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

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8-K - 8-K - OLD SECOND BANCORP INC	osbc-20180725x8k.htm



(NASDAQ:OSBC)		Exhibit 99.1

Contact:	Bradley S. Adams	For Immediate Release
	Chief Financial Officer	July 25, 2018
	(630) 906-5484

Old Second Reports Second Quarter 2018 Net Income of $6.3 million

AURORA, IL, July 25, 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 second quarter of 2018. The Company’s net income was $6.3 million, or $0.21 per diluted share, for the second quarter of 2018, compared to net income of $9.5 million, or $0.31 per diluted share, in the first quarter of 2018, and net income of $5.1 million, or $0.17 per diluted share, for the second quarter of 2017.

On April 20, 2018, the Company completed its previously announced acquisition of Greater Chicago Financial Corp., and its wholly-owned bank subsidiary, ABC Bank. In connection with the merger, Greater Chicago Financial Corp merged with and into the Company, with the Company as the surviving company in the merger. Immediately following the merger, ABC Bank, an Illinois state-chartered bank and wholly owned subsidiary of Greater Chicago Financial Corp., merged with and into the Bank, with the Bank as the surviving bank. ABC Bank loans purchased, net of purchase accounting adjustments, totaled $227.6 million, and deposits, net of purchase accounting adjustments, totaled $248.5 million. Data conversion activities were substantially completed by June 30, 2018, resulting in acquisition related costs of $2.5 million after tax, or $0.08 per diluted share, for the second quarter.

Operating Results

The Company’s second quarter 2018 net income was $6.3 million, reflecting a reduction in earnings of $3.2 million from the first quarter of 2018, and an increase in earnings of $1.1 million from the second quarter of 2017.

Adjusted net income, a non-GAAP financial measure, was $8.7 million, or $0.29 per diluted share, for the second quarter of 2018, compared to $8.1 million, or $0.27 per diluted share, for the first quarter of 2018.

Second quarter 2018 adjusted net income excluded $2.5 million in costs, after tax, related to our acquisition of ABC Bank.

First quarter 2018 adjusted net income excluded a $1.0 million BOLI death claim, $596,000 of insurance proceeds, after tax, recovered on a previously charged off credit that was taken as a release to the provision for loan losses, and $203,000 in costs, after tax, related to our acquisition of ABC Bank.

See the discussion entitled “Non-GAAP Presentations” below and the tables on pages 14-15 that provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

Net interest and dividend income was $23.2 million for the second quarter of 2018, reflecting an increase of $3.6 million, or 18.5%, from the $19.6 million recorded in the first quarter of 2018, and an increase of $4.6 million, or 24.5%, over the second quarter of 2017. Net interest income in the second quarter of 2018 was favorably impacted by the rising interest rate environment, as well as $1.1 million of purchase accounting accretion, $946,000 of which related to the Company’s acquisition of ABC Bank, compared to $141,000 of purchase accounting accretion in the first quarter of 2018, and $495,000 in the second quarter of 2017. Purchase accounting accretion income realized prior to the second quarter of 2018 was due to the Company’s purchase of the Chicago branch of Talmer Bank and Trust in late 2016.

The Company recorded a provision for loan and lease losses of $1.5 million in the second quarter of 2018. A release of the provision for loan and lease losses of $722,000 was recorded in the first quarter of 2018, compared to provision expense of $750,000 in the second quarter of 2017.

Noninterest income was $8.5 million for both the second and first quarters of 2018, compared to $7.3 million in the second quarter of 2017. Noninterest income in the second quarter of 2018 reflects $312,000 of security gains, net, as well as growth in trust income and service charges on deposits compared to the first quarter of 2018. The first quarter of 2018 reflected a $1.0 million death benefit received on a BOLI claim, as well as an increase in the mortgage servicing rights mark to market adjustment.

Noninterest expense was $22.3 million for the second quarter of 2018 which reflects an increase of $4.9 million, or 28.4%, as compared to the first quarter of 2018, and an increase of $4.3 million, or 23.9%, from the second quarter of 2017. The increase in noninterest expense in the second quarter of 2018 compared to the first quarter of 2018 and the second quarter of 2017 is primarily due to increases in salaries and employee benefits costs, as well as computer and data processing expenses stemming from costs incurred related to the Company’s acquisition of ABC Bank. The year over year increase was partially offset by a decrease in OREO related costs due to a decline in OREO assets.

On July 17, 2018, the Company’s Board of Directors declared a cash dividend of $0.01 per share payable on August 6, 2018, to stockholders of record as of July 27, 2018.

Capital Ratios


			June 30,		March 31,		June 30,
	Well-Capitalized		2018		2018		2017
The Company
Common equity tier 1 capital ratio	N/A		8.49	%	9.82	%	8.55	%
Total risk-based capital ratio	N/A		11.87	%	13.58	%	12.14	%
Tier 1 risk-based capital ratio	N/A		10.99	%	12.63	%	11.06	%
Tier 1 leverage ratio	N/A		9.37	%	10.44	%	9.09	%

The Bank
Common equity tier 1 capital ratio	6.50	%	12.62	%	13.56	%	12.46	%
Total risk-based capital ratio	10.00	%	13.51	%	14.51	%	13.30	%
Tier 1 risk-based capital ratio	8.00	%	12.62	%	13.56	%	12.46	%
Tier 1 leverage ratio	5.00	%	10.75	%	11.19	%	10.23	%

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

Asset Quality & Earning Assets

Nonperforming loans totaled $11.9 million at June 30, 2018, compared to $12.8 million at March 31, 2018, and $15.6 million at June 30, 2017. 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 were 0.6% as of June 30, 2018, 0.8% as of March 31, 2018, and 1.0% as of June 30, 2017. Purchase credit impaired (“PCI”) loans from the Company’s acquisition of ABC Bank totaled $11.2 million, net of purchase accounting adjustments, as of June 30, 2018.

OREO assets totaled $8.9 million as of June 30, 2018, compared to $7.1 million at March 31, 2018, and $11.7 million at June 30, 2017. Valuation writedowns of $254,000 were recorded in the second quarter of 2018, compared to $112,000 in the first quarter of 2018 and $392,000 in the second quarter of 2017. Nonperforming assets as a percent of total loans plus OREO decreased to 1.1% as of June 30, 2018, as compared to 1.2% as of March 31, 2018 and 1.8% as of June 30, 2017.

Total loans were $1.85 billion at June 30, 2018, reflecting an increase of $247.4 million compared to March 31, 2018, and an increase of $309.5 million compared to June 30, 2017, primarily due to the Company’s acquisition of ABC Bank, which included $227.6 million of loans recorded, net of purchase accounting adjustments. Average loans (including loans held-for-sale) for the second quarter of 2018 were $1.81 billion, reflecting an increase of $206.1 million from quarterly average loans for the first quarter of 2018, and an increase of $299.9 million from quarterly average loans for the second quarter of 2017.

Available-for-sale securities at fair value totaled $543.6 million at June 30, 2018, compared to $550.9 million at March 31, 2018, and $568.2 million at June 30, 2017. Pretax net gains of $312,000 on the sale of securities were realized in the second quarter of 2018, compared to pretax net security gains of $35,000 in the first quarter of 2018 and pretax net security losses of $131,000 in the second quarter of 2017.

Net Interest Income

ANALYSIS OF AVERAGE BALANCES,

TAX EQUIVALENT INTEREST AND RATES

(Dollars in thousands - unaudited)


	Quarters Ended
	June 30, 2018						March 31, 2018						June 30, 2017
	Average					Rate	Average					Rate	Average					Rate
	Balance			Interest		%	Balance			Interest		%	Balance			Interest		%
Assets
Interest bearing deposits with financial institutions	$	19,161		$	97	2.03	$	13,819		$	49	1.44	$	11,938		$	31	1.03
Securities:
Taxable		268,591			2,392	3.57		269,330			2,170	3.27		361,504			2,607	2.88
Non-taxable (TE)		286,611			2,676	3.74		279,831			2,609	3.78		225,182			2,536	4.50
Total securities		555,202			5,068	3.66		549,161			4,779	3.53		586,686			5,143	3.51
Dividends from FHLBC and FRBC		8,619			111	5.17		8,920			106	4.82		7,699			92	4.78
Loans and loans held-for-sale 1, 2		1,809,077			22,552	5.00		1,602,947			18,767	4.75		1,509,188			17,445	4.57
Total interest earning assets		2,392,059			27,828	4.67		2,174,847			23,701	4.42		2,115,511			22,711	4.26
Cash and due from banks		36,720			-	-		29,776			-	-		39,425			-	-
Allowance for loan and lease losses		(18,494)			-	-		(18,263)			-	-		(15,779)			-	-
Other noninterest bearing assets		176,608			-	-		166,507			-	-		189,928			-	-
Total assets	$	2,586,893					$	2,352,867					$	2,329,085

Liabilities and Stockholders' Equity
NOW accounts	$	443,586		$	238	0.22	$	429,301		$	176	0.17	$	432,248		$	107	0.10
Money market accounts		317,775			193	0.24		275,334			109	0.16		280,482			86	0.12
Savings accounts		298,240			70	0.09		266,363			59	0.09		265,066			40	0.06
Time deposits		460,909			1,444	1.26		382,422			1,175	1.25		392,779			1,025	1.05
Interest bearing deposits		1,520,510			1,945	0.51		1,353,420			1,519	0.46		1,370,575			1,258	0.37
Securities sold under repurchase agreements		44,655			104	0.93		40,275			79	0.80		35,652			4	0.05
Other short-term borrowings		58,199			276	1.90		87,444			329	1.53		58,572			146	0.99
Junior subordinated debentures		57,657			927	6.45		57,645			927	6.52		57,609			1,059	7.35
Senior notes		44,096			672	6.11		44,071			672	6.18		43,995			672	6.11
Notes payable and other borrowings		19,795			95	1.92		-			-	-		-			-	-
Total interest bearing liabilities		1,744,912			4,019	0.92		1,582,855			3,526	0.90		1,566,403			3,139	0.80
Noninterest bearing deposits		618,765			-	-		554,624			-	-		557,265			-	-
Other liabilities		15,679			-	-		13,969			-	-		18,047			-	-
Stockholders' equity		207,537			-	-		201,419			-	-		187,370			-	-
Total liabilities and stockholders' equity	$	2,586,893					$	2,352,867					$	2,329,085
Net interest income (TE) 2				$	23,809					$	20,175					$	19,572
Net interest margin (TE) 2						3.99						3.76						3.71
Interest bearing liabilities to earning assets		72.95	%					72.78	%					74.04	%

1 Interest income from loans is shown on a tax equivalent basis, which is a non-GAAP financial measure as discussed in the table on page 15, and includes fees of $233,000, $182,000 and $573,000 for the second quarter of 2018, the first quarter of 2018, and the second quarter of 2017, respectively. Nonaccrual loans are included in the above stated average balances.

2 Tax equivalent basis is calculated using a marginal tax rate of 21% in 2018 and 35% in 2017. See the discussion entitled “Non-GAAP Presentations” below and the tables on page 15 that provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

Tax equivalent net interest income was $23.8 million for the quarter ended June 30, 2018, which reflects an increase of $3.6 million compared to the first quarter of 2018, and growth of $4.2 million compared to the second quarter of 2017. The tax equivalent adjustment for the second quarter of 2018 was $567,000, compared to the tax equivalent adjustments of $559,000 for the first quarter of 2018, and $911,000 for the second quarter of 2017, reflecting the reduction of the federal tax rate in 2018 due to the “Tax Cuts and Jobs Act” which was effective as of January 1, 2018, and lowered the Federal corporate income tax rate to 21%. Growth in interest earning assets in the

second quarter was primarily due to the Company’s acquisition of ABC Bank, as discussed above, which resulted in $227.6 million of loans recorded, net of purchase accounting adjustments. Quarterly average earning assets increased $217.2 million from the first quarter of 2018 to $2.39 billion for the quarter ended June 30, 2018, while yield on earning assets increased 25 basis points over the same period. Average loan growth, including loans held-for-sale, was $206.1 million for the quarter ended June 30, 2018, compared to the quarter ended March 31, 2018, while the year over year growth in second quarter average loans, including loans held-for-sale, was $299.9 million. The net interest margin increased in the second quarter of 2018 primarily due to the ABC Bank purchase accounting accretion of $946,000. In addition to the ABC Bank acquisition in the second quarter of 2018, the year over year growth was primarily due to organic loan growth over the last twelve months, driven by commercial portfolio originations, as well as two home equity loan (“HELOC”) portfolio purchases, which included $20.0 million of HELOCs purchased in the first quarter of 2018, and $17.4 million of HELOCs purchased in June 2017.

Tax equivalent securities income increased $289,000 in the second quarter of 2018 compared to the first quarter of 2018, but declined by $75,000 in the second quarter of 2018 compared to the second quarter of 2017, due primarily to the reduction in the federal income tax rates noted above. The Company’s securities portfolio has been repositioned in the last year into higher yielding tax exempt securities, while lower yielding securities were sold or called. The securities portfolio acquired with the Company’s acquisition of ABC Bank was immediately liquidated as the holdings were not considered consistent with the Company’s investment strategies; this liquidation resulted in cash inflows of approximately $72.1 million. The rising interest rate environment drove a 30 basis point increase for taxable securities income in the second quarter of 2018, compared to the first quarter of 2018, and a 69 basis point increase from the like 2017 quarter.

The cost of interest bearing liabilities for the second quarter of 2018 increased by two basis points from the first quarter of 2018, and increased by twelve basis points from the second quarter of 2017. Growth in interest bearing liabilities in the second quarter was primarily due to the acquisition of ABC Bank, as discussed above, which resulted in $248.5 million of deposits recorded, net of the time deposit purchase accounting adjustment. Total average deposits increased $167.1 million during the second quarter of 2018 compared to the first quarter of 2018 in all categories due to the ABC Bank acquisition. Continued growth in demand deposits in the year over year period has assisted the Company in controlling the cost of funds stemming from average interest bearing deposits. The slight increase in the overall cost of funds is due to higher balances on interest bearing deposits as well as the rising rate environment.

For the quarter ended June 30, 2018, average other short-term borrowings, which are primarily FHLBC advances, decreased by $29.2 million compared to the quarter ended March 31, 2018, and by $373,000 compared to the quarter ended June 30, 2017. The junior subordinated debt issuances reflected a reduced cost of funds in both the quarter ended June 30, 2018 and March 31, 2018, compared to the quarter ended June 30, 2017, as the interest rate on the Company’s Capital Trust II converted on June 15, 2017, from fixed to floating rate at three month LIBOR plus 150 basis points. The cost of the senior notes issuance remained relatively steady for the three quarters presented. Finally, the second quarter 2018 average for the notes payable and other borrowings category included $19.8 million of long-term FHLBC advances acquired with the Company’s acquisition of ABC Bank.

The net interest margin (TE) increased 23 basis points for the second quarter of 2018 compared to the first quarter of 2018, ending at 3.99% compared to 3.76%, respectively, due primarily to purchase accounting accretion stemming from the Company’s acquisition of ABC Bank as well as the rising interest rate environment. The growth in the yield on average earning assets more than offset the increase in the cost of funds for the second quarter of 2018 compared to the first quarter of 2018. The net interest margin (TE) in the second quarter of 2018 was 28 basis points higher than the like quarter one year ago.

Noninterest Income


							2nd Qtr 2018
Noninterest Income	Quarters Ended						Percent Change From
(dollars in thousands)	June 30,		March 31,		June 30,		March 31,	June 30,
	2018		2018		2017		2018	2017
Trust income	$	1,645	$	1,495	$	1,638	10.0	0.4
Service charges on deposits		1,769		1,592		1,615	11.1	9.5
Residential mortgage banking revenue
Secondary mortgage fees		195		162		223	20.4	(12.6)
Mortgage servicing rights mark to market (loss) gain		(105)		305		(429)	N/M	N/M
Mortgage servicing income		627		452		444	38.7	41.2
Net gain on sales of mortgage loans		1,240		917		1,473	35.2	(15.8)
Total residential mortgage banking revenue		1,957		1,836		1,711	6.6	14.4
Securities gain (loss), net		312		35		(131)	791.4	338.2
Increase in cash surrender value of BOLI		351		248		350	41.5	0.3
Death benefit realized on BOLI		-		1,026		-	N/M	N/M
Debit card interchange income		1,132		1,012		1,081	11.9	4.7
Gain on disposal and transfer of fixed assets		-		-		12	N/M	N/M
Other income		1,366		1,261		1,041	8.3	31.2
Total noninterest income	$	8,532	$	8,505	$	7,317	0.3	16.6

N/M - Not meaningful.

The increase in noninterest income in the second quarter of 2018 compared to both the first quarter of 2018 and the second quarter of 2017 was driven primarily by increases in trust income, service charges on deposits, an increase in the cash surrender value of BOLI, and total residential mortgage banking revenue. Securities gain (loss), net, experienced the most significant positive fluctuation, as a percentage of total change on both a linked quarter and year over year basis, as the Company repositioned its securities portfolio over the past year. The Company realized gains in securities in the second quarter of 2018 and the first quarter of 2018, compared to losses in the second quarter of 2017. Total residential mortgage banking revenue increased from the prior linked quarter as mortgage servicing income and gain on sales of mortgage loans continue to increase in the rising rate environment. The increase in other income in the second quarter of 2018, as compared to the prior linked quarter, was primarily attributable to commercial interest rate swap fees of $187,000.

Noninterest Expense


										2nd Qtr 2018
Noninterest Expense	Quarters Ended									Percent Change From
(dollars in thousands)	June 30,			March 31,			June 30,			March 31,	June 30,
	2018			2018			2017			2018	2017
Salaries	$	9,703		$	7,335		$	7,972		32.3	21.7
Officers incentive		740			787			854		(6.0)	(13.3)
Benefits and other		1,912			2,085			1,719		(8.3)	11.2
Total salaries and employee benefits		12,355			10,207			10,545		21.0	17.2
Occupancy, furniture and equipment expense		1,652			1,558			1,462		6.0	13.0
Computer and data processing		2,741			1,344			1,112		103.9	146.5
FDIC insurance		165			156			165		5.8	-
General bank insurance		299			251			264		19.1	13.3
Amortization of core deposit intangible asset		97			21			25		361.9	288.0
Advertising expense		492			341			452		44.3	8.8
Debit card interchange expense		301			281			399		7.1	(24.6)
Legal fees		286			159			184		79.9	55.4
Other real estate owned expense, net		429			173			539		148.0	(20.4)
Other expense		3,469			2,863			2,839		21.2	22.2
Total noninterest expense	$	22,286		$	17,354		$	17,986		28.4	23.9
Efficiency ratio (GAAP)		69.16	%		63.41	%		66.73	%
Adjusted efficiency ratio (non-GAAP)1		57.88	%		60.50	%		62.95	%

N/M - Not meaningful.

1 The adjusted 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 table on page 15 that provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

Noninterest expense for the second quarter of 2018 increased $4.9 million, or 28.4%, compared to the first quarter of 2018 and increased $4.3 million, or 23.9%, compared to the second quarter of 2017. The linked quarter increase is primarily attributable to ABC Bank acquisition-related costs, which included $1.2 million of salaries and employee benefit expense, $1.6 million of computer and data processing expense, $114,000 of legal expense, and $76,000 of core deposit intangible amortization. The year over year variance is also primarily attributable to ABC Bank acquisition-related costs, including salaries and employee benefits expense, computer and data processing expense, amortization of core deposit intangibles, and legal fees. Partially offsetting the year over year increases noted was a reduction in OREO expense, net, as the OREO portfolio balances have declined over the past twelve months.

Earning Assets


							June 30, 2018
Loans	As of						Percent Change From
(dollars in thousands)	June 30,		March 31,		June 30,		March 31,	June 30,
	2018		2018		2017		2018	2017
Commercial	$	299,536	$	281,134	$	256,760	6.5	16.7
Leases		66,687		66,344		70,138	0.5	(4.9)
Real estate - commercial		808,264		713,422		706,103	13.3	14.5
Real estate - construction		115,486		91,479		93,661	26.2	23.3
Real estate - residential		404,908		309,376		282,117	30.9	43.5
Home equity line of credit ("HELOC")		127,986		129,234		116,052	(1.0)	10.3
Other1		13,969		9,845		14,138	41.9	(1.2)
Total loans, excluding deferred loan costs and PCI		1,836,836		1,600,834		1,538,969	14.7	19.4
Net deferred loan costs		1,112		978		678	13.7	64.0
Total loans, excluding PCI		1,837,948		1,601,812		1,539,647	14.7	19.4
PCI loans, net of purchase accounting adjustments		11,214		-		-	N/M	N/M
Total loans	$	1,849,162	$	1,601,812	$	1,539,647	15.4	20.1

1 Other class includes consumer and overdrafts.

Total loans increased by $247.4 million at the end of the second quarter of 2018 compared to March 31, 2018, and increased $309.5 million year over year. The majority of the increase is due to $227.6 million of loans recorded, net of purchase accounting adjustments, from the Company’s acquisition of ABC Bank. In addition, the Company has made select lease and HELOC purchases and experienced organic loan growth in the year over year period.


							June 30, 2018
Securities	As of						Percent Change From
(dollars in thousands)	June 30,		March 31,		June 30,		March 31,	June 30,
	2018		2018		2017		2018	2017
Securities available-for-sale, at fair value
U.S. Treasury	$	3,876	$	3,895	$	-	(0.5)	N/M
U.S. government agencies		12,216		12,730		-	(4.0)	N/M
U.S. government agency mortgage-backed		13,407		13,844		20,846	(3.2)	(35.7)
States and political subdivisions		276,112		285,540		225,518	(3.3)	22.4
Corporate bonds		700		703		12,616	(0.4)	(94.5)
Collateralized mortgage obligations		61,432		63,744		100,913	(3.6)	(39.1)
Asset-backed securities		109,263		110,870		140,385	(1.4)	(22.2)
Collateralized loan obligations		66,638		59,616		67,949	11.8	(1.9)
Total securities available-for-sale	$	543,644	$	550,942	$	568,227	(1.3)	(4.3)

N/M - Not meaningful.

The investment portfolio was $543.6 million as of June 30, 2018, a decrease of $7.3 million from $550.9 million as of March 31, 2018, and a decrease of $24.6 million from June 30, 2017. Since late 2016, the Company has liquidated select collateralized mortgage obligations, mortgage-backed securities, corporate bonds and asset-backed securities to reposition the Company’s securities portfolio in favor of high quality state and municipal securities. These continued sales resulted in $312,000 of net security gains for the second quarter of 2018, compared to net gains of $35,000 in the first quarter of 2018 and $131,000 of net losses in the second quarter of 2017. 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 were a significant number of collateralized loan obligations (“CLOs”) called during 2017 due to tightening contractual spreads of the securities. However, similar CLOs were purchased; therefore, the overall size of the CLO portfolio was not materially changed year over year.

Asset Quality


										June 30, 2018
Nonperforming assets	As of									Percent Change From
(dollars in thousands)	June 30,			March 31,			June 30,			March 31,	June 30,
	2018			2018			2017			2018	2017
Nonaccrual loans	$	9,421		$	11,059		$	14,683		(14.8)	(35.8)
Nonperforming troubled debt restructured loans accruing interest		1,300			1,332			935		(2.4)	39.0
Loans past due 90 days or more and still accruing interest		1,153			401			-		187.5	N/M
Total nonperforming loans		11,874			12,792			15,618		(7.2)	(24.0)
Other real estate owned		8,912			7,063			11,724		26.2	(24.0)
Total nonperforming assets	$	20,786		$	19,855		$	27,342		4.7	(24.0)

PCI loans, net of purchase accounting adjustments	$	11,214		$	-		$	-		N/M	N/M


30-89 days past due loans	$	9,617		$	3,001		$	6,088
Nonaccrual loans to total loans		0.5	%		0.7	%		1.0	%
Nonperforming loans to total loans		0.6	%		0.8	%		1.0	%
Nonperforming assets to total loans plus OREO		1.1	%		1.2	%		1.8	%
Purchased credit-impaired loans to total loans		0.6	%		-	%		-	%

Allowance for loan losses	$	19,321		$	18,188		$	15,836
Allowance for loan losses to total loans		1.0	%		1.1	%		1.0	%
Allowance for loan losses to nonaccrual loans		205.1	%		164.5	%		107.9	%

N/M - Not meaningful.

Nonperforming loans consist of nonaccrual loans, performing restructured accruing loans and loans 90 days or more past due but still accruing interest. Nonperforming loans to total loans was 0.6% in the second quarter of 2018, 0.8% in the first quarter of 2018, and 1.0% in the second quarter of 2017. Nonperforming assets to total loans plus OREO decreased to 1.1% from 1.2% in the first quarter of 2018, and from 1.8% in the second quarter of 2017, as a result of loan growth over the last year, as well as continued OREO liquidations and write-downs recorded in 2017 and 2018. Finally, the allowance for loan and lease losses to total loans was 1.0% as of June 30, 2018, which is a decrease from 1.1% the first quarter 2018 and no change from the 1.0% in the second quarter of 2017.

Purchase credit impaired (“PCI”) loans, as well as non-purchase credit impaired loans, were recorded in the second quarter of 2018 related to the Company’s acquisition of ABC Bank. The following table details the accretable discount on all of the Company’s purchased loans as of June 30, 2018.


	Accretable Discount - Non-PCI Loans		Accretable Discount - PCI Loans		Non-Accretable Discount - PCI Loans		Total
Beginning balance, April 1, 2018	$	694	$	-	$	-	$	694
Purchases		3,182		1,551		6,536		11,269
Accretion		(881)		(176)		-		(1,057)
Transfer1		-		(2)		(133)		(135)
Ending balance, June 30, 2018	$	2,995	$	1,373	$	6,403	$	10,771

1 Transfer was due to loans moved to OREO.

The allowance for loan and lease losses excludes the remaining purchase accounting credit marks recorded on the ABC Bank and Talmer branch purchased loans; the expected total remaining accretable discount on the purchased loans was $4.4 million as of June 30, 2018, compared to $694,000 as of March 31, 2018 and the non-accretable discount on PCI loans was $6.4 million as of June 30, 2018.


							June 30, 2018
Classified loans	As of						Percent Change From
(dollars in thousands)	June 30,		March 31,		June 30,		March 31,	June 30,
	2018		2018		2017		2018	2017
Commercial	$	393	$	-	$	255	N/M	N/M
Leases		539		610		460	(11.6)	17.2
Real estate-commercial, nonfarm		12,362		6,098		7,494	102.7	65.0
Real estate-commercial, farm		1,248		2,439		1,305	(48.8)	(4.4)
Real estate-construction		366		371		397	(1.3)	(7.8)
Real estate-residential:
Investor		1,029		436		843	136.0	22.1
Multifamily		3,302		-		4,824	N/M	N/M
Owner occupied		5,428		5,476		4,935	(0.9)	10.0
HELOC		1,633		2,038		1,963	(19.9)	(16.8)
Other1		18		18		9	-	N/M
Total classified loans, excluding PCI		26,318		17,486		22,485	50.5	17.0
PCI loans, net of purchase accounting adjustments		11,214		-		-	N/M	N/M
Total classified loans	$	37,532	$	17,486	$	22,485	114.6	66.9

N/M - Not meaningful.

1 Other class includes consumer and overdrafts.

Classified loans include nonaccrual, performing troubled debt restructurings, PCI loans, and all other loans considered substandard, as shown above. Classified loans totaled $45.3 million as of June 30, 2018, an increase of $27.8 million, or 159.1%, from the prior quarter, and an increase of $22.8 million, or 101.5%, from the like quarter of 2017. The $11.2 million of PCI loans stems from the Company’s acquisition of ABC Bank.

Net Charge-off Summary


Loan Charge-offs, net of recoveries	Quarters Ended
(dollars in thousands)	June 30,		% of	March 31,		% of	June 30,		% of
	2018		Total 2	2018		Total 2	2017		Total 2
Commercial	$	(77)	(24.3)	$	(1)	0.1	$	1	0.2
Leases		8	2.5		5	(0.3)		-	-
Real estate-commercial, nonfarm
Owner general purpose		27	8.5		(41)	2.8		(1)	(0.2)
Owner special purpose		-	-		(21)	1.4		(6)	(0.9)
Non-owner general purpose		(20)	(6.3)		(313)	21.6		(39)	(6.0)
Non-owner special purpose		476	150.2		(1)	0.1		-	-
Retail properties		-	-		(87)	6.0		4	0.6
Total real estate-commercial, nonfarm		483	152.4		(463)	31.9		(42)	(6.5)
Real estate-construction
Homebuilder		-	-		2	(0.1)		(1)	(0.2)
Land		(2)	(0.6)		(4)	0.3		(48)	(7.3)
Commercial speculative		-	-		(18)	1.2		-	-
All other		2	0.6		1	(0.1)		(11)	(1.7)
Total real estate-construction		-	-		(19)	1.3		(60)	(9.2)
Real estate-residential
Investor		(63)	(19.9)		(30)	2.1		(16)	(2.4)
Multifamily		(11)	(3.5)		(175)	12.1		129	19.7
Owner occupied		(26)	(8.2)		(766)	52.9		723	110.4
Total real estate-residential		(100)	(31.6)		(971)	67.1		836	127.7
HELOC		(26)	(8.2)		(20)	1.4		(109)	(16.6)
Other1		29	9.2		20	(1.5)		29	4.4
Net charge-offs / (recoveries)	$	317	100.0	$	(1,449)	100.0	$	655	100.0

1 Other class includes consumer and overdrafts.

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

Gross charge-offs for the quarter ended June 30, 2018, were $699,000 compared to $(25,000) for the quarter ended March 31, 2018, and $1.1 million for June 30, 2017. Gross recoveries were $382,000 for the quarter ended June 30, 2018, compared to $1.4 million for the quarter ended March 31, 2018 and $411,000 for the like quarter of 2017. A charge-off adjustment was recorded in the first quarter of 2018 stemming from unearned loan fee accrual reversals from prior periods, resulting in a minimal negative gross charge-off for the first quarter. Continued recoveries are indicative of the ongoing aggressive efforts by management to effectively manage and resolve prior charge-offs.

Deposits

Total deposits were $2.16 billion at June 30, 2018, which reflects an increase of $199.8 million compared to March 31, 2018. Demand deposits increased by $38.0 million and money markets, savings, and NOW accounts also increased by $60.3 million for the quarter, while time deposit balances increased by $101.5 million. Total time deposits or certificates of deposit reflected an increase of $91.0 million from June 2017. Growth in all deposit categories was driven by the Company’s acquisition of ABC Bank, which resulted in additional deposits recorded in the second quarter of 2018 of $248.5 million.

Borrowings

As of June 30, 2018, the Bank had $76.6 million outstanding in other short-term borrowings, which were primarily FHLBC advances, compared to $45.0 million in FHLBC advances outstanding as of March 31, 2018, and $75.0 million of FHLBC advances outstanding as of June 30, 2017.

The Company is indebted on senior notes totaling $44.1 million, net of deferred issuance costs, as of June 30, 2018. The Company is also indebted on $57.7 million of junior subordinated debentures, net of deferred issuance costs, 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% for the second quarter of 2018, inclusive of debt issuance costs. This compared to the Trust II issuance fixed 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 adjusted net income, adjusted earnings per share, the presentation of net interest income and net interest margin on a fully taxable equivalent, and efficiency ratio calculations. Management believes the adjusted earnings per share data is more informative for the user if the per share impact of certain 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 items, which is discussed in the noninterest expense presentation on page 6. 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 15 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. 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, 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, July 26, 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 August 2, 2018, by dialing 877-481-4010, using Conference ID: 33651.

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands)


	(unaudited)
	June 30,		December 31,
	2018		2017
Assets
Cash and due from banks	$	34,161	$	37,444
Interest bearing deposits with financial institutions		31,147		18,389
Cash and cash equivalents		65,308		55,833
Securities available-for-sale, at fair value		543,644		541,439
Federal Home Loan Bank Chicago ("FHLBC") and Federal Reserve Bank Chicago ("FRBC") stock		9,093		10,168
Loans held-for-sale		5,206		4,067
Loans		1,849,162		1,617,622
Less: allowance for loan and lease losses		19,321		17,461
Net loans		1,829,841		1,600,161
Premises and equipment, net		42,532		37,628
Other real estate owned		8,912		8,371
Mortgage servicing rights, net		7,812		6,944
Goodwill and core deposit intangible		22,074		8,922
Bank-owned life insurance ("BOLI")		61,159		61,764
Deferred tax assets, net		27,812		25,356
Other assets		26,355		22,776
Total assets	$	2,649,748	$	2,383,429

Liabilities
Deposits:
Noninterest bearing demand	$	620,807	$	572,404
Interest bearing:
Savings, NOW, and money market		1,058,295		967,750
Time		482,749		382,771
Total deposits		2,161,851		1,922,925
Securities sold under repurchase agreements		54,038		29,918
Other short-term borrowings		76,625		115,000
Junior subordinated debentures		57,662		57,639
Senior notes		44,108		44,058
Notes payable and other borrowings		23,496		-
Other liabilities		22,154		13,539
Total liabilities		2,439,934		2,183,079

Stockholders’ Equity
Common stock		34,717		34,626
Additional paid-in capital		118,082		117,742
Retained earnings		157,796		142,959
Accumulated other comprehensive (loss) income		(4,487)		1,479
Treasury stock		(96,294)		(96,456)
Total stockholders’ equity		209,814		200,350
Total liabilities and stockholders’ equity	$	2,649,748	$	2,383,429

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,
	2018		2017		2018		2017
Interest and dividend income
Loans, including fees	$	22,512	$	17,385	$	41,248	$	33,994
Loans held-for-sale		35		37		55		61
Securities:
Taxable		2,392		2,607		4,562		5,570
Tax exempt		2,114		1,648		4,175		2,560
Dividends from FHLBC and FRBC stock		111		92		217		177
Interest bearing deposits with financial institutions		97		31		146		54
Total interest and dividend income		27,261		21,800		50,403		42,416
Interest expense
Savings, NOW, and money market deposits		501		233		845		456
Time deposits		1,444		1,025		2,619		2,004
Securities sold under repurchase agreements		104		4		183		6
Other short-term borrowings		276		146		605		252
Junior subordinated debentures		927		1,059		1,854		2,143
Senior notes		672		672		1,344		1,345
Notes payable and other borrowings		95		-		95		-
Total interest expense		4,019		3,139		7,545		6,206
Net interest and dividend income		23,242		18,661		42,858		36,210
Provision for loan and lease losses		1,450		750		728		750
Net interest and dividend income after provision for loan and lease losses		21,792		17,911		42,130		35,460
Noninterest income
Trust income		1,645		1,638		3,140		3,096
Service charges on deposits		1,769		1,615		3,361		3,233
Secondary mortgage fees		195		223		357		399
Mortgage servicing rights mark to market loss		(105)		(429)		200		(562)
Mortgage servicing income		627		444		1,079		879
Net gain on sales of mortgage loans		1,240		1,473		2,157		2,620
Securities gains (losses), net		312		(131)		347		(267)
Increase in cash surrender value of BOLI		351		350		599		709
Death benefit realized on bank-owned life insurance		-		-		1,026		-
Debit card interchange income		1,132		1,081		2,144		2,056
Losses on disposal and transfer of fixed assets, net		-		12		-		10
Other income		1,366		1,041		2,627		2,172
Total noninterest income		8,532		7,317		17,037		14,345
Noninterest expense
Salaries and employee benefits		12,355		10,545		22,562		21,118
Occupancy, furniture and equipment		1,652		1,462		3,210		3,028
Computer and data processing		2,741		1,112		4,085		2,202
FDIC insurance		165		165		321		313
General bank insurance		299		264		550		534
Amortization of core deposit intangible		97		25		118		50
Advertising expense		492		452		833		838
Debit card interchange expense		301		399		582		748
Legal fees		286		184		445		288
Other real estate expense, net		429		539		602		1,248
Other expense		3,469		2,839		6,332		5,673
Total noninterest expense		22,286		17,986		39,640		36,040
Income before income taxes		8,038		7,242		19,527		13,765
Provision for income taxes		1,777		2,096		3,777		4,192
Net income available to common stockholders	$	6,261	$	5,146	$	15,750	$	9,573

Basic earnings per share	$	0.21	$	0.17	$	0.53	$	0.32
Diluted earnings per share		0.21		0.17		0.52		0.32


Ending common shares outstanding	29,747,078	29,627,086	29,747,078	29,627,086
Weighted-average basic shares outstanding	29,747,078	29,587,095	29,703,508	29,573,881
Weighted-average diluted shares outstanding	30,337,282	30,015,905	30,253,440	29,976,544

Old Second Bancorp, Inc. and Subsidiaries

Quarterly Consolidated Average Balance

(In thousands, unaudited)


		2017							2018
Assets	1st Qtr		2nd Qtr		3rd Qtr		4th Qtr		1st Qtr		2nd Qtr
Cash and due from banks	$	33,585	$	39,425	$	31,028	$	30,972	$	29,776	$	36,720
Interest bearing deposits with financial institutions		12,121		11,938		11,685		13,147		13,819		19,161
Cash and cash equivalents		45,706		51,363		42,713		44,119		43,595		55,881

Securities available-for-sale, at fair value		563,897		586,686		548,432		524,909		549,161		555,202
FHLBC and FRBC stock		7,614		7,699		8,339		8,842		8,920		8,619
Loans held-for-sale		2,670		3,616		3,244		2,744		2,353		2,868
Loans		1,484,556		1,505,572		1,550,229		1,596,928		1,600,594		1,806,209
Less: allowance for loan and lease losses		16,292		15,779		16,478		17,002		18,263		18,494
Net loans		1,468,264		1,489,793		1,533,751		1,579,926		1,582,331		1,787,715

Premises and equipment, net		38,917		38,395		38,098		37,825		37,472		41,796
Other real estate owned		13,464		12,596		10,688		8,601		7,884		7,951
Mortgage servicing rights, net		6,543		6,464		6,464		6,821		7,347		7,697
Goodwill and core deposit intangible		9,005		8,981		8,956		8,932		8,911		9,035
Bank-owned life insurance ("BOLI")		60,446		60,806		61,165		61,527		61,273		60,920
Deferred tax assets, net		52,747		48,459		45,635		41,335		26,739		26,825
Other assets		11,714		14,227		14,900		16,443		16,881		22,384
Total other assets		192,836		189,928		185,906		181,484		166,507		176,608
Total assets	$	2,280,987	$	2,329,085	$	2,322,385	$	2,342,024	$	2,352,867	$	2,586,893

Liabilities
Deposits:
Noninterest bearing demand	$	525,454	$	557,265	$	551,768	$	556,010	$	554,624	$	618,765
Interest bearing:
Savings, NOW, and money market		969,609		977,796		958,926		958,808		970,998		1,059,601
Time		394,388		392,779		389,037		383,011		382,422		460,909
Total deposits		1,889,451		1,927,840		1,899,731		1,897,829		1,908,044		2,139,275

Securities sold under repurchase agreements		29,805		35,652		32,800		27,664		40,275		44,655
Other short-term borrowings		56,111		58,572		72,065		84,728		87,444		58,199
Junior subordinated debentures		57,597		57,609		57,621		57,633		57,645		57,657
Senior Notes		43,978		43,995		44,021		44,046		44,071		44,096
Subordinated debt		-		-		-		-		-		-
Notes payable and other borrowings		-		-		-		-		-		19,795
Other liabilities		25,061		18,047		19,395		26,037		13,969		15,679
Total liabilities		2,102,003		2,141,715		2,125,633		2,137,937		2,151,448		2,379,356

Stockholders' equity
Common stock		34,451		34,577		34,626		34,626		34,647		34,717
Additional paid-in capital		116,747		117,077		117,340		117,607		117,734		117,793
Retained earnings		131,631		136,384		142,657		148,863		147,309		155,553
Accumulated other comprehensive loss		(7,692)		(4,310)		(1,415)		(553)		(1,871)		(4,232)
Treasury stock		(96,243)		(96,358)		(96,456)		(96,456)		(96,400)		(96,294)
Total stockholders' equity		178,894		187,370		196,752		204,087		201,419		207,537
Total liabilities and stockholders' equity	$	2,280,897	$	2,329,085	$	2,322,385	$	2,342,024	$	2,352,867	$	2,586,893

Total Earning Assets	$	2,070,858	$	2,115,511	$	2,121,929	$	2,146,570	$	2,174,847	$	2,392,059
Total Interest Bearing Liabilities		1,507,510		1,522,408		1,510,449		1,555,890		1,582,855		1,744,912

Old Second Bancorp, Inc. and Subsidiaries

Quarterly Consolidated Statements of Income

(In thousands, except per share data, unaudited)



	2017								2018
	1st Qtr		2nd Qtr		3rd Qtr		4th Qtr		1st Qtr		2nd Qtr
Interest and Dividend Income
Loans, including fees	$	16,609	$	17,385	$	18,208	$	18,535	$	18,732	$	22,512
Loans held-for-sale		24		37		34		28		24		35
Securities:
Taxable		2,963		2,607		2,424		2,208		2,170		2,392
Tax exempt		912		1,648		1,628		1,751		2,061		2,114
Dividends from FHLB and FRBC stock		85		92		94		99		106		111
Interest bearing deposits with financial institutions		23		31		37		43		49		97
Total interest and dividend income		20,616		21,800		22,425		22,664		23,142		27,261
Interest Expense
Savings, NOW, and money market deposits		223		233		239		255		344		501
Time deposits		979		1,025		1,077		1,146		1,175		1,444
Securities sold under repurchase agreements		2		4		4		7		79		104
Other short-term borrowings		106		146		220		269		329		276
Junior subordinated debentures		1,084		1,059		930		929		927		927
Senior notes		673		672		672		672		672		672
Notes payable and other borrowings		-		-		-		-		-		95
Total interest expense		3,067		3,139		3,142		3,278		3,526		4,019
Net interest and dividend income		17,549		18,661		19,283		19,386		19,616		23,242
Provision (release) for loan and lease losses		-		750		300		750		(722)		1,450
Net interest and dividend income after provision (release) for loan and lease losses		17,549		17,911		18,983		18,636		20,338		21,792
Noninterest Income
Trust income		1,458		1,638		1,468		1,639		1,495		1,645
Service charges on deposits		1,618		1,615		1,722		1,765		1,592		1,769
Secondary mortgage fees		176		223		195		182		162		195
Mortgage servicing rights mark to market (loss) gain		(133)		(429)		(194)		(46)		305		(105)
Mortgage servicing income		435		444		451		448		452		627
Net gain on sales of mortgage loans		1,147		1,473		1,095		1,088		917		1,240
Securities (loss) gain, net		(136)		(131)		102		639		35		312
Increase in cash surrender value of BOLI		359		350		362		361		248		351
Death benefit realized on bank-owned life insurance		-		-		-		-		1,026		-
Debit card interchange income		975		1,081		1,075		1,069		1,012		1,132
(Loss) gain on disposal and transfer of fixed assets		(2)		12		-		-		-		-
Other income		1,131		1,041		1,567		1,039		1,261		1,366
Total noninterest income		7,028		7,317		7,843		8,184		8,505		8,532
Noninterest Expense
Salaries and employee benefits		10,573		10,545		10,049		8,913		10,207		12,355
Occupancy, furniture and equipment		1,566		1,462		1,482		1,441		1,558		1,652
Computer and data processing		1,090		1,112		1,081		1,104		1,344		2,741
FDIC insurance		148		165		199		146		156		165
General bank insurance		270		264		246		251		251		299
Amortization of core deposit intangible		25		25		24		22		21		97
Advertising expense		386		452		255		412		341		492
Debit card interchange expense		349		399		285		296		281		301
Legal fees		104		184		162		200		159		286
Other real estate expense, net		709		539		680		237		173		429
Other expense		2,834		2,839		2,455		3,169		2,863		3,469
Total noninterest expense		18,054		17,986		16,918		16,191		17,354		22,286
Income before income taxes		6,523		7,242		9,908		10,629		11,489		8,038
Provision for income taxes		2,096		2,096		1,831		13,141		2,000		1,777
Net income (loss)	$	4,427	$	5,146	$	8,077	$	(2,512)	$	9,489	$	6,261

Basic earnings (loss) per share	$	0.15	$	0.17	$	0.27	$	(0.08)	$	0.32	$	0.17
Diluted earnings (loss) per share		0.15		0.17		0.27		(0.08)		0.31		0.17

Reconciliation of Non-GAAP Financial Measures

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



	Quarters Ended
	June 30, 2018				March 31, 2018				June 30, 2017
	Amount		Per share		Amount		Per Share		Amount		Per Share
Adjusted Net Income and adjusted diluted earnings per share (EPS), excluding certain items
Net income (GAAP)	$	6,261	$	0.21	$	9,489	$	0.31	$	5,146	$	0.17
(Less) / Add:
Impact of BOLI death claim		-		-		(1,026)		(0.03)		-		-
Provision for loan loss release due to insurance recovery, after tax		-		-		(596)		(0.02)		-		-
Acquisition related costs, after tax		2,468		0.08		203		0.01		-		-
Adjusted net income, excluding certain items	$	8,729	$	0.29	$	8,070	$	0.27	$	5,146	$	0.17


	Quarters Ended									Six Months Ended
	June 30,			March 31,			June 30,			June 30,
	2018			2018			2017			2018			2017
Net Interest Margin
Interest income (GAAP)	$	27,261		$	23,142		$	21,800		$	50,403		$	42,416
Taxable-equivalent adjustment:
Loans		5			11			23			16			45
Securities		562			548			888			1,110			1,379
Interest income (TE)		27,828			23,701			22,711			51,529			43,840
Interest expense (GAAP)		4,019			3,526			3,139			7,545			6,206
Net interest income (TE)	$	23,809		$	20,175		$	19,572		$	43,984		$	37,634
Net interest income (GAAP)	$	23,242		$	19,616		$	18,661		$	42,858		$	36,210
Average interest earning assets	$	2,392,059		$	2,174,847		$	2,115,511		$	2,284,054		$	2,093,308
Net interest margin (GAAP)		3.90	%		3.66	%		3.54	%		3.78	%		3.49	%
Net interest margin (TE)		3.99	%		3.76	%		3.71	%		3.88	%		3.63	%


		Quarters Ended
	June 30,			March 31,			June 30,
	2018			2018			2017
Efficiency Ratio
Noninterest expense	$	22,286		$	17,354		$	17,986
Less amortization of core deposit		97			21			25
Less other real estate expense, net		429			173			539
Less transition related executive costs		-			-			294
Less acquisition related costs		3,168			246			-
Adjusted noninterest expense		18,592			16,914			17,128
Net interest income (GAAP)		23,242			19,616			18,661
Taxable-equivalent adjustment:
Loans		5			11			23
Securities		562			548			888
Net interest income (TE)		23,809			20,175			19,572
Noninterest income		8,532			8,505			7,317
Taxable-equivalent adjustment:
Increase in cash surrender value of BOLI (TE)		93			339			188
Noninterest income (TE)		8,625			8,844			7,505
Less death benefit related to BOLI		-			1,026			-
Less securities gain (loss), net		312			35			(131)
Adjusted noninterest income, plus net interest income (TE)	$	32,122		$	27,958		$	27,208
Efficiency ratio (GAAP)		69.16	%		63.41	%		66.73	%
Adjusted efficiency ratio (non-GAAP)		57.88	%		60.50	%		62.95	%

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