I
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended September 30, 2017March 31, 2021
OR
For transition period fromto
Commission File Number 0 -105370-10537
(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, Illinois60507
(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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ ‘‘smaller reporting company,’’ and ‘‘emerging growth company’’ in Rule 12b–2 of the Exchange Act.
Large accelerated filer☐Accelerated filer☒
Non-accelerated filer☐Smaller reporting company☐Emerging growth company☐
(Do not check if a smaller reporting company)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).
Yes ☐ No ☒
| | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | OSBC | The Nasdaq Stock Market |
As of November 3, 2017,May 4, 2021, the Registrant had 29,627,086has 28,859,521 shares of common stock outstanding at $1.00 par value per share.
OLD SECOND BANCORP, INC.
Form 10-Q Quarterly Report
Cautionary Note Regarding Forward-Looking Statements
| | |
| | |
| ||
| Page Number | |
5 | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 38 | |
59 | ||
60 | ||
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60 | ||
60 | ||
61 | ||
61 | ||
61 | ||
61 | ||
62 | ||
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| 63 |
2
2
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report and other publicly available documents of the Company contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act, including with respect to management’s expectations regarding future plans, strategies and financial performance, including regulatory developments, industry and economic trends, and other matters. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the Company's management and on information currently available to management, can be identified by the inclusion of such qualifications as “expects,” “intends,” “believes,” “may,” “will,” “would,” “could,” “should,” “plan,” “anticipate,” “estimate,” “possible,” “likely” or other indications that the particular statements are not historical facts and refer to future periods. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and may be outside of the Company’s control. Actual events and results may differ materially from those described in such forward-looking statements due to numerous factors, including:
● | our ability to execute our growth strategy; |
● | the impact of the outbreak of the novel coronavirus, or COVID-19, on our business, including the impact of the actions taken by governmental authorities to try and contain the virus or address the impact of the virus on the United States economy (including, without limitation, the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act), and the resulting effect of these items on our operations, liquidity and capital position, and on the financial condition of our borrowers and other customers; |
● | negative economic conditions that adversely affect the economy, real estate values, the job market and other factors nationally and in our market area, in each case that may affect our liquidity and the performance of our loan portfolio; |
● | risks related to future acquisitions, if any, including execution and integration risks; |
● | the financial success and viability of the borrowers of our commercial loans; |
● | changes in U.S. monetary policy, the level and volatility of interest rates, the capital markets and other market conditions that may affect, among other things, our liquidity and the value of our assets and liabilities; |
● | the transition away from LIBOR to an alternative reference rate; |
● | competitive pressures from other financial service businesses and from nontraditional financial technology (“FinTech”) companies; |
● | any negative perception of our reputation or financial strength; |
● | our ability to raise additional capital on acceptable terms when needed; |
● | our ability to raise cost-effective funding to support business plans when needed: |
● | our ability to use technology to provide products and services that will satisfy customer demands and create efficiencies in operations; |
● | adverse effects on our information technology systems resulting from system failures, human error or cyberattacks; |
● | adverse effects of failures by our vendors to provide agreed upon services in the manner and at the cost agreed, particularly our information technology vendors and those vendors performing a service on the Company’s behalf; |
● | the impact of any claims or legal actions, including any effect on our reputation; |
● | losses incurred in connection with repurchases and indemnification payments related to mortgages; |
● | the soundness of other financial institutions and other counter-party risk; |
● | changes in accounting standards, rules and interpretations and the related impact on our financial statements, including assumptions surrounding the ongoing impact of CECL, which are subject to change based on a number of factors including changes in our macroeconomic forecasts, credit quality, loan composition and other factors; |
● | our ability to receive dividends from our subsidiaries; |
● | a decrease in our regulatory capital ratios; |
● | adverse federal or state tax assessments, or changes in tax laws or policies; |
● | risks associated with actual or potential litigation or investigations by customers, regulatory agencies or others; |
● | legislative or regulatory changes, particularly changes in regulation of financial services companies; |
● | increased costs of compliance, heightened regulatory capital requirements and other risks associated with changes in regulation and the current regulatory environment, including changes as a result of the new presidential administration and Democratic control of Congress; |
● | negative changes in our capital position; |
● | the adverse effects of events beyond our control that may have a destabilizing effect on financial markets and the economy, such as epidemics and pandemics (including COVID-19), war or terrorist activities, essential utility outages, deterioration in the global economy, instability in the credit markets, disruptions in our customers’ supply chains or disruption in transportation; |
● | changes in trade policy and any related tariffs; and |
● | each of the factors and risks under the heading “Risk Factors” in our 2020 Annual Report on Form 10-K, in this Form 10-Q, and in subsequent filings we make with the SEC. |
3
Because the Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain, there can be no assurances that future actual results will correspond to any forward-looking statements and you should not rely on any forward-looking statements. Additionally, all statements in this Form 10-Q, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events, except as required by applicable law.
4
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Old Second Bancorp, Inc. and Subsidiaries
(In thousands, except share data)
|
|
|
|
|
|
|
|
| (unaudited) |
|
|
| |
|
| September 30, |
| December 31, | ||
|
| 2017 |
| 2016 | ||
Assets |
|
|
|
|
|
|
Cash and due from banks |
| $ | 32,772 |
| $ | 33,805 |
Interest bearing deposits with financial institutions |
|
| 14,730 |
|
| 13,529 |
Cash and cash equivalents |
|
| 47,502 |
|
| 47,334 |
Securities available-for-sale, at fair value |
|
| 533,484 |
|
| 531,838 |
Federal Home Loan Bank Chicago ("FHLBC") and Federal Reserve Bank Chicago ("FRBC") stock |
|
| 10,393 |
|
| 7,918 |
Loans held-for-sale |
|
| 1,641 |
|
| 4,918 |
Loans |
|
| 1,594,191 |
|
| 1,478,809 |
Less: allowance for loan losses |
|
| 16,465 |
|
| 16,158 |
Net loans |
|
| 1,577,726 |
|
| 1,462,651 |
Premises and equipment, net |
|
| 37,971 |
|
| 38,977 |
Other real estate owned |
|
| 9,024 |
|
| 11,916 |
Mortgage servicing rights, net |
|
| 6,684 |
|
| 6,489 |
Goodwill and core deposit intangible |
|
| 8,944 |
|
| 9,018 |
Bank-owned life insurance ("BOLI") |
|
| 61,403 |
|
| 60,332 |
Deferred tax assets, net |
|
| 42,394 |
|
| 53,464 |
Other assets |
|
| 23,241 |
|
| 16,333 |
Total assets |
| $ | 2,360,407 |
| $ | 2,251,188 |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
Noninterest bearing demand |
| $ | 556,874 |
| $ | 513,688 |
Interest bearing: |
|
|
|
|
|
|
Savings, NOW, and money market |
|
| 947,969 |
|
| 950,849 |
Time |
|
| 384,272 |
|
| 402,248 |
Total deposits |
|
| 1,889,115 |
|
| 1,866,785 |
Securities sold under repurchase agreements |
|
| 26,853 |
|
| 25,715 |
Other short-term borrowings |
|
| 125,000 |
|
| 70,000 |
Junior subordinated debentures |
|
| 57,627 |
|
| 57,591 |
Senior notes |
|
| 44,033 |
|
| 43,998 |
Other liabilities |
|
| 17,016 |
|
| 11,889 |
Total liabilities |
|
| 2,159,644 |
|
| 2,075,978 |
|
|
|
|
|
|
|
Stockholders’ Equity |
|
|
|
|
|
|
Common stock |
|
| 34,626 |
|
| 34,534 |
Additional paid-in capital |
|
| 117,458 |
|
| 116,653 |
Retained earnings |
|
| 145,767 |
|
| 129,005 |
Accumulated other comprehensive loss |
|
| (632) |
|
| (8,762) |
Treasury stock |
|
| (96,456) |
|
| (96,220) |
Total stockholders’ equity |
|
| 200,763 |
|
| 175,210 |
Total liabilities and stockholders’ equity |
| $ | 2,360,407 |
| $ | 2,251,188 |
| | | | | | |
| | (unaudited) | | | | |
| | March 31, | | December 31, | ||
|
| 2021 |
| 2020 | ||
Assets | | | | | | |
Cash and due from banks | | $ | 25,448 | | $ | 24,306 |
Interest earning deposits with financial institutions | | | 415,497 | | | 305,597 |
Cash and cash equivalents | | | 440,945 | | | 329,903 |
Securities available-for-sale, at fair value | | | 593,280 | | | 496,178 |
Federal Home Loan Bank Chicago ("FHLBC") and Federal Reserve Bank Chicago ("FRBC") stock | | | 9,917 | | | 9,917 |
Loans held-for-sale | | | 7,842 | | | 12,611 |
Loans | | | 1,959,625 | | | 2,034,851 |
Less: allowance for credit losses on loans | | | 30,967 | | | 33,855 |
Net loans | | | 1,928,658 | | | 2,000,996 |
Premises and equipment, net | | | 45,055 | | | 45,477 |
Other real estate owned | | | 2,163 | | | 2,474 |
Mortgage servicing rights, at fair value | | | 5,889 | | | 4,224 |
Goodwill and core deposit intangible | | | 20,661 | | | 20,781 |
Bank-owned life insurance ("BOLI") | | | 63,436 | | | 63,102 |
Deferred tax assets, net | | | 8,067 | | | 8,121 |
Other assets | | | 40,739 | | | 47,053 |
Total assets | | $ | 3,166,652 | | $ | 3,040,837 |
| | | | | | |
Liabilities | | | | | | |
Deposits: | | | | | | |
Noninterest bearing demand | | $ | 982,664 | | $ | 909,505 |
Interest bearing: | | | | | | |
Savings, NOW, and money market | | | 1,290,937 | | | 1,202,134 |
Time | | | 382,941 | | | 425,434 |
Total deposits | | | 2,656,542 | | | 2,537,073 |
Securities sold under repurchase agreements | | | 77,321 | | | 66,980 |
Junior subordinated debentures | | | 25,773 | | | 25,773 |
Senior notes | | | 44,402 | | | 44,375 |
Notes payable and other borrowings | | | 22,314 | | | 23,393 |
Other liabilities | | | 29,187 | | | 36,156 |
Total liabilities | | | 2,855,539 | | | 2,733,750 |
| | | | | | |
Stockholders’ Equity | | | | | | |
Common stock | | | 34,957 | | | 34,957 |
Additional paid-in capital | | | 120,075 | | | 122,212 |
Retained earnings | | | 248,165 | | | 236,579 |
Accumulated other comprehensive income | | | 13,266 | | | 14,762 |
Treasury stock | | | (105,350) | | | (101,423) |
Total stockholders’ equity | | | 311,113 | | | 307,087 |
Total liabilities and stockholders’ equity | | $ | 3,166,652 | | $ | 3,040,837 |
| | | | | | |
|
|
|
|
|
|
| September 30, 2017 |
| December 31, 2016 | ||
| Common |
| Common | ||
| Stock |
| Stock | ||
Par value | $ | 1.00 |
| $ | 1.00 |
Shares authorized |
| 60,000,000 |
|
| 60,000,000 |
Shares issued |
| 34,625,734 |
|
| 34,534,234 |
Shares outstanding |
| 29,627,086 |
|
| 29,556,216 |
Treasury shares |
| 4,998,648 |
|
| 4,978,018 |
| | | | | |
| March 31, 2021 | | December 31, 2020 | ||
| Common | | Common | ||
| Stock |
| Stock | ||
Par value | $ | 1.00 | | $ | 1.00 |
Shares authorized | | 60,000,000 | | | 60,000,000 |
Shares issued | | 34,957,384 | | | 34,957,384 |
Shares outstanding | | 29,018,637 | | | 29,328,723 |
Treasury shares | | 5,938,747 | | | 5,628,661 |
See accompanying notes to consolidated financial statements.
3
5
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (unaudited) |
| (unaudited) |
| ||||||||
|
| Quarters Ended September 30, |
| Nine Months Ended September 30, | |||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Interest and dividend income |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees |
| $ | 18,208 |
| $ | 13,496 |
| $ | 52,202 |
| $ | 39,593 |
|
Loans held-for-sale |
|
| 34 |
|
| 48 |
|
| 95 |
|
| 115 |
|
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
| 2,424 |
|
| 3,954 |
|
| 7,994 |
|
| 12,547 |
|
Tax exempt |
|
| 1,628 |
|
| 180 |
|
| 4,188 |
|
| 579 |
|
Dividends from FHLBC and FRBC stock |
|
| 94 |
|
| 83 |
|
| 271 |
|
| 251 |
|
Interest bearing deposits with financial institutions |
|
| 37 |
|
| 64 |
|
| 91 |
|
| 98 |
|
Total interest and dividend income |
|
| 22,425 |
|
| 17,825 |
|
| 64,841 |
|
| 53,183 |
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings, NOW, and money market deposits |
|
| 239 |
|
| 193 |
|
| 695 |
|
| 577 |
|
Time deposits |
|
| 1,077 |
|
| 931 |
|
| 3,081 |
|
| 2,622 |
|
Other short-term borrowings |
|
| 224 |
|
| 23 |
|
| 482 |
|
| 69 |
|
Junior subordinated debentures |
|
| 930 |
|
| 1,084 |
|
| 3,073 |
|
| 3,251 |
|
Senior notes |
|
| 672 |
|
| - |
|
| 2,017 |
|
| - |
|
Subordinated debt |
|
| - |
|
| 245 |
|
| - |
|
| 727 |
|
Notes payable and other borrowings |
|
| - |
|
| 2 |
|
| - |
|
| 6 |
|
Total interest expense |
|
| 3,142 |
|
| 2,478 |
|
| 9,348 |
|
| 7,252 |
|
Net interest and dividend income |
|
| 19,283 |
|
| 15,347 |
|
| 55,493 |
|
| 45,931 |
|
Provision for loan losses |
|
| 300 |
|
| - |
|
| 1,050 |
|
| - |
|
Net interest and dividend income after provision for loan losses |
|
| 18,983 |
|
| 15,347 |
|
| 54,443 |
|
| 45,931 |
|
Noninterest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust income |
|
| 1,468 |
|
| 1,403 |
|
| 4,564 |
|
| 4,274 |
|
Service charges on deposits |
|
| 1,722 |
|
| 1,756 |
|
| 4,955 |
|
| 4,961 |
|
Secondary mortgage fees |
|
| 195 |
|
| 322 |
|
| 594 |
|
| 795 |
|
Mortgage servicing rights mark to market loss |
|
| (194) |
|
| (147) |
|
| (756) |
|
| (1,921) |
|
Mortgage servicing income |
|
| 451 |
|
| 437 |
|
| 1,330 |
|
| 1,280 |
|
Net gain on sales of mortgage loans |
|
| 1,095 |
|
| 2,177 |
|
| 3,715 |
|
| 5,031 |
|
Securities gain (loss), net |
|
| 102 |
|
| (1,959) |
|
| (165) |
|
| (2,020) |
|
Increase in cash surrender value of BOLI |
|
| 362 |
|
| 383 |
|
| 1,071 |
|
| 987 |
|
Debit card interchange income |
|
| 1,075 |
|
| 1,013 |
|
| 3,131 |
|
| 3,009 |
|
Gain (loss) on disposal and transfer of fixed assets, net |
|
| - |
|
| - |
|
| 10 |
|
| (1) |
|
Other income |
|
| 1,567 |
|
| 1,209 |
|
| 3,739 |
|
| 3,751 |
|
Total noninterest income |
|
| 7,843 |
|
| 6,594 |
|
| 22,188 |
|
| 20,146 |
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
| 10,049 |
|
| 9,014 |
|
| 31,167 |
|
| 26,854 |
|
Occupancy, furniture and equipment |
|
| 1,482 |
|
| 1,500 |
|
| 4,510 |
|
| 4,427 |
|
Computer and data processing |
|
| 1,081 |
|
| 1,105 |
|
| 3,283 |
|
| 3,093 |
|
FDIC insurance |
|
| 199 |
|
| 228 |
|
| 512 |
|
| 793 |
|
General bank insurance |
|
| 246 |
|
| 269 |
|
| 780 |
|
| 839 |
|
Amortization of core deposit intangible |
|
| 24 |
|
| - |
|
| 74 |
|
| - |
|
Advertising expense |
|
| 255 |
|
| 430 |
|
| 1,093 |
|
| 1,212 |
|
Debit card interchange expense |
|
| 285 |
|
| 363 |
|
| 1,033 |
|
| 1,186 |
|
Legal fees |
|
| 162 |
|
| 242 |
|
| 450 |
|
| 594 |
|
Other real estate expense, net |
|
| 680 |
|
| 426 |
|
| 1,928 |
|
| 2,043 |
|
Other expense |
|
| 2,455 |
|
| 3,005 |
|
| 8,128 |
|
| 8,505 |
|
Total noninterest expense |
|
| 16,918 |
|
| 16,582 |
|
| 52,958 |
|
| 49,546 |
|
Income before income taxes |
|
| 9,908 |
|
| 5,359 |
|
| 23,673 |
|
| 16,531 |
|
Provision for income taxes |
|
| 1,831 |
|
| 1,860 |
|
| 6,023 |
|
| 5,865 |
|
Net income |
| $ | 8,077 |
| $ | 3,499 |
| $ | 17,650 |
| $ | 10,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
| $ | 0.27 |
| $ | 0.12 |
| $ | 0.60 |
| $ | 0.36 |
|
Diluted earnings per share |
|
| 0.27 |
|
| 0.12 |
|
| 0.59 |
|
| 0.36 |
|
| | | | | | | |
| | | (unaudited) | | |||
| | Three Months Ended March 31, | | ||||
|
| 2021 |
| 2020 |
| ||
Interest and dividend income | | | | | | | |
Loans, including fees | | $ | 22,207 | | $ | 23,597 | |
Loans held-for-sale | | | 55 | | | 36 | |
Securities: | | | | | | | |
Taxable | | | 1,615 | | | 2,163 | |
Tax exempt | | | 1,307 | | | 1,455 | |
Dividends from FHLBC and FRBC stock | | | 115 | | | 125 | |
Interest bearing deposits with financial institutions | | | 92 | | | 75 | |
Total interest and dividend income | | | 25,391 | | | 27,451 | |
Interest expense | | | | | | | |
Savings, NOW, and money market deposits | | | 241 | | | 635 | |
Time deposits | | | 500 | | | 1,766 | |
Securities sold under repurchase agreements | | | 31 | | | 116 | |
Other short-term borrowings | | | - | | | 109 | |
Junior subordinated debentures | | | 280 | | | 1,364 | |
Senior notes | | | 673 | | | 673 | |
Notes payable and other borrowings | | | 123 | | | 130 | |
Total interest expense | | | 1,848 | | | 4,793 | |
Net interest and dividend income | | | 23,543 | | | 22,658 | |
(Release of) provision for credit losses | | | (3,000) | | | 7,984 | |
Net interest and dividend income after (release of) provision for credit losses | | | 26,543 | | | 14,674 | |
Noninterest income | | | | | | | |
Wealth management | | | 2,151 | | | 1,906 | |
Service charges on deposits | | | 1,195 | | | 1,726 | |
Secondary mortgage fees | | | 322 | | | 270 | |
Mortgage servicing rights mark to market gain (loss) | | | 1,113 | | | (2,134) | |
Mortgage servicing income | | | 567 | | | 468 | |
Net gain on sales of mortgage loans | | | 3,721 | | | 2,246 | |
Securities losses, net | | | - | | | (24) | |
Change in cash surrender value of BOLI | | | 334 | | | (49) | |
Card related income | | | 1,447 | | | 1,287 | |
Other income | | | 450 | | | 626 | |
Total noninterest income | | | 11,300 | | | 6,322 | |
Noninterest expense | | | | | | | |
Salaries and employee benefits | | | 13,506 | | | 12,918 | |
Occupancy, furniture and equipment | | | 2,467 | | | 2,301 | |
Computer and data processing | | | 1,298 | | | 1,335 | |
FDIC insurance | | | 201 | | | 57 | |
General bank insurance | | | 276 | | | 246 | |
Amortization of core deposit intangible | | | 120 | | | 128 | |
Advertising expense | | | 60 | | | 109 | |
Card related expense | | | 593 | | | 532 | |
Legal fees | | | 55 | | | 131 | |
Other real estate expense, net | | | 36 | | | 237 | |
Other expense | | | 3,126 | | | 3,008 | |
Total noninterest expense | | | 21,738 | | | 21,002 | |
Income (loss) before income taxes | | | 16,105 | | | (6) | |
Provision (benefit) for income taxes | | | 4,226 | | | (281) | |
Net income | | $ | 11,879 | | $ | 275 | |
| | | | | | | |
Basic earnings per share | | $ | 0.41 | | $ | 0.01 | |
Diluted earnings per share | | | 0.40 | | | 0.01 | |
Dividends declared per share | | | 0.01 | | | 0.01 | |
See accompanying notes to consolidated financial statements.
4
6
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (unaudited) |
| (unaudited) | ||||||||
|
| Quarters Ended September 30, |
| Nine Months Ended September 30, | ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Net Income |
| $ | 8,077 |
| $ | 3,499 |
| $ | 17,650 |
| $ | 10,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) on available-for-sale securities arising during the period |
|
| 2,971 |
|
| (616) |
|
| 13,798 |
|
| 5,151 |
Related tax (expense) benefit |
|
| (1,191) |
|
| 237 |
|
| (5,516) |
|
| (2,071) |
Holding gains (losses) after tax on available-for-sale securities |
|
| 1,780 |
|
| (379) |
|
| 8,282 |
|
| 3,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Reclassification adjustment for the net gains (losses) realized during the period |
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gains (losses) |
|
| 102 |
|
| (1,959) |
|
| (165) |
|
| (2,020) |
Income tax (expense) benefit on net realized gains (losses) |
|
| (42) |
|
| 782 |
|
| 64 |
|
| 807 |
Net realized gains (losses) after tax |
|
| 60 |
|
| (1,177) |
|
| (101) |
|
| (1,213) |
Other comprehensive income on available-for-sale securities |
|
| 1,720 |
|
| 798 |
|
| 8,383 |
|
| 4,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion and reversal of net unrealized holding gains on held-to-maturity securities |
|
| - |
|
| - |
|
| - |
|
| 5,939 |
Related tax expense |
|
| - |
|
| - |
|
| - |
|
| (2,446) |
Other comprehensive income on held-to-maturity securities |
|
| - |
|
| - |
|
| - |
|
| 3,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in fair value of derivatives used for cashflow hedges |
|
| 19 |
|
| (254) |
|
| (445) |
|
| (4,278) |
Related tax benefit |
|
| 8 |
|
| 102 |
|
| 192 |
|
| 1,714 |
Other comprehensive income (loss) on cashflow hedges |
|
| 27 |
|
| (152) |
|
| (253) |
|
| (2,564) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income |
|
| 1,747 |
|
| 646 |
|
| 8,130 |
|
| 5,222 |
Total comprehensive income |
| $ | 9,824 |
| $ | 4,145 |
| $ | 25,780 |
| $ | 15,888 |
| | | | | | | |
| | (unaudited) | | ||||
| | Three Months Ended March 31, | | ||||
|
| 2021 |
| 2020 |
| ||
Net Income | | $ | 11,879 | | $ | 275 | |
| | | | | | | |
Unrealized holding losses on available-for-sale securities arising during the period | | | (4,813) | | | (6,376) | |
Related tax benefit | | | 1,371 | | | 1,797 | |
Holding losses after tax on available-for-sale securities | | | (3,442) | | | (4,579) | |
| | | | | | | |
Less: Reclassification adjustment for the net losses realized during the period | | | | | | | |
Net realized losses | | | - | | | (24) | |
Related tax benefit | | | - | | | 7 | |
Net realized losses after tax | | | - | | | (17) | |
Other comprehensive loss on available-for-sale securities | | | (3,442) | | | (4,562) | |
| | | | | | | |
Changes in fair value of derivatives used for cash flow hedges | | | 2,703 | | | (2,530) | |
Related tax (expense) benefit | | | (757) | | | 711 | |
Other comprehensive income (loss) on cash flow hedges | | | 1,946 | | | (1,819) | |
| | | | | | | |
Total other comprehensive loss | | | (1,496) | | | (6,381) | |
Total comprehensive income | | $ | 10,383 | | $ | (6,106) | |
| | | | | | | |
| | | | | | | | | |
| | Accumulated | | Accumulated | | Total | |||
| | Unrealized Gain | | Unrealized Gain | | Accumulated Other | |||
| | (Loss) on Securities | | (Loss) on Derivative | | Comprehensive | |||
| | Available-for -Sale | | Instruments | | Income/(Loss) | |||
For the Three Months Ended | | | | | | | | | |
Balance, December 31, 2019 | | $ | 6,827 | | $ | (2,265) | | $ | 4,562 |
Other comprehensive loss, net of tax | | | (4,562) | | | (1,819) | | | (6,381) |
Balance, March 31, 2020 | | $ | 2,265 | | $ | (4,084) | | $ | (1,819) |
| | | | | | | | | |
Balance, December 31, 2020 | | $ | 17,413 | | $ | (2,651) | | $ | 14,762 |
Other comprehensive (loss) income, net of tax | | | (3,442) | | | 1,946 | | | (1,496) |
Balance, March 31, 2021 | | $ | 13,971 | | $ | (705) | | $ | 13,266 |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
See accompanying notes to consolidated financial statements.
5
7
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
| (unaudited) | |||||
|
| Nine Months Ended September 30, | ||||||
|
|
| 2017 |
| 2016 |
| ||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net income |
|
| $ | 17,650 |
| $ | 10,666 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation of fixed assets and amortization of leasehold improvements |
|
|
| 1,760 |
|
| 1,682 |
|
Change in fair value of mortgage servicing rights |
|
|
| 756 |
|
| 1,921 |
|
Loan loss reserve |
|
|
| 1,050 |
|
| - |
|
Provision for deferred tax expense |
|
|
| 5,682 |
|
| 5,476 |
|
Originations of loans held-for-sale |
|
|
| (113,077) |
|
| (147,187) |
|
Proceeds from sales of loans held-for-sale |
|
|
| 119,059 |
|
| 150,247 |
|
Net gain on sales of mortgage loans |
|
|
| (3,715) |
|
| (5,031) |
|
Net discount accretion of purchase accounting adjustment on loans |
|
|
| (1,115) |
|
| - |
|
Change in current income taxes receivable |
|
|
| 111 |
|
| 300 |
|
Increase in cash surrender value of BOLI |
|
|
| (1,071) |
|
| (987) |
|
Change in accrued interest receivable and other assets |
|
|
| (6,849) |
|
| (2,659) |
|
Change in accrued interest payable and other liabilities |
|
|
| 4,571 |
|
| (246) |
|
Net premium amortization/discount (accretion) on securities |
|
|
| 1,320 |
|
| (517) |
|
Securities losses, net |
|
|
| 165 |
|
| 2,020 |
|
Amortization of core deposit |
|
|
| 74 |
|
| - |
|
Amortization of junior subordinated debentures issuance costs |
|
|
| 36 |
|
| 36 |
|
Amortization of senior notes issuance costs |
|
|
| 77 |
|
| - |
|
Stock based compensation |
|
|
| 897 |
|
| 482 |
|
Net gain on sale of other real estate owned |
|
|
| (454) |
|
| (316) |
|
Provision for other real estate owned losses |
|
|
| 1,630 |
|
| 1,305 |
|
Net (gain) loss on disposal and transfer of fixed assets |
|
|
| (10) |
|
| 1 |
|
Net cash provided by operating activities |
|
|
| 28,547 |
|
| 17,193 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Proceeds from maturities and calls including pay down of securities available-for-sale |
|
|
| 105,327 |
|
| 62,868 |
|
Proceeds from sales of securities available-for-sale |
|
|
| 152,476 |
|
| 271,374 |
|
Purchases of securities available-for-sale |
|
|
| (246,971) |
|
| (153,252) |
|
Proceeds from maturities and calls including pay down of securities held-to-maturity |
|
|
| - |
|
| 3,372 |
|
Net disbursements/proceeds from (purchases) sales of FHLBC stock |
|
|
| (2,475) |
|
| 600 |
|
Net change in loans |
|
|
| (118,711) |
|
| (71,600) |
|
Improvements in other real estate owned |
|
|
| - |
|
| (16) |
|
Proceeds from sales of other real estate owned, net of participation purchase |
|
|
| 5,512 |
|
| 5,247 |
|
Proceeds from disposition of premises and equipment |
|
|
| 13 |
|
| - |
|
Net purchases of premises and equipment |
|
|
| (852) |
|
| (1,163) |
|
Net cash used in (provided by) investing activities |
|
|
| (105,681) |
|
| 117,430 |
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Net change in deposits |
|
|
| 22,330 |
|
| 18,296 |
|
Net change in securities sold under repurchase agreements |
|
|
| 1,138 |
|
| 12,536 |
|
Net change in other short-term borrowings |
|
|
| 55,000 |
|
| (15,000) |
|
Payment of senior note issuance costs |
|
|
| (42) |
|
| - |
|
Dividends paid on common stock |
|
|
| (888) |
|
| (592) |
|
Purchase of treasury stock |
|
|
| (236) |
|
| (254) |
|
Net cash provided by financing activities |
|
|
| 77,302 |
|
| 14,986 |
|
Net change in cash and cash equivalents |
|
|
| 168 |
|
| 149,609 |
|
Cash and cash equivalents at beginning of period |
|
|
| 47,334 |
|
| 40,338 |
|
Cash and cash equivalents at end of period |
|
| $ | 47,502 |
| $ | 189,947 |
|
| | | | | | |
| | | (Unaudited) | |||
| | Three Months Ended March 31, | ||||
| | 2021 | | 2020 | ||
Cash flows from operating activities | | | | | | |
Net income | | $ | 11,879 | | $ | 275 |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Net premium / discount from amortization on securities | | | 534 | | | 506 |
Securities losses , net | | | - | | | 24 |
(Release of) provision for credit losses | | | (3,000) | | | 7,984 |
Originations of loans held-for-sale | | | (78,284) | | | (50,418) |
Proceeds from sales of loans held-for-sale | | | 85,914 | | | 45,706 |
Net gains on sales of mortgage loans | | | (3,721) | | | (2,246) |
Mortgage servicing rights mark to market (gain) loss | | | (1,113) | | | 2,134 |
Net discount from accretion on loans | | | (520) | | | (409) |
Net change in cash surrender value of BOLI | | | (334) | | | 49 |
Net gains on sale of other real estate owned | | | (20) | | | (23) |
Provision for other real estate owned valuation losses | | | 6 | | | 158 |
Depreciation of fixed assets and amortization of leasehold improvements | | | 765 | | | 662 |
Amortization of core deposit intangibles | | | 120 | | | 128 |
Change in current income taxes receivable | | | 3,557 | | | (1,430) |
Deferred tax expense (benefit) | | | 668 | | | (333) |
Change in accrued interest receivable and other assets | | | 2,200 | | | (4,081) |
Change in accrued interest payable and other liabilities | | | (3,375) | | | 9,607 |
Stock based compensation | | | 114 | | | 729 |
Net cash provided by operating activities | | | 15,390 | | | 9,022 |
Cash flows from investing activities | | | | | | |
Proceeds from maturities and calls, including pay down of securities available-for-sale | | | 7,259 | | | 16,046 |
Proceeds from sales of securities available-for-sale | | | - | | | 18,126 |
Purchases of securities available-for-sale | | | (109,708) | | | (6,100) |
Net change in loans | | | 75,858 | | | (27,716) |
Proceeds from sales of other real estate owned, net of participations and improvements | | | 325 | | | 311 |
Net purchases of premises and equipment | | | (343) | | | (887) |
Net cash used in investing activities | | | (26,609) | | | (220) |
Cash flows from financing activities | | | | | | |
Net change in deposits | | | 119,469 | | | 68,893 |
Net change in securities sold under repurchase agreements | | | 10,341 | | | 2,543 |
Net change in other short-term borrowings | | | - | | | (42,125) |
Redemption of junior subordinated debentures | | | - | | | (32,604) |
Issuance of term note | | | - | | | 20,000 |
Repayment of term note | | | (1,000) | | | - |
Net change in notes payable and other borrowings, excluding term note | | | (78) | | | (76) |
Dividends paid on common stock | | | (293) | | | (300) |
Purchase of treasury stock | | | (6,178) | | | (2,627) |
Net cash provided by financing activities | | | 122,261 | | | 13,704 |
Net change in cash and cash equivalents | | | 111,042 | | | 22,506 |
Cash and cash equivalents at beginning of period | | | 329,903 | | | 50,632 |
Cash and cash equivalents at end of period | | $ | 440,945 | | $ | 73,138 |
6
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows - Continued
(In thousands)
|
|
|
|
|
|
|
|
| (unaudited) | ||||
|
| Nine Months Ended September 30, | ||||
Supplemental cash flow information |
| 2017 |
| 2016 | ||
Income taxes paid, net |
| $ | 230 |
| $ | 160 |
Interest paid for deposits |
|
| 3,802 |
|
| 3,142 |
Interest paid for borrowings |
|
| 4,890 |
|
| 4,021 |
Non-cash transfer of loans to other real estate owned |
|
| 3,701 |
|
| 1,223 |
Non-cash transfer of premises to other real estate owned |
|
| 95 |
|
| - |
Non-cash transfer of securities held-to-maturity to securities available-for-sale |
|
| - |
|
| 244,823 |
See accompanying notes to consolidated financial statements.
7
8
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Statements of Changes in
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
| |
|
|
|
|
| Additional |
|
|
|
| Other |
|
|
|
| Total | |||
|
| Common |
| Paid-In |
| Retained |
| Comprehensive |
| Treasury |
| Stockholders’ | ||||||
|
| Stock |
| Capital |
| Earnings |
| Loss |
| Stock |
| Equity | ||||||
Balance, December 31, 2015 |
| $ | 34,427 |
| $ | 115,918 |
| $ | 114,209 |
| $ | (12,659) |
| $ | (95,966) |
| $ | 155,929 |
Net income |
|
|
|
|
|
|
|
| 10,666 |
|
|
|
|
|
|
|
| 10,666 |
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
|
| 5,222 |
|
|
|
|
| 5,222 |
Dividends declared and paid |
|
|
|
|
|
|
|
| (592) |
|
|
|
|
|
|
|
| (592) |
Vesting of restricted stock |
|
| 106 |
|
| (106) |
|
|
|
|
|
|
|
|
|
|
| - |
Tax effect from vesting of restricted stock |
|
|
|
|
| 174 |
|
|
|
|
|
|
|
|
|
|
| 174 |
Stock based compensation |
|
|
|
|
| 482 |
|
|
|
|
|
|
|
|
|
|
| 482 |
Purchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (254) |
|
| (254) |
Balance, September 30, 2016 |
| $ | 34,533 |
| $ | 116,468 |
| $ | 124,283 |
| $ | (7,437) |
| $ | (96,220) |
| $ | 171,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016 |
| $ | 34,534 |
| $ | 116,653 |
| $ | 129,005 |
| $ | (8,762) |
| $ | (96,220) |
| $ | 175,210 |
Net income |
|
|
|
|
|
|
|
| 17,650 |
|
|
|
|
|
|
|
| 17,650 |
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
|
| 8,130 |
|
|
|
|
| 8,130 |
Dividends declared and paid |
|
|
|
|
|
|
|
| (888) |
|
|
|
|
|
|
|
| (888) |
Vesting of restricted stock |
|
| 92 |
|
| (92) |
|
|
|
|
|
|
|
|
|
|
| - |
Stock based compensation |
|
|
|
|
| 897 |
|
|
|
|
|
|
|
|
|
|
| 897 |
Purchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (236) |
|
| (236) |
Balance, September 30, 2017 |
| $ | 34,626 |
| $ | 117,458 |
| $ | 145,767 |
| $ | (632) |
| $ | (96,456) |
| $ | 200,763 |
Seeaccompanyingnotestoconsolidatedfinancialstatements.
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Accumulated | | | | | | | |
| | | | | Additional | | | | | Other | | | | | Total | |||
(unaudited) | Common | | Paid-In | | Retained | | Comprehensive | | Treasury | | Stockholders’ | |||||||
|
| Stock |
| Capital |
| Earnings |
| Income (Loss) |
| Stock |
| Equity | ||||||
For the Three Months Ended | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2019 | | $ | 34,854 | | $ | 120,657 | | $ | 213,723 | | $ | 4,562 | | $ | (95,932) | | $ | 277,864 |
Adoption of ASU 2016-13 | | | | | | | | | (3,783) | | | | | | | | | (3,783) |
Net income | | | | | | | | | 275 | | | | | | | | | 275 |
Other comprehensive loss, net of tax | | | | | | | | | | | | (6,381) | | | | | | (6,381) |
Dividends declared and paid, ($0.01 per share) | | | | | | | | | (300) | | | | | | | | | (300) |
Vesting of restricted stock | | | 103 | | | (305) | | | | | | | | | 202 | | | - |
Stock based compensation | | | | | | 729 | | | | | | | | | | | | 729 |
Purchase of treasury stock from taxes withheld on stock awards | | | | | | | | | | | | | | | (411) | | | (411) |
Purchase of treasury stock from stock repurchase program | | | | | | | | | | | | | | | (2,216) | | | (2,216) |
Balance, March 31, 2020 | | $ | 34,957 | | $ | 121,081 | | $ | 209,915 | | $ | (1,819) | | $ | (98,357) | | $ | 265,777 |
| | | | | | | | | | | | | | | | | | |
Balance, December 31, 2020 | | $ | 34,957 | | $ | 122,212 | | $ | 236,579 | | $ | 14,762 | | $ | (101,423) | | $ | 307,087 |
Net income | | | | | | | | | 11,879 | | | | | | | | | 11,879 |
Other comprehensive loss, net of tax | | | | | | | | | | | | (1,496) | | | | | | (1,496) |
Dividends declared and paid, ($0.01 per share) | | | | | | | | | (293) | | | | | | | | | (293) |
Vesting of restricted stock | | | | | | (2,251) | | | | | | | | | 2,251 | | | - |
Stock based compensation | | | | | | 114 | | | | | | | | | | | | 114 |
Purchase of treasury stock from taxes withheld on stock awards | | | | | | | | | | | | | | | (577) | | | (577) |
Purchase of treasury stock from stock repurchase program | | | | | | | | | | | | | | | (5,601) | | | (5,601) |
Balance, March 31, 2021 | | $ | 34,957 | | $ | 120,075 | | $ | 248,165 | | $ | 13,266 | | $ | (105,350) | | $ | 311,113 |
| | | | | | | | | | | | | | | | | | |
8
9
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(TableDollar amounts in thousands, except per share data, unaudited)
Note 1 – SummaryBasis of Presentation and Changes in Significant Accounting Policies
The accounting policies followed in the preparation of the interim consolidated financial statements are consistent with those used in the preparation of the annual financial information. The interim consolidated financial statements reflect all normal and recurring adjustments that are necessary, in the opinion of management, for a fair statement of results for the interim period presented. Results for the period ended September 30, 2017,March 31, 2021, are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2021. These interim consolidated financial statements are unaudited and should be read in conjunction with the audited financial statements and notes included in Old Second Bancorp, Inc.’s (the “Company”) annual report on Form 10-K for the year ended December 31, 2016.2020. Unless otherwise indicated, dollar amounts in the tables contained in the notes to the consolidated financial statements are in thousands. Certain items in prior periods have been reclassified to conform to the current presentation.
The Company’s consolidated financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”) and follow general practices within the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the consolidated financial statements. Future changes in information may affect these estimates, assumptions, and judgments, which, in turn, may affect amounts reported in the consolidated financial statements.
All significant accounting policies are presented in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the consolidated financial statements and how those values are determined.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09 "Revenue from Contracts with Customers (Topic 606)." The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. In August 2015, the FASB issued ASU 2015-14 “Revenue from Contracts with Customers (Topic 606) Deferral of the Effective Date.” This accounting standards update defers the effective date of ASU 2014-09 for an additional year. ASU 2015-14 will be effective for annual reporting periods beginning after December 15, 2017. The amendments can be applied retrospectively to each prior reporting period or retrospectively with the cumulative effect of initially applying this update recognized at the date of initial application. Early application is not permitted. In March 2016, the FASB issued ASU 2016-08 “Revenue from Contracts with Customers (TOPIC 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” and in April 2016, the FASB issued ASU 2016-10 “Revenue from Contracts with Customers (TOPIC 606): Identifying Performance Obligations and Licensing.” ASU 2016-08 requires the entity to determine if it is acting as a principal with control over the goods or services it is contractually obligated to provide, or an agent with no control over specified goods or services provided by another party to a customer. ASU 2016-10 was issued to further clarify ASU 2014-09 implementation regarding identifying performance obligation materiality, identification of key contract components, and scope. The Company is assessing the impact of ASU 2014-09 and other related ASUs as noted above on its accounting and disclosures within noninterest income, as any interest income impact was not included in the scope of this final ASU pronouncement. Adoption of this ASU is expected to affect the methodology used to record certain recurring revenue streams within trust and asset management fees, but this impact is not anticipated to be significant to the Company’s financial statements. The Company will adopt ASU 2015-14 and related issuances on January 1, 2018, with a cumulative effect adjustment to opening retained earnings, if an adjustment is deemed to be material.
In February 2016, the FASB issued ASU No. 2016-02 “Leases (Topic 842).” This ASU was issued to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. One key revision from prior guidance was to include operating leases within assets and liabilities recorded; another revision was included which created a new model to follow for sale-leaseback transactions. The impact of this pronouncement will affect lessees primarily, as virtually all of their assets will be recognized on the balance sheet, by recording a right of use asset and lease liability. This pronouncement is effective for fiscal years beginning after December 15, 2018. The Company is assessing the impact of ASU 2016-02 on its accounting and disclosures.
In March 2016, the FASB issued ASU No. 2016-09 “Stock Compensation - Improvements to Employee Share-Based Payment Accounting (Topic 718).” FASB issued this ASU as part of the Simplification Initiative. This ASU involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or
9
liability, and classification on the statement of cash flows. ASU 2016-09 is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. This standard was adopted by the Company effective January 2017; the adoption of this standard did not have a material effect on the Company’s operating results or financial condition.
In June 2016, the Financial Standards Board, or FASB, issued ASUAccounting Standards Update (ASU) No. 2016-13, “Financial Instruments – Measurement of Credit Losses on Financial Instruments (Topic 326).,” also known as Current Expected Credit Losses, or CECL. ASU 2016-13 was issued to provide financial statement users with more useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date to enhance the decision making process. The new methodology to be used should reflectreflects expected credit losses based on relevant vintage historical information, supported by reasonable forecasts of projected loss given defaults, which will affect the collectability of the reported amounts. This new methodology will also requirerequires available-for-sale debt securities to have a credit loss recorded through an allowance rather than write-downs.write-downs through an other than temporary impairment analysis. In addition, an allowance must be established for the credit risk related to unfunded commitments. ASU 2016-13 is effective for financial statements issued for fiscal years beginning after December 15, 2019. 2019, and was adopted as of January 1, 2020, by the Company. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” and Note 1 – Summary of Significant Accounting Policies, both found in our Annual Report on Form 10-K for the year ended December 31, 2020 for further discussion of our Allowance for Credit Losses methodology and assessment as a critical accounting policy.
Change in Significant Accounting Policies
Significant accounting policies are presented in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the consolidated financial statements and how those values are determined. During the first quarter of 2021, the Company had no changes to significant accounting policies.
Risks and Uncertainties
The Company is assessingcoronavirus (COVID-19) pandemic, which was declared a national emergency in the United States in March 2020, continues to create extensive disruptions to the global economy and financial markets and to businesses and the lives of individuals throughout the world. In particular, the COVID-19 pandemic has severely restricted the level of economic activity in the Company’s markets. Federal and state governments have taken, and may continue to take, unprecedented actions to contain the spread of the disease, including quarantines, travel bans, shelter-in-place orders, closures of businesses and schools, fiscal stimulus, and legislation designed to deliver monetary aid and other relief to businesses and individuals impacted by the pandemic. Although in various locations certain activity restrictions have been relaxed and businesses and schools have reopened with some level of success, in many states and localities the
10
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
number of individuals diagnosed with COVID-19 has increased significantly, which may cause a freezing or, in certain cases, a reversal of previously announced relaxation of activity restrictions and may prompt the need for additional aid and other forms of relief.
The impact of ASU 2016-13the COVID-19 pandemic is fluid and continues to evolve. The unprecedented and rapid spread of COVID-19 and its associated impacts on its accountingtrade (including supply chains and disclosures,export levels), travel, employee productivity, unemployment, consumer spending, and isother economic activities has resulted in less economic activity, lower bank equity market valuations and significant volatility and disruption in financial markets. In addition, due to the processCOVID-19 pandemic, market interest rates declined significantly, with the 10-year Treasury bond falling to a low of accumulating data and evaluating model options0.52% in early August 2020, but increasing significantly since that time to support future risk assessments.
1.75% at March 31, 2021. In March 2017,2020, the FASB issued ASU No. 2017-08 “Receivables-Nonrefundable FeesFederal Open Market Committee reduced the targeted federal funds interest rate range to 0% to 0.25% percent, and Other Costs – Premium Amortization on Purchased Callable Debt Securities (Subtopic 310-20).” This ASUthis low rate was issued to shortenstill in effect as of March 31, 2021. These reductions in interest rates and the amortization period for the premium to the earliest call date on debt securities. This premium is required to be recorded as a reduction to net interest margin during the shorter yield to call period, as compared to prior practice of amortizing the premium as a reduction to net interest margin over the contractual lifeother effects of the instrument. This ASU does not change the current method of amortizing any discount over the contractual life of the debt security,COVID-19 pandemic have had, and this pronouncement is effective for fiscal years beginning after December 15, 2018, with earlier adoption permitted. The Company adopted ASU 2017-08 as a change in accounting principle in the third quarter of 2017 on a modified retrospective basis, which required the Companyare expected to reflect its adoption effective January 1, 2017. The effect of amortizing the premium over a shorter period negatively impacted the net interest margin for the first nine months of 2017, and will continue to decrease future quarterly net interest income by approximately 10 basis points a quarter untilhave, possibly materially, an adverse effect on the premium, which is $25.0 million asCompany’s business, financial condition and results of September 30, 2017, is fully amortized. As a resultoperations. The ultimate extent of management’s analysis, the impact of the change in accounting principleCOVID-19 pandemic on our business, financial condition and results of operations is currently uncertain and will depend on various developments and other factors, including the effect of governmental, and private sector initiatives, the effect of the recent rollout of vaccinations for the virus, whether such vaccinations will be effective against any resurgence of the virus, including any new strains, and the ability for customers and businesses to return to their pre-pandemic routine.
As of March 31, 2021, our consolidated balance sheet included goodwill of $18.6 million. For each quarter end of 2020, we considered whether a quantitative assessment of goodwill was required as a result of ASU 2017-08the significant economic disruption caused by the COVID-19 pandemic. In addition, we performed the annual analysis to adjust beginningassess if any goodwill impairment existed as of year retained earnings was considered insignificant and, accordingly, the impact was adjusted through current period earnings.
In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging:Targeted Improvements to Accounting for Hedging Activities”. The purposeNovember 30, 2020. Impacts of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectivesdisruptions were noted from the latter half of those activities. ASU 2017-12March through the remainder of 2020, specifically, the decline in the trading price of our common stock and an increase in the U.S. unemployment rate. After considering qualitative factors regarding the expected impacts of the pandemic on our business, operations and financial condition, we determined that these conditions did not indicate that it is effective for public business entities for fiscal years beginning aftermore likely than not that the Company’s carrying value exceeded our fair value as of December 31, 2020. However, further delayed recovery or further deterioration in market conditions related to the general economy, financial markets, and the associated impacts on our customers, employees and vendors, among other factors, could significantly impact the impairment analysis and may result in future goodwill impairment charges that, if incurred, could have a material adverse effect on our results of operations and financial condition.
Subsequent Events
On April 6, 2021, we sold and issued $60.0 million in aggregate principal amount of our 3.50% Fixed-to-Floating Rate Subordinated Notes due April 15, 2018, with early adoption, including adoption2031 (the “Notes”). The Notes were offered and sold to eligible purchasers in an interim period, permitted.a private offering in reliance on the exemption from the registration requirements of Section 4(a)(2) of the Securities Act of 1933, as amended and the provisions of Regulation D promulgated thereunder. The Company plansintends to adopt ASU 2017-12 on January 1, 2018. ASU 2017-12 requiresuse the net proceeds from the offering for general corporate purposes, which may include, without limitation, the redemption of existing senior debt, common stock repurchases and strategic acquisitions. The Notes will bear interest at a modified retrospective transition method in which the Company will recognize the cumulative effectfixed annual rate of the change on the opening balance of each affected component of equity in the statement of financial position as of3.50%, from and including the date of adoption. Whileissuance to but excluding April 15, 2026, payable semi-annually in arrears. From and including April 15, 2026 to, but excluding the Company continuesmaturity date or early redemption date, the interest rate will reset quarterly to assess all potential impacts ofan interest rate per annum equal to Three-Month Term SOFR (as defined in the standard, we currently expect adoption to have an immaterial impact on our consolidated financial statements.
Subsequent Events
Note) plus 273 basis points, payable quarterly in arrears.
On October 17, 2017,April 20, 2021, the Company’s Board of Directors declared a cash dividend of $0.01$0.05 per share payable on November 6, 2017,May 10, 2021, to stockholders of record as of October 27, 2017;April 30, 2021; dividends of $296,000 were$1.5 million are scheduled to be paid to stockholders on November 6, 2017.May 10, 2021.
Note 2 – AcquisitionsSecurities
On October 28, 2016, the Bank acquired the Chicago branch of Talmer Bank and Trust, the banking subsidiary of Talmer Bancorp, Inc. (“Talmer”). As a result of this transaction, the Bank recorded assets with a fair value of approximately $230.9 million, including approximately $221.0 million of loans, and assumed deposits with a fair value of approximately $48.9 million. Goodwill of $8.4 million was included within the total assets recorded upon acquisition; net cash of $181.5 million was paid for the purchase.
Note 3 – Securities
Investment Portfolio Management
Our investment portfolio serves the liquidity needs and income objectives of the Company. While the portfolio serves as an important component of the overall liquidity management at the Bank, portions of the portfolio also serve as income producing assets. The size and composition of the portfolio reflects liquidity needs, loan demand and interest income objectives. Portfolio size and composition will be adjusted from time to time. While a significant portion of the portfolio consists of readily marketable securities to address
11
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
liquidity, other parts of the portfolio may reflect funds invested pending future loan demand or to maximize interest income without undue interest rate risk.
10
Investments are comprised of debt securities and non-marketable equity investments. Securities available-for-sale are carried at fair value. Unrealized gains and losses, net of tax, on securities available-for-sale are reported as a separate component of equity. This balance sheet component changes as interest rates and market conditions change. Unrealized gains and losses are not included in the calculation of regulatory capital.
FHLBCFederal Home Loan Bank of Chicago (“FHLBC”) and FRBCFederal Reserve Bank of Chicago (“FRBC”) stock are considered nonmarketable equity investments. FHLBC stock was recorded at $5.6$3.7 million at September 30, 2017,March 31, 2021, and $3.1 million at December 31, 2016, and is necessary to maintain access to FHLBC advances, which are utilized as a component to meet the Bank’s daily funding needs.2020. FRBC stock was recorded at $4.8$6.2 million at September 30, 2017,March 31, 2021, and December 31, 2016.2020.
The following table summarizestables summarize the amortized cost and fair value of the securities portfolio at September 30, 2017,March 31, 2021, and December 31, 2016,2020, and the corresponding amounts of gross unrealized gains and losses:
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| |||||||||||||||||
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|
|
| Gross |
| Gross |
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|
| |||||||||||||||||||
|
| Amortized |
| Unrealized |
| Unrealized |
| Fair | |||||||||||||||||||||
September 30, 2017 |
| Cost |
| Gains |
| Losses |
| Value | |||||||||||||||||||||
| | | | | | | | | | | | ||||||||||||||||||
| | | | | Gross | | Gross | | | | |||||||||||||||||||
| | Amortized | | Unrealized | | Unrealized | | Fair | |||||||||||||||||||||
March 31, 2021 |
| Cost1 |
| Gains |
| Losses | | Value | |||||||||||||||||||||
Securities available-for-sale |
|
|
|
|
|
|
|
| | | | | | | | | | ||||||||||||
U.S. Treasuries |
| $ | 4,001 |
| $ | - |
| $ | (11) |
| $ | 3,990 | |||||||||||||||||
U.S. Treasury | | $ | 4,015 | | $ | 87 | | $ | - | | $ | 4,102 | |||||||||||||||||
U.S. government agencies |
|
| 13,475 |
|
| 15 |
|
| (39) |
|
| 13,451 | | 6,506 | | | - | | | (145) | | | 6,361 | ||||||
U.S. government agencies mortgage-backed |
|
| 11,131 |
|
| 18 |
|
| (119) |
|
| 11,030 | | 69,427 | | | 1,476 | | | (301) | | | 70,602 | ||||||
States and political subdivisions |
|
| 224,648 |
|
| 5,173 |
|
| (789) |
|
| 229,032 | | | 227,336 | | | 16,189 | | | (1,379) | | | 242,146 | |||||
Corporate bonds |
|
| 10,823 |
|
| 20 |
|
| (266) |
|
| 10,577 | | | 34,750 | | | 108 | | | (15) | | | 34,843 | |||||
Collateralized mortgage obligations |
|
| 81,693 |
|
| 228 |
|
| (1,535) |
|
| 80,386 | | | 72,801 | | | 2,386 | | | (251) | | | 74,936 | |||||
Asset-backed securities |
|
| 134,542 |
|
| 865 |
|
| (3,648) |
|
| 131,759 | | | 129,118 | | | 1,389 | | | (139) | | | 130,368 | |||||
Collateralized loan obligations |
|
| 52,803 |
|
| 505 |
|
| (49) |
|
| 53,259 | | | 29,923 | | | 71 | | | (72) | | | 29,922 | |||||
Total securities available-for-sale |
| $ | 533,116 |
| $ | 6,824 |
| $ | (6,456) |
| $ | 533,484 | | $ | 573,876 | | $ | 21,706 | | $ | (2,302) | | $ | 593,280 |
| | | | | | | | | | | | |
| | | | | Gross | | Gross | | | | ||
| | Amortized | | Unrealized | | Unrealized | | Fair | ||||
December 31, 2020 |
| Cost1 |
| Gains |
| Losses | | Value | ||||
Securities available-for-sale | | | | | | | | | | | | |
U.S. Treasury | | $ | 4,014 | | $ | 103 | | $ | - | | $ | 4,117 |
U.S. government agencies | | | 6,811 | | | - | | | (154) | | | 6,657 |
U.S. government agencies mortgage-backed | | | 16,098 | | | 1,112 | | | (1) | | | 17,209 |
States and political subdivisions | | | 229,352 | | | 21,269 | | | (1,362) | | | 249,259 |
Collateralized mortgage obligations | | | 53,999 | | | 2,866 | | | (280) | | | 56,585 |
Asset-backed securities | | | 130,959 | | | 1,370 | | | (511) | | | 131,818 |
Collateralized loan obligations | | | 30,728 | | | 15 | | | (210) | | | 30,533 |
Total securities available-for-sale | | $ | 471,961 | | $ | 26,735 | | $ | (2,518) | | $ | 496,178 |
| | | | | | | | | | | | |
1Excludes accrued interest receivable of $2.6 million and $2.7 million at March 31, 2021 and December 31, 2020 respectively, that is recorded in other assets on the consolidated balance sheet.
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| Gross |
| Gross |
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|
| ||
|
| Amortized |
| Unrealized |
| Unrealized |
| Fair | ||||
December 31, 2016 |
| Cost |
| Gains |
| Losses |
| Value | ||||
Securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies mortgage-backed |
| $ | 42,511 |
| $ | - |
| $ | (977) |
| $ | 41,534 |
States and political subdivisions |
|
| 68,718 |
|
| 258 |
|
| (273) |
|
| 68,703 |
Corporate bonds |
|
| 10,957 |
|
| 9 |
|
| (336) |
|
| 10,630 |
Collateralized mortgage obligations |
|
| 174,352 |
|
| 374 |
|
| (3,799) |
|
| 170,927 |
Asset-backed securities |
|
| 146,391 |
|
| 341 |
|
| (8,325) |
|
| 138,407 |
Collateralized loan obligations |
|
| 102,504 |
|
| 29 |
|
| (896) |
|
| 101,637 |
Total securities available-for-sale |
| $ | 545,433 |
| $ | 1,011 |
| $ | (14,606) |
| $ | 531,838 |
12
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
The fair value, amortized cost and weighted average yield of debt securities at September 30, 2017,March 31, 2021, by contractual maturity, were as followsare listed in the table below. Securities not due at a single maturity date are shown separately.
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| Weighted |
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| ||||||||||
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| Amortized |
| Average |
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| Fair |
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| | | | | | | | | | | ||||||||||
| | | | | Weighted | | | | | | ||||||||||
| | Amortized | | Average | | | Fair | | ||||||||||||
Securities available-for-sale |
| Cost |
| Yield |
|
| Value |
|
| Cost |
| Yield | |
| Value |
| ||||
Due in one year or less |
| $ | 3,400 |
| 2.60 | % |
| $ | 3,405 |
| | $ | 420 | | 2.09 | % | | $ | 422 | |
Due after one year through five years |
|
| 5,846 |
| 2.74 |
|
|
| 5,831 |
| | | 7,025 | | 2.50 | | | | 7,318 | |
Due after five years through ten years |
|
| 16,105 |
| 2.52 |
|
|
| 16,057 |
| | | 61,065 | | 1.79 | | | | 61,813 | |
Due after ten years |
|
| 227,596 |
| 2.98 |
|
|
| 231,757 |
| | | 204,097 | | 3.02 | | | | 217,899 | |
|
|
| 252,947 |
| 2.94 |
|
|
| 257,050 |
| ||||||||||
| | | 272,607 | | 2.73 | | | | 287,452 | | ||||||||||
Mortgage-backed and collateralized mortgage obligations |
|
| 92,824 |
| 2.72 |
|
|
| 91,416 |
| | | 142,228 | | 2.08 | | | | 145,538 | |
Asset-backed securities |
|
| 134,542 |
| 2.41 |
|
|
| 131,759 |
| | | 129,118 | | 1.35 | | | | 130,368 | |
Collateralized loan obligations |
|
| 52,803 |
| 4.38 |
|
|
| 53,259 |
| | | 29,923 | | 1.93 | | | | 29,922 | |
Total securities available-for-sale |
| $ | 533,116 |
| 2.91 | % |
| $ | 533,484 |
| | $ | 573,876 | | 2.22 | % | | $ | 593,280 | |
At September 30, 2017,March 31, 2021, the Company’s investments include $110.6included $103.3 million of asset-backed securities that are backed by student loans originated under the Federal Family Education Loan program (“FFEL”). Under the FFEL, private lenders made federally guaranteed student loans to parents and students. While the program was modified several times before elimination in 2010, FFEL securities are generally guaranteed by the U.S Department of Education “DOE”(“DOE”) at not less than 97% of the outstanding principal amount of the loans. The guarantee will reduce to 85% if the DOE receives reimbursement requests in excess of 5% of insured loans; reimbursement
11
will drop to 75% if reimbursement requests exceed 9% of insured loans. In addition to the U.S. Department of EducationDOE guarantee, total added credit enhancement in the form of overcollateralization and/or subordination amounted to $12.3$9.7 million, or 10.42%,9.26% of outstanding principal.
TheAt March 31, 2021, the Company hashad invested in securities issued from three2 originators that individually amountamounted to over 10% of the Company’s stockholdersstockholders’ equity. Information regarding these three issuers and the value of the securities issued follows:
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| September 30, 2017 |
| ||||
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| Amortized |
| Fair |
| ||
Issuer |
| Cost |
| Value |
| ||
GCO Education Loan Funding Corp |
| $ | 27,555 |
| $ | 26,505 |
|
Towd Point Mortgage Trust |
|
| 29,544 |
|
| 29,445 |
|
Student Loan Marketing Assocation |
|
| 25,654 |
|
| 25,803 |
|
| | | | | | |
| | March 31, 2021 | ||||
|
| Amortized |
| Fair | ||
Issuer | | Cost | | Value | ||
Towd Point Mortgage Trust | | $ | 33,107 | | $ | 34,955 |
Village Capital & Investment LLC | | | 50,700 | | | 51,409 |
Securities with unrealized losses with no corresponding allowance for credit losses at September 30, 2017,March 31, 2021 and December 31, 2016,2020, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows (in thousands except for number of securities):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Less than 12 months | | 12 months or more | | | | | | | | | ||||||||||||
March 31, 2021 | | in an unrealized loss position | | in an unrealized loss position | | Total | ||||||||||||||||||
| | Number of | | Unrealized | | Fair | | Number of | | Unrealized | | Fair | | Number of | | Unrealized | | Fair | ||||||
Securities available-for-sale |
| Securities |
| Losses |
| Value |
| Securities |
| Losses |
| Value |
| Securities |
| Losses |
| Value | ||||||
U.S. government agencies | | - | | $ | - | | $ | - | | 4 | | $ | 145 | | $ | 6,361 | | 4 | | $ | 145 | | $ | 6,361 |
U.S. government agencies mortgage-backed | | 5 | | | 301 | | | 5,912 | | - | | | - | | | - | | 5 | | | 301 | | | 5,912 |
States and political subdivisions | | 2 | | | 304 | | | 14,036 | | 1 | | | 1,075 | | | 3,689 | | 3 | | | 1,379 | | | 17,725 |
Corporate bonds | | 1 | | | 15 | | | 1,931 | | - | | | - | | | - | | 1 | | | 15 | | | 1,931 |
Collateralized mortgage obligations | | 2 | | | 52 | | | 17,988 | | 1 | | | 199 | | | 7,397 | | 3 | | | 251 | | | 25,385 |
Asset-backed securities | | 1 | | | 28 | | | 1,622 | | 1 | | | 111 | | | 3,202 | | 2 | | | 139 | | | 4,824 |
Collateralized loan obligations | | - | | | - | | | - | | 2 | | | 72 | | | 10,601 | | 2 | | | 72 | | | 10,601 |
Total securities available-for-sale | | 11 | | $ | 700 | | $ | 41,489 | | 9 | | $ | 1,602 | | $ | 31,250 | | 20 | | $ | 2,302 | | $ | 72,739 |
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| Less than 12 months |
| 12 months or more |
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September 30, 2017 |
| in an unrealized loss position |
| in an unrealized loss position |
| Total | ||||||||||||||||||
|
| Number of |
| Unrealized |
| Fair |
| Number of |
| Unrealized |
| Fair |
| Number of |
| Unrealized |
| Fair | ||||||
Securities available-for-sale |
| Securities |
| Losses |
| Value |
| Securities |
| Losses |
| Value |
| Securities |
| Losses |
| Value | ||||||
U.S. Treasuries |
| 1 |
| $ | 11 |
| $ | 3,990 |
| - |
| $ | - |
| $ | - |
| 1 |
| $ | 11 |
| $ | 3,990 |
U.S. government agencies |
| 2 |
|
| 39 |
|
| 6,701 |
| - |
|
| - |
|
| - |
| 2 |
|
| 39 |
|
| 6,701 |
U.S. government agencies mortgage-backed |
| 2 |
|
| 13 |
|
| 2,089 |
| 4 |
|
| 106 |
|
| 4,096 |
| 6 |
|
| 119 |
|
| 6,185 |
States and political subdivisions |
| 7 |
|
| 789 |
|
| 24,843 |
| - |
|
| - |
|
| - |
| 7 |
|
| 789 |
|
| 24,843 |
Corporate bonds |
| - |
|
| - |
|
| - |
| 3 |
|
| 266 |
|
| 10,078 |
| 3 |
|
| 266 |
|
| 10,078 |
Collateralized mortgage obligations |
| 4 |
|
| 238 |
|
| 21,281 |
| 8 |
|
| 1,297 |
|
| 43,684 |
| 12 |
|
| 1,535 |
|
| 64,965 |
Asset-backed securities |
| 1 |
|
| 265 |
|
| 4,293 |
| 9 |
|
| 3,383 |
|
| 76,725 |
| 10 |
|
| 3,648 |
|
| 81,018 |
Collateralized loan obligations |
| 1 |
|
| 49 |
|
| 7,948 |
| - |
|
| - |
|
| - |
| 1 |
|
| 49 |
|
| 7,948 |
Total securities available-for-sale |
| 18 |
| $ | 1,404 |
| $ | 71,145 |
| 24 |
| $ | 5,052 |
| $ | 134,583 |
| 42 |
| $ | 6,456 |
| $ | 205,728 |
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Less than 12 months |
| 12 months or more |
|
|
|
|
|
|
|
| ||||||||||||
December 31, 2016 |
| in an unrealized loss position |
| in an unrealized loss position |
| Total | ||||||||||||||||||
|
| Number of |
| Unrealized |
|
| Fair |
| Number of |
| Unrealized |
|
| Fair |
| Number of |
| Unrealized |
|
| Fair | |||
Securities available-for-sale |
| Securities |
| Losses |
|
| Value |
| Securities |
| Losses |
|
| Value |
| Securities |
| Losses |
|
| Value | |||
U.S. government agencies mortgage-backed |
| 11 |
| $ | 957 |
| $ | 40,636 |
| 1 |
| $ | 20 |
| $ | 898 |
| 12 |
| $ | 977 |
| $ | 41,534 |
States and political subdivisions |
| 12 |
|
| 273 |
|
| 35,241 |
| - |
|
| - |
|
| - |
| 12 |
|
| 273 |
|
| 35,241 |
Corporate bonds |
| 1 |
|
| 183 |
|
| 4,817 |
| 2 |
|
| 153 |
|
| 5,328 |
| 3 |
|
| 336 |
|
| 10,145 |
Collateralized mortgage obligations |
| 16 |
|
| 3,402 |
|
| 117,752 |
| 7 |
|
| 397 |
|
| 18,109 |
| 23 |
|
| 3,799 |
|
| 135,861 |
Asset-backed securities |
| 4 |
|
| 328 |
|
| 17,604 |
| 12 |
|
| 7,997 |
|
| 107,112 |
| 16 |
|
| 8,325 |
|
| 124,716 |
Collateralized loan obligations |
| - |
|
| - |
|
| - |
| 12 |
|
| 896 |
|
| 81,613 |
| 12 |
|
| 896 |
|
| 81,613 |
Total securities available-for-sale |
| 44 |
| $ | 5,143 |
| $ | 216,050 |
| 34 |
| $ | 9,463 |
| $ | 213,060 |
| 78 |
| $ | 14,606 |
| $ | 429,110 |
Old Second Bancorp, Inc. and Subsidiaries
RecognitionNotes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Less than 12 months | | 12 months or more | | | | | | | | | ||||||||||||
December 31, 2020 | | in an unrealized loss position | | in an unrealized loss position | | Total | ||||||||||||||||||
| | Number of | | Unrealized | | | Fair | | Number of | | Unrealized | | | Fair | | Number of | | Unrealized | | | Fair | |||
Securities available-for-sale |
| Securities |
| Losses |
| | Value |
| Securities |
| Losses |
| | Value |
| Securities |
| Losses |
| | Value | |||
U.S. government agencies | | - | | $ | - | | $ | - | | 4 | | $ | 154 | | $ | 6,657 | | 4 | | $ | 154 | | $ | 6,657 |
U.S. government agencies mortgage-backed | | 1 | | | 1 | | | 141 | | - | | | - | | | - | | 1 | | | 1 | | | 141 |
States and political subdivisions | | - | | | - | | | - | | 1 | | | 1,362 | | | 3,433 | | 1 | | | 1,362 | | | 3,433 |
Collateralized mortgage obligations | | 4 | | | 279 | | | 8,142 | | 1 | | | 1 | | | 146 | | 5 | | | 280 | | | 8,288 |
Asset-backed securities | | 1 | | | 2 | | | 251 | | 3 | | | 509 | | | 49,572 | | 4 | | | 511 | | | 49,823 |
Collateralized loan obligations | | 1 | | | 31 | | | 7,468 | | 4 | | | 179 | | | 21,477 | | 5 | | | 210 | | | 28,945 |
Total securities available-for-sale | | 7 | | $ | 313 | | $ | 16,002 | | 13 | | $ | 2,205 | | $ | 81,285 | | 20 | | $ | 2,518 | | $ | 97,287 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Each quarter we perform an analysis to determine if any of other-than-temporary impairment was not necessary in the three and nine months ended September 30, 2017 or 2016. The changes in fair value related primarilyunrealized losses on securities available-for-sale are comprised of credit losses as compared to unrealized losses due to market interest rate fluctuations.adjustments. Our assessment includes a review of other-than-temporary impairmentthe unrealized loss for each security issuance held; the financial condition and near-term prospects of the issuer, including external credit ratings and recent downgrades; and our ability and intent to hold the security for a period of time sufficient for a recovery in value. We also consider the extent to which the securities are issued by the federal government or its agencies, and any guarantee of issued amounts by those agencies. No credit losses were determined thatto be present as of March 31, 2021, as there was no credit quality deterioration.deterioration noted. Therefore, no provision for credit losses on securities was recognized for the first quarter of 2021.
The following table presents proceeds from sale and net realized gains (losses) on securities available-for-sale for the quarters and ninethree months ended September 30, 2017March 31, 2021 and 2016.2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended |
|
| Nine Months Ended |
| ||||||
|
|
| September 30, |
|
| September 30, |
| ||||||
Securities available-for-sale |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Gross realized gains on securities |
| $ | 474 |
| $ | 1,380 |
| $ | 911 |
| $ | 1,518 |
|
Gross realized losses on securities |
|
| (371) |
|
| (3,339) |
|
| (1,076) |
|
| (3,538) |
|
Securities realized gains (losses), net |
| $ | 103 |
| $ | (1,959) |
| $ | (165) |
| $ | (2,020) |
|
The majority
| | | | | | | |
| | | Three Months Ended | | |||
| | | March 31, | | |||
Securities available-for-sale |
| 2021 |
| 2020 |
| ||
Proceeds from sales of securities | | $ | - | | $ | 18,126 | |
Gross realized gains on securities | | $ | - | | $ | 17 | |
Gross realized losses on securities | |
| - | |
| (41) | |
Net realized losses | | $ | - | | $ | (24) | |
Income tax benefit on net realized losses | | $ | - | | $ | 7 | |
Effective tax rate applied | | | 0.0 | % | | 29.2 | % |
As of the net realized losses in the prior yearMarch 31, 2021, securities valued at $313.9 million were incurredpledged to meet the funding needs related to the Talmer branch acquisition in late 2016.secure deposits and borrowings, and for other purposes, a decrease from $335.8 million of securities pledged at year-end 2020.
12
14
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
Note 43 – Loans and Allowance for Credit Losses on Loans
Major classificationssegments of loans were as follows:
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
| December 31, 2016 |
| ||
Commercial |
| $ | 257,356 |
| $ | 228,113 |
|
Leases |
|
| 69,305 |
|
| 55,451 |
|
Real estate - commercial |
|
| 739,136 |
|
| 736,247 |
|
Real estate - construction |
|
| 94,868 |
|
| 64,720 |
|
Real estate - residential |
|
| 419,583 |
|
| 377,851 |
|
Consumer |
|
| 2,770 |
|
| 3,237 |
|
Other1 |
|
| 10,550 |
|
| 11,973 |
|
|
|
| 1,593,568 |
|
| 1,477,592 |
|
Net deferred loan costs |
|
| 623 |
|
| 1,217 |
|
Total loans |
| $ | 1,594,191 |
| $ | 1,478,809 |
|
| | | | | | |
|
| March 31, 2021 |
| December 31, 2020 | ||
Commercial 1 | | $ | 392,380 | | $ | 407,159 |
Leases | | | 138,240 | | | 141,601 |
Commercial real estate - Investor | | | 567,475 | | | 582,042 |
Commercial real estate - Owner occupied | | | 326,857 | | | 333,070 |
Construction | | | 93,745 | | | 98,486 |
Residential real estate - Investor | | | 52,176 | | | 56,137 |
Residential real estate - Owner occupied | | | 107,303 | | | 116,388 |
Multifamily | | | 178,258 | | | 189,040 |
HELOC | | | 75,604 | | | 80,908 |
HELOC - Purchased | | | 17,078 | | | 19,487 |
Other 2 | | | 10,509 | | | 10,533 |
Total loans | | | 1,959,625 | | | 2,034,851 |
Allowance for credit losses on loans | | | (30,967) | | | (33,855) |
Net loans3 | | $ | 1,928,658 | | $ | 2,000,996 |
1 Includes $104.5 million and $74.1 million of Paycheck Protection Program (“PPP”) loans at March 31, 2021 and December 31, 2020, respectively.
2 The “Other” classsegment includes overdrafts.consumer and overdrafts in this table and in subsequent tables within Note 3 - Loans and Allowance for Credit Losses on Loans.
3 Excludes accrued interest receivable of $6.8 million and $7.0 million at March 31, 2021 and December 31, 2020, respectively, that is recorded in other assets on the consolidated balance sheet.
It is the policy of the Company to review each prospective credit prior to making a loan in order to determine if an adequate level of security or collateral has been obtained. The type of collateral, when required, will vary from liquid assets to real estate. The Company’sCompany seeks to assure access to collateral, in the event of borrower default, is assured through adherence to lending laws, the Company’s lending standards and credit monitoring procedures. With selected exceptions,Although the Bank makes loans solelyprimarily within its market area. Therearea, there are no significant concentrations of loans where the customers’ ability to honor loan terms is dependent upon a single economic sector, although thesector. The real estate related categories listed above represent 78.6%72.4% and 79.7%72.5% of the portfolio at September 30, 2017,March 31, 2021, and December 31, 2016,2020, respectively, and include a mix of owner and non-owner occupied, residential, construction and multifamily loans.
The following tables represent the activity in the allowance for credit losses for loans, or the ACL, for the three months ended March 31, 2021 and March 31, 2020:
| | | | | | | | | | | | | | | |
| | | | Provision | | | | | | | |||||
| | | | (Release) | | | | | | | |||||
| | Beginning | | for Credit | | | | | | Ending | |||||
Allowance for credit losses |
| Balance |
| Losses |
| Charge-offs |
| Recoveries |
| Balance | |||||
Three months ended March 31, 2021 | | | | | | | | | | | | | | | |
Commercial | | $ | 2,812 | | $ | 446 | | $ | 2 | | $ | 20 | | $ | 3,276 |
Leases | | | 3,888 | | | (506) | | | - | | | - | | | 3,382 |
Commercial real estate - Investor | | | 9,205 | | | (1,317) | | | - | | | 20 | | | 7,908 |
Commercial real estate - Owner occupied | | | 2,251 | | | (734) | | | 3 | | | 208 | | | 1,722 |
Construction | | | 4,054 | | | (335) | | | - | | | - | | | 3,719 |
Real estate - Investor | | | 1,740 | | | (203) | | | - | | | 266 | | | 1,803 |
Real estate - Owner occupied | | | 2,714 | | | (235) | | | - | | | 49 | | | 2,528 |
Multifamily | | | 3,625 | | | 640 | | | - | | | - | | | 4,265 |
HELOC | | | 1,749 | | | (48) | | | 12 | | | 24 | | | 1,713 |
HELOC - Purchased | | | 199 | | | 96 | | | - | | | - | | | 295 |
Other | | | 1,618 | | | (1,274) | | | 25 | | | 37 | | | 356 |
| | $ | 33,855 | | $ | (3,470) | | $ | 42 | | $ | 624 | | $ | 30,967 |
| | | | | | | | | | | | | | | |
15
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
| | | | | | | | | | | | | | | | | | |
| | | | | | Provision | | | | | | | ||||||
| | | | Impact of | | (Release) | | | | | | | ||||||
| | Beginning | | Adopting | | for Loan | | | | | | Ending | ||||||
Allowance for credit losses |
| Balance |
| ASC 326 |
| Losses |
| Charge-offs |
| Recoveries |
| Balance | ||||||
Three months ended March 31, 2020 | | | | | | | | | | | | | | | | | | |
Commercial | | $ | 3,015 | | $ | (292) | | $ | 539 | | $ | 97 | | $ | 12 | | $ | 3,177 |
Leases | | | 1,262 | | | 501 | | | 127 | | | - | | | - | | | 1,890 |
Commercial real estate - Investor | | | 6,218 | | | (741) | | | 536 | | | 13 | | | 21 | | | 6,021 |
Commercial real estate - Owner occupied | | | 3,678 | | | (848) | | | 329 | | | 1,109 | | | 1 | | | 2,051 |
Construction | | | 513 | | | 1,334 | | | 2,184 | | | - | | | - | | | 4,031 |
Real estate - Investor | | | 601 | | | 740 | | | 534 | | | - | | | 21 | | | 1,896 |
Real estate - Owner occupied | | | 1,257 | | | 1,320 | | | 769 | | | 1 | | | 23 | | | 3,368 |
Multifamily | | | 1,444 | | | 1,732 | | | 674 | | | - | | | - | | | 3,850 |
HELOC | | | 1,161 | | | 1,526 | | | (485) | | | 83 | | | 141 | | | 2,260 |
HELOC - Purchased | | | - | | | - | | | 850 | | | - | | | - | | | 850 |
Other | | | 640 | | | 607 | | | (558) | | | 98 | | | 60 | | | 651 |
| | $ | 19,789 | | $ | 5,879 | | $ | 5,499 | | $ | 1,401 | | $ | 279 | | $ | 30,045 |
| | | | | | | | | | | | | | | | | | |
The ACL on loans excludes $3.5 million, $3.0 million and $4.2 million of allowance for unfunded commitments, recorded within Other Liabilities, as of March 31, 2021, December 31, 2020 and March 31, 2020, respectively.
The following tables presents the collateral dependent loans and the related ACL allocated by segment of loans as of March 31, 2021 and December 31, 2020:
| | | | | | | | | | | | | | | | | | |
| | | | | Accounts | | | | | | | | ACL | |||||
March 31, 2021 | | Real Estate | | Receivable | | Equipment | | Other | | Total | | Allocation | ||||||
Commercial | | $ | - | | $ | 1,646 | | $ | - | | $ | 2 | | $ | 1,648 | | $ | 300 |
Leases | | | - | | | - | | | 2,380 | | | 307 | | | 2,687 | | | 791 |
Commercial real estate - Investor | | | 4,085 | | | - | | | - | | | - | | | 4,085 | | | 39 |
Commercial real estate - Owner occupied | | | 7,201 | | | - | | | - | | | - | | | 7,201 | | | 1 |
Construction | | | 2,046 | | | - | | | - | | | - | | | 2,046 | | | 966 |
Residential real estate - Investor | | | 855 | | | - | | | - | | | - | | | 855 | | | - |
Residential real estate - Owner occupied | | | 4,412 | | | - | | | - | | | 50 | | | 4,462 | | | 36 |
Multifamily | | | 3,790 | | | - | | | - | | | - | | | 3,790 | | | 513 |
HELOC | | | 948 | | | - | | | - | | | - | | | 948 | | | 51 |
Other | | | - | | | - | | | - | | | 402 | | | 402 | | | 209 |
Total | | $ | 23,337 | | $ | 1,646 | | $ | 2,380 | | $ | 761 | | $ | 28,124 | | $ | 2,906 |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | Accounts | | | | | | | | ACL | |||||
December 31, 2020 | | Real Estate | | Receivable | | Equipment | | Other | | Total | | Allocation | ||||||
Commercial | | $ | - | | $ | 1,070 | | $ | - | | $ | 55 | | $ | 1,125 | | $ | 56 |
Leases | | | - | | | - | | | 2,377 | | | 597 | | | 2,974 | | | 880 |
Commercial real estate - Investor | | | 4,179 | | | - | | | - | | | - | | | 4,179 | | | 84 |
Commercial real estate - Owner occupied | | | 9,726 | | | - | | | - | | | - | | | 9,726 | | | 195 |
Construction | | | 1,891 | | | - | | | - | | | - | | | 1,891 | | | 952 |
Residential real estate - Investor | | | 928 | | | - | | | - | | | - | | | 928 | | | - |
Residential real estate - Owner occupied | | | 3,535 | | | - | | | - | | | - | | | 3,535 | | | 10 |
Multifamily | | | 3,838 | | | - | | | - | | | - | | | 3,838 | | | 378 |
HELOC | | | 1,053 | | | - | | | - | | | - | | | 1,053 | | | 78 |
Other | | | - | | | - | | | - | | | 4 | | | 4 | | | 4 |
Total | | $ | 25,150 | | $ | 1,070 | | $ | 2,377 | | $ | 656 | | $ | 29,253 | | $ | 2,637 |
| | | | | | | | | | | | | | | | | | |
16
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
Aged analysis of past due loans by classsegments of loans was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Recorded | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investment | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 90 days or | |
|
|
|
|
|
|
|
| 90 Days or |
|
|
|
|
|
|
|
|
|
|
|
|
| Greater Past | ||
|
| 30-59 Days |
| 60-89 Days |
| Greater Past |
| Total Past |
|
|
|
|
|
|
|
|
|
| Due and | |||||
September 30, 2017 |
| Past Due |
| Past Due |
| Due |
| Due |
| Current |
| Nonaccrual |
| Total Loans |
| Accruing | ||||||||
Commercial |
| $ | - |
| $ | 89 |
| $ | - |
| $ | 89 |
| $ | 257,060 |
| $ | 207 |
| $ | 257,356 |
| $ | - |
Leases |
|
| - |
|
| 685 |
|
| 149 |
|
| 834 |
|
| 68,275 |
|
| 196 |
|
| 69,305 |
|
| 156 |
Real estate - commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied general purpose |
|
| 253 |
|
| - |
|
| 537 |
|
| 790 |
|
| 154,429 |
|
| 457 |
|
| 155,676 |
|
| 561 |
Owner occupied special purpose |
|
| 513 |
|
| - |
|
| - |
|
| 513 |
|
| 172,866 |
|
| 359 |
|
| 173,738 |
|
| - |
Non-owner occupied general purpose |
|
| 649 |
|
| - |
|
| - |
|
| 649 |
|
| 251,933 |
|
| 1,165 |
|
| 253,747 |
|
| - |
Non-owner occupied special purpose |
|
| - |
|
| 248 |
|
| - |
|
| 248 |
|
| 93,498 |
|
| - |
|
| 93,746 |
|
| - |
Retail properties |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 45,149 |
|
| 1,113 |
|
| 46,262 |
|
| - |
Farm |
|
| - |
|
| - |
|
| 383 |
|
| 383 |
|
| 15,584 |
|
| - |
|
| 15,967 |
|
| 387 |
Real estate - construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilder |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 2,644 |
|
| - |
|
| 2,644 |
|
| - |
Land |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 3,235 |
|
| - |
|
| 3,235 |
|
| - |
Commercial speculative |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 34,817 |
|
| - |
|
| 34,817 |
|
| - |
All other |
|
| 63 |
|
| - |
|
| - |
|
| 63 |
|
| 53,904 |
|
| 205 |
|
| 54,172 |
|
| - |
Real estate - residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 52,361 |
|
| 492 |
|
| 52,853 |
|
| - |
Multifamily |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 117,544 |
|
| 4,757 |
|
| 122,301 |
|
| - |
Owner occupied |
|
| 40 |
|
| - |
|
| - |
|
| 40 |
|
| 124,414 |
|
| 4,127 |
|
| 128,581 |
|
| - |
Revolving and junior liens |
|
| 732 |
|
| 22 |
|
| 100 |
|
| 854 |
|
| 113,956 |
|
| 1,038 |
|
| 115,848 |
|
| 103 |
Consumer |
|
| 2 |
|
| - |
|
| - |
|
| 2 |
|
| 2,760 |
|
| 8 |
|
| 2,770 |
|
| - |
Other1 |
|
| 1 |
|
| - |
|
| - |
|
| 1 |
|
| 11,172 |
|
| - |
|
| 11,173 |
|
| - |
Total |
| $ | 2,253 |
| $ | 1,044 |
| $ | 1,169 |
| $ | 4,466 |
| $ | 1,575,601 |
| $ | 14,124 |
| $ | 1,594,191 |
| $ | 1,207 |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | 90 days or | |
| | | | | | | | 90 Days or | | | | | | | | | | | Greater Past | ||
| | 30-59 Days | | 60-89 Days | | Greater Past | | Total Past | | | | | | | | Due and | |||||
March 31, 20211 | | Past Due |
| Past Due |
| Due |
| Due |
| Current |
| Total Loans |
| Accruing | |||||||
Commercial | | $ | 2 | | $ | 207 | | $ | - | | $ | 209 | | $ | 392,171 | | $ | 392,380 | | $ | - |
Leases | | | 603 | | | 50 | | | 96 | | | 749 | | | 137,491 | | | 138,240 | | | - |
Commercial real estate - Investor | | | 996 | | | - | | | 1,545 | | | 2,541 | | | 564,934 | | | 567,475 | | | 366 |
Commercial real estate - Owner occupied | | | 1,092 | | | - | | | 2,973 | | | 4,065 | | | 322,792 | | | 326,857 | | | - |
Construction | | | 3,340 | | | - | | | - | | | 3,340 | | | 90,405 | | | 93,745 | | | - |
Residential real estate - Investor | | | 495 | | | - | | | 724 | | | 1,219 | | | 50,957 | | | 52,176 | | | - |
Residential real estate - Owner occupied | | | 903 | | | 137 | | | 574 | | | 1,614 | | | 105,689 | | | 107,303 | | | 147 |
Multifamily | | | 2,731 | | | 2,660 | | | 69 | | | 5,460 | | | 172,798 | | | 178,258 | | | - |
HELOC | | | 517 | | | - | | | 201 | | | 718 | | | 74,886 | | | 75,604 | | | - |
HELOC - Purchased | | | 399 | | | - | | | - | | | 399 | | | 16,679 | | | 17,078 | | | - |
Other | | | 467 | | | 2 | | | - | | | 469 | | | 10,040 | | | 10,509 | | | - |
Total | | $ | 11,545 | | $ | 3,056 | | $ | 6,182 | | $ | 20,783 | | $ | 1,938,842 | | $ | 1,959,625 | | $ | 513 |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | 90 days or | |
| | | | | | | | 90 Days or | | | | | | | | | | | Greater Past | ||
| | 30-59 Days | | 60-89 Days | | Greater Past | | Total Past | | | | | | | | Due and | |||||
December 31, 2020 1 | Past Due |
| Past Due |
| Due |
| Due |
| Current |
| Total Loans |
| Accruing | ||||||||
Commercial | | $ | - | | $ | - | | $ | 52 | | $ | 52 | | $ | 407,107 | | $ | 407,159 | | $ | - |
Leases | | | 613 | | | 59 | | | 316 | | | 988 | | | 140,613 | | | 141,601 | | | 163 |
Commercial real estate - Investor | | | 1,439 | | | - | | | 1,108 | | | 2,547 | | | 579,495 | | | 582,042 | | | - |
Commercial real estate - Owner occupied | | | 1,848 | | | 958 | | | 7,309 | | | 10,115 | | | 322,955 | | | 333,070 | | | - |
Construction | | | 1,237 | | | - | | | - | | | 1,237 | | | 97,249 | | | 98,486 | | | - |
Residential real estate - Investor | | | 1,022 | | | 20 | | | 484 | | | 1,526 | | | 54,611 | | | 56,137 | | | 157 |
Residential real estate - Owner occupied | | | 859 | | | 286 | | | 717 | | | 1,862 | | | 114,526 | | | 116,388 | | | 114 |
Multifamily | | | 3,282 | | | 467 | | | - | | | 3,749 | | | 185,291 | | | 189,040 | | | - |
HELOC | | | 549 | | | 50 | | | 206 | | | 805 | | | 80,103 | | | 80,908 | | | - |
HELOC - Purchased | | | 47 | | | - | | | - | | | 47 | | | 19,440 | | | 19,487 | | | - |
Other | | | 20 | | | - | | | - | | | 20 | | | 10,513 | | | 10,533 | | | - |
Total | | $ | 10,916 | | $ | 1,840 | | $ | 10,192 | | $ | 22,948 | | $ | 2,011,903 | | $ | 2,034,851 | | $ | 434 |
13
1 Loans modified under the CARES Act are considered current if they are in compliance with the modified terms.
There were 504 loans which totaled $237.7 million modified under the CARES Act. As of March 31, 2021, 40 loans of the original 504 loans deferred, or $19.2 million, had an active deferral request and were in compliance with modified terms; 464 loans which totaled $218.5 million had resumed payments or paid off. Details of loans in active deferral is below:
| | | | | | | | | | | | |
March 31, 2021 | | 1st Deferral | | 2nd Deferral | | 3rd Deferral | | Total | ||||
Loans modified under CARES Act, in deferral | | $ | 5,782 | | $ | 8,927 | | $ | 4,526 | | $ | 19,235 |
Loans modified under CARES Act, in nonaccrual, within deferral above | | | 183 | | | 1,731 | | | 2,416 | | | 4,330 |
| | | | | | | | | | | | |
17
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
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|
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|
|
|
|
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| Recorded | |
|
|
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|
|
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|
|
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|
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|
|
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| Investment | |
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|
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|
|
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| 90 days or | |
|
|
|
|
|
|
|
| 90 Days or |
|
|
|
|
|
|
|
|
|
|
|
|
| Greater Past | ||
|
| 30-59 Days |
| 60-89 Days |
| Greater Past |
| Total Past |
|
|
|
|
|
|
|
|
|
| Due and | |||||
December 31, 2016 |
| Past Due |
| Past Due |
| Due |
| Due |
| Current |
| Nonaccrual |
| Total Loans |
| Accruing | ||||||||
Commercial |
| $ | 57 |
| $ | 74 |
| $ | - |
| $ | 131 |
| $ | 227,742 |
| $ | 240 |
| $ | 228,113 |
| $ | - |
Leases |
|
| - |
|
| 286 |
|
|
|
|
| 286 |
|
| 54,799 |
|
| 366 |
|
| 55,451 |
|
|
|
Real estate - commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied general purpose |
|
| 758 |
|
| - |
|
| - |
|
| 758 |
|
| 135,599 |
|
| 879 |
|
| 137,236 |
|
| - |
Owner occupied special purpose |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 177,755 |
|
| 385 |
|
| 178,140 |
|
| - |
Non-owner occupied general purpose |
|
| 667 |
|
| 379 |
|
| - |
|
| 1,046 |
|
| 229,315 |
|
| 1,930 |
|
| 232,291 |
|
| - |
Non-owner occupied special purpose |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 118,052 |
|
| 1,013 |
|
| 119,065 |
|
| - |
Retail properties |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 53,474 |
|
| 1,179 |
|
| 54,653 |
|
| - |
Farm |
|
| 1,353 |
|
| - |
|
| - |
|
| 1,353 |
|
| 13,509 |
|
| - |
|
| 14,862 |
|
| - |
Real estate - construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilder |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 3,883 |
|
| - |
|
| 3,883 |
|
| - |
Land |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 3,029 |
|
| - |
|
| 3,029 |
|
| - |
Commercial speculative |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 22,654 |
|
| 74 |
|
| 22,728 |
|
| - |
All other |
|
| 364 |
|
| - |
|
| - |
|
| 364 |
|
| 34,509 |
|
| 207 |
|
| 35,080 |
|
| - |
Real estate - residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor |
|
| 237 |
|
| - |
|
| - |
|
| 237 |
|
| 54,924 |
|
| 936 |
|
| 56,097 |
|
| - |
Multifamily |
|
| - |
|
| - |
|
|
|
|
| - |
|
| 96,502 |
|
| - |
|
| 96,502 |
|
|
|
Owner occupied |
|
| 274 |
|
| - |
|
| - |
|
| 274 |
|
| 116,900 |
|
| 6,452 |
|
| 123,626 |
|
| - |
Revolving and junior liens |
|
| 225 |
|
| 405 |
|
| - |
|
| 630 |
|
| 99,374 |
|
| 1,622 |
|
| 101,626 |
|
| - |
Consumer |
|
| 10 |
|
| 36 |
|
| - |
|
| 46 |
|
| 3,191 |
|
| - |
|
| 3,237 |
|
| - |
Other1 |
|
| 14 |
|
| - |
|
| - |
|
| 14 |
|
| 13,176 |
|
| - |
|
| 13,190 |
|
| - |
Total |
| $ | 3,959 |
| $ | 1,180 |
| $ | - |
| $ | 5,139 |
| $ | 1,458,387 |
| $ | 15,283 |
| $ | 1,478,809 |
| $ | - |
1The “Other” class includes overdraftstable presents all nonaccrual loans as of March 31, 2021, and net deferred costs.December 31, 2020:
| | | | | | | |
Nonaccrual loan detail |
| March 31, 2021 |
| December 31, 2020 |
| ||
Commercial | | $ | 933 | | $ | 1,125 | |
Leases | | | 2,562 | | | 2,638 | |
Commercial real estate - Investor | | | 1,547 | | | 1,632 | |
Commercial real estate - Owner occupied | | | 7,427 | | | 9,262 | |
Construction | | | 128 | | | - | |
Residential real estate - Investor | | | 855 | | | 928 | |
Residential real estate - Owner occupied | | | 3,182 | | | 3,206 | |
Multifamily | | | 2,398 | | | 2,437 | |
HELOC | | | 948 | | | 1,052 | |
HELOC - Purchased | | | - | | | - | |
Other | | | 399 | | | - | |
Total | | $ | 20,379 | | $ | 22,280 | |
The Company recognized $32,000 of interest on nonaccrual loans during the three months ended March 31, 2021.
Credit Quality Indicators
The Company categorizes loans into credit risk categories based on current financial information, overall debt service coverage, comparison againstto industry averages, historical payment experience, and current economic trends. This analysis includes loans with outstanding balances or commitments greater than $50,000 and excludes homogeneous loans such as home equity lines of credit and residential mortgages. Loans with a classified risk rating are reviewed quarterly regardless of size or loan type. The Company uses the following definitions for classified risk ratings:
Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan at some future date.
Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institutionBank will sustain some loss if the deficiencies are not corrected. The substandard credit quality indicator includes both potential problem loans that are currently performing and nonperforming loans.
Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Credits that are not covered by the definitions above are pass credits, which are not considered to be adversely rated.
14
Credit Quality Indicatorsquality indicators by class of loansloan segment and loan origination date at March 31, 2021 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017 |
|
|
|
| Special |
|
|
|
|
|
|
|
|
| |
|
| Pass |
| Mention |
| Substandard 1 |
| Doubtful |
| Total | |||||
Commercial |
| $ | 245,603 |
| $ | 11,371 |
| $ | 382 |
| $ | - |
| $ | 257,356 |
Leases |
|
| 68,274 |
|
| - |
|
| 1,031 |
|
| - |
|
| 69,305 |
Real estate - commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied general purpose |
|
| 153,039 |
|
| 1,274 |
|
| 1,363 |
|
| - |
|
| 155,676 |
Owner occupied special purpose |
|
| 172,216 |
|
| 1,163 |
|
| 359 |
|
| - |
|
| 173,738 |
Non-owner occupied general purpose |
|
| 250,497 |
|
| 2,085 |
|
| 1,165 |
|
| - |
|
| 253,747 |
Non-owner occupied special purpose |
|
| 90,113 |
|
| - |
|
| 3,633 |
|
| - |
|
| 93,746 |
Retail Properties |
|
| 43,922 |
|
| 1,227 |
|
| 1,113 |
|
| - |
|
| 46,262 |
Farm |
|
| 13,472 |
|
| - |
|
| 2,495 |
|
| - |
|
| 15,967 |
Real estate - construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilder |
|
| 2,644 |
|
| - |
|
| - |
|
| - |
|
| 2,644 |
Land |
|
| 3,235 |
|
| - |
|
| - |
|
| - |
|
| 3,235 |
Commercial speculative |
|
| 34,817 |
|
| - |
|
| - |
|
| - |
|
| 34,817 |
All other |
|
| 52,898 |
|
| 894 |
|
| 380 |
|
| - |
|
| 54,172 |
Real estate - residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor |
|
| 52,205 |
|
| - |
|
| 648 |
|
| - |
|
| 52,853 |
Multifamily |
|
| 117,544 |
|
| - |
|
| 4,757 |
|
| - |
|
| 122,301 |
Owner occupied |
|
| 123,600 |
|
| 563 |
|
| 4,418 |
|
| - |
|
| 128,581 |
Revolving and junior liens |
|
| 113,871 |
|
| - |
|
| 1,977 |
|
| - |
|
| 115,848 |
Consumer |
|
| 2,762 |
|
| - |
|
| 8 |
|
| - |
|
| 2,770 |
Other |
|
| 11,173 |
|
| - |
|
| - |
|
| - |
|
| 11,173 |
Total |
| $ | 1,551,885 |
| $ | 18,577 |
| $ | 23,729 |
| $ | - |
| $ | 1,594,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
|
|
| Special |
|
|
|
|
|
|
|
|
| |
|
| Pass |
| Mention |
| Substandard 1 |
| Doubtful |
| Total | |||||
Commercial |
| $ | 214,028 |
| $ | 11,558 |
| $ | 2,527 |
| $ | - |
| $ | 228,113 |
Leases |
|
| 53,366 |
|
| 976 |
|
| 1,109 |
|
|
|
|
| 55,451 |
Real estate - commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied general purpose |
|
| 135,503 |
|
| 53 |
|
| 1,680 |
|
| - |
|
| 137,236 |
Owner occupied special purpose |
|
| 172,353 |
|
| 5,402 |
|
| 385 |
|
| - |
|
| 178,140 |
Non-owner occupied general purpose |
|
| 229,448 |
|
| 913 |
|
| 1,930 |
|
| - |
|
| 232,291 |
Non-owner occupied special purpose |
|
| 114,293 |
|
| - |
|
| 4,772 |
|
| - |
|
| 119,065 |
Retail Properties |
|
| 52,207 |
|
| 1,267 |
|
| 1,179 |
|
| - |
|
| 54,653 |
Farm |
|
| 11,840 |
|
| 1,240 |
|
| 1,782 |
|
| - |
|
| 14,862 |
Real estate - construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilder |
|
| 3,883 |
|
| - |
|
| - |
|
| - |
|
| 3,883 |
Land |
|
| 3,029 |
|
| - |
|
| - |
|
| - |
|
| 3,029 |
Commercial speculative |
|
| 22,654 |
|
| - |
|
| 74 |
|
| - |
|
| 22,728 |
All other |
|
| 34,696 |
|
| - |
|
| 384 |
|
| - |
|
| 35,080 |
Real estate - residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor |
|
| 55,001 |
|
| - |
|
| 1,096 |
|
| - |
|
| 56,097 |
Multifamily |
|
| 96,502 |
|
| - |
|
| - |
|
| - |
|
| 96,502 |
Owner occupied |
|
| 115,831 |
|
| 570 |
|
| 7,225 |
|
| - |
|
| 123,626 |
Revolving and junior liens |
|
| 99,286 |
|
| - |
|
| 2,340 |
|
| - |
|
| 101,626 |
Consumer |
|
| 3,236 |
|
| - |
|
| 1 |
|
| - |
|
| 3,237 |
Other |
|
| 13,165 |
|
| 25 |
|
| - |
|
| - |
|
| 13,190 |
Total |
| $ | 1,430,321 |
| $ | 22,004 |
| $ | 26,484 |
| $ | - |
| $ | 1,478,809 |
18
1 The substandard creditOld Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Revolving | | | |||
| | | | | | | | | | | | | | | | | | | | | | Loans | | | |||
| | | | | | | | | | | | | | | | | | | | | | Converted | | | |||
| | | | | | | | | | | | | | | | | | | | Revolving | | To Term | | | |||
|
| 2021 |
| 2020 |
| 2019 |
| 2018 |
| 2017 |
| Prior |
| Loans |
| Loans |
| Total | |||||||||
Commercial | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 73,345 | | $ | 70,268 | | | 33,301 | | | 13,439 | | | 5,467 | | | 2,969 | | $ | 187,576 | | $ | - | | $ | 386,365 |
Special Mention | | | - | | | 2,772 | | | 399 | | | - | | | - | | | - | | | 447 | | | - | | | 3,618 |
Substandard | | | - | | | 260 | | | - | | | 1,344 | | | - | | | - | | | 793 | | | - | | | 2,397 |
Total commercial | | | 73,345 | | | 73,300 | | | 33,700 | | | 14,783 | | | 5,467 | | | 2,969 | | | 188,816 | | | - | | | 392,380 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Leases | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 9,407 | | | 53,691 | | | 47,433 | | | 14,305 | | | 5,542 | | | 4,541 | | | - | | | - | | | 134,919 |
Special Mention | | | - | | | 174 | | | - | | | - | | | - | | | - | | | - | | | - | | | 174 |
Substandard | | | - | | | - | | | 1,429 | | | 798 | | | 51 | | | 869 | | | - | | | - | | | 3,147 |
Total leases | | | 9,407 | | | 53,865 | | | 48,862 | | | 15,103 | | | 5,593 | | | 5,410 | | | - | | | - | | | 138,240 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial real estate - Investor | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 24,011 | | | 169,705 | | | 149,475 | | | 86,518 | | | 63,401 | | | 56,733 | | | 1,110 | | | 151 | | | 551,104 |
Special Mention | | | - | | | 1,804 | | | 9,437 | | | - | | | - | | | - | | | - | | | - | | | 11,241 |
Substandard | | | 2,155 | | | 424 | | | 1,131 | | | 195 | | | - | | | 1,225 | | | - | | | - | | | 5,130 |
Total commercial real estate - investor | | | 26,166 | | | 171,933 | | | 160,043 | | | 86,713 | | | 63,401 | | | 57,958 | | | 1,110 | | | 151 | | | 567,475 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial real estate - Owner occupied | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 17,923 | | | 68,497 | | | 51,974 | | | 68,105 | | | 44,122 | | | 65,217 | | | 1,308 | | | 461 | | | 317,607 |
Special Mention | | | - | | | 598 | | | - | | | - | | | - | | | - | | | - | | | - | | | 598 |
Substandard | | | - | | | 4,077 | | | 1,748 | | | 80 | | | 1,469 | | | 1,278 | | | - | | | - | | | 8,652 |
Total commercial real estate - owner occupied | | | 17,923 | | | 73,172 | | | 53,722 | | | 68,185 | | | 45,591 | | | 66,495 | | | 1,308 | | | 461 | | | 326,857 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Construction | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 11,019 | | | 51,091 | | | 16,576 | | | 1,398 | | | 532 | | | 1,455 | | | 5,139 | | | 81 | | | 87,291 |
Special Mention | | | - | | | - | | | 1,088 | | | - | | | - | | | - | | | - | | | - | | | 1,088 |
Substandard | | | - | | | - | | | 3,283 | | | 2,083 | | | - | | | - | | | - | | | - | | | 5,366 |
Total construction | | | 11,019 | | | 51,091 | | | 20,947 | | | 3,481 | | | 532 | | | 1,455 | | | 5,139 | | | 81 | | | 93,745 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential real estate - Investor | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 358 | | | 8,660 | | | 12,654 | | | 7,769 | | | 7,635 | | | 12,510 | | | 1,155 | | | - | | | 50,741 |
Special Mention | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Substandard | | | - | | | 334 | | | - | | | 598 | | | - | | | 503 | | | - | | | - | | | 1,435 |
Total residential real estate - investor | | | 358 | | | 8,994 | | | 12,654 | | | 8,367 | | | 7,635 | | | 13,013 | | | 1,155 | | | - | | | 52,176 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential real estate - Owner occupied | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 895 | | | 17,859 | | | 21,165 | | | 9,116 | | | 14,088 | | | 37,800 | | | 2,232 | | | - | | | 103,155 |
Special Mention | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Substandard | | | - | | | 47 | | | - | | | 412 | | | 218 | | | 3,471 | | | - | | | - | | | 4,148 |
Total residential real estate - owner occupied | | | 895 | | | 17,906 | | | 21,165 | | | 9,528 | | | 14,306 | | | 41,271 | | | 2,232 | | | - | | | 107,303 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Multifamily | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 4,692 | | | 40,077 | | | 29,772 | | | 42,259 | | | 30,499 | | | 16,021 | | | 191 | | | - | | | 163,511 |
Special Mention | | | - | | | - | | | 6,901 | | | - | | | - | | | - | | | - | | | - | | | 6,901 |
Substandard | | | - | | | 69 | | | - | | | 4,491 | | | 933 | | | 2,353 | | | - | | | - | | | 7,846 |
Total multifamily | | | 4,692 | | | 40,146 | | | 36,673 | | | 46,750 | | | 31,432 | | | 18,374 | | | 191 | | | - | | | 178,258 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
HELOC | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | - | | | 2,403 | | | 2,138 | | | 1,241 | | | 1,652 | | | 1,268 | | | 65,586 | | | - | | | 74,288 |
Special Mention | | | - | | | - | | | - | | | - | | | - | | | - | | | 13 | | | - | | | 13 |
Substandard | | | - | | | 98 | | | - | | | 85 | | | 36 | | | 287 | | | 797 | | | - | | | 1,303 |
Total HELOC | | | - | | | 2,501 | | | 2,138 | | | 1,326 | | | 1,688 | | | 1,555 | | | 66,396 | | | - | | | 75,604 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
HELOC - Purchased | | | | | | | | | | | | | | | | | | | | | | | | | | | |
19
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
Pass | | | - | | | - | | | - | | | - | | | - | | | 17,078 | | | - | | | - | | | 17,078 |
Special Mention | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Substandard | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Total HELOC - purchased | | | - | | | - | | | - | | | - | | | - | | | 17,078 | | | - | | | - | | | 17,078 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 685 | | | 1,197 | | | 533 | | | 240 | | | 164 | | | 535 | | | 6,753 | | | - | | | 10,107 |
Special Mention | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Substandard | | | - | | | 399 | | | - | | | 3 | | | - | | | - | | | - | | | - | | | 402 |
Total other | | | 685 | | | 1,596 | | | 533 | | | 243 | | | 164 | | | 535 | | | 6,753 | | | - | | | 10,509 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total loans | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 142,335 | | | 483,448 | | | 365,021 | | | 244,390 | | | 173,102 | | | 216,127 | | | 271,050 | | | 693 | | | 1,896,166 |
Special Mention | | | - | | | 5,348 | | | 17,825 | | | - | | | - | | | - | | | 460 | | | - | | | 23,633 |
Substandard | | | 2,155 | | | 5,708 | | | 7,591 | | | 10,089 | | | 2,707 | | | 9,986 | | | 1,590 | | | - | | | 39,826 |
Total loans | | $ | 144,490 | | $ | 494,504 | | $ | 390,437 | | $ | 254,479 | | $ | 175,809 | | $ | 226,113 | | $ | 273,100 | | $ | 693 | | $ | 1,959,625 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Credit quality indicator includes both potential problem loans that are currently performingindicators by loan segment and nonperforming loans.loan origination date at December 31, 2020 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Revolving | | | |||
| | | | | | | | | | | | | | | | | | | | | | Loans | | | |||
| | | | | | | | | | | | | | | | | | | | | | Converted | | | |||
| | | | | | | | | | | | | | | | | | | | Revolving | | To Term | | | |||
|
| 2020 |
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| Prior |
| Loans |
| Loans |
| Total | |||||||||
Commercial | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 101,796 | | $ | 42,294 | | $ | 14,519 | | $ | 6,265 | | $ | 1,825 | | $ | 1,691 | | $ | 230,388 | | $ | - | | $ | 398,778 |
Special Mention | | | 5,130 | | | 425 | | | 68 | | | - | | | 3 | | | - | | | 76 | | | - | | | 5,702 |
Substandard | | | 273 | | | 52 | | | 1,524 | | | - | | | - | | | - | | | 830 | | | - | | | 2,679 |
Total commercial | | | 107,199 | | | 42,771 | | | 16,111 | | | 6,265 | | | 1,828 | | | 1,691 | | | 231,294 | | | - | | | 407,159 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Leases | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 56,605 | | | 52,168 | | | 16,830 | | | 6,545 | | | 5,242 | | | 651 | | | - | | | - | | | 138,041 |
Special Mention | | | 175 | | | 163 | | | - | | | - | | | - | | | - | | | - | | | - | | | 338 |
Substandard | | | - | | | 1,434 | | | 798 | | | 59 | | | 450 | | | 481 | | | - | | | - | | | 3,222 |
Total leases | | | 56,780 | | | 53,765 | | | 17,628 | | | 6,604 | | | 5,692 | | | 1,132 | | | - | | | - | | | 141,601 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial real estate - Investor | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 173,781 | | | 158,677 | | | 92,156 | | | 66,762 | | | 55,963 | | | 15,966 | | | 1,319 | | | - | | | 564,624 |
Special Mention | | | 2,394 | | | 9,592 | | | 220 | | | - | | | 95 | | | - | | | - | | | - | | | 12,301 |
Substandard | | | 2,709 | | | 1,126 | | | 71 | | | - | | | 340 | | | 871 | | | - | | | - | | | 5,117 |
Total commercial real estate - investor | | | 178,884 | | | 169,395 | | | 92,447 | | | 66,762 | | | 56,398 | | | 16,837 | | | 1,319 | | | - | | | 582,042 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial real estate - Owner occupied | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 72,605 | | | 52,809 | | | 73,719 | | | 45,315 | | | 50,000 | | | 25,507 | | | 1,324 | | | - | | | 321,279 |
Special Mention | | | 604 | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | 604 |
Substandard | | | 1,564 | | | 2,154 | | | 1,780 | | | 1,664 | | | 501 | | | 3,524 | | | - | | | - | | | 11,187 |
Total commercial real estate - owner occupied | | | 74,773 | | | 54,963 | | | 75,499 | | | 46,979 | | | 50,501 | | | 29,031 | | | 1,324 | | | - | | | 333,070 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Construction | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 50,170 | | | 24,163 | | | 7,203 | | | 539 | | | 218 | | | 1,261 | | | 9,702 | | | - | | | 93,256 |
Special Mention | | | 38 | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | 38 |
Substandard | | | - | | | 3,135 | | | 2,057 | | | - | | | - | | | - | | | - | | | - | | | 5,192 |
Total construction | | | 50,208 | | | 27,298 | | | 9,260 | | | 539 | | | 218 | | | 1,261 | | | 9,702 | | | - | | | 98,486 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential real estate - Investor | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 9,371 | | | 14,194 | | | 8,522 | | | 7,775 | | | 2,431 | | | 11,184 | | | 1,144 | | | - | | | 54,621 |
Special Mention | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Substandard | | | 349 | | | - | | | 610 | | | - | | | 91 | | | 466 | | | - | | | - | | | 1,516 |
Total residential real estate - investor | | | 9,720 | | | 14,194 | | | 9,132 | | | 7,775 | | | 2,522 | | | 11,650 | | | 1,144 | | | - | | | 56,137 |
20
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential real estate - Owner occupied | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 18,308 | | | 23,450 | | | 10,808 | | | 15,409 | | | 10,394 | | | 31,325 | | | 2,654 | | | - | | | 112,348 |
Special Mention | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Substandard | | | 47 | | | - | | | 412 | | | 219 | | | 526 | | | 2,836 | | | - | | | - | | | 4,040 |
Total residential real estate - owner occupied | | | 18,355 | | | 23,450 | | | 11,220 | | | 15,628 | | | 10,920 | | | 34,161 | | | 2,654 | | | - | | | 116,388 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Multifamily | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 40,671 | | | 30,849 | | | 44,301 | | | 38,133 | | | 12,147 | | | 7,735 | | | 197 | | | - | | | 174,033 |
Special Mention | | | - | | | 6,901 | | | - | | | 548 | | | - | | | - | | | - | | | - | | | 7,449 |
Substandard | | | 69 | | | - | | | 4,254 | | | 927 | | | 118 | | | 2,190 | | | - | | | - | | | 7,558 |
Total multifamily | | | 40,740 | | | 37,750 | | | 48,555 | | | 39,608 | | | 12,265 | | | 9,925 | | | 197 | | | - | | | 189,040 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
HELOC | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 2,511 | | | 2,174 | | | 1,679 | | | 2,120 | | | 504 | | | 803 | | | 69,483 | | | - | | | 79,274 |
Special Mention | | | - | | | - | | | - | | | - | | | - | | | - | | | 94 | | | - | | | 94 |
Substandard | | | - | | | - | | | 86 | | | 37 | | | 271 | | | 91 | | | 1,055 | | | - | | | 1,540 |
Total HELOC | | | 2,511 | | | 2,174 | | | 1,765 | | | 2,157 | | | 775 | | | 894 | | | 70,632 | | | - | | | 80,908 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
HELOC - Purchased | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | - | | | - | | | - | | | - | | | - | | | 19,487 | | | - | | | - | | | 19,487 |
Special Mention | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Substandard | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Total HELOC - purchased | | | - | | | - | | | - | | | - | | | - | | | 19,487 | | | - | | | - | | | 19,487 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 1,555 | | | 574 | | | 569 | | | 229 | | | 559 | | | 341 | | | 6,702 | | | - | | | 10,529 |
Special Mention | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Substandard | | | - | | | - | | | 4 | | | - | | | - | | | - | | | - | | | - | | | 4 |
Total other | | | 1,555 | | | 574 | | | 573 | | | 229 | | | 559 | | | 341 | | | 6,702 | | | - | | | 10,533 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total loans | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 527,373 | | | 401,352 | | | 270,306 | | | 189,092 | | | 139,283 | | | 115,951 | | | 322,913 | | | - | | | 1,966,270 |
Special Mention | | | 8,341 | | | 17,081 | | | 288 | | | 548 | | | 98 | | | - | | | 170 | | | - | | | 26,526 |
Substandard | | | 5,011 | | | 7,901 | | | 11,596 | | | 2,906 | | | 2,297 | | | 10,459 | | | 1,885 | | | - | | | 42,055 |
Total loans | | $ | 540,725 | | $ | 426,334 | | $ | 282,190 | | $ | 192,546 | | $ | 141,678 | | $ | 126,410 | | $ | 324,968 | | $ | - | | $ | 2,034,851 |
The Company had $1.2 million$624,000 and $1.8 million$546,000 in residential real estate loans in the process of foreclosure as of September 30, 2017,March 31, 2021, and December 31, 2016,2020, respectively. The Company also had $937,000 and $225,000 in residential real estate included in OREO as of September 30, 2017, and December 31, 2016, respectively.
15
Impaired loans, which include nonaccrual loans and accruing troubled debt restructurings, by class of loans for the September 30, 2017 periods listed were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended | |||||||||||
|
| As of September 30, 2017 |
| September 30, 2017 | |||||||||||
|
|
|
|
| Unpaid |
|
|
|
| Average |
| Interest | |||
|
| Recorded |
| Principal |
| Related |
| Recorded |
| Income | |||||
|
| Investment |
| Balance |
| Allowance |
| Investment |
| Recognized | |||||
With no related allowance recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| $ | 207 |
| $ | 360 |
| $ | - |
| $ | 123 |
| $ | - |
Leases |
|
| 196 |
|
| 227 |
|
| - |
|
| 281 |
|
| - |
Commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied general purpose |
|
| 457 |
|
| 495 |
|
| - |
|
| 1,169 |
|
| - |
Owner occupied special purpose |
|
| 359 |
|
| 509 |
|
| - |
|
| 372 |
|
| - |
Non-owner occupied general purpose |
|
| 1,218 |
|
| 1,592 |
|
| - |
|
| 1,481 |
|
| 2 |
Non-owner occupied special purpose |
|
| - |
|
| - |
|
| - |
|
| 507 |
|
| - |
Retail properties |
|
| 1,113 |
|
| 1,199 |
|
| - |
|
| 1,146 |
|
| - |
Farm |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilder |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Land |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Commercial speculative |
|
| - |
|
| - |
|
| - |
|
| 37 |
|
| - |
All other |
|
| 205 |
|
| 231 |
|
| - |
|
| 206 |
|
| - |
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor |
|
| 1,374 |
|
| 1,627 |
|
| - |
|
| 1,607 |
|
| 36 |
Multifamily |
|
| 4,757 |
|
| 4,965 |
|
| - |
|
| 2,379 |
|
| - |
Owner occupied |
|
| 8,150 |
|
| 9,524 |
|
| - |
|
| 8,987 |
|
| 119 |
Revolving and junior liens |
|
| 1,991 |
|
| 2,173 |
|
| - |
|
| 2,237 |
|
| 27 |
Consumer |
|
| 8 |
|
| 8 |
|
| - |
|
| 104 |
|
| - |
Total impaired loans with no recorded allowance |
|
| 20,035 |
|
| 22,910 |
|
| - |
|
| 20,636 |
|
| 184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Leases |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied general purpose |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Owner occupied special purpose |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Non-owner occupied general purpose |
|
| - |
|
| - |
|
| - |
|
| 123 |
|
| - |
Non-owner occupied special purpose |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Retail properties |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Farm |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilder |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Land |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Commercial speculative |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
All other |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Multifamily |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Owner occupied |
|
| - |
|
| - |
|
| - |
|
| 402 |
|
| - |
Revolving and junior liens |
|
| 51 |
|
| 51 |
|
| 6 |
|
| 26 |
|
| 2 |
Consumer |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Total impaired loans with a recorded allowance |
|
| 51 |
|
| 51 |
|
| 6 |
|
| 551 |
|
| 2 |
Total impaired loans |
| $ | 20,086 |
| $ | 22,961 |
| $ | 6 |
| $ | 21,187 |
| $ | 186 |
16
Impaired loans by class of loans as of December 31, 2016, and for the nine months ended September 30, 2016, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended | ||||
|
| As of December 31, 2016 |
| September 30, 2016 | |||||||||||
|
|
|
| Unpaid |
|
|
| Average |
| Interest | |||||
|
| Recorded |
| Principal |
| Related |
| Recorded |
| Income | |||||
|
| Investment |
| Balance |
| Allowance |
| Investment |
| Recognized | |||||
With no related allowance recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| $ | 240 |
| $ | 388 |
| $ | - |
| $ | 326 |
| $ | - |
Leases |
|
| 366 |
|
| 371 |
|
| - |
|
| - |
|
| - |
Commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied general purpose |
|
| 1,881 |
|
| 2,131 |
|
| - |
|
| 2,412 |
|
| 66 |
Owner occupied special purpose |
|
| 385 |
|
| 518 |
|
| - |
|
| 580 |
|
| - |
Non-owner occupied general purpose |
|
| 1,744 |
|
| 2,010 |
|
| - |
|
| 1,655 |
|
| 2 |
Non-owner occupied special purpose |
|
| 1,013 |
|
| 1,649 |
|
| - |
|
| 506 |
|
| - |
Retail properties |
|
| 1,179 |
|
| 1,235 |
|
| - |
|
| 990 |
|
| - |
Farm |
|
| - |
|
| - |
|
| - |
|
| 636 |
|
| - |
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilder |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Land |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Commercial speculative |
|
| 74 |
|
| 81 |
|
| - |
|
| 80 |
|
| - |
All other |
|
| 207 |
|
| 221 |
|
| - |
|
| - |
|
| - |
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor |
|
| 1,841 |
|
| 2,308 |
|
| - |
|
| 1,864 |
|
| 35 |
Multifamily |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Owner occupied |
|
| 9,824 |
|
| 11,391 |
|
| - |
|
| 9,916 |
|
| 120 |
Revolving and junior liens |
|
| 2,484 |
|
| 3,018 |
|
| - |
|
| 2,527 |
|
| 9 |
Consumer |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Total impaired loans with no recorded allowance |
|
| 21,238 |
|
| 25,321 |
|
| - |
|
| 21,492 |
|
| 232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
| - |
|
| - |
|
| - |
|
| 2 |
|
| - |
Leases |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied general purpose |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Owner occupied special purpose |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Non-owner occupied general purpose |
|
| 246 |
|
| 595 |
|
| 246 |
|
| 132 |
|
| 31 |
Non-owner occupied special purpose |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Retail properties |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Farm |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilder |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Land |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Commercial speculative |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
All other |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Multifamily |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Owner occupied |
|
| 803 |
|
| 853 |
|
| 803 |
|
| 356 |
|
| - |
Revolving and junior liens |
|
| - |
|
| - |
|
| - |
|
| 23 |
|
| - |
Consumer |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Total impaired loans with a recorded allowance |
|
| 1,049 |
|
| 1,448 |
|
| 1,049 |
|
| 513 |
|
| 31 |
Total impaired loans |
| $ | 22,287 |
| $ | 26,769 |
| $ | 1,049 |
| $ | 22,005 |
| $ | 263 |
Troubled debt restructurings (“TDRs”) are loans for which the contractual terms have been modified and both of these conditions exist: (1) there is a concession to the borrower and (2) the borrower is experiencing financial difficulties. Loans are restructured on a case-by-case basis during the loan collection process with modifications generally initiated at the request of the borrower. These modifications may include reduction in interest rates, extension of term, deferrals of principal, and other modifications. The Bank participates in the U.S. Department of the Treasury’s (the “Treasury”) Home Affordable Modification Program (“HAMP”) which gives qualifying homeowners an opportunity to refinance into more affordable monthly payments. Additionally, in accordance with interagency guidance, short-term deferrals granted due to the COVID-19 pandemic are not considered TDRs unless the borrower was experiencing financial difficulty prior to the pandemic.
17
The specific allocation of the allowance for loancredit losses for TDRs is determined by calculating the present value of the TDR cash flows by discounting the original payment less an assumption for probability of default at the original note’s issue rate, and adding this amount to the present value of collateral less selling costs. If the resulting amount is less than the recorded book value, the Bank either establishes a valuation allowance (i.e., specific reserve) as a component of the allowance for loancredit losses or charges off the impaired balance if it determines that such amount is a confirmed loss. This method is used consistently for all segments of the portfolio. The allowance for loancredit losses also includes an allowance based on a loss migration analysis for each loan category on loans and leases that are not individually evaluated for specific impairment. All loans charged-off, including TDRs charged-off, are factored into this calculation by portfolio segment.
21
TDRs that were modified duringOld Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
There was 0 TDR activity for the period are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| TDR Modifications |
| TDR Modifications |
| ||||||||||||
|
| Quarter Ended September 30, 2017 |
| Nine Months Ended September 30, 2017 |
| ||||||||||||
|
| # of |
| Pre-modification |
| Post-modification |
| # of |
| Pre-modification |
| Post-modification |
| ||||
|
| contracts |
| recorded investment |
| recorded investment |
| contracts |
| recorded investment |
| recorded investment |
| ||||
Troubled debt restructurings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HAMP1 |
| 1 |
| $ | 36 |
| $ | 33 |
| 1 |
| $ | 36 |
| $ | 33 |
|
Other2 |
| 1 |
|
| 42 |
|
| 42 |
| 1 |
|
| 42 |
|
| 42 |
|
Revolving and junior liens |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HAMP1 |
| 1 |
|
| 49 |
|
| 49 |
| 1 |
|
| 49 |
|
| 49 |
|
Other2 |
| 1 |
|
| 49 |
|
| 33 |
| 7 |
|
| 448 |
|
| 418 |
|
Total |
| 4 |
| $ | 176 |
| $ | 157 |
| 10 |
| $ | 575 |
| $ | 542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| TDR Modifications |
| TDR Modifications |
| ||||||||||||
|
| Quarter Ended September 30, 2016 |
| Nine Months Ended September 30, 2016 |
| ||||||||||||
|
| # of |
| Pre-modification |
| Post-modification |
| # of |
| Pre-modification |
| Post-modification |
| ||||
|
| contracts |
| recorded investment |
| recorded investment |
| contracts |
| recorded investment |
| recorded investment |
| ||||
Troubled debt restructurings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other2 |
| - |
| $ | - |
| $ | - |
| 2 |
| $ | 312 |
| $ | 211 |
|
Real estate - residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HAMP1 |
| - |
|
| - |
|
| - |
| 1 |
|
| 239 |
|
| 235 |
|
Revolving and junior liens |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HAMP1 |
| - |
|
| - |
|
|
|
| 4 |
|
| 469 |
|
| 433 |
|
Other2 |
| 1 |
|
| 70 |
|
| 70 |
| 1 |
|
| 70 |
|
| 70 |
|
Total |
| 1 |
| $ | 70 |
| $ | 70 |
| 8 |
| $ | 1,090 |
| $ | 949 |
|
1HAMP: Home Affordable Modification Program
2Other: Change of terms from bankruptcy court
ended March 31, 2021 and March 31, 2020. TDRs are classified as being in default on a case-by-case basis when they fail to be in compliance with the modified terms. There was no0 TDR default activity for the nine monthsperiods ended September 30, 2017,March 31, 2021, and September 30, 2016,March 31, 2020, for loans that were restructured within the prior 12 month period prior to default.period.
18
Note 5 – Allowance for Loan Losses
Changes in the allowance for loan losses by segment of loans based on method of impairment for three and nine months ended September 30, 2017, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Real Estate |
| Real Estate |
| Real Estate |
|
|
|
|
|
| ||||||||
Allowance for loan losses: |
| Commercial |
| Leases |
| Commercial |
| Construction |
| Residential |
| Consumer |
| Other |
| Total | ||||||||
Three months ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 2,150 |
| $ | 791 |
| $ | 8,107 |
| $ | 857 |
| $ | 2,576 |
| $ | 848 |
| $ | 507 |
| $ | 15,836 |
Charge-offs |
|
| 13 |
|
| 98 |
|
| 22 |
|
| 19 |
|
| 7 |
|
| 82 |
|
| - |
|
| 241 |
Recoveries |
|
| 6 |
|
| - |
|
| 43 |
|
| 11 |
|
| 459 |
|
| 45 |
|
| 6 |
|
| 570 |
(Release) Provision |
|
| (104) |
|
| 77 |
|
| 505 |
|
| 165 |
|
| (607) |
|
| (1) |
|
| 265 |
|
| 300 |
Ending balance |
| $ | 2,039 |
| $ | 770 |
| $ | 8,633 |
| $ | 1,014 |
| $ | 2,421 |
| $ | 810 |
| $ | 778 |
| $ | 16,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 1,629 |
| $ | 633 |
| $ | 9,547 |
| $ | 389 |
| $ | 2,692 |
| $ | 833 |
| $ | 435 |
| $ | 16,158 |
Charge-offs |
|
| 20 |
|
| 215 |
|
| 300 |
|
| 23 |
|
| 1,178 |
|
| 262 |
|
| - |
|
| 1,998 |
Recoveries |
|
| 13 |
|
| - |
|
| 124 |
|
| 89 |
|
| 850 |
|
| 166 |
|
| 13 |
|
| 1,255 |
Provision (Release) |
|
| 417 |
|
| 352 |
|
| (738) |
|
| 559 |
|
| 57 |
|
| 73 |
|
| 330 |
|
| 1,050 |
Ending balance |
| $ | 2,039 |
| $ | 770 |
| $ | 8,633 |
| $ | 1,014 |
| $ | 2,421 |
| $ | 810 |
| $ | 778 |
| $ | 16,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: Individually evaluated for impairment |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 6 |
| $ | - |
| $ | - |
| $ | 6 |
Ending balance: Collectively evaluated for impairment |
| $ | 2,039 |
| $ | 770 |
| $ | 8,633 |
| $ | 1,014 |
| $ | 2,415 |
| $ | 810 |
| $ | 778 |
| $ | 16,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
| $ | 257,356 |
| $ | 69,305 |
| $ | 739,136 |
| $ | 94,868 |
| $ | 419,583 |
| $ | 2,770 |
| $ | 11,173 |
| $ | 1,594,191 |
Ending balance: Individually evaluated for impairment |
| $ | 207 |
| $ | 196 |
| $ | 3,147 |
| $ | 205 |
| $ | 16,323 |
| $ | 8 |
| $ | - |
| $ | 20,086 |
Ending balance: Collectively evaluated for impairment |
| $ | 257,149 |
| $ | 69,109 |
| $ | 735,989 |
| $ | 94,663 |
| $ | 403,260 |
| $ | 2,762 |
| $ | 11,173 |
| $ | 1,574,105 |
Changes in the allowance for loan losses by segment of loans based on method of impairment for three and nine months ended September 30, 2016, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Real Estate |
| Real Estate |
| Real Estate |
|
|
|
|
|
| ||||||||
Allowance for loan losses: |
| Commercial |
| Leases |
| Commercial |
| Construction |
| Residential |
| Consumer |
| Other |
| Total | ||||||||
Three months ended September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 1,420 |
| $ | 275 |
| $ | 8,954 |
| $ | 380 |
| $ | 2,933 |
| $ | 862 |
| $ | 998 |
| $ | 15,822 |
Charge-offs |
|
| 76 |
|
| - |
|
| 792 |
|
| 9 |
|
| 220 |
|
| 100 |
|
| - |
|
| 1,197 |
Recoveries |
|
| 10 |
|
| - |
|
| 27 |
|
| 60 |
|
| 199 |
|
| 57 |
|
| 5 |
|
| 358 |
Provision (Release) |
|
| 141 |
|
| 71 |
|
| 753 |
|
| 39 |
|
| (577) |
|
| 118 |
|
| (545) |
|
| - |
Ending balance |
| $ | 1,495 |
| $ | 346 |
| $ | 8,942 |
| $ | 470 |
| $ | 2,335 |
| $ | 937 |
| $ | 458 |
| $ | 14,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 2,041 |
| $ | 55 |
| $ | 9,013 |
| $ | 265 |
| $ | 1,694 |
| $ | 1,190 |
| $ | 1,965 |
| $ | 16,223 |
Charge-offs |
|
| 95 |
|
| 13 |
|
| 1,484 |
|
| 9 |
|
| 657 |
|
| 250 |
|
| - |
|
| 2,508 |
Recoveries |
|
| 22 |
|
| - |
|
| 255 |
|
| 71 |
|
| 718 |
|
| 184 |
|
| 18 |
|
| 1,268 |
(Release) Provision |
|
| (473) |
|
| 304 |
|
| 1,158 |
|
| 143 |
|
| 580 |
|
| (187) |
|
| (1,525) |
|
| - |
Ending balance |
| $ | 1,495 |
| $ | 346 |
| $ | 8,942 |
| $ | 470 |
| $ | 2,335 |
| $ | 937 |
| $ | 458 |
| $ | 14,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: Individually evaluated for impairment |
| $ | - |
| $ | - |
| $ | 264 |
| $ | - |
| $ | 250 |
| $ | - |
| $ | - |
| $ | 514 |
Ending balance: Collectively evaluated for impairment |
| $ | 1,495 |
| $ | 346 |
| $ | 8,678 |
| $ | 470 |
| $ | 2,085 |
| $ | 937 |
| $ | 458 |
| $ | 14,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
| $ | 136,819 |
| $ | 47,215 |
| $ | 617,280 |
| $ | 28,786 |
| $ | 357,846 |
| $ | 3,325 |
| $ | 11,581 |
| $ | 1,202,852 |
Ending balance: Individually evaluated for impairment |
| $ | 583 |
| $ | - |
| $ | 8,426 |
| $ | 76 |
| $ | 14,038 |
| $ | - |
| $ | - |
| $ | 23,123 |
Ending balance: Collectively evaluated for impairment |
| $ | 136,236 |
| $ | 47,215 |
| $ | 608,854 |
| $ | 28,710 |
| $ | 343,808 |
| $ | 3,325 |
| $ | 11,581 |
| $ | 1,179,729 |
19
Note 64 – Other Real Estate Owned
Details related to the activity in the other real estate owned (“OREO”) portfolio, net of valuation reserve,allowance, for the periods presented are itemized in the following table:tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| Quarters Ended |
| Nine Months Ended |
| |||||||||||||||
|
| September 30, |
| September 30, |
| |||||||||||||||
| | | | | | | | |||||||||||||
| | Three Months Ended | | |||||||||||||||||
|
| March 31, |
| |||||||||||||||||
Other real estate owned |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| 2021 |
| 2020 |
| ||||||
Balance at beginning of period |
| $ | 11,724 |
| $ | 16,252 |
| $ | 11,916 |
| $ | 19,141 |
| | $ | 2,474 | | $ | 5,004 | |
Property additions |
|
| 176 |
|
| 255 |
|
| 3,796 |
|
| 1,223 |
| |||||||
Property improvements |
|
| - |
|
| 4 |
|
| - |
|
| 16 |
| |||||||
Property additions, net of acquisition adjustments | | | - | | | 491 | | |||||||||||||
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | |
Proceeds from property disposals, net of participation purchase and of gains/losses |
|
| 1,956 |
|
| 2,002 |
|
| 5,058 |
|
| 4,931 |
| | | 305 | | | 288 | |
Period valuation adjustments |
|
| 920 |
|
| 365 |
|
| 1,630 |
|
| 1,305 |
| | | 6 | | | 158 | |
Balance at end of period |
| $ | 9,024 |
| $ | 14,144 |
| $ | 9,024 |
| $ | 14,144 |
| | $ | 2,163 | | $ | 5,049 | |
Activity in the valuation allowance was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| Quarters Ended |
| Nine Months Ended |
| |||||||||||||||
|
| September 30, |
| September 30, |
| |||||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| |||||||||||
| | | | | | | | |||||||||||||
|
| Three Months Ended | | |||||||||||||||||
|
| March 31, |
| |||||||||||||||||
|
| 2021 |
| 2020 |
| |||||||||||||||
Balance at beginning of period |
| $ | 8,304 |
| $ | 13,377 |
| $ | 9,982 |
| $ | 14,127 |
| | $ | 1,643 | | $ | 6,712 | |
Provision for unrealized losses |
|
| 920 |
|
| 365 |
|
| 1,630 |
|
| 1,305 |
| | | 6 | | | 158 | |
Reductions taken on sales |
|
| (421) |
|
| (488) |
|
| (2,809) |
|
| (2,178) |
| | | - | | | (466) | |
Balance at end of period |
| $ | 8,803 |
| $ | 13,254 |
| $ | 8,803 |
| $ | 13,254 |
| | $ | 1,649 | | $ | 6,404 | |
Expenses related to OREO, net of lease revenue includes:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| Quarters Ended |
| Nine Months Ended |
| |||||||||||||||
|
| September 30, |
| September 30, |
| |||||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| |||||||||||
| | | | | | | | |||||||||||||
| | Three Months Ended | | |||||||||||||||||
| | March 31, |
| |||||||||||||||||
|
| 2021 |
| 2020 |
| |||||||||||||||
Gain on sales, net |
| $ | (276) |
| $ | (249) |
| $ | (454) |
| $ | (316) |
| | $ | (20) | | $ | (23) | |
Provision for unrealized losses |
|
| 920 |
|
| 365 |
|
| 1,630 |
|
| 1,305 |
| | | 6 | | | 158 | |
Operating expenses |
|
| 221 |
|
| 361 |
|
| 1,037 |
|
| 1,217 |
| | | 54 | | | 102 | |
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | |
Lease revenue |
|
| 185 |
|
| 51 |
|
| 285 |
|
| 163 |
| | | 4 | | | - | |
Net OREO expense |
| $ | 680 |
| $ | 426 |
| $ | 1,928 |
| $ | 2,043 |
| | $ | 36 | | $ | 237 | |
22
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
Note 75 – Deposits
Major classifications of deposits were as follows:
|
|
|
|
|
|
| ||||||||
|
| September 30, 2017 |
| December 31, 2016 |
| |||||||||
| | | | | | | | |||||||
|
| March 31, 2021 |
| December 31, 2020 |
| |||||||||
Noninterest bearing demand |
| $ | 556,874 |
| $ | 513,688 |
| | $ | 982,664 | | $ | 909,505 | |
Savings |
|
| 260,268 |
|
| 256,159 |
| | | 429,256 | | | 399,057 | |
NOW accounts |
|
| 417,054 |
|
| 419,417 |
| | | 522,760 | | | 486,612 | |
Money market accounts |
|
| 270,647 |
|
| 275,273 |
| | | 338,921 | | | 316,465 | |
Certificates of deposit of less than $100,000 |
|
| 219,152 |
|
| 228,993 |
| | | 193,291 | | | 200,107 | |
Certificates of deposit of $100,000 through $250,000 |
|
| 114,373 |
|
| 110,992 |
| | | 132,514 | | | 164,982 | |
Certificates of deposit of more than $250,000 |
|
| 50,747 |
|
| 62,263 |
| | | 57,136 | | | 60,345 | |
Total deposits |
| $ | 1,889,115 |
| $ | 1,866,785 |
| | $ | 2,656,542 | | $ | 2,537,073 | |
| | | | | | | |
20
Note 86 – Borrowings
The following table is a summary of borrowings as of September 30, 2017,March 31, 2021, and December 31, 2016.2020. Junior subordinated debentures are discussed in more detail in Note 9:7:
|
|
|
|
|
|
|
| |||||||
|
| September 30, 2017 |
| December 31, 2016 |
| |||||||||
| | | | | | | | |||||||
|
| March 31, 2021 |
| December 31, 2020 |
| |||||||||
Securities sold under repurchase agreements |
| $ | 26,853 |
| $ | 25,715 |
| | $ | 77,321 | | $ | 66,980 | |
FHLBC advances1 |
|
| 125,000 |
|
| 70,000 |
| |||||||
Junior subordinated debentures |
|
| 57,627 |
|
| 57,591 |
| | | 25,773 | | | 25,773 | |
Senior notes |
|
| 44,033 |
|
| 43,998 |
| | | 44,402 | | | 44,375 | |
Notes payable and other borrowings | | | 22,314 | | | 23,393 | | |||||||
Total borrowings |
| $ | 253,513 |
| $ | 197,304 |
| | $ | 169,810 | | $ | 160,521 | |
| | | | | | | |
1Included in other short-term borrowings on the balance sheet.
The Company enters into deposit sweep transactions where the transaction amounts are secured by pledged securities. These transactions consistently mature overnight from the transaction date and are governed by sweep repurchase agreements. All sweep repurchase agreements are treated as financings secured by U.S. government agencies and collateralized mortgage-backed securities and had a carrying amount of $26.9$77.3 million at September 30, 2017,March 31, 2021, and $25.7$67.0 million at December 31, 2016.2020. The fair value of the pledged collateral was $41.5$114.8 million at September 30, 2017March 31, 2021, and $43.0$94.4 million at December 31, 2016.2020. At September 30, 2017,March 31, 2021, there were no0 customers with secured balances exceeding 10% of stockholders’ equity.
The Company’s borrowings at the FHLBC require the Bank to be a member and invest in the stock of the FHLBC. Total borrowings are generally limited to the lower of 35% of total assets or 60% of the book value of certain mortgage loans. As of September 30, 2017,March 31, 2021 and December 31, 2020 the Bank had $125.0 million in0 short-term advances outstanding under the FHLBC. The Bank also assumed $23.4 million of long-term FHLBC as comparedadvances with the ABC Bank acquisition in 2018. At March 31, 2021, one advance remains in long-term status, with a total outstanding balance of $6.3 million, at a 2.83% interest rate, and is scheduled to $70.0 million outstandingmature on February 2, 2026. FHLBC stock as of DecemberMarch 31, 2016. As of September 30, 2017, FHLBC stock held2021, was valued at $5.6$3.7 million, and any potential FHLBC advances were collateralized by securities with a fair value of $87.4 million and loans with a principal balance of $251.3$631.4 million, which carried a FHLBC calculatedFHLBC-calculated combined collateral value of $273.8$457.7 million. The Company had excess collateral of $74.5$330.2 million available to secure borrowings at September 30, 2017.March 31, 2021.
The Company completed a debt retirement and simultaneous senior debt offering in the fourth quarter of 2016. Subordinated debt of $45.0also has $44.4 million and $500,000 of senior notes outstanding, were paid off with the proceedsnet of a $45.0 million senior notesdeferred issuance costs, as of March 31, 2021 and cash on hand.December 31, 2020. The senior notes maturewere issued in December 2016 with a ten years,year maturity, and terms include interest payable semiannually at 5.75% for five years. Beginning December 2021, the senior debt will pay interest at a floating rate, with interest payable quarterly at three month LIBOR plus 385 basis points. The notes are redeemable, in whole or in part, at the option of the Company, beginning with the interest payment date on December 31, 2021, and on any floating rate interest payment date thereafter, at a redemption price equal to 100% of the principal amount of the notes plus accrued and unpaid interest. DebtAs of March 31, 2021, and December 31, 2020, unamortized debt issuance costs incurred forrelated to the senior notes issuance totaled $1.0 million,were $598,000 and are being deferred$625,000, respectively, and recorded to expense over the ten year term of the notes. The unamortized costs are included as a reduction toof the balance of the senior notes on the Consolidated Balance Sheet. These deferred issuance costs will be amortized to interest expense over the ten year term of the notes and are included in the Consolidated Statements of Income.
23
Old Second Bancorp, Inc. and Subsidiaries
Note 9 – Junior Subordinated DebenturesNotes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
TheOn February 24, 2020, the Company completedoriginated a $20.0 million term note, of which $16.0 million is outstanding as of March 31, 2021, with a correspondent bank related to the saleCompany’s redemption of $27.5 million ofthe 7.80% cumulative trust preferred securities issued by its unconsolidated subsidiary, Old Second Capital Trust I and related junior subordinated debentures. See the discussion in June 2003. An additional $4.1Note 7 – Junior Subordinated Debentures. The term note was issued for a three year term at one-month Libor plus 175 basis points, requires principal and interest payments quarterly, and the balance of this note is included within Notes Payable and Other Borrowings on the Consolidated Balance Sheet. The Company also has an undrawn line of credit of $20.0 million with a correspondent bank to be used for short-term funding needs; advances under this line can be outstanding up to 360 days from the date of issuance. This line of credit has not been utilized since early 2019.
Note 7 – Junior Subordinated Debentures
On March 2, 2020, the Company redeemed the 7.80% cumulative trust preferred securities issued by Old Second Capital Trust I (“OSBCP”) and related junior subordinated debentures, which totaled $32.6 million. These debentures were soldoriginally issued in July 2003. The trust preferred securities may remain outstanding2003 for a 30-year term but,of 30 years at 7.80%, and subject to regulatory approval, canwere able to be called in whole or in part by the Company after June 30, 2008. When notThe Company received regulatory approval to redeem the debentures in deferral, distributionsearly 2020, and notified OSBCP stockholders of the redemption in late January 2020. Cash disbursed for the redemption, including accrued interest on the securities are payable quarterly at an annual ratedebentures, totaled $33.0 million, or $10.13 per OSBCP share. The OSBCP redemption was funded by cash on hand and the $20 million term note discussed in Note 6 – Borrowings. Upon redemption of 7.80%. the junior subordinated debentures related to OSBCP in March 2020, the Company recognized the remaining unamortized debt issuance costs of $635,000.
The Company issued a new $32.6 million subordinated debenture to Old Second Capital Trust I in return for the aggregate net proceeds of this trust preferred offering. The interest rate and payment frequency on the debenture are equivalent to the cash distribution basis on the trust preferred securities.
The Company issued an additional $25.0 million of cumulative trust preferred securities through a private placement completed by an additional,another unconsolidated subsidiary, Old Second Capital Trust II, in April 2007. These trust preferred securities also mature in 30 years, but subject to the aforementioned regulatory approval, can be called in whole or in part on a quarterly basis commencing June 15, 2017. The quarterly cash distributions on the securities were fixed at 6.77% through June 15, 2017, and float at 150 basis points over three-month LIBOR thereafter. The Trust II issuance converted from fixed to floating rate at three month LIBOR plus 150 basis points on June 15, 2017. Upon conversion to a floating rate, a cash flow hedge was initiated which resulted in the total interest rate paid on the debt of 4.30% as of September 30, 2017,4.41% for the quarter ended March 31, 2021, compared to the rate paid prior to June 15, 2017for the quarter ended March 31, 2020, of 6.77%4.40%. The Company issued a new $25.8 million subordinated debenture to Old Second Capital Trust II in return for the aggregate net proceeds of this trust preferred offering. The interest rate and payment frequency on the debenture are equivalent to the cash distribution basis on the trust preferred securities. Both of the
The junior subordinated debentures issued by the Company are disclosed on the Consolidated Balance Sheet, as junior subordinated debentures and the related interest expense for each issuance is included in the Consolidated Statements of Income. As of September 30, 2017,March 31, 2021, and December 31, 2016,2020, the remaining unamortized debt issuance costs related to the junior subordinated debentures were
21
$752,000 and $787,000 respectively,$1,000 and are included as a reduction to the balance of the junior subordinated debentures on the Consolidated Balance Sheet. The remaining deferred issuance costs on the junior subordinated debentures related to the issuance of Old Second Capital Trust II will be amortized to interest expense over the remainder of the 30-year term of the notes and are included in the Consolidated Statements of Income.
Note 108 – Equity Compensation Plans
Stock-based awards are outstanding under the Company’s 20082019 Equity Incentive Plan (the “2008“2019 Plan”) and the Company’s 2014 Equity Incentive Plan (the “2014 Plan,” and together with the 2008 Plan, the “Plans”). The 20142019 Plan was approved at the 2014May 2019 annual stockholders’ meeting and the number of stockholders; a maximum of 375,000authorized shares were authorized to be issued under this plan.the 2019 Plan was fixed at 600,000. Following approval of the 20142019 Plan, no further awards willwere to be granted under the 2008 Plan or any other prior Company equity compensation plan.At the May 2016 annual stockholders meeting, an amendment to the 2014 Plan authorized an additional 600,000 shares to be issued, which resulted in a total of 975,000 shares authorized for issuance under this plan. The 20142019 Plan authorizes the granting of qualified stock options, non-qualified stock options, restricted stock, restricted stock units, and stock appreciation rights.rights (“SARs”). Awards may be granted to selected directors, and officers, employees or employeeseligible service providers under the 20142019 Plan at the discretion of the Compensation Committee of the Company’s Board of Directors. As of September 30, 2017, 453,209March 31, 2021, 225,020 shares remained available for issuance under the 20142019 Plan.
There were no stock options granted or exercisedUnder the 2019 Plan, unless otherwise provided in an award agreement, upon the third quarteroccurrence of 2017 and 2016. All stock options are granted for a term of ten years. There is no unrecognized compensation cost related to unvested stock options aschange in control, all stock options and SARs then held by the participant will become fully exercisable immediately if, and all stock awards and cash incentive awards will become fully earned and vested immediately if, (i) the 2019 Plan is not an obligation of the Company’s common stock havesuccessor entity following a change in control or (ii) the 2019 Plan is an obligation of the successor entity following a change in control and the participant incurs a termination of service without cause or for good reason following the change in control. Notwithstanding the immediately preceding sentence, if the
24
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
vesting of an award is conditioned upon the achievement of performance measures, then such vesting will generally be subject to the following: if, at the time of the change in control, the performance measures are less than 50% attained (pro rata based upon the time of the period through the change in control), the award will become vested and exercisable on a fractional basis with the numerator being equal to the percentage of attainment and the denominator being 50%; and if, at the time of the change in control, the performance measures are at least 50% attained (pro rata based upon the time of the period through the change in control), the award will become fully vested.
A summary of stock option activityearned and vested immediately upon the change in the Plans for the nine months ended September 30, 2017, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted- |
|
|
|
|
|
|
| Weighted |
| Average |
|
|
| |
|
|
|
| Average |
| Remaining |
|
|
| |
|
|
|
| Exercise |
| Contractual |
| Aggregate | ||
|
| Shares |
| Price |
| Term (years) |
| Intrinsic Value | ||
|
|
|
|
|
|
|
|
|
|
|
Beginning outstanding |
| 94,500 |
| $ | 25.82 |
| - |
|
| - |
Canceled |
| - |
|
| - |
| - |
|
| - |
Expired |
| - |
|
| - |
| - |
|
| - |
Exercised |
| - |
|
| - |
| - |
|
| - |
Ending outstanding |
| 94,500 |
| $ | 25.82 |
| 0.3 |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period |
| 94,500 |
| $ | 25.82 |
| 0.3 |
| $ | - |
control. Generally, restricted stock and restricted stock units granted under the Plans vest three years from the grant date, but the Compensation Committee of the Company’s Board of Directors has discretionary authority to change some terms including the amount of time until the vest date.
Awards under the 2008 Plan will become fully vested upon a merger or change in control of the Company. Under the 2014 Plan, upon a change in control of the Company, if (i) the 2014 Plan is not an obligation of the successor entity following the change in control, or (ii) the 2014 Plan is an obligation of the successor entity following the change in control and the participant incurs an involuntary termination, then the stock options, stock appreciation rights, stock awards and cash incentive awards under the 2014 Plan will become fully exercisable and vested. Performance-based awards generally will vest based upon the level of achievement of the applicable performance measures through the change in control.
The Company granted restricted stock under its equity compensation plans beginning in 2005 and it began granting restricted stock units in February 2009. Restricted stock awards under the Plans generally entitle holders to voting and dividend rights upon grant and are subject to forfeiture until certain restrictions have lapsed including employment for a specific period. RestrictedAwards of restricted stock units under the Plans are also subject to forfeiture until certain restrictions have lapsed including employment for a specific period, but do not entitle holders to voting rights until the restricted period ends and shares are transferred in connection with the units.
There were 161,500217,964 and 137,944 restricted awardsstock units issued under the 20142019 Plan during the ninethree months ended September 30, 2017. There were 130,000 restricted awards issuedduring the nine months ended September 30, 2016.March 31, 2021 and March 31, 2020, respectively. Compensation expense is recognized over the vesting period of the restricted awardstock units based on the market value of the award on the issue date. Total compensation cost that has been recorded for the 2014 Plan was $925,100 and $485,000$125,000 in the first ninethree months of 20172021 and 2016, respectively.$735,000 for the first three months of 2020.
22
A summary of changes in the Company’s unvested restricted awards for the ninethree months ended September 30, 2017,March 31, 2021, is as follows:
|
|
|
|
|
| |||||
|
| September 30, 2017 | ||||||||
|
|
|
| Weighted | ||||||
|
| Restricted |
| Average | ||||||
|
| Stock Shares |
| Grant Date | ||||||
|
| and Units |
| Fair Value | ||||||
Nonvested at January 1 |
| 409,000 |
| $ | 5.89 | |||||
| | | | | | |||||
| | March 31, 2021 | ||||||||
| | | | Weighted | ||||||
| | Restricted | | Average | ||||||
| | Stock Shares | | Grant Date | ||||||
|
| and Units |
| Fair Value | ||||||
Unvested at January 1 | | 532,609 | | $ | 13.15 | |||||
Granted |
| 161,500 |
|
| 11.04 | | 217,964 | | | 11.32 |
Vested |
| (91,500) |
|
| 5.07 | | (191,653) | | | 13.95 |
Forfeited |
| (14,000) |
|
| 7.53 | | (42,111) | | | 14.15 |
Nonvested at September 30 |
| 465,000 |
| $ | 7.79 | |||||
Unvested at March 31 | | 516,809 | | $ | 11.99 |
Total unrecognized compensation cost of restricted awards was $2.0$4.0 million as of September 30, 2017,March 31, 2021, which is expected to be recognized over a weighted-average period of 2.112.27 years. Total unrecognized compensation cost
25
Tableof restricted awards was $1.1 million as of September 30, 2016, which was expectedContents
Old Second Bancorp, Inc. and Subsidiaries
Notes to be recognized over a weighted-average period of 1.99 years.Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
Note 119 – Earnings Per Share
The earnings per share, – both basic and diluted, – are included below as of September 30 (in thousands except for share and per share data):follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
| Quarters Ended September 30, |
| Nine Months Ended September 30, |
| ||||||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||||||||||
| | | | | | | | | |||||||||||||
| | Three Months Ended March 31, | | | |||||||||||||||||
|
| 2021 |
| 2020 |
|
| |||||||||||||||
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | |
Weighted-average common shares outstanding |
|
| 29,627,086 |
|
| 29,554,716 |
|
| 29,591,811 |
|
| 29,524,796 |
| | | 29,225,775 | | | 29,929,763 | | |
Net income |
| $ | 8,077 |
| $ | 3,499 |
| $ | 17,650 |
| $ | 10,666 |
| | $ | 11,879 | | $ | 275 | | |
Basic earnings per share |
| $ | 0.27 |
| $ | 0.12 |
| $ | 0.60 |
| $ | 0.36 |
| | $ | 0.41 | | $ | 0.01 | | |
| | | | | | | | | |||||||||||||
Diluted earnings per share: |
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| | | | | | | | |
Weighted-average common shares outstanding |
|
| 29,627,086 |
|
| 29,554,716 |
|
| 29,591,811 |
|
| 29,524,796 |
| | | 29,225,775 | | | 29,929,763 | | |
Dilutive effect of nonvested restricted awards1 |
|
| 473,967 |
|
| 282,228 |
|
| 425,081 |
|
| 303,221 |
| ||||||||
Dilutive effect of stock options |
|
| 2,556 |
|
| 1,238 |
|
| 2,473 |
|
| 413 |
| ||||||||
Dilutive effect of unvested restricted awards 1 | | | 558,982 | | | 560,842 | | | |||||||||||||
Diluted average common shares outstanding |
|
| 30,103,609 |
|
| 29,838,182 |
|
| 30,019,365 |
|
| 29,828,430 |
| | | 29,784,757 | | | 30,490,605 | | |
| | | | | | | | | |||||||||||||
Net Income |
| $ | 8,077 |
| $ | 3,499 |
| $ | 17,650 |
| $ | 10,666 |
| | $ | 11,879 | | $ | 275 | | |
Diluted earnings per share |
| $ | 0.27 |
| $ | 0.12 |
| $ | 0.59 |
| $ | 0.36 |
| | $ | 0.40 | | $ | 0.01 | | |
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| ||||||||
Number of antidilutive options and warrants excluded from the diluted earnings per share calculation |
|
| 900,839 |
|
| 967,339 |
|
| 900,839 |
|
| 977,426 |
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| | | | | | | | | |||||||||||||
| | | | | | | | | |||||||||||||
1 Includes the common stock equivalents for restricted share rights that are dilutive.
| 1 Includes the common stock equivalents for restricted share rights that are dilutive.
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| | | | | | | | |
The above earnings per share calculation did not include a warrant for 815,339 shares of common stock, at an exercise price of $13.43 per share, that was outstanding as of September 30, 2017, and September 30, 2016, because the warrant was anti-dilutive. Of note, the ten year warrant was issued in 2009, and was sold at auction by the Treasury in June 2013 to a third party investor.
Note 12 10 – Regulatory & Capital Matters
The Bank is subject to the risk-based capital regulatory guidelines, which include the methodology for calculating the risk-weighted Bank assets, developed by the Office of the Comptroller of the Currency (the “OCC”) and the other bank regulatory agencies. In connection with the current economic environment, the Bank’s current level of nonperforming assets and the risk-based capital regulatory guidelines, the Bank’s Board of Directors has determined thatestablished an internal guideline requiring the Bank shouldto maintain a Tier 1 leverage capital ratio at or above eight8 percent (8%) and a total risk-based capital ratio at or above twelve12 percent (12%). At September 30, 2017,March 31, 2021, the Bank exceeded those thresholds.
At September 30, 2017,March 31, 2021, the Bank’s Tier 1 capital leverage ratio was 10.63%10.78%, an increase of 394 basis pointpoints from December 31, 2016,2020, and is well above the 8.00% objective. The Bank’s total capital ratio was 13.52%15.80%, an increase of 780 basis points from December 31, 2016,2020, and also modestlywell above the objective of 12.00%.
23
Bank holding companies are generally required to maintain minimum levels of capital in accordance with capital guidelines implemented by the Board of Governors of the Federal Reserve System. The general bank and holding company capital adequacy guidelines are shown in the accompanying table, as are the capital ratios of the Company and the Bank, as of September 30, 2017,March 31, 2021, and December 31, 2016.2020.
In July 2013, the U.S. federal banking authorities issued final rules (the “Basel III Rules”) establishing more stringent regulatory capital requirements for U.S. banking institutions, which went into effect on January 1, 2015. The Basel III Rules are applicable to all banking organizations that are subject to minimum capital requirements, including federal and state banks and savings and loan associations, as well as to bank and savings and loan holding companies, other than “small bank holding companies” generally holding companies with consolidated assets of less than $3 billion. The Company is currently considered a “small bank holding company.” If we have total assets in excess of $3.0 billion as of June 30, 2021, we will no longer be considered a small bank holding company in March of 2022. A detailed discussion of the Basel III Rules is included in Part I, Item 1 of the Company’s Form 10-K for the year ended December 31, 2016,2020, under the heading “Supervision and Regulation.”
At September 30, 2017,March 31, 2021, and December 31, 2016,2020, the Company, on a consolidated basis, exceeded the minimum thresholds to be considered “well capitalized” under current regulatory defined capital ratios.
26
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
Capital levels and industry defined regulatory minimum required levels are as follows:
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| Minimum Capital |
| To Be Well Capitalized Under |
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| Adequacy with Capital |
| Prompt Corrective |
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| Actual |
| Conservation Buffer if applicable1 |
| Action Provisions2 |
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| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio |
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September 30, 2017 |
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| | | | | | | | Minimum Capital | | Well Capitalized | | |||||||||||||||||||||||||
| | | | | | | | Adequacy with Capital | | Under Prompt Corrective | | |||||||||||||||||||||||||
| | Actual | | Conservation Buffer, if applicable1 | | Action Provisions2 | | |||||||||||||||||||||||||||||
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| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio | | |||||||||||||||||||||||
March 31, 2021 | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Common equity tier 1 capital to risk weighted assets |
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| | | | | | | | | | | | | | | | | | |
Consolidated |
| $ | 170,622 |
| 8.88 | % |
| $ | 110,482 |
| 5.750 | % |
|
| N/A |
| N/A |
| | $ | 282,302 | | 12.43 | | | $ | 158,979 | | 7.000 | % | | | N/A | | N/A | |
Old Second Bank |
|
| 243,109 |
| 12.67 |
|
|
| 110,330 |
| 5.750 |
|
| $ | 124,720 |
| 6.50 | % | | | 331,118 | | 14.59 | | | | 158,864 | | 7.000 | | | $ | 147,517 | | 6.50 | % |
Total capital to risk weighted assets |
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| | | | | | | | | | | | | | | | | | |
Consolidated |
|
| 239,269 |
| 12.46 |
|
|
| 177,627 |
| 9.250 |
|
|
| N/A |
| N/A |
| | | 334,614 | | 14.73 | | | | 238,523 | | 10.500 | | | | N/A | | N/A | |
Old Second Bank |
|
| 259,569 |
| 13.52 |
|
|
| 177,590 |
| 9.250 |
|
|
| 191,989 |
| 10.00 |
| | | 358,430 | | 15.80 | | | | 238,197 | | 10.500 | | | | 226,854 | | 10.00 | |
Tier 1 capital to risk weighted assets |
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| | | | | | | | | | | | | | | | | | |
Consolidated |
|
| 221,579 |
| 11.54 |
|
|
| 139,207 |
| 7.250 |
|
|
| N/A |
| N/A |
| | | 307,302 | | 13.53 | | | | 193,057 | | 8.500 | | | | N/A | | N/A | |
Old Second Bank |
|
| 243,109 |
| 12.67 |
|
|
| 139,111 |
| 7.250 |
|
|
| 153,502 |
| 8.00 |
| | | 331,118 | | 14.59 | | | | 192,906 | | 8.500 | | | | 181,559 | | 8.00 | |
Tier 1 capital to average assets |
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|
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| | | | | | | | | | | | | | | | | | |
Consolidated |
|
| 221,579 |
| 9.69 |
|
|
| 91,467 |
| 4.00 |
|
|
| N/A |
| N/A |
| | | 307,302 | | 10.02 | | | | 122,675 | | 4.00 | | | | N/A | | N/A | |
Old Second Bank |
|
| 243,109 |
| 10.63 |
|
|
| 91,480 |
| 4.00 |
|
|
| 114,350 |
| 5.00 |
| | | 331,118 | | 10.78 | | | | 122,864 | | 4.00 | | | | 153,580 | | 5.00 | |
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| ||||||||||||||||||
December 31, 2016 |
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| | | | | | | | | | | | | | | | | | | ||||||||||||||||||
December 31, 2020 | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Common equity tier 1 capital to risk weighted assets |
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| | | | | | | | | | | | | | | | | | |
Consolidated |
| $ | 154,537 |
| 8.76 | % |
| $ | 90,411 |
| 5.125 | % |
|
| N/A |
| N/A |
| | $ | 277,199 | | 11.94 | | | $ | 162,512 | | 7.000 | % | | | N/A | | N/A | |
Old Second Bank |
|
| 221,153 |
| 12.53 |
|
|
| 90,456 |
| 5.125 |
|
| $ | 114,724 |
| 6.50 | % | | | 318,466 | | 13.75 | | | | 162,128 | | 7.000 | | | $ | 150,548 | | 6.50 | % |
Total capital to risk weighted assets |
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| | | | | | | | | | | | | | | | | | |
Consolidated |
|
| 216,769 |
| 12.29 |
|
|
| 152,126 |
| 8.625 |
|
|
| N/A |
| N/A |
| | | 331,178 | | 14.26 | | | | 243,855 | | 10.500 | | | | N/A | | N/A | |
Old Second Bank |
|
| 237,306 |
| 13.45 |
|
|
| 152,176 |
| 8.625 |
|
|
| 176,436 |
| 10.00 |
| | | 347,408 | | 15.00 | | | | 243,186 | | 10.500 | | | | 231,605 | | 10.00 | |
Tier 1 capital to risk weighted assets |
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| | | | | | | | | | | | | | | | | | |
Consolidated |
|
| 191,988 |
| 10.88 |
|
|
| 116,904 |
| 6.625 |
|
|
| N/A |
| N/A |
| | | 302,199 | | 13.01 | | | | 197,440 | | 8.500 | | | | N/A | | N/A | |
Old Second Bank |
|
| 221,153 |
| 12.53 |
|
|
| 116,930 |
| 6.625 |
|
|
| 141,199 |
| 8.00 |
| | | 318,466 | | 13.75 | | | | 196,870 | | 8.500 | | | | 185,289 | | 8.00 | |
Tier 1 capital to average assets |
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| | | | | | | | | | | | | | | | | | |
Consolidated |
|
| 191,988 |
| 8.90 |
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|
| 86,287 |
| 4.00 |
|
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| N/A |
| N/A |
| | | 302,199 | | 10.21 | | | | 118,393 | | 4.00 | | | | N/A | | N/A | |
Old Second Bank |
|
| 221,153 |
| 10.24 |
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| 86,388 |
| 4.00 |
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| 107,985 |
| 5.00 |
| | | 318,466 | | 10.74 | | | | 118,609 | | 4.00 | | | | 148,262 | | 5.00 | |
1 As of September 30, 2017, amountsAmounts are shown inclusive of a capital conservation buffer of 1.25%; as compared2.50%. Under the Federal Reserve’s Small Bank Holding Company Policy Statement, the Company is not subject to December 31, 2016, of 0.625%the minimum capital adequacy and capital conservation buffer capital requirements at the holding company level, unless otherwise advised by the Federal Reserve (such capital requirements are applicable only at the Bank level).Although the minimum regulatory capital requirements are not applicable to the Company, we calculate these ratios for our own planning and monitoring purposes.
2The prompt corrective action provisions are only applicable at the Bank level. The Bank exceeded the general minimum regulatory requirements to be considered “well capitalized.”
As part of its response to the impact of the COVID-19 pandemic, in the first quarter of 2020, U.S. federal regulatory authorities issued an interim final rule that provided banking organizations that adopted CECL during the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay (i.e., a five-year transition in total). In connection with our adoption of CECL on January 1, 2020, we elected to utilize the five-year CECL transition. The cumulative amount that is not recognized in regulatory capital, in addition to the $3.8 million
27
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
Day 1 impact of CECL adoption, will be phased in at 25% per year beginning January 1, 2022. As of March 31, 2021, the capital measures of the Company exclude $5.1 million, which is the modified CECL transition adjustment.
Dividend Restrictions
In addition to the above requirements, banking regulations and capital guidelines generally limit the amount of dividends that may be paid by a bank without prior regulatory approval. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s profits, combined with the retained profit of the previous two years, subject to the capital requirements described above. Pursuant to the Basel III rules that came into effect January 1, 2015, and were fully phased in as of January 1, 2019, the Bank must keep a capital conservation buffer of 0.625% for 2016, 1.25% for 2017, 1.875% for 2018, and 2.5% for 2019 and thereafter of2.50% above the new regulatory minimum capital requirements, which must consist entirely of Common Equity Tier 1 capital in order to avoid additional limitations on capital distributions and certain other payments.
24Stock Repurchase Program
directors authorized the repurchase of up to 1,494,826 shares of our common stock (the “Repurchase Program”). The Repurchase Program expired on September 19, 2020, however, on October 20, 2020, the Company received notice of non-objection from the Federal Reserve Bank of Chicago to extend the Repurchase Program through October 20, 2021. Repurchases by us under the Repurchase Program may be made from time to time through open market purchases, trading plans established in accordance with SEC rules, privately negotiated transactions, or by other means. During the first quarter of 2021, we repurchased 455,134 shares of our common stock at a weighted average price of $12.31 per share, pursuant to the Repurchase Program. As of March 31, 2021, 1.2 million shares have been repurchased since the program’s inception, and 320,419 shares remain available for repurchase under the Repurchase Program.
Note 13 11 – Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy established by the Company also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Three levels of inputs that may be used to measure fair value are:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Company has the ability to access as of the measurement date.
Level 2: Significant observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a company’s own view about the assumptions that market participants would use in pricing an asset or liability.
The majority of securities available-for-sale are valued by external pricing services or dealer market participants and are classified in Level 2 of the fair value hierarchy. Both market and income valuation approaches are utilized. Quarterly, the Company evaluates the methodologies used by the external pricing services or dealer market participants to develop the fair values to determine whether the results of the valuations are representative of an exit price in the Company’s principal markets and an appropriate representation of fair value. The Company uses the following methods and significant assumptions to estimate fair value:
| Government-sponsored agency debt securities are primarily priced using available market information through processes such as benchmark spreads, market valuations of like securities, like securities groupings and matrix pricing. |
| Other government-sponsored agency securities, MBS and some of the actively traded real estate mortgage investment conduits and collateralized mortgage obligations are priced using available market information including benchmark yields, prepayment speeds, spreads, volatility of similar securities and trade date. |
| State and political subdivisions are largely grouped by characteristics (e.g., geographical data and source of revenue in trade dissemination systems). Because some securities are not traded daily and due to other grouping limitations, active market quotes are often obtained using benchmarking for like securities. |
28
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
| Auction rate securities are priced using market spreads, cash flows, prepayment speeds, and loss analytics. Therefore, the valuations of auction rate asset-backed securities are considered Level 2 valuations. |
| Asset-backed collateralized loan obligations were priced using data from a pricing matrix supported by our bond accounting service provider and are therefore considered Level 2 valuations. |
| Annually every security holding is priced by a pricing service independent of the regular and recurring pricing services used. The independent service provides a measurement to indicate if the price assigned by the regular service is within or outside of a reasonable range. Management reviews this report and applies judgment in adjusting calculations at year end related to securities pricing. |
| Residential mortgage loans available for sale in the secondary market are carried at fair market value. The fair value of loans held-for-sale is determined using quoted secondary market prices. |
| Lending related commitments to fund certain residential mortgage loans, e.g., residential mortgage loans with locked interest rates to be sold in the secondary market and forward commitments for the future delivery of mortgage loans to third party investors, as well as forward commitments for future delivery of MBS are considered derivatives. Fair values are estimated based on observable changes in mortgage interest rates including prices for MBS from the date of the commitment and do not typically involve significant judgments by management. |
| The fair value of mortgage servicing rights is based on a valuation model that calculates the present value of estimated net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income to derive the resultant value. The Company is able to compare the valuation model inputs, such as the discount rate, prepayment speeds, weighted average delinquency and foreclosure/bankruptcy rates to widely available published industry data for reasonableness. |
| Interest rate swap positions, both assets and liabilities, are based on valuation pricing models using an income approach reflecting readily observable market parameters such as interest rate yield curves. |
| The fair value of impaired loans with specific allocations of the allowance for |
| Nonrecurring adjustments to certain commercial and residential real estate properties classified as OREO are measured at |
25
resulting in a Level 3 |
29
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
Assets and Liabilities Measured at Fair Value on a Recurring Basis:
The tables below present the balance of assets and liabilities at September 30, 2017,March 31, 2021, and December 31, 2016,2020, respectively, measured by the Company at fair value on a recurring basis:
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| ||||||||||||
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| September 30, 2017 | ||||||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | March 31, 2021 | ||||||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||||||||||
Assets: |
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| | | | | | | | | | | | |
Securities available-for-sale |
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| | | | | | | | | | | | |
U.S. Treasury |
| $ | 3,990 |
| $ | - |
| $ | - |
| $ | 3,990 | | $ | 4,102 | | $ | - | | $ | - | | $ | 4,102 |
U.S. government agencies |
|
| - |
|
| 13,451 |
|
| - |
|
| 13,451 | | | - | | | 6,361 | | | - | | | 6,361 |
U.S. government agencies mortgage-backed |
|
| - |
|
| 11,030 |
|
| - |
|
| 11,030 | | | - | | | 70,602 | | | - | | | 70,602 |
States and political subdivisions |
|
| - |
|
| 216,672 |
|
| 12,360 |
|
| 229,032 | | | - | | | 237,505 | | | 4,641 | | | 242,146 |
Corporate bonds |
|
| - |
|
| 10,577 |
|
| - |
|
| 10,577 | | | - | | | 34,843 | | | - | | | 34,843 |
Collateralized mortgage obligations |
|
| - |
|
| 77,894 |
|
| 2,492 |
|
| 80,386 | | | - | | | 74,936 | | | - | | | 74,936 |
Asset-backed securities |
|
| - |
|
| 131,759 |
|
| - |
|
| 131,759 | | | - | | | 130,368 | | | - | | | 130,368 |
Collateralized loan obligations |
|
| - |
|
| 53,259 |
|
| - |
|
| 53,259 | | | - | | | 29,922 | | | - | | | 29,922 |
Loans held-for-sale |
|
| - |
|
| 1,641 |
|
| - |
|
| 1,641 | | | - | | | 7,842 | | | - | | | 7,842 |
Mortgage servicing rights |
|
| - |
|
| - |
|
| 6,684 |
|
| 6,684 | | | - | | | - | | | 5,889 | | | 5,889 |
Interest rate swap agreements |
|
| - |
|
| 128 |
|
| - |
|
| 128 | | | - | | | 6,126 | | | - | | | 6,126 |
Mortgage banking derivatives |
|
| - |
|
| 289 |
|
| - |
|
| 289 | | | - | | | 1,234 | | | - | | | 1,234 |
Total |
| $ | 3,990 |
| $ | 516,700 |
| $ | 21,536 |
| $ | 542,226 | | $ | 4,102 | | $ | 599,739 | | $ | 10,530 | | $ | 614,371 |
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| | | | | | | | | | | | | ||||||||||||
Liabilities: |
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| | | | | | | | | | | | |
Interest rate swap agreements, including risk participation agreements |
| $ | - |
| $ | 1,566 |
| $ | - |
| $ | 1,566 | | $ | - | | $ | 7,147 | | $ | - | | $ | 7,147 |
Total |
| $ | - |
| $ | 1,566 |
| $ | - |
| $ | 1,566 | | $ | - | | $ | 7,147 | | $ | - | | $ | 7,147 |
| | | | | | | | | | | | |
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| ||||||||||||
|
| December 31, 2016 | ||||||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | December 31, 2020 | ||||||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||||||||||
Assets: |
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|
|
| | | | | | | | | | | | |
Securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | |
U.S. Treasury | | $ | 4,117 | | $ | - | | $ | - | | $ | 4,117 | ||||||||||||
U.S. government agencies | | | - | | | 6,657 | | | - | | | 6,657 | ||||||||||||
U.S. government agencies mortgage-backed |
| $ | - |
| $ | 41,534 |
| $ | - |
| $ | 41,534 | | | - | | | 17,209 | | | - | | | 17,209 |
States and political subdivisions |
|
| - |
|
| 46,477 |
|
| 22,226 |
|
| 68,703 | | | - | | | 244,940 | | | 4,319 | | | 249,259 |
Corporate bonds |
|
| - |
|
| 10,630 |
|
| - |
|
| 10,630 | ||||||||||||
Collateralized mortgage obligations |
|
| - |
|
| 167,808 |
|
| 3,119 |
|
| 170,927 | | | - | | | 56,585 | | | - | | | 56,585 |
Asset-backed securities |
|
| - |
|
| 138,407 |
|
| - |
|
| 138,407 | | | - | | | 131,818 | | | - | | | 131,818 |
Collateralized loan obligations |
|
| - |
|
| 101,637 |
|
| - |
|
| 101,637 | | | - | | | 30,533 | | | - | | | 30,533 |
Loans held-for-sale |
|
| - |
|
| 4,918 |
|
| - |
|
| 4,918 | | | - | | | 12,611 | | | - | | | 12,611 |
Mortgage servicing rights |
|
| - |
|
| - |
|
| 6,489 |
|
| 6,489 | | | - | | | - | | | 4,224 | | | 4,224 |
Interest rate swap agreements |
|
| - |
|
| 673 |
|
| - |
|
| 673 | | | - | | | 9,388 | | | - | | | 9,388 |
Mortgage banking derivatives |
|
| - |
|
| 287 |
|
| - |
|
| 287 | | | - | | | 840 | | | - | | | 840 |
Total |
| $ | - |
| $ | 512,371 |
| $ | 31,834 |
| $ | 544,205 | | $ | 4,117 | | $ | 510,581 | | $ | 8,543 | | $ | 523,241 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
| | | | | | | | | | | | | ||||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | |
Interest rate swap agreements, including risk participation agreements |
| $ | - |
| $ | 1,667 |
| $ | - |
| $ | 1,667 | | $ | - | | $ | 13,159 | | $ | - | | $ | 13,159 |
Total |
| $ | - |
| $ | 1,667 |
| $ | - |
| $ | 1,667 | | $ | - | | $ | 13,159 | | $ | - | | $ | 13,159 |
26
30
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are as follows:
|
|
|
|
|
|
|
|
|
| ||||||
|
| Nine Months Ended September 30, 2017 | |||||||||||||
|
| Securities available-for-sale |
|
|
| ||||||||||
|
| Collateralized |
| States and |
| Mortgage | |||||||||
|
| Mortgage |
| Political |
| Servicing | |||||||||
|
| Obligation |
| Subdivisions |
| Rights | |||||||||
Beginning balance January 1, 2017 |
| $ | 3,119 |
| $ | 22,226 |
| $ | 6,489 | ||||||
| | | | | | ||||||||||
| | Three Months Ended March 31, 2021 | |||||||||||||
| | Securities available-for-sale | | | |||||||||||
| | States and | | Mortgage | |||||||||||
| | Political | | Servicing | |||||||||||
|
| Subdivisions |
| Rights | |||||||||||
Beginning balance January 1, 2021 | | $ | 4,319 | | $ | 4,224 | |||||||||
Total gains or losses |
|
|
|
|
|
|
|
|
| | | | | | |
Included in earnings (or changes in net assets) |
|
| 32 |
|
| - |
|
| (354) | ||||||
Included in earnings | | | (3) | | 1,485 | ||||||||||
Included in other comprehensive income |
|
| 7 |
|
| (501) |
|
| - | | | 299 | | - | |
Purchases, issuances, sales, and settlements |
|
|
|
|
|
|
|
|
| | | | | | |
Purchases |
|
| - |
|
| 10,994 |
|
| - | | | 58 | | - | |
Issuances |
|
| - |
|
| - |
|
| 951 | | | - | | 552 | |
Settlements |
|
| (666) |
|
| (20,359) |
|
| (402) | | | (32) | | | (372) |
Ending balance September 30, 2017 |
| $ | 2,492 |
| $ | 12,360 |
| $ | 6,684 | ||||||
Ending balance March 31, 2021 | | $ | 4,641 | | $ | 5,889 | |||||||||
| | | | | |
|
|
|
|
|
|
| ||||||
|
| Nine Months Ended September 30, 2016 | ||||||||||
|
| Securities available-for-sale |
|
|
| |||||||
|
| States and |
| Mortgage | ||||||||
|
| Political |
| Servicing | ||||||||
|
| Subdivisions |
| Rights | ||||||||
Beginning balance January 1, 2016 |
| $ | 111 |
| $ | 5,847 | ||||||
Transfers out of Level 3 |
|
| (42) |
|
| - | ||||||
| | | | | ||||||||
| | Three Months Ended March 31, 2020 | ||||||||||
| | Securities available-for-sale | | | ||||||||
| | States and | | Mortgage | ||||||||
| | Political | | Servicing | ||||||||
|
| Subdivisions |
| Rights | ||||||||
Beginning balance January 1, 2020 | | $ | 5,419 | | $ | 5,935 | ||||||
Total gains or losses |
|
|
|
|
|
| | | | | ||
Included in earnings (or changes in net assets) |
|
| - |
|
| (1,394) | ||||||
Included in earnings | | (6) | | (1,859) | ||||||||
Included in other comprehensive income |
|
| 9 |
|
| - | | (325) | | - | ||
Purchases, issuances, sales, and settlements |
|
|
|
|
|
| | | | | ||
Purchases | | 6,100 | | - | ||||||||
Issuances |
|
| - |
|
| 1,148 | | - | | 307 | ||
Settlements |
|
| (78) |
|
| (526) | | | (31) | | | (275) |
Ending balance September 30, 2016 |
| $ | - |
| $ | 5,075 | ||||||
Ending balance March 31, 2020 | | $ | 11,157 | | $ | 4,108 | ||||||
| | | | | | |
The following table and commentary presents quantitative and qualitative information about Level 3 fair value measurements as of September 30, 2017:March 31, 2021:
| | | | | | | | | | | | |
| | | | | | | | | | | Weighted | |
Measured at fair value | | | | | | | Unobservable | | | | Average | |
on a recurring basis: |
| Fair Value |
| Valuation Methodology |
| Inputs |
| Range of Input |
| of Inputs | ||
| | | | | | | | | | | | |
Mortgage servicing rights | | $ | 5,889 | | Discounted Cash Flow | | Discount Rate | | 11.0 - 15.0% | | 11.0 | % |
| | | | | | | Prepayment Speed | | 4.7 - 41.7% | | 13.5 | % |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted | |
Measured at fair value |
|
|
|
|
|
| Unobservable |
|
|
| Average | |
on a recurring basis: |
| Fair Value |
| Valuation Methodology |
| Inputs |
| Range of Input |
| of Inputs | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights |
| $ | 6,684 |
| Discounted Cash Flow |
| Discount Rate |
| 10.0 - 1576.2% |
| 10.2 | % |
|
|
|
|
|
|
| Prepayment Speed |
| 7.0 - 68.3% |
| 10.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
The following table and commentary presents quantitative and qualitative information about Level 3 fair value measurements as of December 31, 2016:2020:
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
| Weighted | |||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | | | | | | | | | | Weighted | |||||||||||||
Measured at fair value |
|
|
|
|
|
| Unobservable |
|
|
| Average | | | | | | | Unobservable | | | | Average | ||
on a recurring basis: |
| Fair Value |
| Valuation Methodology |
| Inputs |
| Range of Input |
| of Inputs |
| Fair Value |
| Valuation Methodology |
| Inputs |
| Range of Input |
| of Inputs | ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
| | | | | | | | | | | | | ||||||||||||
Mortgage servicing rights |
| $ | 6,489 |
| Discounted Cash Flow |
| Discount Rate |
| 10.0 - 17.0% |
| 10.2 | % | | $ | 4,224 | | Discounted Cash Flow | | Discount Rate | | 11.0 - 15.0% | | 11.0 | % |
|
|
|
|
|
|
| Prepayment Speed |
| 6.5 - 77.8% |
| 9.6 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
| | | | | | | Prepayment Speed | | 5.5 - 59.1 | | 19.5 | % | ||||||||||||
| | | | | | | | | | | | |
27
In addition to the above, Level 3 fair value measurement included $12.4$4.6 million for state and political subdivisions representing various local municipality securities and $2.5 million of collateralized mortgage obligations at September 30, 2017. Both of these wereMarch 31, 2021. This was classified as securities available-for-sale, and werewas valued using a discount based on market spreads of similar assets, but the liquidity premium was an unobservable input. The state and political subdivisions securities balance in Level 3 fair value at September 30, 2016,March 31, 2020, was zero; the$11.2 million. These securities were transferred to Level 3 in the fourth quarter of 2016. Given the small dollar amountclassified as securities available-for-sale, and size of the municipality involved, this is categorized as Level 3were valued using a discount based on market spreads of similar assets, but the payment stream received by the Company from the municipality. That payment stream is otherwiseliquidity premium was an unobservable input.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis:
The Company may be required, from time to time, to measure certain other assets at fair value on a nonrecurring basis in accordance with GAAP. These assets consist of impairedindividually evaluated (formerly, impaired) loans and OREO. For assets measured at fair value on a nonrecurring basis at September 30, 2017,March 31, 2021, and December 31, 2016,2020, respectively, the following tables provide the level of valuation assumptions used to determine each valuation and the carrying value of the related assets:
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| September 30, 2017 | ||||||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||||||||||
Impaired loans1 |
| $ | - |
| $ | - |
| $ | 45 |
| $ | 45 | ||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | March 31, 2021 | ||||||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||||||||||
Individually evaluated loans1 | | $ | - | | $ | - | | $ | 7,542 | | $ | 7,542 | ||||||||||||
Other real estate owned, net2 |
|
| - |
|
| - |
|
| 9,024 |
|
| 9,024 | | | - | | | - | | | 2,163 | | | 2,163 |
Total |
| $ | - |
| $ | - |
| $ | 9,069 |
| $ | 9,069 | | $ | - | | $ | - | | $ | 9,705 | | $ | 9,705 |
1Represents carrying value and related write-downs of loans for which adjustments are substantially based on the appraised value of collateral for collateral-dependent loans; had a carrying amount of $51,000$10.4 million and a valuation allowance of $6,000$2.9 million resulting in a decreasean increase of specific allocations within the allowance for loancredit losses on loans of $92,000$269,000 for the ninethree months ended September 30, 2017.March 31, 2021.
2OREO is measured at the lower of carrying or fair value, less costs to sell, and had a net carrying amount of $9.0$2.2 million at March 31, 2021, which is made up of the outstanding balance of $18.7$3.8 million, net of a valuation allowance of $8.8 million and participations of $900,000 at September 30, 2017.$1.6 million.
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| December 31, 2016 | ||||||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||||||||||
Impaired loans1 |
| $ | - |
| $ | - |
| $ | - |
| $ | - | ||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | December 31, 2020 | ||||||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||||||||||
Individually evaluated loans1 | | $ | - | | $ | - | | $ | 9,675 | | $ | 9,675 | ||||||||||||
Other real estate owned, net2 |
|
| - |
|
| - |
|
| 11,916 |
|
| 11,916 | | | - | | | - | | | 2,474 | | | 2,474 |
Total |
| $ | - |
| $ | - |
| $ | 11,916 |
| $ | 11,916 | | $ | - | | $ | - | | $ | 12,149 | | $ | 12,149 |
1Represents carrying value and related write-downs of loans for which adjustments are substantially based on the appraised value of collateral for collateral-dependent loans; had a carrying amount of $12.3 million and a valuation allowance of $1.0$2.6 million resulting in an increase of specific allocations within the allowance for loancredit losses on loans of $1.0$1.4 million for the year ended December 31, 2016.2020.
2OREO is measured at the lower of carrying or fair value, less costs to sell, and had a net carrying amount of $11.9$2.5 million at December 31, 2020, which is made up of the outstanding balance of $23.5$4.1 million, net of a valuation allowance of $10.0 million and participations of $1.6 million, at December 31, 2016.$1.6 million.
The Company has estimated the fair values of these assets based primarily on Level 3 inputs. OREO and impaired loans are generally valued using the fair value of collateral provided by third party appraisals. These valuations include assumptions related to cash flow projections, discount rates, and recent comparable sales. The numerical ranges of unobservable inputs for these valuation assumptions are not meaningful.
32
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
Note 1412 – Fair Values of Financial Instruments
The estimated fair values approximate carrying amount for all items except those described in the following table. Securities available-for-sale fair values are based upon market prices or dealer quotes, and if no such information is available, on the rate and term of the security. The carrying value of FHLBC stock approximates fair value as the stock is nonmarketable and can only be sold to the FHLBC or another member institution at par. FHLBC stock is carried at cost and considered a Level 2 fair value. FairMarch 31, 2021 and December 31, 2020, the fair values of loans wereand leases are estimated on an exit price basis incorporating discounts for portfolios of loans with similar financial characteristics, such as typecredit, liquidity 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.marketability factors. The fair value of time deposits is estimated using discounted future cash flows at current rates offered for deposits of similar remaining maturities. The fair values of borrowings were estimated based on interest rates available to the Company for debt with similar terms and remaining maturities. The fair value of off balance sheet volume is not considered material.
28
The carrying amount and estimated fair values of financial instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
| September 30, 2017 | ||||||||||||||||||||||||||||
|
| Carrying |
| Fair |
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
| Amount |
| Value |
| Level 1 |
| Level 2 |
| Level 3 | ||||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||
| | March 31, 2021 | ||||||||||||||||||||||||||||
| | Carrying | | Fair | | | | | | | | | | |||||||||||||||||
|
| Amount |
| Value |
| Level 1 |
| Level 2 |
| Level 3 | ||||||||||||||||||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | |
Cash and due from banks |
| $ | 32,772 |
| $ | 32,772 |
| $ | 32,772 |
| $ | - |
| $ | - | | $ | 25,448 | | $ | 25,448 | | $ | 25,448 | | $ | - | | $ | - |
Interest bearing deposits with financial institutions |
|
| 14,730 |
|
| 14,730 |
|
| 14,730 |
|
| - |
|
| - | |||||||||||||||
Interest earning deposits with financial institutions | | | 415,497 | | | 415,497 | | | 415,497 | | | - | | | - | |||||||||||||||
Securities available-for-sale |
|
| 533,484 |
|
| 533,484 |
|
| 3,990 |
|
| 514,642 |
|
| 14,852 | | | 593,280 | | | 593,280 | | | 4,102 | | | 584,537 | | | 4,641 |
FHLBC and FRBC Stock |
|
| 10,393 |
|
| 10,393 |
|
| - |
|
| 10,393 |
|
| - | |||||||||||||||
FHLBC and FRBC stock | | | 9,917 | | | 9,917 | | | - | | | 9,917 | | | - | |||||||||||||||
Loans held-for-sale |
|
| 1,641 |
|
| 1,641 |
|
| - |
|
| 1,641 |
|
| - | | | 7,842 | | | 7,842 | | | - | | | 7,842 | | | - |
Loans, net |
|
| 1,577,726 |
|
| 1,568,457 |
|
| - |
|
| - |
|
| 1,568,457 | |||||||||||||||
Accrued interest receivable |
|
| 8,669 |
|
| 8,669 |
|
| - |
|
| 8,669 |
|
| - | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net loans | | | 1,928,658 | | | 1,920,676 | | | - | | | - | | | 1,920,676 | |||||||||||||||
Interest rate swap agreements | | | 6,126 | | | 6,126 | | | - | | | 6,126 | | | - | |||||||||||||||
Interest rate lock commitments and forward contracts | | | 1,234 | | | 1,234 | | | - | | | 1,234 | | | - | |||||||||||||||
Interest receivable on securities and loans | | | 9,476 | | | 9,476 | | | - | | | 9,476 | | | - | |||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | |
Noninterest bearing deposits |
| $ | 556,874 |
| $ | 556,874 |
| $ | 556,874 |
| $ | - |
| $ | - | | $ | 982,664 | | $ | 982,664 | | $ | 982,664 | | $ | - | | $ | - |
Interest bearing deposits |
|
| 1,332,241 |
|
| 1,329,668 |
|
| - |
|
| 1,329,668 |
|
| - | | | 1,673,878 | | | 1,675,943 | | | - | | | 1,675,943 | | | - |
Securities sold under repurchase agreements |
|
| 26,853 |
|
| 26,853 |
|
| - |
|
| 26,853 |
|
| - | | | 77,321 | | | 77,321 | | | - | | | 77,321 | | | - |
Other short-term borrowings |
|
| 125,000 |
|
| 125,000 |
|
| - |
|
| 125,000 |
|
| - | |||||||||||||||
Junior subordinated debentures |
|
| 57,627 |
|
| 59,524 |
|
| 33,320 |
|
| 26,204 |
|
| - | | | 25,773 | | | 19,511 | | | - | | | 19,511 | | | - |
Senior notes |
|
| 44,033 |
|
| 46,958 |
|
| - |
|
| 46,958 |
|
| - | | | 44,402 | | | 44,837 | | | 44,837 | | | - | | | - |
Note payable and other borrowings | | | 22,314 | | | 22,815 | | | - | | | 22,815 | | | - | |||||||||||||||
Interest rate swap agreements |
|
| 1,439 |
|
| 1,439 |
|
| - |
|
| 1,439 |
|
| - | | | 7,106 | | | 7,106 | | | - | | | 7,106 | | | - |
Borrowing interest payable |
|
| 773 |
|
| 773 |
|
| - |
|
| 773 |
|
| - | |||||||||||||||
Deposit interest payable |
|
| 573 |
|
| 573 |
|
| - |
|
| 573 |
|
| - | |||||||||||||||
Interest payable on deposits and borrowings | | | 999 | | | 999 | | | - | | | 999 | | | - | |||||||||||||||
| | | | | | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2016 | |||||||||||||
|
| Carrying |
| Fair |
|
|
|
|
|
| |||||
|
| Amount |
| Value |
| Level 1 |
| Level 2 |
| Level 3 | |||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
| $ | 33,805 |
| $ | 33,805 |
| $ | 33,805 |
| $ | - |
| $ | - |
Interest bearing deposits with financial institutions |
|
| 13,529 |
|
| 13,529 |
|
| 13,529 |
|
| - |
|
| - |
Securities available-for-sale |
|
| 531,838 |
|
| 531,838 |
|
| - |
|
| 506,493 |
|
| 25,345 |
FHLBC and FRBC Stock |
|
| 7,918 |
|
| 7,918 |
|
| - |
|
| 7,918 |
|
| - |
Loans held-for-sale |
|
| 4,918 |
|
| 4,918 |
|
| - |
|
| 4,918 |
|
| - |
Loans, net |
|
| 1,462,651 |
|
| 1,453,429 |
|
| - |
|
| - |
|
| 1,453,429 |
Accrued interest receivable |
|
| 5,928 |
|
| 5,928 |
|
| - |
|
| 5,928 |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing deposits |
| $ | 513,688 |
| $ | 513,688 |
| $ | 513,688 |
| $ | - |
| $ | - |
Interest bearing deposits |
|
| 1,353,097 |
|
| 1,351,000 |
|
| - |
|
| 1,351,000 |
|
| - |
Securities sold under repurchase agreements |
|
| 25,715 |
|
| 25,715 |
|
| - |
|
| 25,715 |
|
| - |
Other short-term borrowings |
|
| 70,000 |
|
| 70,000 |
|
| - |
|
| 70,000 |
|
| - |
Junior subordinated debentures |
|
| 57,591 |
|
| 55,163 |
|
| 32,404 |
|
| 22,759 |
|
| - |
Subordinated debenture |
|
| 43,998 |
|
| 43,998 |
|
| - |
|
| 43,998 |
|
| - |
Interest rate swap agreements |
|
| 994 |
|
| 994 |
|
| - |
|
| 994 |
|
| - |
Borrowing interest payable |
|
| 202 |
|
| 202 |
|
| - |
|
| 202 |
|
| - |
Deposit interest payable |
|
| 599 |
|
| 599 |
|
| - |
|
| 599 |
|
| - |
33
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
| | | | | | | | | | | | | | | |
| | December 31, 2020 | |||||||||||||
| | Carrying | | Fair | | | | | | | |||||
|
| Amount |
| Value |
| Level 1 |
| Level 2 |
| Level 3 | |||||
Financial assets: | | | | | | | | | | | | | | | |
Cash and due from banks | | $ | 24,306 | | $ | 24,306 | | $ | 24,306 | | $ | - | | $ | - |
Interest earning deposits with financial institutions | | | 305,597 | | | 305,597 | | | 305,597 | | | - | | | - |
Securities available-for-sale | | | 496,178 | | | 496,178 | | | 4,117 | | | 487,742 | | | 4,319 |
FHLBC and FRBC stock | | | 9,917 | | | 9,917 | | | - | | | 9,917 | | | - |
Loans held-for-sale | | | 12,611 | | | 12,611 | | | - | | | 12,611 | | | - |
Net loans | | | 2,000,996 | | | 2,009,773 | | | - | | | - | | | 2,009,773 |
Interest rate swap agreements | | | 9,388 | | | 9,388 | | | - | | | 9,388 | | | - |
Interest rate lock commitments and forward contracts | | | 840 | | | 840 | | | - | | | 840 | | | - |
Interest receivable on securities and loans | | | 9,698 | | | 9,698 | | | - | | | 9,698 | | | - |
| | | | | | | | | | | | | | | |
Financial liabilities: | | | | | | | | | | | | | | | |
Noninterest bearing deposits | | $ | 909,505 | | $ | 909,505 | | $ | 909,505 | | $ | - | | $ | - |
Interest bearing deposits | | | 1,627,568 | | | 1,630,109 | | | - | | | 1,630,109 | | | - |
Securities sold under repurchase agreements | | | 66,980 | | | 66,980 | | | - | | | 66,980 | | | - |
Junior subordinated debentures | | | 25,773 | | | 14,658 | | | - | | | 14,658 | | | - |
Senior notes | | | 44,375 | | | 44,600 | | | 44,600 | | | - | | | - |
Note payable and other borrowings | | | 23,393 | | | 24,043 | | | - | | | 24,043 | | | - |
Interest rate swap agreements | | | 13,071 | | | 13,071 | | | - | | | 13,071 | | | - |
Interest payable on deposits and borrowings | | | 418 | | | 418 | | | - | | | 418 | | | - |
| | | | | | | | | | | | | | | |
Note 1513 – Derivatives, Hedging Activities and Financial Instruments with Off-Balance Sheet Risk
Risk Management Objective of Using Derivatives
The Company is exposed to certain risk arising from both its business operations and Derivative Transactions
To meet the financing needseconomic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its customers,core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the Bank, as a subsidiaryamount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company, is a partyCompany’s known or expected cash receipts and its known or expected cash payments principally related to various financial instruments with off-balance-sheet riskthe Company’s loan portfolio.
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in the normal course of business. These off-balance-sheet financial instruments include commitments to originate and sell loans as well as financial standby, performance standby and commercial letters of credit. The instruments involve, to varying degrees, elements of credit andusing interest rate risk in excess of the amount recognized in the consolidated balance sheet. The Bank’sderivatives are to add stability to interest expense and to manage its exposure to credit loss for loan commitments and letters of credit is represented by the dollar amount of those instruments. Management generally uses the same credit policies and collateral requirements in making commitments and conditional obligations as it does for on-balance-sheet instruments.
29
Interest Rate Swap Designated as a Cash Flow Hedge
The Company entered into a forward starting interest rate swap on August 18, 2015, with an effective date of June 15, 2017. This transaction had a notional amount totaling $25.8 million as of September 30, 2017, was designated as a cash flow hedge of certain junior subordinated debentures and was determined to be fully effective during the period presented. As such, no amount of ineffectiveness has been included in net income. Therefore, the aggregate fair value of the swap is recorded in other assets with changes in fair value recorded in other comprehensive income. The amount included in other comprehensive income would be reclassified to current earnings should all or a portion of the hedge no longer be considered effective. The Company expects the hedge to remain fully effective during the remaining term of the swap. The Bank will pay the counterparty a fixed rate and receive a floating rate based on three month LIBOR. Management concluded that it would be advantageous to enter this transaction given thatmovements. To accomplish these objectives, the Company has trust preferred securitiesthat changed from fixed rate to floating rate on June 15, 2017. The cash flow hedge has a maturity date of June 15, 2037.
Summary information about theprimarily uses interest rate swap designatedswaps as a cash flow hedge is as follows:
|
|
|
|
|
|
|
|
|
|
| As of | ||||||
|
| September 30, 2017 |
| December 31, 2016 | ||||
Notional amount |
| $ | 25,774 |
|
| $ | 25,774 |
|
Unrealized loss |
|
| (1,439) |
|
|
| (994) |
|
Other Interest Rate Swaps
The Bank also has interest rate derivative positions to assist with risk management that are not designated as hedging instruments. These derivative positions relate to transactions in which the Bank enters an interest rate swap with a client while at the same time entering into an offsetting interest rate swap with another financial institution. Per contractual requirements with the correspondent financial institution, the Bank had $4.2 million in securities available-for-sale pledged to support interest rate swap activity with one correspondent financial institution at September 30, 2017. The Bank had $6.2 million in securities pledged to support interest rate swap activity with one correspondent financial institution at December 31, 2016.
In connection with each transaction, the Bank agreed to pay interest to the client on a notional amount at a variable interest rate and receive interest from the client on the same notional amount at a fixed interest rate. At the same time, the Bank agreed to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows the client to convert a variable rate loan to a fixed rate loan and is part of the Company’sits interest rate risk management strategy. BecauseInterest rate swaps designated as cash flow hedges involve the Bank actsreceipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. In December of 2019, the Company also executed a loan pool hedge of $50 million to convert variable rate loans to a fixed rate index for a five year term.
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in Accumulated Other Comprehensive Income and subsequently reclassified into interest income/expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are received on the Company’s variable-rate borrowings. During the next twelve
34
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
months, the Company estimates that an additional $181,000 will be reclassified as an intermediary forincrease to interest income and an additional $169,000 will be reclassified as an increase to interest expense.
Non-designated Hedges
Derivatives not designated as hedges are not speculative and result from a service the client,Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the underlying derivative contracts offset each othercustomer derivatives and do not generally affect the results of operations. Fair value measurements include an assessment of credit risk related to the client’s ability to perform on their contract position, however, and valuation estimates related to that exposureoffsetting derivatives with financial counterparties are discussedrecognized directly in Note 13 above. At September 30, 2017, the notional amount of non-hedging interest rate swaps was $349.4 million with a weighted average maturity of 6.7 years. At December 31, 2016, the notional amount of non-hedging interest rate swaps was $85.8 million with a weighted average maturity of 7.3 years. The Bank offsets derivative assets and liabilities that are subject to a master netting arrangement.earnings.
The BankCompany also grants mortgage loan interest rate lock commitments to borrowers, subject to normal loan underwriting standards. The interest rate risk associated with these loan interest rate lock commitments is managed with contracts for future deliveries of loans as well as selling forward mortgage-backed securities contracts. Loan interest rate lock commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Commitments to originate residential mortgage loans held-for-sale and forward commitments to sell residential mortgage loans or forward MBS contracts are considered derivative instruments and changes in the fair value are recorded to mortgage banking revenue. Fair values are estimated based on observable changes in mortgage interest rates including mortgage-backed securities prices from the date of the commitment.
30Disclosure of Fair Values of Derivative Instruments on the Balance Sheet
The following table presents derivativesCompany entered into a forward starting interest rate swap on August 18, 2015, with an effective date of June 15, 2017. This transaction had a notional amount totaling $25.8 million as of March 31, 2021, was designated as a cash flow hedge of certain junior subordinated debentures and was determined to be fully effective during the period presented. As such, no amount of ineffectiveness has been included in net income. Therefore, the aggregate fair value of the swap is recorded in other liabilities with changes in fair value recorded in other comprehensive income, net of tax. The amount included in other comprehensive income would be reclassified to current earnings should all or a portion of the hedge no longer be considered effective. The Company expects the hedge to remain fully effective during the remaining term of the swap. The Bank will pay the counterparty a fixed rate and receive a floating rate based on three month LIBOR. The trust preferred securitieschanged from fixed rate to floating rate on June 15, 2017. The cash flow hedge has a maturity date of June 15, 2037.
In December 2019, the Company also executed a loan pool hedge of $50.0 million to convert variable rate loans to a fixed rate index for a five year term. This transaction falls under hedge accounting standards and is paired against a pool of the Bank’s Libor-based loans. Overall, the new swap only bolsters income in down rate scenarios by a modest degree. We consider the current level of interest rate risk to be moderate but intend to continue looking for market opportunities to hedge further. The Bank held $1.0 million and $1.4 million of cash collateral related to 1 correspondent financial institution to cover the loan pool hedge mark to market valuation at March 31, 2021, and December 31, 2020, respectively.
The Bank also has interest rate derivative positions to assist with risk management that are not designated as hedging instruments asinstruments. These derivative positions relate to transactions in which the Bank enters an interest rate swap with a client while at the same time entering into an offsetting interest rate swap with another financial institution. The Bank had $17.2 million of September 30, 2017,cash collateral held by 1 correspondent financial institution to support interest rate swap activity and periodic changes in0 investment securities were required to be pledged to any correspondent financial institution at March 31, 2021 and December 31, 2020. At March 31, 2021, the valuesnotional amount of thenon-hedging interest rate swaps was $177.7 million with a weighted average maturity of 5.6 years. At December 31, 2020, the notional amount of non-hedging interest rate swaps was $189.1 million with a weighted average maturity of 4.7 years. The Bank offsets derivative assets and liabilities that are reported in other noninterest income. Periodic changes insubject to a master netting arrangement.
The table below presents the fair value of the forward contractsCompany’s derivative financial instruments as well as their classification on the Balance Sheet as of March 31, 2021 and December 31, 2020.
35
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
Fair Value of Derivative Instruments
| | | | | | | | | |
| | | | | March 31, 2021 | ||||
| No. of Trans. | | Notional Amount $ | | Balance Sheet Location | Fair Value $ | | Balance Sheet Location | Fair Value $ |
Derivatives designated as hedging instruments | | | | | | | | | |
Interest rate swap agreements | 2 | | 75,774 | | Other Assets | 1,832 | | Other Liabilities | 2,812 |
Total derivatives designated as hedging instruments | | | | | | 1,832 | | | 2,812 |
| | | | | | | | | |
Derivatives not designated as hedging instruments | | | | | | | | | |
Interest rate swaps with commercial loan customers | 27 | | 177,709 | | Other Assets | 4,294 | | Other Liabilities | 4,294 |
Interest rate lock commitments and forward contracts | 150 | | 57,494 | | Other Assets | 1,234 | | Other Liabilities | - |
Other contracts | 3 | | 18,857 | | Other Assets | - | | Other Liabilities | 41 |
Total derivatives not designated as hedging instruments | | | | | | 5,528 | | | 4,335 |
| | | | | | | | | |
| | | | | | | | | |
| | | | | December 31, 2020 | ||||
| No. of Trans. | | Notional Amount $ | | Balance Sheet Location | Fair Value $ | | Balance Sheet Location | Fair Value $ |
Derivatives designated as hedging instruments | | | | | | | | | |
Interest rate swap agreements | 2 | | 75,774 | | Other Assets | 2,697 | | Other Liabilities | 6,380 |
Total derivatives designated as hedging instruments | | | | | | 2,697 | | | 6,380 |
| | | | | | | | | |
Derivatives not designated as hedging instruments | | | | | | | | | |
Interest rate swaps with commercial loan customers | 28 | | 189,126 | | Other Assets | 6,691 | | Other Liabilities | 6,691 |
Interest rate lock commitments and forward contracts | 205 | | 84,472 | | Other Assets | 840 | | Other Liabilities | - |
Other contracts | 4 | | 26,523 | | Other Assets | - | | Other Liabilities | 88 |
Total derivatives not designated as hedging instruments | | | | | | 7,531 | | | 6,779 |
Disclosure of the Effect of Fair Value and Cash Flow Hedge Accounting
The fair value and cash flow hedge accounting related to mortgage loan origination are reportedderivatives covered under ASC Subtopic 815-20 impacted Accumulated Other Comprehensive Income (“AOCI”) and the Income Statement. The loss recognized in the net gainAOCI on sales of mortgage loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Asset Derivatives |
| Liability Derivatives | ||||||
|
| Notional or |
|
|
|
|
|
|
|
| |||
|
| Contractual |
| Balance Sheet |
|
|
|
| Balance Sheet |
|
|
| |
|
| Amount |
| Location |
| Fair Value |
| Location |
| Fair Value | |||
Interest rate swap contracts net of credit valuation |
| $ | 349,367 |
| Other Assets |
| $ | 128 |
| Other Liabilities |
| $ | 128 |
Interest rate lock commitments and forward contracts |
|
| 28,591 |
| Other Assets |
|
| 289 |
| N/A |
|
| - |
Total |
|
|
|
|
|
| $ | 417 |
|
|
| $ | 128 |
The following table presents derivatives not designated as hedging instrumentstotaled $705,000 as of DecemberMarch 31, 2016.2021, and $4.1 million as of March 31, 2020. The amount of the gain or (loss) reclassified from AOCI to interest income or interest expense on the income statement totaled $12,000 and ($86,000) for the three months ended March 31, 2021, and March 31, 2020, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Asset Derivatives |
| Liability Derivatives | ||||||
|
| Notional or |
|
|
|
|
|
|
|
| |||
|
| Contractual |
| Balance Sheet |
|
|
|
| Balance Sheet |
|
|
| |
|
| Amount |
| Location |
| Fair Value |
| Location |
| Fair Value | |||
Interest rate swap contracts net of credit valuation |
| $ | 85,807 |
| Other Assets |
| $ | 673 |
| Other Liabilities |
| $ | 673 |
Interest rate lock commitments and forward contracts |
|
| 31,980 |
| Other Assets |
|
| 287 |
| N/A |
|
| - |
Total |
|
|
|
|
|
| $ | 960 |
|
|
| $ | 673 |
Credit-risk-related Contingent Features
For derivative transactions involving counterparties who are lending customers of the Company, the derivative credit exposure is managed through the normal credit review and monitoring process, which may include collateralization, financial covenants and/or financial guarantees of affiliated parties. Agreements with such customers require that losses associated with derivative transactions receive payment priority from any funds recovered should a customer default and ultimate disposition of collateral or guarantees occur.
Credit exposure to broker/dealer counterparties is managed through agreements with each derivative counterparty that require collateralization of fair value gains owed by such counterparties. Some small degree of credit exposure exists due to timing differences between when a gain may occur and the subsequent point in time that collateral is delivered to secure that gain. This is monitored by the Company and procedures are in place to minimize this exposure. Such agreements also require the Company to collateralize counterparties in circumstances wherein the fair value of the derivatives result in loss to the Company.
36
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
Other provisions of such agreements include the definition of certain events that may lead to the declaration of default and/or the early termination of the derivative transaction(s):
● | If the Company either defaults or is capable of being declared in default on any of its indebtedness (exclusive of deposit obligations), then the Company could also be declared in default on its derivative obligations. |
● | If a merger occurs that materially changes the Company's creditworthiness in an adverse manner. |
● | If certain specified adverse regulatory actions occur, such as the issuance of a Cease and Desist Order, or citations for actions considered Unsafe and Unsound or that may lead to the termination of deposit insurance coverage by the FDIC. |
The Bank also issues letters of credit, which are conditional commitments that guarantee the performance of a customer to a third party. The credit risk involved and collateral obtained in issuing letters of credit are essentially the same as that involved in extending loan commitments to our customers. In addition to customer related commitments, the Company is responsible for letters of credit commitments that relate to properties held in OREO. The following table represents the Company’s contractual commitments due to letters of credit as of September 30, 2017,March 31, 2021, and December 31, 2016.2020.
The following table is a summary of letter of credit commitments:
| | | | | | | | | | | | | | | | | | | |
| | March 31, 2021 | | December 31, 2020 | | ||||||||||||||
|
| Fixed |
| Variable |
| Total |
| Fixed |
| Variable |
| Total |
| ||||||
Letters of credit: | | | | | | | | | | | | | | | | | | | |
Borrower: | | | | | | | | | | | | | | | | | | | |
Financial standby | | $ | 329 | | $ | 8,979 | | $ | 9,308 | | $ | 329 | | $ | 9,051 | | $ | 9,380 | |
Commercial standby | | | - | | | - | | | - | | | - | | | - | | | - | |
Performance standby | | | 356 | | | 6,514 | | | 6,870 | | | 356 | | | 4,517 | | | 4,873 | |
| | | 685 | | | 15,493 | | | 16,178 | | | 685 | | | 13,568 | | | 14,253 | |
Non-borrower: | | | | | | | | | | | | | | | | | | | |
Performance standby | | | - | | | 67 | | | 67 | | | - | | | 67 | | | 67 | |
Total letters of credit | | $ | 685 | | $ | 15,560 | | $ | 16,245 | | $ | 685 | | $ | 13,635 | | $ | 14,320 | |
| | | | | | | | | | | | | | | | | | | |
Unused loan commitments: | | $ | 124,118 | | $ | 320,101 | | $ | 444,219 | | $ | 88,883 | | $ | 316,298 | | $ | 405,181 | |
As of March 31, 2021, the Company evaluated current market conditions, including the impacts related to COVID-19 and market interest rates during the first quarter of 2021, and based on that analysis under the CECL methodology, the Company determined credit losses related to unfunded commitments (in thousands):totaled $3.5 million. The increase in the ACL for unfunded commitments of $470,000 for the first quarter of 2021, compared to the prior quarter end, is primarily related to an increase in the commercial unfunded commitments funding rate assumptions based on our analysis of the last 12 months of utilization. The Company will continue to assess the credit risk at least quarterly, and adjust the allowance for unfunded commitments, which is carried within other liabilities on our Consolidated Balance Sheet, as needed, with the appropriate offsetting entry to the provision for credit losses on our Consolidated Statements of Income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
| December 31, 2016 |
| ||||||||||||||
|
| Fixed |
| Variable |
| Total |
| Fixed |
| Variable |
| Total |
| ||||||
Letters of credit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrower: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial standby |
| $ | 177 |
| $ | 3,748 |
| $ | 3,925 |
| $ | 137 |
| $ | 4,047 |
| $ | 4,184 |
|
Commercial standby |
|
| - |
|
| 122 |
|
| 122 |
|
| - |
|
| 126 |
|
| 126 |
|
Performance standby |
|
| 66 |
|
| 7,912 |
|
| 7,978 |
|
| 83 |
|
| 8,498 |
|
| 8,581 |
|
|
|
| 243 |
|
| 11,782 |
|
| 12,025 |
|
| 220 |
|
| 12,671 |
|
| 12,891 |
|
Non-borrower: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance standby |
|
| - |
|
| 422 |
|
| 422 |
|
| 95 |
|
| 525 |
|
| 620 |
|
Total letters of credit |
| $ | 243 |
| $ | 12,204 |
| $ | 12,447 |
| $ | 315 |
| $ | 13,196 |
| $ | 13,511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
37
Item 2.Management’s2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The Company is a financial services company with its main headquarters located in Aurora, Illinois. The Company isfollowing discussion provides additional information regarding our operations for the holding company of Old Second National Bank (the “Bank”), a national banking organization headquartered in Aurora, Illinois, that provides commercialthree months ended March 31, 2021, compared to the three months ended March 31, 2020, and retail banking services, as well as a full complement of trust and wealth management services. The Company has offices located in Cook, Kane, Kendall, DeKalb, DuPage, LaSalle and Will counties in Illinois. The following management’s discussion and analysis presents information concerning our financial condition as of September 30, 2017, asat March 31, 2021, compared to December 31, 2016, and the results of operations for the three and nine months September 30, 2017, and September 30, 2016.2020. This discussion and analysis is bestshould be read in conjunction with our consolidated financial statements as well as the financial and statistical data appearing elsewhere in this report and our Form 10-K for the year ended December 31, 2016.2020. The results of operations for the quarter September 30, 2017,three months ended March 31, 2021, are not necessarily indicative of future results. Dollar amounts presented in the following tables are in thousands, except per share data, and March 2021 and 2020 amounts are unaudited.
In this report, unless the context suggests otherwise, references to the “Company,” “we,” “us,” and “our” mean the combined business of Old Second Bancorp, Inc. and its subsidiary bank, Old Second National Bank (the “Bank”).
We have made, and will continue to make, various forward-looking statements with respect to financial and business matters. Comments regarding our business that are not historical facts are considered forward-looking statements that involve inherent risks and uncertainties. Actual results may differ materially from those contained in these forward-looking statements. For additional information regarding our cautionary disclosures, see the “Cautionary Note Regarding Forward-Looking Statements” on page 3 of this report.
Business Overview
The Company is a bank holding company headquartered in Aurora, Illinois. Through our wholly-owned subsidiary bank, Old Second National Bank, a national banking organization also headquartered in Aurora, Illinois, we offer a wide range of financial services through our 29 banking centers located in Cook, DeKalb, DuPage, Kane, Kendall, LaSalle and Will counties in Illinois. These banking centers offer access to a full range of traditional retail and commercial banking services including treasury management operations as well as fiduciary and wealth management services. We focus our business on establishing and maintaining relationships with our clients while maintaining a commitment to provide for the financial services needs of the communities in which we operate. We emphasize relationships with individual customers as well as small to medium-sized businesses throughout our market area. We also have extensive wealth management services, which includes a registered investment advisory platform in addition to trust administration and trust services related to personal and corporate trusts and employee benefit plan administration services.
Recent Events—COVID-19
The COVID-19 pandemic continues to create extensive disruptions to the global economy and financial markets and to businesses and the lives of individuals throughout the world.
The impact of the COVID-19 pandemic is fluid and continues to evolve, adversely affecting many of our clients. The unprecedented and rapid spread of COVID-19 and its associated impacts on trade (including supply chains and export levels), travel, employee productivity, unemployment, consumer spending, and other economic activities has resulted in less economic activity, lower equity market valuations and significant volatility and disruption in financial markets. Market interest rates, after falling to historically low levels due to the COVID-19 pandemic through the second quarter of 2020, have generally stabilized, while intermediate and longer-term Treasury rates have begun to rise. The low interest rate environment, and the other effects of the COVID-19 pandemic have had, and are expected to continue to have, possibly materially, an adverse effect on our business, financial condition and results of operations. For instance, the pandemic has had negative effects on our interest income, ACL, and certain transaction-based line items of noninterest income. The ultimate extent of the impact of the COVID-19 pandemic on our business, financial condition and results of operations is currently uncertain and will depend on various developments and other factors, including the effect of governmental and private sector initiatives, the effect of the recent rollout of vaccinations for the virus, whether such vaccinations will be effective against any resurgence of the virus, including any new strain, and the ability for customers and businesses to return to their pre-pandemic routine.
Results of Operation and Financial Condition
We are monitoring the impact of the COVID-19 pandemic on our results of operation and financial condition. To date, the COVID-19 pandemic has not significantly impacted the health of the overall real estate industry in our markets, which have reflected relative stability over the past three years. In addition, we have not experienced significant incurred losses on loans or received communications from our borrowers that significant losses are imminent. While management does not currently expect the next year to result in the precipitous decline in the value of certain real estate assets similar to the declines seen in 2009 to 2010, our forecast includes assumptions for certain
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loss scenarios that may occur due to the exhaustion of federal stimulus funds or a decrease in market valuations. Accordingly, we determined it prudent to increase our allowance for credit losses to $33.9 million as of December 31, 2020, driven by both our adoption of the new CECL methodology and the expected impact of the COVID-19 pandemic and market interest rate reductions in anticipation of continued market risk and uncertainty. During the first quarter of 2021, unemployment expectations and other market indicators reflected an improving economic outlook, which resulted in a net benefit of $3.0 million in our provision for credit losses, comprised of a $3.5 million reserve release on loans and an additional $470,000 of expense in our provision for credit losses on unfunded commitments.
We also adjust our investment securities portfolio to fair value each period end and review for any impairment that would require a provision for credit losses. At this time, we have determined there is no need for a provision for credit losses related to our investment securities portfolio. Because of changing economic and market conditions affecting issuers, we may be required to recognize impairments in the future on the securities we hold as well as experience reductions in other comprehensive income. We cannot currently determine the ultimate impact of the pandemic on the long-term value of our portfolio.
As of March 31, 2021 and December 31, 2020, we had $18.6 million of goodwill. At November 30, 2020, we performed our recurring annual review for any goodwill impairment. We determined no goodwill impairment existed, however, continued delayed recovery or further deterioration in market conditions related to the general economy, financial markets, and the associated impacts on our customers, employees and vendors, among other factors, could significantly impact the impairment analysis and may result in future goodwill impairment charges that, if incurred, could have a material adverse effect on our results of operations and financial condition.
Lending Operations and Accommodations to Borrowers
To more fully support our customers during the pandemic, we established client assistance programs, including offering commercial, consumer, and mortgage loan payment deferrals for certain clients. As of March 31, 2021, we have executed 504 of these deferrals on loan balances of $237.7 million since March 31, 2020. In accordance with interagency guidance issued in March 2020, these short term deferrals were not considered troubled debt restructurings. As of March 31, 2021, 464 loans previously in deferral status, representing loan balances of $218.5 million, had resumed payments or paid off, and 40 loans totaling $19.2 million remained in active deferral status, of which only $4.3 million were in nonaccrual status. We also suspended late fees for consumer loans through June 30, 2020, and, although consumer late fees have been reinstated, we will continue to evaluate any late fee suspension based on the borrower’s financial situation and prior payment history. In addition, we paused new foreclosure and repossession actions through March 31, 2021, and will continue to re-evaluate these activities based on the ongoing COVID-19 pandemic. These programs may negatively impact our revenue and other results of operations in the near term and, if not effective in mitigating the effect of COVID-19 on our customers, may adversely affect our business and results of operations more substantially over a longer period of time. Future governmental actions may require these and other types of customer-related responses.
We are also participating in the CARES Act. During 2020, as part of the first round of the SBA PPP program, we processed 746 PPP loan applications, representing a total of $136.7 million. In early October, we started the application process for PPP loan forgiveness, and have received $90.8 million of funds from payment forgiveness as of March 31, 2021. We expect this application process to continue through the second quarter of 2021, with funds to be received from the SBA for the forgiven loans into the third quarter of 2021. Due to the governmental authorization of the second round of the SBA PPP in late 2020, we originated an additional $58.3 million on 481 PPP loans in the first quarter of 2021, and anticipate filing for forgiveness of these loans with the SBA in the latter half of 2021. We recorded $504,000 of net fee income on PPP loans in the first quarter of 2021, and as of March 31, 2021, unearned net fee income on both first and second round PPP loans totaled $2.5 million. In addition, as of March 31, 2021, we had originated two loans for $305,000 under the Main Street Lending Program.
Capital and Liquidity
As of March 31, 2021, all of our capital ratios were in excess of all regulatory requirements. While we believe that we have sufficient capital to withstand an extended economic recession brought about by the COVID-19 pandemic, our reported and regulatory capital ratios could be adversely impacted by credit losses.
We believe there could be potential stresses on liquidity management as a result of the COVID-19 pandemic. For instance, as customers manage their own liquidity stress, we could experience an increase in the utilization of existing lines of credit.
We have developed new processes to monitor our liquidity on a daily basis, and have run stress testing based on various economic assumptions under stress and severe stress scenarios. In addition, management continues to communicate bi-weekly in structured meetings with key staff to ensure all current events related to the COVID-19 pandemic, such as federal government stimulus check receipt, PPP loan fundings and the forgiveness application process, are managed appropriately.
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Financial Overview
Our community-focused banking franchise has experienced growtha decrease in total loans in the pastfirst quarter of 2021, compared to the year ended December 31, 2020, but an increase in total loans compared to the first quarter of 2020, and iswe believe we are positioned for further successmoderate loan growth as we continue to serve our customers’ needs in a competitive economic environment. IndustryGiven the ongoing, dynamic and regulatory developments inunprecedented nature of the past few yearsCOVID-19 pandemic, it is difficult to predict the full impact the pandemic will have madeon our business; however, we expect the pandemic will make it challenging for us to attain the levels of profitability and growth reflected a decade ago. As we lookhave experienced in the past five years. We are continuing to seek to provide value to our customers and the communities in which we operate, by executing on growth opportunities identified in our local markets are being developed intoand developing new banking relationships. We are encouraged by sustained quality inrelationships, while ensuring the safety and soundness of our creditBank, our customers and our employees during the COVID-19 pandemic.
The following provides an overview of some of the factors impacting our financial performance as nonperforming loan totals remain at low levels and strong sales efforts have driven loan growth and portfolio diversity. The Company generated increased net interest income infor the three month period ended September 30, 2017, asMarch 31, 2021, compared to the like period ended September 30, 2016. The Company’s noninterest income growth also contributedMarch 31, 2020:
● | Net income for the first quarter of 2021 was $11.9 million, or $0.40 per diluted share, compared to $275,000, or $0.01 per diluted share, for the first quarter of 2020. |
● | Net interest and dividend income was $23.5 million for the first quarter of 2021, compared to $22.7 million for the first quarter of 2020. The increase in 2021 was primarily due to the year over year decline in interest expense, due to the acceleration of debt issuance costs of $635,000 stemming from our redemption of the trust preferred securities issued by Old Second Capital Trust I and related junior subordinated debentures, which totaled $32.6 million, in March 2020, as well as a decline in market interest rates, which negatively impacted loan and security income, but also reduced time deposit interest expense year over year. |
● | The provision for credit losses resulted in a $3.0 million net benefit driven by a reserve release in the first quarter of 2021, consisting of a $3.5 million reserve release related to loans and a provision for credit loss expense of $470,000 related to unfunded commitments, compared to a provision for credit losses of $8.0 million recorded in the first quarter of 2020. We adopted the new current expected credit losses accounting standard, or CECL, effective January 1, 2020, which measures the allowance based on management’s best estimate of lifetime expected credit losses inherent in our lending activities, which resulted in a $5.9 million allowance for credit losses related to loans and a $1.7 million allowance for credit losses related to unfunded commitments as of January 1, 2020. The provision expense recorded in 2020 was impacted by both our adoption of the new CECL methodology and the expected impact, as of March 31, 2020, of the COVID-19 pandemic on future losses. |
● | Noninterest income was $11.3 million for the first quarter of 2021, compared to $6.3 million for the first quarter of 2020. The increase in 2021 was primarily due to a $4.9 million increase in mortgage banking revenue, primarily stemming from a more favorable mark to market adjustments on MSRs of $3.2 million, and a $1.5 million increase in net gain on sales of mortgage loans. In addition, a net increase of $383,000 was recorded related to the cash surrender value of bank owned life insurance (“BOLI”) for the first quarter of 2021, compared the first quarter of 2020, as market interest rates have partially recovered from the lows experienced at the end of the first quarter of 2020. Partially offsetting these increases was a reduction of $531,000 in service charges on deposits due to a reduction in overdraft fees stemming from COVID-19 related commercial and consumer spending declines. |
● | Noninterest expense was $21.7 million for the first quarter of 2021, compared to $21.0 million for the first quarter of 2020, an increase of $736,000, or 3.5%. The increase in 2021 was primarily due to an increase in salaries and employee benefits expense driven by an increase in annual officer incentive expense and related payroll taxes and Company 401K match, increases in occupancy, furniture and equipment expense and an increase in FDIC insurance expense related to assessment credits received in 2020. |
● | The provision for income taxes was $4.2 million for the first quarter of 2021, compared to a tax benefit of $281,000 for the first quarter of 2020. Pretax income was $16.1 million in the first quarter of 2021, compared to a $6,000 pretax loss for the first quarter of 2020. |
● | Asset quality remained consistent with nonperforming loans as a percent of total loans remaining steady at 1.1% as of March 31, 2021, December 31, 2020, and March 31, 2020. |
● | During the first quarter of 2021, we repurchased 455,134 shares of our common stock at a weighted average price of $12.31 per share pursuant to our stock repurchase program. |
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Critical Accounting Policies
Our consolidated financial statements are prepared based on the application of accounting policies in accordance with generally accepted accounting principles (“GAAP”) and follow general practices within the banking industry. These policies require the reliance on estimates and assumptions, which may prove inaccurate or are subject to variations. These estimates, assumptions, and judgments are based on information available as of the overall increasedate of the consolidated financial statements. Future changes in earningsinformation may affect these estimates, assumptions, and judgments, which, in turn, may affect amounts reported in the consolidated financial statements. Changes in underlying factors, assumptions, or estimates could have a material impact on our future financial condition and results of operations.
Of the significant accounting policies used in the preparation of our consolidated financial statements, we have identified certain items as critical accounting policies based on the associated estimates, assumptions, judgments and complexity. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in our Annual Report on Form 10-K for the thirdyear ended December 31, 2020. There have been no material changes to our critical accounting policies or the estimates made pursuant to those policies during the most recent quarter and nine months ended September 30, 2017 as comparedfrom those disclosed in our 2020 Annual Report in Form 10-K.
Non-GAAP Financial Measures
This report contains references to like periodsfinancial measures that are not defined in GAAP. Such non-GAAP financial measures include the prior year. However, the positive earnings impactpresentation of the growth in net interest income and net interest margin on a tax equivalent (“TE”) basis, our adjusted efficiency ratio, our tangible common equity to tangible assets ratio, and our core net interest margin on a TE basis. Management believes that the presentation of these non-GAAP financial measures (a) provides important supplemental information that contributes to a proper understanding of our operating performance, (b) enables a more complete understanding of factors and trends affecting our business, and (c) allows investors to evaluate our performance in a manner similar to management, the financial services industry, bank stock analysts, and bank regulators. Management uses non-GAAP measures as follows: in the preparation of our operating budgets, monthly financial performance reporting, and in our presentation to investors of our performance. However, we acknowledge that these non-GAAP financial measures have a number of limitations. Limitations associated with non-GAAP financial measures include the risk that persons might disagree as to the appropriateness of items comprising these measures and that different companies might calculate these measures differently. These disclosures should not be considered an alternative to our GAAP results. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is presented below or alongside the first instance where each non-GAAP financial measure is used.
Results of Operations
Overview
Three months ended March 31, 2021 and 2020
Our income before taxes was $16.1 million in the first quarter of 2021 compared to a pretax loss of $6,000 in the first quarter of 2020. This increase in pretax income was primarily due to a net benefit of $3.0 million related to the provision for credit losses driven primarily by a reserve release on loans in the first quarter of 2021, compared to provision expense of $8.0 million in the first quarter of 2020. In addition, noninterest income forincreased $5.0 million in the thirdfirst quarter and nine months of 2017 was partially offset by2021, compared to the first quarter of 2020, primarily due to growth in mortgage banking revenue, which increased $4.9 million due to more favorable mark to market adjustments on MSRs and an increase in noninterest expense. Noninterest expenses were negatively impacted primarily by annet gain on sales of mortgage loans due to higher origination volumes in the low rate environment. Net interest income also increased $885,000 in the first quarter of 2021, compared to the first quarter of 2020. Partially offsetting these increases to net income was a $736,000 increase in noninterest expense in the first quarter of 2021, compared to the first quarter of 2020, primarily due to growth in salaries and employee costsbenefits expenses, occupancy, furniture and equipment, and FDIC insurance costs. Our net income was $11.9 million, or $0.40 per diluted share, for the first quarter of 2021, compared to net income of $275,000, or $0.01 per diluted share, for the first quarter of 2020.
Net interest and dividend income was $23.5 million in the first quarter of 2021, compared to $22.7 million in the first quarter of 2020. The $885,000 increase was primarily driven by a $2.9 million reduction in interest expense, due to the redemption of the Old Second Capital Trust I trust preferred securities and related subordinated debentures in the first quarter of 2020, as well as the market interest rate reductions year over year, which contributed to the decrease in the cost of deposit interest expense related to time deposits of $1.3 million, and savings, NOW and money market accounts of $394,000. Interest and dividend income also decreased in the first quarter of 2021 compared to the first quarter of 2020, but at a lesser rate than the decline in interest expense. A $2.1 million decrease in interest and
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dividend income in the first quarter of 2021, compared to the first quarter of 2020, was driven by the reduction in market interest rates on loans and securities. Loan growth of $2.4 million was recorded in the year over year periods. Finally, anperiod, but interest income tax benefit was recordedon loans declined $1.4 million in the thirdfirst quarter of 2017 due to a State of Illinois tax rate increase; this credit had a significantly favorable impact which contributed2021, compared to the increaselike period in net2020. Securities available-for-sale increased $143.6 million as of March 31, 2021, compared to March 31, 2020, but interest income recorded on securities available-for-sale decreased $696,000 in the year over year periodsperiod.
Management has remained diligent in reviewing our loan portfolio to analyze and determine if charge-offs are required. Average loan growth, including loans held for the quarter and nine months.
Results of Operations
Net income before taxes of $9.9 millionsale, in the thirdfirst quarter of 2017 compares to $5.4 million in the third quarter of 2016. When2021, compared to the thirdfirst quarter of 2016,2020, totaled $64.4 million, stemming primarily from 481 PPP loans originated in the third quarterfirst quarters of 2017 reflected higher levels2021 totaling $58.3 million, as well organic growth primarily in our commercial, leases, commercial real estate-investor and construction portfolios.
Net Interest Income
Net interest income, which is our primary source of earnings, is the difference between interest income earned on interest-earning assets, such as loans and investment securities, as well as accretion income on purchased loans, and interest incurred on interest-bearing liabilities, such as deposits and borrowings. Net interest income depends upon the relative mix of interest-earning assets and interest-bearing liabilities, the ratio of interest-earning assets to total assets and of interest-bearing liabilities to total funding sources, and movements in market interest rates. Our net interest income can be significantly influenced by a variety of factors, including overall loan demand, economic conditions, credit risk, the amount of nonearning assets including nonperforming loans and OREO, the amounts of and rates at which assets and liabilities reprice, variances in prepayment of loans and securities, early withdrawal of deposits, exercise of call options on borrowings or securities, a general rise or decline in interest rates, changes in the slope of the yield-curve, and balance sheet growth or contraction.
Three months ended March 31, 2021 and 2020
Our net interest and dividend income increased by $885,000 to $23.5 million, for the first quarter of 2021, from $22.7 million for the first quarter of 2020. This increase was attributable to a provision$2.9 million, or 61.4%, decrease in interest expense for loan lossthe first quarter of $300,000,2021 compared to the first quarter of 2020, partially offset by a $2.1 million decrease in interest and increased levels of noninterest income and noninterest expense. Noninterest incomedividend income. The decline in interest expense was due to lower rates for all interest earning deposits in the 2017 period was favorably impacted by net gains recorded on securities portfolio sales as compared to net losses in the like prior year period,first quarter of 2021, as well as an increasethe redemption of the Old Second Capital Trust I preferred securities and related subordinated debentures in trust revenuethe first quarter of 2020, which increased interest expense by $635,000 due to growth in our customer base. Noninterest expense increased in the thirdacceleration of unamortized debt issuance costs. Net interest and dividend income for the first quarter of 2017 when2021 reflected a decrease of $334,000, or 1.4%, compared to the thirdfourth quarter of 20162020.
Average earning assets for the first quarter of 2021 were $2.92 billion, reflecting an increase of $116.8 million, or 4.2%, compared to the fourth quarter of 2020, and an increase of $457.5 million, or 18.6%, compared to the first quarter of 2020. Average interest earning deposits with financial institutions totaled $359.6 million for the first quarter of 2021, which reflected an increase of $84.5 million compared to the fourth quarter of 2020, and an increase of $331.6 million compared to the first quarter of 2020. The yield on average interest earning deposits decreased to ten basis points for the first quarter of 2020, from 108 basis points for the first quarter of 2020, which drove the overall reduction in the yield on interest earning assets year over year. Total average loans, including loans held-for-sale, totaled $2.01 billion in the first quarter of 2020, which reflected a decrease of $18.0 million compared to the fourth quarter of 2020, but an increase of $69.4 million compared to the first quarter of 2020. The growth in average loan balances year over year was primarily due to an increase in salariescommercial loans related to PPP loan originations, and employee benefits due to higher insurance costs, as well as an increase in OREO related valuation costs. An income tax benefit of $1.6 million was recorded in the third quarter of 2017 due to a State of Illinois tax rate change; this nonrecurring item increased the Company’s deferred tax asset by a like amount.
Net income before taxes of $23.7 million for the nine months ended September 30, 2017 was favorable as compared to the $16.5 million pretax income for the nine months ended September 30, 2016. Net interest margin was the largest contributor to this favorable variance, as loan growth and securities repositioning have resulted in increased volumes and more favorable yields for the year to date period.
Management has remained diligent with loan portfolio review to analyze loan quality and decide whether charge-offs are required. In the third quarter of 2017, management’s review of the loan portfolio concluded that an additional provision for loan losses should be recorded of $300,000, stemming from third quarter 2017 loan growth and collateral shortfalls on a few credits as a result of updated appraisals. The allowance for loan losses was adequate and appropriate for estimated incurred losses at September 30, 2016; neither a loan loss reserve release nor an additional loan loss provision was deemed necessary for the like 2016 quarter.
Earnings for the third quarter of 2017 were $0.27 per diluted share on $8.1 million of net income as compared to $0.12 per diluted share on net income of $3.5 million for the third quarter of 2016. For the nine month period ended September 30, 2017, earnings were $0.59 per diluted share on $17.7 million of net income, as compared to $0.36 per diluted share on $10.7 million of income for the prior year like period. Earningsorganic growth in our leases, commercial real estate-investor, and construction loan portfolios. This growth in loan volumes was offset by the 2017 period, as compared toreduction in market interest rates over the like 2016 period, stems from the acquisition of the Chicago branch of Talmer Bank and Trust,past year, which was completed on October 28, 2016. This acquisition resulted in a cash paymentdecrease in interest income of $181.5$1.4 million forrelated to loans net of purchased loan discount totaling $221.0 million, deposits of $48.9 million, goodwill of $8.4 million, core deposit intangible of $659,000, and other immaterial assets and liabilities. The performance of the acquired loan portfolio, security portfolio restructuring to higher yielding instruments, and robust organic loan growth in the year over year period wereperiod. For the primary factors drivingfirst quarter of 2021, the earnings increase for the 2017 third quarter and year to date periods.
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Net Interest Income
Net interest and dividend income increased by $3.9 million from $15.3 million for the quarter ended September 30, 2016, to $19.3 million for the quarter ended September 30, 2017. Totalyield on average loans including loans held-for-sale, increased by $44.3 million in the third quarter of 2017 asdecreased to 4.48%, compared to the secondyield on average loans of 4.51% for the fourth quarter of 2017,2020, and $361.94.89% for the first quarter of 2020. Securities also reflected a reduction in interest income year over year, due to decreases in market interest rates over the past year, partially offset by growth in volumes. Total average securities for the first quarter of 2021 increased $50.3 million asfrom the fourth quarter of 2020, and increased $56.5 million from the first quarter of 2020. The yield on average securities declined to 2.49% for the first quarter of 2021, compared to 2.55% for the fourth quarter of 2020 and 3.39% for first quarter of 2020.
Average interest bearing liabilities increased $68.0 million, or 3.9%, in the first quarter of 2021, compared to the thirdfourth quarter of 2016. Average earning assets were $2.12 billion for the third quarter of 2017, which reflected an increase of $6.42020, and increased $161.0 million, or 9.8%, compared to the secondfirst quarter of 2017,2020. The growth in average interest bearing deposits of $59.0 million from the prior linked quarter and an increase of $212.5$162.2 million as compared tofrom the thirdfirst quarter of 2016. The significant increase in interest and dividend income of $3.9 million, or 25.6%, in the three months ended September 30, 2017 as compared to the like 2016 period,2020 was driven by growth in the loan portfolio primarily due to federal stimulus funds received by depositors and growth in depositor liquidity due to market uncertainty related to the Talmer branch acquisition.COVID-19 pandemic. In addition, we experienced growth in average noninterest bearing deposits of $33.7 million from the average yield on the securities portfolio increased by 103 basis points inprior linked quarter, and $260.3 million from the year over year period, as reductions in market interest rates over the past year have provided less incentive to maintain funds in interest bearing deposits.
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Due to the significant increase in cash and due to portfolio repositioning to higher yielding tax exempt securities; thefrom banks stemming from federal stimulus funds received and PPP loan forgiveness, we had no average tax exempt securities portfolio increased by $185.5 million, and earned 138 basis points moreother short-term borrowings, which consist of FHLBC advances, in the thirdfirst quarter of 2017 as2021, compared to the third$5.4 million in the fourth quarter of 2016.
Quarterly2020 and $23.1 million in the first quarter of 2020. The average rate paid on short-term FHLBC advances was impacted by the reduction in interest bearing liabilities asrates in 2020, resulting in an average rate of September 30, 2017, decreased $11.9 million, or 0.8%,0.88% for the fourth quarter of 2020, compared to June 30, 2017, but increased $87.81.90% for the first quarter of 2020. As of March 31, 2021, notes payable and other borrowings consisted of one long-term FHLBC advance of $6.3 million, or 6.0%, when compared to September 30, 2016. Growth from the prior year like period was due to the Talmer branch purchase of $48.9and $16.0 million of commercial deposits, as well as organic commercial deposit growth. As the deposit growthoutstanding on a term note with a correspondent bank originated in the year over year period was driven by commercial demand accounts, the costfirst quarter of funds did not materially increase from this volume change. However, each quarter presented reflects an increase in the FHLBC borrowing, which is within other short-term borrowings, as this facility was used2020 to fund loan growth. The costour redemption of interest bearing liabilitiesthe Old Second Capital Trust I trust preferred securities and related junior subordinated debentures of $32.6 million. This redemption occurred in March 2020 and was the third quarterprimary cause of 2017 increased to 80 basis points from 67the decrease of 721 basis points in the thirdcost of the average junior subordinated debentures for the first quarter of 2016, primarily due2021 compared to the senior note issuance in late 2016. The $45.0 million senior debt issuance, at an average cost of 6.11% in the thirdfirst quarter of 2017 net2020. The rate paid on the redeemed junior subordinated debentures was 7.8%, in comparison to the rate to be paid going forward on the newly executed $20.0 million term note of issuance costs, replaced the prior subordinated notes outstanding, which had an average cost of 2.13% in the third quarter of 2016. This issuance resulted in a $430,000 increase to interest expense, which drove the overall higher cost of funds in 2017.one month Libor plus 175 basis points.
TheOur net interest margin, (on a tax-equivalent basis), expressed as a percentage of average earning assets, was 3.77% in3.27% for the thirdfirst quarter of 2017,2021, reflecting an increase of 6a 12 basis pointspoint decrease from the secondfourth quarter of 2017,2020, and growth of 55a 44 basis pointspoint decrease from the thirdfirst quarter of 2016.2020. Our net interest margin, on a tax-equivalent (TE) basis, expressed as a percentage of average earning assets, was 3.32% for the first quarter of 2021, reflecting a 12 basis point decrease from the fourth quarter of 2020, and a 45 basis point decrease from the first quarter of 2020. The average tax-equivalent yield on earning assets increaseddecreased to 4.32%3.58% for the thirdfirst quarter of 2017, as2021, compared to 3.70%3.74% for the thirdfourth quarter of 2016. Increases2020, and 4.55% for the first quarter of 2020. The decreases in net interest margin and the yield on average earning assets for the thirdfirst quarter of 2017 as2021, compared to prior periods presentedthe fourth quarter of 2020, was primarily attributable to growth in lower yielding interest earning deposits with financial institutions, as well as a decline in loan volumes and rates,interest rate reductions which impacted loans and securities in the first quarter of 2021. Average PPP loans for the first quarter of 2021 totaled $94.1 million, which resulted in an increase to our net interest margin (TE) of one basis point for the quarter as well as$27.8 million of these loans were forgiven in the securities portfolio repositioning to higher yielding tax exempt holdings, as discussed above.first quarter of 2021, which accelerated the unamortized fee recognition on these loans. The cost of funds on interest bearing liabilities was 0.80%0.41% for the thirdfirst quarter of 2017 and 0.67%2021, 0.49% for the thirdfourth quarter of 2016.
Tax equivalent net interest2020, and dividend income increased by $11.5 million from $46.3 million1.17% for the nine months ended September 30, 2016, to $57.8 million forfirst quarter of 2020. The decrease in our cost of funds in the nine months ended September 30, 2017. Average earning assets for the nine months ended September 30, 2017 increased $188.4 million asfirst quarter of 2021 compared to the like average period in 2016,fourth quarter of 2020 and the first quarter of 2020 was primarily driven by a decline in the rates paid on deposits, a decline in volume and rates paid on short-term borrowings, and the redemption of our junior subordinated debentures in the first quarter of 2020 which resulted in the average yield on average earning assetsour junior subordinated debentures of 4.41% for the nine monthsfirst quarter of 2017 was 4.22% as2021, compared to 3.69% for11.62% in the like 2016 period. Average interest bearing liabilities for the nine months ended September 30, 2017, increased $74.5 million, or 5.0%, when compared to like prior year period. Net interest margin for the nine months ended September 30, 2017, was 3.68%, as compared to 3.23% for the nine months ended September 30, 2016, for an increase of 45 basis points.like quarter.
Management continuedWe continue to observe competitive pressure to maintain reduced interest rates on loans retained at renewal. While the Bankour loan prices loansare targeted to achieve certain returnreturns on equity, targets, significant competition for both commercial and industrial loans as well as commercial real estate loans has put pressure on loan yields, and our stringent underwriting standards limit our ability to make higher-yielding loans.
The following tables settable sets forth certain information relating to the Company’sour average consolidated balance sheetssheet and reflect the yield on average earning assets and cost of average interest bearing liabilities for the periods indicated. These yields reflect the related interest, on an annualized basis, divided by the average balance of assets or liabilities over the applicable period. Average balances are derived from daily balances. For purposes of discussion, net interest income and net interest income to total earning assets onin the following tables have been adjusted to a non-GAAP tax equivalent (“TE”)TE basis using a marginal rate of 35%21% in 2021 and 2020 to more appropriately compare returns on tax-exempt loans and securities to other earning assets.
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ANALYSIS OF AVERAGE BALANCES,
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Analysis of Average Balances, | |||||||||||||||||||||||
Tax Equivalent Income / Expense and Rates | |||||||||||||||||||||||
(Dollars in thousands - unaudited) | |||||||||||||||||||||||
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| March 31, 2021 | | December 31, 2020 | | March 31, 2020 | ||||||||||||||||||
| Average | | Income / | | Rate | | Average | | Income / | | Rate | | Average | | Income / | | Rate | ||||||
| Balance | | Expense | | % | | Balance | | Expense | | % | | Balance | | Expense | | % | ||||||
Assets | | | | | | | | | | | | | | | | | | | | | | | |
Interest earning deposits with financial institutions | $ | 359,576 | | $ | 92 | | 0.10 | | $ | 275,087 | | $ | 73 | | 0.11 | | $ | 27,989 | | $ | 75 | | 1.08 |
Securities: | | | | | | | | | | | | | | | | | | | | | | | |
Taxable | | 340,873 | | | 1,615 | | 1.92 | | | 288,089 | | | 1,458 | | 2.01 | | | 273,429 | | | 2,163 | | 3.18 |
Non-taxable (TE)1 | | 191,357 | | | 1,655 | | 3.51 | | | 193,859 | | | 1,637 | | 3.36 | | | 202,289 | | | 1,842 | | 3.66 |
Total securities (TE)1 | | 532,230 | | | 3,270 | | 2.49 | | | 481,948 | | | 3,095 | | 2.55 | | | 475,718 | | | 4,005 | | 3.39 |
Dividends from FHLBC and FRBC | | 9,917 | | | 115 | | 4.70 | | | 9,917 | | | 118 | | 4.73 | | | 9,917 | | | 125 | | 5.07 |
Loans and loans held-for-sale1, 2 | | 2,014,773 | | | 22,266 | | 4.48 | | | 2,032,741 | | | 23,067 | | 4.51 | | | 1,945,383 | | | 23,636 | | 4.89 |
Total interest earning assets | | 2,916,496 | | | 25,743 | | 3.58 | | | 2,799,693 | | | 26,353 | | 3.74 | | | 2,459,007 | | | 27,841 | | 4.55 |
Cash and due from banks | | 28,461 | | | - | | - | | | 30,086 | | | - | | - | | | 32,549 | | | - | | - |
Allowance for credit losses on loans | | (34,540) | | | - | | - | | | (33,255) | | | - | | - | | | (23,507) | | | - | | - |
Other noninterest bearing assets | | 187,488 | | | - | | - | | | 192,421 | | | - | | - | | | 172,712 | | | - | | - |
Total assets | $ | 3,097,905 | | | | | | | $ | 2,988,945 | | | | | | | $ | 2,640,761 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Liabilities and Stockholders' Equity | | | | | | | | | | | | | | | | | | | | | | | |
NOW accounts | $ | 495,384 | | $ | 95 | | 0.08 | | $ | 474,470 | | $ | 96 | | 0.08 | | $ | 422,065 | | $ | 233 | | 0.22 |
Money market accounts | | 329,050 | | | 77 | | 0.09 | | | 317,780 | | | 85 | | 0.11 | | | 280,828 | | | 236 | | 0.34 |
Savings accounts | | 412,743 | | | 69 | | 0.07 | | | 391,904 | | | 69 | | 0.07 | | | 322,618 | | | 166 | | 0.21 |
Time deposits | | 399,310 | | | 500 | | 0.51 | | | 393,297 | | | 741 | | 0.75 | | | 448,763 | | | 1,766 | | 1.58 |
Interest bearing deposits | | 1,636,487 | | | 741 | | 0.18 | | | 1,577,451 | | | 991 | | 0.25 | | | 1,474,274 | | | 2,401 | | 0.66 |
Securities sold under repurchase agreements | | 82,475 | | | 31 | | 0.15 | | | 67,059 | | | 35 | | 0.21 | | | 47,825 | | | 116 | | 0.98 |
Other short-term borrowings | | - | | | - | | - | | | 5,448 | | | 12 | | 0.88 | | | 23,069 | | | 109 | | 1.90 |
Junior subordinated debentures | | 25,773 | | | 280 | | 4.41 | | | 25,773 | | | 283 | | 4.37 | | | 47,200 | | | 1,364 | | 11.62 |
Senior notes | | 44,389 | | | 673 | | 6.15 | | | 44,363 | | | 673 | | 6.04 | | | 44,284 | | | 673 | | 6.11 |
Notes payable and other borrowings | | 23,330 | | | 123 | | 2.14 | | | 24,407 | | | 135 | | 2.20 | | | 14,762 | | | 130 | | 3.54 |
Total interest bearing liabilities | | 1,812,454 | | | 1,848 | | 0.41 | | | 1,744,501 | | | 2,129 | | 0.49 | | | 1,651,414 | | | 4,793 | | 1.17 |
Noninterest bearing deposits | | 937,039 | | | - | | - | | | 903,383 | | | - | | - | | | 676,755 | | | - | | - |
Other liabilities | | 37,801 | | | - | | - | | | 39,281 | | | - | | - | | | 28,490 | | | - | | - |
Stockholders' equity | | 310,611 | | | - | | - | | | 301,780 | | | - | | - | | | 284,102 | | | - | | - |
Total liabilities and stockholders' equity | $ | 3,097,905 | | | | | | | $ | 2,988,945 | | | | | | | $ | 2,640,761 | | | | | |
Net interest income (GAAP) | | | | $ | 23,543 | | | | | | | $ | 23,877 | | | | | | | $ | 22,658 | | |
Net interest margin (GAAP) | | | | | | | 3.27 | | | | | | | | 3.39 | | | | | | | | 3.71 |
| | | | | | | | | | | | | | | | | | | | | | | |
Net interest income (TE)1 | | | | $ | 23,895 | | | | | | | $ | 24,224 | | | | | | | $ | 23,048 | | |
Net interest margin (TE)1 | | | | | | | 3.32 | | | | | | | | 3.44 | | | | | | | | 3.77 |
Core net interest margin (TE - excluding PPP loans)1 | | | | | | | 3.33 | | | | | | | | 3.32 | | | | | | | | 3.77 |
Interest bearing liabilities to earning assets | | 62.14 | % | | | | | | | 62.31 | % | | | | | | | 67.16 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
TAX EQUIVALENT INTEREST AND RATES1Represents a non-GAAP financial measure. See the discussion entitled “Non-GAAP Presentations” below that provides a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent. Tax equivalent basis is calculated using a marginal tax rate of 21% in 2021 and 2020.
(In thousands - unaudited)
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| Quarters Ended | ||||||||||||||||||||||
| September 30, 2017 |
| June 30, 2017 |
| September 30, 2016 | ||||||||||||||||||
| Average |
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|
| Rate |
| Average |
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|
| Rate |
| Average |
|
|
|
| Rate | |||
| Balance |
| Interest |
| % |
| Balance |
| Interest |
| % |
| Balance |
| Interest |
| % | ||||||
Assets |
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Interest bearing deposits with financial institutions | $ | 11,685 |
| $ | 37 |
| 1.24 |
| $ | 11,938 |
| $ | 31 |
| 1.03 |
| $ | 50,054 |
| $ | 64 |
| 0.50 |
Securities: |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
| 327,892 |
|
| 2,424 |
| 2.96 |
|
| 361,504 |
|
| 2,607 |
| 2.88 |
|
| 624,844 |
|
| 3,954 |
| 2.53 |
Non-taxable (TE) |
| 220,540 |
|
| 2,504 |
| 4.54 |
|
| 225,182 |
|
| 2,536 |
| 4.50 |
|
| 35,046 |
|
| 277 |
| 3.16 |
Total securities |
| 548,432 |
|
| 4,928 |
| 3.59 |
|
| 586,686 |
|
| 5,143 |
| 3.51 |
|
| 659,890 |
|
| 4,231 |
| 2.56 |
Dividends from FHLBC and FRBC |
| 8,339 |
|
| 94 |
| 4.51 |
|
| 7,699 |
|
| 92 |
| 4.78 |
|
| 7,918 |
|
| 83 |
| 4.19 |
Loans and loans held-for-sale1 |
| 1,553,473 |
|
| 18,265 |
| 4.60 |
|
| 1,509,188 |
|
| 17,445 |
| 4.57 |
|
| 1,191,574 |
|
| 13,567 |
| 4.46 |
Total interest earning assets |
| 2,121,929 |
|
| 23,324 |
| 4.32 |
|
| 2,115,511 |
|
| 22,711 |
| 4.26 |
|
| 1,909,436 |
|
| 17,945 |
| 3.70 |
Cash and due from banks |
| 31,028 |
|
| - |
| - |
|
| 39,425 |
|
| - |
| - |
|
| 41,344 |
|
| - |
| - |
Allowance for loan losses |
| (16,478) |
|
| - |
| - |
|
| (15,779) |
|
| - |
| - |
|
| (15,767) |
|
| - |
| - |
Other noninterest bearing assets |
| 185,906 |
|
| - |
| - |
|
| 189,928 |
|
| - |
| - |
|
| 190,213 |
|
| - |
| - |
Total assets | $ | 2,322,385 |
|
|
|
|
|
| $ | 2,329,085 |
|
|
|
|
|
| $ | 2,125,226 |
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Liabilities and Stockholders' Equity |
|
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|
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|
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|
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|
|
|
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|
|
NOW accounts | $ | 422,913 |
| $ | 108 |
| 0.10 |
| $ | 432,248 |
| $ | 107 |
| 0.10 |
| $ | 384,588 |
| $ | 89 |
| 0.09 |
Money market accounts |
| 273,440 |
|
| 85 |
| 0.12 |
|
| 280,482 |
|
| 86 |
| 0.12 |
|
| 265,135 |
|
| 64 |
| 0.10 |
Savings accounts |
| 262,573 |
|
| 46 |
| 0.07 |
|
| 265,066 |
|
| 40 |
| 0.06 |
|
| 257,808 |
|
| 40 |
| 0.06 |
Time deposits |
| 389,037 |
|
| 1,077 |
| 1.10 |
|
| 392,779 |
|
| 1,025 |
| 1.05 |
|
| 401,999 |
|
| 931 |
| 0.92 |
Interest bearing deposits |
| 1,347,963 |
|
| 1,316 |
| 0.39 |
|
| 1,370,575 |
|
| 1,258 |
| 0.37 |
|
| 1,309,530 |
|
| 1,124 |
| 0.34 |
Securities sold under repurchase agreements |
| 32,800 |
|
| 4 |
| 0.05 |
|
| 35,652 |
|
| 4 |
| 0.05 |
|
| 31,892 |
|
| 1 |
| 0.01 |
Other short-term borrowings |
| 72,065 |
|
| 220 |
| 1.19 |
|
| 58,572 |
|
| 146 |
| 0.99 |
|
| 22,174 |
|
| 22 |
| 0.39 |
Junior subordinated debentures |
| 57,621 |
|
| 930 |
| 6.46 |
|
| 57,609 |
|
| 1,059 |
| 7.35 |
|
| 57,573 |
|
| 1,084 |
| 7.53 |
Senior notes |
| 44,021 |
|
| 672 |
| 6.11 |
|
| 43,995 |
|
| 672 |
| 6.11 |
|
| - |
|
| - |
| - |
Subordinated debt |
| - |
|
| - |
| - |
|
| - |
|
| - |
| - |
|
| 45,000 |
|
| 245 |
| 2.13 |
Notes payable and other borrowings |
| - |
|
| - |
| - |
|
| - |
|
| - |
| - |
|
| 500 |
|
| 2 |
| 1.57 |
Total interest bearing liabilities |
| 1,554,470 |
|
| 3,142 |
| 0.80 |
|
| 1,566,403 |
|
| 3,139 |
| 0.80 |
|
| 1,466,669 |
|
| 2,478 |
| 0.67 |
Noninterest bearing deposits |
| 551,768 |
|
| - |
| - |
|
| 557,265 |
|
| - |
| - |
|
| 472,599 |
|
| - |
| - |
Other liabilities |
| 19,395 |
|
| - |
| - |
|
| 18,047 |
|
| - |
| - |
|
| 15,539 |
|
| - |
| - |
Stockholders' equity |
| 196,752 |
|
| - |
| - |
|
| 187,370 |
|
| - |
| - |
|
| 170,419 |
|
| - |
| - |
Total liabilities and stockholders' equity | $ | 2,322,385 |
|
|
|
|
|
| $ | 2,329,085 |
|
|
|
|
|
| $ | 2,125,226 |
|
|
|
|
|
Net interest income (TE) |
|
|
| $ | 20,182 |
|
|
|
|
|
| $ | 19,572 |
|
|
|
|
|
| $ | 15,467 |
|
|
Net interest income (TE) |
|
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|
|
|
|
|
|
|
|
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|
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|
to total earning assets |
|
|
|
|
|
| 3.77 |
|
|
|
|
|
|
| 3.71 |
|
|
|
|
|
|
| 3.22 |
Interest bearing liabilities to earning assets |
| 73.26 | % |
|
|
|
|
|
| 74.04 | % |
|
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|
|
|
| 76.81 | % |
|
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|
12Interest income from loans is shown on a TEtax equivalent basis, which is a non-GAAP financial measure, as discussed belowin the table on page 50, and includes fees of $722,000, $573,000$1.3 million, $2.3 million, and $700,000$294,000 for the thirdfirst quarter of 2017,2021, the fourth quarter of 20162020, and the thirdfirst quarter of 2016,2020, respectively. Nonaccrual loans are included in the above-stated average balances.
34
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|
Analysis of Average Balances, | |||||||||||||||
Tax Equivalent Interest and Rates | |||||||||||||||
Nine Months Ended September 30, 2017, and 2016 | |||||||||||||||
(In thousands - unaudited) | |||||||||||||||
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|
| 2017 |
| 2016 | ||||||||||||
| Average |
|
|
|
| Rate |
| Average |
|
|
|
| Rate | ||
| Balance |
| Interest |
| % |
| Balance |
| Interest |
| % | ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits with financial institutions | $ | 11,913 |
| $ | 91 |
| 1.01 |
| $ | 25,960 |
| $ | 98 |
| 0.50 |
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
| 370,161 |
|
| 7,994 |
| 2.88 |
|
| 682,997 |
|
| 12,547 |
| 2.45 |
Non-taxable (TE) |
| 196,120 |
|
| 6,443 |
| 4.38 |
|
| 36,340 |
|
| 891 |
| 3.27 |
Total securities |
| 566,281 |
|
| 14,437 |
| 3.40 |
|
| 719,337 |
|
| 13,438 |
| 2.49 |
Dividends from FHLBC and FRBC |
| 7,886 |
|
| 271 |
| 4.58 |
|
| 7,955 |
|
| 251 |
| 4.21 |
Loans and loans held-for-sale1 |
| 1,516,872 |
|
| 52,365 |
| 4.55 |
|
| 1,161,312 |
|
| 39,778 |
| 4.50 |
Total interest earning assets |
| 2,102,952 |
|
| 67,164 |
| 4.22 |
|
| 1,914,564 |
|
| 53,565 |
| 3.69 |
Cash and due from banks |
| 34,670 |
|
| - |
| - |
|
| 32,617 |
|
| - |
| - |
Allowance for loan losses |
| (16,184) |
|
| - |
| - |
|
| (16,145) |
|
| - |
| - |
Other noninterest bearing assets |
| 189,533 |
|
| - |
| - |
|
| 193,443 |
|
| - |
| - |
Total assets | $ | 2,310,971 |
|
|
|
|
|
| $ | 2,124,479 |
|
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|
|
|
|
|
|
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|
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts | $ | 427,242 |
| $ | 316 |
| 0.10 |
| $ | 383,870 |
| $ | 261 |
| 0.09 |
Money market accounts |
| 279,143 |
|
| 254 |
| 0.12 |
|
| 272,657 |
|
| 198 |
| 0.10 |
Savings accounts |
| 262,352 |
|
| 125 |
| 0.06 |
|
| 258,062 |
|
| 118 |
| 0.06 |
Time deposits |
| 392,049 |
|
| 3,081 |
| 1.05 |
|
| 404,210 |
|
| 2,622 |
| 0.87 |
Interest bearing deposits |
| 1,360,786 |
|
| 3,776 |
| 0.37 |
|
| 1,318,799 |
|
| 3,199 |
| 0.32 |
Securities sold under repurchase agreements |
| 32,764 |
|
| 10 |
| 0.04 |
|
| 35,022 |
|
| 3 |
| 0.01 |
Other short-term borrowings |
| 62,308 |
|
| 472 |
| 1.00 |
|
| 26,040 |
|
| 66 |
| 0.33 |
Junior subordinated debentures |
| 57,609 |
|
| 3,073 |
| 7.11 |
|
| 57,561 |
|
| 3,251 |
| 7.53 |
Senior notes |
| 43,998 |
|
| 2,017 |
| 6.11 |
|
| - |
|
| - |
| - |
Subordinated debt |
| - |
|
| - |
| - |
|
| 45,000 |
|
| 727 |
| 2.12 |
Notes payable and other borrowings |
| - |
|
| - |
| - |
|
| 500 |
|
| 6 |
| 1.58 |
Total interest bearing liabilities |
| 1,557,465 |
|
| 9,348 |
| 0.80 |
|
| 1,482,922 |
|
| 7,252 |
| 0.65 |
Noninterest bearing deposits |
| 544,925 |
|
| - |
| - |
|
| 465,094 |
|
| - |
| - |
Other liabilities |
| 20,814 |
|
| - |
| - |
|
| 13,037 |
|
| - |
| - |
Stockholders' equity |
| 187,767 |
|
| - |
| - |
|
| 163,426 |
|
| - |
| - |
Total liabilities and stockholders' equity | $ | 2,310,971 |
|
|
|
|
|
| $ | 2,124,479 |
|
|
|
|
|
Net interest income (TE) |
|
|
| $ | 57,816 |
|
|
|
|
|
| $ | 46,313 |
|
|
Net interest income (TE) to total earning assets |
|
|
|
|
|
| 3.68 |
|
|
|
|
|
|
| 3.23 |
Interest bearing liabilities to earning assets |
| 74.06 | % |
|
|
|
|
|
| 77.45 | % |
|
|
|
|
1Interest income from loans is shown on a TE basis as discussed below and includes fees of $1.8 million for the first nine months of 2017 and 2016. Nonaccrual loans are included in the above-stated average balances.
35
Tax-Equivalent Non-GAAP Financial Measures
Management, in order to evaluate and measure performance, uses certain non-GAAP performance measures and ratios. This includes tax-equivalent net interest income (including its individual components) and net interest margin (including its individual components) to total average interest earning assets. Management believes that these measures and ratios provide users of the financial information with a more accurate view of the performance of the interest earning assets and interest bearing liabilities and of the Company’s operating efficiency for comparison purposes. Other financial holding companies may define or calculate these measures and ratios differently. See the tables and notes below for supplemental data and the corresponding reconciliations to GAAP financial measures for the three month periods ended September 30, 2017, June 30, 2017, and September 30, 2016, and the nine month periods ended September 30, 2017 and 2016.
Net interest and dividend income (TE) and net interest income (TE) to average interest earning assets are non-GAAP measures that have been adjusted toon a non-GAAP TE basis using a marginal rate of 35%21% for 2021 and 2020 to more appropriately compare returns on tax-exempt loans and securities to other earning assets. The table below provides a reconciliation of each non-GAAP TE(TE) measure to the GAAP equivalent for the periods indicated:
44
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| Quarters Ended |
|
| Nine Months Ended |
| |||||||||||
|
| September 30, |
| June 30, |
| September 30, |
|
| September 30, |
| |||||||
|
| 2017 |
| 2017 |
| 2016 |
|
| 2017 |
| 2016 |
| |||||
Net Interest Margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (GAAP) |
| $ | 22,425 |
| $ | 21,800 |
| $ | 17,825 |
|
| $ | 64,841 |
| $ | 53,183 |
|
Taxable-equivalent adjustment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
| 23 |
|
| 23 |
|
| 23 |
|
|
| 68 |
|
| 70 |
|
Securities |
|
| 876 |
|
| 888 |
|
| 97 |
|
|
| 2,255 |
|
| 312 |
|
Interest income (TE) |
|
| 23,324 |
|
| 22,711 |
|
| 17,945 |
|
|
| 67,164 |
|
| 53,565 |
|
Interest expense (GAAP) |
|
| 3,142 |
|
| 3,139 |
|
| 2,478 |
|
|
| 9,348 |
|
| 7,252 |
|
Net interest income (TE) |
| $ | 20,182 |
| $ | 19,572 |
| $ | 15,467 |
|
| $ | 57,816 |
| $ | 46,313 |
|
Net interest income (GAAP) |
| $ | 19,283 |
| $ | 18,661 |
| $ | 15,347 |
|
| $ | 55,493 |
| $ | 45,931 |
|
Average interest earning assets |
| $ | 2,121,929 |
| $ | 2,115,511 |
| $ | 1,909,436 |
|
| $ | 2,102,952 |
| $ | 1,914,564 |
|
Net interest margin (GAAP) |
|
| 3.61 | % |
| 3.54 | % |
| 3.20 | % |
|
| 3.53 | % |
| 3.20 | % |
Net interest margin (TE) |
|
| 3.77 | % |
| 3.71 | % |
| 3.22 | % |
|
| 3.68 | % |
| 3.23 | % |
| | | | | | | | | | |
| | Three Months Ended | | |||||||
| | March 31, | | December 31, | | March 31, | | |||
Net Interest Margin |
| 2021 |
| 2020 | | 2020 | | |||
| | | | | | | | | | |
| | | | | | | | | | |
Interest income (GAAP) | | $ | 25,391 | | $ | 26,006 | | $ | 27,451 | |
Taxable-equivalent adjustment: | | | | | | | | | | |
Loans | | | 4 | | | 3 | | | 3 | |
Securities | | | 348 | | | 344 | | | 387 | |
Interest and dividend income (TE) | | | 25,743 | | | 26,353 | | | 27,841 | |
Interest expense (GAAP) | | | 1,848 | | | 2,129 | | | 4,793 | |
Net interest income (TE) | | $ | 23,895 | | $ | 24,224 | | $ | 23,048 | |
Paycheck Protection Program ("PPP") loan - interest and net fee income | | | 741 | | | 1,777 | | | NA | |
Net interest income (TE) - excluding PPP loans | | $ | 23,154 | | | 22,447 | | | 23,048 | |
Net interest income (GAAP) | | $ | 23,543 | | $ | 23,877 | | $ | 22,658 | |
Average interest earning assets | | $ | 2,916,496 | | $ | 2,799,693 | | $ | 2,459,007 | |
Average PPP loans | | $ | 94,149 | | $ | 111,491 | | | N/A | |
Average interest earning assets, excluding PPP loans | | $ | 2,822,347 | | | 2,688,202 | | | 2,459,007 | |
Net interest margin (GAAP) | | | 3.27 | % | | 3.39 | % | | 3.71 | % |
Net interest margin (TE) | | | 3.32 | % | | 3.44 | % | | 3.77 | % |
Core net interest margin (TE - excluding PPP loans) | | | 3.33 | % | | 3.32 | % | | 3.77 | % |
45
Asset QualityNoninterest Income
Three months ended March 31, 2021 and 2020
The following table details the major components of noninterest income for the periods presented:
| | | | | | | | | | | | | | |
| | | | | | | | | | | 1st Quarter 2021 | | ||
Noninterest Income | | Three Months Ended | | Percent Change From | | |||||||||
(Dollars in thousands) | | March 31, | | December 31, | | March 31, | | December 31, | March 31, | | ||||
|
| 2021 |
| 2020 |
| 2020 |
| 2020 |
| 2020 |
| |||
Wealth management | | $ | 2,151 | | $ | 2,112 | | $ | 1,906 | | 1.8 | | 12.9 | |
Service charges on deposits | | | 1,195 | | | 1,344 | | | 1,726 | | (11.1) | | (30.8) | |
Residential mortgage banking revenue | | | | | | | | | | | | | | |
Secondary mortgage fees | | | 322 | | | 387 | | | 270 | | (16.8) | | 19.3 | |
Mortgage servicing rights mark to market gain (loss) | | | 1,113 | | | (1,260) | | | (2,134) | | 188.3 | | 152.2 | |
Mortgage servicing income | | | 567 | | | 503 | | | 468 | | 12.7 | | 21.2 | |
Net gain on sales of mortgage loans | | | 3,721 | | | 3,396 | | | 2,246 | | 9.6 | | 65.7 | |
Total residential mortgage banking revenue | | | 5,723 | | | 3,026 | | | 850 | | 89.1 | | 573.3 | |
Securities losses, net | | | - | | | - | | | (24) | | - | | 100.0 | |
Change in cash surrender value of BOLI | | | 334 | | | 291 | | | (49) | | 14.8 | | 781.6 | |
Card related income | | | 1,447 | | | 1,435 | | | 1,287 | | 0.8 | | 12.4 | |
Other income | | | 450 | | | 577 | | | 626 | | (22.0) | | (28.1) | |
Total noninterest income | | $ | 11,300 | | $ | 8,785 | | $ | 6,322 | | 28.6 | | 78.7 | |
Noninterest income increased $2.5 million, or 28.6%, in the first quarter of 2021, compared to the fourth quarter of 2020, and increased $5.0 million, or 78.7%, compared to the first quarter of 2020. The increase from both the linked quarter and the prior year quarter was primarily driven by an increase in residential mortgage banking revenue, primarily due to favorable adjustments on the mark to market valuation of MSRs and net gain on sales of mortgage loans, both stemming from the low market interest rate environment over the past year. In addition, the change in cash surrender value of BOLI increased from both the linked quarter and the year over year period due to market interest rate growth since March 31, 2020. Wealth management income also increased from both the linked quarter and year over year, as the valuation of assets under management increased due to market interest rate growth, which impacted fees assessed.
Partially offsetting these increases was a $149,000 decrease in service charges on deposits in the first quarter of 2021 compared to the linked quarter and a $531,000 decrease year over year, as federal stimulus funds were received by many of our depositors over the past year, and customer spending decreased due to uncertainty stemming from the COVID-19 pandemic, causing overdraft fees to decrease commensurately. Other income also decreased $127,000 for the first quarter of 2021, compared to the linked quarter due to various miscellaneous recoveries recorded in the fourth quarter of 2020, and decreased $176,000 compared to the prior year period, primarily due to a reduction in commercial interest rate swap fees.
46
Noninterest Expense
Three months ended March 31, 2021 and 2020
The following table details the major components of noninterest expense for the periods presented:
| | | | | | | | | | | | | | |
| | | | | | | | | | | 1st Quarter 2021 | | ||
Noninterest Expense | | Three Months Ended | | Percent Change From | | |||||||||
(Dollars in thousands) | | March 31, | | December 31, | | March 31, | | December 31, | | March 31, | | |||
|
| 2021 |
| 2020 |
| 2020 |
| 2020 |
| 2020 |
| |||
Salaries | | $ | 9,216 | | $ | 9,978 | | $ | 9,761 | | (7.6) | | (5.6) | |
Officers incentive | | | 1,653 | | | 680 | | | 958 | | 143.1 | | 72.5 | |
Benefits and other | | | 2,637 | | | 2,043 | | | 2,199 | | 29.1 | | 19.9 | |
Total salaries and employee benefits | | | 13,506 | | | 12,701 | | | 12,918 | | 6.3 | | 4.6 | |
Occupancy, furniture and equipment expense | | | 2,467 | | | 2,259 | | | 2,301 | | 9.2 | | 7.2 | |
Computer and data processing | | | 1,298 | | | 1,335 | | | 1,335 | | (2.8) | | (2.8) | |
FDIC insurance | | | 201 | | | 194 | | | 57 | | 3.6 | | 252.6 | |
General bank insurance | | | 276 | | | 266 | | | 246 | | 3.8 | | 12.2 | |
Amortization of core deposit intangible asset | | | 120 | | | 120 | | | 128 | | - | | (6.3) | |
Advertising expense | | | 60 | | | 70 | | | 109 | | (14.3) | | (45.0) | |
Card related expense | | | 593 | | | 583 | | | 532 | | 1.7 | | 11.5 | |
Legal fees | | | 55 | | | 285 | | | 131 | | (80.7) | | (58.0) | |
Other real estate owned expense, net | | | 36 | | | 146 | | | 237 | | (75.3) | | (84.8) | |
Other expense | | | 3,126 | | | 3,294 | | | 3,008 | | (5.1) | | 3.9 | |
Total noninterest expense | | $ | 21,738 | | $ | 21,253 | | $ | 21,002 | | 2.3 | | 3.5 | |
Efficiency ratio (GAAP)1 | | | 63.98 | % | | 61.87 | % | | 66.28 | % | | | | |
Adjusted efficiency ratio (non-GAAP)2 | | | 63.16 | % | | 61.10 | % | | 65.48 | % | | | | |
N/M - Not meaningful
1 The efficiency ratio shown in the table above is a GAAP financial measure calculated as noninterest expense, excluding amortization of core deposits and OREO expenses, divided by the sum of net interest income and total noninterest income less any BOLI death benefit recorded, net gains or losses on securities and mark to market gains or losses on MSRs.
2 The adjusted efficiency ratio shown in the table above is a non-GAAP financial measure calculated as noninterest expense, excluding amortization of core deposits and OREO expenses, divided by the sum of net interest income on a fully tax equivalent basis, total noninterest income less net gains or losses on securities and mark to market gains or losses on MSRs, and includes a tax equivalent adjustment on the change in cash surrender value of BOLI.
See the section entitled “Reconciliation of Adjusted Efficiency Ratio Non-GAAP Financial Measures” on page 48 for a reconciliation of this non-GAAP measure to the most comparable GAAP equivalent.
Noninterest expense for the first quarter of 2021 increased $485,000, or 2.3%, compared to the fourth quarter of 2020, and increased $736,000, or 3.5%, compared to the first quarter of 2020. The linked quarter increase is primarily attributable to an $805,000 increase in salaries and employee benefits in the first quarter of 2021 and a $588,000 increase in salaries and employee benefits from the first quarter of 2020, driven by an increase in officer incentive expense and related increases in payroll taxes and company 401K matching expense. These increases to officer incentive and benefits expense were partially offset by an increase in deferrals of new loan origination costs related to PPP loans in the first quarter of 2021, which reduced salary expense in the first quarter of 2021 by $1.1 million, compared to new loan origination cost deferrals of $705,000 in the fourth quarter of 2020 and $733,000 in the first quarter of 2020.
The increase in noninterest expense for the first quarter of 2021 compared to the linked quarter and prior year quarter was also due to an increase in occupancy, furniture and equipment expense, FDIC insurance expense and general bank insurance expense. FDIC insurance expense increased $144,000 year over year due to assessment credits received in the first quarter of 2020, and general bank insurance expense increased year over year due to an increase in policy costs. These increases were partially offset by decreases in legal fees of $230,000 and $76,000 for the linked quarter and year over year, respectively, due to a decline in loan volumes and related legal fees, as
47
well as reductions in other real estate owned expense, net, of $110,000 and $201,000 for the linked quarter and year over year, respectively, due to a reduction in other real estate held.
Reconciliation of Adjusted Efficiency Ratio Non-GAAP Financial Measures
| | | | | | | | | | | | | | | | | | | |
| | GAAP | | Non-GAAP | | ||||||||||||||
| | | Three Months Ended | | | Three Months Ended | | ||||||||||||
| | March 31, | | December 31, | | March 31, | | March 31, | | December 31, | | March 31, | | ||||||
| | 2021 | | 2020 | | 2020 | | 2021 | | 2020 | | 2020 | | ||||||
Efficiency Ratio / Adjusted Efficiency Ratio | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Noninterest expense | | $ | 21,738 | | $ | 21,253 | | $ | 21,002 | | $ | 21,738 | | $ | 21,253 | | $ | 21,002 | |
Less amortization of core deposit | | | 120 | | | 120 | | | 128 | | | 120 | | | 120 | | | 128 | |
Less other real estate expense, net | | | 36 | | | 146 | | | 237 | | | 36 | | | 146 | | | 237 | |
Noninterest expense less adjustments | | $ | 21,582 | | $ | 20,987 | | $ | 20,637 | | $ | 21,582 | | $ | 20,987 | | $ | 20,637 | |
| | | | | | | | | | | | | | | | | | | |
Net interest income | | $ | 23,543 | | $ | 23,877 | | $ | 22,658 | | $ | 23,543 | | $ | 23,877 | | $ | 22,658 | |
Taxable-equivalent adjustment: | | | | | | | | | | | | | | | | | | | |
Loans | | | N/A | | | N/A | | | N/A | | | 4 | | | 3 | | | 3 | |
Securities | | | N/A | | | N/A | | | N/A | | | 348 | | | 344 | | | 387 | |
Net interest income including adjustments | | | 23,543 | | | 23,877 | | | 22,658 | | | 23,895 | | | 24,224 | | | 23,048 | |
Noninterest income | | | 11,300 | | | 8,785 | | | 6,322 | | | 11,300 | | | 8,785 | | | 6,322 | |
Less death benefit related to BOLI | | | - | | | - | | | - | | | - | | | - | | | - | |
Less securities losses, net | | | - | | | - | | | (24) | | | - | | | - | | | (24) | |
Less MSRs mark to market gains (losses) | | | 1,113 | | | (1,260) | | | (2,134) | | | 1,113 | | | (1,260) | | | (2,134) | |
Taxable-equivalent adjustment: | | | | | | | | | | | | | | | | | | | |
Change in cash surrender value of BOLI | | | N/A | | | N/A | | | N/A | | | 89 | | | 77 | | | (13) | |
Noninterest income (less) / including adjustments | | | 10,187 | | | 10,045 | | | 8,480 | | | 10,276 | | | 10,122 | | | 8,467 | |
| | | | | | | | | | | | | | | | | | | |
Net interest income including adjustments plus noninterest income (less) / including adjustments | | $ | 33,730 | | $ | 33,922 | | $ | 31,138 | | $ | 34,171 | | $ | 34,346 | | $ | 31,515 | |
Efficiency ratio / Adjusted efficiency ratio | | | 63.98 | % | | 61.87 | % | | 66.28 | % | | 63.16 | % | | 61.10 | % | | 65.48 | % |
48
Income Taxes
We recorded income tax expense of $4.2 million for the first quarter of 2021 on $16.1 million of pretax income, compared to income tax expense of $3.4 million on $11.4 million of pretax income in the fourth quarter of 2020, and an income tax benefit of $281,000 on $6,000 of pretax loss in the first quarter of 2020. The effective tax rate was 26.2% for the first quarter of 2021 and 29.5% for the fourth quarter of 2020; the effective tax rate was not meaningful for the first quarter of 2020, due to the pretax loss.
Income tax expense reflected all relevant statutory tax rates and GAAP accounting. There were no significant changes in our ability to utilize our deferred tax assets during the quarter ended March 31, 2021. We had no valuation reserve on the deferred tax assets as of March 31, 2021.
Financial Condition
Total assets increased $125.8 million to $3.17 billion at March 31, 2021, from $3.04 billion at December 31, 2020, due primarily to an increase in cash and cash equivalents of $111.0 million and securities available-for-sale of $97.1 million, partially offset by a reduction in loans of $75.2 million. We continue to actively assess potential investment opportunities for this excess liquidity. Total deposits were $2.66 billion at March 31, 2021, an increase of $119.5 million from December 31, 2020, primarily due to increases in noninterest bearing demand accounts, savings, money market and NOW accounts due to a decrease in consumer spending during the COVID-19 pandemic, and federal stimulus funds received by many depositors.
| | | | | | | | | | | | | |
| | | | | | | | | | | March 31, 2021 | ||
Securities | | As of | | Percent Change From | |||||||||
(Dollars in thousands) | | March 31, | | December 31, | | March 31, | | December 31, | | March 31, | |||
|
| 2021 |
| 2020 |
| 2020 |
| 2020 |
| 2020 | |||
Securities available-for-sale, at fair value | | | | | | | | | | | | | |
U.S. Treasuries | | $ | 4,102 | | $ | 4,117 | | $ | 4,152 | | (0.4) | | (1.2) |
U.S. government agencies | | | 6,361 | | | 6,657 | | | 7,723 | | (4.4) | | (17.6) |
U.S. government agencies mortgage-backed | | | 70,602 | | | 17,209 | | | 17,255 | | 310.3 | | 309.2 |
States and political subdivisions | | | 242,146 | | | 249,259 | | | 255,095 | | (2.9) | | (5.1) |
Corporate bonds | | | 34,843 | | | - | | | - | | 100.0 | | 100.0 |
Collateralized mortgage obligations | | | 74,936 | | | 56,585 | | | 53,403 | | 32.4 | | 40.3 |
Asset-backed securities | | | 130,368 | | | 131,818 | | | 77,727 | | (1.1) | | 67.7 |
Collateralized loan obligations | | | 29,922 | | | 30,533 | | | 34,339 | | (2.0) | | (12.9) |
Total securities | | $ | 593,280 | | $ | 496,178 | | $ | 449,694 | | 19.6 | | 31.9 |
| | | | | | | | | | | | | |
Securities available-for-sale increased $97.1 million as of March 31, 2021, compared to December 31, 2020, and increased $143.6 million compared to March 31, 2020. Available-for-sale security purchases during the quarter ended March 31, 2021, totaled $109.8 million and consisted of $55.2 million of U.S. agency mortgage backed securities, $34.8 million of corporate bonds, and $19.8 million of collateralized mortgage–backed securities. These purchases were partially offset by $7.3 million of calls, maturities and paydowns during the first quarter of 2021, as well as an unrealized mark to market loss of $4.8 million and net premium amortization of $535,000. During the first quarter of 2021 and the fourth quarter of 2020, no security gains or losses were recorded, compared to $24,000 of security losses, net, in the first quarter of 2020.
49
| | | | | | | | | | | | |
| | | | | | | | | | March 31, 2021 | ||
Loans | As of | | Percent Change From | |||||||||
(Dollars in thousands) | March 31, | | December 31, | | March 31, | | December 31, | | March 31, | |||
| 2021 | | 2020 | | 2020 | | 2020 |
| 2020 | |||
Commercial | $ | 392,380 | | $ | 407,159 | | $ | 364,626 | | (3.6) | | 7.6 |
Leases | | 138,240 | | | 141,601 | | | 126,237 | | (2.4) | | 9.5 |
Commercial real estate - Investor | | 567,475 | | | 582,042 | | | 503,905 | | (2.5) | | 12.6 |
Commercial real estate - Owner occupied | | 326,857 | | | 333,070 | | | 349,595 | | (1.9) | | (6.5) |
Construction | | 93,745 | | | 98,486 | | | 78,159 | | (4.8) | | 19.9 |
Residential real estate - Investor | | 52,176 | | | 56,137 | | | 69,429 | | (7.1) | | (24.8) |
Residential real estate - Owner occupied | | 107,303 | | | 116,388 | | | 129,982 | | (7.8) | | (17.4) |
Multifamily | | 178,258 | | | 189,040 | | | 195,297 | | (5.7) | | (8.7) |
HELOC | | 75,604 | | | 80,908 | | | 93,165 | | (6.6) | | (18.8) |
HELOC - Purchased | | 17,078 | | | 19,487 | | | 30,880 | | (12.4) | | (44.7) |
Other (1) | | 10,509 | | | 10,533 | | | 15,929 | | (0.2) | | (34.0) |
Total loans | $ | 1,959,625 | | $ | 2,034,851 | | $ | 1,957,204 | | (3.7) | | 0.1 |
1 The “Other” segment includes consumer and overdrafts.
Total loans were $1.96 billion as of March 31, 2021, a decrease of $75.2 million from December 31, 2020. The decrease in total loans in the first quarter of 2021 was due primarily to forgiveness of 294 PPP loans that totaled $27.8 million within commercial loans, as well as reduction in all loan segments due to paydowns as commercial and consumer liquidity increased primarily due to the receipt of federal stimulus funds and decreases in capital expenditures during the COVID-19 pandemic. Total loans increased $2.4 million from March 31, 2020 to March 31, 2021, primarily due to loan growth in our commercial loans related to PPP loan originations and organic growth in our leases, commercial real estate-investor, and construction loan portfolios, partially offset by reductions in our commercial real estate-owner occupied, residential real estate-investor, residential real estate-owner occupied, HELOC, and HELOC-purchased portfolios. As required by CECL, the balance (or amortized cost basis) of purchased credit deteriorated loans, or PCD loans (discussed below) are carried on a gross basis (rather than net of the associated credit loss estimate), and the expected credit losses for PCD loans are estimated and separately recognized as part of the ACL.
The Company recordedquality of our loan portfolio is impacted not only by our credit decisions but also by the economic health of the communities in which we operate. Since we are located in a provision forcorridor with significant open space and undeveloped real estate, real estate lending (including commercial real estate, construction, residential, multifamily, and HELOCs) has been and continues to be a sizeable portion of our portfolio. These categories comprised 72.4% of the portfolio as of March 31, 2021, compared to 72.5% of the portfolio as of December 31, 2020. We continue to oversee and seek to manage our loan losses expense of $300,000portfolio in the third quarter of 2017. On a quarterly basis, management estimates the amount required and records the appropriate provision or release to maintain an adequate reserve for all potential and estimated loan losses.accordance with interagency guidance on risk management.
Asset Quality
Nonperforming loans increasedconsist of nonaccrual loans, performing restructured accruing loans and loans 90 days or greater past due. Remediation work continues in all segments. Nonperforming loans decreased by $270,000$1.8 million to $21.2 million at September 30, 2017,March 31, 2021 from $16.0$23.0 million at December 31, 2016.2020. Purchased credit deteriorated loans, or PCD loans, are purchased loans that, as of the date of acquisition, the Company determined had experienced a more-than-insignificant deterioration in credit quality since origination. PCD loans and their related deferred loan costs are included in our nonperforming loan disclosures, if such loans otherwise meet the definition of a nonperforming loan. Credit metrics continue to be relatively stable regarding nonperforming loan levels, and management is carefully monitoring loans considered to be in a classified status. Nonperforming loans as a percent of total loans decreased to 1.0% as of September 30, 2017, fromwere 1.1% as of March 31, 2021, December 31, 2016,2020, and 1.4% as of September 30, 2016.March 31, 2020. The distribution of the Company’sour nonperforming loans is includedshown in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
| ||||
Nonperforming Loans | As of |
| Percent Change From |
| |||||||||||
(in thousands) | September 30, |
| December 31, |
| September 30, |
| December 31, |
| September 30, |
| |||||
| 2017 |
| 2016 |
| 2016 |
| 2016 |
| 2016 |
| |||||
Real estate-construction | $ | 205 |
| $ | 281 |
| $ | 76 |
| (27.0) |
|
| 169.7 |
|
|
Real estate-residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor |
| 492 |
|
| 936 |
|
| 1,364 |
| (47.4) |
|
| (63.9) |
|
|
Multifamily |
| 4,757 |
|
| - |
|
| - |
| N/M |
|
| N/M |
|
|
Owner occupied |
| 4,266 |
|
| 6,552 |
|
| 5,755 |
| (34.9) |
|
| (25.9) |
|
|
Revolving and junior liens |
| 1,977 |
|
| 2,240 |
|
| 2,257 |
| (11.7) |
|
| (12.4) |
|
|
Real estate-commercial, nonfarm |
| 3,631 |
|
| 5,386 |
|
| 7,345 |
| (32.6) |
|
| (50.6) |
|
|
Real estate-commercial, farm |
| 383 |
|
| - |
|
| - |
| N/M |
|
| N/M |
|
|
Commercial |
| 207 |
|
| 240 |
|
| 583 |
| (13.8) |
|
| (64.5) |
|
|
Leases |
| 345 |
|
| 366 |
|
| - |
| (5.7) |
|
| N/M |
|
|
Other |
| 8 |
|
| - |
|
| - |
| N/M |
|
| N/M |
|
|
Total nonperforming loans | $ | 16,271 |
| $ | 16,001 |
| $ | 17,380 |
| 1.7 |
|
| (6.4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
50
| | | | | | | | | | | | | | | |
| | | | | | | | | | March 31, 2021 | | ||||
Nonperforming Loans | As of | | Percent Change From | | |||||||||||
(Dollars in thousands) | March 31, | | December 31, | | March 31, | | December 31, | | March 31, | | |||||
| 2021 | | 2020 | | 2020 | | 2020 | | 2020 | | |||||
Commercial | $ | 933 | | $ | 1,125 | | $ | 2,418 | | (17.1) | | | (61.4) | | |
Leases | | 2,562 | | | 2,801 | | | 187 | | (8.5) | | | N/M | | |
Commercial real estate - Investor | | 1,913 | | | 1,632 | | | 1,809 | | 17.2 | | | 5.7 | | |
Commercial real estate - Owner occupied | | 7,427 | | | 9,262 | | | 7,436 | | (19.8) | | | (0.1) | | |
Construction | | 128 | | | - | | | 2,800 | | N/M | | | (95.4) | | |
Residential real estate - Investor | | 855 | | | 1,085 | | | 859 | | (21.2) | | | (0.5) | | |
Residential real estate - Owner occupied | | 3,567 | | | 3,561 | | | 4,736 | | 0.2 | | | (24.7) | | |
Multifamily | | 2,398 | | | 2,437 | | | 69 | | (1.6) | | | N/M | | |
HELOC | | 1,000 | | | 1,142 | | | 1,400 | | (12.4) | | | (28.6) | | |
HELOC - Purchased | | - | | | - | | | 114 | | - | | | (100.0) | | |
Other 1 | | 399 | | | - | | | 9 | | N/M | | | N/M | | |
Total nonperforming loans | $ | 21,182 | | $ | 23,045 | | $ | 21,837 | | (8.1) | | | (3.0) | | |
| | | | | | | | | | | | | | | |
N/M - Not Meaningfulmeaningful
1 The “Other” segment includes consumer and overdrafts.
Nonperforming loans consist
The components of nonaccrual loans,our nonperforming restructured accruing loansassets are shown in the following table.
| | | | | | | | | | | | | |
| | | | | | | | | | | March 31, 2021 | ||
Nonperforming Assets | | As of | | Percent Change From | |||||||||
(Dollars in Thousands) | | March 31, | | December 31, | | March 31, | | December 31, | | March 31, | |||
|
| 2021 |
| 2020 |
| 2020 |
| 2020 | | 2020 | |||
Nonaccrual loans | | $ | 20,379 | | $ | 22,280 | | $ | 19,497 | | (8.5) | | 4.5 |
Performing troubled debt restructured loans accruing interest | |
| 290 | |
| 331 | |
| 934 | | (12.4) | | (69.0) |
Loans past due 90 days or more and still accruing interest | |
| 513 | |
| 434 | |
| 1,406 | | 18.2 | | (63.5) |
Total nonperforming loans | |
| 21,182 | |
| 23,045 | |
| 21,837 | | (8.1) | | (3.0) |
Other real estate owned | |
| 2,163 | |
| 2,474 | |
| 5,049 | | (12.6) | | (57.2) |
Total nonperforming assets | | $ | 23,345 | | $ | 25,519 | | $ | 26,886 | | (8.5) | | (13.2) |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
30-89 days past due loans and still accruing interest | | $ | 13,506 | | $ | 11,326 | | $ | 16,173 | | | | |
Nonaccrual loans to total loans | | | 1.0 | % | | 1.1 | % | | 1.0 | % | | | |
Nonperforming loans to total loans | | | 1.1 | % | | 1.1 | % | | 1.1 | % | | | |
Nonperforming assets to total loans plus OREO | | | 1.2 | % | | 1.3 | % | | 1.4 | % | | | |
| | | | | | | | | | | | | |
Allowance for credit losses | | $ | 30,967 | | $ | 33,855 | | $ | 30,045 | | | | |
Allowance for credit losses to total loans | | | 1.6 | % | | 1.7 | % | | 1.6 | % | | | |
Allowance for credit losses to nonaccrual loans | | | 152.0 | % | | 152.0 | % | | 154.1 | % | | | |
Loan charge-offs, net of recoveries, for the current quarter, prior linked quarter and loans 90 days or greater past due. Remediation work continuesyear over year quarter are shown in all segments.the following table.
51
| | | | | | | | | | | | | | |
Loan Charge-offs, Net of Recoveries | Three Months Ended | |||||||||||||
(Dollars in thousands) | March 31, | | % of | | December 31, | | % of | | March 31, | | % of | |||
| 2021 | | Total1 | | 2020 | | Total1 | | 2020 | | Total1 | |||
Commercial | $ | (18) | | 3.1 | | $ | (93) | | (169.1) | | $ | 85 | | 7.6 |
Leases | | - | | - | | | (11) | | (20.0) | | | - | | - |
Commercial real estate - Investor | | (20) | | 3.4 | | | 471 | | 856.4 | | | (8) | | (0.7) |
Commercial real estate - Owner occupied | | (205) | | 35.2 | | | 86 | | 156.4 | | | 1,108 | | 98.8 |
Construction | | - | | - | | | (171) | | (310.9) | | | - | | - |
Residential real estate - Investor | | (266) | | 45.7 | | | (12) | | (21.8) | | | (21) | | (1.9) |
Residential real estate - Owner occupied | | (49) | | 8.4 | | | (130) | | (236.4) | | | (22) | | (2.0) |
Multifamily | | - | | - | | | - | | - | | | - | | - |
HELOC | | (12) | | 2.1 | | | (97) | | (176.4) | | | (58) | | (5.2) |
HELOC - Purchased | | - | | - | | | - | | - | | | - | | - |
Other 2 | | (12) | | 2.1 | | | 12 | | 21.8 | | | 38 | | 3.4 |
Net (recoveries) charge-offs | $ | (582) | | 100.0 | | $ | 55 | | 100.0 | | $ | 1,122 | | 100.0 |
| | | | | | | | | | | | | | |
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
Loan Charge-offs, net of recoveries | Quarters Ended | |||||||||||||
(in thousands) | September 30, |
| % of |
| June 30, |
| % of |
| September 30, |
| % of | |||
| 2017 |
| Total1 |
| 2017 |
| Total1 |
| 2016 |
| Total1 | |||
Real estate-construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilder | $ | - |
| - |
| $ | (1) |
| (0.2) |
| $ | (7) |
| (0.8) |
Land |
| - |
| - |
|
| (48) |
| (7.3) |
|
| (2) |
| (0.2) |
All other |
| 8 |
| (2.4) |
|
| (11) |
| (1.7) |
|
| (42) |
| (5.0) |
Total real estate-construction |
| 8 |
| (2.4) |
|
| (60) |
| (9.2) |
|
| (51) |
| (6.0) |
Real estate-residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor |
| (28) |
| 8.5 |
|
| (16) |
| (2.4) |
|
| (3) |
| (0.4) |
Multifamily |
| (17) |
| 5.2 |
|
| 129 |
| 19.7 |
|
| (13) |
| (1.5) |
Owner occupied |
| (40) |
| 12.2 |
|
| 723 |
| 110.4 |
|
| (75) |
| (8.9) |
Revolving and junior liens |
| (367) |
| 111.5 |
|
| (109) |
| (16.6) |
|
| 112 |
| 13.3 |
Total real estate-residential |
| (452) |
| 137.4 |
|
| 727 |
| 111.1 |
|
| 21 |
| 2.5 |
Real estate-commercial, nonfarm |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner general purpose |
| - |
| - |
|
| (1) |
| (0.2) |
|
| - |
| - |
Owner special purpose |
| - |
| - |
|
| (6) |
| (0.9) |
|
| (3) |
| (0.4) |
Non-owner general purpose |
| (43) |
| 13.1 |
|
| (39) |
| (6.0) |
|
| 132 |
| 15.7 |
Non-owner special purpose |
| - |
| - |
|
| - |
| - |
|
| 636 |
| 75.8 |
Retail properties |
| 22 |
| (6.80) |
|
| 4 |
| 0.6 |
|
| - |
| - |
Total real estate-commercial, nonfarm |
| (21) |
| 6.3 |
|
| (42) |
| (6.5) |
|
| 765 |
| 91.1 |
Real estate-commercial, farm |
| - |
| - |
|
| - |
| - |
|
| - |
| - |
Commercial |
| 7 |
| (2.1) |
|
| 1 |
| 0.2 |
|
| 66 |
| 7.9 |
Leases |
| 98 |
| (29.8) |
|
| - |
| - |
|
| - |
| - |
Consumer |
| 37 |
| (11.2) |
|
| 34 |
| 5.2 |
|
| 43 |
| 5.1 |
Other |
| (6) |
| 1.8 |
|
| (5) |
| (0.8) |
|
| (5) |
| (0.6) |
Net (recoveries) / charge-offs | $ | (329) |
| 100.0 |
| $ | 655 |
| 100.0 |
| $ | 839 |
| 100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1Represents the percentage of net charge-offs attributable to each category of loans.
2 The “Other” segment includes consumer and overdrafts.
Net recoveries of $582,000 were recorded for the thirdfirst quarter of 2017 reflected2021, compared to net charge-offs of $55,000 for the fourth quarter of 2020, and net charge-offs $1.1 million for the first quarter of 2020, reflecting continuing management attention to credit quality. Gross charge-offs for the quarter ended September 30, 2017 were $241,000 compared to $1.2 million for the quarter ended September 30, 2016. Grossquality and remediation efforts. The net recoveries for the quarter ended September 30, 2017 were $570,000 compared to $358,000 for the quarter ended September 30, 2016. In comparison to the linked quarter, the thirdfirst quarter of 20172021 were primarily due to recoveries on two large charge-offs recorded prior to 2021. We have continued to reflectour conservative loan valuations and aggressive recovery efforts on prior charge-offs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
| ||||
Classified Loans | As of |
| Percent Change From |
| |||||||||||
(in thousands) | September 30, |
| December 31, |
| September 30, |
| December 31, |
| September 30, |
| |||||
| 2017 |
| 2016 |
| 2016 |
| 2016 |
| 2016 |
| |||||
Real estate-construction | $ | 380 |
| $ | 458 |
| $ | 254 |
| (17.0) |
|
| 49.6 |
|
|
Real estate-residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor |
| 648 |
|
| 1,096 |
|
| 1,171 |
| (40.9) |
|
| (44.7) |
|
|
Multifamily |
| 4,757 |
|
| - |
|
| - |
| N/M |
|
| N/M |
|
|
Owner occupied |
| 4,418 |
|
| 7,225 |
|
| 6,432 |
| (38.9) |
|
| (31.3) |
|
|
Revolving and junior liens |
| 1,977 |
|
| 2,340 |
|
| 3,078 |
| (15.5) |
|
| (35.8) |
|
|
Real estate-commercial, nonfarm |
| 7,633 |
|
| 9,946 |
|
| 13,220 |
| (23.3) |
|
| (42.3) |
|
|
Real estate-commercial, farm |
| 2,495 |
|
| 1,782 |
|
| 1,801 |
| 40.0 |
|
| N/M |
|
|
Commercial |
| 382 |
|
| 2,527 |
|
| 1,519 |
| (84.9) |
|
| (74.9) |
|
|
Leases |
| 1,031 |
|
| 1,109 |
|
| 783 |
| (7.0) |
|
| 31.7 |
|
|
Consumer |
| 8 |
|
| 1 |
|
| 1 |
| N/M |
|
| N/M |
|
|
Total classified loans | $ | 23,729 |
| $ | 26,484 |
| $ | 28,259 |
| (10.4) |
|
| (16.0) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/M - Not Meaningful
37
Classified loans include nonaccrual, performing troubled debt restructurings and all other loans considered substandard. Classified assets include both classified loans and OREO. Loans classified as substandard are inadequately protected by either the current net worth and ability to meet payment obligations of the obligor, or by the collateral pledged to secure the loan, if any. These loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt and carry the distinct possibility that the Companywe will sustain some loss if deficiencies remain uncorrected.
Classified
The following table shows classified assets include bothby segment for the following periods.
| | | | | | | | | | | | | | |
| | | | | | | | | | March 31, 2021 | ||||
Classified Assets | As of | | Percent Change From | |||||||||||
(Dollars in thousands) | March 31, | | December 31, | | March 31, | | December 31, | | March 31, | |||||
| 2021 | | 2020 | | 2020 | | 2020 | | 2020 | |||||
Commercial | $ | 2,397 | | $ | 2,679 | | $ | 11,260 | | (10.5) | | | (78.7) | |
Leases | | 3,147 | | | 3,222 | | | 264 | | (2.3) | | | N/M | |
Commercial real estate - Investor | | 5,130 | | | 5,117 | | | 6,073 | | 0.3 | | | (15.5) | |
Commercial real estate - Owner occupied | | 8,652 | | | 11,187 | | | 10,504 | | (22.7) | | | (17.6) | |
Construction | | 5,366 | | | 5,192 | | | 2,414 | | 3.4 | | | 122.3 | |
Residential real estate - Investor | | 1,435 | | | 1,516 | | | 1,452 | | (5.3) | | | (1.2) | |
Residential real estate - Owner occupied | | 4,148 | | | 4,040 | | | 4,568 | | 2.7 | | | (9.2) | |
Multifamily | | 7,846 | | | 7,558 | | | 5,374 | | 3.8 | | | 46.0 | |
HELOC | | 1,303 | | | 1,540 | | | 1,628 | | (15.4) | | | (20.0) | |
HELOC - Purchased | | - | | | - | | | 114 | | - | | | (100.0) | |
Other 1 | | 402 | | | 4 | | | 349 | | N/M | | | 15.2 | |
Total classified loans | | 39,826 | | | 42,055 | | | 44,000 | | (5.3) | | | (9.5) | |
Other real estate owned | | 2,163 | | | 2,474 | | | 5,049 | | (12.6) | | | (57.2) | |
Total classified assets | $ | 41,989 | | $ | 44,529 | | $ | 49,049 | | (5.7) | | | (14.4) | |
| | | | | | | | | | | | | | |
N/M - Not meaningful
1 The “Other” segment includes consumer and overdrafts.
52
Total classified loans and OREO.classified assets decreased as of March 31, 2021, from the levels at both December 31, 2020 and March 31, 2020, primarily due to continued remediation efforts and the high level of paydowns and payoffs we have experienced due to increased borrower liquidity stemming from federal stimulus funds received by borrowers and other COVID-19 relief funding, such as PPP loans. Management monitors a ratio of classified assets to the sum of Bank Tier 1 capital and the allowance for loan and lease lossesACL on loans as another measure of overall change in loan related asset quality. Thisquality, which is referred to as the “classified assets ratio.” The classified assets ratio ended at 12.62%was 11.60% for the period ended September 30, 2017.March 31, 2021, compared to 12.64% as of December 31, 2020, and 15.26% as of March 31, 2020. The decrease in the classified assets ratio for the period ended March 31, 2021, compared to March 31, 2020, is also due to the remediation efforts and borrower liquidity noted above, as well as growth in our capital level over the past year.
Allowance for LoanCredit Losses on Loans
The provision for credit losses, which includes a provision for losses on unfunded commitments, is a charge to earnings to maintain the ACL at a level consistent with management’s assessment of expected losses in the loan portfolio at the balance sheet date. As of January 1, 2020, we adopted ASU 2016-13, or CECL.
We recorded a net benefit of $3.0 million in our provision for credit losses due to a reserve release for the first quarter of 2021, comprised of a $3.5 million reserve release to loans and $470,000 of additional provision expense for credit losses on unfunded commitments, compared to no provision for credit losses recorded in the fourth quarter of 2020, and an $8.0 million provision for credit losses recorded for the first quarter of 2020, due to both our adoption of the CECL accounting standard on January 1, 2020 and the potential impact of the COVID-19 pandemic. In the first quarter of 2021, we determined a reserve release on loans was appropriate, after considering our net recoveries for the quarter of $582,000, as well as the impact of changes to our future loss rate assumptions based on a decrease to the unemployment factor projected for the life of the loans over the one year forecast period. In addition, we recorded a $470,000 provision for credit losses on unfunded commitments in the first quarter of 2021, primarily due to an updated analysis of line utilization rates over the past twelve months, as well as the roll off of prior historical periods with lower losses within the CECL model.
Management estimates the amount of provision required on a quarterly basis and records the appropriate provision expense, or release of expense, to maintain an adequate reserve for all potential and estimated credit losses on loan, leases and unfunded commitments. Our ACL on loans to total loans was 1.6% as of March 31, 2021, compared to 1.7% and 1.6% at December 31, 2020, and March 31, 2020, respectively. See Item 2 – Critical Accounting Policies in the Management Discussion and Analysis in this report for discussion of our ACL methodology on loans. Allocations of the ACL may be made for specific loans, but the entire allowance is available for any loan that, in our judgment, should be charged-off.
53
Below is a reconciliation of the activity in the allowance for loancredit losses on loans for the periods indicated (in(dollars in thousands):
| | | | | | | | | | | |
| | Three Months Ended | | ||||||||
| March 31, | | December 31, | | March 31, | ||||||
| 2021 | | 2020 | | 2020 | ||||||
Allowance at beginning of period | $ | 33,855 | | | $ | 32,918 | | | $ | 19,789 | |
Charge-offs: | | | | | | | | | | | |
Commercial | | 2 | | | | (85) | | | | 97 | |
Leases | | - | | | | 87 | | | | - | |
Commercial real estate - Investor | | - | | | | 497 | | | | 13 | |
Commercial real estate - Owner occupied | | 3 | | | | 217 | | | | 1,109 | |
Construction | | - | | | | - | | | | - | |
Residential real estate - Investor | | - | | | | - | | | | - | |
Residential real estate - Owner occupied | | - | | | | - | | | | 1 | |
Multifamily | | - | | | | - | | | | - | |
HELOC | | 12 | | | | 42 | | | | 83 | |
Other 1 | | 25 | | | | 52 | | | | 98 | |
Total charge-offs | | 42 | | | | 810 | | | | 1,401 | |
Recoveries: | | | | | | | | | | | |
Commercial | | 20 | | | | 8 | | | | 12 | |
Leases | | - | | | | 98 | | | | - | |
Commercial real estate - Investor | | 20 | | | | 26 | | | | 21 | |
Commercial real estate - Owner occupied | | 208 | | | | 131 | | | | 1 | |
Construction | | - | | | | 171 | | | | - | |
Residential real estate - Investor | | 266 | | | | 12 | | | | 21 | |
Residential real estate - Owner occupied | | 49 | | | | 130 | | | | 23 | |
Multifamily | | - | | | | - | | | | - | |
HELOC | | 24 | | | | 139 | | | | 141 | |
Other 1 | | 37 | | | | 40 | | | | 60 | |
Total recoveries | | 624 | | | | 755 | | | | 279 | |
Net (recoveries) charge-offs | | (582) | | | | 55 | | | | 1,122 | |
Adoption of ASC 326 | | - | | | | - | | | | 5,879 | |
Provision for credit losses on loans | | (3,470) | | | | 992 | | | | 5,499 | |
Allowance at end of period | $ | 30,967 | | | $ | 33,855 | | | $ | 30,045 | |
| | | | | | | | | | | |
Average total loans (exclusive of loans held-for-sale) | $ | 2,006,157 | | | $ | 2,023,238 | | | $ | 1,941,760 | |
Net charge-offs / (recoveries) to average loans | | (0.03) | % | | | 0.00 | % | | | 0.06 | % |
Allowance at period end to average loans | | 1.54 | % | | | 1.67 | % | | | 1.55 | % |
| | | | | | | | | | | |
1 The “Other” segment includes consumer and overdrafts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
| September 30, |
| June 30, |
| September 30, |
| September 30, |
| September 30, |
| ||||||||||
| 2017 |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance at beginning of period | $ | 15,836 |
|
| $ | 15,741 |
|
| $ | 15,822 |
|
| $ | 16,158 |
|
| $ | 16,223 |
|
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| 13 |
|
|
| 6 |
|
|
| 76 |
|
|
| 20 |
|
|
| 95 |
|
|
Leases |
| 98 |
|
|
| - |
|
|
| - |
|
|
| 215 |
|
|
| 13 |
|
|
Real estate - commercial |
| 22 |
|
|
| 4 |
|
|
| 792 |
|
|
| 300 |
|
|
| 1,484 |
|
|
Real estate - construction |
| 19 |
|
|
| - |
|
|
| 9 |
|
|
| 23 |
|
|
| 9 |
|
|
Real estate - residential |
| 7 |
|
|
| 976 |
|
|
| 220 |
|
|
| 1,178 |
|
|
| 657 |
|
|
Consumer |
| 82 |
|
|
| 80 |
|
|
| 100 |
|
|
| 262 |
|
|
| 250 |
|
|
Other |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
Total charge-offs |
| 241 |
|
|
| 1,066 |
|
|
| 1,197 |
|
|
| 1,998 |
|
|
| 2,508 |
|
|
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| 6 |
|
|
| 5 |
|
|
| 10 |
|
|
| 13 |
|
|
| 22 |
|
|
Leases |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
Real estate - commercial |
| 43 |
|
|
| 46 |
|
|
| 27 |
|
|
| 124 |
|
|
| 255 |
|
|
Real estate - construction |
| 11 |
|
|
| 60 |
|
|
| 60 |
|
|
| 89 |
|
|
| 71 |
|
|
Real estate - residential |
| 459 |
|
|
| 249 |
|
|
| 199 |
|
|
| 850 |
|
|
| 718 |
|
|
Consumer |
| 45 |
|
|
| 46 |
|
|
| 57 |
|
|
| 166 |
|
|
| 184 |
|
|
Other |
| 6 |
|
|
| 5 |
|
|
| 5 |
|
|
| 13 |
|
|
| 18 |
|
|
Total recoveries |
| 570 |
|
|
| 411 |
|
|
| 358 |
|
|
| 1,255 |
|
|
| 1,268 |
|
|
Net (recoveries) / charge-offs |
| (329) |
|
|
| 655 |
|
|
| 839 |
|
|
| 743 |
|
|
| 1,240 |
|
|
Loan loss reserve provision |
| 300 |
|
|
| 750 |
|
|
| - |
|
|
| 1,050 |
|
|
| - |
|
|
Allowance at end of period | $ | 16,465 |
|
| $ | 15,836 |
|
| $ | 14,983 |
|
| $ | 16,465 |
|
| $ | 14,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average total loans (exclusive of loans held-for-sale) | $ | 1,550,229 |
|
| $ | 1,505,572 |
|
| $ | 1,186,279 |
|
| $ | 1,513,693 |
|
| $ | 1,157,159 |
|
|
Net (recoveries) / charge-offs to average loans |
| (0.02) | % |
|
| 0.04 | % |
|
| 0.07 | % |
|
| 0.05 | % |
|
| 0.11 | % |
|
Allowance at period end to average loans |
| 1.06 | % |
|
| 1.05 | % |
|
| 1.26 | % |
|
| 1.09 | % |
|
| 1.29 | % |
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Ending balance: Individually evaluated for impairment | $ | 6 |
|
| $ | 98 |
|
| $ | 514 |
|
| $ | 6 |
|
| $ | 514 |
|
|
Ending balance: Collectively evaluated for impairment | $ | 16,459 |
|
| $ | 15,738 |
|
| $ | 14,469 |
|
| $ | 16,459 |
|
| $ | 14,469 |
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The coverage ratio of the allowance for loan lossesACL on loans to nonperforming loans was 101.2%146.2% as of September 30, 2017,March 31, 2021, which was a minimal reductiondecrease from the coverage ratio of 101.4%146.9% as of June 30, 2017,December 31, 2020, but greater than the 86.2% coverage ratioan increase from 137.6% as of September 30, 2016.March 31, 2020. When measured as a percentage of average loans, as of September 30, 2017,our total allowance for loan and lease losses increased to 1.06% of total loans from 1.05% as of June 30, 2017, and decreased from 1.26% of average loans at September 30, 2016. The total allowance for loan and lease losses as a percent of total period endACL on loans was 1.15% as1.54% for the three months ended March 31, 2021, and 1.55% for the like period of September 30, 2017, excluding the loans acquired from the Talmer branch acquisition, which are effectively “reserved” for potential future losses in the remaining $667,000 credit mark component of the purchase accounting discount recorded. March 31, 2020, reflecting minimal change year over year.
In management’s judgment, an adequate allowance for estimated lossesACL has been established for inherentto encompass the current lifetime expected credit losses at September 30, 2017,March 31, 2021, and general changes in lending policy, procedures and staffing, as well as other external factors.factors, such as the impacts of the COVID-19 pandemic. However, there can be no assurance that actual losses will not exceed the estimated amounts in the future, based on unforeseen economic events, changes in business climates and the condition of collateral at the time of default and repossession. Loan loss provision forFurther delayed recovery or further deterioration in market conditions related to COVID-19 and the quarter ended September 30, 2017, increased $300,000 as compared to like quarterassociated impacts on our customers, changes in business climates and the condition of 2016 and decreased $450,000 as compared to second quartercollateral at the time of 2017.default or repossession may revise our current expectations of future credit losses in future reporting periods.
38
54
Other Real Estate Owned
As of September 30, 2017,March 31, 2021, OREO ended at $9.0 million. This compares to $11.7totaled $2.2 million, reflecting a $311,000 reduction from the $2.5 million at June 30, 2017,December 31, 2020, and $14.1a $2.9 million reduction from the $5.0 million at September 30, 2016. New additions to the OREO portfolioMarch 31, 2020. One property sale of $176,000 in the third quarter of 2017 were minimal. Valuation write-downs continued with an expense of $920,000 in the third quarter of 2017, the majority of which was recorded on three properties, compared to $392,000 in the second quarter of 2017 and $365,000 in the third quarter of 2016. The OREO$305,000 net book value decreased in the first nine months of 2017 dueand no transfers to 24 property sales, net of a participation purchase. These sales provided $5.5 million in total proceeds, including net gains on OREO sales of $454,000. In addition, net valuation reserve write-downs of $1.6 million on 35 OREO propertiesfrom loans were recorded in the first nine monthsquarter of 2017; both2021. There were two property additions totaling $491,000 in the first quarter of these reductions were partially offset by 132020. The net book value of four property transfers intodisposals in the first quarter of 2020 totaled $288,000. Valuation write-downs occurred in the first quarter of 2021 which totaled $6,000, compared to $93,000 of OREO from nonaccrual or fixed asset status totaling $3.8 million.valuation write-downs in the fourth quarter of 2020, and $158,000 of valuation write-downs recorded in the first quarter of 2020.
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| September 30, 2017 | ||||
OREO | Quarters Ended |
| Percent Change From | |||||||||||
(in thousands) | September 30, |
| June 30, |
| September 30, |
| June 30, |
| September 30, | |||||
| 2017 |
| 2017 |
| 2016 |
| 2017 |
| 2016 | |||||
Beginning balance | $ | 11,724 |
| $ | 13,481 |
| $ | 16,252 |
| (13.0) |
|
| (27.9) |
|
Property additions |
| 176 |
|
| 204 |
|
| 255 |
| (13.7) |
|
| (31.0) |
|
Property improvements |
| - |
|
| - |
|
| 4 |
| N/M |
|
| N/M |
|
Less: |
|
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|
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|
|
|
|
|
|
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|
Property disposals |
| 1,956 |
|
| 1,569 |
|
| 2,002 |
| 24.7 |
|
| (2.3) |
|
Period valuation adjustments |
| 920 |
|
| 392 |
|
| 365 |
| 134.7 |
|
| 152.1 |
|
Total other real estate owned | $ | 9,024 |
| $ | 11,724 |
| $ | 14,144 |
| (23.0) |
|
| (36.2) |
|
| | | | | | | | | | | | | | |
| | | | | | | | | | March 31, 2021 | ||||
OREO | Three Months Ended | | Percent Change From | |||||||||||
(Dollars in thousands) | March 31, | | December 31, | | March 31, | | December 31, | | March 31, | |||||
| 2021 | | 2020 | | 2020 | | 2020 | | 2020 | |||||
Balance at beginning of period | $ | 2,474 | | $ | 2,686 | | $ | 5,004 | | (7.9) | | | (50.6) | |
Property additions, net of acquisition adjustments | | - | | | - | | | 491 | | - | | | (100.0) | |
Less: | | | | | | | | | | | | | | |
Proceeds from property disposals, net of participation purchase and of gains/losses | | 305 | | | 119 | | | 288 | | 156.3 | | | 5.9 | |
Period valuation adjustments | | 6 | | | 93 | | | 158 | | (93.5) | | | (96.2) | |
Balance at end of period | $ | 2,163 | | $ | 2,474 | | $ | 5,049 | | (12.6) | | | (57.2) | |
| | | | | | | | | | | | | | |
N/M - Not Meaningful
In management’s judgment, the property valuation allowance as established presents OREO at current estimates of fair value less estimated costs to sell; however, there can be no assurance that additional losses will not be incurred on disposals or upon updates to valuations in the future. Of note, properties valued in total at $5.2$1.4 million, or approximately 57.5%65.8% of total OREO at September 30, 2017,March 31, 2021, have been in OREO for five years or more. The appropriate regulatory approval has been obtained for any OREO properties held in excess of five years.
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OREO Properties by Type |
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| | | | | | | | | | | | | | | | | |
(in thousands) | September 30, 2017 |
| December 31, 2016 |
| September 30, 2016 | |||||||||||||||||||||||||||||
|
| Amount |
| % of Total |
|
| Amount |
| % of Total |
|
| Amount |
| % of Total | ||||||||||||||||||||
(Dollars in thousands) | March 31, 2021 | | December 31, 2020 | | March 31, 2020 | |||||||||||||||||||||||||||||
| | Amount | | % of Total | | | Amount | | % of Total | | | Amount | | % of Total | ||||||||||||||||||||
Single family residence | $ | 937 |
| 11 | % |
| $ | 225 |
| 2 | % |
| $ | 1,218 |
| 9 | % | $ | 430 | | 20 | % | | $ | 430 | | 17 | % | | $ | 450 | | 9 | % |
Lots (single family and commercial) |
| 5,536 |
| 61 | % |
|
| 7,322 |
| 61 | % |
|
| 8,795 |
| 62 | % | | 1,381 | | 64 | % | | | 1,387 | | 57 | % | | | 3,747 | | 74 | % |
Vacant land |
| 628 |
| 7 | % |
|
| 636 |
| 5 | % |
|
| 636 |
| 4 | % | | 352 | | 16 | % | | | 352 | | 14 | % | | | 41 | | 1 | % |
Multi-family |
| - |
| 0 | % |
|
| 264 |
| 2 | % |
|
| 264 |
| 2 | % | |||||||||||||||||
Commercial property |
| 1,923 |
| 21 | % |
|
| 3,469 |
| 30 | % |
|
| 3,231 |
| 23 | % | | - | | 0 | % | | | 305 | | 12 | % | | | 811 | | 16 | % |
Total OREO properties | $ | 9,024 |
| 100 | % |
| $ | 11,916 |
| 100 | % |
| $ | 14,144 |
| 100 | % | |||||||||||||||||
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Total other real estate owned | $ | 2,163 | | 100 | % | | $ | 2,474 | | 100 | % | | $ | 5,049 | | 100 | % | |||||||||||||||||
| | | | | | | | | | | | | | | | | |
Deposits and Borrowings
| | | | | | | | | | | | |
| | | | | | | | | | March 31, 2021 | ||
Deposits | As of | | Percent Change From | |||||||||
(Dollars in thousands) | March 31, | | December 31, | | March 31, | | December 31, | | March 31, | |||
| 2021 | | 2020 | | 2020 | | 2020 |
| 2020 | |||
Noninterest bearing demand | $ | 982,664 | | $ | 909,505 | | $ | 702,598 | | 8.0 | | 39.9 |
Savings | | 429,256 | | | 399,057 | | | 338,134 | | 7.6 | | 26.9 |
NOW accounts | | 522,760 | | | 486,612 | | | 428,419 | | 7.4 | | 22.0 |
Money market accounts | | 338,921 | | | 316,465 | | | 277,018 | | 7.1 | | 22.3 |
Certificates of deposit of less than $100,000 | | 193,291 | | | 200,107 | | | 231,704 | | (3.4) | | (16.6) |
Certificates of deposit of $100,000 through $250,000 | | 132,514 | | | 164,982 | | | 150,185 | | (19.7) | | (11.8) |
Certificates of deposit of more than $250,000 | | 57,136 | | | 60,345 | | | 67,584 | | (5.3) | | (15.5) |
Total deposits | $ | 2,656,542 | | $ | 2,537,073 | | $ | 2,195,642 | | 4.7 | | 21.0 |
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| 3rd Quarter 2017 |
| ||
Noninterest Income |
| Quarters Ended |
| Percent Change From |
| |||||||||
(in thousands) |
| September 30, |
| June 30, |
| September 30, |
| June 30, |
| September 30, |
| |||
|
| 2017 |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| |||
Trust income |
| $ | 1,468 |
| $ | 1,638 |
| $ | 1,403 |
| (10.4) |
| 4.6 |
|
Service charges on deposits |
|
| 1,722 |
|
| 1,615 |
|
| 1,756 |
| 6.6 |
| (1.9) |
|
Residential mortgage banking revenue |
|
| 1,547 |
|
| 1,711 |
|
| 2,789 |
| (9.6) |
| (44.5) |
|
Securities gain (loss), net |
|
| 102 |
|
| (131) |
|
| (1,959) |
| 177.9 |
| 105.2 |
|
Increase in cash surrender value of BOLI |
|
| 362 |
|
| 350 |
|
| 383 |
| 3.4 |
| (5.5) |
|
Debit card interchange income |
|
| 1,075 |
|
| 1,081 |
|
| 1,013 |
| (0.6) |
| 6.1 |
|
Gain on disposal and transfer of fixed assets |
|
| - |
|
| 12 |
|
| - |
| N/M |
| N/M |
|
Other income |
|
| 1,567 |
|
| 1,041 |
|
| 1,209 |
| 50.5 |
| 29.6 |
|
Total noninterest income |
| $ | 7,843 |
| $ | 7,317 |
| $ | 6,594 |
| 7.2 |
| 18.9 |
|
N/M - Not Meaningful
39
Of the noninterest income categories, securities gain (loss), net, experienced the largest increases on both a linked quarter and year over year basis, as shown above, primarily due to more favorable investment sales in 2017. The net security losses incurred in 2016 were necessary for liquidity purposes due to funding needs related to the Talmer branch purchase. Mortgage banking revenues have decreased over the last year as the rising rate environment has reduced originations and refinancing; mortgage loans held for sale originations are $34.1 million less year to date 2017 than the prior year to date period. Finally, the favorable variance in other income was driven by growth in commercial loan swap fee income; $547,000 of commercial loan swap fee income was recorded in the third quarter of 2017, as compared to $175,000 in the third quarter of 2016.
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|
| 3rd Quarter 2017 |
| ||
Noninterest Expense |
| Quarters Ended |
| Percent Change From |
| |||||||||
(in thousands) |
| September 30, |
| June 30, |
| September 30, |
| June 30, |
| September 30, |
| |||
|
| 2017 |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| |||
Salaries |
| $ | 7,704 |
| $ | 7,972 |
| $ | 7,205 |
| (3.4) |
| 6.9 |
|
Bonus |
|
| 1,114 |
|
| 854 |
|
| 521 |
| 30.4 |
| 113.8 |
|
Benefits and other |
|
| 1,231 |
|
| 1,719 |
|
| 1,288 |
| (28.4) |
| (4.4) |
|
Total salaries and employee benefits |
|
| 10,049 |
|
| 10,545 |
|
| 9,014 |
| (4.7) |
| 11.5 |
|
Occupancy, furniture and equipment expense |
|
| 1,482 |
|
| 1,462 |
|
| 1,500 |
| 1.4 |
| (1.2) |
|
Computer and data processing |
|
| 1,081 |
|
| 1,112 |
|
| 1,105 |
| (2.8) |
| (2.2) |
|
FDIC insurance |
|
| 199 |
|
| 165 |
|
| 228 |
| 20.6 |
| (12.7) |
|
General bank insurance |
|
| 246 |
|
| 264 |
|
| 269 |
| (6.8) |
| (8.6) |
|
Amortization of core deposit intangible asset |
|
| 24 |
|
| 25 |
|
| - |
| (4.0) |
| N/M |
|
Advertising expense |
|
| 255 |
|
| 452 |
|
| 430 |
| (43.6) |
| (40.7) | �� |
Debit card interchange expense |
|
| 285 |
|
| 399 |
|
| 363 |
| (28.6) |
| (21.5) |
|
Legal fees |
|
| 162 |
|
| 184 |
|
| 242 |
| (12.0) |
| (33.1) |
|
Other real estate owned expense, net |
|
| 680 |
|
| 539 |
|
| 426 |
| 26.2 |
| 59.6 |
|
Other expense |
|
| 2,455 |
|
| 2,839 |
|
| 3,005 |
| (13.5) |
| (18.3) |
|
Total noninterest expense |
| $ | 16,918 |
| $ | 17,986 |
| $ | 16,582 |
| (5.9) |
| 2.0 |
|
Efficiency ratio (defined below) |
|
| 57.66 | % |
| 64.03 | % |
| 66.21 | % |
|
|
|
|
N/M - Not Meaningful
The efficiency ratio shown in the table above is calculated as noninterest expense excluding OREO expenses, amortization of core deposits and acquisition costs, divided by the sum of net interest income on a fully tax equivalent basis, total noninterest income less net gains and losses on securities and includes a tax equivalent adjustment on the increase in cash surrender value of BOLI.
Third quarter 2017 noninterest expense decreased $1.1 million from the second quarter of 2017, and increased $336,000 from the third quarter of 2016. These variances are primarily due to salary and employee benefit related cost fluctuations due to certain one-time costs recorded in 2017, as well as an increase in employee insurance premiums in 2017. The second quarter of 2017 included a one-time cost incurred related to executive relocation and recruitment of $294,000, as well as higher levels of employee insurance costs as compared to the prior year. Although the overall employee count has not significantly increased in the year over year period, the hiring of additional staff in compliance and risk management roles has increased the overall wage base of the Company. A reduction in debit card interchange expense was recorded in the third quarter of 2017 due to reversal of an accrual related to the debit card rewards program. Finally, other expense has declined over the last year due to reductions in loan related expenses, including remediation costs as the loan portfolio quality continues to improve.
Other expenses have minimal fluctuations, as continued efficiencies with operational processes have contributed to maintaining the majority of noninterest expense components with insignificant variation.
Income Taxes
The Company recorded a tax expense of $1.8 million on $9.9 million pre-tax income for the third quarter of 2017. Income tax expense reflected all relevant statutory tax rates and GAAP accounting. The effective tax rate for the third quarter of 2017 was 18.5%, a decrease from 28.9% in the second quarter of 2017 and 34.7% in the third quarter of 2016. A nonrecurring income tax benefit of $1.6 million was recorded in the third quarter of 2017, stemming from the State of Illinois tax rate increase effective July 1, 2017, which increased the Company’s net deferred tax asset by a like amount. In addition, the impact of the tax exempt securities growth in the first and second quarters of 2017 contributed to the tax rate decrease in the third quarter of 2017 as compared to the prior year.
There have been no significant changes in the Company’s ability to utilize the deferred tax assets through September 30, 2017. The Company has no valuation reserve on the deferred tax assets as of September 30, 2017.
40
Financial Condition
Total assets increased $109.2 million from $2.25 billion as of December 31, 2016, to $2.36deposits were $2.66 billion at September 30, 2017, due primarily to organic loan growth. Total loans increased $115.4March 31, 2021, which reflects a $119.5 million or 7.8%, when compared to December 31, 2016, which was funded by significant deposit growth and FHLBC advances. Securities increased a modest $1.6 million inincrease from total but the securities portfolio experienced select significant shifts in typedeposits of investments held year to date.
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| September 30, 2017 | ||
Securities |
| As of |
| Percent Change From | |||||||||
(in thousands) |
| September 30, |
| December 31, |
| September 30, |
| December 31, |
| September 30, | |||
|
| 2017 |
| 2016 |
| 2016 |
| 2016 |
| 2016 | |||
Securities available-for-sale, at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasuries |
| $ | 3,990 |
| $ | - |
| $ | - |
| N/M |
| N/M |
U.S. government agencies |
|
| 13,451 |
|
| - |
|
| 1,503 |
| N/M |
| N/M |
U.S. government agencies mortgage-backed |
|
| 11,030 |
|
| 41,534 |
|
| 43,723 |
| (73.4) |
| (74.8) |
States and political subdivisions |
|
| 229,032 |
|
| 68,703 |
|
| 22,254 |
| 233.4 |
| 929.2 |
Corporate bonds |
|
| 10,577 |
|
| 10,630 |
|
| 10,730 |
| (0.5) |
| (1.4) |
Collateralized mortgage obligations |
|
| 80,386 |
|
| 170,927 |
|
| 204,390 |
| (53.0) |
| (60.7) |
Asset-backed securities |
|
| 131,759 |
|
| 138,407 |
|
| 140,173 |
| (4.8) |
| (6.0) |
Collateralized loan obligations |
|
| 53,259 |
|
| 101,637 |
|
| 108,284 |
| (47.6) |
| (50.8) |
Total securities |
| $ | 533,484 |
| $ | 531,838 |
| $ | 531,057 |
| 0.3 |
| 0.5 |
N/M - Not Meaningful
The securities portfolio ended the third quarter of 2017 at $533.5 million, an increase of $1.6 million from $531.8 million$2.54 billion at December 31, 2016,2020, and an increase of $2.4$460.9 million from September 30, 2016. Available-for-sale purchases duringtotal deposits of $2.20 billion at March 31, 2020. The increase in deposits at March 31, 2021, compared to both December 31, 2020, and March 31, 2020, was due to increases in noninterest bearing demand,
55
savings, NOW, and money market accounts, with decreases noted in all maturity categories of certificates of deposit. These total deposit increases in the thirdlinked quarter of 2017 andas well as the year over year periods were primarily tax exempt statedue to federal stimulus funds received by depositors and political subdivisions securities; treasuries and government agencies also increaseda decrease in the period ending September 30, 2017. This portfolio repositioning was performed to enhance overall asset yieldconsumer spending due to the rising interest rate environment. During the third quarter of 2017 security sales resulted in net realized gains of $102,000, as compared to net realized losses of $193,000 for the fourth quarter of 2016 and losses of $2.0 million for the third quarter of 2016.COVID-19 pandemic.
Loans
Total loans were $1.59 billion as of September 30, 2017, an increase of $115.4 million from the total as of December 31, 2016, driven by growth in the commercial, real estate-construction and leases portfolios. In addition, a home equity portfolio purchase of $16.7 million from TCF Bank in the second quarter of 2017 contributed to the total residential real estate growth of $41.7 million for the 2017 year to date period. Loan portfolio repositioning continued to drive reductions in commercial real estate concentrations, and to grow commercial and lease financing to diversify the portfolio. Total loans increased $391.7 million from September 30, 2016, due to the organic growth previously discussed as well as $221.0 million of loans from the Talmer branch purchase.
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| September 30, 2017 | ||
Loans | As of |
| Percent Change From | |||||||||
(in thousands) | September 30, |
| December 31, |
| September 30, |
| December 31, |
| September 30, | |||
| 2017 |
| 2016 |
| 2016 |
| 2016 |
| 2016 | |||
Commercial | $ | 257,356 |
| $ | 228,113 |
| $ | 136,819 |
| 12.8 |
| 88.1 |
Leases |
| 69,305 |
|
| 55,451 |
|
| 47,215 |
| 25.0 |
| 46.8 |
Real estate - commercial |
| 739,136 |
|
| 736,247 |
|
| 617,280 |
| 0.4 |
| 19.7 |
Real estate - construction |
| 94,868 |
|
| 64,720 |
|
| 28,786 |
| 46.6 |
| 229.6 |
Real estate - residential |
| 419,583 |
|
| 377,851 |
|
| 357,846 |
| 11.0 |
| 17.3 |
Consumer |
| 2,770 |
|
| 3,237 |
|
| 3,325 |
| (14.4) |
| (16.7) |
Other |
| 10,550 |
|
| 11,973 |
|
| 10,517 |
| (11.9) |
| 0.3 |
|
| 1,593,568 |
|
| 1,477,592 |
|
| 1,201,788 |
| 7.8 |
| 32.6 |
Net deferred loan costs |
| 623 |
|
| 1,217 |
|
| 1,064 |
| (48.8) |
| (41.4) |
Total loans | $ | 1,594,191 |
| $ | 1,478,809 |
| $ | 1,202,852 |
| 7.8 |
| 32.5 |
The quality of the loan portfolio is impacted by not only Company credit decisions but also the economic health of the communities in which the Company operates. As the Company is located in a corridor with significant open space and undeveloped real estate, real estate lending (including commercial, residential, and construction) has been and continues to be a sizeable portion of the portfolio. These categories comprised 78.6% of the portfolio as of September 30, 2017, compared to 79.7% of the portfolio as of
41
December 31, 2016. The Company continues to oversee and manage its loan portfolio in accordance with interagency guidance on risk management.
Deposits and Borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 | ||
Deposits | As of |
| Percent Change From | |||||||||
(in thousands) | September 30, |
| December 31, |
| September 30, |
| December 31, |
| September 30, | |||
| 2017 |
| 2016 |
| 2016 |
| 2016 |
| 2016 | |||
Noninterest bearing demand | $ | 556,874 |
| $ | 513,688 |
| $ | 473,477 |
| 8.4 |
| 17.6 |
Savings |
| 260,268 |
|
| 256,159 |
|
| 253,454 |
| 1.6 |
| 2.7 |
NOW accounts |
| 417,054 |
|
| 419,417 |
|
| 391,188 |
| (0.6) |
| 6.6 |
Money market accounts |
| 270,647 |
|
| 275,273 |
|
| 259,495 |
| (1.7) |
| 4.3 |
Certificates of deposit of less than $100,000 |
| 219,152 |
|
| 228,993 |
|
| 230,748 |
| (4.3) |
| (5.0) |
Certificates of deposit of $100,000 through $250,000 |
| 114,373 |
|
| 110,992 |
|
| 105,868 |
| 3.0 |
| 8.0 |
Certificates of deposit of more than $250,000 |
| 50,747 |
|
| 62,263 |
|
| 63,152 |
| (18.5) |
| (19.6) |
Total deposits | $ | 1,889,115 |
| $ | 1,866,785 |
| $ | 1,777,382 |
| 1.2 |
| 6.3 |
Total deposits were $1.89 billion on September 30, 2017, which reflects a $22.3 million increase from total deposits of $1.87 billion as of December 31, 2016, and a $111.7 million increase from $1.78 billion as of September 30, 2016. Total noninterest bearing demand accounts experienced increases of $43.2 million, or 8.4%, in volumes for the first nine months of 2017, while certificates of deposit reflected a decrease of $18.0 million, or 4.5%, for the same period. Growth in deposits in the third quarter of 2017 was attributed to seasonal tax refunds, as well as strong commercial demand deposit growth stemming from seasonal and operational funds increases as well as growth in commercial loan clients. The total deposit growth of 6.3% in the year over year period is also partially attributable to the $48.9 million of deposits acquired with the Talmer branch purchase in 2016.
In addition to deposits, the Bankwe obtained funding from other sources in all periods presented. Securities sold under repurchase agreements totaled $26.9$77.3 million at September 30, 2017, anMarch 31, 2021, a $10.3 million, or 15.4%, increase from $25.7$67.0 million at December 31, 2016. The Bank also recorded an2020, and a $51.2 million increase from March 31, 2020. Our notes payable and other borrowings is comprised of one remaining $6.3 million long-term FHLBC advance, which matures on February 2, 2026, and $16.0 million outstanding on a $20.0 million term note originated with a correspondent bank in the first quarter of $125.02020, to facilitate the redemption of our Old Second Capital Trust I trust preferred securities and related junior subordinated debentures, completed on March 2, 2020. Notes payable and other borrowings of $22.3 million as of March 31, 2021, decreased $1.1 million from Federal Home Loan Bank of Chicago at September 30, 2017, as compared to $70.0 million at December 31, 2016.2020, and decreased $4.3 million from March 31, 2020.
The Company is indebted on senior notes originated in December 2016, totaling $44.0$44.4 million, net of deferred issuance costs, which were issued in the fourth quarteras of 2016.March 31, 2021. These notes mature in December 2026, and include interest payable semiannuallysemi-annually at 5.75% for five years. Beginning December 2021, the interest becomes payable quarterly at three month LIBOR plus 385 basis points. The Company is also indebted on $57.6$25.8 million, net of deferred issuance costs, of junior subordinated debentures, which are related to the trust preferred securities issued by its two statutory trust subsidiaries, Old Second Capital Trust I andsubsidiary, Old Second Capital Trust II (“Trust II”). The Trust II issuance converted from fixed to floating rate at three month LIBOR plus 150 basis points on June 15, 2017. Upon conversion to a floating rate, we initiated a cash flow hedge was initiated which resulted in the total interest rate paid on this debt of 4.30%4.41% as of September 30, 2017,March 31, 2021, as compared to 6.77%, which was the rate paid during the period prior to the June 15, 2017, rate reset. The Company also redeemed $32.6 million of trust preferred securities issued by its statutory trust subsidiary, Old Second Capital Trust I, on March 2, 2020, as noted above. The cash paid at redemption of $33.0 million included accrued interest of $438,000 on the debentures, and resulted in a payment of $10.13 per preferred share.
Capital
As of September 30, 2017,March 31, 2021, total stockholders’ equity was $200.8$311.1 million, which was an increase of $25.6$4.0 million from $175.2$307.1 million as of December 31, 2016.2020. This increase is directly attributable to nine monthsan increase in retained earnings of $11.6 million, comprised of net income in 2017 andyear to date of $11.9 million, less a reduction to retained earnings $300,000 for payment of dividends to our common stockholders in the first quarter of 2021. In addition, a decrease to accumulated other comprehensive income of $1.5 million was recorded due to a net loss, offset slightlydecrease in unrealized gains on available-for-sale securities, net of unrealized losses on swaps. Total stockholders’ equity was reduced by $888,000an increase of dividends paid$3.9 million to our treasury stock in the first quarter of 2021, primarily due to repurchases of our common shareholdersshares pursuant to our stock repurchase program.
In the third quarter of 2019, our Board of Directors authorized a stock repurchase program, under which we were authorized to repurchase up to approximately 1.5 million shares (or approximately 5%) of our outstanding common stock through open market purchases, trading plans established in 2017.accordance with U.S. Securities and Exchange Commission rules, privately negotiated transactions, or by other means. The stock repurchase program expired on September 19, 2020; however, we received a notice of non-objection from the Federal Reserve Bank of Chicago to extend the previously authorized stock repurchase program through October 20, 2021. The actual means and timing of any repurchases, quantity of purchased shares and prices will be, subject to certain limitations, at the discretion of management and will depend on a number of factors, including, without limitation, market prices of our common stock, general market and economic condition, and applicable legal and regulatory requirements. These share purchases are anticipated to be funded by our cash on hand. During the first quarter of 2021, we repurchased 455,134 shares of our common stock at a weighted average price of $12.31 per share pursuant to our stock repurchase program. To date, we have repurchased 1,174,407 shares of our common stock at a weighted average price of $9.45 per share, under our stock repurchase program.
In 2015,
56
The following table shows the regulatory capital ratios and the current well capitalized regulatory requirements for the Company redeemed all outstanding sharesand the Bank as of the Company’s Series B preferred stock;dates indicated:
| | | | | | | | | | | | | | | |
| | Minimum Capital | | Well Capitalized | | | | | | | | | | ||
| | Adequacy with | | Under Prompt | | | | | | | | | | ||
| | Capital Conservation | | | Corrective Action | | March 31, | | December 31, | | March 31, | ||||
| | Buffer, if applicable1 | | Provisions2 | | 2021 | | 2020 | | 2020 | |||||
The Company | | | | | | | | | | | | | | | |
Common equity tier 1 capital ratio | | 7.00 | % | | N/A | | | 12.43 | % | | 11.94 | % | | 10.85 | % |
Total risk-based capital ratio | | 10.50 | % | | N/A | | | 14.73 | % | | 14.26 | % | | 13.09 | % |
Tier 1 risk-based capital ratio | | 8.50 | % | | N/A | | | 13.53 | % | | 13.01 | % | | 11.93 | % |
Tier 1 leverage ratio | | 4.00 | % | | N/A | | | 10.02 | % | | 10.21 | % | | 10.57 | % |
| | | | | | | | | | | | | | | |
The Bank | | | | | | | | | | | | | | | |
Common equity tier 1 capital ratio | | 7.00 | % | | 6.50 | % | | 14.59 | % | | 13.75 | % | | 12.89 | % |
Total risk-based capital ratio | | 10.50 | % | | 10.00 | % | | 15.80 | % | | 15.00 | % | | 14.07 | % |
Tier 1 risk-based capital ratio | | 8.50 | % | | 8.00 | % | | 14.59 | % | | 13.75 | % | | 12.89 | % |
Tier 1 leverage ratio | | 4.00 | % | | 5.00 | % | | 10.78 | % | | 10.74 | % | | 11.36 | % |
1Amounts are shown inclusive of a capital conservation buffer of 2.50%. Under the Federal Reserve’s Small Bank Holding Company Policy Statement, the Company is not subject to the minimum capital adequacy and capital conservation buffer capital requirements at the holding company level, unless otherwise advised by the Federal Reserve (such capital requirements are applicable only at the Bank level). Although the minimum regulatory capital requirements are not applicable to the Company, we calculate these ratios for our own planning and monitoring purposes.
2 The prompt corrective action provisions are only applicable at the Bank level.
As part of its response to the impact of the COVID-19 pandemic, in the first quarter of 2020, U.S. federal regulatory authorities issued an interim final rule that provided banking organizations that adopt CECL during the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay (i.e., a five-year transition in total). In connection with our adoption of CECL on January 1, 2020, we elected to utilize the five-year CECL transition. The cumulative amount that is not recognized in regulatory capital, in addition to the $3.8 million Day One impact of CECL adoption, will be phased in at 25% per year beginning January 1, 2022. As of March 31, 2021, the capital measures of the Company exclude $5.1 million, which is the modified CECL transition adjustment.
As of March 31, 2021, the Company, on a consolidated basis, exceeded the minimum capital ratios to be deemed “well capitalized” and met the now fully phased-in capital conservation buffer requirements. In addition to the above regulatory ratios, our GAAP common equity to total assets ratio, which is used as a performance measurement for capital analysis and peer comparisons, decreased from 10.10% at December 31, 2020, to 9.82% at March 31, 2021. Our GAAP tangible common equity to tangible assets ratio was 9.23% at March 31, 2021, compared to 9.48% as of September 30, 2015, no shares of the Series B Stock remained outstanding. After this redemption, the Company’s total stockholders’ equity continues to include $4.8 million to reflect the value of a ten year warrant to purchase shares of its common stock, with an exercise price of $13.43 per share, issued in January 2009 as part of the original Series B issuance. A discussion of the 2009 issuance, including this warrant, is included in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Form 10-K for the year ended December 31, 2016, under the heading “Capital”.
42
The Company’s2020. Our non-GAAP tangible common equity to tangible assets ratio, was 8.16%which management also considers a valuable performance measurement for capital analysis, decreased from 9.49% at September 30, 2017, compared to 7.41% as of December 31, 2016,2020, to 9.24% at March 31, 2021, due to the growth in total tangible assets.
In November 2019, the federal banking agencies published final rules to provide an optional simplified measure of capital adequacy for qualifying community banking organizations, which we refer to as the community bank leverage ratio (“CBLR”) framework. Generally, under the CBLR framework, qualifying community banking organizations with total assets of less than $10 billion, and 8.12% at September 30, 2016.limited amounts of off-balance-sheet exposures and trading assets and liabilities, may elect whether to be subject to the CBLR framework if they have a CBLR of greater than 9%. Qualifying community banking organizations that elect to be subject to the CBLR framework and continue to meet all requirements under the framework would not be subject to risk-based or other leverage capital requirements and, in the case of an insured depository institution, would be considered to have met the well capitalized ratio requirements for purposes of the FDIC’s Prompt Corrective Action framework. The final rule became effective on January 1, 2020. We do not have any immediate plans to elect to use the community bank leverage ratio framework, but may make such an election in the future.
|
|
|
|
|
|
|
|
|
|
|
| (unaudited) | |||||||
|
| As of September 30, |
| As of December 31, |
| As of September 30, | |||
(in thousands) |
| 2017 |
| 2016 |
| 2016 | |||
|
|
|
|
|
|
|
|
|
|
Tier 1 capital |
|
|
|
|
|
|
|
|
|
Total equity |
| $ | 200,763 |
| $ | 175,210 |
| $ | 171,627 |
Tier 1 adjustments: |
|
|
|
|
|
|
|
|
|
Trust preferred securities allowed |
|
| 55,395 |
|
| 47,997 |
|
| 48,728 |
Cumulative other comprehensive loss |
|
| 632 |
|
| 8,762 |
|
| 7,437 |
Disallowed intangible assets |
|
| (8,830) |
|
| (8,761) |
|
| - |
Disallowed deferred tax assets |
|
| (26,381) |
|
| (31,220) |
|
| (32,882) |
Tier 1 capital |
| $ | 221,579 |
| $ | 191,988 |
| $ | 194,910 |
|
|
|
|
|
|
|
|
|
|
Tangible common equity |
|
|
|
|
|
|
|
|
|
Total Equity |
| $ | 200,763 |
| $ | 175,210 |
| $ | 171,627 |
Less: Intangible assets |
|
| 8,830 |
|
| 8,761 |
|
| - |
Tangible common equity |
| $ | 191,933 |
| $ | 166,449 |
| $ | 171,627 |
|
|
|
|
|
|
|
|
|
|
Tangible assets |
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 2,360,407 |
| $ | 2,251,188 |
| $ | 2,112,751 |
Less: Goodwill and intangible assets |
|
| 8,830 |
|
| 8,761 |
|
| - |
Tangible assets |
| $ | 2,351,577 |
| $ | 2,242,427 |
| $ | 2,112,751 |
|
|
|
|
|
|
|
|
|
|
57
Reconciliation of Tangible Common Equity to Tangible Assets Ratio Non-GAAP Measure
| | | | | | | | | | | | | | | |
| March 31, 2021 | | | December 31, 2020 | | ||||||||||
Tangible common equity | GAAP | | | Non-GAAP | | | GAAP | | | Non-GAAP | | ||||
(Dollars in thousands) | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Total Equity | $ | 311,113 | | | $ | 311,113 | | | $ | 307,087 | | | $ | 307,087 | |
Less: Goodwill and intangible assets | | 20,661 | | | | 20,661 | | | | 20,781 | | | | 20,781 | |
Add: Limitation of exclusion of core deposit intangible (80%) | | N/A | | | | 411 | | | | N/A | | | | 435 | |
Adjusted goodwill and intangible assets | | 20,661 | | | | 20,250 | | | | 20,781 | | | | 20,346 | |
Tangible common equity | $ | 290,452 | | | $ | 290,863 | | | $ | 286,306 | | | $ | 286,741 | |
Tangible assets | | | | | | | | | | | | | | | |
Total assets | $ | 3,166,652 | | | $ | 3,166,652 | | | $ | 3,040,837 | | | $ | 3,040,837 | |
Less: Adjusted goodwill and intangible assets | | 20,661 | | | | 20,250 | | | | 20,781 | | | | 20,346 | |
Tangible assets | $ | 3,145,991 | | | $ | 3,146,402 | | | $ | 3,020,056 | | | $ | 3,020,491 | |
| | | | | | | | | | | | | | | |
Common equity to total assets | | 9.82 | % | | | 9.82 | % | | | 10.10 | % | | | 10.10 | % |
Tangible common equity to tangible assets | | 9.23 | % | | | 9.24 | % | | | 9.48 | % | | | 9.49 | % |
LiquidityThe non-GAAP intangible asset exclusion reflects the 80% core deposit limitation per Basel III guidelines within risk based capital calculations, and is useful for us when reviewing risk based capital ratios and equity performance metrics.
Liquidity
Liquidity is the Company’sour ability to fund operations, to meet depositor withdrawals, to provide for customers’ credit needs, and to meet maturing obligations and existing commitments. TheOur liquidity of the Company principally depends on our cash flows from operating activities, investment in and maturity of assets, changes in balances of deposits and borrowings, and itsour ability to borrow funds. The Company monitors itsWe monitor our borrowing capacity at the FHLBC as part of itsour liquidity management process as supervised by theour Asset and Liability Committee (“ALCO”) and reviewed by theour Board of Directors. In addition, due to the potential impacts on our liquidity stemming from the COVID-19 pandemic, our senior management team monitors cash balances daily to ensure we have adequate liquidity to meet our operational and financing needs. As of March 31 2021, our cash on hand liquidity totaled $440.9 million, an increase of $111.0 million over cash balances held as of December 31, 2020.
Net cash inflows from operating activities were $28.5$15.4 million during the first ninethree months of 2017,2021, compared with net cash inflows of $17.2$9.0 million in the same period in 2016. Proceeds from sales of 2020. Funds used to originate loans held-for-sale, net of funds used to originateproceeds from sales of loans held-for-sale, were a source of inflows for the first ninethree months of 20172021 and 2016.outflows for the like period of 2020. Interest paid, net of interest received, combined with changes in other assets and liabilities were a source of outflows for the first ninethree months ended March 31, 2021, but were a source of 2017 and 2016.inflows for the like period of 2020. The management of investing and financing activities, as well as market conditions, determines 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, as part of the balance sheet management process.
Net cash outflows from investing activities were $105.7$26.6 million in the first ninethree months of 2017,ended March 31, 2021, compared to net cash inflowsoutflows of $117.4 million$220,000 in the same period in 2016.2020. In the first ninethree months of 2017,2021, securities transactions accounted for net outflows of $102.4 million, and the principal change on loans accounted for net inflows of $75.9 million. In the first three months of 2020, securities transactions accounted for net inflows of $10.8$28.1 million, and net principal disbursed on loans funded accounted for net outflows of $118.7 million. In the first nine months of 2016, securities transactions accounted for net inflows of $184.4 million, and net principal disbursed on loans accounted for net outflows of $71.6$27.7 million. Proceeds from sales of OREO accounted for $5.5 million$325,000 and $5.2 million$311,000 in investing cash inflows for the first ninethree months of 2017ended March 31, 2021 and 2016,2020, respectively.
Net cash inflows from financing activities in the first ninethree months of 2017ended March 31, 2021 were $77.3$122.3 million, compared with net cash inflows of $15.0$13.7 million in the first ninethree months of 2016.ended March 31, 2020. Net deposit inflows in the first ninethree months of 20172021 were $22.3$119.5 million compared to net deposit inflows of $18.3$68.9 million in the first ninethree months of 2016.2020. Other short-term borrowings had no net cash inflows relatedoutflows in the first three months of 2021, compared to FHLBC advances of $55.0$42.1 million in the first ninethree months of 2017 and outflows of $15.0 million in the first nine months of 2016.2020. Changes in securities sold under repurchase agreements accounted for $1.1$10.3 million and $12.5$2.5 million in net inflows for the three months ended March 31, 2021 and 2020, respectively. The redemption of our Old Second Capital Trust I trust preferred securities and related junior subordinated debentures resulted in cash outflows of $32.6 million in the first nine monthsquarter of 2017 and 2016, respectively.2020, which was partially offset by a $20.0 million term note cash inflow which was originated to partially fund this trust preferred redemption; $16.0 million of this term note remains outstanding as of March 31, 2021.
58
Cash and cash equivalents for the ninethree months ended September 30, 2017,March 31, 2021, totaled $47.5$440.9 million, as compared to $189.9$73.1 million as of September 30, 2016. The significantly higher balance atMarch 31, 2020. In addition to cash and cash equivalents on hand or held as deposits with other financial institutions, we rely on funding sources from customer deposits, cash flows from securities available-for-sale and loans, and a line of credit with the endFHLBC to meet potential liquidity needs. These sources of liquidity are immediately available to satisfy any funding requirements due to depositor or borrower demands through the 2016 period was in anticipationordinary course of our business. Additional sources of funding include a $20 million undrawn line of credit held by the $181.5 million paid for the Talmer branch purchase in October 2016.Company with a third party financial institution, as well as unpledged securities available-for-sale.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
As part of itsour normal operations, the Company iswe are subject to interest-rate risk on the assets it investswe invest in (primarily loans and securities) and the liabilities it fundswe fund (primarily customer deposits and borrowed funds), as well as its ability to manage such risk.. Fluctuations in interest rates may result in changes in the fair market values of the Company’sour financial instruments, cash flows, and net interest income. Like most financial institutions, the Company haswe have an exposure to changes in both short-term and long-term interest rates.
In June 2017,the first quarter of 2020 the Federal Reserve raised short-term interest rates bycut the Fed Funds rate three times down to a target range of 0% to 0.25%. There is a general market expectation thatAdditionally, the Federal Reserve will move short-term rates higherhas been aggressively purchasing various assets since March 2020 in Decemberan effort to stabilize the economy from the continuing effects of 2017. Generally,COVID-19. Overall, the Federal Reserve’s balance sheet has increased from about $4.2 trillion in early March 2020 to about $7.7 trillion as of March 31, 2021, the current pace of asset purchases is expected to continue. Despite the market pricing in a rate hike in late 2022, the Federal Reserve actions have not had a significant impact on long-term rates, although Federal Reserve officials have announced a schedulemaintained the statement that the Fed Funds rate will remain in the 0% to end reinvestment in their securities portfolio starting October 2017, which could result in increases in long-term rates. The Company manages0.25% range through 2023. We manage interest rate risk within guidelines established by a policy which limitsare intended to limit the amount of rate exposure. In practice, we seek to manage our interest rate risk exposure is maintained well within those guidelines. our guidelines so that such exposure does not pose a material risk to our future earnings.
The Company manages
We seek to manage various market risks in itsthe normal course of our operations, including credit, liquidity risk, and interest-rate risk. Other types of market risk, such as foreign currency exchange risk and commodity price risk, do not arise in the normal course of the Company’sour business activities and operations. In addition, since the Company doeswe do not hold a trading portfolio, it iswe are not exposed to significant market risk from trading activities. The Company’sOur interest rate risk exposures estimated at September 30, 2017,March 31, 2021 and December 31, 2016,2020 are outlined in the table below.
The Company'sOur net income can be significantly influenced by a variety of external factors, including: overall economic conditions, policies and actions of regulatory authorities, the amounts of and rates at which assets and liabilities reprice, variances in prepayment of loans and securities other than those that are assumed, early withdrawal of deposits, exercise of call options on borrowings or securities, competition, a general rise or decline in interest rates, changes in the slope of the yield-curve, changes in historical relationships between indices (such as LIBOR and prime), and balance sheet growth or contraction. The Company's ALCOOur asset-liability committee seeks to manage interest rate risk under a variety of rate environments by structuring the Company'sour balance sheet and off-balance sheet positions, which includeincludes interest rate swap derivatives as discussed in Note 1520 of theour consolidated financial statements included in this quarterlyannual report. TheWe seek to monitor and manage interest rate risk is monitored and managed within approved policy guidelines and limits.
The Company utilizesWe use simulation analysis to quantify the impact of various rate scenarios on our net interest income. Specific cash flows, repricing characteristics, and embedded options of the assets and liabilities held by the Companyus are incorporated into the simulation model. Earnings at risk isare calculated by comparing the net interest income of a stable interest rate environment to the net interest income of a different interest rate environmentsenvironment in order to determine the percentage change. Significant declines in interest rates that occurred during the first half of 2012 have made it impossible to calculate valid interest rate scenarios for rate declines of 2.0% or more, a situation that continues to date. As of September 30, 2017 and December 31, 2016, the Company’s analyses reflected2020, we had notable amounts of earnings gains (in both dollars and percentage) should interest rates rise, and earnings reductions shouldrise. Due to relatively low current market interest rates, fall.it was not possible to calculate any down rate scenarios because many of the market interest rates would fall below zero in that scenario. The changesprojected increases in income across the variousall up rate interest rate shock scenarios as of September 30, 2017March 31, 2021 were similar to those increases in Federal Home Loan Bank borrowings. Overall, management considersmoderately lower than December 31, 2020. This was primarily the current levelresult of interest rate risks to be moderate, but intends to continue closely monitoring changes in that risk in case corrective actions might be needed in the future. Federal funds rate and the Bank’s prime rate remained unchanged at 1.25% and 4.25%, respectively.a second round of PPP loans.
The following table summarizes the effect on annual income before income taxes based upon an immediate increase or decrease in interest rates of 0.5% and, 1%, and an increase of 2% assumingand no change in the slope of the yield curve. Due to the low interest rate environment, it was not possible to calculate any down rate scenarios because rates would fall below zero in all down rate scenarios.
59
Analysis of Net Interest Income Sensitivity
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| Analysis of Net Interest Income Sensitivity | ||||||||||||||||||
(dollars in thousands) |
| Immediate Changes in Rates | ||||||||||||||||||
|
|
| (1.0) | % |
|
| (0.5) | % |
|
| 0.5 | % |
|
| 1.0 | % |
|
| 2.0 | % |
September 30, 2017 |
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|
|
Dollar change |
| $ | (4,860) |
|
| $ | (2,159) |
|
| $ | 1,175 |
|
| $ | 2,393 |
|
| $ | 4,630 |
|
Percent change |
|
| (6.5) | % |
|
| (2.9) | % |
|
| 1.6 | % |
|
| 3.2 | % |
|
| 6.2 | % |
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December 31, 2016 |
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Dollar change |
| $ | (4,404) |
|
| $ | (2,141) |
|
| $ | 1,145 |
|
| $ | 2,406 |
|
| $ | 4,866 |
|
Percent change |
|
| (6.6) | % |
|
| (3.2) | % |
|
| 1.7 | % |
|
| 3.6 | % |
|
| 7.3 | % |
(Dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Analysis of Net Interest Income Sensitivity | ||||||||||||||||||||||
| | Immediate Changes in Rates | ||||||||||||||||||||||
| |
| (2.0) | % | |
| (1.0) | % |
|
| (0.5) | % |
|
| 0.5 | % |
|
| 1.0 | % |
|
| 2.0 | % |
March 31, 2021 | | | | | | | | | | | | | | | | | | | | | | | | |
Dollar change | | | N/M | | | | N/M | | | | N/M | | | $ | 2,793 | | | $ | 5,985 | | | $ | 12,200 | |
Percent change | | | N/M | | | | N/M | | | | N/M | | | | 3.2 | % | | | 6.9 | % | | | 14.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2020 | | | | | | | | | | | | | | | | | | | | | | | | |
Dollar change | | | N/M | | | | N/M | | | | N/M | | | $ | 3,405 | | | $ | 6,879 | | | $ | 13,145 | |
Percent change | | | N/M | | | | N/M | | | | N/M | | | | 3.9 | % | | | 7.8 | % | | | 14.9 | % |
N/M - Not meaningful
The amounts and assumptions used in the simulation model should not be viewed as indicative of expected actual results. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and management strategies. The above results do not take into account any management action to mitigate potential risk.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended, as of September 30, 2017.March 31, 2021. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2017,March 31, 2021, the Company’s internal controls were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities and Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified.
There were no changes in the Company’s internal controls over financial reporting during the quarter ended September 30, 2017,March 31, 2021, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Forward-looking Statements
This document (including information incorporated by reference) contains,The design of any system of controls and future oral and written statementsprocedures is based in part upon certain assumptions about the likelihood of the Company and its management may contain, forward-looking statements, within the meaning of such term in the Private Securities Litigation Reform Act of 1995, with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the Company’s management and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “intend,” “estimate,” “may,” “will,” “would,” “could,” “should” or other similar expressions. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. The factors, which could have a material adverse effect on the operations and future prospects of the Company and its subsidiaries, are detailed in the “Risk Factors” section included under Item 1.A. of Part I of the Company’s most recent Annual Report in Form 10-K. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.
PART II - OTHER INFORMATION
The Company and its subsidiaries, from time to time, are involved in collection suits in the ordinary course of business against its debtors and are defendants 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.
There have been no material changes from the risk factors set forthInvesting in Part I,shares of our common stock involves certain risks, including those identified and described in Item 1.A. “Risk Factors,”1A. of the Company’sour Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and the risk factors set forth2020, as well as cautionary statements contained in this Quarterly Report on Form 10-Q, including those under the heading “Risk Factors”caption “Cautionary Note Regarding Forward-Looking Statements” and in our other filings with the Company’s Registration Statement SEC.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Stock Repurchases
In September 2019, our board of directors authorized the repurchase of up to 1,494,826 shares of our common stock (the “Repurchase Program”). The Repurchase Program expired on September 19, 2020. However, on October 20, 2020, the Company received notice of non-objection from the Federal Reserve Bank of Chicago to extend the Repurchase Program through October 20, 2021. Repurchases by the Company under the Repurchase Program may be made from time to time through open market purchases, trading plans established in accordance with SEC rules, privately negotiated transactions, or by other means.
The actual means and timing of any repurchases, quantity of purchased shares and prices will be, subject to certain limitations, at the discretion of management and will depend on a number of factors, including, without limitation, market prices of our common stock, general market and economic conditions, and applicable legal and regulatory requirements. Repurchases under the Repurchase Program may be initiated, discontinued, suspended or restarted at any time provided that repurchases under the Repurchase Program after October 20, 2021, would require Federal Reserve non-objection or approval. We are not obligated to repurchase any shares under the Repurchase Program.
The following table presents our stock repurchases for the quarter ended March 31, 2021.
| | | | | | | | | |
| | | | | | | Total Number of | | Maximum Number |
| | Total | | | | | Shares Purchased | | of Shares that May |
| | Number of | | | Average | | as Part of Publicly | | Yet Be |
(Dollars in thousands, except for per share | | Shares | | | Price Paid | | Announced Plans | | Purchased Under |
amounts) | | Purchased (a) | | | per Share (b) | | or Programs (c)(1) | | the Plans or Programs (d) |
January 1, 2021 - January 31, 2021 | | - | | | - | | - | | 775,553 |
February 1, 2021 - February 28, 2021 | | 249,557 | | | 11.44 | | 249,557 | | 525,996 |
March 1, 2021 - March 31, 2021 | | 205,577 | | | 13.35 | | 205,577 | | 320,419 |
Total | | 455,134 | | $ | 12.31 | | 455,134 | | 320,419 |
| | | | | | | | | |
(1) | We publicly announced the extension of our Repurchase Program, which will expire on October 20, 2021 unless further extended as described above, in our Current Report on Form 8-K filed on October 21, 2020, and 898,415 shares remained available for repurchase under the Repurchase Program as of October 20, 2020. |
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable
N/A
None.
45
61
Exhibits:
| |
| |
10.1 | |
| |
| |
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a). | |
| |
31.2 | |
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a). | |
| |
32.1 | |
| |
32.2 | |
| |
101 | Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets at |
| |
104 | Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document). |
| |
| * As provided in Rule 406T of Regulation S-T, these interactive data files shall not be deemed “filed” for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934 as amended, or otherwise subject to liability under those sections. |
46
62
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | ||||
| OLD SECOND BANCORP, INC. | ||||||
| | ||||||
| | ||||||
| BY: | /s/ James L. Eccher | |||||
| | James L. Eccher | |||||
| | President and Chief Executive Officer | |||||
| | (principal executive officer) | |||||
| | ||||||
| | ||||||
| BY: | /s/ Bradley S. Adams | |||||
| | Bradley S. Adams | |||||
| | Executive Vice President and Chief Financial Officer | |||||
| | (principal financial and accounting officer) | |||||
| | ||||||
| | ||||||
DATE: | |
63