[Cautionary Note Regarding Forward-Looking Statements](index=4&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This section outlines potential risks and uncertainties, including economic conditions, strategic execution, and the pending Bancorp Financial merger, that could materially affect Old Second Bancorp's actual results - Key risks include **economic conditions** (inflation, real estate values), ability to execute **growth strategies**, integration of **acquired businesses**, and changes in **U.S. monetary policy and interest rates**[10](index=10&type=chunk) - The company highlights specific risks related to its **pending merger with Bancorp Financial, Inc.**, such as **failure to obtain regulatory or stockholder approvals**, **not realizing anticipated benefits**, and **potential business disruptions**[12](index=12&type=chunk) - Operational and market risks mentioned include **competitive pressures from FinTech companies**, **cybersecurity threats**, **vendor failures**, and the **impact of geopolitical events** like the war in Ukraine and conflicts in the Middle East[10](index=10&type=chunk) [PART I – FINANCIAL INFORMATION](index=7&type=section&id=PART%20I) [Financial Statements](index=7&type=section&id=Item%201.%20Financial%20Statements) The unaudited consolidated financial statements for Q1 2025 show total assets increased to **$5.73 billion**, with net income decreasing to **$19.8 million** from **$21.3 million** in Q1 2024 [Consolidated Balance Sheets](index=7&type=section&id=Consolidated%20Balance%20Sheets) As of March 31, 2025, total assets increased to **$5.73 billion**, driven by higher cash, while net loans slightly decreased and total deposits grew to **$4.85 billion** Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $256,121 | $99,329 | | Net loans | $3,898,681 | $3,937,717 | | Total assets | $5,727,686 | $5,649,377 | | Total deposits | $4,852,791 | $4,768,731 | | Total liabilities | $5,033,195 | $4,978,343 | | Total stockholders' equity | $694,491 | $671,034 | [Consolidated Statements of Income](index=8&type=section&id=Consolidated%20Statements%20of%20Income) For Q1 2025, net income was **$19.8 million** (**$0.43 per diluted share**), down from **$21.3 million** (**$0.47 per diluted share**) in Q1 2024, primarily due to higher noninterest expenses despite increased net interest income Income Statement Summary (in thousands, except per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net interest and dividend income | $62,904 | $59,783 | | Provision for credit losses | $2,400 | $3,500 | | Noninterest income | $10,201 | $10,501 | | Noninterest expense | $44,505 | $38,241 | | Net income | $19,830 | $21,312 | | Diluted earnings per share | $0.43 | $0.47 | [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Cash and cash equivalents increased by **$156.8 million** in Q1 2025, driven by net cash inflows from investing activities (**$76.7 million**) and financing activities (**$62.2 million**), partially offset by operating activities Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $17,838 | $47,389 | | Net cash provided by investing activities | $76,737 | $93,890 | | Net cash provided by (used in) financing activities | $62,217 | ($143,330) | | **Net change in cash and cash equivalents** | **$156,792** | **($2,051)** | [Notes to Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, acquisitions, and financial instruments, highlighting the December 2024 branch acquisition and the pending Bancorp Financial merger announced in February 2025 - On December 6, 2024, the Company acquired **five branches from First Merchants Bank**, recording **$24.8 million in assets** and **$268.0 million in deposits**, resulting in **$6.8 million of goodwill**[32](index=32&type=chunk)[33](index=33&type=chunk) - A **merger agreement was signed with Bancorp Financial, Inc.** on February 24, 2025, with the transaction **expected to close in the third quarter of 2025**, **pending regulatory and stockholder approvals**[38](index=38&type=chunk)[40](index=40&type=chunk) - The **allowance for credit losses (ACL) on loans** was **$41.6 million** as of March 31, 2025, or **1.05% of total loans**, with a **provision of $2.4 million** recorded in Q1 2025[57](index=57&type=chunk)[210](index=210&type=chunk) - The Company and its subsidiary bank **exceeded all regulatory capital requirements** to be considered **'well capitalized'** as of March 31, 2025[98](index=98&type=chunk)[101](index=101&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=56&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2025 financial results, noting a decrease in net income to **$19.8 million** due to higher noninterest expenses, despite growth in net interest income and improved asset quality [Overview](index=56&type=section&id=MD%26A_Overview) Net income for Q1 2025 was **$19.8 million** (**$0.43 per diluted share**), a decrease from Q1 2024, primarily due to a **$6.3 million** rise in noninterest expense Quarterly Financial Highlights | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Income | $19.8M | $21.3M | | Diluted EPS | $0.43 | $0.47 | | Net Interest Income | $62.9M | $59.8M | | Noninterest Expense | $44.5M | $38.2M | - Adjusted net income (a non-GAAP measure) was **$20.6 million** for Q1 2025, compared to **$21.2 million** for Q1 2024[160](index=160&type=chunk)[162](index=162&type=chunk) - **Classified assets** decreased by **22.5%** to **$88.4 million** at March 31, 2025, from **$114.1 million** at December 31, 2024[165](index=165&type=chunk) [Results of Operations](index=62&type=section&id=MD%26A_Results_of_Operations) Pretax income for Q1 2025 decreased to **$26.2 million**, mainly due to a **$6.3 million** increase in noninterest expense, partially offset by a **$3.1 million** rise in net interest income - **Net interest income** increased by **$3.1 million** year-over-year, primarily due to a significant decrease in **interest expense on other short-term borrowings**[168](index=168&type=chunk) - **Noninterest income** decreased by **$0.3 million** year-over-year, mainly due to a **$0.5 million** decline in **residential mortgage banking revenue** and a **$0.7 million** decrease in the change in **cash surrender value of BOLI**[165](index=165&type=chunk)[181](index=181&type=chunk) - **Noninterest expense** rose by **$6.3 million** (**16.4%**) year-over-year, driven by increases in **salaries and benefits** (**+$2.7 million**), **OREO expense** (**+$1.8 million**), and **occupancy costs** (**+$0.6 million**)[167](index=167&type=chunk)[185](index=185&type=chunk) - The **effective tax rate** was **24.3%** in Q1 2025, compared to **25.3%** in Q1 2024[187](index=187&type=chunk) [Financial Condition](index=69&type=section&id=MD%26A_Financial_Condition) Total assets increased to **$5.73 billion** due to higher cash, while total loans decreased and total deposits grew to **$4.85 billion**, with improved asset quality and strong capital ratios - **Total loans** decreased by **$41.1 million** in Q1 2025, primarily due to paydowns in the **commercial and commercial real estate-owner occupied portfolios**[192](index=192&type=chunk) - **Nonperforming loans** increased to **$34.8 million** (**0.9% of total loans**) at Q1 2025 from **$30.3 million** (**0.8% of total loans**) at year-end 2024[194](index=194&type=chunk) - **Net charge-offs** were **$4.4 million** in Q1 2025, primarily from one commercial relationship and one construction loan[202](index=202&type=chunk) - **Total deposits** increased by **$84.1 million** in Q1 2025, with growth across **non-interest bearing demand, savings, NOW, and money market accounts**, partially offset by a decline in **time deposits**[219](index=219&type=chunk) - The **tangible common equity to tangible assets ratio** (non-GAAP) increased to **10.40%** at March 31, 2025, from **10.11%** at December 31, 2024[230](index=230&type=chunk)[231](index=231&type=chunk) [Liquidity](index=79&type=section&id=MD%26A_Liquidity) The company maintains strong liquidity, with cash and cash equivalents increasing to **$256.1 million** due to net cash inflows from financing and investing activities, supplemented by available credit lines - **Cash and cash equivalents** increased by **$156.8 million** during Q1 2025 to a total of **$256.1 million**[233](index=233&type=chunk)[238](index=238&type=chunk) - **Net cash from financing activities** was a source of **$62.2 million**, primarily due to an **$84.3 million increase in deposits**, offset by a **$20.0 million paydown of other short-term borrowings**[237](index=237&type=chunk) - The company has access to **additional funding sources**, including an undrawn **$30.0 million line of credit** with a third-party financial institution[238](index=238&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=61&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company manages interest rate risk with a moderately asset-sensitive balance sheet, projecting a **7.7%** increase in net interest income from a **100 basis point increase** in rates - The company's balance sheet has a **moderately asset-sensitive profile**, where **variable rate assets** reprice faster than its **deposit base**[243](index=243&type=chunk) Net Interest Income Sensitivity Analysis (March 31, 2025) | Immediate Rate Change | Dollar Change (in thousands) | Percent Change | | :--- | :--- | :--- | | +200 bps | $39,012 | 14.5% | | +100 bps | $20,661 | 7.7% | | -100 bps | $(21,166) | (7.9)% | | -200 bps | $(41,942) | (15.6)% | - Management believes the **economic effect of recently enacted tariffs** will manifest as **higher prices**, reversing the course of **lower inflation**, which could put **upward pressure on expenses** and **weaken borrower financial conditions**[248](index=248&type=chunk) [Controls and Procedures](index=62&type=section&id=Item%204.%20Controls%20and%20Procedures) The CEO and CFO concluded that disclosure controls and procedures were effective, with no material changes to internal controls over financial reporting during Q1 2025 - The CEO and CFO concluded that as of March 31, 2025, the Company's **disclosure controls and procedures were effective**[249](index=249&type=chunk) - **No changes in internal control over financial reporting occurred** during the quarter ended March 31, 2025, that have **materially affected, or are reasonably likely to materially affect, these controls**[250](index=250&type=chunk) [PART II – OTHER INFORMATION](index=63&type=section&id=PART%20II) [Legal Proceedings](index=63&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in ordinary course legal actions, with management expecting no material adverse effect on its financial position - The Company is involved in legal actions arising from normal business activities, but management believes the ultimate liabilities will not have a **material adverse effect on its financial position**[253](index=253&type=chunk) [Risk Factors](index=63&type=section&id=Item%201.A.%20Risk%20Factors) No material changes have occurred to the risk factors previously disclosed in the Company's 2024 Annual Report on Form 10-K - **No material changes have occurred** to the **risk factors disclosed in the 2024 Annual Report on Form 10-K**[254](index=254&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=63&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) A stock repurchase program for up to **2,234,896 shares** was authorized in December 2024, with no shares repurchased during Q1 2025 - A **stock repurchase program** for up to **2,234,896 shares** was authorized in December 2024 and is effective until December 31, 2025[255](index=255&type=chunk) - **No shares were repurchased** during the quarter ended March 31, 2025[257](index=257&type=chunk)[258](index=258&type=chunk) [Defaults Upon Senior Securities](index=63&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities - There were **no defaults upon senior securities**[259](index=259&type=chunk) [Other Information](index=64&type=section&id=Item%205.%20Other%20Information) No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement in Q1 2025 - **No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement** in Q1 2025[261](index=261&type=chunk) [Exhibits](index=65&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including the Bancorp Financial merger agreement and CEO/CFO certifications - Key exhibits include the **merger agreement with Bancorp Financial, Inc.**, and **certifications by the CEO and CFO pursuant to Sarbanes-Oxley**[264](index=264&type=chunk)

Core Viewpoint - Old Second Bancorp (OSBC) is currently identified as a strong value stock with a Zacks Rank of 2 (Buy) and a Value grade of A, indicating it may be undervalued in the market [4][7]. Valuation Metrics - OSBC has a P/E ratio of 8.28, which is lower than the industry average of 10.09. Over the past 52 weeks, its Forward P/E has ranged from 7.18 to 10.39, with a median of 8.81 [4]. - The P/B ratio for OSBC stands at 1.07, significantly below the industry average of 1.95. Its P/B has fluctuated between 0.97 and 1.30 over the past year, with a median of 1.15 [5]. - OSBC's P/CF ratio is 7.69, compared to the industry's average of 14.94. This ratio has varied from 6.47 to 9.42 in the last 12 months, with a median of 8.01 [6]. Investment Outlook - The combination of OSBC's favorable valuation metrics and strong earnings outlook suggests that the stock is likely undervalued, making it an attractive investment opportunity [7].

Financial Data and Key Metrics Changes - Net income for Q1 2025 was $19.8 million, or $0.43 per diluted share, with a return on assets (ROA) of 1.42% and a return on average tangible common equity of 14.70% [6] - The tangible common equity ratio increased by 30 basis points from the previous quarter to 10.34%, and common equity Tier 1 rose to 13.47% from 12.82% [8] - The tax equivalent efficiency ratio was 55.48%, reflecting strong profitability despite various impacts on earnings [22] Business Line Data and Key Metrics Changes - Net interest income increased by $1.3 million, or 2.1%, to $62.9 million compared to the previous quarter, and up $3.1 million, or 5.2%, from the same quarter last year [25] - Total loans decreased by $41.1 million from the prior linked quarter, primarily due to net paydowns in commercial real estate and multifamily portfolios [10] - Noninterest income grew by $528,000, or 20.6%, in wealth management fees and $304,000, or 12.6%, in service charges on deposits compared to the prior year [21] Market Data and Key Metrics Changes - The total cost of deposits was 82 basis points for Q1 2025, down from 89 basis points in the previous quarter and 71 basis points a year ago [12] - The loan-to-deposit ratio was 81.2% as of March 31, 2025, compared to 83.5% last quarter and 86.1% a year ago [13] - Criticized loans decreased by 42% year-over-year to $116.7 million, marking the lowest levels in three years [16] Company Strategy and Development Direction - The company aims to manage liquidity and capital while building commercial loan origination capabilities for long-term stability [22] - There is a focus on creating a more stable long-term balance sheet mix featuring more loans and less securities [22] - The company is optimistic about future growth opportunities, particularly with the pending merger with Evergreen Bank Group [32] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's positioning and opportunities ahead, noting a strong start to 2025 [37] - The outlook for loan demand is cautious, with expectations for modest growth in the second half of the year [71] - Management remains optimistic about credit quality improvements and believes that future quarters will show positive trends [74] Other Important Information - The company recorded $4.4 million in gross loan charge-offs in Q1 2025, primarily related to one C&I loan that was downgraded [14] - Noninterest expense increased by $183,000 compared to the previous quarter, primarily due to salary and employee benefit increases [34] - The efficiency ratio adjusted to exclude certain costs was 55.48%, indicating strong expense discipline [22] Q&A Session Summary Question: Comments on margin performance and future rate cuts - Management indicated that they do not expect three rate cuts and believe inflation is stickier, suggesting a more stable margin outlook [43][44] Question: Loan book outlook and participation loans - Management is working to exit approximately $200 million in participation loans over the next 24 months and is optimistic about the repositioning of the loan book [48] Question: Trends in commercial clients' sentiment - Management noted a "wait and see" approach among commercial clients, with expectations for loan demand to improve in the second half of the year [71] Question: Reserve levels and credit quality outlook - Management expressed confidence in their credit outlook, stating that criticized and classified loans have been trending down significantly [73] Question: Expectations for expense growth - Management aims to keep expense growth in the 4% range for the year, despite some noise in the first quarter [36]

Financial Data and Key Metrics Changes - Net income for the first quarter of 2025 was $19.8 million, or $0.43 per diluted share, with a return on assets (ROA) of 1.42% and a return on average tangible common equity of 14.7% [3][4] - The tangible common equity ratio increased by 30 basis points from the previous quarter to 10.34%, and common equity Tier 1 rose to 13.47% from 12.82% [5] - Net interest income increased by $1.3 million or 2.1% from the previous quarter and by $3.1 million or 5.2% year-over-year [16] Business Line Data and Key Metrics Changes - Total loans decreased by $41.1 million from the previous quarter, primarily due to net paydowns in commercial and multifamily portfolios [7] - The purchase participation portfolio declined by $46 million or over 10% in the quarter, and since the West Suburban acquisition, it has decreased by nearly 49% [8][9] - Noninterest income grew by $528,000 or 20.6% in wealth management fees and $304,000 or 12.6% in service charges on deposits [13] Market Data and Key Metrics Changes - Tax equivalent income on average earning assets increased by $221,000 or 0.3%, while interest expense on average interest-bearing liabilities decreased by $2.9 million or 21.3% [6] - The total cost of deposits was 82 basis points for the first quarter of 2025, down from 89 basis points in the previous quarter [8] Company Strategy and Development Direction - The company aims to manage liquidity and capital while building commercial loan origination capabilities for long-term stability [15] - The focus is on creating a more stable long-term balance sheet with a mix of more loans and fewer securities to maintain returns on equity [15] - The company is optimistic about the upcoming merger with Evergreen Bank Group, which is expected to enhance profitability [21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's positioning and opportunities ahead, noting a strong start to 2025 [25] - The sentiment among commercial clients is cautious, with a "wait and see" approach due to market uncertainties, particularly regarding tariffs [50] - Management does not foresee a significant increase in loan demand in the second quarter but is hopeful for an uptick in the second half of the year [51] Other Important Information - The efficiency ratio adjusted to exclude certain costs was 55.48%, slightly higher than the previous quarter [15] - The allowance for credit losses on loans decreased to 1.05% of total loans, reflecting a reduction in criticized loans [12] Q&A Session Summary Question: Comments on margin performance and future rate cuts - Management indicated that while there may be expectations for rate cuts, they do not foresee significant declines in margins due to strong deposit flows and the upcoming merger [27][28] Question: Status of noncore loans and credit quality - The company is actively working to exit a significant portion of its purchase participation portfolio and has made progress in addressing credit quality [30][32] Question: Trends among lower balance deposit customers - There has been a significant slowdown in card transactions and a decrease in average balances among lower balance deposit customers, a trend that has been ongoing for about a year [42][43] Question: Loan demand expectations and economic sentiment - Management noted that commercial real estate activity is cautious, with clients waiting for clarity on tariffs before proceeding with new deals [50][51] Question: Charge-off trajectory and credit outlook - The company is optimistic about future credit quality, with a focus on maintaining low charge-offs and addressing any potential weaknesses proactively [56][58]

Old Second Bancorp (OSBC) Q1 2025 Earnings Call April 24, 2025 10:00 AM ET Company Participants James Eccher - President, CEO & Chairman of the BoardBradley Adams - EVP, COO & CFOChristopher Mcgratty - MD & Head of U.S. Bank ResearchTerry Mcevoy - Managing DirectorDavid Long - Managing DirectorBrian Martin - Director - Banks & Thrifts Conference Call Participants Nathan Race - Managing Director & Senior Research AnalystJeffrey Rulis - MD & Senior Research Analyst Operator Good morning, everyone, and thank y ...

Core Insights - Old Second Bancorp (OSBC) reported revenue of $73.11 million for Q1 2025, a 4% year-over-year increase, and an EPS of $0.45, down from $0.47 a year ago [1] - The revenue exceeded the Zacks Consensus Estimate of $70.55 million by 3.62%, while the EPS fell short of the consensus estimate of $0.46 by 2.17% [1] Financial Performance Metrics - Efficiency Ratio stood at 56.5%, better than the average estimate of 57.2% from three analysts [4] - Net Interest Margin was reported at 4.9%, surpassing the average estimate of 4.6% [4] - Total noninterest income was $10.20 million, below the average estimate of $10.55 million [4] - Net Interest Income (TE) reached $63.25 million, exceeding the average estimate of $60.65 million [4] - Net gain on sales of mortgage loans was $0.46 million, slightly above the average estimate of $0.40 million [4] Stock Performance - Shares of Old Second Bancorp have declined by 9.8% over the past month, compared to a 6.6% decline in the Zacks S&P 500 composite [3] - The stock currently holds a Zacks Rank 2 (Buy), indicating potential for outperformance in the near term [3]

Group 1: Earnings Performance - Old Second Bancorp reported quarterly earnings of $0.45 per share, missing the Zacks Consensus Estimate of $0.46 per share, and down from $0.47 per share a year ago, representing an earnings surprise of -2.17% [1] - The company posted revenues of $73.11 million for the quarter ended March 2025, surpassing the Zacks Consensus Estimate by 3.62%, compared to year-ago revenues of $70.28 million [2] - Over the last four quarters, Old Second Bancorp has surpassed consensus EPS estimates just once, but has topped consensus revenue estimates four times [2] Group 2: Stock Performance and Outlook - Old Second Bancorp shares have lost about 14.2% since the beginning of the year, while the S&P 500 has declined by -10.1% [3] - The company's earnings outlook is crucial for investors, as it includes current consensus earnings expectations for upcoming quarters and any recent changes to these expectations [4] - The current consensus EPS estimate for the coming quarter is $0.47 on $71.7 million in revenues, and $1.85 on $287.1 million in revenues for the current fiscal year [7] Group 3: Industry Context - The Zacks Industry Rank for Banks - Midwest is currently in the top 13% of over 250 Zacks industries, indicating a favorable outlook for the sector [8] - Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions, suggesting that tracking these revisions can be beneficial for investors [5] - The favorable estimate revisions trend for Old Second Bancorp has resulted in a Zacks Rank 2 (Buy) for the stock, indicating expected outperformance in the near future [6]

Financial Performance - Net income for Q1 2025 was $19.8 million, a $720,000 increase from Q4 2024, but a decrease of $1.5 million from Q1 2024[1][2][4] - Adjusted net income for Q1 2025 was $20.6 million, reflecting a $639,000 increase from Q4 2024, but a decrease of $637,000 from Q1 2024[1][4] - Basic earnings per share decreased to $0.44 from $0.48, reflecting a decline of 8.33%[58] - Net income for the first quarter of 2025 was $19,830 thousand, down 6.95% from $21,312 thousand in the first quarter of 2024[58] - Net income (GAAP) for the quarter ended March 31, 2025, was $19,830 million, an increase from $19,110 million in the previous quarter[65] Income and Revenue - Net interest and dividend income increased to $62.9 million in Q1 2025, up $1.3 million (2.1%) from Q4 2024 and up $3.1 million (5.2%) from Q1 2024[4][5] - Noninterest income decreased to $10.2 million in Q1 2025, down $1.4 million (12.1%) from Q4 2024 and down $300,000 (2.9%) from Q1 2024[5][6] - Total interest and dividend income for Q1 2025 was $73,565 million, a slight decrease from $75,279 million in Q4 2024[62] - Noninterest income for Q1 2025 was $10,201 million, down from $11,610 million in Q4 2024, indicating a decrease of 12.1%[62] Expenses - Noninterest expense was $44.5 million in Q1 2025, an increase of $183,000 (0.4%) from Q4 2024 and an increase of $6.3 million (16.4%) from Q1 2024[5][6] - Total noninterest expense for Q1 2025 was $44,505 million, an increase from $44,322 million in Q4 2024, representing a 0.4% rise[64] - Salaries and employee benefits increased by $2.7 million year-over-year, primarily due to higher base salary rates and officers' incentives[29] Assets and Loans - Total assets as of March 31, 2025, were $5.73 billion, an increase from $5.65 billion at December 31, 2024[6] - Total loans decreased to $3.94 billion as of March 31, 2025, down $41.1 million from December 31, 2024, and down $29.2 million from March 31, 2024[11] - Total classified loans decreased by $7.0 million from December 31, 2024, and by $50.4 million from March 31, 2024, totaling $85.0 million as of March 31, 2025[39] Credit Quality - Nonperforming loans totaled $34.8 million at March 31, 2025, compared to $30.3 million at December 31, 2024, and $65.1 million at March 31, 2024[11] - The allowance for credit losses was $41.6 million, representing 1.1% of total loans as of March 31, 2025[33] - Net charge-offs for the first quarter of 2025 were $4.4 million, compared to $4.9 million in the fourth quarter of 2024[45] - Nonperforming loans to total loans was 0.9% as of March 31, 2025, down from 1.6% as of March 31, 2024[35] Tax and Equity - The effective tax rate for Q1 2025 was 24.3%, compared to 24.7% for Q4 2024 and 25.3% for Q1 2024[9] - Total stockholders' equity increased to $694,491 thousand, up 3.46% from $671,034 thousand[56] Strategic Developments - The company announced an agreement to acquire Evergreen Bank Group, a $1.5 billion bank holding company, to enhance consumer lending capabilities[10] - The company plans to continue remediation work on classified loans to improve cash flow and tenancy[39]

Core Viewpoint - Purcell & Lefkowitz LLP is investigating Old Second Bancorp, Inc. to determine if its directors breached fiduciary duties related to recent corporate actions [1] Group 1 - The investigation is on behalf of Old Second Bancorp's shareholders [1] - Shareholders can obtain additional information regarding their rights and options at no cost [2] - Purcell & Lefkowitz LLP specializes in representing shareholders affected by securities fraud and corporate misconduct [3]

Loan Portfolio and Originations - The total loan portfolio decreased by $61.6 million year-over-year, with approximately $1.03 billion in loan originations in 2024, excluding renewals [23]. - Commercial real estate loans represented approximately 44.3% of the loan portfolio as of December 31, 2024, down from 45.3% at year-end 2023 [24]. - The company originated approximately $98.8 million in residential mortgage loans in 2024, with proceeds from sales to third parties totaling $58.8 million [23]. - Commercial loans decreased from $841.7 million in 2023 to $800.5 million in 2024, focusing on lower middle market private equity-backed businesses [25]. - As of December 31, 2024, approximately $683.3 million, or 38.8% of the total commercial real estate loan portfolio, consisted of loans secured by owner-occupied real estate [29]. - The construction and development portfolio increased from $165.4 million at December 31, 2023, to $201.7 million at December 31, 2024, reflecting a growth in organic originations [35]. - Total real estate lending was $2.68 billion, approximately 67.2% of the loan portfolio as of December 31, 2024, down from $2.78 billion or 68.8% in 2023 [154]. Mergers and Acquisitions - The merger with Bancorp Financial is expected to be completed in the third quarter of 2025, subject to regulatory approvals and stockholder approval [18]. - Each Bancorp Financial stockholder will receive 2.5814 shares of Old Second common stock and $15.93 in cash for each share owned [17]. - The merger with Bancorp Financial may face delays or denials due to required approvals, potentially impacting stockholder ownership and voting power [139]. - Regulatory scrutiny of mergers and acquisitions could delay or restrict expansion plans [132]. - The integration of acquired businesses may present challenges that could prevent the company from achieving expected benefits from mergers and acquisitions [184]. Capital and Regulatory Compliance - The Company is required to maintain a CET1 capital ratio of 7.0%, a Tier 1 risk-based capital ratio of 8.5%, and a total risk-based capital ratio of 10.5% due to Basel III capital standards [58]. - As of December 31, 2024, the Bank was well-capitalized, exceeding the Federal Reserve's requirements and meeting Basel III Rule requirements [64]. - The Company has opted for a five-year transition period for the Current Expected Credit Loss (CECL) model, with a Day One impact of CECL adoption amounting to $3.8 million [60]. - Recent regulatory initiatives have focused on strengthening capital requirements and liquidity risk management in response to banking sector instability in 2023 [54]. - The Federal Reserve's capital guidelines suggest that additional capital may be required based on specific risk profiles and growth expectations [62]. - The Company is subject to periodic examination by the Federal Reserve and must file reports regarding its operations [66]. - The Company must comply with the Basel III Rule, which requires maintaining a 2.5% capital conservation buffer to pay dividends [81]. - The bank's concentration in commercial real estate loans is 273.3%, which is below the 300% guideline for non-owner occupied commercial real estate loans [118]. - The bank's management continues to evaluate changes to the CRA regulations and their potential impact on operations [108]. - The Dodd-Frank Act has significantly increased the burden of regulatory compliance, potentially disadvantaging the company compared to competitors [194]. Economic and Market Conditions - Economic conditions, including inflation and market volatility, may adversely affect loan demand and credit quality [132]. - Rising interest rates could negatively impact net interest margins and increase default rates among borrowers [132]. - Inflationary pressures in 2023 have led to higher costs for consumers, potentially impacting the company's financial position and results of operations [141]. - Recent bank failures have caused market volatility and investor caution, potentially affecting the company's financial condition and results of operations [189]. - The Federal Reserve raised the target Federal Funds rate to between 5.25% and 5.50% in response to inflationary pressures, impacting net interest income [157]. Risk Management - The underwriting process for loans includes independent appraisals, environmental due diligence, and assessments of property conditions to mitigate risks [30]. - The company regularly performs stress testing on both commercial real estate and multifamily portfolios to establish appropriate reserve levels and ensure adequate capital [34]. - The allowance for credit losses (ACL) may need to increase due to economic uncertainty, which could adversely affect net income and capital [152]. - The company maintains a disciplined approach to credit risk management, but failures in this area could lead to increased loan defaults and charge-offs [150]. - The company faces operational risks from dependence on third-party vendors for key systems and services [132]. - The company is exposed to risks from climate change, including physical impacts and transition risks, which could adversely affect financial condition and operations [147][148]. Technology and Cybersecurity - The company’s future success depends on its ability to keep pace with technological changes in the financial services industry [172]. - The company faces significant risks related to cyber-attacks and security breaches, which could materially affect its business operations and financial condition [173]. - Increased spending on fraud detection and prevention systems is necessary due to the rising sophistication of fraudulent activities [171]. - The development and use of Artificial Intelligence (AI) present risks, including compliance costs and potential legal liabilities, which could harm the company's reputation and operations [177]. - The final rule for cybersecurity incidents mandates banks to notify their primary federal regulator within 36 hours of discovering a significant incident [120]. Competition and Market Position - The company faces substantial competition from larger financial institutions, which may require offering higher interest rates to attract deposits [162]. - The company’s profitability is highly dependent on net interest income, which is affected by changes in interest rates and competition for deposits [158]. - The competitive landscape includes various financial institutions, with the company focusing on client service and responsiveness to attract and retain customers [43]. Human Capital and Workforce - The company employed 877 full-time equivalent employees as of December 31, 2024, indicating a focus on human capital resources [48]. - Labor market conditions have shown signs of stabilization, improving workforce availability, but talent retention remains a concern [165]. Consumer Protection and Regulatory Changes - Compliance with consumer protection laws is a critical factor in the approval of proposed expansionary proposals [128]. - The CFPB issued a final rule requiring banks to provide consumers access to their financial transaction data upon request, expected to require updates by 2026 [122]. - Nine states have passed consumer privacy protection laws, with some exempting entities regulated under GLBA [121].