Table of Contents
I
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 March 31, 2026
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)
Delaware
36-3143493
(State or other jurisdiction
(I.R.S. Employer Identification Number)
of incorporation or organization)
37 South River Street, Aurora, Illinois 60507
(Address of principal executive offices) (Zip Code)
(630) 892-0202
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
OSBC
The Nasdaq Stock Market
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15-(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ ‘‘smaller reporting company,’’ and ‘‘emerging growth company’’ in Rule 12b–2 of the Exchange Act.
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐Emerging growth company☐
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2).
Yes ☐ No ☒
As of May 5, 2026, the Registrant has 51,432,372 shares of common stock outstanding at $1.00 par value per share.
OLD SECOND BANCORP, INC.
Form 10-Q Quarterly Report
Cautionary Note Regarding Forward-Looking Statements
PART I
Page Number
Item 1.
Financial Statements
5
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
42
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
61
Item 4.
Controls and Procedures
62
PART II
Legal Proceedings
63
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
64
Item 5.
Other Information
Item 6.
Exhibits
65
Signatures
66
2
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report and other publicly available documents of Old Second Bancorp, Inc. (“Old Second” or the “Company”) contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act, including, but not limited to, management’s expectations regarding future plans, strategies and financial performance, including regulatory developments, industry and economic trends and estimates and assumptions underlying accounting policies. Forward-looking statements are based on our current beliefs, expectations, assumptions, and on information currently available and may be identified by the use of words such as “expects,” “intends,” “believes,” “may,” “will,” “would,” “could,” “should,” “plan,” “anticipate,” “estimate,” “forecasts,” “possible,” “implies,” “likely” or the negative thereof as well as other similar words and expressions of the future. Forward-looking statements are subject to risks, uncertainties and assumptions that are difficult to predict as to timing, extent, likelihood and degree of occurrence, which could cause our actual results to differ materially from those anticipated in or by such statements. Potential risks and uncertainties include, but are not limited to, the following:
3
Because our ability to predict results or the actual effect of future plans or strategies is inherently uncertain, there can be no assurances that future actual results will correspond to any forward-looking statements, and you should not rely on any forward-looking statements. Additionally, all statements in this Form 10-Q, including forward-looking statements, speak only as of the date they are made, and we undertake no obligation to update any statement in light of new information or future events, except as required by applicable law.
4
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share data)
(unaudited)
March 31,
December 31,
2026
2025
Assets
Cash and due from banks
$
48,100
51,665
Interest earning deposits with financial institutions
67,627
72,360
Cash and cash equivalents
115,727
124,025
Securities available-for-sale, at fair value
1,115,443
1,090,523
Federal Home Loan Bank Chicago (“FHLBC”) and Federal Reserve Bank Chicago (“FRBC”) stock
31,350
32,025
Loans held-for-sale
4,344
3,645
Loans
5,185,237
5,252,131
Less: allowance for credit losses on loans
72,126
72,301
Net loans
5,113,111
5,179,830
Premises and equipment, net
85,634
86,645
Other real estate owned, net
632
1,427
Mortgage servicing rights, at fair value
9,579
9,459
Goodwill
129,196
Core deposit intangible ("CDI")
22,516
23,692
Bank-owned life insurance (“BOLI”)
131,563
130,481
Deferred tax assets, net
31,321
31,276
Other assets
58,805
60,451
Total assets
6,849,221
6,902,675
Liabilities
Deposits:
Noninterest bearing demand
1,755,548
1,739,117
Interest bearing:
Savings, NOW, and money market
2,795,038
2,745,540
Time
1,014,413
1,111,412
Total deposits
5,564,999
5,596,069
Securities sold under repurchase agreements
23,130
23,769
Other short-term borrowings
200,000
215,000
Junior subordinated debentures
25,774
Subordinated debentures
59,574
59,552
Notes payable and other borrowings
14,837
14,825
Other liabilities
67,610
70,918
Total liabilities
5,955,924
6,005,907
Stockholders’ Equity
Common stock
53,015
Additional paid-in capital
338,418
341,451
Retained earnings
559,129
537,231
Accumulated other comprehensive loss, net
(31,095)
(28,738)
Treasury stock
(26,170)
(6,191)
Total stockholders’ equity
893,297
896,768
Total liabilities and stockholders’ equity
March 31, 2026
December 31, 2025
Common
Stock
Par value
1.00
Shares authorized
120,000,000
Shares issued
53,015,496
Shares outstanding
51,665,659
52,669,224
Treasury shares
1,349,837
346,272
See accompanying notes to consolidated financial statements.
Consolidated Statements of Income
(In thousands, except per share data)
Three Months Ended March 31,
Interest and dividend income
Loans, including fees
87,138
61,595
43
22
Securities:
Taxable
8,949
9,227
Tax exempt
1,155
1,260
Dividends from FHLBC and FRBC stock
512
473
Interest bearing deposits with financial institutions
549
988
Total interest and dividend income
98,346
73,565
Interest expense
Savings, NOW, and money market deposits
7,147
4,913
Time deposits
7,217
4,829
50
68
1,791
17
296
288
546
155
-
Total interest expense
17,202
10,661
Net interest and dividend income
81,144
62,904
Provision for credit losses
9,500
2,400
Net interest and dividend income after provision for credit losses
71,644
60,504
Noninterest income
Wealth management
3,383
3,089
Service charges on deposits
3,126
2,976
Secondary mortgage fees
121
73
Mortgage servicing rights mark to market loss
(152)
(570)
Mortgage servicing income
497
480
Net gain on sales of mortgage loans
555
464
Change in cash surrender value of BOLI
1,082
498
Card related income
2,354
2,241
Other income
1,664
950
Total noninterest income
12,630
10,201
Noninterest expense
Salaries and employee benefits
29,673
26,993
Occupancy, furniture and equipment
5,371
4,548
Computer and data processing
3,375
2,348
FDIC insurance
759
628
Net teller & bill paying
716
658
General bank insurance
353
330
Amortization of core deposit intangible
1,176
1,037
Advertising and marketing expense
551
229
Card related expense
1,519
1,380
Professional fees
1,299
1,095
Consumer credit expense
1,522
25
Other real estate expense, net
(186)
1,873
Other expense
4,082
3,361
Total noninterest expense
50,210
44,505
Income before income taxes
34,064
26,200
Provision for income taxes
8,479
6,370
Net income
25,585
19,830
Basic earnings per share
0.49
0.44
Diluted earnings per share
0.48
0.43
Dividends declared per share
0.07
0.06
6
Consolidated Statements of Comprehensive Income
(In thousands)
Net Income
Unrealized holding (losses) gains on available-for-sale securities arising during the period
(3,287)
8,931
Related tax benefit (expense)
920
(2,501)
Holding (losses) gains, after tax, on available-for-sale securities
(2,367)
6,430
Less: Reclassification adjustment for the net gains realized during the period
Net realized gains (losses)
Related tax (expense) benefit
Net realized gains (losses) after tax
Other comprehensive (loss) income on available-for-sale securities
Changes in fair value of derivatives used for cash flow hedges
12
(85)
(2)
24
Other comprehensive income (loss) on cash flow hedges
10
(61)
Total other comprehensive (loss) income
(2,357)
6,369
Total comprehensive income
23,228
26,199
Accumulated
Total
Unrealized Gain
Accumulated Other
(Loss) on Securities
(Loss) on Derivative
Comprehensive
Available-for -Sale
Instruments
Income/(Loss)
For the Three Months Ended
Balance, January 1, 2025
(49,412)
(47,748)
Other comprehensive income (loss), net of tax
Balance, March 31, 2025
(42,982)
1,603
(41,379)
Balance, January 1, 2026
(31,010)
2,272
Other comprehensive (loss) income, net of tax
Balance, March 31, 2026
(33,377)
2,282
7
Consolidated Statements of Cash Flows
Cash flows from operating activities
Adjustments to reconcile net income to net cash provided by operating activities:
Net premium / discount amortization on securities
475
457
Originations of loans held-for-sale
(22,950)
(14,371)
Proceeds from sales of loans held-for-sale
22,525
12,115
Net gains on sales of mortgage loans
(555)
(464)
152
570
Net accretion of purchase accounting adjustments and other discounts on loans
(175)
(179)
Net change in cash surrender value of BOLI
(1,082)
(498)
Net (gains) losses on sale of other real estate owned
(98)
236
Provision for other real estate owned valuation losses
454
Depreciation of fixed assets and amortization of leasehold improvements
1,698
1,408
Change in operating lease right-of-use asset
(512)
261
Amortization of core deposit intangibles
Change in current income taxes
7,114
5,797
Deferred tax expense
871
2,935
Change in accrued interest receivable and other assets
2,187
1,171
Accretion of purchase accounting adjustment on time deposits
(25)
(274)
Change in accrued interest payable and other liabilities
(10,991)
(15,989)
Change in operating lease payable
602
(441)
Stock based compensation
1,442
1,383
Net cash provided by operating activities
36,939
17,838
Cash flows from investing activities
Proceeds from maturities and calls, including pay down of securities available-for-sale
78,204
106,329
Purchases of securities available-for-sale
(106,886)
(82,875)
Net redemptions of FHLBC/FRBC stock
675
Net change in loans
56,762
36,815
Proceeds from sales of other real estate owned, net of participations
1,525
18,049
Proceeds from disposition of premises and equipment
76
Net purchases of premises and equipment
(769)
(1,609)
Cash received from acquisition, net
28
Net cash provided by investing activities
29,587
76,737
Cash flows from financing activities
Net change in deposits
(31,045)
84,334
Net change in securities sold under repurchase agreements
(639)
2,007
Net change in other short-term borrowings
(15,000)
(20,000)
Dividends paid on common stock
(3,686)
(2,694)
Purchase of treasury stock
(24,454)
(1,430)
Net cash (used in) provided by financing activities
(74,824)
62,217
Net change in cash and cash equivalents
(8,298)
156,792
Cash and cash equivalents at beginning of period
99,329
Cash and cash equivalents at end of period
256,121
8
Consolidated Statements of Changes in
Number of
Additional
Other
Common Shares
Paid-In
Retained
Treasury
Stockholders’
Outstanding
Capital
Earnings
(Loss) Income
Equity
44,873,467
44,908
205,284
469,165
(575)
671,034
Other comprehensive income, net of tax
Dividends declared on common stock, ($0.06 per share)
(2,695)
Vesting of restricted stock
252,615
186
(1,385)
1,199
Purchase of treasury stock from taxes withheld on stock awards
(78,931)
45,047,151
45,094
205,282
486,300
(806)
694,491
Other comprehensive loss, net of tax
Dividends declared on common stock, ($0.07 per share)
(3,687)
239,652
(4,475)
4,475
(67,358)
(1,368)
Purchase of treasury stock from stock repurchase program
(1,175,859)
(23,086)
9
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
Note 1 – Basis of Presentation and Changes in Significant Accounting Policies
The accounting policies followed in the preparation of the interim consolidated financial statements are consistent with those used in the preparation of the annual financial information. The interim consolidated financial statements reflect all normal and recurring adjustments that are necessary, in the opinion of management, for a fair statement of results for the interim period presented. Results for the period ended March 31, 2026, are not necessarily indicative of the results that may be expected for the year ending December 31, 2026. These interim consolidated financial statements and accompanying notes are unaudited and should be read in conjunction with the audited financial statements and notes included in Old Second Bancorp, Inc.’s (the “Company”) annual report on Form 10-K for the year ended December 31, 2025. Unless otherwise indicated, dollar amounts in the tables contained in the notes to the consolidated financial statements are in thousands. Certain items in prior periods have been reclassified to conform to the current presentation.
The Company’s consolidated financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”) and follow general practices within the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the consolidated financial statements. Future changes in information may affect these estimates, assumptions, and judgments, which, in turn, may affect amounts reported in the consolidated financial statements.
Recent Accounting Pronouncements
The following is a summary of recent accounting pronouncements that have impacted or could potentially affect the Company:
ASU 2023-06 – On October 9, 2023, the FASB issued ASU 2023-06 “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative.” The amendments in the ASU modify the disclosure or presentation requirements of a variety of topics in the codification. Certain of the amendments represent clarifications to, or technical corrections of, the current requirements. Each amendment in the ASU will only become effective if the SEC removes the related disclosure or presentation requirement from its existing regulations by June 30, 2027. The amendments in this ASU are not expected to have a material impact on the financial statements of the Company.
ASU 2024-03 – On November 4, 2024, the FASB issued ASU 2024-03 “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” This ASU requires public companies to disclose, in the notes to financial statements, specified information about certain costs and expenses at each interim and annual reporting period. Specifically, they will be required to: (1) Disclose the amounts of (a) purchases of inventory; (b) employee compensation; (c) depreciation; (d) intangible asset amortization; and (e) depreciation, depletion, and amortization recognized as part of oil- and gas-producing activities (or other amounts of depletion expense) included in each relevant expense caption. (2) Include certain amounts that are already required to be disclosed under current generally accepted accounting principles (GAAP) in the same disclosure as the other disaggregation requirements. (3) Disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. (4) Disclose the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses. ASU 2024-03 is effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, and is not expected to have a material impact on the financial statements of the Company.
ASU 2025-01 – On January 6, 2025, the FASB issued ASU 2025-01 “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date.” ASU 2024-03 is effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027, which dates were clarified in ASU 2025-01, and is not expected to have a material impact on the financial statements of the Company.
ASU 2025-03 – On May 12, 2025, the FASB issued ASU 2025-03 “Business Combinations (Topic 805) and Consolidation (Topic 810): Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity.” This ASU revises current guidance for determining the accounting acquirer for a transaction effected primarily by exchanging equity interests in which the legal acquiree is a variable interest entity that meets the definition of a business. The amendments require an entity to consider the same factors that are currently required for determining which entity is the accounting acquirer in other acquisition transactions. This ASU is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. Early adoption is permitted in an interim or annual reporting period in which financial statements have not yet been issued (or made available for issuance). If an entity adopts ASU No. 2025-03 in an interim reporting period, it should adopt it as of the beginning of that interim reporting period or the beginning of the annual reporting period that includes that interim reporting period. An entity should apply ASU 2025-03 on a prospective basis to all business combinations that have an acquisition date that occurs on or after the date of initial application of ASU 2025-03. ASU 2025-03 is not expected to have a material impact on the financial statements of the Company.
ASU 2025-08 – On November 12, 2025, the FASB issued ASU 2025-08 “'Financial Instruments—Credit Losses (Topic 326): Purchased Loans.” This ASU expands the population of acquired financial assets accounted for using the gross-up approach. Acquired loans (excluding credit cards) are deemed purchased seasoned loans and accounted for using the gross-up approach upon acquisition if criteria established by the new guidance are met. This change aims to enhance comparability, consistency, and better reflect the economics of acquiring financial assets. ASU 2025-08 is effective for interim and annual periods in fiscal years beginning after December 15, 2026, and is applied prospectively. Early adoption is permitted.
Old Second has elected not to early adopt ASU 2025-08 at this time. When adopted, the standard will be adopted prospectively; thus, the accounting for previously completed business combinations will not be impacted. However, adopting this accounting standard is anticipated to have a material impact on the accounting for purchased loans on any business combination completed after adoption.
ASU 2025-11 – On December 8, 2025, the FASB issued ASU 2025-11 “Interim Reporting (Topic 270): Narrow-Scope Improvements”: This ASU does not change the fundamental nature of interim reporting or expand or reduce current interim disclosure requirements. The amendments in this ASU: i) clarify that the guidance in Topic 270 applies to all entities that provide interim financial statements and notes in accordance with GAAP; ii) create a comprehensive list in FASB ASC Topic 270 of interim disclosures that are required in interim financial statements and notes in accordance with GAAP; iii) incorporate a disclosure principle, which is modeled after previous SEC guidance, that requires entities to disclose events and changes that occur after the end of the most recent fiscal year that have a material impact on the entity; and iv) improve guidance about information included in and the format of interim financial statements. The amendments in this ASU are effective for public business entities for interim periods within annual periods beginning after December 15, 2027. ASU 2025-11 is not expected to have a material impact on the financial statements of the Company.
ASU 2025-12 – On December 17, 2025, the FASB issued ASU 2025-12 “Codification Improvements”: The amendments in this ASU update the FASB ASC for a broad range of Topics arising from technical corrections, unintended application of the Codification, clarifications, and other minor improvements. The amendments in the ASU, which addresses 33 issues, affect a wide variety of Topics in the Codification and apply to all reporting entities within the scope of the affected accounting guidance. The amendments in this ASU are effective for all entities for annual periods beginning after December 15, 2026, and interim periods within those annual periods. Early adoption is permitted in both interim and annual periods in which financial statements have not yet been issued or made available for issuance. ASU 2025-12 is not expected to have a material impact on the financial statements of the Company.
Changes in Significant Accounting Policies
Significant accounting policies are presented in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025. These policies, along with the disclosures presented in the other financial statement notes and, in this discussion, provide information on how significant assets and liabilities are valued in the consolidated financial statements and how those values are determined. During the first quarter of 2026, the Company had no changes to significant accounting policies or estimates.
Subsequent Events
Redemption of Debt
On April 15, 2026, we redeemed $30.0 million of the total $60.0 million subordinated debt held, which was the same date this debt changed from a 3.50% fixed rate to Three-Month Term Secured Overnight Financing Rate (“SOFR”) plus 273 basis points, payable quarterly in arrears.
Dividends
On April 21, 2026, our Board of Directors declared a cash dividend of $0.07 per share of common stock payable on May 11, 2026, to stockholders of record as of May 1, 2026; dividends of $3.6 million will be paid to stockholders on May 11, 2026.
11
Note 2 – Acquisition
Completed Acquisitions
Bancorp Financial
On July 1, 2025, the Company completed its acquisition of Bancorp Financial and its wholly-owned subsidiary, Evergreen Bank Group, based in Oakbrook, Illinois, with operations throughout our existing market footprint as well as a loan production office in Reno, Nevada. This acquisition brought increased scale and new markets to the Company, and provided new product offerings and line of business opportunities. At closing, the Company acquired $1.43 billion of assets, $1.20 billion of loans, $119.1 million of securities, and $1.23 billion of deposits, net of fair value adjustments. Under the terms of the merger agreement, each outstanding share of Bancorp Financial common stock was exchanged for 2.5814 shares of the Company’s common stock, plus $15.93 of cash. This resulted in merger consideration of $189.4 million, based on the closing price of the Company’s common stock on the date of acquisition, which consisted of 7.9 million shares of the Company’s common stock and $48.9 million of cash. Goodwill of $36.0 million associated with the acquisition was recorded by the Company, which was the result of expected synergies, operational efficiencies and other factors.
The acquisition of Bancorp Financial has been accounted for as a business combination. The Company recorded the estimate of fair value based on initial valuations available at July 1, 2025. The determination of estimated fair value required management to make assumptions related to discount rates, expected future cash flows, market conditions and other future events that are often subjective in nature and may require adjustments, which can be subject to adjustment for additional information received during the measurement period which cannot extend beyond July 1, 2026. None of the $36.0 million of goodwill recorded is expected to be deductible for income tax purposes.
As permitted by ASC No. 805-10-25, Business Combinations, the above estimated amounts may be adjusted up to one year after the closing date of the transaction to reflect any new information obtained about facts and circumstances existing at the acquisition date. While the Bank believes that the information available on the merger date provided a reasonable basis for estimating fair value, additional information and evidence may be provided which will be utilized to finalize all valuations and record final adjustments during the one year subsequent measurement period. These adjustments may include: (i) changes in deferred tax assets or liabilities related to fair value estimates and changes in the expected realization of items considered to be net operating loss carryforwards due to tax calculations still in process, (ii) immaterial changes in loan valuations, and (iii) changes in goodwill as a result of the net effect of any adjustments. As such, any changes in the estimated fair value of assets, including acquired loans, will be recognized in the period the adjustment is identified.
The following table provides the purchase price allocation as of the July 1, 2025 acquisition of Bancorp Financial for the assets acquired and liabilities assumed at their estimated fair values as of the purchase date, as recorded by the Company:
Bancorp Financial Transaction Summary
As of Date of Transaction
July 1, 2025
59,385
Securities available-for-sale and held-to-maturity, at fair value
119,117
FHLBC stock
1,958
Loans, net of purchase accounting adjustments
1,195,739
Premises and equipment
2,513
Core deposit intangible
6,206
Bank-owned life insurance ("BOLI")
13,916
Deferred tax assets
13,642
14,764
1,427,240
73,744
Interest bearing deposits
1,158,778
1,232,522
Short-term borrowings
15,500
Long-term debt
14,800
Deferred tax liabilities
10,978
1,273,800
Cash consideration paid
48,884
Stock issued for acquisition
140,520
Total consideration
189,404
Total liabilities assumed and cash consideration received for transaction
1,463,204
35,964
Expenses related to the Bancorp Financial acquisition totaled $349,000 and $278,000 for the quarters ended March 31, 2026 and 2025, respectively. The expenses related to the acquisition are reported within noninterest expense based on the line items impacted, which are primarily salaries and employee benefits, occupancy, furniture and equipment, computer and data processing, legal fees, and other expense in the Consolidated Statements of Income.
Purchased loans and leases that reflect a more-than-insignificant deterioration of credit from origination are considered purchased credit deteriorated (“PCD”) loans. For PCD loans, the initial estimate of expected credit losses was recognized in the allowance for credit losses (“ACL”) on the date of acquisition using the same methodology as other loans and leases held-for-investment. The following table provides a summary of loans purchased as part of the Bancorp Financial acquisition which were individually evaluated and determined to be PCD loans at acquisition.
As of
Bancorp Financial Acquired PCD Loans
Par value of acquired loans
89,870
Allowance for credit losses
(17,540)
Non-credit premium
722
Purchase price of PCD loans at acquisition
73,052
13
Note 3 – Securities
Our investment portfolio serves the liquidity needs and income objectives of the Company. While the portfolio serves as an important component of the overall liquidity management at the Bank, portions of the portfolio also serve as income producing assets. The size and composition of the portfolio reflects liquidity needs, loan demand and interest income objectives. Portfolio size and composition will be adjusted from time to time. While a significant portion of the portfolio consists of readily marketable securities to address liquidity, other parts of the portfolio may reflect funds invested pending future loan demand or to maximize interest income without undue interest rate risk.
Investments are comprised of debt securities and non-marketable equity investments. Securities available-for-sale are carried at fair value. Unrealized gains and losses, net of tax, on securities available-for-sale are reported as a separate component of equity. This balance sheet component changes as interest rates and market conditions change. Unrealized gains and losses are not included in the calculation of regulatory capital.
Federal Home Loan Bank of Chicago (“FHLBC”) and Federal Reserve Bank of Chicago (“FRBC”) stock are considered non-marketable equity investments. FHLBC stock was recorded at $10.6 million as of March 31, 2026, and $11.3 million as of December 31, 2025. FRBC stock was recorded at $20.7 million at March 31, 2026 and December 31, 2025. Our FHLBC stock is necessary to maintain access to FHLBC advances.
The following tables summarize the amortized cost and fair value of the securities portfolio at March 31, 2026, and December 31, 2025, and the corresponding amounts of gross unrealized gains and losses:
Gross
Amortized
Unrealized
Fair
Cost1
Gains
Losses
Value
Securities available-for-sale
U.S. Treasury
164,232
754
164,986
U.S. government agencies
68,949
(324)
68,625
U.S. government agencies mortgage-backed
92,318
21
(7,129)
85,210
States and political subdivisions
211,216
269
(8,141)
203,344
Collateralized mortgage obligations
394,111
705
(31,485)
363,331
Asset-backed securities
45,318
469
(1,282)
Collateralized loan obligations
184,941
(254)
184,711
Equity securities
714
731
Total securities available-for-sale
1,161,799
2,259
(48,615)
164,296
1,564
165,860
29,421
(245)
29,176
95,899
(7,119)
88,780
213,366
450
(7,441)
206,375
388,774
1,102
(30,571)
359,305
46,600
423
(1,207)
45,816
194,552
151
(239)
194,464
684
747
1,133,592
3,753
(46,822)
1 Excludes accrued interest receivable of $6.4 million at March 31, 2026, and $6.9 million at December 31, 2025, that is recorded in other assets on the Consolidated Balance Sheets.
14
The fair value, amortized cost and weighted average yield of debt securities at March 31, 2026, by contractual maturity, are listed in the table below. Securities not due at a single maturity date are shown separately.
Weighted
Average
Cost
Yield
Due in one year or less
102,882
4.00
%
103,058
Due after one year through five years
122,963
3.91
122,569
Due after five years through ten years
142,578
3.52
138,495
Due after ten years
75,974
3.14
72,833
444,397
3.67
436,955
Mortgage-backed and collateralized mortgage obligations
486,429
2.81
448,541
3.64
5.21
3.55
At March 31, 2026, the Company had no securities issued from any one originator, other than the U.S. Government and its agencies, which individually amounted to over 10% of the Company’s stockholders’ equity.
Securities with unrealized losses with no corresponding allowance for credit losses at March 31, 2026, and December 31, 2025, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows (in thousands except for number of securities):
Less than 12 months
12 months or more
in an unrealized loss position
Securities
1
171
39,516
153
29,109
324
126
7,129
74,618
19
180
52,366
7,961
74,514
38
8,141
126,880
85
31,813
127
31,400
276,485
136
31,485
308,298
168
11,090
1,114
22,924
1,282
34,014
15
219
113,078
35
9,976
254
123,054
49
823
247,863
290
47,792
487,626
339
48,615
735,489
245
36
10,572
7,083
78,208
7,119
5,046
29
7,437
104,483
30
7,441
109,529
6,287
130
30,552
288,228
135
30,571
294,515
139
14,927
1,068
20,164
1,207
35,091
239
87,299
26
437
124,131
299
46,385
520,259
325
46,822
644,390
Each quarter, we perform an analysis to determine if any of the unrealized losses on securities available-for-sale are comprised of credit losses as compared to unrealized losses due to market interest rate adjustments. Our assessment includes a review of the unrealized loss for each security issuance held; the financial condition and near-term prospects of the issuer, including external credit ratings and recent downgrades; and our ability and intent to hold the security for a period of time sufficient for a recovery in value. We also consider the extent to which the securities are issued by the federal government or its agencies, and any guarantee of issued amounts by those agencies. The portfolio continues to consist of a mix of fixed and floating-rate, high quality securities, largely rated AA (or better), displaying an overall effective duration of approximately 3.0 years.
There were no securities sold for the three months ended March 31, 2026 or 2025, respectively.
As of March 31, 2026, securities valued at $652.7 million were pledged for borrowings and for other purposes, a decrease from $679.5 million of securities pledged at year end 2025.
Note 4 – Loans and Allowance for Credit Losses on Loans
Major classifications of loans were as follows:
Commercial
845,278
842,130
Leases
539,116
548,256
Commercial real estate – investor
1,169,318
1,212,384
Commercial real estate – owner occupied
702,986
706,567
Construction
143,563
173,630
Residential real estate – investor
69,763
70,225
Residential real estate – owner occupied
239,711
230,432
Multifamily
357,131
339,131
HELOC
235,637
235,293
Powersport
674,116
696,959
Other 1
208,618
197,124
Total loans
Allowance for credit losses on loans
(72,126)
(72,301)
Net loans 2
1 The “Other” classification includes consumer loans, such as collector cars, manufactured homes, and solar loans, as well as overdrafts in this table and in subsequent tables within Note 4 – Loans and Allowance for Credit Losses on Loans.
2 Excludes accrued interest receivable of $23.2 million and $23.5 million at March 31, 2026, and December 31, 2025, respectively, that is recorded in other assets on the Consolidated Balance Sheets.
16
It is the policy of the Company to review each prospective credit prior to making a loan in order to determine if an adequate level of security or collateral has been obtained. The type of collateral, when required, will vary from liquid assets to real estate. The Company seeks to ensure access to collateral, in the event of borrower default, through adherence to lending laws, the Company’s lending standards and credit monitoring procedures. Although the Bank makes loans primarily within its market area, there are no significant concentrations of loans where the customers’ ability to honor loan terms is dependent upon a single economic sector. The real estate related categories listed above represent 56.3% and 56.5% of the portfolio at March 31, 2026, and December 31, 2025, respectively, and include a mix of owner occupied and non-owner occupied commercial real estate, residential, construction and multifamily loans.
The following tables represent the activity in the allowance for credit losses for loans, or the ACL, for the three months ended March 31, 2026 and 2025:
Provision for
Beginning
(Release of)
Ending
Balance
Credit Losses 1
Charge-offs
Recoveries
Three months ended March 31, 2026
11,183
2,754
1,328
12,639
2,370
154
312
115
2,327
21,672
3,120
3,933
20,873
4,583
344
4,932
1,527
(325)
1,202
(7)
1,879
67
1,953
1,493
1,608
3,628
(17)
3,617
17,449
3,362
4,661
767
16,917
5,758
34
557
69
5,304
9,601
10,793
1,017
1 Amount does not include the provision for unfunded commitment liability.
Three months ended March 31, 2025
7,813
3,448
3,446
32
7,847
2,136
148
107
2,191
14,528
1,094
15,636
10,036
(2,730)
47
7,267
3,581
(91)
821
2,669
553
562
1,509
301
1,840
1,876
(23)
1,853
1,578
88
1,678
108
43,619
2,285
4,529
176
41,551
At March 31, 2026, our allowance for credit losses (“ACL”) on loans totaled $72.1 million, and our ACL on unfunded commitments, included in other liabilities, totaled $2.0 million. During the first three months of 2026, we recorded net provision for credit losses on loans and unfunded commitments of $9.5 million. The provision was mostly driven by increased commercial and commercial real estate charge offs, and a downgrade of one commercial relationship. Charge offs for the period ending March 31, 2026 were largely comprised of a $3.9 million charge off in commercial real estate-investor on a downtown Chicago office building that now cashflows after the restructuring; a commercial charge off of $1.3 million in the warehouse and distribution business; and higher than normal powersport net charge offs totaling $3.9 million due to continued softness in the consumer lending as seen in the broader economy. The ACL on loans excludes an allowance for unfunded commitments of $2.0 million as of March 31, 2026, $2.1 million as of December 31, 2025, and $2.0 million as of March 31, 2025, which is recorded within other liabilities on the Consolidated Balance Sheets.
Generally, the Bank considers a loan to be collateral dependent when, based on current information and events, it is probable that foreclosure could be initiated. Additionally, the Bank will review all loans meeting the criteria for individual analysis, to determine if repayment or satisfaction of the loan is expected through the sale of collateral. This will generally be the case for credits with high loan-to-value ratios. Exceptions to this policy would include loans with guarantors or sponsors that have the means and willingness to support the obligation. Non-accruing loans with an outstanding balance of $500,000 or more are assessed on an individual loan level basis. When a financial asset is deemed collateral-dependent, the level of credit loss is measured by the difference between amortized cost of the financial asset and the fair value of collateral adjusted for estimated cost to sell. The Company had $64.7 million and $40.9 million of collateral dependent loans secured by real estate or business assets as of March 31, 2026, and December 31, 2025, respectively.
The following tables present the collateral dependent loans and the related ACL allocated by classification of loans as of March 31, 2026, and December 31, 2025:
Accounts
ACL
Real Estate
Receivable
Equipment
Equity Interests
Allocation
12,507
3,402
16,500
32,409
5,348
11,210
5,547
17,939
315
1,469
721
783
32,274
64,683
5,960
2,055
8,015
762
11,345
5,682
19,809
844
782
53
32,859
40,874
6,444
An aged analysis of past due loans by classification of loans was as follows:
90 days or
90 Days or
Greater Past
30-59 Days
60-89 Days
Total Past
Due and
Past Due
Due
Current
Total Loans
Accruing
6,512
4,053
10,565
834,713
581
1,976
391
1,910
4,277
534,839
348
29,415
1,750
5,182
36,347
1,132,971
1,222
784
20,122
22,128
680,858
3,578
2,086
141,477
198
356
706
69,057
2,359
194
617
3,170
236,541
90
311
1,072
355,748
1,610
851
589
3,050
232,587
60
11,497
3,484
2,363
17,344
656,772
2,190
659
1,112
1,906
206,712
839
55,759
7,945
39,258
102,962
5,082,275
12,868
18
565
4,746
5,311
836,819
1,241
2,116
595
1,677
4,388
543,868
471
10,604
89
10,693
1,201,691
7,176
819
11,389
19,384
687,183
250
1,546
1,349
635
3,530
170,100
120
699
971
69,254
7,983
757
9,302
221,130
141
404
313
1,070
1,787
337,344
5,219
441
451
6,111
229,182
13,796
4,860
2,778
21,434
675,525
2,710
702
217
2,792
194,332
51,402
10,429
23,872
85,703
5,166,428
4,879
The table presents all nonaccrual loans as of March 31, 2026, and December 31, 2025:
Nonaccrual loan detail
With no ACL
21,946
14,446
8,520
5,520
2,604
2,428
11,241
31
11,377
18,690
4,799
19,493
737
669
681
1,826
1,711
1,489
1,494
1,543
204
338
221
62,636
30,035
47,952
33,607
The Company recognized $4,000 of interest on nonaccrual loans during the three months ended March 31, 2026, and $39,000 of interest on nonaccrual loans during the three months ended March 31, 2025, respectively.
Credit Quality Indicators
The Company categorizes loans into credit risk categories based on current financial information, overall debt service coverage, comparison to industry averages, historical payment experience, and current economic trends. This analysis includes loans with outstanding balances or commitments greater than $50,000 and excludes homogeneous loans such as home equity lines of credit residential mortgages, powersports, and other loan categories. Loans with a classified risk rating are reviewed quarterly regardless of size or loan type. The Company uses the following definitions for classified risk ratings:
Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan at some future date.
Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. The substandard credit quality indicator includes both potential problem loans that are currently performing and nonperforming loans.
Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Credits that are not covered by the definitions above are pass credits, which are not considered to be adversely rated.
For residential owner-occupied, HELOC, powersport, and the other loan portfolios, the Company evaluates credit quality based on the
aging status of the loan and by payment activity. Nonperforming loans are those that are either 90 days or more past due and accruing or
are on nonaccrual, and all other loans not meeting this criteria are considered performing.
Credit quality indicators by loan classification and contractual loan origination date at March 31, 2026, were as follows:
2024
2023
2022
Prior
RevolvingLoans
RevolvingLoansConvertedTo TermLoans
Pass
54,297
250,771
144,913
90,559
20,994
16,475
202,190
780,199
Special Mention
3,240
173
11,026
14,439
Substandard
206
12,869
2,166
189
27,308
46,140
Doubtful
4,500
Total commercial
250,977
165,522
92,725
24,569
16,664
240,524
46,629
231,261
155,167
71,663
22,207
8,915
535,842
347
233
670
420
850
1,334
Total leases
155,587
72,860
23,774
9,005
27,246
278,723
185,373
117,511
252,926
267,194
6,636
1,135,609
448
1,148
9,978
18,750
9,553
1,676
1,964
14,959
Total commercial real estate – investor
279,171
202,102
119,187
255,751
279,136
6,725
27,254
201,845
80,958
59,790
78,693
177,985
9,490
636,015
1,418
3,203
1,756
6,377
2,109
5,511
21,130
6,833
24,262
749
60,594
Total commercial real estate – owner occupied
203,954
86,469
82,338
88,729
204,003
20
Credit quality indicators by loan classification and contractual loan origination date at March 31, 2026, continued:
1,005
65,952
35,787
1,859
24,846
1,131
130,580
102
1,936
875
9,731
12,983
Total construction
66,054
37,723
2,734
34,577
1,470
2,114
11,900
5,407
3,022
15,005
26,702
4,601
68,751
1,012
Total residential real estate – investor
27,714
11,329
43,354
10,676
24,848
35,061
111,349
1,208
237,825
147
337
1,402
1,886
Total residential real estate – owner occupied
24,995
35,398
112,751
5,747
57,219
19,792
79,042
96,040
96,527
1,275
355,642
124
889
476
Total multifamily
79,166
96,929
97,003
2,810
2,117
1,658
1,541
4,605
220,006
233,805
248
1,584
1,832
Total HELOC
4,853
221,590
73,258
288,187
154,278
96,362
46,199
15,628
673,912
105
45
Total Powersport
288,207
154,383
96,407
46,208
15,653
27,171
75,836
26,477
17,500
46,381
7,872
7,012
208,249
369
Total other
17,641
46,579
7,902
277,118
1,507,858
820,945
563,814
639,893
734,383
452,418
4,996,429
10,416
1,765
4,757
11,824
40,236
2,437
30,394
27,154
24,410
29,947
28,981
144,072
1,510,743
866,255
592,733
669,060
776,154
492,425
Credit quality indicators by loan classification and loan origination date at December 31, 2025, were as follows:
2021
275,155
161,529
94,487
22,843
8,699
9,730
214,846
125
787,414
212
2,917
3,129
231
926
19,241
3,611
291
27,287
51,587
275,386
162,455
113,728
26,666
8,990
245,050
247,515
172,825
84,533
27,993
10,164
2,038
545,068
374
263
123
760
214
1,745
173,039
85,376
30,001
10,287
296,219
217,761
120,630
255,701
199,993
99,144
6,371
1,195,819
82
41
2,197
2,320
9,703
1,690
1,175
14,245
296,301
227,464
122,307
257,391
200,034
102,516
193,988
76,480
67,749
76,670
106,107
103,545
10,309
634,848
161
3,542
2,153
1,782
7,638
58
20,929
8,996
20,252
13,846
64,081
194,046
88,839
89,208
128,512
119,173
53,522
48,906
31,121
27,500
332
828
162,209
1,454
9,526
11,421
53,624
32,575
37,026
1,167
13,993
5,729
3,677
15,256
15,288
10,743
4,397
69,083
461
1,142
15,749
11,424
42,941
11,580
25,594
35,826
30,264
81,123
228,535
202
142
1,897
25,745
36,028
30,406
82,525
56,753
20,133
50,464
96,747
70,496
40,926
2,118
337,637
892
165
50,588
97,639
70,809
41,091
2,888
2,192
1,700
1,646
278
4,480
220,643
233,827
240
1,226
1,466
4,720
221,869
323,072
180,099
114,212
57,740
17,237
4,531
696,891
44
180,121
114,256
4,533
81,405
31,889
19,599
1,729
7,282
6,335
196,854
163
74
27
270
19,762
48,689
7,288
1,587,451
929,123
613,766
666,537
460,587
364,370
466,226
5,088,185
535
4,017
2,317
3,979
13,847
10,865
44,252
26,736
21,486
17,856
28,513
150,099
1,587,924
939,988
658,553
697,290
484,390
386,205
497,656
The following vintage tables present the amortized cost basis of non-risk rated loans by class and year of origination, based on the Company’s credit quality indicator for such loans as of March 31, 2026 and December 31, 2025. For these loan classes, the Company monitors credit quality based on performing and nonperforming status rather than internal risk ratings.
Performing
111,319
237,795
Nonperforming
1,432
1,916
Total Residential real estate – owner occupied
2,057
4,767
220,133
234,034
86
1,457
287,490
153,788
95,830
45,936
15,420
671,722
717
577
272
2,394
26,465
17,499
46,346
6,252
207,441
1,177
Total Other
Total non-risk rated loans
112,826
409,490
192,986
139,835
128,884
139,378
227,593
1,350,992
667
866
842
1,781
2,217
7,090
410,207
193,653
140,701
129,726
141,159
229,810
1,358,082
81,168
228,580
1,357
1,852
4,499
220,868
234,071
1,001
322,369
179,391
113,725
57,266
17,026
4,404
694,181
703
730
531
474
211
129
19,596
1,730
196,837
166
287
449,603
225,052
160,615
143,353
49,298
97,338
228,410
1,353,669
848
750
379
1,728
6,139
450,306
225,782
161,463
144,103
49,677
99,066
229,411
1,359,808
23
The gross charge-offs activity by loan type and year of origination for the three months ended March 31, 2026 and 2025, were as follows:
1,290
310
1,230
880
616
284
426
81
1,264
2,222
1,352
4,304
2,050
1,391
103
2,140
843
The Company had $1.6 million and $379,000 in residential real estate loans in the process of foreclosure as of March 31, 2026, and December 31, 2025, respectively.
There were 15 loans modified during the three-month period ending March 31, 2026, totaling $26.8 million in aggregate, which were experiencing financial difficulty. Of the 15 loans modified in the first three months of 2026, three loans had also been modified in prior periods. There were 13 loans modified during the three-month period ending March 31, 2025, totaling $46.7 million in aggregate, which were experiencing financial difficulty.
The following tables present the amortized costs basis of loans at March 31, 2026, and March 31, 2025, that were both experiencing financial difficulty and modified during the three months ended March 31, 2026, and March 31, 2025, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below.
Term Modification
Combination - Term, Interest Rate and Payment Modification
Combination - Term and Interest Rate Modification
Combination - Term and Payment Modification 1
Total Loans Modified
% of Total Loan Classification Modified to Total Loan Classification
4,055
3,500
7,555
0.9
0.0
18,873
2.7
0.1
80
23,081
26,750
0.5
1 Payment modifications are either contractual delays in payment or a modification of the payment amount.
6,547
6,859
12,331
1.1
13,102
14,269
2.1
13,212
6.4
26,626
7,714
46,671
1.2
The Company closely monitors the performance of loan modifications to borrowers experiencing financial difficulty. The following tables present the performance of loans that have been modified in the last twelve months as of March 31, 2026, and March 31, 2025.
30-59 days past due
60-89 Days Past Due
90 Days or Greater Past Due
Total Past Due
Total Modifications
3,000
6,500
10,525
17,025
11,299
11,330
56
15,217
15,273
22,369
37,642
238
110
146
14,726
18,326
33,108
33,296
66,404
March 31, 2025
9,950
17,592
1,191
54,276
The following tables summarize the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the three months ended March 31, 2026 and March 31, 2025. The financial impact of these modifications was immaterial.
Weighted-Average Term Extension (In Months)
Weighted-Average Interest Rate Change
Weighted-Average Delay of Payment (In Months)
4.08
12.00
6.00
24.00
(0.95)
(1.64)
5.56
0.94
3.00
2.00
9.00
(1.00)
3.44
6.42
Note 5 – Other Real Estate Owned
Details related to the activity in the other real estate owned (“OREO”) portfolio, net of valuation reserve, for the periods presented are itemized in the following table:
Three Months Ended
Other real estate owned
Balance at beginning of period
21,617
Property additions, net of participation sold
Less:
Carrying value of property disposals, net of participation sold
18,285
Period valuation adjustments
Balance at end of period
2,878
Activity in the valuation allowance was as follows:
1,862
Provision for valuation reserves
Reductions taken on sales
(632)
(1,463)
853
Expenses related to OREO, net of lease revenue, include:
(Gain) loss on sales, net
Operating (income) expense (1)
(86)
1,913
Lease revenue
Net OREO expense
1 Operating income for the three months ended March 31, 2026 includes $235,000 net gain on transfer as the fair value less cost to sell on one property transfer exceeded the book value of the loan.
Note 6 – Deposits
Major classifications of deposits were as follows:
Savings
1,117,316
1,121,888
NOW accounts
701,712
693,573
Money market accounts
976,010
930,079
Certificates of deposit of less than $100,000
440,553
489,879
Certificates of deposit of $100,000 through $250,000
376,868
412,655
Certificates of deposit of more than $250,000
196,992
208,878
Note 7 – Borrowings
The following table is a summary of borrowings as of March 31, 2026, and December 31, 2025. Junior subordinated debentures are discussed in more detail in Note 8:
Junior subordinated debentures1
Notes payable and other borrowings2
Total borrowings
323,315
338,920
1 See Note 8: Junior Subordinated Debentures.
2 Long-term FHLBC advance, net of purchase accounting adjustment.
The Company enters into deposit sweep transactions where the transaction amounts are secured by pledged securities. These transactions consistently mature overnight from the transaction date and are governed by sweep repurchase agreements. All sweep repurchase agreements are treated as financings secured by U.S. government agencies and collateralized mortgage-backed securities, and had a carrying amount of $23.1 million at March 31, 2026, and $23.8 million at December 31, 2025. The average amount and weighted average rate for the quarter ended March 31, 2026 was $24.8 million and 0.82% with the maximum month-end amount recorded at $27.6 million at February 28, 2026. The average amount and weighted average rate for the quarter ended December 31, 2025 was $23.5 million and 0.76% with the maximum month-end amount recorded at $23.8 million at December 31, 2025. The fair value of the pledged collateral was $73.7 million at March 31, 2026, and $74.0 million at December 31, 2025. At March 31, 2026, there were no customers with secured balances exceeding 10% of stockholders’ equity.
The Company’s borrowings at the FHLBC require the Bank to be a member and invest in the stock of the FHLBC. Total borrowings are generally limited to the lower of 35% of total assets or the book value of eligible pledged assets after application of FHLBC margins and collateral valuation adjustments. The outstanding balance of our short-term FHLBC advances was $200.0 million as of March 31, 2026, and $215.0 million as of December 31, 2025. The outstanding balance of our long-term FHLBC advances, net of purchase accounting adjustments, was $14.8 million as of March 31, 2026, and $14.8 million as of December 31, 2025. FHLBC stock held at March 31, 2026, was valued at $10.6 million, and any potential FHLBC advances were collateralized by loans and securities with a principal balance of $1.50 billion, which carried a FHLBC-calculated combined collateral value of $973.7 million. The Company had excess collateral of $757.4 million available to secure borrowings at March 31, 2026.
In the second quarter of 2021, we 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 Company used the net proceeds from the offering for general corporate purposes. The Notes 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 by the Note) plus 273 basis points, payable quarterly in arrears. As of March 31, 2026, and December 31, 2025, we had $59.6 million of subordinated debentures outstanding, net of deferred issuance cost. On April 15, 2026, the Company redeemed $30.0 million aggregate principal amount of the Notes. See Note 1 – Subsequent Events for additional information.
The Company also has an undrawn line of credit of $30.0 million with a correspondent bank to be used for short-term funding needs; advances under this line can be outstanding up to 360 days from the date of issuance.
Note 8 – Junior Subordinated Debentures
The Company issued $25.0 million of cumulative trust preferred securities through a private placement completed by an unconsolidated subsidiary, Old Second Capital Trust II, in April 2007. These trust preferred securities mature in 30 years, but subject to regulatory approval, can be called in whole or in part on a quarterly basis commencing June 15, 2017. The quarterly cash distributions on the securities were fixed at 6.77% through June 15, 2017, and now have a floating rate of 150 basis points over three-month SOFR. Upon conversion to a floating rate, a cash flow hedge was initiated which resulted in the total interest rate paid on the debt of 4.66% for the quarter ended March 31, 2026, and 4.53% for the quarter ended March 31, 2025. The Company issued a $25.8 million subordinated debenture to Old Second Capital Trust II in return for the aggregate net proceeds of this trust preferred offering. The interest rate and payment frequency on the debenture are equivalent to the cash distribution basis on the trust preferred securities.
The junior subordinated debentures issued by the Company are disclosed on the Consolidated Balance Sheets, and the related interest expense for each issuance is included in the Consolidated Statements of Income. As of March 31, 2026, and December 31, 2025, the remaining unamortized debt issuance costs related to the junior subordinated debentures were less than $1,000 and are included as a reduction to the balance of the junior subordinated debentures on the Consolidated Balance Sheets. The remaining deferred issuance costs on the junior subordinated debentures related to the issuance of Old Second Capital Trust II will be amortized to interest expense over the remainder of the 30-year term of the notes and are included in the Consolidated Statements of Income.
Note 9 – Equity Compensation Plans
Stock-based awards are outstanding under the Company’s 2019 Equity Incentive Plan, as amended and restated (the “2019 Plan”). The 2019 Plan was originally approved at the May 2019 annual stockholders’ meeting and authorized 600,000 shares, and at the May 2021 annual stockholders’ meeting, the Company obtained stockholder approval to increase the number of shares of common stock authorized for issuance under the 2019 Plan by 1,200,000 shares, from 600,000 shares to 1,800,000 shares. At the May 2025 annual stockholders’ meeting, the Company obtained stockholder approval to increase the number of shares of common stock authorized for issuance under the 2019 Plan by an additional 800,000 shares, from 1,800,000 shares to 2,600,000 shares. Following the approval of the 2019 Plan, no further awards will be granted under any other prior plan.
The 2019 Plan authorizes the granting of qualified stock options, non-qualified stock options, restricted stock, restricted stock units, and stock appreciation rights (“SARs”); to date only restricted stock units have been awarded. Awards may be granted to selected directors, officers, employees or eligible service providers under the 2019 Plan at the discretion of the Compensation Committee of the Company’s Board of Directors. As of March 31, 2026, 1,084,444 shares remained available for issuance under the 2019 Plan.
Generally, restricted stock units granted under the 2019 Plan vest three years from the grant date, but the Compensation Committee of the Company’s Board of Directors has discretionary authority to change the terms of particular awards including the vesting schedule.
Under the 2019 Plan, unless otherwise provided in an award agreement, upon the occurrence of a change in control, all equity awards then held by the participant will become fully exercisable immediately if, and all stock awards and cash incentive awards will become fully earned and vested immediately if, (i) the 2019 Plan is not an obligation of the successor entity following a change in control or (ii) the 2019 Plan is an obligation of the successor entity following a change in control and the participant incurs a termination of service without cause or for good reason following the change in control. Notwithstanding the immediately preceding sentence, if the vesting of an award is conditioned upon the achievement of performance measures, then such vesting will generally be subject to the following: if, at the time of the change in control, the performance measures are less than 50% attained (pro rata based upon the time of the period through the change in control), the award will become vested and exercisable on a fractional basis with the numerator being equal to the percentage of attainment and the denominator being 50%; and if, at the time of the change in control, the performance measures are at least 50% attained (pro rata based upon the time of the period through the change in control), the award will become fully earned and vested immediately upon the change in control.
Awards of restricted stock under the 2019 Plan generally entitle holders to voting and dividend rights upon grant and are subject to forfeiture until certain restrictions have lapsed including employment for a specific period. Awards of restricted stock units under the 2019 Plan are also subject to forfeiture until certain restrictions have lapsed including employment for a specific period, but do not entitle holders to voting rights until the restricted period ends and shares are transferred in connection with the units.
There were 293,073 and 267,805 restricted stock units issued under the 2019 Plan during the three months ended March 31, 2026, and March 31, 2025, respectively. Compensation expense is recognized over the vesting period of the restricted stock units based on the market value of the award on the issue date. Total compensation cost, including related dividend equivalent expense, that has been recorded for the 2019 Plan was $1.5 million for the three months ended March 31, 2026, and $1.4 million for the three months ended March 31, 2025. The tax benefit recorded was $385,000 and $350,000 for the three months ended March 31, 2026 and March 31, 2025, respectively.
A summary of changes in the Company’s unvested restricted awards for the three months ended March 31, 2026, is as follows:
Restricted
Stock Shares
Grant Date
and Units
Fair Value
Unvested at January 1
812,179
16.31
Granted
293,073
20.67
Vested
(239,652)
17.61
Unvested at March 31
865,600
17.43
Total unrecognized compensation cost of restricted awards was $9.2 million as of March 31, 2026, which is expected to be recognized over a weighted-average period of 2.25 years.
Note 10 – Earnings Per Share
The earnings per share, both basic and diluted, are as follows:
Basic earnings per share:
Weighted-average common shares outstanding
52,450,306
44,967,726
Diluted earnings per share:
Dilutive effect of unvested restricted awards 1
852,766
753,379
Diluted average common shares outstanding
53,303,072
45,721,105
1 Includes the common stock equivalents for restricted share rights that are dilutive.
Note 11 – Regulatory & Capital Matters
The Bank is subject to the risk-based capital regulatory guidelines, which include the methodology for calculating the risk-weighted Bank assets, developed by the Office of the Comptroller of the Currency (the “OCC”) and the other bank regulatory agencies. In connection with the current risk-based capital regulatory guidelines, the Bank’s Board of Directors has established an internal guideline requiring the Bank to maintain a Tier 1 leverage capital ratio at or above eight percent (8%) and a total risk-based capital ratio at or above twelve percent (12%). At March 31, 2026, the Bank exceeded those thresholds.
At March 31, 2026, the Bank’s Tier 1 capital leverage ratio was 12.09%, an increase of 60 basis points from December 31, 2025, and is above the 8.00% Board of Directors’ guideline. The Bank’s total capital ratio was 14.88%, an increase of 66 basis points from December 31, 2025, and also above the Board of Directors’ guideline of 12.00%.
Bank holding companies are generally required to maintain minimum levels of capital in accordance with capital guidelines implemented by the Board of Governors of the Federal Reserve System. The general bank and holding company capital adequacy guidelines are shown in the accompanying table, as are the capital ratios of the Company and the Bank, as of March 31, 2026, and December 31, 2025.
The Basel III Rules are applicable to all banking organizations that are subject to minimum capital requirements, including federal and state banks and savings and loan associations, as well as to bank and savings and loan holding companies, other than “small bank holding companies,” which are generally holding companies with consolidated assets of less than $3.0 billion. A detailed discussion of the Basel III Rules is included in Part I, Item 1 of the Company’s Form 10-K for the year ended December 31, 2025, under the heading “Supervision and Regulation.”
At March 31, 2026, and December 31, 2025, Old Second Bancorp, Inc. and its bank subsidiary exceeded the regulatory minimums and Old Second National Bank met the regulatory definition of “well capitalized” based on the most recent regulatory definition.
Capital levels and industry defined regulatory minimum required levels are as follows:
Minimum Capital
Well Capitalized
Adequacy with Capital
Under Prompt Corrective
Actual
Conservation Buffer, if applicable1
Action Provisions2
Amount
Ratio
Common equity tier 1 capital to risk weighted assets
Consolidated
775,165
13.13
413,264
7.00
N/A
Old Second National Bank
814,473
13.80
413,138
383,629
6.50
Total capital to risk weighted assets
923,600
15.64
620,064
10.50
877,909
14.88
619,492
589,993
10.00
Tier 1 capital to risk weighted assets
800,165
13.55
501,949
8.50
501,668
472,158
8.00
Tier 1 capital to average assets
11.88
269,416
12.09
269,470
336,837
5.00
774,990
12.99
417,624
785,569
13.17
417,539
387,714
922,259
15.46
626,373
847,838
14.22
626,041
596,229
799,990
13.41
507,078
507,011
477,187
11.70
273,501
11.49
273,479
341,849
1 Amounts are shown inclusive of a capital conservation buffer of 2.50%.
2 The prompt corrective action provisions are only applicable at the Bank level. The Bank exceeded the general minimum regulatory requirements to be considered “well capitalized.”
Dividend Restrictions
In addition to the above requirements, banking regulations and capital guidelines generally limit the amount of dividends that may be paid by a bank without prior regulatory approval. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s profits, combined with the retained profit of the previous two years, subject to the capital requirements described above. As of March 31, 2026, the Bank had capacity to pay dividends of $85.3 million to the Company without prior regulatory approval. Pursuant to the Basel III rules, the Bank must keep a capital conservation buffer of 2.50% above the regulatory minimum capital requirements, which must consist entirely of Common Equity Tier 1 capital in order to avoid additional limitations on capital distributions and certain other payments.
Note 12 – Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy established by the Company also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Three levels of inputs that may be used to measure fair value are:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Company has the ability to access as of the measurement date.
Level 2: Significant observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a company’s own view about the assumptions that market participants would use in pricing an asset or liability.
There were no transfers between levels during the three-month period ended March 31, 2026 and March 31, 2025.
The Company has certain assets and liabilities measured at fair value. The majority of those assets and liabilities are measured using Level 2 measurement methods. The following is a description of the techniques used to measure all assets and liabilities using Level 2 techniques at fair value as of March 31, 2026, and December 31, 2025:
Assets and Liabilities Measured at Fair Value on a Recurring Basis:
The tables below present the balance of assets and liabilities at March 31, 2026 and December 31, 2025, respectively, measured by the Company at fair value on a recurring basis:
Level 1
Level 2
Level 3
Assets:
196,420
6,924
39,435
5,070
Mortgage servicing rights
Interest rate derivatives 1
4,000
Mortgage banking derivatives
117
946,924
21,573
1,133,483
Liabilities:
Interest rate swap agreements, including risk participation agreements
1 Interest rate derivatives include interest rate swaps, a rate cap and risk participation agreements.
199,428
6,947
40,966
4,850
4,321
920,863
21,256
1,107,979
1,157
33
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are as follows:
Three Months Ended March 31, 2026
States and
Mortgage
Asset-backed
Political
Servicing
Subdivisions
Rights
Beginning balance January 1, 2026
Transfers out of Level 3
Total gains or losses
Included in earnings
Included in other comprehensive income
Purchases, issuances, sales, and settlements
Purchases
Issuances
Settlements
(261)
(154)
Ending balance March 31, 2026
Three Months Ended March 31, 2025
Beginning balance January 1, 2025
3,254
11,896
10,374
(488)
(36)
(466)
134
(96)
(42)
(82)
Ending balance March 31, 2025
3,583
11,388
9,938
The following table and commentary present quantitative and qualitative information about Level 3 fair value measurements as of March 31, 2026:
Measured at fair value
Significant Unobservable
on a recurring basis:
Valuation Methodology
Inputs
Range of Input
of Inputs
Discounted Cash Flow
Discount Rate
3.7 - 3.7%
3.7
Liquidity Premium
0.5 - 0.5%
5.3 - 5.3%
5.3
9.0 - 9.0%
9.0
Prepayment Speed
2.5 - 30.7%
7.7
The following table and commentary present quantitative and qualitative information about Level 3 fair value measurements as December 31, 2025:
3.5 - 3.6%
3.5
4.9 - 4.9%
4.9
0.0 - 33.2%
8.2
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis:
The Company may be required, from time to time, to measure certain other assets at fair value on a nonrecurring basis in accordance with GAAP. These assets consist of individually evaluated loans and OREO. The following is a description of the techniques used to measure these assets using Level 3 techniques at fair value as of March 31, 2026, and December 31, 2025:
For assets measured at fair value on a nonrecurring basis at March 31, 2026 and December 31, 2025, respectively, the following tables provide the level of valuation assumptions used to determine each valuation and the carrying value of the related assets:
Individually evaluated loans1
53,473
Other real estate owned, net2
54,105
1 Represents carrying value and related write-downs of loans for which adjustments are substantially based on the appraised value of collateral for collateral-dependent loans, which had a carrying amount of $64.7 million and a valuation allowance of $11.2 million, resulting in an increase of specific allocations within the allowance for credit losses on loans of $4.8 million for the three months ended March 31, 2026.
2 OREO is measured at the lower of carrying or fair value less costs to sell, and had a net carrying amount of $632,000 at March 31, 2026, which is the outstanding balance of $632,000. There was no valuation allowance at March 31, 2026.
34,430
35,857
1 Represents carrying value and related write-downs of loans for which adjustments are substantially based on the appraised value of
collateral for collateral-dependent loans and to a lesser extent the discounted cash flow, which had a carrying amount of $40.9 million and a valuation allowance of $6.4 million, resulting in a decrease of specific allocations within the allowance for credit losses on loans of $747,000 for the year December 31, 2025.
2 OREO is measured at the lower of carrying or fair value less costs to sell, and had a net carrying amount of $1.4 million at December 31, 2025, which is made up of the outstanding balance of $2.1 million, net of a valuation allowance of $632,000.
The Company has estimated the fair values of these assets based primarily on Level 3 inputs. OREO and individually evaluated loans are generally valued using the fair value of collateral provided by third party appraisals. These valuations include assumptions related to cash flow projections, discount rates, and recent comparable sales. The numerical ranges of unobservable inputs for these valuation assumptions are not meaningful.
Note 13 – Fair Values of Financial Instruments
The carrying amount and estimated fair values of financial instruments were as follows:
Carrying
Financial assets:
938,463
11,994
FHLBC and FRBC stock
5,072,088
Interest rate swap and rate cap agreements
3,975
Interest rate lock commitments and forward contracts
Interest receivable on securities and loans
29,562
Financial liabilities:
Noninterest bearing deposits
3,809,451
3,801,984
21,907
57,774
Note payable and other borrowings
14,982
808
Interest payable on deposits and borrowings
5,184
912,866
11,797
5,032,472
4,298
30,344
3,856,952
3,850,530
21,522
57,973
15,049
1,143
5,451
Note 14 – Derivatives, Hedging Activities and Financial Instruments with Off-Balance Sheet Risk
Risk Management Objective of Using Derivatives
The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s loan portfolio.
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest income and expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. The aggregate fair value of the swaps is recorded in other assets or other liabilities with changes in fair value recorded in other comprehensive income, net of tax. The amount included in other comprehensive income would be reclassified to current earnings should all or a portion of the hedge no longer be considered effective. For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income and subsequently reclassified into interest income or interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest income or expense as interest payments are received on the variable rate loan pools or paid on the Company’s fixed-rate borrowings.
There are no interest rate swaps as of March 31, 2026 and December 31, 2025, designated as cash flow hedges of certain variable rate commercial and commercial real estate loan pools. All of the interest rate swap cash flow hedges on loans held in the first quarter of 2025 matured during the third quarter of 2025.
37
An interest rate swap with a notional amount of $25.8 million as of March 31, 2026 and December 31, 2025, is designated as a cash flow hedge of junior subordinated debentures and was executed to pay fixed and receive variable rate cash flows. The hedge was determined to be effective during all periods presented and the Company expects the hedge to remain effective during the remaining terms of the swap.
During the next twelve months, the Company estimates that an additional $285,000 will be reclassified as an increase to interest expense.
Non-designated Hedges
Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps and rate cap agreements with commercial banking customers to facilitate their respective risk management strategies. The notional amounts of interest rate swaps with its loan customers as of March 31, 2026 and December 31, 2025 were $123.3 million and $125.8 million, respectively. Those interest rate swaps and rate cap agreements are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.
At March 31, 2026, the Company had $290,000 of cash collateral pledged with one correspondent financial institution and held $3.7 million of cash pledged from one correspondent financial institution to support the interest rate swap activity during 2026. At December 31, 2025, the Company had $660,000 of cash collateral pledged with one correspondent financial institution and held $3.5 million of cash pledged from one correspondent financial institution to support the interest rate swap activity during 2025. No investment securities were required to be pledged to any correspondent financial institution during the first three months of 2026 or during 2025. The Company offsets derivative assets and liabilities that are subject to a master netting arrangement.
The Company also grants mortgage loan interest rate lock commitments to borrowers, subject to normal loan underwriting standards. The interest rate risk associated with these loan interest rate lock commitments is managed with contracts for future deliveries of loans as well as selling forward mortgage-backed securities contracts. Loan interest rate lock commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The notional amount of these commitments at March 31, 2026 and December 31, 2025 was $29.2 million and $14.8 million, respectively. Commitments to originate residential mortgage loans held-for-sale and forward commitments to sell residential mortgage loans or forward MBS contracts are considered derivative instruments and changes in the fair value are recorded to mortgage banking revenue. Fair values are estimated based on observable changes in mortgage interest rates including mortgage-backed securities prices from the date of the commitment.
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheets as of March 31, 2026 and December 31, 2025:
Fair Value of Derivative Instruments
No. of Trans.
Notional Amount $
Balance Sheet Location
Fair Value $
Derivatives designated as hedging instruments
Interest rate swap agreements
Other Assets
3,167
Other Liabilities
Total derivatives designated as hedging instruments
Derivatives not designated as hedging instruments
Interest rate swaps with commercial loan customers
123,253
29,220
Other contracts
62,945
Total derivatives not designated as hedging instruments
3,155
Interest rate swaps with commercial loan customers and rate cap
125,808
40
14,790
63,080
1,197
Disclosure of the Effect of Fair Value and Cash Flow Hedge Accounting
The fair value and cash flow hedge accounting related to derivatives covered under ASC Subtopic 815-20 impacted Accumulated Other Comprehensive Income (“AOCI”) and the Income Statement. The gain recognized in AOCI on derivatives designated as hedging instruments totaled $2.3 million as of March 31, 2026 and $1.6 million as of March 31, 2025. The amount of the gain reclassified from AOCI to net interest income on the Income Statement was $71,000 for the three months ended March 31, 2026, and the amount of the loss reclassified from AOCI was $579,000 for the three months ended March 31, 2025.
Credit-risk-related Contingent Features
For derivative transactions involving counterparties who are lending customers of the Company, the derivative credit exposure is managed through the normal credit review and monitoring process, which may include collateralization, financial covenants and/or financial guarantees of affiliated parties. Agreements with such customers require that losses associated with derivative transactions receive payment priority from any funds recovered should a customer default and ultimate disposition of collateral or guarantees occur.
Credit exposure to broker/dealer counterparties is managed through agreements with each derivative counterparty that require collateralization of fair value gains owed by such counterparties. Some small degree of credit exposure exists due to timing differences between when a gain may occur and the subsequent point in time that collateral is delivered to secure that gain. This is monitored by the Company and procedures are in place to minimize this exposure. Such agreements also require the Company to collateralize counterparties in circumstances wherein the fair value of the derivatives results in loss to the Company.
39
Other provisions of such agreements include the definition of certain events that may lead to the declaration of default and/or the early termination of the derivative transaction(s):
The Bank also issues letters of credit, which are conditional commitments that guarantee the performance of a customer to a third party. The credit risk involved and collateral obtained in issuing letters of credit are essentially the same as that involved in extending loan commitments to our customers. In addition to customer-related commitments, the Company is responsible for letters of credit commitments that relate to properties held in OREO. The following table represents the Company’s contractual commitments due to letters of credit as of March 31, 2026 and December 31, 2025.
The following table is a summary of letter of credit commitments:
Fixed
Variable
Letters of credit:
Borrower:
Financial standby
55
29,114
29,169
118
26,769
26,887
Performance standby
6,353
6,918
8,666
9,178
620
35,467
36,087
630
35,435
36,065
Non-borrower:
Total letters of credit
Unused loan commitments
174,456
579,377
753,833
174,479
592,658
767,137
As of March 31, 2026, the Company evaluated current market conditions, including any impacts related to market interest rate changes and unused line of credit utilization trends during the first quarter of 2026, and based on that analysis under the CECL methodology, the Company determined credit losses related to unfunded commitments totaled $2.0 million. The resultant decrease in the ACL for unfunded commitments of $101,000 for the first three months of 2026 from $2.1 million as of December 31, 2025 was primarily driven by adjustments to historical benchmark assumptions, such as the funding rates and the period used to forecast those rates within the ACL calculation. The Company will continue to assess the credit risk at least quarterly, and adjust the allowance for unfunded commitments, which is carried within other liabilities on our Consolidated Balance Sheets, as needed, with the appropriate offsetting entry to the provision for credit losses on our Consolidated Statements of Income.
Note 15 – Segment Information
Various identifiable operating segments provide a variety of revenue streams including loans, deposits, and wealth management services. The Company’s Chief Operating Decision Maker (CODM) is the Chief Financial Officer.
Through our wholly-owned subsidiary, the Bank, we offer a wide variety of community banking services primarily throughout the Chicagoland area, including commercial and consumer lending and deposit services, and a wide array of wealth management services. The accounting policies for the services discussed here are the same as those described in Note 1: Summary of Significant Accounting Policies. We earn interest income on portfolio loans, fee income on loan originations and commitments, fees charged on certain deposit accounts, as well as fees related to wealth management services.
Although information is available on each of the individual revenue streams, the CODM manages, allocates resources, and evaluates performance on a company-wide basis. The CODM uses consolidated net income to evaluate the financial performance of the Company’s business along with budget to actual results in assessing the Company’s performance and in determining the allocation of resources whether it be to reinvest in the Company or deploy capital in order to maximize shareholder value. The CODM uses consolidated net income and return on average assets to benchmark the Company against competitors as well as against prior periods.
On a regular basis the CODM is provided consolidated income and expense, assets, liabilities, and equity, in the same manner that is presented publicly on the Consolidated Statements of Income and Consolidated Balance Sheets, to assess performance and allocate resources throughout the Company. Further, additional internal financial information is provided to the CODM in order to assess credit quality in each of our lending segments. Accordingly, the Company has determined that it has only one reportable segment, Community Banking.
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The following discussion provides additional information regarding our operations for the three months ended March 31, 2026, compared to the three months ended March 31, 2025, and our financial condition at March 31, 2026, compared to December 31, 2025. This discussion should be read in conjunction with our consolidated financial statements as well as the financial and statistical data appearing elsewhere in this report and our Form 10-K for the year ended December 31, 2025. The results of operations for the three months ended March 31, 2026 are not necessarily indicative of future results. Dollar amounts presented in the following tables are in thousands, except per share data, and March 31, 2026 and 2025 amounts are unaudited. Certain items in prior periods have been reclassified to conform to the current presentation.
In this report, unless the context suggests otherwise, references to the “Company,” “we,” “us,” and “our” mean the combined business of Old Second Bancorp, Inc. and its subsidiary bank, Old Second National Bank (the “Bank”).
We have made, and will continue to make, various forward-looking statements with respect to financial and business matters. Comments regarding our business that are not historical facts are considered forward-looking statements that involve inherent risks and uncertainties. Actual results may differ materially from those contained in these forward-looking statements. For additional information regarding our cautionary disclosures, see the “Cautionary Note Regarding Forward-Looking Statements” on page 3 of this report.
Business Overview
The Company is a bank holding company headquartered in Aurora, Illinois. Through our wholly-owned subsidiary bank, Old Second National Bank, a national banking organization also headquartered in Aurora, Illinois (the “Bank”), we offer a wide range of financial services through our 55 banking centers located in Cook, DeKalb, DuPage, Kane, Kendall, LaSalle and Will counties in Illinois. These banking centers offer access to a full range of traditional retail and commercial banking services including treasury management operations as well as fiduciary and wealth management services. We focus our business on establishing and maintaining relationships with our clients while maintaining a commitment to provide for the financial services needs of the communities in which we operate. We emphasize relationships with individual customers as well as small to medium-sized businesses throughout our market area. We also have extensive wealth management services, which include a registered investment advisory platform in addition to trust administration and trust services related to personal and corporate trusts and employee benefit plan administration services.
On July 1, 2025, we completed our previously announced acquisition of Bancorp Financial, Inc. (“Bancorp Financial”), pursuant to the agreement and plan of merger dated February 24, 2025. At the effective time of the acquisition, Bancorp Financial merged with and into the Company, with the Company continuing as the surviving corporation. Immediately following the merger, Evergreen Bank Group (“Evergreen”), an Illinois-chartered banking corporation and wholly-owned subsidiary of Bancorp Financial, merged with and into Old Second National Bank, with the Bank continuing as the surviving bank. Under the terms of the merger agreement, each share of Bancorp Financial common stock outstanding immediately prior to the effective time was converted into the right to receive 2.5814 shares of Old Second common stock and $15.93 in cash, without interest, with cash paid in lieu of any fractional shares.
As of July 1, 2025, Bancorp Financial had approximately $1.43 billion of total assets, $1.20 billion of total loans, and $1.23 billion of total deposits. The consideration paid totaled $189.4 million and consisted of 7.9 million shares of Old Second common stock and $48.9 million in cash. The systems conversion was successfully completed in October 2025.
Our results of operations depend generally on net interest income, which is the difference between interest income from interest-earning assets and interest expense on interest-bearing liabilities. Net interest income is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. In addition, we are subject to interest rate risk to the degree that our interest-earning assets mature or reprice at different times, or at different speeds, than our interest-bearing liabilities. Our results of operations are also affected by noninterest income, such as service charges, wealth management fees, loan fees, gains from the sale of newly originated loans, gains or losses on investments and certain other noninterest related items. Our principal operating expenses, aside from interest expense, consist of compensation and employee benefits, occupancy costs, professional fees, data processing expenses and provision for credit losses.
We are significantly impacted by prevailing economic conditions, including federal monetary and fiscal policies, and federal regulations of financial institutions. Deposit balances are influenced by numerous factors such as competing investments, the level of income and the personal rate of savings within our market areas. Factors influencing lending activities include the demand for housing and the interest rate pricing competition from other lending institutions.
As of March 31, 2026, all of our capital ratios were in excess of all regulatory requirements. While we believe that we have sufficient capital to withstand an extended economic recession, our reported and regulatory capital ratios could be adversely impacted by credit losses.
Financial Overview
Net income for the first quarter of 2026 was $25.6 million, or $0.48 per diluted share, compared to $28.8 million, or $0.54 per diluted share, for the fourth quarter of 2025, and $19.8 million, or $0.43 per diluted share, for the first quarter of 2025. Net income increased compared to the prior year like quarter, primarily due to the Bancorp Financial acquisition and the resulting growth in net interest income. Variances included an increase of $24.8 million in interest and dividend income and a $2.4 million increase in noninterest income, partially offset by a $6.5 million increase in interest expense, a $7.1 million increase in provision for credit losses, a $5.7 million increase in noninterest expense, and a $2.1 million increase in provision for income taxes. Net income in the first quarter of 2026 was negatively impacted by provision for credit losses of $9.5 million, compared to $3.0 million and $2.4 million recorded in the fourth quarter of 2025 and first quarter of 2025, respectively. Adjusted net income, a non-GAAP financial measure that excludes mortgage servicing rights mark to market gains or losses, net securities gains or losses, and acquisition related costs, net of gains on branch sales, as applicable, was $26.0 million for the first quarter of 2026, compared to $30.8 million for the fourth quarter of 2025, and $20.6 million for the first quarter of 2025.
See the discussion entitled “Non-GAAP Financial Measures” on page 45, as well as the table below, which provides a reconciliation of this non-GAAP measure to the most comparable GAAP equivalents:
Net Income and Earnings Per Share - GAAP and Adjusted
Income before income taxes (GAAP)
39,270
Pre-tax income adjustments:
Securities gains, net
(8)
MSR losses
428
Acquisition related costs, net of (gains) losses on branch sales
349
2,296
Adjusted net income before taxes
34,565
41,986
27,224
Taxes on adjusted net income
8,604
11,208
6,619
Adjusted net income (non-GAAP)
25,961
30,778
20,605
Basic earnings per share (GAAP)
0.55
Diluted earnings per share (GAAP)
0.54
Adjusted basic earnings per share (non-GAAP)
0.59
0.46
Adjusted diluted earnings per share (non-GAAP)
0.58
0.45
Total average assets
6,859,164
6,960,177
5,673,092
Return on average assets (GAAP)
1.51
1.64
1.42
Adjusted return on average assets (non-GAAP)
1.53
1.75
1.47
The following provides an overview of some of the factors impacting our financial performance for the three-month period ended March 31, 2026, compared to the like period ended March 31, 2025:
Critical Accounting Estimates
Our consolidated financial statements are prepared based on the application of accounting policies in accordance with generally accepted accounting principles (“GAAP”) and follow general practices within the banking industry. These policies require reliance on estimates and assumptions which may prove inaccurate or are subject to variations. These estimates, assumptions, and judgments are based on information available as of the date of the consolidated financial statements. Future changes in information may affect these estimates, assumptions, and judgments, which, in turn, may affect amounts reported in the consolidated financial statements. Changes in underlying factors, assumptions, or estimates could have a material impact on our future financial condition and results of operations.
Of the significant accounting policies used in the preparation of our consolidated financial statements, we have identified certain items as critical accounting policies based on the associated estimates, assumptions, judgments and complexity. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2025. There have been no material changes to our critical accounting policies or the estimates made pursuant to those policies during the most recent quarter from those disclosed in our 2025 Annual Report Form 10-K.
Non-GAAP Financial Measures
This report contains references to financial measures that are not defined in GAAP. Such non-GAAP financial measures include the presentation of net interest income and net interest margin on a tax equivalent (“TE”) basis, adjusted net income, adjusted basic and diluted earnings per share, and our adjusted efficiency ratio. Management believes that the presentation of these non-GAAP financial measures (a) provides important supplemental information that contributes to a proper understanding of our operating performance, (b) enables a more complete understanding of factors and trends affecting our business, and (c) allows investors to evaluate our performance in a manner similar to management, the financial services industry, bank stock analysts, and bank regulators. Management uses non-GAAP measures as follows: in the preparation of our operating budgets, monthly financial performance reporting, and in our presentation of our performance to investors. However, we acknowledge that these non-GAAP financial measures have a number of limitations. Limitations associated with non-GAAP financial measures include the risk that persons might disagree as to the appropriateness of items comprising these measures and that different companies might calculate these measures differently. These measures should not be considered an alternative to our GAAP results. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is presented below or alongside the first instance where each non-GAAP financial measure is used.
Results of Operations
Three months ended March 31, 2026 and 2025
Our income before taxes was $34.1 million in the first quarter of 2026, compared to $26.2 million in the first quarter of 2025. Net interest and dividend income increased $18.2 million, and provision for credit losses increased $7.1 million in the first quarter of 2026, compared to the like 2025 quarter. Income before taxes was also affected by a $2.4 million increase in noninterest income and a $5.7 million increase in noninterest expense. The noninterest expense increase of $5.7 million is primarily due to a $2.7 million increase in salary and employee benefits expense primarily attributable to the additional employees retained in the Bancorp Financial acquisition and higher base salary rates, an $823,000 increase in occupancy, furniture and equipment, a $1.0 million increase in computer and data processing, a $1.5 million increase in consumer credit expense, and a $721,000 increase in other expenses, which were all primarily driven by the additional operations assumed from the Bancorp Financial acquisition. Total acquisition costs of $349,000 were recorded as a result of the Bancorp Financial acquisition during the three months ended March 31, 2026. Our net income was $25.6 million, or $0.48 per diluted share, for the first quarter of 2026, compared to net income of $19.8 million, or $0.43 per diluted share, for the first quarter of 2025. The Bank remains well positioned to navigate uncertain macroeconomic conditions. We have proactively addressed interest rate risk, maintained disciplined expense management, and ensured robust daily liquidity oversight. In addition, our liquidity metrics remain solid, and our short-duration securities portfolio provides flexibility for near-term funding requirements.
Net Interest Income
Net interest income, which is our primary source of earnings, is the difference between income earned on interest-earning assets, such as loans and investment securities, accretion income on purchased loans, dividend income earned on certain equity investments, and expense incurred on interest-bearing liabilities, such as deposits and borrowings. Net interest income depends upon the relative mix of interest-earning assets and interest-bearing liabilities, the ratio of interest-earning assets to total assets and of interest-bearing liabilities to total funding sources, and movements in market interest rates. Our net interest income can be significantly influenced by a variety of factors, including overall loan demand, economic conditions, credit risk, the amount of nonearning assets including nonperforming loans and OREO, the amounts of and rates at which assets and liabilities reprice, variances in prepayment of loans and securities, early withdrawal of deposits, exercise of call options on borrowings or securities, a general rise or decline in interest rates, changes in the slope of the yield-curve, and balance sheet growth or contraction.
Net interest and dividend income was $81.1 million in the first quarter of 2026, compared to $62.9 million in the first quarter of 2025. The $18.2 million increase was driven by a $24.8 million increase in interest and dividend income due to the acquisition of Bancorp Financial. A net increase of $6.5 million in interest expense in the first quarter of 2026 negatively impacted net interest and dividend income compared to the first quarter of 2025, driven by the higher cost deposits and increased short-term borrowing balances driven by the Bancorp Financial acquisition.
The year over year yield increase of 53 basis points on interest earning assets was primarily driven by higher loan balances and higher yielding consumer credits and related accretion on the Bancorp Financial portfolio acquired, as well as planned turnover in our securities portfolio with many older and lower yielding securities maturing and being replaced with higher yielding investments while maintaining the shorter duration portfolio composition. Average balances of loans and loans held for sale increased $1.25 billion in the first quarter of 2026 compared to the prior year like quarter, with a corresponding increase to the tax equivalent yield on the loan portfolio of 48 basis points year over year due to certain portfolios acquired from Bancorp Financial. Average balances of securities available for sale decreased $65.8 million in the first quarter of 2026 compared to the prior year like quarter, but showed an increase to the tax equivalent yield on the securities available for sale portfolio of seven basis points year over year primarily due to variable security rate resets and run-off of lower yielding investments.
The cost of interest bearing deposits increased 24 basis points for the quarter ended March 31, 2026, from 128 basis points for the quarter ended March 31, 2025. A 41-basis point increase in the cost of savings accounts drove a significant portion of the overall increase from the prior year like quarter, primarily due to the higher rate deposit accounts assumed in the Bancorp Financial acquisition. In addition, average time deposits increased $337.3 million due to the Bancorp Financial acquisition; both higher average balances and higher rates offered by Bancorp Financial resulted in a $2.4 million increase in time deposit interest expense. We will continue to control the cost of funds by monitoring market activity as well as allowing previous exception-priced deposits and the brokered CDs acquired from Bancorp Financial to runoff naturally.
The increase of $187.6 million year over year of average FHLB advances was based on daily liquidity needs due to the changes in the funding mix in part due to necessary use of cash on the Bancorp Financial acquisition and was the primary driver of the $1.8 million increase to interest expense on other short-term borrowings. The increase of $14.8 million year over year of average notes payable and other borrowings was due to the FHLB long-term putable advances assumed in the Bancorp Financial acquisition and was the reason for the $155,000 increase to interest expense on notes payable and other borrowings. Subordinated and junior subordinated debt interest expense were essentially flat over each of the periods presented.
Three months ended March 31, 2026 and December 31, 2025
The decreased yield of three basis points on interest earning assets for the three months ended March 31, 2026 as compared to the linked period was primarily driven by the decreased yield on loans coupled with lower average loan balances. Changes in the market interest rate environment impact earning assets at varying intervals depending on the repricing timeline of loans, as well as the securities maturity, paydown and purchase activities.
Average balances of interest bearing deposit accounts have decreased significantly since the fourth quarter of 2025 through the first quarter of 2026, from $3.94 billion to $3.83 billion. Of the $119.2 million decrease in average interest bearing deposit account balances, time deposits accounted for $117.3 million of the decrease as exception priced deposits, mainly time deposits, and brokered deposits from the Bancorp Financial acquisition, run off. The significant time deposit average balance decrease led to the $1.4 million decrease in deposits costs, compared to the prior linked quarter, which accounted for a large majority of the $2.2 million total decrease in deposit costs. As a result, time deposits were the primary driver in the decrease in the costs of interest bearing deposits from 167 basis points for the quarter ended December 31, 2025, to 152 basis points for the quarter ended March 31, 2026.
Borrowing costs increased in the first quarter of 2026, compared to the fourth quarter of 2025. Changes in our borrowing costs are generally driven by fluctuations in balance and related rates on other short-term borrowings, which are overnight FHLB advances; these fluctuations are based on the daily liquidity needs during the period. The increase in borrowing expense over the prior linked period was primarily due to the $29.5 million increase in average balance of other short-term borrowings offset slightly by lower rates.
46
Our net interest margin, for both GAAP and tax equivalent (“TE”) presentations, showed noticeable growth over the prior linked quarter period and over the prior year like quarter discussed above. Our net interest margin (GAAP) increased five basis points to 5.12% for the first quarter of 2026, compared to 5.07% for the fourth quarter of 2025, and increased 27 basis points compared to 4.85% for the first quarter of 2025. Our net interest margin (TE) increased five basis points to 5.14% for the first quarter of 2026, compared to 5.09% for the fourth quarter of 2025, and increased 26 basis points compared to 4.88% for the first quarter of 2025. The increase in net interest margin for the first quarter of 2026, compared to the prior linked quarter, was driven by the reduction in the cost of interest bearing liabilities. The net interest margin increased in the first quarter of 2026, compared to the prior year like quarter, was primarily due to the Bancorp Financial acquisition and the resulting increase in loan yields which outpaced the higher cost of deposits. See the discussion entitled “Non-GAAP Financial Measures,” above, and the tables beginning on page 48 that provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.
Analysis of Average Balances,
Tax Equivalent Income / Expense and Rates
Quarters Ended
Income /
Rate
Expense
67,571
3.30
66,430
598
3.57
97,645
4.10
969,194
3.74
979,060
9,136
3.70
1,026,233
3.65
Non-taxable (TE)1
146,299
1,462
4.05
150,573
4.07
155,024
1,595
4.17
Total securities(TE)1
1,115,493
10,411
3.79
1,129,633
10,679
3.75
1,181,257
10,822
3.72
Dividends from FHLBC and FRBC
31,540
6.58
30,085
390
5.14
19,441
9.87
Loans and loans held-for-sale1,2
5,207,744
87,194
6.79
5,278,643
90,969
6.84
3,959,073
61,626
6.31
Total interest earning assets
6,422,348
98,666
6.23
6,504,791
102,636
6.26
5,257,416
73,909
5.70
48,252
52,040
52,550
(71,869)
(73,718)
(43,543)
Other noninterest bearing assets
460,433
477,064
406,669
Liabilities and Stockholders' Equity
697,692
682,729
816
0.47
628,336
629
0.41
946,075
4,148
1.78
958,672
4,561
1.89
801,178
3,393
1.72
Savings accounts
1,118,979
2,176
0.79
1,123,208
2,529
0.89
940,894
891
0.38
1,062,623
2.75
1,179,966
8,665
2.91
725,314
2.70
3,825,369
14,364
1.52
3,944,575
16,571
1.67
3,095,722
9,742
1.28
24,795
0.82
23,464
0.76
34,529
0.80
189,056
3.84
159,565
1,644
4.09
1,444
4.77
4.66
4.43
25,773
4.53
Subordinated debt
59,564
59,542
59,478
14,831
4.24
14,819
158
4.23
Total interest bearing liabilities
4,139,389
1.69
4,227,739
19,252
1.81
3,216,946
1.34
1,738,504
1,781,374
1,703,382
73,284
67,078
69,186
Stockholders' equity
907,987
883,986
683,578
Total liabilities and stockholders' equity
Net interest income (GAAP)
83,051
Net interest margin (GAAP)
5.12
5.07
4.85
Net interest income (TE)1
81,464
83,384
63,248
Net interest margin (TE)1
5.09
4.88
Interest bearing liabilities to earning assets
64.45
64.99
61.19
1 Represents a non-GAAP financial measure. See the discussion entitled “Reconciliation of Tax-Equivalent Non-GAAP Financial Measures” below that provides a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent. Tax equivalent basis is calculated using a marginal tax rate of 21% in 2026 and 2025, respectively.
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 50, and includes loan fee income of $1.9 million for the first quarter of 2026, loan fee income of $1.9 million for the fourth quarter of 2025, and loan fee income of $545,000 for the first quarter of 2025. Nonaccrual loans are included in the above-stated average balances.
Reconciliation of Tax-Equivalent (TE) Non-GAAP Financial Measures
Net interest and dividend income (TE) and net interest income (TE) to average interest earning assets are non-GAAP measures that have been adjusted on a TE basis using a marginal rate of 21% for 2026 and 2025 to compare returns more appropriately on tax-exempt loans and securities to other earning assets. The table below provides a reconciliation of each non-GAAP (TE) measure to the GAAP equivalent for the periods indicated:
Net Interest Margin
Interest income (GAAP)
102,303
Taxable-equivalent adjustment:
307
335
Interest and dividend income (TE)
Interest expense (GAAP)
Net interest income (TE)
Average interest earning assets
Net interest margin (TE)
Noninterest Income
The following table details the major components of noninterest income for the periods presented:
Percent Change From
3,537
(4.4)
9.5
3,125
5.0
Residential mortgage banking revenue
(1.6)
65.8
MSRs mark to market loss
(428)
64.5
(73.3)
444
11.9
657
(15.5)
19.6
Total residential mortgage banking revenue
1,021
796
447
28.3
128.4
N/M
834
29.7
117.3
2,548
(7.6)
1,306
27.4
75.2
12,154
3.9
23.8
N/M – Not meaningful.
48
Noninterest income increased $476,000, or 3.9%, in the first quarter of 2026, compared to the fourth quarter of 2025, and increased $2.4 million, or 23.8%, compared to the first quarter of 2025. The increase from the fourth quarter of 2025 was primarily driven by a $225,000 increase in residential mortgage banking revenue mainly due to a $276,000 increase in MSRs mark to market valuations, a $248,000 increase in the cash surrender value of BOLI due to changes in market interest rates, and a $358,000 increase in other income primarily driven by growth in powersport and consumer loan fees provided by the legacy Bancorp Financial loan portfolio. Partially offsetting the increases during the first quarter of 2026, compared to the fourth quarter of 2025, was a $154,000 decrease in wealth management income due to lower insurance – annuities fees, estate fees, and miscellaneous fees, and a $194,000 decrease in card related income due to a reduction in the volume of ATM activity and related fees.
The increase in noninterest income of $2.4 million in the first quarter of 2026, compared to the first quarter of 2025, is primarily due to a $294,000 increase in wealth management income from growth in advisory fees, a $150,000 increase in service charges on deposits, a $584,000 increase in the cash surrender value of BOLI due to changes in market interest rates, and a $574,000 increase in residential mortgage banking revenue mainly due to a $418,000 increase in MSRs mark to market valuations. Also contributing to the increase in noninterest income during the quarter was a $714,000 increase in other income due to powersport and consumer loan fees provided by the legacy Bancorp Financial loan portfolio.
Noninterest Expense
The following table details the major components of noninterest expense for the periods presented:
Salaries
21,933
22,426
18,804
(2.2)
16.6
Officers' incentive
1,652
3,035
2,799
(45.6)
(41.0)
Benefits and other
6,088
5,535
5,390
10.0
12.9
Total salaries and employee benefits
30,996
(4.3)
9.9
Occupancy, furniture and equipment expense
5,092
5.5
18.1
4,798
(29.7)
43.7
720
5.4
20.9
701
8.8
354
(0.3)
7.0
Amortization of core deposit intangible asset
1,235
(4.8)
13.4
26.1
140.6
(8.1)
10.1
1,265
18.6
1,451
5,988.0
Other real estate owned expense, net
(329.6)
(109.9)
4,153
(1.7)
21.5
52,935
(5.1)
12.8
Efficiency ratio (GAAP)1
52.40
53.98
56.46
Adjusted efficiency ratio (non-GAAP)2
51.70
51.28
55.48
1 The 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 net gains or losses on securities, death benefit realized on BOLI, as applicable, 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, OREO expenses, acquisition expense, net of gains or losses on branch sales, as applicable, divided by the sum of net interest income on a fully tax equivalent basis, total noninterest income less net gains or losses on securities, death benefit realized on BOLI, as applicable, 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 Financial Measures” above and the table on page 50 that provides a reconciliation of this non-GAAP financial measure to the most comparable GAAP equivalent.
Noninterest expense for the first quarter of 2026 decreased $2.7 million, or 5.1%, compared to the fourth quarter of 2025, and increased $5.7 million, or 12.8%, compared to the first quarter of 2025. The decrease in the first quarter of 2026, compared to the fourth quarter of 2025, was driven by a $1.3 million decrease in salaries and employee benefits with decreases reflected primarily in salaries, officer incentive accruals, and insurance premiums. Other decreases include a $1.4 million decrease in computer and data processing expenses due to the timing of costs incurred related to the core system conversion as a result of our acquisition of Bancorp Financial and a $267,000 decrease in net OREO expenses due to a $235,000 gain recorded on the transfer of one property to OREO during the first quarter of 2026.
The year over year increase in noninterest expense is primarily attributable to a $2.7 million increase in salaries and employee benefits, primarily due to the increased workforce from the Bancorp Financial acquisition as well as increases in annual base salary rates and payroll taxes in the first quarter of 2026. Also contributing to the increase was an $823,000 increase in occupancy, furniture and equipment, a $1.0 million increase in computer and data processing expenses, a $1.5 million increase in consumer credit expense, and a $721,000 increase in other expense primarily due to the effect of the Bancorp Financial acquisition and the corresponding growth in expenses. Partially offsetting the year over year increase in noninterest expense was a $2.1 million decrease in net OREO expenses as a majority of OREO properties have been sold since the first quarter of 2025, resulting in a reduction of expenses.
Efficiency Ratio
The efficiency ratio presented above and reconciled below measures how much it costs an institution to generate one dollar of revenue. We utilize this measure in evaluating employee performance incentives as well as in comparison against peer performance, to set and assess operational standards. The following table provides a reconciliation of the non-GAAP efficiency ratio to the most comparable GAAP equivalent.
Reconciliation of Adjusted Efficiency Ratio Non-GAAP Financial Measures
GAAP
Non-GAAP
Efficiency Ratio / Adjusted Efficiency Ratio
Less amortization of core deposit
Less other real estate expense, net
Less acquisition related costs, net of losses on branch sales
Noninterest expense less adjustments
49,220
51,619
41,595
48,871
49,323
41,141
Net interest income
Net interest income including adjustments
Less securities gains
Less MSRs mark to market losses
222
132
Noninterest income including adjustments
12,782
12,574
10,771
13,070
12,796
10,903
Net interest income including adjustments plus noninterest income including adjustments
93,926
95,625
73,675
94,534
96,180
74,151
Efficiency ratio / Adjusted efficiency ratio
N/A - not applicable
Income Taxes
We recorded income tax expense of $8.5 million for the first quarter of 2026 on $34.1 million of pretax income, compared to income tax expense of $10.5 million on $39.3 million of pretax income in the fourth quarter of 2025, and income tax expense of $6.4 million on $26.2 million of pretax income in the first quarter of 2025. Our effective tax rate was 24.9% in the first quarter of 2026, 26.7% for the fourth quarter of 2025, and 24.3% for the first quarter of 2025.
Income tax expense reflected all relevant statutory tax rates and GAAP accounting. There were no significant changes in our ability to utilize our deferred tax assets during the quarter ended March 31, 2026. We had no valuation reserve on the deferred tax assets as of March 31, 2026.
Financial Condition
Total assets decreased $53.5 million to $6.85 billion at March 31, 2026, from $6.90 billion at December 31, 2025, due primarily to the decrease of $66.9 million in total loans. This decrease was partially offset by an increase in securities available-for-sale of $24.9 million. We continue to actively assess potential investment opportunities to utilize our excess liquidity. Total deposits were $5.56 billion at March 31, 2026, a decrease of $31.1 million from December 31, 2025.
U.S. Treasuries
160,191
(0.5)
3.0
38,047
135.2
80.4
98,929
(4.0)
(13.9)
209,117
(1.5)
(2.8)
390,891
(7.1)
49,701
(2.9)
(10.5)
199,845
(5.0)
(2.1)
Total securities
1,146,721
2.3
(2.7)
Securities available-for-sale increased $24.9 million as of March 31, 2026, compared to December 31, 2025, but decreased $31.3 million compared to March 31, 2025. The increase in the portfolio during 2026 was driven by $106.9 million in purchases, partially offset by paydowns totaling $62.0 million along with maturities and calls totaling $16.2 million and a $3.3 million increase in unrealized losses on securities available-for-sale. We continue to position the portfolio in higher credit quality, shorter duration securities with an appropriate mix of fixed- and floating-rate exposures.
51
732,874
0.4
15.3
505,455
6.7
1,105,440
(3.6)
5.8
669,964
205,839
(17.3)
(30.3)
50,103
(0.7)
39.2
210,239
4.0
14.0
341,253
4.7
104,575
125.3
(3.3)
14,490
3,940,232
(1.3)
31.6
1 The “Other” classification includes consumer loans, such as collector cars, manufactured homes, and solar loans, as well as overdrafts.
Total loans were $5.19 billion as of March 31, 2026, a decrease of $66.9 million from December 31, 2025. The decrease in total loans in the first three months of 2026, compared to December 31, 2025, was primarily due to paydowns, net of originations, in commercial real estate – investor, construction, and powersport. Total loans increased $1.25 billion compared to March 31, 2025, which was primarily due to the $1.20 billion portfolio acquired from Bancorp Financial. Excluding the acquisition, the Bank achieved organic loan growth, net of paydowns, of $49.3 million, comprised of commercial, leases, residential real estate – owner occupied, and other, partially offset by net decreases in commercial real estate - investor, construction, and multifamily. As required by CECL, the balance (or amortized cost basis) of purchased credit deteriorated loans, or PCD loans (discussed below) is 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, or ACL.
The addition of the powersports loan portfolio has given us a more balanced loan portfolio by broadening the scope of our consumer lending and offering a higher yield in a lower rate environment. During the three months ended March 31, 2026, we originated $79.1 million powersport loans with a weighted average yield of 10.67%. As of March 31, 2026, the weighted average FICO score, at the time of origination, of the entire powersport portfolio is 727.
FICO
Tier 1
351,101
776
Tier 2
131,894
710
Tier 3
80,937
683
Tier 4
40,382
Tier 5
69,802
606
727
The following table sets forth the total of powersport by collateral type:
% of
New
517,948
76.8
Used
156,168
23.2
100.0
52
The quality of our loan portfolio is impacted not only by our credit decisions but also by the economic health of the communities in which we operate. Since we are located in a corridor with significant open space and undeveloped real estate, real estate lending (including commercial real estate, construction, residential, multifamily, and HELOCs) has been and continues to be a sizeable portion of our portfolio. These categories comprised 56.3% of the portfolio as of March 31, 2026, compared to 56.5% of the portfolio as of December 31, 2025. At March 31, 2026, our outstanding commercial real estate loans and undrawn commercial real estate commitments, excluding owner occupied real estate, were equal to 203.7% of our Tier 1 capital plus allowance for credit losses, a decrease from 220.3% at December 31, 2025. We continue to oversee and seek to manage our loan portfolio in accordance with interagency guidance on risk management.
Asset Quality
Nonperforming loans consist of nonaccrual loans and loans 90 days or greater past due. Nonperforming loans increased by $22.7 million to $75.5 million at March 31, 2026, from $52.8 million at December 31, 2025, and increased by $40.7 million from $34.8 million at March 31, 2025. The increase in total nonperforming loans as of March 31, 2026 is driven by non-accrual additions of a few larger commercial relationships and two larger relationships that are 90 days past due and accruing. The two past due and accruing relationships, one in commercial real estate – owner occupied and another in commercial real estate – investor, are in the process of being renewed, and both relationships are well positioned from a collateral perspective. Purchased credit deteriorated loans, or PCD loans, are purchased loans that, as of the date of acquisition, we determined had experienced a more-than-insignificant deterioration in credit quality since origination. PCD loans are included in our nonperforming loan disclosures, if such loans otherwise meet the definition of a nonperforming loan. Management continues to carefully monitor loans considered to be in a classified status. Nonperforming loans as a percent of total loans were 1.5% as of March 31, 2026, 1.0% as of December 31, 2025, and 0.9% as of March 31, 2025. The distribution of our nonperforming loans is shown in the following table.
Nonperforming Loans
22,527
9,761
12,475
130.8
80.6
2,952
2,899
1.8
248.1
16,423
1,968
44.4
734.5
22,268
19,743
11,297
97.1
4,989
183.0
(58.2)
769
(1.8)
(13.0)
1,563
22.6
348.5
545
31.2
194.1
(13.8)
310.1
Total nonperforming loans
75,504
52,831
34,791
42.9
117.0
The components of our nonperforming assets are shown in the following table:
Nonperforming Assets
Nonaccrual loans
33,394
30.6
87.6
Loans past due 90 days or more and still accruing interest
1,397
163.7
821.1
(55.7)
(78.0)
Repossessed assets 1
858
1,363
484
(37.1)
77.3
Total nonperforming assets
76,994
55,621
38,153
38.4
101.8
30-89 days past due loans and still accruing interest
50,036
52,169
21,951
Nonaccrual loans to total loans
0.8
Nonperforming loans to total loans
1.5
1.0
Nonperforming assets to total loans plus OREO and repossessed assets
Allowance for credit losses to total loans
1.4
Allowance for credit losses to nonaccrual loans
115.2
150.8
124.4
1 Repossessed assets are reported within other assets.
Loan charge-offs, net of recoveries, for the first quarter of 2026 as compared to the prior linked quarter and year over year quarter are shown in the following table:
Loan Charge–offs, Net of Recoveries
Total1
1,298
13.3
(44)
3,414
78.4
197
2.0
0.2
93
3,919
40.1
(14)
(0.2)
(5)
(0.1)
1,125
18.8
18.9
(1)
(11)
(30)
(6)
(49)
(0.8)
(12)
3,894
39.9
4,466
74.7
Other 2
488
494
Net charge–offs (recoveries)
9,776
5,981
4,353
1 Represents the percentage of net charge-offs attributable to each category of loans.
2 The “Other” classification includes consumer loans, such as collector cars, manufactured homes, and solar loans, as well as overdrafts.
Net charge offs, reported in the above table, reflect continuing management attention to credit quality and remediation efforts. The increase in gross charge-offs for the first quarter of 2026, as compared to the prior quarters presented, were primarily due to powersport loans of $4.7 million, one commercial real estate charge-off for $3.9 million, and a $1.3 million charge-off on a commercial relationship. Powersport loans are measured for asset quality at origination based on FICO scores, then based on past due status through the life of the loan, and charge-off occurs once a loan is past due 120 days. We have continued our conservative loan valuations and aggressive recovery efforts on prior charge-offs.
54
Classified loans include nonaccrual loans, accruing substandard, and doubtful loans. Classified assets include classified loans, OREO, and repossessed assets. Loans classified as substandard are inadequately protected by either the current net worth and ability to meet payment obligations of the obligor, or by the collateral pledged to secure the loan, if any. These loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt and carry the distinct possibility that we will sustain some loss if the deficiencies remain uncorrected. Loans classified as doubtful have all the weaknesses inherent as those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.
The following table shows classified assets by classification for the following periods:
Classified Assets
50,640
20,807
143.4
7.2
207.1
14,299
4.6
26,818
(5.4)
125.9
18,201
13.7
(28.7)
1,283
(11.4)
(21.1)
1,759
(0.6)
686
25.0
167.1
200.0
36.7
Total classified loans
148,572
85,043
(1.0)
Total classified assets
150,062
152,889
88,405
69.7
N/M - Not meaningful
Total classified loans decreased $1.5 million as of March 31, 2026, from December 31, 2025, but increased $63.5 million compared to March 31, 2025. The decrease in classified loans since December 31, 2025, is due to outflows to classified loans of $10.2 million, offset by additions of $8.7 million. Outflows consisted of $6.0 million of loans paid off, $1.6 million of classified loans upgraded, $1.1 million of principal reductions through payments and partial charge offs, $1.3 million of loans charged off, and $235,000 of loans transferred into OREO. Classified assets decreased as of March 31, 2026, compared to the prior linked quarter end, due to the decreases to classified loans and a total decrease of $1.3 million related to OREO and repossessed assets. The $61.7 million increase in classified assets as of March 31, 2026, compared to March 31, 2025, is primarily due to the classified loan increase of $63.5 million, noted above, less a reduction in OREO balances year over year. Classified loans since March 31, 2025 had additions of $149.3 million and were offset by outflows of $85.8 million which consisted of $54.8 million of loans paid off, $16.7 million of classified loans upgraded, $2.4 million of loans charged off, $5.7 million of net principal reductions and partial charge offs, $5.2 million transferred to OREO, and $1.0 million repossessed. Management monitors a ratio of classified assets to the sum of Bank Tier 1 capital and the ACL on loans as another measure of overall change in loan related asset quality, which is referred to as the “classified assets ratio.” The classified assets ratio was 16.93% for the period ended March 31, 2026, compared to 17.82% as of December 31, 2025, and 13.12% as of March 31, 2025.
Allowance for Credit Losses on Loans
The provision for credit losses, which includes a provision for losses on unfunded commitments, is a charge to earnings to maintain the allowance for credit losses (“ACL”) at a level consistent with management’s assessment of expected losses in the loan portfolio at the balance sheet date.
At March 31, 2026, our ACL on loans totaled $72.1 million, and our ACL on unfunded commitments, included in other liabilities, totaled $2.0 million. In the first quarter of 2026, we recorded a provision expense on loans of $9.6 million driven by increased charge-offs and the downgrade of one commercial relationship. Further, we recorded a $101,000 provision release on unfunded commitments, primarily due to an adjustment of historical benchmark assumptions, such as funding rates and the period used to forecast those rates, within the ACL calculation. These adjustments resulted in a $9.5 million net expense to the provision for credit losses for the first quarter of 2026.
Management estimates the amount of provision required on a quarterly basis and records the appropriate provision expense, or release of expense, to maintain an adequate reserve for all potential and estimated credit losses on loans, leases and unfunded commitments. The ACL on loans totaled $72.1 million as of March 31, 2026, $72.3 million as of December 31, 2025, and $41.6 million as of March 31, 2025. Our ACL on loans to total loans was 1.4% as of March 31, 2026 and December 31, 2025, and 1.1% March 31, 2025. See Item 7 – Critical Accounting Estimates in the Management Discussion and Analysis in our 2025 Annual Report in Form 10-K for discussion of our ACL methodology on loans. Allocations of the ACL may be made for specific loans, but the entire allowance is available for any loan that, in our judgment, should be charged-off.
Below is a reconciliation of the activity in the allowance for credit losses on loans for the periods indicated:
Allowance at beginning of period
75,037
Charge–offs:
1,126
5,136
Total charge–offs
6,856
Recoveries:
72
57
Total recoveries
Net charge-offs
Provision for credit losses on loans 2
3,245
Allowance at end of period
Average total loans (exclusive of loans held–for–sale)
5,205,721
5,275,389
3,957,730
Net charge–offs to average loans
2 Amount does not include the provision for unfunded commitment liability.
The coverage ratio of the ACL on loans to nonperforming loans was 95.5% as of March 31, 2026, which was a decrease from the coverage ratio of 136.9% as of December 31, 2025, and a decrease from 119.4% as of March 31, 2025. Excluding loans past due 90 days and accruing that are in the process of renewal, the coverage ratio for March 31, 2026 was 115.5%. Net charge-offs to average loans increased in the current quarter, though remaining manageable, at 0.76% for the quarter ended March 31, 2026, compared to 0.45% for the quarters ended December 31, 2025 and March 31, 2025.
In management’s judgment, an adequate ACL has been established to encompass the current lifetime expected credit losses at March 31, 2026, as well as general changes in lending policy, procedures and staffing, and other external factors. However, there can be no assurance that actual losses will not exceed the estimated amounts in the future, based on unforeseen economic events, changes in business climates and the condition of collateral at the time of default and repossession. Continued volatility in the economic environment stemming from the impacts of and response to inflation, tariffs, potential recession, and the war in Ukraine and the war in Iran, and the associated effects on our customers, or other factors, such as changes in business climates and the condition of collateral at the time of default or repossession, may revise our current expectations of future credit losses in future reporting periods.
Other Real Estate Owned
As of March 31, 2026, OREO totaled $632,000, reflecting a decrease of $795,000 from $1.4 million at December 31, 2025, and a decrease of $2.2 million from $2.9 million at March 31, 2025. In the first quarter of 2026, there was one OREO sale totaling $1.4 million, net of gains, and one property transferred with a value of $632,000. The valuation adjustment balance was reversed along with the related OREO balance due to the sale in the first quarter of 2026. There was no valuation adjustment in the fourth quarter of 2025 and we recorded a valuation adjustment of $454,000 in the first quarter of 2025.
OREO
6,416
(77.8)
(93.4)
Property additions, net of transfer adjustments
Proceeds from property disposals, net of participation purchase and of gains/losses
(71.4)
(92.2)
(100.0)
In management’s judgment, the property valuation allowance as established presents OREO at current estimates of fair value less estimated costs to sell; however, there can be no assurance that additional losses will not be incurred on disposals or upon updates to valuations in the future. These valuations are reversed when the property is sold.
OREO Properties by Type
% of Total
Single family residence
100
Commercial property
2,695
94
Vacant land
183
Total other real estate owned
Deposits and Borrowings
Deposits
1,713,711
2.4
952,602
(0.4)
17.3
652,444
7.6
829,533
17.7
334,694
(10.1)
252,276
(8.7)
49.4
117,531
(5.7)
67.6
4,852,791
14.7
Total deposits were $5.56 billion at March 31, 2026, which reflects a $31.1 million decrease from total deposits of $5.60 billion at December 31, 2025, but an increase of $712.2 million from total deposits of $4.85 billion at March 31, 2025. The decrease in deposits at March 31, 2026, compared to December 31, 2025, was primarily due to decreases in savings accounts of $4.6 million and time deposits of $97.0 million, primarily due to the roll off of higher rate brokered deposits and other exception-priced time deposits acquired from the Bancorp Financial acquisition. These decreases were partially offset by increases in noninterest bearing deposits of $16.4 million, NOW accounts of $8.1 million and money market accounts of $46.0 million. The increase in deposits at March 31, 2026, compared to March 31, 2025, stemmed primarily from the acquisition of Bancorp Financial, which impacted all deposit types. Total quarterly average deposits increased $764.8 million, or 15.9%, in the year over year period, primarily driven by the acquisition of Bancorp Financial, which included an increase in average time deposits of $337.3 million, savings accounts of $178.1 million, money market accounts of $144.9 million, NOW accounts of $69.4 million, and noninterest bearing deposits of $35.1 million. Included in our quarterly average time deposits are $46.6 million of brokered deposits compared to none at March 31, 2025. Brokered deposits totaling $115.0 million were assumed in the acquisition of Bancorp Financial and we expect these deposits to run-off by early 2028.
The following table presents estimated insured and uninsured deposits at March 31, 2026, and December 31, 2025, by deposit type, as well as the weighted average rates for each year to date ending period.
Total Deposits
Insured Deposits
Uninsured Deposits
Average Rate Paid
1,165,286
590,262
1,141,542
597,575
1,022,199
95,117
1,025,941
95,947
0.73
508,484
193,228
495,397
198,176
558,441
417,569
548,289
381,790
1.90
849,896
164,517
937,045
174,367
2.92
4,104,306
1,460,693
1.05
4,148,214
1,447,855
1.06
Collateralized public funds
220,165
15,602
204,563
219,939
15,832
204,107
Deposits balances were stable during the first quarter of 2026, reflecting a nominal decrease of 0.6% for the three months ended March 31, 2026, compared to December 31, 2025. Changes in the rate paid on time deposits reflect a gradual repricing of accounts opened during a higher interest rate environment. The aggregate rate paid on deposits and the overall product mix were largely unchanged during the quarter.
In addition to deposits, we used other liquidity sources for our funding needs in all periods presented, such as repurchase agreements and other short-term borrowings with the FHLBC. Our borrowings at the FHLBC require the Bank to be a member and invest in the stock of the FHLBC, and total borrowings are generally limited to the lower of 35% of total assets or the book value of eligible pledged assets after application of FHLBC margins and collateral valuation adjustments. Securities sold under repurchase agreements totaled $23.1 million at March 31, 2026, a $639,000, or 2.7% decrease from $23.8 million at December 31, 2025, and a decrease of $15.5 million, or 40.2%, from March 31, 2025. There were outstanding short-term FHLBC borrowings of $200.0 million as of March 31, 2026, compared to $215.0 million as of December 31, 2025, and no short-term FHLBC borrowings outstanding as of March 31, 2025.
We are also indebted on $25.8 million of junior subordinated debentures, net of deferred issuance costs, as of March 31, 2026, which are related to the trust preferred securities issued by its statutory trust subsidiary, Old Second Capital Trust II (“Trust II”). The Trust II issuance converted from fixed to floating rate at three month LIBOR, which is now three month Term SOFR, plus 150 basis points beginning June 15, 2017. Upon conversion to a floating rate, we initiated a cash flow hedge which resulted in net year to date interest rate paid on this debt of 4.66% as of March 31, 2026, as compared to 6.77%, which was the rate paid during the period prior to the June 15, 2017, rate reset.
In the second quarter of 2021, we entered into Subordinated Note Purchase Agreements with certain qualified institutional buyers pursuant to which we issued $60.0 million in aggregate principal amount of our 3.50% Fixed-to-Floating Rate Subordinated Notes due April 15, 2031 (the “Notes”). We sold the Notes to eligible purchasers in a private offering, and the proceeds of this issuance were used for general corporate purposes. The Notes bear interest at a fixed annual rate of 3.50% through April 14, 2026, payable semi-annually in arrears. As of April 15, 2026, forward, the interest rate on the Notes will generally reset quarterly to a rate equal to three-month Term SOFR (as defined by the Note) plus 273 basis points, payable quarterly in arrears. The Notes have a stated maturity of April 15, 2031, and are redeemable, in whole or in part, on April 15, 2026, or any interest payment date thereafter, and at any time upon the occurrence of certain events. As of March 31, 2026, we had $59.6 million of subordinated debentures outstanding, net of deferred issuance costs. On April 15, 2026, we redeemed $30.0 million aggregate principal amount of the Notes. See Note 1 – Subsequent Events for additional information.
As of March 31, 2026, total stockholders’ equity was $893.3 million, which was a decrease of $3.5 million from $896.8 million as of December 31, 2025. This decrease was primarily attributable to a $20.0 million increase in treasury stock. During the first three months of 2026, we repurchased 1,175,859 shares for $23.1 million under our stock repurchase program and withheld 67,357 shares with a value of $1.4 million to satisfy tax withholding obligations related to restricted stock unit vestings. The increase in treasury stock was partially offset by the issuance of 152,021 shares related to restricted stock unit vestings, with a value of $2.7 million, and 87,631 shares related to performance-based restricted stock unit vestings, with a value of $1.7 million. Total stockholders’ equity also decreased due to $3.7 million of dividends paid to common stockholders and an increase of $2.4 million in unrealized net losses on available-for-sale securities and swaps, recorded within accumulated other comprehensive loss, driven by changes in market interest rates during the quarter. These decreases were partially offset by net income of $25.6 million for the period. Total stockholders’ equity as of March 31, 2026, increased $198.8 million compared to March 31, 2025, primarily due to the Bancorp Financial acquisition and net income year over year.
The following table shows the regulatory capital ratios and the current well capitalized regulatory requirements for the Company and the Bank as of the dates indicated:
Adequacy with
Under Prompt
Capital Conservation
Corrective Action
Buffer, if applicable1
Provisions2
The Company
Common equity tier 1 capital ratio
13.47
Total risk-based capital ratio
16.24
Tier 1 risk-based capital ratio
14.01
Tier 1 leverage ratio
11.58
The Bank
13.64
14.58
11.27
2 The prompt corrective action provisions are only applicable at the Bank level.
N/A - Not applicable
59
As of March 31, 2026, the Bank exceeded the minimum capital ratios to be deemed “well capitalized” and met the capital conservation buffer requirements. In addition to the above regulatory ratios, our GAAP common equity to total assets ratio, which is used as a performance measure for capital analysis and peer comparisons, increased from 12.99% at December 31, 2025, to 13.04% at March 31, 2026. Our GAAP tangible common equity to tangible assets ratio was 11.07% at March 31, 2026, compared to 11.02% as of December 31, 2025. The decrease in tangible common equity from December 31, 2025, to March 31, 2026, was primarily due to a $20.0 million increase in treasury stock and a $2.4 million increase in unrealized losses recorded in accumulated other comprehensive loss.
Liquidity
Liquidity is our ability to fund operations, to meet depositor withdrawals, to provide for customers’ credit needs, and to meet maturing obligations and existing commitments. Our liquidity principally depends on our cash flows from operating activities, investment in and maturity of assets, changes in balances of deposits and borrowings, and our ability to borrow funds. Through the first quarter of 2026, we experienced a decrease in both loans and deposits. We managed the change in our funding through a decrease in average borrowings from the FHLBC through March 31, 2026, compared to the prior year end. We seek to ensure our funding needs are met by maintaining a level of liquidity through asset and liability management. We monitor our borrowing capacity at the FHLBC as part of our liquidity management process as supervised by our Asset and Liability Committee (“ALCO”) and reviewed by our Board of Directors. In addition, our senior management team monitors cash balances daily to ensure we have adequate liquidity to meet our operational and financing needs. As of March 31, 2026, our cash on hand liquidity totaled $115.7 million, a decrease of $8.3 million over cash balances held as of December 31, 2025.
Net cash inflows from operating activities were $36.9 million during the first three months of 2026, compared with net cash inflows of $17.8 million in the same period of 2025. Funds used to originate loans held-for-sale, net of proceeds from sales of loans held-for-sale, resulted in outflows for both the first three months of 2026 as well as the like period of 2025. Interest paid, net of interest received, combined with changes in other assets and liabilities were a source of outflows for the three months ended March 31, 2026 and 2025. The management of investing and financing activities, as well as market conditions, determines the level and the stability of net interest cash flows. Management’s policy is to mitigate the impact of changes in market interest rates to the extent possible, as part of the balance sheet management process.
Net cash inflows from investing activities were $29.6 million in the three months ended March 31, 2026, compared to net cash inflows of $76.7 million in the same period in 2025. In the first three months of 2026, securities transactions accounted for net outflows of $28.7 million, and the principal change on loans accounted for net inflows of $56.8 million. In the first three months of 2025, securities transactions accounted for net inflows of $23.5 million, and principal on loans funded, net of paydowns, accounted for net inflows of $36.8 million.
Net cash outflows from financing activities in the three months ended March 31, 2026, were $74.8 million, compared with net cash inflows of $62.2 million in the three months ended March 31, 2025. Net deposit outflows in the first three months of 2026 were $31.0 million compared to net deposit inflows of $84.3 million in the first three months of 2025. Other short-term borrowings had $15.0 million of net cash outflows in the first three months of 2026, compared to net cash outflows of $20.0 million for other short-term borrowings in the first three months of 2025. Changes in securities sold under repurchase agreements accounted for outflows of $639,000 and inflows of $2.0 million for the three months ended March 31, 2026 and 2025, respectively. Dividends paid on our common stock totaled $3.7 million for the three months ended March 31, 2026, and $2.7 million for the three months ended March 31, 2025. The purchase of treasury stock in the first three months of 2026 due to shares acquired with equity award vestings as well as share repurchases resulted in outflows of $24.5 million, compared to cash outflows of $1.4 million in the first three months of 2025 related to shares acquired from equity award vestings.
Cash and cash equivalents for the three months ended March 31, 2026 totaled $115.7 million, as compared to $124.0 million as of December 31, 2025, and $256.1 million as of March 31, 2025. The decrease in cash and cash equivalents for the three months ended March 31, 2026, as compared to the prior year end, was primarily attributable to the increase in treasury stock due to share repurchases, the increase in securities available-for-sale based on strategic purchases, and the decrease in customer deposits. In addition to cash and cash equivalents on hand or held as deposits with other financial institutions, we rely on funding sources from customer deposits, cash flows from securities available-for-sale and loans, and a line of credit with the FHLBC to meet potential liquidity needs. These sources of liquidity are immediately available to satisfy any funding requirements due to depositor or borrower demands through the ordinary course of our business. Additional sources of funding available include a $30.0 million undrawn line of credit held by the Company with a third party financial institution, as well as unpledged securities available-for-sale.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
We are subject to interest rate risk from changes in interest rates on assets (loans and securities), liabilities (customer deposits and borrowed funds), and off-balance sheet derivative instruments (interest rate swaps). Fluctuations in interest rates may have a material impact on the fair market values of our financial instruments, cash flows, and net interest income. Like most financial institutions, we are exposed to changes in both short-term and long-term interest rates. We believe that a financial institution’s ability to effectively manage its interest rate risk profile and strategically position its balance sheet through interest rate cycles is critical to sustaining financial performance.
The Federal Reserve Board (“FRB”) held the federal funds target rate at a range of 3.50% to 3.75% during the first quarter of 2026, consistent with market expectations. Economic conditions remained relatively stable, and the forward curve currently does not reflect expectations for interest rate cuts in 2026.
We manage interest rate risk within guidelines established by our asset-liability policy, which are designed to limit the level of interest rate exposure. In practice, we seek to manage interest rate risk so that potential exposure does not pose a material risk to future earnings. We are exposed to various market risks in the normal course of business, including credit risk, liquidity risk, and interest rate risk. Other forms of market risk, such as foreign currency exchange risk and commodity price risk, do not arise in the normal course of our operations. In addition, because we do not maintain a trading portfolio, we are not exposed to significant market risk from trading activities. Our interest rate risk exposures at March 31, 2026, and December 31, 2025, are summarized in the table below.
Our net income may be influenced by a number of external factors. These factors include overall economic conditions and actions taken by regulatory authorities. Net income may also be affected by the amounts of and rates at which assets and liabilities reprice, differences between assumed and actual prepayment speeds on loans and securities, and early withdrawal of deposits. Additional factors include the exercise of call options on borrowings or securities, competitive pressures, changes in the level or slope of the yield curve, and changes in historical relationships between interest rate indices, such as SOFR and Prime. Balance sheet growth or contraction may also impact net income.
Our Asset‑Liability Committee (“ALCO”) manages interest rate risk across a range of interest rate environments by structuring our on- and off‑balance sheet positions, including the use of interest rate swap derivatives, as discussed in Note 19 to the consolidated financial statements in our Annual Report on Form 10‑K for the year ended December 31, 2025. The ALCO reviews asset‑liability modeling and interest rate risk analyses and reports its findings to the Board of Directors no less than quarterly, including assessments of interest rate risk exposure and the potential impact on earnings and equity. As of the reporting date, the balance sheet exhibited a moderately asset‑sensitive profile, as variable‑rate assets generally reprice more quickly than our longer‑duration, lower‑beta deposit base. Following liquidity events in the banking industry during 2023, the ALCO evaluated our liquidity profile and concluded that the Bank maintains a strong liquidity position. As a prudent measure, internal reporting was enhanced to further segment deposits by insured, uninsured, and collateralized categories, and to more closely track funding sources and uses.
We also maintain a Risk Committee that is chaired by our Chief Risk Officer. The committee reports no less than quarterly to senior management and the Board of Directors on compliance with established risk tolerance limits and on changes in key risk factors arising from portfolio activity and market conditions. Our enterprise risk management framework is governed by this committee, with input from line‑of‑business leaders, senior management, and the Board.
We utilize simulation analysis to quantify the potential impact of various interest rate scenarios on net interest income. The simulation model incorporates expected cash flows, repricing characteristics, and embedded options of our assets and liabilities. Earnings at risk are calculated by comparing net interest income under a stable interest rate scenario to net interest income under alternative rate scenarios. As of March 31, 2026, our net interest income profile remained positioned to benefit from rising interest rates, both in dollar terms and as a percentage change. Compared to December 31, 2025, the profile reflects slightly increased sensitivity to rising rates, primarily due to growth in cash balances resulting from earnings and principal repayments, including amortization, maturities, calls, and prepayments.
The following table summarizes the effect on annual income before income taxes based upon an immediate increase or decrease in interest rates of 0.5%, 1.0%, and 2.0%, with no change in the slope of the yield curve:
Analysis of Net Interest Income Sensitivity
Immediate Changes in Rates
(Dollars in thousands)
(2.0)
Dollar change
(35,998)
(17,947)
(8,366)
8,937
17,987
32,400
Percent change
(10.4)
(5.2)
(2.4)
2.6
5.2
9.4
(35,505)
(18,190)
(9,026)
8,817
17,732
31,490
(10.6)
The amounts and assumptions used in the simulation model are not intended to be indicative of actual future results. Actual results may differ materially from simulated outcomes due to differences in the timing, frequency, and magnitude of interest rate changes, changes in balance sheet composition, evolving market conditions, and management actions taken in response to those conditions. In addition, the simulated results do not reflect the impact of any potential management actions that could be implemented to mitigate interest rate risk.
Effects of Inflation
In management’s opinion, changes in interest rates affect our financial condition to a greater extent than changes in inflation, however we monitor both. The annual U.S. inflation rate increased to 3.3% in March 2026, compared to 2.7% in the prior quarter; while core CPI increased modestly to 2.6%. Recent inflation trends have been influenced by volatility in energy prices and broader geopolitical developments. Elevated inflation could place upward pressure on operating expenses and may impact the financial condition of certain borrowers. Inflation at currently observed levels has had a minimal impact on our financial results.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended, as of March 31, 2026. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2026, the Company’s internal controls were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities and Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified.
There were no changes in the Company’s internal controls over financial reporting during the quarter ended March 31, 2026, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries, from time to time, are involved in collection suits in the ordinary course of business against its debtors and are defendants in legal actions arising from normal business activities. Management, after consultation with legal counsel, believes that the ultimate liabilities, if any, resulting from these actions will not have a material adverse effect on the financial position of the Bank or on the consolidated financial position of the Company.
Item 1A. Risk Factors
Investing in shares of our common stock involves certain risks, including those identified and described in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, as well as cautionary statements contained in this Quarterly Report, on Form 10-Q, including those under the caption “Cautionary Note Regarding Forward-Looking Statements.”
There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Stock Repurchases
In January 2026, our board of directors authorized the repurchase of up to 1,908,042 shares of our common stock (the “Repurchase Program”). The Company received notice of non-objection in January 2026 from the Federal Reserve Bank of Chicago for the Repurchase Program. Under the Repurchase Program, repurchases may be made through December 31, 2026 will not exceed an aggregate value of $43.9 million. We may make repurchases under the Repurchase Program from time to time through open market purchases, trading plans established in accordance with SEC rules, privately negotiated transactions, or by other means.
The actual means and timing of any repurchases, quantity of purchased shares and prices will be, subject to certain limitations, at the discretion of management and will depend on a number of factors, including, without limitation, market prices of our common stock, general market and economic conditions, and applicable legal and regulatory requirements. Repurchases under the Repurchase Program may be initiated, discontinued, suspended or restarted at any time provided that repurchases under the Repurchase Program, after December 31, 2026, would require Federal Reserve non-objection or approval. We are not obligated to repurchase any shares under the Repurchase Program.
During the first quarter of 2026, the Company repurchased 1,175,859 shares at $19.63 per share for a total reduction to capital of $23.1 million, as these shares are held in treasury stock.
The following table presents our stock repurchases for the quarter ended March 31, 2026:
Total Number of
Maximum Number
Shares Purchased
of Shares that May
as Part of Publicly
Yet Be
Shares
Price Paid
Announced Plans
Purchased Under
Purchased (a)
per Share (b)
or Programs (c)1
the Plans or Programs (d)
January 1, 2026 - January 31, 2026
1,908,042
February 1, 2026 - February 28, 2026
205,458
19.78
1,702,584
March 1, 2026 - March 31, 2026
970,401
19.60
732,183
1,175,859
19.63
1 We announced our Repurchase Program, which will expire on December 31, 2026, unless further extended as described above, in our Current Report on Form 8-K filed on January 29, 2026, and 732,183 shares remained available for repurchase under the Repurchase Program as of March 31, 2026.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Trading Plans
During the three months ended March 31, 2026, neither the Company, nor any director or “officer” of the Company, adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
Item 6. Exhibits
Exhibits:
31.1
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a).
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a).
32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101
Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets at March 31, 2026, and December 31, 2025; (ii) Consolidated Statements of Income for the three months ended March 31, 2026 and 2025; (iii) Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2026 and 2025; (iv) Consolidated Statements of Cash Flows for the three months ended March 31, 2026 and 2025; (v) Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2026 and 2025; and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and in detail.
104
Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document).
+ Schedules and similar attachments have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant will furnish supplementally a copy of any omitted schedules or similar attachment to the SEC upon request.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BY:
/s/ James L. Eccher
James L. Eccher
Chairman, President and Chief Executive Officer
(principal executive officer)
/s/ Bradley S. Adams
Bradley S. Adams
Executive Vice President,
Chief Operating Officer and Chief Financial Officer
(principal financial and accounting officer)
DATE: May 7, 2026