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I

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For transition period from          to          

Commission File Number 000-10537

Graphic

(Exact name of Registrant as specified in its charter)

Delaware

36-3143493

(State or other jurisdiction

(I.R.S. Employer Identification Number)

of incorporation or organization)

37 South River Street, AuroraIllinois     60507

(Address of principal executive offices) (Zip Code)

(630) 892-0202

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

OSBC

The Nasdaq Stock Market

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes         No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ ‘‘smaller reporting company,’’ and ‘‘emerging growth company’’ in Rule 12b–2 of the Exchange Act.

Large accelerated filerAccelerated filer

Non-accelerated filerSmaller reporting companyEmerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).

Yes         No 

As of May 3, 2024, the Registrant has 44,845,629 shares of common stock outstanding at $1.00 par value per share.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report and other publicly available documents of the Company contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act, including, but not limited to, management’s expectations regarding future plans, strategies and financial performance, including regulatory developments, industry and economic trends and estimates and assumptions underlying accounting policies.  Forward-looking statements are based on our current beliefs, expectations and assumptions and on information currently available and, can be identified by the use of words such as “expects,” “intends,” “believes,” “may,” “will,” “would,” “could,” “should,” “plan,” “anticipate,” “estimate,” “possible,” “likely” or the negative thereof as well as other similar words and expressions of the future. Forward-looking statements are subject to risks, uncertainties and assumptions that are difficult to predict as to timing, extent, likelihood and degree of occurrence, which could cause our actual results to differ materially from those anticipated in or by such statements. Potential risks and uncertainties include, but are not limited to, the following:

our ability to execute our growth strategy;
negative economic conditions that adversely affect the economy, real estate values, the job market and other factors nationally and in our market area, in each case that may affect our liquidity and the performance of our loan portfolio;
risks with respect to our ability to successfully expand and integrate businesses and operations that we acquire, as well our ability to identify and complete future mergers or acquisitions;
the financial success and viability of the borrowers of our commercial loans;
changes in U.S. monetary policy, the level and volatility of interest rates, the capital markets and other market conditions that may affect, among other things, our liquidity and the value of our assets and liabilities;
competitive pressures from other financial service businesses and from nontraditional financial technology (“FinTech”) companies;
any negative perception of our reputation or financial strength;
our ability to raise additional capital on acceptable terms when needed;
our ability to raise cost-effective funding to support business plans when needed:
our ability to use technology to provide products and services that will satisfy customer demands and create efficiencies in operations;
adverse effects on our information technology systems resulting from system failures, human error or cyberattacks;
adverse effects of failures by our vendors to provide agreed upon services in the manner and at the cost agreed, particularly our information technology vendors and those vendors performing a service on the Company’s behalf;
the impact of any claims or legal actions, including any effect on our reputation;
losses incurred in connection with repurchases and indemnification payments related to mortgages;
the soundness of other financial institutions and other counter-party risk;
changes in accounting standards, rules and interpretations and the related impact on our financial statements;
our ability to receive dividends from our subsidiaries;
a decrease in our regulatory capital ratios or negative changes in our capital position;
adverse federal or state tax assessments, or changes in tax laws or policies;
risks associated with actual or potential litigation or investigations by customers, regulatory agencies or others;
legislative or regulatory changes, particularly changes in regulation of financial services companies;
increased costs of compliance, heightened regulatory capital requirements and other risks associated with changes in regulation and the current regulatory environment;
risks associated with complex and changing regulatory environments, including, among others, with respect to data privacy, artificial intelligence, information security, climate change or other environmental, social and governance matters, and labor matters, relating to our operations;
the adverse effects of events beyond our control that may have a destabilizing effect on financial markets and the economy, such as epidemics and pandemics, war or terrorist activities, such as the war in Ukraine, the Middle East conflict, and the conflict between China and Taiwan, essential utility outages, deterioration in the global economy, instability in the credit markets, disruptions in our customers’ supply chains or disruption in transportation;
changes in trade policy and any related tariffs; and
each of the factors and risks under the heading “Risk Factors” in our 2023 Annual Report on Form 10-K and in subsequent filings we make with the SEC.

Because the Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain, there can be no assurances that future actual results will correspond to any forward-looking statements and you should not rely on any forward-looking statements.  Additionally, all statements in this Form 10-Q, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events, except as required by applicable law.

3

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share data)

(unaudited)

March 31, 

December 31, 

    

2024

    

2023

Assets

Cash and due from banks

$

48,841

$

55,534

Interest earning deposits with financial institutions

49,253

44,611

Cash and cash equivalents

98,094

100,145

Securities available-for-sale, at fair value

1,168,797

1,192,829

Federal Home Loan Bank Chicago (“FHLBC”) and Federal Reserve Bank Chicago (“FRBC”) stock

28,518

33,355

Loans held-for-sale

1,072

1,322

Loans

3,969,411

4,042,953

Less: allowance for credit losses on loans

44,113

44,264

Net loans

3,925,298

3,998,689

Premises and equipment, net

81,290

79,310

Other real estate owned

5,123

5,123

Mortgage servicing rights, at fair value

10,564

10,344

Goodwill

86,478

86,478

Core deposit intangible

10,637

11,217

Bank-owned life insurance (“BOLI”)

110,490

109,318

Deferred tax assets, net

31,699

31,077

Other assets

58,012

63,592

Total assets

$

5,616,072

$

5,722,799

Liabilities

Deposits:

Noninterest bearing demand

$

1,799,927

$

1,834,891

Interest bearing:

Savings, NOW, and money market

2,221,696

2,207,949

Time

586,652

527,906

Total deposits

4,608,275

4,570,746

Securities sold under repurchase agreements

33,546

26,470

Other short-term borrowings

220,000

405,000

Junior subordinated debentures

25,773

25,773

Subordinated debentures

59,403

59,382

Other liabilities

72,916

58,147

Total liabilities

5,019,913

5,145,518

Stockholders’ Equity

Common stock

44,908

44,705

Additional paid-in capital

203,129

202,223

Retained earnings

412,388

393,311

Accumulated other comprehensive loss

(63,361)

(62,781)

Treasury stock

(905)

(177)

Total stockholders’ equity

596,159

577,281

Total liabilities and stockholders’ equity

$

5,616,072

$

5,722,799

March 31, 2024

December 31, 2023

Common

Common

Stock

    

Stock

Par value

$

1.00

$

1.00

Shares authorized

60,000,000

60,000,000

Shares issued

44,907,619

44,705,150

Shares outstanding

44,845,629

44,697,917

Treasury shares

61,990

7,233

See accompanying notes to consolidated financial statements.

4

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

(In thousands, except per share data)

(unaudited)

Three Months Ended March 31, 

    

2024

    

2023

    

Interest and dividend income

Loans, including fees

$

62,673

$

57,210

Loans held-for-sale

14

12

Securities:

Taxable

8,092

10,735

Tax exempt

1,306

1,337

Dividends from FHLBC and FRBC stock

635

280

Interest bearing deposits with financial institutions

610

585

Total interest and dividend income

73,330

70,159

Interest expense

Savings, NOW, and money market deposits

4,037

1,149

Time deposits

4,041

664

Securities sold under repurchase agreements

86

9

Other short-term borrowings

4,557

2,345

Junior subordinated debentures

280

279

Subordinated debentures

546

546

Senior notes

-

994

Notes payable and other borrowings

-

87

Total interest expense

13,547

6,073

Net interest and dividend income

59,783

64,086

Provision for credit losses

3,500

3,501

Net interest and dividend income after provision for credit losses

56,283

60,585

Noninterest income

Wealth management

2,561

2,270

Service charges on deposits

2,415

2,424

Secondary mortgage fees

50

59

Mortgage servicing rights mark to market gain (loss)

94

(525)

Mortgage servicing income

488

516

Net gain on sales of mortgage loans

314

306

Securities gains (losses), net

1

(1,675)

Change in cash surrender value of BOLI

1,172

242

Card related income

2,376

2,244

Other income

1,030

1,489

Total noninterest income

10,501

7,350

Noninterest expense

Salaries and employee benefits

24,312

22,248

Occupancy, furniture and equipment

3,927

3,475

Computer and data processing

2,255

1,774

FDIC insurance

667

584

Net teller & bill paying

521

502

General bank insurance

309

305

Amortization of core deposit intangible

580

624

Advertising expense

192

142

Card related expense

1,277

1,216

Legal fees

226

319

Consulting & management fees

336

790

Other real estate expense, net

46

306

Other expense

3,593

3,637

Total noninterest expense

38,241

35,922

Income before income taxes

28,543

32,013

Provision for income taxes

7,231

8,406

Net income

$

21,312

$

23,607

Basic earnings per share

$

0.48

$

0.53

Diluted earnings per share

0.47

0.52

Dividends declared per share

0.05

0.05

See accompanying notes to consolidated financial statements.

5

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

(unaudited)

Three Months Ended March 31, 

    

2024

    

2023

Net Income

$

21,312

$

23,607

Unrealized holding (losses) gains on available-for-sale securities arising during the period

(876)

16,210

Related tax benefit (expense)

245

(4,536)

Holding (losses) gains, after tax, on available-for-sale securities

(631)

11,674

Less: Reclassification adjustment for the net gains (losses) realized during the period

Net realized gains (losses)

1

(1,675)

Related tax benefit

-

471

Net realized gains (losses) after tax

1

(1,204)

Other comprehensive (loss) income on available-for-sale securities

(632)

12,878

Changes in fair value of derivatives used for cash flow hedges

52

1,602

Related tax expense

-

(456)

Other comprehensive income on cash flow hedges

52

1,146

Total other comprehensive (loss) income

(580)

14,024

Total comprehensive income

$

20,732

$

37,631

Accumulated

Accumulated

Total

Unrealized Gain

Unrealized Gain

Accumulated Other

(Loss) on Securities

(Loss) on Derivative

Comprehensive

(unaudited)

Available-for -Sale

Instruments

Income/(Loss)

For the Three Months Ended

Balance, January 1, 2023

$

(88,892)

$

(4,232)

$

(93,124)

Other comprehensive income, net of tax

12,878

1,146

14,024

Balance, March 31, 2023

$

(76,014)

$

(3,086)

$

(79,100)

Balance, January 1, 2024

$

(60,590)

$

(2,191)

$

(62,781)

Other comprehensive (loss) income, net of tax

(632)

52

(580)

Balance, March 31, 2024

$

(61,222)

$

(2,139)

$

(63,361)

See accompanying notes to consolidated financial statements.

6

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

Three Months Ended March 31, 

2024

    

2023

Cash flows from operating activities

Net income

$

21,312

$

23,607

Adjustments to reconcile net income to net cash provided by operating activities:

Net premium / discount amortization on securities

821

799

Securities (gains) losses, net

(1)

1,675

Provision for credit losses

3,500

3,501

Originations of loans held-for-sale

(9,103)

(10,206)

Proceeds from sales of loans held-for-sale

9,536

9,957

Net gains on sales of mortgage loans

(314)

(306)

Mortgage servicing rights mark to market (gain) loss

(94)

525

Net accretion of discount on loans and unfunded commitments

(157)

(1,180)

Net change in cash surrender value of BOLI

(1,172)

(242)

Net losses on sale of other real estate owned

-

28

Provision for other real estate owned valuation losses

-

269

Depreciation of fixed assets and amortization of leasehold improvements

1,350

1,046

Net gains on disposal and transfer of fixed assets

-

(434)

Amortization of core deposit intangibles

580

624

Change in current income taxes receivable

4,825

7,043

Deferred tax (benefit) expense

(375)

1,442

Change in accrued interest receivable and other assets

1,543

2,635

Accretion of purchase accounting adjustment on time deposits

(78)

(367)

Change in accrued interest payable and other liabilities

14,059

(6,344)

Stock based compensation

1,058

932

Net cash provided by operating activities

47,290

35,004

Cash flows from investing activities

Proceeds from maturities and calls, including pay down of securities available-for-sale

32,665

37,718

Proceeds from sales of securities available-for-sale

5,331

66,170

Purchases of securities available-for-sale

(15,661)

(4,186)

Proceeds from redemptions (purchases) of FHLBC/FRBC stock

4,837

(9,675)

Net change in loans

70,048

(132,445)

Proceeds from sales of other real estate owned, net of participations and improvements

-

300

Proceeds from disposition of premises and equipment

-

756

Net purchases of premises and equipment

(3,330)

(1,560)

Net cash provided by (used in) investing activities

93,890

(42,922)

Cash flows from financing activities

Net change in deposits

37,607

(213,136)

Net change in securities sold under repurchase agreements

7,076

(4,259)

Net change in other short-term borrowings

(185,000)

225,000

Repayment of term note

-

(9,000)

Vesting of restricted stock

99

-

Dividends paid on common stock

(2,237)

(2,237)

Purchase of treasury stock

(776)

(605)

Net cash (used in) provided by financing activities

(143,231)

(4,237)

Net change in cash and cash equivalents

(2,051)

(12,155)

Cash and cash equivalents at beginning of period

100,145

115,177

Cash and cash equivalents at end of period

$

98,094

$

103,022

See accompanying notes to consolidated financial statements.

7

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Changes in

Stockholders’ Equity

(In thousands)

Accumulated

Additional

Other

Total

(unaudited)

Common

Paid-In

Retained

Comprehensive

Treasury

Stockholders’

    

Stock

    

Capital

    

Earnings

    

(Loss) Income

    

Stock

    

Equity

For the Three Months Ended

Balance, January 1, 2023

$

44,705

$

202,276

$

310,512

$

(93,124)

$

(3,228)

$

461,141

Net income

23,607

23,607

Other comprehensive income, net of tax

14,024

14,024

Dividends declared on common stock, ($0.05 per share)

(2,229)

(2,229)

Vesting of restricted stock

(3,087)