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

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8-K - 8-K - OLD SECOND BANCORP INC	osbc-20170426x8k.htm



(NASDAQ:OSBC)		Exhibit 99.1

Contact:	James L. Eccher	For Immediate Release
	President, Chief Executive Officer	April 26, 2017
	(630) 966-2433

Old Second Reports First Quarter 2017 Net Income of $4.6 million

AURORA, IL, April 26, 2017 – 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 first quarter of 2017. The Company’s net income was $4.6 million, or $0.15 per diluted share, for the first quarter of 2017, as compared to $3.3 million, or $0.11 per diluted share, in the first quarter of 2016.

Operating Results

On April 18, 2017, the Company’s Board of Directors declared a cash dividend of 1 cent per share payable on May 8, 2017, to stockholders of record as of April 28, 2017.

First quarter 2017 net income was $4.6 million, reflecting an increase of $1.3 million, or 37.6%, from the first quarter of 2016 and a decrease of $446,000, or 8.9%, from the fourth quarter of 2016.

Net interest and dividend income totaled $17.7 million for the first quarter of 2017 and reflects an increase of $2.5 million, or 16.3%, over the first quarter of 2016. Net interest and dividend income for the first quarter of 2017 reflected an increase of $192,000, or 1.1%, from the $17.5 million recorded in the fourth quarter of 2016. Net interest income continued to be favorably impacted in the first quarter of 2017 due to the Company’s acquisition of the Chicago branch of Talmer Bank and Trust, which closed on October 28, 2016. The Talmer branch purchase resulted in an increase to the loan portfolio of approximately $221.0 million. Purchase accounting accretion income realized in the first quarter of 2017 totaled $355,000, as compared to $0 in the first quarter of 2016 and $604,000 in the fourth quarter of 2016.

No provision for loan and lease losses expense was recorded in the first quarter of 2017 or the first quarter of 2016. Provision for loan and lease losses of $750,000 was recorded in the fourth quarter of 2016, which was the only provision expense recorded in 2016.

Noninterest income was $7.0 million for the first quarter of 2017, which reflects growth of $753,000, or 12.0%, over the first quarter of 2016, but a decrease of $1.4 million, or 16.6%, as compared to the fourth quarter of 2016. These variances were primarily due to changes in the valuation of mortgage servicing rights.

Noninterest expense of $18.1 million for the first quarter of 2017 increased $1.8 million, or 11.0%, from the first quarter of 2016, driven by certain one-time costs incurred related to salaries and employee benefits. Noninterest expense was $839,000, or 4.9% higher in the first quarter of 2017 as compared to the fourth quarter of 2016.

Capital Ratios


	March 31,		December 31,		March 31,
	2017		2016		2016
The Bank's common equity tier 1 capital ratio	12.46	%	12.53	%	14.37	%
The Company's common equity tier 1 capital ratio	8.42	%	8.76	%	10.15	%
The Bank's total capital ratio	13.33	%	13.45	%	15.49	%
The Company's total capital ratio	12.11	%	12.29	%	15.58	%
The Company's tier 1 leverage ratio	8.84	%	8.90	%	8.72	%

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

Asset Quality & Earning Assets

Nonperforming loans ended at $12.5 million at March 31, 2017, compared to $14.0 million at March 31, 2016, and $16.0 million at December 31, 2016. Credit metrics continue to be relatively stable regarding nonperforming loan levels, and management is carefully monitoring loans considered to be in a classified status. Nonperforming loans as a percent of total loans decreased to 0.8% as of March 31, 2017, from 1.1% as of December 31, 2016, and 1.2% as of March 31, 2016.

OREO assets totaled $13.5 million as of March 31, 2017, which is a reduction compared to $17.7 million at March 31, 2016. OREO assets increased slightly from the December 31, 2016, total of $11.9 million. This increase was largely due to the transfer of one credit from nonaccrual to OREO, as part of the ongoing collection process. Valuation writedowns continued in the first quarter of 2017 with a quarterly expense of $318,000 compared to $451,000 in the first quarter of 2016 and $265,000 in the fourth quarter of 2016. Nonperforming assets as a percent of total loans plus OREO decreased to 1.7% as of March 31, 2017, as compared to 2.8% as of March 31, 2016, and 1.9% as of December 31, 2016.

Total loans at March 31, 2017, were $1.49 billion, reflecting an increase of $349.2 million when compared to March 31, 2016; this growth was driven primarily by the $221.0 million acquired with the Talmer branch purchase, and additional organic portfolio growth of $128.2 million, primarily in the commercial loan portfolio. Average loans (including loans held-for-sale) for the first quarter of 2017 were $1.49 billion, reflecting an increase of $345.3 million from the first quarter of 2016 and an increase of $96.7 million when compared to the fourth quarter of 2016.

As of March 31, 2017, available-for-sale securities at fair value totaled $611.1 million, as compared to $531.8 million at December 31, 2016, and $500.9 million at March 31, 2016. The securities portfolio changed significantly during 2016, as all securities were moved to an available for sale status in the second quarter of 2016, which allowed the sale of investments to acquire funds used for the Talmer branch acquisition in the fourth quarter of 2016. Net losses of $136,000 pretax on the sale of securities were realized for the first quarter of 2017, as compared to net losses of $61,000 in the first quarter of 2016, and $193,000 in the fourth quarter of 2016.

Net Interest Income

ANALYSIS OF AVERAGE BALANCES,

TAX EQUIVALENT INTEREST AND RATES

(Dollars in thousands - unaudited)


	Quarters Ended
	March 31, 2017						December 31, 2016						March 31, 2016
	Average					Rate	Average					Rate	Average					Rate
	Balance			Interest		%	Balance			Interest		%	Balance			Interest		%
Assets
Interest bearing deposits with financial institutions	$	12,121		$	23	0.76	$	54,865		$	71	0.51	$	15,513		$	19	0.48
Securities:
Taxable		422,124			2,963	2.81		495,687			3,318	2.68		702,949			4,211	2.40
Non-taxable (TE)		141,773			1,638	4.62		37,546			404	4.30		30,747			275	3.58
Total securities		563,897			4,601	3.26		533,233			3,722	2.79		733,696			4,486	2.45
Dividends from FHLBC and FRBC		7,614			85	4.47		7,911			82	4.15		8,518			84	3.94
Loans and loans held-for-sale1		1,487,226			16,655	4.48		1,390,537			16,485	4.64		1,141,897			13,110	4.54
Total interest earning assets		2,070,858			21,364	4.13		1,986,546			20,360	4.03		1,899,624			17,699	3.70
Cash and due from banks		33,585			-	-		28,928			-	-		27,813			-	-
Allowance for loan losses		(16,292)			-	-		(15,388)			-	-		(16,257)			-	-
Other noninterest bearing assets		192,836			-	-		197,072			-	-		197,257			-	-
Total assets	$	2,280,987					$	2,197,158					$	2,108,437

Liabilities and Stockholders' Equity
NOW accounts	$	426,606		$	101	0.10	$	405,338		$	97	0.09	$	380,528		$	84	0.09
Money market accounts		283,619			83	0.12		274,423			76	0.11		280,338			68	0.10
Savings accounts		259,384			39	0.06		253,461			39	0.06		255,058			39	0.06
Time deposits		394,388			979	1.01		404,507			1,018	1.00		407,743			822	0.81
Interest bearing deposits		1,363,997			1,202	0.36		1,337,729			1,230	0.36		1,323,667			1,013	0.31
Securities sold under repurchase agreements		29,805			2	0.03		31,019			1	0.01		35,776			1	0.01
Other short-term borrowings		56,111			106	0.76		27,940			36	0.50		27,802			19	0.27
Junior subordinated debentures		57,597			1,084	7.53		57,585			1,083	7.52		57,549			1,084	7.53
Senior notes		43,978			673	6.12		8,155			112	5.49		-			-	-
Subordinated debt		-			-	-		36,685			222	2.37		45,000			239	2.10
Notes payable and other borrowings		-			-	-		408			2	1.92		500			2	1.58
Total interest bearing liabilities		1,551,488			3,067	0.80		1,499,521			2,686	0.71		1,490,294			2,358	0.63
Noninterest bearing deposits		525,454			-	-		510,161			-	-		450,150			-	-
Other liabilities		25,061			-	-		12,609			-	-		11,033			-	-
Stockholders' equity		178,984			-	-		174,867			-	-		156,960			-	-
Total liabilities and stockholders' equity	$	2,280,987					$	2,197,158					$	2,108,437
Net interest income (TE)				$	18,297					$	17,674					$	15,341
Net interest income (TE)
to total earning assets						3.58						3.54						3.25
Interest bearing liabilities to earning assets		74.92	%					75.48	%					78.45	%

1 Interest income from loans is shown on a tax equivalent basis as discussed in the table on page 14 and includes fees of $513,000, $731,000 and $542,000 for the first quarter of 2017, the fourth quarter of 2016 and the first quarter of 2016, respectively. Nonaccrual loans are included in the above stated average balances. Tax equivalent basis is calculated using a marginal tax rate of 35%.

Tax equivalent interest income increased $1.0 million for the quarter ended March 31, 2017, as compared to the quarter ended December 31, 2016. Quarterly average earning assets increased $84.3 million from the last quarter of 2016 to a total of $2.07 billion for the period ended March 31, 2017, while yield on earning assets increased 10 basis points. Quarterly average loan growth, including loans held-for-sale, was $96.7 million for the period ended March 31, 2017, while the year over year first quarter average loans, including loans held-for-sale, increased $345.3 million. This growth was primarily due to the Talmer branch acquisition, which resulted in $221.0 million of purchased loans. In addition, loan growth, driven by commercial portfolio originations, occurred in the year over year period. Securities growth in the first quarter of 2017 stemmed from portfolio repositioning to higher yielding tax exempt securities; in the first quarter of 2017, lower yielding securities were sold and deposit growth was utilized to fund the securities purchases. These security purchases, as well as a rising interest rate environment, drove a 47 basis point increase for total securities income in the first quarter of 2017 as compared to the fourth quarter of 2016, and an 81 basis point increase from the like 2016 quarter. The cost of funds for the first quarter of 2017 increased by 9 basis points from the fourth quarter of 2016 and by 17 basis point from the first quarter of 2016. Total average interest bearing liabilities have increased in all periods presented due to growth in NOW accounts, and have increased since year end 2016 due to growth in savings and money markets. For the quarter ended March 31, 2017, average other short-term borrowings, which are Federal Home Loan Bank Chicago ( the “FHLBC”) advances, increased by $28.2 million compared to the fourth quarter of 2016 and by $28.3 million as compared to the quarter ended March 31, 2016.

Noninterest Income


							1st Quarter 2017
	Three Months Ended						Percent Change From
(dollars in thousands)	March 31,		December 31,		March 31,		December 31,	March 31,
	2017		2016		2016		2016	2016
Trust income	$	1,458	$	1,396	$	1,369	4.4	6.5
Service charges on deposits		1,618		1,723		1,559	(6.1)	3.8
Residential mortgage banking revenue		1,625		3,001		785	(45.9)	107.0
Securities loss, net		(136)		(193)		(61)	29.5	(123.0)
Increase in cash surrender value of bank-owned life insurance		359		296		285	21.3	26.0
Debit card interchange income		975		1,018		947	(4.2)	3.0
Loss on disposal and transfer of fixed assets		(2)		-		(1)	N/M	N/M
Other income		1,131		1,187		1,392	(4.7)	(18.8)
Total noninterest income	$	7,028	$	8,428	$	6,275	(16.6)	12.0

N/M - Not Meaningful

Of the noninterest income categories, residential mortgage banking income experienced the largest fluctuations on both a linked quarter and year over year basis, as shown above, primarily due to variability in the net gains on sales of mortgage loans and mortgage servicing rights (“MSR”) valuations. The fourth quarter of 2016 included MSR valuation gains of $1.0 million, as compared to MSR losses of $133,000 in the first quarter of 2017, and MSR losses of $1.0 million in the first quarter of 2016. In addition, the first quarter of 2016 included a recovery of $292,000 received from the SBA on an OREO property disposed of in a prior year. Excluding these items, the three quarters presented have minimal variation.

Noninterest Expense


										1st Quarter 2017
	Three Months Ended									Percent Change From
(dollars in thousands)	March 31,			December 31,			March 31,			December 31,	March 31,
	2017			2016			2016			2016	2016
Salaries	$	8,057		$	7,718		$	6,901		4.4	16.8
Bonus		465			339			676		37.2	(31.2)
Benefits and other		2,051			1,323			1,449		55.0	41.5
Total salaries and employee benefits		10,573			9,380			9,026		12.7	17.1
Occupancy, furniture and equipment expense		1,566			1,636			1,581		(4.3)	(0.9)
Computer and data processing		1,090			1,256			925		(13.2)	17.8
FDIC insurance		148			72			203		105.6	(27.1)
General bank insurance		270			270			298		N/M	(9.4)
Amortization of core deposit intangible asset		25			16			-		56.3	N/M
Advertising expense		386			421			347		(8.3)	11.2
Debit card interchange expense		349			269			203		29.7	71.9
Legal fees		104			206			161		(49.5)	(35.4)
Other real estate owned expense, net		709			700			738		1.3	(3.9)
Other expense		2,834			2,989			2,782		(5.2)	1.9
Total noninterest expense	$	18,054		$	17,215		$	16,264		4.9	11.0
Efficiency ratio (defined below)		67.51	%		61.78	%		71.12	%

N/M - Not Meaningful

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

Noninterest expense for the first quarter of 2017 increased $1.8 million, or 11.0%, year over year and $839,000, or 4.9%, on a linked quarter basis. These increases were driven by the additional salaries and employee

benefit costs primarily due to $298,000 related to an executive retirement stemming from a salary continuation agreement accrual and related stock award early vesting expense; in addition, a deferred loan origination cost salary related adjustment of $276,000 was recorded. Both of these items are one-time costs. Finally, salaries and employee benefits expense was in excess of prior periods presented due to higher than anticipated employee insurance premiums paid in the first quarter of 2017, as well as the addition of nine full time equivalent employees in the first quarter of 2017 as compared to the like 2016 period, due primarily to the Talmer branch acquisition in late 2016.

Earning Assets


							March 31, 2017
	Major Classification of Loans as of						Percent Change From
(dollars in thousands)	March 31,		December 31,		March 31,		December 31,	March 31,
	2017		2016		2016		2016	2016
Commercial	$	233,922	$	228,113	$	120,442	2.5	94.2
Real estate - commercial		713,358		736,247		598,943	(3.1)	19.1
Real estate - construction		87,049		64,720		20,331	34.5	328.2
Real estate - residential		373,477		377,851		351,849	(1.2)	6.1
Consumer		2,913		3,237		2,663	(10.0)	9.4
Overdraft		190		436		383	(56.4)	(50.4)
Lease financing receivables		64,607		55,451		30,665	16.5	110.7
Other		11,645		11,537		12,488	0.9	(6.8)
		1,487,161		1,477,592		1,137,764	0.6	30.7
Net deferred loan costs		860		1,217		1,074	(29.3)	(19.9)
Total loans	$	1,488,021	$	1,478,809	$	1,138,838	0.6	30.7

Loans listed above were reclassified for all periods presented between the classifications listed to align with credit quality disclosures for the year ended December 31, 2016.

Total loans increased by $9.2 million at the end of the first quarter of 2017 as compared to year end 2016, and $349.2 million as compared to the first quarter of 2016. The Talmer branch acquisition of $221.0 million of new loans, coupled with organic loan growth experienced over the past year, primarily in commercial loans, resulted in the favorable variance to prior periods. Modest growth was also experienced in the real estate-construction and lease financing receivables portfolios for the year to date and year over year periods, excluding the impact of the Talmer acquisition.


							March 31, 2017
	Securities Portfolio As of						Percent Change From
(dollars in thousands)	March 31,		December 31,		March 31,		December 31,	March 31,
	2017		2016		2016		2016	2016
Securities available-for-sale, at fair value
U.S. Treasury	$	-	$	-	$	1,503	N/M	N/M
U.S. government agencies		-		-		1,539	N/M	N/M
U.S. government agency mortgage-backed		38,558		41,534		2,079	(7.2)	1,754.6
States and political subdivisions		219,507		68,703		40,950	219.5	436.0
Corporate bonds		12,540		10,630		30,089	18.0	(58.3)
Collateralized mortgage obligations		108,324		170,927		67,312	(36.6)	60.9
Asset-backed securities		139,886		138,407		252,645	1.1	(44.6)
Collateralized loan obligations		92,239		101,637		104,795	(9.2)	(12.0)
Total securities available-for-sale	$	611,054	$	531,838	$	500,912	14.9	22.0
Securities held-to-maturity, at amortized cost
U.S. government agency mortgage-backed	$	-	$	-	$	36,470	N/M	N/M
Collateralized mortgage obligations		-		-		209,482	N/M	N/M
Total securities held-to-maturity	$	-	$	-	$	245,952	N/M	N/M

Total securities	$	611,054	$	531,838	$	746,864	14.9	(18.2)

N/M - Not Meaningful

The investment portfolio ended the first quarter of 2017 at $611.1 million, an increase of $79.3 million from $531.8 million at December 31, 2016, but $135.8 million less than $746.9 million as of March 31, 2016. The decline during 2016 is due to security sales driven by the funding needs for the Talmer branch acquisition, which occurred in the fourth quarter of 2016. During the fourth quarter of 2016 and first quarter of 2017, select collateralized mortgage obligations and asset-backed securities were liquidated to allow for portfolio repositioning in favor of high quality

state and municipal securities. These sales resulted in $136,000 of net security losses in the first quarter of 2017, but the resultant security purchases with the funds from sales impacted the net interest margin favorably with higher yielding assets. The securities held-to-maturity portfolio was reclassified to available-for-sale in the second quarter of 2016 to allow for portfolio restructuring and to fund loan growth. This reclassification of $244.8 million was approved by the Board of Directors, and will preclude any holdings of securities held-to-maturity for a two-year period.

Asset Quality


										March 31, 2017
	As of									Percent Change From
(dollars in thousands)	March 31,			December 31,			March 31,			December 31,	March 31,
	2017			2016			2016			2016	2016
Nonaccrual loans	$	11,653		$	15,283		$	13,655		(23.8)	(14.7)
Nonperforming troubled debt restructured loans accruing interest		814			718			163		13.4	399.4
Loans past due 90 days or more and still accruing interest		57			-			223		N/M	N/M
Total nonperforming loans		12,524			16,001			14,041		(21.7)	(10.8)
Other real estate owned		13,481			11,916			17,745		13.1	(24.0)
Total nonperforming assets	$	26,005		$	27,917		$	31,786		(6.8)	(18.2)

30-89 days past due loans	$	8,630		$	5,139		$	3,565
Nonaccrual loans to total loans		0.8	%		1.0	%		1.2	%
Nonperforming loans to total loans		0.8	%		1.1	%		1.2	%
Nonperforming assets to total loans plus OREO		1.7	%		1.9	%		2.7	%

Allowance for loan losses	$	15,741		$	16,158		$	16,246
Allowance for loan losses to loans		1.1	%		1.1	%		1.4	%
Allowance for loan losses to nonaccrual loans		135.1	%		105.7	%		119.0	%

N/M - Not Meaningful

Nonperforming loans consist of nonaccrual loans, nonperforming restructured accruing loans and loans 90 days or greater past due but still accruing. Nonperforming loans to total loans of 0.8% decreased in the first quarter of 2017, as compared to the fourth quarter of 2016 and the first quarter of 2016, primarily due to the transfer of certain nonaccrual loans to OREO in 2017. Nonperforming assets to total loans plus OREO also reflected a reduction due to the Talmer branch purchase, as well as the continued OREO liquidations and write-downs recorded in 2016 and 2017. Finally, the allowance for loan losses to loans was 1.1% as of March 31, 2017, which is materially unchanged from year end 2016; the allowance excludes the purchase accounting credit marks recorded on the Talmer branch purchased loans.


							March 31, 2017
	Classified loans as of						Percent Change From
(dollars in thousands)	March 31,		December 31,		March 31,		December 31,	March 31,
	2017		2016		2016		2016	2016
Real estate-construction	$	451	$	458	$	261	(1.5)	72.8
Real estate-residential:
Investor		908		1,096		1,109	(17.2)	(18.1)
Owner occupied		5,923		7,225		6,755	(18.0)	(12.3)
Revolving and junior liens		2,193		2,340		2,959	(6.3)	(25.9)
Real estate-commercial, nonfarm		7,784		9,946		10,978	(21.7)	(29.1)
Real estate-commercial, farm		1,315		1,782		-	(26.2)	N/M
Commercial		1,999		2,527		582	(20.9)	243.5
Leases		1,163		1,109		1,792	4.9	(35.1)
Consumer		11		1		1	N/M	N/M
Total classified loans	$	21,747	$	26,484	$	24,437	(17.9)	(11.0)

N/M - Not Meaningful

Classified loans include nonaccrual, performing troubled debt restructurings and all other loans considered substandard, as shown below. Classified loans totaled $21.7 million as of March 31, 2017, which reflects a decrease of $4.7 million, or 17.9%, from year end 2016, and a decrease of $2.7 million, or 11.0%, from the like quarter of 2016. This reduction is primarily due to an increase in total loans due to the Talmer branch acquisition, as well as success in remediating a number of classified loans. Management’s review of the loan portfolio concluded that no loan loss

provision was necessary for the first quarter of 2017. A loan loss provision of $750,000 was recorded in the fourth quarter of 2016, which was the only provision expense recorded in 2016.

Net Charge-off Summary


Loan Charge-offs, net of recoveries	Three Months Ended
(dollars in thousands)	March 31,		% of	December 31,		% of	March 31,		% of
	2017		Total	2016		Total	2016		Total
Real estate-construction
Homebuilder	$	(17)	(4.1)	$	(5)	1.2	$	(4)	17.4
All other		3	0.7		(6)	1.4		(1)	4.3
Total real estate-construction		(14)	(3.4)		(11)	2.6		(5)	21.7
Real estate-residential
Investor		(1)	(0.2)		106	(24.9)		(3)	13.0
Multifamily		(9)	(2.2)		(15)	3.5		(3)	13.0
Owner occupied		(2)	(0.5)		(58)	13.6		(23)	100.0
Revolving and junior liens		65	15.50		(231)	54.4		66	(287.0)
Total real estate-residential		53	12.6		(198)	46.6		37	(161.0)
Real estate-commercial, nonfarm
Owner general purpose		-	-		(1)	0.2		(58)	252.2
Owner special purpose		(5)	(1.2)		(5)	1.2		(4)	17.4
Non-owner general purpose		250	60.0		56	(13.2)		(19)	82.6
Non-owner special purpose		(6)	(1.4)		-	-		-	-
Retail properties		-	-		(286)	67.3		-	-
Total real estate-commercial, nonfarm		239	57.4		(236)	55.5		(81)	352.2
Commercial		(1)	(0.2)		(10)	2.4		7	(30.4)
Leases		117	28.1		5	(1.2)		13	(56.5)
Consumer		25	6.0		25	(5.9)		12	(52.2)
Other		(2)	(0.5)		-	-		(6)	26.2
Net charge-offs / (recoveries)	$	417	100.0	$	(425)	100.0	$	(23)	100.0

Gross charge-offs for the quarter ended March 31, 2017, were $691,000 compared to $682,000 for the quarter ended December 31, 2016. Gross recoveries for the quarter ended March 31, 2017, were $274,000 compared to $1.1 million for the quarter ended December 31, 2016. Continued recoveries are indicative of the ongoing aggressive efforts by management to effectively manage and resolve prior charge-offs.

Deposits

Total deposits were $1.94 billion at March 31, 2017, which reflects an increase from total deposits of $1.87 billion at December 31, 2016. Demand deposits increased by $46.0 million, while money markets, savings and NOW balances increased by $40.9 million. Total time deposits or certificates of deposit reflect a decrease of $16.5 million in the 2017 period. The deposit growth was driven by commercial demand deposit growth and tax refunds; growth due to refunds has been a seasonal recurrence in the first six months each year for the past few years.

Borrowings

The Bank’s borrowing at the FHLBC requires the Bank to be a member and invest in the stock of the FHLBC. As of March 31, 2017, the Bank had $85.0 million in advances outstanding under the FHLBC as compared to $70.0 million in advances at December 31, 2016.

The Company is indebted on senior notes totaling $44.0 million, net of deferred issuance costs, which were issued in the fourth quarter of 2016. These notes mature in ten years, and include interest payable semiannually at 5.75% for five years. Beginning December 2021, the interest becomes payable quarterly at three month LIBOR plus 385 basis points. The Company is also indebted on $57.6 million, net of deferred issuance costs, of junior subordinated debentures, which are related to the trust preferred securities issued by its two statutory trust subsidiaries, Old Second Capital Trust I and Old Second Capital Trust II.

Capital


	March 31,		December 31,		March 31,
	2017		2016		2016
The Company's common equity tier 1 capital ratio	8.42	%	8.76	%	10.15	%
(minimum 4.5% for adequately capitalized)
The Company's tier 1 capital ratio	10.86	%	10.88	%	12.43	%
(minimum 6.0% for adequately capitalized)
The Company's total capital ratio	12.11	%	12.29	%	15.58	%
(minimum 8.0% for adequately capitalized)
The Company's tier 1 leverage ratio	8.84	%	8.90	%	8.72	%
(minimum 4.0% for adequately capitalized)

As of March 31, 2017, the Bank’s common equity tier 1 capital ratio of 12.46% and total capital ratio of 13.33% exceeded the minimum capital ratios to be deemed “well capitalized.”

Non-GAAP Presentations: Management has historically disclosed certain non-GAAP ratios to evaluate and measure the Company’s performance, including a net interest margin calculation. The net interest margin is calculated by dividing net interest income on a tax equivalent basis by average earning assets for the period. Management believes this measure provides investors with information regarding balance sheet profitability. Consistent with industry practice, management also disclosed other non-GAAP measures in the discussion above and in the following tables. The efficiency ratio is discussed in the noninterest expense presentation on page 4. The tables on page 14 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 and therefore the reader should not place undue reliance on such forward-looking statements. 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 host an earnings call on Thursday, April 27, 2017, 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 May 4, 2017, by dialing 877-481-4010, using Conference ID: 10298.

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands)


	(unaudited)
	March 31,		December 31,
	2017		2016
Assets
Cash and due from banks	$	41,332	$	33,805
Interest bearing deposits with financial institutions		19,347		13,529
Cash and cash equivalents		60,679		47,334
Securities available-for-sale, at fair value		611,054		531,838
FHLBC and FRBC stock		8,593		7,918
Loans held-for-sale		3,933		4,918
Loans		1,488,021		1,478,809
Less: allowance for loan losses		15,741		16,158
Net loans		1,472,280		1,462,651
Premises and equipment, net		38,594		38,977
Other real estate owned		13,481		11,916
Mortgage servicing rights, net		6,608		6,489
Goodwill and core deposit intangible		8,993		9,018
Bank-owned life insurance (BOLI)		60,691		60,332
Deferred tax assets, net		49,699		53,464
Other assets		18,708		16,333
Total assets	$	2,353,313	$	2,251,188

Liabilities
Deposits:
Noninterest bearing demand	$	559,666	$	513,688
Interest bearing:
Savings, NOW, and money market		991,700		950,849
Time		385,788		402,248
Total deposits		1,937,154		1,866,785
Securities sold under repurchase agreements		34,731		25,715
Other short-term borrowings		85,000		70,000
Junior subordinated debentures		57,603		57,591
Senior notes		43,982		43,998
Other liabilities		12,526		11,889
Total liabilities		2,170,996		2,075,978

Stockholders’ Equity
Common stock		34,570		34,534
Additional paid-in capital		116,938		116,653
Retained earnings		133,281		129,005
Accumulated other comprehensive loss		(6,128)		(8,762)
Treasury stock		(96,344)		(96,220)
Total stockholders’ equity		182,317		175,210
Total liabilities and stockholders’ equity	$	2,353,313	$	2,251,188

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

(In thousands, except share data)


	(unaudited)
	Three Months Ended March 31,
	2017		2016
Interest and dividend income
Loans, including fees	$	16,609	$	13,058
Loans held-for-sale		24		28
Securities:
Taxable		2,963		4,211
Tax exempt		1,065		179
Dividends from FHLBC and FRBC stock		85		84
Interest bearing deposits with financial institutions		23		19
Total interest and dividend income		20,769		17,579
Interest expense
Savings, NOW, and money market deposits		223		191
Time deposits		979		822
Other short-term borrowings		108		20
Junior subordinated debentures		1,084		1,084
Senior notes		673		-
Subordinated debt		-		239
Notes payable and other borrowings		-		2
Total interest expense		3,067		2,358
Net interest and dividend income		17,702		15,221
Loan loss reserve		-		-
Net interest and dividend income after reserve for loan losses		17,702		15,221
Noninterest income
Trust income		1,458		1,369
Service charges on deposits		1,618		1,559
Secondary mortgage fees		176		193
Mortgage servicing rights mark to market loss		(133)		(1,041)
Mortgage servicing income		435		421
Net gain on sales of mortgage loans		1,147		1,212
Securities loss, net		(136)		(61)
Increase in cash surrender value of BOLI		359		285
Debit card interchange income		975		947
Loss on disposal and transfer of fixed assets, net		(2)		(1)
Other income		1,131		1,392
Total noninterest income		7,028		6,275
Noninterest expense
Salaries and employee benefits		10,573		9,026
Occupancy, furniture and equipment		1,566		1,581
Computer and data processing		1,090		925
FDIC insurance		148		203
General bank insurance		270		298
Amortization of core deposit intangible		25		-
Advertising expense		386		347
Debit card interchange expense		349		203
Legal fees		104		161
Other real estate expense, net		709		738
Other expense		2,834		2,782
Total noninterest expense		18,054		16,264
Income before income taxes		6,676		5,232
Provision for income taxes		2,104		1,910
Net income	$	4,572	$	3,322

Basic earnings per share	$	0.15	$	0.11
Diluted earnings per share		0.15		0.11


Ending common shares outstanding	29,580,430	29,483,429
Weighted-average basic shares outstanding	29,560,521	29,483,429
Weighted-average diluted shares outstanding	29,940,950	29,805,770

Old Second Bancorp, Inc. and Subsidiaries

Quarterly Consolidated Average Balance

(In thousands, unaudited)



		2016							2017
Assets	1st Qtr		2nd Qtr		3rd Qtr		4th Qtr		1st Qtr
Cash and due from banks	$	27,813	$	28,597	$	41,344	$	28,928	$	33,585
Interest bearing deposits with financial institutions		15,513		12,048		50,054		54,865		12,121
Cash and cash equivalents		43,326		40,645		91,398		83,793		45,706

Securities available-for-sale, at fair value		486,924		684,179		659,890		533,233		563,897
Securities held-to-maturity, at amortized cost		246,772		80,899		-		-		-
FHLBC and FRBC stock		8,518		7,431		7,918		7,911		7,614
Loans held-for-sale		2,912		4,238		5,295		4,050		2,670
Loans		1,138,985		1,145,892		1,186,279		1,386,487		1,484,556
Less: allowance for loan losses		16,257		16,415		15,767		15,388		16,292
Net loans		1,122,728		1,129,477		1,170,512		1,371,099		1,468,264

Premises and equipment, net		39,416		39,143		39,191		39,129		38,917
Other real estate owned		18,760		16,906		14,888		14,008		13,464
Mortgage servicing rights, net		5,347		5,151		4,822		5,618		6,543
Goodwill and core deposit intangible		-		-		-		3,195		9,005
Bank-owned life insurance (BOLI)		59,178		59,459		59,787		60,153		60,446
Deferred tax assets, net		65,210		61,768		57,692		55,902		52,747
Other assets		9,346		10,469		13,833		19,067		11,714
Total other assets		197,257		192,896		190,213		197,072		192,836
Total assets	$	2,108,437	$	2,139,765	$	2,125,226	$	2,197,158	$	2,280,987

Liabilities
Deposits:
Noninterest bearing demand	$	450,150	$	472,450	$	472,599	$	510,161	$	525,454
Interest bearing:
Savings, NOW, and money market		915,924		920,389		907,531		933,222		969,609
Time		407,743		402,912		401,999		404,507		394,388
Total deposits		1,773,817		1,795,751		1,782,129		1,847,890		1,889,451

Securities sold under repurchase agreements		35,776		37,433		31,892		31,019		29,805
Other short-term borrowings		27,802		28,187		22,174		27,940		56,111
Junior subordinated debentures		57,549		57,561		57,573		57,585		57,597
Senior Notes		-		-		-		8,155		43,978
Subordinated debt		45,000		45,000		45,000		36,685		-
Notes payable and other borrowings		500		500		500		408		-
Other liabilities		11,033		12,511		15,539		12,609		25,061
Total liabilities		1,951,477		1,976,943		1,954,807		2,022,291		2,102,003

Stockholders' equity
Common stock		34,427		34,505		34,533		34,533		34,451
Additional paid-in capital		115,945		116,065		116,365		116,537		116,747
Retained earnings		116,231		119,640		123,771		128,017		131,631
Accumulated other comprehensive loss		(13,677)		(11,241)		(8,030)		(8,000)		(7,692)
Treasury stock		(95,966)		(96,147)		(96,220)		(96,220)		(96,243)
Total stockholders' equity		156,960		162,822		170,419		174,867		178,894
Total liabilities and stockholder's equity	$	2,108,437	$	2,139,765	$	2,125,226	$	2,197,158	$	2,280,897

Total Earning Assets	$	1,899,624	$	1,934,687	$	1,909,436	$	1,986,546	$	2,070,858
Total Interest Bearing Liabilities		1,490,294		1,491,982		1,466,669		1,499,521		1,551,488

Old Second Bancorp, Inc. and Subsidiaries

Quarterly Consolidated Statements of Income

(In thousands, except share data, unaudited)



	2016								2017
	1st Qtr		2nd Qtr		3rd Qtr		4th Qtr		1st Qtr
Interest and Dividend Income
Loans, including fees	$	13,058	$	13,039	$	13,496	$	16,426	$	16,609
Loans held-for-sale		28		39		48		36		24
Securities:
Taxable		4,211		4,382		3,954		3,318		2,963
Tax exempt		179		220		180		263		1,065
Dividends from Federal Home Loan Bank and Federal Reserve Bank stock		84		84		83		82		85
Interest bearing deposits with financial institutions		19		15		64		71		23
Total interest and dividend income		17,579		17,779		17,825		20,196		20,769
Interest Expense
Savings, NOW, and money market deposits		191		193		193		212		223
Time deposits		822		869		931		1,018		979
Other short-term borrowings		20		26		23		37		108
Junior subordinated debentures		1,084		1,083		1,084		1,083		1,084
Senior notes		-		-		-		112		673
Subordinated debt		239		243		245		222		-
Notes payable and other borrowings		2		2		2		2		-
Total interest expense		2,358		2,416		2,478		2,686		3,067
Net interest and dividend income		15,221		15,363		15,347		17,510		17,702
Loan loss reserve		-		-		-		750		-
Net interest and dividend income after reserve for loan losses		15,221		15,363		15,347		16,760		17,702
Noninterest Income
Trust income		1,369		1,502		1,403		1,396		1,458
Service charges on deposits		1,559		1,646		1,756		1,723		1,618
Secondary mortgage fees		193		280		322		243		176
Mortgage servicing rights mark to market		(1,041)		(733)		(147)		1,002		(133)
Mortgage servicing income		421		422		437		444		435
Net gain on sales of mortgage loans		1,212		1,642		2,177		1,312		1,147
Securities losses, net		(61)		-		(1,959)		(193)		(136)
Increase in cash surrender value of bank-owned life insurance		285		319		383		296		359
Debit card interchange income		947		1,049		1,013		1,018		975
Loss on disposal and transfer of fixed assets		(1)		-		-		-		(2)
Other income		1,392		1,150		1,209		1,187		1,131
Total noninterest income		6,275		7,277		6,594		8,428		7,028
Noninterest Expense
Salaries and employee benefits		9,026		8,814		9,014		9,380		10,573
Occupancy, furniture and equipment		1,581		1,346		1,500		1,636		1,566
Computer and data processing		925		1,063		1,105		1,256		1,090
FDIC insurance		203		362		228		72		148
General bank insurance		298		272		269		270		270
Amortization of core deposit intangible		-		-		-		16		25
Advertising expense		347		435		430		421		386
Debit card interchange expense		203		620		363		269		349
Legal fees		161		191		242		206		104
Other real estate expense, net		738		879		426		700		709
Other expense		2,782		2,718		3,005		2,989		2,834
Total noninterest expense		16,264		16,700		16,582		17,215		18,054
Income before income taxes		5,232		5,940		5,359		7,973		6,676
Provision for income taxes		1,910		2,095		1,860		2,955		2,104
Net income	$	3,322	$	3,845	$	3,499	$	5,018	$	4,572

Basic earnings per share	$	0.11	$	0.13	$	0.12	$	0.17	$	0.15
Diluted earnings per share		0.11		0.13		0.12		0.17		0.15

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
	March 31,			December 31,			March 31,
	2017			2016			2016
Net Interest Margin
Interest income (GAAP)	$	20,769		$	20,196		$	17,579
Taxable-equivalent adjustment:
Loans		22			23			24
Securities		573			141			96
Interest income (TE)		21,364			20,360			17,699
Interest expense (GAAP)		3,067			2,686			2,358
Net interest income (TE)	$	18,297		$	17,674		$	15,341
Net interest income (GAAP)	$	17,702		$	17,510		$	15,221
Average interest earning assets	$	2,070,858		$	1,986,546		$	1,899,624
Net interest margin (GAAP)		3.47	%		3.51	%		3.22	%
Net interest margin (TE)		3.58	%		3.54	%		3.25	%


		Three Months Ended
	March 31,			December 31,			March 31,
	2017			2016			2016
Efficiency Ratio
Noninterest expense	$	18,054		$	17,215		$	16,264
Less amortization of core deposit		25			16			-
Less other real estate expense, net		709			700			738
Less acquisition costs		-			154			-
Adjusted noninterest expense		17,320			16,345			15,526
Net interest income (GAAP)		17,702			17,510			15,221
Taxable-equivalent adjustment:
Loans		22			23			24
Securities		573			141			96
Net interest income (TE)		18,297			17,674			15,341
Noninterest income		7,028			8,428			6,275
Taxable-equivalent adjustment:
Increase in cash surrender value of BOLI (TE)		193			160			153
Noninterest income (TE)		7,221			8,588			6,428
Less securities loss, net		(136)			(193)			(61)
Adjusted noninterest income, plus net interest income (TE)	$	25,654		$	26,455		$	21,830
Efficiency ratio		67.51	%		61.78	%		71.12	%

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OLD SECOND BANCORP INC Reports