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

Attached files

file	filename
EX-99.2 - EX-99.2 - OLD SECOND BANCORP INC	osbc-20201021ex992d72829.htm
8-K - 8-K - OLD SECOND BANCORP INC	osbc-20201021x8k.htm



(NASDAQ:OSBC)		Exhibit 99.1

Contact:	Bradley S. Adams	For Immediate Release
	Chief Financial Officer	October 21, 2020
	(630) 906-5484

Old Second Reports Third Quarter Net Income of $10.3 million, or $0.34 per Diluted Share

AURORA, IL, October 21, 2020 – Old Second Bancorp, Inc. (the “Company,” “we,” “us,” and “our”) (NASDAQ: OSBC), the parent company of Old Second National Bank (the “Bank”), today announced financial results for the third quarter of 2020. Our net income was $10.3 million, or $0.34 per diluted share, for the third quarter of 2020, compared to net income of $9.2 million, or $0.31 per diluted share, for the second quarter of 2020, and net income of $12.2 million, or $0.40 per diluted share, for the third quarter of 2019. Net income for the third quarter of 2020 reflects a reduction in net interest income year over year due to changes in economic conditions and market interest rates related to the COVID-19 pandemic, and a reduction in service charges on deposits due to a decline in customer spending. Partially offsetting this reduction to third quarter net income year over year was a $0.10 per diluted share impact of growth in mortgage banking income due to an increase in mortgage originations and refinances stemming from the low interest rate environment.

Operating Results

●Third quarter 2020 net income was $10.3 million, reflecting an increase in earnings of $1.0 million from the second quarter of 2020, and a decrease in earnings of $1.9 million from the third quarter of 2019. We recorded a provision for credit losses of $300,000 in the third quarter of 2020, compared to $2.1 million in the second quarter of 2020, each under the current expected credit losses accounting standard (“CECL”), which considers potential credit losses related to the ongoing COVID-19 pandemic, compared to $550,000 in the third quarter of 2019, under the incurred loss model. Contributing to the increase in net income in the third quarter of 2020 compared to the prior quarter was growth in net gain on sales of mortgage loans of $615,000 due to the reduction of interest rates, and growth in service charges on deposits, as customer spending increased in the third quarter.

●Net interest and dividend income was $22.5 million for the third quarter of 2020, a decrease of $198,000, or 0.9%, from the second quarter of 2020, and a decrease of $2.3 million, or 9.2%, from third quarter of 2019. Net interest and dividend income in the year over year period was negatively impacted by interest rate reductions related to COVID-19, as loan growth was more than offset by decreases in yields.

●Provision for credit losses was $300,000 for the third quarter of 2020, consisting of $1.3 million related to loans and a $980,000 reversal related to unfunded commitments, compared to a provision for credit losses of $2.1 million for the second quarter of 2020, consisting of $1.4 million related to loans and $734,000 related to unfunded commitments, and a provision for loan losses of $550,000 in the third quarter of 2019. We adopted the new CECL accounting standard effective January 1, 2020, which measures the allowance based on management’s best estimate of lifetime expected credit losses inherent in our lending activities, resulting in a $5.9 million allowance related to loans and a $1.7 million allowance related to unfunded commitments in the first quarter of 2020. Provision expense in 2020 was impacted by both the adoption of the new CECL methodology and the expected impact, as of September 30, 2020, of the COVID-19 pandemic on future losses.

●Noninterest income was $11.7 million for the third quarter of 2020, an increase of $990,000, or 9.3%, compared to $10.7 million for the second quarter of 2020, but a decrease of $248,000, or 2.1%, compared to $11.9 million for the third quarter of 2019. The increase compared to the linked quarter was primarily due to growth in net gains on sales of mortgage loans, due to an increase in volumes of originations and refinances in the lower interest rate environment. The reduction in the year over year period was primarily due to decreases of $698,000 in service charges on deposits and $3.5 million on securities gains, net, which was partially offset by the $3.2 million of growth in net gains on sales of mortgages in the third quarter of 2020. In addition, mark to market

losses on mortgage servicing rights, or MSRs, totaled $160,000 in the third quarter of 2020, compared to losses of $445,000 in the second quarter of 2020, and losses of $946,000 in the third quarter of 2019.

●

Noninterest expense was $20.3 million for the third quarter of 2020, an increase of $1.4 million, or 7.3%, compared to $18.9 million for the second quarter of 2020, and an increase of $312,000, or 1.6%, from $20.0 million for the third quarter of 2019. The increase compared to the linked quarter was primarily attributable to growth in salaries and employee benefits related to deferrals recorded in the second quarter of 2020 on the SBA Paycheck Protection Program (“PPP”) loan origination costs. The increase compared to the year over year period was also primarily attributable to salaries and employee benefits largely resulting from growth in full time equivalent employees, increases in employee insurance costs, and annual employee merit increases in early 2020.

●

The provision for income taxes expense was $3.4 million for the third quarter of 2020, compared to provision expense of $3.1 million for the second quarter of 2020, and $4.0 million of provision expense for the third quarter of 2019. The increase in tax expense for the linked quarter was due to an increase of $1.3 million in pretax income compared to the second quarter of 2020, and the decrease in tax expense for the year over year period was due to the reduction in pretax income of $2.6 million.

●

During the third quarter of 2020, we repurchased 137,756 shares of our common stock at a weighted average price of $8.34 per share pursuant to our stock repurchase program.

●

On October 19, 2020, our Board of Directors declared a cash dividend of $0.01 per share payable on November 9, 2020, to stockholders of record as of October 30, 2020.

COVID-19 Operational Update

During this unprecedented time, the health and safety of our customers and employees remain our top priority.

●

We established client assistance programs, including offering commercial, consumer, and mortgage loan payment deferrals for certain clients. We also suspended late fees for consumer loans through June 30, 2020, and, although consumer late fees have been reinstated, we will continue to re-evaluate late fee assessments based on the ongoing COVID-19 pandemic.

●

Late in the first quarter of 2020, we began granting loan payment deferrals to certain borrowers affected by the pandemic. As of September 30, 2020, our clients had requested loan payment deferrals on 468 loans totaling $226.2 million. As of September 30, 2020, 372 loans, representing $172.1 million outstanding, or 76.1% of the original loan balances deferred, have resumed payments.

●

We are participating in the Coronavirus Aid, Relief and Economic Security Act (“CARES” Act). As of September 30, 2020, we had processed 746 loan applications for the PPP loans, representing a total of $136.7 million. Early in the fourth quarter of 2020, we started to submit applications for PPP loan forgiveness to the SBA, and will continue to submit applications throughout the remainder of 2020. We anticipate receiving funds for PPP loan forgiveness from the SBA well into the first quarter of 2021.

President and Chief Executive Officer Jim Eccher said “Our results this quarter are a testament to the strength of our balance sheet, the diversity of our business mix and a consistent focus on quality underwriting. Expenses are well controlled, capital levels are extremely strong and we believe we are well positioned to navigate the challenges that lie ahead for credit quality in our industry. I would like to thank our employees for their continued hard work in meeting the needs of our customers and communities during these challenging times. Our balance sheet positioning remains somewhat conservative with substantial excess liquidity given the difficulty in forecasting the ultimate path of the national and local economies. As a result, our efforts are focused first on helping our customers navigate uncertain times, and second, on looking for opportunities to invest and grow the Old Second franchise.”

Capital Ratios


	Minimum Capital		Well Capitalized
	Adequacy with		Under Prompt
	Capital Conservation		Corrective Action		September 30,		June 30,		September 30,
	Buffer, if applicable¹		Provisions²		2020		2020		2019
The Company
Common equity tier 1 capital ratio	7.00	%	N/A		11.97	%	11.31	%	10.89	%
Total risk-based capital ratio	10.50	%	N/A		14.33	%	13.63	%	14.34	%
Tier 1 risk-based capital ratio	8.50	%	N/A		13.08	%	12.39	%	13.45	%
Tier 1 leverage ratio	4.00	%	N/A		10.07	%	10.06	%	11.54	%

The Bank
Common equity tier 1 capital ratio	7.00	%	6.50	%	14.24	%	13.46	%	14.83	%
Total risk-based capital ratio	10.50	%	10.00	%	15.49	%	14.71	%	15.72	%
Tier 1 risk-based capital ratio	8.50	%	8.00	%	14.24	%	13.46	%	14.83	%
Tier 1 leverage ratio	4.00	%	5.00	%	10.90	%	10.86	%	12.68	%

¹ Amounts are shown inclusive of a capital conservation buffer of 2.50%. Under the Federal Reserve’s Small Bank Holding Company Policy Statement, the Company is not subject to the minimum capital adequacy and capital conservation buffer capital requirements at the holding company level, unless otherwise advised by the Federal Reserve (such capital requirements are applicable only at the Bank level). Although the minimum regulatory capital requirements are not applicable to the Company, we calculate these ratios for our own planning and monitoring purposes.

² The prompt corrective action provisions are only applicable at the Bank level.

●

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

Asset Quality & Earning Assets

●

Nonperforming loans totaled $19.5 million at September 30, 2020, compared to $20.2 million at June 30, 2020, and $13.4 million at September 30, 2019. 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 1.0% at both September 30, 2020 and June 30, 2020, and 0.7% at September 30, 2019. Our adoption of CECL on January 1, 2020, resulted in a change in the accounting for purchased credit impaired (“PCI”) loans, which are now considered purchased credit deteriorated (“PCD”) loans under CECL. Prior to January 1, 2020, past due and nonaccrual loans excluded PCI loans, even if contractually past due or if we did not expect to receive payment in full, as we were accreting interest income over the expected life of the loans. PCD loans acquired in our acquisition of ABC Bank totaled $10.6 million, net of purchase accounting adjustments, at September 30, 2020. PCD loans that meet the definition of nonperforming are now included in our nonperforming disclosures.

●

OREO assets totaled $2.7 million at September 30, 2020, compared to $5.1 million at June 30, 2020, and $4.7 million at September 30, 2019. We recorded write-downs of $46,000 in the third quarter of 2020, compared to $60,000 in the second quarter of 2020 and $203,000 in the third quarter of 2020. Nonperforming assets, as a percent of total loans plus OREO, were 1.2% at both September 30, 2020 and June 30, 2020, and 0.9% at September 30, 2019.

●

Total loans were $2.03 billion at September 30, 2020, reflecting a decrease of $22.0 million compared to June 30, 2020, but an increase of $130.5 million compared to September 30, 2019. Growth in the year over year period was due primarily to an increase in our commercial portfolio stemming from PPP loan originations of $136.7 million, as well as organic growth primarily in our leases and commercial real estate-–investor portfolios. Average loans (including loans held-for-sale) for the third quarter of 2020 totaled $2.05 billion, reflecting a decrease of $3.1 million from the second quarter of 2020 and an increase of $153.5 million from the third quarter of 2019.

●

Available-for-sale securities totaled $448.4 million at September 30, 2020, compared to $447.4 million at June 30, 2020, and $488.4 million at September 30, 2019. Total securities available-for-sale increased a net $1.0 million from the linked quarter due to a purchase of $1.8 million of agency mortgage backed securities and unrealized mark to market gains of $5.8 million, offset by $6.1 million of calls, maturities and paydowns. A decline of $40.0 million was realized in the year over year period due primarily to security maturities and paydowns recorded in the first quarter of 2020.

Net Interest Income


Analysis of Average Balances,
Tax Equivalent Income / Expense and Rates
(Dollars in thousands - unaudited)

	Quarters Ended
	September 30, 2020						June 30, 2020						September 30, 2019
	Average			Income /		Rate	Average			Income /		Rate	Average			Income /		Rate
	Balance			Expense		%	Balance			Expense		%	Balance			Expense		%
Assets
Interest earning deposits with financial institutions	$	263,199		$	68	0.10	$	153,532		$	42	0.11	$	21,425		$	119	2.20
Securities:
Taxable		251,760			1,458	2.30		247,868			1,694	2.75		260,842			2,296	3.49
Non-taxable (TE)¹		196,648			1,680	3.40		204,840			1,767	3.47		233,208			2,176	3.70
Total securities (TE)¹		448,408			3,138	2.78		452,708			3,461	3.07		494,050			4,472	3.59
Dividends from FHLBC and FRBC		9,917			118	4.73		9,917			123	4.99		10,398			154	5.88
Loans and loans held-for-sale^{1, 2}		2,048,968			22,078	4.29		2,052,060			22,460	4.40		1,895,454			25,159	5.27
Total interest earning assets		2,770,492			25,402	3.65		2,668,217			26,086	3.93		2,421,327			29,904	4.90
Cash and due from banks		31,354			-	-		30,594			-	-		34,315			-	-
Allowance for credit losses on loans		(31,518)			-	-		(30,747)			-	-		(19,452)			-	-
Other noninterest bearing assets		185,228			-	-		187,305			-	-		172,250			-	-
Total assets	$	2,955,556					$	2,855,369					$	2,608,440

Liabilities and Stockholders' Equity
NOW accounts	$	470,474		$	106	0.09	$	457,772		$	129	0.11	$	420,437		$	334	0.32
Money market accounts		306,763			91	0.12		279,873			85	0.12		282,797			269	0.38
Savings accounts		378,957			102	0.11		359,358			171	0.19		308,483			121	0.16
Time deposits		417,952			1,084	1.03		439,735			1,442	1.32		420,429			1,672	1.58
Interest bearing deposits		1,574,146			1,383	0.35		1,536,738			1,827	0.48		1,432,146			2,396	0.66
Securities sold under repurchase agreements		54,313			28	0.21		45,882			23	0.20		40,342			135	1.33
Other short-term borrowings		8,204			24	1.16		8,396			34	1.63		75,310			429	2.26
Junior subordinated debentures		25,773			285	4.40		25,773			283	4.42		57,716			933	6.41
Senior notes		44,337			673	6.04		44,310			673	6.11		44,222			682	6.12
Notes payable and other borrowings		25,482			144	2.25		26,551			165	2.50		10,973			89	3.22
Total interest bearing liabilities		1,732,255			2,537	0.58		1,687,650			3,005	0.72		1,660,709			4,664	1.11
Noninterest bearing deposits		892,811			-	-		854,324			-	-		651,863			-	-
Other liabilities		39,589			-	-		39,613			-	-		30,329			-	-
Stockholders' equity		290,901			-	-		273,782			-	-		265,539			-	-
Total liabilities and stockholders' equity	$	2,955,556					$	2,855,369					$	2,608,440
Net interest income (GAAP)				$	22,509					$	22,707					$	24,780
Net interest margin (GAAP)						3.23						3.42						4.06

Net interest income (TE)¹				$	22,865					$	23,081					$	25,240
Net interest margin (TE)¹						3.28						3.48						4.14
Core net interest margin (TE - excluding PPP loans)¹						3.34						3.51						N/A
Interest bearing liabilities to earning assets		62.53	%					63.25	%					68.59	%

¹ Tax equivalent (TE) basis is calculated using a marginal tax rate of 21% in 2020 and 2019. See the discussion entitled “Non-GAAP Presentations” below and the table on page 17 that provides a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

² 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 17, and includes fees of $975,000 for the third quarter of 2020, $718,000 for the second quarter of 2020, and $295,000 for the third quarter of 2019. Nonaccrual loans are included in the above stated average balances.

Net interest income (TE) was $22.9 million for the third quarter of 2020, which reflects a decrease of $216,000 compared to the second quarter of 2020, and a decrease of $2.4 million compared to the third quarter of 2019. The tax equivalent adjustment for the third quarter of 2020 was $356,000, compared to $374,000 for the second quarter of 2020, and $460,000 for the third quarter of 2019. Average interest earning assets increased $102.3 million to $2.77 billion for the third quarter of 2020, compared to the second quarter of 2020, primarily due to growth in interest earning deposits with financial institutions. Average interest earning assets increased $349.2 million in the third quarter of 2020, compared to the third quarter of 2019. Average loans, including loans held-for-sale, decreased $3.1 million for the third quarter of 2020, compared to the second quarter of 2020, but increased $153.5 million compared to the third quarter of 2019. Growth in volumes of earning assets for the third quarter of 2020, compared to the second quarter of 2020 and

the third quarter of 2019, was more than offset by a decline in yields. The yield on average earning assets decreased 28 basis points in the third quarter of 2020, compared to the second quarter of 2020, and decreased 125 basis points compared to the third quarter of 2019, primarily due to the lowering of interest rates by the Federal Reserve in the second quarter of 2020 in response to the COVID-19 pandemic, and $136.7 million of PPP loans issued at 1.00% in the second and third quarters of 2020.

Total securities income was $3.1 million in the third quarter of 2020, a decrease of $323,000 compared to the second quarter of 2020, and a decrease of $1.3 million compared to the third quarter of 2019, due primarily to reductions in yields and volumes. Security sales and paydowns in the third quarter of 2020 totaled $6.1 million, which were partially offset by a $1.8 million purchase of an agency mortgage backed security. Our overall yield on tax equivalent municipal securities was 3.40% for the third quarter of 2020, compared to 3.47% for the second quarter of 2020, and 3.70% for the third quarter of 2019. Taxable security yields also declined in the third quarter of 2020, resulting in a decrease to the overall tax equivalent yield for the total securities portfolio of 29 basis points from June 30, 2020, and 81 basis points from September 30, 2019.

Average interest bearing liabilities increased $44.6 million in the third quarter of 2020, compared to the second quarter of 2020, driven by a $37.4 million increase in average interest bearing deposits, and an $8.4 million increase in average securities sold under repurchase agreements for the linked quarter. Average interest bearing liabilities increased $71.5 million in the third quarter of 2020, compared to the third quarter of 2019, primarily driven by a $142.0 million increase in interest bearing deposits, a $14.0 million increases in securities sold under repurchase agreements, and a $14.5 million increase in notes payable and other borrowings, partially offset by a reduction in other short-term borrowings of $67.1 million, and a $31.9 million decrease in junior subordinated debentures. The cost of interest bearing liabilities for the third quarter of 2020 decreased by 14 basis points from the second quarter of 2020, and decreased 53 basis points from the third quarter of 2019. Growth in our average noninterest bearing demand deposits of $240.9 million in the year over year period has assisted us in controlling our cost of funds stemming from average interest bearing deposits and borrowings, which totaled 0.38% for the third quarter of 2020, 0.48% for the second quarter of 2020, and 0.80% for the third quarter of 2019.

For the third quarter of 2020, average other short-term borrowings, which consisted solely of FHLBC advances, totaled $8.2 million, compared to $8.4 million for the second quarter of 2020, and $75.3 million for the third quarter of 2019. Average rates paid on short-term FHLBC advances decreased from 2.26% in the third quarter of 2019 to 1.63% in the second quarter of 2020, and to 1.16% in the third quarter of 2020, reflecting the falling interest rate environment. We drew on a $4.0 million zero interest borrowing from the FHLB’s COVID-19 relief program in the third quarter of 2020; these borrowings were available to members for a one year term. The decrease noted in junior subordinated debentures year over year stems from the March 2020 redemption of our trust preferred securities issued by Old Second Capital Trust I and related junior subordinated debentures, which resulted in a payment of $33.0 million, including accrued interest. The redemption was funded with cash on hand and a $20.0 million term note issued at one month Libor plus 1.75%, with principal and interest payable over the next three years, included within notes payable and other borrowings.

Our net interest margin (TE) decreased 20 basis points to 3.28% for the third quarter of 2020, compared to 3.48% for the second quarter of 2020, and decreased 86 basis points compared to 4.14% for the third quarter of 2019. Our core net interest margin (TE), a non-GAAP financial measure that excludes the impact of our PPP loans, was 3.34% for the third quarter of 2020, compared to 3.51% for the second quarter of 2020 and 4.14% for the third quarter of 2019. The reductions were due primarily to falling interest rates over the past nine months. See the discussion entitled “Non-GAAP Presentations” in the table on page 17 that provides a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

Noninterest Income


							3rd Quarter 2020
Noninterest Income	Three Months Ended						Percent Change From
(Dollars in thousands)	September 30,		June 30,		September 30,		June 30,	September 30,
	2020		2020		2019		2020	2019
Trust income	$	1,506	$	1,664	$	1,730	(9.5)	(12.9)
Service charges on deposits		1,322		1,120		2,020	18.0	(34.6)
Residential mortgage banking revenue
Secondary mortgage fees		492		505		282	(2.6)	74.5
Mortgage servicing rights mark to market loss		(160)		(445)		(946)	64.0	83.1
Mortgage servicing income		521		458		460	13.8	13.3
Net gain on sales of mortgage loans		5,246		4,631		2,074	13.3	152.9
Total residential mortgage banking revenue		6,099		5,149		1,870	18.5	226.1
Securities (losses) gains, net		(1)		-		3,463	N/M	(100.0)
Change in cash surrender value of BOLI		459		532		267	(13.7)	71.9
Death benefit realized on BOLI		(2)		59		-	(103.4)	N/M
Card related income		1,499		1,311		1,595	14.3	(6.0)
Other income		803		860		988	(6.6)	(18.7)
Total noninterest income	$	11,685	$	10,695	$	11,933	9.3	(2.1)

N/M - Not meaningful.

Noninterest income increased $990,000, or 9.3%, in the third quarter of 2020, compared to the second quarter of 2020, but decreased $248,000, or 2.1%, compared to the third quarter of 2019. The increase from the linked quarter was primarily driven by $950,000 of growth in residential mortgage banking revenue, attributable to a $615,000 increase in net gain on sales of mortgage loans and a $285,000 reduction in mark to market losses on MSRs in the third quarter of 2020, compared to the prior quarter. Service charges on deposits also increased in the third quarter of 2020, compared to the second quarter of 2020, as consumer spending began to increase.

The decrease in noninterest income in the third quarter of 2020 compared to the third quarter of 2019 is due to a $224,000 reduction in trust income due to declines in the value of assets under management over the past year, a $698,000 reduction in service charges on deposits as consumer spending decreased during the COVID-19 pandemic, and no securities gains recorded in the third quarter of 2020, compared to $3.5 million of security gains recorded in the 2019 like period. In addition, card related income and other income also declined in the year over year period.

These year over year declines were materially offset by $4.2 million of growth in residential mortgage banking revenue in the third quarter of 2020, compared to the third quarter of 2019, due to the low interest rate environment and resultant increases in mortgage originations and refinances, as well as a $192,000 increase in the cash surrender value of BOLI in the third quarter of 2020 compared to the third quarter of 2019.

Noninterest Expense


										3rd Quarter 2020
Noninterest Expense	Three Months Ended									Percent Change From
(Dollars in thousands)	September 30,			June 30,			September 30,			June 30,	September 30,
	2020			2020			2019			2020	2019
Salaries	$	9,731		$	8,588		$	9,460		13.3	2.9
Officers incentive		968			968			923		-	4.9
Benefits and other		1,887			1,786			1,679		5.7	12.4
Total salaries and employee benefits		12,586			11,342			12,062		11.0	4.3
Occupancy, furniture and equipment expense		2,003			1,935			2,235		3.5	(10.4)
Computer and data processing		1,226			1,247			1,490		(1.7)	(17.7)
FDIC insurance		191			155			(114)		23.2	(267.5)
General bank insurance		281			237			270		18.6	4.1
Amortization of core deposit intangible asset		122			124			157		(1.6)	(22.3)
Advertising expense		62			57			360		8.8	(82.8)
Card related expense		566			514			531		10.1	6.6
Legal fees		169			176			111		(4.0)	52.3
Other real estate owned expense, net		125			143			26		(12.6)	380.8
Other expense		2,935			2,966			2,826		(1.0)	3.9
Total noninterest expense	$	20,266		$	18,896		$	19,954		7.3	1.6
Efficiency ratio (GAAP)¹		58.27	%		55.13	%		57.82	%
Adjusted efficiency ratio (non-GAAP)²		57.47	%		54.28	%		56.93	%

¹The efficiency ratio shown in the table above is a GAAP financial measure calculated as noninterest expense, excluding amortization of core deposits and OREO expenses, divided by the sum of net interest income and total noninterest income less any BOLI death benefit recorded, net gains or losses on securities and mark to market gains or losses on MSRs.

² The adjusted efficiency ratio shown in the table above is a non-GAAP financial measure calculated as noninterest expense, excluding amortization of core deposits and OREO expenses, divided by the sum of net interest income on a fully tax equivalent basis, total noninterest income less net gains or losses on securities and mark to market gains or losses on MSRs, and includes a tax equivalent adjustment on the change in cash surrender value of BOLI. See the discussion entitled “Non-GAAP Presentations” below and the table on page 17 that provides a reconciliation of each non-GAAP financial measure to the most comparable GAAP equivalent.

Noninterest expense for the third quarter of 2020 increased $1.4 million, or 7.3%, compared to the second quarter of 2020, and increased $312,000, or 1.6%, compared to the third quarter of 2019. The linked quarter decrease is primarily attributable to a $1.2 million increase in salaries and employee benefits stemming from an increase in deferrals of new loan origination costs related to PPP loans in the second quarter of 2020, with no like level of origination cost deferrals in the third quarter of 2020. In addition, occupancy, furniture and equipment expense increased $68,000 in the third quarter of 2020 compared to the linked quarter due to planned building repairs at various branches.

The year over year increase in noninterest expense is primarily attributable to a $524,000 increase in salaries and employee benefits due to growth in full-time equivalent employees, merit increases in early 2020, and employee insurance and other benefits increases, a $305,000 increase in FDIC insurance due to an accrual reversal in the prior year, a $99,000 increase in other real estate owned expense, net, primarily due to closing costs on property sales in the third quarter of 2020, and a $109,000 increase in other expense due to audit fees, consulting and management fees, and deferred director expense. These increases were partially offset by a $232,000 reduction in occupancy, furniture and equipment expense, a $264,000 decrease in computer and data processing expense, and a $298,000 decrease in advertising expense.

Earning Assets


							September 30, 2020
Loans	As of						Percent Change From
(dollars in thousands)	September 30,		June 30,		September 30,		June 30,	September 30,
	2020		2020		2019		2020	2019
Commercial	$	436,277	$	441,642	$	333,664	(1.2)	30.8
Leases		133,676		133,293		108,152	0.3	23.6
Commercial real estate - Investor		548,970		525,714		491,794	4.4	11.6
Commercial real estate - Owner occupied		335,978		343,982		334,986	(2.3)	0.3
Construction		91,856		83,939		91,066	9.4	0.9
Residential real estate - Investor		61,923		69,421		68,989	(10.8)	(10.2)
Residential real estate - Owner occupied		114,283		126,303		136,046	(9.5)	(16.0)
Multifamily		188,398		197,521		183,476	(4.6)	2.7
HELOC		85,882		89,170		90,791	(3.7)	(5.4)
HELOC - Purchased		22,312		26,467		35,518	(15.7)	(37.2)
Other¹		10,772		14,884		14,140	(27.6)	(23.8)
Total loans, excluding deferred loan costs and PCI		2,030,327		2,052,336		1,888,622	(1.1)	7.5
Net deferred loan costs		-		-		2,054	-	(100.0)
Total loans, excluding PCI²		2,030,327		2,052,336		1,890,676	(1.1)	7.4
PCI loans, net of purchase accounting adjustments		-		-		9,135	-	(100.0)
Total loans	$	2,030,327	$	2,052,336	$	1,899,811	(1.1)	6.9

¹Other class includes consumer and overdrafts.

²As a result of our adoption of the new CECL accounting standard effective January 1, 2020, loans formerly referred to as PCI loans are considered PCD loans under CECL for all periods presented after December 31, 2019, and are included in the amounts above based on loan type.

Total loans decreased by $22.0 million at September 30, 2020, compared to June 30, 2020, and increased $130.5 million for the year over year period. Growth in the year over year period was primarily due to PPP loan originations of $136.7 million, recorded within commercial loans, as well as organic growth primarily in our leases and commercial real estate-investor loan portfolios. As required by CECL, the balance (or amortized cost basis) of PCD loans are carried on a gross basis (rather than net of the associated credit loss estimate), and the expected credit losses for PCD loans are estimated and separately recognized as part of the allowance for credit losses. Accordingly, at January 1, 2020, $2.5 million of purchase accounting adjustments related to PCD loans were reclassified to the allowance for credit losses from loans, resulting in an increase to total PCD loans.


							September 30, 2020
Securities	As of						Percent Change From
(dollars in thousands)	September 30,		June 30,		September 30,		June 30,	September 30,
	2020		2020		2019		2020	2019
Securities available-for-sale, at fair value
U.S. Treasury	$	4,134	$	4,147	$	4,038	(0.3)	2.4
U.S. government agencies		7,005		7,276		9,143	(3.7)	(23.4)
U.S. government agency mortgage-backed		18,219		16,779		16,940	8.6	7.6
States and political subdivisions		249,777		250,364		238,727	(0.2)	4.6
Collateralized mortgage obligations		57,013		56,113		64,121	1.6	(11.1)
Asset-backed securities		81,585		80,026		83,182	1.9	(1.9)
Collateralized loan obligations		30,688		32,731		72,271	(6.2)	(57.5)
Total securities available-for-sale	$	448,421	$	447,436	$	488,422	0.2	(8.2)

Our securities portfolio totaled $448.4 million as of September 30, 2020, an increase of $1.0 million from $447.4 million as of June 30, 2020, and a decrease of $40.0 million from September 30, 2019. The increase in the portfolio during the third quarter of 2020, compared to the prior quarter, was due to purchases of $1.9 million and unrealized mark to market gains of $5.8 million, partially offset by $6.1 million of security calls, maturities and paydowns. The decrease in the securities portfolio in the year over year period was primarily due to the calls on collateralized loan obligations over the past year. Net security losses of $1,000 were recorded in the third quarter of 2020, no security sales were recorded in the second quarter of 2020, and $3.5 million of net security gains were recorded in the third quarter of 2019.

Asset Quality


										September 30, 2020
Nonperforming assets	As of									Percent Change From
(dollars in thousands)	September 30,			June 30,			September 30,			June 30,	September 30,
	2020			2020			2019			2020	2019
Nonaccrual loans	$	20,076		$	18,343		$	11,852		9.4	69.4
Performing troubled debt restructured loans accruing interest		334			978			1,532		(65.8)	(78.2)
Loans past due 90 days or more and still accruing interest		422			840			18		(49.8)	N/M
Total nonperforming loans		20,832			20,161			13,402		3.3	55.4
Other real estate owned		2,686			5,082			4,682		(47.1)	(42.6)
Total nonperforming assets	$	23,518		$	25,243		$	18,084		(6.8)	30.0

PCD loans, net of purchase accounting adjustments¹	$	10,638		$	11,096		$	9,135		(4.1)	16.5


30-89 days past due loans and still accruing interest	$	5,511		$	11,330		$	7,937
Nonaccrual loans to total loans		1.0	%		0.9	%		0.6	%
Nonperforming loans to total loans		1.0	%		1.0	%		0.7	%
Nonperforming assets to total loans plus OREO		1.2	%		1.2	%		0.9	%
Purchased credit-deteriorated loans to total loans		0.5	%		0.5	%		0.5	%

Allowance for credit losses	$	32,918		$	31,273		$	19,651
Allowance for credit losses to total loans		1.6	%		1.5	%		1.0	%
Allowance for credit losses to nonaccrual loans		164.0	%		170.5	%		165.8	%

N/M - Not meaningful.

¹ In 2020, due to the adoption of CECL, PCD loans are now included in total nonperforming assets, if their risk rating at period end so indicates. For September 30, 2019, PCI loans were not included within total nonperforming assets since we were accreting interest income over the expected life of the loans.

Nonperforming loans consist of nonaccrual loans, performing troubled debt restructured loans accruing interest and loans 90 days or more past due and still accruing interest. We historically excluded PCI loans meeting nonperforming criteria from our nonperforming disclosures as long as their cash flows and the timing of such cash flows continued to be estimable and probable of collection. As a result of CECL implementation on January 1, 2020, PCI loans became PCD loans. PCD loans that meet the definition of nonperforming are now included in our nonperforming disclosures. Nonperforming loans to total loans was 1.0% for both the third quarter of 2020 and the second quarter of 2020, and 0.7% for the third quarter of 2019. Nonperforming assets to total loans plus OREO remained stable and ended at 1.2% for the third and second quarter of 2020, and 0.9% for the third quarter of 2019, as our loan portfolio grew year over year, and we continued OREO liquidations and recorded write-downs. Our allowance for credit losses to total loans was 1.6% as of September 30, 2020, compared to 1.5% as of June 30, 2020 and 1.0% as of September 30, 2019.

The following table shows classified assets by segment for the following periods.


							September 30, 2020
Classified loans	As of						Percent Change From
(dollars in thousands)	September 30,		June 30,		September 30,		June 30,	September 30,
	2020		2020		2019		2020	2019
Commercial	$	5,992	$	8,627	$	8,079	(30.5)	(25.8)
Leases		3,270		254		74	N/M	N/M
Commercial real estate - Investor		5,596		5,445		7,928	2.8	(29.4)
Commercial real estate - Owner occupied		9,658		9,432		5,807	2.4	66.3
Construction		5,108		2,318		264	120.4	N/M
Residential real estate - Investor		1,526		1,454		984	5.0	55.1
Residential real estate - Owner occupied		3,836		4,270		3,766	(10.2)	1.9
Multifamily		5,834		5,562		430	4.9	N/M
HELOC		1,566		1,690		1,804	(7.3)	(13.2)
HELOC - Purchased		-		113		181	(100.0)	(100.0)
Other¹		271		353		22	(23.2)	N/M
Total classified loans, excluding PCI loans		42,657		39,518		29,339	7.9	45.4
PCI loans, net of purchase accounting adjustments²		-		-		9,135	-	(100.0)
Total classified loans	$	42,657	$	39,518	$	38,474	7.9	10.9

N/M - Not meaningful.

¹Other class includes consumer and overdrafts.

² For purposes of this table, as of September 30, 2019, classified loan amounts excluded $9.1 million of PCD loans, net of purchase accounting adjustments, formerly PCI loans, even if contractually past due or if we did not expect to receive payment in full, as we were accreting interest income over the expected life of the loans.

Classified loans include nonaccrual, performing troubled debt restructurings, PCD loans (formerly PCI loans, as applicable), and all other loans considered substandard. Classified loans totaled $42.7 million as of September 30, 2020, an increase of $3.1 million, or 7.9%, from the prior linked quarter, and an increase of $4.2 million, or 10.9%, from the third quarter of 2019. All PCD loans stem from our acquisition of ABC Bank in 2018.

Allowance for Credit Losses on Loans and Unfunded Commitments

At September 30, 2020, our allowance for credit losses (“ACL”) on loans totaled $32.9 million, and our ACL on unfunded commitments, included in other liabilities, totaled $4.0 million. The increase in our ACL from year-end 2019 was driven by the $10.4 million of provision expense recorded year to date in 2020, and by the adoption of CECL on January 1, 2020, in which we recognized an increase in our ACL on outstanding loans of $5.9 million and an increase in our ACL on unfunded commitments of $1.7 million as a cumulative effect adjustment from change in accounting policies. During the third quarter of 2020, we recorded $1.3 million of ACL related to loans, and $980,000 of reduction to the ACL related to unfunded commitments, resulting in total provision expense of $300,000. The decline in the ACL for unfunded commitments in the third quarter of 2020, compared to the prior quarter, was primarily related to commercial unfunded commitments, with a decrease in the funding rate assumptions based on our analysis of the last 12 months of utilization. The total increase in the ACL during 2020 reflects forecasted credit deterioration due to the COVID-19 pandemic and the resultant recession. Our ACL on loans to total loans was 1.6% as of September 30, 2020, compared to 1.5% as of June 30, 2020 and 1.0% at both December 31, 2019 and September 30, 2019. The ACL on unfunded commitments totaled $4.0 million as of September 30, 2020, compared to $5.0 million as of June 30, 2020.

Net Charge-off Summary


Loan Charge-offs, net of recoveries	Quarters Ended
(dollars in thousands)	September 30,		% of	June 30,		% of	September 30,		% of
	2020		Total ²	2020		Total²	2019		Total ²
Commercial	$	(7)	1.9	$	(2)	(1.2)	$	10	3.7
Leases		119	(32.6)		-	-		47	17.3
Commercial real estate - Investor		(102)	27.9		(14)	(8.4)		147	54.2
Commercial real estate - Owner occupied		(420)	115.1		292	174.9		-	-
Construction		59	(16.2)		-	-		7	2.6
Residential real estate - Investor		(15)	4.1		(2)	(1.2)		(6)	(2.2)
Residential real estate - Owner occupied		(25)	6.8		(66)	(39.5)		(13)	(4.8)
Multifamily		-	-		-	-		-	-
HELOC		(52)	14.2		(53)	(31.7)		(2)	(0.7)
HELOC - Purchased		66	(18.1)		-	-		-	-
Other¹		12	(3.1)		12	7.1		81	29.9
Net charge-offs / (recoveries)	$	(365)	100.0	$	167	100.0	$	271	100.0

N/M - Not meaningful.

¹Other class includes consumer and overdrafts.

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

Gross charge-offs for the third quarter of 2020 were $451,000, compared to $406,000 for the second quarter of, 2020, and $397,000 for the third quarter of 2019. Gross recoveries were $816,000 for the third quarter of 2020, compared to $239,000 for the second quarter of 2020 and $126,000 for the third quarter of 2019. Continued recoveries are indicative of the ongoing aggressive efforts by management to effectively manage and resolve prior charge-offs.

Deposits

Total deposits were $2.48 billion at September 30, 2020, an increase of $27.9 million compared to June 30, 2020, resulting from net increases in savings, NOW and money market accounts of $52.4 million, partially offset by a decreases in demand deposits of $1.6 million, and time deposits of $23.0 million. Total deposits increased $404.8 million in the year over year period driven primarily by growth in demand deposits of $245.7 million, and savings, NOW and money market accounts of $181.2 million, partially offset by a decrease in time deposits of $22.2 million.

Borrowings

As of September 30, 2020, we had $6.1 million in other short-term borrowings compared to $8.3 million as of June 30, 2020, and $84.0 million as of September 30, 2019. Due to growth in deposits, our need for short-term funding in 2020 has declined year over year.

We are indebted on senior notes totaling $44.3 million, net of deferred issuance costs, as of September 30, 2020. We are also indebted on $25.8 million of junior subordinated debentures, net of deferred issuance costs, which is related to the trust preferred securities issued by our statutory trust subsidiary, Old Second Capital Trust II. On March 2, 2020, we redeemed the trust preferred securities and related junior subordinated debentures issued by Old Second Capital Trust I, which resulted in a decrease in junior subordinated debentures of $32.0 million. Notes payable and other borrowings totaled $24.5 million as of September 30, 2020, and is comprised of $18.0 million outstanding on a $20.0 million term note we originated to facilitate the redemption of our trust preferred securities and related junior subordinated debentures issued by Old Second Capital Trust I, and $6.5 million of a long-term FHLBC advance acquired in our ABC Bank acquisition that matures on February 2, 2026.

Non-GAAP Presentations: Management has disclosed in this earnings release certain non-GAAP financial measures to evaluate and measure our performance, including the presentation of net interest income and net interest margin on a fully taxable equivalent basis, our efficiency ratio calculations and core net interest margin on a taxable equivalent basis. The net interest margin fully taxable equivalent 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 7. Our core net interest margin on a taxable equivalent basis excludes the impact of our PPP loans. 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 17 provide a reconciliation of each non-GAAP financial measure to the most comparable GAAP equivalent.

Forward-Looking Statements: This earnings release and statements by our management may contain forward-looking statements within the Private Securities Litigation Reform Act of 1995. Forward looking statements can be identified by words such as “anticipate,” “expect,” “intend,” “believe,” “may,” “likely,” “will” or other statements that indicate future periods. Examples of forward-looking statements include, but are not limited to, statements regarding the economic outlook and our belief that we are well-positioned to capitalize on opportunities with substantial capital flexibility and strong liquidity. Such forward-looking statements are subject to risks, uncertainties, and other factors, which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements, (1) the strength of the United States economy in general and the strength of the local economies in which we conduct our operations may be different than expected, including, but not limited to, due to the negative impacts and disruptions resulting from the recent outbreak of the novel coronavirus, or COVID-19, on the economies and communities we serve, which may have an adverse impact on the our business, operations and performance, and could have a negative impact on our credit portfolio, share price, borrowers, and on the economy as a whole, both domestically and globally; (2) the rate of delinquencies and amounts of charge-offs, the level of allowance for credit loss, the rates of loan growth, or adverse changes in asset quality in our loan portfolio, which may result in increased credit risk-related losses and expenses; (3) changes in legislation, regulation, policies, or administrative practices, whether by judicial, governmental, or legislative action, including, but not limited to, the Coronavirus Aid, Relief, and Economic Security Act, or the “CARES Act”; (4) adverse conditions in the stock market, the public debt market and other capital markets (including changes in interest rate conditions) could have a negative impact on us; and (5) changes in interest rates, which may affect our net income, prepayment penalty income, mortgage banking income, and other future cash flows, or the market value of our assets, including our investment securities. Additional risks and uncertainties are contained in the “Risk Factors” and forward-looking statements disclosure in our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. The inclusion of this forward-looking information should not be construed as a representation by us or any person that future events, plans, or expectations contemplated by us will be achieved. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

Conference Call

We will host an earnings call on Thursday, October 22, 2020, at 11:00 a.m. Eastern Time (10:00 a.m. Central Time). Investors may listen to our earnings call via telephone by dialing 844-369-8770. 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 11:00 a.m. Eastern Time (10:00 a.m. Central Time) on October 30, 2020, by dialing 877-481-4010, using Conference ID: 37797.

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands)


	(unaudited)
	September 30,		December 31,
	2020		2019
Assets
Cash and due from banks	$	29,489	$	34,096
Interest earning deposits with financial institutions		283,651		16,536
Cash and cash equivalents		313,140		50,632
Securities available-for-sale, at fair value		448,421		484,648
Federal Home Loan Bank Chicago ("FHLBC") and Federal Reserve Bank Chicago ("FRBC") stock		9,917		9,917
Loans held-for-sale		10,229		3,061
Loans		2,030,327		1,930,812
Less: allowance for credit losses on loans		32,918		19,789
Net loans		1,997,409		1,911,023
Premises and equipment, net		44,914		44,354
Other real estate owned		2,686		5,004
Mortgage servicing rights, net		5,010		5,935
Goodwill and core deposit intangible		20,901		21,275
Bank-owned life insurance ("BOLI")		62,222		61,763
Deferred tax assets, net		9,626		11,459
Other assets		50,349		26,474
Total assets	$	2,974,824	$	2,635,545

Liabilities
Deposits:
Noninterest bearing demand	$	889,085	$	669,795
Interest bearing:
Savings, NOW, and money market		1,185,731		1,015,285
Time		404,427		441,669
Total deposits		2,479,243		2,126,749
Securities sold under repurchase agreements		59,268		48,693
Other short-term borrowings		6,125		48,500
Junior subordinated debentures		25,773		57,734
Senior notes		44,349		44,270
Notes payable and other borrowings		24,469		6,673
Other liabilities		39,329		25,062
Total liabilities		2,678,556		2,357,681

Stockholders’ Equity
Common stock		34,957		34,854
Additional paid-in capital		121,746		120,657
Retained earnings		228,825		213,723
Accumulated other comprehensive income		11,044		4,562
Treasury stock		(100,304)		(95,932)
Total stockholders’ equity		296,268		277,864
Total liabilities and stockholders’ equity	$	2,974,824	$	2,635,545

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

(In thousands, except share data)


		(unaudited)			(unaudited)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Interest and dividend income
Loans, including fees	$	21,980	$	25,109	$	67,924	$	74,132
Loans held-for-sale		95		47		241		100
Securities:
Taxable		1,458		2,296		5,315		6,933
Tax exempt		1,327		1,719		4,178		5,958
Dividends from FHLBC and FRBC stock		118		154		366		459
Interest bearing deposits with financial institutions		68		119		185		344
Total interest and dividend income		25,046		29,444		78,209		87,926
Interest expense
Savings, NOW, and money market deposits		299		724		1,319		2,254
Time deposits		1,084		1,672		4,292		4,931
Securities sold under repurchase agreements		28		135		167		431
Other short-term borrowings		24		429		167		1,611
Junior subordinated debentures		285		933		1,932		2,791
Senior notes		673		682		2,019		2,026
Notes payable and other borrowings		144		89		439		312
Total interest expense		2,537		4,664		10,335		14,356
Net interest and dividend income		22,509		24,780		67,874		73,570
Provision for credit losses		300		550		10,413		1,450
Net interest and dividend income after provision for credit losses		22,209		24,230		57,461		72,120
Noninterest income
Trust income		1,506		1,730		4,702		4,955
Service charges on deposits		1,322		2,020		4,168		5,841
Secondary mortgage fees		492		282		1,267		621
Mortgage servicing rights mark to market loss		(160)		(946)		(2,739)		(2,902)
Mortgage servicing income		521		460		1,447		1,408
Net gain on sales of mortgage loans		5,246		2,074		12,123		3,999
Securities (losses) gains, net		(1)		3,463		(25)		4,476
Change in cash surrender value of BOLI		459		267		942		1,045
Death benefit realized on BOLI		(2)		-		57		-
Card related income		1,499		1,595		4,097		4,433
Other income		803		988		2,663		2,682
Total noninterest income		11,685		11,933		28,702		26,558
Noninterest expense
Salaries and employee benefits		12,586		12,062		36,846		35,261
Occupancy, furniture and equipment		2,003		2,235		6,239		6,149
Computer and data processing		1,226		1,490		3,808		4,346
FDIC insurance		191		(114)		403		176
General bank insurance		281		270		764		756
Amortization of core deposit intangible		122		157		374		410
Advertising expense		62		360		228		975
Card related expense		566		531		1,612		1,360
Legal fees		169		111		476		480
Other real estate expense, net		125		26		505		324
Other expense		2,935		2,826		8,909		9,037
Total noninterest expense		20,266		19,954		60,164		59,274
Income before income taxes		13,628		16,209		25,999		39,404
Provision for income taxes		3,363		4,036		6,221		9,485
Net income	$	10,265	$	12,173	$	19,778	$	29,919

Basic earnings per share	$	0.35	$	0.41	$	0.67	$	1.00
Diluted earnings per share		0.34		0.40		0.65		0.98
Dividends declared per share		0.01		0.01		0.03		0.03


Ending common shares outstanding	29,451,585	29,903,154	29,451,585	29,903,154
Weighted-average basic shares outstanding	29,559,026	29,899,063	29,708,239	29,880,511
Weighted-average diluted shares outstanding	30,102,301	30,438,333	30,261,721	30,390,965

Old Second Bancorp, Inc. and Subsidiaries

Quarterly Consolidated Average Balance

(In thousands, unaudited)


		2019							2020
Assets	1st Qtr		2nd Qtr		3rd Qtr		4th Qtr		1st Qtr		2nd Qtr		3rd Qtr
Cash and due from banks	$	33,749	$	33,618	$	34,315	$	34,417	$	32,549	$	30,594	$	31,354
Interest earning deposits with financial institutions		18,842		19,053		21,425		27,720		27,989		153,532		263,199
Cash and cash equivalents		52,591		52,671		55,740		62,137		60,538		184,126		294,553

Securities available-for-sale, at fair value		513,491		520,006		494,050		485,802		475,718		452,708		448,408
FHLBC and FRBC stock		11,463		11,317		10,398		9,763		9,917		9,917		9,917
Loans held-for-sale		1,853		2,870		4,462		3,441		3,623		13,978		13,384
Loans		1,893,659		1,894,454		1,890,992		1,899,849		1,941,760		2,038,082		2,035,584
Less: allowance for credit losses on loans		19,235		19,435		19,452		20,063		23,507		30,747		31,518
Net loans		1,874,424		1,875,019		1,871,540		1,879,786		1,918,253		2,007,335		2,004,066

Premises and equipment, net		42,270		42,271		42,754		43,614		44,613		44,658		44,802
Other real estate owned		6,779		6,012		5,427		4,961		5,127		5,040		3,087
Mortgage servicing rights, net		7,334		6,551		5,578		5,447		5,053		4,451		4,645
Goodwill and core deposit intangible		21,747		21,618		21,476		21,337		21,208		21,084		20,960
Bank-owned life insurance ("BOLI")		61,661		62,124		62,445		62,259		61,873		61,790		61,897
Deferred tax assets, net		20,878		16,458		13,750		12,738		9,682		13,511		12,051
Other assets		21,098		19,041		20,820		22,893		25,156		36,771		37,786
Total other assets		181,767		174,075		172,250		173,249		172,712		187,305		185,228
Total assets	$	2,635,589	$	2,635,958	$	2,608,440	$	2,614,178	$	2,640,761	$	2,855,369	$	2,955,556

Liabilities
Deposits:
Noninterest bearing demand	$	625,423	$	645,580	$	651,863	$	678,136	$	676,755	$	854,324	$	892,811
Interest bearing:
Savings, NOW, and money market		1,055,563		1,044,950		1,011,717		1,010,948		1,025,511		1,097,003		1,156,194
Time		445,076		422,975		420,429		437,236		448,763		439,735		417,952
Total deposits		2,126,062		2,113,505		2,084,009		2,126,320		2,151,029		2,391,062		2,466,957

Securities sold under repurchase agreements		45,157		44,184		40,342		45,146		47,825		45,882		54,313
Other short-term borrowings		98,328		93,369		75,310		28,772		23,069		8,396		8,204
Junior subordinated debentures		57,692		57,704		57,716		57,728		47,200		25,773		25,773
Senior Notes		44,171		44,196		44,222		44,258		44,284		44,310		44,337
Notes payable and other borrowings		15,273		13,101		10,973		8,768		14,762		26,551		25,482
Other liabilities		13,750		19,586		30,329		28,026		28,490		39,613		39,589
Total liabilities		2,400,433		2,385,645		2,342,901		2,339,018		2,356,659		2,581,587		2,664,655

Stockholders' equity
Common stock		34,775		34,825		34,825		34,845		34,900		34,957		34,957
Additional paid-in capital		119,051		119,381		120,076		120,517		120,829		121,253		121,643
Retained earnings		180,398		188,453		199,228		209,942		215,467		216,183		224,405
Accumulated other comprehensive (loss) income		(3,102)		3,705		7,417		5,806		9,131		219		9,305
Treasury stock		(95,966)		(96,051)		(96,007)		(95,950)		(96,225)		(98,830)		(99,409)
Total stockholders' equity		235,156		250,313		265,539		275,160		284,102		273,782		290,901
Total liabilities and stockholders' equity	$	2,635,589	$	2,635,958	$	2,608,440	$	2,614,178	$	2,640,761	$	2,855,369	$	2,955,556

Total Earning Assets	$	2,439,308	$	2,447,700	$	2,421,327	$	2,426,575	$	2,459,007	$	2,668,217	$	2,770,492
Total Interest Bearing Liabilities		1,761,260		1,720,479		1,660,709		1,632,856		1,651,414		1,687,650		1,732,255

Old Second Bancorp, Inc. and Subsidiaries

Quarterly Consolidated Statements of Income

(In thousands, except per share data, unaudited)



	2019								2020
	1st Qtr		2nd Qtr		3rd Qtr		4th Qtr		1st Qtr		2nd Qtr		3rd Qtr
Interest and Dividend Income
Loans, including fees	$	24,099	$	24,924	$	25,109	$	23,587	$	23,597	$	22,347	$	21,980
Loans held-for-sale		22		31		47		33		36		110		95
Securities:
Taxable		2,414		2,223		2,296		2,323		2,163		1,694		1,458
Tax exempt		2,098		2,141		1,719		1,467		1,455		1,396		1,327
Dividends from FHLB and FRBC stock		149		156		154		143		125		123		118
Interest bearing deposits with financial institutions		114		111		119		115		75		42		68
Total interest and dividend income		28,896		29,586		29,444		27,668		27,451		25,712		25,046
Interest Expense
Savings, NOW, and money market deposits		771		759		724		706		635		385		299
Time deposits		1,618		1,641		1,672		1,805		1,766		1,442		1,084
Securities sold under repurchase agreements		149		147		135		146		116		23		28
Other short-term borrowings		607		575		429		144		109		34		24
Junior subordinated debentures		927		931		933		933		1,364		283		285
Senior notes		672		672		682		673		673		673		673
Notes payable and other borrowings		116		107		89		72		130		165		144
Total interest expense		4,860		4,832		4,664		4,479		4,793		3,005		2,537
Net interest and dividend income		24,036		24,754		24,780		23,189		22,658		22,707		22,509
Provision for credit losses		450		450		550		150		7,984		2,129		300
Net interest and dividend income after provision for credit losses		23,586		24,304		24,230		23,039		14,674		20,578		22,209
Noninterest Income
Trust income		1,486		1,739		1,730		1,700		1,532		1,664		1,506
Service charges on deposits		1,862		1,959		2,020		1,874		1,726		1,120		1,322
Secondary mortgage fees		136		203		282		151		270		505		492
Mortgage servicing rights mark to market (loss) gain		(819)		(1,137)		(946)		240		(2,134)		(445)		(160)
Mortgage servicing income		457		491		460		473		468		458		521
Net gain on sales of mortgage loans		762		1,163		2,074		1,113		2,246		4,631		5,246
Securities gains (losses)-, net		27		986		3,463		35		(24)		-		(1)
Change in cash surrender value of BOLI		458		320		267		370		(49)		532		459
Death benefit realized on BOLI		-		-		-		872		-		59		(2)
Card related income		1,285		1,552		1,595		1,428		1,287		1,311		1,499
Other income		828		867		988		986		1,000		860		803
Total noninterest income		6,482		8,143		11,933		9,242		6,322		10,695		11,685
Noninterest Expense
Salaries and employee benefits		11,612		11,587		12,062		11,608		12,918		11,342		12,586
Occupancy, furniture and equipment		1,989		1,925		2,235		2,140		2,301		1,935		2,003
Computer and data processing		1,332		1,524		1,490		1,285		1,335		1,247		1,226
FDIC insurance		174		116		(114)		-		57		155		191
General bank insurance		250		236		270		246		246		237		281
Amortization of core deposit intangible		132		121		157		129		128		124		122
Advertising expense		234		381		360		250		109		57		62
Card related expense		355		474		531		596		532		514		566
Legal fees		126		243		111		195		131		176		169
Other real estate expense, net		50		248		26		99		237		143		125
Other expense		2,940		3,271		2,826		3,280		3,008		2,966		2,935
Total noninterest expense		19,194		20,126		19,954		19,828		21,002		18,896		20,266
Income (loss) before income taxes		10,874		12,321		16,209		12,453		(6)		12,377		13,628
Provision for (benefit from) income taxes		2,406		3,043		4,036		2,917		(281)		3,139		3,363
Net income	$	8,468	$	9,278	$	12,173	$	9,536	$	275	$	9,238	$	10,265

Basic earnings per share	$	0.28	$	0.31	$	0.41	$	0.32	$	0.01	$	0.31	$	0.35
Diluted earnings per share		0.28		0.31		0.40		0.31		0.01		0.31		0.34
Dividends paid per share		0.01		0.01		0.01		0.01		0.01		0.01		0.01

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:


	Quarters Ended
	September 30,			June 30,			September 30,
	2020			2020			2019
Net Interest Margin
Interest income (GAAP)	$	25,046		$	25,712		$	29,444
Taxable-equivalent adjustment:
Loans		3			3			3
Securities		353			371			457
Interest income (TE)		25,402			26,086			29,904
Interest expense (GAAP)		2,537			3,005			4,664
Net interest income (TE)	$	22,865		$	23,081		$	25,240
Paycheck Protection Program ("PPP") loan - interest and fee income		736			603			NA
Net interest income (TE) - excluding PPP loans	$	22,129			22,478			NA
Net interest income (GAAP)	$	22,509		$	22,707		$	24,780
Average interest earning assets	$	2,770,492		$	2,668,217		$	2,421,327
Average PPP loans	$	136,281		$	90,447			N/A
Average interest earning assets, excluding PPP loans	$	2,634,211		$	2,577,770			N/A
Net interest margin (GAAP)		3.23	%		3.42	%		4.06	%
Net interest margin (TE)		3.28	%		3.48	%		4.14	%
Core net interest margin (TE - excluding PPP loans)		3.34	%		3.51	%		N/A


	GAAP									Non-GAAP
		Three Months Ended									Three Months Ended
	September 30,			June 30,			September 30,			September 30,			June 30,			September 30,
	2020			2020			2019			2020			2020			2019
Efficiency Ratio / Adjusted Efficiency Ratio
(Dollars in thousands)

Noninterest expense	$	20,266		$	18,896		$	19,954		$	20,266		$	18,896		$	19,954
Less amortization of core deposit		122			124			157			122			124			157
Less other real estate expense, net		125			143			26			125			143			26
Noninterest expense less adjustments	$	20,019		$	18,629		$	19,771		$	20,019		$	18,629		$	19,771

Net interest income	$	22,509		$	22,707		$	24,780		$	22,509		$	22,707		$	24,780
Taxable-equivalent adjustment:
Loans		N/A			N/A			N/A			3			3			3
Securities		N/A			N/A			N/A			353			371			457
Net interest income including adjustments		22,509			22,707			24,780			22,865			23,081			25,240
Noninterest income		11,685			10,695			11,933			11,685			10,695			11,933
Less death benefit related to BOLI		(2)			59			-			(2)			59			-
Less securities (losses) gains, net		(1)			-			3,463			(1)			-			3,463
Less MSRs mark to market loss		(160)			(445)			(946)			(160)			(445)			(946)
Taxable-equivalent adjustment:
Change in cash surrender value of BOLI		N/A			N/A			N/A			122			157			71
Noninterest income (less) / including adjustments		11,848			11,081			9,416			11,970			11,238			9,487

Net interest income including adjustments plus noninterest income (less) / including adjustments	$	34,357		$	33,788		$	34,196		$	34,835		$	34,319		$	34,727
Efficiency ratio / Adjusted efficiency ratio		58.27	%		55.13	%		57.82	%		57.47	%		54.28	%		56.93	%

Attached files

Stock widget

Investing forum

OLD SECOND BANCORP INC Reports