<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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 Identification Number)
37 SOUTH RIVER STREET, AURORA, ILLINOIS 60506
------------------------------------------------------------
(Address of principal executive offices, including Zip Code)
(630) 892-0202
----------------------------------------------------
(Registrant's telephone number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of each exchange on which registered
NONE NONE
-------------- -----------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $1.00 PAR VALUE
-----------------------------
(Title of Class)
PREFERRED STOCK
---------------
(Title of Class)
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. [X]
As of March 21, 2000, the aggregate market value of the registrant's
common stock held by non-affiliates of the registrant was approximately $120
million* based upon the price of the last sale on that date.
The number of shares outstanding of the registrant's common stock, par
value $1.00 per share, was 5,904,754 at March 21, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's 1999Annual Report are incorporated by
reference into Parts I, II and IV.
Portions of the Company's Proxy Statement for the 2000 Annual Meeting
of Stockholders are incorporated by reference into Part III.
- ----------------
* Based on the last reported price of an actual transaction in
registrant's common stock on March 21, 2000 and reports of beneficial
ownership filed by directors and executive officers of registrant and
by beneficial owners of more than 5% of the outstanding shares of
common stock of registrant; however, such determination of shares owned
by affiliates does not constitute an admission of affiliate status or
beneficial interest in shares of registrant's common stock.
<PAGE>
OLD SECOND BANCORP, INC.
FORM 10-K
INDEX
<TABLE>
<CAPTION>
PART I Page No.
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<S> <C> <C>
Item 1 Business 3 - 12
Item 2 Properties 13
Item 3 Legal Proceedings 13
Item 4 Submission of Matters to a Vote of Security Holders 13
PART II
-------
Item 5 Market for the Registrant's Common Equity and
Related Stockholder Matters 13
Item 6 Selected Financial Data 13
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Item 7A Quantitative and Qualitative Disclosures about Market Risk 14
Item 8 Financial Statements and Supplementary Data 14
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 14
PART III
--------
Item 10 Directors and Executive Officers of the Registrant 14
Item 11 Executive Compensation 15
Item 12 Security Ownership of Certain Beneficial Owners and
Management 15
Item 13 Certain Relationships and Related Transactions 15
PART IV
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Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K 15 - 16
Signatures 17
</TABLE>
Page 2
<PAGE>
PART I
ITEM 1. BUSINESS
Old Second Bancorp, Inc. (the "Company" or the "Registrant") was
organized under the laws of Delaware on September 8, 1981. It is a registered
bank holding company under the Bank Holding Company Act of 1956 (the "Act"). The
Company's office is located at 37 South River Street, Aurora, Illinois 60506.
The Company conducts a full service community banking and trust
business through its wholly-owned subsidiaries, The Old Second National Bank of
Aurora, Yorkville National Bank, Bank of Sugar Grove, Burlington Bank, Kane
County Bank and Trust Company, and Maple Park Mortgage. The banking subsidiaries
are referred to herein as "the Banks." During 1999, the Company simplified its
organizational structure by eliminating two bank charters. The Old Second
Community Bank of North Aurora and Old Second Community Bank of Aurora were
merged into The Old Second National Bank of Aurora ("Old Second").
The Banks' full service banking businesses include the customary
consumer and commercial products and services which banks provide. The following
services are included: demand, savings, time deposit, individual retirement and
Keogh deposit accounts; commercial, industrial, consumer and real estate
lending, including installment loans, student loans, farm loans, lines of credit
and overdraft checking; safe deposit operations; trust services; and an
extensive variety of additional services tailored to the needs of individual
customers, such as the acquisition of U.S. Treasury notes and bonds, the sale of
traveler's checks, money orders, cashier's checks and foreign currency, direct
deposit, discount brokerage debit cards, credit cards, and other special
services.
Commercial and consumer loans are made to corporations, partnerships
and individuals, primarily on a secured basis. Commercial lending focuses on
business, capital, construction, inventory and real estate lending. Installment
lending includes direct and indirect loans to consumers and commercial
customers. Maple Park Mortgage ("Maple Park") originates residential mortgages
and handles the secondary marketing of those mortgages.
The Company's market area is highly competitive. Many financial
institutions based in Aurora's surrounding communities and in Chicago, Illinois,
operate banking offices in the greater Aurora area or actively compete for
customers within the Company's market area. The Company also faces competition
from finance companies, insurance companies, mortgage companies, securities
brokerage firms, money market funds, loan production offices and other providers
of financial services.
The Company competes for loans principally through the range and
quality of the services it provides, interest rates and loan fees. The Company
believes that its long-standing presence in the community and personal service
philosophy enhances its ability to compete favorably in attracting and retaining
individual and business customers. The Company actively solicits deposit-related
clients and competes for deposits by offering customers personal attention,
professional service and competitive interest rates.
Old Second Bank's primary market area is Aurora, Illinois, and its
surrounding communities. The city of Aurora is located in northeastern Illinois,
approximately 40 miles west of Chicago. Strategically situated on U.S.
Interstate 88 (the East-West Tollway), Aurora is near the center of the four
county area comprised of DuPage, Kane, Kendall and Will counties. Based upon the
1990 census, these counties together represent a market of more than 1.4 million
people. The city of Aurora has a current reported population of approximately
120,000 residents.
The 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. 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
geographically covers the southern two-thirds of Kane County and the northern
one-third of Kendall County, there are in excess of 20 other banks.
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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.
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 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 faces vigorous competition in all phases of its retail and
correspondent divisions. 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.
At December 31, 1999, the Company employed 536 full-time equivalent
employees. The Company places a high priority on staff development, which
involves extensive training, including customer service training. New employees
are selected on the basis of both technical skills and customer service
capabilities. None of the Company's employees are covered by a collective
bargaining agreement with the Company. The Company offers a variety of employee
benefits and management considers its employee relations to be excellent.
SUPERVISION AND REGULATION
Financial institutions and their holding companies are extensively
regulated under federal and state law. As a result, the growth and earnings
performance of the Company can be affected not only by management decisions and
general economic conditions, but also by the requirements of applicable state
and federal statutes and regulations and the policies of various governmental
regulatory authorities, including the Office of the Comptroller of the Currency
(the "OCC"), the Board of Governors of the Federal Reserve System (the "Federal
Reserve"), the Federal Deposit Insurance Company (the "FDIC"), the Illinois
Office of Banks and Real Estate (the "Office"), the Internal Revenue Service and
state taxing authorities and the Securities and Exchange Commission (the "SEC").
The effect of applicable statutes, regulations and regulatory policies can be
significant, and cannot be predicted with a high degree of certainty.
As a bank holding company, the Company is registered with, and is
subject to regulation by, the Federal Reserve under the Bank Holding Company
Act, as amended (the "BHCA"). In accordance with Federal Reserve policy, the
Company is expected to act as a source of financial strength to the Bank and to
commit resources to support the Bank in circumstances where the Company might
not otherwise do so. Under the BHCA, the Company is subject to periodic
examination by the Federal Reserve. The Company is also required to file with
the Federal Reserve periodic reports of the Company's operations and such
additional information regarding the Company and its subsidiary as the Federal
Reserve may require.
Under the BHCA, a bank holding company must obtain Federal Reserve
approval before: (i) acquiring, directly or indirectly, ownership or control of
any voting shares of another bank or bank holding company if, after the
acquisition, it would own or control more than 5% of the shares of the other
bank or bank holding company (unless it already owns or controls the majority of
such shares); (ii) acquiring all or substantially all of the assets of another
bank; or (iii) merging or consolidating with another bank holding company.
Subject to certain conditions (including certain deposit concentration limits
established by the BHCA), the Federal Reserve may allow a bank holding company
to acquire banks located in any state of the United States without regard to
whether the acquisition is prohibited by the law of the state in which the
target bank is located. In approving interstate acquisitions, however, the
Federal Reserve is required to give effect to applicable state law limitations
on the aggregate amount of deposits that may be held by the acquiring bank
holding company and its insured depository institution affiliates in the state
in which the target bank is located (provided that those limits do not
discriminate against out-of-state depository institutions or their holding
companies) and state laws which require that the target bank have been in
existence for a minimum period of time (not to exceed five years) before being
acquired by an out-of-state bank holding company.
The BHCA also generally prohibits the Company from acquiring direct or
indirect ownership or control of more than 5% of the voting shares of any
company which is not a bank and from engaging in any business other than that of
banking,
Page 4
<PAGE>
managing and controlling banks or furnishing services to banks and their
subsidiaries. This general prohibition is subject to a number of exceptions. The
principal exception allows bank holding companies to engage in, and to own
shares of companies engaged in, certain businesses found by the Federal Reserve
to be "so closely related to banking ... as to be a proper incident thereto."
Under current regulations of the Federal Reserve, bank holding companies and
their non-bank subsidiaries are permitted to engage in a variety of
banking-related businesses, including the operation of a thrift, sales and
consumer finance, equipment leasing, the operation of a computer service bureau
(including software development), and mortgage banking and brokerage. The BHCA
generally does not place territorial restrictions on the domestic activities of
non-bank subsidiaries of bank holding companies.
Federal law also prohibits any person or company from acquiring
"control" of a bank or a bank holding company without prior notice to the
appropriate federal bank regulator. "Control" is defined in certain cases as the
acquisition of 10% of the outstanding shares of a bank or bank holding company.
The Illinois Bank Holding Company Act permits Illinois bank holding
companies to acquire control of banks in any state and permits bank holding
companies whose principal place of business is in another state to acquire
control of Illinois banks or bank holding companies upon satisfactory
application to the Illinois office of Banks and Real Estate.
Under the Illinois Banking Act (the "IBA") and the National Bank Act
impose limitations on the amount of dividends that may be paid by banks.
Generally, a bank may pay dividends out of its undivided profits, in such
amounts and at such time as the bank's board of directors deems prudent. Without
prior approval, however, a bank may not pay dividends in any calendar year
which, in the aggregate, exceed the bank's year-to-date net income plus the
bank's retained net income for the two preceding years.
The payment of dividends by any financial institution or its holding
company is affected by the requirement to maintain adequate capital pursuant to
applicable capital adequacy guidelines and regulations, and a financial
institution generally is prohibited from paying any dividends if, following
payment thereof, the institution would be undercapitalized. As described above,
the Bank exceeded its minimum capital requirements under applicable guidelines
as of December 31, 1999. As of December 31, 1999, approximately $10.8 million
was available to be paid as dividends to the Company by the Bank.
Notwithstanding the availability of funds for dividends, however, banking
regulators may prohibit the payment of any dividends by the Bank if it is
determined that such payment would constitute an unsafe or unsound practice.
Federal banking regulators require banks and bank holding companies to
maintain minimum levels of capital. If capital falls below minimum guideline
levels, a bank holding company, among other things, may be denied approval to
acquire or establish additional banks or non-bank businesses.
The capital guidelines establish the following minimum regulatory
capital requirements: a risk-based requirement expressed as a percentage of
total risk-weighted assets, and a leverage requirement expressed as a percentage
of total assets. The risk-based requirement consists of a minimum ratio of total
capital to total risk-weighted assets of 8%, at least one-half of which must be
Tier 1 capital. The leverage requirement consists of a minimum ratio of Tier 1
capital to total assets of 3% for the most highly rated companies, with a
minimum requirement of 4% for all others. For purposes of these capital
standards, Tier 1 capital consists primarily of permanent stockholders' equity
less intangible assets (other than certain mortgage servicing rights and
purchased credit card relationships). Total capital consists primarily of Tier 1
capital plus certain other debt and equity instruments which do not qualify as
Tier 1 capital and a portion of the Company's allowance for loan and lease
losses.
The risk-based and leverage standards described above are minimum
requirements. Higher capital levels will be required if warranted by the
particular circumstances or risk profiles of individual banking organizations.
For example, the capital guidelines contemplate that additional capital may be
required to take adequate account of, among other things, interest rate risk, or
the risks posed by concentrations of credit, nontraditional activities or
securities trading activities. Further, any banking organization experiencing or
anticipating significant growth would be expected to maintain capital ratios,
including tangible capital positions (i.e., Tier 1 capital less all intangible
assets), well above the minimum levels.
As of December 31, 1999, the Company had regulatory capital in excess
of the Federal Reserve's minimum requirements, with a risk-based capital ratio
of 14.61% and a leverage ratio of 10.17%.
The Delaware General Company Law (the "DGCL") allows the Company to pay
dividends only out of its surplus (as
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defined and computed in accordance with the provisions of the DGCL) or if the
Company has no such surplus, out of its net profits for the fiscal year in which
the dividend is declared and/or the preceding fiscal year. Additionally, the
Federal Reserve has issued a policy statement with regard to the payment of cash
dividends by bank holding companies. The policy statement provides that a bank
holding company should not pay cash dividends which exceed its net income or
which can only be funded in ways that weaken the bank holding company's
financial health, such as by borrowing. The Federal Reserve also possesses
enforcement powers over bank holding companies and their non-bank subsidiaries
to prevent or remedy actions that represent unsafe or unsound practices or
violations of applicable statutes and regulations. Among these powers is the
ability to proscribe the payment of dividends by banks and bank holding
companies.
The Company's common stock is registered with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Consequently,
the Company is subject to the information, proxy solicitation, insider trading
and other restrictions and requirements of the SEC under the Exchange Act.
As FDIC-insured institutions, the banks are required to pay deposit
insurance premium assessments to the FDIC. The FDIC has adopted a risk-based
assessment system under which all insured depository institutions are placed
into one of nine categories and assessed insurance premiums based upon their
respective levels of capital and results of supervisory evaluations.
Institutions classified as well-capitalized (as defined by the FDIC) and
considered healthy pay the lowest premium while institutions that are less than
adequately capitalized (as defined by the FDIC) and considered of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions is made by the FDIC for each semi-annual assessment period.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution (i)
has engaged or is engaging in unsafe or unsound practices, (ii) is in an unsafe
or unsound condition to continue operations or (iii) has violated any applicable
law, regulation, order, or any condition imposed in writing by, or written
agreement with, the FDIC. The FDIC may also suspend deposit insurance
temporarily during the hearing process for a permanent termination of insurance
if the institution has no tangible capital. Management of the Company is not
aware of any activity or condition that could result in termination of the
deposit insurance of the Bank.
Federal law provides the federal banking regulators with broad power to
take prompt corrective action to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers depends on whether the
institution in question is "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized," in each case as defined by regulation. Depending upon the
capital category to which an institution is assigned, the regulators' corrective
powers include: requiring the institution to submit a capital restoration plan;
limiting the institution's asset growth and restricting its activities;
requiring the institution to issue additional capital stock (including
additional voting stock) or to be acquired; restricting transactions between the
institution and its affiliates; restricting the interest rate the institution
may pay on deposits; ordering a new election of directors of the institution;
requiring that senior executive officers or directors be dismissed; prohibiting
the institution from accepting deposits from correspondent banks; requiring the
institution to divest certain subsidiaries; prohibiting the payment of principal
or interest on subordinated debt; and ultimately, appointing a receiver for the
institution. As of December 31, 1999, the Company and the banks were well
capitalized.
National banks headquartered in Illinois, such as the Bank, have the
same branching rights in Illinois as banks chartered under Illinois law.
Illinois law grants Illinois-chartered banks the authority to establish branches
anywhere in the State of Illinois, subject to receipt of all required regulatory
approvals.
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Riegle-Neal Act"), both state and national banks are allowed to
establish interstate branch networks through acquisitions of other banks,
subject to certain conditions, including certain limitations on the aggregate
amount of deposits that may be held by the surviving bank and all of its insured
depository institution affiliates. The establishment of new interstate branches
or the acquisition of individual branches of a bank in another state (rather
than the acquisition of an out-of-state bank in its entirety) is allowed by the
Riegle-Neal Act only if specifically authorized by state law. The legislation
allowed individual states to "opt-out" of certain provisions of the Riegle-Neal
Act by enacting appropriate legislation prior to June 1, 1997. Illinois has
enacted legislation permitting interstate mergers beginning on June 1, 1997,
subject to certain conditions, including a prohibition against interstate
mergers involving an Illinois bank that has been in existence and continuous
operation for fewer than five years.
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Federal Reserve regulations, as presently in effect, require depository
institutions to maintain non-interest earning reserves against their transaction
accounts (primarily NOW and regular checking accounts), as follows: for
transaction accounts aggregating $39.3 million or less, the reserve requirement
is 3% of total transaction accounts; and for transaction accounts aggregating in
excess of $39.3 million, the reserve requirement is $1.179 million plus 10% of
the aggregate amount of total transaction accounts in excess of $39.3 million.
The first $5.0 million of otherwise reservable balances are exempted from the
reserve requirements. These reserve requirements are subject to annual
adjustment by the Federal Reserve. The Bank is in compliance with the foregoing
requirements.
STATISTICAL DATA
The statistical data required by Guide 3 of the Guides for Preparation
and Filing of Reports and Registration Statements under the Securities Exchange
Act of 1934 is set forth in the following pages. This data should be read in
conjunction with the consolidated financial statements, related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" as set forth in the 1999 Annual Report incorporated herein by
reference (attached hereto as Exhibit 13). All dollars in the tables are
expressed in thousands.
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The following table sets forth certain information relating to the Company's
average consolidated balance sheets and reflects the yield on average earning
assets and cost of average liabilities for the years indicated. Rates are
derived by dividing the related interest by the average balance of assets or
liabilities. Average balances are derived from daily balances.
ANALYSIS OF AVERAGE BALANCES,
TAX EQUIVALENT INTEREST AND RATES
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
1999 1998
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Average Average
Balance Interest Rate Balance Interest Rate
---------- ---------- -------- ----------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest bearing deposits $ 545 $ 35 6.42% $ 412 $ 26 6.31%
Federal funds sold 31,720 1,566 4.94 62,980 3,372 5.35
Securities:
Taxable 223,707 13,421 6.00 197,219 12,231 6.20
Non-taxable (tax equivalent) 52,749 3,676 6.97 56,785 4,008 7.06
---------- ---------- -------- ----------- --------- -------
Total securities 276,456 17,097 6.18 254,004 16,239 6.39
Loans and loans held for sale 600,917 49,319 8.21 575,239 49,598 8.62
---------- ---------- -------- ----------- --------- -------
Total interest earning assets 909,638 68,017 7.48 892,635 69,235 7.76
Cash and due from banks 34,923 - - 35,824 - -
Allowance for loan losses (8,244) - - (7,478) - -
Other noninterest-bearing assets 45,628 - - 41,439 - -
---------- ---------- -------- ----------- --------- -------
Total assets $ 981,945 68,017 6.93 $ 962,420 69,235 7.19
========== ---------- -------- =========== --------- -------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest bearing transaction
accounts $ 67,090 1,120 1.67 $ 91,003 1,496 1.64
Savings accounts 308,422 8,478 2.75 244,048 7,580 3.11
Time deposits 335,862 17,618 5.25 354,642 20,287 5.72
---------- ---------- -------- ----------- --------- -------
Interest bearing deposits 711,374 27,216 3.83 689,693 29,363 4.26
Repurchase agreements 18,146 698 3.85 19,511 828 4.24
Federal funds purchased and
other borrowed funds 2,921 122 4.18 3,102 162 5.22
Notes payable 18,965 1,118 5.90 29,343 1,876 6.39
---------- ---------- -------- ----------- --------- -------
Total interest bearing
liabilities 751,406 29,154 3.88 741,649 32,229 4.35
Noninterest bearing deposits 116,623 - - 115,723 - -
Accrued interest and other
liabilities 11,032 - - 10,570 - -
Stockholders' equity 102,884 - - 94,478 - -
---------- ---------- -------- ----------- --------- -------
Total liabilities and
stockholders' equity $ 981,945 29,154 2.97 $ 962,420 32,229 3.35
========== ---------- -------- =========== --------- -------
Net interest income
(tax equivalent) $ 38,863 $ 37,006
========== =========
Net interest income
(tax equivalent)
to total earning assets 4.27% 4.15%
========== =========
Interest bearing liabilities
to earnings assets 82.60% 83.09%
========== ===========
<CAPTION>
1997
--------------------------------
Average
Balance Interest Rate
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<S> <C> <C> <C>
ASSETS
Interest bearing deposits $ 298 $ 22 7.38%
Federal funds sold 43,803 2,407 5.50
Securities:
Taxable 204,352 13,025 6.37
Non-taxable (tax equivalent) 61,830 4,425 7.16
---------- --------- --------
Total securities 266,182 17,450 6.56
Loans and loans held for sale 521,680 46,585 8.93
---------- --------- --------
Total interest earning assets 831,963 66,464 7.99
Cash and due from banks 34,513 - -
Allowance for loan losses (6,664) - -
Other noninterest-bearing assets 41,548 - -
---------- --------- --------
Total assets $ 901,360 66,464 7.37
========== --------- --------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest bearing transaction
accounts $ 111,170 2,194 1.97
Savings accounts 185,304 5,726 3.09
Time deposits 373,433 21,672 5.80
---------- --------- --------
Interest bearing deposits 669,907 29,592 4.42
Repurchase agreements 13,958 690 4.94
Federal funds purchased and
other borrowed funds 3,415 180 5.27
Notes payable 8,991 589 6.55
---------- --------- --------
Total interest bearing
liabilities 696,271 31,051 4.46
Noninterest bearing deposits 109,219 - -
Accrued interest and other
liabilities 9,014 - -
Stockholders' equity 86,856 - -
---------- --------- --------
Total liabilities and
stockholders' equity $ 901,360 31,051 3.44
========== --------- --------
Net interest income
(tax equivalent) $ 35,413
=========
Net interest income
(tax equivalent)
to total earning assets 4.26%
=========
Interest bearing liabilities
to earnings assets 83.69%
==========
</TABLE>
Notes: Nonaccrual loans are included in the above stated average balances.
Tax equivalent basis is calculated using a marginal tax rate of 34%.
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The following table allocates the changes in net interest income to changes in
either average balances or average rates for earnings assets and interest
bearing liabilities. The changes in interest due to both volume and rate have
been allocated proportionately to the change due to balance and due to rate.
Interest income is measured on a tax equivalent basis using a 34% rate.
ANALYSIS OF YEAR-TO-YEAR CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
1999 Compared to 1998 1998 Compared to 1997
----------------------------------------- -----------------------------------------
Change Due to Change Due to
-------------------------- --------------------------
Average Average Total Average Average Total
Balance Rate Change Balance Rate Change
------------ ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS/INTEREST INCOME
Interest bearing deposits $ 8 $ 1 $ 9 $ 7 $ (3) $ 4
Federal funds sold (1,562) (244) (1,806) 1,028 (63) 965
Securities:
Taxable 1,600 (410) 1,190 (448) (346) (794)
Tax-exempt (282) (50) (332) (357) (60) (417)
Loans and loans held for sale 2,163 (2,442) (279) 4,659 (1,646) 3,013
------------ ----------- ------------ ----------- ----------- ------------
TOTAL EARNING ASSETS 1,927 (3,145) (1,218) 4,889 (2,118) 2,771
------------ ----------- ------------ ----------- ----------- ------------
LIABILITIES/INTEREST EXPENSE
Interest bearing transaction accounts (399) 23 (376) (364) (334) (698)
Savings accounts 1,839 (941) 898 1,824 30 1,854
Time deposits (1,039) (1,630) (2,669) (1,079) (306) (1,385)
Repurchase agreements (56) (74) (130) 246 (108) 138
Federal funds purchased and
other borrowed funds (9) (31) (40) (16) (2) (18)
Notes payable (621) (137) (758) 1,301 (14) 1,287
------------ ----------- ------------ ----------- ----------- ------------
INTEREST BEARING LIABILITIES (285) (2,790) (3,075) 1,912 (734) 1,178
------------ ----------- ------------ ----------- ----------- ------------
NET INTEREST INCOME $ 2,212 $ (355) $ 1,857 $ 2,977 $ (1,384) $ 1,593
============ =========== ============ =========== =========== ============
The following table presents the composition of the securities portfolio by
major category as of December 31, of each year indicated:
SECURITIES PORTFOLIO COMPOSITION
<CAPTION>
1999 1998 1997
------------------------- -------------------------- -------------------------
% of % of % of
Amount Portfolio Amount Portfolio Amount Portfolio
------------- ----------- ------------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
U.S. Treasury securities $ 10,016 3.70% $ 9,742 3.33% $ 15,806 5.98%
U.S. Government agencies 166,186 61.34 181,915 62.22 144,311 54.57
States and political subdivisions 66,900 24.69 67,044 22.93 77,200 29.19
Mortgage-backed securities 25,245 9.32 31,212 10.68 25,407 9.61
Other securities 2,565 0.95 2,452 0.84 1,743 0.66
------------- ----------- ------------- ----------- ------------- ----------
$ 270,912 100.00% $ 292,365 100.00% $ 264,467 100.00%
============= =========== ============= =========== ============= ==========
</TABLE>
Page 9
<PAGE>
The following table presents the expected maturities or call dates and weighted
average yield of securities by major category as of December 31, 1999. Yields
are calculated on a tax equivalent basis using a 34% rate.
SECURITIES AVAILABLE FOR SALE - MATURITY AND YIELDS
<TABLE>
<CAPTION>
After One But After Five But
Within One Year Within Five Year Within Ten Year
------------------- --------------------- -------------------
Amount Yield Amount Yield Amount Yield
--------- ------ ---------- -------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $ 5,504 3.70% $ 4,512 4.01% $ - - %
U.S. government agencies 28,045 3.78 121,687 3.94 13,701 3.91
U.S. government agency
mortgage backed securities - - 87 5.81 80 4.00
States and political subdivisions 6,479 5.43 30,443 5.05 18,063 4.72
Collateralized mortgage obligations - - 166 3.94 6,193 3.91
Other securities - - 2 4.01 - -
--------- ------ ---------- -------- --------- ------
Total $ 40,028 4.04% $ 156,897 4.16% $ 38,037 4.29%
========= ====== ========== ======== ========= ======
<CAPTION>
After Ten Years Total
------------------- ---------------------
Amount Yield Amount Yield
--------- ------ ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ - -% $ 10,016 3.84%
U.S. government agencies - - 163,433 3.91
U.S. government agency
mortgage backed securities 2,587 4.00 2,754 4.06
States and political subdivisions 11,915 4.72 66,900 4.94
Collateralized mortgage obligations 18,885 3.91 25,244 3.91
Other securities 2,563 2.56 2,565 2.56
--------- ------ ---------- --------
Total $ 35,950 6.79% $ 270,912 4.15%
========= ====== ========== ========
As of December 31, 1999, net unrealized losses of $3,280,000, reduced by
deferred income taxes of $1,303,000, resulted in a decrease in equity capital of
$1,977,000. As of December 31, 1998, net unrealized gains of $4,613,000, reduced
by deferred income taxes of $1,790,000, resulted in an increase in equity
capital of $2,823,000.
The following table presents the composition of the loan portfolio at December
31, for the years indicated:
LOAN PORTFOLIO
<CAPTION>
1999 1998 1997 1996 1995
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Commercial and industrial $ 151,771 $ 143,047 $ 146,591 $ 143,961 $ 141,948
Real estate - commercial* 175,010 165,459 287,167 248,742 239,081
Real estate - construction 58,833 46,361 43,095 40,437 35,653
Real estate - residential* 159,743 144,434 - - -
Installment 65,491 57,471 58,127 49,164 45,847
------------- ------------ ------------ ------------ ------------
Gross loans 610,848 556,772 534,980 482,304 462,529
Unearned discount (78) (227) (348) (390) (502)
------------- ------------ ------------ ------------ ------------
Total loans 610,770 556,545 534,632 481,914 462,027
Allowance for loan losses (8,444) (7,823) (6,923) (6,403) (5,676)
------------- ------------ ------------ ------------ ------------
Loans, net $ 602,326 $ 548,722 $ 527,709 $ 475,511 $ 456,351
============== ============= ============= ============= =============
* Real estate residential loans for years prior to 1998 are included in Real
estate commercial loans in the preceding table.
The following table sets forth the remaining contractual maturities for certain
loan categories at December 31, 1999:
MATURITY AND RATE SENSITIVITY OF LOANS
<CAPTION>
Over 1 Year
Through 5 Years Over 5 Years
---------------------------- ----------------------------
One Year Fixed Floating Fixed Floating
or Less Rate Rate Rate Rate Total
------------ ------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial $ 102,750 $ 43,698 $ 4,435 $ 744 $ 144 $ 151,771
Real estate 95,437 174,326 106,359 13,438 4,026 393,586
Installment 33,900 31,493 8 90 - 65,491
------------ ------------ ------------ ------------ ------------- ------------
Total $ 232,087 $ 249,517 $ 110,802 $ 14,272 $ 4,170 $ 610,848
============ ============ ============ ============ ============= ============
</TABLE>
Page 10
<PAGE>
The following table sets forth the amounts of nonperforming assets at December
31, of the years indicated:
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 1,298 $ 768 $ 2,189 $ 3,505 $ 4,514
Loans past due 90 days or more
and still accruing interest 742 1,417 1,011 622 245
Restructured loans - 13 122 - 58
----------- ----------- ----------- ----------- -----------
Total nonperforming loans 2,040 2,198 3,322 4,127 4,817
Other real estate 79 497 482 126 119
----------- ----------- ----------- ----------- -----------
Total nonperforming assets $ 2,119 $ 2,695 $ 3,804 $ 4,253 $ 4,936
=========== =========== =========== =========== ===========
Accrual of interest is discontinued on a loan when principal or interest is
ninety days or more past due, unless the loan is well secured and in the process
of collection. When a loan is placed on nonaccrual status, interest previously
accrued but not collected in the current period is reversed against current
period interest income. Interest accrued in prior years but not collected is
charged against the allowance for loan losses. Interest income of approximately
$50,000, $23,000, and $84,000 was recorded during 1999, 1998, and 1997, on loans
in nonaccrual status at year-end. Interest income which would have been
recognized during 1999, 1998, and 1997, had these loans been on an accrual basis
throughout the year, was approximately $142,000, $114,000, and $273,000.
The following table summarizes, for the years indicated, activity in the
allowance for loan losses, including amounts charged off, amounts of recoveries,
additions to the allowance charged to operating expense, and the ratio of net
charge-offs to average loans outstanding:
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
<CAPTION>
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Average total loans (exclusive of loans held for sale) $ 579,660 $ 543,965 $ 521,906 $ 454,708 $ 434,403
============ ============ ============ ============ ============
Allowance at beginning of year $ 7,823 $ 6,923 $ 6,968 $ 6,686 $ 6,370
Charge-offs:
Commercial and industrial 48 286 1,285 615 3,299
Real estate 366 10 148 117 134
Installment and other loans 238 256 209 169 185
------------ ------------ ------------ ------------ ------------
Total charge-offs 652 552 1,642 901 3,618
------------ ------------ ------------ ------------ ------------
Recoveries:
Commercial and industrial 20 132 176 362 431
Real estate 246 45 105 - 11
Installment and other loans 77 62 60 73 93
------------ ------------ ------------ ------------ ------------
Total recoveries 343 239 341 435 535
------------ ------------ ------------ ------------ ------------
Net charge-offs 309 313 1,301 466 3,083
Provision for loan losses 930 1,213 1,256 748 3,399
------------ ------------ ------------ ------------ ------------
Allowance at end of period $ 8,444 $ 7,823 $ 6,923 $ 6,968 $ 6,686
============ ============ ============ ============ ============
Net charge-offs to average loans 0.05% 0.06% 0.25% 0.10% 0.71%
Allowance at year end to average loans 1.46% 1.44% 1.33% 1.53% 1.54%
</TABLE>
The provision for loan losses is based upon management's estimate of anticipated
loan losses and its evaluation of the adequacy of the allowance for loan losses.
Factors which influence management's judgement in estimating loan losses are the
composition of the portfolio, past loss experience, loan delinquencies,
nonperforming loans, and other factors that, in management's judgment, deserve
evaluation in estimating loan losses.
Page 11
<PAGE>
The following table shows the Company's allocation of the allowance for loan
losses by types of loans and the amount of unallocated allowance, at December
31, of the years indicated:
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------------
Loan Type Loan Type Loan Type Loan Type Loan Type
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
--------- -------- --------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and industrial $ 5,040 24.9% $ 4,675 25.7% $ 4,100 27.4% $ 4,100 29.8% $ 3,990 35.8%
Real estate - construction 230 9.6 210 8.3 185 8.1 185 8.4 180 7.9
Real estate - mortgage 1,370 54.8 1,250 55.7 1,060 53.6 1,060 51.6 1,040 45.3
Installment and other loans 1,665 10.7 1,545 10.3 1,430 10.9 1,430 10.2 1,248 11.0
Unallocated 139 143 148 193 228
--------- -------- --------- -------- --------- -------- --------- -------- --------- --------
Total $ 8,444 100.0% $ 7,823 100.0% $ 6,923 100.0% $ 6,968 100.0% $ 6,686 100.0%
========= ======== ========= ======== ========= ======== ========= ======== ========= ========
The following table sets forth the amount and maturities of deposits of $100,000
or more at December 31, 1999:
TIME DEPOSITS OF $100,000 OR MORE
<CAPTION>
<S> <C>
3 months or less $ 31,618
Over 3 months through 6 months 28,637
Over 6 months through 12 months 10,458
Over 12 months 4,984
------------
$ 75,697
============
The following table reflects categories of short-term borrowings having average
balances during the year greater than 30% of stockholders' equity of the Company
at the end of the year. During each year reported, securities sold under
repurchase agreements are the only category meeting this criteria. Information
presented is as of or for the year ended December 31, for the years indicated:
SHORT-TERM BORROWINGS
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Balance at end of year $ 27,610 $ 37,107 $ 31,023
Weighted average interest rate 3.08% 2.49% 4.37%
Maximum month-end amount outstanding during the year $ 31,499 $ 37,107 $ 31,021
Average amount outstanding during the year $ 20,974 $ 22,640 $ 17,296
Weighted average interest rate during the year 3.91% 4.37% 5.02%
The following table presents selected financial ratios as of or for the year
ended December 31, for the years indicated:
SELECTED RATIOS
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Return on average total assets 1.26% 1.15% 1.06%
Return on average equity 12.06% 11.69% 11.04%
Average equity to average assets 10.48% 9.82% 9.64%
Dividend payout ratio 28.43% 24.86% 28.66%
</TABLE>
Page 12
<PAGE>
ITEM 2. PROPERTIES
Old Second is located at 37 South River Street, Aurora, Illinois. Old
Second has full-service branches located in Illinois at: 200 West John Street,
North Aurora; 1350 North Farnsworth Avenue, Aurora; 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.
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 ATMs to complete deposit, withdrawal,
transfer, and other banking transactions.
Maple Park operates a retail division from leased offices in St.
Charles, Sycamore, Oswego, and Rockford, Illinois. The main office is located at
1450 West Main Street in St. Charles.
ITEM 3. LEGAL PROCEEDINGS
The Company has certain collection suits in the ordinary course of
business against its debtors and is a defendant in legal actions arising from
normal business activities. Management, after consultation with legal counsel,
believes that the ultimate liabilities, if any, resulting from these actions
will not have a material adverse effect on the financial position of the Bank or
on the consolidated financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company incorporates by reference the information contained on page
29 of the 1999 Annual Report (attached hereto as Exhibit 13) under the caption
"Corporate Information." As of March 21, 2000, there were 1,261 holders of
record of the Company's common stock.
The Company also incorporates by reference the information contained on
page 24 of the 1999 Annual Report (attached hereto as Exhibit 13) under the
"Notes to Consolidated Financial Statements Note P: Capital"
ITEM 6. SELECTED FINANCIAL DATA
The Company incorporates by reference the information contained on page
4 of the 1999 Annual Report (attached hereto as Exhibit 13) under the caption
"Old Second Bancorp, Inc. and Subsidiaries Financial Highlights."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company incorporates by reference the information contained on
pages 5 - 10 of the 1999 Annual Report (attached hereto as Exhibit 13) under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Page 13
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company incorporates by reference the information contained on
pages 9 and 10 of the 1999 Annual Report (attached hereto as Exhibit 13) under
the caption "Interest Rate Risk."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company incorporates by reference the following financial
statements and related notes from the 1999 Annual Report (attached hereto as
Exhibit 13):
<TABLE>
<CAPTION>
ANNUAL REPORT
PAGE NO.
-------------
<S> <C>
Consolidated Balance Sheets 11
Consolidated Statements of Income 12
Consolidated Statements of Cash Flows 13
Consolidated Statements of Changes in Stockholders' Equity 14
Notes to Consolidated Financial Statements 15-27
Independent Auditors' Report 28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company incorporates by reference the information contained in the
Proxy Statement for the 2000 Annual Meeting of Stockholders on pages 5 through 8
under the caption "Election of Directors" and on page 3 under the caption
"Compliance with Section 16(a) of the Exchange Act."
EXECUTIVE OFFICERS OF THE REGISTRANT AND SUBSIDIARY
<CAPTION>
NAME, AGE AND YEAR
BECAME EXECUTIVE OFFICER
OF THE REGISTRANT POSITIONS WITH REGISTRANT
- ------------------------- ---------------------------------
<S> <C>
James Benson Chairman of the Board
Age 69 1971
William B. Skoglund President and CEO of Old Second Bancorp, Inc.
Age 49 1992 President and CEO of Old Second National Bank
George Starmenn III Executive Vice President and Secretary of Old Second Bancorp, Inc.
Age 56 1995 Executive Vice President and Senior Trust Officer of Old Second National Bank
J. Douglas Cheatham Vice President and Chief Financial Officer of Old Second Bancorp, Inc.
Age 43 1999
</TABLE>
There are no arrangements or understandings between any of the
executive officers or any other persons pursuant to which any of the executive
officers have been selected for their respective positions.
Page 14
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The Company incorporates by reference the information contained on
pages 5 - 8 of the Proxy Statement for the 2000 Annual Meeting of Stockholders
under the caption "Election of Directors," and on pages 8 - 9 under the caption
"Executive Compensation." The sections in the Proxy Statement marked
"Compensation Committee Report on Executive Compensation" and "Comparison of
Five Year Cumulative Total Return" are furnished for the information of the
Commission and are not deemed to be "filed" as part of this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company incorporates by reference the information contained on
pages 3 - 5 of the Proxy Statement for the 2000 Annual Meeting of Stockholders
under the caption "Voting Securities and Principal Holders Thereof."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company incorporates by reference the information contained on
pages 14, 16 and 17 of the Proxy Statement for the 2000 Annual Meeting of
Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) INDEX TO FINANCIAL STATEMENTS
The following consolidated financial statements and related notes are
incorporated by reference from the 1999 Annual Report (attached hereto as
Exhibit 13).
<TABLE>
<CAPTION>
ANNUAL REPORT
PAGE NO.
-------------
<S> <C>
Consolidated Balance Sheets 11
Consolidated Statements of Income 12
Consolidated Statements of Cash Flows 13
Consolidated Statements of Changes in Stockholders' Equity 14
Notes to Consolidated Financial Statements 15-27
Independent Auditors' Report 28
</TABLE>
(a)(2) FINANCIAL STATEMENT SCHEDULES
All financial statement schedules as required by Item 8 and Item 14 of
Form 10-K have been omitted because the information requested is either not
applicable or has been included in the consolidated financial statements or
notes thereto.
Page 15
<PAGE>
(a)(3) EXHIBITS
The following exhibits required by Item 601 of Regulation S-K are
included along with this 10-K filing:
<TABLE>
<CAPTION>
ITEM 601
TABLE II. NO.
-------------
<S> <C> <C>
(3)(a) Articles of Incorporation of Old Second Bancorp, Inc. (filed as an exhibit to of the
Company's S-14 filed on January 22, 1982.)
(3)(b) By-laws of Old Second Bancorp, Inc. (filed as an exhibit to of the Company's S-14
filed on January 22, 1982.)
(10)(d) Form of Compensation and Benefits Assurance Agreements
(13) The Company's 1999 Annual Report to Stockholders
(22) A list of all subsidiaries of the Company
(23) Consent of Ernst & Young, LLP
(27) Financial Data Schedule
</TABLE>
(b) REPORTS ON FORM 8-K
None
Page 16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and 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.
BY: /s/ JAMES E. BENSON
--------------------------------
James E. Benson
Chairman of the Board
BY: /s/ WILLIAM B. SKOGLUND
--------------------------------
William B. Skoglund
President and Chief Executive Officer
DATE: March 27, 2000
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 and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JAMES BENSON Chairman of the Board, Director March 27, 2000
- ------------------------------------
Calvin R. Myers President and Chief Executive Officer
/s/ WILLIAM B. SKOGLUND President and Chief Executive Officer, Director March 27, 2000
- ------------------------------------
William B. Skoglund
/s/ WALTER ALEXANDER Director March 27, 2000
- ------------------------------------
Walter Alexander
/s/ MARVIN FAGEL Director March 27, 2000
- ------------------------------------
Marvin Fagel
/s/ WILLIAM KANE Director March 27, 2000
- ------------------------------------
William Kane
/s/ KENNETH LINDGREN Director March 27, 2000
- ------------------------------------
Kenneth Lindgren
/s/ JESSE MABERRY Director March 27, 2000
- ------------------------------------
Jesse Maberry
/s/ WILLIAM MEYER Director March 27, 2000
- ------------------------------------
William Meyer
/s/ LARRY SCHUSTER Director March 27, 2000
- ------------------------------------
Larry Schuster
/s/ GEORGE STARMANN III Director March 27, 2000
- ------------------------------------
George Starmann III
</TABLE>
Page 17
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION OF EXHIBITS PAGE NO.
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(3)(a) Articles of Incorporation of Old Second Bancorp, Inc. (filed as an exhibit to of the Company's S-14 --
filed on January 22, 1982.)
- -----------------------------------------------------------------------------------------------------------------------------------
(3)(b) By-laws of Old Second Bancorp, Inc. (filed as an exhibit to of the Company's S-14 filed on January --
22, 1982.)
- -----------------------------------------------------------------------------------------------------------------------------------
(10)(d) Form of Compensation and Benefits Assurance Agreement --
- -----------------------------------------------------------------------------------------------------------------------------------
(13) The Company's 1999 Annual Report to Stockholders 20-50
- -----------------------------------------------------------------------------------------------------------------------------------
(22) A list of all subsidiaries of the Company 51
- -----------------------------------------------------------------------------------------------------------------------------------
(23) Consent of Ernst & Young LLP 52
- -----------------------------------------------------------------------------------------------------------------------------------
(27) Financial Data Schedule --
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 18
<PAGE>
Exhibit (10)(d)
COMPENSATION AND BENEFITS
ASSURANCE AGREEMENT FOR
OLD SECOND BANCORP, INC.
(AMENDED 3/1/2000)
Page 19
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Section 1. Term of Agreement 1
Section 2. Severance Benefits 2
Section 3. Excise Tax 5
Section 4. Successors and Assignments 6
Section 5. Restrictive Covenants 6
Section 6. Miscellaneous 7
Section 7. Contractual Rights and Legal Remedies 8
</TABLE>
Page 20
<PAGE>
COMPENSATION AND BENEFITS ASSURANCE AGREEMENT
This COMPENSATION AND BENEFITS ASSURANCE AGREEMENT (this "Agreement")
is made, entered into, and is effective as of this 1ST DAY OF APRIL, 2000 (the
"Effective Date") by and between Old Second Bancorp, Inc. (hereinafter referred
to as the "Company") and ________________________________, (hereinafter referred
to as the "Executive").
WHEREAS, the Executive is presently employed by The Old Second National
Bank of Aurora, Aurora, Illinois (the "Bank"), in a key management capacity; and
WHEREAS, the Executive possesses considerable experience and knowledge
of the business and affairs of the Company concerning its policies, methods,
personnel, and operations; and
WHEREAS, the Company is the holder, directly and indirectly, of all of
the issued and outstanding stock of the Bank; and
WHEREAS, the Company is desirous of assuring the continued employment
of the Executive in a key management capacity, and the Executive is desirous of
having such assurances.
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements of the parties set forth in this Agreement, and of
other good and valuable consideration including, but not limited to, the
Executive's continuing employment with the Company, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto, intending to be legally
bound, agree as follows:
SECTION 1. TERM OF AGREEMENT
This Agreement will commence on the Effective Date and shall continue
in effect for one full calendar year (through March 31, 2001) (the "Initial
Term").
The term of this Agreement automatically shall be extended for
one additional year at the end of the initial Term, and then again after each
successive one-year period thereafter (each such one-year period following the
Initial Term a "Successive Period"). However, either party may terminate this
Agreement at the end of the Initial Term, or at the end of any Successive Period
thereafter, by giving the other party written notice of intent not to renew
delivered at least ninety (90) calendar days prior to the end of such Initial
Term or Successive Period. Except as otherwise provided, if such notice is
properly delivered by either party, this Agreement, along with all corresponding
rights, duties, and covenants, shall automatically expire at the end of the
Initial Term or Successive Period then in progress.
In the event that a "Change in Control" of the Company occurs (as such
term is hereinafter defined) during the Initial Term or any Successive Period,
upon the effective date of such Change in Control, the term of this Agreement
shall automatically and irrevocably be renewed for a period of twenty-four (24)
full calendar months from the effective date of such Change in Control (such
24-month period being hereinafter referred to as the "Extended Period"). This
Agreement shall thereafter automatically terminate following the twenty-four
(24) month Change-in-Control renewal period. Further, this Agreement shall be
assigned to, and shall be assumed by, the purchaser in such Change in Control,
as further provided in Section 4 herein.
SECTION 2. SEVERANCE BENEFITS
2.1. RIGHT TO SEVERANCE BENEFITS. The Executive shall be entitled to
receive from the Company Severance Benefits as described in Paragraph 2.3 and
Section 3 herein, if during the term of this Agreement there has been a Change
in Control of the Company or the Bank (as defined in Paragraph 2.4 herein) and
if, within the Extended Period, the Executive's employment with the Bank shall
end for any reason specified in Paragraph 2.2 herein as being a Qualifying
Termination. The Severance Benefits described in Paragraphs 2.3(a) and 2.3(b)
herein shall be paid in cash to the Executive in a single lump sum as soon as
practicable following the Qualifying Termination, but in no event later than
thirty (30) calendar days from such date. Notwithstanding the foregoing,
Severance Benefits which become due pursuant to the circumstances described in
Paragraphs 2.2(c) and 4.1 shall be paid immediately.
Page 21
<PAGE>
2.2. QUALIFYING TERMINATION. The occurrence of any one or more of the
following events (i.e., a "Qualifying Termination") within the Extended Period
shall trigger the payment of Severance Benefits to the Executive, as such
benefits are described under Paragraph 2.3 herein:
(a) The Bank's involuntary termination of the Executive's
employment without Cause (as such term is defined in Paragraph
2.6 herein);
(b) The Executive's voluntary termination of employment for
Good Reason (as such term is defined in paragraph 2.5 herein);
and
(c) The Company or the Bank, or any successor company, commits a
material breach of any of the provisions of this Agreement
including, but not limited to the Company failing to obtain the
assumption of, or the successor company refusing to assume the
obligations of this Agreement pursuant to Paragraph 4.1 herein.
A Qualifying Termination shall not include a termination of the
Executive's employment within ____________ (__) calendar months after a Change
in Control by reason of death, disability, the Executive's voluntary termination
without Good Reason, or the Bank's involuntary termination of the Executive's
employment for Cause.
2.3. DESCRIPTION OF SEVERANCE BENEFITS. In the event that the Executive
becomes entitled to receive Severance Benefits, as provided in Paragraphs 2.1
and 2.2 herein, the Company (or the Bank at the direction of the Company) shall,
within the time limits stated in Paragraph 2.1, pay to the Executive and provide
the Executive with the following:
(a) A lump-sum cash amount equal to the Executive's unpaid Base Salary
(as such term is defined in Paragraph 2.7 herein), accrued vacation pay,
unreimbursed business expenses, and all other items earned by and owed to the
Executive through and including the date of the Qualifying Termination. Such
payment shall constitute full satisfaction for these amounts owed to the
Executive.
(b) A lump-sum cash amount equal to ___ (_) multiplied by the
greater of the Executive's annual rate of Base Salary in
effect upon the date of the Qualifying Termination, or the
Executive's annual rate of Base Salary in effect immediately
prior to the occurrence of the Change in Control.
(c) Immediate 100% vesting of all stock options, and any other
awards which had been provided to the Executive by the Bank
under any incentive compensation plan.
(d) At the exact same cost to the Executive, and at the same
coverage level as in effect as of the Executive's date of
Qualifying Termination (subject to changes in coverage levels
applicable to all employees generally), a continuation of the
Executive's (and the Executive's eligible dependents') health
insurance coverage for twenty-four (24) months from the date
of the Qualifying Termination. The applicable COBRA health
insurance benefit continuation period shall begin at the end
of this twenty-four (24) month benefit continuation period.
The providing of health insurance benefits by the Company
shall be discontinued prior to the end of the twenty-four (24)
month continuation period in the event that the Executive
subsequently becomes covered under the health insurance
coverage of a subsequent employer which does not contain any
exclusion or limitation with respect to any preexisting
condition of the Executive or the Executive's eligible
dependents. For purposes of enforcing this offset provision,
the Executive shall have duty to inform the Company as to the
terms and conditions of any subsequent employment and the
corresponding benefits earned from such employment. The
Executive shall provide, or cause to provide, to the Company
in writing correct, complete, and timely information
concerning the same.
(e) The Executive shall be entitled to receive standard
outplacement services from a nationally recognized
outplacement firm of the Executive's selection, for a period
of up to one (1) year from the Executive's date
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<PAGE>
of Qualifying Termination. However, such service shall be at
the Company's expense to a maximum amount not to exceed twenty
thousand dollars ($20,000).
2.4. DEFINITION OF "CHANGE IN CONTROL." "Change in Control" of the
Company or the Bank means, and shall be deemed to have occurred upon, the first
to occur of any of the following events:
(a) Any Person or Persons acting in concert (other than those
Persons in control of the Company or the Bank as of the
Effective Date, or other than a trustee or other fiduciary
holding securities under an employee benefit plan of the
Company, or a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same
proportions as their ownership of the stock Company) becomes
the Beneficial Owner, directly or indirectly, of securities of
the Company or the Bank representing twenty percent (20%) or
more of the combined voting power of the Company's or the
Bank's then outstanding securities; or
(b) During any period of ___(__) consecutive years (not including
any period prior to the Effective Date), individuals who at
the beginning of such period constitute the Board of Directors
of the Company cease for any reason to constitute a majority
thereof; or
(c) The stockholders of the Company approve: (i) a plan of
complete liquidation of the Company or the Bank; or (ii) an
agreement for the sale or disposition of all or substantially
all of the Company's or the Bank's assets; or (iii) a merger,
consolidation, or reorganization of the Company or the Bank
with or involving any other corporation or bank, other than a
merger, consolidation, or reorganization that would result in
the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity) at least seventy five (75%) of the
combined voting power of the voting securities of the Company
(or such surviving entity) outstanding immediately after such
merger, consolidation, or reorganization.
However, in no event shall a "Change in Control" be deemed to have occurred,
with respect to the Executive, if the Executive is part of a purchasing group
which consummates the Change-in-Control transaction. The Executive shall be
deemed "part of a purchasing group" for purposes of the preceding sentence if
the Executive is an equity participant in the purchasing company or group
(except for: (i) passive ownership of less than one percent (1%) of the stock of
the purchasing company; or (ii) ownership of equity participation in the
purchasing company or group which is otherwise not significant, as determined
prior to the Change in Control by a majority of the nonemployee continuing
Directors).
2.5. DEFINITION OF "GOOD REASON." "Good Reason" shall mean,
without the Executive's express written consent, the occurrence by any one or
more of the following within the Extended Period:
(a) The assignment of the Executive to duties inconsistent with
the Executive's position, duties, responsibilities, and status
as an officer of the Bank, or a reduction or alteration in the
nature or status of the Executive's authorities, duties, or
responsibilities from those in effect as of ninety (90)
calendar days prior to the Change in Control, other than an
insubstantial and inadvertent act that is remedied by the
Company promptly after receipt of notice thereof given by the
Executive.
(b) The Bank's requiring the Executive to be based at a location
in excess of twenty-five (25) miles from the location of the
Executive's principal job location or office immediately prior
to the Change in Control; except for required travel on the
Bank's business to an extent consistent with the Executive's
then present business travel obligations.
(c) A reduction by the Bank of the Executive's Base Salary in
effect on the Effective Date, or as the same shall be
increased from time to time.
(d) The failure of the Bank to keep in effect any of the Bank's
compensation, health and welfare benefits, or perquisite
programs under which the Executive receives value, as such
programs exist immediately prior to the Change in Control, or
the failure of the Bank to meet the funding requirements, if
any, of each of the programs. However, the replacement of an
existing program with a new program will be permissible (and
not grounds for a Good Reason termination) if done for all
employees generally.
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<PAGE>
(e) Any breach by the Company of its obligation under Section 4 of
this Agreement or any failure of a successor company to assume
and agree to perform the Company's entire obligations under
this Agreement, as required by Section 4 herein.
The Executive's right to terminate employment for Good Reason shall not
be affected by the Executive's incapacity due to physical or mental illness. The
Executive's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstance constituting Good Reason herein.
2.6 DEFINITION OF "CAUSE." "Cause" shall mean the occurrence of
any one or more of the following:
(a) A demonstrably willful and deliberate act or failure to act by
the Executive (other than as a result of incapacity due to
physical or mental illness) which is committed in bad faith,
without reasonable belief that such action or inaction is in
the best interests of the Company, which causes actual
material financial injury to the Bank and which act or
inaction is not remedied within fifteen (15) business days of
written notice from the Bank; or
(b) The Executive's conviction for committing an act of fraud,
embezzlement, theft, or any other act constituting a felony
involving moral turpitude which causes material harm,
financial or otherwise, to the Bank.
2.7 OTHER DEFINED TERMS. The following terms shall have the
meanings set forth below:
(a) "Base Salary" means, at any time, the then-regular annual rate
of pay which the Executive is receiving as salary, excluding
amounts: (i) designated by the Company as payment toward
reimbursement of expenses; of (ii) received under incentive or
other bonus plans, regardless of whether or not the amounts
are deferred.
(b) "Beneficial Owner" shall have the meaning ascribed to such
term in Rule 13d-3 of the General Rules and Regulations under
the Exchange Act (as such term is defined below).
(c) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor act thereto.
(d) "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d)
and 14(d) thereof, including a "group" as defined in Section
13(d) thereof.
SECTION 3. EXCISE TAX
3.1. EXCISE TAX PAYMENT. If any portion of the Severance Benefits or
any other payment under this Agreement, or under any other agreement with, or
plan of the Company or Bank, including but not limited to stock options and
other long-term incentives (in the aggregate "Total Payments") would constitute
an "excess parachute payment," such that a golden parachute excise tax is due,
the Company (or the Bank at the Company's direction) shall provide to the
Executive, in cash, an additional payment in an amount to cover the full cost of
any excise tax and the Executive's state and federal income and employment taxes
on this additional payment (cumulatively, the "Gross-Up Payment"). This Gross-Up
Payment shall be made a soon as possible following the date of the Executive's
Qualifying Termination, but in no event later than thirty (30) calendar days of
such date.
For purposes of this Agreement, the term "excess parachute payment"
shall have the meaning assigned to such term in Section 280G of the Internal
Revenue Code, as amended (the "Code"), and the term "excise tax" shall mean the
tax imposed on such excess parachute payment pursuant to Sections 280G and 4999
of the Code.
3.2. SUBSEQUENT RECALCULATION. In the event the Internal Revenue
Service subsequently adjusts the excise tax computation herein described, the
Company (or the Bank at the Company's direction) shall reimburse the Executive
for the full amount necessary to make the Executive whole on an after-tax basis
(less any amounts received by the Executive that the Executive would not have
received had the computations initially been computed as subsequently adjusted),
including the
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<PAGE>
value of any underpaid excise tax, and any related interest and/or penalties due
to the Internal Revenue Service.
SECTION 4. SUCCESSORS AND ASSIGNMENTS
4.1. SUCCESSORS. The Company will require any successor (whether via a
Change in Control, direct or indirect, by purchase, merger, consolidation, or
otherwise) of the Company or the Bank to expressly assume and agree to perform
the obligations under this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had taken
place.
Failure of the Company to obtain such assumption and agreement prior to
the effectiveness of any such succession shall, as of the date immediately
preceding the date of a Change in Control, automatically give the Executive Good
Reason to collect, immediately, full benefits hereunder as a Qualifying
Termination.
4.2. ASSIGNMENT BY EXECUTIVE. This Agreement shall inure to the benefit
of and be enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees, and
legatees. If an Executive should die while any amount is still payable to the
Executive hereunder, had the Executive continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Executive's devisee, legatee, or other designee, or if
there is no such designee, to the Executive's estate.
An Executive's rights hereunder shall not otherwise be assignable.
SECTION 5. RESTRICTIVE COVENANTS
5.1. COVENANTS. Without the prior written consent of the Company, and
where the Executive is entitled to receive the Severance Benefits pursuant to
the terms of this Agreement, during the 24-month period next following the
Executive's termination of employment with the Bank, the Executive shall not,
directly or indirectly:
(a) DISCLOSURE OF INFORMATION. Use, attempt to use, disclose, or
otherwise make known to any person or entity (other than the
Board of Directors of the Company or the Bank):
(i) Any confidential or proprietary knowledge or
information, including without limitation, lists of
customers, processes, and systems, as well as any
data and records pertaining thereto, which the
Executive may acquire in the course of his
employment.
(ii) Any confidential or proprietary knowledge or
information of a confidential nature (including but
not limited to all unpublished matters) relating to,
within limitation, the business, properties,
accounting, books and records, computer systems and
programs, or memoranda of the Company or the Bank.
5.2 ACKNOWLEDGMENT OF COVENANTS. The parties hereto acknowledge that
the Executive's services are of a special, extraordinary, and intellectual
character which gives him unique value, and that the business of the Company and
its subsidiaries is highly competitive, and that violation of any of the
covenants provided in this Section 5 would cause immediate, immeasurable, and
irreparable harm, loss and damage to the Company not adequately compensable by a
monetary award. The Executive acknowledges that the time and scope of activity
restrained by the provisions of this Section 5 are reasonable and do not impose
a greater restraint than is necessary to protect the goodwill of the Company's
business. The Executive further acknowledges that he and the Company have
negotiated and bargained for the terms of this Agreement and that the Executive
has received adequate consideration for entering into the Agreement. In the
event of any such breach or threatened breach by the Executive of any one or
more of such covenants, the Company shall be entitled to such equitable and
injunctive relief as may be available to restrain the Executive from violating
the provisions hereof. Nothing herein shall be construed as prohibiting the
Company from pursuing any other remedies available at law or in equity for such
breach or threatened breach, including the recovery of damages and the immediate
termination of the employment of the Executive hereunder.
SECTION 6. MISCELLANEOUS
6.1. (a) ADMINISTRATION. This Agreement shall be administered by the
Board of Directors of the Company, or
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<PAGE>
by a Committee of the Board consisting of Board members designated by the Board
(the "Compensation Committee"). The Compensation Committee (with the approval of
the Board, if the Board is not the Compensation Committee) is authorized to
interpret this Agreement, to prescribe and rescind rules and regulations, and to
make all other determinations necessary or advisable for the administration of
this Agreement. In fulfilling its administrative duties hereunder, the
Compensation Committee may rely on outside counsel, independent accountants, or
other consultants to render advice or assistance.
(b) CLAIMS PROCEDURE. If the Executive believes that he is
being denied a benefit to which he is entitled under the Agreement, he may file
a written request for such benefit with the Company, setting forth his claim.
Upon receipt of the claim, the Company shall advise the Executive that a reply
will be forthcoming within 15 days and shall, in fact, deliver such reply with
such period. The Company may, however, extend the reply period for an additional
15 days for reasonable cause. If the claim is denied in whole or in part, the
Company shall adopt a written opinion, using language calculated to be
understood by the Executive, setting forth:
(i) The specific reason or reasons for such denied;
(ii) The specific reference to pertinent provisions of
this Agreement on which such denial is based;
(iii) A description of any additional material or
information necessary for the Executive to perfect
his claim and an explanation why such material or
such information is necessary;
(iv) Appropriate information as to the steps to be
taken if the Executive wishes to submit the claim
for review; and
(v) The time limits for requesting the review under
(c) below.
(c) REQUEST FOR CLAIM DECISION REVIEW. Within 30 days after
receipt by the Executive of the written opinion described above, the Executive
may request in writing that the President of the Company review the description
of the Company. Such request must be addressed to the President of the Company,
at its then principal place of business. The Executive of his duly authorized
representative may, but need not, review the pertinent documents and submit
issues and comments in writing for consideration by the Company. If the
Executive does not request a review of the Company's determination by the
President of the Company within such 30-day period, he shall be barred and
estopped from challenging the Company's determination. Within 30 days after the
President's receipt of a request for review, he will review the Company's
determination. After considering all materials presented by the Executive, the
President will render a written opinion, written in a manner calculated to be
understood by the Executive, setting forth specific reasons for the decision and
containing specific references to the pertinent provisions of this Agreement on
which the decision is based.
6.2. NOTICES. Any notice required to be delivered to the Company, the
Compensation Committee or the President of the Company by the Executive
hereunder shall be properly delivered to the Company when personally delivered
to (including by a reputable overnight courier), or actually received through
the U.S. mail, postage prepaid, by:
Old Second Bancorp, Inc.
37 South River Street
Aurora, IL 60506
Any notice required to be delivered to the Executive by the Company,
the Compensation Committee or the President of the Company hereunder shall be
properly delivered to the Executive when personally delivered to (including by a
reputable overnight courier), or actually received through he U.S. mail, postage
prepaid, by the Executive at his last known address as reflected on the books
and records of the Company.
SECTION 7. CONTRACTUAL RIGHTS AND LEGAL REMEDIES
7.1. CONTRACTUAL RIGHTS TO BENEFITS. This Agreement establishes in the
Executive a right to the benefits to which the Executive is entitled hereunder.
However, except as expressly stated herein, nothing herein contained shall
require or be
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<PAGE>
deemed to require, or prohibit or be deemed to prohibit, the Company to
segregate, earmark, or otherwise set aside any funds or other assets, in trust
or otherwise, to provide for any payments to be made or required hereunder.
7.2. LEGAL FEES AND EXPENSES. The Company shall pay all legal fees,
costs of litigation, prejudgment interest, and other expenses which are incurred
in good faith by the Executive as a result of the Company's refusal to provide
the Severance Benefits to which the Executive becomes entitled under this
Agreement. In addition, if the Executive shall resort to either litigation or
arbitration in order to secure the payment by the Company of the Severance
Benefits, and the Executive is successful in such litigation or arbitration,
then the Company shall also pay to the Executive an additional amount equal to
25% of the Severance Benefits. Whether or not the Executive has been successful
in such litigation or arbitration shall also be determined in the same
proceeding.
7.3. ARBITRATION. The Executive shall have the right and option to
elect (in lieu of litigation) to have any dispute or controversy arising under
or in connection with this Agreement settled by arbitration, conducted before a
panel of three (3) arbitrators sitting in a location selected by the Executive
within fifty (50) miles from the location of his or her job with the Company, in
accordance with the rules of the American Arbitration Association then in
effect. The Executive's election to arbitrate, as herein provided, and the
decision of the arbitrators in that proceeding, shall be binding on the Company
and Executive.
Judgment may be entered on the award of the arbitrator in any court
having jurisdiction. All expenses of such arbitration, including the fees and
expenses of the counsel for the Executive, shall be borne by the Company.
7.4. UNFUNDED AGREEMENT. This Agreement is intended to be an unfunded
general asset promise for a select, highly compensated member of the Company's
management and, therefore, is intended to be exempt from the substantive
provisions of the Employee Retirement Income Security Act of 1974 as amended.
7.5. EXCLUSIVITY OF BENEFITS. Unless specifically provided herein,
neither the provisions of this Agreement nor the benefits provided hereunder
shall reduce any amounts otherwise payable, or in any way diminish the
Executive's rights as an employee of the Company, whether existing now or
hereafter, under any compensation and/or benefit plans (qualified or
nonqualified), programs, policies, or practices provided by the Company, for
which the Executive may qualify.
Vested benefits or other amounts which the Executive is otherwise
entitled to receive under any plan, policy, practice, or program of the Company,
at or subsequent to the Executive's date of Qualifying Termination, shall be
payable in accordance with such plan, policy, practice, or program except as
expressly modified by this Agreement.
7.6. INCLUDABLE COMPENSATION. Severance Benefits provided hereunder
shall not be considered "includable compensation" for purposes of determining
the Executive's benefits under any other plan or program of the Company.
7.7. EMPLOYMENT STATUS. Nothing herein contained shall be deemed to
create an employment agreement between the Company and the Executive providing
for the employment of the Executive by the Company for any fixed period of time.
The Executive's employment with the company is terminable at will by the Company
or the Executive and each shall have the right to terminate the Executive's
employment with the Company at any time, with or without Cause, subject to the
Company's obligation to provide Severance Benefits as required hereunder.
In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement, nor shall the
amount of any payment hereunder be reduced by any compensation earned by the
Executive as a result of employment by another employer, other than as provided
in Paragraph 2.3(d) herein.
7.8. ENTIRE AGREEMENT. This Agreement represents the entire agreement
between the parties with respect to the subject matter hereof, and supersedes
all prior discussion, negotiations, and agreements concerning the subject matter
hereof, including, but not limited to, any prior severance agreement made
between the Executive and the Company.
7.9. TAX WITHHOLDING. The Company shall withhold from any amounts
payable under this Agreement all federal, state, city, or other taxes as legally
required to be withheld.
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7.10. WAIVER OF RIGHTS. Except as otherwise provided herein, the
Executive's acceptance of Severance Benefits, the Gross-Up Payment (if
applicable), and any other payments required hereunder shall be deemed to be a
waiver of all rights and claims of the Executive against the company pertaining
to any matters arising under this Agreement.
7.11. SEVERABILITY. In the event any provision of the Agreement shall
be held illegal or invalid for any reason, the illegality or invalidity shall
not affect the remaining parts of the Agreement, and the Agreement shall be
construed and enforced as if the illegal or invalid provision had not been
included.
7.12. APPLICABLE LAW. To the extent not preempted by the laws of the
United States, the laws of the State of Illinois shall be the controlling law in
all matters relating to the Agreement.
IN WITNESS WHEREOF, the Company has executed this Agreement, to be
effective as of the day and year first written above.
ATTEST: OLD SECOND BANCORP, INC.
By: By:
--------------------------- ---------------------------------
Title:
-------------------------------
-------------------------------------
Name
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<PAGE>
SCHEDULE A TO EXHIBIT (10)(d)
Length of Agreement if
Executive's Name Change of Control Occurs
- ---------------- ------------------------
William B. Skoglund 3 Years
George Starmann III 2 Years
J. Douglas Cheatham 2 Years
Page 29
<PAGE>
Exhibit 22
LIST OF SUBSIDIARIES
SUBSIDIARIES OF THE COMPANY
The Old Second National Bank of Aurora
Yorkville National Bank
Kane County Bank and Trust Company
Bank of Sugar Grove
Burlington Bank
Maple Park Mortgage
<PAGE>
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
BALANCE SHEET ITEMS AT YEAR-END
Total assets .......................... $ 998,508 $1,014,292 $ 948,371 $ 889,844 $ 847,165
Net loans ............................. 602,326 548,722 527,709 474,946 455,341
Deposits .............................. 848,336 826,331 788,929 789,969 737,991
Notes payable ......................... 9,467 36,189 24,133 1,017 11,407
Stockholders' equity before accumulated
other comprehensive income .......... 105,738 99,103 90,768 83,896 78,096
Stockholders' equity .................. 103,761 101,926 92,121 84,200 79,615
RESULTS OF OPERATIONS
Net interest income ................... $ 37,835 $ 35,910 $ 34,127 $ 31,899 $ 30,917
Provision for loan losses ............. 930 1,213 1,256 748 3,399
Net income ............................ 12,408 11,049 9,594 8,337 8,756
PER SHARE DATA
Basic earnings per share .............. $ 2.04 $ 1.81 $ 1.57 $ 1.37 $ 1.44
Diluted earnings per share ............ 2.04 1.81 1.57 1.37 1.44
Dividends declared .................... 0.58 0.45 0.45 0.42 0.35
Stockholders' equity before accumulated
other comprehensive income .......... 17.56 16.24 14.88 13.76 12.81
Stockholders' equity .................. 17.23 16.70 15.11 13.81 13.05
Weighted average shares outstanding ... 6,082,270 6,099,510 6,098,380 6,098,584 6,098,824
Shares outstanding at year-end ........ 6,020,862 6,102,362 6,098,380 6,098,380 6,098,824
</TABLE>
NOTE: Prior years have been restated to reflect the acquisition of Maple Park
Bancshares, Inc. on May 13, 1997, which was accounted for as a
pooling-of-interests. The number of shares and per share amounts have been
adjusted to reflect a five-for-four stock split in 1996 and a two-for-one stock
split in 1999.
4
<PAGE>
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The consolidated financial statements include Old Second Bancorp, Inc. and its
wholly-owned subsidiaries; The Old Second National Bank of Aurora, Yorkville
National Bank, Bank of Sugar Grove, Burlington Bank, Kane County Bank and Trust
Company, and Maple Park Mortgage, together referred to as "the Company." The
banking subsidiaries are referred to herein as "the Banks." Inter-company
transactions and balances are eliminated in consolidation. During 1999, the
Company simplified its organizational structure by eliminating two bank
charters. The Old Second Community Bank of North Aurora and Old Second Community
Bank of Aurora were merged into The Old Second National Bank of Aurora ("Old
Second"). The mergers qualified as tax-free reorganizations and were accounted
for as internal reorganizations.
The Company provides financial services through its offices located in Kane,
Kendall, DeKalb, DuPage, Lake, LaSalle, and Winnebago counties in Illinois. Its
primary deposit products are checking, savings, and certificates of deposit, and
its primary lending products are residential and commercial mortgages,
construction lending, commercial, and installment loans. A major portion of
loans are secured by various forms of collateral including real estate, business
assets, consumer property, and other items, although borrower cash flow may also
be a primary source of repayment. Maple Park Mortgage provides mortgage-banking
services and Old Second also engages in trust operations.
The Board of Directors declared a two-for-one stock split on the Company's
common stock effective May 17, 1999. References to earnings per share and
dividends per share for all periods have been restated to reflect the stock
split.
Net income of $12,408,000, or $2.04 per share was achieved in 1999, which
compares with $11,049,000, or $1.81 per share in 1998, and $9,594,000 or $1.57
per share in 1997. Diluted earnings per share were $2.04, $1.81, and $1.57 in
1999, 1998, and 1997, respectively. Increases in net interest income contributed
to these increases. Net interest income grew $1.9 million (5.4%) to $37.8
million in 1999, and grew $1.8 million (5.2%) to $35.9 million in 1998, due to
an increase in earning assets in each year and an increase in the net interest
margin. Although period-end assets declined $15.8 million from December 31, 1998
to December 31, 1999, average assets were $981.9 million or $19.5 million higher
in 1999 than in 1998.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income is the difference between interest income earned on earning
assets and interest expense paid on interest bearing liabilities. As such, net
interest income is affected by changes in the volume and yields on earning
assets, and the volume and rates paid on interest bearing liabilities. Net
interest margin is the ratio of tax-equivalent net interest income to average
earning assets.
Net interest income was $37.8 million in 1999 and $35.9 million in 1998. This
increase resulted from an increase in average earning assets and a change in the
mix of earning assets. Average earning assets increased from $893.6 million in
1998 to $909.6 million in 1999, an increase of $16 million. In addition, a
greater portion of earning assets were allocated to higher yielding loans.
Average loans increased from $544.0 million in 1998 to $579.7 million in 1999.
The increase in net interest income from $34.1 million in 1997 to $35.9 million
in 1998 was the result of an increase in average earning assets that more than
offset a decline in the net interest margin in 1998. The net interest margin was
4.27%, 4.14%, and 4.23% in 1999, 1998, and 1997, respectively.
5
<PAGE>
MANAGEMENT'S DISCUSSION-CONTINUED
PROVISION FOR LOAN LOSSES
The provision for loan losses was $930,000 during 1999, $1,213,000 during 1998,
and $1,256,000 during 1997. Provisions for loan losses are made to recognize
current period net charge-off activity, and to provide for future losses on
loans which are identified as probable and estimable in the loan review process.
Net charge-offs were $309,000, $313,000, and $1,301,000 in 1999, 1998, and 1997,
respectively. When compared with total loans, net charge-offs as a percent of
total loans were 0.05%, 0.06%, and 0.24% in 1999, 1998, and 1997, respectively.
The allowance for loan losses was $8.4 million or 1.38% of loans and 414% of
nonperforming loans as of December 31, 1999. This compares with an allowance for
loan losses of $7.8 million or 1.41% of total loans as of December 31, 1998,
which was 356% of nonperforming loans. Nonperforming loans are defined as
nonaccrual loans, restructured loans, and loans past due ninety days or more and
still accruing. The adequacy of the allowance for loan losses is determined by
management based on factors that include the overall composition of the loan
portfolio, types of loans, past loss experience, loan delinquencies, potential
substandard and doubtful credits, and other factors that, in management's
judgment, deserve evaluation in estimating loan losses.
NONINTEREST INCOME
Noninterest income was $18.6 million in 1999, $20.4 million in 1998, and $14.0
million in 1997. Trust income was $4,473,000 in 1999, an increase of $319,000
(7.7%) from $4,154,000 in 1998. Assets under management were approximately $652
million in 1999, $611 million in 1998, and $555 million in 1997. Trust income
grew $237,000 (6.1%) in 1998, compared with $3,917,000 in 1997.
Service charges on deposits were $3,285,000, $3,139,000, and $3,134,000 in 1999,
1998, and 1997. The increase in service charges on deposit during this
three-year period is approximately equivalent to the increase in noninterest
bearing deposits. Other income included a $258,000 gain on the sale of an unused
bank building in 1999.
Mortgage banking income, including secondary mortgage fees, mortgage servicing
income, and gains on sales of loans totaled $8.7 million, $11.7 million, and
$5.4 million in 1999, 1998, and 1997. Mortgage banking income is largely
volume-driven and mortgage activity is susceptible to changes in interest rates
and general economic conditions. As a result of increases in market interest
rates in 1999, loan originations and sales volume were down in 1999, compared to
1998. Loans sold were approximately $458 million in 1999 and $650 million in
1998.
Unamortized mortgage servicing rights totaled approximately $7.7 million as of
December 31, 1999, and approximately $5.8 million as of December 31, 1998.
During the first quarter of 2000, Maple Park Mortgage entered into an agreement
to sell the majority of its mortgage servicing rights. A gain of $765,000 was
recorded at the time of the sale. A portion of the price has been retained by
the purchaser for possible loan prepayments in excess of that considered in the
contract. In future periods, Maple Park Mortgage will sell mortgage loans on a
servicing-released basis instead of retaining originated servicing rights.
NONINTEREST EXPENSES
Noninterest expenses were $37.3 million in 1999, $39.0 million in 1998, and
$33.2 million in 1997. The efficiency ratio was 64.92% in 1999, 67.95% in 1998,
and 67.28% in 1997. The efficiency ratio measures noninterest expenses as a
percent of tax-equivalent gross revenues. The decline in the ratio in 1999
reflects greater cost-efficiency than that which was achieved in 1998. Because
the mortgage banking business generally operates on a narrower margin than the
banking business, there will tend to be upward pressure on the Company's
efficiency ratio during years in which mortgage volume increases.
Salaries and employee benefits were $20.7 million in both 1999 and 1998, and
$18.0 million in 1997. Consolidation of the banks from seven separate charters
to five charters, accompanied by continued efforts to improve cost-efficiency,
resulted in no increase in aggregate salaries and benefits in 1999. Although the
volume-driven nature of the mortgage banking business
6
<PAGE>
MANAGEMENT'S DISCUSSION-CONTINUED
can impact growth in the Company's salaries and benefits, mortgage banking
salaries and benefits declined $85,000 (2.9%) during 1999. The $2.7 million
increase in salaries and employees benefits during 1998 included a $1.8 million
increase related to mortgage banking activities. Salaries related to core
banking operations increased 6.6% from 1998.
Occupancy expenses have increased from $2,162,000 in 1997 to $2,358,000 in 1998,
and $2,431,000 in 1999. During 1999, a mortgage office was closed in order to
reduce costs and an unused building was sold. These changes are expected to help
control occupancy expenses.
Furniture and equipment expenses were $3,529,000 in 1999, $3,970,000 in 1998,
and $3,275,000 in 1997. During 1998, check image processing was implemented, the
Company's mainframe computer was upgraded, and the computer network was
upgraded. One-time costs associated with these improvements were principally
responsible for the higher cost in 1998.
Amortization of mortgage servicing rights, net of changes in the valuation
allowance, was $462,000 in 1999, $1,370,000 in 1998, and $390,000 in 1997. As
discussed above, the Maple Park Mortgage subsidiary has entered into an
agreement to sell the majority of its mortgage servicing rights in 2000. Future
mortgage loans will be originated and sold on a servicing-released basis. As a
result, the amount and volatility of servicing rights amortization will be
substantially reduced.
INCOME TAXES
The Company's provision for Federal and State of Illinois income taxes was
$5,780,000, $5,036,000, and $4,018,000 during the years ended December 31, 1999,
1998, and 1997. The effective income tax rate for these years was 31.8%, 31.3%,
and 29.5%. The increase in the effective tax rate was primarily the result of
tax exempt income declining from $3.3 million in 1997, to $3.0 million in 1998,
and $2.6 million in 1999.
FINANCIAL CONDITION
Total assets were $998.5 million as of December 31, 1999, a decline of $15.8
million from December 31, 1998. A significant portion of this decline is
associated with a decline in loans held for sale from $36.7 million to $8.4
million during 1999. At the same time, notes payable, which principally fund
loans held for sale, declined similarly from $36.2 million to $9.5 million.
During 1999 assets were reallocated from Federal funds sold and investments to
loans, which generally earn a higher rate of interest.
INVESTMENTS
In order to support loan growth, securities decreased $21.5 million during 1999,
from $292.4 million as of December 31, 1998, to $270.9 million as of December
31, 1999. U.S. government agency securities were $166.2 million at December 31,
1999, a decline of $15.7 million from a year earlier. U.S. government agency
securities comprised 61.4% of the portfolio as of December 31, 1999, and 62.2%
of the portfolio as of December 31, 1998. Mortgage backed securities declined
$6.0 million, from $31.2 million to $25.2 million during 1999. The changes in
U.S. government agency securities and mortgage backed securities did not
represent a change in the Company's investment policy. Other categories of
securities remained at levels that were similar to the year-end 1998 amounts.
LOANS
Total loans increased $54.3 million (9.7%) during 1999, from $556.5 million as
of year-end 1998 to $610.8 million as of year-end 1999. All of the major
categories of loans increased, with the most significant changes occurring in
construction lending and residential real estate loans. Construction loans
increased from $46.4 million as of year-end 1998 to $58.8 million as of year-end
1999, an increase of $12.4 million or 26.7%. Residential mortgages increased
$15.3 million (10.6%) from $144.4 million to $159.7 million over the same period
of time.
The loan portfolio generally reflects the profile of the communities in which
the Company operates. In a
7
<PAGE>
MANAGEMENT'S DISCUSSION-CONTINUED
growing area, real estate lending (including commercial, residential, and
construction), is a significant portion of the portfolio. In the aggregate,
these categories comprised 64% of the portfolio as of both December 31, 1999,
and December 31, 1998.
SOURCES OF FUNDS
The Company's primary source of funds is customer deposits. Total deposits grew
$22.0 million during 1999, to $848.3 million as of December 31, 1999. Most of
the growth was in noninterest-bearing checking accounts, NOW accounts, and money
market accounts. Noninterest-bearing accounts grew $6.8 million (5.7%), NOW
accounts grew $18.0 million (27.5%) and money market accounts grew $12.8 million
(6.7%) during 1999. At the same time, savings decreased $3.5 million (3.5%),
certificates of deposit of less than $100,000 decreased $9.0 million (3.5%), and
certificates of deposit of $100,000 or more decreased $3.2 million (4.2%). While
total deposits grew $22 million in the aggregate, these changes reflect a
movement from long-term deposits to immediately available deposits. While the
Banks' deposit products and general pricing philosophy did not change
significantly during 1999, the movement to immediately available deposits
reflect general customer preference during the year.
The Company also utilizes repurchase agreements as a source of funds. Repurchase
agreements were $17.3 million as of December 31, 1999, a decline of $15.3
million from $32.6 million as of December 31, 1998. Repurchase agreements are
generally for short term purposes, and are subject to variation in balances.
CAPITAL
Total stockholders' equity increased $1.9 million during 1999, from $101.9
million as of December 31, 1998, to $103.8 million as of December 31, 1999. Net
income of $12.4 million, reduced by dividends of $3.5 million, contributed
retained earnings of $8.9 million during 1999. Stockholders' equity was further
reduced by a decline of $4.8 million in net unrealized securities gains and
losses. In 1998, net income of $11.0 million, reduced by dividends of $2.7
million and increased by an increase in net unrealized gains and losses on
securities of $1.5 million, resulted in an increase in stockholders' equity of
$9.8 million. Also during 1998, the exercise of stock options contributed
$31,000 to stockholders' equity.
During 1999, the Company purchased 81,500 shares of its common stock, reducing
outstanding shares from 6,102,362 as of year-end 1998 to 6,020,862 as of
year-end 1999. This reduced stockholders' equity by $2,280,000. It is
anticipated that this action will enhance return on equity and earnings per
share. Return on equity was 12.06% in 1999 and 11.69% in 1998.
Bank regulators have adopted capital standards by which all banks and bank
holding companies will be evaluated (discussed in Note Q to the consolidated
financial statements). The Company and the Banks were categorized as well
capitalized as of December 31, 1999. Management is not aware of any conditions
or events since the most recent regulatory notification that would change the
Company's or the Banks' categories. The Company's total capital ratio, tier 1
capital to risk weighted assets ratio, and tier 1 capital to average assets
ratio were 15.84%, 14.61%, and 10.17%, respectively, as of December 31, 1999.
Dividends declared during 1999 were $0.58 per share, an increase of 29% from
$0.45 per share in 1998. The dividend payout ratios were 28.4% and 24.9% during
1999 and 1998, respectively.
LIQUIDITY
Liquidity is the Company's ability to fund its operations, meet depositor
withdrawals, to provide for customer's credit needs, and to meet maturing
obligations and existing commitments. The liquidity of the Company principally
depends on cash flows from operating activities, investments in and maturity of
assets, changes in balances of deposits and borrowings and its ability to borrow
funds.
Net cash inflows from operations were $40.0 million during 1999, including cash
inflows from a reduction in loans held for sale of $25.9 million. Net cash
outflows for investing activities were $43.0 million in 1999, primarily as a
result of $54.5 million in net principal on disbursed-on loans. Net cash
outflows for financing activities were
8
<PAGE>
MANAGEMENT'S DISCUSSION-CONTINUED
$19.8 million in 1999, which included a net increase in deposits of $22.0
million, reduced by declines in repurchase agreements, short-term borrowing, and
notes payable of an aggregate $36.2 million.
INTEREST RATE RISK
The impact of movements in general market interest rates on a financial
institution's financial condition, including capital adequacy, earnings, and
liquidity, is known as interest rate risk. Interest rate risk is the Company's
primary market risk. As a financial institution, accepting and managing this
risk is an inherent aspect of the Company's business. However, safe and sound
management of interest rate risk requires that it be maintained at prudent
levels.
The Company analyzes interest rate risk by examining the extent to which assets
and liabilities are interest rate sensitive. The interest sensitivity gap is
defined as the difference between the amount of interest earning assets maturing
or repricing within a specific time period and the amount of interest-bearing
liabilities maturing or repricing within that time period. A gap is considered
positive when the amount of interest sensitive assets exceeds the amount of
interest sensitive liabilities. A gap is considered negative when the amount of
interest sensitive liabilities exceeds the amount of interest sensitive assets.
During a period of rising interest rates, a negative gap would tend to result in
a decrease in net interest income while a positive gap would tend to positively
affect net interest income. The Company's policy is to manage the balance sheet
such that fluctuations in the net interest margin are minimized regardless of
the level of interest rates.
The tables on page 10 do not necessarily indicate the future impact of general
interest rate movements on the Company's net interest income because the
repricing of certain assets and liabilities is discretionary and is subject to
competitive and other pressures. As a result, assets and liabilities indicated
as repricing within the same period may in fact reprice at different times and
at different rate levels. Assets and liabilities are reported in the earliest
time frame in which maturity or repricing may occur. Although securities
available for sale are reported in the earliest time frame in which maturity or
repricing may occur, these securities may be sold in response to changes in
interest rates or liquidity needs.
IMPACT OF YEAR 2000
In anticipation of the change in date after December 31, 1999, the Company
reviewed systems that were critical for the delivery of its products and
services and identified potential problems by performing an inventory and review
of all software applications. In addition, the Company reviewed potential risks
associated with loan and investment portfolios. Contingency plans were in place
to address potential problems had they occurred.
The Company did not experience significant problems as a result of the change to
the year 2000. The cost of addressing the issue did not have a material impact
on the Company's financial condition or results of operations. While
unanticipated problems can not be precluded, management does not expect
additional costs or exposure to risks associated with date change problems.
EFFECTS OF INFLATION
In management's opinion, changes in interest rates affect the financial
condition of a financial institution to a far greater degree than changes in the
inflation rate. While interest rates are greatly influenced by changes in the
inflation rate, they do not change at the same rate or in the same magnitude as
the inflation rate. Rather, interest rate volatility is based on changes in the
expected rate of inflation, as well as on changes in monetary and fiscal
policies. A financial institution's ability to be relatively unaffected by
changes in interest rates is a good indicator of its capability to perform in
today's volatile economic environment. The Company seeks to insulate itself from
interest rate volatility by ensuring that rate sensitive assets and rate
sensitive liabilities respond to changes in interest rates in a similar time
frame and to a similar degree.
9
<PAGE>
MANAGEMENT'S DISCUSSION-CONTINUED
Expected Maturity of Interest-Earning Assets and Interest-Bearing Liabilities
<TABLE>
<CAPTION>
Expected Maturity Dates
--------------------------------------------------------------------------------
1 Year 2 Years 3 Years 4 Years 5 Years Thereafter Total
------ ------- ------- ------- ------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
1999
INTEREST-EARNING ASSETS
Deposit with banks ......... $ 575 $ -- $ -- $ -- $ -- $ -- $ 575
Average interest rate ...... 4.75% 4.75%
Federal funds sold ......... $ 25,900 $ -- $ -- $ -- $ -- $ -- $ 25,900
Average interest rate ...... 5.26% 5.26%
Securities ................. $ 30,799 $ 38,073 $ 35,669 $ 57,675 $ 34,186 $ 74,510 $ 270,912
Average interest rate ...... 7.37% 6.06% 5.76% 5.78% 5.91% 5.76% 5.98%
Fixed rate loans ........... $ 123,409 $ 68,370 $ 58,055 $ 58,193 $ 59,817 $ 11,446 $ 379,290
Average interest rate ...... 7.89% 8.19% 8.19% 7.74% 7.22% 7.91% 7.70%
Adjustable rate loans ...... $ 149,130 $ 21.016 $ 26,258 $ 20,291 $ 19,941 $ 3,281 $ 239,917
Average interest rate ...... 8.74% 7.67% 7.91% 7.26% 7.36% 7.68% 8.30%
--------- ------------ --------- --------- --------- --------- ---------
Total ...................... $ 329,813 $ 127,459 $ 119,982 $ 136,159 $ 113,944 $ 89,237 $ 916,594
========= ============ ========= ========= ========= ========= =========
INTEREST-BEARING LIABILITIES
Interest-bearing deposits .. $ 420,463 $ 80,439 $ 9,059 $ 18,670 $ 2,380 $ 190,516 $ 721,527
Average-interest rate ...... 4.37% 5.44% 5.42% 5.26% 5.00% 1.94% 3.89%
Short-term borrowing ....... $ 27,610 $ -- $ -- $ -- $ -- $ -- $ 27,610
Average interest rate ...... 4.24% 4.75%
Notes payable .............. $ 9,467 $ -- $ -- $ -- $ -- $ -- $ 9,467
Average interest rate ...... 9.79% 4.75%
--------- ------------ --------- --------- --------- --------- ---------
Total ...................... $ 457,540 $ 80,439 $ 9,059 $ 18,670 $ 2,380 $ 190,516 $ 758,604
========= ============ ========= ========= ========= ========= =========
Period gap ................. $(127,727) $ 47,020 $ 110,923 $ 117,489 $ 111,564 $(101,279) $ 157,990
Cumulative gap ............. (127,727) (80,707) 30,216 147,705 259,269 157,990
1998
INTEREST-EARNING ASSETS
Deposit with banks ......... $ 475 $ -- $ -- $ -- $ -- $ -- $ 475
Average interest rate ...... 4.10% 4.10%
Federal funds sold ......... $ 49,475 $ -- $ -- $ -- $ -- $ -- $ 49,475
Average interest rate ...... 4.70% 4.70%
Securities ................. $ 49,725 $ 40,207 $ 46,934 $ 33,224 $ 50,196 $ 72,079 $ 292,365
Average interest rate ...... 5.90% 5.85% 6.10% 5.72% 5.66% 5.85% 5.85%
Fixed rate loans ........... $ 147,760 $ 57,347 $ 58,582 $ 37,418 $ 46,273 $ 19,366 $ 366,746
Average interest rate ...... 8.14% 8.53% 7.95% 8.28% 7.68% 8.15% 8.13%
Adjustable rate loans ...... $ 136,910 $ 19,518 $ 25,623 $ 19,273 $ 21,656 $ 3,505 $ 226,485
Average interest rate ...... 8.54% 7.93% 7.69% 8.06% 7.23% 7.96% 8.22%
--------- ------------ --------- --------- --------- --------- ---------
Total ...................... $ 384,345 $ 117,072 $ 131,139 $ 89,915 $ 118,125 $ 94,950 $ 935,546
========= ============ ========= ========= ========= ========= =========
INTEREST-BEARING LIABILITIES
Interest-bearing deposits .. $ 405,504 $ 78,087 $ 23,584 $ 4,810 $ 6,087 $ 187,567 $ 706,359
Average-interest rate ...... 4.37% 5.44% 5.42% 5.26% 5.00% 1.94% 3.89%
Short-term borrowing ....... $ 37,107 $ -- $ -- $ -- $ -- $ -- $ 37,107
Average interest rate ...... 3.37% 3.37%
Notes payable .............. $ 36,189 $ -- $ -- $ -- $ -- $ -- $ 36,189
Average interest rate ...... 5.88% 5.88%
--------- ------------ --------- --------- --------- --------- ---------
Total ...................... $ 478,800 $ 78,807 $ 23,584 $ 4,810 $ 6,087 $ 187,567 $ 779,655
========= ============ ========= ========= ========= ========= =========
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>
10
<PAGE>
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
ASSETS
Cash and due from banks.......................... $ 43,375 $ 42,677
Federal funds sold............................... 25,900 49,475
------- -------
Cash and cash equivalents....................... 69,275 92,152
Securities available for sale.................... 270,912 292,365
Loans held for sale.............................. 8,437 36,686
Loans............................................ 610,770 556,545
Allowance for possible loan losses............... 8,444 7,823
---------- -----------
Net loans....................................... 602,326 548,722
Premises and equipment, net...................... 20,665 20,950
Other real estate owned.......................... 79 497
Mortgage servicing rights, net................... 7,658 5,760
Goodwill, net.................................... 3,004 3,446
Core deposit intangible assets, net.............. 2,487 2,842
Accrued interest and other assets................ 13,665 10,872
---------- -----------
Total assets.................................... $ 998,508 $ 1,014,292
========== ===========
LIABILITIES
Deposits
Demand.......................................... $ 126,808 $ 119,972
Savings......................................... 387,647 360,321
Time............................................ 333,881 346,038
---------- -----------
Total deposits............................... 848,336 826,331
Securities sold under repurchase agreements...... 17,289 32,590
Other short-term borrowings...................... 10,321 4,517
Notes payable.................................... 9,467 36,189
Accrued interest and other liabilities........... 9,334 12,739
---------- -----------
Total liabilities............................... 894,747 912,366
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value;
authorized 300,000 shares, none issued......... - -
Common stock, $1 par value; authorized 10,000,000
shares; issued 6,102,362 in 1999 and 6,102,362
in 1998 outstanding 6,020,862 in 1999 and
6,102,362 in 1998.............................. 15,875 15,875
Retained earnings................................ 92,143 83,328
Accumulated other comprehensive income (loss).... (1,977) 2,823
Treasury stock, at cost, 81,500 shares in 1999... (2,280) -
---------- -----------
Total stockholders' equity.................... 103,761 101,926
---------- -----------
Total liabilities and stockholders' equity.... $ 998,508 $1,014,292
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
11
<PAGE>
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1999 1998 1997
--------- ----------- ---------
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees................................. $ 47,643 $ 47,320 $ 45,775
Loans held for sale................................... 1,676 2,199 647
Securities:
Taxable............................................. 13,421 12,231 13,025
Tax-exempt.......................................... 2,648 2,991 3,302
Federal funds sold.................................... 1,566 3,372 2,407
Interest bearing deposits............................. 35 26 22
--------- ----------- ---------
Total interest income............................... 66,989 68,139 65,178
INTEREST EXPENSE
Savings deposits...................................... 9,598 9,076 7,920
Time deposits......................................... 17,618 20,287 21,672
Repurchase agreements................................. 698 828 670
Other short-term borrowing............................ 122 162 178
Notes payable......................................... 1,118 1,876 611
--------- ----------- ---------
Total interest expense.............................. 29,154 32,229 31,051
--------- ----------- ---------
Net interest income................................. 37,835 35,910 34,127
Provision for loan losses............................. 930 1,213 1,256
--------- ----------- ---------
Net interest income after provision for loan losses 36,905 34,697 32,871
NONINTEREST INCOME
Trust income.......................................... 4,473 4,154 3,917
Service charges on deposits........................... 3,285 3,139 3,134
Secondary mortgage fees............................... 951 1,557 926
Mortgage servicing income............................. 1,811 1,045 484
Gain on sale of loans................................. 5,902 9,119 4,035
Securities gains, net................................. - 10 (1)
Other income.......................................... 2,137 1,353 1,464
--------- ----------- ---------
Total noninterest income............................ 18,559 20,377 13,959
NONINTEREST EXPENSES
Salaries and employee benefits........................ 20,660 20,657 17,953
Occupancy expense, net................................ 2,431 2,358 2,162
Furniture and equipment expense....................... 3,529 3,970 3,275
Amortization of goodwill.............................. 441 441 441
Amortization of core deposit intangible assets........ 355 355 308
Amortization of mortgage servicing rights, net of
changes in valuation allowance...................... 462 1,370 390
Other expense......................................... 9,398 9,838 8,689
--------- ----------- ---------
Total noninterest expense........................... 37,276 38,989 33,218
--------- ----------- ---------
Income before income taxes............................ 18,188 16,085 13,612
Provision for income taxes............................ 5,780 5,036 4,018
--------- ----------- ---------
Net income.......................................... $ 12,408 $ 11,049 $ 9,594
========= =========== =========
Basic earnings per share.............................. $ 2.04 $ 1.81 $ 1.57
Diluted earnings per share............................ 2.04 1.81 1.57
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE>
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ............................................................... $ 12,408 $ 11,049 $ 9,594
Adjustments to reconcile net income to net cash from operating activities:
Depreciation ........................................................... 2,013 2,202 1,876
Amortization of mortgage servicing rights, net of change
in valuation allowance ............................................... 462 1,370 390
Provision for loan losses .............................................. 930 1,213 1,256
Net change in mortgage loans held for sale .............................. 25,890 (15,535) (23,471)
Deferred taxes .......................................................... (738) (697) (282)
Change in current income taxes payable .................................. 4,306 208 (606)
Change in accrued interest and other assets ............................. (2,793) 1,646 1,740
Change in accrued interest and other liabilities ........................ (4,026) 285 3,967
Premium amortization and discount accretion on securities .............. 704 624 587
Securities losses (gains), net ......................................... -- 10 (1)
Amortization of goodwill ............................................... 441 441 441
Amortization of core deposit intangible assets ......................... 355 355 308
Other, net ............................................................. -- (1) (37)
--------- --------- ---------
Net cash from operating activities ....................................... 39,952 3,170 (4,238)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales and maturities of securities available for sale ...... 76,959 107,159 80,809
Purchases of securities available for sale ............................... (64,100) (133,290) (57,078)
Net principal disbursed or repaid on loans ............................... (54,534) (22,226) (54,019)
Proceeds from sales of other real estate ................................. 418 (15) (356)
Property and equipment expenditures ...................................... (1,728) (2,347) (3,271)
--------- --------- ---------
Net cash from investing activities ..................................... (42,985) (50,719) (33,915)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits ................................................... 22,005 37,402 (1,040)
Net change in repurchase agreements ...................................... (15,301) 9,664 21,088
Net change in other short-term borrowings ................................ 5,804 (3,580) 3,696
Net change in notes payable .............................................. (26,722) 12,056 23,116
Proceeds from exercise of incentive stock options ........................ -- 31 --
Dividends paid ........................................................... (3,350) (2,897) (2,689)
Purchase of treasury stock ............................................... (2,280) -- --
--------- --------- ---------
Net cash from financing activities ..................................... (19,844) 52,676 44,171
--------- --------- ---------
Net change in cash and cash equivalents ................................ (22,877) 5,127 6,018
Cash and cash equivalents at beginning of period ....................... 92,152 87,025 81,007
Cash and cash equivalent at end of period .............................. $ 69,275 $ 92,152 $ 87,025
========= ========= =========
SUPPLEMENTAL DISCLOSURES
Income taxes paid ...................................................... $ 5,202 $ 5,478 $ 3,695
Interest paid .......................................................... 29,281 32,626 31,194
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE>
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERSO EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Retained Comprehensive Treasury Stockholders'
Stock Earnings Income(loss) Stock Equity
-------- --------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 ........ $ 15,844 $ 68,052 $ 304 $ -- $ 84,200
Comprehensive income:
Net income ......................... -- 9,594 -- -- 9,594
Change in net unrealized gain
on securities held for sale ....... -- -- 1,049 -- 1,049
--------
Total comprehensive income ......... 10,643
Dividends declared, $.45 per share .. -- (2,722) -- -- (2,722)
-------- --------- -------- --------- --------
Balance at December 31, 1997 ........ 15,844 74,924 1,353 -- 92,121
Comprehensive income:
Net income ......................... -- 11,049 -- -- 11,049
Change in net unrealized gain
on securities held for sale ....... -- -- 1,470 -- 1,470
--------
Total comprehensive income ......... 12,519
Dividends declared, $.45 per share .. -- (2,745) -- -- (2,745)
Stock options exercised ............. 31 -- -- -- 31
-------- --------- -------- --------- --------
Balance at December 31,1998 ......... 15,875 83,228 2,823 -- 101,926
Comprehensive income:
Net income ......................... -- 12,408 -- -- 12,408
Change in net unrealized gain (loss)
on securities held for sale ....... -- -- (4,800) -- (4,800)
--------
Total comprehensive income ......... 7,608
Dividends declared, $.58 per share .. -- (3,493) -- -- (3,493)
Purchase of treasury stock .......... -- -- -- (2,280) (2,280)
-------- --------- -------- --------- --------
Balance at December 31, 1999 ........ $ 15,875 $ 92,143 $ (1,977) $ (2,280) $103,761
======== ========= ======== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE>
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998, AND 1997
(TABLE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
Note A: Summary of Significant Accounting Policies
NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION: The consolidated financial
statements include Old Second Bancorp, Inc. and its wholly-owned subsidiaries;
The Old Second National Bank of Aurora, Yorkville National Bank, Bank of Sugar
Grove, Burlington Bank, Kane County Bank and Trust Company, and Maple Park
Mortgage, together referred to as "the Company." The banking subsidiaries are
referred to herein as "the Banks." Inter-company transactions and balances are
eliminated in consolidation. During 1999, the Company simplified its
organizational structure by eliminating two bank charters. The Old Second
Community Bank of North Aurora and Old Second Community Bank of Aurora were
merged into The Old Second National Bank of Aurora ("Old Second"). The mergers
qualified as tax-free reorganizations and were accounted for as internal
reorganizations. Certain 1998 and 1997 amounts have been reclassified to conform
to the 1999 presentation.
The Company provides financial services through its offices located in Kane,
Kendall, DeKalb, DuPage, Lake, LaSalle, and Winnebago counties in Illinois. Its
primary deposit products are checking, savings, and certificates of deposit, and
its primary lending products are residential and commercial mortgages,
construction lending, commercial, and installment loans. A major portion of
loans are secured by various forms of collateral including real estate, business
assets, consumer property, and other items, although borrower cash flow may also
be a primary source of repayment. Maple Park Mortgage provides mortgage-banking
services and Old Second also engages in trust operations.
USE OF ESTIMATES: To prepare financial statements in conformity with generally
accepted accounting principles, management makes estimates and assumptions based
on available information. These estimates and assumptions affect the amounts
reported in the financial statements and the disclosures provided, and future
results could differ.
STATEMENT OF CASH FLOWS: For purposes of the statement of cash flows, the
Company considers cash and due from banks and Federal funds sold to be cash and
cash equivalents. Generally, Federal funds are sold for one-day periods.
SECURITIES: Securities are classified as held to maturity and carried at
amortized cost when management has the positive intent and ability to hold them
to maturity. Securities are classified as available for sale when they might be
sold before maturity. Securities available for sale are carried at fair value,
with unrealized holding gains and losses reported in other comprehensive income.
Interest income includes amortization of purchase premium or discount. Realized
gains and losses are determined based on the amortized cost of the specific
security sold.
LOANS HELD FOR SALE: Maple Park Mortgage originates residential 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"). Loans held for sale may be hedged with
forward sales commitments in order to minimize interest rate risk by contracting
for the sale of loans in the future at specified prices. Gains and losses from
hedging transactions on loans held for sale are included in the cost of the
loans in determining the gain or loss when the loans are sold. Loans held for
sale are carried at the lower of aggregate cost or fair value.
LOANS: Loans are reported at the principal balance outstanding, net of unearned
interest, deferred loan fees and costs, and an allowance for loan losses.
Interest income is reported on the interest method and includes amortization of
net deferred loan fees and costs over the loan term. The accrual of interest
income is discontinued when full loan repayment is in doubt. Payments received
on such loans are reported as principal reductions.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is a valuation
allowance for credit losses, increased by the provision for loan losses and
decreased by charge-offs less recoveries. Management estimates the allowance
balance required using past loan loss experience, known and inherent risks in
the portfolio, information about specific borrower situations and estimated
collateral values, economic conditions, and other factors. Allocations of the
allowance may be made for specific
15
<PAGE>
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED
loans, but the entire allowance is available for any loan that, in management's
judgment, should be charged-off. 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 interest rate. When a loan is
collateral dependent, management measures impairment based on the fair value of
underlying collateral. There was no material impairment as of December 31, 1999
or December 31, 1998.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less
accumulated depreciation and amortization. When property is retired or otherwise
disposed of, the carrying amount, net of sale proceeds in the event of a sale of
assets, is recognized as a gain or loss at the time of disposal. 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.
OTHER REAL ESTATE OWNED: Real estate acquired in settlement of loans is recorded
at the lower of net book value or fair value when acquired, 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. If fair value declines after
acquisition, the reported amount is reduced to the lower of the initial amount
or fair value less costs to sell.
MORTGAGE SERVICING RIGHTS: Servicing rights are recognized as assets for
purchased rights and for the allocated value of servicing rights retained on
loans sold. Servicing rights are amortized in proportion to, and over the period
of estimated net servicing revenues. Impairment is evaluated based on the fair
value of the rights, using groupings of the underlying loans as to interest
rates and then, secondarily, as to geographic and prepayment characteristics.
Any impairment of a grouping is reported as an adjustment to the valuation
allowance.
GOODWILL AND CORE DEPOSIT INTANGIBLES: Goodwill is the excess of purchase price
over identified net assets acquired in an acquisition. Goodwill is being
amortized on the straight-line method over 15 years. The core deposit
intangibles are being amortized using the straight-line method over 10 years.
LONG-TERM ASSETS: These assets, including intangibles, are reviewed for
impairment when events indicate their carrying amount may not be recoverable
from future undiscounted cash flows. If impaired, the assets are recorded at
discounted amounts.
TRUST ASSETS AND FEES: Assets held in fiduciary or agency capacities are not
included in the consolidated balance sheets because such amounts are not assets
of the Company. Income from trust fees is recorded on the cash basis, which does
not result in a material difference from the accrual basis.
RETIREMENT PLAN COSTS: The Company 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: No expense for stock options is recorded, as the grant
price equals the market price of the stock at grant date. Pro-forma disclosures
(included in Note M) show the effect on income and earnings per share had the
option's fair value been recorded as compensation, using an option-pricing
model.
COMMON STOCK SPLIT: The board of directors declared a two-for-one stock split on
the Company's common stock in May, 1999. All references to the number of common
shares and per share amounts in the consolidated financial statements and
related footnotes have been restated as appropriate to reflect the effect of the
stock split for all periods presented.
INCOME TAXES: Income tax expense is the total of the current year income tax due
or refundable and the change in deferred tax assets and liabilities. Deferred
tax assets and liabilities are the expected future tax amounts for the temporary
differences between carrying amounts and tax basis of assets and liabilities,
computed using enacted tax rates.
EARNINGS PER SHARE: Basic earnings per share is net income divided by the
weighted-average number of common shares outstanding during the year. Diluted
earnings per share includes the dilutive effects of additional potential common
shares issuable under stock options computed based on the treasury stock method.
Earnings and dividends per share are restated for all stock splits and dividends
through the date of issue of the consolidated financial statements.
16
<PAGE>
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED
SEGMENT REPORTING: Beginning January 1, 1998, Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" requires reporting of information regarding reportable operating
segments 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.
DIVIDEND RESTRICTION: Banking regulations require maintaining certain capital
levels and may limit the dividends paid by the Banks to the Company or by the
Company to shareholders.
NEW ACCOUNTING PRONOUNCEMENT: In June 1998, the Financial Accounting Standards
Board issued Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended, which is required to be adopted in years
beginning after June 15, 2000. Because of the Company's minimal use of
derivatives, management does not anticipate that the adoption of the new
Statement will have a significant effect on earnings or the financial position
of the Company.
NOTE B: CASH AND DUE FROM BANKS
Old Second and Yorkville National Bank ("Yorkville") are required to maintain
reserve balances with the Federal Reserve Bank. In accordance with Federal
Reserve Bank requirements, average reserve balances were $4,720,000 and $993,000
for Old Second and Yorkville during 1999.
NOTE C: SECURITIES
Year-end securities available for sale were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- ------ -------- --------
<S> <C> <C> <C> <C>
1999
U.S. Treasury ................... $ 10,043 $ 3 $ 30 $ 10,016
U.S. Government agencies ........ 169,271 105 3,190 166,186
States and political subdivisions 66,685 808 593 66,900
Mortgage-backed securities ...... 25,623 67 445 25,245
Other securities ................ 2,565 -- -- 2,565
-------- ------ -------- --------
$274,187 $ 983 $ 4,258 $270,912
======== ====== ======== ========
1998
U.S. Treasury ................... $ 9,552 $ 190 $ -- $ 9,742
U.S. Government agencies ........ 179,844 2,341 270 181,915
States and political subdivisions 64,671 2,400 27 67,044
Mortgage-backed securities ...... 31,233 135 156 31,212
Other securities ................ 2,452 -- -- 2,452
-------- ------ -------- --------
$287,752 $5,066 $ 453 $292,365
======== ====== ======== ========
</TABLE>
17
<PAGE>
NOTE C: SECURITIES-CONTINUED
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
-------- --------
<S> <C> <C>
Due in one year or less ........................ $ 40,114 $ 40,028
Due after one year through five years .......... 158,937 156,731
Due after five years through ten years ......... 32,276 31,844
Due after ten years ............................ 17,237 17,064
-------- --------
248,564 245,667
Mortgage-backed securities ..................... 25,623 25,245
-------- --------
$274,187 $270,912
======== ========
</TABLE>
Securities with aggregate amortized costs of approximately $83.6 million and
$88.1 million at December 31, 1999 and 1998, were pledged to secure public
deposits and securities sold under repurchase agreements and for other purposes
required or permitted by law.
NOTE D: LOANS
Major classifications of loans were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Commercial and industrial ................ $151,771 $143,047
Real estate - commercial ................. 175,010 165,459
Real estate - construction ............... 58,833 46,361
Real estate - residential ................ 159,743 144,434
Installment .............................. 65,491 57,471
-------- --------
610,848 556,772
Unearned discount ........................ (78) (227)
-------- --------
$610,770 $556,545
======== ========
</TABLE>
Past due and nonaccrual loans were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Nonaccrual loans ................................................ $1,298 $ 768 $2,189
Interest income recorded on nonaccrual loans .................... 50 23 84
Interest income which would have been accrued on nonaccrual loans 142 114 273
Loans 90 days or more past due and still accruing interest ...... 742 1,417 1,011
</TABLE>
Loans to principal officers, directors, and their affiliates in 1999 were as
follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Beginning balance .................. $ 17,997 $ 17,343
New Loans .......................... 46,525 41,833
Repayments ......................... (36,747) (40,480)
Other changes ...................... (870) (699)
-------- --------
Ending balance ..................... $ 26,905 $ 17,997
======== ========
</TABLE>
It is the policy of the Company to review each prospective credit in order to
determine an adequate level of security or collateral to obtain prior to making
a loan. The type of collateral, when required, will vary in ranges from liquid
assets to real estate. The Company's access to collateral, in the event of
borrower default, is assured through adherence to state lending laws and the
Company's lending standards and credit monitoring procedures. The Banks make
loans within their market areas. There are no significant concentrations of
loans where the customers' ability to honor loan terms are dependent upon a
single economic sector.
18
<PAGE>
NOTE E: ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loans losses were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- ---------
<S> <C> <C> <C>
Balance at beginning of year ...... $ 7,823 $ 6,923 $ 6,968
Provision for loan losses ......... 930 1,213 1,256
Loans charged-off ................. (652) (552) (1,642)
Recoveries ........................ 343 239 341
------- ------- -------
Balance at end of year ............ $ 8,444 $ 7,823 $ 6,923
------- ------- -------
------- ------- -------
</TABLE>
NOTE F: PREMISES AND EQUIPMENT
Year-end premises and equipment were as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
---------------------------------------- ------------------------------------------
Accumulated Net Book Accumulated Net Book
Cost Amortization Value Cost Amortization Value
---- ------------ ----- ---- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Land .................. $ 4,861 $ -- $ 4,861 $ 4,899 $ -- $ 4,899
Premises .............. 22,222 9,564 12,658 21,605 9,134 12,471
Furniture and equipment 14,903 11,757 3,146 14,588 11,008 3,580
------- ------- ------- ------- ------- -------
$41,986 $21,321 $20,665 $41,092 $20,142 $20,950
======= ======= ======= ======= ======= =======
</TABLE>
NOTE G: INTANGIBLE ASSETS
Year-end intangible assets were as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
---------------------------------------- ---------------------------------------
Accumulated Net Book Accumulated Net Book
Cost Amortization Value Cost Amortization Value
---- ------------ ----- ---- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Goodwill .............. $ 6,561 $3,557 $ 3,004 $ 6,561 $3,115 $3,446
Core deposit intangible 3,505 1,018 2,487 3,505 663 2,842
------- ------ ------- ------- ------ ------
$10,066 $4,575 $ 5,491 $10,066 $3,778 $6,288
======= ====== ======= ======= ====== ======
</TABLE>
NOTE H: MORTGAGE SERVICING RIGHTS
Activity for capitalized mortgage servicing rights was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of year ................................. $ 6,949 $ 2,543 $ 2,403
Origination of mortgage servicing rights ..................... 2,360 4,839 530
Amortization ................................................. (887) (433) (390)
------- ------- -------
Balance at end of year ....................................... $ 8,422 $ 6,949 $ 2,543
======= ======= =======
Changes in the valuation for servicing assets were as follows:
Balance at beginning of year ................................. $ 1,189 $ 252 $ 252
Provisions for impairment .................................... 75 937 --
Recoveries ................................................... (500) -- --
------- ------- -------
Balance at end of year ....................................... $ 764 $ 1,189 $ 252
------- ------- -------
------- ------- -------
Net balance .................................................. $ 7,658 $ 5,760 $ 2,291
======= ======= =======
</TABLE>
19
<PAGE>
NOTE I: DEPOSITS
Major classifications of deposits were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Noninterest bearing .............................. $126,808 $119,972
Savings .......................................... 98,934 102,428
NOW accounts ..................................... 83,362 65,359
Money market accounts ............................ 205,351 192,534
Certificates of deposit of less than $100,000 .... 258,184 267,158
Certificates of deposit of $100,000 or more ...... 75,697 78,880
-------- --------
$848,336 $826,331
======== ========
</TABLE>
<TABLE>
<S> <C>
At year-end 1999, scheduled maturities of time deposits were as follows:
2000....................................................... $223,332
2001....................................................... 80,440
2002....................................................... 9,059
2003....................................................... 18,670
2004....................................................... 2,380
--------
Total $333,881
========
</TABLE>
NOTE J: BORROWING
At December 31, 1999 and 1998, respectively, $9.5 million and $36.2 million were
outstanding for a line of credit extended to Maple Park Mortgage for the funding
of loans held for sale. There is $60 million available through this line of
credit which is issued by Firstar Bank Milwaukee, N.A. and is due March 31,
2000. Interest payments are due on a monthly basis at a rate of 1% over the
previous month average federal funds rate. The note is secured by a Mortgage
Notes (purchase money) Security Agreement dated May 27, 1999 and is guaranteed
by the Company. At December 31, 1999 and 1998, respectively, short term
borrowings totaled $27.6 million at a weighted average rate of 3.9% and $37.1
million at a weighted average rate of 4.4%.
NOTE K: INCOME TAXES
Income tax expense (benefit) was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current federal ............. $ 5,908 $ 4,949 $ 3,927
Current state ............... 610 784 373
Deferred federal ............ (672) (550) (221)
Deferred state .............. (66) (147) (61)
------- ------- -------
$ 5,780 $ 5,036 $ 4,018
======= ======= =======
</TABLE>
20
<PAGE>
NOTE K: INCOME TAXES-CONTINUED
The following were the components of the deferred tax assets and liabilities as
of December 31:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Allowance for loan losses .......................... $ 3,247 $ 2,400
Pension ............................................ 225 288
Other assets ....................................... 966 403
------- -------
Deferred tax assets ................................ 4,438 3,091
Accumulated depreciation ........................... (793) (647)
Net premiums and discounts on securities ........... (249) (185)
Other liabilities .................................. (399) --
------- -------
Deferred tax liabilities ........................... (1,441) (832)
------- -------
2,997 2,259
Tax effect of net unrealized gain on investments ... 1,303 (1,790)
------- -------
Net deferred tax asset ............................. $ 4,300 $ 469
======= =======
</TABLE>
The components of the provision for deferred income taxes were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Allowance for loan losses .................. $(847) $(215) $ (60)
Accumulated depreciation ................... 146 (237) 11
Pension .................................... 63 (67) (9)
Net premiums and discounts on securities ... 64 (132) (244)
Other, net ................................. (164) (46) 20
----- ----- -----
$(738) $(697) $(282)
===== ===== =====
</TABLE>
Effective tax rates differ from federal statutory rates applied to
financial statement income due to the following:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Tax at statutory federal income tax rate ....................... $ 6,366 $ 5,469 $ 4,628
Nontaxable interest income, net of disallowed interest deduction (918) (1,019) (1,104)
Goodwill amortization .......................................... 154 150 150
State income taxes, net of federal benefit ..................... 354 421 183
Other, net ..................................................... (176) 15 161
------- ------- -------
$ 5,780 $ 5,036 $ 4,018
======= ======= =======
</TABLE>
21
<PAGE>
NOTE L: RETIREMENT PLANS
The Company has a noncontributory defined benefit retirement plan covering
substantially all full-time and regular part-time employees of the banking
subsidiaries. Generally, benefits are based on years of service and
compensation. Certain participants 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 plans.
The following table sets forth the plans' status and amounts recognized in these
financial statements:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Accumulated benefit obligation ....................... $ 5,907 $ 6,139 $ 6,020
CHANGE IN THE PROJECTED BENEFIT OBLIGATION
Projected benefit obligation at beginning of year .... $ 7,900 $ 7,753 $ 6,734
Service cost ......................................... 510 510 428
Interest cost ........................................ 518 511 481
Plan amendments ...................................... -- 10 107
Actuarial (Gain) Loss ................................ (518) 433 322
Benefits paid ........................................ (850) (1,317) (319)
------- ------- -------
Projected benefit obligation at end of year .......... $ 7,560 $ 7,900 $ 7,753
======= ======= =======
CHANGE IN PLAN ASSETS
Fair value of assets at beginning of year ............ $ 7,759 $ 7,648 $ 6,770
Actuarial return on plan assets ...................... 1,078 866 1,077
Employer contributions ............................... 130 562 120
Benefits paid ........................................ (850) (1,317) (319)
------- ------- -------
Projected benefit obligation at end of year .......... $ 8,117 $ 7,759 $ 7,648
======= ======= =======
ACCRUED PENSION COST
Funded status ........................................ $ 557 $ (140) $ (105)
Unrecognized gain .................................... (1,523) (514) (653)
Unrecognized prior service cost ...................... 216 239 252
Unrecognized net transition asset .................... (343) (430) (516)
------- ------- -------
Accrued pension cost ................................. $(1,093) $ (845) $(1,022)
======= ======= =======
NET PERIODIC PENSION COST
Service cost ......................................... $ 510 $ 510 $ 428
Interest cost ........................................ 518 511 481
Expected return on assets ............................ (590) (573) (516)
Amortization of unrecognized:
Net Loss ............................................. 4 -- --
Prior service cost ................................... 22 23 22
Net asset ............................................ (86) (86) (86)
------- ------- -------
Net periodic pension cost ............................ $ 378 $ 385 $ 329
======= ======= =======
AMOUNTS APPLICABLE TO THE SUPPLEMENTAL RETIREMENT PLAN
Projected benefit obligation ......................... $ 392 $ 299 $ 373
Accumulated benefit obligation ....................... 261 195 286
KEY ASSUMPTIONS
Discount rate ........................................ 7.50% 6.50% 6.75%
Long-term rate of return on assets ................... 8.50% 8.00% 8.00%
Salary increases ..................................... 5.00% 4.50% 4.50%
</TABLE>
The Company maintains contributory and non-contributory profit sharing plans
covering substantially all full-time and regular part-time employees. The
expense of these plans was $739,000 in 1999, $737,000 in 1998, and $644,000 in
1997.
22
<PAGE>
NOTE M: LONG-TERM INCENTIVE PLAN
The Long-Term Incentive Plan (the "Incentive Plan") authorizes the granting of
stock options and stock appreciation rights at the discretion of the Board of
Directors. The Incentive Plan requires the exercise price of any stock option to
be at least equal to the fair market value of Company common stock on the date
the option is granted. All stock options are granted for a maximum term of ten
years, with vesting occurring over the first three years. As of December 31,
1999, there were no stock appreciation rights issued under the Incentive Plan.
Activity in the Incentive Plan and options outstanding as of year-end were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- ------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Beginning outstanding ...... 98,068 $23.594 83,300 $22.295 55,200 $18.245
Granted .................... 39,200 27.683 23,000 26.000 28,100 30.250
Exercised .................. -- -- (8,232) 17.167 -- --
------- ------- ------ ------- ------ -------
Ending outstanding ......... 137,268 $24.762 98,068 $23.594 83,300 $22.295
======= ======= ====== ======= ====== =======
At year-end:
Options exercisable ...... 73,368 $ 22.24 49,603 $ 20.39 30,064 $ 17.75
Weighted average contractual
life in years .......... 8.0 8.4 8.8
Weighted average fair
value of options granted
during the year ........ $ 7.95 $ 6.36 $ 6.00
</TABLE>
The following pro forma information presents net income and earnings per share
had the fair value method of Statement of Financial Accounting Standards No. 123
been used to measure compensation cost for stock option plans:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net income as reported ............... $ 12,408 $ 11,049 $ 9,594
Pro forma net income ................. 11,739 10,667 9,288
Basic earnings per share as reported . 2.04 1.81 1.57
Pro forma basic earnings per share ... 1.93 1.75 1.52
Diluted earnings per share as reported 2.04 1.81 1.57
Pro forma diluted earnings per share . 1.93 1.74 1.52
</TABLE>
The pro forma effects were computed using option pricing models with the
following assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Risk free interest rate ....... 5.75% 4.50% 5.50%
Expected option life, in years 10 10 10
Expected stock price volatility 20.1% 18.7% 13.7%
Dividend yield ................ 2.00% 2.00% 2.00%
</TABLE>
23
<PAGE>
NOTE N: EARNINGS PER SHARE
<TABLE>
<CAPTION>
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Weighted-average common shares outstanding...... 6,082,270 6,099,510 6,098,380
Net income available to common stockholders..... $ 12,408 $ 11,049 $ 9,594
Basic earnings per share ....................... $ 2.04 $ 1.81 $ 1.57
DILUTED EARNINGS PER SHARE
Weighted-average common shares outstanding...... 6,082,270 6,099,510 6,098,380
Dilutive effect of stock options ............... 13,181 14,467 8,678
--------- --------- ---------
Diluted average common shares outstanding....... 6,095,451 6,113,977 6,107,058
Net income available to common stockholders..... $ 12,408 $ 11,049 $ 9,594
Diluted earnings per share ..................... $ 2.04 $ 1.81 $ 1.57
</TABLE>
NOTE O: COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are outstanding commitments and
contingent liabilities that are not reflected in the financial statemtents.
Commitments and contingent liabilities include financial instruments that
involve, to varying degrees, elements of credit, interest rate, and
liquidity risk. In management's opinion, these do not represent unusual
risks and management does not anticipate significant losses as a result of
these transactions. The Company 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, 1999
were approximately $7,627,000. Firm commitments to fund loans in the future
were approximately $221,773,000 as of December 31, 1999. As of December 31,
1999, there were other commitments and contingent liabilities arising in
the normal course of business that, in management's opinion, will not have
a material effect on future financial results.
NOTE P: CAPITAL
The Company and the Banks are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and
prompt corrective action regulations involve quantitative measures of
assets, liabilities, and certain off-balance-sheet items calculated under
regulatory accounting practices. Capital amounts and classifications are
also subject to qualitative judgements by regulators. Failure to meet
capital requirements can initiate regulatory action.
Prompt corrective action regulations provide five classifications: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are
not used to represent overall financial condition. If adequately
capitalized, regulatory approval is required to accept brokered deposits.
If undercapitalized, capital distributions are limited, as is asset growth
and expansion, and plans for capital restoration are required.
As of the Company's and the Banks' most recent regulatory notification, the
Company and the Banks were categorized as well capitalized. Management is
not aware of any conditions or events since the most recent regulatory
notification that would change the Company's or the Banks' categories.
24
<PAGE>
NOTE P: CAPITAL-CONTINUED
Capital levels and minimum required levels:
<TABLE>
<CAPTION>
Actual Minimum Required for Minimum Required to be
Capital Adequacy Purposes Well Capitalized
------------------------- ------------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
1999
Total capital to risk weighted assets
Consolidated................................. $ 108,691 15.84% $ 54,894 8.00% $ 68,618 10.00%
Old Second................................... 66,061 14.81% 35,685 8.00% 44,606 10.00%
Tier 1 capital to risk weighted assets
Consolidated................................. 100,247 14.61% 27,446 4.00% 41,169 6.00%
Old Second................................... 60,509 13.57% 17,836 4.00% 26,754 6.00%
Tier 1 capital to average assets
Consolidated................................. 100,247 10.17% 39,429 4.00% 49,286 5.00%
Old Second................................... 60,509 9.17% 26,394 4.00% 32,993 5.00%
1998
Total capital to risk weighted assets
Consolidated................................. 100,639 15.52% 51,876 8.00% 64,845 10.00%
Old Second*.................................. 60,083 14.12% 34,041 8.00% 42,552 10.00%
Tier 1 capital to risk weighted assets
Consolidated................................. 92,815 14.32% 25,926 4.00% 38,889 6.00%
Old Second*.................................. 55,072 12.94% 17,024 4.00% 25,536 6.00%
Tier 1 capital to average assets
Consolidated................................. 92,815 9.28% 40,006 4.00% 50,008 5.00%
Old Second*.................................. 55,072 9.51% 23,164 4.00% 28,955 5.00%
</TABLE>
*Restated to reflect the 1999 merger of subsidiary banks accounted for as an
internal reorganization.
National and state bank regulations and capital guidelines limit the amount of
dividends that may be paid by the Banks without prior regulatory approval. At
December 31, 1999, approximately $10,798,000 was available for the payment of
dividends by the Banks to the Company.
NOTE Q: FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair value approximates carrying amount for all items except those
described below. Fair values of loans were estimated for portfolios of loans
with similar financial characteristics, such as type and fixed or variable
interest rate terms. Cash flows were discounted using current rates at which
similar loans would be made to borrowers with similar ratings and for similar
maturities. The fair value of time deposits was estimated using discounted
future cash flows at current rates offered for deposits of similar remaining
maturities. The fair value of borrowing was estimated based on interest rates
available to the Company for debt with similar terms and remaining maturities.
25
<PAGE>
NOTE Q: FAIR VALUES OF FINANCIAL INSTRUMENTS-CONTINUED
The carrying amount and estimated fair values of financial instruments were as
follows:
<TABLE>
<CAPTION>
1999 1998
----------------------- ----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents ............ $ 69,275 $ 69,275 $ 92,152 $ 92,152
Securities available for sale ........ 270,912 270,912 292,365 292,365
Loans held for sale .................. 8,437 8,437 36,686 36,686
Loans, net ........................... 602,326 603,138 548,722 557,755
-------- -------- -------- --------
$950,950 $951,762 $969,925 $978,958
======== ======== ======== ========
FINANCIAL LIABILITIES
Deposits ............................. $848,336 $847,736 $826,331 $834,104
Federal funds purchased and securities 17,289 17,289 32,590 32,590
Other short-term borrowing ........... 10,321 10,321 4,517 4,517
Notes payable ........................ 9,467 9,467 36,189 36,189
-------- -------- -------- --------
$885,413 $884,813 $899,627 $907,400
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
NOTE R: SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following represents unaudited quarterly financial information for the
periods indicated:
<TABLE>
<CAPTION>
1999 1998
---------------------------------------------- ----------------------------------------------
4th 3rd 2nd 1st 4th 3rd 2nd 1st
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income .......... $17,229 $16,699 $16,519 $16,542 $17,179 $17,329 $16,981 $16,650
Interest expense ......... 7,489 7,216 7,106 7,343 8,000 8,163 7,956 8,110
Net interest income ...... 9,740 9,483 9,413 9,199 9,179 9,166 9,025 8,540
Provision for loan losses 219 264 246 201 206 307 346 354
Income before taxes ...... 4,765 4,533 4,606 4,284 4,195 4,172 4,020 3,698
Net income ............... 3,266 3,094 3,115 2,933 2,983 2,802 2,730 2,534
Basic earnings per share . 0.54 0.51 0.51 0.48 0.49 0.45 0.45 0.42
Diluted earnings per share 0.54 0.51 0.51 0.48 0.49 0.45 0.45 0.42
</TABLE>
NOTE S: PARENT COMPANY CONDENSED FINANCIAL INFORMATION
Condensed Balance Sheets as of December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Noninterest-bearing deposit with bank subsidiary $ 1,983 $ 2,365
Loan to subsidiary ............................. 8,050 2,500
Investment in subsidiaries, at equity .......... 94,636 93,085
Securities available for sale .................. 152 590
Other assets ................................... 82 4,795
-------- --------
$104,903 $103,335
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY ........... $ 1,142 $ 1,409
Other liabilities .............................. 103,761 101,926
-------- --------
Stockholders' equity ........................... $104,903 $103,335
-------- --------
-------- --------
</TABLE>
26
<PAGE>
NOTE S: PARENT COMPANY CONDENSED FINANCIAL INFORMATION-CONTINUED
Condensed Statements of Income for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Operating income ................................. $ 4,631 $ 4,744 $ 3,915
Cash dividends received from subsidiaries ........ 521 149 161
-------- -------- -------
Interest income .................................. 5,152 4,893 4,076
-------- -------- -------
Operating expenses ............................... 108 566 511
-------- -------- -------
Other expenses ................................... 108 566 511
-------- -------- -------
Income before income taxes and equity in
undistributed net income of subsidiaries ....... 5,044 4,327 3,565
-------- -------- -------
Income tax benefit ............................... (32) (185) (192)
-------- -------- -------
Income before equity in undistributed
net income of subsidiaries ..................... 5,076 4,512 3,757
Equity in undistributed net income of subsidiaries 7,332 6,537 5,837
-------- -------- -------
Net income ....................................... $ 12,408 $ 11,049 $ 9,594
======== ======== =======
</TABLE>
Condensed Statements of Cash Flows for the years ended December 31 were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .......................................................... $ 12,408 $ 11,049 $ 9,594
Adjustments to reconcile net income to net
cash from operating activities:
Equity in undistributed net income of subsidiaries ................ (7,332) (6,537) (5,837)
Increase (decrease) in taxes payable .............................. 173 344 (69)
(Increase) decrease in other assets ............................... 4,764 (11) 16
Other, net ........................................................ 385 188 (21)
-------- -------- -------
Net cash from operating activities ................................ 10,398 5,033 3,683
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available for sale ........................... -- -- (500)
Proceeds from sales and maturities of securities available for sale 400 1,500 1,200
Investment in subsidiaries .......................................... (5,550) (2,500) (2,574)
-------- -------- -------
Net cash from investing activities .................................. (5,150) (1,000) (1,874)
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid ...................................................... (3,350) (2,897) (2,689)
Treasury stock purchased ............................................ (2,280) -- --
Proceeds from exercise of stock options ............................. -- 31 --
-------- -------- -------
Net cash from financing activities ................................ (5,630) (2,866) (2,689)
-------- -------- -------
Net change in cash and cash equivalents ........................... (382) 1,167 (880)
Cash and cash equivalents at beginning of year .................... 2,365 1,198 2,078
-------- -------- -------
Cash and cash equivalents at end of year .......................... $ 1,983 $ 2,365 $ 1,198
======== ======== =======
</TABLE>
27
<PAGE>
ERNST & YOUNG LLP Sears Tower Phone: 312 879 2000
233 South Wacker Drive
Chicago, Illinois 60606-6301
REPORT OF INDEPENDENT ACCOUNTANTS
Stockholders and Board of Directors
Old Second Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of Old Second
Bancorp, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, changes in stockholders' equity,
and cash flows for the three years in the period ended December 31, 1999.
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 auditing standards generally
accepted in the United States. 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, 1999, and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
ERNST & YOUNG LLP
January 28, 2000
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
28
<PAGE>
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
CORPORATE INFORMATION
MARKET FOR THE COMPANY'S COMMON STOCK
The Company's common stock trades on The Nasdaq Stock Market under the symbol
"OSBC." As of December 31, 1999, the Company had 1,267 stockholders of record of
its common stock. The following table sets forth the range of prices during each
quarter for 1998 and 1999.
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
High Low High Low
<S> <C> <C> <C> <C>
First quarter.......... $25.88 $31.88 $29.00 $27.53
Second quarter......... 25.13 33.13 30.50 27.38
Third quarter.......... 26.38 30.63 22.50 30.00
Fourth quarter......... 28.09 25.50 27.60 21.69
</TABLE>
REPORT ON FORM 10-K
Copies of the Company's 1999 Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission will be furnished to each stockholder upon
written request to: J. Douglas Cheatham, Vice President and Chief Financial
Officer, Old Second Bancorp, Inc., 37 South River Street, Aurora, Illinois
60506-4172.
29
<PAGE>
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
YEARS ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
The Old
Second Kane
National Yorkville County
Bank of National Burlington Bank &
Aurora Bank Bank Trust
-------- -------- -------- --------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks .................... $ 33,021 $ 5,068 $ 1,161 $ 3,185
Federal funds sold ......................... 17,155 1,600 5,200 2,750
-------- -------- -------- --------
Cash and cash equivalents ................. 50,176 6,668 6,361 5,935
Securities available for sale .............. 191,784 34,579 9,798 27,203
Loans held for sale ........................ -- -- -- --
Loans ...................................... 402,053 104,298 27,397 39,031
Allowance for loan losses .................. 5,552 1,299 347 723
-------- -------- -------- --------
Net loans ................................ 396,501 102,999 27,050 38,308
Premises and equipment, net ................ 13,609 2,618 412 2,371
Other real estate owned .................... -- 79 -- --
Mortgage servicing rights, net ............. -- -- -- --
Goodwill, net .............................. -- 25 599 2,380
Core deposit intangible assets, net ........ -- 2,487 -- --
Investment in subsidiaries ................. -- -- -- --
Accrued interest and other assets .......... 8,004 2,039 528 1,724
-------- -------- -------- --------
Total assets ............................. $660,074 $151,494 $ 44,748 $ 77,921
======== ======== ======== ========
LIABILITIES
Deposits
Demand ................................... $ 98,094 $ 15,289 $ 2,767 $ 9,402
Savings .................................. 245,077 64,023 21,920 39,167
Time ..................................... 228,654 56,016 14,868 17,684
-------- -------- -------- --------
Total deposits ......................... 571,825 135,328 39,555 66,253
Securities sold under repurchase agreements 15,653 1,636 -- --
Other short-term borrowing ................. 8,825 209 -- 1,287
Notes payable .............................. -- -- -- --
Accrued interest and other liabilities ..... 4,720 970 370 608
-------- -------- -------- --------
Total liabilities ...................... 601,023 138,143 39,925 68,148
STOCKHOLDERS' EQUITY
Common stock ............................... 2,160 525 250 1,000
Surplus .................................... 8,988 2,025 3,532 8,250
Retained earnings .......................... 49,362 10,944 1,110 797
Unrealized net gain (loss) on...............
securities available for sale ............ (1,459) (143) (69) (274)
Treasury stock ............................. -- -- -- --
-------- -------- -------- --------
Total stockholders' equity ............... 59,051 13,351 4,823 9,773
-------- -------- -------- --------
Total liabilities and stockholders' equity $660,074 $151,494 $ 44,748 $ 77,921
======== ======== ======== ========
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Old Second Old Second
Bank of Bancorp, Bancorp,
Sugar Maple Park Inc. Parent Consolidation Inc.
Grove Mortgage Only Adjustments Consolidated
- -------- -------- -------- ----------- ------------
<S> <C> <C> <C> <C>
$ 778 $ 146 $ 1,983 $ (1,967) $ 43,375
-- -- -- (805) 25,900
- -------- -------- -------- --------- --------
778 146 1,983 (2,772) 69,275
7,396 -- 152 -- 270,912
-- 8,437 -- -- 8,437
35,131 2,860 8,050 (8,050) 610,770
433 90 -- -- 8,444
- -------- -------- -------- --------- --------
34,698 2,770 8,050 (8,050) 602,326
1,070 430 -- 155 20,665
-- -- -- -- 79
-- 7,658 -- -- 7,658
-- -- -- -- 3,004
-- -- -- -- 2,487
-- -- 94,636 (94,636) --
978 675 82 (365) 13,665
- -------- -------- -------- --------- --------
$ 44,920 $ 20,116 $104,903 $(105,668) $998,508
======== ======== ======== ========= ========
$ 4,844 $ -- $ -- $ (3,588) $126,808
17,034 -- -- 426 387,647
16,659 -- -- -- 333,881
- -------- -------- -------- --------- --------
38,537 -- -- (3,162) 848,336
-- -- -- -- 17,289
805 -- -- (805) 10,321
-- 17,517 -- (8,050) 9,467
553 141 1,142 830 9,334
- -------- -------- -------- --------- --------
39,895 17,658 1,142 (11,187) 894,747
260 10 15,875 (4,205) 15,875
2,300 -- -- (25,095) --
2,497 2,448 92,143 (67,158) 92,143
(32) -- (1,977) 1,977 (1,977)
-- -- (2,280) -- (2,280)
- -------- -------- -------- --------- --------
5,025 2,458 103,761 (94,481) 103,761
- -------- -------- -------- --------- --------
$ 44,920 $ 20,116 $104,903 $(105,668) $998,508
======== ======== ======== ========= ========
</TABLE>
31
<PAGE>
Exhibit 22
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
SUBSIDIARIES OF THE COMPANY INCORPORATED UNDER LAWS OF PERCENT OWNED BY THE COMPANY
- --------------------------- -------------------------- ----------------------------
<S> <C> <C>
The Old Second National Bank of Aurora United States 100%
Yorkville National Bank 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>
EXHIBIT 23
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 Second Bancorp, Inc. Long-Term
Incentive Plan of our report dated January 28, 2000, 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, 1999.
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 Bancorp, Inc. common stock issued in the Maple Park Bancshares, Inc.
merger of our report dated January 28, 2000, 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, 1999.
Chicago, Illinois
March 29, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 42,800
<INT-BEARING-DEPOSITS> 575
<FED-FUNDS-SOLD> 25,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 270,912
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 610,770
<ALLOWANCE> 8,444
<TOTAL-ASSETS> 998,508
<DEPOSITS> 848,336
<SHORT-TERM> 37,077
<LIABILITIES-OTHER> 9,334
<LONG-TERM> 0
0
0
<COMMON> 15,875
<OTHER-SE> 87,886
<TOTAL-LIABILITIES-AND-EQUITY> 998,508
<INTEREST-LOAN> 49,319
<INTEREST-INVEST> 16,069
<INTEREST-OTHER> 1,601
<INTEREST-TOTAL> 66,989
<INTEREST-DEPOSIT> 27,216
<INTEREST-EXPENSE> 29,154
<INTEREST-INCOME-NET> 37,835
<LOAN-LOSSES> 930
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 37,276
<INCOME-PRETAX> 18,188
<INCOME-PRE-EXTRAORDINARY> 12,408
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,408
<EPS-BASIC> 2.04
<EPS-DILUTED> 2.04
<YIELD-ACTUAL> 4.27
<LOANS-NON> 1,298
<LOANS-PAST> 742
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,911
<ALLOWANCE-OPEN> 7,823
<CHARGE-OFFS> 652
<RECOVERIES> 343
<ALLOWANCE-CLOSE> 8,444
<ALLOWANCE-DOMESTIC> 8,444
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
