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

Attached files

file	filename
8-K - 8-K - OLD SECOND BANCORP INC	osbc-20180124x8k.htm



(NASDAQ:OSBC)		Exhibit 99.1

Contact:	Bradley S. Adams	For Immediate Release
	Chief Financial Officer	January 24, 2018
	(630) 906-5484

Old Second Reports Fourth Quarter 2017 Net Loss of $2.5 million

AURORA, IL, January 24, 2018 – Old Second Bancorp, Inc. (the “Company” or “Old Second”) (NASDAQ: OSBC), the parent company of Old Second National Bank (the “Bank”), today announced financial results for the fourth quarter of 2017. The Company’s net loss was $2.5 million, or $0.08 per diluted share, for the fourth quarter of 2017, as compared to net income of $5.0 million, or $0.17 per diluted share, for the fourth quarter of 2016.

Operating Results

Fourth quarter 2017 net loss was $2.5 million, reflecting a decrease in earnings of $10.6 million, or 131.1%, from the third quarter of 2017, and a decrease in earnings of $7.5 million, or 150.1%, from the fourth quarter of 2016.

A nonrecurring, noncash charge of $9.5 million, or $0.31 per diluted share, was recorded as tax expense in the fourth quarter of 2017, stemming from the late December 2017 enactment of the “Tax Cuts and Jobs Act.” The act lowered the Federal corporate income tax rate, which caused the Company to record a valuation allowance with respect to its deferred tax asset. Adjusted earnings for the fourth quarter of 2017, a non-GAAP financial measure, which excludes this nonrecurring tax expense, were $7.0 million, or $0.23 per diluted share. See the discussion entitled “Non-GAAP Presentations” below and the tables on page 14 that provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

Net interest and dividend income was $19.4 million for the fourth quarter of 2017, reflecting an increase of $103,000, or 0.5%, from the $19.3 million recorded in the third quarter of 2017, and an increase of $1.9 million, or 10.7%, over the fourth quarter of 2016. Net interest income continued to be favorably impacted in the fourth quarter of 2017 by 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 (“Talmer”). Purchase accounting accretion income realized in the fourth quarter of 2017 with respect to such acquisition totaled $213,000, as compared to $265,000 in the third quarter of 2017, and $604,000 in the fourth quarter of 2016.

The Company recorded provision for loan losses expense of $750,000 in the fourth quarter of 2017, compared to $300,000 in the third quarter of 2017, and $750,000 in the fourth quarter of 2016.

Noninterest income was $8.2 million for the fourth quarter of 2017, which reflects growth of $341,000, or 4.3%, over the third quarter of 2017, and a decrease of $244,000, or 2.9%, compared to the fourth quarter of 2016. The current year linked quarter growth was primarily driven by increases in gains on securities. The decline in the fourth quarter 2017 compared to the prior year like period was due to reductions in residential mortgage banking revenues, partially offset by increases in gains on securities.

Noninterest expense was $16.2 million for the fourth quarter of 2017 which reflects a decrease of $727,000, or 4.3%, as compared to the third quarter of 2017, and a decrease of $1.0 million, or 5.9%, from the fourth quarter of 2016. The decrease in the current year linked quarter expense is primarily due to reductions in salaries and employee benefits and OREO related costs, partially offset by increased advertising expense. The year over year decrease is primarily due to reductions in salaries and employee benefits and OREO related costs.

On December 26, 2017, the Company announced the signing of a definitive agreement and plan of merger to acquire Greater Chicago Financial Corp. and its wholly-owned bank subsidiary, ABC Bank, in an all cash

transaction valued at approximately $41.1 million. ABC Bank had total assets of $350.4 million as of September 30, 2017, including $246.3 million of total loans. This transaction is anticipated to close in the second quarter of 2018, and is subject to regulatory approval and customary closing conditions.

On January 17 2018, the Company’s Board of Directors declared a cash dividend of $0.01 per share payable on February 5, 2018, to stockholders of record as of January 26, 2018.

Capital Ratios


	December 31,		September 30,		December 31,
	2017		2017		2016
The Company
Common equity tier 1 capital ratio	9.25	%	8.88	%	8.76	%
Total risk-based capital ratio	12.93	%	12.46	%	12.29	%
Tier 1 risk-based capital ratio	12.03	%	11.54	%	10.88	%
Tier 1 leverage ratio	10.08	%	9.69	%	8.90	%

The Bank
Common equity tier 1 capital ratio	12.88	%	12.67	%	12.53	%
Total risk-based capital ratio	13.78	%	13.52	%	13.45	%
Tier 1 risk-based capital ratio	12.88	%	12.67	%	12.53	%
Tier 1 leverage ratio	10.79	%	10.63	%	10.24	%

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

Asset Quality & Earning Assets

Nonperforming loans totaled $15.6 million at December 31, 2017, compared to $16.3 million at September 30, 2017, 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 remained the same at 1.0% as of December 31, 2017 and September 30, 2017, and was 1.1% as of December 31, 2016.

OREO assets totaled $8.4 million as of December 31, 2017, compared to $9.0 million at September 30, 2017, and $11.9 million at December 31, 2016. Valuation writedowns continued in the fourth quarter of 2017 with expense of $78,000 compared to $920,000 in the third quarter of 2017 and $265,000 in the fourth quarter of 2016. Nonperforming assets as a percent of total loans plus OREO decreased to 1.5% as of December 31, 2017, as compared to 1.6% as of September 30, 2017 and 1.9% as of December 31, 2016.

Total loans were $1.62 billion at December 31, 2017, reflecting an increase of $23.4 million compared to September 30, 2017, and an increase of $138.8 million compared to December 31, 2016. Average loans (including loans held-for-sale) for the fourth quarter of 2017 were $1.60 billion, reflecting an increase of $46.2 million from quarterly average loans for the third quarter of 2017, and an increase of $209.1 million from quarterly average loans for the fourth quarter of 2016.

Available-for-sale securities at fair value totaled $541.4 million at December 31, 2017, compared to $533.5 million at September 30, 2017, and $531.8 million at December 31, 2016. Pretax net gains of $639,000 on the sale of securities were realized in the fourth quarter of 2017, compared to gains of $102,000 in the third quarter of 2017 and losses of $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
	December 31, 2017						September 30, 2017						December 31, 2016
	Average					Rate	Average					Rate	Average					Rate
	Balance			Interest		%	Balance			Interest		%	Balance			Interest		%
Assets
Interest bearing deposits with financial institutions	$	13,147		$	43	1.28	$	11,685		$	37	1.24	$	54,865		$	71	0.51
Securities:
Taxable		281,096			2,208	3.14		327,892			2,424	2.96		495,687			3,318	2.68
Non-taxable (TE)		243,813			2,694	4.42		220,540			2,504	4.54		37,546			404	4.30
Total securities		524,909			4,902	3.74		548,432			4,928	3.59		533,233			3,722	2.79
Dividends from FHLBC and FRBC		8,842			99	4.48		8,339			94	4.51		7,911			82	4.15
Loans and loans held-for-sale1		1,599,672			18,585	4.55		1,553,473			18,265	4.60		1,390,537			16,485	4.64
Total interest earning assets		2,146,570			23,629	4.33		2,121,929			23,324	4.32		1,986,546			20,360	4.03
Cash and due from banks		30,972			-	-		31,028			-	-		28,928			-	-
Allowance for loan losses		(17,002)			-	-		(16,478)			-	-		(15,388)			-	-
Other noninterest bearing assets		181,484			-	-		185,906			-	-		197,072			-	-
Total assets	$	2,342,024					$	2,322,385					$	2,197,158

Liabilities and Stockholders' Equity
NOW accounts	$	420,073		$	108	0.10	$	422,913		$	108	0.10	$	405,338		$	97	0.10
Money market accounts		277,883			95	0.14		273,440			85	0.12		274,423			76	0.11
Savings accounts		260,852			52	0.08		262,573			46	0.07		253,461			39	0.06
Time deposits		383,011			1,146	1.19		389,037			1,077	1.10		404,507			1,018	1.00
Interest bearing deposits		1,341,819			1,401	0.41		1,347,963			1,316	0.39		1,337,729			1,230	0.37
Securities sold under repurchase agreements		27,664			7	0.10		32,800			4	0.05		31,019			1	0.01
Other short-term borrowings		84,728			269	1.24		72,065			220	1.19		27,940			36	0.50
Junior subordinated debentures		57,633			929	6.45		57,621			930	6.46		57,585			1,083	7.52
Senior notes		44,046			672	6.10		44,021			672	6.11		8,155			112	5.49
Subordinated debt		-			-	-		-			-	-		36,685			222	2.37
Notes payable and other borrowings		-			-	-		-			-	-		408			2	1.92
Total interest bearing liabilities		1,555,890			3,278	0.84		1,554,470			3,142	0.80		1,499,521			2,686	0.71
Noninterest bearing deposits		556,010			-	-		551,768			-	-		510,161			-	-
Other liabilities		26,037			-	-		19,395			-	-		12,609			-	-
Stockholders' equity		204,087			-	-		196,752			-	-		174,867			-	-
Total liabilities and stockholders' equity	$	2,342,024					$	2,322,385					$	2,197,158
Net interest income (TE)				$	20,351					$	20,182					$	17,674
Net interest income (TE)
to total earning assets						3.76						3.77						3.54
Interest bearing liabilities to earning assets		72.48	%					73.26	%					75.48	%

1 Interest income from loans is shown on a tax equivalent basis as discussed in the table on page 14 and includes fees of $636,000, $772,000 and $731,000 for the fourth quarter of 2017, the third quarter of 2017 and the fourth 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%. See the discussion entitled “Non-GAAP Presentations” below and the tables on page 14 that provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

Tax equivalent net interest income was $20.4 million for the quarter ended December 31, 2017, which reflects growth of $169,000 compared to the third quarter of 2017, and growth of $2.7 million compared to the fourth quarter of 2016. Quarterly average earning assets increased $24.6 million from the third quarter of 2017 to $2.15 billion for the quarter ended December 31, 2017, while yield on earning assets increased 1 basis point over the same period. Average loan growth, including loans held-for-sale, was $46.2 million for the quarter ended December 31, 2017, as compared to the quarter ended September 30, 2017, while the year over year growth in fourth quarter average loans, including loans held-for-sale, was $209.1 million. This year over year growth was primarily due to organic loan growth over the last twelve months, driven by commercial portfolio originations, as well as a home equity loan portfolio purchase of $16.7 million. In addition, the Company’s acquisition of the Talmer branch in October 2016 added $221.0 million of purchased loans, which increased 2017’s average loans.

Growth in securities income in 2017 stemmed from repositioning the Company’s securities portfolio into higher yielding tax exempt securities, while lower yielding securities were sold or called. Deposit growth was utilized to fund the higher yielding securities purchases. These securities purchases, as well as a rising interest rate

environment, drove a 15 basis point increase for total securities income in the fourth quarter of 2017, compared to the third quarter of 2017, and a 95 basis point increase from the like 2016 quarter.

The cost of interest bearing liabilities for the fourth quarter of 2017 increased by 4 basis points from the third quarter of 2017, and increased by 13 basis points from the fourth quarter of 2016. Total average deposits increased during the fourth quarter of 2017 compared to the third quarter of 2017, driven primarily by an increase in money market accounts, partially offset by decreases in NOW accounts, savings accounts and time deposits. This shift in deposits stems from growth in commercial loan relationships, which often result in an increase in commercial money market and checking accounts. Significant growth in demand deposits in the year over year period as compared to interest bearing deposits has resulted in the Company maintaining a lower cost of funds stemming from average total deposits. The slight increase in the overall cost of funds is due to higher balances of Federal Home Loan Bank Chicago (“FHLBC”) borrowings and the Company’s senior debt issuance.

For the quarter ended December 31, 2017, average other short-term borrowings, which are FHLBC advances, increased by $12.7 million compared to the quarter ended September 30, 2017, and by $56.8 million compared to the quarter ended December 31, 2016. The retirement of subordinated and senior debt due in 2018, and simultaneously offering of senior notes in the fourth quarter of 2016, which pay at a higher rate, resulted in an overall increase to the cost of funds in the year over year period. However, the growth in the yield on average earning assets more than offset this increase in the cost of funds, resulting in an overall increase of 22 basis points in the Company’s net interest margin in the year over year period.

Noninterest Income


							4th Quarter 2017
Noninterest Income	Quarters Ended						Percent Change From
(dollars in thousands)	December 31,		September 30,		December 31,		September 30,	December 31,
	2017		2017		2016		2017	2016
Trust income	$	1,639	$	1,468	$	1,396	11.6	17.4
Service charges on deposits		1,765		1,722		1,723	2.5	2.4
Residential mortgage banking revenue		1,672		1,547		3,001	8.1	(44.3)
Securities gain (loss), net		639		102		(193)	526.5	431.1
Increase in cash surrender value of BOLI		361		362		296	(0.3)	22.0
Debit card interchange income		1,069		1,075		1,018	(0.6)	5.0
Other income		1,039		1,567		1,187	(33.7)	(12.5)
Total noninterest income	$	8,184	$	7,843	$	8,428	4.3	(2.9)

Of the noninterest income categories listed above, securities gain experienced the largest increases on both a linked quarter and year over year basis, as shown above. The Company realized gains in securities in the third and the fourth quarter of 2017, compared to losses in the fourth quarter of 2016. Losses recorded in the fourth quarter of 2016 reflect security portfolio sales to fund the Talmer branch acquisition. Residential mortgage banking revenue continued to be negatively impacted by the rising interest rate environment in 2017 resulting in a decline in origination volumes year over year. The decrease in other income as compared to the prior linked quarter is attributable to a decrease in commercial swap fee income in the fourth quarter of 2017.

Noninterest Expense


										4th Quarter 2017
Noninterest Expense	Quarters Ended									Percent Change From
(dollars in thousands)	December 31,			September 30,			December 31,			September 30,	December 31,
	2017			2017			2016			2017	2016
Salaries	$	7,363		$	7,704		$	7,718		(4.4)	(4.6)
Officers incentive		204			1,114			339		(81.7)	(39.8)
Benefits and other		1,346			1,231			1,323		9.3	1.7
Total salaries and employee benefits		8,913			10,049			9,380		(11.3)	(5.0)
Occupancy, furniture and equipment expense		1,441			1,482			1,636		(2.8)	(11.9)
Computer and data processing		1,104			1,081			1,256		2.1	(12.1)
FDIC insurance		146			199			72		(26.6)	102.8
General bank insurance		251			246			270		2.0	(7.0)
Amortization of core deposit intangible asset		22			24			16		(8.3)	37.5
Advertising expense		412			255			421		61.6	(2.1)
Debit card interchange expense		296			285			269		3.9	10.0
Legal fees		200			162			206		23.5	(2.9)
Other real estate owned expense, net		237			680			700		(65.1)	(66.1)
Other expense		3,169			2,455			2,989		29.1	6.0
Total noninterest expense	$	16,191		$	16,918		$	17,215		(4.3)	(5.9)
Efficiency ratio (excluding nonrecurring item)		56.49	%		57.66	%		61.78	%
Efficiency ratio (GAAP)		56.72	%		57.66	%		62.37	%

The efficiency ratio shown in the table above is a non-GAAP financial measure calculated as noninterest expense, excluding OREO expenses, amortization of core deposits and acquisition related costs 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. See the discussion entitled “Non-GAAP Presentations” below and the tables on page 14 that provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

Noninterest expense for the fourth quarter of 2017 decreased $727,000, or 4.3%, on a linked quarter basis and decreased $1.0 million or 5.9%, year over year. The linked quarter decrease is primarily attributable to reductions in salaries and officer incentive expense as well as reduced OREO related costs as the OREO portfolio balance declined, partially offset by increased advertising expense. The year over year variance is primarily due to reductions in salaries, officer incentive and OREO related costs. Variability noted in other expense was partially due to costs on commercial loan remediation and appraisal fees.

Earning Assets


							December 31, 2017
Loans	As of						Percent Change From
(dollars in thousands)	December 31,		September 30,		December 31,		September 30,	December 31,
	2017		2017		2016		2017	2016
Commercial	$	272,851	$	257,356	$	228,113	6.0	19.6
Leases		68,325		69,305		55,451	(1.4)	23.2
Real estate - commercial		750,991		739,136		736,247	1.6	2.0
Real estate - construction		85,162		94,868		64,720	(10.2)	31.6
Real estate - residential		426,230		419,583		377,851	1.6	12.8
Consumer		2,774		2,770		3,237	0.1	(14.3)
Other1		10,609		10,550		11,973	0.6	(11.4)
		1,616,942		1,593,568		1,477,592	1.5	9.4
Net deferred loan costs		680		623		1,217	9.1	(44.1)
Total loans	$	1,617,622	$	1,594,191	$	1,478,809	1.5	9.4

1 Other class includes overdrafts.

Total loans increased by $23.4 million at the end of the fourth quarter of 2017 as compared to September 30, 2017, and increased by $138.8 million year over year. Year over year loan growth was primarily due to organic loan growth in commercial, real estate-construction and real estate-residential loans, growth in lease financing receivables, and the Company’s purchase of $16.7 million of home equity loans in the second quarter of 2017.


							December 31, 2017
Securities	As of						Percent Change From
(dollars in thousands)	December 31,		September 30,		December 31,		September 30,	December 31,
	2017		2017		2016		2017	2016
Securities available-for-sale, at fair value
U.S. Treasury	$	3,947	$	3,990	$	-	(1.1)	N/M
U.S. government agencies		13,061		13,451		-	(2.9)	N/M
U.S. government agency mortgage-backed		12,214		11,030		41,534	10.7	(70.6)
States and political subdivisions		278,092		229,032		68,703	21.4	304.8
Corporate bonds		833		10,577		10,630	(92.1)	(92.2)
Collateralized mortgage obligations		65,939		80,386		170,927	(18.0)	(61.4)
Asset-backed securities		112,932		131,759		138,407	(14.3)	(18.4)
Collateralized loan obligations		54,421		53,259		101,637	2.2	(46.5)
Total securities available-for-sale	$	541,439	$	533,484	$	531,838	1.5	1.8

N/M - Not Meaningful

The investment portfolio was $541.4 million as of December 31, 2017, an increase of $8.0 million from $533.5 million as of September 30, 2017, and an increase of $9.6 million from $531.8 million as of December 31, 2016. During the fourth quarter of 2016 and during the 2017 year to date period, select collateralized mortgage obligations, mortgage-backed securities, corporate bonds and asset-backed securities were liquidated to allow for portfolio repositioning in favor of high quality state and municipal securities. These sales resulted in $474,000 of net security gains in the year 2017, but the resultant security purchases with the funds from security sales and deposit growth impacted the net interest margin favorably as the funds were invested in 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


										December 31, 2017
Nonperforming assets	As of									Percent Change From
(dollars in thousands)	December 31,			September 30,			December 31,			September 30,	December 31,
	2017			2017			2016			2017	2016
Nonaccrual loans	$	14,388		$	14,124		$	15,283		1.9	(5.9)
Nonperforming troubled debt restructured loans accruing interest		988			978			718		1.0	37.6
Loans past due 90 days or more and still accruing interest		248			1,169			-		(78.8)	N/M
Total nonperforming loans		15,624			16,271			16,001		(4.0)	(2.4)
Other real estate owned		8,371			9,024			11,916		(7.2)	(29.7)
Total nonperforming assets	$	23,995		$	25,295		$	27,917		(5.1)	(14.0)

30-89 days past due loans	$	5,358		$	3,297		$	5,139
Nonaccrual loans to total loans		0.9	%		0.9	%		1.0	%
Nonperforming loans to total loans		1.0	%		1.0	%		1.1	%
Nonperforming assets to total loans plus OREO		1.5	%		1.6	%		1.9	%

Allowance for loan losses	$	17,461		$	16,465		$	16,158
Allowance for loan losses to total loans		1.1	%		1.0	%		1.1	%
Allowance for loan losses to nonaccrual loans		121.4	%		116.6	%		105.7	%

N/M - Not Meaningful

Nonperforming loans consist of nonaccrual loans, nonperforming restructured accruing loans and loans 90 days or more past due but still accruing interest. Nonperforming loans to total loans of 1.0% remained unchanged in the fourth and third quarter of 2017 and decreased from 1.1% in the fourth quarter of 2016, primarily due to the transfer of certain nonaccrual loans to OREO in 2017. Nonperforming assets to total loans plus OREO decreased to 1.5% from 1.6% in the third quarter of 2017, and 1.9% in the fourth quarter of 2016, as a result of the Talmer branch purchase, as well as continued OREO liquidations and write-downs recorded in 2016 and 2017. Finally, the allowance for loan losses to total loans was 1.1% as of December 31, 2017, which is unchanged from the fourth quarter 2016, and a 0.1% increase compared to the third quarter of 2017. The allowance excludes the remaining $527,000 of purchase accounting credit marks recorded on the Talmer branch purchased loans as of December 31, 2017. The total remaining accretable discount on the Talmer portfolio was $835,000 at year end compared to $1.05 million at the prior quarter end.


							December 31, 2017
Classified loans	As of						Percent Change From
(dollars in thousands)	December 31,		September 30,		December 31,		September 30,	December 31,
	2017		2017		2016		2017	2016
Real estate-construction	$	376	$	380	$	458	(1.1)	(17.9)
Real estate-residential:
Investor		448		648		1,096	(30.9)	(59.1)
Multifamily		4,723		4,757		-	(0.7)	N/M
Owner occupied		5,266		4,418		7,225	19.2	(27.1)
Revolving and junior liens		1,899		1,977		2,340	(3.9)	(18.8)
Real estate-commercial, nonfarm		7,262		7,633		9,946	(4.9)	(27.0)
Real estate-commercial, farm		2,486		2,495		1,782	(0.4)	39.5
Commercial		-		382		2,527	N/M	N/M
Leases		825		1,031		1,109	(20.0)	(25.6)
Consumer		20		8		1	150.0	N/M
Total classified loans	$	23,305	$	23,729	$	26,484	(1.8)	(12.0)

N/M - Not Meaningful

Classified loans include nonaccrual, performing troubled debt restructurings and all other loans considered substandard, as shown above. Classified loans totaled $23.3 million as of December 31, 2017, a decrease of $424,000, or 1.8%, from the prior quarter, and a decrease of $3.2 million, or 12.0%, from the like quarter of 2016. This reduction is primarily due to success in remediating a number of classified loans.

Net Charge-off Summary


Loan Charge-offs, net of recoveries	Quarters Ended
(dollars in thousands)	December 31,		% of	September 30,		% of	December 31,		% of
	2017		Total1	2017		Total1	2016		Total1
Real estate-construction
Homebuilder	$	(93)	37.8	$	-	-	$	(5)	1.2
Land		(1)	0.4		-	-		-	-
All other		(194)	78.9		8	(2.4)		(6)	1.4
Total real estate-construction		(288)	117.1		8	(2.4)		(11)	2.6
Real estate-residential
Investor		64	(26.0)		(28)	8.5		106	(24.9)
Multifamily		(13)	5.3		(17)	5.2		(15)	3.5
Owner occupied		18	(7.3)		(40)	12.2		(58)	13.6
Revolving and junior liens		(30)	12.2		(367)	111.5		(231)	54.4
Total real estate-residential		39	(15.8)		(452)	137.4		(198)	46.6
Real estate-commercial, nonfarm
Owner general purpose		-	-		-	-		(1)	0.2
Owner special purpose		-	-		-	-		(5)	1.2
Non-owner general purpose		(37)	15.0		(43)	13.1		56	(13.2)
Non-owner special purpose		-	-		-	-		-	-
Retail properties		9	(3.7)		22	(6.8)		(286)	67.3
Total real estate-commercial, nonfarm		(28)	11.3		(21)	6.3		(236)	55.5
Commercial		(12)	4.9		7	(2.1)		(10)	2.4
Leases		-	-		98	(29.8)		5	(1.2)
Consumer		47	(19.1)		37	(11.2)		25	(5.9)
Other		(4)	1.6		(6)	1.8		-	-
Net (recoveries) / charge-offs	$	(246)	100.0	$	(329)	100.0	$	(425)	100.0

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

Gross charge-offs were $308,000 for the quarter ended December 31, 2017, compared to $241,000 for the quarter ended September 30, 2017, and $682,000 for the quarter ended December 31, 2016. Gross recoveries were $554,000 for the quarter ended December 31, 2017, compared to $570,000 for the quarter ended September 30, 2017 and $1.1 million for the like quarter of 2016. Continued recoveries are indicative of the ongoing aggressive efforts by management to effectively manage and resolve prior charge-offs.

Deposits

Total deposits were $1.92 billion at December 31, 2017, which reflects an increase of $33.8 million compared to September 30, 2017, and an increase of $56.1 million from total deposits of $1.87 billion at December 31, 2016. Demand deposits increased by $15.5 million and money markets, savings, and NOW accounts also increased by $19.8 million for the quarter, while time deposit balances decreased by $1.5 million. Total time deposits or certificates of deposit reflected a decrease of $19.5 million for the full year 2017. Growth in the commercial loan portfolio has driven commercial demand deposits to a higher level in the fourth quarter of 2017.

Borrowings

As of December 31, 2017, the Bank had $115.0 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 December 31, 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 4.30% for the fourth quarter 2017, inclusive of debt issuance costs. This compared to the Trust II issuance rate paid prior to June 15, 2017, of 6.77%.

Non-GAAP Presentations: Management has disclosed in this earnings release certain non-GAAP financial measures to evaluate and measure the Company’s performance, including earning per share, net interest margin, and efficiency ratio calculations. Management believes the earnings per share data is more informative for the user if the per share impact of certain nonrecurring activity is excluded for quarterly comparative purposes. 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 has disclosed the efficiency ratio including and excluding certain nonrecurring items, which is discussed in the noninterest expense presentation on page 5. These non-GAAP financial measures should not be considered as a substitute for GAAP financial measures, and we strongly encourage investors to review the GAAP financial measures included in this earnings release and not to place undue reliance upon any single financial measure. In addition, because non-GAAP financial measures are not standardized, it may not be possible to compare the non-GAAP financial measures presented in this earnings release with other companies’ non-GAAP financial measures having the same or similar names. The tables on page 14 provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

Forward-Looking Statements: This earnings release contains forward-looking statements. Forward looking statements can be identified by words such as “anticipated,” “expects,” “intends,” “believes,” “may,” “likely,” “will” or other that indicate future periods. Examples of forward-looking statements include, but are not limited to, statements relating to the expected timing of the closing of the Greater Chicago Financial Corp. transaction. Such forward-looking statements are subject to risks, uncertainties, and other factors, including a downturn in the economy, particularly in the Company’s markets, volatile credit and financial markets both domestic and foreign, potential deterioration in real estate values, regulatory changes and excessive loan losses, the inability to obtain the requisite regulatory approvals and Greater Chicago Financial Corp. shareholder approval for the proposed transaction and meet other closing terms and conditions, as well as additional risks and uncertainties contained in the “Risk Factors” and forward-looking statements disclosure contained in the Company’s most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, any or all of which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. The inclusion of this forward-looking information should not be construed as a representation by the Company or any person that future events, plans, or expectations contemplated by the Company will be achieved. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Conference Call

The Company will host an earnings call on Thursday, January 25, 2018, at 11:00 a.m. Eastern Time (10:00 a.m. Central Time). Investors may listen to the Company’s earnings call via telephone by dialing 877-407-8035. Investors should call into the dial-in number set forth above at least 10 minutes prior to the scheduled start of the call.

A replay of the earnings call will be available until 11:59 p.m. Eastern Time (10:59 p.m. Central Time) on February 1, 2018, by dialing 877-481-4010, using Conference ID: 23230.

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands)


	(unaudited)
	December 31,		December 31,
	2017		2016
Assets
Cash and due from banks	$	37,444	$	33,805
Interest bearing deposits with financial institutions		18,389		13,529
Cash and cash equivalents		55,833		47,334
Securities available-for-sale, at fair value		541,439		531,838
Federal Home Loan Bank Chicago ("FHLBC") and Federal Reserve Bank Chicago ("FRBC") stock		10,168		7,918
Loans held-for-sale		4,067		4,918
Loans		1,617,622		1,478,809
Less: allowance for loan losses		17,461		16,158
Net loans		1,600,161		1,462,651
Premises and equipment, net		37,628		38,977
Other real estate owned		8,371		11,916
Mortgage servicing rights, net		6,944		6,489
Goodwill and core deposit intangible		8,922		9,018
Bank-owned life insurance ("BOLI")		61,764		60,332
Deferred tax assets, net		25,356		53,464
Other assets		22,776		16,333
Total assets	$	2,383,429	$	2,251,188

Liabilities
Deposits:
Noninterest bearing demand	$	572,404	$	513,688
Interest bearing:
Savings, NOW, and money market		967,750		950,849
Time		382,771		402,248
Total deposits		1,922,925		1,866,785
Securities sold under repurchase agreements		29,918		25,715
Other short-term borrowings		115,000		70,000
Junior subordinated debentures		57,639		57,591
Senior notes		44,058		43,998
Other liabilities		13,539		11,889
Total liabilities		2,183,079		2,075,978

Stockholders’ Equity
Common stock		34,626		34,534
Additional paid-in capital		117,742		116,653
Retained earnings		142,959		129,005
Accumulated other comprehensive loss		1,479		(8,762)
Treasury stock		(96,456)		(96,220)
Total stockholders’ equity		200,350		175,210
Total liabilities and stockholders’ equity	$	2,383,429	$	2,251,188

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

(In thousands, except share data)


	(unaudited)				(unaudited)
	Quarters Ended December 31,				Year Ended December 31,
	2017		2016		2017		2016
Interest and dividend income
Loans, including fees	$	18,535	$	16,426	$	70,737	$	56,019
Loans held-for-sale		28		36		123		151
Securities:
Taxable		2,208		3,318		10,202		15,865
Tax exempt		1,751		263		5,939		842
Dividends from FHLBC and FRBC stock		99		82		370		333
Interest bearing deposits with financial institutions		43		71		134		169
Total interest and dividend income		22,664		20,196		87,505		73,379
Interest expense
Savings, NOW, and money market deposits		255		212		950		789
Time deposits		1,146		1,018		4,227		3,640
Other short-term borrowings		276		37		758		106
Junior subordinated debentures		929		1,083		4,002		4,334
Senior notes		672		112		2,689		112
Subordinated debt		-		222		-		949
Notes payable and other borrowings		-		2		-		8
Total interest expense		3,278		2,686		12,626		9,938
Net interest and dividend income		19,386		17,510		74,879		63,441
Provision for loan losses		750		750		1,800		750
Net interest and dividend income after provision for loan losses		18,636		16,760		73,079		62,691
Noninterest income
Trust income		1,639		1,396		6,203		5,670
Service charges on deposits		1,765		1,723		6,720		6,684
Secondary mortgage fees		182		243		776		1,038
Mortgage servicing rights mark to market (loss) gain		(46)		1,002		(802)		(919)
Mortgage servicing income		448		444		1,778		1,724
Net gain on sales of mortgage loans		1,088		1,312		4,803		6,343
Securities gain (loss), net		639		(193)		474		(2,213)
Increase in cash surrender value of BOLI		361		296		1,432		1,283
Debit card interchange income		1,069		1,018		4,200		4,027
Gain (loss) on disposal and transfer of fixed assets, net		-		-		10		(1)
Other income		1,039		1,187		4,778		4,938
Total noninterest income		8,184		8,428		30,372		28,574
Noninterest expense
Salaries and employee benefits		8,913		9,380		40,080		36,234
Occupancy, furniture and equipment		1,441		1,636		5,951		6,063
Computer and data processing		1,104		1,256		4,387		4,349
FDIC insurance		146		72		658		865
General bank insurance		251		270		1,031		1,109
Amortization of core deposit intangible		22		16		96		16
Advertising expense		412		421		1,505		1,633
Debit card interchange expense		296		269		1,329		1,455
Legal fees		200		206		650		800
Other real estate expense, net		237		700		2,165		2,743
Other expense		3,169		2,989		11,297		11,494
Total noninterest expense		16,191		17,215		69,149		66,761
Income before income taxes		10,629		7,973		34,302		24,504
Provision for income taxes		13,141		2,955		19,164		8,820
Net (loss) income	$	(2,512)	$	5,018	$	15,138	$	15,684

Basic (loss) earnings per share	$	(0.08)	$	0.17	$	0.51	$	0.53
Diluted (loss) earnings per share		(0.08)		0.17		0.50		0.53


Ending common shares outstanding	29,627,086	29,556,216	29,627,086	29,556,216
Weighted-average basic shares outstanding	29,627,086	29,555,482	29,600,702	29,532,510
Weighted-average diluted shares outstanding	30,094,960	29,870,978	30,038,417	29,838,931

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		3rd Qtr		4th Qtr
Cash and due from banks	$	27,813	$	28,597	$	41,344	$	28,928	$	33,585	$	39,425	$	31,028	$	30,972
Interest bearing deposits with financial institutions		15,513		12,048		50,054		54,865		12,121		11,938		11,685		13,147
Cash and cash equivalents		43,326		40,645		91,398		83,793		45,706		51,363		42,713		44,119

Securities available-for-sale, at fair value		486,924		684,179		659,890		533,233		563,897		586,686		548,432		524,909
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		8,339		8,842
Loans held-for-sale		2,912		4,238		5,295		4,050		2,670		3,616		3,244		2,744
Loans		1,138,985		1,145,892		1,186,279		1,386,487		1,484,556		1,505,572		1,550,229		1,596,928
Less: allowance for loan losses		16,257		16,415		15,767		15,388		16,292		15,779		16,478		17,002
Net loans		1,122,728		1,129,477		1,170,512		1,371,099		1,468,264		1,489,793		1,533,751		1,579,926

Premises and equipment, net		39,416		39,143		39,191		39,129		38,917		38,395		38,098		37,825
Other real estate owned		18,760		16,906		14,888		14,008		13,464		12,596		10,688		8,601
Mortgage servicing rights, net		5,347		5,151		4,822		5,618		6,543		6,464		6,464		6,821
Goodwill and core deposit intangible		-		-		-		3,195		9,005		8,981		8,956		8,932
Bank-owned life insurance ("BOLI")		59,178		59,459		59,787		60,153		60,446		60,806		61,165		61,527
Deferred tax assets, net		65,210		61,768		57,692		55,902		52,747		48,459		45,635		41,335
Other assets		9,346		10,469		13,833		19,067		11,714		14,227		14,900		16,443
Total other assets		197,257		192,896		190,213		197,072		192,836		189,928		185,906		181,484
Total assets	$	2,108,437	$	2,139,765	$	2,125,226	$	2,197,158	$	2,280,987	$	2,329,085	$	2,322,385	$	2,342,024

Liabilities
Deposits:
Noninterest bearing demand	$	450,150	$	472,450	$	472,599	$	510,161	$	525,454	$	557,265	$	551,768	$	556,010
Interest bearing:
Savings, NOW, and money market		915,924		920,389		907,531		933,222		969,609		977,796		958,926		958,808
Time		407,743		402,912		401,999		404,507		394,388		392,779		389,037		383,011
Total deposits		1,773,817		1,795,751		1,782,129		1,847,890		1,889,451		1,927,840		1,899,731		1,897,829

Securities sold under repurchase agreements		35,776		37,433		31,892		31,019		29,805		35,652		32,800		27,664
Other short-term borrowings		27,802		28,187		22,174		27,940		56,111		58,572		72,065		84,728
Junior subordinated debentures		57,549		57,561		57,573		57,585		57,597		57,609		57,621		57,633
Senior Notes		-		-		-		8,155		43,978		43,995		44,021		44,046
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		19,395		26,037
Total liabilities		1,951,477		1,976,943		1,954,807		2,022,291		2,102,003		2,141,715		2,125,633		2,137,937

Stockholders' equity
Common stock		34,427		34,505		34,533		34,533		34,451		34,577		34,626		34,626
Additional paid-in capital		115,945		116,065		116,365		116,537		116,747		117,077		117,340		117,607
Retained earnings		116,231		119,640		123,771		128,017		131,631		136,384		142,657		148,863
Accumulated other comprehensive loss		(13,677)		(11,241)		(8,030)		(8,000)		(7,692)		(4,310)		(1,415)		(553)
Treasury stock		(95,966)		(96,147)		(96,220)		(96,220)		(96,243)		(96,358)		(96,456)		(96,456)
Total stockholders' equity		156,960		162,822		170,419		174,867		178,894		187,370		196,752		204,087
Total liabilities and stockholders' equity	$	2,108,437	$	2,139,765	$	2,125,226	$	2,197,158	$	2,280,897	$	2,329,085	$	2,322,385	$	2,342,024

Old Second Bancorp, Inc. and Subsidiaries

Quarterly Consolidated Statements of Income

(In thousands, except per share data, unaudited)



	2016								2017
	1st Qtr		2nd Qtr		3rd Qtr		4th Qtr		1st Qtr		2nd Qtr		3rd Qtr		4th Qtr
Interest and Dividend Income
Loans, including fees	$	13,058	$	13,039	$	13,496	$	16,426	$	16,609	$	17,385	$	18,208	$	18,535
Loans held-for-sale		28		39		48		36		24		37		34		28
Securities:
Taxable		4,211		4,382		3,954		3,318		2,963		2,607		2,424		2,208
Tax exempt		179		220		180		263		912		1,648		1,628		1,751
Dividends from FHLB and FRBC stock		84		84		83		82		85		92		94		99
Interest bearing deposits with financial institutions		19		15		64		71		23		31		37		43
Total interest and dividend income		17,579		17,779		17,825		20,196		20,616		21,800		22,425		22,664
Interest Expense
Savings, NOW, and money market deposits		191		193		193		212		223		233		239		255
Time deposits		822		869		931		1,018		979		1,025		1,077		1,146
Other short-term borrowings		20		26		23		37		108		150		224		276
Junior subordinated debentures		1,084		1,083		1,084		1,083		1,084		1,059		930		929
Senior notes		-		-		-		112		673		672		672		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		3,142		3,278
Net interest and dividend income		15,221		15,363		15,347		17,510		17,549		18,661		19,283		19,386
Provision for loan losses		-		-		-		750		-		750		300		750
Net interest and dividend income after reserve for loan losses		15,221		15,363		15,347		16,760		17,549		17,911		18,983		18,636
Noninterest Income
Trust income		1,369		1,502		1,403		1,396		1,458		1,638		1,468		1,639
Service charges on deposits		1,559		1,646		1,756		1,723		1,618		1,615		1,722		1,765
Secondary mortgage fees		193		280		322		243		176		223		195		182
Mortgage servicing rights mark to market (loss) gain		(1,041)		(733)		(147)		1,002		(133)		(429)		(194)		(46)
Mortgage servicing income		421		422		437		444		435		444		451		448
Net gain on sales of mortgage loans		1,212		1,642		2,177		1,312		1,147		1,473		1,095		1,088
Securities (loss) gain, net		(61)		-		(1,959)		(193)		(136)		(131)		102		639
Increase in cash surrender value of BOLI		285		319		383		296		359		350		362		361
Debit card interchange income		947		1,049		1,013		1,018		975		1,081		1,075		1,069
(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		1,567		1,039
Total noninterest income		6,275		7,277		6,594		8,428		7,028		7,317		7,843		8,184
Noninterest Expense
Salaries and employee benefits		9,026		8,814		9,014		9,380		10,573		10,545		10,049		8,913
Occupancy, furniture and equipment		1,581		1,346		1,500		1,636		1,566		1,462		1,482		1,441
Computer and data processing		925		1,063		1,105		1,256		1,090		1,112		1,081		1,104
FDIC insurance		203		362		228		72		148		165		199		146
General bank insurance		298		272		269		270		270		264		246		251
Amortization of core deposit intangible		-		-		-		16		25		25		24		22
Advertising expense		347		435		430		421		386		452		255		412
Debit card interchange expense		203		620		363		269		349		399		285		296
Legal fees		161		191		242		206		104		184		162		200
Other real estate expense, net		738		879		426		700		709		539		680		237
Other expense		2,782		2,718		3,005		2,989		2,834		2,839		2,455		3,169
Total noninterest expense		16,264		16,700		16,582		17,215		18,054		17,986		16,918		16,191
Income before income taxes		5,232		5,940		5,359		7,973		6,523		7,242		9,908		10,629
Provision for income taxes		1,910		2,095		1,860		2,955		2,096		2,096		1,831		13,141
Net income (loss)	$	3,322	$	3,845	$	3,499	$	5,018	$	4,427	$	5,146	$	8,077	$	(2,512)

Basic earnings (loss) per share	$	0.11	$	0.13	$	0.12	$	0.17	$	0.15	$	0.17	$	0.27	$	(0.08)
Diluted earnings (loss) per share		0.11		0.13		0.12		0.17		0.15		0.17		0.27		(0.08)

Reconciliation of Non-GAAP Financial Measures

The tables below provide a reconciliation of each non-GAAP tax equivalent measure to the most comparable GAAP measure for the periods indicated. Dollar amounts below in thousands, except per share data:



	Quarters Ended
	December 31, 2017				September 30, 2017				December 31, 2016
	Amount		Per share		Amount		Per Share		Amount		Per Share
Earnings per share (EPS) excluding nonrecurring items
Earnings (GAAP)	$	(2,512)	$	(0.08)	$	8,077	$	0.27	$	5,018	$	0.17
Less:
Impact of state tax rate change		-		-		1,566		0.05		-		-
Impact of federal tax reform		9,475		0.31		-		-		-		-
Earnings, excluding nonrecurring items	$	6,963	$	0.23	$	6,511	$	0.22	$	5,018	$	0.17


	Quarters Ended
	December 31,			September 30,			December 31,
	2017			2017			2016
Net Interest Margin
Interest income (GAAP)	$	22,664		$	22,425		$	20,196
Taxable-equivalent adjustment:
Loans		22			23			23
Securities		943			876			141
Interest income (TE)		23,629			23,324			20,360
Interest expense (GAAP)		3,278			3,142			2,686
Net interest income (TE)	$	20,351		$	20,182		$	17,674
Net interest income (GAAP)	$	19,386		$	19,283		$	17,510
Average interest earning assets	$	2,146,570		$	2,121,929		$	1,986,546
Net interest margin (GAAP)		3.58	%		3.61	%		3.51	%
Net interest margin (TE)		3.76	%		3.77	%		3.54	%


		Quarters Ended
	December 31,			September 30,			December 31,
	2017			2017			2016
Efficiency Ratio
Noninterest expense	$	16,191		$	16,918		$	17,215
Less amortization of core deposit		22			24			16
Less other real estate expense, net		237			680			700
Less acquisition related costs		65			-			154
Adjusted noninterest expense		15,867			16,214			16,345
Net interest income (GAAP)		19,386			19,283			17,510
Taxable-equivalent adjustment:
Loans		22			23			23
Securities		943			876			141
Net interest income (TE)		20,351			20,182			17,674
Noninterest income		8,184			7,843			8,428
Taxable-equivalent adjustment:
Increase in cash surrender value of BOLI (TE)		194			195			160
Noninterest income (TE)		8,378			8,038			8,588
Less securities gain (loss), net		639			102			(193)
Adjusted noninterest income, plus net interest income (TE)	$	28,090		$	28,118		$	26,455
Efficiency ratio (excluding nonrecurring items)		56.49	%		57.66	%		61.78	%
Efficiency ratio (GAAP)		56.72	%		57.66	%		62.37	%

Attached files

Stock widget

Investing forum

OLD SECOND BANCORP INC Reports