Exhibit 99.1
Old Second Bancorp, Inc. | For Immediate Release |
(Nasdaq: OSBC) | July 21, 2006 |
Contact: | J. Douglas Cheatham |
| Chief Financial Officer |
| (630) 906-5484 |
Old Second Bancorp, Inc. Announces Second Quarter Earnings
AURORA, Illinois — Old Second Bancorp, Inc. (Nasdaq: OSBC) today announced second quarter earnings of $0.46 per diluted share, on earnings of $6.4 million. Diluted earnings per share were up one cent from the first quarter of 2006, on an increase in net income of $261,000. However, earnings were down from the second quarter of 2005, in which the company earned 48 cents per diluted share on net income of $6.6 million. Earnings for the first half of 2006 were 91 cents per diluted share, on $12.5 million in net income, compared with 94 cents per diluted share in the first half of 2005, on earnings of $12.8 million. Generally, for the year to date period, balance sheet growth and an increase in noninterest income have been offset by a lower net interest margin, higher provision for loan losses, and a decline in mortgage banking activity.
Net interest income increased slightly in the first half of 2006, to $36.2 million in 2006, from $36.1 million in 2005. Second quarter net interest income declined from $18.5 million in 2005, to $18.1 million in 2006. For both the quarter and year to date periods, growth in earning assets was offset by a lower net interest margin. Average earning assets grew $152.0 million, or 7.4% from the first half of 2005 to the first half of 2006. At the same time, the net interest margin declined from 3.68% in the first half of 2005 to 3.44% in the first half of 2006.
The average tax-equivalent yield on earning assets increased from 5.65% to 6.42%, or 77 basis points, from the first half of 2005 to the first half of 2006. At the same time, the cost of interest-bearing and noninterest-bearing funds increased from 2.29% to 3.39%, or 110 basis points. Changes in funding composition had a significant impact on the net interest margin. Among lower-cost sources of funds, the average balance of interest-bearing transaction accounts and savings accounts declined from the first half of 2005 to the first half of 2006, and noninterest-bearing deposits increased slightly. At the same time, higher-cost sources of funds, including time deposits, repurchase agreements, and short-term borrowing increased $226.4 million, or 24.4%, in the aggregate.
The Company provided an additional $400,000 to the allowance for loan losses in the second quarter of 2006, unchanged from the second quarter of 2005. The Company provided $844,000 in the first half of 2006, compared with $363,000 in the first half of 2005, an increase of $481,000. While the quality of the loan portfolio remained strong and charge-offs were low, after analyzing the allowance for loan losses, management has determined that the level reported as of June 30, 2006, was appropriate. In making this determination, both quantitative and qualitative factors are considered. Management’s growing concern with the commercial real estate market and the large concentration held by the Company contributed to the increase in the allowance for loan losses in spite of decline in nonperforming loans. The ratio of the allowance for loan losses to nonperforming loans was 410% as of June 30, 2006, compared with 245% as of June 30, 2005. Nonperforming loans were $3.9 million as of June 30, 2006, and $6.3 million as of June 30, 2005. Net charge-offs were $198,000 in the second quarter of 2006 and $289,000 in the
second quarter of 2005. For the year to date, net charge-offs were $80,000 in the first half of 2006 and $333,000 in the first half of 2005.
Noninterest income was $7.4 million during the second quarter of 2006 and $7.1 million during the second quarter of 2005, an increase of $260,000, or 3.7%. This increase occurred despite mortgage banking income, including gains on sales of mortgage loans, secondary market fees, and servicing income, declining $560,000, or 31.6%, from the second quarter of 2005 to the second quarter of 2006. For the year to date, mortgage banking income was down $916,000, or 27.4%, from the first half of 2005 to the first half of 2006. The higher cost of borrowing associated with an increase in interest rates has resulted in a decline in demand for mortgages and a decline in mortgage banking income.
Trust income was up $424,000, or 26.0%, from the second quarter of 2005 to the second quarter of 2006, to $2.1 million. Trust income was $3.8 million in the first six months of 2006, an increase of $509,000, or 15.5%, from the first half of 2005. Increases in trust income for both the quarter and the year to date period were primarily associated with estate fees. Securities gains were $191,000 in the second quarter of 2006 and $418,000 in the first half of 2006, compared with a $1,000 loss in the second quarter of 2005 and a loss of $5,000 in the first half of 2005. Bank owned life insurance (“BOLI”) income increased from $215,000 to $489,000 in the second quarter, and from $434,000 to $961,000 for the first half, when comparing 2006 and 2005, as a result of BOLI purchases.
Noninterest expense was $15.6 million during the second quarter of 2006, an increase of $237,000, or 1.5%, from $15.4 million in the second quarter of 2005. Noninterest expense was $31.8 million during the first half of 2006, an increase of $1,386,000, or 4.6%, from $30.4 million in the first half of 2005. Salaries and benefits expense was $8.9 million during the second quarter of 2006, a decrease of $54,000 from $9.0 million in the second quarter of 2005. In the first half of the year, salaries and benefits were $18.5 million in 2006 and $18.1 million in 2005, an increase of $357,000, or 2.0%.
Pension expense, included in salaries and benefits, was $981,000 in the first half of 2005 and $357,000 in the first half of 2006. The Company is in the process of distributing the assets of its defined benefit pension plan after terminating the plan in December of 2005. The liabilities are expected to exceed assets at the time of distribution of all benefits by approximately $1.1 million. A contribution of the shortfall amount is required to be made before the defined benefit plan is liquidated, which is anticipated to be in the third quarter of 2006.
Net occupancy and furniture and equipment expenses increased $190,000 from the second quarter of 2005 to the second quarter of 2006, or 8.8%. Net occupancy and furniture and equipment expenses increased $687,000 from the first half of 2005 to the first half of 2006, or 17.0%. The increase in the year to date period is due, in part, to a reduction in the estimated accrual for occupancy related expenses in the first half 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. Other expense increased $48,000, or 1.3%, from the second quarter of 2005, to $3.8 million in the second quarter of 2006. Other expenses increased $204,000, or 2.8% from the first half of 2005 to $7.5 million in the first half of 2006.
Total assets were $2.42 billion as of June 30, 2006, compared with $2.37 billion as of December 31, 2005. Loans grew $42.2 million during the first half of 2006, while securities available for
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sale declined $7.1 million. Commercial and residential real estate increased $31.4 million (5.3%) and $22.7 million (4.1%), respectively, in the first half of 2006. Construction loans declined 1.6% to $356.0 million as of June 30, 2006.
Total deposits increased $72.7 million during the first half of 2006. Noninterest-bearing deposits decreased $8.2 million, to $255.9 million. Savings deposits decreased $1.2 million, from $117.8 million to $116.6 million. Time deposits increased $73.8 million, or 8.4%, from $876.1 million to $949.9 million. Money market accounts declined from $432.5 million to $399.3 million in the first half of 2006. Generally, depositors shifted from transaction accounts to certificates of deposits in the first half of 2006 as a result of the rising interest rate environment. 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.
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.
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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