Old Second Bancorp 8K Results of Operations and Financial Condition | OSBC 16 Oct 24



(NASDAQ:OSBC)		Exhibit 99.1

Contact:	Bradley S. Adams	For Immediate Release
	Chief Financial Officer	October 16, 2024
	(630) 906-5484

Old Second Bancorp, Inc. Reports Third Quarter 2024 Net Income of $23.0 Million,

or $0.50 per Diluted Share

AURORA, IL, October 16, 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 third quarter of 2024. Our net income was $23.0 million, or $0.50 per diluted share, for the third quarter of 2024, compared to net income of $21.9 million, or $0.48 per diluted share, for the second quarter of 2024, and net income of $24.3 million, or $0.54 per diluted share, for the third quarter of 2023. Adjusted net income, a non-GAAP financial measure that excludes certain nonrecurring items, as applicable, was $23.3 million, or $0.51 per diluted share, for the third quarter of 2024, compared to $21.0 million, or $0.46 per diluted share, for the second quarter of 2024, and $24.8 million, or $0.55 per share, for the third quarter of 2023. Adjusting items impacting the third quarter of 2024 included $471,000 of transaction-related expenses due to the pending purchase of five branches from First Merchants Bank (“FRME”), which is expected to close near year-end 2024. The adjusting item impacting the second quarter of 2024 was an $893,000 death benefit related to BOLI; the adjusting item impacting the third quarter of 2023 results included $629,000 of deconversion and liquidation costs from the 2022 sale of our Visa credit card portfolio. 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 $1.1 million in the third quarter of 2024 compared to the second quarter of 2024. The increase was primarily due to a $1.8 million decrease in provision for credit losses. Credit quality stabilized this quarter and we recorded net recoveries of $155,000, compared to net charge-offs of $5.8 million in the second quarter of 2024, and $6.6 million in the prior year like quarter. In addition, net interest and dividend income increased $888,000 in the third quarter of 2024, compared to the prior linked quarter, and a $399,000 decrease in provision for income taxes was recorded, partially offset by a $546,000 decrease in noninterest income and a $1.4 million increase in noninterest expense. Net income decreased $1.4 million in the third quarter of 2024 compared to the third quarter of 2023, primarily due to a decrease in net interest income of $2.5 million year over year driven by a $4.3 million increase to interest expense as a result of higher interest rates offered on deposits, partially offset by a $1.8 million increase in interest and dividend income.

Operating Results

●

Third quarter 2024 net income was $23.0 million, reflecting a $1.1 million increase from the second quarter of 2024, and a decrease of $1.4 million from the third quarter of 2023. Adjusted net income, as defined above, was $23.3 million for the third quarter of 2024, an increase of $2.3 million from adjusted net income for the second quarter of 2024, and a decrease of $1.5 million from adjusted net income for the third quarter of 2023.

●

Net interest and dividend income was $60.6 million for the third quarter of 2024, reflecting an increase of $888,000, or 1.5%, from the second quarter of 2024, and a decrease of $2.5 million, or 3.9%, from the third quarter of 2023.

●

We recorded a net provision for credit losses of $2.0 million in the third quarter of 2024 compared to a net provision for credit losses of $3.8 million in the second quarter of 2024, and a net provision for credit losses of $3.0 million in the third quarter of 2023.

●

Noninterest income was $10.6 million for the third quarter of 2024, a decrease of $546,000, or 4.9%, compared to $11.1 million for the second quarter of 2024, and an increase of $704,000, or 7.1%, compared to $9.9 million for the third quarter of 2023. A $12,000 adjustment to the death benefit on a BOLI contract was recorded in the third quarter of 2024; the majority of these proceeds were received in the second quarter of 2024. Also, a $1,000 loss on the call of a security was recorded in the third quarter of 2024, compared to $924,000 of securities losses, net, recorded in the third quarter of 2023.

●

Noninterest expense was $39.3 million for the third quarter of 2024, an increase of $1.4 million, or 3.8%, compared to $37.9 million for the second quarter of 2024, and an increase of $1.9 million, or 5.0%, compared to $37.4 million for the third quarter of 2023.

●

We had a provision for income tax of $6.9 million for the third quarter of 2024, compared to a provision for income tax of $7.3 million for the second quarter of 2024 and a provision of $8.1 million for the third quarter of 2023. The effective tax rate for each of the periods presented was 23.1%, 25.0%, and 25.1%, respectively. The reduction in the effective tax rate in the third quarter of 2024 reflects the new state ruling regarding tax rate apportionment factors related to income generated from securities or loans originated in other states.

●

On October 15, 2024, our Board of Directors declared a cash dividend of $0.06 per share of common stock, payable on November 4, 2024, to stockholders of record as of October 25, 2024.

Financial Highlights


	Quarters Ended
(Dollars in thousands)	September 30,			June 30,			September 30,
	2024			2024			2023
Balance sheet summary
Total assets	$	5,671,760		$	5,662,700		$	5,758,156
Total securities available-for-sale		1,190,854			1,173,661			1,229,618
Total loans		3,991,078			3,976,595			4,029,543
Total deposits		4,465,424			4,521,728			4,614,320
Total liabilities		5,010,370			5,043,365			5,225,598
Total equity		661,390			619,335			532,558

Total tangible assets	$	5,575,789		$	5,566,159		$	5,659,858
Total tangible equity		565,419			522,794			434,260

Income statement summary
Net interest income	$	60,578		$	59,690		$	63,030
Provision for credit losses		2,000			3,750			3,000
Noninterest income		10,581			11,127			9,877
Noninterest expense		39,308			37,877			37,423
Net income		22,951			21,891			24,335
Effective tax rate		23.11	%		25.01	%		25.09	%

Profitability ratios
Return on average assets (ROAA)		1.63	%		1.57	%		1.67	%
Return on average equity (ROAE)		14.29			14.55			18.21
Net interest margin (tax-equivalent)		4.64			4.63			4.66
Efficiency ratio		53.38			53.29			50.08
Return on average tangible common equity (ROATCE) ¹		17.14			17.66			22.80
Tangible common equity to tangible assets (TCE/TA)		10.14			9.39			7.67

Per share data
Diluted earnings per share	$	0.50		$	0.48		$	0.54
Tangible book value per share		12.61			11.66			9.72

Company capital ratios²
Common equity tier 1 capital ratio		12.86	%		12.41	%		11.00	%
Tier 1 risk-based capital ratio		13.39			12.94			11.52
Total risk-based capital ratio		15.62			15.12			13.84
Tier 1 leverage ratio		11.38			10.96			9.62

Bank capital ratios ^{2, 3}
Common equity tier 1 capital ratio		13.49	%		13.50	%		12.49	%
Tier 1 risk-based capital ratio		13.49			13.50			12.49
Total risk-based capital ratio		14.45			14.42			13.57
Tier 1 leverage ratio		11.46			11.43			10.43

¹See 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.

²Both 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.

³The 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 third quarter of 2024 with exceptional profitability and positive trends in a number of verticals. Tangible book value per share increased by more than thirty percent on both a year over year and linked quarter annualized basis. Problem loan levels are continuing to trend in the right direction and we remain pleased with the progress thus far in resolving a number of loans identified in prior periods despite ongoing stress in a number of real estate focused lending verticals. On an overall basis, Old Second continues to perform exceptionally well with peer-leading performance in our net interest margin and profitability. Third quarter return on average assets and return on average tangible common equity were 1.63% and 17.14%, respectively, the net interest margin was stable at 4.64% and the efficiency ratio is a very healthy 53.38%. This strong bottom-line performance and a well-positioned balance sheet drove an increase in the tangible common equity capital ratio to 10.14% from 9.39% last quarter. In light of the strength of the balance sheet and resilient income statement trends, Old Second elected in the fourth quarter of 2024 to increase the common dividend by 20%, and we will strive to continue to regularly deliver dividend growth commensurate with the strength and growth of the bank. In summary, we are proud of the sustainability of our performance this year and believe we are 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 $52.3 million at September 30, 2024, $46.9 million at June 30, 2024, and $63.3 million at September 30, 2023. Nonperforming loans, as a percent of total loans, were 1.3% at September 30, 2024, 1.2% at June 30, 2024, and 1.6% at September 30, 2023. The increase in the third quarter of 2024 is driven by inflows of $18.7 million, $13.8 million of which was from one commercial relationship. These inflows were partially offset by $13.3 million of outflows. Nonaccrual loans had $8.5 million of outflows, which consists of $6.2 million paid off, $1.3 million transferred to OREO, $912,000 of partial principal reductions from payments, and $99,000 was charged-off. Outflows for loans past due 90 days or more and still accruing were $4.8 million, due to a loan which paid off.

●

Total loans were $3.99 billion at September 30, 2024, reflecting an increase of $14.5 million compared to June 30, 2024, and a decrease of $38.5 million compared to September 30, 2023. The decrease year over year was largely driven by the declines in commercial, commercial real estate-investor and residential real estate-owner occupied portfolios. Average loans (including loans held-for-sale) for the third quarter of 2024 totaled $3.97 billion, reflecting an increase of $8.2 million from the second quarter of 2024 and a decrease of $44.1 million from the third quarter of 2023.

●

Available-for-sale securities totaled $1.19 billion at September 30, 2024, compared to $1.17 billion at June 30, 2024 and $1.23 billion at September 30, 2023. The unrealized mark to market loss on securities totaled $56.2 million as of September 30, 2024, compared to $82.6 million as of June 30, 2024, and $120.5 million as of September 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 September 30, 2024, we had security purchases of $22.7 million, and security calls and paydowns of $31.3 million, compared to security purchases of $142.2 million, security maturities of $95.0 million, and paydowns of $44.0 million during the quarter ended June 30, 2024. During the quarter ended September 30, 2023, we had no security purchases, $30.5 million of security paydowns, calls and maturities, and security sales of $65.6 million, which resulted in net realized losses of $924,000. 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
	September 30, 2024						June 30, 2024						September 30, 2023
	Average			Income /		Rate	Average			Income /		Rate	Average			Income /		Rate
	Balance			Expense		%	Balance			Expense		%	Balance			Expense		%
Assets
Interest earning deposits with financial institutions	$	48,227		$	616	5.08	$	50,740		$	625	4.95	$	49,737		$	659	5.26
Securities:
Taxable		1,010,379			9,113	3.59		1,016,187			8,552	3.38		1,125,688			8,946	3.15
Non-taxable (TE)¹		163,569			1,634	3.97		163,243			1,636	4.03		169,523			1,687	3.95
Total securities (TE)¹		1,173,948			10,747	3.64		1,179,430			10,188	3.47		1,295,211			10,633	3.26
FHLBC and FRBC Stock		30,268			497	6.53		27,574			584	8.52		35,954			597	6.59
Loans and loans held-for-sale^{1, 2}		3,966,717			64,566	6.48		3,958,504			62,180	6.32		4,010,859			62,705	6.20
Total interest earning assets		5,219,160			76,426	5.83		5,216,248			73,577	5.67		5,391,761			74,594	5.49
Cash and due from banks		54,279			-	-		54,286			-	-		57,279			-	-
Allowance for credit losses on loans		(42,683)			-	-		(43,468)			-	-		(54,581)			-	-
Other noninterest bearing assets		384,386			-	-		388,392			-	-		384,059			-	-
Total assets	$	5,615,142					$	5,615,458					$	5,778,518

Liabilities and Stockholders' Equity
NOW accounts	$	553,906		$	714	0.51	$	570,523		$	639	0.45	$	576,138		$	440	0.30
Money market accounts		693,315			3,260	1.87		691,214			2,915	1.70		720,488			1,767	0.97
Savings accounts		895,086			886	0.39		934,161			763	0.33		1,027,987			351	0.14
Time deposits		651,663			5,539	3.38		610,705			4,961	3.27		466,250			1,982	1.69
Interest bearing deposits		2,793,970			10,399	1.48		2,806,603			9,278	1.33		2,790,863			4,540	0.65
Securities sold under repurchase agreements		45,420			93	0.81		37,430			83	0.89		24,945			27	0.43
Other short-term borrowings		305,489			4,185	5.45		242,912			3,338	5.53		427,174			5,840	5.42
Junior subordinated debentures		25,773			270	4.17		25,773			288	4.49		25,773			245	3.77
Subordinated debentures		59,436			547	3.66		59,414			546	3.70		59,350			547	3.66
Senior notes		-			-	-		-			-	-		-			-	-
Notes payable and other borrowings		-			-	-		-			-	-		-			-	-
Total interest bearing liabilities		3,230,088			15,494	1.91		3,172,132			13,533	1.72		3,328,105			11,199	1.34
Noninterest bearing deposits		1,691,450			-	-		1,769,543			-	-		1,867,201			-	-
Other liabilities		54,453			-	-		68,530			-	-		53,164			-	-
Stockholders' equity		639,151			-	-		605,253			-	-		530,048			-	-
Total liabilities and stockholders' equity	$	5,615,142					$	5,615,458					$	5,778,518
Net interest income (GAAP)				$	60,578					$	59,690					$	63,030
Net interest margin (GAAP)						4.62						4.60						4.64

Net interest income (TE)¹				$	60,932					$	60,044					$	63,395
Net interest margin (TE)¹						4.64						4.63						4.66
Interest bearing liabilities to earning assets		61.89	%					60.81	%					61.73	%

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 $155,000 for the third quarter of 2024, loan fee expense of $936,000 for the second quarter of 2024, and loan fee expense of $780,000 for the third quarter of 2023. Nonaccrual loans are included in the above stated average balances.

The increased yield of 16 basis points on interest earning assets compared to the linked period was driven by repricing within the loan and taxable securities portfolios. 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 34 basis points on interest earning assets was primarily driven by overall increases to benchmark interest rates over the past twelve months, primarily impacting variable rate loans and securities. Average balances of securities available for sale decreased $121.3 million in the third quarter of 2024 compared to the prior year like quarter, while the tax equivalent yield on the securities available for sale portfolio increased 38 basis points year over year due to variable security rate resets.

Average balances of interest-bearing deposit accounts have decreased steadily since the second quarter of 2024 through the third quarter of 2024, from $2.81 billion to $2.79 billion, as NOW, money market, and savings account average balances decreased while time deposits average balances increased due to CD rate specials. We have continued to control the cost of funds over the periods reflected by slowing the pace of change, however the rate of overall interest-bearing deposits increased to 148 basis points for the quarter ended September 30, 2024, from 133 basis points for the quarter ended June 30, 2024, and from 65 basis points for the quarter ended September 30, 2023. A 17 basis point increase in the cost of money market funds for the quarter ended September 30, 2024 compared to the prior linked quarter, and a 90 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. Although there was a decrease in transactional account average balances from the prior year like quarter for NOW, and savings accounts, average rates paid on these balances increased. Average rates paid on time deposits for the quarter ended September 30, 2024 increased by 11 basis points and 169 basis points in the quarter over linked quarter and year over year quarters, respectively, primarily due to CD rate specials we offered.

Borrowing costs increased in the third quarter of 2024, compared to the second quarter of 2024, primarily due to the $62.6 million increase in average other short-term borrowings stemming from an increase in average daily FHLB advances over the prior quarter. The decrease of $121.7 million year over year of average FHLB advances was based on daily liquidity needs, and was the primary driver of the $1.7 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.

Our net interest margin, for both GAAP and TE presentations, was relatively static over the periods presented above. The impact of the Federal Reserve Bank (Federal Open Market Committee, or “FOMC”) fed funds rate reduction made in mid-September 2024 will not have a material impact on our financials until 30-, 60-, and 90-day rate resets are reached on our securities and loans, and deposit exception pricing is lowered. Our net interest margin (GAAP) increased two basis points to 4.62% for the third quarter of 2024, compared to 4.60% for the second quarter of 2024, and decreased two basis point compared to 4.64% for the third quarter of 2023. Our net interest margin (TE) increased one basis point to 4.64% for the third quarter of 2024, compared to 4.63% for the second quarter of 2024, and decreased two basis points compared to 4.66% for the third quarter of 2023. The increase in the third quarter of 2024, compared to the prior quarter, was driven by market interest rates as well as the composition of assets and liabilities as interest income and expense both increased compared to the prior quarter while there was only a $2.9 million increase in interest earning assets. The net interest margin decrease in the third 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


								3rd Quarter 2024
Noninterest Income	Three Months Ended						Percent Change From
(Dollars in thousands)	September 30,		June 30,		September 30,			June 30,	September 30,
	2024		2024		2023			2024	2023
Wealth management	$	2,787	$	2,779	$	2,475		0.3	12.6
Service charges on deposits		2,646		2,508		2,504		5.5	5.7
Residential mortgage banking revenue
Secondary mortgage fees		84		65		66		29.2	27.3
MSRs mark to market (loss) gain		(964)		(238)		281		(305.0)	(443.1)
Mortgage servicing income		466		513		519		(9.2)	(10.2)
Net gain on sales of mortgage loans		507		468		407		8.3	24.6
Total residential mortgage banking revenue		93		808		1,273		(88.5)	(92.7)
Securities losses, net		(1)		-		(924)		N/M	N/M
Change in cash surrender value of BOLI		860		820		919		4.9	(6.4)
Death benefit realized on BOLI		12		893		-		(98.7)	N/M
Card related income		2,589		2,577		2,606		0.5	(0.7)
Other income		1,595		742		1,024		115.0	55.8
Total noninterest income	$	10,581	$	11,127	$	9,877		(4.9)	7.1

N/M - Not meaningful.

Noninterest income decreased $546,000, or 4.9%, in the third quarter of 2024, compared to the second quarter of 2024, and increased $704,000, or 7.1%, compared to the third quarter of 2023. The decrease from the second quarter of 2024 was primarily driven by a $715,000 decrease in residential mortgage banking revenue primarily due to a decrease of $726,000 in MSRs mark to market valuation. Also contributing to the decrease during the quarter was the $893,000 death benefit realized on BOLI that was recorded in the second quarter of 2024; the third quarter BOLI death benefit of $12,000 reflected a minor true-up to proceeds actually received. Partially offsetting the decrease in noninterest income from the prior quarter was a $138,000 increase in service charges on deposits, a $40,000 increase in the cash surrender value of BOLI, and an $853,000 increase in other income primarily due to a $245,000 refund received from a vendor with whom we cancelled services, a $155,000 recognition of a refund related to the advance reserves held for our VISA card portfolio which was sold in 2023, and a $78,000 incentive bonus from a vendor for certain transactional levels being attained.

The increase in noninterest income of $704,000 in the third quarter of 2024, compared to the third quarter of 2023, is primarily due to a $312,000 increase in wealth management income primarily due to growth in advisory fees, a $142,000 increase in service charges on deposits, a $1,000 loss on the call of securities in the third quarter of 2024 compared to losses on the sale of securities of $924,000 in the third quarter of 2023 and a $571,000 increase in other income due to a $245,000 refund received from a vendor due to cancellation of services, a $155,000 recognition of a refund related to the sold VISA credit card advance reserves, and a $78,000 incentive bonus from a vendor based on certain transactional levels which were attained. These increases were partially offset by a $1.2 million decrease in residential mortgage banking revenue mainly due to a decrease of $1.2 million in MSRs mark to market valuation, and a $59,000 decrease in the cash surrender value of BOLI due to changes in market interest rates.

Noninterest Expense


										3rd Quarter 2024
Noninterest Expense	Three Months Ended									Percent Change From
(Dollars in thousands)	September 30,			June 30,			September 30,			June 30,	September 30,
	2024			2024			2023			2024	2023
Salaries	$	17,665		$	17,997		$	17,279		(1.8)	2.2
Officers' incentive		2,993			1,482			2,773		102.0	7.9
Benefits and other		4,018			3,945			3,063		1.9	31.2
Total salaries and employee benefits		24,676			23,424			23,115		5.3	6.8
Occupancy, furniture and equipment expense		3,876			3,899			3,506		(0.6)	10.6
Computer and data processing		2,375			2,184			1,922		8.7	23.6
FDIC insurance		632			616			744		2.6	(15.1)
Net teller & bill paying		570			578			534		(1.4)	6.7
General bank insurance		320			312			300		2.6	6.7
Amortization of core deposit intangible asset		570			574			616		(0.7)	(7.5)
Advertising expense		299			472			93		(36.7)	221.5
Card related expense		1,458			1,323			1,347		10.2	8.2
Legal fees		202			238			97		(15.1)	108.2
Consulting & management fees		480			797			549		(39.8)	(12.6)
Other real estate owned expense, net		242			(87)			(27)		N/M	N/M
Other expense		3,608			3,547			4,627		1.7	(22.0)
Total noninterest expense	$	39,308		$	37,877		$	37,423		3.8	5.0
Efficiency ratio (GAAP)¹		53.38	%		53.29	%		50.08	%
Adjusted efficiency ratio (non-GAAP)²		52.31	%		52.68	%		48.82	%

N/M - Not meaningful.

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, acquisition expense, and liquidation and deconversion costs of the sold Visa card portfolio, 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 17 that provides a reconciliation of this non-GAAP financial measure to the most comparable GAAP equivalent.

Noninterest expense for the third quarter of 2024 increased $1.4 million, or 3.8%, compared to the second quarter of 2024, and increased $1.9 million, or 5.0%, compared to the third quarter of 2023. The increase in the third quarter of 2024 compared to the second quarter of 2024 was attributable to a $1.3 million increase in salaries and employee benefits, with increases reflected primarily in officers’ incentives due to a higher projection of year end accruals based on our bank’s performance, and deferred executive compensation due to changes in market interest rates. Also contributing to the growth in noninterest expense in the third quarter of 2024 was a $191,000 increase in computer and data processing expenses due to transaction-related costs incurred related to our pending purchase of five bank branches from FRME, a $135,000 increase in card related expenses, and a $329,000 increase 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; no like gain was recorded in the third quarter of 2024. Partially offsetting the increases in noninterest expense in the third quarter of 2024 compared to the second quarter of 2024 was a $173,000 decrease in advertising expense primarily due to an overdraft disclosure mailed to retail deposit customers during the second quarter of 2024, a $36,000 decrease in legal fees, and a $317,000 decrease in consulting & management fees as the second quarter of 2024 included costs of a one-time compliance review project.

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 $370,000 increase in occupancy, furniture and equipment due to facilities improvements year over year, a $453,000 increase in computer and data processing primarily due to transaction-related costs incurred related to our pending branch purchase from FRME, a $206,000 increase in advertising expense, a $111,000 increase in card related expense, a $105,000 increase in legal fees mainly due to FRME merger-related costs, and a $269,000 increase in OREO related expenses. Partially offsetting the increases in noninterest expense in the third quarter of 2024, compared to the third quarter of 2023, was a $112,000 decrease in FDIC insurance, and a $1.0 million decrease in other expenses primarily due to $629,000 of liquidation costs recorded in the third quarter of 2023 from the September 2023 Visa credit card portfolio servicing deconversion.

Earning Assets


							September 30, 2024
Loans	As of						Percent Change From
(Dollars in thousands)	September 30,		June 30,		September 30,		June 30,	September 30,
	2024		2024		2023		2024	2023
Commercial	$	814,668	$	809,443	$	834,877	0.6	(2.4)
Leases		458,317		452,957		354,827	1.2	29.2
Commercial real estate – investor		1,045,060		1,014,345		1,047,122	3.0	(0.2)
Commercial real estate – owner occupied		718,265		745,938		809,050	(3.7)	(11.2)
Construction		206,458		185,634		202,546	11.2	1.9
Residential real estate – investor		50,332		50,371		53,762	(0.1)	(6.4)
Residential real estate – owner occupied		208,227		218,974		227,446	(4.9)	(8.4)
Multifamily		375,394		388,743		372,020	(3.4)	0.9
HELOC		102,611		99,037		102,055	3.6	0.5
Other¹		11,746		11,153		25,838	5.3	(54.5)
Total loans	$	3,991,078	$	3,976,595	$	4,029,543	0.4	(1.0)

¹Other class includes consumer loans and overdrafts.

Total loans increased by $14.5 million at September 30, 2024, compared to June 30, 2024, and decreased $38.5 million for the year over year period. The increase in total loans in the third quarter of 2024 compared to the prior linked quarter was due to increased originations, net of paydowns, over the third quarter, primarily in commercial real estate-investor and construction loans. The year over year reductions in loans is primarily due to paydowns, net of originations, in commercial real estate – owner occupied of $90.8 million, commercial of $20.2 million, real estate �� owner occupied of $19.2 million, offset by lease originations, net of paydowns, of $103.5 million and a slower pace origination in the portfolio. Increases were noted in the leases segment in the third quarter of 2024 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.


							September 30, 2024
Securities	As of						Percent Change From
(Dollars in thousands)	September 30,		June 30,		September 30,		June 30,	September 30,
	2024		2024		2023		2024	2023
Securities available-for-sale, at fair value
U.S. Treasury	$	194,188	$	191,274	$	216,777	1.5	(10.4)
U.S. government agencies		37,976		37,298		55,821	1.8	(32.0)
U.S. government agency mortgage-backed		96,413		96,872		104,569	(0.5)	(7.8)
States and political subdivisions		224,795		220,265		218,254	2.1	3.0
Corporate bonds		-		-		4,961	-	(100.0)
Collateralized mortgage obligations		384,271		386,055		386,679	(0.5)	(0.6)
Asset-backed securities		63,947		64,877		68,762	(1.4)	(7.0)
Collateralized loan obligations		189,264		177,020		173,795	6.9	8.9
Total securities available-for-sale	$	1,190,854	$	1,173,661	$	1,229,618	1.5	(3.2)

Our securities available-for-sale portfolio totaled $1.19 billion as of September 30, 2024, reflecting an increase of $17.2 million from June 30, 2024, and a decrease of $38.8 million since September 30, 2023. The portfolio’s increase in the third quarter of 2024, compared to the prior quarter-end, was due to purchases of $22.7 million, primarily consisting of collateralized loan obligations and collateralized mortgage obligations, as well as a decrease in unrealized loss of $26.4 million, partially offset by $31.3 million in paydowns and calls. Net unrealized losses at September 30, 2024 were $56.2 million, compared to $82.6 million at June 30, 2024 and $120.5 million at September 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 paydowns and purchases 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


										September 30, 2024
Nonperforming assets	As of									Percent Change From
(Dollars in thousands)	September 30,			June 30,			September 30,			June 30,	September 30,
	2024			2024			2023			2024	2023
Nonaccrual loans	$	52,171		$	41,957		$	62,116		24.3	(16.0)
Loans past due 90 days or more and still accruing interest		109			4,909			1,209		(97.8)	(91.0)
Total nonperforming loans		52,280			46,866			63,325		11.6	(17.4)
Other real estate owned		8,202			6,920			407		18.5	N/M
Total nonperforming assets	$	60,482		$	53,786		$	63,732		12.4	(5.1)



30-89 days past due loans and still accruing interest	$	28,480		$	16,728		$	28,486
Nonaccrual loans to total loans		1.3	%		1.1	%		1.5	%
Nonperforming loans to total loans		1.3	%		1.2	%		1.6	%
Nonperforming assets to total loans plus OREO		1.5	%		1.4	%		1.6	%
Purchased credit-deteriorated loans to total loans		0.4	%		0.8	%		1.5	%

Allowance for credit losses	$	44,422		$	42,269		$	51,729
Allowance for credit losses to total loans		1.1	%		1.1	%		1.3	%
Allowance for credit losses to nonaccrual loans		85.1	%		100.7	%		83.3	%

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 $17.9 million, net of purchase accounting adjustments, at September 30, 2024. PCD loans that meet the definition of nonperforming loans are included in our nonperforming disclosures. Nonperforming loans to total loans was 1.3% as of September 30, 2024, 1.2% as of June 30, 2024, and 1.6% as of September 30, 2023. Nonperforming assets to total loans plus OREO was 1.5% as of September 30, 2024, 1.4% as of June 30, 2024, and 1.6% as of September 30, 2023. Our allowance for credit losses to total loans was 1.1% as of September 30, 2024 and June 30, 2024, and 1.3% as of September 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.


							September 30, 2024
Classified loans	As of						Percent Change From
(Dollars in thousands)	September 30,		June 30,		September 30,		June 30,	September 30,
	2024		2024		2023		2024	2023
Commercial	$	35,043	$	19,142	$	18,298	83.1	91.5
Leases		746		284		574	162.7	30.0
Commercial real estate – investor		21,652		36,939		54,126	(41.4)	(60.0)
Commercial real estate – owner occupied		41,820		48,387		55,292	(13.6)	(24.4)
Construction		5,765		5,740		17,263	0.4	(66.6)
Residential real estate – investor		1,180		1,343		1,502	(12.1)	(21.4)
Residential real estate – owner occupied		2,612		2,734		3,627	(4.5)	(28.0)
Multifamily		3,269		6,810		1,141	(52.0)	186.5
HELOC		736		1,025		1,434	(28.2)	(48.7)
Other¹		-		1		-	(100.0)	N/M
Total classified loans	$	112,823	$	122,405	$	153,257	(7.8)	(26.4)

N/M - Not meaningful.

¹Other class includes consumer loans and overdrafts.

Classified loans as of September 30, 2024 decreased by $9.6 million from June 30, 2024, and decreased by $40.4 million from September 30, 2023. The net decrease from the second quarter of 2024 was primarily driven by outflows of $20.8 million of loan upgrades, $20.7 million of paid off loans, $2.5 million of principal reductions from payments, $1.3 million transferred to OREO, and $99,000 of loan charge offs. The decrease in classified loans in the third quarter was offset by additions of $35.6 million, primarily consisting of nine separate relationships, totaling $19.8 million, and five commercial real estate – owner occupied loans totaling $14.2 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 September 30, 2024, our allowance for credit losses (“ACL”) on loans totaled $44.4 million, and our ACL on unfunded commitments, included in other liabilities, totaled $2.5 million. In the third quarter of 2024, we recorded provision expense of $2.0 million based on historical loss rate updates, our assessment of nonperforming loan metrics and trends, as well as estimated future credit losses. The third quarter’s provision expense consisted of a $2.0 million provision for credit losses on loans, and a $2,000 provision for credit losses on unfunded commitments. The increase in ACL on unfunded commitments was primarily due to an adjustment of historical benchmark assumptions, such as funding rates and the period used to forecast those rates, within the ACL calculation. We recorded net recoveries of $155,000 in the third quarter of 2024 primarily within the commercial real estate portfolio. The second quarter 2024 provision expense of $3.8 million 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. We recorded net charge-offs of $5.8 million in the second quarter of 2024. In the third quarter of 2023, we recorded provision expense of $3.0 million, which consisted of a $3.0 million provision for credit losses on loans and a $11,000 reversal of provision for credit losses on unfunded commitments. We recorded net charge-offs of $6.6 million in the third quarter of 2023. Our ACL on loans to total loans was 1.1% as of September 30, 2024 and June 30, 2024, and 1.3% as of September 30, 2023.

The ACL on unfunded commitments totaled $2.5 million as of September 30, 2024 and June 30, 2024, and $2.9 million as of September 30, 2023.

Net Charge-off Summary


Loan charge–offs, net of recoveries	Quarters Ended
(Dollars in thousands)	September 30,		% of	June 30,		% of	September 30,		% of
	2024		Total ²	2024		Total ²	2023		Total ²
Commercial	$	(7)	4.5	$	(19)	(0.3)	$	8	0.1
Leases		53	(34.2)		81	1.4		(95)	(1.4)
Commercial real estate – Investor		(149)	96.1		4,560	78.7		6,754	102.4
Commercial real estate – Owner occupied		(44)	28.4		1,162	20.1		23	0.3
Construction		-	-		-	-		(100)	(1.5)
Residential real estate – Investor		(18)	11.6		(3)	(0.1)		(3)	-
Residential real estate – Owner occupied		(11)	7.1		(9)	(0.2)		(25)	(0.4)
HELOC		(14)	9.0		(15)	(0.3)		(35)	(0.5)
Other¹		35	(22.5)		37	0.7		70	1.0
Net charge–offs / (recoveries)	$	(155)	100.0	$	5,794	100.0	$	6,597	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 third quarter of 2024 were $165,000, compared to $6.0 million for the second quarter of 2024 and $6.9 million for the third quarter of 2023. Gross recoveries were $320,000 for the third quarter of 2024, compared to $217,000 for the second quarter of 2024, and $339,000 for the third 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 $4.47 billion at September 30, 2024, a decrease of $56.3 million, or 1.2%, compared to $4.52 billion at June 30, 2024, primarily due to a decrease in noninterest bearing deposits of $59.5 million driven by a few larger customers, a decrease of $22.9 million in savings, and a decrease of $12.8 million in NOW and money market accounts. These declines were partially offset by an increase in time deposits of $38.9 million, primarily due to CD specials offered. Total quarterly average deposits for the year over year period decreased $172.6 million, or 3.7%, driven by declines in our average demand deposits of $175.8 million, and savings, NOW and money markets combined of $182.3 million, partially offset by an increase of $185.4 in average time deposits. The decline in total deposits in the third quarter of 2024 was less than the decline in the third quarter of 2023, and third quarter declines in deposit balances for both 2024 and 2023 were primarily due to depositor real estate tax payments and other seasonal reductions.

Borrowings

As of September 30, 2024, we had $335.0 million in other short-term borrowings due to short-term FHLB advances, compared to $330.0 million at June 30, 2024, and $435.0 million as of September 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 pending or 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, October 17, 2024, at 10:00 a.m. Eastern Time (9:00 a.m. Central Time) to discuss our third quarter 2024 financial results. Investors may listen to our call via telephone by dialing 888-506-0062, using Entry Code: 232873. 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 October 24, 2024, by dialing 877-481-4010, using Conference ID: 51325.

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands)


	(unaudited)
	September 30,		December 31,
	2024		2023
Assets
Cash and due from banks	$	63,298	$	55,534
Interest earning deposits with financial institutions		52,469		44,611
Cash and cash equivalents		115,767		100,145
Securities available-for-sale, at fair value		1,190,854		1,192,829
Federal Home Loan Bank Chicago (“FHLBC”) and Federal Reserve Bank Chicago (“FRBC”) stock		30,205		33,355
Loans held-for-sale		2,447		1,322
Loans		3,991,078		4,042,953
Less: allowance for credit losses on loans		44,422		44,264
Net loans		3,946,656		3,998,689
Premises and equipment, net		82,768		79,310
Other real estate owned		8,202		5,123
Mortgage servicing rights, at fair value		9,726		10,344
Goodwill		86,478		86,478
Core deposit intangible		9,493		11,217
Bank-owned life insurance (“BOLI”)		111,394		109,318
Deferred tax assets, net		22,032		31,077
Other assets		55,738		63,592
Total assets	$	5,671,760	$	5,722,799

Liabilities
Deposits:
Noninterest bearing demand	$	1,669,000	$	1,834,891
Interest bearing:
Savings, NOW, and money market		2,125,696		2,207,949
Time		670,728		527,906
Total deposits		4,465,424		4,570,746
Securities sold under repurchase agreements		53,866		26,470
Other short-term borrowings		335,000		405,000
Junior subordinated debentures		25,773		25,773
Subordinated debentures		59,446		59,382
Other liabilities		70,861		58,147
Total liabilities		5,010,370		5,145,518

Stockholders’ Equity
Common stock		44,908		44,705
Additional paid-in capital		204,969		202,223
Retained earnings		452,745		393,311
Accumulated other comprehensive loss		(40,400)		(62,781)
Treasury stock		(832)		(177)
Total stockholders’ equity		661,390		577,281
Total liabilities and stockholders’ equity	$	5,671,760	$	5,722,799

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

(In thousands, except share data)


	(unaudited)				(unaudited)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Interest and dividend income
Loans, including fees	$	64,528	$	62,665	$	189,352	$	181,436
Loans held-for-sale		27		29		60		60
Securities:
Taxable		9,113		8,946		25,757		29,611
Tax exempt		1,291		1,333		3,889		4,007
Dividends from FHLBC and FRBC stock		497		597		1,716		1,273
Interest bearing deposits with financial institutions		616		659		1,851		1,887
Total interest and dividend income		76,072		74,229		222,625		218,274
Interest expense
Savings, NOW, and money market deposits		4,860		2,558		13,214		5,449
Time deposits		5,539		1,982		14,541		3,802
Securities sold under repurchase agreements		93		27		262		43
Other short-term borrowings		4,185		5,840		12,080		13,345
Junior subordinated debentures		270		245		838		805
Subordinated debentures		547		547		1,639		1,639
Senior notes		-		-		-		2,408
Notes payable and other borrowings		-		-		-		87
Total interest expense		15,494		11,199		42,574		27,578
Net interest and dividend income		60,578		63,030		180,051		190,696
Provision for credit losses		2,000		3,000		9,250		8,501
Net interest and dividend income after provision for credit losses		58,578		60,030		170,801		182,195
Noninterest income
Wealth management		2,787		2,475		8,127		7,203
Service charges on deposits		2,646		2,504		7,569		7,290
Secondary mortgage fees		84		66		199		201
Mortgage servicing rights mark to market (loss) gain		(964)		281		(1,108)		(148)
Mortgage servicing income		466		519		1,467		1,534
Net gain on sales of mortgage loans		507		407		1,289		1,111
Securities losses, net		(1)		(924)		-		(4,146)
Change in cash surrender value of BOLI		860		919		2,852		1,579
Death benefit realized on BOLI		12		-		905		-
Card related income		2,589		2,606		7,542		7,540
Other income		1,595		1,024		3,367		3,286
Total noninterest income		10,581		9,877		32,209		25,450
Noninterest expense
Salaries and employee benefits		24,676		23,115		72,412		67,161
Occupancy, furniture and equipment		3,876		3,506		11,702		10,620
Computer and data processing		2,375		1,922		6,814		4,986
FDIC insurance		632		744		1,915		2,122
Net teller & bill paying		570		534		1,669		1,551
General bank insurance		320		300		941		911
Amortization of core deposit intangible		570		616		1,724		1,858
Advertising expense		299		93		963		338
Card related expense		1,458		1,347		4,058		3,785
Legal fees		202		97		666		699
Consulting & management fees		480		549		1,613		1,859
Other real estate expense, net		242		(27)		201		181
Other expense		3,608		4,627		10,748		12,104
Total noninterest expense		39,308		37,423		115,426		108,175
Income before income taxes		29,851		32,484		87,584		99,470
Provision for income taxes		6,900		8,149		21,430		25,966
Net income	$	22,951	$	24,335	$	66,154	$	73,504

Basic earnings per share	$	0.52	$	0.55	$	1.48	$	1.65
Diluted earnings per share		0.50		0.54		1.45		1.62
Dividends declared per share		0.05		0.05		0.15		0.15


Ending common shares outstanding	44,851,091	44,684,987	44,851,091	44,684,987
Weighted-average basic shares outstanding	44,850,325	44,675,489	44,818,693	44,653,451
Weighted-average diluted shares outstanding	45,679,140	45,428,409	45,628,606	45,390,218

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		3rd Qtr
Cash and due from banks	$	55,140	$	56,191	$	57,279	$	57,723	$	54,533	$	54,286	$	54,279
Interest earning deposits with financial institutions		49,310		50,309		49,737		47,865		48,088		50,740		48,227
Cash and cash equivalents		104,450		106,500		107,016		105,588		102,621		105,026		102,506

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		1,173,948
FHLBC and FRBC stock		24,905		34,029		35,954		34,371		31,800		27,574		30,268
Loans held-for-sale		813		1,150		1,641		1,709		746		1,050		1,557
Loans		3,931,679		4,039,052		4,009,218		4,014,771		4,018,631		3,957,454		3,965,160
Less: allowance for credit losses on loans		49,398		53,480		54,581		50,023		44,295		43,468		42,683
Net loans		3,882,281		3,985,572		3,954,637		3,964,748		3,974,336		3,913,986		3,922,477

Premises and equipment, net		72,649		72,903		74,707		78,472		80,493		82,332		82,977
Other real estate owned		1,508		1,132		472		2,004		5,123		4,657		7,471
Mortgage servicing rights, at fair value		11,127		10,741		11,066		11,317		10,455		10,754		10,137
Goodwill		86,477		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		9,768
Bank-owned life insurance ("BOLI")		106,655		107,028		107,786		108,616		109,867		110,440		110,901
Deferred tax assets, net		42,237		37,774		39,072		42,754		31,323		32,969		25,666
Other assets		48,599		50,812		52,360		55,155		49,681		50,423		50,989
Total other assets		382,579		379,576		384,059		396,297		384,332		388,392		384,386
Total assets	$	5,898,647	$	5,911,491	$	5,778,518	$	5,694,734	$	5,676,723	$	5,615,458	$	5,615,142

Liabilities
Deposits:
Noninterest bearing demand	$	2,002,801	$	1,920,448	$	1,867,201	$	1,838,325	$	1,819,476	$	1,769,543	$	1,691,450
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		2,142,307
Time		434,655		436,524		466,250		497,472		558,463		610,705		651,663
Total deposits		4,998,349		4,794,068		4,658,064		4,577,734		4,580,424		4,576,146		4,485,420

Securities sold under repurchase agreements		31,080		25,575		24,945		28,526		30,061		37,430		45,420
Other short-term borrowings		200,833		402,527		427,174		390,652		332,198		242,912		305,489
Junior subordinated debentures		25,773		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		59,436
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		54,453
Total liabilities		5,416,621		5,399,840		5,248,470		5,146,028		5,087,873		5,010,205		4,975,991

Stockholders' equity
Common stock		44,705		44,705		44,705		44,705		44,787		44,908		44,908
Additional paid-in capital		201,397		200,590		201,344		201,824		202,688		203,654		204,558
Retained earnings		324,785		346,042		368,732		389,776		405,201		424,262		443,435
Accumulated other comprehensive loss		(86,736)		(78,940)		(84,167)		(87,358)		(63,365)		(66,682)		(52,907)
Treasury stock		(2,125)		(746)		(566)		(241)		(461)		(889)		(843)
Total stockholders' equity		482,026		511,651		530,048		548,706		588,850		605,253		639,151
Total liabilities and stockholders' equity	$	5,898,647	$	5,911,491	$	5,778,518	$	5,694,734	$	5,676,723	$	5,615,458	$	5,615,142

Total Earning Assets	$	5,510,326	$	5,529,204	$	5,391,761	$	5,290,737	$	5,282,153	$	5,216,248	$	5,219,160
Total Interest Bearing Liabilities		3,362,541		3,430,958		3,328,105		3,243,732		3,208,373		3,172,132		3,230,088

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		3rd Qtr
Interest and Dividend Income
Loans, including fees	$	57,210	$	61,561	$	62,665	$	62,751	$	62,673	$	62,151	$	64,528
Loans held-for-sale		12		19		29		31		14		19		27
Securities:
Taxable		10,735		9,930		8,946		8,329		8,092		8,552		9,113
Tax exempt		1,337		1,337		1,333		1,322		1,306		1,292		1,291
Dividends from FHLB and FRBC stock		280		396		597		647		635		584		497
Interest bearing deposits with financial institutions		585		643		659		616		610		625		616
Total interest and dividend income		70,159		73,886		74,229		73,696		73,330		73,223		76,072
Interest Expense
Savings, NOW, and money market deposits		1,149		1,742		2,558		3,312		4,037		4,317		4,860
Time deposits		664		1,156		1,982		2,834		4,041		4,961		5,539
Securities sold under repurchase agreements		9		7		27		50		86		83		93
Other short-term borrowings		2,345		5,160		5,840		5,429		4,557		3,338		4,185
Junior subordinated debentures		279		281		245		290		280		288		270
Subordinated debentures		546		546		547		546		546		546		547
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		15,494
Net interest and dividend income		64,086		63,580		63,030		61,235		59,783		59,690		60,578
Provision for credit losses		3,501		2,000		3,000		8,000		3,500		3,750		2,000
Net interest and dividend income after provision for credit losses		60,585		61,580		60,030		53,235		56,283		55,940		58,578
Noninterest Income
Wealth management		2,270		2,458		2,475		2,600		2,561		2,779		2,787
Service charges on deposits		2,424		2,362		2,504		2,527		2,415		2,508		2,646
Secondary mortgage fees		59		76		66		58		50		65		84
Mortgage servicing rights mark to market (loss) gain		(525)		96		281		(1,277)		94		(238)		(964)
Mortgage servicing income		516		499		519		495		488		513		466
Net gain on sales of mortgage loans		306		398		407		366		314		468		507
Securities (losses) gains, net		(1,675)		(1,547)		(924)		(2)		1		-		(1)
Change in cash surrender value of BOLI		242		418		919		541		1,172		820		860
Death benefit realized on BOLI		-		-		-		-		-		893		12
Card related income		2,244		2,690		2,606		2,511		2,376		2,577		2,589
Other income		1,489		773		1,024		910		1,030		742		1,595
Total noninterest income		7,350		8,223		9,877		8,729		10,501		11,127		10,581
Noninterest Expense
Salaries and employee benefits		22,248		21,798		23,115		21,405		24,312		23,424		24,676
Occupancy, furniture and equipment		3,475		3,639		3,506		3,817		3,927		3,899		3,876
Computer and data processing		1,774		1,290		1,922		2,291		2,255		2,184		2,375
FDIC insurance		584		794		744		583		667		616		632
Net teller & bill paying		502		515		534		564		521		578		570
General bank insurance		305		306		300		301		309		312		320
Amortization of core deposit intangible		624		618		616		603		580		574		570
Advertising expense		142		103		93		383		192		472		299
Card related expense		1,216		1,222		1,347		1,338		1,277		1,323		1,458
Legal fees		319		283		97		228		226		238		202
Consulting & management fees		790		520		549		556		336		797		480
Other real estate expense, net		306		(98)		(27)		218		46		(87)		242
Other expense		3,637		3,840		4,627		4,739		3,593		3,547		3,608
Total noninterest expense		35,922		34,830		37,423		37,026		38,241		37,877		39,308
Income before income taxes		32,013		34,973		32,484		24,938		28,543		29,190		29,851
Provision for income taxes		8,406		9,411		8,149		6,713		7,231		7,299		6,900
Net income	$	23,607	$	25,562	$	24,335	$	18,225	$	21,312	$	21,891	$	22,951

Basic earnings per share (GAAP)	$	0.53	$	0.57	$	0.55	$	0.40	$	0.48	$	0.48	$	0.52
Diluted earnings per share (GAAP)		0.52		0.56		0.54		0.40		0.47		0.48		0.50
Dividends paid per share		0.05		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
	September 30,		June 30,		September 30,
	2024		2024		2023
Net Income
Income before income taxes (GAAP)	$	29,851	$	29,190	$	32,484
Pre-tax income adjustments:
Death benefit related to BOLI		(12)		(893)		-
Merger related costs, net of gains on branch sales		471		-		-
Liquidation and deconversion costs on Visa credit card portfolio		-		-		629
Adjusted net income before taxes		30,310		28,297		33,113
Taxes on adjusted net income		7,009		7,299		8,307
Adjusted net income (non-GAAP)	$	23,301	$	20,998	$	24,806

Basic earnings per share (GAAP)	$	0.52	$	0.48	$	0.55
Diluted earnings per share (GAAP)		0.50		0.48		0.54
Adjusted basic earnings per share (non-GAAP)		0.52		0.46		0.55
Adjusted diluted earnings per share (non-GAAP)		0.51		0.46		0.55


	Quarters Ended
	September 30,			June 30,			September 30,
	2024			2024			2023
Net Interest Margin
Interest income (GAAP)	$	76,072		$	73,223		$	74,229
Taxable-equivalent adjustment:
Loans		11			10			11
Securities		343			344			354
Interest income (TE)		76,426			73,577			74,594
Interest expense (GAAP)		15,494			13,533			11,199
Net interest income (TE)	$	60,932		$	60,044		$	63,395
Net interest income (GAAP)	$	60,578		$	59,690		$	63,030
Average interest earning assets	$	5,219,160		$	5,216,248		$	5,391,761
Net interest margin (TE)		4.64	%		4.63	%		4.66	%
Net interest margin (GAAP)		4.62	%		4.60	%		4.64	%


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

Noninterest expense	$	39,308		$	37,877		$	37,423		$	39,308		$	37,877		$	37,423
Less amortization of core deposit		570			574			616			570			574			616
Less other real estate expense, net		242			(87)			(27)			242			(87)			(27)
Less merger related costs, net of gains on branch sales		N/A			N/A			N/A			471			-			-
Less liquidation and deconversion costs on Visa credit card portfolio		N/A			N/A			N/A			-			-			629
Noninterest expense less adjustments	$	38,496		$	37,390		$	36,834		$	38,025		$	37,390		$	36,205

Net interest income	$	60,578		$	59,690		$	63,030		$	60,578		$	59,690		$	63,030
Taxable-equivalent adjustment:
Loans		N/A			N/A			N/A			11			10			11
Securities		N/A			N/A			N/A			343			344			354
Net interest income including adjustments		60,578			59,690			63,030			60,932			60,044			63,395
Noninterest income		10,581			11,127			9,877			10,581			11,127			9,877
Less death benefit related to BOLI		12			893			-			12			893			-
Less securities losses		(1)			-			(924)			(1)			-			(924)
Less MSRs mark to market (losses) gains		(964)			(238)			281			(964)			(238)			281
Taxable-equivalent adjustment:
Change in cash surrender value of BOLI		N/A			N/A			N/A			232			456			245
Noninterest income (excluding) / including adjustments		11,534			10,472			10,520			11,766			10,928			10,765

Net interest income including adjustments plus noninterest income (excluding) / including adjustments	$	72,112		$	70,162		$	73,550		$	72,698		$	70,972		$	74,160
Efficiency ratio / Adjusted efficiency ratio		53.38	%		53.29	%		50.08	%		52.31	%		52.68	%		48.82	%

N/A - Not applicable.


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

Net income (GAAP)	$	22,951		$	21,891		$	24,335

Income before income taxes (GAAP)	$	29,851		$	29,190		$	32,484
Pre-tax income adjustments:
Amortization of core deposit intangibles		570			574			616
Net income, excluding intangibles amortization, before taxes		30,421			29,764			33,100
Taxes on net income, excluding intangible amortization, before taxes		7,032			7,443			8,304
Net income, excluding intangibles amortization (non-GAAP)	$	23,389		$	22,321		$	24,796


Total Average Common Equity	$	639,151			605,253		$	530,048
Less Average goodwill and intangible assets		96,245			96,817			98,596
Average tangible common equity (non-GAAP)	$	542,906		$	508,436		$	431,452


Return on average common equity (GAAP)		14.29	%		14.55	%		18.21	%
Return on average tangible common equity (non-GAAP)		17.14	%		17.66	%		22.80	%

Old Second Bancorp (OSBC) 8-KResults of Operations and Financial Condition