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Old Second Bancorp, Inc. Announces Third Quarter Results

Targeted Asset Quality Management & Asset Quality Improvement

AURORA, Ill.--(BUSINESS WIRE)-- Old Second Bancorp, Inc. (the “Company” or “Old Second”) (NASDAQ: OSBC), parent company of Old Second National Bank (the “Bank”), today announced results of operations for the third quarter of 2012. The Company reported a net income of $120,000, compared to a net loss of $1.4 million in the third quarter of 2011. The Company’s net loss available to common shareholders of $1.1 million, or $0.08 per diluted share, for the quarter compared to a net loss available to common shareholders of $2.6 million, or $0.18 per diluted share, in the third quarter of 2011.

Old Second also announced that its principle banking subsidiary, Old Second National Bank, recorded net income of $1.8 million in third quarter and a net income of $3.4 million for the first nine months of 2012.

The Company did not record a provision for loan losses for the third quarter of 2012 compared to a $3.0 million provision in the third quarter of 2011. The allowance for loan losses was 38.05% of nonperforming loans as of September 30, 2012 an increase from 35.79% as of June 30, 2012 and a decline from 42.95% a year earlier.

“Our third quarter results reflect continued payback on our diligent work to improve asset quality as we progress toward overall sustainable profitability,” said Bill Skoglund, Chairman and CEO. “As total loans decreased 2.4% in third quarter, we successfully worked with problem loan situations so that loans classified as problem loans (nonaccrual and troubled debt restructurings) dropped by 25% since December 31, 2011 (down 7.4% since June 30, 2012).”

“We continue to also be greatly encouraged as our nonperforming assets decreased to levels not seen at any quarter end since June 2009. Total nonperforming assets decreased 16.5% to $193.9 million at September 30, 2012 from $232.2 million at December 31, 2011 reflecting great work by our people, commitment to our organization from loyal customers, improved but still difficult market conditions for distressed asset dispositions and prudent property valuation writedowns in a better but still stressed overall market. We will continue to expand existing strategies and pursue new workout or remediation opportunities to reduce problem credit exposures.”

“Recognizing our need and obligation to maintain and grow capital, we are pleased to continue to exceed the Bank capital ratio objectives we established in our agreement with the Office of the Comptroller of the Currency. At September 30, 2012 the Bank’s leverage ratio was 9.66% up 31 basis points from June 30, 2012 and 91 basis points above the established 8.75% objective. The Bank’s total capital ratio was 14.06%, up 81 basis points from June 30, 2012 and 281 basis points above the 11.25% agreed objective.”

2012 Financial Highlights/Overview

Earnings

  • Third quarter net income before taxes of $120,000 compared to a net loss before taxes of $1.4 million in the same quarter of 2011.
  • Third quarter net loss to common stockholders of $1.1 million compared to a net loss to common stockholders of $2.6 million in the same quarter of 2011.
  • The tax-equivalent net interest margin was 3.44% during the third quarter of 2012 compared to 3.63% in the same quarter of 2011, and reflected a decrease of 21 basis points compared to the second quarter of 2012.
  • Noninterest income of $31.2 million was $4.4 million higher in the first nine months of 2012 than in the same period in 2011 reflecting higher mortgage loan sales and securities gains.
  • Noninterest expenses of $71.9 million were $173,000 or 0.2% higher in the first nine months of 2012 than in the same period in 2011 reflecting increased expenses in salaries and benefits, with some of the increase related to incentive based compensation and OREO while reduced expenses in many categories including, most notably FDIC insurance, legal fees and occupancy related expenses helped defray these increases.

Capital

The Company's tangible common equity to tangible assets

  • Bank leverage capital ratio increased to 9.66% from 9.34% at December 31, 2011.
  • Bank total capital ratio increased to 14.06% from 12.97% at December 31, 2011.
  • Company leverage ratio decreased to 4.88% from 4.98% at December 31, 2011.
  • Company total capital ratio increased to 12.90% from 12.38% at December 31, 2011.
  • Company tangible common equity to tangible assets decreased from (0.08)% at December 31, 2011 to (0.25)% in the third quarter of 2012.

Asset Quality/Balance Sheet Overview

  • Nonperforming loans declined $33.1 million or 23.8% during the first nine months of 2012 to $105.8 million as of September 30, 2012 from $138.9 million as of December 31, 2011. Our September 30, 2012 lower level of nonperforming loans as measured at quarter end was the lowest since December 31, 2008.
  • There was no provision for loan loss expense for the quarter ended September 30, 2012, compared to $3.0 million in the same period in 2011 and $200,000 in the second quarter of 2012.
  • Loans that were classified as performing but 30 to 89 days past due and still accruing interest decreased to $5.4 million at September 30, 2012 from $6.4 million at June 30, 2012 and $12.1 million at December 31, 2011.
  • Securities available-for-sale increased $104.8 million during 2012 to $412.3 million at September 30, 2012 from $307.6 million at December 31, 2011 (all numbers rounded) with no significant impact on the current liquidity profile. At $135.1 million or 32.8% of the total portfolio, asset-backed securities are the largest component of the portfolio.
  • 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. Management also presents an efficiency ratio that is non-GAAP. The efficiency ratio is calculated by dividing adjusted noninterest expense by the sum of net interest income on a tax equivalent basis and adjusted noninterest income. Management believes this measure provides investors with information regarding the Company’s operating efficiency and how management evaluates performance internally. Consistent with industry practice, management also disclosed the tangible common equity to tangible assets and the Tier 1 common equity to risk weighted assets 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, please review our filings with the Securities and Exchange Commission.
Financial Highlights (unaudited) In thousands, except share data As of and for the As of and for the Three Months Ended Nine Months Ended September 30, September 30, 2012 2011 2012 2011 Summary Statements of Operations: Key Ratios (annualized): 1 1 2 2 3 3 3 3 Per Share Data: End of Period Balances: Average Balances:

1 Tabular disclosures of the tax equivalent calculation including the net interest margin and efficiency ratio for the quarters ending September 30, 2012, and 2011, respectively, are presented on page 20.

2 The information to reconcile GAAP measures and the ratios of Tier 1 capital, total capital, tangible common equity or Tier 1 common equity, as applicable, to average total assets, risk-weighted assets or tangible assets, as applicable, are presented on page 21.

3 The Company and the Bank are subject to regulatory capital requirements administered by federal banking agencies. Those agencies define the basis for these calculations including the prescribed methodology for the calculation of the amount of risk-weighted assets.

Financial Highlights, continued In thousands, except share data (unaudited) (unaudited) Three Months Ended Nine Months Ended Asset Quality September 30, September 30, 2012 2011 2012 2011 (unaudited) (audited) As of As of September 30, December 31, 2012 2011 2011 1 (unaudited) (audited) Major Classifications of Loans As of As of September 30, December 31, 2012 2011 2011 (unaudited) (audited) Major Classifications of Deposits As of As of September 30, December 31, 2012 2011 2011 Old Second Bancorp, Inc. and Subsidiaries Consolidated Balance Sheets (unaudited) (audited) September 30, December 31, 2012 2011 Assets Liabilities

Total deposits

Stockholders' Equity Old Second Bancorp, Inc. and Subsidiaries Consolidated Statements of Operations Three Months Ended Year to Date September 30, September 30, 2012 2011 2012 2011 Interest and Dividend Income Interest Expense Noninterest Income Noninterest Expense Net Income (loss) Net loss available to common stockholders Assets

Total securities

1 Liabilities and Stockholders' Equity Assets 1 Liabilities and Stockholders' Equity

The following tables provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent. (Dollar amounts in thousands- unaudited)

Net Interest Margin Efficiency Ratio As of September 30, December 31, 2012 2011 2011 Tier 1 capital Total capital

Additional trust preferred securities disallowed for tier 1 capital

Tangible common equity Tier 1 common equity Tangible assets Total risk-weighted assets Average assets

Old Second Bancorp, Inc.
J. Douglas Cheatham, Chief Financial Officer, (630) 906-5484

Source: Old Second Bancorp, Inc.