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What changed in OLD SECOND BANCORP INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of OLD SECOND BANCORP INC's 2023 and 2024 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 2024 report.

+436 added−382 removedSource: 10-K (2025-03-06) vs 10-K (2024-03-07)

Top changes in OLD SECOND BANCORP INC's 2024 10-K

436 paragraphs added · 382 removed · 315 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

89 edited+34 added−25 removed157 unchanged
Biggest changeThe following table presents the composition of the commercial real estate portion of the loan portfolio at December 31, 2023. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ % of Commercial ​ Geographic Location December 31, 2023 ​ Outstanding Real Estate Loans Illinois Wisconsin Indiana Other Commercial Real Estate ​ $ 1,830,962 ​ 100.0 % ​ 62.6 % ​ 4.5 % ​ 3.3 % ​ 29.6 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Owner-Occupied ​ ​ 796,538 ​ 43.5 ​ ​ 66.5 ​ ​ 0.2 ​ ​ 2.7 ​ ​ 30.6 ​ Healthcare ​ ​ 310,809 ​ 17.0 ​ ​ 21.9 ​ ​ - ​ ​ 0.1 ​ ​ 78.0 ​ Other Services ​ ​ 82,306 ​ 4.5 ​ ​ 100.0 ​ ​ - ​ ​ - ​ ​ - ​ Retail Trade ​ ​ 73,051 ​ 4.0 ​ ​ 97.8 ​ ​ 2.2 ​ ​ - ​ ​ - ​ Manufacturing ​ ​ 71,366 ​ 3.9 ​ ​ 97.5 ​ ​ - ​ ​ 1.2 ​ ​ 1.3 ​ Other (less than $50 million) ​ ​ 259,006 ​ 14.1 ​ ​ 89.9 ​ ​ - ​ ​ 7.2 ​ ​ 2.9 ​ Non-Owner occupied ​ ​ 1,034,424 ​ 56.5 ​ ​ 60.6 ​ ​ 7.9 ​ ​ 3.7 ​ ​ 27.8 ​ Retail ​ ​ 326,738 ​ 17.9 ​ ​ 50.3 ​ ​ 8.9 ​ ​ 1.1 ​ ​ 39.7 ​ Office ​ ​ 240,515 ​ 13.1 ​ ​ 82.5 ​ ​ - ​ ​ - ​ ​ 17.5 ​ Industrial ​ ​ 224,835 ​ 12.3 ​ ​ 61.3 ​ ​ 9.2 ​ ​ 0.4 ​ ​ 29.1 ​ Mixed-Use ​ ​ 71,531 ​ 3.9 ​ ​ 80.4 ​ ​ - ​ ​ - ​ ​ 19.6 ​ Hotel ​ ​ 49,851 ​ 2.7 ​ ​ 11.2 ​ ​ 30.4 ​ ​ 6.2 ​ ​ 52.2 ​ Other (less than $50 million) ​ ​ 120,954 ​ 6.6 ​ ​ 49.9 ​ ​ 13.5 ​ ​ 18.8 ​ ​ 17.8 ​ ​ To mitigate risk within the commercial real estate portfolio we maintain underwriting practices that provide for adequate cash flow margins and multiple repayment sources.
Biggest changeThe following table presents the composition of the commercial real estate portion of the loan portfolio at December 31, 2024. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ % of Commercial ​ Geographic Location December 31, 2024 ​ Outstanding Real Estate Loans Illinois Wisconsin Indiana Texas Other Commercial real estate ​ $ 1,762,112 ​ 100.0 % ​ 59.8 % ​ 3.9 % ​ 2.0 % ​ 4.2 % ​ 30.1 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Investor ​ ​ 1,078,829 ​ 61.2 ​ ​ 35.5 ​ ​ 3.4 ​ ​ 1.7 ​ ​ 4.2 ​ ​ 16.4 ​ Retail ​ ​ 302,890 ​ 17.2 ​ ​ 15.6 ​ ​ 2.2 ​ ​ 0.2 ​ ​ 2.1 ​ ​ 8.0 ​ Office ​ ​ 235,538 ​ 13.4 ​ ​ 13.3 ​ ​ 1.9 ​ ​ 0.1 ​ ​ 0.4 ​ ​ 6.1 ​ Industrial ​ ​ 210,680 ​ 12.0 ​ ​ 16.7 ​ ​ - ​ ​ - ​ ​ 0.9 ​ ​ 2.0 ​ Mixed-use ​ ​ 67,877 ​ 3.9 ​ ​ 4.9 ​ ​ - ​ ​ - ​ ​ - ​ ​ 1.4 ​ Hotel ​ ​ 65,843 ​ 3.7 ​ ​ 1.0 ​ ​ 1.5 ​ ​ 0.3 ​ ​ 0.9 ​ ​ 2.4 ​ Other (less than $50 million) ​ ​ 196,001 ​ 11.1 ​ ​ 6.7 ​ ​ - ​ ​ 2.1 ​ ​ 2.5 ​ ​ 6.8 ​ Owner-occupied ​ ​ 683,283 ​ 38.8 ​ ​ 24.3 ​ ​ 0.5 ​ ​ 0.3 ​ ​ - ​ ​ 13.7 ​ Healthcare ​ ​ 266,882 ​ 15.1 ​ ​ 4.7 ​ ​ 1.2 ​ ​ - ​ ​ - ​ ​ 33.2 ​ Other services ​ ​ 75,480 ​ 4.3 ​ ​ 11.0 ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ Retail trade ​ ​ 59,858 ​ 3.4 ​ ​ 8.7 ​ ​ - ​ ​ - ​ ​ - ​ ​ 0.1 ​ Manufacturing ​ ​ 56,089 ​ 3.2 ​ ​ 8.2 ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ Real estate, leasing ​ ​ 55,299 ​ 3.1 ​ ​ 7.7 ​ ​ - ​ ​ 0.1 ​ ​ - ​ ​ 0.3 ​ Other (less than $50 million) ​ ​ 169,675 ​ 9.6 ​ ​ 22.5 ​ ​ - ​ ​ 0.6 ​ ​ - ​ ​ 1.7 ​ ​ To mitigate risk within the commercial real estate portfolio we maintain underwriting practices that provide for adequate cash flow margins and multiple repayment sources.
On the same day that the OCC announced its plans to rescind the CRA final rule, the OCC, FDIC, and Federal Reserve announced that they are working together to “strengthen and modernize the rules implementing the CRA.” On May 5, 2022, the OCC, FDIC, and Federal Reserve released a notice of proposed rulemaking regarding the CRA and invited public comment on the proposed rules.
On the same day that the OCC announced its plans to rescind the CRA final rule, the OCC, the FDIC, and the Federal Reserve announced that they are working together to “strengthen and modernize the rules implementing the CRA.” On May 5, 2022, the OCC, FDIC, and Federal Reserve released a notice of proposed rulemaking regarding the CRA and invited public comment on the proposed rules.
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.
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 a wide range of wealth management, investment, agency, and custodial services for individual, corporate, and not-for-profit clients.
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 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. ​ 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 rule will take effect on April 1, 2024; however, compliance with the majority of the final rule’s provisions will not be required until January 1, 2026, and the data reporting requirements of the final rule will not take effect until January 1, 2027.
The final rule took effect on April 1, 2024; however, compliance with the majority of the final rule’s provisions will not be required until January 1, 2026, and the data reporting requirements of the final rule will not take effect until January 1, 2027.
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.
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. ​ ​ 15 ​ Table of Contents ​ 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.
Charles, Sugar Grove, Sycamore, Villa Park, Warrenville, Wasco, Wheaton, and Yorkville communities and surrounding areas through its 48 banking locations that are located primarily in the western and southern portions of the Chicago metropolitan area. ​ Lending Activities ​ We provide a broad range of commercial and retail lending services to corporations, partnerships, individuals and government agencies.
Charles, Sugar Grove, Sycamore, Villa Park, Warrenville, Wasco, Wheaton, and Yorkville communities and surrounding areas through its 53 banking locations that are located primarily in the western and southern portions of the Chicago metropolitan area. ​ Lending Activities ​ We provide a broad range of commercial and retail lending services to corporations, partnerships, individuals and government agencies.
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.
This new guidance provided risk management oversight guidelines for financial institutions to incorporate in their ongoing relationships with third party vendors. ​ 20 ​ 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.
The FFIEC, OCC, and the FDIC also continued their emphasis on the importance of oversight of third party vendors in the BSA/AML process through updated guidance, as well as continued examine and enforcement activity against financial institutions who failed to properly supervise their third party service providers’ BSA/AML activity. ​ Following the enactment of the Anti-Money Laundering Act of 2020, FinCEN began publishing rules pursuant to the Corporate Transparency Act which establishes a regime for many corporate entities to file a form with FinCEN disclosing their beneficial owners.
The FFIEC, OCC, and the FDIC also continued their emphasis on the importance of oversight of third party vendors in the BSA/AML process through updated guidance, as well as continued examine and enforcement activity against financial institutions who failed to properly supervise their third party service providers’ BSA/AML activity. ​ Following the enactment of the Anti-Money Laundering Act of 2020, Financial Crimes Enforcement Network (“FinCEN”) began publishing rules pursuant to the Corporate Transparency Act which establishes a regime for many corporate entities to file a form with FinCEN disclosing their beneficial owners.
We primarily focus on originating multifamily loans within our primary geographic footprint, with 82.7% of multifamily loans secured by properties in Illinois, Wisconsin and Indiana. ​ To mitigate risk within the multifamily portfolio we maintain underwriting practices that provide for adequate cash flow margins and multiple repayment sources.
We primarily focus on originating multifamily loans within our primary geographic footprint, with 82.7% of multifamily loans secured by properties in Illinois, Wisconsin and Indiana. ​ ​ 7 ​ Table of Contents ​ To mitigate risk within the multifamily portfolio we maintain underwriting practices that provide for adequate cash flow margins and multiple repayment sources.
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.
As of December 31, 2024, the Bank was well-capitalized, as defined by OCC regulations. As of December 31, 2024, 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 also originate residential mortgages, offering a wide range of mortgage products including conventional, government, and jumbo loans. We also handle secondary marketing of those mortgages. ​ ​ ​ 4 ​ Table of Contents ​ Market Area ​ Our main office is located at 37 South River Street, Aurora, Illinois 60507.
We also originate residential mortgages, offering a wide range of mortgage products including conventional, government, and jumbo loans. We also handle secondary marketing of those mortgages. ​ ​ 5 ​ Table of Contents ​ Market Area ​ Our main office is located at 37 South River Street, Aurora, Illinois 60507.
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.
As described above, the Bank exceeded its capital requirements under applicable guidelines as of December 31, 2024. 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.
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.
The Bank received an overall “outstanding” rating on its most recent CRA performance evaluation. ​ 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.
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.
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. ​ ​ 17 ​ 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.
Dividend Payments. The Company’s ability to pay dividends to its stockholders may be affected by both general corporate law considerations and policies of the Federal Reserve applicable to bank holding companies . As a Delaware corporation, the Company is subject to the limitations of the Delaware General Corporation Law (the “DGCL”).
The Company’s ability to pay dividends to its stockholders may be affected by both general corporate law considerations and policies of the Federal Reserve applicable to bank holding companies . As a Delaware corporation, the Company is subject to the limitations of the Delaware General Corporation Law (the “DGCL”).
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.
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 2024. The Financial Action Task Force (“FATF”) continues to revise the list of high-risk jurisdictions.
Our ability to pay dividends depends on, among other things, the Bank’s ability to pay dividends to us, which is subject to regulatory restrictions as described below in “Regulation and Supervision of the Bank—Dividend Payments.” We are also able to raise capital for contribution to the Bank by issuing securities without having to receive regulatory approval, subject to compliance with federal and state securities laws.
Our ability to pay dividends depends on, among other things, the Bank’s ability to pay dividends to us, which is subject to regulatory restrictions as described below in “Regulation and Supervision of the Bank—Dividend Payments.” We are also able to raise capital for contribution to the Bank by issuing securities without having to receive regulatory approval, subject to compliance with federal and state securities laws. ​ ​ 13 ​ Table of Contents ​ Dividend Payments.
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 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.
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.
Old Second National Bank (the “Bank”) is a national banking association headquartered in Aurora, Illinois, that operates through 53 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” or “Old Second” 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, Station II, LLC, and Station III, 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.
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.
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.
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.
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.
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.
As of December 31, 2024 and 2023, capital measures of the Company exclude $951,000 and $1.9 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.
Further, the CFPB proposed rulemaking related to Residential Property Assessed Clean Entergy Financing, quality control standards for automated valuation models, and personal financial data rights (discussed in more detail above).
Further, the CFPB proposed rulemaking related to Residential Property Assessed Clean Energy Financing, quality control standards for automated valuation models, and personal financial data rights (discussed in more detail above).
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 .
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 (“CRA”) (discussed below). 12 ​ Table of Contents ​ Acquisition Activities .
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.
In 2024, 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.
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.
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.
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.
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. ​ 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 Bank offers its services to retail, commercial, industrial, and public entity customers in the Aurora, Bartlett, Batavia, Bensenville, Bloomingdale, Bolingbrook, Burlington, Carol Stream, Chicago, Chicago Heights, Darien, Downers Grove, Elburn, Elgin, Frankfort, Glendale Heights, Joliet, Kaneville, Lombard, Montgomery, Naperville, North Aurora, Oakbrook Terrace, Oswego, Ottawa, Plano, Romeoville, South Elgin, St.
The Bank offers its services to retail, commercial, industrial, and public entity customers in the Aurora, Bartlett, Batavia, Bensenville, Bloomingdale, Bolingbrook, Burlington, Carol Stream, Chicago, Chicago Heights, Darien, Downers Grove, Elburn, Elgin, Flossmoor, Frankfort, Glendale Heights, Joliet, Lombard, Montgomery, Naperville, North Aurora, Oakbrook Terrace, Oswego, Ottawa, Palos Heights, Plano, Romeoville, South Elgin, South Holland, St.
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 federal banking agencies have adopted guidelines that establish operational and managerial standards to promote the safety and soundness of FDIC-insured institutions.
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.
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, 2024, the Bank paid supervisory assessments to the OCC totaling $616,000. ​ Capital Requirements. Banks are generally required to maintain capital levels in excess of other businesses.
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.
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. ​ Safety and Soundness Standards/Risk Management.
In 2023, we also focused on finding ways to bring employees together, build relationships, and serve our communities side by side.
In 2024, we also focused on finding ways to bring employees together, build relationships, and serve our communities side by side.
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.
At December 31, 2024, we had approximately $1.98 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 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.
The mortgage activity slowed in both 2024 and 2023 due to the continued decline in housing inventory, and the rising rate environment. ​ Home Equity Lines of Credit . Our home equity lines of credit (“HELOCs”) consist of originated as well as purchased HELOCs acquired in 2017 and 2018.
Several examples include an all-staff after hours event with approximately 600 employees in attendance, a minor league baseball outing with approximately 800 employees and family in attendance, and new monthly spotlights showcasing an employee and a philanthropic endeavor that they support.
Several examples include an all-staff after hours event with approximately 600 employees in attendance, a minor league baseball outing with approximately 850 employees and family members in attendance, and monthly spotlights showcasing an employee and a philanthropic endeavor that they support.
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.
Growth in this portfolio reflects management’s efforts to diversify lending product offerings, and lessen our commercial real estate loan concentration. ​ ​ 6 ​ Table of Contents ​ Commercial Real Estate Loans. The composition of the loan portfolio remains weighted towards commercial real estate at 44.3% for 2024 compared to 45.3% in 2023.
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.
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 Federal Home Loan Bank of Chicago (the “FHLBC”) 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.
The Company’s updated clawback policies were approved by our Compensation Committee in August 2023. ​ Regulation and Supervision of the Bank ​ General. The Bank is a national bank, chartered by the OCC under the National Bank Act.
Our updated clawback policies were approved by our Compensation Committee in August 2023. ​ ​ 14 ​ Table of Contents ​ Regulation and Supervision of the Bank ​ General. The Bank is a national bank, chartered by the OCC under the National Bank Act.
Our Healthcare and Sponsor Finance teams do originate nationwide and are the only portfolios that consistently lend outside our primary market. As of December 31, 2023, approximately 70.4% of our commercial real estate portfolio was secured by property located in Illinois, Wisconsin or Indiana.
Our Healthcare and Sponsor Finance teams do originate nationwide and are the only portfolios that consistently lend outside our primary market. As of December 31, 2024, approximately 65.8% of our commercial real estate portfolio was secured by property located in Illinois, Wisconsin or Indiana.
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.
We continued to grow our lease portfolio in 2024 with organic lease originations, primarily stemming from our growth with our investment grade leases as well as small to mid-size business equipment financing.
The CFPB’s focus on fees was emphasized through its ongoing enforcement activity, including a notable enforcement action taken against Bank of America that required the payment of more than $100 million to customers, with similar size fines paid to both the CFPB and the OCC. ​ Bank regulators take into account compliance with consumer protection laws when considering approval of any proposed expansionary proposals. ​
The CFPB’s focus on fees was emphasized through its ongoing enforcement activity, including a notable enforcement action taken against Bank of America that required the payment of more than $100 million to customers, with similar size fines paid to both the CFPB and the OCC. ​ Bank regulators take into account compliance with consumer protection laws when considering approval of any proposed expansionary proposals. ​ In February 2025, President Trump took significant actions affecting the CFPB.
In a May 2022 speech, the acting head of the OCC announced that he had asked his staff to work with DOJ and other federal banking agencies to review the agency’s frameworks to analyze bank mergers. In May 2022, the CFPB announced the establishment of an Office of Competition and Innovation.
In a May 2022 speech, the acting head of the OCC announced that he had asked his staff to work with DOJ and other federal banking agencies to review the agency’s frameworks to analyze bank mergers.
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.
Proceeds from the sales of residential mortgage loans to third parties were $58.8 million in 2024. ​ 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.
In determining whether to approve a proposed bank acquisition, federal bank regulators will consider, among other factors, the effect of the acquisition on competition, the public benefits expected to be received from the acquisition, the projected capital ratios and levels on a post-acquisition basis, and the acquiring institution’s record of addressing the credit needs of the communities it serves, including the needs of low and moderate income neighborhoods, consistent with the safe and sound operation of the bank, under the CRA.
In determining whether to approve a proposed bank acquisition, federal bank regulators will consider, among other factors, the effect of the acquisition on competition, the public benefits expected to be received from the acquisition, the projected capital ratios and levels on a post-acquisition basis, and the acquiring institution’s record of addressing the credit needs of the communities it serves, including the needs of low and moderate income neighborhoods, consistent with the safe and sound operation of the bank, under the CRA. ​ On July 9, 2021, President Biden issued an Executive Order on Promoting Competition in the American Economy.
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).
As of December 31, 2024, commercial real estate loans represented approximately 44.3% (45.3% at year-end 2023) of our loan portfolio, residential mortgages, including multi-family, represented approximately 15.3% (16.8% at year-end 2023), general commercial loans represented approximately 20.1% (20.8% at year-end 2023), home equity lines of credit represented approximately 2.6% (2.6% at year-end 2023), construction lending represented approximately 5.1% (4.1% at year-end 2023), leases represented approximately 12.4% (9.8% at year-end 2023), and consumer and other lending represented less than 1.0% (less than 1.0% at year-end 2023).
Multifamily loans are commercial mortgage loans secured by residential apartment buildings with five or more units. As of December 31, 2023, approximately $402 million, or 9.9%, of the loan portfolio consisted of multifamily loans.
Multifamily loans are commercial mortgage loans secured by residential apartment buildings with five or more units. As of December 31, 2024, approximately $351.3 million, or 8.8%, of the loan portfolio consisted of multifamily loans.
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.
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.
On July 9, 2021, President Biden issued an Executive Order on Promoting Competition in the American Economy. Among other initiatives, the Executive Order encouraged the federal banking agencies to review their current merger oversight practices under the BHCA and the Bank Merger Act and adopt a plan for revitalization of such practices. In December 2021, the U.S.
Among other initiatives, the Executive Order encouraged the federal banking agencies to review their current merger oversight practices under the BHCA and the Bank Merger Act and adopt a plan for revitalization of such practices. In December 2021, the U.S.
In addition, under the Basel III Rule, financial institutions that seek to pay dividends will have to maintain the 2.5% capital conservation buffer. See “Regulatory Emphasis on Capital – Basel III Capital Standards” above. Incentive Compensation.
In addition, under the Basel III Rule, financial institutions that seek to pay dividends will have to maintain the 2.5% capital conservation buffer.
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.
As of December 31, 2024, approximately $683.3 million, or 38.8% (43.5% at year-end 2023) of the total commercial real estate loan portfolio of $1.76 billion consisted of loans to borrowers secured by owner occupied real estate.
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.
Commercial Loans decreased from $841.7 million in 2023, to $800.5 million in 2024. We continue to focus on identifying commercial and industrial prospects in our new business pipeline. 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.
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.
Applications for additional branches and acquisitions would be affected by the evaluation of the Bank’s effectiveness in meeting its CRA requirements.
The federal bank agencies reminded FDIC-insured institutions to maintain underwriting discipline and exercise prudent risk-management practices to identify, measure, monitor, and manage the risks arising from CRE lending. In addition, FDIC-insured institutions must maintain capital commensurate with the level and nature of their CRE concentration risk.
The federal bank agencies reminded FDIC-insured institutions to maintain underwriting discipline and exercise prudent risk-management practices to identify, measure, monitor, and manage the risks arising from CRE lending.
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).
Changes in leadership and evolving policy priorities within regulatory agencies have led to speculation about potential delays or modifications to the final rulemaking process. ​ 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).
In most cases, we have collateralized these loans and/or take personal guarantees to help assure repayment. Multifamily loans are primarily made based on the identified cash flow of the property at origination and secondarily on the underlying collateral.
In most cases, we have collateralized these loans and/or take personal guarantees to help assure repayment. Multifamily loans are primarily made based on the identified cash flow of the property at origination and secondarily on the underlying collateral. The underwriting process requires an independent appraisal or evaluation and review, appropriate environmental due diligence and an assessment of the property’s condition.
These reserve requirements are subject to annual adjustment by the Federal Reserve. ​ Community Reinvestment Act Requirements. The Community Reinvestment Act (“CRA”) requires the Bank to have a continuing and affirmative obligation in a safe and sound manner to help meet the credit needs of its entire community, including low- and moderate-income neighborhoods.
The Community Reinvestment Act (“CRA”) requires the Bank to have a continuing and affirmative obligation in a safe and sound manner to help meet the credit needs of its entire community, including low- and moderate-income neighborhoods. Federal regulators regularly assess the Bank’s record of meeting the credit needs of its communities.
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.
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. These reserve requirements are subject to annual adjustment by the Federal Reserve. ​ Community Reinvestment Act Requirements.
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.
The effective date will be extended each day the injunction remains in place, pending the resolution of the lawsuit. 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.
These efforts were led with the support of senior leaders and our Human Resources department and included thoughtful activations around Black History Month, Women’s History Month, Pride Month, Hispanic Heritage Month, and Veterans Day. Customer and non-profit organization spotlights were shared to celebrate and elevate our diverse communities.
These efforts were led with the support of senior leaders and our Human Resources department and included thoughtful activations around various calendar observances, customer and non-profit organization spotlights were shared to celebrate and elevate the various communities that we serve.
Financial institutions must comply with requirements regarding risk-based procedures for conducing ongoing customer due diligence, which requires us to take appropriate steps to understand the nature and purpose of customer relationships and identify and verify the identity of the beneficial owners of legal entity customers.
Financial institutions must comply with requirements regarding risk-based procedures for conducing ongoing customer due diligence, which requires us to take appropriate steps to understand the nature and purpose of customer relationships and identify and verify the identity of the beneficial owners of legal entity customers. ​ Current laws, such as the USA PATRIOT Act (which amended the BSA), as described below, provide law enforcement authorities with increased access to financial information maintained by banks.
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.
In addition, FDIC-insured institutions must maintain capital commensurate with the level and nature of their CRE concentration risk. ​ Based on the Bank’s committed loan portfolio as of December 31, 2024, concentrations in commercial real estate declined in 2024 due to growth in non-CRE related loan portfolios, and are 273.3%, or less than the 300% guideline for non-owner occupied commercial real estate loans.
The repayment of loans secured by multifamily real estate is typically dependent upon the successful operation of the real estate property. If the cash flows from the property are reduced, the borrower’s ability to repay the loan may be impaired and the value of the underlying collateral impacted.
If the cash flows from the property are reduced, the borrower’s ability to repay the loan may be impaired and the value of the underlying collateral impacted.
All advances from the FHLBC are required to be fully collateralized as determined by the FHLBC. Transaction Account Reserves. Federal Reserve regulations have historically required FDIC-insured institutions to maintain reserves against their transaction accounts (primarily NOW and regular checking accounts). As of March 26, 2020, the FRBC eliminated reserve requirements for certain depository institutions, including the Bank.
Federal Reserve regulations have historically required FDIC-insured institutions to maintain reserves against their transaction accounts (primarily NOW and regular checking accounts). As of March 26, 2020, the FRBC eliminated reserve requirements for certain depository institutions, including the Bank. As such, there was no reserve requirement as of December 31, 2022 or 2023.
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.
In October 2024, FATF removed Senegal from its lists of Jurisdictions under Increased Monitoring and added Algeria, Angola, Cote d’Ivoire, and Lebanon. ​ ​ 18 ​ Table of Contents ​ Concentrations in Commercial Real Estate. Concentration risk exists when FDIC-insured institutions deploy too many assets to any one industry or segment.
Bank regulators routinely examine institutions for compliance with these obligations, and this area has become a particular focus of the regulators in recent years. Federal regulators evaluate the effectiveness of an applicant in combating money laundering when determining whether to approve a proposed bank merger, acquisition, restructuring, or other expansionary activity.
Federal regulators evaluate the effectiveness of an applicant in combating money laundering when determining whether to approve a proposed bank merger, acquisition, restructuring, or other expansionary activity.
We respect, value and invite diversity in our team members, customers, suppliers, marketplace, and community. ​ We seek to provide a compelling value proposition to our employees by providing market-competitive pay and benefits which include retirement programs, broad-based bonuses, health and welfare benefits, financial counseling, paid time off, family leave and flexible work schedules.
Accordingly, we seek to attract, develop and retain employees who can drive our financial and strategic growth objectives and build long-term stockholder value. ​ We seek to provide a compelling value proposition to our employees by providing market-competitive pay and benefits which include retirement programs, broad-based bonuses, health and welfare benefits, financial counseling, paid time off, family leave and flexible work schedules.
Noncompliance with the standards established by the safety and soundness guidelines may also constitute grounds for other enforcement action by the federal bank regulatory agencies, including cease and desist orders and civil money penalty assessments.
Noncompliance with the standards established by the safety and soundness guidelines may also constitute grounds for other enforcement action by the federal bank regulatory agencies, including cease and desist orders and civil money penalty assessments. ​ The bank regulatory agencies have increasingly emphasized the importance of sound risk management processes and strong internal controls when evaluating the activities of the FDIC-insured institutions they supervise.
The final rule established four categories of tiered presumptions of noncontrol that are based on the percentage of voting shares held by the investor (less than 5%, 5-9.9%, 10-14.9% and 15-24.9%) and the presence of other indicia of control. As the percentage of ownership increases, fewer indicia of control are permitted without falling outside of the presumption of noncontrol.
The Federal Reserve’s standards for determining whether one company has control over another established four categories of tiered presumptions of noncontrol that are based on the percentage of voting shares held by the investor (less than 5%, 5-9.9%, 10-14.9% and 15-24.9%) and the presence of other indicia of control.
These means are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may affect interest rates charged on loans or paid on deposits. ​ Corporate Governance . The Dodd-Frank Act addressed many investor protection, corporate governance and executive compensation matters that affect most U.S. publicly traded companies.
These means are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may affect interest rates charged on loans or paid on deposits.
We evaluate our operations as one operating segment, which is community banking. Financial information concerning our operations can be found in the financial statements in this annual report. ​ Mergers and Acquisitions ​ On December 1, 2021, we completed our merger with West Suburban Bancorp, Inc. (“West Suburban”), the holding company for West Suburban Bank.
We evaluate our operations as one operating segment, which is community banking. Financial information concerning our operations can be found in the financial statements in this annual report. ​ 4 ​ Table of Contents Mergers and Acquisitions ​ On December 6, 2024, we completed our branch transaction with First Merchants Bank (“FRME”).
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”).
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.
With the acquisition of West Suburban, we acquired 34 branches in DuPage, Kane, Kendall and Will counties in Illinois. ​ Principal Business and Services ​ We are a full-service banking business offering a broad range of deposit products, trust and wealth management services, lending services, and deposit services, including demand, NOW, money market, savings, time deposit and individual retirement accounts; commercial, industrial, consumer and real estate lending, including installment loans, agricultural loans, lines of credit, lease financing receivables and overdraft checking; safe deposit operations, and an extensive variety of additional services tailored to the needs of individual customers, such as the acquisition of U.S.
Holders of Bancorp Financial common stock, subject to certain exceptions, will also be entitled to receive cash in lieu of fractional shares of Old Second common stock. ​ The parties to the merger expect to complete the merger in the third quarter of 2025, subject to satisfaction of closing conditions, including receipt of customary required regulatory approvals and the approval of the merger agreement by the Bancorp Financial stockholders. ​ Principal Business and Services ​ We are a full-service banking business offering a broad range of deposit products, trust and wealth management services, lending services, and deposit services, including demand, NOW, money market, savings, time deposit and individual retirement accounts; commercial, industrial, consumer and real estate lending, including installment loans, agricultural loans, lines of credit, lease financing receivables and overdraft checking; safe deposit operations, and an extensive variety of additional services tailored to the needs of individual customers, such as the acquisition of U.S.
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.
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. On July 18, 2024, regulators, including the CFPB, issued interagency guidance on reconsiderations of value of residential real estate transactions.
Consumer loans typically have shorter terms and lower balances with higher yields as compared to other loans but generally carry higher risks of default. Consumer loan collections are dependent on the borrower’s continuing financial stability and thus are more likely to be affected by adverse personal circumstances.
Consumer loans typically have shorter terms and lower balances with higher yields as compared to other loans but generally carry higher risks of default.
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.
We believe that employee development and retention starts with relationships, both among employees and with the communities we serve. Our 2024 O2 Cares initiatives fostered building strong relationships and an appreciation for each other.
However, the Federal Reserve has not joined the proposed rulemaking. In May 2020, the OCC issued its final CRA rule, which was later rescinded in December 2021, replacing it with a rule based on the rules adopted jointly by the federal banking agencies in 1995.
This guidance reflects efforts to modernize CRA evaluations in light of evolving banking practices. ​ In May 2020, the OCC issued its final CRA rule, which was later rescinded in December 2021, replacing it with a rule based on the rules adopted jointly by the federal banking agencies in 1995, as amended and superseded by an updated joint framework.
These indicia of control include nonvoting equity ownership, director representation, management interlocks, business relationship and restrictive contractual covenants. Under the final rule, investors can hold up to 24.9% of the voting securities and up to 33% of the total equity of a company without necessarily having a controlling influence. ​ Capital Requirements.
Under the standards, investors can hold up to 24.9% of the voting securities and up to 33% of the total equity of a company without necessarily having a controlling influence.
The underwriting process requires an independent appraisal or evaluation and review, appropriate environmental due diligence 6 ​ Table of Contents and an assessment of the property’s condition. Multifamily loans typically have a minimum debt service coverage ratio that provides an adequate cushion for unexpected or uncertain events and changes in market conditions.
Multifamily loans typically have a minimum debt service coverage ratio that provides an adequate cushion for unexpected or uncertain events and changes in market conditions. ​ The repayment of loans secured by multifamily real estate is typically dependent upon the successful operation of the real estate property.
These proposed rules include broad-based changes to the risk-weighting framework for various credit exposures and operational risk capital requirements.
These proposed rules include broad-based changes to the risk-weighting framework for various credit exposures and operational risk capital requirements. 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.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThese provisions in our certificate of incorporation could also discourage proxy contests and make it more difficult and expensive for holders of our common stock to elect directors other than the candidates nominated by our board of directors or otherwise remove existing directors and management, even if current management is not performing adequately. ​
Biggest changeThese provisions in our certificate of incorporation could also discourage proxy contests and make it more difficult and expensive for holders of our common stock to elect directors other than the candidates nominated by our board of directors or otherwise remove existing directors and management, even if current management is not performing adequately. ​ Risks Relating to the Consummation of the Merger with Bancorp Financial and the Combined Company Following the Merger ​ Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the merger. ​ Before the merger and the bank merger may be completed, various approvals, consents and non-objections must be obtained from the Federal Reserve Board, the OCC and other regulatory authorities.
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.
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.
If our regulators require us to maintain higher levels of capital than we would otherwise be expected to maintain due to our commercial real estate concentration, this could limit our ability to leverage our capital and have a material adverse effect on our business, financial condition, results of operations and prospects. ​ Real estate market volatility and future changes in disposition strategies could result in net proceeds that differ significantly from our fair value appraisals of loan collateral and OREO and could negatively impact our operating performance . ​ Many of our nonperforming real estate loans are collateral-dependent, meaning the repayment of the loan is largely dependent upon the value of the property securing the loan and the borrower’s ability to refinance, recapitalize or sell the property.
If our regulators require us to maintain higher levels of capital than we would otherwise be expected to maintain due to our commercial real estate concentration, this could limit our ability to leverage our capital and have a material adverse effect on our business, financial condition, results of operations and prospects. ​ ​ 26 ​ Table of Contents ​ Real estate market volatility and future changes in disposition strategies could result in net proceeds that differ significantly from our fair value appraisals of loan collateral and OREO and could negatively impact our operating performance . ​ Many of our nonperforming real estate loans are collateral-dependent, meaning the repayment of the loan is largely dependent upon the value of the property securing the loan and the borrower’s ability to refinance, recapitalize or sell the property.
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.
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. ​ 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.
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.
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. ​ 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.
In addition, there are risks inherent in making any loan, including risks relating to proper loan underwriting, risks resulting from changes in economic and industry conditions and risks inherent in dealing with individual borrowers, including the risk that a borrower may not provide information to us about its business in a timely manner, and/or may present inaccurate or incomplete information to us, and risks relating to the value of collateral.
Further there are risks inherent in making any loan, including risks relating to proper loan underwriting, risks resulting from changes in economic and industry conditions and risks inherent in dealing with individual borrowers, including the risk that a borrower may not provide information to us about its business in a timely manner, and/or may present inaccurate or incomplete information to us, and risks relating to the value of collateral.
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 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. 38 ​ Table of Contents ​ 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 compete effectively with those banking or other financial services businesses, we could find it more difficult to attract new and retain existing clients and our net interest margin, net interest income and wealth management fees could decline, which would adversely affect our results of operations and could cause us to incur losses in the future. ​ In addition, our ability to successfully attract and retain wealth management clients is dependent on our ability to compete with competitors’ investment products, level of investment performance, client services and marketing and distribution capabilities.
If we are unable to compete effectively with those banking or other financial services businesses, we could find it more difficult to attract new and retain existing clients and our net interest margin, net interest income and wealth management fees could decline, which would adversely affect our results of operations and could cause us to incur losses in the future. ​ 28 ​ Table of Contents ​ In addition, our ability to successfully attract and retain wealth management clients is dependent on our ability to compete with competitors’ investment products, level of investment performance, client services and marketing and distribution capabilities.
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.
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.
We expect that we will spend additional time and will incur additional costs going forward to modify and enhance protective measures and that effort and spending will continue to be required to investigate and remediate any information security vulnerabilities. ​ We also face risks related to cyber-attacks and other security breaches in connection with credit card and debit card transactions that typically involve the transmission of sensitive information regarding our customers through various third parties, including merchant-acquiring banks, payment processors, payment card networks and their processors.
We expect that we will spend additional time and will incur additional costs going forward to modify and enhance protective measures and that effort and spending will continue to be required to investigate and remediate any information security vulnerabilities. ​ 30 ​ Table of Contents ​ We also face risks related to cyber-attacks and other security breaches in connection with credit card and debit card transactions that typically involve the transmission of sensitive information regarding our customers through various third parties, including merchant-acquiring banks, payment processors, payment card networks and their processors.
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.
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 future.
In an effort to strengthen public confidence in the banking system and protect depositors, regulators announced that any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law, which will increase our FDIC insurance assessment and will increase our costs of doing business.
In an effort to strengthen public confidence in the banking system and protect depositors, regulators announced that any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law, which increased our FDIC insurance assessment and increased our costs of doing business.
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.
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. ​ 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 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.
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 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.
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. 37 ​ 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.
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.
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.
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.
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.
In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which may be reasonable under the circumstances, yet which may result in our reporting materially different results than would have been reported under a different alternative. ​ Certain accounting policies are critical to presenting our financial condition and results of operations.
In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which may be reasonable under the circumstances, yet which may result in our reporting materially different results than would have been reported under a different alternative. ​ ​ 35 ​ Table of Contents ​ Certain accounting policies are critical to presenting our financial condition and results of operations.
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.
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.
Any financial liability or reputational damage could have a material adverse effect on our business, which, in turn, could have a material adverse impact on our financial condition and results of operations. ​ We are defendants in a variety of litigation and other actions . ​ Currently, there are certain other legal proceedings pending against the Company and our subsidiaries in the ordinary course of business.
Any financial liability or reputational damage could have a material adverse effect on our business, which, in turn, could have a material adverse impact on our financial condition and results of operations. ​ 36 ​ Table of Contents ​ We are defendants in a variety of litigation and other actions . ​ Currently, there are certain other legal proceedings pending against the Company and our subsidiaries in the ordinary course 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.
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.
Our inability to manage our growth successfully or to continue to expand into new markets could have a material adverse effect on our business, financial condition or results of operations. ​ Our strategic growth plans contemplate additional organic growth and potential growth through additional mergers and acquisitions, which exposes us to additional risks . ​ Our strategic growth plans include organic growth and growth through additional mergers and acquisitions.
Our inability to manage our growth successfully or to continue to expand into new markets could have a material adverse effect on our business, financial condition or results of operations. ​ ​ 31 ​ Table of Contents ​ Our strategic growth plans contemplate additional organic growth and potential growth through additional mergers and acquisitions, which exposes us to additional risks . ​ Our strategic growth plans include organic growth and growth through additional mergers and acquisitions.
A disruption or breach of security may ultimately have a material adverse effect on our financial condition and results of operations. ​ Our use of third party vendors and our other ongoing third party business relationships are subject to regulatory requirements and attention . ​ We regularly use third party vendors as part of our business.
A disruption or breach of security may ultimately have a material adverse effect on our financial condition and results of operations. ​ 29 ​ Table of Contents ​ Our use of third party vendors and our other ongoing third party business relationships are subject to regulatory requirements and attention . ​ We regularly use third party vendors as part of our business.
As a result, we may experience significant loan, lease or commitment credit losses that may have a material adverse effect on our operating results and financial condition. ​ We maintain an ACL at a level we believe is adequate to absorb estimated credit losses that are expected to occur within the existing loan portfolio through their contractual terms.
As a result, we may experience significant loan, lease or commitment credit losses that may have a material adverse effect on our operating results and financial condition. ​ ​ 25 ​ Table of Contents ​ We maintain an ACL at a level we believe is adequate to absorb estimated credit losses that are expected to occur within the existing loan portfolio through their contractual terms.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us. We may be materially and adversely affected by the highly regulated environment in which we operate . ​ We are subject to extensive federal and state regulation, supervision and examination.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us. ​ ​ 34 ​ Table of Contents ​ We may be materially and adversely affected by the highly regulated environment in which we operate . ​ We are subject to extensive federal and state regulation, supervision and examination.
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.
Under the Biden Administration, Congressional committees with jurisdiction over the banking sector 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.
The level of the ACL is inherently subjective and is dependent upon a variety of factors beyond our control, including, but not limited to, the performance of the loan portfolio, consideration of current economic trends, changes in interest rates and property values, estimated losses on pools of homogeneous loans based on an analysis that uses historical loss experience for prior periods that are determined to have like characteristics with management’s economic forecast period, such as pre-recessionary, recessionary, or recovery periods, portfolio growth and concentration risk, management and staffing changes, the interpretation of loan risk classifications by regulatory authorities and other credit market factors.
The level of the ACL is inherently subjective and is influenced by various factors, many of which are beyond our control, including, but not limited to, the performance of the loan portfolio, consideration of current economic trends, changes in interest rates and property values, estimated losses on pools of homogeneous loans based on an analysis that uses historical loss experience for prior periods that are determined to have like characteristics with management’s economic forecast period, such as pre-recessionary, recessionary, or recovery periods, portfolio growth and concentration risk, management and staffing changes, the interpretation of loan risk classifications by regulatory authorities and other credit market factors.
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.
In 2024, we were able to maintain the level of our non-owner occupied commercial real estate loans 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.
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.
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 normally cause the Federal Reserve to increase interest rates, for instance, from March 2022 through July 2023.
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.
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. ​ ​ 32 ​ Table of Contents ​ We may be exposed to difficulties in combining the operations of acquired or merged businesses, including First Merchants, and if completed, our merger with Bancorp Financial, 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 our five branch acquisition from First Merchants Bank, and our pending merger with Bancorp Financial.
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.
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; 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 including, but not limited to, tariffs imposed by our government and reciprocal tariffs from other countries, 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.
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.
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 $2.68 billion, or approximately 67.2%, of our loan portfolio at December 31, 2024, compared to $2.78 billion, or approximately 68.8%, at December 31, 2023.
Climate change-related physical risks include increased severity and frequency of adverse weather events, such as extreme storms and flooding, and longer-term shifts in climate patterns, such as rising temperatures and sea levels and changes in precipitation amount and distribution.
Climate change-related physical risks include increased severity and frequency of adverse weather events, such as extreme storms, flooding, droughts, and wildfires, as well as longer-term climate shifts, including rising temperatures, sea levels, and changes in precipitation amount and distribution.
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.
The potential impact of the unified Republican government and any additional changes in agency personnel, policies and priorities on the financial services sector, including the Company and the Bank, cannot be fully predicted at this time. Regulations and laws may be modified at any time, and new legislation may be enacted that will affect us.
We may issue additional shares of our common stock (or securities convertible into common stock) in the future for a number of reasons, including to finance our operations and business strategy (including mergers and acquisitions), to adjust our ratio of debt to equity, to address regulatory capital concerns, or to satisfy our obligations upon the exercise of outstanding stock awards.
We may issue additional shares of our common stock (or securities convertible into common stock), for instance, in the pending merger with Bancorp Financial, for a number of reasons, including to finance our operations and business strategy (including mergers and acquisitions), to adjust our ratio of debt to equity, to address regulatory capital concerns, or to satisfy our obligations upon the exercise of outstanding stock awards.
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.
At December 31, 2024, our outstanding commercial real estate loans and undrawn commercial real estate commitments, excluding owner occupied real estate, were equal to 273.3% of our Tier 1 capital plus allowance for credit losses, a decrease from 286.9% at December 31, 2023.
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.
These negative events may cause us to incur losses and may adversely affect our capital, liquidity and financial condition. ​ ​ 23 ​ 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 experienced significant inflationary pressures in 2023, evidenced by higher gas prices, higher food prices and other consumer items.
The impact on our customers will likely vary depending on their specific attributes, including reliance on or role in carbon intensive activities. In addition, we could face reductions in creditworthiness on the part of some customers or in the value of assets securing loans.
The extent of these impacts will likely vary depending on our customer’s specific attributes, including reliance on or role in carbon-intensive activities. In addition, we could face reductions in creditworthiness on the part of some customers or in the value of assets securing loans.
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.
Other real estate owned, or OREO, totaled $21.6 million at December 31, 2024, an increase of 322.0%, compared to $5.1 million at December 31, 2023. Our nonperforming assets adversely affect our net income in various ways.
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.
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 2025, the U.S. political landscape remains uncertain, with the Republicans holding the majority in both the U.S.
We 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.
We 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. ​ ​ 27 ​ Table of Contents ​ 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 and loans past due 90 days or more still accruing interest), were $30.3 million at December 31, 2024, a decrease of 55.9%, compared to $68.8 million at December 31, 2023.
Moreover, these types of expansions involve various risks, including: ​ 27 ​ Table of Contents Management of Growth .
Moreover, these types of expansions involve various risks, including: ​ Management of Growth .
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.
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. ​ The 2023 high-profile bank failures involving Silicon Valley Bank, Signature Bank, and First Republic Bank caused general uncertainty and concern regarding the liquidity adequacy of the banking sector.
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.
As of December 31, 2024, we had net deferred tax assets of $26.6 million, which included a $18.6 million tax effect of adjustments related to other comprehensive income.
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.
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 regulatory changes, evolving market preferences, and technological advancements aimed at reducing carbon dependency.
Investor advocacy groups, investment funds and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, diversity, labor conditions and human rights. Increased ESG related compliance costs could result in increases to our overall operational costs.
Investor advocacy groups, investment funds and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, diversity, labor conditions and human rights.
In addition to ordinary assessments described above, the FDIC has the ability to impose special assessments in certain instances. We are generally unable to control the amount of premiums that we are required to pay for FDIC insurance. If there are bank or financial institution failures, we may be required to pay higher FDIC premiums than the recent levels.
We are generally unable to control the amount of premiums that we are required to pay for FDIC insurance. If there are bank or financial institution failures, we may be required to pay higher FDIC premiums than the recent levels.
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.
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. If charge-offs in future periods exceed the ACL, we will need additional provisions to increase the allowance.
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%.
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, starting in March 2022 and continuing through mid-2023, the Federal Reserve raised the target Federal Funds rate to between 5.25% and 5.50% in response to persistent inflationary pressures.
As a result of recent FDIC assessment charges, banks are now assessed deposit insurance premiums based on the bank’s average consolidated total assets less the sum of its average tangible equity, and the FDIC has modified certain risk-based adjustments, which increase or decrease a bank’s overall assessment rate.
Banks are assessed deposit insurance premiums based on the bank’s average consolidated total assets less the sum of its average tangible equity, and the FDIC modified certain risk-based adjustments, which increase or decrease a bank’s overall assessment rate. In addition to ordinary assessments described above, the FDIC has the ability to impose special assessments in certain instances.
The amount of a particular institution’s deposit insurance assessment is based on that institution’s risk classification under an FDIC risk-based assessment system. An institution’s risk classification is assigned based on its capital levels and the level of supervisory concern the institution poses to its regulators.
An institution’s risk classification is assigned based on its capital levels and the level of supervisory concern the institution poses to its regulators.
Additionally, concerns over the long-term impacts of climate change have led and will continue to lead to governmental efforts around the world to mitigate those impacts. Consumers and businesses also may change their behavior on their own as a result of these concerns.
Concerns over the long-term impacts of climate change continue to lead to governmental efforts around the world to mitigate those impacts, even if federal action in the U.S. slows. Consumers and businesses may also adjust their behavior as a result of these concerns.
If charge-offs in future periods exceed the ACL, we will need additional provisions to increase the allowance. Any increases in the ACL will result in a decrease in net income and capital and may have a material adverse effect on our financial condition and results of operations.
Any increases in the ACL will result in a decrease in net income and capital and may have a material adverse effect on our financial condition and results of operations.
The effects of such policies upon our business, financial condition and results of operations cannot be predicted. ​ Our deposit insurance premiums could be substantially higher in the future, which could have a material adverse effect on our future earnings . The FDIC insures deposits at FDIC-insured depository institutions, such as the Bank, up to $250,000 per insured depositor category.
The effects of such policies upon our business, financial condition and results of operations cannot be predicted. ​ ​ 33 ​ Table of Contents ​ Our deposit insurance premiums could be substantially higher in the future, which could have a material adverse effect on our future earnings .
We may be required to make significant increases in the provision for credit losses and to charge-off additional loans in the future. ​ The application of the purchase method of accounting in our acquisition of West Suburban and any future acquisitions will impact our ACL.
We may be required to make significant increases in the provision for credit losses and to charge-off additional loans in the future. ​ The application of the purchase method of accounting in past acquisitions, more recently our five branch purchase and the resulting loans acquired from First Merchants Bank in 2024, our pending merger of Bancorp Financial, and any future acquisitions will impact our ACL.
To the extent we are involved in any future cyber-attacks or other breaches, our reputation could be affected which may have a material adverse effect on our business, financial condition or results of operations. ​ Growth and Strategic Risks ​ We may not be able to implement our growth strategy or manage costs effectively, resulting in lower earnings or profitability. ​ There can be no assurance that we will be able to continue to grow and to be profitable in future periods, or, if profitable, that our overall earnings will remain consistent or increase in the future.
Any of these risks could expose us to liability or adverse legal or regulatory consequences and harm our reputation and the public perception of our business or the effectiveness of our security measures. ​ Growth and Strategic Risks ​ We may not be able to implement our growth strategy or manage costs effectively, resulting in lower earnings or profitability. ​ There can be no assurance that we will be able to continue to grow and to be profitable in future periods, or, if profitable, that our overall earnings will remain consistent or increase in the future.
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.
As of 2025, interest rates remain elevated, and prolonged higher rates could result in net interest margin compression as interest-bearing liability rates continue to reprice upwards, while interest-earning assets may have already repriced to peak yields.
Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, and our stock price. New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure.
Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, and our stock price.
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.
These trends resulted in labor shortages in many of our markets, which made attracting new employees and replacing existing employees more difficult. However, by 2023, labor shortages began to ease somewhat, and while challenges persisted, the economy showed signs of stabilization in the labor market, improving workforce availability.
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.
The prospects for the enactment of major banking reform legislation remain unclear at this time. ​ Furthermore, leadership changes within federal banking agencies and financial regulators continue to shape the regulatory environment. Since the change in presidential administration in 2020, key positions across agencies—including the Comptroller of the Currency, CFPB, CFTC, SEC, and the U.S. Treasury—experienced significant turnover.
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.
Furthermore, a reduction in interest rates may lead to increased prepayments on our loan and mortgage-backed securities portfolios and increased competition for deposits.
Our efforts to take these risks into account in making lending and other decisions may not be effective in protecting us from the negative impact of new laws and regulations or changes in consumer or business behavior. ​ Climate change could have a material adverse impact on us and our customers. ​ We are exposed to risks of physical impacts of climate change and risks arising from the process of transitioning to a less carbon-dependent economy.
Our efforts to take these risks into account in making lending and other decisions may not fully protect us from the negative impact of new laws, regulations, or changes in consumer or business behavior.
For example, we may become subject to new or heightened regulatory requirements and stakeholder expectations regarding climate change, including those relating operational resiliency, disclosure and financial reporting. ​ We intend to enhance our governance of climate change-related risks and integrate climate considerations into our risk governance framework.
The possible adverse impacts of transition risks include asset devaluations, increased operational and compliance costs, and an inability to meet regulatory or market expectations. For example, we may become subject to new or heightened regulatory requirements and stakeholder expectations regarding climate change, including those relating to operational resiliency, disclosure and financial reporting.
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.
Additionally, sustained high 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. Conversely, 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.
This risk has been exacerbated in recent years by the effects of the COVID-19 pandemic, and may be impacted by future similar events.
This risk has been exacerbated in recent years by the effects of the COVID-19 pandemic, which disrupted global economic activity, caused supply chain challenges, and increased financial stress on borrowers. Additionally, this risk may be further impacted by future events with similar widespread economic effects, such as other pandemics, geopolitical conflicts, natural disasters, or significant market disruptions.
Nonetheless, the risks associated with climate change are rapidly changing and evolving, making them difficult to assess due to limited data and other uncertainties.
However, the risks associated with climate change are complex, rapidly evolving, and subject to significant uncertainty due to factors such as limited historical data, evolving scientific models, and unpredictable policy and market responses.
Our strategy is focused on organic growth, supplemented by opportunistic acquisitions, such as our acquisition of West Suburban Bank.
Our strategy is focused on organic growth, supplemented by opportunistic acquisitions, including our five branch purchase from First Merchants Bank in 2024, and our pending merger with Bancorp Financial.
Removed
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.
Added
Although the current U.S. administration may reduce regulatory burdens related to ESG, companies serving diverse stakeholder bases may face varied or conflicting expectations, requiring ongoing diligence to balance regulatory, market, and consumer pressures. Increased ESG-related compliance costs could result in higher overall operational expenses.
Removed
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.
Added
While U.S. federal regulations may become less stringent under the current U.S. administration, new government regulations globally could result in more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure.
Removed
House of Representatives, while Democrats retained control of the U.S. Senate. However slim the majorities, the net result was a split Congress, which in the past leads to less sweeping policy changes.
Added
Even in the absence of stringent federal action in the U.S., the global and market-driven emphasis on ESG-related practices is expected to persist, requiring ongoing adaptation and investment. ​ ​ 24 ​ Table of Contents ​ Climate change could have a material adverse impact on us and our customers. ​ We are exposed to risks of physical impacts of climate change and risks arising from the process of transitioning to a less carbon-dependent economy.
Removed
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.
Added
These shifts could also affect borrower creditworthiness or the value of assets securing loans, further impacting our financial condition. ​ We intend to enhance our governance of climate change-related risks and integrate climate considerations into our risk governance framework.
Removed
In 2021, the Bank experienced ample liquidity due to customer deposits received related to federal stimulus programs responding to the COVID-19 pandemic, as well as funds received as PPP loans were forgiven, and short-term borrowing facilities were not required to be significantly utilized.
Added
Economic uncertainty remains elevated in 2025, driven by persistent inflationary pressures, higher interest rates, geopolitical conflicts, and the potential for continued volatility in global markets. These factors may lead to a significant increase in our ACL in future periods.
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However, if funds were needed, we could seek to secure liquidity under the advance program provided under terms offered by the FHLBC. During the second half of 2022, we took down short-term FHLBC advances, due to loan growth and deposit attrition.
Added
While labor conditions have improved, talent retention and competition for skilled workers remain key concerns for many industries.
Added
To the extent we are involved in any future cyber-attacks or other breaches, our reputation could be affected which may have a material adverse effect on our business, financial condition or results of operations. ​ The development and use of Artificial Intelligence (“AI”) presents risks and challenges that may adversely impact our business. ​ We or our third-party (or fourth party) vendors, clients or counterparties may develop or incorporate AI technology in certain business processes, services, or products.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThe ITSC and Board of Directors is periodically provided with updates on the Information Security Program, recommended changes, cybersecurity policies and practices, ongoing efforts to improve security, as well as our efforts regarding significant cybersecurity events. ​ The CISO conducts a quarterly review of our inherent risk posture against the effectiveness of our cyber risk management strategies.
Biggest changeThe ITSC and Board of Directors is periodically provided with updates on the Information Security Program, recommended changes, cybersecurity policies and practices, ongoing efforts to improve security, as well as our efforts regarding significant cybersecurity events. ​ The CISO manages the Security Operations Center (SOC) and is responsible for implementing and maintaining controls designed to detect and defend us against cyber-attacks and includes a dedicated function for incident response and ongoing monitoring for cybersecurity threats and vulnerabilities, including those among the Bank’s third-party suppliers.
These briefings encompass a broad range of topics, including: ​ ● Maturity of our cyber landscape commensurate to inherent risks of environment; ● Emerging threats; ● Status of ongoing cybersecurity initiatives and strategies; ● Incident reports and learnings from any cybersecurity events; ● Compliance with regulatory requirements and industry standards; and ● Results of internal and external testing of cybersecurity controls. ​ 35 ​ Table of Contents In addition to our scheduled meetings, CISO maintains an ongoing dialogue with management and the Board of Directors regarding emerging or potential cybersecurity risks.
These briefings encompass a broad range of topics, including: ​ ● Maturity of our cyber landscape commensurate to inherent risks of environment; ● Emerging threats; ● Status of ongoing cybersecurity initiatives and strategies; ● Incident reports and learnings from any cybersecurity events; ● Compliance with regulatory requirements and industry standards; and ● Results of internal and external testing of cybersecurity controls. ​ In addition to our scheduled meetings, CISO maintains an ongoing dialogue with management and the Board of Directors regarding emerging or potential cybersecurity risks.
Our risk management team works closely with our IT department to continuously evaluate and address cybersecurity risks in alignment with our strategic objectives, business environment and operational needs. ​ Engage Third-parties on Risk Management ​ Ongoing business expansions may expose us to potential new threats as well as expanded regulatory scrutiny including the introduction of new cybersecurity requirements.
Our risk management team works closely with our IT department to continuously evaluate and address cybersecurity risks in alignment with our strategic objectives, business environment and operational needs. ​ ​ 42 ​ Table of Contents ​ Engage Third-parties on Risk Management ​ Ongoing business expansions may expose us to potential new threats as well as expanded regulatory scrutiny including the introduction of new cybersecurity requirements.
We have implemented precautionary measures and controls reasonably designed that follow the National Institute of Standards and Technology (NIST) and other industry standards to address this increased risk. 34 ​ Table of Contents Managing Material Risks & Integrated Overall Risk Management ​ We have strategically integrated cybersecurity risk management into our broader risk management framework to promote a company-wide culture of cybersecurity risk management.
We have implemented precautionary measures and controls reasonably designed that follow the National Institute of Standards and Technology (NIST) and other industry standards to address this increased risk. ​ Managing Material Risks & Integrated Overall Risk Management ​ We have strategically integrated cybersecurity risk management into our broader risk management framework to promote a company-wide culture of cybersecurity risk management.
The CISO conducts a quarterly review of our cybersecurity posture and the effectiveness of our risk management strategies. This review helps in identifying areas for improvement and ensuring the alignment of cybersecurity efforts with the overall risk management framework. ​ Risk Management Personnel ​ Primary responsibility for assessing, monitoring and managing our cybersecurity risks rests with the CISO.
This review helps in identifying areas for improvement and ensuring the alignment of cybersecurity efforts with the overall risk management framework. ​ 43 ​ Table of Contents ​ Risk Management Personnel ​ Primary responsibility for assessing, monitoring and managing our cybersecurity risks rests with the CISO.
Added
The CISO conducts a quarterly review of our cybersecurity posture and the effectiveness of our risk management strategies.
Added
The CISO conducts a quarterly review of our inherent risk posture against the effectiveness of our cyber risk management strategies.

Item 2. Properties

Properties — owned and leased real estate

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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
Biggest changeOur eight leased locations are under agreements that end from June 30, 2025 through September 30, 2044. 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. ​
Item 2. Propertie s ​ We conduct our business primarily at 48 banking locations in various communities throughout the greater western and southern Chicago metropolitan area. The principal business office of the Company is located at 37 South River Street, Aurora, Illinois. We own 42 of our properties and lease six of our locations.
Item 2. Propertie s ​ We conduct our business primarily at 53 banking locations in various communities throughout the greater western and southern Chicago metropolitan area. The principal business office of the Company is located at 37 South River Street, Aurora, Illinois. We own 45 of our properties and lease eight of our locations.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeManagement, after consultation with legal counsel, believes that the ultimate liabilities, if any, resulting from these actions will not have a material adverse effect on the financial position of the Bank or on the consolidated financial position of the Company. ​
Biggest changeManagement, after consultation with legal counsel, believes that the ultimate liabilities, if any, resulting from these actions will not have a material adverse effect on the financial position of the Bank or on the consolidated financial position of the Company. 44 ​ Table of Contents ​

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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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”).
Biggest changeSee “Supervision and Regulation—Regulation and Supervision of the Company.” ​ Stock Repurchases ​ In November 2023, our board of directors authorized the repurchase of up to 2,234,896 shares of our common stock. We made no repurchases in the year ended 2023 or during 2024 prior to the program expiring on December 31, 2024.
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.
We are not obligated to repurchase any shares under the Repurchase Program. ​ 45 ​ Table of Contents 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 ​ Stockholder Return Performance Graph.
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.
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, 2025, would require Federal Reserve non-objection or approval.
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.
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, 2024, we had 1,154 stockholders of record for our common stock.
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.
This Repurchase Program expires on December 31, 2025. ​ 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.
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 graph indicates, for the period commencing December 31, 2019, and ending December 31, 2024, 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 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.
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 2024 and 2023. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2024 ​ 2023 ​ High Low Dividend High Low Dividend First quarter ​ $ 15.85 ​ $ 13.00 ​ $ 0.05 ​ $ 17.70 ​ $ 13.11 ​ $ 0.05 ​ Second quarter ​ 14.99 ​ 13.20 ​ 0.05 ​ 14.29 ​ 10.79 ​ 0.05 ​ Third quarter ​ 17.46 ​ 14.41 ​ 0.05 ​ 16.47 ​ 12.69 ​ 0.05 ​ Fourth quarter ​ 19.37 ​ 14.78 ​ 0.06 ​ 16.76 ​ 13.08 ​ 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.
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 ​ ​ ​ ​
The information assumes that $100 was invested at the closing price at December 31, 2019, in the common stock of the Company and each index and that all dividends were reinvested. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Period Ending Index 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 Old Second Bancorp, Inc. ​ 100.00 75.30 95.07 122.86 119.95 139.97 ​ S&P 500 Index ​ 100.00 118.40 ​ 152.39 ​ 124.79 ​ 157.59 ​ 197.02 ​ KBW Nasdaq Bank Index ​ 100.00 89.69 124.06 97.52 96.65 132.60 ​ ​
Removed
We made no repurchases in the year ended 2023.
Added
In December 2024, our board of directors re-authorized the repurchase of up to 2,234,896 shares of our common stock (the “Repurchase Program”).

Item 7. Management's Discussion & Analysis

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

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Biggest changePartially offsetting these increases to noninterest expense was a $223,000, or 20.3%, reduction in legal fees and a $2.6 million, or 51.5% reduction in consulting & management fees as the majority of legal and consulting fees were captured during the acquisition of West Suburban in December 2021. ​ 49 ​ Table of Contents Reconciliation of Adjusted Efficiency Ratio Non-GAAP Financial Measures ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ GAAP ​ Non-GAAP ​ ​ ​ ​ Year Ended ​ ​ Year Ended ​ ​ ​ December 31, ​ December 31, ​ December 31, ​ December 31, ​ December 31, ​ December 31, ​ ​ ​ 2023 ​ 2022 ​ 2021 ​ 2023 ​ 2022 ​ 2021 ​ Efficiency Ratio / Adjusted Efficiency Ratio (1) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest expense ​ $ 145,201 ​ $ 151,173 ​ ​ 103,782 ​ $ 145,201 ​ $ 151,173 ​ ​ 103,782 ​ Less amortization of core deposit intangible ​ ​ 2,461 ​ ​ 2,626 ​ ​ 644 ​ ​ 2,461 ​ ​ 2,626 ​ ​ 644 ​ Less other real estate expense, net ​ ​ 399 ​ ​ 130 ​ ​ 151 ​ ​ 399 ​ ​ 130 ​ ​ 151 ​ Less litigation related expense ​ ​ N/A ​ ​ N/A ​ ​ N/A ​ ​ 1,200 ​ ​ - ​ ​ - ​ Less acquisition related costs, net of (gains)/losses on branch sales ​ ​ N/A ​ ​ N/A ​ ​ N/A ​ ​ (258) ​ ​ 9,143 ​ ​ 13,190 ​ Less liquidation and deconversion costs on Visa credit card portfolio ​ ​ N/A ​ ​ N/A ​ ​ N/A ​ ​ 629 ​ ​ - ​ ​ - ​ Noninterest expense less adjustments ​ $ 142,341 ​ $ 148,417 ​ $ 102,987 ​ $ 140,770 ​ $ 139,274 ​ ​ 89,797 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest income ​ $ 251,931 ​ $ 206,156 ​ ​ 96,715 ​ $ 251,931 ​ $ 206,156 ​ ​ 96,715 ​ Taxable-equivalent adjustment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans ​ ​ N/A ​ ​ N/A ​ ​ N/A ​ ​ 39 ​ ​ 23 ​ ​ 15 ​ Securities ​ ​ N/A ​ ​ N/A ​ ​ N/A ​ ​ 1,417 ​ ​ 1,405 ​ ​ 1,357 ​ Net interest income including adjustments ​ ​ 251,931 ​ ​ 206,156 ​ ​ 96,715 ​ ​ 253,387 ​ ​ 207,584 ​ ​ 98,087 ​ Noninterest income ​ ​ 34,179 ​ ​ 43,116 ​ ​ 39,260 ​ ​ 34,179 ​ ​ 43,116 ​ ​ 39,260 ​ Less securities (losses) gains, net ​ ​ (4,148) ​ ​ (944) ​ ​ 232 ​ ​ (4,148) ​ ​ (944) ​ ​ 232 ​ Less MSRs mark to market (losses) gains ​ ​ (1,425) ​ ​ 3,177 ​ ​ 1,261 ​ ​ (1,425) ​ ​ 3,177 ​ ​ 1,261 ​ Less gain on Visa credit card portfolio sale ​ ​ N/A ​ ​ N/A ​ ​ N/A ​ ​ - ​ ​ 743 ​ ​ - ​ Less gain on sale of land trust portfolio ​ ​ N/A ​ ​ N/A ​ ​ N/A ​ ​ - ​ ​ 180 ​ ​ - ​ Taxable-equivalent adjustment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Change in cash surrender value of BOLI ​ ​ N/A ​ ​ N/A ​ ​ N/A ​ ​ 564 ​ ​ 191 ​ ​ 370 ​ Noninterest income (excluding) / including adjustments ​ ​ 39,752 ​ ​ 40,883 ​ ​ 37,767 ​ ​ 40,316 ​ ​ 40,151 ​ ​ 38,137 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest income including adjustments plus noninterest income (excluding) / including adjustments ​ $ 291,683 ​ $ 247,039 ​ ​ 134,482 ​ $ 293,703 ​ $ 247,735 ​ ​ 136,224 ​ Efficiency ratio / Adjusted efficiency ratio ​ ​ 48.80 % ​ 60.08 % ​ 76.58 % ​ 47.93 % ​ 56.22 % ​ 65.92 % ​ 1 See discussion entitled “Non-GAAP Financial Measures” on page 44. ​ Income taxes ​ Our provision for income taxes includes both federal and state income tax expense (benefit).
Biggest changeAlso partially offsetting the decrease in noninterest expense in 2023, as compared to 2022, was a $304,000, or 12.7%, increase in FDIC insurance, a $132,000, or 22.4%, increase in advertising expense for updated branding, a $775,000, or 17.8%, increase in card related expense, a $269,000 increase in other real estate owned expense due to six additions and nine disposals throughout 2023, and a $1.4 million increase in other expense primarily due to a $1.2 million litigation expense recorded in the fourth quarter of 2023 for an overdraft fee compliance claim. ​ ​ 56 ​ Table of Contents ​ Reconciliation of Adjusted Efficiency Ratio Non-GAAP Financial Measures ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ GAAP ​ ​ Non-GAAP ​ ​ ​ ​ Year Ended ​ ​ ​ Year Ended ​ ​ ​ December 31, ​ December 31, ​ December 31, ​ ​ December 31, ​ December 31, ​ December 31, ​ ​ ​ 2024 ​ 2023 ​ 2022 ​ ​ 2024 ​ 2023 ​ 2022 ​ Efficiency Ratio / Adjusted Efficiency Ratio (1) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest expense ​ $ 159,748 ​ $ 145,201 ​ ​ 151,173 ​ ​ $ 159,748 ​ $ 145,201 ​ ​ 151,173 ​ Less amortization of core deposit intangible ​ ​ 2,440 ​ ​ 2,461 ​ ​ 2,626 ​ ​ ​ 2,440 ​ ​ 2,461 ​ ​ 2,626 ​ Less other real estate expense, net ​ ​ 2,220 ​ ​ 399 ​ ​ 130 ​ ​ ​ 2,220 ​ ​ 399 ​ ​ 130 ​ Less litigation related expense ​ ​ N/A ​ ​ N/A ​ ​ N/A ​ ​ ​ - ​ ​ 1,200 ​ ​ - ​ Less merger related costs, net of losses on branch sales ​ ​ N/A ​ ​ N/A ​ ​ N/A ​ ​ ​ 1,992 ​ ​ (258) ​ ​ 9,143 ​ Less liquidation and deconversion costs on Visa credit card portfolio ​ ​ N/A ​ ​ N/A ​ ​ N/A ​ ​ ​ - ​ ​ 629 ​ ​ - ​ Noninterest expense less adjustments ​ $ 155,088 ​ $ 142,341 ​ $ 148,417 ​ ​ $ 153,096 ​ $ 140,770 ​ ​ 139,274 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest income ​ $ 241,635 ​ $ 251,931 ​ ​ 206,156 ​ ​ $ 241,635 ​ $ 251,931 ​ ​ 206,156 ​ Taxable-equivalent adjustment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans ​ ​ N/A ​ ​ N/A ​ ​ N/A ​ ​ ​ 43 ​ ​ 39 ​ ​ 23 ​ Securities ​ ​ N/A ​ ​ N/A ​ ​ N/A ​ ​ ​ 1,373 ​ ​ 1,417 ​ ​ 1,405 ​ Net interest income including adjustments ​ ​ 241,635 ​ ​ 251,931 ​ ​ 206,156 ​ ​ ​ 243,051 ​ ​ 253,387 ​ ​ 207,584 ​ Noninterest income ​ ​ 43,819 ​ ​ 34,179 ​ ​ 43,116 ​ ​ ​ 43,819 ​ ​ 34,179 ​ ​ 43,116 ​ Less death benefit related to BOLI ​ ​ 905 ​ ​ - ​ ​ - ​ ​ ​ 905 ​ ​ - ​ ​ - ​ Less securities losses, net ​ ​ - ​ ​ (4,148) ​ ​ (944) ​ ​ ​ - ​ ​ (4,148) ​ ​ (944) ​ Less MSRs mark to market (losses) gains ​ ​ (723) ​ ​ (1,425) ​ ​ 3,177 ​ ​ ​ (723) ​ ​ (1,425) ​ ​ 3,177 ​ Less gain on Visa credit card portfolio sale ​ ​ N/A ​ ​ N/A ​ ​ N/A ​ ​ ​ - ​ ​ - ​ ​ 743 ​ Less gain on sale of land trust portfolio ​ ​ N/A ​ ​ N/A ​ ​ N/A ​ ​ ​ - ​ ​ - ​ ​ 180 ​ Taxable-equivalent adjustment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Change in cash surrender value of BOLI ​ ​ N/A ​ ​ N/A ​ ​ N/A ​ ​ ​ 1,202 ​ ​ 564 ​ ​ 191 ​ Noninterest income (excluding) / including adjustments ​ ​ 43,637 ​ ​ 39,752 ​ ​ 40,883 ​ ​ ​ 44,839 ​ ​ 40,316 ​ ​ 40,151 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest income including adjustments plus noninterest income (excluding) / including adjustments ​ $ 285,272 ​ $ 291,683 ​ ​ 247,039 ​ ​ $ 287,890 ​ $ 293,703 ​ ​ 247,735 ​ Efficiency ratio / Adjusted efficiency ratio ​ ​ 54.36 % ​ 48.80 % ​ 60.08 % ​ ​ 53.18 % ​ 47.93 % ​ 56.22 % ​ 1 See discussion entitled “Non-GAAP Financial Measures” on page 51. ​ Income taxes ​ Our provision for income taxes includes both federal and state income tax expense (benefit).
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.
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. 64 ​ 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.
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.
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 are negatively impacted by elevated interest rates. ​ For information comparing our financial condition and results of operations for the year ended December 31, 2023, to year ended December 31, 2022, 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 7, 2024. ​ 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.
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”).
The junior subordinated debentures outstanding at December 31, 2024 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”).
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.
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, 2024 or 2023. ​ 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, 2024 and 2023.
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.
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. 51 ​ 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.
We recorded provision for credit losses of $16.5 million in 2023, comprised of $18.1 million of provision for credit loss expense on loans, and a $1.6 million release of provision on unfunded commitments.
In 2023, we recorded a provision for credit losses of $16.5 million, comprised of an $18.1 million provision for credit loss expense on loans, and a $1.6 million 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, 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.
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, 2024, 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.
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.
Recent accounting pronouncements and standards that have impacted or could potentially affect us are also discussed in Note 1 of the consolidated financial statements. ​ ​ 50 ​ 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.
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.
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, 2024, 2023 and 2022, and financial condition at December 31, 2024 and 2023 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. ​ 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.
Nonaccrual loans are included in the above stated average balances. ​ ​ 53 ​ 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.
The decrease was primarily due to: ​ ● Lower mortgage banking earnings of $5.3 million, driven by mark to market losses on mortgage servicing rights (MSRs) of $1.4 million in 2023, compared to mark to market gains on MSRs of $3.2 million recorded in 2022, primarily due to changes in market interest rates and prepayment speeds in 2023.
The decrease was primarily due to lower mortgage banking earnings of $5.3 million, driven by mark to market losses on MSRs of $1.4 million in 2023, compared to mark to market gains on MSRs of $3.2 million recorded in 2022, primarily due to changes in market interest rates and prepayment speeds in 2023.
See Note 10 to the Consolidated Financial Statements Junior Subordinated Debentures for further discussion of Capital Trust II.
See Note 10 to the Consolidated Financial Statements Junior Subordinated Debentures for further discussion of Trust II.
See “Supervision and Regulation­—Dividend Payments.” We continually monitor our cash position and borrowing capacity as well as perform stress tests of contingency funding no less frequently than quarterly as part of our liquidity management process.
Business “Supervision and Regulation­—Dividend Payments.” We continually monitor our cash position and borrowing capacity as well as perform stress tests of contingency funding no less frequently than quarterly as part of our liquidity management process.
The growth in 2023 is primarily due to an increase of $16.4 million of Commercial real estate – investor loans, an increase of $13.7 million of commercial real estate – owner occupied, and an increase of $15.8 million of construction, compared to 2022.
The rise in 2023 is primarily due to an increase of $16.4 million of Commercial real estate – investor loans, an increase of $13.7 million of commercial real estate – owner occupied, and an increase of $15.8 million of construction, compared to 2022.
Our liquidity principally depends on cash flows from net operating activities, including pledging requirements, investment in, and both maturity and repayment of assets, changes in balances of deposits and borrowings, and our ability to borrow funds. In addition, the Company’s liquidity depends on the Bank’s ability to pay dividends, which is subject to certain regulatory requirements.
Our liquidity principally depends on cash flows from net operating activities, including pledging requirements, investment in, and both maturity and repayment of assets, changes in balances of deposits and borrowings, and our ability to borrow funds. In addition, the Company’s liquidity depends on the Bank’s ability to pay dividends, which is subject to certain regulatory requirements. See Item 1.
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.
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, 2025 would require Federal Reserve non-objection or approval.
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 outstanding balance of our short-term FHLBC borrowing was $20.0 million and $405.0 million as of December 31, 2024 and December 31, 2023, 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. ​ 60 ​ Table of Contents 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. ​ The Basel III rules impose minimum capital requirements for bank holding companies and banks.
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.
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 $815,000, $1.9 million and $284,000 was recorded and collected during 2024, 2023 and 2022, respectively, on loans that subsequently went to nonaccrual status by year-end.
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.
Proceeds from sales of loans held-for-sale, net of funds used to originate loans held-for-sale, was a source of inflows for 2024, 2023, and 2022. Interest received, net of interest paid, combined with changes in other assets and liabilities were a source of inflows for 2024, a source of outflows for 2023, and a source of inflows for 2022.
The reduction in accumulated other comprehensive loss on available-for-sale securities in 2023 contributed to the growth in these ratios, as the numerator was increased.
The reduction in accumulated other comprehensive loss on available-for-sale securities in 2024 contributed to the growth in these ratios, as the numerator was increased.
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.
CLO credit enhancement is achieved through over-collateralization and/or subordination. 58 ​ 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, 2024. Weighted average yield is based on amortized costs and not calculated on a tax equivalent basis.
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.
An analysis of the provision for income taxes for the three years ended December 31, 2024, 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 $27.7 million for December 31, 2024 compared to an income tax expense of $32.7 million in 2023 and $24.1 million for 2022.
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.
For additional information regarding our cautionary disclosures, see the “Cautionary Note Regarding Forward-Looking Statements” at the beginning of this annual report. ​ Business overview ​ We provide a wide range of financial services through our 53 banking locations located in Cook, DeKalb, DuPage, Kane, Kendall, LaSalle and Will counties in Illinois.
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. ​ We issued $25.8 million of cumulative trust preferred securities through a private placement completed by a second unconsolidated subsidiary, Trust II, in April 2007.
At December 31, 2023, accumulated other comprehensive loss, net of deferred taxes, was $62.8 million, compared to $93.1 million as of year-end 2022. ​ We issued $25.8 million of cumulative trust preferred securities through a private placement completed by a second unconsolidated subsidiary, Trust II, in April 2007.
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.
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 ​ 2024 ​ 2023 ​ 2022 The Company ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common equity tier 1 capital ratio ​ 7.00 % ​ N/A ​ ​ 12.82 % ​ 11.37 % ​ 9.67 % Total risk-based capital ratio ​ 10.50 ​ ​ N/A ​ ​ 15.54 ​ ​ 14.06 ​ ​ 12.52 ​ Tier 1 risk-based capital ratio ​ 8.50 ​ ​ N/A ​ ​ 13.34 ​ ​ 11.89 ​ ​ 10.20 ​ Tier 1 leverage ratio ​ 4.00 ​ ​ N/A ​ ​ 11.30 ​ ​ 10.06 ​ ​ 8.14 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The Bank ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common equity tier 1 capital ratio ​ 7.00 % ​ 6.50 % ​ 12.89 % ​ 12.32 % ​ 11.70 % Total risk-based capital ratio ​ 10.50 ​ ​ 10.00 ​ ​ 13.82 ​ ​ 13.24 ​ ​ 12.75 ​ Tier 1 risk-based capital ratio ​ 8.50 ​ ​ 8.00 ​ ​ 12.89 ​ ​ 12.32 ​ ​ 11.70 ​ Tier 1 leverage ratio ​ 4.00 ​ ​ 5.00 ​ ​ 10.90 ​ ​ 10.41 ​ ​ 9.32 ​ ​ 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, 2024, 2023 and 2022 pursuant to the capital requirements in effect at that time.
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.
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, 2024, the ACL on loans totaled $43.6 million, and the ACL on unfunded commitments, included in other liabilities, totaled $1.9 million, compared to the ACL on loans of $44.3 million and ACL on unfunded commitments of $2.7 million at December 31, 2023.
Additional sources of funding include a $30.0 million undrawn line of credit held by the Company with a third party financial institution. ​ Net cash inflows from operating activities were $116.4 million during 2023, compared with inflows of $97.3 million in 2022 and inflows of $31.0 million in 2021.
Additional sources of funding include a $30.0 million undrawn line of credit held by the Company with a third party financial institution. ​ Net cash inflows from operating activities were $131.5 million during 2024, compared with inflows of $116.4 million in 2023 and inflows of $97.3 million in 2022.
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.
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.
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.
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 $21.6 million as of December 31, 2024, compared to $5.1 million as of December 31, 2023, reflecting a $16.5 million increase.
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.
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 $322.7 million in 2024, compared to $161.6 million of inflows in 2023, and outflows of $432.8 million in 2022.
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.
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 decreased to 17.37% at December 31, 2024, compared to 21.66% at December 31, 2023, from 18.36% at December 31, 2022. ​ Problem Loans ​ We utilize an internal asset classification system as a means of reporting problem and potential problem assets.
Interest income, which would have been recognized during 2023, 2022 and 2021, had these loans been on an accrual basis throughout the year, was approximately $7.3 million, $2.7 million and $1.6 million, respectively. ​ Total past due loans, including accruing and nonaccrual loans, totaled $49.4 million at year-end 2023, a $27.2 million increase from year end 2022, resulting in the rate of past due loans to total loans increasing to 1.2% at year-end 2023 compared to 0.6% at year-end 2022, and 0.8% at year-end 2021.
Interest income, which would have been recognized during 2024, 2023 and 2022, had these loans been on an accrual basis throughout the year, was approximately $4.2 million, $7.3 million and $2.7 million, respectively. ​ Total past due loans, including accruing and nonaccrual loans, totaled $27.3 million at year-end 2024, a $22.1 million decrease from year end 2023, resulting in the rate of past due loans to total loans decreasing to 0.7% at year-end 2024 compared to 1.2% at year-end 2023, and 0.6% at year-end 2022.
We recorded net loan charge-offs of $23.3 million in 2023, $1.6 million in 2022, and $4.4 million in 2021. ​ The quality of our loan portfolio is in large part a reflection of the economic health of the communities in which we operate. Our local communities have been relatively stable in the past five years.
We recorded net loan charge-offs of $14.2 million in 2024, $23.3 million in 2023, and $1.6 million in 2022. 59 ​ Table of Contents ​ The quality of our loan portfolio is in large part a reflection of the economic health of the communities in which we operate. Our local communities have been relatively stable in the past five years.
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.
See the discussion entitled “Non-GAAP Financial Measures” on page 51 and the table on page 54 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 $1.8 million for 2024, net costs of $2.7 million for 2023, and net fees of $3.0 million for 2022.
The ACL as a percentage of total loans was 1.1% as of December 31, 2023 and 1.3% as of December 31, 2022.
The ACL as a percentage of total loans was 1.1% as of December 31, 2024 and as of December 31, 2023.
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.
As of December 31, 2024, we had $59.5 million of subordinated debentures outstanding, net of deferred issuance costs. ​ ​ 66 ​ Table of Contents ​ 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.
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.
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 10.09% at December 31, 2023 to 11.88% at December 31, 2024, while our tangible common equity to tangible assets ratio (non-GAAP) increased from 8.56% at December 31, 2023 to 10.11% at December 31, 2024.
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.
Our ACL on loans to average loans was 1.1% as of December 31, 2024 and 2023, compared to 1.4% at December 31, 2022. ​ 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 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2024 ​ 2023 ​ 2022 ​ ​ ​ ​ ​ % 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 ​ $ 7,813 20.1 ​ $ 3,998 20.8 ​ $ 11,968 21.7 ​ Leases ​ ​ 2,136 ​ 12.4 ​ ​ 2,952 ​ 9.8 ​ ​ 2,865 ​ 7.2 ​ Commercial real estate – investor ​ 14,528 27.1 ​ 17,105 25.6 ​ 10,674 25.5 ​ Commercial real estate – owner occupied ​ 10,036 17.2 ​ 12,280 19.7 ​ 15,001 22.1 ​ Construction ​ 3,581 5.1 ​ 1,038 4.1 ​ 1,546 4.7 ​ Real estate – investor ​ 553 1.2 ​ 669 1.3 ​ 768 1.5 ​ Real estate – owner occupied ​ ​ 1,509 ​ 5.2 ​ ​ 1,821 ​ 5.6 ​ ​ 2,046 ​ 5.7 ​ Multifamily ​ ​ 1,876 ​ 8.8 ​ ​ 2,728 ​ 9.9 ​ ​ 2,453 ​ 8.4 ​ HELOC ​ ​ 1,578 ​ 2.6 ​ ​ 1,656 ​ 2.6 ​ ​ 1,806 ​ 2.8 ​ Other 1 ​ 9 0.3 ​ 17 0.6 ​ 353 0.4 ​ Total ​ $ 43,619 100.0 ​ $ 44,264 100.0 ​ $ 49,480 100.0 ​ ​ 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 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.
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 $12.8 million provision for credit losses in 2024, a decrease of $3.8 million, from 2023.
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.
At December 31, 2024, accumulated other comprehensive loss, net of deferred taxes, was $47.7 million, compared to $62.8 million as of year-end 2023. Equity in 2024 was reduced for the payment of dividends to common stockholders, which totaled $9.4 million for the year.
Additionally, with the adoption of CECL, provision expense may be more volatile due to changes in CECL model assumptions of credit quality, macroeconomic factors and conditions, and loan composition, which drive the allowance for credit losses balance. ​ During 2023, the release of credit losses on unfunded commitments totaled $1.6 million, and the allowance for unfunded commitments totaled $2.7 million as of December 31, 2023.
Additionally, provision expense may be more volatile due to changes in CECL model assumptions of credit quality, macroeconomic factors and conditions, and loan composition, which drive the allowance for credit losses balance. ​ During 2024, the release of credit losses on unfunded commitments totaled $834,000, and the allowance for unfunded commitments totaled $1.9 million as of December 31, 2024.
Cash and cash equivalents at the end of 2023 totaled $100.1 million, compared to $115.2 million at December 31, 2022, and $752.1 million as of December 31, 2021.
Cash and cash equivalents at the end of 2024 totaled $99.3 million, compared to $100.1 million at December 31, 2023, and $115.2 million as of December 31, 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 $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.
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 decreased our ACL on loans to $43.6 million as of December 31, 2024; in addition, we decreased our ACL on unfunded commitments to $1.9 million as of December 31, 2024, included within other liabilities.
The Basel III rules apply to all national and state banks and savings associations regardless of size and bank holding companies and savings and loan holding companies other than “small bank holding companies” which are generally holding companies with consolidated assets of less than $3 billion.
See Item 1, Business “Supervision and Regulation - Basel III Capital Standards.” The Basel III rules apply to all national and state banks and savings associations regardless of size and bank holding companies and savings and loan holding companies other than “small bank holding companies” which are generally holding companies with consolidated assets of less than $3 billion.
The transaction resulted in us increasing our presence in the west suburban Chicago area, as 34 branches were acquired with a retail and commercial client mix of loans and deposits. Historical periods before December 1, 2021, reflect results of our legacy operations.
The transaction resulted in increasing our presence in the south suburban Chicago area, as five branches were acquired with a retail and commercial client mix of loans and deposits. Historical periods before December 6, 2024, reflect results of our legacy operations.
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.
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. ​ ​ 61 ​ Table of Contents ​ Total classified loans decreased in 2024 by $40.8 million compared to 2023, and increased in 2023 by $23.9 million compared to 2022.
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.
Our provision for credit losses in 2024 totaled $12.8 million, compared to $16.5 million in 2023, and $6.6 million in 2022. Net charge-offs recorded in 2024 totaled $14.2 million, compared to net charge-offs of $23.3 million recorded in 2023, and net charge-offs of $1.6 million in 2022.
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.
For all periods presented, management determined that the realization of the deferred tax asset was “more likely than not” as required by GAAP. ​ 57 ​ Table of Contents ​ Financial condition ​ General ​ Our total assets were $5.65 billion at December 31, 2024, a decrease of $73.4 million, or 1.3%, from December 31, 2023.
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”.
Significant inflows from financing activities in 2022 included an increase other short-term borrowings of $90.0 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 Sheets as disclosed in Note 19 of the Notes to the Consolidated Financial Statements provided in Part II, Item 8, “Financial Statements and Supplementary Data”.
Additional funding sources at the end of 2023 include unused borrowing capacity available from the Federal Home Loan Bank of Chicago, Federal Reserve Bank and correspondent banks of $700.1 million and unencumbered securities available for sale of $382.6 million.
Additional funding sources at the end of 2024 include unused borrowing capacity available from the Federal Home Loan Bank of Chicago, Federal Reserve Bank and correspondent banks of $1.02 billion and unencumbered securities available for sale of $444.2 million.
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.
Our nonperforming loans by performance metric is shown in the following table. ​ ​ Risk Elements ​ The following table sets forth the amounts of nonperforming assets by performance metric at December 31 for the years indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) 2024 2023 2022 Nonaccrual loans ​ $ 28,851 ​ $ 67,583 ​ $ 31,602 ​ Performing troubled debt restructured loans accruing interest ​ N/A ​ N/A ​ 49 ​ Loans past due 90 days or more and still accruing interest ​ 1,436 ​ 1,196 ​ 1,262 ​ Total nonperforming loans ​ 30,287 ​ 68,779 ​ 32,913 ​ Other real estate owned ​ 21,617 ​ 5,123 ​ 1,561 ​ Total nonperforming assets ​ $ 51,904 ​ $ 73,902 ​ $ 34,474 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other real estate owned ("OREO") as % of nonperforming assets ​ 41.6 % 6.9 % 4.5 % ​ ​ 60 ​ 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.
During 2023, we paid off our notes payable and our senior notes, resulting in a decrease in average borrowings of $11.9 million and $22.5 million, respectively. ​ Management also continued to emphasize credit quality and maintained our capital ratios with continued strong liquidity. In 2023, we experienced loan growth of $173.3 million, or 4.5%, over 2022.
During 2023, we paid off our notes payable and our senior notes, resulting in a decrease in average borrowings of $1.3 million and $22.0 million, respectively. ​ Management also continued to emphasize credit quality and maintained our capital ratios with continued strong liquidity. In 2024, we experienced a decrease in loans of $61.6 million, or 1.5%, over 2023.
Our net interest margin on a taxable equivalent (TE) basis was 4.67% for the year ended 2023, compared to 3.65% for the year ended 2022, an increase of 102 basis points. Average interest earning assets decreased $255.1 million during 2023 as volume slowed and rates reflected significant growth, impacting net interest income.
Our net interest margin on a taxable equivalent (TE) basis was 4.63% for the year ended 2024, compared to 4.67% for the year ended 2023, a decrease of four basis points. Average interest earning assets decreased $185.4 million during 2024 as volume slowed and rates reflected significant growth, impacting net interest income.
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.
The OREO valuation reserve increased to $1.9 million in 2024 compared to $118,000 in 2023. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ OREO Properties by Type as of December 31, ​ Percent Change From (Dollars in thousands) ​ 2024 ​ ​ 2023 ​ ​ 2022 ​ 2024-2023 ​ 2023-2022 Single family residence $ - ​ $ - ​ $ - ​ - ​ - Lots (single family and commercial) ​ - ​ ​ - ​ ​ 1,261 ​ - ​ (100.0) Vacant land ​ 197 ​ ​ 197 ​ ​ 300 ​ - ​ (34.3) Multi-family ​ - ​ ​ - ​ ​ - ​ - ​ - Commercial property ​ 21,420 ​ ​ 4,926 ​ ​ - ​ 334.8 ​ N/M Total OREO properties $ 21,617 ​ $ 5,123 ​ $ 1,561 ​ 322.0 ​ 228.2 ​ N/M - Not meaningful ​ 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.
In 2023, security transactions resulted in net cash inflows of $378.4 million, and proceeds from the sales of OREO assets accounted for inflows of $2.0 million. In 2022, securities transactions accounted for net inflows of $9.2 million, and proceeds from the sales of OREO assets accounted for inflows of $941,000.
In 2024, security transactions resulted in net cash inflows of $44.0 million, and proceeds from the sales of OREO assets accounted for inflows of $3.2 million. In 2023, security transactions resulted in net cash inflows of $378.4 million, and proceeds from the sales of OREO assets accounted for inflows of $2.0 million.
We are not obligated to repurchase any shares under the Repurchase Program, and we did not engage in any repurchases under the Repurchase Program in 2023. ​ We withheld 34,858 shares for $605,000 to satisfy RSU vesting tax withholding obligations in 2023, which increased treasury stock.
We are not obligated to repurchase any shares under the Repurchase Program, and we did not engage in any repurchases under the Repurchase Program in 2023 or 2024. ​ We withheld 72,836 shares for $1.0 million to satisfy RSU vesting tax withholding obligations in 2024, which increased treasury stock.
This increase was offset by issuance of 150,464 shares for RSU vestings, which totaled $3.7 million. The net impact was a decrease to treasury stock of 115,606 shares, totaling $3.1 million as of December 31, 2023.
This increase was offset by issuance of 153,790 shares for RSU vestings, which totaled $3.1 million. The net impact was a decrease to treasury stock of 121,266 shares, totaling $2.7 million as of December 31, 2022.
We had no BOLI death benefit proceeds in 2022 or 2021. ​ 48 ​ Table of Contents Noninterest expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest Expense for the Twelve Months ending December 31, ​ Percent Change From (Dollars in thousands) 2023 ​ 2022 ​ 2021 ​ 2023-2022 ​ 2022-2021 Salaries $ 66,414 ​ $ 64,572 ​ $ 42,444 ​ 2.9 ​ 52.1 Officers incentive ​ 8,447 ​ ​ 8,538 ​ ​ 5,352 ​ (1.1) ​ 59.5 Benefits and other ​ 13,705 ​ ​ 13,463 ​ ​ 9,895 ​ 1.8 ​ 36.1 Total salaries and employee benefits ​ 88,566 ​ ​ 86,573 ​ ​ 57,691 ​ 2.3 ​ 50.1 Occupancy, furniture and equipment ​ 14,437 ​ ​ 14,992 ​ ​ 13,548 ​ (3.7) ​ 10.7 Computer and data processing ​ 7,277 ​ ​ 15,795 ​ ​ 7,936 ​ (53.9) ​ 99.0 FDIC insurance ​ 2,705 ​ ​ 2,401 ​ ​ 975 ​ 12.7 ​ 146.3 Net teller & bill paying ​ 2,115 ​ ​ 3,730 ​ ​ 874 ​ (43.3) ​ 326.8 General bank insurance ​ 1,212 ​ ​ 1,221 ​ ​ 1,214 ​ (0.7) ​ 0.6 Amortization of core deposit intangible ​ 2,461 ​ ​ 2,626 ​ ​ 644 ​ (6.3) ​ 307.8 Advertising expense ​ 721 ​ ​ 589 ​ ​ 343 ​ 22.4 ​ 71.7 Card related expense ​ 5,123 ​ ​ 4,348 ​ ​ 2,538 ​ 17.8 ​ 71.3 Legal fees ​ 927 ​ ​ 873 ​ ​ 1,096 ​ 6.2 ​ (20.3) Consulting & management fees ​ 2,415 ​ ​ 2,425 ​ ​ 5,005 ​ (0.4) ​ (51.5) Other real estate owned expense, net ​ 399 ​ ​ 130 ​ ​ 151 ​ 206.9 ​ (13.9) Other expense ​ 16,843 ​ ​ 15,470 ​ ​ 11,767 ​ 8.9 ​ 31.5 Total noninterest expense $ 145,201 ​ $ 151,173 ​ $ 103,782 ​ (4.0) ​ 45.7 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Our total noninterest expense decreased by $6.0 million, or 4.0%, in 2023 compared to 2022.
We had no BOLI death benefit proceeds in 2023 or 2022. ​ ​ 55 ​ Table of Contents ​ Noninterest expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest Expense for the Twelve Months ending December 31, ​ Percent Change From (Dollars in thousands) 2024 ​ 2023 ​ 2022 ​ 2024-2023 ​ 2023-2022 Salaries $ 71,439 ​ $ 66,414 ​ $ 64,572 ​ 7.6 ​ 2.9 Officers incentive ​ 9,712 ​ ​ 8,447 ​ ​ 8,538 ​ 15.0 ​ (1.1) Benefits and other ​ 16,874 ​ ​ 13,705 ​ ​ 13,463 ​ 23.1 ​ 1.8 Total salaries and employee benefits ​ 98,025 ​ ​ 88,566 ​ ​ 86,573 ​ 10.7 ​ 2.3 Occupancy, furniture and equipment ​ 16,159 ​ ​ 14,437 ​ ​ 14,992 ​ 11.9 ​ (3.7) Computer and data processing ​ 9,473 ​ ​ 7,277 ​ ​ 15,795 ​ 30.2 ​ (53.9) FDIC insurance ​ 2,543 ​ ​ 2,705 ​ ​ 2,401 ​ (6.0) ​ 12.7 Net teller & bill paying ​ 2,244 ​ ​ 2,115 ​ ​ 3,730 ​ 6.1 ​ (43.3) General bank insurance ​ 1,268 ​ ​ 1,212 ​ ​ 1,221 ​ 4.6 ​ (0.7) Amortization of core deposit intangible ​ 2,440 ​ ​ 2,461 ​ ​ 2,626 ​ (0.9) ​ (6.3) Advertising expense ​ 1,243 ​ ​ 721 ​ ​ 589 ​ 72.4 ​ 22.4 Card related expense ​ 5,555 ​ ​ 5,123 ​ ​ 4,348 ​ 8.4 ​ 17.8 Legal fees ​ 1,326 ​ ​ 927 ​ ​ 873 ​ 43.0 ​ 6.2 Consulting & management fees ​ 2,496 ​ ​ 2,415 ​ ​ 2,425 ​ 3.4 ​ (0.4) Other real estate owned expense, net ​ 2,220 ​ ​ 399 ​ ​ 130 ​ 456.4 ​ 206.9 Other expense ​ 14,756 ​ ​ 16,843 ​ ​ 15,470 ​ (12.4) ​ 8.9 Total noninterest expense $ 159,748 ​ $ 145,201 ​ $ 151,173 ​ 10.0 ​ (4.0) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Our total noninterest expense increased by $14.5 million, or 10.0%, in 2024 compared to 2023.
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.
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 2024 and 2023. ​ Classified Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Classified assets as of December 31, ​ Percent Change From (Dollars in thousands) 2024 ​ 2023 ​ 2022 ​ 2024-2023 ​ 2023-2022 Commercial $ 24,748 ​ $ 8,414 ​ $ 26,485 ​ 194.1 ​ (68.2) Leases ​ 523 ​ ​ 818 ​ ​ 1,876 ​ (36.1) ​ (56.4) Commercial real estate – investor ​ 14,489 ​ ​ 43,798 ​ ​ 27,410 ​ (66.9) ​ 59.8 Commercial real estate – owner occupied ​ 27,619 ​ ​ 54,613 ​ ​ 40,890 ​ (49.4) ​ 33.6 Construction ​ 19,351 ​ ​ 17,155 ​ ​ 1,333 ​ 12.8 ​ N/M Residential real estate – investor ​ 1,690 ​ ​ 1,331 ​ ​ 1,714 ​ 27.0 ​ (22.3) Residential real estate – owner occupied ​ 1,851 ​ ​ 3,216 ​ ​ 3,854 ​ (42.4) ​ (16.6) Multifamily ​ 1,165 ​ ​ 1,775 ​ ​ 2,954 ​ (34.4) ​ (39.9) HELOC ​ 547 ​ ​ 1,664 ​ ​ 2,411 ​ (67.1) ​ (31.0) Other (1) ​ 10 ​ ​ - ​ ​ 2 ​ N/M ​ (100.0) Total classified loans ​ 91,993 ​ ​ 132,784 ​ ​ 108,929 ​ (30.7) ​ 21.9 Other real estate owned ​ 21,617 ​ ​ 5,123 ​ ​ 1,561 ​ 322.0 ​ 228.2 Total classified assets $ 113,610 ​ $ 137,907 ​ $ 110,490 ​ (17.6) ​ 24.8 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ N/M - Not meaningful ​ 1 The “ Other ” class includes consumer loans and overdrafts. ​ Classified loans include nonaccrual and all other loans considered substandard.
The net decrease in treasury stock increased stockholders’ equity, and also decreased earnings per share by increasing the number of shares outstanding. ​ We withheld 32,524 shares for $455,000 to satisfy RSU vesting tax withholding obligations in 2022, which increased treasury stock. This increase was offset by issuance of 153,790 shares for RSU vestings, which totaled $3.1 million.
The net decrease in treasury stock increased stockholders’ equity, and also decreased earnings per share by increasing the number of shares outstanding. ​ 67 ​ Table of Contents ​ We withheld 32,524 shares for $455,000 to satisfy RSU vesting tax withholding obligations in 2022, which increased treasury stock.
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.
During 2023, we recorded an $18.1 million provision for credit losses expense on loans, and a $1.6 release of provision for credit losses on unfunded commitments. ​ ​ 62 ​ 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) 2024 2023 2022 Total average loans (exclusive of loans held–for–sale) ​ $ 3,985,552 ​ $ 3,998,937 ​ $ 3,634,570 ​ ​ Allowance at beginning of year ​ 44,264 ​ 49,480 ​ 44,281 ​ ​ Charge–offs: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ 8,686 ​ 885 ​ 151 ​ ​ Leases ​ ​ 149 ​ ​ 882 ​ ​ 371 ​ ​ Commercial real estate – investor ​ 4,596 ​ 11,816 ​ 1,401 ​ ​ Commercial real estate – owner occupied ​ 5,154 ​ 10,691 ​ 133 ​ ​ Construction ​ - ​ - ​ - ​ ​ Real estate – investor ​ ​ - ​ ​ - ​ ​ - ​ ​ Real estate – owner occupied ​ 242 ​ - ​ 2 ​ ​ Multifamily ​ ​ - ​ ​ - ​ ​ - ​ ​ HELOC ​ ​ - ​ ​ - ​ ​ - ​ ​ Other 1 ​ ​ 284 ​ ​ 368 ​ ​ 402 ​ ​ Total charge–offs ​ 19,111 ​ 24,642 ​ 2,460 ​ ​ Recoveries: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ 149 ​ 632 ​ 95 ​ ​ Leases ​ ​ 103 ​ ​ 119 ​ ​ 2 ​ ​ Commercial real estate – investor ​ 425 ​ 77 ​ 81 ​ ​ Commercial real estate – owner occupied ​ 3,907 ​ 29 ​ 104 ​ ​ Construction ​ - ​ 100 ​ - ​ ​ Real estate – investor ​ ​ 25 ​ ​ 30 ​ ​ 30 ​ ​ Real estate – owner occupied ​ 36 ​ 79 ​ 226 ​ ​ Multifamily ​ ​ - ​ ​ - ​ ​ 63 ​ ​ HELOC ​ ​ 91 ​ ​ 105 ​ ​ 140 ​ ​ Other 1 ​ ​ 146 ​ ​ 169 ​ ​ 168 ​ ​ Total recoveries ​ 4,882 ​ 1,340 ​ 909 ​ ​ Net charge-offs ​ 14,229 ​ 23,302 ​ 1,551 ​ ​ Provision for credit losses on loans ​ 13,584 ​ 18,086 ​ 6,750 ​ ​ Allowance at end of year ​ $ 43,619 ​ $ 44,264 ​ $ 49,480 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net charge-offs to total average loans ​ 0.4 % 0.6 % 0.0 % ​ ACL on loans at year end to total average loans ​ 1.1 % 1.1 % 1.4 % ​ Nonaccrual loans to total loans outstanding ​ ​ 0.7 % ​ 1.7 % ​ 0.8 % ​ Nonperforming loans to total loans outstanding ​ ​ 0.8 % ​ 1.7 % ​ 0.9 % ​ ACL on loans at year end to nonaccrual loans ​ ​ 151.2 % ​ 65.5 % ​ 156.6 % ​ ​ 1 The “Other” class includes consumer loans and overdrafts. ​ ​ 63 ​ 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 ​ 2024 ​ Class ​ 2023 ​ Class ​ 2022 ​ Class Commercial $ 8,537 ​ 1.1 ​ $ 253 ​ - ​ $ 56 ​ - Leases ​ 46 ​ - ​ ​ 763 ​ 0.2 ​ ​ 369 ​ 0.1 Commercial real estate – investor ​ 4,171 ​ 0.4 ​ ​ 11,739 ​ 1.1 ​ ​ 1,320 ​ 0.1 Commercial real estate – owner occupied ​ 1,247 ​ 0.2 ​ ​ 10,662 ​ 1.4 ​ ​ 29 ​ - Construction ​ - ​ - ​ ​ (100) ​ (0.1) ​ ​ - ​ - Residential real estate – investor ​ (25) ​ (0.1) ​ ​ (30) ​ (0.1) ​ ​ (30) ​ (0.1) Residential real estate – owner occupied ​ 206 ​ 0.1 ​ ​ (79) ​ - ​ ​ (224) ​ (0.1) Multifamily ​ - ​ - ​ ​ - ​ - ​ ​ (63) ​ - HELOC ​ (91) ​ (0.1) ​ ​ (105) ​ (0.1) ​ ​ (140) ​ (0.1) Other 1 ​ 138 ​ 1.2 ​ ​ 199 ​ 0.8 ​ ​ 234 ​ 2.1 Net charge–offs $ 14,229 ​ 0.4 ​ $ 23,302 ​ 0.6 ​ $ 1,551 ​ - ​ 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.
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.
Average balances are derived from daily balances. ​ 52 ​ Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Analysis of Average Balances, Tax Equivalent Income / Expense and Rates (Dollars in thousands - unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2024 ​ 2023 ​ 2022 ​ Average ​ Income / ​ Rate ​ Average ​ Income / ​ Rate ​ Average Income / ​ Rate ​ Balance ​ Expense ​ % ​ Balance ​ Expense ​ % ​ Balance Expense ​ % Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest earning deposits with financial institutions $ 49,202 ​ $ 2,393 ​ 4.86 ​ $ 49,303 ​ $ 2,503 ​ 5.08 ​ $ 308,845 ​ $ 2,175 ​ 0.70 Securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Taxable ​ 1,015,046 ​ ​ 34,656 ​ 3.41 ​ ​ 1,177,860 ​ ​ 37,940 ​ 3.22 ​ ​ 1,537,655 ​ ​ 31,566 ​ 2.05 Non-taxable (TE) 1 ​ 164,015 ​ ​ 6,537 ​ 3.99 ​ ​ 170,018 ​ ​ 6,746 ​ 3.97 ​ ​ 181,496 ​ ​ 6,692 ​ 3.69 Total securities (TE) 1 ​ 1,179,061 ​ ​ 41,193 ​ 3.49 ​ ​ 1,347,878 ​ ​ 44,686 ​ 3.32 ​ ​ 1,719,151 ​ ​ 38,258 ​ 2.23 Dividends from FHLBC and FRBC ​ 29,282 ​ ​ 2,278 ​ 7.78 ​ ​ 32,351 ​ ​ 1,920 ​ 5.93 ​ ​ 19,051 ​ ​ 936 ​ 4.91 Loans and loans held-for-sale 1, 2 ​ 3,986,900 ​ ​ 253,456 ​ 6.36 ​ ​ 4,000,269 ​ ​ 244,317 ​ 6.11 ​ ​ 3,637,815 ​ ​ 176,532 ​ 4.85 Total interest earning assets ​ 5,244,445 ​ ​ 299,320 ​ 5.71 ​ ​ 5,429,801 ​ ​ 293,426 ​ 5.40 ​ ​ 5,684,862 ​ ​ 217,901 ​ 3.83 Cash and due from banks ​ 54,359 ​ ​ - ​ - ​ ​ 56,592 ​ ​ - ​ - ​ ​ 52,333 ​ ​ - ​ - Allowance for credit losses on loans ​ (43,872) ​ ​ - ​ - ​ ​ (51,880) ​ ​ - ​ - ​ ​ (45,742) ​ ​ - ​ - Other noninterest bearing assets ​ 388,046 ​ ​ - ​ - ​ ​ 385,660 ​ ​ - ​ - ​ ​ 379,767 ​ ​ - ​ - Total assets $ 5,642,978 ​ ​ ​ ​ ​ ​ $ 5,820,173 ​ ​ ​ ​ ​ ​ $ 6,071,220 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities and Stockholders' Equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NOW accounts $ 562,890 ​ $ 2,826 ​ 0.50 ​ $ 585,304 ​ $ 1,591 ​ 0.27 ​ $ 610,072 ​ $ 564 ​ 0.09 Money market accounts ​ 699,302 ​ ​ 11,878 ​ 1.70 ​ ​ 752,025 ​ ​ 6,039 ​ 0.80 ​ ​ 1,004,992 ​ ​ 958 ​ 0.10 Savings accounts ​ 921,801 ​ ​ 3,162 ​ 0.34 ​ ​ 1,052,750 ​ ​ 1,131 ​ 0.11 ​ ​ 1,188,771 ​ ​ 378 ​ 0.03 Time deposits ​ 628,446 ​ ​ 20,147 ​ 3.21 ​ ​ 458,918 ​ ​ 6,636 ​ 1.45 ​ ​ 468,476 ​ ​ 1,448 ​ 0.31 Interest bearing deposits ​ 2,812,439 ​ ​ 38,013 ​ 1.35 ​ ​ 2,848,997 ​ ​ 15,397 ​ 0.54 ​ ​ 3,272,311 ​ ​ 3,348 ​ 0.10 Securities sold under repurchase agreements ​ 38,248 ​ ​ 337 ​ 0.88 ​ ​ 27,518 ​ ​ 93 ​ 0.34 ​ ​ 35,157 ​ ​ 40 ​ 0.11 Other short-term borrowings ​ 271,257 ​ ​ 14,607 ​ 5.38 ​ ​ 356,014 ​ ​ 18,774 ​ 5.27 ​ ​ 12,534 ​ ​ 480 ​ 3.83 Junior subordinated debentures ​ 25,773 ​ ​ 1,127 ​ 4.37 ​ ​ 25,773 ​ ​ 1,095 ​ 4.25 ​ ​ 25,773 ​ ​ 1,136 ​ 4.41 Subordinated debentures ​ 59,425 ​ ​ 2,185 ​ 3.68 ​ ​ 59,340 ​ ​ 2,185 ​ 3.68 ​ ​ 59,255 ​ ​ 2,185 ​ 3.69 Senior note ​ - ​ ​ - ​ - ​ ​ 22,000 ​ ​ 2,408 ​ 10.95 ​ ​ 44,533 ​ ​ 2,682 ​ 6.02 Notes payable and other borrowings ​ - ​ ​ - ​ - ​ ​ 1,332 ​ ​ 87 ​ 6.53 ​ ​ 13,239 ​ ​ 446 ​ 3.37 Total interest bearing liabilities ​ 3,207,142 ​ ​ 56,269 ​ 1.75 ​ ​ 3,340,974 ​ ​ 40,039 ​ 1.20 ​ ​ 3,462,802 ​ ​ 10,317 ​ 0.30 Noninterest bearing deposits ​ 1,747,890 ​ ​ - ​ - ​ ​ 1,906,633 ​ ​ - ​ - ​ ​ 2,097,151 ​ ​ - ​ - Other liabilities ​ 62,508 ​ ​ - ​ - ​ ​ 54,243 ​ ​ - ​ - ​ ​ 44,986 ​ ​ - ​ - Stockholders' equity ​ 625,438 ​ ​ - ​ - ​ ​ 518,323 ​ ​ - ​ - ​ ​ 466,281 ​ ​ - ​ - Total liabilities and stockholders' equity $ 5,642,978 ​ ​ ​ ​ ​ ​ $ 5,820,173 ​ ​ ​ ​ ​ ​ $ 6,071,220 ​ ​ ​ ​ ​ Net interest income (GAAP) ​ ​ ​ $ 241,635 ​ ​ ​ ​ ​ ​ $ 251,931 ​ ​ ​ ​ ​ ​ $ 206,156 ​ ​ Net interest margin (GAAP) ​ ​ ​ ​ ​ ​ 4.61 ​ ​ ​ ​ ​ ​ ​ 4.64 ​ ​ ​ ​ ​ ​ ​ 3.63 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest income (TE) 1 ​ ​ ​ $ 243,051 ​ ​ ​ ​ ​ ​ $ 253,387 ​ ​ ​ ​ ​ ​ $ 207,584 ​ ​ Net interest margin (TE) 1 ​ ​ ​ ​ ​ ​ 4.63 ​ ​ ​ ​ ​ ​ ​ 4.67 ​ ​ ​ ​ ​ ​ ​ 3.65 Interest bearing liabilities to earning assets ​ 61.15 % ​ ​ ​ ​ ​ ​ 61.53 % ​ ​ ​ ​ ​ ​ 60.91 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1 Tax equivalent basis is calculated using a marginal tax rate of 21% in 2024, 2023 and 2022.
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.
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 67.2% and 68.8% of the portfolio at December 31, 2024 and 2023, respectively. Our lending exposure is diversified across our each of our segments presented above.
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.
The table below provides a reconciliation of each non-GAAP (TE) measure to the GAAP equivalent: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Effect of Tax Equivalent Adjustment (In thousands) 2024 ​ 2023 2022 Interest income (GAAP) ​ $ 297,904 ​ ​ $ 291,970 ​ ​ $ 216,473 ​ Taxable equivalent adjustment - loans ​ 43 ​ ​ 39 ​ ​ 23 ​ Taxable equivalent adjustment - securities ​ 1,373 ​ ​ 1,417 ​ ​ 1,405 ​ Interest income (TE) ​ 299,320 ​ ​ 293,426 ​ ​ 217,901 ​ Less: interest expense (GAAP) ​ 56,269 ​ ​ 40,039 ​ ​ 10,317 ​ Net interest income (TE) ​ $ 243,051 ​ ​ $ 253,387 ​ ​ $ 207,584 ​ Net interest income (GAAP) ​ $ 241,635 ​ ​ $ 251,931 ​ ​ $ 206,156 ​ Average interest earning assets ​ $ 5,244,445 ​ ​ $ 5,429,801 ​ ​ $ 5,684,862 ​ Net interest margin (GAAP) ​ 4.61 % ​ 4.64 % ​ 3.63 % Net interest margin (TE) ​ 4.63 % ​ 4.67 % ​ 3.65 % ​ 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.
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.
As of December 31, 2023, net unrealized losses on available-for-sale securities totaled $84.2 million, which after the impact of the related deferred income taxes, resulted in an overall decrease to equity capital of $60.6 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) ​ 2024 ​ Total ​ 2023 ​ Total ​ 2022 ​ Total Commercial ​ $ 800,476 ​ 20.1 ​ $ 841,697 ​ 20.8 ​ $ 840,964 ​ 21.7 Leases ​ 491,748 ​ 12.4 ​ 398,223 ​ 9.8 ​ 277,385 ​ 7.2 Commercial real estate – investor ​ 1,078,829 ​ 27.1 ​ 1,034,424 ​ 25.6 ​ 987,635 ​ 25.5 Commercial real estate – owner occupied ​ 683,283 ​ 17.2 ​ 796,538 ​ 19.7 ​ 854,879 ​ 22.1 Construction ​ 201,716 ​ 5.1 ​ 165,380 ​ 4.1 ​ 180,535 ​ 4.7 Residential real estate – investor ​ 49,598 ​ 1.2 ​ 52,595 ​ 1.3 ​ 57,353 ​ 1.5 Residential real estate – owner occupied ​ ​ 206,949 ​ 5.2 ​ ​ 226,248 ​ 5.6 ​ ​ 219,718 ​ 5.7 Multifamily ​ ​ 351,325 ​ 8.8 ​ ​ 401,696 ​ 9.9 ​ ​ 323,691 ​ 8.4 HELOC ​ ​ 103,388 ​ 2.6 ​ ​ 103,237 ​ 2.6 ​ ​ 109,202 ​ 2.8 Other 1 ​ 14,024 ​ 0.3 ​ 22,915 ​ 0.6 ​ 18,247 ​ 0.4 Total loans ​ $ 3,981,336 ​ 100.0 ​ $ 4,042,953 ​ 100.0 ​ $ 3,869,609 ​ 100.0 ​ 1 The “Other” class includes consumer loans and overdrafts. ​ Our total loans were $3.98 billion as of December 31, 2024, a decrease of $61.6 million from $4.04 billion as of December 31, 2023.
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.
Management considers this non-GAAP measure a valuable performance measurement for capital analysis. ​ ​ 68 ​ Table of Contents ​ 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, 2024 ​ ​ December 31, 2023 ​ Tangible common equity GAAP ​ ​ Non-GAAP ​ ​ GAAP ​ ​ Non-GAAP ​ (Dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Equity $ 671,034 ​ ​ $ 671,034 ​ ​ $ 577,281 ​ ​ $ 577,281 ​ Less: Goodwill and intangible assets ​ 115,291 ​ ​ ​ 115,291 ​ ​ ​ 97,695 ​ ​ ​ 97,695 ​ Add: Limitation of exclusion of core deposit intangible (80%) ​ N/A ​ ​ ​ 4,406 ​ ​ ​ N/A ​ ​ ​ 2,243 ​ Adjusted goodwill and intangible assets ​ 115,291 ​ ​ ​ 110,885 ​ ​ ​ 97,695 ​ ​ ​ 95,452 ​ Tangible common equity $ 555,743 ​ ​ $ 560,149 ​ ​ $ 479,586 ​ ​ $ 481,829 ​ Tangible assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total assets $ 5,649,377 ​ ​ $ 5,649,377 ​ ​ $ 5,722,799 ​ ​ $ 5,722,799 ​ Less: Adjusted goodwill and intangible assets ​ 115,291 ​ ​ ​ 110,885 ​ ​ ​ 97,695 ​ ​ ​ 95,452 ​ Tangible assets $ 5,534,086 ​ ​ $ 5,538,492 ​ ​ $ 5,625,104 ​ ​ $ 5,627,347 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common equity to total assets ​ 11.88 % ​ ​ 11.88 % ​ ​ 10.09 % ​ ​ 10.09 % Tangible common equity to tangible assets ​ 10.04 % ​ ​ 10.11 % ​ ​ 8.53 % ​ ​ 8.56 % ​ 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.
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.
Subsequent to closing, results reflect all post-transaction activity. 47 ​ Table of Contents ​ Summary Financial Data ​ Old Second Bancorp, Inc. and Subsidiaries Financial Highlights (Dollars in thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2024 2023 2022 Balance sheet items at year-end ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total assets ​ $ 5,649,377 ​ $ 5,722,799 ​ $ 5,888,317 ​ Total earning assets ​ 5,211,188 ​ 5,315,070 ​ 5,488,534 ​ Average assets ​ 5,642,978 ​ 5,820,173 ​ 6,071,220 ​ Loans, gross ​ 3,981,336 ​ 4,042,953 ​ 3,869,609 ​ Allowance for credit losses on loans ​ 43,619 ​ 44,264 ​ 49,480 ​ Deposits ​ 4,768,731 ​ 4,570,746 ​ 5,110,723 ​ Securities sold under agreement to repurchase ​ 36,657 ​ 26,470 ​ 32,156 ​ Other short-term borrowings ​ 20,000 ​ 405,000 ​ 90,000 ​ Junior subordinated debentures ​ 25,773 ​ 25,773 ​ 25,773 ​ Subordinated debentures ​ 59,467 ​ 59,382 ​ 59,297 ​ Senior notes ​ ​ - ​ ​ - ​ ​ 44,585 ​ Notes payable and other borrowings ​ - ​ - ​ 9,000 ​ Stockholders’ equity ​ 671,034 ​ 577,281 ​ 461,141 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Results of operations for the year ended ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest and dividend income ​ $ 297,904 ​ $ 291,970 ​ $ 216,473 ​ Interest expense ​ 56,269 ​ 40,039 ​ 10,317 ​ Net interest and dividend income ​ 241,635 ​ 251,931 ​ 206,156 ​ Provision for credit losses ​ 12,750 ​ 16,501 ​ 6,550 ​ Noninterest income ​ 43,819 ​ 34,179 ​ 43,116 ​ Noninterest expense ​ 159,748 ​ 145,201 ​ 151,173 ​ Income before taxes ​ 112,956 ​ 124,408 ​ 91,549 ​ Provision for income taxes ​ 27,692 ​ 32,679 ​ 24,144 ​ Net income available to common stockholders ​ $ 85,264 ​ $ 91,729 ​ $ 67,405 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performance ratio ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Return on average total assets ​ 1.51 % ​ 1.58 % ​ 1.11 % Return on average equity ​ 13.63 % ​ 17.70 % ​ 14.46 % Average equity to average assets ​ 11.08 % ​ 8.91 % ​ 7.68 % Dividend payout ratio ​ 11.05 % ​ 9.76 % ​ 13.25 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Per share data ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic earnings ​ $ 1.90 ​ $ 2.05 ​ $ 1.51 ​ Diluted earnings ​ $ 1.87 ​ $ 2.02 ​ $ 1.49 ​ Common book value per share ​ $ 14.95 ​ $ 12.92 ​ $ 10.34 ​ Weighted average diluted shares outstanding ​ 45,639,351 ​ 45,395,010 ​ 45,213,088 ​ Weighted average basic shares outstanding ​ 44,828,290 ​ 44,663,722 ​ 44,526,655 ​ Shares outstanding at year-end ​ 44,873,467 ​ 44,697,917 ​ 44,582,311 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loan quality ratios ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for credit losses on loans to total loans at end of the year ​ 1.10 % 1.09 % 1.28 % Provision for credit losses on loans to total loans ​ 0.32 % 0.41 % 0.17 % Net loans charged-off to average total loans ​ 0.36 % 0.58 % 0.04 % Nonaccrual loans to total loans at end of the year ​ 0.72 % 1.67 % 0.82 % Nonperforming assets to total assets at end of the year ​ 0.92 % 1.29 % 0.59 % Allowance for credit losses on loans to nonaccrual loans ​ 151.19 % 65.50 % 156.57 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 48 ​ Table of Contents Old Second Bancorp, Inc. and Subsidiaries Quarterly Financial Information (Dollars in thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2024 ​ 2023 ​ 4th 3rd 2nd 1st 4th 3rd 2nd 1st Interest income ​ $ 75,279 ​ $ 76,072 ​ $ 73,223 ​ $ 73,330 ​ $ 73,696 ​ $ 74,229 ​ $ 73,886 ​ $ 70,159 ​ Interest expense ​ 13,695 ​ 15,494 ​ 13,533 ​ 13,547 ​ 12,461 ​ 11,199 ​ 10,306 ​ 6,073 ​ Net interest income ​ 61,584 ​ 60,578 ​ 59,690 ​ 59,783 ​ 61,235 ​ 63,030 ​ 63,580 ​ 64,086 ​ Provision for credit losses ​ 3,500 ​ 2,000 ​ 3,750 ​ 3,500 ​ 8,000 ​ 3,000 ​ 2,000 ​ 3,501 ​ Securities losses, net ​ - ​ (1) ​ - ​ 1 ​ (2) ​ (924) ​ (1,547) ​ (1,675) ​ Income before taxes ​ 25,372 ​ 29,851 ​ 29,190 ​ 28,543 ​ 24,938 ​ 32,484 ​ 34,973 ​ 32,013 ​ Net income ​ 19,110 ​ 22,951 ​ 21,891 ​ 21,312 ​ 18,225 ​ 24,335 ​ 25,562 ​ 23,607 ​ Basic earnings per share ​ 0.42 ​ 0.52 ​ 0.48 ​ 0.48 ​ 0.40 ​ 0.55 ​ 0.57 ​ 0.53 ​ Diluted earnings per share ​ 0.42 ​ 0.50 ​ 0.48 ​ 0.47 ​ 0.40 ​ 0.54 ​ 0.56 ​ 0.52 ​ Dividends paid per share ​ 0.06 ​ 0.05 ​ 0.05 ​ 0.05 ​ 0.05 ​ 0.05 ​ 0.05 ​ 0.05 ​ ​ 2024 Financial Overview ​ In 2024, we recorded net income of $85.3 million, or $1.87 per fully diluted share, compared to $91.7 million, or $2.02 per fully diluted share, in 2023, and $67.4 million, or $1.49 per fully diluted share, in 2022.
Adjusted net income, a non-GAAP financial measure that excludes, litigation expense, net gains on branch sales, and Visa portfolio deconversion/liquidation costs was $92.9 million in 2023.
Adjusted net income, a non-GAAP financial measure that excludes transaction-related costs, litigation expense, and net gains on branch sales was $85.9 million in 2024.
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.
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 decreased $10.3 million, or 4.1%, to $241.6 million for 2024, from $251.9 million for 2023.
In 2023, our available-for-sale securities portfolio decreased $346.5 million, compared to year-end 2022, due primarily to $205.7 million of strategic sales and $186.0 million of paydowns, maturities, and calls. These decreases in 2023 were partially offset by security purchases of $13.4 million.
In 2024, our available-for-sale securities portfolio decreased $31.1 million, compared to year-end 2023, due primarily to $304.2 million of paydowns, maturities, and calls and $5.3 million of strategic sales. These decreases in 2024 were partially offset by security purchases of $265.5 million.
The balance in notes payable was related to a $20.0 million dollar term note originated with a correspondent bank in the first quarter of 2020, to facilitate the redemption of our Old Second Capital Trust I trust preferred securities and related junior subordinated debentures, completed on March 2, 2020. 59 ​ Table of Contents Capital ​ As of December 31, 2023, we had total stockholders’ equity of $577.3 million, an increase of $116.1 million, or 25.2%, from $461.1 million as of December 31, 2022.
On June 30, 2023, we redeemed all of the $45.0 million senior notes. ​ On February 24, 2023, we paid off the remaining $9.0 million balance in notes payable related to a $20.0 million dollar term note originated with a correspondent bank in the first quarter of 2020, to facilitate the redemption of our Old Second Capital Trust I trust preferred securities and related junior subordinated debentures, completed on March 2, 2020. ​ Capital ​ As of December 31, 2024, we had total stockholders’ equity of $671.0 million, an increase of $93.8 million, or 16.2%, from $577.3 million as of December 31, 2023.
See the discussion entitled “Non-GAAP Financial Measures” on page 44 and the table below, which provides a reconciliation of this non-GAAP measure and related items, to the most comparable GAAP equivalents. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ December 31, ​ ​ 2023 ​ 2022 ​ 2021 Net Income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income before income taxes (GAAP) ​ ​ $ 124,408 ​ $ 91,549 ​ $ 27,867 Pre-tax income adjustments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Provision for credit losses - Day Two ​ ​ ​ - ​ ​ - ​ ​ 14,625 Litigation related expenses ​ ​ ​ 1,200 ​ ​ - ​ ​ - Merger-related costs, net of (gains)/losses on branch sales ​ ​ ​ (258) ​ ​ 9,144 ​ ​ 13,190 Liquidation and deconversion costs on Visa credit card portfolio ​ ​ ​ 629 ​ ​ - ​ ​ - Gains on the sale of Visa credit card and land trust portfolios ​ ​ ​ - ​ ​ (923) ​ ​ - Adjusted net income before taxes ​ ​ ​ 125,979 ​ ​ 99,770 ​ ​ 55,682 Taxes on adjusted net income ​ ​ ​ 33,092 ​ ​ 26,341 ​ ​ 13,800 Adjusted net income (non-GAAP) ​ ​ $ 92,887 ​ $ 73,429 ​ $ 41,882 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic earnings per share (GAAP) ​ ​ $ 2.05 ​ $ 1.51 ​ $ 0.66 Diluted earnings per share (GAAP) ​ ​ ​ 2.02 ​ ​ 1.49 ​ ​ 0.65 Adjusted basic earnings per share excluding acquisition-related costs (non-GAAP) ​ ​ ​ 2.08 ​ ​ 1.65 ​ ​ 1.39 Adjusted diluted earnings per share excluding acquisition-related costs (non-GAAP) ​ ​ ​ 2.05 ​ ​ 1.62 ​ ​ 1.36 ​ Adjusted net income provides for a comparative analysis of our performance excluding those one time matters, such as litigation expense related to a claim regarding prior years’ overdraft fee compliance, net gains stemming from branch sales completed to eliminate duplicative geographic locations due to the West Suburban acquisition, and the Visa credit card and land trust portfolio sales were executed to exit products that were not within our strategic plan. ​ Net interest and dividend income increased $45.8 million, or 22.2% for 2023 compared to 2022, due primarily to loan growth and the impact of market interest rate increases on loans and securities.
See the discussion entitled “Non-GAAP Financial Measures” on page 51 and the table below, which provides a reconciliation of this non-GAAP measure and related items, to the most comparable GAAP equivalents. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ December 31, ​ ​ 2024 ​ 2023 ​ 2022 Net Income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income before income taxes (GAAP) ​ ​ $ 112,956 ​ $ 124,408 ​ $ 91,549 Pre-tax income adjustments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Litigation related expenses ​ ​ ​ - ​ ​ 1,200 ​ ​ - Death benefit related to BOLI ​ ​ ​ (905) ​ ​ - ​ ​ - Merger related costs, net of losses/(gains) on branch sales ​ ​ ​ 1,992 ​ ​ (258) ​ ​ 9,144 Liquidation and deconversion costs on Visa credit card portfolio ​ ​ ​ - ​ ​ 629 ​ ​ - Gains on the sale of Visa credit card and land trust portfolios ​ ​ ​ - ​ ​ - ​ ​ (923) Adjusted net income before taxes ​ ​ ​ 114,043 ​ ​ 125,979 ​ ​ 99,770 Taxes on adjusted net income ​ ​ ​ 28,176 ​ ​ 33,092 ​ ​ 26,341 Adjusted net income (non-GAAP) ​ ​ $ 85,867 ​ $ 92,887 ​ $ 73,429 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic earnings per share (GAAP) ​ ​ $ 1.90 ​ $ 2.05 ​ $ 1.51 Diluted earnings per share (GAAP) ​ ​ ​ 1.87 ​ ​ 2.02 ​ ​ 1.49 Adjusted basic earnings per share (non-GAAP) ​ ​ ​ 1.92 ​ ​ 2.08 ​ ​ 1.65 Adjusted diluted earnings per share (non-GAAP) ​ ​ ​ 1.88 ​ ​ 2.05 ​ ​ 1.62 ​ Adjusted net income provides for a comparative analysis of our performance excluding those one-time matters, such as transaction-related costs for our purchase of five FRME branches, litigation expense related to a claim regarding prior years’ overdraft fee compliance, net gains or net losses stemming from branch sales completed to eliminate duplicative geographic locations due to past acquisitions, and the Visa credit card and land trust portfolio sales, which were executed to exit products that were not within our strategic plan. ​ Net interest and dividend income decreased $10.3 million, or 4.1% for 2024 compared to 2023, due primarily to increased interest expense due to higher market rates on deposits throughout 2024, partially offset by the impact of market interest rates on loans, and lower average balances on FHLBC advances.
The 2022 provision for credit losses of $6.6 million compared to $4.3 million in 2021 was primarily due to loan growth of $448.8 million in 2022, partially offset by improved economic factors. ​ 47 ​ Table of Contents For additional discussion of the credit provision and allowance for credit losses, see the section below “Allowance for Credit Losses” in this Item 7.
The 2023 provision for credit losses of $16.5 million compared to $10.0 million in 2022 was primarily due to loan growth of $173.3 million in 2023 and prior-year net charge offs, partially offset by improved economic factors. 54 ​ Table of Contents ​ For additional discussion of the credit provision and allowance for credit losses, see the section below “Allowance for Credit Losses” in this Item 7.
Management’s Discussion and Analysis of Financial Condition. ​ Noninterest income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest Income for the Twelve Months ending December 31, ​ Percent Change From (Dollars in thousands) 2023 ​ 2022 ​ 2021 ​ 2023-2022 ​ 2022-2021 Wealth management $ 9,803 ​ $ 9,887 ​ $ 9,408 ​ (0.8) ​ 5.1 Service charges on deposits ​ 9,817 ​ ​ 9,562 ​ ​ 5,403 ​ 2.7 ​ 77.0 Residential mortgage banking revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Secondary mortgage fees ​ 259 ​ ​ 332 ​ ​ 1,044 ​ (22.0) ​ (68.2) Mortgage servicing rights mark to market (loss) gain ​ (1,425) ​ ​ 3,177 ​ ​ 1,261 ​ (144.9) ​ 151.9 Mortgage servicing income ​ 2,029 ​ ​ 2,130 ​ ​ 2,181 ​ (4.7) ​ (2.3) Net gain on sales of mortgage loans ​ 1,477 ​ ​ 2,022 ​ ​ 9,300 ​ (27.0) ​ (78.3) Total residential mortgage banking revenue ​ 2,340 ​ ​ 7,661 ​ ​ 13,786 ​ (69.5) ​ (44.4) Securities (losses) gains, net ​ (4,148) ​ ​ (944) ​ ​ 232 ​ (339.4) ​ (506.9) Increase in cash surrender value of BOLI ​ 2,120 ​ ​ 718 ​ ​ 1,390 ​ 195.3 ​ (48.3) Card related income ​ 10,051 ​ ​ 10,989 ​ ​ 6,712 ​ (8.5) ​ 63.7 Other income ​ 4,196 ​ ​ 5,243 ​ ​ 2,329 ​ (20.0) ​ 125.1 Total noninterest income $ 34,179 ​ $ 43,116 ​ $ 39,260 ​ (20.7) ​ 9.8 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Our total noninterest income decreased $8.9 million, or 20.7%, to $34.2 million for 2023, compared to $43.1 million for 2022.
Management’s Discussion and Analysis of Financial Condition. ​ Noninterest income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest Income for the Twelve Months ending December 31, ​ Percent Change From (Dollars in thousands) 2024 ​ 2023 ​ 2022 ​ 2024-2023 ​ 2023-2022 Wealth management $ 11,426 ​ $ 9,803 ​ $ 9,887 ​ 16.6 ​ (0.8) Service charges on deposits ​ 10,226 ​ ​ 9,817 ​ ​ 9,562 ​ 4.2 ​ 2.7 Residential mortgage banking revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Secondary mortgage fees ​ 287 ​ ​ 259 ​ ​ 332 ​ 10.8 ​ (22.0) Mortgage servicing rights mark to market (loss) gain ​ (723) ​ ​ (1,425) ​ ​ 3,177 ​ 49.3 ​ (144.9) Mortgage servicing income ​ 1,942 ​ ​ 2,029 ​ ​ 2,130 ​ (4.3) ​ (4.7) Net gain on sales of mortgage loans ​ 1,805 ​ ​ 1,477 ​ ​ 2,022 ​ 22.2 ​ (27.0) Total residential mortgage banking revenue ​ 3,311 ​ ​ 2,340 ​ ​ 7,661 ​ 41.5 ​ (69.5) Securities (losses) gains, net ​ - ​ ​ (4,148) ​ ​ (944) ​ 100.0 ​ (339.4) Increase in cash surrender value of BOLI ​ 3,619 ​ ​ 2,120 ​ ​ 718 ​ 70.7 ​ 195.3 Death benefit realized on BOLI ​ 905 ​ ​ - ​ ​ - ​ N/M ​ N/M Card related income ​ 10,114 ​ ​ 10,051 ​ ​ 10,989 ​ 0.6 ​ (8.5) Other income ​ 4,218 ​ ​ 4,196 ​ ​ 5,243 ​ 0.5 ​ (20.0) Total noninterest income $ 43,819 ​ $ 34,179 ​ $ 43,116 ​ 28.2 ​ (20.7) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ N/M - Not meaningful ​ Our total noninterest income increased $9.6 million, or 28.2%, to $43.8 million for 2024, compared to $34.2 million for 2023.
Also contributing to the lower mortgage banking earnings in 2023 was a decrease of $545,000 on sales of mortgage loans. ● Net securities losses of $4.1 million in 2023, compared to net securities losses of $944,000 in 2022, reflecting strategic sales in 2023 given the increasing rate environment resulting in downward pressure on the bond market during the year. ● A $938,000, or 8.5%, decrease in card-related income in 2023, compared to 2022, due to decreased consumer spending. ● Other income decreased $1.0 million, or 20.0% in 2023, compared to 2022, primarily due to a $743,000 gain on a Visa credit card portfolio sale and a $180,000 gain on the sale of a land trust portfolio, both recorded in the third quarter of 2022. ​ Partially offsetting these decreases was an increase in service charges on deposits of $255,000 and a $1.4 million increase in the cash surrender value of BOLI.
In addition, total noninterest income decreased in 2023, compared to 2022, due to net securities losses of $4.1 million in 2023, compared to net securities losses of $944,000 in 2022, reflecting strategic sales in 2023 given the increasing rate environment resulting in downward pressure on the bond market during the year, a $938,000, or 8.5%, decrease in card-related income in 2023, compared to 2022, and a $1.0 million decrease in other income, primarily due to a $743,000 gain on a Visa credit card portfolio sale and a $180,000 gain on the sale of a land trust portfolio, both recorded in the third quarter of 2022.
Partially offsetting the decrease in our average other borrowings was an increase of $12.5 million in average other short-term borrowings due to obtaining FHLB advances during the second half of 2022. ​ 45 ​ Table of Contents The following table sets forth certain information relating to our average consolidated balance sheets and reflects the yield on average interest earning assets and cost of average interest bearing liabilities for the years indicated obtained by dividing the related interest by the average balance of assets or liabilities.
Partially offsetting the decrease in our average borrowings was an increase of $10.7 million in average securities sold under repurchase agreements. ​ The following table sets forth certain information relating to our average Consolidated Balance Sheets and reflects the yield on average interest earning assets and cost of average interest bearing liabilities for the years indicated obtained by dividing the related interest by the average balance of assets or liabilities.
We may engage in repurchases under the Repurchase Program from time to time through open market purchases, trading plans established in accordance with SEC rules, privately negotiated transactions, or by other means.
In the fourth quarter of 2024, our Board of Directors re-authorized the repurchase of up to 2,234,896 shares of our common stock. We may engage in repurchases under the Repurchase Program from time to time through open market purchases, trading plans established in accordance with SEC rules, privately negotiated transactions, or by other means.
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.
In 2022, securities transactions accounted for net inflows of $9.2 million, and proceeds from the sales of OREO assets accounted for inflows of $941,000. ​ ​ 69 ​ Table of Contents ​ Net cash outflows from financing activities in 2024 were $455.1 million, compared to $293.0 million of outflows in 2023, and $301.5 million of outflows in 2022.

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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 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.
Biggest changeComparatively, we have a slightly less sensitive profile relative to December 31, 2023 should interest rates rise. ​ 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. 71 ​ 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, 2024 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Dollar change ​ $ (38,905) ​ ​ $ (19,660) ​ ​ $ (9,740) ​ ​ $ 9,513 ​ ​ $ 19,168 ​ ​ $ 35,813 ​ Percent change ​ ​ (15.0) % ​ ​ (7.6) % ​ ​ (3.7) % ​ ​ 3.7 % ​ ​ 7.4 % ​ ​ 13.8 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 % ​ The amounts and assumptions used in the simulation model should not be viewed as indicative of expected actual results.
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.
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, our variable rate assets reprice faster than our longer duration, low beta deposit base.
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.
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, 2024.
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.
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.
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.
As of December 31, 2024, our net interest income profile remained sensitive to earnings gains (in both dollars and percentage) should market interest rates rise.
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.
The market events of failed liquidity management at other banks in 2023 have been discussed and reviewed by the asset-liability committee. The committee concluded that we possess a strong liquidity profile and no new liquidity risks were identified.
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 interest rate risk exposures at December 31, 2024 and December 31, 2023 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 and Prime), and balance sheet growth or contraction.
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.
The current forward curve implies two rate cuts in 2025. The FRB continued to shrink its balance sheet, ending 2024 at $6.9 trillion, down from a peak of $8.7 trillion in March 2023. ​ We manage interest rate risk within guidelines established by the asset liability policy which are intended to limit the amount of rate exposure.
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
Furthermore, higher costs of living may weaken the financial condition of our borrowers which could affect our credit profile. Inflation at the levels currently experienced has a minimal impact to our financial results. ​ ​ ​ ​ 72 ​ Table of Contents ​
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.
The annual U.S. inflation rate for December 2024 was 2.9%, up from 2.4% quarter-over-quarter, while Core CPI remained moderate at 3.2%. Management believes the inflation rate will moderate at the current level, an imperfect but acceptable level by the FRB. The downside risks of high inflation put upwards pressure on our expenses, which could impact our profits.
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.
We believe a financial institution’s ability to effectively tune its interest rate risk profile and strategically position its balance sheet through rate cycles helps sustain financial performance of our institution. ​ In the second half of 2024, the Federal Reserve Board (“FRB”) cut the Federal Funds (“FF”) target rate by 100 basis points to a target range of 4.25-4.50%, after holding the FF target range at 5.25-5.50% for 14 months.
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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.
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Our interest rate risk exposures at December 31, 2023 and December 31, 2022 are outlined in the table below.

Other OSBC 10-K year-over-year comparisons