SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act
of 1934 (Fee Required)
For the fiscal year ended December 31, 1995
or
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act
of 1934 (No Fee Required)
For the Transition Period From __________ to __________.
Commission file number 0-10537
Old Second Bancorp, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 36-3143493
(State of Incorporation) (I.R.S. Employer I.D. No.)
37 South River Street, Aurora, Illinois 60507
(Address of principal executive offices) (Zip Code)
(708) 892-0202
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Yes
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Yes X No
State the aggregate market value of the voting stock held by non-affiliates
of the Registrant. The aggregate market value shall be computed by
reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within 60 days prior to
the date of filing:
$108,107,590 as of March 21, 1996
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
2,350,165 shares of no par value common stock at March 21, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the December 31, 1995 Annual Report to Stockholders and the
Registrant's Proxy Statement dated February 9, 1996, have been incorporated
by reference in Parts I, II and III of the Annual Report on Form 10-K, to
the extent indicated herein.
Index to Exhibits is in Part IV on pages 19 and 20.
This Form 10-K consists of 79 pages.
Page 1
<PAGE>
Part I
Item 1. Business
OLD SECOND BANCORP, INC.
Old Second Bancorp, Inc. ("Bancorp") was organized on
September 8, 1981 by the directors of The Old Second National Bank of
Aurora ("Old Second"). Bancorp was incorporated under the laws of the
State of Delaware on September 18, 1981.
Bancorp is a multi-bank holding company which at December 31, 1995,
had seven subsidiary banks, as follows: The Old Second National Bank of
Aurora, The Old Second Community Bank of North Aurora, The Old Second
Community Bank of Aurora, The Yorkville National Bank, Burlington Bank,
Kane County Bank and Trust and Bank of Sugar Grove.
The directors of Bancorp are the same as the directors of Old Second.
The directors receive no fees for Bancorp meetings. Bancorp has no
salaried employees. The officers of Bancorp are also officers of Old
Second.
Bancorp derives its income principally through the lending and
investing activities of its subsidiaries.
EXECUTIVE OFFICERS OF THE REGISTRANT
Shown below are the names and ages of the executive officers of
Bancorp with an indication of all positions and offices held with
Bancorp:
<TABLE>
<CAPTION>
Old Second Bancorp,
Name Age Inc. Offices (1)
<S> <C> <C>
James E. Benson 65 Chairman, Chief Executive
Officer, and Director
R. J. Carlson 60 President, Chief Operating
Officer, Chief Financial
Officer, Secretary and
Director
William B. Skoglund 45 Vice President, Assistant
Secretary and Director
George Starmann III 52 Vice President and
Director
<FN>
<F1>
(1) Offices with Bancorp have been held since the formation of Bancorp in
1981, with the following exceptions: James E. Benson was appointed
Chairman in 1992. R. J. Carlson was appointed Chief Operating Officer
in 1995, promoted from Vice-President to President in 1992 and elected
to the Board of Directors in January of 1987. William B. Skoglund
was appointed as an Officer and elected as a Director in March of 1992.
George Starmann III was appointed as Vice-President in 1994 and elected as
a Director in March 1995. Officers are appointed annually by the Board of
Directors.
</FN>
Page 2
<PAGE>
OLD SECOND BANCORP SUBSIDIARIES
The Old Second National Bank of Aurora is located at 37 South River
Street, Aurora, Illinois. The Old Second is the successor to a bank that
was founded in 1871, and is incorporated under the laws of the United
States. Old Second offers complete banking and trust services for retail,
commercial, industrial, and public entity customers in Aurora and the
surrounding area. Services include loans to all customer segments,
checking, savings and time deposits; lock box service and safe deposit
boxes; trust and other fiduciary services to commercial customers and
individuals and other customer services. Non-FDIC insured mutual funds,
stocks, bonds, securities and annuities are provided by Elan Investment
Services, Inc., a registered broker/dealer and member of NASD and SIPC. Old
Second has two offsite Automated Teller Machines, and its customers can use
certain other financial institutions' offsite teller machines to complete
deposit, withdrawal, transfer, and other banking transactions. Old Second
is subject to vigorous competition from other banks and many savings and
loan associations, as well as credit unions and other financial
institutions. Within the Aurora banking market, which is approximated by
the southern two-thirds of Kane County and the northern one-third of
Kendall County, there are in excess of 20 other banks.
In December of 1986, Old Second National Bank opened a full-service
banking facility at the corner of Wilson Street and Randall Road in
Batavia, Illinois. In July of 1991, the Fox Valley Center branch was opened
at 4080 Fox Valley Center Drive, Aurora, Illinois. A third branch was opened
at 555 Redwood Drive, Aurora, Illinois on January 4, 1993. In 1995, a
new trust office was opened at 321 James Street in Geneva. Old Second also
leased space in 1995 from Kane County Bank located at 111 North Main Street
in Elburn, Illinois and assumed that bank's trust operations under the Old
Second name.
At December 31, 1995, Old Second had 196 full-time employees,
including 51 officers, and 68 part-time employees.
The Old Second Community Bank of North Aurora is located at 200 West
John Street in the Village of North Aurora. The Old Second Community Bank
of Aurora is located at 1350 North Farnsworth Avenue, Aurora, Illinois.
Yorkville National Bank is located at 102 E. Van Emmon Street, Yorkville,
Illinois. In September of 1988, Yorkville National Bank opened a Teller
Facility in the Countryside Shopping Center at the corner of Routes 34 and
47 in Yorkville, Illinois. Burlington Bank was acquired and is located
at 194 S. Main Street, Burlington, Illinois. Kane County Bank and Trust
Company is located at 122 North Main Street, Elburn, Illinois. Kane County
Bank and Trust Company has a branch facility located at 40W422 Route 64 in
Wasco, Illinois. In June of 1995, Bank of Sugar Grove was acquired and is
located at Cross Street at Illinois Route 47, Sugar Grove, Illinois.
Page 3
<PAGE>
These Banks offer banking services for retail, commercial, industrial,
and public entity customers in the Aurora, North Aurora, Yorkville,
Burlington, Elburn, Wasco and Sugar Grove communities and surrounding
areas. Services include loans to all customer segments, checking, savings
and time deposits, and other customer services. With the exception of
Yorkville's main banking facility, these Banks have onsite 24 hour
Automated Teller Machines where as Yorkville has one offsite Automated Teller
Machine. Their customers can use certain other financial institutions'
offsite teller machines to complete deposit, withdrawal, transfer, and other
banking transactions as well.
The banks are subject to vigorous competition from other banks and
many savings and loan associations, as well as credit unions and other
financial institutions in the area. Within the Yorkville National Bank
banking market, which is approximated by the southern one-third of Kane and
all of Kendall County, there are approximately 10 other banks or banking
facilities and several savings and loan associations.
At December 31, 1995, The Old Second Community Bank of North Aurora
had 23 employees, and The Old Second Community Bank of Aurora had
24 employees. The Yorkville National Bank had 44 employees,
Burlington Bank had 13 employees, Kane County Bank and Trust had 24
employees and Bank of Sugar Grove had 24 employees.
The only industry segment in which Bancorp and its subsidiaries are
engaged is banking, and there are no foreign operations.
Page 4
<PAGE>
ADDITIONAL STATISTICAL INFORMATION - OLD SECOND BANCORP, INC.
The following table presents additional statistical information about
Bancorp and its subsidiary banks, their operations and financial condition.
Unless otherwise indicated, all tables have been restated to reflect the
acquisition of Bank of Sugar Grove which was accounted for as a
pooling-of-interests.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
AVERAGE BALANCE SHEETS
The condensed consolidated averages of Bancorp and its subsidiary
banks for the periods indicated are presented below, in thousands of
dollars:
</TABLE>
<TABLE>
<CAPTION>
Years Ended
December 31,
1995 1994 1993
---- ---- ----
ASSETS
<S> <C> <C> <C>
Cash and due from banks $ 31,413 $ 33,903 $ 30,593
Interest bearing deposits
with banks 477 1,036 2,000
Federal funds sold 36,893 29,779 26,684
------- ------- -------
Total Cash and Cash
Equivalents 68,783 64,718 59,277
Investment Securities:
Taxable 187,494 182,437 169,367
Non Taxable 70,345 67,423 62,473
Loans, net 369,765 336,886 315,705
Bank Premises and Equipment, net 14,160 14,262 14,568
Other assets 12,217 13,526 14,151
------- ------- -------
Total Assets $722,764 $679,252 $635,541
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $ 91,889 $ 90,119 $ 81,279
Savings 265,632 274,214 255,033
Time 284,563 240,842 227,782
------- ------- -------
Total Deposits 642,084 605,175 564,094
Securities sold under agreement
to repurchase 3,688 1,705 1,002
Notes payable 48 585 3,377
Other short - term borrowings 3,041 3,069 3,236
Other liabilities 5,141 4,135 4,591
------- ------- -------
Total Liabilities 654,002 614,669 576,300
Stockholders' Equity 68,762 64,583 59,241
------- ------- -------
Total Liabilities and
Stockholders' Equity $722,764 $679,252 $635,541
======= ======= =======
</TABLE>
The average balance sheets were calculated using daily averages.
Page 5
<PAGE>
Analysis of Net Interest Earnings
The following table shows information regarding average interest-earning
assets and interest-bearing liabilities, by categories and the related
interest income or expense for the periods indicated, in thousands of
dollars:
<TABLE>
<CAPTION>
Years Ended
December 31,
AVERAGE BALANCES 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Interest-earning assets:
- -----------------------
Interest-bearing deposits
with banks $ 477 $ 1,036 $ 2,000
Investment Securities:
Taxable 187,494 182,437 169,367
Non Taxable 70,345 67,423 62,473
Federal funds sold 36,893 29,779 26,684
Loans, net: 369,765 336,886 315,705
------- ------- -------
Total interest-earning
assets $664,974 $617,561 $576,229
======= ======= =======
Interest-bearing liabilities:
- ----------------------------
Savings deposits $265,632 $274,214 $255,033
Time deposits 284,563 240,842 227,782
Securities sold under
agreement to repurchase 3,688 1,705 1,002
Notes payable 48 585 3,377
Other 3,041 3,069 3,236
------- ------- -------
Total interest-bearing
liabilities $556,972 $520,415 $490,430
======= ======= =======
Interest earned on earning assets:
- ---------------------------------
Interest-bearing deposits
with banks $ 22 $ 37 $ 65
Investment Securities:
Taxable 12,161 11,611 11,169
Non Taxable 4,013 3,788 3,908
Federal funds sold 2,131 1,234 794
Loans, net 34,239 28,740 27,553
------ ------ ------
Total interest earned
on earning assets $ 52,566 $ 45,410 $ 43,489
====== ====== ======
Interest paid on liabilities:
- ----------------------------
Savings deposits $ 7,753 $ 7,061 $ 7,207
Time deposits 15,980 11,097 10,610
Securities sold under
agreement to repurchase 142 49 32
Notes payable 4 47 272
Other 190 125 103
------- ------ ------
Total interest paid on
interest-bearing liabilities $ 24,069 $ 18,379 $ 18,224
======= ====== ======
</TABLE>
Page 6
<PAGE>
Average Yields, Average Rates and Net Yields
The following table shows average yields and average rates, by
type of asset or liability and in total, for the periods indicated
as well as the yield on earning assets:
<TABLE>
<CAPTION>
Years Ended
December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Average rates earned:
- --------------------
Interest-bearing deposits
with banks 4.59% 3.57% 3.25%
Investment Securities:
Taxable 6.49 6.36 6.59
Non Taxable * 5.70 5.62 6.26
Federal funds sold 5.78 4.14 2.98
Loans, net ** 9.26 8.53 8.73
---- ---- ----
Average Yield on earning assets* 7.90% 7.35% 7.55%
==== ==== ====
Average rates paid:
- ------------------
Savings deposits 2.92 2.57 2.83
Time deposits 5.62 4.61 4.66
Securities sold under
agreement to repurchase 3.84 2.87 3.19
Notes payable 8.75 8.03 8.05
Other 6.26 4.07 3.18
---- ---- ----
Average rate paid on interest-
bearing liabilities 4.32% 3.53% 3.72%
==== ==== ====
Net yield on interest-earning
assets* 4.29% 4.38% 4.38%
==== ==== ====
<FN>
* Interest income and yield on tax-exempt securities are not
reflected in the tables on a tax-equivalent basis. Net yield on
interest-earning assets is net interest divided by total average
interest-earning assets.
** Principal balances on nonaccruing loans, if any, are included in
net loans on the average balance sheets. There were no out-of-
period adjustments or foreign activities for any reportable
period.
</FN>
</TABLE>
Loan fees included in the above interest income computations are as
follows, in thousands:
<TABLE>
<CAPTION>
Years ended December 31,
<C> <C>
1995 $648
1994 $600
1993 $665
</TABLE>
Page 7
<PAGE>
Changes in Interest Income and Expense
The following table shows the dollar amount of changes in interest income
and expense, by major categories of assets and liabilities, attributable
to changes in volume or rate or both, for the periods indicated, in
thousands of dollars:
<TABLE>
<CAPTION>
1995 Compared to 1994
Increase (Decrease) Due To
--------------------------
Volume (1) Rate (1) Net
--------- ------- ---
<S> <C> <C> <C>
Interest income:
Interest-bearing deposits
with banks $ (26) $ 11 $ (15)
Investment securities:
Taxable 328 222 550
Non Taxable 167 58 225
Federal funds sold 411 486 897
Loans, net 3,044 2,455 5,499
----- ----- -----
Net increase $ 3,924 $ 3,232 $ 7,156
----- ----- -----
Interest expense:
Savings deposits $ (250) $ 942 $ 692
Time deposits 2,455 2,428 4,883
Securities sold under agreement
to repurchase 76 17 93
Notes Payable (45) 2 (43)
Other (2) 67 65
----- ----- -----
Net increase $ 2,234 $ 3,456 $ 5,690
----- ----- -----
Increase (decrease)
in net interest margin $ 1,690 $( 224) $ 1,466
----- ----- -----
</TABLE>
<TABLE>
<CAPTION>
1994 Compared to 1993
Increase (Decrease) Due To
--------------------------
Volume (1) Rate (1) Net
--------- ------- ---
<S> <C> <C> <C>
Interest income:
Interest-bearing deposits
with banks $ (34) $ 6 $ ( 28)
Investment securities:
Taxable 840 (398) 442
Non Taxable 276 (396) (120)
Federal funds sold 128 312 440
Loans, net 1,804 (617) 1,187
----- ----- -----
Net increase (decrease) $ 3,014 $(1,093) $ 1,921
----- ----- -----
Interest expense:
Savings deposits $ 494 $ (640) $ (146)
Time deposits 609 (122) 487
Securities sold under agreement
to repurchase 20 (3) 17
Notes Payable (218) (7) (225)
Other (7) 29 22
----- ----- -----
Net increase (decrease) $ 898 $ (743) $ 155
----- ----- -----
Increase (decrease)
in net interest margin $ 2,116 $ (350) $ 1,766
----- ----- -----
</TABLE>
1) The change in interest due to both rate and volume has been allocated
to change due to volume and change due to rate in proportion to the
the relationship of the absolute dollar amounts of the change in each.
Page 8
<PAGE>
Interest Rate Repricing Gaps
The management of interest rate sensitivity is accomplished by monitoring the
maturities and repricing opportunities of interest-earning assets and
interest-bearing liabilities. Amounts are positioned into rate maturity
periods based upon contractual or historical experience of frequency of
repricing the respective assets and liabilities. The following table
summarizes the interest rate repricing gaps for selected maturity periods as
of December 31, 1995:
<TABLE>
<CAPTION>
OLD SECOND BANCORP, INC.
(In thousands) Rate Maturity Period
--------------------
0-90 91-180 181-365 Over 1
Days Days Days Year Total
------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
- -----------------------
Interest-earning
deposits $ 400 $ 400
Federal funds sold 42,800 42,800
Investment securities
at amortized cost 30,740 $ 14,943 $ 24,697 $181,054 251,434
Loans, net 151,045 26,561 45,998 169,723 393,327
------- ------- ------- ------- -------
Total interest-earning
assets $224,985 $ 41,504 $ 70,695 $350,777 $687,961
------- ------- ------- ------- -------
INTEREST-BEARING
- ----------------
LIABILITIES:
- -----------
Money market, savings
and NOW accounts $166,287 $105,482 $271,769
Time deposits 83,887 $ 48,791 $ 54,813 109,862 297,353
Other borrowed funds 9,179 9,179
------- ------- ------- ------- -------
Total interest-
bearing liabilities $259,353 $ 48,791 $ 54,813 $215,344 $578,301
------- ------- ------- ------- -------
Period gap $(34,368) $ (7,287) $ 15,882 $135,433
------- ------- ------- -------
Cumulative gap $(34,368) $(41,655) $(25,773) $109,660
------- ------- ------- -------
</TABLE>
Total interest-earning assets exceeded interest-bearing liabilities by
$109,660,000 at December 31, 1995. This difference was funded through
noninterest-bearing liabilities and stockholders' equity. The above table
shows that total interest-bearing liabilities maturing or repricing within
one year exceed interest-earning assets maturing or repricing by
$25,773,000. Theoretically, in a period of rising interest rates, it is
preferable to have a positive gap (interest-earning assets in excess of
interest-bearing liabilities) because more interest-earning assets should
mature or reprice within a given time period than interest-bearing
liabilities to increase interest income in excess of the increase in interest
expense. Conversely, theoretically, in a period of declining interest rates,
it is preferable to be in a negative gap position (interest-bearing
liabilities in excess of interest-earning assets) because more interest-
bearing liabilities should mature or reprice to lower interest expense in
excess of the decline in interest income. Because assets and liabilities do
not reprice in exactly the same manner as interest levels change, the above
table should not be viewed as a sole indicator of how the Bancorp will be
affected by changes in interest rates.
Page 9
<PAGE>
INVESTMENT PORTFOLIO
The required information for book value and maturities of investment
securities appears in Note D on page 14 and 15 of the Annual Report to
Stockholders and is incorporated by reference in this Annual Report on Form
10-K.
Weighted Average Yield of Investment Securities
The weighted average yield for each range of maturities of available-
for-sale securities is shown below as of December 31, 1995:
<TABLE>
<CAPTION>
Maturing
------------------------------------------
Within From 1 To From 5 To After
1 Year 5 Years 10 Years 10 Years
<S> <C> <C> <C> <C>
U.S. Treasury and
U.S. Government
Agency Obligations 6.86% 6.41% 6.97% 6.61%
State & Political
Subdivisions 6.80 6.15 5.46 5.96
Mortgage Backed
Obligations 5.61 5.56
Other 8.05
</TABLE>
Note: Yields on tax-exempt obligations are not computed on a tax
equivalent basis.
Page 10
<PAGE>
LOAN PORTFOLIO
Classification of Loans
The following table shows the classification of loans in thousands of
dollars, on the dates indicated:
<TABLE>
<CAPTION>
December 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial,
financial, and
agricultural $141,480 $126,788 $120,734 $105,284 $ 88,172
Real estate:
Construction 24,783 25,486 21,345 19,284 14,026
Mortgage 189,906 161,270 159,370 155,121 128,402
Installment 43,336 43,475 35,804 37,604 42,525
------- ------- ------- ------- -------
Total $399,505 $357,019 $337,253 $317,293 $273,125
======= ======= ======= ======= =======
</TABLE>
The following table shows the percentage of total loans represented by each
classification of loans on the dates indicated:
<TABLE>
<CAPTION>
December 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial,
financial, and
agricultural 35.4% 35.5% 35.8% 33.2% 32.3%
Real estate:
Construction 6.2 7.1 6.3 6.1 5.1
Mortgage 47.5 45.2 47.3 48.9 47.0
Installment 10.9 12.2 10.6 11.8 15.6
----- ----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
Maturities of Loans and Sensitivity to Changes in Interest Rates
The following table is a summary of maturities of loans by certain
categories at December 31, 1995 in thousands of dollars:
<TABLE>
<CAPTION>
Due after
Due in 1 1 year
year or through Due after
less 5 years 5 years Total
------- ------- -------- -----
<S> <C> <C> <C> <C>
Commercial, financial,
and agricultural $82,659 $47,102 $11,719 $141,480
Real estate construction 17,199 7,584 0 24,783
</TABLE>
Commercial, financial, and agricultural loans due after one year in the
amount of $31,353,000 at December 31, 1995 have floating or adjustable
interest rates. Such loans with fixed rates totaled $27,468,000. Real
estate construction loans due after one year in the amount of $6,316,000
have floating or adjustable interest rates. Such loans with fixed rates
totaled $1,268,000. Floating or adjustable interest rate loans are those
on which the interest rate can be adjusted to changes in the prime rate or
other rate changes. Fixed rate loans are those on which the interest rate
cannot be changed for the term of the loan.
Page 11
<PAGE>
Risk Elements
Nonaccrual, past due and restructured loans include, respectively,
loans on which no interest is currently being accrued, accruing loans
which are past due 90 days or more as to principal or interest
payments and loans neither in nonaccrual status nor 90 days delinquent
status on which the terms of maturity or interest rate have been
renegotiated to provide a reduction or deferral of interest or
principal payments, due to a deterioration in the financial position
of the borrower. It is management's general policy to discontinue the
accrual of interest on a loan when it is past due 90 days with regard
to either interest or principal payments. At any given date,
Bancorp's subsidiaries may have various loans outstanding, which are
accruing interest, are not contractually past due more than 90 days,
and are not renegotiated, but which, in management's opinion, may not
be repaid according to original terms; these are shown below as
"potential loan problems". Management periodically reviews these
loan accounts and is of the opinion that, although some restructuring
of loan terms may be required, no material loss of principal will occur.
The following is a summary of loans described above at the dates
indicated, in thousands of dollars:
<TABLE>
<CAPTION>
December 31,
-----------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonaccrual, past due and
restructured loans
a) Nonaccrual $3,763 $2,167 $4,428 $3,816 $1,246
b) Past Due 56 521 473 998 1,872
c) Restructured 58 69 86 230 95
Potential Loan Problems(1) 5,198 4,389 2,188 8,969 3,878
<FN>
<F1>
(1)Loans in this category represent those which have been periodically
delinquent as to the payment of principal and interest and are vulnerable
to current adverse economic conditions. The collateral position of
Bancorp's subsidiaries on these loans mitigates the amount of loss exposure
when viewed in their entirety. There were no foreign outstandings or loan
concentrations at the dates indicated. Amounts for Potential Loan Problems
for 1993, 1992, and 1991 have not been restated for the inclusion of Bank of
Sugar Grove.
</FN>
</TABLE>
Following is information regarding interest income for the year ended
December 31, 1995 for domestic loans which are on a nonaccrual basis or
restructured as of December 31, 1995, in thousands of dollars:
Gross interest income that would have been
included in income for 1995 if the loans
had been current in accordance with their
original terms $250
Gross interest income included in income on
these loans for 1995 $102
Page 12
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE
Loan loss experience for the indicated periods in thousands of dollars is
summarized as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Average loans net of $375,459 $341,739 $319,949 $304,247 $269,821
unearned income ======= ======= ======= ======= =======
Allowance for possible loan
losses:
Balance at beginning of
period $ 5,753 $ 4,471 $ 4,598 $ 3,802 $ 3,284
Additions (deductions):
Allowance of bank
acquired 0 0 0 441 162
Loans charged- off (751) (633) (2,197) (946) (1,513)
Recoveries 371 1,360 578 581 163
------- ------- ------- ------- -------
Net (charge-offs)
recoveries (380) 727 (1,619) (365) (1,350)
Provision charged to
operating expense 303 555 1,492 720 1,706
------- ------- ------- ------- -------
Balance at end of period $ 5,676 $ 5,753 $ 4,471 $ 4,598 $ 3,802
======= ======= ======= ======= =======
Allowance for possible loan
losses by category:
Commercial, financial and
agricultural $ 3,298 $ 3,368 $ 2,612 $ 2,660 $ 2,200
Real Estate:
Construction 150 150 100 125 100
Mortgage 860 900 713 730 600
Installment 1,183 1,150 870 881 714
Unallocated 185 185 176 202 188
------- ------- ------- ------- -------
Total $ 5,676 $ 5,753 $ 4,471 $ 4,598 $ 3,802
Ratio of net (charge-offs)
recoveries to average loans
outstanding for the period (.10)% .21% (.51)% (.12)% (.50)%
======= ======= ======= ======= =======
Charge-offs:
Commercial, financial and
agricultural $ 454 $ 474 $ 1,577 $ 710 $ 1,082
Real Estate:
Construction 80
Mortgage 134 53 438
Installment 163 106 182 236 351
------- ------- ------- ------- -------
Total charge-offs 751 633 2,197 946 1,513
------- ------- ------- ------- -------
Recoveries:
Commercial, financial and
agricultural 298 726 342 378 76
Real Estate:
Construction 13
Mortgage 1 425 170 124 16
Installment 72 209 66 66 71
------- ------- ------- ------- -------
Total recoveries 371 1,360 578 581 163
------- ------- ------- ------- -------
Net (charge-offs)
recoveries $ (380) $ 727 $(1,619) $ (365) $ (1,350)
======= ======= ======= ======= =======
</TABLE>
The amount of additions to the allowance for possible loan losses charged to
operating expense for the periods indicated was based on a variety of factors,
including actual charge-offs during the year, historical loss experience,
industry guidelines and an evaluation of current and prospective economic
conditions in the market area, and a review of the loans currently
outstanding.
Page 13
<PAGE>
Average Deposits by Classification
The following table sets forth the classification of average
deposits for the indicated periods, in thousands of dollars:
<TABLE>
<CAPTION>
Years Ended
December 31,
------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Demand deposits non-interest $ 91,889 90,119 81,279
bearing
Interest bearing checking 99,066 96,909 80,942
Savings deposits 166,566 177,305 174,091
Time Deposits 284,563 240,842 227,782
------- ------- -------
Total $ 642,084 605,175 564,094
======= ======= =======
</TABLE>
Average Rates Paid on Interest Bearing Deposits
The following table sets forth the rates paid on interest
bearing deposits for the periods indicated:
<TABLE>
<CAPTION>
Years Ended
December 31,
------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Interest bearing checking 2.55% 2.29% 2.66%
Savings deposits 3.14 2.73 2.90
Time deposits 5.62 4.61 4.66
---- ---- ----
Total 4.70% 3.81% 3.90%
===== ===== =====
</TABLE>
Maturities of Time Deposits of $100,000 or more
The following table sets forth the maturity of Time Deposits
of $100,000 or more, in thousands of dollars, at the date indicated:
<TABLE>
<CAPTION>
December 31,
1995
-----------
<S> <C>
Maturing within 3 months $ 29,388
After 3 but within 6 months 8,451
After 6 but within 12 months 6,432
After 12 months 14,774
------
Total $ 59,045
======
</TABLE>
Return on Equity and Assets
The following table presents certain ratios relating to
equity and assets:
<TABLE>
<CAPTION>
Years Ended
December 31,
-----------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Return on total average assets 1.22% 1.07% 1.10%
Return on average stockholders equity 12.83% 11.30% 11.83%
Dividend payout ratio 24.36% 26.42% 24.60%
Average equity to average assets ratio 9.51% 9.51% 9.32%
</TABLE>
<PAGE>
Page 14
Item 2. Properties
Except for certain teller machine locations, Old Second Bancorp
subsidiaries own 13 bank locations. Old Second National Bank leases
space for the Trust office in Geneva. Old Second's main banking office
located at 37 South River Street, Aurora, Illinois has a total
of approximately 82,000 square feet. The original, five story, 30,000
square foot building was built in 1925, and a two story, 24,000 square
foot addition was constructed in 1982. A 28,000 square foot building
adjacent to the main bank is used for a ten lane drive-in bank facility
and banking offices. Parking facilities are provided for approximately
100 cars. Old Second leases to others about 13,700 square feet of
building space and utilizes the remainder for its own operations.
Item 3. Legal Proceedings
In the normal course of business, Old Second Bancorp, Inc. and its
subsidiary Banks are party to several legal proceedings, none of which are
expected to have a materially adverse effect on financial condition.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of stockholders during the fourth
quarter of fiscal 1995.
Page 15
<PAGE>
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The Common Stock of Bancorp, has been traded in the over-the-counter
market on the NASDAQ National Market System under the symbol OSBC since
November 11, 1993. Prior to that date, there was no established public
trading market for Bancorp's Common Stock. However, the stock was quoted on
the over-the-counter market even though there was relatively little trading
activity in the stock. Information regarding the number of stockholders and
market price for Bancorp's Common Stock for 1995 and 1994 appears on page 25
of the Annual Report to Stockholders and is incorporated by reference in this
Annual Report on Form 10-K.
Information regarding dividends declared on the Common Stock of Bancorp is
described in the Capital and Dividends' portion of Management's Discussion on
page 6 of the Annual Report to Stockholders and is incorporated by reference in
this Annual Report on Form 10-K.
Information regarding dividend restrictions regarding Bancorp is
described in Note M on page 19 of the Annual Report to Stockholders and is
incorporated by reference in this Annual Report on Form 10-K.
Item 6. Selected Financial Data
"Selected Consolidated Financial Data" for the five years ended December
31, 1995 appears on page 7 of the Annual Report to Stockholders and is
incorporated by reference in this Annual Report on Form 10-K.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" appears on pages 4 through 6 of the Annual Report to
Stockholders and is incorporated by reference in this Annual Report on Form
10-K.
Item 8. Financial Statements and Supplementary Data
The Consolidated Financial Statements and Related Notes, and the reports
thereon of Ernst & Young, LLP dated January 17, 1996 and
Coopers & Lybrand L.L.P. dated January 13, 1995, appear on pages 8 through 24
of the Annual Report to Stockholders and are incorporated by reference in this
Annual Report on Form 10-K.
Page 16
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
On February 3, 1995, the Corporation notified its previous independent
accountants, Coopers & Lybrand, L.L.P. ("Coopers & Lybrand") that Coopers &
Lybrand would not be retained as the Company's independent accountants for
the 1995 fiscal year. The decision to change independent accountants was
recommended by the Corporation's Audit Committee and approved by the
Board of Directors.
Coopers & Lybrand's report on the Corporation's financial statements
during the two most recent fiscal years in which Coopers & Lybrand was
retained contained no adverse opinion or a disclaimer of opinions, and was
not qualified or modified as to uncertainty, audit scope, or accounting
principles. During those two fiscal years, there were no disagreements
between the Corporation and Coopers & Lybrand on any matters of accounting
principles, financial statement disclosure or auditing scope or procedure.
None of the "reportable events" described under Item 304(a)(1)(v) of
Regulation S-K promulgated under the Securities Exchange Act of 1934
("Regulation S-K") occurred during those two fiscal years. In addition,
during those two fiscal years, the Corporation did not consult Ernst &
Young regarding any of the matters or events set forth in Item 304(a)(2)(i)
and (ii) of Regulation S-K.
Page 17
<PAGE>
Part III
Item 10. Directors and Executive Officers of the Registrant
The required information for directors of the Registrant is shown on pages
5 through 8, under "Election of Directors" in the Registrant's Proxy Statement
and is incorporated by reference in this Annual Report on Form 10-K. The
required information for executive officers of the Registrant is included in
Part I of this Form 10-K.
Item 11. Executive Compensation
The required information for executive compensation of the Registrant is
shown on pages 9 through 15 under "Executive Compensation" in the Registrant's
Proxy Statement and is incorporated by reference in the Annual Report on Form
10-K.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The required information for security ownership of certain beneficial
owners and management of the registrant is shown on pages 3 and 4 under "Voting
Securities and Principal Holders Thereof" in the Registrant's Proxy Statement
and is incorporated by reference in this Annual Report on Form 10-K.
Item 13. Certain Relationships and Related Transactions
The required information for Certain Relationships and Related
Transactions is shown on page 18 in the Registrant's Proxy Statement and is
incorporated by reference in this Annual Report on Form 10-K.
Page 18
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
<TABLE>
<CAPTION>
(a)(1) Financial Statements Reference
Form 10-K Annual Report
Incorporated by reference in Part Annual Report to Stockholders
II, Item 8 of this report: (page) (page)
<C> <C> <C>
Consolidated Balance Sheets as of
December 31, 1995 and 1994 32 8
Consolidated Statements of Income
for the years ended December 31,
1995, 1994, and 1993 33 9
Consolidated Statements of Cash Flows
for the years ended December 31, 1995,
1994, and 1993 34 10
Consolidated Statements of Changes
in Stockholders' Equity for the
years ended December 31, 1995,
1994, and 1993 35 11
Notes to Consolidated Financial
Statements 36-46 12-22
Reports of Independent Accountants 47-48 23-24
(2) Financial Statement Schedules
No schedules are included as they are not required.
(3) Exhibits
3.2 The Registrant hereby incorporates
by reference its By-Laws as filed
as exhibits to its Registration Statement
on Form S-14 (File No.2-75588) which was filed
with the Securities and Exchange Commission on
January 22, 1982.
Page 19
<PAGE>
(a)(3) Exhibits (Continued) Reference
Form 10-K Annual Report
Annual Report to Stockholders
(page) (page)
13.1 Old Second Bancorp, Inc. - 1995 Annual
Report to Stockholders is furnished for
the information of the Commission and is
not deemed to be "filed as a part of this
10-K," except for portions incorporated
herein. 24-54
22.1 Subsidiaries of the Registrant 55
23.1 Consents of Independent Accountants 56-57
27.1 Financial Data Schedule 58
99.1 Old Second Bancorp, Inc. 1996 Proxy
Statement 59-79
</TABLE>
Other exhibits are omitted because of the absence of conditions
under which they are required.
(b) Reports on Form 8-K:
There were no Form 8-K reports filed during the fourth quarter
of 1995.
Page 20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
OLD SECOND BANCORP, INC.
(Registrant)
March 22, 1996 By /s/ James E. Benson
Date____________________ _________________________
James E. Benson- Chairman,
Chief Executive Officer,
and Director
March 22, 1996 By /s/ Ronald J. Carlson
Date____________________ __________________________
Ronald J. Carlson
President, Chief Financial
Officer, Chief Operating
Officer, Secretary and
Director
Page 21
<PAGE>
SIGNATURES, Continued
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities on the dates indicated.
Date SIGNATURE AND TITLE
March 22, 1996 /s/ Walter Alexander
____________________ ______________________________
Walter Alexander - Director
March 22, 1996 /s/ James E. Benson
____________________ ______________________________
James E. Benson - Chairman
Chief Executive Officer,
and Director
March 22, 1996 /s/ Ronald J. Carlson
____________________ ______________________________
Ronald J. Carlson-President,
Chief Financial Officer,
Chief Operating Officer,
Secretary and Director
March 22, 1996 /s/ Marvin Fagel
____________________ ______________________________
Marvin Fagel - Director
March 22, 1996 /s/ Joanne Hansen
____________________ ______________________________
Joanne Hansen - Director
March 22, 1996 /s/ Kenneth Lindgren
____________________ _____________________________
Kenneth Lindgren - Director
March 22, 1996 /s/ Jesse Maberry
____________________ ______________________________
Jesse Maberry - Director
March 22, 1996 /s/ Gary McCarter
____________________ ______________________________
Gary McCarter - Director
Page 22
<PAGE>
SIGNATURES, continued
Date SIGNATURE AND TITLE
March 22, 1996 /s/ D. Chet McKee
____________________ ______________________________
D. Chet McKee - Director
March 22, 1996 /s/ William J. Meyer
____________________ ______________________________
William J. Meyer - Director
March 22, 1996 /s/ Alan J. Rassi
____________________ ______________________________
Alan J. Rassi - Director
March 22, 1996 /s/ Larry A. Schuster
____________________ ______________________________
Larry A. Schuster - Director
March 22, 1996 /s/ William B. Skoglund
____________________ ______________________________
William B. Skoglund -
Vice President, Assistant
Secretary, and Director
March 22, 1996 /s/ George Starmann III
____________________ ______________________________
George Starmann III
Vice President and Director
Page 23
OLD SECOND BANCORP, INC.
1995 Annual Report
INDEX
Financial Highlights 1
Letter to Stockholders 2, 3
Management's Discussion 4-6
Selected Consolidated Financial Data 7
Consolidated Balance Sheets 8
Consolidated Statements of Income 9
Consolidated Statements of Cash Flows 10
Consolidated Statements of Changes in Stockholders' 11
Equity
Notes to Consolidated Financial Statements 12-22
Reports of Independent Accountants 23, 24
Corporate Information 25
Board of Directors 26, 27
Consolidating and Consolidated Balance Sheet 28, 29
Services 30
Page 24
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
In thousands, except per share data-
for the years ended December 31,
1995 1994
<S> <C> <C>
Total Interest Income $ 52,566 $ 45,410
Net Interest Income After Provision for
Possible Loan Losses 28,194 26,476
Net Income 8,823 7,298
Per Share:
Net Income 3.75 3.11
Cash Dividends Declared .91 .82
At December 31
Assets 760,730 708,196
Loans, Net 393,327 350,661
Deposits 669,291 631,886
Stockholders' Equity Before Net
Unrealized Gain (Loss) on Investments 73,910 67,236
Per Share 31.45 28.61
Total Stockholders' Equity 75,418 61,601
Per Share 32.09 26.21
</TABLE>
Note: The Financial Highlights for 1994 have been restated to reflect
the acquisition of Bank of Sugar Grove, which was accounted for as a
pooling-of-interests.
Page 1 Page 25
<PAGE>
LETTER TO STOCKHOLDERS
To Our Stockholders:
For Old Second Bancorp, Inc., 1995 was an excellent year. Most of our banks
met or exceeded their goals -- a tribute to our dedicated employees and the
unique organization of our holding company which allows each bank to serve
their individual markets.
We again set new records for total assets, loans, income, dividends and
book value per share. Details of these achievements are set forth in the
following report, but some of the highlights are listed below (all financial
information has been restated to include Bank of Sugar Grove):
Net income after taxes for 1995 was the highest in history with net earnings
of $8,823,000, up 20.9% from record earnings of $7,298,000 in 1994.
Total assets at year end 1995 were $760,730,000, a 7.4% increase from
$708,196,000 at year end 1994.
Net loans outstanding increased from $350,661,000 in 1994 to $393,327,000
at December 31, 1995, a 12.2% increase.
Stockholders' equity, a measure of safety and soundness, grew to
$75,418,000, resulting in a capital to asset ratio of 9.9%.
Cash dividends declared increased from $.82 per share in 1994 to $.91 per
share in 1995. This makes the 29th consecutive year of increased cash
dividends declared.
Return on average assets was 1.22% and return on average equity was 12.8%.
Old Second Bancorp stock bid and ask prices have narrowed considerably
during the last quarter of 1995. The difference between the bid/ask price
is now typically $2.00 a share spread as compared to as high as $6.00 a
share in 1994. The last sale of the year, as reported in the NASDAQ section
of the Wall Street Journal, was $45.00 per share with a bid and ask price
of $45.00 and $47.00 per share, respectively, at December 31, 1995.
Our Trust Department also had an exceptional year. In June, we opened a new
Trust office in Geneva to expand our operations in the Tri-City area. In
September, we merged the Kane County Bank's Trust Department into Old Second
National's Trust Department. It is our intent to keep The Old Second
National Trust Office in Elburn. This merger will enable that office to
provide full and expanded Trust services to that area. Assets held in our
Trust Department now exceed $500,000,000. Trust fees for the first time
exceeded $3,000,000, an increase of 11.7% over 1994.
During 1995, interest rates on government bonds and tax exempt investments
dropped considerably. This decline in interest rates had a reverse effect
from one year ago when the market value of the portfolio was substantially
under book value; as of December 31, 1995, the market value is substantially
greater than the book value. Our policy regarding our investment portfolio
has not changed; it is our intent to hold our bonds to maturity rather than
engage in trading.
A year ago, I announced that we had signed a Letter of Intent to purchase
the Bank of Sugar Grove. This purchase was completed on June 30, 1995. We
believe this acquisition fits in well with our long range plans of expansion
along the Route 47 corridor and is an integral part of our market strategy.
We are pleased with the growth of the five branches within our network.
In fact, in response to the growing needs of the customers at our Batavia
branch, an addition which doubled the size of that facility was completed
in 1995.
We are continuing to look at potential acquisitions and opportunities to
expand. Our strong capital position enables us to expand and grow sensibly
in the local market areas which we understand. As part of this ongoing
expansion, we have an option to purchase property in the Oswego market where
we plan to build a new branch of Old Second National in 1996. With this
expansion, we will have 13 locations and 3 Trust offices to support our
Valley-Wide Banking Network.
In 1995, substantial resources were expended to upgrade our Data Processing
capabilities. We have committed to further software and hardware upgrading
in 1996 so that state of the art services will be assured for all our banking
customers. This includes expansion of our cash management services, debit
cards and contemporary Trust reporting and additional investment vehicles.
Our continuing goal is to provide technology driven services and, in that
regard, to stay competitive with money center and super regional banks.
As we look forward to Old Second National's 125th Anniversary in 1996 and
further to the Millennium, we are focusing our attention on core banking
services and strengthening relationships with our customers and the
communities we serve. With our "Valley Wide" banking, we make it possible
for customers to bank at any of our twelve full-service locations, as well
as our numerous ATM locations, at their convenience. Our objective is to
stay in touch with customers' needs, provide basic
Page 2 Page 26
<PAGE>
services and, where appropriate, provide new and innovative banking programs.
Senior management is encouraged by the number of employees that participate
in the various educational programs we provide. These learning opportunities
provide self satisfaction for employees and also make for a well rounded
staff. We would like to express our gratitude to our employees for their
commitment and hard work, our customer base for their account relationships,
our directors for their guidance and our stockholders for their ongoing
loyalty.
Sincerely,
/s/ James Benson
James Benson
Chairman
Page 3 Page 27
<PAGE>
MANAGEMENT'S DISCUSSION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition and Results of Operations
The consolidated financial statements include the accounts of Old Second
Bancorp, Inc. (the Corporation) and its subsidiary banks, all of which are
wholly owned.
On June 30, 1995, 208,000 shares of the Corporation's common stock were
issued to acquire 100% of the outstanding common stock of Bank of Sugar
Grove (Sugar Grove). The acquisition was accounted for as a
pooling-of-interests; accordingly, all financial information for prior
periods has been restated to include the accounts and results of operations
of Sugar Grove. Sugar Grove had total assets of $42,565,000 at June 30, 1995.
At December 31, 1995, consolidated total assets of $760,730,000 are
$52,534,000 (7.4%) higher than year-end 1994. Gross loans of $399,505,000
are up $42,486,000 (11.9%) and deposits of $669,291,000 increased by
$37,405,000 (5.9%).
The Corporation's market has grown due to expansion and business and
residential development. The demand for real estate loan products, both
commercial and residential, remains strong as Aurora has been one of the
top markets for housing starts in Illinois since 1990 while the entire
market area continues to grow. The Corporation continues to offer
competitive loan products including Commercial Real Estate and Adjustable
Rate Residential Mortgages which is evidenced by the increase in Real Estate
Mortgage loans, up $28,636,000 (17.8%) from year-end 1994. Commercial,
financial and agricultural loans increased $14,692,000 (11.6%).
From year-end 1994, Demand and Savings remained substantially unchanged
while Time deposits increased $46,548,000 (18.6%) as depositors appear to be
taking advantage of rates on Certificates of Deposits. The funds available
from the increase in deposits were used to meet loan demand.
To meet the needs of our growing markets, Management continues to add
locations as well as update products and services. The Corporation which
currently has twelve locations and three trust offices plans to continue
expanding its facilities.
The Old Second National Bank has an option to acquire property in Oswego;
plans are to execute the option and build a branch in 1996. The Corporation
introduced Overdraft Protection and Cash Management programs during 1995 and
will be introducing its `BANKCARD ATM/Debit Card` in 1996. The expansion of
facilities and the introduction of new products provides better service for
our customers.
Net income for 1995 of $8,823,000 was up $1,525,000 (20.9%) from 1994
following an increase of $291,000 (4.1%) in 1994 over 1993.
Net interest income for 1995 of $28,497,000 was up $1,466,000 from 1994
due to volume following an increase of $1,766,000 in 1994 over 1993, also
due primarily to volume.
Management's quarterly review of the adequacy of the allowance for loan
losses and the amount of the provision for loan losses needed is based on
various factors, such as the nature and volume of the loan portfolio,
historical loss experience, and changes in economic conditions. The
Provision for Possible Loan Losses for 1995 totaled $303,000 compared
to $555,000 in 1994 and $1,492,000 in 1993. The results of operations
in 1994 include a $384,000 Provision for Possible Loan Losses related to
Sugar Grove. In 1993, a significant increase in the provision for loan
losses was due to a one-time major loan charge-off at Kane County, a
portion of which was recovered in 1994. The subsidiaries realized net loan
charge-offs of $380,000 in 1995 compared to net recoveries of $727,000 in
1994 and net charge-offs of $1,619,000 in 1993.
Total Other Income for 1995 of $6,786,000 increased $212,000 over 1994
following an increase of $34,000 in 1994 over 1993. Trust fees of $3,050,000
in 1995 were at record high levels compared to $2,731,000 in 1994 and
$2,496,000 in 1993. Service Charges on Deposit Accounts of $2,498,000 remain
substantially the same as 1994 following a gain of $144,000 in 1994 over
1993. Secondary Mortgage Fees were $352,000 for 1995, $550,000 in 1994 and
$942,000 in 1993. The declines in 1995 and 1994 result from a reduction in
mortgage originations from refinancing because in 1993 a large number of
customers took advantage of declining interest rates to refinance. Other
Income - Other in 1995 of $886,000 is an 11.3% increase over the 1994 total
of $796,000; the 1994 total was $47,000 higher than 1993. The 1995 increase
results from a premium received on the sale of a portion of the student loan
portfolio.
Total Other Expenses for 1995 of $22,834,000 were down $338,000 from 1994
following an increase of $1,636,000 in 1994 over 1993. Salaries and Employees
Benefits were $12,255,000 in 1995 and $11,759,000 in 1994, an increase of
$496,000. Inflation and increases in personnel contributed to the increased
salaries and benefits.
Net Occupancy of Bank Premises for 1995 is $1,602,000, up $49,000 from the
1994 amount of $1,553,000 which was substantially the same as the 1993 level.
1995 includes additional costs for the expansion of Old Second National's
Batavia branch and remodeling at Kane County Bank and Trust.
Furniture and Equipment costs were $1,967,000 for 1995 compared to
$2,129,000 in 1994 and $1,828,000 in 1993. In 1994, additional costs were
incurred as upgrades were made to the personal computer network.
FDIC Insurance was $726,000 in 1995 as compared to $1,317,000 in 1994 and
$1,235,000 in 1993. The decrease in 1995 was due to an FDIC insurance rate
reduction which was effective June 1, 1995. The increase in 1994 was due
entirely to higher deposit levels.
Marketing costs for 1995 were $823,000 compared to $940,000 in 1994 and
$727,000 in 1993. Marketing expenses were higher in 1994 than in 1995 and
1993 because of higher discretionary marketing and community involvement
expenses. Stationery and Supplies costs of $738,000 in 1995 were up
$94,000 from 1994. The increase in 1995 was due to both price and volume
increases. Stationery and Supplies costs of $644,000 in 1994 were relatively
unchanged from the 1993 amount of $627,000.
Other Expenses - Other were $4,207,000 in 1995, $107,000 lower than 1994
expenses of $4,314,000 which were up $409,000 from 1993.
Page 4 Page 28
<PAGE>
Income Tax Expense results in effective tax rates for 1995, 1994 and 1993
of 27.4%, 26.1% and 20.2%, respectively. The Corporation adopted Statement of
Financial Accounting Standard (SFAS) No. 109, `Accounting for Income Taxes`,
in the first quarter of 1993 which resulted in a tax benefit of about
$153,000 in 1993 and a decrease in the effective tax rate for that year. The
increase in the effective tax rate for 1994 from 1993 is attributable to two
components: adoption of SFAS No. 109 in 1993 and a decrease in Interest Exempt
from Federal Income Taxes.
The Corporation has not adopted SFAS No. 121, `Accounting for the Impairment
of Long-Lived Assets and Long-Lived Assets to be Disposed of`, which
prescribes the accounting for the impairment of long-lived assets, such as
property, plant and equipment; identifiable intangibles; and goodwill related
to those assets. Adoption by the Corporation is not required until 1996
and is not expected to have a material effect on the Corporation's financial
position or results of operations. The Corporation intends to adopt this
standard during 1996.
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, `Accounting for Stock Based Compensation`, which will apply to the
Corporation's Long-Term Incentive Plan. Under SFAS No. 123, the Corporation
may elect to measure compensation cost for the Long-Term Incentive Plan
using the intrinsic value-based method of accounting prescribed by Accounting
Principles Board (APB) Opinion No. 25. The Statement will require additional
disclosures relating to the Long-Term Incentive Plan. As the Corporation
plans to elect to use the accounting prescribed by APB Opinion No. 25,
adoption of SFAS No. 123 which is not required until 1996 is not expected to
have a material effect on the Corporation's financial position or results of
operations.
Liquidity
Liquidity is generally defined as the ability to meet cash flow
requirements. For a bank, meeting cash flow requirements means having funds
available to satisfy customers' borrowing needs as well as having funds
available to meet depositors' withdrawal requests. For the parent company,
liquidity means having funds available to pay cash dividends and operating
expenses. Liquid assets consist primarily of non-interest bearing and
interest bearing deposits, overnight federal funds sold and unpledged
investment securities. The Consolidated Statement of Cash Flows included with
the financial statements herein sets forth the cash flows from operating,
investing and financing activities for the various time periods.
For the years ended December 31, 1995, 1994 and 1993, Cash Provided by
Operating Activities resulted in cash inflows of $11,204,000, $16,329,000
and $10,138,000, respectively. Net cash inflows were higher in 1994 than
in 1995 and 1993 because 1994 included a $6,581,000 reduction in mortgages
held for resale. Generally, cash inflows result primarily from interest
received less interest paid and amounts paid to suppliers and employees. For
1995, Interest Received amounted to $52,708,000, Interest Paid was
$23,322,000 and the amount Paid to Suppliers and Employees was $20,934,000.
For 1994,Interest Received totaled $45,740,000, Interest Paid was $18,310,000
and amounts Paid to Suppliers and Employees totaled $20,974,000. For 1993,
Interest Received totaled $45,181,000, Interest Paid was $18,515,000 and
amounts Paid to Suppliers and Employees totaled $19,339,000.
The primary components of Cash Flows from Investing Activities are funding
and repayment of customer loans and purchases, sales and maturities of
investment securities. The net cash outflows from investing activities were
$39,758,000, $46,549,000 and $44,639,000 for 1995, 1994 and 1993,
respectively. For 1995, net increases in loans resulted in a cash outflow of
$42,306,000; whereas, net investment activity caused an inflow of $3,398,000.
During 1994, net increases in loans resulted in a net outflow of $25,813,000
while net investment activity resulted in a cash outflow of $19,011,000.
For 1993, cash outflows of $20,151,000 resulted from net increases in loans
while net investment activity was responsible for cash outflows of
$23,382,000. Capital Expenditures resulted in cash outflows of $1,501,000 in
1995, $1,269,000 in 1994 and $1,082,000 in 1993. Expenditures in 1995 include
an addition to Old Second National Bank's Batavia branch which doubled the
size of that facility.
Cash Flows from Financing Activities are primarily attributable to
fluctuations in deposit levels and, to a lesser degree, fluctuations in other
short-term borrowings and the payment of dividends to stockholders. Cash
Flows from Financing Activities provided net cash inflows of $35,050,000,
$40,452,000 and $34,705,000 in 1995, 1994 and 1993, respectively. Deposit
growth for the reported periods has resulted in net cash inflows of
$37,405,000, $43,893,000 and $39,966,000 in 1995, 1994 and 1993, respectively.
Payments of Notes Payable totaled $40,000 in 1995, $3,128,000 in 1994 and
$1,070,000 in 1993. Dividends paid to stockholders were $1,970,000 in 1995,
$1,714,000 in 1994 and $1,938,000 in 1993.
The net effect of the cash flows was an increase in Cash and Cash
Equivalents from $68,519,000 at year-end 1993 to $78,751,000 at year-end 1994
and a further increase to $85,247,000 at year-end 1995. Management feels that
adequate liquidity has been maintained to meet cash flow requirements and is
not aware of any known trends, events or uncertainties that will have, or that
are reasonably likely to have, a material effect on the Corporation's or any
subsidiaries' liquidity, capital resources or operations.
Interest Rate Risk
The management of interest rate sensitivity is accomplished by monitoring
the maturities and repricing opportunities of interest-earning assets and
interest-bearing liabilities. Amounts are positioned into rate maturity
periods based upon contractual or historical experience or frequency of
repricing the respective assets and liabilities. Theoretically, in a period
of rising interest rates, it is preferable to have what is commonly known as
a positive gap (interest-earning assets in excess of interest-bearing
liabilities) because more interest-earning assets should mature or reprice
within a given time period than interest-bearing liabilities to increase
interest income in excess of the increase in interest expense. Conversely, in
a period of declining interest rates, it is preferable to be in a negative gap
position (interest-bearing liabilities in excess of interest-earning assets)
because more interest-bearing liabilities should mature
Page 5 Page 29
<PAGE>
or reprice resulting in lower interest expense in excess of the decline in
interest income. Because assets and liabilities do not reprice in exactly the
same manner as interest rates change, the theory described above should not be
used as the sole indicator of how the Corporation would be affected by changes
in interest rates.
The Corporation has set specific guidelines to manage its cumulative gap
position. If necessary, Management can shorten loan maturities, price loans
with variable rates, purchase investment securities with short maturities or
attract longer term certificates of deposits to manage the gap position of
the Corporation. The effect on earnings and capital position would be
considered when making decisions to manage the gap position.
At December 31, 1995, interest-bearing liabilities maturing or repricing
within one year exceed interest-earning assets maturing or repricing by
about $25,773,000. The capital position of the Corporation is adequate to
provide sufficient equity for any unexpected adverse effect of changing
interest rates.
Many organizations use financial derivative products to provide greater
flexibility in managing interest rate risk. Derivative financial instruments
derive their value from the performance of assets, interest or currency
exchange rates, or indexes. Derivative products include a wide assortment of
financial contracts including structured notes, swaps, futures, options,
forwards and various combinations thereof. These products vary greatly with
respect to complexity and risk. The Corporation has invested in several types
of structured notes that are classified as derivatives. All structured notes
held by the Corporation are debt securities issued by U.S. Government
Agencies. The Corporation has the ability to hold these investment securities
to maturity and intends to do so; therefore, any unrealized gains or losses
resulting from price fluctuations are considered temporary and are not
expected to be realized by the Corporation. However, the Corporation has
classified these securities as available-for-sale as they may be sold in
response to needs for liquidity, changes in market rates and related
prepayment risk. At December 31, 1995, the Corporation held approximately
$31,459,000 of structured notes at amortized cost of which $22,693,000
mature in one to five years and $8,766,000 mature in five to ten years.
Capital and Dividends
Total Stockholders' Equity increased during 1995 as a result of net income
of $8,823,000, the change in net unrealized gain (loss) on available-for-sale
securities of $7,143,000 less dividends declared to stockholders of $2,149,000.
Available-for-Sale Securities are reported at market value on the Balance
Sheet with the Net Unrealized Gain (Loss) on Investments reported as a
separate component of Stockholders' Equity. Since the Corporation generally
holds investment securities until maturity, the net unrealized gain (loss)
resulting from market fluctuations is considered temporary and is not expected
to be realized.
Stockholders' Equity before Net Unrealized Gain on Investments at
December 31, 1995 is 9.7% of Total Assets, up from 9.5% at year-end 1994.
The equity to asset ratio including the effect of Net Unrealized Gain (Loss)
on Investments is 9.9% at December 31, 1995, up from 8.7% at year-end 1994.
The equity to asset ratios (leverage ratios) continue to be maintained
at adequate levels. During 1995, the Corporation declared dividends of $.18
per share during the first and second quarters, $.20 per share during the
third and fourth quarters and a year-end extra dividend of $.15 resulting in a
total for the year of $.91. In 1994, the Corporation declared four quarterly
dividends of $.18 per share and a year-end extra dividend of $.10, resulting
in a total of $.82.
The Federal Reserve Board has established risk-based capital guidelines
which include minimum capital requirements. The capital ratios are determined
by weighing assets and off-balance sheet exposures according to their
designated relative credit risks. Certain classes of preferred stock and equity
capital, net of certain adjustments for intangible assets and investments
in non-consolidated subsidiaries, are considered Tier 1 (core) capital.
Tier 2 (total) capital consists of core capital plus subordinated debt, some
types of preferred stock and an adjustment for Allowance for Possible Loan
Losses. At December 31, 1995 and 1994, the minimum total and core risk-based
capital ratios were 8.0% and 4.0%. As of December 31, 1995, the Corporation's
total and core risk-based capital ratios were 16.0% and 14.8%, respectively.
Total and core risk-based capital ratios were 15.8% and 14.6%, respectively,
at December 31, 1994.
Effects of Inflation
The financial statements presented herein are prepared using historical
dollars except for investment securities which are presented at market value.
Inflation affects the operating results in the cost of operating expenses and
the pricing of services. Management closely monitors expenses and the pricing
of services so as to control expenses and adjust service fees in view of
inflationary trends. Changes in inflation rates also affect the rates earned
on assets and the rates paid on liabilities. The asset/liability management
program will generally compensate for these effects over a given time period.
Page 6 Page 30
<PAGE>
<TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands except share and per share data)
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
BALANCE SHEET ITEMS AT YEAR-END
Total Assets $760,730 $708,196 $665,925 $624,383 $535,820
Net Loans 393,327 350,661 331,987 311,875 267,710
Total Deposits 669,291 631,886 587,993 548,026 468,797
Notes Payable 40 80 3,208 4,118
Stockholders' Equity Before
Net Unrealized Gain (Loss) on
Investments 73,910 67,236
Total Stockholders' Equity 75,418 61,601 61,866 56,730 47,619
RESULTS OF OPERATIONS
Net Interest Income $28,497 $27,031 $25,265 $22,866 $19,662
Provision for Possible Loan
Losses 303 555 1,492 720 1,706
Net Income 8,823 7,298 7,007 6,341 5,565
PER SHARE DATA
Net Income $ 3.75 $ 3.11 $ 2.98 $ 2.71 $ 2.54
Dividends Declared .91 .82 .73 .69 .66
Stockholders' Equity Before
Net Unrealized Gain (Loss) on
Investments 31.45 28.61
Total Stockholders' Equity 32.09 26.21 26.32 24.14 21.75
WEIGHTED AVERAGE SHARES
OUTSTANDING 2,350,165 2,350,165 2,350,165 2,336,800 2,189,765
SHARES OUTSTANDING AT
YEAR-END 2,350,165 2,350,165 2,350,165 2,350,165 2,189,785
</TABLE>
Note: The Selected Consolidated Financial Data for prior years has been
restated to reflect the acquisition of Bank of Sugar Grove, which was
accounted for as a pooling-of-interests. Per share amounts and number of
shares give retroactive effect to a four-for-three stock split in 1993.
Page 7 Page 31
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
OLD SECOND BANCORP, INC AND SUBSIDIARIES
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
ASSETS
Cash and Due From Banks $ 42,047 $ 43,201
Interest Bearing Deposits with Banks 400 400
Federal Funds Sold 42,800 35,150
------- -------
Total Cash and Cash Equivalents 85,247 78,751
Available-For-Sale Securities 253,899 239,147
Held-To-Maturity Securities 7,012
------- -------
Total Investment Securities 253,899 246,159
Loans 399,505 357,019
Less: Allowance for Possible Loan Losses 5,676 5,753
Unearned Income 502 605
------- -------
Loans, Net 393,327 350,661
Bank Premises and Equipment, Net 14,602 14,303
Other Assets 13,655 18,322
------- -------
TOTAL ASSETS $760,730 $708,196
======= =======
LIABILITIES
Deposits
Demand $100,169 $111,044
Savings 271,769 270,037
Time 297,353 250,805
Total Deposits 669,291 631,886
Securities Sold Under Agreements to Repurchase 6,554 6,791
Other Short-term Borrowings 2,585 2,786
Note Payable 40 80
Other Liabilities 6,842 5,052
------- -------
TOTAL LIABILITIES 685,312 646,595
STOCKHOLDERS' EQUITY
Preferred Stock, no par value:
300,000 shares authorized, none issued
Common Stock, no par value: shares authorized:
3,500,000; issued and outstanding shares: 2,350,165 15,377 15,377
Retained Earnings 58,533 51,859
------- -------
Stockholders' Equity Before
Net Unrealized Gain (Loss) on Investments 73,910 67,236
Net Unrealized Gain (Loss) on Investments 1,508 (5,635)
------- -------
TOTAL STOCKHOLDERS' EQUITY 75,418 61,601
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $760,730 $708,196
======= =======
</TABLE>
See accompanying notes.
Page 8 Page 32
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except share and per share data)
Old Second Bancorp, Inc. and Subsidiaries
<CAPTION>
for the years ended December 31,
1995 1994 1993
<S> <C> <C> <C>
INTEREST INCOME
Loans $34,239 $28,740 $27,553
Investment Securities:
Taxable 12,161 11,611 11,169
Exempt from Federal Income Taxes 4,013 3,788 3,908
Federal Funds Sold 2,131 1,234 794
Interest Bearing Deposits with Banks 22 37 65
------ ------ ------
Total Interest Income 52,566 45,410 43,489
------ ------ ------
INTEREST EXPENSE
Savings Deposits 7,753 7,061 7,207
Time Deposits 15,980 11,097 10,610
Other Borrowings 336 221 407
------ ------ ------
Total Interest Expense 24,069 18,379 18,224
------ ------ ------
Net Interest Income 28,497 27,031 25,265
PROVISION FOR POSSIBLE LOAN LOSSES 303 555 1,492
------ ------ ------
Net Interest Income After Provision
for Possible Loan Losses 28,194 26,476 23,773
------ ------ ------
OTHER INCOME
Trust Fees 3,050 2,731 2,496
Service Charges on Deposit Accounts 2,498 2,492 2,348
Secondary Mortgage Fees 352 550 942
Other 886 796 749
Securities Gains 5 5
------ ------ ------
Total Other Income 6,786 6,574 6,540
------ ------ ------
OTHER EXPENSES
Salaries and Employee Benefits 12,255 11,759 11,162
Net Occupancy of Bank Premises 1,602 1,553 1,536
Furniture and Equipment 1,967 2,129 1,828
FDIC Insurance 726 1,317 1,235
Marketing 823 940 727
Stationery and Supplies 738 644 627
Goodwill Amortization 516 516 516
Other 4,207 4,314 3,905
------ ------ ------
Total Other Expenses 22,834 23,172 21,536
------ ------ ------
INCOME BEFORE INCOME TAXES 12,146 9,878 8,777
INCOME TAX EXPENSE 3,323 2,580 1,770
------ ------ ------
NET INCOME $ 8,823 $ 7,298 $ 7,007
====== ====== ======
NET INCOME PER SHARE $3.75 $3.11 $2.98
WEIGHTED AVERAGE SHARES OUTSTANDING 2,350,165 2,350,165 2,350,165
</TABLE>
See accompanying notes.
Page 9 Page 33
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Old Second Bancorp, Inc. and Subsidiaries
<CAPTION>
for the years ended
December 31,
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest Received $ 52,708 $ 45,740 $ 45,181
Interest Paid (23,322) (18,310) (18,515)
Paid to Suppliers and Employees (20,934) (20,974) (19,339)
Trust Fees Received 3,050 2,731 2,496
Income Taxes Paid (3,371) (3,277) (2,221)
Service Charges Received on Deposit Accounts 2,498 2,492 2,348
(Increase) Decrease in Mortgages Held For Resale (663) 6,581 (1,503)
Other Income Received 1,238 1,346 1,691
------ ------ ------
Net Cash Provided By Operating Activities 11,204 16,329 10,138
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Increase in Loans (42,306) (25,813) (20,151)
Purchases of Available-for-Sale Securities (47,677) (56,928) (80,156)
Proceeds from Sales and Maturities of
Available-for-Sale Securities 51,075 37,912 56,769
Securities Gains 5 5
Capital Expenditures (1,501) (1,269) (1,082)
Other 651 (456) (24)
------ ------ -------
Net Cash Used In Investing Activities (39,758) (46,549) (44,639)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase in Deposits 37,405 43,893 39,966
Net Increase (Decrease) in Other Borrowings (438) 1,826 (2,576)
Payment of Notes Payable (40) (3,128) (1,070)
Dividends Paid (1,970) (1,714) (1,938)
Other 93 (425) 323
------ ------ ------
Net Cash Provided By Financing Activities 35,050 40,452 34,705
------ ------ ------
Net Increase in Cash and Cash Equivalents 6,496 10,232 204
Cash and Cash Equivalents at Beginning of Year 78,751 68,519 68,315
------ ------ ------
Cash and Cash Equivalents at End of Year $85,247 $78,751 $68,519
====== ====== ======
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Net Income $ 8,823 $ 7,298 $ 7,007
Adjustments to Reconcile Net Income to
Net Cash Provided By Operating Activities:
Depreciation 1,202 1,259 1,231
Provision for Possible Loan Losses 303 555 1,492
Decrease in Taxes Payable (48) (698) (451)
(Increase) Decrease in Interest Receivable (384) (616) 889
Increase (Decrease) in Interest Payable 747 70 (291)
Premium Amortization and Discount
Accretion on Investments, Net 526 946 809
Goodwill Amortization 516 516 516
(Increase) Decrease in Mortgages Held For Resale (663) 6,581 (1,503)
Increase in Accrued Expenses 333 313 294
(Increase) Decrease in Prepaid Expenses (151) 110 138
Securities Gains (5) (5)
Other, Net 12
------- ------ ------
Total Adjustments 2,381 9,031 3,131
------- ------ ------
Net Cash Provided By Operating Activities $11,204 $16,329 $10,138
====== ====== ======
</TABLE>
See accompanying notes.
Page 10 Page 34
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands except per share data)
Old Second Bancorp, Inc. and Subsidiaries
<CAPTION>
Net Unrealized
Common Retained Gain (Loss) on
Stock Earnings Investments Total
<S> <S> <S> <S> <S>
Balance at January 1, 1993 $15,377 $41,206 $56,583
Net Income for 1993 7,007 7,007
Dividends Declared ($.73
per share) (1,724) (1,724)
- -----------------------------------------------------------------------------
Balance at December 31, 1993 15,377 46,489 61,866
Adoption of SFAS No. 115 $ 4,329 4,329
Net Income for 1994 7,298 7,298
Dividends Declared ($.82
per share) (1,928) (1,928)
Change in Net Unrealized
Gain (Loss) for 1994 (9,964) (9,964)
- -----------------------------------------------------------------------------
Balance at December 31, 1994 15,377 51,859 (5,635) 61,601
Net Income for 1995 8,823 8,823
Dividends Declared ($.91
per share) (2,149) (2,149)
Change in Net Unrealized
Gain (Loss) for 1995 7,143 7,143
- -----------------------------------------------------------------------------
Balance at December 31, 1995 $15,377 $58,533 $ 1,508 $75,418
====== ====== ====== ======
</TABLE>
See accompanying notes.
Page 11 Page 35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Old Second Bancorp, Inc., and Subsidiaries
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Old Second Bancorp, Inc.
(the Corporation) and its subsidiaries conform to generally accepted
accounting principles and to general practice within the banking industry.
Certain 1994 and 1993 amounts have been reclassified to conform to the 1995
presentation. The following is a description of the more significant of
these policies:
Consolidation
The consolidated financial statements include the accounts of Old Second
Bancorp, Inc. and its wholly-owned subsidiaries: The Old Second National
Bank of Aurora, The Old Second Community Bank of North Aurora, The Old Second
Community Bank of Aurora, Yorkville National Bank, Burlington Bank, Kane
County Bank and Trust and Bank of Sugar Grove. All significant intercompany
balances and transactions have been eliminated in consolidation.
The Corporation is a multi-bank holding company, principally engaged in the
business of attracting deposits and investing these funds, together with
borrowings and other funds, to primarily originate commercial, real estate
and consumer loans, and purchase investment securities. The bank conducts its
activities from a network of offices in Kane, Kendall and DuPage Counties.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to take estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from these estimates.
Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, cash due from banks and federal funds sold. Generally, federal funds
are purchased and sold for one-day periods.
Investment Securities
The Corporation and its subsidiaries generally purchase securities for
investment purposes. On January 1, 1994, the Corporation prospectively adopted
Statement of Financial Accounting Standard (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". In accordance with SFAS
No. 115, investment securities are classified in three categories and accounted
for as follows: (1) held-to-maturity - reported at amortized cost; (2) trading
securities - reported at fair value with unrealized gains and losses
included in current earnings; and (3) available-for-sale securities - reported
at fair value with unrealized gains and losses excluded from current earnings
and reported as a separate component of stockholders' equity.
Gains and losses on the sale of investment securities are recognized at the
time of the transaction and are determined by the specific identification
method.
Loans
Interest on installment loans made on a discounted basis is generally
recognized as income using the interest method. Interest on all other loans is
recorded as earned.
It is Management's policy to discontinue the accrual of interest income on any
loan when there is reasonable doubt as to the timely collectibility of interest
or principal.
Allowance for Possible Loan Losses
The allowance for possible loan losses is increased by provisions charged to
operating expense and decreased by charge-offs, net of recoveries, and is
available for losses incurred on loans.
The provision for possible loan losses is computed based on Management's
judgment as to the adequacy of the allowance for possible loan losses after
considering such factors as the volume and character of the portfolio, general
economic conditions and past loan loss experience.
Effective January 1, 1995, the Corporation was required to adopt SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". Under SFAS No. 114, a loan
is considered impaired when the carrying amount of the loan exceeds the
present value of the expected future cash flows, discounted at the loan's
original effective rate. However, as a practical expedient, Management measures
impairment based on the fair value of the underlying collateral. The adoption
of SFAS No. 114 did not have a material effect on the Corporation's financial
position or results of operations.
Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation is computed over estimated useful lives of ten
to forty years for premises and five to ten years for furniture and equipment
principally by the use of accelerated depreciation methods.
Page 12 PAGE 36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Bank Premises and Equipment (continued)
Expenditures for maintenance and repair are expensed as incurred and
expenditures for major renovations are capitalized. The cost of property
retired or otherwise disposed of is applied against the related accumulated
depreciation to the extent thereof, and any gain or loss on disposition is
recognized at the time of disposal.
Real Estate Owned (REO)
REO initially is recorded at the lower of net book value or fair value, less
estimated costs to sell. The excess of net book value over fair value at the
foreclosure date is charged to the allowance for possible loan losses.
Subsequent to foreclosure, any gain or loss on disposition is recognized at
the time of disposal.
Trust Department Revenue
Trust Department income is recorded principally on a cash basis, which does
not result in a material difference from the accrual basis.
Retirement Plan Costs
The Corporation uses the "projected unit credit" actuarial method for financial
reporting purposes and the entry age cost method for the funding of the
qualified plan.
Long-Term Incentive Plan
The Corporation accounts for its Long-Term Incentive Plan in accordance with
APB Opinion No. 25, "Accounting for Stock Issued to Employees". Under APB
Opinion No. 25, as the exercise price of the Corporation's employees' stock
options equals the market price of the underlying stock on the date of grant,
no compensation expense is recognized.
Income Taxes
The Corporation provides for income taxes using the liability method. Under
this method, deferred tax assets and liabilities representing differences
between financial reporting and tax bases of assets and liabilities are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Deferred taxes arise because certain
transactions affect the determination of taxable income for financial reporting
purposes in periods different from the period in which the transactions affect
taxable income for tax return purposes. Current tax expense is provided based
upon the actual tax liability incurred for tax return purposes.
Per Share Amounts
Net income per share amounts are based upon the weighted average number of
shares of Common Stock outstanding during each reported period. Prior year
amounts have been restated to reflect the acquisition of Bank of Sugar Grove.
Excess Purchase Price Over Fair Value Of Net Assets Acquired
The excess purchase price paid over the fair value of net assets acquired is
included in other assets and is amortized into other expenses on a
straight-line basis over fifteen years.
NOTE B - ACQUISITION
On June 30, 1995, 208,000 shares of the Corporation's common stock were issued
to acquire 100% of the outstanding common stock of Bank of Sugar Grove.
The acquisition was accounted for as a pooling-of-interests; accordingly,
all financial information for prior periods has been restated to include the
accounts and results of operations of Sugar Grove.
Operating results of the Corporation and Sugar Grove for the six months ended
June 30, 1995 prior to the combination were as follows (in thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30, 1995
Old Second
Bancorp, Inc. Sugar Grove Combined
<S> <C> <C> <C>
Net Interest Income $13,301 $967 $14,268
Net Income 4,189 272 4,461
</TABLE>
NOTE C - CASH AND DUE FROM BANKS
The subsidiaries maintain compensating cash balances under informal
arrangements with their respective correspondents for services received. In
addition, The Old Second National Bank of Aurora (Old Second) and Yorkville
National Bank (Yorkville) are required to maintain certain average reserve
balances with the Federal Reserve Bank. During 1995, average reserve balances
with the Federal Reserve Bank were $427,000 and $26,000 for Old Second and
Yorkville, respectively.
Page 13 Page 37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands)
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
NOTE D - INVESTMENT SECURITIES
A summary of the amortized cost and estimated market value of investment
securities is as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
---- ---- ----
Amortized Amortized Amortized
<S> Cost Market Cost Market Cost Market
AVAILABLE FOR SALE <C> <C> <C> <C> <C> <C>
U.S. Treasury $ 16,425 $ 16,644 $ 26,659 $ 26,245
U.S. Government
Agencies 104,892 105,091 90,580 86,075
State & Political
Subdivisions 92,770 94,654 86,982 85,352
Mortgage-Backed
Obligations 36,160 36,301 42,937 40,279
Other 1,187 1,209 1,188 1,196
------- ------- ------- -------
$251,434 $253,899 $248,346 $239,147
======= ======= ======= =======
HELD TO MATURITY
U.S. Treasury $ 996 $ 991 $ 26,875 $ 27,891
U.S. Government
Agencies 599 551 75,254 77,235
State & Political
Subdivisions 3,585 3,604 88,174 92,400
Mortgage-Backed
Obligations 1,832 1,745 44,284 44,403
Other 2,698 2,757
----- ------- ------- -------
$ 7,012 $ 6,891 $237,285 $244,686
====== ======= ======= =======
</TABLE>
The amortized cost and estimated market values of investment securities at
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury $ 16,425 $ 227 $ 8 $ 16,644
U.S. Government
Agencies 104,892 1,552 1,353 105,091
State & Political
Subdivisions 92,770 2,217 333 94,654
Mortgage-Backed
Obligations 36,160 224 83 36,301
Other 1,187 22 1,209
------- ----- ----- -------
$251,434 $4,242 $1,777 $253,899
======= ===== ===== =======
</TABLE>
The contractual maturities of investment securities at amortized cost and
estimated market value at December 31, 1995 are as follows:
<TABLE>
(CAPTION>
Within One to Five to Over
One Five Ten Ten
Year Years Years Years Total
<S> <S> <S> <S> <S> <S>
AMORTIZED COST
U.S. Treasury $ 4,751 $ 11,674 $ 16,425
U.S. Government
Agencies 14,953 56,947 $28,851 $ 4,141 104,892
State & Political
Subdivisions 9,783 33,040 34,923 15,024 92,770
Other 2 1,185 1,187
------ ------- ------- ------ -------
$29,487 $101,663 $63,774 $20,350 215,274
====== ======= ====== ======
Mortgage-Backed
Obligations 36,160
-------
$251,434
=======
MARKET VALUE
U.S. Treasury $4,811 $ 11,833 $ 16,644
U.S. Government
Agencies 15,091 56,551 $29,273 $4,176 105,091
State & Political
Subdivisions 9,905 33,888 35,609 15,252 94,654
Other 2 1,207 1,209
------ ------- ------ ------ -------
$29,807 $102,274 $64,882 $20,635 217,598
====== ======= ====== ======
Mortgage-Backed
Obligations 36,301
-------
$253,899
=======
</TABLE>
Page 14 Page 38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands)
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
NOTE D - INVESTMENT SECURITIES (continued)
At December 31, 1995, securities with an approximate aggregate amortized cost
of $54,578,000 were pledged as collateral for public and trust deposits and
for other purposes as required or permitted by law.
On June 30, 1995, Sugar Grove's Held-to-Maturity Securities with a total
amortized cost of $10,640,00 were transferred to Available-for-Sale
Securities to conform with the Corporation's investment classifications.
NOTE E - LOANS
The composition of loans outstanding by lending classification is as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Commercial, Financial and Agricultural $141,480 $126,788
Real Estate - Construction 24,783 25,486
Real Estate - Mortgage 189,906 161,270
Installment 43,336 43,475
------- -------
$399,505 $357,019
======= =======
</TABLE>
In the normal course of business, the subsidiary banks extend credit to
executive officers and directors, associates of such persons and entities in
which these persons have significant interests. The following is an analysis
of these loans which aggregated at least $60,000 per related party:
<TABLE>
<CAPTION>
for the years ended December 31,
1995 1994
<S> <C> <C>
Balance, Beginning of Year $11,677 $11,480
New Loans 15,166 9,090
Repayments (14,212) (7,840)
Other Changes 1,039 (1,053)
------ ------
Balance, End of Year $13,670 $11,677
====== ======
</TABLE>
The subsidiary banks make commercial, agricultural, real estate and consumer
loans to customers in their market area. There are no significant concentrations
of loans where customers' ability to honor loan terms are dependent upon a
single economic sector.
NOTE F - ALLOWANCE FOR POSSIBLE LOAN LOSSES
A summary of the activity in the allowance is as follows:
<TABLE>
<CAPTION>
for the years ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Balance, Beginning of Year $5,753 $4,471 $4,598
Recoveries 371 1,360 578
Provision for Possible Loan Losses 303 555 1,492
Charge-offs (751) (633) (2,197)
----- ----- -----
Balance, End of Year $5,676 $5,753 $4,471
===== ===== =====
</TABLE>
Page 15 Page 39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands)
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
NOTE G - BANK PREMISES AND EQUIPMENT
The cost, accumulated depreciation and amortization, and net book value of
premises, improvements and furniture and equipment are summarized below:
<TABLE>
<CAPTION>
December 31, 1995
Accumulated Net
Depreciation & Book
Cost Amortization Value
<S> <S> <S> <S>
Land $ 3,643 $ 3,643
Buildings and Improvements 16,389 $ 7,212 9,177
Furniture and Equipment 9,209 7,427 1,782
------ ------ ------
$29,241 $14,639 $14,602
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
Accumulated Net
Depreciation & Book
Cost Amortization Value
<S> <C> <C> <C>
Land $ 3,594 $ 3,594
Buildings and Improvements 15,710 $ 6,763 8,947
Furniture and Equipment 8,480 6,718 1,762
------ ------ ------
$27,784 $13,481 $14,303
====== ====== ======
</TABLE>
NOTE H - TIME DEPOSITS OF $100,000 OR MORE
Time Deposits of $100,000 or more were $59,045,000 and $43,855,000 at
December 31, 1995 and 1994, respectively.
NOTE I - INCOME TAXES
A summary of the provision for income taxes is as follows:
<TABLE>
<CAPTION>
for the years ended December 31,
1995 1994 1993
<S> ------ ----- -----
Currently Payable, Principally <C> <C> <C>
Federal $3,573 $3,176 $2,002
Deferred (250) (596) (232)
----- ----- -----
$3,323 $2,580 $1,770
===== ===== =====
</TABLE>
Page 16 Page 40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands)
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
NOTE I - INCOME TAXES (continued)
Temporary differences between the tax bases of assets and liabilities and their
financial reporting amounts give rise to deferred tax assets and liabilities.
The Corporation has the following temporary differences with their
approximate tax effects resulting in a net deferred tax asset:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
----------------- -----------------
Temporary Tax Temporary Tax
Difference Effect Difference Effect
---------- ------ ---------- ------
<S> <C> <C> <C> <C>
Loan Loss Allowance $ 5,547 $ 1,885 $ 4,517 $ 1,493
Pension 519 177 390 133
Other Assets 1,456 496 1,343 441
----- ----- ----- -----
Total Deferred Assets 7,522 2,558 6,250 2,067
Accumulated Depreciation (1,705) (580) (1,699) (574)
Accretion on Investment
Securities (1,835) (624) (1,125) (383)
Other Liabilities (378) (129) (401) (135)
----- ----- ----- -----
Total Deferred Liabilities (3,918) (1,333) (3,225) (1,092)
----- ----- ----- -----
Net Deferred Tax Asset 3,604 1,225 3,025 975
Tax Effect of SFAS No. 115
Adjustment (2,465) (956) 9,199 3,564
------ ------ ------ ------
Net Deferred Tax Asset with
SFAS No. 115 Adjustment $ 1,139 $ 269 $12,224 $ 4,539
====== ====== ====== ======
</TABLE>
The principal items affecting the deferred income tax component of the provision
for income taxes are as follows:
<TABLE>
<CAPTION>
for the years ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Loan Loss Provision $(392) $(648) $ (40)
Accelerated Depreciation 6 24 (70)
Pension Expense (44) (35) (86)
Other, Net 180 63 (36)
---- ---- ----
$(250) $(596) $(232)
==== ==== ====
</TABLE>
A reconciliation of the expected provision for income taxes at the statutory
Federal income tax rate of 34% and the actual tax provision is as follows:
<TABLE>
<CAPTION>
for the years ended December 31,
1995 1994 1993
---- ---- ----
Amount % Amount % Amount %
------ ----- ------ ---- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Expected Total Tax Provision
At Statutory Rate $ 4,130 34.0% $ 3,358 34.0% $ 2,986 34.0%
Decrease Resulting From Tax
Exempt Income (1,282) (10.5) (1,284) (13.0) (1,319) (15.0)
Increase Resulting From
Goodwill Amortization 175 1.5 175 1.8 175 2.0
State Taxes 294 2.4 280 2.8 119 1.3
Other, Net 6 51 .5 (191) (2.1)
------ ---- ------ ---- ------ ----
$ 3,323 27.4% $ 2,580 26.1% $ 1,770 20.2%
====== ==== ====== ==== ====== ====
</TABLE>
Page 17 Page 41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands)
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
NOTE J - RETIREMENT PLANS
The Corporation has a non-contributory defined benefit retirement plan covering
substantially all of its full-time employees. Generally, benefits are based on
years of service and compensation, as defined.
The following table sets forth the plan's funded status and amounts recognized
in the Corporation's Consolidated Balance Sheets:
<TABLE>
<CAPTION>
December 31,
Actuarial present value of benefit obligations: 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Vested benefit obligations $4,638 $3,900 $3,982
Nonvested benefit obligations 261 203 215
----- ----- -----
Accumulated benefit obligation 4,899 4,103 4,197
Excess of projected benefit obligation
over accumulated benefit obligation 1,286 1,019 1,540
----- ----- -----
Projected benefit obligation 6,185 5,122 5,737
Plan assets at fair value, primarily
listed common stocks, corporate, and
U.S. Government and Agency bonds 6,349 5,823 6,100
----- ----- -----
Plan assets in excess of projected
benefit obligation 164 701 363
Unrecognized net (gain) or loss 187 (157) 91
Prior service cost not yet recognized in net
periodic pension cost (135) (140) 140
Unrecognized net asset at January 1, 1987,
being amortized over 17 years (688) (774) (860)
----- ----- -----
Unfunded pension cost included in other
liabilities $ (472) $ (370) $ (266)
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
for the years ended December 31,
Net pension cost includes the following
components: 1995 1994 1993
<S> <C> <C> <C>
Service cost $ 280 $ 330 $ 400
Interest cost 392 349 380
Actual return on plan assets 931 66 (581)
Net amortization and deferral (1,501) (641) 49
===== ===== =====
Net periodic pension cost $ 102 $ 104 $ 248
===== ===== =====
</TABLE>
Certain employees participating in the defined benefit plan are also covered by
an unfunded supplemental retirement plan. The purpose of this plan is to extend
full retirement benefits to individuals without regard to statutory
limitations for qualified funded plans. The following table sets forth the
status of this supplemental plan:
<TABLE>
<CAPTION>
for the years ended December 31,
1995 1994
---- ----
<S> <C> <C>
Accumulated benefit obligation $361 $295
Projected benefit obligation for
service rendered to date 361 295
Accrued pension liability 91 43
Net periodic pension expense 48 43
</TABLE>
The weighted-average discount rate used in determining the actuarial present
value of the projected benefit obligations was 6.75% at December 31, 1995,
7.50% at December 31, 1994 and 6.75% at December 31, 1993. The expected
long-term rate of return on assets was 8.00% for each of the three years. The
assumed rate of increase in future compensation levels was 4.50% for 1995 and
1994, and 4.75% for 1993.
The subsidiaries of the Corporation have contributory and non-contributory
Profit Sharing Plans covering substantially all of their respective full-time
employees. The amounts expensed with respect to these Profit Sharing Plans were
$515,000 in 1995, $443,000 in 1994, and $414,000 in 1993.
Page 18 Page 42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands)
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
NOTE K - LONG TERM INCENTIVE PLAN
The Corporation has a Long-Term Incentive Plan under which stock options and
stock appreciation rights may be granted to employees at the discretion of
the Board of Directors. During 1995, 7,100 options were granted at an
exercise price of $39 per share, and 7,100 options were granted at an
exercise price of $46 per share. The exercise price of these options was
equal to the market price of the underlying stock on the grant date. These
options expire in 2005. No stock appreciation rights have been granted to
date.
NOTE L - COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are outstanding commitments and
contingent liabilities which are not reflected in the financial statements.
Commitments and contingent liabilities include financial instruments which
involve, to varying degrees, elements of credit, interest rate and liquidity
risk. In the opinion of Management, these do not represent unusual risks for
the Corporation's subsidiaries and Management does not anticipate any
significant losses as a result of these transactions. The Corporation uses
the same credit policies in making commitments and conditional obligations
as it does for on-balance sheet instruments. Standby letters of credit
outstanding at December 31, 1995, are approximately $5,612,000. Firm
commitments by the Corporation's subsidiaries to fund loans in the
future are approximately $106,479,000 as of December 31, 1995. There are
various other outstanding commitments and contingent liabilities arising in
the normal course of business. Disposition of these, in the opinion of
Management, will not have a material effect upon financial position.
NOTE M - DIVIDEND LIMITATION
Under certain banking regulations, regulatory approval is required before
dividends declared by the Corporation's subsidiary Banks can exceed defined
limits. At December 31, 1995, $10,737,000 of retained earnings of subsidiary
Banks are free of such regulatory limitations. There are no such restrictions
regarding the Corporation. As a practical matter, dividend payments are
restricted to lesser amounts as a result of the maintenance of prudent capital
levels.
NOTE N - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standard Number 107, "Disclosures About Fair
Value Of Financial Instruments" requires that the Corporation disclose
estimates, methods, and assumptions used in determination of the fair values
of the Corporation's financial instruments, as set forth below.
Cash and Cash Equivalents, Securities Sold Under Agreements to Repurchase
and Other Short-Term Borrowings
For these short-term instruments, the carrying amount is a reasonable estimate
of fair value.
Investment Securities
For investment securities, fair values are based on quoted market prices or
dealer quotes. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
Loans
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type, such as commercial, commercial
real estate, residential mortgage, credit card, and other consumer. Each loan
category is further segmented into fixed and adjustable rate interest terms.
Cash flows are discounted using current rates at which similar loans would be
made to borrowers with similar credit ratings and for the same remaining
maturities.
Deposit Liabilities
The fair value of demand deposits, savings accounts, and certain money market
deposits is the amount payable on demand at the reporting date. The fair value
of fixed-maturity certificates of deposit is estimated by discounting future
cash flows at rates currently offered for deposits of similar remaining
maturities.
Notes Payable
Rates currently available to the Corporation for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.
Page 19 Page 43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands except per share data)
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
NOTE N - FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
Commitments to Extend Credit and Standby Letters of Credit
The fair value of commitments is estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For
fixed-rate loan commitments, fair value also considers the difference between
current levels of interest rates and the committed rates. The fair value of
letters of credit is based on fees currently charged for similar agreements or
on the estimated cost to terminate them or otherwise settle the obligations
with the counterparties at the reporting date.
The carrying amount and estimated fair value of the Corporation's financial
instruments are as follows:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
----------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Financial Assets:
Cash and Cash Equivalents $ 85,247 $ 85,247 $ 78,751 $ 78,751
Investment Securities 253,899 253,899 246,159 246,038
Loans, Net (Excluding Lease
Contracts of $81,000 in 1995
and $342,000 in 1994) 393,246 398,928 350,319 350,504
------- ------- ------- -------
Total Financial Assets $732,392 $738,074 $675,229 $675,293
======= ======= ======= =======
Financial Liabilities:
Deposits $669,291 $669,605 $631,886 $630,205
Securities Sold Under Agreements
to Repurchase 6,554 6,554 6,791 6,791
Other Short-Term Borrowings 2,585 2,585 2,786 2,786
Note Payable 40 40 80 86
------- ------- ------- -------
Total Financial Liabilities $678,470 $678,784 $641,543 $639,868
======= ======= ======= =======
Unrecognized Financial Instruments:
Commitments to Extend Credit
Standby Letters of Credit (56) (60)
------- -------
Total Unrecognized Financial
Instruments $ (56) $ (60)
======= =======
</TABLE>
NOTE O - SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following unaudited quarterly financial information, in the opinion of
Management, fairly presents the results of operations for such periods.
<TABLE>
<CAPTION>
1995 Quarter
---------------------------------
4th 3rd 2nd 1st
--- --- --- ---
<S> <C> <C> <C> <C>
Interest Income $13,593 $13,442 $13,067 $12,464
Interest Expense 6,426 6,380 5,975 5,288
Net Interest Income 7,167 7,062 7,092 7,176
Provision for Possible
Loan Losses 224 20 19 40
Income Before Income Taxes 2,727 3,215 3,213 2,991
Net Income 2,071 2,291 2,332 2,129
Net Income Per Share .88 .97 .99 .91
</TABLE>
<TABLE>
<CAPTION>
1994 Quarter
-----------------------------------
4th 3rd 2nd 1st
--- --- ---- ---
<C> <C> <C> <C>
Interest Income $12,063 $11,689 $11,013 $10,645
Interest Expense 4,984 4,644 4,354 4,397
Net Interest Income 7,079 7,045 6,659 6,248
Provision for Possible
Loan Losses 388 5 61 101
Income Before Income Taxes 2,081 3,104 2,606 2,087
Net Income 1,606 2,209 1,879 1,604
Net Income Per Share .69 .94 .80 .68
</TABLE>
The results of operations in the 4th quarter of 1994 include a $384,000
Provision for Possible Loan Losses related to the Bank of Sugar Grove.
Page 20 Page 44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands)
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
NOTE P - CONDENSED FINANCIAL INFORMATION OF THE CORPORATION ONLY
Following is condensed financial information of the Corporation only, for
the respective dates and time periods shown:
<TABLE>
<CAPTION>
Condensed Balance Sheets
December 31,
1995 1994
---- ----
<S> <C> <C>
ASSETS
Cash on Deposit with Bank Subsidiaries $ 1,596 $ 1,908
Investment In Wholly-Owned Bank Subsidiaries 73,015 60,612
Investment Securities 1,820 133
Other Assets 93 25
------- -------
TOTAL ASSETS $76,524 $62,678
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Other Liabilities $ 1,106 $ 1,077
Stockholders' Equity 75,418 61,601
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $76,524 $62,678
======= =======
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Income
for the years ended December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
INCOME
Dividend Income from Subsidiaries $3,730 $5,385 $3,074
Interest Income 40 9 21
----- ----- -----
TOTAL INCOME 3,770 5,394 3,095
EXPENSES
Interest Expense 39 260
Other Expenses 898 700 559
------ ----- -----
TOTAL EXPENSES 898 739 819
Income Before Income Taxes and Equity
In Undistributed Net Income of Subsidiaries 2,872 4,655 2,276
Income Tax Benefit (201) (115) (228)
----- ----- -----
Income Before Equity In Undistributed Net
Income of Subsidiaries 3,073 4,770 2,504
Equity In Undistributed Net Income of
Subsidiaries 5,750 2,528 4,503
----- ----- -----
NET INCOME $8,823 $7,298 $7,007
===== ===== =====
</TABLE>
Page 21 Page 45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands)
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
NOTE P - CONDENSED FINANCIAL INFORMATION OF THE CORPORATION ONLY (continued)
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
for the years ended
December 31,
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Dividends Received From Subsidiaries $3,730 $5,385 $3,074
Interest Received 7 5 5
Interest Paid (247) (329)
Income Tax Payments Received From Subsidiaries 3,373 3,296 2,379
Income Taxes Paid (3,352) (3,113) (2,080)
Paid to Suppliers (407) (13) (43)
----- ----- -----
Net Cash Provided By Operating Activities 3,351 5,313 3,006
----- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Investment Securities (1,669) (153)
Other (24) 48 48
----- ----- -----
Net Cash Provided By (Used In) Investing Activities (1,693) (105) 48
----- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on Notes Payable (3,088) (1,030)
Dividends Paid (1,970) (1,714) (1,938)
----- ----- -----
Net Cash Used in Financing Activities (1,970) (4,802) (2,968)
----- ----- -----
Net Increase (Decrease) in Cash and Cash Equivalents (312) 406 86
Cash and Cash Equivalents at Beginning of Year 1,908 1,502 1,416
----- ----- -----
Cash and Cash Equivalents at End of Year $1,596 $1,908 $1,502
===== ===== =====
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Net Income $8,823 $7,298 $7,007
Adjustments to Reconcile Net Income To
Net Cash Provided by Operating Activities:
Equity In Undistributed Net Income of Subsidiaries (5,750) (2,528) (4,503)
Goodwill Amortization 516 516 516
Increase (Decrease) in Taxes Payable (180) 68 71
Increase in Interest Receivable (33) (4)
Decrease in Interest Payable (208) (69)
Other, Net (25) 171 (16)
----- ----- -----
Total Adjustments (5,472) (1,985) (4,001)
----- ----- -----
Net Cash Provided by Operating Activities $ 3,351 $ 5,313 $ 3,006
===== ===== =====
Page 22 Page 46
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ERNST & YOUNG LLP SEARS TOWER PHONE: 312-879-2000
233 SOUTH WACKER DRIVE
CHICAGO, ILLINOIS 60606-6301
Report of Independent Accountants
---------------------------------
Stockholders and Board of Directors
Old Second Bancorp, Inc.
We have audited the accompanying consolidated balance sheet of Old Second
Bancorp, Inc. and Subsidiaries as of December 31, 1995, and the related
consolidated statements of income, changes in stockholders' equity and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Old Second Bancorp, Inc. and Subsidiaries as of December 31,
1995, and the consolidated results of their operations and their cash
flows for the year then ended in conformity with generally accepted
accounting principles.
We also have audited, as to combination only, the accompanying consolidated
balance sheet of Old Second Bancorp, Inc. as of December 31, 1994 and the
related consolidated statements of income, changes in stockholders' equity,
and cash flows for each of the two years in the period ended December 31,
1994. As described in Note B to such statements, these statements have
been combined from the statements of Bank of Sugar Grove and Old Second
Bancorp, Inc. and Subsidiaries (which statements are not presented
separately herein). The balance sheet of Old Second Bancorp, Inc. and
Subsidiaries as of December 31, 1994 and the related consolidated
statements of income, changes in stockholders' equity and cash flows for
each of the two years in the period ended December 31, 1994 were audited
and reported on separately by other auditors, whose report appears elsewhere
herein. The balance sheet of Bank of Sugar Grove as of December 31, 1994
and the related statements of income, changes in stockholders' equity,
and cash flows for each of the two years in the period ended December 31,
1994 are not covered by an auditors report. Such financial statements
are immaterial to the restated pooled financial statements. In our opinion,
the accompanying consolidated balance sheet as of December 31, 1994 and
the related consolidated statements of income, changes in stockholders'
equity and cash flows for each of the two years in the period ended
December 31, 1994, have been properly combined onthe basis described in
Note B.
/s/ Ernst & Young LLP
January 17, 1996
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
Page 23 Page 47
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
| | Coopers & Lybrand L.L.P.
|COOPERS |
|&LYBRAND |
| | a professional services firm
Report of Independent Accountants
---------------------------------
The Stockholders and Board of Directors
Old Second Bancorp, Inc.
We have audited the consolidated balance sheet of Old Second Bancorp, Inc.
and Subsidiaries as of December 31, 1994 and the related consolidated
statements of income, retained earnings and cash flows for each of the
two years in the period ended December 31 1994, prior to the restatement
for the 1995 pooling-of-interest. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects the consolidated financial position of Old Second
Bancorp, Inc. and Subsidiaries as of December 31 1994, and the consoldiated
results of their operations and their cash flows for each of the two years
in the period ended December 31 1994, in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand L.L.P.
Chicago, Illinois
January 13 1995
Coopers & Lybrand L.L.P. is a member of Coopers & Lybrand International, a
limited liability association incorporated in Switzerland
Page 24 Page 48
<PAGE>
CORPORATE INFORMATION
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
10-K REPORT
Copies of the Corporation's 1995 10K report filed with the Securities and
Exchange Commission will be mailed to stockholders upon written request
to: Ronald J. Carlson, President, Chief Financial Officer and Secretary,
Old Second Bancorp, Inc., 37 South River Street, Aurora, Illinois 60507.
There were 1,344 holders of record of the Corporation's Common Stock at
year-end 1995.
MARKET PRICE OF COMMON STOCK
The Corporation's Common Stock has been traded in the over-the-counter market
on the NASDAQ National Market System under the symbol OSBC since
November 11, 1993. The following table sets forth the range of bid and ask
prices during each quarter for 1995 and 1994 as quoted by Chicago Corporation
who is a market maker for the Corporation's Common Stock. This information
represents quotations and does not necessarily reflect actual transactions.
</TABLE>
<TABLE>
<CAPTION>
Bid Ask
------------ -------------
1995 High Low High Low
- ---- ---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter $37.00 $34.00 $40.00 $36.00
Second Quarter 37.00 36.00 41.00 39.00
Third Quarter 41.00 37.00 44.00 39.00
Fourth Quarter 45.00 41.00 47.00 42.00
</TABLE>
<TABLE>
<CAPTION>
Bid Ask
-------------- --------------
1994 High Low High Low
- ---- ---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter $39.00 $39.00 $43.00 $43.00
Second Quarter 39.00 39.00 43.00 43.00
Third Quarter 39.00 38.00 43.00 41.00
Fourth Quarter 36.00 34.00 41.00 40.00
</TABLE>
The range of high and low closing sales prices of the Corporation's Common
Stock as quoted on the NASDAQ National Market System from January 1, 1995
through December 31, 1995 was $47.00 and $34.00, respectively.
Page 25 Page 49
<PAGE>
BOARD OF DIRECTORS
Walter Alexander
President,
Alexander Lumber Co.
(lumber and building material sales)
James E. Benson
Chairman and Chief Executive Officer, Old
Second Bancorp, Inc.
Ronald J. Carlson
President, Chief Operating Officer, Chief
Financial Officer, and Secretary, Old Second
Bancorp, Inc. and Vice President/CFO, The
Old Second National Bank of Aurora
Joanne Hansen
President, Furnas Foundation, Inc.
Kenneth Lindgren
President, Daco Incorporated
(contract manufacturer of machined components)
Jesse Maberry
Treasurer, Aurora Bearing Company
(manufacturer of rod end and spherical bearings)
Gary McCarter
Vice President, Farmers Group, Inc.
(insurance)
D. Chet McKee
President, Copley Memorial Hospital
William J. Meyer
President, Wm. F. Meyer Company
(plumbing fixtures and supplies)
Alan J. Rassi
Vice President and General Manager,
Caterpillar, Inc.
(construction equipment manufacturer)
Larry A. Schuster
Chairman, Westside Mechanical, Inc.
(mechanical contractor), Central Medical
Services, Inc. (hospital supply company), and
Cullen Medical Equipment, Inc.
(DME company)
William B. Skoglund
Vice President and Assistant Secretary,
Old Second Bancorp, Inc., and President and
Chief Executive Officer, The Old Second
National Bank of Aurora
George Starmann III
Vice President, Old Second Bancorp, Inc. and
Executive Vice President and Senior Trust
Officer, The Old Second National Bank
of Aurora
SENIOR DIRECTORS
M. J. O'Brien
Retired Vice President and Secretary,
Old Second Bancorp, Inc., and
Retired Senior Vice President and Cashier,
The Old Second National Bank of Aurora
Townsend L. Way, Jr.
Retired President,
Richards-Wilcox Mfg. Co.
Richard Westphal
Farmer
DIRECTORS EMERITI
John C. Dunham
Retired Chairman of the Board,
Aurora Equipment Co.
Vernon H. Haase
Retired Chairman,
Henry Pratt Co.
Urban Hipp
Retired, Barber-Greene Company
Dorothy F. McEnroe
Realtor, ReMax of Aurora
Daniel J. Ruddy
President,
Construction Advisory Services, Inc.
Ralph N. Schleifer
President
Fox Valley Dry Wall, Inc.
Edward Schmitt
President, Schmitt McDonalds
M. H. Snyder
Retired, Allsteel, Inc.
Page 26 Page 50
<PAGE>
Photographs of Board of Directors
OLD SECOND BANCORP, INC.
Walter James E. Ronald J. Joanne
Alexander Benson Carlson Hansen
Kenneth Jesse Gary D. Chet William J.
Lindgren Maberry McCarter McKee Meyer
Alan J. Larry A. William B. George
Rassi Schuster Skoglund Starmann III
M.J. O'Brien Townsend L. Way, Jr. Richard Westphal
Senior Director Senior Director Senior Director
Names Only
DIRECTORS EMERITI
John C. Dunham
Vernon H. Haase
Urban Hipp
Dorothy F. McEnroe
Daniel J. Ruddy
Ralph N. Schleifer
Edward Schmitt
M.H. Snyder
Page 27 Page 51
<TABLE>
CONSOLIDATING AND CONSOLIDATED BALANCE SHEET
(in thousands)
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
<CAPTION>
THE OLD
THE OLD SECOND THE OLD KANE OLD
SECOND COMMUNITY SECOND COUNTY
NATIONAL BANK OF COMMUNITY YORKVILLE BANK
BANK OF NORTH BANK OF NATIONAL BURLINGTON AND
AURORA AURORA AURORA BANK BANK TRUST
------ ------ ------ -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and Due From
Banks $ 25,425 $ 2,144 $ 4,161 $ 4,099 $ 1,712 $ 2,861
Interest Bearing
Deposits with
Banks 400
Federal Funds
Sold 24,750 3,850 900 3,400 1,400 3,375
------- ------ ------ ------ ------ ------
Total Cash and Cash
Equivalents 50,575 5,994 5,061 7,499 3,112 6,236
Investment
Securities 134,829 23,158 18,906 31,181 11,109 18,872
Loans 237,679 16,902 17,224 59,750 16,537 31,600
Less: Allowance
for Possible
Loan Loss 2,977 303 246 758 365 657
Unearned
Income 450 2 3 47
------- ------ ------ ------ ------ ------
Loans, Net 234,252 16,599 16,976 58,989 16,172 30,896
Bank Premises and
Equipment, Net 8,554 1,521 533 825 481 1,247
Other Assets 4,002 669 417 1,424 487 1,029
Investment in
Subsidiaries
------- ------ ------ ------ ------ ------
TOTAL ASSETS $432,212 $47,941 $41,893 $99,918 $31,361 $58,280
======= ====== ====== ====== ====== ======
LIABILITIES
Deposits
Demand $ 65,918 $ 5,620 $ 6,813 $ 9,168 $ 2,596 $ 7,512
Savings 139,956 20,606 15,967 39,266 12,146 28,249
Time 176,993 16,978 14,730 41,308 13,077 16,000
------- ------ ------ ------ ------ ------
Total Deposits 382,867 43,204 37,510 89,742 27,819 51,761
Securities Sold
Under Agreements
to Repurchase 5,000 1,019 535
Other Short-Term
Borrowings 2,151 102 55 277
Notes Payable
Other Liabilit 3,817 297 214 727 331 489
------- ------ ------ ------ ------ ------
TOTAL LIABILITIES 393,835 44,520 37,826 91,059 28,150 52,527
STOCKHOLDERS'EQUITY
Common Stock 2,160 250 480 525 250 1,000
Additional Capita 3,000 1,598 1,420 525 1,250 2,500
Retained Earnings 32,386 1,495 2,009 7,689 1,647 2,094
Net Unrealized Gain
on Investments 831 78 158 120 64 159
------- ------ ------ ------ ------ ------
TOTAL STOCKHOLDERS'
EQUITY 38,377 3,421 4,067 8,859 3,211 5,753
------- ------ ------ ------ ------ ------
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY $432,212 $47,941 $41,893 $99,918 $31,361 $58,280
======= ====== ====== ====== ====== ======
</TABLE>
Page 28 Page 52
<TABLE>
CONSOLIDATING AND CONSOLIDATED BALANCE SHEET (continued)
(in thousands)
<CAPTION>
OLD OLD
BANK OF SECOND SECOND
SUGAR BANCORP CONSOLIDATING BANCORP
GROVE INC. ADJUSTMENTS INC.
CONSOLIDATED
<S> <C> <C> <C> <C>
ASSETS
Cash and Due from
Banks $ 2,008 $ 1,596 $ (1,959) $ 42,047
Interest Bearing
Deposits with
Banks 400
Federal Funds
Sold 5,125 42,800
------- ------ ------ -------
Total Cash and Cash
Equivalents 7,133 1,596 (1,959) 85,247
Investment Securities 14,024 1,820 253,899
Loans 19,813 399,505
Less: Allowance for
Possible Loan
Loss 370 5,676
Unearned Income 502
------- ------ ------- -------
Loans, Net 19,443 393,327
Bank Premises and
Equipment, Net 1,208 233 14,602
Other Assets 990 93 4,544 13,655
Investment in
Subsidiaries 73,015 (73,015)
------- ------ ------- -------
TOTAL ASSETS $ 42,798 $76,524 $(70,197) $760,730
======= ====== ======= =======
LIABILITIES
Deposits
Demand $ 4,501 $ (1,959) $100,169
Savings 15,579 271,769
Time 18,267 297,353
-------- ------- ------- -------
Total Deposits 38,347 (1,959) 669,291
Securities Sold Under
Agreements to
Repurchase $ 6,554
Other Short-Term
Borrowings 36 (36) 2,585
Notes Payable 40 40
Other Liabilities 456 1,106 (595) 6,842
------- ------ ------- -------
TOTAL LIABILITIES 38,879 1,106 (2,590) 685,312
STOCKHOLDERS' EQUITY
Common Stock 260 15,377 (4,925) 15,377
Additional Capital 2,300 (12,593)
Retained Earnings 1,259 58,533 (48,579) 58,533
Net Unrealized Gain
on Investments 100 1,508 (1,510) 1,508
-------- ------ ------- -------
TOTAL STOCKHOLDERS'
EQUITY 3,919 75,418 (67,607) 75,418
-------- ------ -------- -------
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY $42,798 $76,524 $ (70,197) $760,730
====== ====== ======= =======
</TABLE>
Page 29 Page 53
<PAGE>
SERVICES
PERSONAL BANKING
A large variety of competitive checking, savings,
and certificate of deposit accounts are
available. Services include:
Direct Deposit
Safe Deposit Boxes
BANKCARD ATM/Debit Card
Infoline (Around the clock account information
from any touch-tone phone)
Senior Prime Time Club
Home Equity Loans and Lines of Credit
Vehicle Loans
Personal Installment Loans
Overdraft Protection Programs
MasterCard-R/VISA-RCredit Cards
REAL ESTATE LOAN SERVICES
Conventional Mortgages
Adjustable Rate Mortgages
Construction Loans and Permanent Financing
Community Home Buyers (Low Down
Payment) Program
Commercial and Investment Real Estate
Financing
Mortgage Pre-approvals
COMMERCIAL BANKING &
CASH MANAGEMENT
Checking, Savings and Money Market Accounts
PC-Cash Manager (On-line balance and
transaction account information)
Direct Access-ACH (On-line electronic
payments and collections)
Lock Box Service
Funds Wire Transfer
Short and Medium-Term Loans
Interim Construction Financing
Lines of Credit
Small Business Administration Loans
Collections and Remittances
Short-Term Investments
MasterCard-R/VISA-RSystems
Letters of Credit
Payroll Service (Including Direct Deposit)
TRUST SERVICES
Retirement & Estate Planning
Personal Trust Management
Investment Advisory Service
Estate Administration
Keogh Retirement Accounts
Rollover IRAs
Charitable Trust Management
Guardianships
Land Trusts
Life Insurance Trusts
Like Exchange Real Estate Trusts
Corporate Services
Administration & Investment for:
Defined Benefit Pension Plans
Profit Sharing Plans
Money Purchase Pension Plans
401(k) Deferred Compensation Plans
Corporate Sponsored IRA Plans
Pre-qualified Master Money Purchase and
Profit Sharing Plans
Multiple Investment Option Programs
Corporate Cash Management
INVESTMENT CENTER
Personal Financial Planning
Non-FDIC insured investments provided by Elan
Investment Services, Inc. a registered broker/
dealer and member NASD, SIPC include:
Mutual Funds
Stocks
Bonds
Securities
Annuities
All Photography by Ron Stewart Portraiture.
Page 30 Page 54
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
The subsidiaries of the registrant are as follows:
<TABLE>
<CAPTION>
Percentage of Voting
Incorporated Securities Owned by
Name Under Laws of Immediate Parent
---- ------------- --------------------
<S> <C> <C>
The Old Second National Bank The United States 100%
of Aurora
The Old Second Community Bank
of North Aurora State of Illinois 100%
The Old Second Community Bank
of Aurora State of Illinois 100%
Yorkville National Bank The United States 100%
Burlington Bank State of Illinois 100%
Kane County Bank and Trust
Company State of Illinois 100%
Bank of Sugar Grove State of Illinois 100%
Acquisition effective
June 30, 1995
</TABLE>
Page 55
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Old Second Bancorp, Inc. of our report dated January 17, 1996, included in
the 1995 Annual Report to Shareholders of Old Second Bancorp, Inc.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-87722) pertaining to the Old Second Bancorp, Inc.
Long-Term Incentive Plan of our report dated January 17, 1996, with respect
to the consolidated financial statements of Old Second Bancorp, Inc.
incorporated by reference in the Annual Proxy (Form 10-K) for the year ended
December 31, 1995.
/s/ Ernst & Young LLP
Chicago, Illinois
March 22, 1996
Page 56
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Old Second Bancorp, Inc. on Form S-8 (File No. 33-87722) of our report,
dated January 13, 1995, on our audits of the consolidated financial
statements of Old Second Bancorp, Inc. as of December 31, 1994 and for each
of the two years in the period ended December 31, 1994 prior to the
restatement for the 1995 pooling-of-interest, which report is incorporated
by reference in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand, LLP
Coopers & Lybrand LLP
Chicago, Illinois
March 18, 1996
Page 57
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 42047
<INT-BEARING-DEPOSITS> 400
<FED-FUNDS-SOLD> 42800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 253899
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 399003
<ALLOWANCE> 5676
<TOTAL-ASSETS> 760730
<DEPOSITS> 669291
<SHORT-TERM> 9179
<LIABILITIES-OTHER> 6842
<LONG-TERM> 0
<COMMON> 15377
0
0
<OTHER-SE> 60041
<TOTAL-LIABILITIES-AND-EQUITY> 760730
<INTEREST-LOAN> 34239
<INTEREST-INVEST> 16174
<INTEREST-OTHER> 2153
<INTEREST-TOTAL> 52566
<INTEREST-DEPOSIT> 23733
<INTEREST-EXPENSE> 24069
<INTEREST-INCOME-NET> 28497
<LOAN-LOSSES> 303
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 22834
<INCOME-PRETAX> 12146
<INCOME-PRE-EXTRAORDINARY> 8823
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8823
<EPS-PRIMARY> 3.75
<EPS-DILUTED> 3.75
<YIELD-ACTUAL> 4.29
<LOANS-NON> 3763
<LOANS-PAST> 56
<LOANS-TROUBLED> 58
<LOANS-PROBLEM> 5198
<ALLOWANCE-OPEN> 5753
<CHARGE-OFFS> 751
<RECOVERIES> 371
<ALLOWANCE-CLOSE> 5676
<ALLOWANCE-DOMESTIC> 5676
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
OLD SECOND BANCORP, INC.
37 South River Street / Aurora, IL 60507 / (708) 892-0202
Notice of Annual Meeting of Stockholders to be Held March 12, 1996
To the Stockholders of Old Second Bancorp, Inc.:
The Annual Meeting of Stockholders of Old Second Bancorp, Inc., will be
held on Tuesday, March 12, 1996 at 11:00 a.m. at the Corporation's premises
at 37 South River Street, Aurora, Illinois, for the following purposes:
1. The election of six directors to serve for a term of three years
each, the Board of Directors' nominees being listed in the Proxy
Statement;
2. The ratification and approval of the selection of Ernst & Young,
L.L.P. as the Corporation's independent accountants for the fiscal
year ended December 31, 1996;
3. The amendment of the Corporation's Certificate of Incorporation to
increase the number of its authorized shares of Common Stock from
3,500,000 to 6,000,000 shares, without par value; and
4. The transaction of such other business as may properly come before
the meeting or any adjournment or adjournments thereof.
The Board of Directors of the Corporation has fixed the close of business on
February 2, 1996 as the record date for the determination of stockholders
entitled to notice of and to vote at this meeting and at any and all
adjournments thereof.
By Order of the Board of Directors
James Benson
Chairman and
Chief Executive Officer
Aurora, Illinois
February 9, 1996
Your Vote is Important
Even if you plan to attend the meeting in person, please date, sign, and
return your proxy in the enclosed envelope. Prompt response is helpful and
your cooperation will be appreciated.
1 Page 59
<PAGE>
Old Second Bancorp, Inc.
37 South River Street / Aurora, IL 60507 /(708)892-0202
Proxy Statement
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Old Second Bancorp, Inc., a Delaware corporation (the
"Corporation"), 37 South River Street, Aurora, Illinois 60507, of proxies to
be used at the Annual Meeting of Stockholders of the Corporation to be held
at the Corporation's premises at 37 South River Street, Aurora, Illinois on
March 12, 1996 at 11:00 a.m., Central Standard Time, and at any and all
adjournments thereof.
A form of proxy is enclosed for use at the meeting. If the proxy is executed
and returned, it may nevertheless be revoked at any time insofar as it has not
been exercised. Stockholders attending the meeting may, on request, vote their
own shares even though they had previously sent in a proxy. Unless revoked or
instructions to the contrary are contained in the proxies, the shares
represented by validly executed proxies will be voted at the meeting and will
be voted: (i) for the election of the nominees for director named below; (ii)
for the ratification and approval of the selection of Ernst & Young, L.L.P. as
the Corporation's independent accountants for the fiscal year ended
December 31, 1996; (iii) for the amendment of the Corporation's Certificate of
Incorporation to increase the number of authorized shares of Common Stock,
without par value; and (iv) in the discretion of the named proxies upon such
other matters as may properly come before the meeting or at any adjournment or
adjournments thereof.
In order to be elected a director, a nominee must receive a plurality of the
votes cast at the meeting for the election of directors. Since the six nominees
receiving the largest number of affirmative votes will be elected, shares
represented by proxies which are marked "withhold authority" or "abstain" will
have no effect on the outcome of the election. Approval of each of the other
matters requires the affirmative vote of at least a majority of the votes cast
at the meeting on such matter. Shares represented by proxies which are marked
"abstain" as to any such matter will be counted as votes cast, which will have
the same effect as a negative vote on such matter. Proxies relating to
"street name" shares which are not voted by brokers on one or more, but less
than all, matters will be treated as shares present for purposes of determining
the presence of a quorum but will not be treated as votes cast as to such
matter or matters not voted upon.
2 Page 60
<PAGE>
A copy of the Corporation's Annual Report for the fiscal year ended
December 31, 1995, which includes certified financial statements, has been
previously mailed to you. The financial statements contained therein are not
deemed material to the exercise of prudent judgment in regard to any matter to
be acted upon at the Annual Meeting and, therefore, such financial statements
are not incorporated in this Proxy Statement by reference. This Proxy Statement
was mailed to stockholders on or about February 9, 1996.
Voting Securities and Principal Holders Thereof
Only holders of Common Stock of record at the close of business on February 2,
1996 will be entitled to vote at the Annual Meeting of Stockholders. At such
date, the Corporation had outstanding 2,350,165 shares of Common Stock without
par value. Each share of Common Stock entitled the holder to one vote upon
each matter to be voted at the meeting.
To the best knowledge of the Corporation, no person, other than the
persons shown below and the Trust Department of The Old Second National Bank
of Aurora ("Old Second") owned beneficially more than 5% of the outstanding
voting securities of the Corporation as of December 31, 1995.
Number and Percent of
Name and Address Shares Beneficially Owned
Old Second, as trustee for the 120,328 shares (5.12%) of the
J. Carl Schmitz marital and Corporation's Common Stock is
residual trusts 37 South River held in the name of the J. Carl
Street, Aurora, Illinois 60507 Schmitz marital and residual
trusts for the benefit
of Genevieve P. Schmitz, and
James Carl Schmitz. Genevieve P.
Genevieve P. Schmitz Schmitz has the power to direct
Villa San Marcos the voting of all such shares.
4201 North 78th Place
Scottsdale, Arizona 85251
Old Second Bancorp, Inc. 194,906 shares (8.29%) of the
Profit Sharing Plan and Trust Corporation's Common Stock
37 South River Street
Aurora, Illinois 60507
3 Page 61
<PAGE>
As of December 31, 1995, Old Second held in its Trust Department, in various
fiduciary capacities (other than as trustee of the Corporation's Profit
Sharing Plan and Trust and the J. Carl Schmitz marital and residual trusts),
151,904 shares of the Corporation's Common Stock (6.46%). Old Second had full
voting responsibility with respect to 139,553 of such shares (5.94%) of the
total outstanding shares and no voting responsibility with respect to the
remaining shares. Old Second had full investment power with respect to
105,145 shares (4.47%) and shared investment power with respect to 26,937
shares (1.15%).
The following table sets forth information as of December 31, 1995, with
respect to the ownership of shares of the Corporation's Common Stock held by
each director, director nominee and each executive officer and all directors,
director nominees and executive officers of the Corporation as a group based
upon information received from such persons. Beneficial ownership of
securities generally means the power to vote or dispose of securities,
regardless of any economic interest.
<TABLE>
<CAPTION>
Corporation Common Stock
Beneficially Owned
------------------------------
Number of Shares (%)*
<S> <C> <C>
Name
Walter Alexander 13,914 (0.59%)
James Benson 47,272 (2.01%)
Ronald J. Carlson 6,889 (0.29%)
Marvin Fagel 500 (0.02%)
Joanne Hansen 1,050 (0.04%)
Kenneth Lindgren 6,853 (0.29%)
Jesse Maberry 4,420 (0.19%)
Gary McCarter 553 (0.02%)
D. Chet McKee 2,333 (0.10%)
William Meyer 4,566 (0.19%)
Alan J. Rassi 1,000 (0.04%)
Larry Schuster 10,960 (0.47%)
William B. Skoglund 5,526 (0.24%)
George Starmann III 2,200 (0.09%)
All Directors, Director Nominees,
and Executive Officers as a group
Officers as a group (14 persons) 108,036 (4.60%)
</TABLE>
- --------------------------------
*Includes ownership of securities by spouse (even though any beneficial
interest is disclaimed), and in the Corporation's Profit Sharing Plan and
Trust and the Corporation's Salary Savings Plan.
4 Page 62
<PAGE>
Election of Directors
Under the Corporation's Certificate of Incorporation, the Board of Directors
is divided into three classes, approximately equal in number. Each year the
stockholders will be asked to elect the member of a class for a term of three
years. The six nominees named below have been recommended for election as
Directors for a term ending at the Annual Meeting in 1999 or until their
successors are elected.
The Board of Directors has no reason to believe that any of the nominees
will not be available for election. However, if any such nominees are not
available for election, proxies may be voted for the election of other
persons selected by the Board of Directors.
<TABLE>
<CAPTION>
Director Nominees
<S> <C> <C>
Name Age Principal Occupation 1,2
James Benson 65 Chairman of the Board and CEO
of the Corporation (1971)
Marvin Fagel 48 President, Aurora Packing
Company, and Chairman of
the Board and CEO, New City
Packing Company, a meat
packing company
Joanne Hansen 55 President, Furnas Foundation,
Inc., a charitable
foundation (1993)
Kenneth Lindgren 55 President, Daco Incorporated,
contract manufacturer
of machined components (1990)
Jesse Maberry 52 Treasurer, Aurora Bearing
Company, manufacturer of
rod end and spherical
bearings (1985)
Alan J. Rassi 55 Vice President and General
Manager, Caterpillar,
Inc., construction equipment
manufacturer (1987)
</TABLE>
1) Each director nominee has been employed in his principal occupation with
the same organization or other responsible position with the same
organization for at least the last five years, or is retired after having
served in responsible positions with the organization indicated.
2) The date shown in parentheses refers to the year originally elected or
appointed to the Board of Old Second or the Corporation. Pursuant to a
reorganization in 1982, Old Second became a wholly-owned subsidiary of the
Corporation. Each director has served continuously since the date indicated.
5 Page 63
<PAGE>
<TABLE>
<CAPTION>
Continuing Directors
<S> <C> <C>
Name Age Principal Occupation 1, 2
Walter Alexander (4) 61 President, Alexander Lumber
Co., lumber and building material
sales (1976)
Ronald J. Carlson (3) 60 President, COO, CFO, and
Secretary of the Corporation,
Vice President and CFO of Old
Second (1987)
Gary McCarter (3) 59 Vice President, Farmers
Group, Inc., an insurance
company (1988)
D. Chet McKee (3) 56 President, Copley Memorial
Hospital (1978)
William Meyer (4) 48 President, William F. Meyer
Co., a wholesale plumbing
supply company (1995)
Larry Schuster (4) 55 Chairman, Westside
Mechanical, Inc., mechanical
contractor (1990)
William B. Skoglund (4) 45 Vice President and Assistant
Secretary of the
Corporation, President and
CEO of Old Second (1992)
George Starmann III (4) 52 Vice President of the
Corporation, Executive Vice
President and Senior Trust
Officer of Old Second
(1995)
</TABLE>
1) Each director has been employed in his principal occupation with
the same organization or other responsible position with the same
organization for at least the last five years, or is retired after having
served in responsible positions with the organization indicated, except
for George Starmann III who prior to 1993 was Executive Vice President and
Senior Trust Officer at Banc One, La Grange, Illinois.
2) The date shown in parentheses refers to the year originally elected or
appointed to the Board of Old Second or the Corporation. Pursuant to a
reorganization in 1982, Old Second became a wholly-owned subsidiary of the
Corporation. Each director has served continuously since the date indicated.
3) Serves as director until 1997.
4) Serves as director until 1998.
6 Page 64
<PAGE>
Walter Alexander, a director of the Corporation, is also a director of
Mosinee Paper Corporation, a corporation with a class of securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934
or subject to the reporting requirements of Section 15(d) of that Act or
registered as an investment company under the Investment Company Act
of 1940.
Upon attaining age 70, an elected director would assume the status of a
Senior Director for a period of three years. Every Senior Director has a
right to attend all Board of Director meetings and Board of Director
Committee meetings to which they are appointed and to participate in all
discussions during such meetings. However, a Senior Director does not have
the right to vote on any matter.
The Board of Directors of the Corporation has established Audit and Nominating
Committees, as well as other Committees, to assist it in the discharge of its
responsibilities. The principal responsibilities of the Audit and Nominating
Committees are described below. The members of each Committee serve on the
respective Committees during the period between annual stockholders' meetings.
The Corporation does not have a Compensation Committee, since compensation
levels are determined by the Board of Directors of each subsidiary of the
Corporation. The Corporation's executive officers also are executive officers
of Old Second, and are compensated by Old Second rather than the Corporation;
accordingly, their compensation is determined and approved by the Compensation
Committee and Board of Directors of Old Second.
The members of the Corporation's Audit Committee during 1996 were Messrs.
Alexander, McCarter, McKee, and Schuster. Each year, such Committee recommends
to the Board the appointment of a firm of independent accountants to examine
the books of the Corporation. It reviews with representatives of the
independent accountants the auditing arrangement and scope of the independent
accountants' examination of the books, results of those audits, their fees,
and any problems identified by the independent accountants regarding internal
controls, together with their recommendations. The Committee also reviews with
the Corporation's internal auditors any problems identified by them regarding
internal controls and their recommendations. The Committee is also prepared
to meet privately at any time at the request of the independent accountants,
the internal auditors, or members of the Corporation's management to review
any special situation arising on any of the above subjects. The Committee
met six times during 1995.
7 Page 65
<PAGE>
The members of the Corporation's Nominating Committee during 1995 were Messrs.
Alexander, Benson, Carlson, Maberry, McKee, Schuster, Skoglund, Starmann, and,
prior to attaining mandatory retirement age in August 1995, Mr. Edward Schmitt.
The Committee reviews the qualifications of, and recommends to the Board,
candidates to fill Board vacancies as they may occur during the year. The
Nominating Committee will consider suggestions from all sources, including
stockholders, regarding possible candidates for director. Such suggestions,
together with appropriate biographical information, should be submitted to the
Corporation. The Committee met twice during 1995.
The Board of Directors of the Corporation held 12 meetings during 1995. Actions
taken by any Committee of the Board are reported to the Board of Directors,
usually at its next meeting. During 1995 all of the directors attended at least
75% of the aggregate of the Corporation's Board of Directors meetings and
meetings of the committees on which they served.
All persons who serve as directors of the Corporation also serve as
directors of Old Second. No fees are paid by the Corporation to the
directors in their capacity as directors of the Corporation, and no fees
are paid by Old Second to inside directors in their capacity as directors
of Old Second. During 1995, Old Second paid directors' fees to outside
directors consisting of a $3,500 annual retainer fee, $250 for each
Board of Director meeting attended, and $200 for each Committee meeting
attended.
8 Page 66
<PAGE>
Executive Compensation
The following table sets forth information with respect to compensation
for services in all capacities paid by the Corporation for the fiscal years
ended December 31, 1995, 1994, and 1993, to those persons who were at
December 31, 1995; (i) the chief executive officer and (ii) the other executive
officers of the Corporation whose annual salary exceeded $100,000.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Long-Term
Compensation Compensation
Awards
Securities
Name and Underlying All Other
Principal Position Year Salary ($)1 Options (#) Compensation ($)2
<S> <C> <C> <C> <C>
James Benson 1995 $268,695 2,600 $16,904
Chairman and Chief 1994 254,540 -- 15,830
Executive Officer 1993 240,325 -- 15,623
of the Corporation
Ronald J. Carlson 1995 $208,135 2,400 $13,584
President, Chief 1994 194,885 -- 12,671
Operating Officer 1993 183,623 -- 11,742
and Chief Financial
Officer and Secretary
of the Corporation
Vice President and
Chief Financial Officer
of Old Second
William B. Skoglund 1995 $156,565 2,200 $11,611
Vice President and 1994 146,565 -- 10,626
Assistant Secretary 1993 135,338 -- 9,538
of the Corporation
President and Chief
Executive Officer
of Old Second
9 Page 67
<PAGE>
Summary Compensation Table (continued)
Annual Long-Term
Compensation Compensation
Awards
Securities
Name and Underlying All Other
Principal Position Year Salary ($)1 Options (#) Compensation ($)2
George Starmann III 1995 $149,465 2,000 $9,446
Vice President of 1994 140,775 -- 3,815
the Corporation 1993 131,555 -- 0
Executive Vice
President and
Senior Trust Officer
of Old Second
</TABLE>
1) Salary amounts for Messrs. Benson and Carlson include director's
fees received from the Corporation's subsidiary banks other than Old Second
in the amount of $15,900, $13,125, and $12,850 for Mr. Benson and $15,700,
$12,925, and $12,650 for Mr. Carlson for the years 1995, 1994, and 1993,
respectively.
2) The amounts shown represent the contribution to the Corporation's qualified
Profit Sharing Plan and Trust in the amounts of $8,250, $8,250, $8,250, and
$8,221 for Messrs. Benson, Carlson, Skoglund, and Starmann, respectively;
to the Corporation's Salary Savings Plan in the amounts of $3,000, $3,000,
$3,000, and $1,225 for Messrs. Benson, Carlson, Skoglund, and Starmann,
respectively, as vested and accrued during 1995; and, to the Corporation's
nonqualified Supplemental Executive Retirement Plan ('SERP') in the amounts of
$5,654, $2,334, and $361 for Messrs. Benson, Carlson, and Skoglund,
respectively. No amounts were paid or distributed pursuant to the plans to the
named individuals during 1995, 1994, or 1993.
10 Page 68
<PAGE>
Option Grants
The following table provides information about stock options granted during
1995.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year*
Individual Grant Potential
Realizable Value
Percent of at Assumed Annual
Total Options Rates of Stock
Granted to Exercise Price Appreciation
Options Employees Price Expiration For Option Term
Name Granted (#) in Fiscal Year ($/Share) Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
James 1,300 18.31% $39.00 07/10/05 $31,885 $80,803
Benson 1,300 46.00 12/11/05 37,608 95,306
Ronald J. 1,200 16.90% 39.00 07/10/05 29,432 74,587
Carlson 1,200 46.00 12/11/05 34,715 87,975
William B. 1,100 15.49% 39.00 07/10/05 26,980 68,372
Skoglund 1,100 46.00 12/11/05 31,822 80,643
George 1,000 14.08% 39.00 07/10/05 24,527 62,156
Starmann III 1,000 46.00 12/11/05 28,929 73,312
</TABLE>
*Messrs. Benson, Carlson, Skoglund, and Starmann received one-half of their
total options awarded for the 1995 fiscal year on 7/11/95 and one-half on
12/10/95. One-third of the options granted vest and become exercisable on each
of the first three anniversaries of their grant date.
11 Page 69
<PAGE>
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors of Old Second has
furnished the following report on executive compensation.
The Corporation's executive officers are also executive officers of Old Second
and are compensated by Old Second (not the Corporation); accordingly, their
compensation is determined and approved by the Compensation Committee and Board
of Directors of Old Second. The members of the Compensation Committee and Board
of Directors of Old Second are Directors of both the Corporation and Old
Second. The members of the Compensation Committee during 1995 were Walter
Alexander, Gary McCarter, and Alan Rassi. Although the executive officers are
compensated by Old Second and their compensation is determined by the
Compensation Committee of Old Second, their scope of authority for management
of the Corporation, as well as Old Second, is an important consideration by
the Committee when establishing compensation.
Compensation Philosophy and Overall Objectives
The Corporation's mission is to maximize stockholder value over the long term.
To accomplish this mission, the Corporation has developed a comprehensive
business strategy that emphasizes superior financial products and customer
services. The Corporation believes its executive compensation program should
motivate its executives to both individually and collectively take actions
that support the attainment of this mission.
The program of executive compensation is intended to reflect the following
stated executive compensation policies:
The program of executive compensation should strengthen the
relationship between pay and performance by providing compensation
that is dependent upon the level of success in meeting specified
Corporate goals.
Compensation opportunities should enhance the Corporation's ability
to attract, retain, and encourage the development of exceptionally
knowledgeable and experienced executives upon whom, in large part,
the successful operation and management of the Corporation depends.
Each program element should target compensation levels at rates that
are reflective of current market practices. Offering market-comparable
pay opportunities should allow the Corporation to maintain a stable,
successful management team.
12 Page 70
<PAGE>
Elements of Executive Compensation
(a) Base Salaries
Annually, the Compensation Committee reviews each executive's base salary. It is
the Corporation's philosophy that base salaries offer security to executives
and allow the Corporation to attract competent executive talent and maintain
a stable management team. The Compensation Committee of Old Second targets
base salaries at market levels, though compensation may be adjusted above or
below the median based on company performance. Initially, base salaries are
determined by evaluating an executive's level of responsibility, prior
experience, education, breadth of knowledge, internal performance objectives,
and competitive compensation programs for senior executives at comparable banks.
Adjustments to base salaries are driven primarily by corporate performance
measured primarily in terms of earnings per share, return on equity and
assets, and enhancement of book value per share. When measuring individual
performance, the Compensation Committee considers the executive's efforts in
achieving established financial and business objectives, managing and developing
employees, and enhancing long-term relationships with customers.
As reflected in the Summary Compensation Table, the Chief Executive Officer's
(Mr. Benson's) base salary was increased in 1995. In determining Mr. Benson's
base salary in 1995, the Compensation Committee considered the Corporation's
financial performance for the year, Mr. Benson's individual performance, and
his long-term contributions to the success of the Corporation. The Compensation
Committee also compared Mr. Benson's base salary to the base salaries of bank
CEOs from various data sources. Overall, salary increases for the three
additional senior executives were at a rate comparable to the increases provided
to similar executives at other banks, as shown by the survey data.
(b) Stock Options
To establish a link between compensation and management's performance in
creating value for shareholders, top level management employees were granted
stock options during 1995 pursuant to the Company's Long-Term Incentive Plan
as approved by shareholders in 1994. To reinforce the Company's long-term
perspective and to help retain valued executives, these options vest ratably
over the three-year period following grant. Options are issued at the market
value of Company shares on the date of grant, thus providing reward only for
future stock price appreciation. Future grants of option awards are expected to
be reviewed on an annual basis.
13 Page 71
<PAGE>
The 1995 grant of stock options to Mr. Benson was determined primarily by
comparing the long-term incentive opportunities awarded to CEOs at various banks
of similar size. Mr. Benson, as well as other top level management employees,
received a stock option grant comparable to the long-term incentive opportunity
granted to individuals with the same or similar position at these banks.
(c) Benefits, Qualified Savings Plans, and Perquisites
Benefits offered to key executives serve a different purpose than does base
salary and other elements of compensation. In general, they provide a safety
net of protection against financial catastrophes that can result from illness,
disability, or death. Benefits offered to key executives, including those
provided to the Corporation's CEO are generally those offered to the general
employee population with some variation to promote tax efficiency and
replacement of benefit opportunities lost to regulatory limits.
All full-time employees, including Mr. Benson, are eligible to participate
in the Corporation's 401-K Savings Plan, Profit Sharing Plan, and a
tax-qualified Pension Plan, subject to regulatory limits. The pension plan
targets a 50% pay replacement, integrated with the participant's social
security benefits, at normal retirement age following a full career of service.
The 401(k) savings program authorizes a maximum voluntary salary deferral of up
to 10% (with a partial company match), subject to statutory limitations. The
profit sharing arrangement provides an annual discretionary contribution to the
retirement account of each employee based in part on the bank's profitability
in a given year, and on each participant's rate of base salary. Participation
in these qualified savings plans is likewise offered to the eligible general
employee population. Benefits under these plans, taken as a whole, are
competitive with comparable banks and bank holding companies.
Policy With Respect to the $1 Million Deduction Limit
Recently enacted Section 162(m) of the Internal Revenue Code generally limits
the corporate deduction for compensation paid to executive officers named in
the proxy to $1 million, unless certain requirements are met. The Compensation
Committee has carefully considered the impact of this new tax code provision
and has determined that it is unlikely to affect the deductibility of
compensation paid to executive officers.
14 Page 72
<PAGE>
Conclusion
The Compensation Committee believes these executive compensation policies and
programs effectively serve the interests of stockholders and the Corporation.
The Compensation Committee believes these policies motivate executives to
contribute to the Corporation's overall future successes, thereby enhancing
the value of the Corporation for the stockholders' benefit.
Compensation Committee of the Board of Directors of Old Second
Mr. Walter Alexander
Mr. Gary McCarter
Mr. Alan Rassi
Employment Agreement
Effective January 2, 1996, Mr. Benson retired as CEO of Old Second and was
replaced by Mr. Skoglund. However, for an initial period of one year,
Mr. Benson will continue in his position as Chairman of the Board of the
Corporation and will retain the title of CEO of the Corporation. During this
initial one-year period, Mr. Benson will continue to serve on the Board
Committees of banks in the holding company, will participate in exit interviews
with regulatory examiners, and will be available to bank management as a
consultant. In exchange for these and other services, Mr. Benson will receive
a fee of $48,000.
15 Page 73
<PAGE>
<TABLE>
<CAPTION>
Comparison of Five-Year Cumulative Total Return*
Old Second Bancorp, Inc.; S&P 500; and Custom Peer Group
Measurement Period
(Fiscal Year Covered) Old Second Bancorp S&P 500 Custom Peer Group
- --------------------- ------------------ ------- -----------------
<S> <C> <C> <C>
December 90 100.00 100.00 100.00
December 91 131.69 130.34 119.97
December 92 154.44 140.25 168.89
December 93 205.62 154.32 211.53
December 94 215.61 156.42 215.29
December 95 248.24 214.99 262.71
</TABLE>
*Total return assumes reinvestment of dividends on a quarterly basis.
The above graph represents the five-year cumulative total stockholder return
for the Corporation, the S&P 500 Composite Index, and the Custom Peer Group.
The companies in the Custom Peer Group are: First Oak Brook Bancshares Inc.;
Heritage Financial Services Inc.; Merchants Bancorp Inc.; Northern States
Financial Corporation; Pinnacle Banc Group Inc.; Premier Financial Services
Inc.; Princeton National Bancorp Inc.; and Todays Bancorp Inc.
16 Page 74
<PAGE>
Pension Plan
All full-time employees of the Corporation's subsidiary banks who have
completed one year of service are eligible for participation in the
Corporation's Pension Plan and the remuneration credited each participant
includes all direct salaries and wages paid. Generally speaking, retirement
benefits are based on final average monthly earnings during the highest five
consecutive years of employment during the last ten years before retirement and
integrates with a portion of the Primary Social Security Benefit payable to the
participant. A participant receives monthly the amount calculated under the
following formula: the monthly average of the 60 highest paid consecutive months
out of the final ten years of employment times the sum of (i) 1-2/3% times the
number of years of credited service up to a maximum of 30, and (ii) 1/2% times
each year of credited service over 30 years; less one-half the Primary Social
Security Benefit payable to the participant. The following table
illustrates the annual amount of retirement income available under both the
Corporation's Pension Plan and SERP (after deducting 1/2 of the social
security benefit, but without limiting the retirement benefits for the single
plan defined benefit limit of Section 415(c), for the combined plan Section 415
limits, and for the includible compensation limitation of Section 401(a)(17) of
the Internal Revenue Code (the Code) from such plan for a person 65 years of
age in specified average earnings and years of service classification. The SERP
restores benefits lost under the Pension Plan due to the limits imposed under
Sections 401(a)(17) and 415 of the Code. The objective of the SERP is to permit
those employees who are affected by the limitations of Code Sections 401(a)(17)
and 415 to receive the same benefit they would have received under the Pension
Plan but for the limitations imposed by the Code.
In certain cases, a participant's actual benefit may be less than that provided
below:
<TABLE>
Covered Years of Service
Compensation 15 20 25 30 35 40
<S> <C> <C> <C> <C> <C> <C>
$15,000 $ 2,250 $ 3,000 $ 3,750 $ 4,500 $ 5,250 $ 6,000
25,000 3,750 5,000 6,250 7,500 8,750 10,000
35,000 5,471 7,295 9,118 10,942 12,250 14,000
50,000 8,924 11,899 14,873 17,848 19,098 20,348
75,000 15,006 20,008 25,010 30,012 31,887 33,762
100,000 21,256 28,341 35,427 42,512 45,012 47,512
125,000 27,506 36,675 45,843 55,012 58,137 61,262
150,000 33,756 45,008 56,260 67,512 71,262 75,012
175,000 40,006 53,341 66,677 80,012 84,387 88,762
200,000 46,256 61,675 77,093 92,512 97,512 102,512
225,000 52,506 70,008 87,510 105,012 110,637 116,262
250,000 58,756 78,341 97,927 117,512 123,762 130,012
275,000 65,006 86,675 108,343 130,012 136,887 143,762
300,000 71,256 95,008 118,760 142,512 150,012 157,512
</TABLE>
17 Page 75
<PAGE>
Covered compensation under the pension formula and the respective years of
credited service as of December 31, 1995 for the executive officers named in
the cash compensation table are as follows: James Benson, $252,795 (37 years);
Ronald J. Carlson, $192,435 (16 years); William B. Skoglund, $156,565
(23 years); and George Starmann III, $149,465 (2 years).
Compensation Committee Interlocks and Insider Participation
Directors, director nominees, and executive officers of the Corporation and
their associates were customers of, and had transactions with, the Corporation
and its subsidiaries in the ordinary course of business during 1995. Additional
transactions may be expected to take place in the future. All outstanding
loans, commitments to loan, transactions in repurchase agreements and
certificates of deposit, and depository relationships, in the opinion of
management, were made on substantially the same terms, including interest
rates, collateral, and repayment terms on extensions of credit, as those
prevailing at the time for comparable transactions with other persons and in
the ordinary course of business and did not involve more than the normal risk
of collectibility or present other unfavorable features.
18 Page 76
<PAGE>
Proposal to Increase the Number of Authorized Shares
The Corporation proposes to amend Article 4 of its Certificate of
Incorporation to increase the number of its authorized shares of Common Stock.
The Corporation proposes to increase the number of authorized shares of Common
Stock from 3,500,000 to 6,000,000 shares.
As of February 2, 1996, the Corporation had 2,350,165 shares issued and
outstanding and had 100,000 shares reserved for issuance. If this proposal is
adopted by shareholders, the Corporation will then have 3,549,835 shares
available for issuance.
The Corporation does not have any current plans to issue any shares of Common
Stock other than in connection with the Old Second Bancorp Long-Term Incentive
Plan.
The Board of Directors of the Corporation has determined that it is in the
best interests of the Corporation to have additional shares of Common Stock
authorized and available for issuance as the need arises for possible future
financing transactions, acquisitions, asset purchases, stock dividends or
splits, issuances under employee benefit plans, and for other general
corporate purposes. Such shares will be issuable by the Corporation generally
without further authorization by the stockholders on such terms as the Board
of Directors may lawfully determine. The effect of the authorization and
issuance of additional shares of Common Stock (other than on a pro rata basis
among holders of Common Stock) would be to dilute the present voting power of
the holders of Common Stock. Stockholders presently do not have preemptive
rights. Although it is not intended to be an anti-takeover measure, the increase
in authorized shares of Common Stock with a subsequent issuance of such shares
could impede a potential takeover by, among other things, (1) diluting the
stock ownership of persons attempting to gain control of the Corporation
and (2) issuing securities to individuals or entities favorable to management.
The par value, designations, preferences, relative rights, limitations, or
restrictions of the authorized Common Stock of the Corporation will remain
unchanged.
Upon effectiveness of the amendment to increase the number of authorized
shares of Common Stock, the Corporation will have 6,000,000 shares of
Common Stock, without par value per share, and authorized and available for
issuance.
The Board of Directors currently believes that the authorized, unissued
shares of Common Stock of the Corporation which will remain after amendment
of the Corporation's Certificate of Incorporation as proposed in these proxy
materials will be sufficient for the Corporation's capital and other needs
for the foreseeable future.
The Board of Directors recommends that the stockholders vote FOR the
amendment of the Corporation's Certificate of Incorporation to increase the
number of authorized shares of Common Stock.
19 Page 77
<PAGE>
Independent Accountants
Ernst & Young, L.L.P. ("Ernst & Young") has been selected by the Corporation
to be the Corporation's independent accountants for the fiscal year
ended December 31, 1996. The Board of Directors will propose the adoption
of a resolution at the Annual Meeting ratifying and approving the selection
of Ernst & Young. Representatives of Ernst & Young are expected to be present
at the Annual Meeting with the opportunity to make a statement, if they desire
to do so, and to be available to respond to the appropriate questions.
On February 3, 1995, the Corporation notified its previous independent
accountants, Coopers & Lybrand, L.L.P. (Coopers & Lybrand) that
Coopers & Lybrand would not be retained as the Company's independent
accountants for the 1995 fiscal year. The decision to change independent
accountants was recommended by the Corporation's Audit Committee and approved
by the Board of Directors. Representatives of Coopers & Lybrand are not
expected to be present at the Annual Meeting of Stockholders.
Coopers & Lybrand's reports on the Corporation's financial statements during
the two most recent fiscal years in which Coopers & Lybrand was retained
contained no adverse opinion or a disclaimer of opinions, and was not qualified
or modified as to uncertainty, audit scope, or accounting principles. During
those two fiscal years, there were no disagreements between the Corporation and
Coopers & Lybrand on any matters of accounting principles, financial statement
disclosure, or auditing scope or procedure.
None of the reportable events described under Item 304(a)(1)(v) of
Regulation S-K promulgated under the Securities Exchange Act of 1934
(Regulation S-K) occurred during those two fiscal years. In addition, during
those two fiscal years, the Corporation did not consult Ernst & Young regarding
any of the matters or events set forth in Item 304(a)(2)(i) and (ii) of
Regulation S-K.
The Board of Directors recommends that the stockholders vote FOR the above
proposal.
Stockholder Proposals
Proposals of stockholders to be included in the Corporation's Proxy Statement
for the March 1997 Annual Meeting of Stockholders must be received by the
Corporation at its executive office no later than November 1, 1996.
20 Page 78
<PAGE>
General
The cost of this proxy solicitation will be borne by the Corporation.
Solicitation will be made primarily through the use of the mail, but officers,
directors, or regular employees of the Corporation may solicit proxies
personally or by telephone or telegraph without additional remuneration for
such activity. In addition, the Corporation will reimburse brokerage houses and
other custodians, nominees, or fiduciaries for their reasonable expenses in
forwarding proxies and proxy material to the beneficial owner of such shares.
As of the date of this Proxy Statement, management knows of no other matters
to be brought before the Annual Meeting. However, if any other matters should
properly come before the meeting, it is the intention of the persons named
in the enclosed proxy to vote thereon in accordance with their best judgment.
By Order of the Board of Directors
James Benson
Chairman and
Chief Executive Officer
Aurora, Illinois
February 9, 1996
21 Page 79
