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Financial Services

Old Second Bancorp Inc.

11/04/2026 | Press release | Distributed by Public on 11/04/2026 11:02

Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

The following discussion provides additional information regarding our operations for the three and nine months ended September 30, 2026, compared to the three and nine months ended September 30, 2025, as well as our operations for the three months ended September 30, 2026, compared to the three months ended June 30, 2026. The following discussion also provides additional information regarding our financial condition at September 30, 2026, compared to December 31, 2025. This discussion should be read in conjunction with our consolidated financial statements as well as the financial and statistical data appearing elsewhere in this report and our Form 10-K for the year ended December 31, 2025. The results of operations for the three and nine months ended September 30, 2026 are not necessarily indicative of future results. Dollar amounts presented in the following tables are in thousands, except per share data, and September 30, 2026 and 2025 amounts are unaudited. Certain items in prior periods have been reclassified to conform to the current presentation.

In this report, unless the context suggests otherwise, references to the "Company," "we," "us," and "our" mean the combined business of Old Second Bancorp, Inc. and its subsidiary bank, Old Second National Bank (the "Bank").

We have made, and will continue to make, various forward-looking statements with respect to financial and business matters. Comments regarding our business that are not historical facts are considered forward-looking statements that involve inherent risks and uncertainties. Actual results may differ materially from those contained in these forward-looking statements. For additional information regarding our cautionary disclosures, see the "Cautionary Note Regarding Forward-Looking Statements" in this report.

Business Overview

The Company is a bank holding company headquartered in Aurora, Illinois. Through our wholly-owned subsidiary bank, Old Second National Bank, a national banking organization also headquartered in Aurora, Illinois, we offer a wide range of financial services through our 54 banking centers located in Cook, DeKalb, DuPage, Kane, Kendall, LaSalle and Will counties in Illinois. These banking centers offer access to a full range of traditional retail and commercial banking services including treasury management operations as well as fiduciary and wealth management services. We focus our business on establishing and maintaining relationships with our clients while maintaining a commitment to provide for the financial services needs of the communities in which we operate. We emphasize relationships with individual customers as well as small to medium-sized businesses throughout our market area. We also have extensive wealth management services, which include a registered investment advisory platform in addition to trust administration and trust services related to personal and corporate trusts and employee benefit plan administration services.

On July 1, 2025, we completed our previously announced acquisition of Bancorp Financial, Inc. ("Bancorp Financial"), pursuant to the agreement and plan of merger dated February 24, 2025. At the effective time of the acquisition, Bancorp Financial merged with and into the Company, with the Company continuing as the surviving corporation. Immediately following the merger, Evergreen Bank Group ("Evergreen"), an Illinois-chartered banking corporation and wholly-owned subsidiary of Bancorp Financial, merged with and into Old Second National Bank, with the Bank continuing as the surviving bank. Under the terms of the merger agreement, each share of Bancorp Financial common stock outstanding immediately prior to the effective time was converted into the right to receive 2.5814 shares of Old Second common stock and $15.93 in cash, without interest, with cash paid in lieu of any fractional shares.

As of July 1, 2025, Bancorp Financial had approximately $1.43 billion of total assets, $1.20 billion of total loans, and $1.23 billion of total deposits. The consideration paid totaled $189.4 million and consisted of 7.9 million shares of Old Second common stock and $48.9 million in cash. The systems conversion was successfully completed in October 2025. As of June 30, 2026, all acquisition related expenses have been reported and the measurement period is closed.

Our results of operations depend generally on net interest income, which is the difference between interest income from interest-earning assets and interest expense on interest-bearing liabilities. Net interest income is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. In addition, we are subject to interest rate risk to the degree that our interest-earning assets mature or reprice at different times, or at different speeds, than our interest-bearing liabilities. Our results of operations are also affected by noninterest income, such as service charges, wealth management fees, loan fees, gains from the sale of newly originated loans, gains or losses on investments and certain other noninterest related items. Our principal operating expenses, aside from interest expense, consist of compensation and employee benefits, occupancy costs, professional fees, data processing expenses and provision for credit losses.

We are significantly impacted by prevailing economic conditions, including federal monetary and fiscal policies, and federal regulations of financial institutions. Deposit balances are influenced by numerous factors such as competing investments, the level of income and the personal rate of savings within our market areas. Factors influencing lending activities include the demand for housing and the interest rate pricing competition from other lending institutions.

As of September 30, 2026, all of our capital ratios were in excess of all regulatory requirements. While we believe that we have sufficient capital to withstand an extended economic recession, our reported and regulatory capital ratios could be adversely impacted by credit losses.

Financial Overview

Net income for the third quarter of 2026 was $28.9 million, or $0.56 per diluted share, compared to $28.2 million, or $0.54 per diluted share, for the second quarter of 2026, and $9.9 million, or $0.18 per diluted share, for the third quarter of 2025. Net income increased compared to the prior year like quarter, primarily due to the absence of acquisition related expense, and the Day Two non-PCD provision recorded in connection with the Bancorp Financial acquisition in the 2025 period. Variances in the year over year period included a decrease of $3.3 million in interest expense, a decrease of $12.9 million in provision for credit losses, and a decrease of $11.5 million in noninterest expense, partially offset by a $2.0 million decrease in interest and dividend income and a $6.6 million increase in provision for income taxes. Net income in the third quarter of 2026 was negatively impacted by provision for credit losses of $6.8 million, compared to $7.5 million and $19.7 million recorded in the second quarter of 2026 and third quarter of 2025, respectively. The $19.7 million recorded in the third quarter of 2025 was due to purchase accounting adjustments and the Day Two non-PCD provision for loan losses recorded of $13.2 million. Adjusted net income, a non-GAAP financial measure that excludes mortgage servicing rights mark to market gains or losses, net securities gains or losses, and acquisition related costs, net of gains on branch sales, as applicable, was $28.5 million for the third quarter of 2026, compared to $28.7 million for the second quarter of 2026, and $28.4 million for the third quarter of 2025.

See the discussion entitled "Non-GAAP Financial Measures" below, as well as the table below, which provides a reconciliation of this non-GAAP measure to the most comparable GAAP equivalents:


Net Income and Earnings Per Share - GAAP and Adjusted	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,
	2026			2026			2025			2026			2025

Income before income taxes (GAAP)	$	38,747		$	37,838		$	13,068		$	110,649		$	68,481
Pre-tax income adjustments:
Provision for credit losses - Day Two		-			-			13,153			-			13,153
Securities losses, net		1			-			1			1			1
Death benefit related to BOLI		-			-			(430)			-			(430)
MSR (gains) losses		(623)			152			389			(319)			1,490
Acquisition related costs, net of gains on branch sales		-			526			11,508			875			12,772
Adjusted net income before taxes		38,125			38,516			37,689			111,206			95,467
Taxes on adjusted net income		9,649			9,832			9,326			28,085			23,675
Adjusted net income (non-GAAP)	$	28,476		$	28,684		$	28,363		$	83,121		$	71,792

Basic earnings per share (GAAP)	$	0.57		$	0.55		$	0.19		$	1.61		$	1.08
Diluted earnings per share (GAAP)		0.56			0.54			0.18			1.58			1.06
Adjusted basic earnings per share (non-GAAP)		0.57			0.56			0.54			1.62			1.51
Adjusted diluted earnings per share (non-GAAP)		0.55			0.55			0.53			1.59			1.48

Total average assets		6,786,945			6,852,937			6,999,253			6,832,751			6,141,208

Return on average assets (GAAP)		1.69	%		1.65	%		0.56	%		1.62	%		1.12	%
Adjusted return on average assets (non-GAAP)		1.66			1.68			1.61			1.63			1.56

The following provides an overview of some of the factors impacting our financial performance for the three-month period ended September 30, 2026, compared to the like period ended September 30, 2025:

●

Net interest and dividend income was $84.0 million for the third quarter of 2026, compared to $82.8 million for the third quarter of 2025. The increase in net interest and dividend income in the third quarter of 2026 was primarily driven by the $3.3 million reduction in interest expense due to the decrease in time deposit costs as higher rate brokered CDs and other exception-priced time deposits from legacy accounts as well as those assumed in the acquisition of Bancorp Financial continuing to roll off. Partially offsetting the increase in net interest and dividend income in the third quarter of 2026 was a $2.0 million decrease in interest and dividend income primarily due to the decrease in securities income.

●

We recorded a net provision for credit losses on loans and leases of $6.8 million in the third quarter of 2026, driven by quarterly net charge-offs of $12.7 million. We recorded a net provision for credit losses of $19.7 million in the third quarter of 2025, driven by the Day Two non-PCD provision for credit losses of $13.2 million and a standard provision expense of $6.5 million.

●

Noninterest income was $13.1 million for the third quarter of 2026, compared to $13.1 million for the third quarter of 2025, which is a decrease of $39,000, or 0.3%. Variances in noninterest income include a decrease in the cash surrender value of BOLI as a result of a decline in the market value of our COLI policies due primarily to less favorable market interest rates. Further, variances in noninterest income during the quarter, compared to the prior year like quarter, were due to $430,000 in death benefits realized on BOLI in 2025 compared to none in 2026. Partially offsetting the decrease to noninterest income were increases in wealth management fee income due to growth in assets under management, and residential mortgage banking revenue primarily due to MSR mark to market gains of $623,000, compared to $389,000 of losses in the third quarter of 2025.

●

Noninterest expense was $51.6 million for the third quarter of 2026, compared to $63.2 million for the third quarter of 2025, a decrease of $11.5 million, or 18.3%. The decrease in noninterest expense in the third quarter of 2026, compared to the prior year like quarter, was primarily due to the Bancorp Financial acquisition and the corresponding acquisition costs, net of gains on branch sales of $11.5 million that were recorded in the prior year like quarter. These acquisition costs included higher salaries and employee benefits, computer and data processing, professional fees, and other expense in the prior year like quarter.

●

We had a provision for income tax expense of $9.8 million for the third quarter of 2026, compared to a provision for income tax expense of $3.2 million for the third quarter of 2025. The effective tax rate for these two periods was 25.3% and 24.5%, respectively.

●

As of September 30, 2026, total loans decreased by $14.1 million compared to the year ended December 31, 2025, and decreased $26.4 million compared to September 30, 2025.

●

Nonaccrual loans totaled $36.6 million as of September 30, 2026, which is a decrease of $11.4 million compared to December 31, 2025, but an increase of $2.5 million compared to September 30, 2025. The decrease in nonaccrual loans as of September 30, 2026, compared to December 31, 2025, was primarily due to outflows of $6.9 million of paid off nonaccrual loans, $9.3 million of charged-off loans, $3.5 million of upgraded loans, $148,000 transferred to repossessed assets, $235,000 transferred to OREO, and $16.5 million of reduction of principal from payments and partial charge-offs, partially offset by inflows of $25.1 million on 103 loans, consisting primarily of 21 commercial loans totaling $18.6 million. The increase in nonaccrual loans year over year is partially due to two larger credits which moved to nonperforming status in the first quarter, offset with charge-offs taken in the second quarter and third quarter of 2026 within the commercial loan types. These two credits had an aggregate balance of $16.5 million, in the first quarter, before related charge-offs of $3.0 million in the second quarter, and additional charge-offs of $9.3 million taken in the third quarter. The increase in loans past due 90 days or more was driven primarily by the two commercial credits previously mentioned. Nonperforming loans as a percent of total loans was 0.8% as of September 30, 2026, compared to 1.0% as of December 31, 2025, and 0.9% as of September 30, 2025. Classified assets decreased to $75.5 million as of September 30, 2026, reflecting a decrease of $77.4 million, or 50.6%, from December 31, 2025, and a decrease of $67.2 million, or 47.1%, from September 30, 2025.

Critical Accounting Estimates

Our consolidated financial statements are prepared based on the application of accounting policies in accordance with generally accepted accounting principles ("GAAP") and follow general practices within the banking industry. These policies require reliance on estimates and assumptions which may prove inaccurate or are subject to variations. These estimates, assumptions, and judgments are based on information available as of the date of the consolidated financial statements. Future changes in information may affect these estimates, assumptions, and judgments, which, in turn, may affect amounts reported in the consolidated financial statements. Changes in underlying factors, assumptions, or estimates could have a material impact on our future financial condition and results of operations.

Of the significant accounting policies used in the preparation of our consolidated financial statements, we have identified certain items as critical accounting policies based on the associated estimates, assumptions, judgments and complexity. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Estimates" in our Annual Report on Form 10-K for the year ended December 31, 2025. There have been no material changes to our critical accounting policies or the estimates made pursuant to those policies during the most recent quarter from those disclosed in our 2025 Annual Report on Form 10-K.

Non-GAAP Financial Measures

This report contains references to financial measures that are not defined in GAAP. Such non-GAAP financial measures include the presentation of net interest income and net interest margin on a tax equivalent ("TE") basis, adjusted net income, adjusted basic and diluted earnings per share, and our adjusted efficiency ratio. Management believes that the presentation of these non-GAAP financial measures (a) provides important supplemental information that contributes to a proper understanding of our operating performance, (b) enables a more complete understanding of factors and trends affecting our business, and (c) allows investors to evaluate our performance in a manner similar to management, the financial services industry, bank stock analysts, and bank regulators. Management uses non-GAAP measures as follows: in the preparation of our operating budgets, monthly financial performance reporting, and in our presentation of our performance to investors. However, we acknowledge that these non-GAAP financial measures have a number of limitations. Limitations associated with non-GAAP financial measures include the risk that persons might disagree as to the appropriateness of items comprising these measures and that different companies might calculate these measures differently. These measures should not be considered an alternative to our GAAP results. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is presented below or alongside the first instance where each non-GAAP financial measure is used.

Results of Operations

Overview

Three months ended September 30, 2026 and 2025

Our income before taxes was $38.7 million in the third quarter of 2026, compared to $13.1 million in the third quarter of 2025. Net interest and dividend income increased $1.3 million, and provision for credit losses decreased $12.9 million in the third quarter of 2026, compared to the like 2025 quarter. Noninterest income decreased nominally while noninterest expense declined $11.5 million. The noninterest expense decrease of $11.5 million is primarily due to an $8.9 million decrease in salary and employee benefits expense primarily attributable to Bancorp Financial acquisition related costs for change in control, retention and severance payments. Also contributing to the decrease in noninterest expense was a $744,000 decrease in computer and data processing, a $1.7 million decrease in professional fees, and a $343,000 decrease in other expenses, which were all primarily driven by the Bancorp Financial acquisition costs that were recorded in the third quarter of 2025. Our net income was $28.9 million, or $0.56 per diluted share, for the third quarter of 2026, compared to net income of $9.9 million, or $0.18 per diluted share, for the third quarter of 2025. We continue to monitor macroeconomic conditions, interest rate risk, expense levels, and daily liquidity.

Nine months ended September 30, 2026 and 2025

Our income before taxes was $110.6 million for the nine months ended September 30, 2026, compared to $68.5 million for the nine months ended September 30, 2025. This increase in pretax income was primarily due to a $38.6 million increase in net interest and dividend income, an $803,000 decrease in provision for credit losses, and a $4.8 million increase in noninterest income, partially offset by a $2.0 million increase in noninterest expense. Provision for income taxes increased $11.0 million. Our net income was $82.7 million, or $1.58 per diluted share, for the nine months ended September 30, 2026, compared to net income of $51.5 million, or $1.06 per diluted share, for the same period of 2025.

Net interest and dividend income was $248.5 million for the nine months ended September 30, 2026, compared to $209.9 million for the same period of 2025. The $38.6 million increase was primarily driven by an increase in loan related income and fees of $53.5 million primarily due to the loan portfolio acquired from Bancorp Financial, as well as a rise in market interest rates. Partially offsetting the increase in net interest and dividend income was an increase of $10.1 million in interest expense in the first nine months of 2026, compared to the first nine months of 2025, driven by an increase in deposit costs due to the deposits assumed in the Bancorp Financial acquisition and an increasing rate environment. Also contributing to the rise in interest expense was an increase in other short-term borrowings expense due to a higher FHLBC advance volume based on liquidity needs in the 2026 period, as total deposits have declined $432.7 million year over year as of September 30, 2026.

Net Interest Income

Net interest income, which is our primary source of earnings, is the difference between income earned on interest-earning assets, such as loans and investment securities, accretion income on purchased loans, dividend income earned on certain equity investments, and expense incurred on interest-bearing liabilities, such as deposits and borrowings. Net interest income depends upon the relative mix of interest-earning assets and interest-bearing liabilities, the ratio of interest-earning assets to total assets and of interest-bearing liabilities to total funding sources, and movements in market interest rates. Our net interest income can be significantly influenced by a variety of factors, including overall loan demand, economic conditions, credit risk, the amount of nonearning assets including nonperforming loans and OREO, the amounts of and rates at which assets and liabilities reprice, variances in prepayment of loans and securities, early withdrawal of deposits, exercise of call options on borrowings or securities, a general rise or decline in interest rates, changes in the slope of the yield-curve, and balance sheet growth or contraction.

Three months ended September 30, 2026 and 2025

Net interest and dividend income was $84.0 million in the third quarter of 2026, compared to $82.8 million in the third quarter of 2025. The $1.3 million increase was driven by a decrease of $3.3 million in interest expenses in the third quarter of 2026 driven by lower deposit costs on decreased average balances, primarily related to time deposits, partially offset by increased short-term borrowing costs due to higher average FHLBC advance balances based on liquidity needs. A net decrease of $2.0 million in interest income in the third quarter of 2026 negatively impacted net interest and dividend income compared to the third quarter of 2025, driven by a decrease in securities income due to paydowns and maturities coupled with market rate changes. Loan interest income was effectively flat relative to the prior year like quarter.

The year over year yield increase of 6 basis points on interest earning assets was primarily driven by higher FHLBC and FRBC dividend yields. Average balances of loans and loans held for sale increased $9.8 million in the third quarter of 2026 compared to the prior year like quarter, but showed a nominal decrease to the tax equivalent yield on the loan portfolio of 1 basis point year over year. Average balances of securities available for sale decreased $144.8 million in the third quarter of 2026 compared to the prior year like quarter, and showed a decrease to the tax equivalent yield on the securities available for sale portfolio of nine basis points year over year.

The cost of interest bearing deposits decreased 42 basis points for the quarter ended September 30, 2026, from 191 basis points for the quarter ended September 30, 2025. A 69-basis point decrease in the cost of time deposits drove a significant portion of the overall decrease from the prior year like quarter, primarily due to the decrease in average time deposits of $442.2 million as higher rate brokered CDs and other exception-priced time deposits, including those from the Bancorp Financial acquisition, have rolled off. In addition, money market and savings accounts reflected decreases of 13 basis points and 26 basis points, respectively. We will continue to control the cost of funds by monitoring market activity as well as allowing previously mentioned exception-priced deposits and the brokered CDs acquired from Bancorp Financial to runoff naturally.

The increase of $295.4 million year over year of average FHLBC advances was based on daily liquidity needs and was the primary driver of the $2.8 million increase to interest expense on other short-term borrowings. The elevated short-term borrowings balance is anticipated to continue, assuming continued loan growth and securities reinvestment. The decrease of $868,000 year over year of average notes payable and other borrowings was due to a $5.0 million option on FHLBC long-term putable advances assumed in the Bancorp Financial acquisition being exercised during the third quarter of 2026. This led to a $22,000 increase to interest expense on notes payable and other borrowings as $31,000 of additional expense was recorded in the quarter from the remaining purchase accounting adjustments ("PAA") on the exercised debt. The $29.7 million decrease in average subordinated debt was due to the $30.0 million partial redemption in the second quarter of 2026, which reduced the prior $60.0 million principal balance then outstanding. Junior subordinated debt interest expense was essentially flat over each of the periods presented.

Our net interest margin (GAAP) increased 22 basis points to 5.25% for the three months ended September 30, 2026, compared to 5.03% for the three months ended September 30, 2025. Our net interest margin (TE) increased 22 basis points to 5.27% for the three months ended September 30, 2026, compared to 5.05% for the three months ended September 30, 2025. The increase in the current period, compared to the prior year like period, is primarily due to lower cost of funds and lower average deposit balances. See the discussion entitled "Non-GAAP Financial Measures," above, and the table under "Reconciliation of Tax-Equivalent (TE) Non-GAAP Financial Measures" that provides a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

Three months ended September 30, 2026 and June 30, 2026

The increased yield of 6 basis points on interest earning assets for the three months ended September 30, 2026 as compared to the linked period was primarily driven by the increased yields on loans and dividends from the FHLBC and FRBC. Total average interest earning assets decreased $68.4 million in the third quarter of 2026, compared to the prior linked quarter, driven by a $74.9 million reduction in securities available-for-sale. Changes in the market interest rate environment impact earning assets at varying intervals depending on the repricing timeline of loans, as well as the securities maturity, paydown and purchase activities.

Average balances of interest bearing deposit accounts have decreased $55.5 million since the second quarter of 2026 through the third quarter of 2026, from $3.74 billion to $3.69 billion. The decrease is driven by a $63.2 million decrease in time deposits as exception priced deposits run off, and a $10.4 million decrease in savings accounts. Partially offsetting the decrease in average balances of interest bearing deposit accounts was a $4.5 million increase in lower cost NOW accounts and a $13.7 million increase in money market accounts. The significant decline in time deposit average balances led to the $442,000 decrease in time deposit interest expense, compared to the prior linked quarter, which mitigated the net $151,000 total increase in deposit interest expense, as all other deposit category interest costs increased. As a result, NOW, money market, and savings deposits were the primary drivers in the increase in the costs of interest bearing deposits from 147 basis points for the quarter ended June 30, 2026, to 149 basis points for the quarter ended September 30, 2026.

Borrowing costs increased in the third quarter of 2026, compared to the second quarter of 2026. Changes in our borrowing costs are generally driven by fluctuations in balances and related rates on other short-term borrowings, which are overnight FHLBC advances; these fluctuations are based on the daily liquidity needs during the period. The increase in borrowing expense over the prior linked period was primarily due to the $8.6 million increase in average balance of other short-term borrowings and the resulting increase in interest expense. Partially offsetting the increase in borrowing costs was a $133,000 decrease in subordinated debt interest expense as the partial redemption of subordinated debt occurred in the second quarter of 2026 and resulted in the acceleration of debt issuance costs of $213,000.

Our net interest margin, for both GAAP and tax equivalent ("TE") presentations, showed slight growth over the prior linked quarter, as discussed above. Our net interest margin (GAAP) increased four basis points to 5.25% for the third quarter of 2026, compared to 5.21% for the second quarter of 2026. Our net interest margin (TE) increased four basis points to 5.27% for the third quarter of 2026, compared to 5.23% for the second quarter of 2026. The increase in net interest margin for the third quarter of 2026, compared to the prior linked quarter, was driven by the increase in yields on loans and loans held for sale and dividends from the FHLBC and FRBC, partially offset by a nominal increase in the cost of interest bearing liabilities. See the discussion entitled "Non-GAAP Financial Measures," above, and the table under "Reconciliation of Tax-Equivalent (TE) Non-GAAP Financial Measures" that provides a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

Nine months ended September 30, 2026 and 2025

The year over year increase of 38 basis points on interest earning assets was primarily driven by increased yields on loans and loans held for sale due to the Bancorp Financial acquisition in July 2025. Average securities available-for-sale decreased $101.8 million for the nine months ended September 30, 2026, compared to the nine months ended September 30, 2025, due to maturities, calls, and paydowns, net of purchases, during the year over year period. Due to market interest rate changes year over year, securities available-for-sale interest income yields were nominally lower in the nine months ended September 30, 2026, and lower average balances led to an overall decrease in securities income to $30.7 million for the nine months ended September 30, 2026, compared to $33.8 million for the like 2025 period. Average loans, including loans held for sale, increased $835.8 million in the nine months ended September 30, 2026, compared to the nine months ended September 30, 2025, due to the Bancorp Financial acquisition. Increased loan yields and higher average balances resulted in $268.5 million of tax equivalent loan interest income in the nine months ended September 30, 2026, compared to $215.0 million in the like 2025 period. Due to average loan growth and deposit attrition over the past year, average interest earning deposits with financial institutions also decreased in the year over year like period, resulting in a $2.4 million decline in interest income on these interest earning deposits.

Average balances of interest bearing deposit accounts have increased noticeably for the nine month period year over year. For the nine months ended September 30, 2026, compared to the nine months ended September 30, 2025, average interest bearing deposits increased from $3.46 billion to $3.75 billion, driven by the Bancorp Financial acquisition, with these increases reflected in all deposit categories. The cost of overall interest bearing deposits decreased by 5 basis points, to 149 basis points from 154 basis points for the year over year period. A 30 basis point decrease in the cost of time deposits was the primary driver behind the interest bearing deposit rate decrease and was a result of the continued runoff of previously exception-priced deposits and brokered CDs assumed from the Bancorp Financial acquisition. The decrease in time deposit rates paid was partially offset by growth in rates paid for savings and NOW accounts.

Our borrowing interest expense increased over the past year due to higher FHLBC advance volumes as well as borrowings assumed in the Bancorp Financial acquisition. This resulted in an increase in average borrowings of $245.8 million compared to the nine months ended September 30, 2025, with an accompanying increase of $8.0 million of interest expense on borrowings. Subordinated debt average balances decreased by $18.4 million in the year over year period as a partial redemption of $30.0 million of the principal balance occurred in the second quarter of 2026. At the same time as the partial redemption, the subordinated debt rate changed from fixed to floating and $213,000 of issuance costs were recognized, resulting in a $124,000 increase in interest expense on lower average balances compared to the prior year like period. Junior subordinated debt interest expense remained flat over the periods presented.

Our net interest margin (GAAP) increased 28 basis points to 5.19% for the nine months ended September 30, 2026, compared to 4.91% for the nine months ended September 30, 2025. Our net interest margin (TE) increased 27 basis points to 5.21% for the nine months ended September 30, 2026, compared to 4.94% for the nine months ended September 30, 2025. The increase in the current period, compared to the prior year like period, is primarily due to the Bancorp Financial acquisition and the resulting increase in loan yields, partially offset by higher interest expense related to the larger average deposit balances and interest on other short-term borrowings. See the discussion entitled "Non-GAAP Financial Measures," above, and the table under "Reconciliation of Tax-Equivalent (TE) Non-GAAP Financial Measures" that provides a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

We continue to observe competitive pressure to maintain reduced interest rates on loans retained at renewal. While our loan prices are targeted to achieve certain returns on equity, significant competition for commercial and industrial loans as well as commercial real estate loans has put pressure on loan yields, and our stringent underwriting standards limit our ability to make higher-yielding loans in these loan types.

The following tables set forth certain information relating to our average consolidated balance sheets and reflect the yield on average earning assets and cost of average interest bearing liabilities for the periods indicated. These yields reflect the related interest, on an annualized basis, divided by the average balance of assets or liabilities over the applicable period. Average balances are derived from daily balances. For purposes of discussion, net interest income and net interest income to total earning assets in the following tables have been adjusted to a non-GAAP TE basis using a marginal rate of 21% in 2026 and 2025 to compare returns more appropriately on tax-exempt loans and securities to other earning assets.


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

	Quarters Ended
	September 30, 2026						June 30, 2026						September 30, 2025
	Average			Income /		Rate	Average			Income /		Rate	Average			Income /		Rate
	Balance			Expense		%	Balance			Expense		%	Balance			Expense		%
Assets
Interest earning deposits with financial institutions	$	65,381		$	537	3.26	$	64,839		$	527	3.26	$	119,619		$	1,255	4.16
Securities:
Taxable		891,503			8,416	3.75		955,176			9,088	3.82		1,016,279			9,872	3.85
Non-taxable (TE)¹		129,636			1,366	4.18		140,876			1,433	4.08		149,621			1,563	4.14
Total securities(TE)¹		1,021,139			9,782	3.80		1,096,052			10,521	3.85		1,165,900			11,435	3.89
Dividends from FHLBC and FRBC		38,576			672	6.91		36,676			535	5.85		25,961			381	5.82
Loans and loans held-for-sale^1,2		5,227,120			91,400	6.94		5,223,093			89,921	6.91		5,217,349			91,342	6.95
Total interest earning assets		6,352,216			102,391	6.40		6,420,660			101,504	6.34		6,528,829			104,413	6.34
Cash and due from banks		45,146			-	-		46,700			-	-		51,357			-	-
Allowance for credit losses on loans		(70,983)			-	-		(72,418)			-	-		(72,354)			-	-
Other noninterest earning assets		460,566			-	-		457,995			-	-		491,421			-	-
Total assets	$	6,786,945					$	6,852,937					$	6,999,253

Liabilities and Stockholders' Equity
NOW accounts	$	721,922		$	1,102	0.61	$	717,468		$	897	0.50	$	668,439		$	825	0.49
Money market accounts		961,994			4,704	1.94		948,319			4,400	1.86		954,964			4,979	2.07
Savings accounts		1,098,934			2,299	0.83		1,109,381			2,215	0.80		1,175,011			3,239	1.09
Time deposits		905,298			5,757	2.52		968,464			6,199	2.57		1,347,455			10,896	3.21
Interest bearing deposits		3,688,148			13,862	1.49		3,743,632			13,711	1.47		4,145,869			19,939	1.91
Securities sold under repurchase agreements		24,059			44	0.73		21,337			40	0.75		33,382			60	0.71
Other short-term borrowings		321,413			3,145	3.88		312,803			2,989	3.83		25,978			308	4.70
Junior subordinated debentures		25,774			269	4.14		25,774			289	4.50		25,774			288	4.43
Subordinated debt		29,803			542	7.22		34,373			675	7.88		59,521			547	3.65
Notes payable and other borrowings		13,938			180	5.12		14,844			156	4.22		14,806			158	4.23
Total interest bearing liabilities		4,103,135			18,042	1.74		4,152,763			17,860	1.73		4,305,330			21,300	1.96
Noninterest bearing deposits		1,722,851			-	-		1,745,475			-	-		1,782,193			-	-
Other liabilities		61,430			-	-		55,582			-	-		61,732			-	-
Stockholders' equity		899,529			-	-		899,117			-	-		849,998			-	-
Total liabilities and stockholders' equity	$	6,786,945					$	6,852,937					$	6,999,253
Net interest income (GAAP)				$	84,049					$	83,329					$	82,775
Net interest margin (GAAP)						5.25						5.21						5.03

Net interest income (TE)¹				$	84,349					$	83,644					$	83,113
Net interest margin (TE)¹						5.27						5.23						5.05
Interest bearing liabilities to earning assets		64.59	%					64.68	%					65.94	%

¹ Represents a non-GAAP financial measure. See the discussion entitled "Reconciliation of Tax-Equivalent (TE) Non-GAAP Financial Measures" on page 53 that provides a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent. Tax equivalent basis is calculated using a marginal tax rate of 21% in 2026 and 2025, respectively.

² Interest income from loans is shown on a tax equivalent basis, which is a non-GAAP financial measure, as discussed under "Reconciliation of Tax-Equivalent (TE) Non-GAAP Financial Measures," and includes loan fee income of $1.8 million for the third quarter of 2026, loan fee income of $2.0 million for the second quarter of 2026, and loan fee income of $1.2 million for the third quarter of 2025. Nonaccrual loans are included in the above-stated average balances.


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

	Nine Months Ended September 30,
	2026						2025
	Average			Income /		Rate	Average			Income /		Rate
	Balance			Expense		%	Balance			Expense		%
Assets
Interest earning deposits with financial institutions	$	65,922		$	1,613	3.27	$	127,957		$	4,027	4.21
Securities:
Taxable		938,340			26,453	3.77		1,027,625			29,058	3.78
Non-taxable (TE)¹		138,876			4,261	4.10		151,412			4,714	4.16
Total securities (TE)¹		1,077,216			30,714	3.81		1,179,037			33,772	3.83
Dividends from FHLBC and FRBC		35,623			1,719	6.45		21,558			1,127	6.99
Loans and loans held-for-sale ^{1, 2}		5,219,390			268,515	6.88		4,383,633			214,970	6.56
Total interest earning assets		6,398,151			302,561	6.32		5,712,185			253,896	5.94
Cash and due from banks		46,688			-	-		50,590			-	-
Allowance for credit losses on loans		(71,753)			-	-		(52,586)			-	-
Other noninterest earning assets		459,665			-	-		431,019			-	-
Total assets	$	6,832,751					$	6,141,208

Liabilities and Stockholders' Equity
NOW accounts	$	712,449		$	2,822	0.53	$	650,183		$	2,135	0.44
Money market accounts		952,187			13,252	1.86		863,537			12,292	1.90
Savings accounts		1,109,025			6,690	0.81		1,019,104			5,135	0.67
Time deposits		978,219			19,173	2.62		925,184			20,233	2.92
Interest bearing deposits		3,751,880			41,937	1.49		3,458,008			39,795	1.54
Securities sold under repurchase agreements		23,395			134	0.77		34,439			184	0.71
Other short-term borrowings		274,909			7,925	3.85		9,231			325	4.71
Junior subordinated debentures		25,774			854	4.43		25,773			864	4.48
Subordinated debentures		41,137			1,763	5.73		59,500			1,639	3.68
Notes payable and other borrowings		14,534			491	4.52		4,990			158	4.23
Total interest bearing liabilities		4,131,629			53,104	1.72		3,591,941			42,965	1.60
Noninterest bearing deposits		1,735,553			-	-		1,738,576			-	-
Other liabilities		63,389			-	-		63,472			-	-
Stockholders' equity		902,180			-	-		747,219			-	-
Total liabilities and stockholders' equity	$	6,832,751					$	6,141,208
Net interest income (GAAP)				$	248,522					$	209,913
Net interest margin (GAAP)						5.19						4.91

Net interest income (TE)¹				$	249,457					$	210,931
Net interest margin (TE)¹						5.21						4.94
Interest bearing liabilities to earning assets		64.58	%					62.88	%

² Interest income from loans is shown on a tax equivalent basis, which is a non-GAAP financial measure, as discussed in the table "Reconciliation of Tax-Equivalent (TE) Non-GAAP Financial Measures," and includes loan fee income of $5.7 million and loan fee income of $2.1 million for the nine months ended September 30, 2026 and 2025, respectively. Nonaccrual loans are included in the above-stated average balances.

Reconciliation of Tax-Equivalent (TE) Non-GAAP Financial Measures

Net interest and dividend income (TE) and net interest income (TE) to average interest earning assets are non-GAAP measures that have been adjusted on a TE basis using a marginal rate of 21% for 2026 and 2025 to compare returns more appropriately on tax-exempt loans and securities to other earning assets. The table below provides a reconciliation of each non-GAAP (TE) measure to the GAAP equivalent for the periods indicated:


	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,
Net Interest Margin	2026			2026			2025			2026			2025


Interest income (GAAP)	$	102,091		$	101,189		$	104,075		$	301,626		$	252,878
Taxable-equivalent adjustment:
Loans		13			14			10			40			28
Securities		287			301			328			895			990
Interest and dividend income (TE)		102,391			101,504			104,413			302,561			253,896
Interest expense (GAAP)		18,042			17,860			21,300			53,104			42,965
Net interest income (TE)	$	84,349		$	83,644		$	83,113		$	249,457		$	210,931
Net interest income (GAAP)	$	84,049		$	83,329		$	82,775		$	248,522		$	209,913
Average interest earning assets	$	6,352,216		$	6,420,660		$	6,528,829		$	6,398,151		$	5,712,185
Net interest margin (GAAP)		5.25	%		5.21	%		5.03	%		5.19	%		4.91	%
Net interest margin (TE)		5.27	%		5.23	%		5.05	%		5.21	%		4.94	%

Noninterest Income

Three months ended September 30, 2026 and 2025

The following table details the major components of noninterest income for the periods presented:


										September 30, 2026
Noninterest Income	Three Months Ended									Percent Change From
	September 30,			June 30,			September 30,			June 30,		September 30,
	2026			2026			2025			2026		2025
Wealth management	$	3,682		$	3,628		$	3,515		1.5		4.8
Service charges on deposits		3,134			3,075			3,202		1.9		(2.1)
Residential mortgage banking revenue
Secondary mortgage fees		101			166			92		(39.2)		9.8
MSRs mark to market gain (loss)		623			(152)			(389)		509.9		(260.2)
Mortgage servicing income		467			464			469		0.6		(0.4)
Net gain on sales of mortgage loans		363			640			620		(43.3)		(41.5)
Total residential mortgage banking revenue		1,554			1,118			792		39.0		96.2
Securities losses, net		(1)			-			(1)		N/M		-
Change in cash surrender value of BOLI		796			1,469			1,175		(45.8)		(32.3)
Death benefit realized on BOLI		-			-			430		-		(100.0)
Card related income		2,479			2,483			2,581		(0.2)		(4.0)
Other income		1,426			1,488			1,415		(4.2)		0.8
Total noninterest income	$	13,070		$	13,261		$	13,109		(1.4)		(0.3)

N/M - Not meaningful.

Noninterest income decreased $191,000, or 1.4%, in the third quarter of 2026, compared to the second quarter of 2026, and decreased $39,000, or 0.3%, compared to the third quarter of 2025. The decrease from the second quarter of 2026 was primarily driven by a $673,000 decrease in the cash surrender value of BOLI due to changes in market interest rates, primarily on COLI investments. Partially offsetting the decrease during the third quarter of 2026, compared to the second quarter of 2026, was a $436,000 increase in mortgage banking income due to an MSR mark to market gain of $623,000 in the third quarter of 2026, compared to a $152,000 loss in the second quarter of 2026.

The decrease in noninterest income of $39,000 in the third quarter of 2026, compared to the third quarter of 2025, is primarily due to a $379,000 decrease in the cash surrender value of BOLI due to changes in market interest rates, primarily on COLI investments. Also contributing to the decrease in noninterest income during the third quarter of 2026 was $430,000 of death benefits realized on BOLI in the 2025 period, compared to none in the 2026 period, and a $102,000 decrease in card related income compared to the prior year. Partially offsetting the decreases to noninterest income during the quarter was a $167,000 increase in wealth management income from growth in advisory, agent, 12b-1 fees, and personal trust fees, and a $762,000 increase in residential mortgage banking revenue, primarily due to a $1.0 million increase in MSRs mark to market valuations.

Nine months ended September 30, 2026 and 2025


Noninterest Income	Nine Months Ended
	September 30,			September 30,			Percent
	2026			2025			Change
Wealth management	$	10,693		$	9,707		10.2
Service charges on deposits		9,339			9,238		1.1
Residential mortgage banking revenue
Secondary mortgage fees		388			249		55.8
MSRs mark to market gain (loss)		319			(1,490)		121.4
Mortgage servicing income		1,428			1,421		0.5
Net gain on sales of mortgage loans		1,558			1,634		(4.7)
Total residential mortgage banking revenue		3,693			1,814		103.6
Securities losses, net		(1)			(1)		-
Change in cash surrender value of BOLI		3,347			2,363		41.6
Death benefit realized on BOLI		-			430		(100.0)
Card related income		7,312			7,355		(0.6)
Other income		4,578			3,302		38.6
Total noninterest income	$	38,961		$	34,208		13.9

Noninterest income increased $4.8 million, or 13.9%, for the nine months ended September 30, 2026, compared to the nine months ended September 30, 2025. This increase was primarily driven by a $986,000 increase in wealth management income, a $101,000 increase in service charges on deposits, and a $1.9 million increase in mortgage banking revenue, comprised primarily of a $1.8 million increase in MSRs mark to market valuations. In addition, noninterest income for the nine month period ended September 30, 2026, compared to the like 2025 period, increased due to a $984,000 increase in the cash surrender value of BOLI due to market interest rate changes, primarily on COLI investments, and a $1.3 million increase in other income primarily driven by growth in powersport and consumer loan fees provided by the acquired Bancorp Financial loan portfolio. Partially offsetting the increase in noninterest income for the nine months ended September 30, 2026, compared to the nine months ended September 30, 2025, was $430,000 in death benefits realized on BOLI in 2025; no like death benefit was recorded for the nine month period in 2026.

Noninterest Expense

Three months ended September 30, 2026 and 2025

The following table details the major components of noninterest expense for the periods presented:


										September 30, 2026
Noninterest Expense	Three Months Ended									Percent Change From
	September 30,			June 30,			September 30,			June 30,		September 30,
	2026			2026			2025			2026		2025
Salaries	$	22,900		$	22,332		$	31,360		2.5		(27.0)
Officers' incentive		2,710			2,240			3,279		21.0		(17.4)
Benefits and other		5,236			5,531			5,084		(5.3)		3.0
Total salaries and employee benefits		30,846			30,103			39,723		2.5		(22.3)
Occupancy, furniture and equipment		5,284			5,118			4,937		3.2		7.0
Computer and data processing		3,258			3,217			4,002		1.3		(18.6)
FDIC insurance		746			759			854		(1.7)		(12.6)
Net teller & bill paying		754			724			691		4.1		9.1
General bank insurance		355			351			437		1.1		(18.8)
Amortization of core deposit intangible		1,149			1,167			1,251		(1.5)		(8.2)
Advertising and marketing expense		603			483			650		24.8		(7.2)
Card related expense		1,589			1,604			1,708		(0.9)		(7.0)
Professional fees		1,417			1,160			3,145		22.2		(54.9)
Consumer credit expense		1,725			1,720			1,368		0.3		26.1
Other real estate owned expense, net		(30)			52			128		(157.7)		(123.4)
Other expense		3,926			4,794			4,269		(18.1)		(8.0)
Total noninterest expense	$	51,622		$	51,252		$	63,163		0.7		(18.3)
Efficiency ratio (GAAP)¹		52.34	%		51.72	%		64.46	%
Adjusted efficiency ratio (non-GAAP)²		52.06	%		50.80	%		52.10	%

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

² The adjusted efficiency ratio shown in the table above is a non-GAAP financial measure calculated as noninterest expense, excluding amortization of core deposits, OREO expenses, acquisition expense, net of gains or losses on branch sales, as applicable, divided by the sum of net interest income on a fully tax equivalent basis, total noninterest income less net gains or losses on securities, death benefit realized on BOLI, as applicable, mark to market gains or losses on MSRs, and includes a tax equivalent adjustment on the change in cash surrender value of BOLI. See the discussion entitled "Non-GAAP Financial Measures" above and the table under "Reconciliation of Adjusted Efficiency Ratio Non-GAAP Financial Measures" that provides a reconciliation of this non-GAAP financial measure to the most comparable GAAP equivalent.

Noninterest expense for the third quarter of 2026 increased $370,000, or 0.7%, compared to the second quarter of 2026, but decreased $11.5 million, or 18.3%, compared to the third quarter of 2025. The increase in the third quarter of 2026, compared to the second quarter of 2026, was driven by a $743,000 increase in salaries and employee benefits with increases reflected primarily in salaries, officer incentive accruals, and insurance premiums. Also contributing to the increase was a $166,000 increase in occupancy, furniture and equipment due to increases in real estate taxes and office equipment maintenance, a $120,000 increase in advertising and marketing expense due to costs associated with a 2026 brand awareness campaign, and a $257,000 increase in professional fees due to consulting and management fees related to the 2026 brand awareness campaign as well as an increase in loan related legal fees. Partially offsetting the increase in noninterest expense for the third quarter of 2026, compared to the second quarter of 2026, was an $868,000 decrease in other expense primarily due to decreases in director deferred compensation expense, decreases in non-legal commercial expenses, a decrease in litigation expense as two non-recurring and unrelated customer disputes with limited exposure were recorded last quarter, and a decrease in miscellaneous expenses as the previous quarter included an accrual related to powersport loan gap insurance refunds due to customers related to loan prepayments.

The year over year decrease in noninterest expense is primarily attributable to an $8.9 million decrease in salaries and employee benefits, primarily attributable to Bancorp Financial acquisition related costs for change in control, retention and severance payments. Also contributing to the decrease in noninterest expense year over year was a $744,000 decrease in computer and data processing expenses, a $1.7 million decrease in professional fees, and a $343,000 decrease in other expense primarily due to Bancorp Financial acquisition-related costs in the prior year period.

Nine months ended September 30, 2026 and 2025


Noninterest Expense	Nine Months Ended
	September 30,			September 30,			Percent
	2026			2025			Change
Salaries	$	67,165		$	69,283		(3.1)
Officers' incentive		6,602			8,999		(26.6)
Benefits and other		16,855			15,384		9.6
Total salaries and employee benefits		90,622			93,666		(3.2)
Occupancy, furniture and equipment		15,773			13,962		13.0
Computer and data processing		9,850			9,042		8.9
FDIC insurance		2,264			2,124		6.6
Net teller & bill paying		2,194			2,019		8.7
General bank insurance		1,059			1,095		(3.3)
Amortization of core deposit intangible		3,492			3,310		5.5
Advertising and marketing expense		1,637			1,334		22.7
Card related expense		4,712			4,577		2.9
Professional fees		3,876			5,398		(28.2)
Consumer credit expense		4,967			1,408		N/M
Other real estate owned expense, net		(164)			2,036		(108.1)
Other expense		12,802			11,116		15.2
Total noninterest expense	$	153,084		$	151,087		1.3
Efficiency ratio (GAAP)¹		52.15	%		59.44	%
Adjusted efficiency ratio (non-GAAP)²		51.52	%		53.87	%

N/M - Not meaningful.

² The adjusted efficiency ratio shown in the table above is a non-GAAP financial measure calculated as noninterest expense, excluding amortization of core deposits, OREO expenses, acquisition expense, net of gains or losses on branch sales, as applicable, divided by the sum of net interest income on a fully tax equivalent basis, total noninterest income less net gains or losses on securities, death benefit realized on BOLI, as applicable, mark to market gains or losses on MSRs, and includes a tax equivalent adjustment on the change in cash surrender value of BOLI. See the discussion entitled "Non-GAAP Financial Measures" above and the table under "Reconciliation of Adjusted Efficiency Ratio Non-GAAP Financial Measures" that provides a reconciliation of this non-GAAP financial measure to the most comparable GAAP equivalent.

Noninterest expense for the nine months ended September 30, 2026, increased $2.0 million, or 1.3%, compared to the nine months ended September 30, 2025, primarily due to a $1.8 million increase in occupancy, furniture and equipment, an $808,000 increase in computer and data processing expense, a $3.6 million increase in consumer credit expense, and a $1.7 million increase in other expense, which are all primarily due to the effect of the Bancorp Financial acquisition and the corresponding growth in expenses. Partially offsetting the increases year over year were a $3.0 million decrease in salaries and employee benefits primarily due to 2025 payments for change in control, retention and severance on the acquisition of Bancorp Financial and other acquisition-related costs, as well as a decrease in the officer incentive accrual for 2026 due to certain performance metrics falling short of target, a $1.5 million decrease in professional fees as the prior year included Bancorp Financial acquisition related costs, and a $2.2 million decrease in other real estate owned expense, net, as all OREO properties have been sold since the third quarter of 2025, resulting in a reduction of expenses.

Efficiency Ratio

The efficiency ratio presented above and reconciled below measures how much it costs an institution to generate one dollar of revenue. We utilize this measure in evaluating employee performance incentives as well as in comparison against peer performance, to set and assess operational standards. The following table provides a reconciliation of the non-GAAP efficiency ratio to the most comparable GAAP equivalent.

Reconciliation of Adjusted Efficiency Ratio Non-GAAP Financial Measures


	GAAP									Non-GAAP
		Three Months Ended									Three Months Ended
	September 30,			June 30,			September 30,			September 30,			June 30,			September 30,
	2026			2026			2025			2026			2026			2025
Efficiency Ratio / Adjusted Efficiency Ratio

Noninterest expense	$	51,622		$	51,252		$	63,163		$	51,622		$	51,252		$	63,163
Less amortization of core deposit		1,149			1,167			1,251			1,149			1,167			1,251
Less other real estate expense, net		(30)			52			128			(30)			52			128
Less acquisition related costs, net of losses on branch sales		N/A			N/A			N/A			-			526			11,508
Noninterest expense less adjustments	$	50,503		$	50,033		$	61,784		$	50,503		$	49,507		$	50,276

Net interest income	$	84,049		$	83,329		$	82,775		$	84,049		$	83,329		$	82,775
Taxable-equivalent adjustment:
Loans		N/A			N/A			N/A			13			14			10
Securities		N/A			N/A			N/A			287			301			328
Net interest income including adjustments		84,049			83,329			82,775			84,349			83,644			83,113
Noninterest income		13,070			13,261			13,109			13,070			13,261			13,109
Less death benefit related to BOLI		-			-			430			-			-			430
Less securities losses, net		(1)			-			(1)			(1)			-			(1)
Less MSRs mark to market gains (losses)		623			(152)			(389)			623			(152)			(389)
Change in cash surrender value of BOLI		N/A			N/A			N/A			212			390			312
Noninterest income including adjustments		12,448			13,413			13,069			12,660			13,803			13,381

Net interest income including adjustments plus noninterest income including adjustments	$	96,497		$	96,742		$	95,844		$	97,009		$	97,447		$	96,494
Efficiency ratio / Adjusted efficiency ratio		52.34	%		51.72	%		64.46	%		52.06	%		50.80	%		52.10	%

N/A - not applicable


	GAAP						Non-GAAP
		Nine Months Ended						Nine Months Ended
	September 30,			September 30,			September 30,			September 30,
	2026			2025			2026			2025
Efficiency Ratio / Adjusted Efficiency Ratio
(Dollars in thousands)

Noninterest expense	$	153,084		$	151,087		$	153,084		$	151,087
Less amortization of core deposit intangible		3,492			3,310			3,492			3,310
Less other real estate expense, net		(164)			2,036			(164)			2,036
Less acquisition related costs, net of losses on branch sales		N/A			N/A			875			12,772
Noninterest expense less adjustments	$	149,756		$	145,741		$	148,881		$	132,969

Net interest income	$	248,522		$	209,913		$	248,522		$	209,913
Taxable-equivalent adjustment:
Loans		N/A			N/A			40			28
Securities		N/A			N/A			895			990
Net interest income including adjustments		248,522			209,913			249,457			210,931
Noninterest income		38,961			34,208			38,961			34,208
Less death benefit related to BOLI		-			430			-			430
Less securities losses, net		(1)			(1)			(1)			(1)
Less MSRs mark to market gains (losses)		319			(1,490)			319			(1,490)
Taxable-equivalent adjustment:
Change in cash surrender value of BOLI		N/A			N/A			890			628
Noninterest income including adjustments		38,643			35,269			39,533			35,897

Net interest income including adjustments plus noninterest income including adjustments	$	287,165		$	245,182		$	288,990		$	246,828
Efficiency ratio / Adjusted efficiency ratio		52.15	%		59.44	%		51.52	%		53.87	%

N/A - not applicable

Income Taxes

We recorded income tax expense of $9.8 million for the third quarter of 2026 on $38.7 million of pretax income, compared to income tax expense of $9.7 million on $37.8 million of pretax income in the second quarter of 2026, and income tax expense of $3.2 million on $13.1 million of pretax income in the third quarter of 2025. Our effective tax rate was 25.3% in the third quarter of 2026, 25.5% for the second quarter of 2026, and 24.5% for the third quarter of 2025.

We recorded income tax expense of $27.9 million for the nine months ended September 30, 2026, on $110.6 million of pretax income, compared to income tax expense of $17.0 million on $68.5 million of pretax income for the nine months ended September 30, 2025. Our effective tax rate was 25.3% for the nine months ended September 30, 2026, compared to 24.8% for the like 2025 period.

Income tax expense reflected all relevant statutory tax rates and GAAP accounting. There were no significant changes in our ability to utilize our deferred tax assets during the quarter ended September 30, 2026. We had no valuation reserve on the deferred tax assets as of September 30, 2026.

Financial Condition

Total assets decreased $124.1 million to $6.78 billion at September 30, 2026, from $6.90 billion at December 31, 2025, due primarily to the decrease of $111.9 million in securities available-for-sale and a decrease of $14.1 million in total loans. We continue to actively assess potential investment opportunities to utilize our excess liquidity. Total deposits were $5.33 billion at September 30, 2026, a decrease of $268.5 million from December 31, 2025.


											September 30, 2026
Securities		As of									Percent Change From
		September 30,			December 31,			September 30,			December 31,		September 30,
		2026			2025			2025			2025		2025
Securities available-for-sale, at fair value
U.S. Treasuries		$	148,073		$	165,860		$	190,670		(10.7)		(22.3)
U.S. government agencies			39,109			29,176			38,264		34.0		2.2
U.S. government agencies mortgage-backed			74,835			88,780			93,051		(15.7)		(19.6)
States and political subdivisions			177,272			206,375			210,675		(14.1)		(15.9)
Collateralized mortgage obligations			328,790			359,305			378,236		(8.5)		(13.1)
Asset-backed securities			37,395			45,816			47,802		(18.4)		(21.8)
Collateralized loan obligations			172,331			194,464			198,098		(11.4)		(13.0)
Equity securities			771			747			684		3.2		12.7
Total securities		$	978,576		$	1,090,523		$	1,157,480		(10.3)		(15.5)

Securities available-for-sale decreased $111.9 million as of September 30, 2026, compared to December 31, 2025, and decreased $178.9 million compared to September 30, 2025. The decrease in the portfolio during 2026 was driven by paydowns totaling $171.4 million, along with maturities and calls totaling $102.6 million and a $22.2 million increase in unrealized losses on securities available-for-sale. This was partially offset by $185.5 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.


							September 30, 2026
Loans	As of						Percent Change From
	September 30,		December 31,		September 30,		December 31,		September 30,
	2026		2025		2025		2025		2025
Commercial	$	867,362	$	842,130	$	786,095	3.0		10.3
Leases		554,370		548,256		550,201	1.1		0.8
Commercial real estate - investor		1,131,857		1,212,384		1,257,328	(6.6)		(10.0)
Commercial real estate - owner occupied		684,169		706,567		680,412	(3.2)		0.6
Construction		153,491		173,630		176,387	(11.6)		(13.0)
Residential real estate - investor		65,679		70,225		69,362	(6.5)		(5.3)
Residential real estate - owner occupied		247,515		230,432		231,547	7.4		6.9
Multifamily		370,431		339,131		378,213	9.2		(2.1)
HELOC		245,938		235,293		234,885	4.5		4.7
Powersport		689,229		696,959		715,498	(1.1)		(3.7)
Other ¹		228,016		197,124		184,577	15.7		23.5
Total loans	$	5,238,057	$	5,252,131	$	5,264,505	(0.3)		(0.5)

¹ The "Other" classification includes consumer loans, such as collector cars, manufactured homes, and solar loans, as well as overdrafts.

Total loans were $5.24 billion as of September 30, 2026, a decrease of $14.1 million from December 31, 2025. The decrease in total loans in the first nine months of 2026, compared to December 31, 2025, was primarily due to paydowns, net of originations, in commercial real estate - investor, commercial real estate - owner occupied, construction, and powersport. Total loans decreased $26.4 million compared to September 30, 2025, mostly driven by paydowns, net of originations, in commercial real estate - investor, construction, and powersport. 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. Refer to Item 1. Note 1. Recent Accounting Pronouncements, for discussion of ASU 2025-08, which the Company has elected not to early adopt and which will impact how purchased loans are recorded for any future acquisitions completed after adoption.

The powersport loan portfolio provides a more balanced loan portfolio overall by broadening the scope of our consumer lending and offering a higher yield in a lower rate environment. The initial credit considerations for powersport loans rely more heavily on FICO scores compared to other loan types in our loan portfolio. During the nine months ended September 30, 2026, we originated $301.2 million of powersport loans with a weighted average yield of 10.41%. As of September 30, 2026, the weighted average FICO score, at the time of origination, of the entire powersport portfolio is 728.


			Weighted
	September 30,		Average
	2026		FICO
Tier 1	$	365,545	777
Tier 2		130,053	711
Tier 3		80,235	684
Tier 4		38,932	660
Tier 5		74,464	606
Total Powersport	$	689,229	728

The following table sets forth the total of powersport by collateral type:


	September 30,		% of
	2026		Total
New	$	520,927	75.6	%
Used		168,302	24.4
Total Powersport	$	689,229	100.0	%

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 55.4% of the portfolio as of September 30, 2026, compared to 56.5% of the portfolio as of December 31, 2025. At September 30, 2026, our outstanding commercial real estate loans and undrawn commercial real estate commitments, excluding owner occupied real estate, were equal to 208.5% of the Bank's Tier 1 capital plus allowance for credit losses, a decrease from 220.3% at December 31, 2025. We continue to oversee and seek to manage our loan portfolio in accordance with interagency guidance on risk management.

Asset Quality

Nonperforming loans consist of nonaccrual loans and loans 90 days or greater past due. Nonperforming loans decreased by $13.2 million to $39.6 million at September 30, 2026, from $52.8 million at December 31, 2025, and decreased by $8.3 million from $48.0 million at September 30, 2025. The decrease from December 31, 2025 and September 30, 2025 was mostly driven by non-accrual charge-offs for a commercial relationship in the third quarter of 2026 and a larger paydown for a commercial real estate - investor relationship. Purchased credit deteriorated loans ("PCD") are purchased loans that, as of the date of acquisition, we determined had experienced a more-than-insignificant deterioration in credit quality since origination. PCD loans are included in our nonperforming loan disclosures, if such loans otherwise meet the definition of a nonperforming loan. Total PCD loans are $52.5 million, of which $1.8 million meet the definition of nonperforming, as of September 30, 2026 and $78.6 million, of which $3.4 million meet the definition of nonperforming, as of December 31, 2025. Management continues to carefully monitor loans considered to be in a classified status. Nonperforming loans as a percent of total loans were 0.8% as of September 30, 2026, 1.0% as of December 31, 2025, and 0.9% as of September 30, 2025. The distribution of our nonperforming loans is shown in the following table.


							September 30, 2026
Nonperforming Loans	As of						Percent Change From
	September 30,		December 31,		September 30,		December 31,	September 30,
	2026		2025		2025		2025	2025
Commercial	$	7,372	$	9,761	$	13,293	(24.5)	(44.5)
Leases		1,729		2,899		1,277	(40.4)	35.4
Commercial real estate - investor		8,740		11,377		2,853	(23.2)	206.3
Commercial real estate - owner occupied		10,228		19,743		23,236	(48.2)	(56.0)
Construction		1,736		737		344	135.5	404.7
Residential real estate - investor		1,030		681		749	51.2	37.5
Residential real estate - owner occupied		2,459		1,852		1,649	32.8	49.1
Multifamily		1,254		1,494		1,183	(16.1)	6.0
HELOC		2,160		1,222		1,035	76.8	108.7
Powersport		2,728		2,778		2,230	(1.8)	22.3
Other ¹		200		287		136	(30.3)	47.1
Total nonperforming loans	$	39,636	$	52,831	$	47,985	(25.0)	(17.4)

¹ The "Other" classification includes consumer loans, such as collector cars, manufactured homes, and solar loans, as well as overdrafts.

The components of our nonperforming assets are shown in the following table:


										September 30, 2026
Nonperforming Assets	As of									Percent Change From
	September 30,			December 31,			September 30,			December 31,	September 30,
	2026			2025			2025			2025	2025
Nonaccrual loans	$	36,579		$	47,952		$	34,126		(23.7)	7.2
Loans past due 90 days or more and still accruing interest		3,057			4,879			13,859		(37.3)	(77.9)
Total nonperforming loans		39,636			52,831			47,985		(25.0)	(17.4)
Other real estate owned		-			1,427			6,416		(100.0)	(100.0)
Repossessed assets ¹		1,279			1,363			2,088		(6.2)	(38.7)
Total nonperforming assets	$	40,915		$	55,621		$	56,489		(26.4)	(27.6)


30-89 days past due loans and still accruing interest	$	43,553		$	52,169		$	22,415
Nonaccrual loans to total loans		0.7	%		0.9	%		0.6	%
Nonperforming loans to total loans		0.8	%		1.0	%		0.9	%
Nonperforming assets to total loans plus OREO and repossessed assets		0.8	%		1.1	%		1.1	%

Allowance for credit losses	$	64,189		$	72,301		$	75,037
Allowance for credit losses to total loans		1.2	%		1.4	%		1.4	%
Allowance for credit losses to nonaccrual loans		175.5	%		150.8	%		219.9	%

¹ Repossessed assets are reported within other assets.

Loan charge-offs, net of recoveries, for the third quarter of 2026 as compared to the prior linked quarter and year over year quarter are shown in the following table:


Loan Charge-offs, Net of Recoveries	Three Months Ended
	September 30,		% of	June 30,		% of	September 30,		% of
	2026		Total¹	2026		Total¹	2025		Total¹
Commercial	$	9,171	72.1	$	2,983	32.3	$	385	7.5
Leases		172	1.3		344	3.7		848	16.6
Commercial real estate - investor		(14)	(0.1)		2,804	30.3		(15)	(0.3)
Commercial real estate - owner occupied		(1)	-		(1)	-		(2)	-
Construction		-	-		-	-		(46)	(0.9)
Residential real estate - investor		(3)	-		(1)	-		(2)	-
Residential real estate - owner occupied		(10)	(0.1)		(21)	(0.2)		(7)	(0.1)
Multifamily		-	-		-	-		181	3.5
HELOC		(10)	(0.1)		(14)	(0.2)		(19)	(0.4)
Powersport		3,133	24.6		2,826	30.6		2,980	58.3
Other ²		288	2.3		328	3.5		805	15.8
Net charge-offs (recoveries)	$	12,726	100.0	$	9,248	100.0	$	5,108	100.0

¹ Represents the percentage of net charge-offs attributable to each category of loans.

² The "Other" classification includes consumer loans, such as collector cars, manufactured homes, and solar loans, as well as overdrafts.

Net charge-offs, reported in the above table, reflect continuing management attention to credit quality and remediation efforts. There was an increase of $3.8 million in gross charge-offs, as compared to the linked quarter, primarily due to larger charge-offs taken on a single commercial relationship and slight increase in powersport charges-offs. Powersport loans are measured for asset quality at origination based on FICO scores, then based on past due status through the life of the loan, and charge-off occurs once a loan is past due 120 days. We have continued our conservative loan valuations and aggressive recovery efforts on prior charge-offs.

Classified loans include nonaccrual loans, accruing substandard, and doubtful loans. Classified assets include classified loans, OREO, and repossessed assets. Loans classified as substandard are inadequately protected by either the current net worth and ability to meet payment obligations of the obligor, or by the collateral pledged to secure the loan, if any. These loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt and carry the distinct possibility that we will sustain some loss if the deficiencies remain uncorrected. Loans classified as doubtful have all the weaknesses inherent as those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

The following table shows classified assets by classification for the following periods:


							September 30, 2026
Classified Assets	As of						Percent Change From
	September 30,		December 31,		September 30,		December 31,	September 30,
	2026		2025		2025		2025	2025
Commercial	$	13,190	$	51,587	$	50,680	(74.4)	(74.0)
Leases		1,729		2,428		1,277	(28.8)	35.4
Commercial real estate - investor		12,730		14,245		2,853	(10.6)	346.2
Commercial real estate - owner occupied		26,546		64,081		72,020	(58.6)	(63.1)
Construction		12,866		11,421		1,612	12.7	698.1
Residential real estate - investor		1,030		1,142		1,228	(9.8)	(16.1)
Residential real estate - owner occupied		2,249		1,897		1,839	18.6	22.3
Multifamily		1,254		1,494		1,183	(16.1)	6.0
HELOC		2,355		1,466		1,538	60.6	53.1
Powersport		145		68		-	113.2	N/M
Other		154		270		30	(43.0)	413.3
Total classified loans		74,248		150,099		134,260	(50.5)	(44.7)
Other real estate owned		-		1,427		6,416	(100.0)	(100.0)
Repossessed assets ¹		1,279		1,363		2,088	(6.2)	(38.7)
Total classified assets	$	75,527	$	152,889	$	142,764	(50.6)	(47.1)

N/M - Not meaningful

¹ Repossessed assets are reported within other assets.

Total classified loans decreased $75.9 million as of September 30, 2026, from December 31, 2025, and by $60.0 million compared to September 30, 2025. The decrease in classified loans since December 31, 2025, is due to outflows from classified loans of $100.5 million, offset by additions of $24.6 million. Outflows consisted of $29.7 million of loans paid off, $42.9 million of classified loans upgraded, $17.1 million of principal reductions through payments and partial charge-offs, $10.5 million of loans fully charged off, $235,000 of loans transferred into OREO, and $148,000 of loans transferred to repossessed assets. Based on information received during the third quarter of 2026, it became necessary to downgrade a portion of one commercial real estate - investor credit to doubtful. Classified assets decreased as of September 30, 2026, compared to December 31, 2025, due to the decreases to classified loans and a total decrease of $1.5 million related to OREO and repossessed assets. The $67.2 million decrease in classified assets as of September 30, 2026, compared to September 30, 2025, is primarily due to the classified loan decrease of $60.0 million, noted above, and a $7.2 million decrease in OREO and repossessed assets. Classified loans since September 30, 2025 had additions of $67.0 million and were offset by outflows of $127.0 million which consisted of $54.1 million of loans paid off, $43.0 million of classified loans upgraded, $10.5 million of loans charged off, $19.1 million of net principal reductions and partial charge-offs, $235,000 transferred to OREO, and $148,000 repossessed. Management monitors a ratio of classified assets to the sum of Bank Tier 1 capital and the ACL on loans as another measure of overall change in loan related asset quality, which is referred to as the "classified assets ratio." The classified assets ratio was 8.70% for the period ended September 30, 2026, compared to 17.82% as of December 31, 2025, and 16.55% as of September 30, 2025.

Allowance for Credit Losses on Loans

The provision for credit losses, which includes a provision for losses on unfunded commitments, is a charge to earnings to maintain the allowance for credit losses ("ACL") at a level consistent with management's assessment of expected losses in the loan portfolio at the balance sheet date.

At September 30, 2026, our ACL on loans totaled $64.2 million, and our ACL on unfunded commitments, included in other liabilities, totaled $2.2 million. In the third quarter of 2026, we recorded a provision expense on loans of $6.5 million driven by increased charge-offs to one commercial relationship. Further, we recorded a $216,000 provision expense on unfunded commitments, primarily due to the increase to the loss rates as a result of the qualitative factor adjustment made specific to the remaining life of certain portfolios within the ACL calculation. These adjustments resulted in a $6.8 million net expense to the provision for credit losses for the third quarter of 2026.

Management estimates the amount of provision required on a quarterly basis and records the appropriate provision expense, or release of expense, to maintain an adequate reserve for all potential and estimated credit losses on loans, leases and unfunded commitments. The ACL on loans totaled $64.2 million as of September 30, 2026, $72.3 million as of December 31, 2025, and $75.0 million as of September 30, 2025. Our ACL on loans to total loans was 1.2% as of September 30, 2026, and 1.4% as of both December 31, 2025 and September 30, 2025. See Item 7 - Critical Accounting Estimates in the Management Discussion and Analysis in our 2025 Annual Report on Form 10-K for discussion of our ACL methodology on loans. Allocations of the ACL may be made for specific loans, but the entire allowance is available for any loan that, in our judgment, should be charged off.

Below is a reconciliation of the activity in the allowance for credit losses on loans for the periods indicated:


		Three Months Ended								Nine Months Ended
	September 30,			June 30,			September 30,			September 30,			September 30,
	2026			2026			2025			2026			2025
Allowance at beginning of period	$	70,380		$	72,126		$	42,990		$	72,301		$	43,619
Charge-offs:
Commercial		9,352			3,002			452			13,682			5,023
Leases		174			346			848			832			955
Commercial real estate - investor		-			2,819			-			6,752			-
Commercial real estate - owner occupied		-			-			-			-			47
Construction		-			-			-			-			834
Residential real estate - investor		-			-			-			-			-
Residential real estate - owner occupied		-			-			-			-			-
Multifamily		-			-			181			-			181
HELOC		-			-			-			2			-
Powersport		4,017			3,592			3,685			12,270			3,685
Other ¹		429			412			880			1,398			1,082
Total charge-offs		13,972			10,171			6,046			34,936			11,807
Recoveries:
Commercial		181			19			67			230			131
Leases		2			2			-			119			17
Commercial real estate - investor		14			15			15			43			43
Commercial real estate - owner occupied		1			1			2			7			11
Construction		-			-			46			-			396
Residential real estate - investor		3			1			2			6			6
Residential real estate - owner occupied		10			21			7			38			45
Multifamily		-			-			-			-			-
HELOC		10			14			19			32			41
Powersport		884			766			705			2,417			705
Other ¹		141			84			75			294			166
Total recoveries		1,246			923			938			3,186			1,561
Net charge-offs		12,726			9,248			5,108			31,750			10,246
Day 1 PCD credit evaluation		-			-			17,540			-			17,540
Provision for credit losses on loans ²		6,535			7,502			19,615			23,638			24,124
Allowance at end of period	$	64,189		$	70,380		$	75,037		$	64,189		$	75,037

Average total loans (exclusive of loans held-for-sale)	$	5,225,305		$	5,219,813		$	5,215,551		$	5,217,018		$	4,381,793
Annualized net charge-offs to average loans		0.97	%		0.71	%		0.39	%		0.81	%		0.31	%

¹ The "Other" classification includes consumer loans, such as collector cars, manufactured homes, and solar loans, as well as overdrafts.

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

The coverage ratio of the ACL on loans to nonperforming loans was 161.9% as of September 30, 2026, which was an increase from the coverage ratio of 136.9% as of December 31, 2025 and from 156.4% as of September 30, 2025. Annualized net charge-offs to average loans increased slightly in the current quarter at 0.97% for the quarter ended September 30, 2026, compared to 0.71% for the quarter ended June 30, 2026 and was an increase from the prior year quarter of 0.39% as of September 30, 2025.

In management's judgment, an adequate ACL has been established to encompass the current lifetime expected credit losses at September 30, 2026, as well as general changes in lending policy, procedures and staffing, and other external factors. However, there can be no assurance that actual losses will not exceed the estimated amounts in the future, based on unforeseen economic events, changes in business climates and the condition of collateral at the time of default and repossession. Continued volatility in the economic environment stemming from the impacts of and response to inflation, tariffs, potential recession, and the war in Ukraine and the war in Iran, and the associated effects on our customers, or other factors, such as changes in business climates and the condition of collateral at the time of default or repossession, may revise our current expectations of future credit losses in future reporting periods.

Other Real Estate Owned

As of September 30, 2026, there were no OREO properties held, reflecting a decrease from $1.4 million at December 31, 2025, and a decrease from $6.4 million at September 30, 2025. There was one sale totaling $622,000 for the three months ended September 30, 2026. The remaining valuation was cleared along with this sale. There was no valuation adjustment in the fourth quarter of 2025 and we recorded a valuation adjustment of $70,000 in the third quarter of 2025.


							September 30, 2026
OREO	Three Months Ended						Percent Change From
	September 30,		December 31,		September 30,		December 31,	September 30,
	2026		2025		2025		2025	2025
Balance at beginning of period	$	622	$	6,416	$	6,486	(90.3)	(90.4)
Property additions, net of transfer adjustments		-		-		-	-	-
Less:
Proceeds from property disposals, net of participation purchase and of gains/losses		622		4,989		-	(87.5)	N/M
Period valuation adjustments		-		-		70	-	(100.0)
Balance at end of period	$	-	$	1,427	$	6,416	(100.0)	(100.0)

N/M - Not meaningful.

When OREO is held, management records the property at the lower of its carrying amount or fair value less estimated costs to sell. Subsequent valuations are updated, as necessary, until the property is sold, and additional losses may be recognized based on changes in estimated fair value or costs to sell.



OREO Properties by Type
	September 30, 2026			December 31, 2025			September 30, 2025
		Amount	% of Total		Amount	% of Total		Amount	% of Total
Commercial property		-	-		1,427	100		6,416	100
Total other real estate owned	$	-	-	$	1,427	100	$	6,416	100

Deposits and Borrowings


							September 30, 2026
Deposits	As of						Percent Change From
	September 30,		December 31,		September 30,		December 31,		September 30,
	2026		2025		2025		2025		2025
Noninterest bearing demand	$	1,671,745	$	1,739,117	$	1,738,028	(3.9)		(3.8)
Savings		1,090,082		1,121,888		1,142,947	(2.8)		(4.6)
NOW accounts		693,157		693,573		661,627	(0.1)		4.8
Money market accounts		989,498		930,079		959,416	6.4		3.1
Certificates of deposit of less than $100,000		395,591		489,879		550,747	(19.2)		(28.2)
Certificates of deposit of $100,000 through $250,000		327,747		412,655		459,186	(20.6)		(28.6)
Certificates of deposit of more than $250,000		159,744		208,878		248,299	(23.5)		(35.7)
Total deposits	$	5,327,564	$	5,596,069	$	5,760,250	(4.8)		(7.5)

Total deposits were $5.33 billion at September 30, 2026, which reflects a $268.5 million decrease from total deposits of $5.60 billion at December 31, 2025, and a decrease of $432.7 million from total deposits of $5.76 billion at September 30, 2025. The decrease in deposits at September 30, 2026, compared to December 31, 2025, was primarily due to decreases in noninterest bearing deposits of $67.4 million, savings and NOW accounts of $32.2 million, and time deposits of $228.3 million, primarily due to the roll off of higher rate brokered deposits and other exception-priced time deposits acquired from the Bancorp Financial acquisition. These decreases were offset by an increase in money market accounts of $59.4 million. The decrease in deposits compared to September 30, 2025 was primarily seasonal in nature. We have used FHLBC advances to replace a portion of these deposit outflows, which has increased our interest expense on other short-term borrowings. We expect brokered and exception-priced time deposits to roll off at a slower pace and anticipate that our reliance on short-term borrowings will continue at a similar rate.

The decrease in deposits at September 30, 2026, compared to September 30, 2025, stemmed primarily from attrition of time deposits assumed in the acquisition of Bancorp Financial. Total quarterly average deposits decreased $517.1 million, or 8.7%, in the year over year period, primarily driven by a decrease in average time deposits of $442.2 million, savings accounts of $76.1 million, and noninterest bearing deposits of $59.3 million. These decreases were offset by an increase in money market accounts of $7.0 million and NOW accounts of $53.5 million. Included in our quarterly average time deposits for the three months ended September 30, 2026, are $28.0 million of brokered deposits, compared to $96.9 million for the like period of 2025. Brokered deposits totaling $115.0 million were assumed in the acquisition of Bancorp Financial, and we expect these deposits to run-off by early 2028. Accordingly, as of September 30, 2026, we have $27.1 million of brokered deposits remaining.

The following table presents estimated insured and uninsured deposits at September 30, 2026, and December 31, 2025, by deposit type, as well as the weighted average rates for each year to date ending period.


	September 30, 2026								December 31, 2025
	Total Deposits		Insured Deposits		Uninsured Deposits		Average Rate Paid		Total Deposits		Insured Deposits		Uninsured Deposits		Average Rate Paid
Noninterest bearing demand	$	1,671,745	$	1,112,323	$	559,422	-	%	$	1,739,117	$	1,141,542	$	597,575	-	%
Savings		1,090,082		990,240		99,842	0.81			1,121,888		1,025,941		95,947	0.73
NOW accounts		693,157		474,089		219,068	0.53			693,573		495,397		198,176	0.45
Money market accounts		989,498		568,425		421,073	1.86			930,079		548,289		381,790	1.90
Time deposits		883,082		745,530		137,552	2.62			1,111,412		937,045		174,367	2.92
Total	$	5,327,564	$	3,890,607	$	1,436,957	1.02	%	$	5,596,069	$	4,148,214	$	1,447,855	1.06	%

Collateralized public funds	$	237,145	$	16,551	$	220,594			$	219,939	$	15,832	$	204,107

Total deposits decreased 4.8% to $5.33 billion at September 30, 2026 from $5.60 billion at December 31, 2025, primarily reflecting lower time deposit balances. The average rate paid on deposits decreased to 1.02% at September 30, 2026 from 1.06% at December 31, 2025, primarily due to the repricing of higher-cost time deposits and a favorable shift in deposit mix. Noninterest-bearing deposits remained approximately 31% of total deposits, supporting a stable and low-cost funding base.

In addition to deposits, we used other liquidity sources for our funding needs in all periods presented, such as repurchase agreements and other short-term borrowings with the FHLBC. Our borrowings at the FHLBC require the Bank to be a member and invest in the stock of the FHLBC, and total borrowings are generally limited to the lower of 35% of total assets or the book value of eligible pledged assets after application of FHLBC margins and collateral valuation adjustments. Securities sold under repurchase agreements totaled $29.9 million at September 30, 2026, a $6.1 million, or 25.8% increase from $23.8 million at December 31, 2025, and an increase of $5.6 million, or 23.1%, from September 30, 2025. There were outstanding short-term FHLBC borrowings of $395.0 million as of September 30, 2026, compared to $215.0 million as of December 31, 2025, and $165.0 million as of September 30, 2025.

We are also indebted on $25.8 million of junior subordinated debentures, net of deferred issuance costs, as of September 30, 2026, which are related to the trust preferred securities issued by its statutory trust subsidiary, Old Second Capital Trust II ("Trust II"). The Trust II issuance converted from fixed to floating rate at three month LIBOR, which is now three month Term SOFR, plus 150 basis points beginning June 15, 2017. Upon conversion to a floating rate, we initiated a cash flow hedge which resulted in net year to date interest rate paid on this debt of 4.43% as of September 30, 2026, as compared to 6.77%, which was the rate paid during the period prior to the June 15, 2017, rate reset.

In the second quarter of 2021, we issued $60.0 million in aggregate principal amount of our 3.50% Fixed-to-Floating Rate Subordinated Notes due April 15, 2031 (the "Notes") in a private offering. On April 15, 2026, we redeemed $30.0 million aggregate principal amount of the Notes, and the interest rate on the remaining Notes converted from a fixed rate of 3.50% to a floating rate that resets quarterly at three-month Term SOFR plus 273 basis points, payable quarterly in arrears. The remaining Notes mature on April 15, 2031, and are redeemable, in whole or in part, on any interest payment date, and at any time upon the occurrence of certain events. As of September 30, 2026, we had $29.8 million of subordinated debentures outstanding, net of deferred issuance costs. See Note 7. Borrowings for additional information.

Capital

As of September 30, 2026, total stockholders' equity was $878.6 million, a decrease of $18.2 million from $896.8 million as of December 31, 2025. The decrease was primarily attributable to the increase in repurchase of treasury stock by $74.7 million during the first nine months of 2026 as well as an increase of $14.7 million in accumulated other comprehensive loss, and $10.9 million of dividends declared to our common stockholders, partially offset by net income of $82.7 million. During the first nine months of 2026, we repurchased 3,441,146 shares for $78.3 million under our stock repurchase program and withheld 70,207 shares with a value of $1.4 million to satisfy tax withholding obligations related to restricted stock unit vestings. These transactions were partially offset by the issuance of 172,366 shares related to restricted stock unit vestings, with a value of $3.2 million, and 87,631 shares related to performance-based restricted stock unit vestings, with a value of $1.8 million. Total stockholders' equity also decreased as a result of a $14.7 million increase in unrealized net losses on available-for-sale securities and swaps, recorded within accumulated other comprehensive loss, driven by changes in market interest rates during the period. Total stockholders' equity at September 30, 2026 increased $11.9 million compared to September 30, 2025, primarily due to the accumulation of earnings and partially offset by treasury stock repurchased since September 2025.

The following table shows the regulatory capital ratios and the current well capitalized regulatory requirements for the Company and the Bank as of the dates indicated:


	Minimum Capital		Well Capitalized
	Adequacy with		Under Prompt
	Capital Conservation		Corrective Action		September 30,		December 31,		September 30,
	Buffer, if applicable¹		Provisions²		2026		2025		2025
The Company
Common equity tier 1 capital ratio	7.00	%	N/A		13.13	%	12.99	%	12.44	%
Total risk-based capital ratio	10.50		N/A		15.05		15.46		15.10
Tier 1 risk-based capital ratio	8.50		N/A		13.56		13.41		12.85
Tier 1 leverage ratio	4.00		N/A		11.99		11.70		11.21

The Bank
Common equity tier 1 capital ratio	7.00	%	6.50	%	13.63	%	13.17	%	13.14	%
Total risk-based capital ratio	10.50		10.00		14.61		14.22		14.39
Tier 1 risk-based capital ratio	8.50		8.00		13.63		13.17		13.14
Tier 1 leverage ratio	4.00		5.00		12.05		11.49		11.45

¹ Amounts are shown inclusive of a capital conservation buffer of 2.50%.

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

N/A - Not applicable

As of September 30, 2026, the Bank exceeded the minimum capital ratios to be deemed "well capitalized" and met the capital conservation buffer requirements. In addition to the above regulatory ratios, our GAAP common equity to total assets ratio, which is used as a performance measure for capital analysis and peer comparisons, decreased from 12.99% at December 31, 2025, to 12.96% at September 30, 2026. Our GAAP tangible common equity to tangible assets ratio was 11.00% at September 30, 2026, compared to 11.02% as of December 31, 2025.

Liquidity

Liquidity is our ability to fund operations, to meet depositor withdrawals, to provide for customers' credit needs, and to meet maturing obligations and existing commitments. Our liquidity principally depends on our cash flows from operating activities, investment in and maturity of assets, changes in balances of deposits and borrowings, and our ability to borrow funds. Through the third quarter of 2026, we experienced a decrease in loans and deposits. We managed the change in our funding through an increase in average borrowings from the FHLBC through September 30, 2026, compared to the prior year end. We seek to ensure our funding needs are met by maintaining a level of liquidity through asset and liability management. We monitor our borrowing capacity at the FHLBC as part of our liquidity management process as supervised by our Asset and Liability Committee ("ALCO") and reviewed by our Board of Directors. In addition, our senior management team monitors cash balances daily to ensure we have adequate liquidity to meet our operational and financing needs. As of September 30, 2026, our cash on hand liquidity totaled $108.1 million, a decrease of $15.9 million from cash balances held as of December 31, 2025.

Net cash inflows from operating activities were $130.4 million during the first nine months of 2026, compared with net cash inflows of $78.0 million in the same period of 2025. Funds used to originate loans held-for-sale, net of proceeds from sales of loans held-for-sale, resulted in inflows for the first nine months of 2026, and were a source of inflows in the like period of 2025. 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, 2026 and 2025. The management of investing and financing activities, as well as market conditions, determines the level and the stability of net interest cash flows. Management's policy is to mitigate the impact of changes in market interest rates to the extent possible, as part of the balance sheet management process.

Net cash inflows from investing activities were $61.6 million in the nine months ended September 30, 2026, compared to net cash inflows of $78.4 million in the same period in 2025. The Bancorp Financial acquisition in July 2025 resulted in net cash inflows of $10.5 million for the nine months ended September 30, 2025. In the first nine months of 2026, securities transactions accounted for net inflows of $88.5 million, and the principal change on loans accounted for net outflows of $17.9 million. In the first nine months of 2025, securities transactions accounted for net inflows of $142.8 million, and principal on loans funded, net of paydowns, accounted for net outflows of $85.4 million.

Net cash outflows from financing activities in the nine months ended September 30, 2026, were $207.8 million, compared with net cash outflows of $139.2 million in the nine months ended September 30, 2025. Net deposit outflows in the first nine months of 2026 were $268.4 million compared to net deposit outflows of $240.4 million in the first nine months of 2025. Other short-term borrowings had $180.0 million of net cash inflows in the first nine months of 2026, compared to net cash inflows of $129.5 million for other short-term borrowings in the first nine months of 2025. Changes in securities sold under repurchase agreements accounted for inflows of $6.1 million and outflows of $12.4 million for the nine months ended September 30, 2026 and 2025, respectively. A partial redemption of subordinated debentures resulted in $30.0 million of net cash outflows for the nine months ended September 30, 2026. Dividends paid on our common stock totaled $10.9 million for the nine months ended September 30, 2026, and $8.6 million for the nine months ended September 30, 2025. The purchase of treasury stock in the first nine months of 2026 due to shares acquired with equity award vestings as well as share repurchases resulted in outflows of $79.7 million, compared to cash outflows of $7.4 million in the first nine months of 2025 related to shares acquired from equity award vestings as well as share repurchases.

Cash and cash equivalents for the nine months ended as of September 30, 2026 totaled $108.1 million, as compared to $124.0 million as of December 31, 2025, and $116.5 million as of September 30, 2025. The decrease in cash and cash equivalents for the nine months ended September 30, 2026, as compared to the prior year end, was primarily attributable to decreases in deposits as well as share repurchases, partially offset by the maturities, calls, and paydowns of securities available-for-sale as well as the utilization of short-term borrowings through FHLBC advances. 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.

Old Second Bancorp Inc. published this content on November 04, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on November 04, 2026 at 17:02 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]