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, 1997
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:
$189,049,780 as of March 12, 1998
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
3,049,190 shares of No par value common stock at March 12, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the December 31, 1997 Annual Report to Stockholders and the
Registrant's Proxy Statement dated February 11, 1998, 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 17 and 18.
This Form 10-K consists of 61 pages.
Page 1
<PAGE>
FORM 10-K
TABLE OF CONTENTS
Part I
Item 1. Business 3
Item 2. Properties 14
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Part II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 15
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 7a. Quantitative and Qualitative Disclosures about
Market Risk 15
Item 8. Financial Statements and Supplementary Data 15
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 15
Part III
Item 10. Directors and Executive Officers of the Registrant 16
Item 11. Executive Compensation 16
Item 12. Security Ownership of Certain Beneficial Owners and
Management 16
Item 13. Certain Relationships and Related Transactions 16
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 17
<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 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. At December 31, 1997, Bancorp 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. In addition, Bancorp has a mortgage banking
subsidiary principally engaged in the business of originating, purchasing,
selling and servicing residential mortgage loans.
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.
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>
Old Second Bancorp,
Name Age Inc. Offices (1)
- ---------------- --- -------------------
<S> <C> <C>
James E. Benson 67 Chairman, Chief Executive
Officer, and Director
R. J. Carlson 62 President, Chief Operating
Officer, Chief Financial
Officer, Secretary and Director
William B. Skoglund 47 Vice President, Assistant
Secretary and Director
George Starmann III 54 Vice President and
Director
<FN>
(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.
</TABLE>
Page 3
<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 has full-service branches located at: 1991 West Wilson Street,
Batavia; 4080 Fox Valley Center Drive, Aurora; 555 Redwood Drive, Aurora;
1200 Douglas Road, Oswego, which opened in April of 1997; 1100 South County
Line Road, Maple Park, and 2S101 Harter Road, Kaneville, both of which were
acquired in June of 1997. Old Second has trust offices at 37 South River
Street in Aurora, 321 James Street in Geneva, and 122 North Main Street in
Elburn.
The Old Second Community Bank of North Aurora is located at 200 West John
Street, North Aurora. The Old Second Community Bank of Aurora is
located at 1350 North Farnsworth Avenue, Aurora. Yorkville
National Bank is located at 102 East Van Emmon Street, Yorkville, with
branches located at 408 East Countryside Parkway in Yorkville, 6800 West
Route 64 in Plano and 323 East Norris Drive in Ottawa. Burlington Bank is
located at 194 South Main Street in Burlington. Kane County Bank
and Trust Company is located at 749 North Main Street in Elburn,
with branches at 122 North Main Street in Elburn and 40W422 Route 64 in
Wasco. Bank of Sugar Grove is located on Cross Street at Illinois
Route 47, Sugar Grove.
These Banks offer banking services for retail, commercial, industrial, and
public entity customers in the Aurora, Batavia, Oswego, Maple Park,
Kaneville, 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 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. Within the
Yorkville National Bank banking market, which includes portions of Kane and
LaSalle and all of Kendall counties, there are approximately 10 other banks
or banking facilities and several savings and loan associations.
At December 31, 1997, Bancorp and its subsidiaries had 396 full-time and 125
part-time employess.
The only industry segment in which Bancorp and its subsidiaries are engaged
in is banking, and there are no foreign operations. Maple Park Mortgage
("Maple Park") operates from leased offices in St. Charles, Sycamore, Oswego
and Bannockburn, Illinois. The main office is located at 1450 West Main
Street in St. Charles. Since 1992, Maple Park has developed a wholesale
(correspondent) division primarily engaged in soliciting mortgage loans in
Iowa, Colorado, Wyoming and Illinois. The wholesale division emphasizes
developing relationships with financial institutions. Maple Park currently
holds contracts with over 300 banks and credit unions. Maple Park operates
as a mortgage broker and servicer offering a wide range of products including
conventional, fixed and adjustable-rate mortgages. The New Leaf division
of Maple Park is located in St. Charles and specializes in assisting
prospective and current homeowners who do not qualify in the traditional
market to obtain mortgages. Maple Park currently has 57 full-time
employess and 2 part-time employees.
Maple Park faces vigorous competition in all phases of its retail and
correspondent divisions. Maple Park believes that competition for its retail
products is principally based on location, convenience, quality and price.
Within its retail mortgage banking market, there are approximately six large
companies offering mortgage banking products and services and a number of
small or mid-sized brokerage operations. Maple Park believes that
competition for its correspondent division is primarily based on convenience,
quality and price. There are several large national companies competing in
their correspondent markets.
Page 4
<PAGE>
ADDITIONAL STATISTICAL INFORMATION - OLD SECOND BANCORP, INC.
CONSOLIDATED DAILY AVERAGE BALANCE SHEETS AND INTEREST RATES
<TABLE>
Years Ended December 31,
1997 1996 1995
____________________________________________________________
Avg Income Yield Avg Income Yield Avg Income Yield
Bal Expense Rate Bal Expense Rate Bal Expense Rate
____________________________________________________________
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest bearing
deposits with
banks 298 22 7.38% 301 22 7.31% 477 22 4.61%
Federal funds
sold 43,803 2,407 5.50% 41,377 2,227 5.38% 39,329 2,274 5.78%
Investment
securities:
Taxable 204,352 13,025 6.37% 196,791 12,723 6.47% 195,798 12,537 6.40%
Non taxable (1) 61,830 3,302 5.34% 68,276 3,755 5.50% 70,345 4,118 5.85%
Loans held for
sale and net
loans (2) 515,016 46,422 9.01% 448,422 40,959 9.13% 427,744 39,288 9.18%
------- ------ ---- ------- ------ ---- ------- ------ ----
Total interest
earning
assets (1) 825,299 65,178 7.90% 755,167 59,686 7.90% 733,693 58,239 7.94%
======= ====== ==== ======= ====== ==== ======= ====== ====
Cash and due
from banks 34,513 33,329 33,026
Bank premises
and equipment,
net 20,514 18,833 17,753
Other assets 21,034 19,267 23,453
------ ------ ------
Total assets 901,360 826,596 807,925
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing
transaction
deposits 111,170 2,194 1.97% 108,091 2,361 2.18% 102,168 2,399 2.35%
Savings
deposits 185,304 5,726 3.09% 179,103 5,374 3.00% 176,977 5,776 3.26%
Time deposits 373,433 21,672 5.80% 339,529 19,512 5.75% 319,255 18,071 5.66%
------- ------ ----- ------- ------ ---- ------- ------ ----
Total deposits 669,907 29,592 4.42% 626,723 27,247 4.35% 598,400 26,246 4.39%
Securities sold
under agreements
to repurchase 13,958 690 4.94% 3,632 181 4.98% 3,688 142 3.85%
Notes payable 8,991 589 6.55% 2,377 221 9.30% 9,970 650 6.52%
Other short-term
borrowings 3,415 180 5.27% 2,724 138 5.07% 4,555 284 6.23%
----- --- ---- ----- --- ---- ----- --- ----
Total interest
bearing
liabilities 696,271 31,051 4.46% 635,456 27,787 4.37% 616,613 27,322 4.43%
======= ====== ==== ======= ====== ==== ======= ====== ====
Demand
deposits 109,219 102,738 109,718
Other
liabilities 9,014 6,951 8,582
------- ------- -------
Total
liabilities 814,504 745,145 734,913
Stockholders'
equity 86,856 81,451 73,012
------- ------- -------
Total
liabilities and
stockholders'
equity 901,360 826,596 807,925
======= ======= =======
Net interest
spread (1) 3.44% 3.53% 3.51%
===== ===== ====
Net yield on
interest earning
assets (1) 4.14% 4.22% 4.21%
===== ===== =====
</TABLE>
Page 5
<PAGE>
(1) 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 income divided by total average interest-earning assets.
(2) Principal balances on nonaccruing loans, if any, are included in net
loans on the average balance sheet. There were no out-of-period adjustments
or foreign activities for any reportable period.
Fees included in the above interest income computations are as follows, in
thousands:
Years Ended December 31,
1997 $719
1996 $731
1995 $648
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>
1997 Compared to 1996
Increase (Decrease) Due To
Interest income: Volume (1) Rate(1) Net
-----------------------------------
<S> <C> <C> <C>
Interest bearing deposits
with banks $ 0 $ (0) $ (0)
Investment securities:
Taxable 482 (180) 302
Non taxable (344) (109) (453)
Federal funds sold 133 47 180
Loans, net 5,972 (509) 5,463
------- ------- -------
Net increase (decrease) $ 6,243 $ (751) $ 5,492
------- ------- -------
Interest expense:
Interest bearing deposits $ 61 $ (228) $ (167)
Savings deposits 192 160 352
Time deposits 1,968 192 2,160
Securities sold under
agreements to repurchase 510 (1) 509
Notes payable 411 (43) 368
Other 36 6 42
------- ------ --------
Net increase $ 3,178 $ 86 $ 3,264
Increase (decrease) ------- ------ --------
in net interest margin $ 3,065 $ (837) $ 2,228
------- ------ --------
</TABLE>
Page 6
<PAGE>
<TABLE>
1996 Compared to 1995
Increase (Decrease) Due To
Interest income: Volume (1) Rate(1) Net
-------------------------------------
<S> <C> <C> <C>
Interest bearing deposits
with banks $ (13) $ 13 $ 0
Investment securities:
Taxable 65 121 186
Non taxable (114) (249) (363)
Federal funds sold 110 (157) (47)
Loans, net 1,918 (247) 1,671
------- ------- -------
Net increase (decrease) $ 1,966 $ (519) $ 1,447
------- ------- -------
Interest expense:
Interest bearing deposits $ 129 $ (167) $ (38)
Savings deposits 64 (466) (402)
Time deposits 1,165 276 1,441
Securities sold under
agreements to repurchase (3) 42 39
Notes payable (591) 162 (429)
Other (93) (53) (146)
------- ------- -------
Net increase (decrease) $ 671 $ (206) $ 465
------- ------- -------
Increase (decrease)
in net interest margin $ 1,295 $ (313) $ 982
------- ------- -------
<FN>
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.
</TABLE>
Page 7
<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, 1997:
OLD SECOND BANCORP, INC.
<TABLE>
(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 $ 350 $ 350
Federal funds sold 46,050 46,050
Investment securities 24,486 $ 7,186 $ 19,754 $213,041 264,467
Loans held for sale 26,927 26,927
Loans, net 188,968 27,780 47,176 270,708 534,632
-------- -------- -------- -------- -------
Total interest-earning
assets $286,781 $ 34,966 $ 66,930 $483,749 $872,426
INTEREST-BEARING
LIABILITIES:
- ------------------
Money market, savings
and NOW accounts $203,902 $100,755 $304,657
Time deposits 121,080 $ 61,938 $ 77,302 109,188 369,508
Other borrowed funds 53,477 1,629 50 55,156
-------- -------- -------- -------- --------
Total interest- bearing
liabilities $378,459 $ 63,567 $ 77,352 $209,943 $729,321
Period gap $ (91,678) $(28,601) $(10,422) $273,806 $143,105
Cumulative gap $ (91,678) $(120,279) $(130,701) $143,105
</TABLE>
Total interest-earning assets exceeded interest-bearing liabilities by
$143,105,000 at December 31, 1997. 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
$130,701,000. 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 8
<PAGE>
INVESTMENT PORTFOLIO
The required information for book value, market 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, 1997:
<TABLE>
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 6.17% 6.31% 7.02% 6.48%
States & political
subdivisions 6.17 5.76 5.25 6.30
Collateralized mortgage
obligations 5.44 6.21
Other 6.60
</TABLE>
[FN]
Note: Yields on tax-exempt obligations are not computed on a tax equivalent
basis.
LOAN PORTFOLIO
Classification of Loans
The following table shows the classification of loans in thousands of
dollars, on the dates indicated:
<TABLE>
December 31,
--------------------------------------------
1997 1996 1995 1994 1993
--------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial, and
agricultural $146,591 $143,961 $141,948 $146,890 $135,555
Real estate-construction 43,095 40,437 35,653 32,548 25,744
Real estate-mortgage 287,167 248,742 239,081 185,698 181,886
Installment 58,127 49,164 45,847 45,120 37,134
-------- -------- ------- ------- --------
Total $534,980 $482,304 $462,529 $410,256 $380,319
======== ======== ======== ======== ========
</TABLE>
The following table shows the percentage of total loans represented by each
classification of loans on the dates indicated:
<TABLE>
December 31,
-------------------------------------------
1997 1996 1995 1994 1993
-------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial, and
agricultural 27.4% 29.8% 30.7% 35.8% 35.6%
Real estate-construction 8.1 8.4 7.7 7.9 6.8
Real estate-mortgage 53.6 51.6 51.7 45.3 47.8
Installment 10.9 10.2 9.9 11.0 9.8
---- ---- ---- ---- ----
Total 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
Page 9
<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, 1997 in thousands of dollars:
<TABLE>
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 $71,959 $61,519 $13,113 $146,591
Real estate construction 35,043 8,052 0 43,095
</TABLE>
Commercial, financial, and agricultural loans due after one year in the
amount of $80,353,000 at December 31, 1997 have floating or adjustable
interest rates. Such loans with fixed rates totaled $66,238,000. Real
estate construction loans due after one year in the amount of $29,849,000
have floating or adjustable interest rates. Such loans with fixed rates
totaled $13,246,000. 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 10
<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>
December 31,
--------------------------------------
1997 1996 1995 1994 1993
--------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual, past due and
restructured loans
a) Nonaccrual $2,189 $3,505 $4,514 $2,344 $4,428
b) Past Due 1,011 622 245 555 603
c) Restructured 122 0 58 69 86
Potential Loan Problems(1) 6,911 7,334 5,198 4,389 2,188
<FN>
(1)Loans in this category represent those which have been periodically
delinquent as to the payment of principal and interest and are vulnerable to
adverse economic conditions. The collateral position of Bancorp's
subsidiaries on these loans mitigates the amount of loss exposure when viewed
in their entirety. There were no foreign outstandings or loan concentrations
at the dates indicated.
</TABLE>
Following is information regarding interest income for the year ended
December 31, 1997 for domestic loans which are on a nonaccrual basis or
restructured as of December 31, 1997, in thousands of dollars:
Gross interest income that would have been
included in income for 1997 if the loans
had been current in accordance with their
original terms $273
Gross interest income included in income on
these loans for 1997 $ 84
Page 11
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE
Loan loss experience for the indicated periods in thousands of dollars is
summarized as follows:
<TABLE>
Years Ended December 31,
-------------------------------------------
1997 1996 1995 1994 1993
-------------------------------------------
<S> <C> <C> <C> <C> <C>
Average loans held for sale
and loans net of unearned
income $521,906 $454,708 $434,403 $389,769 $362,752
======== ======== ======== ======== ========
Allowance for possible
loan losses:
Balance at beginning of
period $ 6,968 $ 6,686 $ 6,370 $ 5,110 $ 5,230
Additions (deductions):
Charge-offs:
Commercial, financial and
agricultural $ 1,285 $ 615 $ 3,299 $ 1,701 $ 1,577
Real estate-construction 81 0 0 0 0
Real estate-mortgage 67 117 134 130 438
Installment 209 169 185 108 210
------- ------ ------- ------- -------
Total charge-offs 1,642 901 3,618 1,939 2,225
Recoveries:
Commercial, financial and
agricultural 176 362 431 783 342
Real estate-construction 0 0 0 0 0
Real estate-mortgage 105 0 11 425 170
Installment 60 73 93 209 74
------ ----- ------ ------ -------
Total recoveries 341 435 535 1,417 586
------ ----- ------ ------ -------
Net (charge-offs) (1,301) (466) (3,083) (522) (1,639)
Provision charged to
operating expense 1,256 748 3,399 1,782 1,519
------ ----- ------ ----- -----
Balance at the end of period 6,923 6,968 6,686 6,370 5,110
====== ===== ====== ===== =====
</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.
<TABLE>
Allowance for possible loan
losses by category:
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural $ 4,100 $ 4,100 $ 3,990 $ 3,730 $ 2,985
Real estate-construction 185 185 180 160 115
Real estate-mortgage 1,060 1,060 1,040 1,000 815
Installment 1,430 1,430 1,248 1,275 995
Unallocated 148 193 228 205 200
-------- ------- -------- -------- -------
Total $ 6,923 $ 6,968 $ 6,686 $ 6,370 $ 5,110
======== ======== ======== ======== ========
Ratio of net (charge-offs)
recoveries to average loans
outstanding for the period (.25)% (.10)% (.71)% (.13)% (.45)%
=== === === === ===
</TABLE>
Page 12
<PAGE>
Maturities of Certificates of Deposit 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>
December 31,
1997
-----------
<S> <C>
Maturing within 3 months $ 26,878
After 3 but within 6 months 9,516
After 6 but within 12 months 15,532
After 12 months 18,531
-----------
Total $ 70,457
===========
</TABLE>
Return on Equity and Assets
The following table presents certain ratios relating to equity and assets:
<TABLE>
Years Ended
December 31,
1997 1996 1995
--------------------------------
<S> <C> <C> <C>
Return on total average assets 1.06% 1.01% 1.08%
Return on average stockholders' equity 11.04% 10.24% 11.99%
Dividend payout ratio 28.34% 30.40% 24.39%
Average equity to average assets ratio 9.64% 9.85% 9.04%
</TABLE>
Page 13
<PAGE>
Item 2. Properties
Except for certain teller machine locations, Old Second Bancorp subsidiaries
own 18 bank locations. Old Second National Bank leases space for the Trust
office in Geneva and Yorkville National Bank leases space for a branch in the
Super Wal-Mart in Plano. Maple Park Mortgage operates its retail division
from leased offices in St. Charles, Sycamore, Oswego and Bannockburn. The
administrative offices of Maple Park Mortgage are located in St. Charles.
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
subsidiaries 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 1997.
Page 14
<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 1997 and 1996 appears on page 52 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 32 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 P on page 46 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,
1997 appears on page 32 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 26 through 31 of the Annual Report to
Stockholders and is incorporated by reference in this Annual Report on
Form 10-K.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
Quantitative and Qualitative disclosures on market risk appears in the
Management's Discussion and Analysis on page of 29 of the Annual Report to
Shareholders 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, 1998, appear on pages 33
through 54 of the Annual Report to Stockholders and are incorporated by
reference in this Annaul Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Page 15
<PAGE>
Part III
Item 10. Directors and Executive Officers of the Registrant
The required information for directors of the Registrant is shown on pages 4
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 8 through 14 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 16
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(1) Financial Statements Reference
-------------------- -------------
Form 10-K
Incorporated by reference in Part Annual Report
II, Item 8 of this report: (page)
Consolidated Balance Sheets as of
December 31, 1997 and 1996 33
Consolidated Statements of Income
for the years ended December 31,
1997, 1996, and 1995 34
Consolidated Statements of Cash Flows
for the years ended December 31,
1997, 1996, and 1995 35-36
Consolidated Statements of Changes
in Stockholders' Equity for the
years ended December 31, 1997,
1996, and 1995 36
Notes to Consolidated Financial
Statements 37-51
Report of Independent Accountants 52
(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 17
<PAGE>
(a)(3) Exhibits (Continued) Reference
------------
Form 10-K
Annual Report
(page)
13.1 Old Second Bancorp, Inc. - 1997
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. 22-57
22.1 Subsidiaries of the Registrant 58
23.1 Consent of Independent Accountant 59
25.1 Audit Opinion of Independent Accountant 60
27.1 Financial Data Schedule 61
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 1997.
Page 18
<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 -------------------- By /s/ James E. Benson
James E. Benson- Chairman,
Chief Executive Officer,
and Director
Date -------------------- By /s/ Ronald J. Carlson
Ronald J. Carlson -
President, Chief Financial
Officer, Secretary and
Director
Page 19
<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
---- -------------------
/s/ Walter Alexander
---------- ---------------------------
Walter Alexander - Director
/s/ James E. Benson
---------- ---------------------------
James E. Benson - Chairman
Chief Executive Officer,
and Director
/s/ Ronald J. Carlson
---------- ---------------------------
Ronald J. Carlson-President,
Chief Financial Officer,
Secretary and Director
---------- ---------------------------
Marvin Fagel - Director
---------- ---------------------------
Joanne Hansen - Director
/s/ Kenneth F. Lindgren
---------- -----------------------------
Kenneth F. Lindgren - Director
---------- -----------------------------
Jesse Maberry - Director
---------- -----------------------------
Gary McCarter - Director
Page 20
<PAGE>
SIGNATURES, continued
Date SIGNATURE AND TITLE
---------- ------------------------
D. Chet McKee - Director
/s/ William J. Meyer
----------- ---------------------------
William J. Meyer - Director
---------- ---------------------------
Larry A. Schuster - Director
/s/ Willaim B. Skoglund
---------- ---------------------------
William B. Skoglund -
Vice President, Assistant
Secretary, and Director
/s/ George Starmann III
---------- --------------------------
George Starmann III
Vice President and Director
Page 21
<PAGE>
Old Second Bancorp, Inc.
1997 Annual Report
INDEX
- -----
Financial Highlights 1
Letter to Stockholders 2, 3
Management's Discussion 4-8
Selected Consolidated Financial Data 9
Consolidated Balance Sheets 10
Consolidated Statements of Income 11
Consolidated Statements of Cash Flows 12
Consolidated Statements of Changes
in Stockholders' Equity 13
Notes to Consolidated Financial Statements 13-25
Report of Independent Accountants 26
Corporate Information 27
Board of Directors 28, 29
Consolidating and Consolidated Balance Sheet 30, 31
Service Area Map and Locations 32, 33
Page 22
<PAGE>
FINANCIAL HIGHLIGHTS
In thousands, except per share data -
for the years ended December 31,
<TABLE>
1997 1996
--------- ---------
<S> <C> <C>
Total Interest Income $ 65,178 $ 59,686
Net Interest Income After
Provision for Possible
Loan Losses 32,871 31,151
Net Income 9,594 8,337
Per Share:
Net Income - Basic 3.15 2.73
Net Income - Diluted 3.14 2.73
Cash Dividends Declared .89 .83
At December 31
Assets 948,371 889,844
Loans, Net 527,709 474,946
Deposits 788,929 789,969
Stockholders' Equity Before Net Unrealized
Gain on Investments 90,768 83,896
Per Share 29.77 27.51
Total Stockholders' Equity 92,121 84,200
Per Share 30.21 27.61
<FN>
Note: The Financial Highlights for 1996 have been restated to reflect the
acquisition of Maple Park Bancshares, Inc., which was accounted for
as a pooling-of-interests. Per share numbers and amounts give
retroactive effect to a five-for-four stock split in 1996.
</FN>
</TABLE>
Page 23
<PAGE>
LETTER TO STOCKHOLDERS
To our Stockholders:
Old Second Bancorp, through the lead bank Old Second National, completed a
very successful 126th year of business in 1997. This year, we very carefully
planned for growth and expansion of services as well as completion of
acquisitions and facilities. Much time and energy was put into our
development plans which will ultimately enhance shareholder value.
Once again, most of our banks and branches met or exceeded their goals. We set
new records for total assets, loans, income, dividends declared, and book
value per share. Highlights are listed below, but detailed financial
information is set forth in the reports that follow (all financial information
has been restated to include Maple Park Bancshares, Inc.):
Net income after taxes was $9,594,000, up 15.1%.
Total assets at year end were $948,371,000, compared to $889,844,000 for
the prior year.
Stockholders' equity grew to $92,121,000.
Cash dividends declared were $.89 per share, a 7.2% increase over the
prior year.
Return on equity was 11.04%.
Return on assets was 1.06%.
Basic earnings per share increased to $3.15 from $2.73 in 1996.
Old Second Bancorp's stock price has increased dramatically over the past
twelve months. Trades at the end of December 1996 were running in the
$40.00-$41.00 per share range, while trades at the end of 1997, as reported by
NASDAQ, were in the $60.00 per share range.
Our Trust Department has had another exceptional year. Assets under management
exceed $550,000,000. Trust fees for 1997 were at an all time high of
$3,917,000. We look for continued growth in this area, and will consider
establishing additional locations in the western suburbs to expand the
three present locations of Aurora, Geneva and Elburn.
1997 was the first full year of operation for the Yorkville National Bank's
Ottawa Branch. This branch was acquired in December of 1996. We are quite
pleased with the growth and profitability of this branch. We think this is a
good market for our company. In order to sustain and increase this growth we
must provide additional space; so plans are now underway for a new building
at the current location in Ottawa.
Our new full service branch of Old Second National Bank in Oswego opened in
April of 1997. We are pleased with this new location and expect good growth
and profitability as this area continues to have remarkable growth.
The acquisition of Maple Park Bancshares was completed in May of 1997. This
purchase included First State Bank of Maple Park which owned Maple Park
Mortgage Company. The two bank locations of this acquisition, Maple Park
and Kaneville, have been established as branches of The Old Second National
Bank. The building that had been built in Elburn by Maple Park, but not
occupied, has been transferred to our Kane County Bank and Trust Company,
which moved into it during October of 1997. This will provide them with a much
needed modern facility for better service to their existing customers as well
as for the expected growth of this area.
Maple Park Mortgage Company has been set up as a separate wholly-owned
subsidiary of Old Second Bancorp, Inc. This company operates out of offices in
St. Charles, Bannockburn, Oswego and Sycamore, with many representatives
throughout the western suburban area. We expect this operation to generate
substantial fee income.
The year of 1997 was no exception to expansion of electronic banking. In
addition to our debit cards and corporate cash management services, we are
now offering personal computer home banking (O2 PC Bank). Additional
technology-driven services are currently being looked at so we remain
competitive. Customers today expect a choice of how banking services are
provided including ATM's, PC banking, telephone, mail, supermarkets and
traditional banking facilities. We expect to provide these delivery
opportunities as an access to our services as efficiently and as cost
effective as possible.
Page 24
<PAGE>
Our goals for 1998 and into the next Millennium are to:
1. Preserve, strengthen and enhance our existing customer base and to
increase market share in the Fox Valley and western suburbs that we serve.
2. To provide timely, personalized service and state of the art delivery
systems.
3. Invest capital into businesses that will produce value for our
stockholders.
These goals must be met without jeopardizing the strength and stability of our
strong capital position.
Management of Old Second Bancorp, Inc. looks forward to the challenges of 1998
and beyond. We believe that 1998 will be an exciting and rewarding year. We
feel that with our 18 banking locations, three Trust offices and four mortgage
locations, we are well positioned to capitalize on the growth taking place in
our market area.
We again remind ourselves that the key to our success stems directly from our
fine staff of employees throughout our organization. I would again like to
further thank our directors for their guidance and support, our stockholders
for their confidence and our loyal customers for entrusting their business
with Old Second Bancorp, Inc.
Sincerely,
/s/ James Benson
James Benson
Chairman and CEO
Page 25
<PAGE>
MANAGEMENT'S DISCUSSION
MANAGEMENTS DISCUSSION AND ANALYSIS
Financial Condition and Results of Operations
The consolidated financial statements include the accounts of Old Second
Bancorp, Inc.(the Corporation) and its subsidiaries, all of which are wholly
owned.
On May 13, 1997, the Corporation issued 111,706 shares of common stock to
acquire 100% of the outstanding common stock of Maple Park Bancshares, Inc.
(Maple Park) which included First State Bank of Maple Park (First State Bank)
and Maple Park Mortgage Company (Maple Park Mortgage). The two bank facilities
of First State Bank, located in Maple Park and Kaneville, became branches of
The Old Second National Bank (Old Second). Maple Park Mortgage has offices
in Bannockburn, St. Charles, Sycamore and Oswego. 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 Maple Park. Maple Park had total assets
of $59,266,000 at May 13, 1997. During 1997, the Corporation also added new
bank branches in Oswego and Elburn. With the acquisition of Maple Park and
the additions of Oswego and Elburn, the Corporation increased the total number
of locations to eighteen full-service bank facilities, three trust locations
and four mortgage banking offices.
The Corporation continues to improve and develop operations designed to bring
state-of-the-art products and services to customers. During 1997, we
introduced "O2 PC Bank" which allows customers to access their banking
through a personal computer from their home or office. "O2 PC Bank" also
allows customers to pay all of their bills electronically in the United
States. We also updated our Infoline telephone banking system to include
features such as transferring money between accounts, receiving a fax statement
on checking or savings accounts, issuing a stop payment on a check and
accessing information on certificates of deposits. The addition of Maple Park
Mortgage expands the wide selection of home, adjustable rate, fixed rate and
conventional mortgages available to customers. The New Leaf division of Maple
Park Mortgage is located in St. Charles and specializes in assisting
prospective and current homeowners who do not qualify in the traditional market
to obtain mortgages. Loan originators are available at all 18 Old Second
banking locations in addition to four Maple Park Mortgage offices for added
customer convenience. Our efforts to meet the needs of our growing markets
through new locations, products and services helped us reach many financial
goals during 1997.
At December 31, 1997, total assets of $948,371,000 were $58,527,000 (6.6%)
higher than year-end 1996. Gross loans of $534,980,000 were up $52,676,000
(10.9%) and deposits of $788,929,000 decreased by $1,040,000.
Throughout 1997, 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 $330,262,000 of gross loans at year-end 1997, an
increase of $41,083,000 (14.2%) from year-end 1996. Mortgage loans held for
sale increased to $26,927,000 at year-end 1997 from $6,137,000 the prior
year-end.
Deposits were down slightly from year-end 1996 due primarily to anticipated
decreases at the Ottawa and Maple Park locations which declined $17,403,000.
On a consolidated basis, demand and savings deposits were down $3,572,000
(3.0%) and $615,000 (0.2%), respectively, from year-end 1996. Time deposits
have grown $3,147,000 (0.9%) since December 31, 1996.
The Corporation also took advantage of additional funding sources including
securities sold under agreements to repurchase and a note payable. Securities
sold under agreements to repurchase increased to $22,926,000 from
$1,838,000 in 1996. Additionally, a note payable of $24,133,000 at year-end
1997 relates to a line of credit used by Maple Park Mortgage to fund
residential mortgages held for sale.
Net income for 1997 of $9,594,000 was up $1,257,000 (15.1%) from 1996,
following a decrease of $419,000 (4.8%) in 1996 over 1995.
Net interest income for 1997 of $34,127,000 was up $2,228,000 from 1996
following an increase of $982,000 in 1996 over 1995. 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 1997 totaled $1,256,000 compared to $748,000 in
1996 and $3,399,000 in 1995. As anticipated during negotiations
with Maple Park, Management conformed Maple Park's methodology for recording
the allowance for possible
Page 26
<PAGE>
MANAGEMENTS DISCUSSION AND ANALYSIS- (continued)
loan losses to Old Second's and an additional provision in 1997 was required.
The provision for possible loan losses in 1996 and 1995 included $35,000 and
$3,096,000 respectively for Maple Park. The subsidiaries realized net loan
charge-offs of $1,301,000, $466,000, and $3,083,000 in 1997, 1996 and 1995,
respectively, which includes net charge-offs of $269,000, $480,000, and
$2,703,000 for Maple Park prior to acquisition.
Total other income for 1997 of $13,959,000 was substantially the same as 1996
which was $4,274,000 lower than 1995. Increases in trust fees and service
charges on deposit accounts in 1997 were offset by lower mortgage servicing
income. Trust fees of $3,917,000 in 1997 were at record high levels
increasing $207,000 (5.6%) from 1996; the fees in 1996 were $660,000 (21.6%)
higher than 1995. Service charges on deposit accounts of $3,134,000 were up
from $2,907,000 in 1996; 1996 levels increased $298,000 from 1995. The
fluctuations in secondary mortgage fees and gains on sales of loans
correspond to the changing demands of customers as they took advantage of
refinancing during periods of declining interest rates.
Total other expenses for 1997 of $33,218,000 were up $77,000 from 1996
following a decrease of $476,000 in 1996 over 1995. 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 service to customers. The productivity ratio
was 145% in 1997, 138% for 1996 and 146% in 1995.
Salaries and employees benefits of $17,953,000 in 1997 were up slightly (2.6%)
from 1996 which was substantially the same as 1995. The rate of increase in
1997 and 1996 was slowed due partially to the implementation of the
cost- effective health care program in 1996 which resulted in increased
employee usage of health maintenance organizations.
Net occupancy for 1997 was $2,162,000, a decrease of $54,000 from 1996 which
was $222,000 higher than 1995. The 1997 expense included costs associated
with establishing the Oswego branch. The increase in 1996 included
costs associated with the Wal-Mart branch as well as higher maintenance and
utilities costs for our expanded network of offices.
Furniture and equipment costs were $3,275,000 for 1997 compared to $3,299,000
in 1996 and $2,706,000 in 1995. The increase in expenses since 1995 reflect
technology-related decisions of Management which included costs to expand our
electronic banking capabilities with home banking and an income tax payment
system for customers. 1997 and 1996 also include costs related to establishing
new locations.
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.
Prior to acquisition, Maple Park was not assessed premium rates at the lowest
possible level. As of December 31, 1997, the strength of the subsidiaries'
financial condition will result in premium rates assessed at the lowest
possible level. The expense for FDIC insurance was $179,000 in 1997, $151,000
in 1996 and $802,000 in 1995.
Marketing costs for 1997 were $1,126,000 compared to $1,119,000 in 1996 and
$964,000 in 1995. Marketing expenses were higher in 1997 than 1996 because of
higher discretionary marketing expenses. Stationery and supplies costs
declined the past two years: total expenses were $941,000 in 1997, down
$81,000 from 1996, which was $214,000 lower than 1995. The Corporation has
successfully controlled costs in other expenses - other. These expenses
were $6,454,000 in 1997, $79,000 higher than 1996 which was $885,000 lower
than the 1995 total.
Income tax expense resulted in effective tax rates for 1997, 1996 and 1995 of
29.5%, 30.3% and 27.8%, respectively. The increase in the effective tax rate
in 1996 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.
In 1997, the Corporation adopted Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings per Share", which prescribes the computation,
presentation and disclosure requirements for earnings per share. The effect
of adopting SFAS No. 128 was not material.
Page 27
<PAGE>
MANAGEMENTS DISCUSSION AND ANALYSIS - (continued)
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income". SFAS No. 130 establishes new rules for the
reporting and display of comprehensive income and its components; however,
adoption in 1998 will have no impact on the Corporation's net income or
stockholders' equity. SFAS No. 130 requires unrealized gains or losses on the
Corporation's available-for-sale securities, which currently are reported in
stockholders' equity, to be included in other comprehensive income and the
disclosure of total comprehensive income. The adoption of SFAS No. 130 will
not be material to the Corporation.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" which
addresses the reporting of financial information from operating segments
in annual and interim financial statements. The Corporation will apply SFAS
No. 131 to financial statements presented after December 31, 1997 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 year ended December 31, 1997, cash provided by operating activities
resulted in cash outflows of $3,765,000; while for years ended December 31,
1996 and 1995, there were cash inflows of $32,192,000, and $778,000,
respectively. Generally, cash inflows and outflows from operating activities
result primarily from interest received in excess of the sum of interest paid
and amounts paid to suppliers and employees plus the change in cash
flows for mortgage loans originated, purchased and sold.
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 1997, the excess cash inflows from financing
activities (discussed in the following paragraph) have been used to meet
increased loan demand. The net cash outflows from investing activities were
$34,440,000, $74,225,000 and $38,805,000 for 1997, 1996, and 1995,
respectively. Cash flows provided by financing activities are primarily
attributable to fluctuations in deposit levels, other short-term borrowings,
notes payable and the payment of dividends to stockholders. During 1997, cash
inflows of $44,223,000 from financing activities resulted primarily from
increases in short-term borrowings and notes payable. Cash inflows from
financing activities, primarily the result of increases in deposits, were
$36,119,000 and $41,850,000 in 1996 and 1995, respectively.
As Management attempts to efficiently use funds available for investing
activities while maintaining adequate liquidity, cash and cash equivalents
increased from $81,007,000 at year-end 1996 to $87,025,000 at year-end 1997.
The net cash flows in 1996 resulted in a decline of $5,914,000 in cash and
cash equivalents from year-end 1995.
The Corporation has several additional sources of liquidity including the
unpledged portion of available-for-sale investment securities which at 19.0%
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 is
free of regulatory restrictions (See Note P - Dividend Limitation).
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.
Page 28
<PAGE>
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
MANAGEMENTS DISCUSSION AND ANALYSIS- (continued)
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.
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, 1997, the Corporation held structured notes of approximately
$19,923,00 all of which mature in one to five years.
The following table provides information as of December 31, 1997 about the
Corporation's financial instruments that are sensitive to changes in interest
rates. Except for the effects of prepayments on mortgage related assets, the
table presents principle cash flows and related weighted average interest
rates by the earlier of term to repricing or contractual term to maturity.
Principal payments on loans are included according to scheduled payments and
maturity dates. The Corporation assumes that a portion of savings deposits
are core deposits which are expected to roll off in over two years.
Page 29
<PAGE>
MANAGEMENTS DISCUSSION AND ANAYLSIS - (continued)
MANAGEMENT'S DISCUSSION
<TABLE>
MATURITY OR REPRICING
------------------------------------------------------
Within 3 Months 6 Months One Year Over
3 to 6 to One to Two Two
Months Months Year Years Years Total
------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest earning
financial assets:
Interest bearing
deposits with banks 350 350
Weighted average
interest rate 5.00% 5.00%
Federal funds sol 46,050 46,050
Weighted average
interest rate 5.35% 5.35%
Investment securities 24,486 7,186 19,754 42,916 170,125 264,467
Weighted average
interest ra 5.53% 7.38% 6.13% 6.25% 6.25% 6.20%
Loans held for sale 26,927 26,927
Weighted average
interest rate 7.50% 7.50%
Commercial loans
Fixed rate 19,154 9,169 12,699 12,297 22,958 76,277
Weighted average
interest rate 8.86% 8.80% 8.82% 8.89% 8.86% 8.85%
Variable rate 102,891 354 960 1,939 1,898 108,042
Weighted average
interest rate 9.33% 10.27% 9.52% 9.51% 9.42% 9.34%
Real estate loans
Fixed rate 11,726 9,558 15,182 30,299 76,013 142,778
Weighted average
interest rate 9.09% 8.84% 8.57% 8.79% 8.82% 8.80%
Variable rate 23,093 1,999 6,332 8,303 66,061 105,788
Weighted average
interest rate 8.98% 8.42% 8.13% 8.02% 8.08% 8.28%
Installment loans
Fixed rate 7,181 6,700 11,937 20,637 28,316 74,771
Weighted average
interest rate 9.02% 9.08% 9.05% 8.54% 8.58% 8.73%
Variable rate 1,180 1,180
Weighted average
interest rate 9.46% 9.46%
Other loans
Fixed rate 3,418 66 1636 297 5417
Weighted average
interest rate 8.90% 7.50% 8.10% 7.23% 7.50%
Variable rate 20,325 20,325
Weighted average
interest rate 9.65% 9.65%
Interest bearing
financial
liabilities:
Savings deposits 203,902 100,755 304,657
Weighted average
interest rate 2.97% 2.80% 2.91%
Certificates of
deposits 121,080 61,938 77,302 49,499 59,689 369,508
Weighted average
interest rate 5.76% 5.69% 5.68% 5.69% 5.44% 5.67%
Securities sold under
agreements to
repurchase and
short-term
borrowings 29,344 1,629 50 31,023
Weighted
average
interest rate 4.63% 5.34% 5.56% 4.67%
Notes payable 24,133 24,133
Weighted average
interest rate 6.50% 6.50%
Period gap (91,678) (28,601) (10,422) 68,528 205,224 143,051
Cumulative gap (91,678) (120,279) (130,701) (62,173) 143,051
</TABLE>
Page 30
<PAGE>
MANAGEMENTS DISCUSSION AND ANALYSIS- (continued)
Capital and Dividends
Total stockholders' equity of $92,121,000 at year-end 1997 increased
$7,921,000 from 1996 due to higher retained earnings and an increase in the
net unrealized gain on investments offset by dividends declared to
stockholders.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,
1997 is 9.6% of total assets, up from 9.4% in 1996. The equity to asset ratio
including the effect of the net unrealized gain on investments is 9.7% at
December 31, 1997 compared to 9.5% at year-end 1996. 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 Q-Regulatory Matters). At
December 31, 1997, the minimum total and Tier 1 risk-based capital ratios
were 8.00% and 4.00%, respectively. As of December 31, 1997, the
Corporation's total and Tier 1 risk-based capital ratios were 14.8% and 13.7%,
respectively. Total and Tier 1 risk-based capital ratios were 15.0% and
13.8%, respectively, at December 31, 1996.
During 1997, dividends declared were $.19 per share during the first quarter,
$.20 per share during second, third and fourth quarters with a year-end extra
dividend of $.10 for a total of $.89. During 1996, the Corporation declared
total dividends of $.83 per share.
Impact of Year 2000
The Corporation is currently in the process of addressing a potential problem
that faces all users of automated systems including information systems.
Many computer systems process transactions based on two digits representing
the year of transaction, rather than a full four digits. These computer systems
may not operate properly when the last two digits become "00", as will occur
on January 1, 2000. The problem could effect a wide variety of automated
information systems, such as mainframe applications, personal computers,
communications systems, environmental systems and other information systems.
The Corporation has identified areas of operations critical for the delivery of
its products and services. The majority of the programs/applications used in
the Corporation's operations are purchased from outside vendors. The vendors
providing the software are responsible for maintenance of the systems and
modifications to enable uninterrupted usage after December 31, 1999. The
Corporation's plan includes identification of the problems by performing an
inventory of all software applications, obtaining certification of compliance
from third parties and testing all of the impacted applications (both
internally developed and third-party provided). The Corporation's goal is
to have the plan complete and to be fully compliant by December 31, 1998. The
vendor of the Corporation's core operating system has already provided
certification of compliance with the year 2000 issue. Testing of the system
will occur during 1998. Contingency plans, if any are needed, will be
developed during 1998 to address potential problems that are identified. The
Corporation's plan also includes reviewing any potential risks associated with
the loan and investment portfolios due to the year 2000 issue.
Based on currently available information, Management does not anticipate that
the cost to address year 2000 issues will have a materially adverse impact on
the Corporation's financial condition or results of operations.
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 31
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands except share and per share data)
Old Second Bancorp, Inc. and Subsidiaries
<TABLE>
1997 1996 1995 1994 1993
------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET ITEMS
AT YEAR-END
Total Assets $948,371 $889,844 $847,165 $786,502 $730,528
Net Loans 527,709 474,946 455,341 403,281 374,413
Total Deposits 788,929 789,969 737,991 696,903 643,853
Notes Payable 24,133 1,017 11,407 5,230 4,108
Stockholders' Equity
Before Net
Unrealized Gain
(Loss) on
Investments 90,768 83,896 78,096 71,489
Total Stockholders'
Equity 92,121 84,200 79,615 65,679 67,285
RESULTS OF OPERATIONS
Net Interest Income $ 34,127 $ 31,899 $ 30,917 $ 29,829 $ 28,277
Provision for Possible
Loan Losses 1,256 748 3,399 1,782 1,519
Net Income 9,594 8,337 8,756 6,445 8,947
PER SHARE DATA
Net Income - Basic $ 3.15 $ 2.73 $ 2.87 $ 2.11 $ 2.93
Net Income - Diluted 3.14 2.73 2.87 2.11 2.93
Dividends Declared .89 .83 .70 .63 .57
Stockholders' Equity Before
Net Unrealized Gain
(Loss) on
Investments 29.77 27.51 25.61 23.44
Total Stockholders'
Equity 30.21 27.61 26.11 21.54 22.06
WEIGHTED AVERAGE SHARES
OUTSTANDING 3,049,190 3,049,292 3,049,412 3,049,412 3,049,412
SHARES OUTSTANDING
AT YEAR-END 3,049,190 3,049,190 3,049,412 3,049,412 3,049,412
<FN>
Note: The Selected Consolidated Financial Data for prior years has been
restated to reflect the acquisition of Maple Park Bancshares, Inc., which was
accounted for as a pooling-of-interests. Per share numbers and amounts give
retroactive effect to a five-for-four stock split in 1996.
</FN>
</TABLE>
Page 32
<PAGE>
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
Old Second Bancorp, Inc. and subsidiaries
<TABLE>
December 31,
1997 1996
------- --------
<S> <C> <C>
ASSETS
Cash and Due From Banks $ 40,625 $ 40,132
Interest Bearing Deposits with Banks 350 200
Federal Funds Sold 46,050 40,675
--------- --------
Total Cash and Cash Equivalents 87,025 81,007
Available-for-Sale
Investment Securities 264,467 287,064
Loans Held for Sale 26,927 6,137
Loans 534,980 482,304
Less: Allowance for Possible
Loan Losses 6,923 6,968
Unearned Income 348 390
---------- ---------
Loans, Net 527,709 474,946
Premises and Equipment, Net 20,805 19,410
Other Assets 21,438 21,280
------- -------
TOTAL ASSETS $948,371 $889,844
======= =======
LIABILITIES
Deposits
Demand $114,764 $118,336
Savings 304,657 305,272
Time 369,508 366,361
---------- ---------
Total Deposits 788,929 789,969
Securities Sold Under
Agreements to Repurchase 22,926 1,838
Other Short-term Borrowings 8,097 4,401
Notes Payable 24,133 1,017
Other Liabilities 12,165 8,419
------- -------
TOTAL LIABILITIES 856,250 805,644
STOCKHOLDERS' EQUITY
Preferred Stock, no par value:
300,000 shares authorized, none issued
Common Stock, no par value:
shares authorized: 6,000,000
issued and outstanding: 3,049,190 15,844 15,844
Retained Earnings 74,924 68,052
--------- ----------
Stockholders' Equity Before
Net Unrealized Gain on Investments 90,768 83,896
Net Unrealized Gain on Investments 1,353 304
------ ------
TOTAL STOCKHOLDERS' EQUITY 92,121 84,200
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $948,371 $889,844
======= =======
</TABLE>
See accompanying notes.
Page 33
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except share and per share data)
Old Second Bancorp, Inc. and Subsidiaries
<TABLE>
for the years ended December 31,
1997 1996 1995
INTEREST INCOME -------- ------- -------
<S> <C> <C> <C>
Loans $46,422 $40,959 $39,288
Investment Securities:
Taxable 13,025 12,723 12,537
Exempt from Federal
Income Taxes 3,302 3,755 4,118
Federal Funds Sold 2,407 2,227 2,274
Interest Bearing Deposits
with Banks 22 22 22
------ ------ ------
Total Interest Income 65,178 59,686 58,239
------ ------ ------
INTEREST EXPENSE
Savings Deposits 7,920 7,735 8,175
Time Deposits 21,672 19,512 18,071
Other Borrowings 1,459 540 1,076
------ ------ ------
Total Interest Expense 31,051 27,787 27,322
------ ------ ------
Net Interest Income 34,127 31,899 30,917
PROVISION FOR POSSIBLE
LOAN LOSSES 1,256 748 3,399
------ ------ ------
Net Interest Income
After Provision
for Possible
Loan Losses 32,871 31,151 27,518
------ ------ ------
OTHER INCOME
Trust Fees 3,917 3,710 3,050
Service Charges on
Deposit Accounts 3,134 2,907 2,609
Secondary Mortgage Fees 926 915 2,012
Mortgage Servicing Income 484 1,161 1,580
Gain on Sale of Loans 4,035 3,609 3,262
Gain on Sale of Mortgage
Servicing Rights 3,700
Other 1,463 1,658 2,021
------ ------ ------
Total Other Income 13,959 13,960 18,234
------ ------ ------
OTHER EXPENSES
Salaries and Employee
Benefits 17,953 17,493 17,420
Net Occupancy of Premises 2,162 2,216 1,994
Furniture and Equipment 3,275 3,299 2,706
FDIC Insurance 179 151 802
Marketing 1,126 1,119 964
Stationery and Supplies 941 1,022 1,236
Amortization of Intangibles 1,128 1,466 1,235
Other 6,454 6,375 7,260
------ ------ ------
Total Other Expenses 33,218 33,141 33,617
------ ------ ------
INCOME BEFORE INCOME TAXES 13,612 11,970 12,135
INCOME TAX EXPENSE 4,018 3,633 3,379
------ ------ ------
NET INCOME $ 9,594 $ 8,337 $ 8,756
===== ===== ======
NET INCOME PER SHARE - BASIC $ 3.15 $ 2.73 $ 2.87
NET INCOME PER SHARE - DILUTED 3.14 2.73 2.87
WEIGHTED AVERAGE
SHARES OUTSTANDING 3,049,190 3,049,292 3,049,412
See accompanying notes.
</TABLE>
Page 34
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Old Second Bancorp, Inc. and Subsidiaries
<TABLE>
for the years ended December 31,
CASH FLOWS FROM 1997 1996 1995
OPERATING ACTIVITIES: ------- -------- --------
<S> <C> <C> <C>
Interest Received $64,620 $60,106 $57,963
Interest Paid (31,194) (27,548) (26,300)
Paid to Suppliers and
Employees (26,665) (26,654) (30,302)
Trust Fees Received 3,917 3,710 3,050
Income Taxes Paid (3,695) (4,176) (3,105)
Service Charges Received
on Deposit Accounts 3,134 2,907 2,609
Mortgage Loan Originations
and Purchases (279,450) (346,212) (374,686)
Mortgage Loans Sold to
Secondary Market 262,695 366,325 365,936
Other Income Received 2,873 3,734 5,613
------- ------- -------
Net Cash Provided By
Operating Activities (3,765) 32,192 778
------- ------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Net Increase in Loans (54,019) (42,994) (43,447)
Purchases of Available-
for-Sale Securities (57,078) (90,193) (54,977)
Proceeds from Sales and
Maturities of Available-
for-Sale Securities 80,809 64,972 57,399
Net Cash and Cash
Equivalents Disbursed
For Acquisitions (3,505)
Net Proceeds on Sales
(Purchases) of Mortgage
Servicing Rights (530) (706) 4,164
Capital Expenditures (3,271) (1,967) (2,595)
Other, Net (351) 168 651
------- ------- -------
Net Cash Used In
Investing Activities (34,440) (74,225) (38,805)
------- ------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net Increase (Decrease)
in Deposits (1,040) 51,978 41,088
Net Increase (Decrease)
in Other Short-term
Borrowings 24,784 (2,900) 7,347
Net Proceeds (Payments)
of Notes Payable 23,116 (10,390) (1,608)
Dividends Paid (2,689) (2,478) (1,970)
Other, Net 52 (91) (3,007)
------ ------- ------
Net Cash Provided
By Financing
Activities 44,223 36,119 41,850
------- ------- -------
Net Increase (Decrease) in
Cash and Cash Equivalents 6,018 (5,914) 3,823
Cash and Cash Equivalents
at Beginning of Year 81,007 86,921 83,098
------- ------- -------
Cash and Cash Equivalents
at End of Year $87,025 $81,007 $86,921
====== ====== ======
</TABLE>
Page 35
<PAGE>
<TABLE>
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME
TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Net Income $ 9,594 $ 8,337 $ 8,756
Adjustments to Reconcile
Net Income to Net Cash
Provided By Operating
Activities:
Depreciation 1,876 1,711 1,958
Provision for Possible
Loan Losses 1,256 748 3,399
Increase (Decrease) in
Current Taxes Payable 606 (177) 306
Deferred Taxes, Net (282) (365) (284)
Net (Increase) Decrease
in Mortgages Held
for Sale (20,790) 16,504 (12,012)
(Increase) Decrease in
Interest Receivable (1,145) 168 (384)
Increase (Decrease) in
Interest Payable (143) 237 747
Premium Amortization/
Discount Accretion
on Investments, Net 587 252 577
Amortization of
Intangible Assets 1,128 1,466 1,235
Increase (Decrease)
in Accrued Expenses 3,476 (187) 1,472
(Increase) Decrease in
Prepaid Expenses 73 3,498 (1,374)
Gain on Sale of Mortgage
Servicing Rights (3,700)
Securities Gains (1) (45)
Other 127
-------- ------- --------
Total Adjustments (13,359) 23,855 (7,978)
-------- ------- -------
Net Cash Provided By
Operating Activities $ (3,765) $ 32,192 $ 778
======= ======= =======
</TABLE>
See accompanying notes.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(in thousands except per share data)
Old Second Bancorp, Inc. and Subsidiaries
<TABLE>
Net Unrealized
Common Retained Gain (Loss) on
Stock Earnings Investments Total
---------- -------- --------------- --------
<S> <C> <C> <C> <C>
Balance at January
1, 1995 $15,844 $55,645 (5,810) $65,679
Net Income
for 1995 8,756 8,756
Dividends Declared
($.70 per share) (2,149) (2,149)
Change in Net
Unrealized Gain
(Loss) for 1995 7,329 7,329
------- ------ ------ -------
Balance at December
31, 1995 15,844 62,252 1,519 79,615
Net Income
for 1996 8,337 8,337
Dividends Declared
($.83 per share (2,537) (2,537)
Change in Net
Unrealized Gain
(Loss) for 1996 (1,215) (1,215)
------- ------ ------ -------
Balance at December
31, 1996 15,844 68,052 304 84,200
Net Income
for 1997 9,594 9,594
Dividends Declared
($.89 per share) (2,722) (2,722)
Change in Net
Unrealized Gain
(Loss) for 1997 1,049 1,049
------- ------- ------- -------
Balance at December
31, 1997 $15,844 $74,924 $ 1,353 $92,121
====== ======= ====== =======
</TABLE>
See accompanying notes.
Page 36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Old Second Bancorp, Inc. and Subsidiaries
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Old Second Bancorp, Inc. (the
Corporation) and its subsidiaries conform to generally accepted accounting
principles and to general practice within the banking industry. Certain 1996
and 1995 amounts have been reclassified to conform to the 1997 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, Bank of Sugar Grove, Maple Park Mortgage Company and
Maple Park Bancshares, Inc. 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. In addition to the bank
subsidiaries, the Corporation has a mortgage banking subsidiary principally
engaged in the business of originating, purchasing, selling and servicing
residential mortgage loans. The Corporation conducts its activities from a
network of offices in Kane, Kendall, DeKalb, DuPage, Lake 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.
Page 37
<PAGE>
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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. 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 Held For Sale
The Corporation's mortgage subsidiary originates residential real estate
mortgage loans which are to be sold in the secondary market, including loans
secured under programs with the Federal Home Loan Mortgage Corporation
("FHLMC"), and the Federal National Mortgage Association ("FNMA"). Mortgage
loans held for sale may be hedged with forward sales commitments in order
to minimize interest rate market exposure by contracting for the sale of
loans in the future at specific prices. Gains and losses from hedging
transactions on residential real estate mortgage loans held for sale are
included in the cost of the loans in determining the gain or loss when the
loans are sold. Residential real estate mortgage loans held for sale are
carried at the lower of aggregate cost or fair value.
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.
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.
Premises and Equipment
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.
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
Real estate owned is initially 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.
Page 38
<PAGE>
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 deferred tax assets and liabilities which
represent differences between financial reporting and tax bases of assets
and liabilities and 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, a five-for-four stock split in 1996, and the acquisition of Maple
Park in 1997.
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share". Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the Statement 128
requirements.
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. This amount is periodically assessed
to determine if impairment exists.
Financial Servicing Assets
During 1997, the Corporation adopted the requirements of SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," for various transfers of receivables and
other financial assets that occurred during the year. Adoption did not have
a material effect on the Corporation's financial position or results of
operations.
NOTE B - ACQUISITION
On May 13, 1997 the Corporation issued 111,706 shares of common stock to
acquire 100% of the outstanding common stock of Maple Park Bancshares, Inc.
(Maple Park). The acquisition of Maple Park 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
Maple Park.
Operating results for the Corporation and Maple Park prior to combination were
as follows (in thousands):
<TABLE>
For the Period Ended For the Period Ended
May 12, 1997 December 31, 1996
-------------------------- --------------------------
Old Second Old Second
Bancorp, Maple Bancorp, Maple
Inc. Park Combined Inc. Park Combined
---------- ---- --------- --------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income $10,910 $636 $11,546 $29,919 $1,980 $31,899
Net Income (Loss) 3,968 (142) 3,826 $9,632 (1,295) $8,337
</TABLE>
Page 39
<PAGE>
NOTE B - ACQUISITION (continued)
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 of Ottawa. The
premium on deposits will be amortized on a straight-line basis over a
10 year period.
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 1997, average reserve balances
with the Federal Reserve Bank were $7,853,000 and $982,000 for Old Second
and Yorkville, respectively.
NOTE D - INVESTMENT SECURITIES
The amortized cost and estimated market values of investment securities at
December 31, 1997 are as follows:
<TABLE>
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 15,747 $ 64 $ 5 $ 15,806
U.S. Government Agencies 144,031 1,031 751 144,311
State & Political Subdivisions 75,398 1,870 68 77,200
Mortgage-Backed Obligations 25,336 120 49 25,407
Other 1,743 1,743
------- ------ ------- -------
$262,255 $3,085 $ 873 $264,467
======= ====== ====== =======
</TABLE>
The amortized cost and estimated market values of investment securities at
December 31, 1996 are as follows:
<TABLE>
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 21,014 $ 77 $ 42 $ 21,049
U.S. Government Agencies 146,871 634 1,228 146,277
State & Political Subdivisions 83,062 1,436 280 84,218
Mortgage-Backed Obligations 33,752 98 206 33,644
Other 1,876 1,876
------- ----- ------ --------
$286,575 $2,245 $1,756 $287,064
======= ===== ====== =======
</TABLE>
Page 40
<PAGE>
The contractual maturities of investment securities at amortized cost and
estimated market value at December 31, 1997 are as follows:
<TABLE>
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 $ 8,451 $ 7,296 $ 15,747
U.S. Government Agencies 25,771 102,230 $11,730 $ 4,300 144,031
State & Political
Subdivisions 10,608 29,111 24,892 10,787 75,398
Other 2 1,741 1,743
------ ------ ------ ------ ------
$44,830 $138,639 $36,622 $16,828
====== ======= ====== ======
Mortgage-Backed Obligations 25,336
------
$262,255
======
MARKET VALUE
U.S. Treasury $ 8,465 $ 7,341 $ 15,806
U.S. Government Agencies 25,644 102,665 $11,685 $ 4,317 144,311
State & Political
Subdivisions 10,687 29,777 25,611 11,125 77,200
Other 2 1,741 1,743
------ ------- ------ ------ ------
$44,796 $139,785 $37,296 $17,183
====== ======= ====== ======
Mortgage-Backed Obligations 25,407
-------
$264,467
=======
</TABLE>
At December 31, 1997 and 1996, securities with an approximate aggregate
amortized cost of $82,237,000 and $55,284,000, respectively, were pledged
as collateral for public and trust deposits and for other purposes as
required or permitted by law.
NOTE E - LOANS
The composition of loans outstanding by lending classifications is as follows:
<TABLE>
December 31,
1997 1996
------- --------
<S> <C> <C>
Commercial, Financial and Agricultural $146,591 $143,961
Real Estate - Construction 43,095 40,437
Real Estate - Mortgage 287,167 248,742
Installment 58,127 49,164
------- -------
$534,980 $482,304
======= =======
</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>
for the years ended December 31,
1997 1996
------ -------
<S> <C> <C>
Balance, Beginning of Year $16,125 $13,670
New Loans 49,868 23,497
Repayments (49,430) (22,328)
Other Changes 780 1,286
------- -------
Balance, End of Year $17,343 $16,125
======= =======
</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.
Page 41
<PAGE>
NOTE F - ALLOWANCE FOR POSSIBLE LOAN LOSSES
A summary of the activity in the allowance is as follows:
<TABLE>
for the years ended December 31,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Balance, Beginning of Year $6,968 $6,686 $6,370
Recoveries 341 435 535
Provisions for Possible Loan Losses 1,256 748 3,399
Charge-offs (1,642) (901) (3,618)
----- ----- -----
Balance, End of Year $6,923 $6,968 $6,686
</TABLE>
NOTE G - PREMISES AND EQUIPMENT
The cost, accumulated depreciation and amortization, and net book value of
premises and furniture and equipment are summarized below:
<TABLE>
December 31, 1997
-------------------------------------------
Accumulated Net
Depreciation & Book
Cost Amortization Value
------------------------------------------
<S> <C> <C> <C>
Land $ 4,568 $ 4,568
Buildings and Improvements 21,210 $ 8,548 12,662
Furniture and Equipment 13,941 10,366 3,575
------ ------ ------
$39,719 $18,914 $20,805
====== ====== ======
</TABLE>
NOTE G - PREMISES AND EQUIPMENT (continued)
The cost, accumulated depreciation and amortization, and net book value of
premises and furniture and equipment are summarized below:
<TABLE>
December 31, 1996
----------------------------------------
Accumulated Net
Depreciation & Book
Cost Amortization Value
---------------------------------------
<S> <C> <C> <C>
Land $ 4,146 $ 4,146
Buildings and Improvements 19,571 $ 7,891 11,680
Furniture and Equipment 12,761 9,177 3,584
------ ------ ------
$36,478 $17,068 $19,410
====== ====== ======
</TABLE>
NOTE H - MORTGAGE SERVICING RIGHTS
The changes in the Corporation's servicing assets are as follows.
<TABLE>
for the years ended December 31,
1997 1996
-------- --------
<S> <C> <C>
Balance, Beginning of Year $2,403 $2,120
Additions 530 706
Less: Amortization (390) (423)
------ ------
Balance, End of Year $2,543 $2,403
====== ======
</TABLE>
For purposes of measuring impairment, the Corporation stratifies the pools
of assets underlying the servicing assets by loan type and interest rate.
A valuation allowance is recorded where the fair value is below the carrying
amount of specific stratifications, even though the overall fair value of
the servicing assets exceeds amortized cost.
Page 42
<PAGE>
The changes in the Corporation's valuation allowance for serving assets are
as follows:
<TABLE>
for the years ended December 31,
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Balance, Beginning of Year $252 $171
Provisions of Impairment 81 $171
Less: Recoveries
---- ---- ----
Balance, End of Year $252 $252 $171
==== ==== ====
</TABLE>
NOTE I - TIME DEPOSITS OF $100,000 OR MORE
Time Deposits of $100,000 or more were $70,457,000 and $77,748,000 at
December 31, 1997 and 1996, respectively.
NOTE J - NOTES PAYABLE
$24,133,000 was outstanding at December 31, 1997 for a line of credit extended
to Maple Park Mortgage for the funding of loans held for sale. There is
$30,000,000 available through this line of credit which is due on July 1, 1998.
Interest payments are due on a monthly basis at a rate of 1% over the previous
month average Federal Funds rate. The note is unsecured and repayment is
guaranteed by Old Second Bancorp, Inc.
At December 31, 1996, Maple Park had notes payable at $1,017,000 which
required semi-annual payments of principal and interest at the prime rate.
These notes were fully paid in 1997.
NOTE K - INCOME TAXES
A summary of the provision for income taxes is as follows:
<TABLE>
for the years ended December 31,
1997 1996 1995
-------- -------- ---------
<S> <C> <C> <C>
Currently Payable, Principally Federal $4,300 $3,998 $3,663
Deferred (282) (365) (284)
------ ------ ------
$4,018 $3,633 $3,379
====== ====== =====
</TABLE>
Page 43
<PAGE>
NOTE K - 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>
December 31, 1997 December 31, 1996
------------------- --------------------
Temporary Tax Temporary Tax
Difference Effect Difference Effect
---------- ------ ---------- ------
<S> <C> <C> <C> <C>
Loan Loss Allowance $ 6,426 $ 2,185 $ 6,251 $ 2,125
Pension 649 221 624 212
Other Assets 2,186 743 2,448 833
------- ------- ------- -------
Total Deferred Assets 9,261 3,149 9,323 3,170
Accumulated Depreciation (2,602) (884) (2,566) (873)
Accretion on Investment
Securities (933) (317) (1,651) (561)
Other Liabilities (1,135) (386) (1,342) (456)
------- ------ -------- -------
Total Deferred
Liabilities (4,670) (1,587) (5,559) (1,890)
------- ------ ------- -------
Net Deferred Tax Asset 4,591 1,562 3,764 1,280
Tax Effect of Net
Unrealized Gain
on Investments (2,212) (859) (489) (190)
------- ------- ------ -------
Net Deferred Tax Asset
with Tax Effect of Net
Unrealized Gain on
Investments $ 2,379 $ 703 $ 3,275 $ 1,090
====== ===== ======= =======
</TABLE>
The principal items affecting the deferred income tax component of the
provision for income taxes are as follows:
<TABLE>
for the years ended December 31,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Loan Loss Provision $(60) $(263) $(402)
Accelerated Depreciation 11 (6) 58
Pension Expense (9) (35) (44)
Accretion of Premiums and
Discounts on Investment
Securities (244) (69) 244
Other, Net 20 8 (140)
---- ---- ----
$(282) $(365) $(284)
===== ==== ====
</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>
for the years ended December 31,
1997 1996 1995
------- ----- ------
Amount % Amount % Amount %
-------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Expected Total Tax
Provision At Statutory
Rate $ 4,628 34.0% $4,070 34.0% $ 4,126 34.0%
Decrease Resulting From
Tax Exempt Income (1,104) (8.1) (1,226) (10.2) (1,387) (11.4)
Increase Resulting From
Goodwill Amortization 150 1.1 215 1.8 175 1.4
State Taxes 183 1.3 376 3.1 294 2.4
Other, Net 161 1.2 198 1.6 171 1.4
------ ---- ------ ---- ------ ---
$ 4,018 29.5 $ 3,633 30.3% $ 3,379 27.8%
====== ==== ====== ==== ====== ====
</TABLE>
Page 44
<PAGE>
NOTE L - RETIREMENT PLANS
The Corporation has a non-contributory defined benefit retirement plan
covering substantially all of its banking subsidiaries' full-time and regular
part-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>
Actuarial present value December 31,
of benefit obligations: 1997 1996 1995
------- -------- -------
<S> <C> <C> <C>
Vested benefit obligations $5,391 $4,644 $4,638
Nonvested benefit obligations 343 300 261
----- ----- -----
Accumulated benefit obligation 5,734 4,944 4,899
Excess of projected benefit
obligation over accumulated
benefit obligation 1,646 1,362 1,286
----- ----- -----
Projected benefit obligation 7,380 6,306 6,185
Plan assets at fair value,
primarily listed common stocks,
corporate, and U.S. Government
and Agency bonds 7,648 6,770 6,349
----- ----- -----
Plan assets in excess of
projected benefit obligation 268 464 164
Unrecognized net (gain) or loss (635) (471) 187
Prior service cost not yet
recognized in net periodic
pension cost 30 (71) (135)
Unrecognized net asset at
January 1, 1987,
being amortized
over 17 years (515) (602) (688)
----- ----- -----
Unfunded pension cost
included in other liabilities $ (852) $ (680) $ (472)
===== ===== =====
Net pension cost includes for the years ended December 31,
the following components: 1997 1996 1995
-------- ------- -------
Service cost $ 417 $ 388 $ 280
Interest cost 457 416 392
Actual return on plan assets (1,077) (848) (931)
Net amortization and deferral 480 251 361
----- ----- -----
Net periodic pension cost $ 277 $ 207 $ 102
===== ===== =====
</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>
for the years ended December 31,
1997 1996
------- ------
<S> <C> <C>
Accumulated benefit obligation $286 $429
Projected benefit obligation for
service rendered to date 373 429
Accrued pension liability 170 134
Net periodic pension expense 52 57
</TABLE>
The weighted-average discount rate used in determining the actuarial present
value of the projected benefit obligations was 6.75% at December 31, 1997,
7.00 % at December 31, 1996 and 6.75% at December 31, 1995. 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 and regular part-time employees. The amounts expensed with respect
to these Profit Sharing Plans were $644,000 in 1997, $644,000 in 1996,
and $649,000 in 1995.
Page 45
<PAGE>
NOTE M - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share (share and per share data not in thousands):
<TABLE>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Numerator for basic and diluted
earnings per share - net income $9,594 $8,337 $8,756
====== ====== ======
Denominator for basic earnings
per share -weighted average
shares outstanding 3,049,190 3,049,292 3,049,412
Effect of dilutive securities -
employee stock options 4,944 1,121
-------- --------- ---------
Denominator for diluted earnings
per share - adjusted weighted
average shares outstanding 3,051,134 3,050,413 3,049,412
========= ========= =========
Earnings per share - basic $3.15 $2.73 $2.87
Earnings per share - diluted 3.14 2.73 2.87
</TABLE>
NOTE N - 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 1997, 14,050 options which expire in 2007
were granted at an exercise price of $60.50. During 1996, 10,100 options were
granted at an exercise price of $40.875 per share. These options expire in
2006. During 1995, 8,875 options expiring in 2005 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. Of these options, 250 expired in 1996
and the remaining options expire in 2005. The exercise price of these options
was equal to the market price of the underlying stock on the grant date. At
December 31, 1997, 15,033 of the options were exercisable. No stock
appreciation rights have been granted to date.
NOTE O - 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, 1997, are approximately $11,336,000. Firm
commitments by the Corporation's subsidiaries to fund loans in the future
are approximately $187,972,000 as of December 31, 1997. 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 P - 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, 1997, $17,645,000 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 Q - 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.
Page 46
<PAGE>
NOTE Q - REGULATORY MATTERS (continued)
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, 1997, the Corporation's subsidiaries meet all capital adequacy
requirements to which they are subject.
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>
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, 1997
Total Capital to
Risk Weighted
Assets $90,378 14.8% $48,877 8.0% $61,096 10.0%
Tier 1 Capital
to Risk
Weighted
Assets 83,454 13.7 24,438 4.0 36,658 6.0
Tier 1 Capital
to Average
Assets 83,454 8.8 37,878 4.0 47,347 5.0
As of December
31, 1996
Total Capital to
Risk Weighted
Assets 83,502 15.0 44,453 8.0 55,566 10.0
Tier 1 Capital to
Risk Weighted
Assets 76,563 13.8 22,227 4.0 33,340 6.0
Tier 1 Capital to
Average Assets 76,563 9.3 32,835 4.0 41,044 5.0
OLD SECOND:
As of December
31, 1997
Total Capital to
Risk Weighted
Assets 50,202 13.7 29,271 8.0 36,589 10.0
Tier 1 Capital to
Risk Weighted
Assets 46,520 12.7 14,636 4.0 21,953 6.0
Tier 1 Capital to
Average Assets 46,520 8.7 21,461 4.0 26,826 5.0
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
</TABLE>
NOTE R - 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.
Page 47
<PAGE>
NOTE R - FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
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.
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>
December 31, 1997 December 31, 1996
----------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial Assets: ---------- ---------- --------- -------
<S> <C> <C> <C> <C>
Cash and Cash
Equivalents $ 87,025 $ 87,025 $ 81,007 $ 81,007
Available-for-Sale
Securities 264,467 264,467 287,064 287,064
Loans Held for Sale 26,927 26,927 6,137 6,137
Loans, Net 527,709 533,103 474,946 481,185
-------- -------- -------- --------
Total Financial Assets $906,128 $911,522 $849,154 $855,393
Financial Liabilities:
Deposits $788,929 $798,152 $789,969 $788,243
Securities Sold Under
Agreements to Repurchase 22,926 22,926 1,838 1,838
Other Short-Term Borrowings 8,097 8,097 4,401 4,401
Note Payable 24,133 24,133 1,017 1,017
-------- -------- -------- --------
Total Financial Liabilities $844,085 $853,308 $797,225 $795,499
======== ======== ======== ========
Unrecognized Financial
Instruments:
Commitments to
Extend Credit $ 18 $ 322
Standby Letters of Credit (113) (76)
-------- -------
Total Unrecognized Financial
Instruments $ (95) $ 246
======= =======
</TABLE>
Page 48
<PAGE>
NOTE S - 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>
1997 Quarter 1996 Quarter
----------------------------- --------------------------------
4th 3rd 2nd 1st 4th 3rd 2nd 1st
------- ------ ------ ------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest
Income $17,333 $16,764 $15,598 $15,483 $15,242 $15,055 $14,573 $14,816
Interest
Expense 8,285 8,174 7,394 7,198 7,144 6,996 6,671 6,976
Net Interest
Income 9,048 8,590 8,204 8,285 8,098 8,059 7,902 7,840
Provision for
Possible
Loan Losses 355 356 350 195 204 265 140 139
Income Before
Income Taxes 4,417 3,604 2,320 3,271 2,369 3,083 3,036 3,482
Net Income 3,325 2,500 1,495 2,274 1,811 2,088 2,065 2,373
Net Income Per
Share - Basic 1.09 .82 .49 .75 .59 .68 .68 .78
Net Income Per
Share -
Diluted 1.08 .82 .49 .75 .59 .68 .68 .78
</TABLE>
NOTE T - 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>
Condensed Balance Sheets
December 31,
1997 1996
<S> <C> <C>
ASSETS
Cash on Deposit with Bank Subsidiaries $ 1,198 $ 2,078
Investment In Wholly-Owned Subsidiaries 89,799 80,342
Available-for-Sale Securities 2,087 2,787
Other Assets 116 78
------ ------
TOTAL ASSETS $93,200 $85,285
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Other Liabilities $ 1,079 $ 1,085
Stockholders' Equity 92,121 84,200
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 93,200 $85,285
====== ======
</TABLE>
Page 49
<PAGE>
NOTE T - CONDENSED FINANCIAL INFORMATION OF THE CORPORATION ONLY-(continued)
<TABLE>
Condensed Statements of Income
for the years ended December 31,
1997 1996 1995
INCOME -------- -------- --------
<S> <C> <C> <C>
Dividend Income from
Subsidiaries $ 3,915 $ 4,015 $ 3,730
Interest Income 161 122 40
------ ----- -----
TOTAL INCOME 4,076 4,137 3,770
EXPENSES
Other Expenses 952 903 898
----- ----- -----
TOTAL EXPENSES 952 903 898
Income Before Income Taxes and
Equity In Undistributed Net
Income of Subsidiaries 3,124 3,234 2,872
Income Tax Benefit (192) (83) (201)
----- ----- ----
Income Before Equity In
Undistributed Net
Income of Subsidiaries 3,316 3,317 3,073
Equity In Undistributed Net
Income of Subsidiaries 6,278 5,020 5,683
------ ------ ------
NET INCOME $ 9,594 $ 8,337 $ 8,756
====== ===== =====
</TABLE>
Page 50
<PAGE>
NOTE T - CONDENSED FINANCIAL INFORMATION OF THE CORPORATION ONLY (continued)
Condensed Statements of Cash Flows
<TABLE>
for the years ended
December 31,
1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES: ------- ------- -------
<S> <C> <C> <C>
Dividends Received From
Subsidiaries $3,915 $4,015 $3,730
Interest Received 187 130 7
Income Tax Payments Received
From Subsidiaries 4,286 4,445 3,373
Income Taxes Paid (4,198) (4,430) (3,352)
Paid to Suppliers (507) (257) (407)
----- ----- -----
Net Cash Provided By
Operating Activities 3,683 3,903 3,351
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Available-
for-Sale Securities (500) (2,029) (1,669)
Proceeds from Sales and Maturities
of Available-for-Sale Securities 1,200 1,050
Investment in Subsidiary (2,574)
Other, Net 36 (24)
------ ------ ------
Net Cash Used In Investing
Activities (1,874) (943) (1,693)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends Paid (2,689) (2,478) (1,970)
------ ------ ------
Net Cash Used In
Financing Activities (2,689) (2,478) (1,970)
------ ------ -----
Net Increase (Decrease) in Cash
and Cash Equivalents (880) 482 (312)
Cash and Cash Equivalents at
Beginning of Year 2,078 1,596 1,908
------ ------ -----
Cash and Cash Equivalents
at End of Year $1,198 $2,078 $1,596
====== ===== ======
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Net Income $9,594 $8,337 $8,756
Adjustments to Reconcile
Net Income To Net Cash
Provided by Operating Activities:
Equity In Undistributed
Net Income of Subsidiaries (6,278) (5,020) (5,683)
Goodwill Amortization 441 633 516
Decrease in Taxes Payable (69) (68) (180)
(Increase) Decrease in
Interest Receivable 16 (11) (33)
Other, Net (21) 32 (25)
----- ----- -----
Total Adjustments (5,911) (4,434) (5,405)
------ ------ -----
Net Cash Provided By
Operating Activities $3,683 $3,903 $3,351
===== ===== ======
</TABLE>
Page 51
<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, 1997 and 1996, and the
related consolidated statements of income, changes in stockholders' equity,
and cash flows for the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Comapany'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 finanial 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 statements 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, 1997, and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
January 16, 1998
10K REPORT
Copies of the Corporation's 1997 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 1,315 holders of record of the Corporation's Common Stock at year-
end 1997.
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 1997 and 1996 as quoted by BLOOMBERG FINANCIAL
MARKETS. This information represents quotations and does not necessarily
reflect actual transactions.
<TABLE>
Bid Ask
--------------------- ----------------------
1997 High Low High Low
- ------- -------- ------- -------- --------
<S> <C> <C> <C> <C>
First Quarter $47.50 $40.75 $49.00 $41.50
Second Quarter 47.50 46.75 48.75 48.00
Third Quarter 50.50 46.75 52.75 48.50
Fourth Quarter 63.00 50.50 66.50 52.75
Bid Ask
1996 High Low High Low
-------- ------- ------- --------
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
</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, 1997
through December 31, 1997 was $63.00 and $41.25, respectively.
Page 52
<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, William F. Meyer Company
(plumbing fixtures and supplies)
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
Page 53
<PAGE>
Directors Emeriti
John C. Dunham
Retired Chairman of the Board, Aurora Equipment Company
Vernon H. Haase
Retired Chairman, Henry Pratt Company
Urban Hipp
Retired, Barber-Greene Company
Dorothy E. McEnroe
Realtor, ReMax 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
Daniel J. Ruddy
President, Construction Advisory Services, Inc.
Ralph N. Schleifer
President, Fox Valley Dry Wall, Inc.
Edward Schmitt
President, Schmitt McDonalds
Townsend L. Way, Jr.
Retired President, Richards - Wilcox Mfg. Co.
Richard Westphal
Farmer
Directors Emeriti
John C. Dunham
Vernon H. Haase
Urban Hipp
Dorothy F. McEnroe
M. J. O'Brien
Daniel J. Ruddy
Ralph N. Schleifer
Edward Schmitt
Townsend L. Way, Jr.
Richard Westphal
Page 54
<PAGE>
CONSOLIDATING AND CONSOLIDATED BALANCE SHEET
(in thousands)
Old Second Bancorp, Inc. and Subsidiaries
at December 31, 1997
<TABLE>
THE OLD
THE Old SECOND THE OLD
SECOND COMMUNITY SECOND
NATIONAL BANK OF COMMUNITY YORKVILLE
BANK OF NORTH BANK OF NATIONAL BURLINGTON
AURORA AURORA AURORA BANK BANK
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and Due From
Banks $ 24,492 $ 1,659 $ 4,183 $ 4,683 $ 728
Interest Bearing
Deposits with Banks 350
Federal Funds Sold 31,390 2,475 2,375 3,800 1,625
--------- --------- -------- -------- --------
Total Cash and
Cash Equivalents 56,232 4,134 6,558 8,483 2,353
Investment
Securities 137,069 27,235 16,851 43,316 8,518
Loans Held
for Sale
Loans 324,196 22,968 20,123 84,583 23,509
Less: Allowance
for Possible
Loan Losses 3,681 373 316 1,055 345
Less: Unearned
Income 342
-------- --------- --------- -------- --------
Loans, Net 320,173 22,595 19,807 83,528 23,164
Bank Premises and
Equipment, Net 12,502 1,454 593 1,382 444
Other Assets 4,916 886 642 5,428 439
Investment in Subsidiaries
------- ------ ------ ------- ------
TOTAL ASSETS $530,892 $56,304 $44,451 $142,137 $34,918
======== ======= ====== ======= ======
LIABILITIES
Deposits
Demand $ 74,484 $ 7,048 $ 6,774 $ 13,548 $ 2,404
Savings 159,596 23,250 16,836 46,913 13,429
Time 220,997 19,200 14,999 65,027 15,080
-------- -------- -------- ------- -------
Total
Deposits 455,077 49,498 38,609 125,488 30,913
Sec. Sold Under
Agreements to
Repurchase 17,379 2,308 3,239
Other Short-Term
Borrowings 6,434 1,000 182
Notes Payable
Other Liabilities 4,780 320 223 1,247 246
----- ------ ------ ------ -----
TOTAL LIABILITIES 483,670 52,126 39,832 130,156 31,159
STOCKHOLDERS' EQUITY
Common Stock 3,275 250 480 525 250
Additional
Capital 4,125 1,598 1,420 2,025 1,250
Retained
Earnings 39,120 2,252 2,608 9,197 2,198
Net Unrealized
Gain on
Investments 702 78 111 234 61
------ ------ ------- ------- ------
TOTAL STOCKHOLDERS'
EQUITY 47,222 4,178 4,619 11,981 3,759
------- ------ ------ ------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $530,892 $56,304 $44,451 $142,137 $34,918
======== ======= ======= ======= =======
</TABLE>
Page 55
<PAGE>
<TABLE>
KANE
COUNTY BANK OF MAPLE PARK
BANK AND SUGAR MAPLE PARK BANCSHARES,
TRUST GROVE MORTGAGE INC.
<S> <C> <C> <C> <C>
ASSETS
Cash and Due From
Banks $ 3,701 $ 1,664 $ 3,351 $ 306
Interest Bearing
Deposits with Banks
Federal Funds Sold 5,275
-------- ------- ------- -------
Total Cash and Cash
Equivalents 8,976 1,664 351 306
Investment Securities 17,074 12,317
Loans Held for Sale 26,541
Loans 35,451 24,150
Less: Allowance
for Possible Loan
Losses 705 448
Less: Unearned
Income 6
------- -------
Loans, Net 34,740 23,702
Bank Premises and
Equipment, Net 2,736 1,162 337
Other Assets 1,269 996 3,107
Investment in
Subsidiaries 2,167
------- ------- ------- -----
TOTAL ASSETS $ 64,795 $ 39,841 $ 30,336 $ 2,473
======= ======= ======= =======
LIABILITIES
Deposits
Demand $ 8,132 $ 4,328
Savings 30,456 13,967
Time 18,426 15,779
--------- --------
Total
Deposits 57,014 34,074
Sec. Sold Under
Agreements
to Repurchase
Other Short-Term
Borrowings 481 890
Notes Payable $ 24,133
Other Liabilities 550 461 3,842 $ 52
------- ------- ------- -------
TOTAL LIABILITIES 58,045 35,425 27,975 52
STOCKHOLDERS' EQUITY
Common Stock 1,000 260 10 466
Additional Capital 2,500 2,300 1,752
Retained Earnings 3,159 1,789 2,351 203
Net Unrealized Gain
on Investments 91 67
------- ------- ------- ------
TOTAL STOCKHOLDERS' EQUITY 6,750 4,416 2,361 2,421
------ ------ ------ ------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 64,795 $ 39,841 $ 30,336 $ 2,473
======= ======= ======= ======
</TABLE>
Page 56
<PAGE>
<TABLE>
OLD
OLD SECOND
SECOND BANCORP,
BANCORP, CONSOLIDATING INC.
INC. ADJUSTMENTS CONSOLIDATED
<S> <C> <C> <C>
ASSETS
Cash and Due From Banks $ 1,198 $ (2,340) $ 40,625
Interest Bearing
Deposits with Banks 350
Federal Funds Sold (890) 46,050
-------- -------- --------
Total Cash and Cash
Equivalents 1,198 (3,230) 87,025
Investment Securities 2,087 264,467
Loans Held for Sale 386 26,927
Loans 534,980
Less: Allowance
for Possible
Loan Losses 6,923
Less: Unearned Income 348
--------
Loans, Net 527,709
Bank Premises and
Equipment, Net 195 20,805
Other Assets 116 3,639 21,438
Investment in Subsidiar 89,799 (91,966)
------- ------- --------
TOTAL ASSETS $ 93,200 $ (90,976) $ 948,371
======== ========= ========
LIABILITIES
Deposits
Demand $(1,954) $114,764
Savings 210 304,657
Time 369,508
--------- --------
Total Deposits (1,744) 788,929
Sec. Sold Under
Agreements to
Repurchase 22,926
Other Short-Term
Borrowings (890) 8,097
Notes Payable 24,133
Other Liabilities $ 1,079 (635) 12,165
--------- ------- -------
TOTAL LIABILITIES 1,079 (3,269) 856,250
STOCKHOLDERS' EQUITY
Common Stock 15,844 (6,516) 15,844
Additional Capital (16,970)
Retained Earnings 74,924 (62,877) 74,924
Net Unrealized Gain
on Investments 1,353 (1,344) 1,353
-------- --------- --------
TOTAL STOCKHOLDERS' EQUITY 92,121 (87,707) 92,121
------- ------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $93,200 $(90,976) $948,371
======= ======== ========
</TABLE>
Page 57
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
The subsidiaries of the registrant are as follows:
<TABLE>
Incorporated Percentage of Voting
Name Under Laws of Securities Owned
---- ------------- --------------------
<S> <C> <C>
The Old Second National
Bank of Aurora The United States 100%
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%
Maple Park Bancshares, Inc. State of Illinois 100%
Maple Park Mortgage State of Illinois 100%
Page 58
<PAGE>
</TABLE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITOR
We 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, 1998, with respect to the
consolidated financial statements of Old Second Bancorp, Inc. included in the
Annual Report (Form 10-K) for the year ended December 31, 1997.
We also consent to the incorporation by reference in the Registration
Statement (Form S-3 No. 333-31049) pertaining to the registration of shares
of Old Second Bancorp, Inc. common stock received in the Maple Park
Bancshares, Inc. merger of our report dated January 16, 1998, with respect
to the consolidated financial statements of Old Second Bancorp, Inc.
included in the Annual Report (Form 10-K) for the year ended December 31, 1997.
/s/ Ernst & Young LLP
Chicago, Illinois
March 27, 1998
Page 59
<PAGE>
Exhibit 25.1
Report of Independent Accountants
The 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, 1997 and 1996, and the
related consolidated statements of income, changes in stockholders' equity,
and cash flows for the three years in the period ended December 31, 1997.
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 standard 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 materail respects, the consolidated financial position of Old
Second Bancorp, Inc. and Subsidiaries as of December 31, 1997, and the
consolidated results of operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
January 16, 1998
Page 60
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 40625
<INT-BEARING-DEPOSITS> 350
<FED-FUNDS-SOLD> 46050
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 264467
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 527709
<ALLOWANCE> 6923
<TOTAL-ASSETS> 948371
<DEPOSITS> 788929
<SHORT-TERM> 55156
<LIABILITIES-OTHER> 12165
<LONG-TERM> 0
<COMMON> 15844
0
0
<OTHER-SE> 76277
<TOTAL-LIABILITIES-AND-EQUITY> 948371
<INTEREST-LOAN> 46422
<INTEREST-INVEST> 16327
<INTEREST-OTHER> 2429
<INTEREST-TOTAL> 65178
<INTEREST-DEPOSIT> 29595
<INTEREST-EXPENSE> 31051
<INTEREST-INCOME-NET> 34127
<LOAN-LOSSES> 1256
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 33218
<INCOME-PRETAX> 13612
<INCOME-PRE-EXTRAORDINARY> 9594
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9594
<EPS-PRIMARY> 3.15
<EPS-DILUTED> 3.14
<YIELD-ACTUAL> 4.14
<LOANS-NON> 2189
<LOANS-PAST> 1011
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 6911
<ALLOWANCE-OPEN> 6968
<CHARGE-OFFS> 1642
<RECOVERIES> 341
<ALLOWANCE-CLOSE> 6923
<ALLOWANCE-DOMESTIC> 6923
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
