Annual report
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Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549Form 10-K ⌧ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2025OR◻ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission file number 000-10537 (Exact name of registrant as specified in its charter) Delaware 36-3143493(State of or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 37 South River Street, Aurora, Illinois 60507(Address of principal executive offices, including zip code) (630) 892-0202(Registrant's telephone number, including Area Code) Securities registered pursuant to Section 12(b) of the Act:Title of Class Trading Symbol(s) Name of each exchange on which registeredCommon Stock, $1.00 par value OSBC The Nasdaq Stock Market Securities registered pursuant to Section 12(g) of the Act:None(Title of Class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes◻ No⌧ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ◻ No ⌧ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes⌧ No◻ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes⌧ No◻ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growthcompany. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ ‘‘smaller reporting company,’’ and ‘‘emerging growth company’’ in Rule 12b–2 of the ExchangeAct. Large accelerated filer ⌧ Accelerated filer ◻ Non-accelerated filer ◻ Smaller reporting company ◻ Emerging growth company◻ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financialreporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ⌧ If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect thecorrection of an error to previously issued financial statements. ☐ Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of theregistrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ◻ Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes☐ No⌧ The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, on June 30, 2025, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $760.5 million. The number of shares outstanding of the registrant's common stock, par value $1.00 per share, was 52,690,806 at February 25, 2026. DOCUMENTS INCORPORATED BY REFERENCE: Certain information required by Part III of this Annual Report on Form 10-K is incorporated by reference from the registrant's definitive proxy statement relating to the 2026 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this Annual Report on Form 10-K relates.
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Table of Contents 2 OLD SECOND BANCORP, INC. Form 10-K INDEX PART I Cautionary Note Regarding Forward-Looking Statements 3 Item 1 Business 4 Item 1A Risk Factors 22 Item 1B Unresolved Staff Comments 38 Item 1C Cybersecurity 38 Item 2 Properties 40 Item 3 Legal Proceedings 40 Item 4 Mine Safety Disclosures 40 PART II Item 5 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities41 Item 6 [Reserved] 42 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 43 Item 7A Quantitative and Qualitative Disclosures about Market Risk 67 Item 8 Financial Statements and Supplementary Data 69 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 122 Item 9A Controls and Procedures 122 Item 9B Other Information 122 Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 122 PART III Item 10 Directors, Executive Officers, and Corporate Governance 122 Item 11 Executive Compensation 123 Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters123 Item 13 Certain Relationships and Related Transactions, and Director Independence 123 Item 14 Principal Accountant Fees and Services 123 PART IV Item 15 Exhibits and Financial Statement Schedules 124 Item 16 Form 10-K Summary 124 Signatures 127
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Table of Contents 3 CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This report and other publicly available documents of Old Second Bancorp, Inc. (“Old Second”) contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act, including, but not limited to, management’s expectations regarding future plans, strategies and financial performance, including regulatory developments, industry and economic trends and estimates and assumptions underlying accounting policies, statements regarding the outlook and expectations of Old Second following the completion of the Bancorp Financial, Inc. (“Bancorp Financial”) merger, and the continued anticipated strategic and financial benefits of the merger. Forward-looking statements are based on our current beliefs, expectations and assumptions and on information currently available and, may be identified by the use of words such as “expects,” “intends,” “believes,” “may,” “will,” “would,” “could,” “should,” “plan,” “anticipate,” “estimate,” “forecasts,” “possible,” “implies,” “likely” or the negative thereof as well as other similar words and expressions of the future. Forward-looking statements are subject to risks, uncertainties and assumptions that are difficult to predict as to timing, extent, likelihood and degree of occurrence, which could cause our actual results to differ materially from those anticipated in or by such statements. Potential risks and uncertainties include, but are not limited to, the following: ● our ability to execute our growth strategy; ● negative economic conditions that adversely affect the economy, real estate values, the job market and other factors nationally and in our market area, in each case that may affect our liquidity and the performance of our loan portfolio; ● risks with respect to our ability to successfully expand and integrate businesses and operations that we acquire, as well our ability to identify and complete future mergers or acquisitions; ● the financial success and viability of the borrowers of our commercial loans; ● changes in U.S. monetary policy, the level and volatility of interest rates, the capital markets and other market conditions that may affect, among other things, our liquidity and the value of our assets and liabilities; ● competitive pressures from other financial service businesses and from nontraditional financial technology (“FinTech”) companies; ● any negative perception of our reputation or financial strength; ● our ability to raise additional capital on acceptable terms when needed; ● our ability to raise cost-effective funding to support business plans when needed; ● our ability to use technology to provide products and services that will satisfy customer demands and create efficiencies in operations; ● adverse effects on our information technology systems resulting from system failures, human error or cyberattacks; ● risks associated with data privacy laws and regulations; ● risks associated with the development and use of artificial intelligence (“AI”); ● adverse effects of cyberattacks or failures by our vendors to provide agreed upon services in the manner and at the cost agreed, particularly our information technology vendors and those vendors performing a service on our behalf; ● the impact of any claims or legal actions, including any effect on our reputation; ● losses incurred in connection with repurchases and indemnification payments related to mortgages; ● the soundness of other financial institutions and other counter-party risk; ● changes in accounting standards, rules and interpretations and the related impact on our financial statements; ● our ability to receive dividends from our subsidiaries; ● a decrease in our regulatory capital ratios or negative changes in our capital position; ● adverse federal or state tax assessments, or changes in tax laws or policies; ● risks associated with actual or potential litigation or investigations by customers, regulatory agencies or others; ● legislative or regulatory changes, particularly changes in regulation of financial services companies; ● increased costs of compliance, heightened regulatory capital requirements and other risks associated with changes in regulation and the current regulatory environment; ● risks associated with complex and changing regulatory environments, including, among others, with respect to data privacy, artificial intelligence, information security, climate change or other environmental, social and governance matters, and labor matters, relating to our operations; ● changes in political and economic conditions, including potential disruptions resulting from U.S. federal government funding lapses, shutdowns, or related fiscal policy uncertainty; ● the adverse effects of events beyond our control that may have a destabilizing effect on financial markets and the economy, such as epidemics and pandemics, war or terrorist activities, such as the war in Ukraine, the Middle East conflict, and the conflict between China and Taiwan, essential utility outages, deterioration in the global economy, instability in the credit markets, disruptions in our customers’ supply chains or disruption in transportation; ● changes in trade policy and any related tariffs; ● the risk that the Company may not fully realize the expected benefits of the completed merger with Bancorp Financial, including anticipated cost savings and strategic benefits, within expected timeframes or at all, due to execution risks, general economic conditions, competitive factors in the markets in which the Company operates, or other unforeseen events or circumstances; ● the risk that ongoing operational integration, systems alignment, or personnel retention following the completion of the merger could disrupt business operations or result in higher-than-expected costs; and ● each of the factors and risks under the heading “Risk Factors” included here in our 2025 Annual Report on Form 10-K and in subsequent filings we make with the SEC.
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Table of Contents 4 Because our ability to predict results or the actual effect of future plans or strategies is inherently uncertain, there can be no assurances that future actual results will correspond to any forward-looking statements, and you should not rely on any forward- looking statements. Additionally, all statements in this Form 10-K, including forward-looking statements, speak only as of the date they are made, and we undertake no obligation to update any statement in light of new information or future events, except as required by applicable law. PART I Item 1. Business General Old Second Bancorp, Inc. is a corporation organized under the laws of the State of Delaware in 1981 that serves as the bank holding company for its wholly-owned subsidiary bank, Old Second National Bank. Old Second National Bank (the “Bank”) is a national banking association headquartered in Aurora, Illinois, that operates through 55 banking centers located in Cook, DeKalb, DuPage, Kane, Kendall, LaSalle and Will counties in Illinois. In this report, unless the context suggests otherwise, references to the “Company” or “Old Second” refer to Old Second Bancorp, Inc. and references to “we,” “us,” and “our” mean the combined business of the Company, the Bank and its wholly-owned subsidiaries. We conduct a full service community banking and trust business through the Bank and its wholly-owned subsidiaries, as follows: ● Old Second Affordable Housing Fund, L.L.C., which was formed for the purpose of providing down payment assistance for home ownership to qualified individuals; ● Station I, LLC, Station II, LLC, and Station III, LLC, which were formed to hold property acquired by the Bank through foreclosure or in the ordinary course of collecting a debt previously contracted with borrowers; and ● River Street Advisors, LLC, which was formed in May 2010 to provide investment advisory/management services. Intercompany transactions and balances are eliminated in consolidation. We evaluate our operations as one operating segment, which is community banking. Financial information concerning our operations can be found in the financial statements in this annual report. Mergers and Acquisitions 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 of cash. The systems conversion was successfully completed in October 2025. On December 6, 2024, we completed our branch transaction with First Merchants Bank (“FRME”). Under the terms of the purchase and assumption agreement, we assumed approximately $268.0 million in deposits related to the branch locations purchased and purchased approximately $7.1 million in branch-related loans along with the purchase of other branch-related assets. The five branches acquired in the transaction are located in Cook and DuPage counties in Illinois.
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Table of Contents 5 Principal Business and Services We are a full-service banking business offering a broad range of deposit products, trust and wealth management services, lending services, and deposit services, including demand, NOW, money market, savings, time deposit and individual retirement accounts; commercial, industrial, consumer and real estate lending, including installment loans, agricultural loans, lines of credit, lease financing receivables and overdraft checking; safe deposit operations, and an extensive variety of additional services tailored to the needs of individual customers, such as the acquisition of U.S. Treasury notes and bonds, money orders, cashiers’ checks and foreign currency, direct deposit, discount brokerage, debit cards, credit cards, and other special services. Our lending activities include making commercial and consumer loans, primarily on a secured basis. Commercial lending focuses on business, equipment, capital, construction, inventory, health care and real estate lending, as well as lease financing. Consumer lending includes direct and indirect loans to consumers. We also offer a full complement of electronic banking services such as online and mobile banking and corporate cash management products including remote deposit capture, mobile deposit capture, investment sweep accounts, zero balance accounts, automated tax payments, ATM access, telephone banking, lockbox accounts, automated clearing house transactions, account reconciliation, controlled disbursement, detail and general information reporting, foreign and domestic wire transfers, vault services for currency and coin, and checking accounts. Additionally, we provide a wide range of wealth management, investment, agency, and custodial services for individual, corporate, and not-for-profit clients. These services include the administration of estates and personal trusts, as well as the management of investment accounts for individuals, employee benefit plans, and charitable foundations. We originate residential mortgages, offering a wide range of mortgage products including conventional, government, and jumbo loans. We also handle secondary marketing of those mortgages. Market Area Our main office is located at 37 South River Street, Aurora, Illinois 60507. The city of Aurora is located in northeastern Illinois, approximately 40 miles west of Chicago. The Bank operates primarily in Cook, DeKalb, DuPage, Kane, Kendall, LaSalle, and Will counties in Illinois, and it has developed a strong presence in these counties. The Bank offers its services to retail, commercial, industrial, and public entity customers in the Aurora, Bartlett, Batavia, Bensenville, Bloomingdale, Bolingbrook, Burlington, Carol Stream, Chicago, Chicago Heights, Darien, Downers Grove, Elburn, Elgin, Evergreen Park, Flossmoor, Frankfort, Glendale Heights, Hinsdale, Joliet, Lombard, Montgomery, Naperville, North Aurora, Oakbrook Terrace, Oswego, Ottawa, Palos Heights, Plano, Romeoville, South Elgin, South Holland, St. Charles, Sugar Grove, Sycamore, Villa Park, Warrenville, Wasco, Wheaton, and Yorkville communities and surrounding areas through its 55 banking locations that are located primarily in the western and southern portions of the Chicago metropolitan area. While our primary business is focused in northern Illinois and contiguous states, we have added business lines that stretch beyond our primary market. Our commercial, sponsor finance, leasing and healthcare lending portfolios have established relationships that extend nationwide. In addition, as a result of our acquisition of Bancorp Financial and its wholly owned subsidiary, Evergreen, we have added nationwide retail business lines focused on powersport, collector car and manufactured home lending, as well as a loan production office in Reno, Nevada. Lending Activities We provide a broad range of commercial and retail lending services to corporations, partnerships, individuals and government agencies. We market our services to qualified borrowers, and our lending officers actively solicit the business of new borrowers entering our market areas as well as long-standing members of the local business community. We have established lending policies that include a number of underwriting factors to be considered in making loans, including location, amortization, loan to value ratio, cash flow, leverage, pricing, documentation and the credit history of the borrowers. In 2025, our total loan portfolio increased $1.27 billion year over year attributed to the $1.20 billion portfolio acquired from Bancorp Financial, which expanded our consumer lending portfolio and added the powersport portfolio. We had approximately $1.36 billion in loan originations, excluding renewals, in 2025. We originated approximately $153.4 million of residential mortgage loans in 2025, which includes originations of loans held for sale of $85.7 million. Proceeds from the sales of residential mortgage loans to third parties were $84.9 million in 2025. Our loan portfolio is comprised of loans in the areas of commercial real estate, residential real estate, general commercial, construction real estate, leases, and consumer, which includes powersport, lending. As of December 31, 2025, commercial real estate loans represented approximately 36.5% (44.3% at year-end 2024) of our loan portfolio, powersport loans represented approximately 13.3% (0.0% at year-end 2024), residential mortgages, including multi-family, represented approximately 12.2% (15.3% at year-end 2024), general commercial loans represented approximately 16.0% (20.1% at year-end 2024), home equity lines of credit represented approximately 4.5% (2.6% at year-end 2024), construction lending represented approximately 3.3% (5.1% at year-end 2024), leases represented approximately 10.4% (12.4% at year-end 2024), and consumer and other lending represented approximately 3.8% (less than 1.0% at year-end 2024). It is our policy to comply at all times with the various consumer protection laws and regulations including, but not limited to, the Equal Credit Opportunity Act, the Fair Housing Act, the Community Reinvestment Act, the Truth in Lending Act, and the Home Mortgage Disclosure Act.
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Table of Contents 6 Commercial Loans. Commercial loans increased from $800.5 million in 2024 to $842.1 million in 2025. We continue to focus on identifying commercial and industrial prospects in our new business pipeline. As noted above, we are an active commercial lender in the Chicago metropolitan area, with primary markets in the city of Chicago, as well as west and south of Chicago. In 2025, our commercial lending team, specifically the sponsor finance team, grew their line of business with an increase in loan originations focusing on lower middle market private equity-backed businesses. Commercial lending is comprised of revolving lines of credit for working capital, lending for capital expenditures on manufacturing equipment and lending to small business manufacturers, service companies, medical and dental entities as well as specialty contractors. We also have commercial and industrial loans to customers in food product manufacturing, food process and packing, machinery tooling manufacturing, healthcare, as well as service and technology companies. Collateral for these loans generally includes accounts receivable, inventory, equipment and real estate. In addition, we often obtain personal and/or corporate guarantees to help assure repayment. Loans may be made on an unsecured basis if warranted by the overall financial condition of the borrower. Commercial term loans range principally from one to seven years with the majority falling in the one to five year range. Interest rates on commercial loans are a mixture of fixed and variable rates, with these rates often tied to the prime rate, a spread over the Federal Home Loan Bank of Chicago (the “FHLBC”) index rate, a Treasury constant maturity index, or a Secured Overnight Financing Rate (“SOFR”). Repayment of commercial loans is primarily dependent upon the cash flows generated by the operations of the commercial borrower or conversion of short-term assets. Our underwriting procedures identify primary sources of cash flows and seek to match the repayment terms of commercial loans to those sources. Secondary and tertiary repayment sources are typically based on collateralization and guarantor support. Commercial loans will generally require financial covenants that provide for an adequate cash flow or net worth level for uncertain events and changes in conditions. Stress testing is regularly performed on the commercial loan portfolio to ensure appropriate reserve levels and adequate capital levels are maintained. Leases. We continued to grow our lease portfolio in 2025 with organic lease originations, primarily stemming from our growth with our investment grade leases as well as small to mid-size business equipment financing. The collateral for business equipment lease financing receivables and lease terms typically range from one to seven years, with the majority falling in the one to five year range. Growth in this portfolio reflects management’s efforts to diversify lending product offerings, and lessen our commercial real estate loan concentration. Commercial Real Estate Loans. The composition of the loan portfolio remains weighted towards commercial real estate at 36.5% for 2025 compared to 44.3% in 2024. Management closely monitors and stress tests concentrations within its commercial real estate portfolio so that we remain well diversified. Exposure to various real estate types is managed through board approved concentration limits which include, but are not limited to retail, office, industrial, mixed-use, hotel and healthcare. As of December 31, 2025, approximately $706.6 million, or 36.8% (38.8% at year-end 2024) of the total commercial real estate loan portfolio of $1.92 billion consisted of loans to borrowers secured by owner occupied real estate. A primary repayment risk for owner occupied commercial real estate loans is a reduction of or discontinuance of cash flows from underlying operations; for non-owner occupied commercial real estate loans, cash flow disruptions may occur with the loss of a tenant or rental income reductions. This includes but is not limited to higher insurance premiums, maintenance costs and interest expense as a result of the higher interest rate environment. Repayment could also be influenced by economic events, which may or may not be under the control of the borrower, or changes in regulations that negatively impact the future cash flow and market values of the affected properties. Repayment risk can also arise from general downward shifts in the valuations of specific property types and can vary across geographic areas, and property valuations could continue to be affected by changes in demand and other economic factors, which could further influence cash flows associated with the borrower and/or the underlying property. We seek to mitigate these risks by staying apprised of market conditions in the markets we originate loans. The majority of our commercial real estate portfolio is located within our primary geographic footprint in northeastern Illinois, southern Wisconsin and northwestern Indiana. Our Healthcare and Sponsor Finance teams do originate nationwide and are the only commercial real estate loan portfolios that consistently lend outside our primary market. As of December 31, 2025, approximately 66.8% of our commercial real estate portfolio was secured by property located in Illinois, Wisconsin or Indiana. The following table presents the composition of the commercial real estate portion of the loan portfolio at December 31, 2025.
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Table of Contents 7 % of Commercial Geographic Location December 31, 2025 Outstanding Real Estate Loans Illinois Wisconsin Indiana Texas Other Commercial real estate $ 1,918,951 100.0 % 59.3 % 5.2 % 2.3 % 4.1 % 29.1 % Investor 1,212,384 63.2 35.0 5.1 1.3 3.8 17.9 Retail 338,386 17.6 15.8 2.0 0.2 1.8 8.0 Industrial 294,409 15.3 15.0 1.6 0.1 0.6 7.0 Office 201,621 10.5 13.9 0.3 - 0.8 1.8 Hotel 78,993 4.1 1.8 2.8 0.2 0.8 0.9 Mixed-Use 66,554 3.5 4.3 - - - 1.2 Other (less than $50 million) 232,421 12.1 4.7 1.3 1.6 2.1 9.4 Owner-occupied 706,567 36.8 24.3 0.1 0.9 0.3 11.2 Healthcare 269,971 14.1 8.0 - - - 30.2 Other Services 81,806 4.3 11.6 - - - - Retail Trade 67,246 3.5 9.5 - - - - Manufacturing 58,199 3.0 8.1 - 0.1 - - Real Estate, Leasing 53,444 2.8 7.4 - 0.1 - 0.1 Other (less than $50 million) 175,901 9.2 21.5 0.1 2.3 0.7 0.3 To mitigate risk within the commercial real estate portfolio we maintain underwriting practices that provide for adequate cash flow margins and multiple repayment sources. In most cases, we collateralized these loans and/or take personal guarantees to help assure repayment. Commercial real estate loans are primarily made based on the identified cash flow of the borrower and/or the property at origination and secondarily on the underlying real estate acting as collateral. The underwriting process requires an independent appraisal or evaluation and review, appropriate environmental due diligence and an assessment of the property’s condition. Commercial real estate loans will generally require a minimum debt service coverage ratio that provides for an adequate cushion for uncertain events and changes in conditions. Additional credit support is provided by the enforceability of personal and corporate guarantees if any exist. We regularly perform stress testing on the commercial real estate portfolio by stressing in place cash flow and rental income, as well as the value of property securing the loans to calculate loss estimates that assist management with establishing appropriate reserve levels, setting concentration limits and ensuring adequate capital levels are maintained. Construction Loans. Our construction and development portfolio decreased from $201.7 million at December 31, 2024, to $173.6 million at December 31, 2025. We use underwriting and construction loan guidelines to determine whether to issue loans on build-to-suit or build out arrangements of existing borrower properties. Construction loans are structured most often to be converted to permanent loans at the end of the construction phase, paid off with the proceeds from the sale of the underlying asset, or, infrequently, to be paid off upon receiving financing from another financial institution. Construction loans are generally limited to our local market area. Lending decisions have been based on the “as-is” and “prospective” appraised value of the property as determined by an independent appraiser, an analysis of the potential marketability and profitability of the project and identification of a cash flow source to service the permanent loan or verification of a refinancing source. Construction loans generally have terms of 12 to 24 months, with extensions as needed. The Bank disburses loan proceeds in increments as construction progresses and as inspections warrant. Development lending often involves the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project rather than the ability of the borrower or guarantor to repay principal and interest. Therefore, development lending generally involves more risk than other lending because it is based on future estimates of value and economic circumstances. While appraisals are required prior to funding, loan advances are limited to the lesser of the cost to complete or “prospective” value determined by the appraisal, therefore there is the possibility of an unforeseen event affecting the value and/or costs of the project. Development loans are primarily used for multi-family developments, where the leasing of units is tied to local demand and rental rates, and commercial developments, where the success of the project is tied to the demand for commercial space, cap rates and leasing rates. If the borrower defaults prior to completion of the project, we may be required to fund additional amounts so that another developer can complete the project. We are located in an area where a large amount of development activity has occurred as rural and semi-rural areas are being suburbanized. This type of growth presents some economic risks should local demand for commercial buildings and multi-family housing shift. We address these risks by closely monitoring local real estate activity, adhering to proper underwriting procedures, closely monitoring construction projects, and limiting the amount of construction development lending by project type and obligor.
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Table of Contents 8 Residential Real Estate Loans. Residential first mortgage loans and second mortgages are included in this category. First mortgage loans may include fixed rate loans that are generally sold to investors. We are a direct seller to the Federal National Mortgage Association (“FNMA”), Federal Home Loan Mortgage Corporation (“FHLMC”) and to several large financial institutions. Sales to investors included $56.5 million, or 67.6% of total loans sold, to FNMA, and $16.6 million, or 19.9% of total loans sold, to FHLMC for the year ended December 31, 2025. We retain servicing rights for mortgages sold to FNMA and FHLMC. The retention of such servicing rights is a source of noninterest income and also allows us an opportunity to have regular contact with mortgage customers and can help to solidify our community involvement. Other loans that are not sold include adjustable rate mortgages, lot loans, and construction loans that are held in our portfolio. Federal Housing Administration (“FHA”) and the Veterans Administration (“VA”) loans are sold to third party investors with servicing released. Mortgage activity remained slow in both 2025 and 2024 due to the continued decline in housing inventory, increasing prices of available housing inventory, and the relatively high interest rate environment compared to the 2020-2023 time period. Multifamily Loans. Multifamily loans are commercial mortgage loans secured by residential apartment buildings with five or more units. As of December 31, 2025, approximately $339.1 million, or 6.5%, of the loan portfolio consisted of multifamily loans. Multifamily loans are expected to be repaid from the cash flows of the underlying property, so rental income must be sufficient to cover operating expense, maintenance, taxes and debt service. Increases in vacancy rates, interest rates or other changes in general economic conditions can have an impact on the borrower and their ability to repay the loan. We focus on originating multifamily loans within our primary geographic footprint, with 89.7% of multifamily loans secured by properties in Illinois, Wisconsin and Indiana. To mitigate risk within the multifamily portfolio, we maintain underwriting practices that provide for adequate cash flow margins and multiple repayment sources. In most cases, we have collateralized these loans and/or take personal guarantees to help assure repayment. Multifamily loans are primarily made based on the identified cash flow of the property at origination and secondarily on the underlying collateral. The underwriting process requires an independent appraisal or evaluation and review, appropriate environmental due diligence and an assessment of the property’s condition. Multifamily loans typically have a minimum debt service coverage ratio that provides an adequate cushion for unexpected or uncertain events and changes in market conditions. The repayment of loans secured by multifamily real estate is typically dependent upon the successful operation of the real estate property. If the cash flows from the property are reduced, the borrower’s ability to repay the loan may be impaired and the value of the underlying collateral impacted. We regularly perform stress testing on the multifamily portfolio by stressing rental income and the value of the property securing the loans to calculate loss estimates that assist management with establishing appropriate reserve levels and ensuring adequate capital levels are maintained. Home Equity Lines of Credit. Our home equity lines of credit (“HELOCs”) consist of originated purchased HELOCs acquired in 2017 and 2018 and lines acquired with the acquisition of Evergreen. Growth occurred in the portfolio in 2025, primarily as a result of the HELOCs obtained through the Evergreen acquisition. Powersport Loans. As a direct result of the Evergreen acquisition, we also provide financing for the purchase of recreational vehicles such as motorcycles, all-terrain vehicles (“ATVs”), utility task vehicles (“UTVs”), snowmobiles and personal watercraft, through a nationwide network of third-party dealers. Powersport loans typically have shorter terms and lower balances with higher yields as compared to other loans but generally carry a higher risk of default. Similar to consumer loans, collection of these loans is highly dependent on the borrowers’ continuing financial stability. 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. The following table sets forth the amounts of powersport balances and weighted average FICO scores at origination by risk tiers. The highest FICO scores reside in the lowest risk tier of Tier 1. December 31, Weighted (Dollars in thousands) 2025 FICO Tier 1 $ 366,324 776 Tier 2 136,776 709 Tier 3 83,230 682 Tier 4 42,817 655 Tier 5 67,812 606 Total $ 696,959 728 The following table sets forth the amounts of powersport collateral that is either new or used. December 31, % of (Dollars in thousands) 2025 Total New $ 535,569 76.8 % Used 161,390 23.2 Total $ 696,959 100.0 %
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Table of Contents 9 Consumer Loans. We provide many types of consumer loans including primarily motor vehicle, home improvement, manufactured home and signature loans. Consumer loan growth occurred as a result of those obtained through the acquisition of Evergreen and include originated loans and a solar loan pool purchase. Consumer loan collections are dependent on the borrower’s continuing financial stability and are more likely to be affected by adverse personal circumstances, and thus are more likely to be affected by economic conditions such as higher interest rates and unemployment. Deposit Products We offer a full range of deposit products and services that are typically available from most banks and savings institutions. These include consumer and business checking accounts, savings accounts, money market accounts and other time deposits of various types and maturity options. Interest bearing transaction accounts and time deposits are tailored to and offered at rates competitive with those offered in our primary market areas. In addition, we offer certain retirement account services. We solicit accounts from individuals, businesses, associations, organizations and governmental authorities. We believe that our significant branch network will assist us in continuing to attract and retain deposits from local customers in our market areas. Wealth Management We offer a wide range of wealth management, investment, agency, and custodial services for individual, corporate, and not-for- profit clients. These services include the administration of estates and personal trusts, as well as the management of investment accounts for individuals, employee benefit plans, and charitable foundations. At December 31, 2025, we had approximately $2.29 billion in assets under administration and/or management. Competition Our market area is highly competitive, and our business activities require us to compete with many other financial institutions. A number of these financial institutions are affiliated with large bank holding companies headquartered outside of our principal market area as well as other institutions that are based in Aurora's surrounding communities and in Chicago, Illinois. All of these financial institutions operate banking offices in the greater Chicago area or actively compete for customers within our market area. We also face competition from finance companies, insurance companies, credit unions, mortgage companies, securities brokerage firms, money market funds, loan production offices and other providers of financial services, including nontraditional financial technology companies or FinTech companies. Many of our nonbank competitors which are not subject to the same extensive federal regulations that govern bank holding companies and banks, such as the Company and the Bank, may have certain competitive advantages. We compete for loans principally through the quality of our client service and our responsiveness to client needs in addition to competing on interest rates and loan fees. Management believes that our long-standing presence in the community and personal one-on-one service philosophy enhances our ability to compete favorably in attracting and retaining individual and business customers. We actively solicit deposit-related clients and compete for deposits by offering personal attention, competitive interest rates, and professional services made available through experienced bankers and multiple delivery channels that fit the needs of our market. In wealth management and trust services, we compete with a variety of custodial banks as well as a diverse group of investment managers. We believe the financial services industry will likely continue to become more competitive as further technological advances enable more financial institutions to provide expanded financial services without having a physical presence in our market. Human Capital Resources Our business is relationship-driven, and we believe that our continued growth and future success will depend in large part on the quality of service provided by our employees. Accordingly, we seek to attract, develop and retain employees who can drive our financial and strategic growth objectives and build long-term stockholder value. We seek to provide a compelling value proposition to our employees by providing market-competitive pay and benefits which include retirement programs, broad-based bonuses, health and welfare benefits, paid time off, family leave and flexible work schedules. We have also created internal programs to support employee development and retention, which has contributed to our long-term tenure rates, with 33% of our employees having tenure of over ten years and 23% of our employees having at least 15 years of service. We believe that employee development and retention start with relationships, both among employees and with the communities we serve. Our 2025 O2 Cares initiatives fostered building strong relationships and an appreciation for each other. These efforts were led with the support of senior leaders and our Human Resources department and included thoughtful activities around various calendar observances. In 2025, we launched our Employee Ambassadors program in order to bring departments together, build relationships, and serve our communities side by side. In addition to these department and branch specific activities, the Bank hosted events for all staff including an after hours event with over 650 employees in attendance and a minor league baseball outing with approximately 600 employees and family members in attendance. Recurring town hall-style video productions were released through the year as well, highlighting important communications from senior leaders to all staff. The Bank continued our commitment to supporting Junior Achievement with over 40 employees volunteering at a local elementary school to deliver financial literacy education. At December 31, 2025, we employed 1,062 full-time equivalent employees.
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Table of Contents 10 Available Information We file reports with the Securities and Exchange Commission (“SEC”). Those reports include our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statements. The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statements, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 may be obtained without charge upon written request to Investor Relations, Old Second Bancorp, Inc., 37 South River Street, Aurora, Illinois 60507 and are accessible at no cost on our website at www.oldsecond.com in the “Investor Relations” section, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Certain governance policies, committee charters and other investor information including our Code of Business Conduct and Ethics are also available on our website. No information contained on our website is intended to be included as part of, or incorporated by reference into, this Annual Report on Form 10-K. SUPERVISION AND REGULATION General FDIC-insured institutions, their holding companies and their affiliates, are extensively regulated under federal and state law. As a result, our growth and earnings performance may be affected not only by management decisions and general economic conditions, but also by the requirements of federal and state statutes and by the regulations and policies of various bank regulatory agencies, including the Office of the Comptroller of the Currency (the “OCC”), the Board of Governors of the Federal Reserve System (the “Federal Reserve”), the Federal Deposit Insurance Corporation (the “FDIC”) and the Consumer Financial Protection Bureau (the “CFPB”). Furthermore, taxation laws administered by the Internal Revenue Service (the “IRS”) and state taxing authorities, accounting rules developed by the Financial Accounting Standards Board (“FASB”), securities laws administered by the SEC and state securities authorities, and anti-money laundering laws enforced by the U.S. Department of the Treasury (“Treasury”) have an impact on our business. The effect of these statutes, regulations, regulatory policies and accounting rules are significant to our operations and results. Federal and state banking laws impose a comprehensive system of supervision, regulation and enforcement on the operations of FDIC-insured institutions, their holding companies and affiliates that is intended primarily for the protection of the FDIC-insured deposits and depositors of banks, rather than stockholders. These laws, and the regulations of the bank regulatory agencies issued under them, affect, among other things, the scope of our business, the kinds and amounts of investments we may make, reserve requirements, required capital levels relative to assets, the nature and amount of collateral for loans, the establishment of branches, our ability to merge, consolidate and acquire, dealings with our insiders and affiliates and our payment of dividends. We experienced heightened regulatory requirements and scrutiny following the 2008 global financial crisis, and as a result of the Dodd- Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). In addition, regulatory developments implemented in response to the COVID-19 pandemic and the bank failures in 2023, will continue to have an impact on our operations. This supervisory and regulatory framework subjects banks and bank holding companies to regular examination by regulatory agencies, which results in examination reports and ratings that are not publicly available and that can impact the conduct and growth of their business. These examinations consider not only compliance with applicable laws and regulations, but also capital levels, asset quality and risk, management ability and performance, earnings, liquidity, and various other factors. The regulatory agencies generally have broad discretion to impose restrictions and limitations on the operations of a regulated entity where the agencies determine, among other things, that such operations are unsafe or unsound, fail to comply with applicable law or are otherwise inconsistent with laws and regulations or with the supervisory policies of these agencies. Recent regulatory initiatives have focused on strengthening capital requirements, liquidity risk management, and stress testing frameworks, particularly for regional and mid-sized banking institutions, in response to banking sector instability in 2023. The Federal Reserve, FDIC, and OCC have also introduced proposed rule changes to enhance resolution planning requirements and capital standards under Basel III Endgame, which may impact our capital and liquidity planning strategies. Additionally, recent amendments to the Community Reinvestment Act (“CRA”) regulations, including changes subject to phased implementation and potential delays, could impact our compliance obligations and lending strategies in certain markets. The following is a summary of certain of the material elements of the supervisory and regulatory framework applicable to the Company and the Bank. It does not describe all of the statutes, regulations and regulatory policies that apply, nor does it restate all of the requirements of those that are described. The descriptions are qualified in their entirety by reference to the particular statutory and regulatory provision. These statutes and regulations are subject to change, and additional statutes, regulations, and corresponding guidance may be adopted. We are unable to predict these future changes or the effects, if any, that these changes could have on our business, revenues, and results of operations.
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Table of Contents 11 Regulatory Emphasis on Capital Regulatory capital represents the net assets of a banking organization available to absorb losses. Because of the risks attendant to their business, FDIC-insured institutions are generally required to hold more capital than other businesses, which directly affects our earnings capabilities. While capital has historically been one of the key measures of the financial health of both bank holding companies and banks, its role became fundamentally more important in the wake of the 2008 global financial crisis, as the banking regulators recognized that the amount and quality of capital held by banks prior to the crisis was insufficient to absorb losses during periods of severe stress. Certain provisions of the Dodd-Frank Act and Basel III, discussed below, establish strengthened capital standards for banks and bank holding companies that are meaningfully more stringent than those in place previously. Basel III Capital Standards. Regulatory capital rules known as the Basel III rules, impose minimum capital requirements for bank holding companies and banks. The Basel III rules apply to all national and state banks and savings and loan associations regardless of size and bank holding companies and savings and loan holding companies other than “small bank holding companies,” generally holding companies with consolidated assets of less than $3 billion. The Basel III rules require the Company and the Bank to maintain the following minimum capital levels: ● a common equity Tier 1 (“CET1”), risk-based capital ratio of 4.5%; ● a Tier 1 risk-based capital ratio of 6%; ● a total risk-based capital ratio of 8%; and ● a leverage ratio of 4%. In order to avoid restrictions on capital distributions or discretionary bonus payments to executives, under Basel III, a banking organization must maintain a “capital conservation buffer” on top of its minimum risk-based capital requirements. This buffer must consist solely of CET1 capital, but the buffer applies to all three risk-based measurements (CET1, Tier 1 capital and total capital). The 2.5% capital conservation buffer effectively results in the following effective minimum capital ratios (taking into account the capital conservation buffer): (i) a CET1 capital ratio of 7.0%, (ii) a Tier 1 risk-based capital ratio of 8.5%, and (iii) a total risk- based capital ratio of 10.5%. Proposed rules for U.S. implementation of capital requirements under Basel IV rules, more recently referred to as the “Basel III Endgame”, were issued by the U.S. federal banking agencies on July 27, 2023. These proposed rules include broad-based changes to the risk-weighting framework for various credit exposures and operational risk capital requirements. The proposed rules are generally intended to apply only to large banking organizations with total assets of $100 billion or more, and, if finalized as proposed, are not expected to be applicable to us. As of the date of this filing, the Basel III Endgame rules have not been finalized, and their scope, timing, and ultimate implementation remain uncertain. As part of its response to the impact of the COVID-19 pandemic, in the first quarter of 2020, U.S. federal regulatory authorities issued an interim final rule that provided banking organizations that adopted the credit impairment model, the Current Expected Credit Loss, or CECL, during the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay (i.e., a five-year transition in total). In connection with our adoption of CECL on January 1, 2020, we elected to utilize the five-year CECL transition. The cumulative amount that is not recognized in regulatory capital, in addition to the $3.8 million Day One impact of CECL adoption, began to be phased in at 25% per year beginning January 1, 2022. As of January 1, 2025, the five-year CECL transition was complete. As of December 31, 2025, the capital measures of the Company do not include a CECL transition adjustment. As of December 31, 2024, capital measures of the Company excluded $951,000, which was primarily the Day One impact of CECL adoption to retained earnings recorded in 2020 less partial runoff since January 2022. In November 2019, the federal banking regulators published final rules implementing a simplified measure of capital adequacy for certain banking organizations that have less than $10 billion in total consolidated assets. Under the final rules, which went into effect on January 1, 2020, depository institutions and depository institution holding companies that have less than $10 billion in total consolidated assets and meet other qualifying criteria, including a leverage ratio of greater than 9%, off-balance-sheet exposures of 25% or less of total consolidated assets, and trading assets plus trading liabilities of 5% or less of total consolidated assets, are deemed “qualifying community banking organizations” and are eligible to opt into the “community bank leverage ratio framework.” A qualifying community banking organization that elects to use the community bank leverage ratio framework and that maintains a leverage ratio of greater than 9% is considered to have satisfied the generally applicable risk-based and leverage capital requirements under the Basel III rules and, if applicable, is considered to have met the “well capitalized” ratio requirements for purposes of its primary federal regulator’s prompt corrective action rules, discussed below. We have not elected to utilize the community bank leverage ratio framework. In November 2025, federal banking regulators proposed changes to increase flexibility under the community bank leverage ratio framework, including lowering the leverage ratio threshold from 9% to 8% and extending the grace period for falling below the threshold from two quarters to four quarters, subject to certain conditions. Public comments on the proposal were open through January 30, 2026.
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Table of Contents 12 Well-Capitalized Requirements. The ratios described above are minimum standards in order for banking organizations to be considered “adequately capitalized.” Bank regulatory agencies uniformly encourage banks to hold more capital and be “well- capitalized” and, to that end, federal law and regulations provide various incentives for banking organizations to maintain regulatory capital at levels in excess of minimum regulatory requirements. For example, a banking organization that is well- capitalized may: (i) qualify for exemptions from prior notice or application requirements otherwise applicable to certain types of activities; (ii) qualify for expedited processing of other required notices or applications; and (iii) accept, roll-over or renew brokered deposits, subject to applicable regulatory restriction. Higher capital levels could also be required if warranted by the particular circumstances or risk profiles of individual banking organizations. For example, the Federal Reserve’s capital guidelines contemplate that additional capital may be required to take adequate account of, among other things, interest rate risk, or the risks posed by concentrations of credit, nontraditional activities or securities trading activities. Further, any banking organization experiencing or anticipating significant growth would be expected to maintain capital ratios, including tangible capital positions (generally reflecting Tier 1 Capital net of intangible assets), well above the minimum levels. Under the capital regulations of the OCC, in order to be well-capitalized, a banking organization must maintain: ● A CET1 ratio to risk-weighted assets of 6.5% or more; ● A ratio of Tier 1 Capital to total risk-weighted assets of 8%; ● A ratio of Total Capital to total risk-weighted assets of 10%; and ● A leverage ratio of Tier 1 Capital to total adjusted average quarterly assets of 5% or greater. It is possible under the Basel III Rule to be well-capitalized while remaining out of compliance with the capital conservation buffer discussed above. As of December 31, 2025, we exceeded the applicable regulatory capital requirements imposed by the Federal Reserve, and the Bank met the Basel III Rule requirements to be considered well-capitalized. Prompt Corrective Action. An FDIC-insured institution’s capital plays an important role in connection with regulatory enforcement as well. Federal law provides the federal banking regulators with broad power to take prompt corrective action to resolve the problems of undercapitalized institutions. The extent of the regulators’ powers depends on whether the institution in question is “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized,” in each case as defined by regulation. Depending upon the capital category to which an institution is assigned, the regulators’ corrective powers include: (i) requiring the institution to submit a capital restoration plan; (ii) limiting the institution’s asset growth and restricting its activities; (iii) requiring the institution to issue additional capital stock (including additional voting stock) or to pursue a merger or other strategic transaction; (iv) restricting transactions between the institution and its affiliates; (v) restricting the interest rate that the institution may pay on deposits; (vi) ordering a new election of directors of the institution; (vii) requiring that senior executive officers or directors be dismissed; (viii) restricting or prohibiting the acceptance of brokered deposits; (ix) requiring the institution to divest certain subsidiaries; (x) prohibiting the payment of principal or interest on subordinated debt; and (xi) ultimately, appointing a receiver for the institution. Regulation and Supervision of the Company General. The Company, as the sole stockholder of the Bank, is a bank holding company. As a bank holding company, the Company is registered with, and subject to regulation, supervision and enforcement by, the Federal Reserve under the Bank Holding Company Act, as amended (the “BHCA”). The Company is legally obligated to act as a source of financial and managerial strength to the Bank and to commit resources to support the Bank in circumstances where the Company might not otherwise do so. Under the BHCA, the Company is subject to periodic examination by the Federal Reserve and is required to file with the Federal Reserve periodic reports of the Company’s operations and such additional information regarding the Company and the Bank as the Federal Reserve may require. Permitted Activities. The BHCA generally prohibits the Company from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company that is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to banks and their subsidiaries. This general prohibition is subject to a number of exceptions. The principal exception allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the Federal Reserve to be “so closely related to banking as to be a proper incident thereto.” This authority would permit the Company to engage in a variety of banking-related businesses, including the ownership and operation of a savings association, or any entity engaged in consumer finance, equipment leasing, the operation of a computer service bureau (including software development) and mortgage banking and brokerage services. The BHCA does not place territorial restrictions on the domestic activities of nonbank subsidiaries of bank holding companies. As a bank holding company, we also can elect to be treated as a “financial holding company,” which would allow us to engage in a broader array of activities. In sum, a financial holding company can engage in activities that are financial in nature or incidental or complementary to financial activities, including insurance underwriting, sales and brokerage activities; providing financial and investment advisory services and underwriting services; and engaging in limited merchant banking activities. We have not sought financial holding company status, but we may elect that status in the future as our business matures. If we were to elect in writing for financial holding company status, we would be required to be well capitalized and well managed, and each insured depository institution we control would also have to be well capitalized, well managed and have at least a satisfactory rating under the Community Reinvestment Act (“CRA”) (discussed below).
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Table of Contents 13 Acquisition Activities. The primary purpose of a bank holding company is to control and manage banks. The BHCA generally requires the prior approval of the Federal Reserve for any merger involving a bank holding company or any acquisition by a bank holding company of another bank or bank holding company. In addition, the prior approval of the OCC is required for a national bank to merge with another bank or purchase the assets or assume the deposits of another bank. In determining whether to approve a proposed bank acquisition, federal bank regulators will consider, among other factors, the effect of the acquisition on competition, the public benefits expected to be received from the acquisition, the projected capital ratios and levels on a post- acquisition basis, and the acquiring institution’s record of addressing the credit needs of the communities it serves, including the needs of low and moderate income neighborhoods, consistent with the safe and sound operation of the bank, under the CRA. On July 9, 2021, President Biden issued an Executive Order on Promoting Competition in the American Economy. Among other initiatives, the Executive Order encouraged the federal banking agencies to review their current merger oversight practices under the BHCA and the Bank Merger Act and adopt a plan for revitalization of such practices. In December 2021, the U.S. Department of Justice (“DOJ”) (in consultation with the Federal Reserve, the OCC, and FDIC) announced that it was seeking additional public comments on whether and how the DOJ should revise the 1995 Bank Merger Competitive Review Guidelines. The comment period closed on February 15, 2022. In March 2022, the FDIC published a Request for Information seeking information and comments regarding the laws, practices, rules, regulations, guidance, and statements of policy that apply to merger transactions involving one or more insured depository institutions, including the merger between an insured depository institution and a noninsured institution. In a May 2022 speech, the acting head of the OCC announced that he had asked his staff to work with DOJ and other federal banking agencies to review the agency’s frameworks to analyze bank mergers. In May 2022, the CFPB announced the establishment of an Office of Competition and Innovation. On September 17, 2024, the OCC finalized a rule updating its regulations on business combinations involving national banks and federal savings associations, adopting a principles-based approach to evaluating mergers under the Bank Merger Act. At the same time, the FDIC adopted a revised Statement of Policy on Bank Merger Transactions that emphasized a broader and more holistic evaluation of merger applications, including considerations related to competition, financial stability, managerial resources, and community needs. The Federal Reserve did not join in issuing comparable guidance. In parallel, the DOJ withdrew its 1995 Bank Merger Competitive Review Guidelines and indicated that it would apply its general merger enforcement framework, including its 2023 Merger Guidelines, in reviewing banking transactions. In early 2025, the FDIC announced that it would rescind its 2024 Statement of Policy on Bank Merger Transactions, citing concerns that the revised framework created uncertainty in the merger review process. By May 2025, the FDIC formally reinstated its prior Statement of Policy, originally adopted in 1998 and last revised in 2008, while indicating that it would continue to evaluate potential updates to its approach to bank merger review. These developments highlight the evolving nature of regulatory policy in this area and the potential for further changes to merger review standards. Change in Control. Under the Change in Bank Control Act (“CBCA”), a person or company is required to file a notice with the Federal Reserve if it will, as a result of the transaction, own or control 10% or more of any class of voting securities or direct the management or policies of a bank or bank holding company and either if the bank or bank holding company has registered securities or if the acquirer would be the largest holder of that class of voting securities after the acquisition. For a change in control at the holding company level, the Federal Reserve is the primary reviewing agency, and the subsidiary bank’s primary federal regulator is provided notice and an opportunity to comment; at the bank level, only the bank’s primary federal regulator is involved. In addition, the BHCA prohibits any entity from acquiring 25% (5% if the acquirer is a bank holding company) or more of a bank holding company’s voting securities, or otherwise obtaining control or a controlling influence over the management or policies of a bank or bank holding company without regulatory approval. The Federal Reserve’s standards for determining whether one company has control over another established four categories of tiered presumptions of noncontrol that are based on the percentage of voting shares held by the investor (less than 5%, 5-9.9%, 10-14.9% and 15-24.9%) and the presence of other indicia of control. As the percentage of ownership increases, fewer indicia of control are permitted without falling outside of the presumption of noncontrol. These indicia of control include nonvoting equity ownership, director representation, management interlocks, business relationship and restrictive contractual covenants. Under the standards, investors can hold up to 24.9% of the voting securities and up to 33% of the total equity of a company without necessarily having a controlling influence. As of the date of this filing, no revisions to this framework have been finalized. Most recently, the FDIC rescinded its proposed rule issued in August 2024 that would have amended its filing requirements under the CBCA. That proposal sought to remove an exemption allowing acquisitions of voting securities in a depository institution holding company to rely on Federal Reserve review without a separate FDIC filing. In January 2025, the FDIC withdrew the proposal, citing concerns about duplicative requirements and the need for further consideration.
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Table of Contents 14 Capital Requirements. The Federal Reserve imposes certain capital requirements on a bank holding company under the BHCA, including a minimum leverage ratio and a minimum ratio of “qualifying” capital to risk-weighted assets. These requirements are essentially the same as those that apply to the Bank and are described above under “Regulatory Emphasis on Capital.” Subject to certain restrictions, we are able to borrow money to make a capital contribution to the Bank, and these loans may be repaid from dividends paid from the Bank to the Company. Our ability to pay dividends depends on, among other things, the Bank’s ability to pay dividends to us, which is subject to regulatory restrictions as described below in “Regulation and Supervision of the Bank— Dividend Payments.” We are also able to raise capital for contribution to the Bank by issuing securities without prior regulatory approval, subject to compliance with federal and state securities laws. Dividend Payments. The Company’s ability to pay dividends to its stockholders may be affected by both general corporate law considerations and policies of the Federal Reserve applicable to bank holding companies. As a Delaware corporation, the Company is subject to the limitations of the Delaware General Corporation Law (the “DGCL”). The DGCL allows the Company to pay dividends only out of its surplus (as defined and computed in accordance with the provisions of the DGCL) or if the Company has no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. As a general matter, the Federal Reserve has indicated that the board of directors of a bank holding company should eliminate, defer or significantly reduce dividends to stockholders if: (i) the company's net income available to stockholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii) the prospective rate of earnings retention is inconsistent with the company's capital needs and overall current and prospective financial condition; or (iii) the company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios. The Federal Reserve also possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations. Among these powers is the ability to proscribe the payment of dividends by banks and bank holding companies. In addition, under the Basel III Rule, financial institutions that seek to pay dividends are required to maintain the 2.5% capital conservation buffer. See “Regulatory Emphasis on Capital – Basel III Capital Standards” above. Under the proposed Basel III Endgame rules, which have not been finalized as of the date of this filing and are generally expected to apply only to large banking organizations, banks subject to the new framework could face increased capital requirements that may impact dividend policies and capital distribution strategies. If finalized and implemented, these rules could introduce new capital constraints for institutions seeking to maintain or increase dividend payments. Incentive Compensation. In addition to the potential restrictions on discretionary bonus compensation under the Basel III rules, the federal bank regulatory agencies have issued guidance on incentive compensation policies (the “Incentive Compensation Guidance”) intended to ensure that the incentive compensation policies of financial institutions do not undermine the safety and soundness of such institutions by encouraging excessive risk-taking. The Incentive Compensation Guidance, which covers all employees that have the ability to materially affect the risk profile of an institution, either individually or as part of a group, is based upon the key principles that a financial institution’s incentive compensation arrangements should comply with the following principles: (i) provide employees incentives that appropriately balance risk and reward; (ii) be compatible with effective controls and risk-management; and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors. The scope and content of federal bank regulatory agencies’ policies on executive compensation are continuing to develop and are likely to continue evolving in the near future. In 2016, federal agencies proposed regulations which could significantly change the regulation of incentive compensation programs at financial institutions. The proposal would create four tiers of institutions based on asset size. Institutions in the top two tiers would be subject to rules much more detailed and proscriptive than are currently in effect. If interpreted aggressively by the regulators, the proposed rules could be used to prevent, as a practical matter, larger institutions from engaging in certain lines of business where substantial commission and bonus pool arrangements are the norm. In the 2016 proposal, the top two tiers included institutions with more than $50 billion of assets, which would not currently apply to us. In May 2024, the federal banking agencies reissued a Notice of Proposed Rulemaking under Section 956 of the Dodd-Frank Act to strengthen oversight of incentive compensation arrangements. The proposal would apply to institutions with $1 billion or more in total consolidated assets and includes requirements for risk-adjusted awards, mandatory deferrals, forfeiture and clawback provisions, and enhanced governance standards. As of the date of this filing, these proposed rules have not been finalized. This marks the latest effort to finalize rules originally proposed in 2011 and 2016, signaling continued regulatory focus on aligning compensation practices with safety and soundness objectives. We cannot predict what final rules may be adopted, nor how they may be implemented and, therefore, it cannot be determined at this time whether compliance with such policies will adversely affect our ability to hire, retain and motivate our key employees. Monetary Policy. The monetary policy of the Federal Reserve has a significant effect on the operating results of financial or bank holding companies and their subsidiaries. Among the tools available to the Federal Reserve to affect the money supply are open market transactions in U.S. government securities, changes in the discount rate on bank borrowings and changes in reserve requirements against bank deposits (which are currently set at zero). These means are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may affect interest rates charged on loans or paid on deposits. Following multiple interest rate increases during 2022 and 2023, the Federal Reserve has emphasized a data- dependent approach to monetary policy, with future policy actions dependent on inflation, labor market conditions, and broader economic trends. This evolving monetary policy environment may impact our net interest margin and overall earnings performance.
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Table of Contents 15 Corporate Governance. The Dodd-Frank Act addressed many investor protection, corporate governance and executive compensation matters that affect most U.S. publicly traded companies. The Dodd-Frank Act (i) grants stockholders of U.S. publicly traded companies an advisory vote on executive compensation and so-called “golden parachute” payments, (ii) enhances independence requirements for compensation committee members, (iii) requires the SEC to adopt rules directing national securities exchanges to establish listing standards requiring all listed companies to adopt incentive-based compensation clawback policies for executive officers, and (iv) provides the SEC with authority to adopt proxy access rules that would allow stockholders of publicly traded companies to nominate candidates for election as a director and have those nominees included in a company’s proxy materials. On October 14, 2021, the SEC reopened the comment period for a 2015 proposed rule on clawbacks of incentive-based executive compensation. The SEC adopted final rules on October 26, 2022, requiring stock exchanges to mandate listed companies implement policies for recovering erroneously awarded compensation. These rules took effect on December 1, 2023, for the NASDAQ Stock Market. Our updated clawback policies were approved by our Compensation Committee in August 2023. Regulation and Supervision of the Bank General. The Bank is a national bank, chartered by the OCC under the National Bank Act. The deposit accounts of the Bank are insured by the FDIC’s Deposit Insurance Fund (the “DIF”) to the maximum extent provided under federal law and FDIC regulations, currently $250,000 per insured depositor category. As a national bank, the Bank is subject to the examination, supervision, reporting and enforcement requirements of the OCC, the chartering authority for national banks. The FDIC, as administrator of the DIF, also has regulatory authority over the Bank. Deposit Insurance. As an FDIC-insured institution, the Bank is required to pay deposit insurance premium assessments to the FDIC. Effective July 1, 2016, the FDIC changed its pricing system for banks under $10 billion, so that minimum and maximum initial base assessment rates are based on supervisory ratings. The initial base assessment rates currently range from approximately five basis points to approximately 32 basis points. At least semi-annually, the FDIC updates its loss and income projections for the DIF and, if needed, increases or decreases the assessment rates, following notice and comment on proposed rulemaking. The assessment base against which an FDIC-insured institution’s deposit insurance premiums paid to the DIF are calculated based on its average consolidated total assets less its average tangible equity. This method shifts the burden of deposit insurance premiums toward those large depository institutions that rely on funding sources other than U.S. deposits. The reserve ratio is the DIF balance divided by estimated insured deposits. In addition to the ordinary assessments described above, the FDIC has the ability to impose special assessments in certain instances. For example, in November 2023, the FDIC implemented a special assessment to recover the approximately $16.3 billion loss to the DIF associated with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank earlier that year. The assessment was limited to banks with an excess of $5 billion uninsured deposits as of December 31, 2022, as such, we did not receive any assessment. Supervisory Assessments. National banks are required to pay supervisory assessments to the OCC to fund the operations of the OCC. The amount of the assessment is calculated using a formula that considers the Bank’s size and its supervisory condition. During the year ended December 31, 2025, the Bank paid supervisory assessments to the OCC totaling $530,000. Capital Requirements. Banks are generally required to maintain capital levels in excess of other businesses. For a discussion of capital requirements, see “Regulatory Emphasis on Capital” above. Dividend Payments. The primary source of funds for the Company is dividends from the Bank. Under the National Bank Act, a national bank may pay dividends out of its undivided profits in such amounts and at such times as the bank’s board of directors deems prudent. Without prior OCC approval, however, a national bank may not pay dividends in any calendar year that, in the aggregate, exceed the bank’s year-to-date net income plus the bank’s retained net income for the two preceding years. The payment of dividends by any FDIC-insured institution is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and an FDIC-insured institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized. As described above, the Bank exceeded its capital requirements under applicable guidelines as of December 31, 2025. Notwithstanding the availability of funds for dividends, however, the OCC may prohibit the payment of dividends by the Bank if it determines such payment would constitute an unsafe or unsound practice. In addition, under the Basel III Rule, institutions that seek the freedom to pay dividends are required to maintain the 2.5% capital conservation buffer. See “Regulatory Emphasis on Capital” above. Affiliate and Insider Transactions. The Bank is subject to certain restrictions imposed by federal law on “covered transactions” between the Bank and its “affiliates.” The Company is an affiliate of the Bank for purposes of these restrictions, and covered transactions subject to the restrictions include extensions of credit to the Company, investments in the stock or other securities of the Company and the acceptance of the stock or other securities of the Company as collateral for loans made by the Bank. The Dodd-Frank Act enhanced the requirements for certain transactions with affiliates, including an expansion of the definition of “covered transactions” and an increase in the amount of time for which collateral requirements regarding covered transactions must be maintained.
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Table of Contents 16 Certain limitations and reporting requirements are also placed on extensions of credit by the Bank to its directors and officers, to directors and officers of the Company and its subsidiaries, to principal stockholders of the Company and to “related interests” of such directors, officers and principal stockholders. In addition, federal law and regulations may affect the terms upon which any person who is a director or officer of the Company or the Bank, or a principal stockholder of the Company, may obtain credit from banks with which the Bank maintains a correspondent relationship. On December 22, 2020, the federal banking agencies issued an interagency statement extending the temporary relief from enforcement action against banks or asset managers, which become principal stockholders of banks, with respect to certain extensions of credit by banks that otherwise would violate Regulation O, provided the asset managers and banks satisfy certain conditions designed to ensure that there is a lack of control by the asset manager over the bank. On December 22, 2022, the federal banking agencies issued a revised interagency statement extending the temporary relief from such enforcement, which was set to expire on January 1, 2024; however, the relief has been continuously extended. Most recently in December 2025, the Federal Reserve extended relief from such enforcement until the sooner of January 1, 2027, or the effective date of a final Federal Reserve rule revising Regulation O that addresses the treatment of extensions of credit by a bank to fund complex-controlled portfolio companies that are insiders of a bank. Safety and Soundness Standards/Risk Management. The federal banking agencies have adopted guidelines that establish operational and managerial standards to promote the safety and soundness of FDIC-insured institutions. The guidelines set forth standards for internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, asset quality and earnings. In general, the safety and soundness guidelines prescribe the goals to be achieved in each area, and each institution is responsible for establishing its own procedures to achieve those goals. If an institution fails to comply with any of the standards set forth in the guidelines, the FDIC-insured institution’s primary federal regulator may require the institution to submit a plan for achieving and maintaining compliance. If an FDIC-insured institution fails to submit an acceptable compliance plan, or fails in any material respect to implement a compliance plan that has been accepted by its primary federal regulator, the regulator is required to issue an order directing the institution to cure the deficiency. Until the deficiency cited in the regulator’s order is cured, the regulator may restrict the FDIC-insured institution’s rate of growth, require the FDIC-insured institution to increase its capital, restrict the rates the institution pays on deposits or require the institution to take any action the regulator deems appropriate under the circumstances. Noncompliance with the standards established by the safety and soundness guidelines may also constitute grounds for other enforcement action by the federal bank regulatory agencies, including cease and desist orders and civil money penalty assessments. The bank regulatory agencies have increasingly emphasized the importance of sound risk management processes and strong internal controls when evaluating the activities of the FDIC-insured institutions they supervise. Properly managing risks has been identified as critical to the conduct of safe and sound banking activities and has become even more important as new technologies, product innovation, and the size, speed and complexity of financial transactions have changed the nature of banking markets. The agencies have identified a spectrum of risks facing a banking institution including, but not limited to, credit, market, liquidity, strategic, operational, legal and reputational risk. In particular, regulatory pronouncements have focused on operational risk, which arises from the potential that inadequate information systems, operational problems, breaches in internal controls, fraud, or unforeseen catastrophes will result in unexpected losses. New products and services, third-party risk and cybersecurity are critical sources of operational risk that FDIC-insured institutions are expected to address. The Bank is expected to have active board and senior management oversight; adequate policies, procedures, and limits; adequate risk measurement, monitoring, and management information systems; and comprehensive internal controls. Branching Authority. National banks headquartered in Illinois, such as the Bank, have the same branching rights in Illinois as banks chartered under Illinois law, subject to OCC approval. Illinois law grants Illinois-chartered banks the authority to establish branches anywhere in the State of Illinois, subject to receipt of all required regulatory approvals. The Dodd-Frank Act permits well-capitalized and well-managed banks to establish new interstate branches or acquire individual branches of a bank in another state (rather than the acquisition of an out-of-state bank in its entirety) without impediments. In 2023 and 2024, the OCC issued guidance on the regulatory expectations for digital and branchless banking models, recognizing the increasing number of banks relying on online and mobile banking channels rather than physical branches, and in March 2025 released “Digitalization: Resources for Community Banks,” along with an interagency request of information in May 2025. Together these communications outline regulatory expectations for digital and branchless banking models.
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Table of Contents 17 Financial Subsidiaries. Under federal law and OCC regulations, national banks are authorized to engage, through “financial subsidiaries,” in any activity that is permissible for a financial holding company and any activity that the Secretary of the Treasury, in consultation with the Federal Reserve, determines is financial in nature or incidental to any such financial activity, except (i) insurance underwriting, (ii) real estate development or real estate investment activities (unless otherwise permitted by law), (iii) insurance company portfolio investments and (iv) merchant banking. The authority of a national bank to invest in a financial subsidiary is subject to a number of conditions, including, among other things, requirements that the bank must be well-managed and well-capitalized (after deducting from capital the bank’s outstanding investments in financial subsidiaries). The Bank has not applied for approval to establish any financial subsidiaries. Federal Home Loan Bank System. The Bank is a member of the Federal Home Loan Bank of Chicago (the “FHLBC”), which serves as a central credit facility for its members. The FHLBC is funded primarily from proceeds from the sale of obligations of the Federal Home Loan Bank system. It makes loans to member banks in the form of FHLBC advances. All advances from the FHLBC are required to be fully collateralized as determined by the FHLBC. On September 30, 2024, the Federal Housing Finance Agency issued a notice of proposed rulemaking that would improve Federal Home Loan Banks’ ability to provide liquidity to members by aligning the treatment of interest-bearing deposit accounts and other authorized overnight investments with the treatment of Federal Funds sales. On January 14, 2025, the Federal Housing Finance Agency finalized the rule originally proposed in September 2024. These changes became effective in April 2025. Transaction Account Reserves. Federal Reserve regulations have historically required FDIC-insured institutions to maintain reserves against their transaction accounts (primarily NOW and regular checking accounts). As of March 26, 2020, the Federal Reserve eliminated reserve requirements for certain depository institutions, including the Bank. As such, there was no reserve requirement as of December 31, 2024, or 2025. The nature of the Company’s business requires that it maintain amounts with other banks and federal funds which, at times, may exceed federally insured limits. Management monitors these correspondent relationships, and the Company has not experienced any losses in such accounts. Although reserve requirements are currently set at zero, the Federal Reserve retains the authority to reinstate such requirements. Community Reinvestment Act Requirements. The Community Reinvestment Act (“CRA”) requires the Bank to have a continuing and affirmative obligation in a safe and sound manner to help meet the credit needs of its entire community, including low- and moderate-income neighborhoods. Federal regulators regularly assess the Bank’s record of meeting the credit needs of its communities. Applications for additional branches and acquisitions would be affected by the evaluation of the Bank’s effectiveness in meeting its CRA requirements. The Bank received an overall “outstanding” rating on its most recent CRA performance evaluation. In December 2019, the OCC and the FDIC issued a notice of proposed rulemaking intended to (i) clarify which activities qualify for CRA credit; (ii) update where activities count for CRA credit; (iii) create a more transparent and objective method for measuring CRA performance; and (iv) provide for more transparent, consistent, and timely CRA-related data collection, recordkeeping, and reporting. However, the Federal Reserve did not join the proposed rulemaking. That proposed rulemaking was later superseded and is no longer in effect. In January 2025, the OCC, the FDIC, and the Federal Reserve issued interagency guidance clarifying that digital and fintech-driven activities may be eligible for CRA consideration, provided they meet applicable CRA criteria. This guidance reflects efforts to modernize CRA evaluations in light of evolving banking practices.
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Table of Contents 18 In May 2020, the OCC issued its final CRA rule, which was later rescinded in December 2021, replacing it with a rule based on the rules adopted jointly by the federal banking agencies in 1995, as amended and superseded by an updated joint framework. On the same day that the OCC announced its plans to rescind the CRA final rule, the OCC, the FDIC, and the Federal Reserve announced that they are working together to “strengthen and modernize the rules implementing the CRA.” On May 5, 2022, the OCC, FDIC, and Federal Reserve released a notice of proposed rulemaking regarding the CRA and invited public comment on the proposed rules. The comment period closed on August 5, 2022. On October 24, 2023, the OCC, the FDIC, and the Federal Reserve issued the final rule to strengthen and modernize regulations implementing the CRA. The final rule was scheduled to take effect on April 1, 2024; however, its effectiveness was enjoined by a federal court and compliance with the majority of the final rule’s provisions has been deferred. As originally adopted, compliance with most of the substantive provisions would not have been required until January 1, 2026, and the data reporting requirements would not have taken effect until January 1, 2027. The final rules, among other things, include: (i) applying four new performance tests to evaluate the CRA performance of large banks (assets of $2 billion or more): the Retail Lending Test, Retail Services and Products Test, Community Development Financing Test, and Community Development Services Test; (ii) retaining a strategic plan option, with modifications to reflect the new performance tests and updates to the approval standards; (iii) clarifying community development activities by updating the definition of community development, providing a process by which banks may request confirmation that an activity is eligible for community development consideration, and providing for a publicly available interagency illustrative list of qualifying community development activities; (iv) updating delineation requirements for facility-based assessment areas and establishing new retail lending assessment areas for certain large banks; (v) updating data collection, maintenance, and reporting requirements for large banks, tailoring those requirements based on large bank asset size and leveraging existing data where possible, while not imposing new data collection and reporting requirements for small and intermediate banks; and (vi) continuing public file and public notice disclosure requirements and creating a new public comment process to facilitate public engagement. Several banking industry groups filed a lawsuit seeking to invalidate the CRA final rule, in which they argued that the federal banking agencies exceeded their statutory authority in adopting the CRA final rule. In March 2024, a federal judge granted an injunction preventing the CRA final rule from taking effect. The OCC, the FDIC, and the Federal Reserve appealed the injunction. However, in March 2025, the federal banking agencies filed an unopposed motion to stay the appeal pending completion of a new rulemaking that would propose rescinding the enjoined 2023 CRA Final Rule and reinstating the CRA framework that existed prior to the final rule. In April 2025, the Fifth Circuit granted the agencies’ motion. Management has and will continue to evaluate any changes to the CRA’s regulations and their impact to the Bank. Fair Lending Requirements. We are subject to certain fair lending requirements and reporting obligations involving lending operations. A number of laws and regulations provide these fair lending requirements and reporting obligations, including, at the federal level, the Equal Credit Opportunity Act (“ECOA”), as amended by the Dodd-Frank Act, and Regulation B, as well as the Fair Housing Act (“FHA”) and regulations implementing the FHA. ECOA and Regulation B prohibit discrimination in any aspect of a credit transaction based on a number of prohibited factors, including race or color, religion, national origin, sex, marital status, age, the applicant’s receipt of income derived from public assistance programs, and the applicant’s exercise, in good faith, of any right under the Consumer Credit Protection Act. ECOA and Regulation B include lending acts and practices that are specifically prohibited, permitted, or required, and these laws and regulations proscribe data collection requirements, legal action statute of limitations, and disclosure of the consumer’s ability to receive a copy of any appraisal(s) and valuation(s) prepared in connection with certain loans secured by dwellings. In January 2023, the OCC revised its “Fair Lending” booklet of the Comptroller’s Handbook to incorporate clarified details and risk factors for a variety of examination scenarios addressing fair lending and to update references to supervisory guidance, sound risk management practices, and applicable legal standards. FHA prohibits discrimination in all aspects of residential real estate related transactions based on prohibited factors, including race or color, national origin, religion, sex, familial status, and handicap. In April 2025, President Trump issued Executive Order (EO) 14281, which directed agencies to eliminate the use of disparate impact liability in all contexts. Following the Executive Order, the OCC announced the removal of references to “disparate impact” in its Fair Lending booklet. The FDIC likewise updated the Fair Lending Laws and Regulation section of its Consumer Compliance Examination Manual to remove all references to disparate impact and how to evaluate disparate impact risk. Federal fair lending laws and regulations, as interpreted by courts and regulatory agencies, continue to recognize both disparate treatment and disparate impact theories of liability. Regulatory agencies periodically review and update supervisory guidance related to fair lending risk management and examination practices. In addition to prohibiting discrimination in credit transactions on the basis of prohibited factors, these laws and regulations can cause a lender to be liable for policies that result in a disparate treatment of or have a disparate impact on a protected class of persons. If a pattern or practice of lending discrimination is alleged by a regulator, then the matter may be referred by the agency to the U.S. Department of Justice (“DOJ”) for investigation. In December 2012, the DOJ and CFPB entered into a Memorandum of Understanding under which the agencies have agreed to share information, coordinate investigations, and have generally committed to strengthen their coordination efforts. In addition to substantive penalties and corrective measures that may be required for a violation of certain fair lending laws, the federal banking agencies may take compliance with fair lending requirements into account when regulating and supervising other activities of the bank, including in acting on expansionary proposals.
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Table of Contents 19 Anti-Money Laundering. As a financial institution, we must maintain anti-money laundering programs that include established internal policies, procedures and controls, a designated compliance officer, an ongoing employee training program, and testing of the program by an independent audit function. The program must comply with the anti-money laundering provisions of the Bank Secrecy Act (“BSA”). Financial institutions are prohibited from entering into specified financial transactions and account relationships and must meet enhanced standards for due diligence and “knowing your customer” in their dealings with foreign financial institutions, foreign customers and other high risk customers. Financial institutions must also take reasonable steps to conduct enhanced scrutiny of account relationships to guard against money laundering and to report any suspicious transactions. Financial institutions must comply with requirements regarding risk-based procedures for conducting ongoing customer due diligence, which requires us to take appropriate steps to understand the nature and purpose of customer relationships and identify and verify the identity of the beneficial owners of legal entity customers to the extent required under applicable FinCEN regulations. Current laws, such as the USA PATRIOT Act (which amended the BSA), as described below, provide law enforcement authorities with increased access to financial information maintained by banks. Anti-money laundering obligations have been substantially strengthened as a result of the USA PATRIOT Act. Bank regulators routinely examine institutions for compliance with these obligations, and this area has become a particular focus of the regulators in recent years. Federal regulators evaluate the effectiveness of an applicant in combating money laundering when determining whether to approve a proposed bank merger, acquisition, restructuring, or other expansionary activity. The regulators and other governmental authorities have been active in imposing “cease and desist” orders and significant money penalty sanctions against institutions found to be in violation of the anti- money laundering regulations. In August, 2023, the FFIEC revised and updated the examination procedures in the FFIEC’s Bank Secrecy Act/Anti-Money Laundering (BSA/AML) Examination Manual to provide greater transparency into the examination process and support risk-based examination work. In 2024 and 2025 the OCC released new procedures for OCC examiners to follow when assessing the anti- money laundering and countering the financing of terrorism programs of community banks. The FFIEC, OCC, and the FDIC also continued their emphasis on the importance of oversight of third-party vendors in the BSA/AML process through updated guidance, as well as continued examination and enforcement activity against financial institutions that failed to properly supervise their third-party service providers’ BSA/AML activity. Following the enactment of the Anti-Money Laundering Act of 2020, the Financial Crimes Enforcement Network (“FinCEN”) issued rules under the Corporate Transparency Act (“CTA”) establishing a beneficial ownership reporting regime requiring many corporate entities to file reports with FinCEN identifying their beneficial owners. Subsequent court rulings deeming the CTA unconstitutional resulted in nationwide injunctions that blocked enforcement of the CTA and created uncertainty regarding its implementation. On February 18, 2025, a federal court lifted the nationwide injunction, restoring FinCEN’s authority to enforce the CTA. Shortly thereafter, on March 21, 2025, FinCEN announced that, as a matter of regulatory discretion, it would remove beneficial ownership reporting requirements for domestic reporting companies while it continues to assess potential modifications to the CTA framework in light of public interest considerations, litigation risk, and regulatory burden. Following Russia’s invasion of Ukraine, OFAC took several sanctions related actions related to the Russian financial services sector pursuant to Executive Order 14024 beginning in February 2022 including: (i) a determination by the Secretary of the Treasury with respect to the financial services sector of the Russian Federation that authorizes sanctions against persons determined to operate or to have operated in that sector; (ii) correspondent or payable-through account and payment processing prohibitions on certain Russian financial institutions; (iii) the blocking of certain Russian financial institutions; (iv) expanding sovereign debt prohibitions to apply to new issuances in the secondary market; (v) prohibitions related to new debt and equity for certain Russian entities; and (vi) a prohibition on transactions involving certain Russian government entities, including the Central Bank of the Russian Federation. In March 2022, FinCEN issued an alert advising increased vigilance for potential Russian sanctions evasion attempts. FinCEN scrutiny and sanctions enforcement actions related to Russia continued through 2024 and 2025. The Financial Action Task Force (“FATF”) continues to revise the list of high-risk jurisdictions. On June 13, 2025, the FATF included Bolivia and the Virgin Islands (UK) as jurisdictions under Increased Monitoring. In October 2025, FATF removed Burkina Faso, Mozambique, Nigeria, and South Africa from its listed of Jurisdictions under Increased Monitoring. BSA/AML oversight by financial institutions continues to be a significant source of enforcement activity by all prudential regulators and FinCEN and therefore requires ongoing focus by the Bank.
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Table of Contents 20 Concentrations in Commercial Real Estate. Concentration risk exists when FDIC-insured institutions deploy too many assets to any one industry or segment. A concentration in commercial real estate is one example of regulatory concern. The interagency Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices guidance (“CRE Guidance”) provides supervisory criteria, including the following numerical indicators, to assist bank examiners in identifying banks with potentially significant commercial real estate loan concentrations that may warrant greater supervisory scrutiny: (i) total commercial real estate loans, as defined by CRE Guidance, outstanding plus any undrawn commitment exceeding 300% of capital, and where the outstanding balance of total commercial real estate loans, as defined by CRE Guidance, plus any undrawn commitment has increased 50% or more in the preceding three years; or (ii) construction and land development loans outstanding plus any undrawn commitment exceeding 100% of capital. The CRE Guidance does not limit banks’ levels of commercial real estate lending activities, but rather guides institutions in developing risk management practices and levels of capital that are commensurate with the level and nature of their commercial real estate concentrations. On December 18, 2015, the federal banking agencies issued a statement to reinforce prudent risk-management practices related to CRE lending, having observed substantial growth in many CRE asset and lending markets, increased competitive pressures, rising CRE concentrations in banks, and an easing of CRE underwriting standards. The federal bank agencies reminded FDIC-insured institutions to maintain underwriting discipline and exercise prudent risk-management practices to identify, measure, monitor, and manage the risks arising from CRE lending. In addition, FDIC-insured institutions must maintain capital commensurate with the level and nature of their CRE concentration risk. Since 2023, the OCC, FDIC, and Federal Reserve have issued multiple reminders and risk bulletins emphasizing prudent CRE risk management due to rising interest rates, declining office valuations, and stress in certain property sectors. Based on the Bank’s committed loan portfolio as of December 31, 2025, concentrations in commercial real estate have declined in 2025 due to growth in non-CRE related loan portfolios, and are approximately 220.3%, or less than the 300% guideline referenced in the CRE Guidance. We continue to monitor concentration levels as we seek to manage to an acceptable level of risk with all loan portfolio segments. Financial Privacy and Cybersecurity. We operate under the privacy protection provisions of the Gramm Leach Bliley Act of 1999 (GLBA) and its implementing regulations, which restrict the sharing of non-public consumer information with non-affiliated third parties. GLBA requires us to provide privacy notices to consumers and, in certain cases, to offer opt out rights for specified disclosures to non-affiliated third parties. Our board of directors oversees our information security and cybersecurity programs, supported by management through periodic briefings, key performance indicators (KPIs), and regular testing to ensure compliance and effectiveness. We are subject to data breach notification requirements under applicable state laws, and we continue to monitor and adapt to evolving state and federal privacy frameworks that may expand individual rights and increase obligations on companies handling personal data. These changes could result in additional operational complexity and increased compliance costs. On November 18, 2021, federal banking regulators issued a final rule establishing incident notification requirements for significant cybersecurity events. Banking organizations must notify their primary federal regulator as soon as possible and no later than 36 hours after determining that a “computer security incident” rises to a “notification incident” under the rule. Service providers are required to notify affected banking organizations as soon as possible after determining that an incident has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, covered services for four hours or more. The rule became effective April 1, 2022, with compliance required by May 1, 2022. Effective December 9, 2022, the Federal Trade Commission’s amendments to GLBA’s Safeguards Rule became enforceable. These amendments enhance requirements for risk assessments, ongoing monitoring, and other administrative, technical, and physical safeguards. We have updated our policies and procedures to align with these requirements, including periodic testing, tabletop exercises, and board level reporting. Our incident response program includes regular simulations to validate readiness and resilience. We regularly evaluate our privacy and cybersecurity controls against applicable laws and guidance and may incur incremental costs to comply with new or amended requirements. Changes in federal or state privacy and cybersecurity laws, or related regulatory guidance, could increase compliance obligations, require technology enhancements, and affect third party oversight practices. We believe our governance framework, risk management processes, and oversight of service providers—including ongoing due diligence and resilience testing—support continued compliance and the protection of customer data.
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Table of Contents 21 Consumer Protection Regulations. The activities of the Bank are subject to a variety of statutes and regulations designed to protect consumers. This includes Title X of the Dodd-Frank Act, which prohibits engaging in any unfair, deceptive, or abusive acts or practices (“UDAAP”). UDAAP claims involve detecting and assessing risks to consumers and to markets for consumer financial products and services. Interest and other charges collected or contracted for by the Bank are subject to state usury laws and federal laws concerning interest rates. The loan operations of the Bank are also subject to federal laws applicable to credit transactions, such as: ● the Truth-In-Lending Act (“TILA”) and Regulation Z, governing disclosures of credit and servicing terms to consumer borrowers and including substantial requirements for mortgage lending and servicing, as mandated by the Dodd-Frank Act; ● the Home Mortgage Disclosure Act and Regulation C, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the communities they serve; ● ECOA and Regulation B, prohibiting discrimination on the basis of race, color, religion, or other prohibited factors in any aspect of a credit transaction; ● the Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act and Regulation V, as well as the rules and regulations of the FDIC governing the use of consumer reports, provision of information to credit reporting agencies, certain identity theft protections and certain credit and other disclosures; ● the Fair Debt Collection Practices Act and Regulation F, governing the manner in which consumer debts may be collected by collection agencies and intending to eliminate abusive, deceptive, and unfair debt collection practices; ● the Real Estate Settlement Procedures Act (“RESPA”) and Regulation X, which governs various aspects of residential mortgage loans, including the settlement and servicing process, dictates certain disclosures to be provided to consumers, and imposes other requirements related to compensation of service providers, insurance escrow accounts, and loss mitigation procedures; ● the Secure and Fair Enforcement for Mortgage Licensing Act (“SAFE Act”) which mandates a nationwide licensing and registration system for residential mortgage loan originators. The SAFE Act also prohibits individuals from engaging in the business of a residential mortgage loan originator without first obtaining and maintaining annual registration as either a federal or state licensed mortgage loan originator; ● the Homeowners Protection Act, or the PMI Cancellation Act, provides requirements relating to private mortgage insurance on residential mortgages, including the cancellation and termination of PMI, disclosure and notification requirements, and the requirement to return unearned premiums; ● the Fair Housing Act prohibits discrimination in all aspects of residential real estate related transactions based on race or color, national origin, religion, sex, and other prohibited factors; ● the Servicemembers Civil Relief Act and Military Lending Act, providing certain protections for servicemembers, members of the military, and their respective spouses, dependents and others; and ● Section 106(c)(5) of the Housing and Urban Development Act requires making home ownership available to eligible homeowners. The deposit operations of the Bank are also subject to federal laws, such as: ● the Federal Deposit Insurance Act (“FDIA”), which, among other things, limits the amount of deposit insurance available per insured depositor category to $250,000 and imposes other limits on deposit-taking; ● the Right to Financial Privacy Act, which imposes a duty to maintain the confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; ● the Electronic Funds Transfer Act and Regulation E, which governs the rights, liabilities, and responsibilities of consumers and financial institutions using electronic fund transfer services, and which generally mandates disclosure requirements, establishes limitations on liability applicable to consumers for unauthorized electronic fund transfers, dictates certain error resolution processes, and applies other requirements relating to automatic deposits to and withdrawals from deposit accounts; ● the Expedited Funds Availability Act and Regulation CC, setting forth requirements to make funds deposited into transaction accounts available according to specified time schedules, disclose funds availability policies to customers, and relating to the collection and return of checks and electronic checks, including the rules regarding the creation or receipt of substitute checks; and ● the Truth in Savings Act and Regulation DD, which requires depository institutions to provide disclosures so that consumers can make meaningful comparisons about depository institutions and accounts. In light of the growing concern by regulators about relationships between chartered financial institutions and their third-party service providers, the OCC joined the other federal supervisory agencies in issuing the Interagency Guidance on Third-Party Relationships: Risk Management. This guidance provided risk management oversight guidelines for financial institutions to incorporate in their ongoing relationships with third party vendors.
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Table of Contents 22 The CFPB is an independent regulatory authority housed within the Federal Reserve. The CFPB has broad authority to regulate the offering and provision of consumer financial products and services. The CFPB has the authority to supervise and examine depository institutions with more than $10 billion in assets for compliance with federal consumer laws. The authority to supervise and examine depository institutions with $10 billion or less in assets, such as us, for compliance with federal consumer laws remains largely with those institutions’ primary regulators. However, the CFPB may participate in examinations of these smaller institutions on a “sampling basis” and may refer potential enforcement actions against such institutions to their primary regulators. As such, the CFPB may participate in examinations of the Bank. In addition, states are permitted to adopt consumer protection laws and regulations that are stricter than the regulations promulgated by the CFPB, and state attorneys general are permitted to enforce consumer protection rules adopted by the CFPB against certain institutions. The CFPB has issued a number of significant rules that impact nearly every aspect of the lifecycle of consumer financial products and services, including rules regarding residential mortgage loans. These rules implement Dodd-Frank Act amendments to ECOA, TILA and RESPA. On July 18, 2024, regulators, including the CFPB, issued interagency guidance on reconsiderations of value of residential real estate transactions. The CFPB continued its scrutiny of so called “pay-to-pay” and “junk fee” regimes, proposing rules related to credit card penalties. In March 2024, the CFPB finalized a rule that addresses late fees charged by card issuers that together with their affiliates have one million or more open credit card accounts. However, on April 15, 2025, the final rule, the “Credit Card Penalty Fees Final Rule” was vacated pursuant to a court order in Chamber of Commerce of the United States of America, et al. v Consumer Financial Protection Bureau, et al., No. 4:24-cv-00213-P (N.D. Tex.). Bank regulators take into account compliance with consumer protection laws when considering approval of any proposed expansionary proposals. Item 1A. Risk Factors There are risks, many beyond our control, which could cause our results to differ significantly from management’s expectations. Some of these risk factors are described below. Any factor described in this Annual Report on Form 10-K could, by itself or together with one or more other factors, adversely affect our business, results of operations and/or financial condition. Additional risks and uncertainties not currently known to us or that we currently consider not to be material also may materially and adversely affect us. In assessing these risks, you should also refer to other information disclosed in our SEC filings, including the financial statements and notes thereto. The risks discussed below also include forward-looking statements, and actual results may differ substantially from those discussed or implied in these forward-looking statements. Risks Related to Economic Conditions Our business may be adversely affected by economic conditions. Our financial performance generally, and in particular, the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of collateral securing those loans, as well as demand for loans and other products and services we offer and whose success we rely on to drive our growth, is highly dependent upon the business environment in the primary markets where we operate and in the United States as a whole. Unlike larger financial institutions that are more geographically diversified, our banking franchise is headquartered in Aurora, Illinois, and is concentrated in the suburbs west and south of the Chicago metropolitan area. In addition, the State of Illinois continues to experience severe fiscal challenges, which could result in future state tax increases, impact the economic vitality of the businesses operating in Illinois, encourage businesses to leave the state or discourage new employers to start or move businesses to Illinois, all of which could have a material adverse effect on our financial condition and results of operations. Unfavorable market conditions can result in a deterioration in the credit quality of our borrowers and the demand for our products and services, an increase in the number of loan delinquencies, defaults and charge-offs, foreclosures, additional provisions for credit losses, adverse asset values of the collateral securing our loans and an overall material adverse effect on the quality of our loan portfolio, and a reduction in assets under management or administration. Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity or investor or business confidence; limitations on the availability of or increases in the cost of credit and capital; increases in inflation or interest rates; high unemployment; natural disasters; epidemics and pandemics; state or local government insolvency; downgrading of the United States’ credit rating; or a combination of these or other factors. In addition, there are continuing concerns related to, among other things, the level of U.S. government debt and fiscal actions that may be taken to address that debt including, but not limited to, tariffs imposed by our government and reciprocal tariffs from other countries, the potential resurgence of economic and political tensions with China, the war in Ukraine, the Middle East conflict, and the conflict between China and Taiwan, and oil prices due to Russian supply disruptions, each of which may have a destabilizing effect on financial markets and economic activity. Economic pressure on consumers and overall economic uncertainty may result in changes in consumer and business spending, borrowing and saving habits. These economic conditions and/or other negative developments in the domestic or international credit markets may significantly affect the markets in which we do business, the value of our loans and investments, and our ongoing operations, costs and profitability. Declines in real estate values and sales volumes and high unemployment or underemployment may also result in higher than expected loan delinquencies, increases in our levels of nonperforming and classified assets and a decline in demand for our products and services. These negative events may cause us to incur losses and may adversely affect our capital, liquidity and financial condition.
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Table of Contents 23 Inflationary pressures present a potential threat to our results of operation and financial condition. The United States generally and the regions in which we operate experienced significant inflationary pressures in 2022 and 2023, evidenced by higher gas prices, higher food prices and other consumer items. Inflation represents a loss in purchasing power because the value of investments does not keep up with inflation and erodes the purchasing power of money and the potential value of investments over time. In 2024 and early 2025, continued regional economic uncertainty, exacerbated by persistent inflation, supply chain disruptions, and subdued consumer spending, has further increased the risks in our primary markets. Accordingly, inflation can result in material adverse effects upon our customers, their businesses and, as a result, our financial position and results of operations. Inflationary pressures normally cause the Federal Reserve to increase interest rates, for instance, from March 2022 through July 2023. Increases in interest rates in the past have led to recessions of various lengths and intensities and might lead to such a recession in the future. Such a recession or any other adverse changes in business and economic conditions generally or specifically in the markets in which we operate could affect our business, causing one or more of the following negative developments: ● an increase in our deposit and funding costs; ● a decrease in the demand for loans, mortgage banking products and services and other products and services we offer; ● a decrease in our deposit account balances as customers move funds to seek to obtain maximum federal deposit insurance coverage or to seek higher interest rates; ● a decrease in the value of the collateral securing our residential or commercial real estate loans; ● a permanent impairment of our assets; or ● an increase in the number of customers or other counterparties who default on their loans or other obligations to us, which could result in a higher level of nonperforming assets, net charge-offs and provision for credit losses. Our trust and wealth management business may be negatively impacted by changes in economic and market conditions and clients may seek legal remedies for investment performance. Our trust and wealth management business may be negatively impacted by changes in general economic and market conditions because the performance of this business is directly affected by conditions in the financial and securities markets. The financial markets and businesses operating in the securities industry are highly volatile (meaning that performance results can vary greatly within short periods of time) and are directly affected by, among other factors, domestic and foreign economic conditions and general trends in business and finance, and by the threat, as well as the occurrence of global conflicts, all of which are beyond our control. We cannot assure you that broad market performance will be favorable in the future. Declines in the financial markets or a lack of sustained growth may result in a decline in the performance of our wealth management business and may adversely affect the market value and performance of the investment securities that we manage, which could lead to reductions in our wealth management fees, because they are based primarily on the market value of the securities we manage, and could lead some of our clients to reduce their assets under management by us or seek legal remedies for investment performance. If any of these events occur, the financial performance of our wealth management business could be materially and adversely affected. Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks. Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their environmental, social and governance (“ESG”) practices and disclosure. Investor advocacy groups, investment funds and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, diversity, labor conditions, and human rights. Although the current U.S. administration may reduce regulatory burdens related to ESG, companies serving diverse stakeholder bases may face varied or conflicting expectations, requiring ongoing diligence to balance regulatory, market, and consumer pressures. Increased ESG-related compliance costs could result in higher overall operational expenses. Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, and our stock price. While U.S. federal regulations may become less stringent under the current U.S. administration, new government regulations globally could result in more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure. Concerns over the long-term impacts of climate change continue to lead to governmental efforts around the world to mitigate those impacts, even if federal action in the U.S. slows. Consumers and businesses may also adjust their behavior as a result of these concerns. We and our customers will need to respond to new laws and regulations, as well as consumer and business preferences resulting from climate change concerns. We and our customers may face cost increases, asset value reductions, operating process changes, among other impacts. The extent of these impacts will likely vary depending on our customer’s specific attributes, including reliance on or role in carbon-intensive activities. In addition, we could face reductions in creditworthiness on the part of some customers or in the value of assets securing loans. Our efforts to take these risks into account in making lending and other decisions may not fully protect us from the negative impact of new laws, regulations, or changes in consumer or business behavior. Even in the absence of stringent federal action in the U.S., the global and market-driven emphasis on ESG-related practices is expected to persist, requiring ongoing adaptation and investment.
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Table of Contents 24 Climate change could have a material adverse impact on us and our customers. We are exposed to risks of physical impacts of climate change and risks arising from the process of transitioning to a less carbon- dependent economy. Climate change-related physical risks include increased severity and frequency of adverse weather events, such as extreme storms, flooding, droughts, and wildfires, as well as longer-term climate shifts, including rising temperatures, sea levels, and changes in precipitation amount and distribution. Such physical risks may have adverse impacts on us, both directly on our business operations and as a result of impacts on our borrowers and counterparties, such as declines in the value of loans, investments, real estate and other assets, disruptions in business operations and economic activity, including supply chains, and market volatility. Transition risks include regulatory changes, evolving market preferences, and technological advancements aimed at reducing carbon dependency. The possible adverse impacts of transition risks include asset devaluations, increased operational and compliance costs, and an inability to meet regulatory or market expectations. For example, we may become subject to new or heightened regulatory requirements and stakeholder expectations regarding climate change, including those relating to operational resiliency, disclosure and financial reporting. These shifts could also affect borrower creditworthiness or the value of assets securing loans, further impacting our financial condition. We intend to enhance our governance of climate change-related risks and integrate climate considerations into our risk governance framework. However, the risks associated with climate change are complex, rapidly evolving, and subject to significant uncertainty due to factors such as limited historical data, evolving scientific models, and unpredictable policy and market responses. We could experience increased expenses resulting from strategic planning, litigation, and technology and market changes, and reputational harm as a result of negative public sentiment, regulatory scrutiny, and reduced investor and stakeholder confidence due to our response to climate change and our climate change strategy, which, in turn, could have a material negative impact on our business, results of operations, and financial condition. Credit and Interest Rate Risks If we fail to effectively manage credit risk, our business and financial condition will suffer. We must effectively manage credit risk. As a lender, we are exposed to the risk that our borrowers will be unable to repay their loans according to their original contractual terms, and that the collateral securing repayment of their loans, if any, may not be sufficient to ensure repayment. This risk may be further impacted by future events with widespread economic effects, such as other pandemics, geopolitical conflicts, natural disasters, or significant market disruptions. Further there are risks inherent in making any loan, including risks relating to proper loan underwriting, risks resulting from changes in economic and industry conditions and risks inherent in dealing with individual borrowers, including the risk that a borrower may not provide information to us about its business in a timely manner, and/or may present inaccurate or incomplete information to us, and risks relating to the value of collateral. In order to manage credit risk successfully, we must, among other things, maintain disciplined and prudent underwriting standards and ensure that our lenders follow those standards. The weakening of these standards for any reason, such as an attempt to attract higher yielding loans, a lack of discipline or diligence by our employees in underwriting and monitoring loans, the inability of our employees to adequately adapt policies and procedures to changes in economic or any other conditions affecting borrowers and the quality of our loan portfolio, may result in loan defaults, foreclosures and additional charge-offs and may necessitate that we significantly increase our allowance for credit losses, each of which could adversely affect our net income. Our inability to successfully manage credit risk could have a material adverse effect on our business, financial condition or results of operations. Our allowance for credit losses, or ACL, and fair value adjustments with respect to acquired loans, may be insufficient to absorb potential losses in our loan portfolio, which may adversely affect our business, financial condition and results of operations. Our success depends significantly on the quality of our assets, particularly loans. Like other financial institutions, we are exposed to the risk that our borrowers may not repay their loans according to their terms, and the collateral securing the payment of these loans may be insufficient to fully compensate us for the outstanding balance of the loan plus the costs to dispose of the collateral. As a result, we may experience significant loan, lease or commitment credit losses that may have a material adverse effect on our operating results and financial condition. We maintain an ACL at a level we believe is adequate to absorb estimated credit losses that are expected to occur within the existing loan portfolio through their contractual terms in accordance with applicable accounting standards. The level of the ACL is inherently subjective and is influenced by various factors, many of which are beyond our control, including, but not limited to, the performance of the loan portfolio, consideration of current economic trends, changes in interest rates and property values, estimated losses on pools of homogeneous loans based on an analysis that uses historical loss experience for prior periods that are determined to have like characteristics with management’s economic forecast period, such as pre-recessionary, recessionary, or recovery periods, portfolio growth and concentration risk, management and staffing changes, the interpretation of loan risk classifications by regulatory authorities and other credit market factors. Economic uncertainty remains elevated entering 2026, driven by persistent inflationary pressures, higher interest rates, geopolitical conflicts, and the potential for continued volatility in global markets—despite forecasts for moderate growth in the U.S. and abroad. These factors may lead to a significant increase in our ACL in future periods. In addition, bank regulatory agencies
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Table of Contents 25 periodically review our ACL and may require an increase in the provision for credit losses or the recognition of additional loan charge-offs, based on judgments different from those of management. If charge-offs in future periods exceed the ACL, we will need additional provisions to increase the allowance. Any increases in the ACL will result in a decrease in net income and capital and may have a material adverse effect on our financial condition and results of operations. We may be required to make significant increases in the provision for credit losses and to charge-off additional loans in the future. The application of the purchase method of accounting in past acquisitions, more recently our five branch purchase and the resulting loans acquired from First Merchants Bank in 2024, our merger of Bancorp Financial in 2025, and any future acquisitions will impact our ACL. Under the purchase method of accounting, all acquired loans are recorded in our consolidated financial statements at their estimated fair value at the time of acquisition and any related acquired ACL is eliminated, as new credit marks are established on acquired loans based on an assessment of credit quality as of the acquisition date. To the extent that our estimates of fair value are too high, we will incur losses associated with the acquired loans. Our loan portfolio is concentrated heavily in commercial and residential real estate loans, including exposure to construction loans, which involve risks specific to real estate values and the real estate markets in general. Our loan portfolio generally reflects the profile of the communities in which we operate. Because we operate in areas that have seen rapid historical growth, real estate lending of all types is a significant portion of our loan portfolio. Total real estate lending was $2.97 billion, or approximately 56.5%, of our loan portfolio at December 31, 2025, compared to $2.68 billion, or approximately 67.2%, at December 31, 2024. Given that the primary (if not only) source of collateral on these loans is real estate, adverse developments affecting real estate values in our market area could increase the credit risk associated with our real estate loan portfolio. In addition, with respect to commercial real estate loans, the banking regulators are examining commercial real estate lending activity with greater scrutiny, and may require banks with higher levels of commercial real estate loans to implement enhanced underwriting, internal controls, risk management policies and portfolio stress testing, as well as possibly higher levels of allowances for credit losses and capital levels as a result of commercial real estate lending growth and exposures. At December 31, 2025, our outstanding commercial real estate loans and undrawn commercial real estate commitments, excluding owner occupied real estate, were equal to approximately 220.3% of our Tier 1 capital plus allowance for credit losses, a decrease from 273.3% at December 31, 2024. In 2025, we were able to maintain the level of our non-owner occupied commercial real estate loans under 300% of capital, as outlined in regulatory guidance, and are performing heightened monitoring over commercial real estate exposures, including concentration limits on commercial real estate type, sub-types and individual tenant exposure, frequent loan portfolio stress testing, as well as sensitivity analysis and using current and prospective market data during underwriting. Executive management and the Board are actively involved in the review of our commercial real estate portfolio and the approval of individual transactions, with transactions over $5.0 million approved by a management loan committee that includes our chief executive officer, our vice chairman, our chief credit officer, and our senior lending officer. Commercial real estate transactions over $20.0 million and a relationship credit exposure over $25.0 million require the additional approval of the Directors Loan Committee. Commercial real estate loans rated watch or worse are actively monitored and reviewed by management and the Board no less than quarterly. If our regulators require us to maintain higher levels of capital than we would otherwise be expected to maintain due to our commercial real estate concentration, this could limit our ability to leverage our capital and have a material adverse effect on our business, financial condition, results of operations and prospects. If the OCC, our primary regulator, were to impose restrictions on the amount of commercial real estate loans we can hold in our portfolio, our earnings would be adversely affected. Real estate market volatility and future changes in disposition strategies could result in net proceeds that differ significantly from our fair value appraisals of loan collateral and OREO and could negatively impact our operating performance. Many of our nonperforming real estate loans are collateral-dependent, meaning the repayment of the loan is largely dependent upon the value of the property securing the loan and the borrower’s ability to refinance, recapitalize or sell the property. For collateral- dependent loans, we estimate the value of the loan based on the appraised value of the underlying collateral less costs to sell. Our OREO portfolio essentially consists of properties acquired through foreclosure or deed in lieu of foreclosure in partial or total satisfaction of certain loans as a result of borrower defaults. In some cases, the market for such properties has been significantly depressed, and we have been unable to sell them at prices or within timeframes that we deem acceptable. OREO is recorded at the fair value of the property when acquired, less estimated selling costs. In determining the value of OREO properties and loan collateral, an orderly disposition of the property is generally assumed. Significant judgment is required in estimating the fair value of property, and the period of time within which such estimates can be considered current is significantly shortened during periods of market volatility. In response to market conditions and other economic factors, we may utilize alternative sale strategies other than orderly disposition as part of our OREO disposition strategy, such as immediate liquidation sales. In this event, as a result of the significant judgments required in estimating fair value and the variables involved in different methods of disposition, the net proceeds realized from such sales transactions could differ significantly from appraisals, comparable sales and other estimates used to determine the fair value of our OREO properties. We are subject to interest rate risk, and a change in interest rates could have a negative effect on our net income. Our earnings and cash flows are largely dependent upon our net interest income. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions, our competition and policies of various governmental and regulatory agencies, particularly the Federal Reserve. Changes in monetary policy could influence our earnings. The Federal Reserve cut rates to
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Table of Contents 26 near zero in March 2020, then raised them aggressively between March 2022 and mid-2023 to a target range of 5.25%–5.50% to combat inflation. Rates remain elevated, and prolonged higher rates could compress net interest margins as funding costs rise faster than asset yields. Additionally, sustained high interest rates may also adversely affect our current borrowers’ ability to repay variable rate loans, the demand for loans and our ability to originate loans and decrease loan prepayment rates. Conversely, when interest rates fall, net interest income can decline if interest-earning assets mature or reprice more quickly, or to a greater degree than interest-bearing liabilities. Furthermore, a reduction in interest rates may lead to increased prepayments on our loan and mortgage-backed securities portfolios and increased competition for deposits. Although management believes it has implemented effective asset and liability management strategies to reduce the potential effects of changes in interest rates on our results of operations, any substantial, unexpected, prolonged change in market interest rates could continue to have a material adverse effect on our financial condition and results of operations. Rapidly rising interest rates will impact the value of our investment securities and the cost of our funding sources, including deposits. Our profitability is highly dependent on our net interest income, which is the difference between the interest income paid to us on our loans and investments and the interest we pay to third parties such as our depositors, lenders and debt holders. Changes in interest rates can impact our profits and the fair values of certain of our assets and liabilities. Higher market interest rates and increased competition for deposits may result in higher interest expense, as we may offer higher rates to attract or retain customer deposits. Increases in interest rates also may increase the amount of interest expense we pay to creditors on short and long-term debt. Interest rate risk can also result from mismatches between the dollar amounts of re-pricing or maturing assets and liabilities and from mismatches in the timing and rates at which our assets and liabilities re-price. Changes in market values of investment securities classified as available for sale are impacted by higher rates and can negatively impact our other comprehensive income and equity levels through accumulated other comprehensive income, which includes net unrealized gains and losses on those securities. Further, such losses could be realized into earnings should liquidity and/or business strategy necessitate the sales of securities in a loss position. We actively monitor and manage the balances of our maturing and re-pricing assets and liabilities to reduce the adverse impact of changes in interest rates, but there can be no assurance that we will be able to avoid material adverse effects on our net interest margin in all market conditions. Nonperforming assets take significant time to resolve, adversely affect our results of operations and financial condition and could result in further losses in the future. Our nonperforming loans (which consist of nonaccrual loans and loans past due 90 days or more still accruing interest), were $52.8 million at December 31, 2025, an increase of 74.4%, compared to $30.3 million at December 31, 2024. Other real estate owned, or OREO, totaled $1.4 million at December 31, 2025, a decrease of 93.4%, compared to $21.6 million at December 31, 2024. Our nonperforming assets adversely affect our net income in various ways. For example, we do not accrue interest income on nonaccrual loans and OREO may have expenses in excess of any lease revenues collected, thereby adversely affecting our net income, return on assets and return on equity. Our loan administration costs also increase because of our nonperforming assets. The resolution of nonperforming assets requires significant time commitments from management, which can be detrimental to the performance of their other responsibilities. There is no assurance that we will not experience increases in nonperforming assets in the future, or that our nonperforming assets will not result in losses in the future. Operational Risks We are a community bank and our ability to maintain our reputation is critical to the success of our business and the failure to do so may materially adversely affect our performance. We are a community bank, and our reputation is one of the most valuable components of our business. As such, we strive to conduct our business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring and retaining employees who share our core values: being an integral part of the communities we serve; delivering superior service to our customers; and caring about our customers and associates. Damage to our reputation could undermine the confidence of our current and potential clients in our ability to provide financial services. Such damage could also impair the confidence of our counterparties and business partners, and ultimately affect our ability to effect transactions. Maintenance of our reputation depends not only on our success in maintaining our core values and controlling and mitigating the various risks described herein, but also on our success in identifying and appropriately addressing issues that may arise in areas such as potential conflicts of interest, anti-money laundering, client personal information and privacy issues, record-keeping, regulatory investigations and any litigation that may arise from the failure or perceived failure of us to comply with legal and regulatory requirements. If our reputation is negatively affected, by the actions of our employees or otherwise, our business and, therefore, our operating results may be materially adversely affected. Further, negative public opinion can expose us to litigation and regulatory action as we seek to implement our growth strategy, which could adversely affect our business, financial condition and results of operations. We operate in a highly competitive industry and market area and may face severe competitive disadvantages. We face substantial competition in all areas of our operations from a variety of different competitors, many of which are larger and have more financial resources. We compete with commercial banks, credit unions, savings and loan associations, mortgage banking firms, other financial service businesses, including investment advisory and wealth management firms, mutual fund companies, and securities brokerage and investment banking firms, as well as super-regional, national and international financial institutions that operate offices in
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Table of Contents 27 our primary market areas and elsewhere. Local competitors continue to expand their presence in the western suburbs of Chicago, including the communities that surround Aurora, Illinois, and these competitors may be better positioned than us to compete for loans, acquisitions and personnel. As customers’ preferences and expectations continue to evolve, technology has lowered barriers to entry and made it possible for banks to expand their geographic reach by providing services over the Internet and for non-banks to offer products and services traditionally provided by banks, such as business and consumer lending, automatic transfer and automatic payment systems. There has also been significant advancement, as well as setbacks, in the exchange of digital assets (“cryptocurrency”) that could continue to materially impact the financial services industry. We have not entered into or considered any transactions or custodial agreements regarding cryptocurrency. Because of this rapidly changing technology, our future success will depend in part on our ability to address our customers’ needs by using technology. Customer loyalty can be easily influenced by a competitor’s new products, especially offerings that could provide cost savings or a higher return to the customer. Moreover, the financial services industry could become even more competitive as a result of legislative and regulatory changes, and many large scale competitors can leverage economies of scale to offer better pricing for products and services compared to what we can offer. Likewise, rapid adoption of AI by competitors, either in financial services or FinTech, could create significant pressure on pricing, automation, or client satisfaction. If we fail to keep pace with AI-enabled analytics and customer offerings, our competitive positioning could be detrimentally impacted. We compete with these other institutions in attracting deposits and assets under management, processing payment transactions, and in making loans. We may not be able to compete successfully with other financial institutions in our markets, particularly with larger financial institutions operating in our markets that have significantly greater resources than us and offer financial products and services that we are unable to offer, putting us at a disadvantage in competing with them for loans and deposits and wealth management clients, and we may have to pay higher interest rates to attract deposits, accept lower yields on loans to attract loans and pay higher wages for new employees, resulting in lower net interest margin and reduced profitability. In addition, competitors that are not depository institutions are generally not subject to the extensive regulations that apply to us. If we are unable to compete effectively with those banking or other financial services businesses, we could find it more difficult to attract new and retain existing clients and our net interest margin, net interest income and wealth management fees could decline, which would adversely affect our results of operations and could cause us to incur losses in the future. In addition, our ability to successfully attract and retain wealth management clients is dependent on our ability to compete with competitors’ investment products, level of investment performance, client services and marketing and distribution capabilities. If we are not successful in attracting new and retaining existing clients, our business, financial condition, results of operations and prospects may be materially and adversely affected. We depend on our executive officers and other key employees, and our ability to attract additional key personnel, to continue the implementation of our long-term business strategy, and we could be harmed by the unexpected loss of their services. We believe that our continued growth and future success will depend in large part on the skills of our executive officers and other key employees and our ability to motivate and retain these individuals, as well as our ability to attract, motivate and retain highly qualified senior and middle management and other skilled employees. Our business is primarily relationship-driven in that many of our key personnel have extensive customer or asset management relationships. Loss of key personnel with such relationships may lead to the loss of business if the customers were to follow that employee to a competitor or if asset management expertise was not replaced in a timely manner. Competition for employees is intense, and the process of locating key personnel with the combination of skills and attributes required to execute our business strategy may be lengthy. In 2021, there was a dramatic increase in workers leaving their positions throughout our industry and other industries that is being referred to as the “great resignation,” and the market to build, retain and replace talent then became even more highly competitive. These trends resulted in labor shortages in many of our markets, which made attracting new employees and replacing existing employees more difficult. However, by 2023, labor shortages began to ease somewhat, and while challenges persisted, the economy showed signs of stabilization in the labor market, improving workforce availability. While labor conditions have continued to evolve through 2024 and 2025, talent retention and competition for skilled workers remain key concerns for many industries. We may not be successful in retaining key personnel, and the unexpected loss of services of one or more of our key personnel could have a material adverse effect on our business because of their skill, knowledge of our primary markets, years of industry experience and the difficulty of promptly finding qualified replacement personnel. If the services of any of our key personnel should become unavailable for any reason, we may not be able to identify and hire qualified persons on terms acceptable to the Company, or at all, which could have a material adverse effect on our business, financial condition, results of operation and future prospects. If we are unable to offer our key management personnel long-term incentive compensation, including options, restricted stock, and restricted stock units, as part of their total compensation package, we may have difficulty retaining such personnel, which would adversely affect our operations and financial performance. We have historically granted equity awards, including restricted stock units and stock options, to key management personnel as part of a competitive compensation package. Our ability to grant equity compensation awards as a part of our total compensation package has been vital to attracting, retaining and aligning stockholder interest with a talented management team in a highly competitive marketplace. In the future, we may seek stockholder approval to adopt or amend equity compensation plans so that we may issue additional equity awards to management in order for the equity component of our compensation packages to remain competitive in the industry. Stockholder advisory groups have implemented guidelines and issued voting recommendations related to how much equity companies
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Table of Contents 28 should be able to grant to employees. These advisors influence certain shareholder votes regarding approval of a company’s request for approval of new equity compensation plans. The factors used to formulate these guidelines and voting recommendations include the volatility of a company’s share price and are influenced by broader macro-economic conditions that can change year to year. The variables used by stockholder advisory groups to formulate equity plan recommendations may limit our ability to obtain approval to adopt or amend equity plans in the future. If we are limited in our ability to grant equity compensation awards, we would need to explore offering other compelling alternatives to supplement our compensation, including long-term cash compensation plans or significantly increased short-term cash compensation, in order to continue to attract and retain key management personnel. If we used these alternatives to long-term equity awards, our compensation costs could increase and our financial performance could be adversely affected. If we are unable to offer key management personnel long-term incentive compensation, including stock options, restricted stock or restricted stock units, as part of their total compensation package, we may have difficulty attracting and retaining such personnel, which would adversely affect our operations and financial performance. We depend on outside third parties for the processing and handling of our records and data. We rely on software developed by third party vendors to process various Company transactions. In some cases, we have contracted with third parties to run their proprietary software on our behalf at a location under the control of the third party. These systems include, but are not limited to, core data processing, payroll, loan origination, wealth management record keeping, and securities portfolio management. While we perform a review of controls instituted by the vendor over these programs in accordance with industry standards and institute our own user controls, we must rely on the continued maintenance of the performance controls by these outside parties, including safeguards over the security of customer data. In addition, we create backup copies of key processing output daily in the event of a failure on the part of any of these systems. Nonetheless, we may incur a temporary disruption in our ability to conduct our business or process our transactions, or incur damage to our reputation if a third-party vendor fails to adequately maintain internal controls or institute necessary changes to systems. Our reliance on third-party vendors for critical systems and services therefore increases our exposure to cybersecurity risks. While regulatory expectations for vendor oversight have intensified, requiring enhanced due diligence and ongoing monitoring, failure of third-party controls could result in operational disruptions or data breaches. A disruption or breach of security may ultimately have a material adverse effect on our financial condition and results of operations. Our use of third-party vendors and our other ongoing third-party business relationships are subject to regulatory requirements and attention. We regularly use third party vendors as part of our business. We also have substantial ongoing business relationships with other third parties. These types of third-party relationships are subject to demanding regulatory requirements and attention by our federal bank regulators. Recent supervisory guidance and examination practices require us to enhance our due diligence, risk assessment, ongoing monitoring and control over our third-party vendors and other ongoing third-party business relationships. We expect that our regulators will hold us responsible for deficiencies in our oversight and control of our third-party relationships and in the performance of the parties with which we have these relationships. As a result, if our regulators conclude that we have not exercised adequate oversight and control over our third party vendors or other ongoing third party business relationships or that such third parties have not performed appropriately, we could be subject to enforcement actions, including civil money penalties or other administrative or judicial penalties or fines as well as requirements for customer remediation, any of which could have a material adverse effect on our business, financial condition or results of operations. We are at risk of increased losses from fraud. Criminals committing fraud increasingly are using more sophisticated techniques and in some cases are part of larger criminal rings, which allow them to be more effective. The fraudulent activity has taken many forms, ranging from check fraud, mechanical devices attached to ATMs (“skimming”), social engineering and phishing attacks to obtain personal information or impersonation of our clients through the use of falsified or stolen credentials. Additionally, an individual or business entity may properly identify themselves, particularly when banking online, yet seek to establish a business relationship for the purpose of perpetrating fraud. Further, in addition to fraud committed against us, we may suffer losses as a result of fraudulent activity committed against third parties. Increased deployment of technologies, such as chip card technology, multi-factor authentication, and active customer alerts defray and reduce aspects of fraud; however, criminals are turning to other sources to steal personally identifiable information, such as unaffiliated healthcare providers and government entities, in order to impersonate the consumer to commit fraud. Many of these data compromises are widely reported in the media. Further, as a result of the increased sophistication of fraud activity, we have increased our spending on systems and controls to detect and prevent fraud. This will result in continued ongoing investments in the future. Privacy and Technology-Related Risks Failure to keep pace with technological change could adversely affect our business. The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements. We may not be able
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Table of Contents 29 to effectively implement new technology driven products and services or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business, financial condition and results of operations. Our information systems may experience an interruption or breach in security and cyber-attacks, all of which could have a material adverse effect on our business. We rely heavily on internal and outsourced technologies, communications, and information systems to conduct our business. Additionally, in the normal course of business, we collect, process and retain sensitive and confidential information regarding our customers. As our reliance on technology has increased, so have the potential risks of a technology-related operation interruption (such as disruptions in our customer relationship management, general ledger, deposit, loan, or other systems) or the occurrence of a cyber-attack (such as unauthorized access to our systems). These risks have increased for all financial institutions as new technologies have emerged, including the use of the Internet and the expansion of telecommunications technologies (including mobile devices) to conduct financial and other business transactions, and as the sophistication of organized criminals, perpetrators of fraud, hackers, terrorists and others have increased. In addition to cyber-attacks or other security breaches involving the theft of sensitive and confidential information, hackers have engaged in attacks against large financial institutions, particularly denial of service attacks that are designed to disrupt key business services, such as customer-facing web sites. We operate in an industry where otherwise effective preventive measures against security breaches become vulnerable as breach strategies change frequently and cyber-attacks can originate from a wide variety of sources. It is possible that a cyber-incident, such as a security breach, may be undetected for a period of time. However, applying guidance from the Federal Financial Institutions Examination Council and our primary federal regulator, we have identified security risks and employed risk mitigation controls. Following a layered security approach, we have analyzed and will continue to analyze security related to device specific considerations, user access topics, transaction-processing and network integrity. We expect that we will spend additional time and will incur additional costs going forward to modify and enhance protective measures and that effort and spending will continue to be required to investigate and remediate any information security vulnerabilities. We also face risks related to cyber-attacks and other security breaches in connection with credit card and debit card transactions that typically involve the transmission of sensitive information regarding our customers through various third parties, including merchant-acquiring banks, payment processors, payment card networks and their processors. Some of these parties have in the past been the target of security breaches and cyber-attacks. Because these third parties and related environments such as the point-of- sale are not under our direct control, future security breaches or cyber-attacks affecting any of these third parties could impact us, and in some cases, we may have risk exposure and suffer losses for breaches or attacks. We offer our customers protection against fraud and attendant losses for unauthorized use of debit cards in order to stay competitive in the marketplace. Offering such protection exposes us to potential losses which, in the event of a data breach at one or more retailers of considerable magnitude, may adversely affect our business, financial condition, and results of operations. Further cyber-attacks or other breaches in the future, whether affecting us or others, could intensify consumer concern and regulatory focus and result in reduced use of payment cards and increased costs, all of which could have a material adverse effect on our business. To the extent we are involved in any future cyber-attacks or other breaches, our reputation could be affected which may have a material adverse effect on our business, financial condition or results of operations. The development and use of Artificial Intelligence (“AI”) presents risks and challenges that may adversely impact our business. We or our third-party (or fourth party) vendors, clients or counterparties may develop or incorporate AI technology in certain business processes, services, or products. The development and use of AI present a number of risks and challenges to our business. The legal and regulatory environment relating to AI is uncertain and rapidly evolving, both in the U.S. and internationally, and includes regulatory schemes targeted specifically at AI as well as provisions in intellectual property, privacy, consumer protection, employment, and other laws applicable to the use of AI. These evolving laws and regulations could require changes in our implementation of AI technology and increase our compliance costs and the risk of non-compliance. AI models, particularly generative AI models, may produce output or take action that is incorrect, resulting in “hallucinations”, or including biases in the data on which they are trained, resulting in the release of private, confidential, or proprietary information, that infringes on the intellectual property rights of others, or that is otherwise harmful or false. In addition, the complexity of many AI models makes it difficult to understand why they are generating particular outputs. This limited transparency increases the challenges associated with assessing the proper operation of AI models, understanding and monitoring the capabilities of the AI models, reducing erroneous output, eliminating bias, and complying with regulations that require documentation or explanation of the basis on which decisions are made. Further, we may rely on AI models developed by third parties, and, to that extent, would be dependent in part on the manner in which those third parties develop and train their models, including risks arising from the inclusion of any unauthorized material in the training data for their models and the effectiveness of the steps these third parties have taken to limit the risks associated with the output of their models, matters over which we may have limited visibility. Any of these risks could expose us to liability or adverse legal or regulatory consequences and harm our reputation and the public perception of our business or the effectiveness of our security measures.
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Table of Contents 30 Growth and Strategic Risks We may not be able to implement our growth strategy or manage costs effectively, resulting in lower earnings or profitability. There can be no assurance that we will be able to continue to grow and to be profitable in future periods, or, if profitable, that our overall earnings will remain consistent or increase in the future. Our strategy is focused on organic growth, supplemented by opportunistic acquisitions, including our five-branch purchase from First Merchants Bank in 2024, and our merger with Bancorp Financial in 2025. Our growth requires that we increase our loans and deposits while managing risks by following prudent loan underwriting standards without increasing interest rate risk or compressing our net interest margin, maintaining more than adequate capital and liquidity levels at all times, hiring and retaining qualified employees and successfully implementing strategic projects and initiatives. Even if we are able to increase our interest income, our earnings may nonetheless be reduced by increased expenses, such as additional employee compensation or other general and administrative expenses and increased interest expense on any liabilities incurred or deposits solicited to fund increases in assets. Additionally, if our competitors extend credit on terms we find to pose excessive risks, or at interest rates which we believe do not warrant the credit exposure, we may not be able to maintain our lending volume and could experience deteriorating financial performance. Our inability to manage our growth successfully or to continue to expand into new markets could have a material adverse effect on our business, financial condition or results of operations. Our strategic growth plans contemplate additional organic growth and potential growth through additional mergers and acquisitions, which exposes us to additional risks. Our strategic growth plans include organic growth and growth through additional mergers and acquisitions. To the extent that we are unable to increase loans through organic loan growth, or to identify and consummate attractive acquisitions, we may be unable to successfully implement our growth strategy, which could materially and adversely affect our financial condition and earnings. We routinely evaluate opportunities to acquire additional financial institutions or branches or to open new branches. As a result, we regularly engage in discussions or negotiations that, if they were to result in a transaction, could have a material effect on our operating results and financial condition, including short- and long-term liquidity. Our merger and acquisition activities could be material and could require us to use a substantial amount of common stock, cash, other liquid assets, and/or incur debt. In addition, if goodwill recorded in connection with our prior or potential future acquisitions were determined to be impaired, then we would be required to recognize a charge against our earnings, which could materially and adversely affect our results of operations during the period in which the impairment was recognized. Moreover, these types of expansions involve various risks, including: Management of Growth. We may be unable to successfully: ● maintain loan quality in the context of significant loan growth; ● identify and expand into suitable markets; ● retain employees and customers of the Company or the businesses that we acquire or merge with; ● attract sufficient deposits and capital to fund anticipated loan growth; ● originate high quality loans in new markets; ● maintain adequate common equity and regulatory capital; ● avoid diversion or disruption of our management and existing operations as well as those of the acquired or merged institution; ● maintain adequate management personnel and systems to oversee such growth; ● maintain adequate internal audit, risk management, loan review and compliance functions; and ● implement additional policies, procedures and operating systems required to support such growth. Operating Results. There is no assurance that existing branches or future branches will maintain or achieve deposit levels, loan balances or other operating results necessary to avoid losses or produce profits. Our growth may entail an increase in overhead expenses as we add new branches and staff. There are considerable costs involved in opening branches, and new branches generally do not generate sufficient revenues to offset their costs until they have been in operation for at least a year or more. Accordingly, any new branches we establish can be expected to negatively impact our earnings for some period of time until they reach certain economies of scale. Our historical results may not be indicative of future results or results that may be achieved, particularly if we continue to expand. Failure to successfully address these and other issues related to our expansion could have a material adverse effect on our business, financial condition and results of operations, including short-term and long-term liquidity, and could adversely affect our ability to successfully implement our business strategy. Future acquisitions may be delayed, impeded, or prohibited due to regulatory issues. Our future acquisitions, particularly those of financial institutions, are subject to approval by a variety of federal and state regulatory agencies. Regulatory approvals could be delayed, impeded, restrictively conditioned or denied due to existing or new regulatory issues we have, or may have, with regulatory agencies, including, without limitation, issues related to anti-money laundering/Bank Secrecy Act compliance, fair lending laws, fair housing laws, consumer protection laws, unfair, deceptive, or abusive acts or practices regulations, Community Reinvestment Act issues, and other similar laws and regulations. We may fail to pursue, evaluate or complete strategic and
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Table of Contents 31 competitively significant acquisition opportunities as a result of our inability, or perceived or anticipated inability, to obtain regulatory approvals in a timely manner, under reasonable conditions or at all. Difficulties associated with potential acquisitions that may result from these factors could have a material adverse effect on our business, and, in turn, our financial condition and results of operations. Any enhanced regulatory scrutiny of bank mergers and acquisitions and revision of the framework for merger application review may adversely affect the marketplace for such transactions, could result in our acquisitions in future periods being delayed, impeded or restricted in certain respects and result in new rules that possibly limit the size of financial institutions we may be able to acquire in the future and alter the terms for such transactions. We may be exposed to difficulties in combining the operations of acquired or merged businesses, including First Merchants and Bancorp Financial, into our own operations, which may prevent us from achieving the expected benefits from our merger and acquisition activities. We may not be able to fully achieve the strategic objectives and operating efficiencies that we anticipate in our merger and acquisition activities, including with respect to First Merchants Bank and Bancorp Financial. Inherent uncertainties exist in integrating the operations of an acquired or merged business. Such integration could cause us to lose our customers or the customers of acquired or merged entities as a result of an acquisition. We may also lose key personnel from the acquired entity as a result of an acquisition. We may not discover all known and unknown factors when examining a company for acquisition or merger during the due diligence period. These factors could produce unintended and unexpected consequences for us. Undiscovered factors as a result of an acquisition or merger could bring civil, criminal, and financial liabilities against us, our management, and the management of those entities we acquire or merge with. In addition, if difficulties arise with respect to the integration process, the economic benefits expected to result from acquisitions and mergers might not occur. Failure to successfully integrate businesses that we acquire or merge with could have an adverse effect on our profitability, return on equity, return on assets, or our ability to implement our strategy, any of which in turn could have a material adverse effect on our business, financial condition and results of operations. These factors could contribute to our not achieving the expected benefits from our mergers and acquisitions within desired time frames, if at all. New lines of business, products, product enhancements or services may subject us to additional risks. From time to time, we may implement new lines of business or offer new products, and product enhancements as well as new services within our existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances in which the markets are not fully developed. In implementing, developing or marketing new lines of business, products, product enhancements or services, we may invest significant time and resources, although we may not assign the appropriate level of resources or expertise necessary to make these new lines of business, products, product enhancements or services successful or to realize their expected benefits. Further, initial timetables for the introduction and development of new lines of business, products, product enhancements or services may not be achieved, and price and profitability targets may not prove feasible. The introduction of such new products requires continued innovative efforts on the part of our management and may require significant time and resources as well as ongoing support and investment. External factors, such as compliance with regulations, competitive alternatives and shifting market preferences, may also affect the ultimate implementation of a new line of business or offerings of new products, product enhancements or services. Furthermore, any new line of business, product, product enhancement or service or system conversion could have a significant impact on the effectiveness of our system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business or offerings of new products, product enhancements or services could have a material adverse effect on our business, financial condition or results of operations. Industry-Related Risks Our estimate of fair values for our investments may not be realizable if we were to sell these securities today. Our available-for-sale securities are carried at estimated fair value. The determination of fair value for securities categorized in Level 2 or Level 3 involves significant judgment due to the complexity of the factors contributing to the valuation, many of which are not readily observable in the market. Recent market disruptions and the resulting fluctuations in fair value have made the valuation process even more difficult and subjective. If the valuations are incorrect, it could harm our financial results and financial condition. Monetary policies and regulations of the Federal Reserve could adversely affect our business, financial condition and results of operations. In addition to being affected by general economic conditions, our earnings and growth are affected by the policies of the Federal Reserve. An important function of the Federal Reserve is to regulate the money supply and credit conditions. Among the instruments used by the Federal Reserve to implement these objectives are open market purchases and sales of U.S. government securities, adjustments to the discount rate and changes in banks’ reserve requirements against bank deposits. These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits. Their use also affects interest rates charged on loans or paid on deposits. The monetary policies and regulations of the Federal Reserve have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. The effects of such policies upon our business, financial condition and results of operations cannot be predicted.
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Table of Contents 32 Our deposit insurance premiums could be substantially higher in the future, which could have a material adverse effect on our future earnings. The FDIC insures deposits at FDIC-insured depository institutions, such as the Bank, up to $250,000 per insured depositor category. The amount of a particular institution’s deposit insurance assessment is based on that institution’s risk classification under an FDIC risk-based assessment system. An institution’s risk classification is assigned based on its capital levels and the level of supervisory concern the institution poses to its regulators. Banks are assessed deposit insurance premiums based on the bank’s average consolidated total assets less the sum of its average tangible equity, and the FDIC modified certain risk-based adjustments, which increase or decrease a bank’s overall assessment rate. In addition to ordinary assessments described above, the FDIC has the ability to impose special assessments in certain instances. We are generally unable to control the amount of premiums that we are required to pay for FDIC insurance. If there are bank or financial institution failures, we may be required to pay higher FDIC premiums than the recent levels. Any future additional assessments, increases or required prepayments in FDIC insurance premiums could reduce our profitability, may limit our ability to pursue certain business opportunities or otherwise negatively impact our operations. Adverse developments affecting the financial services industry, such as recent bank failures or concerns involving liquidity, may have a material adverse effect on the Company’s operations. The 2023 high-profile bank failures involving Silicon Valley Bank, Signature Bank, and First Republic Bank caused general uncertainty and concern regarding the liquidity adequacy of the banking sector. Although we were not directly affected by these bank failures, the resulting speed and ease in which news, including social media commentary, led depositors to withdraw or attempt to withdraw their funds from these and other financial institutions caused the stock prices of many financial institutions to become volatile. In 2024 and into 2025, continued concerns regarding the stability of certain regional banks and potential liquidity risks have further contributed to market volatility and investor caution. The failure of the Santa Anna National Bank and Pulaski Savings Bank in 2025, and the early 2026 bank failure of Metropolitan Capital Bank & Trust, has only added to this uncertainty. Additional bank failures could have an adverse effect on our financial condition and results of operations, either directly or through an adverse impact on certain of our customers. In response to the bank failures and the resulting market reaction, in March 2023 the Secretary of the Treasury approved actions enabling the FDIC to complete its resolutions of the failed banks in a manner that fully protects depositors by utilizing the Deposit Insurance Fund, including the use of Bridge Banks to assume all of the deposit obligations of the failed banks, while leaving unsecured lenders and equity holders of such institutions exposed to losses. In addition, the Federal Reserve announced it would make available additional funding to eligible depository institutions under a Bank Term Funding Program to help assure banks have the ability to meet the needs of all their depositors. However, the Federal Reserve ceased extending credit under the Bank Term Funding Program on March 11, 2024. In an effort to strengthen public confidence in the banking system and protect depositors, regulators announced that any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law, which increased our FDIC insurance assessment and increased our costs of doing business. However, it is uncertain whether these steps by the government will continue to be sufficient to calm financial markets, reduce the risk of significant depositor withdrawals at other institutions and thereby reduce the risk of additional bank failures. As a result of this uncertainty, we face the potential for reputational risk, deposit outflows, increased costs and competition for liquidity, and increased credit risk which, individually or in the aggregate, could have a material adverse effect on our business, financial condition and results of operations. Legal, Accounting, Regulatory and Compliance Risks We face a risk of noncompliance with the Bank Secrecy Act and other anti-money laundering statutes and regulations and corresponding enforcement proceedings. The federal Bank Secrecy Act, the PATRIOT Act, and other laws and regulations require financial institutions, among our other duties, to institute and maintain effective anti-money laundering programs and to file suspicious activity and currency transaction reports as appropriate. The federal Financial Crimes Enforcement Network, established by the U.S. Treasury Department to administer the Bank Secrecy Act, is authorized to impose significant civil money penalties for violations of those requirements and has recently engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration and Internal Revenue Service. There is also increased scrutiny of compliance with the rules enforced by the Office of Foreign Assets Control. Federal and state bank regulators also focus on compliance with Bank Secrecy Act and anti-money laundering regulations. If our policies, procedures and systems are deemed deficient or the policies, procedures and systems of the financial institutions that we have already acquired or may acquire in the future are deficient, we would be subject to liability, including fines and regulatory actions such as restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our acquisition plans, which would negatively impact our business, financial condition and results of operations. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us.
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Table of Contents 33 We may be materially and adversely affected by the highly regulated environment in which we operate. We are subject to extensive federal and state regulation, supervision and examination. Banking regulations are primarily intended to protect depositors’ funds, FDIC funds, customers and the banking system as a whole, rather than our stockholders. Compliance with banking regulations is costly and these regulations affect our lending practices, capital structure, investment practices, mergers and acquisitions, dividend policy, and growth, among other things. The Company and the Bank also undergo periodic examinations by their regulators, who have extensive discretion and authority to prevent or remedy unsafe or unsound practices or violations of law. Failure to comply with applicable laws, regulations or policies could also result in heightened regulatory scrutiny and in sanctions by regulatory agencies (such as a memorandum of understanding, a written supervisory agreement or a cease and desist order), civil money penalties and/or reputation damage. Any of these consequences could restrict our ability to expand our business or could require us to raise additional capital or sell assets on terms that are not advantageous to us or our stockholders and could have a material adverse effect on our business, financial condition and results of operations. A more detailed description of the primary federal banking laws and regulations that affect the Company and the Bank is included in this Form 10-K under the section captioned “Supervision and Regulation” in Item 1. Since the 2008 financial crisis, federal and state banking laws and regulations, as well as interpretations and implementations of these laws and regulations, have undergone substantial review and change. In particular, the Dodd-Frank Act drastically revised the laws and regulations under which we operate. The burden of regulatory compliance has increased under the Dodd-Frank Act and has increased our costs of doing business and, as a result, may create an advantage for our competitors who may not be subject to similar legislative and regulatory requirements. We face risks related to the adoption of future legislation and potential changes in federal regulatory agency leadership, policies, and priorities. The U.S. political landscape remains fluid, and changes in Congressional composition, presidential administrations, and agency leadership may result in shift in regulatory priorities and policy direction. Under the Biden Administration, Congressional committees with jurisdiction over the banking sector pursued oversight and legislative initiatives in a variety of areas, including addressing climate-related risks, promoting diversity and equality within the banking industry and addressing other ESG matters, improving competition in the banking sector and enhancing oversight of bank mergers and acquisitions, establishing a regulatory framework for digital assets and markets, and oversight of pandemic responses and economic recovery. Subsequent changes in administration and Congressional leadership may result in efforts to reverse, suspend, or modify regulatory initiatives adopted in prior periods, promote deregulation by easing regulatory burdens on financial institutions, adopt a technology-forward regulatory approach, or take a more favorable stance on bank mergers and acquisitions. For example, recent legislative and regulatory actions have included the use of the Congressional Review Act to repeal agency rules affecting bank merger review processes and the enactment of legislation establishing a federal framework for stablecoins and other digital assets. Because of this kind of oscillation in regulation, the prospects for the enactment of major banking reform legislation remain unclear at this time. Furthermore, leadership changes within federal banking agencies and financial regulators continue to shape the regulatory environment. Since recent changes in presidential administrations, key positions across agencies — including the Comptroller of the Currency, CFPB, CFTC, SEC, and the U.S. Treasury — have experienced periods of turnover and transition, leading to shifts in regulatory priorities and enforcement approaches. Future changes in agency leadership may further alter regulatory policies, supervisory focus, and enforcement activity. The potential impact of changes in government leadership and agency personnel, policies and priorities on the financial services sector, including the Company and the Bank, cannot be fully predicted at this time. Regulations and laws may be modified at any time, and new legislation may be enacted that will affect us. Any future changes in federal and state laws and regulations, as well as the interpretation and implementation of such laws and regulations, could affect us in substantial and unpredictable ways, including those listed above or other ways that could have a material adverse effect on our business, financial condition or results of operations. Our accounting estimates and risk management processes and controls rely on analytical and forecasting techniques and models and assumptions, which may not accurately predict future events. Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Our management must exercise judgment in selecting and applying many of these accounting policies and methods so they comply with GAAP and reflect management’s judgment of the most appropriate manner in which to report our financial condition and results. In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which may be reasonable under the circumstances, yet which may result in our reporting materially different results than would have been reported under a different alternative. These judgments are often based on assumptions about future economic conditions, borrower behavior, interest rates, and market conditions, which may differ materially from actual outcomes. Certain accounting policies are critical to presenting our financial condition and results of operations. They require management to make difficult, subjective or complex judgments about matters that are uncertain. Materially different amounts could be reported under different conditions or using different assumptions or estimates. These critical accounting policies include the allowance for credit losses and fair
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Table of Contents 34 value methodologies. Because of the uncertainty of estimates involved in these matters, we may be required to significantly increase the ACL or sustain credit losses that are significantly higher than the reserve provided, reduce the carrying value of an asset measured at fair value, or significantly increase liabilities measured at fair value. In addition, changes in regulatory guidance, supervisory expectations, or examination findings may result in required changes to our methodologies or assumptions. Any of these could have a material adverse effect on our business, financial condition or results of operations. Our internal controls, disclosure controls, processes and procedures, and corporate governance policies and procedures are based in part on certain assumptions and can provide only reasonable (not absolute) assurances that the objectives of the system are met. Any failure or circumvention of our controls, processes and procedures or failure to comply with regulations related to controls, processes and procedures could necessitate changes in those controls, processes and procedures, which may increase our compliance costs, divert management attention from our business or subject us to regulatory actions and increased regulatory scrutiny. In addition, deficiencies in internal control over financial reporting could result in restatements, delayed filings, or adverse market reactions. Any of these could have a material adverse effect on our business, financial condition or results of operations. We are subject to fair lending laws, and failure to comply with these laws could lead to material penalties. Federal and state fair lending laws and regulations, such as the Equal Credit Opportunity Act and the Fair Housing Act, impose nondiscriminatory lending requirements on financial institutions. The DOJ, the CFPB and other federal and state agencies are responsible for enforcing these laws and regulations. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. Regulatory standards and enforcement priorities in this area may change over time, including through changes in interpretations, supervisory guidance, or enforcement approaches. A successful challenge to our performance under the fair lending laws and regulations could adversely impact our rating under the Community Reinvestment Act and result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on merger and acquisition activity and restrictions on expansion activity, which could negatively impact our reputation, business, financial condition and results of operations. We could be subject to changes in tax laws, regulations, and interpretations or challenges to our income tax provision. We compute our income tax provision based on enacted tax rates in the jurisdictions in which we operate. Any change in enacted tax laws, rules or regulatory or judicial interpretations, or any change in the pronouncements relating to accounting for income taxes could adversely affect our effective tax rate, tax payments and results of operations. The taxing authorities in the jurisdictions in which we operate may challenge our tax positions, which could increase our effective tax rate and harm our financial position and results of operations. We are subject to audit and review by U.S. federal and state tax authorities. Any adverse outcome of such a review or audit could have a negative effect on our financial position and results of operations. In addition, we are subject to income, franchise and other taxes in numerous state and local jurisdictions, and our state and local tax obligations are subject to differing and evolving tax laws, regulations and interpretations. We currently file income tax returns in multiple states and may be subject to additional state tax filing obligations, including as a result of nexus standards, apportionment methodologies or changes in state tax law. We may from time to time enter into voluntary disclosure agreements (“VDAs”) or be subject to audits or inquiries by state and local taxing authorities. Any adverse change in state or local tax laws or interpretations, or any adverse outcome of a state or local tax audit, review, inquiry or VDA process, could increase our tax liabilities, result in the assessment of penalties or interest, and adversely affect our financial position and results of operations. Deferred tax assets are reported as assets on our balance sheet and represent the decrease in taxes expected to be paid in the future because of net operating losses (“NOLs”) and tax credit carryforwards and because of future reversals of temporary differences in the bases of assets and liabilities as measured by enacted tax laws and their bases as reported in the financial statements. As of December 31, 2025, we had net deferred tax assets of $31.3 million, which included a $11.2 million tax effect of adjustments related to other comprehensive income. Realization of deferred tax assets is dependent upon the generation of sufficient future taxable income during the periods in which existing deferred tax assets are expected to become deductible for income tax purposes. Adverse economic conditions or reduced profitability could limit our ability to realize these deferred tax assets. Changes in enacted tax laws, such as adoption of a lower income tax rate in any of the jurisdictions in which we operate, could impact our ability to obtain the future tax benefits represented by our deferred tax assets. Our deferred tax asset may be further reduced in the future if estimates of future income or our tax planning strategies do not support the amount of the deferred tax asset. Charges to establish a valuation allowance with respect to our deferred tax asset could have a material adverse effect on our financial condition and results of operations. In addition, the determination of our provision for income taxes and other liabilities requires significant judgment by management. Although we believe that our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our financial statements and could have a material adverse effect on our financial results in the period or periods for which such determination is made. Given our expanded retail business we are subject to various state consumer protection laws and tax codes. As a result of our expanded retail and nationwide consumer lending activities, including powersport and other specialty consumer loan programs, some of which are originated through third-party dealers or acquired portfolios, we are subject to a broad and evolving array of federal and state consumer protection laws and tax requirements that vary by jurisdiction and product type. Failure to comply with
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Table of Contents 35 these laws, or changes in their interpretation or enforcement, could result in fines, penalties, litigation, reputational harm, increased compliance costs, or limitations on our ability to conduct business in certain markets, which could adversely affect our business, financial condition and results of operations. We could become subject to claims and litigation pertaining to our fiduciary responsibility. Some of the services we provide, such as wealth management services through River Street Advisors, LLC, require us to act as fiduciaries for our customers and others. Customers make claims and on occasion take legal action pertaining to our performance of our fiduciary responsibilities. In addition, evolving regulatory standards, litigation theories, and fiduciary expectations may increase the scope or frequency of such claims. Whether customer claims and legal action related to our performance of our fiduciary responsibilities are founded or unfounded, if such claims and legal action are not resolved in a manner favorable to us, they may result in significant financial liability and/or adversely affect the market perception of us and our products and services as well as impact customer demand for those products and services. Any financial liability or reputational damage could have a material adverse effect on our business, which, in turn, could have a material adverse impact on our financial condition and results of operations. We are defendants in a variety of litigation and other actions. Currently, there are certain other legal proceedings pending against the Company and our subsidiaries in the ordinary course of business. While the outcome of any legal proceeding is inherently uncertain, based on information currently available, the Company’s management believes that any liabilities arising from pending legal matters would not have a material adverse effect on us or our consolidated financial statements. However, adverse rulings, settlements, or regulatory actions could result in outcomes that differ materially from management’s expectations. However, if actual results differ from management’s expectations, it could have a material adverse effect on our financial condition, results of operations, or cash flows. From time to time we are, or may become, involved in suits, legal proceedings, information-gatherings, investigations and proceedings by governmental and self-regulatory agencies that may lead to adverse consequences. Many aspects of the banking business involve a substantial risk of legal liability. From time to time, we are, or may become, the subject of information-gathering requests, reviews, investigations and proceedings, and other forms of regulatory inquiry, including by bank regulatory agencies, self-regulatory agencies, the SEC, and law enforcement authorities. The results of such proceedings could lead to significant civil or criminal penalties, including monetary penalties, damages, adverse judgments, settlements, fines, injunctions, restrictions on the way we conduct our business or reputational harm. Even where no enforcement action is ultimately taken, responding to such matters may result in significant management distraction and expense. Capital and Liquidity Risks Our business needs and future growth may require us to raise additional capital, but that capital may not be available or may be dilutive. We may need to raise additional capital, in the form of debt or equity securities, in the future to have sufficient capital resources to meet our commitments and fund our business needs and future growth, particularly if the quality of our assets or earnings were to deteriorate significantly. In addition, the Company and the Bank are each required by federal regulatory authorities to maintain adequate levels of capital to support their operations and to comply with evolving regulatory capital expectations, including stress testing, capital planning, and concentration risk considerations. Our ability to raise capital will depend on, among other things, conditions in the capital markets and market listing rules—which are outside of our control—and our financial performance. Accordingly, we cannot provide assurance that such capital will be available on terms acceptable to us or at all. Any occurrence that limits our access to capital, may adversely affect our capital costs and our ability to raise capital and, in turn, our liquidity. Market volatility, increased regulatory scrutiny of financial institutions, or adverse perceptions regarding the banking industry could further constrain capital availability. Further, if we need to raise capital in the future we may have to do so when many other financial institutions are also seeking to raise capital and would then have to compete with those institutions for investors. Any inability to raise capital on acceptable terms when needed could have a material adverse effect on our business, financial condition and results of operations and could be dilutive to both tangible book value and our share price. In addition, an inability to raise capital when needed may subject us to increased regulatory supervision and the imposition of restrictions on our growth and business. These restrictions could negatively affect our ability to operate or further expand our operations through loan growth, acquisitions or the establishment of additional branches. Regulators could also limit capital distributions, including dividends or share repurchases. These restrictions may also result in increases in operating expenses and reductions in revenues that could have a material adverse effect on our financial condition, results of operations and share price.
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Table of Contents 36 We could experience an unexpected inability to obtain needed liquidity. Liquidity measures the ability to meet current and future cash flow needs as they become due. The liquidity of a financial institution reflects its ability to meet loan requests, to accommodate possible outflows in deposits, and to take advantage of interest rate market opportunities and is essential to a financial institution’s business. The ability of a financial institution to meet its current financial obligations is a function of its balance sheet structure, its ability to liquidate assets and its access to alternative sources of funds. Recent bank failures and heightened sensitivity to liquidity risk have increased regulatory and market focus on contingency funding planning and liquidity stress testing. We seek to ensure that our funding needs are met by maintaining an appropriate level of liquidity through asset and liability management. If we are unable to obtain funds when needed, it could have a material adverse effect on our business, financial condition and results of operations. We may not be able to maintain a strong core deposit base or access other low-cost funding sources. We rely on bank deposits to be a low cost and stable source of funding. In addition, our future growth will largely depend on our ability to maintain and grow a strong deposit base. If we are unable to continue to attract and retain core deposits, to obtain third party financing on favorable terms, or to have access to interbank or other liquidity sources, we may not be able to grow our assets as quickly. Changes in depositor behavior, including increased rate sensitivity and the ease of transferring deposits through digital channels, may increase deposit volatility. We compete with banks and other financial services companies for deposits. If our competitors raise the rates they pay on deposits in response to interest rate changes initiated by the Federal Reserve’s Federal Open Market Committee (“FOMC”), or for other reasons of their choice, our funding costs may increase, either because we raise our rates to avoid losing deposits or because we lose deposits and must rely on more expensive sources of funding. Higher funding costs could reduce our net interest margin and net interest income. Any decline in available funding could adversely affect our ability to continue to implement our business strategy which could have a material adverse effect on our liquidity, business, financial condition and results of operations. Risks Related to an Investment in Our Common Stock Our future ability to pay dividends is subject to restrictions. We currently conduct substantially all of our operations through our subsidiaries, and a significant part of our income is attributable to dividends from the Bank. We principally rely on the profitability of the Bank to conduct operations and satisfy obligations. As is the case with all financial institutions, the profitability of the Bank is subject to the fluctuating cost and availability of money, changes in interest rates, and in economic conditions in general. Holders of our common stock are only entitled to receive such cash dividends as our board of directors may declare out of funds legally available for such payments. Any declaration and payment of dividends on common stock will depend upon our earnings and financial condition, liquidity and capital requirements, the general economic and regulatory climate, our ability to service any equity or debt obligations senior to the common stock, and other factors deemed relevant by the board of directors. Furthermore, consistent with our business plans, growth initiatives, capital availability, projected liquidity needs, and other factors, we have made, and will continue to make, capital management decisions and policies that could adversely impact the amount of dividends, if any, paid to our stockholders. Although we currently expect to continue to pay quarterly dividends, any future determination relating to our dividend policy will be made by our board of directors and will depend on a number of factors. We are subject to certain restrictions on the payment of cash dividends as a result of banking laws, regulations and policies, including regulatory capital conservation buffer requirements and supervisory expectations regarding capital distributions. Finally, our ability to pay dividends to our stockholders depends on our receipt of dividends from the Bank, which is also subject to restrictions on dividends as a result of banking laws, regulations and policies. See Part II, Item 5. “Dividends.” The trading volumes in our common stock may not provide adequate liquidity for investors. Shares of our common stock are listed on the NASDAQ Global Select Market; however, the average daily trading volume in our common stock is less than that of larger financial services companies. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of a sufficient number of willing buyers and sellers of the common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control. Given the current daily average trading volume of our common stock, significant sales of our common stock in a brief period of time, or the expectation of these sales, could cause a significant decline in the price of our common stock and increased volatility.
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Table of Contents 37 The trading price of our common stock may be subject to continued significant fluctuations and volatility. The market price of our common stock could be subject to significant fluctuations due to, among other things: ● actual or anticipated quarterly fluctuations in our operating and financial results, particularly if such results vary from the expectations of management, securities analysts and investors, including with respect to further credit losses on loans or unfunded commitments we may incur; ● announcements regarding significant transactions in which we may engage; ● market assessments regarding such transactions; ● changes or perceived changes in our operations or business prospects; ● legislative or regulatory changes affecting our industry generally or our businesses and operations; ● a weakening of general market and economic conditions, particularly with respect to economic conditions in Illinois; ● the operating and share price performance of companies that investors consider to be comparable to us; ● future offerings by us of debt, preferred stock or trust preferred securities, each of which would be senior to our common stock upon liquidation and for purposes of dividend distributions; ● actions of our current stockholders, including future sales of common stock by existing stockholders and our directors and executive officers; and ● other changes in U.S. or global financial markets, economies and market conditions, such as interest or foreign exchange rates, stock, commodity, credit or asset valuations or volatility, or heightened volatility in the banking sector generally. As a result, the market price of our common stock may continue to be subject to similar market fluctuations that may or may not be related to our operating performance or prospects. Increased volatility could result in a decline in the market price of our common stock. Shares of our common stock are subject to dilution, which could cause our common stock price to decline. We are generally not restricted from issuing additional shares of our common stock up to the number of shares authorized in our Certificate of Incorporation. We may issue additional shares of our common stock (or securities convertible into common stock) for a number of reasons, including to finance our operations and business strategy (including mergers and acquisitions), to adjust our ratio of debt to equity, to address regulatory capital concerns, or to satisfy our obligations upon the exercise of outstanding stock awards. We may issue equity securities in transactions that generate cash proceeds, transactions that free up regulatory capital but do not immediately generate or preserve substantial amounts of cash, and transactions that generate regulatory or balance sheet capital only and do not generate or preserve cash. If we choose to raise capital by selling shares of our common stock or securities convertible into common stock for any reason, the issuance would have a dilutive effect on the holders of our common stock and could have a material negative effect on the market price of our common stock and on our earnings per share. Certain banking laws and our governing documents may have an anti-takeover effect and may make it difficult and expensive to remove current management. Certain federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire us, even if doing so would be perceived to be beneficial to our stockholders. In addition, certain provisions in our certificate of incorporation and bylaws could make it more difficult for a third party to acquire control of the Company, even if such event was perceived by you to be beneficial to your interests. These include, among others, (a) provisions that empower our board of directors, without stockholder approval, to issue preferred stock, the terms of which, including voting power, are set by the board of directors, (b) we have a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board, and (c) the approval of certain business combinations requires the affirmative vote of at least 75% of our outstanding shares of common stock. In addition, federal banking regulators must approve certain changes in control under applicable banking laws. The combination of these laws and provisions in our certificate of incorporation may inhibit certain business combinations, including a non-negotiated merger or other business combination, which, in turn, could adversely affect the market price of our common stock. These provisions in our certificate of incorporation could also discourage proxy contests and make it more difficult and expensive for holders of our common stock to elect directors other than the candidates nominated by our board of directors or otherwise remove existing directors and management, even if current management is not performing adequately.
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Table of Contents 38 Item 1B. Unresolved Staff Comments None. Item 1C. Cybersecurity Risk Management and Strategy Cybersecurity risk is the risk of exposure to harm or loss resulting from misuse or abuse of technology by malicious actors. Cybersecurity risk is an important and continuously evolving focus for us as significant resources are devoted to protecting and enhancing the security of computer systems, software, networks, storage devices, and other technology assets. Security efforts are designed to protect against, among other things, cybersecurity attacks by unauthorized parties attempting to obtain access to confidential information, destroy data, disrupt or degrade service, sabotage systems or cause other damage. We recognize the critical importance of developing, implementing, and maintaining robust cybersecurity measures to safeguard our information systems and protect the confidentiality, integrity, and availability of our data. We have experienced, and expect that we will continue to experience, a higher volume and complexity of cyber-attacks. We have implemented precautionary measures and controls reasonably designed to align with the National Institute of Standards and Technology (NIST) and other industry standards to address this increased risk. Managing Material Risks and Integrated Overall Risk Management We have strategically integrated cybersecurity risk management into our broader risk management framework to promote a company-wide culture of cybersecurity risk management. This integration ensures that cybersecurity considerations are an integral part of our decision-making processes at every level. Our risk management team works closely with our IT department to continuously evaluate and address cybersecurity risks in alignment with our strategic objectives, business environment and operational needs. Engage Third Parties on Risk Management Ongoing business expansions may expose us to potential new threats as well as expanded regulatory scrutiny including the introduction of new cybersecurity requirements. We continue to make significant investments in enhancing our cyber defense-in- depth capabilities and to strengthen our partnerships with the appropriate government and law enforcement agencies and other businesses in order to understand the full spectrum of cybersecurity risks in the operating environment, enhance defenses and improve resiliency against cybersecurity threats. Recognizing the complexity and evolving nature of cybersecurity threats, we engage with a range of external experts, including cybersecurity assessors, consultants, and auditors in evaluating and testing our risk management systems. These partnerships enable us to leverage specialized knowledge and insights, ensuring our cybersecurity strategies and processes remain effective. Our collaboration with these third parties includes regular audits, threat assessments, and consultation on security enhancements. Oversee Third-party Risk Third parties with which the Company does business or that facilitate the organization’s business activities (e.g., vendors, supply chain, exchanges, clearing houses, etc.) are also sources of cybersecurity risk. Third party cybersecurity incidents such as system breakdowns or failures, misconduct by the employees of such parties, or cyber-attacks, including ransomware and supply-chain compromises, could affect their ability to deliver a product or service or result in lost or compromised information. Because we are aware of the risks associated with third-party service providers, we implement stringent processes to oversee and manage these risks. We conduct thorough security assessments of all third-party providers before engagement and maintain ongoing monitoring to ensure compliance with our cybersecurity standards. Monitoring includes quarterly assessments by our Chief Information Security Officer (“CISO”) and on an ongoing basis by our security engineers. This approach is designed to mitigate risks related to data breaches or other security incidents originating from third parties.
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Table of Contents 39 Governance Our Board of Directors is acutely aware of the critical nature of managing risks associated with cybersecurity threats. Our Board has established robust oversight mechanisms to ensure effective governance in managing risks associated with cybersecurity threats because we recognize the significance of these threats to our operational integrity and stakeholder confidence. Board of Directors Oversight Our Information Technology Steering Committee (“ITSC”) is central to the Board’s oversight of cybersecurity risks, which are incorporated into our overall risk management program overseen by our Board Risk Committee. These Committees meet no less than quarterly and are composed of board members with diverse expertise including risk management, technology, and finance, equipping them to oversee cybersecurity risks effectively. While, as of the date of this Annual Report on Form 10-K, we have not encountered cybersecurity challenges that have materially impaired our operations or financial standing, our systems and those of our customers and third-party service providers are under constant threat and it is possible that we could experience a significant event in the future. Management’s Role Managing Risk While the ITSC and our Board of Directors, to which it reports, oversee cybersecurity risk management, management is responsible for the day-to-day cybersecurity risk management processes. The Chief Risk Officer (“CRO”) and the CISO play a pivotal role in informing the ITSC and Board Risk Committee on cybersecurity risks. Comprehensive briefings are presented to the ITSC and Board Risk Committee on a regular basis, with a minimum frequency of quarterly. These briefings encompass a broad range of topics, including: ● maturity of our cyber landscape commensurate to inherent risks of environment; ● emerging threats; ● status of ongoing cybersecurity initiatives and strategies; ● incident reports and learnings from any cybersecurity events; ● compliance with regulatory requirements and industry standards; and ● results of internal and external testing of cybersecurity controls. In addition to our scheduled meetings, the CISO maintains an ongoing dialogue with management and the Board of Directors regarding emerging or potential cybersecurity risks. Together, they receive updates on any significant developments in the cybersecurity domain, ensuring the Board’s oversight is proactive and responsive. The CISO actively participates in strategic decisions related to cybersecurity, offering guidance and approval for major initiatives. This involvement ensures that cybersecurity considerations are integrated into our broader strategic objectives. The CISO conducts a quarterly review of our cybersecurity posture and the effectiveness of our risk management strategies. This review helps in identifying areas for improvement and ensuring the alignment of cybersecurity efforts with the overall risk management framework. Risk Management Personnel Primary responsibility for assessing, monitoring and managing our cybersecurity risks rests with the CISO. With over 30 years of experience in the field of cybersecurity and operational risk, he brings a wealth of expertise to his role. His background includes extensive experience as an enterprise CISO and holds several certifications including ISACA’s, CISM and CRISC and is well- recognized within the industry. His in-depth knowledge and experience are instrumental in developing and executing our cybersecurity strategies. Our CISO oversees our governance programs, tests our compliance with standards, remediates known risks, and leads our employee cybersecurity training program. The CISO is responsible for identifying technology and cybersecurity risks and is responsible for the controls to manage threats. To help safeguard the confidentiality, integrity and availability of our infrastructure, resources and information, we maintain an Information Security Program designed to prevent, detect, and respond to cyberattacks. The ITSC and Board of Directors are periodically provided with updates on the Information Security Program, recommended changes, cybersecurity policies and practices, ongoing efforts to improve security, as well as our efforts regarding significant cybersecurity events. The CISO manages the Security Operations Center (SOC) and is responsible for implementing and maintaining controls designed to detect and defend us against cyber-attacks and includes a dedicated function for incident response and ongoing monitoring for cybersecurity threats and vulnerabilities, including those among the Bank’s third-party suppliers. The CISO conducts a quarterly review of our inherent risk posture against the effectiveness of our cyber risk management strategies. This review helps in measuring the effectiveness of controls and identifying areas for improvement ensuring cyber controls are commensurate with our inherent risk profile and the Board’s risk appetite.
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Table of Contents 40 Monitoring Cybersecurity Incidents The CISO continually monitors for the latest developments in cybersecurity, including potential threats and innovative risk management techniques. We deploy defense-in-depth safeguards that are designed to protect our information systems from cybersecurity threats, including firewalls, intrusion prevention and detection systems, anti-malware functionality, access controls, and ongoing vulnerability assessments as well as ongoing acquisition of knowledge crucial for the effective prevention, detection, mitigation, and remediation of cybersecurity incidents. The CISO implements and oversees processes for the regular monitoring of our information systems. This includes the deployment of advanced security measures and regular system audits to identify potential vulnerabilities. In the event of a cybersecurity incident, the CISO is equipped with a well-defined incident response plan. This plan includes immediate actions to mitigate the impact and prevent escalation of any loss or damage from the cybersecurity incident. The Incident Response Plan is continually updated in response to an ever-changing threat landscape to provide long-term strategies for remediation, prevention of future incidents and resiliency to all types of threats. The incident response team includes (i) subject matter experts to address cyber threats and (ii) representatives from the accounting team to monitor threat escalation and identify events that may warrant Board notification and a Form 8-K cybersecurity notice. Reporting to Board of Directors The CISO, in his capacity, regularly informs the ITSC and Board Risk Committee of all aspects related to cybersecurity risks and incidents. This ensures that the highest levels of management are kept abreast of the cybersecurity posture and potential risks we face. Furthermore, significant cybersecurity matters and strategic risk management decisions are escalated to the Board of Directors, ensuring that they have comprehensive oversight and can provide guidance on critical cybersecurity issues. For additional information regarding the risk we face from cybersecurity threats, please see the risk factor titled “Our information systems may experience an interruption or breach in security and cyber-attacks, all of which could have a material adverse effect on our business.” included in Part I. Item 1A. Risk Factors of this report. Item 2. Properties We conduct our business primarily at 55 banking locations in various communities throughout the greater western and southern Chicago metropolitan area. The principal business office of the Company is located at 37 South River Street, Aurora, Illinois. We own 46 of our properties and lease nine of our locations. Our nine leased locations are under agreements that expire between July 31, 2026 through February 12, 2043. We believe that all of our properties and equipment are well maintained, in good operating condition and adequate for all of our present and anticipated needs. Item 3. Legal Proceedings The Company and its subsidiaries have, from time to time, collection suits and other actions that arise in the ordinary course of business against its borrowers and are defendants in legal actions arising from normal business activities. Management, after consultation with legal counsel, believes that the ultimate liabilities, if any, resulting from these actions will not have a material adverse effect on the financial position of the Bank or on the consolidated financial position of the Company. Item 4. Mine Safety Disclosures Not applicable.
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Table of Contents 41 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities For information regarding securities authorized for issuance under the Company’s equity compensation plans, see Part III, Item 12. Market for the Company’s Common Stock Our common stock trades on the NASDAQ Global Select Market under the symbol “OSBC.” As of December 31, 2025, we had 1,238 stockholders of record for our common stock. The following table sets forth the high and low trading prices of our common stock on the NASDAQ Global Select Market, and information about declared dividends during each quarter for 2025 and 2024. 2025 2024 High Low Dividend High Low Dividend First quarter $ 19.46 $ 16.14 $ 0.06 $ 15.85 $ 13.00 $ 0.05 Second quarter 17.86 14.14 0.06 14.99 13.20 0.05 Third quarter 19.25 16.43 0.06 17.46 14.41 0.05 Fourth quarter 20.96 16.65 0.07 19.37 14.78 0.06 Dividends The Company’s stockholders are entitled to receive dividends when, as and if declared by the board of directors out of funds legally available therefor. The Company’s ability to pay dividends to stockholders is largely dependent upon the dividends it receives from the Bank; however, certain regulatory restrictions and the terms of its debt and equity securities, limit the amount of cash dividends it may pay. See “Supervision and Regulation—Regulation and Supervision of the Bank.” Although we currently expect to continue to pay quarterly dividends, any future determination relating to our dividend policy will be made by our board of directors and will depend on a number of factors, including: (1) our historic and projected financial condition, liquidity and results of operations, (2) our capital levels and needs, (3) tax considerations, (4) any acquisitions or potential acquisitions that we may examine, (5) statutory and regulatory prohibitions and other limitations, (6) the terms of any credit agreements or other borrowing arrangements that restrict our ability to pay cash dividends, (7) general economic conditions and (8) other factors deemed relevant by our board of directors. We are not obligated to pay dividends on our common stock and are subject to restrictions on paying dividends on our common stock. As a Delaware corporation, we are subject to certain restrictions on dividends under the DGCL. Generally, a Delaware corporation may only pay dividends either out of surplus or out of the current or the immediately preceding year’s net profits. Surplus is defined as the excess, if any, at any given time, of the total assets of a corporation over its total liabilities and statutory capital. The value of a corporation’s assets can be measured in a number of ways and may not necessarily equal their book value. In addition, we are subject to certain restrictions on the payment of cash dividends as a result of banking laws, regulations and policies. See “Supervision and Regulation—Regulation and Supervision of the Company.” Stock Repurchases In December 2024, our board of directors re-authorized the repurchase of up to 2,234,896 shares of our common stock (the “Repurchase Program”). We made repurchases of 326,854 shares in 2025, none of which occurred in the fourth quarter of 2025. In January 2026, our board of directors re-authorized the repurchase of up to 1,908,042 shares of our common stock (the “Repurchase Program”). This Repurchase Program expires on December 31, 2026. The actual means and timing of any repurchases, quantity of purchased shares and prices will be, subject to certain limitations, at the discretion of management and will depend on a number of factors, including, without limitation, market prices of our common stock, general market and economic conditions, and applicable legal and regulatory requirements. Repurchases under the Repurchase Program may be initiated, discontinued, suspended or restarted at any time; provided that repurchases under the Repurchase Program after December 31, 2026, would require Federal Reserve non-objection or approval. We are not obligated to repurchase any shares under the Repurchase Program.
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Table of Contents 42 Recent Sales of Unregistered Securities None. Form 10-K and Other Information Transfer Agent/Stockholder Services. Inquiries related to stockholders’ records, stock transfers, changes of ownership, change of address and dividend payments should be sent to the transfer agent at the following address: Old Second Bancorp, Inc. c/o Shirley Cantrell Stockholder Relations Department 37 South River Street Aurora, Illinois 60507 (630) 906-2303 scantrell@oldsecond.com Stockholder Return Performance Graph. The following graph indicates, for the period commencing December 31, 2020, and ending December 31, 2025, a comparison of cumulative total returns for the Company, S&P 500 Index and the KBW NASDAQ Bank Index. The information assumes that $100 was invested at the closing price at December 31, 2020, in the common stock of the Company and each index and that all dividends were reinvested. Period Ending Index 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 12/31/2025 Old Second Bancorp, Inc. 100.00 126.26 163.16 159.30 185.89 206.81 S&P 500 Index 100.00 128.71 105.40 133.10 166.40 196.16 KBW Nasdaq Bank Index 100.00 138.33 108.73 107.76 147.85 196.00 The stock performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, and shall not be deemed incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except as shall be expressly set forth by specific reference in such filing. Item 6. [Reserved]
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Table of Contents 43 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion provides additional information regarding our operations for the twelve-month periods ended December 31, 2025, 2024 and 2023, and financial condition at December 31, 2025 and 2024 and should be read in conjunction with our consolidated financial statements and the related notes. Historical results of operations and the percentage relationships among any amounts included, and any trends that may appear, may not indicate trends in operations or results of operations for any future periods. 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” at the beginning of this annual report. Business Overview We provide a wide range of financial services through our 55 banking locations 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 providing for the financial services needs of the communities in which we operate through our retail branch network. We emphasize relationships with individual customers as well as small to medium-sized businesses throughout our market area. Our market area includes a mix of commercial and industrial, real estate, and consumer related lending opportunities, and provides a stable, loyal core deposit base. We also offer 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, including employee benefit plan administration services. Our primary deposit products are checking, NOW, money market, savings, and certificate of deposit accounts, and our primary lending products are commercial mortgages, leases, construction lending, commercial loans, residential mortgages, powersport, and other consumer loans. Many of our loans are secured by various forms of collateral including real estate, business assets, and consumer property although borrower cash flow is the primary source of repayment at the time of loan origination. 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 of cash. The systems conversion was successfully completed in October 2025. On December 6, 2024, we closed on our branch purchase and assumption agreement with First Merchants Bank (“FRME”). As a result of this transaction, we assumed approximately $268.0 million in deposits related to the branch locations and purchased approximately $7.1 million in branch-related loans along with the purchase of other branch-related assets. The transaction resulted in increasing our presence in the south suburban Chicago area, as five branches were acquired with a retail and commercial client mix of loans and deposits. Historical periods before December 6, 2024, reflect results of our legacy operations. Subsequent to closing, results reflect all post-transaction activity.
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Table of Contents 44 Summary Financial Data Old Second Bancorp, Inc. and Subsidiaries Financial Highlights (Dollars in thousands, except per share data) 2025 2024 2023 Balance sheet items at year-end Total assets $ 6,902,675 $ 5,649,377 $ 5,722,799 Total earning assets 6,450,684 5,211,188 5,315,070 Average assets 6,347,633 5,642,950 5,820,173 Loans, gross 5,252,131 3,981,336 4,042,953 Allowance for credit losses on loans 72,301 43,619 44,264 Deposits 5,596,069 4,768,731 4,570,746 Securities sold under agreement to repurchase 23,769 36,657 26,470 Other short-term borrowings 215,000 20,000 405,000 Junior subordinated debentures 25,774 25,773 25,773 Subordinated debentures 59,552 59,467 59,382 Notes payable and other borrowings 14,825 - - Stockholders’ equity 896,768 671,034 577,281 Results of operations for the year ended Interest and dividend income $ 355,181 $ 297,904 $ 291,970 Interest expense 62,217 56,269 40,039 Net interest and dividend income 292,964 241,635 251,931 Provision for credit losses 27,553 12,750 16,501 Noninterest income 46,362 43,819 34,179 Noninterest expense 204,022 159,748 145,201 Income before taxes 107,751 112,956 124,408 Provision for income taxes 27,441 27,692 32,679 Net income available to common stockholders $ 80,310 $ 85,264 $ 91,729 Performance ratios Return on average total assets 1.27% 1.51% 1.58% Return on average equity 10.27% 13.63% 17.70% Average equity to average assets 12.31% 11.08% 8.91% Dividend payout ratio 15.24% 11.05% 9.76% Per share data Basic earnings $ 1.64 $ 1.90 $ 2.05 Diluted earnings $ 1.62 $ 1.87 $ 2.02 Common book value per share $ 17.03 $ 14.95 $ 12.92 Weighted average diluted shares outstanding 49,669,539 45,639,351 45,395,010 Weighted average basic shares outstanding 48,875,540 44,828,290 44,663,722 Shares outstanding at year-end 52,669,224 44,873,467 44,697,917 Loan quality ratios Allowance for credit losses on loans to total loans at end of the year 1.38% 1.10% 1.09% Provision for credit losses on loans to total loans 0.52% 0.32% 0.41% Net loans charged-off to average total loans 0.35% 0.36% 0.58% Nonaccrual loans to total loans at end of the year 0.91% 0.72% 1.67% Nonperforming assets to total assets at end of the year 0.81% 0.92% 1.29% Allowance for credit losses on loans to nonaccrual loans 150.78% 151.19% 65.50%
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Table of Contents Old Second Bancorp, Inc. and Subsidiaries Quarterly Financial Information (Dollars in thousands, except per share data) 2025 2024 4th 3rd 2nd 1st 4th 3rd 2nd 1st Interest income $ 102,303 $ 104,075 $ 75,238 $ 73,565 $ 75,279 $ 76,072 $ 73,223 $ 73,330 Interest expense 19,252 21,300 11,004 10,661 13,695 15,494 13,533 13,547 Net interest income 83,051 82,775 64,234 62,904 61,584 60,578 59,690 59,783 Provision for credit losses 3,000 19,653 2,500 2,400 3,500 2,000 3,750 3,500 Securities gains (losses), net 8 (1) - - - (1) - 1 Income before taxes 39,270 13,068 29,213 26,200 25,372 29,851 29,190 28,543 Net income 28,787 9,871 21,822 19,830 19,110 22,951 21,891 21,312 Basic earnings per share 0.55 0.19 0.49 0.44 0.42 0.52 0.48 0.48 Diluted earnings per share 0.54 0.18 0.48 0.43 0.42 0.50 0.48 0.47 Dividends paid per share 0.07 0.06 0.06 0.06 0.06 0.05 0.05 0.05 2025 Financial Overview In 2025, we recorded net income of $80.3 million, or $1.62 per fully diluted share, compared to $85.3 million, or $1.87 per fully diluted share, in 2024, and $91.7 million, or $2.02 per fully diluted share, in 2023. Our basic earnings per share for the periods presented were $1.64 in 2025, $1.90 in 2024 and $2.05 in 2023. Our 2025 net income, as compared to the prior year, decreased primarily as a result of additional costs incurred with the Bancorp Financial acquisition. Adjusted net income, a non-GAAP financial measure that excludes acquisition-related costs, Day Two provision for credit losses, MSR mark to market (gains)/losses, net securities (gains)/losses, death benefits realized on BOLI, litigation expense, and net gains on branch sales was $102.6 million in 2025. See the discussion entitled “Non-GAAP Financial Measures” on page 48 and the table below, which provides a reconciliation of this non-GAAP measure and related items, to the most comparable GAAP equivalents. Year Ended December 31, 2025 2024 2023 Net Income Income before income taxes (GAAP) $ 107,751 $ 112,956 $ 124,408 Pre-tax income adjustments: Provision for credit losses - Day Two 13,153 - - Litigation related expenses - - 1,200 Securities (gains) losses, net (7) - 4,148 Death benefit related to BOLI (430) (905) - MSR losses 1,918 723 1,425 Acquisition related costs, net of (gains) losses on branch sales 15,068 1,992 (258) Liquidation and deconversion costs on Visa credit card portfolio - - 629 Adjusted net income before taxes 137,453 114,766 131,552 Taxes on adjusted net income 34,883 28,340 34,566 Adjusted net income (non-GAAP) $ 102,570 $ 86,426 $ 96,986 Basic earnings per share (GAAP) $ 1.64 $ 1.90 $ 2.05 Diluted earnings per share (GAAP) 1.62 1.87 2.02 Adjusted basic earnings per share (non-GAAP) 2.10 1.93 2.17 Adjusted diluted earnings per share (non-GAAP) 2.07 1.89 2.14 Total average assets 6,347,633 5,642,950 5,820,173 Return on average assets (GAAP) 1.27% 1.51% 1.58% Adjusted return on average assets (non-GAAP) 1.62 1.53 1.67 Adjusted net income provides a comparative analysis of our performance excluding those one-time matters, such as transaction- related costs for our acquisition of Bancorp Financial and our purchase of five FRME branches, Day Two provision for credit losses from our acquisition of Bancorp Financial, net securities (gains)/losses, death benefits realized on BOLI, litigation expense related to a claim regarding prior years’ overdraft fee compliance, and net gains or net losses stemming from branch sales completed to eliminate duplicative geographic locations due to past acquisitions.
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Table of Contents 46 Net interest and dividend income increased $51.3 million, or 21.2% for 2025 compared to 2024, due primarily to increased interest and dividend income stemming from our acquisition of Bancorp Financial as well as decreased borrowing costs on the lower average balances on FHLBC advances. Partially offsetting the increase in interest and dividend income from the prior year was an increase in interest expense due to higher deposit costs from the additional deposits assumed with the acquisition of Bancorp Financial. Average loans, including loans held-for-sale, increased $622.3 million, or 15.6%, in 2025 compared to 2024 due to the loan portfolio included in the acquisition of Bancorp Financial. Total interest and dividend income growth in 2025, compared to 2024, resulted in a 32 basis point increase in average rates earned on interest earning assets. Average interest bearing deposits increased $768.2 million, or 27.3%, for 2025 compared to 2024, and average deposit rates increased 22 basis points over the same period. The increase in deposit rates was primarily due to exception priced deposits incurred in the Bancorp Financial acquisition, which we are allowing to run off over time. Average noninterest bearing deposits increased by $1.5 million, or 0.1%, from 2024 to 2025. We continued to reposition our balance sheet in 2025 to ensure adequate liquidity, reduce asset quality risk, and to manage interest rate risk on our cost of funds. In 2025, our available-for-sale securities portfolio decreased $71.2 million, compared to year-end 2024, due primarily to $279.6 million of paydowns, maturities, and calls and $7.5 million of strategic sales. These decreases in 2025 were partially offset by security purchases of $191.6 million. The change in activity in 2025, compared to year end 2024, excludes the sale of Bancorp Financial’s $117.6 million available-for-sale securities portfolio shortly after the acquisition closed. The unrealized mark to market adjustment on securities was a $43.1 million unrealized loss as of December 31, 2025, compared to a $68.6 million unrealized loss at December 31, 2024, due primarily to changes in market interest rates and the portfolio holdings mix year over year. Average interest bearing liabilities increased $545.1 million, to $3.75 billion in 2025 from $3.21 billion in 2024. Total average borrowings decreased $223.2 million to $171.5 million compared to $394.7 million in 2024. The decrease in average borrowings was primarily due to a $224.1 million decrease in other short-term borrowings due to a reduction in overnight FHLBC advances throughout 2025. Management also continued to emphasize credit quality and maintained our capital ratios with continued strong liquidity. In 2025, we had loan growth of $1.27 billion, or 31.9%, over 2024 primarily due to the acquired loan portfolio of Bancorp Financial. Nonperforming assets relative to total assets decreased slightly in 2025 and 2024, with nonperforming assets of $55.6 million, or 0.81%, of total assets for 2025, compared to $52.4 million, or 0.92% of total assets for 2024, and $73.9 million, or 1.29% of total assets, for 2023. The total dollar increase in 2025, compared to 2024, was primarily due to an increase in nonaccrual loans of $19.1 million and an increase in loans past due 90 days and accruing of $3.4 million, partially offset by a $20.2 million decrease in OREO. We continue to take steps to control operating expenses and increase noninterest income. As we focused on reducing noninterest expenses, exclusive of acquisition-related activity, we were also able to maintain our profitable wealth management business, and continue profitability, though to a lesser extent, with the mortgage banking business as originations and sales are negatively impacted by elevated interest rates. For information comparing our financial condition and results of operations for the year ended December 31, 2024, to year ended December 31, 2023, see “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 6, 2025. Critical Accounting Estimates Our consolidated financial statements are prepared based on the application of accounting policies in accordance with GAAP and follow general practices within the banking industry. These policies require the reliance on estimates, assumptions and judgments, which may prove inaccurate or are subject to variations. Changes in underlying factors, estimates, assumptions or judgments could have a material impact on our future financial condition and results of operations. Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different from originally reported. We have identified the determination of the allowance for credit losses and fair value measurements to be the accounting areas that require the most subjective or complex judgments and, as such, could be most subject to revision as new or additional information becomes available or circumstances change, including overall changes in the economic climate and/or market interest rates. Therefore, we consider these policies, discussed below, to be critical accounting estimates and discuss them directly with the Audit Committee of our board of directors. Significant accounting policies are presented in Note 1 of the financial statements included in this annual report. These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Recent accounting pronouncements and standards that have impacted or could potentially affect us are also discussed in Note 1 of the consolidated financial statements.
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Table of Contents 47 Allowance for credit losses for loans The allowance for credit losses (“ACL”) for loans represents management’s estimate of all expected credit losses over the expected contractual life of our loan portfolio. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the then-existing loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance for credit losses in those future periods. The ACL involves critical accounting estimates because: ● changes in the provision for credit losses can materially affect our financial results; ● estimates relating to the ACL require us to project future borrower performance, including cash flows, delinquencies and charge-offs, along with, when applicable, collateral values, based on a reasonable and supportable forecast period utilizing forward-looking economic scenarios in order to estimate probability of default and loss given default; ● the ACL is influenced by factors outside of our control such as industry and business trends, geopolitical events and the effects of laws and regulations as well as economic conditions such as trends in housing prices, interest rates, GDP, inflation, energy prices and unemployment; and ● considerable judgment is required to determine whether the models used to generate the ACL produce an estimate that is sufficient to encompass the current view of lifetime expected credit losses. Because our estimates of the ACL involve judgments and are influenced by factors outside of our control, there is uncertainty inherent in these estimates. Changes in such estimates could significantly impact our ACL and provision for credit losses. See Note 1 –Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial statements included elsewhere in this annual report for a discussion of our ACL. As a result of management’s modeling, we increased our ACL on loans to $72.3 million as of December 31, 2025; in addition, we increased our ACL on unfunded commitments to $2.1 million as of December 31, 2025, included within other liabilities. We recorded provision for credit losses of $27.6 million in 2025, comprised of $14.2 million of provision for credit loss expense on loans, a Day Two non-PCD provision expense of $13.2 million, and a $185,000 of provision expense on unfunded commitments. Additionally, we recorded a Day One purchase accounting credit mark of $17.5 million to the ACL in relation to the acquisition of Bancorp Financial. In 2024, we recorded a provision for credit losses of $12.8 million, comprised of a $13.6 million provision for credit loss expense on loans, and a $834,000 release of provision for credit losses on unfunded commitments. In 2023, we recorded a provision for credit losses of $16.5 million, comprised of a $18.1 million provision for credit loss expense on loans, and a $1.6 million release of provision for credit losses on unfunded commitments. In addition, a discussion of the factors driving changes in the amount of the ACL is included in the “Allowances for Credit Losses” section below. Fair Value Measurements The use of fair values is required in determining the carrying values of certain assets and liabilities, as well as for specific disclosures. Fair value is an estimate of the exchange price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction (i.e., not a forced transaction, such as a liquidation or distressed sale) between market participants at the measurement date and is based on the assumptions market participants would use when pricing an asset or liability. In determining the fair value of financial instruments, market prices of the same or similar instruments are used whenever such prices are available. If observable market prices are unavailable or impracticable to obtain, we are required to make judgments about assumptions market participants would use in estimating the fair value of the financial instrument. Fair value is estimated using modeling techniques and incorporates assumptions about interest rates, duration, prepayment speeds, risks inherent in a particular valuation technique and the risk of nonperformance. These assumptions are inherently subjective as they require material estimates, all of which may be susceptible to significant change. See Note 16 “Fair Value Measurements” and Note 17 “Fair Values of Financial Instruments,” to the consolidated financial statements which include information about the extent to which fair value is used to measure assets and liabilities, and the valuation methodologies and key inputs used for further information regarding the valuation processes.
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Table of Contents 48 Non-GAAP Financial Measures This annual report contains references to financial measures that are not defined in GAAP. Such non-GAAP financial measures include the presentation of adjusted net income, net interest income and net interest income to interest earning assets on a tax equivalent (“TE”) basis and our tangible common equity to tangible assets 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 to investors of our performance. 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 disclosures 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 Net interest income Net interest income, which is our primary source of earnings, is the difference between interest income and fees earned on interest- earning assets, such as loans and investment securities, as well as accretion income on purchased loans, and interest 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, 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. Our asset and liability committee (“ALCO”) seeks to manage interest rate risk under a variety of rate environments by structuring our balance sheet and off-balance sheet positions. This process is discussed in more detail in the section entitled “Interest Rate Risk” in “Quantitative and Qualitative Disclosures about Market Risk.” Our net interest income increased $51.3 million, or 21.2%, to $293.0 million for 2025, from $241.6 million for 2024. The increase in 2025 was primarily driven by the higher interest rate environment through much of 2025 as well as the acquisition of Bancorp Financial, which resulted in increased loan income from the acquired loan portfolio. Our net interest margin, which is net interest income divided by total interest-earning assets, was 4.96% for the year ended 2025, compared to 4.61% for the year ended 2024, an increase of 35 basis points. Our net interest margin on a taxable equivalent (TE) basis was 4.98% for the year ended 2025, compared to 4.63% for the year ended 2024, an increase of 35 basis points. Average interest earning assets increased $667.5 million during 2025 as volume increased from the loan portfolio acquired from Bancorp Financial and rates reflected significant growth, impacting net interest income. The increase in interest expense in 2025 compared to 2024 was due primarily to an expense increase in all interest bearing deposit categories due to higher rates and the interest bearing deposits assumed from the Bancorp Financial acquisition, partially offset by lower average balances in our short-term funding (overnight FHLBC advances) throughout 2025. Our average earning assets increased $667.5 million, or 12.7%, to $5.91 billion in 2025, from $5.24 billion in 2024. The increase was primarily attributable to an increase in our loan portfolio due to the acquisition of Bancorp Financial. Our average earning assets decreased $185.4 million, or 3.4%, to $5.24 billion in 2024, from $5.43 billion in 2023. The decrease was primarily attributable to a decrease in our securities portfolio. Our average interest bearing liabilities increased $545.1 million, or 17.0%, to $3.75 billion for 2025, from $3.21 billion in 2024, due primarily to an increase in all deposit categories, partially offset by a significant decrease to other short term borrowings. The increase in average interest bearing deposits is a result of the deposits assumed from the Bancorp Financial acquisition. Average interest bearing deposits increased by $768.2 million, or 27.3%, to $3.58 billion in 2025, compared to $2.81 billion in 2024. Our average borrowings decreased $223.2 million to $171.5 million in 2025 from $394.7 million in 2024, driven by a decrease of $224.1 million in average other short-term borrowings due to a reduction in overnight FHLBC advances throughout 2025. Partially offsetting the decrease in our average borrowings was an increase of $7.5 million in notes payable due to FHLB long-term putable advances that were assumed in the Bancorp Financial acquisition. The following table sets forth certain information relating to our average Consolidated Balance Sheets and reflects the yield on average interest earning assets and cost of average interest bearing liabilities for the years indicated obtained by dividing the related interest by the average balance of assets or liabilities. Average balances are derived from daily balances.
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Table of Contents Analysis of Average Balances, Tax Equivalent Income / Expense and Rates (Dollars in thousands - unaudited) Year Ended December 31, 2025 2024 2023 Average Income / Rate Average Income / Rate Average Income / Rate Balance Expense % Balance Expense % Balance Expense % Assets Interest earning deposits with financial institutions$ 112,449$ 4,625 4.11 $ 49,202$ 2,393 4.86$ 49,303$ 2,503 5.08 Securities: Taxable 1,015,384 38,194 3.76 1,015,046 34,656 3.41 1,177,860 37,940 3.22 Non-taxable (TE)1 151,201 6,257 4.14 164,015 6,537 3.99 170,018 6,746 3.97 Total securities (TE)1 1,166,585 44,451 3.81 1,179,061 41,193 3.49 1,347,878 44,686 3.32 Dividends from FHLBC and FRBC 23,707 1,517 6.40 29,282 2,278 7.78 32,351 1,920 5.93 Loans and loans held-for-sale 1, 2 4,609,225 305,939 6.64 3,986,900 253,456 6.36 4,000,269 244,317 6.11 Total interest earning assets 5,911,966 356,532 6.03 5,244,445 299,320 5.71 5,429,801 293,426 5.40 Cash and due from banks 50,955 - - 54,359 - - 56,592 - - Allowance for credit losses on loans (57,913) - - (43,872) - - (51,880) - - Other noninterest earning assets 442,625 - - 388,018 - - 385,660 - - Total assets $ 6,347,633 $ 5,642,950 $ 5,820,173 Liabilities and Stockholders' Equity NOW accounts $ 658,387$ 2,951 0.45$ 562,890$ 2,826 0.50$ 585,304$ 1,591 0.27 Money market accounts 887,516 16,853 1.90 699,302 11,878 1.70 752,025 6,039 0.80 Savings accounts 1,045,344 7,664 0.73 921,801 3,162 0.34 1,052,750 1,131 0.11 Time deposits 989,403 28,898 2.92 628,446 20,147 3.21 458,918 6,636 1.45 Interest bearing deposits 3,580,650 56,366 1.57 2,812,439 38,013 1.35 2,848,997 15,397 0.54 Securities sold under repurchase agreements 31,673 229 0.72 38,248 337 0.88 27,518 93 0.34 Other short-term borrowings 47,123 1,969 4.18 271,257 14,607 5.38 356,014 18,774 5.27 Junior subordinated debentures 25,774 1,152 4.47 25,773 1,127 4.37 25,773 1,095 4.25 Subordinated debentures 59,510 2,185 3.67 59,425 2,185 3.68 59,340 2,185 3.68 Senior notes - - - - - - 22,000 2,408 10.95 Notes payable and other borrowings 7,467 316 4.23 - - - 1,332 87 6.53 Total interest bearing liabilities 3,752,197 62,217 1.66 3,207,142 56,269 1.75 3,340,974 40,039 1.20 Noninterest bearing deposits 1,749,363 - - 1,747,890 - - 1,906,633 - - Other liabilities 64,381 - - 62,480 - - 54,243 - - Stockholders' equity 781,692 - - 625,438 - - 518,323 - - Total liabilities and stockholders' equity$ 6,347,633 $ 5,642,950 $ 5,820,173 Net interest income (GAAP) $ 292,964 $ 241,635 $ 251,931 Net interest margin (GAAP) 4.96 4.61 4.64 Net interest income (TE)1 $ 294,315 $ 243,051 $ 253,387 Net interest margin (TE)1 4.98 4.63 4.67
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49 Interest bearing liabilities to earning assets63.47% 61.15% 61.53% 1 Tax equivalent basis is calculated using a marginal tax rate of 21% in 2025, 2024 and 2023. See the discussion entitled “Non- GAAP Financial Measures” on page 48 and the table on page 50 that provides a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent. 2 Interest income from loans is shown on a tax equivalent basis, which is a non-GAAP financial measure, discussed below, and includes net fees of $4.0 million for 2025, net costs of $1.8 million for 2024, and net costs of $2.7 million for 2023. Nonaccrual loans are included in the above stated average balances.
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Table of Contents 50 For purposes of discussion, net interest income and net interest income to interest earning assets have been adjusted to a non- GAAP (TE) basis to more appropriately compare returns 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: Effect of Tax Equivalent Adjustment (In thousands) 2025 2024 2023 Interest income (GAAP) $ 355,181 $ 297,904 $ 291,970 Taxable equivalent adjustment - loans 37 43 39 Taxable equivalent adjustment - securities 1,314 1,373 1,417 Interest income (TE) 356,532 299,320 293,426 Less: interest expense (GAAP) 62,217 56,269 40,039 Net interest income (TE) $ 294,315 $ 243,051 $ 253,387 Net interest income (GAAP) $ 292,964 $ 241,635 $ 251,931 Average interest earning assets $ 5,911,966 $ 5,244,445 $ 5,429,801 Net interest margin (GAAP) 4.96% 4.61% 4.64% Net interest margin (TE) 4.98% 4.63% 4.67% The following table allocates the changes in net interest income to changes in either average balances or average rates for interest earning assets and interest bearing liabilities. Interest income is measured on a tax-equivalent basis using a 21% marginal rate for all periods presented. Interest income not yet received on nonaccrual loans is reversed upon transfer to nonaccrual status; future receipt of interest income is a reduction to principal while in nonaccrual status. Analysis of Year-to-Year Changes in Net Interest Income1 2025 Compared to 2024 2024 Compared to 2023 Change Due to Change Due to Average Average Total Average Average Total (In thousands) Volume Rate Change Volume Rate Change Interest and dividend income Interest earning deposits $ 2,537 $ (305) $ 2,232 $ (5) $ (105) $ (110) Securities: Taxable 12 3,526 3,538 (5,800) 2,516 (3,284) Tax-exempt (549) 269 (280) (239) 30 (209) Dividends from FHLBC and FRBC (394) (367) (761) (157) 515 358 Loans and loans held-for-sale 40,923 11,560 52,483 (814) 9,953 9,139 Total interest and dividend income 42,529 14,683 57,212 (7,015) 12,909 5,894 Interest expense NOW accounts 340 (215) 125 (58) 1,293 1,235 Money market accounts 3,459 1,516 4,975 (392) 6,231 5,839 Savings accounts 475 4,027 4,502 (122) 2,153 2,031 Time deposits 10,354 (1,603) 8,751 3,146 10,365 13,511 Securities sold under repurchase agreements (53) (55) (108) 48 196 244 Other short-term borrowings (9,942) (2,696) (12,638) (4,573) 406 (4,167) Junior subordinated debentures - 25 25 - 32 32 Subordinated debt - - - - - - Senior notes - - - (1,204) (1,204) (2,408) Notes payable and other borrowings 316 - 316 (44) (43) (87) Total interest expense 4,949 999 5,948 (3,199) 19,429 16,230 Net interest and dividend income $ 37,580 $ 13,684 $ 51,264 $ (3,816) $ (6,520) $ (10,336) 1 The changes in net interest income are created by changes in both interest rates and volumes. In the table above, volume variances are computed using the change in volume multiplied by previous year’s rate. Rate variances are computed using the change in rate multiplied by the previous year’s volume. The change in interest due to both rate and volume has been allocated between factors in proportion to the relationship of absolute dollar amounts of the change in each. Provision for credit losses The provision for credit losses is the expense necessary to maintain the ACL at levels appropriate to absorb our estimate of credit losses expected over the life of our loan portfolio and unfunded lending commitments.
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Table of Contents 51 We recorded a $27.6 million provision for credit losses in 2025, an increase of $14.8 million from 2024. The increase in provision expense over the prior year was primarily due to the $13.2 million of Day Two non-PCD provision expense in relation to the Bancorp Financial acquisition and increased current year charge offs within the newly acquired powersport loan segment. The 2024 provision for credit losses of $12.8 million compared to $16.5 million in 2023 was primarily due to the decrease in loans of $61.6 million in 2024, and lower current-year net charge offs, as well as improved asset quality and economic factors. For additional discussion of the credit provision and allowance for credit losses, see the section below “Allowance for Credit Losses” in this Item 7. Management’s Discussion and Analysis of Financial Condition. Noninterest income Noninterest Income for the Twelve Months ending December 31, Percent Change From (Dollars in thousands) 2025 2024 2023 2025-2024 2024-2023 Wealth management $ 13,244 $ 11,426 $ 9,803 15.9 16.6 Service charges on deposits 11,282 10,226 9,817 10.3 4.2 Residential mortgage banking revenue Secondary mortgage fees 372 287 259 29.6 10.8 Mortgage servicing rights mark to market loss (1,918) (723) (1,425) (165.3) 49.3 Mortgage servicing income 1,865 1,942 2,029 (4.0) (4.3) Net gain on sales of mortgage loans 2,291 1,805 1,477 26.9 22.2 Total residential mortgage banking revenue 2,610 3,311 2,340 (21.2) 41.5 Securities gains (losses), net 7 - (4,148) N/M 100.0 Increase in cash surrender value of BOLI 3,197 3,619 2,120 (11.7) 70.7 Death benefit realized on BOLI 430 905 - (52.5) N/M Card related income 10,619 10,114 10,051 5.0 0.6 Other income 4,973 4,218 4,196 17.9 0.5 Total noninterest income $ 46,362 $ 43,819 $ 34,179 5.8 28.2 N/M - Not meaningful Our total noninterest income increased $2.5 million, or 5.8%, to $46.4 million for 2025, compared to $43.8 million for 2024. The increase in 2025 from 2024 was primarily due to: ● A $1.8 million, or 15.9%, increase in wealth management income due to growth in advisory, personal trust, and estate fees. ● A $1.1 million, or 10.3%, increase in service charges on deposits primarily due to additional income from the deposits assumed in the acquisition of First Merchants and Bancorp Financial. ● A $505,000, or 5.0%, increase in card related income, compared to 2024, due to card related income acquired in our acquisition of Bancorp Financial. ● A $755,000 increase in other income primarily due to powersport loan servicing fees. Partially offsetting the increase in noninterest income for 2025, compared to 2024, was lower mortgage banking earnings of $701,000. The decrease in mortgage banking revenue was driven by mark to market losses of $1.9 million in 2025, compared to mark to market losses of $723,000 recorded in 2024, primarily due to change in market interest rates and prepayment speeds. Also offsetting the increase in noninterest income in 2025, compared to 2024, was a $422,000 decrease in the cash surrender value of BOLI due to changes in market interest rates on Corporate-Owned Life Insurance (“COLI”) investments and a $475,000 reduction in death benefit proceeds realized on BOLI in 2025 compared to 2024.
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Table of Contents 52 Noninterest expense Noninterest Expense for the Twelve Months ending December 31, Percent Change From (Dollars in thousands) 2025 2024 2023 2025- 2024 2024- 2023 Salaries $ 91,709 $ 71,439 $ 66,414 28.4 7.6 Officers incentive 12,034 9,712 8,447 23.9 15.0 Benefits and other 20,919 16,874 13,705 24.0 23.1 Total salaries and employee benefits 124,662 98,025 88,566 27.2 10.7 Occupancy, furniture and equipment 19,054 16,159 14,437 17.9 11.9 Computer and data processing 13,840 9,473 7,277 46.1 30.2 FDIC insurance 2,844 2,543 2,705 11.8 (6.0) Net teller & bill paying 2,720 2,244 2,115 21.2 6.1 General bank insurance 1,449 1,268 1,212 14.3 4.6 Amortization of core deposit intangible 4,545 2,440 2,461 86.3 (0.9) Advertising expense 1,331 1,243 721 7.1 72.4 Card related expense 6,229 5,555 5,123 12.1 8.4 Legal fees 1,724 1,326 927 30.0 43.0 Consulting & management fees 3,942 2,496 2,415 57.9 3.4 Other real estate owned expense, net 2,117 2,220 399 (4.6) 456.4 Other expense 19,565 14,756 16,843 32.6 (12.4) Total noninterest expense $ 204,022 $ 159,748 $ 145,201 27.7 10.0 Efficiency ratio (GAAP) 57.91% 54.36% 48.80% Adjusted efficiency ratio (non-GAAP) 53.15% 53.22% 47.93% Our total noninterest expense increased by $44.3 million, or 27.7%, in 2025 compared to 2024. The increase was primarily due to: ● A $26.6 million, or 27.2%, increase in salaries and employee benefits primarily due to $8.4 million of change in control, retention, and severance payouts as a result of the acquisition of Bancorp Financial. In addition, increases were noted in officers’ incentives, restricted stock comp expense, and salaries based on additional employees from the Bancorp Financial acquisition as well as growth in base salary rates for legacy Bank employees. Our number of full-time equivalent employees was 1,062 as of December 31, 2025, compared to 877 as of December 31, 2024. ● A $2.9 million, or 17.9%, increase in occupancy, furniture and equipment expense primarily due to the acquisition of Bancorp Financial related assets and the costs incurred. ● A $4.4 million, or 46.1%, increase in computer and data processing expense, primarily due to costs incurred related to our acquisition of Bancorp Financial as systems conversion was performed in October 2025, and certain acquired ancillary system contracts that were terminated. ● A $2.1 million, or 86.3%, increase in the amortization of core deposits intangibles, primarily due to our acquisition of Bancorp Financial as well as a full year of amortization from the branch transaction with FRME in December 2024. ● A $1.4 million, or 57.9%, increase in consulting & management fees, primarily due to consulting fees incurred from our acquisition of Bancorp Financial. ● A $4.8 million, or 32.6%, increase in other expense in 2025, compared to 2024, primarily attributable to acquisition- related costs incurred related to our acquisition of Bancorp Financial, which include audit, printing, supplies, and consumer credit 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.
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Table of Contents 53 Reconciliation of Adjusted Efficiency Ratio Non-GAAP Financial Measures GAAP Non-GAAPYear Ended Year EndedDecember 31, December 31, December 31, December 31, December 31, December 31, 2025 2024 2023 2025 2024 2023Efficiency Ratio / Adjusted Efficiency Ratio 1 (Dollars in thousands) Noninterest expense $ 204,022 $ 159,748 145,201 $ 204,022 $ 159,748 145,201Less amortization of core deposit intangible 4,545 2,440 2,461 4,545 2,440 2,461Less other real estate expense, net 2,117 2,220 399 2,117 2,220 399Less litigation related expense N/A N/A N/A - - 1,200Less acquisition related costs, net of losses on branch sales N/A N/A N/A 15,068 1,992 (258)Less liquidation and deconversion costs on Visa credit card portfolio N/A N/A N/A - - 629 Noninterest expense less adjustments $ 197,360 $ 155,088 $ 142,341 $ 182,292 $ 153,096 140,770 Net interest income $ 292,964 $ 241,635 251,931 $ 292,964 $ 241,635 251,931Taxable-equivalent adjustment:Loans N/A N/A N/A 37 43 39Securities N/A N/A N/A 1,314 1,373 1,417 Net interest income including adjustments 292,964 241,635 251,931 294,315 243,051 253,387Noninterest income 46,362 43,819 34,179 46,362 43,819 34,179Less death benefit related to BOLI 430 905 - 430 905 -Less securities gains (losses), net 7 - (4,148) 7 - (4,148)Less MSRs mark to market losses (1,918) (723) (1,425) (1,918) (723) (1,425)Taxable-equivalent adjustment:Change in cash surrender value of BOLI N/A N/A N/A 850 962 564 Noninterest income including adjustments 47,843 43,637 39,752 48,693 44,599 40,316 Net interest income including adjustments plus noninterest incomeincluding adjustments $ 340,807 $ 285,272 291,683 $ 343,008 $ 287,650 293,703 Efficiency ratio / Adjusted efficiency ratio 1 57.91% 54.36% 48.80% 53.15% 53.22% 47.93% 1 See discussion entitled “Non-GAAP Financial Measures” on page 48. Income taxes Our provision for income taxes includes both federal and state income tax expense (benefit). An analysis of the provision for income taxes for the three years ended December 31, 2025, is detailed in Note 11 of the consolidated financial statements and our income tax accounting policies are described in Note 1 to the consolidated financial statements. Our income tax expense totaled $27.4 million for the year ended December 31, 2025, compared to an income tax expense of $27.7 million in 2024 and $32.7 million for 2023. The decrease in income tax expense in 2025, compared to 2024, is commensurate with the decrease in our pretax income. Income tax expense reflected all relevant statutory tax rates and GAAP accounting. Our effective tax rate was 25.5% for 2025, 24.5% for 2024, and 26.3% for 2023. Any changes in tax rates will be recorded in the period enacted. The determination of whether we will be able to realize our deferred tax assets is highly subjective and dependent upon judgment concerning management’s evaluation of both positive and negative evidence, including forecasts of future income, available tax planning strategies, and assessments of both current and future economic and business conditions. Management considered both positive and negative evidence regarding our ability to ultimately realize the deferred tax assets, which is largely dependent on our ability to derive benefits based on future taxable income. For all periods presented, management determined that the realization of the deferred tax asset was “more likely than not” as required by GAAP.
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Table of Contents 54 Financial condition General Our total assets were $6.90 billion at December 31, 2025, an increase of $1.25 billion, or 22.2%, from December 31, 2024. Our total cash and cash equivalents increased $24.7 million, driven by cash received from securities activity and the increase in other short term borrowings, as well as net cash received with the Bancorp Financial acquisition. Our loans increased by $1.27 billion, or 31.9%, to $5.25 billion for the year ended December 31, 2025, compared to 2024. This increase is primarily due to the $1.20 billion of loans acquired in our acquisition of Bancorp Financial and $76.1 million of net organic loan growth. Our total securities decreased by $71.2 million, or 6.1%, for the year ended December 31, 2025, compared to 2024, primarily due to $279.6 million of paydowns, maturities, and calls and $7.5 million of strategic sales, excluding the sale of Bancorp Financial’s $117.6 million available-for-sale securities portfolio after the acquisition closed. These decreases in 2025 were partially offset by security purchases of $191.6 million as well as the $25.6 million reduction of unrealized losses recorded in 2025. We recorded pretax net security gains of $7,000 in 2025 compared to no pretax net gains or losses in 2024. Our total liabilities were $6.01 billion at December 31, 2025, an increase of $1.03 billion, or 20.6%, from December 31, 2024. Total deposits increased by $827.3 million, or 17.3%, to $5.60 billion for the year ended December 31, 2025, compared to $4.77 billion for the year ended December 31, 2024, primarily due to the deposits assumed from the acquisition of Bancorp Financial. At December 31, 2025, total stockholders’ equity was $896.8 million, compared to $671.0 million at December 31, 2024. The increase in stockholders’ equity primarily stems from the acquisition of Bancorp Financial, which resulted in $7.9 million of additional common stock outstanding and $132.6 million of additional paid in capital, as well as net income of $80.3 million recorded in 2025, and the $18.4 million decrease in accumulated other comprehensive losses due to the reduction in unrealized losses in the available for sale securities portfolio. Investments As shown below, the overall composition of our securities portfolio was largely consistent in 2025 compared to 2024, as well as in 2024 compared to 2023. Securities Available-for-Sale Portfolio 2025 2024 2023 Amortized Fair % of Amortized Fair % of Amortized Fair % of (Dollars in thousands) Cost Value Total Cost Value Total Cost Value Total U.S. Treasury $ 164,296 $ 165,860 15.2 $ 193,902 $ 194,143 16.7 $ 174,602 $ 169,574 14.2 U.S. government agencies 29,421 29,176 2.7 39,202 37,814 3.3 60,011 56,959 4.8 U.S. government agency mortgage- backed 95,899 88,780 8.1 112,241 100,277 8.6 118,492 106,370 8.9 States and political subdivisions 213,366 206,375 18.9 226,969 215,456 18.5 236,072 227,065 19.0 Collateralized mortgage obligations 388,774 359,305 32.9 411,170 368,616 31.7 442,987 392,544 33.0 Asset-backed securities 46,600 45,816 4.2 64,215 62,303 5.4 71,616 68,436 5.7 Collateralized loan obligations 194,552 194,464 17.9 182,629 183,092 15.8 173,201 171,881 14.4 Equity securities 684 747 0.1 - - - - - - Total securities available-for-sale$ 1,133,592 $ 1,090,523100.0 $ 1,230,328 $ 1,161,701100.0 $ 1,276,981 $ 1,192,829100.0 Our investment portfolio serves as both an important source of liquidity and as a source of income. Accordingly, the size and composition of the portfolio reflects our liquidity needs, loan demand and interest income objectives. We will adjust the size and composition of the portfolio from time to time. While a significant portion of the portfolio consists of readily marketable securities to address future liquidity needs, other parts of the portfolio may reflect funds invested pending future loan demand or to maximize interest income without undue interest rate risk. Some of our holdings of U.S. government agency mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMOs”) are issuances of government-sponsored enterprises, such as Fannie Mae and Freddie Mac, which are not backed by the full faith and credit of the U.S. government. Some holdings of MBS and CMOs are issued by Ginnie Mae, which do carry the full faith and credit of the U.S. government. We also hold some MBS and CMOs that were not issued by U.S. government agencies and are typically credit-enhanced via over-collateralization and/or subordination. Holdings of ABS also includes securities backed by student loans issued under the U.S. Department of Education’s (“DOE”) FFEL program, which generally provides a minimum 97% U.S. DOE guarantee of principal. These ABS securities also have added credit enhancement through over-collateralization and/or subordination. The majority of holdings issued by states and political subdivisions are general obligation or revenue bonds that have S&P or Moody’s ratings of AA- or higher. Other state and political subdivision issuances are unrated and generally consist of smaller investment amounts that involve issuers in our markets. The credit quality of these issuers is monitored, and none have been identified as posing a material risk of loss. We also hold collateralized loan obligation (“CLOs”) securities that are generally backed by a pool of debt issued by multiple middle-sized and large businesses. Our CLO S&P or Moody’s ratings distribution consists of 100% rated AAA or AA. CLO credit enhancement is achieved through over-collateralization and/or subordination.
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Table of Contents The following table presents the expected maturities or call dates and weighted average yield (nontax equivalent) of securities by major category as of December 31, 2025. Weighted average yield is based on amortized costs and not calculated on a tax equivalent basis. Securities not due at a single maturity date are shown only in the total column. Securities Portfolio Maturity and Yields After One But After Five But Within One Year Through Five Years Through Ten Years After Ten Years Total (Dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Securities available-for-sale U.S. Treasury $ 65,191 4.47%$ 100,669 4.20% $ - - %$ - - % $ 165,860 4.32% U.S. government agencies 28,084 2.00 1,092 5.36 - - - - 29,176 2.13 States and political subdivisions 1,204 4.40 31,745 3.31 88,875 2.94 84,551 3.15 206,375 3.09 94,479 3.73 133,506 4.00 88,875 2.94 84,551 3.15 401,411 3.51 Mortgage-backed securities andcollateralized mortgage obligations - - - - - - - - 448,085 2.75 Asset-backed securities - - - - - - - - 45,816 3.71 Collateralized loan obligations - - - - - - - - 194,464 5.46 Equity securities - - - - - - - - 747 - Total securities available-for-sale $ 94,479 3.73% $ 133,506 4.00% $ 88,875 2.94% $ 84,551 3.15% $ 1,090,523 3.53% As of December 31, 2025, net unrealized losses on available-for-sale securities totaled $43.1 million, which, after the impact of the related deferred income taxes, resulted in an overall decrease to equity capital of $31.0 million. As of December 31, 2024, net unrealized losses on available-for-sale securities totaled $68.6 million, which after the impact of the related deferred income taxes, resulted in an overall decrease to equity capital of $49.4 million. Loans The following table presents the composition of the loan portfolio at December 31 for the year indicated: Loan Portfolio % of % of % of (Dollars in thousands) 2025 Total 2024 Total 2023 Total Commercial $ 842,130 16.0 $ 800,476 20.1 $ 841,697 20.8 Leases 548,256 10.4 491,748 12.4 398,223 9.8 Commercial real estate – investor 1,212,384 23.1 1,078,829 27.1 1,034,424 25.6 Commercial real estate – owner occupied 706,567 13.5 683,283 17.2 796,538 19.7 Construction 173,630 3.3 201,716 5.1 165,380 4.1 Residential real estate – investor 70,225 1.3 49,598 1.2 52,595 1.3 Residential real estate – owner occupied 230,432 4.4 206,949 5.2 226,248 5.6 Multifamily 339,131 6.5 351,325 8.8 401,696 9.9 HELOC 235,293 4.5 103,388 2.6 103,237 2.6 Powersport 696,959 13.3 - - - - Other 1 197,124 3.7 14,024 0.3 22,915 0.6 Total loans $ 5,252,131 100.0 $ 3,981,336 100.0 $ 4,042,953 100.0 1 The “Other” class includes consumer loans, such as collector cars, manufactured homes, and solar loans, as well as overdrafts. Our total loans were $5.25 billion as of December 31, 2025, an increase of $1.27 billion from $3.98 billion as of December 31, 2024. This increase was primarily due to the $1.20 billion portfolio acquired from Bancorp Financial, which significantly expanded our consumer lending and added the powersport loan segment. Excluding the acquisition, the Bank achieved organic loan growth, net of paydowns, of $76.1 million from 2024. The largest organic loan increases, net originations, were in leases for $56.5 million and commercial real estate – investor for $27.2 million. Partially offsetting these organic increases, we experienced net reductions in construction of $32.4 million and multifamily of $40.8 million. We recorded total loan originations, excluding renewals, of $1.36 billion in 2025. We strive to serve customers in and around our geographic locations and continue to seek opportunities in our primary lending markets; however, our markets remain very competitive for new loan business. Management continues to emphasize loan portfolio quality, and credit remediation continued in 2025. The increase of nonaccrual and classified loans as of December 31, 2025, compared to the prior year end, is due to larger relationships with mixed use
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55 commercial real estate that have been downgraded in 2025, discussed in the “Asset Quality” section below. We recorded net loan charge-offs of $16.2 million in 2025, $14.2 million in 2024, and $23.3 million in 2023.
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Table of Contents 56 The quality of our loan portfolio is in large part a reflection of the economic health of the communities in which we operate. Our local communities have been relatively stable in the past five years. While there are no significant concentrations of loans where the customers’ ability to honor loan terms is dependent upon a single economic sector, the real estate categories represented 56.5% and 67.2% of the portfolio at December 31, 2025 and 2024, respectively. Our lending exposure is diversified across each of our segments presented above. In 2025, excluding the Bancorp Financial acquisition, we experienced a net increase in the overall portfolio, and leases and commercial real estate – investor continue to be the largest segments of growth. We had no concentration of loans exceeding 10% of total loans that were not otherwise disclosed as a category of loans at December 31, 2025. We remain committed to overseeing and managing our loan portfolio to avoid unnecessarily high credit concentrations in accordance with the general interagency guidance on risk management. Consistent with those commitments, management monitors our asset diversification and anticipates that the percentage of real estate lending in relation to the overall portfolio will decrease in the future. The following table sets forth the remaining contractual maturities for loan categories at December 31, 2025: Maturity and Rate Sensitivity of Loans to Changes in Interest Rate After One Year After Five Years Through Five Years Through 15 Years After 15 Years One Year Fixed Floating Fixed Floating Fixed Floating (In thousands) or Less Rate Rate Rate Rate Rate Rate Total Commercial $ 751,023 $ 76,520 $ 405 $ 12,109 $ - $ 2,073 $ - $ 842,130 Leases 27,160 473,105 - 47,991 - - - 548,256 Commercial real estate – investor 581,089 535,218 - 95,882 195 - - 1,212,384Commercial real estate – owneroccupied 247,739 254,259 118,178 9,631 76,760 - - 706,567 Construction 153,751 17,967 1,192 - 720 - - 173,630 Residential real estate – investor 29,198 34,437 2,532 1,558 711 1,789 - 70,225Residential real estate – owneroccupied 42,715 7,079 97,215 34,721 20,721 27,981 - 230,432 Multifamily 107,184 220,314 - 11,633 - - - 339,131 HELOC 171,239 4,926 - 9,476 10,266 39,386 - 235,293 Powersport 12,546 537,636 - 146,777 - - - 696,959 Other1 13,750 44,421 - 97,519 - 41,434 - 197,124 Total $ 2,137,394 $ 2,205,882 $ 219,522 $ 467,297 $ 109,373 $ 112,663 $ - $ 5,252,131 1 The “Other” class includes consumer loans, such as collector cars, manufactured homes, and solar loans, as well as overdrafts; the “One Year or Less” column includes demand notes. Asset Quality Nonperforming loans consist of nonaccrual loans and loans 90 days or more past due and accruing. Remediation work is ongoing in all relevant segments. Nonperforming loans increased year over year by $22.5 million, or 74.4%, to $52.8 million at December 31, 2025, but decreased by $38.5 million to $30.3 million at December 31, 2024, compared to December 31, 2023. Nonperforming assets, which includes nonperforming loans plus other real estate owned and repossessed assets, totaled $55.6 million as of December 31, 2025, compared to $52.4 million as of December 31, 2024, and $73.9 million as of December 31, 2023. Nonperforming credit metrics increased in 2025, largely due to increased nonaccrual loans, and management continues to work these loans. Nonperforming loans as a percent of total loans increased to 1.0% as of December 31, 2025, from 0.8% as of December 31, 2024, and 1.7% December 31, 2023. Our nonperforming loans by performance metric is shown in the following table. Risk Elements The following table sets forth the amounts of nonperforming assets by performance metric at December 31 for the years indicated: (Dollars in thousands) 2025 2024 2023 Nonaccrual loans $ 47,952 $ 28,851 $ 67,583 Loans past due 90 days or more and still accruing interest 4,879 1,436 1,196 Total nonperforming loans 52,831 30,287 68,779 Other real estate owned 1,427 21,617 5,123 Repossessed Assets 1,363 484 - Total nonperforming assets $ 55,621 $ 52,388 $ 73,902 Nonaccrual loans to total loans outstanding 0.9% 0.7% 1.7% Nonperforming loans to total loans outstanding 1.0% 0.8% 1.7% Nonperforming assets to total loans plus OREO and repossessed assets 1.1% 1.3% 1.8%
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Table of Contents 57 Accrual of interest is discontinued on a loan when principal or interest is 90 days or more past due, unless the loan is well secured and in the process of collection. Powersport loans are placed on nonaccrual when principal or interest payments become 120 days past due and in the process of restructuring. When a loan is placed on nonaccrual status, interest previously accrued but not collected in the current period is reversed against current period interest income. Interest income of approximately $1.0 million, $815,000 and $1.9 million was recorded and collected during 2025, 2024 and 2023, respectively, on loans that subsequently went to nonaccrual status by year-end. Interest income, which would have been recognized during 2025, 2024 and 2023, had these loans been on an accrual basis throughout the year, was approximately $3.8 million, $4.2 million and $7.3 million, respectively. Total past due loans, including accruing and nonaccrual loans, totaled $85.7 million at year-end 2025, a $58.4 million increase from year end 2024, resulting in the rate of past due loans to total loans increasing to 1.6% at year-end 2025 compared to 0.7% at year- end 2024, and 1.2% at year-end 2023. As of December 31, 2025, $42.9 million of delinquent loans are past due 30-59 days and accruing. Refer to Note 5, “Loans and Allowance for Credit Losses on Loans”, in our Consolidated Financial Statements, below, for further detail of past due loans by classification for 2025 and 2024. Classified Assets Classified assets as of December 31, Percent Change From (Dollars in thousands) 2025 2024 2023 2025-2024 2024-2023 Commercial $ 51,587 $ 24,748 $ 8,414 108.4 194.1 Leases 2,428 523 818 364.2 (36.1) Commercial real estate – investor 14,245 14,489 43,798 (1.7) (66.9) Commercial real estate – owner occupied 64,081 27,619 54,613 132.0 (49.4) Construction 11,421 19,351 17,155 (41.0) 12.8 Residential real estate – investor 1,142 1,690 1,331 (32.4) 27.0 Residential real estate – owner occupied 1,897 1,851 3,216 2.5 (42.4) Multifamily 1,494 1,165 1,775 28.2 (34.4) HELOC 1,466 547 1,664 168.0 (67.1) Powersport 68 - - N/M N/M Other 1 270 10 - N/M N/M Total classified loans 150,099 91,993 132,784 63.2 (30.7) Other real estate owned 1,427 21,617 5,123 (93.4) 322.0 Repossessed assets 1,363 484 - 181.6 N/M Total classified assets $ 152,889 $ 114,094 $ 137,907 34.0 (17.3) N/M - Not meaningful 1 The “Other” class includes consumer loans, such as collector cars, manufactured homes, and solar loans, as well as overdrafts. Classified loans include nonaccrual and all other loans considered substandard. Classified assets include both classified loans, OREO and repossessed assets. Loans classified as substandard are inadequately protected by either the current net worth and ability to meet payment obligations of the obligor, or by the collateral pledged to secure the loan, if any. These loans have a well- defined weakness or weaknesses that jeopardize the liquidation of the debt and carry the distinct possibility that we will sustain some loss if deficiencies remain uncorrected.
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Table of Contents 58 Total classified loans increased in 2025 by $58.1 million compared to 2024, and decreased in 2024 by $40.8 million compared to 2023. The increase in 2025 is primarily due to an increase of $36.5 million of commercial real estate – owner occupied loans and $26.8 million of commercial loans, and partially offset by a decrease of $7.9 million of construction, compared to 2024. In 2025, the increase to classified commercial real estate – owner occupied and commercial loans were driven by downgrades of $52.9 million for commercial real estate – owner occupied and $45.8 million downgrades for commercial. The decrease in 2024, compared to 2023, is primarily due to a decrease of $29.3 million of commercial real estate – investor loans and $27.0 million of commercial real estate – owner occupied, and partially offset by an increase of $16.3 million of commercial, compared to 2023. In 2024, the decrease to classified commercial real estate – owner occupied and commercial real estate – investor loans were driven by loan risk rating upgrades of $20.1 million for commercial real estate – owner occupied and $8.8 million for commercial real estate – investor, primarily in the healthcare industry. Total classified assets, which includes OREO and repossessed assets, increased $38.8 million in 2025 compared to 2024. The increase in classified assets year over year was mostly due to the increases to classified loans but were offset by a $20.2 decrease to OREO in 2025 compared to 2024, primarily due to the sales of five OREO properties for a net fair value of $24.7 million. Our OREO portfolio increased $16.5 million in 2024 from 2023, primarily due to the transfer of five properties with a net fair value of $19.4 million, net of participations and valuation adjustments. Management monitors a metric of classified assets to the sum of Bank Tier 1 capital and the ACL, which is referred to as the “classified assets ratio.” Our classified assets ratio increased to 17.82% at December 31, 2025, compared to 17.45% at December 31, 2024, and 21.66% at December 31, 2023. Problem Loans We utilize an internal asset classification system as a means of reporting problem and potential problem assets. At the scheduled directors loan committee meetings of the Bank, loan listings are presented, which show significant loan relationships listed as “Special Mention,” “Substandard,” and “Doubtful.” Loans classified as Substandard include those that have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Assets 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. Assets that do not currently expose us to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses that deserve management’s close attention, are deemed to be Special Mention. Management defines problem loans as performing loans rated Substandard that do not meet the definition of a nonperforming loan, and those loans that have been placed on nonaccrual, which are classified as Doubtful. These problem loans carry a higher probability of default and require additional attention by management. A more detailed description of these loans can be found in Note 5 to the Consolidated Financial Statements, as listed in the credit quality indicators discussion. Allowance for Credit Losses At December 31, 2025, the ACL on loans totaled $72.3 million, and the ACL on unfunded commitments, included in other liabilities, totaled $2.1 million, compared to the ACL on loans of $43.6 million and ACL on unfunded commitments of $1.9 million at December 31, 2024. The increase in the ACL on loans was primarily due to a Day One PCD allocation of $17.5 million and a Day Two non-PCD provision of $13.2 million in relation to the Bancorp Financial acquisition. One measure of the adequacy of the ACL is the ratio of the ACL on loans to total loans. The ACL as a percentage of total loans was 1.4% as of December 31, 2025, and 1.1% as of December 31, 2024. In management’s judgment, an adequate allowance for estimated losses has been established; however, there can be no assurance that losses will not exceed the estimated amounts in the future. See Note 1 – Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial statements in this annual report for discussion of our ACL methodology on loans. The provision for credit losses, which includes a provision for losses on unfunded commitments, is a charge to earnings to maintain the ACL at a level consistent with management’s assessment of expected losses over the expected life of the loan portfolio as well as considering changes in macroeconomic conditions. During 2025, we recorded a $14.2 million of provision for credit losses expense on loans, a $13.2 million Day Two non-PCD provision for credit loss and a $185,000 of provision for credit losses on unfunded commitments. During 2024, we recorded a $13.6 million of provision for credit losses expense on loans and a $834,000 release of provision for credit losses on unfunded commitments.
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Table of Contents 59 Summary of Loan Loss Experience The following table summarizes, for the years indicated, activity in the ACL, including amounts charged-off, amounts of recoveries, additions to the allowance charged to operating expense, and the ratio of net charge-offs to loans outstanding: Analysis of Allowance for Credit Losses (Dollars in thousands) 2025 2024 2023 Total average loans (exclusive of loans held–for–sale) $ 4,606,984$ 3,985,552$ 3,998,937 Allowance at beginning of year 43,619 44,264 49,480 Charge–offs: Commercial 5,051 8,686 885 Leases 970 149 882 Commercial real estate – investor - 4,596 11,816 Commercial real estate – owner occupied 1,173 5,154 10,691 Construction 834 - - Real estate – investor - - - Real estate – owner occupied - 242 - Multifamily 181 - - HELOC - - - Powersport 8,821 - - Other1 1,633 284 368 Total charge–offs 18,663 19,111 24,642 Recoveries: Commercial 203 149 632 Leases 17 103 119 Commercial real estate – investor 57 425 77 Commercial real estate – owner occupied 12 3,907 29 Construction 396 - 100 Real estate – investor 7 25 30 Real estate – owner occupied 56 36 79 Multifamily - - - HELOC 90 91 105 Powersport 1,375 - - Other1 223 146 169 Total recoveries 2,436 4,882 1,340 Net charge-offs 16,227 14,229 23,302 Day 1 PCD credit evaluation 17,540 - - Provision for credit losses on loans 27,369 13,584 18,086 Allowance at end of year $ 72,301 $ 43,619 $ 44,264 Net charge-offs to total average loans 0.4% 0.4% 0.6% ACL on loans at year end to total loans 1.4% 1.1% 1.1% ACL on loans at year end to nonaccrual loans 150.8% 151.2% 65.5% 1 The “Other” class includes consumer loans, such as collector cars, manufactured homes, and solar loans, as well as overdrafts.
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Table of Contents 60 The following table summarizes, for the years indicated, net charge-offs per loan class and the percentage of total average loans per class: % of Total % of Total % of Total Average Average Average Loans Per Loans Per Loans Per 2025 Class 2024 Class 2023 Class Commercial $ 4,848 0.7 $ 8,537 1.1 $ 253 - Leases 953 0.2 46 0.0 763 0.2 Commercial real estate – investor (57) (0.0) 4,171 0.4 11,739 1.1 Commercial real estate – owner occupied 1,161 0.2 1,247 0.2 10,662 1.4 Construction 438 0.3 - - (100) (0.1) Residential real estate – investor (7) (0.0) (25) (0.1) (30) (0.1) Residential real estate – owner occupied (56) (0.0) 206 0.1 (79) (0.0) Multifamily 181 0.1 - - - - HELOC (90) (0.0) (91) (0.1) (105) (0.1) Powersport 7,446 1.2 - - - - Other 1 1,410 0.8 138 1.2 199 0.8 Net charge–offs $ 16,227 0.4 $ 14,229 0.4 $ 23,302 0.6 1 The “Other” class includes consumer loans, such as collector cars, manufactured homes, and solar loans, as well as overdrafts. The provision for credit losses on loans is based upon management’s estimate of future expected credit losses in the loan and lease portfolio and its evaluation of the adequacy of the ACL. Our provision for credit losses in 2025 totaled $27.6 million, compared to $12.8 million in 2024, and $16.5 million in 2023. Net charge-offs recorded in 2025 totaled $16.2 million, compared to net charge- offs of $14.2 million recorded in 2024, and net charge-offs of $23.3 million in 2023. The significant charge offs in 2025 were comprised of multiple powersport loans, three commercial credits, and one commercial real estate credit. Our ACL on loans to total loans was 1.4% at December 31, 2025, and 1.1% at December 31, 2024 and 2023. The following table shows our allocation of the ACL by loan type at December 31 for the years indicated, and, for each category of loans, the percent of total loans represented by that category: Allocation of the Allowance for Credit Losses 2025 2024 2023 % of Loans % of Loans % of Loansin Each in Each in EachCategory to Category to Category to(Dollars in thousands) Amount Total Loans Amount Total Loans Amount Total LoansCommercial $ 11,183 16.0 $ 7,813 20.1 $ 3,998 20.8Leases 2,370 10.4 2,136 12.4 2,952 9.8Commercial real estate – investor 21,672 23.1 14,528 27.1 17,105 25.6Commercial real estate – owner occupied 4,583 13.5 10,036 17.2 12,280 19.7Construction 1,527 3.3 3,581 5.1 1,038 4.1Real estate – investor 759 1.3 553 1.2 669 1.3Real estate – owner occupied 1,879 4.4 1,509 5.2 1,821 5.6Multifamily 1,493 6.5 1,876 8.8 2,728 9.9HELOC 3,628 4.5 1,578 2.6 1,656 2.6Powersport 17,449 13.3 - - - -Other1 5,758 3.7 9 0.3 17 0.6 Total $ 72,301 100.0 $ 43,619 100.0 $ 44,264 100.0 1 The “Other” class includes consumer loans, such as collector cars, manufactured homes, and solar loans, as well as overdrafts for each year presented. Allocations of the allowance may be made for specific loans, but the entire allowance is available for losses in the loan portfolio. In addition, the OCC, as part of their examination process, periodically reviews the ACL. Regulators can require management to record adjustments to the allowance level based upon their assessment of the information available to them at the time of examination. The OCC, in conjunction with the other federal banking agencies, has adopted an interagency policy statement on the ACL. The policy statement provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of adequate allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation guidelines. Generally, the policy statement recommends that (1) institutions have effective systems and controls to identify, monitor and address asset quality problems; (2) management has analyzed all significant factors that affect the collectability of the portfolio in a reasonable manner; and (3) management has established acceptable allowance evaluation processes that meet the objectives set forth in the policy statement. Management believes it has established an adequate estimated allowance for expected credit losses over the estimated life of our loan portfolio. Management reviews its process quarterly using an extensive and detailed loan review process, makes changes as needed, and reports those results at meetings of our Board of Directors and Audit Committee.
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Table of Contents 61 Although management believes the ACL is sufficient to cover expected losses over the estimated life of our loan portfolio, there can be no assurance that the allowance will prove sufficient to cover actual loan and lease losses or that regulators, in reviewing the loan portfolio, would not request us to materially adjust our ACL at the time of their examination. Continued loan growth in future periods, a decline in our current level of recoveries, or an increase in charge-offs could result in an increase in provision expense. Additionally, provision expense may be more volatile due to changes in CECL model assumptions of credit quality, macroeconomic factors and conditions, and loan composition, which drive the allowance for credit losses balance. During 2025, the provision of credit losses on unfunded commitments totaled $185,000, and the allowance for unfunded commitments totaled $2.1 million as of December 31, 2025. During 2024, the release of credit losses on unfunded commitments totaled $834,000, and allowance for unfunded commitments totaled $1.9 million as of December 31, 2024. Management reviewed the securities portfolio for credit loss exposure and determined that no allowance for credit losses on securities was required for 2025 or 2024. See Note 4 to the Consolidated Financial Statements for more detail on the ACL for securities analysis performed. Other Real Estate Owned Other real estate owned (“OREO”) decreased to $1.4 million as of December 31, 2025, compared to $21.6 million as of December 31, 2024, reflecting a $20.2 million decrease. During 2025, we transferred one OREO property from loans with a fair value of $5.0 million and we sold five properties which had a total net book value of $25.2 million. Net gains on the sale of OREO properties during 2025 totaled $201,000, compared to net gains on sale of OREO properties of $390,000 in 2024 and $256,000 in 2023. OREO Properties by Type as of December 31, Percent Change From (Dollars in thousands) 2025 2024 2023 2025-2024 2024-2023 Single family residence $ - $ - $ - - - Lots (single family and commercial) - - - - - Vacant land - 197 197 (100.0) - Multi-family - - - - - Commercial property 1,427 21,420 4,926 (93.3) 334.8 Total OREO properties $ 1,427 $ 21,617 $ 5,123 (93.4) 322.0 Other real estate assets transferred from loans are recorded at the fair value of the property when transferred, less estimated costs to sell, establishing a new cost basis. The OREO valuation reserve for the year ended 2025 was $632,000, which was 30.7% of gross OREO at year-end 2025. This compares to $1.9 million, or 7.9%, of gross OREO, net of participations and purchase accounting adjustments, at year-end 2024. Deposits Our total deposits increased by $827.3 million, or 17.3%, to a total of $5.60 billion at year-end 2025, compared to year-end 2024, with the bulk of the increase driven by the Bancorp Financial acquisition. Significant increases included: non-interest bearing demand deposits of $34.2 million, savings accounts of $189.7 million, NOW accounts of $72.1 million, money market accounts of $168.6 million, and time deposits of $362.7 million. Total deposits increased by $198.0 million, or 4.3%, to a total of $4.77 billion at year-end 2024 compared to year-end 2023; this increase included the branch acquisition of FRME in 2024. We had brokered certificates of deposit of $59.3 million as of December 31, 2025, compared to none as of December 31, 2024. Brokered deposits were assumed in the Bancorp Financial acquisition and are expected to run off by the first quarter of 2028. Average Balances and Interest Rates 2025 2024 2023 Average Rate Average Rate Average Rate (Dollars in thousands) Balance % Balance % Balance % Noninterest bearing demand $ 1,749,363 - $ 1,747,890 - $ 1,906,633 - Interest bearing: NOW and money market 1,545,903 1.28 1,262,192 1.16 1,337,329 0.57 Savings 1,045,344 0.73 921,801 0.34 1,052,750 0.11 Time 989,403 2.92 628,446 3.21 458,918 1.45 Total deposits $ 5,330,013 $ 4,560,329 $ 4,755,630
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Table of Contents The following table sets forth the amounts and maturities of time deposits of $250,000 or more at December 31 of the year indicated: Maturities of Time Deposits of $250,000 or More (Dollars in thousands) 2025 2024 3 months or less $ 97,639 $ 63,441 Over 3 months through 6 months 70,923 46,899 Over 6 months through 12 months 40,216 15,081 Over 12 months 5,350 3,393 $ 214,128 $ 128,814 The following table presents estimated insured and uninsured deposits at December 31, 2025, and December 31, 2024 by deposit type, as well as the weighted average rates for each year to date ending period: (Dollars in thousands) December 31, 2025 December 31, 2024 Total Deposits Insured Deposits Uninsured Deposits Average Rate Paid Total Deposits Insured Deposits Uninsured Deposits Average Rate Paid Noninterest bearing demand $ 1,739,117 $ 1,141,542 $ 597,575 -% $ 1,704,920 $ 1,128,877 $ 576,043 -% Savings 1,121,888 1,025,941 95,947 0.73 932,201 873,668 58,533 0.34 NOW accounts 693,573 495,397 198,176 0.45 621,434 468,781 152,653 0.50 Money market accounts 930,079 548,289 381,790 1.90 761,499 496,293 265,206 1.70 Time deposits 1,111,412 937,045 174,367 2.92 748,677 638,140 110,537 3.21 Total $ 5,596,069 $ 4,148,214 $ 1,447,855 1.06% $ 4,768,731 $ 3,605,759 $ 1,162,972 0.83% Collateralized public funds $ 219,939 $ 15,832 $ 204,107 $ 217,358 $ 16,557 $ 200,801 As of December 31, 2025, 14.1% of our uninsured deposits were secured by collateralized public funds. Borrowings In addition to deposits, we used other liquidity sources for our funding needs in 2025, 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 60% of the book value of certain mortgage-backed loans. We primarily use these borrowings as a source of short-term funding. The outstanding balance of our short-term FHLBC borrowing was $215.0 million and $20.0 million as of December 31, 2025, and December 31, 2024, respectively. In addition, the Company had assumed $14.8 million in long-term borrowings from the FHLB with the acquisition of Bancorp Financial in 2025. In addition, we have an unused line of credit of $30.0 million available with a third-party bank, which can be used for the Company’s operating needs at the holding company level. This line of credit renews every February and must be repaid within 360 days, if drawn. There were no other categories of short-term borrowings that had an average balance greater than 30% of our stockholders’ equity as of December 31, 2025 or 2024. The average junior subordinated debentures included one issuance of trust preferred securities, Old Second Capital Trust II (“Trust II”), which totals $25.0 million as of December 31, 2025 and 2024. See Note 10 to the Consolidated Financial Statements Junior Subordinated Debentures for further discussion of Trust II. The junior subordinated debentures outstanding at December 31, 2025, consist of $25.8 million of the Trust II issuance, including both the preferred and common stock components related to this trust preferred issuance. In the second quarter of 2021, we entered into Subordinated Note Purchase Agreements with certain qualified institutional buyers pursuant to which we sold and issued $60.0 million in aggregate principal amount of our 3.50% Fixed-to-Floating Rate Subordinated Notes due April 15, 2031 (the “Notes”). We sold the Notes in a private offering, and the proceeds of this issuance are intended to be used for general corporate purposes, which may include, without limitation, common stock repurchases and strategic acquisitions. The Notes bear interest at a fixed annual rate of 3.50% through April 14, 2026, payable semi-annually in arrears. From April 15, 2026, forward, the interest rate on the Notes will generally reset quarterly to a rate equal to Three-Month Term SOFR (as defined by the Note) plus 273 basis points, payable quarterly in arrears. The Notes have a stated maturity of April 15, 2031, and are redeemable, in whole or in part, on April 15, 2026, or any interest payment date thereafter, and at any time upon the occurrence of certain events. As of December 31, 2025, we had $59.6 million of subordinated debentures outstanding, net of deferred issuance costs.
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Table of Contents 63 Capital As of December 31, 2025, we had total stockholders’ equity of $896.8 million, an increase of $225.7 million, or 33.6%, from $671.0 million as of December 31, 2024. This increase was largely attributable to the Bancorp Financial acquisition, which resulted in consideration paid to Bancorp Financial shareholders of $140.5 million, or 7.9 million shares of our common stock. In addition, we had net income of $80.3 million in 2025. The increase in total stockholders’ equity from 2024 to 2025 was also attributable to a $19.0 million increase in the fair value adjustments on securities and swaps available for sale, within accumulated other comprehensive loss, due to changes in market interest rates. At December 31, 2025, accumulated other comprehensive loss, net of deferred taxes, was $28.7 million, compared to $47.7 million as of year-end 2024. Equity in 2025 was reduced for the payment of dividends to common stockholders, which totaled $12.2 million for the year. Our total stockholders’ equity also increased in 2024, ending at $671.0 million, compared to $577.3 million at year-end 2023, primarily attributable to net income of $85.3 million. The change in total stockholders’ equity from 2023 to 2024 was also increased by a $15.0 million increase in the fair value adjustments on securities and swaps available for sale, within accumulated other comprehensive loss, net of tax. At December 31, 2024, accumulated other comprehensive loss, net of deferred taxes, was $47.7 million, compared to $62.8 million as of year-end 2023. We issued $25.8 million of cumulative trust preferred securities through a private placement completed by a second unconsolidated subsidiary, Trust II, in April 2007. These trust preferred securities mature in 30 years, but subject to prior regulatory approval, can now be called in whole or in part. The quarterly cash distributions on the securities were fixed at 6.77% through June 15, 2017, and converted to a floating rate at 150 basis points over the three-month LIBOR rate thereafter, which were subject to a SOFR fallback in 2023 with the cessation of LIBOR. We entered into a forward starting interest rate swap on August 18, 2015, with an effective date of June 15, 2017. This transaction had a notional amount totaling $25.8 million as of December 31, 2015, and was designated as a cash flow hedge of certain junior subordinated debentures and continues to be fully effective during the period presented. As such, no amount of ineffectiveness has been included in net income. Therefore, the aggregate fair value of the swap is recorded in other liabilities with changes in fair value recorded in other comprehensive income, net of tax. The amount included in other comprehensive income would be reclassified to current earnings should all or a portion of the hedge no longer be considered effective. We expect the hedge to remain fully effective during the remaining term of the swap. We pay the counterparty a fixed rate and receive a floating rate based on three-month SOFR. Management concluded that it would be advantageous to enter into this transaction given that our trust preferred securities issued in 2007 changed from a fixed to floating rate on June 15, 2017. The cash flow hedge has a maturity date of June 15, 2037. We are currently paying interest on the Trust II preferred securities as that interest comes due. As of December 31, 2025, and December 31, 2024, total trust preferred proceeds of $25.0 million qualified as Tier 1 regulatory capital at the bank holding company level. In the fourth quarter of 2024, our Board of Directors authorized the repurchase of up to 2,234,896 shares (or approximately 5%) of our outstanding common stock, which authorization expired on December 31, 2025. In January 2026, our Board of Directors authorized the repurchase of up to 1,908,042 shares of our common stock, based upon receipt of the non-objection letter from the FRB, which authorization expires on December 31, 2026. We may engage in repurchases under the Repurchase Program from time to time through open market purchases, trading plans established in accordance with SEC rules, privately negotiated transactions, or by other means. The actual means and timing of any repurchases, quantity of purchased shares and prices will be, subject to certain limitations, at the discretion of management and will depend on a number of factors, including, without limitation, market prices of our common stock, general market and economic conditions, and applicable legal and regulatory requirements. Repurchases under the Repurchase Program may be initiated, discontinued, suspended or restarted at any time; provided that repurchases under the Repurchase Program after December 31, 2026, would require Federal Reserve non-objection or approval. We are not obligated to repurchase any shares under the Repurchase Program, and we did not engage in any repurchases under the Repurchase Program in 2024. During 2025, we repurchased 326,854 shares of our common stock at $18.00 per share, pursuant to our stock repurchase program. We withheld 84,841 shares for $1.5 million to satisfy RSU vesting tax withholding obligations in 2025, and repurchased 326,854 shares for $5.9 million under our stock repurchase program, which increased treasury stock. This increase was offset by issuance of 99,575 shares for RSU vestings, which totaled $1.8 million. The net impact was an increase to treasury stock of 312,120 shares, totaling $5.6 million as of December 31, 2025. The net increase in treasury stock decreased stockholders’ equity, and also increased earnings per share by decreasing the number of shares outstanding. We withheld 72,836 shares for $1.0 million to satisfy RSU vesting tax withholding obligations in 2024, which increased treasury stock. This increase was offset by issuance of 45,917 shares for RSU vestings, which totaled $650,000. The net impact was an increase to treasury stock of 26,919 shares, totaling $398,000 as of December 31, 2024. The net increase in treasury stock decreased stockholders’ equity, and also increased earnings per share by decreasing the number of shares outstanding. We withheld 34,858 shares for $605,000 to satisfy RSU vesting tax withholding obligations in 2023, which increased treasury stock. This increase was offset by issuance of 150,464 shares for RSU vestings, which totaled $3.7 million. The net impact was a decrease to treasury stock of 115,606 shares, totaling $3.1 million as of December 31, 2023. The net decrease in treasury stock increased stockholders’ equity, and also decreased earnings per share by increasing the number of shares outstanding.
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Table of Contents 64 The Basel III rules impose minimum capital requirements for bank holding companies and banks. See Item 1, Business “Supervision and Regulation - Basel III Capital Standards.” The Basel III rules apply to all national and state banks and savings associations regardless of size and bank holding companies and savings and loan holding companies other than “small bank holding companies” which are generally holding companies with consolidated assets of less than $3 billion. In order to avoid restrictions on capital distributions or discretionary bonus payments to executives, a covered banking organization must maintain a “capital conservation buffer” on top of our minimum risk-based capital requirements. This buffer must consist solely of CET1, but the buffer applies to all three measurements (CET1, Tier 1 capital and total capital). The capital conservation buffer consists of an additional amount of common equity equal to 2.5% of risk-weighted assets. Additionally, the Bank’s board of directors has established internal capital guidelines, which are more conservative than applicable regulatory minimums, under which the Bank generally seeks to maintain a Tier 1 leverage capital ratio of at least eight percent (8%) and a total risk-based capital ratio of at least twelve percent (12%). These internal guidelines are subject to change from time to time based on the Bank’s risk profile, strategic objectives and regulatory considerations. The following table shows the regulatory capital ratios and the current minimum and well capitalized regulatory requirements at the dates indicated: Risk Based Capital Ratios Minimum Capital Well Capitalized Adequacy with Under Prompt Capital Conservation Corrective Action December 31, December 31, December 31, Buffer, if applicable1 Provisions2 2025 2024 2023 The Company Common equity tier 1 capital ratio 7.00% N/A 12.99 % 12.82 % 11.37 % Total risk-based capital ratio 10.50 N/A 15.46 15.54 14.06 Tier 1 risk-based capital ratio 8.50 N/A 13.41 13.34 11.89 Tier 1 leverage ratio 4.00 N/A 11.70 11.30 10.06 The Bank Common equity tier 1 capital ratio 7.00% 6.50 % 13.17 % 12.89 % 12.32 % Total risk-based capital ratio 10.50 10.00 14.22 13.82 13.24 Tier 1 risk-based capital ratio 8.50 8.00 13.17 12.89 12.32 Tier 1 leverage ratio 4.00 5.00 11.49 10.90 10.41 1 Amounts are shown inclusive of a capital conservation buffer of 2.50%. 2 Prompt corrective action provisions are only applicable at the Bank level. The Company, on a consolidated basis, exceeded the applicable minimum regulatory capital requirements (including the capital conservation buffer, as applicable) at December 31, 2025, 2024 and 2023. The Bank exceeded the ‘well capitalized’ thresholds under the prompt corrective action framework at December 31, 2025, 2024 and 2023. In addition to the above regulatory ratios, our common equity to total assets ratio increased from 11.88% at December 31, 2024, to 12.99% at December 31, 2025, while our tangible common equity to tangible assets ratio (non-GAAP) increased from 10.11% at December 31, 2024, to 11.08% at December 31, 2025. The reduction in accumulated other comprehensive loss on available-for- sale securities in 2025 contributed to the growth of these ratios, as the numerator was increased. Management considers this non- GAAP measure a valuable performance measurement for capital analysis.
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Table of Contents 65 The following table provides a reconciliation of the GAAP tangible common equity to tangible assets ratio to the non-GAAP ratio for the periods indicated: December 31, 2025 December 31, 2024 Tangible common equity GAAP Non-GAAP GAAP Non-GAAP (Dollars in thousands) Total Equity $ 896,768 $ 896,768 $ 671,034 $ 671,034 Less: Goodwill and intangible assets 152,888 152,888 115,291 115,291 Add: Limitation of exclusion of core deposit intangible (80%) N/A 4,738 N/A 4,406 Adjusted goodwill and intangible assets 152,888 148,150 115,291 110,885 Tangible common equity $ 743,880 $ 748,618 $ 555,743 $ 560,149 Tangible assets Total assets $ 6,902,675 $ 6,902,675 $ 5,649,377 $ 5,649,377 Less: Adjusted goodwill and intangible assets 152,888 148,150 115,291 110,885 Tangible assets $ 6,749,787 $ 6,754,525 $ 5,534,086 $ 5,538,492 Common equity to total assets 12.99% 12.99% 11.88% 11.88% Tangible common equity to tangible assets 11.02% 11.08% 10.04% 10.11% The non-GAAP intangible asset exclusion reflects the 80% core deposit limitation per Basel III guidelines within risk based capital calculations, and is useful for the Company when reviewing risk based capital ratios and equity performance metrics. 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 cash flows from net operating activities, including pledging requirements, investment in assets, and both maturity and repayment of assets, changes in balances of deposits and borrowings, and our ability to borrow funds. In addition, the Company’s liquidity depends on the Bank’s ability to pay dividends, which is subject to certain regulatory requirements. See Item 1. Business “Supervision and Regulation —Dividend Payments.” We continually monitor our cash position and borrowing capacity as well as perform stress tests of contingency funding no less frequently than quarterly as part of our liquidity management process. Stress testing of liquidity for contingency funding purposes includes tests that outline scenarios for specifically identified liquidity risk events, which are then aggregated into a Bank-wide assessment of liquidity risk stress levels. The outcomes of these tests are reviewed by management monthly and our Board of Directors quarterly. Cash and cash equivalents at the end of 2025 totaled $124.0 million, compared to $99.3 million at December 31, 2024, and $100.1 million as of December 31, 2023. Additional funding sources at the end of 2025 include unused borrowing capacity available from the Federal Home Loan Bank of Chicago, Federal Reserve Bank and correspondent banks of $850.7 million and unencumbered securities available for sale of $410.3 million. The Bank possesses a strong liquidity profile in normal and stressed scenarios due to diverse funding sources, an outsized securities portfolio, and a stable core deposit base. Additional sources of funding include a $30.0 million undrawn line of credit held by the Company with a third-party financial institution. Net cash inflows from operating activities were $122.3 million during 2025, compared with inflows of $131.5 million in 2024 and inflows of $116.4 million in 2023. Proceeds from sales of loans held-for-sale, net of funds used to originate loans held-for-sale, was a source of outflows for 2025, but a source of inflows for 2024 and 2023. Interest received, net of interest paid, combined with changes in other assets and liabilities were a source of inflows for 2025 and 2024, but a source of outflows for 2023. 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 our balance sheet management process. Net cash inflows from investing activities were $159.8 million in 2025, compared to $322.7 million of inflows in 2024, and inflows of $161.6 million in 2023. The acquisition of Bancorp Financial resulted in net cash inflows of $10.5 million in 2025.The FRME five branch purchase transaction resulted in net cash inflows of $237.4 million in 2024. Loan growth resulted in $75.8 million of cash outflows for 2025, compared to $34.7 million of cash inflows in 2024, and $197.6 million of cash outflows in 2023. In 2025, security transactions resulted in net cash inflows of $213.9 million, and proceeds from the sales of OREO assets accounted for inflows of $24.7 million. In 2024, security transactions resulted in net cash inflows of $44.0 million, and proceeds from the sales of OREO assets accounted for inflows of $3.2 million. In 2023, securities transactions accounted for net inflows of $378.4 million, and proceeds from the sales of OREO assets accounted for inflows of $2.0 million.
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Table of Contents 66 Net cash outflows from financing activities in 2025 were $257.4 million, compared to $455.1 million of outflows in 2024, and $293.0 million of outflows in 2023. Significant cash inflows from financing activities in 2025 included increases in other short- term borrowings of $179.5 million as we utilized FHLBC advances based on liquidity needs. Deposits were a net outflow of $404.3 million in 2025, $69.8 million in 2024, and $538.8 million in 2023. Significant cash outflows from financing activities in 2024 included reductions in other short-term borrowings of $385.0 million as we paid down overnight FHLBC advances with funds received from the five branches acquired from FRME. Significant cash inflows from financing activities in 2023 included an increase in other short-term borrowings of $315.0 million as we obtained overnight FHLBC advances throughout 2023. Significant cash outflows from financing activities in 2023 included the $9.0 million repayment of the term note in February 2023 and the $45.0 million repayment of senior notes in June 2023. Commitments and Off-balance sheet arrangements Derivative contracts, which include contracts under which we either receive cash from, or pay cash to, counterparties reflecting changes in interest rates are carried at fair value on our Consolidated Balance Sheets as disclosed in Note 18 of the Notes to the Consolidated Financial Statements provided in Part II, Item 8, “Financial Statements and Supplementary Data.” Because the fair value of derivative contracts changes daily as market interest rates change, the derivative assets and liabilities recorded on the balance sheet at December 31, 2025, do not necessarily represent the amounts that may ultimately be paid. Assets under management and assets under custody are held in fiduciary or custodial capacity for clients. In accordance with GAAP, these assets are not included on our balance sheet. Financial instruments with off-balance sheet risk address the financing needs of our clients. These instruments include commitments to extend credit as well as performance, standby and commercial letters of credit. Further discussion of these commitments is included in Note 14 – Commitments in the accompanying notes to the Consolidated Financial Statements. The following table details the amounts and expected maturities of significant commitments to extend credit as of December 31, 2025: Within One to Three to Over (In thousands) One Year Three Years Five Years Five Years Total Commercial secured by real estate $ 7,002 $ 18,994 $ 7,376 $ 251 $ 33,623 Revolving open end residential 5,046 6,167 67 319,374 330,654 Other unused loan commitments, including commercial and industrial 298,985 95,257 4,124 4,494 402,860 Financial standby letters of credit (borrowers) 26,147 740 - - 26,887 Performance standby letters of credit (borrowers) 9,168 10 - - 9,178 Performance standby letters of credit (others) - - - - - Total $ 346,348 $ 121,168 $ 11,567 $ 324,119 $ 803,202
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Table of Contents 67 Item 7A. Quantitative and Qualitative Disclosures about Market Risk Interest Rate Risk We are subject to interest rate risk from changes in assets (loans and securities), liabilities (customer deposits and borrowed funds) and off-balance sheet derivatives (interest rate swaps). Fluctuations in interest rates may have a material impact to fair market values of our financial instruments, cash flows, and net interest income. Like most financial institutions, we have an exposure to changes in both short-term and long-term interest rates. We believe a financial institution’s ability to effectively manage its interest rate risk profile and strategically position its balance sheet through rate cycles sustains financial performance. In the second half of 2025, the Federal Reserve Board (“FRB”) continued with additional cuts of the Federal Funds (“FF”) target rate by 75 basis points to a target range of 3.50-3.75%. The current forward curve implies 1 to 2 rate cuts in 2026. The FRB’s balance sheet continued to shrink, ending 2025 at $6.6 trillion, down from a peak of $8.7 trillion in March 2023. We manage interest rate risk within guidelines established by the asset liability policy which are intended to limit the amount of rate exposure. In practice, we seek to manage our interest rate risk exposure within our guidelines so that such exposure does not pose a material risk to our future earnings. We manage various market risks in the normal course of our operations, including credit, liquidity risk, and interest rate risk. Other types of market risk, such as foreign currency exchange risk and commodity price risk, do not arise in the normal course of our business activities and operations. In addition, since we do not hold a trading portfolio, we are not exposed to significant market risk from trading activities. Our interest rate risk exposures at December 31, 2025, and December 31, 2024, are outlined in the table below. Our net income can be significantly influenced by a variety of external factors, including: overall economic conditions, policies and actions of regulatory authorities, the amounts of and rates at which assets and liabilities reprice, variances in prepayment of loans and securities other than those that are assumed, early withdrawal of deposits, exercise of call options on borrowings or securities, competition, a general rise or decline in interest rates, changes in the slope of the yield curve, changes in historical relationships between indices (such as SOFR and Prime), and balance sheet growth or contraction. Our asset-liability committee seeks to manage interest rate risk under a variety of rate environments by structuring our on-balance sheet and off-balance sheet positions, which includes interest rate swap derivatives as discussed in Note 18 of our consolidated financial statements found in in our Annual Report on Form 10-K for the year ended December 31, 2025. We seek to monitor and manage interest rate risk within approved policy guidelines and limits. Asset and liability modeling and tracking is performed and presented to the asset-liability committee and the Board of Directors no less than quarterly. Such presentations discuss our current and historical interest rate risk posture, shifts in the balance sheet composition, and the impact of interest rate movements on earnings and equity. Our current balance sheet is a moderately asset sensitive profile, our variable rate assets reprice faster than our longer duration, low beta deposit base. Our asset-liability committee monitors our liquidity management. The committee concluded that we possess a strong liquidity profile, and we continue to monitor the Bank’s funding sources and uses on a regular basis. We also have a risk committee, chaired by our Chief Risk Officer, which reports no less than quarterly to senior management as well as our Board of Directors regarding compliance with risk tolerance limits, and key risk factor changes, both internally and externally, due to portfolio changes as well as market conditions. Our enterprise risk management framework is governed by this committee, with input being provided by line of business managers, senior management and the Board. We use simulation analysis to quantify the impact of various rate scenarios on our net interest income. Specific cash flows, repricing characteristics, and embedded options of the assets and liabilities held by us are incorporated into the simulation model. Earnings at risk are calculated by comparing the net interest income of a stable interest rate environment to the net interest income of a different interest rate environment in order to determine the percentage change. As of December 31, 2025, our net interest income profile (in both dollars and percentage) remained sensitive to movements in interest rates, with earnings expected to increase when interest rates rise and to decrease when interest rates fall. Furthermore, our overall interest rate sensitivity is significantly lower than it was as of December 31, 2024. The following table summarizes the effect on annual income before income taxes based upon an immediate increase or decrease in interest rates of 0.5%, 1%, and 2% and no change in the slope of the yield curve. We experienced a notable flattening of our interest rate risk profile over last year due to the fixed rate consumer loan portfolio from the Bancorp Financial acquisition.
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Table of Contents 68 Analysis of Net Interest Income Sensitivity Immediate Changes in Rates (Dollars in thousands) (2.0)% (1.0)% (0.5)% 0.5% 1.0% 2.0% December 31, 2025 Dollar change $ (35,505) $ (18,190) $ (9,026) $ 8,817 $ 17,732 $ 31,490 Percent change (10.6)% (5.4)% (2.7)% 2.6% 5.3% 9.4% December 31, 2024 Dollar change $ (38,905) $ (19,660) $ (9,740) $ 9,513 $ 19,168 $ 35,813 Percent change (15.0)% (7.6)% (3.7)% 3.7% 7.4% 13.8% The amounts and assumptions used in the simulation model should not be viewed as indicative of expected actual results. Actual results will differ from simulated results due to timing, magnitude, balance sheet composition and frequency of interest rate changes as well as changes in market conditions and management strategies. The above results do not take into account any management action to mitigate potential risk. Effects of Inflation In management’s opinion, changes in interest rates affect our financial condition to a far greater degree than changes in the inflation rate; however, we monitor both. The annual U.S. inflation rate for December 2025 was 2.4%, down from 3.0% quarter-over- quarter, while Core CPI further reduced to 2.7%. Management believes the inflation rate will moderate at the current level, an acceptable level by the FRB. The downside risks of high inflation put upwards pressure on our expenses, which could impact our profits. Furthermore, higher costs of living may weaken the financial condition of our borrowers which could affect our credit profile. Inflation at the levels currently experienced has a minimal impact to our financial results.
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Table of Contents 69 Item 8. Financial Statements and Supplementary Data Old Second Bancorp, Inc. and Subsidiaries Consolidated Balance Sheets December 31, 2025 and 2024 (In thousands, except share data) December 31, December 31, 2025 2024AssetsCash and due from banks $ 51,665 $ 52,175Interest earning deposits with financial institutions 72,360 47,154Cash and cash equivalents 124,025 99,329Securities available-for-sale, at fair value 1,090,523 1,161,701Federal Home Loan Bank Chicago (“FHLBC”) and Federal Reserve Bank Chicago (“FRBC”) stock 32,025 19,441Loans held-for-sale 3,645 1,556Loans 5,252,131 3,981,336Less: allowance for credit losses on loans 72,301 43,619Net loans 5,179,830 3,937,717Premises and equipment, net 86,645 87,311Other real estate owned, net 1,427 21,617Mortgage servicing rights, at fair value 9,459 10,374Goodwill 129,196 93,260Core deposit intangible ("CDI") 23,692 22,031Bank-owned life insurance (“BOLI”) 130,481 112,751Deferred tax assets, net 31,276 26,619Other assets 60,451 55,670 Total assets $ 6,902,675 $ 5,649,377 LiabilitiesDeposits:Noninterest bearing demand $ 1,739,117 $ 1,704,920Interest bearing:Savings, NOW, and money market 2,745,540 2,315,134Time 1,111,412 748,677Total deposits 5,596,069 4,768,731Securities sold under repurchase agreements 23,769 36,657Other short-term borrowings 215,000 20,000Junior subordinated debentures 25,774 25,773Subordinated debentures 59,552 59,467Notes payable and other borrowings 14,825 -Other liabilities 70,918 67,715Total liabilities 6,005,907 4,978,343 Stockholders’ EquityCommon stock 53,015 44,908Additional paid-in capital 341,451 205,284Retained earnings 537,231 469,165Accumulated other comprehensive loss, net (28,738) (47,748)Treasury stock (6,191) (575) Total stockholders’ equity 896,768 671,034 Total liabilities and stockholders’ equity $ 6,902,675 $ 5,649,377 December 31, 2025 December 31, 2024Common CommonStock Stock Par value $ 1.00 $ 1.00 Shares authorized 120,000,000 60,000,000 Shares issued 53,015,496 44,907,619 Shares outstanding 52,669,224 44,873,467 Treasury shares 346,272 34,152 See accompanying notes to consolidated financial statements.
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Table of Contents 70 Old Second Bancorp, Inc. and Subsidiaries Consolidated Statements of Income Years Ended December 31, 2025, 2024 and 2023 (In thousands, except per share data) Year Ended December 31, 2025 2024 2023Interest and dividend incomeLoans, including fees $ 305,775 $ 253,319 $ 244,187Loans held-for-sale 127 94 91Securities:Taxable 38,194 34,656 37,940Tax exempt 4,943 5,164 5,329Dividends from FHLBC and FRBC stock 1,517 2,278 1,920Interest bearing deposits with financial institutions 4,625 2,393 2,503Total interest and dividend income 355,181 297,904 291,970Interest expenseSavings, NOW, and money market deposits 27,468 17,866 8,761Time deposits 28,898 20,147 6,636Securities sold under repurchase agreements 229 337 93Other short-term borrowings 1,969 14,607 18,774Junior subordinated debentures 1,152 1,127 1,095Subordinated debentures 2,185 2,185 2,185Senior notes - - 2,408Notes payable and other borrowings 316 - 87 Total interest expense 62,217 56,269 40,039Net interest and dividend income 292,964 241,635 251,931Provision for credit losses 27,553 12,750 16,501Net interest and dividend income after provision for credit losses 265,411 228,885 235,430Noninterest incomeWealth management 13,244 11,426 9,803Service charges on deposits 11,282 10,226 9,817Secondary mortgage fees 372 287 259Mortgage servicing rights mark to market loss (1,918) (723) (1,425)Mortgage servicing income 1,865 1,942 2,029Net gain on sales of mortgage loans 2,291 1,805 1,477Securities gains (losses), net 7 - (4,148)Change in cash surrender value of BOLI 3,197 3,619 2,120Death benefit realized on BOLI 430 905 -Card related income 10,619 10,114 10,051Other income 4,973 4,218 4,196Total noninterest income 46,362 43,819 34,179Noninterest expenseSalaries and employee benefits 124,662 98,025 88,566Occupancy, furniture and equipment 19,054 16,159 14,437Computer and data processing 13,840 9,473 7,277FDIC insurance 2,844 2,543 2,705Net teller & bill paying 2,720 2,244 2,115General bank insurance 1,449 1,268 1,212Amortization of core deposit intangible 4,545 2,440 2,461Advertising expense 1,331 1,243 721Card related expense 6,229 5,555 5,123Legal fees 1,724 1,326 927Consulting & management fees 3,942 2,496 2,415Other real estate expense, net 2,117 2,220 399Other expense 19,565 14,756 16,843 Total noninterest expense 204,022 159,748 145,201Income before income taxes 107,751 112,956 124,408Provision for income taxes 27,441 27,692 32,679 Net income $ 80,310 $ 85,264 $ 91,729 Basic earnings per share $ 1.64 $ 1.90 $ 2.05Diluted earnings per share 1.62 1.87 2.02Dividends declared per share 0.25 0.21 0.20 See accompanying notes to consolidated financial statements.
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Table of Contents 71 Old Second Bancorp, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) Years Ended December 31, 2025, 2024 and 2023 (In thousands) Year Ended December 31, 2025 2024 2023 Net Income $ 80,310 $ 85,264$ 91,729 Unrealized holding gains on available-for-sale securities arising during the period25,565 15,525 35,160 Related tax expense (7,158) (4,347) (9,889) Holding gains, after tax, on available-for-sale securities 18,407 11,178 25,271 Less: Reclassification adjustment for the net gains realized during the period Net realized gains (losses) 7 - (4,148) Related tax (expense) benefit (2) - 1,117 Net realized gains (losses) after tax 5 - (3,031) Other comprehensive income on available-for-sale securities 18,402 11,178 28,302 Changes in fair value of derivatives used for cash flow hedges 844 5,333 2,851 Related tax expense (236) (1,478) (810) Other comprehensive income on cash flow hedges 608 3,855 2,041 Total other comprehensive income 19,010 15,033 30,343 Total comprehensive income $ 99,320 $ 100,297$ 122,072 Accumulated Accumulated Total Unrealized Gain Unrealized Gain Accumulated Other (Loss) on Securities (Loss) on Derivative Comprehensive Available-for -Sale Instruments Income/(Loss) Balance, January 1, 2023 $ (88,892) $ (4,232) $ (93,124) Other comprehensive income, net of tax 28,302 2,041 30,343 Balance, December 31, 2023 $ (60,590) $ (2,191) $ (62,781) Balance, January 1, 2024 $ (60,590) $ (2,191) $ (62,781) Other comprehensive income, net of tax 11,178 3,855 15,033 Balance, December 31, 2024 $ (49,412) $ 1,664 $ (47,748) Balance, January 1, 2025 $ (49,412) $ 1,664 $ (47,748) Other comprehensive income, net of tax 18,402 608 19,010 Balance, December 31, 2025 $ (31,010) $ 2,272 $ (28,738) See accompanying notes to consolidated financial statements.
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Table of Contents 72 Old Second Bancorp, Inc. and Subsidiaries Consolidated Statements of Cash Flows Years Ended December 31, 2025, 2024 and 2023 (In thousands) Year Ended December 31, 2025 2024 2023 Cash flows from operating activities Net income $ 80,310 $ 85,264$ 91,729 Adjustments to reconcile net income to net cash provided by operating activities: Net premium / discount amortization on securities 1,932 2,651 3,317 Securities (gains)/losses, net (7) - 4,148 Provision for credit losses 27,553 12,750 16,501 Originations of loans held-for-sale (85,717) (58,011) (52,091) Proceeds from sales of loans held-for-sale 84,919 58,818 52,186 Net gains on sales of mortgage loans (2,291) (1,805) (1,477) Mortgage servicing rights mark to market loss 1,918 723 1,425 Net accretion of discount on loans (3,079) (422) (3,067) Net change in cash surrender value of BOLI (3,197) (3,619) (2,120) Net gains on sale of other real estate owned (201) (390) (256) Provision for other real estate owned valuation losses 681 1,744 269 Depreciation of fixed assets and amortization of leasehold improvements6,147 5,591 4,485 Amortization of operating lease right-of-use asset 562 1,129 758 Net gains on disposal and transfer of fixed assets (742) (31) (623) Loss on lease termination - 47 - Amortization of core deposit intangibles 4,545 2,440 2,461 Change in current income taxes receivable 4,324 5,991 (4,872) Deferred tax expense (benefit) 1,593 (1,367) 1,857 Change in accrued interest receivable and other assets 8,781 4,135 (6,639) Accretion of purchase accounting adjustment on time deposits (837) (235) (1,226) Amortization of junior subordinated debentures issuance costs 1 - - Change in accrued interest payable and other liabilities (10,250) 13,486 6,511 Payments on operating lease payable (231) (1,270) (478) Stock based compensation 5,550 3,914 3,603 Net cash provided by operating activities 122,264 131,533 116,401 Cash flows from investing activities Proceeds from maturities and calls, including pay down of securities available-for-sale 279,579 304,167 186,049 Proceeds from sales of securities available-for-sale 125,941 5,331 205,738 Purchases of securities available-for-sale (191,592) (265,496) (13,414) Net (purchases) redemptions of FHLBC/FRBC stock (10,626) 13,914 (12,825) Net change in loans (75,837) 34,710 (197,574) Purchases of BOLI policies (1,050) (1,050) (590) Proceeds from claims on BOLI, net of claims receivable 433 1,236 - Proceeds from sales of other real estate owned, net of participations 24,699 3,235 2,005 Proceeds from disposition of premises and equipment 2,248 - 4,542 Net purchases of premises and equipment (4,505) (10,787) (12,376) Cash received from acquisition, net 10,529 237,441 - Net cash provided by investing activities 159,819 322,701 161,555 Cash flows from financing activities Net change in deposits (404,347) (69,776) (538,751) Net change in securities sold under repurchase agreements (12,888) 10,187 (5,686) Net change in other short-term borrowings 179,500 (385,000) 315,000 Repayment of term note - - (9,000) Repayment of senior notes - - (45,000) Dividends paid on common stock (12,240) (9,413) (8,946) Purchase of treasury stock (7,412) (1,048) (605) Net cash used in financing activities (257,387) (455,050) (292,988) Net change in cash and cash equivalents 24,696 (816) (15,032) Cash and cash equivalents at beginning of period 99,329 100,145 115,177 Cash and cash equivalents at end of period $ 124,025$ 99,329$ 100,145
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Table of Contents 73 Old Second Bancorp, Inc. and Subsidiaries Consolidated Statements of Cash Flows – Continued Years Ended December 31, 2025, 2024 and 2023 Year Ended December 31, Supplemental cash flow information 2025 2024 2023 Income taxes paid, net $ 20,692 $ 22,960 $ 35,662 Interest paid for deposits 54,902 36,915 14,210 Interest paid for borrowings 5,624 18,360 24,238 Operating leases recognized 1,654 1,250 6,745 Supplemental non-cash disclosures: Transfer of loans to other real estate owned 4,989 21,083 5,580 Transfer of fixed assets to other assets 1,404 1,129 582 Total fair value of assets acquired in purchase of Bancorp Financial, net of cash1,367,855 - - Total fair value of liabilities assumed in purchase of Bancorp Financial 1,273,800 - - Total fair value of assets acquired in branch purchase from First Merchants, net of cash- 24,356 - Total fair value of liabilities assumed in branch purchase from First Merchants(28) 268,581 - See accompanying notes to consolidated financial statements.
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Table of Contents 74 Old Second Bancorp, Inc. and Subsidiaries Consolidated Statements of Changes in Stockholders’ Equity Years Ended December 31, 2025, 2024 and 2023 (In thousands) AccumulatedAdditional Other TotalCommon Paid-In Retained Comprehensive Treasury Stockholders’ Stock Capital Earnings Income (Loss) Stock EquityBalance, January 1, 2023 $ 44,705 $ 202,276 $ 310,512 $ (93,124) $ (3,228) $ 461,141Net income 91,729 91,729Other comprehensive income, net of tax 30,343 30,343Dividends declared on common stock, ($0.20 per share) (8,930) (8,930)Vesting of restricted stock (3,656) 3,656 -Stock based compensation 3,603 3,603Purchase of treasury stock from taxes withheld on stock awards (605) (605) Balance, December 31, 2023 $ 44,705 $ 202,223 $ 393,311 $ (62,781) $ (177) $ 577,281 Balance, January 1, 2024 $ 44,705 $ 202,223 $ 393,311 $ (62,781) $ (177) $ 577,281Net income 85,264 85,264Other comprehensive income, net of tax 15,033 15,033Dividends declared on common stock, ($0.21 per share) (9,410) (9,410)Vesting of restricted stock 203 (853) 650 -Stock based compensation 3,914 3,914Purchase of treasury stock from taxes withheld on stock awards (1,048) (1,048) Balance, December 31, 2024 $ 44,908 $ 205,284 $ 469,165 $ (47,748) $ (575) $ 671,034 Balance, January 1, 2025 $ 44,908 $ 205,284 $ 469,165 $ (47,748) $ (575) $ 671,034Net income 80,310 80,310Other comprehensive income, net of tax 19,010 19,010Dividends declared on common stock, ($0.25 per share) (12,244) (12,244)Acquisition, Bancorp Financial 7,921 132,599 140,520Vesting of restricted stock 186 (1,982) 1,796 -Stock based compensation 5,550 5,550Purchase of treasury stock from taxes withheld on stock awards (1,528) (1,528)Purchase of treasury stock from stock repurchase program (5,884) (5,884) Balance, December 31, 2025 $ 53,015 $ 341,451 $ 537,231 $ (28,738) $ (6,191) $ 896,768 See accompanying notes to consolidated financial statements.
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Table of Contents 75 Old Second Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements December 31, 2025, 2024 and 2023 (Table amounts in thousands, except per share data) Note 1: Summary of Significant Accounting Policies Nature of Operations - Old Second Bancorp, Inc. (the “Company”) is a corporation organized under the laws of the State of Delaware in 1981 that serves as the bank holding company for its wholly-owned subsidiary bank, Old Second National Bank. Old Second National Bank (the “Bank”) is a national banking association headquartered in Aurora, Illinois, that operates through 55 banking centers located in Cook, DeKalb, DuPage, Kane, Kendall, LaSalle and Will counties in Illinois. The Bank is a full-service banking business, offering a broad range of deposit products, trust and wealth management services, and lending services, including commercial, residential and consumer loans. We also offer a full complement of electronic banking services, such as online and mobile banking and corporate cash management products. The consolidated financial statements of the Company include the financial statements of the Bank and its wholly-owned subsidiaries, River Street Advisors, LLC, an investment advisory/management service company, Old Second Affordable Housing Fund, L.L.C., which provides down payment assistance for home ownership to qualified individuals, and Station I, LLC, Station II, LLC, and Station III, LLC, which hold property acquired by the Bank through foreclosure or in the ordinary course of collecting a debt previously contracted with borrowers. The Company uses the accrual basis of accounting for financial reporting purposes. Use of Estimates – The preparation of consolidated financial statements in conformity with generally accepted accounting principles (“GAAP”) and following general practices within the banking industry requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Although these estimates and assumptions are based on the best available information, actual results could differ from those estimates. Material estimates which could differ in the short-term include the fair value of assets acquired and liabilities assumed in business combinations, goodwill, fair value of financial instruments, and the level of the ACL. Principles of Consolidation – The accompanying consolidated financial statements include the accounts and results of operations of the Company and its subsidiaries after elimination of all significant intercompany accounts and transactions. Assets held in a fiduciary or agency capacity are not assets of the Company or its subsidiaries and are not included in the consolidated financial statements. Segment Reporting – The Company has one operating segment, which is community banking. While our management monitors the revenue streams of our various products and services, the Company’s operations are managed and financial performance is evaluated on a company-wide basis. Accordingly, all of the Company’s operations are considered to be aggregated in one reportable segment. Concentration of Credit Risk – Most of the Company’s business activity is with customers located within Cook, DeKalb, DuPage, Kane, Kendall, LaSalle and Will counties in Illinois. These banking centers surround or are within the Chicago metropolitan area. Therefore, the Company’s exposure to credit risk is significantly affected by changes in the economy in that market area since the Bank generally makes loans within this market. There are no significant concentrations of loans where the customers’ ability to honor loan terms is dependent upon a single economic sector. Cash and Cash Equivalents – For purposes of the Consolidated Statements of Cash Flows, management has defined cash and cash equivalents to include cash and due from banks, interest-earning deposits in other financial institutions, and other short-term investments, such as federal funds sold and securities purchased under agreements to resell. The classification of cash and cash equivalents includes those assets held in the form of cash or liquid instruments with an original maturity of 90 days or less. Securities – All of the Company’s securities are classified as available-for-sale, and are carried at fair value, with unrealized gains or losses, net of tax, recorded in stockholders’ equity as a separate component of accumulated other comprehensive loss, net. Realized securities gains or losses, which are reported in securities gains (losses), net, in the Consolidated Statements of Income, are recognized on a trade date basis and are determined using the specific identification method. Discounts are accreted into interest income over the estimated life of the related security and premiums are amortized into income to the earlier of the call date or estimated life of the related security using the level yield method. The Company has made a policy election to exclude accrued interest income from the amortized cost basis of available-for-sale debt securities and report accrued interest separately in other assets in the Consolidated Balance Sheets. A debt security is placed on nonaccrual status at the time we no longer expect to receive all contractual amounts due, which is generally at 90 days past due. Accrued interest for a security placed on nonaccrual is reversed against interest income. Accordingly, we do not recognize an allowance for credit loss against accrued interest receivable.
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Table of Contents 76 For available-for-sale debt securities in an unrealized loss position, we first assess whether we intend to sell, or it is more likely than not that we will be required to sell the security, prior to the recovery of its amortized cost basis. If either of the above criteria is met, the security’s amortized cost basis is written down to fair value through earnings. When the criteria above is not met, we evaluate whether the decline in fair value is the result of credit losses or other factors. In making this assessment, we review changes to the rating of the security by a rating agency, an increase in defaults on the underlying collateral, and the extent to which the securities are issued by the federal government or its agencies, including the amount of the guarantee issued by those agencies, among other factors. If this assessment indicates that a credit loss exists, we compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for credit losses is recorded through earnings, limited to the amount that the fair value of the security is less than its amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized net of taxes in other comprehensive loss, net. Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectibility of an available for sale debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Federal Home Loan Bank and Federal Reserve Bank Stock – The Company owns the stock of the Federal Home Loan Bank of Chicago (“FHLBC”) and the Federal Reserve Bank of Chicago (“FRBC”). Both of these entities require the Bank to invest in their nonmarketable stock as a condition of membership. The FHLBC is a governmental sponsored entity. The Bank continues to utilize the various products and services of the FHLBC and management considers this stock to be a long-term investment. FHLBC members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLBC stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. The Company’s ability to redeem the shares owned is dependent on the redemption practices of the FHLBC. The Company records dividends in income on the ex-dividend date. FRBC stock is redeemable at par, and therefore fair value equals cost. Loans Held-for-Sale – The Bank originates residential mortgage loans, which consist of loan products eligible for sale to the secondary market. Residential mortgage loans eligible for sale in the secondary market are carried at fair market value. The fair value of loans held-for-sale is determined using quoted secondary market prices on similar loans. Loans – Loans held-for-investment are carried at the principal amount outstanding, net of premiums and discounts associated with acquisition date fair value adjustments on acquired loans, deferred loan fees and costs, and any direct principal charge-offs. The Company has made a policy election to exclude accrued interest from the amortized cost basis of loans and report accrued interest separately from the related loan balance in other assets in the Consolidated Balance Sheets. The Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination. Evidence of credit deterioration was evaluated using various indicators, such as past due and nonaccrual status, as well as asset quality ratings. Purchased credit deteriorated (“PCD”) loans are recorded at the amount paid. An allowance for credit losses is determined using the same methodology as other loans held for investment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and initial allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is accreted or amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through provision for credit losses. Interest income on loans is accrued based on principal amounts outstanding. Loan and lease origination fees, commitment fees, and certain direct loan origination costs are deferred and amortized over the life of the related loans or commitments as a yield adjustment. Fees related to standby letters of credit, whose ultimate exercise is remote, are amortized into fee income over the estimated life of the commitment. Other related fees are recognized as fee income when earned. Past Due and Nonaccrual Loans Loans are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement or any portion thereof remains unpaid after the due date of the scheduled payment. Generally, loans are placed on nonaccrual status (i) when either principal or interest payments become 90 days or more past due based on contractual terms unless the loan is sufficiently collateralized such that full repayment of both principal and interest is expected and is in the process of collection within a reasonable period or (ii) when an individual analysis of a borrower’s creditworthiness indicates a credit should be placed on nonaccrual status whether or not the loan is 90 days or more past due. Powersport loans are placed on nonaccrual when principal or interest payments become 120 days past due. When a loan is placed on nonaccrual status, unpaid interest credited to income is reversed. Interest received on such loans is accounted for on the cash-basis or cost recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Under the cash basis method, interest income is recorded when the payment is received in cash. Nonaccrual loans are returned to accrual status when the financial position of the borrower and other relevant factors indicate there is no longer doubt that the Company will collect all principal and interest due.
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Table of Contents 77 Allowance for Credit Losses (“ACL”) ACL on Loans The ACL on loans is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on loans. The Company’s estimate of the ACL for loans reflects losses expected over the remaining contractual life of the loans. The contractual term does not consider extensions, renewals or modifications. Determination of the ACL on loans is inherently subjective in nature since it requires significant estimates and management judgment, and includes a level of imprecision given the difficulty of identifying and assessing the factors impacting loan repayment and estimating the timing and amount of losses. While management utilizes its best judgment and information available, the ultimate adequacy of the ACL is dependent upon a variety of factors beyond the Company’s direct control, including, but not limited to, the performance of the loan portfolio, consideration of current economic trends, changes in interest rates and property values, estimated losses on pools of homogeneous loans based on an analysis that uses historical loss experience for prior periods that are determined to have like characteristics with the current period such as pre-recessionary, recessionary, or recovery periods, portfolio growth and concentration risk, management and staffing changes, the interpretation of loan risk classifications by regulatory authorities and other credit market factors. While each component of the ACL on loans is determined separately, the entire balance is available for the entire loan portfolio. The ACL methodology consists of measuring loans on a collective (pool) basis when similar risk characteristics exist. The Company utilizes historical loss rates from prior periods which align to management’s unemployment projections for the next twelve months. If management determines that loss rates do not align with projected losses during the forecast period, qualitative overlays may be utilized to align historical loss rates to expectations during the forecast period. The type of credit composition and risk characteristics of each portfolio segment are as follows: Commercial loans – Such credits typically comprise working capital loans, loans for physical asset expansion, asset acquisition loans and other commercial and industrial business loans. Loans to closely held businesses will generally be guaranteed in full or for a meaningful amount by the businesses’ major owners. Commercial loans are made based primarily on the historical and projected cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not behave as forecasted and collateral securing loans may fluctuate in value due to economic or individual performance factors. Minimum standards and underwriting guidelines have been established for all commercial loan types. The Company classifies five different risk levels for this segment to assign a loss rate based on historical losses. Leases – Lease financing receivables are subject to underwriting standards and processes similar to commercial loans. These loans are often secured by equipment or transportation assets, and are made based primarily on the historical and projected cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not behave as forecasted and collateral securing loans may fluctuate in value due to economic or individual performance factors. Real estate - commercial loans – Real estate - commercial loans are subject to underwriting standards and processes similar to commercial and industrial loans. These are loans secured by mortgages on real estate collateral. Commercial real estate loans (CRE) are viewed primarily as cash flow loans and the repayment of these loans is largely dependent on the successful operation of the property. Loan performance may be adversely affected by factors impacting the general economy or conditions specific to the real estate market, such as geographic location and/or property type. The real estate – commercial segments utilized for the ACL on loans are: ● CRE owner occupied – the Company classifies five different risk levels within this segment to assign a loss rate based on historical losses, as well as utilizing a forecasted average unemployment rate and Gross Domestic Product (“GDP”) for the next twelve months as a loss driver. ● CRE investor – the Company classifies five different risk levels within this segment to assign a loss rate based on historical losses, as well as utilizing a forecasted average unemployment rate and GDP for the next twelve months as a loss driver. The primary difference between this segment and CRE owner occupied is within the slightly elevated historical loss rates. Real estate - construction loans – The Company defines real estate - construction loans as loans where the loan proceeds are controlled by the Company and used exclusively for the improvement or development of real estate in which the Company holds a mortgage. Due to the inherent risk in this type of loan, they are subject to other industry specific policy guidelines outlined in the Company’s Credit Risk Policy and are monitored closely.
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Table of Contents 78 Real estate - residential loans – These are loans that are extended to purchase or refinance family residential dwellings. Residential real estate loans are considered homogenous in nature. Homes may be the primary or secondary residence of the borrower or may be investment properties of the borrower. The real estate – residential segments utilized for the ACL on loans are: ● Residential owner-occupied – these loans are secured by 1-4 family residential dwellings that are primary or secondary residences and the Company holds a first lien position. ● Residential investor – these loans are secured by 1-4 family residential dwellings that are not a primary or secondary residence and the Company holds a first lien position. The Company applies historical loss rates from periods with like characteristics as the current period, with a slightly longer remaining life than other segments, but shorter duration than residential owner-occupied. ● Multifamily – these loans are secured by 5+ unit residential dwellings and the Company typically holds a first lien position. The Company classifies five different risk levels within this segment to assign a loss rate based on historical losses. Home equity lines of credit (“HELOCs”) – These are lines of credit that are extended to refinance 1-4 family residential dwellings, or to finance the borrower’s needs and collateralized by the borrower’s residence. These lines may be fixed or variable in nature, and the home serving as collateral may also have a first lien outstanding. The Company’s historical loss rates are utilized from the prior periods which align to the current unemployment projections for the next twelve months. Powersport loans – Powersport loans consist of recreational vehicles such as motorcycles, ATVs, UTVs, snowmobiles and personal watercraft, with financing provided through a nationwide network of third-party dealers. The Company’s loss rates are determined by tracking losses within each origination vintage over time and then applying historical experience to project future losses for the remainder of each loan’s life. Management utilizes the Feds Fund rate to help determine how loan vintages will perform and has classified loans according to four origination tiers determined by the borrower’s FICO score at origination. Consumer loans – Consumer loans include loans extended primarily for consumer and household purposes and includes portfolios acquired with Evergreen for the purpose of financing solar panels, collector cars and manufactured homes. These also include overdrafts and other items not captured by the definitions above. The methodologies used for calculating the ACL on each loan segment include (i) a migration analysis for commercial, CRE owner occupied, CRE investor, and multifamily segments; (ii) a static pool analysis for construction, leases, residential investor, residential owner occupied and the HELOC segments; (iii) vintage methodology is used for powersport loans, and (iv) a WARM (weighted average remaining maturity) methodology is used for consumer segments. The qualitative factors applied to each loan portfolio consist of the impact of other internal and external qualitative and credit market factors as assessed by management through a detailed loan review, ACL analysis and credit discussions. These internal and external qualitative and credit market factors include: ● changes in lending policies and procedures, including changes in underwriting standards and collections, charge-offs and recovery practices; ● changes in international, national, regional, and local conditions (specific factors which impact portfolios or discrepancies with national economic factors which are utilized within the economic forecast); ● changes in the experience, depth and ability of lending management; ● changes in the volume and severity of past due loans and other similar loan conditions; ● changes in the nature and volume of the loan portfolio and terms of loans; ● the existence and effect of any concentrations of credit and changes in the levels of such concentrations (this characteristic requires any portfolio exceeding 25% of capital to have a factor considered unless the pool is otherwise well diversified or holds a relatively low inherent risk); ● effects of other external factors, such as competition, legal or regulatory factors, on the level of estimated credit losses; ● changes in the quality of our loan review functions; and ● changes in the value of underlying collateral for collateral dependent loans. The impact of the above listed internal and external qualitative and credit market risk factors is assessed within predetermined ranges to adjust the ACL totals calculated. Changes in the above factors are assessed no less than quarterly, and directly impact the total estimated credit losses recorded. Loans that do not share risk characteristics are evaluated on an individual basis. Such loans evaluated individually are not also included in the collective evaluation. The amount of expected credit loss is measured based upon the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the underlying collateral less applicable selling costs. When management determines that foreclosure is probable, the amount of credit loss is determined using the fair value of collateral, less costs to sell.
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Table of Contents 79 Loans are generally charged off against the ACL when management believes the uncollectibility of a loan balance is confirmed, while recoveries of amounts previously charged-off are credited to the ACL. For consumer portfolios, including powersport loans, loans are generally charged off after principal or interest is 120 days or more past due. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged off. Approved releases from previously established ACL reserves authorized under our ACL methodology also reduce the ACL. Additions to the ACL are established through the provision for credit losses on loans, which is charged to expense. The Company’s ACL methodology is intended to reflect all loan portfolio risk, but management recognizes the inability to accurately depict all future credit losses in a current ACL estimate, as the impact of various factors cannot be fully known. Accrued interest receivable on loans is excluded from the amortized cost basis of financing receivables for the purpose of determining the allowance for credit losses. ACL on Unfunded Loan Commitments The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk by a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The ACL related to off-balance sheet credit exposures, which is within other liabilities on the Company’s Consolidated Balance Sheets, is estimated at each balance sheet date under the CECL model, and is adjusted as determined necessary through the provision for credit losses on the income statement. The estimate for ACL on unfunded loan commitments includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. Premises and Equipment – Premises, furniture, equipment, and leasehold improvements are stated at cost less accumulated depreciation and amortization. Depreciation expense is determined by the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized on a straight-line basis over the shorter of the life of the asset or the lease term including anticipated renewals. Rates of depreciation are generally based on the following useful lives: buildings, 25 to 40 years; building improvements, 3 to 15 years or longer under limited circumstances; and furniture and equipment, 3 to 10 years. Fixed Assets Held for Sale totaling $371,000 are reported within other assets in the Consolidated Balance Sheets. Gains and losses on dispositions are included in other noninterest expense in the Consolidated Statements of Income. Maintenance and repairs are charged to operating expenses as incurred, while improvements that conform to definitions of tangible property improvements are capitalized and depreciated over the estimated remaining life. Whenever events or changes in circumstances dictate, the Company tests its long-lived assets for impairment by determining whether the sum of the estimated undiscounted future cash flows attributable to a long-lived asset or asset group is less than the carrying value of the long-lived asset or asset group through a probability-weighted approach. In the event the carrying amount of the long-lived asset or asset group is not recoverable, an impairment loss is measured as the amount by which the carrying amount of the long-lived asset or asset group exceeds its fair value. All of the Company’s leases are classified as operating leases at inception. The Company leases certain branch locations and equipment; leased equipment is primarily Automated Teller Machines (ATMs). The Company records leases on the balance sheet in the form of a lease liability at the present value of future minimum payments under the terms of the lease and as a right-of-use asset equal to the lease liability adjusted for items such as deferred or prepaid rent, lease incentives, and any impairment of the right-of-use asset if it should arise. The discount rate used in determining the lease liability is based on the incremental borrowing rates the Company could obtain for similar loans as of the date of the commencement or renewal. The Company does not record short-term leases with an initial lease term of one year or less on the Consolidated Balance Sheets. Lease right-of-use assets and lease liabilities are included in other assets and other liabilities, respectively. At lease inception, the Company determines the lease term by considering the noncancelable lease term and all option renewal periods the Company deems reasonably certain to renew. The lease term is also used to calculate the straight-line basis. Leasehold improvements are amortized over the shorter of the useful life or the estimated lease term. Operating lease expense consists of a single lease cost allocated over the remaining lease term on a straight-line basis, and any impairment of the right-of-use asset. Lease expense is included in occupancy, furniture, and equipment on the Company’s Consolidated Statements of Income. The Company’s variable lease expense includes items such as common area maintenance, utilities, parking, and property taxes, which are reported within occupancy, furniture, and equipment on the Consolidated Statements of Income.
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Table of Contents 80 Other Real Estate Owned (“OREO”) – Real estate assets acquired in settlement of loans are recorded at the fair value of the property when acquired, less estimated costs to sell, establishing a new cost basis. Physical possession of residential real estate property collateralizing a consumer mortgage loan occurs when legal title is obtained upon foreclosure or when the borrower conveys all interest in the property to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Any deficiency between the net book value and fair value at the foreclosure or deed in lieu date is charged to the ACL. Any reduction in OREO carrying value within 90 days of transfer to OREO would be charged to the ACL. If the fair value of the property when acquired, less estimated costs to sell, is greater than the net book value of the loan, a gain on transfer is recorded. If a determination is made more than 90 days after the transfer to OREO that the fair value for the OREO property has declined, an OREO valuation allowance is established for the decrease between the recorded value and the updated fair value less costs to sell. Such declines are included in other noninterest expense in the Consolidated Statements of Income. A subsequent reversal of an OREO valuation adjustment can occur, but the resultant carrying value cannot exceed the cost basis established at transfer of the loan to OREO. Operating costs after acquisition are also expensed. Mortgage Servicing Rights (“MSRs”) – The Bank is also involved in the business of servicing mortgage loans. Servicing activities include collecting principal, interest, and escrow payments from borrowers, making tax and insurance payments on behalf of the borrowers, monitoring delinquencies, executing foreclosure proceedings, and accounting for and remitting principal and interest payments to the investors. MSRs represent the right to a stream of cash flows and an obligation to perform specified residential mortgage servicing activities. Mortgage loans that the Company is servicing for others aggregated to $699.6 million and $709.1 million at December 31, 2025, and 2024, respectively. Mortgage loans that the Company is servicing for others are not included in the Consolidated Balance Sheets. Fees received in connection with servicing loans for others are recognized as earned. Loan servicing costs are charged to expense as incurred. Servicing rights are recognized separately as assets when they are acquired through sales of loans and servicing rights are retained. Servicing rights are initially recorded at fair value with the effect recorded in net gains on sales of mortgage loans in the Consolidated Statements of Income. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. Servicing fee income, which is included in the Consolidated Statements of Income as mortgage servicing income, is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. Under the fair value measurement method, the Company measures mortgage servicing rights at fair value at each reporting date, reports changes in fair value of servicing assets in earnings in the period in which the changes occur, and includes these changes in MSRs mark to market values in the Consolidated Statements of Income. The fair values of MSRs are subject to significant fluctuations as a result of interest rates, changes in estimated and actual prepayment speeds and default rates and losses. Transfers of Financial Assets – The Company accounts for transfers and servicing of financial assets in accordance with FASB ASC 860, Transfers and Servicing. Transfers of financial assets are accounted for as sales only when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free from conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. Transfers of a portion of a loan must meet the criteria of a participating interest. If it does not meet the criteria of a participating interest, the transfer must be accounted for as a secured borrowing. In order to meet the criteria for a participating interest, all cash flows from the loan must be divided proportionately, the rights of each loan holder must have the same priority, and the loan holders must have no recourse to the transferor other than standard representations and warranties and no loan holder has the right to pledge or exchange the entire loan. The Company sells financial assets in the normal course of business, the majority of which are related to residential mortgage loan sales through established programs, and commercial loan sales through participation agreements. In accordance with accounting guidance for asset transfers, the Company considers any ongoing involvement with transferred assets in determining whether the assets can be derecognized from the balance sheet. With the exception of servicing and certain performance-based guarantees, the Company’s continuing involvement with financial assets sold is minimal and generally limited to market customary representation and warranty clauses.
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Table of Contents 81 When the Company sells financial assets, it may retain servicing rights and/or other interests in the financial assets. The gain or loss on sale depends on the previous carrying amount of the transferred financial assets, the servicing right recognized, the consideration received, and any liabilities incurred in exchange for the transferred assets. Upon transfer, any servicing assets and other interests held by the Company are carried at the lower of cost or fair value, with the exception of mortgage servicing rights related to sales of residential mortgage loans, which are carried at fair value. Bank-Owned Life Insurance (“BOLI”) – BOLI represents life insurance policies on the lives of certain Company employees (both current and former) for which the Company is the sole owner and beneficiary. These policies are recorded as an asset on the Consolidated Balance Sheets at their cash surrender value (“CSV”) or the amount that could be realized upon immediate liquidation. The change in CSV is recorded as an increase in cash surrender value of BOLI in the Consolidated Statements of Income in noninterest income. In addition, insurance proceeds received, net of the original premium investment, are recorded as death benefit realized on BOLI in the Consolidated Statements of Income in noninterest income. Goodwill and Core Deposit Intangible – Goodwill is the excess of an acquisition’s purchase price over the fair value of identified net assets acquired in an acquisition and is evaluated at least annually for impairment. The Company performs its annual evaluation for goodwill impairment at November 30 each year and may elect to perform a quantitative or qualitative analysis or first conduct a qualitative analysis to determine if a quantitative analysis is necessary. In addition, the Company evaluates goodwill impairment on an interim basis if events or changes in circumstances indicate the asset might be impaired. The factors reviewed by the Company when completing a qualitative analysis include, but are not limited to, macroeconomic data, industry specific data, current market conditions, and the Company’s overall financial performance. The Company did not identify any events requiring more than its interim evaluation of goodwill impairment during the year ended December 31, 2025. The Company performed a quantitative assessment as of November 30, 2025, which resulted in the fair value of the Company exceeding the carrying value; therefore, it was determined goodwill was not impaired as of the measurement date. On November 30, 2024, the Company performed a qualitative assessment of goodwill from which we concluded it was more likely than not that goodwill was not impaired as of the measurement date. A quantitative assessment is performed every third year as a matter of periodic practice rather than as a response to a qualitative assessment or triggering event. The core deposit intangible (“CDI”) is being amortized on an accelerated method over a ten year estimated useful life. As of December 31, 2025, CDI totaled $23.7 million compared to $22.0 million at December 31, 2024. The total CDI amount reflects the acquisition of Bancorp Financial in 2025, the transaction with First Merchants Bank in 2024, the acquisition of West Suburban in 2021 as well as ABC Bank in 2018. Total CDI amortization expense of $4.5 million, $2.4 million, and $2.5 million was recorded in 2025, 2024, and 2023, respectively. The expected future annual amortization expense for each of the next five years (2026-2030) is approximately $4.6 million, $4.2 million, $3.7 million, $3.3 million, and $2.9 million, respectively. Debt Issuance Costs – Costs associated with the issuance of debt are presented in the Consolidated Balance Sheets as a direct reduction from the carrying value of that debt liability. The deferred issuance costs are amortized over the life of the related debt instrument, and included within the debt’s interest expense. Loss Contingencies – Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are such matters that will have a material effect on the financial statements. Noninterest Income – The Company recognizes revenue when the performance obligations related to the transfer of goods or services are satisfied. Certain obligations are satisfied at one point in time, while other obligations may be satisfied over a period of time. Revenues are segregated based on the nature of the product or service offered. Wealth management fees, service charges on deposits and card related income are included as components of noninterest income in the Consolidated Statements of Income. Wealth management – includes fees generated from personal, commercial and institutional clients. The Company also provides asset management services, cash management services and income tax reporting. Revenue is recognized over the period of time in which these services are performed. Service charges on deposits – includes fees and income received by the Company for performing various services, such as deposit account maintenance fees, overdraft coverage and processing fees, stop payment charges, and other deposit account related services. Revenue is recognized based on the service agreement in place, and is recorded when the service is provided to the customer. This item is net of any service charge refunds or return charge refunds.
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Table of Contents 82 Card related income – includes interchange fees earned on debit cards and credit cards, ATM/ITM related fee income, and gift card related income. The Company recognizes card related income when the cardholder’s transaction with the merchant or ATM/ITM occurs, thus satisfying the performance obligation. Card related expenses, such as disbursements to the payment network, reward program costs, and other operational costs are carried within card related expense, as a component of noninterest expense, on the Consolidated Statements of Income. Advertising Costs – All advertising costs incurred by the Company are expensed in the period in which they are incurred. Equity Incentive Plan – Compensation cost is recognized for restricted stock awards issued to employees based upon the fair value of the awards at the date of grant. The market price of the Company’s common stock at the date of grant is used for restricted stock awards, which include restricted stock units (“RSUs”) and performance based restricted stock units (“PRSUs”). Compensation cost is recognized over the required service period, generally defined as the vesting period, and is net of a 5% forfeiture assumption for group grants. The PRSU’s are measured based on the specific performance metrics approved by our board of directors. The PRSUs have a payout range from 0% of target for below threshold performance, 25% of target for threshold performance, 100% of target for target performance and 175% of target for maximum performance. PRSUs are amortized during the year granted assuming 100% performance will be achieved, and evaluated annually compared to the target metrics to determine the most likely threshold achievement level attained. Upon vesting, compensation costs for the award expense is trued up based on actual forfeitures incurred. Once the award is settled, the Company would determine whether the cumulative tax deduction exceeded the cumulative compensation cost recognized in the Consolidated Statements of Income. The cumulative tax deduction would include both the deductions from the dividends and the deduction from the exercise or vesting of the award. If the tax benefit received from the cumulative deductions exceeds the tax effect of the recognized cumulative compensation cost, the excess would be recognized as a credit to income tax expense. Income Taxes – The Company files income tax returns in the U.S. federal jurisdiction, and in many states; however, Illinois comprises over 50% of our state and local taxes paid. The provision for income taxes is based on income in the consolidated financial statements, rather than amounts reported on the Company’s income tax return. Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Any change in tax rates will be recorded in the period in which the law is enacted. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates that are expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. As of December 31, 2025 and 2024, the Company evaluated tax positions taken for filings with the Internal Revenue Service and all state jurisdictions in which it operates. The Company believes that income tax filing positions will be sustained under examination and does not anticipate any adjustments that would result in a material adverse effect on the Company’s financial condition, results of operations, or cash flows. Accordingly, the Company has not recorded any material reserves or related accruals for interest and penalties for uncertain tax positions at December 31, 2025 and 2024. The Company is no longer subject to examination by the Internal Revenue Service for tax years prior to 2022. State statutes vary, but generally, the Company is no longer subject to state tax examinations for tax years ended prior to 2021. Earnings Per Common Share (“EPS”) – Basic EPS is computed by dividing net income applicable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is computed by dividing net income applicable to common stockholders by the weighted-average number of common shares outstanding plus the number of additional common shares that would have been outstanding if the dilutive potential shares had been issued. The Company’s potential common shares represent shares issuable under its equity incentive plan. Treasury Stock – Treasury stock acquired is recorded at cost and is carried as a reduction of stockholders’ equity in the Consolidated Balance Sheets. Treasury stock issued is valued based on the “last in, first out” inventory method. The difference between the consideration received upon issuance and the carrying value is charged or credited to additional paid-in capital. Derivative Financial Instruments – The Company occasionally enters into derivative financial instruments as part of its interest rate risk management strategies. These derivative financial instruments consist primarily of interest rate swaps. The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and whether the Company has elected to designate a derivative as a hedging relationship and apply hedge accounting. A further consideration involves a determination on whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain risks, even though hedge accounting does not apply, or the Company elects not to apply hedge accounting.
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Table of Contents 83 If it is determined that the derivative instrument is not highly effective as a hedge, hedge accounting is discontinued, and the adjustment to fair value of the derivative instrument is recorded in earnings. For a derivative used to hedge changes in cash flows associated with forecasted transactions, the gain or loss on the effective portion of the derivative is deferred and reported as a component of accumulated other comprehensive income, which is a component of stockholders’ equity, until such time the hedged transaction affects earnings. For derivative instruments not accounted for as hedges, changes in fair value are recognized in noninterest income/expense. Counterparty risk with loan customers is managed through loan covenant agreements and, as such, does not have a significant impact on the fair value of the swaps. Counterparty risk with other banks is managed through bilateral collateralization agreements. Deferred gains and losses from derivatives not accounted for as hedges and that are terminated are amortized over the shorter of the original remaining term of the derivative or the remaining life of the underlying asset or liability. Comprehensive Income – Comprehensive income is the total of reported earnings for all other revenues, expenses, gains, and losses that are not reported in earnings under GAAP. The Company includes the following items, net of tax, in other comprehensive income in the Consolidated Statements of Comprehensive Income (Loss): (i) changes in unrealized gains or losses on securities available-for-sale, and (ii) the effective portion of a derivative used to hedge cash flows. Recent Accounting Pronouncements – The following is a summary of recent accounting pronouncements that have impacted or could potentially affect the Company: ASU 2023-06 – On October 9, 2023, the FASB issued ASU 2023-06 “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative.” The amendments in the ASU modify the disclosure or presentation requirements of a variety of topics in the codification. Certain of the amendments represent clarifications to, or technical corrections of, the current requirements. Each amendment in the ASU will only become effective if the SEC removes the related disclosure or presentation requirement from its existing regulations by June 30, 2027. The amendments in this ASU are not expected to have a material impact on the financial statements of the Company. ASU 2023-09 – On December 14, 2023, the FASB issued ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The amendments require that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation, and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income (or loss) by the applicable statutory income tax rate). The amendments require that all entities disclose on an annual basis the following information about income taxes paid: (1) The amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes, and (2) The amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5 percent of total income taxes paid (net of refunds received). The amendments also require that all entities disclose the following information: (1) Income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign, and (2) Income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign. The ASU is effective for public business entities for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The amendments should be applied on a prospective basis. Retrospective application is permitted. The Company has elected to retrospectively adopt the expanded disclosure requirements of this ASU in Note 11 - Income Taxes in its annual financial statements as of December 31, 2025, and the ASU did not have a material impact to the financial statements of the Company. ASU 2024-03 – On November 4, 2024, the FASB issued ASU 2024-03 “Income Statement—Reporting Comprehensive Income— Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” This ASU requires public companies to disclose, in the notes to financial statements, specified information about certain costs and expenses at each interim and annual reporting period. Specifically, they will be required to: (1) Disclose the amounts of (a) purchases of inventory; (b) employee compensation; (c) depreciation; (d) intangible asset amortization; and (e) depreciation, depletion, and amortization recognized as part of oil- and gas-producing activities (or other amounts of depletion expense) included in each relevant expense caption. Include certain amounts that are already required to be disclosed under current generally accepted accounting principles (GAAP) in the same disclosure as the other disaggregation requirements. (2) Disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. (3) Disclose the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses. ASU 2024-03 is effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, and is not expected to have a material impact on the financial statements of the Company.
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Table of Contents 84 ASU 2025-01 – On January 6, 2025, the FASB issued ASU 2025-01 “Income Statement—Reporting Comprehensive Income— Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date.” ASU 2024-03 is effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027, which dates were clarified in ASU 2025-01, and is not expected to have a material impact on the financial statements of the Company. ASU 2025-03 – On May 12, 2025, the FASB issued ASU 2024-03 “Business Combinations (Topic 805) and Consolidation (Topic 810): Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity.” This ASU revises current guidance for determining the accounting acquirer for a transaction effected primarily by exchanging equity interests in which the legal acquiree is a variable interest entity that meets the definition of a business. The amendments require an entity to consider the same factors that are currently required for determining which entity is the accounting acquirer in other acquisition transactions. This ASU is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. Early adoption is permitted in an interim or annual reporting period in which financial statements have not yet been issued (or made available for issuance). If an entity adopts ASU No. 2025-03 in an interim reporting period, it should adopt it as of the beginning of that interim reporting period or the beginning of the annual reporting period that includes that interim reporting period. An entity should apply ASU 2025-03 on a prospective basis to all business combinations that have an acquisition date that occurs on or after the date of initial application of ASU 2025-03. ASU 2025-03 is not expected to have a material impact on the financial statements of the Company. ASU 2025-08 – On November 12, 2025, the FASB issued ASU 2025-08 “'Financial Instruments—Credit Losses (Topic 326): Purchased Loans.” The new ASU expands the population of acquired financial assets accounted for using the gross-up approach. Acquired loans (excluding credit cards) are deemed purchased seasoned loans and accounted for using the gross-up approach upon acquisition if criteria established by the new guidance are met. This change aims to enhance comparability, consistency, and better reflect the economics of acquiring financial assets. ASU 2025-08 is effective for interim and annual periods in fiscal years beginning after December 15, 2026, and is applied prospectively. Early adoption is permitted. Because Old Second has not adopted ASU 2025-08 in its historical financial statements, the effects of this standard are not reflected in the unaudited pro forma condensed combined financial information included herein. Old Second has elected not to early adopt ASU 2025-08 at this time. When adopted, the standard will be adopted prospectively; thus, the accounting for previously completed business combinations will not be impacted. However, adopting this accounting standard is anticipated to have a material impact on the accounting for purchased loans on any business combinations completed after adoption. ASU 2025-11 – On December 8, 2025, the FASB issued ASU 2025-11 “Interim Reporting (Topic 270): Narrow-Scope Improvements”: This ASU does not change the fundamental nature of interim reporting or expand or reduce current interim disclosure requirements. The amendments in this ASU: i) clarify that the guidance in Topic 270 applies to all entities that provide interim financial statements and notes in accordance with GAAP; ii) create a comprehensive list in FASB Accounting Standards Codification Topic 270 of interim disclosures that are required in interim financial statements and notes in accordance with GAAP; iii) incorporate a disclosure principle, which is modeled after previous Securities and Exchange Commission (SEC) guidance, that requires entities to disclose events and changes that occur after the end of the most recent fiscal year that have a material impact on the entity; and iv) improve guidance about information included in and the format of interim financial statements. The amendments in this ASU are effective for public business entities for interim periods within annual periods beginning after December 15, 2027. ASU 2025-11 is not expected to have a material impact on the financial statements of the Company. ASU 2025-12 – On December 17, 2025, the FASB issued ASU 2025-12 “Codification Improvements”: The amendments in this ASU update the FASB Accounting Standards Codification for a broad range of Topics arising from technical corrections, unintended application of the Codification, clarifications, and other minor improvements. The amendments in the ASU, which addresses 33 issues, affect a wide variety of Topics in the Codification and apply to all reporting entities within the scope of the affected accounting guidance. The amendments in this ASU are effective for all entities for annual periods beginning after December 15, 2026, and interim periods within those annual periods. Early adoption is permitted in both interim and annual periods in which financial statements have not yet been issued or made available for issuance. ASU 2025-12 is not expected to have a material impact on the financial statements of the Company. Subsequent Events On January 20, 2026, the Company’s Board of Directors declared a cash dividend of $0.07 per share payable on February 9, 2026, to stockholders of record as of January 30, 2026.
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Table of Contents 85 Note 2: Acquisition Completed Acquisitions Bancorp Financial On July 1, 2025, the Company completed its acquisition of Bancorp Financial and its wholly owned subsidiary, Evergreen Bank Group, based in Oakbrook, Illinois, with operations throughout our existing market footprint as well as a loan production office in Reno, Nevada. This acquisition brought increased scale and new markets to the Company, and provided new product offerings and line of business opportunities. At closing, the Company acquired $1.43 billion of assets, $1.20 billion of loans, $119.1 million of securities, and $1.23 billion of deposits, net of fair value adjustments. Under the terms of the merger agreement, each outstanding share of Bancorp Financial common stock was exchanged for 2.5814 shares of the Company’s common stock, plus $15.93 of cash. This resulted in merger consideration of $189.4 million, based on the closing price of the Company’s common stock on the date of acquisition, which consisted of 7.9 million shares of the Company’s common stock and $48.9 million of cash. Goodwill of $36.0 million associated with the acquisition was recorded by the Company, which was the result of expected synergies, operational efficiencies and other factors. The acquisition of Bancorp Financial has been accounted for as a business combination. The Company recorded the estimate of fair value based on initial valuations available at July 1, 2025. The determination of estimated fair value required management to make assumptions related to discount rates, expected future cash flows, market conditions and other future events that are often subjective in nature and may require adjustments, which can be subject to adjustment for additional information received during the measurement period which cannot extend beyond July 1, 2026. None of the $36.0 million of goodwill recorded is expected to be deductible for income tax purposes. As permitted by ASC No. 805-10-25, Business Combinations, the above estimated amounts may be adjusted up to one year after the closing date of the transaction to reflect any new information obtained about facts and circumstances existing at the acquisition date. While the Bank believes that the information available on the merger date provided a reasonable basis for estimating fair value, additional information and evidence may be provided which will be utilized to finalize all valuations and record final adjustments during the one year subsequent measurement period. These adjustments may include: (i) changes in deferred tax assets or liabilities related to fair value estimates and changes in the expected realization of items considered to be net operating loss carryforwards due to tax calculations still in process, (ii) immaterial changes in loan valuations, and (iii) changes in goodwill as a result of the net effect of any adjustments. As such, any changes in the estimated fair value of assets, including acquired loans, will be recognized in the period the adjustment is identified.
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Table of Contents 86 The following table provides the purchase price allocation as of December 31, 2025, for the acquisition of Bancorp Financial and the assets acquired and liabilities assumed at their estimated fair values as of the purchase date, as recorded by the Company: Bancorp Financial Transaction Summary As of Date of Transaction July 1, 2025 Assets Cash and due from banks $ 59,385 Securities available-for-sale and held-to maturity, at fair value 119,117 FHLBC stock 1,958 Loans, net of purchase accounting adjustments 1,195,739 Premises and equipment 2,513 Core deposit intangible 6,206 Bank-owned life insurance ("BOLI") 13,916 Deferred tax assets 13,642 Other assets 14,764 Total assets $ 1,427,240 Liabilities Noninterest bearing demand $ 73,744 Interest bearing deposits 1,158,778 Total deposits 1,232,522 Short-term borrowings 15,500 Long-term debt 14,800 Deferred tax liabilities - Other liabilities 10,978 Total liabilities 1,273,800 Cash consideration paid 48,884 Stock issued for acquisition 140,520 Total consideration 189,404 Total liabilities assumed and cash consideration received for transaction $ 1,463,204 Goodwill $ 35,964 Expenses related to the Bancorp Financial acquisition totaled $15.4 million for the twelve months ending December 31, 2025, and are reported within noninterest expense based on the line items impacted, which are primarily salaries and employee benefits, occupancy, furniture and equipment, computer and data processing, legal fees, and other expense in the Consolidated Statements of Income. No expenses were recognized related to this business combination during the twelve months ending December 31, 2024. Purchased loans and leases that reflect a more-than-insignificant deterioration of credit from origination are considered purchased credit deteriorated (“PCD”) loans. For PCD loans, the initial estimate of expected credit losses was recognized in the allowance for credit losses (“ACL”) on the date of acquisition using the same methodology as other loans and leases held-for-investment. The following table provides a summary of loans purchased as part of the Bancorp Financial acquisition which were evaluated and determined to be PCD loans at acquisition. As of Bancorp Financial Acquired PCD Loans July 1, 2025 Par value of acquired loans $ 89,870 Allowance for credit losses (17,540) Non-credit premium 722 Purchase price of PCD loans at acquisition $ 73,052
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Table of Contents 87 The Company's operating results for the year ended December 31, 2025, include the operating results of the acquired assets and assumed liabilities of Bancorp Financial subsequent to the acquisition on July 1, 2025. The following table presents pro forma information as if the acquisition of Bancorp Financial had occurred on January 1, 2024, under the pro forma presentation. The pro forma adjustments give effect to any change in interest income due to the accretion of the discount (premium) associated with the fair value adjustments to acquired loans and leases, any change in interest expense due to estimated premium amortization/discount accretion associated with the fair value adjustment to acquired interest-bearing deposits, and the amortization of the CDI that would have resulted had the deposits been acquired as of January 1, 2024. Pro forma results include Old Second and Bancorp Financial acquisition-related expenses which primarily included, but were not limited to, severance costs, professional services, data processing fees, and other expenses totaling $24.4 million for the twelve months ended December 31, 2025. Additionally for the twelve months ended December 31, 2025, we recorded $1.4 million of loan accretion, $13.2 million of Day 2 provision for credit losses, and CDI amortization of $154,000 specific to this acquisition. The pro forma information does not necessarily reflect the results of operations that would have occurred had the Company acquired Bancorp Financial on January 1, 2024. Furthermore, cost savings and other business synergies related to the acquisition are not reflected in the pro forma amounts below. Pro Forma for the Years Ended 2025 2024 Net interest income $ 325,662 $ 299,038 Noninterest income 47,994 46,750 Net income attributable to Old Second Bancorp, Inc. 111,712 62,489 First Merchants On December 6, 2024, the Company completed its purchase of five Illinois branch locations in the southeast Chicago metropolitan statistical area from First Merchants Bank, the wholly owned subsidiary of First Merchants Corporation (“FRME”). This acquisition brought increased scale as the Company expanded its current branch network in the Chicago market. At closing, the Company recorded $24.8 million of assets, including $7.1 million of loans and $3.9 million of premises and equipment, and $268.0 million of deposits, net of fair value adjustments. The Company recorded the estimate of fair value based on initial valuations available at December 6, 2024. Estimated fair values, which were subject to adjustment for up to one year after December 6, 2024, are considered final. Based on final valuations, $13.3 million of core deposit intangible was recorded. Goodwill of $6.8 million was ultimately recorded from the branch purchase transaction. None of the $6.8 million of goodwill recorded is expected to be deductible for income tax purposes. The following table provides the purchase price allocation as of the December 6, 2024, branch purchase transaction with First Merchants Bank, including the assets acquired and liabilities assumed at their estimated fair values as of that date, as recorded by the Company. First Merchants Transaction Summary As of Date of Transaction December 6, 2024 Assets Cash and due from banks $ 419 Loans, net of purchase accounting adjustments 7,149 Premises and equipment 3,934 Core deposit intangible 13,254 Other assets 19 Total assets $ 24,775 Liabilities Noninterest bearing demand $ 26,497 Savings, NOW and money market 157,126 Time 84,344 Total deposits 267,967 Other liabilities 585 Total liabilities 268,552 Cash consideration received (237,023) Total liabilities assumed and cash consideration received for transaction $ 31,529 Goodwill $ 6,754
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Table of Contents 88 Expenses related to the FRME branch transaction totaled $169,000 and $1.9 million during the year ended December 31, 2025 and 2024, respectively, and are reported within noninterest expense based on the line items impacted, which are primarily salaries and employee benefits, occupancy, furniture and equipment, computer and data processing, legal fees, and other expense in the Consolidated Statements of Income. All loans acquired from FRME are considered non-PCD as none of the loans met the definition of a purchase credit deteriorated loan. Note 3: Cash and Due from Banks Total cash and cash equivalents were $124.0 million and $99.3 million at December 31, 2025 and 2024, respectively. The nature of the Company’s business requires that it maintain amounts with other banks and federal funds which, at times, routinely exceed federally insured limits. Management monitors these correspondent relationships, and the Company has not experienced any losses in such accounts. Note 4: Securities The following table summarizes the amortized cost and fair value of the securities portfolio at December 31, 2025 and 2024 and the corresponding amounts of gross unrealized gains and losses were as follows: Gross Gross Amortized Unrealized Unrealized Fair December 31, 2025 Cost1 Gains Losses Value Securities available-for-sale U.S. Treasury $ 164,296 $ 1,564 $ - $ 165,860 U.S. government agencies 29,421 - (245) 29,176 U.S. government agencies mortgage-backed 95,899 - (7,119) 88,780 States and political subdivisions 213,366 450 (7,441) 206,375 Collateralized mortgage obligations 388,774 1,102 (30,571) 359,305 Asset-backed securities 46,600 423 (1,207) 45,816 Collateralized loan obligations 194,552 151 (239) 194,464 Equity securities 684 63 - 747 Total securities available-for-sale $ 1,133,592 $ 3,753 $ (46,822) $ 1,090,523 Gross Gross Amortized Unrealized Unrealized Fair December 31, 2024 Cost1 Gains Losses Value Securities available-for-sale U.S. Treasury $ 193,902 $ 700 $ (459) $ 194,143 U.S. government agencies 39,202 - (1,388) 37,814 U.S. government agencies mortgage-backed 112,241 - (11,964) 100,277 States and political subdivisions 226,969 264 (11,777) 215,456 Collateralized mortgage obligations 411,170 647 (43,201) 368,616 Asset-backed securities 64,215 69 (1,981) 62,303 Collateralized loan obligations 182,629 472 (9) 183,092 Total securities available-for-sale $ 1,230,328 $ 2,152 $ (70,779) $ 1,161,701 1 Excludes interest receivable of $6.9 million and $7.1 million at December 31, 2025, and December 31, 2024, respectively, that is recorded in other assets on the Consolidated Balance Sheets. FHLBC stock was $11.3 million and $4.5 million at December 31, 2025, and December 31, 2024, respectively. FRBC stock was $20.7 million and $14.9 million at December 31, 2025, and December 31, 2024, respectively. Our FHLBC stock is necessary to maintain access to FHLBC advances. Securities valued at $679.5 million as of December 31, 2025, were pledged to secure deposits and borrowings, and for other purposes, a decrease from $717.5 million at year-end 2024.
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Table of Contents 89 The fair value, amortized cost and weighted average yield of debt securities at December 31, 2025, by contractual maturity, were as follows in the table below. Securities not due at a single maturity date are shown separately. Weighted Amortized Average Fair Securities available-for-sale Cost Yield Value Due in one year or less $ 94,351 3.73% $ 94,479 Due after one year through five years 132,952 4.00 133,506 Due after five years through ten years 92,466 2.94 88,875 Due after ten years 87,314 3.15 84,551 407,083 3.51 401,411 Mortgage-backed and collateralized mortgage obligations 484,673 2.75 448,085 Asset-backed securities 46,600 3.71 45,816 Collateralized loan obligations 194,552 5.46 194,464 Equity securities 684 - 747 Total securities available-for-sale $ 1,133,592 3.53% $ 1,090,523 As of December 31, 2025, the Company has no securities issued from one originator, other than the U.S. Government and its agencies, that individually amounted to over 10% of the Company’s stockholders’ equity. Securities with unrealized losses with no corresponding allowance for credit losses at December 31, 2025 and 2024 aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows (in thousands except for number of securities): Less than 12 months 12 months or moreDecember 31, 2025 in an unrealized loss position in an unrealized loss position TotalNumber of Unrealized Fair Number of Unrealized Fair Number of Unrealized FairSecurities available-for-sale Securities Losses Value Securities Losses Value Securities Losses ValueU.S. government agencies - $ - $ - 7 $ 245 $ 29,176 7 $ 245 $ 29,176U.S. government agencies mortgage-backed 1 36 10,572 126 7,083 78,208 127 7,119 88,780States and political subdivisions 1 4 5,046 29 7,437 104,483 30 7,441 109,529Collateralized mortgage obligations 5 19 6,287 130 30,552 288,228 135 30,571 294,515Asset-backed securities 7 139 14,927 7 1,068 20,164 14 1,207 35,091Collateralized loan obligations 12 239 87,299 - - - 12 239 87,299 Total securities available-for-sale 26 $ 437 $124,131 299 $ 46,385 $520,259 325 $ 46,822 $644,390 Less than 12 months 12 months or moreDecember 31, 2024 in an unrealized loss position in an unrealized loss position TotalNumber of Unrealized Fair Number of Unrealized Fair Number of Unrealized FairSecurities available-for-sale Securities Losses Value Securities Losses Value Securities Losses ValueU.S. Treasuries 4 $ 72 $ 49,788 1 $ 387 $ 49,547 5 $ 459 $ 99,335U.S. government agencies - - - 8 1,388 37,814 8 1,388 37,814U.S. government agencies mortgage-backed 1 447 10,296 128 11,517 89,981 129 11,964 100,277States and political subdivisions 31 455 85,457 27 11,322 111,308 58 11,777 196,765Collateralized mortgage obligations 3 24 5,107 139 43,177 328,708 142 43,201 333,815Asset-backed securities 2 4 1,068 13 1,977 50,198 15 1,981 51,266Collateralized loan obligations 4 8 31,440 1 1 227 5 9 31,667Total securities available-for-sale 45 $ 1,010 $183,156 317 $ 69,769 $667,783 362 $ 70,779 $850,939 Available-for-sale debt securities in unrealized loss positions are evaluated for allowance related to credit losses at least quarterly. The analysis consists of screening all securities to determine if the bonds have market value loss exceeding 5% of book value and if that loss exceeds $200,000. Two other aspects of each security are assessed. The first is whether a security carries a government guarantee. If the security is backed by a 100% U.S. Government or U.S. Agency guarantee, then no allowance for credit loss would be considered necessary, since ultimately principal and interest of the investment would be paid. For securities that carried a U.S. Government guarantee of less than 100%, an allowance for credit loss analysis is performed. In the case of a partial government guarantee, the loss amount is assumed to be the percentage not guaranteed multiplied by the gain or loss on the position. In addition, a calculation is performed to estimate the amount of value change attributable to movements in interest rates. If the devaluation of a security is due to rate changes, then no allowance would be considered necessary. Furthermore, for positions whose market valuations are not directly attributable to movements in interest rates, even if all scheduled payments have been received, credit analysis is performed on each position.
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Table of Contents 90 The following table presents net realized gains (losses) on securities available-for-sale for the years ended: Year Ended December 31, Securities available-for-sale 2025 2024 2023 Proceeds from sales of securities 1 $ 125,941 $ 5,331 $ 205,738 Gross realized gains on securities 8 1 - Gross realized losses on securities (1) (1) (4,148) Net realized gains (losses) $ 7 $ — $ (4,148) Income tax (expense) benefit on net realized gains (losses) $ (2) $ — $ 1,117 Effective tax rate applied 28.6% N/M% 26.9% 1 2025 includes $118.4 million of proceeds on the sale of securities acquired from Bancorp Financial, which is a reflection of the fair value on the acquisition date. N/M – Not Meaningful Note 5: Loans and Allowance for Credit Losses on Loans The composition of loans by portfolio segment as of December 31, were as follows: December 31, 2025 December 31, 2024 Commercial $ 842,130 $ 800,476 Leases 548,256 491,748 Commercial real estate – investor 1,212,384 1,078,829 Commercial real estate – owner occupied 706,567 683,283 Construction 173,630 201,716 Residential real estate – investor 70,225 49,598 Residential real estate – owner occupied 230,432 206,949 Multifamily 339,131 351,325 HELOC 235,293 103,388 Powersport 696,959 - Other 1 197,124 14,024 Total loans 5,252,131 3,981,336 Allowance for credit losses on loans (72,301) (43,619) Net loans 2 $ 5,179,830 $ 3,937,717 1 Unless otherwise noted, the “Other” segment includes consumer loans, such as collector cars, manufactured homes, and solar loans, as well as overdrafts in this table and in subsequent tables within Note 5 - Loans and Allowance for Credit Losses on Loans. 2 Excludes accrued interest receivable of $23.5 million and $17.5 million at December 31, 2025, and December 31, 2024, respectively, which is recorded in other assets on the Consolidated Balance Sheets. The methodologies used for calculating the ACL on each loan segment include (i) a migration analysis for commercial, CRE owner occupied, CRE investor, and multifamily segments; (ii) a static pool analysis for lease financing receivables, construction, residential investor, residential owner occupied and the HELOC segments; (iii) a vintage methodology for powersport; and (iv) a WARM (weighted average remaining maturity) methodology is used for consumer segments. The economic factors management has selected include the civilian unemployment rate, real gross domestic product supplemented with local unemployment factors, and the Fed Funds rate. These factors are evaluated and updated quarterly. Additionally, management uses qualitative adjustments to the loss estimates in certain cases as determined necessary. These qualitative adjustments are applied by pooled loan segment and have been made for both increased and decreased risk due to loan quality trends, collateral risk, or other risks management determines are not adequately captured in loss estimation. Loans that do not share risk characteristics are evaluated on an individual basis and excluded from the pooled loan evaluation. The amount of expected loss for loans analyzed individually is determined by discounted cash flow or the fair value of the underlying collateral less applicable costs to sell. It is the policy of the Company to review each prospective credit prior to making a loan in order to determine if an adequate level of security or collateral has been obtained. The type of collateral, when required, will vary from liquid assets to real estate. The Company’s access to collateral, in the event of borrower default, is assured through adherence to lending laws, the Company’s lending standards and credit monitoring procedures. Although the Bank makes loans primarily within its market area, there are no significant concentrations of loans where the customers’ ability to honor loan terms is dependent upon a single economic sector. The real estate related categories above represent 56.5% and 67.2% of the portfolio at December 31, 2025, and December 31, 2024, respectively, and include a mix of owner and non-owner occupied commercial real estate, residential, construction and multifamily loans.
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Table of Contents 91 The following tables represent the activity in the ACL for loans for the years ended December 31, 2025, 2024 and 2023: Beginning Allowance Provision for EndingBalance Established for (Release of) BalanceAllowance for credit losses January 1, 2025 PCD Loans Credit Losses 1 Charge-offs Recoveries December 31, 2025 Commercial $ 7,813 $ 37 $ 8,181 $ 5,051 $ 203 $ 11,183Leases 2,136 - 1,187 970 17 2,370Commercial real estate – investor 14,528 1,954 5,133 - 57 21,672Commercial real estate – owneroccupied 10,036 - (4,292) 1,173 12 4,583Construction 3,581 - (1,616) 834 396 1,527Residential real estate – investor 553 - 199 - 7 759Residential real estate – owner occupied 1,509 309 5 - 56 1,879Multifamily 1,876 - (202) 181 - 1,493HELOC 1,578 128 1,832 - 90 3,628Powersport - 10,431 14,464 8,821 1,375 17,449Other 9 4,681 2,478 1,633 223 5,758 Total $ 43,619 $ 17,540 $ 27,369 $ 18,663 $ 2,436 $ 72,301 1 Amount does not include the provision for unfunded commitment liability. Beginning Provision for EndingBalance (Release of) BalanceAllowance for credit losses January 1, 2024 Credit Losses 1 Charge-offs Recoveries December 31, 2024 Commercial $ 3,998 $ 12,352 $ 8,686 $ 149 $ 7,813Leases 2,952 (770) 149 103 2,136Commercial real estate – investor 17,105 1,594 4,596 425 14,528Commercial real estate – owner occupied 12,280 (997) 5,154 3,907 10,036Construction 1,038 2,543 - - 3,581Residential real estate – investor 669 (141) - 25 553Residential real estate – owner occupied 1,821 (106) 242 36 1,509Multifamily 2,728 (852) - - 1,876HELOC 1,656 (169) - 91 1,578Other 17 130 284 146 9 Total $ 44,264 $ 13,584 $ 19,111 $ 4,882 $ 43,619 1 Amount does not include the provision for unfunded commitment liability. Beginning Provision for EndingAllowance for credit losses Balance (Release of) Balance January 1, 2023 Credit Losses 1 Charge-offs Recoveries December 31, 2023 Commercial $ 11,968 $ (7,717) $ 885 $ 632 $ 3,998Leases 2,865 850 882 119 2,952Commercial real estate – investor 10,674 18,170 11,816 77 17,105Commercial real estate – owner occupied 15,001 7,941 10,691 29 12,280Construction 1,546 (608) - 100 1,038Residential real estate – investor 768 (129) - 30 669Residential real estate – owner occupied 2,046 (304) - 79 1,821Multifamily 2,453 275 - - 2,728HELOC 1,806 (255) - 105 1,656Other 353 (137) 368 169 17 Total $ 49,480 $ 18,086 $ 24,642 $ 1,340 $ 44,264 1 Amount does not include the provision for unfunded commitment liability.
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Table of Contents 92 The following table presents the collateral dependent loans and the related ACL allocated by segment of loans as of December 31: Accounts ACLDecember 31, 2025 Real Estate Receivable Equipment Total AllocationCommercial $ - $ 5,960 $ 2,055 $ 8,015 $ 762Leases - - - - -Commercial real estate – investor 11,345 - - 11,345 5,682Commercial real estate – owner occupied 19,809 - - 19,809 -Construction - - - - -Residential real estate – investor 26 - - 26 -Residential real estate – owner occupied 844 - - 844 -Multifamily 782 - - 782 -HELOC 53 - - 53 -Powersport - - - - -Other - - - - - Total $ 32,859 $ 5,960 $ 2,055 $ 40,874 $ 6,444 Accounts ACLDecember 31, 2024 Real Estate Receivable Equipment Total AllocationCommercial $ - $ 6,491 $ - $ 6,491 $ 2,448Leases - - - - -Commercial real estate – investor 1,644 - - 1,644 -Commercial real estate – owner occupied 10,018 - - 10,018 3,951Construction 5,800 - - 5,800 792Residential real estate – investor 404 - - 404 -Residential real estate – owner occupied 1,056 - - 1,056 -Multifamily 836 - - 836 -HELOC - - - - -Other - - - - - Total $ 19,758 $ 6,491 $ - $ 26,249 $ 7,191 Aged analysis of past due loans by class of loans as of December 31, 2025, were as follows: 90 days or90 Days or Greater Past30-59 Days 60-89 Days Greater Past Total Past Due and December 31, 2025 Past Due Past Due Due Due Current Total Loans Accruing Commercial $ 565 - 4,746 5,311 836,819 $ 842,130 $ 1,241Leases 2,116 595 1,677 4,388 543,868 548,256 471Commercial real estate – investor 10,604 89 - 10,693 1,201,691 1,212,384 -Commercial real estate – owner occupied 7,176 819 11,389 19,384 687,183 706,567 250Construction 1,546 1,349 635 3,530 170,100 173,630 -Residential real estate – investor 120 699 152 971 69,254 70,225 -Residential real estate – owner occupied 7,983 562 757 9,302 221,130 230,432 141Multifamily 404 313 1,070 1,787 337,344 339,131 -HELOC 5,219 441 451 6,111 229,182 235,293 -Powersport 13,796 4,860 2,778 21,434 675,525 696,959 2,710Other 1,873 702 217 2,792 194,332 197,124 66 Total $ 51,402 $ 10,429 $ 23,872 $ 85,703 $5,166,428 $5,252,131 $ 4,879 Aged analysis of past due loans by class of loans as of December 31, 2024, were as follows: 90 days or90 Days or Greater Past30-59 Days 60-89 Days Greater Past Total Past Due and December 31, 2024 Past Due Past Due Due Due Current Total Loans Accruing Commercial $ 219 $ 95 $ 6,963 $ 7,277 $ 793,199 $ 800,476 $ 1,397Leases 1,438 372 352 2,162 489,586 491,748 -Commercial real estate – investor 2,021 402 - 2,423 1,076,406 1,078,829 -Commercial real estate – owner occupied 1,123 2,479 43 3,645 679,638 683,283 -Construction - - 5,799 5,799 195,917 201,716 -Residential real estate – investor 763 - 439 1,202 48,396 49,598 -Residential real estate – owner occupied 2,489 90 509 3,088 203,861 206,949 -Multifamily - 233 1,040 1,273 350,052 351,325 -HELOC 109 74 202 385 103,003 103,388 39Other 13 10 - 23 14,001 14,024 - Total $ 8,175 $ 3,755 $ 15,347 $ 27,277 $3,954,059 $3,981,336 $ 1,436
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Table of Contents 93 The following table presents all nonaccrual loans and loans on nonaccrual for which there was no related allowance for credit losses as of: Nonaccrual loan detail December 31, 2025 With no ACL December 31, 2024 With no ACL Commercial $ 8,520 $ 5,520 $ 5,591 $ 497 Leases 2,428 2,428 523 523 Commercial real estate – investor 11,377 32 1,981 1,981 Commercial real estate – owner occupied 19,493 19,493 10,604 1,407 Construction 737 737 5,800 - Residential real estate – investor 681 681 1,158 1,158 Residential real estate – owner occupied 1,711 1,711 1,653 1,653 Multifamily 1,494 1,494 1,165 1,165 HELOC 1,222 1,222 366 366 Powersport 68 68 - - Other 221 221 10 10 Total $ 47,952 $ 33,607$ 28,851 $ 8,760 The Company recognized $1.0 million and $815,000 of interest on nonaccrual loans during the years ended December 31, 2025 and 2024, respectively. The amount of accrued interest reversed against interest income totaled $3.8 million and $4.2 million for the years ended December 31, 2025 and 2024, respectively. Credit Quality Indicators: The Company categorizes loans into credit risk categories based on current financial information, overall debt service coverage, comparison against industry averages, historical payment experience, and current economic trends. This analysis includes loans with outstanding balances or commitments greater than $50,000 and excludes homogeneous loans such as home equity lines of credit and residential mortgages. Loans with a classified risk rating are reviewed quarterly regardless of size or loan type. The Company uses the following definitions for classified risk ratings: Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan at some future date. Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Credits that are not covered by the definitions above are pass credits, which are not considered to be adversely rated. For residential-owner occupied, HELOC, powersport, and the other loan portfolios, the Company evaluates credit quality based on the aging status of the loan and by payment activity. Nonperforming loans are those that are either 90 days or more past due and accruing or are on nonaccrual, and all other loans not meeting this criteria are considered performing.
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Table of Contents 94 Credit quality indicators by class of loans as of December 31, 2025, were as follows in the vintage table below: 2025 2024 2023 2022 2021 Prior RevolvingLoans RevolvingLoansConvertedTo TermLoans Total CommercialPass $ 275,155 $ 161,529 $ 94,487 $ 22,843 $ 8,699 $ 9,730 $ 214,846 $ 125 $ 787,414Special Mention - - - 212 - - 2,917 - 3,129 Substandard 231 926 19,241 3,611 291 - 27,287 - 51,587 Total commercial 275,386 162,455 113,728 26,666 8,990 9,730 245,050 125 842,130 LeasesPass 247,515 172,825 $ 84,533 27,993 10,164 2,038 - - 545,068Special Mention - - 374 263 123 - - - 760 Substandard - 214 469 1,745 - - - - 2,428 Total leases 247,515 173,039 85,376 30,001 10,287 2,038 - - 548,256 Commercial real estate – investorPass 296,219 217,761 120,630 255,701 199,993 99,144 6,371 - 1,195,819Special Mention 82 - - - 41 2,197 - - 2,320 Substandard - 9,703 1,677 1,690 - 1,175 - - 14,245 Total commercial real estate – investor 296,301 227,464 122,307 257,391 200,034 102,516 6,371 - 1,212,384 Commercial real estate – owner occupiedPass 193,988 76,480 67,749 76,670 106,107 103,545 10,309 - 634,848Special Mention - - 161 3,542 2,153 1,782 - - 7,638 Substandard 58 - 20,929 8,996 20,252 13,846 - - 64,081 Total commercial real estate – owner occupied 194,046 76,480 88,839 89,208 128,512 119,173 10,309 - 706,567 ConstructionPass 53,522 48,906 31,121 27,500 332 828 - - 162,209Special Mention - - - - - - - - - Substandard 102 - 1,454 9,526 - 339 - - 11,421 Total construction 53,624 48,906 32,575 37,026 332 1,167 - - 173,630 Residential real estate – investorPass 13,993 5,729 3,677 15,256 15,288 10,743 4,397 - 69,083Special Mention - - - - - - - - - Substandard - - - - 461 681 - - 1,142 Total residential real estate – investor 13,993 5,729 3,677 15,256 15,749 11,424 4,397 - 70,225 Residential real estate – owner occupiedPass 42,941 11,580 25,594 35,826 30,264 81,123 1,207 - 228,535Special Mention - - - - - - - - - Substandard - - 151 202 142 1,402 - - 1,897 Total residential real estate – owner occupied 42,941 11,580 25,745 36,028 30,406 82,525 1,207 - 230,432 MultifamilyPass 56,753 20,133 50,464 96,747 70,496 40,926 2,118 - 337,637Special Mention - - - - - - - - - Substandard - - 124 892 313 165 - - 1,494 Total multifamily 56,753 20,133 50,588 97,639 70,809 41,091 2,118 - 339,131 HELOCPass 2,888 2,192 1,700 1,646 278 4,480 220,643 - 233,827Special Mention - - - - - - - - - Substandard - - - - - 240 1,226 - 1,466 Total HELOC 2,888 2,192 1,700 1,646 278 4,720 221,869 - 235,293 PowersportPass 323,072 180,099 114,212 57,740 17,237 4,531 - - 696,891Special Mention - - - - - - - - - Substandard - 22 44 - - 2 - - 68 Total Powersport 323,072 180,121 114,256 57,740 17,237 4,533 - - 696,959 OtherPass 81,405 31,889 19,599 48,615 1,729 7,282 6,335 - 196,854Special Mention - - - - - - - - - Substandard - - 163 74 27 6 - - 270 Total other 81,405 31,889 19,762 48,689 1,756 7,288 6,335 - 197,124 Total loansPass 1,587,451 929,123 613,766 666,537 460,587 364,370 466,226 125 5,088,185Special Mention 82 - 535 4,017 2,317 3,979 2,917 - 13,847 Substandard 391 10,865 44,252 26,736 21,486 17,856 28,513 - 150,099 Total loans $ 1,587,924 $ 939,988 $ 658,553 $ 697,290 $ 484,390 $ 386,205 $ 497,656 $ 125 $ 5,252,131
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Table of Contents 95 Credit quality indicators by class of loans as of December 31, 2024, were as follows in the vintage table below: 2024 2023 2022 2021 2020 Prior RevolvingLoans RevolvingLoansConvertedTo TermLoans TotalCommercialPass $ 299,863 $ 176,549 $ 56,619 $ 18,679 $ 4,999 $ 6,527 $ 201,514 $ 1,279 $ 766,029Special Mention 3,864 1,629 127 176 - - 3,903 - 9,699Substandard - 14 4,169 77 - - 19,102 - 23,362Doubtful - - - 1,386 - - - - 1,386Total commercial 303,727 178,192 60,915 20,318 4,999 6,527 224,519 1,279 800,476 LeasesPass 239,664 151,372 $ 66,379 24,546 6,145 2,298 - - 490,404Special Mention - - 821 - - - - - 821Substandard - - 523 - - - - - 523Total leases 239,664 151,372 67,723 24,546 6,145 2,298 - - 491,748 Commercial real estate – investorPass 243,983 159,008 305,506 191,651 90,245 67,143 6,804 - 1,064,340Special Mention - - - - - - - - -Substandard 335 1,645 - - - 12,509 - - 14,489Total commercial real estate – investor 244,318 160,653 305,506 191,651 90,245 79,652 6,804 - 1,078,829 Commercial real estate – owner occupiedPass 91,012 114,255 133,488 121,652 77,919 82,820 14,284 - 635,430Special Mention - 1,162 7,908 7,500 3,033 631 - - 20,234Substandard - 125 1,168 11,241 9,897 5,188 - - 27,619Total commercial real estate – owner occupied 91,012 115,542 142,564 140,393 90,849 88,639 14,284 - 683,283 ConstructionPass 44,699 27,928 83,222 17,747 82 1,081 468 - 175,227Special Mention - - 6,794 - - 344 - - 7,138Substandard - - 19,351 - - - - - 19,351Total construction 44,699 27,928 109,367 17,747 82 1,425 468 - 201,716 Residential real estate – investorPass 5,595 3,833 13,366 8,060 5,693 9,813 1,548 - 47,908Special Mention - - - - - - - - -Substandard - - 375 532 - 783 - - 1,690Total residential real estate – investor 5,595 3,833 13,741 8,592 5,693 10,596 1,548 - 49,598 Residential real estate – owner occupiedPass 11,609 29,670 35,786 32,760 22,996 71,507 770 - 205,098Special Mention - - - - - - - - -Substandard - - - 151 - 1,700 - - 1,851Total residential real estate – owner occupied 11,609 29,670 35,786 32,911 22,996 73,207 770 - 206,949 MultifamilyPass 39,133 68,781 68,032 100,049 29,060 44,735 370 - 350,160Special Mention - - - - - - - - -Substandard - - 962 - 203 - - - 1,165Total multifamily 39,133 68,781 68,994 100,049 29,263 44,735 370 - 351,325 HELOCPass 2,602 2,561 2,118 383 1,383 3,752 90,042 - 102,841Special Mention - - - - - - - - -Substandard - - - - 39 214 294 - 547Total HELOC 2,602 2,561 2,118 383 1,422 3,966 90,336 - 103,388 OtherPass 6,521 1,559 1,438 639 92 7 3,758 14,014Special Mention - - - - - - - -Substandard - 5 5 - - - - 10Total other 6,521 1,564 1,443 639 92 7 3,758 - 14,024 Total loansPass 984,681 735,516 765,954 516,166 238,614 289,683 319,558 1,279 3,851,451Special Mention 3,864 2,791 15,650 7,676 3,033 975 3,903 - 37,892Substandard 335 1,789 26,553 12,001 10,139 20,394 19,396 - 90,607Doubtful - - - 1,386 - - - - 1,386 Total loans $ 988,880 $ 740,096 $ 808,157 $ 537,229 $ 251,786 $ 311,052 $ 342,857 $ 1,279 $3,981,336
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Table of Contents 96 The following vintage tables provide performing and nonperforming loans by class for the years ended December 31, 2025 and 2024. These tables enhance the credit quality vintage tables reported for the same years, above, for the loan classes that are not monitored and analyzed by the risk category definitions. December 31, 2025 2025 2024 2023 2022 2021 Prior RevolvingLoans RevolvingLoansConvertedTo TermLoans TotalResidential real estate – owner occupiedPerforming $ 42,941 $ 11,580 $ 25,594 $ 35,826 $ 30,264 $ 81,168 $ 1,207 $ - $ 228,580Nonperforming - - 151 202 142 1,357 - - 1,852Total Residential real estate – owner occupied 42,941 11,580 25,745 36,028 30,406 82,525 1,207 - 230,432 HELOCPerforming 2,888 2,192 1,700 1,646 278 4,499 220,868 - 234,071Nonperforming - - - 221 1,001 - 1,222Total HELOC 2,888 2,192 1,700 1,646 278 4,720 221,869 - 235,293 PowersportPerforming 322,369 179,391 113,725 57,266 17,026 4,404 - - 694,181Nonperforming 703 730 531 474 211 129 - - 2,778Total Powersport 323,072 180,121 114,256 57,740 17,237 4,533 - - 696,959 OtherPerforming 81,405 31,889 19,596 48,615 1,730 7,267 6,335 - 196,837Nonperforming - - 166 74 26 21 - 287Total Other 81,405 31,889 19,762 48,689 1,756 7,288 6,335 - 197,124 Total non-risk rated loansPerforming 449,603 225,052 160,615 143,353 49,298 97,338 228,410 - 1,353,669Nonperforming 703 730 848 750 379 1,728 1,001 - 6,139Total non-risk rated loans $450,306 225,782 161,463 144,103 49,677 99,066 229,411 - 1,359,808 . December 31, 2024 2025 2024 2023 2022 2021 Prior RevolvingLoans RevolvingLoansConvertedTo TermLoans TotalResidential real estate – owner occupiedPerforming $ 11,609 29,670 35,786 32,760 22,996 71,705 770 $ - $ 205,296Nonperforming - - - 151 - 1,502 - - 1,653 Total Residential real estate – owner occupied 11,609 29,670 35,786 32,911 22,996 73,207 770 - 206,949 HELOCPerforming 2,602 2,561 2,118 383 1,383 3,772 90,164 - 102,983Nonperforming - - - - 39 194 172 - 405 Total HELOC 2,602 2,561 2,118 383 1,422 3,966 90,336 - 103,388 OtherPerforming 6,521 1,560 1,437 639 92 7 3,758 - 14,014Nonperforming - 4 6 - - - - - 10 Total Other 6,521 1,564 1,443 639 92 7 3,758 - 14,024 Total non-risk rated loansPerforming 20,732 33,791 39,341 33,782 24,471 75,484 94,692 - 322,293Nonperforming - 4 6 151 39 1,696 172 - 2,068 Total non-risk rated loans $ 20,732 33,795 39,347 33,933 24,510 77,180 94,864 - 324,361
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Table of Contents 97 The gross charge-offs activity by loan type and year of origination for the year ended December 31, 2025, were as follows: 2025 2024 2023 2022 2021 Prior TotalCommercial $ - 176 3,452 25 1,386 12 $ 5,051Leases - - 101 854 15 - 970Commercial real estate – investor - - - - - - -Commercial real estate – owneroccupied - - - - 1,126 47 1,173Construction - - - 834 - - 834Residential real estate – investor - - - - - - -Residential real estate – owneroccupied - - - - - - -Multifamily - 181 - - - - 181HELOC - - - - - - -Powersport 1,928 2,360 2,210 1,390 487 446 8,821Other - 80 31 1,047 4 471 1,633Total $ 1,928 $ 2,797 $ 5,794 $ 4,150 $ 3,018 $ 976 $ 18,663 The gross charge-offs activity by loan type and year of origination for the year ended December 31, 2024, were as follows: 2024 2023 2022 2021 2020 Prior TotalCommercial $ 31 $ 7,205 $ 756 $ 670 $ - $ 24 $ 8,686Leases - - 96 53 - - 149Commercial real estate – investor - - 4,128 452 16 - 4,596Commercial real estate – owneroccupied - - 5,135 - 19 5,154Construction - - - - - - -Residential real estate – investor - - - - - - -Residential real estate – owneroccupied - - - - - 242 242Multifamily - - - - - - -HELOC - - - - - - -Other 5 - - - - 279 284 Total $ 36 $ 7,205 $ 4,980 $ 6,310 $ 16 $ 564 $ 19,111 The Company had $379,000 and $469,000 in consumer mortgage loans in the process of foreclosure as of December 31, 2025, and December 31, 2024, respectively. Forty-one loans, totaling $58.4 million in aggregate, were modified and experiencing financial difficulty during the year ended December 31, 2025. Fifteen loans, totaling $46.9 million in aggregate, were modified which were experiencing financial difficulty during the year ended December 31, 2024. There were seven loans that were past due while experiencing financial difficulty for a total of $20.0 million as of December 31, 2025. None of the loans modified while experiencing financial difficulty are in payment default as of December 31, 2024. The following tables presents the amortized costs basis of loans at December 31, 2025, and December 31, 2024, that were both experiencing financial difficulty and modified during the years ended December 31, 2025, and December 31, 2024, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to amortized costs basis of each class of financing receivable is also presented below. December 31, 2025 TermExtension Combination- TermExtension,Interest RateModification,and PaymentModification PaymentModification 1Interest RateModification Combination- TermExtensionand InterestRateModification Combination- TermExtension andPaymentModification 1 TotalModifications % of TotalLoanClassificationModified toTotal LoanClassificationCommercial $ 8,073 $ 5,015 $ 1,550 $ - $ 1,551 $ - $ 16,189 2.5%Commercial real estate – investor 10,170 12,192 - - - 33 22,395 1.1Commercial real estate – owner occupied 14,783 2,095 - - 708 2,053 19,639 3.3Multifamily - - - - - - - -HELOC 85 - - - - - 85 -Powersport 9 76 - 8 - - 93 -Other - - - - - 24 24 - Total $ 33,120 $ 19,378 $ 1,550 $ 8 $ 2,259 $ 2,110 $ 58,425 1.1% 1 Payment modifications are either contractual delays in payment or a modification of the payment amount.
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Table of Contents 98 December 31, 2024 TermExtension Combination- TermExtension,Interest RateModification,and PaymentModification PaymentModification 1 Interest RateModification Combination- TermExtensionand InterestRateModification Combination- TermExtension andPaymentModification 1Total LoansModified % of TotalLoanClassificationModified toTotal LoanClassificationCommercial $ 3,385 $ 3,794 $ - $ - $ - $ - $ 7,179 0.9%Commercial real estate – investor 12,509 - - - - - 12,509 1.2Commercial real estate – owner occupied 22,210 415 - - 3,206 209 26,040 3.8Multifamily - 1,197 - - - - 1,197 0.3HELOC - - - - - - - -Other - - - - - - - - Total $ 38,104 $ 5,406 $ - $ - $ 3,206 $ 209 $ 46,925 1.2% 1 Payment modifications are either contractual delays in payment or a modification of the payment amount. The Company closely monitors the performance of loan modifications to borrowers experiencing financial difficulty. The following tables presents the performance of loans that have been modified as of December 31, 2025, and December 31, 2024. December 31, 2025 30-59 days pastdue 60-89 Days PastDue 90 Days orGreater PastDue Total Past Due Current TotalModificationsCommercial $ - $ - $ 3,000 $ 3,000 $ 13,189 $ 16,189Commercial real estate – investor - - - - 22,395 22,395Commercial real estate – owner occupied 6,161 - 10,867 17,028 2,611 19,639Multifamily - - - - - -HELOC - - - - 85 85Powersport - 3 - 3 90 93Other - - - - 24 24 Total $ 6,161 $ 3 $ 13,867 $ 20,031 $ 38,394 $ 58,425 December 31, 2024 30-59 days pastdue 60-89 Days PastDue 90 Days orGreater PastDue Total Past Due Current TotalModificationsCommercial $ - $ - $ - $ - $ 7,179 $ 7,179Commercial real estate – investor - - - - 12,509 12,509Commercial real estate – owner occupied - - - - 26,040 26,040Multifamily - - - - 1,197 1,197HELOC - - - - - -Other - - - - - - Total $ - $ - $ - $ - $ 46,925 $ 46,925 The following table summarizes the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the period ended December 31, 2025, and December 31, 2024. Weighted-Average TermExtension (In Months) Weighted-Average Interest RateChange Weighted-Average Delayof Payment (In Months)Commercial 7.89 0.74% 2.76Commercial real estate – investor 6.70 (1.00) -Commercial real estate – owner occupied 11.82 1.27 -HELOC 24.00 - -Powersport 13.69 (7.49) -Other 24.00 - - Total 8.82 (0.20)% 2.76 Weighted-Average TermExtension (In Months) Weighted-Average Interest RateChange Weighted-Average Delayof Payment (In Months) Commercial 6.49 0.50% 4.00Commercial real estate – investor 6.00 - -Commercial real estate – owner occupied 8.59 0.15 -Multifamily 60.00 2.75 -HELOC - - -Other - - - Total 8.89 0.69% 4.00 As of December 31, 2025 and 2024 there were no loans to principal officers, directors, and their affiliates.
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Table of Contents 99 Note 6: Other Real Estate Owned Details related to the activity in the other real estate owned (“OREO”) portfolio, net of valuation reserve, for the periods presented are itemized in the following table. Twelve Months Ended December 31, Other real estate owned 2025 2024 2023 Balance at beginning of period $ 21,617 $ 5,123 $ 1,561 Property additions, net of participation sold 4,989 21,083 5,580 Less: Carrying value of property disposals, net of participation sold 24,498 2,845 1,749 Period valuation adjustments 681 1,744 269 Balance at end of period $ 1,427 $ 21,617 $ 5,123 Activity in the valuation allowance was as follows: Twelve Months Ended December 31, 2025 2024 2023 Balance at beginning of period $ 1,862 $ 118 $ 856 Provision for valuation reserves 681 1,744 269 Reductions taken on sales (1,911) - (1,007) Balance at end of period $ 632 $ 1,862 $ 118 Expenses related to OREO, net of lease revenue includes: Twelve Months Ended December 31, 2025 2024 2023 Gain on sales, net $ (201) $ (390) $ (256) Provision for valuation reserves 681 1,744 269 Operating expenses 2,252 1,801 434 Less: Lease revenue 615 935 48 Net OREO expense $ 2,117 $ 2,220 $ 399 Note 7: Premises and Equipment Premises and equipment at December 31, were as follows: 2025 2024 Accumulated Accumulated Depreciation/ Net Book Depreciation/ Net Book Cost Amortization Value Cost Amortization Value Land $ 30,251 $ - $ 30,251 $ 30,981 $ - $ 30,981 Buildings 64,005 29,178 34,827 61,428 27,413 34,015 Leasehold improvements 11,317 2,969 8,348 10,341 2,112 8,229 Furniture and equipment 66,537 53,318 13,219 63,884 49,798 14,086 Total Premises and Equipment $ 172,110 $ 85,465 $ 86,645 $ 166,634 $ 79,323 $ 87,311 The Company had $371,000 and $1.4 million of fixed assets held for sale as of December 31, 2025 and 2024, respectively. These fixed assets held for sale are reported with other assets on the Consolidated Balance Sheets. The Company enters into lease arrangements in the normal course of business primarily for branch locations and certain ATMs. The Company’s leases have remaining terms ranging from six-months to 19.4 years, some of which include options to extend between five and ten years, ATMs leases are generally short-term in nature. All of our leases are operating leases.
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Table of Contents 100 At December 31, 2025, the Company had lease liabilities totaling $12.7 million and right-of-use assets totaling $7.9 million related to operating leases. At December 31, 2024, the Company had lease liabilities totaling $12.5 million and right-of-use assets totaling $7.4 million related to operating leases. Lease liabilities and right-of-use assets are reflected in other liabilities and other assets, respectively. Right-of-use asset and lease obligations by type of property are listed below. December 31, 2025 Right-of-Use Asset Lease Liability Weight Average Remaining Lease Term in Years Weight Average Discount Rate Operating Leases Land and building leases $ 7,921 $ 12,697 10.2 3.93% Total operating leases $ 7,921 $ 12,697 10.2 3.93% December 31, 2024 Right-of-Use Asset Lease Liability Weight Average Remaining Lease Term in Years Weight Average Discount Rate Operating Leases Land and building leases $ 7,359 $ 12,465 12.5 4.72% Total operating leases $ 7,359 $ 12,465 12.5 4.72% During 2025, there were no lease terminations or sale leaseback transactions. During 2024, there was one lease termination with a right-of-use asset and lease liability balance of $68,333 and fees paid of $46,500, resulting in a loss of $46,500. Operating lease costs are listed below: 2025 2024 2023 Operating lease cost $ 1,939 $ 1,337 $ 988 Short-term lease cost 56 54 64 Total operating lease cost $ 1,995 $ 1,391 $ 1,052 There were no sale and leaseback transactions, leverage leases, lease transactions with related parties or leases that had not yet been commenced during the periods ending December 31, 2025 or 2024. A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liability as of December 31, 2025, is listed below. Lease payments Due in one year or less $ 3,649 Due in one year through two years 2,593 Due in two years through three years 2,415 Due in three years through four years 2,228 Due in four years through five years 1,681 Thereafter 6,095 Total lease payments 18,661 Discount on cash flows (5,964) Total lease liabilities $ 12,697
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Table of Contents 101 Note 8: Deposits Major classifications of deposits at December 31, were as follows: 2025 2024 Noninterest bearing demand $ 1,739,117 $ 1,704,920 Savings 1,121,888 932,201 NOW accounts 693,573 621,434 Money market accounts 930,079 761,499 Certificates of deposit of less than $100,000 489,879 352,526 Certificates of deposit of $100,000 through $250,000 412,655 270,837 Certificates of deposit of more than $250,000 208,878 125,314 Total deposits $ 5,596,069 $ 4,768,731 The Company had $27.3 million and $29.8 million in listing service deposits as of December 31, 2025 and 2024, respectively. In addition, the Company had $59.3 million in brokered deposits as of December 31, 2025, compared to none as of December 31, 2024. These brokered deposits were assumed with the acquisition of Bancorp Financial and are expected to run off by the first quarter of 2028. At December 31, 2025, scheduled maturities of time deposits were as follows: 2026 $ 1,037,300 2027 41,658 2028 16,206 2029 9,960 2030 6,288 Total time deposits $ 1,111,412 Note 9: Borrowings The following table is a summary of borrowings as of December 31, 2025: 2025 2024 Securities sold under repurchase agreements $ 23,769 $ 36,657 Other short-term borrowings 215,000 20,000 Junior subordinated debentures1 25,774 25,773 Subordinated debentures 59,552 59,467 Notes payable and other borrowings2 14,825 - Total borrowings $ 338,920 $ 141,897 1 See Note 10: Junior Subordinated Debentures 2 Long-term FHLBC advance, net of purchase accounting adjustment
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Table of Contents 102 The Company enters into deposit sweep transactions where the transaction amounts are secured by pledged securities. These transactions consistently mature within 1 to 90 days from the transaction date and are governed by sweep repurchase agreements. All sweep repurchase agreements are treated as financings secured by U.S. government agencies, collateralized mortgage obligations, mortgage-backed securities and/or highly-rated issues of State and political subdivisions, and had a carrying amount of $23.8 million and $36.7 million at December 31, 2025 and 2024, respectively. The average amount and weighted average rate for the year ended December 31, 2025, was $31.7 million and 0.72% with the maximum month-end amount recorded at $47.3 million at June 30, 2025. The average amount and weighted average rate for the year ended December 31, 2024, was $38.2 million and 0.88% with the maximum month-end amount recorded at $53.9 million at September 30, 2024. The fair value of the pledged collateral was $74.0 million and $73.6 million at December 31, 2025, and December 31, 2024, respectively. At December 31, 2025, there were no customers with secured balances exceeding 10% of stockholders’ equity. The Company’s borrowings at the FHLBC require the Bank to be a member and invest in the stock of the FHLBC. Total borrowings are generally limited to the lower of 35% of total assets or the book value of eligible pledged assets after application of FHLBC margins and collateral valuation adjustments. As of December 31, 2025, the Bank had $215.0 million in short-term advances outstanding under the FHLBC. There were $20.0 million in short-term advances as of December 31, 2024. In addition, the Company had assumed $14.8 million in long-term borrowings due to the acquisition of Bancorp Financial. FHLBC stock held at December 31, 2025, was valued at $11.3 million, and any potential FHLBC advances were collateralized by loans and securities with a principal balance of $1.50 billion, which carried a FHLBC-calculated combined value of $987.5 million. As of December 31, 2024, FHLBC stock owned by the Bank was valued at $4.5 million and the principal balance of loans and securities pledged was $1.41 billion. Based on the total amount of loans and securities pledged, the Bank had a total borrowing capacity at the FHLBC of $987.5 million and a remaining funding availability of $756.2 million on December 31, 2025. In the second quarter of 2021, we entered into Subordinated Note Purchase Agreements with certain qualified institutional buyers pursuant to which we sold and issued $60.0 million in aggregate principal amount of our 3.50% Fixed-to-Floating Rate Subordinated Notes due April 15, 2031 (the “Notes”). We sold the Notes to eligible purchasers in a private offering, and the proceeds of this issuance are intended to be used for general corporate purposes, which may include, without limitation, the redemption of existing senior debt, common stock repurchases and strategic acquisitions. The Notes bear interest at a fixed annual rate of 3.50% through April 14, 2026, payable semi-annually in arrears. As of April 15, 2026, forward, the interest rate on the Notes will generally reset quarterly to a rate equal to Three-Month Term SOFR (as defined by the Note) plus 273 basis points, payable quarterly in arrears. The Notes have a stated maturity of April 15, 2031, and are redeemable, in whole are in part, on April 15, 2026, or any interest payment date thereafter, and at any time upon the occurrence of certain events. The subordinated debentures outstanding, net of deferred issuance costs, totaled $59.6 million and $59.5 million as of December 31, 2025 and 2024, respectively. The Company has an undrawn line of credit of $30.0 million with a correspondent bank to be used for short-term funding needs; advances under this line can be outstanding up to 360 days from the date of issuance. This line of credit has not been utilized since early 2019. Scheduled maturities and weighted average rates of borrowings for the years ended December 31, were as follows: 2025 2024 Weighted Weighted Average Average Balance Rate Balance Rate 2025 $ - -%$ 56,657 2.47% 2026 238,769 3.84 - - 2027 - - - - 2028 - - - - 2029 14,825 4.24 - - 2030 - - - - Thereafter 85,326 3.91 85,240 3.89 Total borrowings $ 338,920 3.88% $141,897 3.32% Note 10: Junior Subordinated Debentures The Company issued $25.0 million of cumulative trust preferred securities through a private placement completed by an additional, unconsolidated subsidiary, Old Second Capital Trust II, in April 2007. These trust preferred securities mature in 30 years, but subject to regulatory approval, can be called in whole or in part on a quarterly basis commencing June 15, 2017. The quarterly cash distributions on the securities were fixed at 6.77% through June 15, 2017, distributions subsequently moved to a floating rate of 150 basis points over three-month LIBOR, and finally 150 basis points over three-month SOFR following the sunset of LIBOR. Upon conversion to a floating rate, a cash flow hedge was initiated which resulted in the total interest rate paid on the debt of 4.47% and 4.37% as of December 31, 2025, and December 31, 2024, respectively. The Company issued a new $25.8 million subordinated debenture to the Old Second Capital Trust II in return for the aggregate net proceeds of this trust preferred offering. The interest rate and payment frequency on the debenture are equivalent to the cash distribution basis on the trust preferred securities.
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Table of Contents 103 The junior subordinated debentures issued by the Company are disclosed on the Consolidated Balance Sheets, and the related interest expense for each issuance is included in the Consolidated Statements of Income. As of December 31, 2025 and 2024, the remaining unamortized debt issuance costs related to the junior subordinated debentures were less than $1,000 and are included as a reduction to the balance of the junior subordinated debentures on the Consolidated Balance Sheets. The remaining deferred issuance costs on the junior subordinated debentures related to the issuance of Old Second Capital Trust II will be amortized to interest expense over the remainder of the 30-year term of the notes and are included in the Consolidated Statements of Income. Note 11: Income Taxes Income Taxes Paid – ASU 2023-09 Disaggregation 2025 2024 2023 Federal $ 15,125 $ 17,943 $ 24,500 States & local Illinois 3,750 3,650 10,430 All other states & local 1,817 1,367 732 Foreign - - - Total net cash taxes paid in the current period $ 20,692 $ 22,960 $ 35,662 Pretax income is entirely related to domestic activities, the Company did not have any foreign operations. The components of income tax expense from continuing operations consisted of the following: 2025 2024 2023 Current tax expense: Federal $ 18,707 $ 22,011 $ 20,724 State 7,141 7,048 10,098 Total 25,848 29,059 30,822 Deferred tax expense (benefit): Federal 1,589 (1,419) 1,964 State 4 52 (107) Total 1,593 (1,367) 1,857 Net provision for income taxes from continuing operations $ 27,441 $ 27,692 $ 32,679 Effective tax rates differ from federal statutory rates applied to financial statement income for the years ended December 31, due to the following: 2025 2024 2023 Amount % of Pretax Income Amount % of Pretax Income Amount % of Pretax Income Tax computed at the statutory federal rate $22,628 21.0% $23,721 21.0% $26,126 21.0% State and local income taxes, net of federal benefit 1 5,645 5.2 5,775 5.1 7,911 6.4 Nontaxable or nondeductible Items BOLI income (763) (0.7) (951) (0.8) (429) (0.3) Tax exempt interest, net (792) (0.7) (820) (0.7) (947) (0.8) Other adjustments Stock based compensation (226) (0.2) (139) (0.1) (132) (0.1) Other, net 949 0.9 106 - 150 0.1 Total tax at effective tax rate $27,441 25.5% $27,692 24.5% $32,679 26.3% 1 State taxes in Illinois made up the majority (greater than 50%) of the tax effect in this category.
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Table of Contents 104 The Company and its subsidiaries are subject to U.S. federal income tax as well as various state taxing jurisdictions. The Company is no longer subject to federal examination for tax years prior to 2022. The components of the net deferred tax asset at December 31, 2025 and 2024 are as follows: 2025 2024 Deferred tax assets: Net operating loss and tax credit carryforwards $ 2,727 $ - Accrued bonus 3,213 2,601 Allowance for credit losses 19,783 12,241 Deferred compensation 2,430 2,100 Stock based compensation 2,231 1,920 Business combination adjustments 2,950 - Lease liability 3,357 3,315 Unrealized loss on securities available for sale 1 12,059 18,145 Unrealized loss on derivatives 1 - 423 Other assets 1,795 2,357 Total deferred tax assets 50,545 43,102 Deferred tax liabilities: Accumulated depreciation on premises and equipment (7,285) (5,844) Goodwill amortization/impairment (871) (604) Mortgage servicing rights (2,484) (2,728) Unrealized gain on derivatives 1 (883) - Amortization of core deposit intangible (2,925) (2,248) Right of use asset (2,103) (1,972) Acquired securities (1,961) (1,997) Other liabilities (757) (1,090) Total deferred tax liabilities (19,269) (16,483) Net deferred tax asset $ 31,276 $ 26,619 1 Represents the amount of deferred taxes recorded in accumulated other comprehensive income. As part of the acquisition of Evergreen in 2025, the Company acquired various federal and state net operating loss carryforwards which are limited under Section 382 of the Internal Revenue Code. As of December 31, 2025, the Company had $11,779 of federal net operating loss carryforwards, $2,219 of Illinois net operating loss carryforwards, and various other immaterial state and local net operating loss carryforwards. The Company expects to utilize all loss carryforwards. At December 31, 2024, the Company had no federal net operating loss carryforwards and no state net operating loss carryforwards. The Company evaluated positive and negative evidence in order to determine if it was more likely than not that the deferred tax asset would be recovered through future income. Significant positive evidence evaluated included recent and projected earnings, strong asset quality and capital position. No significant negative evidence was noted. Note 12: Equity Compensation Plans Stock-based awards are outstanding under the Company’s 2019 Equity Incentive Plan, as amended and restated (the “2019 Plan”). The 2019 Plan was originally approved at the May 2019 annual stockholders’ meeting and authorized 600,000 shares, and at the May 2021 annual stockholders’ meeting, the Company obtained stockholder approval to increase the number of shares of common stock authorized for issuance under the plan by 1,200,000 shares, from 600,000 shares to 1,800,000 shares. At the May 2025 annual stockholders’ meeting, the Company obtained stockholder approval to increase the number of shares of common stock authorized for issuance under the 2019 Plan by an additional 800,000 shares, from 1,800,000 shares to 2,600,000 shares. Following the approval of the 2019 Plan, no further awards will be granted under any other prior plan.
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Table of Contents 105 The 2019 Plan authorizes the granting of qualified stock options, non-qualified stock options, restricted stock, restricted stock units, and stock appreciation rights (“SARs”). Awards may be granted to selected directors, officers, employees or eligible service providers under the 2019 Plan at the discretion of the Compensation Committee of the Company’s Board of Directors. As of December 31, 2025, 1,310,160 shares remained available for issuance under the 2019 Plan. The Company has granted only restricted stock units under the 2019 Equity Incentive Plan. Generally, restricted stock and restricted stock units granted under the 2019 Plan vest three years from the grant date, but the Compensation Committee of the Company’s Board of Directors has discretionary authority to change the terms of particular awards including the vesting schedule. Under the 2019 Plan, unless otherwise provided in an award agreement, upon the occurrence of a change in control, all stock options and SARs then held by the participant will become fully exercisable immediately, and all stock awards and cash incentive awards will become fully earned and vested immediately if, (i) the 2019 Plan is not an obligation of the successor entity following a change in control or (ii) the 2019 Plan is an obligation of the successor entity following a change in control and the participant incurs a termination of service without cause or for good reason following the change in control. Notwithstanding the immediately preceding sentence, if the vesting of an award is conditioned upon the achievement of performance measures, then such vesting will generally be subject to the following: if, at the time of the change in control, the performance measures are less than 50% attained (pro rata based upon the time of the period through the change in control), the award will become vested and exercisable on a fractional basis with the numerator being equal to the percentage of attainment and the denominator being 50%; and if, at the time of the change in control, the performance measures are at least 50% attained (pro rata based upon the time of the period through the change in control), the award will become fully earned and vested immediately upon the change in control. Awards of restricted stock units under the 2019 Plan generally entitled holders to voting and dividend rights upon grant and are subject to forfeiture until certain restrictions have lapsed including employment for a specific period. Awards of restricted stock units under the 2019 Plan are also subject to forfeiture until certain restrictions have lapsed including employment for a specific period, but do not entitle holders to voting rights until the restricted period ends and shares are transferred in connection with the units. Total compensation cost that has been charged for the 2019 Plan was $5.8 million, $4.1 million and $3.6 million for the years ending December 31, 2025, 2024 and 2023, respectively. The tax benefit recorded was $1.5 million, $1.0 million, and $984,000 for the years ending December 31, 2025, 2024, and 2023, respectively. There were 320,269 and 339,235 restricted stock units granted during the year ending December 31, 2025 and 2024, respectively. Compensation expense is recognized over the vesting period of the restricted stock unit based on the market value of the award on the grant date. A summary of changes in the Company’s unvested restricted awards for the year ending December 31, 2025, is as follows: December 31, 2025 Weighted Restricted Average Stock Shares Grant Date and Units Fair Value Unvested at January 1 778,278 $ 14.75 Granted 320,269 18.35 Vested (286,368) 14.35 Unvested at December 31 812,179 $ 16.31 Total unrecognized compensation cost of restricted stock unit awards was $5.3 million as of December 31, 2025, which is expected to be recognized over a weighted-average period of 1.80 years.
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Table of Contents 106 Note 13: Earnings Per Share The earnings per share, both basic and diluted, are included below as of December 31, (in thousands except for per share data): 2025 2024 2023 Basic earnings per share: Weighted-average common shares outstanding 48,875,540 44,828,290 44,663,722 Net income $ 80,310 $ 85,264 $ 91,729 Basic earnings per share $ 1.64 $ 1.90 $ 2.05 Diluted earnings per share: Weighted-average common shares outstanding 48,875,540 44,828,290 44,663,722 Dilutive effect of unvested restricted awards 1 793,999 811,061 731,288 Diluted average common shares outstanding 49,669,539 45,639,351 45,395,010 Net Income $ 80,310 $ 85,264 $ 91,729 Diluted earnings per share $ 1.62 $ 1.87 $ 2.02 1 Includes the common stock equivalents for restricted share rights that are dilutive. Note 14: Commitments In the normal course of business, there are outstanding commitments that are not reflected in the Consolidated Financial Statements. Commitments include financial instruments that involve, to varying degrees, elements of credit, interest rate, and liquidity risk. In management’s opinion, these do not represent unusual risks, and management does not anticipate significant losses as a result of these transactions. The Company uses the same credit policies in making commitments and conditional obligations for borrowers as it does for on-balance sheet instruments. The following table is a summary of financial instrument commitments as of December 31, were as follows: December 31, 2025 December 31, 2024 Fixed Variable Total Fixed Variable Total Letters of credit: Borrower: Financial standby $ 118 $ 26,769 $ 26,887 $ 188 $ 16,322 $ 16,510 Performance standby 512 8,666 9,178 552 10,207 10,759 630 35,435 36,065 740 26,529 27,269 Non-borrower: Performance standby - - - - 67 67 Total letters of credit $ 630 $ 35,435 $ 36,065 $ 740 $ 26,596 $ 27,336 Unused loan commitments $ 174,479 $ 592,658 $ 767,137 $ 163,282 $ 616,533 $ 779,815 The Bank occupies facilities under long-term operating leases, some of which include provisions for future rent increases. In addition, the Company leases space at sites that house automatic teller machines (ATMs). The Company also receives rental income on certain leased properties. As of December 31, 2025, aggregate future minimum rental income to be received under noncancelable leases totaled $251,000. Total facility net operating lease expense or revenue recorded under all operating leases was a net expense of $1.8 million in 2025, $1.2 million in 2024, and $844,000 in 2023. Total ATM lease expense, including the costs related to servicing those ATM’s, was $3.0 million in 2025, $2.4 million in 2024, and $2.1 million in 2023.
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Table of Contents 107 The following table below is the estimated aggregate minimum annual rental commitments at December 31, 2025: 2031 2026 2027 2028 2029 2030 and thereafter Rental commitment $ 3,705 $ 2,639 $ 2,447 $ 2,229 $ 1,681 $ 6,095 Legal proceedings The Company and its subsidiaries, from time to time, pursue collection suits and other actions that arise in the ordinary course of business against their borrowers and are defendants in legal actions arising from normal business activities. Management, after consultation with legal counsel, believes that the ultimate liabilities, if any, resulting from these actions will not have a material adverse effect on the financial position of the Bank or on the consolidated financial position of the Company based on all known information at this time. Note 15: Regulatory & Capital Matters The Bank is subject to the risk-based capital regulatory guidelines, which include the methodology for calculating the risk- weighted Bank assets, developed by the Office of the Comptroller of the Currency (the “OCC”) and the other bank regulatory agencies. In connection with the current economic environment, the Bank’s current level of nonperforming assets and the risk- based capital guidelines, the Bank’s board of directors has established internal capital guidelines under which the Bank generally seeks to maintain a Tier 1 leverage capital ratio of at least eight percent (8%) and a total risk-based capital ratio of at least twelve percent (12%). Bank holding companies are required to maintain minimum levels of capital in accordance with capital guidelines implemented by the Board of Governors of the Federal Reserve System. The general bank and holding company capital adequacy guidelines in force as of the periods reported are shown in the accompanying table, as are the capital ratios of the Company and the Bank, as of December 31, 2025, and December 31, 2024. In July 2013, the U.S. federal banking authorities issued final rules (the “Basel III Rules”) establishing more stringent regulatory capital requirements for U.S. banking institutions, which went into effect on January 1, 2015. The Company and the Bank are subject to regulatory capital requirements administered by federal banking agencies. The capital ratios below are calculated pursuant to the capital requirements in effect for the periods reported below.
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Table of Contents 108 Capital levels and industry defined regulatory minimum required levels at December 31, were as follows: Minimum Capital Well Capitalized Adequacy with CapitalUnder Prompt Corrective Actual Conservation Buffer, if applicable1 Action Provisions2 Amount Ratio Amount Ratio Amount Ratio 2025 Common equity tier 1 capital to risk weighted assets Consolidated $774,990 12.99% $ 417,624 7.00% N/A N/A Old Second National Bank 785,569 13.17 417,539 7.00 $ 387,714 6.50% Total capital to risk weighted assets Consolidated 922,259 15.46 626,626 10.50 N/A N/A Old Second National Bank 847,838 14.22 626,182 10.50 596,363 10.00 Tier 1 capital to risk weighted assets Consolidated 799,990 13.41 507,078 8.50 N/A N/A Old Second National Bank 785,569 13.17 507,011 8.50 477,187 8.00 Tier 1 capital to average assets Consolidated 799,990 11.70 273,501 4.00 N/A N/A Old Second National Bank 785,569 11.49 273,479 4.00 341,849 5.00 2024 Common equity tier 1 capital to risk weighted assets Consolidated $607,294 12.82% $ 331,596 7.00% N/A N/A Old Second National Bank 610,285 12.89 331,419 7.00 $ 307,747 6.50% Total capital to risk weighted assets Consolidated 736,492 15.54 497,630 10.50 N/A N/A Old Second National Bank 654,484 13.82 497,256 10.50 473,577 10.00 Tier 1 capital to risk weighted assets Consolidated 632,294 13.34 402,886 8.50 N/A N/A Old Second National Bank 610,285 12.89 402,438 8.50 378,765 8.00 Tier 1 capital to average assets Consolidated 632,294 11.30 223,821 4.00 N/A N/A Old Second National Bank 610,285 10.90 223,958 4.00 279,947 5.00 1 Amounts are shown inclusive of a capital conservation buffer of 2.50%. 2 The prompt corrective action provisions are only applicable at the Bank level. The Bank exceeded the general minimum regulatory requirements to be considered “well capitalized.” As part of its response to the impact of the COVID-19 pandemic, in the first quarter of 2020, U.S. federal regulatory authorities issued an interim final rule that provided banking organizations that adopted CECL during the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay (i.e., a five-year transition in total). In connection with our adoption of CECL on January 1, 2020, we elected to utilize the five-year CECL transition. The cumulative amount that is not recognized in regulatory capital, in addition to the $3.8 million Day 1 impact of CECL adoption, has been phased in at 25% per year beginning January 1, 2022. As of January 1, 2025, the five-year CECL transition was complete. As of December 31, 2025, the capital measures of the Company above do not include a modified CECL transition adjustment. Dividend Restrictions In addition to the above requirements, banking regulations and capital guidelines generally limit the amount of dividends that may be paid by a Bank without prior regulatory approval. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s profits, combined with the retained profit of the previous two years, subject to the capital requirements described above. As of December 31, 2025, the Company had total dividend availability of $92.8 million from the Bank, per regulatory guidelines. Pursuant to the Basel III rules that were fully phased-in at January 1, 2019, the Bank must keep a capital conservation buffer of 2.5% on all risk-based capital requirements in order to avoid additional limitations on capital distributions.
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Table of Contents 109 Note 16: Fair Value Measurements Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy established by the Company also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Three levels of inputs that may be used to measure fair value are: Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Company has the ability to access as of the measurement date. Level 2: Significant observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data. Level 3: Significant unobservable inputs that reflect a company’s own view about the assumptions that market participants would use in pricing an asset or liability. At December 31, 2025, and December 31, 2024, there were no transfers between levels. The majority of securities are valued by external pricing services or dealer market participants and are classified in Level 2 of the fair value hierarchy. Both market and income valuation approaches are utilized. Quarterly, the Company evaluates the methodologies used by the external pricing services or dealer market participants to develop the fair values to determine whether the results of the valuations are representative of an exit price in the Company’s principal markets and an appropriate representation of fair value. The Company uses the following methods and significant assumptions to estimate fair value: ● Government-sponsored agency debt securities, asset-backed securities, non-agency mortgage-backed securities and CLOs are primarily priced using available market information through processes such as benchmark spreads, market valuations of like securities, like securities groupings and matrix pricing. ● Other government-sponsored agency securities, MBS and some of the actively traded real estate mortgage investment conduits and collateralized mortgage obligations are priced using available market information including benchmark yields, prepayment speeds, spreads, volatility of similar securities and trade date. ● States and political subdivisions are largely grouped by characteristics (e.g., geographical data and source of revenue in trade dissemination systems). Because some securities are not traded daily and due to other grouping limitations, active market quotes are often obtained using benchmarking for like securities. ● Annually every security holding is priced by a pricing service independent of the regular and recurring pricing services used. The independent service provides a measurement to indicate if the price assigned by the regular service is within or outside of a reasonable range. Management reviews this report and applies judgment in adjusting calculations at year end related to securities pricing. ● Residential mortgage loans available for sale in the secondary market are carried at fair market value. The fair value of loans held-for-sale is determined using quoted secondary market prices. ● Lending related commitments to fund certain residential mortgage loans, e.g., residential mortgage loans with locked interest rates to be sold in the secondary market and forward commitments for the future delivery of mortgage loans to third party investors as well as forward commitments for future delivery of MBS are considered derivatives. Fair values are estimated based on observable changes in mortgage interest rates including prices for MBS from the date of the commitment and do not typically involve significant judgments by management. ● The fair value of mortgage servicing rights is based on a valuation model that calculates the present value of estimated net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income to derive the resultant value. The Company is able to compare the valuation model inputs, such as the discount rate, prepayment speeds, weighted average delinquency and foreclosure/bankruptcy rates to widely available published industry data for reasonableness. ● Interest rate swap positions, both assets and liabilities, are based on valuation pricing models using an income approach reflecting readily observable market parameters such as interest rate yield curves. ● The fair value of individually evaluated loans with specific allocations of the ACL is essentially based on recent real estate appraisals or the fair value of the collateralized asset. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are made in the appraisal process by the appraisers to reflect differences between the available comparable sales and income data. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. ● Nonrecurring adjustments to certain commercial and residential real estate properties classified as OREO are measured at the lower of carrying amount or fair value, less costs to sell. Fair values are based on third party appraisals of the property, resulting in a Level 3 classification. In cases where the carrying amount exceeds the fair value, less costs to sell, a valuation loss is recognized.
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Table of Contents 110 Assets and Liabilities Measured at Fair Value on a Recurring Basis: The tables below present the balance of assets and liabilities at December 31, measured by the Company at fair value on a recurring basis are as follows: December 31, 2025 Level 1 Level 2 Level 3 Total Assets: Securities available-for-sale U.S. Treasury $165,860 $ - $ - $ 165,860 U.S. government agencies - 29,176 - 29,176 U.S. government agencies mortgage-backed - 88,780 - 88,780 States and political subdivisions - 199,428 6,947 206,375 Collateralized mortgage obligations - 359,305 359,305 Asset-backed securities - 40,966 4,850 45,816 Collateralized loan obligations - 194,464 - 194,464 Equity securities - 747 - 747 Loans held-for-sale - 3,645 - 3,645 Mortgage servicing rights - - 9,459 9,459 Interest rate derivatives 1 - 4,321 - 4,321 Mortgage banking derivatives - 31 - 31 Total $165,860 $ 920,863 $ 21,256 $1,107,979 Liabilities: Interest rate swap agreements, including risk participation agreements $ - $ 1,157 $ - $ 1,157 Total $ - $ 1,157 $ - $ 1,157 1 Interest rate derivatives include interest rate swaps, a rate cap and risk participation agreements. December 31, 2024 Level 1 Level 2 Level 3 Total Assets: Securities available-for-sale U.S. Treasury $194,143 $ - $ - $ 194,143 U.S. government agencies - 37,814 - 37,814 U.S. government agencies mortgage-backed - 100,277 - 100,277 States and political subdivisions - 203,560 11,896 215,456 Collateralized mortgage obligations - 368,616 - 368,616 Asset-backed securities - 59,049 3,254 62,303 Collateralized loan obligations - 183,092 - 183,092 Loans held-for-sale - 1,556 - 1,556 Mortgage servicing rights - - 10,374 10,374 Interest rate derivatives 1 - 5,526 - 5,526 Mortgage banking derivatives - 55 - 55 Total $194,143 $ 959,545 $ 25,524 $1,179,212 Liabilities: Interest rate swap agreements, including risk participation agreements $ - $ 3,192 $ - $ 3,192 Total $ - $ 3,192 $ - $ 3,192 1 Interest rate derivatives include interest rate swaps, a rate cap and risk participation agreements.
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Table of Contents 111 The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are as follows: Year Ended December 31, 2025 Securities available-for-sale States and Mortgage Asset-backed Political Servicing Securities Subdivisions Rights Beginning balance January 1, 2025 $ 3,254 $ 11,896 $ 10,374 Transfers out of Level 3 - - - Total gains or losses Included in earnings - - (1,390) Included in other comprehensive income (53) (21) - Purchases, issuances, sales, and settlements Purchases 2,036 - - Issuances - - 1,003 Settlements (387) (4,928) (528) Ending balance December 31, 2025 $ 4,850 $ 6,947 $ 9,459 Year Ended December 31, 2024 Securities available-for-sale States and Mortgage Asset-backed Political Servicing Securities Subdivisions Rights Beginning balance January 1, 2024 $ 2,270 $ 13,059 $ 10,344 Transfers out of Level 3 - - - Total gains or losses Included in earnings - (125) (160) Included in other comprehensive income (69) (444) - Purchases, issuances, sales, and settlements Purchases 1,209 - - Issuances - - 753 Settlements (156) (594) (563) Ending balance December 31, 2024 $ 3,254 $ 11,896 $ 10,374
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Table of Contents 112 The following table and commentary present quantitative and qualitative information about Level 3 fair value measurements as of December 31, 2025: Weighted Measured at fair value Significant Unobservable Average on a recurring basis: Fair Value Valuation Methodology Inputs Range of Input of Inputs States and political subdivisions$ 6,947 Discounted Cash Flow Discount Rate 3.5 - 3.6% 3.5% Liquidity Premium 0.5 - 0.5% 0.5% Asset-backed securities $ 4,850 Discounted Cash Flow Discount Rate 4.9 - 4.9% 4.9% Mortgage servicing rights $ 9,459 Discounted Cash Flow Discount Rate 9.0 - 9.0% 9.0% Prepayment Speed 0.0 - 33.2% 8.2% The following table and commentary present quantitative and qualitative information about Level 3 fair value measurements as of December 31, 2024: Weighted Measured at fair value Significant Unobservable Average on a recurring basis: Fair Value Valuation Methodology Inputs Range of Input of Inputs States and political subdivisions$ 11,896 Discounted Cash Flow Discount Rate 5.3 – 5.4% 5.4% Liquidity Premium 0.5 – 0.5% 0.5% Asset-backed securities $ 3,254 Discounted Cash Flow Discount Rate 4.9 – 4.9% 4.9% Mortgage servicing rights $ 10,374 Discounted Cash Flow Discount Rate 9.0 – 11.0% 9.0% Prepayment Speed 0.0 – 31.5% 6.9% Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis: The Company may be required, from time to time, to measure certain other assets at fair value on a nonrecurring basis in accordance with GAAP. These assets consist of individually evaluated loans and OREO. For assets measured at fair value on a nonrecurring basis at December 31, the following tables provide the level of valuation assumptions used to determine each valuation and the carrying value of the related assets: December 31, 2025 Level 1 Level 2 Level 3 Total Individually evaluated loans1 $ - $ - $ 34,430 $ 34,430 Other real estate owned, net2 - - 1,427 1,427 Total $ - $ - $ 35,857 $ 35,857 1 Represents carrying value and related write-downs of loans for which adjustments are substantially based on the appraised value of collateral for collateral-dependent loans and to a lesser extent the discounted cash flow, had a carrying amount of $40.9 million and a valuation allowance of $6.4 million, resulting in a decrease of specific allocations within the provision for credit losses of $747,000 for the year ending December 31, 2025. 2 OREO is measured at the lower of carrying or fair value less costs to sell, and had a net carrying amount of $1.4 million, which is made up of the outstanding balance of $2.1 million, net of a valuation allowance of $632,000, at December 31, 2025. December 31, 2024 Level 1 Level 2 Level 3 Total Individually evaluated loans1 $ - $ - $ 19,058 $ 19,058 Other real estate owned, net2 - - 21,617 21,617 Total $ - $ - $ 40,675 $ 40,675 1 Represents carrying value and related write-downs of loans for which adjustments are substantially based on the appraised value of collateral for collateral-dependent loans and to a lesser extent the discounted cash flow, had a carrying amount of $26.2 million and a valuation allowance of $7.2 million, resulting in an increase of specific allocations within the provision for credit losses of $3.9 million for the year ending December 31, 2024. 2 OREO is measured at the lower of carrying or fair value less costs to sell, and had a net carrying amount of $21.6 million, which is made up of the outstanding balance of $23.5 million, net of a valuation allowance of $1.9 million at December 31, 2024.
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Table of Contents 113 These OREO and individually evaluated loan valuations include assumptions related to cash flow projections, discount rates, and recent comparable sales. The numerical range of unobservable inputs for these valuation assumptions are not meaningful. Note 17: Fair Value of Financial Instruments The estimated fair values approximate carrying amount for all items except those described in the following table. Securities available-for-sale fair values are based upon market prices or dealer quotes, and if no such information is available, on the rate and term of the security. The carrying value of FHLBC stock approximates fair value as the stock is nonmarketable and can only be sold to the FHLBC or another member institution at par. FHLBC stock is carried at cost and considered a Level 2 fair value. For December 31, 2025 and 2024, the fair values of loans and leases are estimated on an exit price basis incorporating discounts for credit, liquidity and marketability factors. The fair value of time deposits is estimated using discounted future cash flows at current rates offered for deposits of similar remaining maturities. The fair values of borrowings were estimated based on interest rates available to the Company for debt with similar terms and remaining maturities. The fair value of off balance sheet volume is not considered material. The carrying amount and estimated fair values of financial instruments at December 31, were as follows: December 31, 2025 Carrying Fair Amount Value Level 1 Level 2 Level 3 Financial assets: Cash and due from banks $ 51,665 $ 51,665 $ 51,665 $ - $ - Interest earning deposits with financial institutions 72,360 72,360 72,360 - - Securities available-for-sale 1,090,523 1,090,523 165,860 912,866 11,797 FHLBC and FRBC stock 32,025 32,025 - 32,025 - Loans held-for-sale 3,645 3,645 - 3,645 - Net loans 5,179,830 5,032,472 - - 5,032,472 Mortgage servicing rights 9,459 9,459 - - 9,459 Interest rate swap and rate cap agreements 4,298 4,298 - 4,298 - Interest rate lock commitments and forward contracts 31 31 - 31 - Interest receivable on securities and loans 30,344 30,344 - 30,344 - Financial liabilities: Noninterest bearing deposits $ 1,739,117 $ 1,739,117 $ 1,739,117 $ - $ - Interest bearing deposits 3,856,952 3,850,530 - 3,850,530 - Securities sold under repurchase agreements 23,769 23,769 - 23,769 - Other short-term borrowings 215,000 215,000 - 215,000 - Junior subordinated debentures 25,774 21,522 - 21,522 - Subordinated debentures 59,552 57,973 - 57,973 - Note payable and other borrowings 14,825 15,049 - 15,049 - Interest rate swap and rate cap agreements 1,143 1,143 - 1,143 - Interest payable on deposits and borrowings 5,451 5,451 - 5,451 -
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Table of Contents 114 December 31, 2024 Carrying Fair Amount Value Level 1 Level 2 Level 3 Financial assets: Cash and due from banks $ 52,175 $ 52,175 $ 52,175 $ - $ - Interest earning deposits with financial institutions 47,154 47,154 47,154 - - Securities available-for-sale 1,161,701 1,161,701 194,143 952,408 15,150 FHLBC and FRBC stock 19,441 19,441 - 19,441 - Loans held-for-sale 1,556 1,556 - 1,556 - Net loans 3,937,717 3,818,303 - - 3,818,303 Interest rate swap and rate cap agreements 5,498 5,498 - 5,498 - Interest rate lock commitments and forward contracts 55 55 - 55 - Interest receivable on securities and loans 24,598 24,598 - 24,598 - Financial liabilities: Noninterest bearing deposits $ 1,704,920 $1,704,920 $1,704,920 $ - $ - Interest bearing deposits 3,063,811 3,056,180 - 3,056,180 - Securities sold under repurchase agreements 36,657 36,657 - 36,657 - Other short-term borrowings 20,000 20,000 - 20,000 - Junior subordinated debentures 25,773 21,444 - 21,444 - Subordinated debentures 59,467 54,533 - 54,533 - Interest rate swap and rate cap agreements 3,187 3,187 - 3,187 - Interest payable on deposits and borrowings 3,871 3,871 - 3,871 - Note 18: Financial Instruments with Off-Balance Sheet Risk and Derivative Transactions Risk Management Objective of Using Derivatives The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s loan portfolio. Cash Flow Hedges of Interest Rate Risk The Company’s objectives in using interest rate derivatives are to add stability to interest income and expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. The aggregate fair value of the swaps are recorded in other assets or other liabilities with changes in fair value recorded in other comprehensive income, net of tax. The amount included in other comprehensive income would be reclassified to current earnings should all or a portion of the hedge no longer be considered effective. For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income and subsequently reclassified into interest income or interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest income or expense as interest payments are received on the variable rate loan pools or paid on the Company’s fixed-rate borrowings. As of December 31, 2025, interest rate swaps with notional amounts totaling $300.0 million have matured. As of December 31, 2024, interest rate swaps with notional amounts totaling $300.0 million were designated as cash flow hedges of certain variable rate commercial and commercial real estate loan pools. Each of these hedges were executed to pay variable and receive fixed rate cash flows. Each of these hedges was determined to be effective during all periods presented. An interest rate swap with a notional amount of $25.8 million as of December 31, 2025 and 2024, is designated as a cash flow hedge of junior subordinated debentures and was executed to pay fixed and receive variable rate cash flows. The hedge was determined to be effective during all periods presented and the Company expects the hedge to remain effective during the remaining terms of the swap.
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Table of Contents 115 During the next twelve months, the Company estimates that an additional $220,000 will be reclassified as an increase to interest expense. Non-designated Hedges Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. The notional amounts of interest rate swaps with its loan customers as of December 31, 2025 and 2024 were $125.8 million and $121.2 million, respectively. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings. At December 31, 2025, the Company had $660,000 of cash collateral pledged with one correspondent financial institution and held $3.5 million of cash pledged from one correspondent financial institutions to support the interest rate swap activity during 2025. At December 31, 2024, the Company had $2.3 million of cash collateral pledged with one correspondent financial institutions and held $5.2 million of cash pledged from two correspondent financial institution to support the interest rate swap activity during 2024. No investment securities were required to be pledged to any correspondent financial institution during 2025 or 2024. The Company offsets derivative assets and liabilities that are subject to a master netting arrangement. The Company also grants mortgage loan interest rate lock commitments to borrowers, subject to normal loan underwriting standards. The interest rate risk associated with these loan interest rate lock commitments is managed with contracts for future deliveries of loans as well as selling forward mortgage-backed securities contracts. Loan interest rate lock commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The notional amount of these commitments at December 31, 2025 and 2024 were $14.8 million and $8.7 million, respectively. Commitments to originate residential mortgage loans held-for-sale and forward commitments to sell residential mortgage loans or forward MBS contracts are considered derivative instruments and changes in the fair value are recorded to mortgage banking revenue. Fair values are estimated based on observable changes in mortgage interest rates including mortgage-backed securities prices from the date of the commitment.
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Table of Contents 116 The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Balance Sheets as of December 31, were as follows: Fair Value of Derivative Instruments December 31, 2025 No. of Trans. Notional Amount $ Balance Sheet Location Fair Value $ Balance Sheet Location Fair Value $ Derivatives designated as hedging instruments Interest rate swap agreements 1 25,774Other Assets 3,155 Other Liabilities - Total derivatives designated as hedging instruments 3,155 - Derivatives not designated as hedging instruments Interest rate swaps with commercial loan customers12 125,808Other Assets 1,143 Other Liabilities 1,143 Interest rate lock commitments and forward contracts40 14,790Other Assets 31 Other Liabilities - Other contracts 5 63,080Other Assets 23 Other Liabilities 14 Total derivatives not designated as hedging instruments 1,197 1,157 December 31, 2024 No. of Trans. Notional Amount $ Balance Sheet Location Fair Value $ Balance Sheet Location Fair Value $ Derivatives designated as hedging instruments Interest rate swap agreements 5 325,774Other Assets 3,823 Other Liabilities 1,512 Total derivatives designated as hedging instruments 3,823 1,512 Derivatives not designated as hedging instruments Interest rate swaps with commercial loan customers and rate cap 13 154,137Other Assets 1,675 Other Liabilities 1,675 Interest rate lock commitments and forward contracts30 8,667 Other Assets 55 Other Liabilities - Other contracts 5 58,259Other Assets 28 Other Liabilities 5 Total derivatives not designated as hedging instruments 1,758 1,680 Disclosure of the Effect of Fair Value and Cash Flow Hedge Accounting The fair value and cash flow hedge accounting related to derivatives covered under ASC Subtopic 815-20 impacted Accumulated Other Comprehensive Income (“AOCI”) and the Income Statement. The gain recognized in AOCI on derivatives totaled $2.3 million and $1.7 million as of December 31, 2025, and December 31, 2024, and loss recognized in AOCI on derivatives totaled $2.2 million as of December 31, 2023. The amount of the loss reclassified from AOCI to interest expense on the income statement totaled $1.3 million, $6.0 million and $5.6 million for the years ended December 31, 2025, 2024, and 2023, respectively. Credit-risk-related Contingent Features For derivative transactions involving counterparties who are lending customers of the Company, the derivative credit exposure is managed through the normal credit review and monitoring process, which may include collateralization, financial covenants and/or financial guarantees of affiliated parties. Agreements with such customers require that losses associated with derivative transactions receive payment priority from any funds recovered should a customer default and ultimate disposition of collateral or guarantees occur. Credit exposure to broker/dealer counterparties is managed through agreements with each derivative counterparty that require collateralization of fair value gains owed by such counterparties. Some small degree of credit exposure exists due to timing differences between when a gain may occur and the subsequent point in time that collateral is delivered to secure that gain. This is monitored by the Company and procedures are in place to minimize this exposure. Such agreements also require the Company to collateralize counterparties in circumstances wherein the fair value of the derivatives result in loss to the Company.
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Table of Contents 117 Other provisions of such agreements define certain events that may lead to the declaration of default and/or the early termination of the derivative transaction(s), including the following: ● if the Company either defaults or is capable of being declared in default on any of its indebtedness (exclusive of deposit obligations); ● if a merger occurs that materially changes the Company's creditworthiness in an adverse manner; or ● if certain specified adverse regulatory actions occur, such as the issuance of a Cease and Desist Order, or citations for actions considered Unsafe and Unsound or that may lead to the termination of deposit insurance coverage by the Federal Deposit Insurance Corporation. Note 19: Preferred Stock Preferred stock of 300,000 shares is authorized but unissued as of December 31, 2025 and 2024. Note 20: Parent Company Condensed Financial Information Condensed Balance Sheets for the years ended December 31, were as follows: 2025 2024 Assets Noninterest bearing deposit with bank subsidiary $ 65,253 $ 78,007 Investment in subsidiaries 905,722 671,894 Securities available-for-sale, at fair value 747 - Other assets 11,526 7,457 Total assets $ 983,248 $ 757,358 Liabilities and Stockholders’ Equity Junior subordinated debentures $ 25,774 $ 25,773 Subordinated debt 59,552 59,467 Other liabilities 1,154 1,084 Stockholders’ equity 896,768 671,034 Total liabilities and stockholders' equity $ 983,248 $ 757,358 Condensed Statements of Income for the years ended December 31 were as follows: 2025 2024 2023 Operating Income Cash dividends received from subsidiaries $ 70,000 $ 55,000 $ 65,000 Other income 51 59 67 Total operating income 70,051 55,059 65,067 Operating Expenses Junior subordinated debentures 1,152 1,127 1,095 Subordinated debt 2,185 2,185 2,185 Senior notes - - 2,408 Notes payable - - 87 Other interest expense 71 - - Other expenses 10,773 6,209 5,947 Total operating expense 14,181 9,521 11,722 Income before income taxes and equity in undistributed net income of subsidiaries 55,870 45,538 53,345 Income tax benefit (3,817) (2,644) (3,309) Income before equity in undistributed net income of subsidiaries 59,687 48,182 56,654 Equity in undistributed net income of subsidiaries 20,623 37,082 35,075 Net income available to common stockholders $ 80,310 $ 85,264 $ 91,729
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Table of Contents 118 Condensed Statements of Cash Flows for the years ended December 31, were as follows: 2025 2024 2023 Cash Flows from Operating Activities Net Income $ 80,310 $ 85,264 $ 91,729 Adjustments to reconcile net income to net cash from operating activities: Equity in undistributed net income of subsidiaries (20,623) (37,082) (35,075) Provision for deferred tax benefit (189) (152) (513) Change in taxes payable 145 (250) 794 Change in other assets (10,092) 12 (43) Stock-based compensation 5,550 3,914 3,603 Other, net (240) 76 575 Net cash provided by operating activities 54,861 51,782 61,070 Cash Flows from Investing Activities Cash paid for acquisition, net of cash and cash equivalents retained (47,963) - - Net cash used in investing activities (47,963) - - Cash Flows from Financing Activities Dividend paid on common stock (12,240) (9,413) (8,946) Purchases of treasury stock (7,412) (1,048) (605) Repayment of term note - - (9,000) Repayment of senior note - - (45,000) Net cash used in financing activities (19,652) (10,461) (63,551) Net change in cash and cash equivalents (12,754) 41,321 (2,481) Cash and cash equivalents at beginning of year 78,007 36,686 39,167 Cash and cash equivalents at end of year $ 65,253 $ 78,007 $ 36,686 Note 21: Employee Benefit Plans Old Second Bancorp, Inc. Employees 401(k) Savings Plan and Trust The Company sponsors a qualified, tax-exempt defined contribution plan (the “401(k) Plan”) qualifying under section 401(k) of the Internal Revenue Code. Virtually all employees are eligible to participate after meeting certain age and service requirements. Eligible employees are permitted to contribute up to a dollar limit set by law of their compensation to the 401(k) Plan. For the years ended December 31, 2025, 2024 and 2023, a discretionary match equal to 100% of the first 3% and 50% of the next 2% was made to participants of the 401(k) Plan. Participants are 100% vested in the discretionary matching contributions. Participants can choose between several different investment options under the 401(k) Plan, including shares of the Company’s common stock. An additional component of the 401(k) Plan arrangement allows the Company to make annual discretionary profit-sharing contributions based on the Company’s profitability in a given year, and on each participant’s annual compensation. The Company elected not to make a discretionary profit-sharing contribution for the years end December 31, 2025, 2024 and 2023. The total expense relating to the 401(k) Plan was approximately $2.7 million in 2025, $2.3 million in 2024 and $2.2 million in 2023. Old Second Bancorp, Inc. Voluntary Deferred Compensation Plan for Executives and Directors The Company sponsors a deferred compensation plan, which is a means by which certain executives and directors may voluntarily defer a portion of their salary, bonus and directors fees, as applicable. This plan is an unfunded, nonqualified deferred compensation arrangement. Company obligations under this arrangement of $9.3 million and $8.0 million as of December 31, 2025 and 2024, respectively, are included in other liabilities.
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Table of Contents 119 Note 22: Segment Information Various identifiable operating segments provide a variety of revenue streams including loans, deposits, and wealth management services. The Company’s Chief Operating Decision Maker (CODM) is the Chief Financial Officer. Through our wholly-owned subsidiary, Old Second National Bank, we offer a wide variety of community banking services primarily throughout the Chicagoland area, including commercial and consumer lending and deposit services, and a wide array of wealth management services. The accounting policies for the services discussed here are the same as those described in Note 1: Summary of Significant Accounting Policies. We earn interest income on portfolio loans, fee income on loan originations and commitments, fees charged on certain deposit accounts, as well as fees related to wealth management services. Although information is available on each of the individual revenue streams, the CODM manages, allocates resources, and evaluates performance on a company-wide basis. The CODM uses consolidated net income to evaluate the financial performance of the Company’s business along with budget to actual results in assessing the Company’s performance and in determining the allocation of resources whether it be to reinvest in the Company or deploy capital in order to maximize shareholder value. The chief operating decision maker uses consolidated net income and return on average assets to benchmark the Company against competitors as well as against prior periods. On a regular basis the CODM is provided consolidated income and expense, assets, liabilities, and equity, in the same manner that is presented publicly on the Consolidated Statements of Income and Consolidated Balance Sheets, to assess performance and allocate resources throughout the Company. Further, additional internal financial information is provided to the CODM in order to assess credit quality in each of our lending segments. Accordingly, the Company has determined that it has only one reportable segment, Community Banking.
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Table of Contents 120 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors of Old Second Bancorp, Inc. Opinions on the Consolidated Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Old Second Bancorp, Inc. and its subsidiaries (the “Company”) as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income (loss), changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2025, and the related notes (collectively referred to as the “financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO framework”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the years in the three- year period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in the COSO framework. Basis for Opinions The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.
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Table of Contents 121 Allowance for Credit Losses on Collectively Evaluated Loans – Refer to Notes 1 and 5 to the financial statements Critical Audit Matter Description Management’s estimate of the allowance for credit losses (ACL) at December 31, 2025, includes a reserve on collectively evaluated loans. Significant assumptions in management’s estimate of the reserve on collectively evaluated loans include (i) the length of the reasonable and supportable forecast period, (ii) the estimated remaining life of each segment, and (iii) qualitative factor adjustments. In evaluating whether qualitative factor adjustments are necessary, management considers internal and external qualitative and credit market risk factors as described in Note 1 to the financial statements. Significant judgment was required by management in the selection and application of subjective assumptions. Accordingly, performing audit procedures to evaluate the Company’s estimated ACL on collectively evaluated loans involved a high degree of auditor judgment and required significant effort, including the involvement of professionals with specialized skill and knowledge. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the Company’s estimate of the ACL on collectively evaluated loans included, but were not limited to, the following: ● We tested the design and operating effectiveness of management’s controls over key assumptions and judgments, the estimation model for loan portfolios, and management’s determination of qualitative adjustments. ● We tested management’s process for determining reserves on collectively evaluated loans including:o Evaluation of the appropriateness of management’s methodology.o Testing the completeness and accuracy of data utilized by management.o Evaluation of the relevance and reliability of information used by management in the development of the estimate.o Evaluation of the reasonableness of significant assumptions used in the estimate, including consideration of whether assumptions used were reasonable given portfolio composition; relevant external factors, including economic conditions; and consideration of historical or recent experience and conditions and events affecting the Company. Valuation of the Acquired Loan Portfolio – Refer to Notes 1 and 2 to the financial statements Critical Audit Matter Description During 2025 the Company acquired Bancorp Financial, Inc. In connection with the acquisition, management estimated the fair value of acquired loans based on a discounted cash flow methodology that involves assumptions about credit risk, prepayments, discount rates, and either expected lifetime losses or credit risk and losses at default. Significant judgment was required by management in the selection and application of certain subjective assumptions. Accordingly, performing audit procedures to evaluate the Company’s estimate of the fair value of acquired loans involved a high degree of auditor judgment and required significant effort, including the involvement of professionals with specialized skill and knowledge. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the Company’s valuation of the acquired loan portfolio included, but was not limited to, the following: ● We tested the design and operating effectiveness of controls including management’s review of the fair value calculations performed by a third-party valuation specialist, completeness and accuracy of data, and reasonableness of key assumptions and inputs used in the estimate. ● We tested management’s process for estimating the fair value of acquired loans including:o Evaluation of the competence and objectivity of specialists engaged by management to assist in the valuation of acquired loans.o Involvement of valuation specialists to assist us in testing the reasonableness and application of management’s methodology and significant assumptions used in the estimate.o Evaluation of the completeness and accuracy of data used in the estimate.o Evaluation of the relevance and reliability of information used in the development of the estimate.o Evaluation of the reasonableness of significant assumptions used in the estimate, including comparison to third party market sources, where available. /s/ Plante & Moran PLLC We have served as the Company’s auditor since 2010. Chicago, Illinois February 26, 2026
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Table of Contents 122 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures The Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 2025. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2025, the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and such information is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers as appropriate to allow timely decisions regarding required disclosure. There were no changes in the Company’s internal control over financial reporting during the quarter ended December 31, 2025, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Management’s Report on Internal Control Over Financial Reporting The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a–15(f) under the Exchange Act. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles (GAAP). As of December 31, 2025, management assessed the effectiveness of the Company’s internal control over financial reporting based on the framework established in the “Internal Control - Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management has determined that the Company’s internal control over financial reporting was effective as of December 31, 2025, based on the criteria specified. Plante & Moran PLLC, the independent registered public accounting firm that audited the consolidated financial statements of the Company included in this Annual Report on Form 10-K, has issued an audit report, included herein, on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2025. Item 9B. Other Information Trading Plans During the three months ended December 31, 2025, no director or “officer” of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. PART III Item 10. Directors, Executive Officers and Corporate Governance The Company incorporates by reference the information required by Item 10 that is contained in the Proxy Statement for the 2026 Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, 2025, on form DEF 14A (the “Proxy Statement”), under the following captions: ● “Proposal 1—Election of Directors,” including “—Director Experience” and “—Biographical Information for Executive Officers;” ● “Corporate Governance and the Board of Directors—Code of Business Conduct and Ethics;” and ● “Corporate Governance and the Board of Directors —Committees of the Board of Directors—Audit Committee;” ● “Insider Trading Policies and Procedures;” and ● “Delinquent Section 16(a) Reports.” There have been no material changes to the procedures by which security holders may recommend nominees to our Board of Directors.
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Table of Contents 123 Item 11. Executive Compensation The Company incorporates by reference the information required by Item 11 that is contained in our Proxy Statement under the following captions: ● “Compensation Discussion and Analysis;” ● “Compensation Committee Report;” ● “Executive Compensation;” ● “Director Compensation;” and ● “Corporate Governance and the Board of Directors—Compensation Committee Interlocks and Insider Participation.” Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The following table sets forth information for (i) all equity compensation plans previously approved by the Company’s stockholders and (ii) all equity compensation plans not previously approved by the Company’s stockholders. Equity compensation includes options, warrants, rights and restricted stock units which may be granted from time to time. As of December 31, 2025, the below equity awards were outstanding: Equity Compensation Plan Information Number of securities Weighted-average to be issued upon the exercise price of Number of exercise of outstanding outstanding options securities remaining options and restricted and restricted available for future Plan category stock units stock units issuance Equity compensation plans approved by security holders1 812,179 $ 16.31 1,310,160 Equity compensation plans not approved by security holders - - - Total 812,179 $ 16.31 1,310,160 1 Reflects the outstanding awards and the total remaining share reserve under our 2019 Equity Incentive Plan, as Amended and Restated. The Company incorporates by reference the information required by Item 12 regarding security ownership that is contained in our Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners and Management.” Item 13. Certain Relationships and Related Transactions, and Director Independence The Company incorporates by reference the information that is required by this Item 13 that is contained in our Proxy Statement under the captions “Corporate Governance and the Board of Directors - Director Independence” and “- Certain Relationships and Related Party Transactions.” Item 14. Principal Accountant Fees and Services The Company incorporates by reference the information required by this Item 14 that is contained in our Proxy Statement under the caption “Ratification of our Independent Public Accountants.” Independent Registered Public Accounting Firm: Name: Plante & Moran, PLLC Location: Chicago, Illinois PCAOB ID: 166
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Table of Contents 124 PART IV Item 15. Exhibits and Financial Statement Schedules (1) Index to Financial Statements: See Part II--Item 8. Financial Statements and Supplementary Data. (2) Financial Statement Schedules All financial statement schedules as required by Item 8 of Form 10-K have been omitted because the information requested is either not applicable or has been included in the consolidated financial statements or notes thereto. (3) Exhibits: See Exhibit Index. Item 16. Form 10-K Summary Not Applicable. Exhibits: EXHIBIT NO. EXHIBIT INDEX Description of Exhibits 2.1 Agreement and Plan of Merger between Old Second Bancorp, Inc. and Bancorp Financial, Inc. dated as of February 24, 2025 (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K filed on February 25, 2025).+ 3.1 Restated Certificate of Incorporation of Old Second Bancorp, Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Annual Report on Form 10-K filed on March 11, 2016. 3.2 Amendment to Old Second Bancorp, Inc.’s Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on May 22, 2019). 3.3 Certificate of Elimination Eliminating References to Series A Junior Participating Preferred Stock From the Restated Certificate of Incorporation, as Amended, of Old Second Bancorp. Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on June 5, 2019). 3.4 Amendment to Old Second Bancorp, Inc.’s Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on May 28, 2025). 3.5 Bylaws of Old Second Bancorp, Inc., as amended and restated through November 4, 2020 (incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed on November 6, 2020). 4.1 Specimen Common Stock Certificate of Old Second Bancorp, Inc. (incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-1 filed on January 17, 2014). 4.2 Indenture, dated as of December 15, 2016, between the Company and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed on December 15, 2016). 4.3 First Supplemental Indenture, dated as of December 15, 2016, between the Company and Wells Fargo Bank National Association (incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed on December 15, 2016). 4.4 Form of 5.750% Fixed-to-Floating Rate Senior Notes Due 2026 (incorporated by reference to Exhibit 5.1 of the Company’s Current Report on Form 8-K filed on December 15, 2016). 4.5# Description of Capital Stock.
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Table of Contents 125 4.6 Form of 3.50% Fixed-to-Floating Subordinated Note due April 15, 2031 of Old Second Bancorp, Inc. (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed on April 7, 2021). 10.1 Indenture between Old Second Bancorp, Inc. as issuer, and Wells Fargo Bank, National Association, as Trustee, dated as of April 30, 2007 (incorporated by reference to Exhibit 99(b)(2) of the Company’s Amendment No. 1 to Schedule TO filed on May 2, 2007). 10.2* Employment Agreement, dated September 16, 2014, by and among Old Second Bancorp, Inc. and James L. Eccher (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on September 18, 2014). 10.3* Employment Agreement between Mr. Gary Collins and Old Second Bancorp, Inc. dated March 20, 2024 (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on March 26, 2024). 10.4* Offer letter, dated April 3, 2017, between the Company and Bradley Adams (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on August 7, 2017). 10.5* Revised Compensation and Benefits Assurance Agreement, dated as of April 25, 2017, between the Company and Gary Collins (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on April 28, 2017). 10.6* Compensation and Benefits Assurance Agreement, dated May 2, 2017, between the Company and Bradley Adams (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q filed on August 7, 2017). 10.7* First Amendment of Old Second Bancorp, Inc. Employment Agreement with James Eccher dated as of September 1, 2017 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on September 1, 2017). 10.8* Form of Compensation and Benefits Assurance Agreement (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on September 1, 2017). Pursuant to Instruction 2 of Item 601, one form of Compensation and Benefits Assurance Agreement has been filed which has been executed by Donald Pilmer. 10.9* Executive Annual Incentive Plan dated February 19, 2018 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on February 23, 2018). 10.10* Old Second Bancorp, Inc. 2019 Equity Incentive Plan, as Amended and Restated (incorporated by reference to Appendix A to the Company’s definitive proxy statement for the Annual Meeting filed with the SEC on April 16, 2021). 10.11* Form of Time Vesting Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 4.8 to the Company’s Registration Statement on Form S-8 filed on May 29, 2019). 10.12* Form of Director Time Vesting Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 4.9 to the Company’s Registration Statement on Form S-8 filed on May 29, 2019). 10.13* Old Second Bancorp, Inc. Voluntary Deferred Compensation Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 29, 2020). 10.14* Form of Performance-Based Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 18, 2021). 10.15* Compensation and Benefits Assurance Agreement dated as of March 16, 2021, between Old Second Bancorp, Inc. and Richard A. Gartelmann, Jr., Executive Vice President (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 19, 2021). 10.16 Form of Subordinated Note Purchase Agreement, dated as of April 6, 2021, by and among Old Second Bancorp, Inc. and the Purchasers (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on April 7, 2021). 10.17* Form of Performance-Based Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.17 of the Company’s Annual Report on Form 10-K filed on March 6, 2025).
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Table of Contents 126 10.18* Executive Employment Agreement, dated February 24, 2025, between Old Second Bancorp, Inc. and Darin Campbell (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on July 1, 2025). 19.1 Insider Trading Policy (incorporated by reference to Exhibit 19.1 of the Company’s Annual Report on Form 10-K filed on March 6, 2025). 21.1# A list of all subsidiaries of the Company. 23.1# Consent of Plante & Moran, PLLC. 24.1# Power of Attorney (contained herein as part of the signature pages). 31.1# Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a). 31.2# Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a). 32.1# Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2# Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002. 97 Old Second Bancorp, Inc. Clawback Policy dated August 15, 2023 (incorporated by reference to Exhibit 97 of the Company’s Annual Report on Form 10-K filed on March 6, 2025). 101# Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets dated December 31, 2025, and December 31, 2024; (ii) Consolidated Statements of Income for the Years Ended December 31, 2025, 2024 and 2023; (iii) Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2025, 2024 and 2023; (iv) Consolidated Statements of Cash Flows for the Years Ended December 31, 2025, 2024 and 2023; (v) Changes in Stockholders’ Equity for the Years Ended December 31, 2025, 2024 and 2023; and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and in detail. 104# The cover page from the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, formatted in inline XBRL and contained in Exhibit 101. *Management contract or compensatory plan or arrangement. +Schedules and similar attachments have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant will furnish supplementally a copy of any omitted schedules or similar attachment to the SEC upon request. # Filed herewith.
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Table of Contents 127 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OLD SECOND BANCORP, INC. BY: /s/ James L. Eccher James L. Eccher Chairman, President and Chief Executive Officer DATE: February 26, 2026
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Table of Contents SIGNATURES (Continued) KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints James L. Eccher, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date Chairman of the Board, President and Chief Executive Officer, Director of Old Second Bancorp and /s/ James L. Eccher Old Second National Bank (principal executive officer) February 26, 2026 James L. Eccher Executive Vice President, Chief Operating Officer and Chief Financial Officer /s/ Bradley S. Adams (principal financial and accounting officer) February 26, 2026 Bradley S. Adams /s/ Gary Collins Vice Chairman of the Board, Director February 26, 2026 Gary Collins /s/ Darin Campbell Executive Vice President, National Specialty Lending, Director February 26, 2026 Darin Campbell /s/ Edward Bonifas Director February 26, 2026 Edward Bonifas /s/ Barry Finn Director February 26, 2026 Barry Finn /s/ Dennis Klaeser Director February 26, 2026 Dennis Klaeser /s/ Keith Kotche Director February 26, 2026 Keith Kotche /s/ Billy J. Lyons Director February 26, 2026 Billy J. Lyons /s/ Hugh McLean Director February 26, 2026 Hugh McLean /s/ Patti Temple Rocks Director February 26, 2026 Patti Temple Rocks /s/ John Williams, Jr. Director February 26, 2026 John Williams, Jr.
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128 /s/ Jill E. York Director February 26, 2026 Jill E. York
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Exhibit 4.5 DESCRIPTION OF OLD SECOND BANCORP, INC. CAPITAL STOCK References to “we,” “us” or “our” and the “Company” herein refer to Old Second Bancorp, Inc., a Delaware corporation. This summary does not purport to be complete and is subject to and is qualified in its entirety by reference to the applicable provisions of our Restated Certificate of Incorporation (as amended, the “Certificate of Incorporation”) and our Bylaws (as amended and restated, the “Bylaws”), each of which is incorporated herein by reference as an exhibit to our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “Commission”) of which this Exhibit 4.5 is a part. We encourage you to read the Certificate of Incorporation and the Bylaws, as incorporated by reference, and the applicable provisions of the Delaware General Corporation Law (“DGCL”), as currently in effect. Authorized Shares of Capital Stock We have the authority to issue 120,000,000 shares of common stock, $1.00 par value per share, and 300,000 shares of preferred stock, $1.00 par value per share. Common Stock General. Each share of common stock has the same relative rights as, and is identical in all respects to, each other share of common stock. All outstanding shares of our common stock are fully paid and nonassessable. Our common stock is listed on the NASDAQ Global Select Market under the symbol “OSBC.” Dividend Rights. Subject to any rights to receive dividends to which the holders of any outstanding preferred stock may be entitled, holders of our common stock are entitled to receive any cash dividends that may be declared by our board of directors. We are subject to certain restrictions on dividend payments under the DGCL as well as restrictions under certain banking laws, regulations and policies. Subject to these restrictions, the declaration and payment of future dividends to holders of our common stock will be at the discretion of our board of directors and will depend upon our earnings and financial condition, our capital requirements and those of our subsidiaries, regulatory conditions and considerations and other factors as our board of directors may deem relevant. Voting Rights. Each outstanding share of our common stock shall entitle the holder thereof to one vote, and, except as otherwise stated or expressed in a resolution or resolutions adopted by our board of directors providing for the issue of any preferred stock or as otherwise provided by law, the exclusive voting power for all purposes shall be vested in the holders of common stock. The holders of our common stock have no cumulative voting rights. When a quorum is present at any meeting, the vote of a majority of the shares present in person or represented by proxy will decide the election of directors, unless the number of director nominees exceeds the number of directors to be elected at such meeting, in which case, the directors will be elected by a plurality vote. When a quorum is present at any meeting, questions brought before the meeting will be decided by the vote of the holders of a majority of the shares having voting power present in person or represented by proxy, except when the matter requires a different vote under applicable Delaware law, our Certificate of Incorporation or our Bylaws. Our Certificate of Incorporation provides certain provisions that may limit stockholders’ ability to effect a change in control as described under the section below entitled “—Antitakeover Provisions—Certificate of Incorporation; Bylaws.” Liquidation Rights. In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, after payment or provision for payment of the debts and other liabilities of the Company and the preferential amounts to which the holders of any outstanding preferred stock shall be entitled, the holders of our common stock shall be entitled to share ratably in the remaining assets of the Company. The merger or consolidation of the Company into or with any other corporation, or the merger of any other corporation into it, a sale of all or substantially all of the assets of the Company, or, any purchase or redemption of shares of stock of the Company of any class, shall not be deemed to be a liquidation, dissolution or winding up of the Company. Preemptive Rights. The holders of our common stock have no preemptive rights.
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Miscellaneous. Shares of our common stock are not convertible into shares of any other class of capital stock. Preferred Stock We may issue up to 300,000 shares of preferred stock, $1.00 par value per share, from time to time in one or more series. Our board of directors, without further approval of our stockholders, has the authority to fix the dividend rights and terms, conversion rights, voting rights, redemption rights and terms, liquidation preferences, sinking funds and any other rights, preferences, privileges and restrictions applicable to each series of preferred stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, adversely affect the voting power of the holders of our common stock. The authorization of preferred stock could have the effect of impeding the acquisition of control of the Company by means of a tender offer, a proxy fight, open-market purchases or otherwise in a transaction not approved by our board of directors. See “—Antitakeover Provisions—Certificate of Incorporation; Bylaws.” As of December 31, 2025, we had no shares of preferred stock issued and outstanding. Anti-Takeover Provisions General. Certain provisions of our Certificate of Incorporation, our Bylaws and the DGCL may have the effect of impeding the acquisition of control of the Company by means of a tender offer, a proxy fight, open-market purchases or otherwise in a transaction not approved by our board of directors. These provisions may have the effect of discouraging a future takeover attempt which is not approved by our board of directors but which individual stockholders may deem to be in their best interests or in which our stockholders may receive a substantial premium for their shares over then-current market prices. As a result, stockholders who might desire to participate in such a transaction may not have an opportunity to do so. Such provisions will also render the removal of our current board of directors or management more difficult. Certificate of Incorporation; Bylaws. These provisions of our Certificate of Incorporation and our Bylaws include the following: ● Our board of directors may issue additional authorized shares of our capital stock to deter future attempts to gain control of the Company, and has the authority to determine the terms of any one or more series of preferred stock, such as voting rights, conversion rates and liquidation preferences. As a result of the ability to fix voting rights for a series of preferred stock, our board has the power, to the extent consistent with its fiduciary duties, to issue a series of preferred stock to persons friendly to management in order to attempt to block a merger or other transaction by which a third party seeks control, and thereby assist the incumbent board of directors and management to retain their respective positions; ● Our Certificate of Incorporation and Bylaws provide for the division of our board of directors into three classes of directors of approximately equal size, which is referred to as a classified board. Our directors are elected for three-year terms. Consequently, only one-third of our directors are up for election in any given year. Our classified board, therefore, may make it more difficult for a stockholder to acquire immediate control of the Company and immediately remove the incumbent management through a proxy contest. Because the terms of only approximately one-third of the incumbent directors expire each year, at least two annual elections are required before a majority of our directors can be replaced. In distinction, if we had a non-classified board, a majority of our directors could theoretically be replaced at one annual meeting; ● Our Certificate of Incorporation does not provide for cumulative voting for any purpose, and our Certificate of Incorporation also provides that any action required or permitted to be taken by stockholders may be taken only at an annual or special meeting and prohibits stockholder action by written consent in lieu of a meeting;
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● Certain transactions with interested stockholders (including any merger or consolidation, the sale, lease or exchange of all of substantially all assets, any issuance or transfer of any voting securities to in exchange for cash, assets or securities) must be approved by at least 75% of our outstanding voting stock, unless approved by not less than a majority of our disinterested directors; ● When evaluating a proposal by another person to make a tender or exchange offer for an equity security, to merge or consolidate with us or to purchase or otherwise acquire all or substantially all of our assets, our Certificate of Incorporation allows the board of directors to give consideration to all relevant factors, including: the adequacy of the amount of consideration to be paid; the social and economic effect of the transaction on us and our employees, depositors, customers and creditors and those of our subsidiaries and the communities in which we and our subsidiaries operate or are located; the business and financial condition and prospects of the acquiring party, and the possible effect of such conditions on us, our subsidiaries and other elements of the communities in which we and our subsidiaries operate or are located; the competence, experience and integrity of the acquiring person and/or its management; and any antitrust or other legal or regulatory issues raised by the transaction; and Generally, an amendment of our Certificate of Incorporation must be approved by a majority vote of the board of directors and also by a majority vote of the outstanding shares of our common stock; provided, however, that an affirmative vote of at least 75% of the outstanding voting stock entitled to vote is required to amend or repeal certain provisions of our Certificate of Incorporation, including provisions (a) concerning directors, (b) governing the purchase by the Company of our voting stock, (c) relating to considerations of the board of directions in evaluating acquisition proposals, (d) limiting business combinations with interested stockholders, (e) limiting our stockholders’ ability to act by written consent, and (f) regarding amendment of the foregoing supermajority provisions of our Certificate of Incorporation. Our Bylaws may be amended by vote of a majority of the board of directors. Delaware Law. We have not elected to opt out of the applicability of Section 203 of the DGCL in our Certificate of Incorporation. Under Section 203 of the DGCL, subject to exceptions, we are prohibited from engaging in any business combination with any interested stockholder for a period of three years following the time that the stockholder became an interested stockholder. For this purpose, an “interested stockholder” generally includes current and certain former holders of 15% or more of our outstanding stock. The provisions of Section 203 may encourage companies interested in acquiring us to negotiate in advance with our board of directors. These provisions may make it more difficult to accomplish transactions which stockholders may otherwise deem to be in their best interests. Banking Laws. The ability of a third party to acquire the Company is also subject to applicable banking laws and regulations. The Bank Holding Company Act of 1956 and the regulations thereunder require any “bank holding company” (as defined therein) to obtain the approval of the Federal Reserve prior to acquiring more than 5% of the outstanding shares of a class of our voting stock. Any person other than a bank holding company is required to provide notice to the Federal Reserve to acquire 10% or more of the outstanding shares of a class of our voting stock under the Change in Bank Control Act of 1978, due to a rebuttable presumption of “control”. Federal law also generally prohibits any person or company from acquiring “control” of an FDIC-insured depository institution or its holding company without prior notice to the appropriate federal bank regulator. On January 30, 2020, the Federal Reserve issued a final rule (which became effective September 30, 2020) that clarified and codified the Federal Reserve’s standards for determining whether one company has control over another. The final rule established four categories of tiered presumptions of control that are based on the percentage of voting shares held by the investor (less than 5%, 5-9.9%, 10-14.9% and 15-24.9%) and the presence of other indicia of control. As the percentage of ownership increases, fewer indicia of control are required to be considered controlling. These indicia of control include nonvoting equity ownership, director representation, management interlocks, business relationship and restrictive contractual covenants. Under the final rule, and under certain circumstances, investors can hold up to 24.9% of the voting securities and up to 33% of the total equity of a company without necessarily having a controlling influence. For purposes of calculating ownership thresholds under these banking regulations, bank regulators would likely at least take the position that the minimum number of shares, and could take the position that the maximum number of shares, of a company’s common stock that a holder is entitled to receive pursuant to securities convertible into or settled in such company’s common stock, including pursuant to warrants to purchase such company’s common stock held by such holder, must be taken into account in calculating a stockholder’s aggregate holdings of a such company’s common stock.
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Exhibit 21.1 LIST OF SUBSIDIARIES Subsidiaries of the Company Incorporated Under Laws ofPercent Owned by the Company Old Second National Bank United States 100% of the common stock Old Second Capital Trust II State of Delaware 100% of the common stock Old Second Affordable Housing Fund, L.L.C.State of Illinois Owned by Old Second National Bank Station I, LLC State of Illinois Owned by Old Second National Bank Station II, LLC State of Illinois Owned by Old Second National Bank Station III, LLC State of Illinois Owned by Old Second National Bank River Street Advisors, LLC State of Illinois Owned by Old Second National Bank
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Exhibit 23.1 Consent of Independent Registered Public Accounting Firm We have issued our report dated February 26, 2026, with respect to the consolidated financial statements and internal control over financial reporting included in the Annual Report of Old Second Bancorp, Inc. on Form 10- K for the year ended December 31, 2025. We hereby consent to the incorporation by reference of said reports in the Registration Statements of Old Second Bancorp, Inc. on Form S-8 (File Nos. 333-38914, 333-137262, 333- 231807, 333-258904 and 333-287718) and Form S-3 (File No. 333-274068). /s/ Plante & Moran, PLLC Chicago, Illinois February 26, 2026
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Exhibit 31.1 I, James L. Eccher, certify that: 1. I have reviewed this annual report on Form 10-K of Old Second Bancorp, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Dated: February 26, 2026 /s/ James L. Eccher James L. Eccher Chairman, President and Chief Executive Officer am
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Exhibit 31.2 I, Bradley S. Adams, certify that: 1. I have reviewed this annual report on Form 10-K of Old Second Bancorp, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Dated: February 26, 2026 /s/ Bradley S. Adams Bradley S. Adams Executive Vice President, Chief Operating Officer, and Chief Financial Officer
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Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Old Second Bancorp, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2025, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James L. Eccher, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ James L. Eccher James L. Eccher Chairman, President and Chief Executive Officer Dated:February 26, 2026
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Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Old Second Bancorp, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2025, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Bradley S. Adams, Chief Operating Officer, Chief Financial Officer, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Bradley S. Adams Bradley S. Adams Executive Vice-President, Chief Operating Officer, and Chief Financial Officer Dated:February 26, 2026