Old Second Bancorp, Inc

EX-99 2 tmb-20230125xex99.htm EX-99 Old Second Bancorp, Inc



(NASDAQ:OSBC)		Exhibit 99.1

Contact:	Bradley S. Adams	For Immediate Release
	Chief Financial Officer	January 25, 2023
	(630) 906-5484

Old Second Bancorp, Inc. Reports Fourth Quarter 2022 Net Income of $23.6 Million,

or $0.52 per Diluted Share

AURORA, IL, January 25, 2023 – 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 fourth quarter of 2022. Our net income was $23.6 million, or $0.52 per diluted share, for the fourth quarter of 2022, compared to net income of $19.5 million, or $0.43 per diluted share, for the third quarter of 2022, and a net loss of $9.1 million, or $0.26 per diluted share, for the fourth quarter of 2021. Adjusted net income, a non-GAAP financial measure that excludes pre-tax amounts of $645,000 of acquisition related costs, and net of gains totaling $28,000 from branch sales, all related to our acquisition of West Suburban Bancorp, Inc. (“West Suburban”) on December 1, 2021, was $24.1 million, or $0.53 per diluted share, for the fourth quarter of 2022. 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.

The increase in net income in the fourth quarter of 2022 was primarily due to net interest and dividend income of $64.1 million, which increased $8.5 million from the third quarter of 2022 primarily due to the impact of market interest rate increases on loans and securities, and increased $35.5 million from the fourth quarter of 2021. The fourth quarter of 2022 also included pre-tax net losses on the sale of securities of $910,000 and a $431,000 pre-tax mark to market loss on mortgage servicing rights (“MSRs”), compared to a $548,000 pre-tax gain on MSRs in the third quarter of 2022, and a $1.5 million pre-tax gain on MSRs in the fourth quarter of 2021.

Operating Results

●

Fourth quarter 2022 net income was $23.6 million, reflecting an increase in earnings of $4.1 million from the third quarter 2022, and an increase of $32.7 million from the fourth quarter of 2021. Adjusted net income, a non-GAAP financial measure that excludes acquisition-related costs, net of gains on branch sales, was $24.1 million for the fourth quarter of 2022, an increase of $4.4 million from adjusted net income for the third quarter of 2022, and an increase of $11.6 million from adjusted net income for the fourth quarter of 2021.

●

Net interest and dividend income was $64.1 million for the fourth quarter of 2022, an increase of $8.5 million, or 15.3%, from the third quarter of 2022, and an increase of $35.5 million, or 124.1%, from fourth quarter of 2021.

●

Interest and dividend income for the fourth quarter of 2022 was $67.7 million, an increase of $9.7 million from the third quarter of 2022, and an increase of $37.0 million from the fourth quarter 2021. Growth in interest and dividend income in 2022 reflected the market interest rate increases in 2022, as well as the inclusion of West Suburban loan and securities income.

●

Interest expense for the fourth quarter of 2022 was $3.7 million, an increase of $1.2 million from the third quarter of 2022, and an increase of $1.5 million from the fourth quarter of 2021. The year-over-year increase in interest expense stems primarily from an increase in average interest bearing deposits and the interest paid

on short-term FHLB advances during the fourth quarter of 2022, which were partially offset by the pay down of $10.1 million of notes payable and other borrowings year over year.

●

We recorded a net provision for credit losses of $1.5 million in the fourth quarter of 2022, compared to a net provision for credit losses of $4.5 million in the third quarter of 2022, and a net provision for credit losses of $12.3 million in the fourth quarter of 2021. The decrease in the net provision in the fourth quarter of 2022 compared to the linked quarter was primarily due to a reduction in loan growth and improved credit metrics, and the reduction from the prior year like quarter was due to the higher provision level recorded in the fourth quarter of 2021 stemming from the Day Two accounting adjustments applied to the West Suburban loan portfolio acquired on December 1, 2021.

●

Noninterest income was $8.9 million for the fourth quarter of 2022, a decrease of $2.6 million, or 22.2%, compared to $11.5 million for the third quarter of 2022, and a decrease of $1.8 million, or 16.4%, compared to $10.7 million for the fourth quarter of 2021. The $2.6 million decrease from the prior quarter was primarily due to a decrease in net mortgage banking income of $1.1 million, an increase in securities losses, net, of $909,000, and an $871,000 decrease in other income, primarily due to gains recorded in the third quarter of 2022 on the sale of a Visa credit card portfolio and the sale of a land trust portfolio. The $1.8 million decrease in the fourth quarter of 2022, compared to the fourth quarter of 2021, was primarily due to a decrease in net mortgage banking income of $3.2 million, primarily due to a decline in the volume of mortgages being originated due to rising market interest rates in 2022, as well as a $431,000 pre-tax mark to market loss recorded in the fourth quarter of 2022 compared to a $1.5 million pre-tax gain recorded in the fourth quarter of 2021. This reduction was partially offset by an increase of $880,000 in service charges on deposits, and an $819,000 increase in card related income in the fourth quarter of 2022, compared to the like quarter of 2021, due to a full quarter of West Suburban activity in the current year.

●

Noninterest expense was $39.7 million for the fourth quarter of 2022, an increase of $3.7 million, or 10.3% compared to $36.0 million for the third quarter of 2022, and an increase of $1.2 million, or 3.0%, compared to $38.5 million for the fourth quarter of 2021. The increase from the third quarter of 2022 is the result of an increase in salary and employee benefits and computer and data processing expense, partially offset by lower card related expenses. The increase from the fourth quarter of 2021 is primarily due to growth in salaries and employee benefits expenses recorded in the fourth quarter of 2022, primarily stemming from a full quarter of the additional employees included due to the West Suburban acquisition, as well as higher salary rates being paid in 2022, partially offset by reductions in consulting and management fees, occupancy, furniture and equipment, and computer and data processing.

●

We had a provision for income tax of $8.2 million for the fourth quarter of 2022, compared to a provision for income tax of $7.1 million for the third quarter of 2022 and an income tax benefit of $2.5 million for the fourth quarter of 2021. The increase in tax expense for the fourth quarter of 2022 over both prior periods was due to an increase in pre-tax income.

●

On January 17, 2023, our Board of Directors declared a cash dividend of $0.05 per share payable on February 6, 2023, to stockholders of record as of January 27, 2023.

President and Chief Executive Officer Jim Eccher said “Old Second reported strong results in the fourth quarter as we earned $23.6 million in net income and an ROATCE of 28%, while strengthening the balance sheet and making prudent investments in the future of the franchise. This robust earnings growth demonstrates the strength of our core deposit franchise highlighted by 67 basis points of linked quarter tax equivalent net interest margin expansion to 4.63%. Loans were essentially unchanged in the fourth quarter but up 13% compared to December 31, 2021, and we remain confident in our ability to grow loans meaningfully in 2023. The efficiency ratio in the fourth quarter was approximately 52% on a GAAP basis and reflects not only the cost saves from our most recent acquisition, but also tremendous success in realizing returns on the investments in lending teams and sales people over the last twelve months. Fourth quarter return on average assets and return on average equity were 1.58% and 21.09%, respectively, and represent a return to the type of performance we had been accustomed to prior to the pandemic. We are pleased with both the improvement and absolute levels of credit metrics this quarter, though we remain mindful and diligent in monitoring trends both within the portfolio and more broadly.

“The return of relatively higher market interest rates has allowed us the opportunity to demonstrate the strength of the franchise that we are building here at Old Second. Asset repricing should continue in the coming quarters which will allow for additional improvement in our core trends. Deposit repricing is expected to remain excellent but will be modestly higher in the near future as we respond to competitors and take the necessary steps to protect our greatest strength. Continuing strong results should allow us to compound book value and continue to quickly build capital back to our targeted levels following our acquisition late last year. I feel reasonably safe in commenting that Old Second

delivered upon most of the goals we set for ourselves this past year and believe we have excellent momentum for the future. Our focus next year is squarely on customer acquisition and capitalizing on growth opportunities in our markets while making the investments to manage risk and provide quality service and customer experience. We are excited for the opportunities ahead of us and believe we have the resources and momentum to focus on growth and building a better Old Second for our stockholders, communities and customers. We are second because they come first.”

Capital Ratios


	Minimum Capital		Well Capitalized
	Adequacy with		Under Prompt
	Capital Conservation		Corrective Action		December 31,		September 30,		December 31,
	Buffer, if applicable¹		Provisions²		2022		2022		2021
The Company
Common equity tier 1 capital ratio	7.00	%	N/A		9.67	%	9.16	%	9.46	%
Total risk-based capital ratio	10.50	%	N/A		12.52	%	11.99	%	12.55	%
Tier 1 risk-based capital ratio	8.50	%	N/A		10.20	%	9.68	%	10.06	%
Tier 1 leverage ratio	4.00	%	N/A		8.14	%	7.70	%	7.81	%

The Bank
Common equity tier 1 capital ratio	7.00	%	6.50	%	11.70	%	11.60	%	12.41	%
Total risk-based capital ratio	10.50	%	10.00	%	12.75	%	12.64	%	13.46	%
Tier 1 risk-based capital ratio	8.50	%	8.00	%	11.70	%	11.60	%	12.41	%
Tier 1 leverage ratio	4.00	%	5.00	%	9.32	%	9.24	%	9.58	%

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

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

The ratios shown above exceed levels required to be considered “well capitalized.”

Asset Quality & Earning Assets

●

Nonperforming loans totaled $32.9 million at December 31, 2022 and $44.7 million at December 31, 2021. Nonperforming loans with a total net book value of $23.8 million were acquired through our acquisition of West Suburban in December 2021. Credit metrics reflected decreases in nonperforming loans from the linked quarter and year over year due to remediation efforts that are ongoing, and management is carefully monitoring loans considered to be in a classified status. Nonperforming loans, as a percent of total loans were 0.9% at December 31, 2022, 1.4% at September 30, 2022, and 1.3% at December 31, 2021.

●

OREO assets totaled $1.6 million at both December 31, 2022 and September 30, 2022 compared to $2.4 million at December 31, 2021. There were no transfers to OREO from loans and there were no properties sold during the fourth quarter of 2022. Nonperforming assets, as a percent of total loans plus OREO, was 0.9% at December 31, 2022, and 1.4% at both September 30, 2022 and December 31, 2021.

●

Total loans were $3.87 billion at December 31, 2022, reflecting an increase of $275,000 compared to September 30, 2022, and an increase of $448.8 million compared to December 31, 2021. The increase in the year over year quarter was largely driven by commercial real estate and lease growth. Average loans (including loans held-for-sale) for the fourth quarter of 2022 totaled $3.88 billion, reflecting an increase of $125.1 million from the third quarter of 2022 and an increase of $1.49 billion from the fourth quarter of 2021.

●

Available-for-sale securities totaled $1.54 billion at December 31, 2022, compared to $1.61 billion at September 30, 2022, and $1.69 billion at December 31, 2021. Total securities available-for-sale decreased compared to the linked quarter due to paydowns and maturities of $48.4 million, sales of $27.7 million resulting in realized net losses of $910,000, which were partially offset by $7.5 million in unrealized gains during the quarter. No securities were purchased in the fourth quarter of 2022. The decrease in the year over year period is due to a combination of paydowns and maturities, as well as sales and unrealized losses. The unrealized mark to market loss on securities totaled $123.5 million as of December 31, 2022, compared to $131.0 million as of September 30, 2022, and an unrealized mark to market gain of $15.5 million as of December 31, 2021, due to market interest rate increases as well as changes year over year in the composition of the securities portfolio.

Net Interest Income


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

	Quarters Ended
	December 31, 2022						September 30, 2022						December 31, 2021
	Average			Income /		Rate	Average			Income /		Rate	Average			Income /		Rate
	Balance			Expense		%	Balance			Expense		%	Balance			Expense		%
Assets
Interest earning deposits with financial institutions	$	50,377		$	461	3.63	$	131,260		$	663	2.00	$	587,721		$	225	0.15
Securities:
Taxable		1,404,437			10,495	2.96		1,525,258			9,116	2.37		842,962			2,867	1.35
Non-taxable (TE)¹		171,567			1,697	3.92		178,090			1,686	3.76		189,697			1,613	3.38
Total securities (TE)¹		1,576,004			12,192	3.07		1,703,348			10,802	2.52		1,032,659			4,480	1.72
Dividends from FHLBC and FRBC		19,534			259	5.26		19,565			261	5.29		11,042			114	4.10
Loans and loans held-for-sale^{1, 2}		3,878,228			55,195	5.65		3,753,117			46,642	4.93		2,392,631			26,314	4.36
Total interest earning assets		5,524,143			68,107	4.89		5,607,290			58,368	4.13		4,024,053			31,133	3.07
Cash and due from banks		56,531			-	-		56,265			-	-		34,225			-	-
Allowance for credit losses on loans		(48,778)			-	-		(45,449)			-	-		(34,567)			-	-
Other noninterest bearing assets		395,726			-	-		377,850			-	-		287,762			-	-
Total assets	$	5,927,622					$	5,995,956					$	4,311,473

Liabilities and Stockholders' Equity
NOW accounts	$	623,408		$	225	0.14	$	612,174		$	148	0.10	$	774,367		$	85	0.04
Money market accounts		901,950			477	0.21		967,106			157	0.06		611,651			142	0.09
Savings accounts		1,155,409			74	0.03		1,186,001			75	0.03		705,124			68	0.04
Time deposits		450,111			571	0.50		459,925			335	0.29		370,919			271	0.29
Interest bearing deposits		3,130,878			1,347	0.17		3,225,206			715	0.09		2,462,061			566	0.09
Securities sold under repurchase agreements		33,275			10	0.12		33,733			10	0.12		47,571			14	0.12
Other short-term borrowings		44,293			436	3.91		5,435			44	3.21		-			-	-
Junior subordinated debentures		25,773			287	4.42		25,773			285	4.39		25,773			283	4.36
Subordinated debentures		59,286			546	3.65		59,265			546	3.66		59,201			546	3.66
Senior notes		44,572			891	7.93		44,546			728	6.48		44,468			673	6.00
Notes payable and other borrowings		9,978			137	5.45		10,989			111	4.01		20,090			108	2.13
Total interest bearing liabilities		3,348,055			3,654	0.43		3,404,947			2,439	0.28		2,659,164			2,190	0.33
Noninterest bearing deposits		2,083,503			-	-		2,092,301			-	-		1,200,445			-	-
Other liabilities		51,753			-	-		34,949			-	-		68,552			-	-
Stockholders' equity		444,311			-	-		463,759			-	-		383,312			-	-
Total liabilities and stockholders' equity	$	5,927,622					$	5,995,956					$	4,311,473
Net interest income (GAAP)				$	64,091					$	55,569					$	28,600
Net interest margin (GAAP)						4.60						3.93						2.82

Net interest income (TE)¹				$	64,453					$	55,929					$	28,943
Net interest margin (TE)¹						4.63						3.96						2.85
Interest bearing liabilities to earning assets		60.61	%					60.72	%					66.08	%

¹ Tax equivalent (TE) basis is calculated using a marginal tax rate of 21% in 2022 and 2021. See the discussion entitled “Non-GAAP Presentations” below and the tables beginning on page 17 that provides a reconciliation of each non-GAAP measures 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 fees of $917,000, $750,000, and $1.5 million for the fourth quarter of 2022, third quarter of 2022, and the fourth quarter of 2021, respectively. Nonaccrual loans are included in the above stated average balances.

Net interest income (TE) was $64.5 million for the fourth quarter of December 31, 2022, which reflects an increase of $8.5 million compared to the third quarter of 2022, and an increase of $35.5 million compared to the fourth quarter of 2021. The tax equivalent adjustment for the fourth quarter of 2022 was $362,000 compared to $360,000 in the third quarter 2022, and $343,000 for the fourth quarter of 2021. Average interest earning assets decreased $83.1 million to $5.52 billion for the fourth quarter of 2022, compared to the third quarter of 2022, due to decreases in interest earning deposits with financial institutions and securities, partially offset by an increase in loans and loans held-for-sale. Average interest earning assets increased $1.50 billion in the fourth quarter of 2022, compared to the fourth quarter of

2021, primarily due to our West Suburban acquisition. Average loans, including loans held-for-sale, increased $125.1 million for the fourth quarter of 2022, compared to the third quarter of 2022, and increased $1.49 billion compared to the fourth quarter of 2021. The yield on loans for the fourth quarter of 2022 increased 72 basis points compared to the third quarter of 2022 and increased 129 basis points compared to the fourth quarter of 2021.

A decrease of $127.3 million in the average balance of securities for the fourth quarter of 2022, compared to the third quarter of 2022, was offset by the increase in market interest rates, as increasing yields on our variable rate securities resulted in an increase of $1.4 million to interest income (TE). Significantly higher average balances and higher yields in the fourth quarter of 2022, compared to the fourth quarter of 2021, resulted in a $7.7 million increase in interest income (TE) on securities in the fourth quarter of 2022. The average yield on total securities available-for-sale increased 135 basis points year over year. We acquired $1.07 billion of securities with our acquisition of West Suburban in December 2021, and securities activity in the fourth quarter 2022 consisted of $48.4 million of paydowns, calls and maturities, and $27.7 million of sales. Our overall yield on tax equivalent municipal securities was 3.92% for the fourth quarter of 2022, compared to 3.76% for the third quarter of 2022 and 3.38% for the fourth quarter of 2021.

The yield on average earning assets increased 76 basis points in the fourth quarter of 2022, compared to the third quarter of 2022, and increased 182 basis points compared to the fourth quarter of 2021. Changes in the interest rate environment impact the portfolio at varying intervals depending on the repricing timeline of loans, as well as the securities maturity and purchase activity.

Average interest bearing liabilities decreased $56.9 million in the fourth quarter of 2022, compared to the third quarter of 2022, driven primarily by a $105.6 million decrease in money market accounts, savings accounts, and time deposits. Average interest bearing liabilities increased $688.9 million in the fourth quarter of 2022, compared to the fourth quarter of 2021, primarily driven by a $668.8 million increase in interest bearing deposits from our acquisition of West Suburban, partially offset by a $14.3 million decrease in repurchase agreements, and a $10.1 million decrease in notes payable and other borrowings. The decrease in deposits from the third quarter of 2022 are attributable to customer usage of funds, and we paid down $1.0 million of notes payable in the fourth quarter of 2022. The cost of interest bearing liabilities for the fourth quarter of 2022 increased to 43 basis points compared to 28 basis points for the third quarter of 2022 and increased 10 basis points from 33 basis points for the fourth quarter of 2021. An increase in our average noninterest bearing demand deposits of $883.1 million in the year over year period has assisted us in controlling our cost of funds stemming from average interest bearing deposits and borrowings; cost of funds, which includes the impact of noninterest bearing deposits, totaled 0.27% for the fourth quarter of 2022, compared to 0.18% for the third quarter of 2022 and 0.23% in the fourth quarter of 2021.

Our net interest margin (GAAP) increased 67 basis points to 4.60% for the fourth quarter of 2022, compared to 3.93% for the third quarter of 2022, and increased 178 basis points compared to 2.82% for the fourth quarter of 2021. Our net interest margin (TE) increased 67 basis points to 4.63% for the fourth quarter of 2022, compared to 3.96% for the third quarter 2022, and increased 178 basis points compared to 2.85% for the fourth quarter of 2021. The increases year over year were due primarily to the increased level of market interest rates over much of the past year, and the related rate resets on loans and securities during the past year. 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


							4th Quarter 2022
Noninterest Income	Three Months Ended						Percent Change From
(Dollars in thousands)	December 31,		September 30,		December 31,		September 30,	December 31,
	2022		2022		2021		2022	2021
Wealth management	$	2,403	$	2,280	$	2,495	5.4	(3.7)
Service charges on deposits		2,499		2,661		1,619	(6.1)	54.4
Residential mortgage banking revenue
Secondary mortgage fees		62		81		210	(23.5)	(70.5)
MSRs mark to market (loss) gain		(431)		548		1,462	(178.6)	(129.5)
Mortgage servicing income		518		514		535	0.8	(3.2)
Net gain on sales of mortgage loans		340		449		1,498	(24.3)	(77.3)
Total residential mortgage banking revenue		489		1,592		3,705	(69.3)	(86.8)
Securities losses, net		(910)		(1)		(14)	N/M	N/M
Change in cash surrender value of BOLI		376		146		228	157.5	64.9
Card related income		2,795		2,653		1,976	5.4	41.4
Other income		1,294		2,165		693	(40.2)	86.7
Total noninterest income	$	8,946	$	11,496	$	10,702	(22.2)	(16.4)

N/M - Not meaningful.

Noninterest income decreased $2.6 million, or 22.2%, in the fourth quarter of 2022, compared to the third quarter of 2022, and decreased $1.8 million, or 16.4%, compared to the fourth quarter of 2021. The decrease from the third quarter of 2022 was primarily driven by $1.1 million decline in residential mortgage banking revenue attributable to an increase in mark to market losses on MSRs of $979,000, as well as a $109,000 reduction in net gain on the sale of mortgage loans. The variance in mortgage banking is derived from the changing interest rate environment experienced during the third and fourth quarters and the resultant negative impact on interest rate lock commitments, as well as a decline in the fair value of MSRs during the fourth quarter. Also contributing to the decrease of noninterest income in the fourth quarter of 2022, compared to the prior quarter, were securities losses, net, of $910,000, and a reduction in other income of $871,000 primarily due to gains on the sales of the Visa card and land trust portfolios in the third quarter of 2022. These decreases in noninterest income in the fourth quarter of 2022, compared to the third quarter of 2022, were partially offset by a $123,000 increase in wealth management fees, a $230,000 increase in the cash surrender value of BOLI, and a $142,000 increase in card related income.

The decrease in noninterest income of $1.8 million in the fourth quarter of 2022, compared to the fourth quarter of 2021, is primarily due to a decrease of $3.2 million in residential mortgage banking revenue due to increases in interest rates in 2022 affecting the mortgage banking origination volume and related derivative revenue. An increase in security losses of $896,000 for the year over year quarter also contributed to the decrease over the two periods. The decreases in noninterest income in the fourth quarter of 2022, compared to the fourth quarter of 2021, were partially offset by a $880,000 increase in services charges of deposits, a $148,000 increase in the cash surrender value on BOLI, a $819,000 increase in card related income, and a $601,000 increase in other income, all related to a full quarter of West Suburban activity in the fourth quarter of 2022.

Noninterest Expense


										4th Quarter 2022
Noninterest Expense	Three Months Ended									Percent Change From
(Dollars in thousands)	December 31,			September 30,			December 31,			September 30,	December 31,
	2022			2022			2021			2022	2021
Salaries	$	17,487		$	14,711		$	14,164		18.9	23.5
Officers incentive		3,876			2,787			1,292		39.1	200.0
Benefits and other		2,900			3,513			2,869		(17.4)	1.1
Total salaries and employee benefits		24,263			21,011			18,325		15.5	32.4
Occupancy, furniture and equipment expense		4,128			4,119			6,360		0.2	(35.1)
Computer and data processing		2,978			2,543			3,857		17.1	(22.8)
FDIC insurance		630			659			371		(4.4)	69.8
General bank insurance		298			257			360		16.0	(17.2)
Amortization of core deposit intangible asset		645			657			296		(1.8)	117.9
Advertising expense		130			83			81		56.6	60.5
Card related expense		1,304			1,453			657		(10.3)	98.5
Legal fees		225			212			451		6.1	(50.1)
Consulting & management fees		679			607			4,091		11.9	(83.4)
Other real estate owned expense, net		34			22			14		54.5	142.9
Other expense		4,370			4,365			3,652		0.1	19.7
Total noninterest expense	$	39,684		$	35,988		$	38,515		10.3	3.0
Efficiency ratio (GAAP)¹		52.44	%		53.08	%		100.51	%
Adjusted efficiency ratio (non-GAAP)²		51.29	%		51.90	%		66.49	%

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 and mark to market gains or losses on MSRs.

² The adjusted efficiency ratio shown in the table above is a non-GAAP financial measure calculated as noninterest expense, excluding amortization of core deposits, OREO expenses, and acquisition-related costs, net of gains on branch sales, divided by the sum of net interest income on a fully tax equivalent basis, total noninterest income less net gains or losses on securities, mark to market gains or losses on MSRs, and nonrecurring gains on the sale of Visa credit card and land trust portfolios, and includes a tax equivalent adjustment on the change in cash surrender value of BOLI. See the discussion entitled “Non-GAAP 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 fourth quarter of 2022 increased $3.7 million, or 10.3%, compared to the third quarter of 2022, and increased $1.2 million, or 3.0%, compared to the fourth quarter of 2021. The increase in the fourth quarter of 2022 compared to the third quarter was attributable to a $3.3 million increase in salaries and employee benefits primarily due to an increase in employee salary rates, and an increase in computer and data processing costs, primarily due to timing of software contracts and incentives. Partially offsetting the increase in noninterest expense in the fourth quarter of 2022 was a $149,000 decrease in our card related expense, compared to the third quarter, due to a timing difference in the third quarter with card related invoices.

The year over year increase in noninterest expense is primarily attributable to a $5.9 million increase in salaries and employee benefits, a $259,000 increase in FDIC insurance, a $349,000 increase in the amortization of core deposit intangibles, a $647,000 increase in card related expense, and a $718,000 increase in other expense. Officer incentive compensation increased $2.6 million in the fourth quarter of 2022, compared to the fourth quarter of 2021, as incentive accruals increased in the current year due to the acquisition of West Suburban, as well as growth in our commercial and sponsored finance lending teams. The increase in other expense was due primarily to growth in bill payment services and commercial loan related costs, primarily due to higher volumes of activity in the fourth quarter of 2022. Partially offsetting the increase in noninterest expense in the fourth quarter of 2022, compared to the fourth quarter of 2021, was a $2.2 million decrease in occupancy, furniture and equipment, and a $3.4 million decrease in consulting and management fees, as acquisition related costs such as fixed asset writedowns and investment banker fees, were incurred in late 2021.

Earning Assets


							December 31, 2022
Loans	As of						Percent Change From
(dollars in thousands)	December 31,		September 30,		December 31,		September 30,	December 31,
	2022		2022		2021		2022	2021
Commercial	$	840,964	$	888,081	$	771,474	(5.3)	9.0
Leases		277,385		251,603		176,031	10.2	57.6
Commercial real estate – investor		987,635		941,910		799,928	4.9	23.5
Commercial real estate – owner occupied		854,879		876,951		731,845	(2.5)	16.8
Construction		180,535		176,700		206,132	2.2	(12.4)
Residential real estate – investor		57,353		59,580		63,399	(3.7)	(9.5)
Residential real estate – owner occupied		219,718		220,969		213,248	(0.6)	3.0
Multifamily		323,691		322,856		309,164	0.3	4.7
HELOC		109,202		116,108		126,290	(5.9)	(13.5)
Other¹		18,247		14,576		23,293	25.2	(21.7)
Total loans	$	3,869,609	$	3,869,334	$	3,420,804	0.0	13.1

¹Other class includes consumer loans and overdrafts.

Total loans increased by $275,000 at December 31, 2022, compared to September 30, 2022, and increased $448.8 million for the year over year period. Loan growth of $448.8 million in the year over year period was driven by originations of loans with new lending groups, such as the sponsor finance team, as well as growth in commercial, leasing and commercial real estate loans. As required by ASU 2016-13, per adoption of the Current Expected Credit Losses accounting standard (“CECL”), the balance (or amortized cost basis) of purchased credit deteriorated loans (or “PCD loans”) acquired in our acquisitions are carried on a gross basis (rather than net of the associated credit loss estimate), and the expected credit losses for PCD loans are estimated and separately recognized as part of the allowance for credit losses.


							December 31, 2022
Securities	As of						Percent Change From
(dollars in thousands)	December 31,		September 30,		December 31,		September 30,	December 31,
	2022		2022		2021		2022	2021
Securities available-for-sale, at fair value
U.S. Treasury	$	212,129	$	211,097	$	202,339	0.5	4.8
U.S. government agencies		56,048		55,963		61,888	0.2	(9.4)
U.S. government agency mortgage-backed		124,990		127,626		172,302	(2.1)	(27.5)
States and political subdivisions		226,128		224,259		257,609	0.8	(12.2)
Corporate bonds		9,622		9,544		9,887	0.8	(2.7)
Collateralized mortgage obligations		533,768		587,846		672,967	(9.2)	(20.7)
Asset-backed securities		201,928		219,587		236,877	(8.0)	(14.8)
Collateralized loan obligations		174,746		173,837		79,763	0.5	119.1
Total securities available-for-sale	$	1,539,359	$	1,609,759	$	1,693,632	(4.4)	(9.1)

Our securities portfolio totaled $1.54 billion as of December 31, 2022, a decrease of $70.4 million from $1.61 billion as of September 30, 2022, and a decrease of $154.3 million from $1.69 billion as of December 31, 2021. The decrease in the portfolio during the fourth quarter of 2022, compared to the prior quarter, was driven primarily by $48.4 million of calls and pay downs on securities held, and sales of $27.7 million, as well as the effect of changing market conditions, which resulted in a $7.5 million increase in the portfolio’s market value. There were no purchases during the fourth quarter, and the sale of $27.7 million of securities resulted in net realized losses of $910,000. The year over year decrease is the result of $279.8 million of paydowns, $31.0 million of sales resulting in $944,000 of net realized losses, as well as a year over year change in unrealized losses of $138.9 million as of December 31, 2022, due to the rising rate environment. These reductions to the securities portfolio were partially offset by $301.6 million of purchases during 2022. The portfolio currently consists of high quality fixed-rate and floating-rate securities, with all except one rated AA or better, displaying an effective duration of approximately 3.0 years.

Asset Quality


										December 31, 2022
Nonperforming assets	As of									Percent Change From
(dollars in thousands)	December 31,			September 30,			December 31,			September 30,	December 31,
	2022			2022			2021			2022	2021
Nonaccrual loans	$	31,602		$	32,126		$	41,531		(1.6)	(23.9)
Performing troubled debt restructured loans accruing interest		49			22			25		122.7	96.0
Loans past due 90 days or more and still accruing interest		1,262			20,752			3,110		(93.9)	(59.4)
Total nonperforming loans		32,913			52,900			44,666		(37.8)	(26.3)
Other real estate owned		1,561			1,561			2,356		-	(33.7)
Total nonperforming assets	$	34,474		$	54,461		$	47,022		(36.7)	(26.7)



30-89 days past due loans and still accruing interest	$	7,508		$	8,379		$	10,679
Nonaccrual loans to total loans		0.8	%		0.8	%		1.2	%
Nonperforming loans to total loans		0.9	%		1.4	%		1.3	%
Nonperforming assets to total loans plus OREO		0.9	%		1.4	%		1.4	%
Purchased credit-deteriorated loans to total loans		2.0	%		2.1	%		3.1	%

Allowance for credit losses	$	49,480		$	48,847		$	44,281
Allowance for credit losses to total loans		1.3	%		1.3	%		1.3	%
Allowance for credit losses to nonaccrual loans		156.6	%		152.1	%		106.6	%

Nonperforming loans consist of nonaccrual loans, performing troubled debt restructured loans accruing interest and loans 90 days or more past due and still accruing interest. PCD loans acquired in our acquisitions of West Suburban and ABC Bank totaled $77.2 million, net of purchase accounting adjustments, at December 31, 2022. PCD loans that meet the definition of nonperforming loans are included in our nonperforming disclosures. Nonperforming loans to total loans was 0.9% for the fourth quarter of 2022, 1.4% for the third quarter of 2022, and 1.3% for the fourth quarter of 2021. Nonperforming assets to total loans plus OREO was 0.9% for the fourth quarter of 2022, and 1.4% for both the third quarter of 2022, and the fourth quarter of 2021. Our allowance for credit losses to total loans was 1.3% for the fourth quarter of 2022, the third quarter of 2022, and the fourth quarter of 2021.

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


							December 31, 2022
Classified loans	As of						Percent Change From
(dollars in thousands)	December 31,		September 30,		December 31,		September 30,	December 31,
	2022		2022		2021		2022	2021
Commercial	$	26,485	$	31,722	$	32,712	(16.5)	(19.0)
Leases		1,876		235		3,754	N/M	(50.0)
Commercial real estate – investor		27,410		28,252		10,667	(3.0)	157.0
Commercial real estate – owner occupied		40,890		42,698		15,429	(4.2)	165.0
Construction		1,333		1,347		2,104	(1.0)	(36.6)
Residential real estate – investor		1,714		1,285		1,265	33.4	35.5
Residential real estate – owner occupied		3,854		3,929		5,099	(1.9)	(24.4)
Multifamily		2,954		1,982		2,278	49.0	29.7
HELOC		2,411		2,278		1,423	5.8	69.4
Other¹		2		2		10	-	(80.0)
Total classified loans	$	108,929	$	113,730	$	74,741	(4.2)	45.7

N/M – Not meaningful

¹Other class includes consumer loans and overdrafts.

The $4.8 million decrease in classified loans since September 30, 2022, was driven by the collection of payments, charge-offs or upgrades to certain substandard loans during the fourth quarter of 2022. Reductions in commercial and commercial real estate loans were noted in the fourth quarter of 2022 from the linked quarter due to ongoing remediation efforts.

Allowance for Credit Losses on Loans and Unfunded Commitments

At December 31, 2022, our allowance for credit losses (“ACL”) on loans totaled $49.5 million, and our ACL on unfunded commitments, included in other liabilities, totaled $5.1 million. In the fourth quarter of 2022, we recorded provision expense of $1.5 million based on historical loss rate updates, loan growth, our assessment of nonperforming loan metrics and trends, and estimated future credit losses. The fourth quarter’s provision expense consisted of a $1.6 million provision for credit losses on loans, and a $74,000 reversal of provision for credit losses on unfunded commitments. We recorded net charge-offs of $940,000 in the fourth quarter of 2022, which reduced the ACL. In the third quarter of 2022, we recorded provision expense on loans of $3.5 million, based on our assessment of nonperforming loan metrics and trends and estimated future credit losses, and a $973,000 provision expense related to our reserve on unfunded commitments, primarily due to an updated analysis of line utilization rates over the past twelve months. These two entries resulted in a $4.5 million net impact to the provision for credit losses for the third quarter of 2022. In the fourth quarter of 2021, due to our acquisition of West Suburban, a Day One purchase accounting credit mark of $12.1 million and a Day Two provision of $12.3 million related to the credit mark for estimated lifetime credit losses on non-PCD loans acquired was recorded. These increases to the ACL were partially offset by $4.7 million of net charge-offs recorded during the fourth quarter of 2021, and a release of the ACL on legacy bank loans of $2.3 million based on updates to our loss forecasts. Our ACL on loans to total loans was 1.3% as of December 31, 2022, September 30, 2022, and December 31, 2021.

The $297,000 decrease in our ACL on unfunded commitments at December 31, 2022, compared to September 30, 2022 is driven by a $74,000 reversal of provision expense in the quarter primarily due to an updated line utilization assessment in the fourth quarter of 2022, and $223,000 of purchase accounting accretion recorded during the quarter. The ACL on unfunded commitments totaled $5.1 million as of December 31, 2022, $5.4 million as of September 30, 2022, and $6.2 million as of December 31, 2021.

Net Charge-off Summary


Loan Charge–offs, net of recoveries	Quarters Ended
(dollars in thousands)	December 31,		% of	September 30,		% of	December 31,		% of
	2022		Total ²	2022		Total ²	2021		Total ²
Commercial	$	(8)	(0.9)	$	20	29.4	$	441	9.3
Leases		191	20.3		178	261.8		37	0.8
Commercial real estate – Investor		776	82.6		105	154.4		2,603	55.1
Commercial real estate – Owner occupied		(2)	(0.2)		(75)	(110.3)		1,748	37.0
Residential real estate – Investor		(7)	(0.7)		(8)	(11.8)		(8)	(0.2)
Residential real estate – Owner occupied		-	-		(113)	(166.2)		(30)	(0.6)
Multifamily		(6)	(0.6)		(63)	(92.6)		-	-
HELOC		(38)	(4.0)		(35)	(51.5)		(105)	(2.2)
Other¹		34	3.5		59	86.8		38	0.8
Net charge–offs / (recoveries)	$	940	100.0	$	68	100.0	$	4,724	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 fourth quarter of 2022 were $1.1 million, compared to $484,000 for the third quarter of 2022 and $5.2 million for the fourth quarter of 2021. Gross recoveries were $136,000 for the fourth quarter of 2022, compared to $416,000 for the third quarter of 2022, and $497,000 for the fourth quarter of 2021. Continued recoveries are indicative of the ongoing aggressive efforts by management to effectively manage and resolve prior charge-offs.

Deposits

Total deposits were $5.11 billion at December 31, 2022, a decrease of $170.6 million compared to $5.28 billion at September 30, 2022, primarily due to a decline in our savings, NOW, and money market accounts of $109.5 million. In addition, demand deposits decreased $46.4 million and time deposits decreased $14.7 million from September 30, 2022 to December 31, 2022. Total deposits decreased $355.5 million in the year over year period, due to declines in our demand deposits of $36.0 million, savings, NOW, and money market accounts of $257.7 million, and time deposits of $61.9 million.

Borrowings

As of December 31, 2022, we had $90.0 million in other short-term borrowings due to a short-term FHLB advance. As of September 30, 2022, we had $25.0 million in other short-term borrowings, and we had no short-term borrowings outstanding as of December 31, 2021.

We were indebted on senior notes totaling $44.6 million, net of deferred issuance costs, as of December 31, 2022. We were also indebted on $25.8 million of junior subordinated debentures, net of deferred issuance costs, which is related to the trust preferred securities issued by our statutory trust subsidiary, Old Second Capital Trust II. Subordinated debt totaled $59.3 million as of December 31, 2022, consisting of $60.0 million in principal issued on April 6, 2021, net of debt issuance cost of $703,000. As of December 31, 2022, compared to September 30, 2022, notes payable and other borrowings decreased $1.0 million and is comprised of $9.0 million outstanding on a $20.0 million term note we originated to facilitate the March 2020 redemption of our trust preferred securities and related junior subordinated debentures issued by Old Second Capital Trust I.

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”, “trend,” “momentum” 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, pipelines and customer activity, statements regarding our expectations with respect to the yield curve, and statements regarding the potential for expanded margins and future growth. 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, including, but not limited to, due to the negative impacts and disruptions resulting from the COVID-19 pandemic on the economies and communities we serve, which has had and may continue to have an adverse impact on our business, operations and performance, and could continue to have a negative impact on our credit portfolio, share price, borrowers, and on the economy as a whole, both domestically and globally; (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 may affect our 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) with respect to the acquisition of West Suburban, the possibility that the anticipated benefits of the transaction, including anticipated cost savings and strategic gains, are not realized when expected or at all, including as a result of the impact of, or problems arising from, the continued integration of the two companies or as a result of other unexpected factors or events; 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. 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, January 26, 2023, at 11:00 a.m. Eastern Time (10:00 a.m. Central Time) to discuss our fourth quarter 2022 financial results. Investors may listen to our call via telephone by dialing 888-506-0062, using Entry Code 685093. 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 11:00 a.m. Eastern Time (10:00 a.m. Central Time) on February 2, 2023, by dialing 877-481-4010, using Conference ID: 47379.

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands)


	(unaudited)
	December 31,		December 31,
	2022		2021
Assets
Cash and due from banks	$	56,632	$	38,565
Interest earning deposits with financial institutions		58,545		713,542
Cash and cash equivalents		115,177		752,107
Securities available-for-sale, at fair value		1,539,359		1,693,632
Federal Home Loan Bank Chicago ("FHLBC") and Federal Reserve Bank Chicago ("FRBC") stock		20,530		13,257
Loans held-for-sale		491		4,737
Loans		3,869,609		3,420,804
Less: allowance for credit losses on loans		49,480		44,281
Net loans		3,820,129		3,376,523
Premises and equipment, net		76,923		88,005
Other real estate owned		1,561		2,356
Mortgage servicing rights, at fair value		11,189		7,097
Goodwill		86,478		86,332
Core deposit intangible		13,678		16,304
Bank-owned life insurance ("BOLI")		106,608		105,300
Deferred tax assets, net		44,750		6,100
Other assets		51,444		60,439
Total assets	$	5,888,317	$	6,212,189

Liabilities
Deposits:
Noninterest bearing demand	$	2,051,702	$	2,087,649
Interest bearing:
Savings, NOW, and money market		2,617,100		2,874,773
Time		441,921		503,810
Total deposits		5,110,723		5,466,232
Securities sold under repurchase agreements		32,156		50,337
Other short-term borrowings		90,000		-
Junior subordinated debentures		25,773		25,773
Subordinated debentures		59,297		59,212
Senior notes		44,585		44,480
Notes payable and other borrowings		9,000		19,074
Other liabilities		55,642		45,054
Total liabilities		5,427,176		5,710,162

Stockholders’ Equity
Common stock		44,705		44,705
Additional paid-in capital		202,276		202,443
Retained earnings		310,512		252,011
Accumulated other comprehensive (loss) income		(93,124)		8,768
Treasury stock		(3,228)		(5,900)
Total stockholders’ equity		461,141		502,027
Total liabilities and stockholders’ equity	$	5,888,317	$	6,212,189

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

(In thousands, except share data)


	(unaudited)				(unaudited)
	Three Months Ended December 31,				Year Ended December 31,
	2022		2021		2022		2021
Interest and dividend income
Loans, including fees	$	55,170	$	26,276	$	176,379	$	90,613
Loans held-for-sale		19		34		130		165
Securities:
Taxable		10,495		2,867		31,566		8,168
Tax exempt		1,341		1,274		5,287		5,107
Dividends from FHLBC and FRBC stock		259		114		936		456
Interest bearing deposits with financial institutions		461		225		2,175		656
Total interest and dividend income		67,745		30,790		216,473		105,165
Interest expense
Savings, NOW, and money market deposits		776		295		1,900		961
Time deposits		571		271		1,448		1,510
Securities sold under repurchase agreements		10		14		40		82
Other short-term borrowings		436		-		480		-
Junior subordinated debentures		287		283		1,136		1,133
Subordinated debentures		546		546		2,185		1,610
Senior notes		891		673		2,682		2,692
Notes payable and other borrowings		137		108		446		462
Total interest expense		3,654		2,190		10,317		8,450
Net interest and dividend income		64,091		28,600		206,156		96,715
Provision for credit losses		1,500		12,326		6,550		4,326
Net interest and dividend income after provision for credit losses		62,591		16,274		199,606		92,389
Noninterest income
Wealth management		2,403		2,495		9,887		9,408
Service charges on deposits		2,499		1,619		9,562		5,403
Secondary mortgage fees		62		210		332		1,044
Mortgage servicing rights mark to market (loss) gain		(431)		1,462		3,177		1,261
Mortgage servicing income		518		535		2,130		2,181
Net gain on sales of mortgage loans		340		1,498		2,022		9,300
Securities (losses) gains, net		(910)		(14)		(944)		232
Change in cash surrender value of BOLI		376		228		718		1,390
Card related income		2,795		1,976		10,989		6,712
Other income		1,294		693		5,243		2,329
Total noninterest income		8,946		10,702		43,116		39,260
Noninterest expense
Salaries and employee benefits		24,263		18,325		86,573		57,691
Occupancy, furniture and equipment		4,128		6,360		14,992		13,548
Computer and data processing		2,978		3,857		15,795		7,936
FDIC insurance		630		371		2,401		975
General bank insurance		298		360		1,221		1,214
Amortization of core deposit intangible		645		296		2,626		644
Advertising expense		130		81		589		343
Card related expense		1,304		657		4,348		2,538
Legal fees		225		451		873		1,096
Consulting & management fees		679		4,091		2,425		5,005
Other real estate expense, net		34		14		131		151
Other expense		4,370		3,652		19,199		12,641
Total noninterest expense		39,684		38,515		151,173		103,782
Income (loss) before income taxes		31,853		(11,539)		91,549		27,867
Provision for (benefit from) income taxes		8,238		(2,472)		24,144		7,823
Net income (loss)	$	23,615	$	(9,067)	$	67,405	$	20,044

Basic earnings per share	$	0.53	$	(0.27)	$	1.51	$	0.66
Diluted earnings per share		0.52		(0.26)		1.49		0.65
Dividends declared per share		0.05		0.05		0.20		0.16


Ending common shares outstanding	44,582,311	44,461,045	44,582,311	44,461,045
Weighted-average basic shares outstanding	44,578,830	28,707,737	44,526,655	30,208,663
Weighted-average diluted shares outstanding	45,228,212	29,230,280	45,213,088	30,737,862

Old Second Bancorp, Inc. and Subsidiaries

Quarterly Consolidated Average Balance

(In thousands, unaudited)


		2021							2022
Assets	1st Qtr		2nd Qtr		3rd Qtr		4th Qtr		1st Qtr		2nd Qtr		3rd Qtr		4th Qtr
Cash and due from banks	$	28,461	$	29,985	$	29,760	$	34,225	$	42,972	$	53,371	$	56,265	$	56,531
Interest earning deposits with financial institutions		359,576		499,555		523,561		587,721		635,302		426,820		131,260		50,377
Cash and cash equivalents		388,037		529,540		553,321		621,946		678,274		480,191		187,525		106,908

Securities available-for-sale, at fair value		532,230		614,066		663,450		1,032,273		1,807,875		1,792,099		1,703,348		1,576,004
FHLBC and FRBC stock		9,917		9,917		9,917		11,042		16,066		20,994		19,565		19,534
Loans held-for-sale		8,616		4,860		4,908		4,271		6,707		3,050		2,020		1,224
Loans		2,006,157		1,926,105		1,884,788		2,388,746		3,397,827		3,505,806		3,751,097		3,877,004
Less: allowance for credit losses on loans		34,540		31,024		28,639		34,567		44,341		44,354		45,449		48,778
Net loans		1,971,617		1,895,081		1,856,149		2,354,179		3,353,486		3,461,452		3,705,648		3,828,226

Premises and equipment, net		45,378		44,847		44,451		59,796		87,564		84,599		80,239		77,127
Other real estate owned		2,213		2,053		1,930		1,954		2,399		1,850		1,578		1,561
Mortgage servicing rights, at fair value		4,814		5,499		5,020		5,555		8,218		10,525		10,639		11,322
Goodwill		18,604		18,604		18,604		19,340		86,332		86,332		86,333		86,477
Core deposit intangible		2,115		1,998		1,883		6,747		15,977		15,286		14,561		13,950
Bank-owned life insurance ("BOLI")		63,259		63,633		64,008		78,217		105,396		105,463		105,448		105,754
Deferred tax assets, net		8,228		7,782		6,487		9,273		10,689		27,154		31,738		50,533
Other assets		42,877		40,952		43,032		106,880		54,412		43,100		47,314		49,002
Total other assets		187,488		185,368		185,415		287,762		370,987		374,309		377,850		395,726
Total assets	$	3,097,905	$	3,238,832	$	3,273,160	$	4,311,473	$	6,233,395	$	6,132,095	$	5,995,956	$	5,927,622

Liabilities
Deposits:
Noninterest bearing demand	$	937,039	$	1,012,163	$	1,029,705	$	1,200,445	$	2,099,283	$	2,120,428	$	2,092,301	$	2,083,503
Interest bearing:
Savings, NOW, and money market		1,237,177		1,301,444		1,341,536		2,091,380		2,893,508		2,871,861		2,765,281		2,680,767
Time		399,310		359,635		331,482		370,919		495,452		469,009		459,925		450,111
Total deposits		2,573,526		2,673,242		2,702,723		3,662,744		5,488,243		5,461,298		5,317,507		5,214,381

Securities sold under repurchase agreements		82,475		67,737		46,339		47,571		39,204		34,496		33,733		33,275
Other short-term borrowings		-		1		-		-		-		-		5,435		44,293
Junior subordinated debentures		25,773		25,773		25,773		25,773		25,773		25,773		25,773		25,773
Subordinated debentures		-		56,081		59,180		59,201		59,222		59,244		59,265		59,286
Senior notes		44,389		44,415		44,441		44,468		44,494		44,520		44,546		44,572
Notes payable and other borrowings		23,330		22,250		21,171		20,090		19,009		13,103		10,989		9,978
Other liabilities		37,801		36,553		53,370		68,314		60,818		32,636		34,949		51,753
Total liabilities		2,787,294		2,926,052		2,952,997		3,928,161		5,736,763		5,671,070		5,532,197		5,483,311

Stockholders' equity
Common stock		34,957		34,957		34,958		38,248		44,705		44,705		44,705		44,705
Additional paid-in capital		121,578		120,359		120,857		148,528		202,828		202,544		201,570		201,973
Retained earnings		242,201		251,134		258,944		260,181		258,073		267,912		284,302		301,753
Accumulated other comprehensive income (loss)		14,496		13,971		14,965		10,986		(3,074)		(49,151)		(63,216)		(100,817)
Treasury stock		(102,621)		(107,641)		(109,561)		(74,631)		(5,900)		(4,985)		(3,602)		(3,303)
Total stockholders' equity		310,611		312,780		320,163		383,312		496,632		461,025		463,759		444,311
Total liabilities and stockholders' equity	$	3,097,905	$	3,238,832	$	3,273,160	$	4,311,473	$	6,233,395	$	6,132,095	$	5,995,956	$	5,927,622

Total Earning Assets	$	2,916,496	$	3,054,503	$	3,086,624	$	4,024,053	$	5,863,777	$	5,748,769	$	5,607,290	$	5,524,143
Total Interest Bearing Liabilities		1,812,454		1,877,336		1,869,922		2,659,402		3,576,662		3,518,006		3,404,947		3,348,055

Old Second Bancorp, Inc. and Subsidiaries

Quarterly Consolidated Statements of Income

(In thousands, except per share data, unaudited)



	2021								2022
	1st Qtr		2nd Qtr		3rd Qtr		4th Qtr		1st Qtr		2nd Qtr		3rd Qtr		4th Qtr
Interest and Dividend Income
Loans, including fees	$	22,207	$	20,815	$	21,315	$	26,276	$	36,366	$	38,229	$	46,614		55,170
Loans held-for-sale		55		38		39		34		57		32		22		19
Securities:
Taxable		1,615		1,832		1,854		2,867		5,169		6,786		9,116		10,495
Tax exempt		1,307		1,259		1,266		1,274		1,317		1,297		1,332		1,341
Dividends from FHLB and FRBC stock		115		113		114		114		153		263		261		259
Interest bearing deposits with financial institutions		92		137		203		225		269		782		663		461
Total interest and dividend income		25,391		24,194		24,791		30,790		43,331		47,389		58,008		67,745
Interest Expense
Savings, NOW, and money market deposits		241		217		209		295		397		347		380		776
Time deposits		500		409		330		271		277		265		335		571
Securities sold under repurchase agreements		31		21		15		14		11		9		10		10
Other short-term borrowings		-		-		-		-		-				44		436
Junior subordinated debentures		280		284		286		283		280		284		285		287
Subordinated debentures		-		517		547		546		546		547		546		546
Senior notes		673		673		673		673		485		578		728		891
Notes payable and other borrowings		123		119		113		108		103		95		111		137
Total interest expense		1,848		2,240		2,173		2,190		2,099		2,125		2,439		3,654
Net interest and dividend income		23,543		21,954		22,618		28,600		41,232		45,264		55,569		64,091
(Release of) provision for credit losses		(3,000)		(3,500)		(1,500)		12,326		-		550		4,500		1,500
Net interest and dividend income after (release of) provision for credit losses		26,543		25,454		24,118		16,274		41,232		44,714		51,069		62,591
Noninterest Income
Wealth management		2,151		2,389		2,372		2,495		2,698		2,506		2,280		2,403
Service charges on deposits		1,195		1,221		1,368		1,619		2,074		2,328		2,661		2,499
Secondary mortgage fees		322		272		240		210		139		50		81		62
Mortgage servicing rights mark to market gain (loss)		1,113		(1,033)		(282)		1,462		2,978		82		548		(431)
Mortgage servicing income		567		507		572		535		519		579		514		518
Net gain (loss) on sales of mortgage loans		3,721		1,895		2,186		1,498		1,495		(262)		449		340
Securities gains (losses), net		-		2		244		(14)		-		(33)		(1)		(910)
Change in cash surrender value of BOLI		334		423		406		228		124		72		146		376
Card related income		1,447		1,666		1,624		1,976		2,574		2,967		2,653		2,795
Other income		450		577		610		693		862		922		2,165		1,294
Total noninterest income		11,300		7,919		9,340		10,702		13,463		9,211		11,496		8,946
Noninterest Expense
Salaries and employee benefits		13,506		12,896		12,964		18,325		19,967		21,332		21,011		24,263
Occupancy, furniture and equipment		2,467		2,303		2,418		6,360		3,699		3,046		4,119		4,128
Computer and data processing		1,298		1,304		1,477		3,857		6,268		4,006		2,543		2,978
FDIC insurance		201		192		211		371		410		702		659		630
General bank insurance		276		277		301		360		315		351		257		298
Amortization of core deposit intangible		120		115		113		296		665		659		657		645
Advertising expense		60		95		107		81		182		194		83		130
Card related expense		593		626		662		657		534		1,057		1,453		1,304
Legal fees		55		135		455		451		257		179		212		225
Consulting & management fees		417		250		247		4,091		616		523		607		679
Other real estate expense (gain), net		36		77		25		14		(12)		87		22		34
Other expense		2,709		3,131		3,149		3,652		5,351		5,113		4,365		4,370
Total noninterest expense		21,738		21,401		22,129		38,515		38,252		37,249		35,988		39,684
Income (loss) before income taxes		16,105		11,972		11,329		(11,539)		16,443		16,676		26,577		31,853
Provision for (benefit from) income taxes		4,226		3,152		2,917		(2,472)		4,423		4,429		7,054		8,238
Net income (loss)	$	11,879	$	8,820	$	8,412	$	(9,067)	$	12,020	$	12,247	$	19,523	$	23,615

Basic earnings per share (GAAP)	$	0.41	$	0.30	$	0.30	$	(0.27)	$	0.27	$	0.28	$	0.43	$	0.53
Diluted earnings per share (GAAP)		0.40		0.30		0.29		(0.26)		0.27		0.27		0.43		0.52
Dividends paid per share		0.01		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
	December 31,		September 30,		December 31,
	2022		2022		2021
Net Income
Income before income taxes (GAAP)	$	31,853	$	26,577	$	(11,539)
Pre-tax income adjustments:
Provision for credit losses - Day Two		-		-		14,625
Merger-related costs, net of gains/losses on branch sales		617		1,061		12,765
Gains on the sale of Visa credit card and land trust portfolios		-		(923)		-
Adjusted net income before taxes		32,470		26,715		15,851
Taxes on adjusted net income		8,398		7,091		3,396
Adjusted net income (non-GAAP)	$	24,072	$	19,624	$	12,455

Basic earnings per share (GAAP)	$	0.53	$	0.43	$	(0.27)
Diluted earnings per share (GAAP)		0.52		0.43		(0.26)
Adjusted basic earnings per share excluding acquisition-related costs (non-GAAP)		0.54		0.44		0.37
Adjusted diluted earnings per share excluding acquisition-related costs (non-GAAP)		0.53		0.43		0.36


	Quarters Ended									Year Ended
	December 31,			September 30,			December 31,			December 31,
	2022			2022			2021			2022			2021
Net Interest Margin
Interest income (GAAP)	$	67,745		$	58,008		$	30,790		$	216,473		$	105,165
Taxable-equivalent adjustment:
Loans		6			6			4			23			15
Securities		356			354			339			1,405			1,357
Interest income (TE)		68,107			58,368			31,133			217,901			106,537
Interest expense (GAAP)		3,654			2,439			2,190			10,317			8,450
Net interest income (TE)	$	64,453		$	55,929		$	28,943		$	207,584		$	98,087
Net interest income (GAAP)	$	64,091		$	55,569		$	28,600		$	206,156		$	96,715
Average interest earning assets	$	5,524,143		$	5,607,290		$	4,024,053		$	5,684,862		$	3,272,951
Net interest margin (GAAP)		4.60	%		3.93	%		2.82	%		3.63	%		2.95	%
Net interest margin (TE)		4.63	%		3.96	%		2.85	%		3.65	%		3.00	%


	GAAP									Non-GAAP
		Three Months Ended									Three Months Ended
	December 31,			September 30,			December 31,			December 31,			September 30,			December 31,
	2022			2022			2021			2022			2022			2021
Efficiency Ratio / Adjusted Efficiency Ratio

Noninterest expense	$	39,684		$	35,988		$	38,515		$	39,684		$	35,988		$	38,515
Less amortization of core deposit		645			657			296			645			657			296
Less other real estate expense, net		34			22			14			34			22			14
Less acquisition related costs, net of gain on branch sales		N/A			N/A			N/A			617			1,061			12,766
Noninterest expense less adjustments	$	39,005		$	35,309		$	38,205		$	38,388		$	34,248		$	25,439

Net interest income	$	64,091		$	55,569		$	28,600		$	64,091		$	55,569		$	28,600
Taxable-equivalent adjustment:
Loans		N/A			N/A			N/A			6			6			4
Securities		N/A			N/A			N/A			356			354			339
Net interest income including adjustments		64,091			55,569			28,600			64,453			55,929			28,943
Noninterest income		8,946			11,496			10,702			8,946			11,496			10,702
Less securities losses		(910)			(1)			(14)			(910)			(1)			(14)
Less MSRs mark to market (loss) gain		(431)			548			1,462			(431)			548			1,462
Less gain on Visa credit card portfolio sale		N/A			N/A			N/A			-			743			-
Less gain on sale of land trust portfolio		N/A			N/A			N/A			-			180			-
Taxable-equivalent adjustment:
Change in cash surrender value of BOLI		N/A			N/A			N/A			100			39			61
Noninterest income (less) / including adjustments		10,287			10,949			9,254			10,387			10,065			9,315

Net interest income including adjustments plus noninterest income (less) / including adjustments	$	74,378		$	66,518		$	37,854		$	74,840		$	65,994		$	38,258
Efficiency ratio / Adjusted efficiency ratio		52.44	%		53.08	%		100.93	%		51.29	%		51.90	%		66.49	%


	Quarters Ended									Year Ended
	December 31,			September 30,			December 31,			December 31,
	2022			2022			2021			2022			2021
Return on Average Tangible Common Equity Ratio

Net income (loss) (GAAP)	$	23,615		$	19,523		$	(9,067)		$	67,405		$	20,044

Income before income taxes (GAAP)	$	31,853		$	26,577		$	(11,539)		$	91,549		$	27,867
Pre-tax income adjustments:
Provision for credit losses - Day Two		-			-			14,625			-			14,625
Merger-related costs, net of gains on branch sales		617			1,061			12,765			9,144			13,190
Gains on the sale of Visa credit card and land trust portfolios		-			(953)			-			(923)			-
Amortization of core deposit intangibles		645			657			296			2,627			644
Adjusted net income, excluding intangibles amortization, before taxes		33,115			27,342			16,147			102,397			56,326
Taxes on adjusted net income		8,564			7,257			3,459			27,033			13,958
Adjusted net income, excluding intangibles amortization (non-GAAP)	$	24,551		$	20,085		$	12,688		$	75,364		$	42,368


Total Average Common Equity	$	444,311			463,759		$	383,312		$	466,281		$	331,883
Less Average goodwill and intangible assets		100,427			100,894			26,087			101,306			21,985
Average tangible common equity (non-GAAP)	$	343,884		$	362,865		$	357,225		$	364,975		$	309,898


Return on average common equity (GAAP)		21.09	%		16.70	%		(9.38)	%		14.46	%		6.04	%
Adjusted return on average tangible common equity (non-GAAP)		28.33	%		21.96	%		14.09	%		20.65	%		13.67	%