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

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8-K - 8-K - OLD SECOND BANCORP INC	osbc-20141022x8k.htm



(NASDAQ:OSBC)		Exhibit 99.1

Contact:	J. Douglas Cheatham	For Immediate Release
	Chief Financial Officer	January 20, 2016
	(630) 906-5484

Old Second Reports Fourth Quarter 2015 Net Income of $3.8 million

AURORA, IL, January 20, 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 fourth quarter of 2015 and the year ended December 31, 2015. The Company reported net income of $3.8 million for the fourth quarter of 2015, compared to net income of $3.0 million in the fourth quarter of 2014 and $3.9 million in the third quarter of 2015. The Company’s net income available to common stockholders of $3.8 million, or $0.13 per diluted share for the fourth quarter of 2015, compared to $1.9 million, or $0.06 per diluted share, in the fourth quarter of 2014. 2014 per share information reflects dividends on the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series B (the “Series B Stock”). In 2015 the Company completed redemption of all remaining Series B Stock. The full year 2015 net income available to common stockholders of $13.5 million or $0.46 per diluted share compared to $11.9 million or $0.46 per diluted share in 2014.

Operating Results

Fourth quarter 2015 net income before taxes increased by $1.3 million, or 27.2%, from the fourth quarter of 2014 but decreased approximately 4.0% from the third quarter of 2015. When compared to the fourth quarter of 2014, the quarter reflects slightly reduced net interest income, improved residential mortgage banking income, meaningfully lower compensation costs and other real estate owned (“OREO”) valuation expense, and no loan loss reserve release. The net income before tax decrease from the third quarter of 2015 reflects improved residential mortgage banking operating revenue and reduced OREO valuation expense, with these improvements offset by no loan loss reserve release recorded in the fourth quarter. Third quarter 2015 noninterest income does include a $1.1 million writedown on the now closed branch in Batavia, Illinois. Fourth quarter 2015 net income available to common stockholders of $3.8 million compares to $3.6 million for the third quarter of 2015 where the third quarter reflects $339,000 of dividends paid in the quarter on the now fully redeemed Series B stock.

Noninterest expense of $16.1 million for the fourth quarter of 2015 was 14.2% lower than the results in the fourth quarter of 2014. OREO expense, net for the fourth quarter of 2015 declined 79.0% from the fourth quarter of 2014.

Capital Ratios


	December 31,		September 30,		June 30,		March 31,
	2015		2015		2015		2015
The Bank's common equity tier 1 capital ratio	14.10	%	15.94	%	17.49	%	16.88	%
The Company's common equity tier 1 capital ratio	10.55	%	10.26	%	9.82	%	9.44	%
The Bank's total capital ratio	15.23	%	17.10	%	18.75	%	18.14	%
The Company's total capital ratio	15.56	%	15.36	%	17.10	%	17.28	%
The Company's tier 1 leverage capital ratio	8.69	%	8.46	%	10.02	%	9.82	%

The Bank ratios shown above exceed levels required to be considered “well capitalized”. Ratios for December 31, 2015 are estimated. Bank ratios for December 31, 2015 reflect a $30 million dividend paid to the Company in December, 2015.

Asset Quality & Earning Assets

Nonperforming loans declined to $14.6 million at December 31, 2015, from $18.5 million at September 30, 2015, as nonaccrual loans were reduced.

OREO assets decreased in the fourth quarter to end at $19.1 million on December 31, 2015, compared to $24.5 million at September 30, 2015. Valuation writedowns continued in the fourth quarter at a markedly lower level with a quarterly expense of $251,000 compared to $1.1 million in third quarter.

Loans decreased from year end 2014 and are essentially unchanged compared to September 30, 2015. Fourth quarter 2015 average loans (including loans held-for-sale) decreased by $4.1 million from the third quarter of 2015 and by $5.1 million compared to the fourth quarter of 2014.

Securities held-to-maturity at amortized cost total $247.7 million at December 31, 2015. This total compares to $250.0 million at September 30, 2015, and $259.7 million at December 31, 2014. December 31, 2015, available-for-sale securities at fair value totaled $456.1 million, which is an increase from $408.8 million at September 30, 2015, and $385.5 million at December 31, 2014.

Management review of the loan portfolio concluded that neither a loan loss reserve release nor a loan loss provision was appropriate in the fourth quarter.

Net Interest Income1

ANALYSIS OF AVERAGE BALANCES,

TAX EQUIVALENT INTEREST AND RATES

(In thousands - unaudited)


	Quarters Ended
	December 31, 2015						September 30, 2015						December 31, 2014
	Average					Rate	Average					Rate	Average					Rate
	Balance			Interest		%	Balance			Interest		%	Balance			Interest		%
Assets
Interest bearing deposits with financial institutions	$	13,859		$	12	0.34	$	18,563		$	12	0.25	$	19,643		$	13	0.26
Securities:
Taxable		674,690			3,819	2.26		642,413			3,471	2.16		619,307			3,691	2.38
Non-taxable (TE)		17,090			179	4.19		19,318			187	3.87		11,412			148	5.19
Total securities		691,780			3,998	2.31		661,731			3,658	2.21		630,719			3,839	2.43
Dividends from Reserve Bank and FHLBC stock		8,451			76	3.60		8,271			76	3.68		9,058			77	3.40
Loans and loans held-for-sale1		1,140,308			13,057	4.48		1,144,413			13,415	4.59		1,145,362			13,649	4.66
Total interest earning assets		1,854,398			17,143	3.64		1,832,978			17,161	3.68		1,804,782			17,578	3.83
Cash and due from banks		28,781			-	-		28,999			-	-		31,314			-	-
Allowance for loan losses		(16,598)			-	-		(18,607)			-	-		(23,231)			-	-
Other noninterest bearing assets		202,855			-	-		211,646			-	-		227,729			-	-
Total assets	$	2,069,436					$	2,055,016					$	2,040,594

Liabilities and Stockholders' Equity
NOW accounts	$	360,786		$	79	0.09	$	347,754		$	76	0.09	$	321,662		$	69	0.09
Money market accounts		284,209			70	0.10		291,663			71	0.10		298,134			70	0.09
Savings accounts		248,952			38	0.06		250,031			38	0.06		237,870			37	0.06
Time deposits		409,353			824	0.80		404,896			799	0.78		421,584			896	0.84
Interest bearing deposits		1,303,300			1,011	0.31		1,294,344			984	0.30		1,279,250			1,072	0.33
Securities sold under repurchase agreements		26,569			1	0.01		31,466			1	0.01		27,298			1	0.01
Other short-term borrowings		24,837			10	0.16		14,674			5	0.13		24,946			8	0.13
Junior subordinated debentures		58,378			1,072	7.35		58,378			1,072	7.35		58,378			1,072	7.35
Subordinated debt		45,000			210	1.83		45,000			205	1.78		45,000			199	1.73
Notes payable and other borrowings		500			2	1.57		500			1	0.78		500			4	3.13
Total interest bearing liabilities		1,458,584			2,306	0.63		1,444,362			2,268	0.62		1,435,372			2,356	0.65
Noninterest bearing deposits		445,083			-	-		431,052			-	-		400,001			-	-
Other liabilities		10,488			-	-		9,782			-	-		12,177			-	-
Stockholders' equity		155,281			-	-		169,820			-	-		193,044			-	-
Total liabilities and stockholders' equity	$	2,069,436					$	2,055,016					$	2,040,594
Net interest income (TE)				$	14,837					$	14,893					$	15,222
Net interest income (TE)
to total earning assets						3.17						3.22						3.35
Interest bearing liabilities to earning assets		78.66	%					78.80	%					79.53	%

1 Interest income from loans is shown on a tax equivalent basis as discussed in the table on page 12 and includes fees of $430,000, $459,000 and $572,000 for the fourth quarter of 2015, the third quarter of 2015 and the fourth 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 decreased $54,000. Quarterly average earning assets increased $21.4 million from the third quarter of 2015 for a total of $1.85 billion, while yield on earning assets declined slightly. Year over year fourth quarter average loans, including loans held-for-sale, decreased.

Noninterest Income


							4th Qtr 2015
	Three Months Ended						Percent Change From
(in thousands)	4th Qtr		3rd Qtr		4th Qtr		3rd Qtr	4th Qtr
	2015		2015		2014		2015	2014
Trust income	$	1,427	$	1,444	$	1,579	(1.2)	(9.6)
Service charges on deposits		1,734		1,766		1,725	(1.8)	0.5
Residential mortgage banking revenue		1,759		1,275		1,100	38.0	59.9
Securities (loss) gains, net		-		(57)		262	100.0	(100.0)
Increase in cash surrender value of bank-owned life insurance		381		203		369	87.7	3.3
Debit card interchange income		1,015		1,004		1,035	1.1	(1.9)
Loss on disposal and transfer of fixed assets		24		(1,143)		-	N/A	N/A
Other income		1,069		1,156		1,021	(7.5)	4.7
Total noninterest income	$	7,409	$	5,648	$	7,091	31.2	4.5

Among operating noninterest income categories, residential mortgage banking income shows a solid linked quarter and year over year improvement. The Company continued to experience good mortgage loan origination results in the quarter by operating effectively in a favorable market environment. Also, valuation adjustments improved compared to third quarter results. Cash surrender value of bank-owned life insurance returned to historical levels after third quarter market declines in investment value. Total noninterest income for the third quarter of 2015 is impacted by the impairment charge related to the closing of a Bank branch in Batavia, Illinois. Year over year quarterly total noninterest income is modestly improved with stronger residential mortgage banking income being largely offset by lower trust income and deposit service charges.

Noninterest Expense


										4th Qtr 2015
	Three Months Ended									Percent Change From
(in thousands)	4th Qtr			3rd Qtr			4th Qtr			3rd Qtr	4th Qtr
	2015			2015			2014			2015	2014
Salaries	$	6,881		$	6,843		$	7,299		0.6	(5.7)
Bonus		211			238			180		(11.3)	17.2
Benefits and other		1,305			1,179			1,548		10.7	(15.7)
Total salaries and employee benefits		8,397			8,260			9,027		1.7	(7.0)
Occupancy expense, net		1,228			1,156			1,154		6.2	6.4
Furniture and equipment expense		1,254			1,110			1,016		13.0	23.4
FDIC insurance		311			373			615		(16.6)	(49.4)
General bank insurance		298			308			358		(3.2)	(16.8)
Advertising expense		348			434			225		(19.8)	54.7
Debit card interchange expense		383			379			423		1.1	(9.5)
Legal fees		253			279			335		(9.3)	(24.5)
Other real estate owned expense, net		474			977			2,252		(51.5)	(79.0)
Other expense		3,151			2,968			3,362		6.2	(6.3)
Total noninterest expense	$	16,097		$	16,244		$	18,767		(0.9)	(14.2)
Efficiency ratio (defined below)		69.59	%		73.73	%		74.22	%

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 decreased on a linked quarter basis reflecting sharply lower OREO valuation expense included in OREO expense, net above. Major expense categories were flat or down in the fourth quarter 2015 compared to the same period in 2014 most notably in salaries, bonus, benefits and FDIC insurance expense. Fourth quarter 2015 total noninterest expense was 14.2% lower than the 2014 fourth quarter.

Earning Assets


							December 31, 2015
	Major Classification of Loans as of						Percent Change From
(in thousands)	December 31,		September 30,		December 31,		September 30,	December 31,
	2015		2015		2014		2015	2014
Commercial	$	130,362	$	120,036	$	119,158	8.6	9.4
Real estate - commercial		605,721		609,937		600,629	(0.7)	0.8
Real estate - construction		19,806		23,461		44,795	(15.6)	(55.8)
Real estate - residential		351,007		354,106		370,191	(0.9)	(5.2)
Consumer		4,216		4,005		3,504	5.3	20.3
Overdraft		483		423		649	14.2	(25.6)
Lease financing receivables		10,953		9,697		8,038	13.0	36.3
Other		10,130		10,345		11,630	(2.1)	(12.9)
		1,132,678		1,132,010		1,158,594	0.1	(2.2)
Net deferred loan costs		1,037		902		738	15.0	40.5
	$	1,133,715	$	1,132,912	$	1,159,332	0.1	(2.2)

Fourth quarter loan production continued at the reduced pace previously seen in 2015 leading to essentially unchanged total loans at December 31, 2015 when compared to total loans at September 30, 2015. A volume increase in Commercial for the quarter is offset by decreases in other categories, most notably in real estate. Total loans are down $25.6 million from year end 2014. Management continued to encounter limited loan demand in our core market areas while emphasizing loan quality and transactions that the Company expects will develop as long-term relationships.

The investment portfolio ended the fourth quarter of 2015 at $703.8 million, an increase from $658.9 million at September 30, 2015 and up from $645.2 million at year end 2014. Available-for-sale purchases during the fourth quarter included additional student loan asset backed securities as well as municipals and a tax anticipation warrant issued by local school districts. During the fourth quarter there were sales that resulted in an immaterial realized loss for the quarter.

Asset Quality

In Thousands


	As Of									Percent Change From
	December 31,			September 30,			December 31,			September 30,	December 31,
	2015			2015			2014			2015	2014
Nonaccrual loans	$	14,389		$	18,224		$	26,926		(21.0)	(46.6)
Nonperforming troubled debt restructured loans accruing interest		165			307			154		(46.3)	7.1
Loans past due 90 days or more and still accruing interest		65			-			-		-	-
Total nonperforming loans		14,619			18,531			27,080		(21.1)	(46.0)
Other real estate owned		19,141			24,451			31,982		(21.7)	(40.2)
Total nonperforming assets	$	33,760		$	42,982		$	59,062		(21.5)	(42.8)

30-89 days past due loans	$	3,652		$	3,358		$	2,965
Nonaccrual loans to total loans		1.3	%		1.6	%		2.3	%
Nonperforming loans to total loans		1.3	%		1.6	%		2.3	%
Nonperforming assets to total loans plus OREO		2.9	%		3.7	%		5.0	%

Allowance for loan losses	$	16,223		$	16,613		$	21,637
Allowance for loan losses to loans		1.4	%		1.5	%		1.9	%
Allowance for loan losses to nonaccrual loans		112.7	%		91.2	%		80.4	%

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 $14.6 million at December 31, 2015 compared to $18.5 million at September 30, 2015, and $27.1 million at December 31, 2014.

Classified loans include nonaccrual, performing troubled debt restructurings and all other loans considered substandard, as shown below. While decreased by 38.4% from year end 2014, classified loans show a 2.4% increase

from September 30, 2015. Management review of the loan portfolio concluded neither a loan loss provision nor a reserve release was appropriate in the fourth quarter.


							December 31, 2015
	Classified loans as of						Percent Change From
(in thousands)	December 31,		September 30,		December 31,		September 30,	December 31,
	2015		2015		2014		2015	2014
Real estate-construction	$	83	$	3,803	$	4,045	(97.8)	(97.9)
Real estate-residential:
Investor		1,136		806		2,263	40.9	(49.8)
Owner occupied		7,079		7,179		7,343	(1.4)	(3.6)
Revolving and junior liens		3,055		3,599		3,713	(15.1)	(17.7)
Real estate-commercial, nonfarm		10,568		7,354		19,170	43.7	(44.9)
Real estate-commercial, farm		1,272		1,272		-	-	-
Commercial		2,029		616		4,403	229.4	(53.9)
Other		1		1		1	-	-
	$	25,223	$	24,630	$	40,938	2.4	(38.4)

Net Charge-off Summary


Loan Charge-offs, net of recoveries	Three Months Ended
(in thousands)	December 31,		% of	September 30,		% of	December 31,		% of
	2015		Total	2015		Total	2014		Total
Real estate-construction
Homebuilder	$	(3)	(0.8)	$	(9)	2.3	$	(109)	(27.7)
Land		(2)	(0.5)		(4)	1.0		(14)	(3.6)
Commercial speculative		(1)	(0.3)		(190)	48.5		-	-
All other		-	-		(1)	0.3		(3)	(0.8)
Total real estate-construction		(6)	(1.6)		(204)	52.1		(126)	(32.1)
Real estate-residential
Investor		97	24.9		(10)	2.6		(23)	(5.9)
Owner occupied		(91)	(23.3)		163	(41.6)		(9)	(2.3)
Revolving and junior liens		258	66.2		(3)	0.8		416	105.9
Total real estate-residential		264	67.8		150	(38.2)		384	97.7
Real estate-commercial, nonfarm
Owner general purpose		(2)	(0.5)		20	(5.1)		14	3.6
Owner special purpose		(4)	(1.0)		(126)	32.1		111	28.2
Non-owner general purpose		87	22.3		(9)	2.3		(34)	(8.6)
Non-owner special purpose		-	-		(139)	35.5		10	2.5
Retail properties		-	-		-	-		(3)	(0.8)
Total real estate-commercial, nonfarm		81	20.8		(254)	64.8		98	24.9
Real estate-commercial, farm		-	-		-	-		-	-
Commercial		(12)	(3.1)		(112)	28.5		57	14.5
Other		63	16.1		28	(7.2)		(20)	(5.0)
Net (recovery)/charge-off	$	390	100.0	$	(392)	100.0	$	393	100.0

Net charge-offs for the quarter are essentially unchanged from the fourth quarter of 2014.

Deposits

Total deposits were $1.76 billion at December 31, 2015. That amount reflects an increase from total deposits of $1.72 billion at September 30, 2015 and compares to $1.69 billion at year end 2014. Demand /Savings / NOW / Money Market balances experienced good increases in volume during in the fourth quarter while time deposits or certificates of deposit reflect a modest decrease for the 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 December 31, 2015, the Bank had $15.0 million outstanding

under FHLBC advances compared to $35.0 million and $45.0 million outstanding in advances at September 30, 2015, and December 31, 2014, respectively. Management borrowed overnight funds under the advance program virtually every day in fourth 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. As of the date hereof, the Company continues to be current on the payments due on these securities.

Capital


	December 31,		September 30,		June 30,		March 31,
	2015		2015		2015		2015
The Company's common equity tier 1 capital ratio	10.55	%	10.26	%	9.82	%	9.44	%
(minimum 4.5% for adequately capitalized)
The Company's tier 1 capital ratio	12.30	%	11.96	%	14.21	%	13.65	%
(minimum 6.0% for adequately capitalized)
The Company's total capital ratio	15.56	%	15.36	%	17.10	%	17.28	%
(minimum 8.0% for adequately capitalized)
The Company's tier 1 leverage capital ratio	8.69	%	8.46	%	10.02	%	9.82	%
(minimum 4.0% for adequately capitalized)

As of December 31, 2015, the Bank’s common equity tier 1 capital ratio of 14.10% and total capital ratio of 15.23% exceeded the minimum capital ratios to be deemed “well capitalized”. All December 31, 2015 ratios are estimated. Bank ratios for December 31, 2015 reflect a $30 million dividend paid by the Bank to the Company in December, 2015.

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, January 21, 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 February 4, 2016, by dialing 877-660-6853, using Conference ID #: 13627760.

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share data)


	(Unaudited)
	December 31,		December 31,
	2015		2014
Assets
Cash and due from banks	$	26,975	$	30,101
Interest bearing deposits with financial institutions		13,363		14,096
Cash and cash equivalents		40,338		44,197
Securities available-for-sale, at fair value		456,066		385,486
Securities held-to-maturity, at amortized cost		247,746		259,670
Federal Home Loan Bank and Federal Reserve Bank stock		8,518		9,058
Loans held-for-sale		2,849		5,072
Loans		1,133,715		1,159,332
Less: allowance for loan losses		16,223		21,637
Net loans		1,117,492		1,137,695
Premises and equipment, net		39,612		42,335
Other real estate owned		19,141		31,982
Mortgage servicing rights, net		5,847		5,462
Bank-owned life insurance (BOLI)		58,028		56,807
Deferred tax assets, net		64,552		70,141
Other assets		17,674		13,882
Total assets	$	2,077,863	$	2,061,787

Liabilities
Deposits:
Noninterest bearing demand	$	442,639	$	400,447
Interest bearing:
Savings, NOW, and money market		908,598		865,103
Time		407,849		419,505
Total deposits		1,759,086		1,685,055
Securities sold under repurchase agreements		34,070		21,036
Other short-term borrowings		15,000		45,000
Junior subordinated debentures		58,378		58,378
Subordinated debt		45,000		45,000
Notes payable and other borrowings		500		500
Other liabilities		9,900		12,655
Total liabilities		1,921,934		1,867,624

Stockholders’ Equity
Preferred stock		-		47,331
Common stock		34,427		34,365
Additional paid-in capital		115,918		115,332
Retained earnings		114,209		100,697
Accumulated other comprehensive loss		(12,659)		(7,713)
Treasury stock		(95,966)		(95,849)
Total stockholders’ equity		155,929		194,163
Total liabilities and stockholders’ equity	$	2,077,863	$	2,061,787

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

(In thousands, except share data)


	(unaudited)				(unaudited)
	Three Months Ended				Year Ended
	December 31,				December 31,
	2015		2014		2015		2014
Interest and dividend income
Loans, including fees	$	12,997	$	13,580	$	53,035	$	52,926
Loans held-for-sale		36		41		189		133
Securities:
Taxable		3,819		3,691		14,037		14,131
Tax exempt		116		96		542		472
Dividends from Federal Reserve Bank and Federal Home Loan Bank stock		76		77		306		309
Interest bearing deposits with financial institutions		12		13		55		73
Total interest and dividend income		17,056		17,498		68,164		68,044
Interest expense
Savings, NOW, and money market deposits		187		176		734		738
Time deposits		824		896		3,201		4,500
Other short-term borrowings		11		9		33		19
Junior subordinated debentures		1,072		1,072		4,287		4,919
Subordinated debt		210		199		814		792
Notes payable and other borrowings		2		4		7		16
Total interest expense		2,306		2,356		9,076		10,984
Net interest and dividend income		14,750		15,142		59,088		57,060
Loan loss reserve release		-		(1,300)		(4,400)		(3,300)
Net interest and dividend income after provision for loan losses		14,750		16,442		63,488		60,360
Noninterest income
Trust income		1,427		1,579		5,953		6,198
Service charges on deposits		1,734		1,725		6,820		7,079
Secondary mortgage fees		192		180		907		621
Mortgage servicing (loss) gain, net of changes in fair value		469		(60)		487		209
Net gain on sales of mortgage loans		1,098		980		5,775		3,594
Securities (loss) gain, net		-		262		(178)		1,719
Increase in cash surrender value of bank-owned life insurance		381		369		1,221		1,397
Death benefit realized on bank-owned life insurance		-		-		-		-
Debit card interchange income		1,015		1,035		4,028		3,806
Loss on disposal and transfer of fixed assets		24		-		(1,119)		(121)
Other income		1,069		1,021		5,400		4,714
Total noninterest income		7,409		7,091		29,294		29,216
Noninterest expense
Salaries and employee benefits		8,397		9,027		35,061		36,167
Occupancy expense, net		1,228		1,154		4,749		4,963
Furniture and equipment expense		1,254		1,016		4,430		3,972
FDIC insurance		311		615		1,334		2,170
General bank insurance		298		358		1,273		1,561
Amortization of core deposit		-		-		-		1,177
Advertising expense		348		225		1,340		1,278
Debit card interchange expense		383		423		1,514		1,631
Legal fees		253		335		1,175		1,333
Other real estate expense, net		474		2,252		5,191		6,917
Other expense		3,151		3,362		12,354		12,510
Total noninterest expense		16,097		18,767		68,421		73,679
Income before income taxes		6,062		4,766		24,361		15,897
Provision for income taxes		2,229		1,777		8,976		5,761
Net income	$	3,833	$	2,989	$	15,385	$	10,136
Preferred stock dividends and accretion of discount		-		1,077		1,873		5,062
Dividends waived upon preferred stock redemption		-		-		-		(5,433)
Gain on preferred stock redemption		-		-		-		(1,348)
Net income available to common stockholders	$	3,833	$	1,912	$	13,512	$	11,855

Basic earnings per share	$	0.13	$	0.06	$	0.46	$	0.46
Diluted earnings per share		0.13		0.06		0.46		0.46


Ending common shares outstanding	29,483,429	29,442,508	29,483,429	29,442,508
Weighted-average common shares outstanding	29,482,722	29,442,508	29,476,821	25,300,909
Diluted average common shares outstanding	29,748,028	29,767,508	29,730,074	25,549,193

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		3rd Qtr		4th Qtr
Cash and due from banks	$	29,901	$	36,827	$	32,459	$	31,314	$	31,744	$	29,153	$	28,999	$	28,781
Interest bearing deposits with financial institutions		23,775		30,333		38,603		19,643		18,022		29,880		18,563		13,859
Cash and cash equivalents		53,676		67,160		71,062		50,957		49,766		59,033		47,562		42,640

Securities available-for-sale, at fair value		371,229		388,309		348,791		368,944		380,180		409,600		410,083		442,909
Securities held-to-maturity, at amortized cost		263,765		264,070		263,832		261,775		258,637		255,293		251,648		248,871
Federal Home Loan Bank and Federal Reserve Bank stock		10,292		10,292		9,085		9,058		9,058		8,409		8,271		8,451
Loans held-for-sale		2,344		2,829		3,758		4,065		4,782		7,880		3,789		3,465
Loans		1,104,065		1,118,089		1,133,379		1,141,297		1,156,662		1,144,605		1,140,624		1,136,843
Less : allowance for loan losses		27,102		25,146		24,492		23,231		21,605		20,546		18,607		16,598
Net loans		1,076,963		1,092,943		1,108,887		1,118,066		1,135,057		1,124,059		1,122,017		1,120,245

Premises and equipment, net		45,972		45,575		45,116		42,516		42,306		41,937		41,572		39,767
Other real estate owned		39,971		39,094		38,757		39,566		32,392		34,637		29,049		22,760
Mortgage servicing rights, net		5,569		5,527		5,522		5,468		5,202		5,416		5,776		5,596
Core deposit intangible, net		916		399		23		-		-		-		-		-
Bank-owned life insurance (BOLI)		55,551		55,894		56,262		56,566		56,927		57,283		57,561		57,775
Deferred tax assets, net		75,387		74,082		71,937		71,628		69,936		67,657		66,174		65,916
Other assets		12,990		12,798		12,615		11,985		11,781		12,309		11,514		11,041
Total other assets		236,356		233,369		230,232		227,729		218,544		219,239		211,646		202,855
Total assets	$	2,014,625	$	2,058,972	$	2,035,647	$	2,040,594	$	2,056,024	$	2,083,513	$	2,055,016	$	2,069,436

Liabilities
Deposits:
Noninterest bearing demand	$	373,711	$	389,926	$	389,246	$	400,001	$	405,933	$	435,093	$	431,052	$	445,083
Interest bearing:
Savings, NOW, and money market		852,709		861,735		860,342		857,666		881,714		885,809		889,448		893,947
Time		468,138		457,818		437,597		421,584		418,615		410,066		404,896		409,353
Total deposits		1,694,558		1,709,479		1,687,185		1,679,251		1,706,262		1,730,968		1,725,396		1,748,383

Securities sold under repurchase agreements		24,539		25,224		27,266		27,298		23,437		31,234		31,466		26,569
Other short-term borrowings		4,111		8,681		12,174		24,946		25,722		22,638		14,674		24,837
Junior subordinated debentures		58,378		58,378		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		45,000		45,000
Notes payable and other borrowings		500		500		500		500		500		500		500		500
Other liabilities		38,966		19,210		11,416		12,177		11,734		10,962		9,782		10,488
Total liabilities		1,866,052		1,866,472		1,841,919		1,847,550		1,871,033		1,899,680		1,885,196		1,914,155

Stockholders' equity
Preferred stock		72,991		54,947		47,331		47,331		36,637		31,553		15,091		-
Common stock		18,840		33,104		34,365		34,365		34,414		34,419		34,422		34,426
Additional paid-in capital		66,241		111,279		115,220		115,263		115,413		115,553		115,692		115,827
Retained earnings		93,508		96,002		98,256		99,553		102,050		105,208		108,858		112,584
Accumulated other comprehensive loss		(7,177)		(6,982)		(5,594)		(7,618)		(7,558)		(6,935)		(8,277)		(11,590)
Treasury stock		(95,830)		(95,850)		(95,850)		(95,850)		(95,965)		(95,965)		(95,966)		(95,966)
Total stockholders' equity		148,573		192,500		193,728		193,044		184,991		183,833		169,820		155,281
Total liabilities and stockholder's equity	$	2,014,625	$	2,058,972	$	2,035,647	$	2,040,594	$	2,056,024	$	2,083,513	$	2,055,016	$	2,069,436

Total Earning Assets	$	1,775,470	$	1,813,922	$	1,797,448	$	1,804,782	$	1,827,341	$	1,855,667	$	1,832,978	$	1,854,398
Total Interest Bearing Liabilities		1,453,375		1,457,336		1,441,257		1,435,372		1,453,366		1,453,625		1,444,362		1,458,584

Old Second Bancorp, Inc. and Subsidiaries

Quarterly Consolidated Statements of Income

(In thousands, except share data, unaudited)



	2014								2015
	1st Qtr		2nd Qtr		3rd Qtr		4th Qtr		1st Qtr		2nd Qtr		3rd Qtr		4th Qtr
Interest and Dividend Income
Loans, including fees	$	12,938	$	13,046	$	13,362	$	13,580	$	13,218	$	13,467	$	13,353	$	12,997
Loans held-for-sale		25		29		38		41		43		72		38		36
Securities:
Taxable		3,502		3,352		3,586		3,691		3,375		3,372		3,471		3,819
Tax exempt		148		118		110		96		141		163		122		116
Dividends from Federal Reserve Bank and Federal Home Loan Bank stock		76		78		78		77		77		77		76		76
Interest bearing deposits with financial institutions		15		20		25		13		12		19		12		12
Total interest and dividend income		16,704		16,643		17,199		17,498		16,866		17,170		17,072		17,056
Interest Expense
Savings, NOW, and money market deposits		199		188		175		176		179		183		185		187
Time deposits		1,321		1,210		1,073		896		807		771		799		824
Other short-term borrowings		2		3		5		9		9		7		6		11
Junior subordinated debentures		1,387		1,388		1,072		1,072		1,072		1,071		1,072		1,072
Subordinated debt		196		198		199		199		197		202		205		210
Notes payable and other borrowings		4		4		4		4		4		-		1		2
Total interest expense		3,109		2,991		2,528		2,356		2,268		2,234		2,268		2,306
Net interest and dividend income		13,595		13,652		14,671		15,142		14,598		14,936		14,804		14,750
Loan loss reserve release		(1,000)		(1,000)		-		(1,300)		-		(2,300)		(2,100)		-
Net interest and dividend income after provision for loan losses		14,595		14,652		14,671		16,442		14,598		17,236		16,904		14,750
Noninterest Income
Trust income		1,459		1,677		1,483		1,579		1,486		1,596		1,444		1,427
Service charges on deposits		1,720		1,796		1,838		1,725		1,541		1,779		1,766		1,734
Secondary mortgage fees		112		155		174		180		244		281		190		192
Mortgage servicing (loss) gain, net of changes in fair value		(47)		64		252		(60)		(208)		500		(274)		469
Net gain on sales of mortgage loans		662		1,038		914		980		1,623		1,695		1,359		1,098
Securities (losses) gains, net		(69)		295		1,231		262		(109)		(12)		(57)		-
Increase in cash surrender value of bank-owned life insurance		358		366		304		369		354		283		203		381
Debit card interchange income		830		930		1,011		1,035		959		1,050		1,004		1,015
Loss on disposal and transfer of fixed assets		-		-		(121)		-		-		-		(1,143)		24
Other income		1,296		1,160		1,237		1,021		2,083		1,092		1,156		1,069
Total noninterest income		6,321		7,481		8,323		7,091		7,973		8,264		5,648		7,409
Noninterest Expense
Salaries and employee benefits		9,101		9,183		8,856		9,027		9,255		9,149		8,260		8,397
Occupancy expense, net		1,481		1,185		1,143		1,154		1,271		1,094		1,156		1,228
Furniture and equipment expense		983		984		989		1,016		1,001		1,065		1,110		1,254
FDIC insurance		279		627		649		615		273		377		373		311
General bank insurance		489		343		371		358		357		310		308		298
Amortization of core deposit		512		511		154		-		-		-		-		-
Advertising expense		303		459		291		225		205		353		434		348
Debit card interchange expense		378		412		418		423		352		400		379		383
Legal fees		257		409		332		335		223		420		279		253
Other real estate expense, net		1,008		1,650		2,007		2,252		1,352		2,388		977		474
Other expense		2,725		3,289		3,134		3,362		2,864		3,371		2,968		3,151
Total noninterest expense		17,516		19,052		18,344		18,767		17,153		18,927		16,244		16,097
Income before income taxes		3,400		3,081		4,650		4,766		5,418		6,573		6,308		6,062
Provision for income taxes		1,198		1,060		1,726		1,777		1,919		2,444		2,384		2,229
Net income		2,202		2,021		2,924		2,989		3,499		4,129		3,924		3,833
Preferred stock dividends and accretion of discount		1,572		1,348		1,065		1,077		824		710		339		-
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	$	3,585	$	3,833

Basic earnings per share	$	0.04	$	0.26	$	0.06	$	0.06	$	0.09	$	0.12	$	0.12	$	0.13
Diluted earnings per share		0.04		0.26		0.06		0.06		0.09		0.12		0.12		0.13

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									Year Ended
	December 31,			September 30,			December 31,			December 31,
	2015			2015			2014			2015			2014
Net Interest Margin
Interest income (GAAP)	$	17,056		$	17,072		$	17,498		$	68,164		$	68,044
Taxable-equivalent adjustment:
Loans		24			24			28			103			111
Securities		63			65			52			292			255
Interest income - TE		17,143			17,161			17,578			68,559			68,410
Interest expense (GAAP)		2,306			2,268			2,356			9,076			10,984
Net interest income -TE	$	14,837		$	14,893		$	15,222		$	59,483		$	57,426
Net interest income (GAAP)	$	14,750		$	14,804		$	15,142		$	59,088		$	57,060
Average interest earning assets	$	1,854,398		$	1,832,978		$	1,804,782		$	1,842,644		$	1,797,985
Net interest margin (GAAP)		3.16	%		3.20	%		3.33	%		3.21	%		3.17	%
Net interest margin - TE		3.17	%		3.22	%		3.35	%		3.23	%		3.19	%


		Three Months Ended
	December 31,			September 30,			December 31,
	2015			2015			2014
Efficiency Ratio
Noninterest expense	$	16,097		$	16,244		$	18,767
Less amortization of core deposit, net		-			-			-
Less other real estate expense, net		474			977			2,252
Adjusted noninterest expense		15,623			15,267			16,515
Net interest income (GAAP)		14,750			14,804			15,142
Taxable-equivalent adjustment:
Loans		24			24			28
Securities		63			65			52
Net interest income (TE)		14,837			14,893			15,222
Noninterest income		7,409			5,648			7,091
Taxable-equivalent adjustment:
Increase in cash surrender value of BOLI - (TE)		205			109			199
Noninterest income - (TE)		7,614			5,757			7,290
Less securities (losses) gain, net		-			(57)			262
Adjusted noninterest income, plus net interest income (TE)	$	22,451		$	20,707		$	22,250
Efficiency ratio		69.59	%		73.73	%		74.22	%

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OLD SECOND BANCORP INC Reports