UNITED STATES
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant To Section 13 Or 15(d)
Of The Securities Exchange Act Of 1934
For the quarterly period ended March 31, 1999
Commission file No. 0-10537
Old Second Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-3143493
(State or other jurisdiction of (I.R.S.
Employer
incorporation or organization) Identification
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)
(Former name, former address and former fiscal year, if changed since last
report.)
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 91 days.
Yes [X] No[ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
3,051,181 shares of $1.00 par value common stock are outstanding as of May 5,
1999.
There are no exhibits with this Form 10-Q.
PAGE 1
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Part I - Financial information
Item 1 - Financial statements
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands except per share data)
March 31, 1999 December 31,1998
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Cash and due from banks, non-interest bearing $ 32,747 $42,202
Interest bearing deposits with banks 475 475
Federal funds sold 31,025 49,475
---------- ---------
Total cash and cash equivalents 64,247 92,152
Available for sale securities 279,763 292,365
Loans held for sale 34,913 36,686
Loans 561,718 556,772
Less: Allowance for loan losses
8,078 7,823
Unearned income 182 227
----------- ----------
Loans, net 553,458 548,722
Bank premises and equipment, net 21,167 20,950
Other assets 23,217 23,417
----------- -----------
TOTAL ASSETS $976,765 $1,014,292
======= =======
LIABILITIES
Deposits:
Demand $111,638 $119,972
Savings 359,172 360,321
Time 344,887 346,038
----------- -----------
Total deposits 815,697 826,331
Securities sold under agreements to repurchase 14,706 32,590
Other short-term borrowings 2,252 4,517
Note payable 27,022 36,189
Other liabilities 13,839 12,739
----------- ----------
Total liabilities 873,516 912,366
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value,
300,000 shares authorized, none issued
Common stock, $1.00 par value, 10 million shares
authorized; 3,051,181 shares outstanding 15,875 15,875
Retained earnings 85,397 83,228
Accumulated other comprehensive income 1,977 2,823
----------- ---------
Total stockholders' equity 103,249 101,926
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $976,765 $1,014,292
======== =========
</TABLE>
See accompanying notes.
PAGE 2
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OLD SECOND BANCORP, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31,
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<S> <C> <C>
1999 1998
INTEREST INCOME:
- --------------------------
Interest and fees on loans $12,031 $12,103
Interest and dividends on available-for-sale securities:
Taxable 3,389 3,011
Exempt from federal income tax 644 777
Interest on federal funds sold 471 752
Interest on interest bearing
deposits 7 7
------------ -----------
Total interest income 16,542 16,650
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INTEREST EXPENSE:
Savings deposits 2,169 2,135
Time deposits 4,596 5,332
Other short-term borrowings 578 643
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Total interest expense 7,343 8,110
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Net interest income 9,199 8,540
Provision for loan losses 201 354
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Net interest income after
provision for loan losses 8,998 8,186
OTHER INCOME:
Trust fees 1,227 1,109
Service charges on deposit accounts 749 724
Gain on sales of loans 1,842 2,081
Other income 1,150 804
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Total other income 4,968 4,718
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<TABLE>
<S> <C> <C>
OTHER EXPENSES:
Salaries and employee
benefits 5,253 5,000
Net occupancy of bank
premises 603 575
Furniture and
equipment 1,000 979
FDIC
insurance 24 34
Marketing 230 221
Stationery and supplies 308 226
Amortization of
intangibles 203 351
Other 2,061 1,820
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Total other expenses 9,682 9,206
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Income before income taxes 4,284 3,698
Income tax expense 1,351 1,164
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Net income $2,933 $2,534
======== ========
Per share amounts:
Basic earnings per share $0.96 $0.83
Diluted earnings per share $0.96 $0.83
Dividend declared $0.25 $0.20
Average shares outstanding 3,051,181 3,049,190
</TABLE>
See accompanying notes.
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OLD SECOND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
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<CAPTION>
For the three months
Ended March 31,
<S> <C> <C>
1999 1998
- --------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
- --------------------------
Interest received $17,119 $17,591
Interest paid (7,525) (8,140)
Paid to suppliers and employees (7,398) (5,336)
Trust fees received 1,227 1,109
Service charges received on deposit
accounts 749 724
Mortgage loan originations and purchases (165,560) (141,174)
Mortgage loans sold to secondary market 169,175 143,838
Other income received 1,150 804
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Net cash provided by operating
activities 8,937 9,416
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CASH FLOWS FROM INVESTING ACTIVITIES:
- --------------------------------------
Net loan (charged off) recovered 55 (43)
Net increase in loans (4,992) (3,123)
Purchases of available for sale
securities (19,961) (23,894)
Proceeds from sales and maturities of
available for sale securities 31,014 33,102
Capital expenditures (768) (706)
Net proceeds on purchases of
mortgage servicing rights (1,160) (1,157)
Other, net (280) (393)
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Net cash provided by investing
activities 3,908 3,786
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CASH FLOWS FROM FINANCING ACTIVITIES:
- --------------------------------------
Net increase (decrease) in
deposits (10,634) 845
Net decrease in other short-term
borrowings (20,150) (8,092)
Payments of notes
payable (9,167) (2,719)
Dividends
paid (762) (915)
Other, net (37) (61)
---------- -----------
Net cash used in financing activities (40,750) (10,942)
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Net increase (decrease) in
cash & cash equivalents (27,905) 2,260
Cash & cash equivalents at
beginning of year 92,152 87,025
---------- ----------
Cash & cash equivalents at end of
period $64,247 $89,285
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RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
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<CAPTION>
<S> <C> <C>
Net income $2,933 $2,534
Adjustments to reconcile net income to net
Cash provided by operating activities:
Depreciation 551 599
Provision for possible loan losses 201 354
Increase in taxes payable 1,351 1,164
Net decrease in mortgage loans
held for sale 1,773 583
Decrease in interest receivable 410 766
Decrease in interest payable (183) (30)
Premium amortization and discount
accretion on investments 167 176
Amortization of intangibles 203 351
Increase in accrued expenses 1,384 3,018
(Increase) decrease in prepaid
expenses 147 (99)
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Total adjustments 6,004 6,882
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Net cash provided by operating
activities $8,937 $9,416
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</TABLE>
See accompanying notes.
PAGE 6
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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed in the preparation of interim financial
statements are consistent with those used in the preparation of annual
financial information. The interim financial statements reflect all
adjustments, which are normal and recurring in nature, necessary in the
opinion of management for a fair statement of results for the interim periods
presented. Results for the three months ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999.
NOTE 2 - ACCOUNTING FOR EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 128 "Earnings Per Share" which
required adoption for periods ending after December 31, 1997 and prescribes
the calculation of earnings per share for both interim and annual financial
statements.
The following table sets forth the computation of basic and diluted earnings
per share for March 31, (share and per share data not in thousands):
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1999 1998
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Numerator for basic and diluted earnings
per share - net income $2,933 $2,534
====== ======
Denominator for basic earnings per share -
weighted average shares outstanding 3,051,181 3,049,190
Effect of dilutive securities -
employee stock options 6,103 10,601
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Denominator for diluted earnings per share -
adjusted weighted average
shares outstanding 3,057,284 3,059,791
========== =========
Earnings per share - basic $ 0.96 $ 0.83
Earnings per share - diluted $ 0.96 $ 0.83
</TABLE>
NOTE 3 -STOCK DIVIDEND DECLARED
At the April 13, 1999 meeting, the Board of Directors of Old Second Bancorp,
Inc., declared a 2-for-1 stock split effected in the form of a stock dividend
payable on May 17, 1999 to shareholders of record on May 10, 1999.
NOTE 4 - REPORTING COMPREHENSIVE INCOME
As of January 1, 1998, the Corporation adopted 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
shareholders' 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 shareholders' equity to be included in other
comprehensive income. During the first quarter, total comprehensive income
amounted to $2,086,951 for 1999 and $3,001,341 for 1998.
NOTE 5 - SEGMENTS REPORTING
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" which
addresses the reporting of financial information from operating segments in
annual and interim financial statements. Management believes that it operates
under one segment as defined by SFAS No. 131 and additional disclosure is not
required.
PAGE 7
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6 - 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 of the systems
and modifications 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 in April 1999. Contingency plans and
testing of other affected applications, both internally developed and
third-party provided, are expected to be completed by June 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 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.
Based on currently available information, the Corporation believes that all
costs to address year 2000 issues were incurred during 1998 and were not
considered to be material. Consequently, unanticipated future costs to address
year 2000 issues should not have a materially adverse impact on the
Corporation's financial condition or results of operations.
NOTE 7 - ACCOUNTING FOR DERIVATIVES
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 of the new Statement will have a material effect on the
Corporation's financial condition or results of operations.
PAGE 8
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PART 1 - FINANCIAL INFORMATION
ITEM 2
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion analyzes the consolidated financial condition and
results of operations of Old Second Bancorp, Inc. and its subsidiaries.
PERFORMANCE SUMMARY
Net income for the first quarter 1999 increased 15.7% to $2.9 million or $.96
per share from last year's total of $2.5 million or $.83 per share. Return on
average assets and average equity were 1.22% and 11.9%, respectively, for the
first quarter of 1999 compared to 1.09% and 11.3% a year ago.
Total equity of $103 million at March 31, 1999 represented 10.6% of total
assets, which were $977 million. Dividends declared per share increased to
$.25 during the first quarter 1999 from $.20 for the same period a year ago.
RESULTS OF OPERATIONS
For the three months ending March 31, 1999, net interest income of $9.2
million was up $659,000 (7.7%) over the like period in 1998. The net interest
margin on a tax equivalent basis increased to 4.24% for the first three months
in 1999 from 4.11% for the same period in 1998.
Non-interest income for the quarter ending March 31, 1999 of $5.0 million was
up $250,000 from the same period a year ago. Higher trust fees and other
income, which were up $118,000 and $346,000, respectively, were offset by a
decline of $239,000 in gains on sales of loans. Loans sold on the secondary
market of $169 million during the first quarter of 1999 were up from $144
million for the same period last year although a decrease in the margins
resulted in a lower gain on sale of these loans.
Asset quality continued to show further improvement with nonperforming loans
of $1.4 million down from $2.9 million a year ago and $2.7 million at year end
1998. The allowance for loan losses as a percent of net loans was 1.46% at
March 31, 1999, up from 1.35% a year ago and 1.43% at December 31, 1998. Net
recoveries of $55,000 were realized during the first quarter 1999 compared to
net charge-offs of $43,000 for the year ago quarter. For the first quarter of
1999, the provision for loan loss of $201,000 in 1999 was down from $354, 000
for the first quarter 1998.
The productivity ratio which is defined as net interest income plus
non-interest income divided by non-interest expense improved to 146% for the
first quarter in 1999 compared to 144% for the same period in 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. In addition to normal
growth in core deposits together with maturities of loans and investments, the
Corporation has provided for liquidity needs by holding adequate balances in
money market assets and maintaining various short-term borrowing sources.
The parent company's liquidity which provides funds for the payment of
dividends to stockholders and for other corporate purposes is generally
provided by dividends from its subsidiaries. Management believes that funds
available from subsidiaries are sufficient to meet future cash needs.
As of March 31, 1999, federal funds sold and investment securities maturing
within 30 days were $46.7 million or 4.8% of total assets. Additionally,
unpledged investment securities not maturing within 30 days were $208 million
or 21.3% of total assets. The investment portfolio at March 31, 1999 includes
$10 million, 3.6%, of U.S. Treasuries and $171 million, 61.0%, of U.S.
Government agency securities.
PAGE 9
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PART II - OTHER INFORMATION
Item 1. Submission of Matters to a Vote of Security Holders
A. The annual meeting of stockholders of Old Second Bancorp, Inc was
held on March 9, 1999.
B. The following matters were voted upon at this annual meeting and the
results of such votes are provided below:
Ratification and approval of the selection of Ernst & Young LLP as the
Corporation's independent auditors for the year of 1999.
For 2,642,693 Against 4,937 Abstentions 12,188
The election of five directors to serve for a term of three years each.
James Benson For 2,631,989 Against 14,855 Abstentions 12,974
Marvin Fagel For 2,631,843 Against 15,001 Abstentions 12,974
Joanne Hansen For 2,538,201 Against 108,643 Abstentions 12,974
Kenneth Lindgren For 2,638,633 Against 8,211 Abstentions 12,974
Jesse Maberry For 2,636,908 Against 9,936 Abstentions 12,974
The election of two directors to serve for a term of one year each.
Gerald Palmer For 2,538,016 Against 108,828 Abstentions 12,974
James Schmitz For 2,638,859 Against 7,985 Abstentions 12,974
The total number of shares of all classes of stock were changed as follows:
10,000,000 shares of Common Stock with a par value of $1.00 per share, and
300,000 shares of Preferred Stock with a par value of $1.00 per share.
For 2,572,936 Against 68,471 Abstentions 18,411
Item 2. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit 27. Financial Data Schedule
B. Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter because of the
absence of conditions under which they are required.
PAGE 10
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
OLD SECOND BANCORP, INC.
/s/ Jean Pooley
--------------------------------
By: Jean A. Pooley
Vice-President and Controller
Date: May 10, 1999
PAGE 11
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[TYPE] EX-27
[ARTICLE] 9
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] DEC-31-1999
[PERIOD-END] MAR-31-1999
[CASH] 32747
[INT-BEARING-DEPOSITS] 475
[FED-FUNDS-SOLD] 31025
[TRADING-ASSETS] 0
[INVESTMENTS-HELD-FOR-SALE] 279763
[INVESTMENTS-CARRYING] 0
[INVESTMENTS-MARKET] 0
[LOANS] 596449
[ALLOWANCE] 8078
[TOTAL-ASSETS] 976765
[DEPOSITS] 815697
[SHORT-TERM] 43980
[LIABILITIES-OTHER] 13839
[LONG-TERM] 0
[COMMON] 15875
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 85397
[TOTAL-LIABILITIES-AND-EQUITY] 976765
[INTEREST-LOAN] 12031
[INTEREST-INVEST] 4033
[INTEREST-OTHER] 478
[INTEREST-TOTAL] 16542
[INTEREST-DEPOSIT] 6765
[INTEREST-EXPENSE] 7343
[INTEREST-INCOME-NET] 9199
[LOAN-LOSSES] 201
[SECURITIES-GAINS] 0
[EXPENSE-OTHER] 9682
[INCOME-PRETAX] 4284
[INCOME-PRE-EXTRAORDINARY] 2933
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 2933
[EPS-PRIMARY] 0.96
[EPS-DILUTED] 0.96
[YIELD-ACTUAL] 0
[LOANS-NON] 0
[LOANS-PAST] 0
[LOANS-TROUBLED] 0
[LOANS-PROBLEM] 0
[ALLOWANCE-OPEN] 0
[CHARGE-OFFS] 0
[RECOVERIES] 0
[ALLOWANCE-CLOSE] 0
[ALLOWANCE-DOMESTIC] 0
[ALLOWANCE-FOREIGN] 0
[ALLOWANCE-UNALLOCATED] 0
</TABLE>
