10-Q

I

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
	THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

For transition period from          to          

Commission File Number 000-10537

(Exact name of Registrant as specified in its charter)

Delaware	36-3143493
(State or other jurisdiction	(I.R.S. Employer Identification Number)
of incorporation or organization)

37 South River Street, Aurora, Illinois     60507

(Address of principal executive offices) (Zip Code)

(630) 892-0202

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

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

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒        No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ ‘‘smaller reporting company,’’ and ‘‘emerging growth company’’ in Rule 12b–2 of the Exchange Act.

Large accelerated filer☐Accelerated filer☒

Non-accelerated filer☐Smaller reporting company☐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.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).

Yes ☐        No ☒

As of November 3, 2023, the Registrant has 44,697,917 shares of common stock outstanding at $1.00 par value per share.

OLD SECOND BANCORP, INC.

Form 10-Q Quarterly Report

Table of Contents

	PART I
		Page Number
Item 1.	Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	62
Item 4.	Controls and Procedures	63
	PART II
Item 1.	Legal Proceedings	64
Item 1.A.	Risk Factors	64
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64
Item 3.	Defaults Upon Senior Securities	64
Item 4.	Mine Safety Disclosure	64
Item 5.	Other Information	64
Item 6.	Exhibits	65
	Signatures	66

2

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report and other publicly available documents of the Company contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act, including, but not limited to, management’s expectations regarding future plans, strategies and financial performance, including regulatory developments, industry and economic trends and estimates and assumptions underlying accounting policies.  Forward-looking statements are based on our current beliefs, expectations and assumptions and on information currently available and, can be identified by the use of 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 the negative thereof as well as other similar words and expressions of the future. Forward-looking statements are subject to risks, uncertainties and assumptions that are difficult to predict as to timing, extent, likelihood and degree of occurrence, which could cause our actual results to differ materially from those anticipated in or by such statements. Potential risks and uncertainties include, but are not limited to, the following:

● our ability to execute our growth strategy;

● negative economic conditions, including inflation, which may adversely affect the economy, real estate values, the job market and other factors nationally and in our market area, in each case that may affect our liquidity and the performance of our loan portfolio;

● our ability to raise cost-effective funding to support business plans when needed;

● risks with respect to our ability to successfully expand and integrate businesses and operations that we acquire, as well our ability to identify and complete future mergers or acquisitions;

● the financial success and viability of the borrowers of our commercial loans;

● changes in U.S. monetary policy, the level and volatility of interest rates, the capital markets and other market conditions that may affect, among other things, our liquidity and the value of our assets and liabilities;

● competitive pressures from other financial service businesses and from nontraditional financial technology (“FinTech”) companies;

● any negative perception of our reputation or financial strength;

● our ability to raise additional capital on acceptable terms when needed;

● our ability to use technology to provide products and services that will satisfy customer demands and create efficiencies in operations;

● adverse effects on our information technology systems resulting from system failures, human error or cyberattacks;

● adverse effects of failures by our vendors to provide agreed upon services in the manner and at the cost agreed, particularly our information technology vendors and those vendors performing a service on the Company’s behalf;

● the impact of any claims or legal actions, including any effect on our reputation;

● losses incurred in connection with repurchases and indemnification payments related to mortgages;

● the soundness of other financial institutions and other counter-party risk;

● changes in accounting standards, rules and interpretations and the related impact on our financial statements;

● our ability to receive dividends from our subsidiaries;

● a decrease in our regulatory capital ratios or negative changes in our capital position;

● adverse federal or state tax assessments, or changes in tax laws or policies;

● risks associated with actual or potential litigation or investigations by customers, regulatory agencies or others;

● legislative or regulatory changes, particularly changes in regulation of financial services companies;

● increased costs of compliance, heightened regulatory capital requirements and other risks associated with changes in regulation and the current regulatory environment;

● continued increases in FDIC assessment which will continue to increase our cost of doing business;

● risks associated with complex and changing regulatory environments, including, among others, with respect to data privacy, artificial intelligence, information security, climate change or other environmental, social and governance matters, and labor matters, relating to the Company’s operations;

● 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, such as the war in Ukraine and the Middle East conflict, essential utility outages, deterioration in the global economy, instability in the credit markets, labor shortages, disruptions in our customers’ supply chains or disruption in transportation;

● changes in trade policy and any related tariffs; and

● each of the factors and risks under the heading “Risk Factors” in our 2022 Annual Report on Form 10-K and in subsequent filings we make with the SEC.

Because the Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain, there can be no assurances that future actual results will correspond to any forward-looking statements and you should not rely on any forward-looking statements.  Additionally, all statements in this Form 10-Q, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events, except as required by applicable law.

3

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share data)

	(unaudited)
	September 30,		December 31,
	2023		2022
Assets
Cash and due from banks	$	55,548	$	56,632
Interest earning deposits with financial institutions		53,485		58,545
Cash and cash equivalents		109,033		115,177
Securities available-for-sale, at fair value		1,229,618		1,539,359
Federal Home Loan Bank Chicago (“FHLBC”) and Federal Reserve Bank Chicago (“FRBC”) stock		35,830		20,530
Loans held-for-sale		2,297		491
Loans		4,029,543		3,869,609
Less: allowance for credit losses on loans		51,729		49,480
Net loans		3,977,814		3,820,129
Premises and equipment, net		76,472		72,355
Other real estate owned		407		1,561
Mortgage servicing rights, at fair value		11,461		11,189
Goodwill		86,478		86,478
Core deposit intangible		11,820		13,678
Bank-owned life insurance (“BOLI”)		108,187		106,608
Deferred tax assets, net		44,051		44,750
Other assets		64,688		56,012
Total assets	$	5,758,156	$	5,888,317
Liabilities
Deposits:
Noninterest bearing demand	$	1,862,659	$	2,051,702
Interest bearing:
Savings, NOW, and money market		2,273,671		2,617,100
Time		477,990		441,921
Total deposits		4,614,320		5,110,723
Securities sold under repurchase agreements		25,894		32,156
Other short-term borrowings		435,000		90,000
Junior subordinated debentures		25,773		25,773
Subordinated debentures		59,361		59,297
Senior notes		-		44,585
Notes payable and other borrowings		-		9,000
Other liabilities		65,250		55,642
Total liabilities		5,225,598		5,427,176
Stockholders’ Equity
Common stock		44,705		44,705
Additional paid-in capital		201,553		202,276
Retained earnings		377,320		310,512
Accumulated other comprehensive loss		(90,619)		(93,124)
Treasury stock		(401)		(3,228)
Total stockholders’ equity		532,558		461,141
Total liabilities and stockholders’ equity	$	5,758,156	$	5,888,317

	September 30, 2023		December 31, 2022
	Common		Common
	Stock		Stock
Par value	$	1.00	$	1.00
Shares authorized		60,000,000		60,000,000
Shares issued		44,705,150		44,705,150
Shares outstanding		44,684,987		44,582,311
Treasury shares		20,163		122,839

See accompanying notes to consolidated financial statements.

4

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

(In thousands, except per share data)

	(unaudited)				(unaudited)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Interest and dividend income
Loans, including fees	$	62,665	$	46,614	$	181,436	$	121,209
Loans held-for-sale		29		22		60		111
Securities:
Taxable		8,946		9,116		29,611		21,071
Tax exempt		1,333		1,332		4,007		3,946
Dividends from FHLBC and FRBC stock		597		261		1,273		677
Interest bearing deposits with financial institutions		659		663		1,887		1,714
Total interest and dividend income		74,229		58,008		218,274		148,728
Interest expense
Savings, NOW, and money market deposits		2,558		380		5,449		1,124
Time deposits		1,982		335		3,802		877
Securities sold under repurchase agreements		27		10		43		30
Other short-term borrowings		5,840		44		13,345		44
Junior subordinated debentures		245		285		805		849
Subordinated debentures		547		546		1,639		1,639
Senior notes		-		728		2,408		1,791
Notes payable and other borrowings		-		111		87		309
Total interest expense		11,199		2,439		27,578		6,663
Net interest and dividend income		63,030		55,569		190,696		142,065
Provision for credit losses		3,000		4,500		8,501		5,050
Net interest and dividend income after provision for credit losses		60,030		51,069		182,195		137,015
Noninterest income
Wealth management		2,475		2,280		7,203		7,484
Service charges on deposits		2,504		2,661		7,290		7,063
Secondary mortgage fees		66		81		201		270
Mortgage servicing rights mark to market gain (loss)		281		548		(148)		3,608
Mortgage servicing income		519		514		1,534		1,612
Net gain on sales of mortgage loans		407		449		1,111		1,682
Securities losses, net		(924)		(1)		(4,146)		(34)
Change in cash surrender value of BOLI		919		146		1,579		342
Card related income		2,606		2,653		7,540		8,194
Other income		1,024		2,165		3,286		3,949
Total noninterest income		9,877		11,496		25,450		34,170
Noninterest expense
Salaries and employee benefits		23,115		21,011		67,161		62,310
Occupancy, furniture and equipment		3,506		4,119		10,620		10,864
Computer and data processing		1,922		2,543		4,986		12,817
FDIC insurance		744		659		2,122		1,771
Net teller & bill paying		534		504		1,551		3,245
General bank insurance		300		257		911		923
Amortization of core deposit intangible		616		657		1,858		1,981
Advertising expense		93		83		338		459
Card related expense		1,347		1,453		3,785		3,044
Legal fees		97		212		699		648
Consulting & management fees		549		607		1,859		1,746
Other real estate (income) expense, net		(27)		21		181		96
Other expense		4,627		3,862		12,104		11,585
Total noninterest expense		37,423		35,988		108,175		111,489
Income before income taxes		32,484		26,577		99,470		59,696
Provision for income taxes		8,149		7,054		25,966		15,906
Net income	$	24,335	$	19,523	$	73,504	$	43,790
Basic earnings per share	$	0.55	$	0.43	$	1.65	$	0.98
Diluted earnings per share		0.54		0.43		1.62		0.97
Dividends declared per share		0.05		0.05		0.15		0.15

See accompanying notes to consolidated financial statements.

5

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

	(unaudited)				(unaudited)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net Income	$	24,335	$	19,523	$	73,504	$	43,790
Unrealized holding losses on available-for-sale securities arising during the period		(9,062)		(41,163)		(1,212)		(146,477)
Related tax benefit		2,538		11,526		344		41,014
Holding losses, after tax, on available-for-sale securities		(6,524)		(29,637)		(868)		(105,463)
Less: Reclassification adjustment for the net losses realized during the period
Net realized losses		(924)		(1)		(4,146)		(34)
Related tax benefit		260		1		1,165		10
Net realized losses after tax		(664)		-		(2,981)		(24)
Other comprehensive (loss) income on available-for-sale securities		(5,860)		(29,637)		2,113		(105,439)
Changes in fair value of derivatives used for cash flow hedges		1,975		(4,868)		560		(2,381)
Related tax (expense) benefit		(548)		1,360		(168)		663
Other comprehensive income (loss) on cash flow hedges		1,427		(3,508)		392		(1,718)
Total other comprehensive (loss) income		(4,433)		(33,145)		2,505		(107,157)
Total comprehensive income (loss)	$	19,902	$	(13,622)	$	76,009	$	(63,367)

	Accumulated		Accumulated		Total
	Unrealized Gain		Unrealized Gain		Accumulated Other
	(Loss) on Securities		(Loss) on Derivative		Comprehensive
(unaudited)	Available-for -Sale		Instruments		Income/(Loss)
For the Three Months Ended
Balance, July 1, 2022	$	(64,663)	$	(581)	$	(65,244)
Other comprehensive loss, net of tax		(29,637)		(3,508)		(33,145)
Balance, September 30, 2022	$	(94,300)	$	(4,089)	$	(98,389)
Balance, July 1, 2023	$	(80,919)	$	(5,267)	$	(86,186)
Other comprehensive (loss) income, net of tax		(5,860)		1,427		(4,433)
Balance, September 30, 2023	$	(86,779)	$	(3,840)	$	(90,619)
For the Nine Months Ended
Balance, January 1, 2022	$	11,139	$	(2,371)	$	8,768
Other comprehensive loss, net of tax		(105,439)		(1,718)		(107,157)
Balance, September 30, 2022	$	(94,300)	$	(4,089)	$	(98,389)
Balance, January 1, 2023	$	(88,892)	$	(4,232)	$	(93,124)
Other comprehensive income, net of tax		2,113		392		2,505
Balance, September 30, 2023	$	(86,779)	$	(3,840)	$	(90,619)

See accompanying notes to consolidated financial statements.

6

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

	(unaudited)
	Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities
Net income	$	73,504	$	43,790
Adjustments to reconcile net income to net cash provided by operating activities:
Net premium / discount amortization on securities		2,506		4,259
Securities losses, net		4,146		34
Provision for credit losses		8,501		5,050
Originations of loans held-for-sale		(39,068)		(65,103)
Proceeds from sales of loans held-for-sale		37,962		69,263
Net gains on sales of mortgage loans		(1,111)		(1,682)
Mortgage servicing rights mark to market loss (gain)		148		(3,608)
Net accretion of discount on loans and unfunded commitments		(2,620)		(5,473)
Net change in cash surrender value of BOLI		(1,579)		(342)
Net gains on sale of other real estate owned		(229)		(163)
Provision for other real estate owned valuation losses		269		104
Depreciation of fixed assets and amortization of leasehold improvements		3,246		3,079
Net gains on disposal and transfer of fixed assets		(636)		(1,872)
Amortization of core deposit intangibles		1,858		1,981
Change in current income taxes receivable		1,070		7,279
Deferred tax expense		(289)		(1,854)
Change in accrued interest receivable and other assets		(10,053)		1,036
Accretion of purchase accounting adjustment on time deposits		(1,004)		(1,207)
Change in accrued interest payable and other liabilities		7,991		3,314
Stock based compensation		2,709		2,176
Net cash provided by operating activities		87,321		60,061
Cash flows from investing activities
Proceeds from maturities and calls, including pay down of securities available-for-sale		104,471		231,483
Proceeds from sales of securities available-for-sale		205,738		3,303
Purchases of securities available-for-sale		(4,186)		(301,649)
Net purchases of FHLBC/FRBC stock		(15,300)		(6,156)
Net change in loans		(164,252)		(443,628)
Proceeds from sales of other real estate owned, net of participations and improvements		1,800		941
Proceeds from disposition of premises and equipment		4,460		12,167
Net purchases of premises and equipment		(8,217)		(2,670)
Cash paid for acquisition, net of cash and cash equivalents acquired		-		(146)
Net cash provided by (used in) investing activities		124,514		(506,355)
Cash flows from financing activities
Net change in deposits		(495,399)		(183,666)
Net change in securities sold under repurchase agreements		(6,262)		(14,840)
Net change in other short-term borrowings		345,000		25,000
Repayment of term note		(9,000)		(3,000)
Net change in notes payable and other borrowings, excluding term note		-		(6,056)
Repayment of senior notes		(45,000)		-
Dividends paid on common stock		(6,713)		(6,650)
Purchase of treasury stock		(605)		(447)
Net cash used in financing activities		(217,979)		(189,659)
Net change in cash and cash equivalents		(6,144)		(635,953)
Cash and cash equivalents at beginning of period		115,177		752,107
Cash and cash equivalents at end of period	$	109,033	$	116,154

See accompanying notes to consolidated financial statements.

7

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Changes in

Stockholders’ Equity

(In thousands)

							Accumulated
			Additional				Other				Total
(unaudited)	Common		Paid-In		Retained		Comprehensive		Treasury		Stockholders’
	Stock		Capital		Earnings		Income (Loss)		Stock		Equity
For the Three Months Ended
Balance, July 1, 2022	$	44,705	$	201,282	$	271,831	$	(65,244)	$	(3,670)	$	448,904
Net income						19,523						19,523
Other comprehensive loss, net of tax								(33,145)				(33,145)
Dividends declared on common stock, ($0.05 per share)						(2,228)						(2,228)
Vesting of restricted stock				(304)						304		-
Stock based compensation				722								722
Purchase of treasury stock from taxes withheld on stock awards										(62)		(62)
Balance, September 30, 2022	$	44,705	$	201,700	$	289,126	$	(98,389)	$	(3,428)	$	433,714
Balance, July 1, 2023	$	44,705	$	200,963	$	355,219	$	(86,186)	$	(746)	$	513,955
Net income						24,335						24,335
Other comprehensive loss, net of tax								(4,433)				(4,433)
Dividends declared on common stock, ($0.05 per share)						(2,234)						(2,234)
Vesting of restricted stock				(345)						345		-
Stock based compensation				935								935
Balance, September 30, 2023	$	44,705	$	201,553	$	377,320	$	(90,619)	$	(401)	$	532,558

For the Nine Months Ended
Balance, January 1, 2022	$	44,705	$	202,443	$	252,011	$	8,768	$	(5,900)	$	502,027
Net income						43,790						43,790
Other comprehensive loss, net of tax								(107,157)				(107,157)
Dividends declared on common stock, ($0.15 per share)						(6,675)						(6,675)
Vesting of restricted stock				(2,919)						2,919		-
Stock based compensation				2,176								2,176
Purchase of treasury stock from taxes withheld on stock awards										(447)		(447)
Balance, September 30, 2022	$	44,705	$	201,700	$	289,126	$	(98,389)	$	(3,428)	$	433,714
Balance, January 1, 2023	$	44,705	$	202,276	$	310,512	$	(93,124)	$	(3,228)	$	461,141
Net income						73,504						73,504
Other comprehensive income, net of tax								2,505				2,505
Dividends declared on common stock, ($0.15 per share)						(6,696)						(6,696)
Vesting of restricted stock				(3,432)						3,432		-
Stock based compensation				2,709								2,709
Purchase of treasury stock from taxes withheld on stock awards										(605)		(605)
Balance, September 30, 2023	$	44,705	$	201,553	$	377,320	$	(90,619)	$	(401)	$	532,558

8

Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data, unaudited)

Note 1 – Basis of Presentation and Changes in Significant Accounting Policies

The accounting policies followed in the preparation of the interim consolidated financial statements are consistent with those used in the preparation of the annual financial information.  The interim consolidated financial statements reflect all normal and recurring adjustments that are necessary, in the opinion of management, for a fair statement of results for the interim period presented.  Results for the period ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.  These interim consolidated financial statements and accompanying notes are unaudited and should be read in conjunction with the audited financial statements and notes included in Old Second Bancorp, Inc.’s (the “Company”) annual report on Form 10-K for the year ended December 31, 2022.  Unless otherwise indicated, dollar amounts in the tables contained in the notes to the consolidated financial statements are in thousands.  Certain items in prior periods have been reclassified to conform to the current presentation.

The Company’s consolidated financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”) and follow general practices within the banking industry.  Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes.  These estimates, assumptions, and judgments are based on information available as of the date of the consolidated financial statements.  Future changes in information may affect these estimates, assumptions, and judgments, which, in turn, may affect amounts reported in the consolidated financial statements.

Recent Accounting Pronouncements

The following is a summary of recent accounting pronouncements that have impacted or could potentially affect the Company:  

ASU 2018-16, ASU 2020-04, ASU 2021-01, and ASU 2022-06 – In October 2018, the Financial Standards Board, or FASB, issued ASU No. 2018-16 “Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting.”  ASU 2018-16 adds the SOFR overnight index swap rate to the list of United States (U.S.) benchmark rates eligible for hedge accounting purposes, which is the fourth rate permissible to be used as a U.S. benchmark rate.  This guidance was effective for annual and interim periods beginning after December 15, 2018, and did not have a material impact on the financial condition or liquidity of the Company. ASU 2020-04 and ASU 2021-01 Reference Rate Reform (Topic 848) were issued on March 12, 2020 and January 7, 2021, respectively, and each provide further guidance on optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships due to the discontinuation of LIBOR.  In addition, on March 5, 2021, the International Swaps and Derivatives Association (“ISDA”) issued a statement with an “Index Cessation Event Announcement,” which confirmed the extension of the cessation of LIBOR-referenced rates from December 31, 2021, to June 30, 2023, for certain rate tenors. ASU 2022-06 further defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

The Company formed a LIBOR transition team in 2019 and developed a project plan to assess the use of alternative indexes and to seek to ensure all financial instruments that reference LIBOR are identified, quantified, and researched for the LIBOR fallback language available or needed.  The Company completed the ISDA protocol adherence for LIBOR fallback language for all commercial swaps, met with its commercial loan clients to also guide their swap fallback language adherence, and worked to revise all credit documents being issued by Old Second National Bank (the “Bank”) for new loans to ensure appropriate fallback language was included.  We discontinued the use of LIBOR as a reference rate for all consumer loans issued after July 31, 2021, and all commercial loans issued after December 31, 2021, with certain exceptions for those loans that were in the process of funding at the end of 2021. The Company’s systems were updated to handle multiple SOFR-based indexes and we planned accordingly for the transition of existing LIBOR exposures as the final LIBOR cessation date was June 30, 2023.  As of September 30, 2023, the Company’s LIBOR transition processes were determined to be completed and alternative index rates are in place.

9

Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data, unaudited)

ASU 2022-01 – On March 28, 2022, the FASB issued ASU 2022-01 “Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method.”  The goal of this new hedging standard is to better align the economic results of risk management activities with hedge accounting, by allowing multiple layers of a single closed portfolio to be hedged, as compared to the single-layer, or last of layer method, allowed with the adoption of ASU 2017-12.  ASU 2022-01 is effective for public business entities for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, and was adopted by the Company as of January 1, 2023.  There was no material impact of the pronouncement to the financial statements of the Company.

ASU 2022-02 – On March 31, 2022, the FASB issued ASU 2022-02 “Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” The amendments eliminate certain troubled debt restructuring (“TDR”) recognition and measurement guidance previously in effect, and consideration of the TDRs similar to other modified loans under CECL is now required.  ASU 2022-02 also requires enhancements to vintage loan disclosures, requiring detail be provided on current-period gross write-offs and disclosure of the amortized cost basis of financing receivables by credit quality indicators and by loan portfolio class of the gross charge-off based on year of origination.  ASU 2022-02 was effective for fiscal years beginning after December 15, 2022, including interim periods within those years, and was adopted prospectively by the Company as of January 1, 2023.  There was no material impact of the pronouncement to the financial statements of the Company.

Change in Significant Accounting Policies

Significant accounting policies are presented in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.  These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the consolidated financial statements and how those values are determined.  During the third quarter of 2023, the Company had no changes to significant accounting policies or estimates.

Subsequent Events

On October 17, 2023, our Board of Directors declared a cash dividend of $0.05 per share payable on November 6, 2023, to stockholders of record as of October 27, 2023; dividends of $2.2 million are scheduled to be paid to stockholders on November 6, 2023.

Note 2 – Acquisition

On December 1, 2021, the Company completed its acquisition of West Suburban Bancorp, Inc. (“West Suburban”), a bank holding company, and its wholly owned subsidiary, West Suburban Bank, based in Lombard, Illinois, with operations throughout our existing market footprint.  At closing, the Company acquired $2.94 billion of assets, $1.50 billion of loans, $1.07 billion of securities, and $2.69 billion of deposits, net of fair value adjustments. Under the terms of the merger agreement, each outstanding share of West Suburban common stock was exchanged for 42.413 shares of Company common stock, plus $271.15 of cash. This resulted in merger consideration of $295.2 million, based on the closing price of the Company’s common stock on the date of acquisition, which consisted of 15.7 million shares of the Company’s common stock and $100.7 million of cash.  Goodwill of $67.9 million associated with the acquisition was recorded by the Company, which was the result of expected synergies, operational efficiencies and other factors.  The acquisition of West Suburban was accounted for as a business combination, and none of the $67.9 million of goodwill recorded is expected to be deductible for income tax purposes.

Note 3 – Securities

Investment Portfolio Management

Our investment portfolio serves the liquidity needs and income objectives of the Company.  While the portfolio serves as an important component of the overall liquidity management at the Bank, portions of the portfolio also serve as income producing assets.  The size and composition of the portfolio reflects liquidity needs, loan demand and interest income objectives.  Portfolio size and composition will be adjusted from time to time.  While a significant portion of the portfolio consists of readily marketable securities to address liquidity, other parts of the portfolio may reflect funds invested pending future loan demand or to maximize interest income without undue interest rate risk.

10

Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data, unaudited)

Investments are comprised of debt securities and non-marketable equity investments.  Securities available-for-sale are carried at fair value.  Unrealized gains and losses, net of tax, on securities available-for-sale are reported as a separate component of equity.  This balance sheet component changes as interest rates and market conditions change.  Unrealized gains and losses are not included in the calculation of regulatory capital.  

Federal Home Loan Bank of Chicago (“FHLBC”) and Federal Reserve Bank of Chicago (“FRBC”) stock are considered nonmarketable equity investments.  FHLBC stock was recorded at $20.9 million at September 30, 2023, and $5.6 million at December 31, 2022.  FRBC stock was recorded at $14.9 million at September 30, 2023 and December 31, 2022.  

The following tables summarize the amortized cost and fair value of the securities portfolio at September 30, 2023, and December 31, 2022, and the corresponding amounts of gross unrealized gains and losses:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
September 30, 2023	Cost1		Gains		Losses		Value
Securities available-for-sale
U.S. Treasury	$	224,481	$	-	$	(7,704)	$	216,777
U.S. government agencies		60,197		-		(4,376)		55,821
U.S. government agencies mortgage-backed		122,653		-		(18,084)		104,569
States and political subdivisions		240,107		142		(20,149)		220,100
Corporate bonds		5,000		-		(39)		4,961
Collateralized mortgage obligations		450,470		54		(63,845)		386,679
Asset-backed securities		71,241		-		(4,325)		66,916
Collateralized loan obligations		175,995		10		(2,210)		173,795
Total securities available-for-sale	$	1,350,144	$	206	$	(120,732)	$	1,229,618

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2022	Cost1		Gains		Losses		Value
Securities available-for-sale
U.S. Treasury	$	224,054	$	-	$	(11,925)	$	212,129
U.S. government agencies		61,178		-		(5,130)		56,048
U.S. government agencies mortgage-backed		140,588		-		(15,598)		124,990
States and political subdivisions		239,999		363		(14,234)		226,128
Corporate bonds		10,000		-		(378)		9,622
Collateralized mortgage obligations		596,336		1		(62,569)		533,768
Asset-backed securities		210,388		6		(8,466)		201,928
Collateralized loan obligations		180,276		-		(5,530)		174,746
Total securities available-for-sale	$	1,662,819	$	370	$	(123,830)	$	1,539,359

¹ Excludes accrued interest receivable of $6.7 million and $6.8 million at September 30, 2023 and December 31, 2022, respectively, that is recorded in other assets on the consolidated balance sheets.

11

Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data, unaudited)

The fair value, amortized cost and weighted average yield of debt securities at September 30, 2023, by contractual maturity, are listed in the table below.  Securities not due at a single maturity date are shown separately.

			Weighted
	Amortized		Average		Fair
Securities available-for-sale	Cost		Yield		Value
Due in one year or less	$	49,989	0.64	%	$	49,804
Due after one year through five years		253,955	1.17			241,430
Due after five years through ten years		60,975	2.92			53,882
Due after ten years		164,866	3.11			152,543
		529,785	1.92			497,659
Mortgage-backed and collateralized mortgage obligations		573,123	2.29			491,248
Asset-backed securities		71,241	4.24			66,916
Collateralized loan obligations		175,995	7.21			173,795
Total securities available-for-sale	$	1,350,144	3.00	%	$	1,229,618

At September 30, 2023, the Company had no securities issued from any one originator, other than the U.S. Government and its agencies, which individually amounted to over 10% of the Company’s stockholders’ equity.

Securities with unrealized losses with no corresponding allowance for credit losses at September 30, 2023 and December 31, 2022, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows (in thousands except for number of securities):

	Less than 12 months					12 months or more
September 30, 2023	in an unrealized loss position					in an unrealized loss position					Total
	Number of	Unrealized		Fair		Number of	Unrealized		Fair		Number of	Unrealized		Fair
Securities available-for-sale	Securities	Losses		Value		Securities	Losses		Value		Securities	Losses		Value
U.S. Treasuries	-	$	-	$	-	5	$	7,704	$	216,777	5	$	7,704	$	216,777
U.S. government agencies	-		-		-	9		4,376		55,821	9		4,376		55,821
U.S. government agencies mortgage-backed	-		-		-	128		18,084		104,569	128		18,084		104,569
States and political subdivisions	44		3,232		110,511	30		16,917		104,582	74		20,149		215,093
Corporate bonds	-		-		-	1		39		4,961	1		39		4,961
Collateralized mortgage obligations	2		14		756	146		63,831		379,159	148		63,845		379,915
Asset-backed securities	-		-		-	19		4,325		66,916	19		4,325		66,916
Collateralized loan obligations	-		-		-	33		2,210		170,803	33		2,210		170,803
Total securities available-for-sale	46	$	3,246	$	111,267	371	$	117,486	$	1,103,588	417	$	120,732	$	1,214,855

	Less than 12 months					12 months or more
December 31, 2022	in an unrealized loss position					in an unrealized loss position					Total
	Number of	Unrealized			Fair	Number of	Unrealized			Fair	Number of	Unrealized			Fair
Securities available-for-sale	Securities	Losses			Value	Securities	Losses			Value	Securities	Losses			Value
U.S. Treasuries	1	$	1,025	$	24,121	4	$	10,900	$	188,008	5	$	11,925	$	212,129
U.S. government agencies	-		-		-	9		5,130		56,048	9		5,130		56,048
U.S. government agencies mortgage-backed	15		975		11,369	117		14,623		113,621	132		15,598		124,990
States and political subdivisions	45		5,800		128,770	15		8,434		48,877	60		14,234		177,647
Corporate bonds	-		-		-	2		378		9,622	2		378		9,622
Collateralized mortgage obligations	80		12,895		180,624	120		49,674		348,880	200		62,569		529,504
Asset-backed securities	30		3,030		121,915	21		5,436		79,659	51		8,466		201,574
Collateralized loan obligations	23		3,579		112,772	11		1,951		61,974	34		5,530		174,746
Total securities available-for-sale	194	$	27,304	$	579,571	299	$	96,526	$	906,689	493	$	123,830	$	1,486,260

Each quarter, we perform an analysis to determine if any of the unrealized losses on securities available-for-sale are comprised of credit losses as compared to unrealized losses due to market interest rate adjustments.  Our assessment includes a review of the unrealized loss for each security issuance held; the financial condition and near-term prospects of the issuer, including external credit ratings and recent downgrades; and our ability and intent to hold the security for a period of time sufficient for a recovery in value.  We also consider the extent to which the securities are issued by the federal government or its agencies, and any guarantee of issued amounts by those agencies.  The portfolio continues to consist of a mix of fixed and floating-rate, high quality securities, largely rated AA (or better), displaying an overall effective duration of approximately 3.0 years.  No credit losses were determined to be present as of September 30, 2023, as there was no credit quality deterioration noted.  Therefore, no provision for credit losses on securities was recognized for the third quarter of 2023.

12

Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data, unaudited)

The following table presents net realized losses on securities available-for-sale for three and nine months ended:

		Three Months Ended					Nine Months Ended
		September 30,					September 30,
Securities available-for-sale	2023			2022		2023			2022
Proceeds from sales of securities	$	65,572		$	-	$	205,738		$	3,303
Gross realized losses on securities		(924)			(1)		(4,146)			(34)
Net realized losses	$	(924)		$	(1)	$	(4,146)		$	(34)
Income tax benefit on net realized losses	$	260		$	1	$	1,165		$	10
Effective tax rate applied		28.1	%		N/M		28.1	%		29.4	%

N/M - Not meaningful

As of September 30, 2023, securities valued at $808.7 million were pledged for borrowings, and for other purposes, an increase from $547.8 million of securities pledged at year-end 2022.  

Note 4 – Loans and Allowance for Credit Losses on Loans

Major segments of loans were as follows:

	September 30, 2023		December 31, 2022
Commercial	$	834,877	$	840,964
Leases		354,827		277,385
Commercial real estate – investor		1,047,122		987,635
Commercial real estate – owner occupied		809,050		854,879
Construction		202,546		180,535
Residential real estate – investor		53,762		57,353
Residential real estate – owner occupied		227,446		219,718
Multifamily		372,020		323,691
HELOC		102,055		109,202
Other 1		25,838		18,247
Total loans		4,029,543		3,869,609
Allowance for credit losses on loans		(51,729)		(49,480)
Net loans 2	$	3,977,814	$	3,820,129

¹ The “Other” segment includes consumer loans and overdrafts in this table and in subsequent tables within Note 4 – Loans and Allowance for Credit Losses on Loans.

² Excludes accrued interest receivable of $19.2 million and $15.9 million at September 30, 2023 and December 31, 2022, respectively, that is recorded in other assets on the consolidated balance sheets.

It is the policy of the Company to review each prospective credit prior to making a loan in order to determine if an adequate level of security or collateral has been obtained.  The type of collateral, when required, will vary from liquid assets to real estate.  The Company seeks to assure access to collateral, in the event of borrower default, through adherence to lending laws, the Company’s lending standards and credit monitoring procedures.  Although the Bank makes loans primarily within its market area, there are no significant concentrations of loans where the customers’ ability to honor loan terms is dependent upon a single economic sector.  The real estate related categories listed above represent 69.8% and 70.6% of the portfolio at September 30, 2023, and December 31, 2022, respectively, and include a mix of owner occupied and non-owner occupied commercial real estate, residential, construction and multifamily loans.  

13

Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data, unaudited)

The following tables represent the activity in the allowance for credit losses for loans, or the ACL, for the three and nine months ended September 30, 2023 and 2022:

			Provision for
	Beginning		(Release of)						Ending
Allowance for credit losses	Balance		Credit Losses		Charge-offs		Recoveries		Balance
Three months ended September 30, 2023
Commercial	$	11,532	$	(1,025)	$	20	$	12	$	10,499
Leases		2,690		(193)		-		95		2,592
Commercial real estate – investor		20,031		4,726		6,774		20		18,003
Commercial real estate – owner occupied		12,562		(154)		35		12		12,385
Construction		1,179		(39)		-		100		1,240
Residential real estate – investor		743		(55)		-		3		691
Residential real estate – owner occupied		1,868		(36)		-		25		1,857
Multifamily		2,737		(165)		-		-		2,572
HELOC		1,694		(77)		-		35		1,652
Other		278		30		107		37		238
Total	$	55,314	$	3,012	$	6,936	$	339	$	51,729

			Provision for
	Beginning		(Release of)						Ending
Allowance for credit losses	Balance		Credit Losses		Charge-offs		Recoveries		Balance
Nine months ended September 30, 2023
Commercial	$	11,968	$	(1,287)	$	427	$	245	$	10,499
Leases		2,865		498		882		111		2,592
Commercial real estate – investor		10,674		14,117		6,845		57		18,003
Commercial real estate – owner occupied		15,001		(2,397)		236		17		12,385
Construction		1,546		(406)		-		100		1,240
Residential real estate – investor		768		(104)		-		27		691
Residential real estate – owner occupied		2,046		(260)		-		71		1,857
Multifamily		2,453		119		-		-		2,572
HELOC		1,806		(242)		-		88		1,652
Other		353		53		301		133		238
Total	$	49,480	$	10,091	$	8,691	$	849	$	51,729

			Provision for
	Beginning		(Release of)						Ending
Allowance for credit losses	Balance		Credit Losses		Charge-offs		Recoveries		Balance
Three months ended September 30, 2022
Commercial	$	14,114	$	(919)	$	67	$	47	$	13,175
Leases		1,736		(24)		178		-		1,534
Commercial real estate – investor		9,436		256		124		19		9,587
Commercial real estate – owner occupied		11,478		3,618		12		87		15,171
Construction		1,535		9		-		-		1,544
Residential real estate – investor		661		147		-		8		816
Residential real estate – owner occupied		1,869		149		-		113		2,131
Multifamily		2,434		33		-		63		2,530
HELOC		1,542		386		-		35		1,963
Other		583		(128)		103		44		396
Total	$	45,388	$	3,527	$	484	$	416	$	48,847

14

Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data, unaudited)

			Provision for
Allowance for credit losses	Beginning		(Release of)						Ending
Nine months ended September 30, 2022	Balance		Credit Losses		Charge-offs		Recoveries		Balance
Commercial	$	11,751	$	1,488	$	149	$	85	$	13,175
Leases		3,480		(1,768)		178		-		1,534
Commercial real estate – investor		10,795		(664)		604		60		9,587
Commercial real estate – owner occupied		4,913		10,289		133		102		15,171
Construction		3,373		(1,829)		-		-		1,544
Residential real estate – investor		760		33		-		23		816
Residential real estate – owner occupied		2,832		(919)		-		218		2,131
Multifamily		3,675		(1,208)		-		63		2,530
HELOC		2,510		(649)		-		102		1,963
Other		192		404		320		120		396
Total	$	44,281	$	5,177	$	1,384	$	773	$	48,847

At September 30, 2023, our allowance for credit losses (“ACL”) on loans totaled $51.7 million, and our ACL on unfunded commitments, included in other liabilities, totaled $2.9 million including related purchase accounting adjustments.  During the first nine months of 2023, we recorded net provision expense of $8.5 million based on historical loss rate updates driven by higher charge offs in commercial real estate-investor, loan growth of approximately $160.0 million, downward risk rating migration including an increased reserve on loans individually analyzed, and our assessment of estimated future credit losses. The ACL on loans excludes $2.7 million, $4.3 million and $4.4 million of allowance for unfunded commitments as of September 30, 2023, December 31, 2022 and September 30, 2022, respectively, recorded within Other Liabilities.  The total ACL on unfunded commitments listed as of September 30, 2023, December 31, 2022, and September 30, 2022 excludes the purchase accounting adjustment of $149,000, $819,000, and $1.0 million, respectively, recorded due to our acquisition of West Suburban, which is also recorded within Other Liabilities, and is being accreted in interest income over the estimated life of the unused commitments.

Generally, the Bank considers a loan to be collateral dependent when, based on current information and events, it is probable that foreclosure will be initiated. Additionally, the Bank will review all loans meeting the criteria for individual analysis, to determine if repayment or satisfaction of the loan is expected through the sale of collateral. This will generally be the case for credits with high loan-to-values. Exceptions to this policy would include loans with guarantors that have the means and willingness to support the obligation. Non-accruing loans with an outstanding balance of $500,000 or more are assessed on an individual loan level basis. When a financial asset is deemed collateral-dependent, the level of credit loss is measured by the difference between amortized cost of the financial asset and the fair value of collateral adjusted for estimated cost to sell. The Company had $55.8 million and $50.5 million of collateral dependent loans secured by real estate or business assets as of September 30, 2023, and December 31, 2022, respectively.

The following tables present the collateral dependent loans and the related ACL allocated by segment of loans as of September 30, 2023 and December 31, 2022:

			Accounts								ACL
September 30, 2023	Real Estate		Receivable		Equipment		Other		Total		Allocation
Commercial	$	849	$	679	$	-	$	-	$	1,528	$	2
Leases		-		-		339		-		339		339
Commercial real estate – investor		26,724		-		-		-		26,724		4,848
Commercial real estate – owner occupied		17,636		-		-		-		17,636		4,201
Construction		7,206		-		-		-		7,206		-
Residential real estate – investor		32		-		-		-		32		-
Residential real estate – owner occupied		1,679		-		-		-		1,679		-
Multifamily		568		-		-		-		568		-
HELOC		39		-		-		-		39		-
Total	$	54,733	$	679	$	339	$	-	$	55,751	$	9,390

15

Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data, unaudited)

			Accounts								ACL
December 31, 2022	Real Estate		Receivable		Equipment		Other		Total		Allocation
Commercial	$	883	$	5,915	$	-	$	364	$	7,162	$	569
Leases		-		-		1,248		-		1,248		1,248
Commercial real estate – investor		16,576		-		-		-		16,576		2,875
Commercial real estate – owner occupied		19,188		-		-		2,310		21,498		5,808
Residential real estate – investor		675		-		-		-		675		-
Residential real estate – owner occupied		1,817		-		-		-		1,817		244
Multifamily		1,322		-		-		-		1,322		-
HELOC		180		-		-		-		180		-
Total	$	40,641	$	5,915	$	1,248	$	2,674	$	50,478	$	10,744

Aged analysis of past due loans by segments of loans was as follows:

													90 days or
					90 Days or								Greater Past
	30-59 Days		60-89 Days		Greater Past		Total Past						Due and
September 30, 2023	Past Due		Past Due		Due		Due		Current		Total Loans		Accruing
Commercial	$	1,829	$	1,874	$	1,052	$	4,755	$	830,122	$	834,877	$	979
Leases		2,502		-		157		2,659		352,168		354,827		-
Commercial real estate – investor		2,205		16,728		16,116		35,049		1,012,073		1,047,122		-
Commercial real estate – owner occupied		15,232		120		1,879		17,231		791,819		809,050		-
Construction		118		200		7,206		7,524		195,022		202,546		-
Residential real estate – investor		252		-		277		529		53,233		53,762		140
Residential real estate – owner occupied		735		419		1,820		2,974		224,472		227,446		-
Multifamily		713		127		-		840		371,180		372,020		-
HELOC		646		88		259		993		101,062		102,055		90
Other		-		-		-		-		25,838		25,838		-
Total	$	24,232	$	19,556	$	28,766	$	72,554	$	3,956,989	$	4,029,543	$	1,209

													90 days or
					90 Days or								Greater Past
	30-59 Days		60-89 Days		Greater Past		Total Past						Due and
December 31, 2022	Past Due		Past Due		Due		Due		Current		Total Loans		Accruing
Commercial	$	3	$	1,012	$	825	$	1,840	$	839,124	$	840,964	$	460
Leases		447		22		614		1,083		276,302		277,385		-
Commercial real estate – investor		3,276		1,276		4,315		8,867		978,768		987,635		-
Commercial real estate – owner occupied		373		113		2,211		2,697		852,182		854,879		173
Construction		14		-		116		130		180,405		180,535		-
Residential real estate – investor		445		-		987		1,432		55,921		57,353		144
Residential real estate – owner occupied		1,191		-		2,232		3,423		216,295		219,718		485
Multifamily		267		361		1,322		1,950		321,741		323,691		-
HELOC		291		90		392		773		108,429		109,202		-
Other		19		-		-		19		18,228		18,247		-
Total	$	6,326	$	2,874	$	13,014	$	22,214	$	3,847,395	$	3,869,609	$	1,262

16

Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data, unaudited)

The table presents all nonaccrual loans as of September 30, 2023, and December 31, 2022:

Nonaccrual loan detail	September 30, 2023		With no ACL		December 31, 2022		With no ACL
Commercial	$	2,167	$	2,167	$	7,189	$	6,598
Leases		377		38		1,876		-
Commercial real estate – investor		26,724		11,786		4,346		4,244
Commercial real estate – owner occupied		18,290		3,833		8,050		3,813
Construction		7,206		7,206		251		-
Residential real estate – investor		1,362		1,362		1,528		675
Residential real estate – owner occupied		3,627		3,627		3,713		1,572
Multifamily		1,141		1,141		2,538		1,322
HELOC		1,222		1,222		2,109		180
Other		-		-		2		-
Total	$	62,116	$	32,382	$	31,602	$	18,404

The Company recognized $189,000 and $304,000 of interest on nonaccrual loans during the three months and nine months ended September 30, 2023, respectively.

Credit Quality Indicators

The Company categorizes loans into credit risk categories based on current financial information, overall debt service coverage, comparison to industry averages, historical payment experience, and current economic trends.  This analysis includes loans with outstanding balances or commitments greater than $50,000 and excludes homogeneous loans such as home equity lines of credit and residential mortgages.  Loans with a classified risk rating are reviewed quarterly regardless of size or loan type.  The Company uses the following definitions for classified risk ratings:

Special Mention.  Loans classified as special mention have a potential weakness that deserves management’s close attention.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.  Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.  They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.  The substandard credit quality indicator includes both potential problem loans that are currently performing and nonperforming loans.

Doubtful.  Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Credits that are not covered by the definitions above are pass credits, which are not considered to be adversely rated.

17

Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data, unaudited)

Credit quality indicators by loan segment and loan origination date at September 30, 2023 were as follows:

	2023		2022		2021		2020		2019		Prior		Revolving Loans		Revolving Loans Converted To Term Loans		Total
Commercial
Pass	$	215,492	$	187,682	$	41,464	$	13,359	$	10,676	$	4,315	$	311,562	$	1,379	$	785,929
Special Mention		-		500		244		-		51		-		29,855		-		30,650
Substandard		-		79		1,381		2,735		9,689		-		4,414		-		18,298
Total commercial		215,492		188,261		43,089		16,094		20,416		4,315		345,831		1,379		834,877
Leases
Pass		151,691		125,092	$	47,808		17,522		9,545		2,595		-		-		354,253
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		339		-		-		235		-		-		-		574
Total leases		151,691		125,431		47,808		17,522		9,780		2,595		-		-		354,827
Commercial real estate – investor
Pass		176,779		341,597		203,972		111,333		59,770		67,264		8,148		-		968,863
Special Mention		-		12,866		11,267		-		-		-		-		-		24,133
Substandard		10,964		11,787		1,950		7,748		9,278		-		12,399		-		54,126
Total commercial real estate – investor		187,743		366,250		217,189		119,081		69,048		67,264		20,547		-		1,047,122
Commercial real estate – owner occupied
Pass		105,963		139,223		181,543		78,750		54,909		101,396		33,258		-		695,042
Special Mention		1,758		11,722		18,180		26,480		222		354		-		-		58,716
Substandard		-		14,994		19,926		1,142		18,811		419		-		-		55,292
Total commercial real estate – owner occupied		107,721		165,939		219,649		106,372		73,942		102,169		33,258		-		809,050
Construction
Pass		26,529		75,698		56,217		19,531		1,837		1,155		3,699		-		184,666
Special Mention		305		312		-		-		-		-		-		-		617
Substandard		-		7,206		-		10,057		-		-		-		-		17,263
Total construction		26,834		83,216		56,217		29,588		1,837		1,155		3,699		-		202,546
Residential real estate – investor
Pass		3,310		14,560		8,954		6,317		7,116		10,519		1,417		-		52,193
Special Mention		-		-		67		-		-		-		-		-		67
Substandard		-		398		-		-		418		686		-		-		1,502
Total residential real estate – investor		3,310		14,958		9,021		6,317		7,534		11,205		1,417		-		53,762
Residential real estate – owner occupied
Pass		26,371		41,915		41,439		26,544		15,147		71,637		766		-		223,819
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		122		-		90		686		2,729		-		-		3,627
Total residential real estate – owner occupied		26,371		42,037		41,439		26,634		15,833		74,366		766		-		227,446
Multifamily
Pass		69,947		79,689		101,878		57,792		12,391		42,603		382		-		364,682
Special Mention		-		170		3,505		326		1,656		540		-		-		6,197
Substandard		-		887		-		-		-		254		-		-		1,141
Total multifamily		69,947		80,746		105,383		58,118		14,047		43,397		382		-		372,020
HELOC
Pass		1,765		2,760		211		1,443		1,631		2,494		90,317		-		100,621
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		39		27		1		1		-		106		1,260		-		1,434
Total HELOC		1,804		2,787		212		1,444		1,631		2,600		91,577		-		102,055
Other
Pass		4,461		2,068		1,415		223		151		88		17,432				25,838
Special Mention		-		-		-		-		-		-		-				-
Substandard		-		-		-		-		-		-		-				-
Total other		4,461		2,068		1,415		223		151		88		17,432		-		25,838
Total loans
Pass		782,308		1,010,284		684,901		332,814		173,173		304,066		466,981		1,379		3,755,906
Special Mention		2,063		25,570		33,263		26,806		1,929		894		29,855		-		120,380
Substandard		11,003		35,839		23,258		21,773		39,117		4,194		18,073		-		153,257
Total loans	$	795,374	$	1,071,693	$	741,422	$	381,393	$	214,219	$	309,154	$	514,909	$	1,379	$	4,029,543

18

Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data, unaudited)

Credit quality indicators by loan segment and loan origination date at December 31, 2022, were as follows:

	2022		2021		2020		2019		2018		Prior		Revolving Loans		Revolving Loans Converted To Term Loans		Total
Commercial
Pass	$	225,056	$	70,608	$	21,597	$	12,742	$	6,957	$	2,651	$	447,821	$	-	$	787,432
Special Mention		1,875		272		1,182		2,432		-		-		21,286		-		27,047
Substandard		4,958		2,447		2,981		12,176		7		-		3,916		-		26,485
Total commercial		231,889		73,327		25,760		27,350		6,964		2,651		473,023		-		840,964
Leases
Pass		161,379		64,203	$	26,995		17,653		4,449		830		-		-		275,509
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		1,606		-		-		270		-		-		-		-		1,876
Total leases		162,985		64,203		26,995		17,923		4,449		830		-		-		277,385
Commercial real estate – investor
Pass		416,094		228,686		118,491		63,845		46,935		46,406		7,113		-		927,570
Special Mention		5,349		1,417		5,490		10,206		1,070		9,123		-		-		32,655
Substandard		12,332		2,018		-		10,763		-		2,297		-		-		27,410
Total commercial real estate – investor		433,775		232,121		123,981		84,814		48,005		57,826		7,113		-		987,635
Commercial real estate – owner occupied
Pass		169,703		223,731		105,669		47,351		49,367		86,660		33,745		-		716,226
Special Mention		8,430		22,242		48,184		17,668		231		1,008		-		-		97,763
Substandard		2,546		17,129		1,191		16,962		-		3,062		-		-		40,890
Total commercial real estate – owner occupied		180,679		263,102		155,044		81,981		49,598		90,730		33,745		-		854,879
Construction
Pass		53,058		65,758		39,542		2,390		226		1,408		1,523		-		163,905
Special Mention		-		-		15,297		-		-		-		-		-		15,297
Substandard		1,217		-		-		116		-		-		-		-		1,333
Total construction		54,275		65,758		54,839		2,506		226		1,408		1,523		-		180,535
Residential real estate – investor
Pass		14,737		9,910		6,945		8,585		4,853		9,548		991		-		55,569
Special Mention		-		70		-		-		-		-		-		-		70
Substandard		621		-		-		499		186		408		-		-		1,714
Total residential real estate – investor		15,358		9,980		6,945		9,084		5,039		9,956		991		-		57,353
Residential real estate – owner occupied
Pass		41,885		44,884		28,418		16,146		12,152		70,741		1,638		-		215,864
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		131		267		237		723		131		2,365		-		-		3,854
Total residential real estate – owner occupied		42,016		45,151		28,655		16,869		12,283		73,106		1,638		-		219,718
Multifamily
Pass		76,877		126,257		52,262		13,125		39,703		6,098		329		-		314,651
Special Mention		377		3,683		342		1,684		-		-		-		-		6,086
Substandard		2,100		-		-		-		587		267		-		-		2,954
Total multifamily		79,354		129,940		52,604		14,809		40,290		6,365		329		-		323,691
HELOC
Pass		2,760		517		1,497		1,703		657		2,288		97,258		-		106,680
Special Mention		-		-		-		-		-		-		111		-		111
Substandard		62		1		-		-		67		309		1,972		-		2,411
Total HELOC		2,822		518		1,497		1,703		724		2,597		99,341		-		109,202
Other
Pass		4,195		2,835		432		167		69		111		10,436		-		18,245
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		1		-		-		-		1		-		2
Total other		4,195		2,835		433		167		69		111		10,437		-		18,247
Total loans
Pass		1,165,744		837,389		401,848		183,707		165,368		226,741		600,854		-		3,581,651
Special Mention		16,031		27,684		70,495		31,990		1,301		10,131		21,397		-		179,029
Substandard		25,573		21,862		4,410		41,509		978		8,708		5,889		-		108,929
Total loans	$	1,207,348	$	886,935	$	476,753	$	257,206	$	167,647	$	245,580	$	628,140	$	-	$	3,869,609

19

Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data, unaudited)

The gross charge-offs activity by loan type and year of origination for the nine months ended September 30, 2023 were as follows:

Current period gross charge-offs	2023		2022		2021		2020		2019		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total
Commercial	$	-		-		17		364		-		46	$	-	$	-	$	427
Leases		-		870		-		-		12		-		-		-		882
Commercial real estate – investor		-		4,121		71		2,653		-		-		-		-		6,845
Commercial real estate – owner occupied		-		22		178		4		-		32		-		-		236
Construction		-		-		-		-		-		-		-		-		-
Residential real estate – investor		-		-		-		-		-		-		-		-		-
Residential real estate – owner occupied		-		-		-		-		-		-		-		-		-
Multifamily		-		-		-		-		-		-		-		-		-
HELOC		-		-		-		-		-		-		-		-		-
Other		-		3		26		7		-		265		-		-		301
Total	$	-	$	5,016	$	292	$	3,028	$	12	$	343		-		-	$	8,691

The Company had $176,000 and $600,000 in residential real estate loans in the process of foreclosure as of September 30, 2023 and December 31, 2022, respectively.  

As of January 1, 2023, the Company prospectively adopted ASU 2022-02, Topic 326 “Troubled Debt Restructuring (“TDRs”) and Vintage Disclosures”, see Note 1. Fifteen loans, totaling $43.0 million in aggregate, were modified which were experiencing financial difficulty during the nine-month period ending September 30, 2023.  There were no TDR loan modifications for the three months ended September 30, 2022, and there were two TDR loan modifications for an aggregate of $39,000 for the nine months ended September 30, 2022.  TDRs were classified as being in default on a case-by-case basis when they failed to be in compliance with the modified terms.  There were no financial difficulty loans modified in payment default as of September 30, 2023 and was no TDR default activity for the period ended September 30, 2023, for loans that were restructured within the prior 12-month period.

The following table presents the amortized costs basis of loans at September 30, 2023 that were both experiencing financial difficulty and modified during the period ended September 30, 2023 by class and by type of modification.  The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to amortized costs basis of each class of financing receivable is also presented below.

September 30, 2023	Term Extension		Combination - Term Extension and Interest Rate Reduction		Combination - Term Extension and Payment Delay		Total Loans Modified		% of Total Loan Segment Modified to Total Loan Segment
Commercial	$	1,713	$	979	$	-	$	2,692	0.3%
Commercial real estate – investor		12,755		-		10,608		23,363	2.2%
Commercial real estate – owner occupied		16,218		-		-		16,218	2.0%
Residential real estate – owner occupied		437		-		-		437	0.2%
Multifamily		254		-		-		254	0.1%
HELOC		39		-		-		39	0.0%
Total	$	31,416	$	979	$	10,608	$	43,003	1.1%

20

Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data, unaudited)

The Company closely monitors the performance of loan modifications to borrowers experiencing financial difficulty. The following table presents the performance of loans that have been modified as of September 30, 2023.

September 30, 2023	30-59 days past due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loan Modified
Commercial	$	-	$	-	$	979	$	979	$	1,713	$	2,692
Commercial real estate – investor		-		-		-		-		23,363		23,363
Commercial real estate – owner occupied		-		-		-		-		16,218		16,218
Residential real estate – owner occupied		-		-		-		-		437		437
Multifamily		-		-		-		-		254		254
HELOC		-		-		-		-		39		39
Total	$	-	$	-	$	979	$	979	$	42,024	$	43,003

The following table summarizes the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the period ended September 30, 2023. The Company had two Commercial real estate – investor loans that had a payment modification, one changed to a single payment at maturity and the other changed from principal and interest to interest only until maturity.

September 30, 2023	Weighted-Average Term Extension (In Months)		Weighted-Average Interest Rate Change			Weighted-Average Delay of Payment (In Months)
Commercial		6.74		5.00	%		-
Commercial real estate – investor		9.81		-			7.17
Commercial real estate – owner occupied		14.00		-			-
Residential real estate – owner occupied		2.00		-			-
Multifamily		16.00		-			-
HELOC		24.00		-			-
Total		11.17		5.00	%		7.17

Note 5 – Deposits

Major classifications of deposits were as follows:

	September 30, 2023		December 31, 2022
Noninterest bearing demand	$	1,862,659	$	2,051,702
Savings		1,003,498		1,145,592
NOW accounts		567,997		609,338
Money market accounts		702,176		862,170
Certificates of deposit of less than $100,000		248,272		244,017
Certificates of deposit of $100,000 through $250,000		162,901		157,438
Certificates of deposit of more than $250,000		66,817		40,466
Total deposits	$	4,614,320	$	5,110,723

21

Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data, unaudited)

Note 6 – Borrowings

The following table is a summary of borrowings as of September 30, 2023 and December 31, 2022.  Junior subordinated debentures are discussed in more detail in Note 7.

	September 30, 2023		December 31, 2022
Securities sold under repurchase agreements	$	25,894	$	32,156
Other short-term borrowings		435,000		90,000
Junior subordinated debentures1		25,773		25,773
Subordinated debentures		59,361		59,297
Senior notes		-		44,585
Notes payable and other borrowings		-		9,000
Total borrowings	$	546,028	$	260,811
1 See Note 7: Junior Subordinated Debentures

The Company enters into deposit sweep transactions where the transaction amounts are secured by pledged securities.  These transactions consistently mature overnight from the transaction date and are governed by sweep repurchase agreements.  All sweep repurchase agreements are treated as financings secured by U.S. government agencies and collateralized mortgage-backed securities, and had a carrying amount of $25.9 million at September 30, 2023, and $32.2 million at December 31, 2022.  The fair value of the pledged collateral was $43.8 million at September 30, 2023, and $71.4 million at December 31, 2022.  At September 30, 2023, there were no customers with secured balances exceeding 10% of stockholders’ equity.

The Company’s borrowings at the FHLBC require the Bank to be a member and invest in the stock of the FHLBC.  Total borrowings are generally limited to the lower of 35% of total assets or 60% of the book value of certain mortgage loans.  As of September 30, 2023, the Bank had $435.0 million in short-term advances outstanding under the FHLBC.  There were $90.0 million in short-term advances as of December 31, 2022. FHLBC stock held at September 30, 2023 was valued at $20.9 million, and any potential FHLBC advances were collateralized by loans and securities with a principal balance of $1.47 billion, which carried a FHLBC-calculated combined collateral value of $1.02 billion.  The Company had excess collateral of $581.7 million available to secure borrowings at September 30, 2023.

In the second quarter of 2021, we issued $60.0 million in aggregate principal amount of our 3.50% Fixed-to-Floating Rate Subordinated Notes due April 15, 2031 (the “Notes”). The Company used the net proceeds from the offering for general corporate purposes.  The Notes bear interest at a fixed annual rate of 3.50%, from and including the date of issuance to but excluding April 15, 2026, payable semi-annually in arrears.  From and including April 15, 2026 to, but excluding the maturity date or early redemption date, the interest rate will reset quarterly to an interest rate per annum equal to three-month Term SOFR (as defined by the Note) plus 273 basis points, payable quarterly in arrears. As of September 30, 2023 and December 31, 2022, we had $59.4 million and $59.3 million of subordinated debentures outstanding, net of deferred issuance costs, respectively.

The Company issued senior notes in December 2016 with a ten-year maturity, and terms included interest payable semiannually at 5.75% for five years.  Beginning December 31, 2021, the senior debt began to pay interest at a floating rate, with interest payable quarterly at three month LIBOR plus 385 basis points. The interest rate at June 30, 2023 and December 31, 2022 was 9.39% and 8.62%, respectively. The notes were redeemable, in whole or in part, at the option of the Company, beginning with the interest payment date on December 31, 2021, and on any floating rate interest payment date thereafter, at a redemption price equal to 100% of the principal amount of the notes plus accrued and unpaid interest.  On June 30, 2023, we redeemed all of the $45.0 million senior notes.  Upon redemption, the related deferred debt issuance costs of $362,000 was also recorded as interest expense, resulting in an effective cost of this debt issuance of 12.85% for the second quarter of 2023.

On February 24, 2020, the Company originated a $20.0 million three-year term note with a correspondent bank. The term note was issued at one-month LIBOR plus 175 basis points, and required principal payments quarterly and interest payments monthly.  This note was included within Notes payable and other borrowings on the Consolidated Balance Sheets, and the remaining $9.0 million balance of the note was paid off on February 24, 2023.  The Company also has an undrawn line of credit of $30.0 million with a correspondent bank to be used for short-term funding needs; advances under this line can be outstanding up to 360 days from the date of issuance.  This line of credit has not been utilized since early 2019.

22

Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data, unaudited)

Note 7 – Junior Subordinated Debentures

The Company issued $25.0 million of cumulative trust preferred securities through a private placement completed by an unconsolidated subsidiary, Old Second Capital Trust II, in April 2007.  These trust preferred securities mature in 30 years, but subject to regulatory approval, can be called in whole or in part on a quarterly basis commencing June 15, 2017.  The quarterly cash distributions on the securities were fixed at 6.77% through June 15, 2017, and now have a floating rate of 150 basis points over three-month SOFR.  Upon conversion to a floating rate, a cash flow hedge was initiated which resulted in the total interest rate paid on the debt of 3.77% and 4.39% for the quarters ended September 30, 2023 and September 30, 2022, respectively.  The Company issued a $25.8 million subordinated debenture to Old Second Capital Trust II in return for the aggregate net proceeds of this trust preferred offering.  The interest rate and payment frequency on the debenture are equivalent to the cash distribution basis on the trust preferred securities.  

The junior subordinated debentures issued by the Company are disclosed on the Consolidated Balance Sheets, and the related interest expense for each issuance is included in the Consolidated Statements of Income.  As of September 30, 2023 and December 31, 2022, the remaining unamortized debt issuance costs related to the junior subordinated debentures were $1,000 and are included as a reduction to the balance of the junior subordinated debentures on the Consolidated Balance Sheets.  The remaining deferred issuance costs on the junior subordinated debentures related to the issuance of Old Second Capital Trust II will be amortized to interest expense over the remainder of the 30-year term of the notes and are included in the Consolidated Statements of Income.

Note 8 – Equity Compensation Plans

Stock-based awards are outstanding under the Company’s 2019 Equity Incentive Plan, as amended and restated (the “2019 Plan”).  The 2019 Plan was originally approved at the May 2019 annual stockholders’ meeting and authorized 600,000 shares, and at the May 2021 annual stockholders’ meeting, the Company obtained stockholder approval to increase the number of shares of common stock authorized for issuance under the 2019 Plan by 1,200,000 shares, from 600,000 shares to 1,800,000 shares.  Following the approval of the 2019 Plan, no further awards will be granted under any other prior plan.  

The 2019 Plan authorizes the granting of qualified stock options, non-qualified stock options, restricted stock, restricted stock units, and stock appreciation rights (“SARs”).  Awards may be granted to selected directors, officers, employees or eligible service providers under the 2019 Plan at the discretion of the Compensation Committee of the Company’s Board of Directors.  As of September 30, 2023, 975,712 shares remained available for issuance under the 2019 Plan.  The Company has granted only restricted stock units under the 2019 Equity Plan.

Generally, restricted stock units granted under the 2019 Plan vest three years from the grant date, but the Compensation Committee of the Company’s Board of Directors has discretionary authority to change the terms of particular awards including the vesting schedule.

Under the 2019 Plan, unless otherwise provided in an award agreement, upon the occurrence of a change in control, all equity awards then held by the participant will become fully exercisable immediately if, and all stock awards and cash incentive awards will become fully earned and vested immediately if, (i) the 2019 Plan is not an obligation of the successor entity following a change in control or (ii) the 2019 Plan is an obligation of the successor entity following a change in control and the participant incurs a termination of service without cause or for good reason following the change in control.  Notwithstanding the immediately preceding sentence, if the vesting of an award is conditioned upon the achievement of performance measures, then such vesting will generally be subject to the following: if, at the time of the change in control, the performance measures are less than 50% attained (pro rata based upon the time of the period through the change in control), the award will become vested and exercisable on a fractional basis with the numerator being equal to the percentage of attainment and the denominator being 50%; and if, at the time of the change in control, the performance measures are at least 50% attained (pro rata based upon the time of the period through the change in control), the award will become fully earned and vested immediately upon the change in control.

Awards of restricted stock under the 2019 Plan generally entitle holders to voting and dividend rights upon grant and are subject to forfeiture until certain restrictions have lapsed including employment for a specific period.  Awards of restricted stock units under the 2019 Plan are also subject to forfeiture until certain restrictions have lapsed including employment for a specific period, but do not entitle holders to voting rights until the restricted period ends and shares are transferred in connection with the units.

23

Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data, unaudited)

There were 240,149 and 268,160 restricted stock units issued under the 2019 Plan during the nine months ended September 30, 2023 and September 30, 2022, respectively.  Compensation expense is recognized over the vesting period of the restricted stock units based on the market value of the award on the issue date.  Total compensation cost that has been recorded for the 2019 Plan was $2.7 million for the nine months ended September 30, 2023 and $2.3 million for the nine months ended September 30, 2022.

A summary of changes in the Company’s unvested restricted awards for the nine months ended September 30, 2023, is as follows:

	September 30, 2023
		Weighted
	Restricted	Average
	Stock Shares	Grant Date
	and Units	Fair Value
Unvested at January 1	649,210	$	12.84
Granted	240,149		17.02
Vested	(137,534)		12.53
Forfeited	(15,191)		14.25
Unvested at September 30	736,634	$	14.23

Total unrecognized compensation cost of restricted awards was $5.0 million as of September 30, 2023, which is expected to be recognized over a weighted-average period of 1.87 years.  

Note 9 – Earnings Per Share

The earnings per share, both basic and diluted, are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Basic earnings per share:
Weighted-average common shares outstanding		44,675,489		44,565,626		44,653,451		44,509,072
Net income	$	24,335	$	19,523	$	73,504	$	43,790
Basic earnings per share	$	0.55	$	0.43	$	1.65	$	0.98
Diluted earnings per share:
Weighted-average common shares outstanding		44,675,489		44,565,626		44,653,451		44,509,072
Dilutive effect of unvested restricted awards 1		752,920		655,915		736,767		698,920
Diluted average common shares outstanding		45,428,409		45,221,541		45,390,218		45,207,992
Net Income	$	24,335	$	19,523	$	73,504	$	43,790
Diluted earnings per share	$	0.54	$	0.43	$	1.62	$	0.97
1 Includes the common stock equivalents for restricted share rights that are dilutive.

24

Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data, unaudited)

Note 10 – Regulatory & Capital Matters

The Bank is subject to the risk-based capital regulatory guidelines, which include the methodology for calculating the risk-weighted Bank assets, developed by the Office of the Comptroller of the Currency (the “OCC”) and the other bank regulatory agencies.  In connection with the current risk-based capital regulatory guidelines, the Bank’s Board of Directors has established an internal guideline requiring the Bank to maintain a Tier 1 leverage capital ratio at or above eight percent (8%) and a total risk-based capital ratio at or above twelve percent (12%).  At September 30, 2023, the Bank exceeded those thresholds.

At September 30, 2023, the Bank’s Tier 1 capital leverage ratio was 10.43%, an increase of 111 basis points from December 31, 2022, and is above the 8.00% objective.  The Bank’s total capital ratio was 13.57%, an increase of 82 basis points from December 31, 2022, and also above the objective of 12.00%.

Bank holding companies are generally required to maintain minimum levels of capital in accordance with capital guidelines implemented by the Board of Governors of the Federal Reserve System.  The general bank and holding company capital adequacy guidelines are shown in the accompanying table, as are the capital ratios of the Company and the Bank, as of September 30, 2023 and December 31, 2022.

The Basel III Rules are applicable to all banking organizations that are subject to minimum capital requirements, including federal and state banks and savings and loan associations, as well as to bank and savings and loan holding companies, other than “small bank holding companies”, which are generally holding companies with consolidated assets of less than $3.0 billion.  A detailed discussion of the Basel III Rules is included in Part I, Item 1 of the Company’s Form 10-K for the year ended December 31, 2022, under the heading “Supervision and Regulation.”

At September 30, 2023 and December 31, 2022, the Company, on a consolidated basis, exceeded the minimum thresholds to be considered “well capitalized” under current regulatory defined capital ratios.

25

Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data, unaudited)

Capital levels and industry defined regulatory minimum required levels are as follows:

					Minimum Capital				Well Capitalized
					Adequacy with Capital				Under Prompt Corrective
	Actual				Conservation Buffer, if applicable1				Action Provisions2
	Amount		Ratio		Amount		Ratio		Amount		Ratio
September 30, 2023
Common equity tier 1 capital to risk weighted assets
Consolidated	$	530,368	11.00	%	$	337,507	7.00	%		N/A	N/A
Old Second Bank		601,999	12.49			337,389	7.00		$	313,290	6.50	%
Total capital to risk weighted assets
Consolidated		667,182	13.84			506,171	10.50			N/A	N/A
Old Second Bank		653,813	13.57			505,898	10.50			481,808	10.00
Tier 1 capital to risk weighted assets
Consolidated		555,368	11.52			409,777	8.50			N/A	N/A
Old Second Bank		601,999	12.49			409,687	8.50			385,588	8.00
Tier 1 capital to average assets
Consolidated		555,368	9.62			230,922	4.00			N/A	N/A
Old Second Bank		601,999	10.43			230,872	4.00			288,590	5.00
December 31, 2022
Common equity tier 1 capital to risk weighted assets
Consolidated	$	457,206	9.67	%	$	330,966	7.00	%		N/A	N/A
Old Second Bank		552,404	11.70			330,498	7.00		$	306,891	6.50	%
Total capital to risk weighted assets
Consolidated		592,039	12.52			496,518	10.50			N/A	N/A
Old Second Bank		602,237	12.75			495,960	10.50			472,343	10.00
Tier 1 capital to risk weighted assets
Consolidated		482,206	10.20			401,838	8.50			N/A	N/A
Old Second Bank		552,404	11.70			401,319	8.50			377,712	8.00
Tier 1 capital to average assets
Consolidated		482,206	8.14			236,956	4.00			N/A	N/A
Old Second Bank		552,404	9.32			237,083	4.00			296,354	5.00

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

² The prompt corrective action provisions are only applicable at the Bank level. The Bank exceeded the general minimum regulatory requirements to be considered “well capitalized.”

As part of its response to the impact of the COVID-19 pandemic, in the first quarter of 2020, U.S. federal regulatory authorities issued an interim final rule that provided banking organizations that adopted CECL during the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay (i.e., a five-year transition in total). In connection with our adoption of CECL on January 1, 2020, we elected to utilize the five-year CECL transition.  As of September 30, 2023, the capital measures of the Company exclude $1.9 million, which is the modified CECL transition adjustment.

26

Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data, unaudited)

Dividend Restrictions

In addition to the above requirements, banking regulations and capital guidelines generally limit the amount of dividends that may be paid by a bank without prior regulatory approval.  Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s profits, combined with the retained profit of the previous two years, subject to the capital requirements described above.  As of September 30, 2023, the Bank had capacity to pay dividends of $70.4 million to the Company without prior regulatory approval.  Pursuant to the Basel III rules, the Bank must keep a capital conservation buffer of 2.50% above the regulatory minimum capital requirements, which must consist entirely of Common Equity Tier 1 capital in order to avoid additional limitations on capital distributions and certain other payments.

Note 11 – Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  The fair value hierarchy established by the Company also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  Three levels of inputs that may be used to measure fair value are:

Level 1:  Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Company has the ability to access as of the measurement date.

Level 2:  Significant observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

Level 3:  Significant unobservable inputs that reflect a company’s own view about the assumptions that market participants would use in pricing an asset or liability.

During the nine-month period ended September 30, 2023, $14.9 million of asset-backed securities and $6.8 million of collateralized mortgage obligations were transferred to Level 2 from Level 3. There were no transfers between levels at September 30, 2022.

The majority of securities available-for-sale are valued by external pricing services or dealer market participants and are classified in Level 2 of the fair value hierarchy.  Both market and income valuation approaches are utilized.  Quarterly, the Company evaluates the methodologies used by the external pricing services or dealer market participants to develop the fair values to determine whether the results of the valuations are representative of an exit price in the Company’s principal markets and an appropriate representation of fair value.  The Company uses the following methods and significant assumptions to estimate fair value:

● Government-sponsored agency debt securities are primarily priced using available market information through processes such as benchmark spreads, market valuations of like securities, like securities groupings and matrix pricing.

● Other government-sponsored agency securities, MBS and some of the actively traded real estate mortgage investment conduits and collateralized mortgage obligations are priced using available market information including benchmark yields, prepayment speeds, spreads, volatility of similar securities and trade date.

● State and political subdivisions are largely grouped by characteristics (e.g., geographical data and source of revenue in trade dissemination systems).  Because some securities are not traded daily and due to other grouping limitations, active market quotes are often obtained using benchmarking for like securities.

● Auction rate securities are priced using market spreads, cash flows, prepayment speeds, and loss analytics.  Therefore, the valuations of auction rate asset-backed securities are considered Level 2 valuations.

● Asset-backed collateralized loan obligations were priced using data from a pricing matrix supported by our bond accounting service provider and are therefore considered Level 2 valuations.

● Annually every security holding is priced by a pricing service independent of the regular and recurring pricing services used.  The independent service provides a measurement to indicate if the price assigned by the regular service is within or outside of a reasonable range.  Management reviews this report and applies judgment in adjusting calculations at year end related to securities pricing.

27

Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data, unaudited)

● Residential mortgage loans available for sale in the secondary market are carried at fair market value.  The fair value of loans held-for-sale is determined using quoted secondary market prices.

● Lending related commitments to fund certain residential mortgage loans, e.g., residential mortgage loans with locked interest rates to be sold in the secondary market and forward commitments for the future delivery of mortgage loans to third party investors, as well as forward commitments for future delivery of MBS are considered derivatives.  Fair values are estimated based on observable changes in mortgage interest rates including prices for MBS from the date of the commitment and do not typically involve significant judgments by management.

● The fair value of mortgage servicing rights is based on a valuation model that calculates the present value of estimated net servicing income.  The valuation model incorporates assumptions that market participants would use in estimating future net servicing income to derive the resultant value.  The Company is able to compare the valuation model inputs, such as the discount rate, prepayment speeds, weighted average delinquency and foreclosure/bankruptcy rates to widely available published industry data for reasonableness.

● Interest rate swap positions, both assets and liabilities, are based on valuation pricing models using an income approach reflecting readily observable market parameters such as interest rate yield curves.

● The fair value of individually evaluated loans with specific allocations of the allowance for credit losses is essentially based on recent real estate appraisals or the fair value of the collateralized asset.  These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.  Adjustments are made in the appraisal process by the appraisers to reflect differences between the available comparable sales and income data.  Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

● Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned (“OREO”) are measured at fair value, less costs to sell.  Fair values are based on third party appraisals of the property, resulting in a Level 3 classification, or an executed pending sales contract.  In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized.

Assets and Liabilities Measured at Fair Value on a Recurring Basis:

The tables below present the balance of assets and liabilities at September 30, 2023 and December 31, 2022, respectively, measured by the Company at fair value on a recurring basis:

	September 30, 2023
	Level 1		Level 2		Level 3		Total
Assets:
Securities available-for-sale
U.S. Treasury	$	216,777	$	-	$	-	$	216,777
U.S. government agencies		-		55,821		-		55,821
U.S. government agencies mortgage-backed		-		104,569		-		104,569
States and political subdivisions		-		206,034		14,066		220,100
Corporate bonds		-		4,961		-		4,961
Collateralized mortgage obligations		-		386,679		-		386,679
Asset-backed securities		-		66,916		-		66,916
Collateralized loan obligations		-		173,795		-		173,795
Loans held-for-sale		-		2,297		-		2,297
Mortgage servicing rights		-		-		11,461		11,461
Interest rate swap agreements, including risk participation agreement		-		9,028		-		9,028
Mortgage banking derivatives		-		37		-		37
Total	$	216,777	$	1,010,137	$	25,527	$	1,252,441
Liabilities:
Interest rate swap agreements, including risk participation agreements	$	-	$	14,293	$	-	$	14,293
Total	$	-	$	14,293	$	-	$	14,293

28

Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data, unaudited)

	December 31, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Securities available-for-sale
U.S. Treasury	$	212,129	$	-	$	-	$	212,129
U.S. government agencies		-		56,048		-		56,048
U.S. government agencies mortgage-backed		-		124,990		-		124,990
States and political subdivisions		-		211,899		14,229		226,128
Corporate bonds		-		9,622		-		9,622
Collateralized mortgage obligations		-		526,998		6,770		533,768
Asset-backed securities		-		186,916		15,012		201,928
Collateralized loan obligations		-		174,746		-		174,746
Loans held-for-sale		-		491		-		491
Mortgage servicing rights		-		-		11,189		11,189
Interest rate swap agreements		-		6,516		-		6,516
Mortgage banking derivatives		-		76		-		76
Total	$	212,129	$	1,298,302	$	47,200	$	1,557,631
Liabilities:
Interest rate swap agreements, including risk participation agreements	$	-	$	12,265	$	-	$	12,265
Total	$	-	$	12,265	$	-	$	12,265

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are as follows:

	Nine Months Ended September 30, 2023
	Securities available-for-sale
			Collateralized		States and		Mortgage
	Asset-backed		Mortgage		Political		Servicing
	Securities		Obligations		Subdivisions		Rights
Beginning balance January 1, 2023	$	15,012	$	6,770	$	14,229	$	11,189
Transfers out of Level 3		(14,885)		(6,764)		-		-
Total gains or losses
Included in earnings		(11)		-		(99)		232
Included in other comprehensive income		226		(6)		(132)		-
Purchases, issuances, sales, and settlements
Purchases		-		-		406		-
Issuances		-		-		-		420
Settlements		(342)		-		(338)		(380)
Ending balance September 30, 2023	$	-	$	-	$	14,066	$	11,461

29

Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data, unaudited)

	Nine Months Ended September 30, 2022
	Securities available-for-sale
	States and		Mortgage
	Political		Servicing
	Subdivisions		Rights
Beginning balance January 1, 2022	$	15,236	$	7,097
Total gains or losses
Included in earnings		(98)		4,384
Included in other comprehensive income		(1,333)		-
Purchases, issuances, sales, and settlements
Issuances		519		756
Settlements		(1,015)		(776)
Ending balance September 30, 2022	$	13,309	$	11,461

The following table and commentary present quantitative and qualitative information about Level 3 fair value measurements as of September 30, 2023:

						Weighted
Measured at fair value				Significant Unobservable		Average
on a recurring basis:	Fair Value		Valuation Methodology	Inputs	Range of Input	of Inputs
States and political subdivisions	$	14,066	Discounted Cash Flow	Discount Rate	3.5 – 5.9%	4.3	%
				Liquidity Premium	0.3 – 0.5%	0.5	%
Mortgage servicing rights	$	11,461	Discounted Cash Flow	Discount Rate	9.0 – 11.0%	9.0	%
				Prepayment Speed	0.0 – 16.4%	6.2	%

The following table and commentary present quantitative and qualitative information about Level 3 fair value measurements as December 31, 2022:

						Weighted
Measured at fair value				Significant Unobservable		Average
on a recurring basis:	Fair Value		Valuation Methodology	Inputs	Range of Input	of Inputs
States and political subdivisions	$	14,229	Discounted Cash Flow	Discount Rate	2.3 – 5.8%	4.4	%
				Liquidity Premium	0.3 – 0.5%	0.5	%
Collateralized mortgage obligations	$	6,770	Discounted Cash Flow	Discount Rate	7.0 – 7.0%	7.0	%
Asset-backed securities	$	15,012	Discounted Cash Flow	Discount Rate	6.2 – 6.5%	6.3	%
Mortgage servicing rights	$	11,189	Discounted Cash Flow	Discount Rate	9.0 – 11.0%	9.0	%
				Prepayment Speed	3.6 – 27.3%	6.2	%

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis:

The Company may be required, from time to time, to measure certain other assets at fair value on a nonrecurring basis in accordance with GAAP.  These assets consist of individually evaluated loans and OREO.  For assets measured at fair value on a nonrecurring basis at

30

Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data, unaudited)

September 30, 2023 and December 31, 2022, respectively, the following tables provide the level of valuation assumptions used to determine each valuation and the carrying value of the related assets:

	September 30, 2023
	Level 1		Level 2		Level 3		Total
Individually evaluated loans1	$	-	$	-	$	63,322	$	63,322
Other real estate owned, net2		-		-		407		407
Total	$	-	$	-	$	63,729	$	63,729

¹ Represents carrying value and related write-downs of loans for which adjustments are substantially based on the appraised value of collateral for collateral-dependent loans, which had a carrying amount of $82.0 million and a valuation allowance of $18.7 million resulting in an increase of specific allocations within the allowance for credit losses on loans of $1.0 million for the nine months ended September 30, 2023.

² OREO is measured at fair value, less costs to sell, and had a net carrying amount of $407,000 at September 30, 2023, which is made up of the outstanding balance of $525,000, and a valuation allowance of $118,000.

	December 31, 2022
	Level 1		Level 2		Level 3		Total
Individually evaluated loans1	$	-	$	-	$	47,700	$	47,700
Other real estate owned, net2		-		-		1,561		1,561
Total	$	-	$	-	$	49,261	$	49,261

¹ Represents carrying value and related write-downs of loans for which adjustments are substantially based on the appraised value of collateral for collateral-dependent loans, which had a carrying amount of $65.3 million and a valuation allowance of $17.6 million resulting in an increase of specific allocations within the allowance for credit losses on loans of $12.2 million for the year December 31, 2022.

² OREO is measured at fair value, less costs to sell, and had a net carrying amount of $1.6 million at December 31, 2022, which is made up of the outstanding balance of $2.5 million, net of a purchase accounting adjustment of $131,000 and a valuation allowance of $856,000.

The Company has estimated the fair values of these assets based primarily on Level 3 inputs.  OREO and individually evaluated loans are generally valued using the fair value of collateral provided by third party appraisals.  These valuations include assumptions related to cash flow projections, discount rates, and recent comparable sales.  The numerical ranges of unobservable inputs for these valuation assumptions are not meaningful.

Note 12 – Fair Values of Financial Instruments

The estimated fair values approximate carrying amount for all items except those described in the following table.  Securities available-for-sale fair values are based upon market prices or dealer quotes, and if no such information is available, on the rate and term of the security.  The carrying value of FHLBC stock approximates fair value as the stock is nonmarketable and can only be sold to the FHLBC or another member institution at par. At September 30, 2023 and December 31, 2022, the fair values of loans are estimated on an exit price basis incorporating discounts for credit, liquidity and marketability factors.  The fair value of time deposits was estimated using discounted future cash flows at current rates offered for deposits of similar remaining maturities.  The fair values of borrowings were estimated based on interest rates available to the Company for debt with similar terms and remaining maturities.  The fair value of off balance sheet volume was not considered material.

31

Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data, unaudited)

The carrying amount and estimated fair values of financial instruments were as follows:

	September 30, 2023
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	55,548	$	55,548	$	55,548	$	-	$	-
Interest earning deposits with financial institutions		53,485		53,485		53,485		-		-
Securities available-for-sale		1,229,618		1,229,618		216,777		998,775		14,066
FHLBC and FRBC stock		35,830		35,830		-		35,830		-
Loans held-for-sale		2,297		2,297		-		2,297		-
Net loans		3,977,814		3,855,774		-		-		3,855,774
Mortgage servicing rights		11,641		11,641		-		-		11,641
Interest rate swap agreements		8,980		8,980		-		8,980		-
Interest rate lock commitments and forward contracts		37		37		-		37		-
Interest receivable on securities and loans		25,921		25,921		-		25,921		-
Financial liabilities:
Noninterest bearing deposits	$	1,862,659	$	1,862,659	$	1,862,659	$	-	$	-
Interest bearing deposits		2,751,661		2,738,632		-		2,738,632		-
Securities sold under repurchase agreements		25,894		25,894		-		25,894		-
Other short-term borrowings		435,000		435,000		-		435,000		-
Junior subordinated debentures		25,773		19,072		-		19,072		-
Subordinated debentures		59,361		46,161		-		46,161		-
Senior notes		-		-		-		-		-
Note payable and other borrowings		-		-		-		-		-
Interest rate swap agreements		14,293		14,293		-		14,293		-
Interest payable on deposits and borrowings		3,066		3,066		-		3,066		-

32

Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data, unaudited)

	December 31, 2022
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	56,632	$	56,632	$	56,632	$	-	$	-
Interest earning deposits with financial institutions		58,545		58,545		58,545		-		-
Securities available-for-sale		1,539,359		1,539,359		212,129		1,291,219		36,011
FHLBC and FRBC stock		20,530		20,530		-		20,530		-
Loans held-for-sale		491		491		-		491		-
Net loans		3,820,129		3,681,387		-		-		3,681,387
Mortgage servicing rights		11,189		11,189		-		-		11,189
Interest rate swap agreements		6,391		6,391		-		6,391		-
Interest rate lock commitments and forward contracts		76		76		-		76		-
Interest receivable on securities and loans		22,661		22,661		-		22,661		-
Financial liabilities:
Noninterest bearing deposits	$	2,051,702	$	2,051,702	$	2,051,702	$	-	$	-
Interest bearing deposits		3,059,021		3,042,740		-		3,042,740		-
Securities sold under repurchase agreements		32,156		32,156		-		32,156		-
Other short-term borrowings		90,000		90,000		-		90,000		-
Junior subordinated debentures		25,773		21,907		-		21,907		-
Subordinated debentures		59,297		52,322		-		52,322		-
Senior notes		44,585		44,248		44,248		-		-
Note payable and other borrowings		9,000		8,984		-		8,984		-
Interest rate swap agreements		12,264		12,264		-		12,264		-
Interest payable on deposits and borrowings		1,657		1,657		-		1,657		-

Note 13 – Derivatives, Hedging Activities and Financial Instruments with Off-Balance Sheet Risk

Risk Management Objective of Using Derivatives

The Company is exposed to certain risk arising from both its business operations and economic conditions.  The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments.  Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.  The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s loan portfolio.  

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest income and expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. The aggregate fair value of the swaps is recorded in other assets or other liabilities with changes in fair value recorded in other comprehensive income, net of tax. The amount included in other comprehensive income would be reclassified to current earnings should all or a portion of the hedge no longer be considered effective. For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income and subsequently reclassified into interest income or interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts

33

Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data, unaudited)

reported in accumulated other comprehensive income related to derivatives will be reclassified to interest income or expense as interest payments are received on the variable rate loan pools or paid on the Company’s fixed-rate borrowings.

Interest rate swaps with notional amounts totaling $300.0 million and $250.0 million as of September 30, 2023 and December 31, 2022, respectively, were designated as cash flow hedges of certain variable rate commercial and commercial real estate loan pools. Each of these hedges were executed to pay variable and receive fixed rate cash flows. Each of these hedges was determined to be effective during all periods presented and the Company expects the hedges to remain effective during the remaining terms of the swaps.

An interest rate swap with a notional amount of $25.8 million as of September 30, 2023 and December 31, 2022, is designated as a cash flow hedge of junior subordinated debentures and was executed to pay fixed and receive variable rate cash flows. The hedge was determined to be effective during all periods presented and the Company expects the hedge to remain effective during the remaining terms of the swap.

During the next twelve months, the Company estimates that an additional $7.0 million will be reclassified as an increase to interest income and an additional $708,000 will be reclassified as an increase to interest expense.

Non-designated Hedges

Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. The notional amounts of interest rate swaps with its loan customers as of September 30, 2023 and December 31, 2022 were $105.6 million and $110.6 million, respectively. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.

At September 30, 2023 and December 31, 2022, the Company had $9.2 million and $11.2 million of cash collateral pledged with two correspondent financial institutions, respectively. The Company held $8.1 million and $5.3 million of cash pledged from one correspondent financial institution to support the interest rate swap activity during the years presented, respectively. No investment securities were required to be pledged to any correspondent financial institution during 2023 through September 30, 2023, or during 2022. The Company offsets derivative assets and liabilities that are subject to a master netting arrangement.

The Company also grants mortgage loan interest rate lock commitments to borrowers, subject to normal loan underwriting standards. The interest rate risk associated with these loan interest rate lock commitments is managed with contracts for future deliveries of loans as well as selling forward mortgage-backed securities contracts. Loan interest rate lock commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The notional amount of these commitments at September 30, 2023 and December 31, 2022 was $7.6 million and $5.3 million, respectively. Commitments to originate residential mortgage loans held-for-sale and forward commitments to sell residential mortgage loans or forward MBS contracts are considered derivative instruments and changes in the fair value are recorded to mortgage banking revenue. Fair values are estimated based on observable changes in mortgage interest rates including mortgage-backed securities prices from the date of the commitment.

34

Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data, unaudited)

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Balance Sheets as of September 30, 2023 and December 31, 2022.

Fair Value of Derivative Instruments

			September 30, 2023
	No. of Trans.	Notional Amount $	Balance Sheet Location	Fair Value $	Balance Sheet Location	Fair Value $
Derivatives designated as hedging instruments
Interest rate swap agreements	5	325,774	Other Assets	4,517	Other Liabilities	9,830
Total derivatives designated as hedging instruments				4,517		9,830
Derivatives not designated as hedging instruments
Interest rate swaps with commercial loan customers	17	105,558	Other Assets	4,463	Other Liabilities	4,463
Interest rate lock commitments and forward contracts	28	7,613	Other Assets	37	Other Liabilities	-
Other contracts	4	44,892	Other Assets	48	Other Liabilities	-
Total derivatives not designated as hedging instruments				4,548		4,463
			December 31, 2022
	No. of Trans.	Notional Amount $	Balance Sheet Location	Fair Value $	Balance Sheet Location	Fair Value $
Derivatives designated as hedging instruments
Interest rate swap agreements	4	275,774	Other Assets	2,737	Other Liabilities	8,610
Total derivatives designated as hedging instruments				2,737		8,610
Derivatives not designated as hedging instruments
Interest rate swaps with commercial loan customers	21	110,647	Other Assets	3,654	Other Liabilities	3,654
Interest rate lock commitments and forward contracts	28	5,298	Other Assets	76	Other Liabilities	-
Other contracts	4	43,699	Other Assets	125	Other Liabilities	1
Total derivatives not designated as hedging instruments				3,855		3,655

Disclosure of the Effect of Fair Value and Cash Flow Hedge Accounting

The fair value and cash flow hedge accounting related to derivatives covered under ASC Subtopic 815-20 impacted Accumulated Other Comprehensive Income (“AOCI”) and the Income Statement.  The loss recognized in AOCI on derivatives totaled $3.8 million as of September 30, 2023, and $4.1 million as of September 30, 2022.  The amount of the loss reclassified from AOCI to net interest income on the income statement was $3.9 million for the nine months ended September 30, 2023 and $15,000 of gain for the nine months ended September 30, 2022.  

Credit-risk-related Contingent Features

For derivative transactions involving counterparties who are lending customers of the Company, the derivative credit exposure is managed through the normal credit review and monitoring process, which may include collateralization, financial covenants and/or financial guarantees of affiliated parties.  Agreements with such customers require that losses associated with derivative transactions receive payment priority from any funds recovered should a customer default and ultimate disposition of collateral or guarantees occur.

Credit exposure to broker/dealer counterparties is managed through agreements with each derivative counterparty that require collateralization of fair value gains owed by such counterparties.  Some small degree of credit exposure exists due to timing differences between when a gain may occur and the subsequent point in time that collateral is delivered to secure that gain.  This is monitored by the Company and procedures are in place to minimize this exposure.  Such agreements also require the Company to collateralize counterparties in circumstances wherein the fair value of the derivatives result in loss to the Company.

35

Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data, unaudited)

Other provisions of such agreements include the definition of certain events that may lead to the declaration of default and/or the early termination of the derivative transaction(s):

● If the Company either defaults or is capable of being declared in default on any of its indebtedness (exclusive of deposit obligations), then the Company could also be declared in default on its derivative obligations.

● If a merger occurs that materially changes the Company's creditworthiness in an adverse manner.

● If certain specified adverse regulatory actions occur, such as the issuance of a Cease and Desist Order, or citations for actions considered Unsafe and Unsound or that may lead to the termination of deposit insurance coverage by the FDIC.

The Bank also issues letters of credit, which are conditional commitments that guarantee the performance of a customer to a third party.  The credit risk involved and collateral obtained in issuing letters of credit are essentially the same as that involved in extending loan commitments to our customers.  In addition to customer related commitments, the Company is responsible for letters of credit commitments that relate to properties held in OREO.  The following table represents the Company’s contractual commitments due to letters of credit as of September 30, 2023, and December 31, 2022.

The following table is a summary of letter of credit commitments:

	September 30, 2023						December 31, 2022
	Fixed		Variable		Total		Fixed		Variable		Total
Letters of credit:
Borrower:
Financial standby	$	173	$	16,543	$	16,716	$	3,514	$	15,365	$	18,879
Performance standby		353		15,733		16,086		3,161		13,989		17,150
		526		32,276		32,802		6,675		29,354		36,029
Non-borrower:
Performance standby		-		67		67		-		67		67
Total letters of credit	$	526	$	32,343	$	32,869	$	6,675	$	29,421	$	36,096
Unused loan commitments:	$	146,201	$	710,271	$	856,472	$	139,070	$	860,255	$	999,325

As of September 30, 2023, the Company evaluated current market conditions, including any impacts related to market interest rate changes and unused line of credit utilization trends during the second quarter of 2023, and based on that analysis under the CECL methodology, the Company determined credit losses related to unfunded commitments totaled $2.7 million, excluding a $149,000 purchase accounting adjustment on unfunded commitments recorded from our West Suburban acquisition, which is being accreted to interest income over the estimated life of the unused commitments.  The resultant decrease in the ACL for unfunded commitments of $235,000 for the third quarter of 2023, compared to the prior quarter end, is primarily related to a $223,000 decrease by accretion to interest income of the purchase accounting adjustment, as well as adjustments to historical benchmark assumptions, such as the funding rates and the period used to forecast those rates within the ACL calculation, resulting in a $12,000 reduction.  The Company will continue to assess the credit risk at least quarterly, and adjust the allowance for unfunded commitments, which is carried within other liabilities on our Consolidated Balance Sheets, as needed, with the appropriate offsetting entry to the provision for credit losses on our Consolidated Statements of Income.

36

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

The following discussion provides additional information regarding our operations for the three and nine months ended September 30, 2023, compared to the three and nine months ended September 30, 2022, and our financial condition at September 30, 2023, compared to December 31, 2022.  This discussion should be read in conjunction with our consolidated financial statements as well as the financial and statistical data appearing elsewhere in this report and our Form 10-K for the year ended December 31, 2022.  The results of operations for the three and nine months ended September 30, 2023, are not necessarily indicative of future results.  Dollar amounts presented in the following tables are in thousands, except per share data, and September 30, 2023 and 2022 amounts are unaudited.

In this report, unless the context suggests otherwise, references to the “Company,” “we,” “us,” and “our” mean the combined business of Old Second Bancorp, Inc. and its subsidiary bank, Old Second National Bank (the “Bank”).

We have made, and will continue to make, various forward-looking statements with respect to financial and business matters. Comments regarding our business that are not historical facts are considered forward-looking statements that involve inherent risks and uncertainties. Actual results may differ materially from those contained in these forward-looking statements. For additional information regarding our cautionary disclosures, see the “Cautionary Note Regarding Forward-Looking Statements” on page 3 of this report.

Business Overview

The Company is a bank holding company headquartered in Aurora, Illinois. Through our wholly-owned subsidiary bank, Old Second National Bank, a national banking organization also headquartered in Aurora, Illinois, we offer a wide range of financial services through our 48 banking centers located in Cook, DeKalb, DuPage, Kane, Kendall, LaSalle and Will counties in Illinois.  These banking centers offer access to a full range of traditional retail and commercial banking services including treasury management operations as well as fiduciary and wealth management services.  We focus our business on establishing and maintaining relationships with our clients while maintaining a commitment to provide for the financial services needs of the communities in which we operate.  We emphasize relationships with individual customers as well as small to medium-sized businesses throughout our market area.  We also have extensive wealth management services, which includes a registered investment advisory platform in addition to trust administration and trust services related to personal and corporate trusts and employee benefit plan administration services.

Our results of operations depend generally on net interest income, which is the difference between interest income from interest-earning assets and interest expense on interest-bearing liabilities. Net interest income is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. In addition, we are subject to interest rate risk to the degree that our interest-earning assets mature or reprice at different times, or at different speeds, than our interest-bearing liabilities. Our results of operations are also affected by noninterest income, such as service charges, wealth management fees, loan fees, gains from the sale of newly originated loans, gains or losses on investments and certain other noninterest related items. Our principal operating expenses, aside from interest expense, consist of compensation and employee benefits, occupancy costs, professional fees, data processing expenses and provision for credit losses.

We are significantly impacted by prevailing economic conditions, including federal monetary and fiscal policies, and federal regulations of financial institutions. Deposit balances are influenced by numerous factors such as competing investments, the level of income and the personal rate of savings within our market areas. Factors influencing lending activities include the demand for housing and the interest rate pricing competition from other lending institutions.

As of September 30, 2023, all of our capital ratios were in excess of all regulatory requirements. While we believe that we have sufficient capital to withstand an extended economic recession, our reported and regulatory capital ratios could be adversely impacted by credit losses.

37

Merger with West Suburban Bancorp, Inc.

On December 1, 2021, we completed our merger with West Suburban Bancorp, Inc. (“West Suburban”), the holding company for West Suburban Bank.  Under the terms of the merger agreement, each share of West Suburban common stock was converted into 42.413 shares of our common stock and $271.15 in cash. Total cash and stock consideration paid was approximately $295.2 million. With the acquisition of West Suburban, we acquired 34 branches in DuPage, Kane, Kendall and Will counties in Illinois. The transaction is discussed in more detail in Note 2 to our Consolidated Financial Statements included in this report and in Note 2 of our Annual Report in Form 10-K.

Recent Banking Events

There were three significant bank failures in the first five months of 2023, primarily due to the failed banks’ lack of liquidity as depositors sought to withdraw their deposits. Due to rising interest rates, the failed banks were unable to sell investment securities held to meet liquidity needs without realizing substantial losses. As a result of the bank closures during 2023 and in an effort to strengthen public confidence in the banking system and protect depositors, regulators announced that any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law, which could increase the cost of our FDIC insurance assessment. Additionally, the Federal Reserve announced the creation of a new Bank Term Funding Program in an effort to minimize the need for banks to sell securities at a loss in times of stress. We have access but have not received or requested funds from this Program and, though we do have access to the Federal Reserve Discount Window, we have not accessed these funds and have an unused capacity of $18.7 million at September 30, 2023. The future impact of these failures on the economy, financial institutions and their depositors, as well as any governmental regulatory responses or actions resulting from the same, is difficult to predict at this time.

Financial Overview

Net income for the third quarter of 2023 was $24.3 million, or $0.54 per diluted share, compared to $19.5 million, or $0.43 per diluted share, for the third quarter of 2022. The increase was primarily due to growth in our loan portfolio and higher loan and security yields, partially offset by increased funding costs and increased other short-term borrowing, which resulted in growth in net interest income.  Noninterest income decreased in the third quarter of 2023, compared to the like quarter of 2022, as a result of net losses on security sales and a reduction in mortgage banking revenues.  An increase was also noted in noninterest expense for the current quarter, primarily due to higher salaries and employee benefits and $629,000 of liquidation and deconversion costs incurred in the third quarter of 2023 related to the 2022 sale of our Visa credit card portfolio. Also contributing to the increase in net income in the third quarter of 2023, compared to the third quarter of 2022, were acquisition costs, net of gains on branch sales, of $2.0 million incurred in the prior year like quarter, compared to no acquisition related costs or branch sales in the third quarter of 2023.  Adjusted net income, a non-GAAP financial measure that excludes Visa portfolio and land trust portfolio gains on sale, Visa portfolio liquidation and deconversion costs, and any merger related costs, as applicable, was $24.8 million for the third quarter of 2023, compared to $25.6 million for the second quarter of 2023, and $19.6 million for the third quarter of 2022. Adjusted net income was $73.8 million for the nine months ended September 30, 2023, compared to $49.4 million for the nine months ended September 30, 2022. See the discussion entitled “Non-GAAP Financial Measures” on page 40, as well as the table below, which provides a reconciliation of this non-GAAP measure to the most comparable GAAP equivalents.

	Quarters Ended						Nine Months Ended
	September 30,		June 30,		September 30,		September 30,
	2023		2023		2022		2023		2022
Net Income
Income before income taxes (GAAP)	$	32,484	$	34,973	$	26,577	$	99,470	$	59,696
Pre-tax income adjustments:
Merger-related costs, net of losses/(gains) on branch sales		-		29		1,061		(277)		8,527
Liquidation and deconversion costs on Visa credit card portfolio		629		-		-		629		-
Gains on the sale of Visa credit card and land trust portfolios		-		-		(923)		-		(923)
Adjusted net income before taxes		33,113		35,002		26,715		99,822		67,300
Taxes on adjusted net income		8,307		9,419		7,091		26,051		17,944
Adjusted net income (non-GAAP)	$	24,806	$	25,583	$	19,624	$	73,771	$	49,356
Basic earnings per share (GAAP)	$	0.55	$	0.57	$	0.43	$	1.65	$	0.98
Diluted earnings per share (GAAP)		0.54		0.56		0.43		1.62		0.97
Adjusted basic earnings per share excluding acquisition-related costs (non-GAAP)		0.55		0.58		0.44		1.65		1.11
Adjusted diluted earnings per share excluding acquisition-related costs (non-GAAP)		0.55		0.56		0.43		1.63		1.09

38

The following provides an overview of some of the factors impacting our financial performance for the three month period ended September 30, 2023, compared to the like period ended September 30, 2022:

● Net interest and dividend income was $63.0 million for the third quarter of 2023, compared to $55.6 million for the third quarter of 2022. Growth in interest and dividend income in the third quarter of 2023 was primarily due to loan growth and higher yields on loans, partially offset by higher funding and borrowing costs, as well as increased other short-term borrowings.

● We recorded a net provision for credit losses of $3.0 million in the third quarter of 2023, driven by a $3.0 million increase in the allowance for credit losses on loans based on increased historical loss rates, loan growth, our assessment of nonperforming loan metrics and trends, and estimated future credit losses, net of a reversal of $12,000 in our allowance for unfunded commitments based on an adjustment of historical benchmark assumptions, such as funding rates and the period used to forecast those rates, within the ACL calculation.  We recorded a net provision for credit loss of $4.5 million in the third quarter of 2022.

● Noninterest income was $9.9 million for the third quarter of 2023, compared to $11.5 million for the third quarter of 2022.  Contributing to the decrease were security losses of $924,000 due to strategic sales in the third quarter of 2023, compared to losses on the call of securities of $1,000 in the third quarter of 2022.  Also contributing to the reduction in noninterest income was a $1.1 million decrease in other income, primarily due to the gain on sale of both our Visa credit card portfolio and the land trust portfolio in 2022. These decreases were partially offset by an increase of $195,000 in wealth management income and a $773,000 increase in the cash surrender value of BOLI.

● Noninterest expense was $37.4 million for the third quarter of 2023, compared to $36.0 million for the third quarter of 2022, an increase of $1.4 million, or 4.0%.  Contributing to the increase in noninterest expense in the third quarter of 2023 was higher salaries and employee benefits, as well as $629,000 of net liquidation and deconversion costs from the 2022 sale of our Visa credit card portfolio. Partially offsetting the increase in noninterest expense was a reduction of occupancy, furniture and equipment and computer and data processing expenses, primarily from acquisition costs, net of gains on branch sales, incurred in the third quarter of 2022 stemming from our West Suburban acquisition in the fourth quarter of 2021.

● We had a provision for income tax expense of $8.1 million for the third quarter of 2023, compared to a provision for income tax expense of $7.1 million for the third quarter of 2022. The effective tax rate for these two periods was 25.1% and 26.5%, respectively.

● Our community-focused banking franchise experienced growth of $159.9 million in total loans in the first nine months of 2023, compared to the year ended December 31, 2022, and an increase of $160.2 million in total loans compared to the third quarter of 2022.  We believe we are positioned for continued loan growth, though likely at a slower pace, as we continue to serve our customers’ needs in a competitive economic environment. We continue to seek to provide value to our customers and the communities in which we operate, by executing on growth opportunities in our local markets and developing new banking relationships, while seeking to ensure the safety and soundness of our Bank, our customers, and our employees.

● Nonaccrual loans increased $30.5 million as of September 30, 2023, compared to December 31, 2022, primarily due to a few larger credits that moved from substandard accrual to nonaccrual in the first nine months of 2023. There were additions of two office buildings and one health care facility credit as of March 31, 2023, and additions of one medical office development and one office building as of September 30, 2023. The additions are partially offset by three charge offs totaling $6.8 million, recorded in the third quarter of 2023. Nonperforming loans as a percent of total loans was 1.6% as of September 30, 2023, compared to 0.9% as of December 31, 2022, and 1.4% as of September 30, 2022.  Classified assets increased to $153.7 million as of September 30, 2023, which is $43.2 million, or 39.1% more than December 31, 2022, and $38.4 million, or 33.3%, more than September 30, 2022.

Critical Accounting Estimates

Our consolidated financial statements are prepared based on the application of accounting policies in accordance with generally accepted accounting principles (“GAAP”) and follow general practices within the banking industry.  These policies require the reliance on estimates and assumptions, which may prove inaccurate or are subject to variations.  These estimates, assumptions, and judgments are based on information available as of the date of the consolidated financial statements.  Future changes in information may affect these estimates, assumptions, and judgments, which, in turn, may affect amounts reported in the consolidated financial statements.  Changes in underlying factors, assumptions, or estimates could have a material impact on our future financial condition and results of operations.  

Of the significant accounting policies used in the preparation of our consolidated financial statements, we have identified certain items as critical accounting policies based on the associated estimates, assumptions, judgments and complexity. See “Management’s Discussion

39

and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2022. There have been no material changes to our critical accounting policies or the estimates made pursuant to those policies during the most recent quarter from those disclosed in our 2022 Annual Report in Form 10-K.

Non-GAAP Financial Measures

This report contains references to financial measures that are not defined in GAAP. Such non-GAAP financial measures include the presentation of net interest income and net interest margin on a tax equivalent (“TE”) basis, adjusted net income, adjusted basic and diluted earnings per share, our adjusted efficiency ratio, and our tangible common equity to tangible assets ratio.  Management believes that the presentation of these non-GAAP financial measures (a) provides important supplemental information that contributes to a proper understanding of our operating performance, (b) enables a more complete understanding of factors and trends affecting our business, and (c) allows investors to evaluate our performance in a manner similar to management, the financial services industry, bank stock analysts, and bank regulators. Management uses non-GAAP measures as follows: in the preparation of our operating budgets, monthly financial performance reporting, and in our presentation of our performance to investors.  However, we acknowledge that these non-GAAP financial measures have a number of limitations. Limitations associated with non-GAAP financial measures include the risk that persons might disagree as to the appropriateness of items comprising these measures and that different companies might calculate these measures differently.  These measures should not be considered an alternative to our GAAP results.  A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is presented below or alongside the first instance where each non-GAAP financial measure is used.

Results of Operations

Overview

Three months ended September 30, 2023 and 2022

Our income before taxes was $32.5 million in the third quarter of 2023 compared to $26.6 million in the third quarter of 2022.  This increase in pretax income was primarily due to a $7.5 million increase in net interest and dividend income, and a $1.5 million decrease in provision for credit losses. Income before taxes was negatively impacted by a $1.6 million decrease in noninterest income, primarily due to $924,000 of security losses and a $1.1 million decrease in other income in the third quarter of 2023, as well as a $1.4 million increase in noninterest expense. Our net income was $24.3 million, or $0.54 per diluted share, for the third quarter of 2023, compared to net income of $19.5 million, or $0.43 per diluted share, for the third quarter of 2022. The Bank remains well positioned to navigate uncertain macroeconomics; we have mitigated interest rate risk, controlled expenses in an inflationary environment, and actively managed daily liquidity.  Furthermore, we continue to possess strong liquidity metrics and an outsized securities portfolio for funding needs.

Net interest and dividend income was $63.0 million in the third quarter of 2023, compared to $55.6 million in the third quarter of 2022.  The $7.4 million increase was primarily driven by significant growth in our loan portfolio as well as the effect of higher market interest rates on our loan portfolios.  Higher interest income was partially offset by an increase in interest expense in the third quarter of 2023, compared to the third quarter of 2022, primarily due to a rise in deposit interest rates, and an increase in other short-term borrowing expense due to additional FHLB advances. As of June 30, 2023, we redeemed the $45.0 million senior debt issuance that was due in 2026, which resulted in no senior debt interest expense recorded for the third quarter of 2023.

Nine months ended September 30, 2023 and 2022

Our income before taxes was $99.5 million for the nine months ended September 30, 2023 compared to $59.7 million for the nine months ended September 30, 2022.  This increase in pretax income was primarily due to a $48.6 million increase in net interest and dividend income and a $3.3 million decrease in noninterest expenses. These changes were partially offset by a $3.5 million increase in provision for credit losses, and a $8.7 million decrease in noninterest income, mainly due to $4.1 million of security losses recorded in the first nine months of 2023 and a $4.5 million decrease in mortgage banking revenues. Our net income was $73.5 million, or $1.62 per diluted share, for the nine months ended September 30, 2023, compared to net income of $43.8 million, or $0.97 per diluted share, for the same period of 2022.

Net interest and dividend income was $190.7 million for the nine months ended September 30, 2023, compared to $142.1 million for the same period of 2022.  The $48.6 million increase was primarily driven by significant growth in our loan portfolio as well as the effect of higher market interest rates on our loan and securities portfolios.  Higher interest and dividend income was partially offset by an increase in interest expense in the first nine months of 2023, compared to the first nine months of 2022, primarily due to a rise in deposit interest rates, an increase in other short-term borrowing expense due to FHLB advances, and an increase in the rate paid on our senior notes. The senior notes redeemed on June 30, 2023 had an effective cost of 10.95% for the nine months ending September 30, 2023.

40

Net Interest Income

Net interest income, which is our primary source of earnings, is the difference between interest income earned on interest-earning assets, such as loans and investment securities, as well as accretion income on purchased loans, and interest incurred on interest-bearing liabilities, such as deposits and borrowings.  Net interest income depends upon the relative mix of interest-earning assets and interest-bearing liabilities, the ratio of interest-earning assets to total assets and of interest-bearing liabilities to total funding sources, and movements in market interest rates.  Our net interest income can be significantly influenced by a variety of factors, including overall loan demand, economic conditions, credit risk, the amount of nonearning assets including nonperforming loans and OREO, the amounts of and rates at which assets and liabilities reprice, variances in prepayment of loans and securities, early withdrawal of deposits, exercise of call options on borrowings or securities, a general rise or decline in interest rates, changes in the slope of the yield-curve, and balance sheet growth or contraction.

Three months ended September 30, 2023 and 2022

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

The year over year increase of 136 basis points on interest earning assets was driven by significant increases to benchmark interest rates as well as strong loan growth throughout the period, specifically within the leases, commercial real estate and multifamily portfolios, as these loan segments generally produce the greatest yield. The increases in benchmark interest rates impacted yields on the securities portfolio through the inverse relationship between interest rates and market value coupled with maturities and strategic sales of lower yielding assets, as we work to increase the weighted average yield in the portfolio.

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

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

Our net interest margin (GAAP) increased three basis points to 4.64% for the third quarter of 2023 compared to 4.61% for the second quarter of 2023, and increased 71 basis points compared to 3.93% for the third quarter of 2022.  Our net interest margin (TE) increased two basis points to 4.66% for the third quarter of 2023, compared to 4.64% for the second quarter of 2023, and increased 70 basis points compared to 3.96% for the third quarter of 2022.  The increase in the current quarter, compared to the prior quarter, is primarily due to the growth in loan interest income due to the rising interest rate environment, and a decrease in borrowing interest expense due to the redemption of the senior notes in June 2023. The increase in the current quarter, compared to the prior year like quarter, is primarily due to an increase in market interest rates, and the related rate resets on loans and securities during the past year, as well as continuing loan growth relative to a more modest increase in costs of interest-bearing liabilities. See the discussion entitled “Non-GAAP Financial Measures” and the tables on page 45 that provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

41

Nine months ended September 30, 2023 and 2022

The year over year increase of 187 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-investor, construction and multi-family 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 purchase of higher yielding securities as we work to increase the weighted average yield in the portfolio.  Average securities available-for-sale decreased $367.0 million for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, due to paydowns, changes in market value, and strategic sales.  Due to market interest rate increases year over year, securities available-for-sale interest income was $34.7 million for the nine months ended September 30, 2023, compared to $26.1 million for the like 2022 period, reflecting an increase in yield of 134 basis points.  Average loans, including loans held for sale, increased $438.0 million in the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily driven by the growth in leases, commercial real estate-investor, construction, and multi-family portfolios.  Growth in the loan portfolio, as well as the rising interest rate environment, resulted in $181.5 million of loan interest income in the nine months ended September 30, 2023, compared to $121.3 million in the like 2022 period, reflecting an increase in yield of 152 basis points.

Average balances of interest-bearing deposit accounts have decreased steadily since September 30, 2022 through the nine months ended September 30, 2023, from $3.32 billion to $2.89 billion, with such decreases reflected in all categories. We have continued to control the cost of funds over the periods reflected, with the rate of overall interest-bearing deposits increasing by 35 basis points to 43 basis points from eight basis points as of September 30, 2022. A 61 basis point increase in the cost of money market funds as of September 30, 2023, compared to September 30, 2022, was due to select deposit account exception pricing and drove a significant portion of the overall increase.  Interest expense paid on time deposits also contributed to the increased cost of deposits year over year, as the cost of average time deposits increased 89 basis points to 114 basis points for the nine months ended September 30, 2023, compared to 25 basis points for the nine months ended September 30, 2022, primarily due to CD rate specials we offered.

Borrowing costs increased in the nine months ended September 30, 2023 primarily due to the increase in short term borrowings from higher average FHLB advance growth of $342.5 million since the nine months ended September 30, 2022, based on daily liquidity needs. Subordinated and junior subordinated debt interest expense remained flat over the periods presented. Senior notes interest expense had the most significant interest expense increase, as this issuance referenced three-month LIBOR, and rising market interest rates resulted in a 557 basis point increase to 10.95%, from 5.38% for the nine months ended September 30, 2022. We redeemed these notes on June 30, 2023, which contributed to the significant basis point increase due to the $362,000 in deferred issuance costs that were recognized as interest expense due to the early redemption. In the first quarter of 2023, we paid off the remaining balance of $9.0 million on the original $20.0 million term note issued in 2020, recorded within notes payable and other borrowings.

Our net interest margin (GAAP) increased 135 basis points to 4.66% for the nine months ended September 30, 2023, compared to 3.31% for the nine months ended September 30, 2022.  Our net interest margin (TE) increased 135 basis points to 4.68% for the nine months ended September 30, 2023, compared to 3.33% for the nine months ended September 30, 2022.  The increase in the current period, compared to the prior year like period, is primarily due to an increase in market interest rates, and the related rate resets on loans and securities during the past year, as well as continuing loan growth relative to a more modest increase in the cost of interest-bearing liabilities.

We continue to observe competitive pressure to maintain reduced interest rates on loans retained at renewal.  While our loan prices are targeted to achieve certain returns on equity, significant competition for commercial and industrial loans as well as commercial real estate loans has put pressure on loan yields, and our stringent underwriting standards limit our ability to make higher-yielding loans.

The following tables set forth certain information relating to our average consolidated balance sheets and reflect the yield on average earning assets and cost of average interest-bearing liabilities for the periods indicated.  These yields reflect the related interest, on an annualized basis, divided by the average balance of assets or liabilities over the applicable period.  Average balances are derived from daily balances.  For purposes of discussion, net interest income and net interest income to total earning assets in the following tables have been adjusted to a non-GAAP TE basis using a marginal rate of 21% in 2023 and 2022 to compare returns more appropriately on tax-exempt loans and securities to other earning assets.

42

Analysis of Average Balances,
Tax Equivalent Income / Expense and Rates
(Dollars in thousands - unaudited)
	Quarters Ended
	September 30, 2023						June 30, 2023						September 30, 2022
	Average			Income /		Rate	Average			Income /		Rate	Average			Income /		Rate
	Balance			Expense		%	Balance			Expense		%	Balance			Expense		%
Assets
Interest earning deposits with financial institutions	$	49,737		$	659	5.26	$	50,309		$	643	5.13	$	131,260		$	663	2.00
Securities:
Taxable		1,125,688			8,946	3.15		1,231,994			9,930	3.23		1,525,258			9,116	2.37
Non-taxable (TE)1		169,523			1,687	3.95		172,670			1,692	3.93		178,090			1,686	3.76
Total securities (TE)1		1,295,211			10,633	3.26		1,404,664			11,622	3.32		1,703,348			10,802	2.52
FHLBC and FRBC Stock		35,954			597	6.59		34,029			396	4.67		19,565			261	5.29
Loans and loans held-for-sale1, 2		4,010,859			62,705	6.20		4,040,202			61,591	6.11		3,753,117			46,642	4.93
Total interest earning assets		5,391,761			74,594	5.49		5,529,204			74,252	5.39		5,607,290			58,368	4.13
Cash and due from banks		57,279			-	-		56,191			-	-		56,265			-	-
Allowance for credit losses on loans		(54,581)			-	-		(53,480)			-	-		(45,449)			-	-
Other noninterest bearing assets		384,059			-	-		379,576			-	-		377,850			-	-
Total assets	$	5,778,518					$	5,911,491					$	5,995,956
Liabilities and Stockholders' Equity
NOW accounts	$	576,138		$	440	0.30	$	600,957		$	312	0.21	$	612,174		$	148	0.10
Money market accounts		720,488			1,767	0.97		762,967			1,245	0.65		967,106			157	0.06
Savings accounts		1,027,987			351	0.14		1,073,172			185	0.07		1,186,001			75	0.03
Time deposits		466,250			1,982	1.69		436,524			1,156	1.06		459,925			335	0.29
Interest bearing deposits		2,790,863			4,540	0.65		2,873,620			2,898	0.40		3,225,206			715	0.09
Securities sold under repurchase agreements		24,945			27	0.43		25,575			7	0.11		33,733			10	0.12
Other short-term borrowings		427,174			5,840	5.42		402,527			5,160	5.14		5,435			44	3.21
Junior subordinated debentures		25,773			245	3.77		25,773			281	4.37		25,773			285	4.39
Subordinated debentures		59,350			547	3.66		59,329			546	3.69		59,265			546	3.66
Senior notes		-			-	-		44,134			1,414	12.85		44,546			728	6.48
Notes payable and other borrowings		-			-	-		-			-	-		10,989			111	4.01
Total interest bearing liabilities		3,328,105			11,199	1.34		3,430,958			10,306	1.20		3,404,947			2,439	0.28
Noninterest bearing deposits		1,867,201			-	-		1,920,448			-	-		2,092,301			-	-
Other liabilities		53,164			-	-		48,434			-	-		34,949			-	-
Stockholders' equity		530,048			-	-		511,651			-	-		463,759			-	-
Total liabilities and stockholders' equity	$	5,778,518					$	5,911,491					$	5,995,956
Net interest income (GAAP)				$	63,030					$	63,580					$	55,569
Net interest margin (GAAP)						4.64						4.61						3.93
Net interest income (TE)1				$	63,395					$	63,946					$	55,929
Net interest margin (TE)1						4.66						4.64						3.96
Interest bearing liabilities to earning assets		61.73	%					62.05	%					60.72	%

¹ Represents a non-GAAP financial measure. See the discussion entitled “Reconciliation of Tax-Equivalent Non-GAAP Financial Measures” below that provides a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent. Tax equivalent basis is calculated using a marginal tax rate of 21% in 2023 and 2022.

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 45, and includes loan fee expense of $780,000 for the third quarter of 2023, $242,000 for the second quarter of 2023, and $750,000 of loan fee income for the third quarter of 2022.  Nonaccrual loans are included in the above-stated average balances.

43

Analysis of Average Balances,
Tax Equivalent Income / Expense and Rates
(Dollars in thousands - unaudited)
	Nine Months Ended September 30,
	2023						2022
	Average			Income /		Rate	Average			Income /		Rate
	Balance			Expense		%	Balance			Expense		%
Assets
Interest earning deposits with financial institutions	$	49,787		$	1,887	5.07	$	395,948		$	1,714	0.58
Securities:
Taxable		1,228,576			29,611	3.22		1,582,549			21,071	1.78
Non-taxable (TE)1		171,825			5,072	3.95		184,842			4,995	3.61
Total securities (TE)1		1,400,401			34,683	3.31		1,767,391			26,066	1.97
Dividends from FHLBC and FRBC		31,670			1,273	5.37		18,888			677	4.79
Loans and loans held-for-sale 1 , 2		3,994,804			181,524	6.08		3,556,798			121,337	4.56
Total interest earning assets		5,476,662			219,367	5.36		5,739,025			149,794	3.49
Cash and due from banks		56,211			-	-		50,918			-	-
Allowance for credit losses on loans		(52,505)			-	-		(44,719)			-	-
Other noninterest bearing assets		382,077			-	-		374,388			-	-
Total assets	$	5,862,445					$	6,119,612
Liabilities and Stockholders' Equity
NOW accounts	$	592,617		$	995	0.22	$	605,578		$	339	0.07
Money market accounts		772,011			3,840	0.67		1,039,717			482	0.06
Savings accounts		1,075,374			614	0.08		1,200,014			303	0.03
Time deposits		445,926			3,802	1.14		474,665			877	0.25
Interest bearing deposits		2,885,928			9,251	0.43		3,319,974			2,001	0.08
Securities sold under repurchase agreements		27,178			43	0.21		35,791			30	0.11
Other short-term borrowings		344,341			13,345	5.18		1,832			44	3.21
Junior subordinated debentures		25,773			805	4.18		25,773			849	4.40
Subordinated debentures		59,329			1,639	3.69		59,244			1,639	3.70
Senior note		29,414			2,408	10.95		44,520			1,791	5.38
Notes payable and other borrowings		1,780			87	6.53		14,338			309	2.88
Total interest bearing liabilities		3,373,743			27,578	1.09		3,501,472			6,663	0.25
Noninterest bearing deposits		1,929,653			-	-		2,101,749			-	-
Other liabilities		50,965			-	-		42,706			-	-
Stockholders' equity		508,084			-	-		473,685			-	-
Total liabilities and stockholders' equity	$	5,862,445					$	6,119,612
Net interest income (GAAP)				$	190,696					$	142,065
Net interest margin (GAAP)						4.66						3.31
Net interest income (TE)1				$	191,789					$	143,131
Net interest margin (TE)1						4.68						3.33
Interest bearing liabilities to earning assets		61.60	%					61.01	%

¹ Represents a non-GAAP financial measure. See the discussion entitled “Reconciliation of Tax-Equivalent Non-GAAP Financial Measures” below that provides a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent. Tax equivalent basis is calculated using a marginal tax rate of 21% in 2023 and 2022.

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 45, and includes fee expense of $1.8 million and $2.1 million for the nine months ended September 30, 2023 and 2022, respectively.  Nonaccrual loans are included in the above-stated average balances.

44

Reconciliation of Tax-Equivalent Non-GAAP Financial Measures

Net interest and dividend income (TE) and net interest income (TE) to average interest earning assets are non-GAAP measures that have been adjusted on a TE basis using a marginal rate of 21% for 2023 and 2022 to compare returns more appropriately on tax-exempt loans and securities to other earning assets.  The table below provides a reconciliation of each non-GAAP (TE) measure to the GAAP equivalent for the periods indicated:

	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,
Net Interest Margin	2023			2023			2022			2023			2022
Interest income (GAAP)	$	74,229		$	73,886		$	58,008		$	218,274		$	148,728
Taxable-equivalent adjustment:
Loans		11			11			6			28			17
Securities		354			355			354			1,065			1,049
Interest and dividend income (TE)		74,594			74,252			58,368			219,367			149,794
Interest expense (GAAP)		11,199			10,306			2,439			27,578			6,663
Net interest income (TE)	$	63,395		$	63,946		$	55,929		$	191,789		$	143,131
Net interest income (GAAP)	$	63,030		$	63,580		$	55,569		$	190,696		$	142,065
Average interest earning assets	$	5,391,761		$	5,529,204		$	5,607,290		$	5,476,662		$	5,739,025
Net interest margin (TE)		4.66	%		4.64	%		3.96	%		4.68	%		3.33	%
Net interest margin (GAAP)		4.64	%		4.61	%		3.93	%		4.66	%		3.31	%

Noninterest Income

Three months ended September 30, 2023 and 2022

The following table details the major components of noninterest income for the periods presented:

							3rd Quarter 2023
Noninterest Income	Three Months Ended						Percent Change From
(Dollars in thousands)	September 30,		June 30,		September 30,		June 30,	September 30,
	2023		2023		2022		2023	2022
Wealth management	$	2,475	$	2,458	$	2,280	0.7	8.6
Service charges on deposits		2,504		2,362		2,661	6.0	(5.9)
Residential mortgage banking revenue
Secondary mortgage fees		66		76		81	(13.2)	(18.5)
MSRs mark to market gain		281		96		548	192.7	(48.7)
Mortgage servicing income		519		499		514	4.0	1.0
Net gain on sales of mortgage loans		407		398		449	2.3	(9.4)
Total residential mortgage banking revenue		1,273		1,069		1,592	19.1	(20.0)
Securities losses, net		(924)		(1,547)		(1)	40.3	N/M
Change in cash surrender value of BOLI		919		418		146	119.9	529.5
Card related income		2,606		2,690		2,653	(3.1)	(1.8)
Other income		1,024		773		2,165	32.5	(52.7)
Total noninterest income	$	9,877	$	8,223	$	11,496	20.1	(14.1)

N/M - Not meaningful

45

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

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

Nine months ended September 30, 2023 and 2022

Noninterest Income	Nine Months Ended				YTD through September 30, 2023
(Dollars in thousands)	September 30,		September 30,		Percent
	2023		2022		Change
Wealth management	$	7,203	$	7,484	(3.8)
Service charges on deposits		7,290		7,063	3.2
Residential mortgage banking revenue
Secondary mortgage fees		201		270	(25.6)
MSRs mark to market (loss) gain		(148)		3,608	(104.1)
Mortgage servicing income		1,534		1,612	(4.8)
Net gain on sales of mortgage loans		1,111		1,682	(33.9)
Total residential mortgage banking revenue		2,698		7,172	(62.4)
Securities losses, net		(4,146)		(34)	N/M
Change in cash surrender value of BOLI		1,579		342	361.7
Card related income		7,540		8,194	(8.0)
Other income		3,286		3,949	(16.8)
Total noninterest income	$	25,450	$	34,170	(25.5)

N/M - Not meaningful

Noninterest income decreased $8.7 million, or 25.5%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.  This decrease was primarily driven by a $4.5 million decline in mortgage banking revenue, comprised mostly of a $3.8 million decrease in MSRs mark to market gains and a $571,000 decrease in net gain on sales of mortgage loans.  In addition, the current nine month period decreased due to a $4.1 million increase in net losses on the sale of securities for the year over year period. Partially offsetting these decreases was a $227,000 increase in service charges on deposits and a $1.2 million increase in the cash surrender value of BOLI.

46

Noninterest Expense

Three months ended September 30, 2023 and 2022

The following table details the major components of noninterest expense for the periods presented:

										3rd Quarter 2023
Noninterest Expense	Three Months Ended									Percent Change From
(Dollars in thousands)	September 30,			June 30,			September 30,			June 30,	September 30,
	2023			2023			2022			2023	2022
Salaries	$	17,279		$	16,310		$	14,711		5.9	17.5
Officers incentive		2,773			2,397			2,787		15.7	(0.5)
Benefits and other		3,063			3,091			3,513		(0.9)	(12.8)
Total salaries and employee benefits		23,115			21,798			21,011		6.0	10.0
Occupancy, furniture and equipment expense		3,506			3,639			4,119		(3.7)	(14.9)
Computer and data processing		1,922			1,290			2,543		49.0	(24.4)
FDIC insurance		744			794			659		(6.3)	12.9
Net teller & bill paying		534			515			504		3.7	6.0
General bank insurance		300			306			257		(2.0)	16.7
Amortization of core deposit intangible asset		616			618			657		(0.3)	(6.2)
Advertising expense		93			103			83		(9.7)	12.0
Card related expense		1,347			1,222			1,453		10.2	(7.3)
Legal fees		97			283			212		(65.7)	(54.2)
Consulting & management fees		549			520			607		5.6	(9.6)
Other real estate owned expense, net		(27)			(98)			21		72.4	(228.6)
Other expense		4,627			3,840			3,862		20.5	19.8
Total noninterest expense	$	37,423		$	34,830		$	35,988		7.4	4.0
Efficiency ratio (GAAP)1		50.08	%		46.84	%		53.08	%
Adjusted efficiency ratio (non-GAAP)2		48.82	%		46.49	%		51.90	%

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

² The adjusted efficiency ratio shown in the table above is a non-GAAP financial measure calculated as noninterest expense, excluding amortization of core deposits, OREO expenses, and acquisition-related costs, net of gains on branch sales, Visa credit card portfolio liquidation and related deconversion costs, as well as any merger related costs, if applicable, divided by the sum of net interest income on a fully tax equivalent basis, total noninterest income less net gains or losses on securities, mark to market gains or losses on MSRs, gain on the sale of our Visa credit card and land trust portfolios, and includes a tax equivalent adjustment on the change in cash surrender value of BOLI.  See the discussion entitled “Non-GAAP Financial Measures” above and the table on page 49 that provides a reconciliation of this non-GAAP financial measure to the most comparable GAAP equivalent.

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

47

of 2023 was a $186,000 decrease in legal fees, as the second quarter of 2023 experienced higher legal costs due to senior debt redemption, the proxy filing, and benefit plan reviews.

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

Nine months ended September 30, 2023 and 2022

Noninterest Expense	Nine Months Ended						YTD through September 30, 2023
(Dollars in thousands)	September 30,			September 30,			Percent
	2023			2022			Change
Salaries	$	49,676		$	46,304		7.3
Officers incentive		6,997			5,443		28.6
Benefits and other		10,488			10,563		(0.7)
Total salaries and employee benefits		67,161			62,310		7.8
Occupancy, furniture and equipment expense		10,620			10,864		(2.2)
Computer and data processing		4,986			12,817		(61.1)
FDIC insurance		2,122			1,771		19.8
Net teller & bill paying		1,551			3,245		(52.2)
General bank insurance		911			923		(1.3)
Amortization of core deposit intangible asset		1,858			1,981		(6.2)
Advertising expense		338			459		(26.4)
Card related expense		3,785			3,044		24.3
Legal fees		699			648		7.9
Consulting & management fees		1,859			1,746		6.5
Other real estate owned expense, net		181			96		88.5
Other expense		12,104			11,585		4.5
Total noninterest expense	$	108,175		$	111,489		(3.0)
Efficiency ratio (GAAP)1		48.15	%		63.37	%
Adjusted efficiency ratio (non-GAAP)2		47.66	%		58.35	%

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

² The adjusted efficiency ratio shown in the table above is a non-GAAP financial measure calculated as noninterest expense, excluding amortization of core deposits, OREO expenses, and acquisition-related costs, net of gains on branch sales, Visa credit card portfolio liquidation and related deconversion costs, as well as any merger related costs, if applicable, divided by the sum of net interest income on a fully tax equivalent basis, total noninterest income less net gains or losses on securities, mark to market gains or losses on MSRs, gain on the sale of our Visa credit card and land trust portfolios, and includes a tax equivalent adjustment on the change in cash surrender value of BOLI.  See the discussion entitled “Non-GAAP Financial Measures” above and the table on page 49 that provides a reconciliation of this non-GAAP financial measure to the most comparable GAAP equivalent.

Noninterest expense for the nine months ended September 30, 2023, decreased $3.3 million, or 3.0%, compared to the nine months ended September 30, 2022, primarily due to a $7.8 million decrease in computer and data processing due to acquisition related costs incurred during the nine months ended September 30, 2022 as the result of our acquisition of West Suburban in December 2021. Salaries and employee benefits increased $4.9 million largely from incentives and merit increases effective during the nine months ended September 30, 2023. Net teller & bill paying decreased $1.7 million largely due to acquisition related costs that were incurred during the nine months ended September 30, 2022. In addition, FDIC insurance increased $351,000 due to growth in our asset size, a scheduled increase in rates

48

used by the FDIC for assessments, as well as the absence of assessment credits fully utilized in the nine months ended September 30, 2022. Finally, card related expense increased $741,000 due to the growth in customer transactions and related volume changes.

49

Reconciliation of Adjusted Efficiency Ratio Non-GAAP Financial Measures

	GAAP									Non-GAAP
		Three Months Ended									Three Months Ended
	September 30,			June 30,			September 30,			September 30,			June 30,			September 30,
	2023			2023			2022			2023			2023			2022
Efficiency Ratio / Adjusted Efficiency Ratio
Noninterest expense	$	37,423		$	34,830		$	35,988		$	37,423		$	34,830		$	35,988
Less amortization of core deposit		616			618			657			616			618			657
Less other real estate (income) expense, net		(27)			(98)			21			(27)			(98)			21
Less acquisition related costs, net of losses/(gains) on branch sales		N/A			N/A			N/A			-			29			1,061
Less liquidation and deconversion costs on Visa credit card portfolio		N/A			N/A			N/A			629			-			-
Noninterest expense less adjustments	$	36,834		$	34,310		$	35,310		$	36,205		$	34,281		$	34,249
Net interest income	$	63,030		$	63,580		$	55,569		$	63,030		$	63,580		$	55,569
Taxable-equivalent adjustment:
Loans		N/A			N/A			N/A			11			11			6
Securities		N/A			N/A			N/A			354			355			354
Net interest income including adjustments		63,030			63,580			55,569			63,395			63,946			55,929
Noninterest income		9,877			8,223			11,496			9,877			8,223			11,496
Less securities losses		(924)			(1,547)			(1)			(924)			(1,547)			(1)
Less MSRs mark to market gains		281			96			548			281			96			548
Less gain on Visa credit card portfolio sale		N/A			N/A			N/A			-			-			743
Less gain on sale of land trust portfolio		N/A			N/A			N/A			-			-			180
Taxable-equivalent adjustment:
Change in cash surrender value of BOLI		N/A			N/A			N/A			245			111			39
Noninterest income (excluding) / including adjustments		10,520			9,674			10,949			10,765			9,785			10,065
Net interest income including adjustments plus noninterest income (excluding) / including adjustments	$	73,550		$	73,254		$	66,518		$	74,160		$	73,731		$	65,994
Efficiency ratio / Adjusted efficiency ratio		50.08	%		46.84	%		53.08	%		48.82	%		46.49	%		51.90	%

N/A - not applicable

	GAAP				Non-GAAP
		Nine Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2023		2022		2023		2022
Efficiency Ratio / Adjusted Efficiency Ratio
(Dollars in thousands)
Noninterest expense	$	108,175	$	111,489	$	108,175	$	111,489
Less amortization of core deposit		1,858		1,981		1,858		1,981
Less other real estate expense, net		181		96		181		96
Less acquisition related costs, net of (gains)/losses on branch sales		N/A		N/A		(277)		8,527
Less liquidation and deconversion costs on Visa credit card portfolio		N/A		N/A		629		-
Noninterest expense less adjustments	$	106,136	$	109,412	$	105,784	$	100,885
Net interest income	$	190,696	$	142,065	$	190,696	$	142,065
Taxable-equivalent adjustment:
Loans		N/A		N/A		28		17
Securities		N/A		N/A		1,065		1,049
Net interest income including adjustments		190,696		142,065		191,789		143,131
Noninterest income		25,450		34,170		25,450		34,170
Less securities losses, net		(4,146)		(34)		(4,146)		(34)
Less MSRs mark to market (losses) gains		(148)		3,608		(148)		3,608
Less gain on Visa credit card portfolio sale		N/A		N/A		-		743

50

Less gain on sale of land trust portfolio		N/A			N/A			-			180
Taxable-equivalent adjustment:
Change in cash surrender value of BOLI		N/A			N/A			420			91
Noninterest income (excluding) / including adjustments		29,744			30,596			30,164			29,764
Net interest income including adjustments plus noninterest income (excluding) / including adjustments	$	220,440		$	172,661		$	221,953		$	172,895
Efficiency ratio / Adjusted efficiency ratio		48.15	%		63.37	%		47.66	%		58.35	%

N/A - not applicable

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Income Taxes

We recorded income tax expense of $8.1 million for the third quarter of 2023 on $32.5 million of pretax income, compared to income tax expense of $9.4 million on $35.0 million of pretax income in the second quarter of 2023, and income tax expense of $7.1 million on $26.6 million of pretax income in the third quarter of 2022. Our effective tax rate was 25.1% in the third quarter of 2023, 26.9% for the second quarter of 2023, and 26.6% for the third quarter of 2022.  The slight reduction in the effective tax rate for the third quarter of 2023 reflects the finalization of the 2022 income tax return, and related adjustments due to state apportionment factor changes and deferred tax allocations within the current period.

We recorded income tax expense of $26.0 million on $99.5 million of pretax income for the nine months ended September 30, 2023, compared to income tax expense of $15.9 million on $59.7 million of pretax income in the like 2022 period. The effective tax rate was 26.1% and 26.7% for the nine months ended September 30, 2023 and 2022, respectively.

Income tax expense reflected all relevant statutory tax rates and GAAP accounting.  There were no significant changes in our ability to utilize our deferred tax assets during the quarter ended September 30, 2023.  We had no valuation reserve on the deferred tax assets as of September 30, 2023.

Financial Condition

Total assets decreased $130.2 million to $5.76 billion at September 30, 2023, from $5.89 billion at December 31, 2022, due primarily to the decrease of $309.7 million in securities available-for-sale.  The decrease in securities available-for-sale was primarily due to strategic sales. These decreases were partially offset by increases in net loans of $157.7 million, FHLB and FRB stock held of $15.3 million, and other assets of $8.7 million. We continue to actively assess potential investment opportunities to utilize our excess liquidity. Total deposits were $4.61 billion at September 30, 2023, a decrease of $496.4 million from December 31, 2022, through a combination of seasonal activity as well as leakage from excess savings stemming from COVID-related government payments and opportunities for alternative investments.

							September 30, 2023
Securities	As of						Percent Change From
(Dollars in thousands)	September 30,		December 31,		September 30,		December 31,	September 30,
	2023		2022		2022		2022	2022
Securities available-for-sale, at fair value
U.S. Treasuries	$	216,777	$	212,129	$	211,097	2.2	2.7
U.S. government agencies		55,821		56,048		55,963	(0.4)	(0.3)
U.S. government agencies mortgage-backed		104,569		124,990		127,626	(16.3)	(18.1)
States and political subdivisions		220,100		226,128		224,259	(2.7)	(1.9)
Corporate bonds		4,961		9,622		9,544	(48.4)	(48.0)
Collateralized mortgage obligations		386,679		533,768		587,846	(27.6)	(34.2)
Asset-backed securities		66,916		201,928		219,587	(66.9)	(69.5)
Collateralized loan obligations		173,795		174,746		173,837	(0.5)	(0.0)
Total securities	$	1,229,618	$	1,539,359	$	1,609,759	(20.1)	(23.6)

Securities available-for-sale decreased $309.7 million as of September 30, 2023 compared to December 31, 2022, and decreased $380.1 million compared to September 30, 2022. The decrease in the portfolio during the third quarter of 2023 was driven by securities sales totaling $65.6 million and paydowns totaling $29.6 million, in addition to growth in unrealized losses of $8.1 million. We continue to

52

seek to position the portfolio in higher credit quality, shorter duration securities with an appropriate mix of fixed- and floating-rate exposures.

							September 30, 2023
Loans	As of						Percent Change From
(Dollars in thousands)	September 30,		December 31,		September 30,		December 31,	September 30,
	2023		2022		2022		2022	2022
Commercial	$	834,877	$	840,964	$	888,081	(0.7)	(6.0)
Leases		354,827		277,385		251,603	27.9	41.0
Commercial real estate – investor		1,047,122		987,635		941,910	6.0	11.2
Commercial real estate – owner occupied		809,050		854,879		876,951	(5.4)	(7.7)
Construction		202,546		180,535		176,700	12.2	14.6
Residential real estate – investor		53,762		57,353		59,580	(6.3)	(9.8)
Residential real estate – owner occupied		227,446		219,718		220,969	3.5	2.9
Multifamily		372,020		323,691		322,856	14.9	15.2
HELOC		102,055		109,202		116,108	(6.5)	(12.1)
Other 1		25,838		18,247		14,576	41.6	77.3
Total loans	$	4,029,543	$	3,869,609	$	3,869,334	4.1	4.1

¹ The “Other” segment includes consumer loans and overdrafts.

Total loans were $4.03 billion as of September 30, 2023, an increase of $159.9 million from December 31, 2022.  The increase in total loans in the first nine months of 2023, compared to December 31, 2022, was due primarily to growth in loan originations, net of paydowns, within leases of $77.4 million, commercial real estate – investor of $59.5 million and multifamily of $48.3 million offset by net reductions in commercial real estate – owner occupied of $45.8 million from December 31, 2022.  Total loans increased $160.2 million from September 30, 2022 to September 30, 2023, primarily due to growth in loan originations, net of paydowns, within commercial real estate – investor of $105.2 million, leases of $103.2 million and multifamily of $49.2 million, offset by net reductions in commercial real estate – owner occupied of $67.9 million and commercial of $53.2 million.  As required by CECL, the balance (or amortized cost basis) of purchased credit deteriorated loans, or PCD loans (discussed below) is carried on a gross basis (rather than net of the associated credit loss estimate), and the expected credit losses for PCD loans are estimated and separately recognized as part of the allowance for credit losses, or ACL.  

The quality of our loan portfolio is impacted not only by our credit decisions but also by the economic health of the communities in which we operate.  Since we are located in a corridor with significant open space and undeveloped real estate, real estate lending (including commercial real estate, construction, residential, multifamily, and HELOCs) has been and continues to be a sizeable portion of our portfolio.  These categories comprised 69.8% of the portfolio as of September 30, 2023, compared to 70.6% of the portfolio as of December 31, 2022.  At September 30, 2023, our outstanding commercial real estate loans and undrawn commercial real estate commitments, excluding owner occupied real estate were equal to 288.9% of our Tier 1 capital plus allowance for credit losses, an increase from 304.2% at December 31, 2022.  We continue to oversee and seek to manage our loan portfolio in accordance with interagency guidance on risk management.

Asset Quality

Nonperforming loans consist of nonaccrual loans and loans 90 days or greater past due.  Prior to January 1, 2023, nonperforming loans also included performing troubled debt restructured loans accruing interest. Nonperforming loans increased by $30.4 million to $63.3 million at September 30, 2023 from $32.9 million at December 31, 2022 and increased $10.4 million from $52.9 million at September 30, 2022. Purchased credit deteriorated loans, or PCD loans, are purchased loans that, as of the date of acquisition, we determined had experienced a more-than-insignificant deterioration in credit quality since origination.  PCD loans and their related deferred loan costs are included in our nonperforming loan disclosures, if such loans otherwise meet the definition of a nonperforming loan.  Management continues to carefully monitor loans considered to be in a classified status.  Nonperforming loans as a percent of total loans were 1.6% as of September 30, 2023, 0.9% as of December 31, 2022, and 1.4% as of September 30, 2022.  The distribution of our nonperforming loans is shown in the following table.

53

							September 30, 2023
Nonperforming Loans	As of						Percent Change From
(Dollars in thousands)	September 30,		December 31,		September 30,		December 31,	September 30,
	2023		2022		2022		2022	2022
Commercial	$	3,146	$	7,649	$	8,821	(58.9)	(64.3)
Leases		377		1,876		235	(79.9)	60.4
Commercial real estate – investor		26,724		4,346		17,945	514.9	48.9
Commercial real estate – owner occupied		18,290		8,223		9,581	122.4	90.9
Construction		7,206		251		7,525	N/M	(4.2)
Residential real estate – investor		1,502		1,672		1,380	(10.2)	8.8
Residential real estate – owner occupied		3,627		4,198		3,787	(13.6)	(4.2)
Multifamily		1,141		2,538		1,559	(55.0)	(26.8)
HELOC		1,312		2,158		2,065	(39.2)	(36.5)
Other 1		-		2		2	(100.0)	(100.0)
Total nonperforming loans	$	63,325	$	32,913	$	52,900	92.4	19.7

¹ The “Other” segment includes consumer loans and overdrafts.

N/M – Not meaningful.

The components of our nonperforming assets are shown in the following table.

										September 30, 2023
Nonperforming Assets	As of									Percent Change From
(Dollars in thousands)	September 30,			December 31,			September 30,			December 31,	September 30,
	2023			2022			2022			2022	2022
Nonaccrual loans	$	62,116		$	31,602		$	32,126		96.6	93.4
Performing troubled debt restructured loans accruing interest 1		N/A			49			22		N/A	N/A
Loans past due 90 days or more and still accruing interest		1,209			1,262			20,752		(4.2)	(94.2)
Total nonperforming loans		63,325			32,913			52,900		92.4	19.7
Other real estate owned		407			1,561			1,561		(73.9)	(73.9)
Total nonperforming assets	$	63,732		$	34,474		$	54,461		84.9	17.0
30-89 days past due loans and still accruing interest	$	28,486		$	7,508		$	8,197
Nonaccrual loans to total loans		1.5	%		0.8	%		0.8	%
Nonperforming loans to total loans		1.6	%		0.9	%		1.4	%
Nonperforming assets to total loans plus OREO		1.6	%		0.9	%		1.4	%
Allowance for credit losses	$	51,729		$	49,480		$	48,847
Allowance for credit losses to total loans		1.3	%		1.3	%		1.3	%
Allowance for credit losses to nonaccrual loans		83.3	%		156.6	%		152.1	%

N/A – Not applicable

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

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Loan charge-offs, net of recoveries, for the third quarter of 2023, prior linked quarter and year over year quarter are shown in the following table.

Loan Charge–offs, Net of Recoveries	Three Months Ended
(Dollars in thousands)	September 30,		% of	June 30,		% of	September 30,		% of
	2023		Total1	2023		Total1	2022		Total1
Commercial	$	8	0.1	$	298	59.0	$	20	29.4
Leases		(95)	(1.4)		(7)	(1.4)		178	261.8
Commercial real estate – investor		6,754	102.4		51	10.1		105	154.4
Commercial real estate – owner occupied		23	0.3		198	39.2		(75)	(110.3)
Construction		(100)	(1.5)		-	-		-	-
Residential real estate – investor		(3)	-		(5)	(1.0)		(8)	(11.8)
Residential real estate – owner occupied		(25)	(0.4)		(36)	(7.1)		(113)	(166.2)
Multifamily		-	-		-	-		(63)	(92.6)
HELOC		(35)	(0.5)		(24)	(4.8)		(35)	(51.5)
Other 2		70	1.0		30	6.0		59	86.8
Net charge–offs	$	6,597	100.0	$	505	100.0	$	68	100.0

¹ Represents the percentage of net charge-offs attributable to each category of loans.

² The “Other” segment includes consumer and overdrafts.

Net charge-offs of $6.6 million were recorded for the third quarter of 2023, compared to net charge-offs of $505,000 for the second quarter of 2023, and net charge-offs of $68,000 for the third quarter of 2022, reflecting continuing management attention to credit quality and remediation efforts.  The net charge-offs for the third quarter of 2023 were primarily due to charge offs of three commercial real estate-investor loans of $6.8 million in aggregate.  These three commercial real estate-investor credits had a reported reserve allocation of $4.7 million prior to the third quarter of 2023 charge-offs. We have continued our conservative loan valuations and aggressive recovery efforts on prior charge-offs.  

Classified loans include nonaccrual loans and all other loans considered substandard. Classified assets include both classified loans and OREO.  Loans classified as substandard are inadequately protected by either the current net worth and ability to meet payment obligations of the obligor, or by the collateral pledged to secure the loan, if any.  These loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt and carry the distinct possibility that we will sustain some loss if deficiencies remain uncorrected.

The following table shows classified assets by segment for the following periods.

							September 30, 2023
Classified Assets	As of						Percent Change From
(Dollars in thousands)	September 30,		December 31,		September 30,		December 31,	September 30,
	2023		2022		2022		2022	2022
Commercial	$	18,298	$	26,485	$	31,722	(30.9)	(42.3)
Leases		574		1,876		235	(69.4)	144.3
Commercial real estate – investor		54,126		27,410		28,252	97.5	91.6
Commercial real estate – owner occupied		55,292		40,890		42,698	35.2	29.5
Construction		17,263		1,333		1,347	N/M	N/M
Residential real estate – investor		1,502		1,714		1,285	(12.4)	16.9
Residential real estate – owner occupied		3,627		3,854		3,929	(5.9)	(7.7)
Multifamily		1,141		2,954		1,982	(61.4)	(42.4)
HELOC		1,434		2,411		2,278	(40.5)	(37.1)
Other 1		-		2		2	(100.0)	(100.0)
Total classified loans		153,257		108,929		113,730	40.7	34.8
Other real estate owned		407		1,561		1,561	(73.9)	(73.9)
Total classified assets	$	153,664	$	110,490	$	115,291	39.1	33.3

¹ The “Other” segment includes consumer loans and overdrafts.

N/M - Not meaningful

55

Total classified loans increased $44.3 million and classified assets increased $43.2 million as of September 30, 2023 from December 31, 2022. The increase since December 31, 2022 is due to the addition of $26.7 million of classified loans in commercial real estate – investor, primarily due to four large credits, two of which are office buildings, one is an assisted living facility during the first six months of 2023, and one office building in the third quarter of 2023. The increase is also due to the growth in construction, primarily due to two large credits. The increase from September 30, 2022 is primarily due to the same loan additions to commercial real estate – investor and construction. Management monitors a ratio of classified assets to the sum of Bank Tier 1 capital and the ACL on loans as another measure of overall change in loan related asset quality, which is referred to as the “classified assets ratio.” The classified assets ratio was 23.51% for the period ended September 30, 2023, compared to 18.36% as of December 31, 2022, and 19.23% as of September 30, 2022.  

Allowance for Credit Losses on Loans

The provision for credit losses, which includes a provision for losses on unfunded commitments, is a charge to earnings to maintain the allowance for credit losses (“ACL”) at a level consistent with management’s assessment of expected losses in the loan portfolio at the balance sheet date.

At September 30, 2023, our ACL on loans totaled $51.7 million, and our ACL on unfunded commitments, included in other liabilities, totaled $2.9 million. In the third quarter of 2023, we recorded provision expense on loans of $3.0 million, based on our assessment of nonperforming loan metrics and trends and estimated future credit losses, and a $12,000 reversal of provision on unfunded commitments, 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.  These adjustments resulted in a $3.0 million net impact to the provision for credit losses for the third quarter of 2023.  

Management estimates the amount of provision required on a quarterly basis and records the appropriate provision expense, or release of expense, to maintain an adequate reserve for all potential and estimated credit losses on loans, leases and unfunded commitments.  The ACL on loans totaled $51.7 million as of September 30, 2023, $49.5 million as of December 31, 2022, and $48.8 million as of September 30, 2022.  Our ACL on loans to total loans was 1.3% as of September 30, 2023, compared to 1.3% as of December 31, 2022 and September 30, 2022.  See Item 7 – Critical Accounting Estimates in the Management Discussion and Analysis in our 2022 Annual Report in Form 10-K for discussion of our ACL methodology on loans. Allocations of the ACL may be made for specific loans, but the entire allowance is available for any loan that, in our judgment, should be charged-off.

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Below is a reconciliation of the activity in the allowance for credit losses on loans for the periods indicated (dollars in thousands):

		Three Months Ended								Nine Months Ended
	September 30,			June 30,			September 30,			September 30,			September 30,
	2023			2023			2022			2023			2022
Allowance at beginning of period	$	55,314		$	53,392		$	45,388		$	49,480		$	44,281
Charge–offs:
Commercial		20			380			67			427			149
Leases		-			-			178			882			178
Commercial real estate – investor		6,774			71			124			6,845			604
Commercial real estate – owner occupied		35			201			12			236			133
Construction		-			-			-			-			-
Residential real estate – investor		-			-			-			-			-
Residential real estate – owner occupied		-			-			-			-			-
Multifamily		-			-			-			-			-
HELOC		-			-			-			-			-
Other 1		107			81			103			301			320
Total charge–offs		6,936			733			484			8,691			1,384
Recoveries:
Commercial		12			82			47			245			85
Leases		95			7			-			111			-
Commercial real estate – investor		20			20			19			57			60
Commercial real estate – owner occupied		12			3			87			17			102
Construction		100			-			-			100			-
Residential real estate – investor		3			5			8			27			23
Residential real estate – owner occupied		25			36			113			71			218
Multifamily		-			-			63			-			63
HELOC		35			24			35			88			102
Other 1		37			51			44			133			120
Total recoveries		339			228			416			849			773
Net charge-offs		6,597			505			68			7,842			611
Provision for credit losses on loans		3,012			2,427			3,527			10,091			5,177
Allowance at end of period	$	51,729		$	55,314		$	48,847		$	51,729		$	48,847
Average total loans (exclusive of loans held–for–sale)	$	4,009,218		$	4,039,052		$	3,751,097		$	3,993,600		$	3,552,871
Net charge–offs to average loans		0.65	%		0.05	%		0.01	%		0.26	%		0.02	%
Allowance at period end to average loans		1.29	%		1.37	%		1.30	%		1.30	%		1.37	%

¹ The “Other” segment includes consumer loans and overdrafts.

The coverage ratio of the ACL on loans to nonperforming loans was 81.3% as of September 30, 2023, which was a decrease from the coverage ratio of 90.3% as of June 30, 2023 and a decrease from 92.3% as of September 30, 2023.  When measured as a percentage of average loans, our total ACL on loans was 1.29% at September 30, 2023, 1.37% at June 30, 2023, and 1.30% at September 30, 2022.

In management’s judgment, an adequate ACL has been established to encompass the current lifetime expected credit losses at September 30, 2023, and general changes in lending policy, procedures and staffing, as well as other external factors.  However, there can be no assurance that actual losses will not exceed the estimated amounts in the future, based on unforeseen economic events, changes in business climates and the condition of collateral at the time of default and repossession.  Continued volatility in the economic environment stemming from the impacts of and response to inflation, potential recession, and the war in Ukraine and the conflict in the Middle East, and the associated effects on our customers, or other factors, such as changes in business climates and the condition of collateral at the time of default or repossession, may revise our current expectations of future credit losses in future reporting periods.

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Deposits and Borrowings

							September 30, 2023
Deposits	As of						Percent Change From
(Dollars in thousands)	September 30,		December 31,		September 30,		December 31,	September 30,
	2023		2022		2022		2022	2022
Noninterest bearing demand	$	1,862,659	$	2,051,702	$	2,098,144	(9.2)	(11.2)
Savings		1,003,498		1,145,592		1,164,036	(12.4)	(13.8)
NOW accounts		567,997		609,338		630,747	(6.8)	(9.9)
Money market accounts		702,176		862,170		931,813	(18.6)	(24.6)
Certificates of deposit of less than $100,000		248,272		244,017		258,071	1.7	(3.8)
Certificates of deposit of $100,000 through $250,000		162,901		157,438		148,411	3.5	9.8
Certificates of deposit of more than $250,000		66,817		40,466		50,137	65.1	33.3
Total deposits	$	4,614,320	$	5,110,723	$	5,281,359	(9.7)	(12.6)

Total deposits were $4.61 billion at September 30, 2023, which reflects a $496.4 million decrease from total deposits of $5.11 billion at December 31, 2022, and a decrease of $667.0 million from total deposits of $5.28 billion at September 30, 2022.  The decrease in deposits at September 30, 2023, compared to December 31, 2022, was primarily due to decreases in noninterest-bearing deposits of $189.0 million, money market accounts of $160.0 million and savings accounts of $142.1 million. The decrease in deposits at September 30, 2023, compared to September 30, 2022, was primarily due to decreases in noninterest-bearing deposits of $235.5 million, money market accounts of $229.6 million, and savings accounts of $160.5 million.  Total quarterly average deposits decreased $659.4 million, or 12.4%, in the year over year period, driven by declines in our average demand deposits of $225.1 million, and savings, NOW and money markets combined of $440.7 million. In general, the bulk of the decline in deposits year over year can be characterized as rate sensitive with significant flows and transfers into investing activities, materially offsetting the significant expansion in those same accounts in the immediate aftermath of the pandemic.

The following table presents estimated insured and uninsured deposits at September 30, 2023 and December 31, 2022 by deposit type, as well as the weighted average rates for each year to date ending period.

(Dollars in thousands)	September 30, 2023								December 31, 2022
	Total Deposits		Insured Deposits		Uninsured Deposits		Average Rate Paid		Total Deposits		Insured Deposits		Uninsured Deposits		Average Rate Paid
Noninterest bearing demand	$	1,862,659	$	1,202,051	$	660,608	-	%	$	2,051,702	$	1,327,379	$	724,323	-	%
Savings		1,003,498		935,664		67,834	0.08			1,145,592		1,065,153		80,439	0.03
NOW accounts		567,997		409,219		158,778	0.22			609,338		453,799		155,539	0.09
Money market accounts		702,176		490,539		211,637	0.67			862,170		588,923		273,247	0.10
Time deposits		477,990		414,227		63,763	1.14			441,921		381,980		59,941	0.31
Total	$	4,614,320	$	3,451,700	$	1,162,620	0.26	%	$	5,110,723	$	3,817,234	$	1,293,489	0.06	%
Collateralized public funds	$	264,322	$	15,410	$	248,912			$	262,318	$	15,879	$	246,439

Deposits declined 9.7% for the nine months ended September 30, 2023 due to retail and commercial run off.  Total deposit run off year to date has been very granular, and not necessarily attributable to large deposit accounts.  Our deposit retention efforts for commercial clients were more effective due to high touch relationships where we had a larger share of wallet.  The largest reduction in total deposits was from retail customers due to personal and real estate tax payments, real estate transactions, investments, and consumer spending.  In terms of product mix, we observed some migration into time deposits, drawn by CD rate specials.  Overall, our deposit level remains stable and we continue to monitor customer relationships and liquidity levels daily.

In addition to deposits, we used other liquidity sources for our funding needs in all periods presented, such as repurchase agreements and other short-term borrowings with the FHLBC. Securities sold under repurchase agreements totaled $25.9 million at September 30, 2023, a $6.3 million, or 19.5%, decrease from $32.2 million at December 31, 2022. Our excess liquidity on hand during much of 2022 allowed us to fund our short-term liquidity needs with cash on hand. During the third quarter of 2022, we began re-utilizing short-term borrowings from the FHLBC. The outstanding balance of our short-term FHLBC borrowings was $435.0 million as of September 30, 2023, $90.0 million as of December 31, 2022, and $25.0 million as of September 30, 2022.

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We are also indebted on $25.8 million, net of deferred issuance costs, of junior subordinated debentures, which are related to the trust preferred securities issued by its statutory trust subsidiary, Old Second Capital Trust II (“Trust II”) as of September 30, 2023.  The Trust II issuance converted from fixed to floating rate at three month LIBOR, which is now three month Term SOFR, plus 150 basis points on June 15, 2017.  Upon conversion to a floating rate, we initiated a cash flow hedge which resulted in the total interest rate paid on this debt of 4.18% as of September 30, 2023, as compared to 6.77%, which was the rate paid during the period prior to the June 15, 2017 rate reset.

In the second quarter of 2021, we entered into Subordinated Note Purchase Agreements with certain qualified institutional buyers pursuant to which we issued $60.0 million in aggregate principal amount of our 3.50% Fixed-to-Floating Rate Subordinated Notes due April 15, 2031 (the “Notes”).  We sold the Notes to eligible purchasers in a private offering, and the proceeds of this issuance were used for general corporate purposes. The Notes bear interest at a fixed annual rate of 3.50% through April 14, 2026, payable semi-annually in arrears.  As of April 15, 2026 forward, the interest rate on the Notes will generally reset quarterly to a rate equal to three-month Term SOFR (as defined by the Note) plus 273 basis points, payable quarterly in arrears.  The Notes have a stated maturity of April 15, 2031, and are redeemable, in whole are in part, on April 15, 2026, or any interest payment date thereafter, and at any time upon the occurrence of certain events. As of September 30, 2023, we had $59.4 million of subordinated debentures outstanding, net of deferred issuance costs.

In December 2016, we completed a $45.0 million senior note issuance. The notes had a ten-year term, and included interest payable semiannually at 5.75% for five years. Beginning December 31, 2021, the interest became payable quarterly at three month LIBOR plus 385 basis points. On June 30, 2023, the senior notes were redeemed in full.  The remaining balance of deferred debt issuance costs of $362,000 related to these senior notes was recognized as interest expense as of June 30, 2023.      

On February 24, 2023, we paid off the remaining $9.0 million balance in notes payable and other borrowings, resulting in no balance in this line item as of September 30, 2023, compared to $9.0 million as of December 31, 2022, and $10.0 million as of September 30, 2022. The balance in notes payable was related to a $20.0 million dollar term note originated with a correspondent bank in the first quarter of 2020, to facilitate the redemption of our Old Second Capital Trust I trust preferred securities and related junior subordinated debentures, completed on March 2, 2020.

Capital

As of September 30, 2023, total stockholders’ equity was $532.6 million, which was an increase of $71.5 million from $461.1 million as of December 31, 2022.  This increase is primarily attributable to an increase in retained earnings of $66.8 million due to net income of $73.5 million in the first nine months of 2023, partially offset by $6.7 million of dividends paid to our common stockholders. In addition, total stockholders’ equity as of September 30, 2023 increased over December 31, 2022, due to a reduction in unrealized net losses on available-for-sale securities, which decreased accumulated other comprehensive loss by $2.5 million in the first nine months of 2023, due to changes in market interest rates.  Total stockholders’ equity as of September 30, 2023 increased $98.8 million compared to September 30, 2022 due to net income year over year and the increase in accumulated other comprehensive loss of $7.8 million year over year.

The following table shows the regulatory capital ratios and the current well capitalized regulatory requirements for the Company and the Bank as of the dates indicated:

	Minimum Capital		Well Capitalized
	Adequacy with		Under Prompt
	Capital Conservation		Corrective Action		September 30,		December 31,		September 30,
	Buffer, if applicable1		Provisions2		2023		2022		2022
The Company
Common equity tier 1 capital ratio	7.00	%	N/A		11.00	%	9.67	%	9.16	%
Total risk-based capital ratio	10.50	%	N/A		13.84	%	12.52	%	11.99	%
Tier 1 risk-based capital ratio	8.50	%	N/A		11.52	%	10.20	%	9.68	%
Tier 1 leverage ratio	4.00	%	N/A		9.62	%	8.14	%	7.70	%
The Bank
Common equity tier 1 capital ratio	7.00	%	6.50	%	12.49	%	11.70	%	11.60	%
Total risk-based capital ratio	10.50	%	10.00	%	13.57	%	12.75	%	12.64	%
Tier 1 risk-based capital ratio	8.50	%	8.00	%	12.49	%	11.70	%	11.60	%
Tier 1 leverage ratio	4.00	%	5.00	%	10.43	%	9.32	%	9.24	%

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

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

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As part of its response to the impact of the COVID-19 pandemic, in the first quarter of 2020, U.S. federal regulatory authorities issued an interim final rule that provided banking organizations that adopted CECL during the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay (i.e., a five-year transition in total). In connection with our adoption of CECL on January 1, 2020, we elected to utilize the five-year CECL transition.  As of September 30, 2023, our capital measures exclude $1.9 million, which is the modified CECL transition adjustment.

As of September 30, 2023, the Company, on a consolidated basis, exceeded the minimum capital ratios to be deemed “well capitalized” and met the capital conservation buffer requirements.  In addition to the above regulatory ratios, our GAAP common equity to total assets ratio, which is used as a performance measurement for capital analysis and peer comparisons, increased from 7.83% at December 31, 2022, to 9.25% at September 30, 2023. Our GAAP tangible common equity to tangible assets ratio was 7.67% at September 30, 2023, compared to 6.24% as of December 31, 2022.  Our non-GAAP tangible common equity to tangible assets ratio, which management also considers a valuable performance measurement for capital analysis, increased from 6.28% at December 31, 2022, to 7.71% at September 30, 2023, primarily due to an increase in tangible common equity in the third quarter of 2023.  The increase in tangible common equity was due to an increase in retained earnings of $66.8 million and an increase in accumulated other comprehensive loss of $2.5 million primarily related to improved unrealized losses on available-for-sale securities stemming from the changes in market interest rates.

Reconciliation of Tangible Common Equity to Tangible Assets Ratio Non-GAAP Measure

	September 30, 2023						December 31, 2022
Tangible common equity	GAAP			Non-GAAP			GAAP			Non-GAAP
(Dollars in thousands)
Total Equity	$	532,558		$	532,558		$	461,141		$	461,141
Less: Goodwill and intangible assets		98,298			98,298			100,156			100,156
Add: Limitation of exclusion of core deposit intangible (80%)		N/A			2,364			N/A			2,736
Adjusted goodwill and intangible assets		98,298			95,934			100,156			97,420
Tangible common equity	$	434,260		$	436,624		$	360,985		$	363,721
Tangible assets
Total assets	$	5,758,156		$	5,758,156		$	5,888,317		$	5,888,317
Less: Adjusted goodwill and intangible assets		98,298			95,934			100,156			97,420
Tangible assets	$	5,659,858		$	5,662,222		$	5,788,161		$	5,790,897
Common equity to total assets		9.25	%		9.25	%		7.83	%		7.83	%
Tangible common equity to tangible assets		7.67	%		7.71	%		6.24	%		6.28	%

The non-GAAP intangible asset exclusion reflects the 80% core deposit limitation per Basel III guidelines within risk based capital calculations, and is useful for us when reviewing risk based capital ratios and equity performance metrics.

Liquidity

Liquidity is our ability to fund operations, to meet depositor withdrawals, to provide for customers’ credit needs, and to meet maturing obligations and existing commitments.  Our liquidity principally depends on our cash flows from operating activities, investment in and maturity of assets, changes in balances of deposits and borrowings, and our ability to borrow funds. In the third quarter of 2023, we continued to experience moderate loan growth, while deposits have trended down as clients moved balances to pursue higher yields as well as due to seasonal declines.  We managed the change in our funding through borrowing from the Federal Home Loan Bank of Chicago (“FHLBC”) and sales of securities, which resulted in minimal losses and mitigated our interest rate risk profile.  The bank failures in the first five months of 2023 exemplify the potentially serious results of the unexpected inability of insured depository institutions to obtain needed liquidity to satisfy deposit withdrawal requests, including how quickly such requests can accelerate once uninsured depositors lose confidence in an institution’s ability to satisfy its obligations to depositors. We seek to ensure our funding needs are met by maintaining a level of liquidity through asset and liability management. We monitor our borrowing capacity at the FHLBC as part of our liquidity management process as supervised by our Asset and Liability Committee (“ALCO”) and reviewed by our Board of Directors.  In addition, our senior management team monitors cash balances daily to ensure we have adequate liquidity to meet our operational and financing needs.  As of September 30, 2023, our cash on hand liquidity totaled $109.0 million, a decrease of $6.1 million over cash balances held as of December 31, 2022.  

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Net cash inflows from operating activities were $87.3 million during the first nine months of 2023, compared with net cash inflows of $60.1 million in the same period of 2022.  Proceeds from sales of loans held-for-sale, net of funds used to originate loans held-for-sale, were a source of outflows for the first nine months of 2023 compared to a source of inflows for the like period of 2022.  Interest paid, net of interest received, combined with changes in other assets and liabilities were a source of outflows for the nine months ended September 30, 2023 and source of inflows for the like period of 2022. The management of investing and financing activities, as well as market conditions, determines the level and the stability of net interest cash flows.  Management’s policy is to mitigate the impact of changes in market interest rates to the extent possible, as part of the balance sheet management process.

Net cash inflows from investing activities were $124.5 million in the nine months ended September 30, 2023, compared to net cash outflows of $506.4 million in the same period in 2022.  In the first nine months of 2023, securities transactions accounted for net inflows of $306.0 million, and the principal change on loans accounted for net outflows of $164.3 million.  In the first nine months of 2022, securities transactions accounted for net outflows of $66.9 million, and principal on loans funded, net of paydowns, accounted for net outflows of $443.6 million.  

Net cash outflows from financing activities in the nine months ended September 30, 2023, were $218.0 million, compared with net cash outflows of $189.7 million in the nine months ended September 30, 2022.  Net deposit outflows in the first nine months of 2023 were $495.4 million compared to net deposit outflows of $183.7 million in the first nine months of 2022.  Other short-term borrowings had $345.0 million of net cash inflows in the first nine months of 2023, compared to net cash inflows of $25.0 million for other short-term borrowings in the first nine months of 2022.  Changes in securities sold under repurchase agreements accounted for outflows of $6.3 million and outflows of $14.8 million for the nine months ended September 30, 2023 and 2022, respectively.  Dividends paid on our common stock totaled $6.7 million for both the nine months ended September 30, 2023 and 2022.  The purchase of treasury stock in the first nine months of 2023 due to shares acquired with equity award vestings resulted in outflows of $605,000, compared to cash outflows of $447,000 in the first nine months of 2022.

Cash and cash equivalents for the nine months ended September 30, 2023, totaled $109.0 million, as compared to $115.2 million as of December 31, 2022 and $116.2 million as of September 30, 2022.  The decrease in cash and cash equivalents for the nine months ended September 30, 2023 was mainly attributable to loan growth and the payoffs of the remaining balance of the term note and senior notes, as well as deposit outflows, partially offset by security sales and FHLB advances during the first nine months of 2023. The year over year decrease is again driven by loan growth, as well as increased customer use of deposits. In addition to cash and cash equivalents on hand or held as deposits with other financial institutions, we rely on funding sources from customer deposits, cash flows from securities available-for-sale and loans, and a line of credit with the FHLBC to meet potential liquidity needs.  These sources of liquidity are immediately available to satisfy any funding requirements due to depositor or borrower demands through the ordinary course of our business.  Additional sources of funding include a $30.0 million undrawn line of credit held by the Company with a third party financial institution, as well as unpledged securities available-for-sale.    

61

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

As part of our normal operations, we are subject to interest-rate risk on the assets we invest in (primarily loans and securities) and the liabilities we fund (primarily customer deposits and borrowed funds).  Fluctuations in interest rates may result in changes in the fair market values of our financial instruments, cash flows, and net interest income.  Like most financial institutions, we have an exposure to changes in both short-term and long-term interest rates. A financial institution’s ability to be relatively unaffected by changes in interest rates is a good indicator of its capability to perform in a volatile rate environment.  We mitigate the impact of interest rate volatility to the Bank by managing our rate sensitivity under various scenarios.

During the third quarter of 2023, the Federal Reserve increased rates by 0.25% in July and held rates unchanged at the September FOMC meeting.  The current market expectation is for rates to be unchanged for the remainder of 2023.  The projected level of rate cuts in 2024 have been reduced and moved to later in the year, framing a “higher rates for a longer period” outcome.  The Federal Reserve managed to shrink its balance sheet to $8.0 trillion by September 2023, down from its peak of $8.7 trillion in March 2023.

We manage interest rate risk within guidelines established by policy which are intended to limit the amount of rate exposure.  In practice, we seek to manage our interest rate risk exposure within our guidelines so that such exposure does not pose a material risk to our future earnings.  We manage various market risks in the normal course of our operations, including credit, liquidity risk, and interest-rate risk.  Other types of market risk, such as foreign currency exchange risk and commodity price risk, do not arise in the normal course of our business activities and operations.  In addition, since we do not hold a trading portfolio, we are not exposed to significant market risk from trading activities.  Our interest rate risk exposures at September 30, 2023 and December 31, 2022 are outlined in the table below.

Our net income can be significantly influenced by a variety of external factors, including: overall economic conditions, policies and actions of regulatory authorities, the amounts of and rates at which assets and liabilities reprice, variances in prepayment of loans and securities other than those that are assumed, early withdrawal of deposits, exercise of call options on borrowings or securities, competition, a general rise or decline in interest rates, changes in the slope of the yield-curve, changes in historical relationships between indices (such as SOFR and Prime), and balance sheet growth or contraction.  Our asset-liability committee seeks to manage interest rate risk under a variety of rate environments by structuring our on-balance sheet and off-balance sheet positions, which includes interest rate swap derivatives as discussed in Note 19 of our consolidated financial statements found in in our Annual Report on Form 10-K for the year ended December 31, 2022.  We seek to monitor and manage interest rate risk within approved policy guidelines and limits.  Asset and liability modeling and tracking is performed and presented to the Asset-Liability committee and the Board of Directors no less than quarterly. The presentations discuss our current and historical interest rate risk posture, shifts in the balance sheet composition, and the impact of interest rate movements on earnings and equity.  Our current balance sheet is a moderately asset sensitive profile, as our variable rate assets reprice faster than our longer duration, low beta deposit base. Recent market events of failed liquidity management at other banks have been reviewed by the Asset-Liability committee. The committee concluded that we possess a strong liquidity profile and no new liquidity risks were identified.  Prudently, we added new measures to assess liquidity risk and enhanced our reports to segment deposits by insured, uninsured, collateralized deposits; and monitor the bank’s funding sources and uses on a regular basis.

We also have a Risk Committee, chaired by our Chief Risk Officer, which reports no less than quarterly to senior management as well as our Board of Directors regarding compliance with risk tolerance limits, key risk factor changes, both internally and externally, due to portfolio changes as well as market conditions.  Our enterprise risk management framework is governed by this committee, with input being provided by line of business managers, senior management and the Board.

We use simulation analysis to quantify the impact of various rate scenarios on our net interest income. Specific cash flows, repricing characteristics, and embedded options of the assets and liabilities held by us are incorporated into the simulation model. Earnings at risk are calculated by comparing the net interest income of a stable interest rate environment to the net interest income of a different interest rate environment in order to determine the percentage change. As of September 30, 2023, our net interest income profile remained sensitive to earnings gains (in both dollars and percentage) should interest rates rise.  However, we have moved to a less sensitive profile compared to December 31, 2022, due to the impact of interest rate swaps and sales of variable rate securities.

62

The following table summarizes the effect on annual income before income taxes based upon an immediate increase or decrease in interest rates of 0.5%, 1.0%, and 2.0%, with no change in the slope of the yield curve.  

	Analysis of Net Interest Income Sensitivity
	Immediate Changes in Rates
(Dollars in thousands)		(2.0)	%		(1.0)	%		(0.5)	%		0.5	%		1.0	%		2.0	%
September 30, 2023
Dollar change	$	(37,003)		$	(18,371)		$	(9,055)		$	9,349		$	18,817		$	36,942
Percent change		(14.6)	%		(7.2)	%		(3.6)	%		3.7	%		7.4	%		14.5	%
December 31, 2022
Dollar change	$	(46,800)		$	(22,963)		$	(11,327)		$	11,278		$	22,593		$	44,482
Percent change		(18.2)	%		(8.9)	%		(4.4)	%		4.4	%		8.8	%		17.3	%

The amounts and assumptions used in the simulation model should not be viewed as indicative of expected actual results.  Actual results will differ from simulated results due to timing, magnitude, balance sheet composition and frequency of interest rate changes as well as changes in market conditions and management strategies.  The above results do not take into account any management action to mitigate potential risk.

Effects of Inflation

In management’s opinion, although changes in interest rates affect our financial condition to a far greater degree than changes in the inflation rate, we monitor both.  The annual US inflation rate for September 2023 was 3.7%, a moderate increase quarter-over-quarter, while Core CPI eased to 4.1%.  Management believes the inflation rate will continue to come down, albeit at a much slower rate than experienced year-to-date as of September 2023.  The downside risks of high inflation put upwards pressure to our expenses, which could impact our profits.  Furthermore, higher costs of living weaken the financial condition of our borrowers which could affect our credit profile.  Overall, we expect the risk of high inflation has been contained with minimal impact to our results.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended, as of September 30, 2023.  Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2023, the Company’s internal controls were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities and Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified.

There were no changes in the Company’s internal controls over financial reporting during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

63

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

The Company and its subsidiaries, from time to time, are involved in collection suits in the ordinary course of business against its debtors and are defendants in legal actions arising from normal business activities.  Management, after consultation with legal counsel, believes that the ultimate liabilities, if any, resulting from these actions will not have a material adverse effect on the financial position of the Bank or on the consolidated financial position of the Company.

Item 1.A.  Risk Factors

Investing in shares of our common stock involves certain risks, including those identified and described in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as well as cautionary statements contained in this Quarterly Report, on Form 10-Q, including those under the caption “Cautionary Note Regarding Forward-Looking Statements.”

There have been no material changes to the risk factors previously disclosed in the Company’s (i) Annual Report on Form 10-K for the fiscal year ended December 31, 2022; (ii) Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2023; and (iii) Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2023.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.  Defaults Upon Senior Securities

None.

Item 4.  Mine Safety Disclosures

Not applicable.

Item 5.  Other Information

None.

64

Item 6.  Exhibits

Exhibits:

31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a).
31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a).
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets at September 30, 2023 and December 31, 2022; (ii) Consolidated Statements of Income for the three and nine months ended September 30, 2023 and 2022; (iii) Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2023 and 2022; (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022; (v) Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2023 and 2022; and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and in detail.
104	Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document).

65

SIGNATURES

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

	OLD SECOND BANCORP, INC.
		BY:	/s/ James L. Eccher
			James L. Eccher
			Chairman and Chief Executive Officer
			(principal executive officer)
		BY:	/s/ Bradley S. Adams
			Bradley S. Adams
			Executive Vice President, Chief Operating Officer and Chief Financial Officer
			(principal financial and accounting officer)
DATE: November 8, 2023

66

EX-31.1

Exhibit 31.1

I, James L. Eccher, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Old Second Bancorp, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purpose in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:   November 8, 2023	/s/ James L. Eccher
	James L. Eccher
	Chairman and Chief Executive Officer

1

EX-31.2

Exhibit 31.2

I, Bradley S. Adams, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Old Second Bancorp, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purpose in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:     November 8, 2023	/s/ Bradley S. Adams
	Bradley S. Adams
	Executive Vice President Chief Operating Officer and Chief Financial Officer

1

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Old Second Bancorp, Inc. (the “Company”) on Form 10-Q, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James L. Eccher, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Ay 13
November 8, 2023	/s/ James L. Eccher
	James L. Eccher
	Chairman and Chief Executive Officer (principal executive officer)

1

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Old Second Bancorp, Inc. (the “Company”) on Form 10-Q, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Bradley S. Adams, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

November 8, 2023	/s/ Bradley S. Adams
	Bradley S. Adams
	Executive Vice President Chief Operating Officer and Chief Financial Officer (principal financial and accounting officer)

1

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2023	Nov. 03, 2023
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Sep. 30, 2023
Entity File Number	000-10537
Entity Registrant Name	OLD SECOND BANCORP INC
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	36-3143493
Entity Address, Address Line One	37 South River Street
Entity Address, City or Town	Aurora
Entity Address, State or Province	IL
Entity Address, Postal Zip Code	60507
City Area Code	630
Local Phone Number	892-0202
Title of 12(b) Security	Common Stock
Trading Symbol	OSBC
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		44,697,917
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2023
Document Fiscal Period Focus	Q3
Entity Central Index Key	0000357173
Amendment Flag	false

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Assets
Cash and due from banks	$ 55,548	$ 56,632
Interest earning deposits with financial institutions	53,485	58,545
Cash and cash equivalents	109,033	115,177
Securities available-for-sale, at fair value	1,229,618	1,539,359
Federal Home Loan Bank Chicago ("FHLBC") and Federal Reserve Bank Chicago ("FRBC") stock	35,830	20,530
Loans held-for-sale	2,297	491
Loans	4,029,543	3,869,609
Less: allowance for credit losses on loans	51,729	49,480
Net loans	3,977,814	3,820,129
Premises and equipment, net	76,472	72,355
Other real estate owned	407	1,561
Mortgage servicing rights, at fair value	11,461	11,189
Goodwill	86,478	86,478
Core deposit intangible	11,820	13,678
Bank-owned life insurance ("BOLI")	108,187	106,608
Deferred tax assets, net	44,051	44,750
Other assets	64,688	56,012
Total assets	5,758,156	5,888,317
Deposits:
Noninterest bearing demand	1,862,659	2,051,702
Interest bearing:
Savings, NOW, and money market	2,273,671	2,617,100
Time	477,990	441,921
Total deposits	4,614,320	5,110,723
Securities sold under repurchase agreements	25,894	32,156
Other short-term borrowings	435,000	90,000
Junior subordinated debentures	25,773	25,773
Subordinated debentures	59,361	59,297
Senior notes		44,585
Notes payable and other borrowings		9,000
Other liabilities	65,250	55,642
Total liabilities	5,225,598	5,427,176
Stockholders' Equity
Common stock	44,705	44,705
Additional paid-in capital	201,553	202,276
Retained earnings	377,320	310,512
Accumulated other comprehensive loss	(90,619)	(93,124)
Treasury stock	(401)	(3,228)
Total stockholders' equity	532,558	461,141
Total liabilities and stockholders' equity	$ 5,758,156	$ 5,888,317

XML

Consolidated Balance Sheets (Parenthetical) - $ / shares	Sep. 30, 2023	Dec. 31, 2022
Consolidated Balance Sheets
Common stock, Par value (in dollars per share)	$ 1.00	$ 1.00
Common stock, Shares authorized	60,000,000	60,000,000
Common stock, Shares issued	44,705,150	44,705,150
Common stock, Shares outstanding	44,684,987	44,582,311
Treasury stock, Shares	20,163	122,839

XML

Consolidated Statements of Income - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Interest and dividend income
Loans, including fees	$ 62,665	$ 46,614	$ 181,436	$ 121,209
Loans held-for-sale	29	22	60	111
Securities:
Taxable	8,946	9,116	29,611	21,071
Tax exempt	1,333	1,332	4,007	3,946
Dividends from FHLBC and FRBC stock	597	261	1,273	677
Interest bearing deposits with financial institutions	659	663	1,887	1,714
Total interest and dividend income	74,229	58,008	218,274	148,728
Interest expense
Savings, NOW, and money market deposits	2,558	380	5,449	1,124
Time deposits	1,982	335	3,802	877
Securities sold under repurchase agreements	27	10	43	30
Other short-term borrowings	5,840	44	13,345	44
Junior subordinated debentures	245	285	805	849
Subordinated debentures	547	546	1,639	1,639
Senior notes		728	2,408	1,791
Notes payable and other borrowings		111	87	309
Total interest expense	11,199	2,439	27,578	6,663
Net interest and dividend income	63,030	55,569	190,696	142,065
Provision for credit losses	3,000	4,500	8,501	5,050
Net interest and dividend income after provision for credit losses	60,030	51,069	182,195	137,015
Noninterest income
Mortgage servicing rights mark to market gain (loss)	281	548	(148)	3,608
Net gain on sales of mortgage loans	407	449	1,111	1,682
Securities losses, net	(924)	(1)	(4,146)	(34)
Change in cash surrender value of BOLI	919	146	1,579	342
Card related income	2,606	2,653	7,540	8,194
Other income	1,024	2,165	3,286	3,949
Total noninterest income	9,877	11,496	25,450	34,170
Noninterest expense
Salaries and employee benefits	23,115	21,011	67,161	62,310
Occupancy, furniture and equipment	3,506	4,119	10,620	10,864
Computer and data processing	1,922	2,543	4,986	12,817
FDIC insurance	744	659	2,122	1,771
Net teller & bill paying	534	504	1,551	3,245
General bank insurance	300	257	911	923
Amortization of core deposit intangible	616	657	1,858	1,981
Advertising expense	93	83	338	459
Card related expense	1,347	1,453	3,785	3,044
Legal fees	97	212	699	648
Consulting & management fees	549	607	1,859	1,746
Other real estate (income) expense, net	(27)	21	181	96
Other expense	4,627	3,862	12,104	11,585
Total noninterest expense	37,423	35,988	108,175	111,489
Income before income taxes	32,484	26,577	99,470	59,696
Provision for income taxes	8,149	7,054	25,966	15,906
Net income	$ 24,335	$ 19,523	$ 73,504	$ 43,790
Basic earnings per share	$ 0.55	$ 0.43	$ 1.65	$ 0.98
Diluted earnings per share	0.54	0.43	1.62	0.97
Dividends declared per share	$ 0.05	$ 0.05	$ 0.15	$ 0.15
Wealth management
Noninterest income
Service charges on deposits	$ 2,475	$ 2,280	$ 7,203	$ 7,484
Service charges on deposits
Noninterest income
Service charges on deposits	2,504	2,661	7,290	7,063
Secondary mortgage fees
Noninterest income
Service charges on deposits	66	81	201	270
Mortgage servicing income
Noninterest income
Service charges on deposits	$ 519	$ 514	$ 1,534	$ 1,612

XML

Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Consolidated Statements of Comprehensive Income (Loss)
Net Income (Loss)	$ 24,335	$ 19,523	$ 73,504	$ 43,790
Unrealized holding losses on available-for-sale securities arising during the period	(9,062)	(41,163)	(1,212)	(146,477)
Related tax benefit	2,538	11,526	344	41,014
Holding losses, after tax, on available-for-sale securities	(6,524)	(29,637)	(868)	(105,463)
Less: Reclassification adjustment for the net losses realized during the period
Net realized losses	(924)	(1)	(4,146)	(34)
Related tax benefit	260	1	1,165	10
Net realized losses after tax	(664)		(2,981)	(24)
Other comprehensive (loss) income on available-for-sale securities	(5,860)	(29,637)	2,113	(105,439)
Changes in fair value of derivatives used for cash flow hedges	1,975	(4,868)	560	(2,381)
Related tax (expense) benefit	(548)	1,360	(168)	663
Other comprehensive income (loss) on cash flow hedges	1,427	(3,508)	392	(1,718)
Total other comprehensive (loss) income	(4,433)	(33,145)	2,505	(107,157)
Total comprehensive income (loss)	$ 19,902	$ (13,622)	$ 76,009	$ (63,367)

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
Cash flows from operating activities
Net income	$ 73,504	$ 43,790
Adjustments to reconcile net income to net cash provided by operating activities:
Net premium / discount amortization on securities	2,506	4,259
Securities losses, net	4,146	34
Provision for credit losses	8,501	5,050
Originations of loans held-for-sale	(39,068)	(65,103)
Proceeds from sales of loans held-for-sale	37,962	69,263
Net gains on sales of mortgage loans	(1,111)	(1,682)
Mortgage servicing rights mark to market loss (gain)	148	(3,608)
Net accretion of discount on loans and unfunded commitments	(2,620)	(5,473)
Net change in cash surrender value of BOLI	(1,579)	(342)
Net gains on sale of other real estate owned	(229)	(163)
Provision for other real estate owned valuation losses	269	104
Depreciation of fixed assets and amortization of leasehold improvements	3,246	3,079
Net gains on disposal and transfer of fixed assets	(636)	(1,872)
Amortization of core deposit intangibles	1,858	1,981
Change in current income taxes receivable	1,070	7,279
Deferred tax expense	(289)	(1,854)
Change in accrued interest receivable and other assets	(10,053)	1,036
Accretion of purchase accounting adjustment on time deposits	(1,004)	(1,207)
Change in accrued interest payable and other liabilities	7,991	3,314
Stock based compensation	2,709	2,176
Net cash provided by operating activities	87,321	60,061
Cash flows from investing activities
Proceeds from maturities and calls, including pay down of securities available-for-sale	104,471	231,483
Proceeds from sales of securities available-for-sale	205,738	3,303
Purchases of securities available-for-sale	(4,186)	(301,649)
Net purchases of FHLBC/FRBC stock	(15,300)	(6,156)
Net change in loans	(164,252)	(443,628)
Proceeds from sales of other real estate owned, net of participations and improvements	1,800	941
Proceeds from disposition of premises and equipment	4,460	12,167
Net purchases of premises and equipment	(8,217)	(2,670)
Cash paid for acquisition, net of cash and cash equivalents acquired		(146)
Net cash provided by (used in) investing activities	124,514	(506,355)
Cash flows from financing activities
Net change in deposits	(495,399)	(183,666)
Net change in securities sold under repurchase agreements	(6,262)	(14,840)
Net change in other short-term borrowings	345,000	25,000
Repayment of term note	(9,000)	(3,000)
Net change in notes payable and other borrowings, excluding term note		(6,056)
Repayment of senior notes	(45,000)
Dividends paid on common stock	(6,713)	(6,650)
Purchase of treasury stock	(605)	(447)
Net cash used in financing activities	(217,979)	(189,659)
Net change in cash and cash equivalents	(6,144)	(635,953)
Cash and cash equivalents at beginning of period	115,177	752,107
Cash and cash equivalents at end of period	$ 109,033	$ 116,154

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Consolidated Statements of Changes in Stockholders' Equity - USD ($) $ in Thousands	Common Stock	Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Treasury Stock	Total
Balance at Dec. 31, 2021	$ 44,705	$ 202,443	$ 252,011	$ 8,768	$ (5,900)	$ 502,027
Increase (Decrease) in Stockholders' Equity
Net income			43,790			43,790
Other comprehensive income loss, net of tax				(107,157)		(107,157)
Dividends declared on common stock			(6,675)			(6,675)
Vesting of restricted stock		(2,919)			2,919
Stock based compensation		2,176				2,176
Purchase of treasury stock from taxes withheld on stock awards					(447)	(447)
Balance at Sep. 30, 2022	44,705	201,700	289,126	(98,389)	(3,428)	433,714
Balance at Jun. 30, 2022	44,705	201,282	271,831	(65,244)	(3,670)	448,904
Increase (Decrease) in Stockholders' Equity
Net income			19,523			19,523
Other comprehensive income loss, net of tax				(33,145)		(33,145)
Dividends declared on common stock			(2,228)			(2,228)
Vesting of restricted stock		(304)			304
Stock based compensation		722				722
Purchase of treasury stock from taxes withheld on stock awards					(62)	(62)
Balance at Sep. 30, 2022	44,705	201,700	289,126	(98,389)	(3,428)	433,714
Balance at Dec. 31, 2022	44,705	202,276	310,512	(93,124)	(3,228)	461,141
Increase (Decrease) in Stockholders' Equity
Net income			73,504			73,504
Other comprehensive income loss, net of tax				2,505		2,505
Dividends declared on common stock			(6,696)			(6,696)
Vesting of restricted stock		(3,432)			3,432
Stock based compensation		2,709				2,709
Purchase of treasury stock from taxes withheld on stock awards					(605)	(605)
Balance at Sep. 30, 2023	44,705	201,553	377,320	(90,619)	(401)	532,558
Balance at Jun. 30, 2023	44,705	200,963	355,219	(86,186)	(746)	513,955
Increase (Decrease) in Stockholders' Equity
Net income			24,335			24,335
Other comprehensive income loss, net of tax				(4,433)		(4,433)
Dividends declared on common stock			(2,234)			(2,234)
Vesting of restricted stock		(345)			345
Stock based compensation		935				935
Balance at Sep. 30, 2023	$ 44,705	$ 201,553	$ 377,320	$ (90,619)	$ (401)	$ 532,558

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Consolidated Statements of Changes in Stockholders' Equity (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Balance	$ 513,955	$ 448,904	$ 461,141	$ 502,027
Other comprehensive (loss) income, net of tax	(4,433)	(33,145)	2,505	(107,157)
Balance	$ 532,558	$ 433,714	$ 532,558	$ 433,714
Dividend declared and paid (per share)	$ 0.05	$ 0.05	$ 0.15	$ 0.15
Total Accumulated Other Comprehensive Income/(Loss)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Balance	$ (86,186)	$ (65,244)	$ (93,124)	$ 8,768
Other comprehensive (loss) income, net of tax	(4,433)	(33,145)	2,505	(107,157)
Balance	(90,619)	(98,389)	(90,619)	(98,389)
Accumulated Unrealized Gain (Loss) on Securities Available-for-Sale
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Balance	(80,919)	(64,663)	(88,892)	11,139
Other comprehensive (loss) income, net of tax	(5,860)	(29,637)	2,113	(105,439)
Balance	(86,779)	(94,300)	(86,779)	(94,300)
Accumulated Unrealized Gain (Loss) on Derivative Instruments
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Balance	(5,267)	(581)	(4,232)	(2,371)
Other comprehensive (loss) income, net of tax	1,427	(3,508)	392	(1,718)
Balance	$ (3,840)	$ (4,089)	$ (3,840)	$ (4,089)

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Basis of Presentation and Changes in Significant Accounting Policies

9 Months Ended

Sep. 30, 2023

Basis of Presentation and Changes in Significant Accounting Policies

Basis of Presentation and Changes in Significant Accounting Policies

Note 1 – Basis of Presentation and Changes in Significant Accounting Policies

The accounting policies followed in the preparation of the interim consolidated financial statements are consistent with those used in the preparation of the annual financial information.  The interim consolidated financial statements reflect all normal and recurring adjustments that are necessary, in the opinion of management, for a fair statement of results for the interim period presented.  Results for the period ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.  These interim consolidated financial statements and accompanying notes are unaudited and should be read in conjunction with the audited financial statements and notes included in Old Second Bancorp, Inc.’s (the “Company”) annual report on Form 10-K for the year ended December 31, 2022.  Unless otherwise indicated, dollar amounts in the tables contained in the notes to the consolidated financial statements are in thousands.  Certain items in prior periods have been reclassified to conform to the current presentation.

The Company’s consolidated financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”) and follow general practices within the banking industry.  Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes.  These estimates, assumptions, and judgments are based on information available as of the date of the consolidated financial statements.  Future changes in information may affect these estimates, assumptions, and judgments, which, in turn, may affect amounts reported in the consolidated financial statements.

Recent Accounting Pronouncements

The following is a summary of recent accounting pronouncements that have impacted or could potentially affect the Company:  

ASU 2018-16, ASU 2020-04, ASU 2021-01, and ASU 2022-06 – In October 2018, the Financial Standards Board, or FASB, issued ASU No. 2018-16 “Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting.”  ASU 2018-16 adds the SOFR overnight index swap rate to the list of United States (U.S.) benchmark rates eligible for hedge accounting purposes, which is the fourth rate permissible to be used as a U.S. benchmark rate.  This guidance was effective for annual and interim periods beginning after December 15, 2018, and did not have a material impact on the financial condition or liquidity of the Company. ASU 2020-04 and ASU 2021-01 Reference Rate Reform (Topic 848) were issued on March 12, 2020 and January 7, 2021, respectively, and each provide further guidance on optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships due to the discontinuation of LIBOR.  In addition, on March 5, 2021, the International Swaps and Derivatives Association (“ISDA”) issued a statement with an “Index Cessation Event Announcement,” which confirmed the extension of the cessation of LIBOR-referenced rates from December 31, 2021, to June 30, 2023, for certain rate tenors. ASU 2022-06 further defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

The Company formed a LIBOR transition team in 2019 and developed a project plan to assess the use of alternative indexes and to seek to ensure all financial instruments that reference LIBOR are identified, quantified, and researched for the LIBOR fallback language available or needed.  The Company completed the ISDA protocol adherence for LIBOR fallback language for all commercial swaps, met with its commercial loan clients to also guide their swap fallback language adherence, and worked to revise all credit documents being issued by Old Second National Bank (the “Bank”) for new loans to ensure appropriate fallback language was included.  We discontinued the use of LIBOR as a reference rate for all consumer loans issued after July 31, 2021, and all commercial loans issued after December 31, 2021, with certain exceptions for those loans that were in the process of funding at the end of 2021. The Company’s systems were updated to handle multiple SOFR-based indexes and we planned accordingly for the transition of existing LIBOR exposures as the final LIBOR cessation date was June 30, 2023.  As of September 30, 2023, the Company’s LIBOR transition processes were determined to be completed and alternative index rates are in place.

ASU 2022-01 – On March 28, 2022, the FASB issued ASU 2022-01 “Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method.”  The goal of this new hedging standard is to better align the economic results of risk management activities with hedge accounting, by allowing multiple layers of a single closed portfolio to be hedged, as compared to the single-layer, or last of layer method, allowed with the adoption of ASU 2017-12.  ASU 2022-01 is effective for public business entities for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, and was adopted by the Company as of January 1, 2023.  There was no material impact of the pronouncement to the financial statements of the Company.

ASU 2022-02 – On March 31, 2022, the FASB issued ASU 2022-02 “Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” The amendments eliminate certain troubled debt restructuring (“TDR”) recognition and measurement guidance previously in effect, and consideration of the TDRs similar to other modified loans under CECL is now required.  ASU 2022-02 also requires enhancements to vintage loan disclosures, requiring detail be provided on current-period gross write-offs and disclosure of the amortized cost basis of financing receivables by credit quality indicators and by loan portfolio class of the gross charge-off based on year of origination.  ASU 2022-02 was effective for fiscal years beginning after December 15, 2022, including interim periods within those years, and was adopted prospectively by the Company as of January 1, 2023.  There was no material impact of the pronouncement to the financial statements of the Company.

Change in Significant Accounting Policies

Significant accounting policies are presented in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.  These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the consolidated financial statements and how those values are determined.  During the third quarter of 2023, the Company had no changes to significant accounting policies or estimates.

Subsequent Events

On October 17, 2023, our Board of Directors declared a cash dividend of $0.05 per share payable on November 6, 2023, to stockholders of record as of October 27, 2023; dividends of $2.2 million are scheduled to be paid to stockholders on November 6, 2023.

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Acquisition

9 Months Ended

Sep. 30, 2023

Acquisition

Acquisition

Note 2 – Acquisition

On December 1, 2021, the Company completed its acquisition of West Suburban Bancorp, Inc. (“West Suburban”), a bank holding company, and its wholly owned subsidiary, West Suburban Bank, based in Lombard, Illinois, with operations throughout our existing market footprint.  At closing, the Company acquired $2.94 billion of assets, $1.50 billion of loans, $1.07 billion of securities, and $2.69 billion of deposits, net of fair value adjustments. Under the terms of the merger agreement, each outstanding share of West Suburban common stock was exchanged for 42.413 shares of Company common stock, plus $271.15 of cash. This resulted in merger consideration of $295.2 million, based on the closing price of the Company’s common stock on the date of acquisition, which consisted of 15.7 million shares of the Company’s common stock and $100.7 million of cash.  Goodwill of $67.9 million associated with the acquisition was recorded by the Company, which was the result of expected synergies, operational efficiencies and other factors.  The acquisition of West Suburban was accounted for as a business combination, and none of the $67.9 million of goodwill recorded is expected to be deductible for income tax purposes.

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Securities

9 Months Ended

Sep. 30, 2023

Securities

Securities

Note 3 – Securities

Investment Portfolio Management

Our investment portfolio serves the liquidity needs and income objectives of the Company.  While the portfolio serves as an important component of the overall liquidity management at the Bank, portions of the portfolio also serve as income producing assets.  The size and composition of the portfolio reflects liquidity needs, loan demand and interest income objectives.  Portfolio size and composition will be adjusted from time to time.  While a significant portion of the portfolio consists of readily marketable securities to address liquidity, other parts of the portfolio may reflect funds invested pending future loan demand or to maximize interest income without undue interest rate risk.

Investments are comprised of debt securities and non-marketable equity investments.  Securities available-for-sale are carried at fair value.  Unrealized gains and losses, net of tax, on securities available-for-sale are reported as a separate component of equity.  This balance sheet component changes as interest rates and market conditions change.  Unrealized gains and losses are not included in the calculation of regulatory capital.  

Federal Home Loan Bank of Chicago (“FHLBC”) and Federal Reserve Bank of Chicago (“FRBC”) stock are considered nonmarketable equity investments.  FHLBC stock was recorded at $20.9 million at September 30, 2023, and $5.6 million at December 31, 2022.  FRBC stock was recorded at $14.9 million at September 30, 2023 and December 31, 2022.  

The following tables summarize the amortized cost and fair value of the securities portfolio at September 30, 2023, and December 31, 2022, and the corresponding amounts of gross unrealized gains and losses:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
September 30, 2023	Cost1		Gains		Losses		Value
Securities available-for-sale
U.S. Treasury	$	224,481	$	-	$	(7,704)	$	216,777
U.S. government agencies		60,197		-		(4,376)		55,821
U.S. government agencies mortgage-backed		122,653		-		(18,084)		104,569
States and political subdivisions		240,107		142		(20,149)		220,100
Corporate bonds		5,000		-		(39)		4,961
Collateralized mortgage obligations		450,470		54		(63,845)		386,679
Asset-backed securities		71,241		-		(4,325)		66,916
Collateralized loan obligations		175,995		10		(2,210)		173,795
Total securities available-for-sale	$	1,350,144	$	206	$	(120,732)	$	1,229,618

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2022	Cost1		Gains		Losses		Value
Securities available-for-sale
U.S. Treasury	$	224,054	$	-	$	(11,925)	$	212,129
U.S. government agencies		61,178		-		(5,130)		56,048
U.S. government agencies mortgage-backed		140,588		-		(15,598)		124,990
States and political subdivisions		239,999		363		(14,234)		226,128
Corporate bonds		10,000		-		(378)		9,622
Collateralized mortgage obligations		596,336		1		(62,569)		533,768
Asset-backed securities		210,388		6		(8,466)		201,928
Collateralized loan obligations		180,276		-		(5,530)		174,746
Total securities available-for-sale	$	1,662,819	$	370	$	(123,830)	$	1,539,359

¹ Excludes accrued interest receivable of $6.7 million and $6.8 million at September 30, 2023 and December 31, 2022, respectively, that is recorded in other assets on the consolidated balance sheets.

The fair value, amortized cost and weighted average yield of debt securities at September 30, 2023, by contractual maturity, are listed in the table below.  Securities not due at a single maturity date are shown separately.

			Weighted
	Amortized		Average		Fair
Securities available-for-sale	Cost		Yield		Value
Due in one year or less	$	49,989	0.64	%	$	49,804
Due after one year through five years		253,955	1.17			241,430
Due after five years through ten years		60,975	2.92			53,882
Due after ten years		164,866	3.11			152,543
		529,785	1.92			497,659
Mortgage-backed and collateralized mortgage obligations		573,123	2.29			491,248
Asset-backed securities		71,241	4.24			66,916
Collateralized loan obligations		175,995	7.21			173,795
Total securities available-for-sale	$	1,350,144	3.00	%	$	1,229,618

At September 30, 2023, the Company had no securities issued from any one originator, other than the U.S. Government and its agencies, which individually amounted to over 10% of the Company’s stockholders’ equity.

Securities with unrealized losses with no corresponding allowance for credit losses at September 30, 2023 and December 31, 2022, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows (in thousands except for number of securities):

	Less than 12 months					12 months or more
September 30, 2023	in an unrealized loss position					in an unrealized loss position					Total
	Number of	Unrealized		Fair		Number of	Unrealized		Fair		Number of	Unrealized		Fair
Securities available-for-sale	Securities	Losses		Value		Securities	Losses		Value		Securities	Losses		Value
U.S. Treasuries	-	$	-	$	-	5	$	7,704	$	216,777	5	$	7,704	$	216,777
U.S. government agencies	-		-		-	9		4,376		55,821	9		4,376		55,821
U.S. government agencies mortgage-backed	-		-		-	128		18,084		104,569	128		18,084		104,569
States and political subdivisions	44		3,232		110,511	30		16,917		104,582	74		20,149		215,093
Corporate bonds	-		-		-	1		39		4,961	1		39		4,961
Collateralized mortgage obligations	2		14		756	146		63,831		379,159	148		63,845		379,915
Asset-backed securities	-		-		-	19		4,325		66,916	19		4,325		66,916
Collateralized loan obligations	-		-		-	33		2,210		170,803	33		2,210		170,803
Total securities available-for-sale	46	$	3,246	$	111,267	371	$	117,486	$	1,103,588	417	$	120,732	$	1,214,855

	Less than 12 months					12 months or more
December 31, 2022	in an unrealized loss position					in an unrealized loss position					Total
	Number of	Unrealized			Fair	Number of	Unrealized			Fair	Number of	Unrealized			Fair
Securities available-for-sale	Securities	Losses			Value	Securities	Losses			Value	Securities	Losses			Value
U.S. Treasuries	1	$	1,025	$	24,121	4	$	10,900	$	188,008	5	$	11,925	$	212,129
U.S. government agencies	-		-		-	9		5,130		56,048	9		5,130		56,048
U.S. government agencies mortgage-backed	15		975		11,369	117		14,623		113,621	132		15,598		124,990
States and political subdivisions	45		5,800		128,770	15		8,434		48,877	60		14,234		177,647
Corporate bonds	-		-		-	2		378		9,622	2		378		9,622
Collateralized mortgage obligations	80		12,895		180,624	120		49,674		348,880	200		62,569		529,504
Asset-backed securities	30		3,030		121,915	21		5,436		79,659	51		8,466		201,574
Collateralized loan obligations	23		3,579		112,772	11		1,951		61,974	34		5,530		174,746
Total securities available-for-sale	194	$	27,304	$	579,571	299	$	96,526	$	906,689	493	$	123,830	$	1,486,260

Each quarter, we perform an analysis to determine if any of the unrealized losses on securities available-for-sale are comprised of credit losses as compared to unrealized losses due to market interest rate adjustments.  Our assessment includes a review of the unrealized loss for each security issuance held; the financial condition and near-term prospects of the issuer, including external credit ratings and recent downgrades; and our ability and intent to hold the security for a period of time sufficient for a recovery in value.  We also consider the extent to which the securities are issued by the federal government or its agencies, and any guarantee of issued amounts by those agencies.  The portfolio continues to consist of a mix of fixed and floating-rate, high quality securities, largely rated AA (or better), displaying an overall effective duration of approximately 3.0 years.  No credit losses were determined to be present as of September 30, 2023, as there was no credit quality deterioration noted.  Therefore, no provision for credit losses on securities was recognized for the third quarter of 2023.

The following table presents net realized losses on securities available-for-sale for three and nine months ended:

		Three Months Ended					Nine Months Ended
		September 30,					September 30,
Securities available-for-sale	2023			2022		2023			2022
Proceeds from sales of securities	$	65,572		$	-	$	205,738		$	3,303
Gross realized losses on securities		(924)			(1)		(4,146)			(34)
Net realized losses	$	(924)		$	(1)	$	(4,146)		$	(34)
Income tax benefit on net realized losses	$	260		$	1	$	1,165		$	10
Effective tax rate applied		28.1	%		N/M		28.1	%		29.4	%

N/M - Not meaningful

As of September 30, 2023, securities valued at $808.7 million were pledged for borrowings, and for other purposes, an increase from $547.8 million of securities pledged at year-end 2022.  

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Loans and Allowance for Credit Losses on Loans

9 Months Ended

Sep. 30, 2023

Loans and Allowance for Credit Losses on Loans

Loans and Allowance for Credit Losses on Loans

Note 4 – Loans and Allowance for Credit Losses on Loans

Major segments of loans were as follows:

	September 30, 2023		December 31, 2022
Commercial	$	834,877	$	840,964
Leases		354,827		277,385
Commercial real estate – investor		1,047,122		987,635
Commercial real estate – owner occupied		809,050		854,879
Construction		202,546		180,535
Residential real estate – investor		53,762		57,353
Residential real estate – owner occupied		227,446		219,718
Multifamily		372,020		323,691
HELOC		102,055		109,202
Other 1		25,838		18,247
Total loans		4,029,543		3,869,609
Allowance for credit losses on loans		(51,729)		(49,480)
Net loans 2	$	3,977,814	$	3,820,129

¹ The “Other” segment includes consumer loans and overdrafts in this table and in subsequent tables within Note 4 – Loans and Allowance for Credit Losses on Loans.

² Excludes accrued interest receivable of $19.2 million and $15.9 million at September 30, 2023 and December 31, 2022, respectively, that is recorded in other assets on the consolidated balance sheets.

It is the policy of the Company to review each prospective credit prior to making a loan in order to determine if an adequate level of security or collateral has been obtained.  The type of collateral, when required, will vary from liquid assets to real estate.  The Company seeks to assure access to collateral, in the event of borrower default, through adherence to lending laws, the Company’s lending standards and credit monitoring procedures.  Although the Bank makes loans primarily within its market area, there are no significant concentrations of loans where the customers’ ability to honor loan terms is dependent upon a single economic sector.  The real estate related categories listed above represent 69.8% and 70.6% of the portfolio at September 30, 2023, and December 31, 2022, respectively, and include a mix of owner occupied and non-owner occupied commercial real estate, residential, construction and multifamily loans.  

The following tables represent the activity in the allowance for credit losses for loans, or the ACL, for the three and nine months ended September 30, 2023 and 2022:

			Provision for
	Beginning		(Release of)						Ending
Allowance for credit losses	Balance		Credit Losses		Charge-offs		Recoveries		Balance
Three months ended September 30, 2023
Commercial	$	11,532	$	(1,025)	$	20	$	12	$	10,499
Leases		2,690		(193)		-		95		2,592
Commercial real estate – investor		20,031		4,726		6,774		20		18,003
Commercial real estate – owner occupied		12,562		(154)		35		12		12,385
Construction		1,179		(39)		-		100		1,240
Residential real estate – investor		743		(55)		-		3		691
Residential real estate – owner occupied		1,868		(36)		-		25		1,857
Multifamily		2,737		(165)		-		-		2,572
HELOC		1,694		(77)		-		35		1,652
Other		278		30		107		37		238
Total	$	55,314	$	3,012	$	6,936	$	339	$	51,729

			Provision for
	Beginning		(Release of)						Ending
Allowance for credit losses	Balance		Credit Losses		Charge-offs		Recoveries		Balance
Nine months ended September 30, 2023
Commercial	$	11,968	$	(1,287)	$	427	$	245	$	10,499
Leases		2,865		498		882		111		2,592
Commercial real estate – investor		10,674		14,117		6,845		57		18,003
Commercial real estate – owner occupied		15,001		(2,397)		236		17		12,385
Construction		1,546		(406)		-		100		1,240
Residential real estate – investor		768		(104)		-		27		691
Residential real estate – owner occupied		2,046		(260)		-		71		1,857
Multifamily		2,453		119		-		-		2,572
HELOC		1,806		(242)		-		88		1,652
Other		353		53		301		133		238
Total	$	49,480	$	10,091	$	8,691	$	849	$	51,729

			Provision for
	Beginning		(Release of)						Ending
Allowance for credit losses	Balance		Credit Losses		Charge-offs		Recoveries		Balance
Three months ended September 30, 2022
Commercial	$	14,114	$	(919)	$	67	$	47	$	13,175
Leases		1,736		(24)		178		-		1,534
Commercial real estate – investor		9,436		256		124		19		9,587
Commercial real estate – owner occupied		11,478		3,618		12		87		15,171
Construction		1,535		9		-		-		1,544
Residential real estate – investor		661		147		-		8		816
Residential real estate – owner occupied		1,869		149		-		113		2,131
Multifamily		2,434		33		-		63		2,530
HELOC		1,542		386		-		35		1,963
Other		583		(128)		103		44		396
Total	$	45,388	$	3,527	$	484	$	416	$	48,847

			Provision for
Allowance for credit losses	Beginning		(Release of)						Ending
Nine months ended September 30, 2022	Balance		Credit Losses		Charge-offs		Recoveries		Balance
Commercial	$	11,751	$	1,488	$	149	$	85	$	13,175
Leases		3,480		(1,768)		178		-		1,534
Commercial real estate – investor		10,795		(664)		604		60		9,587
Commercial real estate – owner occupied		4,913		10,289		133		102		15,171
Construction		3,373		(1,829)		-		-		1,544
Residential real estate – investor		760		33		-		23		816
Residential real estate – owner occupied		2,832		(919)		-		218		2,131
Multifamily		3,675		(1,208)		-		63		2,530
HELOC		2,510		(649)		-		102		1,963
Other		192		404		320		120		396
Total	$	44,281	$	5,177	$	1,384	$	773	$	48,847

At September 30, 2023, our allowance for credit losses (“ACL”) on loans totaled $51.7 million, and our ACL on unfunded commitments, included in other liabilities, totaled $2.9 million including related purchase accounting adjustments.  During the first nine months of 2023, we recorded net provision expense of $8.5 million based on historical loss rate updates driven by higher charge offs in commercial real estate-investor, loan growth of approximately $160.0 million, downward risk rating migration including an increased reserve on loans individually analyzed, and our assessment of estimated future credit losses. The ACL on loans excludes $2.7 million, $4.3 million and $4.4 million of allowance for unfunded commitments as of September 30, 2023, December 31, 2022 and September 30, 2022, respectively, recorded within Other Liabilities.  The total ACL on unfunded commitments listed as of September 30, 2023, December 31, 2022, and September 30, 2022 excludes the purchase accounting adjustment of $149,000, $819,000, and $1.0 million, respectively, recorded due to our acquisition of West Suburban, which is also recorded within Other Liabilities, and is being accreted in interest income over the estimated life of the unused commitments.

Generally, the Bank considers a loan to be collateral dependent when, based on current information and events, it is probable that foreclosure will be initiated. Additionally, the Bank will review all loans meeting the criteria for individual analysis, to determine if repayment or satisfaction of the loan is expected through the sale of collateral. This will generally be the case for credits with high loan-to-values. Exceptions to this policy would include loans with guarantors that have the means and willingness to support the obligation. Non-accruing loans with an outstanding balance of $500,000 or more are assessed on an individual loan level basis. When a financial asset is deemed collateral-dependent, the level of credit loss is measured by the difference between amortized cost of the financial asset and the fair value of collateral adjusted for estimated cost to sell. The Company had $55.8 million and $50.5 million of collateral dependent loans secured by real estate or business assets as of September 30, 2023, and December 31, 2022, respectively.

The following tables present the collateral dependent loans and the related ACL allocated by segment of loans as of September 30, 2023 and December 31, 2022:

			Accounts								ACL
September 30, 2023	Real Estate		Receivable		Equipment		Other		Total		Allocation
Commercial	$	849	$	679	$	-	$	-	$	1,528	$	2
Leases		-		-		339		-		339		339
Commercial real estate – investor		26,724		-		-		-		26,724		4,848
Commercial real estate – owner occupied		17,636		-		-		-		17,636		4,201
Construction		7,206		-		-		-		7,206		-
Residential real estate – investor		32		-		-		-		32		-
Residential real estate – owner occupied		1,679		-		-		-		1,679		-
Multifamily		568		-		-		-		568		-
HELOC		39		-		-		-		39		-
Total	$	54,733	$	679	$	339	$	-	$	55,751	$	9,390

			Accounts								ACL
December 31, 2022	Real Estate		Receivable		Equipment		Other		Total		Allocation
Commercial	$	883	$	5,915	$	-	$	364	$	7,162	$	569
Leases		-		-		1,248		-		1,248		1,248
Commercial real estate – investor		16,576		-		-		-		16,576		2,875
Commercial real estate – owner occupied		19,188		-		-		2,310		21,498		5,808
Residential real estate – investor		675		-		-		-		675		-
Residential real estate – owner occupied		1,817		-		-		-		1,817		244
Multifamily		1,322		-		-		-		1,322		-
HELOC		180		-		-		-		180		-
Total	$	40,641	$	5,915	$	1,248	$	2,674	$	50,478	$	10,744

Aged analysis of past due loans by segments of loans was as follows:

													90 days or
					90 Days or								Greater Past
	30-59 Days		60-89 Days		Greater Past		Total Past						Due and
September 30, 2023	Past Due		Past Due		Due		Due		Current		Total Loans		Accruing
Commercial	$	1,829	$	1,874	$	1,052	$	4,755	$	830,122	$	834,877	$	979
Leases		2,502		-		157		2,659		352,168		354,827		-
Commercial real estate – investor		2,205		16,728		16,116		35,049		1,012,073		1,047,122		-
Commercial real estate – owner occupied		15,232		120		1,879		17,231		791,819		809,050		-
Construction		118		200		7,206		7,524		195,022		202,546		-
Residential real estate – investor		252		-		277		529		53,233		53,762		140
Residential real estate – owner occupied		735		419		1,820		2,974		224,472		227,446		-
Multifamily		713		127		-		840		371,180		372,020		-
HELOC		646		88		259		993		101,062		102,055		90
Other		-		-		-		-		25,838		25,838		-
Total	$	24,232	$	19,556	$	28,766	$	72,554	$	3,956,989	$	4,029,543	$	1,209

													90 days or
					90 Days or								Greater Past
	30-59 Days		60-89 Days		Greater Past		Total Past						Due and
December 31, 2022	Past Due		Past Due		Due		Due		Current		Total Loans		Accruing
Commercial	$	3	$	1,012	$	825	$	1,840	$	839,124	$	840,964	$	460
Leases		447		22		614		1,083		276,302		277,385		-
Commercial real estate – investor		3,276		1,276		4,315		8,867		978,768		987,635		-
Commercial real estate – owner occupied		373		113		2,211		2,697		852,182		854,879		173
Construction		14		-		116		130		180,405		180,535		-
Residential real estate – investor		445		-		987		1,432		55,921		57,353		144
Residential real estate – owner occupied		1,191		-		2,232		3,423		216,295		219,718		485
Multifamily		267		361		1,322		1,950		321,741		323,691		-
HELOC		291		90		392		773		108,429		109,202		-
Other		19		-		-		19		18,228		18,247		-
Total	$	6,326	$	2,874	$	13,014	$	22,214	$	3,847,395	$	3,869,609	$	1,262

The table presents all nonaccrual loans as of September 30, 2023, and December 31, 2022:

Nonaccrual loan detail	September 30, 2023		With no ACL		December 31, 2022		With no ACL
Commercial	$	2,167	$	2,167	$	7,189	$	6,598
Leases		377		38		1,876		-
Commercial real estate – investor		26,724		11,786		4,346		4,244
Commercial real estate – owner occupied		18,290		3,833		8,050		3,813
Construction		7,206		7,206		251		-
Residential real estate – investor		1,362		1,362		1,528		675
Residential real estate – owner occupied		3,627		3,627		3,713		1,572
Multifamily		1,141		1,141		2,538		1,322
HELOC		1,222		1,222		2,109		180
Other		-		-		2		-
Total	$	62,116	$	32,382	$	31,602	$	18,404

The Company recognized $189,000 and $304,000 of interest on nonaccrual loans during the three months and nine months ended September 30, 2023, respectively.

Credit Quality Indicators

The Company categorizes loans into credit risk categories based on current financial information, overall debt service coverage, comparison to industry averages, historical payment experience, and current economic trends.  This analysis includes loans with outstanding balances or commitments greater than $50,000 and excludes homogeneous loans such as home equity lines of credit and residential mortgages.  Loans with a classified risk rating are reviewed quarterly regardless of size or loan type.  The Company uses the following definitions for classified risk ratings:

Special Mention.  Loans classified as special mention have a potential weakness that deserves management’s close attention.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.  Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.  They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.  The substandard credit quality indicator includes both potential problem loans that are currently performing and nonperforming loans.

Doubtful.  Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Credits that are not covered by the definitions above are pass credits, which are not considered to be adversely rated.

Credit quality indicators by loan segment and loan origination date at September 30, 2023 were as follows:

	2023		2022		2021		2020		2019		Prior		Revolving Loans		Revolving Loans Converted To Term Loans		Total
Commercial
Pass	$	215,492	$	187,682	$	41,464	$	13,359	$	10,676	$	4,315	$	311,562	$	1,379	$	785,929
Special Mention		-		500		244		-		51		-		29,855		-		30,650
Substandard		-		79		1,381		2,735		9,689		-		4,414		-		18,298
Total commercial		215,492		188,261		43,089		16,094		20,416		4,315		345,831		1,379		834,877
Leases
Pass		151,691		125,092	$	47,808		17,522		9,545		2,595		-		-		354,253
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		339		-		-		235		-		-		-		574
Total leases		151,691		125,431		47,808		17,522		9,780		2,595		-		-		354,827
Commercial real estate – investor
Pass		176,779		341,597		203,972		111,333		59,770		67,264		8,148		-		968,863
Special Mention		-		12,866		11,267		-		-		-		-		-		24,133
Substandard		10,964		11,787		1,950		7,748		9,278		-		12,399		-		54,126
Total commercial real estate – investor		187,743		366,250		217,189		119,081		69,048		67,264		20,547		-		1,047,122
Commercial real estate – owner occupied
Pass		105,963		139,223		181,543		78,750		54,909		101,396		33,258		-		695,042
Special Mention		1,758		11,722		18,180		26,480		222		354		-		-		58,716
Substandard		-		14,994		19,926		1,142		18,811		419		-		-		55,292
Total commercial real estate – owner occupied		107,721		165,939		219,649		106,372		73,942		102,169		33,258		-		809,050
Construction
Pass		26,529		75,698		56,217		19,531		1,837		1,155		3,699		-		184,666
Special Mention		305		312		-		-		-		-		-		-		617
Substandard		-		7,206		-		10,057		-		-		-		-		17,263
Total construction		26,834		83,216		56,217		29,588		1,837		1,155		3,699		-		202,546
Residential real estate – investor
Pass		3,310		14,560		8,954		6,317		7,116		10,519		1,417		-		52,193
Special Mention		-		-		67		-		-		-		-		-		67
Substandard		-		398		-		-		418		686		-		-		1,502
Total residential real estate – investor		3,310		14,958		9,021		6,317		7,534		11,205		1,417		-		53,762
Residential real estate – owner occupied
Pass		26,371		41,915		41,439		26,544		15,147		71,637		766		-		223,819
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		122		-		90		686		2,729		-		-		3,627
Total residential real estate – owner occupied		26,371		42,037		41,439		26,634		15,833		74,366		766		-		227,446
Multifamily
Pass		69,947		79,689		101,878		57,792		12,391		42,603		382		-		364,682
Special Mention		-		170		3,505		326		1,656		540		-		-		6,197
Substandard		-		887		-		-		-		254		-		-		1,141
Total multifamily		69,947		80,746		105,383		58,118		14,047		43,397		382		-		372,020
HELOC
Pass		1,765		2,760		211		1,443		1,631		2,494		90,317		-		100,621
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		39		27		1		1		-		106		1,260		-		1,434
Total HELOC		1,804		2,787		212		1,444		1,631		2,600		91,577		-		102,055
Other
Pass		4,461		2,068		1,415		223		151		88		17,432				25,838
Special Mention		-		-		-		-		-		-		-				-
Substandard		-		-		-		-		-		-		-				-
Total other		4,461		2,068		1,415		223		151		88		17,432		-		25,838
Total loans
Pass		782,308		1,010,284		684,901		332,814		173,173		304,066		466,981		1,379		3,755,906
Special Mention		2,063		25,570		33,263		26,806		1,929		894		29,855		-		120,380
Substandard		11,003		35,839		23,258		21,773		39,117		4,194		18,073		-		153,257
Total loans	$	795,374	$	1,071,693	$	741,422	$	381,393	$	214,219	$	309,154	$	514,909	$	1,379	$	4,029,543

Credit quality indicators by loan segment and loan origination date at December 31, 2022, were as follows:

	2022		2021		2020		2019		2018		Prior		Revolving Loans		Revolving Loans Converted To Term Loans		Total
Commercial
Pass	$	225,056	$	70,608	$	21,597	$	12,742	$	6,957	$	2,651	$	447,821	$	-	$	787,432
Special Mention		1,875		272		1,182		2,432		-		-		21,286		-		27,047
Substandard		4,958		2,447		2,981		12,176		7		-		3,916		-		26,485
Total commercial		231,889		73,327		25,760		27,350		6,964		2,651		473,023		-		840,964
Leases
Pass		161,379		64,203	$	26,995		17,653		4,449		830		-		-		275,509
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		1,606		-		-		270		-		-		-		-		1,876
Total leases		162,985		64,203		26,995		17,923		4,449		830		-		-		277,385
Commercial real estate – investor
Pass		416,094		228,686		118,491		63,845		46,935		46,406		7,113		-		927,570
Special Mention		5,349		1,417		5,490		10,206		1,070		9,123		-		-		32,655
Substandard		12,332		2,018		-		10,763		-		2,297		-		-		27,410
Total commercial real estate – investor		433,775		232,121		123,981		84,814		48,005		57,826		7,113		-		987,635
Commercial real estate – owner occupied
Pass		169,703		223,731		105,669		47,351		49,367		86,660		33,745		-		716,226
Special Mention		8,430		22,242		48,184		17,668		231		1,008		-		-		97,763
Substandard		2,546		17,129		1,191		16,962		-		3,062		-		-		40,890
Total commercial real estate – owner occupied		180,679		263,102		155,044		81,981		49,598		90,730		33,745		-		854,879
Construction
Pass		53,058		65,758		39,542		2,390		226		1,408		1,523		-		163,905
Special Mention		-		-		15,297		-		-		-		-		-		15,297
Substandard		1,217		-		-		116		-		-		-		-		1,333
Total construction		54,275		65,758		54,839		2,506		226		1,408		1,523		-		180,535
Residential real estate – investor
Pass		14,737		9,910		6,945		8,585		4,853		9,548		991		-		55,569
Special Mention		-		70		-		-		-		-		-		-		70
Substandard		621		-		-		499		186		408		-		-		1,714
Total residential real estate – investor		15,358		9,980		6,945		9,084		5,039		9,956		991		-		57,353
Residential real estate – owner occupied
Pass		41,885		44,884		28,418		16,146		12,152		70,741		1,638		-		215,864
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		131		267		237		723		131		2,365		-		-		3,854
Total residential real estate – owner occupied		42,016		45,151		28,655		16,869		12,283		73,106		1,638		-		219,718
Multifamily
Pass		76,877		126,257		52,262		13,125		39,703		6,098		329		-		314,651
Special Mention		377		3,683		342		1,684		-		-		-		-		6,086
Substandard		2,100		-		-		-		587		267		-		-		2,954
Total multifamily		79,354		129,940		52,604		14,809		40,290		6,365		329		-		323,691
HELOC
Pass		2,760		517		1,497		1,703		657		2,288		97,258		-		106,680
Special Mention		-		-		-		-		-		-		111		-		111
Substandard		62		1		-		-		67		309		1,972		-		2,411
Total HELOC		2,822		518		1,497		1,703		724		2,597		99,341		-		109,202
Other
Pass		4,195		2,835		432		167		69		111		10,436		-		18,245
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		1		-		-		-		1		-		2
Total other		4,195		2,835		433		167		69		111		10,437		-		18,247
Total loans
Pass		1,165,744		837,389		401,848		183,707		165,368		226,741		600,854		-		3,581,651
Special Mention		16,031		27,684		70,495		31,990		1,301		10,131		21,397		-		179,029
Substandard		25,573		21,862		4,410		41,509		978		8,708		5,889		-		108,929
Total loans	$	1,207,348	$	886,935	$	476,753	$	257,206	$	167,647	$	245,580	$	628,140	$	-	$	3,869,609

The gross charge-offs activity by loan type and year of origination for the nine months ended September 30, 2023 were as follows:

Current period gross charge-offs	2023		2022		2021		2020		2019		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total
Commercial	$	-		-		17		364		-		46	$	-	$	-	$	427
Leases		-		870		-		-		12		-		-		-		882
Commercial real estate – investor		-		4,121		71		2,653		-		-		-		-		6,845
Commercial real estate – owner occupied		-		22		178		4		-		32		-		-		236
Construction		-		-		-		-		-		-		-		-		-
Residential real estate – investor		-		-		-		-		-		-		-		-		-
Residential real estate – owner occupied		-		-		-		-		-		-		-		-		-
Multifamily		-		-		-		-		-		-		-		-		-
HELOC		-		-		-		-		-		-		-		-		-
Other		-		3		26		7		-		265		-		-		301
Total	$	-	$	5,016	$	292	$	3,028	$	12	$	343		-		-	$	8,691

The Company had $176,000 and $600,000 in residential real estate loans in the process of foreclosure as of September 30, 2023 and December 31, 2022, respectively.  

As of January 1, 2023, the Company prospectively adopted ASU 2022-02, Topic 326 “Troubled Debt Restructuring (“TDRs”) and Vintage Disclosures”, see Note 1. Fifteen loans, totaling $43.0 million in aggregate, were modified which were experiencing financial difficulty during the nine-month period ending September 30, 2023.  There were no TDR loan modifications for the three months ended September 30, 2022, and there were two TDR loan modifications for an aggregate of $39,000 for the nine months ended September 30, 2022.  TDRs were classified as being in default on a case-by-case basis when they failed to be in compliance with the modified terms.  There were no financial difficulty loans modified in payment default as of September 30, 2023 and was no TDR default activity for the period ended September 30, 2023, for loans that were restructured within the prior 12-month period.

The following table presents the amortized costs basis of loans at September 30, 2023 that were both experiencing financial difficulty and modified during the period ended September 30, 2023 by class and by type of modification.  The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to amortized costs basis of each class of financing receivable is also presented below.

September 30, 2023	Term Extension		Combination - Term Extension and Interest Rate Reduction		Combination - Term Extension and Payment Delay		Total Loans Modified		% of Total Loan Segment Modified to Total Loan Segment
Commercial	$	1,713	$	979	$	-	$	2,692	0.3%
Commercial real estate – investor		12,755		-		10,608		23,363	2.2%
Commercial real estate – owner occupied		16,218		-		-		16,218	2.0%
Residential real estate – owner occupied		437		-		-		437	0.2%
Multifamily		254		-		-		254	0.1%
HELOC		39		-		-		39	0.0%
Total	$	31,416	$	979	$	10,608	$	43,003	1.1%

The Company closely monitors the performance of loan modifications to borrowers experiencing financial difficulty. The following table presents the performance of loans that have been modified as of September 30, 2023.

September 30, 2023	30-59 days past due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loan Modified
Commercial	$	-	$	-	$	979	$	979	$	1,713	$	2,692
Commercial real estate – investor		-		-		-		-		23,363		23,363
Commercial real estate – owner occupied		-		-		-		-		16,218		16,218
Residential real estate – owner occupied		-		-		-		-		437		437
Multifamily		-		-		-		-		254		254
HELOC		-		-		-		-		39		39
Total	$	-	$	-	$	979	$	979	$	42,024	$	43,003

The following table summarizes the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the period ended September 30, 2023. The Company had two Commercial real estate – investor loans that had a payment modification, one changed to a single payment at maturity and the other changed from principal and interest to interest only until maturity.

September 30, 2023	Weighted-Average Term Extension (In Months)		Weighted-Average Interest Rate Change			Weighted-Average Delay of Payment (In Months)
Commercial		6.74		5.00	%		-
Commercial real estate – investor		9.81		-			7.17
Commercial real estate – owner occupied		14.00		-			-
Residential real estate – owner occupied		2.00		-			-
Multifamily		16.00		-			-
HELOC		24.00		-			-
Total		11.17		5.00	%		7.17

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Deposits

9 Months Ended

Sep. 30, 2023

Deposits

Deposits

Note 5 – Deposits

Major classifications of deposits were as follows:

	September 30, 2023		December 31, 2022
Noninterest bearing demand	$	1,862,659	$	2,051,702
Savings		1,003,498		1,145,592
NOW accounts		567,997		609,338
Money market accounts		702,176		862,170
Certificates of deposit of less than $100,000		248,272		244,017
Certificates of deposit of $100,000 through $250,000		162,901		157,438
Certificates of deposit of more than $250,000		66,817		40,466
Total deposits	$	4,614,320	$	5,110,723

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Borrowings

9 Months Ended

Sep. 30, 2023

Borrowings

Borrowings

Note 6 – Borrowings

The following table is a summary of borrowings as of September 30, 2023 and December 31, 2022.  Junior subordinated debentures are discussed in more detail in Note 7.

	September 30, 2023		December 31, 2022
Securities sold under repurchase agreements	$	25,894	$	32,156
Other short-term borrowings		435,000		90,000
Junior subordinated debentures1		25,773		25,773
Subordinated debentures		59,361		59,297
Senior notes		-		44,585
Notes payable and other borrowings		-		9,000
Total borrowings	$	546,028	$	260,811
1 See Note 7: Junior Subordinated Debentures

The Company enters into deposit sweep transactions where the transaction amounts are secured by pledged securities.  These transactions consistently mature overnight from the transaction date and are governed by sweep repurchase agreements.  All sweep repurchase agreements are treated as financings secured by U.S. government agencies and collateralized mortgage-backed securities, and had a carrying amount of $25.9 million at September 30, 2023, and $32.2 million at December 31, 2022.  The fair value of the pledged collateral was $43.8 million at September 30, 2023, and $71.4 million at December 31, 2022.  At September 30, 2023, there were no customers with secured balances exceeding 10% of stockholders’ equity.

The Company’s borrowings at the FHLBC require the Bank to be a member and invest in the stock of the FHLBC.  Total borrowings are generally limited to the lower of 35% of total assets or 60% of the book value of certain mortgage loans.  As of September 30, 2023, the Bank had $435.0 million in short-term advances outstanding under the FHLBC.  There were $90.0 million in short-term advances as of December 31, 2022. FHLBC stock held at September 30, 2023 was valued at $20.9 million, and any potential FHLBC advances were collateralized by loans and securities with a principal balance of $1.47 billion, which carried a FHLBC-calculated combined collateral value of $1.02 billion.  The Company had excess collateral of $581.7 million available to secure borrowings at September 30, 2023.

In the second quarter of 2021, we issued $60.0 million in aggregate principal amount of our 3.50% Fixed-to-Floating Rate Subordinated Notes due April 15, 2031 (the “Notes”). The Company used the net proceeds from the offering for general corporate purposes.  The Notes bear interest at a fixed annual rate of 3.50%, from and including the date of issuance to but excluding April 15, 2026, payable semi-annually in arrears.  From and including April 15, 2026 to, but excluding the maturity date or early redemption date, the interest rate will reset quarterly to an interest rate per annum equal to three-month Term SOFR (as defined by the Note) plus 273 basis points, payable quarterly in arrears. As of September 30, 2023 and December 31, 2022, we had $59.4 million and $59.3 million of subordinated debentures outstanding, net of deferred issuance costs, respectively.

The Company issued senior notes in December 2016 with a ten-year maturity, and terms included interest payable semiannually at 5.75% for five years.  Beginning December 31, 2021, the senior debt began to pay interest at a floating rate, with interest payable quarterly at three month LIBOR plus 385 basis points. The interest rate at June 30, 2023 and December 31, 2022 was 9.39% and 8.62%, respectively. The notes were redeemable, in whole or in part, at the option of the Company, beginning with the interest payment date on December 31, 2021, and on any floating rate interest payment date thereafter, at a redemption price equal to 100% of the principal amount of the notes plus accrued and unpaid interest.  On June 30, 2023, we redeemed all of the $45.0 million senior notes.  Upon redemption, the related deferred debt issuance costs of $362,000 was also recorded as interest expense, resulting in an effective cost of this debt issuance of 12.85% for the second quarter of 2023.

On February 24, 2020, the Company originated a $20.0 million three-year term note with a correspondent bank. The term note was issued at one-month LIBOR plus 175 basis points, and required principal payments quarterly and interest payments monthly.  This note was included within Notes payable and other borrowings on the Consolidated Balance Sheets, and the remaining $9.0 million balance of the note was paid off on February 24, 2023.  The Company also has an undrawn line of credit of $30.0 million with a correspondent bank to be used for short-term funding needs; advances under this line can be outstanding up to 360 days from the date of issuance.  This line of credit has not been utilized since early 2019.

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Junior Subordinated Debentures

9 Months Ended

Sep. 30, 2023

Junior Subordinated Debentures.

Junior Subordinated Debentures

Note 7 – Junior Subordinated Debentures

The Company issued $25.0 million of cumulative trust preferred securities through a private placement completed by an unconsolidated subsidiary, Old Second Capital Trust II, in April 2007.  These trust preferred securities mature in 30 years, but subject to regulatory approval, can be called in whole or in part on a quarterly basis commencing June 15, 2017.  The quarterly cash distributions on the securities were fixed at 6.77% through June 15, 2017, and now have a floating rate of 150 basis points over three-month SOFR.  Upon conversion to a floating rate, a cash flow hedge was initiated which resulted in the total interest rate paid on the debt of 3.77% and 4.39% for the quarters ended September 30, 2023 and September 30, 2022, respectively.  The Company issued a $25.8 million subordinated debenture to Old Second Capital Trust II in return for the aggregate net proceeds of this trust preferred offering.  The interest rate and payment frequency on the debenture are equivalent to the cash distribution basis on the trust preferred securities.  

The junior subordinated debentures issued by the Company are disclosed on the Consolidated Balance Sheets, and the related interest expense for each issuance is included in the Consolidated Statements of Income.  As of September 30, 2023 and December 31, 2022, the remaining unamortized debt issuance costs related to the junior subordinated debentures were $1,000 and are included as a reduction to the balance of the junior subordinated debentures on the Consolidated Balance Sheets.  The remaining deferred issuance costs on the junior subordinated debentures related to the issuance of Old Second Capital Trust II will be amortized to interest expense over the remainder of the 30-year term of the notes and are included in the Consolidated Statements of Income.

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Equity Compensation Plans

9 Months Ended

Sep. 30, 2023

Equity Compensation Plans

Equity Compensation Plans

Note 8 – Equity Compensation Plans

Stock-based awards are outstanding under the Company’s 2019 Equity Incentive Plan, as amended and restated (the “2019 Plan”).  The 2019 Plan was originally approved at the May 2019 annual stockholders’ meeting and authorized 600,000 shares, and at the May 2021 annual stockholders’ meeting, the Company obtained stockholder approval to increase the number of shares of common stock authorized for issuance under the 2019 Plan by 1,200,000 shares, from 600,000 shares to 1,800,000 shares.  Following the approval of the 2019 Plan, no further awards will be granted under any other prior plan.  

The 2019 Plan authorizes the granting of qualified stock options, non-qualified stock options, restricted stock, restricted stock units, and stock appreciation rights (“SARs”).  Awards may be granted to selected directors, officers, employees or eligible service providers under the 2019 Plan at the discretion of the Compensation Committee of the Company’s Board of Directors.  As of September 30, 2023, 975,712 shares remained available for issuance under the 2019 Plan.  The Company has granted only restricted stock units under the 2019 Equity Plan.

Generally, restricted stock units granted under the 2019 Plan vest three years from the grant date, but the Compensation Committee of the Company’s Board of Directors has discretionary authority to change the terms of particular awards including the vesting schedule.

Under the 2019 Plan, unless otherwise provided in an award agreement, upon the occurrence of a change in control, all equity awards then held by the participant will become fully exercisable immediately if, and all stock awards and cash incentive awards will become fully earned and vested immediately if, (i) the 2019 Plan is not an obligation of the successor entity following a change in control or (ii) the 2019 Plan is an obligation of the successor entity following a change in control and the participant incurs a termination of service without cause or for good reason following the change in control.  Notwithstanding the immediately preceding sentence, if the vesting of an award is conditioned upon the achievement of performance measures, then such vesting will generally be subject to the following: if, at the time of the change in control, the performance measures are less than 50% attained (pro rata based upon the time of the period through the change in control), the award will become vested and exercisable on a fractional basis with the numerator being equal to the percentage of attainment and the denominator being 50%; and if, at the time of the change in control, the performance measures are at least 50% attained (pro rata based upon the time of the period through the change in control), the award will become fully earned and vested immediately upon the change in control.

Awards of restricted stock under the 2019 Plan generally entitle holders to voting and dividend rights upon grant and are subject to forfeiture until certain restrictions have lapsed including employment for a specific period.  Awards of restricted stock units under the 2019 Plan are also subject to forfeiture until certain restrictions have lapsed including employment for a specific period, but do not entitle holders to voting rights until the restricted period ends and shares are transferred in connection with the units.

There were 240,149 and 268,160 restricted stock units issued under the 2019 Plan during the nine months ended September 30, 2023 and September 30, 2022, respectively.  Compensation expense is recognized over the vesting period of the restricted stock units based on the market value of the award on the issue date.  Total compensation cost that has been recorded for the 2019 Plan was $2.7 million for the nine months ended September 30, 2023 and $2.3 million for the nine months ended September 30, 2022.

A summary of changes in the Company’s unvested restricted awards for the nine months ended September 30, 2023, is as follows:

	September 30, 2023
		Weighted
	Restricted	Average
	Stock Shares	Grant Date
	and Units	Fair Value
Unvested at January 1	649,210	$	12.84
Granted	240,149		17.02
Vested	(137,534)		12.53
Forfeited	(15,191)		14.25
Unvested at September 30	736,634	$	14.23

Total unrecognized compensation cost of restricted awards was $5.0 million as of September 30, 2023, which is expected to be recognized over a weighted-average period of 1.87 years.  

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Earnings Per Share

9 Months Ended

Sep. 30, 2023

Earnings Per Share

Earnings Per Share

Note 9 – Earnings Per Share

The earnings per share, both basic and diluted, are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Basic earnings per share:
Weighted-average common shares outstanding		44,675,489		44,565,626		44,653,451		44,509,072
Net income	$	24,335	$	19,523	$	73,504	$	43,790
Basic earnings per share	$	0.55	$	0.43	$	1.65	$	0.98
Diluted earnings per share:
Weighted-average common shares outstanding		44,675,489		44,565,626		44,653,451		44,509,072
Dilutive effect of unvested restricted awards 1		752,920		655,915		736,767		698,920
Diluted average common shares outstanding		45,428,409		45,221,541		45,390,218		45,207,992
Net Income	$	24,335	$	19,523	$	73,504	$	43,790
Diluted earnings per share	$	0.54	$	0.43	$	1.62	$	0.97
1 Includes the common stock equivalents for restricted share rights that are dilutive.

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Regulatory & Capital Matters

9 Months Ended

Sep. 30, 2023

Regulatory & Capital Matters

Regulatory & Capital Matters

Note 10 – Regulatory & Capital Matters

The Bank is subject to the risk-based capital regulatory guidelines, which include the methodology for calculating the risk-weighted Bank assets, developed by the Office of the Comptroller of the Currency (the “OCC”) and the other bank regulatory agencies.  In connection with the current risk-based capital regulatory guidelines, the Bank’s Board of Directors has established an internal guideline requiring the Bank to maintain a Tier 1 leverage capital ratio at or above eight percent (8%) and a total risk-based capital ratio at or above twelve percent (12%).  At September 30, 2023, the Bank exceeded those thresholds.

At September 30, 2023, the Bank’s Tier 1 capital leverage ratio was 10.43%, an increase of 111 basis points from December 31, 2022, and is above the 8.00% objective.  The Bank’s total capital ratio was 13.57%, an increase of 82 basis points from December 31, 2022, and also above the objective of 12.00%.

Bank holding companies are generally required to maintain minimum levels of capital in accordance with capital guidelines implemented by the Board of Governors of the Federal Reserve System.  The general bank and holding company capital adequacy guidelines are shown in the accompanying table, as are the capital ratios of the Company and the Bank, as of September 30, 2023 and December 31, 2022.

The Basel III Rules are applicable to all banking organizations that are subject to minimum capital requirements, including federal and state banks and savings and loan associations, as well as to bank and savings and loan holding companies, other than “small bank holding companies”, which are generally holding companies with consolidated assets of less than $3.0 billion.  A detailed discussion of the Basel III Rules is included in Part I, Item 1 of the Company’s Form 10-K for the year ended December 31, 2022, under the heading “Supervision and Regulation.”

At September 30, 2023 and December 31, 2022, the Company, on a consolidated basis, exceeded the minimum thresholds to be considered “well capitalized” under current regulatory defined capital ratios.

Capital levels and industry defined regulatory minimum required levels are as follows:

					Minimum Capital				Well Capitalized
					Adequacy with Capital				Under Prompt Corrective
	Actual				Conservation Buffer, if applicable1				Action Provisions2
	Amount		Ratio		Amount		Ratio		Amount		Ratio
September 30, 2023
Common equity tier 1 capital to risk weighted assets
Consolidated	$	530,368	11.00	%	$	337,507	7.00	%		N/A	N/A
Old Second Bank		601,999	12.49			337,389	7.00		$	313,290	6.50	%
Total capital to risk weighted assets
Consolidated		667,182	13.84			506,171	10.50			N/A	N/A
Old Second Bank		653,813	13.57			505,898	10.50			481,808	10.00
Tier 1 capital to risk weighted assets
Consolidated		555,368	11.52			409,777	8.50			N/A	N/A
Old Second Bank		601,999	12.49			409,687	8.50			385,588	8.00
Tier 1 capital to average assets
Consolidated		555,368	9.62			230,922	4.00			N/A	N/A
Old Second Bank		601,999	10.43			230,872	4.00			288,590	5.00
December 31, 2022
Common equity tier 1 capital to risk weighted assets
Consolidated	$	457,206	9.67	%	$	330,966	7.00	%		N/A	N/A
Old Second Bank		552,404	11.70			330,498	7.00		$	306,891	6.50	%
Total capital to risk weighted assets
Consolidated		592,039	12.52			496,518	10.50			N/A	N/A
Old Second Bank		602,237	12.75			495,960	10.50			472,343	10.00
Tier 1 capital to risk weighted assets
Consolidated		482,206	10.20			401,838	8.50			N/A	N/A
Old Second Bank		552,404	11.70			401,319	8.50			377,712	8.00
Tier 1 capital to average assets
Consolidated		482,206	8.14			236,956	4.00			N/A	N/A
Old Second Bank		552,404	9.32			237,083	4.00			296,354	5.00

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

² The prompt corrective action provisions are only applicable at the Bank level. The Bank exceeded the general minimum regulatory requirements to be considered “well capitalized.”

As part of its response to the impact of the COVID-19 pandemic, in the first quarter of 2020, U.S. federal regulatory authorities issued an interim final rule that provided banking organizations that adopted CECL during the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay (i.e., a five-year transition in total). In connection with our adoption of CECL on January 1, 2020, we elected to utilize the five-year CECL transition.  As of September 30, 2023, the capital measures of the Company exclude $1.9 million, which is the modified CECL transition adjustment.

Dividend Restrictions

In addition to the above requirements, banking regulations and capital guidelines generally limit the amount of dividends that may be paid by a bank without prior regulatory approval.  Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s profits, combined with the retained profit of the previous two years, subject to the capital requirements described above.  As of September 30, 2023, the Bank had capacity to pay dividends of $70.4 million to the Company without prior regulatory approval.  Pursuant to the Basel III rules, the Bank must keep a capital conservation buffer of 2.50% above the regulatory minimum capital requirements, which must consist entirely of Common Equity Tier 1 capital in order to avoid additional limitations on capital distributions and certain other payments.

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Fair Value Measurements

9 Months Ended

Sep. 30, 2023

Fair Value Measurements

Fair Value Measurements

Note 11 – Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  The fair value hierarchy established by the Company also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  Three levels of inputs that may be used to measure fair value are:

Level 1:  Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Company has the ability to access as of the measurement date.

Level 2:  Significant observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

Level 3:  Significant unobservable inputs that reflect a company’s own view about the assumptions that market participants would use in pricing an asset or liability.

During the nine-month period ended September 30, 2023, $14.9 million of asset-backed securities and $6.8 million of collateralized mortgage obligations were transferred to Level 2 from Level 3. There were no transfers between levels at September 30, 2022.

The majority of securities available-for-sale are valued by external pricing services or dealer market participants and are classified in Level 2 of the fair value hierarchy.  Both market and income valuation approaches are utilized.  Quarterly, the Company evaluates the methodologies used by the external pricing services or dealer market participants to develop the fair values to determine whether the results of the valuations are representative of an exit price in the Company’s principal markets and an appropriate representation of fair value.  The Company uses the following methods and significant assumptions to estimate fair value:

● Government-sponsored agency debt securities are primarily priced using available market information through processes such as benchmark spreads, market valuations of like securities, like securities groupings and matrix pricing.

● Other government-sponsored agency securities, MBS and some of the actively traded real estate mortgage investment conduits and collateralized mortgage obligations are priced using available market information including benchmark yields, prepayment speeds, spreads, volatility of similar securities and trade date.

● State and political subdivisions are largely grouped by characteristics (e.g., geographical data and source of revenue in trade dissemination systems).  Because some securities are not traded daily and due to other grouping limitations, active market quotes are often obtained using benchmarking for like securities.

● Auction rate securities are priced using market spreads, cash flows, prepayment speeds, and loss analytics.  Therefore, the valuations of auction rate asset-backed securities are considered Level 2 valuations.

● Asset-backed collateralized loan obligations were priced using data from a pricing matrix supported by our bond accounting service provider and are therefore considered Level 2 valuations.

● Annually every security holding is priced by a pricing service independent of the regular and recurring pricing services used.  The independent service provides a measurement to indicate if the price assigned by the regular service is within or outside of a reasonable range.  Management reviews this report and applies judgment in adjusting calculations at year end related to securities pricing.

● Residential mortgage loans available for sale in the secondary market are carried at fair market value.  The fair value of loans held-for-sale is determined using quoted secondary market prices.

● Lending related commitments to fund certain residential mortgage loans, e.g., residential mortgage loans with locked interest rates to be sold in the secondary market and forward commitments for the future delivery of mortgage loans to third party investors, as well as forward commitments for future delivery of MBS are considered derivatives.  Fair values are estimated based on observable changes in mortgage interest rates including prices for MBS from the date of the commitment and do not typically involve significant judgments by management.

● The fair value of mortgage servicing rights is based on a valuation model that calculates the present value of estimated net servicing income.  The valuation model incorporates assumptions that market participants would use in estimating future net servicing income to derive the resultant value.  The Company is able to compare the valuation model inputs, such as the discount rate, prepayment speeds, weighted average delinquency and foreclosure/bankruptcy rates to widely available published industry data for reasonableness.

● Interest rate swap positions, both assets and liabilities, are based on valuation pricing models using an income approach reflecting readily observable market parameters such as interest rate yield curves.

● The fair value of individually evaluated loans with specific allocations of the allowance for credit losses is essentially based on recent real estate appraisals or the fair value of the collateralized asset.  These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.  Adjustments are made in the appraisal process by the appraisers to reflect differences between the available comparable sales and income data.  Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

● Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned (“OREO”) are measured at fair value, less costs to sell.  Fair values are based on third party appraisals of the property, resulting in a Level 3 classification, or an executed pending sales contract.  In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized.

Assets and Liabilities Measured at Fair Value on a Recurring Basis:

The tables below present the balance of assets and liabilities at September 30, 2023 and December 31, 2022, respectively, measured by the Company at fair value on a recurring basis:

	September 30, 2023
	Level 1		Level 2		Level 3		Total
Assets:
Securities available-for-sale
U.S. Treasury	$	216,777	$	-	$	-	$	216,777
U.S. government agencies		-		55,821		-		55,821
U.S. government agencies mortgage-backed		-		104,569		-		104,569
States and political subdivisions		-		206,034		14,066		220,100
Corporate bonds		-		4,961		-		4,961
Collateralized mortgage obligations		-		386,679		-		386,679
Asset-backed securities		-		66,916		-		66,916
Collateralized loan obligations		-		173,795		-		173,795
Loans held-for-sale		-		2,297		-		2,297
Mortgage servicing rights		-		-		11,461		11,461
Interest rate swap agreements, including risk participation agreement		-		9,028		-		9,028
Mortgage banking derivatives		-		37		-		37
Total	$	216,777	$	1,010,137	$	25,527	$	1,252,441
Liabilities:
Interest rate swap agreements, including risk participation agreements	$	-	$	14,293	$	-	$	14,293
Total	$	-	$	14,293	$	-	$	14,293

	December 31, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Securities available-for-sale
U.S. Treasury	$	212,129	$	-	$	-	$	212,129
U.S. government agencies		-		56,048		-		56,048
U.S. government agencies mortgage-backed		-		124,990		-		124,990
States and political subdivisions		-		211,899		14,229		226,128
Corporate bonds		-		9,622		-		9,622
Collateralized mortgage obligations		-		526,998		6,770		533,768
Asset-backed securities		-		186,916		15,012		201,928
Collateralized loan obligations		-		174,746		-		174,746
Loans held-for-sale		-		491		-		491
Mortgage servicing rights		-		-		11,189		11,189
Interest rate swap agreements		-		6,516		-		6,516
Mortgage banking derivatives		-		76		-		76
Total	$	212,129	$	1,298,302	$	47,200	$	1,557,631
Liabilities:
Interest rate swap agreements, including risk participation agreements	$	-	$	12,265	$	-	$	12,265
Total	$	-	$	12,265	$	-	$	12,265

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are as follows:

	Nine Months Ended September 30, 2023
	Securities available-for-sale
			Collateralized		States and		Mortgage
	Asset-backed		Mortgage		Political		Servicing
	Securities		Obligations		Subdivisions		Rights
Beginning balance January 1, 2023	$	15,012	$	6,770	$	14,229	$	11,189
Transfers out of Level 3		(14,885)		(6,764)		-		-
Total gains or losses
Included in earnings		(11)		-		(99)		232
Included in other comprehensive income		226		(6)		(132)		-
Purchases, issuances, sales, and settlements
Purchases		-		-		406		-
Issuances		-		-		-		420
Settlements		(342)		-		(338)		(380)
Ending balance September 30, 2023	$	-	$	-	$	14,066	$	11,461

	Nine Months Ended September 30, 2022
	Securities available-for-sale
	States and		Mortgage
	Political		Servicing
	Subdivisions		Rights
Beginning balance January 1, 2022	$	15,236	$	7,097
Total gains or losses
Included in earnings		(98)		4,384
Included in other comprehensive income		(1,333)		-
Purchases, issuances, sales, and settlements
Issuances		519		756
Settlements		(1,015)		(776)
Ending balance September 30, 2022	$	13,309	$	11,461

The following table and commentary present quantitative and qualitative information about Level 3 fair value measurements as of September 30, 2023:

						Weighted
Measured at fair value				Significant Unobservable		Average
on a recurring basis:	Fair Value		Valuation Methodology	Inputs	Range of Input	of Inputs
States and political subdivisions	$	14,066	Discounted Cash Flow	Discount Rate	3.5 – 5.9%	4.3	%
				Liquidity Premium	0.3 – 0.5%	0.5	%
Mortgage servicing rights	$	11,461	Discounted Cash Flow	Discount Rate	9.0 – 11.0%	9.0	%
				Prepayment Speed	0.0 – 16.4%	6.2	%

The following table and commentary present quantitative and qualitative information about Level 3 fair value measurements as December 31, 2022:

						Weighted
Measured at fair value				Significant Unobservable		Average
on a recurring basis:	Fair Value		Valuation Methodology	Inputs	Range of Input	of Inputs
States and political subdivisions	$	14,229	Discounted Cash Flow	Discount Rate	2.3 – 5.8%	4.4	%
				Liquidity Premium	0.3 – 0.5%	0.5	%
Collateralized mortgage obligations	$	6,770	Discounted Cash Flow	Discount Rate	7.0 – 7.0%	7.0	%
Asset-backed securities	$	15,012	Discounted Cash Flow	Discount Rate	6.2 – 6.5%	6.3	%
Mortgage servicing rights	$	11,189	Discounted Cash Flow	Discount Rate	9.0 – 11.0%	9.0	%
				Prepayment Speed	3.6 – 27.3%	6.2	%

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis:

The Company may be required, from time to time, to measure certain other assets at fair value on a nonrecurring basis in accordance with GAAP.  These assets consist of individually evaluated loans and OREO.  For assets measured at fair value on a nonrecurring basis at

September 30, 2023 and December 31, 2022, respectively, the following tables provide the level of valuation assumptions used to determine each valuation and the carrying value of the related assets:

	September 30, 2023
	Level 1		Level 2		Level 3		Total
Individually evaluated loans1	$	-	$	-	$	63,322	$	63,322
Other real estate owned, net2		-		-		407		407
Total	$	-	$	-	$	63,729	$	63,729

¹ Represents carrying value and related write-downs of loans for which adjustments are substantially based on the appraised value of collateral for collateral-dependent loans, which had a carrying amount of $82.0 million and a valuation allowance of $18.7 million resulting in an increase of specific allocations within the allowance for credit losses on loans of $1.0 million for the nine months ended September 30, 2023.

² OREO is measured at fair value, less costs to sell, and had a net carrying amount of $407,000 at September 30, 2023, which is made up of the outstanding balance of $525,000, and a valuation allowance of $118,000.

	December 31, 2022
	Level 1		Level 2		Level 3		Total
Individually evaluated loans1	$	-	$	-	$	47,700	$	47,700
Other real estate owned, net2		-		-		1,561		1,561
Total	$	-	$	-	$	49,261	$	49,261

¹ Represents carrying value and related write-downs of loans for which adjustments are substantially based on the appraised value of collateral for collateral-dependent loans, which had a carrying amount of $65.3 million and a valuation allowance of $17.6 million resulting in an increase of specific allocations within the allowance for credit losses on loans of $12.2 million for the year December 31, 2022.

² OREO is measured at fair value, less costs to sell, and had a net carrying amount of $1.6 million at December 31, 2022, which is made up of the outstanding balance of $2.5 million, net of a purchase accounting adjustment of $131,000 and a valuation allowance of $856,000.

The Company has estimated the fair values of these assets based primarily on Level 3 inputs.  OREO and individually evaluated loans are generally valued using the fair value of collateral provided by third party appraisals.  These valuations include assumptions related to cash flow projections, discount rates, and recent comparable sales.  The numerical ranges of unobservable inputs for these valuation assumptions are not meaningful.

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Fair Values of Financial Instruments

9 Months Ended

Sep. 30, 2023

Fair Values of Financial Instruments

Fair Values of Financial Instruments

Note 12 – Fair Values of Financial Instruments

The estimated fair values approximate carrying amount for all items except those described in the following table.  Securities available-for-sale fair values are based upon market prices or dealer quotes, and if no such information is available, on the rate and term of the security.  The carrying value of FHLBC stock approximates fair value as the stock is nonmarketable and can only be sold to the FHLBC or another member institution at par. At September 30, 2023 and December 31, 2022, the fair values of loans are estimated on an exit price basis incorporating discounts for credit, liquidity and marketability factors.  The fair value of time deposits was estimated using discounted future cash flows at current rates offered for deposits of similar remaining maturities.  The fair values of borrowings were estimated based on interest rates available to the Company for debt with similar terms and remaining maturities.  The fair value of off balance sheet volume was not considered material.

The carrying amount and estimated fair values of financial instruments were as follows:

	September 30, 2023
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	55,548	$	55,548	$	55,548	$	-	$	-
Interest earning deposits with financial institutions		53,485		53,485		53,485		-		-
Securities available-for-sale		1,229,618		1,229,618		216,777		998,775		14,066
FHLBC and FRBC stock		35,830		35,830		-		35,830		-
Loans held-for-sale		2,297		2,297		-		2,297		-
Net loans		3,977,814		3,855,774		-		-		3,855,774
Mortgage servicing rights		11,641		11,641		-		-		11,641
Interest rate swap agreements		8,980		8,980		-		8,980		-
Interest rate lock commitments and forward contracts		37		37		-		37		-
Interest receivable on securities and loans		25,921		25,921		-		25,921		-
Financial liabilities:
Noninterest bearing deposits	$	1,862,659	$	1,862,659	$	1,862,659	$	-	$	-
Interest bearing deposits		2,751,661		2,738,632		-		2,738,632		-
Securities sold under repurchase agreements		25,894		25,894		-		25,894		-
Other short-term borrowings		435,000		435,000		-		435,000		-
Junior subordinated debentures		25,773		19,072		-		19,072		-
Subordinated debentures		59,361		46,161		-		46,161		-
Senior notes		-		-		-		-		-
Note payable and other borrowings		-		-		-		-		-
Interest rate swap agreements		14,293		14,293		-		14,293		-
Interest payable on deposits and borrowings		3,066		3,066		-		3,066		-

	December 31, 2022
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	56,632	$	56,632	$	56,632	$	-	$	-
Interest earning deposits with financial institutions		58,545		58,545		58,545		-		-
Securities available-for-sale		1,539,359		1,539,359		212,129		1,291,219		36,011
FHLBC and FRBC stock		20,530		20,530		-		20,530		-
Loans held-for-sale		491		491		-		491		-
Net loans		3,820,129		3,681,387		-		-		3,681,387
Mortgage servicing rights		11,189		11,189		-		-		11,189
Interest rate swap agreements		6,391		6,391		-		6,391		-
Interest rate lock commitments and forward contracts		76		76		-		76		-
Interest receivable on securities and loans		22,661		22,661		-		22,661		-
Financial liabilities:
Noninterest bearing deposits	$	2,051,702	$	2,051,702	$	2,051,702	$	-	$	-
Interest bearing deposits		3,059,021		3,042,740		-		3,042,740		-
Securities sold under repurchase agreements		32,156		32,156		-		32,156		-
Other short-term borrowings		90,000		90,000		-		90,000		-
Junior subordinated debentures		25,773		21,907		-		21,907		-
Subordinated debentures		59,297		52,322		-		52,322		-
Senior notes		44,585		44,248		44,248		-		-
Note payable and other borrowings		9,000		8,984		-		8,984		-
Interest rate swap agreements		12,264		12,264		-		12,264		-
Interest payable on deposits and borrowings		1,657		1,657		-		1,657		-

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Derivatives, Hedging Activities and Financial Instruments with Off-Balance Sheet Risk

9 Months Ended

Sep. 30, 2023

Derivatives, Hedging Activities and Financial Instruments with Off-Balance Sheet Risk

Derivatives, Hedging Activities and Financial Instruments with Off-Balance Sheet Risk

Note 13 – Derivatives, Hedging Activities and Financial Instruments with Off-Balance Sheet Risk

Risk Management Objective of Using Derivatives

The Company is exposed to certain risk arising from both its business operations and economic conditions.  The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments.  Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.  The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s loan portfolio.  

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest income and expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. The aggregate fair value of the swaps is recorded in other assets or other liabilities with changes in fair value recorded in other comprehensive income, net of tax. The amount included in other comprehensive income would be reclassified to current earnings should all or a portion of the hedge no longer be considered effective. For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income and subsequently reclassified into interest income or interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts

reported in accumulated other comprehensive income related to derivatives will be reclassified to interest income or expense as interest payments are received on the variable rate loan pools or paid on the Company’s fixed-rate borrowings.

Interest rate swaps with notional amounts totaling $300.0 million and $250.0 million as of September 30, 2023 and December 31, 2022, respectively, were designated as cash flow hedges of certain variable rate commercial and commercial real estate loan pools. Each of these hedges were executed to pay variable and receive fixed rate cash flows. Each of these hedges was determined to be effective during all periods presented and the Company expects the hedges to remain effective during the remaining terms of the swaps.

An interest rate swap with a notional amount of $25.8 million as of September 30, 2023 and December 31, 2022, is designated as a cash flow hedge of junior subordinated debentures and was executed to pay fixed and receive variable rate cash flows. The hedge was determined to be effective during all periods presented and the Company expects the hedge to remain effective during the remaining terms of the swap.

During the next twelve months, the Company estimates that an additional $7.0 million will be reclassified as an increase to interest income and an additional $708,000 will be reclassified as an increase to interest expense.

Non-designated Hedges

Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. The notional amounts of interest rate swaps with its loan customers as of September 30, 2023 and December 31, 2022 were $105.6 million and $110.6 million, respectively. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.

At September 30, 2023 and December 31, 2022, the Company had $9.2 million and $11.2 million of cash collateral pledged with two correspondent financial institutions, respectively. The Company held $8.1 million and $5.3 million of cash pledged from one correspondent financial institution to support the interest rate swap activity during the years presented, respectively. No investment securities were required to be pledged to any correspondent financial institution during 2023 through September 30, 2023, or during 2022. The Company offsets derivative assets and liabilities that are subject to a master netting arrangement.

The Company also grants mortgage loan interest rate lock commitments to borrowers, subject to normal loan underwriting standards. The interest rate risk associated with these loan interest rate lock commitments is managed with contracts for future deliveries of loans as well as selling forward mortgage-backed securities contracts. Loan interest rate lock commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The notional amount of these commitments at September 30, 2023 and December 31, 2022 was $7.6 million and $5.3 million, respectively. Commitments to originate residential mortgage loans held-for-sale and forward commitments to sell residential mortgage loans or forward MBS contracts are considered derivative instruments and changes in the fair value are recorded to mortgage banking revenue. Fair values are estimated based on observable changes in mortgage interest rates including mortgage-backed securities prices from the date of the commitment.

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Balance Sheets as of September 30, 2023 and December 31, 2022.

Fair Value of Derivative Instruments

			September 30, 2023
	No. of Trans.	Notional Amount $	Balance Sheet Location	Fair Value $	Balance Sheet Location	Fair Value $
Derivatives designated as hedging instruments
Interest rate swap agreements	5	325,774	Other Assets	4,517	Other Liabilities	9,830
Total derivatives designated as hedging instruments				4,517		9,830
Derivatives not designated as hedging instruments
Interest rate swaps with commercial loan customers	17	105,558	Other Assets	4,463	Other Liabilities	4,463
Interest rate lock commitments and forward contracts	28	7,613	Other Assets	37	Other Liabilities	-
Other contracts	4	44,892	Other Assets	48	Other Liabilities	-
Total derivatives not designated as hedging instruments				4,548		4,463
			December 31, 2022
	No. of Trans.	Notional Amount $	Balance Sheet Location	Fair Value $	Balance Sheet Location	Fair Value $
Derivatives designated as hedging instruments
Interest rate swap agreements	4	275,774	Other Assets	2,737	Other Liabilities	8,610
Total derivatives designated as hedging instruments				2,737		8,610
Derivatives not designated as hedging instruments
Interest rate swaps with commercial loan customers	21	110,647	Other Assets	3,654	Other Liabilities	3,654
Interest rate lock commitments and forward contracts	28	5,298	Other Assets	76	Other Liabilities	-
Other contracts	4	43,699	Other Assets	125	Other Liabilities	1
Total derivatives not designated as hedging instruments				3,855		3,655

Disclosure of the Effect of Fair Value and Cash Flow Hedge Accounting

The fair value and cash flow hedge accounting related to derivatives covered under ASC Subtopic 815-20 impacted Accumulated Other Comprehensive Income (“AOCI”) and the Income Statement.  The loss recognized in AOCI on derivatives totaled $3.8 million as of September 30, 2023, and $4.1 million as of September 30, 2022.  The amount of the loss reclassified from AOCI to net interest income on the income statement was $3.9 million for the nine months ended September 30, 2023 and $15,000 of gain for the nine months ended September 30, 2022.  

Credit-risk-related Contingent Features

For derivative transactions involving counterparties who are lending customers of the Company, the derivative credit exposure is managed through the normal credit review and monitoring process, which may include collateralization, financial covenants and/or financial guarantees of affiliated parties.  Agreements with such customers require that losses associated with derivative transactions receive payment priority from any funds recovered should a customer default and ultimate disposition of collateral or guarantees occur.

Credit exposure to broker/dealer counterparties is managed through agreements with each derivative counterparty that require collateralization of fair value gains owed by such counterparties.  Some small degree of credit exposure exists due to timing differences between when a gain may occur and the subsequent point in time that collateral is delivered to secure that gain.  This is monitored by the Company and procedures are in place to minimize this exposure.  Such agreements also require the Company to collateralize counterparties in circumstances wherein the fair value of the derivatives result in loss to the Company.

Other provisions of such agreements include the definition of certain events that may lead to the declaration of default and/or the early termination of the derivative transaction(s):

● If the Company either defaults or is capable of being declared in default on any of its indebtedness (exclusive of deposit obligations), then the Company could also be declared in default on its derivative obligations.

● If a merger occurs that materially changes the Company's creditworthiness in an adverse manner.

● If certain specified adverse regulatory actions occur, such as the issuance of a Cease and Desist Order, or citations for actions considered Unsafe and Unsound or that may lead to the termination of deposit insurance coverage by the FDIC.

The Bank also issues letters of credit, which are conditional commitments that guarantee the performance of a customer to a third party.  The credit risk involved and collateral obtained in issuing letters of credit are essentially the same as that involved in extending loan commitments to our customers.  In addition to customer related commitments, the Company is responsible for letters of credit commitments that relate to properties held in OREO.  The following table represents the Company’s contractual commitments due to letters of credit as of September 30, 2023, and December 31, 2022.

The following table is a summary of letter of credit commitments:

	September 30, 2023						December 31, 2022
	Fixed		Variable		Total		Fixed		Variable		Total
Letters of credit:
Borrower:
Financial standby	$	173	$	16,543	$	16,716	$	3,514	$	15,365	$	18,879
Performance standby		353		15,733		16,086		3,161		13,989		17,150
		526		32,276		32,802		6,675		29,354		36,029
Non-borrower:
Performance standby		-		67		67		-		67		67
Total letters of credit	$	526	$	32,343	$	32,869	$	6,675	$	29,421	$	36,096
Unused loan commitments:	$	146,201	$	710,271	$	856,472	$	139,070	$	860,255	$	999,325

As of September 30, 2023, the Company evaluated current market conditions, including any impacts related to market interest rate changes and unused line of credit utilization trends during the second quarter of 2023, and based on that analysis under the CECL methodology, the Company determined credit losses related to unfunded commitments totaled $2.7 million, excluding a $149,000 purchase accounting adjustment on unfunded commitments recorded from our West Suburban acquisition, which is being accreted to interest income over the estimated life of the unused commitments.  The resultant decrease in the ACL for unfunded commitments of $235,000 for the third quarter of 2023, compared to the prior quarter end, is primarily related to a $223,000 decrease by accretion to interest income of the purchase accounting adjustment, as well as adjustments to historical benchmark assumptions, such as the funding rates and the period used to forecast those rates within the ACL calculation, resulting in a $12,000 reduction.  The Company will continue to assess the credit risk at least quarterly, and adjust the allowance for unfunded commitments, which is carried within other liabilities on our Consolidated Balance Sheets, as needed, with the appropriate offsetting entry to the provision for credit losses on our Consolidated Statements of Income.

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Basis of Presentation and Changes in Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2023

Basis of Presentation and Changes in Significant Accounting Policies

Recent Accounting Pronouncements

Recent Accounting Pronouncements

The following is a summary of recent accounting pronouncements that have impacted or could potentially affect the Company:  

ASU 2018-16, ASU 2020-04, ASU 2021-01, and ASU 2022-06 – In October 2018, the Financial Standards Board, or FASB, issued ASU No. 2018-16 “Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting.”  ASU 2018-16 adds the SOFR overnight index swap rate to the list of United States (U.S.) benchmark rates eligible for hedge accounting purposes, which is the fourth rate permissible to be used as a U.S. benchmark rate.  This guidance was effective for annual and interim periods beginning after December 15, 2018, and did not have a material impact on the financial condition or liquidity of the Company. ASU 2020-04 and ASU 2021-01 Reference Rate Reform (Topic 848) were issued on March 12, 2020 and January 7, 2021, respectively, and each provide further guidance on optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships due to the discontinuation of LIBOR.  In addition, on March 5, 2021, the International Swaps and Derivatives Association (“ISDA”) issued a statement with an “Index Cessation Event Announcement,” which confirmed the extension of the cessation of LIBOR-referenced rates from December 31, 2021, to June 30, 2023, for certain rate tenors. ASU 2022-06 further defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

The Company formed a LIBOR transition team in 2019 and developed a project plan to assess the use of alternative indexes and to seek to ensure all financial instruments that reference LIBOR are identified, quantified, and researched for the LIBOR fallback language available or needed.  The Company completed the ISDA protocol adherence for LIBOR fallback language for all commercial swaps, met with its commercial loan clients to also guide their swap fallback language adherence, and worked to revise all credit documents being issued by Old Second National Bank (the “Bank”) for new loans to ensure appropriate fallback language was included.  We discontinued the use of LIBOR as a reference rate for all consumer loans issued after July 31, 2021, and all commercial loans issued after December 31, 2021, with certain exceptions for those loans that were in the process of funding at the end of 2021. The Company’s systems were updated to handle multiple SOFR-based indexes and we planned accordingly for the transition of existing LIBOR exposures as the final LIBOR cessation date was June 30, 2023.  As of September 30, 2023, the Company’s LIBOR transition processes were determined to be completed and alternative index rates are in place.

ASU 2022-01 – On March 28, 2022, the FASB issued ASU 2022-01 “Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method.”  The goal of this new hedging standard is to better align the economic results of risk management activities with hedge accounting, by allowing multiple layers of a single closed portfolio to be hedged, as compared to the single-layer, or last of layer method, allowed with the adoption of ASU 2017-12.  ASU 2022-01 is effective for public business entities for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, and was adopted by the Company as of January 1, 2023.  There was no material impact of the pronouncement to the financial statements of the Company.

ASU 2022-02 – On March 31, 2022, the FASB issued ASU 2022-02 “Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” The amendments eliminate certain troubled debt restructuring (“TDR”) recognition and measurement guidance previously in effect, and consideration of the TDRs similar to other modified loans under CECL is now required.  ASU 2022-02 also requires enhancements to vintage loan disclosures, requiring detail be provided on current-period gross write-offs and disclosure of the amortized cost basis of financing receivables by credit quality indicators and by loan portfolio class of the gross charge-off based on year of origination.  ASU 2022-02 was effective for fiscal years beginning after December 15, 2022, including interim periods within those years, and was adopted prospectively by the Company as of January 1, 2023.  There was no material impact of the pronouncement to the financial statements of the Company.

Subsequent Events

Subsequent Events

On October 17, 2023, our Board of Directors declared a cash dividend of $0.05 per share payable on November 6, 2023, to stockholders of record as of October 27, 2023; dividends of $2.2 million are scheduled to be paid to stockholders on November 6, 2023.

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Securities (Tables)

9 Months Ended

Sep. 30, 2023

Securities

Schedule of amortized cost and fair value of the securities portfolio and corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive loss

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
September 30, 2023	Cost1		Gains		Losses		Value
Securities available-for-sale
U.S. Treasury	$	224,481	$	-	$	(7,704)	$	216,777
U.S. government agencies		60,197		-		(4,376)		55,821
U.S. government agencies mortgage-backed		122,653		-		(18,084)		104,569
States and political subdivisions		240,107		142		(20,149)		220,100
Corporate bonds		5,000		-		(39)		4,961
Collateralized mortgage obligations		450,470		54		(63,845)		386,679
Asset-backed securities		71,241		-		(4,325)		66,916
Collateralized loan obligations		175,995		10		(2,210)		173,795
Total securities available-for-sale	$	1,350,144	$	206	$	(120,732)	$	1,229,618

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2022	Cost1		Gains		Losses		Value
Securities available-for-sale
U.S. Treasury	$	224,054	$	-	$	(11,925)	$	212,129
U.S. government agencies		61,178		-		(5,130)		56,048
U.S. government agencies mortgage-backed		140,588		-		(15,598)		124,990
States and political subdivisions		239,999		363		(14,234)		226,128
Corporate bonds		10,000		-		(378)		9,622
Collateralized mortgage obligations		596,336		1		(62,569)		533,768
Asset-backed securities		210,388		6		(8,466)		201,928
Collateralized loan obligations		180,276		-		(5,530)		174,746
Total securities available-for-sale	$	1,662,819	$	370	$	(123,830)	$	1,539,359

¹ Excludes accrued interest receivable of $6.7 million and $6.8 million at September 30, 2023 and December 31, 2022, respectively, that is recorded in other assets on the consolidated balance sheets.

Schedule of fair value, amortized cost and weighted average yield of debt securities by contractual maturity along with securities not due at a single maturity date, primarily mortgage-backed securities (MBS), asset-backed securities, and collateralized loan obligations

			Weighted
	Amortized		Average		Fair
Securities available-for-sale	Cost		Yield		Value
Due in one year or less	$	49,989	0.64	%	$	49,804
Due after one year through five years		253,955	1.17			241,430
Due after five years through ten years		60,975	2.92			53,882
Due after ten years		164,866	3.11			152,543
		529,785	1.92			497,659
Mortgage-backed and collateralized mortgage obligations		573,123	2.29			491,248
Asset-backed securities		71,241	4.24			66,916
Collateralized loan obligations		175,995	7.21			173,795
Total securities available-for-sale	$	1,350,144	3.00	%	$	1,229,618

Schedule of securities with unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position

	Less than 12 months					12 months or more
September 30, 2023	in an unrealized loss position					in an unrealized loss position					Total
	Number of	Unrealized		Fair		Number of	Unrealized		Fair		Number of	Unrealized		Fair
Securities available-for-sale	Securities	Losses		Value		Securities	Losses		Value		Securities	Losses		Value
U.S. Treasuries	-	$	-	$	-	5	$	7,704	$	216,777	5	$	7,704	$	216,777
U.S. government agencies	-		-		-	9		4,376		55,821	9		4,376		55,821
U.S. government agencies mortgage-backed	-		-		-	128		18,084		104,569	128		18,084		104,569
States and political subdivisions	44		3,232		110,511	30		16,917		104,582	74		20,149		215,093
Corporate bonds	-		-		-	1		39		4,961	1		39		4,961
Collateralized mortgage obligations	2		14		756	146		63,831		379,159	148		63,845		379,915
Asset-backed securities	-		-		-	19		4,325		66,916	19		4,325		66,916
Collateralized loan obligations	-		-		-	33		2,210		170,803	33		2,210		170,803
Total securities available-for-sale	46	$	3,246	$	111,267	371	$	117,486	$	1,103,588	417	$	120,732	$	1,214,855

	Less than 12 months					12 months or more
December 31, 2022	in an unrealized loss position					in an unrealized loss position					Total
	Number of	Unrealized			Fair	Number of	Unrealized			Fair	Number of	Unrealized			Fair
Securities available-for-sale	Securities	Losses			Value	Securities	Losses			Value	Securities	Losses			Value
U.S. Treasuries	1	$	1,025	$	24,121	4	$	10,900	$	188,008	5	$	11,925	$	212,129
U.S. government agencies	-		-		-	9		5,130		56,048	9		5,130		56,048
U.S. government agencies mortgage-backed	15		975		11,369	117		14,623		113,621	132		15,598		124,990
States and political subdivisions	45		5,800		128,770	15		8,434		48,877	60		14,234		177,647
Corporate bonds	-		-		-	2		378		9,622	2		378		9,622
Collateralized mortgage obligations	80		12,895		180,624	120		49,674		348,880	200		62,569		529,504
Asset-backed securities	30		3,030		121,915	21		5,436		79,659	51		8,466		201,574
Collateralized loan obligations	23		3,579		112,772	11		1,951		61,974	34		5,530		174,746
Total securities available-for-sale	194	$	27,304	$	579,571	299	$	96,526	$	906,689	493	$	123,830	$	1,486,260

Schedule of proceeds from sale and gross realized gains and losses on sale of securities

		Three Months Ended					Nine Months Ended
		September 30,					September 30,
Securities available-for-sale	2023			2022		2023			2022
Proceeds from sales of securities	$	65,572		$	-	$	205,738		$	3,303
Gross realized losses on securities		(924)			(1)		(4,146)			(34)
Net realized losses	$	(924)		$	(1)	$	(4,146)		$	(34)
Income tax benefit on net realized losses	$	260		$	1	$	1,165		$	10
Effective tax rate applied		28.1	%		N/M		28.1	%		29.4	%

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Loans and Allowance for Credit Losses on Loans (Tables)

9 Months Ended

Sep. 30, 2023

Loans and Allowance for Credit Losses on Loans

Schedule of major classifications of loans

	September 30, 2023		December 31, 2022
Commercial	$	834,877	$	840,964
Leases		354,827		277,385
Commercial real estate – investor		1,047,122		987,635
Commercial real estate – owner occupied		809,050		854,879
Construction		202,546		180,535
Residential real estate – investor		53,762		57,353
Residential real estate – owner occupied		227,446		219,718
Multifamily		372,020		323,691
HELOC		102,055		109,202
Other 1		25,838		18,247
Total loans		4,029,543		3,869,609
Allowance for credit losses on loans		(51,729)		(49,480)
Net loans 2	$	3,977,814	$	3,820,129

¹ The “Other” segment includes consumer loans and overdrafts in this table and in subsequent tables within Note 4 – Loans and Allowance for Credit Losses on Loans.

² Excludes accrued interest receivable of $19.2 million and $15.9 million at September 30, 2023 and December 31, 2022, respectively, that is recorded in other assets on the consolidated balance sheets.

Schedule of changes in the allowance for loan losses by segment of loans based on method of impairment

			Provision for
	Beginning		(Release of)						Ending
Allowance for credit losses	Balance		Credit Losses		Charge-offs		Recoveries		Balance
Three months ended September 30, 2023
Commercial	$	11,532	$	(1,025)	$	20	$	12	$	10,499
Leases		2,690		(193)		-		95		2,592
Commercial real estate – investor		20,031		4,726		6,774		20		18,003
Commercial real estate – owner occupied		12,562		(154)		35		12		12,385
Construction		1,179		(39)		-		100		1,240
Residential real estate – investor		743		(55)		-		3		691
Residential real estate – owner occupied		1,868		(36)		-		25		1,857
Multifamily		2,737		(165)		-		-		2,572
HELOC		1,694		(77)		-		35		1,652
Other		278		30		107		37		238
Total	$	55,314	$	3,012	$	6,936	$	339	$	51,729

			Provision for
	Beginning		(Release of)						Ending
Allowance for credit losses	Balance		Credit Losses		Charge-offs		Recoveries		Balance
Nine months ended September 30, 2023
Commercial	$	11,968	$	(1,287)	$	427	$	245	$	10,499
Leases		2,865		498		882		111		2,592
Commercial real estate – investor		10,674		14,117		6,845		57		18,003
Commercial real estate – owner occupied		15,001		(2,397)		236		17		12,385
Construction		1,546		(406)		-		100		1,240
Residential real estate – investor		768		(104)		-		27		691
Residential real estate – owner occupied		2,046		(260)		-		71		1,857
Multifamily		2,453		119		-		-		2,572
HELOC		1,806		(242)		-		88		1,652
Other		353		53		301		133		238
Total	$	49,480	$	10,091	$	8,691	$	849	$	51,729

			Provision for
	Beginning		(Release of)						Ending
Allowance for credit losses	Balance		Credit Losses		Charge-offs		Recoveries		Balance
Three months ended September 30, 2022
Commercial	$	14,114	$	(919)	$	67	$	47	$	13,175
Leases		1,736		(24)		178		-		1,534
Commercial real estate – investor		9,436		256		124		19		9,587
Commercial real estate – owner occupied		11,478		3,618		12		87		15,171
Construction		1,535		9		-		-		1,544
Residential real estate – investor		661		147		-		8		816
Residential real estate – owner occupied		1,869		149		-		113		2,131
Multifamily		2,434		33		-		63		2,530
HELOC		1,542		386		-		35		1,963
Other		583		(128)		103		44		396
Total	$	45,388	$	3,527	$	484	$	416	$	48,847

			Provision for
Allowance for credit losses	Beginning		(Release of)						Ending
Nine months ended September 30, 2022	Balance		Credit Losses		Charge-offs		Recoveries		Balance
Commercial	$	11,751	$	1,488	$	149	$	85	$	13,175
Leases		3,480		(1,768)		178		-		1,534
Commercial real estate – investor		10,795		(664)		604		60		9,587
Commercial real estate – owner occupied		4,913		10,289		133		102		15,171
Construction		3,373		(1,829)		-		-		1,544
Residential real estate – investor		760		33		-		23		816
Residential real estate – owner occupied		2,832		(919)		-		218		2,131
Multifamily		3,675		(1,208)		-		63		2,530
HELOC		2,510		(649)		-		102		1,963
Other		192		404		320		120		396
Total	$	44,281	$	5,177	$	1,384	$	773	$	48,847

Schedule of collateral dependent loans and related loan allowances.

			Accounts								ACL
September 30, 2023	Real Estate		Receivable		Equipment		Other		Total		Allocation
Commercial	$	849	$	679	$	-	$	-	$	1,528	$	2
Leases		-		-		339		-		339		339
Commercial real estate – investor		26,724		-		-		-		26,724		4,848
Commercial real estate – owner occupied		17,636		-		-		-		17,636		4,201
Construction		7,206		-		-		-		7,206		-
Residential real estate – investor		32		-		-		-		32		-
Residential real estate – owner occupied		1,679		-		-		-		1,679		-
Multifamily		568		-		-		-		568		-
HELOC		39		-		-		-		39		-
Total	$	54,733	$	679	$	339	$	-	$	55,751	$	9,390

			Accounts								ACL
December 31, 2022	Real Estate		Receivable		Equipment		Other		Total		Allocation
Commercial	$	883	$	5,915	$	-	$	364	$	7,162	$	569
Leases		-		-		1,248		-		1,248		1,248
Commercial real estate – investor		16,576		-		-		-		16,576		2,875
Commercial real estate – owner occupied		19,188		-		-		2,310		21,498		5,808
Residential real estate – investor		675		-		-		-		675		-
Residential real estate – owner occupied		1,817		-		-		-		1,817		244
Multifamily		1,322		-		-		-		1,322		-
HELOC		180		-		-		-		180		-
Total	$	40,641	$	5,915	$	1,248	$	2,674	$	50,478	$	10,744

Schedule of aged analysis of past due loans by class of loans

													90 days or
					90 Days or								Greater Past
	30-59 Days		60-89 Days		Greater Past		Total Past						Due and
September 30, 2023	Past Due		Past Due		Due		Due		Current		Total Loans		Accruing
Commercial	$	1,829	$	1,874	$	1,052	$	4,755	$	830,122	$	834,877	$	979
Leases		2,502		-		157		2,659		352,168		354,827		-
Commercial real estate – investor		2,205		16,728		16,116		35,049		1,012,073		1,047,122		-
Commercial real estate – owner occupied		15,232		120		1,879		17,231		791,819		809,050		-
Construction		118		200		7,206		7,524		195,022		202,546		-
Residential real estate – investor		252		-		277		529		53,233		53,762		140
Residential real estate – owner occupied		735		419		1,820		2,974		224,472		227,446		-
Multifamily		713		127		-		840		371,180		372,020		-
HELOC		646		88		259		993		101,062		102,055		90
Other		-		-		-		-		25,838		25,838		-
Total	$	24,232	$	19,556	$	28,766	$	72,554	$	3,956,989	$	4,029,543	$	1,209

													90 days or
					90 Days or								Greater Past
	30-59 Days		60-89 Days		Greater Past		Total Past						Due and
December 31, 2022	Past Due		Past Due		Due		Due		Current		Total Loans		Accruing
Commercial	$	3	$	1,012	$	825	$	1,840	$	839,124	$	840,964	$	460
Leases		447		22		614		1,083		276,302		277,385		-
Commercial real estate – investor		3,276		1,276		4,315		8,867		978,768		987,635		-
Commercial real estate – owner occupied		373		113		2,211		2,697		852,182		854,879		173
Construction		14		-		116		130		180,405		180,535		-
Residential real estate – investor		445		-		987		1,432		55,921		57,353		144
Residential real estate – owner occupied		1,191		-		2,232		3,423		216,295		219,718		485
Multifamily		267		361		1,322		1,950		321,741		323,691		-
HELOC		291		90		392		773		108,429		109,202		-
Other		19		-		-		19		18,228		18,247		-
Total	$	6,326	$	2,874	$	13,014	$	22,214	$	3,847,395	$	3,869,609	$	1,262

Schedule of loans on nonaccrual for which there was no related allowance

Nonaccrual loan detail	September 30, 2023		With no ACL		December 31, 2022		With no ACL
Commercial	$	2,167	$	2,167	$	7,189	$	6,598
Leases		377		38		1,876		-
Commercial real estate – investor		26,724		11,786		4,346		4,244
Commercial real estate – owner occupied		18,290		3,833		8,050		3,813
Construction		7,206		7,206		251		-
Residential real estate – investor		1,362		1,362		1,528		675
Residential real estate – owner occupied		3,627		3,627		3,713		1,572
Multifamily		1,141		1,141		2,538		1,322
HELOC		1,222		1,222		2,109		180
Other		-		-		2		-
Total	$	62,116	$	32,382	$	31,602	$	18,404

Schedule of credit quality indicators by class of loans

Credit quality indicators by loan segment and loan origination date at September 30, 2023 were as follows:

	2023		2022		2021		2020		2019		Prior		Revolving Loans		Revolving Loans Converted To Term Loans		Total
Commercial
Pass	$	215,492	$	187,682	$	41,464	$	13,359	$	10,676	$	4,315	$	311,562	$	1,379	$	785,929
Special Mention		-		500		244		-		51		-		29,855		-		30,650
Substandard		-		79		1,381		2,735		9,689		-		4,414		-		18,298
Total commercial		215,492		188,261		43,089		16,094		20,416		4,315		345,831		1,379		834,877
Leases
Pass		151,691		125,092	$	47,808		17,522		9,545		2,595		-		-		354,253
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		339		-		-		235		-		-		-		574
Total leases		151,691		125,431		47,808		17,522		9,780		2,595		-		-		354,827
Commercial real estate – investor
Pass		176,779		341,597		203,972		111,333		59,770		67,264		8,148		-		968,863
Special Mention		-		12,866		11,267		-		-		-		-		-		24,133
Substandard		10,964		11,787		1,950		7,748		9,278		-		12,399		-		54,126
Total commercial real estate – investor		187,743		366,250		217,189		119,081		69,048		67,264		20,547		-		1,047,122
Commercial real estate – owner occupied
Pass		105,963		139,223		181,543		78,750		54,909		101,396		33,258		-		695,042
Special Mention		1,758		11,722		18,180		26,480		222		354		-		-		58,716
Substandard		-		14,994		19,926		1,142		18,811		419		-		-		55,292
Total commercial real estate – owner occupied		107,721		165,939		219,649		106,372		73,942		102,169		33,258		-		809,050
Construction
Pass		26,529		75,698		56,217		19,531		1,837		1,155		3,699		-		184,666
Special Mention		305		312		-		-		-		-		-		-		617
Substandard		-		7,206		-		10,057		-		-		-		-		17,263
Total construction		26,834		83,216		56,217		29,588		1,837		1,155		3,699		-		202,546
Residential real estate – investor
Pass		3,310		14,560		8,954		6,317		7,116		10,519		1,417		-		52,193
Special Mention		-		-		67		-		-		-		-		-		67
Substandard		-		398		-		-		418		686		-		-		1,502
Total residential real estate – investor		3,310		14,958		9,021		6,317		7,534		11,205		1,417		-		53,762
Residential real estate – owner occupied
Pass		26,371		41,915		41,439		26,544		15,147		71,637		766		-		223,819
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		122		-		90		686		2,729		-		-		3,627
Total residential real estate – owner occupied		26,371		42,037		41,439		26,634		15,833		74,366		766		-		227,446
Multifamily
Pass		69,947		79,689		101,878		57,792		12,391		42,603		382		-		364,682
Special Mention		-		170		3,505		326		1,656		540		-		-		6,197
Substandard		-		887		-		-		-		254		-		-		1,141
Total multifamily		69,947		80,746		105,383		58,118		14,047		43,397		382		-		372,020
HELOC
Pass		1,765		2,760		211		1,443		1,631		2,494		90,317		-		100,621
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		39		27		1		1		-		106		1,260		-		1,434
Total HELOC		1,804		2,787		212		1,444		1,631		2,600		91,577		-		102,055
Other
Pass		4,461		2,068		1,415		223		151		88		17,432				25,838
Special Mention		-		-		-		-		-		-		-				-
Substandard		-		-		-		-		-		-		-				-
Total other		4,461		2,068		1,415		223		151		88		17,432		-		25,838
Total loans
Pass		782,308		1,010,284		684,901		332,814		173,173		304,066		466,981		1,379		3,755,906
Special Mention		2,063		25,570		33,263		26,806		1,929		894		29,855		-		120,380
Substandard		11,003		35,839		23,258		21,773		39,117		4,194		18,073		-		153,257
Total loans	$	795,374	$	1,071,693	$	741,422	$	381,393	$	214,219	$	309,154	$	514,909	$	1,379	$	4,029,543

Credit quality indicators by loan segment and loan origination date at December 31, 2022, were as follows:

	2022		2021		2020		2019		2018		Prior		Revolving Loans		Revolving Loans Converted To Term Loans		Total
Commercial
Pass	$	225,056	$	70,608	$	21,597	$	12,742	$	6,957	$	2,651	$	447,821	$	-	$	787,432
Special Mention		1,875		272		1,182		2,432		-		-		21,286		-		27,047
Substandard		4,958		2,447		2,981		12,176		7		-		3,916		-		26,485
Total commercial		231,889		73,327		25,760		27,350		6,964		2,651		473,023		-		840,964
Leases
Pass		161,379		64,203	$	26,995		17,653		4,449		830		-		-		275,509
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		1,606		-		-		270		-		-		-		-		1,876
Total leases		162,985		64,203		26,995		17,923		4,449		830		-		-		277,385
Commercial real estate – investor
Pass		416,094		228,686		118,491		63,845		46,935		46,406		7,113		-		927,570
Special Mention		5,349		1,417		5,490		10,206		1,070		9,123		-		-		32,655
Substandard		12,332		2,018		-		10,763		-		2,297		-		-		27,410
Total commercial real estate – investor		433,775		232,121		123,981		84,814		48,005		57,826		7,113		-		987,635
Commercial real estate – owner occupied
Pass		169,703		223,731		105,669		47,351		49,367		86,660		33,745		-		716,226
Special Mention		8,430		22,242		48,184		17,668		231		1,008		-		-		97,763
Substandard		2,546		17,129		1,191		16,962		-		3,062		-		-		40,890
Total commercial real estate – owner occupied		180,679		263,102		155,044		81,981		49,598		90,730		33,745		-		854,879
Construction
Pass		53,058		65,758		39,542		2,390		226		1,408		1,523		-		163,905
Special Mention		-		-		15,297		-		-		-		-		-		15,297
Substandard		1,217		-		-		116		-		-		-		-		1,333
Total construction		54,275		65,758		54,839		2,506		226		1,408		1,523		-		180,535
Residential real estate – investor
Pass		14,737		9,910		6,945		8,585		4,853		9,548		991		-		55,569
Special Mention		-		70		-		-		-		-		-		-		70
Substandard		621		-		-		499		186		408		-		-		1,714
Total residential real estate – investor		15,358		9,980		6,945		9,084		5,039		9,956		991		-		57,353
Residential real estate – owner occupied
Pass		41,885		44,884		28,418		16,146		12,152		70,741		1,638		-		215,864
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		131		267		237		723		131		2,365		-		-		3,854
Total residential real estate – owner occupied		42,016		45,151		28,655		16,869		12,283		73,106		1,638		-		219,718
Multifamily
Pass		76,877		126,257		52,262		13,125		39,703		6,098		329		-		314,651
Special Mention		377		3,683		342		1,684		-		-		-		-		6,086
Substandard		2,100		-		-		-		587		267		-		-		2,954
Total multifamily		79,354		129,940		52,604		14,809		40,290		6,365		329		-		323,691
HELOC
Pass		2,760		517		1,497		1,703		657		2,288		97,258		-		106,680
Special Mention		-		-		-		-		-		-		111		-		111
Substandard		62		1		-		-		67		309		1,972		-		2,411
Total HELOC		2,822		518		1,497		1,703		724		2,597		99,341		-		109,202
Other
Pass		4,195		2,835		432		167		69		111		10,436		-		18,245
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		1		-		-		-		1		-		2
Total other		4,195		2,835		433		167		69		111		10,437		-		18,247
Total loans
Pass		1,165,744		837,389		401,848		183,707		165,368		226,741		600,854		-		3,581,651
Special Mention		16,031		27,684		70,495		31,990		1,301		10,131		21,397		-		179,029
Substandard		25,573		21,862		4,410		41,509		978		8,708		5,889		-		108,929
Total loans	$	1,207,348	$	886,935	$	476,753	$	257,206	$	167,647	$	245,580	$	628,140	$	-	$	3,869,609

Schedule of gross charge-offs

Current period gross charge-offs	2023		2022		2021		2020		2019		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total
Commercial	$	-		-		17		364		-		46	$	-	$	-	$	427
Leases		-		870		-		-		12		-		-		-		882
Commercial real estate – investor		-		4,121		71		2,653		-		-		-		-		6,845
Commercial real estate – owner occupied		-		22		178		4		-		32		-		-		236
Construction		-		-		-		-		-		-		-		-		-
Residential real estate – investor		-		-		-		-		-		-		-		-		-
Residential real estate – owner occupied		-		-		-		-		-		-		-		-		-
Multifamily		-		-		-		-		-		-		-		-		-
HELOC		-		-		-		-		-		-		-		-		-
Other		-		3		26		7		-		265		-		-		301
Total	$	-	$	5,016	$	292	$	3,028	$	12	$	343		-		-	$	8,691

Schedule of class of financing receivable

September 30, 2023	Term Extension		Combination - Term Extension and Interest Rate Reduction		Combination - Term Extension and Payment Delay		Total Loans Modified		% of Total Loan Segment Modified to Total Loan Segment
Commercial	$	1,713	$	979	$	-	$	2,692	0.3%
Commercial real estate – investor		12,755		-		10,608		23,363	2.2%
Commercial real estate – owner occupied		16,218		-		-		16,218	2.0%
Residential real estate – owner occupied		437		-		-		437	0.2%
Multifamily		254		-		-		254	0.1%
HELOC		39		-		-		39	0.0%
Total	$	31,416	$	979	$	10,608	$	43,003	1.1%

September 30, 2023	30-59 days past due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loan Modified
Commercial	$	-	$	-	$	979	$	979	$	1,713	$	2,692
Commercial real estate – investor		-		-		-		-		23,363		23,363
Commercial real estate – owner occupied		-		-		-		-		16,218		16,218
Residential real estate – owner occupied		-		-		-		-		437		437
Multifamily		-		-		-		-		254		254
HELOC		-		-		-		-		39		39
Total	$	-	$	-	$	979	$	979	$	42,024	$	43,003

September 30, 2023	Weighted-Average Term Extension (In Months)		Weighted-Average Interest Rate Change			Weighted-Average Delay of Payment (In Months)
Commercial		6.74		5.00	%		-
Commercial real estate – investor		9.81		-			7.17
Commercial real estate – owner occupied		14.00		-			-
Residential real estate – owner occupied		2.00		-			-
Multifamily		16.00		-			-
HELOC		24.00		-			-
Total		11.17		5.00	%		7.17

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Deposits (Tables)

9 Months Ended

Sep. 30, 2023

Deposits

Schedule of major classifications of deposits

	September 30, 2023		December 31, 2022
Noninterest bearing demand	$	1,862,659	$	2,051,702
Savings		1,003,498		1,145,592
NOW accounts		567,997		609,338
Money market accounts		702,176		862,170
Certificates of deposit of less than $100,000		248,272		244,017
Certificates of deposit of $100,000 through $250,000		162,901		157,438
Certificates of deposit of more than $250,000		66,817		40,466
Total deposits	$	4,614,320	$	5,110,723

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Borrowings (Tables)

9 Months Ended

Sep. 30, 2023

Borrowings

Summary of borrowings and junior subordinated debentures

	September 30, 2023		December 31, 2022
Securities sold under repurchase agreements	$	25,894	$	32,156
Other short-term borrowings		435,000		90,000
Junior subordinated debentures1		25,773		25,773
Subordinated debentures		59,361		59,297
Senior notes		-		44,585
Notes payable and other borrowings		-		9,000
Total borrowings	$	546,028	$	260,811
1 See Note 7: Junior Subordinated Debentures

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Equity Compensation Plans (Tables)

9 Months Ended

Sep. 30, 2023

Equity Compensation Plans

Summary of changes in nonvested shares of restricted share rights

	September 30, 2023
		Weighted
	Restricted	Average
	Stock Shares	Grant Date
	and Units	Fair Value
Unvested at January 1	649,210	$	12.84
Granted	240,149		17.02
Vested	(137,534)		12.53
Forfeited	(15,191)		14.25
Unvested at September 30	736,634	$	14.23

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Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2023

Earnings Per Share

Schedule of Earnings Per Share

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Basic earnings per share:
Weighted-average common shares outstanding		44,675,489		44,565,626		44,653,451		44,509,072
Net income	$	24,335	$	19,523	$	73,504	$	43,790
Basic earnings per share	$	0.55	$	0.43	$	1.65	$	0.98
Diluted earnings per share:
Weighted-average common shares outstanding		44,675,489		44,565,626		44,653,451		44,509,072
Dilutive effect of unvested restricted awards 1		752,920		655,915		736,767		698,920
Diluted average common shares outstanding		45,428,409		45,221,541		45,390,218		45,207,992
Net Income	$	24,335	$	19,523	$	73,504	$	43,790
Diluted earnings per share	$	0.54	$	0.43	$	1.62	$	0.97
1 Includes the common stock equivalents for restricted share rights that are dilutive.

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Regulatory & Capital Matters (Tables)

9 Months Ended

Sep. 30, 2023

Regulatory & Capital Matters

Schedule of capital levels and industry defined regulatory minimum required levels

					Minimum Capital				Well Capitalized
					Adequacy with Capital				Under Prompt Corrective
	Actual				Conservation Buffer, if applicable1				Action Provisions2
	Amount		Ratio		Amount		Ratio		Amount		Ratio
September 30, 2023
Common equity tier 1 capital to risk weighted assets
Consolidated	$	530,368	11.00	%	$	337,507	7.00	%		N/A	N/A
Old Second Bank		601,999	12.49			337,389	7.00		$	313,290	6.50	%
Total capital to risk weighted assets
Consolidated		667,182	13.84			506,171	10.50			N/A	N/A
Old Second Bank		653,813	13.57			505,898	10.50			481,808	10.00
Tier 1 capital to risk weighted assets
Consolidated		555,368	11.52			409,777	8.50			N/A	N/A
Old Second Bank		601,999	12.49			409,687	8.50			385,588	8.00
Tier 1 capital to average assets
Consolidated		555,368	9.62			230,922	4.00			N/A	N/A
Old Second Bank		601,999	10.43			230,872	4.00			288,590	5.00
December 31, 2022
Common equity tier 1 capital to risk weighted assets
Consolidated	$	457,206	9.67	%	$	330,966	7.00	%		N/A	N/A
Old Second Bank		552,404	11.70			330,498	7.00		$	306,891	6.50	%
Total capital to risk weighted assets
Consolidated		592,039	12.52			496,518	10.50			N/A	N/A
Old Second Bank		602,237	12.75			495,960	10.50			472,343	10.00
Tier 1 capital to risk weighted assets
Consolidated		482,206	10.20			401,838	8.50			N/A	N/A
Old Second Bank		552,404	11.70			401,319	8.50			377,712	8.00
Tier 1 capital to average assets
Consolidated		482,206	8.14			236,956	4.00			N/A	N/A
Old Second Bank		552,404	9.32			237,083	4.00			296,354	5.00

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

² The prompt corrective action provisions are only applicable at the Bank level. The Bank exceeded the general minimum regulatory requirements to be considered “well capitalized.”

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2023

Fair Value Measurements

Schedule of balance of assets and liabilities which are measured at fair value on a recurring basis

	September 30, 2023
	Level 1		Level 2		Level 3		Total
Assets:
Securities available-for-sale
U.S. Treasury	$	216,777	$	-	$	-	$	216,777
U.S. government agencies		-		55,821		-		55,821
U.S. government agencies mortgage-backed		-		104,569		-		104,569
States and political subdivisions		-		206,034		14,066		220,100
Corporate bonds		-		4,961		-		4,961
Collateralized mortgage obligations		-		386,679		-		386,679
Asset-backed securities		-		66,916		-		66,916
Collateralized loan obligations		-		173,795		-		173,795
Loans held-for-sale		-		2,297		-		2,297
Mortgage servicing rights		-		-		11,461		11,461
Interest rate swap agreements, including risk participation agreement		-		9,028		-		9,028
Mortgage banking derivatives		-		37		-		37
Total	$	216,777	$	1,010,137	$	25,527	$	1,252,441
Liabilities:
Interest rate swap agreements, including risk participation agreements	$	-	$	14,293	$	-	$	14,293
Total	$	-	$	14,293	$	-	$	14,293

	December 31, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Securities available-for-sale
U.S. Treasury	$	212,129	$	-	$	-	$	212,129
U.S. government agencies		-		56,048		-		56,048
U.S. government agencies mortgage-backed		-		124,990		-		124,990
States and political subdivisions		-		211,899		14,229		226,128
Corporate bonds		-		9,622		-		9,622
Collateralized mortgage obligations		-		526,998		6,770		533,768
Asset-backed securities		-		186,916		15,012		201,928
Collateralized loan obligations		-		174,746		-		174,746
Loans held-for-sale		-		491		-		491
Mortgage servicing rights		-		-		11,189		11,189
Interest rate swap agreements		-		6,516		-		6,516
Mortgage banking derivatives		-		76		-		76
Total	$	212,129	$	1,298,302	$	47,200	$	1,557,631
Liabilities:
Interest rate swap agreements, including risk participation agreements	$	-	$	12,265	$	-	$	12,265
Total	$	-	$	12,265	$	-	$	12,265

Schedule of changes in Level 3 assets and liabilities measured at fair value on a recurring basis

	Nine Months Ended September 30, 2023
	Securities available-for-sale
			Collateralized		States and		Mortgage
	Asset-backed		Mortgage		Political		Servicing
	Securities		Obligations		Subdivisions		Rights
Beginning balance January 1, 2023	$	15,012	$	6,770	$	14,229	$	11,189
Transfers out of Level 3		(14,885)		(6,764)		-		-
Total gains or losses
Included in earnings		(11)		-		(99)		232
Included in other comprehensive income		226		(6)		(132)		-
Purchases, issuances, sales, and settlements
Purchases		-		-		406		-
Issuances		-		-		-		420
Settlements		(342)		-		(338)		(380)
Ending balance September 30, 2023	$	-	$	-	$	14,066	$	11,461

	Nine Months Ended September 30, 2022
	Securities available-for-sale
	States and		Mortgage
	Political		Servicing
	Subdivisions		Rights
Beginning balance January 1, 2022	$	15,236	$	7,097
Total gains or losses
Included in earnings		(98)		4,384
Included in other comprehensive income		(1,333)		-
Purchases, issuances, sales, and settlements
Issuances		519		756
Settlements		(1,015)		(776)
Ending balance September 30, 2022	$	13,309	$	11,461

Schedule of quantitative information about level 3 fair value measurements

The following table and commentary present quantitative and qualitative information about Level 3 fair value measurements as of September 30, 2023:

						Weighted
Measured at fair value				Significant Unobservable		Average
on a recurring basis:	Fair Value		Valuation Methodology	Inputs	Range of Input	of Inputs
States and political subdivisions	$	14,066	Discounted Cash Flow	Discount Rate	3.5 – 5.9%	4.3	%
				Liquidity Premium	0.3 – 0.5%	0.5	%
Mortgage servicing rights	$	11,461	Discounted Cash Flow	Discount Rate	9.0 – 11.0%	9.0	%
				Prepayment Speed	0.0 – 16.4%	6.2	%

The following table and commentary present quantitative and qualitative information about Level 3 fair value measurements as December 31, 2022:

						Weighted
Measured at fair value				Significant Unobservable		Average
on a recurring basis:	Fair Value		Valuation Methodology	Inputs	Range of Input	of Inputs
States and political subdivisions	$	14,229	Discounted Cash Flow	Discount Rate	2.3 – 5.8%	4.4	%
				Liquidity Premium	0.3 – 0.5%	0.5	%
Collateralized mortgage obligations	$	6,770	Discounted Cash Flow	Discount Rate	7.0 – 7.0%	7.0	%
Asset-backed securities	$	15,012	Discounted Cash Flow	Discount Rate	6.2 – 6.5%	6.3	%
Mortgage servicing rights	$	11,189	Discounted Cash Flow	Discount Rate	9.0 – 11.0%	9.0	%
				Prepayment Speed	3.6 – 27.3%	6.2	%

Schedule of assets measured at fair value on a nonrecurring basis

	September 30, 2023
	Level 1		Level 2		Level 3		Total
Individually evaluated loans1	$	-	$	-	$	63,322	$	63,322
Other real estate owned, net2		-		-		407		407
Total	$	-	$	-	$	63,729	$	63,729

¹ Represents carrying value and related write-downs of loans for which adjustments are substantially based on the appraised value of collateral for collateral-dependent loans, which had a carrying amount of $82.0 million and a valuation allowance of $18.7 million resulting in an increase of specific allocations within the allowance for credit losses on loans of $1.0 million for the nine months ended September 30, 2023.

² OREO is measured at fair value, less costs to sell, and had a net carrying amount of $407,000 at September 30, 2023, which is made up of the outstanding balance of $525,000, and a valuation allowance of $118,000.

	December 31, 2022
	Level 1		Level 2		Level 3		Total
Individually evaluated loans1	$	-	$	-	$	47,700	$	47,700
Other real estate owned, net2		-		-		1,561		1,561
Total	$	-	$	-	$	49,261	$	49,261

¹ Represents carrying value and related write-downs of loans for which adjustments are substantially based on the appraised value of collateral for collateral-dependent loans, which had a carrying amount of $65.3 million and a valuation allowance of $17.6 million resulting in an increase of specific allocations within the allowance for credit losses on loans of $12.2 million for the year December 31, 2022.

² OREO is measured at fair value, less costs to sell, and had a net carrying amount of $1.6 million at December 31, 2022, which is made up of the outstanding balance of $2.5 million, net of a purchase accounting adjustment of $131,000 and a valuation allowance of $856,000.

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Fair Values of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2023

Fair Values of Financial Instruments

Schedule of carrying amount and estimated fair values of financial instruments

	September 30, 2023
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	55,548	$	55,548	$	55,548	$	-	$	-
Interest earning deposits with financial institutions		53,485		53,485		53,485		-		-
Securities available-for-sale		1,229,618		1,229,618		216,777		998,775		14,066
FHLBC and FRBC stock		35,830		35,830		-		35,830		-
Loans held-for-sale		2,297		2,297		-		2,297		-
Net loans		3,977,814		3,855,774		-		-		3,855,774
Mortgage servicing rights		11,641		11,641		-		-		11,641
Interest rate swap agreements		8,980		8,980		-		8,980		-
Interest rate lock commitments and forward contracts		37		37		-		37		-
Interest receivable on securities and loans		25,921		25,921		-		25,921		-
Financial liabilities:
Noninterest bearing deposits	$	1,862,659	$	1,862,659	$	1,862,659	$	-	$	-
Interest bearing deposits		2,751,661		2,738,632		-		2,738,632		-
Securities sold under repurchase agreements		25,894		25,894		-		25,894		-
Other short-term borrowings		435,000		435,000		-		435,000		-
Junior subordinated debentures		25,773		19,072		-		19,072		-
Subordinated debentures		59,361		46,161		-		46,161		-
Senior notes		-		-		-		-		-
Note payable and other borrowings		-		-		-		-		-
Interest rate swap agreements		14,293		14,293		-		14,293		-
Interest payable on deposits and borrowings		3,066		3,066		-		3,066		-

	December 31, 2022
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	56,632	$	56,632	$	56,632	$	-	$	-
Interest earning deposits with financial institutions		58,545		58,545		58,545		-		-
Securities available-for-sale		1,539,359		1,539,359		212,129		1,291,219		36,011
FHLBC and FRBC stock		20,530		20,530		-		20,530		-
Loans held-for-sale		491		491		-		491		-
Net loans		3,820,129		3,681,387		-		-		3,681,387
Mortgage servicing rights		11,189		11,189		-		-		11,189
Interest rate swap agreements		6,391		6,391		-		6,391		-
Interest rate lock commitments and forward contracts		76		76		-		76		-
Interest receivable on securities and loans		22,661		22,661		-		22,661		-
Financial liabilities:
Noninterest bearing deposits	$	2,051,702	$	2,051,702	$	2,051,702	$	-	$	-
Interest bearing deposits		3,059,021		3,042,740		-		3,042,740		-
Securities sold under repurchase agreements		32,156		32,156		-		32,156		-
Other short-term borrowings		90,000		90,000		-		90,000		-
Junior subordinated debentures		25,773		21,907		-		21,907		-
Subordinated debentures		59,297		52,322		-		52,322		-
Senior notes		44,585		44,248		44,248		-		-
Note payable and other borrowings		9,000		8,984		-		8,984		-
Interest rate swap agreements		12,264		12,264		-		12,264		-
Interest payable on deposits and borrowings		1,657		1,657		-		1,657		-

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Derivatives, Hedging Activities and Financial Instruments with Off-Balance Sheet Risk (Tables)

9 Months Ended

Sep. 30, 2023

Derivatives, Hedging Activities and Financial Instruments with Off-Balance Sheet Risk

Schedule of fair value of derivative financial instruments as well as their classification on the Balance Sheet

			September 30, 2023
	No. of Trans.	Notional Amount $	Balance Sheet Location	Fair Value $	Balance Sheet Location	Fair Value $
Derivatives designated as hedging instruments
Interest rate swap agreements	5	325,774	Other Assets	4,517	Other Liabilities	9,830
Total derivatives designated as hedging instruments				4,517		9,830
Derivatives not designated as hedging instruments
Interest rate swaps with commercial loan customers	17	105,558	Other Assets	4,463	Other Liabilities	4,463
Interest rate lock commitments and forward contracts	28	7,613	Other Assets	37	Other Liabilities	-
Other contracts	4	44,892	Other Assets	48	Other Liabilities	-
Total derivatives not designated as hedging instruments				4,548		4,463
			December 31, 2022
	No. of Trans.	Notional Amount $	Balance Sheet Location	Fair Value $	Balance Sheet Location	Fair Value $
Derivatives designated as hedging instruments
Interest rate swap agreements	4	275,774	Other Assets	2,737	Other Liabilities	8,610
Total derivatives designated as hedging instruments				2,737		8,610
Derivatives not designated as hedging instruments
Interest rate swaps with commercial loan customers	21	110,647	Other Assets	3,654	Other Liabilities	3,654
Interest rate lock commitments and forward contracts	28	5,298	Other Assets	76	Other Liabilities	-
Other contracts	4	43,699	Other Assets	125	Other Liabilities	1
Total derivatives not designated as hedging instruments				3,855		3,655

Schedule of financial instrument commitments

	September 30, 2023						December 31, 2022
	Fixed		Variable		Total		Fixed		Variable		Total
Letters of credit:
Borrower:
Financial standby	$	173	$	16,543	$	16,716	$	3,514	$	15,365	$	18,879
Performance standby		353		15,733		16,086		3,161		13,989		17,150
		526		32,276		32,802		6,675		29,354		36,029
Non-borrower:
Performance standby		-		67		67		-		67		67
Total letters of credit	$	526	$	32,343	$	32,869	$	6,675	$	29,421	$	36,096
Unused loan commitments:	$	146,201	$	710,271	$	856,472	$	139,070	$	860,255	$	999,325

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Basis of Presentation and Changes in Significant Accounting Policies (Details) - USD ($) $ / shares in Units, $ in Millions	Nov. 06, 2023	Oct. 17, 2023
Subsequent Events
Cash dividend declared (per share)		$ 0.05
Dividends paid	$ 2.2

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Acquisition (Details) - USD ($)	Dec. 01, 2021	Sep. 30, 2023	Dec. 31, 2022
Liabilities
Goodwill		$ 86,478,000	$ 86,478,000
West Suburban acquired loans
Assets
Securities available-for-sale and held-to maturity, at fair value	$ 1,070,000,000.00
Loans, net of allowance for credit losses Day One PCD loan adjustment	1,500,000,000
Total assets	2,940,000,000
Liabilities
Total deposits	2,690,000,000
Cash consideration paid	100,700,000
Goodwill	$ 67,900,000
Shares issued or issuable	42.413
Cash consideration for each share	$ 271.15
Merger consideration	$ 295,200,000
Common stock shares issued	15,700,000

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Securities - Amortized Cost and Fair Value (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2023 USD ($) item	Dec. 31, 2022 USD ($)
Securities Available-for-Sale
Amortized Cost	$ 1,350,144	$ 1,662,819
Gross Unrealized Gains	206	370
Gross Unrealized Losses	(120,732)	(123,830)
Securities available-for-sale	1,229,618	1,539,359
Accrued interest receivable	6,700	6,800
FHLB and FRB Stock
FHLBC stock	20,900	5,600
FRBC stock	14,900	14,900
Securities pledged to secure deposits and for other purposes	808,700	547,800
Other disclosures
Securities available-for-sale	$ 1,229,618	1,539,359
Number of securities issued from originators | item	0
Number of originators | item	1
Minimum percentage of securities investment	10.00%
U.S. Treasury
Securities Available-for-Sale
Amortized Cost	$ 224,481	224,054
Gross Unrealized Losses	(7,704)	(11,925)
Securities available-for-sale	216,777	212,129
Other disclosures
Securities available-for-sale	216,777	212,129
U.S. government agencies
Securities Available-for-Sale
Amortized Cost	60,197	61,178
Gross Unrealized Losses	(4,376)	(5,130)
Securities available-for-sale	55,821	56,048
Other disclosures
Securities available-for-sale	55,821	56,048
U.S. government agencies mortgage-backed
Securities Available-for-Sale
Amortized Cost	122,653	140,588
Gross Unrealized Losses	(18,084)	(15,598)
Securities available-for-sale	104,569	124,990
Other disclosures
Securities available-for-sale	104,569	124,990
States and political subdivisions
Securities Available-for-Sale
Amortized Cost	240,107	239,999
Gross Unrealized Gains	142	363
Gross Unrealized Losses	(20,149)	(14,234)
Securities available-for-sale	220,100	226,128
Other disclosures
Securities available-for-sale	220,100	226,128
Corporate bonds
Securities Available-for-Sale
Amortized Cost	5,000	10,000
Gross Unrealized Losses	(39)	(378)
Securities available-for-sale	4,961	9,622
Other disclosures
Securities available-for-sale	4,961	9,622
Collateralized mortgage obligations
Securities Available-for-Sale
Amortized Cost	450,470	596,336
Gross Unrealized Gains	54	1
Gross Unrealized Losses	(63,845)	(62,569)
Securities available-for-sale	386,679	533,768
Other disclosures
Securities available-for-sale	386,679	533,768
Asset-backed Securities
Securities Available-for-Sale
Amortized Cost	71,241	210,388
Gross Unrealized Gains		6
Gross Unrealized Losses	(4,325)	(8,466)
Securities available-for-sale	66,916	201,928
Other disclosures
Securities available-for-sale	66,916	201,928
Collateralized loan obligations.
Securities Available-for-Sale
Amortized Cost	175,995	180,276
Gross Unrealized Gains	10
Gross Unrealized Losses	(2,210)	(5,530)
Securities available-for-sale	173,795	174,746
Other disclosures
Securities available-for-sale	$ 173,795	$ 174,746

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Securities - Contractual Maturities (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2023	Dec. 31, 2022
Securities Available-for-Sale, Amortized Cost
Due in one year or less	$ 49,989
Due after one year through five years	253,955
Due after five years through ten years	60,975
Due after ten years	164,866
Debt securities excluding securities not due at a single maturity date	529,785
Total	$ 1,350,144	$ 1,662,819
Securities Available-for-Sale, Weighted Average Yield
Due in one year or less (as a percent)	0.64%
Due after one year through five years (as a percent)	1.17%
Due after five years through ten years (as a percent)	2.92%
Due after ten years (as a percent)	3.11%
Debt securities (as a percent)	1.92%
Total (as a percent)	3.00%
Securities Available-for-Sale, Fair Value
Due in one year or less	$ 49,804
Due after one year through five years	241,430
Due after five years through ten years	53,882
Due after ten years	152,543
Debt securities	497,659
Debt Securities, Available-for-sale, Total	1,229,618	1,539,359
Mortgage-backed and collateralized mortgage obligations
Securities Available-for-Sale, Amortized Cost
Securities not due at a single maturity date	$ 573,123
Securities Available-for-Sale, Weighted Average Yield
Securities not due at a single maturity date, Weighted Average Yield (as a percent)	2.29%
Securities Available-for-Sale, Fair Value
Securities not due at a single maturity date	$ 491,248
Asset-backed Securities
Securities Available-for-Sale, Amortized Cost
Securities not due at a single maturity date	71,241
Total	$ 71,241	210,388
Securities Available-for-Sale, Weighted Average Yield
Securities not due at a single maturity date, Weighted Average Yield (as a percent)	4.24%
Securities Available-for-Sale, Fair Value
Securities not due at a single maturity date	$ 66,916
Debt Securities, Available-for-sale, Total	66,916	201,928
Collateralized loan obligations.
Securities Available-for-Sale, Amortized Cost
Securities not due at a single maturity date	175,995
Total	$ 175,995	180,276
Securities Available-for-Sale, Weighted Average Yield
Securities not due at a single maturity date, Weighted Average Yield (as a percent)	7.21%
Securities Available-for-Sale, Fair Value
Securities not due at a single maturity date	$ 173,795
Debt Securities, Available-for-sale, Total	$ 173,795	$ 174,746

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Securities - Unrealized Loss Positions (Details)	3 Months Ended	9 Months Ended
	Sep. 30, 2023 USD ($) security	Sep. 30, 2023 USD ($) security	Dec. 31, 2022 USD ($) security
Securities Available-for-Sale, Number of Securities
Less than 12 months in an unrealized loss position | security	46	46	194
Greater than 12 months in an unrealized loss position | security	371	371	299
Total	417	417	493
Securities Available-for-Sale, Unrealized Losses
Less than 12 months in an unrealized loss position	$ 3,246,000	$ 3,246,000	$ 27,304,000
Greater than 12 months in an unrealized loss position	117,486,000	117,486,000	96,526,000
Total	120,732,000	120,732,000	123,830,000
Securities Available-for-Sale, Fair Value
Less than 12 months in an unrealized loss position	111,267,000	111,267,000	579,571,000
Greater than 12 months in an unrealized loss position	1,103,588,000	1,103,588,000	906,689,000
Total	1,214,855,000	$ 1,214,855,000	1,486,260,000
Effective duration (in years)		3 years
Credit losses were determined	0	$ 0	$ 0
Provision for credit losses on securities	$ 0
U.S. Treasury
Securities Available-for-Sale, Number of Securities
Less than 12 months in an unrealized loss position | security			1
Greater than 12 months in an unrealized loss position | security	5	5	4
Total	5	5	5
Securities Available-for-Sale, Unrealized Losses
Less than 12 months in an unrealized loss position			$ 1,025,000
Greater than 12 months in an unrealized loss position	$ 7,704,000	$ 7,704,000	10,900,000
Total	7,704,000	7,704,000	11,925,000
Securities Available-for-Sale, Fair Value
Less than 12 months in an unrealized loss position			24,121,000
Greater than 12 months in an unrealized loss position	216,777,000	216,777,000	188,008,000
Total	$ 216,777,000	$ 216,777,000	$ 212,129,000
U.S. government agencies
Securities Available-for-Sale, Number of Securities
Greater than 12 months in an unrealized loss position | security	9	9	9
Total	9	9	9
Securities Available-for-Sale, Unrealized Losses
Greater than 12 months in an unrealized loss position	$ 4,376,000	$ 4,376,000	$ 5,130,000
Total	4,376,000	4,376,000	5,130,000
Securities Available-for-Sale, Fair Value
Greater than 12 months in an unrealized loss position	55,821,000	55,821,000	56,048,000
Total	$ 55,821,000	$ 55,821,000	$ 56,048,000
Mortgage Backed Securities, Issued by US Government Agencies
Securities Available-for-Sale, Number of Securities
Less than 12 months in an unrealized loss position | security			15
Greater than 12 months in an unrealized loss position | security	128	128	117
Total	128	128	132
Securities Available-for-Sale, Unrealized Losses
Less than 12 months in an unrealized loss position			$ 975,000
Greater than 12 months in an unrealized loss position	$ 18,084,000	$ 18,084,000	14,623,000
Total	18,084,000	18,084,000	15,598,000
Securities Available-for-Sale, Fair Value
Less than 12 months in an unrealized loss position			11,369,000
Greater than 12 months in an unrealized loss position	104,569,000	104,569,000	113,621,000
Total	$ 104,569,000	$ 104,569,000	$ 124,990,000
States and political subdivisions
Securities Available-for-Sale, Number of Securities
Less than 12 months in an unrealized loss position | security	44	44	45
Greater than 12 months in an unrealized loss position | security	30	30	15
Total	74	74	60
Securities Available-for-Sale, Unrealized Losses
Less than 12 months in an unrealized loss position	$ 3,232,000	$ 3,232,000	$ 5,800,000
Greater than 12 months in an unrealized loss position	16,917,000	16,917,000	8,434,000
Total	20,149,000	20,149,000	14,234,000
Securities Available-for-Sale, Fair Value
Less than 12 months in an unrealized loss position	110,511,000	110,511,000	128,770,000
Greater than 12 months in an unrealized loss position	104,582,000	104,582,000	48,877,000
Total	$ 215,093,000	$ 215,093,000	$ 177,647,000
Corporate bonds
Securities Available-for-Sale, Number of Securities
Greater than 12 months in an unrealized loss position | security	1	1	2
Total	1	1	2
Securities Available-for-Sale, Unrealized Losses
Greater than 12 months in an unrealized loss position	$ 39,000	$ 39,000	$ 378,000
Total	39,000	39,000	378,000
Securities Available-for-Sale, Fair Value
Greater than 12 months in an unrealized loss position	4,961,000	4,961,000	9,622,000
Total	$ 4,961,000	$ 4,961,000	$ 9,622,000
Collateralized mortgage obligations
Securities Available-for-Sale, Number of Securities
Less than 12 months in an unrealized loss position | security	2	2	80
Greater than 12 months in an unrealized loss position | security	146	146	120
Total	148	148	200
Securities Available-for-Sale, Unrealized Losses
Less than 12 months in an unrealized loss position	$ 14,000	$ 14,000	$ 12,895,000
Greater than 12 months in an unrealized loss position	63,831,000	63,831,000	49,674,000
Total	63,845,000	63,845,000	62,569,000
Securities Available-for-Sale, Fair Value
Less than 12 months in an unrealized loss position	756,000	756,000	180,624,000
Greater than 12 months in an unrealized loss position	379,159,000	379,159,000	348,880,000
Total	$ 379,915,000	$ 379,915,000	$ 529,504,000
Asset-backed Securities
Securities Available-for-Sale, Number of Securities
Less than 12 months in an unrealized loss position | security			30
Greater than 12 months in an unrealized loss position | security	19	19	21
Total	19	19	51
Securities Available-for-Sale, Unrealized Losses
Less than 12 months in an unrealized loss position			$ 3,030,000
Greater than 12 months in an unrealized loss position	$ 4,325,000	$ 4,325,000	5,436,000
Total	4,325,000	4,325,000	8,466,000
Securities Available-for-Sale, Fair Value
Less than 12 months in an unrealized loss position			121,915,000
Greater than 12 months in an unrealized loss position	66,916,000	66,916,000	79,659,000
Total	$ 66,916,000	$ 66,916,000	$ 201,574,000
Collateralized loan obligations.
Securities Available-for-Sale, Number of Securities
Less than 12 months in an unrealized loss position | security			23
Greater than 12 months in an unrealized loss position | security	33	33	11
Total	33	33	34
Securities Available-for-Sale, Unrealized Losses
Less than 12 months in an unrealized loss position			$ 3,579,000
Greater than 12 months in an unrealized loss position	$ 2,210,000	$ 2,210,000	1,951,000
Total	2,210,000	2,210,000	5,530,000
Securities Available-for-Sale, Fair Value
Less than 12 months in an unrealized loss position			112,772,000
Greater than 12 months in an unrealized loss position	170,803,000	170,803,000	61,974,000
Total	$ 170,803,000	$ 170,803,000	$ 174,746,000

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Securities - Realized Gain (Loss) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Securities
Proceeds from sales of securities	$ 65,572		$ 205,738	$ 3,303
Gross realized losses on securities	(924)	$ (1)	(4,146)	(34)
Net realized losses	(924)	(1)	(4,146)	(34)
Income tax benefit on net realized losses	$ 260	$ 1	$ 1,165	$ 10
Effective tax rate applied (as a percent)	28.10%		28.10%	29.40%

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Loans and Allowance for Credit Losses on Loans - Major Classifications (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Jun. 30, 2023	Dec. 31, 2022	Sep. 30, 2022	Jun. 30, 2022	Dec. 31, 2021
Loans
Total Loans	$ 4,029,543		$ 3,869,609
Allowance for credit losses	(51,729)	$ (55,314)	(49,480)	$ (48,847)	$ (45,388)	$ (44,281)
Net loans	3,977,814		3,820,129
Loans and leases receivable, accrued interest receivable	19,200		15,900
Commercial
Loans
Total Loans	834,877		840,964
Allowance for credit losses	(10,499)	(11,532)	(11,968)	(13,175)	(14,114)	(11,751)
Leases
Loans
Total Loans	354,827		277,385
Allowance for credit losses	(2,592)	(2,690)	(2,865)	(1,534)	(1,736)	(3,480)
Commercial real estate - Investor
Loans
Total Loans	1,047,122		987,635
Allowance for credit losses	(18,003)	(20,031)	(10,674)	(9,587)	(9,436)	(10,795)
Commercial real estate - Owner occupied
Loans
Total Loans	809,050		854,879
Allowance for credit losses	(12,385)	(12,562)	(15,001)	(15,171)	(11,478)	(4,913)
Construction
Loans
Total Loans	202,546		180,535
Residential real estate - Investor
Loans
Total Loans	53,762		57,353
Allowance for credit losses	(691)	(743)	(768)	(816)	(661)	(760)
Residential real estate - Owner occupied
Loans
Total Loans	227,446		219,718
Allowance for credit losses	(1,857)	(1,868)	(2,046)	(2,131)	(1,869)	(2,832)
Multifamily
Loans
Total Loans	372,020		323,691
Allowance for credit losses	(2,572)	(2,737)	(2,453)	(2,530)	(2,434)	(3,675)
HELOC
Loans
Total Loans	102,055		109,202
Allowance for credit losses	(1,652)	$ (1,694)	(1,806)	$ (1,963)	$ (1,542)	$ (2,510)
Other
Loans
Total Loans	$ 25,838		$ 18,247

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Loans and Allowance for Credit Losses on Loans - Major Classifications - Loan Concentrations (Details)	9 Months Ended	12 Months Ended
	Sep. 30, 2023	Dec. 31, 2022
Real estate | Loan receivables | Customer Concentration Risk
Loans
Loans receivable as a percentage of total portfolio	69.80%	70.60%

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Loans and Allowance for Credit Losses on Loans (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022	Dec. 31, 2022
Allowance for loan losses:
Financing Receivable, Allowance for Credit Loss, Beginning Balance	$ 55,314,000	$ 45,388,000	$ 49,480,000	$ 44,281,000
(Release of) Provision for Credit Losses	3,012,000	3,527,000	10,091,000	5,177,000
Charge-offs	6,936,000	484,000	8,691,000	1,384,000
Recoveries	339,000	416,000	849,000	773,000
Financing Receivable, Allowance for Credit Loss, Ending Balance	51,729,000	48,847,000	51,729,000	48,847,000
Less: allowance for credit losses on loans	51,729,000	48,847,000	51,729,000	48,847,000	$ 49,480,000
Net provision expense			8,500,000
Increased reserve on loans			160,000,000.0
Allowance for credit loss unfunded commitment, purchase accounting adjustment	149,000		149,000
Commercial
Allowance for loan losses:
Financing Receivable, Allowance for Credit Loss, Beginning Balance	11,532,000	14,114,000	11,968,000	11,751,000
(Release of) Provision for Credit Losses	(1,025,000)	(919,000)	(1,287,000)	1,488,000
Charge-offs	20,000	67,000	427,000	149,000
Recoveries	12,000	47,000	245,000	85,000
Financing Receivable, Allowance for Credit Loss, Ending Balance	10,499,000	13,175,000	10,499,000	13,175,000
Less: allowance for credit losses on loans	10,499,000	13,175,000	10,499,000	13,175,000	11,968,000
Leases
Allowance for loan losses:
Financing Receivable, Allowance for Credit Loss, Beginning Balance	2,690,000	1,736,000	2,865,000	3,480,000
(Release of) Provision for Credit Losses	(193,000)	(24,000)	498,000	(1,768,000)
Charge-offs		178,000	882,000	178,000
Recoveries	95,000		111,000
Financing Receivable, Allowance for Credit Loss, Ending Balance	2,592,000	1,534,000	2,592,000	1,534,000
Less: allowance for credit losses on loans	2,592,000	1,534,000	2,592,000	1,534,000	2,865,000
Commercial real estate - Investor
Allowance for loan losses:
Financing Receivable, Allowance for Credit Loss, Beginning Balance	20,031,000	9,436,000	10,674,000	10,795,000
(Release of) Provision for Credit Losses	4,726,000	256,000	14,117,000	(664,000)
Charge-offs	6,774,000	124,000	6,845,000	604,000
Recoveries	20,000	19,000	57,000	60,000
Financing Receivable, Allowance for Credit Loss, Ending Balance	18,003,000	9,587,000	18,003,000	9,587,000
Less: allowance for credit losses on loans	18,003,000	9,587,000	18,003,000	9,587,000	10,674,000
Commercial real estate - Owner occupied
Allowance for loan losses:
Financing Receivable, Allowance for Credit Loss, Beginning Balance	12,562,000	11,478,000	15,001,000	4,913,000
(Release of) Provision for Credit Losses	(154,000)	3,618,000	(2,397,000)	10,289,000
Charge-offs	35,000	12,000	236,000	133,000
Recoveries	12,000	87,000	17,000	102,000
Financing Receivable, Allowance for Credit Loss, Ending Balance	12,385,000	15,171,000	12,385,000	15,171,000
Less: allowance for credit losses on loans	12,385,000	15,171,000	12,385,000	15,171,000	15,001,000
Real estate - construction
Allowance for loan losses:
Financing Receivable, Allowance for Credit Loss, Beginning Balance	1,179,000	1,535,000	1,546,000	3,373,000
(Release of) Provision for Credit Losses	(39,000)	9,000	(406,000)	(1,829,000)
Recoveries	100,000		100,000
Financing Receivable, Allowance for Credit Loss, Ending Balance	1,240,000	1,544,000	1,240,000	1,544,000
Less: allowance for credit losses on loans	1,240,000	1,544,000	1,240,000	1,544,000	1,546,000
Residential real estate - Investor
Allowance for loan losses:
Financing Receivable, Allowance for Credit Loss, Beginning Balance	743,000	661,000	768,000	760,000
(Release of) Provision for Credit Losses	(55,000)	147,000	(104,000)	33,000
Recoveries	3,000	8,000	27,000	23,000
Financing Receivable, Allowance for Credit Loss, Ending Balance	691,000	816,000	691,000	816,000
Less: allowance for credit losses on loans	691,000	816,000	691,000	816,000	768,000
Residential real estate - Owner occupied
Allowance for loan losses:
Financing Receivable, Allowance for Credit Loss, Beginning Balance	1,868,000	1,869,000	2,046,000	2,832,000
(Release of) Provision for Credit Losses	(36,000)	149,000	(260,000)	(919,000)
Recoveries	25,000	113,000	71,000	218,000
Financing Receivable, Allowance for Credit Loss, Ending Balance	1,857,000	2,131,000	1,857,000	2,131,000
Less: allowance for credit losses on loans	1,857,000	2,131,000	1,857,000	2,131,000	2,046,000
Multifamily
Allowance for loan losses:
Financing Receivable, Allowance for Credit Loss, Beginning Balance	2,737,000	2,434,000	2,453,000	3,675,000
(Release of) Provision for Credit Losses	(165,000)	33,000	119,000	(1,208,000)
Recoveries		63,000		63,000
Financing Receivable, Allowance for Credit Loss, Ending Balance	2,572,000	2,530,000	2,572,000	2,530,000
Less: allowance for credit losses on loans	2,572,000	2,530,000	2,572,000	2,530,000	2,453,000
HELOC
Allowance for loan losses:
Financing Receivable, Allowance for Credit Loss, Beginning Balance	1,694,000	1,542,000	1,806,000	2,510,000
(Release of) Provision for Credit Losses	(77,000)	386,000	(242,000)	(649,000)
Recoveries	35,000	35,000	88,000	102,000
Financing Receivable, Allowance for Credit Loss, Ending Balance	1,652,000	1,963,000	1,652,000	1,963,000
Less: allowance for credit losses on loans	1,652,000	1,963,000	1,652,000	1,963,000	1,806,000
Other
Allowance for loan losses:
Financing Receivable, Allowance for Credit Loss, Beginning Balance	278,000	583,000	353,000	192,000
(Release of) Provision for Credit Losses	30,000	(128,000)	53,000	404,000
Charge-offs	107,000	103,000	301,000	320,000
Recoveries	37,000	44,000	133,000	120,000
Financing Receivable, Allowance for Credit Loss, Ending Balance	238,000	396,000	238,000	396,000
Less: allowance for credit losses on loans	238,000	396,000	238,000	396,000	353,000
Unfunded Loan Commitment
Allowance for loan losses:
Financing Receivable, Allowance for Credit Loss, Beginning Balance			4,300,000
Financing Receivable, Allowance for Credit Loss, Ending Balance	2,700,000	4,400,000	2,700,000	4,400,000
Less: allowance for credit losses on loans	2,700,000	4,400,000	2,700,000	4,400,000	4,300,000
Allowance for credit loss unfunded commitment, purchase accounting adjustment	149,000	$ 1,000,000.0	149,000	$ 1,000,000.0	$ 819,000
Unfunded Loan Commitment | Other Liabilities [Member]
Allowance for loan losses:
ACL on unfunded commitments	$ 2,900,000		$ 2,900,000

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Loans and Allowance for Credit Losses on Loans - Collateral dependent loans (Details) - USD ($)	Sep. 30, 2023	Jun. 30, 2023	Dec. 31, 2022	Sep. 30, 2022	Jun. 30, 2022	Dec. 31, 2021
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans, including deferred loan loan costs and PCI	$ 3,977,814,000		$ 3,820,129,000
Less: allowance for credit losses on loans	51,729,000	$ 55,314,000	49,480,000	$ 48,847,000	$ 45,388,000	$ 44,281,000
Non accuring loan	500,000
Asset Pledged as Collateral without Right
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans, including deferred loan loan costs and PCI	55,751,000		50,478,000
Real Estate | Asset Pledged as Collateral without Right
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans, including deferred loan loan costs and PCI	54,733,000		40,641,000
Accounts Receivable | Asset Pledged as Collateral without Right
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans, including deferred loan loan costs and PCI	679,000		5,915,000
Equipment | Asset Pledged as Collateral without Right
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans, including deferred loan loan costs and PCI	339,000		1,248,000
Other. | Asset Pledged as Collateral without Right
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans, including deferred loan loan costs and PCI			2,674,000
Collateral
Accounts, Notes, Loans and Financing Receivable [Line Items]
Less: allowance for credit losses on loans	9,390,000		10,744,000
Commercial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Less: allowance for credit losses on loans	10,499,000	11,532,000	11,968,000	13,175,000	14,114,000	11,751,000
Commercial | Asset Pledged as Collateral without Right
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans, including deferred loan loan costs and PCI	1,528,000		7,162,000
Commercial | Real Estate | Asset Pledged as Collateral without Right
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans, including deferred loan loan costs and PCI	849,000		883,000
Commercial | Accounts Receivable | Asset Pledged as Collateral without Right
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans, including deferred loan loan costs and PCI	679,000		5,915,000
Commercial | Other. | Asset Pledged as Collateral without Right
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans, including deferred loan loan costs and PCI			364,000
Commercial | Collateral
Accounts, Notes, Loans and Financing Receivable [Line Items]
Less: allowance for credit losses on loans	2,000		569,000
Leases
Accounts, Notes, Loans and Financing Receivable [Line Items]
Less: allowance for credit losses on loans	2,592,000	2,690,000	2,865,000	1,534,000	1,736,000	3,480,000
Leases | Asset Pledged as Collateral without Right
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans, including deferred loan loan costs and PCI	339,000		1,248,000
Leases | Equipment | Asset Pledged as Collateral without Right
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans, including deferred loan loan costs and PCI	339,000		1,248,000
Leases | Collateral
Accounts, Notes, Loans and Financing Receivable [Line Items]
Less: allowance for credit losses on loans	339,000		1,248,000
Commercial real estate - Investor
Accounts, Notes, Loans and Financing Receivable [Line Items]
Less: allowance for credit losses on loans	18,003,000	20,031,000	10,674,000	9,587,000	9,436,000	10,795,000
Commercial real estate - Investor | Asset Pledged as Collateral without Right
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans, including deferred loan loan costs and PCI	26,724,000		16,576,000
Commercial real estate - Investor | Real Estate | Asset Pledged as Collateral without Right
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans, including deferred loan loan costs and PCI	26,724,000		16,576,000
Commercial real estate - Investor | Collateral
Accounts, Notes, Loans and Financing Receivable [Line Items]
Less: allowance for credit losses on loans	4,848,000		2,875,000
Commercial real estate - Owner occupied
Accounts, Notes, Loans and Financing Receivable [Line Items]
Less: allowance for credit losses on loans	12,385,000	12,562,000	15,001,000	15,171,000	11,478,000	4,913,000
Commercial real estate - Owner occupied | Asset Pledged as Collateral without Right
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans, including deferred loan loan costs and PCI	17,636,000		21,498,000
Commercial real estate - Owner occupied | Real Estate | Asset Pledged as Collateral without Right
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans, including deferred loan loan costs and PCI	17,636,000		19,188,000
Commercial real estate - Owner occupied | Other. | Asset Pledged as Collateral without Right
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans, including deferred loan loan costs and PCI			2,310,000
Commercial real estate - Owner occupied | Collateral
Accounts, Notes, Loans and Financing Receivable [Line Items]
Less: allowance for credit losses on loans	4,201,000		5,808,000
Construction | Asset Pledged as Collateral without Right
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans, including deferred loan loan costs and PCI	7,206,000
Construction | Real Estate | Asset Pledged as Collateral without Right
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans, including deferred loan loan costs and PCI	7,206,000
Residential real estate - Investor
Accounts, Notes, Loans and Financing Receivable [Line Items]
Less: allowance for credit losses on loans	691,000	743,000	768,000	816,000	661,000	760,000
Residential real estate - Investor | Asset Pledged as Collateral without Right
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans, including deferred loan loan costs and PCI	32,000		675,000
Residential real estate - Investor | Real Estate | Asset Pledged as Collateral without Right
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans, including deferred loan loan costs and PCI	32,000		675,000
Residential real estate - Owner occupied
Accounts, Notes, Loans and Financing Receivable [Line Items]
Less: allowance for credit losses on loans	1,857,000	1,868,000	2,046,000	2,131,000	1,869,000	2,832,000
Residential real estate - Owner occupied | Asset Pledged as Collateral without Right
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans, including deferred loan loan costs and PCI	1,679,000		1,817,000
Residential real estate - Owner occupied | Real Estate | Asset Pledged as Collateral without Right
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans, including deferred loan loan costs and PCI	1,679,000		1,817,000
Residential real estate - Owner occupied | Collateral
Accounts, Notes, Loans and Financing Receivable [Line Items]
Less: allowance for credit losses on loans			244,000
Multifamily
Accounts, Notes, Loans and Financing Receivable [Line Items]
Less: allowance for credit losses on loans	2,572,000	2,737,000	2,453,000	2,530,000	2,434,000	3,675,000
Multifamily | Asset Pledged as Collateral without Right
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans, including deferred loan loan costs and PCI	568,000		1,322,000
Multifamily | Real Estate | Asset Pledged as Collateral without Right
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans, including deferred loan loan costs and PCI	568,000		1,322,000
HELOC
Accounts, Notes, Loans and Financing Receivable [Line Items]
Less: allowance for credit losses on loans	1,652,000	1,694,000	1,806,000	1,963,000	1,542,000	2,510,000
HELOC | Asset Pledged as Collateral without Right
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans, including deferred loan loan costs and PCI	39,000		180,000
HELOC | Real Estate | Asset Pledged as Collateral without Right
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans, including deferred loan loan costs and PCI	39,000		180,000
Other
Accounts, Notes, Loans and Financing Receivable [Line Items]
Less: allowance for credit losses on loans	$ 238,000	$ 278,000	$ 353,000	$ 396,000	$ 583,000	$ 192,000

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Loans and Allowance for Credit Losses on Loans - Aging Analysis (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Aged analysis of past due loans
Total Loans	$ 4,029,543	$ 3,869,609
Total loans, including deferred loan loan costs and PCI	3,977,814	3,820,129
Recorded Investment 90 days or Greater Past Due and Accruing	1,209	1,262
Special Mention [Member]
Aged analysis of past due loans
Total Loans	120,380	179,029
Financial Asset, Past Due [Member]
Aged analysis of past due loans
Current	72,554
Total Past Due Including PCI loans		22,214
30 to 59 Days Past Due
Aged analysis of past due loans
Current	24,232
Total Past Due Including PCI loans		6,326
60 to 89 Days Past Due
Aged analysis of past due loans
Current	19,556
Total Past Due Including PCI loans		2,874
90 Days or Greater Past Due
Aged analysis of past due loans
Current	28,766
Total Past Due Including PCI loans		13,014
Financial Asset, Not Past Due [Member]
Aged analysis of past due loans
Current	3,956,989
Current including PCI Loans		3,847,395
Commercial
Aged analysis of past due loans
Total Loans	834,877	840,964
Recorded Investment 90 days or Greater Past Due and Accruing	979	460
Commercial | Special Mention [Member]
Aged analysis of past due loans
Total Loans	30,650	27,047
Commercial | Financial Asset, Past Due [Member]
Aged analysis of past due loans
Current	4,755	1,840
Commercial | 30 to 59 Days Past Due
Aged analysis of past due loans
Current	1,829	3
Commercial | 60 to 89 Days Past Due
Aged analysis of past due loans
Current	1,874	1,012
Commercial | 90 Days or Greater Past Due
Aged analysis of past due loans
Current	1,052	825
Commercial | Financial Asset, Not Past Due [Member]
Aged analysis of past due loans
Current	830,122	839,124
Leases
Aged analysis of past due loans
Total Loans	354,827	277,385
Leases | Financial Asset, Past Due [Member]
Aged analysis of past due loans
Current	2,659	1,083
Leases | 30 to 59 Days Past Due
Aged analysis of past due loans
Current	2,502	447
Leases | 60 to 89 Days Past Due
Aged analysis of past due loans
Current		22
Leases | 90 Days or Greater Past Due
Aged analysis of past due loans
Current	157	614
Leases | Financial Asset, Not Past Due [Member]
Aged analysis of past due loans
Current	352,168	276,302
Commercial real estate - Investor
Aged analysis of past due loans
Total Loans	1,047,122	987,635
Commercial real estate - Investor | Special Mention [Member]
Aged analysis of past due loans
Total Loans	24,133	32,655
Commercial real estate - Investor | Financial Asset, Past Due [Member]
Aged analysis of past due loans
Current	35,049	8,867
Commercial real estate - Investor | 30 to 59 Days Past Due
Aged analysis of past due loans
Current	2,205	3,276
Commercial real estate - Investor | 60 to 89 Days Past Due
Aged analysis of past due loans
Current	16,728	1,276
Commercial real estate - Investor | 90 Days or Greater Past Due
Aged analysis of past due loans
Current	16,116	4,315
Commercial real estate - Investor | Financial Asset, Not Past Due [Member]
Aged analysis of past due loans
Current	1,012,073	978,768
Commercial real estate - Owner occupied
Aged analysis of past due loans
Total Loans	809,050	854,879
Recorded Investment 90 days or Greater Past Due and Accruing		173
Commercial real estate - Owner occupied | Special Mention [Member]
Aged analysis of past due loans
Total Loans	58,716	97,763
Commercial real estate - Owner occupied | Financial Asset, Past Due [Member]
Aged analysis of past due loans
Current	17,231	2,697
Commercial real estate - Owner occupied | 30 to 59 Days Past Due
Aged analysis of past due loans
Current	15,232	373
Commercial real estate - Owner occupied | 60 to 89 Days Past Due
Aged analysis of past due loans
Current	120	113
Commercial real estate - Owner occupied | 90 Days or Greater Past Due
Aged analysis of past due loans
Current	1,879	2,211
Commercial real estate - Owner occupied | Financial Asset, Not Past Due [Member]
Aged analysis of past due loans
Current	791,819	852,182
Real estate - construction
Aged analysis of past due loans
Total Loans	202,546	180,535
Real estate - construction | Financial Asset, Past Due [Member]
Aged analysis of past due loans
Current	7,524	130
Real estate - construction | 30 to 59 Days Past Due
Aged analysis of past due loans
Current	118	14
Real estate - construction | 60 to 89 Days Past Due
Aged analysis of past due loans
Current	200
Real estate - construction | 90 Days or Greater Past Due
Aged analysis of past due loans
Current	7,206	116
Real estate - construction | Financial Asset, Not Past Due [Member]
Aged analysis of past due loans
Current	195,022	180,405
Residential real estate - Investor
Aged analysis of past due loans
Total Loans	53,762	57,353
Recorded Investment 90 days or Greater Past Due and Accruing	140	144
Residential real estate - Investor | Special Mention [Member]
Aged analysis of past due loans
Total Loans	67	70
Residential real estate - Investor | Financial Asset, Past Due [Member]
Aged analysis of past due loans
Current	529	1,432
Residential real estate - Investor | 30 to 59 Days Past Due
Aged analysis of past due loans
Current	252	445
Residential real estate - Investor | 90 Days or Greater Past Due
Aged analysis of past due loans
Current	277	987
Residential real estate - Investor | Financial Asset, Not Past Due [Member]
Aged analysis of past due loans
Current	53,233	55,921
Residential real estate - Owner occupied
Aged analysis of past due loans
Total Loans	227,446	219,718
Recorded Investment 90 days or Greater Past Due and Accruing		485
Residential real estate - Owner occupied | Financial Asset, Past Due [Member]
Aged analysis of past due loans
Current	2,974	3,423
Residential real estate - Owner occupied | 30 to 59 Days Past Due
Aged analysis of past due loans
Current	735	1,191
Residential real estate - Owner occupied | 60 to 89 Days Past Due
Aged analysis of past due loans
Current	419
Residential real estate - Owner occupied | 90 Days or Greater Past Due
Aged analysis of past due loans
Current	1,820	2,232
Residential real estate - Owner occupied | Financial Asset, Not Past Due [Member]
Aged analysis of past due loans
Current	224,472	216,295
Multifamily
Aged analysis of past due loans
Total Loans	372,020	323,691
Multifamily | Special Mention [Member]
Aged analysis of past due loans
Total Loans	6,197	6,086
Multifamily | Financial Asset, Past Due [Member]
Aged analysis of past due loans
Current	840	1,950
Multifamily | 30 to 59 Days Past Due
Aged analysis of past due loans
Current	713	267
Multifamily | 60 to 89 Days Past Due
Aged analysis of past due loans
Current	127	361
Multifamily | 90 Days or Greater Past Due
Aged analysis of past due loans
Current		1,322
Multifamily | Financial Asset, Not Past Due [Member]
Aged analysis of past due loans
Current	371,180	321,741
HELOC
Aged analysis of past due loans
Total Loans	102,055	109,202
Recorded Investment 90 days or Greater Past Due and Accruing	90
HELOC | Special Mention [Member]
Aged analysis of past due loans
Total Loans		111
HELOC | Financial Asset, Past Due [Member]
Aged analysis of past due loans
Current	993	773
HELOC | 30 to 59 Days Past Due
Aged analysis of past due loans
Current	646	291
HELOC | 60 to 89 Days Past Due
Aged analysis of past due loans
Current	88	90
HELOC | 90 Days or Greater Past Due
Aged analysis of past due loans
Current	259	392
HELOC | Financial Asset, Not Past Due [Member]
Aged analysis of past due loans
Current	101,062	108,429
Other
Aged analysis of past due loans
Total Loans	25,838	18,247
Other | Financial Asset, Past Due [Member]
Aged analysis of past due loans
Current		19
Other | 30 to 59 Days Past Due
Aged analysis of past due loans
Current		19
Other | Financial Asset, Not Past Due [Member]
Aged analysis of past due loans
Current	$ 25,838	$ 18,228

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Loans and Allowance for Credit Losses on Loans - Nonaccruals (Details) - USD ($)	3 Months Ended	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2023	Dec. 31, 2022
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non accrual including PCI Loans	$ 62,116,000	$ 62,116,000	$ 31,602,000
Nonaccrual with no ACL	32,382,000	32,382,000	18,404,000
Interest on nonaccrual loans	189,000	304,000
Commercial
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccrual	2,167,000	2,167,000	7,189,000
Nonaccrual with no ACL	2,167,000	2,167,000	6,598,000
Leases
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccrual	377,000	377,000	1,876,000
Nonaccrual with no ACL	38,000	38,000
Commercial real estate - Investor
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccrual	26,724,000	26,724,000	4,346,000
Nonaccrual with no ACL	11,786,000	11,786,000	4,244,000
Commercial real estate - Owner occupied
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccrual	18,290,000	18,290,000	8,050,000
Nonaccrual with no ACL	3,833,000	3,833,000	3,813,000
Real estate - construction
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccrual	7,206,000	7,206,000	251,000
Nonaccrual with no ACL	7,206,000	7,206,000
Residential real estate - Investor
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccrual	1,362,000	1,362,000	1,528,000
Nonaccrual with no ACL	1,362,000	1,362,000	675,000
Residential real estate - Owner occupied
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccrual	3,627,000	3,627,000	3,713,000
Nonaccrual with no ACL	3,627,000	3,627,000	1,572,000
Multifamily
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccrual	1,141,000	1,141,000	2,538,000
Nonaccrual with no ACL	1,141,000	1,141,000	1,322,000
HELOC
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccrual	1,222,000	1,222,000	2,109,000
Nonaccrual with no ACL	$ 1,222,000	$ 1,222,000	180,000
Other
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccrual			$ 2,000

XML

Loans and Allowance for Credit Losses on Loans - Credit Quality (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022	Dec. 31, 2022
Financing Receivable, Excluding Accrued Interest, Allowance for Credit Loss, Writeoff, by Origination Year [Abstract]
2022			$ 5,016,000
2021			292,000
2020			3,028,000
2019			12,000
Prior			343,000
Total	$ 6,936,000	$ 484,000	8,691,000	$ 1,384,000
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022	795,374,000		795,374,000		$ 1,207,348,000
2022 / 2021	1,071,693,000		1,071,693,000		886,935,000
2021 / 2020	741,422,000		741,422,000		476,753,000
2020 / 2019	381,393,000		381,393,000		257,206,000
2019 / 2018	214,219,000		214,219,000		167,647,000
Prior	309,154,000		309,154,000		245,580,000
Revolving Loans	514,909,000		514,909,000		628,140,000
Revolving Loans Converted To Term Loans	1,379,000		1,379,000
Total Loans	4,029,543,000		4,029,543,000		3,869,609,000
Minimum
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
Loan commitment for inclusion in credit quality analysis			50,000
Pass [Member]
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022	782,308,000		782,308,000		1,165,744,000
2022 / 2021	1,010,284,000		1,010,284,000		837,389,000
2021 / 2020	684,901,000		684,901,000		401,848,000
2020 / 2019	332,814,000		332,814,000		183,707,000
2019 / 2018	173,173,000		173,173,000		165,368,000
Prior	304,066,000		304,066,000		226,741,000
Revolving Loans	466,981,000		466,981,000		600,854,000
Revolving Loans Converted To Term Loans	1,379,000		1,379,000
Total Loans	3,755,906,000		3,755,906,000		3,581,651,000
Special Mention [Member]
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022	2,063,000		2,063,000		16,031,000
2022 / 2021	25,570,000		25,570,000		27,684,000
2021 / 2020	33,263,000		33,263,000		70,495,000
2020 / 2019	26,806,000		26,806,000		31,990,000
2019 / 2018	1,929,000		1,929,000		1,301,000
Prior	894,000		894,000		10,131,000
Revolving Loans	29,855,000		29,855,000		21,397,000
Total Loans	120,380,000		120,380,000		179,029,000
Substandard [Member]
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022	11,003,000		11,003,000		25,573,000
2022 / 2021	35,839,000		35,839,000		21,862,000
2021 / 2020	23,258,000		23,258,000		4,410,000
2020 / 2019	21,773,000		21,773,000		41,509,000
2019 / 2018	39,117,000		39,117,000		978,000
Prior	4,194,000		4,194,000		8,708,000
Revolving Loans	18,073,000		18,073,000		5,889,000
Total Loans	153,257,000		153,257,000		108,929,000
Commercial
Financing Receivable, Excluding Accrued Interest, Allowance for Credit Loss, Writeoff, by Origination Year [Abstract]
2021			17,000
2020			364,000
Prior			46,000
Total	20,000	67,000	427,000	149,000
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022	215,492,000		215,492,000		231,889,000
2022 / 2021	188,261,000		188,261,000		73,327,000
2021 / 2020	43,089,000		43,089,000		25,760,000
2020 / 2019	16,094,000		16,094,000		27,350,000
2019 / 2018	20,416,000		20,416,000		6,964,000
Prior	4,315,000		4,315,000		2,651,000
Revolving Loans	345,831,000		345,831,000		473,023,000
Revolving Loans Converted To Term Loans	1,379,000		1,379,000
Total Loans	834,877,000		834,877,000		840,964,000
Commercial | Pass [Member]
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022	215,492,000		215,492,000		225,056,000
2022 / 2021	187,682,000		187,682,000		70,608,000
2021 / 2020	41,464,000		41,464,000		21,597,000
2020 / 2019	13,359,000		13,359,000		12,742,000
2019 / 2018	10,676,000		10,676,000		6,957,000
Prior	4,315,000		4,315,000		2,651,000
Revolving Loans	311,562,000		311,562,000		447,821,000
Revolving Loans Converted To Term Loans	1,379,000		1,379,000
Total Loans	785,929,000		785,929,000		787,432,000
Commercial | Special Mention [Member]
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022					1,875,000
2022 / 2021	500,000		500,000		272,000
2021 / 2020	244,000		244,000		1,182,000
2020 / 2019					2,432,000
2019 / 2018	51,000		51,000
Revolving Loans	29,855,000		29,855,000		21,286,000
Total Loans	30,650,000		30,650,000		27,047,000
Commercial | Substandard [Member]
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022					4,958,000
2022 / 2021	79,000		79,000		2,447,000
2021 / 2020	1,381,000		1,381,000		2,981,000
2020 / 2019	2,735,000		2,735,000		12,176,000
2019 / 2018	9,689,000		9,689,000		7,000
Revolving Loans	4,414,000		4,414,000		3,916,000
Total Loans	18,298,000		18,298,000		26,485,000
Real estate - residential loans
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
Mortgage loans in process of foreclosure	176,000		176,000		600,000
Leases
Financing Receivable, Excluding Accrued Interest, Allowance for Credit Loss, Writeoff, by Origination Year [Abstract]
2022			870,000
2019			12,000
Total		178,000	882,000	178,000
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022	151,691,000		151,691,000		162,985,000
2022 / 2021	125,431,000		125,431,000		64,203,000
2021 / 2020	47,808,000		47,808,000		26,995,000
2020 / 2019	17,522,000		17,522,000		17,923,000
2019 / 2018	9,780,000		9,780,000		4,449,000
Prior	2,595,000		2,595,000		830,000
Total Loans	354,827,000		354,827,000		277,385,000
Leases | Pass [Member]
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022	151,691,000		151,691,000		161,379,000
2022 / 2021	125,092,000		125,092,000		64,203,000
2021 / 2020	47,808,000		47,808,000		26,995,000
2020 / 2019	17,522,000		17,522,000		17,653,000
2019 / 2018	9,545,000		9,545,000		4,449,000
Prior	2,595,000		2,595,000		830,000
Total Loans	354,253,000		354,253,000		275,509,000
Leases | Substandard [Member]
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022					1,606,000
2022 / 2021	339,000		339,000
2020 / 2019					270,000
2019 / 2018	235,000		235,000
Total Loans	574,000		574,000		1,876,000
Commercial real estate - Investor
Financing Receivable, Excluding Accrued Interest, Allowance for Credit Loss, Writeoff, by Origination Year [Abstract]
2022			4,121,000
2021			71,000
2020			2,653,000
Total	6,774,000	124,000	6,845,000	604,000
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022	187,743,000		187,743,000		433,775,000
2022 / 2021	366,250,000		366,250,000		232,121,000
2021 / 2020	217,189,000		217,189,000		123,981,000
2020 / 2019	119,081,000		119,081,000		84,814,000
2019 / 2018	69,048,000		69,048,000		48,005,000
Prior	67,264,000		67,264,000		57,826,000
Revolving Loans	20,547,000		20,547,000		7,113,000
Total Loans	1,047,122,000		1,047,122,000		987,635,000
Commercial real estate - Investor | Pass [Member]
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022	176,779,000		176,779,000		416,094,000
2022 / 2021	341,597,000		341,597,000		228,686,000
2021 / 2020	203,972,000		203,972,000		118,491,000
2020 / 2019	111,333,000		111,333,000		63,845,000
2019 / 2018	59,770,000		59,770,000		46,935,000
Prior	67,264,000		67,264,000		46,406,000
Revolving Loans	8,148,000		8,148,000		7,113,000
Total Loans	968,863,000		968,863,000		927,570,000
Commercial real estate - Investor | Special Mention [Member]
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022					5,349,000
2022 / 2021	12,866,000		12,866,000		1,417,000
2021 / 2020	11,267,000		11,267,000		5,490,000
2020 / 2019					10,206,000
2019 / 2018					1,070,000
Prior					9,123,000
Total Loans	24,133,000		24,133,000		32,655,000
Commercial real estate - Investor | Substandard [Member]
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022	10,964,000		10,964,000		12,332,000
2022 / 2021	11,787,000		11,787,000		2,018,000
2021 / 2020	1,950,000		1,950,000
2020 / 2019	7,748,000		7,748,000		10,763,000
2019 / 2018	9,278,000		9,278,000
Prior					2,297,000
Revolving Loans	12,399,000		12,399,000
Total Loans	54,126,000		54,126,000		27,410,000
Commercial real estate - Owner occupied
Financing Receivable, Excluding Accrued Interest, Allowance for Credit Loss, Writeoff, by Origination Year [Abstract]
2022			22,000
2021			178,000
2020			4,000
Prior			32,000
Total	35,000	12,000	236,000	133,000
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022	107,721,000		107,721,000		180,679,000
2022 / 2021	165,939,000		165,939,000		263,102,000
2021 / 2020	219,649,000		219,649,000		155,044,000
2020 / 2019	106,372,000		106,372,000		81,981,000
2019 / 2018	73,942,000		73,942,000		49,598,000
Prior	102,169,000		102,169,000		90,730,000
Revolving Loans	33,258,000		33,258,000		33,745,000
Total Loans	809,050,000		809,050,000		854,879,000
Commercial real estate - Owner occupied | Pass [Member]
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022	105,963,000		105,963,000		169,703,000
2022 / 2021	139,223,000		139,223,000		223,731,000
2021 / 2020	181,543,000		181,543,000		105,669,000
2020 / 2019	78,750,000		78,750,000		47,351,000
2019 / 2018	54,909,000		54,909,000		49,367,000
Prior	101,396,000		101,396,000		86,660,000
Revolving Loans	33,258,000		33,258,000		33,745,000
Total Loans	695,042,000		695,042,000		716,226,000
Commercial real estate - Owner occupied | Special Mention [Member]
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022	1,758,000		1,758,000		8,430,000
2022 / 2021	11,722,000		11,722,000		22,242,000
2021 / 2020	18,180,000		18,180,000		48,184,000
2020 / 2019	26,480,000		26,480,000		17,668,000
2019 / 2018	222,000		222,000		231,000
Prior	354,000		354,000		1,008,000
Total Loans	58,716,000		58,716,000		97,763,000
Commercial real estate - Owner occupied | Substandard [Member]
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022					2,546,000
2022 / 2021	14,994,000		14,994,000		17,129,000
2021 / 2020	19,926,000		19,926,000		1,191,000
2020 / 2019	1,142,000		1,142,000		16,962,000
2019 / 2018	18,811,000		18,811,000
Prior	419,000		419,000		3,062,000
Total Loans	55,292,000		55,292,000		40,890,000
Construction
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022	26,834,000		26,834,000		54,275,000
2022 / 2021	83,216,000		83,216,000		65,758,000
2021 / 2020	56,217,000		56,217,000		54,839,000
2020 / 2019	29,588,000		29,588,000		2,506,000
2019 / 2018	1,837,000		1,837,000		226,000
Prior	1,155,000		1,155,000		1,408,000
Revolving Loans	3,699,000		3,699,000		1,523,000
Total Loans	202,546,000		202,546,000		180,535,000
Construction | Pass [Member]
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022	26,529,000		26,529,000		53,058,000
2022 / 2021	75,698,000		75,698,000		65,758,000
2021 / 2020	56,217,000		56,217,000		39,542,000
2020 / 2019	19,531,000		19,531,000		2,390,000
2019 / 2018	1,837,000		1,837,000		226,000
Prior	1,155,000		1,155,000		1,408,000
Revolving Loans	3,699,000		3,699,000		1,523,000
Total Loans	184,666,000		184,666,000		163,905,000
Construction | Special Mention [Member]
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022	305,000		305,000
2022 / 2021	312,000		312,000
2021 / 2020					15,297,000
Total Loans	617,000		617,000		15,297,000
Construction | Substandard [Member]
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022					1,217,000
2022 / 2021	7,206,000		7,206,000
2020 / 2019	10,057,000		10,057,000		116,000
Total Loans	17,263,000		17,263,000		1,333,000
Residential real estate - Investor
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022	3,310,000		3,310,000		15,358,000
2022 / 2021	14,958,000		14,958,000		9,980,000
2021 / 2020	9,021,000		9,021,000		6,945,000
2020 / 2019	6,317,000		6,317,000		9,084,000
2019 / 2018	7,534,000		7,534,000		5,039,000
Prior	11,205,000		11,205,000		9,956,000
Revolving Loans	1,417,000		1,417,000		991,000
Total Loans	53,762,000		53,762,000		57,353,000
Residential real estate - Investor | Pass [Member]
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022	3,310,000		3,310,000		14,737,000
2022 / 2021	14,560,000		14,560,000		9,910,000
2021 / 2020	8,954,000		8,954,000		6,945,000
2020 / 2019	6,317,000		6,317,000		8,585,000
2019 / 2018	7,116,000		7,116,000		4,853,000
Prior	10,519,000		10,519,000		9,548,000
Revolving Loans	1,417,000		1,417,000		991,000
Total Loans	52,193,000		52,193,000		55,569,000
Residential real estate - Investor | Special Mention [Member]
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2022 / 2021					70,000
2021 / 2020	67,000		67,000
Total Loans	67,000		67,000		70,000
Residential real estate - Investor | Substandard [Member]
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022					621,000
2022 / 2021	398,000		398,000
2020 / 2019					499,000
2019 / 2018	418,000		418,000		186,000
Prior	686,000		686,000		408,000
Total Loans	1,502,000		1,502,000		1,714,000
Residential real estate - Owner occupied
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022	26,371,000		26,371,000		42,016,000
2022 / 2021	42,037,000		42,037,000		45,151,000
2021 / 2020	41,439,000		41,439,000		28,655,000
2020 / 2019	26,634,000		26,634,000		16,869,000
2019 / 2018	15,833,000		15,833,000		12,283,000
Prior	74,366,000		74,366,000		73,106,000
Revolving Loans	766,000		766,000		1,638,000
Total Loans	227,446,000		227,446,000		219,718,000
Residential real estate - Owner occupied | Pass [Member]
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022	26,371,000		26,371,000		41,885,000
2022 / 2021	41,915,000		41,915,000		44,884,000
2021 / 2020	41,439,000		41,439,000		28,418,000
2020 / 2019	26,544,000		26,544,000		16,146,000
2019 / 2018	15,147,000		15,147,000		12,152,000
Prior	71,637,000		71,637,000		70,741,000
Revolving Loans	766,000		766,000		1,638,000
Total Loans	223,819,000		223,819,000		215,864,000
Residential real estate - Owner occupied | Substandard [Member]
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022					131,000
2022 / 2021	122,000		122,000		267,000
2021 / 2020					237,000
2020 / 2019	90,000		90,000		723,000
2019 / 2018	686,000		686,000		131,000
Prior	2,729,000		2,729,000		2,365,000
Total Loans	3,627,000		3,627,000		3,854,000
Multifamily
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022	69,947,000		69,947,000		79,354,000
2022 / 2021	80,746,000		80,746,000		129,940,000
2021 / 2020	105,383,000		105,383,000		52,604,000
2020 / 2019	58,118,000		58,118,000		14,809,000
2019 / 2018	14,047,000		14,047,000		40,290,000
Prior	43,397,000		43,397,000		6,365,000
Revolving Loans	382,000		382,000		329,000
Total Loans	372,020,000		372,020,000		323,691,000
Multifamily | Pass [Member]
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022	69,947,000		69,947,000		76,877,000
2022 / 2021	79,689,000		79,689,000		126,257,000
2021 / 2020	101,878,000		101,878,000		52,262,000
2020 / 2019	57,792,000		57,792,000		13,125,000
2019 / 2018	12,391,000		12,391,000		39,703,000
Prior	42,603,000		42,603,000		6,098,000
Revolving Loans	382,000		382,000		329,000
Total Loans	364,682,000		364,682,000		314,651,000
Multifamily | Special Mention [Member]
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022					377,000
2022 / 2021	170,000		170,000		3,683,000
2021 / 2020	3,505,000		3,505,000		342,000
2020 / 2019	326,000		326,000		1,684,000
2019 / 2018	1,656,000		1,656,000
Prior	540,000		540,000
Total Loans	6,197,000		6,197,000		6,086,000
Multifamily | Substandard [Member]
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022					2,100,000
2022 / 2021	887,000		887,000
2019 / 2018					587,000
Prior	254,000		254,000		267,000
Total Loans	1,141,000		1,141,000		2,954,000
HELOC
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022	1,804,000		1,804,000		2,822,000
2022 / 2021	2,787,000		2,787,000		518,000
2021 / 2020	212,000		212,000		1,497,000
2020 / 2019	1,444,000		1,444,000		1,703,000
2019 / 2018	1,631,000		1,631,000		724,000
Prior	2,600,000		2,600,000		2,597,000
Revolving Loans	91,577,000		91,577,000		99,341,000
Total Loans	102,055,000		102,055,000		109,202,000
HELOC | Pass [Member]
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022	1,765,000		1,765,000		2,760,000
2022 / 2021	2,760,000		2,760,000		517,000
2021 / 2020	211,000		211,000		1,497,000
2020 / 2019	1,443,000		1,443,000		1,703,000
2019 / 2018	1,631,000		1,631,000		657,000
Prior	2,494,000		2,494,000		2,288,000
Revolving Loans	90,317,000		90,317,000		97,258,000
Total Loans	100,621,000		100,621,000		106,680,000
HELOC | Special Mention [Member]
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
Revolving Loans					111,000
Total Loans					111,000
HELOC | Substandard [Member]
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022	39,000		39,000		62,000
2022 / 2021	27,000		27,000		1,000
2021 / 2020	1,000		1,000
2020 / 2019	1,000		1,000
2019 / 2018					67,000
Prior	106,000		106,000		309,000
Revolving Loans	1,260,000		1,260,000		1,972,000
Total Loans	1,434,000		1,434,000		2,411,000
Other
Financing Receivable, Excluding Accrued Interest, Allowance for Credit Loss, Writeoff, by Origination Year [Abstract]
2022			3,000
2021			26,000
2020			7,000
Prior			265,000
Total	107,000	$ 103,000	301,000	$ 320,000
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022	4,461,000		4,461,000		4,195,000
2022 / 2021	2,068,000		2,068,000		2,835,000
2021 / 2020	1,415,000		1,415,000		433,000
2020 / 2019	223,000		223,000		167,000
2019 / 2018	151,000		151,000		69,000
Prior	88,000		88,000		111,000
Revolving Loans	17,432,000		17,432,000		10,437,000
Total Loans	25,838,000		25,838,000		18,247,000
Other | Pass [Member]
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2023 / 2022	4,461,000		4,461,000		4,195,000
2022 / 2021	2,068,000		2,068,000		2,835,000
2021 / 2020	1,415,000		1,415,000		432,000
2020 / 2019	223,000		223,000		167,000
2019 / 2018	151,000		151,000		69,000
Prior	88,000		88,000		111,000
Revolving Loans	17,432,000		17,432,000		10,436,000
Total Loans	$ 25,838,000		$ 25,838,000		18,245,000
Other | Substandard [Member]
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss, by Origination Year [Abstract]
2021 / 2020					1,000
Revolving Loans					1,000
Total Loans					$ 2,000

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Charge-offs Activity by Loan Type (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Loans by risk rating
2022			$ 5,016
2021			292
2020			3,028
2019			12
Prior			343
Total	$ 6,936	$ 484	8,691	$ 1,384
Commercial
Loans by risk rating
2021			17
2020			364
Prior			46
Total	20	67	427	149
Leases
Loans by risk rating
2022			870
2019			12
Total		178	882	178
Commercial real estate - Investor
Loans by risk rating
2022			4,121
2021			71
2020			2,653
Total	6,774	124	6,845	604
Commercial real estate - Owner occupied
Loans by risk rating
2022			22
2021			178
2020			4
Prior			32
Total	35	12	236	133
Other
Loans by risk rating
2022			3
2021			26
2020			7
Prior			265
Total	$ 107	$ 103	$ 301	$ 320

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Loans and Allowance for Credit Losses on Loans - TDR (Details)	3 Months Ended	9 Months Ended
	Sep. 30, 2022 loan	Sep. 30, 2023 USD ($) item loan	Sep. 30, 2022 USD ($) loan
Troubled debt restructurings - modified during the period
Number of TDR loan modifications | loan	0	15	2
Total Loans modified		$ 43,003,000
TDR's defaulted
Pre-modification outstanding recorded investment during the period			$ 39,000
Other information
Number of payment modification | item		2
HELOC | Others
TDR's defaulted
Pre-modification outstanding recorded investment during the period		$ 0
Commercial
Troubled debt restructurings - modified during the period
Total Loans modified		$ 2,692,000

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Loans and Allowance for Credit Losses on Loans - Loan Modifications (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2023 USD ($)
Financing Receivable
Total Loans modified	$ 43,003
Total Loan Segment Modified to Total Loan Segment	1.10%
Weighted-Average Term Extension (In Months)	11 months 5 days
Weighted-Average Interest Rate Change	5.00%
Weighted-Average Delay of Payment (In Months)	7 months 5 days
90 Days or Greater Past Due
Financing Receivable
Total Loans modified	$ 979
Total Past Due
Financing Receivable
Total Loans modified	979
Current
Financing Receivable
Total Loans modified	42,024
Term Extension
Financing Receivable
Total Loans modified	31,416
Combination - Term Extension and Payment Delay
Financing Receivable
Total Loans modified	10,608
Combination - Term Extension and Interest Rate Reduction
Financing Receivable
Total Loans modified	979
Commercial
Financing Receivable
Total Loans modified	$ 2,692
Total Loan Segment Modified to Total Loan Segment	0.30%
Weighted-Average Term Extension (In Months)	6 months 22 days
Weighted-Average Interest Rate Change	5.00%
Commercial | 90 Days or Greater Past Due
Financing Receivable
Total Loans modified	$ 979
Commercial | Total Past Due
Financing Receivable
Total Loans modified	979
Commercial | Current
Financing Receivable
Total Loans modified	1,713
Commercial | Term Extension
Financing Receivable
Total Loans modified	1,713
Commercial | Combination - Term Extension and Interest Rate Reduction
Financing Receivable
Total Loans modified	979
Commercial real estate - Investor
Financing Receivable
Total Loans modified	$ 23,363
Total Loan Segment Modified to Total Loan Segment	2.20%
Weighted-Average Term Extension (In Months)	9 months 24 days
Weighted-Average Delay of Payment (In Months)	7 months 5 days
Commercial real estate - Investor | Current
Financing Receivable
Total Loans modified	$ 23,363
Commercial real estate - Investor | Term Extension
Financing Receivable
Total Loans modified	12,755
Commercial real estate - Investor | Combination - Term Extension and Payment Delay
Financing Receivable
Total Loans modified	10,608
Commercial real estate - Owner occupied
Financing Receivable
Total Loans modified	$ 16,218
Total Loan Segment Modified to Total Loan Segment	2.00%
Weighted-Average Term Extension (In Months)	14 months
Commercial real estate - Owner occupied | Current
Financing Receivable
Total Loans modified	$ 16,218
Commercial real estate - Owner occupied | Term Extension
Financing Receivable
Total Loans modified	16,218
Residential real estate - Owner occupied
Financing Receivable
Total Loans modified	$ 437
Total Loan Segment Modified to Total Loan Segment	0.20%
Weighted-Average Term Extension (In Months)	2 months
Residential real estate - Owner occupied | Current
Financing Receivable
Total Loans modified	$ 437
Residential real estate - Owner occupied | Term Extension
Financing Receivable
Total Loans modified	437
Multifamily
Financing Receivable
Total Loans modified	$ 254
Total Loan Segment Modified to Total Loan Segment	0.10%
Weighted-Average Term Extension (In Months)	16 months
Multifamily | Current
Financing Receivable
Total Loans modified	$ 254
Multifamily | Term Extension
Financing Receivable
Total Loans modified	254
HELOC
Financing Receivable
Total Loans modified	$ 39
Total Loan Segment Modified to Total Loan Segment	0.00%
Weighted-Average Term Extension (In Months)	24 months
HELOC | Current
Financing Receivable
Total Loans modified	$ 39
HELOC | Term Extension
Financing Receivable
Total Loans modified	$ 39

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Deposits - Classifications of Deposits (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Deposits
Noninterest bearing demand	$ 1,862,659	$ 2,051,702
Savings	1,003,498	1,145,592
NOW accounts	567,997	609,338
Money market accounts	702,176	862,170
Certificates of deposit of less than $100,000	248,272	244,017
Certificates of deposit of $100,000 through $250,000	162,901	157,438
Certificates of deposit of more than $250,000	66,817	40,466
Total deposits	$ 4,614,320	$ 5,110,723

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Borrowings - Summary (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Borrowings
Total borrowings	$ 546,028	$ 260,811
Securities sold under repurchase agreements
Borrowings
Total borrowings	25,894	32,156
Other short-term borrowings
Borrowings
Total borrowings	435,000	90,000
Junior subordinated debentures
Borrowings
Total borrowings	25,773	25,773
Subordinated debentures
Borrowings
Total borrowings	$ 59,361	59,297
Senior notes
Borrowings
Total borrowings		44,585
Notes payable and other borrowings
Borrowings
Total borrowings		$ 9,000

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Borrowings - Additional information (Details) $ in Thousands			1 Months Ended	3 Months Ended		9 Months Ended
	Feb. 24, 2023 USD ($)	Feb. 24, 2020 USD ($)	Dec. 31, 2016	Sep. 30, 2023 USD ($) item	Jun. 30, 2021 USD ($)	Sep. 30, 2023 USD ($) item	Sep. 30, 2022 USD ($)	Jun. 30, 2023 USD ($)	Dec. 31, 2022 USD ($)
Borrowings
Securities available-for-sale, at fair value				$ 1,229,618		$ 1,229,618			$ 1,539,359
Number of customers having secured balances exceeding specified percentage of stockholders equity | item				0		0
Threshold percentage of stockholders' equity						10.00%
Borrowings at FHLBC as percentage of total assets				35.00%		35.00%
Borrowings at FHLBC as percentage of book value of certain mortgage loans				60.00%		60.00%
FHLBC stock				$ 20,900		$ 20,900			5,600
Federal Home Loan Bank Chicago ("FHLBC") and Federal Reserve Bank Chicago ("FRBC") stock				35,830		35,830			20,530
Proceeds from term note		$ 30,000
Repayment of term note						9,000	$ 3,000
Senior notes									44,585
Basis points added to reference rate (as a percent)		175.00%
Total borrowings				546,028		546,028			260,811
Asset Pledged as Collateral with Right | Securities sold under repurchase agreements
Borrowings
Securities available-for-sale, at fair value				43,800		43,800			71,400
Three Months Secured Overnight Financing Rate
Borrowings
Basis points added to reference rate (as a percent)					273.00%
Securities sold under repurchase agreements
Borrowings
Total borrowings				25,894		25,894			32,156
Securities sold under repurchase agreements | Asset Pledged as Collateral with Right | Securities sold under repurchase agreements
Borrowings
Investment securities pledged with financial institutions, dollars				$ 25,900		$ 25,900			32,200
Federal Home Loan Bank Advances
Borrowings
Borrowings at FHLBC as percentage of book value of certain mortgage loans				60.00%		60.00%
FHLBC advance amount				$ 435,000		$ 435,000			90,000
FHLBC stock				20,900		20,900
Principal balance of loans collateralized				1,470,000		1,470,000
Combined collateral value				1,020,000		1,020,000
Amount available for additional borrowings				581,700		581,700
Subordinated debentures
Borrowings
Total borrowings				59,361		59,361			59,297
Notes Payable to Banks [Member]
Borrowings
Total borrowings									9,000
Junior subordinated debentures
Borrowings
Total borrowings				$ 25,773		$ 25,773			$ 25,773
Senior Notes [Member]
Borrowings
Interest rate (as a percent)			5.75%
Debt Instrument, Term			10 years
Interest rate term			5 years
Effective interest rate				9.39%		9.39%			8.62%
Total borrowings									$ 44,585
Debt instrument redemption price, percentage				12.85%		100.00%
Debt redeemed amount								$ 45,000
Debt issuance costs				$ 362
Senior Notes [Member] | Debt Instrument Variable Rate Base LIBOR [Member]
Borrowings
Basis points added to reference rate (as a percent)			3.85%
Term Debt
Borrowings
Proceeds from term note		$ 20,000
Repayment of term note	$ 9,000
Debt term		3 years
Subordinated Notes Due 2031
Borrowings
Interest rate (as a percent)					3.50%
Outstanding, net of deferred issuance costs				$ 59,400		$ 59,400			$ 59,300
Face amount					$ 60,000

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Junior Subordinated Debentures - Issuance (Details) - USD ($) $ in Thousands	1 Months Ended	3 Months Ended		6 Months Ended	7 Months Ended	9 Months Ended
	Apr. 30, 2007	Sep. 30, 2023	Sep. 30, 2022	Jun. 15, 2017	Dec. 31, 2017	Sep. 30, 2023	Dec. 31, 2022
Junior subordinated debentures
Junior subordinated debentures		$ 25,773				$ 25,773	$ 25,773
Old Second Capital Trust II [Member]
Junior subordinated debentures
Proceeds from sale of cumulative trust preferred securities	$ 25,000
Maturity Period						30 years
Cash distribution fixed rate of trust preferred securities (as a percent)				6.77%
Basis points added to cash distribution floating rate base (as a percent)					1.50%
Cash distribution, floating rate base						three-month SOFR
Amortization period						30 years
Old Second Capital Trust II [Member] | Debt Instrument, Redemption, Period One [Member]
Junior subordinated debentures
Cash distribution rate of trust preferred securities (as a percent)		3.77%	4.39%
Junior subordinated debentures
Junior subordinated debentures
Junior Subordinated Debentures issuance cost		$ 1,000				$ 1,000	$ 1,000
Junior subordinated debentures | Old Second Capital Trust II [Member]
Junior subordinated debentures
Junior subordinated debentures		$ 25,800				$ 25,800

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Equity Compensation Plans (Details) - USD ($) $ in Millions	1 Months Ended	9 Months Ended
	May 31, 2021	Sep. 30, 2023	Sep. 30, 2022	May 31, 2019
Equity Compensation Plans
Total compensation cost		$ 2.7	$ 2.3
Vesting Percentage , Fully Vest , Performance measure		50.00%
Minimum
Equity Compensation Plans
Vesting Percentage , Fully Vest , Performance measure		50.00%
Maximum
Equity Compensation Plans
Vesting Percentage , Pro rata , Performance measure		50.00%
2019 Plan
Equity Compensation Plans
Number of shares authorized	1,800,000			600,000
Increase in number of shares authorized	1,200,000
Number of shares available for issuance		975,712

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Equity Compensation Plans - Restricted Stock and RSUs (Details) - Restricted Stock and Restricted Stock Units [Member] - USD ($) $ / shares in Units, $ in Millions	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
Changes in unvested awards
Nonvested at the beginning of the period (in shares)	649,210
Granted (in shares)	240,149	268,160
Vested (in shares)	(137,534)
Forfeited (in shares)	(15,191)
Nonvested at the end of the period (in shares)	736,634
Weighted Average Grant Date Fair Value
Nonvested at the beginning of the period (in dollars per share)	$ 12.84
Granted (in dollars per share)	17.02
Vested (in dollars per share)	12.53
Forfeited (in dollars per share)	14.25
Nonvested at the end of the period (in dollars per share)	$ 14.23
Additional information
Total unrecognized compensation cost of restricted awards	$ 5.0
Expected weighted-average period for recognition of unrecognized compensation	1 year 10 months 13 days

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Earnings Per Share - Reconciliation (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Basic earnings per share:
Weighted-average common shares outstanding	44,675,489	44,565,626	44,653,451	44,509,072
Net income	$ 24,335	$ 19,523	$ 73,504	$ 43,790
Basic earnings per share	$ 0.55	$ 0.43	$ 1.65	$ 0.98
Diluted earnings per share:
Weighted-average common shares outstanding	44,675,489	44,565,626	44,653,451	44,509,072
Diluted average common shares outstanding	45,428,409	45,221,541	45,390,218	45,207,992
Net earnings available to common stockholders	$ 24,335	$ 19,523	$ 73,504	$ 43,790
Diluted earnings per share	$ 0.54	$ 0.43	$ 1.62	$ 0.97
Restricted Stock and Restricted Stock Units [Member]
Diluted earnings per share:
Dilutive effect of share-based payment awards (in shares)	752,920	655,915	736,767	698,920

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Regulatory & Capital Matters (Details) $ in Millions		9 Months Ended	12 Months Ended
	Nov. 06, 2023 USD ($)	Sep. 30, 2023 USD ($)	Dec. 31, 2022
Regulatory & Capital Matters
Tier 1 capital leverage ratio (as a percent)		0.0962	0.0814
Risk-based capital ratio (as a percent)		0.1384	0.1252
Payments of Dividends	$ 2.2
Deferment of impact on retained earnings		$ 1.9
Subsidiaries [Member]
Regulatory & Capital Matters
Tier 1 capital leverage ratio (as a percent)		0.1043	0.0932
Risk-based capital ratio (as a percent)		0.1357	0.1275
Tier One leverage ratio, basis point increase (as a percent)		1.11%
Risk-based capital ratio, basis point increase (as a percent)			0.82%
Minimum | Subsidiaries [Member]
Regulatory & Capital Matters
Tier 1 capital leverage ratio (as a percent)		0.08
Risk-based capital ratio (as a percent)		0.12
Tier 1 capital leverage ratio, board-designated threshold		8.00%
Total Capital Ratio, board-designated threshold (as a percent)		12.00%

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Regulatory & Capital Matters - Capital Levels and Industry Defined Regulatory Minimums (Details) $ in Thousands	Sep. 30, 2023 USD ($)	Dec. 31, 2022 USD ($)
Common equity tier 1 capital to risk weighted assets
Actual	$ 530,368	$ 457,206
Minimum Required for Capital Adequacy Purposes with Capital Conservation Buffer if applicable	$ 337,507	$ 330,966
Common equity tier 1 capital to risk weighted assets, Ratio
Actual (as a percent)	0.11%	0.0967%
Minimum Required for Capital Adequacy Purposes with Capital Conservation Buffer if applicable (as a percent)	7.00%	0.07%
Total capital to risk weighted assets, Amount
Actual at period end	$ 667,182	$ 592,039
Minimum Required for Capital Adequacy Purposes with Capital Conservation Buffer if applicable	$ 506,171	$ 496,518
Total capital to risk weighted assets, Ratio
Risk-based capital ratio (as a percent)	0.1384	0.1252
Minimum Required for Capital Adequacy Purposes with Capital Conservation Buffer if applicable (as a percent)	0.1050	0.1050
Tier 1 capital to risk weighted assets, Amount
Actual	$ 555,368	$ 482,206
Minimum Required for Capital Adequacy Purposes with Capital Conservation Buffer if applicable	$ 409,777	$ 401,838
Tier 1 capital to risk weighted assets, Ratio
Actual (as a percent)	0.1152	0.1020
Minimum Required for Capital Adequacy Purposes with Capital Conservation Buffer if applicable (as a percent)	0.0850	0.0850
Tier 1 capital to average assets, Amount
Actual	$ 555,368	$ 482,206
Minimum Required for Capital Adequacy Purposes with Capital Conservation Buffer if applicable	$ 230,922	$ 236,956
Tier 1 capital to average assets, Ratio
Tier 1 capital leverage ratio (as a percent)	0.0962	0.0814
Minimum Required for Capital Adequacy Purposes with Capital Conservation Buffer if applicable (as a percent)	0.0400	0.0400
Subsidiaries [Member]
Common equity tier 1 capital to risk weighted assets
Actual	$ 601,999	$ 552,404
Minimum Required for Capital Adequacy Purposes with Capital Conservation Buffer if applicable	337,389	330,498
Minimum Required to Be Well Capitalized	$ 313,290	$ 306,891
Common equity tier 1 capital to risk weighted assets, Ratio
Actual (as a percent)	0.1249%	0.117%
Minimum Required for Capital Adequacy Purposes with Capital Conservation Buffer if applicable (as a percent)	7.00%	0.07%
Minimum Required to Be Well Capitalized (as a percent)	6.50%	6.50%
Total capital to risk weighted assets, Amount
Actual at period end	$ 653,813	$ 602,237
Minimum Required for Capital Adequacy Purposes with Capital Conservation Buffer if applicable	505,898	495,960
Minimum Required to Be Well Capitalized	$ 481,808	$ 472,343
Total capital to risk weighted assets, Ratio
Risk-based capital ratio (as a percent)	0.1357	0.1275
Minimum Required for Capital Adequacy Purposes with Capital Conservation Buffer if applicable (as a percent)	0.1050	0.1050
Minimum Required to Be Well Capitalized (as a percent)	0.1000	0.1000
Tier 1 capital to risk weighted assets, Amount
Actual	$ 601,999	$ 552,404
Minimum Required for Capital Adequacy Purposes with Capital Conservation Buffer if applicable	409,687	401,319
Minimum Required to Be Well Capitalized	$ 385,588	$ 377,712
Tier 1 capital to risk weighted assets, Ratio
Actual (as a percent)	0.1249	0.1170
Minimum Required for Capital Adequacy Purposes with Capital Conservation Buffer if applicable (as a percent)	0.0850	0.0850
Minimum Required to Be Well Capitalized (as a percent)	0.0800	0.0800
Tier 1 capital to average assets, Amount
Actual	$ 601,999	$ 552,404
Minimum Required for Capital Adequacy Purposes with Capital Conservation Buffer if applicable	230,872	237,083
Minimum Required to Be Well Capitalized	$ 288,590	$ 296,354
Tier 1 capital to average assets, Ratio
Tier 1 capital leverage ratio (as a percent)	0.1043	0.0932
Minimum Required for Capital Adequacy Purposes with Capital Conservation Buffer if applicable (as a percent)	0.0400	0.0400
Minimum Required to Be Well Capitalized (as a percent)	0.0500	0.0500

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Regulatory & Capital Matters - Dividend Restrictions and Deferrals (Details) $ in Millions	9 Months Ended
	Sep. 30, 2023 USD ($)
Dividend Restrictions and Deferrals
Number of previous years retained profit considered for dividend payment	2 years
Minimum capital requirements, minimum percentage required	2.50%
Payments of dividends	$ 70.4

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Fair Value Measurements (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
Fair Value Assets and Liabilities Measured on Recurring Basis Unobservable Input Reconciliation [Line Items]
Fair value transfer assets into level 3		$ 0
Asset-backed Securities
Fair Value Assets and Liabilities Measured on Recurring Basis Unobservable Input Reconciliation [Line Items]
Fair value transfer assets out of level 3	$ 14,885
Collateralized loan obligations.
Fair Value Assets and Liabilities Measured on Recurring Basis Unobservable Input Reconciliation [Line Items]
Fair value transfer assets out of level 3	$ 6,764

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Fair Value Measurements - Recurring (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Assets:
Securities available-for-sale	$ 1,229,618	$ 1,539,359
Mortgage servicing rights	11,461	11,189
U.S. Treasury
Assets:
Securities available-for-sale	216,777	212,129
U.S. government agencies
Assets:
Securities available-for-sale	55,821	56,048
States and political subdivisions
Assets:
Securities available-for-sale	220,100	226,128
Corporate bonds
Assets:
Securities available-for-sale	4,961	9,622
Collateralized mortgage obligations
Assets:
Securities available-for-sale	386,679	533,768
Asset-backed Securities
Assets:
Securities available-for-sale	66,916	201,928
Collateralized loan obligations.
Assets:
Securities available-for-sale	173,795	174,746
Fair Value, Inputs, Level 1 [Member]
Assets:
Securities available-for-sale	216,777	212,129
Fair Value, Inputs, Level 2 [Member]
Assets:
Securities available-for-sale	998,775	1,291,219
Loans held-for-sale	2,297	491
Other assets	8,980	6,391
Liabilities:
Other liabilities	14,293	12,264
Fair Value, Inputs, Level 3 [Member]
Assets:
Securities available-for-sale	14,066	36,011
Mortgage servicing rights	11,641	11,189
Fair Value, Measurements, Recurring [Member]
Assets:
Loans held-for-sale	2,297	491
Mortgage servicing rights	11,461	11,189
Total financial assets	1,252,441	1,557,631
Liabilities:
Total	14,293	12,265
Fair Value, Measurements, Recurring [Member] | Interest rate swap agreements, including risk participation agreement
Assets:
Other assets	9,028	6,516
Liabilities:
Other liabilities	14,293	12,265
Fair Value, Measurements, Recurring [Member] | Forward Contracts [Member]
Assets:
Other assets	37	76
Fair Value, Measurements, Recurring [Member] | U.S. Treasury
Assets:
Securities available-for-sale	216,777	212,129
Fair Value, Measurements, Recurring [Member] | U.S. government agencies
Assets:
Securities available-for-sale	55,821	56,048
Fair Value, Measurements, Recurring [Member] | Mortgage Backed Securities, Issued by US Government Agencies
Assets:
Securities available-for-sale	104,569	124,990
Fair Value, Measurements, Recurring [Member] | States and political subdivisions
Assets:
Securities available-for-sale	220,100	226,128
Fair Value, Measurements, Recurring [Member] | Corporate bonds
Assets:
Securities available-for-sale	4,961	9,622
Fair Value, Measurements, Recurring [Member] | Collateralized mortgage obligations
Assets:
Securities available-for-sale	386,679	533,768
Fair Value, Measurements, Recurring [Member] | Asset-backed Securities
Assets:
Securities available-for-sale	66,916	201,928
Fair Value, Measurements, Recurring [Member] | Collateralized loan obligations.
Assets:
Securities available-for-sale	173,795	174,746
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Assets:
Total financial assets	216,777	212,129
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | U.S. Treasury
Assets:
Securities available-for-sale	216,777	212,129
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Assets:
Loans held-for-sale	2,297	491
Total financial assets	1,010,137	1,298,302
Liabilities:
Total	14,293	12,265
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Interest rate swap agreements, including risk participation agreement
Assets:
Other assets	9,028	6,516
Liabilities:
Other liabilities	14,293	12,265
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Forward Contracts [Member]
Assets:
Other assets	37	76
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | U.S. government agencies
Assets:
Securities available-for-sale	55,821	56,048
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Mortgage Backed Securities, Issued by US Government Agencies
Assets:
Securities available-for-sale	104,569	124,990
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | States and political subdivisions
Assets:
Securities available-for-sale	206,034	211,899
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Corporate bonds
Assets:
Securities available-for-sale	4,961	9,622
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Collateralized mortgage obligations
Assets:
Securities available-for-sale	386,679	526,998
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Asset-backed Securities
Assets:
Securities available-for-sale	66,916	186,916
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Collateralized loan obligations.
Assets:
Securities available-for-sale	173,795	174,746
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Assets:
Mortgage servicing rights	11,461	11,189
Total financial assets	25,527	47,200
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | States and political subdivisions
Assets:
Securities available-for-sale	$ 14,066	14,229
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | Collateralized mortgage obligations
Assets:
Securities available-for-sale		6,770
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | Asset-backed Securities
Assets:
Securities available-for-sale		$ 15,012

XML

Fair Value Measurements - Changes in Level 3 (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
Changes in Level 3
Transfers into Level 3		$ 0
Asset-backed Securities
Changes in Level 3
Beginning balance	$ 15,012
Transfers out of Level 3	(14,885)
Total gains or losses
Included in other comprehensive income	226
Purchases, issuances, sales, and settlements
Settlements	(342)
Changes in Level 3 (liabilities)
Included in earnings (or changes in net assets)	(11)
Collateralized loan obligations.
Changes in Level 3
Beginning balance	6,770
Transfers out of Level 3	(6,764)
Total gains or losses
Included in other comprehensive income	(6)
States and political subdivisions
Changes in Level 3
Beginning balance	14,229	15,236
Total gains or losses
Included in other comprehensive income	(132)	(1,333)
Purchases, issuances, sales, and settlements
Purchases	406
Issuances		519
Settlements	(338)	(1,015)
Ending balance	14,066	13,309
Changes in Level 3 (liabilities)
Included in earnings (or changes in net assets)	(99)	(98)
Mortgage Servicing Rights [Member]
Changes in Level 3
Beginning balance	11,189	7,097
Purchases, issuances, sales, and settlements
Issuances	420	756
Settlements	(380)	(776)
Ending balance	11,461	11,461
Changes in Level 3 (liabilities)
Included in earnings (or changes in net assets)	$ 232	$ 4,384

XML

Fair Value Measurements - Quantitative and Qualitative Information (Details) $ in Thousands	Sep. 30, 2023 USD ($)	Dec. 31, 2022 USD ($)
Quantitative information about Level 3 fair value measurements
Mortgage servicing rights, fair value	$ 11,461	$ 11,189
Securities available-for-sale, at fair value	1,229,618	1,539,359
Fair Value, Inputs, Level 3 [Member]
Quantitative information about Level 3 fair value measurements
Mortgage servicing rights, fair value	11,641	11,189
Securities available-for-sale, at fair value	14,066	36,011
Asset-backed Securities
Quantitative information about Level 3 fair value measurements
Securities available-for-sale, at fair value	66,916	201,928
States and political subdivisions
Quantitative information about Level 3 fair value measurements
Securities available-for-sale, at fair value	220,100	226,128
Collateralized mortgage obligations
Quantitative information about Level 3 fair value measurements
Securities available-for-sale, at fair value	386,679	533,768
Fair Value, Measurements, Recurring [Member]
Quantitative information about Level 3 fair value measurements
Mortgage servicing rights, fair value	11,461	11,189
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Quantitative information about Level 3 fair value measurements
Mortgage servicing rights, fair value	11,461	11,189
Fair Value, Measurements, Recurring [Member] | Asset-backed Securities
Quantitative information about Level 3 fair value measurements
Securities available-for-sale, at fair value	66,916	201,928
Fair Value, Measurements, Recurring [Member] | Asset-backed Securities | Fair Value, Inputs, Level 3 [Member]
Quantitative information about Level 3 fair value measurements
Securities available-for-sale, at fair value		15,012
Fair Value, Measurements, Recurring [Member] | States and political subdivisions
Quantitative information about Level 3 fair value measurements
Securities available-for-sale, at fair value	220,100	226,128
Fair Value, Measurements, Recurring [Member] | States and political subdivisions | Fair Value, Inputs, Level 3 [Member]
Quantitative information about Level 3 fair value measurements
Securities available-for-sale, at fair value	14,066	14,229
Fair Value, Measurements, Recurring [Member] | Collateralized mortgage obligations
Quantitative information about Level 3 fair value measurements
Securities available-for-sale, at fair value	386,679	533,768
Fair Value, Measurements, Recurring [Member] | Collateralized mortgage obligations | Fair Value, Inputs, Level 3 [Member]
Quantitative information about Level 3 fair value measurements
Securities available-for-sale, at fair value		6,770
Fair Value, Measurements, Recurring [Member] | Measurement Input, Discount Rate | Asset-backed Securities | Discounted Cash Flow Valuation Technique [Member] | Fair Value, Inputs, Level 3 [Member]
Quantitative information about Level 3 fair value measurements
Securities available-for-sale, at fair value		$ 15,012
Fair Value, Measurements, Recurring [Member] | Measurement Input, Discount Rate | Asset-backed Securities | Discounted Cash Flow Valuation Technique [Member] | Fair Value, Inputs, Level 3 [Member] | Minimum
Quantitative information about Level 3 fair value measurements
Debt Securities, Measurement Input		0.062
Fair Value, Measurements, Recurring [Member] | Measurement Input, Discount Rate | Asset-backed Securities | Discounted Cash Flow Valuation Technique [Member] | Fair Value, Inputs, Level 3 [Member] | Maximum
Quantitative information about Level 3 fair value measurements
Debt Securities, Measurement Input		0.065
Fair Value, Measurements, Recurring [Member] | Measurement Input, Discount Rate | Asset-backed Securities | Discounted Cash Flow Valuation Technique [Member] | Fair Value, Inputs, Level 3 [Member] | Weighted Average [Member]
Quantitative information about Level 3 fair value measurements
Debt Securities, Measurement Input		0.063
Fair Value, Measurements, Recurring [Member] | Measurement Input, Discount Rate | Mortgage Servicing Rights [Member] | Discounted Cash Flow Valuation Technique [Member] | Fair Value, Inputs, Level 3 [Member]
Quantitative information about Level 3 fair value measurements
Mortgage servicing rights, fair value	$ 11,461	$ 11,189
Fair Value, Measurements, Recurring [Member] | Measurement Input, Discount Rate | Mortgage Servicing Rights [Member] | Discounted Cash Flow Valuation Technique [Member] | Fair Value, Inputs, Level 3 [Member] | Minimum
Quantitative information about Level 3 fair value measurements
Servicing Asset, Measurement Input		0.090
Fair Value, Measurements, Recurring [Member] | Measurement Input, Discount Rate | Mortgage Servicing Rights [Member] | Discounted Cash Flow Valuation Technique [Member] | Fair Value, Inputs, Level 3 [Member] | Maximum
Quantitative information about Level 3 fair value measurements
Servicing Asset, Measurement Input		0.110
Fair Value, Measurements, Recurring [Member] | Measurement Input, Discount Rate | Mortgage Servicing Rights [Member] | Discounted Cash Flow Valuation Technique [Member] | Fair Value, Inputs, Level 3 [Member] | Weighted Average [Member]
Quantitative information about Level 3 fair value measurements
Servicing Asset, Measurement Input	0.090	0.090
Fair Value, Measurements, Recurring [Member] | Measurement Input, Discount Rate | States and political subdivisions | Discounted Cash Flow Valuation Technique [Member] | Fair Value, Inputs, Level 3 [Member]
Quantitative information about Level 3 fair value measurements
Securities available-for-sale, at fair value	$ 14,066	$ 14,229
Fair Value, Measurements, Recurring [Member] | Measurement Input, Discount Rate | States and political subdivisions | Discounted Cash Flow Valuation Technique [Member] | Fair Value, Inputs, Level 3 [Member] | Minimum
Quantitative information about Level 3 fair value measurements
Servicing Asset, Measurement Input	0.090
Debt Securities, Measurement Input	0.035	0.023
Fair Value, Measurements, Recurring [Member] | Measurement Input, Discount Rate | States and political subdivisions | Discounted Cash Flow Valuation Technique [Member] | Fair Value, Inputs, Level 3 [Member] | Maximum
Quantitative information about Level 3 fair value measurements
Servicing Asset, Measurement Input	0.110
Debt Securities, Measurement Input	0.059	0.058
Fair Value, Measurements, Recurring [Member] | Measurement Input, Discount Rate | States and political subdivisions | Discounted Cash Flow Valuation Technique [Member] | Fair Value, Inputs, Level 3 [Member] | Weighted Average [Member]
Quantitative information about Level 3 fair value measurements
Debt Securities, Measurement Input	0.043	0.044
Fair Value, Measurements, Recurring [Member] | Measurement Input, Discount Rate | Collateralized mortgage obligations | Discounted Cash Flow Valuation Technique [Member] | Fair Value, Inputs, Level 3 [Member]
Quantitative information about Level 3 fair value measurements
Securities available-for-sale, at fair value		$ 6,770
Fair Value, Measurements, Recurring [Member] | Measurement Input, Discount Rate | Collateralized mortgage obligations | Discounted Cash Flow Valuation Technique [Member] | Fair Value, Inputs, Level 3 [Member] | Minimum
Quantitative information about Level 3 fair value measurements
Debt Securities, Measurement Input		0.070
Fair Value, Measurements, Recurring [Member] | Measurement Input, Discount Rate | Collateralized mortgage obligations | Discounted Cash Flow Valuation Technique [Member] | Fair Value, Inputs, Level 3 [Member] | Maximum
Quantitative information about Level 3 fair value measurements
Debt Securities, Measurement Input		0.070
Fair Value, Measurements, Recurring [Member] | Measurement Input, Discount Rate | Collateralized mortgage obligations | Discounted Cash Flow Valuation Technique [Member] | Fair Value, Inputs, Level 3 [Member] | Weighted Average [Member]
Quantitative information about Level 3 fair value measurements
Debt Securities, Measurement Input		0.070
Fair Value, Measurements, Recurring [Member] | Measurement Input, Constant Prepayment Rate | Mortgage Servicing Rights [Member] | Discounted Cash Flow Valuation Technique [Member] | Fair Value, Inputs, Level 3 [Member] | Minimum
Quantitative information about Level 3 fair value measurements
Servicing Asset, Measurement Input	0.000	0.036
Fair Value, Measurements, Recurring [Member] | Measurement Input, Constant Prepayment Rate | Mortgage Servicing Rights [Member] | Discounted Cash Flow Valuation Technique [Member] | Fair Value, Inputs, Level 3 [Member] | Maximum
Quantitative information about Level 3 fair value measurements
Servicing Asset, Measurement Input	0.164	0.273
Fair Value, Measurements, Recurring [Member] | Measurement Input, Constant Prepayment Rate | Mortgage Servicing Rights [Member] | Discounted Cash Flow Valuation Technique [Member] | Fair Value, Inputs, Level 3 [Member] | Weighted Average [Member]
Quantitative information about Level 3 fair value measurements
Servicing Asset, Measurement Input	0.062	0.062
Fair Value, Measurements, Recurring [Member] | Measurement Input, Liquidity Premium | States and political subdivisions | Discounted Cash Flow Valuation Technique [Member] | Fair Value, Inputs, Level 3 [Member] | Minimum
Quantitative information about Level 3 fair value measurements
Debt Securities, Measurement Input	0.003	0.003
Fair Value, Measurements, Recurring [Member] | Measurement Input, Liquidity Premium | States and political subdivisions | Discounted Cash Flow Valuation Technique [Member] | Fair Value, Inputs, Level 3 [Member] | Maximum
Quantitative information about Level 3 fair value measurements
Debt Securities, Measurement Input	0.005	0.005
Fair Value, Measurements, Recurring [Member] | Measurement Input, Liquidity Premium | States and political subdivisions | Discounted Cash Flow Valuation Technique [Member] | Fair Value, Inputs, Level 3 [Member] | Weighted Average [Member]
Quantitative information about Level 3 fair value measurements
Debt Securities, Measurement Input	0.005	0.005

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Fair Value Measurements - Nonrecurring (Details) - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2023	Dec. 31, 2022
Assets and liabilities measured at fair value
Valuation allowance	$ 18,700,000
Carrying value of other real estate owned	407,000	$ 1,561,000
Impaired Loans [Member]
Assets and liabilities measured at fair value
Valuation allowance		65,300,000
Impaired Loans [Member] | Reported Value Measurement [Member]
Assets and liabilities measured at fair value
Increase (decrease) of specific allocations within the provision for loan losses		12,200,000
Fair Value, Measurements, Nonrecurring [Member]
Assets and liabilities measured at fair value
Total	63,729,000	49,261,000
Fair Value, Measurements, Nonrecurring [Member] | Impaired Loans [Member]
Assets and liabilities measured at fair value
Total	63,322,000	47,700,000
Valuation allowance	18,700,000	17,600,000
Increase (decrease) of specific allocations within the provision for loan losses	1,000,000.0
Fair Value, Measurements, Nonrecurring [Member] | Impaired Loans [Member] | Reported Value Measurement [Member]
Assets and liabilities measured at fair value
Total	82,000,000.0
Fair Value, Measurements, Nonrecurring [Member] | Other Real Estate Owned [Member]
Assets and liabilities measured at fair value
Total	407,000	1,561,000
Carrying value of other real estate owned	407,000	1,600,000
Outstanding balance	525,000	2,500,000
OREO Valuation allowance	118,000	856,000
OREO participations		131,000
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member]
Assets and liabilities measured at fair value
Total	63,729,000	49,261,000
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member] | Impaired Loans [Member]
Assets and liabilities measured at fair value
Total	63,322,000	47,700,000
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member] | Other Real Estate Owned [Member]
Assets and liabilities measured at fair value
Total	$ 407,000	$ 1,561,000

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Fair Values of Financial Instruments (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Financial assets:
Cash and due from banks	$ 55,548	$ 56,632
Interest earning deposits with financial institutions	53,485	58,545
Securities available-for-sale	1,229,618	1,539,359
FHLBC and FRBC Stock	35,830	20,530
Mortgage servicing rights	11,461	11,189
Financial liabilities:
Noninterest bearing deposits	1,862,659	2,051,702
Other short-term borrowings	435,000	90,000
Junior subordinated debentures	25,773	25,773
Senior notes		44,585
Reported Value Measurement
Financial assets:
Cash and due from banks	55,548	56,632
Interest earning deposits with financial institutions	53,485	58,545
Securities available-for-sale	1,229,618	1,539,359
FHLBC and FRBC Stock	35,830	20,530
Loans held for sale	2,297	491
Net loans	3,977,814	3,820,129
Mortgage servicing rights	11,641	11,189
Interest rate swap agreements	8,980	6,391
Interest rate lock commitments and forward contracts	37	76
Interest receivable on securities and loans	25,921	22,661
Financial liabilities:
Noninterest bearing deposits	1,862,659	2,051,702
Interest bearing deposits	2,751,661	3,059,021
Securities sold under repurchase agreements	25,894	32,156
Other short-term borrowings	435,000	90,000
Junior subordinated debentures	25,773	25,773
Subordinated debentures	59,361	59,297
Senior notes		44,585
Note payable and other borrowings		9,000
Interest rate swap agreements	14,293	12,264
Interest payable on deposits and borrowings	3,066	1,657
Estimate of Fair Value Measurement
Financial assets:
Cash and due from banks	55,548	56,632
Interest earning deposits with financial institutions	53,485	58,545
Securities available-for-sale	1,229,618	1,539,359
FHLBC and FRBC Stock	35,830	20,530
Loans held for sale	2,297	491
Net loans	3,855,774	3,681,387
Mortgage servicing rights	11,641	11,189
Interest rate swap agreements	8,980	6,391
Interest rate lock commitments and forward contracts	37	76
Interest receivable on securities and loans	25,921	22,661
Financial liabilities:
Noninterest bearing deposits	1,862,659	2,051,702
Interest bearing deposits	2,738,632	3,042,740
Securities sold under repurchase agreements	25,894	32,156
Other short-term borrowings	435,000	90,000
Junior subordinated debentures	19,072	21,907
Subordinated debentures	46,161	52,322
Senior notes		44,248
Note payable and other borrowings		8,984
Interest rate swap agreements	14,293	12,264
Interest payable on deposits and borrowings	3,066	1,657
Fair Value, Inputs, Level 1
Financial assets:
Cash and due from banks	55,548	56,632
Interest earning deposits with financial institutions	53,485	58,545
Securities available-for-sale	216,777	212,129
Financial liabilities:
Noninterest bearing deposits	1,862,659	2,051,702
Senior notes		44,248
Fair Value, Inputs, Level 2
Financial assets:
Securities available-for-sale	998,775	1,291,219
FHLBC and FRBC Stock	35,830	20,530
Loans held for sale	2,297	491
Interest rate swap agreements	8,980	6,391
Interest rate lock commitments and forward contracts	37	76
Interest receivable on securities and loans	25,921	22,661
Financial liabilities:
Interest bearing deposits	2,738,632	3,042,740
Securities sold under repurchase agreements	25,894	32,156
Other short-term borrowings	435,000	90,000
Junior subordinated debentures	19,072	21,907
Subordinated debentures	46,161	52,322
Note payable and other borrowings		8,984
Interest rate swap agreements	14,293	12,264
Interest payable on deposits and borrowings	3,066	1,657
Fair Value, Inputs, Level 3
Financial assets:
Securities available-for-sale	14,066	36,011
Net loans	3,855,774	3,681,387
Mortgage servicing rights	$ 11,641	$ 11,189

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Derivatives, Hedging Activities and Financial Instruments with Off-Balance Sheet Risk - Fair Value of Derivatives (Details)	9 Months Ended	12 Months Ended
	Sep. 30, 2023 USD ($) item	Dec. 31, 2022 USD ($) item
Two financial institutions
Financial Instruments with Off-Balance Sheet Risk and Derivative Transactions
Cash collateral pledged with financial institutions, dollars	$ 9,200,000	$ 11,200,000
Number of financial institutions in which cash collateral pledged | item		2
Interest Rate Swap [Member]
Financial Instruments with Off-Balance Sheet Risk and Derivative Transactions
Cash collateral pledged with financial institutions, dollars	8,100,000	$ 5,300,000
Investment securities pledged with financial institutions, dollars	$ 0	$ 0
Number of financial institutions in which cash collateral pledged | item	1	1
Designated as Hedging Instrument
Financial Instruments with Off-Balance Sheet Risk and Derivative Transactions
Derivative assets designated as hedging instruments, fair value	$ 4,517,000	$ 2,737,000
Derivative liabilities designated as hedging instruments, fair value	9,830,000	8,610,000
Designated as Hedging Instrument | Interest Rate Products | Cash flow hedges of certain variable rate commercial and commercial real estate loan pools
Financial Instruments with Off-Balance Sheet Risk and Derivative Transactions
Notional amount	300,000,000.0	250,000,000.0
Designated as Hedging Instrument | Interest Rate Products | Cash flow hedge of junior subordinated debentures and was executed to pay fixed and receive variable rate cash flows
Financial Instruments with Off-Balance Sheet Risk and Derivative Transactions
Notional amount	$ 25,800,000	$ 25,800,000
Designated as Hedging Instrument | Interest Rate Products | OSBC Affiliates
Financial Instruments with Off-Balance Sheet Risk and Derivative Transactions
Derivative, number of transactions | item	5	4
Notional amount	$ 325,774,000	$ 275,774,000
Derivative assets designated as hedging instruments, fair value	4,517,000
Derivative liabilities designated as hedging instruments, fair value	9,830,000	8,610,000
Designated as Hedging Instrument | Interest Rate Swap [Member] | OSBC Affiliates
Financial Instruments with Off-Balance Sheet Risk and Derivative Transactions
Derivative assets designated as hedging instruments, fair value		2,737,000
Not Designated as Hedging Instrument
Financial Instruments with Off-Balance Sheet Risk and Derivative Transactions
Derivative assets designated as hedging instruments, fair value	4,548,000
Derivative liabilities designated as hedging instruments, fair value	4,463,000
Not Designated as Hedging Instrument | Interest Rate Products
Financial Instruments with Off-Balance Sheet Risk and Derivative Transactions
Notional amount	$ 105,600,000	$ 110,600,000
Not Designated as Hedging Instrument | Interest Rate Products | Commercial Loan Customers
Financial Instruments with Off-Balance Sheet Risk and Derivative Transactions
Derivative, number of transactions | item	17	21
Notional amount	$ 105,558,000	$ 110,647,000
Derivative assets designated as hedging instruments, fair value	4,463,000	3,654,000
Derivative liabilities designated as hedging instruments, fair value	4,463,000	3,654,000
Not Designated as Hedging Instrument | Commitments.
Financial Instruments with Off-Balance Sheet Risk and Derivative Transactions
Notional amount	$ 7,600,000	$ 5,300,000
Not Designated as Hedging Instrument | Interest Rate Lock Commitments and Forward Contracts.
Financial Instruments with Off-Balance Sheet Risk and Derivative Transactions
Derivative, number of transactions | item	28	4
Notional amount	$ 7,613,000	$ 43,699,000
Derivative assets designated as hedging instruments, fair value	$ 37,000	125,000
Derivative liabilities designated as hedging instruments, fair value		$ 1,000
Not Designated as Hedging Instrument | Interest Rate Lock Commitments and Forward Contracts. | Commercial Loan Customers
Financial Instruments with Off-Balance Sheet Risk and Derivative Transactions
Derivative, number of transactions | item		28
Notional amount		$ 5,298,000
Derivative assets designated as hedging instruments, fair value		76,000
Not Designated as Hedging Instrument | Other Contracts
Financial Instruments with Off-Balance Sheet Risk and Derivative Transactions
Derivative, number of transactions | item	4
Notional amount	$ 44,892,000
Derivative assets designated as hedging instruments, fair value	48,000	3,855,000
Derivative liabilities designated as hedging instruments, fair value		$ 3,655,000
Interest Income
Financial Instruments with Off-Balance Sheet Risk and Derivative Transactions
Amount to be reclassified as an decrease to interest expense during the next twelve months	7,000,000.0
Interest Expense
Financial Instruments with Off-Balance Sheet Risk and Derivative Transactions
Amount to be reclassified as an decrease to interest expense during the next twelve months	$ 708,000

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Derivatives, Hedging Activities and Financial Instruments with Off-Balance Sheet Risk - Effect of Fair Value (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
Derivatives, Hedging Activities and Financial Instruments with Off-Balance Sheet Risk
Amount of loss recognized in OCI on derivative	$ 3,800	$ 4,100
Amount of Gain or (Loss) Recognized in Income on Derivative	$ 3,900	$ 15,000

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Derivatives, Hedging Activities and Financial Instruments with Off-Balance Sheet Risk - Commitments (Details) - USD ($)	3 Months Ended	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2023	Dec. 31, 2022
Company's contractual commitments due to letters of credit
Total letters of credit	$ 32,869,000	$ 32,869,000	$ 36,096,000
Allowance for credit loss on unfunded commitments	2,700,000	2,700,000
Allowance for credit loss unfunded commitment, purchase accounting adjustment	149,000	149,000
Decrease In allowance for credit loss on unfunded commitments	235,000
Commercial unfunded commitments assumptions for decrease in the allowance for credit losses		12,000
Accretion of interest income for decrease in the allowance for credit losses		223,000
Fixed [Member]
Company's contractual commitments due to letters of credit
Total letters of credit	526,000	526,000	6,675,000
Variable [Member]
Company's contractual commitments due to letters of credit
Total letters of credit	32,343,000	32,343,000	29,421,000
Commitments to Extend Credit to Borrowers [Member]
Company's contractual commitments due to letters of credit
Total letters of credit	32,802,000	32,802,000	36,029,000
Commitments to Extend Credit to Borrowers [Member] | Fixed [Member]
Company's contractual commitments due to letters of credit
Total letters of credit	526,000	526,000	6,675,000
Commitments to Extend Credit to Borrowers [Member] | Variable [Member]
Company's contractual commitments due to letters of credit
Total letters of credit	32,276,000	32,276,000	29,354,000
Commitments to Extend Credit to Borrowers [Member] | Financial Standby Letter of Credit [Member]
Company's contractual commitments due to letters of credit
Total letters of credit	16,716,000	16,716,000	18,879,000
Commitments to Extend Credit to Borrowers [Member] | Financial Standby Letter of Credit [Member] | Fixed [Member]
Company's contractual commitments due to letters of credit
Total letters of credit	173,000	173,000	3,514,000
Commitments to Extend Credit to Borrowers [Member] | Financial Standby Letter of Credit [Member] | Variable [Member]
Company's contractual commitments due to letters of credit
Total letters of credit	16,543,000	16,543,000	15,365,000
Commitments to Extend Credit to Borrowers [Member] | Performance Guarantee [Member]
Company's contractual commitments due to letters of credit
Total letters of credit	16,086,000	16,086,000	17,150,000
Commitments to Extend Credit to Borrowers [Member] | Performance Guarantee [Member] | Fixed [Member]
Company's contractual commitments due to letters of credit
Total letters of credit	353,000	353,000	3,161,000
Commitments to Extend Credit to Borrowers [Member] | Performance Guarantee [Member] | Variable [Member]
Company's contractual commitments due to letters of credit
Total letters of credit	15,733,000	15,733,000	13,989,000
Commitments to Extend Credit Nonborrowers [Member] | Performance Guarantee [Member]
Company's contractual commitments due to letters of credit
Total letters of credit	67,000	67,000	67,000
Commitments to Extend Credit Nonborrowers [Member] | Performance Guarantee [Member] | Variable [Member]
Company's contractual commitments due to letters of credit
Total letters of credit	67,000	67,000	67,000
Unused lines of Credit [Member]
Company's contractual commitments due to letters of credit
Loan commitments	856,472,000	856,472,000	999,325,000
Unused lines of Credit [Member] | Fixed [Member]
Company's contractual commitments due to letters of credit
Loan commitments	146,201,000	146,201,000	139,070,000
Unused lines of Credit [Member] | Variable [Member]
Company's contractual commitments due to letters of credit
Loan commitments	$ 710,271,000	$ 710,271,000	$ 860,255,000

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Pay vs Performance Disclosure - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Pay vs Performance Disclosure
Net Income (Loss)	$ 24,335	$ 19,523	$ 73,504	$ 43,790

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Insider Trading Arrangements	3 Months Ended
	Sep. 30, 2023
Trading Arrangements, by Individual
Rule 10b5-1 Arrangement Adopted	false
Non-Rule 10b5-1 Arrangement Adopted	false
Rule 10b5-1 Arrangement Terminated	false
Non-Rule 10b5-1 Arrangement Terminated	false