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

Attached files

file	filename
8-K - 8-K - OLD SECOND BANCORP INC	osbc-20140723x8k.htm



		Exhibit 99.1

Old Second Bancorp, Inc.		For Immediate Release
(NASDAQ:OSBC)		July 23, 2014

Contact:	J. Douglas Cheatham
	Chief Financial Officer
	(630) 906-5484

Old Second Reports Second Quarter Net Income of $2.0 million.

Loans increased $21.5 million in the quarter -- Improved asset quality supports $1.0 million loan loss reserve release.

AURORA, IL, July 23, 2014 – 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 second quarter of 2014. The Company reported net income of $2.0 million for the second quarter of 2014, compared to a net income of $3.5 million in the second quarter of 2013. The Company’s net income available to common stockholders of $7.5 million or $0.26 per diluted share, for the quarter, compared to a net income available to common stockholders of $2.2 million, or $0.15 per diluted share, in the second quarter of 2013. Second quarter 2014 net income to common stockholders reflects benefits to the Company from the redemption of Series B Preferred Stock further discussed below. Absent these benefits, the Company realized $0.02 per diluted share in the quarter.

“We continued to build on past progress and return to consistent profitability,” said Chairman Bill Skoglund. “Our experienced team of community banking professionals served established and new customers with an extensive collection of loan, deposit and wealth management products. Our talented team of support professionals provided exciting and innovative services to customers and staff. Unfortunately, our local economies continue to experience slow and uneven growth. I would like to express my thanks to customers who choose Old Second as their financial partner and my admiration as well as respect for the excellent team of people who work at Old Second to provide wonderful services to Old Second customers and communities.”

The Company completed the redemption of certain of its Series B Fixed Rate Cumulative Preferred Stock (the “Series B Stock”) in the quarter. As previously disclosed, the Company completed a public offering of common stock in April. Net proceeds of over $64.0 million were used to pay the accrued but unpaid interest on trust preferred securities, the accumulated but unpaid dividends on the Series B Stock and to complete this redemption. The redemption price for such Series B Stock was 94.75% of the liquidation value of the Series B Stock provided that the holders of shares entered into agreements to forbear payment of dividends due and to waive any rights to such dividend upon redemption. The Company also redeemed all shares of Series B Stock held by directors of the Company on the same terms.

These redemptions at below liquidation value resulted in a benefit of $1.3 million to net income available to common stockholders in the quarter. An additional benefit of $5.4 million reflecting both reversal of dividends previously accrued as well as dividends accumulated but not accrued by the Company and waived by holders upon redemption, is reflected in net income available to common stockholders. Absent these benefits, the Company realized $0.02 per diluted share in the quarter.

Further, the Bank announced plans to close two branches later this year. Customers have been notified by letter about plans to continue to provide Bank services from other existing locations as well as via online banking and remote banking capabilities.

Financial Highlights/Overview

Second quarter net income before tax declined by $396,000 from second quarter 2013 and $319,000 from first quarter 2014. The decrease from second quarter 2013 was driven by lower residential banking income (down 55.4%) and lower loan loss reserve release. The linked quarter decline reflects increased expense related to Other Real Estate Owned (“OREO”) and infrequent other expenses.

Second quarter net income available to common stockholders of $7.5 million includes benefits from the Preferred Stock redemption and compares to $2.2 million in second quarter 2013 and $630,000 in first quarter of this year.

The tax-equivalent net interest margin was 3.04% during the second quarter of 2014 compared to 3.07% in the same quarter of 2013 and 3.13% in first quarter of 2014.

Noninterest income of $7.5 million was $2.4 million lower than in the second quarter 2013 and $1.2 million greater than results in first quarter 2014. The year over year comparison reflects lower residential banking income in 2014. Second quarter 2013 further included a nonrecurring death benefit on bank owned life insurance. On a linked quarter basis, trust income and residential banking income strengthened while gains on securities sales also were higher.

Noninterest expenses of $19.1 million were 11.6% lower in second quarter compared to second quarter 2013. Expenses declined across several expense lines notably expense on OREO. Second quarter expenses were up 8.8% compared to first quarter 2014. Expense increased in second quarter on higher OREO expense and higher consulting, web site development, printing costs and franchise tax expense and a debit card fraud loss.

Capital Ratios



	June 30,		March 31,		June 30,
	2014		2014		2013
The Bank's leverage capital ratio	11.28	%	11.12	%	10.40	%
The Bank's total risk-based capital ratio	18.29	%	17.83	%	16.30	%
The Company's leverage capital ratio	9.51	%	7.29	%	5.46	%
The Company's total risk-based capital ratio	17.66	%	15.19	%	14.03	%
The Company's tangible common equity to tangible assets	7.09	%	3.68	%	(0.18)	%

The Company’s total risk-based capital ratio has been adjusted this quarter to correctly account for the Company's subordinated debt, a portion of which was excluded from Tier 2 capital because the subordinated debt is within five years of maturity. This change has also been made in prior quarters and has resulted in an immaterial reduction in the Company's total risk-based capital ratio for those periods. The reduction in regulatory capital amounts and ratios has no impact on the Company's historical consolidated financial statements or stockholders' equity, which were stated in accordance with generally accepted accounting principles.

Asset Quality & Earning Assets

Nonperforming loans declined by $10.9 million during the six months of 2014 to $28.9 million at June 30, 2014, from $39.8 million at December 31, 2013.

OREO declined from $41.5 million at December 31, 2013, and $40.2 million at March 31, 2014, to $39.2 million at June 30, 2014. OREO dispositions totaling $4.9 million in the second quarter 2014 were largely offset by new OREO of $4.7 million. The remaining decline in the quarter reflects valuation reserve changes on the portfolio offset by a nominal amount of management authorized improvement work on a property in severe disrepair.

Loans increased $31.5 million since year end and $21.5 million in second quarter. Period end commercial loans grew 8.6% in the quarter.

Securities held-to-maturity at amortized cost of $264.7 million at June 30, 2014, were essentially unchanged from March 31, 2014. The end of second quarter total compares to $256.6 million held-to-maturity at year end 2013. Quarter end June 30, 2014, available-for-sale securities at fair value total $329.8 million and were down from $400.2 million at end of first quarter 2014.

Continued improvements in asset quality justified a $1.0 million loan loss reserve release in the quarter marking the sixth consecutive quarter with a reserve release.

Net Interest Income1

ANALYSIS OF AVERAGE BALANCES,

TAX EQUIVALENT INTEREST AND RATES

Three Months ended June 30, 2014, and 2013

(Dollar amounts in thousands - unaudited)


					2014							2013
		Average							Average
	Balance			Interest		Rate			Balance			Interest	Rate
Assets
Interest bearing deposits	$	30,333		$	20	0.26	%	$	43,933		$	27	0.24	%
Securities:
Taxable		628,766			3,352	2.13			569,877			2,698	1.89
Non-taxable (tax equivalent)		23,613			182	3.08			20,752			268	5.17
Total securities		652,379			3,534	2.17			590,629			2,966	2.01
Dividends from FRB and FHLB stock		10,292			78	3.03			10,742			76	2.83
Loans and loans held-for-sale (1)		1,120,918			13,104	4.62			1,118,892			13,974	4.94
Total interest earning assets		1,813,922			16,736	3.66			1,764,196		-	17,043	3.83
Cash and due from banks		36,827			-	-			22,948			-	-
Allowance for loan losses		(25,146)			-	-			(38,228)			-	-
Other noninterest bearing assets		233,369			-	-			194,782			-	-
Total assets	$	2,058,972						$	1,943,698

Liabilities and Stockholders' Equity
NOW accounts	$	309,380		$	65	0.08	%	$	297,918		$	65	0.09	%
Money market accounts		309,843			83	0.11			319,236			115	0.14
Savings accounts		242,512			40	0.07			230,822			41	0.07
Time deposits		457,818			1,210	1.06			497,262			1,800	1.45
Interest bearing deposits		1,319,553			1,398	0.42			1,345,238			2,021	0.60
Securities sold under repurchase agreements		25,224			-	-			24,692			-	-
Other short-term borrowings		8,681			3	0.14			769			-	-
Junior subordinated debentures		58,378			1,388	9.51			58,378			1,314	9.00
Subordinated debt		45,000			198	1.74			45,000			205	1.80
Notes payable and other borrowings		500			4	3.16			500			4	3.16
Total interest bearing liabilities		1,457,336			2,991	0.82			1,474,577			3,544	0.96
Noninterest bearing deposits		389,926			-	-			357,802			-	-
Other liabilities		19,210			-	-			35,202			-	-
Stockholders' equity		192,500			-	-			76,117			-	-
Total liabilities and stockholders' equity	$	2,058,972						$	1,943,698
Net interest income (tax equivalent)				$	13,745						$	13,499
Net interest income (tax equivalent)
to total earning assets						3.04	%						3.07	%
Interest bearing liabilities to earning assets		80.34	%						83.58	%

1 Interest income from loans is shown on a tax equivalent basis as discussed in the table on page 18 and includes fees of $563,000 and $551,000 for the second quarter of 2014 and 2013, respectively. Nonaccrual loans are included in the above stated average balances.

Note: Tax equivalent basis is calculated using a marginal tax rate of 35%.

ANALYSIS OF AVERAGE BALANCES,

TAX EQUIVALENT INTEREST AND RATES

Six Months ended June 30, 2014, and 2013

(Dollar amounts in thousands - unaudited)



	2014							2013
		Average							Average
		Balance		Interest		Rate			Balance			Interest	Rate
Assets
Interest bearing deposits	$	27,072		$	35	0.26	%	$	56,395		$	69	0.24	%
Securities:
Taxable		622,634			6,854	2.20			559,114			4,996	1.79
Non-taxable (tax equivalent)		21,101			410	3.89			15,407			451	5.85
Total securities		643,735			7,264	2.26			574,521			5,447	1.90
Dividends from FRB and FHLB stock		10,292			154	2.99			10,971			152	2.77
Loans and loans held-for-sale (1)		1,113,704			26,092	4.66			1,131,210			28,945	5.09
Total interest earning assets		1,794,803			33,545	3.72			1,773,097		-	34,613	3.89
Cash and due from banks		33,383			-	-			26,411			-	-
Allowance for loan losses		(26,118)			-	-			(38,609)			-	-
Other noninterest bearing assets		234,760			-	-			199,076			-	-
Total assets	$	2,036,828						$	1,959,975

Liabilities and Stockholders' Equity
NOW accounts	$	306,483		$	129	0.08	%	$	294,504		$	129	0.09	%
Money market accounts		312,309			177	0.11			324,279			238	0.15
Savings accounts		238,455			81	0.07			226,380			82	0.07
Time deposits		462,950			2,531	1.10			501,450			3,653	1.47
Interest bearing deposits		1,320,197			2,918	0.45			1,346,613			4,102	0.61
Securities sold under repurchase agreements		24,884			1	0.01			22,490			1	0.01
Other short-term borrowings		6,409			4	0.12			22,182			19	0.17
Junior subordinated debentures		58,378			2,775	9.51			58,378			2,601	8.91
Subordinated debt		45,000			394	1.74			45,000			401	1.77
Notes payable and other borrowings		500			8	3.18			500			8	3.18
Total interest bearing liabilities		1,455,368			6,100	0.84			1,495,163			7,132	0.96
Noninterest bearing deposits		381,863			-	-			355,651			-	-
Other liabilities		28,940			-	-			34,398			-	-
Stockholders' equity		170,657			-	-			74,763			-	-
Total liabilities and stockholders' equity	$	2,036,828						$	1,959,975
Net interest income (tax equivalent)				$	27,445						$	27,481
Net interest income (tax equivalent)
to total earning assets						3.08	%						3.13	%
Interest bearing liabilities to earning assets		81.09	%						84.32	%

1 Interest income from loans is shown on a tax equivalent basis as discussed in the table on page 18 and includes fees of $1.1 million and $1.2 million for the first six months of 2014 and 2013, respectively. Nonaccrual loans are included in the above stated average balances.

Note: Tax equivalent basis is calculated using a marginal tax rate of 35%.

Net interest and dividend income on a linked quarter basis was essentially unchanged. Quarterly average earning assets increased $49.7 million from the second quarter 2013 total of $1.76 billion. Management continued to emphasize asset quality in marketable securities purchases and the year over year average volume for total securities increased markedly. Loan growth in each of the last two quarters, resulted in a year over year second quarter average loans increase. On a linked quarter basis, second quarter average earning assets increased $38.5 million with increases in both securities and loans.

Asset Quality

Nonperforming loans consist of nonaccrual loans, nonperforming restructured accruing loans and loans 90 days or greater past due but still accruing. Total nonperforming loans were $28.9 million at June 30, 2014, down from $38.6 million at March 31, 2014.

Net charge offs for the second quarter of 2014 were lower on a linked quarter basis but reflect increases in both charge-offs and recoveries compared to the first quarter.



	Classified loans as of							June 30, 2014 Dollar Change From
(in thousands)		June 30,		March 31,		June 30,		March 31,		June 30,
		2014		2014		2013		2014		2013
Real estate-construction	$	4,330	$	6,430	$	7,005	$	(2,100)	$	(2,675)
Real estate-residential:
Investor		5,312		7,674		13,968		(2,362)		(8,656)
Owner occupied		5,841		6,847		11,008		(1,006)		(5,167)
Revolving and junior liens		3,097		3,645		5,086		(548)		(1,989)
Real estate-commercial, nonfarm		19,634		27,633		43,827		(7,999)		(24,193)
Real estate-commercial, farm		-		-		53		-		(53)
Commercial		312		455		705		(143)		(393)
Other		1		-		1		1		-
	$	38,527	$	52,684	$	81,653	$	(14,157)	$	(43,126)

Classified loans include nonaccrual, performing troubled debt restructurings and all other loans considered substandard. Classified loans of $38.5 million at June 30, 2014, were down from $52.7 million at March 31, 2014.

Allowance for Loan and Lease Losses

The bank’s allowance for loan loss methodology generates an accounting estimate of loan and lease losses as of the financial statement date and incorporates management’s current judgments about the credit quality of the loan portfolio. The methodology is subject to periodic review by the Company’s independent auditors and banking regulators. No significant methodology changes were made in 2014.

Under established and reviewed methodology, management updated the appropriate specific allocations in the second quarter after receiving more recent appraisal valuations or information on cash flow trends related to the impaired credits. Specific allocations decreased markedly from December 31, 2013, but increased from first quarter 2014. Loan balances subject to general factors increased as of June 30, 2014, from year end 2013 and March 31, 2014. Management determined the estimate for the allowance for loan losses based upon a number of factors, including an evaluation of credit market circumstances, loan growth or contraction, the quality of the loan portfolio and loan loss experience.

Given the improvement in the overall loan portfolio as discussed in the Asset Quality section,

management concluded an additional $1.0 million reserve release in the quarter was appropriate.

Other Real Estate Owned

OREO decreased modestly by $1.0 million from $40.2 million at March 31, 2014, to $39.2 million at June 30, 2014. OREO activity (property additions, disposals) as well as period valuation adjustments recorded in the relevant periods, is specified below. Overall, a net gain on sale of $23,000 was realized in the second quarter.



		Three Months Ended				Year to Date
(in thousands)		June 30,				June 30,
		2014		2013		2014		2013
Beginning balance	$	40,220	$	65,663	$	41,537	$	72,423
Property additions		4,655		4,196		9,343		11,181
Development improvements		131		-		131		50
Less:
Property disposals		4,949		7,804		10,518		19,465
Period valuation adjustments		825		2,590		1,261		4,724
Other real estate owned	$	39,232	$	59,465	$	39,232	$	59,465



OREO Properties by Type

(in thousands)	June 30, 2014				March 31, 2014				June 30, 2013
		Amount	% of Total			Amount	% of Total			Amount	% of Total
Single family residence	$	3,485	9	%	$	4,730	12	%	$	8,161	14	%
Lots (single family and commercial)		15,002	38	%		14,298	36	%		23,781	40	%
Vacant land		2,595	7	%		3,135	8	%		3,266	5	%
Multi-family		5,175	13	%		5,045	12	%		2,210	4	%
Commercial property		12,975	33	%		13,012	32	%		22,047	37	%
Total OREO properties	$	39,232	100	%	$	40,220	100	%	$	59,465	100	%

Noninterest Income



							2nd Qtr 2014
	Three Months Ended						Dollar Change From
(in thousands)	June 30,		March 31,		June 30,		1st Qtr		2nd Qtr
	2014		2014		2013		2014		2013

Trust income	$	1,677	$	1,459	$	1,681	$	218	$	(4)
Service charges on deposits		1,796		1,720		1,799		76		(3)
Residential mortgage banking revenue		1,257		727		2,821		530		(1,564)
Securities (loss) gains, net		295		(69)		745		364		(450)
Increase in cash surrender value of bank-owned life insurance		366		358		372		8		(6)
Death benefit realized on bank-owned life insurance		-		-		375		-		(375)
Debit card interchange income		930		830		900		100		30
Other income		1,160		1,296		1,147		(136)		13
Total noninterest income	$	7,481	$	6,321	$	9,840	$	1,160	$	(2,359)

Trust income and service charges on deposits improved from first quarter to the levels recorded in second quarter 2013. Residential mortgage banking revenues strengthened from the relatively weak result in first quarter but are down from results in second quarter 2013 and were down 62.4% year to date. Debit card interchange income in second quarter reflects a return to normal quarterly results after seasonally low first quarter 2014.

Noninterest Expense



							2nd Qtr 2014
	Three Months Ended						Dollar Change From
(in thousands)	June 30,		March 31,		June 30,		1st Qtr		2nd Qtr
	2014		2014		2013		2014		2013

Salaries	$	7,128	$	6,872	$	6,987	$	256	$	141
Bonus		592		709		621		(117)		(29)
Benefits and other		1,463		1,520		1,569		(57)		(106)
Total salaries and employee benefits		9,183		9,101		9,177		82		6
Occupancy expense, net		1,185		1,481		1,242		(296)		(57)
Furniture and equipment expense		984		983		1,104		1		(120)
FDIC insurance		627		279		1,024		348		(397)
General bank insurance		343		489		491		(146)		(148)
Amortization of core deposit intangible assets		511		512		525		(1)		(14)
Advertising expense		459		303		328		156		131
Debit card interchange expense		412		378		362		34		50
Legal fees		409		257		486		152		(77)
Other real estate owned expense, net		1,650		1,008		3,302		642		(1,652)
Other expense		3,289		2,725		3,510		564		(221)
Total noninterest expense	$	19,052	$	17,516	$	21,551	$	1,536	$	(2,499)

Expense was up in second quarter from first quarter essentially on higher expenses related to OREO and several expenses described earlier reported above as other expense. Expenses for retail advertising and debit card services as well as legal expense for corporate matters increased on a linked quarter basis. Expenses decreased in second quarter 2014 compared to the same period in 2013 on sharply lower expense related to OREO. All expense information in this release incorporates a year end 2013 Company decision to reclassify OREO revenues from noninterest income to noninterest expense.

Additional Loan Detail



							June 30, 2014
	Major Classification of Loans as of						Dollar Change From
(in thousands)	June 30,		March 31,		June 30,		March 31,		June 30,
	2014		2014		2013		2014		2013
Commercial	$	106,752	$	98,321	$	86,173	$	8,431	$	20,579
Real estate - commercial		599,796		579,297		563,061		20,499		36,735
Real estate - construction		32,265		32,016		34,964		249		(2,699)
Real estate - residential		368,592		375,781		386,504		(7,189)		(17,912)
Consumer		3,064		2,837		2,793		227		271
Overdraft		381		301		505		80		(124)
Lease financing receivables		8,722		9,227		11,863		(505)		(3,141)
Other		12,700		13,019		16,371		(319)		(3,671)
		1,132,272		1,110,799		1,102,234		21,473		30,038
Net deferred loan costs		475		438		469		37		6
	$	1,132,747	$	1,111,237	$	1,102,703	$	21,510	$	30,044

Second quarter loan production resulted in a $21.5 million increase in loans outstanding from first quarter period end. Period end commercial loans increased 8.6% in the quarter. Emphasis was again placed on transactions in our core market area that the Company expects will develop as long term relationship opportunities. Ongoing slow paced demand from qualified borrowers, borrower reluctance to drawdown on existing credit lines and the competitive landscape hindered growth in the loan portfolio. Management continued to emphasize loan portfolio quality and reductions in transactional business. Current client relationships more closely reflect core clientele with resulting reduction in portfolio runoff.

Additional Securities Detail



							June 30, 2014
(in thousands)	Securities Portfolio As of						Dollar Change From
		June 30,		March 31,		June 30,	March 31,		June 30,
Securities available-for-sale, at fair value	2014		2014		2013		2014		2013

U.S. Treasury	$	1,538	$	1,540	$	1,547	$	(2)	$	(9)
U.S. government agencies		1,653		1,665		6,726		(12)		(5,073)
U.S. government agency mortgage-backed		-		-		52,414		-		(52,414)
States and political subdivisions		15,753		26,459		20,119		(10,706)		(4,366)
Corporate bonds		31,350		31,272		34,429		78		(3,079)
Collateralized mortgage obligations		33,083		51,124		168,505		(18,041)		(135,422)
Asset-backed securities		246,437		288,152		290,853		(41,715)		(44,416)
Collateralized debt obligations		-		-		10,344		-		(10,344)
Total securities available-for-sale	$	329,814	$	400,212	$	584,937	$	(70,398)	$	(255,123)
Securities held-to-maturity, at amortized cost
U.S. government agency mortgage-backed	$	37,306	$	35,292	$	-	$	2,014	$	37,306
Collateralized mortgage obligations		227,377		229,006		-		(1,629)		227,377
Total securities held-to-maturity	$	264,683	$	264,298	$	-	$	385	$	264,683

Total securities	$	594,497	$	664,510	$	584,937	$	(70,013)	$	9,560

Total securities decreased from $664.5 million at March 31, 2014, to $594.5 million at June 30, 2014. Held-to-maturity securities of $264.7 million at June 30, 2014, were essentially unchanged from the end of first quarter. Available-for-sale securities were $400.2 million at March 31, 2014, and declined to $329.8 million at end of second quarter.

Additionally, the Company owned securities from five issuers where each holding exceeded 10% of total stockholders’ equity. Company investment managers have assessed the quality of the issuers to confirm that underwriting standards meet expectation and the requirements under Investment Policy. Further, all of these securities are guaranteed by the U. S. Department of Education.

Deposits Detail



							June 30, 2014
	Deposit Detail As of						Dollar Change From
(in thousands)	June 30,		March 31,		June 30,		March 31,		June 30,
	2014		2014		2013		2014		2013
Noninterest bearing	$	393,964	$	387,090	$	366,406	$	6,874	$	27,558
Savings		238,167		244,944		227,687		(6,777)		10,480
NOW accounts		310,721		309,385		287,492		1,336		23,229
Money market accounts		304,766		318,192		312,773		(13,426)		(8,007)
Certificates of deposits:
of less than $100,000		274,971		282,569		306,302		(7,598)		(31,331)
of $100,000 or more		178,235		182,101		189,963		(3,866)		(11,728)
	$	1,700,824	$	1,724,281	$	1,690,623	$	(23,457)	$	10,201

The end of second quarter 2014 deposit total declined by $23.5 million from period end first quarter 2014 and up $10.2 million from June 30, 2013. The availability of other liquidity sources reduced the need for deposit funding.

Borrowings

The Company's borrowings at the FHLBC require the Bank to be a member and invest in the stock of the FHLBC and total borrowings are generally limited to the lower of 35% of total assets or 60% of the book value of certain mortgage loans. As of June 30, 2014, the Bank had no FHLBC advances.

At June 30, 2014, the Company continued to be out of compliance with one of the financial covenants contained in the debt agreement supporting the $45.5 million credit facility with a correspondent bank. Prior to 2013, the Company had been out of compliance with two of the financial covenants. The Company has timely made all required interest payments on the outstanding principal amounts.

Capital

At June 30, 2014, the Bank’s Tier 1 capital leverage ratio was 11.28%, up 16 basis points from March 31, 2014. The Bank’s total capital ratio was 18.29%, up 46 basis points from March 31, 2014.The Bank’s board of directors has determined that the Bank should maintain a Tier 1 leverage capital ratio at or above 8% and a total risk-based capital ratio at or above 12%. The Bank currently exceeds those thresholds. Ratios as of June, 2014 reflect additional capital from previously disclosed capital raise.

At June 30, 2014, the Company, on a consolidated basis, exceeded the minimum thresholds to be considered “adequately capitalized” under current regulatory defined capital ratios. The Company and the Bank are subject to regulatory capital requirements administered by federal banking agencies. In addition to the above regulatory ratios, the Company’s non-GAAP tangible common equity to tangible assets increased to 7.09% at June 30, 2014, compared to 3.68% at March 31, 2014. The Tier 1 common equity to risk weighted assets increased to 6.48% at June 30, 2014, compared to 1.27% at March 31, 2014.

Non-GAAP Presentations: Management has traditionally 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 the tangible common equity to tangible assets and the Tier 1 common equity to risk weighted assets in the discussion immediately above and in the following tables. 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.

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share data)



	(Unaudited)
	June 30,		December 31,
	2014		2013
Assets
Cash and due from banks	$	73,646	$	33,210
Interest bearing deposits with financial institutions		19,412		14,450
Cash and cash equivalents		93,058		47,660
Securities available-for-sale, at fair value		329,814		372,191
Securities held-to-maturity, at amortized cost		264,683		256,571
Federal Home Loan Bank and Federal Reserve Bank stock		10,292		10,292
Loans held-for-sale		4,559		3,822
Loans		1,132,747		1,101,256
Less: allowance for loan losses		23,856		27,281
Net loans		1,108,891		1,073,975
Premises and equipment, net		45,242		46,005
Other real estate owned		39,232		41,537
Mortgage servicing rights, net		5,501		5,807
Core deposit, net		154		1,177
Bank-owned life insurance (BOLI)		56,134		55,410
Deferred tax assets, net		71,778		75,303
Other assets		17,526		14,284
Total assets	$	2,046,864	$	2,004,034

Liabilities
Deposits:
Noninterest bearing demand	$	393,964	$	373,389
Interest bearing:
Savings, NOW, and money market		853,654		836,300
Time		453,206		472,439
Total deposits		1,700,824		1,682,128
Securities sold under repurchase agreements		38,133		22,560
Other short-term borrowings		-		5,000
Junior subordinated debentures		58,378		58,378
Subordinated debt		45,000		45,000
Notes payable and other borrowings		500		500
Other liabilities		11,411		42,776
Total liabilities		1,854,246		1,856,342

Stockholders’ Equity
Preferred stock		47,331		72,942
Common stock		34,365		18,830
Additional paid-in capital		115,183		66,212
Retained earnings		96,927		92,549
Accumulated other comprehensive loss		(5,339)		(7,038)
Treasury stock		(95,849)		(95,803)
Total stockholders’ equity		192,618		147,692
Total liabilities and stockholders’ equity	$	2,046,864	$	2,004,034

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Operations

(In thousands, except share data)



	(unaudited)				(unaudited)
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2014		2013		2014		2013
Interest and dividend income
Loans, including fees	$	13,046	$	13,912	$	25,984	$	28,826
Loans held-for-sale		29		45		54		86
Securities:
Taxable		3,352		2,698		6,854		4,996
Tax exempt		118		174		266		293
Dividends from Federal Reserve Bank and Federal Home Loan Bank stock		78		76		154		152
Interest bearing deposits with financial institutions		20		27		35		69
Total interest and dividend income		16,643		16,932		33,347		34,422
Interest expense
Savings, NOW, and money market deposits		188		221		387		449
Time deposits		1,210		1,800		2,531		3,653
Other short-term borrowings		3		-		5		20
Junior subordinated debentures		1,388		1,314		2,775		2,601
Subordinated debt		198		205		394		401
Notes payable and other borrowings		4		4		8		8
Total interest expense		2,991		3,544		6,100		7,132
Net interest and dividend income		13,652		13,388		27,247		27,290
Loan loss reserve release		(1,000)		(1,800)		(2,000)		(4,300)
Net interest and dividend income after provision for loan losses		14,652		15,188		29,247		31,590
Noninterest income
Trust income		1,677		1,681		3,136		3,172
Service charges on deposits		1,796		1,799		3,516		3,475
Secondary mortgage fees		155		267		267		497
Mortgage servicing gain, net of changes in fair value		64		743		17		987
Net gain on sales of mortgage loans		1,038		1,811		1,700		3,787
Securities gains, net		295		745		226		2,198
Increase in cash surrender value of bank-owned life insurance		366		372		724		779
Death benefit realized on bank-owned life insurance		-		375		-		375
Debit card interchange income		930		900		1,760		1,692
Other income		1,160		1,147		2,456		2,885
Total noninterest income		7,481		9,840		13,802		19,847
Noninterest expense
Salaries and employee benefits		9,183		9,177		18,284		18,209
Occupancy expense, net		1,185		1,242		2,666		2,521
Furniture and equipment expense		984		1,104		1,967		2,248
FDIC insurance		627		1,024		906		2,059
General bank insurance		343		491		832		1,340
Amortization of core deposit		511		525		1,023		1,050
Advertising expense		459		328		762		494
Debit card interchange expense		412		362		790		706
Legal fees		409		486		666		809
Other real estate expense, net		1,650		3,302		2,658		6,399
Other expense		3,289		3,510		6,014		6,654
Total noninterest expense		19,052		21,551		36,568		42,489
Income before income taxes		3,081		3,477		6,481		8,948
Provision for income taxes		1,060		-		2,258		-
Net income	$	2,021	$	3,477	$	4,223	$	8,948
Preferred stock dividends and accretion of discount		1,348		1,305		2,920		2,594
Dividends waived upon preferred stock redemption		(5,433)		-		(5,433)		-
Gain on preferred stock redemption		(1,348)		-		(1,348)		-
Net income available to common stockholders	$	7,454	$	2,172	$	8,084	$	6,354

Basic earnings per share	$	0.26	$	0.15	$	0.38	$	0.45
Diluted earnings per share		0.26		0.15		0.38		0.45

Old Second Bancorp, Inc. and Subsidiaries

Quarterly Consolidated Statements of Operations

(In thousands, except share data, unaudited)



	2013								2014
		1st Qtr		2nd Qtr		3rd Qtr		4th Qtr		1st Qtr		2nd Qtr
Interest and Dividend Income
Loans, including fees	$	14,914	$	13,912	$	14,327	$	13,040	$	12,938	$	13,046
Loans held-for-sale		41		45		38		32		25		29
Securities:
Taxable		2,298		2,698		3,113		3,583		3,502		3,352
Tax exempt		119		174		148		146		148		118
Dividends from Federal Reserve Bank and Federal Home Loan Bank stock		76		76		76		76		76		78
Interest bearing deposits with financial institutions		42		27		22		17		15		20
Total interest and dividend income		17,490		16,932		17,724		16,894		16,704		16,643
Interest Expense
Savings, NOW, and money market deposits		228		221		206		204		199		188
Time deposits		1,853		1,800		1,674		1,447		1,321		1,210
Other short-term borrowings		20		-		6		2		2		3
Junior subordinated debentures		1,287		1,314		1,336		1,361		1,387		1,388
Subordinated debt		196		205		209		201		196		198
Notes payable and other borrowings		4		4		4		4		4		4
Total interest expense		3,588		3,544		3,435		3,219		3,109		2,991
Net interest and dividend income		13,902		13,388		14,289		13,675		13,595		13,652
Loan loss reserve release		(2,500)		(1,800)		(1,750)		(2,500)		(1,000)		(1,000)
Net interest and dividend income after provision for loan losses		16,402		15,188		16,039		16,175		14,595		14,652
Noninterest Income
Trust income		1,491		1,681		1,494		1,673		1,459		1,677
Service charges on deposits		1,677		1,799		1,904		1,877		1,720		1,796
Secondary mortgage fees		230		267		183		141		112		155
Mortgage servicing gain (loss), net of changes in fair value		244		743		235		691		(47)		64
Net gain on sales of mortgage loans		1,976		1,811		814		1,026		662		1,038
Securities gains (losses), net		1,453		745		(7)		(4,103)		(69)		295
Increase in cash surrender value of bank-owned life insurance		407		372		419		405		358		366
Death benefit realized on bank-owned life insurance		-		375		6		-		-		-
Debit card interchange income		792		900		873		893		830		930
Other income		1,737		1,147		1,549		1,263		1,296		1,160
Total noninterest income		10,007		9,840		7,470		3,866		6,321		7,481
Noninterest Expense
Salaries and employee benefits		9,032		9,177		9,299		9,180		9,101		9,183
Occupancy expense, net		1,279		1,242		1,266		1,245		1,481		1,185
Furniture and equipment expense		1,144		1,104		1,026		990		983		984
FDIC insurance		1,035		1,024		987		981		279		627
General bank insurance		849		491		489		489		489		343
Amortization of core deposit		525		525		524		525		512		511
Advertising expense		166		328		347		384		303		459
Debit card interchange expense		344		362		366		361		378		412
Legal fees		323		486		615		642		257		409
Other real estate expense, net		3,097		3,302		2,544		1,804		1,008		1,650
Other expense		3,144		3,510		3,119		3,472		2,725		3,289
Total noninterest expense		20,938		21,551		20,582		20,073		17,516		19,052
Income before income taxes		5,471		3,477		2,927		(32)		3,400		3,081
(Benefit) provision for income taxes		-		-		(69,997)		(245)		1,198		1,060
Net income		5,471		3,477		72,924		213		2,202		2,021
Preferred stock dividends and accretion of discount		1,289		1,305		1,323		1,341		1,572		1,348
Dividends waived upon preferred stock redemption		-		-		-		-		-		(5,433)
Gain on preferred stock redemption		-		-		-		-		-		(1,348)
Net income available to common stockholders	$	4,182	$	2,172	$	71,601	$	(1,128)	$	630	$	7,454

Basic earnings (loss) per share	$	0.30	$	0.15	$	5.08	$	(0.08)	$	0.04	$	0.26
Diluted earnings (loss) per share		0.30		0.15		5.08		(0.08)		0.04		0.26

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



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Net Interest Margin
Interest income (GAAP)	$	16,643		$	16,932		$	33,347		$	34,422
Taxable-equivalent adjustment:
Loans		29			17			54			33
Securities		64			94			144			158
Interest income - TE		16,736			17,043			33,545			34,613
Interest expense (GAAP)		2,991			3,544			6,100			7,132
Net interest income -TE	$	13,745		$	13,499		$	27,445		$	27,481
Net interest income (GAAP)	$	13,652		$	13,388		$	27,247		$	27,290
Average interest earning assets	$	1,813,922		$	1,764,196		$	1,794,803		$	1,773,097
Net interest margin (GAAP)		3.02	%		3.04	%		3.06	%		3.10	%
Net interest margin - TE		3.04	%		3.07	%		3.08	%		3.13	%



		(unaudited)			(unaudited)
		As of June 30,			As of December 31,
(dollars in thousands)	2014		2013		2013

Tier 1 capital
Total equity	$	192,618	$	71,102	$	147,692
Tier 1 adjustments:
Trust preferred securities allowed		56,625		27,195		51,577
Cumulative other comprehensive loss (income)		5,339		10,484		7,038
Disallowed goodwill and intangible assets		(154)		(2,226)		(1,177)
Disallowed deferred tax assets		(64,302)		-		(70,350)
Other		(550)		(530)		(581)
Tier 1 capital	$	189,576	$	106,025	$	134,199

Total capital
Tier 1 capital	$	189,576	$	106,025	$	134,199
Tier 2 additions:
Allowable portion of allowance for loan losses		16,597		17,016		15,898
Additional trust preferred securities disallowed for tier 1 capital		-		29,430		5,048
Subordinated debt		27,000		36,000		36,000
Tier 2 additions subtotal		43,597		82,446		56,946
Allowable Tier 2		43,597		82,446		56,946
Other Tier 2 capital components		(6)		(6)		(6)
Total capital	$	233,167	$	188,465	$	191,139

Tangible common equity
Total equity	$	192,618	$	71,102	$	147,692
Less: Preferred equity		47,331		72,396		72,942
Goodwill and intangible assets		154		2,226		1,177
Tangible common equity	$	145,133	$	(3,520)	$	73,573

Tier 1 common equity
Tangible common equity	$	145,133	$	(3,520)	$	73,573
Tier 1 adjustments:
Cumulative other comprehensive income		5,339		10,484		7,038
Other		(64,852)		(530)		(70,931)
Tier 1 common equity	$	85,620	$	6,434	$	9,680

Tangible assets
Total assets	$	2,046,864	$	1,932,934	$	2,004,034
Less:
Goodwill and intangible assets		154		2,226		1,177
Tangible assets	$	2,046,710	$	1,930,708	$	2,002,857

Total risk-weighted assets
On balance sheet	$	1,283,134	$	1,308,166	$	1,224,438
Off balance sheet		37,403		35,125		36,023
Total risk-weighted assets	$	1,320,537	$	1,343,291	$	1,260,461

Average assets
Total average assets for leverage	$	1,993,966	$	1,940,942	$	1,927,217

Attached files

Stock widget

Investing forum

OLD SECOND BANCORP INC Reports