OLD SECOND BANCORP INC - FORM 8-K - EX-99.1

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(NASDAQ:OSBC)		Exhibit 99.1

Contact:	Bradley S. Adams	For Immediate Release
	Chief Financial Officer	April 21, 2021
	(630) 906-5484

Old Second Reports First Quarter Net Income of $11.9 million, or $0.40 per Diluted Share, Increases Quarterly Dividend to $0.05 per Share

AURORA, IL, April 21, 2021 – Old Second Bancorp, Inc. (the “Company,” “we,” “us,” and “our”) (NASDAQ: OSBC), the parent company of Old Second National Bank (the “Bank”), today announced financial results for the first quarter of 2021. Our net income was $11.9 million, or $0.40 per diluted share, for the first quarter of 2021, compared to net income of $8.0 million, or $0.27 per diluted share, for the fourth quarter of 2020, and net income of $275,000, or $0.01 per diluted share, for the first quarter of 2020. Net income for the first quarter of 2021 reflects a reversal of provision for credit losses of $3.0 million pre-tax, compared to no provision expense recorded in the fourth quarter of 2020, and an $8.0 million pre-tax provision recorded in the first quarter of 2020. Mortgage banking income totaled $5.7 million in the first quarter of 2021, which reflected a $2.7 million increase from the fourth quarter of 2020, and a $4.9 million increase from the first quarter of 2020, primarily due to mark to market gains on mortgage servicing rights (“MSRs”) of $1.1 million in the first quarter of 2021, compared to mark to market losses of $1.3 million and $2.1 million in the fourth quarter of 2020 and the first quarter of 2020, respectively.

On April 20, 2021, our board of directors approved a 400% increase to the quarterly dividend, from $0.01 per common share to $0.05 per common share, to be paid to stockholders of record on April 30, 2021, payable May 10, 2021.

Operating Results

●First quarter 2021 net income was $11.9 million, reflecting an increase in earnings of $3.8 million from the fourth quarter of 2020, and an increase of $11.6 million from the first quarter of 2020.

●Net interest and dividend income was $23.5 million for the first quarter of 2021, a decrease of $334,000, or 1.4%, from the fourth quarter of 2020, but an increase of $885,000, or 3.9%, from first quarter of 2020.

●Interest and dividend income for the first quarter of 2021 was $25.4 million, or $615,000 less than the fourth quarter of 2020 and $2.1 million less than the first quarter of 2020, primarily due to a decrease in market interest rates over the past year. Interest and dividend income was favorably impacted by loan fees earned on forgiven Paycheck Protection Program (“PPP”) loans during the first quarter of 2021. We originated 746 PPP loans totaling $136.7 million in 2020, and as of March 31, 2021, $46.3 million on 134 PPP loans originated during the first round of the PPP loan program remained outstanding. During the first quarter of 2021, we originated $58.3 million, or 481 loans, under the second round of the PPP loan program. Net loan interest and fee income recorded in 2021 year to date on all PPP loans totaled $741,000, and approximately $2.3 million of net PPP loan fees remain unearned as of March 31, 2021.

●Interest expense for the first quarter of 2021 totaled $1.8 million, compared to $2.1 million for the fourth quarter of 2020, and $4.8 million for the first quarter of 2020. The reduction in interest expense was primarily due to a decrease in market interest rates in the year over year period. In addition, in March 2020 we redeemed our 7.8% cumulative trust preferred securities issued by Old Second Capital Trust I and related debentures, which totaled $32.6 million. Upon redemption, we recognized the remaining unamortized debt issuance costs of $635,000, which increased first quarter 2020 interest expense.

●We recorded a $3.0 million reversal of provision for credit losses in the first quarter of 2021, compared to no provision for credit losses in the fourth quarter of 2020, and an $8.0 million provision for credit losses in the first quarter of 2020, due both to our adoption of the current expected credit losses accounting standard

(“CECL”) on January 1, 2020, and the potential impact of the COVID-19 pandemic. Allowance for credit losses (“ACL”) on loans activity in the first quarter of 2021 consisted of a reversal in the ACL on loans of $3.5 million, as well as $582,000 of net recoveries recorded during the quarter. In addition, the allowance for unfunded commitments increased by $470,000 in the first quarter of 2021, due to an updated forecast of credit line utilization rates.

●

Noninterest income was $11.3 million for the first quarter of 2021, an increase of $2.5 million, or 28.6%, compared to $8.8 million for the fourth quarter of 2020, and an increase of $5.0 million, or 78.7%, compared to $6.3 million for the first quarter of 2020. The increase from the linked quarter was primarily driven by $2.7 million of growth in residential mortgage banking revenue, attributable to a $2.4 million increase in the mark to market adjustment on MSRs and a $325,000 increase in net gains on sales of mortgage loans in the first quarter of 2021, compared to the prior quarter. In addition, wealth management income increased $444,000 in the current quarter over the linked quarter. The increase in noninterest income in the first quarter of 2021, compared to the first quarter of 2020, was primarily due to $4.9 million of growth in residential mortgage banking revenue, attributable to a $3.2 million increase in the mark to market adjustment on MSRs and a $1.5 million increase in net gains on sales of mortgage loans in the first quarter of 2021, compared to the prior year like quarter.

●

Noninterest expense was $21.7 million for the first quarter of 2021, an increase of $485,000, or 2.3%, compared to $21.3 million for the fourth quarter of 2020, and an increase of $736,000, or 3.5%, from $21.0 million for the first quarter of 2020. The increase compared to the linked quarter was primarily attributable to an increase in salaries and employee benefits expense stemming from additional officer incentive compensation expenses paid out in early 2021, and the related increase in payroll taxes and 401K company match expense. In addition, growth in occupancy, furniture and equipment costs occurred due to an increase in snow removal costs and building maintenance due to weather conditions in February 2021. The increase in noninterest expense in the year over year period was primarily due to salaries and employee benefits expense, occupancy, furniture and equipment expenses and FDIC insurance costs.

●

The provision for income taxes expense was $4.2 million for the first quarter of 2021, compared to $3.4 million for the fourth quarter of 2020, and a $281,000 tax benefit for the first quarter of 2020. The increase in tax expense for the linked quarter and year over year period was primarily due to higher pretax income in the first quarter of 2021.

●

On April 6, 2021, 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 Notes were offered and sold to eligible purchasers in a private offering in reliance on the exemption from the registration requirements of Section 4(a)(2) of the Securities Act of 1933, as amended and the provisions of Regulation D promulgated thereunder. The Company intends to use the net proceeds from the offering for general corporate purposes, which may include, without limitation, the redemption of existing senior debt, common stock repurchases and strategic acquisitions. The Notes will bear interest at a fixed annual rate of 3.50%, from and including the date of issuance to but excluding April 15, 2026, payable semi-annually in arrears. From and including April 15, 2026 to, but excluding the maturity date or early redemption date, the interest rate will reset quarterly to an interest rate per annum equal to Three-Month Term SOFR (as defined in the Note) plus 273 basis points, payable quarterly in arrears.

President and Chief Executive Officer Jim Eccher said "First quarter results in 2021 were very positive as we continued the momentum from 2020. As we continue to navigate the challenges of the pandemic, we posted solid financial results, delivered strong operating leverage, grew deposits and continued to build our capital position. Credit trends continued to improve and we accordingly reduced our loan loss reserves as the vast majority of our clients have weathered the pandemic and have returned to original payment terms. While we do expect the possibility of losses, the severity levels predicted in our model have materially improved. I believe Old Second remains conservatively positioned to meet the challenges of the coming year, as our expenses remain well-controlled, our business is well diversified and underwriting has remained disciplined and consistent. I would like to thank our employees for their continued hard work in delivering a solid quarter while delivering exceptional customer service during these challenging times.”

Eccher continued, “We are happy to announce that on April 20, 2021, the Board of Directors declared a quarterly dividend of $0.05 per share of common stock to stockholders of record on April 30, 2021, payable May 10, 2021. We are very pleased to provide our stockholders with this 400% increase in their quarterly dividend, compared to the previous quarter. We believe this increase reflects our strong financial results and regulatory capital positions for the quarter, the strength of our balance sheet and our belief that asset quality trends are continuing to improve. In addition, during the first quarter of 2021, we repurchased 455,134 shares, or 1.6% of shares outstanding, at a weighted average price of $12.31 per share pursuant to our stock repurchase program.”

COVID-19 Update

●

Late in the first quarter of 2020, we began granting loan payment deferrals to certain borrowers affected by the pandemic. For the period April 1, 2020 through March 31, 2021, our clients had requested loan payment deferrals on 504 loans totaling $237.7 million. As of March 31, 2021, 464 loans, representing $218.4 million outstanding, or 91.9% of the original loan balances deferred, have resumed payments or paid off. Active payment deferrals remain on 40 loans, with $19.2 million of balances outstanding.

●

We are participating in the Coronavirus Aid, Relief and Economic Security Act (“CARES” Act). During 2021, we processed 481 loan applications for PPP loans, representing a total of $58.3 million. As of March 31, 2021, we had $46.3 million of PPP loans outstanding that were originated under the first round of the PPP loan program, and $58.3 million of PPP loans outstanding that were originated under the second round of the PPP loan program. Early in the fourth quarter of 2020, we started to submit applications for PPP loan forgiveness to the SBA, and as of March 31, 2021, $90.8 million on 620 loans have been forgiven. We anticipate receiving funds for our first round of PPP loan forgiveness from the SBA through the second quarter of 2021, and will start the forgiveness process for our second round of PPP loans later in 2021.

Capital Ratios


	Minimum Capital		Well Capitalized
	Adequacy with		Under Prompt
	Capital Conservation		Corrective Action		March 31,		December 31,		March 31,
	Buffer, if applicable¹		Provisions²		2021		2020		2020
The Company
Common equity tier 1 capital ratio	7.00	%	N/A		12.45	%	11.94	%	10.85	%
Total risk-based capital ratio	10.50	%	N/A		14.76	%	14.26	%	13.09	%
Tier 1 risk-based capital ratio	8.50	%	N/A		13.55	%	13.01	%	11.93	%
Tier 1 leverage ratio	4.00	%	N/A		10.02	%	10.21	%	10.57	%

The Bank
Common equity tier 1 capital ratio	7.00	%	6.50	%	14.62	%	13.75	%	12.89	%
Total risk-based capital ratio	10.50	%	10.00	%	15.83	%	15.00	%	14.07	%
Tier 1 risk-based capital ratio	8.50	%	8.00	%	14.62	%	13.75	%	12.89	%
Tier 1 leverage ratio	4.00	%	5.00	%	10.78	%	10.74	%	11.36	%

¹ Amounts are shown inclusive of a capital conservation buffer of 2.50%. Under the Federal Reserve’s Small Bank Holding Company Policy Statement, the Company is not subject to the minimum capital adequacy and capital conservation buffer capital requirements at the holding company level, unless otherwise advised by the Federal Reserve (such capital requirements are applicable only at the Bank level). Although the minimum regulatory capital requirements are not applicable to the Company, we calculate these ratios for our own planning and monitoring purposes.

² The prompt corrective action provisions are only applicable at the Bank level.

●

The ratios shown above exceed levels required to be considered “well capitalized.”

Asset Quality & Earning Assets

●

Nonperforming loans totaled $21.2 million at March 31, 2021, compared to $23.0 million at December 31, 2020, and $21.8 million at March 31, 2020. Credit metrics continue to be relatively stable regarding nonperforming loan levels, and management is carefully monitoring loans considered to be in a classified status. Nonperforming loans, as a percent of total loans were 1.1% at each of March 31, 2021, December 31, 2020, and March 31, 2020.

●

OREO assets totaled $2.2 million at March 31, 2021, compared to $2.5 million at December 31, 2020, and $5.0 million at March 31, 2020. We recorded one property sale of $305,000 net book value in the first quarter of 2021, and write-downs of $6,000, compared to write downs of $93,000 in the fourth quarter of 2020, and $158,000 in the first quarter of 2020. Nonperforming assets, as a percent of total loans plus OREO, were 1.2% at March 31, 2021, 1.3% at December 31, 2020, and 1.4% at March 31, 2020.

●

Total loans were $2.00 billion at March 31, 2021, reflecting a decrease of $75.2 million compared to December 31, 2020, and an increase of $2.4 million compared to March 31, 2020. An increase in our commercial portfolio stemming from PPP loan originations of $58.3 million in the first quarter of 2021 was more than offset by paydowns and payoffs, as borrower liquidity is at a high level due to federal stimulus programs and a general lack of incentive for capital expenditures. Average loans (including loans held-for-sale) for the first quarter of 2021 totaled $2.01 billion, reflecting a decrease of $18.0 million from the fourth quarter of 2020 but an increase of $69.4 million from the first quarter of 2020.

●

Available-for-sale securities totaled $593.3 million at March 31, 2021, compared to $496.2 million at December 31, 2020, and $449.7 million at March 31, 2020. Total securities available-for-sale increased a net $97.1 million from the linked quarter due to a purchase of $55.2 million of mortgage backed securities, $34.8 million of corporate bonds, and $19.8 million of collateralized mortgage obligations, partially offset by $7.3 million of calls and paydowns. The unrealized mark to market adjustment on securities decreased by $4.8 million since December 31, 2020, but increased by $16.3 million in the year over year period due to the market interest rate fluctuations.

Net Interest Income


Analysis of Average Balances,
Tax Equivalent Income / Expense and Rates
(Dollars in thousands - unaudited)

	Quarters Ended
	March 31, 2021						December 31, 2020						March 31, 2020
	Average			Income /		Rate	Average			Income /		Rate	Average			Income /		Rate
	Balance			Expense		%	Balance			Expense		%	Balance			Expense		%
Assets
Interest earning deposits with financial institutions	$	359,576		$	92	0.10	$	275,087		$	73	0.11	$	27,989		$	75	1.08
Securities:
Taxable		340,873			1,615	1.92		288,089			1,458	2.01		273,429			2,163	3.18
Non-taxable (TE)¹		191,357			1,655	3.51		193,859			1,637	3.36		202,289			1,842	3.66
Total securities (TE)¹		532,230			3,270	2.49		481,948			3,095	2.55		475,718			4,005	3.39
Dividends from FHLBC and FRBC		9,917			115	4.70		9,917			118	4.73		9,917			125	5.07
Loans and loans held-for-sale^{1, 2}		2,014,773			22,266	4.48		2,032,741			23,067	4.51		1,945,383			23,636	4.89
Total interest earning assets		2,916,496			25,743	3.58		2,799,693			26,353	3.74		2,459,007			27,841	4.55
Cash and due from banks		28,461			-	-		30,086			-	-		32,549			-	-
Allowance for credit losses on loans		(34,540)			-	-		(33,255)			-	-		(23,507)			-	-
Other noninterest bearing assets		187,488			-	-		192,421			-	-		172,712			-	-
Total assets	$	3,097,905					$	2,988,945					$	2,640,761

Liabilities and Stockholders' Equity
NOW accounts	$	495,384		$	95	0.08	$	474,470		$	96	0.08	$	422,065		$	233	0.22
Money market accounts		329,050			77	0.09		317,780			85	0.11		280,828			236	0.34
Savings accounts		412,743			69	0.07		391,904			69	0.07		322,618			166	0.21
Time deposits		399,310			500	0.51		393,297			741	0.75		448,763			1,766	1.58
Interest bearing deposits		1,636,487			741	0.18		1,577,451			991	0.25		1,474,274			2,401	0.66
Securities sold under repurchase agreements		82,475			31	0.15		67,059			35	0.21		47,825			116	0.98
Other short-term borrowings		-			-	-		5,448			12	0.88		23,069			109	1.90
Junior subordinated debentures		25,773			280	4.41		25,773			283	4.37		47,200			1,364	11.62
Senior notes		44,389			673	6.15		44,363			673	6.04		44,284			673	6.11
Notes payable and other borrowings		23,330			123	2.14		24,407			135	2.20		14,762			130	3.54
Total interest bearing liabilities		1,812,454			1,848	0.41		1,744,501			2,129	0.49		1,651,414			4,793	1.17
Noninterest bearing deposits		937,039			-	-		903,383			-	-		676,755			-	-
Other liabilities		37,801			-	-		39,281			-	-		28,490			-	-
Stockholders' equity		310,611			-	-		301,780			-	-		284,102			-	-
Total liabilities and stockholders' equity	$	3,097,905					$	2,988,945					$	2,640,761
Net interest income (GAAP)				$	23,543					$	23,877					$	22,658
Net interest margin (GAAP)						3.27						3.39						3.71

Net interest income (TE)¹				$	23,895					$	24,224					$	23,048
Net interest margin (TE)¹						3.32						3.44						3.77
Core net interest margin (TE - excluding PPP loans)¹						3.33						3.32						3.77
Interest bearing liabilities to earning assets		62.14	%					62.31	%					67.16	%

¹ Tax equivalent (TE) basis is calculated using a marginal tax rate of 21% in 2021 and 2020. See the discussion entitled “Non-GAAP Presentations” below and the table on page 17 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 as discussed in the table on page 16, and includes fees of $1.3 million for the first quarter of 2021, $2.3 million for the fourth quarter of 2020, and $294,000 for the first quarter of 2020. Nonaccrual loans are included in the above stated average balances.

Net interest income (TE) was $23.9 million for the first quarter of 2021, which reflects a decrease of $329,000 compared to the fourth quarter of 2020, and an increase of $847,000 compared to the first quarter of 2020. The tax equivalent adjustment for the first quarter of 2021 was $352,000, compared to $347,000 for the fourth quarter of 2020, and $390,000 for the first quarter of 2020. Average interest earning assets increased $116.8 million to $2.92 billion for the first quarter of 2021, compared to the fourth quarter of 2020, primarily due to growth in interest earning deposits with financial institutions and taxable securities available-for-sale. Average interest earning assets increased $457.5 million in the first quarter of 2021, compared to the first quarter of 2020, primarily due to growth in interest earning deposits with financial institutions, taxable securities available-for-sale and loans. Average loans, including loans held-for-sale, decreased $18.0 million for the first quarter of 2021, compared to the fourth quarter of 2020, but increased $69.4 million compared to the first quarter of 2020. The yields on loans for the first quarter of 2021 compared to the fourth quarter of 2020, decreased three basis points, primarily due to the loan fees recognized on forgiven PPP loans in the fourth quarter of 2020. Growth in the balance of securities for the first quarter of 2021, compared to both the fourth quarter of 2020 and the first quarter of 2020, was more than offset by the aggregate impact of the decline in yields on these balances. The yield on average earning assets decreased 16 basis points in the first quarter of 2021, compared to the fourth quarter of 2020, due to the PPP loan fees noted above, and decreased 97 basis points compared to the first quarter of 2020, primarily due to the lowering of interest rates by the Federal Reserve in the first quarter of 2020 in response to the COVID-19 pandemic, and PPP loans issued over the past year at 1.00%.

Total securities income was $3.3 million in the first quarter of 2021, an increase of $175,000 compared to the fourth quarter of 2020, due primarily to an increase in volumes in the linked quarter, and a decrease of $735,000 compared to the first quarter of 2020, due to a reduction in yields in the year over year period. Security paydowns, calls, and maturities in the first quarter of 2021 totaled $7.3 million, which were offset by $109.7 million of purchases, primarily in mortgage backed securities. Our overall yield on tax equivalent municipal securities was 3.51% for the first quarter of 2021, compared to 3.36% for the fourth quarter of 2020, and 3.66% for the first quarter of 2020. Taxable security yields also declined in the first quarter of 2021, resulting in a decrease to the overall tax equivalent yield for the total securities portfolio of six basis points from December 31, 2020, and 90 basis points from March 31, 2020.

Average interest bearing liabilities increased $68.0 million in the first quarter of 2021, compared to the fourth quarter of 2020, driven by a $59.0 million increase in average interest bearing deposits, and a $15.4 million increase in average securities sold under repurchase agreements for the linked quarter. Average interest bearing liabilities increased $161.0 million in the first quarter of 2021, compared to the first quarter of 2020, primarily driven by a $162.2 million increase in interest bearing deposits, a $34.7 million increase in securities sold under repurchase agreements, and a $8.6 million increase in notes payable and other borrowings, partially offset by a reduction in other short-term borrowings of $23.1 million, and a $21.4 million decrease in junior subordinated debentures. The cost of interest bearing liabilities for the first quarter of 2021 decreased by eight basis points from the fourth quarter of 2020, and decreased 76 basis points from the first quarter of 2020. Growth in our average noninterest bearing demand deposits of $260.3 million in the year over year period has assisted us in controlling our cost of funds stemming from average interest bearing deposits and borrowings, which totaled 0.27% for the first quarter of 2021, 0.32% for the fourth quarter of 2020, and 0.83% for the first quarter of 2020.

For the first quarter of 2021, we had no average other short-term borrowings outstanding, compared to $5.4 million for the fourth quarter of 2020, which primarily consisted of FHLBC advances, and $23.1 million for the first quarter of 2020. The decrease in average junior subordinated debentures year over year stems from the March 2020 redemption of our trust preferred securities issued by Old Second Capital Trust I and related junior subordinated debentures, which resulted in a payment of $33.0 million, including accrued interest. The redemption was funded with cash on hand and a $20.0 million term note issued at one month Libor plus 1.75%, with principal and interest payable over the next two years; $16.0 million of this term note is outstanding and included within notes payable and other borrowings as of December 31, 2020 and March 31, 2021.

Our net interest margin (GAAP) decreased 12 basis points to 3.27% for the first quarter of 2021, compared to 3.39% for the fourth quarter of 2020, and decreased 44 basis points compared to 3.71% for the fourth quarter of 2020. Our net interest margin (TE) decreased 12 basis points to 3.32% for the first quarter of 2021, compared to 3.44% for the fourth quarter of 2020, and decreased 45 basis points compared to 3.77% for the first quarter of 2020. Our core net interest margin (TE), a non-GAAP financial measure that excludes the impact of our PPP loans, was 3.33% for the first quarter of 2021, compared to 3.32% for the fourth quarter of 2020 and 3.77% for the first quarter of 2020. The net interest margin (TE) decreased in the first quarter of 2021, compared to the fourth quarter of 2020, due to fee income recorded on $28.2 million of forgiven PPP loans in the first quarter of 2021, compared to $62.6 million of forgiven PPP loans in the fourth quarter of 2020. The reductions year over year were due primarily to low interest rates over the

majority of the past twelve months. See the discussion entitled “Non-GAAP Presentations” in the table on page 17 that provides a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

Noninterest Income


							1st Quarter 2021
Noninterest Income	Three Months Ended						Percent Change From
(Dollars in thousands)	March 31,		December 31,		March 31,		December 31,	March 31,
	2021		2020		2020		2020	2020
Wealth management	$	2,151	$	2,112	$	1,906	1.8	12.9
Service charges on deposits		1,195		1,344		1,726	(11.1)	(30.8)
Residential mortgage banking revenue
Secondary mortgage fees		322		387		270	(16.8)	19.3
Mortgage servicing rights mark to market gain (loss)		1,113		(1,260)		(2,134)	188.3	152.2
Mortgage servicing income		567		503		468	12.7	21.2
Net gain on sales of mortgage loans		3,721		3,396		2,246	9.6	65.7
Total residential mortgage banking revenue		5,723		3,026		850	89.1	573.3
Securities losses, net		-		-		(24)	-	100.0
Change in cash surrender value of BOLI		334		291		(49)	14.8	781.6
Card related income		1,447		1,435		1,287	0.8	12.4
Other income		450		577		626	(22.0)	(28.1)
Total noninterest income	$	11,300	$	8,785	$	6,322	28.6	78.7

Noninterest income increased $2.5 million, or 28.6%, in the first quarter of 2021, compared to the fourth quarter of 2020, and increased $5.0 million, or 78.7%, compared to the first quarter of 2020. The increase from the linked quarter was primarily driven by a $2.7 million increase in residential mortgage banking revenue, attributable to a $2.4 million increase in mark to market gains on MSRs stemming from market interest rate changes and a $325,000 increase in net gain on sales of mortgage loans in the first quarter of 2021.

The increase in noninterest income in the first quarter of 2021 compared to the first quarter of 2020 is primarily due to a $4.9 million increase in residential mortgage banking revenue, comprised of a $3.2 million increase in mark to market gains on MSRs and a $1.5 million increase in net gain on sales of mortgage loans from the 2020 like period. In addition, the first quarter of 2021 also included increases in wealth management of $245,000 and cash surrender value of BOLI of $383,000 due to market interest rate growth since March 31, 2020. Partially offsetting these increases, service charges on deposits decreased $531,000 year over year due to reductions in commercial and consumer spending during the COVID-19 pandemic, and a related decline in overdraft fees recorded.

These year over year increases were partially offset by decreases of $531,000 in service charges on deposits and $176,000 in other income, mainly attributable to a $95,000 decrease in commercial interest rate swaps.

Noninterest Expense


										1st Quarter 2021
Noninterest Expense	Three Months Ended									Percent Change From
(Dollars in thousands)	March 31,			December 31,			March 31,			December 31,	March 31,
	2021			2020			2020			2020	2020
Salaries	$	9,216		$	9,978		$	9,761		(7.6)	(5.6)
Officers incentive		1,653			680			958		143.1	72.5
Benefits and other		2,637			2,043			2,199		29.1	19.9
Total salaries and employee benefits		13,506			12,701			12,918		6.3	4.6
Occupancy, furniture and equipment expense		2,467			2,259			2,301		9.2	7.2
Computer and data processing		1,298			1,335			1,335		(2.8)	(2.8)
FDIC insurance		201			194			57		3.6	252.6
General bank insurance		276			266			246		3.8	12.2
Amortization of core deposit intangible asset		120			120			128		-	(6.3)
Advertising expense		60			70			109		(14.3)	(45.0)
Card related expense		593			583			532		1.7	11.5
Legal fees		55			285			131		(80.7)	(58.0)
Other real estate owned expense, net		36			146			237		(75.3)	(84.8)
Other expense		3,126			3,294			3,008		(5.1)	3.9
Total noninterest expense	$	21,738		$	21,253		$	21,002		2.3	3.5
Efficiency ratio (GAAP)¹		63.98	%		61.87	%		66.28	%
Adjusted efficiency ratio (non-GAAP)²		63.19	%		61.10	%		65.48	%

¹The efficiency ratio shown in the table above is a GAAP financial measure calculated as noninterest expense, excluding amortization of core deposits and OREO expenses, divided by the sum of net interest income and total noninterest income less any BOLI death benefit recorded, net gains or losses on securities and mark to market gains or losses on MSRs.

² The adjusted efficiency ratio shown in the table above is a non-GAAP financial measure calculated as noninterest expense, excluding amortization of core deposits and OREO expenses, divided by the sum of net interest income on a fully tax equivalent basis, total noninterest income less net gains or losses on securities and mark to market gains or losses on MSRs, and includes a tax equivalent adjustment on the change in cash surrender value of BOLI. See the discussion entitled “Non-GAAP Presentations” below and the table on page 17 that provides a reconciliation of each non-GAAP financial measure to the most comparable GAAP equivalent.

Noninterest expense for the first quarter of 2021 increased $485,000, or 2.3%, compared to the fourth quarter of 2020, and increased $736,000, or 3.5%, compared to the first quarter of 2020. The linked quarter increase is primarily attributable to an $805,000 increase in salaries and employee benefits in the first quarter of 2021. Officer incentive increased $973,000 due to an under accrual of payouts in early 2021 for 2020 performance, and a resultant increase in the first quarter 2021 accrual, while benefits expense increased $594,000 due to higher payroll taxes and 401K company matching expense related to the higher officer incentive payouts. These increases were partially offset by a decline of $792,000 in salaries, $362,000 of which was due to an increase in deferrals on new loan originations stemming from the second round of PPP loans in the first quarter of 2021, and $354,000 was due to the reversal of restricted stock compensation award expense due to the achievement of only a partial award payout for performance-based restricted stock units. In addition, occupancy, furniture and equipment expense increased $208,000 in the first quarter of 2021 compared to the linked quarter due to an increase in snow removal costs and planned building maintenance. These increases were partially offset by a $230,000 decrease in legal fees due to decreased loan production, a $37,000 decrease in computer and data processing expense, and a $110,000 decrease in other real estate owned expense, net, primarily due to an $87,000 reduction in OREO valuation reserve expense. Other expenses also decreased due to fraud and robbery losses of $147,000 incurred in the fourth quarter of 2020.

The year over year increase in noninterest expense is primarily attributable to a $588,000 increase in salaries and employee benefits in the first quarter of 2021. Officer incentive increased $695,000 due to the under accrual mentioned above, and accruals for 2021 officer incentive were at a higher rate than the prior year. Employee benefits expense increased $438,000 due to an increase in payroll taxes and 401K company matching expense commensurate with the higher officer incentive payout in 2021. This was partially offset by a decrease of $545,000 in salaries, primarily due to a $334,000 increase in salary deferrals related to new PPP loan originations in the first quarter of 2021. We also had increases in the year over year period in occupancy, furniture and equipment of $166,000 due to an increase in snow removal expense and planned building repairs, and an increase in FDIC insurance of $144,000 due to assessment credits received in the prior year. These increases were partially offset by decreases of $49,000 in advertising expense, $76,000

in legal fees and $201,000 in other real estate owned, net, primarily due to a $152,000 reduction in valuation reserves in the year over year period.

Earning Assets


							March 31, 2021
Loans	As of						Percent Change From
(dollars in thousands)	March 31,		December 31,		March 31,		December 31,	March 31,
	2021		2020		2020		2020	2020
Commercial	$	392,380	$	407,159	$	364,626	(3.6)	7.6
Leases		138,240		141,601		126,237	(2.4)	9.5
Commercial real estate - Investor		567,475		582,042		503,905	(2.5)	12.6
Commercial real estate - Owner occupied		326,857		333,070		349,595	(1.9)	(6.5)
Construction		93,745		98,486		78,159	(4.8)	19.9
Residential real estate - Investor		52,176		56,137		69,429	(7.1)	(24.8)
Residential real estate - Owner occupied		107,303		116,388		129,982	(7.8)	(17.4)
Multifamily		178,258		189,040		195,297	(5.7)	(8.7)
HELOC		75,604		80,908		93,165	(6.6)	(18.8)
HELOC - Purchased		17,078		19,487		30,880	(12.4)	(44.7)
Other¹		10,509		10,533		15,929	(0.2)	(34.0)
Total loans	$	1,959,625	$	2,034,851	$	1,957,204	(3.7)	0.1

¹Other class includes consumer and overdrafts.

Total loans decreased by $75.2 million at March 31, 2021, compared to December 31, 2020, and increased $2.4 million for the year over year period. Declines were noted in all loan categories from the December 31, 2020 balances, as borrowers have taken advantage of higher cash balances on hand to pay down or pay off their loans. In addition, during the first quarter of 2021, $27.8 million of PPP loans originated in 2020 were forgiven. This reduction in loans was partially offset by $58.3 million of new PPP loans originated in 2021. Growth in the year over year period in commercial loans was primarily due to PPP loan originations, which totaled $104.5 million outstanding as of March 31, 2021. In addition, we also had organic growth primarily in our leases, commercial real estate-investor and construction loan portfolios. As required by CECL, the balance (or amortized cost basis) of purchase credit deteriorated loans (“PCD” loans) are carried on a gross basis (rather than net of the associated credit loss estimate), and the expected credit losses for PCD loans are estimated and separately recognized as part of the allowance for credit losses.


							March 31, 2021
Securities	As of						Percent Change From
(dollars in thousands)	March 31,		December 31,		March 31,		December 31,	March 31,
	2021		2020		2020		2020	2020
Securities available-for-sale, at fair value
U.S. Treasury	$	4,102	$	4,117	$	4,152	(0.4)	(1.2)
U.S. government agencies		6,361		6,657		7,723	(4.4)	(17.6)
U.S. government agency mortgage-backed		70,602		17,209		17,255	310.3	309.2
States and political subdivisions		242,146		249,259		255,095	(2.9)	(5.1)
Corporate bonds		34,843		-		-	-	-
Collateralized mortgage obligations		74,936		56,585		53,403	32.4	40.3
Asset-backed securities		130,368		131,818		77,727	(1.1)	67.7
Collateralized loan obligations		29,922		30,533		34,339	(2.0)	(12.9)
Total securities available-for-sale	$	593,280	$	496,178	$	449,694	19.6	31.9

Our securities portfolio totaled $593.3 million as of March 31, 2021, an increase of $97.1 million from $496.2 million as of December 31, 2020, and an increase of $143.6 million from March 31, 2020. The increase in the portfolio during the first quarter of 2021, compared to the prior quarter, was due to purchases of $55.2 million of mortgage-backed securities, $34.8 million of corporate bonds, and $19.8 million of collateralized mortgage-backed securities, partially offset by unrealized mark to market gain reductions of $4.8 million and by $7.3 million of security paydowns. The increase in the securities portfolio in the year over year period was primarily due to the purchases noted above, and an increase in unrealized mark to market gains on securities available-for-sale of $16.3 million. No security sales were recorded in the first quarter of 2021 or the fourth quarter of 2020, and net security losses of $24,000 were recorded in the first quarter of 2020.

Asset Quality


										March 31, 2021
Nonperforming assets	As of									Percent Change From
(dollars in thousands)	March 31,			December 31,			March 31,			December 31,	March 31,
	2021			2020			2020			2020	2020
Nonaccrual loans	$	20,379		$	22,280		$	19,497		(8.5)	4.5
Performing troubled debt restructured loans accruing interest		290			331			934		(12.4)	(69.0)
Loans past due 90 days or more and still accruing interest		513			434			1,406		18.2	(63.5)
Total nonperforming loans		21,182			23,045			21,837		(8.1)	(3.0)
Other real estate owned		2,163			2,474			5,049		(12.6)	(57.2)
Total nonperforming assets	$	23,345		$	25,519		$	26,886		(8.5)	(13.2)



30-89 days past due loans and still accruing interest	$	13,506		$	11,326		$	16,173
Nonaccrual loans to total loans		1.0	%		1.1	%		1.0	%
Nonperforming loans to total loans		1.1	%		1.1	%		1.1	%
Nonperforming assets to total loans plus OREO		1.2	%		1.3	%		1.4	%

Allowance for credit losses	$	30,967		$	33,855		$	30,045
Allowance for credit losses to total loans		1.6	%		1.7	%		1.5	%
Allowance for credit losses to nonaccrual loans		152.0	%		152.0	%		154.1	%

Nonperforming loans consist of nonaccrual loans, performing troubled debt restructured loans accruing interest and loans 90 days or more past due and still accruing interest. Our adoption of CECL on January 1, 2020, resulted in a change in the accounting for purchased credit impaired (“PCI”) loans, which are now considered purchased credit deteriorated (“PCD”) loans under CECL. PCD loans acquired in our acquisition of ABC Bank totaled $10.0 million, net of purchase accounting adjustments, at March 31, 2021. PCD loans that meet the definition of nonperforming loans are now included in our nonperforming disclosures. Nonperforming loans to total loans reflected no change over the periods presented, and was 1.1% for the first quarter of 2021, the fourth quarter of 2020, and the first quarter of 2020. Nonperforming assets to total loans plus OREO remained stable and ended at 1.2% for the first quarter of 2021, 1.3 % for the fourth quarter of 2020, and 1.4% for the first quarter of 2020, as our loan portfolio grew year over year and we continued OREO liquidations and recorded write-downs. Our allowance for credit losses to total loans was 1.6% as of March 31, 2021, 1.7% as of December 31, 2020 and 1.5% as of March 31, 2020.

The following table shows classified loans by segment, which include nonaccrual, performing troubled debt restructurings, PCD loans if the risk rating so indicates, and all other loans considered substandard, for the following periods.


							March 31, 2021
Classified loans	As of						Percent Change From
(dollars in thousands)	March 31,		December 31,		March 31,		December 31,	March 31,
	2021		2020		2020		2020	2020
Commercial	$	2,397	$	2,679	$	11,260	(10.5)	(78.7)
Leases		3,146		3,222		264	(2.4)	N/M
Commercial real estate - Investor		5,130		5,117		6,073	0.3	(15.5)
Commercial real estate - Owner occupied		8,652		11,187		10,504	(22.7)	(17.6)
Construction		5,367		5,192		2,414	3.4	122.3
Residential real estate - Investor		1,435		1,516		1,452	(5.3)	(1.2)
Residential real estate - Owner occupied		4,148		4,040		4,568	2.7	(9.2)
Multifamily		7,846		7,558		5,374	3.8	46.0
HELOC		1,303		1,540		1,628	(15.4)	(20.0)
HELOC - Purchased		-		-		114	-	(100.0)
Other¹		402		4		349	N/M	15.2
Total classified loans	$	39,826	$	42,055	$	44,000	(5.3)	(9.5)

N/M - Not meaningful.

¹Other class includes consumer and overdrafts.

Allowance for Credit Losses on Loans and Unfunded Commitments

At March 31, 2021, our allowance for credit losses (“ACL”) on loans totaled $31.0 million, and our ACL on unfunded commitments, included in other liabilities, totaled $3.5 million. The decrease in our ACL on loans from year-end 2020 was driven by a $3.5 million provision release recorded in the first quarter of 2021, based on loss forecast updates primarily stemming from a more favorable unemployment projection. The increase in our ACL on unfunded commitments from year-end 2020 was driven by $470,000 of provision expense recorded in the first quarter of 2021 due to adjustments in the funding rate assumptions based on our analysis of the last 12 months of utilization. The total increase in the ACL during 2020 reflected forecasted credit deterioration due to the COVID-19 pandemic and the resultant recession. Our ACL on loans to total loans was 1.6% as of March 31, 2021, compared to 1.7% as of December 31, 2020, and 1.5% at March 31, 2020. The ACL on unfunded commitments totaled $3.5 million as of March 31, 2021, compared to $3.0 million as of December 31, 2020 and $4.2 million as of March 31, 2020.

Net Charge-off Summary


Loan Charge-offs, net of recoveries	Quarters Ended
(dollars in thousands)	March 31,		% of	December 31,		% of	March 31,		% of
	2021		Total ²	2020		Total²	2020		Total ²
Commercial	$	(18)	3.1	$	(93)	(169.1)	$	85	7.6
Leases		-	-		(11)	(20.0)		-	-
Commercial real estate - Investor		(20)	3.4		471	856.4		(8)	(0.7)
Commercial real estate - Owner occupied		(205)	35.2		86	156.4		1,108	98.8
Construction		-	-		(171)	(310.9)		-	-
Residential real estate - Investor		(266)	45.7		(12)	(21.8)		(20)	(1.8)
Residential real estate - Owner occupied		(49)	8.4		(130)	(236.4)		(23)	(2.0)
Multifamily		-	-		-	-		-	-
HELOC		(12)	2.1		(97)	(176.4)		(58)	(5.2)
HELOC - Purchased		-	-		-	-		-	-
Other¹		(12)	2.1		12	21.8		38	3.3
Net charge-offs / (recoveries)	$	(582)	100.0	$	55	100.0	$	1,122	100.0

¹Other class includes consumer and overdrafts.

²Represents the percentage of net charge-offs attributable to each category of loans.

Gross charge-offs for the first quarter of 2021 were $42,000, compared to $810,000 for the fourth quarter of 2020, and $1.4 million for the first quarter of 2020. Gross recoveries were $624,000 for the first quarter of 2021, compared to $755,000 for the fourth quarter of 2020 and $279,000 for the first quarter of 2020. Continued recoveries are indicative of the ongoing aggressive efforts by management to effectively manage and resolve prior charge-offs.

Deposits

Total deposits were $2.66 billion at March 31, 2021, an increase of $119.5 million compared to December 31, 2020, resulting from net increases in demand deposits of $73.2 million, and net increases in savings, NOW and money market accounts of $88.8 million, partially offset by decreases in time deposits of $42.5 million. Total deposits increased $460.9 million in the year over year period driven primarily by growth in demand deposits of $280.1 million, and savings, NOW and money market accounts of $247.4 million, partially offset by a decrease in time deposits of $66.5 million.

Borrowings

As of March 31, 2021 and December 31, 2020, we had no other short-term borrowings compared to $6.4 million as of March 31, 2020. Due to growth in deposits, our need for short-term funding in 2021 has declined year over year.

We were indebted on senior notes totaling $44.4 million, net of deferred issuance costs, as of March 31, 2021. We were also indebted on $25.8 million of junior subordinated debentures, net of deferred issuance costs, which is related to the trust preferred securities issued by our statutory trust subsidiary, Old Second Capital Trust II. On March 2, 2020, we redeemed the trust preferred securities and related junior subordinated debentures issued by Old Second Capital Trust I, which resulted in a decrease in junior subordinated debentures of $32.0 million. Notes payable and other borrowings totaled $22.3 million as of March 31, 2021, and is comprised of $16.0 million outstanding on a $20.0 million term note we originated to facilitate the redemption of our trust preferred securities and related junior subordinated debentures issued by Old Second Capital Trust I, and $6.3 million of a long-term FHLBC advance acquired in our ABC Bank acquisition that matures on February 2, 2026.

Non-GAAP Presentations: Management has disclosed in this earnings release certain non-GAAP financial measures to evaluate and measure our performance, including the presentation of net interest income and net interest margin on a fully taxable equivalent basis, our efficiency ratio calculations and core net interest margin on a taxable equivalent basis. The net interest margin fully taxable equivalent is calculated by dividing net interest income on a tax equivalent basis by average earning assets for the period. Consistent with industry practice, management has disclosed the efficiency ratio including and excluding certain items, which is discussed in the noninterest expense presentation on page 7. Our core net interest margin on a taxable equivalent basis excludes the impact of our PPP loans.

We consider the use of select non-GAAP financial measures and ratios to be useful for financial and operational decision making and useful in evaluating period-to-period comparisons. We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding certain expenditures or assets that we believe are not indicative of our primary business operating results or by presenting certain metrics on a fully taxable equivalent basis. We believe these measures provide investors with information regarding balance sheet profitability, and we believe that management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, analyzing and comparing past, present and future periods.

These non-GAAP financial measures should not be considered as a substitute for GAAP financial measures, and we strongly encourage investors to review the GAAP financial measures included in this earnings release and not to place undue reliance upon any single financial measure. In addition, because non-GAAP financial measures are not standardized, it may not be possible to compare the non-GAAP financial measures presented in this earnings release with other companies’ non-GAAP financial measures having the same or similar names. The tables on page 17 provide a reconciliation of each non-GAAP financial measure to the most comparable GAAP equivalent.

Forward-Looking Statements: This earnings release and statements by our management may contain forward-looking statements within the Private Securities Litigation Reform Act of 1995. Forward looking statements can be identified by words such as “anticipate,” “expect,” “intend,” “believe,” “may,” “likely,” “will” or other statements that indicate future periods. Examples of forward-looking statements include, but are not limited to, statements regarding the economic outlook, the adequacy of our allowance and our belief that we are conservatively positioned to meet the challenges of the coming year, as well as statements regarding asset quality trends and the anticipated timing of our receipt of funds for PPP loan forgiveness. Such forward-looking statements are subject to risks, uncertainties, and other factors, which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements, (1) the strength of the United States economy in general and the strength of the local economies in which we conduct our operations may be different than expected, including, but not limited to, due to the negative impacts and disruptions resulting from the global coronavirus, (“COVID-19”) pandemic, on the economies and communities we serve, which has had and may continue to have an adverse impact on our business, operations and performance, and could continue to have a negative impact on our credit portfolio, share price, borrowers, and on the economy as a whole, both domestically and globally; (2) the rate of delinquencies and amounts of charge-offs, the level of allowance for credit loss, the rates of loan growth, or adverse changes in asset quality in our loan portfolio, which may result in increased credit risk-related losses and expenses; (3) changes in legislation, regulation, policies, or administrative practices, whether by judicial, governmental, or legislative

action, including, but not limited to, the Coronavirus Aid, Relief, and Economic Security Act, or the “CARES Act”; (4) adverse conditions in the stock market, the public debt market and other capital markets (including changes in interest rate conditions) could have a negative impact on us; and (5) changes in interest rates, which may affect our net income, prepayment penalty income, mortgage banking income, and other future cash flows, or the market value of our assets, including our investment securities. Additional risks and uncertainties are contained in the “Risk Factors” and forward-looking statements disclosure in our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. The inclusion of this forward-looking information should not be construed as a representation by us or any person that future events, plans, or expectations contemplated by us will be achieved. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

Conference Call

We will host an earnings call on Thursday, April 22, 2021, at 11:00 a.m. Eastern Time (10:00 a.m. Central Time). Investors may listen to our earnings call via telephone by dialing 877-407-9124. Investors should call into the dial-in number set forth above at least 10 minutes prior to the scheduled start of the call.

A replay of the earnings call will be available until 11:00 a.m. Eastern Time (10:00 a.m. Central Time) on April 29, 2021, by dialing 877-481-4010, using Conference ID: 40524.

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands)


	(unaudited)
	March 31,		December 31,
	2021		2020
Assets
Cash and due from banks	$	25,448	$	24,306
Interest earning deposits with financial institutions		415,497		305,597
Cash and cash equivalents		440,945		329,903
Securities available-for-sale, at fair value		593,280		496,178
Federal Home Loan Bank Chicago ("FHLBC") and Federal Reserve Bank Chicago ("FRBC") stock		9,917		9,917
Loans held-for-sale		7,842		12,611
Loans		1,959,625		2,034,851
Less: allowance for credit losses on loans		30,967		33,855
Net loans		1,928,658		2,000,996
Premises and equipment, net		45,055		45,477
Other real estate owned		2,163		2,474
Mortgage servicing rights, net		5,889		4,224
Goodwill and core deposit intangible		20,661		20,781
Bank-owned life insurance ("BOLI")		63,436		63,102
Deferred tax assets, net		8,067		8,121
Other assets		40,739		47,053
Total assets	$	3,166,652	$	3,040,837

Liabilities
Deposits:
Noninterest bearing demand	$	982,664	$	909,505
Interest bearing:
Savings, NOW, and money market		1,290,937		1,202,134
Time		382,941		425,434
Total deposits		2,656,542		2,537,073
Securities sold under repurchase agreements		77,321		66,980
Junior subordinated debentures		25,773		25,773
Senior notes		44,402		44,375
Notes payable and other borrowings		22,314		23,393
Other liabilities		29,187		36,156
Total liabilities		2,855,539		2,733,750

Stockholders’ Equity
Common stock		34,957		34,957
Additional paid-in capital		120,075		122,212
Retained earnings		248,165		236,579
Accumulated other comprehensive income		13,266		14,762
Treasury stock		(105,350)		(101,423)
Total stockholders’ equity		311,113		307,087
Total liabilities and stockholders’ equity	$	3,166,652	$	3,040,837

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

(In thousands, except share data)


		(unaudited)
	Three Months Ended March 31,
	2021		2020
Interest and dividend income
Loans, including fees	$	22,207	$	23,597
Loans held-for-sale		55		36
Securities:
Taxable		1,615		2,163
Tax exempt		1,307		1,455
Dividends from FHLBC and FRBC stock		115		125
Interest bearing deposits with financial institutions		92		75
Total interest and dividend income		25,391		27,451
Interest expense
Savings, NOW, and money market deposits		241		635
Time deposits		500		1,766
Securities sold under repurchase agreements		31		116
Other short-term borrowings		-		109
Junior subordinated debentures		280		1,364
Senior notes		673		673
Notes payable and other borrowings		123		130
Total interest expense		1,848		4,793
Net interest and dividend income		23,543		22,658
(Release) provision for credit losses		(3,000)		7,984
Net interest and dividend income after provision for credit losses		26,543		14,674
Noninterest income
Wealth management		2,151		1,906
Service charges on deposits		1,195		1,726
Secondary mortgage fees		322		270
Mortgage servicing rights mark to market gain (loss)		1,113		(2,134)
Mortgage servicing income		567		468
Net gain on sales of mortgage loans		3,721		2,246
Securities losses, net		-		(24)
Change in cash surrender value of BOLI		334		(49)
Card related income		1,447		1,287
Other income		450		626
Total noninterest income		11,300		6,322
Noninterest expense
Salaries and employee benefits		13,506		12,918
Occupancy, furniture and equipment		2,467		2,301
Computer and data processing		1,298		1,335
FDIC insurance		201		57
General bank insurance		276		246
Amortization of core deposit intangible		120		128
Advertising expense		60		109
Card related expense		593		532
Legal fees		55		131
Other real estate expense, net		36		237
Other expense		3,126		3,008
Total noninterest expense		21,738		21,002
Income (loss) before income taxes		16,105		(6)
Provision for income taxes		4,226		(281)
Net income	$	11,879	$	275

Basic earnings per share	$	0.41	$	0.01
Diluted earnings per share		0.40		0.01
Dividends declared per share		0.01		0.01


Ending common shares outstanding	29,018,637	29,706,390
Weighted-average basic shares outstanding	29,225,775	29,929,763
Weighted-average diluted shares outstanding	29,784,757	30,490,605

Old Second Bancorp, Inc. and Subsidiaries

Quarterly Consolidated Average Balance

(In thousands, unaudited)


		2020							2021
Assets	1st Qtr		2nd Qtr		3rd Qtr		4th Qtr		1st Qtr
Cash and due from banks	$	32,549	$	30,594	$	31,354	$	30,086	$	28,461
Interest earning deposits with financial institutions		27,989		153,532		263,199		275,087		359,576
Cash and cash equivalents		60,538		184,126		294,553		305,173		388,037

Securities available-for-sale, at fair value		475,718		452,708		448,408		481,948		532,230
FHLBC and FRBC stock		9,917		9,917		9,917		9,917		9,917
Loans held-for-sale		3,623		13,978		13,384		9,503		8,616
Loans		1,941,760		2,038,082		2,035,584		2,023,238		2,006,157
Less: allowance for credit losses on loans		23,507		30,747		31,518		33,255		34,540
Net loans		1,918,253		2,007,335		2,004,066		1,989,983		1,971,617

Premises and equipment, net		44,613		44,658		44,802		45,382		45,378
Other real estate owned		5,127		5,040		3,087		2,653		2,213
Mortgage servicing rights, net		5,053		4,451		4,645		4,717		4,814
Goodwill and core deposit intangible		21,208		21,084		20,960		20,838		20,719
Bank-owned life insurance ("BOLI")		61,873		61,790		61,897		62,499		63,259
Deferred tax assets, net		9,682		13,511		12,051		9,189		8,228
Other assets		25,156		36,771		37,786		47,143		42,877
Total other assets		172,712		187,305		185,228		192,421		187,488
Total assets	$	2,640,761	$	2,855,369	$	2,955,556	$	2,988,945	$	3,097,905

Liabilities
Deposits:
Noninterest bearing demand	$	676,755	$	854,324	$	892,811	$	903,383	$	937,039
Interest bearing:
Savings, NOW, and money market		1,025,511		1,097,003		1,156,194		1,184,154		1,237,177
Time		448,763		439,735		417,952		393,297		399,310
Total deposits		2,151,029		2,391,062		2,466,957		2,480,834		2,573,526

Securities sold under repurchase agreements		47,825		45,882		54,313		67,059		82,475
Other short-term borrowings		23,069		8,396		8,204		5,448		-
Junior subordinated debentures		47,200		25,773		25,773		25,773		25,773
Senior notes		44,284		44,310		44,337		44,363		44,389
Notes payable and other borrowings		14,762		26,551		25,482		24,407		23,330
Other liabilities		28,490		39,613		39,589		39,281		37,801
Total liabilities		2,356,659		2,581,587		2,664,655		2,687,165		2,787,294

Stockholders' equity
Common stock		34,900		34,957		34,957		34,957		34,957
Additional paid-in capital		120,829		121,253		121,643		122,045		121,578
Retained earnings		215,467		216,183		224,405		233,920		242,201
Accumulated other comprehensive income		9,131		219		9,305		11,900		14,496
Treasury stock		(96,225)		(98,830)		(99,409)		(101,042)		(102,621)
Total stockholders' equity		284,102		273,782		290,901		301,780		310,611
Total liabilities and stockholders' equity	$	2,640,761	$	2,855,369	$	2,955,556	$	2,988,945	$	3,097,905

Total Earning Assets	$	2,459,007	$	2,668,217	$	2,770,492	$	2,799,693	$	2,916,496
Total Interest Bearing Liabilities		1,651,414		1,687,650		1,732,255		1,744,501		1,812,454

Old Second Bancorp, Inc. and Subsidiaries

Quarterly Consolidated Statements of Income

(In thousands, except per share data, unaudited)



	2020								2021
	1st Qtr		2nd Qtr		3rd Qtr		4th Qtr		1st Qtr
Interest and Dividend Income
Loans, including fees	$	23,597	$	22,347	$	21,980	$	22,999	$	22,207
Loans held-for-sale		36		110		95		65		55
Securities:
Taxable		2,163		1,694		1,458		1,458		1,615
Tax exempt		1,455		1,396		1,327		1,293		1,307
Dividends from FHLB and FRBC stock		125		123		118		118		115
Interest bearing deposits with financial institutions		75		42		68		73		92
Total interest and dividend income		27,451		25,712		25,046		26,006		25,391
Interest Expense
Savings, NOW, and money market deposits		635		385		299		250		241
Time deposits		1,766		1,442		1,084		741		500
Securities sold under repurchase agreements		116		23		28		35		31
Other short-term borrowings		109		34		24		12		-
Junior subordinated debentures		1,364		283		285		283		280
Senior notes		673		673		673		673		673
Notes payable and other borrowings		130		165		144		135		123
Total interest expense		4,793		3,005		2,537		2,129		1,848
Net interest and dividend income		22,658		22,707		22,509		23,877		23,543
(Release) provision for credit losses		7,984		2,129		300		-		(3,000)
Net interest and dividend income after provision for credit losses		14,674		20,578		22,209		23,877		26,543
Noninterest Income
Wealth management		1,906		1,998		1,889		2,112		2,151
Service charges on deposits		1,726		1,120		1,322		1,344		1,195
Secondary mortgage fees		270		505		492		387		322
Mortgage servicing rights mark to market (loss) gain		(2,134)		(445)		(160)		(1,260)		1,113
Mortgage servicing income		468		458		521		503		567
Net gain on sales of mortgage loans		2,246		4,631		5,246		3,396		3,721
Securities losses, net		(24)		-		(1)		-		-
Change in cash surrender value of BOLI		(49)		532		459		291		334
Death benefit realized on BOLI		-		59		(2)		-		-
Card related income		1,287		1,311		1,499		1,435		1,447
Other income		626		526		420		577		450
Total noninterest income		6,322		10,695		11,685		8,785		11,300
Noninterest Expense
Salaries and employee benefits		12,918		11,342		12,586		12,701		13,506
Occupancy, furniture and equipment		2,301		1,935		2,003		2,259		2,467
Computer and data processing		1,335		1,247		1,226		1,335		1,298
FDIC insurance		57		155		191		194		201
General bank insurance		246		237		281		266		276
Amortization of core deposit intangible		128		124		122		120		120
Advertising expense		109		57		62		70		60
Card related expense		532		514		566		583		593
Legal fees		131		176		169		285		55
Other real estate expense, net		237		143		125		146		36
Other expense		3,008		2,966		2,935		3,294		3,126
Total noninterest expense		21,002		18,896		20,266		21,253		21,738
(Loss) income before income taxes		(6)		12,377		13,628		11,409		16,105
(Benefit from) Provision for income taxes		(281)		3,139		3,363		3,362		4,226
Net income	$	275	$	9,238	$	10,265	$	8,047	$	11,879

Basic earnings per share	$	0.01	$	0.31	$	0.35	$	0.27	$	0.41
Diluted earnings per share		0.01		0.31		0.34		0.27		0.40
Dividends paid per share		0.01		0.01		0.01		0.01		0.01

Reconciliation of Non-GAAP Financial Measures

The tables below provide a reconciliation of each non-GAAP financial measure to the most comparable GAAP measure for the periods indicated. Dollar amounts below in thousands:


	Quarters Ended
	March 31,			December 31			March 31,
	2021			2020			2020
Net Interest Margin
Interest income (GAAP)	$	25,391		$	26,006		$	27,451
Taxable-equivalent adjustment:
Loans		4			3			3
Securities		348			344			387
Interest income (TE)		25,743			26,353			27,841
Interest expense (GAAP)		1,848			2,129			4,793
Net interest income (TE)	$	23,895		$	24,224		$	23,048
Paycheck Protection Program ("PPP") loan - interest and net fee income		741			1,777			NA
Net interest income (TE) - excluding PPP loans	$	23,154		$	22,447		$	23,048
Net interest income (GAAP)	$	23,543		$	23,877		$	22,658
Average interest earning assets	$	2,916,496		$	2,799,693		$	2,459,007
Average PPP loans	$	94,149		$	111,491			N/A
Average interest earning assets, excluding PPP loans	$	2,822,347		$	2,688,202		$	2,459,007
Net interest margin (GAAP)		3.27	%		3.39	%		3.71	%
Net interest margin (TE)		3.32	%		3.44	%		3.77	%
Core net interest margin (TE - excluding PPP loans)		3.33	%		3.32	%		3.77	%


	GAAP									Non-GAAP
		Three Months Ended									Three Months Ended
	March 31,			December 31,			March 31,			March 31,			December 31,			March 31,
	2021			2020			2020			2021			2020			2020
Efficiency Ratio / Adjusted Efficiency Ratio


Noninterest expense	$	21,738		$	21,253		$	21,002		$	21,738		$	21,253		$	21,002
Less amortization of core deposit		120			120			128			120			120			128
Less other real estate expense, net		36			146			237			36			146			237
Noninterest expense less adjustments	$	21,582		$	20,987		$	20,637		$	21,582		$	20,987		$	20,637

Net interest income	$	23,543		$	23,877		$	22,658		$	23,543		$	23,877		$	22,658
Taxable-equivalent adjustment:
Loans		N/A			N/A			N/A			4			3			3
Securities		N/A			N/A			N/A			348			344			387
Net interest income including adjustments		23,543			23,877			22,658			23,895			24,224			23,048
Noninterest income		11,300			8,785			6,322			11,300			8,785			6,322
Less death benefit related to BOLI		-			-			-			-			-			-
Less securities losses, net		-			-			(24)			-			-			(24)
Less MSRs mark to market gains (losses)		1,113			(1,260)			(2,134)			1,113			(1,260)			(2,134)
Taxable-equivalent adjustment:
Change in cash surrender value of BOLI		N/A			N/A			N/A			89			77			(13)
Noninterest income (less) / including adjustments		10,187			10,045			8,480			10,276			10,122			8,467

Net interest income including adjustments plus noninterest income (less) / including adjustments	$	33,730		$	33,922		$	31,138		$	34,171		$	34,346		$	31,515
Efficiency ratio / Adjusted efficiency ratio		63.98	%		61.87	%		66.28	%		63.16	%		61.10	%		65.48	%

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OLD SECOND BANCORP INC Reports