<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For 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 or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
37 SOUTH RIVER STREET, AURORA, ILLINOIS 60507
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(630) 892-0202
---------------
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date: As of July 3, 2000,
the Registrant had outstanding 5,866,794 shares of common stock, $1.00 par value
per share.
<PAGE>
OLD SECOND BANCORP, INC.
Form 10-Q Quarterly Report
Table of Contents
PART I
<TABLE>
<CAPTION>
Page
Number
<S> <C> <C>
PART I
Item 1. Financial Statements..........................................................3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................................8
PART II
Item 1. Legal Proceedings............................................................13
Item 2. Changes in Securities and Use of Proceeds....................................13
Item 3. Defaults Upon Senior Securities..............................................13
Item 4. Submission of Matters to a Vote of Security Holders..........................13
Item 5. Other Information............................................................13
Item 6. Exhibits and Reports on Form 8-K.............................................14
Signatures.........................................................................15
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 35,656 $ 42,800
Interest bearing balances with banks 1,571 575
Federal funds sold 29,325 25,900
---------- ---------
Cash and cash equivalents 66,552 69,275
Securities available for sale 287,214 270,912
Loans held for sale 10,665 8,437
Loans 674,904 610,770
Allowance for loan losses 9,134 8,444
---------- ---------
Net loans 665,770 602,326
Premises and equipment, net 21,813 20,665
Other real estate owned - 79
Mortgage servicing rights, net 194 7,658
Goodwill, net 2,784 3,004
Core deposit intangible assets, net 2,309 2,487
Accrued interest and other assets 13,210 13,665
---------- ---------
Total assets $1,070,511 $ 998,508
========== =========
LIABILITIES
Deposits:
Demand $ 135,041 $ 126,808
Savings 406,332 387,647
Time 385,644 333,881
---------- ---------
Total deposits 927,017 848,336
Securities sold under repurchase agreements 18,730 17,289
Other short-term borrowings 3,637 10,321
Notes payable 2,608 9,467
Accrued interest and other liabilities 13,034 9,334
---------- ---------
Total liabilities 965,026 894,747
STOCKHOLDERS' EQUITY
Preferred stock, no par value;
authorized 300,000 shares; none issued - -
Common stock, no par value; authorized 10,000,000 shares;
issued 6,103,830 in 2000 and 6,102,362 in 1999 6,104 6,102
Surplus 9,798 9,773
Retained earnings 97,273 92,143
Unrealized net loss on securities available for sale (1,939) (1,977)
Treasury stock, at cost, 237,036 shares in 2000
and 81,500 in 1999 (5,751) (2,280)
---------- ---------
Total stockholders' equity 105,485 103,761
---------- ---------
Total liabilities and stockholders' equity $1,070,511 $ 998,508
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $13,670 $11,685 $26,372 $23,157
Loans held for sale 184 482 350 1,042
Securities:
Taxable 3,700 3,324 7,202 6,712
Tax-exempt 722 659 1,387 1,303
Federal funds sold 429 355 755 826
Interest bearing deposits 7 15 15 21
------------- ------------- ------------- -------------
Total interest income 18,712 16,520 36,081 33,061
INTEREST EXPENSE
Savings deposits 3,018 2,290 5,751 4,459
Time deposits 5,062 4,352 9,614 8,948
Repurchase agreements 201 144 366 313
Other short-term borrowing 72 24 124 46
Notes payable 75 297 151 683
------------- ------------- ------------- -------------
Total interest expense 8,428 7,107 16,006 14,449
------------- ------------- ------------- -------------
Net interest income 10,284 9,413 20,075 18,612
Provision for loan losses 320 246 530 447
------------- ------------- ------------- -------------
Net interest income after provision for loan losses 9,964 9,167 19,545 18,165
NONINTEREST INCOME
Trust income 1,263 1,103 2,544 2,330
Service charges on deposits 945 813 1,771 1,562
Secondary mortgage fees 153 329 249 667
Mortgage servicing income 86 472 320 890
Gain on sale of loans 944 1,634 1,735 3,476
Other income 679 438 1,950 832
------------- ------------- ------------- -------------
Total noninterest income 4,070 4,789 8,569 9,757
NONINTEREST EXPENSE
Salaries and employee benefits 5,373 5,372 10,465 10,625
Occupancy expense, net 648 595 1,287 1,198
Furniture and equipment expense 860 884 1,712 1,884
Amortization of goodwill 111 110 221 220
Amortization of core deposit intangible assets 89 89 178 178
Other expense 2,048 2,300 4,208 4,927
------------- ------------- ------------- -------------
Total noninterest expense 9,129 9,350 18,071 19,032
------------- ------------- ------------- -------------
Income before income taxes 4,905 4,606 10,043 8,890
Provision for income taxes 1,471 1,491 3,149 2,842
------------- ------------- ------------- -------------
Net income $ 3,434 $ 3,115 $ 6,894 $ 6,048
============= ============= ============= =============
PER SHARE INFORMATION:
Basic earnings per share $ 0.58 $ 0.51 $ 1.16 $ 0.99
Diluted earnings per share 0.58 0.51 1.16 0.99
Dividends declared per share 0.15 0.15 0.30 0.28
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2000 and 1999
(In thousands)
<TABLE>
<CAPTION>
2000 1999
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 6,894 $ 6,048
Adjustments to reconcile net income to net cash from operating activities:
Depreciation 859 1,076
Amortization of mortgage servicing rights 25 27
Provision for loan losses 530 447
Net change in mortgage loans held for sale (2,228) 14,355
Change in net income taxes payable (3,455) 2,356
Change in accrued interest and other assets 455 (2,882)
Change in accrued interest and other liabilities 7,160 (129)
Premium amortization and discount accretion on securities 149 379
Amortization of goodwill 221 220
Amortization of core deposit intangible assets 178 178
Gain on sale of mortgage servicing rights (844) -
-------------- -------------
Net cash from operating activities 9,944 22,075
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales and maturities of securities available for sale 24,225 47,214
Purchases of securities available for sale (40,620) (38,676)
Net principal disbursed or repaid on loans (63,974) (22,286)
Proceeds from sales of other real estate 79 360
Property and equipment expenditures (2,007) (1,215)
Proceeds from sale of mortgage servicing rights 8,283 -
-------------- -------------
Net cash from investing activities (74,014) (14,603)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 78,681 3,784
Net change in repurchase agreements 1,441 (7,805)
Net change in other short-term borrowing (6,684) (50)
Net change in notes payable (6,859) (19,460)
Proceeds from exercise of incentive stock options 28 -
Dividends paid (1,789) (1,526)
Purchase of treasury stock (3,471) -
-------------- -------------
Net cash from financing activities 61,347 (25,057)
-------------- -------------
Net change in cash and cash equivalents (2,723) (17,585)
Cash and cash equivalents at beginning of period 69,275 92,152
-------------- -------------
Cash and cash equivalents at end of period $66,552 $74,567
============== =============
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid $ 1,347 $ 1,256
Interest paid 15,551 14,686
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed in the preparation of interim financial
statements are consistent with those used in the preparation of annual financial
information. The interim financial statements reflect all normal and recurring
adjustments, which are necessary, in the opinion of management, for a fair
statement of results for the interim periods presented. Results for the six
months ended June 30, 2000 are not necessarily indicative of the results that
may be expected for the year ended December 31, 2000.
NOTE 2 - SECURITIES
Securities available for sale are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ----------- ---------- -----
<S> <C> <C> <C> <C>
JUNE 30, 2000:
U.S. Treasury $ 8,523 $ - $ 34 $ 8,489
U.S. Government agencies 188,946 192 3,249 185,889
States and political subdivisions 66,458 921 559 66,820
Mortgage backed securities 23,882 - 491 23,391
Other securities 2,625 - - 2,625
-------- ------- ------- --------
$290,434 $1,113 $4,333 $287,214
======== ======= ======= ========
DECEMBER 31, 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
======== ======= ======= ========
</TABLE>
NOTE 3 - LOANS
Major classifications of loans were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------- -------------
<S> <C> <C>
Commercial and industrial $ 167,605 $ 151,771
Real estate - commercial 196,001 175,010
Real estate - construction 63,701 58,833
Real estate - residential 178,902 159,743
Installment 68,739 65,491
----------- ------------
674,948 610,848
Unearned discount (44) (78)
----------- ------------
$ 674,904 $ 610,770
=========== ============
</TABLE>
6
<PAGE>
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses as of June 30, are summarized as
follows:
<TABLE>
<CAPTION>
2000 1999
--------------- --------------
<S> <C> <C>
Balance, January 1 $ 8,444 $ 7,823
Provision for loan losses 530 447
Loans charged-off (255) (165)
Recoveries 415 208
--------------- --------------
Balance, end of period $ 9,134 $ 8,313
=============== ==============
</TABLE>
NOTE 5 - NOTES PAYABLE
The Company has a $40 million line of credit available with Marshall & Ilsley
Bank, under which $2.6 million was outstanding as of June 30, 2000 and $9.5
million was outstanding as of December 31, 1999. The note bears interest at the
rate of 1% over the Federal Funds rate. This borrowing is for the purpose of
funding loans held for sale at the Maple Park Mortgage subsidiary and other
corporate purposes.
NOTE 6 - EARNINGS PER SHARE
Earnings per share for the periods presented were as follows (share data not in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ ------------------------------
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Basic Earnings Per Share:
Weighted-average common shares outstanding 5,895,173 6,102,362 5,931,596 6,102,362
Net income $ 3,434 $ 3,115 $ 6,894 $ 6,048
Basic earnings per share $ 0.58 $ 0.51 $ 1.16 $ 0.99
Diluted Earnings Per Share:
Weighted-average common shares outstanding 5,895,173 6,102,362 5,931,596 6,102,362
Dilutive effect of stock options 6,663 10,831 7,404 11,452
-------------- -------------- -------------- --------------
Diluted average common shares outstanding 5,901,836 6,113,193 5,939,000 6,113,814
Net income $ 3,434 $ 3,115 $ 6,894 $ 6,048
Diluted earnings per share $ 0.58 $ 0.51 $ 1.16 $ 0.99
</TABLE>
NOTE 7 - COMPREHENSIVE INCOME
Comprehensive income for the periods presented were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net Income $ 3,434 $ 3,115 $ 6,894 $ 6,048
Other comprehensive gain (loss), net of tax 369 (2,405) 39 (3,251)
------------ ------------ ------------- ------------
Comprehensive income $ 3,803 $ 710 $ 6,933 $ 2,797
============ ============ ============= ============
</TABLE>
7
<PAGE>
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net income for the second quarter of 2000 was $3,434,000, or diluted earnings
per share of 58 cents, a 13.7% increase in earnings per share to $3,115,000,
or 51 cents per share, in the second quarter of 1999. For the six months
ended June 30, 2000, net income was $6,894,000, or $1.16 per share, compared
to $6,048,000, or $0.99 per share during the first six months of 1999, a
17.2% increase in earnings per share.
The increases in net income for the quarter and the year to date were
primarily the result of an increase in net interest income. Net interest
income was $10.3 million and $9.4 million during the three months ended June
30, 2000 and 1999, an increase of 9.6%. The Company's net interest margin was
4.40% for the three months ended June 30, 2000, and 4.30% a year earlier. Net
interest income was $20.1 million and $18.6 million during the six months
ended June 30, 2000 and 1999, an increase of 8.1%. The Company's net interest
margin was 4.41% for the six months ended June 30, 2000, and 4.27% a year
earlier. The increase in this ratio has primarily resulted from a higher
yield on earning assets. The average yield on earning assets increased from
7.46% in the second quarter of 1999, to 7.87% in the second quarter of 2000.
At the same time, the average cost of funds has increased from 3.16% in the
second quarter of 1999 to 3.47% in the second quarter of 2000.
Noninterest income was $4,070,000 during the second quarter of 2000 and
$4,789,000 in the second quarter of 1999, a decrease of $719,000. Noninterest
income was $8,569,000 during the six months ended June 30, 2000 and
$9,757,000 during the six months ended June 30, 1999, a decrease of
$1,188,000. This decline was partly due to the increase in interest rates and
the corresponding decrease in residential mortgage originations. Gains on
sales of mortgage loans declined to $944,000 in the second quarter of 2000,
and $1,735,000 in the six months ended June 30, 2000, from $1,634,000 in the
second quarter of 1999, and $3,476,000 in the six months ended June 30, 1999.
Unamortized mortgage servicing rights totaled approximately $7.7 million as
of December 31, 1999. During the first quarter of 2000, Maple Park Mortgages
entered into an agreement to sell the majority of the mortgage servicing
rights. A gain of $765,000 was recorded at the time of the sale and was
included in other income in the first quarter. A portion of the sale amount
was retained to compensate the buyer for short-term prepayments. The final
portion of the retained amount was included in other income in the second
quarter of 2000, bringing the total gain to $844,000. Maple Park Mortgage
intends to sell mortgage loans on a servicing-released basis instead of
retaining originated servicing rights. As a result of the sale of mortgage
servicing rights, servicing income declined from $472,000 in the second
quarter of 1999 to $86,000 in the second quarter of 2000. Servicing income
for the six-month period declined from $890,000 in 1999 to $320,000 in 2000.
Service charges on deposits have increased from $813,000 in the second
quarter of 1999 to $945,000 in the second quarter of 2000, and from
$1,562,000 in the first half of 1999 to $1,771,000 in the first half of 2000.
Deposit growth and improved service charge methods have contributed to the
increase. Other income was $241,000 higher for the second quarter of 2000 and
$1,118,000 higher for the year to date. Other income in the accompanying
financial
8
<PAGE>
statements includes gains on the sale of mortgage servicing rights of
$765,000 in the first quarter of 2000 and $79,000 in the second quarter.
Noninterest expenses were $9,129,000 during the second quarter of 2000, a
decline of $221,000 from $9,350,000 in the second quarter of 1999.
Noninterest expenses were $18,071,000 during the first six months of 2000, a
decrease of $961,000 from $19,032,000 during the first half of 1999. The
decrease in noninterest expenses is primarily the result of a decrease in the
amortization of mortgage servicing rights as a result of the sale of mortgage
servicing rights. Salaries and benefits, which account for over half of
noninterest expenses in all periods presented, were unchanged in the second
quarter and decreased $160,000 in the six month period, when comparing 2000
to 1999 results.
FINANCIAL CONDITION
LOANS
Total loans were $674.9 million as of June 30, 2000, an increase of $64.1
million (10.5%) for the six month period, from $610.8 million as of December
31, 1999. Loans have increased $96.0 million (16.6%) from June 30, 1999, to
June 30, 2000. All loan classifications increased during the six months ended
June 30, 2000. The largest increases were in residential real estate loans
and commercial loans, which increased $19.2 million and $15.8 million
respectively. These changes reflect the continuing loan demand in the markets
in which the Company operates.
Nonperforming loans include loans in nonaccrual status, renegotiated loans,
and loans past due ninety days or more and still accruing. Nonperforming
loans were $3.4 million as of June 30, 2000, down from $2.0 million as of
December 31, 1999. Most of this change is the result of a well-secured real
loan that is past due but still accruing. Net charge-offs of $38,000 were up
during the second quarter of 2000 compared to net charge-offs of $12,000 a
year earlier. However, net recoveries were $160,000 during the six months
ended June 30, 2000, compared to recoveries of $43,000 during the six months
ended June 30, 1999.
As a consequence of increased loan growth, the provision for loan losses was
increased. Provisions for loan losses were $320,000 in the second quarter of
2000 and $246,000 in the second quarter of 1999. Provisions for loan losses
were $530,000 in the six months ended June 30, 2000 and $447,000 in the six
months ended June 30, 1999. One measure of the adequacy of the allowance for
loan losses is the ratio of the allowance to total loans. The allowance for
loan losses as a percentage of total loans was 1.35% as of June 30, 2000, and
was 1.38% at December 31, 1999. In management's judgment, an adequate
allowance for loan losses inherent in the portfolio has been established.
DEPOSITS AND BORROWING
Total deposits were $927.0 million as of June 30, 2000, an increase of $78.7
million (9.27%) from $848.3 million as of December 31, 1999, and an increase
of $96.9 million from June 30, 1999. During the six months ended June 30,
2000, demand deposits increased by $8.2 million, to $135.0 million, savings
increase by $18.7 million, to $406.3 million, and time deposits increased by
$51.7 million, to $385.6 million. The merger of a local competing institution
with an out of state regional bank aided growth in the first half of 2000.
Demand for local community banking is strong in the markets in which the
Company operates.
9
<PAGE>
Securities sold under repurchase agreements, which are typically of
short-term durations, increased from $17.3 million as of December 31, 1999,
to $18.7 million as of June 30, 2000. Other short-term borrowings, which
primarily consist of treasury tax and loan notes, declined from $10.3 million
to $3.6 million as of June 30, 2000 due to temporary balances carried as of
year-end 1999. The Company also uses notes payable, primarily as a means of
financing loans held for sale at the Maple Park Mortgage subsidiary. Notes
payable declined from $9.5 million as of December 31, 1999, to $2.6 million
as of June 30, 2000. This decline was primarily related to the sale of
mortgage servicing rights. The proceeds of the sale were used, in part, to
reduce notes payable.
CAPITAL
In June 1999, the Company announced that the board of directors had
authorized the repurchase of up to 300,000 shares of the Company's common
stock, or 4.9% of the company's 6,102,362 shares outstanding. The purchase of
approximately 155,500 shares in the first half of 2000, together with 81,500
shares purchased during 1999, total approximately 237,000 shares repurchased.
On April 19, 2000, the Company announced that the board of directors had
authorized the purchase of additional shares of up to 300,000, bringing the
total number of shares authorized but not purchased to approximately 363,000.
The Company and its three subsidiary banks (the "Banks") are subject to
regulatory capital requirements administered by federal banking agencies.
Capital adequacy guidelines provide for five classifications, the highest of
which is well capitalized. The Company and the Banks were categorized as well
capitalized as of June 30, 2000. The accompanying table shows the capital
ratios of the Company and Old Second National Bank as of June 30, 2000.
Capital levels and minimum required levels:
<TABLE>
<CAPTION>
Minimum Required Minimum Required
for Capital to be Well
Actual Adequacy Purposes Capitalized
-------------------- -------------------- ---------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
JUNE 30, 2000:
Total capital to risk weighted assets
Consolidated $ 113,757 15.30% $ 59,481 8.00% $ 74,351 10.00%
Old Second 74,574 14.95 39,906 8.00 49,882 10.00
Tier 1 capital to risk weighted assets
Consolidated 104,622 14.07 29,743 4.00 44,615 6.00
Old Second 68,495 13.73 19,955 4.00 29,932 6.00
Tier 1 capital to average assets
Consolidated 104,622 9.94 42,101 4.00 52,627 5.00
Old Second 68,495 9.61 28,510 4.00 35,637 5.00
DECEMBER 31, 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
</TABLE>
10
<PAGE>
LIQUIDITY
Liquidity measures the ability of the Company to meet maturing obligations
and its existing commitments, to withstand fluctuations in deposit levels, to
fund its operations, and to provide for customers' credit needs. The
liquidity of the Company principally depends on cash flows from operating
activities, investment in and maturity of assets, changes in balances of
deposits and borrowings, and its ability to borrow funds in the money or
capital markets.
Net cash flows from operating activities were $9.1 million in the first six
months of 2000 and $22.1 million in the first six months of 1999. Interest
received net of interest paid was the principal source of operating cash
inflows in both periods reported. In addition, the sale of mortgage servicing
rights resulted in a gain of $844,000. Management of investing and financing
activities, and market conditions, determine the level and the stability of
net interest cash flows. Management's policy is to mitigate the impact of
changes in market interest rates to the extent possible, so that balance
sheet growth is the principal determinant of growth in net interest cash
flows.
Net cash outflows from investing activities were $73.2 million in the six
months ended June 30, 2000, compared to a net outflow of $14.6 million a year
earlier. In the first half of 2000, net principal disbursed on loans
accounted for net outflows of $64.0 million, and securities transactions
aggregated a net outflow of $16.4 million. In the first half of 1999, net
principal disbursed on loans accounted for a net outflow of $22.3 million,
and securities transactions resulted in net inflows of $8.5 million. The sale
of mortgage servicing rights resulted in net cash inflows of $9.0 million.
Cash inflows from financing activities included an increase in deposits of
$78.7 million in the first six months of 2000. This compares with a net
inflow associated with deposits of $3.8 million during the first half of
1999. Short-term borrowing resulted in net cash outflows of $6.7 million in
the first six months of 2000, and outflows of $50,000 in the first six months
of 1999. Net cash outflows associated with notes payable totaled $6.9 million
in the first six months of 2000 compared to outflows of $19.5 million in the
first six months of 1999.
SENSITIVITY TO MARKET 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
11
<PAGE>
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 accompanying table does 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.
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>
INTEREST-EARNING ASSETS
Deposit with banks $ 1,571 $ - $ - $ - $ - $ - $ 1,571
Average interest rate 5.00% 5.00%
Federal funds sold $ 29,325 $ - $ - $ - $ - $ - $ 29,325
Average interest rate 6.54% 6.54%
Securities $ 41,836 $ 36,123 $ 54,524 $ 61,004 $ 26,988 $ 66,739 $ 287,214
Average interest rate 6.09% 6.22% 5.98% 6.07% 6.26% 5.72% 6.01%
Fixed rate loans $ 133,373 $ 72,321 $ 71,238 $ 75,164 $ 44,472 $ 27,702 $ 424,270
Average interest rate 8.52% 8.02% 8.21% 7.48% 7.53% 8.06% 7.87%
Adjustable rate loans $ 161,834 $ 21,756 $ 30,680 $ 19,932 $ 13,536 $ 13,561 $ 261,299
Average interest rate 9.28% 7.85% 7.86% 7.19% 8.03% 8.06% 8.71%
---------- --------- --------- --------- --------- --------- ----------
Total $ 367,939 $130,200 $156,442 $156,100 $ 84,996 $108,002 $1,003,679
========= ========= ========= ========= ========= ========= ===========
INTEREST-BEARING LIABILITIES
Interest-bearing deposits $ 473,814 $ 95,683 $ 19,808 $ 6,710 $ 4,593 $191,368 $ 791,976
Average interest rate 4.95% 6.15% 5.59% 5.17% 5.94% 1.79% 4.36%
Short-term borrowing $ 22,367 $ - $ - $ - $ - $ - $ 22,367
Average interest rate 5.76% 5.76%
Notes payable $ 2,608 $ - $ - $ - $ - $ - $ 2,608
Average interest rate 7.40% 7.54%
---------- --------- --------- --------- --------- --------- ----------
Total $ 498,789 $ 95,683 $ 19,808 $ 6,710 $ 4,593 $191,368 $ 816,951
========== ========= ========= ========= ========= ========= ==========
Period gap $(130,850) $ 34,517 $136,634 $149,390 $ 80,403 $(83,366) $ 186,728
Cumulative gap (130,850) (96,333) 40,301 189,691 270,094 186,728
</TABLE>
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or
its subsidiaries are a party other than ordinary routine litigation
incidental to their respective businesses.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Meeting of Stockholders.
The Annual Meeting of Stockholders was held on April 18, 2000.
Election of Directors.
D. Chet McKee, Gerald Palmer, and James Carl Schmitz were
elected to serve as directors of the Company for a term ending
at the Annual Meeting in 2003. Gary McCarter was elected to
serve as a director of the Company for a term ending at the
Annual Meeting in 2001.
Matters Voted Upon at the Meeting.
In addition to the election of directors, stockholders
ratified the adoption of Earnst & Young, L.L.P. as independent
public accountants for the Company for the year ending
December 31, 2000. The voting on each item at the Annual
Meeting was as follows:
Election of Directors
<TABLE>
<CAPTION>
For Withheld Abstain Total
---- -------- -------------- ----------
<S> <C> <C> <C> <C>
D. Chet McKee 5,097,244 42,783 25,914 5,165,941
Gerald Palmer 5,097,028 42,999 25,914 5,165,941
James Carl Schmitz 5,096,950 43,077 25,914 5,165,941
Gary McCarter 5,098,378 41,649 25,914 5,165,941
</TABLE>
<TABLE>
<CAPTION>
For Not For Abstain Non-votes Total
--- ------- ------- --------- -----
<S> <C> <C> <C> <C> <C>
Ratification of Accountants 5,133,311 11,215 21,415 -- 5,165,941
</TABLE>
ITEM 5. OTHER INFORMATION
None.
13
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
27. Financial Data Schedule
Reports on Form 8-K
None.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OLD SECOND BANCORP, INC.
(Registrant)
/s/ William B. Skoglund
--------------------------------------------
William B. Skoglund
President and Chief Executive Officer
/s/ J. Douglas Cheatham
--------------------------------------------
J. Douglas Cheatham
Vice President and Chief Financial Officer
Date: August 14, 2000
15
