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 (No Fee Required)
For the fiscal year ended December 31, 1996
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)
(630) 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:
$127,046,183 as of February 28, 1997
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
2,937,484 shares of No par value common stock at February 28, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the December 31, 1996 Annual Report to Stockholders and the
Registrant's Proxy Statement dated February 10, 1997, 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 21 and 22.
This Form 10-K consists of 81 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, 1996,
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 66 Chairman, Chief Executive
Officer, and Director
R. J. Carlson 61 President, Chief Operating
Officer, Chief Financial
Officer, Secretary and
Director
William B. Skoglund 46 Vice President, Assistant
Secretary and Director
George Starmann III 53 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 promoted from Vice-President to
President in 1992 and was 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>
</TABLE>
Page 2
<PAGE>
OLD SECOND BANCORP SUBSIDIARIES
The Old Second National Bank of Aurora is located at 37 South River
Street, Aurora, Illinois. 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 LPL Financial
Services, Inc., a registered broker/dealer and member NASD, SIPC. Old
Second has two offsite Automatic 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.
Old Second has full-service branches located at: 1991 West Wilson
Street, Batavia; 4080 Fox Valley Center Drive, Aurora; 555 Redwood Drive,
Aurora. Another full-service banking facility, located in Oswego, Illinois,
is to be opened in the early part of 1997. Old Second has trust offices at
37 South River Street in Aurora, Illinois, 321 James Street in Geneva,
Illinois and 111 North Main Street in Elburn, Illinois.
At December 31, 1996, Old Second had 193 full-time employees,
including 57 officers, and 72 part-time employees.
The Old Second Community Bank of North Aurora is located at 200 West
John Street, North Aurora, Illinois. The Old Second Community Bank of
Aurora is located at 1350 North Farnsworth Avenue, Aurora, Illinois.
Yorkville National Bank is located at 102 East Van Emmon Street, Yorkville,
Illinois, with a branch located at 408 East Countryside Parkway, Yorkville.
In 1996, Yorkville opened a branch in the Super Wal-Mart in Plano, Illinois
and acquired the Ottawa Banking Center located in Ottawa, Illinois.
Burlington Bank is located at 194 South Main Street, Burlington, Illinois.
Kane County Bank and Trust Company is located at 122 North Main Street,
Elburn, Illinois, with a branch facility located at 40W422 Route 64 in
Wasco, Illinois. Bank of Sugar Grove is located on 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, Batavia, Oswego, North Aurora,
Yorkville, Plano, Ottawa, 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 Automatic Teller Machines, whereas 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 includes portions of Kane and LaSalle and all of
Kendall counties, there are approximately 16 other banks or banking
facilities and several savings and loan associations.
At December 31, 1996, The Old Second Community Bank of North Aurora
had about 22 employees, and The Old Second Community Bank of Aurora had
about 23 employees. The Yorkville National Bank had about 58 employees,
Burlington Bank had 13 employees, Kane County Bank and Trust had about 26
employees and Bank of Sugar Grove had about 22 employees.
The only industry segment in which Bancorp and its subsidiaries are
engaged in 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.
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>
<CAPTION>
Years Ended
December 31,
1996 1995 1994
ASSETS
<S> <C> <C> <C>
Cash and due from banks $31,269 $31,413 $33,903
Interest bearing deposits
with banks 301 477 1,036
Federal funds sold 39,356 36,893 29,779
Total Cash and Cash
Equivalents 70,926 68,783 64,718
Investment securities:
Taxable 186,512 187,494 182,437
Non taxable 68,276 70,345 67,423
Loans, net 403,860 369,765 336,886
Bank premises and equipment, net 14,779 14,160 14,262
Other assets 13,394 12,217 13,526
------- ------- -------
Total Assets $757,747 $722,764 $679,252
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demands $ 94,657 $ 91,889 $ 90,119
Savings 275,363 265,632 274,214
Time 298,183 284,563 240,842
------- ------- -------
Total Deposits 668,203 642,084 605,175
Securities sold under agreements
to repurchase 3,632 3,688 1,705
Notes payable 25 45 585
Other short-term borrowings 2,180 3,044 3,069
Other 6,248 5,141 4,135
------- ------- -------
Total Liabilities 680,288 654,002 614,669
Stockholders' Equity 77,459 68,762 64,583
Total Liabilities and
Stockholders' Equity $757,747 $722,764 $679,252
======= ======= =======
</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 1996 1995 1994
<S> <C> <C> <C>
Interest-earning assets:
Interest bearing deposits
with banks $ 301 $ 477 $ 1,036
Investment securities:
Taxable 186,512 187,494 182,437
Non taxable 68,276 70,345 67,423
Federal funds sold 39,356 36,893 29,779
Loans, net: 403,860 369,765 336,886
------- ------- -------
Total interest-earning
assets $698,305 $664,974 $617,561
======= ======= =======
Interest-bearing liabilities:
Savings deposits $275,363 $265,632 $274,214
Time deposits 298,183 284,563 240,842
Securities sold under
agreements to repurchase 3,632 3,688 1,705
Notes payable 25 45 585
Other 2,180 3,044 3,069
------- ------- -------
Total interest-bearing
liabilities $579,383 $556,972 $520,415
======= ======= =======
Interest earned on earning assets:
Interest bearing deposits
with banks $ 22 $ 22 $ 37
Investment securities:
Taxable 12,083 12,161 11,611
Non taxable 3,745 4,013 3,788
Federal funds sold 2,093 2,131 1,234
Loans, net 36,631 34,239 28,740
------ ------ ------
Total interest earned
on interest-earning assets $ 54,574 $ 52,566 $ 45,410
====== ====== ======
Interest paid on liabilities
Savings deposits $ 7,405 $ 7,753 $ 7,061
Time deposits 16,960 15,980 11,097
Securities sold under
agreements to repurchase 180 142 49
Notes payable 2 4 47
Other 108 190 125
------ ------ ------
Total interest paid on
interest-bearing liabilities $ 24,655 $ 24,069 $ 18,379
====== ====== ======
</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,
1996 1995 1994
<S> <C> <C> <C>
Average rates earned:
Interest bearing deposits
with banks 7.31% 4.59% 3.57%
Investment securities:
Taxable 6.48 6.49 6.36
Non taxable * 5.49 5.70 5.62
Federal funds sold 5.32 5.78 4.14
Loans, net ** 9.07 9.26 8.53
---- ---- ----
Average yield on earning assets* 7.82% 7.90% 7.35%
==== ==== ====
Average rates paid:
Savings deposits 2.69 2.92 2.57
Time deposits 5.69 5.62 4.61
Securities sold under
agreements to repurchase 4.96 3.84 2.87
Notes payable 8.00 8.75 8.03
Other 4.95 6.26 4.07
---- ---- ----
Average rate paid on interest-
bearing liabilities 4.26% 4.32% 3.53%
==== ==== ====
Net yield on interest-earning
assets* 4.28% 4.29% 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>
1996 $731
1995 $648
1994 $600
</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>
1996 Compared to 1995
<S> Increase (Decrease) Due To
Interest income: Volume (1) Rate(1) Net
Interest bearing deposits <C> <C> <C>
with banks $ (13) $ 13 $ 0
Investment securities:
Taxable (64) (14) (78)
Non taxable (113) (155) (268)
Federal funds sold 131 (169) (38)
Loans, net 3,092 (700) 2,392
----- ----- -----
Net increase (decrease) $ 3,033 $(1,025) $ 2,008
Interest expense:
Savings deposits $ 262 $ (610) $ (348)
Time deposits 775 205 980
Securities sold under agreements
to repurchase (3) 41 38
Notes payable (2) 0 (2)
Other (43) (39) (82)
----- --- -----
Net increase (decrease) $ 989 $ (403) $ 586
Increase (decrease) ----- --- -----
in net interest margin $ 2,044 $ (622) $ 1,422
----- --- -----
1995 Compared to 1994
<S> Increase (Decrease) Due To
Interest income: Volume (1) Rate(1) Net
Interest bearing deposits <C> <C> <C>
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 agreements
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>
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, 1996:
<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 $ 200 $ 200
Federal funds sold 40,175 40,175
Investment securities 43,507 $ 6,570 $ 13,970 $212,560 276,607
Loans, net 161,802 28,576 39,220 209,991 439,589
------- ------ ------ ------- -------
Total interest-earning
assets $245,684 $ 35,146 $ 53,190 $422,551 $756,571
======= ====== ====== ======= =======
INTEREST-BEARING
LIABILITIES:
Money market, savings
and NOW accounts $ 187,233 $107,272 $294,505
Time deposits 84,420 $ 52,343 $ 38,006 151,866 326,635
Other borrowed funds 5,983 276 6,259
------- ------ ------ ------- -------
Total interest-
bearing liabilities $ 277,636 $ 52,619 $ 38,006 $259,138 $627,399
------- ------ ------ ------- -------
Period gap $( 31,952) $ (17,473) $ 15,184 $163,413 $129,172
------ ------ ------ ------- -------
Cumulative gap $( 31,952) $( 49,425) $( 34,241) $129,172
------ ------ ------ -------
</TABLE>
Total interest-earning assets exceeded interest-bearing liabilities by
$129,172,000 at December 31, 1996. 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 $34,241,000.
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 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 investment
securities is shown below as of December 31, 1996:
<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. Government
and agency
obligations 5.75% 6.34% 6.78% 6.22%
States & political
subdivisions 6.31 5.95 5.25 6.33
Collateralized
mortgage oblig. 5.26 4.89
Other 7.64
</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,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Commercial,
financial, and
agricultural $129,678 $124,607 $126,788 $120,734 $105,284
Real estate-
construction 34,600 28,998 25,486 21,345 19,284
Real estate-
mortgage 234,985 202,564 161,270 159,370 155,121
Installment 47,119 43,336 43,475 35,804 37,604
------- ------- ------- ------- -------
Total $446,382 $399,505 $357,019 $337,253 $317,293
======= ======= ======= ======= =======
</TABLE>
The following table shows the percentage of total loans represented by each
classification of loans on the dates indicated:
<TABLE>
<CAPTION>
December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Commercial,
financial, and
agricultural 29.0% 31.2% 35.5% 35.8% 33.2%
Real estate-
construction 7.8 7.3 7.1 6.3 6.1
Real estate-
mortgage 52.6 50.7 45.2 47.3 48.9
---- ---- ---- ---- ----
Installment 10.6 10.8 12.2 10.6 11.8
----- ----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
Page 11
<PAGE>
LOAN PORTFOLIO (continued)
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, 1996 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 $75,760 $42,975 $10,943 $129,678
Real estate construction 26,891 7,709 34,600
</TABLE>
Commercial, financial, and agricultural loans due after one year in the
amount of $27,306,000 at December 31, 1996 have floating or adjustable
interest rates. Such loans with fixed rates totaled $26,612,000. Real
estate construction loans due after one year in the amount of $4,924,000
have floating or adjustable interest rates. Such loans with fixed rates
totaled $2,785,000. 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 12
<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 day 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
accounts which are currently in its portfolio 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,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Nonaccrual, past due and
restructured loans
a) Nonaccrual $2,342 $3,763 $2,167 $4,428 $3,816
b) Past Due 261 56 521 473 998
c) Restructured 0 58 69 86 230
Potential Loan Problems(1) 7,334 5,198 4,389 2,188 8,969
<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 ofBancorp'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 and 1992
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, 1996 for domestic loans which are on a nonaccrual basis or
restructured as of December 31, 1996, in thousands of dollars:
Gross interest income that would have been
included in income for 1996 if the loans
had been current in accordance with their
original terms $296
Gross interest income included in income on
these loans for 1996 $ 45
Page 13
<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,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Average loans net of
unearned income $409,453 $375,459 $341,739 $319,949 $304,247
======= ======= ======= ======= =======
Allowance for possible loan
losses:
Balance at beginning of
period $ 5,676 $ 5,753 $ 4,471 $ 4,598 $ 3,802
Additions (deductions):
Allowance of bank
acquired 0 0 0 0 441
Loans charged off (355) (751) (633) (2,197) (946)
Recoveries 369 371 1,360 578 581
------- ------- ------- ------- -------
Net (charge-offs)
recoveries 14 (380) 727 (1,619) (365)
Provision charged to
operating expense 713 303 555 1,492 720
------- ------- ------- ------- -------
Balance at end of period $ 6,403 $ 5,676 $ 5,753 $ 4,471 $ 4,598
======= ======= ======= ======= =======
Allowance for possible loan
losses by category:
Commercial, financial and
agricultural $ 3,768 $ 3,298 $ 3,333 $ 2,325 $ 2,625
Real estate-construction 170 150 165 100 160
Real estate-mortgage 972 860 825 675 750
Installment 1,313 1,183 1,190 820 865
Unallocated 180 185 240 176 218
------- ------- ------- ------- -------
Total $ 6,403 $ 5,676 $ 5,753 $ 4,096 $ 4,618
Ratio of net (charge-offs)
recoveries to average loans
outstanding for the period 0 % (.10)% .21% (.51)% (.12)%
===== ====== ====== ====== ======
Page 14
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE (continued)
Charge-offs:
Commercial, financial and
agricultural $ 168 $ 455 $ 474 $ 1,577 $ 710
Real estate-construction
Real estate-mortgage 78 134 53 438
Installment 109 162 106 182 236
------- ------- ------- ------- -------
Total charge-offs 355 751 633 2,197 946
------- ------- ------- ------- -------
Recoveries:
Commercial, financial and
agricultural 304 298 726 342 378
Real estate-construction 13
Real estate-mortgage 1 425 170 124
Installment 65 72 209 66 66
------- ------- ------- ------- -------
Total recoveries 369 371 1,360 578 581
------- ------- ------- ------- -------
Net (charge-offs)
recoveries $ 14 $ (380) $ 727 $(1,619) $ (365)
======= ======= ======= ======= =======
</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 15
<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,
1996 1995 1994
<S> <C> <C> <C>
Demand deposits non-interest
bearing $ 94,657 91,889 90,119
Interest bearing checking 105,069 99,066 96,909
Savings deposits 170,294 166,566 177,305
Time Deposits 298,183 284,563 240,842
------- ------- -------
Total $ 668,203 642,084 605,175
======= ======= =======
</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,
1996 1995 1994
<S> <C> <C> <C>
Interest bearing checking 2.22% 2.55% 2.29%
Savings deposits 2.98 3.14 2.73
Time deposits 5.69 5.62 4.61
---- ---- ----
Total 4.25% 4.31% 3.53%
==== ==== ====
</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,
1996
<S> <C>
Maturing within 3 months $ 26,829
After 3 but within 6 months 12,366
After 6 but within 12 months 5,843
After 12 months 21,828
------
Total $ 66,866
======
</TABLE>
Page 16
<PAGE>
Return on Equity and Assets
The following table presents certain ratios relating to equity
and assets:
<TABLE>
<CAPTION>
Years Ended
December 31,
1996 1995 1994
<S> <C> <C> <C>
Return on total average assets 1.27% 1.22% 1.07%
Return on average stockholders' equity 12.43% 12.83% 11.30%
Dividend payout ratio 26.34% 24.36% 26.42%
Average equity to average assets ratio 10.22% 9.51% 9.51%
</TABLE>
Page 17
<PAGE>
Item 2. Properties
Except for certain teller machine locations, Old Second Bancorp
subsidiaries own 14 bank locations. Old Second National Bank leases space for
the Trust office in Geneva. Yorkville National Bank leases space for a branch
in the new Super Wal-Mart in Plano, Illinois.
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-up bank facility and
banking offices. Parking facilities are provided for approximately one hundred
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 its 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 1996.
Page 18
<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 1996 and 1995 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, 1996 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 report
thereon of Ernst & Young LLP dated January 16, 1997, 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.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Page 19
<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 20
<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, 1996 and 1995 34 8
Consolidated Statements of Income
for the years ended December 31,
1996, 1995, and 1994 35 9
Consolidated Statements of Cash Flows
for the years ended December 31,
1996, 1995, and 1994 36 10
Consolidated Statements of Changes
in Stockholders' Equity for the
years ended December 31, 1996,
1995, and 1994 37 11
Notes to Consolidated Financial
Statements 38-49 12-23
Report of Independent Accountants 50 24
(2) Financial Statement Schedules
No schedules are included as they are not required.
(3) Exhibits
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 21
<PAGE>
(a)(3) Exhibits (Continued) Reference
Form 10-K Annual Report
Annual Report to Stockholders
(page) (page)
13.1 Old Second Bancorp, Inc. - 1996 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. 26-55
22.1 Subsidiaries of the Registrant 56
23.1 Consents of Independent Accountants 57-58
25.1 Audit Opinion of Independent Accountant 59
27.1 Financial Data Schedule 60
99.1 Old Second Bancorp, Inc. 1997 Proxy
Statement 61-80
</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 1996.
Page 22
<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)
Date March 27, 1997 By /s/ James E. Benson
James E. Benson- Chairman,
Chief Executive Officer,
and Director
Date March 28, 1997 By /s/ Ronald J. Carlson
Ronald J. Carlson -
President, Chief Financial
Officer, Secretary and Director
Page 23
<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
Walter Alexander - Director
March 27, 1997 /s/ James E. Benson
James E. Benson - Chairman
Chief Executive Officer,
and Director
March 28, 1997 /s/ Ronald J. Carlson
Ronald J. Carlson-President,
Chief Financial Officer,
Secretary and Director
Marvin Fagel - Director
Joanne Hansen - Director
March 27, 1997 /s/ Kenneth F. Lindgren
Kenneth F. Lindgren - Director
March 27, 1997 /s/ Jesse Maberry
Jesse Maberry - Director
Gary McCarter - Director
Page 24
<PAGE>
SIGNATURES, continued
Date SIGNATURE AND TITLE
D. Chet McKee - Director
March 27, 1997 /s/ William J. Meyer
William J. Meyer - Director
March 27, 1997 /s/ Alan J. Rassi
Alan J. Rassi - Director
Larry A. Schuster - Director
March 27, 1997 /s/ William B. Skoglund
William B. Skoglund -
Vice President, Assistant
Secretary, and Director
March 27, 1997 /s/ George Starmann III
George Starmann III
Vice President and Director
Page 25
<PAGE>
OLD SECOND BANCORP, INC.
1996 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' Equity 11
Notes to Consolidated Financial Statements 12-23
Report of Independent Accountants 24
Corporate Information 25
Board of Directors 26,27
Consolidating and Consolidated
Balance Sheet 28,29
Page 26
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
In thousands, except per share data for the years ended December 31,
1996 1995
<S> <C> <C>
Total Interest Income $ 54,574 $ 52,566
Net Interest Income After Provision for
Possible Loan Losses 29,206 28,194
Net Income 9,632 8,823
Per Share:
Net Income 3.28 3.00
Cash Dividends Declared .86 .73
At December 31
Assets 827,801 760,730
Loans, Net 439,589 393,327
Deposits 732,652 669,291
Stockholders' Equity Before Net Unrealized
Gain on Investments 81,005 73,910
Per Share 27.58 25.16
Total Stockholders' Equity 81,359 75,418
Per Share 27.70 25.67
</TABLE>
Note: Per share numbers and amounts give retroactive effect to a
five-for-four stock split in 1996.
Page 27 Page 1
<PAGE>
LETTER TO STOCKHOLDERS
To our Stockholders:
As you review our Annual Report, we are pleased to report
that Old Second Bancorp, Inc. was able to once again meet or
exceed our financial objectives during 1996. Some of our
achievements include:
We were able to report record earnings of $9,632,000, an increase
of 9.2% over the previous record high of 1995.
Total assets were $827,801,000 at year-end, an increase of 8.8%.
Stockholders'equity grew to $81,359,000, a 7.9% increase over the
past year. Our capital ratios, a measure of safety and soundness,
are well above regulatory guidelines.
Cash dividends declared increased to $.86 per share, an increase
of 17.8% from 1995. The per share dividends give retroactive
effect to the five-for-four stock dividend payable June 17, 1996
and represents the 30th consecutive year of a cash dividend
increase.
Return on average assets was 1.27% and return on equity was 12.43%.
Assets under management by our three Trust offices continued to
grow in 1996 which resulted in over $3,700,000 in fee income.
As we reported last year, Old Second Bancorp Stock bid and ask
prices have continued to narrow. The last sale of the year,
December 31, 1996, as reported in the NASDAQ section of The Wall
Street Journal, was $40.75, with a bid and ask price of $40.75
and $41.25, respectively.
Our long range plans provide for the continued expansion of our
banking network in areas we think will have substantial growth in
the near and long term. The year of 1996 was no exception to this
plan as evidenced by the following:
Through our Yorkville National Bank in Yorkville, Il., we opened
a branch in July of 1996 in the new Super Wal-Mart in Plano, Il.
On December 27, 1996, also through the Yorkville National Bank,
we acquired a banking facility in Ottawa, Il. with $29,000,000 in
deposits which will expand our banking geographically to the
southwest.
We have long felt we needed a banking facility in the fast growing
Oswego area and in the third quarter of 1996 broke ground for a
new full-service branch of The Old Second National Bank to be
opened late in the first quarter of 1997. This new branch will be
located near the intersection of Douglas Road and Route #34.
A Letter of Intent has been signed between Old Second Bancorp and
Maple Park Bancshares, Inc. to purchase Maple Park Bancshares
which includes the First State Bank of Maple Park with banking
offices in Maple Park, Il. and in Kaneville, Il. It also includes
a new 5,000 square foot banking facility in Elburn, Il. It is
planned that Kane County Bank and Trust Company will occupy the
new building being purchased in Elburn, Il. which will greatly
improve their banking facilities. The Maple Park Bancshares
acquisition also includes a mortgage loan company with offices in
St. Charles, Oswego and Sycamore, Il. We hope to complete this
purchase within the next several months. This will expand our
banking capabilities further to the west as well as establish us
in the secondary mortgage business which should generate
increased fee income.
When all of this expansion takes place, our "Valley-Wide" banking
service will include 18 banking facilities, 3 trust offices and 3
mortgage loan offices. These strategically located offices will
make it easy for our customers to bank at "Old Second Bancorp,
Inc." A customer of any of our banks can transact most of their
banking at any of the banking locations throughout Kane, Kendall,
LaSalle and DuPage counties.
This past year also included major expansion of our electronic
banking capabilities. In early 1996, we issued our Debit Cards
which makes it possible for customers to make purchases or access
an ATM at any location where Mastercard R is accepted. The
BANKCARD directly accesses your checking account and is more
convenient than writing a check. The very successful Cash
Management service, where corporate accounts can transact
business from their offices, was expanded and it is anticipated
that Home Banking will be introduced to our customers by late
1997.
In 1997, as in prior years, substantial resources will be
allocated to upgrade our electronic banking capabilities so that
we can continue to provide technology driven services and stay
competitive with any of the money center banks' electronic
programs.
Officially in November of 1996, the lead bank, Old Second
National Bank of Aurora, celebrated its 125th Anniversary. This
celebration continues through 1997. It seems quite appropriate
that as a community bank for over 125 years, Old Second National
Bank was recognized by regulators with the highest possible
rating, "Outstanding", under the Community Reinvestment Act. Our
philosophy has always been to serve the entire community
(both personal and corporate) in which we are located, emphasize
the highest level of client service and provide delivery of such
service to our market area meeting our customers' needs as
competitively as possible. As we move closer to the Millennium,
one of our top priorities is to continue to improve the visibility
of our community reinvestment activities.
The success of our banks is the result of sound management of
assets and liabilities, development of additional fee income,
Page 28 Page 2
enhancement of products and services available for existing
customers and the development of new business. Lending and
deposit rates are managed carefully to provide competitive rates
for our customers. This, along with the growth of additional fee
income and the control of overhead costs, will provide a
correspondingly appropriate return to you, our stockholders.
As I have said in the past, Senior Management realizes that a
financial institution's performance is only as good as the people
who work for it. We are proud of the high quality of our officers
and staff and encourage continuous training as well as further
education. Our tuition reimbursement program continues to assist
our employees' educational objectives.
Our record for 1996 has been our best ever. With the expansion as
outlined above, the new electronic products currently offered and
to be offered shortly and the quality of our staff, we think the
groundwork has been laid for profitable growth for the balance of
this decade and beyond.
We wish to express our sincere thanks to our customers, our staff,
and to you, our stockholders, for your continued confidence as
expressed by your investment in Old Second Bancorp, Inc.
Sincerely,
/s/ James Benson
James Benson
Chairman
Page 29 Page 3
<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.
During 1996, the Corporation continued to expand its markets by
adding new locations. In July, we opened a branch in the new Super
Wal-Mart in Plano. On December 27, the Corporation finalized the
acquisition of the First of America-Ottawa branch (Ottawa) which
included the purchase of loans and assumption of deposit
liabilities. Both facilities are operating as branches of
Yorkville National Bank. A new branch of Old Second National Bank
located in Oswego is in the final stage of construction and is
expected to open in early 1997. With these additions, the
Corporation has increased the total number of locations to
fifteen full-service and three trust offices.
The Corporation continues to improve and develop new products
designed to bring state-of-the-art banking services to customers.
We are working on many new products including a system which will
enable our business customers to make their tax payments
electronically. We also plan on introducing "O2 PC Bank" which
will allow customers to access their banking through a personal
computer from their home or office. Our efforts to meet the needs
of our growing markets through new locations, products and services
helped us reach many financial goals during 1996.
At December 31, 1996, total assets of $827,801,000 were $67,071,000
(8.8%) higher than year-end 1995. Gross loans of $446,382,000 were
up $46,877,000 (11.7%) and deposits of $732,652,000 increased by
$63,361,000 (9.5%). The purchase of the Ottawa facility included
loans of $11,000,000 and deposits of $29,000,000.
Throughout 1996, the Fox Valley area continued to grow due to
strong housing and business development resulting in increased
demand for real estate loan products, both commercial and
residential. Construction and real estate mortgage loans
represented $269,585,000 of gross loans at year-end 1996, an
increase of $38,023,000 (16.4%) from 1995. Strong growth was
experienced in other loan categories as evidenced by the increase
in commercial, financial and agricultural loans of $5,071,000
(4.1%) and installment loans of $3,783,000 (8.7%) from
year-end 1995.
All deposit categories reflect steady and continuous growth.
Demand and savings deposits were up $11,343,000 (11.3%) and
$22,736,000 (8.4%), respectively, from year-end 1995. Time
deposits have grown $29,282,000 (9.8%) since December 31, 1995.
Funds available from the growth in deposits were used to meet
loan demand; investment securities were purchased with excess
available funds.
Net income for 1996 of $9,632,000 was up $809,000 (9.2%) from
1995, following an increase of $1,525,000 (20.9%) in 1995 over
1994. Net interest income for 1996 of $29,919,000 was up
$1,422,000 from 1995 following an increase of $1,466,000 in 1995
over 1994. Increases in both years were primarily due to volume.
Management's quarterly review of the adequacy of the allowance for
possible loan losses and the amount of the provision for possible
loan losses 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 1996 totaled $713,000 compared to $303,000 in 1995 and
$555,000 in 1994. The subsidiaries realized net loan recoveries of
$14,000 in 1996 compared to net charge-offs of $380,000 in 1995
and net recoveries of $727,000 in 1994.
Total other income for 1996 of $7,877,000 increased $1,091,000
over 1995 following an increase of $212,000 in 1995 over 1994.
Ninety percent of the increase in other income resulted from
higher trust fees and service charges on deposit accounts.
Trust fees of $3,710,000 in 1996 were at record high levels, an
increase of $660,000 (21.6%) from $3,050,000 in 1995; the fees
in 1995 were $319,000 (11.7%) higher than 1994. Service charges
on deposit accounts of $2,814,000 were up from $2,498,000 in
1995; 1995 levels remained substantially unchanged from 1994.
The increase in 1996 service charges on deposit accounts resulted
from higher average volume of demand and savings deposits. The
fluctuations in secondary mortgage fees which declined in 1995
from 1994 and increased in 1996 correspond to the changing demand
of customers as they took advantage of refinancing during periods
of declining interest rates.
Total other expenses for 1996 of $23,389,000 were up $555,000 from
1995 following a decrease of $338,000 in 1995 over 1994. The
productivity ratio, defined as net interest income plus
non-interest income divided by non-interest expenses, measures the
effectiveness of the Corporation to generate interest and
non-interest income while controlling costs necessary to deliver
quality products and services to customers. The Corporation's
success in its efforts to improve effectiveness since 1994 is
evidenced by an increasing productivity ratio which was 145% in
1994, 155% in 1995 and 162% in 1996.
Salaries and employee benefits of $12,378,000 in 1996 were up
slightly (1.0%) from 1995. The rate of increase in 1996 was slowed
due partially to the implementation of the new cost-effective
health care program which resulted in increased employee usage of
health maintenance organizations. The 1995 total of $12,255,000
was up $496,000 (4.2%) from 1994 due to inflation and increases
in personnel.
Net occupancy for 1996 was $1,775,000, up $173,000 from the 1995
total which was $49,000 higher than 1994. The increase in 1996
included costs associated with the Wal-Mart branch as well as
higher maintenance and utility costs for our expanded network of
offices.
Furniture and equipment costs were $2,727,000 for 1996 compared
to $1,967,000 in 1995 and $2,129,000 in 1994. The higher 1996
expenses reflect the technology-related decisions of Management
including costs to expand our electronic banking capabilities
with home banking and the tax payment system. In addition to
costs necessary to expand our electronic banking services, the
increases in 1996 included costs related to establishing new
locations, upgrading the mainframe computer system and
purchasing software for the personal computer network.
Page 30 Page 4
<PAGE>
MANAGEMENT'S DISCUSSION - (CONTINUED)
The premium for FDIC insurance is established by the federal
regulatory agency and was substantially reduced in 1995. The
current premium structure allows for varying rates based upon
capitalization levels and soundness criteria. The strength of
the subsidiaries' financial condition has resulted in premium
rates assessed at the lowest possible level; consequently, the
expense for FDIC insurance declined from $1,317,000 in 1994 to
$726,000 in 1995 and $23,000 in 1996.
Marketing costs for 1996 were $956,000 compared to $823,000 in
1995 and $940,000 in 1994. Marketing expenses for 1996 were
higher than 1995 because of higher discretionary marketing
expenses.
Stationery and supplies costs of $794,000 in 1996 were $56,000
(7.6%) higher than 1995 due primarily to increases in volume for
new locations. The 1995 expense of $738,000 was $94,000 higher
than 1994 due to both price and volume increases.
The Corporation has successfully controlled costs in other
expenses - other. These expenses were $4,103,000 in 1996, down
$104,000 from 1995 which was $107,000 lower than the 1994 total.
Income tax expense resulted in effective tax rates for 1996, 1995
and 1994 of 29.7%, 27.4% and 26.1%, respectively. The increase in
the effective tax rate was mainly attributable to a decrease in
interest exempt from federal income taxes. Generally, tax-exempt
securities yield lower rates due to the tax benefit factor. In
making investment decisions, Management analyzes the tax-exempt
yield adjusted for the tax benefit on tax-exempt securities in
comparison to the yield available on taxable investments.
Selection of specific investments is intended to maximize net
income after taxes while considering the level of risk.
On January 1, 1996, the Corporation adopted Statement of
Financial Accounting Standards (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 did not have a material effect on the Corporation's
financial position or results of operations.
In June 1996, the Financial Accounting Standards Board issued
SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities," which addresses the
accounting for transfers and servicing of financial assets and
extinguishments of liabilities. The Corporation will apply SFAS No.
125 to transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1996
and, based on current circumstances, believes the effect of
adoption will not be material.
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 customer needs as well as
having funds available to meet depositor 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, 1996, 1995 and 1994, cash
provided by operating activities resulted in cash inflows of
$12,877,000, $11,867,000, and $9,748,000, respectively.
Generally, cash inflows result primarily from interest received
in excess of the sum of interest paid and amounts paid to
suppliers and employees.
The primary components of cash flows used in investing activities
are funding and repayment of customer loans and purchases, sales
and maturities of investment securities. During 1996, the excess
cash inflows from financing activities (discussed in the following
paragraph) have been used to meet increased loan demand and
purchase additional investment securities. The net cash outflows
from investing activities were $77,323,000, $40,421,000 and
$39,968,000, for 1996, 1995, and 1994, respectively.
Cash flows provided by 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 inflows from financing
activities, primarily the result of increases in deposits, were
$57,872,000, $35,050,000 and $40,452,000 in 1996, 1995 and 1994,
respectively.
As Management attempts to efficiently use funds available for
investing activities while maintaining adequate liquidity,
increases in loan funding and purchases of investment activity
resulted in a slight decline in cash and cash equivalents from
$85,247,000 at year-end 1995 to $78,673,000 at year-end 1996. The
net cash flows in 1995 resulted in an increase of $6,496,000 in
cash and cash equivalents from year-end 1994.
The Corporation has several additional sources of liquidity
including the unpledged portion of available-for-sale investment
securities which at 27.8% of total assets represents a
significant source of liquidity. Other sources include maturing
loans and, to a lesser degree, the ability to borrow funds from
correspondent banks and obtain funds in the federal funds and
repurchase agreement markets.
The cash requirements of the parent company have been met by
dividends from its subsidiaries, which are the primary source of
funds for dividends paid by the Corporation to stockholders.
Dividend payments from the subsidiaries to the parent company
are subject to limitations under certain banking regulations.
However, certain amounts of retained earnings of the subsidiaries
are free of such limitations. Management believes that the cash
needs of the parent company can be met by dividend payments from
the subsidiaries since a sufficient amount of subsidiaries'
retained earnings are free of regulatory restrictions
(see Note
Page 31 Page 5
<PAGE>
MANAGEMENT'S DISCUSSION - (CONTINUED)
M - Dividend Limitations).
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 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 levels change, the theory noted herein 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, 1996, interest-bearing liabilities maturing or
repricing within one year exceed interest-earning assets maturing
or repricing by about $38,180,000. 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. Although
classified as available-for-sale, 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. At December 31, 1996, the
Corporation held structured notes of approximately $22,485,000 at
amortized cost of which $21,743,000 mature in one to five years
and $742,000 mature in five to seven years.
Capital and Dividends
Total Stockholders' Equity of $81,359,000 at year-end 1996
increased $5,941,000 from 1995 due to higher retained earnings
offset by dividends declared to stockholders and a decline in the
net unrealized gain on investments. Available-for-sale investment
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, 1996 is 9.8% of total assets, up from 9.7% in 1995.
The equity to asset ratio including the effect of net unrealized
gain on investments is 9.8% at December 31, 1996 compared to 9.9%
at year-end 1995. The equity to asset ratios (leverage ratios)
continue to be maintained at adequate levels.
The Federal Reserve Board has established risk-based capital
guidelines which include minimum capital requirements
(see Note N-Regulatory Matters). At December 31, 1996, the
minimum total and Tier 1 risk-based capital ratios were 8.00% and
4.00%. As of December 31, 1996, the Corporation's total and Tier 1
risk-based capital ratios were 15.6% and 14.3%, respectively.
Total and Tier 1 risk-based capital ratios were 16.0% and 14.8%,
respectively, at December 31, 1995.
The Corporation declared a five-for-four stock split in June 1996;
per share amounts for all prior periods have been restated to give
retroactive effect of the stock split. During 1996, dividends
declared were $.16 per share during the first quarter, $.20 per
share during the second, third and fourth quarters and a year-end
extra dividend of $.10 for a total of $.86. During 1995, the
Corporation declared total dividends of $.73 per share.
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 increases. 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 32 Page 6
<PAGE>
<TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands except share and per share data)
Old Second Bancorp, Inc. and Subsidiaries
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
BALANCE SHEET ITEMS
AT YEAR-END
Total Assets $827,801 $760,730 $708,196 $665,925 $624,383
Net Loans 439,589 393,327 350,661 331,987 311,875
Total Deposits 732,652 669,291 631,886 587,993 548,026
Notes Payable 20 40 80 3,208 4,118
Stockholders' Equity
Before Net Unrealized
Gain (Loss) on
Investments 81,005 73,910 67,236
Total Stockholders'
Equity 81,359 75,418 61,601 61,866 56,730
RESULTS OF OPERATIONS
Net Interest Income $ 29,919 $ 28,497 $ 27,031 $ 25,265 $ 22,866
Provision for Possible
Loan Losses 713 303 555 1,492 720
Net Income 9,632 8,823 7,298 7,007 6,341
PER SHARE DATA
Net Income $ 3.28 $ 3.00 $ 2.48 $ 2.39 $ 2.17
Dividends Declared .86 .73 .66 .58 .55
Stockholders' Equity
Before Net Unrealized
Gain (Loss) on
Investments 27.58 25.16 22.89
Total Stockholders'
Equity 27.70 25.67 20.97 21.06 19.31
WEIGHTED AVERAGE SHARES
OUTSTANDING 2,937,586 2,937,706 2,937,706 2,937,706 2,921,000
SHARES OUTSTANDING
AT YEAR-END 2,937,484 2,937,706 2,937,706 2,937,706 2,937,706
</TABLE>
Note: Per share numbers and amounts give retroactive effect to a
five-for-four stock split in 1996.
Page 33 Page 7
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
Old Second Bancorp, Inc. and Subsidiaries
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
ASSETS
Cash and Due From Banks $ 38,298 $ 42,047
Interest Bearing Deposits with Banks 200 400
Federal Funds Sold 40,175 42,800
------- -------
Total Cash and Cash Equivalents 78,673 85,247
Available-for-Sale Investment Securities 276,607 253,899
Loans 446,382 399,505
Less: Allowance for Possible Loan Losses 6,403 5,676
Unearned Income 390 502
------- -------
Loans, Net 439,589 393,327
Bank Premises and Equipment, Net 15,477 14,602
Other Assets 17,455 13,655
------- -------
TOTAL ASSETS $827,801 $760,730
======= =======
LIABILITIES
Deposits
Demand $111,512 $100,169
Savings 294,505 271,769
Time 326,635 297,353
------- -------
Total Deposits 732,652 669,291
Securities Sold Under Agreements
to Repurchase 1,838 6,554
Other Short-term Borrowings 4,401 2,585
Note Payable 20 40
Other Liabilities 7,531 6,842
------- --------
TOTAL LIABILITIES 746,442 685,312
STOCKHOLDERS' EQUITY
Preferred Stock, no par value:
300,000 shares authorized, none issued
Common Stock, no par value:
shares authorized: 1996 - 6,000,000;
1995 - 3,500,000;
issued and outstanding: 1996 - 2,937,484;
1995 - 2,937,706 15,377 15,377
Retained Earnings 65,628 58,533
------ ------
Stockholders' Equity Before
Net Unrealized Gain on Investments 81,005 73,910
Net Unrealized Gain on Investments 354 1,508
------- -------
TOTAL STOCKHOLDERS' EQUITY 81,359 75,418
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $827,801 $760,730
======= =======
</TABLE>
See accompanying notes.
Page 34 Page 8
<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,
1996 1995 1994
<S> <C> <C> <C>
INTEREST INCOME
Loans $36,631 $34,239 $28,740
Investment Securities:
Taxable 12,083 12,161 11,611
Exempt from Federal Income Taxes 3,745 4,013 3,788
Federal Funds Sold 2,093 2,131 1,234
Interest Bearing Deposits with Banks 22 22 37
------ ------ ------
Total Interest Income 54,574 52,566 45,410
INTEREST EXPENSE
Savings Deposits 7,405 7,753 7,061
Time Deposits 16,960 15,980 11,097
Other Borrowings 290 336 221
------ ------ ------
Total Interest Expense 24,655 24,069 18,379
Net Interest Income 29,919 28,497 27,031
PROVISION FOR POSSIBLE LOAN LOSSES 713 303 555
Net Interest Income After Provision
for Possible Loan Losses 29,206 28,194 26,476
OTHER INCOME
Trust Fees 3,710 3,050 2,731
Service Charges on Deposit Accounts 2,814 2,498 2,492
Secondary Mortgage Fees 410 352 550
Other 943 886 796
Securities Gains 5
----- ----- -----
Total Other Income 7,877 6,786 6,574
OTHER EXPENSES
Salaries and Employee Benefits 12,378 12,255 11,759
Net Occupancy of Bank Premises 1,775 1,602 1,553
Furniture and Equipment 2,727 1,967 2,129
FDIC Insurance 23 726 1,317
Marketing 956 823 940
Stationery and Supplies 794 738 644
Goodwill Amortization 633 516 516
Other 4,103 4,207 4,314
------ ------ ------
Total Other Expenses 23,389 22,834 23,172
INCOME BEFORE INCOME TAXES 13,694 12,146 9,878
INCOME TAX EXPENSE 4,062 3,323 2,580
----- ----- -----
NET INCOME $ 9,632 $ 8,823 $ 7,298
===== ===== =====
NET INCOME PER SHARE $ 3.28 $ 3.00 $ 2.48
WEIGHTED AVERAGE SHARES
OUTSTANDING 2,937,586 2,937,706 2,937,706
</TABLE>
See accompanying notes.
Page 35 Page 9
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Old Second Bancorp, Inc. and Subsidiaries
<CAPTION>
for the years ended December 31,
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest Received $ 54,718 $ 52,708 $ 45,740
Interest Paid (24,387) (23,322) (18,310)
Paid to Suppliers and Employees (20,899) (20,934) (20,974)
Trust Fees Received 3,710 3,050 2,731
Income Taxes Paid (4,432) (3,371) (3,277)
Service Charges Received on
Deposit Accounts 2,814 2,498 2,492
Other Income Received 1,353 1,238 1,346
------ ------ ------
Net Cash Provided By
Operating Activities 12,877 11,867 9,748
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Increase in Loans (46,975) (42,969) (19,232)
Purchases of
Available-for-Sale Securities (88,165) (47,677) (56,928)
Proceeds from Sales and
Maturities of Available-for-Sale
Securities 63,380 51,075 37,912
Net Cash and Cash Equivalents
Disbursed for Acquisitions (3,505)
Securities Gains 5
Capital Expenditures (2,226) (1,501) (1,269)
Other 168 651 (456)
------ ------ ------
Net Cash Used In Investing
Activities (77,323) (40,421) (39,968)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase in Deposits 63,361 37,405 43,893
Net Increase (Decrease) in
Other Borrowings (2,900) (438) 1,826
Payment of Notes Payable (20) (40) (3,128)
Dividends Paid (2,478) (1,970) (1,714)
Other (91) 93 (425)
------ ------ ------
Net Cash Provided By
Financing Activities 57,872 35,050 40,452
Net Increase (Decrease) in Cash
and Cash Equivalents (6,574) 6,496 10,232
Cash and Cash Equivalents
at Beginning of Year 85,247 78,751 68,519
------ ------ ------
Cash and Cash Equivalents
at End of Year $ 78,673 $ 85,247 $ 78,751
====== ====== ======
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net Income $ 9,632 $ 8,823 $ 7,298
Adjustments to Reconcile Net Income to
Net Cash Provided By Operating Activities:
Depreciation 1,351 1,202 1,259
Provision for Possible Loan Losses 713 303 555
Increase (Decrease) in Current
Taxes Payable (99) 202 (102)
Deferred Taxes (271) (250) (596)
Increase in Interest Receivable (45) (384) (616)
Increase in Interest Payable 266 747 70
Premium Amortization and Discount
Accretion on Investments, Net 190 526 946
Goodwill Amortization 633 516 516
Increase in Accrued Expenses 532 333 313
(Increase) Decrease in Prepaid Expenses (25) (151) 110
Securities Gains (5)
------ ------ -----
Total Adjustments 3,245 3,044 2,450
Net Cash Provided By ------ ------ -----
Operating Activities $ 12,877 $ 11,867 $ 9,748
====== ====== =====
</TABLE>
See accompanying notes.
Page 36 Page 10
<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> <C> <C> <C> <C>
Balance at
January 1, 1994 $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
($.66 per share) (1,928) (1,928)
Change in Net Unrealized
Gain (Loss) for 1994 (9,964) (9,964)
----------------------------------------------
Balance at
December 31, 1994 15,377 51,859 (5,635) 61,601
Net Income for 1995 8,823 8,823
Dividends Declared
($.73 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 75,218
Net Income for 1996 9,632 9,632
Dividends Declared
($.86 per share) (2,537) (2,537)
Change in Net Unrealized
Gain (Loss) for 1996 (1,154) (1,154)
---------------------------------------------
Balance at
December 31, 1996 $15,377 $65,628 $ 354 $81,359
====== ====== ===== ======
</TABLE>
See accompanying notes.
Page 37 Page 11
<PAGE>
NOTES TO CONSOLIDAED 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 1995 and 1994
amounts have been reclassified to conform to the 1996
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 Corporation
conducts its activities from a network of offices in Kane,
Kendall, DuPage and LaSalle counties.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires Management
to make 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 investing 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.
Realized 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 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 38 Page 12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. The amount of compensation
expense which would have been recorded by the Corporation had it
followed the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation", would not have a material effect on
net income per share.
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
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 in 1995 and
a five-for-four stock split in 1996.
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 December 27, 1996, the Yorkville National Bank, a wholly
owned subsidiary of the Corporation, purchased deposits of
$28,489,000 from First of America - Ottawa branch (Ottawa) for
a premium of $3,505,000. The acquisition included the purchase
of certain loans and bank premises and equipment of Ottawa. The
premium on deposits will be amortized on a straight-line basis
over a 15 year period.
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.
The Corporation is currently in negotiations to acquire 100%
of the outstanding common stock of Maple Park Bancshares, Inc.
(Maple Park), a bank holding company located in Maple Park,
Illinois. Maple Park and its subsidiaries, First State Bank of
Maple Park and Maple Park Mortgage Company, had consolidated
total assets of $62,000,000 at September 30, 1996. It is
expected the transaction would be accounted for as a
pooling-of-interests.
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 1996,
average reserve balances with the Federal Reserve Bank were
$6,539,000 and $824,000 for Old Second and Yorkville,
respectively.
Page 39 Page 13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(in thousands)
Old Second Bancorp, Inc. and Subsidiaries
NOTE D - INVESTMENT SECURITIES
The amortized cost and estimated market values of investment
securities at December 31, 1996 are as follows:
[CAPTION]
<TABLE>
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury $ 18,175 $ 53 $ 30 $ 18,198
U.S. Government
Agencies 142,123 629 1,176 141,576
State & Political
Subdivisions 82,790 1,436 265 83,961
Mortgage-Backed
Obligations 31,471 84 153 31,402
Other 1,470 1,470
------- ----- ----- -------
$276,029 $2,202 $1,624 $276,607
======= ===== ===== =======
</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, 1996 are as
follows:
<TABLE>
<CAPTION>
Within One to Five to Over
One Year Five Years Ten Years Ten Years Total
<S> <C> <C> <C> <C> <C>
AMORTIZED COST
U.S. Treasury $ 7,689 $ 10,486 $ 18,175
U.S. Government
Agencies 33,970 89,300 $15,394 $ 3,459 142,123
State & Political
Subdivisions 7,681 33,910 29,236 11,963 82,790
Other 2 1,468 1,470
------ ------- ------ ------
$49,340 $133,698 $44,630 $16,890
====== ======= ====== ======
Mortgage-Backed Obligations 31,471
-------
276,029
=======
MARKET VALUE
U.S. Treasury $ 7,719 $ 10,479 $ 18,198
U.S. Government
Agencies 33,982 88,951 $15,190 $ 3,453 141,576
State & Political
Subdivisions 7,739 34,481 29,635 12,106 83,961
Other 2 1,468 1,470
------ ------- ------ ------
$49,440 $133,913 $44,825 $17,027
====== ======= ====== ======
Mortgage-Backed Obligations 31,402
-------
$276,607
=======
</TABLE>
At December 31, 1996 and 1995, securities with an approximate
aggregate amortized cost of $46,464,000 and $54,578,000,
respectively, were pledged as collateral for public and trust
deposits and for other purposes as required or permitted by law.
Page 40 Page 14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(in thousands)
Old Second Bancorp, Inc. and Subsidiaries
NOTE E - LOANS
The composition of loans outstanding by lending classifications
is as follows:
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Commercial, Financial
and Agricultural $129,678 $124,607
Real Estate - Construction 34,600 28,998
Real Estate - Mortgage 234,985 202,564
Installment 47,119 43,336
------- -------
$446,382 $399,505
======= =======
</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,
1996 1995
<S> <C> <C>
Balance, Beginning of Year $13,670 $11,677
New Loans 23,497 15,166
Repayments (22,328) (14,212)
Other Changes 1,286 1,039
------ ------
Balance, End of Year $16,125 $13,670
</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,
1996 1995 1994
<S> <C> <C> <C>
Balance, Beginning of Year $5,676 $5,753 $4,471
Recoveries 369 371 1,360
Provisions for Possible
Loan Losses 713 303 555
Charge-offs (355) (751) (633)
----- ----- -----
Balance, End of Year $6,403 $5,676 $5,753
</TABLE>
Page 41 Page 15
<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, 1996
Accumulated Net
Depreciation & Book
Cost Amortization Value
<S> <C> <C> <C>
Land $ 3,748 $ 3,748
Buildings and
Improvements 16,916 $ 7,666 9,250
Furniture and
Equipment 10,494 8,015 2,479
------ ------ ------
$31,158 $15,681 $15,477
December 31, 1995
Accumulated Net
Depreciation & Book
Cost Amortization Value
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>
NOTE H - TIME DEPOSITS OF $100,000 OR MORE
Time Deposits of $100,000 or more were $66,866,000 and $59,045,000
at December 31, 1996 and 1995, respectively.
NOTE I - INCOME TAXES
A summary of the provision for income taxes is as follows:
<TABLE>
<CAPTION>
for the years ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Currently Payable,
Principally Federal $4,333 $3,573 $3,176
Deferred (271) (250) (596)
----- ----- -----
$4,062 $3,323 $2,580
Page 42 Page 16
<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>
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
Temporary Tax Temporary Tax
Difference Effect Difference Effect
<S> <C> <C> <C> <C>
Loan Loss Allowance $ 6,339 $ 2,155 $ 5,547 $ 1,885
Pension 624 212 519 177
Other Assets 1,488 506 1,456 496
----- ----- ----- -----
Total Deferred Assets 8,451 2,873 7,522 2,558
Accumulated
Depreciation (2,077) (706) (1,705) (580)
Accretion on
Investment Securities (1,636) (556) (1,835) (624)
Other Liabilities (339) (115) (378) (129)
----- ----- ----- -----
Total Deferred
Liabilities (4,052) (1,377) (3,918) (1,333)
----- ----- ----- -----
Net Deferred
Tax Asset 4,399 1,496 3,604 1,225
Tax Effect of SFAS
No. 115 Adjustment (578) (224) (2,465) (956)
----- ----- ----- -----
Net Deferred Tax Asset
with SFAS No. 115
Adjustment $ 3,821 $ 1,272 $ 1,139 $ 269
===== ===== ===== =====
</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,
1996 1995 1994
<S> <C> <C> <C>
Loan Loss Provision $(270) $(392) $(648)
Accelerated Depreciation 126 6 24
Pension Expense (35) (44) (35)
Other, Net (92) 180 63
--- --- ---
$(271) $(250) $(596)
=== === ===
</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,
1996 1995 1994
Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Expected Total Tax
Provision At
Statutory Rate $ 4,656 34.0% $ 4,130 34.0% $ 3,358 34.0%
Decrease Resulting
From Tax Exempt
Income (1,216) (8.9 (1,282)(10.5) (1,284)(13.0)
Increase Resulting
From Goodwill
Amortization 215 1.6 175 1.5 175 1.8
State Taxes 376 2.7 294 2.4 280 2.8
Other, Net 31 .3 6 51 .5
----- ---- ----- ---- ----- ----
$ 4,062 29.7% $ 3,323 27.4% $ 2,580 26.1%
===== ==== ===== ==== ===== ====
</TABLE>
Page 43 Page 17
<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>
December 31,
Actuarial present value
of benefit obligations: 1996 1995 1994
<S> <C> <C> <C>
Vested benefit obligations $4,644 $4,638 $3,900
Nonvested benefit obligations 300 261 203
----- ----- -----
Accumulated benefit obligation 4,944 4,899 4,103
Excess of projected benefit
obligation over accumulated
benefit obligation 1,362 1,286 1,019
----- ----- -----
Projected benefit obligation 6,306 6,185 5,122
Plan assets at fair value,
primarily listed common stocks,
corporate, and U.S. Government
and Agency bonds 6,770 6,349 5,823
----- ----- -----
Plan assets in excess of
projected benefit obligation 464 164 701
Unrecognized net (gain) or loss (471) 187 (157)
Prior service cost not yet
recognized in net periodic
pension cost (71) (135) (140)
Unrecognized net asset at
January 1, 1987, being
amortized over 17 years (602) (688) (774)
Unfunded pension cost
included in other liabilities $ (680) $ (472) $ (370)
=== === ===
</TABLE>
<TABLE>
<CAPTION>
for the years ended December 31,
Net pension cost includes the following components:
1996 1995 1994
<S> <C> <C> <C>
Service cost $ 388 $ 280 $ 330
Interest cost 416 392 349
Actual return on plan assets (848) (931) 66
Net amortization and deferral 251 361 (641)
--- --- ---
Net periodic pension cost $ 207 $ 102 $ 104
=== === ===
</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,
1996 1995
<S> <C> <C>
Accumulated benefit obligation $429 $361
Projected benefit obligation for
service rendered to date 429 361
Accrued pension liability 134 91
Net periodic pension expense 57 48
</TABLE>
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligations was 7.00% at
December 31, 1996, 6.75 % at December 31, 1995 and 7.50% at December
31, 1994. 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 each of the three years.
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 $519,000 in 1996, $515,000 in 1995,
and $443,000 in 1994.
Page 44 Page 18
<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 1996, 10,100 options which
expire in 2006 were granted at an exercise price of $40.875. During 1995,
8,875 options were granted at an exercise price of $31.20 per share, and
8,875 options were granted at an exercise price of $36.80 per share.
These options expire in 2005. The exercise price of these options was
equal to the market price of the underlying stock on the grant date. 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,
1996, are approximately $7,565,000. Firm commitments by the Corporation's
subsidiaries to fund loans in the future are approximately $138,960,000
as of December 31, 1996. 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, 1996, $15,316,000 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 - REGULATORY MATTERS
The subsidiaries of the Corporation are subject to various regulatory
capital requirements administered by the regulatory banking agencies.
Failure to meet minimum capital requirements can initiate certain
mandatory and possible additional discretionary actions by regulators
that, if undertaken, could have a direct material effect on the
Corporation's financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the
subsidiaries of the Corporation must meet specific capital guidelines
that involve quantitative measures of assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting
practices. The subsidiaries' capital amounts and classification are
also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Corporation's subsidiaries to maintain minimum
amounts and ratios (set forth in the table below) of total and Tier 1
capital to risk-weighted assets, and of Tier 1 capital to average assets
(as defined in the regulations). Risk-weighted assets are determined by
weighing assets and off-balance sheet exposures according to their
designated relative credit risks. Tier 1 capital includes certain classes
of preferred stock and equity capital, net of certain adjustments for
intangible assets and investments in non-consolidated subsidiaries. Total
capital consists of Tier 1 capital plus subordinated debt, some types of
preferred stock and an adjustment for allowance for possible loan losses.
Management believes, as of December 31, 1996, the Corporation's
subsidiaries meet all capital adequacy requirements to which they are
subject.
Page 45 Page 19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(in thousands except per share data)
Old Second Bancorp, Inc. and Subsidiaries
NOTE N - REGULATORY MATTERS (continued)
The total and Tier 1 capital amounts and ratios on a consolidated basis
and for Old Second, a significant subsidiary of the Corporation, are set
forth in the table below. Included are the minimum ratios as defined by
regulatory agencies to maintain minimum Capital Adequacy and to be Well
Capitalized Under Prompt Corrective Action Provisions and the actual
amounts on a consolidated basis and for Old Second that satisfy such
minimums.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED:
As of December 31, 1996
Total Capital to Risk
Weighted Assets $79,553 15.6% $40,852 8.0% $51,065 10.0%
Tier 1 Capital to Risk
Weighted Assets 73,171 14.3 20,426 4.0 30,639 6.0
Tier 1 Capital to
Average Assets 73,171 9.5 30,310 4.0 37,887 5.0
As of December 31, 1995
Total Capital to Risk
Weighted Assets 74,782 16.0 37,335 8.0 46,669 10.0
Tier 1 Capital to Risk
Weighted Assets 68,948 14.8 18,668 4.0 28,002 6.0
Tier 1 Capital to
Average Assets 68,948 9.5 28,911 4.0 36,138 5.0
OLD SECOND:
As of December 31, 1996
Total Capital to Risk
Weighted Assets 45,057 15.1 23,941 8.0 29,927 10.0
Tier 1 Capital to Risk
Weighted Assets 41,669 13.9 11,971 4.0 17,956 6.0
Tier 1 Capital to
Average Assets 41,669 9.7 17,162 4.0 21,452 5.0
As of December 31, 1995
Total Capital to Risk
Weighted Assets 40,524 14.5 22,321 8.0 27,901 10.0
Tier 1 Capital to Risk
Weighted Assets 37,546 13.5 11,160 4.0 16,741 6.0
Tier 1 Capital to
Average Assets 37,546 9.2 16,401 4.0 20,502 5.0
</TABLE>
NOTE O - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statements of Financial Accounting Standard Number 107, "Disclosure 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 Agreement 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 46 Page 20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(in thousands except per share data)
Old Second Bancorp, Inc. and Subsidiaries
NOTE O - 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, 1996 December 31, 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Financial Assets:
Cash and Cash Equivalents $ 78,673 $ 78,673 $ 85,247 $ 85,247
Available-for-Sale
Securities 276,607 276,607 253,899 253,899
Loans, Net (Excluding
Lease Contracts of
$81,000 in 1995) 439,589 445,188 393,246 398,928
------- ------- ------- -------
Total Financial Assets $794,869 $800,468 $732,392 $738,074
======= ======= ======= =======
Financial Liabilities:
Deposits $732,652 $730,709 $669,291 $669,605
Securities Sold Under
Agreements to Repurchase 1,838 1,838 6,554 6,554
Other Short-Term Borrowings 4,401 4,401 2,585 2,585
Note Payable 20 20 40 40
------- ------- ------- -------
Total Financial Liabilities $738,911 $736,968 $678,470 $678,784
Unrecognized Financial Instruments:
Commitments to Extend Credit
Standby Letters of Credit (76) (56)
----- ------
Total Unrecognized Financial Instruments $ (76) $ (56)
===== ======
</TABLE>
NOTE P - 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>
1996 Quarter
4th 3rd 2nd 1st
<S> <C> <C> <C> <C>
Interest Income $14,051 $13,693 $13,340 $13,490
Interest Expense 6,387 6,134 6,027 6,107
Net Interest Income 7,664 7,559 7,313 7,383
Provision for Possible Loan
Losses 204 230 140 139
Income Before Income Taxes 2,962 3,391 3,729 3,612
Net Income 2,276 2,331 2,545 2,480
Net Income Per Share .78 .79 .87 .84
1995 Quarter
4th 3rd 2nd 1st
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 .70 .78 .79 .73
</TABLE>
Page 47 Page 21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(in thousands)
Old Second Bancorp, Inc. and Subsidiaries
NOTE Q - 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,
1996 1995
<S> <C> <C>
ASSETS
Cash on Deposit with Bank Subsidiaries $ 2,078 $ 1,596
Investment In Wholly-Owned Bank Subsidiaries 77,501 73,015
Available-for-Sale Securities 2,787 1,820
Other Assets 78 93
------ ------
TOTAL ASSETS $82,444 $76,524
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Other Liabilities $ 1,085 $ 1,106
Stockholders' Equity 81,359 75,418
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $82,444 $76,524
====== ======
Condensed Statements of Income
for the years ended December 31,
1996 1995 1994
INCOME
Dividend Income from
Subsidiaries $4,015 $3,730 $5,385
Interest Income 122 40 9
----- ----- -----
TOTAL INCOME 4,137 3,770 5,394
EXPENSES
Interest Expense 39
Other Expenses 903 898 700
----- ----- -----
TOTAL EXPENSES 903 898 739
Income Before Income Taxes
and EquityIn Undistributed
Net Income of Subsidiaries 3,234 2,872 4,655
Income Tax Benefit (83) (201) (115)
----- ----- -----
Income Before Equity In
Undistributed Net Income
of Subsidiaries 3,317 3,073 4,770
Equity In Undistributed
Net Income of Subsidiaries 6,315 5,750 2,528
----- ----- -----
NET INCOME $9,632 $8,823 $7,298
===== ===== =====
</TABLE>
Page 48 Page 22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(in thousands)
Old Second Bancorp, Inc. and Subsidaries
NOTE Q - CONDENSED FINANCIAL INFORMATION OF THE CORPORATION ONLY
(continued)
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
for the years ended
December 31,
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Dividends Received
From Subsidiaries $ 4,015 $ 3,730 $ 5,385
Interest Received 130 7 5
Interest Paid (247)
Income Tax Payments
Received From Subsidiaries 4,445 3,373 3,296
Income Taxes Paid (4,430) (3,352) (3,113)
Paid to Suppliers (257) (407) (13)
----- ----- -----
Net Cash Provided By
Operating Activities 3,903 3,351 5,313
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Available-
for-Sale Securities (2,029) (1,669) (153)
Proceeds from Sales and
Maturities of Available-
for-Sale Securities 1,050
Other 36 (24) 48
----- ----- ---
Net Cash Used In
Investing Activities (943) (1,693) (105)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on Notes Payable (3,088)
Dividends Paid (2,478) (1,970) (1,714)
----- ----- -----
Net Cash Used In
Financing Activities (2,478) (1,970) (4,802)
----- ----- -----
Net Increase (Decrease) in
Cash and Cash Equivalents 482 (312) 406
Cash and Cash Equivalents
at Beginning of Year 1,596 1,908 1,502
----- ----- -----
Cash and Cash Equivalents
at End of Year $ 2,078 $ 1,596 $ 1,908
===== ===== =====
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Net Income $ 9,632 $ 8,823 $ 7,298
Adjustments to Reconcile Net Income To
Net Cash Provided by Operating Activities:
Equity In Undistributed
Net Income of Subsidiaries (6,315) (5,750) (2,528)
Goodwill Amortization 633 516 516
Increase (Decrease) in
Taxes Payable (68) (180) 68
Increase in Interest Receivable (11) (33) (4)
Decrease in Interest Payable (208)
Other, Net 32 (25) 171
----- ----- -----
Total Adjustments (5,729) (5,472) (1,985)
----- ----- -----
Net Cash Provided By
Operating Activities $ 3,903 $ 3,351 $ 5,313
===== ===== =====
</TABLE>
Page 49 Page 23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ERNST & YOUNG LLP
Report of Independent Accountants
Stockholders and Board of Directors
Old Second Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of Old Second
Bancorp, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, changes in stockholders' equity,
and cash flows for the two years in the period ended December 31, 1996.
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 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, 1996, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
We also have audited, as to combination only, the accompanying consolidated
statements of income, changes in stockholders' equity, and cash flows for the
year ended December 31, 1994. As described in Note B to such statements, these
statements have been combined from the statements of the Bank of Sugar Grove
and Old Second Bancorp, Inc. and Subsidiaries (which statements are not
presented separately herein). The consolidated statements of income, changes
in stockholders' equity, and cash flows of Old Second Bancorp, Inc. and
Subsidiaries for the year ended December 31, 1994 were audited and reported
on separately by other auditors whose report dated January 13, 1995, expressed
an unqualified opinion on those statements. The statements of income, changes
in stockholders' equity, and cash flows of Bank of Sugar Grove for the year
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 statements of income, changes in
stockholders' equity, and cash flows for the year ended December 31, 1994, have
been properly combined on the basis described in Note B.
/s/ Ernst & Young LLP
January 16, 1997
Page 50 Page 24
<PAGE>
CORPORATE INFORMATION
Old Second Bancorp, Inc. and Subsidiaries
10K REPORT
Copies of the Corporation's 1996 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 60506-4172.
There were 1,342 holders of record of the Corporation's Common Stock
at year-end 1996.
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 1996 and 1995 as quoted by ABN-AMRO
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>
<CAPTION>
Bid Ask
1996 High Low High Low
<S> <C> <C> <C> <C>
First Quarter $38.00 $36.00 $39.00 $36.50
Second Quarter 39.25 36.75 39.75 38.00
Third Quarter 39.25 38.50 39.50 39.00
Fourth Quarter 40.50 39.25 41.50 39.75
Bid Ask
1995 High Low High Low
First Quarter $29.60 $27.20 $32.00 $28.80
Second Quarter 29.60 28.80 32.80 31.20
Third Quarter 32.80 29.60 35.20 31.20
Fourth Quarter 36.00 32.80 37.60 33.60
</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, 1996 through December 31, 1996 was $41.50 and $36.00,
respectively.
Page 51 Page 25
<PAGE>
BOARD OF DIRECTORS
Old Second Bancorp, Inc. and Subsidiaries
Walter Alexander
President, Alexander Lumber Company
(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
Marvin Fagel
President, Aurora Packing Company and
Chairman of the Board and CEO, New City
Packing Company (a meat packing company)
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)
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
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
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.
Townsend L. Way, Jr.
Retired President, Richards-Wilcox Mfg. Co.
Richard Westphal
Farmer
Page 52 Page 26
<PAGE>
Photographs of Board of Directors
OLD SECOND BANCORP, INC.
Walter Alexander James E. Benson Ronald J. Carlson Marvin Fagel
Joanne Hansen Kenneth F. Lindgren Jesse Maberry Gary McCarter
D. Chet McKee William J. Meyer Alan J. Rassi Larry A. Schuster
William B. Skoglund George Starmann III M.J. O'Brien
Senior Director
Page 53 Page 27
<PAGE>
CONSOLIDATING AND CONSOLIDATED BALANCE SHEET
(in thousands)
Old Second Bancorp, Inc. and Subsidiaries
<TABLE>
<CAPTION>
at December 31, 1996
THE OLD
THE OLD SECOND THE OLD
SECOND COMMUNITY SECOND
NATIONAL BANK OF COMMUNITY YORKVILLE
BANK OF NORTH BANK OF NATIONAL
AURORA AURORA AURORA BANK
<S> <C> <C> <C> <C>
ASSETS
Cash and Due From Banks $ 23,828 $ 1,105 $ 2,910 $ 7,173
Interest Bearing Deposits
with Banks 200
Federal Funds Sold 17,350 2,925 2,600 10,800
------ ----- ----- ------
Total Cash and
Cash Equivalents 41,378 4,030 5,510 17,973
Available-For-Sale
Investment Securities 148,627 26,422 18,215 37,403
Loans 259,123 21,293 19,807 74,666
Less: Allowance for Possible
Loan Losses 3,388 340 252 938
Unearned Income 373 1
------- ------ ------ ------
Loans, Net 255,362 20,953 19,554 73,728
Bank Premises and
Equipment, Net 8,938 1,456 612 1,476
Other Assets 3,998 855 507 5,124
Investment in Subsidiaries
------- ------ ------ -------
TOTAL ASSETS $458,303 $53,716 $44,398 $135,704
======= ====== ====== =======
LIABILITIES
Deposits
Demand $ 74,554 $ 6,248 $ 6,635 $ 13,934
Savings 148,848 23,858 17,704 50,863
Time 186,372 18,674 14,821 59,012
------- ------ ------ -------
Total Deposits 409,774 48,780 39,160 123,809
Securities Sold Under
Agreements to Repurchase 996 842
Other Short-Term Borrowings 3,271 691 218
Note Payable
Other Liabilities 3,371 297 271 1,468
------- ------ ------ -------
TOTAL LIABILITIES 416,416 50,073 40,122 126,337
STOCKHOLDERS' EQUITY
Common Stock 2,160 250 480 525
Additional Capital 3,000 1,598 1,420 525
Retained Earnings 36,509 1,841 2,310 8,299
Net Unrealized Gain
(Loss) on Investments 218 (46) 66 18
------ ----- ----- -----
TOTAL STOCKHOLDERS'
EQUITY 41,887 3,643 4,276 9,367
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $458,303 $53,716 $44,398 $135,704
======= ====== ====== =======
</TABLE>
Page 54 Page 28
<PAGE>
CONSOLIDATING AND CONSOLIDATED BALANCE SHEET
(in thousands)
Old Second Bancorp, Inc. and Subsidiaries
<TABLE>
<CAPTION>
at December 31, 1996
KANE OLD
BURLINGTON BANK AND BANK OF BANCORP,
BANK TRUST SUGAR GROVE INC.
<S> <C> <C> <C> <C>
ASSETS
Cash and Due From Banks $ 851 $ 2,698 $ 1,169 $ 2,078
Interest Bearing Deposits
with Banks
Federal Funds Sold 775 3,650 2,075
----- ----- ----- -----
Total Cash and
Cash Equivalents 1,626 6,348 3,244 2,078
Available-For-Sale
Investment Securities 9,347 17,337 16,469 2,787
Loans 20,491 32,277 18,725
Less: Allowance for
Possible Loan Losses 367 735 383
Unearned Income 16
------ ------ ------
Loans, Net 20,124 31,526 18,342
Bank Premises and
Equipment, Net 445 1,174 1,162
Other Assets 428 1,099 985 78
Investment in Subsidiaries 77,501
------ ------ ------ ------
TOTAL ASSETS $31,970 $57,484 $40,202 $82,444
====== ====== ====== ======
LIABILITIES
Deposits
Demand $ 2,230 $ 7,659 $ 3,766
Savings 12,762 26,740 13,730
Time 13,313 16,227 18,216
------ ------ ------
Total Deposits 28,305 50,626 35,712
Securities Sold Under
Agreements to Repurchase
Other Short-Term Borrowings 221
Note Payable 20
Other Liabilities 242 466 458 1,085
------ ------ ------ -----
TOTAL LIABILITIES 28,547 51,313 36,190 1,085
STOCKHOLDERS' EQUITY
Common Stock 250 1,000 260 15,377
Additional Capital 1,250 2,500 2,300
Retained Earnings 1,911 2,618 1,422 65,628
Net Unrealized Gain (Loss)
on Investments 12 53 30 354
----- ----- ----- ------
TOTAL STOCKHOLDERS'EQUITY 3,423 6,171 4,012 81,359
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $31,970 $57,484 $40,202 $82,444
====== ====== ====== ======
</TABLE>
CONSOLIDATING AND CONSOLIDATED BALANCE SHEET
(in thousands)
Old Second Bancorp, Inc. and Subsidiaries
<TABLE>
<CAPTION>
at December 31, 1996
OLD
SECOND
BANCORP
CONSOLIDATING INC.
ADJUSTMENTS CONSOLIDATED
<S> <C> <C>
ASSETS
Cash and Due From Banks $ (3,514) $ 38,298
Interest Bearing Deposits
with Banks 200
Federal Funds Sold 40,175
----- ------
Total Cash and Cash Equivalents (3,514) 78,673
Available-For-Sale
Investment Securities 276,607
Loans 446,382
Less: Allowance for
Possible Loan Losses 6,403
Unearned Income 390
-------
Loans, Net 439,589
Bank Premises and
Equipment, Net 214 15,477
Other Assets 4,381 17,455
Investment in Subsidiaries (77,501)
------ -------
TOTAL ASSETS $(76,420) $827,801
LIABILITIES
Deposits
Demand $(3,514) $111,512
Savings 294,505
Time 326,635
----- -------
Total Deposits (3,514) 732,652
Securities Sold Under
Agreements to Repurchase 1,838
Other Short-Term Borrowings 4,401
Note Payable 20
Other Liabilities (127) 7,531
----- -------
TOTAL LIABILITIES (3,641) 746,442
STOCKHOLDERS' EQUITY
Common Stock (4,925) 15,377
Additional Capital (12,593)
Retained Earnings (54,910) 65,628
Net Unrealized Gain (Loss)
on Investments (351) 354
------ ------
TOTAL STOCKHOLDERS'EQUITY (72,779) 81,359
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $(76,420) $827,801
====== =======
Pages 55 Page 29
<PAGE>
</TABLE>
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%
</TABLE>
Page 56
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Old Second Bancorp, Inc. of our report dated January 16, 1997, included in
the 1996 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 16, 1997, with respect
to the consolidated financial statements of Old Second Bancorp, Inc.
incorporated by reference in the Annual Report (Form 10-K) for the year ended
December 31, 1996.
/s/ Ernst & Young LLP
Chicago, Illinois
March 26, 1997
Page 57
<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. for the year 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, L.L.P.
Coopers & Lybrand L.L.P.
Chicago, Illinois
March 25, 1997
Page 58
<PAGE>
Exhibit 25.1
Report of Independent Accountants
The Stockholders and Board of Directors
Old Second Bancorp Inc.
We have audited the consolidated statements of income, changes in
stockholders' equity, and cash flows for the year ended December
31, 1994, prior to the restatement for the 1995 pooling-of-
interest, of Old Second Bancorp, Inc. and Sudsidiaries. 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 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 consolidated statements of income, changes in stockholders'
equity, and cash flows are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated statements of
income, changes in stockholders' equity, and cash flows. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall presentation in the consolidated statements of
income, changes in stockholders' equity, and cash flows. 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
results of operations and cash flows of Old Second Bancorp, Inc.
and Subsidiaries for the year ended December 31, 1994, in
conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand, L.L.P.
Coopers & Lybrand L.L.P.
Chicago, Illinois
January 13, 1995
Page 59
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 38298
<INT-BEARING-DEPOSITS> 200
<FED-FUNDS-SOLD> 40175
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 276607
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 445992
<ALLOWANCE> 6403
<TOTAL-ASSETS> 827801
<DEPOSITS> 732652
<SHORT-TERM> 6259
<LIABILITIES-OTHER> 7531
<LONG-TERM> 0
<COMMON> 15377
0
0
<OTHER-SE> 65982
<TOTAL-LIABILITIES-AND-EQUITY> 827801
<INTEREST-LOAN> 36631
<INTEREST-INVEST> 15828
<INTEREST-OTHER> 2115
<INTEREST-TOTAL> 54574
<INTEREST-DEPOSIT> 24365
<INTEREST-EXPENSE> 24655
<INTEREST-INCOME-NET> 29919
<LOAN-LOSSES> 713
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 23389
<INCOME-PRETAX> 13694
<INCOME-PRE-EXTRAORDINARY> 9632
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9632
<EPS-PRIMARY> 3.28
<EPS-DILUTED> 3.28
<YIELD-ACTUAL> 4.28
<LOANS-NON> 2342
<LOANS-PAST> 261
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 7334
<ALLOWANCE-OPEN> 5676
<CHARGE-OFFS> 355
<RECOVERIES> 369
<ALLOWANCE-CLOSE> 6403
<ALLOWANCE-DOMESTIC> 6403
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<PAGE>
</TABLE>
[TYPE] DEF 14A
[PERIOD] 03 11 97
Old Second Bancorp, Inc.
Notice of Annual Meeting of Stockholders to be Held March 11, 1997
To the Stockholders of Old Second Bancorp, Inc.
The Annual Meeting of Stockholders of Old Second Bancorp, Inc., will be held
on Tuesday, March 11, 1997 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 three 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, 1997; and
3. The transaction of such other business as may properly come before the
meeting or any postponement or adjournment thereof.
The Board of Directors of the Corporation has fixed the close of business on
February 3, 1997 as the record date for the determination of stockholders
entitled to notice of and to vote at this meeting and at any and all
postponements or adjournments thereof.
By Order of the Board of Directors
/s/ James Benson
James Benson
Chairman and
Chief Executive Officer
Aurora, Illinois
February 10, 1997
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.
Page 61
<PAGE>
Old Second Bancorp, Inc.
37 South River Street / Aurora, IL 60507 / (630) 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 11, 1997 at 11:00 a.m., Central Standard Time, and at any and all
postponements or 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 have 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, 1997; and (iii) in the discretion of the
named proxies upon such other matters as may properly come before the meeting
or at any postponement or adjournment 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 three
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.
Page 62
<PAGE>
A copy of the Corporation's Annual Report for the fiscal year ended
December 31, 1996, 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 10, 1997.
Voting Securities and Principal Holders Thereof
Only holders of Common Stock of record at the close of business on February 3,
1997 will be entitled to vote at the Annual Meeting of Stockholders. At such
date, the Corporation had outstanding 2,937,484 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 of the 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, 1996.
Number and Percent of
Name and Address Shares Beneficially Owned
Old Second, as trustee for 150,410 shares (5.12%) of the Corporation's
the J. Carl Schmitz marital Common Stock is held in the name of the
and residual trusts J. Carl Schmitz marital and residual trusts
37 South River Street, for the benefit of Genevieve P. Schmitz and
Aurora, Illinois 60507 and James Carl Schmitz. Genevieve P. Schmitz
has the power to direct the voting of all such
Genevieve P. Schmitz shares.
Villa San Marcos
4201 North 78th Place
Scottsdale, Arizona 85251
Old Second Bancorp, Inc. 251,892 shares (8.58%) of the Corporation's
Profit Sharing Plan and Trust Common Stock
37 South River Street
Aurora, Illinois 60507
Page 63
<PAGE>
As of December 31, 1996, 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),
192,800 shares of the Corporation's Common Stock (6.56%). Old Second had full
voting responsibility with respect to 184,372 of such shares (6.28%) of the
total outstanding shares and no voting responsibility with respect to the
remaining shares. Old Second had full investment power with respect to
133,524 shares (4.55%) and shared investment power with respect to 43,894
shares (1.49%).
The following table sets forth information as of December 31, 1996, 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>
Corporation Common Stock
<S> Beneficially Owned
Name Number of Shares (%)*
<C> <C>
Walter Alexander 17,392 (0.59%)
James Benson 57,874 (1.97%)
Ronald J. Carlson 8,983 (0.31%)
Marvin Fagel 1,250 (0.04%)
Joanne Hansen 1,312 (0.04%)
Kenneth Lindgren 9,374 (0.32%)
Jesse Maberry 4,705 (0.16%)
Gary McCarter 691 (0.02%)
D. Chet McKee 3,416 (0.12%)
William Meyer 8,707 (0.30%)
Alan J. Rassi 1,250 (0.04%)
Larry Schuster 13,700 (0.47%)
William B. Skoglund 7,504 (0.26%)
George Starmann III 2,888 (0.10%)
All Directors, Director
Nominees, and Executive
Officers as a group (14
persons) 139,046 (4.73%)
*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.
</TABLE>
Page 64
<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 are asked to elect the member of a class for a term of three
years. The three nominees named below have been recommended for election as
Directors for a term ending at the Annual Meeting in 2000 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.
Director Nominees
Name Age Principal Occupation(1,2)
Ronald J. Carlson 61 President, COO, CFO, and Secretary of the Corporation,
Vice President and CFO of Old Second (1987)
Gary McCarter 60 Vice President, Farmers Group, Inc., an insurance
company (1988)
D. Chet McKee 57 President, Copley Memorial Hospital (1978)
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.
Page 65
<PAGE>
Continuing Directors
Name Age Principal Occupation(1,2)
Walter Alexander(3) 62 President, Alexander Lumber Co., lumber and building
material sales (1976)
James Benson(4) 66 Chairman of the Board and CEO of the Corporation
(1971)
Marvin Fagel(4) 49 President, Aurora Packing Company and Chairman of the
Board and CEO, New City Packing Company, a meat
packing company
Joanne Hansen(4) 56 President, Furnas Foundation, Inc., a charitable
foundation (1993)
Kenneth Lindgren(4) 56 President, Daco Incorporated, contract manufacturer
of machined components (1990)
Jesse Maberry(4) 53 Treasurer, Aurora Bearing Company, manufacturer of
rod end and spherical bearings (1985)
William Meyer(3) 49 President, William F. Meyer Co., a wholesale plumbing
supply company (1995)
Alan J. Rassi(4) 56 Vice President and General Manager, Caterpillar,
Inc., construction equipment manufacturer (1987)
Larry Schuster(3) 56 Chairman, Westside Mechanical, Inc., mechanical
contractor (1990)
William B. Skoglund(3)
46 Vice President and Assistant Secretary of the
Corporation, President and CEO of Old Second (1992)
George Starmann III(3)
53 Vice President of the Corporation, Executive Vice
President and Senior Trust Officer of Old Second
(1995)
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 1998.
4)Serves as director until 1999.
Page 66
<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, and McKee, and since October 8, 1996, Mr. Marvin Fagel.
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 1996.
Page 67
<PAGE>
The members of the Corporation's Nominating Committee during 1996 were Messrs.
Alexander, Benson, Carlson, Maberry, McKee, Rassi, Schuster, Skoglund, and
Starmann. 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 did not meet in 1996.
The Board of Directors of the Corporation held 12 meetings during 1996. Actions
taken by any Committee of the Board are reported to the Board of Directors,
usually at its next meeting. During 1996 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 1996, 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.
Page 68
<PAGE>
Executive Compensation
The following table sets forth information with respect to compensation paid
for the fiscal years ended December 31, 1996, 1995, and 1994, to those persons
who were at December 31, 1996; (i) the chief executive officer and (ii) the
other executive officers of the Corporation whose annual salary exceeded
$100,000.
<TABLE>
Summary Compensation Table
<CAPTION>
Annual Long-Term
Compensation Compensation
Awards
Securities
Name and Underlying All Other
Principal Position Year Salary($)(1) Options(#)(2) Compensation ($)(3)
<S> <C> <C> <C> <C>
James Benson 1996 $102,034 - $ 0
Chairman and Chief 1995 268,695 3,250 16,904
Executive Officer 1994 254,540 - 15,830
of the Corporation
Ronald J. Carlson 1996 $222,555 2,300 $14,284
President, Chief 1995 208,135 3,000 13,584
Operating Officer 1994 194,885 - 12,761
and Chief Financial
Officer and Secretary
of the Corporation
Vice President and
Chief Financial Officer
of Old Second
William B. Skoglund 1996 $172,550 2,200 $12,490
Vice President and 1995 156,565 2,750 11,611
Assistant Secretary 1994 146,565 - 10,626
of the Corporation
President and Chief
Executive Officer
of Old Second
Page 69
<PAGE>
Summary Compensation Table (continued)
Annual Long-Term
Compensation Compensation
Awards
Securities
Name and Underlying All Other
Principal Position Year Salary($)(1) Options(#)(2) Compensation($)(3)
George Starmann III 1996 $160,615 2,100 $11,834
Vice President of 1995 149,465 2,500 9,446
the Corporation 1994 140,775 - 3,815
Executive Vice
President and
Senior Trust Officer
of Old Second
<FN>
1)Salary amounts for Mr. Benson include director's fees received from the
Corporation's subsidiary banks in the amounts of $28,150, $15,900, and
$13,125 for years 1996, 1995, and 1994, respectively. Salary amounts for Mr.
Carlson include director's fees received from the Corporation's subsidiary
banks other than Old Second in the amounts of $17,400, $15,700, and $12,925
for years 1996, 1995, and 1994, respectively.
2)Share amounts for prior years have been restated for the five-for-four
stock split effective June 1996.
3)The amounts shown for 1996 represent the contribution to: (i) the
Corporation's qualified Profit Sharing Plan and Trust in the amount of $8,250
each for Messrs. Carlson, Skoglund, and Starmann; (ii) the Corporation's
Salary Savings Plan in the amount of $3,000 each for Messrs. Carlson, Skoglund,
and Starmann, as vested and accrued during 1996; and (iii) the Corporation's
nonqualified Supplemental Executive Retirement Plan ("SERP") in the amounts of
$3,034, $1,240, and $584 for Messrs. Carlson, Skoglund, and Starmann,
respectively. No amounts were paid or distributed pursuant to the plans to the
named individuals during 1996, 1995, or 1994.
</TABLE>
Page 70
<PAGE>
Option Grants
The following table provides information about stock options granted during
1996 to the Named Executive Officers other than Mr. Benson, to whom no stock
options were granted during the year.
<TABLE>
Option Grants in Last Fiscal Year*
<CAPTION>
Individual Grant Potential
Realizable Value
Percent of at Assumed Annual
Total Options Rates of Stock
Granted to Exercise Price Appreciation
Options Employees Price Expiration For Option Term
Name Granted(#) in Fiscal Year ($/Share) Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Ronald J.
Carlson 2,300 22.80% $40.875 12/09/06 $59,124 $149,832
William B.
Skoglund 2,200 21.80% $40.875 12/09/06 $56,553 $143,317
George
Starmann III 2,100 20.80% $40.875 12/09/06 $53,983 $136,803
<FN>
*Messrs. Carlson, Skoglund, and Starmann received the 1996 options on December
10, 1996. One-third of the options granted vest and become exercisable on each
of the first three anniversaries of their grant date.
</TABLE>
Page 71
<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 1996 were Walter
Alexander, Gary McCarter, Alan Rassi, and William Meyer. 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.
Competitive market data is provided by an independent compensation consultant.
The data provided compares Old Second's compensation practices to banking
institutions with similar asset size and employment levels.
Page 72
<PAGE>
The competitive market data used for compensation purposes differs from the
companies which comprise the Custom Peer Group in the Performance Graph
included in this proxy statement. The Compensation Committee believes that
the Company's most direct competitors for executive talent reflects a broader
group of companies than those included in the Custom Peer Group established
for comparing shareholder returns.
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) salary was reduced in 1996. In determining Mr. Benson's salary
in 1996, the Compensation Committee considered Mr. Benson's advisory role, his
individual performance, and his long-term contributions to the success of the
Corporation. 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 1996 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.
Page 73
<PAGE>
In 1996, Mr. Benson received no stock options. As detailed in the table on page
11, the other Named Executive Officers received stock option grants comparable
to the long-term incentive opportunity granted to individuals with the same or
similar position at various banks of similar size. The grants are similar in
size to the option shares that were granted in the previous fiscal year. The
Compensation Committee has determined that the compensation opportunities
should reflect overall Corporate and individual achievement, as well as
competitive compensation practices.
(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 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 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
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 tax code provision and has determined
that it is unlikely to affect the deductibility of compensation paid to
executive officers.
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.
Page 74
<PAGE>
Compensation Committee of the Board of Directors of Old Second
Mr. Walter Alexander
Mr. Gary McCarter
Mr. Alan Rassi
Mr. William Meyer
Employment Agreement
Effective January 2, 1996, Mr. Benson retired as CEO of Old Second. However,
during 1996 Mr. Benson continued in his position as Chairman of the Board of
the Corporation and retained the title of CEO of the Corporation. As determined
at the Board of Directors meeting on January 14, 1997, Mr. Benson will continue
in his position as Chairman of the Board and CEO of the Corporation for 1997.
As in 1996, 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 to be performed during fiscal 1997,
Mr. Benson will receive a fee of $60,000.
Page 75
<PAGE>
Comparison of Five-Year Cumulative Total Return*
Old Second Bancorp, Inc.; S&P 500; and Custom Peer Group
(Graph presented here.)
<TABLE>
<CAPTION>
Date Old Second S&P 500 Custom Peer Group
<S> <C> <C> <C>
December 1991 $100.00 $100.00 $100.00
December 1992 $117.28 $107.61 $141.12
December 1993 $156.14 $118.41 $176.36
December 1994 $163.73 $120.01 $180.00
December 1995 $188.51 $164.95 $216.61
December 1996 $218.07 $202.73 $232.56
</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.; and Princeton National Bancorp
Inc. The Custom Peer Group has changed from last year's Custom Peer Group by
the removal of Premier Financial Services Inc. and Todays Bancorp Inc. These
companies were removed from the peer group as they were acquired in 1996 by
Grand Premier Financial and Mercantile Bancorp, respectively.
Page 76
<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 includable 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>
<CAPTION>
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 5,372 7,163 8,953 10,744 12,250 14,000
50,000 8,759 11,679 14,598 17,518 18,768 20,018
75,000 14,772 19,696 24,620 29,544 31,419 33,294
100,000 21,022 28,029 35,037 42,044 44,544 47,044
125,000 27,272 36,363 45,453 54,544 57,669 60,794
150,000 33,522 44,696 55,870 67,044 70,794 74,544
175,000 39,772 53,029 66,287 79,544 83,919 88,294
200,000 46,022 61,363 76,703 92,044 97,044 102,044
225,000 52,272 69,696 87,120 104,544 110,169 115,794
250,000 58,522 78,029 97,537 117,044 123,294 129,544
275,000 64,772 86,363 107,953 129,544 136,419 143,294
300,000 71,022 94,696 118,370 142,044 149,544 157,044
</TABLE>
Page 77
<PAGE>
Covered compensation under the qualified and nonqualified pension formulas and
the respective years of credited service as of December 31, 1996 for the
executive officers named in the cash compensation table are as follows: Ronald
J. Carlson, $205,155 (17 years); William B. Skoglund, $172,550 (24 years); and
George Starmann III, $160,615 (3 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 1996. 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.
Page 78
<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, 1997. 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 1998 Annual Meeting of Stockholders must be received by the
Corporation at its executive office no later than October 10, 1997.
Page 79
<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
/s/ James Benson
James Benson
Chairman and
Chief Executive Officer
Aurora, Illinois
February 10, 1997
Page 80
<PAGE>
