Old Second Bancorp, Inc

EX-99.1 2 tmb-20240717xex99d1.htm EX-99.1 Old Second Bancorp, Inc



(NASDAQ:OSBC)		Exhibit 99.1

Contact:	Bradley S. Adams	For Immediate Release
	Chief Financial Officer	July 17, 2024
	(630) 906-5484

Old Second Bancorp, Inc. Reports Second Quarter 2024 Net Income of $21.9 Million,

or $0.48 per Diluted Share

AURORA, IL, July 17, 2024 – Old Second Bancorp, Inc. (the “Company,” “Old Second,” “we,” “us,” and “our”) (NASDAQ: OSBC), the parent company of Old Second National Bank (the “Bank”), today announced financial results for the second quarter of 2024. Our net income was $21.9 million, or $0.48 per diluted share, for the second quarter of 2024, compared to net income of $21.3 million, or $0.47 per diluted share, for the first quarter of 2024, and net income of $25.6 million, or $0.56 per diluted share, for the second quarter of 2023. Adjusted net income, a non-GAAP financial measure that excludes certain nonrecurring items, as applicable, was $21.0 million, or $0.46 per diluted share, for the second quarter of 2024, compared to $21.3 million, or $0.47 per diluted share, for the first quarter of 2024, and $25.6 million, or $0.56 per share, for the second quarter of 2023. The adjusting item impacting the second quarter of 2024 was an $893,000 death benefit related to BOLI; the adjusting item impacting the second quarter of 2023 results included $29,000 of pre-tax losses from branch sales. See the discussion entitled “Non-GAAP Presentations” below and the tables beginning on page 17 that provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

Net income increased $579,000 in the second quarter of 2024 compared to the first quarter of 2024. The increase was primarily due to a $626,000 increase in noninterest income and a $364,000 decrease in noninterest expense, partially offset by a $93,000 decrease in net interest and dividend income, a $250,000 increase in provision for credit losses, and a $68,000 increase in provision for income taxes. Net income decreased $3.7 million in the second quarter of 2024 compared to the second quarter of 2023, primarily due to a decrease in net interest income of $3.9 million year over year driven by a $3.2 million increase to interest expense as a result of higher interest rates offered on deposits, as well as a reduction in interest and dividend income as the securities portfolio decreased $162.0 million during the last twelve months. Also contributing to the decrease in net income compared to the prior year like quarter was an increase in provision for credit losses of $1.8 million.

Operating Results

●

Second quarter 2024 net income was $21.9 million, reflecting a $579,000 increase from the first quarter of 2024, and a decrease of $3.7 million from the second quarter of 2023. Adjusted net income, as defined above, was $21.0 million for the second quarter of 2024, a decrease of $314,000 from adjusted net income for the first quarter of 2024, and a decrease of $4.6 million from adjusted net income for the second quarter of 2023.

●

Net interest and dividend income was $59.7 million for the second quarter of 2024, reflecting a decrease of $93,000, or 0.2%, from the first quarter of 2024, and a decrease of $3.9 million, or 6.1%, from the second quarter of 2023.

●

We recorded a net provision for credit losses of $3.8 million in the second quarter of 2024 compared to a net provision for credit losses of $3.5 million in the first quarter of 2024, and a net provision for credit losses of $2.0 million in the second quarter of 2023.

●

Noninterest income was $11.1 million for the second quarter of 2024, an increase of $626,000, or 6.0%, compared to $10.5 million for the first quarter of 2024, and an increase of $2.9 million, or 35.3%, compared to $8.2 million for the second quarter of 2023. An $893,000 death benefit on a BOLI contract was recorded in the second quarter of 2024, which did not occur in either comparative period, and $1.5 million of securities losses, net, was recorded in the second quarter of 2023; no security sales occurred in the second quarter of 2024.

●

Noninterest expense was $37.9 million for the second quarter of 2024, a decrease of $364,000, or 1.0% compared to $38.2 million for the first quarter of 2024, and an increase of $3.0 million, or 8.7%, compared to $34.8 million for the second quarter of 2023.

●

We had a provision for income tax of $7.3 million for the second quarter of 2024, compared to a provision for income tax of $7.2 million for the first quarter of 2024 and a provision of $9.4 million for the second quarter of 2023. The effective tax rate for each of the periods presented was 25.0%, 25.3%, and 26.9%, respectively.

●

On July 16, 2024, our Board of Directors declared a cash dividend of $0.05 per share of common stock, payable on August 5, 2024, to stockholders of record as of July 26, 2024.

Financial Highlights


	Quarters Ended
(Dollars in thousands)	June 30,			March 31,			June 30,
	2024			2024			2023
Balance sheet summary
Total assets	$	5,662,700		$	5,616,072		$	5,883,942
Total securities available-for-sale		1,173,661			1,168,797			1,335,622
Total loans		3,976,595			3,969,411			4,015,525
Total deposits		4,521,728			4,608,275			4,717,582
Total liabilities		5,043,365			5,019,913			5,369,987
Total equity		619,335			596,159			513,955

Total tangible assets	$	5,566,159		$	5,518,957		$	5,785,028
Total tangible equity		522,794			499,044			415,041

Income statement summary
Net interest income	$	59,690		$	59,783		$	63,580
Provision for credit losses		3,750			3,500			2,000
Noninterest income		11,127			10,501			8,223
Noninterest expense		37,877			38,241			34,830
Net income		21,891			21,312			25,562
Effective tax rate		25.01	%		25.33	%		26.91	%

Profitability ratios
Return on average assets (ROAA)		1.57	%		1.51	%		1.73	%
Return on average equity (ROAE)		14.55			14.56			20.04
Net interest margin (tax-equivalent)		4.63			4.58			4.64
Efficiency ratio		53.29			53.59			46.84
Return on average tangible common equity (ROATCE)		17.66			17.80			25.30
Tangible common equity to tangible assets (TCE/TA)		9.39			9.04			7.17

Per share data
Diluted earnings per share	$	0.48		$	0.47		$	0.56
Tangible book value per share		11.66			11.13			9.29

Company capital ratios¹
Common equity tier 1 capital ratio		12.41	%		12.02	%		10.29	%
Tier 1 risk-based capital ratio		12.94			12.55			10.80
Total risk-based capital ratio		15.12			14.79			13.16
Tier 1 leverage ratio		10.96			10.47			8.96

Bank capital ratios ^{1, 2}
Common equity tier 1 capital ratio		13.50	%		13.06	%		11.70	%
Tier 1 risk-based capital ratio		13.50			13.06			11.70
Total risk-based capital ratio		14.42			14.03			12.83
Tier 1 leverage ratio		11.43			10.89			9.70

¹Both the Company and the Bank ratios are inclusive of a capital conservation buffer of 2.50%, and both are subject to the minimum capital adequacy guidelines of 7.00%, 8.50%, 10.50%, and 4.00% for the Common equity tier 1, Tier 1 risk-based, Total risk-based and Tier 1 leverage ratios, respectively.

²The prompt corrective action provisions are applicable only at the Bank level, and are 6.50%, 8.00%, 10.00%, and 5.00% for the Common equity tier 1, Tier 1 risk-based, Total risk-based and Tier 1 leverage ratios, respectively.

Chairman, President and Chief Executive Officer Jim Eccher said “Old Second reported strong results in the second quarter with exceptional profitability and significant improvement in asset quality metrics. We are reaching resolution on a number of problem loans identified in prior periods and continue to monitor trends very closely. Nonperforming and classified assets at Old Second are at their lowest levels since year end 2022 and we expect further improvement this year. Our industry continues to experience significant stress in a number of real estate lending verticals, but I believe Old Second has been proactive in identifying and addressing potential problems. The rest of the bank continues to perform well with return on average assets and return on average tangible common equity at 1.57% and 17.66%, respectively, and the efficiency ratio is at 53.29%. The net interest margin increased by five basis points this quarter to a very strong 4.63% and our tangible book value per share increased by 19% linked quarter annualized and 26% year over year. Loan growth has been tepid through the second quarter, but we are optimistic trends are improving based on recent activity and the current strength of our pipelines. Our focus remains on compounding tangible book value and maintaining strong returns on equity. We believe this level of performance is sustainable in this environment and the balance sheet remains exceptionally well positioned to capitalize on growth opportunities that may come our way in the near future.”

Asset Quality & Earning Assets

●

Nonperforming loans, comprised of nonaccrual loans plus loans past due 90 days or more and still accruing, totaled $46.9 million at June 30, 2024, $65.1 million at March 31, 2024, and $61.2 million at June 30, 2023. Nonperforming loans, as a percent of total loans, were 1.2% at June 30, 2024, 1.6% at March 31, 2024, and 1.5% at June 30, 2023. The decrease in the second quarter of 2024 is driven by note sales and payoffs during the quarter, as well as charge-offs of $5.9 million on six loans, a $3.4 million transfer of two related loans to other real estate owned, and two non-performing loan upgrades with an aggregate balance of $2.2 million.

●

Total loans were $3.98 billion at June 30, 2024, reflecting an increase of $7.2 million compared to March 31, 2024, and a decrease of $38.9 million compared to June 30, 2023. The decrease year over year was largely driven by the declines in commercial, commercial real estate-investor and commercial real estate-owner occupied portfolios. Average loans (including loans held-for-sale) for the second quarter of 2024 totaled $3.96 billion, reflecting a decrease of $60.9 million from the first quarter of 2024 and a decrease of $81.7 million from the second quarter of 2023.

●

Available-for-sale securities totaled $1.17 billion at June 30, 2024 and March 31, 2024, compared to $1.34 billion at June 30, 2023. The unrealized mark to market loss on securities totaled $82.6 million as of June 30, 2024, compared to $85.0 million as of March 31, 2024, and $112.4 million as of June 30, 2023, due to market interest rate fluctuations as well as changes year over year in the composition of the securities portfolio. During the quarter ended June 30, 2024, we had security purchases of $142.2 million, security maturities of $95.0 million, and paydowns of $44.0 million, compared to security purchases of $15.7 million, security maturities of $2.0 million, paydowns of $30.7 million, and sales of $5.3 million during the quarter ended March 31, 2024, which resulted in net realized gains of $1,000. During the quarter ended June 30, 2023, we had no security purchases, $36.3 million of security paydowns, calls and maturities, and security sales of $74.0 million, which resulted in net realized losses of $1.5 million. We may continue to buy and sell strategically identified securities as opportunities arise.

Net Interest Income


Analysis of Average Balances,
Tax Equivalent Income / Expense and Rates
(Dollars in thousands - unaudited)

	Quarters Ended
	June 30, 2024						March 31, 2024						June 30, 2023
	Average			Income /		Rate	Average			Income /		Rate	Average			Income /		Rate
	Balance			Expense		%	Balance			Expense		%	Balance			Expense		%
Assets
Interest earning deposits with financial institutions	$	50,740		$	625	4.95	$	48,088		$	610	5.10	$	50,309		$	643	5.13
Securities:
Taxable		1,016,187			8,552	3.38		1,016,112			8,092	3.20		1,231,994			9,930	3.23
Non-taxable (TE)¹		163,243			1,636	4.03		166,776			1,653	3.99		172,670			1,692	3.93
Total securities (TE)¹		1,179,430			10,188	3.47		1,182,888			9,745	3.31		1,404,664			11,622	3.32
FHLBC and FRBC Stock		27,574			584	8.52		31,800			635	8.03		34,029			396	4.67
Loans and loans held-for-sale^{1, 2}		3,958,504			62,180	6.32		4,019,377			62,698	6.27		4,040,202			61,591	6.11
Total interest earning assets		5,216,248			73,577	5.67		5,282,153			73,688	5.61		5,529,204			74,252	5.39
Cash and due from banks		54,286			-	-		54,533			-	-		56,191			-	-
Allowance for credit losses on loans		(43,468)			-	-		(44,295)			-	-		(53,480)			-	-
Other noninterest bearing assets		388,392			-	-		384,332			-	-		379,576			-	-
Total assets	$	5,615,458					$	5,676,723					$	5,911,491

Liabilities and Stockholders' Equity
NOW accounts	$	570,523		$	639	0.45	$	553,844		$	829	0.60	$	600,957		$	312	0.21
Money market accounts		691,214			2,915	1.70		689,996			2,575	1.50		762,967			1,245	0.65
Savings accounts		934,161			763	0.33		958,645			633	0.27		1,073,172			185	0.07
Time deposits		610,705			4,961	3.27		558,463			4,041	2.91		436,524			1,156	1.06
Interest bearing deposits		2,806,603			9,278	1.33		2,760,948			8,078	1.18		2,873,620			2,898	0.40
Securities sold under repurchase agreements		37,430			83	0.89		30,061			86	1.15		25,575			7	0.11
Other short-term borrowings		242,912			3,338	5.53		332,198			4,557	5.52		402,527			5,160	5.14
Junior subordinated debentures		25,773			288	4.49		25,773			280	4.37		25,773			281	4.37
Subordinated debentures		59,414			546	3.70		59,393			546	3.70		59,329			546	3.69
Senior notes		-			-	-		-			-	-		44,134			1,414	12.85
Notes payable and other borrowings		-			-	-		-			-	-		-			-	-
Total interest bearing liabilities		3,172,132			13,533	1.72		3,208,373			13,547	1.70		3,430,958			10,306	1.20
Noninterest bearing deposits		1,769,543			-	-		1,819,476			-	-		1,920,448			-	-
Other liabilities		68,530			-	-		60,024			-	-		48,434			-	-
Stockholders' equity		605,253			-	-		588,850			-	-		511,651			-	-
Total liabilities and stockholders' equity	$	5,615,458					$	5,676,723					$	5,911,491
Net interest income (GAAP)				$	59,690					$	59,783					$	63,580
Net interest margin (GAAP)						4.60						4.55						4.61

Net interest income (TE)¹				$	60,044					$	60,141					$	63,946
Net interest margin (TE)¹						4.63						4.58						4.64
Interest bearing liabilities to earning assets		60.81	%					60.74	%					62.05	%

¹ Tax equivalent (TE) basis is calculated using a marginal tax rate of 21% in 2024 and 2023. See the discussion entitled “Non-GAAP Presentations” below and the tables beginning on page 17 that provides a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

² Interest income from loans is shown on a tax equivalent basis, which is a non-GAAP financial measure as discussed in the table on page 17, and includes loan fee expense of $936,000 for the second quarter of 2024, loan fee expense of $867,000 for the first quarter of 2024, and loan fee expense of $242,000 for the second quarter of 2023. Nonaccrual loans are included in the above stated average balances.

The increased yield of six basis points on interest earning assets compared to the linked period was driven by repricing within the loan and taxable securities portfolios. In addition, FHLB dividend rates increased quarter over linked quarter. 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 28 basis points on interest earning assets was primarily driven by increases to benchmark interest rates over the past twelve months, primarily impacting variable rate loans. Increases to market rates also impacted securities available for sale income during the quarter ended June 30, 2024. Average balances of securities available for sale decreased $225.2 million in the second quarter of 2024 compared to the prior year like quarter, but the tax equivalent yield on the securities available for sale portfolio increased fifteen basis points year over year due to variable security rate resets.

Average balances of interest-bearing deposit accounts have increased steadily since the first quarter of 2024 through the second quarter of 2024, from $2.76 billion to $2.81 billion, as NOW and money market account average balances increased as well as time deposits average balance increases due to CD rate specials. The increase in average balances of interest-bearing deposit accounts was partially offset by reductions in savings accounts as customers sought higher yielding products. We have continued to control the cost of funds over the periods reflected, with the rate of overall interest-bearing deposits increasing to 133 basis points for the quarter ended June 30, 2024, from 118 basis points for the quarter ended March 31, 2024, and from 40 basis points for the quarter ended June 30, 2023. A 20 basis point increase in the cost of money market funds for the quarter ended June 30, 2024 compared to the prior linked quarter, and a 105 basis point increase compared to the prior year like quarter were both due to select deposit account exception pricing, and drove a significant portion of the overall increase. The increase in transactional account average balances for the linked quarter were slightly offset by a 15 basis point decrease on NOW accounts driven by a large commercial deposit customer moving into an off-balance sheet sweep product, which reduced the overall rates paid on exception priced NOW accounts. Average rates paid on time deposits for the quarter ended June 30, 2024 increased by 36 basis points and 221 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 second quarter of 2024, compared to the first quarter of 2024, primarily due to the $89.3 million decrease in average other short-term borrowings stemming from a decrease in average FHLB advances over the prior quarter. The decrease of $159.6 million year over year of average FHLB advances was based on daily liquidity needs, and was the primary driver of the $1.8 million decrease to interest expense on other short-term borrowings. Subordinated and junior subordinated debt interest expense were essentially flat over each of the periods presented. Senior notes had the most significant interest expense decrease year over year, as we redeemed all of the $45.0 million senior notes, net of deferred issuance costs, in June 2023, resulting in senior notes having no balance after that time.

Our net interest margin (GAAP) increased five basis points to 4.60% for the second quarter of 2024, compared to 4.55% for the first quarter of 2024, and decreased one basis point compared to 4.61% for the second quarter of 2023. Our net interest margin (TE) increased five basis points to 4.63% for the second quarter of 2024, compared to 4.58% for the first quarter of 2024, and decreased one basis point compared to 4.64% for the second quarter of 2023. The increase in the second quarter of 2024, compared to the prior quarter, was driven by market rates as well as the composition of assets and liabilities as interest income and expense remained relatively flat compared to the prior quarter while there was a $65.9 million reduction in interest earning assets. Matured securities were replaced with higher yielding positions and the decrease in average loans was primarily driven by lower yielding or nonaccrual credits. Higher deposit expense was offset by lower borrowing expense due to a decline in average other short-term borrowing. The decrease in the second quarter of 2024, compared to the prior year like quarter, is primarily due to an increase in market interest rates, and the related increase in costs of interest-bearing deposits. See the discussion entitled “Non-GAAP Presentations” and the tables beginning on page 17 that provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

Noninterest Income


							2nd Quarter 2024
Noninterest Income	Three Months Ended						Percent Change From
(Dollars in thousands)	June 30,		March 31,		June 30,		March 31,	June 30,
	2024		2024		2023		2024	2023
Wealth management	$	2,779	$	2,561	$	2,458	8.5	13.1
Service charges on deposits		2,508		2,415		2,362	3.9	6.2
Residential mortgage banking revenue
Secondary mortgage fees		65		50		76	30.0	(14.5)
MSRs mark to market (loss) gain		(238)		94		96	(353.2)	(347.9)
Mortgage servicing income		513		488		499	5.1	2.8
Net gain on sales of mortgage loans		468		314		398	49.0	17.6
Total residential mortgage banking revenue		808		946		1,069	14.6	(24.4)
Securities gains (losses), net		-		1		(1,547)	100.0	100.0
Change in cash surrender value of BOLI		820		1,172		418	(30.0)	96.2
Death benefit realized on BOLI		893		-		-	N/M	N/M
Card related income		2,577		2,376		2,690	8.5	(4.2)
Other income		742		1,030		773	(28.0)	(4.0)
Total noninterest income	$	11,127	$	10,501	$	8,223	6.0	35.3

N/M - Not meaningful.

Noninterest income increased $626,000, or 5.96%, in the second quarter of 2024, compared to the first quarter of 2024, and increased $2.9 million, or 35.3%, compared to the second quarter of 2023. The increase from the first quarter of 2024 was primarily driven by a $218,000 increase in wealth management income, an $893,000 death benefit realized on BOLI, and a $201,000 increase in card related income. Partially offsetting the increase in noninterest income from the prior quarter was a $138,000 decrease in residential mortgage banking revenue primarily due to a decrease of $332,000 in MSRs mark to market valuation, and a $352,000 decrease in the cash surrender value of BOLI, both of which were due to market interest rate changes, while MSRs were also impacted by a slight increase in prepayment speeds in the second quarter. Also offsetting the increase in noninterest income from the prior quarter was a $288,000 decrease in other income primarily due to a $172,000 incentive related to check order volumes received in the first quarter of 2024.

The increase in noninterest income of $2.9 million in the second quarter of 2024, compared to the second quarter of 2023, is primarily due to a $321,000 increase in wealth management income, a $146,000 increase in service charges on deposits, no security sales activity in the second quarter of 2024 compared to losses on the sale of securities of $1.5 million in the second quarter of 2023, a $402,000 increase in the cash surrender value of BOLI due to changes in market interest rates, and an $893,000 death benefit realized on BOLI. These increases were partially offset by a $261,000 decrease in residential mortgage banking revenue mainly due to a decrease of $334,000 in MSRs mark to market valuation, and a $113,000 decrease in card related income.

Noninterest Expense


										2nd Quarter 2024
Noninterest Expense	Three Months Ended									Percent Change From
(Dollars in thousands)	June 30,			March 31,			June 30,			March 31,	June 30,
	2024			2024			2023			2024	2023
Salaries	$	17,997		$	17,647		$	16,310		2.0	10.3
Officers' incentive		1,482			2,148			2,397		(31.0)	(38.2)
Benefits and other		3,945			4,517			3,091		(12.7)	27.6
Total salaries and employee benefits		23,424			24,312			21,798		(3.7)	7.5
Occupancy, furniture and equipment expense		3,899			3,927			3,639		(0.7)	7.1
Computer and data processing		2,184			2,255			1,290		(3.1)	69.3
FDIC insurance		616			667			794		(7.6)	(22.4)
Net teller & bill paying		578			521			515		10.9	12.2
General bank insurance		312			309			306		1.0	2.0
Amortization of core deposit intangible asset		574			580			618		(1.0)	(7.1)
Advertising expense		472			192			103		145.8	358.3
Card related expense		1,323			1,277			1,222		3.6	8.3
Legal fees		238			226			283		5.3	(15.9)
Consulting & management fees		797			336			520		137.2	53.3
Other real estate owned expense, net		(87)			46			(98)		(289.1)	(11.2)
Other expense		3,547			3,593			3,840		(1.3)	(7.6)
Total noninterest expense	$	37,877		$	38,241		$	34,830		(1.0)	8.7
Efficiency ratio (GAAP)¹		53.29	%		53.59	%		46.84	%
Adjusted efficiency ratio (non-GAAP)²		52.68	%		53.09	%		46.49	%

¹The 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, death benefit realized on BOLI, and mark to market gains or losses on MSRs.

² The adjusted efficiency ratio shown in the table above is a non-GAAP financial measure calculated as noninterest expense, excluding amortization of core deposits, OREO expenses, litigation expense, and net of gains on branch sales, 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, death benefit realized on BOLI, mark to market gains or losses on MSRs, and includes a tax equivalent adjustment on the change in cash surrender value of BOLI. See the discussion entitled “Non-GAAP Presentations” below and the table on page 18 that provides a reconciliation of this non-GAAP financial measure to the most comparable GAAP equivalent.

Noninterest expense for the second quarter of 2024 decreased $364,000, or 1.0%, compared to the first quarter of 2024, and increased $3.0 million, or 8.7%, compared to the second quarter of 2023. The decrease in the second quarter of 2024 compared to the first quarter of 2024 was attributable to a $888,000 decrease in salaries and employee benefits, with decreases reflected primarily in restricted stock expense, officers’ incentives, payroll taxes, and deferred executive compensation due to changes in market interest rates. Also contributing to the decrease in the second quarter of 2024 was a $71,000 decrease in computer and data processing expenses, a $51,000 decrease in FDIC insurance, and a $133,000 reduction in other real estate owned expense, net, as a gain of $259,000 was recorded on an OREO sale in the second quarter of 2024. Partially offsetting the decreases in noninterest expense in the second quarter of 2024 compared to the first quarter of 2024 was a $57,000 increase in net teller & bill paying expenses, a $280,000 increase in advertising expense primarily due to a new overdraft disclosure mailed to retail deposit customers, and a $461,000 increase in consulting & management fees primarily driven by ongoing systems projects and a deposit compliance matter.

The year over year increase in noninterest expense is primarily attributable to a $1.6 million increase in salaries and employee benefits, primarily due to increases in annual base salary rates, restricted stock expense, and deferred employee compensation due to market interest rate changes. Also contributing to the increase was a $260,000 increase in occupancy, furniture and equipment due to facilities improvements year over year, an $894,000 increase in computer and data processing primarily due to credits from our core data provider in the prior year period, a $369,000 increase in advertising expense, a $101,000 increase in card related expense, and a $277,000 increase in consulting & management fees. Partially offsetting the increases in noninterest expense in the second quarter of 2024, compared to the second quarter of 2023, was a $178,000 decrease in FDIC insurance, a $45,000 decrease in legal fees, and a $293,000 decrease in other expenses.

Earning Assets


							June 30, 2024
Loans	As of						Percent Change From
(Dollars in thousands)	June 30,		March 31,		June 30,		March 31,	June 30,
	2024		2024		2023		2024	2023
Commercial	$	809,443	$	796,552	$	820,027	1.6	(1.3)
Leases		452,957		425,615		314,919	6.4	43.8
Commercial real estate – investor		1,014,345		1,018,382		1,080,073	(0.4)	(6.1)
Commercial real estate – owner occupied		745,938		782,603		824,277	(4.7)	(9.5)
Construction		185,634		169,174		189,058	9.7	(1.8)
Residential real estate – investor		50,371		51,522		55,935	(2.2)	(9.9)
Residential real estate – owner occupied		218,974		220,223		218,205	(0.6)	0.4
Multifamily		388,743		387,479		383,184	0.3	1.5
HELOC		99,037		98,762		102,058	0.3	(3.0)
Other¹		11,153		19,099		27,789	(41.6)	(59.9)
Total loans	$	3,976,595	$	3,969,411	$	4,015,525	0.2	(1.0)

¹Other class includes consumer loans and overdrafts.

Total loans increased by $7.2 million at June 30, 2024, compared to March 31, 2024, and decreased $38.9 million for the year over year period. The increase in total loans in the second quarter of 2024 compared to the prior linked quarter was due to increased originations over the second quarter. The year over year reduction in loans is primarily due to $59.4 million of payoffs on seven larger loans, partially offset by a slower pace of originations over the past twelve months due to the higher interest rate environment. Increases were noted in the leases segment in the current quarter compared to the prior linked quarter and compared to the prior year like period primarily due to an expansion of this product line over the past year.


							June 30, 2024
Securities	As of						Percent Change From
(Dollars in thousands)	June 30,		March 31,		June 30,		March 31,	June 30,
	2024		2024		2023		2024	2023
Securities available-for-sale, at fair value
U.S. Treasury	$	191,274	$	171,000	$	214,613	11.9	(10.9)
U.S. government agencies		37,298		56,979		55,981	(34.5)	(33.4)
U.S. government agency mortgage-backed		96,872		101,075		115,140	(4.2)	(15.9)
States and political subdivisions		220,265		222,742		227,599	(1.1)	(3.2)
Corporate bonds		-		-		4,882	-	(100.0)
Collateralized mortgage obligations		386,055		379,603		407,495	1.7	(5.3)
Asset-backed securities		64,877		66,707		136,254	(2.7)	(52.4)
Collateralized loan obligations		177,020		170,691		173,658	3.7	1.9
Total securities available-for-sale	$	1,173,661	$	1,168,797	$	1,335,622	0.4	(12.1)

Our securities available-for-sale portfolio totaled $1.17 billion as of June 30, 2024, reflecting no material change from March 31, 2024, and a decrease of $162.0 million since June 30, 2023. The portfolio’s increase of $4.9 million in the second quarter of 2024, compared to the prior quarter-end, was due to purchases of $142.2 million, primarily consisting of U.S. Treasury, collateralized mortgage obligations and collateralized loan obligations, partially offset by $95.0 million in maturities and $44.0 million in paydowns. Net unrealized losses at June 30, 2024 were $82.6 million, compared to $85.0 million at March 31, 2024 and $112.4 million at June 30, 2023. The year over year decrease in net unrealized losses is due to changes in the market interest rate environment as well as the impact of security sales undertaken to further reduce the portfolio’s interest rate sensitivity. The portfolio continues to consist of high quality fixed-rate and floating-rate securities, with more than 99% of publicly issued securities rated AA or better.

Asset Quality


										June 30, 2024
Nonperforming assets	As of									Percent Change From
(Dollars in thousands)	June 30,			March 31,			June 30,			March 31,	June 30,
	2024			2024			2023			2024	2023
Nonaccrual loans	$	41,957		$	64,324		$	60,925		(34.8)	(31.1)
Loans past due 90 days or more and still accruing interest		4,909			789			308		522.2	N/M
Total nonperforming loans		46,866			65,113			61,233		(28.0)	(23.5)
Other real estate owned		6,920			5,123			761		35.1	809.3
Total nonperforming assets	$	53,786		$	70,236		$	61,994		(23.4)	(13.2)



30-89 days past due loans and still accruing interest	$	16,728		$	21,183		$	12,449
Nonaccrual loans to total loans		1.1	%		1.6	%		1.5	%
Nonperforming loans to total loans		1.2	%		1.6	%		1.5	%
Nonperforming assets to total loans plus OREO		1.4	%		1.8	%		1.5	%
Purchased credit-deteriorated loans to total loans		0.8	%		1.1	%		1.6	%

Allowance for credit losses	$	42,269		$	44,113		$	55,314
Allowance for credit losses to total loans		1.1	%		1.1	%		1.4	%
Allowance for credit losses to nonaccrual loans		100.7	%		68.6	%		90.8	%

N/M - Not meaningful.

Nonperforming loans consist of nonaccrual loans and loans 90 days or more past due and still accruing interest. Purchased credit-deteriorated (“PCD”) loans acquired in our acquisitions of West Suburban and ABC Bank totaled $30.4 million, net of purchase accounting adjustments, at June 30, 2024. PCD loans that meet the definition of nonperforming loans are included in our nonperforming disclosures. Nonperforming loans to total loans was 1.2% as of June 30, 2024, 1.6% as of March 31, 2024, and 1.5% as of June 30, 2023. Nonperforming assets to total loans plus OREO was 1.4% as of June 30, 2024, 1.8% as of March 31, 2024, and 1.5% as of June 30, 2023. Our allowance for credit losses to total loans was 1.1% as of June 30, 2024 and March 31, 2024, and 1.4% as of June 30, 2023.

The following table shows classified loans by segment, which include nonaccrual loans, PCD loans if the risk rating so indicates, and all other loans considered substandard, for the following periods.


							June 30, 2024
Classified loans	As of						Percent Change From
(Dollars in thousands)	June 30,		March 31,		June 30,		March 31,	June 30,
	2024		2024		2023		2024	2023
Commercial	$	19,142	$	15,243	$	22,245	25.6	(13.9)
Leases		284		595		974	(52.3)	(70.8)
Commercial real estate – investor		36,939		43,154		57,041	(14.4)	(35.2)
Commercial real estate – owner occupied		48,387		61,267		38,495	(21.0)	25.7
Construction		5,740		7,119		116	(19.4)	N/M
Residential real estate – investor		1,343		1,299		1,714	3.4	(21.6)
Residential real estate – owner occupied		2,734		3,168		3,660	(13.7)	(25.3)
Multifamily		6,810		1,959		1,191	247.6	471.8
HELOC		1,025		1,648		2,152	(37.8)	(52.4)
Other¹		1		-		-	N/M	N/M
Total classified loans	$	122,405	$	135,452	$	127,588	(9.6)	(4.1)

N/M - Not meaningful.

¹Other class includes consumer loans and overdrafts.

Classified loans as of June 30, 2024 decreased by $13.0 million from March 31, 2024, and decreased by $5.2 million from June 30, 2023. The net decrease from the first quarter of 2024 was primarily driven by outflows of $10.6 million of paid off loans, $6.0 million of charge-offs, $4.8 million of principal reductions from payments, $3.4 million transferred to OREO, and $2.4 million of loan upgrades. The decrease in classified loans in the second quarter was offset by additions of $14.0 million, primarily consisting of five commercial loans totaling $7.0 million and nine multifamily loans from a single relationship totaling $5.4 million. Remediation work continues on these credits, with the goal of cash flow improvements with increased tenancy.

Allowance for Credit Losses on Loans and Unfunded Commitments

At June 30, 2024, our allowance for credit losses (“ACL”) on loans totaled $42.3 million, and our ACL on unfunded commitments, included in other liabilities, totaled $2.5 million. In the second quarter of 2024, we recorded provision expense of $3.8 million based on historical loss rate updates, our assessment of nonperforming loan metrics and trends, as well as estimated future credit losses. The second quarter’s provision expense consisted of a $3.9 million provision for credit losses on loans, and a $199,000 reversal of provision for credit losses on unfunded commitments. The decrease in ACL on unfunded commitments was primarily due to an adjustment of historical benchmark assumptions, such as funding rates and the period used to forecast those rates, within the ACL calculation. We recorded net charge-offs of $5.8 million in the second quarter of 2024 primarily within the commercial real estate portfolio, which reduced the ACL. The first quarter 2024 provision expense of $3.5 million consisted of a $3.5 million provision for credit losses on loans, and a $44,000 reversal of provision for credit losses on unfunded commitments. We recorded net charge-offs of $3.7 million in the first quarter of 2024. In the second quarter of 2023, we recorded provision expense of $2.0 million, which consisted of a $2.4 million provision for credit losses on loans and a $427,000 reversal of provision for credit losses on unfunded commitments. We recorded net charge-offs of $505,000 in the second quarter of 2023, which reduced the ACL. Our ACL on loans to total loans was 1.1% as of June 30, 2024 and March 31, 2024, and 1.4% as of June 30, 2023.

The ACL on unfunded commitments totaled $2.5 million as of June 30, 2024, $2.7 million as of March 31, 2024, and $3.1 million as of June 30, 2023.

Net Charge-off Summary


Loan charge–offs, net of recoveries	Quarters Ended
(Dollars in thousands)	June 30,		% of	March 31,		% of	June 30,		% of
	2024		Total ²	2024		Total ²	2023		Total ²
Commercial	$	(19)	(0.3)	$	(58)	(1.6)	$	298	59.0
Leases		81	1.4		(40)	(1.1)		(7)	(1.4)
Commercial real estate – Investor		4,560	78.7		(67)	(1.8)		51	10.1
Commercial real estate – Owner occupied		1,162	20.1		3,868	104.7		198	39.2
Residential real estate – Investor		(3)	(0.1)		(2)	(0.1)		(5)	(1.0)
Residential real estate – Owner occupied		(9)	(0.2)		(8)	(0.2)		(36)	(7.1)
HELOC		(15)	(0.3)		(17)	(0.5)		(24)	(4.8)
Other¹		37	0.7		19	0.6		30	6.0
Net charge–offs / (recoveries)	$	5,794	100.0	$	3,695	100.0	$	505	100.0

¹Other class includes consumer loans and overdrafts.

²Represents the percentage of net charge-offs attributable to each category of loans.

Gross charge-offs for the second quarter of 2024 were $6.0 million, compared to $4.0 million for the first quarter of 2024 and $733,000 for the second quarter of 2023. Gross recoveries were $217,000 for the second quarter of 2024, compared to $293,000 for the first quarter of 2024, and $228,000 for the second quarter of 2023. Continued recoveries are indicative of the ongoing aggressive efforts by management to effectively manage and resolve prior charge-offs, however recoveries cannot be forecasted or expected at the same pace in the future.

Deposits

Total deposits were $4.52 billion at June 30, 2024, a decrease of $86.5 million, or 1.9%, compared to $4.61 billion at March 31, 2024, primarily due to a decrease in non-interest bearing deposits of $71.4 million primarily driven by one large public funds customer, a decrease of $46.7 million in savings, and a decrease of $13.6 million in NOW and money market accounts. These declines were partially offset by an increase in time deposits of $45.2 million. Total quarterly average deposits for the year over year period decreased $217.9 million, or 4.5%, driven by declines in our average demand deposits of $150.9 million, and savings, NOW and money markets combined of $241.2 million, partially offset by an increase of $174.2 in average time deposits. The decline in total deposits in the second quarter of 2024 was less than the decline in the second quarter of 2023, and was primarily due to depositor real estate tax payments and other seasonal reductions.

Borrowings

As of June 30, 2024, we had $330.0 million in other short-term borrowings due to short-term FHLB advances, compared to $220.0 million at March 31, 2024, and $485.0 million as of June 30, 2023.

Non-GAAP Presentations

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

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

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

Cautionary Note Regarding Forward-Looking Statements

This earnings release and statements by our management may contain forward-looking statements within the Private Securities Litigation Reform Act of 1995. Forward looking statements can be identified by words such as “should,” “anticipate,” “expect,” “estimate,” “intend,” “believe,” “may,” “likely,” “will,” “forecast,” “project,” “looking forward,” “optimistic,” “hopeful,” “potential,” “progress,” “prospect,” “remain,” “deliver,” “continue,” “trend,” “momentum,” “remainder,” “beyond,” “and “near” or other statements that indicate future periods. Examples of forward-looking statements include, but are not limited to, statements regarding the economic outlook, loan growth, deposit trends and funding, asset-quality trends, balance sheet growth, and building capital. Such forward-looking statements are subject to risks, uncertainties, and other factors, which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements, (1) the strength of the United States economy in general and the strength of the local economies in which we conduct our operations may be different than expected; (2) the rate of delinquencies and amounts of charge-offs, the level of allowance for credit loss, the rates of loan growth, or adverse changes in asset quality in our loan portfolio, which may result in increased credit risk-related losses and expenses; (3) changes in legislation, regulation, policies, or administrative practices, whether by judicial, governmental, or legislative action; (4) risks related to future acquisitions, if any, including execution and integration risks; (5) adverse conditions in the stock market, the public debt

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

Conference Call

We will host a call on Thursday, July 18, 2024, at 10:00 a.m. Eastern Time (9:00 a.m. Central Time) to discuss our second quarter 2024 financial results. Investors may listen to our call via telephone by dialing 888-506-0062, using Entry Code: 230168. Investors should call into the dial-in number set forth above at least 10 minutes prior to the scheduled start of the call.

A replay of the call will be available until 10:00 a.m. Eastern Time (9:00 a.m. Central Time) on July 25, 2024, by dialing 877-481-4010, using Conference ID: 50796.

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands)


	(unaudited)
	June 30,		December 31,
	2024		2023
Assets
Cash and due from banks	$	54,888	$	55,534
Interest earning deposits with financial institutions		66,004		44,611
Cash and cash equivalents		120,892		100,145
Securities available-for-sale, at fair value		1,173,661		1,192,829
Federal Home Loan Bank Chicago (“FHLBC”) and Federal Reserve Bank Chicago (“FRBC”) stock		32,005		33,355
Loans held-for-sale		2,291		1,322
Loans		3,976,595		4,042,953
Less: allowance for credit losses on loans		42,269		44,264
Net loans		3,934,326		3,998,689
Premises and equipment, net		82,871		79,310
Other real estate owned		6,920		5,123
Mortgage servicing rights, at fair value		10,488		10,344
Goodwill		86,478		86,478
Core deposit intangible		10,063		11,217
Bank-owned life insurance (“BOLI”)		110,535		109,318
Deferred tax assets, net		28,710		31,077
Other assets		63,460		63,592
Total assets	$	5,662,700	$	5,722,799

Liabilities
Deposits:
Noninterest bearing demand	$	1,728,487	$	1,834,891
Interest bearing:
Savings, NOW, and money market		2,161,426		2,207,949
Time		631,815		527,906
Total deposits		4,521,728		4,570,746
Securities sold under repurchase agreements		46,542		26,470
Other short-term borrowings		330,000		405,000
Junior subordinated debentures		25,773		25,773
Subordinated debentures		59,425		59,382
Other liabilities		59,897		58,147
Total liabilities		5,043,365		5,145,518

Stockholders’ Equity
Common stock		44,908		44,705
Additional paid-in capital		204,012		202,223
Retained earnings		432,037		393,311
Accumulated other comprehensive loss		(60,769)		(62,781)
Treasury stock		(853)		(177)
Total stockholders’ equity		619,335		577,281
Total liabilities and stockholders’ equity	$	5,662,700	$	5,722,799

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

(In thousands, except share data)


	(unaudited)				(unaudited)
	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Interest and dividend income
Loans, including fees	$	62,151	$	61,561	$	124,824	$	118,771
Loans held-for-sale		19		19		33		31
Securities:
Taxable		8,552		9,930		16,644		20,665
Tax exempt		1,292		1,337		2,598		2,674
Dividends from FHLBC and FRBC stock		584		396		1,219		676
Interest bearing deposits with financial institutions		625		643		1,235		1,228
Total interest and dividend income		73,223		73,886		146,553		144,045
Interest expense
Savings, NOW, and money market deposits		4,317		1,742		8,354		2,891
Time deposits		4,961		1,156		9,002		1,820
Securities sold under repurchase agreements		83		7		169		16
Other short-term borrowings		3,338		5,160		7,895		7,505
Junior subordinated debentures		288		281		568		560
Subordinated debentures		546		546		1,092		1,092
Senior notes		-		1,414		-		2,408
Notes payable and other borrowings		-		-		-		87
Total interest expense		13,533		10,306		27,080		16,379
Net interest and dividend income		59,690		63,580		119,473		127,666
Provision for credit losses		3,750		2,000		7,250		5,501
Net interest and dividend income after provision for credit losses		55,940		61,580		112,223		122,165
Noninterest income
Wealth management		2,779		2,458		5,340		4,728
Service charges on deposits		2,508		2,362		4,923		4,786
Secondary mortgage fees		65		76		115		135
Mortgage servicing rights mark to market (loss) gain		(238)		96		(144)		(429)
Mortgage servicing income		513		499		1,001		1,015
Net gain on sales of mortgage loans		468		398		782		704
Securities (losses) gains, net		-		(1,547)		1		(3,222)
Change in cash surrender value of BOLI		820		418		1,992		660
Death benefit realized on BOLI		893		-		893		-
Card related income		2,577		2,690		4,953		4,934
Other income		742		773		1,772		2,262
Total noninterest income		11,127		8,223		21,628		15,573
Noninterest expense
Salaries and employee benefits		23,424		21,798		47,736		44,046
Occupancy, furniture and equipment		3,899		3,639		7,826		7,114
Computer and data processing		2,184		1,290		4,439		3,064
FDIC insurance		616		794		1,283		1,378
Net teller & bill paying		578		515		1,099		1,017
General bank insurance		312		306		621		611
Amortization of core deposit intangible		574		618		1,154		1,242
Advertising expense		472		103		664		245
Card related expense		1,323		1,222		2,600		2,438
Legal fees		238		283		464		602
Consulting & management fees		797		520		1,133		1,310
Other real estate expense, net		(87)		(98)		(41)		208
Other expense		3,547		3,840		7,140		7,477
Total noninterest expense		37,877		34,830		76,118		70,752
Income before income taxes		29,190		34,973		57,733		66,986
Provision for income taxes		7,299		9,411		14,530		17,817
Net income	$	21,891	$	25,562	$	43,203	$	49,169

Basic earnings per share	$	0.48	$	0.57	$	0.96	$	1.10
Diluted earnings per share		0.48		0.56		0.95		1.08
Dividends declared per share		0.05		0.05		0.05		0.10


Ending common shares outstanding	44,849,591	44,665,127	44,849,591	44,665,127
Weighted-average basic shares outstanding	44,846,848	44,665,127	44,802,704	44,642,250
Weighted-average diluted shares outstanding	45,682,239	45,424,418	45,603,062	45,370,806

Old Second Bancorp, Inc. and Subsidiaries

Quarterly Consolidated Average Balance

(In thousands, unaudited)


		2023								2024
Assets	1st Qtr		2nd Qtr		3rd Qtr		4th Qtr		1st Qtr		2nd Qtr
Cash and due from banks	$	55,140	$	56,191	$	57,279	$	57,723	$	54,533	$	54,286
Interest earning deposits with financial institutions		49,310		50,309		49,737		47,865		48,088		50,740
Cash and cash equivalents		104,450		106,500		107,016		105,588		102,621		105,026

Securities available-for-sale, at fair value		1,503,619		1,404,664		1,295,211		1,192,021		1,182,888		1,179,430
FHLBC and FRBC stock		24,905		34,029		35,954		34,371		31,800		27,574
Loans held-for-sale		813		1,150		1,641		1,709		746		1,050
Loans		3,931,679		4,039,052		4,009,218		4,014,771		4,018,631		3,957,454
Less: allowance for credit losses on loans		49,398		53,480		54,581		50,023		44,295		43,468
Net loans		3,882,281		3,985,572		3,954,637		3,964,748		3,974,336		3,913,986

Premises and equipment, net		72,649		72,903		74,707		78,472		80,493		82,332
Other real estate owned		1,508		1,132		472		2,004		5,123		4,657
Mortgage servicing rights, at fair value		11,127		10,741		11,066		11,317		10,455		10,754
Goodwill		86,477		86,477		86,477		86,477		86,477		86,477
Core deposit intangible		13,327		12,709		12,119		11,502		10,913		10,340
Bank-owned life insurance ("BOLI")		106,655		107,028		107,786		108,616		109,867		110,440
Deferred tax assets, net		42,237		37,774		39,072		42,754		31,323		32,969
Other assets		48,599		50,812		52,360		55,155		49,681		50,423
Total other assets		382,579		379,576		384,059		396,297		384,332		388,392
Total assets	$	5,898,647	$	5,911,491	$	5,778,518	$	5,694,734	$	5,676,723	$	5,615,458

Liabilities
Deposits:
Noninterest bearing demand	$	2,002,801	$	1,920,448	$	1,867,201	$	1,838,325	$	1,819,476	$	1,769,543
Interest bearing:
Savings, NOW, and money market		2,560,893		2,437,096		2,324,613		2,241,937		2,202,485		2,195,898
Time		434,655		436,524		466,250		497,472		558,463		610,705
Total deposits		4,998,349		4,794,068		4,658,064		4,577,734		4,580,424		4,576,146

Securities sold under repurchase agreements		31,080		25,575		24,945		28,526		30,061		37,430
Other short-term borrowings		200,833		402,527		427,174		390,652		332,198		242,912
Junior subordinated debentures		25,773		25,773		25,773		25,773		25,773		25,773
Subordinated debentures		59,308		59,329		59,350		59,372		59,393		59,414
Senior notes		44,599		44,134		-		-		-		-
Notes payable and other borrowings		5,400		-		-		-		-		-
Other liabilities		51,279		48,434		53,164		63,971		60,024		68,530
Total liabilities		5,416,621		5,399,840		5,248,470		5,146,028		5,087,873		5,010,205

Stockholders' equity
Common stock		44,705		44,705		44,705		44,705		44,787		44,908
Additional paid-in capital		201,397		200,590		201,344		201,824		202,688		203,654
Retained earnings		324,785		346,042		368,732		389,776		405,201		424,262
Accumulated other comprehensive loss		(86,736)		(78,940)		(84,167)		(87,358)		(63,365)		(66,682)
Treasury stock		(2,125)		(746)		(566)		(241)		(461)		(889)
Total stockholders' equity		482,026		511,651		530,048		548,706		588,850		605,253
Total liabilities and stockholders' equity	$	5,898,647	$	5,911,491	$	5,778,518	$	5,694,734	$	5,676,723	$	5,615,458

Total Earning Assets	$	5,510,326	$	5,529,204	$	5,391,761	$	5,290,737	$	5,282,153	$	5,216,248
Total Interest Bearing Liabilities		3,362,541		3,430,958		3,328,105		3,243,732		3,208,373		3,172,132

Old Second Bancorp, Inc. and Subsidiaries

Quarterly Consolidated Statements of Income

(In thousands, except per share data, unaudited)



	2023								2024
	1st Qtr		2nd Qtr		3rd Qtr		4th Qtr		1st Qtr		2nd Qtr
Interest and Dividend Income
Loans, including fees	$	57,210	$	61,561	$	62,665	$	62,751	$	62,673	$	62,151
Loans held-for-sale		12		19		29		31		14		19
Securities:
Taxable		10,735		9,930		8,946		8,329		8,092		8,552
Tax exempt		1,337		1,337		1,333		1,322		1,306		1,292
Dividends from FHLB and FRBC stock		280		396		597		647		635		584
Interest bearing deposits with financial institutions		585		643		659		616		610		625
Total interest and dividend income		70,159		73,886		74,229		73,696		73,330		73,223
Interest Expense
Savings, NOW, and money market deposits		1,149		1,742		2,558		3,312		4,037		4,317
Time deposits		664		1,156		1,982		2,834		4,041		4,961
Securities sold under repurchase agreements		9		7		27		50		86		83
Other short-term borrowings		2,345		5,160		5,840		5,429		4,557		3,338
Junior subordinated debentures		279		281		245		290		280		288
Subordinated debentures		546		546		547		546		546		546
Senior notes		994		1,414		-		-		-		-
Notes payable and other borrowings		87		-		-		-		-		-
Total interest expense		6,073		10,306		11,199		12,461		13,547		13,533
Net interest and dividend income		64,086		63,580		63,030		61,235		59,783		59,690
Provision for credit losses		3,501		2,000		3,000		8,000		3,500		3,750
Net interest and dividend income after provision for credit losses		60,585		61,580		60,030		53,235		56,283		55,940
Noninterest Income
Wealth management		2,270		2,458		2,475		2,600		2,561		2,779
Service charges on deposits		2,424		2,362		2,504		2,527		2,415		2,508
Secondary mortgage fees		59		76		66		58		50		65
Mortgage servicing rights mark to market (loss) gain		(525)		96		281		(1,277)		94		(238)
Mortgage servicing income		516		499		519		495		488		513
Net gain on sales of mortgage loans		306		398		407		366		314		468
Securities (losses) gains, net		(1,675)		(1,547)		(924)		(2)		1		-
Change in cash surrender value of BOLI		242		418		919		541		1,172		820
Death benefit realized on BOLI		-		-		-		-		-		893
Card related income		2,244		2,690		2,606		2,511		2,376		2,577
Other income		1,489		773		1,024		910		1,030		742
Total noninterest income		7,350		8,223		9,877		8,729		10,501		11,127
Noninterest Expense
Salaries and employee benefits		22,248		21,798		23,115		21,405		24,312		23,424
Occupancy, furniture and equipment		3,475		3,639		3,506		3,817		3,927		3,899
Computer and data processing		1,774		1,290		1,922		2,291		2,255		2,184
FDIC insurance		584		794		744		583		667		616
Net teller & bill paying		502		515		534		564		521		578
General bank insurance		305		306		300		301		309		312
Amortization of core deposit intangible		624		618		616		603		580		574
Advertising expense		142		103		93		383		192		472
Card related expense		1,216		1,222		1,347		1,338		1,277		1,323
Legal fees		319		283		97		228		226		238
Consulting & management fees		790		520		549		556		336		797
Other real estate expense, net		306		(98)		(27)		218		46		(87)
Other expense		3,637		3,840		4,627		4,739		3,593		3,547
Total noninterest expense		35,922		34,830		37,423		37,026		38,241		37,877
Income before income taxes		32,013		34,973		32,484		24,938		28,543		29,190
Provision for income taxes		8,406		9,411		8,149		6,713		7,231		7,299
Net income	$	23,607	$	25,562	$	24,335	$	18,225	$	21,312	$	21,891

Basic earnings per share (GAAP)	$	0.53	$	0.57	$	0.55	$	0.40	$	0.48	$	0.48
Diluted earnings per share (GAAP)		0.52		0.56		0.54		0.40		0.47		0.48
Dividends paid per share		0.05		0.05		0.05		0.05		0.05		0.05

Reconciliation of Non-GAAP Financial Measures

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


	Quarters Ended
	June 30,		March 31,		June 30,
	2024		2024		2023
Net Income
Income before income taxes (GAAP)	$	29,190	$	28,543	$	34,973
Pre-tax income adjustments:
Death benefit related to BOLI		(893)		-		-
Losses on branch sales, net		-		-		29
Adjusted net income before taxes		28,297		28,543		35,002
Taxes on adjusted net income		7,299		7,231		9,419
Adjusted net income (non-GAAP)	$	20,998	$	21,312	$	25,583

Basic earnings per share (GAAP)	$	0.48	$	0.48	$	0.57
Diluted earnings per share (GAAP)		0.48		0.47		0.56
Adjusted basic earnings per share (non-GAAP)		0.46		0.48		0.58
Adjusted diluted earnings per share (non-GAAP)		0.46		0.47		0.56


	Quarters Ended
	June 30,			March 31,			June 30,
	2024			2024			2023
Net Interest Margin
Interest income (GAAP)	$	73,223		$	73,330		$	73,886
Taxable-equivalent adjustment:
Loans		10			11			11
Securities		344			347			355
Interest income (TE)		73,577			73,688			74,252
Interest expense (GAAP)		13,533			13,547			10,306
Net interest income (TE)	$	60,044		$	60,141		$	63,946
Net interest income (GAAP)	$	59,690		$	59,783		$	63,580
Average interest earning assets	$	5,216,248		$	5,282,153		$	5,529,204
Net interest margin (TE)		4.63	%		4.58	%		4.64	%
Net interest margin (GAAP)		4.60	%		4.55	%		4.61	%


	GAAP									Non-GAAP
		Three Months Ended									Three Months Ended
	June 30,			March 31,			June 30,			June 30,			March 31,			June 30,
	2024			2024			2023			2024			2024			2023
Efficiency Ratio / Adjusted Efficiency Ratio

Noninterest expense	$	37,877		$	38,241		$	34,830		$	37,877		$	38,241		$	34,830
Less amortization of core deposit		574			580			618			574			580			618
Less other real estate expense, net		(87)			46			(98)			(87)			46			(98)
Less losses on branch sales, net		N/A			N/A			N/A			-			-			29
Noninterest expense less adjustments	$	37,390		$	37,615		$	34,310		$	37,390		$	37,615		$	34,281

Net interest income	$	59,690		$	59,783		$	63,580		$	59,690		$	59,783		$	63,580
Taxable-equivalent adjustment:
Loans		N/A			N/A			N/A			10			11			11
Securities		N/A			N/A			N/A			344			347			355
Net interest income including adjustments		59,690			59,783			63,580			60,044			60,141			63,946
Noninterest income		11,127			10,501			8,223			11,127			10,501			8,223
Less death benefit related to BOLI		893			-			-			893			-			-
Less securities gains (losses)		-			1			(1,547)			-			1			(1,547)
Less MSRs mark to market (losses) gains		(238)			94			96			(238)			94			96
Taxable-equivalent adjustment:
Change in cash surrender value of BOLI		N/A			N/A			N/A			456			311			111
Noninterest income (excluding) / including adjustments		10,472			10,406			9,674			10,928			10,717			9,785

Net interest income including adjustments plus noninterest income (excluding) / including adjustments	$	70,162		$	70,189		$	73,254		$	70,972		$	70,858		$	73,731
Efficiency ratio / Adjusted efficiency ratio		53.29	%		53.59	%		46.84	%		52.68	%		53.09	%		46.49	%

N/A - Not applicable.


	Quarters Ended
	June 30,			December 31,			June 30,
	2024			2023			2023
Return on Average Tangible Common Equity Ratio

Net income (GAAP)	$	21,891		$	21,312		$	25,562

Income before income taxes (GAAP)	$	29,190		$	28,543		$	34,973
Pre-tax income adjustments:
Amortization of core deposit intangibles		574			580			618
Net income, excluding intangibles amortization, before taxes		29,764			29,123			35,591
Taxes on net income, excluding intangible amortization, before taxes		7,443			7,378			9,577
Net income, excluding intangibles amortization (non-GAAP)	$	22,321		$	21,745		$	26,014


Total Average Common Equity	$	605,253			588,850		$	511,651
Less Average goodwill and intangible assets		96,817			97,390			99,186
Average tangible common equity (non-GAAP)	$	508,436		$	491,460		$	412,465


Return on average common equity (GAAP)		14.55	%		14.56	%		20.04	%
Return on average tangible common equity (non-GAAP)		17.66	%		17.80	%		25.30	%