net

10,689

27,154

31,738

50,533

42,237

37,774

39,072

42,754

Other assets

55,474

53,823

55,606

53,909

48,599

50,812

52,360

55,155

Total other assets

370,987

374,309

377,850

395,726

382,579

379,576

384,059

396,297

Total assets

$

6,233,395

$

6,132,095

$

5,995,956

$

5,927,622

$

5,898,647

$

5,911,491

$

5,778,518

$

5,694,734

Liabilities

Deposits:

Noninterest bearing demand

$

2,093,293

$

2,119,667

$

2,092,301

$

2,083,503

$

2,002,801

$

1,920,448

$

1,867,201

$

1,838,325

Interest bearing:

Savings, NOW, and money market

2,899,497

2,872,622

2,765,281

2,680,767

2,560,893

2,437,096

2,324,613

2,241,937

Time

495,452

469,009

459,925

450,111

434,655

436,524

466,250

497,472

Total deposits

5,488,242

5,461,298

5,317,507

5,214,381

4,998,349

4,794,068

4,658,064

4,577,734

Securities sold under repurchase agreements

39,204

34,496

33,733

33,275

31,080

25,575

24,945

28,526

Other short-term borrowings

-

-

5,435

44,293

200,833

402,527

427,174

390,652

Junior subordinated debentures

25,773

25,773

25,773

25,773

25,773

25,773

25,773

25,773

Subordinated debentures

59,222

59,244

59,265

59,286

59,308

59,329

59,350

59,372

Senior notes

44,494

44,520

44,546

44,572

44,599

44,134

-

-

Notes payable and other borrowings

19,009

13,103

10,989

9,978

5,400

-

-

-

Other liabilities

60,819

32,636

34,949

51,753

51,279

48,434

53,164

63,971

Total liabilities

5,736,763

5,671,070

5,532,197

5,483,311

5,416,621

5,399,840

5,248,470

5,146,028

Stockholders' equity

Common stock

44,705

44,705

44,705

44,705

44,705

44,705

44,705

44,705

Additional paid-in capital

202,828

202,544

201,570

201,973

201,397

200,590

201,344

201,824

Retained earnings

258,073

267,912

284,302

301,753

324,785

346,042

368,732

389,776

Accumulated other comprehensive loss

(3,074)

(49,151)

(63,216)

(100,817)

(86,736)

(78,940)

(84,167)

(87,358)

Treasury stock

(5,900)

(4,985)

(3,602)

(3,303)

(2,125)

(746)

(566)

(241)

Total stockholders' equity

496,632

461,025

463,759

444,311

482,026

511,651

530,048

548,706

Total liabilities and stockholders' equity

$

6,233,395

$

6,132,095

$

5,995,956

$

5,927,622

$

5,898,647

$

5,911,491

$

5,778,518

$

5,694,734

Total Earning Assets

$

5,863,777

$

5,748,769

$

5,607,290

$

5,524,143

$

5,510,326

$

5,529,204

$

5,391,761

$

5,290,737

Total Interest Bearing Liabilities

3,582,651

3,518,767

3,404,947

3,348,055

3,362,541

3,430,958

3,328,105

3,243,732

15


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

    

3rd Qtr

4th Qtr

Interest and Dividend Income

Loans, including fees

$

36,366

$

38,229

$

46,614

$

55,170

$

57,210

$

61,561

$

62,665

$

62,751

Loans held-for-sale

57

32

22

19

12

19

29

31

Securities:

Taxable

5,169

6,786

9,116

10,495

10,735

9,930

8,946

8,329

Tax exempt

1,317

1,297

1,332

1,341

1,337

1,337

1,333

1,322

Dividends from FHLB and FRBC stock

153

263

261

259

280

396

597

647

Interest bearing deposits with financial institutions

269

782

663

461

585

643

659

616

Total interest and dividend income

43,331

47,389

58,008

67,745

70,159

73,886

74,229

73,696

Interest Expense

Savings, NOW, and money market deposits

397

347

380

776

1,149

1,742

2,558

3,312

Time deposits

277

265

335

571

664

1,156

1,982

2,834

Securities sold under repurchase agreements

11

9

10

10

9

7

27

50

Other short-term borrowings

-

-

44

436

2,345

5,160

5,840

5,429

Junior subordinated debentures

280

284

285

287

279

281

245

290

Subordinated debentures

546

547

546

546

546

546

547

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

11,199

12,461

Net interest and dividend income

41,232

45,264

55,569

64,091

64,086

63,580

63,030

61,235

Provision for credit losses

-

550

4,500

1,500

3,501

2,000

3,000

8,000

Net interest and dividend income after provision for credit losses

41,232

44,714

51,069

62,591

60,585

61,580

60,030

53,235

Noninterest Income

Wealth management

2,698

2,506

2,280

2,403

2,270

2,458

2,475

2,600

Service charges on deposits

2,074

2,328

2,661

2,499

2,424

2,362

2,504

2,527

Secondary mortgage fees

139

50

81

62

59

76

66

58

Mortgage servicing rights mark to market gain (loss)

2,978

82

548

(431)

(525)

96

281

(1,277)

Mortgage servicing income

519

579

514

518

516

499

519

495

Net gain (loss) on sales of mortgage loans

1,495

(262)

449

340

306

398

407

366

Securities losses, net

-

(33)

(1)

(910)

(1,675)

(1,547)

(924)

(2)

Change in cash surrender value of BOLI

124

72

146

376

242

418

919

541

Card related income

2,574

2,965

2,653

2,795

2,244

2,690

2,606

2,511

Other income

862

924

2,165

1,294

1,489

773

1,024

910

Total noninterest income

13,463

9,211

11,496

8,946

7,350

8,223

9,877

8,729

Noninterest Expense

Salaries and employee benefits

19,967

21,332

21,011

24,263

22,248

21,798

23,115

21,405

Occupancy, furniture and equipment

3,699

3,046

4,119

4,128

3,475

3,639

3,506

3,817

Computer and data processing

6,268

4,006

2,543

2,978

1,774

1,290

1,922

2,291

FDIC insurance

410

702

659

630

584

794

744

583

Net teller & bill paying

1,907

834

504

485

502

515

534

564

General bank insurance

315

351

257

298

305

306

300

301

Amortization of core deposit intangible

665

659

657

645

624

618

616

603

Advertising expense

182

194

83

130

142

103

93

383

Card related expense

534

1,057

1,453

1,304

1,216

1,222

1,347

1,338

Legal fees

257

179

212

225

319

283

97

228

Consulting & management fees

616

523

607

679

790

520

549

556

Other real estate expense, net

(12)

87

21

34

306

(98)

(27)

218

Other expense

3,444

4,279

3,862

3,885

3,637

3,840

4,627

4,739

Total noninterest expense

38,252

37,249

35,988

39,684

35,922

34,830

37,423

37,026

Income before income taxes

16,443

16,676

26,577

31,853

32,013

34,973

32,484

24,938

Provision for income taxes

4,423

4,429

7,054

8,238

8,406

9,411

8,149

6,713

Net income

$

12,020

$

12,247

$

19,523

$

23,615

$

23,607

$

25,562

$

24,335

$

18,225

Basic earnings per share (GAAP)

$

0.27

$

0.28

$

0.43

$

0.53

$

0.53

$

0.57

$

0.55

$

0.40

Diluted earnings per share (GAAP)

0.27

0.27

0.43

0.52

0.52

0.56

0.54

0.40

Dividends paid per share

0.05

0.05

0.05

0.05

0.05

0.05

0.05

0.05

16


Reconciliation of Non-GAAP Financial Measures

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

Quarters Ended

December 31, 

September 30, 

December 31, 

    

2023

    

2023

2022

Net Income

Income before income taxes (GAAP)

$

24,938

$

32,484

$

31,853

Pre-tax income adjustments:

Litigation related expenses

1,200

-

-

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

19

-

617

Liquidation and deconversion costs on Visa credit card portfolio

-

629

-

Adjusted net income before taxes

26,157

33,113

32,470

Taxes on adjusted net income

7,041

8,307

8,398

Adjusted net income (non-GAAP)

$

19,116

$

24,806

$

24,072

Basic earnings per share (GAAP)

$

0.40

$

0.55

$

0.53

Diluted earnings per share (GAAP)

0.40

0.54

0.52

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

0.43

0.55

0.54

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

0.42

0.55

0.53

Quarters Ended

December 31, 

September 30, 

December 31, 

    

2023

    

2023

2022

Net Interest Margin

Interest income (GAAP)

$

73,696

$

74,229

$

67,745

Taxable-equivalent adjustment:

Loans

11

11

6

Securities

352

354

356

Interest income (TE)

74,059

74,594

68,107

Interest expense (GAAP)

12,461

11,199

3,654

Net interest income (TE)

$

61,598

$

63,395

$

64,453

Net interest income (GAAP)

$

61,235

$

63,030

$

64,091

Average interest earning assets

$

5,290,737

$

5,391,761

$

5,524,143

Net interest margin (TE)

4.62

%

4.66

%

4.63

%

Net interest margin (GAAP)

4.59

%

4.64

%

4.60

%

17


GAAP

Non-GAAP

Three Months Ended

Three Months Ended

December 31, 

September 30, 

December 31, 

December 31, 

September 30, 

December 31, 

2023

2023

2022

2023

2023

2022

Efficiency Ratio / Adjusted Efficiency Ratio

Noninterest expense

$

37,026

$

37,423

$

39,684

$

37,026

$

37,423

$

39,684

Less amortization of core deposit

603

616

645

603

616

645

Less other real estate (income) expense, net

218

(27)

34

218

(27)

34

Less litigation related expense

N/A

N/A

N/A

1,200

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

N/A

N/A

N/A

19

-

617

Less liquidation and deconversion costs on Visa credit card portfolio

N/A

N/A

N/A

-

629

-

Noninterest expense less adjustments

$

36,205

$

36,834

$

39,005

$

34,986

$

36,205

$

38,388

Net interest income

$

61,235

$

63,030

$

64,091

$

61,235

$

63,030

$

64,091

Taxable-equivalent adjustment:

Loans

N/A

N/A

N/A

11

11

6

Securities

N/A

N/A

N/A

352

354

356

Net interest income including adjustments

61,235

63,030

64,091

61,598

63,395

64,453

Noninterest income

8,729

9,877

8,946

8,729

9,877

8,946

Less securities losses

(2)

(924)

(910)

(2)

(924)

(910)

Less MSRs mark to market (losses) gains

(1,277)

281

(431)

(1,277)

281

(431)

Taxable-equivalent adjustment:

Change in cash surrender value of BOLI

N/A

N/A

N/A

144

245

100

Noninterest income (excluding) / including adjustments

10,008

10,520

10,287

10,152

10,765

10,387

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

$

71,243

$

73,550

$

74,378

$

71,750

$

74,160

$

74,840

Efficiency ratio / Adjusted efficiency ratio

50.82

%

50.08

%

52.44

%

48.76

%

48.82

%

51.29

%

N/A - Not applicable.

Quarters Ended

December 31, 

September 30,

December 31, 

2023

    

2023

2022

Return on Average Tangible Common Equity Ratio

Net income (GAAP)

$

18,225

$

24,335

$

23,615

Income before income taxes (GAAP)

$

24,938

$

32,484

$

31,853

Pre-tax income adjustments:

Amortization of core deposit intangibles

603

616

645

Net income, excluding intangibles amortization, before taxes

25,541

33,100

32,498

Taxes on net income, excluding intangible amortization, before taxes

6,875

8,304

8,405

Net income, excluding intangibles amortization (non-GAAP)

$

18,666

$

24,796

$

24,093

Total Average Common Equity

$

548,706

530,048

$

444,311

Less Average goodwill and intangible assets

97,979

98,596

100,427

Average tangible common equity (non-GAAP)

$

450,727

$

431,452

$

343,884

Return on average common equity (GAAP)

13.18

%

18.21

%

21.09

%

Return on average tangible common equity (non-GAAP)

16.43

%

22.80

%

27.80

%

18