OLD SECOND BANCORP INC

Previous wording

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

Current wording

The following discussion provides additional information regarding our operations for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, and our financial condition at March 31, 2025, compared to December 31, 2024. 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, 2024. The results of operations for the three months ended March 31, 2025, are not necessarily indicative of future results. Dollar amounts presented in the following tables are in thousands, except per share data, and March 31, 2025 and 2024 amounts are unaudited.

Previous wording

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, we offer a wide range of financial services through our 48 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 includes 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.

Current wording

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, we offer a wide range of financial services through our 53 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 includes 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.

Previous wording

Net income for the third quarter of 2024 was $23.0 million, or $0.50 per diluted share, compared to $24.3 million, or $0.54 per diluted share, for the third quarter of 2023. The reduction in net income was primarily due to a decrease in net interest and dividend income of $2.5 million year over year driven by a $4.3 million increase to interest expense as a result of higher interest rates offered on deposits, partially offset by increased interest and dividend income of $1.8 million and lower short-term borrowing expense. Also contributing to the decrease in net income compared to the prior year like quarter was an increase in noninterest expenses of $1.9 million, partially offset by a decrease in provision for credit losses of $1.0 million, an increase in noninterest income of $704,000, and a decrease in provision for income taxes of $1.2 million. Adjusted net income, a non-GAAP financial measure that excludes certain nonrecurring items, as applicable, was $23.3 million for the third quarter of 2024, compared to $21.0 million for the second quarter of 2024, and $24.8 million for the third quarter of 2023.

Current wording

Net income for the first quarter of 2025 was $19.8 million, or $0.43 per diluted share, compared to $19.1 million, or $0.42 per diluted share, for the fourth quarter of 2024, and $21.3 million, or $0.47 per diluted share, for the first quarter of 2024. The reduction in net income compared to the prior year like period was primarily due to an increase in noninterest expense of $6.3 million and a $300,000 decrease in noninterest income. Partially offsetting these negative impacts on net income in the first quarter of 2025 was an increase in net interest and dividend income of $3.1 million year over year driven by a $2.9 million decrease to interest expense primarily due to lower short-term borrowing expense, a $235,000 increase in interest and dividend income, a $1.1 million decrease in provision for credit losses, and an $861,000 decrease in provision for income taxes. Adjusted net income, a non-GAAP financial measure that excludes mortgage servicing rights mark to market activity and certain nonrecurring items, as applicable, was $20.6 million for the first quarter of 2025, compared to $20.0 million for the fourth quarter of 2024, and $21.2 million for the first quarter of 2024.

Previous wording

Net income for the nine months ended September 30, 2024 was $66.2 million, or $1.45 per diluted share, compared to $73.5 million, or $1.62 per diluted share, for the nine months ended September 30, 2023. Adjusted net income was $65.6 million for the nine months ended September 30, 2024, compared to $73.8 million for the nine months ended September 30, 2023. See the discussion entitled “Non-GAAP Financial Measures” on page 43, as well as the table below, which provides a reconciliation of this non-GAAP measure to the most comparable GAAP equivalents.

Current wording

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.

Previous wording

Our income before taxes was $29.9 million in the third quarter of 2024 compared to $32.5 million in the third quarter of 2023. This decrease in pretax income was primarily due to a $2.5 million decrease in net interest and dividend income and a $1.9 million increase in noninterest expenses. Income before taxes was positively impacted by a $1.0 million decrease in provision for credit losses, and a $704,000 increase in noninterest income, primarily due to a minimal loss on the call of a security in the third quarter of 2024 compared to $924,000 of security losses, net, in the third quarter of 2023, as well as a $571,000 increase in other income. The noninterest expense increase of $1.9 million is primarily due to a $1.6 million increase in salary and employee benefits expense, a $370,000 increase in occupancy, furniture and equipment, a $453,000 increase in computer and data processing expenses primarily due to First Merchants acquisition related costs, a $206,000 increase in advertising expense, and a $269,000 increase in OREO related expenses. Our net income was $23.0 million, or $0.50 per diluted share, for the third quarter of 2024, compared to net income of $24.3 million, or $0.54 per diluted share, for the third 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.

Current wording

Our income before taxes was $26.2 million in the first quarter of 2025 compared to $28.5 million in the first quarter of 2024. This decrease in pretax income was primarily due to a $6.3 million increase in noninterest expense and a $300,000 decrease in noninterest income. Income before taxes was positively impacted by a $2.9 million decrease in interest expense, and a $1.1 million decrease in provision for credit losses. The noninterest expense increase of $6.3 million is primarily due to a $2.7 million increase in salary and employee benefits expense, a $621,000 increase in occupancy, furniture and equipment, a $457,000 increase in amortization of core deposit intangibles, a $246,000 increase in legal fees, and a $1.8 million increase in OREO related expenses. Our net income was $19.8 million, or $0.43 per diluted share, for the first quarter of 2025, compared to net income of $21.3 million, or $0.47 per diluted share, for the first quarter of 2024. 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

The increased yield of 16 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, as well as the securities maturity, paydown and purchase activities.

Current wording

Yield on earnings assets decreased two basis points compared to the linked period, which was primarily driven by repricing within the securities and loan portfolios and, to a lesser extent, higher volumes of interest earning deposits with financial institutions, which were partially offset by a reduction in yields. Changes in the market interest rate environment impact earning assets at varying intervals depending on the repricing timeline of securities and loans, as well as the securities maturity, security and loan paydowns and security purchase activities.

Previous wording

The year over year increase of 34 basis points on interest earning assets was primarily driven by overall increases to benchmark interest rates over the past twelve months, primarily impacting variable rate loans and securities. Average balances of securities available for sale decreased $121.3 million in the third quarter of 2024 compared to the prior year like quarter, while the tax equivalent yield on the securities available for sale portfolio increased 38 basis points year over year due to variable security rate resets. Although average balances of loans and loans held-for-sale decreased $44.1 million, the tax equivalent yield on the loan portfolio increased 28 basis points in the year over year like quarters.

Current wording

The year over year increase of nine basis points on interest earning assets was primarily driven by overall increases to benchmark interest rates over the past twelve months, primarily impacting variable rate loans and securities. Average balances of securities available for sale decreased $1.6 million in the first quarter of 2025 compared to the prior year like quarter, while the tax equivalent yield on the securities available for sale portfolio increased 41 basis points year over year primarily due to variable security rate resets. Average balances of loans and loans held for sale decreased $60.3 million in the first quarter of 2025 compared to the prior year like quarter, while the tax equivalent yield on loans and loans held for sale increased four basis points.

Previous wording

Average balances of interest-bearing deposit accounts have declined since the second quarter of 2024, from $2.81 billion to $2.79 billion. The decline was driven by NOW and savings accounts while average balances on time deposits increased due to CD rate specials. We have continued to control the cost of funds over the periods reflected by slowing the pace of change; however, the rate of overall interest-bearing deposits increased to 148 basis points for the quarter ended September 30, 2024, from 133 basis points for the quarter ended June 30, 2024, and from 65 basis points for the quarter ended September 30, 2023. A 17 basis point increase in the cost of money market funds for the quarter ended September 30, 2024 compared to the prior linked quarter, and a 90 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. Although there was a decrease in transactional account average balances from the prior year like quarter for NOW and savings accounts, average rates paid on these balances increased. Average rates paid on time deposits for the quarter ended September 30, 2024 increased by 11 basis points and 169 basis points in the quarter over linked quarter and year over year quarters, respectively, primarily due to CD rate specials we offered. Average balances on time deposits increased $185.4 million in the year over year quarters, and the growth in rates and average balances resulted in an increase to interest expense on time deposits of $3.6 million.

Current wording

Average balances of interest bearing deposit accounts have increased steadily since the fourth quarter of 2024 through the first quarter of 2025, from $2.89 billion to $3.10 billion, as NOW, money market, savings, and time account average balances all increased due to the impact of FRME acquired deposits. We have continued to control the cost of funds over the periods reflected by monitoring market activity as well as allowing previous exception-priced deposits to runoff naturally, which resulted in a 13 basis point reduction in the cost of interest bearing deposits, from 141 basis points for the quarter ended December 31, 2024, to 128 basis points for the quarter ended March 31, 2025. A 52 basis point decrease in the cost of time deposits for the quarter ended March 31, 2025, drove a significant portion of the overall decrease from the prior linked quarter. The cost of interest-bearing deposits increased ten basis points for the quarter ended March 31, 2025, from 118 basis points for the quarter ended March 31, 2024. A 22 basis point increase in the cost of money market accounts drove a significant portion of the overall increase from the prior year like quarter.

Previous wording

Borrowing costs increased in the third quarter of 2024, compared to the second quarter of 2024, primarily due to the $62.6 million increase in average other short-term borrowings stemming from an increase in average daily FHLB advances over the prior quarter. The decrease of $121.7 million year over year of average FHLB advances was based on daily liquidity needs, and was the primary driver of the $1.7 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.

Current wording

Borrowing costs decreased in the first quarter of 2025, compared to the fourth quarter of 2024, primarily due to the $203.3 million decrease in average other short-term borrowings stemming from a decrease in average daily FHLB advances over the prior linked quarter as the remainder of this borrowing was paid down in the first quarter of 2025. The decrease of $330.8 million year over year of average FHLB advances was based on daily liquidity needs and was the primary driver of the $4.6 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.

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 49, and includes loan fee expense of $155,000 for the third quarter of 2024, $936,000 for the second quarter of 2024, and $780,000 for the third 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 48, and includes loan fee income of $545,000 for the first quarter of 2025, loan fee income of $140,000 for the fourth quarter of 2024, and loan fee expense of $867,000 for the first quarter of 2024. Nonaccrual loans are included in the above-stated average balances.

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, acquisition expense, net of gains 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 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 53 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, 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, 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.*

Previous wording

The year over year increase in noninterest expense for the third quarter of 2024 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 $370,000 increase in occupancy, furniture and equipment due to facilities improvements year over year, a $453,000 increase in computer and data processing primarily due to transaction-related costs incurred related to our pending branch purchase from FRME, a $206,000 increase in advertising expense, a $105,000 increase in legal fees largely from merger-related costs, and a $269,000 increase in OREO related expenses. Partially offsetting the increases in noninterest expense in the third quarter of 2024, compared to the third quarter of 2023, was a $1.0 million decrease in other expenses primarily due to $629,000 of liquidation costs recorded in the third quarter of 2023 from the September 2023 Visa credit card portfolio servicing deconversion.

Current wording

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 increases in annual base salary rates, officers’ incentives, and restricted stock expense Also contributing to the increase was a $621,000 increase in occupancy, furniture and equipment, a $457,000 increase in core deposit intangible, and a $246,000 increase in legal fees primarily due to transaction-related costs incurred related to our branch purchase from FRME in December 2024 and our pending acquisition of Bancorp Financial announced in late February 2025. Other increases year over year include a $1.8 million increase in other real estate owned expense, net, related to operating and closing costs as we liquidated two large OREO properties during the first quarter of 2025.

Previous wording

We recorded income tax expense of $6.9 million for the third quarter of 2024 on $29.9 million of pretax income, compared to income tax expense of $7.3 million on $29.2 million of pretax income in the second quarter of 2024, and income tax expense of $8.1 million on $32.5 million of pretax income in the third quarter of 2023. Our effective tax rate was 23.1% in the third quarter of 2024, 25.0% for the second quarter of 2024, and 25.1% for the third quarter of 2023. The reduction in the effective tax rate in the third quarter of 2024 reflects the new state of Illinois ruling regarding tax rate apportionment factors related to income generated from securities or loans originated in other states.

Current wording

We recorded income tax expense of $6.4 million for the first quarter of 2025 on $26.2 million of pretax income, compared to income tax expense of $6.3 million on $25.4 million of pretax income in the fourth quarter of 2024, and income tax expense of $7.2 million on $28.5 million of pretax income in the first quarter of 2024. Our effective tax rate was 24.3% in the first quarter of 2025, 24.7% for the fourth quarter of 2024, and 25.3% for the first quarter of 2024.

Previous wording

Total assets decreased $51.0 million to $5.67 billion at September 30, 2024, from $5.72 billion at December 31, 2023, due primarily to the decrease of $51.9 million in total loans and a $9.0 million decrease in deferred tax assets. Deferred tax assets decreased $9.0 million driven by changes in other accumulated comprehensive income. The decrease in loans was partially offset by an increase in cash and cash equivalents of $15.6 million, increases in premises and equipment of $3.5 million with the build out of a new corporate facility and branches, and an increase in other real estate owned of $3.1 million due to four additions. We continue to actively assess potential investment opportunities to utilize our excess liquidity. Total deposits were $4.47 billion at September 30, 2024, a decrease of $105.3 million from December 31, 2023.

Current wording

Total assets increased $78.3 million to $5.73 billion at March 31, 2025, from $5.65 billion at December 31, 2024, due primarily to the increase of $156.8 million in cash stemming from the FRME acquisition, offset by a decrease in total loans of $41.1 million, a decrease in securities available-for-sale of $15.0 million, and a decrease of $18.7 million of OREO. We continue to actively assess potential investment opportunities to utilize our excess liquidity. Total deposits were $4.85 billion at March 31, 2025, an increase of $84.1 million from December 31, 2024.

Previous wording

Securities available-for-sale decreased $2.0 million as of September 30, 2024, compared to December 31, 2023, and decreased $38.8 million compared to September 30, 2023. The decrease in the portfolio during year to date 2024 was driven by paydowns totaling $106.0 million, securities sales totaling $5.3 million, and maturities totaling $97.0 million, partially offset by $180.6 million in purchases and a $27.9 million reduction 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.

Current wording

Securities available-for-sale decreased $15.0 million as of March 31, 2025, compared to December 31, 2024, and decreased $22.1 million compared to March 31, 2024. The decrease in the portfolio during the first quarter of 2025 was driven by maturities and calls totaling $55.8 million and paydowns totaling $50.6 million; partially offset by $82.9 million in purchases and an $8.9 million decrease to 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.

Previous wording

Total loans were $3.99 billion as of September 30, 2024, a decrease of $51.9 million from December 31, 2023. The decrease in total loans in the first nine months of 2024, compared to December 31, 2023, was due primarily to paydowns, net of originations, within commercial real estate – owner occupied of $78.3 million, commercial of $27.0 million, multifamily of $26.3 million, and residential real estate – owner occupied of $18.0 million, partially offset by net increases in leases of $60.1 million and construction of $41.1 million. Total loans decreased $38.5 million from September 30, 2023, to September 30, 2024, primarily due to paydowns, net of originations, within commercial real estate – owner occupied of $90.8 million, commercial of $20.2 million, and residential real estate – owner occupied of $19.2 million, partially offset by net increases in leases of $103.5 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 $3.94 billion as of March 31, 2025, a decrease of $41.1 million from December 31, 2024. The decrease in total loans in the first three months of 2025, compared to December 31, 2024, was due primarily to paydowns, net of originations, within commercial of $67.6 million, commercial real estate – owner occupied of $13.3 million, and multifamily of $10.1 million, partially offset by net increases in commercial real estate – investor of $26.6 million, leases of $13.7 million, and construction of $4.1 million. Total loans decreased $29.2 million compared to March 31, 2024, primarily due to paydowns, net of originations, within commercial real estate – owner occupied of $112.6 million, commercial of $63.7 million, and multifamily of $46.2 million, partially offset by net increases in leases of $79.8 million, commercial real estate – investor of $87.1 million, and construction of $36.7 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 67.8% of the portfolio as of September 30, 2024, compared to 68.8% of the portfolio as of December 31, 2023. At September 30, 2024, our outstanding commercial real estate loans and undrawn commercial real estate commitments, excluding owner occupied real estate, were equal to 264.0% 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 68.2% of the portfolio as of March 31, 2025, compared to 67.2% of the portfolio as of December 31, 2024. At March 31, 2025, our outstanding commercial real estate loans and undrawn commercial real estate commitments, excluding owner occupied real estate, were equal to 267.5% of our Tier 1 capital plus allowance for credit losses, a decrease from 273.3% at December 31, 2024. 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 $16.5 million to $52.3 million at September 30, 2024, from $68.8 million at December 31, 2023, and decreased $11.0 million from $63.3 million at September 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 1.3% as of September 30, 2024, 1.7% as of December 31, 2023, and 1.6% as of September 30, 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 increased by $4.5 million to $34.8 million at March 31, 2025, from $30.3 million at December 31, 2024, and decreased $30.3 million from $65.1 million at March 31, 2024. 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 0.9% as of March 31, 2025, 0.8% as of December 31, 2024, and 1.6% as of March 31, 2024. The distribution of our nonperforming loans is shown in the following table.

Previous wording

Loan charge-offs, net of recoveries, for the third 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 first quarter of 2025, prior linked quarter and year over year quarter are shown in the following table.

Previous wording

Net recoveries of $155,000 were recorded for the third quarter of 2024, compared to net charge-offs of $5.8 million for the second quarter of 2024, and net charge-offs of $6.6 million for the third quarter of 2023, reflecting continuing management attention to credit quality and remediation efforts. The net recoveries for the third quarter of 2024 were primarily due to a commercial real estate – investor recovery totaling $131,000. We have continued our conservative loan valuations and aggressive recovery efforts on prior charge-offs.

Current wording

Net charge offs of $4.4 million were recorded for the first quarter of 2025, compared to net charge-offs of $4.9 million for the fourth quarter of 2024, and net charge-offs of $3.7 million for the first quarter of 2024, reflecting continuing management attention to credit quality and remediation efforts. The net charge offs for the first quarter of 2025 were primarily due to one charge off on two commercial loans totaling $3.4 million, and one construction loan for $821,000. We have continued our conservative loan valuations and aggressive recovery efforts on prior charge-offs.

Previous wording

Classified loans include nonaccrual loans and accruing substandard loans. Classified assets include both classified loans and OREO. 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 deficiencies remain uncorrected.

Current wording

Classified loans include nonaccrual loans and accruing substandard and doubtful loans. Classified assets include both 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 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.

Previous wording

Total classified loans and classified assets decreased $20.0 million and $16.9 million as of September 30, 2024, from December 31, 2023, respectively. The decrease since December 31, 2023, is due to outflows of $85.7 million which consisted of $32.6 million of loans paid off, $9.9 million of loans charged off, $29.6 million of classified loans upgraded, $9.0 million of principal reductions through payments, and $4.6 million that transferred to OREO. The outflows are offset by the additions of $65.7 million, which commercial loans were the majority of the additions, totaling $38.4 million. The $32.6 million decrease in classified assets from September 30, 2023 to September 30, 2024, is primarily due to outflows to commercial real estate – investor of $32.5 million and commercial real estate – owner occupied of $13.5 million. 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 17.71% for the period ended September 30, 2024, compared to 21.66% as of December 31, 2023, and 23.51% as of September 30, 2023.

Current wording

Total classified loans and classified assets decreased $7.0 million and $25.7 million as of March 31, 2025, from December 31, 2024, respectively. The decrease in classified assets since December 31, 2024, is due to loan outflows of $8.1 million which consisted of $1.7 million of loans paid off, $1.5 million of loans charged off, $481,000 of classified loans upgraded, $4.4 million of principal reductions through payments and partial charge offs, and OREO outflows of $18.7 million on two OREO sales. The outflows are offset by the additions of $1.1 million. The $52.2 million decrease in classified assets compared to March 31, 2024, is primarily due to a classified loan decrease of $50.4 million. Classified loans from March 31, 2024, had outflows of $118.7 million which consisted of $42.4 million of loans paid off, $29.8 million of classified loans upgraded, $7.5 million of loans charged off, $22.1 million of principal reductions, and $17.6 million transferred to OREO. The outflows are offset by additions of $68.3 million from March 31, 2024. 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 13.12% for the period ended March 31, 2025, compared to 17.45% as of December 31, 2024, and 21.33% as of March 31, 2024.

Previous wording

At September 30, 2024, our ACL on loans totaled $44.4 million, and our ACL on unfunded commitments, included in other liabilities, totaled $2.5 million. In the third quarter of 2024, we recorded provision expense on loans of $2.0 million driven by the downgrade of two credits resulting in a higher specific allocation and a slight upward adjustment to a macro-economic forecast, these negative trends were offset by upgrades and payoffs on credits that carried higher loss rates. Further, we recorded a $2,000 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 $2.0 million net impact to the provision for credit losses for the third quarter of 2024.

Current wording

At March 31, 2025, our ACL on loans totaled $41.6 million, and our ACL on unfunded commitments, included in other liabilities, totaled $2.0 million. In the first quarter of 2025, we recorded provision expense on loans of $2.3 million driven by the downgrade of two credits resulting in a reduced specific allocation and a slight upward adjustment to a macro-economic forecast, these negative trends were offset by upgrades and payoffs on credits that carried higher loss rates. The reduction in provision for commercial real estate – owner occupied was driven primarily by two credits moving from substandard to nonaccrual with a higher required pooled reserve than what is required with an individual reserve based on improved property valuations. Further, we recorded a $115,000 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 $2.4 million net impact to the provision for credit losses for the first quarter of 2025.

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 $44.4 million as of September 30, 2024, $44.3 million as of December 31, 2023, and $51.7 million as of September 30, 2023. Our ACL on loans to total loans was 1.1% as of September 30, 2024, and December 31, 2023, and 1.3% as of September 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.

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 $41.6 million as of March 31, 2025, $43.6 million as of December 31, 2024, and $44.1 million as of March 31, 2024. Our ACL on loans to total loans was 1.05% as of March 31, 2025, 1.10% as of December 31, 2024, and 1.11% as of March 31, 2024. See Item 7 –* Critical Accounting Estimates*in the Management Discussion and Analysis in our 2024 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

3* Amount does not include the provision for unfunded commitment liability.*

Current wording

2* Amount does not include the provision for unfunded commitment liability.*

Previous wording

The coverage ratio of the ACL on loans to nonperforming loans was 85.0% as of September 30, 2024, which was a decrease from the coverage ratio of 90.2% as of June 30, 2024, and an increase from 81.7% as of September 30, 2023. When measured as a percentage of quarter to date average loans, our total ACL on loans was 1.12% at September 30, 2024, 1.07% at June 30, 2024, and 1.29% at September 30, 2023.

Current wording

The coverage ratio of the ACL on loans to nonperforming loans was 119.4% as of March 31, 2025, which was a decrease from the coverage ratio of 144.0% as of December 31, 2024, and an increase from 67.8% as of March 31, 2024. Net charge-offs to average loans have remained relatively stable over the past year, at 0.45% for the quarter ended March 31, 2025, 0.49% for the quarter ended December 31, 2024, and 0.37% for the quarter ended March 31, 2024.

Previous wording

In management’s judgment, an adequate ACL has been established to encompass the current lifetime expected credit losses at September 30, 2024, 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, political election results, potential recession, and the war in Ukraine and the conflict in the Middle East, 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.

Current wording

In management’s judgment, an adequate ACL has been established to encompass the current lifetime expected credit losses at March 31, 2025, 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 conflict in the Middle East, 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.

Previous wording

As of September 30, 2024, OREO totaled $8.2 million, reflecting an increase of $3.1 million from $5.1 million at December 31, 2023, and an increase of $7.8 million from $407,000 at September 30, 2023. There were two property additions totaling $1.3 million and one carrying value adjustment of $28,000 in the OREO portfolio during the third quarter of 2024 due to an updated appraisal. No valuation adjustments occurred in the fourth quarter of 2023 or the third quarter of 2023.

Current wording

As of March 31, 2025, OREO totaled $2.9 million, reflecting a decrease of $18.7 million from $21.6 million at December 31, 2024, and a decrease of $2.2 million from $5.1 million at March 31, 2024. There were two property sales totaling $18.3 million during the first quarter of 2025. Valuation reserve adjustments of $1.0 million were recorded related to one property sale, partially offset by adjustments for updated appraisals on other properties still held. Valuation write-downs totaling $1.8 million occurred in the fourth quarter of 2024 and there were no valuation adjustments in the first quarter of 2024.

Previous wording

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.

Current wording

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.

Previous wording

Total deposits were $4.47 billion at September 30, 2024, which reflects a $105.3 million decrease from total deposits of $4.57 billion at December 31, 2023, and a decrease of $148.9 million from total deposits of $4.61 billion at September 30, 2023. The decrease in deposits at September 30, 2024, compared to December 31, 2023, was primarily due to decreases in non-interest bearing deposits of $165.9 million, savings accounts of $85.4 million, and NOW accounts of $16.5 million, partially offset by an increase of $19.6 million in money market accounts, and $142.8 million in time deposits. The decrease in deposits at September 30, 2024, compared to September 30, 2023, was primarily due to decreases in non-interest bearing deposits of $193.7 million, savings accounts of $117.6 million, NOW accounts of $19.1 million, and money market accounts of $11.3 million, partially offset by an increase in time deposits of $192.7 million. Total quarterly average deposits decreased $172.6 million, or 3.7%, in the year over year period, driven by declines in our average demand deposits of $175.8 million, and savings, NOW and money markets combined decreased $182.3 million, which was partially offset by average time deposit growth of $185.4 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.

Current wording

Total deposits were $4.85 billion at March 31, 2025, which reflects an $84.1 million increase from total deposits of $4.77 billion at December 31, 2024, and an increase of $244.5 million from total deposits of $4.61 billion at March 31, 2024. The increase in deposits at March 31, 2025, compared to December 31, 2024, was primarily due to increases in non-interest bearing deposits of $8.8 million, savings accounts of $20.4 million, NOW accounts of $31.0 million, and money market accounts of $68.0 million. These increases were partially offset by a decrease of $44.2 million in time deposits. The increase in deposits at March 31, 2025, compared to March 31, 2024, was primarily due to increases in NOW accounts of $82.6 million, money market accounts of $133.2 million, and time deposits of $117.8 million, partially offset by a decrease in non-interest bearing deposits of $86.2 million and savings accounts of $2.9 million stemming from both the FRME branch acquisition and legacy deposit account seasonal increases. Total quarterly average deposits increased $218.7 million, or 4.8%, in the year over year period, driven by an increase in average time deposits of $166.9 million, and NOW and money markets combined of $185.7 million, which was partially offset by decreases in average demand deposits of $116.1 million, and savings accounts of $17.8 million. The overall increase in quarterly average deposits for the year over year period was primarily due to the acquisition of the FRME branches.

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 $53.9 million at September 30, 2024, a $27.4 million, or 103.5%, increase from $26.5 million at December 31, 2023, and an increase of $28.0 million, or 108.0%, from September 30, 2023. The outstanding balance of our short-term FHLBC borrowings was $335.0 million as of September 30, 2024, $405.0 million as of December 31, 2023, and $435.0 million as of September 30, 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 $38.7 million at March 31, 2025, a $2.0 million, or 5.5%, increase from $36.7 million at December 31, 2024, and an increase of $5.1 million, or 15.3%, from March 31, 2024. There were no outstanding short-term FHLBC borrowings as of March 31, 2025, and the outstanding balance of our short-term FHLBC borrowings was $20.0 million as of December 31, 2024, and $220.0 million as of March 31, 2024. The large decrease in short-term FHLB advances is due to an influx of cash resulting from the acquisition of the five FRME branches on December 6, 2024, which allowed us to utilize the purchased deposits for lower cost funding.

Previous wording

We are also indebted on $25.8 million of junior subordinated debentures, net of deferred issuance costs, as of September 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 net year to date interest rate paid on this debt of 4.34% as of September 30, 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 March 31, 2025, 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 4.53% as of March 31, 2025, as compared to 6.77%, which was the rate paid during the period prior to the June 15, 2017, rate reset.

Previous wording

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 are in part, on April 15, 2026, or any interest payment date thereafter, and at any time upon the occurrence of certain events. As of September 30, 2024, we had $59.4 million of subordinated debentures outstanding, net of deferred issuance costs.

Current wording

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 are 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, 2025, we had $59.5 million of subordinated debentures outstanding, net of deferred issuance costs.

Previous wording

As of September 30, 2024, total stockholders’ equity was $661.4 million, which was an increase of $84.1 million from $577.3 million as of December 31, 2023. This increase was largely attributable to net income of $66.2 million in the first nine months of 2024, partially offset by $6.7 million of dividends paid to our common stockholders. In addition, total stockholders’ equity as of September 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 $22.4 million in the first nine months of 2024, due to changes in market interest rates. Total stockholders’ equity as of September 30, 2024, increased $128.8 million compared to September 30, 2023, due to net income year over year and the decrease in accumulated other comprehensive loss of $50.2 million year over year.

Current wording

As of March 31, 2025, total stockholders’ equity was $694.5 million, which was an increase of $23.5 million from $671.0 million as of December 31, 2024. This increase was largely attributable to net income of $19.8 million in the first three months of 2025, partially offset by $2.7 million of dividends paid to our common stockholders. In addition, total stockholders’ equity as of March 31, 2025, increased over December 31, 2024, due to a reduction in unrealized net losses on available-for-sale securities and swaps, which contributed to the overall decrease in accumulated other comprehensive loss of $6.4 million in the first three months of 2025, due to changes in market interest rates. Total stockholders’ equity as of March 31, 2025, increased $98.3 million compared to March 31, 2024, due to net income year over year and the decrease in accumulated other comprehensive loss of $22.0 million year over year.

Previous wording

As of September 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 11.66% at September 30, 2024. Our GAAP tangible common equity to tangible assets ratio was 10.14% at September 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 10.17% at September 30, 2024, primarily due to an increase in tangible common equity in 2024. The increase in tangible common equity from December 31, 2023, to September 30, 2024, was primarily due to an increase in retained earnings of $59.4 million.

Current wording

As of March 31, 2025, 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 11.88% at December 31, 2024, to 12.13% at March 31, 2025. Our GAAP tangible common equity to tangible assets ratio was 10.34% at March 31, 2025, compared to 10.04% as of December 31, 2024. Our non-GAAP tangible common equity to tangible assets ratio, which management also considers a valuable performance measurement for capital analysis, increased from 10.11% at December 31, 2024, to 10.40% at March 31, 2025, primarily due to an increase in tangible common equity at a faster pace than tangible assets in the first three months of 2025. The increase in tangible common equity from December 31, 2024, to March 31, 2025, was primarily due to an increase in retained earnings of $17.1 million and a reduction of $6.4 million in unrealized losses in AOCI.

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 third quarter of 2024, we experienced an increase in loans and a decrease in deposits. We managed the change in our funding through a reduction in average borrowings from the Federal Home Loan Bank of Chicago (“FHLBC”) through September 30, 2024, 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 September 30, 2024, our cash on hand liquidity totaled $115.8 million, an increase of $15.6 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 first quarter of 2025, we experienced a decrease in loans but an increase in deposits. We managed the change in our funding through a reduction in average borrowings from the FHLBC through March 31, 2025, compared to the prior year like period. 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, 2025, our cash on hand liquidity totaled $256.1 million, an increase of $156.8 million over cash balances held as of December 31, 2024.

Previous wording

Net cash inflows from operating activities were $107.5 million during the first nine months of 2024, compared with net cash inflows of $87.3 million in the same period of 2023. Interest paid, net of interest received, combined with changes in other assets and liabilities were a source of inflows for the nine months ended September 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.

Current wording

Net cash inflows from operating activities were $17.8 million during the first three months of 2025, compared with net cash inflows of $47.4 million in the same period of 2024. Proceeds from sales of loans held-for-sale, net of funds used to originate loans held-for-sale, resulted in outflows for the first three months of 2025 compared to a source of inflows for the like period of 2024. 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, 2025, and a source of inflows for the like period of 2024. 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 $63.4 million in the nine months ended September 30, 2024, compared to net cash inflows of $124.5 million in the same period in 2023. In the first nine months of 2024, securities transactions accounted for net inflows of $27.8 million, and the principal change on loans accounted for net inflows of $38.5 million. In the first nine months of 2023, securities transactions accounted for net inflows of $306.0 million, and principal on loans funded, net of paydowns, accounted for net outflows of $164.3 million.

Current wording

Net cash inflows from investing activities were $76.7 million in the three months ended March 31, 2025, compared to net cash inflows of $93.9 million in the same period in 2024. In the first three months of 2025, securities transactions accounted for net inflows of $23.5 million, and the principal change on loans accounted for net inflows of $36.8 million. In the first three months of 2024, securities transactions accounted for net inflows of $22.3 million, and principal on loans funded, net of paydowns, accounted for net inflows of $70.0 million.

Previous wording

Net cash outflows from financing activities in the nine months ended September 30, 2024, were $155.3 million, compared with net cash outflows of $218.0 million in the nine months ended September 30, 2023. Net deposit outflows in the first nine months of 2024 were $105.2 million compared to net deposit outflows of $495.4 million in the first nine months of 2023. Other short-term borrowings had $70.0 million of net cash outflows in the first nine months of 2024, compared to net cash inflows of $345.0 million for other short-term borrowings in the first nine months of 2023. Changes in securities sold under repurchase agreements accounted for inflows of $27.4 million and outflows of $6.3 million for the nine months ended September 30, 2024 and 2023, respectively. Dividends paid on our common stock totaled $6.7 million for both the nine months ended September 30, 2024 and 2023. The purchase of treasury stock in the first nine 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 nine months of 2023 related to shares acquired from equity award vestings.

Current wording

Net cash inflows from financing activities in the three months ended March 31, 2025, were $62.2 million, compared with net cash outflows of $143.3 million in the three months ended March 31, 2024. Net deposit inflows in the first three months of 2025 were $84.3 million compared to net deposit inflows of $37.6 million in the first three months of 2024. Other short-term borrowings had $20.0 million of net cash outflows in the first three months of 2025, compared to net cash outflows of $185.0 million for other short-term borrowings in the first three months of 2024. Changes in securities sold under repurchase agreements accounted for inflows of $2.0 million and inflows of $7.1 million for the three months ended March 31, 2025 and 2024, respectively. Dividends paid on our common stock totaled $2.7 million for the three months ended March 31, 2025, and $2.2 million for the three months ended March 31, 2024. The purchase of treasury stock in the first three months of 2025 due to shares acquired with equity award vestings resulted in outflows of $1.4 million, compared to cash outflows of $776,000 in the first three months of 2024 related to shares acquired from equity award vestings.

Previous wording

Cash and cash equivalents for the nine months ended September 30, 2024, totaled $115.8 million, as compared to $100.1 million as of December 31, 2023, and $109.0 million as of September 30, 2023. The increase in cash and cash equivalents for the nine months ended September 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 nine 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.

Current wording

Cash and cash equivalents for the three months ended March 31, 2025, totaled $256.1 million, as compared to $99.3 million as of December 31, 2024, and $98.1 million as of March 31, 2024. The increase in cash and cash equivalents for the three months ended March 31, 2025, as compared to year end 2024 and March 31, 2024, was primarily attributable to the decrease in our loan and securities portfolios and the increase in customer deposits, partially offset by the decrease in other short-term borrowings during the first three months of 2025. 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.