Borrowings

12 Months Ended

Dec. 31, 2022

Borrowings

Borrowings

Note 9: Borrowings

The following table is a summary of borrowings as of December 31, 2022 and 2021:

	2022		2021
Securities sold under repurchase agreements	$	32,156	$	50,337
Other short-term borrowings		90,000		-
Junior subordinated debentures1		25,773		25,773
Subordinated debentures		59,297		59,212
Senior notes		44,585		44,480
Notes payable and other borrowings		9,000		19,074
Total borrowings	$	260,811	$	198,876

¹ See Note 10: Junior Subordinated Debentures, below.

The Company enters into deposit sweep transactions where the transaction amounts are secured by pledged securities.  These transactions consistently mature within 1 to 90 days 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, collateralized mortgage obligations, mortgage-backed securities and/or highly-rated issues of State and political subdivisions, and had a carrying amount of $32.2 million and $50.3 million at December 31, 2022 and 2021, respectively.  The fair value of the pledged collateral was $71.4 million and $113.0 million at December 31, 2022 and December 31, 2021, respectively.  At December 31, 2022, 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 December 31, 2022, the Bank had $90.0 million in short-term advances outstanding under the FHLBC. There were no short-term advances as of December 31, 2021. The Bank assumed $23.4 million of long-term FHLBC advances with our ABC Bank acquisition in 2018. The remaining balance of $5.9 million at December 31, 2021 was paid off in full during the second quarter of 2022. FHLBC stock held at December 31, 2022 was valued at $5.6 million, and any potential FHLBC advances were collateralized by loans with a principal balance of $969.1 million. As of December 31, 2021, FHLBC stock owned by the Bank was valued at $7.1 million and the principal balance of loans pledged was $572.6 million.  Based on the total amount of loans pledged, the Bank had a total borrowing capacity at the FHLBC of $603.1 million and a remaining funding availability of $513.1 million on December 31, 2022.

In the second quarter of 2021, we entered into Subordinated Note Purchase Agreements with certain qualified institutional buyers pursuant to which we sold and 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 are intended to be used for general corporate purposes, which may include, without limitation, the redemption of existing senior debt, common stock repurchases and strategic acquisitions.  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.  The subordinated debentures outstanding, net of deferred issuance costs, totaled $59.3 million and $59.2 million as of December 31, 2022 and 2021, respectively.

The Company also had $44.6 million and $44.5 million of senior notes outstanding, net of deferred issuance costs, as of December 31, 2022 and December 31, 2021, respectively. The senior notes were issued in December 2016 with a ten year maturity, and terms include 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 effective interest rate at December 31, 2022 was 8.62%.  The notes are 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.  As of December 31, 2022 and 2021, unamortized debt issuance costs related to the senior notes were $415,000 and $520,000, respectively, and are included as a reduction of the balance of the senior notes on the Consolidated Balance Sheets.  These deferred issuance costs will be amortized to interest expense over the ten year term of the notes and included in the Consolidated Statements of Income.

On February 24, 2020, the Company originated a $20.0 million term note, of which $9.0 million is outstanding as of December 31, 2022, with a correspondent bank, the proceeds of which were used in the redemption of the Company’s 7.80% cumulative trust preferred securities issued by Old Second Capital Trust I and related junior subordinated debentures.  See the discussion in Note 10 – Junior Subordinated Debentures.  The term note was issued for a three year term at one-month LIBOR plus 175 basis points, requires principal and interest payments quarterly, with no prepayment penalties; any remaining balances are due on February 24, 2023.  The effective interest rate at December 31, 2022 was 6.14%.  The balance of this note is included within Notes payable and other borrowings on the Consolidated Balance Sheets.  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.

Scheduled maturities and weighted average rates of borrowings for the years ended December 31, were as follows:

	2022				2021
			Weighted				Weighted
			Average				Average
	Balance		Rate		Balance		Rate
2022	$	-	-	%	$	58,337	0.37	%
2023		131,156	2.89			9,000	1.85
2024		-	-			-	-
2025		-	-			-	-
2026		44,585	6.02			46,554	5.88
2027		-	-			-	-
Thereafter		85,070	3.91			84,985	3.89
Total borrowings	$	260,811	3.76	%	$	198,876	3.23	%