Edgar Filing: OLD SECOND BANCORP INC

Ex_99-1



(NASDAQ:OSBC)		Exhibit 99.1

Contact:	J. Douglas Cheatham	For Immediate Release
	Chief Financial Officer	April 22, 2015
	(630) 906-5484

Old Second Reports First Quarter 2015 Net Income of $3.5 million.

AURORA, IL, April 22, 2015 – Old Second Bancorp, Inc. (the “Company” or “Old Second”) (NASDAQ: OSBC), parent company of Old Second National Bank (the “Bank”), today announced financial results for the first quarter of 2015. The Company reported net income of $3.5 million for the first quarter of 2015, compared to net income of $2.2 million in the first quarter of 2014. The Company’s net income available to common stockholders of $2.7 million, or $0.09 per diluted share, for the quarter, compared to net income available to common stockholders of $630,000, or $0.04 per diluted share, in the first quarter of 2014.

Operating Results

First quarter 2015 net income before taxes increased by $2.0 million (or 59.4%) from the first quarter of 2014 and $652,000 from the fourth quarter of 2014. When compared to first quarter of 2014, the quarter reflects flat net interest income after loan loss reserve release, improved non interest income and reduced non interest expense, most notably there was no core deposit intangible amortization expense in 2015 compared to $512,000 in the first quarter 2014. The increase from the fourth quarter of 2014 was driven by sharply higher residential mortgage banking revenue and an 8.6% decrease in quarter to quarter noninterest expense. Noteworthy linked quarter expense decreases are found in expenses related to other real estate owned (“OREO”). First quarter 2015 net income available to common stockholders of $2.7 million compares to $1.9 million for fourth quarter 2014 and $630,000 for first quarter 2014. First quarter 2015 noninterest income of $8.0 million was 26.1% higher than the $6.3 million recorded in first quarter 2014. Further, 2015 reflects management actions taken last year and again in first quarter to redeem a portion of the outstanding preferred stock and in turn, dividends associated with those securities.

Noninterest expenses of $17.2 million were 2.1% lower in the first quarter compared to the first quarter 2014. Expenses declined across several expense lines, notably amortization of core deposit expense, and occupancy. First quarter expenses were down 8.6% compared to the fourth quarter 2014 as decreases in OREO expenses and FDIC insurance expense offset modest increases in selected other expense categories.

On December 30, 2014, the Company provided notice that it was redeeming approximately one-third of the issued and outstanding shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series B (the “Series B Preferred Stock”). The effective date for the redemption was January 31, 2015, and the redemption price was the stated liquidation value of $1,000 per share, together with any accrued and unpaid dividends accumulated to, but excluding, the redemption date. As of December 30, 2014, there were 47,331 shares of the Series B Preferred Stock outstanding, and redeeming one-third of the Series B Preferred Stock resulted in the redemption of 15,778 shares of Series B Preferred Stock. The redemption was successfully completed in the quarter. As of March 31, 2015, 31,553 shares of the Series B Preferred Stock remain outstanding.

As management has implemented opportunities to be more efficient in serving our customers and communities, staffing levels were evaluated. As a result, the full time equivalent number of employees was reduced by twenty-one in April of 2015.

Capital Ratios


	March 31,
	2015
The Bank's common equity tier 1 capital ratio	16.91	%
The Company's common equity tier 1 capital ratio	9.12	%
The Bank's total capital ratio	18.18	%
The Company's total capital ratio	16.96	%
The Company's tier 1 leverage capital ratio	9.93	%

All ratios presented are based on the regulatory capital rules in effect on January 1, 2015. The Bank ratios shown above exceed levels required to be considered “well capitalized”.

Asset Quality & Earning Assets

Nonperforming loans declined by $3.7 million to $23.4 million at March 31, 2015, from $27.1 million at December 31, 2014. This same metric decreased $15.2 million from March 31, 2014.

OREO assets moved from $32.0 million at December 31, 2014, and $41.5 million at December 31, 2013, to $35.5 million at March 31, 2015. Valuation writedowns continued with an expense of $609,000 in the quarter.

Loans decreased $8.3 million since year end 2014. First quarter 2015 average loans increased by $15.4 million from the fourth quarter of 2014 and $52.6 million compared to the first quarter of last year.

Securities held-to-maturity at amortized cost total $257.3 million at March 31, 2015. The end of the first quarter of 2015 total compares to $259.7 million held-to-maturity at year end 2014. March 31, 2015, available-for-sale securities at fair value totaled $399.3 million, which is an increase from $385.5 million at December 31, 2014.

Management review of the loan portfolio concluded that neither a loan loss reserve release nor an additional provision for loan loss was appropriate in the first quarter.

Net Interest Income1

ANALYSIS OF AVERAGE BALANCES,

TAX EQUIVALENT INTEREST AND RATES

(Dollar amounts in thousands - unaudited)


	Quarters Ended
	March 31, 2015						December 31, 2014						March 31, 2014
	Average					Rate	Average					Rate	Average					Rate
	Balance			Interest		%	Balance			Interest		%	Balance			Interest		%
Assets
Interest bearing deposits with financial institutions	$	18,022		$	12	0.27	$	19,643		$	13	0.26	$	23,775		$	15	0.25
Securities:
Taxable		615,299			3,375	2.19		619,307			3,691	2.38		616,433			3,502	2.27
Non-taxable (TE)		23,518			217	3.69		11,412			148	5.19		18,561			228	4.91
Total securities		638,817			3,592	2.25		630,719			3,839	2.43		634,994			3,730	2.35
Dividends from Reserve Bank and FHLBC stock		9,058			77	3.40		9,058			77	3.40		10,292			76	2.95
Loans and loans held-for-sale1		1,161,444			13,289	4.58		1,145,362			13,649	4.66		1,106,409			12,988	4.70
Total interest earning assets		1,827,341			16,970	3.71		1,804,782			17,578	3.83		1,775,470			16,809	3.79
Cash and due from banks		31,744			-	-		31,314			-	-		29,901			-	-
Allowance for loan losses		(21,605)			-	-		(23,231)			-	-		(27,102)			-	-
Other noninterest bearing assets		218,544			-	-		227,729			-	-		236,356			-	-
Total assets	$	2,056,024					$	2,040,594					$	2,014,625

Liabilities and Stockholders' Equity
NOW accounts	$	338,385		$	72	0.09	$	321,662		$	69	0.09	$	303,553		$	64	0.09
Money market accounts		298,324			70	0.10		298,134			70	0.09		314,803			94	0.12
Savings accounts		245,005			37	0.06		237,870			37	0.06		234,353			41	0.07
Time deposits		418,615			807	0.78		421,584			896	0.84		468,138			1,321	1.14
Interest bearing deposits		1,300,329			986	0.31		1,279,250			1,072	0.33		1,320,847			1,520	0.47
Securities sold under repurchase agreements		23,437			1	0.02		27,298			1	0.01		24,539			1	0.02
Other short-term borrowings		25,722			8	0.12		24,946			8	0.13		4,111			1	0.10
Junior subordinated debentures		58,378			1,072	7.35		58,378			1,072	7.35		58,378			1,387	9.50
Subordinated debt		45,000			197	1.75		45,000			199	1.73		45,000			196	1.74
Notes payable and other borrowings		500			4	3.20		500			4	3.13		500			4	3.20
Total interest bearing liabilities		1,453,366			2,268	0.63		1,435,372			2,356	0.65		1,453,375			3,109	0.86
Noninterest bearing deposits		405,933			-	-		400,001			-	-		373,711			-	-
Other liabilities		11,734			-	-		12,177			-	-		38,966			-	-
Stockholders' equity		184,991			-	-		193,044			-	-		148,573			-	-
Total liabilities and stockholders' equity	$	2,056,024					$	2,040,594					$	2,014,625
Net interest income (TE)				$	14,702					$	15,222					$	13,700
Net interest income (TE)
to total earning assets						3.26						3.35						3.13
Interest bearing liabilities to earning assets		79.53	%					79.53	%					81.86	%

1 Interest income from loans is shown on a tax equivalent basis as discussed in the table on page 13 and includes fees of $486,000, $572,000 and $550,000 for the first quarter of 2015, the fourth quarter of 2014 and the first quarter of 2014, respectively. Nonaccrual loans are included in the above stated average balances.

Note: Tax equivalent basis is calculated using a marginal tax rate of 35%.

Net interest and dividend income on a linked quarter basis decreased $544,000. Quarterly average earning assets increased $22.6 million from the fourth quarter of 2014 for a total of $1.83 billion while yield on earning assets declined. Management continued to emphasize asset quality in all securities purchases and the year over year quarterly average total securities increased a modest amount. Loan growth in each of the last four quarters, resulted in a year over year first quarter average loans increase of $52.6 million. On a linked quarter basis, first quarter average earning assets reflected increases in both securities and loans.

Noninterest Income


							1st Qtr 2015
	Three Months Ended						Percent Change From
(in thousands)	1st Qtr		4th Qtr		1st Qtr		4th Qtr	1st Qtr
	2015		2014		2014		2014	2014
Trust income	$	1,486	$	1,579	$	1,459	(5.9)	1.9
Service charges on deposits		1,541		1,725		1,720	(10.7)	(10.4)
Residential mortgage banking revenue		1,659		1,100		727	50.8	128.2
Securities (loss) gains, net		(109)		262		(69)	(141.6)	(58.0)
Increase in cash surrender value of bank-owned life insurance		354		369		358	(4.1)	(1.1)
Debit card interchange income		959		1,035		830	(7.3)	15.5
Other income		2,083		1,021		1,296	104.0	60.7
Total noninterest income	$	7,973	$	7,091	$	6,321	12.4	26.1

As shown above, noninterest income experienced no significant linked quarter improvements in the first quarter except for residential mortgage banking revenue and other income. The Company experienced strong mortgage loan origination results in the quarter. The Bank saw mortgage originations reach the highest level in the last two years. Robust overall volumes, driven by refinancing volume, were up 57% from the fourth quarter. Other income includes a nonrecurring incentive payment of $917,000 from a service provider in a long term mutually productive relationship with Old Second. Other income for the quarter also reflects the death benefit realized on a life insurance policy held by the Bank. Year over year noninterest income increased approximately 11% when the items noted above in 2015 are excluded.

Noninterest Expense


										1st Qtr 2015
	Three Months Ended									Percent Change From
(in thousands)	1st Qtr			4th Qtr			1st Qtr			4th Qtr	1st Qtr
	2015			2014			2014			2014	2014
Salaries	$	7,157		$	7,299		$	6,872		(1.9)	4.1
Bonus		417			180			709		131.7	(41.2)
Benefits and other		1,681			1,548			1,520		8.6	10.6
Total salaries and employee benefits		9,255			9,027			9,101		2.5	1.7
Occupancy expense, net		1,271			1,154			1,481		10.1	(14.2)
Furniture and equipment expense		1,001			1,016			983		(1.5)	1.8
FDIC insurance		273			615			279		(55.6)	(2.2)
General bank insurance		357			358			489		(0.3)	(27.0)
Amortization of core deposit intangible asset		-			-			512		N/A	(100.0)
Advertising expense		205			225			303		(8.9)	(32.3)
Debit card interchange expense		352			423			378		(16.8)	(6.9)
Legal fees		223			335			257		(33.4)	(13.2)
Other real estate owned expense, net		1,352			2,252			1,008		(40.0)	34.1
Other expense		2,864			3,362			2,725		(14.8)	5.1
Total noninterest expense	$	17,153		$	18,767		$	17,516		(8.6)	(2.1)
Efficiency ratio (defined below)		68.77	%		74.22	%		78.86	%

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

Noninterest expense decreased on a linked quarter basis primarily on lower FDIC expense, as well as reduced debit card interchange, legal and OREO expenses. Expenses were flat or down in the first quarter 2015 compared to the same period in 2014 for most categories, excluding total OREO expense, net. First quarter 2015 total noninterest expense was down from first quarter 2014. Excluding the benefit from the now fully amortized core deposit intangible asset, noninterest expense was essentially flat.

Earning Assets


							March 31, 2015
	Major Classification of Loans as of						Percent Change From
(in thousands)	March 31,		December 31,		March 31,		December 31,	March 31,
	2015		2014		2014		2014	2014
Commercial	$	114,241	$	119,158	$	98,321	(4.1)	16.2
Real estate - commercial		608,267		600,629		579,297	1.3	5.0
Real estate - construction		39,430		44,795		32,016	(12.0)	23.2
Real estate - residential		363,967		370,191		375,782	(1.7)	(3.1)
Consumer		3,495		3,504		2,837	(0.3)	23.2
Overdraft		368		649		301	(43.3)	22.3
Lease financing receivables		8,651		8,038		9,226	7.6	(6.2)
Other		11,945		11,630		13,019	2.7	(8.2)
		1,150,364		1,158,594		1,110,799	(0.7)	3.6
Net deferred loan costs		705		738		438	(4.5)	61.0
	$	1,151,069	$	1,159,332	$	1,111,237	(0.7)	3.6

Modest first quarter loan production combined with seasonal reductions in demand resulted in a decrease of $8.3 million in loans outstanding from the fourth quarter of 2014. Volume decreases for the quarter are seen in most portfolio segments, most notably in Commercial. Management continued to emphasize loan portfolio quality and transactions in our core market area that the Company expects will develop as long-term relationship opportunities. This approach also builds client relationships with core clientele, while leading to reduced portfolio runoff and potential long term business development beneficial to both the Company and the client.

Commercial relationship managers continue to focus on building the loan pipeline with opportunities after a long period of runoff. Management believes that the competitive landscape within the Chicago market is challenging and that it may remain so for a prolonged period.

The investment portfolio ended the first quarter of 2015 at $656.6 million, an increase of $11.4 million during the quarter. There were no purchases or sales to the held-to-maturity portion of the portfolio during the first quarter. First quarter available-for-sale purchases totaled $69.7 million, which included $30.4 million in asset-backed securities, $12.8 million in collateralized mortgage obligations, and $12.0 million in tax anticipation warrants. During the quarter there were sales of corporate bonds, collateralized mortgage obligations, collateralized loan obligations and asset backed securities totaling $53.2 million.

Net realized losses on sales were $109,000 during the first quarter of 2015 down from net realized gains of $262,000 in the fourth quarter of 2014. Unrealized losses, net of deferred taxes, decreased $690,000 during the quarter.

Asset Quality

Dollars in Thousands


	As Of									Percent Change From
	March 31,			December 31,			March 31,			December 31,	March 31,
	2015			2014			2014			2014	2014
Nonaccrual loans	$	23,048		$	26,926		$	36,674		(14.4)	(37.2)
Nonperforming Troubled debt restructured loans accruing interest		309			154			788		100.6	(60.8)
Loans past due 90 days or more and still accruing interest		-			-			1,125		-	(100.0)
Total nonperforming loans		23,357			27,080			38,587		(13.7)	(39.5)
Other real estate owned		35,461			31,982			40,220		10.9	(11.8)
Total nonperforming assets	$	58,818		$	59,062		$	78,807		(0.4)	(25.4)

30-89 days past due loans	$	6,321		$	2,965		$	5,732
Nonaccrual loans to total loans		2.0	%		2.3	%		3.3	%
Nonperforming loans to total loans		2.0	%		2.3	%		3.5	%
Nonperforming assets to total loans plus OREO		5.0	%		5.0	%		6.8	%

Allowance for loan losses	$	21,181		$	21,637		$	25,476
Allowance for loan losses to loans		1.8	%		1.9	%		2.3	%
Allowance for loan losses to nonaccrual loans		91.9	%		80.4	%		69.5	%

Nonperforming loans consist of nonaccrual loans, nonperforming restructured accruing loans and loans 90 days or greater past due but still accruing. Total nonperforming loans were $23.4 million at March 31, 2015 and $27.1 million at December 31, 2014.

Classified loans include nonaccrual, performing troubled debt restructurings and all other loans considered substandard which also decreased in the quarter as shown below. Management review of the loan portfolio concluded that neither a loan loss reserve release nor an additional loan loss provision was appropriate in the first quarter.


							March 31, 2015
	Classified loans as of						Percent Change From
(in thousands)	March 31,		December 31,		March 31,		December 31,	March 31,
	2015		2014		2014		2014	2014
Real estate-construction	$	3,973	$	4,045	$	6,430	(1.8)	(38.2)
Real estate-residential:
Investor		1,175		2,263		7,674	(48.1)	(84.7)
Owner occupied		7,529		7,343		6,847	2.5	10.0
Revolving and junior liens		3,234		3,713		3,645	(12.9)	(11.3)
Real estate-commercial, nonfarm		14,203		19,170		27,633	(25.9)	(48.6)
Real estate-commercial, farm		1,370		-		-	-	-
Commercial		4,936		4,403		455	12.1	984.8
Other		1		1		-	-	-
	$	36,421	$	40,938	$	52,684	(11.0)	(30.9)

Net Charge-off Summary


Loan Charge-offs, net of recoveries	Three Months Ended
(in thousands)	March 31,		% of	December 31,		% of	March 31,		% of
	2015		Total	2014		Total	2014		Total
Real estate-construction
Homebuilder	$	-	-	$	(109)	(27.7)	$	(35)	(4.3)
Land		(3)	(0.7)		(14)	(3.6)		1	0.1
Commercial speculative		-	-		-	-		-	-
All other		(1)	(0.2)		(3)	(0.8)		65	8.1
Total real estate-construction		(4)	(0.9)		(126)	(32.1)		31	3.9
Real estate-residential
Investor		(11)	(2.4)		(23)	(5.9)		92	11.4
Owner occupied		67	14.7		(9)	(2.3)		8	1.0
Revolving and junior liens		338	74.1		416	105.9		499	62.0
Total real estate-residential		394	86.4		384	97.7		599	74.4
Real estate-commercial, nonfarm
Owner general purpose		495	108.6		14	3.6		-	-
Owner special purpose		(4)	(0.9)		111	28.2		259	32.2
Non-owner general purpose		(326)	(71.5)		(34)	(8.6)		18	2.2
Non-owner special purpose		-	-		10	2.5		-	-
Retail properties		-	-		(3)	(0.8)		(89)	(11.1)
Total real estate-commercial, nonfarm		165	36.2		98	24.9		188	23.3
Real estate-commercial, farm		-	-		-	-		-	-
Commercial		(109)	(23.9)		57	14.5		(11)	(1.4)
Other		10	2.2		(20)	(5.0)		(2)	(0.2)
Total	$	456	100.0	$	393	100.0	$	805	100.0

Management attention to credit quality continued as reflected in the nominal net charge-off experience illustrated above.

Deposits

Total deposits ended at $1.74 billion on March 31, 2015. That amount reflects a sharp increase from deposits of $1.69 billion at December 31, 2014. While time deposits or certificates of deposit continued to decline in first quarter, the rate of decline slowed when compared to the first quarter of 2014. Strong growth was seen in transaction deposit accounts, most notably in noninterest bearing demand accounts, up $31.4 million in first quarter. With only limited deposit building programs in place, management sees this growth as based on client choice.

Borrowings

The Company's borrowings at the Federal Home Loan Bank of Chicago (the “FHLBC”) require the Bank to be a member and invest in the stock of the FHLBC. Total borrowings are generally limited to the lower of 35% of total assets or 60% of the book value of certain mortgage loans. As of December 31, 2014, the Bank had $45.0 million outstanding under FHLBC advances compared to $30.0 million outstanding in advances at March 31, 2015. After borrowing overnight funds under the advance program virtually every day in first quarter, management had eliminated advances outstanding in late March. Management then took a term advance of $30.0 million on March 31, 2015 in anticipation that the funds would be needed and in recognition of the fact that the funds taken are beneficially priced under an FHLBC special offering.

The Company is also indebted on $58.4 million of junior subordinated debentures related to the trust preferred securities issued by its two statutory trust subsidiaries, Old Second Capital Trust I and Old Second Capital Trust II. In April, 2014, the Company concluded a successful capital raise and used some of the capital raise

proceeds to pay interest accrued but previously unpaid on the trust preferred securities and, as of the date hereof, the Company continues to be current on the payments due on these securities.

Capital


	March 31,
	2015
The Company's common equity tier 1 capital ratio	9.12	%
(minimum 4.5% for adequately capitalized)
The Company's tier 1 capital ratio	13.83	%
(minimum 6.0% for adequately capitalized)
The Company's total capital ratio	16.96	%
(minimum 8.0% for adequately capitalized)
The Company's tier 1 leverage capital ratio	9.93	%
(minimum 4.0% for adequately capitalized)

All ratios presented are based on the regulatory capital rules of Basel III, which took effect on January 1, 2015. As of March 31, 2015, the Bank’s common equity tier 1 capital ratio of 16.91% and total capital ratio of 18.18% exceeded the minimum capital ratios to be deemed “well capitalized”.

Non-GAAP Presentations: Management has traditionally disclosed certain non-GAAP ratios to evaluate and measure the Company’s performance, including a net interest margin calculation. The net interest margin is calculated by dividing net interest income on a tax equivalent basis by average earning assets for the period. Management believes this measure provides investors with information regarding balance sheet profitability. Consistent with industry practice, management also disclosed other non-GAAP measures in the discussion immediately above and in the following tables. The tables provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

Forward Looking Statements: This report may contain forward-looking statements. Forward looking statements are identifiable by the inclusion of such qualifications as expects, intends, believes, may, likely or other indications that the particular statements are not based upon facts but are rather based upon the Company’s beliefs as of the date of this release. Actual events and results may differ significantly from those described in such forward-looking statements, due to changes in the economy, interest rates or other factors. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events. For additional information concerning the Company and its business, including other factors that could materially affect the Company’s financial results or cause actual results to differ substantially from those discussed or implied in forward looking statements contained in this release, please review our filings with the Securities and Exchange Commission.

Conference Call

The Company will also host an earnings call on Thursday, April 23, 2015, at 11:00 a.m. Eastern Time (10:00 a.m. Central Time). Investors may listen to the Company’s earnings call via telephone by dialing 877-407-8035. Investors should call into the dial-in number set forth above at least 10 minutes prior to the scheduled start of the call.

A replay of the earnings call will be available until 11:59 p.m. Eastern Time (10:59 p.m. Central Time) on May 7, 2015, by dialing 877-660-6853, using Conference ID #: 13605129.

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share data)


	(Unaudited)
	March 31,		December 31,
	2015		2014
Assets
Cash and due from banks	$	19,051	$	30,101
Interest bearing deposits with financial institutions		55,111		14,096
Cash and cash equivalents		74,162		44,197
Securities available-for-sale, at fair value		399,252		385,486
Securities held-to-maturity, at amortized cost		257,332		259,670
Federal Home Loan Bank and Federal Reserve Bank stock		9,058		9,058
Loans held-for-sale		7,038		5,072
Loans		1,151,069		1,159,332
Less: allowance for loan losses		21,181		21,637
Net loans		1,129,888		1,137,695
Premises and equipment, net		42,016		42,335
Other real estate owned		35,461		31,982
Mortgage servicing rights, net		5,254		5,462
Bank-owned life insurance (BOLI)		57,161		56,807
Deferred tax assets, net		67,743		70,141
Other assets		13,145		13,882
Total assets	$	2,097,510	$	2,061,787

Liabilities
Deposits:
Noninterest bearing demand	$	431,843	$	400,447
Interest bearing:
Savings, NOW, and money market		896,618		865,103
Time		416,317		419,505
Total deposits		1,744,778		1,685,055
Securities sold under repurchase agreements		26,513		21,036
Other short-term borrowings		30,000		45,000
Junior subordinated debentures		58,378		58,378
Subordinated debt		45,000		45,000
Notes payable and other borrowings		500		500
Other liabilities		10,501		12,655
Total liabilities		1,915,670		1,867,624

Stockholders’ Equity
Preferred stock		31,553		47,331
Common stock		34,415		34,365
Additional paid-in capital		115,489		115,332
Retained earnings		103,372		100,697
Accumulated other comprehensive loss		(7,023)		(7,713)
Treasury stock		(95,966)		(95,849)
Total stockholders’ equity		181,840		194,163
Total liabilities and stockholders’ equity	$	2,097,510	$	2,061,787

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Operations

(In thousands, except share data)


	(unaudited)
	Three Months Ended
	March 31,
	2015		2014
Interest and dividend income
Loans, including fees	$	13,218	$	12,938
Loans held-for-sale		43		25
Securities:
Taxable		3,375		3,502
Tax exempt		141		148
Dividends from Federal Reserve Bank and Federal Home Loan Bank stock		77		76
Interest bearing deposits with financial institutions		12		15
Total interest and dividend income		16,866		16,704
Interest expense
Savings, NOW, and money market deposits		179		199
Time deposits		807		1,321
Other short-term borrowings		9		2
Junior subordinated debentures		1,072		1,387
Subordinated debt		197		196
Notes payable and other borrowings		4		4
Total interest expense		2,268		3,109
Net interest and dividend income		14,598		13,595
Loan loss reserve release		-		(1,000)
Net interest and dividend income after provision for loan losses		14,598		14,595
Noninterest income
Trust income		1,486		1,459
Service charges on deposits		1,541		1,720
Secondary mortgage fees		244		112
Mortgage servicing loss, net of changes in fair value		(208)		(47)
Net gain on sales of mortgage loans		1,623		662
Securities loss, net		(109)		(69)
Increase in cash surrender value of bank-owned life insurance		354		358
Debit card interchange income		959		830
Other income		2,083		1,296
Total noninterest income		7,973		6,321
Noninterest expense
Salaries and employee benefits		9,255		9,101
Occupancy expense, net		1,271		1,481
Furniture and equipment expense		1,001		983
FDIC insurance		273		279
General bank insurance		357		489
Amortization of core deposit		-		512
Advertising expense		205		303
Debit card interchange expense		352		378
Legal fees		223		257
Other real estate expense, net		1,352		1,008
Other expense		2,864		2,725
Total noninterest expense		17,153		17,516
Income before income taxes		5,418		3,400
Provision for income taxes		1,919		1,198
Net income	$	3,499	$	2,202
Preferred stock dividends and accretion of discount		824		1,572
Net income available to common stockholders	$	2,675	$	630

Basic earnings per share	$	0.09	$	0.04
Diluted earnings per share		0.09		0.04

Old Second Bancorp, Inc. and Subsidiaries

Quarterly Consolidated Average Balance

(In thousands, except share data, unaudited)



		2014								2015
Assets	1st Qtr		2nd Qtr		3rd Qtr		4th Qtr		1st Qtr
Cash and due from banks	$	29,901	$	36,827	$	32,459	$	31,314	$	31,744
Interest bearing deposits with financial institutions		23,775		30,333		38,603		19,643		18,022
Cash and cash equivalents		53,676		67,160		71,062		50,957		49,766

Securities available-for-sale, at fair value		371,229		388,309		348,791		261,775		380,180
Securities held-to-maturity, at amortized cost		263,765		264,070		263,832		368,944		258,637
Federal Home Loan Bank and Federal Reserve Bank stock		10,292		10,292		9,085		9,058		9,058
Loans held-for-sale		2,344		2,829		3,758		4,065		4,782
Loans		1,104,065		1,118,089		1,133,379		1,141,297		1,156,662
Less : allowance for loan losses		27,102		25,146		24,492		23,231		21,605
Net loans		1,076,963		1,092,943		1,108,887		1,118,066		1,135,057

Premises and equipment, net		45,972		45,575		45,116		42,516		42,306
Other real estate owned		39,971		39,094		38,757		39,566		32,392
Mortgage servicing rights, net		5,569		5,527		5,522		5,468		5,202
Core deposit intangible, net		916		399		23		-		-
Bank-owned life insurance (BOLI)		55,551		55,894		56,262		56,566		56,927
Deferred tax assets, net		75,387		74,082		71,937		71,628		69,936
Other assets		12,990		12,798		12,615		11,985		11,781
Total Other assets		236,356		233,369		230,232		227,729		218,544
Total assets	$	2,014,625	$	2,058,972	$	2,035,647	$	2,040,594	$	2,056,024

Liabilities
Deposits:
Noninterest bearing demand	$	373,711	$	389,926	$	389,246	$	400,001	$	405,933
Interest bearing:
Savings, NOW, and money market		852,709		861,735		860,342		857,666		881,714
Time		468,138		457,818		437,597		421,584		418,615
Total deposits		1,694,558		1,709,479		1,687,185		1,679,251		1,706,262

Securities sold under repurchase agreements		24,539		25,224		27,266		27,298		23,437
Other short-term borrowings		4,111		8,681		12,174		24,946		25,722
Junior subordinated debentures		58,378		58,378		58,378		58,378		58,378
Subordinated debt		45,000		45,000		45,000		45,000		45,000
Notes payable and other borrowings		500		500		500		500		500
Other liabilities		38,966		19,210		11,416		12,177		11,734
Total liabilities		1,866,052		1,866,472		1,841,919		1,847,550		1,871,033

Stockholders' equity
Preferred stock		72,991		54,947		47,331		47,331		36,637
Common stock		18,840		33,104		34,365		34,365		34,414
Additional paid-in capital		66,241		111,279		115,220		115,263		115,413
Retained earnings		93,508		96,002		98,256		99,553		102,050
Accumulated other comprehensive loss		(7,177)		(6,982)		(5,594)		(7,618)		(7,558)
Treasury stock		(95,830)		(95,850)		(95,850)		(95,850)		(95,965)
Total stockholders' equity		148,573		192,500		193,728		193,044		184,991
Total liabilities and stockholder's equity	$	2,014,625	$	2,058,972	$	2,035,647	$	2,040,594	$	2,056,024

Total Earning Assets	$	1,775,470	$	1,813,922	$	1,797,448	$	1,804,782	$	1,827,341
Total Interest Bearing Liabilities		1,453,375		1,457,336		1,441,257		1,435,372		1,453,366

Old Second Bancorp, Inc. and Subsidiaries

Quarterly Consolidated Statements of Operations

(In thousands, except share data, unaudited)



	2014								2015
	1st Qtr		2nd Qtr		3rd Qtr		4th Qtr		1st Qtr
Interest and Dividend Income
Loans, including fees	$	12,938	$	13,046	$	13,362	$	13,580	$	13,218
Loans held-for-sale		25		29		38		41		43
Securities:
Taxable		3,502		3,352		3,586		3,691		3,375
Tax exempt		148		118		110		96		141
Dividends from Federal Reserve Bank and Federal Home Loan Bank stock		76		78		78		77		77
Interest bearing deposits with financial institutions		15		20		25		13		12
Total interest and dividend income		16,704		16,643		17,199		17,498		16,866
Interest Expense
Savings, NOW, and money market deposits		199		188		175		176		179
Time deposits		1,321		1,210		1,073		896		807
Other short-term borrowings		2		3		5		9		9
Junior subordinated debentures		1,387		1,388		1,072		1,072		1,072
Subordinated debt		196		198		199		199		197
Notes payable and other borrowings		4		4		4		4		4
Total interest expense		3,109		2,991		2,528		2,356		2,268
Net interest and dividend income		13,595		13,652		14,671		15,142		14,598
Loan loss reserve release		(1,000)		(1,000)		-		(1,300)		-
Net interest and dividend income after provision for loan losses		14,595		14,652		14,671		16,442		14,598
Noninterest Income
Trust income		1,459		1,677		1,483		1,579		1,486
Service charges on deposits		1,720		1,796		1,838		1,725		1,541
Secondary mortgage fees		112		155		174		180		244
Mortgage servicing (loss) gain, net of changes in fair value		(47)		64		252		(60)		(208)
Net gain on sales of mortgage loans		662		1,038		914		980		1,623
Securities (losses) gains, net		(69)		295		1,231		262		(109)
Increase in cash surrender value of bank-owned life insurance		358		366		304		369		354
Debit card interchange income		830		930		1,011		1,035		959
Other income		1,296		1,160		1,116		1,021		2,083
Total noninterest income		6,321		7,481		8,323		7,091		7,973
Noninterest Expense
Salaries and employee benefits		9,101		9,183		8,856		9,027		9,255
Occupancy expense, net		1,481		1,185		1,143		1,154		1,271
Furniture and equipment expense		983		984		989		1,016		1,001
FDIC insurance		279		627		649		615		273
General bank insurance		489		343		371		358		357
Amortization of core deposit		512		511		154		-		-
Advertising expense		303		459		291		225		205
Debit card interchange expense		378		412		418		423		352
Legal fees		257		409		332		335		223
Other real estate expense, net		1,008		1,650		2,007		2,252		1,352
Other expense		2,725		3,289		3,134		3,362		2,864
Total noninterest expense		17,516		19,052		18,344		18,767		17,153
Income before income taxes		3,400		3,081		4,650		4,766		5,418
Provision for income taxes		1,198		1,060		1,726		1,777		1,919
Net income		2,202		2,021		2,924		2,989		3,499
Preferred stock dividends and accretion of discount		1,572		1,348		1,065		1,077		824
Dividends waived upon preferred stock redemption		-		(5,433)		-		-		-
Gain on preferred stock redemption		-		(1,348)		-		-		-
Net income available to common stockholders	$	630	$	7,454	$	1,859	$	1,912	$	2,675

Basic earnings per share	$	0.04	$	0.26	$	0.06	$	0.06	$	0.09
Diluted earnings per share		0.04		0.26		0.06		0.06		0.09

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


	Three Months Ended
	March 31,			December 31,			March 31,
	2015			2014			2014
Net Interest Margin
Interest income (GAAP)	$	16,866		$	17,498		$	16,704
Taxable-equivalent adjustment:
Loans		28			28			25
Securities		76			52			80
Interest income - TE		16,970			17,578			16,809
Interest expense (GAAP)		2,268			2,356			3,109
Net interest income -TE	$	14,702		$	15,222		$	13,700
Net interest income (GAAP)	$	14,598		$	15,142		$	13,595
Average interest earning assets	$	1,827,341		$	1,804,782		$	1,775,470
Net interest margin (GAAP)		3.24	%		3.33	%		3.11	%
Net interest margin - TE		3.26	%		3.35	%		3.13	%


		Three Months Ended
	March 31,			December 31,			March 31,
	2015			2014			2014
Efficiency Ratio
Noninterest expense	$	17,153		$	18,767		$	17,516
Less amortization of core deposit, net		-			-			512
Less other real estate expense, net		1,352			2,252			1,008
Adjusted noninterest expense		15,801			16,515			15,996
Net interest income (GAAP)		14,598			15,142			13,595
Taxable-equivalent adjustment:
Loans		28			28			25
Securities		76			52			80
Net interest income (TE)		14,702			15,222			13,700
Noninterest income		7,973			7,091			6,321
Taxable-equivalent adjustment:
Increase in cash surrender value of BOLI - (TE)		191			199			193
Noninterest income - (TE)		8,164			7,290			6,514
Less securities (losses) gain, net		(109)			262			(69)
Adjusted noninterest income, plus net interest income (TE)	$	22,975		$	22,250		$	20,283
Efficiency ratio		68.77	%		74.22	%		78.86	%