Good morning and thank you for joining us. I have several prepared opening remarks and I will give my overview of the quarter and then turn it over to Brad for additional details.

I will then conclude with some summary comments and thoughts about the future before we open it up for questions. Okay.

Net loss was $9.1 million or $0.26 per diluted share in the fourth quarter. Net income, excluding acquisition-related adjustments to our provision for credit losses and merger-related costs, was $12.5 million or $0.36 per share in the fourth quarter.

On the same basis, return on assets was 1.15% return on tangible common equity was 14.1%, and the efficiency ratio was 66.1%. Earnings this quarter were favorably impacted by the inclusion of one month of the legacy West Suburban net interest income, as well as a $2.3 million reversal provision for credit losses due to more favorable unemployment projections over the next year.

In addition, a MSR valuation mark-to-market gain of $1.5 million was recorded in the fourth quarter. We closed the West Suburban acquisition on December 1st, which resulted in some transformational changes to our financial statements.

For the full-year, earnings were $41.9 million or $1.36 per diluted share, excluding the merger-related charges and CECL adjustments. ROA was 1.20%, ROTC was 3 -- 13.66%, and the efficiency ratio was 65.8% on the same basis.

Overall, we're very pleased with the financial performance we delivered in 2021, but the acquisition of West Suburban and what it can mean for us in the future is clearly the story for us. We now have $6.2 billion in assets, including $3.4 billion in loans, and an incredibly granular low beta, $5.5 billion in deposits.

We are focused on deploying liquidity in order to more fully leverage the quality of the deposit base by building commercial loan origination capability for the long term and making prudent investments in the securities portfolio in the short-term that do not carry excess spread or credit risk. The goal is obviously to build back towards an 80% plus loan-to-deposit ratio in order to drive the returns on equity commensurate with our recent historical performance.

We have a plan and are making progress. In regards to the quarter and the balance sheet specifically, security and loan growth, quarter-over-quarter including the growth from the inclusion of the west suburban portfolio at year-end.

The west suburban securities portfolio was fair valued at $1.07 billion and it was recorded, in its entirety, within our available for sale portfolio. We executed $570.8 million of security sales, or 54% of the portfolio immediately upon acquisition close in order to align the portfolio with our investment strategy.

This included subsequent purchases of $533.9 million of securities throughout the fourth quarter of 2021. We significantly improved the liquidity and reduce the duration of the portfolio, thereby reducing extension risk.

There was certainly a cost to doing this in both income and fair value associated with these actions. Our outlook that we shared with you when we announced the transaction is unchanged.

Period-end loans for the fourth quarter included the addition of $1.5 billion from West Suburban merger, as well as organic growth of $81.6 million exclusive of PPP loan pay-downs of $29.7 million for the quarter. Only $38.4 million of PPP loans from both the first and second round remain outstanding as of the end of the year, which includes both legacy Old Second and West Suburban portfolios.

We are encouraged both by returning to growth mode, and that our pipeline at quarter end is by far the strongest we have seen since the pandemic began. We are seeing significant pipeline builds and commercial real estate and healthcare.

Although CNI activity and line utilization remains soft. After a strong fourth quarter last year, equipment leasing will ramp up as the new year unfolds.

With the new CRE team that started with us in the third quarter, along with a senior leasing officer and an experienced team leading a new sponsor finance vertical added in the fourth quarter of 2021. I'm optimistic we can see solid loan growth in 2022.

Non-performing loans increased by $15.7 million compared to the prior quarter, with the addition of the West Suburban portfolio. The increase is attributable to three newly acquired West Suburban credits.

Importantly, legacy Old Second Non-performing loans decreased $2 million in the quarter. Additionally, we did charge-off two large credits in the fourth quarter on a commercial from legacy Old Second and one commercial real estate from legacy West Suburban, resulting in net charge-offs of $4.7 million for the quarter.

Both of these large credits were fully allocated in prior quarters. Total classified loans increased $39.6 million to $74.5 million due to the inclusion of the West Suburban portfolio.

We remain confident in the strength of our portfolios. Other real estate owned did not increase materially, as the West Suburban portfolio had minimal [Indiscernible] at acquisition and two of the three properties we did acquire were sold in December.

Details are available in the earnings release tables on these changes. The allowance for credit losses totaled $44.3 million as of December 31st, which is 1.3% of total loans.

During the fourth quarter of 2021, the credit marked at acquired PCD loans of 12.1 million increased the ACL, as well as the date to provision for credit losses adjustment based on the estimated future credit losses and non-PC loans, acquired of $12.2 million for loans. In addition, $2.4 million was recorded to the provision for credit losses for the day to unfunded commitments future losses estimate.

At quarter-end, $2.3 million of provision for credit losses on loans was reversed, and 49,000 of reserves for unfunded commitments was reversed based on our review of [Indiscernible] realization trends. Our outlook is cautiously optimistic as the underlying economy continues to improve, albeit with significant uncertainties.

We believe that we are more than adequately reserved under base case scenarios, but continue to modestly overweight more pessimistic scenarios, given the high degree of uncertainty. Expense discipline continues to be strong and we're making good progress on cost-saving targets announced with the acquisition.

Write-downs on for legacy Old Second branches of $3.8 million were recorded in the fourth quarter of 2021, with the potential of marketing these properties in the near future. These branches are an addition to the 9 West Suburban branches that have been identified as overlapping with newly acquired branches.

Total merger-related cost of $12.8 million were recorded in the fourth quarter, which includes this $3.8 million fixed asset write-down, as well as other merger costs, including severance and retention, data reconversion, legal, investment banker, and other consulting fees. With that, I'll turn it over to Brad for additional color in his prepared comments.

Thank you, Jim. I think probably the best use of the time we have remaining, is to talk a bit about how things have changed and what we got right and wrong, and the estimates we put out in July at the announcement.

Certainly, the macro environment is a bit different with the world's seemingly waking up to the reality of inflation here very recently. Credit and facility marks for the WSB acquisition were consistent with expectations.

Though the day two adjustments were slightly larger than our initial expectations once the model runs were completed. The rally in rates in late November and early December appear to inexplicable on our end and provided us an opportunity for a much larger than we expected portfolio repositioning that substantially reduces the risk posed by the prospect of higher rates.

The WSB portfolio was around a billion dollars, as Jim said, and the duration on that portfolio was reduced from an excess of six to well under three without a meaningful change in yield. I am extremely pleased that we were able to get this done here given the illiquidity as some of the issues that were in that portfolio.

Obviously, I don't have a crystal ball, but whether that will turn out to be worth it or not, but the bias and results so far indicate that it favors significantly higher rates than where we are today. And certainly higher than where we were in early December.

As we move towards announcement of this deal, we discussed internally the things that we needed to do to be successful with the investment we are making and in the years ahead more generally. In the short-term, we decided we needed to double our loan origination capability within a year of the close.

I'm pleased with where we are in this effort, and we are much further along than I expected to be at this point. On the cost save front, I would love to tell you that we expect to outperform the $21 million number we gave you in July, and we are.

But we have already spent the difference in new talent acquisition, and I'm optimistic additional opportunities are out there, and we will keep you posted on these efforts. From a cultural standpoint, there are always challenges to overcome, but I would say that the communication is very good.

And we're getting to the right answers and things we feel even better than we expected. With that said, I'll move more into the results.

Net interest income increased $6 million relative to last quarter and $4.8 million from the year ago quarter, margin trends were stable on a core basis due to the securities portfolio growth, which mitigated the continuing increase in liquidity. The reinvestment rate on the portfolio was slightly less than a 100 basis points as we continue to avoid duration throughout the fourth quarter.

Given the more recent moves that we've seen, we have been going quite a bit longer, but we do remain somewhat cautious on that front. We continue to have strong deposit inflows and substantial excess liquidity persisted for the entirety the quarter.

Our margin trends will be a function of loan growth primarily, and we will continue to deploy liquidity within the securities portfolio as well. I would have even more confidence if we were able to see positive developments in CNI and utilization rates both of which remain depressed.

We do feel quite a bit better on loan growth side of things though, as he mentioned, actually substantially better. The forward curve is accurate, the first few rate hikes will benefit us, but not to the degree of any subsequent moves would.

We do have significant floors in the loan portfolio that West Suburban did not. I would add that we expect our deposit beta to be excellent in a rising rate environment.

With sum total of that discussion is that we currently expect loan growth trends to drive net interest income growth with modest margin improvement. If things move further along and rate hike could development, obviously that would be biased upward further.

But I feel like we're on a chicken or the egg discussion here. I don't want to count on that yet.

Non-interest income increased from last quarter with an increase of $1.7 million quarter-over-quarter and MSR mark-to-market gains and service charges on deposits growth at $256,000. Wealth management income remained strong with $2.4 million in both the current quarter and the prior quarter.

Excluding the $14.6 million a day to acquisition-related provision for credit loss adjustments, a provision for credit loss reversal of $2.3 million was recorded in the fourth quarter, compared to $1.5 million reversal last quarter. The economic outlook for us assumes continued improvement with an unemployment rate projection remaining at approximately 5% to 6% through December 31, 2022 and over the remaining life of the loans, which is going to sound high to you but it's just a substantial decline from the approximate 5.25 to 6.75 from last quarter.

I certainly recognize that our assumptions are probably more pessimistic than most at this point and it expect the severity of these assumptions to be lessened in coming quarters. As those assumptions are relaxed, I would expect loan growth outpaced provision growth in the near term.

I am extremely pleased with our credit has performed through the pandemic. Credit metrics have remained stable to improving, and a number of credits that I would have been concerned about, have been resolved favorably.

Expenses are difficult to manage in 2022. Absent the acquisition with mid-single-digit increases in salaries and double-digit increases in benefits, reflecting wage inflation and a difficult environment the higher.

We are managing through this and are thankful for the flexibility and opportunities for synergies that exist for us right now, we had expected to realize more synergies from scale on the benefit side, but inflation is very real on this front. Fortunately, we were able to look to other opportunities on the expense side to get to where we need to be.

Our efforts in the coming quarters will be on delivering on the synergies that we promise, continuing to bring additional loan growth talent on-board, helping our customers and funding quality loan growth with the expectation of a stable and improving margin. This all assumes that liquidity remains robust and risk spreads remain unreasonably tight.

With that, I'd like to turn the call back over to Jim.

Okay. Thanks, Brad.

And closing, we are optimistic about the new year, confident in our balance sheet and loan growth opportunities that are ahead. Prolonged low rates is certainly not the best environment for deposit base like Old Second, but it certainly appears we are near an inflection point rates.

Regardless, we remain extremely profitable given our focus on expense discipline. We expect to remain so.

We believe our credit and underwriting has remained disciplined, and our funding position is strong. Today we have the balance sheet and liquidity to take advantage of a rising rate environment and have the financial strength to wait for this to occur.

We continue to be active in the effort to bring additional sales people to our team, and are making substantial progress on the systems integration to ensure a smooth transition for West Suburban customers and employees. We are excited about the opportunities that exist for Old Second in 2022 and beyond.

That concludes our prepared comments this morning. So I will turn it back over to you, Holly, to open it up for questions.

Good morning. I'm Chris McGratty from KBW.

Jim and Brad, the outlook for loan growth seems like a little bit of a divide, right? Commercial real estate doing better [Indiscernible] stuck.

Can you elaborate on the outlook for organic loan growth in light of the team hires and those comments in your prepared remarks?

Sure, Chris. We've added some substantial talent over the last couple of quarters.

Not to mention, we are seeing some increased demand across all fronts. But we feel we have an opportunity with our new teams to generate mid to upper single-digit loan growth, really fueled by a pretty good pipeline of CRE, healthcare continues to build their pipeline than our triple-net.

[Indiscernible] CRE team and our newly formed sponsored finance team, which will probably deliver results later in the year. But we're certainly more optimistic today than we have been.

And then the West Suburban legacy portfolio we had originally expected more significant runoff in the near-term. We're not seeing that, so we're optimistic, we can generate some growth with that team as well.

With that in your 80% target on your loan-to-deposit, you talked about. How do we think about just the -- is this a remix here over the balance sheet?

I know you took actions with West Suburban bond portfolio, but should the security book be used as a source of funds to fund the growth or will you grow that as well?

That will be grown as well in the near-term. Largely going to be driven by what happens to liquidity and if rates do in fact go up, I would expect that some of liquidity to drain.

But it's been far more persistent than I expected. I would expect to see another couple of $100 million and portfolio growth for us over the next two quarters.

And then we will also focus on the loan growth. Getting back to a loan to deposit ratio that looks more like us, is going to take some time, but obviously, represents a long term opportunity.

Maybe if I could squeeze one more. The $21 million you said, you're doing better on the cost saves, but you're putting it back into the business.

How far along are we on the cost saves? And I guess, how should we be thinking about just the expense cadence over the rest of the year?

I would expect that at some point this year we will get to the fully phased-in run rate.

Outside of that, we're seeing inflationary pressures. Core bank growing what 3%, 4%?

If we were standalone today, we would probably be staring at expenses that got north of four. A couple of things embedded in that 1.

The increase that we saw on the benefit side was far in excess of my expectations. A little bit of that is fueled by people are actually going to the doctor again, thank goodness and filing claims.

But some of it is also basically provider-driven in terms of what's being passed through. And then obviously there are people with much bigger workforces that can speak to the dynamics that is going on within hiring markets.

But there is substantial wage inflation in the competition to hire people. And though we have not seen excess turnover at this point, filling roles is difficult.

People have a lot of choices on who they can work for. It is showing up and wage markets.

Thanks, Brad.

Yeah. I'm Nathan Race with Piper Sandler.

Morning, guys.

Hey, Nate.

Just a question on the outlook for the reserve going forward within the mid to high digital loan growth expectation that you guys have. Just curious in terms of remaining unallocated reserves that you guys [Indiscernible] into just expectations from a provision perspective in terms of happy to provide for that growth over the course of 2022.

Yes. A lot is going to determine and make sure about what assumptions go into the model, obviously.

But given the fact that we've stated that our assumptions probably will be relaxed at some point, if nothing else changes in the world. I think it's safe to assume that, the provision growth will lag loan growth.

The magnitude of that, I am not fully confident in laying that out for you. For example, I'm not going to say, there is no provision growth in 2022.

But it will be substantially level, less than what you would expect if everything stayed the same.

Understood. And perhaps within that context, it seems like with the elevated charge-offs that we saw here in the fourth quarter, that it may have been somewhat of a cleanup heading into this year.

So just -- it sounds like, Brad, that you guys are feeling pretty optimistic on the outlook for credit quality going forward. So we'd just be interested to hear some comments in terms of what you guys are expecting from a charge-off perspective over the course of 2022 as well.

So the one credit that was legacy Old Second that we charged off was -- I think we first talked about that credit on these earnings calls about five quarters ago. And we've talked about it in two quarter -- two other earnings calls as well.

So it's not something that's new. It's not a new development and I think we've provided for it 12 or 15 months ago.

It's been a while. So if that's the only thing you worry about, that is something that's 12 to 15 months stale, you're obviously feeling pretty good.

The other credit as Jim mentioned was a West Suburban credits that they've been aware of for quite some time. In terms of new issues popping up, nobody has come to meetings with any really bad news or any scary stuff here recently.

So I think we feel pretty good. Jim do you have [Indiscernible]

Yes. I mean, we track obviously early-stage delinquencies are very benign.

We're seeing very little migration from watch list credits to problem credits and that accruals. So remarkably stable at this point, so we are outlook in the near-term anyways is very positive.

Okay. I don't mean to oversimplify the margin outlook, you've done a various moving pieces there.

But perhaps Brad, just any comments on the starting point for the core margin, ex-PPP in accretion? And would be interested to hear from the reported margin basis, your expectations for purchase accounting accretion, starting off in 2022?

And then, I imagine running off thereafter, incrementally.

That's a huge question dude. I think the reported margin will be relatively stable.

I think that there will be a slight goose relative to the purchase accounting. It's not a massive number.

I think on a full-year basis, we're probably looking at $2 million that will benefit on that front. And it'll last for basically two years.

In terms of -- we had originally expected in July that the combination with Old Second would be roughly 25 basis points diluted to our reported margins. That's because they were obviously carrying as much excess liquidity as we were, but with even less loan deposit ratio.

We've essentially swallowed that up with the deployment of liquidity at this point. And just so nobody gets nervous on that front, we have largely looked at being between one and a half and three years on the duration curve and are taking somewhere less than or in unseeing distance of 100 basis points variable as well.

And we are offering some level of protection in case it's one or two or three rate increases and then something breaks. We're trying to be prudent here.

Obviously, Old Second is what it is. It's a nearly perfect creature for higher short-term rates.

And that's just who we are because of the deposit base, and West Suburban came with the very same traits. We're a good bank, we're managing it prudently, margin is biased higher, purchase accounting will help a little bit.

We're just kind of looking forward and waiting for it gets here before we count on it.

Helpful color. I appreciate you're impacting that, and thanks again for taking my questions.

Sure. Thank you, Nate.

Good morning, everyone. It's David Long from Raymond James.

I wanted to stick with the discussion on the net interest margin, Brad, and that will put you on the spot again, but as you're thinking about rate hikes in the sensitivity, it sounded like from your prepared comments that the first couple of rate hikes may not have as much of a positive impact as the second couple rate hike. So my question, the first rate hike, what does that impact the [Indiscernible], all else equal versus maybe the third or fourth rate hike?

So yes. The first rate hike and the second rate hike, they do impact us very positively.

So does the third and the fourth, if that happens to fruition. In terms of basis points, I think that you can see, depending on when in the quarter it comes, a rate hike can impact our margin if it's mid-quarter or later by a few basis points to upper single-digit basis points.

A full-year basis, a rate I equals, it's -- you don't even want to say this stuff. Because you don't want to count on it, but it's wildly positive to us, right?

A one rate I equals somewhere between $2 million and $3 million even inclusive of burning through floors in net income. And it piles on as you get further because I would expect that our beta on the first two would be pretty down close to zero, and then it wouldn't be much on three and four.

We are short duration on the asset side. That's who we are.

We are funded by $1,000 check [Indiscernible]. It's a perfect balance sheet for higher rates on the short end of the curve.

Got it. Okay.

That's helpful. The -- switching gears here.

Obviously, just close to West Suburban and are still working through that. But do you have an appetite to do additional deals or -- and if so, is there a time frame on that, when you really start to consider them again?

How are you thinking about the M&A environment for Old Second in 2022?

Yes. David, obviously this is a significant transaction for Old Second.

We've got get systems conversions late April, got to digest that. We've got plenty to do here internally to work through branch rationalization and integration changes.

So we certainly aren't in a position of doing anything in the nearer term. Clearly, the regulators would want us to definitely integrate this in a satisfactory manner before green lighting us.

But we'll probably entertain something later in the year before we can do anything now.

Got it. Thanks, Jim.

I appreciate it.

Thank you, Dave.

Hey, good morning. Brian Martin with Janney Montgomery.

Hey, good morning, guys.

Hey Brian.

Maybe just one last one, Brad, on the margin or asset sensitivity. The percentage of loans that are variable and then just -- did you just -- maybe I missed what you just said, but the -- if you had a one -- if you had the 125 basis point increase to beginning of a quarter, how much of a benefit to margin would that have on the hike?

So roughly half the loan book is variable. And I don't have completely reliable on data in terms of what has floors within the West Suburban portfolio.

They're not fully integrated into our [Indiscernible] model yet, obviously we still have systems conversions ahead. So there's substantial uncertainty here.

Uncertainty in only one direction and that's the magnitude of the positivity. If we were to get a rate hike in March, I would say that second quarter's margin everything else would be probably 10 basis points.

Got you. Okay.

Helpful. And then maybe just on the integration of -- with the cost savings.

When do you guys expect to do the sentiment -- set the systems integration? When is that scheduled for us to give us a path to when, full cost savings will be in there?

It will be done by mid-second quarter. So you'll start to see some benefit of cost savings leaking in in the second quarter, and you'll see a very healthy run rate reduction in the third.

Okay. Perfect.

That's helpful. And how about just from a -- you guys had talked about the senior debt that was out there and reevaluate that?

Can you give us an update on how you're thinking about that or just the capital?

We are still in the re-evaluation stage.

Okay. Just stay tuned and then just -- Jim, you talked about the significant hires you've had here the last couple of quarters.

Just kind of wondering what your and Brad's comments about getting near the capabilities you were hoping to get to as part of the doubling the origination activity. What does the pipeline look for recruiting today?

It sounds like you still expect to be pretty active here the next couple of quarters, is that a fair assessment?

Yes, Chris -- Brian, we certainly are still actively looking to add talent to the team. We're very happy with the new talent that joined us in the last couple of quarters.

We certainly have high expectations as we move into 2022, keeping one eye on cost saves is as important expense control, but we've also had a handful retirements, and we clearly have room to continue to pursue additional talent.

Got you. Okay.

All right. Maybe just last one pretty, Brad.

Just going back to the sensitivity, I guess your comment about the floors and just the impact of future hikes. It sounds like the 10 basis points or whatnot could be all CECL a little bit better in the future, albeit but deposit beta is going higher.

Is that fair based on your comments?

Yes. I mean, last rate hike cycle, Old Second experienced over the duration of the cycle experienced deposit beta of around 10%.

I don't think there's anything within the West Suburban deposit portfolio that, looks substantially different from us. So I think we performed similarly.

Yes, it is. At this point, before they've come and I had probably more hope than most, that they would actually do something yesterday, in the face of mid to high single-digit inflation.

But the reality is that it's substantially benefits margin. I would point you to when we were a 150 basis points higher on the short end of the curve a couple of years ago, Old Second was running at a 425 margin.

Today, we're 3 or below. If we get back to that level, and I'm trying to steer you towards a longer-term look here.

I don't know how many basis points hitting which quarter. And if you think back two years ago when people ask me that question, I got it really wrong.

Because I was telling people we get 5 or 6 basis points, and we wind up getting 20. So it's hard to know what the speed and what loans pay down and what pays up, how many basis points are going to fall in which quarter.

But I can tell you there's nothing structurally different about Old Second from a contribution analysis standpoint that says we can't be north of a 4% margin if we get back to that 150 type rate level on the short end of the curve.

Got you. Okay.

That's all very helpful. So thanks for taking the question, guys.

Thanks.

Thanks, [Indiscernible].

Thanks for the call. The $2 million to $3 million Brad for each quarter hike, was that -- did you say net income or did you say net interest income [Indiscernible].

I said net income on a full-year basis for each hike.

Got it. Okay.

One that comes in September is not going to be that much of a contributor --

Yeah.

-- for [Indiscernible].

I got it. Perfect.

Thank you.

Yup.

Okay. Thanks, everyone for joining us this morning and we look forward to speaking with you again.

Next quarter. Good bye.