<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 September 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 November 3,
2000, the Registrant had outstanding 5,832,094 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>
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..................................................................................12
Item 2. Changes in Securities..............................................................................12
Item 3. Defaults Upon Senior Securities....................................................................12
Item 4. Submission of Matters to a Vote of Security Holders................................................12
Item 5. Other Information..................................................................................12
Item 6. Exhibits and Reports on Form 8-K...................................................................12
Signatures..............................................................................................13
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
--------------- --------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 35,042 $ 42,800
Interest bearing balances with banks 80 575
Federal funds sold 75,225 25,900
--------------- --------------
Cash and cash equivalents 110,347 69,275
Securities available for sale 310,961 277,413
Loans held for sale 12,780 8,437
Loans 702,964 604,269
Allowance for loan losses 9,325 8,444
--------------- --------------
Net loans 693,639 595,825
Premises and equipment, net 21,799 20,665
Other real estate owned - 79
Mortgage servicing rights, net 196 7,658
Goodwill, net 2,673 3,004
Core deposit intangible assets, net 2,220 2,487
Accrued interest and other assets 14,290 13,665
--------------- --------------
Total assets $ 1,168,905 $ 998,508
=============== ==============
LIABILITIES
Deposits:
Demand $ 133,530 $ 126,808
Savings 451,555 387,647
Time 410,765 333,881
--------------- --------------
Total deposits 995,850 848,336
Securities sold under repurchase agreements 31,254 17,289
Other short-term borrowings 5,011 10,321
Notes payable 3,054 9,467
Accrued interest and other liabilities 25,007 9,334
--------------- --------------
Total liabilities 1,060,176 894,747
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 99,666 92,143
Accumulated other comprehensive loss (670) (1,977)
Treasury stock, at cost, 256,736 shares in 2000
and 81,500 in 1999 (6,169) (2,280)
--------------- --------------
Total stockholders' equity 108,729 103,761
--------------- --------------
Total liabilities and stockholders' equity $ 1,168,905 $ 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 Nine Months Ended
September 30, September 30,
-------------------- -------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 14,637 $11,909 $41,009 $34,844
Loans held for sale 29 347 379 1,388
Securities:
Taxable 4,072 3,504 11,274 10,397
Tax-exempt 737 714 2,124 2,060
Federal funds sold 654 217 1,409 1,043
Interest bearing deposits 3 7 18 28
--------- -------- -------- --------
Total interest income 20,132 16,698 56,213 49,760
INTEREST EXPENSE
Savings deposits 3,271 2,509 9,022 6,968
Time deposits 5,959 4,248 15,573 13,196
Repurchase agreements 317 192 683 504
Other short-term borrowing 71 34 195 82
Notes payable 36 233 187 915
--------- -------- -------- --------
Total interest expense 9,654 7,216 25,660 21,665
--------- -------- -------- --------
Net interest income 10,478 9,482 30,553 28,095
Provision for loan losses 390 264 920 711
--------- -------- -------- --------
Net interest income after provision for loan losses 10,088 9,218 29,633 27,384
NONINTEREST INCOME
Trust income 1,286 1,050 3,830 3,379
Service charges on deposits 909 858 2,680 2,420
Secondary mortgage fees 182 177 431 844
Mortgage servicing income 12 485 332 1,375
Gain on sale of loans 959 1,269 2,694 4,745
Other income 676 771 2,626 1,603
--------- -------- ---------- --------
Total noninterest income 4,024 4,610 12,593 14,366
NONINTEREST EXPENSE
Salaries and employee benefits 5,585 4,902 16,050 15,526
Occupancy expense, net 622 642 1,909 1,840
Furniture and equipment expense 774 882 2,486 2,766
Amortization of goodwill 110 110 331 331
Amortization of core deposit intangible assets 88 89 266 266
Other expense 2,281 2,670 6,489 7,598
--------- -------- --------- --------
Total noninterest expense 9,460 9,295 27,531 28,327
--------- -------- --------- --------
Income before income taxes 4,652 4,533 14,695 13,423
Provision for income taxes 1,383 1,440 4,532 4,281
--------- -------- --------- --------
Net income $ 3,269 $ 3,093 $10,163 $ 9,142
========= ======== ========= --======
PER SHARE INFORMATION:
Basic earnings per share $ 0.56 $ 0.51 $ 1.72 $ 1.50
Diluted earnings per share 0.56 0.51 1.72 1.50
Dividends declared per share 0.15 0.15 0.45 0.43
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2000 and 1999
(In thousands)
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 10,163 $ 9,142
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation 1,294 1,599
Amortization of mortgage servicing rights 23 291
Provision for loan losses 920 711
Net change in mortgage loans held for sale (4,343) 19,169
Change in net income taxes payable (5,570) 3,268
Change in accrued interest and other assets (625) (3,237)
Change in accrued interest and other liabilities 20,414 (2,775)
Premium amortization and discount accretion on securities 194 551
Amortization of goodwill 331 331
Amortization of core deposit intangible assets 267 267
Gain on sale of mortgage servicing rights (844) -
---------- ---------
Net cash from operating activities 22,224 29,317
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales and maturities of securities available for sale 34,404 55,757
Purchases of securities available for sale (65,982) (47,085)
Net principal disbursed or repaid on loans (98,734) (49,795)
Proceeds from sales of other real estate 79 252
Property and equipment expenditures (2,428) (1,350)
Origination of mortgage servicing rights - (2,268)
Proceeds from sale of mortgage servicing rights 8,283 -
---------- ----------
Net cash from investing activities (124,378) (44,489)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 147,514 6,792
Net change in repurchase agreements 13,965 (12,078)
Net change in other short-term borrowing (5,310) (68)
Net change in notes payable (6,413) (19,470)
Proceeds from exercise of incentive stock options 28 -
Dividends paid (2,669) (2,441)
Purchase of treasury stock (3,889) (1,218)
----------- -----------
Net cash from financing activities 143,226 (28,483)
----------- -----------
Net change in cash and cash equivalents 41,072 (43,655)
Cash and cash equivalents at beginning of period 69,275 92,152
----------- -----------
Cash and cash equivalents at end of period $110,347 $48,497
=========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid $ 5,280 $ 1,256
Interest paid 15,551 14,686
</TABLE>
See accompanying notes to consolidated financial statements.
6
<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 nine months ended September 30, 2000 are not necessarily indicative
of the results that may be expected for the year ended December 31, 2000.
Certain 1999 amounts have been reclassified to conform to the 2000
presentation.
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 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>
SEPTEMBER 30, 2000:
U.S. Treasury $ 7,517 $ - $ 4 $ 7,513
U.S. Government agencies 201,139 570 2,161 199,548
States and political subdivisions 74,500 1,223 305 75,418
Mortgage backed securities 22,753 - 436 22,317
Other securities 6,165 - - 6,165
--------- ---------- ---------- ---------
$312,074 $1,793 $2,906 $310,961
========= ========== ========== =========
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 9,066 - - 9,066
--------- ---------- ---------- ---------
$280,688 $983 $4,258 $277,413
========= ========== ========== =========
</TABLE>
NOTE 3 - LOANS
Major classifications of loans were as follows:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Commercial and industrial $157,743 $145,270
Real estate - commercial 201,854 175,010
Real estate - construction 75,033 58,833
Real estate - residential 192,431 160,029
Installment 76,383 65,491
------------- ------------
703,444 604,633
Unearned origination fees (449) (286)
Unearned discount (31) (78)
------------- ------------
$702,964 $604,269
============= ============
</TABLE>
6
<PAGE>
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the nine months ended September 30,
are summarized as follows:
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Balance, January 1 $8,444 $7,823
Provision for loan losses 920 711
Loans charged-off (499) (485)
Recoveries 460 226
------- -------
Balance, end of period $9,325 $8,275
======= =======
</TABLE>
NOTE 5 - NOTES PAYABLE
As of September 30, 2000, $3.1 million was outstanding under a line of credit
with M&I Marshall & Ilsley Bank. $40 million is available through this line of
credit, which expires on February 12, 2001. As of December 31, 1999, $9.5
million was outstanding under a line of credit extended by Firstar Bank
Milwaukee, N.A. to Maple Park Mortgage. $60 million was available through this
line of credit, which was repaid in February, 2000.
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 Nine Months Ended
September 30, September 30,
-------------------- --------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic Earnings Per Share:
Weighted-average common shares outstanding 5,855,241 6,078,112 5,905,958 6,094,190
Net income $ 3,269 $ 3,093 $ 10,163 $ 9,142
Basic earnings per share $ 0.56 $ 0.51 $ 1.72 $ 1.50
Diluted Earnings Per Share:
Weighted-average common shares outstanding 5,855,241 6,078,112 5,905,958 6,094,190
Dilutive effect of stock options 7,317 10,831 7,369 11,452
--------- --------- --------- ---------
Diluted average common shares outstanding 5,862,558 6,088,943 5,913,327 6,105,642
Net income $ 3,269 $ 3,093 $ 10,163 $ 9,142
Diluted earnings per share $ 0.56 $ 0.51 $ 1.72 $ 1.50
</TABLE>
NOTE 7 - COMPREHENSIVE INCOME
Comprehensive income for the periods presented were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $3,269 $3,093 $10,163 $9,142
Other comprehensive gain (loss), net of tax 1,269 (1,879) 1,307 (5,130)
------- ------- -------- -------
Comprehensive income $4,538 $1,214 $11,470 $4,012
======= ======= ======== =======
</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 third quarter of 2000 was $3,269,000, or diluted earnings
per share of 56 cents, a 9.8% increase in earnings per share compared to
$3,093,000, or 51 cents per share, in the third quarter of 1999. For the nine
months ended September 30, 2000, net income was $10,163,000, or $1.72 per
share, compared to $9,142,000, or $1.50 per share during the first nine
months of 1999, a 14.7% 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 $10.5 million and $9.5 million during the three months ended
September 30, 2000 and 1999, an increase of 10.5%. The Company's net interest
margin was 4.21% for the three months ended September 30, 2000, and 4.28% a
year earlier. Net interest income was $30.6 million and $28.1 million during
the nine months ended September 30, 2000 and 1999, an increase of 8.9%. The
Company's net interest margin was 4.34% for the nine months ended September
30, 2000, and 4.27% a year earlier. Asset yields and the cost of funds were
higher in the first three quarters of 2000 than in the first three quarters
of 1999. Yields on earning assets increased more than the cost of funds
during this period of time. The average yield on earning assets increased
from 7.50% in the first nine months of 1999, to 7.85% in the first nine
months of 2000. At the same time, the average cost of funds has increased
from 3.23% in the first nine months of 1999 to 3.51% in the first nine months
of 2000.
Noninterest income was $4,024,000 during the third quarter of 2000 and
$4,610,000 in the third quarter of 1999, a decrease of $586,000. Noninterest
income was $12,593,000 during the nine months ended September 30, 2000 and
$14,366,000 during the nine months ended September 30, 1999, a decrease of
$1,773,000. This decline was partly due to the increase in interest rates and
the related decrease in residential mortgage originations. Gains on sales of
mortgage loans declined to $959,000 in the third quarter of 2000, and
$2,694,000 in the nine months ended September 30, 2000, from $1,269,000 in
the third quarter of 1999, and $4,745,000 in the nine months ended September
30, 1999.These declines resulted from decreased volume related to higher
interest rates.
Unamortized mortgage servicing rights totaled approximately $7.7 million as
of December 31, 1999. During the first quarter of 2000, Maple Park Mortgage
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, for a total gain of $844,000. Maple Park Mortgage will sell
mortgage loans on a servicing-released basis instead of retaining servicing
rights. As a result of the sale of mortgage servicing rights, servicing
income declined from $485,000 in the third quarter of 1999 to $12,000 in the
third quarter of 2000. Servicing income for the nine-month period declined
from $1,375,000 in 1999 to $332,000 in 2000.
Service charges on deposits have increased from $858,000 in the third quarter
of 1999 to $909,000 in the third quarter of 2000, and from $2,420,000 in the
first three quarters of 1999 to $2,680,000 in the first three quarters of
2000. Deposit growth and improved service charge methods have contributed to
the increase.
8
<PAGE>
Noninterest expenses were $9,460,000 during the third quarter of 2000, an
increase of $165,000 from $9,295,000 in the third quarter of 1999.
Noninterest expenses were $27,531,000 during the first nine months of 2000, a
decrease of $796,000 from $28,327,000 during the first three quarters 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 were $5.6 million in
the third quarter of 2000, compared to $4.9 million in the third quarter of
1999, and increased $524,000 in the nine-month period, when comparing 2000 to
1999 results. These increases are the result of higher benefits costs and
increased staffing related to growth.
FINANCIAL CONDITION
LOANS
Total loans were $703.0 million as of September 30, 2000, an increase of
$101.7 million (16.9%) for the nine month period, from $601.3 million as of
December 31, 1999. All loan classifications increased during the nine months
ended September 30, 2000. The largest increases were in loans secured by real
estate, including commercial, construction, and residential real estate
loans, which increased $26.6 million, $16.3 million, and $32.4 million
respectively. These changes reflect the continuing growth 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 $1.7 million as of September 30, 2000, down from $2.0 million as
of December 31, 1999. Net charge-offs were $36,000 during the nine months
ended September 30, 2000, compared to $259,000 during the first nine months
of 1999.
As a consequence of increased loan growth, the provision for loan losses was
increased. Provisions for loan losses were $390,000 in the third quarter of
2000 and $264,000 in the third quarter of 1999. Provisions for loan losses
were $920,000 in the nine months ended September 30, 2000 and $711,000 in the
nine months ended September 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 1.33% as of
September 30, 2000, and was 1.40% 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 $995.9 million as of September 30, 2000, an increase of
$147.6 million (17.4%) from $848.3 million as of December 31, 1999. During
the nine months ended September 30, 2000, demand deposits increased by $6.7
million, to $133.5 million, savings increase by $64.0 million, to $451.6
million, and time deposits increased by $76.9 million, to $410.8 million. The
merger of a local competing institution with an out of state regional bank
aided growth in the first three quarters of 2000. Demand for local community
banking is strong in the markets in which the Company operates.
Securities sold under repurchase agreements, which are typically of
short-term durations, increased from $17.3 million as of December 31, 1999,
to $31.3 million as of September 30, 2000. Other short-term borrowings, which
primarily consist of treasury tax and loan notes,
9
<PAGE>
declined from $10.3 million to $5.0 million as of September 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 $3.1 million as of September 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
175,236 shares in the first nine months of 2000, together with 81,500 shares
purchased during 1999, total 256,736 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 343,264.
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 September 30, 2000. The accompanying table shows the
capital ratios of the Company and Old Third National Bank as of September 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>
SEPTEMBER 30, 2000:
Total capital to risk weighted assets
Consolidated $113,812 14.39% $63,273 8.00% $79,091 10.00%
Old Second 76,232 14.45 42,205 8.00 52,756 10.00
Tier 1 capital to risk weighted assets
Consolidated 104,486 13.21 31,638 4.00 47,458 6.00
Old Second 70,051 13.28 21,100 4.00 31,650 6.00
Tier 1 capital to average assets
Consolidated 104,486 9.94 42,047 4.00 52,558 5.00
Old Second 70,051 9.47 29,589 4.00 36,986 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>
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
10
<PAGE>
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 $22.2 million in the first nine
months of 2000 and $27.0 million in the first nine months of 1999. Interest
received net of interest paid was the principal source of operating cash
inflows in both periods reported. 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 $124.4 million in the nine
months ended September 30, 2000, compared to a net outflow of $42.2 million a
year earlier. In the first three quarters of 2000, net principal disbursed on
loans accounted for net outflows of $98.7 million, and securities
transactions aggregated a net outflow of $31.6 million. In the first three
quarters of 1999, net principal disbursed on loans accounted for a net
outflow of $49.8 million, and securities transactions resulted in net inflows
of $8.7 million. The sale of mortgage servicing rights resulted in net cash
inflows of $8.3 million.
Cash inflows from financing activities included an increase in deposits of
$147.5 million in the first nine months of 2000. This compares with a net
inflow associated with deposits of $6.8 million during the first three
quarters of 1999. Short-term borrowing resulted in net cash outflows of $5.3
million in the first nine months of 2000, and outflows of $68,000 in the
first nine months of 1999. Net cash outflows associated with notes payable
totaled $6.4 million in the first nine months of 2000 compared to outflows of
$19.5 million in the first nine 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 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.
11
<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
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
27. Financial Data Schedule
Reports on Form 8-K
None.
12
<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: November 13, 2000
13
