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 March 31, 2024

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 May 3, 2024, the Registrant has 44,845,629 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	38
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	58
Item 4.	Controls and Procedures	59
	PART II
Item 1.	Legal Proceedings	60
Item 1.A.	Risk Factors	60
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60
Item 3.	Defaults Upon Senior Securities	60
Item 4.	Mine Safety Disclosure	61
Item 5.	Other Information	61
Item 6.	Exhibits	62
	Signatures	63

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 “expects,” “intends,” “believes,” “may,” “will,” “would,” “could,” “should,” “plan,” “anticipate,” “estimate,” “possible,” “likely” 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 that 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;

● 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 raise cost-effective funding to support business plans 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;

● 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 our 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, the Middle East conflict, and the conflict between China and Taiwan, essential utility outages, deterioration in the global economy, instability in the credit markets, 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 2023 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)
	March 31,		December 31,
	2024		2023
Assets
Cash and due from banks	$	48,841	$	55,534
Interest earning deposits with financial institutions		49,253		44,611
Cash and cash equivalents		98,094		100,145
Securities available-for-sale, at fair value		1,168,797		1,192,829
Federal Home Loan Bank Chicago (“FHLBC”) and Federal Reserve Bank Chicago (“FRBC”) stock		28,518		33,355
Loans held-for-sale		1,072		1,322
Loans		3,969,411		4,042,953
Less: allowance for credit losses on loans		44,113		44,264
Net loans		3,925,298		3,998,689
Premises and equipment, net		81,290		79,310
Other real estate owned		5,123		5,123
Mortgage servicing rights, at fair value		10,564		10,344
Goodwill		86,478		86,478
Core deposit intangible		10,637		11,217
Bank-owned life insurance (“BOLI”)		110,490		109,318
Deferred tax assets, net		31,699		31,077
Other assets		58,012		63,592
Total assets	$	5,616,072	$	5,722,799
Liabilities
Deposits:
Noninterest bearing demand	$	1,799,927	$	1,834,891
Interest bearing:
Savings, NOW, and money market		2,221,696		2,207,949
Time		586,652		527,906
Total deposits		4,608,275		4,570,746
Securities sold under repurchase agreements		33,546		26,470
Other short-term borrowings		220,000		405,000
Junior subordinated debentures		25,773		25,773
Subordinated debentures		59,403		59,382
Other liabilities		72,916		58,147
Total liabilities		5,019,913		5,145,518
Stockholders’ Equity
Common stock		44,908		44,705
Additional paid-in capital		203,129		202,223
Retained earnings		412,388		393,311
Accumulated other comprehensive loss		(63,361)		(62,781)
Treasury stock		(905)		(177)
Total stockholders’ equity		596,159		577,281
Total liabilities and stockholders’ equity	$	5,616,072	$	5,722,799

	March 31, 2024		December 31, 2023
	Common		Common
	Stock		Stock
Par value	$	1.00	$	1.00
Shares authorized		60,000,000		60,000,000
Shares issued		44,907,619		44,705,150
Shares outstanding		44,845,629		44,697,917
Treasury shares		61,990		7,233

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)
	Three Months Ended March 31,
	2024		2023
Interest and dividend income
Loans, including fees	$	62,673	$	57,210
Loans held-for-sale		14		12
Securities:
Taxable		8,092		10,735
Tax exempt		1,306		1,337
Dividends from FHLBC and FRBC stock		635		280
Interest bearing deposits with financial institutions		610		585
Total interest and dividend income		73,330		70,159
Interest expense
Savings, NOW, and money market deposits		4,037		1,149
Time deposits		4,041		664
Securities sold under repurchase agreements		86		9
Other short-term borrowings		4,557		2,345
Junior subordinated debentures		280		279
Subordinated debentures		546		546
Senior notes		-		994
Notes payable and other borrowings		-		87
Total interest expense		13,547		6,073
Net interest and dividend income		59,783		64,086
Provision for credit losses		3,500		3,501
Net interest and dividend income after provision for credit losses		56,283		60,585
Noninterest income
Wealth management		2,561		2,270
Service charges on deposits		2,415		2,424
Secondary mortgage fees		50		59
Mortgage servicing rights mark to market gain (loss)		94		(525)
Mortgage servicing income		488		516
Net gain on sales of mortgage loans		314		306
Securities gains (losses), net		1		(1,675)
Change in cash surrender value of BOLI		1,172		242
Card related income		2,376		2,244
Other income		1,030		1,489
Total noninterest income		10,501		7,350
Noninterest expense
Salaries and employee benefits		24,312		22,248
Occupancy, furniture and equipment		3,927		3,475
Computer and data processing		2,255		1,774
FDIC insurance		667		584
Net teller & bill paying		521		502
General bank insurance		309		305
Amortization of core deposit intangible		580		624
Advertising expense		192		142
Card related expense		1,277		1,216
Legal fees		226		319
Consulting & management fees		336		790
Other real estate expense, net		46		306
Other expense		3,593		3,637
Total noninterest expense		38,241		35,922
Income before income taxes		28,543		32,013
Provision for income taxes		7,231		8,406
Net income	$	21,312	$	23,607
Basic earnings per share	$	0.48	$	0.53
Diluted earnings per share		0.47		0.52
Dividends declared per share		0.05		0.05

See accompanying notes to consolidated financial statements.

5

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

	(unaudited)
	Three Months Ended March 31,
	2024		2023
Net Income	$	21,312	$	23,607
Unrealized holding (losses) gains on available-for-sale securities arising during the period		(876)		16,210
Related tax benefit (expense)		245		(4,536)
Holding (losses) gains, after tax, on available-for-sale securities		(631)		11,674
Less: Reclassification adjustment for the net gains (losses) realized during the period
Net realized gains (losses)		1		(1,675)
Related tax benefit		-		471
Net realized gains (losses) after tax		1		(1,204)
Other comprehensive (loss) income on available-for-sale securities		(632)		12,878
Changes in fair value of derivatives used for cash flow hedges		52		1,602
Related tax expense		-		(456)
Other comprehensive income on cash flow hedges		52		1,146
Total other comprehensive (loss) income		(580)		14,024
Total comprehensive income	$	20,732	$	37,631

	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, January 1, 2023	$	(88,892)	$	(4,232)	$	(93,124)
Other comprehensive income, net of tax		12,878		1,146		14,024
Balance, March 31, 2023	$	(76,014)	$	(3,086)	$	(79,100)
Balance, January 1, 2024	$	(60,590)	$	(2,191)	$	(62,781)
Other comprehensive (loss) income, net of tax		(632)		52		(580)
Balance, March 31, 2024	$	(61,222)	$	(2,139)	$	(63,361)

See accompanying notes to consolidated financial statements.

6

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

	(unaudited)
	Three Months Ended March 31,
	2024		2023
Cash flows from operating activities
Net income	$	21,312	$	23,607
Adjustments to reconcile net income to net cash provided by operating activities:
Net premium / discount amortization on securities		821		799
Securities (gains) losses, net		(1)		1,675
Provision for credit losses		3,500		3,501
Originations of loans held-for-sale		(9,103)		(10,206)
Proceeds from sales of loans held-for-sale		9,536		9,957
Net gains on sales of mortgage loans		(314)		(306)
Mortgage servicing rights mark to market (gain) loss		(94)		525
Net accretion of discount on loans and unfunded commitments		(157)		(1,180)
Net change in cash surrender value of BOLI		(1,172)		(242)
Net losses on sale of other real estate owned		-		28
Provision for other real estate owned valuation losses		-		269
Depreciation of fixed assets and amortization of leasehold improvements		1,350		1,046
Net gains on disposal and transfer of fixed assets		-		(434)
Amortization of core deposit intangibles		580		624
Change in current income taxes receivable		4,825		7,043
Deferred tax (benefit) expense		(375)		1,442
Change in accrued interest receivable and other assets		1,543		2,635
Accretion of purchase accounting adjustment on time deposits		(78)		(367)
Change in accrued interest payable and other liabilities		14,059		(6,344)
Stock based compensation		1,058		932
Net cash provided by operating activities		47,290		35,004
Cash flows from investing activities
Proceeds from maturities and calls, including pay down of securities available-for-sale		32,665		37,718
Proceeds from sales of securities available-for-sale		5,331		66,170
Purchases of securities available-for-sale		(15,661)		(4,186)
Proceeds from redemptions (purchases) of FHLBC/FRBC stock		4,837		(9,675)
Net change in loans		70,048		(132,445)
Proceeds from sales of other real estate owned, net of participations and improvements		-		300
Proceeds from disposition of premises and equipment		-		756
Net purchases of premises and equipment		(3,330)		(1,560)
Net cash provided by (used in) investing activities		93,890		(42,922)
Cash flows from financing activities
Net change in deposits		37,607		(213,136)
Net change in securities sold under repurchase agreements		7,076		(4,259)
Net change in other short-term borrowings		(185,000)		225,000
Repayment of term note		-		(9,000)
Vesting of restricted stock		99		-
Dividends paid on common stock		(2,237)		(2,237)
Purchase of treasury stock		(776)		(605)
Net cash (used in) provided by financing activities		(143,231)		(4,237)
Net change in cash and cash equivalents		(2,051)		(12,155)
Cash and cash equivalents at beginning of period		100,145		115,177
Cash and cash equivalents at end of period	$	98,094	$	103,022

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		(Loss) Income		Stock		Equity
For the Three Months Ended
Balance, January 1, 2023	$	44,705	$	202,276	$	310,512	$	(93,124)	$	(3,228)	$	461,141
Net income						23,607						23,607
Other comprehensive income, net of tax								14,024				14,024
Dividends declared on common stock, ($0.05 per share)						(2,229)						(2,229)
Vesting of restricted stock				(3,087)						3,087		-
Stock based compensation				932								932
Purchase of treasury stock from taxes withheld on stock awards										(605)		(605)
Balance, March 31, 2023	$	44,705	$	200,121	$	331,890	$	(79,100)	$	(746)	$	496,870