OLD SECOND BANCORP INC Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

Overview


The following discussion provides additional information regarding our
operations for the three and six months ended June 30, 2022, compared to the
three and six months ended June 30, 2021, and our financial condition at June
30, 2022, compared to December 31, 2021.  This discussion should be read in
conjunction with our consolidated financial statements as well as the financial
and statistical data appearing elsewhere in this report and our Form 10-K for
the year ended December 31, 2021.  The results of operations for the three and
six months ended June 30, 2022, are not necessarily indicative of future
results.  Dollar amounts presented in the following tables are in thousands,
except per share data, and June 30, 2022 and 2021 amounts are unaudited.

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

We have made, and will continue to make, various forward-looking statements with
respect to financial and business matters. Comments regarding our business that
are not historical facts are considered forward-looking statements that involve
inherent risks and uncertainties. Actual results may differ materially from
those contained in these forward-looking statements. For additional information
regarding our cautionary disclosures, see the "Cautionary Note Regarding
Forward-Looking Statements" on page 3 of this report.

Business Overview


The Company is a bank holding company headquartered in Aurora, Illinois. Through
our wholly-owned subsidiary bank, Old Second National Bank, a national banking
organization also headquartered in Aurora, Illinois, we offer a wide range of
financial services through our 51 banking centers located in Cook, DeKalb,
DuPage, Kane, Kendall, LaSalle and Will counties in Illinois.  These banking
centers offer access to a full range of traditional retail and commercial
banking services including treasury management operations as well as fiduciary
and wealth management services.  We focus our business on establishing and
maintaining relationships with our clients while maintaining a commitment to
provide for the financial services needs of the communities in which we operate.

We emphasize relationships with individual customers as well as small to
medium-sized businesses throughout our market area. We also have extensive
wealth management services, which includes a registered investment advisory
platform in addition to trust administration and trust services related to
personal and corporate trusts and employee benefit plan administration services.

Merger with West Suburban Bancorp, Inc.


On December 1, 2021, we completed our merger with West Suburban Bancorp, Inc.
("West Suburban"), the holding company for West Suburban Bank.  Under the terms
of the merger agreement, each share of West Suburban common stock was converted
into 42.413 shares of our common stock and $271.15 in cash. Total cash and stock
consideration paid was approximately $295.2 million. With the acquisition of
West Suburban, we acquired 34 branches in DuPage, Kane, Kendall and Will
counties in Illinois. The transaction is discussed in more detail in Note 2 to
our Consolidated Financial Statements included in this report.

As we continue to consolidate operations, five branches designated as held for
sale with a net book value of $9.6 million are reported within fixed assets at
June 30, 2022.  During the six months ended June 30, 2022, we sold five
branches, resulting in $1.4 million of net gains on sale, after closing costs.

COVID-19 Update

Our historically careful underwriting practices and diverse loan portfolio has
helped minimize the adverse impact of the pandemic on the Company. In addition,
the combination of the vaccine rollout, government stimulus payments, and
reduced spending during the pandemic are likely contributing factors mitigating
the impact of the pandemic on our business, financial condition, results of
operations, and our customers as of June 30, 2022. While vaccine availability
and uptake has increased, the longer term macro-economic effects on global
supply chains, inflation, labor shortages and wage increases continue to impact
many industries. The ultimate extent of the impact of the COVID-19 pandemic on
our business, financial condition and results of operations is currently
uncertain and will depend on various developments and other factors, including
new COVID-19 cases, hospitalizations and deaths leading to additional government
imposed restrictions; refusals to receive the vaccine along with concerns
related to new strains of the virus; supply chain issues remaining unresolved
longer than anticipated; labor shortages and wage increases continuing to impact
many industries; consumer confidence and spending falls; and rising geopolitical
tensions. Given the ongoing and dynamic nature of the circumstances surrounding
the pandemic, it is difficult to predict its future adverse financial impact to
the Company, although we expect to continue to be impacted by the pandemic
throughout the remainder of 2022.

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Results of Operation and Financial Condition


We continue to monitor the impact of the COVID-19 pandemic on our results of
operations and financial condition.  For the year ended December 31, 2020, we
determined it prudent to increase our allowance for credit losses to $33.9
million, driven by both our adoption of the Current Expected Credit Losses
("CECL") methodology and the expected impact of the COVID-19 pandemic and market
interest rate reductions in anticipation of continued market risk and
uncertainty.  In 2021, due to the lack of significant net charge-offs projected
with the 2020 forecast, and a more favorable forecast for the estimated life of
loans, we reversed $9.5 million of our legacy allowance for credit losses, but
recorded $12.1 million of Day One credit marks to the allowance for credit
losses, as well as $12.2 million of Day Two adjustments on non-purchase credit
deteriorated life of loan loss estimates, each stemming from the West Suburban
acquisition.  During the first six months of 2022, we recorded $1.3 million of
provision for credit losses on loans primarily due to loan growth as well as our
assessment of loan metrics and nonperforming loan trends.  In addition, we also
recorded a reduction of $780,000 in our allowance for credit losses on unfunded
commitments, primarily due to a review of credit line utilization rates. These
adjustments resulted in a net provision for credit losses expense of $550,000 in
the second quarter of 2022.

We also adjust our investment securities portfolio to fair value each period end
and review for any impairment that would require a provision for credit losses.

At this time, we have determined there is no need for a provision for credit
losses related to our investment securities portfolio. Because of changing
economic and market conditions affecting issuers, we may be required to
recognize impairments in the future on the securities we hold as well as
experience reductions in other comprehensive income. We cannot currently
determine the ultimate impact of the pandemic on the long-term value of our
portfolio.


As of June 30, 2022 and December 31, 2021, we had $86.3 million of goodwill.  At
November 30, 2021, we performed our recurring annual review for any goodwill
impairment.  We determined no goodwill impairment existed, however, further
deterioration in market conditions related to the general economy, financial
markets, and the associated impacts on our customers, employees and vendors,
among other factors, could significantly impact the impairment analysis and may
result in future goodwill impairment charges that, if incurred, could have a
material adverse effect on our results of operations and financial condition.

Lending Operations and Accommodations to Borrowers


To more fully support our customers during the pandemic, we established client
assistance programs, including offering commercial, consumer, and mortgage loan
payment deferrals for certain clients.  During 2020 and 2021, we executed 509 of
these deferrals on loan balances of $242.7 million. As of June 30, 2022, all
COVID-related loan deferrals had resumed payments or paid off.

During 2020 and 2021, as part of the SBA Paycheck Protection Program ("PPP"), we
processed 1,320 PPP loan applications, representing a total of $199.0 million,
and we acquired $20.8 million PPP loans from our acquisition of West Suburban.
We started the application process for loan forgiveness for PPP loans in October
2020, and we continued to receive funds for forgiven loans from both the first
and second round of PPP loans through June 2022.  As of June 30, 2022, we had 31
loans, which totaled $3.5 million, still outstanding under the PPP program.

We

expect the application process for loan forgiveness to continue through the
third quarter of 2022, with funds to be received from the SBA for the forgiven
loans through the remainder of 2022.

Capital and Liquidity


As of June 30, 2022, all of our capital ratios were in excess of all regulatory
requirements. While we believe that we have sufficient capital to withstand an
extended economic recession brought about by the COVID-19 pandemic, our reported
and regulatory capital ratios could be adversely impacted by credit losses.

We believe there could be potential stresses on liquidity management as a result
of the COVID-19 pandemic.  For instance, as customers manage their own liquidity
stress, we could experience an increase in the utilization of existing lines of
credit. However, to date, due in part to federal government stimulus funds
received by our customers, as well as a higher volume of loan paydowns than
periods prior to COVID-19, our liquidity has increased.

Financial Overview


Net income for the second quarter of 2022 was $12.2 million, or $0.27 per
diluted share, compared to $8.8 million, or $0.30 per diluted share, for the
second quarter of 2021. The increase was primarily due to our acquisition of
West Suburban, which resulted in growth in net interest income and noninterest
income, partially offset by higher noninterest expense, which included $2.1
million in acquisition-related costs net of gain on sale of branches in the
second quarter of 2022. Adjusted net income, a non-GAAP financial measure that

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excludes merger-related costs, net of gains on branch sales, was $13.8 million
for the second quarter of 2022. See the discussion entitled "Non-GAAP Financial
Measures" on page 42, as well as the table below, which provides a
reconciliation of this non-GAAP measure to the most comparable GAAP equivalents.

                                                                                                   Quarters Ended
                                                                                       June 30,       March 31,     June 30,
                                                                                         2022            2022         2021
Net Income
Income before income taxes (GAAP)                                          

$ 16,676 $ 16,443 $ 11,972
Pre-tax income adjustments:
Merger-related costs, net of gains on branch sales

                                          2,131           5,335            -
Adjusted net income before taxes                                                           18,807          21,778       11,972
Taxes on adjusted net income                                                                4,995           5,858        3,152
Adjusted net income (non-GAAP)                                             

$ 13,812 $ 15,920 $ 8,820

Basic earnings per share (GAAP)                                            

$ 0.28 $ 0.27 $ 0.30
Diluted earnings per share (GAAP)

                                                            0.27            0.27         0.30

Adjusted basic earnings per share excluding acquisition-related costs (non-GAAP)

             0.31            0.36         0.30

Adjusted diluted earnings per share excluding acquisition-related costs (non-GAAP)

           0.31            0.35         0.30


The following provides an overview of some of the factors impacting our
financial performance for the three month period ended June 30, 2022, compared
to the like period ended June 30, 2021:

Net interest and dividend income was $45.3 million for the second quarter of

2022, compared to $22.0 million for the second quarter of 2021. Growth in

? interest and dividend income in the second quarter of 2022 was primarily due to

our acquisition of West Suburban resulting in additional loan and securities

income.

We recorded a net provision for credit losses of $550,000 in the second quarter

of 2022, driven by a $1.3 million increase in the allowance for credit losses

? on loans due to loan growth in the portfolio, partially offset by a $780,000

   reduction in our allowance for unfunded commitments.  We recorded a $3.5
   million release of provision expense in the second quarter of 2021.

Noninterest income was $9.2 million for the second quarter of 2022, compared to

$7.9 million for the second quarter of 2021, an increase of $1.3 million, or

16.3%. Contributing to the increase was growth in service charges on deposits

? and card related income resulting primarily from the West Suburban acquisition

and resultant additional fee income. These increases were partially offset by

a $262,000 net loss on sales of mortgage loans in the second quarter of 2022,

compared to a $1.9 million net gain in the second quarter of 2021.

Noninterest expense was $37.2 million for the second quarter of 2022, compared

to $21.4 million for the second quarter of 2021, an increase of $15.8 million,

or 74.0%. Contributing to the increase was growth in salaries and employee

benefits and occupancy, furniture and equipment expenses in the first quarter

? of 2022, primarily stemming from the additional employees and branches due to

the West Suburban acquisition. In addition, we recorded $3.3 million of

acquisition-related costs in the second quarter of 2022, primarily within

computer and data processing, salaries and employee benefits, and other expense

   related to the West Suburban acquisition.


   We had a provision for income tax expense of $4.4 million for the second

quarter of 2022, compared to a provision for income tax expense of $3.2 million

? for the second quarter of 2021. The increase in tax expense for the second

quarter of 2022 was due to an increase in pre-tax income, compared to the year

over year quarter.

Our community-focused banking franchise experienced growth of $204.3 million in

total loans at June 30, 2022, compared to the year ended December 31, 2021, and

an increase of $1.72 billion in total loans compared to the second quarter of

2021, as we acquired $1.50 billion of loans in the West Suburban acquisition.

We believe we are positioned for continued loan growth as we continue to serve

? our customers’ needs in a competitive economic environment. We are continuing

to seek to provide value to our customers and the communities in which we

operate, by executing on growth opportunities in our local markets and

developing new banking relationships, while seeking to ensure the safety and

   soundness of our Bank, our customers and our employees during the COVID-19
   pandemic.


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   Nonaccrual loans decreased $5.8 million as of June 30, 2022, compared to

December 31, 2021, due to the upgrade or payoff of various credits in the first

and second quarter of 2022. Nonperforming loans as a percent of total loans

? was 1.2% as of June 30, 2022, compared to 1.3% as of December 31, 2021, and

1.2% at June 30, 2021. Classified assets increased to $103.2 million as of

June 30, 2022, which is $28.4 million, or 38.0% more than December 31, 2021,

and $61.1 million more than June 30, 2021, due to the West Suburban acquisition

in late 2021.

Critical Accounting Estimates

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

Of the significant accounting policies used in the preparation of our
consolidated financial statements, we have identified certain items as critical
accounting policies based on the associated estimates, assumptions, judgments
and complexity. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations-Critical Accounting Estimates" in our Annual Report on
Form 10-K for the year ended December 31, 2021. There have been no material
changes to our critical accounting policies or the estimates made pursuant to
those policies during the most recent quarter from those disclosed in our 2021
Annual Report in Form 10-K.

Non-GAAP Financial Measures
This report contains references to financial measures that are not defined in
GAAP. Such non-GAAP financial measures include the presentation of net interest
income and net interest margin on a tax equivalent ("TE") basis, adjusted net
income, adjusted basic and diluted earnings per share, our adjusted efficiency
ratio, 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

Overview

Three months ended June 30, 2022 and 2021


Our income before taxes was $16.7 million in the second quarter of 2022 compared
to $12.0 million in the second quarter of 2021.  This increase in pretax income
was primarily due to a $23.2 million increase in interest and dividend income,
and a $1.3 million increase in noninterest income, primarily due to the addition
of West Suburban loan, securities and fee income in the second quarter of 2022.
These increases were partially offset by a $15.8 million increase in noninterest
expense, primarily due to an increase in salaries and employee benefits,
occupancy, furniture and equipment expense, computer and data processing
expense, other expense, and amortization of core deposit intangible. The
majority of these increases were due to the inclusion of operating costs of the
legacy West Suburban staff and branches, as well as $3.3 million of West
Suburban acquisition-related costs in the second quarter of 2022, primarily
within computer and data processing.  Our net income was $12.2 million, or $0.27
per diluted share, for the second quarter of 2022, compared to net income of
$8.8 million, or $0.30 per diluted share, for the second quarter of 2021.

Net interest and dividend income was $45.3 million in the second quarter of
2022, compared to $22.0 million in the second quarter of 2021. The $23.3
million
increase was primarily driven by growth in all interest and dividend
income categories due to West Suburban


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related loan and securities income being reflected.   In addition we experienced
a decrease in interest expense in the second quarter of 2022, compared to the
second quarter of 2021, primarily due to a reduction in deposit interest rates
offset by increased balances from West Suburban, decreased outstanding balances
of notes payable and other borrowings, and a decrease in the rate paid on our
senior notes during 2022, as the interest rate payable on these notes became
floating as of January 1, 2022, at three month LIBOR plus 385 basis points,
compared to the prior 5.75% fixed rate.

Average loans, including loans held for sale, increased $1.58 billion in the
second quarter of 2022, compared to the second quarter of 2021, primarily from
$1.50 billion of average loans acquired in our acquisition of West Suburban.
Also contributing to the increase was $104.3 million in average loan growth
during the second quarter of 2022, less PPP loans forgiven or repaid and loan
paydowns.

Six months ended June 30, 2022 and 2021

Our income before taxes was $33.1 million for the six months ended June 30, 2022
compared to $28.1 million for the six months ended June 30, 2021.  This increase
in pretax income was primarily due to a $41.1 million increase in interest and
dividend income, and a $3.5 million increase in noninterest income, as West
Suburban loan, securities and fee income are included in the six months ended
June 30, 2022. These increases were partially offset by a $32.4 million increase
in noninterest expense, primarily due to an increase in salaries and employee
benefits, occupancy, furniture and equipment expense, computer and data
processing expense, other expense, and amortization of core deposit intangible.
The majority of these increases were due to the inclusion of operating costs of
the legacy West Suburban staff and branches, as well as $8.8 million of West
Suburban acquisition-related costs in the first six months of 2022, primarily
within computer and data processing.  Our net income was $24.3 million, or $0.54
per diluted share, for the six months ended June 30, 2022, compared to net
income of $20.7 million, or $0.70 per diluted share, for the same period of
2021.

Net interest and dividend income was $86.5 million for the six months ended June
30, 2022, compared to $45.5 million for the same period of 2021.  The $41.0
million increase was primarily driven by growth in all interest and dividend
income categories due to West Suburban related loan and securities income being
reflected.   This increase was partially offset by a $136,000 increase in
interest expense for the six months ended June 30, 2022, compared to the same
period of 2021, primarily due to a full period of interest expense on the April
2021 issuance of subordinated debt, as well as higher average balances of
deposits from the West Suburban acquisition, partially offset by a decrease in
outstanding balances of notes payable and a decrease in the rate paid on our
senior notes during  2022, as the interest rate payable on these notes became
floating as of January 1, 2022, at three month LIBOR plus 385 basis points,
compared to the prior 5.75% fixed rate.

Net Interest Income


Net interest income, which is our primary source of earnings, is the difference
between interest income 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 and OREO, the amounts of and rates at which
assets and liabilities reprice, variances in prepayment of loans and securities,
early withdrawal of deposits, exercise of call options on borrowings or
securities, a general rise or decline in interest rates, changes in the slope of
the yield-curve, and balance sheet growth or contraction.

Three months ended June 30, 2022 and 2021


Our net interest and dividend income increased by $23.3 million to $45.3
million, for the second quarter of 2022, from $22.0 million for the second
quarter of 2021.  This increase was primarily attributable to a $23.2 million
increase in total interest and dividend income due to the acquisition of West
Suburban in December 2021.  In addition we experienced a decrease in interest
expense in the second quarter of 2022, compared to the second quarter of 2021,
primarily due to a reduction in deposit interest rates offset by increased
balances from West Suburban, decreased outstanding balances of notes payable and
other borrowings, and a decrease in the rate paid on our senior notes during
 2022, as the interest rate payable on these notes became floating as of January
1, 2022, at three month LIBOR plus 385 basis points, compared to the prior 5.75%
fixed rate.

Average earning assets for the second quarter of 2022 totaled $5.75 billion, a
decrease of $115.0 million, or 2.0%, compared to the first quarter of 2022, and
an increase of $2.69 billion, or 88.2%, compared to the second quarter of 2021.
 Average interest earning deposits with financial institutions totaled $426.8
million for the second quarter of 2022, a decrease of $208.5 million, compared
to the first quarter of 2022, and a decrease of $72.7 million compared to the
second quarter of 2021.  The yield on average interest earning deposits was
73

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basis points for the second quarter of 2022, an increase of 56 basis points from
the first quarter of 2022, and an increase of 62 basis points from the second
quarter of 2021.  Interest income on securities increased year over year,
primarily due to growth in volumes and higher interest rates.  Total average
securities for the second quarter of 2022 decreased $15.8 million from the first
quarter of 2022, and increased $1.28 billion from the second quarter of 2021.
The increase in our average securities year over year was primarily due to the
$1.07 billion in securities acquired in our acquisition of West Suburban. The
yield on average securities increased to 1.89% for the second quarter of 2022,
compared to 1.54% for the first quarter of 2022 and decreased from 2.24% for the
second quarter of 2021.  Total average loans, including loans held-for-sale,
totaled $3.51 billion in the second quarter of 2022, an increase of $104.3
million from the first quarter of 2022, and an increase of $1.58 billion from
the second quarter of 2021.  The rise in average loan balances year over year
was primarily due to the $1.50 billion loan portfolio acquired in our
acquisition of West Suburban, as well as loan growth of $108.0 million in the
second quarter of 2022.  This rise in loan volumes resulted in an increase in
loan interest and fee income of $17.4 million in the year over year period.

For

the second quarter of 2022, the yield on average loans increased to 4.37%,
compared to 4.34% for the first quarter of 2022, and 4.33% for the second
quarter of 2021.


Average interest bearing liabilities decreased $58.7 million, or 1.6%, in the
second quarter of 2022, compared to the first quarter of 2022, and increased
$1.64 billion compared to the second quarter of 2021.  The year over year
increase was primarily driven by a $1.68 billion increase in interest bearing
deposits primarily due to our acquisition of West Suburban, as well as continued
deposit activity of our legacy customers, offset by a $33.2 million decrease in
securities sold under repurchase agreements and a $9.1 million decrease in notes
payable and other borrowings. The linked quarter decrease was primarily the
result of maturing higher cost time deposits and declines in money market
accounts. The cost of interest bearing liabilities for the second quarter of
2022 remained consistent with the linked period, and decreased 24 basis points
from the second quarter of 2021.  Growth in our average noninterest bearing
demand deposits of $1.11 billion in the year over year period has assisted us in
controlling our cost of funds stemming from average interest bearing deposits
and borrowings, which totaled 0.15% for both the second and first quarters of
2022, and 0.31% for the second quarter of 2021.

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.

Due to the significant increase in interest earning deposits with financial
institutions in 2020 and 2021 stemming from federal stimulus funds received and
PPP loan forgiveness, we had no average other short-term borrowings, which
typically consist of FHLBC advances, in the first and second quarters of 2022 or
the second quarter of 2021. As of June 30, 2022, we paid off our long-term FHLBC
advance of $5.9 million and notes payable and other borrowings now consists of
$11.0 million outstanding on a term note with a correspondent bank originated in
the first quarter of 2020.

Our net interest margin (GAAP) increased 31 basis points to 3.16% for the second
quarter of 2022, compared to 2.85% for the first quarter of 2022, and increased
28 basis points compared to 2.88% for the second quarter of 2021.  Our net
interest margin (TE) increased 30 basis points to 3.18% for the second quarter
of 2022, compared to 2.88% for the first quarter of 2022, and increase 25 basis
points compared to 2.93% for the second quarter of 2021.  The increase year over
year was due primarily to the increasing market interest rates over the majority
of the past twelve months, the related rate resets on loans and securities
during the past year, and the elevated liquidity on our balance sheet.

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

Six months ended June 30, 2022 and 2021


Our net interest and dividend income increased by $41.0 million, to $86.5
million for the six months ended June 30, 2022, compared to $45.5 million for
the six months ended June 30, 2021.  This increase was attributable to a $41.1
million increase in total interest income primarily from the acquisition of West
Suburban as well as general loan growth, partially offset by a $136,000 increase
in interest expense for the six months ended June 30, 2022, compared to the six
months ended June 30, 2021.  Increased balances on interest earning assets
related to the West Suburban acquisition drove the increase in net interest
income, along with the reduction in the cost of interest bearing deposits,
despite lower yields on interest earning assets and the increased average
balance of subordinated debt.

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Average earning assets for the six months ended June 30, 2022 were $5.81
billion, an increase of $2.82 billion, or 94.4%, compared to the six months
ended June 30, 2021.  The yield on average earning assets for the six months
ended June 30, 2022 was 3.18%, compared to 3.40% for the six months ended June
30, 2021.  Total average loans, including loans held-for-sale, totaled $3.46
billion for the six months ended June 30, 2022, an increase of $1.48 billion,
compared to the six months ended June 30, 2021.  The increase in average loan
balances, partially offset by market interest rate reductions, resulted in a
$31.6 million increase in loan interest income for the six months ended June 30,
2022, compared to the like period in 2021.  For the six months ended June 30,
2022, yields on average securities decreased by 63 basis points and yields on
average loans decreased by five basis points, each as compared to the six months
ended June 30, 2021, due primarily to the addition of the lower yielding legacy
West Suburban security and loan portfolios in late 2021, as well as the timing
of rate resets on loans and securities as interest rates began to rise in 2022,
compared to 2021. Average interest earning deposits with financial institutions
increased $100.5 million in the six months ended June 30, 2022, compared to the
prior year like period driven primarily by the acquisition of West Suburban, as
well as remaining federal stimulus funds received by our depositors.

Average interest bearing liabilities increased $1.70 billion, or 92.3%, in the
six months ended June 30, 2022, compared to the six months ended June 30, 2021.

 The increase was primarily due to the acquisition of West Suburban in late 2021
resulting in an increase of $2.27 billion of interest earning deposits.  In
addition, average subordinated debt increased $31.0 million, due to the $60.0
million subordinated note issuance on April 6, 2021, as discussed above.
Partially offsetting this increase was a $6.7 million decrease in average notes
payable and other borrowings.  Average noninterest bearing deposits increased
$1.13 billion in the six months ended June 30, 2022 compared to the six months
ended June 30, 2021, due to the acquisition of West Suburban, as well as
remaining federal stimulus funds received from our depositors.  The cost of
interest bearing liabilities decreased 21 basis points, to 24 basis points, for
the six months ended June 30, 2022, from 45 basis points for the six months
ended June 30, 2021.

Our net interest margin (GAAP) for the six months ended June 30, 2021 was 3.00%
compared to 3.07% for the six months ended June 30, 2022, reflecting a decrease
of seven basis points.  Our net interest margin (TE) for the six months ended
June 30, 2022 was 3.03% compared to 3.12% for the six months ended June 30,
2021, a decrease of nine basis points. The decrease in net interest margin for
the six months ended June 30, 2022, compared to the six months ended June 30,
2021, was primarily due to the addition of the lower yielding legacy West
Suburban security and loan portfolios in late 2021.  These reductions to the net
interest margin were partially offset by reductions in rates paid on deposits,
and growth in noninterest bearing deposits, which drove down our overall cost of
funds.

The following tables set forth certain information relating to our average
consolidated balance sheet and reflect the yield on average earning assets and
cost of average interest bearing liabilities for the periods indicated.  These
yields reflect the related interest, on an annualized basis, divided by the
average balance of assets or liabilities over the applicable period.  Average
balances are derived from daily balances.  For purposes of discussion, net
interest income and net interest income to total earning assets in the following
tables have been adjusted to a non-GAAP TE basis using a marginal rate of 21% in
2022 and 2021 to compare returns more appropriately on tax-exempt loans and
securities to other earning assets.

                                       45

  Table of Contents

                                                               Analysis of Average Balances,
                                                         Tax Equivalent

Income / Expense and Rates

                                                            (Dollars in 

thousands – unaudited)


                                                                                                 Quarters Ended
                                                               June 30, 2022                     March 31, 2022                     June 30, 2021
                                                        Average      Income /    Rate      Average     Income /    Rate      Average     Income /     Rate
                                                        Balance      Expense       %       Balance      Expense      %       Balance      Expense      %
Assets
Interest earning deposits with financial institutions $   426,820   $      782    0.73   $   635,302   $     269    0.17   $   499,555   $     137     0.11
Securities:
Taxable                                                 1,610,713        

6,670 1.66 1,612,635 5,053 1.27 425,785 1,832

1.73

Non-taxable (TE)1                                         181,386        

1,789 3.96 195,240 1,814 3.77 188,281 1,593

3.40

Total securities (TE)1                                  1,792,099        

8,459 1.89 1,807,875 6,867 1.54 614,066 3,425

2.24

Dividends from FHLBC and FRBC                              20,994         

263 5.02 16,066 153 3.86 9,917 113 4.57
Loans and loans held-for-sale1, 2

                       3,508,856       

38,267 4.37 3,404,534 36,428 4.34 1,930,965 20,856

4.33

Total interest earning assets                           5,748,769       

47,771 3.33 5,863,777 43,717 3.02 3,054,503 24,531

3.22

Cash and due from banks                                    53,371            -       -        42,972           -       -        29,985           -     

Allowance for credit losses on loans                     (44,354)            -       -      (44,341)           -       -      (31,024)           -     

Other noninterest bearing assets                          374,309          
 -       -       370,987           -       -       185,368           -        -
Total assets                                          $ 6,132,095                        $ 6,233,395                       $ 3,238,832

Liabilities and Stockholders' Equity
NOW accounts                                          $   604,176   $      102    0.07   $   593,481   $      89    0.06   $   531,804   $     105     0.08
Money market accounts                                   1,054,552          155    0.06     1,098,941         170    0.06       330,536          59     0.07
Savings accounts                                        1,213,133           90    0.03     1,201,086         138    0.05       439,104          53     0.05
Time deposits                                             469,009          265    0.23       495,452         277    0.23       359,635         409     0.46
Interest bearing deposits                               3,340,870         

612 0.07 3,388,960 674 0.08 1,661,079 626 0.15
Securities sold under repurchase agreements

                34,496            9    0.10        39,204          11    0.11        67,737          21     0.12
Other short-term borrowings                                     -            -       -             -           -       -             1           -        -
Junior subordinated debentures                             25,773         
284    4.42        25,773         280    4.41        25,773         284     4.42
Subordinated debentures                                    59,244          547    3.70        59,222         546    3.74        56,081         517     3.70
Senior notes                                               44,520         

578 5.21 44,494 485 4.42 44,415 673 6.08
Notes payable and other borrowings

                         13,103           

95 2.91 19,009 103 2.20 22,250 119 2.15
Total interest bearing liabilities

                      3,518,006        2,125    0.24     3,576,662       2,099    0.24     1,877,336       2,240     0.48
Noninterest bearing deposits                            2,120,428            -       -     2,099,283           -       -     1,012,163           -        -
Other liabilities                                          32,636            -       -        60,818           -       -        36,553           -        -
Stockholders' equity                                      461,025            -       -       496,632           -       -       312,780           -        -
Total liabilities and stockholders' equity            $ 6,132,095          
             $ 6,233,395                       $ 3,238,832
Net interest income (GAAP)                                          $   45,264                         $  41,232                         $  21,954
Net interest margin (GAAP)                                                        3.16                              2.85                               2.88

Net interest income (TE)1                                           $   45,646                         $  41,618                         $  22,291
Net interest margin (TE)1                                                         3.18                              2.88                               2.93
Interest bearing liabilities to earning assets              61.20 %                            61.00 %                           61.46 %


1Represents a non-GAAP financial measure. See the discussion entitled
"Reconciliation of Tax-Equivalent Non-GAAP Financial Measures" below that
provides a reconciliation of each non-GAAP measure to the most comparable GAAP
equivalent. Tax equivalent basis is calculated using a marginal tax rate of 21%
in 2022 and 2021.

2 Interest income from loans is shown on a tax equivalent basis, which is a
non-GAAP financial measure, as discussed in the table on page 48, and includes
fees of $588,000 for the second quarter of 2022, $724,000 first quarter of 2022,
and $1.3 million for the second quarter of 2021.  Nonaccrual loans are included
in the above-stated average balances.

                                       46

  Table of Contents

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

                                                                             Six Months Ended June 30,
                                                                    2022                                  2021
                                                        Average      Income /     Rate      Average       Income /       Rate
                                                        Balance      Expense       %        Balance        Expense        %
Assets
Interest earning deposits with financial institutions $   530,485   $    1,051     0.40   $   429,953   $         229     0.11
Securities:
Taxable                                                 1,611,669       11,723     1.47       383,563           3,447     1.81
Non-taxable (TE)1                                         188,275        3,603     3.86       189,811           3,248     3.45
Total securities (TE)1                                  1,799,944       15,326     1.72       573,374           6,695     2.35
Dividends from FHLBC and FRBC                              18,543          416     4.52         9,917             228     4.64
Loans and loans held-for-sale 1 , 2                     3,456,984       

74,695 4.36 1,972,638 43,122 4.41
Total interest earning assets

                           5,805,956       

91,488 3.18 2,985,882 50,274 3.40
Cash and due from banks

                                    48,200            -        -        29,227               -        -
Allowance for credit losses on loans                     (44,348)            -        -      (32,773)               -        -
Other noninterest bearing assets                          372,657            -        -       186,422               -        -
Total assets                                          $ 6,182,465                         $ 3,168,758

Liabilities and Stockholders' Equity
NOW accounts                                          $   598,858   $      191     0.06   $   513,694   $         199     0.08
Money market accounts                                   1,076,624          325     0.06       329,797             137     0.08
Savings accounts                                        1,207,143          228     0.04       425,996             122     0.06
Time deposits                                             482,157          542     0.23       379,363             909     0.48
Interest bearing deposits                               3,364,782        1,286     0.08     1,648,850           1,367     0.17
Securities sold under repurchase agreements                36,837           20     0.11        75,066              52     0.14
Other short-term borrowings                                     -            -        -             -               -        -
Junior subordinated debentures                             25,773         
564     4.41        25,773             564     4.41
Subordinated debentures                                    59,233        1,093     3.72        28,197             517     3.70
Senior note                                                44,507        1,063     4.82        44,402           1,346     6.11
Notes payable and other borrowings                         16,040          198     2.49        22,787             242     2.14
Total interest bearing liabilities                      3,547,172        4,224     0.24     1,845,075           4,088     0.45
Noninterest bearing deposits                            2,109,914            -        -       974,809               -        -
Other liabilities                                          46,648            -        -        37,173               -        -
Stockholders' equity                                      478,731            -        -       311,701               -        -
Total liabilities and stockholders' equity            $ 6,182,465          
              $ 3,168,758
Net interest income (GAAP)                                          $   86,496                          $      45,497
Net interest margin (GAAP)                                                         3.00                                   3.07

Net interest income (TE)1                                           $   87,264                          $      46,186
Net interest margin (TE)1                                                          3.03                                   3.12
Interest bearing liabilities to earning assets              61.10 %                             61.79 %


1Represents a non-GAAP financial measure. See the discussion entitled
"Reconciliation of Tax-Equivalent Non-GAAP Financial Measures" below that
provides a reconciliation of each non-GAAP measure to the most comparable GAAP
equivalent. Tax equivalent basis is calculated using a marginal tax rate of 21%
in 2022 and 2021.

2 Interest income from loans is shown on a tax equivalent basis, which is a
non-GAAP financial measure, as discussed in the table on page 48, and includes
fees of $1.3 million and $2.6 million for the six months ended June 30, 2022 and
2021, respectively.  Nonaccrual loans are included in the above-stated average
balances.

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  Table of Contents

Reconciliation of Tax-Equivalent Non-GAAP Financial Measures


Net interest and dividend income (TE) and net interest income (TE) to average
interest earning assets are non-GAAP measures that have been adjusted on a TE
basis using a marginal rate of 21% for 2022 and 2021 to compare returns more
appropriately on tax-exempt loans and securities to other earning assets.  The
table below provides a reconciliation of each non-GAAP (TE) measure to the GAAP
equivalent for the periods indicated:

                                                Three Months Ended                     Six Months Ended
                                      June 30,      March 31,      June 30,                June 30,
Net Interest Margin                     2022           2022          2021             2022          2021

Interest income (GAAP)               $    47,389    $    43,331   $    24,194      $    90,720   $    49,585
Taxable-equivalent adjustment:
Loans                                          6              5             3               11             7
Securities                                   376            381           334              757           682
Interest and dividend income (TE)         47,771         43,717        24,531           91,488        50,274
Interest expense (GAAP)                    2,125          2,099         2,240            4,224         4,088
Net interest income (TE)             $    45,646    $    41,618   $    22,291      $    87,264   $    46,186
Net interest income (GAAP)           $    45,264    $    41,232   $    21,954      $    86,496   $    45,497
Average interest earning assets      $ 5,748,769    $ 5,863,777   $ 3,054,503      $ 5,805,956   $ 2,985,882
Net interest margin (GAAP)                  3.16 %         2.85 %        2.88 %           3.00 %        3.07 %
Net interest margin (TE)                    3.18 %         2.88 %        2.93 %           3.03 %        3.12 %


Noninterest Income

Three months ended June 30, 2022 and 2021

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


                                                                                              2nd Quarter 2022
Noninterest Income                                       Three Months Ended                  Percent Change From
(Dollars in thousands)                         June 30,       March 31,      June 30,      March 31,     June 30,
                                                 2022            2022           2021          2022         2021
Wealth management                             $     2,506    $      2,698    $    2,389         (7.1)          4.9
Service charges on deposits                         2,328           2,074         1,221          12.2         90.7
Residential mortgage banking revenue
Secondary mortgage fees                                50             139           272        (64.0)       (81.6)
MSRs mark to market gain (loss)                        82           2,978       (1,033)        (97.2)      (107.9)
Mortgage servicing income                             579             519           507          11.6         14.2
Net (loss) gain on sales of mortgage loans          (262)           1,495         1,895       (117.5)      (113.8)
Total residential mortgage banking revenue            449           5,131         1,641        (91.2)       (72.6)
Securities (losses) gains, net                       (33)               -             2           N/M          N/M
Change in cash surrender value of BOLI                 72             124  
        423        (41.9)       (83.0)
Card related income                                 2,965           2,567         1,666          15.5         78.0
Other income                                          924             869           577           6.3         60.1
Total noninterest income                      $     9,211    $     13,463    $    7,919        (31.6)         16.3


N/M - Not meaningful
Noninterest income decreased $4.3 million, or 31.6%, in the second quarter of
2022, compared to the first quarter of 2022, and increased $1.3 million, or
16.3%, compared to the second quarter of 2021.  The decrease from the linked
quarter was primarily driven by a $4.7 million decline in residential mortgage
banking revenue, attributable to a $2.9 million decline in mark to market gain
on mortgage

                                       48

  Table of Contents

servicing rights (MSRs) due to market interest rate changes in the first six
months of 2022, and a $262,000 net loss on the sale of mortgage loans in the
second quarter of 2022, compared to a $1.5 million net gain in the first quarter
of 2022, due to the impact of interest rate locks in the rising interest rate
environment during the period.  In addition, wealth management income decreased
$192,000 from the linked quarter due to a decline in assets under management as
a result of global stock market losses.  These decreases were partially offset
by increases in card related income of $398,000 and service charges on deposits
of $254,000 in the second quarter of 2022, compared to the first quarter of
2022.

The increase in noninterest income in the second quarter of 2022, compared to
the second quarter of 2021, is primarily due to a $1.3 million increase in card
related income, a $1.1 million increase in service charges on deposits, a
$117,000 increase in wealth management fees, and a $347,000 increase in other
income, each stemming from the inclusion of West Suburban activity in 2022.
Partially offsetting these increases was a $1.2 million decline in residential
mortgage banking revenue, due to a decrease in mortgage origination volume in
the second quarter of 2022, as well as changes in interest rates effecting the
mortgage banking derivative, and a $351,000 decrease in the cash surrender value
of BOLI, due to market interest rate fluctuations.

Six months ended June 30, 2022 and 2021

Noninterest Income                                 Six Months Ended           YTD
(Dollars in thousands)                         June 30,       June 30,      Percent
                                                 2022           2021        Change
Wealth management                             $     5,204    $     4,540       14.6
Service charges on deposits                         4,402          2,416   

82.2

Residential mortgage banking revenue
Secondary mortgage fees                               189            594   

(68.2)

MSRs mark to market gain (loss)                     3,060             80   

N/M

Mortgage servicing income                           1,098          1,074   

2.2

Net gain on sales of mortgage loans                 1,233          5,616   

(78.0)

Total residential mortgage banking revenue 5,580 7,364

(24.2)

Securities gains (losses) , net                      (33)              2   

N/M

Change in cash surrender value of BOLI                196            757   
 (74.1)
Card related income                                 5,532          3,113       77.7
Other income                                        1,793          1,027       74.6
Total noninterest income                      $    22,674    $    19,219       18.0


Noninterest income increased $3.5 million, or 18.0%, for the six months ended
June 30, 2022 compared to the six months ended June 30, 2021. This increase was
primarily driven by a $2.4 million increase in card related income, a $2.0
million increase in service charges on deposits, a $664,000 increase in wealth
management fees, and a $766,000 increase in other income, each stemming from the
inclusion of West Suburban related activity in our results for the six months
ended June 30, 2022. Partially offsetting these increases was a $1.8 million
decline in mortgage banking revenue year over year, comprised primarily of a
$4.4 million decrease in net gain on sales of mortgage loans, partially offset
by a $3.0 million mark to market gain on MSRs, both due to the increasing
interest rate environment, and a $561,000 decline in the cash surrender value of
BOLI.

                                       49

  Table of Contents

Noninterest Expense

Three months ended June 30, 2022 and 2021


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

                                                                                                  2nd Quarter 2022
Noninterest Expense                                          Three Months Ended                 Percent  Change From
(Dollars in thousands)                            June 30,       March 31,       June 30,      March 31,     June 30,
                                                    2022            2022           2021           2022         2021
Salaries                                         $    15,995    $     15,598    $     9,435           2.5         69.5
Officers incentive                                     1,662             994          1,194          67.2         39.2
Benefits and other                                     3,675           3,375          2,267           8.9         62.1
Total salaries and employee benefits                  21,332          19,967         12,896           6.8         65.4
Occupancy, furniture and equipment expense             3,046           3,699          2,303        (17.7)         32.3
Computer and data processing                           4,006           6,268          1,304        (36.1)        207.2
FDIC insurance                                           702             410            192          71.2        265.6
General bank insurance                                   351             315            277          11.4         26.7
Amortization of core deposit intangible asset            659             665            115         (0.9)        473.0
Advertising expense                                      194             182             95           6.6        104.2
Card related expense                                   1,057             534            626          97.9         68.8
Legal fees                                               179             257            135        (30.4)         32.6
Consulting & management fees                             523             616            250        (15.1)        109.2
Other real estate owned expense (gain), net               87            (12)             77       (825.0)         13.0
Other expense                                          5,113           5,351          3,131         (4.4)         63.3
Total noninterest expense                        $    37,249    $     38,252    $    21,401         (2.6)         74.1
Efficiency ratio (GAAP)1                               67.07 %         72.70 %        68.63 %
Adjusted efficiency ratio (non-GAAP)2                  62.69 %         

61.89 % 67.65 %

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

2 The adjusted efficiency ratio shown in the table above is a non-GAAP financial
measure calculated as noninterest expense, excluding amortization of core
deposits, OREO expenses and merger-related costs, net of gain on branch sales,
divided by the sum of net interest income on a fully tax equivalent basis, total
noninterest income less net gains or losses on securities and mark to market
gains or losses on MSRs, and includes a tax equivalent adjustment on the change
in cash surrender value of BOLI.  See the section entitled "Reconciliation of
Adjusted Efficiency Ratio Non-GAAP Financial Measures" starting on page 52 for a
reconciliation of this non-GAAP measure to the most comparable GAAP equivalent.

Noninterest expense for the second quarter of 2022 decreased $1.0 million, or
2.6%, compared to the first quarter of 2022, and increased $15.8 million, or
74.1%, compared to the second quarter of 2021.  The linked quarter decrease was
primarily attributable to $3.3 million of West Suburban acquisition-related
costs for the second quarter of 2022, compared to $5.6 million for the first
quarter of 2022.  These acquisition-related costs included a $3.2 million
decrease in computer and data processing expense in the second quarter of 2022,
primarily due to acquisition-related core system conversion costs, and a
$489,000 decrease in other expense due to ancillary teller and mobile banking
systems conversion costs occurring in the first quarter of 2022.  Occupancy,
furniture and equipment costs also decreased $850,000 in the second quarter of
2022, compared to the prior quarter, due to net gains on branch sales during the
quarter. These decreases were partially offset by a $1.4 million increase in
salaries and employee benefits, largely the result of bonuses paid to
non-officer employees for efforts during the acquisition and conversion period,
and a $523,000 increase in card related expense, due to the growth in customer
transactions and related volume charges, as well as certain credits recorded in
the first quarter of 2022.

The year over year increase in noninterest expense is primarily attributable to
an $8.4 million increase in salaries and employee benefits, a $2.7 million
increase in computer and data processing expense, a $2.0 million increase in
other expense, and a $743,000 increase in occupancy, furniture and equipment
expense. Salaries and officer incentive increased $6.6 million and $468,000,
respectively, in the second quarter of 2022, compared to the like quarter of
2021, primarily due to additional employees from our acquisition of West
Suburban, as well as growth in our commercial lending team. Employee benefits
expense increased $1.4 million in the second quarter of

                                       50

Table of Contents


2022, compared to the second quarter of 2021, due to increases stemming from
additional employees from our acquisition of West Suburban, and increases in
employee insurance costs as more employees returned to more routine medical
appointments, many of which were on hold during the COVID-19 pandemic in 2020
and part of 2021. The increase in occupancy, furniture and equipment expense
year over year was due to the addition of 34 West Suburban branches in late
2021. The increase in computer and data processing expense was primarily due to
core system conversion costs relating to the West Suburban acquisition.

Finally, the increase in other expense was due primarily to growth in net
teller banking and bill paying fees of $623,000, which was due to
acquisition-related costs in the second quarter of 2022, as well as the impact
of a quarter of other expense from the inclusion of West Suburban activity.

Six months ended June 30, 2022 and 2021

Noninterest Expense                                   Six Months Ended           YTD
(Dollars in thousands)                            June 30,       June 30,      Percent
                                                    2022           2021        Change
Salaries                                         $    31,593    $    18,651       69.4
Officers incentive                                     2,656          2,847      (6.7)
Benefits and other                                     7,050          4,904       43.8
Total salaries and employee benefits                  41,299         26,402

56.4

Occupancy, furniture and equipment expense             6,745          4,770
      41.4
Computer and data processing                          10,274          2,602      294.9
FDIC insurance                                         1,112            393      183.0
General bank insurance                                   666            553       20.4
Amortization of core deposit intangible asset          1,324            235
     463.4
Advertising expense                                      376            155      142.6
Card related expense                                   1,591          1,219       30.5
Legal fees                                               436            190      129.5
Consulting & management fees                           1,139            667       70.8
Other real estate owned expense, net                      75            113
    (33.6)
Other expense                                         10,464          5,840       79.2
Total noninterest expense                        $    75,501    $    43,139       75.0
Efficiency ratio (GAAP)1                               69.81 %        66.21 %
Adjusted efficiency ratio (non-GAAP)2                  62.30 %        65.31 %


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

2 The adjusted efficiency ratio shown in the table above is a non-GAAP financial
measure calculated as noninterest expense, excluding amortization of core
deposits, OREO expenses and merger-related costs, net of gain on branch sales,
divided by the sum of net interest income on a fully tax equivalent basis, total
noninterest income less net gains or losses on securities and mark to market
gains or losses on MSRs, and includes a tax equivalent adjustment on the change
in cash surrender value of BOLI.  See the section entitled "Reconciliation of
Adjusted Efficiency Ratio Non-GAAP Financial Measures" starting on page 52 for a
reconciliation of this non-GAAP measure to the most comparable GAAP equivalent

Noninterest expense for the six months ended June 30, 2022, increased $32.4
million, or 75.0%, compared to the six months ended June 30, 2021, primarily due
to an increase in salaries and employee benefits, occupancy, furniture and
equipment, computer and data processing, and other expenses, which increases
primarily resulted from our acquisition of West Suburban in December 2021.
 Salaries and employee benefits increased $14.9 million largely from the
additional employees from West Suburban, as well as incentives and merit
increases effective in the second quarter of 2022.  Occupancy, furniture and
equipment increased $2.0 million or 41.4% due to additional facilities acquired
with our acquisition of West Suburban, net of gains from the sale of overlapping
branches.  Computer and data processing increased $7.7 million, or 294.9%,
primarily related to costs of operating multiple systems prior to conversion as
well as data conversion costs.  Other expense increased $4.6 million or 79.2%
primarily from a $2.4 million increase to net teller and bill paying expense,
and $931,000 of other acquisition-related costs.  In addition, FDIC insurance
increased $719,000 due to our increased asset size, as well as the absence of
assessment credits fully utilized in the 2021 year to date period.  Amortization
of core deposit intangible increased $1.1 million for the six months ended June
30, 2022, compared to the prior year like period, due to the West Suburban
acquisition.  Finally, consulting and management fees increased $472,000 due to
$572,000 of acquisition-related costs and general ledger reclasses in the first
six months of 2022.

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Reconciliation of Adjusted Efficiency Ratio Non-GAAP Financial Measures

                                                                            GAAP                                       Non-GAAP
                                                                      Three Months Ended                           Three Months Ended
                                                          June 30,       March 31,      June 30,       June 30,       March 31,      June 30,
                                                             2022           2022           2021           2022           2022           2021

Efficiency Ratio / Adjusted Efficiency Ratio

Noninterest expense                                      $     37,249   $  

38,252 $ 21,401 $ 37,249 $ 38,252 $ 21,401
Less amortization of core deposit

                                 659            665            115            659            665            115
Less other real estate expense, net                                87           (12)             77             87           (12)             77
Less merger related costs, net of gain on branch sales            N/A            N/A            N/A          2,132          5,334              -
Noninterest expense less adjustments                     $     36,503   $  

37,599 $ 21,209 $ 34,371 $ 32,265 $ 21,209

Net interest income                                      $     45,264   $  

41,232 $ 21,954 $ 45,264 $ 41,232 $ 21,954
Taxable-equivalent adjustment:
Loans

                                                             N/A            N/A            N/A              6              5              3
Securities                                                        N/A            N/A            N/A            376            381            334
Net interest income including adjustments                      45,264      

41,232 21,954 45,646 41,618 22,291
Noninterest income

                                              9,211       

13,463 7,919 9,211 13,463 7,919
Less securities (losses) gains

                                   (33)              -              2           (33)              -              2
Less MSRs mark to market gain (loss)                               82          2,978        (1,033)             82          2,978        (1,033)
Taxable-equivalent adjustment:
Change in cash surrender value of BOLI                            N/A            N/A            N/A             19             33            112
Noninterest income (less) / including adjustments               9,162      

10,485 8,950 9,181 10,518 9,062


Net interest income including adjustments plus
noninterest income (less) / including adjustments        $     54,426   $  

51,717 $ 30,904 $ 54,827 $ 52,136 $ 31,353
Efficiency ratio / Adjusted efficiency ratio

                    67.07 %        72.70 %        68.63 %        62.69 %        61.89 %        67.65 %


Income Taxes

We recorded income tax expense of $4.4 million for the second quarter of 2022 on
$16.7 million of pretax income, compared to income tax expense of $4.4 million
on $16.4 million of pretax income in the first quarter of 2022, and income tax
expense of $3.2 million on $12.0 million of pretax income in the second quarter
of 2021. Our effective tax rate was 26.6% in the second quarter of 2022, 26.9%
for the first quarter of 2022, and 26.3% for the second quarter of 2021.

We recorded income tax expense of $8.9 million on $33.1 million of pretax income
for the six months ended June 30, 2022, compared to income tax expense of $7.4
million on $28.1 million of pretax income in the like 2021 period.  The
effective tax rate was 26.7% and 26.3% for the second quarter of 2022 and the
second quarter of 2021, respectively.

Income tax expense reflected all relevant statutory tax rates and GAAP
accounting.  There were no significant changes in our ability to utilize our
deferred tax assets during the quarter or six months ended June 30, 2022.  We
had no valuation reserve on the deferred tax assets as of June 30, 2022.

Financial Condition


Total assets decreased $206.6 million to $6.01 billion at June 30, 2022, from
$6.21 billion at December 31, 2021, due primarily to a net decrease in cash and
cash equivalents of $470.7 million, offset by increases of $203.2 million in net
loans, $40.8 million in securities available-for-sale, and $26.4 million in
deferred tax assets.  The decrease in cash and cash equivalents was primarily
due to the use of cash in the abovementioned asset increases, as well as the
decrease in customer deposits of $123.4 million and loan growth.  We continue to
actively assess potential investment opportunities to utilize our excess
liquidity. Total deposits were $5.3 billion at June 30, 2022, a decrease of
$123.4 million from December 31, 2021, primarily due to seasonal decreases of
municipal deposits, and to a lesser extent declines in interest bearing demand
accounts, savings, money market, NOW, and time deposits in 2022.

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                                                                                                      June 30, 2022
Securities                                                         As of                           Percent Change From
(Dollars in thousands)                           June 30,       December 

31, June 30, December 31, June 30,

                                                   2022             2021             2021           2021           2021
Securities available-for-sale, at fair value
U.S. Treasuries                                 $   214,820    $       202,339    $    4,086              6.2          N/M
U.S. government agencies                             57,896             61,888         6,038            (6.5)        858.9
U.S. government agencies mortgage-backed            141,836            172,302        18,939           (17.7)        648.9
States and political subdivisions                   233,652            257,609       242,748            (9.3)        (3.7)
Corporate bonds                                       9,543              9,887        31,715            (3.5)       (69.9)
Collateralized mortgage obligations                 641,498            672,967       101,912            (4.7)        529.5
Asset-backed securities                             259,622            236,877       145,356              9.6         78.6
Collateralized loan obligations                     175,549             79,763        29,154            120.1        502.1
Total securities                                $ 1,734,416    $     1,693,632    $  579,948              2.4        199.1


N/M - Not meaningful
Securities available-for-sale increased $40.8 million as of June 30, 2022,
compared to December 31, 2021, and increased $1.15 billion compared to June 30,
2021. The increase in the portfolio during the second quarter of 2022 was driven
by the purchase of $9.7 million of states and political subdivisions, $8.5
million of collateralized mortgage obligations, $3.7 million of asset-backed
securities, and $14.0 million of collateralized loan obligations.  These
purchases were partially offset by $76.1 million of calls, maturities, sales and
paydowns during the second quarter of 2022, and an unrealized mark to market
loss adjustment of $40.5 million and net premium amortization of $1.5 million.
 We continue to seek to position our portfolio into higher credit quality,
shorter duration issuances. The increase in the securities portfolio in the year
over year period was primarily due to $1.07 billion of securities acquired in
our acquisition of West Suburban, as well as $1.03 billion of purchases in the
last twelve months, less $601.0 million of sales in that same period, to utilize
our excess cash on hand. There was one security sale during the second quarter
of 2022 and one during the second quarter of 2021, resulting in a loss of
$33,000 and gain of $2,000 respectively.

                                                                                             June 30, 2022
Loans                                                       As of                         Percent Change From
(Dollars in thousands)                    June 30,      December 31,      June 30,     December 31,     June 30,
                                            2022            2021            2021           2021           2021
Commercial                               $   806,725   $       771,474   $   344,084             4.6        134.5
Leases                                       230,677           176,031       154,512            31.0         49.3
Commercial real estate - investor          1,076,678           957,389       569,745            12.5         89.0
Commercial real estate - owner occupied      627,898           574,384       318,259             9.3         97.3
Construction                                 170,037           206,132       100,544          (17.5)         69.1
Residential real estate - investor            61,220            63,399        50,127           (3.4)         22.1
Residential real estate - owner occupied     207,836           213,248     
 105,419           (2.5)         97.2
Multifamily                                  310,706           309,164       161,628             0.5         92.2
HELOC                                        111,072           115,664        72,475           (4.0)         53.3
HELOC - purchased                              9,066            10,626        14,436          (14.7)       (37.2)
Other (1)                                     13,155            23,293        12,137          (43.5)          8.4
Total loans                              $ 3,625,070   $     3,420,804   $ 1,903,366             6.0         90.5

1 The “Other” segment includes consumer and overdrafts.


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Total loans were $3.63 billion as of June 30, 2022, an increase of $204.3
million from December 31, 2021.  The increase in total loans in the first six
months of 2022, compared to December 31, 2021, was due primarily to growth in
loan originations within commercial real estate - investor, which increased by
$119.3 million, and leases, which increased by $54.6 million from December 31,
2021. Total loans increased $1.72 billion from June 30, 2021 to June 30, 2022,
primarily due to the loan portfolio acquired from West Suburban. As required by
CECL, the balance (or amortized cost basis) of purchased credit deteriorated
loans, or PCD loans (discussed below) is carried on a gross basis (rather than
net of the associated credit loss estimate), and the expected credit losses for
PCD loans are estimated and separately recognized as part of the allowance for
credit losses, or ACL.

The quality of our loan portfolio is impacted not only by our credit decisions
but also by the economic health of the communities in which we operate.  Since
we are located in a corridor with significant open space and undeveloped real
estate, real estate lending (including commercial real estate, construction,
residential, multifamily, and HELOCs) has been and continues to be a sizeable
portion of our portfolio.  These categories comprised 71.0% of the portfolio as
of June 30, 2022, compared to 71.6% of the portfolio as of December 31, 2021.

We continue to oversee and seek to manage our loan portfolio in accordance with
interagency guidance on risk management.

Asset Quality

Nonperforming loans consist of nonaccrual loans, performing restructured
accruing loans and loans 90 days or greater past due. Remediation work
continues in all segments. Nonperforming loans decreased by $2.6 million to
$42.1 million at June 30, 2022 from $44.7 million at December 31, 2021.

 Purchased credit deteriorated loans, or PCD loans, are purchased loans that, as
of the date of acquisition, we determined had experienced a
more-than-insignificant deterioration in credit quality since origination.  PCD
loans and their related deferred loan costs are included in our nonperforming
loan disclosures, if such loans otherwise meet the definition of a nonperforming
loan.  Management continues to carefully monitor loans considered to be in a
classified status.  Nonperforming loans as a percent of total loans were 1.2% as
of June 30, 2022, 1.3% as of December 31, 2021, and 1.2% as of June 30, 2021.
 The distribution of our nonperforming loans is shown in the following table.

                                                                                                     June 30, 2022
Nonperforming Loans                                           As of                               Percent Change From
(Dollars in thousands)                     June 30,       December 31,     
 June 30,         December 31,         June 30,
                                             2022             2021             2021                2021              2021
Commercial                                $    11,600    $        13,291    $         -           (12.7)                N/M
Leases                                          2,005              3,754          2,526           (46.6)             (20.6)
Commercial real estate - Investor               8,324              5,694          1,915             46.2              334.7
Commercial real estate - Owner occupied        10,670             13,231          7,078           (19.4)               50.7
Construction                                    1,238                160          3,470            673.8             (64.3)
Residential real estate - Investor              1,092                899            840             21.5               30.0
Residential real estate - Owner occupied        3,642              5,019   
      3,564           (27.4)                2.2
Multifamily                                       907              1,573          2,723           (42.3)             (66.7)
HELOC                                           2,442                862            810            183.3              201.5
HELOC - Purchased                                 171                180              -            (5.0)                N/M
Other 1                                             3                  3            195                -             (98.5)
Total nonperforming loans                 $    42,094    $        44,666    $    23,121            (5.8)               82.1


N/M - Not meaningful

1 The “Other” segment includes consumer and overdrafts.


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

                                                                                                           June 30, 2022
Nonperforming Assets                                                   As of                            Percent Change From
(Dollars in Thousands)                             June 30,        December 31,       June 30,       December 31,    June 30,
                                                      2022             2021              2021            2021          2021
Nonaccrual loans                                  $     35,712    $        41,531    $     22,784           (14.0)        56.7
Performing troubled debt restructured loans
accruing interest                                        1,108                 25             201              N/M       451.2
Loans past due 90 days or more and still
accruing interest                                        5,274              3,110             136             69.6         N/M
Total nonperforming loans                               42,094             44,666          23,121            (5.8)        82.1
Other real estate owned                                  1,624              2,356           1,877           (31.1)      (13.5)
Total nonperforming assets                        $     43,718    $        47,022    $     24,998            (7.0)        74.9

30-89 days past due loans and still accruing
interest                                          $     24,681    $        10,745    $      8,654
Nonaccrual loans to total loans                            1.0 %              1.2 %           1.2 %
Nonperforming loans to total loans                         1.2 %              1.3 %           1.2 %
Nonperforming assets to total loans plus OREO              1.2 %              1.4 %           1.3 %

Allowance for credit losses                       $     45,388    $        44,281    $     28,639
Allowance for credit losses to total loans                 1.3 %              1.3 %           1.5 %
Allowance for credit losses to nonaccrual loans          127.1 %           
106.6 %         125.7 %


N/M - Not meaningful

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

Loan Charge-offs, Net of Recoveries                            Three Months
Ended
(Dollars in thousands)                    June 30,     % of   March 31,     % of    June 30,     % of
                                            2022      Total1     2022      Total1     2021      Total1
Commercial                               $        44    17.6  $         -       -  $       190    292.3
Leases                                             -       -            -       -           28     43.1
Commercial real estate - investor                225    90.0          213    72.7         (20)   (30.8)
Commercial real estate - owner occupied          (7)   (2.8)          113    38.6           21     32.3
Residential real estate - investor               (5)   (2.0)         (10)   (3.4)         (10)   (15.4)
Residential real estate - owner occupied        (22)   (8.8)         (83) 
(28.3)         (61)   (93.8)
HELOC                                           (31)  (12.4)         (35)  (11.9)         (72)  (110.8)
Other 2                                           46    18.4           95    32.3         (11)   (16.9)
Net charge-offs                          $       250   100.0  $       293   100.0  $        65    100.0

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

2 The “Other” segment includes consumer and overdrafts.


Net charge-offs of $250,000 were recorded for the second quarter of 2022,
compared to net charge-offs of $293,000 for the first quarter of 2022, and net
charge-offs of $65,000 for the second quarter of 2021, reflecting continuing
management attention to credit quality and remediation efforts.  The net
charge-offs for the second quarter of 2022 were primarily due to one commercial
real estate - investor charge off for 243,000.  We have continued our
conservative loan valuations and aggressive recovery efforts on prior
charge-offs.

Classified loans include nonaccrual, performing troubled debt restructurings and
all other loans considered substandard.  Classified assets include both
classified loans and OREO.  Loans classified as substandard are inadequately
protected by either the current net worth and ability to meet payment
obligations of the obligor, or by the collateral pledged to secure the loan, if
any.  These loans have a well-defined weakness or weaknesses that jeopardize the
liquidation of the debt and carry the distinct possibility that we will sustain
some loss if deficiencies remain uncorrected.

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The following table shows classified assets by segment for the following
periods.


                                                                                                 June 30, 2022
Classified Assets                                           As of                             Percent Change From
(Dollars in thousands)                    June 30,      December 31,      June 30,        December 31,         June 30,
                                             2022           2021            2021               2021              2021
Commercial                                $   31,577   $        32,712   $       482           (3.5)                N/M
Leases                                         2,005             3,754         3,007          (46.6)             (33.3)
Commercial real estate - investor             30,407            10,667         5,063           185.1              500.6
Commercial real estate - owner occupied       28,715            15,429         8,702            86.1              230.0
Construction                                   1,238             2,104         5,393          (41.2)             (77.0)
Residential real estate - investor             1,246             1,265         1,082           (1.5)               15.2
Residential real estate - owner occupied       3,785             5,099     
   4,578          (25.8)             (17.3)
Multifamily                                    1,336             2,278         8,477          (41.4)             (84.2)
HELOC                                          2,681             1,243         1,090           115.7              146.0
HELOC - purchased                                172               180             -           (4.4)                N/M
Other 1                                            2                10             2          (80.0)                  -
Total classified loans                       103,164            74,741        37,876            38.0              172.4
Other real estate owned                        1,624             2,356         1,877          (31.1)             (13.5)
Total classified assets                   $  104,788   $        77,097   $    39,753            35.9              163.6


N/M - Not meaningful

1 The “Other” segment includes consumer and overdrafts.

Total classified loans and classified assets increased $27.7 million as of
June 30, 2022, from the levels at December 31, 2021. The increase is due to the
addition of four commercial real estate - investor loans totaling $19.7 million
and one commercial real estate - owner occupied loan for $15.4 million in the
second quarter. The increase from June 30, 2021 is primarily due to the $15.4
million addition of the West Suburban loan portfolio in late 2021. Management
monitors a ratio of classified assets to the sum of Bank Tier 1 capital and the
ACL on loans as another measure of overall change in loan related asset quality,
which is referred to as the "classified assets ratio."  The classified assets
ratio was 17.79% for the period ended June 30, 2022, compared to 13.79% as of
December 31, 2021, and 10.75% as of June 30, 2021.  The increase in the
classified assets ratio for the period ended June 30, 2022, compared to
June 30, 2021, is also due to the acquisition of West Suburban Bank.

Allowance for Credit Losses on Loans


The provision for credit losses, which includes a provision for losses on
unfunded commitments, is a charge to earnings to maintain the ACL at a level
consistent with management's assessment of expected losses in the loan portfolio
at the balance sheet date. As of January 1, 2020, we adopted ASU 2016-13, or
CECL.

At June 30, 2022, our allowance for credit losses ("ACL") on loans totaled $45.4
million, and our ACL on unfunded commitments, included in other liabilities,
totaled $4.7 million. In the second quarter of 2022, we recorded provision
expense on loans of $1.3 million, based on our assessment of nonperforming loan
metrics and trends and estimated future credit losses, which was offset by a
$780,000 reduction in our reserve on unfunded commitments, primarily due to an
updated analysis of line utilization rates over the past twelve months, as well
as the roll off of prior historical periods with lower losses within the CECL
model.  These two entries resulted in a $550,000 net impact to the provision for
credit losses for the second quarter of 2022.

The ACL on loans totaled $44.3 million as of both March 31, 2022 and December
31, 2021, and $28.6 million as of June 30, 2021.  The ACL on loans increased in
late 2021 due to the impact of the West Suburban acquisition Day One credit mark
of $12.1 million, the Day Two non-PCD loan adjustment to ACL of $12.2 million,
less a reversal of $2.3 million related to our legacy loan portfolio and net
charge-offs of $4.7 million for the fourth quarter.  The ACL for loans was
reduced in the second quarter of 2021 due to a $2.3 million release of the
provision for credit losses.

Management estimates the amount of provision required on a quarterly basis and
records the appropriate provision expense, or release of expense, to maintain an
adequate reserve for all potential and estimated credit losses on loans, leases
and unfunded commitments.  Our ACL on loans to total loans was 1.3% as of
June 30, 2022, and December 31, 2021.  See Item 7 - Critical Accounting
Estimates in the Management Discussion and Analysis in our 2021 Annual Report in
Form 10-K for discussion of our ACL methodology on loans.

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Allocations of the ACL may be made for specific loans, but the entire allowance
is available for any loan that, in our judgment, should be charged-off.

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

                                                                   Three Months Ended                     Six Months Ended
                                                         June 30,      March 31,       June 30,       June 30,       June 30,
                                                           2022           2022           2021           2022           2021
Allowance at beginning of period                       $    44,308    $   
44,281    $    30,967    $    44,281    $    33,855
Charge-offs:
Commercial                                                      52             30            207             82            209
Leases                                                           -              -             28              -             28
Commercial real estate - investor                              243            236              -            480              -
Commercial real estate - owner occupied                          -            121             31            121             34
Construction                                                     -              -              -              -              -
Residential real estate - investor                               -              -              -              -              -
Residential real estate - owner occupied                         -         
    -              -              -              -
Multifamily                                                      -              -              -              -              -
HELOC                                                            -              -              5              -             17
HELOC - purchased                                                -              -              -              -              -
Other 1                                                         91            127             30            217             55
Total charge-offs                                              386            514            301            900            343
Recoveries:
Commercial                                                       8             30             17             38             37
Leases                                                           -              -              -              -              -
Commercial real estate - investor                               18             23             20             41             40
Commercial real estate - owner occupied                          7              8             10             15            218
Construction                                                     -              -              -              -              -
Residential real estate - investor                               5             10             10             15            276
Residential real estate - owner occupied                        22         
   83             61            105            110
Multifamily                                                      -              -              -              -              -
HELOC                                                           31             35             77             67            101
HELOC - purchased                                                -              -              -              -              -
Other 1                                                         45             32             41             76             78
Total recoveries                                               136            221            236            357            860
Net charge-offs (recoveries)                                   250            293             65            543          (517)
Provision for (release of) credit losses on loans            1,330         

320 (2,263) 1,650 (5,733)
Allowance at end of period

                             $    45,388    $    

44,308 $ 28,639 $ 45,388 $ 28,639

Average total loans (exclusive of loans held-for-sale) $ 3,505,806 $ 3,397,827 $ 1,926,105 $ 3,452,115 $ 1,965,911
Net charge-offs / (recoveries) to average loans

               0.01 %        

0.01 % 0.00 % 0.02 % (0.03) %
Allowance at period end to average loans

                      1.29 %        

1.30 % 1.49 % 1.31 % 1.46 %

1 The “Other” segment includes consumer and overdrafts.

The coverage ratio of the ACL on loans to nonperforming loans was 107.8% as of
June 30, 2022, which was a decrease from the coverage ratio of 116.7% as of
March 31, 2021 and a decrease from 123.9% as of June 30, 2021.  When measured as
a percentage of average loans, our total ACL on loans was 1.31% for the six
months ended June 30, 2022 and 1.46% for the like period of June 30, 2021

In management's judgment, an adequate ACL has been established to encompass the
current lifetime expected credit losses at June 30, 2022, and general changes in
lending policy, procedures and staffing, as well as other external factors, such
as the impacts of the COVID-19 pandemic.  However, there can be no assurance
that actual losses will not exceed the estimated amounts in the future, based on
unforeseen economic events, changes in business climates and the condition of
collateral at the time of default and repossession.  Further delayed recovery or
further deterioration in market conditions related to COVID-19 or other factors,
such as the war in Ukraine, and the associated impacts on our customers, changes
in business climates and the condition of collateral at the time of default or
repossession may revise our current expectations of future credit losses in
future reporting periods.

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Other Real Estate Owned

As of June 30, 2022, OREO totaled $1.6 million, reflecting a $732,000 decrease
from the $2.4 million at December 31, 2021, and a $254,000 decrease from the
$1.9 million at June 30, 2021.  In the second quarter of 2022, we disposed of
three properties totaling $646,191 in net book value, which resulted in a gain
on sale of OREO of $81,000 and no transfers to OREO. In the fourth quarter of
2021, we acquired three OREO properties in our acquisition of West Suburban,
with a total fair value of $5.6 million, and we sold two of these properties in
December, which had a net book value of $5.2 million. In the second quarter of
2022, we recorded $104,000 of OREO valuation reserve adjustments, compared to
$14,000 of valuation reserve adjustments recorded in the fourth quarter of 2021,
and $61,000 of valuation reserve adjustments recorded in the second quarter
of
2021.

                                                                                                               June 30, 2022
OREO                                                            Three Months Ended                          Percent Change From
(Dollars in thousands)                              June 30,       December 31,       June 30,         December 31,          June 30,
                                                      2022             2021             2021                2021                2021
Balance at beginning of period                     $     2,374    $         1,912    $     2,163             24.2                  9.8
Property additions, net of acquisition adjustments           -              5,678              -          (100.0)                    -

Less:

Proceeds from property disposals, net of
participation purchase and of gains/losses                 646             
5,220            225           (87.6)                187.1
Period valuation write-down                                104                 14             61            642.9                 70.5
Balance at end of period                           $     1,624    $         2,356    $     1,877           (31.1)               (13.5)


In management's judgment, the property valuation allowance as established
presents OREO at current estimates of fair value less estimated costs to sell;
however, there can be no assurance that additional losses will not be incurred
on disposals or upon updates to valuations in the future.  Of note, properties
valued in total at $930,000, or approximately 57.2% of total OREO at
June 30, 2022, have been in OREO for five years or more.  The appropriate
regulatory approval has been obtained for any OREO properties held in excess of
five years.

OREO Properties by Type
(Dollars in thousands)                          June 30, 2022                    December 31, 2021                  June 30, 2021
                                              Amount     % of Total           Amount           % of Total         Amount     % of Total
Single family residence                   $        63          4 %       $         645              27 %      $       450         24 %
Lots (single family and commercial)             1,261         78 %               1,411              56 %            1,075         57 %
Vacant land                                       300         18 %                 300              17 %              352         19 %
Total other real estate owned             $     1,624        100 %       $       2,356             100 %      $     1,877        100 %


Deposits and Borrowings

                                                                                       June 30, 2022
Deposits                                              As of                         Percent Change From
(Dollars in thousands)              June 30,      December 31,      June 

30, December 31, June 30,

                                      2022            2021            2021           2021           2021
Noninterest bearing demand         $ 2,078,272   $     2,093,494   $ 1,028,558           (0.7)        102.1
Savings                              1,199,027         1,178,575       442,805             1.7        170.8
NOW accounts                           609,558           587,381       531,231             3.8         14.7
Money market accounts                  994,616         1,102,972       331,144           (9.8)        200.4
Certificates of deposit of less
than $100,000                          268,723           296,298       183,444           (9.3)         46.5
Certificates of deposit of
$100,000 through $250,000              140,266           138,794       109,500             1.1         28.1
Certificates of deposit of more
than $250,000                           52,393            68,718        55,319          (23.8)        (5.3)
Total deposits                     $ 5,342,855   $     5,466,232   $ 2,682,001           (2.3)         99.2

Total deposits were $5.34 billion at June 30, 2022, which reflects a $123.4
million decrease from total deposits of $5.47 billion at December 31, 2021, and
an increase of $2.66 billion from total deposits of $2.68 billion at
June 30, 2021.  The decrease in deposits at June 30, 2022, compared to December
31, 2021, was primarily due to decreases in demand deposits of $15.2 million,
money market

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accounts of $108.3 million and time deposits of $42.4 million partially offset
by increases in savings and NOW accounts of $42.6 million. The increase in
deposits at June 30, 2022, compared to June 30, 2021 was primarily due to an
increase of $2.69 billion of deposits from the West Suburban acquisition.

In addition to deposits, we obtained funding from other sources in all periods
presented.  Securities sold under repurchase agreements totaled $37.6 million at
June 30, 2022, a $12.7 million, or 25.3%, decrease from $50.3 million at
December 31, 2021.   Our notes payable and other borrowings is comprised of
$11.0 million outstanding on a $20.0 million term note originated with a
correspondent bank in the first quarter of 2020, to facilitate the redemption of
our Old Second Capital Trust I trust preferred securities and related junior
subordinated debentures, completed on March 2, 2020.  Notes payable and other
borrowings of $11.0 million as of June 30, 2022, decreased $8.1 million from
December 31, 2021, and decreased $10.2 million from June 30, 2021.

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 Company is indebted on senior notes originated in December 2016, totaling
$44.5 million, net of deferred issuance costs, as of June 30, 2022.  These notes
mature in December 2026, and included interest payable semi-annually at 5.75%
for five years.  Beginning December 31, 2021, the interest became payable
quarterly at three month LIBOR plus 385 basis points.  The Company is also
indebted on $25.8 million, net of deferred issuance costs, of junior
subordinated debentures, which are related to the trust preferred securities
issued by its statutory trust subsidiary, Old Second Capital Trust II ("Trust
II").  The Trust II issuance converted from fixed to floating rate at three
month LIBOR plus 150 basis points on June 15, 2017.  Upon conversion to a
floating rate, we initiated a cash flow hedge which resulted in the total
interest rate paid on this debt of 4.41% as of June 30, 2022, as compared to
6.77%, which was the rate paid during the period prior to the June 15, 2017,
rate reset.

Capital

As of June 30, 2022, total stockholders' equity was $448.9 million, which was a
decrease of $53.1 million from $502.0 million as of December 31, 2021.  This
decrease is primarily attributable to a decrease in accumulated other
comprehensive income of $74.0 million in the first six months of 2022 due to a
net decrease in unrealized gains on available-for-sale securities, net of
unrealized losses on swaps, due to the increase in market interest rates, as
well as a reduction to retained earnings of $4.4 million for payment of
dividends to our common stockholders in the first six months of 2022. Partially
offsetting this decrease was $24.3 million of net income for the six months
ended June 30, 2022. Total stockholders' equity as of June 30, 2022, increased
$133.0 million compared to June 30, 2021, primarily due to the West Suburban
acquisition in late 2021 and the resultant additional common stock issued, as
well as net income year over year, less the reduction in accumulated other
comprehensive income of $79.7 million year over year.

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

                                        Minimum Capital       Well Capitalized
                                         Adequacy with          Under Prompt
                                    Capital Conservation     Corrective Action   June 30,     December 31,    June 30,
                                    Buffer, if applicable1      Provisions2         2022          2021           2021
The Company
Common equity tier 1 capital ratio                   7.00 %             N/A          9.35 %         9.46  %      12.72 %
Total risk-based capital ratio                      10.50 %             N/A         12.27 %        12.55  %      17.60 %
Tier 1 risk-based capital ratio                      8.50 %             N/A
         9.91 %        10.06  %      13.83 %
Tier 1 leverage ratio                                4.00 %             N/A          7.24 %         7.81  %       9.68 %

The Bank
Common equity tier 1 capital ratio                   7.00 %            6.50  %      12.24 %        12.41  %      15.23 %
Total risk-based capital ratio                      10.50 %           10.00  %      13.25 %        13.46  %      16.33 %
Tier 1 risk-based capital ratio                      8.50 %            8.00
 %      12.24 %        12.41  %      15.23 %
Tier 1 leverage ratio                                4.00 %            5.00  %       8.94 %         9.58  %      10.63 %

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.


As part of its response to the impact of the COVID-19 pandemic, in the first
quarter of 2020, U.S. federal regulatory authorities issued an interim final
rule that provided banking organizations that adopted CECL during the 2020
calendar year with the option to delay for two years the estimated impact of
CECL on regulatory capital relative to regulatory capital determined under the
prior incurred loss methodology, followed by a three-year transition period to
phase out the aggregate amount of the capital benefit provided during the
initial two-year delay (i.e., a five-year transition in total). In connection
with our adoption of CECL on January 1, 2020, we elected to utilize the
five-year CECL transition.  As of June 30, 2022, the capital measures of the
Company exclude $2.9 million, which is the modified CECL transition adjustment.

As of June 30, 2022, the Company, on a consolidated basis, exceeded the minimum
capital ratios to be deemed "well capitalized" and met the now fully phased-in
capital conservation buffer requirements.  In addition to the above regulatory
ratios, our GAAP common equity to total assets ratio, which is used as a
performance measurement for capital analysis and peer comparisons, decreased
from 8.08% at December 31, 2021, to 7.47% at June 30, 2022.  Our GAAP tangible
common equity to tangible assets ratio was 5.89% at June 30, 2022, compared to
6.54% as of December 31, 2021.  Our non-GAAP tangible common equity to tangible
assets ratio, which management also considers a valuable performance measurement
for capital analysis, decreased from 6.59% at December 31, 2021, to 5.93% at
June 30, 2022, primarily due to a decline in tangible common equity in the
second quarter of 2022.  The decline in tangible common equity was due to a
decrease in accumulated other comprehensive income of $74.0 million primarily
related to unrealized losses on available-for-sale securities stemming from the
increase in market interest rates.  The non-GAAP tangible common equity to
tangible assets ratio was also negatively impacted by growth in total tangible
assets in the second quarter of 2022.

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Reconciliation of Tangible Common Equity to Tangible Assets Ratio Non-GAAP
Measure


                                                                    June 30, 2022               December 31, 2021
Tangible common equity                                           GAAP         Non-GAAP         GAAP         Non-GAAP
(Dollars in thousands)

Total Equity                                                  $   448,904    $   448,904    $   502,027    $   502,027
Less: Goodwill and intangible assets                              101,312        101,312        102,636        102,636
Add: Limitation of exclusion of core deposit intangible (80%)         N/A          2,996            N/A          3,261
Adjusted goodwill and intangible assets                           101,312  
      98,316        102,636         99,375
Tangible common equity                                        $   347,592    $   350,588    $   399,391    $   402,652
Tangible assets
Total assets                                                  $ 6,005,543    $ 6,005,543    $ 6,212,189    $ 6,212,189
Less: Adjusted goodwill and intangible assets                     101,312  
      98,316        102,636         99,375
Tangible assets                                               $ 5,904,231    $ 5,907,227    $ 6,109,553    $ 6,112,814

Common equity to total assets                                        7.47 %         7.47 %         8.08 %         8.08 %
Tangible common equity to tangible assets                            5.89 %

5.93 % 6.54 % 6.59 %



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 us 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 our cash flows from
operating activities, investment in and maturity of assets, changes in balances
of deposits and borrowings, and our ability to borrow funds.  We monitor our
borrowing capacity at the FHLBC as part of our liquidity management process as
supervised by our Asset and Liability Committee ("ALCO") and reviewed by our
Board of Directors.  In addition, due to the potential impacts on our liquidity
stemming from the COVID-19 pandemic, our senior management team monitors cash
balances daily to ensure we have adequate liquidity to meet our operational and
financing needs.  As of June 30, 2022, our cash on hand liquidity totaled $281.3
million, a decrease of $470.8 million over cash balances held as of December 31,
2021.

Net cash inflows from operating activities were $27.1 million during the first
six months of 2022, compared with net cash inflows of $24.5 million in the same
period of 2021.  Proceeds from sales of loans held-for-sale, net of funds used
to originate loans held-for-sale, were a source of inflows for the first six
months of 2022, and for the like period of 2021.  Interest paid, net of interest
received, combined with changes in other assets and liabilities were a source of
outflows for the six months ended June 30, 2022, but were a source of inflows
for the like period of 2021.  The management of investing and financing
activities, as well as market conditions, determines the level and the stability
of net interest cash flows.  Management's policy is to mitigate the impact of
changes in market interest rates to the extent possible, as part of the balance
sheet management process.

Net cash outflows from investing activities were $349.7 million in the six
months ended June 30, 2022, compared to net cash inflows of $47.0 million in the
same period in 2021.  In the first six months of 2022, securities transactions
accounted for net outflows of $149.4 million, and the principal change on loans
accounted for net outflows of $200.0 million.  In the first six months of 2021,
securities transactions accounted for net outflows of $86.3 million, and net
principal on loans funded accounted for net inflows of $133.4 million.  Proceeds
from sales of OREO accounted for $845,000 and $565,000 in investing cash inflows
for the six months ended June 30, 2022 and 2021, respectively.

Net cash outflows from financing activities in the six months ended June 30,
2022, were $148.2 million, compared with net cash inflows of $191.4 million in
the six months ended June 30, 2021.   Net deposit outflows in the first six
months of 2022 were $122.6 million compared to net deposit inflows of
$144.9 million in the first six months of 2021.  Other short-term borrowings had
no net cash inflows or outflows in the first six months of 2022 or 2021.
 Changes in securities sold under repurchase agreements accounted for outflows
of $12.7 million and inflows of $1.6 million for the six months ended June 30,
2022 and 2021, respectively.  Dividends paid on our common stock totaled $4.4
million in the six months ended June 30, 2022, compared to dividends paid of
$1.7 million for the like 2021 period, as the per common share dividend was
increased to five cents per share in the second quarter of 2021.  The repurchase
of treasury stock in the first six months of 2022 resulted in outflows of
$400,000, compared to cash outflows of $10.4 million in the first six months of
2021.

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Cash and cash equivalents for the six months ended June 30, 2022, totaled $281.3
million, as compared to $592.8 million as of June 30, 2021.  In addition to cash
and cash equivalents on hand or held as deposits with other financial
institutions, we rely on funding sources from customer deposits, cash flows from
securities available-for-sale and loans, and a line of credit with the FHLBC to
meet potential liquidity needs.  These sources of liquidity are immediately
available to satisfy any funding requirements due to depositor or borrower
demands through the ordinary course of our business.  Additional sources of
funding include a $30.0 million undrawn line of credit held by the Company with
a third party financial institution, as well as unpledged securities
available-for-sale.

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