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, 1998
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 trade price of such stock,
as of a specified date within 60 days prior to the date of
filing:
$160,187,003 as of March 23, 1999
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest
practicable date.
3,051,181 shares of $1.00 par value common stock at March 23,
1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the December 31, 1998 Annual Report to Stockholders
and
the Registrant's Proxy Statement dated
February 9, 1999, 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 18 and 19.
This Form 10-K consists of 54 pages.
<PAGE>
FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I
<S> <C> <C>
Item 1. Business 3
Item 2. Properties 15
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote
of Security Holders 15
Part II
Item 5. Market for the Registrant's
Common Equity and
Related Stockholder Matters 16
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 16
Item 7a. Quantitative and Qualitative
Disclosures about
Market Risk 16
Item 8. Financial Statements and
Supplementary Data 16
Item 9. Changes in and Disagreements
with Accountants on
Accounting and
Financial Disclosures 16
Part III
Item 10. Directors and Executive
Officers of the Registrant 17
Item 11. Executive Compensation 17
Item 12. Security Ownership of Certain
Beneficial Owners
and Management 17
Item 13. Certain Relationships
and Related Transactions 17
Part IV
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K 18
</TABLE>
Page 2 of 54
<PAGE>
Part I
Item 1. Business
OLD SECOND BANCORP, INC.
Old Second Bancorp, Inc. ("the Corporation") was organized on
September 8, 1981 by the directors of The Old Second
National Bank ("Old Second"). The Corporation was incorporated
under the laws of the State of Delaware on
September 18, 1981. The only industry segment in which the
Corporation and its subsidiaries are engaged in is banking, and
there are no foreign operations.
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. At December 31, 1998,
the Corporation had seven subsidiary banks, as follows:
Old Second, 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, the Corporation has a mortgage banking
subsidiary, Maple Park Mortgage, principally engaged in the
business of originating, purchasing, selling and servicing
residential mortgage loans.
The directors of the Corporation are the same as the directors of
Old Second. The directors receive no fees for the Corporation's
meetings. The Corporation has no salaried employees and the
officers of the Corporation are also officers of Old Second.
Executive Officers of the Registrant
Shown below are the names and ages of the executive officers of
the Corporation with an indication of all positions
and offices held with the Corporation:
<TABLE>
<CAPTION>
Old Second Bancorp, Inc.
Name Age Offices (1)
<S> <C> <C>
James E. Benson 68
Chairman
William B. Skoglund 48
President and Chief Executive Officer
George Starmann III 55
Executive Vice President and Secretary
</TABLE>
(1) Offices with the Corporation have been held since the
formation of the Corporation in 1981, with the following
exceptions: James E. Benson was appointed Chairman in 1992.
William B. Skoglund was appointed as an officer, elected as a
director in March 1992 and promoted to President and Chief
Executive Officer in 1998. George Starmann III was appointed as
Vice-President in 1994, elected as a director in March 1995, and
promoted to Executive Vice-President in 1998. Officers are
appointed annually by the Board of Directors.
Page 3 of 54
<PAGE>
BANCORP SUBSIDIARIES
Old Second 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 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; 1100 South
County Line Road, Maple Park, and 2 S 101 Harter Road, Kaneville.
Old Second has trust offices at 37 South River Street in Aurora
and 321 James Street in Geneva.
The Old Second Community Bank of North Aurora is located at 200
West John Street, North Aurora, and 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 at 408 East Countryside Parkway in
Yorkville, 6800 West Route 34 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 a branch at 40W422 Route 64
in Wasco. Bank of Sugar Grove is located on Cross Street at
Illinois Route 47, Sugar Grove.
With the exception of Yorkville's main banking facility, all
Banks have onsite 24 hour Automatic Teller Machines(ATMs). Old
Second also has two offsite ATMs, and Yorkville has one offsite
ATM. Their customers can use certain other financial
institutions' offsite ATM's to complete deposit, withdrawal,
transfer, and other banking transactions.
These banks offer banking services for retail, commercial,
industrial, and public entity customers in the Aurora, 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, lock box service
and safe deposit boxes, and other customer services. Old Second
also offers complete trust and other fiduciary services to
commercial customers and individuals. 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.
The banks are subject to vigorous competition from other banks
and 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 market, which includes
portions of Kane and LaSalle counties and all of
Kendall county, there are approximately 10 other banks or banking
facilities and several savings and loan associations.
At December 31, 1998, the Corporation and its bank subsidiaries
had 426 full-time employees and 137 part-time employees.
Maple Park Mortgage ("Maple Park") operates a retail division
from leased offices in St. Charles, Sycamore, Oswego,
Bannockburn, and Wheaton, 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 88
full-time employees and 16 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 of 54
<PAGE>
ADDITIONAL STATISTICAL INFORMATION - OLD SECOND BANCORP, INC.
CONSOLIDATED DAILY AVERAGE BALANCE SHEETS AND INTEREST RATES
<TABLE>
<CAPTION> Years Ended December 31,
1998 1997 1996
_____________________________________________________________________
Avg Income Yield Avg Income Yield Avg Income Yield
Balance Expense Rate Balance Expense Rate Balance Expense Rate
____________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest bearing
deposits with banks 412 26 6.31% 298 22 7.38% 301 22 7.31%
Federal funds sold 62,980 3,372 5.35% 43,803 2,407 5.50% 41,377 2,227 5.38%
Investment securities:
Taxable 197,219 12,231 6.20% 204,352 13,025 6.37% 196,791 12,723 6.47%
Non taxable (1) 56,785 4,008 7.06% 61,830 4,425 7.16% 68,276 5,032 7.37%
Loans held for sale
and net loans
(1, 2) 567,761 49,598 8.74% 515,016 46,585 9.05% 448,758 41,082 9.15%
-------------------------------------------------------------------
Total interest
earning assets
(1) 885,157 69,235 7.82% 825,299 66,464 8.05% 755,503 61,086 8.09%
-------- ====== ===== ------- ====== ===== ------- ====== =====
Cash and due
from banks 35,824 34,513 33,329
Bank premises and
equipment, net 20,975 20,514 18,833
Other assets 20,464 21,034 19,267
--------- -------- --------
Total assets 962,420 901,360 826,932
========= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing
transaction
deposits 91,003 1,496 1.64% 111,170 2,194 1.97% 108,091 2,361 2.18%
Savings deposit 244,048 7,580 3.11% 185,304 5,726 3.09% 179,103 5,374 3.00%
Time deposits 354,642 20,287 5.72% 373,433 21,672 5.80% 339,529 19,512 5.75%
------- ------ ---- ------- ------ ---- ------- ------ ----
Total interest
bearing deposits 689,693 29,363 4.26% 669,907 29,592 4.42% 626,723 27,247 4.35%
Securities sold under
agreements to
repurchase 19,511 828 4.24% 13,958 690 4.94% 3,632 181 4.98%
Notes payable 29,343 1,876 6.39% 8,991 589 6.55% 2,713 221 8.15%
Other short-term
borrowings 3,102 162 5.22% 3,415 180 5.27% 2,724 138 5.07%
----- ----- ---- ----- ----- ---- ----- ---- ----
Total interest
bearing
liabilities 741,649 32,229 4.35% 696,271 31,051 4.46% 635,792 27,787 4.37%
------- ===== ===== ------- ====== ===== ------- ===== ====
Demand deposits 115,723 109,219 102,738
Other liabilities 10,570 9,014 6,951
------- ------- -------
Total
liabilities 867,942 814,504 745,481
Stockholders'
equity 94,478 86,856 81,451
------- ------- -------
Total
liabilities and
stockholders'
equity 962,420 901,360 826,932
======= ======= =======
Net interest spread (1) 3.47% 3.59% 3.72%
====== ====== ======
Net yield on interest
earning assets (1) 4.18% 4.29% 4.40%
====== ====== ======
</TABLE>
(1) Interest income and yields are reflected in the tables on a tax-equivalent
basis. Net yield on interest-earning assets is net interest income on a tax
equivalent basis 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.
Page 5 of 54
<PAGE>
Changes in Interest Income and Expense:
The following table shows the dollar amount of changes in
interest income and expense, by major categories
of assets and liabilities, attributable to changes in volume or
rate or both, for the periods indicated, in thousands
of dollars. The changes in interest due to both rate and volume
have been allocated proportionately to the change due to balance
and due to rate.
<TABLE>
<CAPTION>
Increase (Decrease) Due To
Volume Rate Net
1998 Compared to 1997
----------------------------------
<S> <C> <C> <C>
Interest income:
Interest bearing
deposits with banks $ 7 $ (3) $ 4
Investment securities:
Taxable (442) (352) (794)
Non taxable (266) (45) (311)
Federal funds sold 1,027 (62) 965
Loans, net 4,600 (1,503) 3,097
------- ------- -------
Net increase
(decrease) $ 4,926 $ (1,965) $ 2,961
------- ------- -------
Interest expense:
Interest bearing
deposits $ (332) $ (366) $ (698)
Savings deposits 1,825 29 1,854
Time deposits (1,075) (310) (1,385)
Securities sold
under agreements
to repurchase 236 (98) 138
Notes payable 1,301 (14) 1,287
Other (16) (2) (18)
------- ------ -------
Net increase
(decrease) $ 1,939 $ (761) $ 1,178
------- ------ -------
Increase (decrease)
in net interest
margin $ 2,987 $ (1,204) $ 1,783
====== ====== ======
1997 Compared to 1996
Interest income: ------------------------------
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 of 54
<PAGE>
Interest Rate Repricing Gaps
Interest rate sensitive assets and liabilities are those which
have yields or rates subject to change within a future time
period due to maturity or changes in market rates. The
Corporation's exposure to interest rate risk is managed primarily
through the Corporation's strategy of selecting types and terms
of interest-earning assets and interest-bearing liabilities which
generate favorable earnings while limiting the potential negative
effects of changes in market rates.
The Corporation monitors rate sensitive assets and liabilities by
positioning amounts into periods based upon contractual terms,
historical experience or frequency of repricing. An asset
sensitive position in a given period will result in more assets
than liabilities being subject to repricing; therefore, market
rate changes will be reflected more quickly in asset rates. If
interest rates decline, such a position will have an adverse
affect on net interest income. Conversely, in a liability
sensitive position, where liabilities reprice more quickly than
assets in a given period, a decline in market rates will benefit
net interest income. Since rate sensitive assets and liabilities
do not respond in the same manner to changing markets, the
theory noted herein should not be used as the sole indicator of
how the Corporation would be affected by changes in interest
rates. Following are the amounts, in thousands of dollars, of
the rate sensitive assets and liabilities positioned into periods
based upon repricing as of December 31,1998.
<TABLE>
<CAPTION>
Rate Maturity Period
------------------------------------------------
0-90 91-180 181-365 Over 1
Days Days Days Year Total
------------------------------------------------
INTEREST-EARNING ASSETS:
- ------------------------
<S> <C> <C> <C> <C> <C>
Interest-earning
deposits $ 475 $ 475
Federal funds sold 49,475 49,475
Investment securities 24,751 $ 6,818 $ 18,156 $ 242,640 292,365
Loans held for sale 36,686 36,686
Loans, net 167,314 26,048 54,622 308,561 556,545
------- ------ ------ ------- -------
Total interest-earning
assets $ 278,701 $ 32,866 $ 72,778 $ 551,201 $ 935,546
INTEREST-BEARING
LIABILITIES:
- ------------------
Money market, savings
and NOW accounts $ 172,783 $ 187,538 $ 360,321
Time deposits 100,225 $ 65,601 $ 66,895 113,317 346,038
Other borrowed funds 73,296 73,296
-------- ------- ------- -------- --------
Total interest- bearing
liabilities $ 346,304 $ 65,601 $ 66,895 $ 300,855 $ 779,655
Period gap $ (67,603) $(32,735) $ 5,883 $ 250,346 $ 155,891
Cumulative gap $ (67,603) $(100,338) $(94,455) $ 155,891
</TABLE>
Page 7 of 54
<PAGE>
The following table sets forth the scheduled maturity of the
corporation's rate sensitive assets and liabilities, in thousands
of dollars, at December 31, 1997. Quantitative and qualitative
disclosures on market risk for 1998 appear in the Management's
Discussion and Analysis on pages 6 and 7 of the Annual Report to
Shareholders.
MATURITY OR REPRICING
<TABLE>
<CAPTION>
Within 3 Months 6 Months One Year Over
3 Months to 6 Months to One Year to Two yrs. Two yrs. 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 sold 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 rate 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 1,636 297 5,417
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 8 of 54
<PAGE>
INVESTMENT PORTFOLIO
The required information for book value, market value and
maturities of investment securities as of December 31,1998 and
1997 appears in Note D of the Annual Report to Stockholders and
is incorporated by reference in this Annual Report on Form 10-K.
The book value of investment securities which was reported at
estimated market value at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
<S> <C>
U.S.Treasuries $ 21,049
U.S. Government agencies 146,277
State and political subdivisions 84,218
Mortgage backed obligations 33,644
Other 1,876
----------
Total $287,064
==========
</TABLE>
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, 1998:
<TABLE>
<CAPTION>
Maturing
-----------------------------------------
Within From 1 To From 5 To After
1 Year 5 Years 10 Years 10 Years
-----------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and
agency obligations 6.00 5.89 5.98 6.41
States & political
subdivisions 5.98 5.49 5.34 6.15
Mortgage backed
obligations 6.07 5.93
Other 6.37
</TABLE>
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>
<CAPTION>
December 31,
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Commercial, financial, and
agricultural $143,047 $146,591 $143,961 $141,948 $146,890
Real estate-construction 46,361 43,095 40,437 35,653 32,548
Real estate-mortgage 309,893 287,167 248,742 239,081 185,698
Installment 57,471 58,127 49,164 45,847 45,120
-------- ------- -------- ------- --------
Total $556,772 $534,980 $482,304 $462,529 $410,256
======== ======= ======= ======= =======
</TABLE>
Page 9 of 54
<PAGE>
LOAN PORTFOLIO (continued)
The following table shows the percentage of total loans
represented by each classification of loans on the dates
indicated:
<TABLE>
<CAPTION>
December 31,
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Commercial, financial,
and agricultural 25.7% 27.4% 29.8% 30.7% 35.8%
Real estate-
construction 8.3 8.1 8.4 7.7 7.9
Real estate-mortgage 55.7 53.6 51.6 51.7 45.3
Installment 10.3 10.9 10.2 9.9 11.0
------ ------ ------ ------ ------
Total 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ======
</TABLE>
Maturities of Loans and Sensitivity to Changes in Interest Rates
The following tables set forth the maturities of loans by certain
categories and the interest rate sensitivity of loans maturing in
over one year at December 31, 1998 in thousands of dollars:
<TABLE>
<CAPTION>
Due after
Due in 1 year
1 year through Due after
less 5 years 5 years Total
------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial
and agricultural $77,513 $ 54,920 $ 10,614 $143,047
Real estate
construction 38,834 7,527 46,361
</TABLE>
Interest Rate Sensitivity of Loans
maturing in over one year
<TABLE>
<CAPTION>
Fixed Rate Floating Rate
----------------------------
<S> <C> <C>
Commercial, financial and
agricultural $ 50,689 $14,845
Real estate construction 6,088 1,439
</TABLE>
Page 10 of 54
<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, The Corporation's subsidiaries may have
various loans outstanding, which are accruing interest, are not
contractually past due more than 90 days, and are not
renegotiated, but which, in management's opinion, may not be
repaid according to original terms; these are shown
below as "potential loan problems". Management periodically
reviews these accounts which are currently in its
portfolio and is of the opinion that, although some restructuring
of loan terms may be required, no material loss of
principal will occur.
The following is a summary of loans described above at the dates
indicated, in thousands of dollars:
<TABLE>
<CAPTION>
December 31,
1998 1997 1996 1995 1994
--------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual $ 768 $2,189 $3,505 $4,514 $2,344
Past Due 1,417 1,011 622 245 555
Restructured 13 122 58 69
Potential Loan
Problems(1) $ 8,009 $6,911 $7,334 $5,198 $4,389
</TABLE>
(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 the Corporation'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.
Following is information regarding interest income for the year
ended December 31, 1998 for domestic loans which
are on a nonaccrual basis or restructured as of December 31,
1998, in thousands of dollars:
Gross interest income that would have been
included in income for 1998 if the loans
had been current in accordance with their
original terms $114
Gross interest income included in income on
these loans for 1998 $ 23
Page 11 of 54
<PAGE>
Credit Quality Management and the Allowance for Loan Losses
The corporation monitors its credit risk using established
formal credit polices and procedures which are monitored and
modified on an ongoing basis. The allowance for loan losses is
determined using 1) Specific Allocations, 2) General Risk
Allocations and 3) a Minimum Allowance Amount. The total of
specific and general risk allocations must be equal to or greater
than the minimum allowance amount.
Specific Allocations:
Individual loans are analyzed quarterly to determine an
amount which represents the maximum, minimum and most likely
amounts of possible loss exposure and to determine any
immediate charge-offs. Loans which are analyzed include any
commercial and real estate loan which is classified in one
or more of the following categories:
Loans classified by examiners.
Loans rated below an established departmental rating.
All loans in claims and judgments.
Any real estate loan more than three payments past due.
Any loan on non-accrual.
.
Any short term loan delinquent more than 30 days past
its maturity.
Any commercial loan more than two payments past its
payment due date.
Any loan in which the loan officer considers the credit
to be a problem.
Certain other loans as determined by senior loan
officers to be a problem.
Certain classes of loans or concentrations of credits
as determined by senior management.
These loans are analyzed on a quarterly basis by the individual
loan officers with results reported to the Loan Review Committee.
Other loans reported to the loan review committee include loans
that may have some potential for repayment problems but are not
immediate collection problems and are placed on the Bank's watch
list. Loans are considered impaired when it is probable that the
bank will be unable to collect the contractual amount of both
principal and interest.
General Risk Allocation:
Under this category, an analysis is made quarterly based on
consideration of the following factors:
Historical Net Loss Experience:
An average of the net charge-offs in the Consumer Credit,
Commercial and Real Estate loan areas is calculated for five
years on a rolling quarterly basis. Recent year loss
experiences are more heavily weighted to account for 35% of
the loss average, year 2 - 25%, year 3 - 15%, year 4 - 15%
and year 5 - 10%.
Off-Balance Sheet Risk:
Off-balance sheet risks such as Letters of Credit and
commitments outstanding on lines of credit are multiplied by
a percentage established by management.
Volume and Trends in Delinquencies and Non-Accruals:
In order to account for additional risk associated with
delinquent loans and to adjust for recent trends in
delinquent loans more than 30 days past due or non-accrual
loans not on the problem or watch list are reviewed by
management. The net balance of these loans is multiplied by
a percentage determined by management, and the resulting
amount is added to the allowance.
Page 12 of 54
<PAGE>
Minimum Allowance Amount:
Management has determined that the amount of the allowance
should not be less than 1.25% of the total outstanding loan
balance. Monthly amounts as determined by senior management
will be placed into the allowance in order to maintain this
percentage. Should charge-offs be incurred which cause the
allowance to fall below this amount, additional accruals
will immediately be recorded to maintain this balance.
A summary of this allowance determination, the list of
problem loans and watch loans and their respective
allocation of the allowance for loan losses is reported to
the loan committee of the Board of Directors on a monthly
basis. During this review, should a loan be determined to
have some loss, this amount will be charged-off immediately.
The factors that attribute to the changes in the elements
and components of the allowance for loan losses from
December 31,1997, to December 31,1998, are as follows:
There have been no changes in lending policy or procedures during
the last 12 months which would have an impact on the allowance.
There have been no changes in lending management or staff which
would warrant an adjustment level of the allowance for loan loss.
Management believes that in assessing economic and business
conditions and developments that we are near the top of the
economic cycle. We have allocated a loss percentage based on the
outstanding risk associated with the portfolio. The portfolio
risk was adjusted with each loan review and quarterly credit
management review. The allowance for loss associated with each
risk category was adjusted based on economic trends and
prevailing business conditions.
Changes in the nature and volume of the portfolio have been
moderate over the last year. The level of loan growth does not
have an impact on the allowance at this time.
The volume of past due loans has been higher since the
acquisition of Maple Park Bancshares, Inc. This has been
considered in the allowance calculation and management believes
the trend will reverse in time due to the installation of
additional management at that institution.
There have been no changes in the loan review system or in the
quality of the Board oversight this year.
There is a concentration of credit with real estate developers
and agricultural related entities. The real estate and
agricultural loans were individually reviewed in the fourth
quarter of 1998 and there is no need to adjust the allowance for
loan loss as a result of this concentration.
Page 13 of 54
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE
The following table shows the allocation of the reserve for loan
losses by loan category as well as charge-offs and recovery
information for the last five years. Loan loss experience for
the indicated periods in thousands of dollars is summarized as
follows:
<TABLE>
<CAPTION> Years Ended December 31,
1998 1997 1996 1995 1994
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average loans net
of unearned
income $543,965 $521,906 $454,708 $434,403 $389,769
excluding loans ======== ======== ======== ======== ========
held for sale
Allowance for
loan losses:
Balance at
beginning of
period $ 6,923 $ 6,968 $ 6,686 $ 6,370 $ 5,110
Charge-offs:
Commercial, financial
and agricultural $ 286 $ 1,285 $ 615 $ 3,299 $ 1,701
Real estate-
construction 81
Real estate-mortgage 10 67 117 134 130
Installment 256 209 169 185 108
------- ------- ------- ------ -------
Total charge-offs 552 1,642 901 3,618 1,939
Recoveries:
Commercial, financial
and agricultural 132 176 362 431 783
Real estate-construction
Real estate-mortgage 45 105 11 425
Installment 62 60 73 93 209
------- ------- ------- ------ -------
Total recoveries 239 341 435 535 1,417
------- ------- ------- ------ -------
Net (charge-offs)
recoveries (313) (1,301) (466) (3,083) (522)
Provision charged
to operating expense 1,213 1,256 748 3,399 1,782
------- ------- ------- ------ -------
Balance at end
of period $ 7,823 $ 6,923 $ 6,968 $ 6,686 $ 6,370
====== ====== ====== ====== ======
</TABLE>
The amount of additions to the allowance for loan losses charged
to operating expense is based on factors such as the nature and
volume of the loan portfolio, historical loss experience and
changes in economic conditions.
<TABLE>
<CAPTION>
Allowance for loan losses by category:
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 4,675 $ 4,100 $ 4,100 $ 3,990 $ 3,730
Real estate-
construction 210 185 185 180 160
Real estate-mortgage 1,250 1,060 1,060 1,040 1,000
Installment 1,545 1,430 1,430 1,248 1,275
Unallocated 143 148 193 228 205
----- ----- ----- ----- -----
Total $ 7,823 $ 6,923 $ 6,968 $ 6,686 $ 6,370
===== ===== ===== ===== =====
Ratio of net (charge-offs)
recoveries to
average loans
outstanding for
the period (.06)% (.25)% (.10)% (.71)% (.13)%
===== ===== ===== ===== =====
</TABLE>
Page 14 of 54
<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>
<CAPTION>
December 31,
1998
------------
<S> <C>
Maturing within 3 months $33,267
After 3 but within 6 months 13,818
After 6 but within 12 months 12,711
After 12 months 19,084
-------
Total $78,880
=======
</TABLE>
Return on Equity and Assets
The following table presents certain ratios relating to equity
and assets:
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
------- ------- ------
<S> <C> <C> <C>
Return on total
average assets 1.15% 1.06% 1.01%
Return on average
stockholders' equity 11.69% 11.04% 10.24%
Dividend payout ratio 24.93% 28.34% 30.40%
Average equity to average
assets ratio 9.81% 9.64% 9.85%
</TABLE>
Item 2. Properties
Except for certain teller machine locations, the Corporation's
subsidiaries own 17 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,
Bannockburn and Wheaton. 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 administrative 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 1998.
Page 15 of 54
<PAGE>
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The Common Stock of the Corporation, has been traded in the over-
the-counter market on the NASDAQ National Market
System under the symbol OSBC since November 11, 1993.
Information regarding the number of stockholders and market
price for the Corporation's Common Stock for 1998 and 1997
appears on page 27 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
the Corporation is described in the Capital and Dividends portion
of Management's Discussion on page 5 of the Annual Report to
Stockholders and is incorporated by reference
in this Annual Report on Form 10-K.
Information regarding dividend restrictions is described in Note
P on page 21 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, 1998 appears on page 9 of the Annual
Report to Stockholders and is incorporated by reference in this
Annual Report on Form 10-K.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" appears on pages 4
through 7 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 appear in
the Management's Discussion and Analysis on
pages 6 and 7 of the Annual Report to Shareholders and is
incorporated by reference in this Annual Report on Form
10-K. The December 31, 1997 table disclosing the scheduled
maturity of the corporation's rate sensitive assets and
liabilities is included on page 8 of the 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 22, 1999, appear on pages 10 through 26 of the Annual
Report to Stockholders and are incorporated by
reference in this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
Page 16 of 54
<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 17 in the Registrant's
Proxy Statement and is incorporated by reference in this Annual
Report on Form 10-K.
Page 17 of 54
<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, 1998 and 1997 32
Consolidated Statements of Income
for the years ended December 31,
1998, 1997, and 1996 33
Consolidated Statements of Cash Flows
for the years ended December 31,
1998, 1997, and 1996 34
Consolidated Statements of Changes
in Stockholders' Equity for the
years ended December 31, 1998,
1997, and 1996 35
Notes to Consolidated Financial
Statements 36-47
Report of Independent Accountants 48
(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 18 of 54
<PAGE>
(a)(3) Exhibits (Continued) Reference
Form 10-K
Annual Report
(page)
13.1 Old Second Bancorp, Inc. - 1998 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. 23-54
22.1 Subsidiaries of the Registrant 52
23.1 Consent of Independent Accountant 53
27.1 Financial Data Schedule 54
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 1998.
Page 19 of 54
<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 3/9/99 By /s/ James Benson
James E. Benson - Chairman of the Board
Date 3/9/99 By /s/ William Skogland
William B Skoglund - President, Chief
Executive Officer
Page 20 of 54
<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
3/9/99 /s/ Walter Alexander
Walter Alexander - Director
3/9/99 /s/ James Benson
James E. Benson - Chairman
3/9/99
/s/ Marvin Fagel
Marvin Fagel - Director
3/9/99 /s/ Joanne Hansen
Joanne Hansen - Director
3/9/99 /s/ Kenneth Lindgren
Kenneth F. Lindgren - Director
3/9/99 /s/ Jesse Maberry
Jesse Maberry - Director
3/9/99 /s/ Gary McCarter
Gary McCarter - Director
Page 21 of 54
<PAGE>
SIGNATURES, continued
Date SIGNATURE AND TITLE
3/9/99 /s/ Chet McKee
D. Chet McKee - Director
3/9/99 /s/ William Meyer
William J. Meyer - Director
3/9/99 /s/ Larry Schuster
Larry A. Schuster - Director
3/9/99 /s/ William Skoglund
William B. Skoglund -
President and CEO
3/9/99 /s/ Gerald Palmer
Gerald Palmer - Director
3/9/99 /s/ George Starmann III
George Starmann III
Executive Vice President and
Secretary
Page 22 of 54
<PAGE>
Old Second Bancorp, Inc.
1998 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............................14-25
Report of Independent Accountants........................................26
Corporate Information....................................................27
Consolidating and Consolidated Balance Sheet..........................28-29
Bancorp Highlights:
Board of Directors............................................ .........1-2
Old Second National Bank................................................3-4
Yorkville National Bank.................................................5-6
Burlington Bank.........................................................7-8
Kane County Bank & Trust Company...................................... 9-10
Bank of Sugar Grove...................................................11-12
Maple Park Mortgage...................................................13-14
Bancorp Location Listing..............................................15-16
Page 23 of 54
<PAGE>
Financial Highlights
In thousands, except per share data -
years ended December 31,
<TABLE>
<CAPTION>
1998 1997
<S> _______ _______
<C> <C>
Total interest income 68,139 65,178
Net interest income after
provision for loan losses 34,697 32,871
Net income 11,049 9,594
Per share:
Net income - basic 3.62 3.15
Net income - diluted 3.61 3.14
Cash dividends declared .90 .89
At December 31
Assets 1,014,292 948,371
Loans, net 548,722 527,709
Deposits 826,331 788,929
Stockholders' equity before accumulated
other comprehensive income 99,103 90,768
per share 32.48 29.77
Total stockholders' equity 101,926 92,121
per share 33.41 30.21
</TABLE>
Page 1
Page 24 of 54
<PAGE>
Letter To Stockholders
To Our Stockholders:
The conclusion of 1998 marks
the beginning of a new era for
your company. Old Second Bancorp
ended the year with total assets
of over $1 billion. As we
approach the Millennium, we do so
as a strongly capitalized,
billion dollar asset organization
with a quality loan portfolio,
strong core deposits, a growing
area within which we operate, and
a flavor for maintaining a
community banking atmosphere.
We are proud of our records
achieved at Old Second Bancorp
this year. Through the efforts of
our management and staff at the
holding company as well as at our
various banks and mortgage
company, we performed at record
levels in 1998:
*Total assets were at a record
level of
$1,014,292,000
*Total net earnings were
$11,049,000 - a 15.2%
increase over 1997
*Total stockholders' equity at
year end was at an
all time high - $101,926,000
*Cash dividends declared
increased for the thirty-
second consecutive year
(cash dividends are
currently $0.25 per quarter)
*Return on equity was at 11.7%
*Return on assets was at 1.15%
*Basic earnings per share
increased to $3.62
from $3.15 in 1997
*Trades of stock as quoted by
NASDAQ were
at $53.00 per share at year
end
Our Trust Department had
another exceptional year with
assets under management of
approximately $600,000,000.
Gross and net trust fees were at
record levels. The trust office
at Elburn was consolidated into
the trust office at Geneva during
1998, to improve efficiency and
provide higher quality services
to our customers.
Continued growth of our
Yorkville National Bank's branch
in Ottawa required us to expand
our physical plant at that
location. A new 6,000 square foot
building is scheduled for
completion in March 1999 at the
same location on Route #71 in
Ottawa. We believe this
investment will be rewarded with
continued strong growth and
profits.
<PAGE>
Maple Park Mortgage, a wholly
owned subsidiary of Old Second
Bancorp, generated significant net
income. A new office was opened in
Wheaton to add to existing offices
in St. Charles, Sycamore,
Bannockburn and Oswego. We look
forward to continued growth and
additional fee income from this
company.
We continue to monitor our
costs and efficiencies in all
areas. As of January 1, 1999 in an
attempt to become more efficient,
we consolidated Old Second
Community Bank of North Aurora and
Old Second Community Bank of Aurora
into Old Second National Bank of
Aurora. These two locations will be
operated as branches and our goal
is to have decision makers at each
location so that they will operate
as they have in the past but with
lower costs.
Old Second Bancorp has spent a
considerable amount of resources
the past several years to make sure
that Year 2000 potential problems
are properly addressed. All
critical applications are now Year
2000 compliant and we are in the
process of testing these
applications on an integrated
basis. This testing should be
completed by March 1999. Bancorp
management feels that we have made
excellent progress in this area and
every effort will be made to ensure
that we do not have any operating
difficulties as we enter the next
century.
Your company is meeting the
financial needs of people
throughout the southern Fox Valley
region with 17 locations, 2 trust
offices and 5 mortgage offices. We
also continue our expansion of
electronic banking by providing
corporate cash management, personal
home computer banking and, of
course, debit and credit cards.
Check imaging was successfully
introduced to our customers within
the 4th quarter of 1998; the
acceptance of this change has been
most gratifying. A Bancorp
Internet Website is in the process
of being developed and should be
available in the first quarter of
1999.
The financial success of our
Bank is the outcome of
professional management of our
assets and liabilities, development
of new business and the careful
nurturing of our existing
customers. Lending and deposit
Page 2
Page 25 of 54
rate structures are managed
carefully to provide fair,
competitive rates to our customers.
Prices on services are continually
monitored in an effort to ensure
that we are competitive and we
receive adequate cost recovery and
profit. Excess funds are prudently
invested in marketable securities.
Community involvement of all
of our banks and branches is a
philosophy that has been our policy
for decades. Hundreds of hours of
volunteer time has been provided by
our officers and staff to the
communities in which they are
located. We believe this philosophy
of giving and sharing is of mutual
benefit to the markets that we
serve.
We are committed to preparing
for a profitable future through
improvement and expansion of our
business. We are ever thankful of
our loyal staff, our customers, our
Board of Directors and to you, our
stockholders.
Sincerely,
James Benson
Chairman
William B. Skoglund
President & CEO
PAGE
<PAGE>
Page 3
Page 26 of 54
Management's Discussion
Management's Discussion & Analysis
The consolidated financial
statements include the accounts of
Old Second Bancorp, Inc. (the
Corporation) and its subsidiaries,
all of which are wholly owned. The
financial statements have been
prepared in conformity with
generally accepted accounting
principles and reporting practices
that are applied in the banking
industry.
During 1998, in an effort to
improve operational efficiencies,
the Board agreed to make the Old
Second Community Bank of Aurora and
the Old Second Community Bank of
North Aurora branches of Old Second
National Bank. Management plans on
having decision makers at the
Farnsworth and North Aurora
locations and to operate these
offices as in the past. With these
mergers which occurred on January
1, 1999, the Corporation remains a
multi-bank holding company with
seventeen full-service bank
facilities, two trust locations and
five mortgage banking offices.
Performance Summary
Net income of $11.0 million or
$3.62 per share for 1998 increased
$1.5 million or 15.2% from 1997
following a gain of $1.3 million,
15.1%, in 1997 over 1996. For the
year, returns on average assets and
equity were 1.15% and 11.7%
respectively, up from 1.06% and
11.0% in 1997.
Total assets grew $66 million or
7.0% from year end 1997 to slightly
over $1 billion at December 31,
1998.
Results of Operations
Net interest income
Net interest income for 1998 of
$35.9 million was up $1.8 million
from 1997 following an increase of
$2.2 million in 1997 over 1996. The
increase was primarily due to
higher average interest earning
assets which were up 7.3% in 1998
from 1997 and 9.2% in 1997 from
1996. The tax equivalent net
interest margin defined as tax
equivalent net interest income
divided by average interest earning
assets for 1998, 1997 and 1996
respectively was 4.14%, 4.23% and
4.35%.
Provision for loan losses
The provision for loan losses for
both 1998 and 1997 was
approximately $1.2 million and
$748,000 in 1996. The subsidiaries
realized net loan charge-offs of
$313,000 in 1998 with net charge
offs reported as $1.3 million and
$466,000 in 1997 and 1996
respectively. As of December 31,
1998, the allowance for loan losses
was $7.8 million or 1.41% of gross
loans and 292% of nonperforming
loans. These amounts and ratios
were $6.9 million, 1.29% and 188%,
respectively, at year end 1997.
Management's quarterly review of
the adequacy of the allowance for
loan losses and the amount of the
provision for 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.
<PAGE>
Non-interest income
Total other income for 1998 of $20.4
million was $6.4 million over 1997
which was substantially the same as
1996. Of the gain in 1998, $6.3
million was related to mortgage
banking activities which included
secondary mortgage fees, mortgage
servicing income and gain on sale of
loans. Loans sold during 1998 were
approximately $660 million. The
fluctuations in income of secondary
mortgage fees and gain on sale of
loans correspond to the changing
demands of customers as they take
advantage of refinancing during
periods of declining interest rates.
Trust fees of $4.2 million in 1998
were at record high levels
increasing $237,000 or 6.1% from
1997. Assets under management at
year end 1998 were at record levels
of over $600 million. Trust fees in
1997 of $3.9 million gained 5.6%
from 1996. Service charges on
deposit accounts of $3.1 million
remained relatively unchanged from
1997 which was $227,000 over 1996.
Non-interest expenses
Total other expenses were $39.0,
$33.2 and $33.1 million in 1998,
1997 and 1996 respectively. Total
other expenses as a percent of
average assets were 4.05% in 1998
compared to 3.69% in 1997 and 4.01%
in 1996. The productivity ratio,
defined as net interest income plus
total other income divided by total
other expenses, measures the
effectiveness of the Corporation to
generate interest and non-interest
income, while controlling costs
necessary to deliver quality
products and services to customers.
The productivity ratios of 144% and
145% in 1998 and 1997 respectively
showed improvement from 138% in
1996.
Salaries and employee benefits
during 1998 of $20.7 million were up
$2.7 million from 1997. Of this
increase, $1.8 million related to
salaries based on the volume of
mortgage banking activities.
Salaries and employee benefits
related to core banking operations
increased 6.6% from 1997.
Net occupancy for 1998 of $2.4
million increased $196,000 from 1997
which was $54,000 lower than 1996.
The increase from 1997 was partially
due to new locations and expansion
activities.
Furniture and equipment costs for
1998 are $4.0 million compared to
$3.3 million for both 1997 and 1996.
The expenses in 1998 include costs
to implement image processing and
upgrades to the mainframe and
personal computer network for year
2000 processing.
Amortization of intangibles was $2.2
million in 1998 up from $1.1 million
in 1997 and $1.5 million in 1996.
During 1998, a provision of $937,000
was recorded to adjust the valuation
of mortgage servicing rights to
their fair market value.
Income taxes
During 1998, the corporation
provided $5.0 million for federal
and state income taxes resulting in
an effective tax rate of 31.3%. The
effective tax rates in 1997 and 1996
were 29.5% and 30.3% respectively.
Page 4
Page 27 of 54
Management's Discussion - Continued
Financial Condition
At December 31, 1998, total assets
of slightly over $1 billion were
$65.9 million or 7.0% higher than
year end 1997. Gross loans of $556.5
million, excluding loans held for
sale, were up $21.9 million for a
total of 4.1% while deposits of
$826.3 million increased by $37.4
million or 4.7%.
Investments
Investment securities represented
28.5% of average interest earning
assets during 1998 down from 32.0%
during 1997. At December 31, 1998,
investment securities were up $27.9
million from year end 1997 to $292.4
million. The portfolio has shifted
toward investments in agency
securities which represented 62.2%
of the total at December 31, 1998
compared to 54.6% at year end 1997.
Loans
Throughout 1998, the Fox Valley area
continued to grow with strong
housing and business development
increasing the demand for
residential and commercial
mortgages. The loan portfolio
generally reflects the profile of
the communities in which the
Corporation operates. The
percentages of construction real
estate and installment loans to
gross loans of 8.3% and 10.3%
respectively in 1998 were relatively
unchanged from 1997. Commercial,
financial and agricultural loans
represented 25.7% of gross loans at
year end 1998, down from 27.4% in
1997. The percentage of real estate
mortgage loans to gross loans
increased to 55.7% at year end
1998, up from 53.7%. At December 31,
1998, real estate mortgage loans
were $309.9 million, an increase of
$22.7 million or 7.9%.
Sources of funds
The Corporation relies primarily on
customers' deposits, securities sold
under repurchase agreements and
other borrowings along with
stockholders' equity to fund its
earning assets. During 1998, the
mix of interest bearing deposits
shifted to NOW and money market
accounts from certificates of
deposits under $100,000. At December
31, 1998, NOW and money market
accounts represented 31.2% of total
deposits compared to 25.5% at year
end 1997. Certificates of deposits
less than $100,000 were 32.3% and
37.8% of total deposits for year end
1998 and 1997 respectively.
Securities sold under repurchase
agreements were $32.6 million at
December 31, 1998, an increase of
$9.7 million over 1997. A note
payable of $36.2 million year end
1998 relates to a line of credit
used by Maple Park Mortgage to fund
residential mortgages held for sale.
Capital and Dividends
The Corporation continues to
maintain a strong capital position
which supports its current needs and
provides a sound foundation for
future expansion. Total
stockholders' equity of $101.9
million increased $9.8 million from
1997 and represented
<PAGE>
10.0% of total assets at year end
1998. Book value per share increased
10.6% from year end 1997 to $33.41
at December 31, 1998.
Dividends paid during 1998 were
$0.95 per share, an increase of 6.7%
from $0.89 in 1997. The dividend
payout ratios were 24.9% and 28.3%
for 1998 and 1997 respectively. The
regular quarterly dividend per share
was increased 25% to $0.25 in the
third and fourth quarters of 1998.
Bank regulatory authorities
established risk-based capital
guidelines including minimum capital
requirements and are further
discussed in Note Q - Regulatory
Matters. At December 31, 1998, the
minimum total and tier 1 capital
ratios were 8.0% and 4.0%
respectively. The Corporation's
total and tier 1 capital ratios were
15.5% and 14.3% respectively at
year end 1998.
Liquidity
Liquidity is generally defined as
the Corporation's ability to meet
depositor withdrawal requests,
provide for acceptable credit needs
of customers and take advantage of
earnings enhancement opportunities.
The Corporation has provided for
liquidity needs by holding adequate
balances in money market assets and
maintaining various short-term
borrowing sources combined with
normal growth in core deposits and
maturities of loans and investments.
As of December 31, 1998, federal
funds sold and investment securities
maturing within 30 days were $65.5
million or 6.5% of total assets.
Additionally, unpledged investment
securities not maturing within 30
days were $190 million or 18.8% of
total assets.
The parent company's liquidity
provides funds for the payment of
dividends to stockholders and for
other corporate purposes. The cash
requirements of the parent company
have been met by dividends from its
subsidiaries. Management believes
that funds available from
subsidiaries, which are described
in Note P- Dividend Limitation, are
sufficient to meet future cash
needs.
Interest Rate Risk
Interest rate sensitive assets and
liabilities are those which have
yields or rates subject to change
within a future time period due to
maturity or changes in market rates.
The Corporation's exposure to
interest rate risk is managed
primarily through the Corporation's
strategy of selecting types and
terms of interest-earning assets and
interest-bearing liabilities which
generate favorable earnings while
limiting the potential negative
effects of changes in market rates.
The Corporation monitors rate
sensitive assets and liabilities by
positioning amounts into periods
based upon contractual terms,
historical experience or frequency
of repricing. An asset sensitive
position in a given period will
result in more assets than
liabilities being subject to
repricing; therefore, market rate
changes will be
Page 5
Page 28 of 54
reflected more quickly in asset
rates. If interest rates decline,
such a position will have an adverse
affect on net interest income.
Conversely, in a liability sensitive
position, where liabilities reprice
more quickly than assets in a given
period, a decline in market rates
will benefit net interest income.
Since rate sensitive assets and
liabilities do not respond in the
same manner to changing markets, 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. The Corporation can
manage its gap position by
shortening loan maturities, pricing
loans with variable rates,
purchasing short-term investment
securities or attracting longer term
certificates of deposits. The effect
on earnings and capital would be
considered when making decisions to
manage the gap position. The
following table(opposite page)sets forth the
scheduled maturity of the
Corporation's rate sensitive assets
and liabilities at December 31,
1998.
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
and environmental systems.
The Corporation has identified
areas of operations critical for the
delivery of its products and
services. The majority of the
programs and applications used in
the Corporation's operations are
purchased from outside vendors. The
vendors providing the software are
responsible for maintenance and
modifications of these systems to
enable uninterrupted usage after
December 31, 1999.
The Corporation's plan included
identifying potential problems by
performing an inventory of all
software applications and obtaining
certification of compliance from
third parties. This phase of the
plan was completed by December 31,
1998. The vendor of the
Corporation's core operating system
has provided certification of
compliance with the year 2000 issue
and testing of the core operating
system was completed during 1998.
Contingency plans and testing of
other affected applications are
expected to be completed by March
1999. The Corporation's plan also
includes reviewing any potential
risks associated with the loan and
investment portfolios due to the
year 2000 issue.
As noted above, the Corporation has
not yet completed all phases of its
plan to address year 2000 issues.
Since certification
<PAGE>
and testing of the core operating
system was completed during 1998,
management believes that core
business services can be delivered
without interruption after December
31, 1999. In the event that core
services cannot be delivered, the
Corporation could be subject to
litigation and the amount of
potential liability cannot be
reasonably estimated.
The Corporation believes that all
costs to address year 2000 issues
were incurred during 1998. These
costs were not considered to be
material. Therefore, unanticipated
future costs should not have a
materially adverse impact on the
Corporation's financial condition or
results of operations.
Effects of Inflation
Inflation can have a significant
effect on the operating results of
all industries. Management believes
that inflationary factors are not as
critical to the banking industry
relative to other industries.
Management closely monitors
operating expenses and adjusts the
pricing of services in view of
inflationary increases and market
competition. Inflation significantly
impacts interest rates but it is
difficult to access the timing and
magnitude of changes in response to
inflation indices. Inflation does
impact the value of longer term rate
sensitive assets and liabilities;
consequently, the Corporation limits
its holding of these types of assets
and liabilities.
New Accounting Pronouncements
As of January 1, 1998, the
Corporation adopted Statement of
Financial Accounting Standards
(SFAS) No. 130 "Reporting
Comprehensive Income." SFAS No. 130
establishes new rules for the
reporting and display of
comprehensive income and its
components; however, the adoption of
this Statement had 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
prior to adoption were reported
separately in stockholders' equity,
to be included in other
comprehensive income. Prior year
financial statements have been
reclassified to conform to the
requirements of SFAS No. 130.
During 1998, the Corporation adoped
SFAS No. 132, "Employers'
Disclosures about Pensions and
Other Post-retirement Benefits"
which is designed to improve and
standardize disclosures about
pension and other post-retirement
benefits. Adoption did not have a
material effect on the
Corporation's financial position or
results of operations.
In June 1998, the Financial
Accounting Standards Board issued
SFAS No. 133, "Accounting for
Derivative Instruments and Hedging
Activities", which is required to be
adopted in years beginning after
June 15, 1999. Because of the
Corporation's minimal use of
derivatives, management does not
anticipate that the adoption will
have a significant effect on
earnings or the financial position
of the Corporation.
Page 6
Page 29 of 54
Expected Maturity
<TABLE>
<CAPTION>
Within One Year Two Years Three Years Four Yrs. Over
to to to to Five
One Year Two Years Three Years Four Years Five Yrs. Years Total
<S> <C> <C> <C> <C> <C> <C> <C>
Interest earning
financial
assets:
Interest bearing
deposits with
banks 475 475
weighted average
interest rate 4.10% 4.10%
Federal funds
sold 49,475 49,475
weighted average
interest rate 4.70% 4.70%
Investment
securities 49,725 40,207 46,934 33,224 50,196 72,079 292,365
weighted average
interest rate 5.90% 5.85% 6.10% 5.72% 5.66% 5.85% 5.85%
Loans held
for sale 36,686 36,686
weighted
average
interest rate 6.90% 6.90%
Commercial loans
Fixed rate 42,721 11,171 22,568 8,151 8,910 1,989 95,510
weighted average
interest rate 8.52% 8.35% 7.37% 8.10% 7.54% 8.04% 8.04%
Variable rate 90,780 2,233 1,798 943 524 731 97,009
weighted
average
interest rate 8.57% 8.59% 8.11% 9.19% 8.08% 8.57% 8.57%
Real estate loans
Fixed rate 38,537 24,586 25,483 20,334 33,320 14,815 157,075
weighted average
interest rate 8.38% 8.34% 8.17% 8.15% 7.59% 8.14% 8.14%
Variable rate 26,439 17,285 23,825 18,330 21,132 2,774 109,785
weighted average
interest rate 8.27% 7.85% 7.66% 8.00% 7.21% 7.80% 7.80%
Installment loans
Fixed rate 26,487 21,517 10,531 8,933 4,043 2,203 73,714
weighted average
interest rate 8.88% 8.81% 8.65% 8.72% 8.78% 8.77% 8.77%
Variable rate 564 564
weighted average
interest rate 9.09% 9.09%
Other loans
Fixed rate 3,329 73 359 3,761
weighted average
interest rate 8.15% 17.98% 5.45% 5.45%
Variable rate 19,127 19,127
weighted average
interest rate 8.74% 8.74%
Interest bearing
financial liabilities:
Savings
deposits 172,783 187,538 360,321
weighted average
interest rate 3.21% 1.71% 2.43%
Certificates
of deposit 232,721 78,807 23,584 4,810 6,087 29 346,038
weighted average
interest rate 5.26% 6.14% 5.41% 5.95% 5.56% 5.51% 5.51%
Securities sold under
agreements to
repurchase & short -term
borrowings 37,107 37,107
weighted average
interest rate 3.37% 3.37%
Notes payable 36,189 36,189
weighted average
interest rate 5.88% 5.88%
Period gap (94,455) 38,265 107,555 85,105 112,038 (92,617) 155,891
Cumulative gap(94,455) (56,190) 51,365 136,470 248,508 155,891
</TABLE>
Page 7
Page 30 of 54
<PAGE>
Selected Consolidated Financial Data
In thousands, except share and per share data)
Old Second Bancorp, Inc. and Subsidiaries
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
______________________________________________________________
<S> <C> <C> <C> <C> <C>
Balance sheet
Items at year-end
Total
assets $1,014,292 $948,371 $889,844 $847,165 $786,502
Net loans 548,722 527,709 474,946 455,341 403,281
Total
deposits 826,331 788,929 789,969 737,991 696,903
Notes payable 36,189 24,133 1,017 11,407 5,230
Stockholders'
equity before
accumulated
othercomprehensive
income 99,103 90,768 83,896 78,096 71,489
Total stockholders'
equity 101,926 92,121 84,200 79,615 65,679
Results of operations
Net interest
income $35,910 $34,127 $31,899 $30,917 $29,829
Provision for
loan losses 1,213 1,256 748 3,399 1,782
Net income 11,049 9,594 8,337 8,756 6,445
Per share data
Net income -
basic $3.62 $3.15 $2.73 $2.87 $2.11
Net income -
diluted 3.61 3.14 2.73 2.87 2.11
Dividends
declared .90 .89 .83 .70 .63
Stockholders'
equity before
accumulated other
comprehensive
income 32.48 29.77 27.51 25.61 23.44
Total stockholders'
equity 33.41 30.21 27.61 26.11 21.54
Weighted
average shares
outstanding 3,049,755 3,049,190 3,049,292 3,049,412 3,049,412
Shares
outstanding
at year-end 3,051,181 3,049,190 3,049,190 3,049,412 3,049,412
</TABLE>
Note: The Selected Consolidated Financial Data for prior years has been
restated to reflect the acquisition of Maple Park Bancshares, Inc. on
May 13, 1997 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.
Page 9
Page 31 of 54
<PAGE>
Consolidated Balance Sheets
(In thousands, except share data)
Old Second Bancorp, Inc. and Subsidiaries
<TABLE>
<CAPTION> December 31,
Assets 1998 1997
______________________________
<S> <C> <C>
Cash and due from banks $42,202 $40,625
Interest bearing deposits with banks 475 350
Federal funds sold 49,475 46,050
______________________________
Total cash and cash equivalents 92,152 87,025
Available-for-sale
investment securities 292,365 264,467
Loans held for sale 36,686 26,927
Loans 556,772 534,980
Less: Allowance for loan losses 7,823 6,923
Unearned income 227 348
______________________________
Loans, net 548,722 527,709
Premises & equipment, net 20,950 20,805
Other assets 23,417 21,438
______________________________
Total assets $1,014,292 $948,371
==============================
Liabilities
Deposits
Demand $119,972 $114,764
Savings 360,321 304,657
Time 346,038 369,508
______________________________
Total deposits 826,331 788,929
Securities sold under agreements
to repurchase 32,590 22,926
Other short - term borrowings 4,517 8,097
Notes payable 36,189 24,133
Other liabilities 12,739 12,165
______________________________
Total liabilities 912,366 856,250
Stockholders equity
Preferred stock, no par value: 300,000 shares
authorized, none issued
Common stock, no par value: shares authorized,
6,000,000 issued & outstanding 1998-3,051,181;
1997-3,049,190 15,875 15,844
Retained earnings 83,228 74,924
______________________________
Stockholders' equity before accumulated other
comprehensive income 99,103 90,768
Accumulated other comprehensive income 2,823 1,353
______________________________
Total stockholders' equity 101,926 92,121
______________________________
Total liabilities &
stockholders' equity $1,014,292 $948,371
==============================
</TABLE>
See accompanying notes.
Page 10
Page 32 of 54
<PAGE>
Consolidated Statements of Income
(In thousands, except share and per share data)
Old Second Bancorp, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years ended December 31,
__________________________________
1998 1997 1996
__________________________________
<S> <C> <C> <C>
Interest income
Loans $49,519 $46,422 $40,959
Investment securities:
Taxable 12,231 13,025 12,723
Exempt from federal income taxes 2,991 3,302 3,755
Federal funds sold 3,372 2,407 2,227
Interest bearing deposits with banks 26 22 22
__________________________________
Total interest income 68,139 65,178 59,686
__________________________________
Interest Expense
Savings deposits 9,076 7,920 7,735
Time deposits 20,287 21,672 19,512
Other borrowings 2,866 1,459 540
__________________________________
Total interest expense 32,229 31,051 27,787
__________________________________
Net interest income 35,910 34,127 31,899
Provision for loan losses 1,213 1,256 748
__________________________________
Net interest income after provision for
loan losses 34,697 32,871 31,151
__________________________________
Other income
Trust fees 4,154 3,917 3,710
Service charges on deposit accounts 3,139 3,134 2,907
Secondary mortgage fees 1,557 926 915
Mortgage servicing income 1,045 484 1,161
Gain on sale of loans 9,119 4,035 3,609
Other 1,363 1,463 1,658
__________________________________
Total other income 20,377 13,959 13,960
__________________________________
Other expenses
Salaries and employee benefits 20,657 17,953 17,493
Net occupancy of premises 2,358 2,162 2,216
Furniture and equipment 3,970 3,275 3,299
FDIC insurance 113 179 151
Marketing 1,081 1,126 1,119
Stationery and supplies 930 941 1,022
Amortization of intangibles 2,167 1,128 1,466
Other 7,713 6,454 6,375
__________________________________
Total other expenses 38,989 33,218 33,141
__________________________________
Income before income taxes 16,085 13,612 11,970
Income tax expense 5,036 4,018 3,633
__________________________________
Net income $11,049 $9,594 $8,337
==================================
Net income per share - basic $3.62 $3.15 $2.73
Net income per share - diluted 3.61 3.14 2.73
Weighted average shares outstanding 3,049,755 3,049,190 3,049,292
</TABLE>
See accompanying notes
Page 11
Page 33 of 54
PAGE>
Consolidated Statements of Cash Flows (In thousands)
Old Second Bancorp, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years ended December 31,
__________________________________
1998 1997 1996
__________________________________
<S> <C> <C> <C>
Cash flows from operating activities:
Interest received $69,436 $64,620 $60,106
Interest paid (32,626) (31,194) (27,548)
Paid to suppliers and employees (34,000) (26,665) (26,654)
Trust fees received 4,154 3,917 3,710
Income taxes paid (5,478) (3,695) (4,176)
Service charges received on
deposit accounts 3,139 3,134 2,907
Mortgage loan originations
and purchases (660,933) (279,450) (346,212)
Mortgage loans sold to secondary market 660,293 262,695 366,325
Other income received 3,965 2,873 3,734
__________________________________
Net cash (used in) provided by operating
activities 7,950 (3,765) 32,192
__________________________________
Cash flows from investing activities:
Net increase in loans (22,226) (54,019) (42,994)
Purchases of available-for-sale
securities (133,290) (57,078) (90,193)
Proceeds from sales & maturities
of available-for-sale securities 107,159 80,809 64,972
Net cash & cash equivalents
disbursed for acquisitions (3,505)
Net proceeds on purchases of mortgage
servicing rights (4,839) (530) (706)
Capital expenditures (2,347) (3,271) (1,967)
Other, net 62 (351) 168
__________________________________
Net cash used in investing activities (55,481) (34,440) (74,225)
__________________________________
Cash flows from financing activities:
Net increase (decrease) in deposits 37,402 (1,040) 51,978
Net increase (decrease) in other
short-term borrowings 6,084 24,784 (2,900)
Net proceeds (payments) of notes payable 12,056 23,116 (10,390)
Dividends paid (2,897) (2,689) (2,478)
Stock options exercised 31
Other, net (18) 52 (91)
__________________________________
Net cash provided by
financing activities 52,658 44,223 36,119
__________________________________
Net increase (decrease) in cash
and cash equivalents 5,127 6,018 (5,914)
Cash and cash equivalents at
beginning of year 87,025 81,007 86,921
__________________________________
Cash and cash equivalents at
end of year $92,152 $87,025 $81,007
==================================
Reconciliation of net income to
net cash provided by
operating activities:
Net income $11,049 $9,594 $8,337
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation 2,202 1,876 1,711
Provision for possible loan losses 1,213 1,256 748
Increase (decrease) in current
taxes payable 255 606 (177)
Deferred taxes, net (697) (282) (365)
Net (increase) decrease in
mortgages held for sale (9,759) (20,790) 16,504
(Increase) decrease in
interest receivable 673 (1,145) 168
Increase (decrease) in interest payable (396) (143) 237
Premium amortization & discount
accretion on investment, net 624 587 252
Amortization of intangible assets 2,167 1,128 1,466
Increase (decrease) in accrued expenses 787 3,476 (187)
(Increase) decrease in prepaid expenses (168) 73 3,498
Securities gains (1)
__________________________________
Total adjustments (3,099) (13,359) 23,855
__________________________________
Net cash (used in) provided by
operating activities $7,950 $(3,765) $32,192
==================================
</TABLE>
See accompanying notes Page 12
Page 34 of 54
<PAGE>
Consolidated Statements of Changes in Stockholders' Equity
(In thousands except per share data)
Old Second Bancorp, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Accumulated
Other Other
Compreh. Retained Compreh. Common
Income Earnings Income Stock Total
____________________________________________________________
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $62,252 $1,519 $15,844 $79,615
Net income for 1996 $8,337 8,337 8,337
Change in net unrealized gain
during 1996 (1,215) (1,215) (1,215)
--------
Comprehensive income $7,122
========
Dividends declared
($.83 per share) (2,537) (2,537)
_____________________________________________________________
Balance at December 31,1996 $68,052 $304 $15,844 $84,200
Net income for 1997 $9,594 9,594 9,594
Change in net unrealized
gain during 1997 1,049 1,049 1,049
---------
Comprehensive income $10,643
=========
Dividends declared
($.89 per share) (2,722) (2,722)
_____________________________________________________________
Balance at December 31,1997 $74,924 $1,353 $15,844 $92,121
Net income for 1998 $11,049 11,049 11,049
Change in net unrealized gain
during 1998 1,470 1,470 1,470
---------
Comprehensive income $12,519
=========
Dividends declared
($.90 per share) (2,745) (2,745)
Stock options exercised 31 31
_____________________________________________________________
Balance at December 31,1998 $83,228 $2,823 $15,875 $101,926
===============================================
</TABLE>
See accompanying notes.
The change in net unrealized gain reported above is net of taxes of $932,000,
$665,000 and $770,000 for 1998, 1997 and 1996 respectively.
Page 13
Page 35 of 54
<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 1997 and
1996 amounts have been reclassified to conform to the 1998
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 and Maple Park Mortgage Company. 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.
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 included in accumulated other
comprehensive income which is 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 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 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 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 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 14
Page 36 of 54
<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 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.
Earnings per share
Basic earnings per common share (EPS) is computed by dividing net
income by the weighted average number of common
shares outstanding for the period. The basic EPS calculation
excludes the dilutive effect of all common stock
equivalents. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to
issue common stock were exercised or converted into common stock.
The Corporation's potential common shares
represent shares issuable under its stock option plan. Such
common stock equivalents are computed based on the
treasury stock method using the average market price for the
period.
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
The Corporation recognizes as separate assets the rights to
service mortgage loans for others. For purposes of
measuring impairment, the Company stratifies the pools of assets
underlying the servicing assets by product type
and interest rate. Fair value is estimated by discounting
estimated future cash flows from the servicing assets
using discount rates that approximate current market rates and
using current expected future prepayment rates. 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.
Segments reporting
Effective January 1, 1998, the Corporation adopted the Financial
Accounting Standards Board's (SFAS) No. 131,
"Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 superseded FASB Statement No.
14, "Financial Reporting for Segments of a Business Enterprise."
SFAS No. 131 establishes standards for the way
that public business enterprises report information about
operating segments in annual financial statements and
requires that those enterprises report selected information
about operating segments in interim financial
reports. SFAS No. 131 also establishes standards for related
disclosures about products and services, geographic
areas, and major customers. The adoption of SFAS No. 131 did not
affect results of operations or financial
position. The Corporation has determined that it has one
reportable segment - commercial banking. As such,
additional segment information is not required to be disclosed.
The Corporation offers the following products and
services to external customers: deposits, loans, and trust
services. Revenues for each of these products and
services are disclosed in the Consolidated Statements of Income.
Note B - Acquisition
On May 13, 1997 the Corporation issuued 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>
<CAPTION>
For the period ended
May 12, 1997
Old Second Maple
Bancorp,Inc. Park Combined
___________________________________________
<S> <C> <C> <C>
Net interest income $10,910 $636 $11,546
Net income (loss) 4,244 (418) 3,826
</TABLE>
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 is
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 1998, average reserve balances with the
Federal Reserve Bank were $7,041,000 and $951,000 for
Old Second and Yorkville,respectively.
Page 15
Page 37 of 54
<PAGE>
Note D - Investment securities
The amortized cost and estimated market values of investment securities
at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
______________________________________________
<S> <C> <C> <C> <C>
U.S. Treasury $9,552 $190 $9,742
U.S. Government agencies 179,844 2,341 $270 181,915
State & political
subdivisions 64,671 2,400 27 67,044
Mortgage - backed
obligations 31,233 135 156 31,212
Other 2,452 2,452
_______________________________________________
$287,752 $5,066 $453 $292,365
===============================================
</TABLE>
The amortized cost and estimated market values of investment
securities at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
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 contractual maturities of investment securities at amortized
cost and estimated market value at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Within one One to Five to Over
Year Five Years Ten Years Ten Years Total
_______________________________________________________________
<S> <C> <C> <C> <C> <C>
AMORTIZED COST
U.S. Treasury $3,010 $6,542 $9,552
U.S.Government
agencies 36,573 124,954 $15,004 $3,313 179,844
State & political
subdivisions 7,038 28,036 20,064 9,533 64,671
Other 2 2,450 2,452
__________________________________________________________
$46,621 $159,534 $35,068 $15,296
Mortgage - backed
obligations 31,233
________
$287,752
========
Within one One to Five to Over
Year Five Years Ten Years Ten Years Total
_________________________________________________________
MARKET VALUE
U.S. Treasury $3,031 $6,711 $9,742
U.S. Government
agencies 36,741 126,656 $15,165 $3,353 181,915
State & political
subdivisions 7,137 29,032 20,985 9,890 67,044
Other 2 2,450 2,452
___________________________________________________
$46,909 $162,401 $36,150 $15,693
===================================================
Mortgage - backed
obligations 31,212
_________
$292,365
=========
</TABLE>
At December 31, 1998 and 1997, securities with an approximate
aggregate amortized cost of $88.1 million and $82.2 million respectively,
were pledged as collateral for public and trust deposits and
for other purposes as required or permitted by law.
Page 16
Page 38 of 54
<PAGE>
Note E - Loans
The composition of loans outstanding by lending classifications is as follows:
<TABLE>
<CAPTION>
December 31,
_______________________
1998 1997
_______________________
<S> <C> <C>
Commercial, financial &
agricultural $143,047 $146,591
Real estate - construction 46,361 43,095
Real estate - mortgage 309,893 287,167
Installment 57,471 58,127
_______________________
$556,772 $534,980
=======================
</TABLE>
In the normal course of business, the subsidiary banks extend credit to
executive officers and directors, associates of such persons and entities in
which these persons have significant interests. The following is an analysis
of these loans which aggregated at least $60,000 per related party:
<TABLE>
<CAPTION>
Years ended December 31,
_______________________
1998 1997
_______________________
<S> <C> <C>
Balance, beginning
of the year $17,343 $16,125
New loans 41,833 49,868
Repayments (40,480) (49,430)
Other changes (699) 780
______________________
Balance, end of year $17,997 $17,343
======================
</TABLE>
The subsidiary banks made 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 dependant upon a single economic sector.
Note F - Allowance for loan losses
A summary of the activity in the allowance is as follows:
<TABLE>
<CAPTION>
Years ended December 31,
__________________________
1998 1997 1996
<S> <C> <C> <C>
Balance, beginning of year $6,923 $6,968 $6,686
Recoveries 239 341 435
Provisions for loan losses 1,213 1,256 748
Charge - offs (552) (1,642) (901)
__________________________
Balance, end of year $7,823 $6,923 $6,968
==========================
</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>
<CAPTION>
December 31, 1998
____________________________________
Accumulated Net
Depreciation& Book
Cost Amortization Value
____________________________________
<S> <C> <C> <C>
Land $4,899 $4,899
Buildings and
improvements 21,605 $9,134 12,471
Furniture and
equipment 14,588 11,008 3,580
___________________________________
$41,092 $20,142 $20,950
===================================
</TABLE>
Page 17
Page 39 of 54
<PAGE>
Note G - Premises and equipment (continued)
<TABLE>
<CAPTION>
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 H - Mortgage servicing rights
The changes in the Corporation's servicing assets are as follows:
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997
<S> <C> <C>
Balance, beginning of year $2,543 $2,403
Additions 4,839 530
Less: amortization (433) (390)
------------------------
Balance, end of year $6,949 $2,543
========================
</TABLE>
The changes in the Corporation's valuation allowance for
servicing asset are as follows:
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Balance, beginning of year $252 $252 $171
Provisions for impairment 937 81
------------------------------
Balance, end of year $1,189 $252 $252
==============================
</TABLE>
Note I - Interest Bearing Deposits
A summary of interest-bearing deposit balances is as follows:
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
Savings $102,428 $103,205
NOW and money market 257,893 201,452
Certificates of deposit
less than $100,000 267,158 298,575
Certificates of deposit
over $100,000 78,880 70,933
------------------------
$706,359 $674,165
========================
</TABLE>
Certificates of deposit at December 31, 1998 with remaining terms
exceeding one year are scheduled to mature as follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $78,807
2001 23,584
2002 4,810
2003 6,087
Thereafter 29
-------
$113,317
</TABLE>
Note J - Notes payable
At December 31, 1998 and 1997 respectively, $36.2 million and
$24.1 million were outstanding for a line of credit extended to Maple Park
Mortgage for the funding of loans held for sale. There is $50 million
available through this line of credit which is due on March 26, 1999.
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 the Corporation.
Page 18
Page 40 of 54
<PAGE>
Note K - Income taxes
A summary of the provision for income taxes is as follows:
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Currently payable,
principally federal $5,733 $4,300 $3,998
Deferred (697) (282) (365)
-----------------------------------
$5,036 $4,018 $3,633
</TABLE>
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 assets.
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
Temporary Tax Temporary Tax
Difference Effect Difference Effec
<S> <C> <C> <C> <C>
Loan loss
allowance $7,060 $2,400 $6,426 $2,185
Pension 847 288 649 221
Other assets 1,184 403 2,186 743
--------------------------------------------
Total deferred assets 9,091 3,091 9,261 3,149
Accumulated depreciation (1,903) (647) (2,602) (884)
Accretion on investment securities (545) (185) (933) (317)
Other liabilities (2) (1,135) (386)
----------------------------------------------
Total deferred liabilities (2,450) (832) (4,670) (1,587)
----------------------------------------------
6,641 2,259 4,591 1,562
Tax effect of net
unrealized gain on investments (4,613) (1,790) (2,212) (859)
---------------------------------------------
Net deferred tax asset $2,028 $469 $2,379 $703
=============================================
</TABLE>
The principal items affecting the deferred income tax
component of the provision for income taxes are
as follows:
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Loan losses provision ($215) ($60) ($263)
Accelerated depreciation (237) 11 (6)
Pension expense (67) (9) (35)
Net of premiums and
discounts on investment securities (132) (244) (69)
Other, net (46) 20 8
----------------------------------
($697) ($282) ($365)
===================================
</TABLE>
A reconciliation of the expected provision for income taxes at
the statutory Federal income tax rate of 34% and the actual tax provision is
as follows:
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997 1996
Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Expected total provision at
statutory rate $5,469 34.0% $4,628 34.0% $4,070 34.0%
Decrease resulting from tax
exempt income (1,019) (6.3) (1,104) (8.1) (1,226) 10.2%
Increase resulting from
goodwill amortization 150 .9 150 1.1 215 1.8%
State taxes 421 2.6 183 1.3 376 3.1
Other, net 15 .1 161 1.2 198 1.6
---------------------------------------------------------
$5,036 31.3% $4,018 29.5% $3,633 30.3%
=========================================================
</TABLE>
Page 19
Page 41 of 54
<PAGE>
Note L - Retirement plans
The Corporation has a noncontributory 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. 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 consolidated plans' status and
amounts recognized in the
Corporation's Consolidated Balance Sheets:
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997
<S> <C> <C>
Change in projected benefit
obligation during the fiscal year
Projected benefit obligation, beginning
of year $7,753 $6,734
Service cost 510 428
Interest cost 511 481
Actuarial loss 443 429
Benefits paid (1,317) (319)
----------------------------
Projected benefit obligation, end of year $7,900 $7,753
============================
Change in plan assets during the fiscal year
Plan assets at fair value, beginning of year $7,648 $6,770
Actual return on plan assets 866 1,077
Company contributions 562 120
Benefits paid (1,317) (319)
----------------------------
Plan assets at fair value, end of year $7,759 $7,648
=============================
Reconciliation of prepaid (accrued)
and total amount recognized
Funded status of the plan $(140) $(105)
Unrecognized net gain (514) (653)
Unrecognized prior service cost 239 252
Unrecognized net transition asset (430) (516)
-----------------------------
Accrued pension cost $(845) $(1,022)
=============================
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Total cost for fiscal year
Service cost $510 $428 $399
Interest cost 511 481 444
Expected return on plan assets (573) (516) (510)
Amortization of:
Unrecognized net gain 2
Unrecognized prior service cost 23 22 16
Unrecognized net asset (86) (86) (86)
-----------------------------------
Net periodic pension cost $385 $329 $265
===================================
</TABLE>
Amounts applicable to the Corporation's supplemental retirement
plan are as follows:
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
Projected benefit obligation $263 $247
Accumulated benefit obligation 237 222
</TABLE>
The weighted-average discount rate used in determining the
actuarial present value of the projected
benefit obligations was 6.50% at December 31, 1998, 6.75% at
December 31, 1997 and 7.00% at December
31, 1996. The expected long-term rate of return on assets was
8.00% and 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 $737,000
in 1998 and $644,000 in both 1997
and 1996.
Page 20
Page 42 of 54
<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>
<CAPTION>
Years ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Numerator for basic & diluted
earnings per share-netincome $11,049 $9,594 $8,337
------------------------------------
Denominator for basic earnings
per share-
weighted average shares
outstanding 3,049,755 3,049,190 3,049,292
Effect of dilutive securities
- employee stock options 7,233 4,339 3,527
-------------------------------------
Denominator for diluted earnings
per share - adjusted weighted
average shares outstanding 3,056,988 3,053,529 3,052,819
========================================
Earnings per share - basic $3.62 $3.15 $2.73
Earnings per share - diluted 3.61 3.14 2.73
</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.
The exercise price of stock options granted is
equal to the market price of the underlying stock on the grant
date. No stock appreciation rights have been
granted to date. A summary of the Corporation's stock option
activity and related information is as follows:
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997 1996
Weighted Weighted Weighted
average average average
Shares share price Shares share price Shares share price
<S> <C> <C> <C> <C> <C> <C>
Beginning of period 41,900 $44.543 27,850 $36.493 17,750 $34.000
Granted 11,500 52.000 14,050 60.500 10,100 40.875
Exercised (4,116) 34.334
----------------------------------------------------------
End of period 49,284 47.136 41,900 44.543 27,850 36.493
==========================================================
Options exercisable 25,050 $40.747 15,201 $35.523 5,916 $34.000
</TABLE>
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, 1998 are approximately $8.1 million.
Firm commitments by the Corporation's
subsidiaries to fund loans in the future are approximately $257
million as of December 31, 1998. At year end, the
Corporation had commitments to sell loans of $33 million. 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, 1998,
$14.2 million 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.
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 the tier 1 capital to average assets (as defined in
the regulations). Risk-weighted assets are
determined by weighting 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 loan losses. Management
believes, as of December 31, 1998, the Corporation's subsidiaries
meet all capital adequacy requirements to which
they are subject.
Page 21
Page 43 of 54
<PAGE>
Note Q - Regulatory matters (continued)
The total and Tier 1 capital amounts and ratios on a consolidated
basis and for Old Second, a
significant subsidiary of the Corporation, are set forth in the
table below. Included are the minimum
ratios as defined by regulatory agencies to maintain minimum
Capital Adequacy and to be Well
Capitalized Under Prompt Corrective Action Provisions and the
actual amounts on a consolidated basis
and for Old Second that satisfy such minimums.
<TABLE>
<CAPTION> To Be Well
Capitalized Under
Actual For Capital Prompt Corrective
Adequacy Purposes: Action Provisions:
CONSOLIDATED: Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of December 31,1998
Total capital to risk
weighted assets $100,639 15.5% $52,098 8.0% $65,122 10.0%
Tier 1 capital to risk
weighted assets 92,815 14.3 26,049 4.0 39,073 6.0
Tier 1 capital to average
assets 92,815 9.2 40,572 4.0 50,715 5.0
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
OLD SECOND:
As of December 31,1998
Total capital to risk
weighted assets 50,137 13.4 29,848 8.0 37,310 10.0
Tier 1 capital to risk
weighted assets 45,709 12.2 14,924 4.0 22,386 6.0
Tier 1 capital to average
assets 45,709 8.2 22,368 4.0 27,960 5.0
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
</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.
Loans
Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are
segregated by type, such as commercial, commercial real estate,
residential mortgage, credit card,
and other consumer. Each loan category is further segmented into
fixed and adjustable rate interest
terms. Cash flows are discounted using current rates at which
similar loans would be made to
borrowers with similar credit ratings and for the same remaining
maturities.
Deposit liabilities
The fair value of demand deposits, savings accounts, and certain
money market deposits is the amount
payable on demand at the reporting date. The fair value of
fixed-maturity certificates of deposit is
estimated by discounting future cash flows at rates currently
offered for deposits of similar
remaining maturities.
Notes payable
Rates currently available to the Corporation for debt with
similar terms and remaining maturities are
used to estimate fair value of existing debt.
Page 22
Page 44 of 54
<PAGE>
Note R - Fair value of financial instruments (continued)
Commitments to extend credit and standby letters of credit
The fair value of commitments is estimated using the fees
currently charged to enter into similar
agreements, taking into account the remaining terms of the
agreements and the present
creditworthiness of the counterparts. For fixed-rate loan
commitments, fair value also considers the
difference between current levels of interest rates and the
committed rates. The fair value of
letters of credit is based on fees currently charged for similar
agreements or on the estimated cost
to terminate them or otherwise settle the obligations with the
counterparties at the reporting date.
The carrying amount and estimated fair value of the Corporation's
financial instruments are as
follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Financial Assets:
Cash & cash equivalents $92,152 $92,152 $87,025 $87,025
Available-for-sale securities 292,365 292,365 264,467 264,467
Loans held for sale 36,686 36,686 26,927 26,927
Loans, net 548,722 557,755 527,709 533,103
--------------------------------------------
Total financial assets $969,925 $978,958 $906,128 $911,522
============================================
Financial liabilities:
Deposits $826,331 $834,104 $788,929 $798,152
Securities sold under agreements to
repurchase 32,590 32,590 22,926 22,926
Other short-term borrowings 4,517 4,517 8,097 8,097
Note payable 36,189 36,189 24,133 24,133
--------------------------------------------
Total financial liabilities $899,627 $907,400 $844,085 $853,308
============================================
Unrecognized financial instruments:
Commitments to extend credit $26 $18
Standby letters of credit (81) (113)
----------------------------
Total unrecognized financial
instruments $(55) $(95)
============================
</TABLE>
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>
<CAPTION>
1998 Quarter 1997 Quarter
4th 3rd 2nd 1st 4th 3rd 2nd 1st
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $17,179 $17,329 $16,981 $16,650 $17,333 $16,764 $15,598 $15,483
Interest expense 8,000 8,163 7,956 8,110 8,285 8,174 7,394 7,198
Net interest income 9,179 9,166 9,025 8,540 9,048 8,590 8,204 8,285
Provision for possible
loan losses 206 307 346 354 355 356 350 195
Income before
income taxes 4,195 4,172 4,020 3,698 4,417 3,604 2,320 3,271
Net income 2,983 2,802 2,730 2,534 3,325 2,500 1,495 2,274
Net income per
share - basic .98 .91 .90 .83 1.09 .82 .49 .75
Net income per share
- - diluted .98 .91 .89 .83 1.08 .82 .49 .75
</TABLE>
Page 23
Page 45 of 54
<PAGE>
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>
<CAPTION>
Condensed balance sheets
December 31,
1998 1997
<S> <C> <C>
Assets
Cash on deposit with bank
subsidiaries $2,365 $1,198
Investment in wholly-owned
subsidiaries 95,585 89,799
Available-for-sale securities 590 2,087
Other assets 4,795 116
-----------------------
Total assets $103,335 $93,200
=======================
Liabilities & stockholders' equity
Other liabilities $1,409 $1,079
Stockholders' equity 101,926 92,121
-----------------------
Total liability &
stockholders' equity $103,335 $93,200
=======================
</TABLE>
<TABLE>
<CAPTION>
Condensed statements of income
Years ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Income
Dividend income from subsidiaries $4,744 $3,915 $4,015
Interest income 149 161 122
-----------------------------------
Total income 4,893 4,076 4,137
Expenses
Other expenses 1,007 952 903
----------------------------------
Total expenses 1,007 952 903
Income before income taxes & equity
in undistributed net income
of subsidiaries 3,886 3,124 3,234
Income tax benefit (185) (192) (83
) ---------------------------------
Income before equity in
undistributed net income of
subsidiaries 4,071 3,316 3,317
Equity in undistributed net
income of subsidiaries 6,978 6,278 5,020
------------------------------------
Net income $11,049 $9,594 $8,337
=====================================
</TABLE>
Page 24
Page 46 of 54
<PAGE>
Note T - Condensed financial information of the corporation only (continued)
<TABLE>
<CAPTION>
Condensed statements of cash flows
Years ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Dividend received from subsidiaries $4,744 $3,915 $4,015
Interest received 121 187 130
Income tax payments
received from subsidiaries 6,009 4,286 4,445
Income taxes paid (5,478) (4,198) (4,430)
Paid to suppliers (363) (507) (257)
-----------------------------
Net cash provided by operating
activities 5,033 3,683 3,903
------------------------------
Cash flows from investing activities:
Purchase of available-for-sale
securities (500) (2,029)
Proceeds from sales & maturities of
available-for-sale securities 1,500 1,200 1,050
Investment in subsidiary (2,500) (2,574)
Other, net 36
-------------------------------
Net cash used in investment
activities (1,000) (1,874) (943)
--------------------------------
Cash flows from financing
activities:
Dividends paid (2,897) (2,689) (2,478)
Stock options exercised 31
-------------------------------
Net cash used in financing activities (2,866) (2,689) (2,478)
-------------------------------
Net increase (decrease) in cash & cash
equivalents 1,167 (880) 482
Cash & cash equivalents at
beginning of year 1,198 2,078 1,596
--------------------------------
Cash & cash equivalents at
end of year $2,365 $1,198 $2,078
=================================
Reconciliation of net
income to net cash provided
by operating activities:
Net income $11,049 $9,594 $8,337
Adjustments to reconcile net
income to net cash provided
by operating activities:
Equity in undistributed net
income ofsubsidiaries (6,978) (6,278) (5,020)
Goodwill amortization 441 441 633
Increase (decrease) in taxes payable 344 (69) (68)
(Increase) decrease in interest
receivable (11) 16 (11)
Other, net 188 (21) 32
----------------------------------
Total adjustments (6,016) (5,911) (4,434)
----------------------------------
Net cash provided by operating
activities $5,033 $3,683 $3,903
====================================
</TABLE>
Page 25
Page 47 of 54
<PAGE>
Report of Independent Accountants
Ernst & Young LLP
Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606-6301
Phone: 312 879 2000
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, 1998
and 1997, and the related consolidated statements of income,
changes in stockholders' equity, and cash flows
for the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Old Second Bancorp, Inc.
and Subsidiaries as of December 31, 1998, and the consolidated
results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
January 22, 1999
Ernst & Young LLP is a member of Ernst & Young
International, Ltd
Page 26
Page 48 of 54
<PAGE>
Corporate Information
Old Second Bancorp, Inc. and Subsidiaries
10K report
Copies of the Corporation's 1998 10K report filed with the
Securities and Exchange Commission will be mailed to stockholders
upon written request to: Jean Pooley, Chief Financial Officer,
Old Second Bancorp, Inc., 37 South River Street, Aurora,
Illinois 60506-4172.
There were 1,288 holders of record of the Corporation's Common
Stock at year-end 1998.
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 trade prices during
each quarter for 1998 and 1997 as quoted by NASDAQ.
<TABLE>
<CAPTION>
1998 1997
High Low High Low
<S> <C> <C> <C> <C>
First Quarter $63.75 $58.00 $49.00 $40.75
Second Quarter 66.25 61.00 48.38 46.75
Third Quarter 61.25 45.00 52.75 46.75
Fourth Quarter 55.19 43.38 64.38 52.75
</TABLE>
Page 27
Page 49 of 54
<PAGE>
<TABLE>
<CAPTION>
Consolidating and Consolidated Balance Sheet
(In thousands)
Old Second Bancorp, Inc. and Subsidiaries
At December 31, 1998
The Old The Old The Old
Second Second Second
National Community Community Yorkville
Bank of Bank of Bank of National Burlington
Aurora North Aurora Aurora Bank Bank
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Cash and due from banks, non-interest
bearing $25,120 $1,797 $3,657 $5,747 $745
Interest bearing deposits
with banks 475
Federal funds sold 32,000 675 3,750 3,425 3,700
---------------------------------------------------------
Total cash and cash equivalents 57,595 2,472 7,407 9,172 4,445
Investment securities 163,500 29,235 19,126 39,094 10,791
Loans held for sale
Loans 326,866 25,364 20,387 92,015 24,096
Less: Allowance for possible loan
loss 4,429 368 351 1,191 346
Unearned income 227
--------------------------------------------------------
Loans, net 322,210 24,996 20,036 90,824 23,750
Bank premises and equipment, net 12,370 1,383 535 1,877 412
Other assets 5,044 562 321 4,400 1,125
Investment in subsidiaries
---------------------------------------------------------
Total assets $560,719 $58,648 $47,425 $145,367 $40,523
=========================================================
Liabilities
Deposits
Demand $78,849 $6,369 $8,321 $14,600 $2,704
Savings 183,549 27,896 20,769 58,216 16,827
Time 209,041 19,239 12,812 55,947 15,837
---------------------------------------------------------
Total deposits 471,439 53,504 41,902 128,763 35,368
Sec. sold under agreements to
repurchase 29,709 352 2,529
Other short-term borrowings 3,019 357
Notes payable
Other liabilities 9,465 305 147 820 326
---------------------------------------------------------
Total liabilities 513,632 53,809 42,401 132,469 35,694
Stockholders' equity
Common stock 3,275 250 480 525 250
Additional capital 4,125 1,598 1,420 2,025 3,532
Retained earnings 38,309 2,680 2,935 9,868 916
Net unrealized gain on investments 1,378 311 189 480 131
---------------------------------------------------------
Total Stockholders' equity 47,087 4,839 5,024 12,898 4,829
---------------------------------------------------------
Total Liabilities and
stockholders' equity $560,719 $58,648 $47,425 $145,367 $40,523
=========================================================
</TABLE
Page 28
Page 50 of 54
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
(In thousands)
Old Second Bancorp, Inc. and Subsidiaries
At December 31, 1998
Kane
County Bank of Maple Old Old Second
Bank & Sugar Park Second Consolidating Bancorp,Inc.
Trust Grove Mortgage Bancorp, Adjustments Consolidated
Inc.
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Cash and due from banks,
non-interest bearing $3,705 $1,723 $450 $2,365 $ (3,107) $42,202
Interest bearing deposits with banks 475
Federal funds sold 5,925 49,475
-------------------------------------------------------------------
Total cash and cash equivalents 9,630 1,723 450 2,365 (3,107) 92,152
Investment securities 21,484 8,545 590 292,365
Loans held for sale 36,686 36,686
Loans 37,017 30,236 791 556,772
Less: Allowance for possible loan loss 703 435 7,823
Unearned income 227
-------------------------------------------------------------------
Loans, net 36,314 29,801 791 548,722
Bank premises and equipment, net 2,606 1,096 495 176 20,950
Other assets 3,853 952 7,066 4,795 (4,701) 23,417
Investment in subsidiaries 95,585 (95,585)
--------------------------------------------------------------------
Total assets $73,887 $42,117 $45,488 $103,335 ($103,217) $1,014,292
====================================================================
Liabilities
Deposits
Demand $8,736 $4,668 $(4,275) $119,972
Savings 35,787 16,689 588 360,321
Time 17,655 15,507 346,038
--------------------------------------------------------------------
Total deposits 62,178 36,864 (3,687) 826,331
Sec. sold under agreements to
repurchase 32,590
Other short-term borrowings 1,160 (19) 4,517
Notes payable $38,689 (2,500) 36,189
Other liabilities 517 434 3,640 $1,409 (4,324) 12,739
--------------------------------------------------------------------
Total liabilities 63,855 37,298 42,329 1,409 (10,530) 912,366
Stockholders' equity
Common stock 1,000 260 10 15,875 (6,050) 15,875
Additional capital 8,250 2,300 (23,250)
Retained earnings 583 2,147 3,149 83,228 (60,587) 83,228
Net unrealized gain on investments 199 112 2,823 (2,800) 2,823
-------------------------------------------------------------------
Total Stockholders' equity 10,032 4,819 3,159 101,926 (92,687) 101,926
-------------------------------------------------------------------
Total Liabilities and
stockholders' equity $73,887 $42,117 $45,488 $103,335 ($103,217) $1,014,292
</TABLE>
Page 29
Page 51 of 54
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
The subsidiaries of the registrant are as follows:
Incorporated Percentage of Voting
Name Under Laws of Securities Owned
---- ------------- ----------------
<S> <C> <C>
The Old Second National Bank The United States 100%
of Aurora
The Old Second Community Bank
of North Aurora State of Illinois 100%
The Old Second Community Bank
of Aurora State of Illinois 100%
Yorkville National Bank The United States 100%
Burlington Bank State of Illinois 100%
Kane County Bank and Trust
Company State of Illinois 100%
Bank of Sugar Grove State of Illinois 100%
Maple Park Mortgage State of Illinois 100%
</TABLE>
Page 52 of 54
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement(Form S-8 No 33-87722) pertaining to the Old Bancorp, Inc.
Long-Term Incentive Plan of our report dated January 22, 1999, 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,
1998.
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 22, 1999,
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, 1998.
/s/ Ernst & Young LLP
Chicago, Illinois
March 25, 1999
Page 53 of 54
<PAGE>
Exhibit 27.1
[ARTICLE] 9
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-END] DEC-31-1998
[CASH] 42202
[INT-BEARING-DEPOSITS] 475
[FED-FUNDS-SOLD] 49475
[TRADING-ASSETS] 0
<INVESTMENTS-HELD-FOR SALE> 292365
[INVESTMENTS-CARRYING] 0
[INVESTMENTS-MARKET] 0
[LOANS] 556545
[ALLOWANCE] 7823
[TOTAL-ASSETS] 1014292
[DEPOSITS] 826331
[SHORT-TERM] 73296
[LIABILITIES-OTHER] 12739
[LONG-TERM] 0
[COMMON] 15875
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 86051
[TOTAL-LIABILITIES-AND-EQUITY] 1014292
[INTEREST-LOAN] 49519
[INTEREST-INVEST] 15222
[INTEREST-OTHER] 3398
[INTEREST-TOTAL] 68139
[INTEREST-DEPOSIT] 29363
[INTEREST-EXPENSE] 32229
[INTEREST-INCOME-NET] 35910
[LOAN-LOSSES] 1213
[SECURITIES-GAINS] 0
[EXPENSE-OTHER] 38989
[INCOME-PRETAX] 16085
[INCOME-PRE-EXTRAORDINARY] 11049
[EXTRAORDINARY] 0
[CHANGES] 0
<NET INCOME> 11049
[EPS-PRIMARY] 3.62
[EPS-DILUTED] 3.61
[YIELD-ACTUAL] 4.18
[LOANS-NON] 768
[LOANS-PAST] 1417
[LOANS-TROUBLED] 0
[LOANS-PROBLEM] 8009
[ALLOWANCE-OPEN] 6923
[CHARGE-OFFS] 552
[RECOVERIES] 239
[ALLOWANCE-CLOSE] 7823
[ALLOWANCE-DOMESTIC] 7823
[ALLOWANCE-FOREIGN] 0
[ALLOWANCE-UNALLOCATED] 0
Page 54 of 54
<PAGE>
</TABLE>
