OLD SECOND BANCORP INC - FORM 8-K - EX-99.1

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8-K - 8-K - OLD SECOND BANCORP INC	osbc-20161019x8k.htm



(NASDAQ:OSBC)		Exhibit 99.1

Contact:	J. Douglas Cheatham	For Immediate Release
	Chief Financial Officer	October 19, 2016
	(630) 906-5484

Old Second Reports Third Quarter 2016 Net Income of $3.5 million

AURORA, IL, October 19, 2016 – Old Second Bancorp, Inc. (the “Company” or “Old Second”) (NASDAQ: OSBC), parent company of Old Second National Bank (the “Bank”), today announced financial results for the third quarter of 2016. The Company reported net income of $3.5 million for the third quarter of 2016, compared to net income of $3.9 million in the third quarter of 2015. The Company’s net income available to common stockholders was $3.5 million, or $0.12 per diluted share, for the third quarter of 2016, compared to $3.6 million, or $0.12 per diluted share, in the third quarter of 2015.

Operating Results

On October 18, 2016, the Company’s Board of Directors declared a cash dividend of 1 cent per share payable on November 7, 2016, to stockholders of record as of October 28, 2016.

Third quarter 2016 net income available to common stockholders was $3.5 million, reflecting a decrease of $86,000, or 2.4%, from the third quarter of 2015 and a decrease of $346,000, or 9.0%, from the second quarter of 2016.

Net interest and dividend income totaled $15.3 million for the third quarter of 2016 and reflects an increase of $543,000, or 3.7%, over the third quarter of 2015. Net interest and dividend income for the third quarter of 2016 reflected no significant change from the second quarter of 2016.

No release of loan loss reserves was recorded in the third quarter of 2016, as compared to a $2.1 million reserve release in the like 2015 quarter. No additional provision or release has been recorded to the reserve in the 2016 full year period.

Noninterest income was $6.6 million for the third quarter of 2016, which reflects growth of $946,000, or 16.7%, over the third quarter of 2015 primarily due to increases in residential mortgage banking income and a one-time fixed asset write-down taken in the third quarter of 2015. Noninterest income was $683,000, or 9.4%, less in the third quarter of 2016 as compared to the second quarter of 2016, primarily due to net losses on security sales incurred in the third quarter in anticipation of the funding requirements for the Company’s pending acquisition of the Chicago branch of Talmer Bank and Trust, which is expected to close in the fourth quarter of 2016.

Finally, noninterest expense of $16.6 million for the third quarter of 2016 increased $338,000, or 2.1%, from the third quarter of 2015 stemming from increases in compensation costs, employee compliance training and compliance related audit fees. Noninterest expense was slightly lower in the third quarter of 2016 as compared to the second quarter of 2016, primarily due to reduced OREO related expenses in the third quarter as OREO balances continue to decline.

Capital Ratios


	September 30,		December 31,		September 30,
	2016		2015		2015
The Bank's common equity tier 1 capital ratio	15.22	%	14.10	%	15.94	%
The Company's common equity tier 1 capital ratio	10.68	%	10.55	%	10.26	%
The Bank's total capital ratio	16.24	%	15.23	%	17.10	%
The Company's total capital ratio	15.42	%	15.56	%	15.36	%
The Company's tier 1 leverage ratio	9.32	%	8.69	%	8.46	%

The ratios shown above exceed levels required to be considered “well capitalized.”

Asset Quality & Earning Assets

Nonperforming loans ended at $17.4 million at September 30, 2016, compared to $14.6 million at December 31, 2015, and $18.5 million at September 30, 2015. Nonperforming loans are level for the quarter, but increased for the year to date 2016 period primarily due to two commercial real estate relationships. Each lost one large tenant in the second quarter. Both borrowers continue to aggressively pursue new tenants, and one borrower has noted that refinancing is in process with another institution.

OREO assets decreased in the third quarter to end at $14.1 million on September 30, 2016, compared to $19.1 million at December 31, 2015, and $24.5 million at September 30, 2015. Valuation writedowns continued in the third quarter of 2016 with a quarterly expense of $365,000 compared to $1.1 million in the third quarter of 2015.

Total loans at September 30, 2016, were $1.20 billion, reflecting an increase of $69.1 million when compared to December 31, 2015, and an increase of $69.9 million as compared to September 30, 2015. Average loans (including loans held-for-sale) for the third quarter of 2016 were $1.19 billion, reflecting an increase of $51.3 million from the fourth quarter of 2015 and an increase of $47.2 million when compared to the third quarter of 2015. Loan growth in the 2016 period stems primarily from commercial and industrial loan originations.

September 30, 2016, available-for-sale securities at fair value totaled $531.1 million, as compared to $764.6 million at June 30, 2016. This reduction of $233.5 million for the quarter reflects the sale of securities to satisfy anticipated funding requirements for the acquisition of the Talmer branch. Total earning assets were also down slightly since June 30, 2016, for this same reason, which negatively impacted net interest margin and also resulted in pretax net security losses of $2.0 million for the third quarter of 2016.

Management review of the loan portfolio concluded that neither a loan loss reserve release nor a loan loss provision was appropriate in the third quarter of 2016. The third quarter of 2015 reflected a loan loss reserve release of $2.1 million. For the 2016 full year period, there have been no additional loan loss reserves or releases of loan loss provisions recorded.

Net Interest Income1

ANALYSIS OF AVERAGE BALANCES,

TAX EQUIVALENT INTEREST AND RATES

(Dollars in thousands - unaudited)


	Quarters Ended
	September 30, 2016						December 31, 2015						September 30, 2015
	Average					Rate	Average					Rate	Average					Rate
	Balance			Interest		%	Balance			Interest		%	Balance			Interest		%
Assets
Interest bearing deposits with financial institutions	$	50,054		$	64	0.50	$	13,859		$	12	0.34	$	18,563		$	12	0.25
Securities:
Taxable		624,844			3,954	2.53		674,690			3,819	2.26		642,413			3,471	2.16
Non-taxable (TE)		35,046			277	3.16		17,090			179	4.19		19,318			187	3.87
Total securities		659,890			4,231	2.56		691,780			3,998	2.31		661,731			3,658	2.21
Dividends from Reserve Bank and FHLBC stock		7,918			83	4.19		8,451			76	3.60		8,271			76	3.68
Loans and loans held-for-sale1		1,191,574			13,567	4.46		1,140,308			13,057	4.48		1,144,413			13,415	4.59
Total interest earning assets		1,909,436			17,945	3.70		1,854,398			17,143	3.64		1,832,978			17,161	3.68
Cash and due from banks		41,344			-	-		28,781			-	-		28,999			-	-
Allowance for loan losses		(15,767)			-	-		(16,598)			-	-		(18,607)			-	-
Other noninterest bearing assets		190,213			-	-		202,015			-	-		210,793			-	-
Total assets	$	2,125,226					$	2,068,596					$	2,054,163

Liabilities and Stockholders' Equity
NOW accounts	$	384,588		$	89	0.09	$	360,786		$	79	0.09	$	347,754		$	76	0.09
Money market accounts		265,135			64	0.10		284,209			70	0.10		291,663			71	0.10
Savings accounts		257,808			40	0.06		248,952			38	0.06		250,031			38	0.06
Time deposits		401,999			931	0.92		409,353			824	0.80		404,896			799	0.78
Interest bearing deposits		1,309,530			1,124	0.34		1,303,300			1,011	0.31		1,294,344			984	0.30
Securities sold under repurchase agreements		31,892			1	0.01		26,569			1	0.01		31,466			1	0.01
Other short-term borrowings		22,174			22	0.39		24,837			10	0.16		14,674			5	0.13
Junior subordinated debentures		57,573			1,084	7.53		57,538			1,072	7.45		57,525			1,072	7.45
Subordinated debt		45,000			245	2.13		45,000			210	1.83		45,000			205	1.78
Notes payable and other borrowings		500			2	1.57		500			2	1.57		500			1	0.78
Total interest bearing liabilities		1,466,669			2,478	0.67		1,457,744			2,306	0.63		1,443,509			2,268	0.62
Noninterest bearing deposits		472,599			-	-		445,083			-	-		431,052			-	-
Other liabilities		15,539			-	-		10,488			-	-		9,782			-	-
Stockholders' equity		170,419			-	-		155,281			-	-		169,820			-	-
Total liabilities and stockholders' equity	$	2,125,226					$	2,068,596					$	2,054,163
Net interest income (TE)				$	15,467					$	14,837					$	14,893
Net interest income (TE)
to total earning assets						3.22						3.17						3.22
Interest bearing liabilities to earning assets		76.81	%					78.61	%					78.75	%

1 Interest income from loans is shown on a tax equivalent basis as discussed in the table on page 13 and includes fees of $700,000, $430,000 and $459,000 for the third quarter of 2016, the fourth quarter of 2015 and the third quarter of 2015, respectively. Nonaccrual loans are included in the above stated average balances. Tax equivalent basis is calculated using a marginal tax rate of 35%.

Interest and dividend income increased $802,000 for the quarter ended September 30, 2016 as compared to the quarter ended December 31, 2015, and increased $784,000 as compared to the third quarter of 2015. Quarterly average earning assets increased $55.0 million from the last quarter of 2015 to a total of $1.91 billion for the period ended September 30, 2016, while yield on earning assets increased 6 basis points. Year over year third quarter average loans, including loans held-for-sale, increased $47.2 million, while total average earning assets increased $76.5 million for the same period. This increase was driven by loan growth and more favorable rates earned on securities retained, as lower yielding securities were sold in the third quarter of 2016 in preparation for the Talmer branch acquisition. The cost of funds increased by 4 basis points from the fourth quarter of 2015 and by 5 basis points from the third quarter of 2015. Total average interest bearing liabilities have increased in all periods presented due to growth in NOW accounts, and to a lesser extent, savings accounts and securities sold under repurchase agreements. For the quarter ended September 30, 2016, average other short-term borrowings decreased by $2.7 million compared to the fourth quarter of 2015, but increased $7.5 million as compared to September 30, 2015.

Noninterest Income


							3rd Qtr 2016
	Three Months Ended						Percent Change From
(dollars in thousands)	September 30,		June 30,		September 30,		June 30,	September 30,
	2016		2016		2015		2016	2015
Trust income	$	1,403	$	1,502	$	1,444	(6.6)	(2.8)
Service charges on deposits		1,756		1,646		1,766	6.7	(0.6)
Residential mortgage banking revenue		2,789		1,611		1,275	73.1	118.7
Securities loss, net		(1,959)		-		(57)	N/M	N/M
Increase in cash surrender value of bank-owned life insurance		383		319		236	20.1	62.3
Debit card interchange income		1,013		1,049		1,004	(3.4)	0.9
Loss on disposal and transfer of fixed assets		-		-		(1,143)	N/M	N/M
Other income		1,209		1,150		1,123	5.1	7.7
Total noninterest income	$	6,594	$	7,277	$	5,648	(9.4)	16.7

N/M equals Not Meaningful

Of the noninterest income categories, residential mortgage banking income experienced the largest fluctuations on both a linked quarter and year over year basis, as shown above, primarily due to increases in the net gains on sales of mortgage loans, as well as the variability of mortgage servicing rights valuations. In the third quarter of 2015, a one-time writedown of $1.1 million was recorded on a fixed asset upon transfer to OREO status. Also, cash surrender value of bank-owned life insurance increased as a result of investment value growth over all periods presented. Finally in the third quarter of 2016, net security losses of $2.0 million were realized to satisfy anticipated funding requirements for the Talmer branch acquisition. Excluding these items, the three quarters presented have minimal variation.

Noninterest Expense


										3rd Qtr 2016
	Three Months Ended									Percent Change From
(dollars in thousands)	September 30,			June 30,			September 30,			June 30,	September 30,
	2016			2016			2015			2016	2015
Salaries	$	7,205		$	6,999		$	6,843		2.9	5.3
Bonus		521			452			238		15.3	118.9
Benefits and other		1,288			1,363			1,179		(5.5)	9.2
Total salaries and employee benefits		9,014			8,814			8,260		2.3	9.1
Occupancy expense, net		1,120			1,009			1,156		11.0	(3.1)
Furniture and equipment expense		1,144			1,078			1,110		6.1	3.1
FDIC insurance		228			362			373		(37.0)	(38.9)
General bank insurance		269			272			308		(1.1)	(12.7)
Advertising expense		430			435			434		(1.1)	(0.9)
Debit card interchange expense		363			620			379		(41.5)	(4.2)
Legal fees		242			191			279		26.7	(13.3)
Other real estate owned expense, net		426			879			977		(51.5)	(56.4)
Other expense		3,346			3,040			2,968		10.1	12.7
Total noninterest expense	$	16,582		$	16,700		$	16,244		(0.7)	2.1
Efficiency ratio (defined below)		66.69	%		68.92	%		73.66	%

The efficiency ratio shown in the table above is calculated as noninterest expense, excluding OREO expenses, divided by the sum of net interest income on a fully tax equivalent basis, total noninterest income less net gains and losses on securities and includes a tax equivalent adjustment on the increase in cash surrender value of bank-owned life insurance.

Noninterest expense decreased $118,000, or 1%, on a linked quarter basis. This is primarily due to an increase in net gains upon sale of OREO, and other OREO related expenses which continue to be less than levels

experienced in the prior year. Major expense categories were generally flat or down in the third quarter of 2016 compared to the second quarter of 2016 and the third quarter of 2015, with the exception of salaries and employee benefits, due to increased headcount and costs of retirement benefits. FDIC insurance expense was reduced in the third quarter of 2016 and incorporates the FDIC small bank rate change effective July 1, 2016. Other expense was slightly higher in the third quarter of 2016 due to increased costs of employee compliance training, and compliance related audit fees.

Earning Assets


							September 30, 2016
	Major Classification of Loans as of						Percent Change From
(dollars in thousands)	September 30,		December 31,		September 30,		December 31,	September 30,
	2016		2015		2015		2015	2015
Commercial	$	169,824	$	130,362	$	120,036	30.3	41.5
Real estate - commercial		617,280		605,721		609,937	1.9	1.2
Real estate - construction		28,786		19,806		23,461	45.3	22.7
Real estate - residential		357,846		351,007		354,106	1.9	1.1
Consumer		3,325		4,216		4,005	(21.1)	(17.0)
Overdraft		403		483		423	(16.6)	(4.7)
Lease financing receivables		14,210		10,953		9,697	29.7	46.5
Other		10,114		10,130		10,345	(0.2)	(2.2)
		1,201,788		1,132,678		1,132,010	6.1	6.2
Net deferred loan costs		1,064		1,037		902	2.6	18.0
Total loans	$	1,202,852	$	1,133,715	$	1,132,912	6.1	6.2

Total loans increased by $69.1 million at the end of the third quarter of 2016 as compared to year end 2015. Growth in commercial and industrial loans for the first three quarters of 2016 drove the total loans increase, with more restrained growth experienced in the real estate-commercial, real estate-construction, and lease financing receivables portfolios for the year to date and year over year periods.


							September 30, 2016
	Securities Portfolio As of						Percent Change From
(dollars in thousands)	September 30,		December 31,		September 30,		December 31,	September 30,
	2016		2015		2015		2015	2015
Securities available-for-sale, at fair value
U.S. Treasury	$	-	$	1,509	$	1,515	N/M	N/M
U.S. government agencies		1,503		1,556		1,577	(3.4)	(4.7)
U.S. government agency mortgage-backed		43,723		1,996		2,034	2,090.5	2,049.6
States and political subdivisions		22,254		30,526		23,170	(27.1)	(4.0)
Corporate bonds		10,730		29,400		29,580	(63.5)	(63.7)
Collateralized mortgage obligations		204,390		66,920		70,877	205.4	188.4
Asset-backed securities		140,173		231,908		187,096	(39.6)	(25.1)
Collateralized loan obligations		108,284		92,251		92,987	17.4	16.5
Total securities available-for-sale	$	531,057	$	456,066	$	408,836	16.4	29.9
Securities held-to-maturity, at amortized cost
U.S. government agency mortgage-backed	$	-	$	36,505	$	36,746	N/M	N/M
Collateralized mortgage obligations		-		211,241		213,298	N/M	N/M
Total securities held-to-maturity	$	-	$	247,746	$	250,044	N/M	N/M

Total securities	$	531,057	$	703,812	$	658,880	(24.5)	(19.4)

The investment portfolio ended the third quarter of 2016 at $531.0 million, a decrease of $172.8 million from $703.8 million at December 31, 2015, and down from $658.9 million a year ago. The decline is primarily due to security sales driven by the funding needs anticipated for the Talmer branch acquisition. During the third quarter of 2016 the sales of securities resulted in pretax net losses of $2.0 million. The securities held-to-maturity portfolio was reclassified to available-for-sale in the second quarter of 2016, to allow for portfolio restructuring and to fund loan growth. This reclassification of $244.8 million was approved by the Board of Directors, and will preclude any holdings of securities held-to-maturity for a two-year period.

Asset Quality


										September 30, 2016
	As of									Percent Change From
(dollars in thousands)	September 30,			December 31,			September 30,			December 31,	September 30,
	2016			2015			2015			2015	2015
Nonaccrual loans	$	16,736		$	14,389		$	18,224		16.3	(8.2)
Nonperforming troubled debt restructured loans accruing interest		161			165			307		(2.4)	(47.6)
Loans past due 90 days or more and still accruing interest		483			65			-		643.1	-
Total nonperforming loans		17,380			14,619			18,531		18.9	(6.2)
Other real estate owned		14,144			19,141			24,451		(26.1)	(42.2)
Total nonperforming assets	$	31,524		$	33,760		$	42,982		(6.6)	(26.7)

30-89 days past due loans	$	3,386		$	3,652		$	3,358
Nonaccrual loans to total loans		1.4	%		1.3	%		1.6	%
Nonperforming loans to total loans		1.4	%		1.3	%		1.6	%
Nonperforming assets to total loans plus OREO		2.6	%		2.9	%		3.7	%

Allowance for loan losses	$	14,983		$	16,223		$	16,613
Allowance for loan losses to loans		1.3	%		1.4	%		1.5	%
Allowance for loan losses to nonaccrual loans		89.5	%		112.7	%		91.2	%

Nonperforming loans consist of nonaccrual loans, nonperforming restructured accruing loans and loans 90 days or greater past due but still accruing. The nonperforming loan increase in 2016 was due to two relationships secured by commercial real estate which each lost one large tenant in the second quarter of 2016. Both borrowers have indicated they are aggressively pursuing new tenants, and one borrower has noted that refinancing is in process with another institution.

Classified loans include nonaccrual, performing troubled debt restructurings and all other loans considered substandard, as shown below. Classified loans increased by $3.04 million, or 12.0%, from year end 2015; this increase is due to the two relationships, as discussed above. Management review of the loan portfolio concluded neither a loan loss provision nor a reserve release was appropriate in the third quarter of 2016.


							September 30, 2016
	Classified loans as of						Percent Change From
(dollars in thousands)	September 30,		December 31,		September 30,		December 31,	September 30,
	2016		2015		2015		2015	2015
Real estate-construction	$	254	$	83	$	3,803	206.0	(93.3)
Real estate-residential:
Investor		1,171		1,136		806	3.1	45.3
Owner occupied		6,432		7,079		7,179	(9.1)	(10.4)
Revolving and junior liens		3,078		3,055		3,599	0.8	(14.5)
Real estate-commercial, nonfarm		13,220		10,568		7,354	25.1	79.8
Real estate-commercial, farm		1,801		1,272		1,272	41.6	41.6
Commercial		2,302		2,029		616	13.5	273.7
Other		1		1		1	-	-
Total classified loans	$	28,259	$	25,223	$	24,630	12.0	14.7

Net Charge-off Summary


Loan Charge-offs, net of recoveries	Three Months Ended
(dollars in thousands)	September 30,		% of	June 30,		% of	September 30,		% of
	2016		Total	2016		Total	2015		Total
Real estate-construction
Homebuilder	$	(7)	(0.8)	$	(5)	(1.2)	$	(9)	2.3
Land		(2)	(0.2)		-	-		(4)	1.0
Commercial speculative		-	-		-	-		(190)	48.5
All other		(42)	(5.0)		(1)	(0.2)		(1)	0.3
Total real estate-construction		(51)	(6.0)		(6)	(1.4)		(204)	52.1
Real estate-residential
Investor		(16)	(1.9)		(23)	(5.4)		(10)	2.6
Owner occupied		(75)	(8.9)		74	17.5		163	(41.6)
Revolving and junior liens		112	13.3		(170)	(40.1)		(3)	0.8
Total real estate-residential		21	2.5		(119)	(28.0)		150	(38.2)
Real estate-commercial, nonfarm
Owner general purpose		-	-		(106)	(25.0)		20	(5.1)
Owner special purpose		(3)	(0.4)		(5)	(1.2)		(126)	32.1
Non-owner general purpose		132	15.7		314	74.1		(9)	2.3
Non-owner special purpose		636	75.8		-	-		(139)	35.5
Retail properties		-	-		342	80.7		-	-
Total real estate-commercial, nonfarm		765	91.1		545	128.6		(254)	64.8
Real estate-commercial, farm		-	-		-	-		-	-
Commercial		66	7.9		-	-		(112)	28.6
Other		38	4.5		4	0.8		28	(7.3)
Net charge-off / (recovery)	$	839	100.0	$	424	100.0	$	(392)	100.0

Gross charge-offs for the quarter ending September 30, 2016, were $1.2 million compared to $576,000 for the quarter ending September 30, 2015. Gross recoveries for the quarter ending September 30, 2016, were $358,000 compared to $968,000 for the quarter ending September 30, 2015.

Deposits

Total deposits were $1.78 billion at September 30, 2016, which reflects an increase from total deposits of $1.76 billion at December 31, 2015. Demand, savings, and NOW balances increased by $46.6 million during in the first nine months of 2016 while money market deposits declined by $20.2 million and time deposits or certificates of deposit reflect a decrease of $8.1 million for the 2016 year to date period.

Borrowings

The Bank’s borrowing at the Federal Home Loan Bank of Chicago (the “FHLBC”) requires the Bank to be a member and invest in the stock of the FHLBC. As of September 30, 2016, the Bank had no advances outstanding under the FHLBC as compared to $15.0 million in advances at December 31, 2015.

The Company is also indebted on $57.6 million of junior subordinated debentures related to the trust preferred securities issued by its two statutory trust subsidiaries, Old Second Capital Trust I and Old Second Capital Trust II. The carrying value was reduced by the amortization of the issuance costs in 2016 after adopting ASU 2015-03 applied on a retrospective basis.

Capital


	September 30,		December 31,		September 30,
	2016		2015		2015
The Company's common equity tier 1 capital ratio	10.68	%	10.55	%	10.26	%
(minimum 4.5% for adequately capitalized)
The Company's tier 1 capital ratio	13.25	%	12.30	%	11.96	%
(minimum 6.0% for adequately capitalized)
The Company's total capital ratio	15.42	%	15.56	%	15.36	%
(minimum 8.0% for adequately capitalized)
The Company's tier 1 leverage ratio	9.32	%	8.69	%	8.46	%
(minimum 4.0% for adequately capitalized)

As of September 30, 2016, the Bank’s common equity tier 1 capital ratio of 15.22% and total capital ratio of 16.24% exceeded the minimum capital ratios to be deemed “well capitalized.”

Non-GAAP Presentations: Management has historically disclosed certain non-GAAP ratios to evaluate and measure the Company’s performance, including a net interest margin calculation. The net interest margin is calculated by dividing net interest income on a tax equivalent basis by average earning assets for the period. Management believes this measure provides investors with information regarding balance sheet profitability. Consistent with industry practice, management also disclosed other non-GAAP measures in the discussion above and in the following tables. The efficiency ratio is discussed in the noninterest expense presentation on page 4. The tables provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

Forward Looking Statements: This report may contain forward-looking statements. Forward looking statements are identifiable by the inclusion of such qualifications as expects, intends, believes, may, likely or other indications that the particular statements are not based upon facts but are rather based upon the Company’s beliefs as of the date of this release. Actual events and results may differ significantly from those described in such forward-looking statements, due to changes in the economy, interest rates or other factors. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events. For additional information concerning the Company and its business, including other factors that could materially affect the Company’s financial results or cause actual results to differ substantially from those discussed or implied in forward looking statements contained in this release, please review our filings with the Securities and Exchange Commission.

Conference Call

The Company will also host an earnings call on Thursday, October 20, 2016, at 11:00 a.m. Eastern Time (10:00 a.m. Central Time). Investors may listen to the Company’s earnings call via telephone by dialing 877-407-8035. Investors should call into the dial-in number set forth above at least 10 minutes prior to the scheduled start of the call.

A replay of the earnings call will be available until 11:59 p.m. Eastern Time (10:59 p.m. Central Time) on October 27, 2016, by dialing 877-481-4010, using Conference ID: 10094.

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands)


	(Unaudited)
	September 30,		December 31,
	2016		2015
Assets
Cash and due from banks	$	29,203	$	26,975
Interest bearing deposits with financial institutions		160,744		13,363
Cash and cash equivalents		189,947		40,338
Securities available-for-sale, at fair value		531,057		456,066
Securities held-to-maturity, at amortized cost		-		247,746
Federal Home Loan Bank and Federal Reserve Bank stock		7,918		8,518
Loans held-for-sale		3,750		2,849
Loans		1,202,852		1,133,715
Less: allowance for loan losses		14,983		16,223
Net loans		1,187,869		1,117,492
Premises and equipment, net		39,092		39,612
Other real estate owned		14,144		19,141
Mortgage servicing rights, net		5,075		5,847
Bank-owned life insurance (BOLI)		60,036		59,049
Deferred tax assets, net		55,536		64,552
Other assets		18,327		15,818
Total assets	$	2,112,751	$	2,077,028

Liabilities
Deposits:
Noninterest bearing demand	$	473,477	$	442,639
Interest bearing:
Savings, NOW, and money market		904,137		908,598
Time		399,768		407,849
Total deposits		1,777,382		1,759,086
Securities sold under repurchase agreements		46,606		34,070
Other short-term borrowings		-		15,000
Junior subordinated debentures		57,579		57,543
Subordinated debt		45,000		45,000
Notes payable and other borrowings		500		500
Other liabilities		14,057		9,900
Total liabilities		1,941,124		1,921,099

Stockholders’ Equity
Common stock		34,533		34,427
Additional paid-in capital		116,468		115,918
Retained earnings		124,283		114,209
Accumulated other comprehensive loss		(7,437)		(12,659)
Treasury stock		(96,220)		(95,966)
Total stockholders’ equity		171,627		155,929
Total liabilities and stockholders’ equity	$	2,112,751	$	2,077,028

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

(In thousands, except share data)


	(unaudited)				(unaudited)
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Interest and dividend income
Loans, including fees	$	13,496	$	13,353	$	39,593	$	40,038
Loans held-for-sale		48		38		115		153
Securities:
Taxable		3,954		3,471		12,547		10,218
Tax exempt		180		122		579		426
Dividends from Federal Reserve Bank and Federal Home Loan Bank stock		83		76		251		230
Interest bearing deposits with financial institutions		64		12		98		43
Total interest and dividend income		17,825		17,072		53,183		51,108
Interest expense
Savings, NOW, and money market deposits		193		185		577		547
Time deposits		931		799		2,622		2,377
Other short-term borrowings		23		6		69		22
Junior subordinated debentures		1,084		1,072		3,251		3,215
Subordinated debt		245		205		727		604
Notes payable and other borrowings		2		1		6		5
Total interest expense		2,478		2,268		7,252		6,770
Net interest and dividend income		15,347		14,804		45,931		44,338
Loan loss reserve release		-		(2,100)		-		(4,400)
Net interest and dividend income after release for loan losses		15,347		16,904		45,931		48,738
Noninterest income
Trust income		1,403		1,444		4,274		4,526
Service charges on deposits		1,756		1,766		4,961		5,086
Secondary mortgage fees		322		190		795		715
Mortgage servicing gain / (loss), net of changes in fair value		290		(274)		(641)		18
Net gain on sales of mortgage loans		2,177		1,359		5,031		4,677
Securities loss, net		(1,959)		(57)		(2,020)		(178)
Increase in cash surrender value of bank-owned life insurance		383		236		987		1,015
Debit card interchange income		1,013		1,004		3,009		3,013
Loss on disposal and transfer of fixed assets, net		-		(1,143)		(1)		(1,143)
Other income		1,209		1,123		3,751		4,156
Total noninterest income		6,594		5,648		20,146		21,885
Noninterest expense
Salaries and employee benefits		9,014		8,260		26,854		26,664
Occupancy expense, net		1,120		1,156		3,358		3,521
Furniture and equipment expense		1,144		1,110		3,180		3,176
FDIC insurance		228		373		793		1,023
General bank insurance		269		308		839		975
Advertising expense		430		434		1,212		992
Debit card interchange expense		363		379		1,186		1,131
Legal fees		242		279		594		922
Other real estate expense, net		426		977		2,043		4,717
Other expense		3,346		2,968		9,487		9,203
Total noninterest expense		16,582		16,244		49,546		52,324
Income before income taxes		5,359		6,308		16,531		18,299
Provision for income taxes		1,860		2,384		5,865		6,747
Net income	$	3,499	$	3,924	$	10,666	$	11,552
Preferred stock dividends and accretion of discount		-		339		-		1,873
Net income available to common stockholders	$	3,499	$	3,585	$	10,666	$	9,679

Basic earnings per share	$	0.12	$	0.12	$	0.36	$	0.33
Diluted earnings per share		0.12		0.12		0.36		0.33


Ending common shares outstanding	29,554,716	29,478,429	29,554,716	29,478,429
Weighted-average basic shares outstanding	29,554,716	29,478,429	29,524,796	29,474,833
Weighted-average diluted shares outstanding	29,838,182	29,746,429	29,828,430	29,724,234

Old Second Bancorp, Inc. and Subsidiaries

Quarterly Consolidated Average Balance

(In thousands, unaudited)



		2015								2016
Assets	1st Qtr		2nd Qtr		3rd Qtr		4th Qtr		1st Qtr		2nd Qtr		3rd Qtr
Cash and due from banks	$	31,744	$	29,153	$	28,999	$	28,781	$	27,813	$	28,597	$	41,344
Interest bearing deposits with financial institutions		18,022		29,880		18,563		13,859		15,513		12,048		50,054
Cash and cash equivalents		49,766		59,033		47,562		42,640		43,326		40,645		91,398

Securities available-for-sale, at fair value		380,180		409,600		410,083		442,909		486,924		684,179		624,844
Securities held-to-maturity, at amortized cost		258,637		255,293		251,648		248,871		246,772		80,899		35,046
Federal Home Loan Bank and Federal Reserve Bank stock		9,058		8,409		8,271		8,451		8,518		7,431		7,918
Loans held-for-sale		4,782		7,880		3,789		3,465		2,912		4,238		5,295
Loans		1,156,662		1,144,605		1,140,624		1,136,843		1,138,985		1,145,892		1,186,279
Less: allowance for loan losses		21,605		20,546		18,607		16,598		16,257		16,415		15,767
Net loans		1,135,057		1,124,059		1,122,017		1,120,245		1,122,728		1,129,477		1,170,512

Premises and equipment, net		42,306		41,937		41,572		39,767		39,416		39,143		39,191
Other real estate owned		32,392		34,637		29,049		22,760		18,760		16,906		14,888
Mortgage servicing rights, net		5,202		5,416		5,776		5,596		5,347		5,151		4,822
Bank-owned life insurance (BOLI)		58,139		58,264		58,566		58,797		59,178		59,459		59,787
Deferred tax assets, net		69,936		67,657		66,174		65,916		65,210		61,768		57,692
Other assets		9,693		10,463		9,656		9,179		9,346		10,469		13,833
Total other assets		217,668		218,374		210,793		202,015		197,257		192,896		190,213
Total assets	$	2,055,148	$	2,082,648	$	2,054,163	$	2,068,596	$	2,108,437	$	2,139,765	$	2,125,226

Liabilities
Deposits:
Noninterest bearing demand	$	405,933	$	435,093	$	431,052	$	445,083	$	450,521	$	472,450	$	472,599
Interest bearing:
Savings, NOW, and money market		881,714		885,809		889,448		893,947		915,553		920,389		907,531
Time		418,615		410,066		404,896		409,353		407,743		402,912		401,999
Total deposits		1,706,262		1,730,968		1,725,396		1,748,383		1,773,817		1,795,751		1,782,129

Securities sold under repurchase agreements		23,437		31,234		31,466		26,569		35,776		37,433		31,892
Other short-term borrowings		25,722		22,638		14,674		24,837		27,802		28,187		22,174
Junior subordinated debentures		57,502		57,513		57,525		57,538		57,549		57,561		57,573
Subordinated debt		45,000		45,000		45,000		45,000		45,000		45,000		45,000
Notes payable and other borrowings		500		500		500		500		500		500		500
Other liabilities		11,734		10,962		9,782		10,488		11,033		12,511		15,539
Total liabilities		1,870,157		1,898,815		1,884,343		1,913,315		1,951,477		1,976,943		1,954,807

Stockholders' equity
Preferred stock		36,637		31,553		15,091		-		-		-		-
Common stock		34,414		34,419		34,422		34,426		34,427		34,505		34,533
Additional paid-in capital		115,413		115,553		115,692		115,827		115,945		116,065		116,365
Retained earnings		102,050		105,208		108,858		112,584		116,231		119,640		123,771
Accumulated other comprehensive loss		(7,558)		(6,935)		(8,277)		(11,590)		(13,677)		(11,241)		(8,030)
Treasury stock		(95,965)		(95,965)		(95,966)		(95,966)		(95,966)		(96,147)		(96,220)
Total stockholders' equity		184,991		183,833		169,820		155,281		156,960		162,822		170,419
Total liabilities and stockholder's equity	$	2,055,148	$	2,082,648	$	2,054,163	$	2,068,596	$	2,108,437	$	2,139,765	$	2,125,226

Total Earning Assets	$	1,827,341	$	1,855,667	$	1,832,978	$	1,854,398	$	1,899,624	$	1,934,687	$	1,909,436
Total Interest Bearing Liabilities		1,452,490		1,452,760		1,443,509		1,457,744		1,489,923		1,491,982		1,466,669

Old Second Bancorp, Inc. and Subsidiaries

Quarterly Consolidated Statements of Income

(In thousands, except share data, unaudited)



	2015								2016
	1st Qtr		2nd Qtr		3rd Qtr		4th Qtr		1st Qtr		2nd Qtr		3rd Qtr
Interest and Dividend Income
Loans, including fees	$	13,218	$	13,467	$	13,353	$	12,997	$	13,058	$	13,039	$	13,496
Loans held-for-sale		43		72		38		36		28		39		48
Securities:
Taxable		3,375		3,372		3,471		3,819		4,211		4,382		3,954
Tax exempt		141		163		122		116		179		220		180
Dividends from Federal Reserve Bank and Federal Home Loan Bank stock		77		77		76		76		84		84		83
Interest bearing deposits with financial institutions		12		19		12		12		19		15		64
Total interest and dividend income		16,866		17,170		17,072		17,056		17,579		17,779		17,825
Interest Expense
Savings, NOW, and money market deposits		179		183		185		187		191		193		193
Time deposits		807		771		799		824		822		869		931
Other short-term borrowings		9		7		6		11		20		26		23
Junior subordinated debentures		1,072		1,071		1,072		1,072		1,084		1,083		1,084
Subordinated debt		197		202		205		210		239		243		245
Notes payable and other borrowings		4		-		1		2		2		2		2
Total interest expense		2,268		2,234		2,268		2,306		2,358		2,416		2,478
Net interest and dividend income		14,598		14,936		14,804		14,750		15,221		15,363		15,347
Loan loss reserve release		-		(2,300)		(2,100)		-		-		-		-
Net interest and dividend income after release for loan losses		14,598		17,236		16,904		14,750		15,221		15,363		15,347
Noninterest Income
Trust income		1,486		1,596		1,444		1,427		1,369		1,502		1,403
Service charges on deposits		1,541		1,779		1,766		1,734		1,559		1,646		1,756
Secondary mortgage fees		244		281		190		192		193		280		322
Mortgage servicing (loss) / gain, net of changes in fair value		(208)		500		(274)		469		(620)		(311)		290
Net gain on sales of mortgage loans		1,623		1,695		1,359		1,098		1,212		1,642		2,177
Securities losses, net		(109)		(12)		(57)		-		(61)		-		(1,959)
Increase in cash surrender value of bank-owned life insurance		480		299		236		381		285		319		383
Debit card interchange income		959		1,050		1,004		1,015		947		1,049		1,013
(Loss) / gain on disposal and transfer of fixed assets		-		-		(1,143)		24		-		-		-
Other income		1,957		1,076		1,123		1,069		1,391		1,150		1,209
Total noninterest income		7,973		8,264		5,648		7,409		6,275		7,277		6,594
Noninterest Expense
Salaries and employee benefits		9,255		9,149		8,260		8,397		9,026		8,814		9,014
Occupancy expense, net		1,271		1,094		1,156		1,228		1,229		1,009		1,120
Furniture and equipment expense		1,001		1,065		1,110		1,254		958		1,078		1,144
FDIC insurance		273		377		373		311		203		362		228
General bank insurance		357		310		308		298		298		272		269
Advertising expense		205		353		434		348		347		435		430
Debit card interchange expense		352		400		379		383		203		620		363
Legal fees		223		420		279		253		161		191		242
Other real estate expense, net		1,352		2,388		977		474		738		879		426
Other expense		2,864		3,371		2,968		3,151		3,101		3,040		3,346
Total noninterest expense		17,153		18,927		16,244		16,097		16,264		16,700		16,582
Income before income taxes		5,418		6,573		6,308		6,062		5,232		5,940		5,359
Provision for income taxes		1,919		2,444		2,384		2,229		1,910		2,095		1,860
Net income		3,499		4,129		3,924		3,833		3,322		3,845		3,499
Preferred stock dividends and accretion of discount		824		710		339		-		-		-		-
Net income available to common stockholders	$	2,675	$	3,419	$	3,585	$	3,833	$	3,322	$	3,845	$	3,499

Basic earnings per share	$	0.09	$	0.12	$	0.12	$	0.13	$	0.11	$	0.13	$	0.12
Diluted earnings per share		0.09		0.12		0.12		0.13		0.11		0.13		0.12

The table below provides a reconciliation of each non-GAAP tax equivalent measure to the most comparable GAAP measure for the periods indicated:


	Three Months Ended									Nine Months Ended
	September 30,			December 31,			September 30,			September 30,
	2016			2015			2015			2016			2015
Net Interest Margin
Interest income (GAAP)	$	17,825		$	17,056		$	17,072		$	53,183		$	51,108
Taxable-equivalent adjustment:
Loans		23			24			24			70			79
Securities		97			63			65			312			229
Interest income (TE)		17,945			17,143			17,161			53,565			51,416
Interest expense (GAAP)		2,478			2,306			2,268			7,252			6,770
Net interest income (TE)	$	15,467		$	14,837		$	14,893		$	46,313		$	44,646
Net interest income (GAAP)	$	15,347		$	14,750		$	14,804		$	45,931		$	44,338
Average interest earning assets	$	1,909,436		$	1,854,398		$	1,832,978		$	1,914,564		$	1,838,682
Net interest margin (GAAP)		3.20	%		3.16	%		3.20	%		3.20	%		3.22	%
Net interest margin (TE)		3.22	%		3.17	%		3.22	%		3.23	%		3.25	%


		Three Months Ended
	September 30,			June 30,			September 30,
	2016			2016			2015
Efficiency Ratio
Noninterest expense	$	16,582		$	16,700		$	16,244
Less other real estate expense, net		426			879			977
Adjusted noninterest expense		16,156			15,821			15,267
Net interest income (GAAP)		15,347			15,363			14,804
Taxable-equivalent adjustment:
Loans		23			23			24
Securities		97			119			65
Net interest income (TE)		15,467			15,505			14,893
Noninterest income		6,594			7,277			5,648
Taxable-equivalent adjustment:
Increase in cash surrender value of BOLI (TE)		206			172			127
Noninterest income (TE)		6,800			7,449			5,775
Less securities loss, net		(1,959)			-			(57)
Adjusted noninterest income, plus net interest income (TE)	$	24,226		$	22,954		$	20,725
Efficiency ratio		66.69	%		68.92	%		73.66	%

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OLD SECOND BANCORP INC Reports