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

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8-K - 8-K - OLD SECOND BANCORP INC	osbc-20170726x8k.htm



(NASDAQ:OSBC)		Exhibit 99.1

Contact:	Bradley S. Adams	For Immediate Release
	Chief Financial Officer	July 26, 2017
	(630) 906-5484

Old Second Reports Second Quarter 2017 Net Income of $5.5 million

AURORA, IL, July 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 second quarter of 2017. The Company’s net income was $5.5 million, or $0.18 per diluted share, for the second quarter of 2017, as compared to $3.8 million, or $0.13 per diluted share, for the second quarter of 2016.

Operating Results

On July 18, 2017, the Company’s Board of Directors declared a cash dividend of $0.01 per share payable on August 7, 2017, to stockholders of record as of July 28, 2017.

Second quarter 2017 net income was $5.5 million, reflecting an increase of $1.6 million, or 41.9%, from the second quarter of 2016 and an increase of $885,000, or 19.4%, from the first quarter of 2017.

Net interest and dividend income totaled $19.0 million for the second quarter of 2017 and reflects an increase of $3.6 million, or 23.6%, over the second quarter of 2016. Net interest and dividend income for the second quarter of 2017 reflected an increase of $1.3 million, or 7.3%, from the $17.7 million recorded in the first quarter of 2017. Net interest income continued to be favorably impacted in the second quarter of 2017 due to the Company’s fourth quarter 2016 acquisition of $221.0 million of loans from the purchase of the Chicago branch of Talmer Bank and Trust. Purchase accounting accretion income realized in the second quarter of 2017 totaled $495,000, as compared to $0 in the second quarter of 2016 and $355,000 in the first quarter of 2017.

A provision for loan losses expense of $750,000 was recorded in the second quarter of 2017. No provision for loan losses was recorded in the second quarter of 2016 or the first quarter of 2017.

Noninterest income was $7.3 million for the second quarter of 2017, which reflects growth of $40,000, or 0.5%, over the second quarter of 2016, and an increase of $289,000, or 4.1%, as compared to the first quarter of 2017. These variances were primarily due to an increase in trust revenue stemming from growth in customer volume; in addition, changes in the valuation of mortgage servicing rights and net gains on the sales of mortgages resulted in favorable variances for the quarter.

Noninterest expense of $18.0 million for the second quarter of 2017 increased $1.3 million, or 7.7%, from the second quarter of 2016. An increase in salaries and employee benefits was reflected due to certain one-time costs incurred as well as nine additional full-time equivalent employees in the second quarter of 2017. Noninterest expense of $18.0 million remained the same in the second quarter of 2017 as compared to the first quarter of 2017.

Capital Ratios


	June 30,		December 31,		June 30,
	2017		2016		2016
The Bank's common equity tier 1 capital ratio	12.46	%	12.53	%	14.67	%
The Company's common equity tier 1 capital ratio	8.55	%	8.76	%	10.30	%
The Bank's total capital ratio	13.30	%	13.45	%	15.74	%
The Company's total capital ratio	12.14	%	12.29	%	15.03	%
The Company's tier 1 leverage ratio	9.09	%	8.90	%	8.94	%

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

Asset Quality & Earning Assets

Nonperforming loans ended at $15.6 million at June 30, 2017, compared to $16.0 million at December 31, 2016, and $18.4 million at June 30, 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 1.0% as of June 30, 2017, from 1.1% as of December 31, 2016, and 1.6% as of June 30, 2016.

OREO assets totaled $11.7 million as of June 30, 2017, which is a $192,000 reduction compared to $11.9 million at December 31, 2016. Valuation writedowns continued in the second quarter of 2017 with a quarterly expense of $392,000 compared to $489,000 in the second quarter of 2016 and $265,000 in the fourth quarter of 2016. Nonperforming assets as a percent of total loans plus OREO decreased to 1.8% as of June 30, 2017, as compared to 2.9% as of June 30, 2016, and 1.9% as of December 31, 2016.

Total loans at June 30, 2017, were $1.54 billion, reflecting an increase of $60.8 million when compared to December 31, 2016. Average loans (including loans held-for-sale) for the second quarter of 2017 were $1.51 billion, reflecting an increase of $118.7 million from quarterly average loans for the fourth quarter of 2016 and an increase of $359.1 million when compared to the second quarter of 2016.

As of June 30, 2017, available-for-sale securities at fair value totaled $568.2 million, as compared to $531.8 million at December 31, 2016, and $764.6 million at June 30, 2016. The decline in securities year over year was used to fund the Talmer branch acquisition and organic loan growth. Net losses of $131,000 pretax on the sale of securities were realized for the second quarter of 2017, as compared to no losses in the second 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
	June 30, 2017						December 31, 2016						June 30, 2016
	Average					Rate	Average					Rate	Average					Rate
	Balance			Interest		%	Balance			Interest		%	Balance			Interest		%
Assets
Interest bearing deposits with financial institutions	$	11,938		$	31	1.03	$	54,865		$	71	0.51	$	12,048		$	15	0.49
Securities:
Taxable		361,504			2,607	2.88		495,687			3,318	2.68		721,837			4,382	2.43
Non-taxable (TE)		225,182			3,039	5.40		37,546			404	4.30		43,241			339	3.14
Total securities		586,686			5,646	3.85		533,233			3,722	2.79		765,078			4,721	2.47
Dividends from FHLBC and FRBC		7,699			92	4.78		7,911			82	4.15		7,431			84	4.52
Loans and loans held-for-sale1		1,509,188			17,445	4.57		1,390,537			16,485	4.64		1,150,130			13,101	4.51
Total interest earning assets		2,115,511			23,214	4.35		1,986,546			20,360	4.03		1,934,687			17,921	3.68
Cash and due from banks		39,425			-	-		28,928			-	-		28,597			-	-
Allowance for loan losses		(15,779)			-	-		(15,388)			-	-		(16,415)			-	-
Other noninterest bearing assets		189,928			-	-		197,072			-	-		192,896			-	-
Total assets	$	2,329,085					$	2,197,158					$	2,139,765

Liabilities and Stockholders' Equity
NOW accounts	$	432,248		$	107	0.10	$	405,338		$	97	0.10	$	386,485		$	88	0.09
Money market accounts		280,482			86	0.12		274,423			76	0.11		272,583			66	0.10
Savings accounts		265,066			40	0.06		253,461			39	0.06		261,321			39	0.06
Time deposits		392,779			1,025	1.05		404,507			1,018	1.00		402,912			869	0.87
Interest bearing deposits		1,370,575			1,258	0.37		1,337,729			1,230	0.37		1,323,301			1,062	0.32
Securities sold under repurchase agreements		35,652			4	0.05		31,019			1	0.01		37,433			1	0.01
Other short-term borrowings		58,572			146	0.99		27,940			36	0.50		28,187			25	0.35
Junior subordinated debentures		57,609			1,059	7.35		57,585			1,083	7.52		57,561			1,083	7.53
Senior notes		43,995			672	6.11		8,155			112	5.49		-			-	-
Subordinated debt		-			-	-		36,685			222	2.37		45,000			243	2.14
Notes payable and other borrowings		-			-	-		408			2	1.92		500			2	1.58
Total interest bearing liabilities		1,566,403			3,139	0.80		1,499,521			2,686	0.71		1,491,982			2,416	0.65
Noninterest bearing deposits		557,265			-	-		510,161			-	-		472,450			-	-
Other liabilities		18,047			-	-		12,609			-	-		12,511			-	-
Stockholders' equity		187,370			-	-		174,867			-	-		162,822			-	-
Total liabilities and stockholders' equity	$	2,329,085					$	2,197,158					$	2,139,765
Net interest income (TE)				$	20,075					$	17,674					$	15,505
Net interest income (TE)
to total earning assets						3.81						3.54						3.22
Interest bearing liabilities to earning assets		74.04	%					75.48	%					77.12	%

1 Interest income from loans is shown on a tax equivalent basis as discussed in the table on page 14 and includes fees of $573,000, $731,000 and $531,000 for the second quarter of 2017, the fourth quarter of 2016 and the second 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 net interest income increased $2.4 million for the quarter ended June 30, 2017, as compared to the quarter ended December 31, 2016. Quarterly average earning assets increased $129.0 million from the fourth quarter of 2016 to a total of $2.12 billion for the period ended June 30, 2017, while yield on earning assets increased 32 basis points. Average loan growth, including loans held-for-sale, was $118.7 million for the period ended June 30, 2017, as compared to the quarter ended December 31, 2016, while the year over year second quarter average loans, including loans held-for-sale, increased $359.1 million. This growth was primarily due to the Talmer branch acquisition, which resulted in $221.0 million of purchased loans. In addition, organic loan growth, driven by commercial portfolio originations, occurred in the year over year period.

Securities growth in the second quarter of 2017 stemmed from portfolio repositioning to higher yielding tax exempt securities; in the first six months of 2017, lower yielding securities were sold, and deposit growth was also utilized to fund the higher yielding securities purchases. These security purchases, as well as a rising interest rate environment, drove a 106 basis point increase for total securities income in the second quarter of 2017 as compared to the fourth quarter of 2016, and a 138 basis point increase from the like 2016 quarter.

The cost on interest bearing liabilities for the second quarter of 2017 increased from the fourth quarter of 2016 by 9 basis points, and increased by 15 basis points from the second quarter of 2016. Total average interest bearing liabilities have increased in all periods presented due to growth in NOW and money market accounts, and have increased since year end 2016 due to growth in savings accounts. However, significant growth in demand deposits for each period presented has resulted in a lower cost of funds, and an increase in the net interest margin of 27 basis points as compared to the fourth quarter of 2016. For the quarter ended June 30, 2017, average other short-term borrowings, which are Federal Home Loan Bank Chicago ( “FHLBC”) advances, increased by $30.6 million compared to the fourth quarter of 2016 and by $30.4 million as compared to the quarter ended June 30, 2016.

Noninterest Income


							2nd Qtr 2017
	Quarters Ended						Percent Change From
(dollars in thousands)	June 30,		March 31,		June 30,		March 31,	June 30,
	2017		2017		2016		2017	2016
Trust income	$	1,638	$	1,458	$	1,502	12.3	9.1
Service charges on deposits		1,615		1,618		1,646	(0.2)	(1.9)
Residential mortgage banking revenue		1,711		1,625		1,611	5.3	6.2
Securities loss, net		(131)		(136)		-	3.7	N/M
Increase in cash surrender value of BOLI		350		359		319	(2.5)	9.7
Debit card interchange income		1,081		975		1,049	10.9	3.1
Gain (loss) on disposal and transfer of fixed assets		12		(2)		-	N/M	N/M
Other income		1,041		1,131		1,150	(8.0)	(9.5)
Total noninterest income	$	7,317	$	7,028	$	7,277	4.1	0.5

N/M - Not Meaningful

Of the noninterest income categories, trust income experienced the largest increases on both a linked quarter and year over year basis, as shown above, primarily due to favorable market conditions and increased clientele. Debit card interchange income also improved slightly compared to first quarter 2017, due to increased customer volumes.

Noninterest Expense


										2nd Qtr 2017
	Quarters Ended									Percent Change From
(dollars in thousands)	June 30,			March 31,			June 30,			March 31,	June 30,
	2017			2017			2016			2017	2016
Salaries	$	7,972		$	8,057		$	6,999		(1.1)	13.9
Bonus		854			465			452		83.7	88.9
Benefits and other		1,719			2,051			1,363		(16.2)	26.1
Total salaries and employee benefits		10,545			10,573			8,814		(0.3)	19.6
Occupancy, furniture and equipment expense		1,462			1,566			1,346		(6.6)	8.6
Computer and data processing		1,112			1,090			1,063		2.0	4.6
FDIC insurance		165			148			362		11.5	(54.4)
General bank insurance		264			270			272		(2.2)	(2.9)
Amortization of core deposit intangible asset		25			25			-		-	N/M
Advertising expense		452			386			435		17.1	3.9
Debit card interchange expense		399			349			620		14.3	(35.6)
Legal fees		184			104			191		76.9	(3.7)
Other real estate owned expense, net		539			709			879		(24.0)	(38.7)
Other expense		2,839			2,834			2,718		0.2	4.5
Total noninterest expense	$	17,986		$	18,054		$	16,700		(0.4)	7.7
Efficiency ratio (defined below)		62.87	%		67.51	%		68.92	%

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 second quarter of 2017 decreased $68,000, or 0.4%, on a linked quarter basis but increased $1.3 million, or 7.7%, year over year. The year over year increase was driven by additional salaries and employee benefit costs primarily due to one-time executive recruitment and relocation costs of $294,000, higher insurance claims and resultant premium expense, and nine additional full time equivalent employees due primarily to the Talmer branch acquisition in late 2016. The linked quarter decrease is minimal and primarily attributable to reductions in OREO expense due to the decline in OREO assets.

Earning Assets


							June 30, 2017
Loans	As of						Percent Change From
(dollars in thousands)	June 30,		December 31,		June 30,		December 31,	June 30,
	2017		2016		2016		2016	2016
Commercial	$	256,760	$	228,113	$	127,709	12.6	101.1
Real estate - commercial		706,103		736,247		600,942	(4.1)	17.5
Real estate - construction		93,661		64,720		22,204	44.7	321.8
Real estate - residential		398,170		377,851		352,595	5.4	12.9
Consumer		2,878		3,237		2,966	(11.1)	(3.0)
Overdraft		316		436		504	(27.5)	(37.3)
Lease financing receivables		70,138		55,451		42,013	26.5	66.9
Other		10,943		11,537		11,127	(5.1)	(1.7)
		1,538,969		1,477,592		1,160,060	4.2	32.7
Net deferred loan costs		678		1,217		1,091	(44.3)	(37.9)
Total loans	$	1,539,647	$	1,478,809	$	1,161,151	4.1	32.6

Loans listed above were reclassified for June 30, 2016, between the classifications listed to align with credit quality disclosures for the year ended December 31, 2016.

Total loans increased by $60.8 million at the end of the second quarter of 2017 as compared to year end 2016, and $378.5 million as compared to the second quarter of 2016. The Talmer branch acquisition of $221.0 million of new loans, organic loan growth experienced over the past year, primarily in commercial loans, and a second quarter 2017 purchase of $16.7 million of home equity loans, resulted in the favorable variance to prior periods. 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 branch acquisition.


							June 30, 2017
Securities	As of						Percent Change From
(dollars in thousands)	June 30,		December 31,		June 30,		December 31,	June 30,
	2017		2016		2016		2016	2016
Securities available-for-sale, at fair value
U.S. government agencies		-		-		1,522	N/M	N/M
U.S. government agency mortgage-backed		20,846		41,534		43,646	(49.8)	(52.2)
States and political subdivisions		225,518		68,703		42,621	228.3	429.1
Corporate bonds		12,616		10,630		30,208	18.7	(58.2)
Collateralized mortgage obligations		100,913		170,927		289,225	(41.0)	(65.1)
Asset-backed securities		140,385		138,407		250,959	1.4	(44.1)
Collateralized loan obligations		67,949		101,637		106,370	(33.1)	(36.1)
Total securities available-for-sale	$	568,227	$	531,838	$	764,551	6.8	(25.7)

N/M - Not Meaningful

The investment portfolio ended the second quarter of 2017 at $568.2 million, an increase of $36.4 million from $531.8 million at December 31, 2016, but $196.3 million less than $764.6 million as of June 30, 2016. The decline during 2016 is due to security sales to fund the Talmer branch acquisition, as well as funding needs due to organic loan growth. During the fourth quarter of 2016 and during the 2017 year to date period, 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 $267,000 of net security losses in the first six months of 2017, but the resultant security purchases with the funds from security sales and deposit growth impacted the net interest margin favorably with higher yielding assets. In addition, there was a significant decline in collateralized loan obligations (“CLOs”) during 2017 due to calls of a number of issues held by the Company. This call activity occurred because the contractual spreads of the securities held in the portfolio were materially higher than those for newly-issued CLOs, which created a financial incentive for issuers to call existing CLO’s and re-use the underlying loan collateral for newly-created issues.

Asset Quality


										June 30, 2017
Nonperforming assets	As of									Percent Change From
(dollars in thousands)	June 30,			December 31,			June 30,			December 31,	June 30,
	2017			2016			2016			2016	2016
Nonaccrual loans	$	14,683		$	15,283		$	18,260		(3.9)	(19.6)
Nonperforming troubled debt restructured loans accruing interest		935			718			162		30.2	477.2
Loans past due 90 days or more and still accruing interest		-			-			-		N/M	N/M
Total nonperforming loans		15,618			16,001			18,422		(2.4)	(15.2)
Other real estate owned		11,724			11,916			16,252		(1.6)	(27.9)
Total nonperforming assets	$	27,342		$	27,917		$	34,674		(2.1)	(21.1)

30-89 days past due loans	$	6,088		$	5,139		$	1,368
Nonaccrual loans to total loans		1.0	%		1.0	%		1.6	%
Nonperforming loans to total loans		1.0	%		1.1	%		1.6	%
Nonperforming assets to total loans plus OREO		1.8	%		1.9	%		2.9	%

Allowance for loan losses	$	15,836		$	16,158		$	15,822
Allowance for loan losses to loans		1.0	%		1.1	%		1.4	%
Allowance for loan losses to nonaccrual loans		107.9	%		105.7	%		86.6	%

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 1.0% decreased in the second quarter of 2017, as compared to the fourth quarter of 2016 and the second 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 1.0% as of June 30, 2017, which is materially unchanged from year end 2016; the allowance excludes the purchase accounting credit marks recorded on the Talmer branch purchased loans.


							June 30, 2017
Classified loans	As of						Percent Change From
(dollars in thousands)	June 30,		December 31,		June 30,		December 31,	June 30,
	2017		2016		2016		2016	2016
Real estate-construction	$	397	$	458	$	257	(13.3)	54.5
Real estate-residential:
Investor		843		1,096		1,310	(23.1)	(35.6)
Multifamily		4,824		-		-	N/M	N/M
Owner occupied		4,935		7,225		6,540	(31.7)	(24.5)
Revolving and junior liens		1,963		2,340		3,370	(16.1)	(41.8)
Real estate-commercial, nonfarm		7,494		9,946		13,665	(24.7)	(45.2)
Real estate-commercial, farm		1,305		1,782		56	(26.8)	N/M
Commercial		255		2,527		1,646	(89.9)	(84.5)
Leases		460		1,109		813	(58.5)	(43.4)
Consumer		9		1		1	N/M	N/M
Total classified loans	$	22,485	$	26,484	$	27,658	(15.1)	(18.7)

N/M - Not Meaningful

Classified loans include nonaccrual, performing troubled debt restructurings and all other loans considered substandard, as shown below. Classified loans totaled $22.5 million as of June 30, 2017, which reflects a decrease of $4.0 million, or 15.1%, from year end 2016, and a decrease of $5.2 million, or 18.7%, 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 a $750,000 loan loss provision was necessary for the second 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	Quarters Ended
(dollars in thousands)	June 30,		% of	March 31,		% of	June 30,		% of
	2017		Total1	2017		Total1	2016		Total1
Real estate-construction
Homebuilder	$	(1)	(0.2)	$	(17)	(4.1)	$	(5)	(1.2)
Land		(48)	(7.3)		-	-		-	-
All other		(11)	(1.7)		3	0.7		(1)	(0.2)
Total real estate-construction		(60)	(9.2)		(14)	(3.4)		(6)	(1.4)
Real estate-residential
Investor		(16)	(2.4)		(1)	(0.2)		16	3.8
Multifamily		129	19.7		(9)	(2.2)		(39)	(9.2)
Owner occupied		723	110.4		(2)	(0.5)		74	17.5
Revolving and junior liens		(109)	(16.6)		65	15.6		(170)	(40.1)
Total real estate-residential		727	111.1		53	12.6		(119)	(28.0)
Real estate-commercial, nonfarm
Owner general purpose		(1)	(0.2)		-	-		(106)	(25.0)
Owner special purpose		(6)	(0.9)		(5)	(1.2)		(5)	(1.2)
Non-owner general purpose		(39)	(6.0)		250	60.0		314	74.1
Non-owner special purpose		-	-		(6)	(1.4)		-	-
Retail properties		4	0.6		-	-		342	80.7
Total real estate-commercial, nonfarm		(42)	(6.5)		239	57.4		545	128.6
Commercial		1	0.2		(1)	(0.2)		-	-
Leases		-	-		117	28.1		-	-
Consumer		34	5.2		25	6.0		11	2.6
Other		(5)	(0.8)		(2)	(0.5)		(7)	(1.8)
Net charge-offs / (recoveries)	$	655	100.0	$	417	100.0	$	424	100.0

1 Represents the percentage of total charge-offs attributable to each category of loans.

Gross charge-offs for the quarter ended June 30, 2017, were $1.1 million compared to $936,000 for the quarter ended June 30, 2016. Gross recoveries for the quarter ended June 30, 2017, were $411,000 compared to $512,000 for the quarter ended June 30, 2016. Continued recoveries are indicative of the ongoing aggressive efforts by management to effectively manage and resolve prior charge-offs.

Deposits

Total deposits were $1.91 billion at June 30, 2017, which reflects an increase of $43.4 million from total deposits of $1.87 billion at December 31, 2016. Demand deposits increased by $32.8 million, while money markets, savings and NOW balances increased by $20.9 million. Total time deposits or certificates of deposit reflected a decrease of $10.3 million in the first six months of 2017. Growth in the commercial loan portfolio has driven commercial demand deposits to a higher level; demand deposits are also higher due to seasonal real estate tax collections.

Borrowings

As of June 30, 2017, the Bank had $75.0 million in FHLBC advances outstanding as compared to $70.0 million in FHLBC advances at December 31, 2016.

The Company is indebted on senior notes totaling $44.0 million, net of deferred issuance costs, as of June 30, 2017. 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. The Trust II issuance converted from fixed to floating rate at three month LIBOR plus 150 basis points on June 15, 2017. Upon conversion to a floating rate, a cash flow hedge was initiated which resulted in the total interest rate paid on the debt of 4.34%, as compared to the rate paid prior to June 15, 2017 of 6.77%.

Capital


	June 30,		December 31,		June 30,
	2017		2016		2016
The Company's common equity tier 1 capital ratio	8.55	%	8.76	%	10.30	%
(minimum 4.5% for adequately capitalized)
The Company's tier 1 capital ratio	11.06	%	10.88	%	12.71	%
(minimum 6.0% for adequately capitalized)
The Company's total capital ratio	12.14	%	12.29	%	15.03	%
(minimum 8.0% for adequately capitalized)
The Company's tier 1 leverage ratio	9.09	%	8.90	%	8.94	%
(minimum 4.0% for adequately capitalized)

As of June 30, 2017, the Bank’s common equity tier 1 capital ratio of 12.46% and total capital ratio of 13.30% 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, July 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 August 3, 2017, by dialing 877-481-4010, using Conference ID: 15977.

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands)


	(unaudited)
	June 30,		December 31,
	2017		2016
Assets
Cash and due from banks	$	32,614	$	33,805
Interest bearing deposits with financial institutions		18,483		13,529
Cash and cash equivalents		51,097		47,334
Securities available-for-sale, at fair value		568,227		531,838
Federal Home Loan Bank Chicago ("FHLBC") and Federal Reserve Bank Chicago ("FRBC") stock		8,593		7,918
Loans held-for-sale		5,440		4,918
Loans		1,539,647		1,478,809
Less: allowance for loan losses		15,836		16,158
Net loans		1,523,811		1,462,651
Premises and equipment, net		38,061		38,977
Other real estate owned		11,724		11,916
Mortgage servicing rights, net		6,528		6,489
Goodwill and core deposit intangible		8,968		9,018
Bank-owned life insurance ("BOLI")		61,041		60,332
Deferred tax assets, net		45,356		53,464
Other assets		14,595		16,333
Total assets	$	2,343,441	$	2,251,188

Liabilities
Deposits:
Noninterest bearing demand	$	546,463	$	513,688
Interest bearing:
Savings, NOW, and money market		971,715		950,849
Time		391,967		402,248
Total deposits		1,910,145		1,866,785
Securities sold under repurchase agreements		36,361		25,715
Other short-term borrowings		75,000		70,000
Junior subordinated debentures		57,615		57,591
Senior notes		44,008		43,998
Other liabilities		29,182		11,889
Total liabilities		2,152,311		2,075,978

Stockholders’ Equity
Common stock		34,626		34,534
Additional paid-in capital		117,186		116,653
Retained earnings		138,442		129,005
Accumulated other comprehensive loss		(2,668)		(8,762)
Treasury stock		(96,456)		(96,220)
Total stockholders’ equity		191,130		175,210
Total liabilities and stockholders’ equity	$	2,343,441	$	2,251,188

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

(In thousands, except share data)


	(unaudited)				(unaudited)
	Quarters Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Interest and dividend income
Loans, including fees	$	17,385	$	13,039	$	33,994	$	26,097
Loans held-for-sale		37		39		61		67
Securities:
Taxable		2,607		4,382		5,570		8,593
Tax exempt		1,975		220		3,040		399
Dividends from FHLBC and FRBC stock		92		84		177		168
Interest bearing deposits with financial institutions		31		15		54		34
Total interest and dividend income		22,127		17,779		42,896		35,358
Interest expense
Savings, NOW, and money market deposits		233		193		456		384
Time deposits		1,025		869		2,004		1,691
Other short-term borrowings		150		26		258		46
Junior subordinated debentures		1,059		1,083		2,143		2,167
Senior notes		672		-		1,345		-
Subordinated debt		-		243		-		482
Notes payable and other borrowings		-		2		-		4
Total interest expense		3,139		2,416		6,206		4,774
Net interest and dividend income		18,988		15,363		36,690		30,584
Provision for loan losses		750		-		750		-
Net interest and dividend income after provision for loan losses		18,238		15,363		35,940		30,584
Noninterest income
Trust income		1,638		1,502		3,096		2,871
Service charges on deposits		1,615		1,646		3,233		3,205
Secondary mortgage fees		223		280		399		473
Mortgage servicing rights mark to market loss		(429)		(733)		(562)		(1,774)
Mortgage servicing income		444		422		879		843
Net gain on sales of mortgage loans		1,473		1,642		2,620		2,854
Securities loss, net		(131)		-		(267)		(61)
Increase in cash surrender value of BOLI		350		319		709		604
Debit card interchange income		1,081		1,049		2,056		1,996
Gain (loss) on disposal and transfer of fixed assets, net		12		-		10		(1)
Other income		1,041		1,150		2,172		2,542
Total noninterest income		7,317		7,277		14,345		13,552
Noninterest expense
Salaries and employee benefits		10,545		8,814		21,118		17,840
Occupancy, furniture and equipment		1,462		1,346		3,028		2,927
Computer and data processing		1,112		1,063		2,202		1,988
FDIC insurance		165		362		313		565
General bank insurance		264		272		534		570
Amortization of core deposit intangible		25		-		50		-
Advertising expense		452		435		838		782
Debit card interchange expense		399		620		748		823
Legal fees		184		191		288		352
Other real estate expense, net		539		879		1,248		1,617
Other expense		2,839		2,718		5,673		5,500
Total noninterest expense		17,986		16,700		36,040		32,964
Income before income taxes		7,569		5,940		14,245		11,172
Provision for income taxes		2,112		2,095		4,216		4,005
Net income	$	5,457	$	3,845	$	10,029	$	7,167

Basic earnings per share	$	0.19	$	0.13	$	0.34	$	0.24
Diluted earnings per share		0.18		0.13		0.33		0.24


Ending common shares outstanding	29,627,086	29,554,716	29,627,086	29,554,716
Weighted-average basic shares outstanding	29,587,095	29,535,915	29,573,881	29,509,672
Weighted-average diluted shares outstanding	30,015,905	29,841,239	29,976,544	29,823,504

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		2nd Qtr
Cash and due from banks	$	27,813	$	28,597	$	41,344	$	28,928	$	33,585	$	39,425
Interest bearing deposits with financial institutions		15,513		12,048		50,054		54,865		12,121		11,938
Cash and cash equivalents		43,326		40,645		91,398		83,793		45,706		51,363

Securities available-for-sale, at fair value		486,924		684,179		659,890		533,233		563,897		586,686
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		7,699
Loans held-for-sale		2,912		4,238		5,295		4,050		2,670		3,616
Loans		1,138,985		1,145,892		1,186,279		1,386,487		1,484,556		1,505,572
Less: allowance for loan losses		16,257		16,415		15,767		15,388		16,292		15,779
Net loans		1,122,728		1,129,477		1,170,512		1,371,099		1,468,264		1,489,793

Premises and equipment, net		39,416		39,143		39,191		39,129		38,917		38,395
Other real estate owned		18,760		16,906		14,888		14,008		13,464		12,596
Mortgage servicing rights, net		5,347		5,151		4,822		5,618		6,543		6,464
Goodwill and core deposit intangible		-		-		-		3,195		9,005		8,981
Bank-owned life insurance ("BOLI")		59,178		59,459		59,787		60,153		60,446		60,806
Deferred tax assets, net		65,210		61,768		57,692		55,902		52,747		48,459
Other assets		9,346		10,469		13,833		19,067		11,714		14,227
Total other assets		197,257		192,896		190,213		197,072		192,836		189,928
Total assets	$	2,108,437	$	2,139,765	$	2,125,226	$	2,197,158	$	2,280,987	$	2,329,085

Liabilities
Deposits:
Noninterest bearing demand	$	450,150	$	472,450	$	472,599	$	510,161	$	525,454	$	557,265
Interest bearing:
Savings, NOW, and money market		915,924		920,389		907,531		933,222		969,609		977,796
Time		407,743		402,912		401,999		404,507		394,388		392,779
Total deposits		1,773,817		1,795,751		1,782,129		1,847,890		1,889,451		1,927,840

Securities sold under repurchase agreements		35,776		37,433		31,892		31,019		29,805		35,652
Other short-term borrowings		27,802		28,187		22,174		27,940		56,111		58,572
Junior subordinated debentures		57,549		57,561		57,573		57,585		57,597		57,609
Senior Notes		-		-		-		8,155		43,978		43,995
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		18,047
Total liabilities		1,951,477		1,976,943		1,954,807		2,022,291		2,102,003		2,141,715

Stockholders' equity
Common stock		34,427		34,505		34,533		34,533		34,451		34,577
Additional paid-in capital		115,945		116,065		116,365		116,537		116,747		117,077
Retained earnings		116,231		119,640		123,771		128,017		131,631		136,384
Accumulated other comprehensive loss		(13,677)		(11,241)		(8,030)		(8,000)		(7,692)		(4,310)
Treasury stock		(95,966)		(96,147)		(96,220)		(96,220)		(96,243)		(96,358)
Total stockholders' equity		156,960		162,822		170,419		174,867		178,894		187,370
Total liabilities and stockholder's equity	$	2,108,437	$	2,139,765	$	2,125,226	$	2,197,158	$	2,280,897	$	2,329,085

Total Earning Assets	$	1,899,624	$	1,934,687	$	1,909,436	$	1,986,546	$	2,070,858	$	2,115,511
Total Interest Bearing Liabilities		1,490,294		1,491,982		1,466,669		1,499,521		1,551,488		1,566,403

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		2nd Qtr
Interest and Dividend Income
Loans, including fees	$	13,058	$	13,039	$	13,496	$	16,426	$	16,609	$	17,385
Loans held-for-sale		28		39		48		36		24		37
Securities:
Taxable		4,211		4,382		3,954		3,318		2,963		2,607
Tax exempt		179		220		180		263		1,065		1,975
Dividends from FHLB and FRBC stock		84		84		83		82		85		92
Interest bearing deposits with financial institutions		19		15		64		71		23		31
Total interest and dividend income		17,579		17,779		17,825		20,196		20,769		22,127
Interest Expense
Savings, NOW, and money market deposits		191		193		193		212		223		233
Time deposits		822		869		931		1,018		979		1,025
Other short-term borrowings		20		26		23		37		108		150
Junior subordinated debentures		1,084		1,083		1,084		1,083		1,084		1,059
Senior notes		-		-		-		112		673		672
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		3,139
Net interest and dividend income		15,221		15,363		15,347		17,510		17,702		18,988
Provision for loan losses		-		-		-		750		-		750
Net interest and dividend income after reserve for loan losses		15,221		15,363		15,347		16,760		17,702		18,238
Noninterest Income
Trust income		1,369		1,502		1,403		1,396		1,458		1,638
Service charges on deposits		1,559		1,646		1,756		1,723		1,618		1,615
Secondary mortgage fees		193		280		322		243		176		223
Mortgage servicing rights mark to market		(1,041)		(733)		(147)		1,002		(133)		(429)
Mortgage servicing income		421		422		437		444		435		444
Net gain on sales of mortgage loans		1,212		1,642		2,177		1,312		1,147		1,473
Securities losses, net		(61)		-		(1,959)		(193)		(136)		(131)
Increase in cash surrender value of BOLI		285		319		383		296		359		350
Debit card interchange income		947		1,049		1,013		1,018		975		1,081
(Loss) gain on disposal and transfer of fixed assets		(1)		-		-		-		(2)		12
Other income		1,392		1,150		1,209		1,187		1,131		1,041
Total noninterest income		6,275		7,277		6,594		8,428		7,028		7,317
Noninterest Expense
Salaries and employee benefits		9,026		8,814		9,014		9,380		10,573		10,545
Occupancy, furniture and equipment		1,581		1,346		1,500		1,636		1,566		1,462
Computer and data processing		925		1,063		1,105		1,256		1,090		1,112
FDIC insurance		203		362		228		72		148		165
General bank insurance		298		272		269		270		270		264
Amortization of core deposit intangible		-		-		-		16		25		25
Advertising expense		347		435		430		421		386		452
Debit card interchange expense		203		620		363		269		349		399
Legal fees		161		191		242		206		104		184
Other real estate expense, net		738		879		426		700		709		539
Other expense		2,782		2,718		3,005		2,989		2,834		2,839
Total noninterest expense		16,264		16,700		16,582		17,215		18,054		17,986
Income before income taxes		5,232		5,940		5,359		7,973		6,676		7,569
Provision for income taxes		1,910		2,095		1,860		2,955		2,104		2,112
Net income	$	3,322	$	3,845	$	3,499	$	5,018	$	4,572	$	5,457

Basic earnings per share	$	0.11	$	0.13	$	0.12	$	0.17	$	0.15	$	0.19
Diluted earnings per share		0.11		0.13		0.12		0.17		0.15		0.18

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


	Quarters Ended									Six Months Ended
	June 30,			December 31,			June 30,			June 30,
	2017			2016			2016			2017			2016
Net Interest Margin
Interest income (GAAP)	$	22,127		$	20,196		$	17,779		$	42,896		$	35,358
Taxable-equivalent adjustment:
Loans		23			23			23			45			47
Securities		1,064			141			119			1,637			215
Interest income (TE)		23,214			20,360			17,921			44,578			35,620
Interest expense (GAAP)		3,139			2,686			2,416			6,206			4,774
Net interest income (TE)	$	20,075		$	17,674		$	15,505		$	38,372		$	30,846
Net interest income (GAAP)	$	18,988		$	17,510		$	15,363		$	36,690		$	30,584
Average interest earning assets	$	2,115,511		$	1,986,546		$	1,934,687		$	2,093,308		$	1,917,155
Net interest margin (GAAP)		3.60	%		3.51	%		3.19	%		3.53	%		3.21	%
Net interest margin (TE)		3.81	%		3.54	%		3.22	%		3.70	%		3.24	%


		Quarters Ended
	June 30,			March 31,			June 30,
	2017			2017			2016
Efficiency Ratio
Noninterest expense	$	17,986		$	18,054		$	16,700
Less amortization of core deposit		25			25			-
Less other real estate expense, net		539			709			879
Adjusted noninterest expense		17,422			17,320			15,821
Net interest income (GAAP)		18,988			17,702			15,363
Taxable-equivalent adjustment:
Loans		23			22			23
Securities		1,064			573			119
Net interest income (TE)		20,075			18,297			15,505
Noninterest income		7,317			7,028			7,277
Taxable-equivalent adjustment:
Increase in cash surrender value of BOLI (TE)		188			193			172
Noninterest income (TE)		7,505			7,221			7,449
Less securities loss, net		(131)			(136)			-
Adjusted noninterest income, plus net interest income (TE)	$	27,711		$	25,654		$	22,954
Efficiency ratio		62.87	%		67.51	%		68.92	%

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OLD SECOND BANCORP INC Reports