Old Second Bancorp (OSBC) 8-K Old Second Bancorp, Inc. Announces First Quarter Earnings

Exhibit 99.1

Old Second Bancorp, Inc.		For Immediate Release
(Nasdaq: OSBC)		April 21, 2006
Contact:	J. Douglas Cheatham
	Chief Financial Officer
	(630) 906-5484

Old Second Bancorp, Inc. Announces First Quarter Earnings

AURORA, Illinois – Old Second Bancorp, Inc. (Nasdaq: OSBC) today announced first quarter earnings of $0.45 per diluted share, on earnings of $6.11 million. This was one cent per share less than the first quarter of 2005, in which the Company earned $0.46 per diluted share on earnings of $6.19 million. Increases in net interest income and noninterest income were offset by increases in expenses and the provision for loan losses. After releasing $37,000 from the allowance for loan losses in the first quarter of 2005, the company provided an additional $444,000 to the allowance for loan losses in 2006.

Net interest income increased $503,000, or 2.9%, to $18.14 million in the first quarter of 2006, compared with $17.63 million in the first quarter of 2005. The increase resulted from higher average earning assets, partially offset by a lower net interest margin. Average earning assets grew 8.45%, while the net interest margin declined from 3.67% in the first quarter of 2005 to 3.49% in the first quarter of 2006. Interest costs associated with a 9.14% increase in deposits contributed to the decline in margin. The average tax-equivalent yield on earning assets increased from 5.57% to 6.34%, or 77 basis points. At the same time, the cost of interest-bearing and non interest-bearing funds increased from 1.96% to 2.91%, or 95 basis points. A significant increase in certificates of deposit contributed to the increased cost of funds.

After releasing $37,000 from the allowance for loan losses in the first quarter of 2005, the company provided an additional $444,000 to the allowance for loan losses in 2006. While the quality of the loan portfolio remained strong and charge-offs were low, management’s analysis of the allowance for loan losses has determined that the level reported as of March 31, 2006, was appropriate. The ratio of the allowance for loan losses to nonperforming loans was 227% as of March 31, 2006, compared with 234% as of March 31, 2005. Nonperforming loans were $7.0 million as of March 31, 2006, and $6.5 million as of March 31, 2005. Net charge-offs were $44,000 in the first quarter of 2005 and net recoveries were $118,000 in the first quarter of 2006.

Noninterest income was $7.1 million during the first quarter of 2006 and $6.5 million during the first quarter of 2005, an increase of $603,000, or 9.3%. Mortgage banking income, including gains on sales of mortgage loans, secondary market fees, and servicing income, was $1.2 million down $356,000 from the first quarter of 2005. This decline was primarily associated with an increase in interest rates. All other noninterest income categories increased. Securities gains were $227,000 in the first quarter of 2006, compared with a loss of $4,000 in 2005. Service charges on deposits increased $156,000, or 8.7%, to $1,956,000, which is in line with deposit growth. Bank owned life insurance (“BOLI”) increased from $219,000 to $472,000 as a result of BOLI purchases. Other income increased from $1,230,000 to $1,464,000, or 19.0%, including an increase of $134,000 in ATM and debit card fees.

Noninterest expense was $16.1 million during the first quarter of 2006, an increase of $1.1 million, or 7.3%, from $15.0 million in the first quarter of 2005. Salaries and benefits expense

was $9.5 million during the first quarter of 2006, an increase of $411,000, or 4.5%, from $9.1 million in the first quarter of 2005. The increase in salaries and benefits was primarily related to annual merit increases in employee salaries and bonuses as our total number of employees has remained steady, with 556 full-time equivalent employees as of March 31, 2006, as compared with 546 one year earlier.

Net occupancy and furniture and equipment expenses increased $497,000 from the first quarter of 2005 to the first quarter of 2006, or 26.5%. This is due, in part, to a reduction in the estimated accrual for occupancy related expenses in the first quarter of 2005. As the Company has expanded into and developed new markets, related facility expenses have increased. Three new branches have opened since the beginning of 2005, including the most recent addition in Batavia, Illinois.

Other expense increased $157,000, or 4.82%, from $3.5 million in the first quarter of 2005 to $3.7 million in the first quarter of 2006. Increases in loan expenses and marketing costs were partially offset by a reduction in consulting expenses.

Total assets were $2.36 billion as of March 31, 2006, compared with $2.37 billion as of December 31, 2005. Loans grew $34.7 million during the first quarter of 2006, while cash and due from banks declined $18.9 million and securities available for sale declined $15.7 million. Significant changes by loan type included an increase in commercial real estate of $44.6 million, a decline of $19.1 million in construction lending, and an increase of $16.1 million in residential loans.

Total deposits increased $69.2 million during the first quarter of 2006, to $2.00 billion as of March 31, 2006. Demand deposits decreased $14.8 million, to $249.3 million. Savings deposits increased $6.0 million, from $117.8 million to $123.8 million. Time deposits increased $109.2 million, or 12.5%, from $876.1 million to $985.3 million. Money market accounts declined from $432.5 million to $405.8 million in the first quarter.

Generally, depositors shifted from transaction accounts to certificates of deposits in the first quarter. While this had the effect of moving funds out of interest sensitive deposits into more stable pricing, this deposit shift resulted in a higher cost of funds and a negative impact on the net interest margin. The net interest margin declined from 3.67% in the first quarter of 2005 to 3.49% in the first quarter of 2006. In comparing the first quarter of 2006 to the first quarter of 2005, the average cost of funds increased 95 basis points.

Non-GAAP Presentations: Management uses certain non-GAAP ratios to evaluate and measure the Company’s performance. Management presents 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 non-interest expense by the sum of net interest income on a tax equivalent basis and adjusted non-interest income. Management believes this measure provides investors with information regarding the Company’s operating efficiency and how management evaluates performance internally. The tables provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

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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, including the Company’s Form 10-K for 2005.

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Financial Highlights (unaudited)

In thousands, except share data

	Quarter Ended						Year ended
	March 31,						December 31,
	2006			2005			2005
Summary Income Statement:
Net interest income	$	18,135		$	17,632		$	73,999
Provision for loan losses	444			(37		)	353
Noninterest income	7,075			6,472			28,149
Noninterest expense	16,148			14,999			60,500
Income taxes	2,513			2,953			13,612
Net income	6,105			6,189			27,683
Key Ratios (annualized):
Return on average assets	1.06		%	1.17		%	1.24		%
Return on average equity	15.92		%	18.20		%	19.11		%
Net interest margin (tax equivalent)	3.49		%	3.67		%	3.64		%
Efficiency ratio	62.28		%	60.59		%	57.73		%
Tangible capital to assets	6.53		%	6.14		%	6.33		%
Total capital to risk weighted assets	11.02		%	10.93		%	10.91		%
Tier 1 capital to risk weighted assets	10.18		%	10.02		%	10.08		%
Tier 1 capital to average assets	8.16		%	7.90		%	8.02		%
Per Share Data:
Basic earnings per share	$	0.45		$	0.46		$	2.05
Diluted earnings per share	$	0.45		$	0.46		$	2.03
Dividends declared per share	$	0.13		$	0.12		$	0.51
Book value per share	$	11.56		$	10.21		$	11.26
Tangible book value per share	$	11.38		$	10.01		$	11.08
Ending number of shares outstanding	13,559,075			13,496,111			13,520,073
Average number of shares outstanding	13,529,648			13,452,126			13,486,598
Diluted average shares outstanding	13,688,242			13,594,802			13,661,024
End of Period Balances:
Loans	$	1,739,046		$	1,590,038		$	1,704,382
Deposits	2,004,479			1,836,579			1,935,278
Stockholders’ equity	156,682			137,788			152,262
Total earning assets	2,213,129			2,081,314			2,194,733
Total assets	2,364,399			2,201,595			2,367,830
Average Balances:
Loans	$	1,708,967		$	1,547,515		$	1,617,557
Deposits	1,975,711			1,830,925			1,883,351
Stockholders’ equity	155,477			137,898			144,843
Total earning assets	2,189,911			2,019,257			2,107,496
Total assets	2,344,939			2,142,454			2,239,334

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	Quarter Ended						Year ended
	March 31,						December 31,
	2006			2005			2005
Asset Quality
Nonaccrual loans	$	3,802		$	4,936		$	3,845
Restructured loans	—			—			—
Loans past due 90 days	3,194			1,557			2,752
Nonperforming loans	6,996			6,493			6,597
Other real estate	251			—			251
Nonperforming assets	7,247			6,493			6,848
Charge-offs	46			353			1,049
Recoveries	164			309			530
Net charge-offs (recoveries)	(118		)	44			519
Provision for loan losses	444			(37		)	353
Allowance for loan losses to loans	0.91		%	0.97		%	0.90		%
Major Classifications of Loans
Commercial and industrial	$	164,329		$	178,100		$	168,314
Real estate - commercial	634,974			548,297			590,328
Real estate - construction	342,786			295,828			361,859
Real estate - residential	566,874			526,142			550,823
Installment	32,141			44,184			35,236
	1,741,104			1,592,551			1,706,560
Unearned origination fees	(2,058		)	(2,513		)	(2,178		)
	$	1,739,046		$	1,590,038		$	1,704,382
Major Classifications of Deposits
Noninterest bearing	$	249,324		$	243,760		$	264,124
Savings	123,816			128,276			117,849
NOW accounts	240,164			232,344			244,727
Money market accounts	405,841			431,051			432,452
Certificates of deposits of less than $100,000	608,238			523,341			554,618
Certificates of deposits of $100,000 or more	377,096			277,807			321,508
	$	2,004,479		$	1,836,579		$	1,935,278

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Old Second Bancorp, Inc.

Consolidated Balance Sheets

(In thousands)

	March 31,			December 31,
	2006			2005
Assets
Cash and due from banks	$	46,116		$	65,010
Interest bearing deposits with banks	115			105
Cash and cash equivalents	46,231			65,115
Securities available for sale	463,151			478,849
Loans held for sale	10,817			11,397
Loans	1,739,046			1,704,382
Allowance for loan losses	15,891			15,329
Net loans	1,723,155			1,689,053
Premises and equipment, net	43,368			42,485
Other real estate owned	251			251
Mortgage servicing rights, net	2,458			2,271
Goodwill, net	2,130			2,130
Core deposit intangible assets, net	266			355
Bank owned life insurance	42,099			41,627
Accrued interest and other assets	30,473			34,297
Total assets	$	2,364,399		$	2,367,830
Liabilities
Deposits:
Demand	$	249,324		$	264,124
Savings, NOW, and money market	769,821			795,028
Time	985,334			876,126
Total deposits	2,004,479			1,935,278
Securities sold under repurchase agreements	45,180			57,625
Other short-term borrowings	105,433			171,825
Junior subordinated debentures	31,625			31,625
Notes payable	3,200			3,200
Accrued interest and other liabilities	17,800			16,015
Total liabilities	2,207,717			2,215,568
Stockholders’ Equity
Common stock	16,631			16,592
Additional paid-in capital	14,605			13,746
Retained earnings	181,167			176,824
Accumulated other comprehensive loss	(5,383		)	(4,562		)
Treasury stock	(50,338		)	(50,338		)
Total stockholders’ equity	156,682			152,262
Total liabilities and stockholders’ equity	$	2,364,399		$	2,367,830

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Old Second Bancorp, Inc.

Consolidated Statements of Income

(In thousands, except share data)

	(unaudited)
	Three Months Ended							Year ended
	March 31,							December 31,
	2006			2005				2005
Interest and Dividend Income
Loans, including fees	$	28,977		$	23,014			$	102,649
Loans held for sale	95			173				690
Securities:
Taxable	3,184			2,750				12,064
Tax-exempt	1,232			1,124				4,810
Federal funds sold	3			—				7
Interest bearing deposits	1			—				3
Total interest and dividend income	33,492			27,061				120,223
Interest Expense
Savings, NOW, and money market deposits	3,678			2,279				11,988
Time deposits	9,129			5,690				26,052
Repurchase agreements	487			211				1,303
Other short-term borrowings	1,402			609				4,308
Junior subordinated debentures	617			617				2,448
Notes payable	44			23				125
Total interest expense	15,357			9,429				46,224
Net interest income	18,135			17,632				73,999
Provision for loan losses	444			(37			)	353
Net interest income after provision for loan losses	17,691			17,669				73,646
Noninterest Income
Trust income	1,734			1,649				6,644
Service charges on deposits	1,956			1,800				8,291
Gain on sale of loans	971			1,378				5,535
Secondary mortgage fees	153			184				973
Mortgage servicing income	98			16				196
Securities gains (losses), net	227			(4			)	(14			)
Bank owned life insurance	472			219				957
Other income	1,464			1,230				5,567
Total noninterest income	7,075			6,472				28,149
Noninterest Expense
Salaries and employee benefits	9,531			9,120				35,645
Occupancy expense, net	1,092			611				3,695
Furniture and equipment expense	1,282			1,266				5,066
Amortization of core deposit intangible assets	89			89				355
Advertising expense	464			380				1,719
Other expense	3,690			3,533				14,020
Total noninterest expense	16,148			14,999				60,500
Income before income taxes	8,618			9,142				41,295
Provision for income taxes	2,513			2,953				13,612
Net income	$		6,105	$		6,189		$		27,683
Basic earnings per share	$	0.45		$	0.46			$	2.05
Diluted earnings per share	$	0.45		$	0.46			$	2.03

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ANALYSIS OF AVERAGE BALANCES,

TAX EQUIVALENT INTEREST AND RATES

Quarters ended March 31, 2006 and 2005

(Dollar amounts in thousands- unaudited)

	2006							2005
	Average							Average
	Balance			Interest		Rate		Balance			Interest		Rate
Assets
Interest bearing deposits with banks	$	1,411		$	1	0.29	%	$	890		$	—	0.00	%
Federal funds sold	267			3		4.56		—			—		—
Securities:
Taxable	332,004			3,184		3.89		329,272			2,750		3.39
Non-taxable (tax equivalent)	140,375			1,895		5.47		129,053			1,729		5.43
Total securities	472,379			5,079		4.36		458,325			4,479		3.96
Loans and loans held for sale	1,715,854			29,129		6.88		1,560,042			23,234		6.04
Total interest earning assets	2,189,911			34,212		6.34		2,019,257			27,713		5.57
Cash and due from banks	51,619			—		—		54,077			—		—
Allowance for loan losses	(15,617		)	—		—		(15,471		)	—		—
Other noninterest-bearing assets	119,026			—		—		84,591			—		—
Total assets	$	2,344,939						$	2,142,454
Liabilities and Stockholders’ Equity
Interest bearing transaction accounts	$	654,556		3,541		2.19		$	662,322		2,167		1.33
Savings accounts	118,792			137		0.47		124,718			112		0.36
Time deposits	952,228			9,129		3.89		799,521			5,690		2.89
Interest bearing deposits	1,725,576			12,807		3.01		1,586,561			7,969		2.04
Repurchase agreements	51,376			487		3.84		39,639			211		2.16
Other short-term borrowing	113,373			1,402		5.02		85,250			609		2.90
Junior subordinated debentures	31,625			617		7.91		31,625			617		7.91
Notes payable	3,200			44		5.58		2,700			23		3.45
Total interest bearing liabilities	1,925,150			15,357		3.24		1,745,775			9,429		2.19
Noninterest bearing deposits	250,135			—		—		244,364			—		—
Accrued interest and other liabilities	14,177			—		—		14,417			—		—
Stockholders’ equity	155,477			—		—		137,898			—		—
Total liabilities and stockholders’ equity	$	2,344,939						$	2,142,454
Net interest income (tax equivalent)				$	18,855						$	18,284
Net interest income (tax equivalent) to total earning assets						3.49	%						3.67	%
Interest bearing liabilities to earnings assets	87.91		%					86.46		%

Notes:	Nonaccrual loans are included in the above stated average balances.
	Tax equivalent basis is calculated using a marginal tax rate of 35%.

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

	Three Months Ended						Year Ended
	March 31,						December 31,
	2006			2005			2005
Net Interest Margin
Interest income (GAAP)	$	33,492		$	27,061		$	120,223
Taxable-equivalent adjustment:
Loans	$	57		$	48		$	214
Investments	$	663		$	605		$	2,588
Interest income - FTE	$	34,212		$	27,714		$	123,025
Interest expense (GAAP)	$	15,357		$	9,429		$	46,224
Net interest income - FTE	$	18,855		$	18,285		$	76,801
Net interest income - (GAAP)	$	18,135		$	17,632		$	73,999
Average interest earning assets	$	2,189,911		$	2,019,257		$	2,107,496
Net interest margin (GAAP)	3.36		%	3.54		%	3.51		%
Net interest margin - FTE	3.49		%	3.67		%	3.64		%
Efficiency Ratio
Noninterest expense	$	16,148		$	14,998		$	60,696
Noninterest income	7,075			6,471			28,345
Net interest income (GAAP)	18,135			17,632			73,999
Taxable-equivalent adjustment:
Loans	57			48			214
Investments	663			605			2,588
Net interest income - FTE	18,855			18,285			76,801
Noninterest income plus net interest income - FTE	25,930			24,756			105,146
Efficiency ratio	62.28		%	60.58		%	57.73		%

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