OLD SECOND BANCORP INC

Previous wording

The following discussion provides additional information regarding our operations for the three months ended March 31, 2024, compared to the three months ended March 31, 2023, and our financial condition at March 31, 2024, compared to December 31, 2023. 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, 2023. The results of operations for the three months ended March 31, 2024, are not necessarily indicative of future results. Dollar amounts presented in the following tables are in thousands, except per share data, and March 31, 2024 and 2023 amounts are unaudited.

Current wording

The following discussion provides additional information regarding our operations for the three and six months ended June 30, 2024, compared to the three and six months ended June 30, 2023, and our financial condition at June 30, 2024, compared to December 31, 2023. 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, 2023. The results of operations for the three and six months ended June 30, 2024, are not necessarily indicative of future results. Dollar amounts presented in the following tables are in thousands, except per share data, and June 30, 2024 and 2023 amounts are unaudited.

Previous wording

Net income for the first quarter of 2024 was $21.3 million, or $0.47 per diluted share, compared to $23.6 million, or $0.52 per diluted share, for the first quarter of 2023. The decrease was primarily due to a reduction in net interest and dividend income from contraction in our securities portfolio as well as higher market rates and increased short-term borrowing, which resulted in a $7.5 million increase to interest expense. Partially offsetting these changes was growth in loan related income due to higher market interest rates in the first quarter of 2024 compared to the like quarter in 2023. Noninterest income increased in the first quarter of 2024, compared to the like quarter of 2023, as a result of a reduction in net losses on security sales, growth in mortgage banking revenues, and an increase in the cash surrender value of BOLI. An increase was also noted in noninterest expense for the current quarter, primarily due to higher salaries and employee benefits. Adjusted net income, a non-GAAP financial measure that excludes certain nonrecurring items, as applicable, was $21.3 million for the first quarter of 2024, compared to $19.1 million for the fourth quarter of 2023, and $23.4 million for the first quarter of 2023. See the discussion entitled “Non-GAAP Financial Measures” on page 40, as well as the table below, which provides a reconciliation of this non-GAAP measure to the most comparable GAAP equivalents.

Current wording

Net income for the second quarter of 2024 was $21.9 million, or $0.48 per diluted share, compared to $25.6 million, or $0.56 per diluted share, for the second quarter of 2023. The reduction in net income was primarily due to a decrease in net interest and dividend income of $3.9 million year over year driven by a $3.2 million increase to interest expense as a result of higher interest rates offered on deposits, as well as a reduction in interest and dividend income as the securities portfolio decreased $162.0 million during the last twelve months. Also contributing to the decrease in net income compared to the prior year like quarter was an increase in provision for credit losses of $1.8 million. Adjusted net income, a non-GAAP financial measure that excludes certain nonrecurring items, as applicable, was $21.0 million for the second quarter of 2024, compared to $21.3 million for the first quarter of 2024, and $25.6 million for the second quarter of 2023. Adjusted net income was $42.3 million for the six months ended June 30, 2024, compared to $49.0 million for the six months ended June 30, 2023. See the discussion entitled “Non-GAAP Financial Measures” on page 40, as well as the table below, which provides a reconciliation of this non-GAAP measure to the most comparable GAAP equivalents.

Previous wording

Our income before taxes was $28.5 million in the first quarter of 2024 compared to $32.0 million in the first quarter of 2023. This decrease in pretax income was primarily due to a $4.3 million decrease in net interest and dividend income. Income before taxes was positively impacted by a $3.2 million increase in noninterest income, primarily due to $1,000 of security gains, net, in the first quarter of 2024 compared to $1.7 million of security losses, net, in the first quarter of 2023 as well as a $590,000 increase in mortgage banking income. Income before taxes was negatively impacted by a $2.3 million increase in noninterest expense primarily due to a $2.1 million increase in salary and employee benefits expense in the first quarter of 2024. Our net income was $21.3 million, or $0.47 per diluted share, for the first quarter of 2024, compared to net income of $23.6 million, or $0.52 per diluted share, for the first quarter of 2023. The Bank remains well positioned to navigate uncertain macroeconomics; we have mitigated interest rate risk, controlled expenses in an inflationary environment, and actively managed daily liquidity. Furthermore, we continue to possess strong liquidity metrics and an outsized securities portfolio for funding needs.

Current wording

Our income before taxes was $29.2 million in the second quarter of 2024 compared to $35.0 million in the second quarter of 2023. This decrease in pretax income was primarily due to a $3.9 million decrease in net interest and dividend income, a $1.8 million increase in provision for credit losses, and a $3.0 million increase in noninterest expenses. Income before taxes was positively impacted by a $2.9 million increase in noninterest income, primarily due to no security gains or losses in the second quarter of 2024 compared to $1.5 million of security losses, net, in the second quarter of 2023, as well as an $893,000 death benefit realized on BOLI; no death benefit was recorded in the prior year like period. Noninterest expense increased by $3.0 million primarily due to a $1.6 million increase in salary and employee benefits expense, an $894,000 increase in computer and data processing expenses, and a $369,000 increase in advertising expenses in the second quarter of 2024. Our net income was $21.9 million, or $0.48 per diluted share, for the second quarter of 2024, compared to net income of $25.6 million, or $0.56 per diluted share, for the second quarter of 2023. The Bank remains well positioned to navigate uncertain macroeconomics; we have mitigated interest rate risk, controlled expenses in an inflationary environment, and actively managed daily liquidity. Furthermore, we continue to possess strong liquidity metrics and a short duration securities portfolio for short term funding needs.

Previous wording

Net interest and dividend income was $59.8 million in the first quarter of 2024, compared to $64.1 million in the first quarter of 2023. The $4.3 million decrease was driven by an increase in interest expense in the first quarter of 2024, compared to the first quarter of 2023, primarily due to a rise in deposit interest rates and borrowing costs. Decreases in our securities portfolio also contributed to the decrease in net interest and dividend income during the first quarter of 2024. Partially offsetting the decrease during the first quarter of 2024 compared to the like quarter a year ago was growth in our loan related income due to the effect of higher market interest rates on our loan portfolios.

Current wording

Net interest and dividend income was $59.7 million in the second quarter of 2024, compared to $63.6 million in the second quarter of 2023. The $3.9 million decrease was driven by an increase in interest expense in the second quarter of 2024, compared to the second quarter of 2023, primarily due to exception pricing on deposit accounts and product migration into term deposits. Decreases in our securities portfolio also contributed to the decrease in net interest and dividend income during the second quarter of 2024. Partially offsetting the decrease in net interest and dividend income during the second quarter of 2024, compared to the like quarter a year ago, was growth in our loan related interest income due to the effect of higher market interest rates on our loan portfolios.

Previous wording

The increased yield of six basis points on interest earning assets compared to the linked period was driven by repricing within the existing loan portfolios, and, to a lesser extent, the growth in the average balance of loans over the quarter. In addition, rates paid on FHLB dividends increased quarter over linked quarter. 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.

Current wording

The increased yield of six basis points on interest earning assets compared to the linked period was driven by repricing within the loan and taxable securities portfolios. Changes in the market interest rate environment impact earning assets at varying intervals depending on the repricing timeline of loans and securities, as well as securities maturity, paydown and purchase and sale activities.

Previous wording

The year over year increase of 42 basis points on interest earning assets was primarily driven by significant increases to benchmark interest rates over the past twelve months, primarily impacting variable rate loans. This increase was partially offset by the reduction in securities available for sale income during the quarter ended March 31, 2024, compared to the prior quarter and year over year quarter, as both security volumes and rates decreased.

Current wording

The year over year increase of 28 basis points on interest earning assets was primarily driven by increases to benchmark interest rates over the past twelve months, primarily impacting variable rate loans. Increases to market rates also impacted securities available for sale income during the quarter ended June 30, 2024. Average balances of securities available for sale decreased $225.2 million in the second quarter of 2024 compared to the prior year like quarter; however, the tax equivalent yield on the securities available for sale portfolio increased 15 basis points year over year due to variable security rate resets.

Previous wording

Average balances of interest-bearing deposit accounts have increased steadily since the fourth quarter of 2023 through the first quarter of 2024, from $2.74 billion to $2.76 billion, as time deposits increased due to CD rate specials, partially offset by reductions in other deposit categories as customers sought higher yielding products. We have continued to control the cost of funds over the periods reflected, with the average rate of overall interest-bearing deposits increasing to 118 basis points for the quarter ended March 31, 2024, from 89 basis points for the quarter ended December 31, 2023, and from 25 basis points for the quarter ended March 31, 2023. A 24 basis point increase in the cost of money market funds for the quarter ended March 31, 2024 compared to prior linked quarter, and a 110 basis point increase compared to the prior year like quarter were both due to select deposit account exception pricing, and drove a significant portion of the overall increase. Average rates paid on time deposits for the quarter ended March 31, 2024 increased by 65 basis points and 229 basis points in the quarter over linked quarter and year over year quarters, respectively, primarily due to CD rate specials we offered.

Current wording

Average balances of interest-bearing deposit accounts have increased steadily during the second quarter of 2024, from $2.76 billion to $2.81 billion, as NOW and money market account average balances increased as well as time deposits average balance increases due to CD rate specials. The increase in average balances of interest-bearing deposit accounts was partially offset by reductions in savings accounts as customers sought higher yielding products. We have continued to control the cost of funds over the periods reflected, with the rate of overall interest-bearing deposits increasing to 133 basis points for the quarter ended June 30, 2024, from 118 basis points for the quarter ended March 31, 2024, and from 40 basis points for the quarter ended June 30, 2023. A 20 basis point increase in the cost of money market funds for the quarter ended June 30, 2024, compared to the prior linked quarter, and a 105 basis point increase compared to the prior year like quarter were both due to select deposit account exception pricing, and drove a significant portion of the overall increase. The increase in transactional account average balances for the linked quarter were slightly offset by a 15 basis point decrease in NOW accounts driven by a large commercial deposit customer moving into an off-balance sheet sweep product, which reduced the overall rates paid on exception priced NOW accounts. Average rates paid on time deposits for the quarter ended June 30, 2024, increased by 36 basis points and 221 basis points in the quarter over linked quarter and year over year quarters, respectively, primarily due to CD rate specials we offered.

Previous wording

Borrowing costs decreased in the first quarter of 2024, compared to the fourth quarter of 2023, primarily due to the $58.5 million decrease in average other short-term borrowings stemming from a decrease in average FHLB advances over the prior quarter. The increase of $131.4 million year over year of average FHLB advances was based on daily liquidity needs, and was the primary driver of the $2.2 million increase to interest expense due to other short-term borrowings. Subordinated and junior subordinated debt interest expense were essentially flat over each of the periods presented. Senior notes had the most significant interest expense decrease year over year, as we redeemed all of the $45.0 million senior notes, net of deferred issuance costs, in June 2023, resulting in senior notes having no balance after that time. In February 2023, we paid off the remaining balance of $9.0 million on the original $20.0 million term note issued in 2020, resulting in notes payable and other borrowings having no balance after that time.

Current wording

Borrowing costs decreased in the second quarter of 2024, compared to the first quarter of 2024, primarily due to the $89.3 million decrease in average other short-term borrowings stemming from a decrease in average FHLB advances over the prior quarter. The decrease of $159.6 million year over year of average FHLB advances was based on daily liquidity needs, and was the primary driver of the $1.8 million decrease to interest expense on other short-term borrowings. Subordinated and junior subordinated debt interest expense were essentially flat over each of the periods presented. Senior notes had the most significant interest expense decrease year over year, as we redeemed all of the $45.0 million senior notes, net of deferred issuance costs, in June 2023, resulting in senior notes having no balance after that time.

Previous wording

Our net interest margin (GAAP) decreased four basis points to 4.55% for the first quarter of 2024, compared to 4.59% for the fourth quarter of 2023, and decreased 17 basis points compared to 4.72% for the first quarter of 2023. Our net interest margin (TE) decreased four basis points to 4.58% for the first quarter of 2024, compared to 4.62% for the fourth quarter of 2023, and decreased 16 basis points compared to 4.74% for the first quarter of 2023. The decrease in the first quarter of 2024, compared to the prior quarter, is driven by higher interest expense due to the current interest rate environment and its effect on interest bearing deposits. The decrease in the first quarter of 2024, compared to the prior year like quarter, is primarily due to an increase in market interest rates, and the related increase in costs of interest-bearing liabilities. See the discussion entitled “Non-GAAP Financial Measures” and the table on page 46 that provides a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

Current wording

Our net interest margin (GAAP) increased five basis points to 4.60% for the second quarter of 2024, compared to 4.55% for the first quarter of 2024, and decreased one basis point compared to 4.61% for the second quarter of 2023. Our net interest margin (TE) increased five basis points to 4.63% for the second quarter of 2024, compared to 4.58% for the first quarter of 2024, and decreased one basis point compared to 4.64% for the second quarter of 2023. The increase in the second quarter of 2024, compared to the prior quarter, was driven by market rates as well as the composition of assets and liabilities as interest income and expense remained relatively flat compared to the prior quarter while there was a $65.9 million reduction in interest earning assets. Matured securities were replaced with higher yielding positions and the decrease in average loans was primarily driven by lower yielding or nonaccrual credits due to the payoff, charge-off or upgrade of loans year-to-date. Higher deposit interest expense was offset by lower borrowing interest expense due to a decline in average other short-term borrowing. The decrease in our net interest margin (TE) in the second quarter of 2024, compared to the prior year like quarter, is primarily due to an increase in market interest rates, and the related increase in costs of interest-bearing deposits. See the discussion entitled “Non-GAAP Financial Measures” and the table on page 47 that provides a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

Previous wording

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 44, and includes loan fee expense of $867,000 for the first quarter of 2024, $922,000 for the fourth quarter of 2023, and $730,000 for the first quarter of 2023. Nonaccrual loans are included in the above-stated average balances.

Current wording

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 47, and includes loan fee expense of $936,000 for the second quarter of 2024, $867,000 for the first quarter of 2024, and $242,000 for the second quarter of 2023. Nonaccrual loans are included in the above-stated average balances.

Previous wording

Noninterest income increased $1.8 million, or 20.3%, in the first quarter of 2024, compared to the fourth quarter of 2023, and increased $3.2 million, or 42.9%, compared to the first quarter of 2023. The increase from the fourth quarter of 2023 was primarily driven by a $1.3 million increase in residential mortgage banking revenue primarily due to MSRs mark to market gains, and a $631,000 increase in the cash surrender value of BOLI, both of which were due to market interest rate changes in the first quarter, as well as a $120,000 increase in other income, partially offset by a $39,000 decrease in wealth management income, a $112,000 decrease in service charges on deposits, and a $135,000 decrease in card related income.

Current wording

Noninterest income increased $626,000, or 6.0%, in the second quarter of 2024, compared to the first quarter of 2024, and increased $2.9 million, or 35.3%, compared to the second quarter of 2023. The increase from the first quarter of 2024 was primarily driven by a $218,000 increase in wealth management income, an $893,000 death benefit realized on BOLI, and a $201,000 increase in card related income. Partially offsetting the increase in noninterest income from the prior quarter was a $138,000 decrease in residential mortgage banking revenue primarily due to a decrease of $332,000 in MSRs mark to market valuation, and a $352,000 decrease in the cash surrender value of BOLI, both of which were due to market interest rate changes, while MSRs were also impacted by a slight increase in prepayment speeds in the second quarter. Also offsetting the increase in noninterest income from the prior quarter was a $288,000 decrease in other income primarily due to a $172,000 incentive related to check order volumes received in the first quarter of 2024.

Previous wording

The increase in noninterest income of $3.2 million in the first quarter of 2024, compared to the first quarter of 2023, is primarily due to a $291,000 increase in wealth management income primarily due to an increase in advisory fees, a $590,000 increase in mortgage banking revenue mainly due to a $619,000 increase in MSRs mark to market gain, $1,000 of realized gains on sales of securities in the first quarter of 2024 compared to realized losses on the sale of securities of $1.7 million in the first quarter of 2023, a $930,000 increase in the cash surrender value of BOLI, and a $132,000 increase in card related income. These increases were partially offset by a $459,000 decrease in other income, as the 2023 period included a one-time credit from a software vendor of $457,000.

Current wording

The increase in noninterest income of $2.9 million in the second quarter of 2024, compared to the second quarter of 2023, is primarily due to a $321,000 increase in wealth management income, a $146,000 increase in service charges on deposits, no security sales activity in the second quarter of 2024 compared to net losses on the sale of securities of $1.5 million in the second quarter of 2023, a $402,000 increase in the cash surrender value of BOLI due to changes in market interest rates, and an $893,000 death benefit realized on BOLI. These increases were partially offset by a $261,000 decrease in residential mortgage banking revenue mainly due to a decrease of $334,000 in MSRs mark to market valuation, and a $113,000 decrease in card related income.

Previous wording

2* Theadjusted efficiency ratioshown in the table above is a non-GAAP financial measure calculated as noninterest expense, excluding amortization of core deposits, OREO expenses, litigation expense, and net gains on branch sales, divided by the sum of net interest income on a fully tax equivalent basis, total noninterest income less net gains or losses on securities, 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 46 that provides a reconciliation of this non-GAAP financial measure to the most comparable GAAP equivalent.*

Current wording

2* Theadjusted efficiency ratioshown in the table above is a non-GAAP financial measure calculated as noninterest expense, excluding amortization of core deposits, OREO expenses, litigation expense, and net gains on branch sales, 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 benefits realized on BOLI, 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 51 that provides a reconciliation of this non-GAAP financial measure to the most comparable GAAP equivalent.*

Previous wording

The year over year increase in noninterest expense is primarily attributable to a $2.1 million increase in salaries and employee benefits, driven by increases in annual base salary rates, restricted stock expense, officers’ incentives, and deferred employee compensation due to market interest rate changes. Also contributing to the increase was a $452,000 increase in occupancy, furniture and equipment, primarily due to branch remodeling and offset by net gains on sales of branches in 2023, and a $481,000 increase in computer and data processing partially due to core processor credits received in 2023. Partially offsetting the increase in noninterest expense in the first quarter of 2024, compared to the first quarter of 2023, was a $93,000 decrease in legal fees, a $454,000 decrease in consulting & management fees, and a $260,000 decrease in OREO related expenses.

Current wording

The year over year increase in noninterest expense is primarily attributable to a $1.6 million increase in salaries and employee benefits, primarily due to increases in annual base salary rates, restricted stock expense, and deferred employee compensation due to market interest rate changes. Also contributing to the increase was a $260,000 increase in occupancy, furniture and equipment due to facilities improvements year over year, an $894,000 increase in computer and data processing primarily due to credits from our core data provider in the prior year period, a $369,000 increase in advertising expense, a $101,000 increase in card related expense, and a $277,000 increase in consulting & management fees. Partially offsetting the increases in noninterest expense in the second quarter of 2024, compared to the second quarter of 2023, was a $178,000 decrease in FDIC insurance, and a $293,000 decrease in other expenses.

Previous wording

We recorded income tax expense of $7.2 million for the first quarter of 2024 on $28.5 million of pretax income, compared to income tax expense of $6.7 million on $24.9 million of pretax income in the fourth quarter of 2023, and income tax expense of $8.4 million on $32.0 million of pretax income in the first quarter of 2023. Our effective tax rate was 25.3% in the first quarter of 2024, 26.9% for the fourth quarter of 2023, and 26.3% for the first quarter of 2023. The slight reduction in the effective tax rate for the first quarter of 2024 reflects the impact of credits to tax expense related to vested stock awards in the first quarter 2024, which occurs annually each February; these stock awards were larger in the first quarter of 2024 than the like 2023 period.

Current wording

We recorded income tax expense of $7.3 million for the second quarter of 2024 on $29.2 million of pretax income, compared to income tax expense of $7.2 million on $28.5 million of pretax income in the first quarter of 2024, and income tax expense of $9.4 million on $35.0 million of pretax income in the second quarter of 2023. Our effective tax rate was 25.0% in the second quarter of 2024, 25.3% for the first quarter of 2024, and 26.9% for the second quarter of 2023.

Previous wording

Total assets decreased $106.7 million to $5.62 billion at March 31, 2024, from $5.72 billion at December 31, 2023, due primarily to the decrease of $24.0 million in securities available-for-sale, the decrease of $73.5 million in total loans, and the $5.6 million decrease in other assets. The decrease in securities available-for-sale was primarily due to paydowns and strategic sales. These decreases were partially offset by increases in premises and equipment of $2.0 million and BOLI of $1.2 million. We continue to actively assess potential investment opportunities to utilize our excess liquidity. Total deposits were $4.61 billion at March 31, 2024, an increase of $37.5 million from December 31, 2023, primarily due to seasonal tax refunds, as well as deposit rate specials.

Current wording

Total assets decreased $60.1 million to $5.66 billion at June 30, 2024, from $5.72 billion at December 31, 2023, due primarily to the decrease of $19.2 million in securities available-for-sale and the decrease of $66.4 million in total loans. The decrease in securities available-for-sale and loans is primarily due to maturities and paydowns. These decreases were partially offset by increases in cash and cash equivalents of $20.7 million, increases in premises and equipment of $3.6 million, increases in other real estate owned of $1.8, and increases in BOLI of $1.2 million. We continue to actively assess potential investment opportunities to utilize our excess liquidity. Total deposits were $4.52 billion at June 30, 2024, a decrease of $49.0 million from December 31, 2023.

Previous wording

Securities available-for-sale decreased $24.0 million as of March 31, 2024 compared to December 31, 2023, and decreased $286.3 million compared to March 31, 2023. The decrease in the portfolio during the first quarter of 2024 was driven by paydowns totaling $30.7 million, securities sales totaling $5.3 million, and maturities totaling $2.0 million, partially offset by $15.7 million in purchases. We continue to seek to position the portfolio in higher credit quality, shorter duration securities with an appropriate mix of fixed- and floating-rate exposures.

Current wording

Securities available-for-sale decreased $19.2 million as of June 30, 2024, compared to December 31, 2023, and decreased $162.0 million compared to June 30, 2023. The decrease in the portfolio during year to date 2024 was driven by paydowns totaling $74.7 million, securities sales totaling $5.3 million, and maturities totaling $97.0 million, partially offset by $157.9 million in purchases. We continue to position the portfolio in higher credit quality, shorter duration securities with an appropriate mix of fixed- and floating-rate exposures.

Previous wording

Total loans were $3.97 billion as of March 31, 2024, a decrease of $73.5 million from December 31, 2023. The decrease in total loans in the first three months of 2024, compared to December 31, 2023, was due primarily to paydowns, net of originations, within commercial of $45.1 million, commercial real estate – investor of $16.0 million and multifamily of $14.2 million offset by net increases in leases of $27.4 million from December 31, 2023. Total loans decreased $33.9 million from March 31, 2023 to March 31, 2024, primarily due to paydowns, net of originations, within commercial of $55.2 million, commercial real estate - investor of $38.4 million, and commercial real estate – owner occupied of $87.5 million, offset by net increases in leases of $139.8 million and multifamily of $28.5 million. 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.

Current wording

Total loans were $3.98 billion as of June 30, 2024, a decrease of $66.4 million from December 31, 2023. The decrease in total loans in the first six months of 2024, compared to December 31, 2023, was due primarily to paydowns, net of originations, within commercial real estate – owner occupied of $50.6 million, commercial of $32.3 million, commercial real estate – investor of $20.1 million and multifamily of $13.0 million, partially offset by net increases in leases of $54.7 million and construction of $20.3 million. Total loans decreased $38.9 million from June 30, 2023, to June 30, 2024, primarily due to paydowns, net of originations, within commercial real estate – owner occupied of $78.3 million, commercial real estate - investor of $65.7 million, and commercial of $10.6 million, partially offset by net increases in leases of $138.0 million. 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.

Previous wording

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 68.7% of the portfolio as of March 31, 2024, compared to 68.8% of the portfolio as of December 31, 2023. At March 31, 2024, our outstanding commercial real estate loans and undrawn commercial real estate commitments, excluding owner occupied real estate were equal to 268.8% of our Tier 1 capital plus allowance for credit losses, a decrease from 286.9% at December 31, 2023. We continue to oversee and seek to manage our loan portfolio in accordance with interagency guidance on risk management.

Current wording

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 68.0% of the portfolio as of June 30, 2024, compared to 68.8% of the portfolio as of December 31, 2023. At June 30, 2024, our outstanding commercial real estate loans and undrawn commercial real estate commitments, excluding owner occupied real estate, were equal to 259.7% of our Tier 1 capital plus allowance for credit losses, a decrease from 286.9% at December 31, 2023. We continue to oversee and seek to manage our loan portfolio in accordance with interagency guidance on risk management.

Previous wording

Nonperforming loans consist of nonaccrual loans and loans 90 days or greater past due. Nonperforming loans decreased by $3.7 million to $65.1 million at March 31, 2024 from $68.8 million at December 31, 2023 and increased $586,000 from $64.5 million at March 31, 2023. 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 and their related deferred loan costs 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 1.6% as of March 31, 2024, 1.7% as of December 31, 2023, and 1.6% as of March 31, 2023. The distribution of our nonperforming loans is shown in the following table.

Current wording

Nonperforming loans consist of nonaccrual loans and loans 90 days or greater past due. Nonperforming loans decreased by $21.9 million to $46.9 million at June 30, 2024 from $68.8 million at December 31, 2023, and decreased $14.4 million from $61.2 million at June 30, 2023. 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 and their related deferred loan costs 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 1.2% as of June 30, 2024, 1.7% as of December 31, 2023, and 1.5% as of June 30, 2023. The distribution of our nonperforming loans is shown in the following table.

Previous wording

Loan charge-offs, net of recoveries, for the first quarter of 2024, prior linked quarter and year over year quarter are shown in the following table.

Current wording

Loan charge-offs, net of recoveries, for the second quarter of 2024, prior linked quarter and year over year quarter are shown in the following table.

Previous wording

Net charge-offs of $3.7 million were recorded for the first quarter of 2024, compared to net charge-offs of $15.5 million for the fourth quarter of 2023, and net charge-offs of $740,000 for the first quarter of 2023, reflecting continuing management attention to credit quality and remediation efforts. The net charge-offs for the first quarter of 2024 were primarily due to a $3.9 million charge off of a commercial real estate – owner occupied loan. The commercial real estate – owner occupied credit had a reported reserve allocation of $3.9 million prior to the first quarter of 2024 charge-off. We have continued our conservative loan valuations and aggressive recovery efforts on prior charge-offs.

Current wording

Net charge-offs of $5.8 million were recorded for the second quarter of 2024, compared to net charge-offs of $3.7 million for the first quarter of 2024, and net charge-offs of $505,000 for the second quarter of 2023, reflecting continuing management attention to credit quality and remediation efforts. The net charge-offs for the second quarter of 2024 were primarily due to three commercial real estate – investor charge offs totaling $4.6 million and a $1.3 million charge off of a commercial real estate – owner occupied loan. The commercial real estate – owner occupied credit had a reported reserve allocation of $1.2 million prior to the second quarter of 2024 charge-off. We have continued our conservative loan valuations and aggressive recovery efforts on prior charge-offs.

Previous wording

Total classified loans and classified assets increased $2.7 million as of March 31, 2024 from December 31, 2023. The increase since December 31, 2023 is due to the additions of $15.9 million, the majority of which consisted of three relationships totaling $14.7 million. Commercial loans were the majority of the additions, consisting of seven loans totaling $11.6 million and one relationship in commercial real estate – owner occupied totaling $3.3 million. The additions are offset by $13.2 million of outflows, most driven by $6.3 million of loan rating upgrades, and a $3.9 million partial charge off. The increase from March 31, 2023 is primarily due to additions to commercial real estate – owner occupied. 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 21.33% for the period ended March 31, 2024, compared to 21.66% as of December 31, 2023, and 20.04% as of March 31, 2023.

Current wording

Total classified loans and classified assets decreased $10.4 million and $8.6 million as of June 30, 2024, from December 31, 2023, respectively. The decrease since December 31, 2023, is due to outflows of $40.3 million which consisted of $11.9 million loans paid off, $9.8 million charged off, $8.7 million of classified loans upgraded, $6.5 million of principal reductions through payments, and $3.4 million that transferred to OREO. The outflows are offset by the additions of $29.9 million, the majority of which consisted of five relationships totaling $28.2 million. Commercial loans were the majority of the additions, consisting of twelve loans totaling $18.6 million. The increase from June 30, 2023 is primarily due to additions to commercial real estate – owner occupied. 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 18.98% for the period ended June 30, 2024, compared to 21.66% as of December 31, 2023, and 20.46% as of June 30, 2023.

Previous wording

At March 31, 2024, our ACL on loans totaled $44.1 million, and our ACL on unfunded commitments, included in other liabilities, totaled $2.7 million. In the first quarter of 2024, we recorded provision expense on loans of $3.5 million, based on historical loss rates, our assessment of nonperforming loan metrics and trends, downward risk rating migrations, and estimated future credit losses, and a $44,000 reversal of provision 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 $3.5 million net impact to the provision for credit losses for the first quarter of 2024.

Current wording

At June 30, 2024, our ACL on loans totaled $42.3 million, and our ACL on unfunded commitments, included in other liabilities, totaled $2.5 million. In the second quarter of 2024, we recorded provision expense on loans of $4.0 million, based on historical loss rates, our assessment of nonperforming loan metrics and trends, downward risk rating migrations, and estimated future credit losses, and a $199,000 reversal of provision 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 $3.8 million net impact to the provision for credit losses for the second quarter of 2024.

Previous wording

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 $44.1 million as of March 31, 2024, $44.3 million as of December 31, 2023, and $53.4 million as of March 31, 2023. Our ACL on loans to total loans was 1.1% as of March 31, 2024, compared to 1.1% as of December 31, 2023 and 1.3% as of March 31, 2023. See Item 7 –* Critical Accounting Estimates*in the Management Discussion and Analysis in our 2023 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.

Current wording

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 $42.3 million as of June 30, 2024, $44.3 million as of December 31, 2023, and $55.3 million as of June 30, 2023. Our ACL on loans to total loans was 1.1% as of June 30, 2024, and December 31, 2023, and 1.4% as of June 30, 2023. See Item 7 –* Critical Accounting Estimates*in the Management Discussion and Analysis in our 2023 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.

Previous wording

The coverage ratio of the ACL on loans to nonperforming loans was 67.8% as of March 31, 2024, which was an increase from the coverage ratio of 64.4% as of December 31, 2023 and a decrease from 82.7% as of March 31, 2023. When measured as a percentage of average loans, our total ACL on loans was 1.10% at March 31, 2024, 1.10% at December 31, 2023, and 1.36% at March 31, 2023.

Current wording

The coverage ratio of the ACL on loans to nonperforming loans was 90.2% as of June 30, 2024, which was an increase from the coverage ratio of 67.8% as of March 31, 2024, and a slight decrease from 90.3% as of June 30, 2023. When measured as a percentage of quarter to date average loans, our total ACL on loans was 1.07% at June 30, 2024, 1.10% at March 31, 2024, and 1.37% at June 30, 2023.

Previous wording

As of March 31, 2024, OREO totaled $5.1 million, reflecting no change from December 31, 2023, and an increase of $3.9 million from $1.3 million at March 31, 2023. There were no property additions or disposals in the OREO portfolio in the first quarter of 2024. No valuation adjustments occurred in the first quarter of 2024 or in the fourth quarter of 2023. In the first quarter of 2023, we recorded two write-downs totaling $273,000 as well as a write-up for $4,000, totaling a net $269,000 increase in valuation reserve.

Current wording

As of June 30, 2024, OREO totaled $6.9 million, reflecting an increase of $1.8 million from $5.1 million at December 31, 2023, and an increase of $6.2 million from $761,000 at June 30, 2023. There were two property additions totaling $3.4 million and one disposal totaling $1.6 million in the OREO portfolio during the second quarter of 2024. No valuation adjustments occurred in the second quarter of 2024, the fourth quarter of 2023, or the second quarter of 2023.

Previous wording

Total deposits were $4.61 billion at March 31, 2024, which reflects a $37.5 million increase from total deposits of $4.57 billion at December 31, 2023, and a decrease of $288.9 million from total deposits of $4.90 billion at March 31, 2023. The increase in deposits at March 31, 2024, compared to December 31, 2023, was primarily due to increases in time deposits of $58.7 million and money market and NOW accounts of $29.6 million, partially offset by decreases in noninterest bearing deposits of $35.0 million and savings accounts of $15.8 million. The decrease in deposits at March 31, 2024, compared to March 31, 2023, was primarily due to decreases in noninterest bearing deposits of $150.2 million, savings accounts of $153.1 million, and money market accounts of $102.9 million, partially offset by an increase in time deposits of $155.7 million. Total quarterly average deposits decreased $417.9 million, or 8.4%, in the year over year period, driven by declines in our average demand deposits of $183.3 million, and savings, NOW and money markets combined of $358.4 million, partially offset by an increase in average time deposits of $123.8 million year over year. In general, the bulk of the decline in deposits year over year can be characterized as rate sensitive with significant flows and transfers into investing activities.

Current wording

Total deposits were $4.52 billion at June 30, 2024, which reflects a $49.0 million decrease from total deposits of $4.57 billion at December 31, 2023, and a decrease of $195.9 million from total deposits of $4.72 billion at June 30, 2023. The decrease in deposits at June 30, 2024, compared to December 31, 2023, was primarily due to decreases in non-interest bearing deposits of $106.4 million, savings accounts of $62.5 million, and NOW accounts of $7.9 million, partially offset by an increase of $23.9 million in money market accounts, and $103.9 million in time deposits. The decrease in deposits at June 30, 2024, compared to June 30, 2023, was primarily due to decreases in non-interest bearing deposits of $169.2 million, savings accounts of $141.6 million, NOW accounts of $28.7 million, and money market accounts of $36.3 million, partially offset by an increase in time deposits of $180.0 million. Total quarterly average deposits decreased $217.9 million, or 4.6%, in the year over year period, driven by declines in our average demand deposits of $150.9 million, and savings, NOW and money markets combined of $241.2 million. In general, the bulk of the decline in deposits year over year can be characterized as rate sensitive with significant flows and transfers into investing activities.

Previous wording

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. Securities sold under repurchase agreements totaled $33.5 million at March 31, 2024, a $7.1 million, or 26.7%, increase from $26.5 million at December 31, 2023, and an increase of $5.6 million, or 20.2%, from March 31, 2023. The outstanding balance of our short-term FHLBC borrowings was $220.0 million as of March 31, 2024, $405.0 million as of December 31, 2023, and $315.0 million as of March 31, 2023.

Current wording

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. Securities sold under repurchase agreements totaled $46.5 million at June 30, 2024, a $20.1 million, or 75.8%, increase from $26.5 million at December 31, 2023, and an increase of $15.0 million, or 47.6%, from June 30, 2023. The outstanding balance of our short-term FHLBC borrowings was $330.0 million as of June 30, 2024, $405.0 million as of December 31, 2023, and $485.0 million as of June 30, 2023.

Previous wording

We are also indebted on $25.8 million of junior subordinated debentures, net of deferred issuance costs, as of March 31, 2024, 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 the total interest rate paid on this debt of 4.37% as of March 31, 2024, as compared to 6.77%, which was the rate paid during the period prior to the June 15, 2017 rate reset.

Current wording

We are also indebted on $25.8 million of junior subordinated debentures, net of deferred issuance costs, as of June 30, 2024, 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 the total interest rate paid on this debt of 4.43% as of June 30, 2024, as compared to 6.77%, which was the rate paid during the period prior to the June 15, 2017, rate reset.

Previous wording

As of March 31, 2024, total stockholders’ equity was $596.2 million, which was an increase of $18.9 million from $577.3 million as of December 31, 2023. This increase was largely attributable to net income of $21.3 million in the first three months of 2024, partially offset by $2.2 million of dividends paid to our common stockholders. In addition, total stockholders’ equity as of March 31, 2024 increased over December 31, 2023, due to a reduction in unrealized net losses on available-for-sale securities, which contributed to the overall decrease in accumulated other comprehensive loss of $580,000 in the first three months of 2024, due to changes in market interest rates. Total stockholders’ equity as of March 31, 2024 increased $99.3 million compared to March 31, 2023 due to net income year over year and the decrease in accumulated other comprehensive loss of $15.7 million year over year.

Current wording

As of June 30, 2024, total stockholders’ equity was $619.3 million, which was an increase of $42.1 million from $577.3 million as of December 31, 2023. This increase was largely attributable to net income of $43.2 million in the first six months of 2024, partially offset by $4.5 million of dividends paid to our common stockholders. In addition, total stockholders’ equity as of June 30, 2024, increased over December 31, 2023, due to a reduction in unrealized net losses on available-for-sale securities, which contributed to the overall decrease in accumulated other comprehensive loss of $2.0 million in the first six months of 2024, due to changes in market interest rates. Total stockholders’ equity as of June 30, 2024, increased $105.4 million compared to June 30, 2023 due to net income year over year and the decrease in accumulated other comprehensive loss of $25.4 million year over year.

Previous wording

As part of its response to the impact of the COVID-19 pandemic, in the first quarter of 2020, U.S. federal regulatory authorities issued an interim final rule that provided banking organizations that adopted CECL during the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay (i.e., a five-year transition in total). In connection with our adoption of CECL on January 1, 2020, we elected to utilize the five-year CECL transition. As of March 31, 2024, our capital measures exclude $951,000, which is the modified CECL transition adjustment.

Current wording

As part of its response to the impact of the COVID-19 pandemic, in the first quarter of 2020, U.S. federal regulatory authorities issued an interim final rule that provided banking organizations that adopted CECL during the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay (i.e., a five-year transition in total). In connection with our adoption of CECL on January 1, 2020, we elected to utilize the five-year CECL transition. As of June 30, 2024, our capital measures listed above include $951,000, which is the modified CECL transition adjustment.

Previous wording

As of March 31, 2024, the Company, on a consolidated basis, 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 measurement for capital analysis and peer comparisons, increased from 10.09% at December 31, 2023, to 10.62% at March 31, 2024. Our GAAP tangible common equity to tangible assets ratio was 9.04% at March 31, 2024, compared to 8.53% as of December 31, 2023. Our non-GAAP tangible common equity to tangible assets ratio, which management also considers a valuable performance measurement for capital analysis, increased from 8.56% at December 31, 2023, to 9.08% at March 31, 2024, primarily due to an increase in tangible common equity in the first quarter of 2024. The increase in tangible common equity was primarily due to an increase in retained earnings of $19.1 million.

Current wording

As of June 30, 2024, the Company, on a consolidated basis, 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 measurement for capital analysis and peer comparisons, increased from 10.09% at December 31, 2023, to 10.94% at June 30, 2024. Our GAAP tangible common equity to tangible assets ratio was 9.39% at June 30, 2024, compared to 8.53% as of December 31, 2023. Our non-GAAP tangible common equity to tangible assets ratio, which management also considers a valuable performance measurement for capital analysis, increased from 8.56% at December 31, 2023, to 9.43% at June 30, 2024, primarily due to an increase in tangible common equity in the second quarter of 2024. The increase in tangible common equity was primarily due to an increase in retained earnings of $38.7 million.

Previous wording

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. In the first quarter of 2024, we experienced a decrease in loans, while deposits trended up as the rates offered on our deposit products remain competitive to peers. We managed the change in our funding through borrowing from the Federal Home Loan Bank of Chicago (“FHLBC”) and sales of securities, which resulted in minimal losses and mitigated our interest rate risk profile. The bank failures that occurred in 2023 exemplify the potentially serious results of the unexpected inability of insured depository institutions to obtain needed liquidity to satisfy deposit withdrawal requests, including how quickly such requests can accelerate once uninsured depositors lose confidence in an institution’s ability to satisfy its obligations to depositors. 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, 2024, our cash on hand liquidity totaled $98.1 million, a decrease of $2.1 million over cash balances held as of December 31, 2023.

Current wording

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. In the second quarter of 2024, we experienced a decrease in loans and deposits. We managed the change in our funding through a reduction in average borrowings from the Federal Home Loan Bank of Chicago (“FHLBC”) in the current year to date period, compared to the prior year like period, which resulted in a minimal interest expense impact to our interest rate risk profile. The bank failures that occurred in 2023 exemplify the potentially serious results of the unexpected inability of insured depository institutions to obtain needed liquidity to satisfy deposit withdrawal requests, including how quickly such requests can accelerate once uninsured depositors lose confidence in an institution’s ability to satisfy its obligations to depositors. 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 June 30, 2024, our cash on hand liquidity totaled $120.9 million, an increase of $20.7 million over cash balances held as of December 31, 2023.

Previous wording

Net cash inflows from operating activities were $47.3 million during the first three months of 2024, compared with net cash inflows of $35.0 million in the same period of 2023. Proceeds from sales of loans held-for-sale, net of funds used to originate loans held-for-sale, were a source of inflows for the first three months of 2024 compared to a source of outflows for the like period of 2023. Interest paid, net of interest received, combined with changes in other assets and liabilities were a source of inflows for the three months ended March 31, 2024 and source of outflows for the like period of 2023. 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.

Current wording

Net cash inflows from operating activities were $59.0 million during the first six months of 2024, compared with net cash inflows of $5.6 million in the same period of 2023. Proceeds from sales of loans held-for-sale, net of funds used to originate loans held-for-sale, were a source of outflows for the first six months of 2024 and 2023. Interest paid, net of interest received, combined with changes in other assets and liabilities were a source of inflows for the six months ended June 30, 2024, and a source of outflows for the like period of 2023. 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.

Previous wording

Net cash inflows from investing activities were $93.9 million in the three months ended March 31, 2024, compared to net cash outflows of $42.9 million in the same period in 2023. In the first three months of 2024, securities transactions accounted for net inflows of $22.3 million, and the principal change on loans accounted for net inflows of $70.0 million. In the first three months of 2023, securities transactions accounted for net inflows of $99.7 million, and principal on loans funded, net of paydowns, accounted for net outflows of $132.4 million.

Current wording

Net cash inflows from investing activities were $70.8 million in the six months ended June 30, 2024, compared to net cash inflows of $49.0 million in the same period in 2023. In the first six months of 2024, securities transactions accounted for net inflows of $19.2 million, and the principal change on loans accounted for net inflows of $54.0 million. In the first six months of 2023, securities transactions accounted for net inflows of $210.0 million, and principal on loans funded, net of paydowns, accounted for net outflows of $144.0 million.

Previous wording

Net cash outflows from financing activities in the three months ended March 31, 2024, were $143.2 million, compared with net cash outflows of $4.2 million in the three months ended March 31, 2023. Net deposit inflows in the first three months of 2024 were $37.6 million compared to net deposit outflows of $213.1 million in the first three months of 2023. Other short-term borrowings had $185.0 million of net cash outflows in the first three months of 2024, compared to net cash inflows of $225.0 million for other short-term borrowings in the first three months of 2023. Changes in securities sold under repurchase agreements accounted for inflows of $7.1 million and outflows of $4.3 million for the three months ended March 31, 2024 and 2023, respectively. Dividends paid on our common stock totaled $2.2 million for both the three months ended March 31, 2024 and 2023. Vesting of restricted stock accounted for inflows of $99,000 in the three months ended March 31, 2024, compared to no cash flows from vestings of restricted stock in the same period of 2023. The purchase of treasury stock in the first three months of 2024 due to shares acquired with equity award vestings resulted in outflows of $776,000, compared to cash outflows of $605,000 in the first three months of 2023 related to shares acquired from equity award vestings.

Current wording

Net cash outflows from financing activities in the six months ended June 30, 2024, were $109.1 million, compared with net cash outflows of $57.1 million in the six months ended June 30, 2023. Net deposit outflows in the first six months of 2024 were $48.9 million compared to net deposit outflows of $392.4 million in the first six months of 2023. Other short-term borrowings had $75.0 million of net cash outflows in the first six months of 2024, compared to net cash inflows of $395.0 million for other short-term borrowings in the first six months of 2023. Changes in securities sold under repurchase agreements accounted for inflows of $20.1 million and outflows of $624,000 for the six months ended June 30, 2024 and 2023, respectively. Dividends paid on our common stock totaled $4.5 million for both the six months ended June 30, 2024 and 2023. The purchase of treasury stock in the first six months of 2024 due to shares acquired with equity award vestings resulted in outflows of $791,000, compared to cash outflows of $605,000 in the first six months of 2023 related to shares acquired from equity award vestings.

Previous wording

Cash and cash equivalents for the three months ended March 31, 2024, totaled $98.1 million, as compared to $100.1 million as of December 31, 2023 and $103.0 million as of March 31, 2023. The decrease in cash and cash equivalents for the three months ended March 31, 2024 was mainly attributable to the decrease in FHLB advances during the period, partially offset by the decrease in our loan portfolio, sales of securities, and the increase in customer deposits during the first three months of 2024. The year over year decrease is driven by decreased FHLB advances and increased customer use of deposits, partially offset by a decline in loans and sales of securities. 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 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.

Current wording

Cash and cash equivalents for the six months ended June 30, 2024, totaled $120.9 million, as compared to $100.1 million as of December 31, 2023, and $112.6 million as of June 30, 2023. The increase in cash and cash equivalents for the six months ended June 30, 2024 was mainly attributable to the decrease in our loan and securities portfolios, partially offset by the decrease in customer deposits and other short-term borrowings during the first six months of 2024. The year over year cash and cash equivalents increase is driven by the decline in loans and securities, partially offset by decreased customer use of deposits and a reduction in other short-term borrowings. 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.