Loan Portfolio and Originations - Total loan portfolio grew by $173.3 million year over year, reaching approximately $997.2 million in loan originations in 2023[16] - As of December 31, 2023, commercial real estate loans represented approximately 45.3% of the loan portfolio, down from 47.6% at year-end 2022[17] - Approximately $796.5 million, or 43.5% of the total commercial real estate loan portfolio, consisted of loans secured by owner-occupied real estate[22] - Multifamily loans accounted for approximately $402 million, or 9.9% of the loan portfolio as of December 31, 2023[24] - Approximately $99.3 million of residential mortgage loans were originated in 2023, including $52.1 million held for sale[16] - The construction and development portfolio decreased from $180.5 million at December 31, 2022, to $165.4 million at December 31, 2023, due to reduced volumes based on rising interest rates[29] - Total real estate lending was $2.78 billion, approximately 68.8% of the loan portfolio at December 31, 2023, down from $2.73 billion or 70.6% at December 31, 2022[141] Company Operations and Structure - The company completed a merger with West Suburban Bancorp, Inc. on December 1, 2021, with total cash and stock consideration of approximately $295.2 million[12] - The company has established lending policies that include various underwriting factors such as loan to value ratio and credit history[16] - The company maintains a strong presence in Illinois, with 48 banking centers across several counties[10] - The company employed 834 full-time equivalent employees as of December 31, 2023[42] - The company retained servicing rights for mortgages sold to FNMA and FHLMC, which is a source of noninterest income[32] - The company is evaluating opportunities for mergers and acquisitions, which could materially affect operating results and financial condition[166] Financial Performance and Capital Management - The company had approximately $1.66 billion in assets under administration and/or management as of December 31, 2023[36] - The company is subject to regulatory restrictions on dividend payments, which may be affected by its net income and capital adequacy ratios[74] - The Company was well-capitalized, exceeding the Federal Reserve's requirements and meeting Basel III Rule standards as of December 31, 2023[59] - The Company adopted the Current Expected Credit Loss (CECL) model on January 1, 2020, with a Day One impact of $3.8 million, which began to phase in at 25% per year starting January 1, 2022[55] - The allowance for credit losses (ACL) is expected to increase significantly due to ongoing economic uncertainty into 2024[138] - The company may need to raise additional capital in the future, which could be dilutive and depend on market conditions and financial performance[196] Regulatory Environment and Compliance - The Bank is subject to examination and supervision by the OCC, with its deposit accounts insured by the FDIC up to $250,000 per insured depositor category[79] - The Federal Reserve's capital guidelines may require additional capital based on specific circumstances or risk profiles of the Company[57] - The Bank paid supervisory assessments to the OCC totaling $634,000 for the year ended December 31, 2023[84] - The Dodd-Frank Act requires stockholders to have an advisory vote on executive compensation and clawback policies[78] - The Bank must maintain anti-money laundering programs in compliance with the Bank Secrecy Act, including internal policies, a compliance officer, and employee training[102] - Compliance with anti-money laundering regulations is critical, with potential penalties for noncompliance impacting business operations[178] Economic and Market Conditions - Economic conditions significantly impact the ability of borrowers to repay loans, affecting the financial performance of the company[123] - Inflationary pressures in 2023 have led to increased interest rates, which may result in a recession and negatively affect business operations[128] - The company's trust and wealth management business is vulnerable to changes in economic and market conditions, potentially leading to reduced management fees[129] - Recent bank failures have created uncertainty in the financial sector, potentially impacting liquidity and customer confidence[175] - Changes in federal and state regulations could have unpredictable effects on the company's financial condition and operations[184] Risk Management and Challenges - The company regularly performs stress testing on its loan portfolios to ensure appropriate reserve levels and adequate capital levels are maintained[19] - The company faces competition from various financial institutions, including nontraditional financial technology companies, which may have competitive advantages due to less regulatory oversight[37] - The company is subject to increased scrutiny from banking regulators regarding commercial real estate lending activities[142] - The company maintains a disciplined approach to underwriting standards to manage credit risk effectively[137] - Cybersecurity risk is a significant focus for the company, with resources dedicated to protecting technology assets from malicious actors[208] Strategic Initiatives and Future Outlook - Future growth strategies include organic growth and opportunistic acquisitions, but successful implementation is not guaranteed[164] - The company faces risks in launching new business lines and products, which may require significant resources and may not achieve profitability targets[171] - The company must keep pace with technological changes to remain competitive, as failure to do so could adversely impact its business and financial condition[159] - Enhanced regulatory scrutiny on bank mergers may delay or restrict future acquisitions, potentially limiting the size of financial institutions that can be acquired[169] - Integration difficulties from mergers, such as with West Suburban, may hinder the expected benefits and lead to customer and personnel losses[170]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For transition period from to Commission File Number 000-10537 (Exact name of Registrant as specified in its charter) (State or other jurisdiction (I.R.S. Employer Identification ...

Financial Performance - Net income for Q2 2023 was $25.6 million, or $0.56 per diluted share, compared to $12.2 million, or $0.27 per diluted share in Q2 2022, reflecting significant growth driven by loan portfolio expansion and higher yields [146]. - Income before taxes for Q2 2023 was $35.0 million, up from $16.7 million in Q2 2022, driven by a $26.5 million increase in interest and dividend income [155]. - For the six months ended June 30, 2023, income before taxes was $67.0 million, compared to $33.1 million for the same period in 2022, with a $53.3 million increase in interest and dividend income [157]. - Net income for Q2 2023 was $25.6 million, or $0.56 per diluted share, compared to $12.2 million, or $0.27 per diluted share, in Q2 2022 [155]. Loan Growth - Total loans grew by $145.9 million in Q2 2023 compared to December 31, 2022, and by $390.5 million compared to Q2 2022, indicating a strong demand for lending services [153]. - Average loans increased by $529.7 million for the six months ended June 30, 2023, compared to the same period in 2022, driven by growth in commercial and multi-family portfolios [168]. - Total loans increased to $4.02 billion as of June 30, 2023, up $145.9 million from December 31, 2022, and $390.5 million from June 30, 2022 [205]. - The growth in total loans was primarily driven by increases in commercial real estate – investor ($92.4 million), multifamily ($59.5 million), and leases ($37.5 million) while commercial real estate – owner occupied saw a reduction of $30.6 million [205]. Interest Income and Margin - Net interest and dividend income increased to $63.6 million in Q2 2023 from $45.3 million in Q2 2022, primarily due to loan growth and higher yields, despite increased funding costs [146]. - Net interest margin (GAAP) for Q2 2023 decreased to 4.61% from 4.72% in Q1 2023, but increased from 3.16% in Q2 2022 [165]. - Net interest income (GAAP) for the second quarter of 2023 was $63,580, compared to $64,086 in the first quarter of 2023 [174]. - The company reported a net interest margin (TE) of 4.64% for the second quarter of 2023, slightly down from 4.74% in the first quarter [174]. Noninterest Income and Expenses - Noninterest income decreased to $8.2 million in Q2 2023 from $9.2 million in Q2 2022, impacted by $1.5 million in security losses due to strategic sales [148]. - Noninterest expenses decreased by $2.4 million, or 6.5%, to $34.8 million in Q2 2023, primarily due to reduced acquisition-related costs from the previous year [153]. - Total noninterest income for Q2 2023 was $8,223,000, with significant contributions from card-related income and residential mortgage banking revenue [180]. - Noninterest expense decreased by $1,100,000, or 3.0%, in Q2 2023 compared to Q1 2023, and decreased by $2,400,000, or 6.5%, compared to Q2 2022 [190]. Asset Quality and Credit Losses - Nonperforming loans as a percentage of total loans rose to 1.5% as of June 30, 2023, compared to 0.9% at December 31, 2022, indicating a deterioration in asset quality [153]. - The provision for credit losses was $2.0 million in Q2 2023, reflecting an increase in the allowance for credit losses based on updated historical loss rates and loan growth [147]. - The allowance for credit losses increased to $55.3 million as of June 30, 2023, compared to $49.5 million at December 31, 2022 [210]. - Nonperforming loans rose to $61.2 million as of June 30, 2023, an increase of $28.3 million from December 31, 2022, and $19.1 million from June 30, 2022 [207]. Deposits and Liquidity - Total deposits were $4.72 billion at June 30, 2023, a decrease of $393.1 million from December 31, 2022, primarily due to seasonal decreases in municipal deposits [201]. - The company has an unused capacity of $17.4 million at the Federal Reserve Discount Window as of June 30, 2023, indicating liquidity availability [145]. - Cash on hand liquidity totaled $112.6 million as of June 30, 2023, a decrease of $2.6 million from December 31, 2022 [242]. - The outstanding balance of short-term borrowings from the Federal Home Loan Bank of Chicago (FHLBC) was $485.0 million as of June 30, 2023, compared to $90.0 million as of December 31, 2022 [230]. Capital and Equity - Total stockholders' equity increased to $514.0 million as of June 30, 2023, up $52.9 million from $461.1 million as of December 31, 2022, driven by net income of $49.2 million [236]. - The common equity tier 1 capital ratio improved to 10.29% as of June 30, 2023, compared to 9.67% as of December 31, 2022 [237]. - The total risk-based capital ratio was 13.16% as of June 30, 2023, up from 12.52% as of December 31, 2022 [237]. - The GAAP common equity to total assets ratio increased from 7.83% at December 31, 2022, to 8.73% at June 30, 2023 [240]. Economic Environment and Interest Rates - The Federal Reserve's federal funds rate reached 5.25% after a 0.25% hike in July 2023, with expectations of interest rate cuts in 2024 [251]. - The annual US inflation rate slowed to 3.0% as of June 30, 2023, down from a peak of 9.1% [258]. - High inflation poses downside risks that could increase expenses and impact profits [258]. - The company believes that the risk of high inflation has been contained with minimal impact on financial results [258].

Financial Performance - Net income for Q1 2023 was $23.6 million, or $0.52 per diluted share, compared to $12.0 million, or $0.27 per diluted share in Q1 2022, reflecting significant growth in the loan portfolio and higher yields [142]. - Net interest and dividend income increased to $64.1 million in Q1 2023 from $41.2 million in Q1 2022, driven by loan growth and higher yields, despite higher funding costs [144]. - Noninterest income decreased to $7.4 million in Q1 2023 from $13.5 million in Q1 2022, primarily due to a decline in mortgage servicing rights and security losses [145]. - The company recorded a provision for income tax expense of $8.4 million in Q1 2023, up from $4.4 million in Q1 2022, reflecting increased pre-tax income [149]. - Net interest income (TE) for Q1 2023 was $64,448,000, a slight decrease from $64,453,000 in Q4 2022, while GAAP net interest income was $64,086,000 [165]. - Noninterest income for the first quarter of 2023 was $7.35 million, down from $8.95 million in the previous quarter [178]. Loan Portfolio - Total loans grew by $133.7 million in Q1 2023 compared to December 31, 2022, and by $601.0 million compared to Q1 2022, indicating strong demand in a competitive environment [149]. - Average loans, including loans held for sale, increased by $528.0 million year-over-year, driven by growth in commercial and multifamily portfolios [155]. - The loan portfolio remains heavily weighted in real estate lending, comprising 70.9% of total loans as of March 31, 2023 [184]. - Total loans reached $4.0 billion, an increase of $133.7 million from December 31, 2022, driven by growth in commercial real estate and multifamily loans [183]. Credit Quality - Nonaccrual loans increased by $32.0 million as of March 31, 2023, with nonperforming loans as a percentage of total loans rising to 1.6% from 0.9% at the end of 2022 [149]. - Provision for credit losses was $3.5 million in Q1 2023, influenced by an increase in the allowance for credit losses on loans [144]. - Nonperforming loans rose by $31.6 million to $64.5 million at March 31, 2023, representing 1.6% of total loans, up from 0.9% at December 31, 2022 [185]. - The allowance for credit losses on loans was $53.4 million, maintaining a ratio of 1.3% of total loans as of March 31, 2023 [201]. - The coverage ratio of the ACL on loans to nonperforming loans was 82.7% as of March 31, 2023, down from 150.3% at December 31, 2022 [203]. Expenses and Efficiency - Noninterest expenses decreased to $36.0 million in Q1 2023 from $38.3 million in Q1 2022, a reduction of 6.09% due to lower acquisition-related costs [149]. - Noninterest expense for Q1 2023 decreased by $3.8 million, or 9.5%, compared to Q4 2022, and decreased by $2.3 million, or 6.1%, compared to Q1 2022 [173]. - The efficiency ratio (GAAP) improved to 47.52% in Q1 2023 from 52.44% in Q4 2022, indicating better cost management [170]. Capital and Liquidity - The company maintains strong capital ratios, exceeding all regulatory requirements, and is positioned to withstand economic downturns [138]. - As of March 31, 2023, total stockholders' equity increased to $496.9 million, up $35.7 million from $461.1 million as of December 31, 2022, primarily due to a net income of $23.6 million [216]. - Cash on hand liquidity as of March 31, 2023, was $103.0 million, a decrease of $12.2 million from December 31, 2022 [226]. - The company managed to maintain a level of liquidity through asset and liability management, with a focus on monitoring borrowing capacity at the Federal Home Loan Bank [226]. Market Conditions and Economic Outlook - The Federal Reserve's federal funds rate target was between 4.75% and 5.00% as of March 2023, with expectations for a potential rate hike in May 2023 [234]. - The annual US inflation rate has decreased to 5.0% from a peak of 9.1% in June 2022, with expectations for continued decline due to monetary policy [241]. - The company anticipates that higher inflation will increase borrowers' credit needs, driving GDP growth, while also putting upward pressure on expenses [241]. - The downside risks of high inflation could negatively impact the company's profits and credit profile due to weakened financial conditions of borrowers [241]. Internal Controls and Governance - The Chief Executive Officer and Chief Financial Officer confirmed the effectiveness of the company's disclosure controls as of March 31, 2023 [242]. - There were no changes in the company's internal controls over financial reporting during the quarter ended March 31, 2023, that materially affected internal control [243].

Old Second Bancorp, Inc. (NASDAQ:OSBC) Q1 2023 Earnings Conference Call April 20, 2023 11:00 AM ET Company Participants Jim Eccher - Chairman, President, & CEO Brad Adams - CFO Gary Collins - Vice Chairman Conference Call Participants Nathan Race - Piper Sandler Terry McEvoy - Stephens Nick Moutafakis - KBW Brian Martin - Janney Operator Good morning, everyone, and thank you for joining us today for Old Second Bancorp, Inc.'s First Quarter 2023 Earnings Call. On the call today is Jim Eccher, the Company's C ...

Loan Portfolio and Originations - Total loan portfolio grew by $448.8 million year over year, reaching approximately $1.9 billion in loan originations in 2022[18] - Commercial real estate loans represented approximately 47.6% of the loan portfolio as of December 31, 2022, up from 44.8% at year-end 2021[19] - Residential mortgage loan originations totaled approximately $134.5 million in 2022, with proceeds from sales to third parties amounting to $81.8 million[18] - The construction and development portfolio decreased from $206.1 million at December 31, 2021, to $180.5 million at December 31, 2022, due to reduced volumes based on rising interest rates[25] - Total real estate lending was $2.73 billion, approximately 70.6% of the loan portfolio as of December 31, 2022, compared to $2.45 billion or 71.6% in 2021[141] Financial Performance and Capital - The company had approximately $1.45 billion in assets under administration and/or management as of December 31, 2022[32] - The allowance for credit losses (ACL) may need to increase significantly due to ongoing economic uncertainty, which could adversely affect net income and capital[139] - The company must 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% to avoid restrictions on capital distributions[53] - The Company must maintain a CET1 ratio of 6.5% or more, a Tier 1 Capital ratio of 8%, a Total Capital ratio of 10%, and a leverage ratio of 5% or greater to be considered well-capitalized[65] - The Company may need to raise additional capital in the future to meet business needs and growth, particularly if asset quality deteriorates significantly[207] Regulatory Environment - Regulatory capital requirements have become more stringent post-2008 financial crisis, with Basel III rules imposing minimum capital levels[52] - The Federal Reserve has broad powers to take corrective action against undercapitalized institutions, which may include requiring a capital restoration plan or limiting asset growth[62] - The Company is subject to periodic examination by the Federal Reserve and must file periodic reports regarding its operations[63] - The Company is subject to extensive federal and state regulations, which impact its lending practices, capital structure, and growth strategies[190] - The Company is subject to federal and state fair lending laws, and failure to comply could lead to material penalties and impact its reputation and financial condition[199] Competition and Market Conditions - The financial services industry is becoming increasingly competitive, with many institutions, including FinTech companies, competing for market share[35] - The company faces substantial competition from larger financial institutions, which may lead to higher interest rates for deposits and lower yields on loans, adversely affecting net interest margin and profitability[151] - The company’s financial performance is highly dependent on economic conditions in its primary markets, particularly in Illinois, which faces severe fiscal challenges[127] - Interest rates increased to between 4.25% and 4.50% in 2022, impacting net interest income and potentially reducing loan origination volume[146] Risk Management and Compliance - The company has established lending policies that include various underwriting factors such as loan to value ratio and credit history[18] - The company may face regulatory scrutiny regarding its commercial real estate lending practices, potentially requiring enhanced risk management and higher capital levels[142] - The company must comply with anti-money laundering provisions of the Bank Secrecy Act, including enhanced due diligence for high-risk customers[108] - The company may face increased compliance and operational costs due to the implementation of LIBOR reform proposals[183] - The company’s accounting estimates and risk management processes rely on assumptions that may not accurately predict future events, potentially impacting financial reporting[195] Employee and Organizational Development - As of December 31, 2022, the company employed 819 full-time equivalent employees, with 35% having over ten years of tenure[38] - The company has implemented various employee development programs, contributing to a collaborative work environment following the West Suburban acquisition in late 2021[37] - The company’s ability to attract and retain key personnel is critical for its long-term strategy, and competition for talent has intensified[154] - The company has historically granted equity awards to key management personnel, which are vital for retention in a competitive market[155] Acquisitions and Growth Strategy - The merger with West Suburban Bancorp involved a total cash and stock consideration of approximately $295.2 million, acquiring 34 branches[14] - The company focuses on organic growth supplemented by opportunistic acquisitions, such as the acquisition of West Suburban Bank[167] - Future acquisitions may face delays or prohibitions due to regulatory issues, impacting the company's growth strategy[172] - The company’s growth strategy includes the potential for additional mergers and acquisitions, which carry inherent risks and uncertainties[169] Credit Quality and Loan Performance - Nonperforming loans decreased by 27.5% to $32.9 million as of December 31, 2022, compared to $44.7 million a year earlier[147] - Other real estate owned (OREO) decreased by 33.7% to $1.6 million as of December 31, 2022, down from $2.4 million in 2021[147] - The company is exposed to credit risk, particularly in the context of the COVID-19 pandemic, which may lead to increased loan defaults and necessitate higher provisions for credit losses[136] Cybersecurity and Operational Risks - The company relies on third-party vendors for critical operations, which poses risks related to data security and operational disruptions[157] - Cybersecurity risks are increasing, with potential impacts on the company’s operations and reputation due to external attacks and breaches[163] - The company must comply with new notification requirements for significant cybersecurity incidents, requiring notification to regulators within 36 hours of discovery[117] Economic and Environmental Considerations - Increased scrutiny regarding environmental, social, and governance (ESG) practices may lead to higher operational costs and impact the company's reputation and stock price[132] - Climate change poses risks that could adversely affect the company’s operations and the value of its loan portfolio due to physical and transition risks[133]

Old Second Bancorp, Inc. (NASDAQ:OSBC) Q4 2022 Earnings Conference Call January 26, 2023 11:00 AM ET Company Representatives Jim Eccher - Chief Executive Officer Brad Adams - Chief Financial Officer Gary Collins - Vice Chairman of the Board Conference Call Participants Jeff Rulis - D.A. Davidson Chris McGratty - KBW David Long - Raymond James Operator Good morning, everyone, and thank you for joining us today for Old Second Bancorp, Inc.'s Fourth Quarter 2022 Earnings Call. On the call today is Jim Eccher, ...

Old Second Bancorp, Inc. (NASDAQ:OSBC) Q3 2022 Earnings Conference Call October 27, 2022 11:00 AM ET Company Participants James Eccher - CEO Brad Adams - CFO Gary Collins - Vice Chairman Conference Call Participants David Long - Raymond James Chris McGratty - KBW Manuel Navas - D.A. Davidson Nathan Race - Piper Sandler Operator Good morning, everyone, and thank you for joining us today for Old Second Bancorp, Inc.'s Third Quarter 2022 Earnings Call. On the call today is Jim Eccher, the company's CEO; Gary C ...

Acquisition and Merger - The Company completed the acquisition of West Suburban Bancorp, Inc. on December 1, 2021, acquiring $2.94 billion in assets, $1.50 billion in loans, and $2.69 billion in deposits[37]. - The total merger consideration for the acquisition was $295.2 million, consisting of 15.7 million shares of common stock and $100.7 million in cash[39]. - Goodwill of $67.7 million was recorded from the acquisition, reflecting expected synergies and operational efficiencies[40]. - The Company recorded expenses related to the West Suburban acquisition totaling $3.3 million for the three months ended June 30, 2022, and $8.9 million for the six months ended June 30, 2022[43]. - The merger with West Suburban Bancorp, completed on December 1, 2021, involved total cash and stock consideration of approximately $295.2 million[153]. Financial Performance - For the three months ended June 30, 2022, net income was $12.247 million, resulting in basic earnings per share of $0.28, compared to $8.820 million and $0.30 for the same period in 2021[102]. - Net income for Q2 2022 was $12.2 million, or $0.27 per diluted share, compared to $8.8 million, or $0.30 per diluted share in Q2 2021, primarily due to the acquisition of West Suburban[164]. - Adjusted net income for Q2 2022 was $13.8 million, excluding merger-related costs, compared to $8.8 million in Q2 2021[166]. - Net interest and dividend income increased to $45.3 million in Q2 2022 from $22.0 million in Q2 2021, driven by the West Suburban acquisition[174]. - Noninterest income rose to $9.2 million in Q2 2022, a 16.3% increase from $7.9 million in Q2 2021, attributed to service charges and card-related income[167]. - Total noninterest income for the six months ended June 30, 2022, was $22,674, an increase of 18.0% compared to the same period in 2021[207]. Loan Portfolio and Credit Quality - The company reported a total loan portfolio of $3,625.1 million as of June 30, 2022, an increase from $3,420.8 million at December 31, 2021, representing a growth of approximately 6%[63]. - The allowance for credit losses on loans was $45.4 million as of June 30, 2022, compared to $44.3 million at December 31, 2021, indicating a slight increase in provisions[63]. - The company’s commercial real estate loans increased to $1,704.6 million as of June 30, 2022, from $1,531.8 million at December 31, 2021, reflecting a growth of approximately 11.3%[63]. - The total amount of loans classified as special mention, substandard, or doubtful is reviewed quarterly, indicating a proactive approach to credit risk management[72][73][74]. - The company’s credit quality indicators suggest a focus on loans with outstanding balances greater than $50,000, excluding homogeneous loans[72]. Securities and Investments - As of June 30, 2022, total securities available-for-sale amounted to $1,824.2 million, with a fair value of $1,734.4 million, reflecting unrealized losses of $90.8 million[52]. - The weighted average yield of total securities available-for-sale was 2.00% as of June 30, 2022[54]. - The fair value of U.S. Treasury securities was $214.8 million, with unrealized losses of $8.9 million as of June 30, 2022[52]. - The company experienced net realized losses of $33,000 on securities for the three months ended June 30, 2022[58]. - The total unrealized losses on securities available-for-sale were $90.8 million as of June 30, 2022, with 476 securities in an unrealized loss position[57]. Deposits and Borrowings - Total deposits amounted to $5,342,855 million as of June 30, 2022, a decrease from $5,466,232 million at December 31, 2021, representing a decline of 2.3%[86]. - Total borrowings decreased to $178,159 million as of June 30, 2022, from $198,876 million at December 31, 2021, indicating a reduction of 10.4%[87]. - The company had $44.5 million of senior notes outstanding as of June 30, 2022, with interest payable at a floating rate starting December 31, 2021[89]. Capital and Regulatory Compliance - The Bank's Tier 1 capital leverage ratio was 8.94% as of June 30, 2022, a decrease of 64 basis points from December 31, 2021, but still above the 8.00% objective[104]. - The Bank's total capital ratio was 13.25% at June 30, 2022, a decrease of 21 basis points from December 31, 2021, yet above the required 12.00%[104]. - The Company’s common equity tier 1 capital to risk-weighted assets ratio was 9.35% as of June 30, 2022, exceeding the minimum requirement of 7.00%[107]. - The Company exceeded the minimum thresholds to be considered "well capitalized" under current regulatory defined capital ratios as of June 30, 2022[106]. Noninterest Expenses - Noninterest expense increased by $15.8 million, or 74.0%, to $37.2 million in Q2 2022, mainly due to higher salaries and acquisition-related costs[167]. - Total noninterest expense for Q2 2022 was $37,249, a decrease of 2.6% from Q1 2022 but an increase of 74.1% from Q2 2021[211]. - Salaries and employee benefits increased by $8.4 million year-over-year in Q2 2022, primarily due to the acquisition of West Suburban[212]. - Computer and data processing expenses surged by $7.7 million, or 294.9%, mainly due to costs associated with operating multiple systems prior to conversion[218]. Interest Income and Margin - The yield on average loans increased to 4.37% in Q2 2022, compared to 4.34% in Q1 2022 and 4.33% in Q2 2021[183]. - Net interest margin (GAAP) increased by 31 basis points to 3.16% in Q2 2022, compared to 2.85% in Q1 2022, and increased by 28 basis points from 2.88% in Q2 2021[187]. - Net interest income (GAAP) for the second quarter of 2022 was $45,264, compared to $41,232 in the first quarter of 2022, reflecting a growth of 4.9%[197]. Tax and Efficiency Ratios - The effective tax rate was 26.6% in the second quarter of 2022, compared to 26.3% in the second quarter of 2021[221]. - The efficiency ratio (GAAP) improved to 67.07% in Q2 2022 from 72.70% in Q1 2022[209]. - The efficiency ratio (GAAP) improved to 69.81% for the six months ended June 30, 2022, compared to 66.21% for the same period in 2021[215].

Financial Data and Key Metrics Changes - Net income for Q2 2022 was $12.2 million or $0.27 per diluted share, adjusted net income was $13.8 million or $0.31 per share, with a return on assets of 0.90% and return on tangible common equity of 15.94% [6][19] - Net interest income increased by $4 million quarter-over-quarter, with a tax equivalent net interest margin expanding to 3.18% from 2.88% in the previous quarter [11][19] - Nonperforming loans increased by $4 million, with total classified loans rising to $103.2 million from $66.6 million [13][14] Business Line Data and Key Metrics Changes - The West Suburban acquisition positively impacted financials, with significant loan origination capabilities added, resulting in $222.7 million or 6.6% net loan growth quarter-over-quarter [8][9] - The commercial real estate, health care, leasing, and sponsored finance sectors showed strong pipelines and performance, contributing to overall loan growth [11][53] - Noninterest income decreased by $2.9 million, primarily due to losses on residential loans sold and a decline in MSR mark-to-market gains [31][32] Market Data and Key Metrics Changes - The economic outlook remains cautiously optimistic, with an unemployment rate projection increasing to approximately 4% to 5.5% through June 30, 2023 [34] - The deposit base experienced a decline, attributed to municipal account seasonality and rate-sensitive funds exiting, but the overall loan-to-deposit ratio improved [29][47] Company Strategy and Development Direction - The company aims to build back towards an 80% loan-to-deposit ratio to drive returns on equity, focusing on deploying liquidity and enhancing commercial origination capabilities [17][18] - Management is actively hiring talented executives to strengthen the organization and enhance core asset organic growth rates [27][88] - The strategy includes cautious deployment of excess liquidity and maintaining a conservative balance sheet position to navigate potential economic downturns [25][37] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the balance sheet and loan growth opportunities, anticipating that rising interest rates will benefit profitability in the second half of the year [39][40] - The company is monitoring credit closely, maintaining a disciplined approach to underwriting despite uncertainties in the economic environment [15][39] - Management remains optimistic about loan growth, projecting low double-digit growth for the year, while acknowledging potential challenges from macroeconomic conditions [54][56] Other Important Information - Total merger-related costs of $3.3 million were recorded in Q2, reduced by net gains on branch sales of $1.1 million [16] - The company recorded a provision for credit losses of approximately $1.3 million during the quarter, with expectations for loan growth to outpace provision growth in the near term [34][35] Q&A Session Summary Question: Inquiry about expense changes and run rate expectations - Management clarified that nonrecurring expenses contributed to the current expense levels, with expectations for a run rate around $35 million going forward [43][46] Question: Discussion on deposit balances and expectations - Management explained the decline in deposit balances was primarily seasonal and not indicative of a rapid outflow, with expectations for stability moving forward [47][48] Question: Loan growth outlook and market share gains - Management indicated strong performance across various sectors, with expectations for continued loan growth despite potential macroeconomic slowdowns [54][55] Question: Margin outlook and interest rate sensitivity - Management projected a margin above 3.50% for Q3, with expectations for stabilization in the margin as interest rates rise [56][92] Question: Credit quality and loan classifications - Management provided details on the migration of certain loans to classified status, emphasizing the monitoring of these credits and the overall stability of the loan portfolio [66][67]