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

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8-K - 8-K - OLD SECOND BANCORP INC	osbc-20150722x8k.htm



(NASDAQ:OSBC)		Exhibit 99.1

Contact:	J. Douglas Cheatham	For Immediate Release
	Chief Financial Officer	July 22, 2015
	(630) 906-5484

Old Second Reports Second Quarter 2015 Net Income of $4.1 million

AURORA, IL, July 22, 2015 – 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 2015. The Company reported net income of $4.1 million for the second quarter of 2015, compared to net income of $2.0 million in the second quarter of 2014. The Company’s net income available to common stockholders of $3.4 million, or $0.12 per diluted share for the second quarter of 2015, compared to $7.5 million, or $0.26 per diluted share, in the second quarter of 2014. This reflects a redemption of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series B (the “Series B Stock”) that was completed in the second quarter of 2014, which resulted in a $6.8 million of increase to net income available to common stockholders in that quarter.

Operating Results

Second quarter 2015 net income before taxes increased by $3.5 million, or 113.3%, from the second quarter of 2014 and $1.2 million, or 21.3%, from the first quarter of 2015. When compared to the second quarter of 2014, the quarter reflects improved net interest income, improved noninterest income, essentially unchanged noninterest expense and a larger loan loss reserve release. The net income increase from the first quarter of 2015 was driven by improved revenues and a $2.3 million loan loss reserve release. Noteworthy linked quarter expense increases are found in other real estate owned (“OREO”) expense, resulting from increased valuation reserve expense, and in the other noninterest expense category. Second quarter 2015 net income available to common stockholders of $3.4 million compares to $2.7 million for first quarter 2015 and $7.5 million for the second quarter of 2014. Results for 2015 reflect lower preferred stock dividends as a result of management’s determination to redeem an additional portion of the outstanding preferred stock in the first quarter of 2015.

Noninterest expenses of $18.9 million for the second quarter of 2015 were essentially unchanged from the second quarter of 2014. Noninterest expenses for the second quarter of 2015 were 10.3% higher compared to the first quarter of 2015 as decreases or modest increases in many categories were offset by linked quarter increases in several other categories, most notably a $1.5 million increase in OREO valuation expenses.

In June, the Bank announced that a branch in Batavia, Illinois would be closed as of September 30, 2015. Management expects that closing this location will not have a material impact on future Bank performance. Another existing branch, also in Batavia, is located near the branch that will be closed.

On July 14, 2015, the Company provided notice that it was redeeming the remaining 31,553 issued and outstanding shares of the Company’s Series B stock. The effective date for the redemption is August 14, 2015, and the redemption price will be the stated liquidation value of $1,000 per share, together with any accrued and unpaid dividends accumulated to, but excluding, the redemption date

Capital Ratios


	June 30,		March 31,
	2015		2015
The Bank's common equity tier 1 capital ratio	17.42	%	16.91	%
The Company's common equity tier 1 capital ratio	9.78	%	9.46	%
The Bank's total capital ratio	18.68	%	18.17	%
The Company's total capital ratio	17.04	%	17.30	%
The Company's tier 1 leverage capital ratio	10.02	%	9.82	%

All ratios presented are based on the regulatory capital rules in effect on January 1, 2015. The Bank ratios shown above exceed levels required to be considered “well capitalized”.

Asset Quality & Earning Assets

Nonperforming loans declined by $4.1 million to $19.3 million at June 30, 2015, from $23.4 million at March 31, 2015. The largest component of nonperforming loans, nonaccrual loans, decreased $4.1 million in second quarter to $19.0 million at June 30, 2015. These reductions were primarily the result of the Company's sale of $6.9 million of nonaccrual loans,

OREO assets moved only slightly in 2015 from $32.0 million at December 31, 2014, (but down from $41.5 million at December 31, 2013) to end unchanged at $32.0 million at June 30, 2015. New additions to the OREO portfolio in second quarter were modest. Valuation writedowns continued with an expense of $2.1 million in the quarter.

Loans were essentially unchanged from year end 2014 but increased $7.8 million from March 31, 2015. Second quarter 2015 average loans (including loans held-for-sale) decreased by $9.0 million from the first quarter of 2015 and but increased $31.6 million compared to the second quarter of last year. The management directed loan sale discussed above reduced loans by an additional $2.2 million beyond the $6.9 million in nonaccrual reduction mentioned above.

Securities held-to-maturity at amortized cost total $253.4 million at June 30, 2015. The end of the second quarter of 2015 total compares to $259.7 million securities held-to-maturity at amortized cost at year end 2014. At June 30, 2015, available-for-sale securities at fair value totaled $399.8 million, which is an increase from $385.5 million at December 31, 2014.

Management review of the loan portfolio concluded that a loan loss reserve release of $2.3 million was appropriate in the second quarter.

Net Interest Income1

ANALYSIS OF AVERAGE BALANCES,

TAX EQUIVALENT INTEREST AND RATES

(In thousands - unaudited)


	Quarters Ended
	June 30, 2015						March 31, 2015						June 30, 2014
	Average					Rate	Average					Rate	Average					Rate
	Balance			Interest		%	Balance			Interest		%	Balance			Interest		%
Assets
Interest bearing deposits with financial institutions	$	29,880		$	19	0.25	$	18,022		$	12	0.27	$	30,333		$	20	0.26
Securities:
Taxable		635,469			3,372	2.12		615,299			3,375	2.19		628,766			3,352	2.13
Non-taxable (TE)		29,424			251	3.41		23,518			217	3.69		23,613			182	3.08
Total securities		664,893			3,623	2.18		638,817			3,592	2.25		652,379			3,534	2.17
Dividends from Reserve Bank and FHLBC stock		8,409			77	3.66		9,058			77	3.40		10,292			78	3.03
Loans and loans held-for-sale1		1,152,485			13,566	4.66		1,161,444			13,289	4.58		1,120,918			13,104	4.62
Total interest earning assets		1,855,667			17,285	3.69		1,827,341			16,970	3.71		1,813,922			16,736	3.66
Cash and due from banks		29,153			-	-		31,744			-	-		36,827			-	-
Allowance for loan losses		(20,546)			-	-		(21,605)			-	-		(25,146)			-	-
Other noninterest bearing assets		219,239			-	-		218,544			-	-		233,369			-	-
Total assets	$	2,083,513					$	2,056,024					$	2,058,972

Liabilities and Stockholders' Equity
NOW accounts	$	334,694		$	73	0.09	$	338,385		$	72	0.09	$	309,380		$	65	0.08
Money market accounts		296,872			71	0.10		298,324			70	0.10		309,843			83	0.11
Savings accounts		254,243			39	0.06		245,005			37	0.06		242,512			40	0.07
Time deposits		410,066			771	0.75		418,615			807	0.78		457,818			1,210	1.06
Interest bearing deposits		1,295,875			954	0.30		1,300,329			986	0.31		1,319,553			1,398	0.42
Securities sold under repurchase agreements		31,234			-	-		23,437			1	0.02		25,224			-	-
Other short-term borrowings		22,638			7	0.12		25,722			8	0.12		8,681			3	0.14
Junior subordinated debentures		58,378			1,071	7.34		58,378			1,072	7.35		58,378			1,388	9.51
Subordinated debt		45,000			202	1.78		45,000			197	1.75		45,000			198	1.74
Notes payable and other borrowings		500			-	-		500			4	3.20		500			4	3.16
Total interest bearing liabilities		1,453,625			2,234	0.61		1,453,366			2,268	0.63		1,457,336			2,991	0.82
Noninterest bearing deposits		435,093			-	-		405,933			-	-		389,926			-	-
Other liabilities		10,962			-	-		11,734			-	-		19,210			-	-
Stockholders' equity		183,833			-	-		184,991			-	-		192,500			-	-
Total liabilities and stockholders' equity	$	2,083,513					$	2,056,024					$	2,058,972
Net interest income (TE)				$	15,051					$	14,702					$	13,745
Net interest income (TE)
to total earning assets						3.25						3.26						3.04
Interest bearing liabilities to earning assets		78.33	%					79.53	%					80.34	%

1 Interest income from loans is shown on a tax equivalent basis as discussed in the table on page 13 and includes fees of $463,000, $486,000 and $563,000 for the second quarter of 2015, the first quarter of 2015 and the second quarter of 2014, 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 increased $338,000. Quarterly average earning assets increased $28.3 million from the first quarter of 2015 for a total of $1.86 billion, while yield on earning assets was essentially unchanged. Management continued to emphasize asset quality in all securities purchases and the year over year quarterly average total securities increased a modest amount. Similarly, year over year second quarter average loans, including loans held-for-sale, increased $31.6 million.

Noninterest Income


							2nd Qtr 2015
	Three Months Ended						Percent Change From
(In thousands)	2nd Qtr		1st Qtr		2nd Qtr		1st Qtr	2nd Qtr
	2015		2015		2014		2015	2014
Trust income	$	1,596	$	1,486	$	1,677	7.4	(4.8)
Service charges on deposits		1,779		1,541		1,796	15.4	(0.9)
Residential mortgage banking revenue		2,476		1,659		1,257	49.2	97.0
Securities (loss) gains, net		(12)		(109)		295	89.0	(104.1)
Increase in cash surrender value of bank-owned life insurance		283		354		366	(20.1)	(22.7)
Debit card interchange income		1,050		959		930	9.5	12.9
Other income		1,092		2,083		1,160	(47.6)	(5.9)
Total noninterest income	$	8,264	$	7,973	$	7,481	3.6	10.5

As shown above, noninterest income experienced no noteworthy linked quarter improvements in the second quarter except for residential mortgage banking revenue. The Company experienced strong mortgage loan origination results in the quarter by operating effectively in a favorable market environment. On a year to date basis, 2015 closed mortgage loan volume is approximately double 2014 volume. First quarter other noninterest income includes a nonrecurring incentive payment of $917,000 from a service provider in a long term mutually productive relationship with Old Second and reflects the death benefit realized on a life insurance policy held by the Bank. Year over year noninterest income increased approximately 10.5% on residential mortgage revenue and improved debit card interchange income.

Noninterest Expense


										2nd Qtr 2015
	Three Months Ended									Percent Change From
(In thousands)	2nd Qtr			1st Qtr			2nd Qtr			1st Qtr	2nd Qtr
	2015			2015			2014			2015	2014
Salaries	$	7,292		$	7,157		$	7,128		1.9	2.3
Bonus		454			417			592		8.9	(23.3)
Benefits and other		1,403			1,681			1,463		(16.5)	(4.1)
Total salaries and employee benefits		9,149			9,255			9,183		(1.1)	(0.4)
Occupancy expense, net		1,094			1,271			1,185		(13.9)	(7.7)
Furniture and equipment expense		1,065			1,001			984		6.4	8.2
FDIC insurance		377			273			627		38.1	(39.9)
General bank insurance		310			357			343		(13.2)	(9.6)
Amortization of core deposit intangible asset		-			-			511		N/A	(100.0)
Advertising expense		353			205			459		72.2	(23.1)
Debit card interchange expense		400			352			412		13.6	(2.9)
Legal fees		420			223			409		88.3	2.7
Other real estate owned expense, net		2,388			1,352			1,650		76.6	44.7
Other expense		3,371			2,864			3,289		17.7	2.5
Total noninterest expense	$	18,927		$	17,153		$	19,052		10.3	(0.7)
Efficiency ratio (defined below)		70.44	%		68.77	%		79.95	%

The efficiency ratio shown in the table above is calculated as noninterest expense excluding core deposit intangible amortization and 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 with a tax equivalent adjustment on the increase in cash surrender value of bank-owned life insurance.

Noninterest expense increased on a linked quarter basis primarily on sharply higher OREO valuation expense. Expenses were flat or down in the second quarter 2015 compared to the same period in 2014 for most categories, excluding total OREO expense, net reflecting the 2015 valuation expense. Second quarter 2015 total

noninterest expense was essentially unchanged from second quarter 2014 with 2015 reflecting no expense from the now fully amortized core deposit intangible asset.

Earning Assets


							June 30, 2015
	Major Classification of Loans as of						Percent Change From
(In thousands)	June 30,		March 31,		June 30,		March 31,	June 30,
	2015		2015		2014		2015	2014
Commercial	$	123,372	$	114,241	$	106,752	8.0	15.6
Real estate - commercial		612,379		608,267		599,796	0.7	2.1
Real estate - construction		32,157		39,430		32,265	(18.4)	(0.3)
Real estate - residential		365,989		363,967		368,592	0.6	(0.7)
Consumer		3,854		3,495		3,064	10.3	25.8
Overdraft		408		368		381	10.9	7.1
Lease financing receivables		8,571		8,651		8,722	(0.9)	(1.7)
Other		11,391		11,945		12,700	(4.6)	(10.3)
		1,158,121		1,150,364		1,132,272	0.7	2.3
Net deferred loan costs		762		705		475	8.1	60.4
	$	1,158,883	$	1,151,069	$	1,132,747	0.7	2.3

Modest second quarter loan production combined with management decisions to sell loans and loan relationships resulted in a net increase of $7.8 million in total loans from March 31, 2015. Volume increases for the quarter are seen in most portfolio segments, most notably in Commercial. Management continued to emphasize loan quality and transactions in our core market area that the Company expects will develop as long-term relationship opportunities. Management believes that this approach builds relationships with core clients, reduces portfolio runoff and creates potential long term business development beneficial to both the Company and the client.

Commercial relationship managers continue to focus on building the loan pipeline with opportunities after a long period of runoff. Management believes that the competitive landscape within the Chicago market is challenging and that it may remain so for a prolonged period.

The investment portfolio ended the second quarter of 2015 at $653.3 million, a decrease from $656.6 million at March 31, 2015. There were no purchases or sales to the held-to-maturity portion of the portfolio during the second quarter. Maturities or calls in the quarter came to a total of $20.4 million, which included $20.0 million in tax anticipation warrants and a municipal bond. Only minor other changes were made in the composition of securities in the available-for-sale portfolio.

Net realized losses on sales were $12,000 during the second quarter of 2015, down from net realized losses of $109,000 in the first quarter of 2015.

Asset Quality

In Thousands


	As Of									Percent Change From
	June 30,			March 31,			June 30,			March 31,	June 30,
	2015			2015			2014			2015	2014
Nonaccrual loans	$	18,976		$	23,048		$	28,498		(17.7)	(33.4)
Nonperforming troubled debt restructured loans accruing interest		308			309			242		(0.3)	27.3
Loans past due 90 days or more and still accruing interest		-			-			179		-	(100.0)
Total nonperforming loans		19,284			23,357			28,919		(17.4)	(33.3)
Other real estate owned		31,964			35,461			39,232		(9.9)	(18.5)
Total nonperforming assets	$	51,248		$	58,818		$	68,151		(12.9)	(24.8)

30-89 days past due loans	$	5,296		$	6,321		$	3,493
Nonaccrual loans to total loans		1.6	%		2.0	%		2.5	%
Nonperforming loans to total loans		1.7	%		2.0	%		2.6	%
Nonperforming assets to total loans plus OREO		4.3	%		5.0	%		5.8	%

Allowance for loan losses	$	18,321		$	21,181		$	23,856
Allowance for loan losses to loans		1.6	%		1.8	%		2.1	%
Allowance for loan losses to nonaccrual loans		96.5	%		91.9	%		83.7	%

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 $19.3 million at June 30, 2015, compared to $23.4 million at March 31, 2015.

Classified loans include nonaccrual, performing troubled debt restructurings and all other loans considered substandard, which also decreased in the quarter as shown below. A substantial decrease in classified loans during second quarter came from a management decision to sell a loan relationship. This sale reduced nonaccrual loans by $6.9 million and substandard loans by $2.2 million for a total reduction in classified loans of $9.1 million. Management review of the loan portfolio concluded that a loan loss reserve release of $2.3 million was appropriate in the second quarter.


							June 30, 2015
	Classified loans as of						Percent Change From
(In thousands)	June 30,		March 31,		June 30,		March 31,	June 30,
	2015		2015		2014		2015	2014
Real estate-construction	$	3,952	$	3,973	$	4,330	(0.5)	(8.7)
Real estate-residential:
Investor		975		1,175		5,312	(17.0)	(81.6)
Owner occupied		7,051		7,529		5,841	(6.3)	20.7
Revolving and junior liens		3,292		3,234		3,097	1.8	6.3
Real estate-commercial, nonfarm		3,705		14,203		19,634	(73.9)	(81.1)
Real estate-commercial, farm		1,272		1,370		-	(7.2)	-
Commercial		698		4,936		312	(85.9)	123.7
Other		1		1		1	-	-
	$	20,946	$	36,421	$	38,527	(42.5)	(45.6)

Net Charge-off Summary


Loan Charge-offs, net of recoveries	Three Months Ended
(In thousands)	June 30,		% of	March 31,		% of	June 30,		% of
	2015		Total	2015		Total	2014		Total
Real estate-construction
Homebuilder	$	(47)	(8.4)	$	-	-	$	(130)	(21.0)
Land		(2)	(0.4)		(3)	(0.7)		-	-
Commercial speculative		-	-		-	-		(226)	(36.5)
All other		(11)	(2.0)		(1)	(0.2)		(6)	(1.0)
Total real estate-construction		(60)	(10.8)		(4)	(0.9)		(362)	(58.5)
Real estate-residential
Investor		(104)	(18.6)		(11)	(2.4)		(13)	(2.1)
Owner occupied		(25)	(4.5)		67	14.7		96	15.5
Revolving and junior liens		(115)	(20.5)		338	74.1		206	33.2
Total real estate-residential		(244)	(43.6)		394	86.4		289	46.6
Real estate-commercial, nonfarm
Owner general purpose		709	126.6		495	108.6		182	29.4
Owner special purpose		109	19.5		(4)	(0.9)		347	56.0
Non-owner general purpose		(915)	(163.4)		(326)	(71.5)		145	23.4
Non-owner special purpose		163	29.1		-	-		-	-
Retail properties		-	-		-	-		(1)	(0.2)
Total real estate-commercial, nonfarm		66	11.8		165	36.2		673	108.6
Real estate-commercial, farm		-	-		-	-		-	-
Commercial		775	138.4		(109)	(23.9)		(32)	(5.1)
Other		23	4.20		10	2.2		52	8.4
Total	$	560	100.0	$	456	100.0	$	620	100.0

Management attention to credit quality continued as reflected in the continued strong net charge-off experience illustrated above.

Deposits

Total deposits ended at $1.71 billion on June 30, 2015. That amount reflects a decrease from total deposits of $1.74 billion at March 31, 2015 but an increase from $1.69 billion at year end 2014. Time deposits or certificates of deposit continued to decline as seen in many previous periods. Savings / NOW / Money Market balances declined in the second quarter while demand balances were essentially unchanged.

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 June 30, 2015, the Bank had $20.0 million outstanding under FHLBC advances compared to $30.0 million outstanding in advances at March 31, 2015. Management borrowed overnight funds under the advance program virtually every day in second quarter.

The Company is also indebted on $58.4 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. In April, 2014, the Company concluded a successful capital raise and used some of the proceeds to pay interest accrued but previously unpaid on the trust preferred securities and, as of the date hereof, the Company continues to be current on the payments due on these securities.

Capital


	June 30,		March 31,
	2015		2015
The Company's common equity tier 1 capital ratio	9.78	%	9.46	%
(minimum 4.5% for adequately capitalized)
The Company's tier 1 capital ratio	14.15	%	13.68	%
(minimum 6.0% for adequately capitalized)
The Company's total capital ratio	17.04	%	17.30	%
(minimum 8.0% for adequately capitalized)
The Company's tier 1 leverage capital ratio	10.02	%	9.82	%
(minimum 4.0% for adequately capitalized)

All ratios presented are based on the regulatory capital rules of Basel III, which took effect on January 1, 2015. As of June 30, 2015, the Bank’s common equity tier 1 capital ratio of 17.42% and total capital ratio of 18.68% exceeded the minimum capital ratios to be deemed “well capitalized”.

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 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, July 23, 2015, 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 August 6, 2015, by dialing 877-660-6853, using Conference ID #: 13613523.

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share data)


	(Unaudited)
	June 30,		December 31,
	2015		2014
Assets
Cash and due from banks	$	29,164	$	30,101
Interest bearing deposits with financial institutions		9,352		14,096
Cash and cash equivalents		38,516		44,197
Securities available-for-sale, at fair value		399,836		385,486
Securities held-to-maturity, at amortized cost		253,419		259,670
Federal Home Loan Bank and Federal Reserve Bank stock		8,271		9,058
Loans held-for-sale		6,208		5,072
Loans		1,158,883		1,159,332
Less: allowance for loan losses		18,321		21,637
Net loans		1,140,562		1,137,695
Premises and equipment, net		41,696		42,335
Other real estate owned		31,964		31,982
Mortgage servicing rights, net		5,884		5,462
Bank-owned life insurance (BOLI)		57,444		56,807
Deferred tax assets, net		65,473		70,141
Other assets		15,780		13,882
Total assets	$	2,065,053	$	2,061,787

Liabilities
Deposits:
Noninterest bearing demand	$	432,773	$	400,447
Interest bearing:
Savings, NOW, and money market		877,587		865,103
Time		403,192		419,505
Total deposits		1,713,552		1,685,055
Securities sold under repurchase agreements		32,415		21,036
Other short-term borrowings		20,000		45,000
Junior subordinated debentures		58,378		58,378
Subordinated debt		45,000		45,000
Notes payable and other borrowings		500		500
Other liabilities		9,967		12,655
Total liabilities		1,879,812		1,867,624

Stockholders’ Equity
Preferred stock		31,553		47,331
Common stock		34,423		34,365
Additional paid-in capital		115,651		115,332
Retained earnings		106,791		100,697
Accumulated other comprehensive loss		(7,211)		(7,713)
Treasury stock		(95,966)		(95,849)
Total stockholders’ equity		185,241		194,163
Total liabilities and stockholders’ equity	$	2,065,053	$	2,061,787

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,
	2015		2014		2015		2014
Interest and dividend income
Loans, including fees	$	13,467	$	13,046	$	26,685	$	25,984
Loans held-for-sale		72		29		115		54
Securities:
Taxable		3,372		3,352		6,747		6,854
Tax exempt		163		118		304		266
Dividends from Federal Reserve Bank and Federal Home Loan Bank stock		77		78		154		154
Interest bearing deposits with financial institutions		19		20		31		35
Total interest and dividend income		17,170		16,643		34,036		33,347
Interest expense
Savings, NOW, and money market deposits		183		188		362		387
Time deposits		771		1,210		1,578		2,531
Other short-term borrowings		7		3		16		5
Junior subordinated debentures		1,071		1,388		2,143		2,775
Subordinated debt		202		198		399		394
Notes payable and other borrowings		-		4		4		8
Total interest expense		2,234		2,991		4,502		6,100
Net interest and dividend income		14,936		13,652		29,534		27,247
Loan loss reserve release		(2,300)		(1,000)		(2,300)		(2,000)
Net interest and dividend income after provision for loan losses		17,236		14,652		31,834		29,247
Noninterest income
Trust income		1,596		1,677		3,082		3,136
Service charges on deposits		1,779		1,796		3,320		3,516
Secondary mortgage fees		281		155		525		267
Mortgage servicing gain, net of changes in fair value		500		64		292		17
Net gain on sales of mortgage loans		1,695		1,038		3,318		1,700
Securities (loss) gain, net		(12)		295		(121)		226
Increase in cash surrender value of bank-owned life insurance		283		366		637		724
Debit card interchange income		1,050		930		2,009		1,760
Other income		1,092		1,160		3,175		2,456
Total noninterest income		8,264		7,481		16,237		13,802
Noninterest expense
Salaries and employee benefits		9,149		9,183		18,404		18,284
Occupancy expense, net		1,094		1,185		2,365		2,666
Furniture and equipment expense		1,065		984		2,066		1,967
FDIC insurance		377		627		650		906
General bank insurance		310		343		667		832
Amortization of core deposit		-		511		-		1,023
Advertising expense		353		459		558		762
Debit card interchange expense		400		412		752		790
Legal fees		420		409		643		666
Other real estate expense, net		2,388		1,650		3,740		2,658
Other expense		3,371		3,289		6,235		6,014
Total noninterest expense		18,927		19,052		36,080		36,568
Income before income taxes		6,573		3,081		11,991		6,481
Provision for income taxes		2,444		1,060		4,363		2,258
Net income	$	4,129	$	2,021	$	7,628	$	4,223
Preferred stock dividends and accretion of discount		710		1,348		1,534		2,920
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	$	3,419	$	7,454	$	6,094	$	8,084

Basic earnings per share	$	0.12	$	0.26	$	0.21	$	0.38
Diluted earnings per share		0.12		0.26		0.21		0.38

Old Second Bancorp, Inc. and Subsidiaries

Quarterly Consolidated Average Balance

(In thousands, except share data, unaudited)



		2014								2015
Assets	1st Qtr		2nd Qtr		3rd Qtr		4th Qtr		1st Qtr		2nd Qtr
Cash and due from banks	$	29,901	$	36,827	$	32,459	$	31,314	$	31,744	$	29,153
Interest bearing deposits with financial institutions		23,775		30,333		38,603		19,643		18,022		29,880
Cash and cash equivalents		53,676		67,160		71,062		50,957		49,766		59,033

Securities available-for-sale, at fair value		371,229		388,309		348,791		368,944		380,180		409,600
Securities held-to-maturity, at amortized cost		263,765		264,070		263,832		261,775		258,637		255,293
Federal Home Loan Bank and Federal Reserve Bank stock		10,292		10,292		9,085		9,058		9,058		8,409
Loans held-for-sale		2,344		2,829		3,758		4,065		4,782		7,880
Loans		1,104,065		1,118,089		1,133,379		1,141,297		1,156,662		1,144,605
Less : allowance for loan losses		27,102		25,146		24,492		23,231		21,605		20,546
Net loans		1,076,963		1,092,943		1,108,887		1,118,066		1,135,057		1,124,059

Premises and equipment, net		45,972		45,575		45,116		42,516		42,306		41,937
Other real estate owned		39,971		39,094		38,757		39,566		32,392		34,637
Mortgage servicing rights, net		5,569		5,527		5,522		5,468		5,202		5,416
Core deposit intangible, net		916		399		23		-		-		-
Bank-owned life insurance (BOLI)		55,551		55,894		56,262		56,566		56,927		57,283
Deferred tax assets, net		75,387		74,082		71,937		71,628		69,936		67,657
Other assets		12,990		12,798		12,615		11,985		11,781		12,309
Total other assets		236,356		233,369		230,232		227,729		218,544		219,239
Total assets	$	2,014,625	$	2,058,972	$	2,035,647	$	2,040,594	$	2,056,024	$	2,083,513

Liabilities
Deposits:
Noninterest bearing demand	$	373,711	$	389,926	$	389,246	$	400,001	$	405,933	$	435,093
Interest bearing:
Savings, NOW, and money market		852,709		861,735		860,342		857,666		881,714		885,809
Time		468,138		457,818		437,597		421,584		418,615		410,066
Total deposits		1,694,558		1,709,479		1,687,185		1,679,251		1,706,262		1,730,968

Securities sold under repurchase agreements		24,539		25,224		27,266		27,298		23,437		31,234
Other short-term borrowings		4,111		8,681		12,174		24,946		25,722		22,638
Junior subordinated debentures		58,378		58,378		58,378		58,378		58,378		58,378
Subordinated debt		45,000		45,000		45,000		45,000		45,000		45,000
Notes payable and other borrowings		500		500		500		500		500		500
Other liabilities		38,966		19,210		11,416		12,177		11,734		10,962
Total liabilities		1,866,052		1,866,472		1,841,919		1,847,550		1,871,033		1,899,680

Stockholders' equity
Preferred stock		72,991		54,947		47,331		47,331		36,637		31,553
Common stock		18,840		33,104		34,365		34,365		34,414		34,419
Additional paid-in capital		66,241		111,279		115,220		115,263		115,413		115,553
Retained earnings		93,508		96,002		98,256		99,553		102,050		105,208
Accumulated other comprehensive loss		(7,177)		(6,982)		(5,594)		(7,618)		(7,558)		(6,935)
Treasury stock		(95,830)		(95,850)		(95,850)		(95,850)		(95,965)		(95,965)
Total stockholders' equity		148,573		192,500		193,728		193,044		184,991		183,833
Total liabilities and stockholder's equity	$	2,014,625	$	2,058,972	$	2,035,647	$	2,040,594	$	2,056,024	$	2,083,513

Total Earning Assets	$	1,775,470	$	1,813,922	$	1,797,448	$	1,804,782	$	1,827,341	$	1,855,667
Total Interest Bearing Liabilities		1,453,375		1,457,336		1,441,257		1,435,372		1,453,366		1,453,625

Old Second Bancorp, Inc. and Subsidiaries

Quarterly Consolidated Statements of Operations

(In thousands, except share data, unaudited)



	2014								2015
	1st Qtr		2nd Qtr		3rd Qtr		4th Qtr		1st Qtr		2nd Qtr
Interest and Dividend Income
Loans, including fees	$	12,938	$	13,046	$	13,362	$	13,580	$	13,218	$	13,467
Loans held-for-sale		25		29		38		41		43		72
Securities:
Taxable		3,502		3,352		3,586		3,691		3,375		3,372
Tax exempt		148		118		110		96		141		163
Dividends from Federal Reserve Bank and Federal Home Loan Bank stock		76		78		78		77		77		77
Interest bearing deposits with financial institutions		15		20		25		13		12		19
Total interest and dividend income		16,704		16,643		17,199		17,498		16,866		17,170
Interest Expense
Savings, NOW, and money market deposits		199		188		175		176		179		183
Time deposits		1,321		1,210		1,073		896		807		771
Other short-term borrowings		2		3		5		9		9		7
Junior subordinated debentures		1,387		1,388		1,072		1,072		1,072		1,071
Subordinated debt		196		198		199		199		197		202
Notes payable and other borrowings		4		4		4		4		4		-
Total interest expense		3,109		2,991		2,528		2,356		2,268		2,234
Net interest and dividend income		13,595		13,652		14,671		15,142		14,598		14,936
Loan loss reserve release		(1,000)		(1,000)		-		(1,300)		-		(2,300)
Net interest and dividend income after provision for loan losses		14,595		14,652		14,671		16,442		14,598		17,236
Noninterest Income
Trust income		1,459		1,677		1,483		1,579		1,486		1,596
Service charges on deposits		1,720		1,796		1,838		1,725		1,541		1,779
Secondary mortgage fees		112		155		174		180		244		281
Mortgage servicing (loss) gain, net of changes in fair value		(47)		64		252		(60)		(208)		500
Net gain on sales of mortgage loans		662		1,038		914		980		1,623		1,695
Securities (losses) gains, net		(69)		295		1,231		262		(109)		(12)
Increase in cash surrender value of bank-owned life insurance		358		366		304		369		354		283
Debit card interchange income		830		930		1,011		1,035		959		1,050
Other income		1,296		1,160		1,116		1,021		2,083		1,092
Total noninterest income		6,321		7,481		8,323		7,091		7,973		8,264
Noninterest Expense
Salaries and employee benefits		9,101		9,183		8,856		9,027		9,255		9,149
Occupancy expense, net		1,481		1,185		1,143		1,154		1,271		1,094
Furniture and equipment expense		983		984		989		1,016		1,001		1,065
FDIC insurance		279		627		649		615		273		377
General bank insurance		489		343		371		358		357		310
Amortization of core deposit		512		511		154		-		-		-
Advertising expense		303		459		291		225		205		353
Debit card interchange expense		378		412		418		423		352		400
Legal fees		257		409		332		335		223		420
Other real estate expense, net		1,008		1,650		2,007		2,252		1,352		2,388
Other expense		2,725		3,289		3,134		3,362		2,864		3,371
Total noninterest expense		17,516		19,052		18,344		18,767		17,153		18,927
Income before income taxes		3,400		3,081		4,650		4,766		5,418		6,573
Provision for income taxes		1,198		1,060		1,726		1,777		1,919		2,444
Net income		2,202		2,021		2,924		2,989		3,499		4,129
Preferred stock dividends and accretion of discount		1,572		1,348		1,065		1,077		824		710
Dividends waived upon preferred stock redemption		-		(5,433)		-		-		-		-
Gain on preferred stock redemption		-		(1,348)		-		-		-		-
Net income available to common stockholders	$	630	$	7,454	$	1,859	$	1,912	$	2,675	$	3,419

Basic earnings per share	$	0.04	$	0.26	$	0.06	$	0.06	$	0.09	$	0.12
Diluted earnings per share		0.04		0.26		0.06		0.06		0.09		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
	June 30,			March 31,			June 30,
	2015			2015			2014
Net Interest Margin
Interest income (GAAP)	$	17,170		$	16,866		$	16,643
Taxable-equivalent adjustment:
Loans		27			28			29
Securities		88			76			64
Interest income - TE		17,285			16,970			16,736
Interest expense (GAAP)		2,234			2,268			2,991
Net interest income -TE	$	15,051		$	14,702		$	13,745
Net interest income (GAAP)	$	14,936		$	14,598		$	13,652
Average interest earning assets	$	1,855,667		$	1,827,341		$	1,813,922
Net interest margin (GAAP)		3.23	%		3.24	%		3.02	%
Net interest margin - TE		3.25	%		3.26	%		3.04	%


		Three Months Ended
	June 30,			March 31,			June 30,
	2015			2015			2014
Efficiency Ratio
Noninterest expense	$	18,927		$	17,153		$	19,052
Less amortization of core deposit, net		-			-			511
Less other real estate expense, net		2,388			1,352			1,650
Adjusted noninterest expense		16,539			15,801			16,891
Net interest income (GAAP)		14,936			14,598			13,652
Taxable-equivalent adjustment:
Loans		27			28			29
Securities		88			76			64
Net interest income (TE)		15,051			14,702			13,745
Noninterest income		8,264			7,973			7,481
Taxable-equivalent adjustment:
Increase in cash surrender value of BOLI - (TE)		152			191			197
Noninterest income - (TE)		8,416			8,164			7,678
Less securities (losses) gain, net		(12)			(109)			295
Adjusted noninterest income, plus net interest income (TE)	$	23,479		$	22,975		$	21,128
Efficiency ratio		70.44	%		68.77	%		79.95	%

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OLD SECOND BANCORP INC Reports