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What changed in OLD SECOND BANCORP INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of OLD SECOND BANCORP INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+388 added−377 removedSource: 10-K (2024-03-07) vs 10-K (2023-03-09)

Top changes in OLD SECOND BANCORP INC's 2023 10-K

388 paragraphs added · 377 removed · 295 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

76 edited+44 added−29 removed151 unchanged
Biggest changeNotably, changes include: ● expansion of coordination and information sharing efforts among the agencies tasked with administering anti-money laundering and countering the financing of terrorism requirements, including the Financial Crimes Enforcement Network (“FinCEN”), the primary federal banking regulators, federal law enforcement agencies, national security agencies, the intelligence community, and financial institutions; ● providing additional penalties with respect to violations of BSA and enhancing the powers of FinCEN; ● significant updates to the beneficial ownership collection rules and the creation of a registry of beneficial ownership which will track the beneficial owners of reporting companies which may be shared with law enforcement and financial institutions conducting due diligence under certain circumstances; ● improvements to existing information sharing provisions that permit financial institutions to share information relating to SARs with foreign branches, subsidiaries, and affiliates (except those located in China, Russia, or certain other jurisdictions) for the purpose of combating illicit finance risks; and ● enhanced whistleblower protection provisions, allowing whistleblower(s) who provide original information which leads to successful enforcement of anti-money laundering laws in certain judicial or administrative actions resulting in certain monetary sanctions to receive up to 30% of the amount that is collected in monetary sanctions as well as increased protections. ​ Following Russia’s invasion of Ukraine, OFAC took several sanctions related actions related to the Russian financial services sector pursuant to Executive Order 14024 beginning in February 2022 including: (i) a determination by the Secretary of the Treasury with respect to the financial services sector of the Russian Federation that authorizes sanctions against persons determined to operate or to have operated in that sector; (ii) correspondent or payable-through account and payment processing prohibitions on certain Russian financial institutions; (iii) the blocking of certain Russian financial institutions; (iv) expanding sovereign debt prohibitions to apply to new issuances in the secondary market; (v) prohibitions related to new debt and equity for certain Russian entities; and (vi) a prohibition on transactions involving certain Russian government entities, including the Central Bank of the Russian Federation.
Biggest changeNotably, changes include: ● expansion of coordination and information sharing efforts among the agencies tasked with administering anti-money laundering and countering the financing of terrorism requirements, including the Financial Crimes Enforcement Network (“FinCEN”), the primary federal banking regulators, federal law enforcement agencies, national security agencies, the intelligence community, and financial institutions; ● providing additional penalties with respect to violations of BSA and enhancing the powers of FinCEN; ● significant updates to the beneficial ownership collection rules and the creation of a registry of beneficial ownership which will track the beneficial owners of reporting companies which may be shared with law enforcement and financial institutions conducting due diligence under certain circumstances; ● improvements to existing information sharing provisions that permit financial institutions to share information relating to SARs with foreign branches, subsidiaries, and affiliates (except those located in China, Russia, or certain other jurisdictions) for the purpose of combating illicit finance risks; and ● enhanced whistleblower protection provisions, allowing whistleblower(s) who provide original information which leads to successful enforcement of anti-money laundering laws in certain judicial or administrative actions resulting in certain monetary sanctions to receive up to 30% of the amount that is collected in monetary sanctions as well as increased protections. ​ In August, 2023, the FFIEC revised and updated the examination procedures in the FFIEC’s Bank Secrecy Act/Anti-Money Laundering (BSA/AML) Examination Manual to provide greater transparency into the examination process and support risk-based examination work.
A primary repayment risk for owner occupied commercial real estate loans is a reduction of or discontinuance of cash flows from underlying operations; for non-owner occupied loans, cash flow disruptions may occur with the loss of a tenant or rental income reductions.
A primary repayment risk for owner occupied commercial real estate loans is a reduction of or discontinuance of cash flows from underlying operations; for non-owner occupied commercial real estate loans, cash flow disruptions may occur with the loss of a tenant or rental income reductions.
The loan operations of the Bank are also subject to federal laws applicable to credit transactions, such as: ​ ● the Truth-In-Lending Act (“TILA”) and Regulation Z, governing disclosures of credit and servicing terms to consumer borrowers and including substantial requirements for mortgage lending and servicing, as mandated by the Dodd-Frank Act; ● the Home Mortgage Disclosure Act and Regulation C, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the communities they serve; ● ECOA and Regulation B, prohibiting discrimination on the basis of race, color, religion, or other prohibited factors in any aspect of a credit transaction; ● the Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act and Regulation V, as well as the rules and regulations of the FDIC governing the use of consumer reports, provision of information to credit reporting agencies, certain identity theft protections and certain credit and other disclosures; ● the Fair Debt Collection Practices Act and Regulation F, governing the manner in which consumer debts may be collected by collection agencies and intending to eliminate abusive, deceptive, and unfair debt collection practices ; 16 ​ Table of Contents ● the Real Estate Settlement Procedures Act (“RESPA”) and Regulation X, which governs various aspects of residential mortgage loans, including the settlement and servicing process, dictates certain disclosures to be provided to consumers, and imposes other requirements related to compensation of service providers, insurance escrow accounts, and loss mitigation procedures; ● the Secure and Fair Enforcement for Mortgage Licensing Act (“SAFE Act”) which mandates a nationwide licensing and registration system for residential mortgage loan originators.
The loan operations of the Bank are also subject to federal laws applicable to credit transactions, such as: ​ ● the Truth-In-Lending Act (“TILA”) and Regulation Z, governing disclosures of credit and servicing terms to consumer borrowers and including substantial requirements for mortgage lending and servicing, as mandated by the Dodd-Frank Act; ● the Home Mortgage Disclosure Act and Regulation C, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the communities they serve; ● ECOA and Regulation B, prohibiting discrimination on the basis of race, color, religion, or other prohibited factors in any aspect of a credit transaction; ● the Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act and Regulation V, as well as the rules and regulations of the FDIC governing the use of consumer reports, provision of information to credit reporting agencies, certain identity theft protections and certain credit and other disclosures; ● the Fair Debt Collection Practices Act and Regulation F, governing the manner in which consumer debts may be collected by collection agencies and intending to eliminate abusive, deceptive, and unfair debt collection practices ; ● the Real Estate Settlement Procedures Act (“RESPA”) and Regulation X, which governs various aspects of residential mortgage loans, including the settlement and servicing process, dictates certain disclosures to be provided to consumers, and imposes other requirements related to compensation of service providers, insurance escrow accounts, and loss mitigation procedures; ● the Secure and Fair Enforcement for Mortgage Licensing Act (“SAFE Act”) which mandates a nationwide licensing and registration system for residential mortgage loan originators.
Under the final rules, which went into effect on January 1, 2020, depository institutions and depository institution holding companies that have less than $10 billion in total consolidated assets and meet other qualifying criteria, including a leverage ratio of greater than 9%, off-balance-sheet exposures of 25% or less of total consolidated assets, and trading assets plus trading liabilities of 5% or less of total consolidated assets, are deemed “qualifying community banking organizations” and are eligible to opt into the “community bank leverage ratio framework.” A qualifying community banking organization that elects to use the community bank leverage ratio framework and that maintains a leverage ratio of greater than 9% is considered to have satisfied the generally applicable risk-based and leverage capital requirements under the Basel III rules and, if 9 ​ Table of Contents applicable, is considered to have met the “well capitalized” ratio requirements for purposes of its primary federal regulator’s prompt corrective action rules, discussed below.
Under the final rules, which went into effect on January 1, 2020, depository institutions and depository institution holding companies that have less than $10 billion in total consolidated assets and meet other qualifying criteria, including a leverage ratio of greater than 9%, off-balance-sheet exposures of 25% or less of total consolidated assets, and trading assets plus trading liabilities of 5% or less of total consolidated assets, are deemed “qualifying community banking organizations” and are eligible to opt into the “community bank leverage ratio framework.” A qualifying community banking organization that elects to use the community bank leverage ratio framework and that maintains a leverage ratio of greater than 9% is considered to have satisfied the generally applicable risk-based and leverage capital requirements under the Basel III rules and, if applicable, is considered to have met the “well capitalized” ratio requirements for purposes of its primary federal regulator’s prompt corrective action rules, discussed below.
The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. 7 ​ Table of Contents ​ Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statements, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 may be obtained without charge upon written request to Investor Relations, Old Second Bancorp, Inc., 37 South River Street, Aurora, Illinois 60507 and are accessible at no cost on our website at www.oldsecond.com in the “Investor Relations” section, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC.
The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. ​ Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statements, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 may be obtained without charge upon written request to Investor Relations, Old Second Bancorp, Inc., 37 South River Street, Aurora, Illinois 60507 and are accessible at no cost on our website at www.oldsecond.com in the “Investor Relations” section, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC.
Acquisition Activities . The primary purpose of a bank holding company is to control and manage banks. The BHCA generally requires the prior approval of the Federal Reserve for any merger involving a bank holding company or any acquisition by a bank holding company of another bank or bank holding company.
The primary purpose of a bank holding company is to control and manage banks. The BHCA generally requires the prior approval of the Federal Reserve for any merger involving a bank holding company or any acquisition by a bank holding company of another bank or bank holding company.
As such, there was no reserve requirement as of December 31, 2021 or 2022. The nature of the Company’s business requires that it maintain amounts with other banks and federal funds which, at times, may exceed federally insured limits. Management monitors these correspondent relationships, and the Company has not experienced any losses in such accounts.
As such, there was no reserve requirement as of December 31, 2022 or 2023. The nature of the Company’s business requires that it maintain amounts with other banks and federal funds which, at times, may exceed federally insured limits. Management monitors these correspondent relationships, and the Company has not experienced any losses in such accounts.
We also have commercial and industrial loans to customers in food product manufacturing, food process and packing, machinery tooling manufacturing, healthcare, as well as service and technology companies. Collateral for these loans generally includes accounts receivable, inventory, equipment and real estate. In addition, we often obtain personal guarantees to help assure repayment.
We also have commercial and industrial loans to customers in food product manufacturing, food process and packing, machinery tooling manufacturing, healthcare, as well as service and technology companies. Collateral for these loans generally includes accounts receivable, inventory, equipment and real estate. In addition, we often obtain personal and/or corporate guarantees to help assure repayment.
As of December 31, 2022, the Bank was well-capitalized, as defined by OCC regulations. As of December 31, 2022, we had regulatory capital in excess of the Federal Reserve’s requirements and met the Basel III Rule requirements to be well-capitalized. Prompt Corrective Action . An FDIC-insured institution’s capital plays an important role in connection with regulatory enforcement as well.
As of December 31, 2023, the Bank was well-capitalized, as defined by OCC regulations. As of December 31, 2023, we had regulatory capital in excess of the Federal Reserve’s requirements and met the Basel III Rule requirements to be well-capitalized. Prompt Corrective Action . An FDIC-insured institution’s capital plays an important role in connection with regulatory enforcement as well.
We continue to focus on identifying commercial and industrial prospects in our new business pipeline, which led to favorable results in 2022. As noted above, we are an active commercial lender in the Chicago metropolitan area, with primary markets in the city of Chicago, as well as west and south of Chicago.
We continue to focus on identifying commercial and industrial prospects in our new business pipeline, which led to favorable results in 2023. As noted above, we are an active commercial lender in the Chicago metropolitan area, with primary markets in the city of Chicago, as well as west and south of Chicago.
Old Second National Bank (the “Bank”) is a national banking association headquartered in Aurora, Illinois, that operates through 50 banking centers located in Cook, DeKalb, DuPage, Kane, Kendall, LaSalle and Will counties in Illinois. ​ In this report, unless the context suggests otherwise, references to the “Company” refer to Old Second Bancorp, Inc. and references to “we,” “us,” and “our” mean the combined business of the Company, the Bank and its wholly-owned subsidiaries. ​ We conduct a full service community banking and trust business through the Bank and its wholly-owned subsidiaries, as follows: ​ ● Old Second Affordable Housing Fund, L.L.C., which was formed for the purpose of providing down payment assistance for home ownership to qualified individuals; ● Station I, LLC and Melrose Holdings 7, LLC, which were formed to hold property acquired by the Bank through foreclosure or in the ordinary course of collecting a debt previously contracted with borrowers; ● River Street Advisors, LLC, which was formed in May 2010 to provide investment advisory/management services; ​ Intercompany transactions and balances are eliminated in consolidation.
Old Second National Bank (the “Bank”) is a national banking association headquartered in Aurora, Illinois, that operates through 48 banking centers located in Cook, DeKalb, DuPage, Kane, Kendall, LaSalle and Will counties in Illinois. ​ In this report, unless the context suggests otherwise, references to the “Company” refer to Old Second Bancorp, Inc. and references to “we,” “us,” and “our” mean the combined business of the Company, the Bank and its wholly-owned subsidiaries. ​ We conduct a full service community banking and trust business through the Bank and its wholly-owned subsidiaries, as follows: ​ ● Old Second Affordable Housing Fund, L.L.C., which was formed for the purpose of providing down payment assistance for home ownership to qualified individuals; ● Station I, LLC, which was formed to hold property acquired by the Bank through foreclosure or in the ordinary course of collecting a debt previously contracted with borrowers; ● River Street Advisors, LLC, which was formed in May 2010 to provide investment advisory/management services; ​ Intercompany transactions and balances are eliminated in consolidation.
As described above, the Bank exceeded its capital requirements under applicable guidelines as of December 31, 2022. Notwithstanding the availability of funds for dividends, however, the OCC may prohibit the payment of dividends by the Bank if it determines such payment would constitute an unsafe or unsound practice.
As described above, the Bank exceeded its capital requirements under applicable guidelines as of December 31, 2023. Notwithstanding the availability of funds for dividends, however, the OCC may prohibit the payment of dividends by the Bank if it determines such payment would constitute an unsafe or unsound practice.
We experienced a decline in our organic home equity lending in 2022 and 2021, as HELOC payoffs were accelerated on both the organic and purchased portfolios held. ​ Consumer Loans. We also provide many types of consumer loans including primarily motor vehicle, home improvement and signature loans.
We experienced a decline in our organic home equity lending in 2023 and 2022, as HELOC payoffs were accelerated on both the organic and purchased portfolios held. ​ Consumer Loans. We also provide many types of consumer loans including primarily motor vehicle, home improvement and signature loans.
FHA prohibits discrimination in all aspects of residential real-estate related transactions based on prohibited factors, including race or color, national origin, religion, sex, familial status, and handicap. 14 ​ Table of Contents In addition to prohibiting discrimination in credit transactions on the basis of prohibited factors, these laws and regulations can cause a lender to be liable for policies that result in a disparate treatment of or have a disparate impact on a protected class of persons.
FHA prohibits discrimination in all aspects of residential real-estate related transactions based on prohibited factors, including race or color, national origin, religion, sex, familial status, and handicap. ​ In addition to prohibiting discrimination in credit transactions on the basis of prohibited factors, these laws and regulations can cause a lender to be liable for policies that result in a disparate treatment of or have a disparate impact on a protected class of persons.
The regulators and other governmental authorities have been active in imposing “cease and desist” orders and significant money penalty sanctions against institutions found to be in violation of the anti-money laundering regulations. On January 1, 2021, Congress overrode former President Trump’s veto and thereby enacted the National Defense Authorization Act for Fiscal Year 2021 (“NDAA”).
The regulators and other governmental authorities have been active in imposing “cease and desist” orders and significant money penalty sanctions against institutions found to be in violation of the anti-money laundering regulations. 16 ​ Table of Contents On January 1, 2021, Congress overrode former President Trump’s veto and thereby enacted the National Defense Authorization Act for Fiscal Year 2021 (“NDAA”).
We continue to monitor concentration levels as we seek to manage to an acceptable level of risk with all loan portfolio segments. Financial Privacy and Cybersecurity. Under privacy protection provisions of the Gramm-Leach-Bliley Act of 1999 and related regulations, we are limited in our ability to disclose non-public information about consumers to nonaffiliated third parties.
We continue to monitor concentration levels as we seek to manage to an acceptable level of risk with all loan portfolio segments. 17 ​ Table of Contents Financial Privacy and Cybersecurity. Under privacy protection provisions of the Gramm-Leach-Bliley Act of 1999 and related regulations, we are limited in our ability to disclose non-public information about consumers to nonaffiliated third parties.
In addition, with the West Suburban acquisition, we acquired a small credit card portfolio of approximately $5.2 million at December 31, 2021, which was sold during the third quarter of 2022.
In addition, with the West Suburban acquisition, we acquired a small credit card portfolio with outstanding balances of approximately $5.2 million at December 31, 2021, which was sold during the third quarter of 2022.
As of December 31, 2022, capital measures of the Company exclude $2.9 million, which is primarily the Day One impact of CECL adoption to retained earnings recorded in 2020 less partial runoff since January 2022. ​ In November 2019, the federal banking regulators published final rules implementing a simplified measure of capital adequacy for certain banking organizations that have less than $10 billion in total consolidated assets.
As of December 31, 2023 and 2022, capital measures of the Company exclude $1.9 million and $2.9 million, respectively, which is primarily the Day One impact of CECL adoption to retained earnings recorded in 2020 less partial runoff since January 2022. ​ In November 2019, the federal banking regulators published final rules implementing a simplified measure of capital adequacy for certain banking organizations that have less than $10 billion in total consolidated assets.
The Federal Reserve also possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations. Among these powers is the ability to proscribe the payment of dividends by banks and 11 ​ Table of Contents bank holding companies.
The Federal Reserve also possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations. Among these powers is the ability to proscribe the payment of dividends by banks and bank holding companies.
As of December 31, 2021, this additional component added to capital had been materially reversed over the past year, as provision for credit loss reversals of $10.3 million were recorded in 2021, excluding the impact of the West Suburban acquisition and resultant PCD loan marks.
As of December 31, 2021, this additional component added to capital had been materially reversed, as provision for credit loss reversals of $10.3 million were recorded in 2021, excluding the impact of the West Suburban acquisition and resultant PCD loan marks.
At least semi-annually, the FDIC updates its loss and income projections for the DIF and, if needed, increases or decreases the assessment rates, following notice and comment on proposed rulemaking. The assessment base against which an FDIC-insured institution’s deposit insurance premiums paid to the DIF are calculated based on its average consolidated total assets less its average tangible equity.
At least semi-annually, the FDIC updates its loss and income projections for the DIF and, if needed, increases or decreases the assessment rates, following notice and comment on proposed rulemaking. 13 ​ Table of Contents The assessment base against which an FDIC-insured institution’s deposit insurance premiums paid to the DIF are calculated based on its average consolidated total assets less its average tangible equity.
Repayment could also be influenced by economic events, which may or may not be under the control of the borrower, or changes in regulations that negatively 5 ​ Table of Contents impact the future cash flow and market values of the affected properties.
Repayment could also be influenced by economic events, which may or may not be under the control of the borrower, or changes in regulations that negatively impact the future cash flow and market values of the affected properties.
If we were to elect in writing for financial holding company status, we would be required to be well capitalized and well managed, and each insured depository institution 10 ​ Table of Contents we control would also have to be well capitalized, well managed and have at least a satisfactory rating under the Community Reinvestment Act (discussed below).
If we were to elect in writing for financial holding company status, we would be required to be well capitalized and well managed, and each insured depository institution we control would also have to be well capitalized, well managed and have at least a satisfactory rating under the Community Reinvestment Act (discussed below). 11 ​ Table of Contents Acquisition Activities .
The amount of the assessment is calculated using a formula that considers the Bank’s size and its supervisory condition. During the year ended December 31, 2022, the Bank paid supervisory assessments to the OCC totaling $834,000. Capital Requirements. Banks are generally required to maintain capital levels in excess of other businesses.
The amount of the assessment is calculated using a formula that considers the Bank’s size and its supervisory condition. During the year ended December 31, 2023, the Bank paid supervisory assessments to the OCC totaling $634,000. ​ Capital Requirements. Banks are generally required to maintain capital levels in excess of other businesses.
Following the merger with West Suburban, the Company is no longer considered a “small bank holding company” as of December 31, 2021.
Following the merger with West Suburban, the Company was no longer considered a “small bank holding company” as of December 31, 2021.
We are unable to predict these future changes or the effects, if any, that these changes could have on our business, revenues, and results of operations. ​ Legislative and Regulatory Responses to the COVID-19 Pandemic ​ The COVID-19 pandemic has continued to cause extensive disruptions to the global economy, to businesses, and to the lives of individuals throughout the world.
We are unable to predict these future changes or the effects, if any, that these changes could have on our business, revenues, and results of operations. ​ Legislative and Regulatory Responses to the COVID-19 Pandemic ​ The COVID-19 pandemic caused extensive disruptions to the global economy, to businesses, and to the lives of individuals throughout the world.
At December 31, 2022, we had approximately $1.45 billion in assets under administration and/or management. ​ Competition ​ Our market area is highly competitive and our business activities require us to compete with many other financial institutions.
At December 31, 2023, we had approximately $1.66 billion in assets under administration and/or management. ​ Competition ​ Our market area is highly competitive and our business activities require us to compete with many other financial institutions.
The mortgage activity slowed in both 2022 and 2021, due to the continued reduced housing inventory, and in the rising rate environment. ​ Home Equity Lines of Credit . Our home equity lines of credit, or HELOCs, consist of originated as well as purchased HELOCs acquired in 2017 and 2018.
The mortgage activity slowed in both 2023 and 2022 due to the continued decline in housing inventory, and the rising rate environment. ​ Home Equity Lines of Credit . Our home equity lines of credit, or HELOCs, consist of originated as well as purchased HELOCs acquired in 2017 and 2018.
On December 22, 2022, the federal banking agencies issued a revised interagency statement extending the temporary relief from such enforcement, which will expire on the sooner of January 1, 2024, or the effective date of a final Federal Reserve rule having a revision to Regulation O that addresses the treatment of extensions of credit by a bank to fund complex-controlled portfolio companies that are insiders of a bank.
On December 22, 2022, the federal banking agencies issued a revised interagency statement extending the temporary relief from such enforcement, which was set to expire on January 1, 2024; however, on December 15, 2023, the federal banking agencies again issued a revised interagency statement extending the temporary relief from such enforcement which will expire the sooner of January 1, 2025 or the effective date of a final Federal Reserve rule having a revision to Regulation O that addresses the treatment of extensions of credit by a bank to fund complex-controlled portfolio companies that are insiders of a bank.
We do not have any immediate plans to elect to use the community bank leverage ratio framework but may make such an election in the future. ​ Well-Capitalized Requirements .
We do not have any immediate plans to elect to use the community bank leverage ratio framework but may make such an election in the future. ​ 10 ​ Table of Contents Well-Capitalized Requirements .
The SAFE Act also prohibits individuals from engaging in the business of a residential mortgage loan originator without first obtaining and maintaining annually registration as either a federal or state licensed mortgage loan originator; ● the Homeowners Protection Act, or the PMI Cancellation Act, provides requirements relating to private mortgage insurance on residential mortgages, including the cancelation and termination of PMI, disclosure and notification requirements, and the requirement to return unearned premiums; ● the Fair Housing Act prohibits discrimination in all aspects of residential real-estate related transactions based on race or color, national origin, religion, sex, and other prohibited factors; ● the Servicemembers Civil Relief Act and Military Lending Act, providing certain protections for servicemembers, members of the military, and their respective spouses, dependents and others; and ● Section 106(c)(5) of the Housing and Urban Development Act requires making home ownership available to eligible homeowners. ​ The deposit operations of the Bank are also subject to federal laws, such as: ​ ● the Federal Deposit Insurance Act (“FDIA”), which, among other things, limits the amount of deposit insurance available per insured depositor category to $250,000 and imposes other limits on deposit-taking; ● the Right to Financial Privacy Act, which imposes a duty to maintain the confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; ● the Electronic Funds Transfer Act and Regulation E, which governs the rights, liabilities, and responsibilities of consumers and financial institutions using electronic fund transfer services, and which generally mandates disclosure requirements, establishes limitations on liability applicable to consumers for unauthorized electronic fund transfers, dictates certain error resolution processes, and applies other requirements relating to automatic deposits to and withdrawals from deposit accounts; ● the Expedited Funds Availability Act and Regulation CC, setting forth requirements to make funds deposited into transaction accounts available according to specified time schedules, disclose funds availability policies to customers, and relating to the collection and return of checks and electronic checks, including the rules regarding the creation or receipt of substitute checks; and ● the Truth in Savings Act and Regulation DD, which requires depository institutions to provide disclosures so that consumers can make meaningful comparisons about depository institutions and accounts. ​ The CFPB is an independent regulatory authority housed within the Federal Reserve.
The SAFE Act also prohibits individuals from engaging in the business of a residential mortgage loan originator without first obtaining and maintaining annually registration as either a federal or state licensed mortgage loan originator; ● the Homeowners Protection Act, or the PMI Cancellation Act, provides requirements relating to private mortgage insurance on residential mortgages, including the cancelation and termination of PMI, disclosure and notification requirements, and the requirement to return unearned premiums; ● the Fair Housing Act prohibits discrimination in all aspects of residential real-estate related transactions based on race or color, national origin, religion, sex, and other prohibited factors; ● the Servicemembers Civil Relief Act and Military Lending Act, providing certain protections for servicemembers, members of the military, and their respective spouses, dependents and others; and ● Section 106(c)(5) of the Housing and Urban Development Act requires making home ownership available to eligible homeowners. ​ The deposit operations of the Bank are also subject to federal laws, such as: ​ ● the Federal Deposit Insurance Act (“FDIA”), which, among other things, limits the amount of deposit insurance available per insured depositor category to $250,000 and imposes other limits on deposit-taking; ● the Right to Financial Privacy Act, which imposes a duty to maintain the confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; ● the Electronic Funds Transfer Act and Regulation E, which governs the rights, liabilities, and responsibilities of consumers and financial institutions using electronic fund transfer services, and which generally mandates disclosure requirements, establishes limitations on liability applicable to consumers for unauthorized electronic fund transfers, dictates certain error resolution processes, and applies other requirements relating to automatic deposits to and withdrawals from deposit accounts; ● the Expedited Funds Availability Act and Regulation CC, setting forth requirements to make funds deposited into transaction accounts available according to specified time schedules, disclose funds availability policies to customers, and relating to the collection and return of checks and electronic checks, including the rules regarding the creation or receipt of substitute checks; and ● the Truth in Savings Act and Regulation DD, which requires depository institutions to provide disclosures so that consumers can make meaningful comparisons about depository institutions and accounts. ​ In light of the growing concern by regulators about relationships between chartered financial institutions and their third party service providers, the OCC joined the other federal supervisory agencies in passing the Interagency Guidance on Third-Party Relationships: Risk Management.
We focused on finding ways to bring employees together, build relationships, and serve our communities side by side.
In 2023, we also focused on finding ways to bring employees together, build relationships, and serve our communities side by side.
We have also created internal programs to support employee development and retention, which has contributed to our long-term tenure rates, with 35% of our employees having tenure of over ten years and 26% of our employees having at least 15 years of service as of December 31, 2022.
We have also created internal programs to support employee development and retention, which has contributed to our long-term tenure rates, with 35% of our employees having tenure of over ten years and 27% of our employees having at least 15 years of service.
As of December 31, 2022, commercial real estate loans represented approximately 47.6% (44.8% at year-end 2021) of our loan portfolio, residential mortgages represented approximately 15.5% (17.1% at year-end 2021), general commercial loans represented approximately 21.7% (22.5% at year-end 2021), home equity lines of credit represented approximately 2.8% (3.7% at year-end 2021), construction lending represented approximately 4.7% (6.0% at year-end 2021), leases represented approximately 7.2% (5.1% at year-end 2021), and consumer and other lending represented less than 1.0% (less than 1.0% at year-end 2021).
As of December 31, 2023, commercial real estate loans represented approximately 45.3% (47.6% at year-end 2022) of our loan portfolio, residential mortgages represented approximately 16.8% (15.5% at year-end 2022), general commercial loans represented approximately 20.8% (21.7% at year-end 2022), home equity lines of credit represented approximately 2.6% (2.8% at year-end 2022), construction lending represented approximately 4.1% (4.7% at year-end 2022), leases represented approximately 9.8% (7.2% at year-end 2022), and consumer and other lending represented less than 1.0% (less than 1.0% at year-end 2022).
Proceeds from the sales of residential mortgage loans to third parties were $81.8 million in 2022. ​ Our loan portfolio is comprised of loans in the areas of commercial real estate, residential real estate, general commercial, construction real estate, leases, and consumer lending.
Proceeds from the sales of residential mortgage loans to third parties were $52.2 million in 2023. ​ Our loan portfolio is comprised of loans in the areas of commercial real estate, residential real estate, general commercial, construction real estate, leases, and consumer lending.
We have established lending policies that include a number of underwriting factors to be considered in making a loan, including location, amortization, loan to value ratio, cash flow, leverage, pricing, documentation and the credit history of the borrower. In 2022, our total loan portfolio grew $448.8 million year over year.
We have established lending policies that include a number of underwriting factors to be considered in making loans, including location, amortization, loan to value ratio, cash flow, leverage, pricing, documentation and the credit history of the borrowers. In 2023, our total loan portfolio grew $173.3 million year over year.
As part of its response to the impact of the COVID-19 pandemic, in the first quarter of 2020, U.S. federal regulatory authorities issued an interim final rule that provided banking organizations that adopted the credit impairment model, the Current Expected Credit Loss, or CECL, during the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay (i.e., a five-year transition in total).
However, the proposed rules generally apply only to large banking organizations with total assets of $100 billion or more, and are expected to not be applicable to us. ​ As part of its response to the impact of the COVID-19 pandemic, in the first quarter of 2020, U.S. federal regulatory authorities issued an interim final rule that provided banking organizations that adopted the credit impairment model, the Current Expected Credit Loss, or CECL, during the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay (i.e., a five-year transition in total).
The interagency Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices guidance (“CRE Guidance”) provides 15 ​ Table of Contents supervisory criteria, including the following numerical indicators, to assist bank examiners in identifying banks with potentially significant commercial real estate loan concentrations that may warrant greater supervisory scrutiny: (i) non-owner occupied commercial real estate loans outstanding plus any undrawn commitment exceeding 300% of capital and increasing 50% or more in the preceding three years; or (ii) construction and land development loans outstanding plus any undrawn commitment exceeding 100% of capital.
The interagency Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices guidance (“CRE Guidance”) provides supervisory criteria, including the following numerical indicators, to assist bank examiners in identifying banks with potentially significant commercial real estate loan concentrations that may warrant greater supervisory scrutiny: (i) total commercial real estate loans, as defined by CRE Guidance, outstanding plus any undrawn commitment exceeding 300% of capital, and the outstanding balance of total commercial real estate loans, as defined by CRE Guidance, plus any undrawn commitment has increased 50% or more in the preceding three years; or (ii) construction and land development loans outstanding plus any undrawn commitment exceeding 100% of capital.
As such, the CFPB may participate in examinations of the Bank. In addition, states are permitted to adopt consumer protection laws and regulations that are stricter than the regulations promulgated by the CFPB, and state attorneys general are permitted to enforce consumer protection rules adopted by the CFPB against certain institutions.
In addition, states are permitted to adopt consumer protection laws and regulations that are stricter than the regulations promulgated by the CFPB, and state attorneys general are permitted to enforce consumer protection rules adopted by the CFPB against certain institutions.
Our construction and development portfolio decreased from $206.1 million at December 31, 2021, to $180.5 million at December 31, 2022 due to reduced volumes based on rising interest rates.
Our construction and development portfolio decreased from $180.5 million at December 31, 2022, to $165.4 million at December 31, 2023, due to reduced volumes based on rising interest rates.
We retained the servicing of these loans through conversion which is expected in September of 2023. ​ Deposit Products ​ We offer a full range of deposit products and services that are typically available from most banks and savings institutions.
We retained the servicing of these loans through deconversion which occurred in September of 2023. ​ 7 ​ Table of Contents Deposit Products ​ We offer a full range of deposit products and services that are typically available from most banks and savings institutions.
Interest rates on commercial loans are a mixture of fixed and variable rates, with these rates often tied to the prime rate, a spread over the FHLB Chicago index rate, a Treasury constant maturity index, LIBOR, as well as SOFR. ​ Repayment of commercial loans is largely dependent upon the cash flows generated by the operations of the commercial borrower.
Interest rates on commercial loans are a mixture of fixed and variable rates, with these rates often tied to the prime rate, a spread over the FHLB Chicago index rate, a Treasury constant maturity index, or a Secured Overnight Financing Rate (“SOFR”). ​ Repayment of commercial loans is primarily dependent upon the cash flows generated by the operations of the commercial borrower.
We believe that our significant branch network will assist us in continuing to attract and retain deposits from local customers in our market areas. 6 ​ Table of Contents ​ Wealth Management ​ We offer wide range of wealth management, investment, agency, and custodial services for individual, corporate, and not-for-profit clients.
We solicit accounts from individuals, businesses, associations, organizations and governmental authorities. We believe that our significant branch network will assist us in continuing to attract and retain deposits from local customers in our market areas. ​ Wealth Management ​ We offer wide range of wealth management, investment, agency, and custodial services for individual, corporate, and not-for-profit clients.
In December 2019, the OCC and the FDIC issued a notice of proposed rulemaking intended to (i) clarify which activities qualify for CRA credit; (ii) update where activities count for CRA credit; (iii) create a more transparent and objective method for measuring CRA performance; and (iv) provide for more transparent, consistent, and timely CRA-related data collection, recordkeeping, and reporting.
The Bank received an overall “outstanding” rating on its most recent CRA performance evaluation. ​ 15 ​ Table of Contents In December 2019, the OCC and the FDIC issued a notice of proposed rulemaking intended to (i) clarify which activities qualify for CRA credit; (ii) update where activities count for CRA credit; (iii) create a more transparent and objective method for measuring CRA performance; and (iv) provide for more transparent, consistent, and timely CRA-related data collection, recordkeeping, and reporting.
As a general matter, the Federal Reserve has indicated that the board of directors of a bank holding company should eliminate, defer or significantly reduce dividends to stockholders if: (i) the company's net income available to stockholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii) the prospective rate of earnings retention is inconsistent with the company's capital needs and overall current and prospective financial condition; or (iii) the company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.
The DGCL allows the Company to pay dividends only out of its surplus (as defined and computed in accordance with the provisions of the DGCL) or if the Company has no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. 12 ​ Table of Contents As a general matter, the Federal Reserve has indicated that the board of directors of a bank holding company should eliminate, defer or significantly reduce dividends to stockholders if: (i) the company's net income available to stockholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii) the prospective rate of earnings retention is inconsistent with the company's capital needs and overall current and prospective financial condition; or (iii) the company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.
The final rules direct the stock exchanges to establish listing standards requiring listed companies to develop and implement a policy providing for the recovery of erroneously awarded incentive-based compensation received by current or former executive officers and to satisfy related disclosure obligations.
The final rules directed the stock exchanges to establish listing standards requiring listed companies to develop and implement a policy providing for the recovery of erroneously awarded incentive-based compensation received by current or former executive officers and to satisfy related disclosure obligations. As of December 1, 2023, the final clawback rules from the NASDAQ Stock Market were effective.
Repayment risk can also arise from general downward shifts in the valuations of classes of properties over a given geographic area, and property valuations could continue to be affected by changes in demand and other economic factors, which could further influence cash flows associated with the borrower and/or the property.
Repayment risk can also arise from general downward shifts in the valuations of specific property types and can vary across geographic areas, and property valuations could continue to be affected by changes in demand and other economic factors, which could further influence cash flows associated with the borrower and/or the underlying property.
On December 22, 2020, the federal banking agencies issued an interagency statement extending the temporary relief from enforcement action against banks or asset managers, which become principal stockholders of banks, with respect to certain extensions of credit by banks that otherwise would violate Regulation O, provided the asset managers and banks satisfy certain conditions designed to ensure that there is a lack of control by the asset manager over the bank.
In addition, federal law and regulations may affect the terms upon which any person who is a director or officer of the Company or the Bank, or a principal stockholder of the Company, may obtain credit from banks with which the Bank maintains a correspondent relationship. ​ On December 22, 2020, the federal banking agencies issued an interagency statement extending the temporary relief from enforcement action against banks or asset managers, which become principal stockholders of banks, with respect to certain extensions of credit by banks that otherwise would violate Regulation O, provided the asset managers and banks satisfy certain conditions designed to ensure that there is a lack of control by the asset manager over the bank.
Federal regulators regularly assess the Bank’s record of meeting the credit needs of its communities. Applications for additional branches and acquisitions would be affected by the evaluation of the Bank’s effectiveness in meeting its CRA requirements. The Bank received an overall “outstanding” rating on its most recent CRA performance evaluation.
Federal regulators regularly assess the Bank’s record of meeting the credit needs of its communities. Applications for additional branches and acquisitions would be affected by the evaluation of the Bank’s effectiveness in meeting its CRA requirements.
As of December 31, 2022, approximately $854.9 million, or 46.4% (47.8%, at year-end 2021) of the total commercial real estate loan portfolio of $1.84 billion consisted of loans to borrowers secured by owner occupied property.
As of December 31, 2023, approximately $796.5 million, or 43.5% (46.4% at year-end 2022) of the total commercial real estate loan portfolio of $1.83 billion consisted of loans to borrowers secured by owner occupied real estate.
This method shifts the burden of deposit insurance premiums toward those large depository institutions that rely on funding sources other than U.S. deposits. The reserve ratio is the DIF balance divided by estimated insured deposits.
This method shifts the burden of deposit insurance premiums toward those large depository institutions that rely on funding sources other than U.S. deposits. The reserve ratio is the DIF balance divided by estimated insured deposits. ​ In addition to the ordinary assessments described above, the FDIC has the ability to impose special assessments in certain instances.
Illinois law grants Illinois-chartered banks the authority to establish branches anywhere in the State of Illinois, subject to receipt of all required regulatory approvals. The Dodd-Frank Act permits well-capitalized and well-managed banks to establish new interstate branches or acquire individual branches of a bank in another state (rather than the acquisition of an out-of-state bank in its entirety) without impediments.
The Dodd-Frank Act permits well-capitalized and well-managed banks to establish new interstate branches or acquire individual branches of a bank in another state (rather than the acquisition of an out-of-state bank in its entirety) without impediments. Financial Subsidiaries.
The CFPB has issued a number of significant rules that impact nearly every aspect of the lifecycle of consumer financial products and services, including rules regarding residential mortgage loans. These rules implement Dodd-Frank Act amendments to ECOA, TILA and RESPA.
The CFPB has issued a number of significant rules that impact nearly every aspect of the lifecycle of consumer financial products and services, including rules regarding residential mortgage loans. These rules implement Dodd-Frank Act amendments to ECOA, TILA and RESPA. The CFPB continued its scrutiny of so called “pay-to-pay” and “junk fee” regimes, proposing rules related to credit card penalties.
On March 27, 2020, the CARES Act was signed into law. The CARES Act was a $2.2 trillion economic stimulus bill that was intended to provide relief in the wake of the COVID-19 pandemic.
On March 27, 2020, the CARES Act was signed into law providing $2.2 trillion of economic stimulus in the wake of COVID-19.
Commercial real estate loans are primarily made based on the identified cash flow of the borrower and/or the property at origination and secondarily on the underlying real estate acting as collateral.
In most cases, we collateralized these loans and/or take personal guarantees to help assure repayment. Commercial real estate loans are primarily made based on the identified cash flow of the borrower and/or the property at origination and secondarily on the underlying real estate acting as collateral.
Our underwriting procedures identify the sources of those cash flows and seek to match the repayment terms of the commercial loans to those sources. Secondary and tertiary repayment sources are typically found in collateralization and guarantor support. ​ Lease Financing Receivables. We continued growth of our lease portfolio in 2022 with organic lease originations.
Our underwriting procedures identify the sources of those cash flows and seek to match the repayment terms of commercial loans to those sources. Secondary and tertiary repayment sources are typically based on collateralization and guarantor support.
We had approximately $1.9 billion in loan originations, excluding renewals, in 2022. We originated approximately $134.5 million of residential mortgage loans in 2022, which includes originations of loans held for sale of $76.6 million.
We had approximately $997.2 million in loan originations, excluding renewals, in 2023. We originated approximately $99.3 million of residential mortgage loans in 2023, which includes originations of loans held for sale of $52.1 million.
The authority to supervise and examine depository institutions with $10 billion or less in assets, such as us, for compliance with federal consumer laws remains largely with those institutions’ primary regulators. However, the CFPB may participate in examinations of these smaller institutions on a “sampling basis” and may refer potential enforcement actions against such institutions to their primary regulators.
The CFPB has the authority to supervise and examine depository institutions with more than $10 billion in assets for compliance with federal consumer laws. The authority to supervise and examine depository institutions with $10 billion or less in assets, such as us, for compliance with federal consumer laws remains largely with those institutions’ primary regulators.
In March 2022, FinCEN issued an alert advising increased vigilance for potential Russian Sanctions Evasion Attempts. The Financial Action Task Force (“FATF”) continues to revise the list of high-risk jurisdictions. In October 2022, FATF removed Nicaragua and Pakistan from its lists of Jurisdictions under Increased Monitoring and added the Democratic Republic of the Congo, Mozambique, and Tanzania.
In March 2022, FinCEN issued an alert advising increased vigilance for potential Russian Sanctions Evasion Attempts. Increased FinCEN scrutiny and sanctions against Russian entities continued in 2023. The Financial Action Task Force (“FATF”) continues to revise the list of high-risk jurisdictions.
The Dodd-Frank Act enhanced the requirements for certain transactions with affiliates, including an expansion of the definition of “covered transactions” and an increase in the amount of time for which collateral requirements regarding covered transactions must be maintained.
The Dodd-Frank Act enhanced the requirements for certain transactions with affiliates, including an expansion of the definition of “covered transactions” and an increase in the amount of time for which collateral requirements regarding covered transactions must be maintained. ​ Certain limitations and reporting requirements are also placed on extensions of credit by the Bank to its directors and officers, to directors and officers of the Company and its subsidiaries, to principal stockholders of the Company and to “related interests” of such directors, officers and principal stockholders.
The collateral for lease financing receivables primarily includes construction and transportation equipment, and lease terms typically range from one to seven years, with the majority falling in the one to five year range. Growth in this portfolio reflects management’s efforts to diversify lending product offerings, and lessen our commercial real estate loan concentration. ​ Commercial Real Estate Loans.
The collateral for business equipment lease financing receivables primarily includes construction and transportation equipment, and lease terms typically range from one to seven years, with the majority falling in the one to five year range.
In late 2021, we continued to grow our commercial lending team with the addition of a sponsor finance team, which grew their line of business throughout 2022, focusing on lower middle market private equity-backed businesses.
In 2023, our commercial lending team, specifically the sponsor finance team, grew their line of business with an increase in loan originations focusing on lower middle market private equity-backed businesses.
The FATF also added Burma to the list of High-Risk Jurisdictions Subject to a Call for Action. ​ Concentrations in Commercial Real Estate. Concentration risk exists when FDIC-insured institutions deploy too many assets to any one industry or segment. A concentration in commercial real estate is one example of regulatory concern.
In October 2023, FATF removed Albania, Cayman Islands, Jordan, and Panama from its lists of Jurisdictions under Increased Monitoring and added Bulgaria. ​ Concentrations in Commercial Real Estate. Concentration risk exists when FDIC-insured institutions deploy too many assets to any one industry or segment. A concentration in commercial real estate is one example of regulatory concern.
The 2.5% capital conservation buffer effectively results in the following effective minimum capital ratios (taking into account the capital conservation buffer): (i) a CET1 capital ratio of 7.0%, (ii) a Tier 1 risk-based capital ratio of 8.5%, and (iii) a total risk-based capital ratio of 10.5%.
The 2.5% capital conservation buffer effectively results in the following effective minimum capital ratios (taking into account the capital conservation buffer): (i) a CET1 capital ratio of 7.0%, (ii) a Tier 1 risk-based capital ratio of 8.5%, and (iii) a total risk-based capital ratio of 10.5%. ​ Proposed new rules for U.S. implementation of capital requirements under Basel IV rules, more recently referred to as the “Basel III Endgame”, were issued by the U.S. federal banking agencies on July 27, 2023.
Additional credit support is provided by the borrower for most of these loans and the probability of repayment is based on the liquidation value of the real estate and enforceability of personal and corporate guarantees if any exist. ​ Construction Loans.
Additional credit support is provided by the enforceability of personal and corporate guarantees if any exist.
There have also been a number of regulatory actions intended to help mitigate the adverse economic impact of the COVID-19 pandemic on borrowers, including several mandates from the bank regulatory agencies, requiring financial institutions to work constructively with borrowers affected by the COVID-19 pandemic.
There were a number of regulatory actions intended to help mitigate the adverse economic impact of the COVID-19 pandemic on borrowers, including several mandates from the bank regulatory agencies, requiring financial institutions to work constructively with borrowers affected by the COVID-19 pandemic, many of which have expired. ​ The Paycheck Protection Program (“PPP”), originally established under the CARES Act and extended under the Consolidated Appropriations Act of 2021, authorized financial institutions to make federally-guaranteed loans to qualifying small businesses and non-profit organizations.
Safety and Soundness Standards/Risk Management. The federal banking agencies have adopted guidelines that establish operational and managerial standards to promote the safety and soundness of FDIC-insured institutions. The guidelines set forth standards for internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, asset quality and earnings.
Safety and Soundness Standards/Risk Management. The federal banking agencies have adopted guidelines that establish operational and managerial standards to promote the safety and soundness of FDIC-insured institutions.
We are subject to certain fair lending requirements and reporting obligations involving lending operations.
Management has and will continue to evaluate any changes to the CRA’s regulations and their impact to the Bank. ​ Fair Lending Requirements. We are subject to certain fair lending requirements and reporting obligations involving lending operations.
Based on the Bank’s committed loan portfolio as of December 31, 2022, concentrations in commercial real estate exceeded the 300% guideline for non-owner occupied commercial real estate loans, primarily due to additional loans acquired from the West Suburban acquisition and the resulting impact to capital from that transaction.
Based on the Bank’s committed loan portfolio as of December 31, 2023, concentrations in commercial real estate declined in 2023 due to growth in non-CRE related loan portfolios, and are 286.9%, or less than the 300% guideline for non-owner occupied commercial real estate loans.
The agencies have identified a spectrum of risks facing a banking institution including, but not limited to, credit, market, liquidity, strategic, operational, legal and reputational risk.
The agencies have identified a spectrum of risks facing a banking institution including, but not limited to, credit, market, liquidity, strategic, operational, legal and reputational risk. In particular, regulatory pronouncements have focused on operational risk, which arises from the potential that inadequate information systems, operational problems, breaches in internal controls, fraud, or unforeseen catastrophes will result in unexpected losses.
In general, the safety and soundness guidelines prescribe the goals to be achieved in each area, and each institution is responsible for establishing its own procedures to achieve those goals.
The guidelines set forth standards for internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, asset quality and earnings. ​ 14 ​ Table of Contents In general, the safety and soundness guidelines prescribe the goals to be achieved in each area, and each institution is responsible for establishing its own procedures to achieve those goals.
We believe that employee development and retention starts with relationships, both among employees and with the communities we serve.
We believe that employee development and retention starts with relationships, both among employees and with the communities we serve. Our 2023 O2 Cares initiatives promoted an inclusive workplace through collaborative initiatives focused on building relationships through Employee Experience, Engagement and Social Connections.
The Bank is expected to have active board and senior management oversight; adequate policies, procedures, and limits; adequate risk measurement, monitoring, and management information systems; and comprehensive internal controls. Branching Authority . National banks headquartered in Illinois, such as the Bank, have the same branching rights in Illinois as banks chartered under Illinois law, subject to OCC approval.
New products and services, third-party risk and cybersecurity are critical sources of operational risk that FDIC-insured institutions are expected to address. The Bank is expected to have active board and senior management oversight; adequate policies, procedures, and limits; adequate risk measurement, monitoring, and management information systems; and comprehensive internal controls. Branching Authority .
In addition, we continued to have hundreds of attendees at our popular Executive Coffee Break sessions where we strive to make executives accessible to all employees in a casual and fun venue . ​ The COVID-19 pandemic presented challenges to maintain employee and customer safety, while continuing to be open for business throughout 2022.
In addition, we continued to have hundreds of attendees at our popular Executive Coffee Break sessions where we strive to make executives accessible to all employees in a casual and fun venue. ​ At December 31, 2023, we employed 834 full-time equivalent employees. 8 ​ Table of Contents Available Information ​ We file reports with the Securities and Exchange Commission (“SEC”).
The composition of the loan portfolio remains weighted towards commercial real estate at 47.6% for 2022 compared to 44.8% in 2021. Management continues to monitor concentrations so that we remain comfortable with our position in real estate loans.
Growth in this portfolio reflects management’s efforts to diversify lending product offerings, and lessen our commercial real estate loan concentration. ​ 5 ​ Table of Contents Commercial Real Estate Loans. The composition of the loan portfolio remains weighted towards commercial real estate at 45.3% for 2023 compared to 47.6% in 2022.
The CFPB has broad authority to regulate the offering and provision of consumer financial products and services. The CFPB has the authority to supervise and examine depository institutions with more than $10 billion in assets for compliance with federal consumer laws.
This new guidance provided risk management oversight guidelines for financial institutions to incorporate in their ongoing relationships with third party vendors. ​ 19 ​ Table of Contents The CFPB is an independent regulatory authority housed within the Federal Reserve. The CFPB has broad authority to regulate the offering and provision of consumer financial products and services.
Removed
We seek to mitigate these risks by staying apprised of market conditions and by maintaining underwriting practices that provide for adequate cash flow margins and multiple repayment sources as well as remaining in regular contact with our borrowers. In most cases, we have collateralized these loans and/or have taken personal guarantees to help assure repayment.
Added
Commercial loans will generally require financial covenants that provide for an adequate cash flow or net worth level for uncertain events and changes in conditions. Stress testing is regularly performed on the Commercial loan portfolio to ensure appropriate reserve levels and adequate capital levels are maintained. ​ Lease Financing Receivables.
Removed
We solicit accounts from individuals, businesses, associations, organizations and governmental authorities.
Added
We continued growth of our lease portfolio in 2023 with organic lease originations, primarily stemming from investment grade leases as well as small to mid-size business equipment financing.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAlthough management believes it has implemented effective asset and liability management strategies to reduce the potential effects of changes in interest rates on our results of operations, any substantial, unexpected, prolonged change in market interest rates could continue to have a material adverse effect on our financial condition and results of operations. ​ Nonperforming assets take significant time to resolve, adversely affect our results of operations and financial condition and could result in further losses in the future. ​ Our nonperforming loans (which consist of nonaccrual loans, loans past due 90 days or more still accruing interest and restructured loans still accruing interest), were $32.9 million at December 31, 2022, a decrease of 27.5%, compared to $44.7 million at December 31, 2021.
Biggest changeWe actively monitor and manage the balances of our maturing and re-pricing assets and liabilities to reduce the adverse impact of changes in interest rates, but there can be no assurance that we will be able to avoid material adverse effects on our net interest margin in all market conditions. ​ Nonperforming assets take significant time to resolve, adversely affect our results of operations and financial condition and could result in further losses in the future. ​ Our nonperforming loans (which consist of nonaccrual loans, loans past due 90 days or more still accruing interest and, only for December 31, 2022 and prior, restructured loans still accruing interest), were $68.8 million at December 31, 2023, an increase of 109.0%, compared to $32.9 million at December 31, 2022.
In addition, the State of Illinois continues to experience severe fiscal challenges, which could result in future state tax increases, impact the economic vitality of the businesses operating in Illinois, encourage businesses to leave the state or discourage new employers to start or move businesses to Illinois, all of which could have a material adverse effect on our financial condition and results of operations. ​ Unfavorable market conditions can result in a deterioration in the credit quality of our borrowers and the demand for our products and services, an increase in the number of loan delinquencies, defaults and charge-offs, foreclosures, additional provisions for loan losses, adverse asset values of the collateral securing our loans and an overall material adverse effect on the quality of our loan portfolio, and a reduction in assets under management or administration.
In addition, the State of Illinois continues to experience severe fiscal challenges, which could result in future state tax increases, impact the economic vitality of the businesses operating in Illinois, encourage businesses to leave the state or discourage new employers to start or move businesses to Illinois, all of which could have a material adverse effect on our financial condition and results of operations. ​ Unfavorable market conditions can result in a deterioration in the credit quality of our borrowers and the demand for our products and services, an increase in the number of loan delinquencies, defaults and charge-offs, foreclosures, additional provisions for credit losses, adverse asset values of the collateral securing our loans and an overall material adverse effect on the quality of our loan portfolio, and a reduction in assets under management or administration.
Given the current daily average trading volume of our common stock, significant sales of our common stock in a brief period of time, or the expectation of these sales, could cause a significant decline in the price of our common stock. ​ The trading price of our common stock may be subject to continued significant fluctuations and volatility . ​ The market price of our common stock could be subject to significant fluctuations due to, among other things: ● actual or anticipated quarterly fluctuations in our operating and financial results, particularly if such results vary from the expectations of management, securities analysts and investors, including with respect to further credit losses on loans or unfunded commitments we may incur; ● announcements regarding significant transactions in which we may engage; ● market assessments regarding such transactions; ● changes or perceived changes in our operations or business prospects; ● legislative or regulatory changes affecting our industry generally or our businesses and operations; ● a weakening of general market and economic conditions, particularly with respect to economic conditions in Illinois; ● the operating and share price performance of companies that investors consider to be comparable to us; ● future offerings by us of debt, preferred stock or trust preferred securities, each of which would be senior to our common stock upon liquidation and for purposes of dividend distributions; ● actions of our current stockholders, including future sales of common stock by existing stockholders and our directors and executive officers; and ● other changes in U.S. or global financial markets, economies and market conditions, such as interest or foreign exchange rates, stock, commodity, credit or asset valuations or volatility. ​ As a result, the market price of our common stock may continue to be subject to similar market fluctuations that may or may not be related to our operating performance or prospects.
Given the current daily average trading volume of our common stock, significant sales of our common stock in a brief period of time, or the expectation of these sales, could cause a significant decline in the price of our common stock. ​ 33 ​ Table of Contents The trading price of our common stock may be subject to continued significant fluctuations and volatility . ​ The market price of our common stock could be subject to significant fluctuations due to, among other things: ● actual or anticipated quarterly fluctuations in our operating and financial results, particularly if such results vary from the expectations of management, securities analysts and investors, including with respect to further credit losses on loans or unfunded commitments we may incur; ● announcements regarding significant transactions in which we may engage; ● market assessments regarding such transactions; ● changes or perceived changes in our operations or business prospects; ● legislative or regulatory changes affecting our industry generally or our businesses and operations; ● a weakening of general market and economic conditions, particularly with respect to economic conditions in Illinois; ● the operating and share price performance of companies that investors consider to be comparable to us; ● future offerings by us of debt, preferred stock or trust preferred securities, each of which would be senior to our common stock upon liquidation and for purposes of dividend distributions; ● actions of our current stockholders, including future sales of common stock by existing stockholders and our directors and executive officers; and ● other changes in U.S. or global financial markets, economies and market conditions, such as interest or foreign exchange rates, stock, commodity, credit or asset valuations or volatility. ​ As a result, the market price of our common stock may continue to be subject to similar market fluctuations that may or may not be related to our operating performance or prospects.
Difficulties associated with potential acquisitions that may result from these factors could have a material adverse effect on our business, and, in turn, our financial condition and results of operations. ​ Any enhanced regulatory scrutiny of bank mergers and acquisitions and revision of the framework for merger application review may adversely affect the marketplace for such transactions, could result in our acquisitions in future periods being delayed, impeded or restricted in certain respects and result in new rules that possibly limit the size of financial institutions we may be able to acquire in the future and alter the terms for such transactions. ​ 25 ​ Table of Contents ​ We may be exposed to difficulties in combining the operations of acquired or merged businesses, including West Suburban, into our own operations, which may prevent us from achieving the expected benefits from our merger and acquisition activities. ​ We may not be able to fully achieve the strategic objectives and operating efficiencies that we anticipate in our merger and acquisition activities, including with respect to our merger with West Suburban.
Difficulties associated with potential acquisitions that may result from these factors could have a material adverse effect on our business, and, in turn, our financial condition and results of operations. ​ Any enhanced regulatory scrutiny of bank mergers and acquisitions and revision of the framework for merger application review may adversely affect the marketplace for such transactions, could result in our acquisitions in future periods being delayed, impeded or restricted in certain respects and result in new rules that possibly limit the size of financial institutions we may be able to acquire in the future and alter the terms for such transactions. ​ We may be exposed to difficulties in combining the operations of acquired or merged businesses, including West Suburban, into our own operations, which may prevent us from achieving the expected benefits from our merger and acquisition activities. ​ We may not be able to fully achieve the strategic objectives and operating efficiencies that we anticipate in our merger and acquisition activities, including with respect to our merger with West Suburban.
If the services of any of our key personnel should become unavailable for any reason, we may not be able to identify and hire qualified persons on terms acceptable to the Company, or at all, which could have a material adverse effect on our business, financial condition, results of operation and future prospects. 22 ​ Table of Contents ​ If we are unable to offer our key management personnel long-term incentive compensation, including options, restricted stock, and restricted stock units, as part of their total compensation package, we may have difficulty retaining such personnel, which would adversely affect our operations and financial performance .
If the services of any of our key personnel should become unavailable for any reason, we may not be able to identify and hire qualified persons on terms acceptable to the Company, or at all, which could have a material adverse effect on our business, financial condition, results of operation and future prospects. ​ If we are unable to offer our key management personnel long-term incentive compensation, including options, restricted stock, and restricted stock units, as part of their total compensation package, we may have difficulty retaining such personnel, which would adversely affect our operations and financial performance .
We expect economic uncertainty to continue into 2023, which may result in a significant increase to our ACL in future periods. In addition, bank regulatory agencies periodically review our ACL and may require an increase in the provision for credit losses or the recognition of additional loan charge-offs, based on judgments different from those of management.
We expect economic uncertainty to continue into 2024, which may result in a significant increase to our ACL in future periods. In addition, bank regulatory agencies periodically review our ACL and may require an increase in the provision for credit losses or the recognition of additional loan charge-offs, based on judgments different from those of management.
These risks have increased for all financial institutions as new technologies have emerged, including the use of the Internet and the expansion of telecommunications technologies (including mobile devices) to conduct financial and other business transactions, and as the sophistication of organized criminals, perpetrators of fraud, hackers, terrorists and others have increased. ​ In addition to cyber-attacks or other security breaches involving the theft of sensitive and confidential information, hackers have engaged in attacks against large financial institutions, particularly denial of service attacks that are designed to disrupt key business services, such as customer-facing web sites.
These risks have increased for all financial institutions as new technologies have emerged, including the use of the Internet and the expansion of telecommunications technologies (including mobile devices) to conduct financial and other business transactions, and as the sophistication of organized criminals, perpetrators of fraud, hackers, terrorists and others have increased. 26 ​ Table of Contents In addition to cyber-attacks or other security breaches involving the theft of sensitive and confidential information, hackers have engaged in attacks against large financial institutions, particularly denial of service attacks that are designed to disrupt key business services, such as customer-facing web sites.
Any adverse outcome of such a review or audit could have a negative effect on our financial position and results of operations. ​ In addition, deferred tax assets are reported as assets on our balance sheet and represent the decrease in taxes expected to be paid in the future because of net operating losses (“NOLs”) and tax credit carryforwards and because of future reversals of temporary differences in the bases of assets and liabilities as measured by enacted tax laws and their bases as reported in the financial statements.
Any adverse outcome of such a review or audit could have a negative effect on our financial position and results of operations. ​ 31 ​ Table of Contents In addition, deferred tax assets are reported as assets on our balance sheet and represent the decrease in taxes expected to be paid in the future because of net operating losses (“NOLs”) and tax credit carryforwards and because of future reversals of temporary differences in the bases of assets and liabilities as measured by enacted tax laws and their bases as reported in the financial statements.
If our policies, procedures and systems are deemed deficient or the policies, procedures and systems of the financial institutions that we have already acquired or may acquire in the future are deficient, we would be subject to liability, including fines and regulatory actions such as restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our acquisition plans, which would negatively impact our business, financial condition 27 ​ Table of Contents and results of operations.
If our policies, procedures and systems are deemed deficient or the policies, procedures and systems of the financial institutions that we have already acquired or may acquire in the future are deficient, we would be subject to liability, including fines and regulatory actions such as restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our acquisition plans, which would negatively impact our business, financial condition and results of operations.
Further, negative public opinion can expose us to litigation and 21 ​ Table of Contents regulatory action as we seek to implement our growth strategy, which could adversely affect our business, financial condition and results of operations. ​ We operate in a highly competitive industry and market area and may face severe competitive disadvantages . ​ We face substantial competition in all areas of our operations from a variety of different competitors, many of which are larger and have more financial resources.
Further, negative public opinion can expose us to litigation and regulatory action as we seek to implement our growth strategy, which could adversely affect our business, financial condition and results of operations. ​ We operate in a highly competitive industry and market area and may face severe competitive disadvantages . ​ We face substantial competition in all areas of our operations from a variety of different competitors, many of which are larger and have more financial resources.
Any decline in available funding could adversely affect our ability to continue to implement our business strategy which could have a material adverse effect on our liquidity, business, financial condition and results of operations. ​ 30 ​ Table of Contents ​ Risks Related to an Investment in Our Common Stock ​ Our future ability to pay dividends is subject to restrictions . ​ We currently conduct substantially all of our operations through our subsidiaries, and a significant part of our income is attributable to dividends from the Bank.
Any decline in available funding could adversely affect our ability to continue to implement our business strategy which could have a material adverse effect on our liquidity, business, financial condition and results of operations. ​ Risks Related to an Investment in Our Common Stock ​ Our future ability to pay dividends is subject to restrictions . ​ We currently conduct substantially all of our operations through our subsidiaries, and a significant part of our income is attributable to dividends from the Bank.
If any of these events occur, the financial performance of our wealth management business could be materially and adversely affected. ​ 18 ​ Table of Contents Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks. ​ Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their environmental, social and governance (“ESG”) practices and disclosure.
If any of these events occur, the financial performance of our wealth management business could be materially and adversely affected. ​ Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks. ​ Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their environmental, social and governance (“ESG”) practices and disclosure.
Because of the uncertainty of estimates involved in these matters, we may be required to significantly increase the ACL or sustain loan losses that are significantly higher than the reserve provided, reduce the carrying value of an asset measured at fair value, or significantly increase liabilities measured at fair value.
Because of the uncertainty of estimates involved in these matters, we may be required to significantly increase the ACL or sustain credit losses that are significantly higher than the reserve provided, reduce the carrying value of an asset measured at fair value, or significantly increase liabilities measured at fair value.
Our inability to successfully manage credit risk could have a material adverse effect on our business, financial condition or results of operations. 19 ​ Table of Contents ​ Our allowance for credit losses, or ACL, and fair value adjustments with respect to acquired loans, may be insufficient to absorb potential losses in our loan portfolio, which may adversely affect our business, financial condition and results of operations. ​ Our success depends significantly on the quality of our assets, particularly loans.
Our inability to successfully manage credit risk could have a material adverse effect on our business, financial condition or results of operations. ​ Our allowance for credit losses, or ACL, and fair value adjustments with respect to acquired loans, may be insufficient to absorb potential losses in our loan portfolio, which may adversely affect our business, financial condition and results of operations. ​ Our success depends significantly on the quality of our assets, particularly loans.
These restrictions may also result in increases in operating expenses and reductions in revenues that could have a material adverse effect on our financial condition, results of operations and share price. ​ We could experience an unexpected inability to obtain needed liquidity . ​ Liquidity measures the ability to meet current and future cash flow needs as they become due.
These restrictions may also result in increases in operating expenses and reductions in revenues that could have a material adverse effect on our financial condition, results of operations and share price. 32 ​ Table of Contents We could experience an unexpected inability to obtain needed liquidity . ​ Liquidity measures the ability to meet current and future cash flow needs as they become due.
Moreover, the financial services industry could become even more competitive as a result of legislative and regulatory changes, and many large scale competitors can leverage economies of scale to offer better pricing for products and services compared to what we can offer. ​ We compete with these institutions in attracting deposits and assets under management, processing payment transactions, and in making loans.
Moreover, the financial services industry could become even more competitive as a result of legislative and regulatory changes, and many large scale competitors can leverage economies of scale to offer better pricing for products and services compared to what we can offer. 24 ​ Table of Contents We compete with these institutions in attracting deposits and assets under management, processing payment transactions, and in making loans.
To the extent that our estimates of fair value are too high, we will incur losses associated with the acquired loans. ​ Our loan portfolio is concentrated heavily in commercial and residential real estate loans, including exposure to construction loans, which involve risks specific to real estate values and the real estate markets in general. ​ Our loan portfolio generally reflects the profile of the communities in which we operate.
To the extent that our estimates of fair value are too high, we will incur losses associated with the acquired loans. ​ 22 ​ Table of Contents Our loan portfolio is concentrated heavily in commercial and residential real estate loans, including exposure to construction loans, which involve risks specific to real estate values and the real estate markets in general. ​ Our loan portfolio generally reflects the profile of the communities in which we operate.
Any of these could have a material adverse effect on our business, financial condition or results of operations. 28 ​ Table of Contents ​ Our internal controls, disclosure controls, processes and procedures, and corporate governance policies and procedures are based in part on certain assumptions and can provide only reasonable (not absolute) assurances that the objectives of the system are met.
Any of these could have a material adverse effect on our business, financial condition or results of operations. ​ Our internal controls, disclosure controls, processes and procedures, and corporate governance policies and procedures are based in part on certain assumptions and can provide only reasonable (not absolute) assurances that the objectives of the system are met.
These factors could contribute to our not achieving the expected benefits from our mergers and acquisitions within desired time frames, if at all. ​ New lines of business, products, product enhancements or services may subject us to additional risks . ​ From time to time, we may implement new lines of business or offer new products, and product enhancements as well as new services within our existing lines of business.
These factors could contribute to our not achieving the expected benefits from our mergers and acquisitions within desired time frames, if at all. ​ 28 ​ Table of Contents New lines of business, products, product enhancements or services may subject us to additional risks . ​ From time to time, we may implement new lines of business or offer new products, and product enhancements as well as new services within our existing lines of business.
For collateral-dependent loans, we estimate the value of the loan based on the appraised value of the underlying collateral less costs to sell. Our OREO portfolio 20 ​ Table of Contents essentially consists of properties acquired through foreclosure or deed in lieu of foreclosure in partial or total satisfaction of certain loans as a result of borrower defaults.
For collateral-dependent loans, we estimate the value of the loan based on the appraised value of the underlying collateral less costs to sell. Our OREO portfolio essentially consists of properties acquired through foreclosure or deed in lieu of foreclosure in partial or total satisfaction of certain loans as a result of borrower defaults.
The burden of regulatory compliance has increased under the Dodd-Frank Act and has increased our costs of doing business and, as a result, may create an advantage for our competitors who may not be subject to similar legislative and regulatory requirements. ​ We face risks related to the adoption of future legislation and potential changes in federal regulatory agency leadership, policies, and priorities. ​ With the new Congress taking office in 2023, Republicans gained control of the U.S.
The burden of regulatory compliance has increased under the Dodd-Frank Act and has increased our costs of doing business and, as a result, may create an advantage for our competitors who may not be subject to similar legislative and regulatory requirements. ​ We face risks related to the adoption of future legislation and potential changes in federal regulatory agency leadership, policies, and priorities. ​ In 2023, Republicans gained control of the U.S.
Additionally, an increase in the general level of interest rates may also, among other things, adversely affect our current borrowers’ ability to repay variable rate loans, the demand for loans and our ability to originate loans and decrease loan prepayment rates.
Additionally, an increase in the general level of interest rates may also adversely affect our current borrowers’ ability to repay variable rate loans, the demand for loans and our ability to originate loans and decrease loan prepayment rates.
Many of these data compromises are widely reported in the 23 ​ Table of Contents media. Further, as a result of the increased sophistication of fraud activity, we have increased our spending on systems and controls to detect and prevent fraud.
Many of these data compromises are widely reported in the media. Further, as a result of the increased sophistication of fraud activity, we have increased our spending on systems and controls to detect and prevent fraud.
Even if we are able to increase our interest income, our earnings may nonetheless be 24 ​ Table of Contents reduced by increased expenses, such as additional employee compensation or other general and administrative expenses and increased interest expense on any liabilities incurred or deposits solicited to fund increases in assets.
Even if we are able to increase our interest income, our earnings may nonetheless be reduced by increased expenses, such as additional employee compensation or other general and administrative expenses and increased interest expense on any liabilities incurred or deposits solicited to fund increases in assets.
In 2021, there was a dramatic increase in workers leaving their positions throughout our industry and other industries that is being referred to as the “great resignation,” and the market to build, retain and replace talent has become even more highly competitive.
In 2021, there was a dramatic increase in workers leaving their positions throughout our industry and other industries that is being referred to as the “great resignation,” and the market to build, retain and replace talent then became even more highly competitive.
The prospects for the enactment of major banking reform legislation remain unclear at this time. ​ Moreover, the turnover of the presidential administration resulted in certain changes in the leadership and senior staffs of the federal banking agencies, the CFPB, CFTC, SEC, and the Treasury Department, with certain significant leadership positions yet to be filled, including the Comptroller of the Currency.
The prospects for the enactment of major banking reform legislation remain unclear at this time. 30 ​ Table of Contents ​ Moreover, turnover of the presidential administration in 2020 resulted in certain changes in the leadership and senior staffs of the federal banking agencies, the CFPB, CFTC, SEC, and the Treasury Department, with certain significant leadership positions yet to be permanently filled, including the Comptroller of the Currency.
Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity or investor or business confidence; limitations on the availability of or increases in the cost of credit and capital; increases in inflation or interest rates; high unemployment; natural disasters; epidemics and pandemics (such as COVID-19); state or local government insolvency; or a combination of these or other factors. ​ In addition, there are continuing concerns related to, among other things, the level of U.S. government debt and fiscal actions that may be taken to address that debt, the potential resurgence of economic and political tensions with China, the Russian invasion of Ukraine and oil prices due to Russian supply disruptions, each of which may have a destabilizing effect on financial markets and economic activity.
Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity or investor or business confidence; limitations on the availability of or increases in the cost of credit and capital; increases in inflation or interest rates; high unemployment; natural disasters; epidemics and pandemics (such as COVID-19); state or local government insolvency; downgrading of the United States’ credit rating; or a combination of these or other factors. ​ In addition, there are continuing concerns related to, among other things, the level of U.S. government debt and fiscal actions that may be taken to address that debt, the potential resurgence of economic and political tensions with China, the war in Ukraine, the Middle East conflict, and the conflict between China and Taiwan, and oil prices due to Russian supply disruptions, each of which may have a destabilizing effect on financial markets and economic activity.
However, Congressional committees with jurisdiction over the banking sector have pursued oversight and legislative initiatives in a variety of areas, including addressing climate-related risks, promoting diversity and equality within the banking industry and addressing other Environmental, Social, and Governance matters, improving competition in the banking sector and enhancing oversight of bank mergers and acquisitions, establishing a regulatory framework for digital assets and markets, and oversight of the COVID-19 pandemic response and economic recovery.
However, Congressional committees with jurisdiction over the banking sector have pursued oversight and legislative initiatives in a variety of areas, including addressing climate-related risks, promoting diversity and equality within the banking industry and addressing other ESG matters, improving competition in the banking sector and enhancing oversight of bank mergers and acquisitions, establishing a regulatory framework for digital assets and markets, and oversight of pandemic responses and economic recovery.
It is management’s intent to manage our non-owner occupied commercial real estate loans back under 300% capital, as outlined in regulatory guidance, and are performing heightened monitoring over commercial real estate exposures, including concentration limits on commercial real estate type, sub-types and individual tenant exposure, frequent loan portfolio stress testing, as well as sensitivity analysis and using current and prospective market data during underwriting.
In 2023, we were able to manage our non-owner occupied commercial real estate loans back under 300% of capital, as outlined in regulatory guidance, and are performing heightened monitoring over commercial real estate exposures, including concentration limits on commercial real estate type, sub-types and individual tenant exposure, frequent loan portfolio stress testing, as well as sensitivity analysis and using current and prospective market data during underwriting.
At December 31, 2022, our outstanding commercial real estate loans and undrawn commercial real estate commitments, excluding owner occupied real estate were equal to 304.2% of our Tier 1 capital plus allowance for credit losses, a decrease from 313.4% at December 31, 2021.
At December 31, 2023, our outstanding commercial real estate loans and undrawn commercial real estate commitments, excluding owner occupied real estate, were equal to 286.9% of our Tier 1 capital plus allowance for credit losses, a decrease from 304.2% at December 31, 2022.
Because we operate in areas that saw rapid historical growth, real estate lending of all types is a significant portion of our loan portfolio. Total real estate lending was $2.73 billion, or approximately 70.6%, of our loan portfolio at December 31, 2022, compared to $2.45 billion, or approximately 71.6%, at December 31, 2021.
Because we operate in areas that saw rapid historical growth, real estate lending of all types is a significant portion of our loan portfolio. Total real estate lending was $2.78 billion, or approximately 68.8%, of our loan portfolio at December 31, 2023, compared to $2.73 billion, or approximately 70.6%, at December 31, 2022.
In March 2020, in response to the COVID-19 pandemic, the Federal Reserve reduced the target Federal Funds rate to between zero and 0.25%; however, due in part to rising inflation, throughout 2022 the target Federal Funds rate increased to between 4.25% and 4.50%.
In March 2020, in response to the COVID-19 pandemic, the Federal Reserve reduced the target Federal Funds rate to between zero and 0.25%; however, due in part to rising inflation, from March 2022 through mid-2023 the target Federal Funds rate increased to between 5.25% and 5.50%.
However, if actual results differ from management’s expectations, it could have a material adverse effect on our financial condition, results of operations, or cash flows. ​ 29 ​ Table of Contents ​ From time to time we are, or may become, involved in suits, legal proceedings, information-gatherings, investigations and proceedings by governmental and self-regulatory agencies that may lead to adverse consequences .
However, if actual results differ from management’s expectations, it could have a material adverse effect on our financial condition, results of operations, or cash flows. ​ From time to time we are, or may become, involved in suits, legal proceedings, information-gatherings, investigations and proceedings by governmental and self-regulatory agencies that may lead to adverse consequences . ​ Many aspects of the banking business involve a substantial risk of legal liability.
Moreover, these types of expansions involve various risks, including: ​ Management of Growth .
Moreover, these types of expansions involve various risks, including: ​ 27 ​ Table of Contents Management of Growth .
Many aspects of the banking business involve a substantial risk of legal liability. From time to time, we are, or may become, the subject of information-gathering requests, reviews, investigations and proceedings, and other forms of regulatory inquiry, including by bank regulatory agencies, self-regulatory agencies, the SEC, and law enforcement authorities.
From time to time, we are, or may become, the subject of information-gathering requests, reviews, investigations and proceedings, and other forms of regulatory inquiry, including by bank regulatory agencies, self-regulatory agencies, the SEC, and law enforcement authorities.
Such physical risks may have adverse impacts on us, both directly on our business operations and as a result of impacts on our borrowers and counterparties, such as declines in the value of loans, investments, real estate and other assets, disruptions in business operations and economic activity, including supply chains, and market volatility. ​ Transition risks include changes in regulations, market preferences and technologies toward a less carbon-dependent economy.
Such physical risks may have adverse impacts on us, both directly on our business operations and 21 ​ Table of Contents as a result of impacts on our borrowers and counterparties, such as declines in the value of loans, investments, real estate and other assets, disruptions in business operations and economic activity, including supply chains, and market volatility.
Other real estate owned, or OREO, totaled $1.6 million at December 31, 2022, a decrease of 33.7%, compared to $2.4 million at December 31, 2021. Our nonperforming assets adversely affect our net income in various ways.
Other real estate owned, or OREO, totaled $5.1 million at December 31, 2023, an increase of 228.2%, compared to $1.6 million at December 31, 2022. Our nonperforming assets adversely affect our net income in various ways.
As of December 31, 2022, we had net deferred tax assets of $44.8 million, which included a $36.2 million tax effect of adjustments related to other comprehensive income.
As of December 31, 2023, we had net deferred tax assets of $31.1 million, which included a $24.4 million tax effect of adjustments related to other comprehensive income.
These trends have resulted in labor shortages in many of our markets, which has made attracting new employees and replacing existing employees more difficult.
These trends resulted in labor shortages in many of our markets, which made attracting new employees and replacing existing employees more difficult, however, in 2023, the economy benefitted from reduced labor shortages.
Our information systems may experience an interruption or breach in security and cyber-attacks, all of which could have a material adverse effect on our business . ​ We rely heavily on internal and outsourced technologies, communications, and information systems to conduct our business.
Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business, financial condition and results of operations. ​ Our information systems may experience an interruption or breach in security and cyber-attacks, all of which could have a material adverse effect on our business . ​ We rely heavily on internal and outsourced technologies, communications, and information systems to conduct our business.
The possible adverse impacts of transition risks include asset devaluations, increased operational and compliance costs, and an inability to meet regulatory or market expectations.
Transition risks include changes in regulations, market preferences and technologies toward a less carbon-dependent economy. The possible adverse impacts of transition risks include asset devaluations, increased operational and compliance costs, and an inability to meet regulatory or market expectations.
Capital and Liquidity Risks ​ Our business needs and future growth may require us to raise additional capital, but that capital may not be available or may be dilutive. ​ We may need to raise additional capital, in the form of debt or equity securities, in the future to have sufficient capital resources to meet our commitments and fund our business needs and future growth, particularly if the quality of our assets or earnings were to deteriorate significantly.
The results of such proceedings could lead to significant civil or criminal penalties, including monetary penalties, damages, adverse judgements, settlements, fines, injunctions, restrictions on the way we conduct our business or reputational harm. ​ Capital and Liquidity Risks ​ Our business needs and future growth may require us to raise additional capital, but that capital may not be available or may be dilutive. ​ We may need to raise additional capital, in the form of debt or equity securities, in the future to have sufficient capital resources to meet our commitments and fund our business needs and future growth, particularly if the quality of our assets or earnings were to deteriorate significantly.
L egal, Accounting, Regulatory and Compliance Risks ​ We face a risk of noncompliance with the Bank Secrecy Act and other anti-money laundering statutes and regulations and corresponding enforcement proceedings . ​ The federal Bank Secrecy Act, the PATRIOT Act, and other laws and regulations require financial institutions, among our other duties, to institute and maintain effective anti-money laundering programs and to file suspicious activity and currency transaction reports as appropriate.
As a result of this uncertainty, we face the potential for reputational risk, deposit outflows, increased costs and competition for liquidity, and increased credit risk which, individually or in the aggregate, could have a material adverse effect on our business, financial condition and results of operations. ​ L egal, Accounting, Regulatory and Compliance Risks ​ We face a risk of noncompliance with the Bank Secrecy Act and other anti-money laundering statutes and regulations and corresponding enforcement proceedings . ​ The federal Bank Secrecy Act, the PATRIOT Act, and other laws and regulations require financial institutions, among our other duties, to institute and maintain effective anti-money laundering programs and to file suspicious activity and currency transaction reports as appropriate.
Certain banking laws and our governing documents may have an anti-takeover effect and may make it difficult and expensive to remove current management . ​ Certain federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire us, even if doing so would be perceived to be beneficial to our stockholders.
If we choose to raise capital by selling shares of our common stock or securities convertible into common stock for any reason, the issuance would have a dilutive effect on the holders of our common stock and could have a material negative effect on the market price of our common stock. ​ Certain banking laws and our governing documents may have an anti-takeover effect and may make it difficult and expensive to remove current management . ​ Certain federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire us, even if doing so would be perceived to be beneficial to our stockholders.
If we are unable to offer key management personnel long-term incentive compensation, including stock options, restricted stock or restricted stock units, as part of their total compensation package, we may have difficulty attracting and retaining such personnel, which would adversely affect our operations and financial performance.
If we are unable to offer key management personnel long-term incentive compensation, including stock options, restricted stock or restricted stock units, as part of their total compensation package, we may have difficulty attracting and retaining such personnel, which would adversely affect our operations and financial performance. ​ 25 ​ Table of Contents We depend on outside third parties for the processing and handling of our records and data . ​ We rely on software developed by third party vendors to process various Company transactions.
Any future additional assessments, increases or required prepayments in FDIC insurance premiums could reduce our profitability, may limit our ability to pursue certain business opportunities or otherwise negatively impact our operations.
Any future additional assessments, increases or required prepayments in FDIC insurance premiums could reduce our profitability, may limit our ability to pursue certain business opportunities or otherwise negatively impact our operations. ​ Adverse developments affecting the financial services industry, such as recent bank failures or concerns involving liquidity, may have a material adverse effect on the Company’s operations.
These changes have impacted the rulemaking, supervision, examination and enforcement priorities and policies of the agencies and likely will continue to do so over the next several years. The potential impact of any changes in agency personnel, policies and priorities on the financial services sector, including the Company and the Bank, cannot be predicted at this time.
These changes have impacted the rulemaking, supervision, examination and enforcement priorities and policies of the agencies and likely will continue to do so over the next several years.
We depend on outside third parties for the processing and handling of our records and data . ​ We rely on software developed by third party vendors to process various Company transactions. In some cases, we have contracted with third parties to run their proprietary software on our behalf at a location under the control of the third party.
In some cases, we have contracted with third parties to run their proprietary software on our behalf at a location under the control of the third party. These systems include, but are not limited to, core data processing, payroll, loan origination, wealth management record keeping, and securities portfolio management.
When short-term interest rates are low for a prolonged period and assuming longer-term interest rates fall further, we could experience net interest margin compression as our interest-earning assets would continue to reprice downward while our interest-bearing liability rates could fail to decline in tandem, which would have an adverse effect on our net interest income and could have an adverse effect on our business, financial condition and results of operations.
When interest rates remain elevated for a prolonged period, we could experience net interest margin compression as our interest-bearing liability rates would continue to reprice upwards, while interest-earning assets would have repriced to peak yields.
We cannot reasonably estimate the expected cost. ​ Our estimate of fair values for our investments may not be realizable if we were to sell these securities today . ​ Our available-for-sale securities are carried at estimated fair value.
Failure to successfully manage these risks in the development and implementation of new lines of business or offerings of new products, product enhancements or services could have a material adverse effect on our business, financial condition or results of operations. ​ I ndustry-Related Risks ​ Our estimate of fair values for our investments may not be realizable if we were to sell these securities today . ​ Our available-for-sale securities are carried at estimated fair value.
When interest-bearing liabilities mature or reprice more quickly, or to a greater degree than interest-earning assets in a period, an increase in interest rates could reduce net interest income. Similarly, when interest-earning assets mature or reprice more quickly, or to a greater degree than interest-bearing liabilities, falling interest rates could reduce net interest income.
When interest rates fall, net interest income can decline if interest-earning assets mature or reprice more quickly, or to a greater degree than interest-bearing liabilities. Furthermore, a reduction in interest rates may lead to increased prepayments on our loan and mortgage-backed securities portfolios and increased competition for deposits.
Regulations and laws may be modified at any time, and new legislation may be enacted that will affect us.
The potential impact of the 2024 election and any additional changes in agency personnel, policies and priorities on the financial services sector, including the Company and the Bank, cannot be predicted at this time. Regulations and laws may be modified at any time, and new legislation may be enacted that will affect us.
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These negative events may cause us to incur losses and may adversely affect our capital, liquidity and financial condition. ​ Our trust and wealth management business may be negatively impacted by changes in economic and market conditions and clients may seek legal remedies for investment performance . ​ Our trust and wealth management business may be negatively impacted by changes in general economic and market conditions because the performance of this businesses is directly affected by conditions in the financial and securities markets.
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These negative events may cause us to incur losses and may adversely affect our capital, liquidity and financial condition. 20 ​ Table of Contents ​ Inflationary pressures present a potential threat to our results of operation and financial condition. ​ The United States generally and the regions in which we operate specifically have experienced throughout 2023 (and for the first time in decades), significant inflationary pressures, evidenced by higher gas prices, higher food prices and other consumer items.
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Conversely, a decrease in the general level of interest rates, among other things, may lead to increased prepayments on our loan and mortgage-backed securities portfolios and increased competition for deposits. Accordingly, changes in the general level of market interest rates may continue to adversely affect our net yield on interest-earning assets, loan origination volume and our overall results.
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Inflation represents a loss in purchasing power because the value of investments does not keep up with inflation and erodes the purchasing power of money and the potential value of investments over time.
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These systems include, but are not limited to, core data processing, payroll, loan origination, wealth management record keeping, and securities portfolio management.
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Accordingly, inflation can result in material adverse effects upon our customers, their businesses and, as a result, our financial position and results of operation. ​ Inflationary pressures caused the Federal Reserve to increase interest rates from March 2022 through July 2023.
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Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business, financial condition and results of operations.
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Increases in interest rates in the past have led to recessions of various lengths and intensities and might lead to such a recession in the near future.
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Failure to successfully manage these risks in the development and implementation of new lines of business or offerings of new products, product enhancements or services could have a material adverse effect on our business, financial condition or results of operations. ​ I ndustry-Related Risks ​ The phase-out of LIBOR could negatively impact our net interest income and require significant operational work. ​ The United Kingdom’s Financial Conduct Authority (“FCA”) regulates the London Interbank Offered Rate (“LIBOR”), the reference rate previously used for many of our transactions, including our lending and borrowing and our purchase and sale of securities, as well as the derivatives that we use to manage risk related to such transactions.
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Such a recession or any other adverse changes in business and economic conditions generally or specifically in the markets in which we operate could affect our business, including causing one or more of the following negative developments: ​ • an increase in our deposit and funding costs; • a decrease in the demand for loans, mortgage banking products and services and other products and services we offer; • a decrease in our deposit account balances as customers move funds to seek to obtain maximum federal deposit insurance coverage or to seek higher interest rates; • a decrease in the value of the collateral securing our residential or commercial real estate loans; • a permanent impairment of our assets; or • an increase in the number of customers or other counterparties who default on their loans or other obligations to us, which could result in a higher level of NPAs, net charge-offs and provision for credit losses. ​ Our trust and wealth management business may be negatively impacted by changes in economic and market conditions and clients may seek legal remedies for investment performance . ​ Our trust and wealth management business may be negatively impacted by changes in general economic and market conditions because the performance of this business is directly affected by conditions in the financial and securities markets.
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The FCA announced in July 2017 that the sustainability of LIBOR could not be guaranteed.
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Although management believes it has implemented effective asset and liability management strategies to reduce the potential effects of changes in interest rates on our results of operations, any substantial, unexpected, prolonged change in market interest rates could continue to have a material adverse effect on our financial condition and results of operations. ​ 23 ​ Table of Contents Rapidly rising interest rates will impact the value of our investment securities and the cost of our funding sources, including deposits. ​ Our profitability is highly dependent on our net interest income, which is the difference between the interest income paid to us on our loans and investments and the interest we pay to third parties such as our depositors, lenders and debt holders.
Removed
Accordingly, although the FCA confirmed the extension of overnight and 1-, 3-, 6-, and 12-month LIBOR through June 30, 2023 in order to accord financial institutions greater time with which to manage the transition from LIBOR, the FCA is no longer persuading, or compelling, banks to submit to LIBOR.
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Changes in interest rates can impact our profits and the fair values of certain of our assets and liabilities. Higher market interest rates and increased competition for deposits may result in higher interest expense, as we may offer higher rates to attract or retain customer deposits.
Removed
The federal banking agencies, including the OCC, previously determined that banks should have ceased entering into any new contract that uses LIBOR as a reference rate by December 31, 2021. In addition, banks have been encouraged to identify contracts that extend beyond June 30, 2023 and implement plans to identify and address insufficient contingency provisions in those contracts.
Added
Increases in interest rates also may increase the amount of interest expense we pay to creditors on short and long-term debt. Interest rate risk can also result from mismatches between the dollar amounts of re-pricing or maturing assets and liabilities and from mismatches in the timing and rates at which our assets and liabilities re-price.
Removed
The discontinuance of LIBOR has resulted in significant uncertainty regarding the transition to suitable alternative reference rates and could adversely impact our business, operations, and financial results. ​ The Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, has endorsed replacing the U.S. dollar LIBOR with a new index calculated by short-term repurchase agreements, backed by Treasury securities (“SOFR”).
Added
Changes in market values of investment securities classified as available for sale are impacted by higher rates and can negatively impact our other comprehensive income and equity levels through accumulated other comprehensive income, which includes net unrealized gains and losses on those securities.
Removed
SOFR is observed and backward looking, which stands in contrast with LIBOR under the current methodology, which is an estimated forward-looking rate and relies, to some degree, on the expert judgment of submitting panel members.
Added
Further, such losses could be realized into earnings should liquidity and/or business strategy necessitate the sales of securities in a loss position.
Removed
Given that SOFR is a secured rate backed by government securities, it will be a rate that does not take into account bank credit risk (as is the case with LIBOR). ​ The discontinuation of LIBOR, changes in LIBOR, or changes in market perceptions of the acceptability of LIBOR as a benchmark could result in changes to our risk exposures (for example, if the anticipated discontinuation of LIBOR adversely affects the availability or cost of floating-rate funding and, therefore, our exposure to fluctuations in interest rates) or otherwise result in losses on a product or having to pay more or receive less on securities that we own or have issued.
Added
The 2023 high-profile bank failures involving Silicon Valley Bank, Signature Bank, and First Republic Bank have caused general uncertainty and concern regarding the liquidity adequacy of the banking sector.
Removed
In addition, such uncertainty could result in pricing volatility and increased capital requirements, loss of market share in certain products, adverse tax or accounting impacts, and compliance, legal and operational costs and risks associated with client disclosures, discretionary actions taken or negotiation of fallback provisions, systems disruption, business continuity, and model disruption.
Added
Although we were not directly affected by these bank failures, the resulting speed and ease in which news, including social media commentary, led depositors to withdraw or attempt to withdraw their funds from these and other financial institutions caused the stock prices of many financial institutions to become volatile.
Removed
We have substantial exposure to LIBOR-based products, including loans, 26 ​ Table of Contents securities, derivatives and hedges, and we have transitioned away from the use of LIBOR to alternative rates for all new contracts as of December 31, 2021.
Added
Additional bank failures could have an adverse effect on our financial condition and results of operations, either directly or through an adverse impact on certain of our customers. 29 ​ Table of Contents In response to the bank failures and the resulting market reaction, in March 2023 the Secretary of the Treasury approved actions enabling the FDIC to complete its resolutions of the failed banks in a manner that fully protects depositors by utilizing the Deposit Insurance Fund, including the use of Bridge Banks to assume all of the deposit obligations of the failed banks, while leaving unsecured lenders and equity holders of such institutions exposed to losses.
Removed
We continue to prepare for the transition of our existing LIBOR exposures prior to the final LIBOR cessation date of June 30, 2023.
Added
In addition, the Federal Reserve announced it would make available additional funding to eligible depository institutions under a Bank Term Funding Program to help assure banks have the ability to meet the needs of all their depositors.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOur six leased locations are under agreements that end from March 31, 2023 through June 30, 2030. We believe that all of our properties and equipment are well maintained, in good operating condition and adequate for all of our present and anticipated needs. ​
Biggest changeOur six leased locations are under agreements that end from May 31, 2024 through August 31, 2043. We believe that all of our properties and equipment are well maintained, in good operating condition and adequate for all of our present and anticipated needs. ​ 36 ​ Table of Contents

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+3 added−1 removed5 unchanged
Biggest changeSee “Supervision and Regulation—Regulation and Supervision of the Company.” ​ Stock Repurchases ​ In September 2019, our board of directors authorized the repurchase of up to 1,494,826 shares of our common stock (the “Repurchase Program”). The Repurchase Program expired on September 19, 2020 and then was extended through October 20, 2021.
Biggest changeSee “Supervision and Regulation—Regulation and Supervision of the Company.” ​ Stock Repurchases ​ We had no active repurchase program in effect as of December 31, 2022 and made no repurchases in the year ended 2022. ​ In November 2023, our board of directors authorized the repurchase of up to 2,234,896 shares of our common stock (the “Repurchase Program”).
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ​ For information regarding securities authorized for issuance under the Company’s equity compensation plans, see Part III, Item 12. ​ Market for the Company’s Common Stock ​ Our common stock trades on the NASDAQ Global Select Market under the symbol “OSBC.” As of December 31, 2022, we had 1,258 stockholders of record for our common stock.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ​ For information regarding securities authorized for issuance under the Company’s equity compensation plans, see Part III, Item 12. ​ Market for the Company’s Common Stock ​ Our common stock trades on the NASDAQ Global Select Market under the symbol “OSBC.” As of December 31, 2023, we had 1,258 stockholders of record for our common stock.
The following graph indicates, for the period commencing December 31, 2017, and ending December 31, 2022, a comparison of cumulative total returns for the Company, S&P 500 Index and the KBW NASDAQ Bank Index.
The following graph indicates, for the period commencing December 31, 2018, and ending December 31, 2023, a comparison of cumulative total returns for the Company, S&P 500 Index and the KBW NASDAQ Bank Index.
The following table sets forth the high and low trading prices of our common stock on the NASDAQ Global Select Market, and information about declared dividends during each quarter for 2022 and 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ 2021 ​ High Low Dividend High Low Dividend First quarter ​ $ 15.48 ​ $ 12.55 ​ $ 0.05 ​ $ 14.16 ​ $ 9.75 ​ $ 0.01 ​ Second quarter ​ 15.68 ​ 13.28 ​ 0.05 ​ 14.45 ​ 12.29 ​ 0.05 ​ Third quarter ​ 15.00 ​ 13.03 ​ 0.05 ​ 13.30 ​ 11.16 ​ 0.05 ​ Fourth quarter ​ 17.80 ​ 12.91 ​ 0.05 ​ 14.23 ​ 11.95 ​ 0.05 ​ ​ ​ 32 ​ Table of Contents Dividends ​ The Company’s stockholders are entitled to receive dividends when, as and if declared by the board of directors out of funds legally available therefor.
The following table sets forth the high and low trading prices of our common stock on the NASDAQ Global Select Market, and information about declared dividends during each quarter for 2023 and 2022. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 ​ High Low Dividend High Low Dividend First quarter ​ $ 17.70 ​ $ 13.11 ​ $ 0.05 ​ $ 15.48 ​ $ 12.55 ​ $ 0.05 ​ Second quarter ​ 14.29 ​ 10.79 ​ 0.05 ​ 15.68 ​ 13.28 ​ 0.05 ​ Third quarter ​ 16.47 ​ 12.69 ​ 0.05 ​ 15.00 ​ 13.03 ​ 0.05 ​ Fourth quarter ​ 16.76 ​ 13.08 ​ 0.05 ​ 17.80 ​ 12.91 ​ 0.05 ​ ​ Dividends ​ The Company’s stockholders are entitled to receive dividends when, as and if declared by the board of directors out of funds legally available therefor.
We made no repurchases in the year ended 2022. ​ Recent Sales of Unregistered Securities ​ None. ​ Form 10-K and Other Information ​ Transfer Agent/Stockholder Services ​ Inquiries related to stockholders’ records, stock transfers, changes of ownership, change of address and dividend payments should be sent to the transfer agent at the following address: ​ Old Second Bancorp, Inc. c/o Shirley Cantrell, Stockholder Relations Department 37 South River Street Aurora, Illinois 60507 (630) 906-2303 scantrell@oldsecond.com ​ 33 ​ Table of Contents Stockholder Return Performance Graph.
We are not obligated to repurchase any shares under the Repurchase Program. ​ Recent Sales of Unregistered Securities ​ None. ​ Form 10-K and Other Information ​ Transfer Agent/Stockholder Services ​ Inquiries related to stockholders’ records, stock transfers, changes of ownership, change of address and dividend payments should be sent to the transfer agent at the following address: ​ Old Second Bancorp, Inc. c/o Shirley Cantrell, Stockholder Relations Department 37 South River Street Aurora, Illinois 60507 (630) 906-2303 scantrell@oldsecond.com ​ 38 ​ Table of Contents Stockholder Return Performance Graph.
The information assumes that $100 was invested at the closing price at December 31, 2017, in the common stock of the Company and each index and that all dividends were reinvested. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Period Ending Index 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 Old Second Bancorp, Inc. ​ 100.00 95.50 99.26 74.74 94.37 121.95 ​ S&P 500 Index ​ 100.00 95.62 125.72 ​ 148.85 ​ 191.58 ​ 156.88 ​ KBW Nasdaq Bank Index ​ 100.00 82.29 112.01 100.46 138.97 109.23 ​ ​ ​ ​
The information assumes that $100 was invested at the closing price at December 31, 2018, in the common stock of the Company and each index and that all dividends were reinvested. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Period Ending Index 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Old Second Bancorp, Inc. ​ 100.00 103.93 78.26 98.81 127.69 124.67 ​ S&P 500 Index ​ 100.00 131.49 ​ 155.68 ​ 200.37 ​ 164.08 ​ 207.21 ​ KBW Nasdaq Bank Index ​ 100.00 136.13 122.09 168.88 132.75 131.57 ​ ​ ​ ​
Removed
The Repurchase Program expired on October 21, 2021, and no other repurchase program is in effect as of December 31, 2022.
Added
We made no repurchases in the year ended 2023.
Added
The Repurchase Program expires December 31, 2024. ​ 37 ​ Table of Contents The actual means and timing of any repurchases, quantity of purchased shares and prices will be, subject to certain limitations, at the discretion of management and will depend on a number of factors, including, without limitation, market prices of our common stock, general market and economic conditions, and applicable legal and regulatory requirements.
Added
Repurchases under the Repurchase Program may be initiated, discontinued, suspended or restarted at any time; provided that repurchases under the Repurchase Program after December 31, 2024 would require Federal Reserve non-objection or approval.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

148 edited+21 added−28 removed62 unchanged
Biggest changeWe had no brokered certificates of deposit as of December 31, 2022 or December 31, 2021. ​ ​ Average Balances and Interest Rates ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ 2021 ​ 2020 ​ ​ Average Rate Average Rate Average Rate (Dollars in thousands) ​ Balance ​ % ​ Balance ​ % ​ Balance ​ % ​ Noninterest bearing demand ​ $ 2,097,151 - ​ $ 1,045,518 - ​ $ 832,180 - ​ Interest bearing: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NOW and money market ​ 1,615,064 0.09 ​ 991,886 0.07 ​ 752,682 0.14 ​ Savings ​ 1,188,771 0.03 ​ 502,863 0.05 ​ 363,331 0.14 ​ Time ​ 468,476 0.31 ​ 365,167 0.41 ​ 424,831 1.18 ​ Total deposits ​ $ 5,369,462 ​ ​ ​ $ 2,905,434 ​ ​ ​ $ 2,373,024 ​ ​ ​ ​ ​ ​ The following table sets forth the amounts and maturities of time deposits of $250,000 or more at December 31 of the year indicated: ​ Maturities of Time Deposits of $250,000 or More ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) 2022 2021 3 months or less ​ $ 9,433 ​ $ 17,050 Over 3 months through 6 months ​ 6,274 ​ 10,698 Over 6 months through 12 months ​ 13,965 ​ 22,759 Over 12 months ​ 10,794 ​ 18,211 ​ ​ $ 40,466 ​ $ 68,718 ​ The following table reflects the portion of deposits accounts in U.S. offices that exceed the FDIC insurance limit or similar deposit insurance regimes: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, (Dollars in thousands) ​ 2022 ​ 2021 Uninsured deposits ​ $ 1,435,856 ​ $ 1,422,553 ​ ​ Borrowings ​ In addition to deposits, we used other liquidity sources for our funding needs in 2022, such as repurchase agreements and other short-term borrowings with the FHLBC.
Biggest changeWe had no brokered certificates of deposit as of December 31, 2023 or December 31, 2022. ​ Average Balances and Interest Rates ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 ​ 2021 ​ ​ Average Rate Average Rate Average Rate (Dollars in thousands) ​ Balance ​ % ​ Balance ​ % ​ Balance ​ % ​ Noninterest bearing demand ​ $ 1,906,633 - ​ $ 2,097,151 - ​ $ 1,045,518 - ​ Interest bearing: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NOW and money market ​ 1,337,329 0.57 ​ 1,615,064 0.09 ​ 991,886 0.07 ​ Savings ​ 1,052,750 0.11 ​ 1,188,771 0.03 ​ 502,863 0.05 ​ Time ​ 458,918 1.45 ​ 468,476 0.31 ​ 365,167 0.41 ​ Total deposits ​ $ 4,755,630 ​ ​ ​ $ 5,369,462 ​ ​ ​ $ 2,905,434 ​ ​ ​ ​ The following table sets forth the amounts and maturities of time deposits of $250,000 or more at December 31 of the year indicated: ​ Maturities of Time Deposits of $250,000 or More ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) 2023 2022 3 months or less ​ $ 23,677 ​ $ 9,433 Over 3 months through 6 months ​ 28,607 ​ 6,274 Over 6 months through 12 months ​ 21,558 ​ 13,965 Over 12 months ​ 7,740 ​ 10,794 ​ ​ $ 81,582 ​ $ 40,466 58 ​ Table of Contents The following table presents estimated insured and uninsured deposits at December 31, 2023 and December 31, 2022 by deposit type, as well as the weighted average rates for each year to date ending period: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) December 31, 2023 ​ ​ December 31, 2022 ​ Total Deposits ​ Insured Deposits ​ Uninsured Deposits ​ Average Rate Paid ​ Total Deposits ​ Insured Deposits ​ Uninsured Deposits ​ Average Rate Paid Noninterest bearing demand $ 1,834,891 ​ $ 1,137,089 ​ $ 697,802 ​ - % ​ $ 2,051,702 ​ $ 1,327,379 ​ $ 724,323 ​ - % Savings ​ 971,334 ​ ​ 905,163 ​ ​ 66,171 ​ 0.11 ​ ​ ​ 1,145,592 ​ ​ 1,065,153 ​ ​ 80,439 ​ 0.03 ​ NOW accounts ​ 565,375 ​ ​ 414,005 ​ ​ 151,370 ​ 0.27 ​ ​ ​ 609,338 ​ ​ 453,799 ​ ​ 155,539 ​ 0.09 ​ Money market accounts ​ 671,240 ​ ​ 473,006 ​ ​ 198,234 ​ 0.80 ​ ​ ​ 862,170 ​ ​ 588,923 ​ ​ 273,247 ​ 0.10 ​ Time deposits ​ 527,906 ​ ​ 452,000 ​ ​ 75,906 ​ 1.45 ​ ​ ​ 441,921 ​ ​ 381,980 ​ ​ 59,941 ​ 0.31 ​ Total $ 4,570,746 ​ $ 3,381,263 ​ $ 1,189,483 ​ 0.32 % ​ $ 5,110,723 ​ $ 3,817,234 ​ $ 1,293,489 ​ 0.06 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Collateralized public funds $ 247,202 ​ $ 15,211 ​ $ 231,991 ​ ​ ​ ​ $ 262,318 ​ $ 15,879 ​ $ 246,439 ​ ​ ​ ​ As of December 31, 2023, 19.5% of our uninsured deposits were secured by collateralized public funds; in addition, the Bank had ample liquidity available with unused funding capacity at correspondent banks. ​ Borrowings ​ In addition to deposits, we used other liquidity sources for our funding needs in 2023, such as repurchase agreements and other short-term borrowings with the FHLBC.
Subsequent evaluations of the then-existing loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance for credit losses in those future periods. ​ The ACL involves critical accounting estimates because: ​ ● changes in the provision for credit losses can materially affect our financial results; ● estimates relating to the ACL require us to project future borrower performance, including cash flows, delinquencies and charge-offs, along with, when applicable, collateral values, based on a reasonable and supportable forecast period utilizing forward-looking economic scenarios in order to estimate probability of default and loss given default; and ● the ACL is influenced by factors outside of our control such as industry and business trends, geopolitical events and the effects of laws and regulations as well as economic conditions such as trends in housing prices, interest rates, GDP, inflation, energy prices and unemployment; and ● considerable judgment is required to determine whether the models used to generate the ACL produce an estimate that is sufficient to encompass the current view of lifetime expected credit losses. ​ Because our estimates of the ACL involve judgments and are influenced by factors outside of our control, there is uncertainty inherent in these estimates.
Subsequent evaluations of the then-existing loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance for credit losses in those future periods. ​ The ACL involves critical accounting estimates because: ​ ● changes in the provision for credit losses can materially affect our financial results; ● estimates relating to the ACL require us to project future borrower performance, including cash flows, delinquencies and charge-offs, along with, when applicable, collateral values, based on a reasonable and supportable forecast period utilizing forward-looking economic scenarios in order to estimate probability of default and loss given default; ● the ACL is influenced by factors outside of our control such as industry and business trends, geopolitical events and the effects of laws and regulations as well as economic conditions such as trends in housing prices, interest rates, GDP, inflation, energy prices and unemployment; and ● considerable judgment is required to determine whether the models used to generate the ACL produce an estimate that is sufficient to encompass the current view of lifetime expected credit losses. ​ Because our estimates of the ACL involve judgments and are influenced by factors outside of our control, there is uncertainty inherent in these estimates.
The Notes have a stated maturity of April 15, 2031, and are redeemable, in whole are in part, on April 15, 2026, or any interest payment date thereafter, and at any time upon the occurrence of certain events.
The Notes have a stated maturity of April 15, 2031, and are redeemable, in whole or in part, on April 15, 2026, or any interest payment date thereafter, and at any time upon the occurrence of certain events.
Management reviews its process quarterly using an extensive and detailed loan review process, makes changes as needed, and reports those results at meetings of our Board of Directors and Audit Committee. 53 ​ Table of Contents ​ Although management believes the ACL is sufficient to cover expected losses over the estimated life of our loan portfolio, there can be no assurance that the allowance will prove sufficient to cover actual loan and lease losses or that regulators, in reviewing the loan portfolio, would not request us to materially adjust our ACL at the time of their examination.
Management reviews its process quarterly using an extensive and detailed loan review process, makes changes as needed, and reports those results at meetings of our Board of Directors and Audit Committee. ​ 57 ​ Table of Contents Although management believes the ACL is sufficient to cover expected losses over the estimated life of our loan portfolio, there can be no assurance that the allowance will prove sufficient to cover actual loan and lease losses or that regulators, in reviewing the loan portfolio, would not request us to materially adjust our ACL at the time of their examination.
For additional information regarding our cautionary disclosures, see the “Cautionary Note Regarding Forward-Looking Statements” at the beginning of this annual report. ​ ​ ​ 34 ​ Table of Contents Business overview ​ We provide a wide range of financial services through our 48 banking locations located in Cook, DeKalb, DuPage, Kane, Kendall, LaSalle and Will counties in Illinois.
For additional information regarding our cautionary disclosures, see the “Cautionary Note Regarding Forward-Looking Statements” at the beginning of this annual report. ​ 39 ​ Table of Contents Business overview ​ We provide a wide range of financial services through our 48 banking locations located in Cook, DeKalb, DuPage, Kane, Kendall, LaSalle and Will counties in Illinois.
Our lending exposure is diversified across our commercial, leasing, commercial real estate, residential real estate, construction loan, multifamily and HELOC portfolios, with total loan portfolio growth in each of the three years presented above. We had no concentration of loans exceeding 10% of total loans that were not otherwise disclosed as a category of loans at December 31, 2022.
Our lending exposure is diversified across our commercial, leasing, commercial real estate, residential real estate, construction loan, multifamily and HELOC portfolios, with total loan portfolio growth in each of the three years presented above. We had no concentration of loans exceeding 10% of total loans that were not otherwise disclosed as a category of loans at December 31, 2023.
We recorded provision for credit losses of $6.6 million in 2022, comprised of $6.8 million of provision for credit loss expense on loans, and $200,000 release of provision on unfunded commitments.
In 2022, we recorded a provision for credit losses of $6.6 million, comprised of a $6.8 million provision for credit loss expense on loans, and a $200,000 release of provision for credit losses on unfunded commitments.
Because the fair value of derivative contracts changes daily as market interest rates change, the derivative assets and liabilities recorded on the balance sheet at December 31, 2022, do not necessarily represent the amounts that may ultimately be paid. ​ Assets under management and assets under custody are held in fiduciary or custodial capacity for clients.
Because the fair value of derivative contracts changes daily as market interest rates change, the derivative assets and liabilities recorded on the balance sheet at December 31, 2023, do not necessarily represent the amounts that may ultimately be paid. ​ Assets under management and assets under custody are held in fiduciary or custodial capacity for clients.
Management believes that the presentation of these non-GAAP financial measures (a) provides important supplemental information that contributes to a proper understanding of our operating performance, (b) enables a more complete understanding of factor and trends affecting our business, and (c) allows investors to evaluate our performance in a manner similar to management, the financial services industry, bank stock analysts, and bank regulators.
Management believes that the presentation of these non-GAAP financial measures (a) provides important supplemental information that contributes to a proper understanding of our operating performance, (b) enables a more complete understanding of factors and trends affecting our business, and (c) allows investors to evaluate our performance in a manner similar to management, the financial services industry, bank stock analysts, and bank regulators.
Recent accounting pronouncements and standards that have impacted or could potentially affect us are also discussed in Note 1 of the consolidated financial statements. ​ 38 ​ Table of Contents ​ Allowance for credit losses for loans ​ The allowance for credit losses (“ACL”) for loans represents management’s estimate of all expected credit losses over the expected contractual life of our loan portfolio.
Recent accounting pronouncements and standards that have impacted or could potentially affect us are also discussed in Note 1 of the consolidated financial statements. ​ 43 ​ Table of Contents Allowance for credit losses for loans ​ The allowance for credit losses (“ACL”) for loans represents management’s estimate of all expected credit losses over the expected contractual life of our loan portfolio.
The amount included in other comprehensive income would be reclassified to current earnings should all or a portion of the hedge no longer be considered effective. We expect the hedge to remain fully effective during the remaining term of the swap. We pay the counterparty a fixed rate and receive a floating rate based on three month LIBOR.
The amount included in other comprehensive income would be reclassified to current earnings should all or a portion of the hedge no longer be considered effective. We expect the hedge to remain fully effective during the remaining term of the swap. We pay the counterparty a fixed rate and receive a floating rate based on three month SOFR.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation s ​ The following discussion provides additional information regarding our operations for the twelve-month periods ending December 31, 2022, 2021 and 2020, and financial condition at December 31, 2022 and 2021 and should be read in conjunction with our consolidated financial statements and the related notes.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation s ​ The following discussion provides additional information regarding our operations for the twelve-month periods ending December 31, 2023, 2022 and 2021, and financial condition at December 31, 2023 and 2022 and should be read in conjunction with our consolidated financial statements and the related notes.
Nonaccrual loans are included in the above stated average balances. ​ 41 ​ Table of Contents For purposes of discussion, net interest income and net interest income to interest earning assets have been adjusted to a non-GAAP (TE) basis to more appropriately compare returns on tax-exempt loans and securities to other earning assets.
Nonaccrual loans are included in the above stated average balances. ​ 46 ​ Table of Contents For purposes of discussion, net interest income and net interest income to interest earning assets have been adjusted to a non-GAAP (TE) basis to more appropriately compare returns on tax-exempt loans and securities to other earning assets.
At the scheduled board of directors meetings of the Bank, loan listings are presented, which show significant loan relationships listed as “Special Mention,” “Substandard,” and “Doubtful.” Loans classified as Substandard include those that have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.
At the scheduled directors loan committee meetings of the Bank, loan listings are presented, which show significant loan relationships listed as “Special Mention,” “Substandard,” and “Doubtful.” Loans classified as Substandard include those that have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.
This line of credit has not been drawn upon since January 2019. ​ There were no other categories of short-term borrowings that had an average balance greater than 30% of our stockholders’ equity as of December 31, 2022, 2021 or 2020. ​ The average junior subordinated debentures included one issuance of trust preferred securities, Old Second Capital Trust II (“Trust II”), which totals $25.0 million as of December 31, 2022 and 2021.
This line of credit has not been drawn upon since January 2019. ​ There were no other categories of short-term borrowings that had an average balance greater than 30% of our stockholders’ equity as of December 31, 2023 or 2022. ​ The average junior subordinated debentures included one issuance of trust preferred securities, Old Second Capital Trust II (“Trust II”), which totals $25.0 million as of December 31, 2023 and 2022.
A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is presented below or alongside the first instance where each non-GAAP financial measure is used. ​ Results of operations ​ Net interest income ​ Net interest income, which is our primary source of earnings, is the difference between interest income and fees earned on interest-earning assets, such as loans and investment securities, as well as accretion income on purchased loans, and interest incurred on interest-bearing liabilities, such as deposits and borrowings.
A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is presented below or alongside the first instance where each non-GAAP financial measure is used. 44 ​ Table of Contents Results of operations ​ Net interest income ​ Net interest income, which is our primary source of earnings, is the difference between interest income and fees earned on interest-earning assets, such as loans and investment securities, as well as accretion income on purchased loans, and interest incurred on interest-bearing liabilities, such as deposits and borrowings.
In 2021, we recorded a provision for credit losses of $4.3 million, comprised of a $9.4 million release of provision for credit losses expense on loans, a $12.2 million Day Two non-PCD credit mark on West Suburban acquired loans, and a $1.5 million provision for credit losses on unfunded commitments, and $10.4 million of provision expense on loans recorded in 2020.
In 2021, we recorded a provision for credit losses of $4.3 million, comprised of a $9.4 million release of provision for credit losses expense on loans, a $12.2 million Day Two non-PCD credit mark on West Suburban acquired loans, and a $1.5 million provision for credit losses on unfunded commitments.
Proceeds from sales of loans held-for-sale, net of funds used to originate loans held-for-sale, was a source of inflows for 2022, 2021 and 2020. Interest received, net of interest paid, combined with changes in other assets and liabilities were a source of inflows for 2022, but a source of outflows in 2021 and 2020.
Proceeds from sales of loans held-for-sale, net of funds used to originate loans held-for-sale, was a source of inflows for 2023, 2022 and 2021. Interest received, net of interest paid, combined with changes in other assets and liabilities were a source of inflows for 2023 and 2022, but a source of outflows in 2021.
The junior subordinated debentures outstanding at December 31, 2022 consists of $25.8 million of the Trust II issuance, including both the preferred and common stock components related to this trust preferred issuance. ​ In the second quarter of 2021, we entered into Subordinated Note Purchase Agreements with certain qualified institutional buyers pursuant to which we sold and issued $60.0 million in aggregate principal amount of our 3.50% Fixed-to-Floating Rate Subordinated Notes due April 15, 2031 (the “Notes”).
The junior subordinated debentures outstanding at December 31, 2023 consist of $25.8 million of the Trust II issuance, including both the preferred and common stock components related to this trust preferred issuance. ​ In the second quarter of 2021, we entered into Subordinated Note Purchase Agreements with certain qualified institutional buyers pursuant to which we sold and issued $60.0 million in aggregate principal amount of our 3.50% Fixed-to-Floating Rate Subordinated Notes due April 15, 2031 (the “Notes”).
In management’s judgment, an adequate allowance for estimated losses has been established; however, there can be no assurance that losses will not exceed the estimated amounts in the future. ​ See Note 1 – Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial statements in this annual report for discussion of our ACL methodology on loans. ​ The provision for credit losses, which includes a provision for losses on unfunded commitments, is a charge to earnings to maintain the ACL at a level consistent with management’s assessment of expected losses over the expected life of the loan portfolio as well as considering changes in macroeconomic conditions. ​ During 2022, we recorded a $6.8 million of provision for credit losses expense on loans and a $200,000 release of provision for credit losses on unfunded commitments.
In management’s judgment, an adequate allowance for estimated losses has been established; however, there can be no assurance that losses will not exceed the estimated amounts in the future. ​ See Note 1 – Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial statements in this annual report for discussion of our ACL methodology on loans. ​ The provision for credit losses, which includes a provision for losses on unfunded commitments, is a charge to earnings to maintain the ACL at a level consistent with management’s assessment of expected losses over the expected life of the loan portfolio as well as considering changes in macroeconomic conditions. ​ During 2023, we recorded an $18.1 million of provision for credit losses expense on loans and a $1.6 million release of provision for credit losses on unfunded commitments.
We sold the Notes in a private offering, and the proceeds of this issuance are intended to be used for general corporate purposes, which may include, without limitation, the redemption of existing senior debt, common stock repurchases and strategic acquisitions. The Notes bear interest at a fixed annual rate of 3.50% through April 14, 2026, payable semi-annually in arrears.
We sold the Notes in a private offering, and the proceeds of this issuance are intended to be used for general corporate purposes, which may include, without limitation, common stock repurchases and strategic acquisitions. The Notes bear interest at a fixed annual rate of 3.50% through April 14, 2026, payable semi-annually in arrears.
A more detailed description of these loans can be found in Note 5 to the Consolidated Financial Statements, as listed in the credit quality indicators discussion. ​ Allowance for Credit Losses ​ At December 31, 2022, the ACL on loans totaled $49.5 million, and the ACL on unfunded commitments, included in other liabilities, totaled $5.1 million, compared to the ACL on loans of $44.3 million and ACL on unfunded commitments of $6.2 million at December 31, 2021.
A more detailed description of these loans can be found in Note 5 to the Consolidated Financial Statements, as listed in the credit quality indicators discussion. ​ Allowance for Credit Losses ​ At December 31, 2023, the ACL on loans totaled $44.3 million, and the ACL on unfunded commitments, included in other liabilities, totaled $2.7 million, compared to the ACL on loans of $49.5 million and ACL on unfunded commitments of $5.1 million at December 31, 2022.
Limitations associated with non-GAAP financial measures include the risk that persons might disagree as to the appropriateness of items comprising these measures and that different companies might calculate these measures differently. These disclosures should not be 39 ​ Table of Contents considered an alternative to our GAAP results.
Limitations associated with non-GAAP financial measures include the risk that persons might disagree as to the appropriateness of items comprising these measures and that different companies might calculate these measures differently. These disclosures should not be considered an alternative to our GAAP results.
The outstanding balance of our short-term FHLBC borrowing was $90.0 million as of December 31, 2022. ​ In addition, we have an unused line of credit of $30.0 million available with a third-party bank, which can be used for the Company’s operating needs at the holding company level.
The outstanding balance of our short-term FHLBC borrowing was $405.0 million and $90.0 million as of December 31, 2023 and December 31, 2022, respectively. ​ In addition, we have an unused line of credit of $30.0 million available with a third-party bank, which can be used for the Company’s operating needs at the holding company level.
The net decrease in treasury stock increased stockholders’ equity, and also decreased earnings per share by increasing the number of shares outstanding. ​ The Basel III rules, impose minimum capital requirements for bank holding companies and banks.
The net decrease in treasury stock increased stockholders’ equity, and also decreased earnings per share by increasing the number of shares outstanding. ​ 60 ​ Table of Contents The Basel III rules, impose minimum capital requirements for bank holding companies and banks.
CLO credit enhancement is achieved through over-collateralization and/or subordination. ​ 47 ​ Table of Contents ​ The following table presents the expected maturities or call dates and weighted average yield (nontax equivalent) of securities by major category as of December 31, 2022. Weighted average yield is based on amortized costs and not calculated on a tax equivalent basis.
CLO credit enhancement is achieved through over-collateralization and/or subordination. ​ The following table presents the expected maturities or call dates and weighted average yield (nontax equivalent) of securities by major category as of December 31, 2023. Weighted average yield is based on amortized costs and not calculated on a tax equivalent basis.
Management reviewed the securities portfolio for credit loss exposure, and determined that no allowance for credit losses on securities was required for 2022.
Management reviewed the securities portfolio for credit loss exposure, and determined that no allowance for credit losses on securities was required for 2023.
At December 31, 2022, accumulated other comprehensive loss, net of deferred taxes, was $93.1 million, compared to $8.8 million accumulated other comprehensive income, net of tax, as of year-end 2021. Equity in 2022 was reduced for the payment of dividends to common stockholders, which totaled $8.9 million for the year.
At December 31, 2023, accumulated other comprehensive loss, net of deferred taxes, was $62.8 million, compared to $93.1 million accumulated other comprehensive loss, net of tax, as of year-end 2022. Equity in 2023 was reduced for the payment of dividends to common stockholders, which totaled $8.9 million for the year.
Management monitors a metric of classified assets to the sum of Bank Tier 1 capital and the ACL, which is referred to as the “classified assets ratio.” Our classified assets ratio increased to 18.36% at December 31, 2022, compared to 13.79% at December 31, 2021, from 12.64% at December 31, 2020. ​ Potential Problem Loans ​ We utilize an internal asset classification system as a means of reporting problem and potential problem assets.
Management monitors a metric of classified assets to the sum of Bank Tier 1 capital and the ACL, which is referred to as the “classified assets ratio.” Our classified assets ratio increased to 21.66% at December 31, 2023, compared to 18.36% at December 31, 2022, from 13.79% at December 31, 2021. ​ Problem Loans ​ We utilize an internal asset classification system as a means of reporting problem and potential problem assets.
As of December 31, 2022, we had $59.3 million of subordinated debentures outstanding, net of deferred issuance costs. ​ In December 2016, we completed the retirement of $45.0 million of subordinated debt with the proceeds of a $45.0 million senior notes issuance and cash on hand.
As of December 31, 2023, we had $59.4 million of subordinated debentures outstanding, net of deferred issuance costs. ​ In December 2016, we completed the retirement of $45.0 million of subordinated debt with the proceeds of a $45.0 million senior notes issuance and cash on hand.
An analysis of the provision for income taxes for the three years ended December 31, 2022, is detailed in Note 11 of the consolidated financial statements and our income tax accounting policies are described in Note 1 to the consolidated financial statements. ​ Our income tax expense totaled $24.1 million for December 31, 2022 compared to an income tax expense of $7.8 million for 2021 and $9.6 million for 2020.
An analysis of the provision for income taxes for the three years ended December 31, 2023, is detailed in Note 11 of the consolidated financial statements and our income tax accounting policies are described in Note 1 to the consolidated financial statements. ​ Our income tax expense totaled $32.7 million for December 31, 2023 compared to an income tax expense of $24.1 million in 2022 and $7.8 million for 2021.
Management’s policy is to mitigate the impact of changes in market interest rates to the extent possible as part of our balance sheet management process. ​ Net cash outflows from investing activities were $432.8 million in 2022, compared to $132.9 million of inflows in 2021, and $103.8 million of outflows in 2020.
Management’s policy is to mitigate the impact of changes in market interest rates to the extent possible as part of our balance sheet management process. ​ Net cash inflows from investing activities were $161.6 million in 2023, compared to $432.8 million of outflows in 2022, and $132.9 million of inflows in 2021.
The capital conservation buffer consists of an additional amount of common equity equal to 2.5% of risk-weighted assets. ​ 57 ​ Table of Contents The following table shows the regulatory capital ratios and the current minimum and well capitalized regulatory requirements at the dates indicated: ​ Risk Based Capital Ratios ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Minimum Capital ​ Well Capitalized ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Adequacy with ​ Under Prompt ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Capital Conservation ​ ​ Corrective Action ​ December 31, ​ December 31, ​ December 31, ​ ​ Buffer, if applicable 1 ​ Provisions 2 ​ 2022 ​ 2021 ​ 2020 The Company ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common equity tier 1 capital ratio ​ 7.00 % ​ N/A ​ ​ 9.67 % ​ 9.46 % ​ 11.94 % Total risk-based capital ratio ​ 10.50 % ​ N/A ​ ​ 12.52 % ​ 12.55 % ​ 14.26 % Tier 1 risk-based capital ratio ​ 8.50 % ​ N/A ​ ​ 10.20 % ​ 10.06 % ​ 13.01 % Tier 1 leverage ratio ​ 4.00 % ​ N/A ​ ​ 8.14 % ​ 7.81 % ​ 10.21 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The Bank ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common equity tier 1 capital ratio ​ 7.00 % ​ 6.50 % ​ 11.70 % ​ 12.41 % ​ 13.75 % Total risk-based capital ratio ​ 10.50 % ​ 10.00 % ​ 12.75 % ​ 13.46 % ​ 15.00 % Tier 1 risk-based capital ratio ​ 8.50 % ​ 8.00 % ​ 11.70 % ​ 12.41 % ​ 13.75 % Tier 1 leverage ratio ​ 4.00 % ​ 5.00 % ​ 9.32 % ​ 9.58 % ​ 10.74 % ​ 1 Amounts are shown inclusive of a capital conservation buffer of 2.50%. 2 Prompt corrective action provisions are only applicable at the Bank level. ​ The Company, on a consolidated basis, exceeded the minimum capital ratios to be deemed “well capitalized” at December 31, 2022, pursuant to the capital requirements in effect at that time.
The capital conservation buffer consists of an additional amount of common equity equal to 2.5% of risk-weighted assets. ​ The following table shows the regulatory capital ratios and the current minimum and well capitalized regulatory requirements at the dates indicated: ​ Risk Based Capital Ratios ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Minimum Capital ​ Well Capitalized ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Adequacy with ​ Under Prompt ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Capital Conservation ​ ​ Corrective Action ​ December 31, ​ December 31, ​ December 31, ​ ​ Buffer, if applicable 1 ​ Provisions 2 ​ 2023 ​ 2022 ​ 2021 The Company ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common equity tier 1 capital ratio ​ 7.00 % ​ N/A ​ ​ 11.37 % ​ 9.67 % ​ 9.46 % Total risk-based capital ratio ​ 10.50 % ​ N/A ​ ​ 14.06 % ​ 12.52 % ​ 12.55 % Tier 1 risk-based capital ratio ​ 8.50 % ​ N/A ​ ​ 11.89 % ​ 10.20 % ​ 10.06 % Tier 1 leverage ratio ​ 4.00 % ​ N/A ​ ​ 10.06 % ​ 8.14 % ​ 7.81 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The Bank ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common equity tier 1 capital ratio ​ 7.00 % ​ 6.50 % ​ 12.32 % ​ 11.70 % ​ 12.41 % Total risk-based capital ratio ​ 10.50 % ​ 10.00 % ​ 13.24 % ​ 12.75 % ​ 13.46 % Tier 1 risk-based capital ratio ​ 8.50 % ​ 8.00 % ​ 12.32 % ​ 11.70 % ​ 12.41 % Tier 1 leverage ratio ​ 4.00 % ​ 5.00 % ​ 10.41 % ​ 9.32 % ​ 9.58 % ​ 1 Amounts are shown inclusive of a capital conservation buffer of 2.50%. 2 Prompt corrective action provisions are only applicable at the Bank level. ​ The Company, on a consolidated basis, exceeded the minimum capital ratios to be deemed “well capitalized” at December 31, 2023, pursuant to the capital requirements in effect at that time.
These loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt and carry the distinct possibility that we will sustain some loss if deficiencies remain uncorrected. ​ Total classified loans increased in 2022 compared to 2021, and increased in 2021 compared to 2020.
These loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt and carry the distinct possibility that we will sustain some loss if deficiencies remain uncorrected. ​ 54 ​ Table of Contents Total classified loans increased in 2023 compared to 2022, and increased in 2022 compared to 2021.
When a loan is placed on nonaccrual status, interest previously accrued but not collected in the current period is reversed against current period interest income. Interest income of approximately $284,000, $280,000 and $70,000 was recorded and collected during 2022, 2021 and 2020, respectively, on loans that subsequently went to nonaccrual status by year-end.
When a loan is placed on nonaccrual status, interest previously accrued but not collected in the current period is reversed against current period interest income. Interest income of approximately $1.9 million, $284,000 and $280,000 was recorded and collected during 2023, 2022 and 2021, respectively, on loans that subsequently went to nonaccrual status by year-end.
The increase in income tax expense in 2022, compared to 2021, is commensurate with the growth in our pretax income. Income tax expense reflected all relevant statutory tax rates and GAAP accounting. Our effective tax rate was 26.4% for 2022, 28.1% for 2021, and 25.6% for 2020.
The increase in income tax expense in 2023, compared to 2022, is commensurate with the growth in our pretax income. Income tax expense reflected all relevant statutory tax rates and GAAP accounting. Our effective tax rate was 26.3% for 2023, 26.4% for 2022, and 28.1% for 2021.
This was mainly due to a decrease of $25.7 million in average securities sold under repurchase agreements and a decrease of $8.5 million in average notes payable as we continue to paydown the US Bank term note, which is set to be paid off in February 2023.
This was mainly due to a decrease of $25.7 million in average securities sold under repurchase agreements and a decrease of $8.5 million in average notes payable as we continued to paydown the US Bank term note, which was ultimately paid off in February 2023.
The change in interest due to both rate and volume has been allocated between factors in proportion to the relationship of absolute dollar amounts of the change in each . ​ Provision for credit losses ​ The provision for credit losses is the expense necessary to maintain the ACL at levels appropriate to absorb our estimate of credit losses expected over the life of our loan portfolio and unfunded lending commitments. ​ We recorded a $6.6 million provision for credit losses in 2022, an increase of $2.3 million, from 2021.
The change in interest due to both rate and volume has been allocated between factors in proportion to the relationship of absolute dollar amounts of the change in each . ​ Provision for credit losses ​ The provision for credit losses is the expense necessary to maintain the ACL at levels appropriate to absorb our estimate of credit losses expected over the life of our loan portfolio and unfunded lending commitments. ​ We recorded a $16.5 million provision for credit losses in 2023, an increase of $10.0 million, from 2022.
See Note 1 – Basis of Presentation and Changes in Significant Accounting Policies in the accompanying notes to the consolidated financial statements included elsewhere in this annual report for a discussion of our ACL. ​ As a result of management’s modeling, we recorded an ACL on loans of $49.5 million as of December 31, 2022; in addition, we recorded an ACL on unfunded commitments of $5.1 million as of December 31, 2022, included within other liabilities.
See Note 1 – Basis of Presentation and Changes in Significant Accounting Policies in the accompanying notes to the consolidated financial statements included elsewhere in this annual report for a discussion of our ACL. ​ As a result of management’s modeling, we recorded an ACL on loans of $44.3 million as of December 31, 2023; in addition, we recorded an ACL on unfunded commitments of $2.7 million as of December 31, 2023, included within other liabilities.
The growth in 2022 is primarily due to an increase of $16.7 million of Commercial real estate – investor loans, and an increase of $25.5 million of Commercial real estate – owner occupied loans, compared to 2021.
The growth in classified assets in 2022 over the prior year is primarily due to an increase of $16.7 million of Commercial real estate – investor loans, and an increase of $25.5 million of Commercial real estate – owner occupied loans, compared to 2021.
Some holdings of MBS and CMOs are issued by Ginnie Mae, which do carry the full faith and credit of the U.S. government. We also hold some MBS and CMOs that were not issued by U.S. government agencies and are typically credit-enhanced via over-collateralization and/or subordination.
Some holdings of MBS and CMOs are issued by Ginnie Mae, which do carry the full faith and credit of the U.S. government. We also hold some MBS and CMOs that were not issued by U.S. government agencies and are typically credit-enhanced via over-collateralization and/or subordination. Holdings of ABS also includes securities backed by student loans issued under the U.S.
While a significant portion of the portfolio consists of readily marketable securities to address future liquidity needs, other parts of the portfolio may reflect funds invested pending future loan demand or to maximize interest income without undue interest rate risk. ​ Our total securities portfolio as of December 31, 2022, reflected a net decrease of $154.3 million, or 9.1%, from December 31, 2021.
While a significant portion of the portfolio consists of readily marketable securities to address future liquidity needs, other parts of the portfolio may reflect funds invested pending future loan demand or to maximize interest income without undue interest rate risk. ​ Our total securities portfolio as of December 31, 2023 reflected a net decrease of $346.5 million, or 22.5%, from December 31, 2022.
As of December 31, 2022, and December 31, 2021, total trust preferred proceeds of $25.0 million qualified as Tier 1 regulatory capital at the bank holding company level. ​ In the third quarter of 2019, our Board of Directors authorized a stock repurchase program, under which we were authorized to repurchase up to approximately 1.5 million shares (or approximately 5%) of our outstanding common stock through open market purchases, trading plans established in accordance with U.S.
As of December 31, 2023, and December 31, 2022, total trust preferred proceeds of $25.0 million qualified as Tier 1 regulatory capital at the bank holding company level. ​ In the third quarter of 2019, our Board of Directors authorized a stock repurchase program, under which we were authorized to repurchase up to approximately 1.5 million shares (or approximately 5%) of our outstanding common stock through open market purchases, trading plans established in accordance with SEC rules, privately negotiated transactions, or by other means.
The increase was primarily due to: ​ ● A $28.9 million, or 50.1%, increase in total salaries and employee benefits, comprised of a $22.1 million increase in salaries primarily due to the West Suburban acquisition and a full year of additional employees, a $3.2 million increase in officers’ incentives primarily due to higher incentive accruals in 2022, and a $3.6 million increase in benefits and other expense primarily due to increases stemming from additional employees from our acquisition of West Suburban.
The increase was comprised of a $22.1 million increase in salaries primarily due to the West Suburban acquisition, a $3.2 million increase in officers’ incentives primarily due to higher incentive accruals in 2022, and a $3.6 million increase in benefits and other expense primarily due to increases stemming from additional employees from our acquisition of West Suburban.
Significant inflows from financing activities in 2021 included a growth in subordinated debentures, net of issuance costs, of $59.1 million as we sold and issued $60.0 million of subordinated debentures in April 2021.
Significant inflows from financing activities in 2022 included a growth in other short-term borrowings of $90.0 million. Significant inflows from financing activities in 2021 included a growth in subordinated debentures, net of issuance costs, of $59.1 million as we sold and issued $60.0 million of subordinated debentures in April 2021.
For all periods presented, management determined that the realization of the deferred tax asset was “more likely than not” as required by GAAP. ​ 45 ​ Table of Contents Financial condition ​ General ​ Our total assets were $5.89 billion at December 31, 2022, a decrease of $323.9 million, or 5.2%, from December 31, 2021.
For all periods presented, management determined that the realization of the deferred tax asset was “more likely than not” as required by GAAP. ​ 50 ​ Table of Contents Financial condition ​ General ​ Our total assets were $5.72 billion at December 31, 2023, a decrease of $165.5 million, or 2.8%, from December 31, 2022.
The distribution of our nonperforming loans is shown in the following table. ​ ​ Risk Elements ​ The following table sets forth the amounts of nonperforming assets at December 31 for the years indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) 2022 2021 2020 Nonaccrual loans ​ $ 31,602 ​ $ 41,531 ​ $ 22,280 ​ Performing troubled debt restructured loans accruing interest ​ 49 ​ 25 ​ 331 ​ Loans past due 90 days or more and still accruing interest ​ 1,262 ​ 3,110 ​ 434 ​ Total nonperforming loans ​ 32,913 ​ 44,666 ​ 23,045 ​ Other real estate owned ​ 1,561 ​ 2,356 ​ 2,474 ​ Total nonperforming assets ​ $ 34,474 ​ $ 47,022 ​ $ 25,519 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other real estate owned ("OREO") as % of nonperforming assets ​ 4.5 % 5.0 % 9.7 % 49 ​ Table of Contents ​ Accrual of interest is discontinued on a loan when principal or interest is 90 days or more past due, unless the loan is well secured and in the process of collection.
The distribution of our nonperforming loans is shown in the following table. ​ ​ 53 ​ Table of Contents Risk Elements ​ The following table sets forth the amounts of nonperforming assets at December 31 for the years indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) 2023 2022 2021 Nonaccrual loans ​ $ 67,583 ​ $ 31,602 ​ $ 41,531 ​ Performing troubled debt restructured loans accruing interest ​ N/A ​ 49 ​ 25 ​ Loans past due 90 days or more and still accruing interest ​ 1,196 ​ 1,262 ​ 3,110 ​ Total nonperforming loans ​ 68,779 ​ 32,913 ​ 44,666 ​ Other real estate owned ​ 5,123 ​ 1,561 ​ 2,356 ​ Total nonperforming assets ​ $ 73,902 ​ $ 34,474 ​ $ 47,022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other real estate owned ("OREO") as % of nonperforming assets ​ 6.9 % 4.5 % 5.0 % ​ Accrual of interest is discontinued on a loan when principal or interest is 90 days or more past due, unless the loan is well secured and in the process of collection.
All ratios conform to the regulatory calculation requirements in effect as of the date noted. ​ In addition to the above regulatory ratios, our common equity to total assets ratio decreased from 8.08% to 7.83%, while our tangible common equity to tangible assets ratio (non-GAAP), decreased from 6.59% at December 31, 2021 to 6.28% at December 31, 2022.
All ratios conform to the regulatory calculation requirements in effect as of the date noted. ​ In addition to the above regulatory ratios, our common equity to total assets ratio increased from 7.83% to 10.09%, while our tangible common equity to tangible assets ratio (non-GAAP) increased from 6.28% at December 31, 2022 to 8.56% at December 31, 2023.
This increase was primarily due to loan growth of $187.7 million in our commercial real estate – investor and $123.0 in our commercial real estate – owner occupied portfolios. In addition, we experienced organic loan growth primarily in our commercial, leases, and multifamily loan portfolios.
This increase was primarily due to loan growth of $120.8 million in our leases and $78.0 million in our multifamily portfolios. In addition, we experienced organic loan growth primarily in our commercial real estate – investor and residential real estate – owner occupied loan portfolios.
Loan growth resulted in $443.9 million of cash outflows for 2022 and $103.9 million of cash outflows in 2020. Excluding the West Suburban acquisition, loans decreased by $122.1 million in 2021, primarily due to the forgiveness or payoff of PPP loans issued in 2020 and early 2021. In 2022, security transactions resulted in net cash inflows of $9.2 million.
Loan growth resulted in $197.6 million of cash outflows for 2023 and $443.9 million of cash outflows in 2022. Excluding the West Suburban acquisition, loans decreased by $122.1 million in 2021, primarily due to the forgiveness or payoff of PPP loans issued in 2020 and early 2021.
Our ACL on loans to average loans was 1.4% as of December 31, 2022, compared to 2.2% at both December 31, 2021 and 1.7% at December 31, 2020. ​ The following table shows our allocation of the ACL by loan type at December 31 for the years indicated, and, for each category of loans, the percent of total loans represented by that category: ​ Allocation of the Allowance for Credit Losses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ 2021 ​ 2020 ​ ​ ​ ​ ​ % of Loans ​ ​ ​ % of Loans ​ ​ ​ % of Loans ​ ​ ​ ​ ​ ​ in Each ​ ​ ​ ​ in Each ​ ​ ​ ​ in Each ​ ​ ​ ​ ​ ​ Category to ​ ​ ​ ​ Category to ​ ​ ​ ​ Category to ​ (Dollars in thousands) ​ Amount ​ Total Loans ​ Amount ​ Total Loans ​ Amount ​ Total Loans ​ Commercial ​ $ 11,968 21.7 ​ $ 11,751 22.6 ​ $ 2,812 20.0 ​ Leases ​ ​ 2,865 ​ 7.2 ​ ​ 3,480 ​ 5.1 ​ ​ 3,888 ​ 7.0 ​ Commercial real estate – investor ​ 10,674 25.5 ​ 10,795 23.4 ​ 7,899 28.6 ​ Commercial real estate – owner occupied ​ 15,001 22.1 ​ 4,913 21.4 ​ 3,557 16.4 ​ Construction ​ 1,546 4.7 ​ 3,373 6.0 ​ 4,054 4.8 ​ Real estate – investor ​ 768 1.5 ​ 760 1.9 ​ 1,740 2.8 ​ Real estate – owner occupied ​ ​ 2,046 ​ 5.7 ​ ​ 2,832 ​ 6.2 ​ ​ 2,714 ​ 5.7 ​ Multifamily ​ ​ 2,453 ​ 8.4 ​ ​ 3,675 ​ 9.0 ​ ​ 3,625 ​ 9.3 ​ HELOC ​ ​ 1,806 ​ 2.8 ​ ​ 2,510 ​ 3.7 ​ ​ 1,948 ​ 5.0 ​ Other 1 ​ 353 0.4 ​ 192 0.7 ​ 1,618 0.4 ​ Total ​ $ 49,480 100.0 ​ $ 44,281 100.0 ​ $ 33,855 100.0 ​ ​ 1 The “Other” class includes consumer loans and overdrafts for each year presented. ​ Allocations of the allowance may be made for specific loans, but the entire allowance is available for losses in the loan portfolio.
Our ACL on loans to average loans was 1.1% as of December 31, 2023, compared to 1.4% at December 31, 2022 and 2.2% at December 31, 2021. ​ The following table shows our allocation of the ACL by loan type at December 31 for the years indicated, and, for each category of loans, the percent of total loans represented by that category: ​ Allocation of the Allowance for Credit Losses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 ​ 2021 ​ ​ ​ ​ ​ % of Loans ​ ​ ​ % of Loans ​ ​ ​ % of Loans ​ ​ ​ ​ ​ ​ in Each ​ ​ ​ ​ in Each ​ ​ ​ ​ in Each ​ ​ ​ ​ ​ ​ Category to ​ ​ ​ ​ Category to ​ ​ ​ ​ Category to ​ (Dollars in thousands) ​ Amount ​ Total Loans ​ Amount ​ Total Loans ​ Amount ​ Total Loans ​ Commercial ​ $ 3,998 20.8 ​ $ 11,968 21.7 ​ $ 11,751 22.6 ​ Leases ​ ​ 2,952 ​ 9.8 ​ ​ 2,865 ​ 7.2 ​ ​ 3,480 ​ 5.1 ​ Commercial real estate – investor ​ 17,105 25.6 ​ 10,674 25.5 ​ 10,795 23.4 ​ Commercial real estate – owner occupied ​ 12,280 19.7 ​ 15,001 22.1 ​ 4,913 21.4 ​ Construction ​ 1,038 4.1 ​ 1,546 4.7 ​ 3,373 6.0 ​ Real estate – investor ​ 669 1.3 ​ 768 1.5 ​ 760 1.9 ​ Real estate – owner occupied ​ ​ 1,821 ​ 5.6 ​ ​ 2,046 ​ 5.7 ​ ​ 2,832 ​ 6.2 ​ Multifamily ​ ​ 2,728 ​ 9.9 ​ ​ 2,453 ​ 8.4 ​ ​ 3,675 ​ 9.0 ​ HELOC ​ ​ 1,656 ​ 2.6 ​ ​ 1,806 ​ 2.8 ​ ​ 2,510 ​ 3.7 ​ Other 1 ​ 17 0.6 ​ 353 0.4 ​ 192 0.7 ​ Total ​ $ 44,264 100.0 ​ $ 49,480 100.0 ​ $ 44,281 100.0 ​ ​ 1 The “Other” class includes consumer loans and overdrafts for each year presented. ​ Allocations of the allowance may be made for specific loans, but the entire allowance is available for losses in the loan portfolio.
The OREO valuation reserve decreased to $856,000 in 2022 compared to $1.2 million in 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ OREO Properties by Type as of December 31, ​ Percent Change From (Dollars in thousands) ​ 2022 ​ ​ 2021 ​ ​ 2020 ​ 2022-2021 ​ 2021-2020 Single family residence $ - ​ $ 645 ​ $ 430 ​ (100.0) ​ 50.0 Lots (single family and commercial) ​ 1,261 ​ ​ 1,411 ​ ​ 1,387 ​ (10.6) ​ 1.7 Vacant land ​ 300 ​ ​ 300 ​ ​ 352 ​ - ​ (14.8) Commercial property ​ - ​ ​ - ​ ​ 305 ​ - ​ (100.0) Total OREO properties $ 1,561 ​ $ 2,356 ​ $ 2,474 ​ (33.7) ​ (4.8) ​ Other real estate assets transferred from loans are recorded at the fair value of the property when transferred, less estimated costs to sell, establishing a new cost basis.
The OREO valuation reserve decreased to $118,000 in 2023 compared to $856,000 in 2022. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ OREO Properties by Type as of December 31, ​ Percent Change From (Dollars in thousands) ​ 2023 ​ ​ 2022 ​ ​ 2021 ​ 2023-2022 ​ 2022-2021 Single family residence $ - ​ $ - ​ $ 645 ​ - ​ (100.0) Lots (single family and commercial) ​ - ​ ​ 1,261 ​ ​ 1,411 ​ (100.0) ​ (10.6) Vacant land ​ 197 ​ ​ 300 ​ ​ 300 ​ (34.3) ​ - Multi-family ​ - ​ ​ - ​ ​ - ​ - ​ - Commercial property ​ 4,926 ​ ​ - ​ ​ ​ ​ - ​ - Total OREO properties $ 5,123 ​ $ 1,561 ​ $ 2,356 ​ 228.2 ​ (33.7) ​ Other real estate assets transferred from loans are recorded at the fair value of the property when transferred, less estimated costs to sell, establishing a new cost basis.
Our borrowings at the FHLBC require the Bank to be a member and invest in the stock of the FHLBC, and total borrowings are generally limited to the lower of 35% of total assets or 60% of the book value of certain mortgage-backed loans.
Our borrowings at the FHLBC require the Bank to be a member and invest in the stock of the FHLBC, and total borrowings are generally limited to the lower of 35% of total assets or 60% of the book value of certain mortgage-backed loans. We primarily use these borrowings as a source of short-term funding.
See the discussion entitled “Non-GAAP Presentations” below and the table on page 42 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, discussed below, and includes fees of $3.0 million for 2022, $5.8 million for 2021, and $4.3 million for 2020.
See the discussion entitled “Non-GAAP Financial Measures” on page 44 and the table on page 47 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, discussed below, and includes net costs of $2.7 million for 2023, and fee income of $3.0 million for 2022 and $5.8 million for 2021.
Significant cash outflows from financing activities in 2021 included a reduction in other short-term borrowings of $48.5 million. ​ ​ Commitments and Off-balance sheet arrangements ​ Derivative contracts, which include contracts under which we either receive cash from, or pay cash to, counterparties reflecting changes in interest rates are carried at fair value on our Consolidated Balance Sheet as disclosed in Note 18 of the Notes to the Consolidated Financial Statements provided in Part II, Item 8, “Financial Statements and Supplementary Data”.
Significant cash outflows from financing activities in 2023 included the $9.0 million repayment of the term note in February 2023 and the $45.0 million repayment of senior notes in June 2023. ​ Commitments and Off-balance sheet arrangements ​ Derivative contracts, which include contracts under which we either receive cash from, or pay cash to, counterparties reflecting changes in interest rates are carried at fair value on our Consolidated Balance Sheets as disclosed in Note 18 of the Notes to the Consolidated Financial Statements provided in Part II, Item 8, “Financial Statements and Supplementary Data”.
A decline in other real estate owned holdings of $795,000 in 2022 resulted in a decrease of $21,000 in net other real estate owned expenses for 2022 compared to 2021, and a decline in other real estate owned holdings of $118,000 in 2021 compared to 2020 resulted in a decrease in expenses of $500,000 in the like period. ​ As we focused on mitigating the increase of noninterest expenses, exclusive of acquisition-related activity, we were also able to maintain our profitable wealth management business, and continue profitability, though to a lesser extent, with the mortgage banking business as originations and sales were negatively impacted by the rising interest rates. ​ For information comparing our financial condition and results of operations for the year ended December 31, 2021, to year ended December 31, 2020, see “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 10, 2022. ​ Critical accounting estimates ​ Our consolidated financial statements are prepared based on the application of accounting policies in accordance with GAAP and follow general practices within the banking industry.
We continue to take steps to control operating expenses and increase noninterest income. ​ As we focused on reducing noninterest expenses, exclusive of acquisition-related activity, we were also able to maintain our profitable wealth management business, and continue profitability, though to a lesser extent, with the mortgage banking business as originations and sales were negatively impacted by elevated interest rates. ​ For information comparing our financial condition and results of operations for the year ended December 31, 2022, to year ended December 31, 2021, see “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 9, 2023. ​ Critical accounting estimates ​ Our consolidated financial statements are prepared based on the application of accounting policies in accordance with GAAP and follow general practices within the banking industry.
See Note 4 to the Consolidated Financial Statements for more detail on the ACL for securities analysis performed. ​ Other Real Estate Owned ​ Other real estate owned (“OREO”) decreased to $1.6 million as of December 31, 2022, compared to $2.4 million as of December 31, 2021, reflecting a $795,000 decline.
See Note 4 to the Consolidated Financial Statements for more detail on the ACL for securities analysis performed. ​ Other Real Estate Owned ​ Other real estate owned (“OREO”) increased to $5.1 million as of December 31, 2023, compared to $1.6 million as of December 31, 2022, reflecting a $3.6 million increase.
In total, we repurchased 1,485,307 shares of our common stock at a weighted average price of $10.31 per share under our stock repurchase program prior to its expiration on October 21, 2021.
In total, we repurchased 1,485,307 shares of our common stock at a weighted average price of $10.31 per share under our stock repurchase program prior to its expiration on October 21, 2021. In the fourth quarter of 2023, our Board of Directors authorized the repurchase of up to 2,234,896 shares of our common stock.
This process is discussed in more detail in the section entitled “Interest rate risk” in “Quantitative and Qualitative Disclosures about Market Rate Risk.” ​ Our net interest income increased $109.4 million, or 113.2%, to $206.2 million for 2022, from $96.7 million for 2021.
This process is discussed in more detail in the section entitled “Interest Rate Risk” in “Quantitative and Qualitative Disclosures about Market Risk.” ​ Our net interest income increased $45.8 million, or 22.2%, to $251.9 million for 2023, from $206.2 million for 2022.
Our provision for credit losses in 2022 totaled $6.6 million, compared to $4.3 million in 2021, and $10.4 million in 2020. Net charge-offs recorded in 2022 totaled $1.6 million, compared to net charge-offs of $4.4 million recorded in 2021, and net charge-offs of $979,000 in 2020.
Our provision for credit losses in 2023 totaled $16.5 million, compared to $6.6 million in 2022, and $4.3 million in 2021. Net charge-offs recorded in 2023 totaled $23.3 million, compared to net charge-offs of $1.6 million recorded in 2022, and net charge-offs of $4.4 million in 2021.
Refer to Note 5, “Loans and Allowance for Credit Losses on Loans”, in our Consolidated Financial Statements, below, for further detail of past due loans by classification for 2022 and 2021. ​ Classified Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Classified assets as of December 31, ​ Percent Change From (Dollars in thousands) 2022 ​ 2021 ​ 2020 ​ 2022-2021 ​ 2021-2020 Commercial $ 26,485 ​ $ 32,712 ​ $ 2,679 ​ (19.0) ​ N/M Leases ​ 1,876 ​ ​ 3,754 ​ ​ 3,222 ​ (50.0) ​ 16.5 Commercial real estate – investor ​ 27,410 ​ ​ 10,667 ​ ​ 5,117 ​ 157.0 ​ 108.5 Commercial real estate – owner occupied ​ 40,890 ​ ​ 15,429 ​ ​ 11,187 ​ 165.0 ​ 37.9 Construction ​ 1,333 ​ ​ 2,104 ​ ​ 5,192 ​ (36.6) ​ (59.5) Residential real estate – investor ​ 1,714 ​ ​ 1,265 ​ ​ 1,516 ​ 35.5 ​ (16.6) Residential real estate – owner occupied ​ 3,854 ​ ​ 5,099 ​ ​ 4,040 ​ (24.4) ​ 26.2 Multifamily ​ 2,954 ​ ​ 2,278 ​ ​ 7,558 ​ 29.7 ​ (69.9) HELOC ​ 2,411 ​ ​ 1,423 ​ ​ 1,540 ​ 69.4 ​ (7.6) Other (1) ​ 2 ​ ​ 10 ​ ​ 4 ​ (80.0) ​ 150.0 Total classified loans ​ 108,929 ​ ​ 74,741 ​ ​ 42,055 ​ 45.7 ​ 77.7 Other real estate owned ​ 1,561 ​ ​ 2,356 ​ ​ 2,474 ​ (33.7) ​ (4.8) Total classified assets $ 110,490 ​ $ 77,097 ​ $ 44,529 ​ 43.3 ​ 73.1 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ N/M - Not meaningful ​ 1 The “Other” class includes consumer loans and overdrafts. ​ Classified loans include nonaccrual, performing troubled debt restructurings and all other loans considered substandard.
Refer to Note 5, “Loans and Allowance for Credit Losses on Loans”, in our Consolidated Financial Statements, below, for further detail of past due loans by classification for 2023 and 2022. ​ Classified Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Classified assets as of December 31, ​ Percent Change From (Dollars in thousands) 2023 ​ 2022 ​ 2021 ​ 2023-2022 ​ 2022-2021 Commercial $ 8,414 ​ $ 26,485 ​ $ 32,712 ​ (68.2) ​ (19.0) Leases ​ 818 ​ ​ 1,876 ​ ​ 3,754 ​ (56.4) ​ (50.0) Commercial real estate – investor ​ 43,798 ​ ​ 27,410 ​ ​ 10,667 ​ 59.8 ​ 157.0 Commercial real estate – owner occupied ​ 54,613 ​ ​ 40,890 ​ ​ 15,429 ​ 33.6 ​ 165.0 Construction ​ 17,155 ​ ​ 1,333 ​ ​ 2,104 ​ N/M ​ (36.6) Residential real estate – investor ​ 1,331 ​ ​ 1,714 ​ ​ 1,265 ​ (22.3) ​ 35.5 Residential real estate – owner occupied ​ 3,216 ​ ​ 3,854 ​ ​ 5,099 ​ (16.6) ​ (24.4) Multifamily ​ 1,775 ​ ​ 2,954 ​ ​ 2,278 ​ (39.9) ​ 29.7 HELOC ​ 1,664 ​ ​ 2,411 ​ ​ 1,423 ​ (31.0) ​ 69.4 Other (1) ​ - ​ ​ 2 ​ ​ 10 ​ (100.0) ​ (80.0) Total classified loans ​ 132,784 ​ ​ 108,929 ​ ​ 74,741 ​ 21.9 ​ 45.7 Other real estate owned ​ 5,123 ​ ​ 1,561 ​ ​ 2,356 ​ 228.2 ​ (33.7) Total classified assets $ 137,907 ​ $ 110,490 ​ $ 77,097 ​ 24.8 ​ 43.3 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ N/M - Not meaningful ​ 1 The “Other” class includes consumer loans and overdrafts. ​ Classified loans include nonaccrual and all other loans considered substandard.
The table below provides a reconciliation of each non-GAAP (TE) measure to the GAAP equivalent: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Effect of Tax Equivalent Adjustment (In thousands) 2022 ​ 2021 2020 Interest income (GAAP) ​ $ 216,473 ​ ​ $ 105,165 ​ ​ $ 104,215 ​ Taxable equivalent adjustment - loans ​ 23 ​ ​ 15 ​ ​ 12 ​ Taxable equivalent adjustment - securities ​ 1,405 ​ ​ 1,357 ​ ​ 1,455 ​ Interest income (TE) ​ 217,901 ​ ​ 106,537 ​ ​ 105,682 ​ Less: interest expense (GAAP) ​ 10,317 ​ ​ 8,450 ​ ​ 12,464 ​ Net interest income (TE) ​ $ 207,584 ​ ​ $ 98,087 ​ ​ $ 93,218 ​ Net interest income (GAAP) ​ $ 206,156 ​ ​ $ 96,715 ​ ​ $ 91,751 ​ Average interest earning assets ​ $ 5,684,862 ​ ​ $ 3,272,951 ​ ​ $ 2,674,957 ​ Net interest margin (GAAP) ​ 3.63 % ​ 2.95 % ​ 3.43 % Net interest margin (TE) ​ 3.65 % ​ 3.00 % ​ 3.48 % ​ The following table allocates the changes in net interest income to changes in either average balances or average rates for interest earning assets and interest bearing liabilities.
The table below provides a reconciliation of each non-GAAP (TE) measure to the GAAP equivalent: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Effect of Tax Equivalent Adjustment (In thousands) 2023 ​ 2022 2021 Interest income (GAAP) ​ $ 291,970 ​ ​ $ 216,473 ​ ​ $ 105,165 ​ Taxable equivalent adjustment - loans ​ 39 ​ ​ 23 ​ ​ 15 ​ Taxable equivalent adjustment - securities ​ 1,417 ​ ​ 1,405 ​ ​ 1,357 ​ Interest income (TE) ​ 293,426 ​ ​ 217,901 ​ ​ 106,537 ​ Less: interest expense (GAAP) ​ 40,039 ​ ​ 10,317 ​ ​ 8,450 ​ Net interest income (TE) ​ $ 253,387 ​ ​ $ 207,584 ​ ​ $ 98,087 ​ Net interest income (GAAP) ​ $ 251,931 ​ ​ $ 206,156 ​ ​ $ 96,715 ​ Average interest earning assets ​ $ 5,429,801 ​ ​ $ 5,684,862 ​ ​ $ 3,272,951 ​ Net interest margin (GAAP) ​ 4.64 % ​ 3.63 % ​ 2.95 % Net interest margin (TE) ​ 4.67 % ​ 3.65 % ​ 3.00 % ​ The following table allocates the changes in net interest income to changes in either average balances or average rates for interest earning assets and interest bearing liabilities.
In 2020, securities transactions accounted for net inflows of $831,000, and proceeds from the sale of OREO assets accounted for inflows of $3.3 million. ​ Net cash outflows from financing activities in 2022 were $301.5 million, compared to $258.2 million of inflows in 2021, and $357.1 million of inflows in 2020.
In 2021, securities transactions accounted for net outflows of $141.4 million, and proceeds from the sale of OREO assets accounted for inflows of $5.8 million. ​ Net cash outflows from financing activities in 2023 were $293.0 million, compared to $301.5 million of outflows in 2022, and $258.2 million of inflows in 2021.
Treasury ​ $ 224,054 ​ $ 212,129 ​ 13.8 ​ $ 202,251 ​ $ 202,339 ​ 11.9 ​ $ 4,014 ​ $ 4,117 ​ 0.8 ​ U.S. government agencies ​ 61,178 ​ 56,048 ​ 3.6 ​ 62,587 ​ 61,888 ​ 3.7 ​ 6,811 ​ 6,657 ​ 1.3 ​ U.S. government agency mortgage-backed ​ 140,588 ​ 124,990 ​ 8.1 ​ 172,016 ​ 172,302 ​ 10.2 ​ 16,098 ​ 17,209 ​ 3.5 ​ States and political subdivisions ​ 239,999 ​ 226,128 ​ 14.7 ​ 241,937 ​ 257,609 ​ 15.2 ​ 229,352 ​ 249,259 ​ 50.2 ​ Corporate bonds ​ 10,000 ​ 9,622 ​ 0.6 ​ 10,000 ​ 9,887 ​ 0.6 ​ - ​ - ​ 0.0 ​ Collateralized mortgage obligations ​ 596,336 ​ 533,768 ​ 34.7 ​ 673,238 ​ 672,967 ​ 39.7 ​ 53,999 ​ 56,585 ​ 11.4 ​ Asset-backed securities ​ 210,388 ​ 201,928 ​ 13.1 ​ 236,293 ​ 236,877 ​ 14.0 ​ 130,959 ​ 131,818 ​ 26.6 ​ Collateralized loan obligations ​ ​ 180,276 ​ ​ 174,746 ​ 11.4 ​ ​ 79,838 ​ ​ 79,763 ​ 4.7 ​ ​ 30,728 ​ ​ 30,533 ​ 6.2 ​ Total securities available-for-sale ​ $ 1,662,819 ​ $ 1,539,359 ​ 100.0 ​ $ 1,678,160 ​ $ 1,693,632 ​ 100.0 ​ $ 471,961 ​ $ 496,178 ​ 100.0 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Our investment portfolio serves as both an important source of liquidity and as a source of income.
Treasury ​ $ 174,602 ​ $ 169,574 ​ 14.2 ​ $ 224,054 ​ $ 212,129 ​ 13.8 ​ $ 202,251 ​ $ 202,339 ​ 11.9 ​ U.S. government agencies ​ 60,011 ​ 56,959 ​ 4.8 ​ 61,178 ​ 56,048 ​ 3.6 ​ 62,587 ​ 61,888 ​ 3.7 ​ U.S. government agency mortgage-backed ​ 118,492 ​ 106,370 ​ 8.9 ​ 140,588 ​ 124,990 ​ 8.1 ​ 172,016 ​ 172,302 ​ 10.2 ​ States and political subdivisions ​ 238,440 ​ 229,335 ​ 19.2 ​ 239,999 ​ 226,128 ​ 14.7 ​ 241,937 ​ 257,609 ​ 15.2 ​ Corporate bonds ​ - ​ - ​ 0.0 ​ 10,000 ​ 9,622 ​ 0.6 ​ 10,000 ​ 9,887 ​ 0.6 ​ Collateralized mortgage obligations ​ 442,987 ​ 392,544 ​ 32.9 ​ 596,336 ​ 533,768 ​ 34.7 ​ 673,238 ​ 672,967 ​ 39.7 ​ Asset-backed securities ​ 69,248 ​ 66,166 ​ 5.5 ​ 210,388 ​ 201,928 ​ 13.1 ​ 236,293 ​ 236,877 ​ 14.0 ​ Collateralized loan obligations ​ ​ 173,201 ​ ​ 171,881 ​ 14.5 ​ ​ 180,276 ​ ​ 174,746 ​ 11.4 ​ ​ 79,838 ​ ​ 79,763 ​ 4.7 ​ Total securities available-for-sale ​ $ 1,276,981 ​ $ 1,192,829 ​ 100.0 ​ $ 1,662,819 ​ $ 1,539,359 ​ 100.0 ​ $ 1,678,160 ​ $ 1,693,632 ​ 100.0 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Our investment portfolio serves as both an important source of liquidity and as a source of income.
Subsequent to closing, results reflect all post-acquisition activity of the combined company. 35 ​ Table of Contents ​ Summary Financial Data ​ Old Second Bancorp, Inc. and Subsidiaries Financial Highlights (Dollars in thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 2021 2020 Balance sheet items at year-end ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total assets ​ $ 5,888,317 ​ $ 6,212,189 ​ $ 3,040,837 ​ Total earning assets ​ 5,488,534 ​ 5,845,972 ​ 2,859,154 ​ Average assets ​ 6,071,220 ​ 3,483,100 ​ 2,860,770 ​ Loans, gross ​ 3,869,609 ​ 3,420,804 ​ 2,034,851 ​ Allowance for credit losses on loans ​ 49,480 ​ 44,281 ​ 33,855 ​ Deposits ​ 5,110,723 ​ 5,466,232 ​ 2,537,073 ​ Securities sold under agreement to repurchase ​ 32,156 ​ 50,337 ​ 66,980 ​ Other short-term borrowings ​ 90,000 ​ - ​ - ​ Junior subordinated debentures ​ 25,773 ​ 25,773 ​ 25,773 ​ Subordinated debentures ​ 59,297 ​ 59,212 ​ - ​ Senior notes ​ ​ 44,585 ​ ​ 44,480 ​ ​ 44,375 ​ Notes payable and other borrowings ​ 9,000 ​ 19,074 ​ 23,393 ​ Stockholders’ equity ​ 461,141 ​ 502,027 ​ 307,087 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Results of operations for the year ended ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest and dividend income ​ $ 216,473 ​ $ 105,165 ​ $ 104,215 ​ Interest expense ​ 10,317 ​ 8,450 ​ 12,464 ​ Net interest and dividend income ​ 206,156 ​ 96,715 ​ 91,751 ​ Provision for credit losses ​ 6,550 ​ 4,326 ​ 10,413 ​ Noninterest income ​ 43,116 ​ 39,260 ​ 37,487 ​ Noninterest expense ​ 151,173 ​ 103,782 ​ 81,417 ​ Income before taxes ​ 91,549 ​ 27,867 ​ 37,408 ​ Provision for income taxes ​ 24,144 ​ 7,823 ​ 9,583 ​ Net income available to common stockholders ​ $ 67,405 ​ $ 20,044 ​ $ 27,825 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performance ratio ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Return on average total assets ​ 1.11 % ​ 0.58 % ​ 0.97 % Return on average equity ​ 14.46 % ​ 6.04 % ​ 9.67 % Average equity to average assets ​ 7.68 % ​ 9.53 % ​ 10.06 % Dividend payout ratio ​ 13.25 % ​ 24.24 % ​ 4.26 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Per share data ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic earnings ​ $ 1.51 ​ $ 0.66 ​ $ 0.94 ​ Diluted earnings ​ $ 1.49 ​ $ 0.65 ​ $ 0.92 ​ Common book value per share ​ $ 10.34 ​ $ 11.29 ​ $ 10.47 ​ Weighted average diluted shares outstanding ​ 45,213,088 ​ 30,737,862 ​ 30,174,072 ​ Weighted average basic shares outstanding ​ 44,526,655 ​ 30,208,663 ​ 29,623,333 ​ Shares outstanding at year-end ​ 44,582,311 ​ 44,461,045 ​ 29,328,723 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loan quality ratios ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for credit losses on loans to total loans at end of the year ​ 1.28 % 1.29 % 1.66 % Provision for credit losses on loans to total loans ​ 0.17 % 0.13 % 0.45 % Net loans charged-off to average total loans ​ 0.04 % 0.22 % 0.05 % Nonaccrual loans to total loans at end of the year ​ 0.82 % 1.21 % 1.09 % Nonperforming assets to total assets at end of the year ​ 0.59 % 0.76 % 0.84 % Allowance for credit losses on loans to nonaccrual loans ​ 156.57 % 106.62 % 151.95 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 36 ​ Table of Contents Old Second Bancorp, Inc. and Subsidiaries Quarterly Financial Information (Dollars in thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ 2021 ​ 4th 3rd 2nd 1st 4th 3rd 2nd 1st Interest income ​ $ 67,745 ​ $ 58,008 ​ $ 47,389 ​ $ 43,331 ​ $ 30,790 ​ $ 24,791 ​ $ 24,194 ​ $ 25,390 ​ Interest expense ​ 3,654 ​ 2,439 ​ 2,125 ​ 2,099 ​ 2,190 ​ 2,173 ​ 2,240 ​ 1,847 ​ Net interest income ​ 64,091 ​ 55,569 ​ 45,264 ​ 41,232 ​ 28,600 ​ 22,618 ​ 21,954 ​ 23,543 ​ Provision for credit losses ​ 1,500 ​ 4,500 ​ 550 ​ - ​ 12,326 ​ (1,500) ​ (3,500) ​ (3,000) ​ Securities (losses) gains, net ​ (910) ​ (1) ​ (33) ​ - ​ (14) ​ 244 ​ 2 ​ - ​ Income (loss) before taxes ​ 31,853 ​ 26,577 ​ 16,676 ​ 16,443 ​ (11,539) ​ 11,329 ​ 11,972 ​ 16,105 ​ Net income (loss) ​ 23,615 ​ 19,523 ​ 12,247 ​ 12,020 ​ (9,067) ​ 8,412 ​ 8,820 ​ 11,879 ​ Basic earnings per share ​ 0.53 ​ 0.43 ​ 0.28 ​ 0.27 ​ (0.27) ​ 0.30 ​ 0.30 ​ 0.41 ​ Diluted earnings per share ​ 0.52 ​ 0.43 ​ 0.27 ​ 0.27 ​ (0.26) ​ 0.29 ​ 0.30 ​ 0.40 ​ Dividends paid per share ​ 0.05 ​ 0.05 ​ 0.05 ​ 0.05 ​ 0.05 ​ 0.05 ​ 0.05 ​ 0.01 ​ ​ 2022 Financial Overview ​ In 2022, we recorded net income of $67.4 million, or $1.49 per fully diluted share, compared to $20.0 million, or $0.65 per fully diluted share, in 2021, and $27.8 million, or $0.92 per fully diluted share, in 2020.
Subsequent to closing, results reflect all post-acquisition activity of the combined Company. 40 ​ Table of Contents ​ Summary Financial Data ​ Old Second Bancorp, Inc. and Subsidiaries Financial Highlights (Dollars in thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 2021 Balance sheet items at year-end ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total assets ​ $ 5,722,799 ​ $ 5,888,317 ​ $ 6,212,189 ​ Total earning assets ​ 5,315,070 ​ 5,488,534 ​ 5,845,972 ​ Average assets ​ 5,820,173 ​ 6,071,220 ​ 3,483,100 ​ Loans, gross ​ 4,042,953 ​ 3,869,609 ​ 3,420,804 ​ Allowance for credit losses on loans ​ 44,264 ​ 49,480 ​ 44,281 ​ Deposits ​ 4,570,746 ​ 5,110,723 ​ 5,466,232 ​ Securities sold under agreement to repurchase ​ 26,470 ​ 32,156 ​ 50,337 ​ Other short-term borrowings ​ 405,000 ​ 90,000 ​ - ​ Junior subordinated debentures ​ 25,773 ​ 25,773 ​ 25,773 ​ Subordinated debentures ​ 59,382 ​ 59,297 ​ 59,212 ​ Senior notes ​ ​ - ​ ​ 44,585 ​ ​ 44,480 ​ Notes payable and other borrowings ​ - ​ 9,000 ​ 19,074 ​ Stockholders’ equity ​ 577,281 ​ 461,141 ​ 502,027 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Results of operations for the year ended ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest and dividend income ​ $ 291,970 ​ $ 216,473 ​ $ 105,165 ​ Interest expense ​ 40,039 ​ 10,317 ​ 8,450 ​ Net interest and dividend income ​ 251,931 ​ 206,156 ​ 96,715 ​ Provision for credit losses ​ 16,501 ​ 6,550 ​ 4,326 ​ Noninterest income ​ 34,179 ​ 43,116 ​ 39,260 ​ Noninterest expense ​ 145,201 ​ 151,173 ​ 103,782 ​ Income before taxes ​ 124,408 ​ 91,549 ​ 27,867 ​ Provision for income taxes ​ 32,679 ​ 24,144 ​ 7,823 ​ Net income available to common stockholders ​ $ 91,729 ​ $ 67,405 ​ $ 20,044 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performance ratio ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Return on average total assets ​ 1.58 % ​ 1.11 % ​ 0.58 % Return on average equity ​ 17.70 % ​ 14.46 % ​ 6.04 % Average equity to average assets ​ 8.91 % ​ 7.68 % ​ 9.53 % Dividend payout ratio ​ 9.76 % ​ 13.25 % ​ 24.24 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Per share data ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic earnings ​ $ 2.05 ​ $ 1.51 ​ $ 0.66 ​ Diluted earnings ​ $ 2.02 ​ $ 1.49 ​ $ 0.65 ​ Common book value per share ​ $ 12.92 ​ $ 10.34 ​ $ 11.29 ​ Weighted average diluted shares outstanding ​ 45,395,010 ​ 45,213,088 ​ 30,737,862 ​ Weighted average basic shares outstanding ​ 44,663,722 ​ 44,526,655 ​ 30,208,663 ​ Shares outstanding at year-end ​ 44,697,917 ​ 44,582,311 ​ 44,461,045 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loan quality ratios ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for credit losses on loans to total loans at end of the year ​ 1.09 % 1.28 % 1.29 % Provision for credit losses on loans to total loans ​ 0.41 % 0.17 % 0.13 % Net loans charged-off to average total loans ​ 0.58 % 0.04 % 0.22 % Nonaccrual loans to total loans at end of the year ​ 1.67 % 0.82 % 1.21 % Nonperforming assets to total assets at end of the year ​ 1.29 % 0.59 % 0.76 % Allowance for credit losses on loans to nonaccrual loans ​ 65.50 % 156.57 % 106.62 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 41 ​ Table of Contents Old Second Bancorp, Inc. and Subsidiaries Quarterly Financial Information (Dollars in thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 ​ 4th 3rd 2nd 1st 4th 3rd 2nd 1st Interest income ​ $ 73,696 ​ $ 74,229 ​ $ 73,886 ​ $ 70,159 ​ $ 67,745 ​ $ 58,008 ​ $ 47,389 ​ $ 43,331 ​ Interest expense ​ 12,461 ​ 11,199 ​ 10,306 ​ 6,073 ​ 3,654 ​ 2,439 ​ 2,125 ​ 2,099 ​ Net interest income ​ 61,235 ​ 63,030 ​ 63,580 ​ 64,086 ​ 64,091 ​ 55,569 ​ 45,264 ​ 41,232 ​ Provision for credit losses ​ 8,000 ​ 3,000 ​ 2,000 ​ 3,501 ​ 1,500 ​ 4,500 ​ 550 ​ - ​ Securities losses, net ​ (2) ​ (924) ​ (1,547) ​ (1,675) ​ (910) ​ (1) ​ (33) ​ - ​ Income before taxes ​ 24,938 ​ 32,484 ​ 34,973 ​ 32,013 ​ 31,853 ​ 26,577 ​ 16,676 ​ 16,443 ​ Net income ​ 18,225 ​ 24,335 ​ 25,562 ​ 23,607 ​ 23,615 ​ 19,523 ​ 12,247 ​ 12,020 ​ Basic earnings per share ​ 0.40 ​ 0.55 ​ 0.57 ​ 0.53 ​ 0.53 ​ 0.43 ​ 0.28 ​ 0.27 ​ Diluted earnings per share ​ 0.40 ​ 0.54 ​ 0.56 ​ 0.52 ​ 0.52 ​ 0.43 ​ 0.27 ​ 0.27 ​ Dividends paid per share ​ 0.05 ​ 0.05 ​ 0.05 ​ 0.05 ​ 0.05 ​ 0.05 ​ 0.05 ​ 0.05 ​ ​ 2023 Financial Overview ​ In 2023, we recorded net income of $91.7 million, or $2.02 per fully diluted share, compared to $67.4 million, or $1.49 per fully diluted share, in 2022, and $20.0 million, or $0.65 per fully diluted share, in 2021.
The increase in interest expense in 2022 compared to 2021 was due primarily to subordinated debenture expense increases based on a full year of interest in 2022, NOW and money market accounts, as well as a rise in our short-term funding needs, as we utilized short-term borrowings (FHLB advances) during the second half of 2022. ​ Our net interest income increased $5.0 million, or 5.5%, to $96.8 million for 2021, from $91.8 million for 2020.
The increase in interest expense in 2022 compared to 2021 was due primarily to subordinated debenture expense increases based on a full year of interest in 2022, NOW and money market accounts, as well as a rise in our short-term funding needs, as we utilized short-term borrowings (FHLB advances) during the second half of 2022. ​ Our average earning assets decreased $255.1 million, or 4.5%, to $5.43 billion in 2023, from $5.68 billion in 2022.
Net securities losses of $944,000 were realized in 2022 related to sales and calls during the year. ​ Some of our holdings of U.S. government agency MBS and CMOs are issuances of government-sponsored enterprises, such as Fannie Mae and Freddie Mac, which are not backed by the full faith and credit of the U.S. government.
Net securities losses of $4.1 million were realized in 2023 related to sales and calls during the year. ​ 51 ​ Table of Contents Some of our holdings of U.S. government agency mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMOs”) are issuances of government-sponsored enterprises, such as Fannie Mae and Freddie Mac, which are not backed by the full faith and credit of the U.S. government.
Asset quality levels have remained relatively stable over the last few years relative to total assets, with nonperforming assets of $34.5 million or 0.59% of total assets for 2022, compared to $47.0 million, or 0.76% of total assets for 2021, and $25.5 million, or 0.84% of total assets, for 2020, with the total dollar decrease in 2022, compared to 2021, primarily due to the reduction in nonaccrual loans of $9.9 million.
Asset quality levels have decreased slightly over the last few years relative to total assets, with nonperforming assets of $73.9 million, or 1.29%, of total assets for 2023, compared to $34.5 million, or 0.59% of total assets for 2022, and $47.0 million, or 0.76% of total assets, for 2021, with the total dollar increase in 2023, compared to 2022, primarily due to the increase in nonaccrual loans of $36.0 million.
Our local communities have been relatively stable in the past five years. While there are no significant concentrations of loans where the customers’ ability to honor loan terms is dependent upon a single economic sector, the real estate categories represented 70.6% and 71.6% of the portfolio at December 31, 2022 and 2021, respectively.
While there are no significant concentrations of loans where the customers’ ability to honor loan terms is dependent upon a single economic sector, the real estate categories represented 68.8% and 70.6% of the portfolio at December 31, 2023 and 2022, respectively.
In 2022, the increase to Commercial real estate – owner occupied was due to increased healthcare industry loans being categorized as substandard and the increase to Commercial real estate – investor was due to three unrelated large loans being categorized as substandard. The increase in classified loans in 2021 was primarily attributable to our acquisition of West Suburban.
In 2022, the increase to Commercial real estate – owner occupied was due to increased healthcare industry loans being categorized as substandard and the increase to commercial real estate – investor was due to three unrelated large loans being categorized as substandard. Total classified assets increased in 2023 compared to both 2022 and 2021.
Assets classified as Doubtful have all the weaknesses inherent as those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.
They are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Assets classified as Doubtful have all the weaknesses inherent as those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.
Average balances are derived from daily balances. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Analysis of Average Balances, Tax Equivalent Income / Expense and Rates (Dollars in thousands - unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2022 ​ 2021 ​ 2020 ​ Average ​ Income / ​ Rate ​ Average ​ Income / ​ Rate ​ Average Income / ​ Rate ​ Balance ​ Expense ​ % ​ Balance ​ Expense ​ % ​ Balance Expense ​ % Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest earning deposits with financial institutions $ 308,845 ​ $ 2,175 ​ 0.70 ​ $ 493,313 ​ $ 656 ​ 0.13 ​ $ 180,439 ​ $ 258 ​ 0.14 Securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Taxable ​ 1,537,655 ​ ​ 31,566 ​ 2.05 ​ ​ 522,892 ​ ​ 8,168 ​ 1.56 ​ ​ 265,312 ​ ​ 6,773 ​ 2.55 Non-taxable (TE) 1 ​ 181,496 ​ ​ 6,692 ​ 3.69 ​ ​ 188,951 ​ ​ 6,464 ​ 3.42 ​ ​ 199,386 ​ ​ 6,926 ​ 3.47 Total securities (TE) 1 ​ 1,719,151 ​ ​ 38,258 ​ 2.23 ​ ​ 711,843 ​ ​ 14,632 ​ 2.06 ​ ​ 464,698 ​ ​ 13,699 ​ 2.95 Dividends from FHLBC and FRBC ​ 19,051 ​ ​ 936 ​ 4.91 ​ ​ 10,201 ​ ​ 456 ​ 4.47 ​ ​ 9,917 ​ ​ 484 ​ 4.88 Loans and loans held-for-sale 1 , 2 ​ 3,637,815 ​ ​ 176,532 ​ 4.85 ​ ​ 2,057,594 ​ ​ 90,793 ​ 4.41 ​ ​ 2,019,903 ​ ​ 91,241 ​ 4.52 Total interest earning assets ​ 5,684,862 ​ ​ 217,901 ​ 3.83 ​ ​ 3,272,951 ​ ​ 106,537 ​ 3.26 ​ ​ 2,674,957 ​ ​ 105,682 ​ 3.95 Cash and due from banks ​ 52,333 ​ ​ - ​ - ​ ​ 30,621 ​ ​ - ​ - ​ ​ 31,143 ​ ​ - ​ - Allowance for credit losses on loans ​ (45,742) ​ ​ - ​ - ​ ​ (32,183) ​ ​ - ​ - ​ ​ (29,771) ​ ​ - ​ - Other noninterest bearing assets ​ 379,767 ​ ​ - ​ - ​ ​ 211,711 ​ ​ - ​ - ​ ​ 184,441 ​ ​ - ​ - Total assets $ 6,071,220 ​ ​ ​ ​ ​ ​ $ 3,483,100 ​ ​ ​ ​ ​ ​ $ 2,860,770 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities and Stockholders' Equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NOW accounts $ 610,072 ​ $ 564 ​ 0.09 ​ $ 584,530 ​ $ 380 ​ 0.07 ​ $ 456,284 ​ $ 564 ​ 0.12 Money market accounts ​ 1,004,992 ​ ​ 958 ​ 0.10 ​ ​ 407,356 ​ ​ 344 ​ 0.08 ​ ​ 296,398 ​ ​ 497 ​ 0.17 Savings accounts ​ 1,188,771 ​ ​ 378 ​ 0.03 ​ ​ 502,863 ​ ​ 237 ​ 0.05 ​ ​ 363,331 ​ ​ 508 ​ 0.14 Time deposits ​ 468,476 ​ ​ 1,448 ​ 0.31 ​ ​ 365,167 ​ ​ 1,510 ​ 0.41 ​ ​ 424,831 ​ ​ 5,033 ​ 1.18 Interest bearing deposits ​ 3,272,311 ​ ​ 3,348 ​ 0.10 ​ ​ 1,859,916 ​ ​ 2,471 ​ 0.13 ​ ​ 1,540,844 ​ ​ 6,602 ​ 0.43 Securities sold under repurchase agreements ​ 35,157 ​ ​ 40 ​ 0.11 ​ ​ 60,895 ​ ​ 82 ​ 0.13 ​ ​ 53,808 ​ ​ 202 ​ 0.38 Other short-term borrowings ​ 12,534 ​ ​ 480 ​ 3.83 ​ ​ - ​ ​ - ​ - ​ ​ 11,255 ​ ​ 179 ​ 1.59 Junior subordinated debentures ​ 25,773 ​ ​ 1,136 ​ 4.41 ​ ​ 25,773 ​ ​ 1,133 ​ 4.40 ​ ​ 31,101 ​ ​ 2,215 ​ 7.12 Subordinated debentures ​ 59,255 ​ ​ 2,185 ​ 3.69 ​ ​ 43,820 ​ ​ 1,610 ​ 3.67 ​ ​ - ​ ​ - ​ - Senior note ​ 44,533 ​ ​ 2,682 ​ 6.02 ​ ​ 44,429 ​ ​ 2,692 ​ 6.06 ​ ​ 44,323 ​ ​ 2,692 ​ 6.07 Notes payable and other borrowings ​ 13,239 ​ ​ 446 ​ 3.37 ​ ​ 21,700 ​ ​ 462 ​ 2.13 ​ ​ 22,812 ​ ​ 574 ​ 2.52 Total interest bearing liabilities ​ 3,462,802 ​ ​ 10,317 ​ 0.30 ​ ​ 2,056,533 ​ ​ 8,450 ​ 0.41 ​ ​ 1,704,143 ​ ​ 12,464 ​ 0.73 Noninterest bearing deposits ​ 2,097,151 ​ ​ - ​ - ​ ​ 1,045,518 ​ ​ - ​ - ​ ​ 832,180 ​ ​ - ​ - Other liabilities ​ 44,986 ​ ​ - ​ - ​ ​ 49,166 ​ ​ - ​ - ​ ​ 36,758 ​ ​ - ​ - Stockholders' equity ​ 466,281 ​ ​ - ​ - ​ ​ 331,883 ​ ​ - ​ - ​ ​ 287,689 ​ ​ - ​ - Total liabilities and stockholders' equity $ 6,071,220 ​ ​ ​ ​ ​ ​ $ 3,483,100 ​ ​ ​ ​ ​ ​ $ 2,860,770 ​ ​ ​ ​ ​ Net interest income (GAAP) ​ ​ ​ $ 206,156 ​ ​ ​ ​ ​ ​ $ 96,715 ​ ​ ​ ​ ​ ​ $ 91,751 ​ ​ Net interest margin (GAAP) ​ ​ ​ ​ ​ ​ 3.63 ​ ​ ​ ​ ​ ​ ​ 2.95 ​ ​ ​ ​ ​ ​ ​ 3.43 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest income (TE) 1 ​ ​ ​ $ 207,584 ​ ​ ​ ​ ​ ​ $ 98,087 ​ ​ ​ ​ ​ ​ $ 93,218 ​ ​ Net interest margin (TE) 1 ​ ​ ​ ​ ​ ​ 3.65 ​ ​ ​ ​ ​ ​ ​ 3.00 ​ ​ ​ ​ ​ ​ ​ 3.48 Interest bearing liabilities to earning assets ​ 60.91 % ​ ​ ​ ​ ​ ​ 62.83 % ​ ​ ​ ​ ​ ​ 63.71 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1 Tax equivalent basis is calculated using a marginal tax rate of 21% in 2022, 2021 and 2020.
Average balances are derived from daily balances. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Analysis of Average Balances, Tax Equivalent Income / Expense and Rates (Dollars in thousands - unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2023 ​ 2022 ​ 2021 ​ Average ​ Income / ​ Rate ​ Average ​ Income / ​ Rate ​ Average Income / ​ Rate ​ Balance ​ Expense ​ % ​ Balance ​ Expense ​ % ​ Balance Expense ​ % Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest earning deposits with financial institutions $ 49,303 ​ $ 2,503 ​ 5.08 ​ $ 308,845 ​ $ 2,175 ​ 0.70 ​ $ 493,313 ​ $ 656 ​ 0.13 Securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Taxable ​ 1,177,860 ​ ​ 37,940 ​ 3.22 ​ ​ 1,537,655 ​ ​ 31,566 ​ 2.05 ​ ​ 522,892 ​ ​ 8,168 ​ 1.56 Non-taxable (TE) 1 ​ 170,018 ​ ​ 6,746 ​ 3.97 ​ ​ 181,496 ​ ​ 6,692 ​ 3.69 ​ ​ 188,951 ​ ​ 6,464 ​ 3.42 Total securities (TE) 1 ​ 1,347,878 ​ ​ 44,686 ​ 3.32 ​ ​ 1,719,151 ​ ​ 38,258 ​ 2.23 ​ ​ 711,843 ​ ​ 14,632 ​ 2.06 Dividends from FHLBC and FRBC ​ 32,351 ​ ​ 1,920 ​ 5.93 ​ ​ 19,051 ​ ​ 936 ​ 4.91 ​ ​ 10,201 ​ ​ 456 ​ 4.47 Loans and loans held-for-sale 1, 2 ​ 4,000,269 ​ ​ 244,317 ​ 6.11 ​ ​ 3,637,815 ​ ​ 176,532 ​ 4.85 ​ ​ 2,057,594 ​ ​ 90,793 ​ 4.41 Total interest earning assets ​ 5,429,801 ​ ​ 293,426 ​ 5.40 ​ ​ 5,684,862 ​ ​ 217,901 ​ 3.83 ​ ​ 3,272,951 ​ ​ 106,537 ​ 3.26 Cash and due from banks ​ 56,592 ​ ​ - ​ - ​ ​ 52,333 ​ ​ - ​ - ​ ​ 30,621 ​ ​ - ​ - Allowance for credit losses on loans ​ (51,880) ​ ​ - ​ - ​ ​ (45,742) ​ ​ - ​ - ​ ​ (32,183) ​ ​ - ​ - Other noninterest bearing assets ​ 385,660 ​ ​ - ​ - ​ ​ 379,767 ​ ​ - ​ - ​ ​ 211,711 ​ ​ - ​ - Total assets $ 5,820,173 ​ ​ ​ ​ ​ ​ $ 6,071,220 ​ ​ ​ ​ ​ ​ $ 3,483,100 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities and Stockholders' Equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NOW accounts $ 585,304 ​ $ 1,591 ​ 0.27 ​ $ 610,072 ​ $ 564 ​ 0.09 ​ $ 584,530 ​ $ 380 ​ 0.07 Money market accounts ​ 752,025 ​ ​ 6,039 ​ 0.80 ​ ​ 1,004,992 ​ ​ 958 ​ 0.10 ​ ​ 407,356 ​ ​ 344 ​ 0.08 Savings accounts ​ 1,052,750 ​ ​ 1,131 ​ 0.11 ​ ​ 1,188,771 ​ ​ 378 ​ 0.03 ​ ​ 502,863 ​ ​ 237 ​ 0.05 Time deposits ​ 458,918 ​ ​ 6,636 ​ 1.45 ​ ​ 468,476 ​ ​ 1,448 ​ 0.31 ​ ​ 365,167 ​ ​ 1,510 ​ 0.41 Interest bearing deposits ​ 2,848,997 ​ ​ 15,397 ​ 0.54 ​ ​ 3,272,311 ​ ​ 3,348 ​ 0.10 ​ ​ 1,859,916 ​ ​ 2,471 ​ 0.13 Securities sold under repurchase agreements ​ 27,518 ​ ​ 93 ​ 0.34 ​ ​ 35,157 ​ ​ 40 ​ 0.11 ​ ​ 60,895 ​ ​ 82 ​ 0.13 Other short-term borrowings ​ 356,014 ​ ​ 18,774 ​ 5.27 ​ ​ 12,534 ​ ​ 480 ​ 3.83 ​ ​ - ​ ​ - ​ - Junior subordinated debentures ​ 25,773 ​ ​ 1,095 ​ 4.25 ​ ​ 25,773 ​ ​ 1,136 ​ 4.41 ​ ​ 25,773 ​ ​ 1,133 ​ 4.40 Subordinated debentures ​ 59,340 ​ ​ 2,185 ​ 3.68 ​ ​ 59,255 ​ ​ 2,185 ​ 3.69 ​ ​ 43,820 ​ ​ 1,610 ​ 3.67 Senior note ​ 22,000 ​ ​ 2,408 ​ 10.95 ​ ​ 44,533 ​ ​ 2,682 ​ 6.02 ​ ​ 44,429 ​ ​ 2,692 ​ 6.06 Notes payable and other borrowings ​ 1,332 ​ ​ 87 ​ 6.53 ​ ​ 13,239 ​ ​ 446 ​ 3.37 ​ ​ 21,700 ​ ​ 462 ​ 2.13 Total interest bearing liabilities ​ 3,340,974 ​ ​ 40,039 ​ 1.20 ​ ​ 3,462,802 ​ ​ 10,317 ​ 0.30 ​ ​ 2,056,533 ​ ​ 8,450 ​ 0.41 Noninterest bearing deposits ​ 1,906,633 ​ ​ - ​ - ​ ​ 2,097,151 ​ ​ - ​ - ​ ​ 1,045,518 ​ ​ - ​ - Other liabilities ​ 54,243 ​ ​ - ​ - ​ ​ 44,986 ​ ​ - ​ - ​ ​ 49,166 ​ ​ - ​ - Stockholders' equity ​ 518,323 ​ ​ - ​ - ​ ​ 466,281 ​ ​ - ​ - ​ ​ 331,883 ​ ​ - ​ - Total liabilities and stockholders' equity $ 5,820,173 ​ ​ ​ ​ ​ ​ $ 6,071,220 ​ ​ ​ ​ ​ ​ $ 3,483,100 ​ ​ ​ ​ ​ Net interest income (GAAP) ​ ​ ​ $ 251,931 ​ ​ ​ ​ ​ ​ $ 206,156 ​ ​ ​ ​ ​ ​ $ 96,715 ​ ​ Net interest margin (GAAP) ​ ​ ​ ​ ​ ​ 4.64 ​ ​ ​ ​ ​ ​ ​ 3.63 ​ ​ ​ ​ ​ ​ ​ 2.95 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest income (TE) 1 ​ ​ ​ $ 253,387 ​ ​ ​ ​ ​ ​ $ 207,584 ​ ​ ​ ​ ​ ​ $ 98,087 ​ ​ Net interest margin (TE) 1 ​ ​ ​ ​ ​ ​ 4.67 ​ ​ ​ ​ ​ ​ ​ 3.65 ​ ​ ​ ​ ​ ​ ​ 3.00 Interest bearing liabilities to earning assets ​ 61.53 % ​ ​ ​ ​ ​ ​ 60.91 % ​ ​ ​ ​ ​ ​ 62.83 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1 Tax equivalent basis is calculated using a marginal tax rate of 21% in 2023, 2022 and 2021.
Assets that do not currently expose us to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses that deserve management’s close attention, are deemed to be Special Mention. ​ Management defines potential problem loans as performing loans rated Substandard that do not meet the definition of a nonperforming loan.
Assets that do not currently expose us to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses that deserve management’s close attention, are deemed to be Special Mention.
During 2021, we recorded a $9.4 million release of provision for credit losses expense on loans, a $12.2 million Day Two non-PCD credit mark for estimated lifetime credit losses on West Suburban acquired loans, and a $1.5 million provision for credit losses on unfunded commitments. ​ 51 ​ Table of Contents ​ Summary of Loan Loss Experience ​ The following table summarizes, for the years indicated, activity in the ACL, including amounts charged-off, amounts of recoveries, additions to the allowance charged to operating expense, and the ratio of net charge-offs to loans outstanding: ​ Analysis of Allowance for Credit Losses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) 2022 2021 2020 Total average loans (exclusive of loans held–for–sale) ​ $ 3,634,570 ​ $ 2,051,944 ​ $ 2,009,774 ​ ​ Allowance at beginning of year ​ 44,281 ​ 33,855 ​ 19,789 ​ ​ Charge–offs: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ 151 ​ 963 ​ 39 ​ ​ Leases ​ ​ 371 ​ ​ 69 ​ ​ 206 ​ ​ Commercial real estate – investor ​ 1,401 ​ 2,724 ​ 512 ​ ​ Commercial real estate – owner occupied ​ 133 ​ 1,797 ​ 1,763 ​ ​ Construction ​ - ​ - ​ 60 ​ ​ Real estate – investor ​ ​ - ​ ​ - ​ ​ 8 ​ ​ Real estate – owner occupied ​ 2 ​ - ​ 43 ​ ​ Multifamily ​ ​ - ​ ​ 183 ​ ​ - ​ ​ HELOC ​ ​ - ​ ​ 17 ​ ​ 193 ​ ​ Other 1 ​ ​ 402 ​ ​ 180 ​ ​ 244 ​ ​ Total charge–offs ​ 2,460 ​ 5,933 ​ 3,068 ​ ​ Recoveries: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ 95 ​ 352 ​ 56 ​ ​ Leases ​ ​ 2 ​ ​ - ​ ​ 98 ​ ​ Commercial real estate – investor ​ 81 ​ 78 ​ 165 ​ ​ Commercial real estate – owner occupied ​ 104 ​ 235 ​ 697 ​ ​ Construction ​ - ​ - ​ 172 ​ ​ Real estate – investor ​ ​ 30 ​ ​ 291 ​ ​ 57 ​ ​ Real estate – owner occupied ​ 226 ​ 158 ​ 287 ​ ​ Multifamily ​ ​ 63 ​ ​ - ​ ​ - ​ ​ HELOC ​ ​ 140 ​ ​ 234 ​ ​ 387 ​ ​ Other 1 ​ ​ 168 ​ ​ 141 ​ ​ 170 ​ ​ Total recoveries ​ 909 ​ 1,489 ​ 2,089 ​ ​ Net charge-offs ​ 1,551 ​ 4,444 ​ 979 ​ ​ Adoption of ASU 326 ​ ​ - ​ ​ - ​ ​ 5,879 ​ ​ Day 1 PCD credit evaluation ​ ​ - ​ ​ 12,075 ​ ​ - ​ ​ Provision for credit losses on loans ​ 6,750 ​ 2,795 ​ 9,166 ​ ​ Allowance at end of year ​ $ 49,480 ​ $ 44,281 ​ $ 33,855 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net charge-offs to total average loans ​ 0.0 % 0.2 % 0.0 % ​ ACL on loans at year end to total average loans ​ 1.4 % 2.2 % 1.7 % ​ Nonaccrual loans to total loans outstanding ​ ​ 0.8 % ​ 1.2 % ​ 1.1 % ​ Nonperforming loans to total loans outstanding ​ ​ 0.9 % ​ 1.5 % ​ 1.1 % ​ ACL on loans at year end to nonaccrual loans ​ ​ 156.6 % ​ 106.6 % ​ 152.0 % ​ ​ 1 The “Other” class includes consumer loans and overdrafts. ​ 52 ​ Table of Contents ​ The following table summarizes, for the years indicated, net charge-offs per loan class and the percentage of total average loans per class: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ % of Total ​ ​ ​ % of Total ​ ​ ​ % of Total ​ ​ ​ ​ Average ​ ​ ​ ​ Average ​ ​ ​ ​ Average ​ ​ ​ ​ Loans Per ​ ​ ​ ​ Loans Per ​ ​ ​ ​ Loans Per ​ 2022 ​ Class ​ 2021 ​ Class ​ 2020 ​ Class Commercial $ 56 ​ 0.0 ​ $ 611 ​ 0.1 ​ $ (17) ​ (0.0) Leases ​ 369 ​ 0.1 ​ ​ 69 ​ 0.1 ​ ​ 108 ​ 0.1 Commercial real estate – investor ​ 1,320 ​ 0.1 ​ ​ 2,646 ​ 0.6 ​ ​ 347 ​ 0.1 Commercial real estate – owner occupied ​ 29 ​ 0.0 ​ ​ 1,562 ​ 0.4 ​ ​ 1,066 ​ 0.3 Construction ​ - ​ - ​ ​ - ​ - ​ ​ (112) ​ (0.1) Residential real estate – investor ​ (30) ​ (0.1) ​ ​ (291) ​ (0.7) ​ ​ (49) ​ (0.1) Residential real estate – owner occupied ​ (224) ​ (0.1) ​ ​ (158) ​ (0.1) ​ ​ (244) ​ (0.2) Multifamily ​ (63) ​ (0.0) ​ ​ 183 ​ 0.1 ​ ​ - ​ - HELOC ​ (140) ​ (0.1) ​ ​ (217) ​ (0.3) ​ ​ (194) ​ (0.2) Other 1 ​ 234 ​ 1.6 ​ ​ 39 ​ 0.3 ​ ​ 74 ​ 1.2 Net charge–offs $ 1,551 ​ 0.0 ​ $ 4,444 ​ 0.2 ​ $ 979 ​ 0.0 ​ 1 The “Other” class includes consumer loans and overdrafts. ​ The provision for credit losses on loans is based upon management’s estimate of future expected credit losses in the loan and lease portfolio and its evaluation of the adequacy of the ACL.
During 2022, we recorded a $6.8 million provision for credit losses expense on loans, and a $200,000 release of provision for credit losses on unfunded commitments. ​ 55 ​ Table of Contents Summary of Loan Loss Experience ​ The following table summarizes, for the years indicated, activity in the ACL, including amounts charged-off, amounts of recoveries, additions to the allowance charged to operating expense, and the ratio of net charge-offs to loans outstanding: ​ Analysis of Allowance for Credit Losses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) 2023 2022 2021 Total average loans (exclusive of loans held–for–sale) ​ $ 3,998,937 ​ $ 3,634,570 ​ $ 2,051,944 ​ ​ Allowance at beginning of year ​ 49,480 ​ 44,281 ​ 33,855 ​ ​ Charge–offs: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ 885 ​ 151 ​ 963 ​ ​ Leases ​ ​ 882 ​ ​ 371 ​ ​ 69 ​ ​ Commercial real estate – investor ​ 11,816 ​ 1,401 ​ 2,724 ​ ​ Commercial real estate – owner occupied ​ 10,691 ​ 133 ​ 1,797 ​ ​ Construction ​ - ​ - ​ - ​ ​ Real estate – investor ​ ​ - ​ ​ - ​ ​ - ​ ​ Real estate – owner occupied ​ - ​ 2 ​ - ​ ​ Multifamily ​ ​ - ​ ​ - ​ ​ 183 ​ ​ HELOC ​ ​ - ​ ​ - ​ ​ 17 ​ ​ Other 1 ​ ​ 368 ​ ​ 402 ​ ​ 180 ​ ​ Total charge–offs ​ 24,642 ​ 2,460 ​ 5,933 ​ ​ Recoveries: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ 632 ​ 95 ​ 352 ​ ​ Leases ​ ​ 119 ​ ​ 2 ​ ​ - ​ ​ Commercial real estate – investor ​ 77 ​ 81 ​ 78 ​ ​ Commercial real estate – owner occupied ​ 29 ​ 104 ​ 235 ​ ​ Construction ​ 100 ​ - ​ - ​ ​ Real estate – investor ​ ​ 30 ​ ​ 30 ​ ​ 291 ​ ​ Real estate – owner occupied ​ 79 ​ 226 ​ 158 ​ ​ Multifamily ​ ​ - ​ ​ 63 ​ ​ - ​ ​ HELOC ​ ​ 105 ​ ​ 140 ​ ​ 234 ​ ​ Other 1 ​ ​ 169 ​ ​ 168 ​ ​ 141 ​ ​ Total recoveries ​ 1,340 ​ 909 ​ 1,489 ​ ​ Net charge-offs ​ 23,302 ​ 1,551 ​ 4,444 ​ ​ Day 1 PCD credit evaluation ​ ​ - ​ ​ - ​ ​ 12,075 ​ ​ Provision for credit losses on loans ​ 18,086 ​ 6,750 ​ 2,795 ​ ​ Allowance at end of year ​ $ 44,264 ​ $ 49,480 ​ $ 44,281 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net charge-offs to total average loans ​ 0.6 % 0.0 % 0.2 % ​ ACL on loans at year end to total average loans ​ 1.1 % 1.4 % 2.2 % ​ Nonaccrual loans to total loans outstanding ​ ​ 1.7 % ​ 0.8 % ​ 1.2 % ​ Nonperforming loans to total loans outstanding ​ ​ 1.7 % ​ 0.9 % ​ 1.3 % ​ ACL on loans at year end to nonaccrual loans ​ ​ 65.5 % ​ 156.6 % ​ 106.6 % ​ ​ 1 The “Other” class includes consumer loans and overdrafts. ​ 56 ​ Table of Contents The following table summarizes, for the years indicated, net charge-offs per loan class and the percentage of total average loans per class: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ % of Total ​ ​ ​ % of Total ​ ​ ​ % of Total ​ ​ ​ ​ Average ​ ​ ​ ​ Average ​ ​ ​ ​ Average ​ ​ ​ ​ Loans Per ​ ​ ​ ​ Loans Per ​ ​ ​ ​ Loans Per ​ 2023 ​ Class ​ 2022 ​ Class ​ 2021 ​ Class Commercial $ 253 ​ 0.0 ​ $ 56 ​ 0.0 ​ $ 611 ​ 0.1 Leases ​ 763 ​ 0.2 ​ ​ 369 ​ 0.1 ​ ​ 69 ​ 0.1 Commercial real estate – investor ​ 11,739 ​ 1.1 ​ ​ 1,320 ​ 0.1 ​ ​ 2,646 ​ 0.6 Commercial real estate – owner occupied ​ 10,662 ​ 1.4 ​ ​ 29 ​ 0.0 ​ ​ 1,562 ​ 0.4 Construction ​ (100) ​ (0.1) ​ ​ - ​ - ​ ​ - ​ - Residential real estate – investor ​ (30) ​ (0.1) ​ ​ (30) ​ (0.1) ​ ​ (291) ​ (0.7) Residential real estate – owner occupied ​ (79) ​ (0.0) ​ ​ (224) ​ (0.1) ​ ​ (158) ​ (0.1) Multifamily ​ - ​ - ​ ​ (63) ​ (0.0) ​ ​ 183 ​ 0.1 HELOC ​ (105) ​ (0.1) ​ ​ (140) ​ (0.1) ​ ​ (217) ​ (0.3) Other 1 ​ 199 ​ 0.8 ​ ​ 234 ​ 1.6 ​ ​ 39 ​ 0.3 Net charge–offs $ 23,302 ​ 0.6 ​ $ 1,551 ​ 0.0 ​ $ 4,444 ​ 0.2 ​ 1 The “Other” class includes consumer loans and overdrafts. ​ The provision for credit losses on loans is based upon management’s estimate of future expected credit losses in the loan and lease portfolio and its evaluation of the adequacy of the ACL.
The credit quality of these issuers is monitored and none have been identified as posing a material risk of loss. We also hold collateralized loan obligation (“CLOs”) securities that are generally backed by a pool of debt issued by multiple middle-sized and large businesses. Our CLO S&P or Moody’s ratings distribution consists of 100% rated AAA.
We also hold collateralized loan obligation (“CLOs”) securities that are generally backed by a pool of debt issued by multiple middle-sized and large businesses. Our CLO S&P or Moody’s ratings distribution consists of 100% rated AAA or AA.
The increase in provision expense over the prior year was primarily due to loan growth of $448.8 million in 2022, partially offset by improved economic factors.
The increase in provision expense over the prior year was primarily due to loan growth of $173.3 million in 2023, and current-year net charge offs, partially offset by improved economic factors.
We recorded total loan originations, excluding renewals, of $1.90 billion in 2022, but we also experienced accelerated paydowns in 2022 due to high levels of customer liquidity. ​ We strive to serve customers in and around our geographic locations and continue to seek opportunities in our primary lending markets; however, our markets remain very competitive for new loan business. ​ Management continues to emphasize loan portfolio quality, which is evidenced by the improved nonperforming loan metrics discussed in the “Asset Quality” section below.
We recorded total loan originations, excluding renewals, of $997.2 million in 2023, but we also experienced accelerated paydowns in 2023 due to higher levels of customer liquidity. ​ We strive to serve customers in and around our geographic locations and continue to seek opportunities in our primary lending markets; however, our markets remain very competitive for new loan business. ​ Management continues to emphasize loan portfolio quality, the increase of nonaccrual and classified loans is isolated to office buildings and assisted living centers, discussed in the “Asset Quality” section below.
During 2022, we transferred one OREO property from loans with a total fair value of $87,000, and we sold five properties which had a net book value of $778,000. Net gains on the sale of OREO properties during 2022 totaled $163,000, compared to net gains on sale of $41,000 in 2021 and $204,000 in 2020.
During 2023, we transferred six OREO properties from loans with a total fair value of $5.6 million, and we sold nine properties which had a net book value of $2.8 million. Net gains on the sale of OREO properties during 2023 totaled $256,000, compared to net gains on sale of OREO properties of $163,000 in 2022 and $41,000 in 2021.
As of December 31, 2021, net unrealized gains on available-for-sale securities totaled $15.5 million, which offset by deferred income taxes resulted in an overall increase to equity capital of $11.1 million. ​ ​ Loans ​ The following table presents the composition of the loan portfolio at December 31 for the year indicated: ​ Loan Portfolio ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ % of ​ ​ % of ​ ​ % of (Dollars in thousands) ​ 2022 ​ Total ​ 2021 ​ Total ​ 2020 ​ Total Commercial 1 ​ $ 840,964 ​ 21.7 ​ $ 771,474 ​ 22.6 ​ $ 407,159 ​ 20.0 Leases ​ 277,385 ​ 7.2 ​ 176,031 ​ 5.1 ​ 141,601 ​ 7.0 Commercial real estate – investor ​ 987,635 ​ 25.5 ​ 799,928 ​ 23.4 ​ 582,042 ​ 28.6 Commercial real estate – owner occupied ​ 854,879 ​ 22.1 ​ 731,845 ​ 21.4 ​ 333,070 ​ 16.4 Construction ​ 180,535 ​ 4.7 ​ 206,132 ​ 6.0 ​ 98,486 ​ 4.8 Residential real estate – investor ​ 57,353 ​ 1.5 ​ 63,399 ​ 1.9 ​ 56,137 ​ 2.8 Residential real estate – owner occupied ​ ​ 219,718 ​ 5.7 ​ ​ 213,248 ​ 6.2 ​ ​ 116,388 ​ 5.7 Multifamily ​ ​ 323,691 ​ 8.4 ​ ​ 309,164 ​ 9.0 ​ ​ 189,040 ​ 9.3 HELOC ​ ​ 109,202 ​ 2.8 ​ ​ 126,290 ​ 3.7 ​ ​ 100,395 ​ 5.0 Other 2 ​ 18,247 ​ 0.4 ​ 23,293 ​ 0.7 ​ 10,533 ​ 0.4 Total loans ​ $ 3,869,609 ​ 100.0 ​ $ 3,420,804 ​ 100.0 ​ $ 2,034,851 ​ 100.0 ​ 1 Includes $1.6 million, $38.4 million, and $74.1 million of PPP loans outstanding at December 31, 2022, 2021 and 2020, respectively. 2 The “Other” class includes consumer loans and overdrafts. ​ Our total loans were $3.87 billion as of December 31, 2022, an increase of $448.8 million from $3.42 billion as of December 31, 2021.
As of December 31, 2022, net unrealized losses on available-for-sale securities totaled $123.5 million, which after the impact of the related deferred income taxes, resulted in an overall decrease to equity capital of $88.9 million. ​ Loans ​ The following table presents the composition of the loan portfolio at December 31 for the year indicated: ​ Loan Portfolio ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ % of ​ ​ % of ​ ​ % of (Dollars in thousands) ​ 2023 ​ Total ​ 2022 ​ Total ​ 2021 ​ Total Commercial ​ $ 841,697 ​ 20.8 ​ $ 840,964 ​ 21.7 ​ $ 771,474 ​ 22.6 Leases ​ 398,223 ​ 9.8 ​ 277,385 ​ 7.2 ​ 176,031 ​ 5.1 Commercial real estate – investor ​ 1,034,424 ​ 25.6 ​ 987,635 ​ 25.5 ​ 799,928 ​ 23.4 Commercial real estate – owner occupied ​ 796,538 ​ 19.7 ​ 854,879 ​ 22.1 ​ 731,845 ​ 21.4 Construction ​ 165,380 ​ 4.1 ​ 180,535 ​ 4.7 ​ 206,132 ​ 6.0 Residential real estate – investor ​ 52,595 ​ 1.3 ​ 57,353 ​ 1.5 ​ 63,399 ​ 1.9 Residential real estate – owner occupied ​ ​ 226,248 ​ 5.6 ​ ​ 219,718 ​ 5.7 ​ ​ 213,248 ​ 6.2 Multifamily ​ ​ 401,696 ​ 9.9 ​ ​ 323,691 ​ 8.4 ​ ​ 309,164 ​ 9.0 HELOC ​ ​ 103,237 ​ 2.6 ​ ​ 109,202 ​ 2.8 ​ ​ 126,290 ​ 3.7 Other 1 ​ 22,915 ​ 0.6 ​ 18,247 ​ 0.4 ​ 23,293 ​ 0.7 Total loans ​ $ 4,042,953 ​ 100.0 ​ $ 3,869,609 ​ 100.0 ​ $ 3,420,804 ​ 100.0 ​ 1 The “Other” class includes consumer loans and overdrafts. ​ 52 ​ Table of Contents Our total loans were $4.04 billion as of December 31, 2023, an increase of $173.3 million from $3.87 billion as of December 31, 2022.
The following table provides a reconciliation of the GAAP tangible common equity to tangible assets ratio to the non-GAAP ratio for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ December 31, 2021 ​ Tangible common equity GAAP ​ ​ Non-GAAP ​ ​ GAAP ​ ​ Non-GAAP ​ (Dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Equity $ 461,141 ​ ​ $ 461,141 ​ ​ $ 502,027 ​ ​ $ 502,027 ​ Less: Goodwill and intangible assets ​ 100,156 ​ ​ ​ 100,156 ​ ​ ​ 102,636 ​ ​ ​ 102,636 ​ Add: Limitation of exclusion of core deposit intangible (80%) ​ N/A ​ ​ ​ 2,736 ​ ​ ​ N/A ​ ​ ​ 3,261 ​ Adjusted goodwill and intangible assets ​ 100,156 ​ ​ ​ 97,420 ​ ​ ​ 102,636 ​ ​ ​ 99,375 ​ Tangible common equity $ 360,985 ​ ​ $ 363,721 ​ ​ $ 399,391 ​ ​ $ 402,652 ​ Tangible assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total assets $ 5,888,317 ​ ​ $ 5,888,317 ​ ​ $ 6,212,189 ​ ​ $ 6,212,189 ​ Less: Adjusted goodwill and intangible assets ​ 100,156 ​ ​ ​ 97,420 ​ ​ ​ 102,636 ​ ​ ​ 99,375 ​ Tangible assets $ 5,788,161 ​ ​ $ 5,790,897 ​ ​ $ 6,109,553 ​ ​ $ 6,112,814 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common equity to total assets ​ 7.83 % ​ ​ 7.83 % ​ ​ 8.08 % ​ ​ 8.08 % Tangible common equity to tangible assets ​ 6.24 % ​ ​ 6.28 % ​ ​ 6.54 % ​ ​ 6.59 % ​ The non-GAAP intangible asset exclusion reflects the 80% core deposit limitation per Basel III guidelines within risk based capital calculations, and is useful for the Company when reviewing risk based capital ratios and equity performance metrics. ​ 58 ​ Table of Contents Liquidity ​ Liquidity is our ability to fund operations, to meet depositor withdrawals, to provide for customer’s credit needs, and to meet maturing obligations and existing commitments.
Management considers this non-GAAP measure a valuable performance measurement for capital analysis. ​ The following table provides a reconciliation of the GAAP tangible common equity to tangible assets ratio to the non-GAAP ratio for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ ​ December 31, 2022 ​ Tangible common equity GAAP ​ ​ Non-GAAP ​ ​ GAAP ​ ​ Non-GAAP ​ (Dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Equity $ 577,281 ​ ​ $ 577,281 ​ ​ $ 461,141 ​ ​ $ 461,141 ​ Less: Goodwill and intangible assets ​ 97,695 ​ ​ ​ 97,695 ​ ​ ​ 100,156 ​ ​ ​ 100,156 ​ Add: Limitation of exclusion of core deposit intangible (80%) ​ N/A ​ ​ ​ 2,243 ​ ​ ​ N/A ​ ​ ​ 2,736 ​ Adjusted goodwill and intangible assets ​ 97,695 ​ ​ ​ 95,452 ​ ​ ​ 100,156 ​ ​ ​ 97,420 ​ Tangible common equity $ 479,586 ​ ​ $ 481,829 ​ ​ $ 360,985 ​ ​ $ 363,721 ​ Tangible assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total assets $ 5,722,799 ​ ​ $ 5,722,799 ​ ​ $ 5,888,317 ​ ​ $ 5,888,317 ​ Less: Adjusted goodwill and intangible assets ​ 97,695 ​ ​ ​ 95,452 ​ ​ ​ 100,156 ​ ​ ​ 97,420 ​ Tangible assets $ 5,625,104 ​ ​ $ 5,627,347 ​ ​ $ 5,788,161 ​ ​ $ 5,790,897 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common equity to total assets ​ 10.09 % ​ ​ 10.09 % ​ ​ 7.83 % ​ ​ 7.83 % Tangible common equity to tangible assets ​ 8.53 % ​ ​ 8.56 % ​ ​ 6.24 % ​ ​ 6.28 % 61 ​ Table of Contents The non-GAAP intangible asset exclusion reflects the 80% core deposit limitation per Basel III guidelines within risk based capital calculations, and is useful for the Company when reviewing risk based capital ratios and equity performance metrics. ​ Liquidity ​ Liquidity is our ability to fund operations, to meet depositor withdrawals, to provide for customer’s credit needs, and to meet maturing obligations and existing commitments.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeHowever, we have a notably lower sensitivity profile relative to December 31, 2021 from interest rate swaps and some mix change in loan composition. ​ The following table summarizes the effect on annual income before income taxes based upon an immediate increase or decrease in interest rates of 0.5%, 1%, and 2% and no change in the slope of the yield curve. 60 ​ Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Analysis of Net Interest Income Sensitivity ​ ​ Immediate Changes in Rates (Dollars in thousands) ​ (2.0) % ​ (1.0) % (0.5) % 0.5 % 1.0 % 2.0 % December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Dollar change ​ $ (46,800) ​ ​ $ (22,963) ​ ​ $ (11,327) ​ ​ $ 11,278 ​ ​ $ 22,593 ​ ​ $ 44,482 ​ Percent change ​ ​ (18.2) % ​ ​ (8.9) % ​ ​ (4.4) % ​ ​ 4.4 % ​ ​ 8.8 % ​ ​ 17.3 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Dollar change ​ ​ N/M ​ ​ ​ N/M ​ ​ ​ N/M ​ ​ $ 13,404 ​ ​ $ 27,689 ​ ​ $ 54,007 ​ Percent change ​ ​ N/M ​ ​ ​ N/M ​ ​ ​ N/M ​ ​ ​ 9.4 % ​ ​ 19.5 % ​ ​ 38.0 % ​ N/M - Not meaningful ​ The amounts and assumptions used in the simulation model should not be viewed as indicative of expected actual results.
Biggest changeHowever, we continue to have a less sensitive profile relative to December 31, 2022 due to the impact of interest rate swaps and sales of variable rate securities. ​ The following table summarizes the effect on annual income before income taxes based upon an immediate increase or decrease in interest rates of 0.5%, 1%, and 2% and no change in the slope of the yield curve. 64 ​ Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Analysis of Net Interest Income Sensitivity ​ ​ Immediate Changes in Rates (Dollars in thousands) ​ (2.0) % ​ (1.0) % (0.5) % 0.5 % 1.0 % 2.0 % December 31, 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Dollar change ​ $ (36,337) ​ ​ $ (18,117) ​ ​ $ (8,982) ​ ​ $ 9,354 ​ ​ $ 18,818 ​ ​ $ 36,453 ​ Percent change ​ ​ (14.7) % ​ ​ (7.3) % ​ ​ (3.6) % ​ ​ 3.8 % ​ ​ 7.6 % ​ ​ 14.7 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Dollar change ​ $ (46,800) ​ ​ $ (22,963) ​ ​ $ (11,327) ​ ​ $ 11,278 ​ ​ $ 22,593 ​ ​ $ 44,482 ​ Percent change ​ ​ (18.2) % ​ ​ (8.9) % ​ ​ (4.4) % ​ ​ 4.4 % ​ ​ 8.8 % ​ ​ 17.3 % ​ The amounts and assumptions used in the simulation model should not be viewed as indicative of expected actual results.
In practice, we seek to manage our interest rate risk exposure within our guidelines so that such exposure does not pose a material risk to our future earnings. ​ We manage various market risks in the normal course of our operations, including credit risk, liquidity risk, and interest-rate risk.
In practice, we seek to manage our interest rate risk exposure within our guidelines so that such exposure does not pose a material risk to our future earnings. We manage various market risks in the normal course of our operations, including credit, liquidity risk, and interest rate risk.
The above results do not take into account any management action to mitigate potential risk. ​ Effects of Inflation ​ In management’s opinion, changes in interest rates affect our financial condition to a far greater degree than changes in the inflation rate; however, we monitor both.
The above results do not take into account any management action to mitigate potential risk. ​ Effects of Inflation ​ In management’s opinion, although changes in interest rates affect our financial condition to a far greater degree than changes in the inflation rate, we monitor both.
Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and management strategies.
Actual results will differ from simulated results due to timing, magnitude, balance sheet composition and frequency of interest rate changes as well as changes in market conditions and management strategies.
Our interest rate risk exposures at December 31, 2022 and December 31, 2021 are outlined in the table below. ​ Our net income can be significantly influenced by a variety of external factors, including: overall economic conditions, policies and actions of regulatory authorities, the amounts of and rates at which assets and liabilities reprice, variances in prepayment of loans and securities other than those that are assumed, early withdrawal of deposits, exercise of call options on borrowings or securities, competition, a general rise or decline in interest rates, changes in the slope of the yield-curve, changes in historical relationships between indices (such as SOFR, LIBOR and prime), and balance sheet growth or contraction.
Our net income can be significantly influenced by a variety of external factors, including: overall economic conditions, policies and actions of regulatory authorities, the amounts of and rates at which assets and liabilities reprice, variances in prepayment of loans and securities other than those that are assumed, early withdrawal of deposits, exercise of call options on borrowings or securities, competition, a general rise or decline in interest rates, changes in the slope of the yield-curve, changes in historical relationships between indices (such as SOFR and Prime), and balance sheet growth or contraction.
Our asset-liability committee seeks to manage interest rate risk under a variety of rate environments by structuring our balance sheet and off-balance sheet positions, which includes interest rate swap derivatives as discussed in Note 19 of our consolidated financial statements included in this annual report.
Our asset-liability committee seeks to manage interest rate risk under a variety of rate environments by structuring our on-balance sheet and off-balance sheet positions, which includes interest rate swap derivatives as discussed in Note 19 of our consolidated financial statements found in in our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 7A. Quantitative and Qualitative Disclosures about Market Ris k ​ Interest Rate Risk As part of our normal operations, we are subject to interest-rate risk on the assets we invest in (primarily loans and securities) and the liabilities we fund (primarily customer deposits and borrowed funds).
Item 7A. Quantitative and Qualitative Disclosures about Market Ris k ​ Interest Rate Risk ​ We are subject to interest rate risk from changes on assets (loans and securities), liabilities (customer deposits and borrowed funds) and off balance sheet derivatives (interest rate swaps).
Earnings at risk are calculated by comparing the net interest income of a stable interest rate environment to the net interest income of a different interest rate environment in order to determine the percentage change. As of December 31, 2022, our net interest income profile remained sensitive to earnings gains (in both dollars and percentage) should interest rates rise.
As of December 31, 2023, our net interest income profile remained sensitive to earnings gains (in both dollars and percentage) should market interest rates rise.
Fluctuations in interest rates may result in changes in the fair market values of our financial instruments, cash flows, and net interest income.
Fluctuations in interest rates may have a material impact to fair market values of our financial instruments, cash flows, and net interest income. Like most financial institutions, we have an exposure to changes in both short-term and long-term interest rates.
We seek to monitor and manage interest rate risk within approved policy guidelines and limits. ​ We use simulation analysis to quantify the impact of various rate scenarios on our net interest income. Specific cash flows, repricing characteristics, and embedded options of the assets and liabilities held by us are incorporated into the simulation model.
Specific cash flows, repricing characteristics, and embedded options of the assets and liabilities held by us are incorporated into the simulation model. Earnings at risk are calculated by comparing the net interest income of a stable interest rate environment to the net interest income of a different interest rate environment in order to determine the percentage change.
The Federal Reserve’s objective of shrinking its balance sheet has been slower than initially thought due to slower prepayments on mortgage-backed securities from the lack of refinancing activity, the Federal Reserve’s balance sheet stands at $8.6 trillion in December 2022. We manage interest rate risk within guidelines established by policy are intended to limit the amount of rate exposure.
The FRB continued to shrink its balance sheet, ending 2023 at $7.7 trillion, down from a peak of $8.7 trillion in March 2023. ​ We manage interest rate risk within guidelines established by asset liability policy which are intended to limit the amount of rate exposure.
Furthermore, higher costs of living weaken the financial condition of our borrowers which could affect our credit profile. We believe a financial institution’s ability to be relatively unaffected by changes in interest rates is a good indicator of its capability to perform in the current volatile economic environment.
Furthermore, higher costs of living may weaken the financial condition of our borrowers which could affect our credit profile. Inflation has declined to a comfortable level, resulting in a minimal impact of inflation to our financial results. ​ ​ ​ 65 ​ Table of Contents
Removed
Like most financial institutions, we have an exposure to changes in both short-term and long-term interest rates. ​ The Federal Reserve has slowed its pace of rate hikes to 0.50% at the December meeting, a change of pace from the 0.75% hikes over the past several meetings.
Added
A financial institution’s ability to effectively tune its interest rate risk profile and strategically posture its balance sheet through fluid rate cycles create peer-leading financial results. ​ In the fourth quarter of 2023, the Federal Reserve Board (“FRB”) held interest rates unchanged, which was widely expected by market participants.
Removed
The current market expectation is a federal funds target rate to increase for a longer period of time, and peak at 5.75% in the second half of 2023. The economy has proven to be resilient in digesting the higher rates as the unemployment rate remains at a satisfactory level, supported by a tight labor market.
Added
The timing of rate cuts and implied Federal Funds Rate for 2024 have been volatile due to the dichotomy between market expectations and central bank views.
Removed
The annual U.S. inflation rate slowed for a sixth straight month to 6.5% as of December 31, 2022, down from its peak of 9.1% in June 2022. Management believes the inflation rate will continue to trend down in response to monetary policy, but that the inflation rate will remain higher than the Federal Reserve’s target of 2.0%.
Added
Our interest rate risk exposures at December 31, 2023 and December 31, 2022 are outlined in the table below.
Removed
In general, we expect higher inflation will increase borrowers’ needs for credit as a result of GDP growth. In addition, as interest rates are expected to continue rising albeit at a slower pace, we expect our net interest margin to be favorably impacted. The downside risks of high inflation puts upwards pressure on our expenses, which could impact profits.
Added
We seek to monitor and manage interest rate risk within approved policy guidelines and limits. Asset and liability modeling and tracking is performed and presented to the asset-liability committee and the Board of Directors no less than quarterly.
Removed
We seek to mitigate the impact of interest rate volatility on the Bank by seeking to ensure that rate sensitive assets and rate sensitive liabilities respond to changes in interest rates in a similar time frame and to a similar degree.
Added
Such presentations discuss our current and historical interest rate risk posture, shifts in the balance sheet composition, and the impact of interest rate movements on earnings and equity. Our current balance sheet is a moderately asset sensitive profile, as our variable rate assets reprice faster than our longer duration, low beta deposit base.
Removed
Overall, we expect the effects of higher inflation to be beneficial to us in the near term. ​ ​ ​ 61 ​ Table of Contents
Added
The market events of failed liquidity management at other banks have been discussed and reviewed by the asset-liability committee. The committee concluded that we continue to possess a strong liquidity profile and no new liquidity risks were identified.
Added
Prudently, we added new measures to assess liquidity risk and enhanced our internal reports to segment deposits by insured, uninsured, collateralized deposits, and we monitor the bank’s funding sources and uses on a regular basis. ​ We also have a risk committee, chaired by our Chief Risk Officer, which reports no less than quarterly to senior management as well as our Board of Directors regarding compliance with risk tolerance limits, key risk factor changes, both internally and externally, due to portfolio changes as well as market conditions.
Added
Our enterprise risk management framework is governed by this committee, with input being provided by line of business managers, senior management and the Board. ​ We use simulation analysis to quantify the impact of various rate scenarios on our net interest income.
Added
The annual U.S. inflation rate for December 2023 was 3.4%, down from 3.7% quarter-over-quarter, while Core CPI continued to ease at 3.9%. Management believes the inflation rate will continue to notch down in 2024 at a much slower rate than 2023. The downside risks of high inflation put upwards pressure on our expenses, which could impact our profits.

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