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

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8-K - 8-K - OLD SECOND BANCORP INC	osbc-20160726x8k.htm



(NASDAQ:OSBC)		Exhibit 99.1

Contact:	J. Douglas Cheatham	For Immediate Release
	Chief Financial Officer	July 26, 2016
	(630) 906-5484

Old Second Reports Second Quarter 2016 Net Income of $3.8 million

AURORA, IL, July 26, 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 second quarter of 2016. The Company reported net income of $3.8 million for the second quarter of 2016, compared to net income of $4.1 million in the second quarter of 2015. The Company’s net income available to common stockholders of $3.8 million, or $0.13 per diluted share for the second quarter of 2016, compared to $3.4 million, or $0.12 per diluted share, in the second quarter of 2015.

Operating Results

On July 19, 2016, the Company’s Board of Directors declared a cash dividend of 1 cent per share payable on August 9, 2016, to stockholders of record as of July 29, 2016.

Second quarter 2016 net income available to common stockholders increased by $426,000, or 12.5%, from the second quarter of 2015 and increased approximately 15.7% from the first quarter of 2016. When compared to the second quarter of 2015, the second quarter 2016 reflects higher net interest income of $427,000. No release of loan loss reserves was recorded in the second quarter of 2016, as compared to a $2.3 million reserve release in the like 2015 quarter. Finally, comparing the year over year quarters, the second quarter of 2016 experienced lower noninterest income of $987,000 primarily due to reductions in residential mortgage banking income, and lower noninterest expense stemming from decreases in compensation costs and other real estate owned (“OREO”) expenses. Noninterest expense of $16.7 million for the second quarter of 2016 was $2.2 million or 11.8% lower than the second quarter of 2015.

Net interest income in the second quarter of 2016 was $142,000 higher than the first quarter of 2016, and noninterest income was $1.0 million, or 16.0%, higher in the second quarter of 2016 as compared to the first quarter, primarily due to residential mortgage banking income. Noninterest expense was also higher in the second quarter of 2016 as compared to the prior quarter, which was primarily due to a one-time expense recorded on a debit card contract change.

Capital Ratios


	June 30,		December 31,		June 30,
	2016		2015		2015
The Bank's common equity tier 1 capital ratio	14.67	%	14.10	%	17.49	%
The Company's common equity tier 1 capital ratio	10.30	%	10.55	%	9.82	%
The Bank's total capital ratio	15.74	%	15.23	%	18.75	%
The Company's total capital ratio	15.03	%	15.56	%	17.10	%
The Company's tier 1 leverage capital ratio	8.94	%	8.69	%	10.02	%

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

Asset Quality & Earning Assets

Nonperforming loans increased to $18.4 million at June 30, 2016, from $14.6 million at December 31, 2015, and $19.3 million at June 30, 2015. The increase in 2016 was due to 2 relationships secured by commercial real estate which have each lost one large tenant in recent months. Both borrowers have indicated they are aggressively pursuing new tenants, and one borrower has noted that refinancing is in process with another institution.

OREO assets decreased in the second quarter to end at $16.3 million on June 30, 2016, compared to $19.1 million at December 31, 2015, and $32.0 million at June 30, 2015. Valuation writedowns continued in the second quarter of 2016 with a quarterly expense of $489,000 compared to $451,000 in the first quarter of 2016.

Total loans at June 30, 2016, were $1.16 billion, reflecting an increase of $27.4 million when compared to December 31, 2015 and an increase of $2.3 million as compared to June 30, 2015. Average loans (including loans held-for-sale) for the second quarter of 2016 were $1.15 billion, reflecting an increase of $9.8 million from the fourth quarter of 2015 and a decrease of $2.4 million when compared to the second quarter of 2015. Loan growth in the 2016 period stems primarily from commercial and industrial loan originations.

June 30, 2016 available-for-sale securities at fair value totaled $764.6 million, which is an increase of $308.5 million from $456.1 million at December 31, 2015, and $399.8 million balance at June 30, 2015. The increase is primarily due to the reclassification in the second quarter 2016 of the securities held-to-maturity portfolio to available-for-sale. This portfolio transfer was completed to allow flexibility to fund loan growth or to restructure the securities portfolio as management deems appropriate. The total securities portfolio has also increased in the last twelve months by $111.3 million, which is commensurate with deposit and short-term borrowing growth.

Management review of the loan portfolio concluded that neither a loan loss reserve release nor a loan loss provision was appropriate in the second quarter of 2016 or the last quarter of 2015. The second quarter of 2015 reflected a loan loss reserve release of $2.3 million.

Net Interest Income1

ANALYSIS OF AVERAGE BALANCES,

TAX EQUIVALENT INTEREST AND RATES

(In thousands - unaudited)


	Quarters Ended
	June 30, 2016						December 31, 2015						June 30, 2015
	Average					Rate	Average					Rate	Average					Rate
	Balance			Interest		%	Balance			Interest		%	Balance			Interest		%
Assets
Interest bearing deposits with financial institutions	$	12,048		$	15	0.49	$	13,859		$	12	0.34	$	29,880		$	19	0.25
Securities:
Taxable		721,837			4,382	2.43		674,690			3,819	2.26		635,469			3,372	2.12
Non-taxable (TE)		43,241			339	3.14		17,090			179	4.19		29,424			251	3.41
Total securities		765,078			4,721	2.47		691,780			3,998	2.31		664,893			3,623	2.18
Dividends from Reserve Bank and FHLBC stock		7,431			84	4.52		8,451			76	3.60		8,409			77	3.66
Loans and loans held-for-sale1		1,150,130			13,101	4.51		1,140,308			13,057	4.48		1,152,485			13,566	4.66
Total interest earning assets		1,934,687			17,921	3.68		1,854,398			17,143	3.64		1,855,667			17,285	3.69
Cash and due from banks		28,597			-	-		28,781			-	-		29,153			-	-
Allowance for loan losses		(16,415)			-	-		(16,598)			-	-		(20,546)			-	-
Other noninterest bearing assets		192,896			-	-		202,015			-	-		218,374			-	-
Total assets	$	2,139,765					$	2,068,596					$	2,082,648

Liabilities and Stockholders' Equity
NOW accounts	$	386,485		$	88	0.09	$	360,786		$	79	0.09	$	334,694		$	73	0.09
Money market accounts		272,583			66	0.10		284,209			70	0.10		296,872			71	0.10
Savings accounts		261,321			39	0.06		248,952			38	0.06		254,243			39	0.06
Time deposits		402,912			869	0.87		409,353			824	0.80		410,066			771	0.75
Interest bearing deposits		1,323,301			1,062	0.32		1,303,300			1,011	0.31		1,295,875			954	0.30
Securities sold under repurchase agreements		37,433			1	0.01		26,569			1	0.01		31,234			-	-
Other short-term borrowings		28,187			25	0.35		24,837			10	0.16		22,638			7	0.12
Junior subordinated debentures		57,561			1,083	7.53		57,538			1,072	7.45		57,513			1,071	7.45
Subordinated debt		45,000			243	2.14		45,000			210	1.83		45,000			202	1.78
Notes payable and other borrowings		500			2	1.58		500			2	1.57		500			-	-
Total interest bearing liabilities		1,491,982			2,416	0.65		1,457,744			2,306	0.63		1,452,760			2,234	0.62
Noninterest bearing deposits		472,450			-	-		445,083			-	-		435,093			-	-
Other liabilities		12,511			-	-		10,488			-	-		10,962			-	-
Stockholders' equity		162,822			-	-		155,281			-	-		183,833			-	-
Total liabilities and stockholders' equity	$	2,139,765					$	2,068,596					$	2,082,648
Net interest income (TE)				$	15,505					$	14,837					$	15,051
Net interest income (TE)
to total earning assets						3.22						3.17						3.25
Interest bearing liabilities to earning assets		77.12	%					78.61	%					78.29	%

1 Interest income from loans is shown on a tax equivalent basis as discussed in the table on page 13 and includes fees of $531,000, $430,000 and $463,000 for the second quarter of 2016, the fourth quarter of 2015 and the second quarter of 2015, respectively. Nonaccrual loans are included in the above stated average balances. Tax equivalent basis is calculated using a marginal tax rate of 35%.

Net interest and dividend income increased $778,000 for the quarter ended June 30, 2016 as compared to the quarter ended December 31, 2015. Quarterly average earning assets increased $80.3 million from the last quarter of 2015 to a total of $1.93 billion for the period ended June 30, 2016, while yield on earning assets increased 4 basis points. Year over year second quarter average loans, including loans held-for-sale, decreased $2.4 million, while total earning assets increased $79.0 million for the same period driven by securities growth. The cost of funds increased by 2 basis points from the prior year end period and 3 basis points from the like period last year. Total average interest bearing liabilities have increased in all periods presented due to growth in NOW and Savings accounts, as well as securities sold under repurchase agreements and other short-term borrowings.

Noninterest Income


							2nd Qtr 2016
	Three Months Ended						Percent Change From
(in thousands)	June 30,		March 31,		June 30,		March 31,	June 30,
	2016		2016		2015		2016	2015
Trust income	$	1,502	$	1,369	$	1,596	9.7	(5.9)
Service charges on deposits		1,646		1,559		1,779	5.6	(7.5)
Residential mortgage banking revenue		1,611		785		2,476	105.2	(34.9)
Securities loss, net		-		(61)		(12)	N/A	N/A
Increase in cash surrender value of bank-owned life insurance		319		285		299	11.9	6.7
Debit card interchange income		1,049		947		1,050	10.8	(0.1)
Other income		1,150		1,391		1,076	(17.3)	6.9
Total noninterest income	$	7,277	$	6,275	$	8,264	16.0	(11.9)

Of the noninterest income categories, residential mortgage banking income experienced the largest fluctuations on both a linked quarter and year over year basis, as shown above, primarily due to the variability of mortgage servicing rights valuations. Also, cash surrender value of bank-owned life insurance increased as a result of investment value growth. Finally, other income for the first quarter of 2016 included approximately $338,000 of various nonrecurring recoveries, and in second quarter 2016, customer swap fee income was $80,000 in excess of the prior quarter. Excluding these items, the three quarters presented have minimal variation.

Noninterest Expense


										2nd Qtr 2016
	Three Months Ended									Percent Change From
(in thousands)	June 30,			March 31,			June 30,			March 31,	June 30,
	2016			2016			2015			2016	2015
Salaries	$	6,999		$	6,901		$	7,292		1.4	(4.0)
Bonus		452			676			454		(33.1)	(0.4)
Benefits and other		1,363			1,449			1,403		(5.9)	(2.9)
Total salaries and employee benefits		8,814			9,026			9,149		(2.3)	(3.7)
Occupancy expense, net		1,009			1,229			1,094		(17.9)	(7.8)
Furniture and equipment expense		1,078			958			1,065		12.5	1.2
FDIC insurance		362			203			377		78.3	(4.0)
General bank insurance		272			298			310		(8.7)	(12.3)
Advertising expense		435			347			353		25.4	23.2
Debit card interchange expense		620			203			400		205.4	55.0
Legal fees		191			161			420		18.6	(54.5)
Other real estate owned expense, net		879			738			2,388		19.1	(63.2)
Other expense		3,040			3,101			3,371		(2.0)	(9.8)
Total noninterest expense	$	16,700		$	16,264		$	18,927		2.7	(11.8)
Efficiency ratio1		68.92	%		71.12	%		70.41	%

1The efficiency ratio shown in the table above is calculated as noninterest expense, excluding OREO expenses, divided by the sum of net interest income on a fully tax equivalent basis, total noninterest income less net gains and losses on securities and includes a tax equivalent adjustment on the increase in cash surrender value of bank-owned life insurance.

Noninterest expense increased $436,000, or 2.7%, on a linked quarter basis primarily as a result of a one-time charge taken on the renewal of a debit card servicing contract of $317,000. Legal and OREO expenses continue to trend at lower levels than the prior year. Major expense categories were generally flat or down in the second quarter of 2016 compared to the first quarter of 2016 and the same period in 2015, most notably in salaries and employee benefits. The FDIC insurance accrual was adjusted in the second quarter of 2016 and will incorporate the FDIC small bank rate change in future quarters.

Earning Assets


							June 30, 2016
	Major Classification of Loans as of						Percent Change From
(in thousands)	June 30,		December 31,		June 30,		December 31,	June 30,
	2016		2015		2015		2015	2015
Commercial	$	156,562	$	130,362	$	123,372	20.1	26.9
Real estate - commercial		600,942		605,721		612,379	(0.8)	(1.9)
Real estate - construction		22,204		19,806		32,157	12.1	(31.0)
Real estate - residential		352,595		351,007		365,989	0.5	(3.7)
Consumer		2,966		4,216		3,854	(29.6)	(23.0)
Overdraft		504		483		408	4.3	23.5
Lease financing receivables		13,160		10,953		8,571	20.1	53.5
Other		11,127		10,130		11,391	9.8	(2.3)
		1,160,060		1,132,678		1,158,121	2.4	0.2
Net deferred loan costs		1,091		1,037		762	5.2	43.2
Total loans	$	1,161,151	$	1,133,715	$	1,158,883	2.4	0.2

Total loans increased by $27.4 million at the end of the second quarter of 2016 as compared to year end 2015. Growth in commercial and industrial loans for the first two quarters of 2016 drove the total loans increase, which more than offset the reduction in real estate-commercial, construction and residential loans in the year over year period.


							June 30, 2016
(in thousands)	Securities Portfolio As of						Percent Change From
	June 30,		December 31,		June 30,		December 31,	June 30,
Securities available-for-sale, at fair value	2016		2015		2015		2015	2015

U.S. Treasury	$	-	$	1,509	$	1,520	(100.0)	(100.0)
U.S. government agencies		1,522		1,556		1,595	(2.2)	(4.6)
U.S. government agency mortgage-backed		43,646		1,996		5,545	2,086.7	687.1
States and political subdivisions		42,621		30,526		13,249	39.6	221.7
Corporate bonds		30,208		29,400		30,605	2.7	(1.3)
Collateralized mortgage obligations		289,225		66,920		74,994	332.2	285.7
Asset-backed securities		250,959		231,908		178,655	8.2	40.5
Collateralized loan obligations		106,370		92,251		93,673	15.3	13.6
Total securities available-for-sale	$	764,551	$	456,066	$	399,836	67.6	91.2
Securities held-to-maturity, at amortized cost
U.S. government agency mortgage-backed	$	-	$	36,505	$	36,995	(100.0)	(100.0)
Collateralized mortgage obligations		-		211,241		216,424	(100.0)	(100.0)
Total securities held-to-maturity	$	-	$	247,746	$	253,419	(100.0)	(100.0)

Total securities	$	764,551	$	703,812	$	653,255	8.6	17.0

The investment portfolio ended the second quarter of 2016 at $764.6 million, an increase of $60.7 million from $703.8 million at December 31, 2015, and up from $653.3 million a year ago. The securities held-to-maturity portfolio was reclassified to available-for-sale in the second quarter of 2016, to allow for portfolio restructuring and to fund loan growth. This reclassification of $244.8 million was approved by the Board of Directors, and will preclude any holdings of securities held-to-maturity for a two-year period. Available-for-sale purchases during the year to date 2016 and year over year periods included additional asset-backed securities as well as municipals and collateralized loan obligations. During the second quarter of 2016 there were no sales that resulted in realized gains or losses.

Asset Quality

(in thousands)


										June 30, 2016
	As of									Percent Change From
	June 30,			December 31,			June 30,			December 31,	June 30,
	2016			2015			2015			2015	2015
Nonaccrual loans	$	18,260		$	14,389		$	18,976		26.9	(3.8)
Nonperforming troubled debt restructured loans accruing interest		162			165			308		(1.8)	(47.4)
Loans past due 90 days or more and still accruing interest		-			65			-		(100.0)	-
Total nonperforming loans		18,422			14,619			19,284		26.0	(4.5)
Other real estate owned		16,252			19,141			31,964		(15.1)	(49.2)
Total nonperforming assets	$	34,674		$	33,760		$	51,248		2.7	(32.3)

30-89 days past due loans	$	1,368		$	3,652		$	5,296
Nonaccrual loans to total loans		1.6	%		1.3	%		1.6	%
Nonperforming loans to total loans		1.6	%		1.3	%		1.7	%
Nonperforming assets to total loans plus OREO		2.9	%		2.9	%		4.3	%

Allowance for loan losses	$	15,822		$	16,223		$	18,321
Allowance for loan losses to loans		1.4	%		1.4	%		1.6	%
Allowance for loan losses to nonaccrual loans		86.6	%		112.7	%		96.5	%

Nonperforming loans consist of nonaccrual loans, nonperforming restructured accruing loans and loans 90 days or greater past due but still accruing. The nonperforming loan increase in 2016 was due to 2 relationships secured by commercial real estate which have each lost one large tenant in recent months. Both borrowers have indicated they are aggressively pursuing new tenants, and one borrower has noted that refinancing is in process with another institution.

Classified loans include nonaccrual, performing troubled debt restructurings and all other loans considered substandard, as shown below. Classified loans increased by $2.4 million, or 9.7%, from year end 2015; this increase is due to the two relationships, as discussed in the “Operating Results - Asset Quality & Earning Assets” section above. Management review of the loan portfolio concluded neither a loan loss provision nor a reserve release was appropriate in the second quarter of 2016.


							June 30, 2016
	Classified loans as of						Percent Change From
(in thousands)	June 30,		December 31,		June 30,		December 31,	June 30,
	2016		2015		2015		2015	2015
Real estate-construction	$	257	$	83	$	3,952	209.6	(93.5)
Real estate-residential:
Investor		1,310		1,136		975	15.3	34.4
Owner occupied		6,540		7,079		7,051	(7.6)	(7.2)
Revolving and junior liens		3,370		3,055		3,292	10.3	2.4
Real estate-commercial, nonfarm		13,665		10,568		3,705	29.3	268.8
Real estate-commercial, farm		56		1,272		1,272	(95.6)	(95.6)
Commercial		2,459		2,029		698	21.2	252.3
Other		1		1		1	-	-
Total classified loans	$	27,658	$	25,223	$	20,946	9.7	32.0

Net Charge-off Summary


Loan Charge-offs, net of recoveries	Three Months Ended
(in thousands)	June 30,		% of	March 31,		% of	June 30,		% of
	2016		Total	2016		Total	2015		Total
Real estate-construction
Homebuilder	$	(5)	(1.2)	$	(4)	17.4	$	(47)	(8.4)
Land		-	-		-	-		(2)	(0.4)
Commercial speculative		-	-		-	-		-	-
All other		(1)	(0.2)		(1)	4.3		(11)	(2.0)
Total real estate-construction		(6)	(1.4)		(5)	21.7		(60)	(10.8)
Real estate-residential
Investor		(23)	(5.4)		(6)	26.1		(104)	(18.6)
Owner occupied		74	17.5		(23)	100.0		(25)	(4.5)
Revolving and junior liens		(170)	(40.1)		66	(287.0)		(115)	(20.5)
Total real estate-residential		(119)	(28.0)		37	(160.9)		(244)	(43.6)
Real estate-commercial, nonfarm
Owner general purpose		(106)	(25.0)		(58)	252.2		709	126.6
Owner special purpose		(5)	(1.2)		(4)	17.4		109	19.5
Non-owner general purpose		314	74.1		(19)	82.6		(915)	(163.4)
Non-owner special purpose		-	-		-	-		163	29.1
Retail properties		342	80.7		-	-		-	-
Total real estate-commercial, nonfarm		545	128.6		(81)	352.2		66	11.8
Real estate-commercial, farm		-	-		-	-		-	-
Commercial		-	-		20	(87.0)		775	138.4
Other		4	0.8		6	(26.0)		23	4.2
Net charge-off / (recovery)	$	424	100.0	$	(23)	100.0	$	560	100.0

Gross charge-offs for the quarter ending June 30, 2016, were $936,000 compared to $2.1 million for the quarter ending June 30, 2015. Gross recoveries for the quarter ending June 30, 2016, were $512,000 compared to $1.6 million for the quarter ending June 30, 2015.

Deposits

Total deposits were $1.78 billion at June 30, 2016, which reflects an increase from total deposits of $1.76 billion at December 31, 2015. Demand, Savings, and NOW balances experienced increases of $43.2 million in volume during in the first six months of 2016 while money market deposits declined $14.0 million and time deposits or certificates of deposit reflect a decrease of $6.2 million 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 June 30, 2016, the Bank had $50.0 million outstanding under FHLBC advances compared to $15.0 million in advances at December 31, 2015.

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

Capital


	June 30,		December 31,		June 30,
	2016		2015		2015
The Company's common equity tier 1 capital ratio	10.30	%	10.55	%	9.82	%
(minimum 4.5% for adequately capitalized)
The Company's tier 1 capital ratio	12.71	%	12.30	%	14.21	%
(minimum 6.0% for adequately capitalized)
The Company's total capital ratio	15.03	%	15.56	%	17.10	%
(minimum 8.0% for adequately capitalized)
The Company's tier 1 leverage capital ratio	8.94	%	8.69	%	10.02	%
(minimum 4.0% for adequately capitalized)

As of June 30, 2016, the Bank’s common equity tier 1 capital ratio of 14.67% and total capital ratio of 15.74% 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 Wednesday, July 27, 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 August 11, 2016, by dialing 877-481-4010, using Conference ID: 10039.

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share data)


	(Unaudited)
	June 30,		December 31,
	2016		2015
Assets
Cash and due from banks	$	32,806	$	26,975
Interest bearing deposits with financial institutions		7,525		13,363
Cash and cash equivalents		40,331		40,338
Securities available-for-sale, at fair value		764,551		456,066
Securities held-to-maturity, at amortized cost		-		247,746
Federal Home Loan Bank and Federal Reserve Bank stock		7,918		8,518
Loans held-for-sale		5,589		2,849
Loans		1,161,151		1,133,715
Less: allowance for loan losses		15,822		16,223
Net loans		1,145,329		1,117,492
Premises and equipment, net		38,953		39,612
Other real estate owned		16,252		19,141
Mortgage servicing rights, net		4,698		5,847
Bank-owned life insurance (BOLI)		59,653		59,049
Deferred tax assets, net		57,738		64,552
Other assets		18,762		15,818
Total assets	$	2,159,774	$	2,077,028

Liabilities
Deposits:
Noninterest bearing demand	$	477,883	$	442,639
Interest bearing:
Savings, NOW, and money market		902,576		908,598
Time		401,666		407,849
Total deposits		1,782,125		1,759,086
Securities sold under repurchase agreements		43,138		34,070
Other short-term borrowings		50,000		15,000
Junior subordinated debentures		57,567		57,543
Subordinated debt		45,000		45,000
Notes payable and other borrowings		500		500
Other liabilities		13,823		9,900
Total liabilities		1,992,153		1,921,099

Stockholders’ Equity
Common stock		34,533		34,427
Additional paid-in capital		116,311		115,918
Retained earnings		121,080		114,209
Accumulated other comprehensive loss		(8,083)		(12,659)
Treasury stock		(96,220)		(95,966)
Total stockholders’ equity		167,621		155,929
Total liabilities and stockholders’ equity	$	2,159,774	$	2,077,028

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

(In thousands, except share data)


	(unaudited)				(unaudited)
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Interest and dividend income
Loans, including fees	$	13,039	$	13,467	$	26,097	$	26,685
Loans held-for-sale		39		72		67		115
Securities:
Taxable		4,382		3,372		8,593		6,747
Tax exempt		220		163		399		304
Dividends from Federal Reserve Bank and Federal Home Loan Bank stock		84		77		168		154
Interest bearing deposits with financial institutions		15		19		34		31
Total interest and dividend income		17,779		17,170		35,358		34,036
Interest expense
Savings, NOW, and money market deposits		193		183		384		362
Time deposits		869		771		1,691		1,578
Other short-term borrowings		26		7		46		16
Junior subordinated debentures		1,083		1,071		2,167		2,143
Subordinated debt		243		202		482		399
Notes payable and other borrowings		2		-		4		4
Total interest expense		2,416		2,234		4,774		4,502
Net interest and dividend income		15,363		14,936		30,584		29,534
Loan loss reserve release		-		(2,300)		-		(2,300)
Net interest and dividend income after release for loan losses		15,363		17,236		30,584		31,834
Noninterest income
Trust income		1,502		1,596		2,871		3,082
Service charges on deposits		1,646		1,779		3,205		3,320
Secondary mortgage fees		280		281		473		525
Mortgage servicing (loss) / gain, net of changes in fair value		(311)		500		(931)		292
Net gain on sales of mortgage loans		1,642		1,695		2,854		3,318
Securities loss, net		-		(12)		(61)		(121)
Increase in cash surrender value of bank-owned life insurance		319		299		604		779
Debit card interchange income		1,049		1,050		1,996		2,009
Other income		1,150		1,076		2,541		3,033
Total noninterest income		7,277		8,264		13,552		16,237
Noninterest expense
Salaries and employee benefits		8,814		9,149		17,840		18,404
Occupancy expense, net		1,009		1,094		2,238		2,365
Furniture and equipment expense		1,078		1,065		2,036		2,066
FDIC insurance		362		377		565		650
General bank insurance		272		310		570		667
Advertising expense		435		353		782		558
Debit card interchange expense		620		400		823		752
Legal fees		191		420		352		643
Other real estate expense, net		879		2,388		1,617		3,740
Other expense		3,040		3,371		6,141		6,235
Total noninterest expense		16,700		18,927		32,964		36,080
Income before income taxes		5,940		6,573		11,172		11,991
Provision for income taxes		2,095		2,444		4,005		4,363
Net income	$	3,845	$	4,129	$	7,167	$	7,628
Preferred stock dividends and accretion of discount		-		710		-		1,534
Net income available to common stockholders	$	3,845	$	3,419	$	7,167	$	6,094

Basic earnings per share	$	0.13	$	0.12	$	0.24	$	0.21
Diluted earnings per share		0.13		0.12		0.24		0.21


Ending common shares outstanding	29,554,716	29,478,429	29,554,716	29,478,429
Weighted-average basic shares outstanding	29,535,915	29,475,682	29,509,672	29,473,004
Weighted-average diluted shares outstanding	29,841,239	29,747,253	29,823,504	29,712,952

Old Second Bancorp, Inc. and Subsidiaries

Quarterly Consolidated Average Balance

(In thousands, except share data, unaudited)



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

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

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

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

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

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

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

Old Second Bancorp, Inc. and Subsidiaries

Quarterly Consolidated Statements of Income

(In thousands, except share data, unaudited)



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

Basic earnings per share	$	0.09	$	0.12	$	0.12	$	0.13	$	0.11	$	0.13
Diluted earnings per share		0.09		0.12		0.12		0.13		0.11		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									Six Months Ended
	June 30,			December 31,			June 30,			June 30,
	2016			2015			2015			2016			2015
Net Interest Margin
Interest income (GAAP)	$	17,779		$	17,056		$	17,170		$	35,358		$	34,036
Taxable-equivalent adjustment:
Loans		23			24			27			47			55
Securities		119			63			88			215			164
Interest income (TE)		17,921			17,143			17,285			35,620			34,255
Interest expense (GAAP)		2,416			2,306			2,234			4,774			4,502
Net interest income (TE)	$	15,505		$	14,837		$	15,051		$	30,846		$	29,753
Net interest income (GAAP)	$	15,363		$	14,750		$	14,936		$	30,584		$	29,534
Average interest earning assets	$	1,934,687		$	1,854,398		$	1,855,667		$	1,917,155		$	1,841,583
Net interest margin (GAAP)		3.19	%		3.16	%		3.23	%		3.21	%		3.23	%
Net interest margin (TE)		3.22	%		3.17	%		3.25	%		3.24	%		3.26	%


		Three Months Ended
	June 30,			March 31,			June 30,
	2016			2016			2015
Efficiency Ratio
Noninterest expense	$	16,700		$	16,264		$	18,927
Less other real estate expense, net		879			738			2,388
Adjusted noninterest expense		15,821			15,526			16,539
Net interest income (GAAP)		15,363			15,221			14,936
Taxable-equivalent adjustment:
Loans		23			24			27
Securities		119			96			88
Net interest income (TE)		15,505			15,341			15,051
Noninterest income		7,277			6,275			8,264
Taxable-equivalent adjustment:
Increase in cash surrender value of BOLI (TE)		172			153			161
Noninterest income (TE)		7,449			6,428			8,425
Less securities loss, net		-			(61)			(12)
Adjusted noninterest income, plus net interest income (TE)	$	22,954		$	21,830		$	23,488
Efficiency ratio		68.92	%		71.12	%		70.41	%

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OLD SECOND BANCORP INC Reports