UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant To Section 13 Or 15(d)
Of The Securities Exchange Act Of 1934
For the quarterly period ended March 31, 1998
Commission file No. 0-10537
Old Second Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-3143493
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
37 South River Street, Aurora, Illinois 60507
(Address of principal executive offices) (Zip Code)
(630) 892-0202
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d)of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 91 days.
Yes [X] No[ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
3,049,190 shares of no par value common stock are outstanding as of May 13,
1998.
There are no exhibits with this Form 10-Q.
Page 1 of 12 Pages
Part I - Financial Information
Item 1 - Financial Statements
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA)
March 31, December 31,
1998 1997
------------ ----------
ASSETS
- ------
Cash and Due from Banks, Non-Interest
Bearing $ 33,710 $ 40,625
Interest Bearing Deposits With Banks 350 350
Federal Funds Sold 55,225 46,050
-------- --------
Total Cash and Cash Equivalents 89,285 87,025
Available for Sale Securities 255,842 264,467
Loans Held for Sale 26,344 26,927
Loans 538,078 534,980
Less: Allowance For Possible Loan Losses 7,234 6,923
Unearned Income 323 348
-------- --------
Loans, Net 530,521 527,709
Bank Premises and Equipment, Net 20,912 20,805
Other Assets 21,380 21,438
-------- --------
TOTAL ASSETS $944,284 $948,371
======== ========
LIABILITIES
- -----------
Deposits:
Demand $109,058 $114,764
Savings 324,582 304,657
Time 356,134 369,508
-------- --------
Total Deposits 789,774 788,929
-------- --------
Federal Funds Purchased and Securities
Sold Under Agreements To Repurchase 19,005 22,926
Other Short-Term Borrowings 3,926 8,097
Note Payable 21,414 24,133
Other Liabilities 15,652 12,165
-------- --------
Total Liabilities 849,771 856,250
Page 2
STOCKHOLDERS' EQUITY
- -----------------------------------
Preferred Stock, no par value, 300,000 shares
authorized, none issued
Common Stock, no par value shares authorized:
Issued: 6,000,000
Outstanding: 3,049,190 15,844 15,844
Retained Earnings 76,848 74,924
Net Unrealized Gain on Investments 1,821 1,353
-------- --------
Total Stockholders' Equity 94,513 92,121
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $944,284 $948,371
======== ========
[FN]
See accompanying notes.
Page 3
OLD SECOND BANCORP, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
Three Months Ended
March 31,
------------------
1998 1997
------------------
INTEREST INCOME:
- ----------------
Interest and Fees on Loans $12,103 $10,896
Interest and Dividends on Available-for-Sale
Securities:
Taxable 3,011 3,372
Exempt From Federal Income Tax 777 818
Interest on Federal Funds Sold 752 441
Interest on Interest Bearing Deposits 7 5
------- -------
Total Interest Income 16,650 15,532
------- -------
INTEREST EXPENSE:
- -----------------
Savings Deposits 2,135 1,900
Time Deposits 5,332 5,191
Other Short-Term Borrowings 643 156
------- ------
Total Interest Expense 8,110 7,247
------- ------
Net Interest Income 8,540 8,285
Provision for Possible Loan Losses 354 195
------- -------
Net Interest Income After Provision for
Possible Loan Losses 8,186 8,090
OTHER INCOME:
- -------------
Trust Fees 1,109 1,019
Service Charges on Deposit Accounts 724 713
Gain on Sales of Loans 2,081 590
Other Income 804 719
------- -------
Total Other Income 4,718 3,041
Page 4
OTHER EXPENSES:
- ---------------
Salaries and Employee Benefits 5,000 4,325
Net Occupancy of Bank Premises 575 527
Furniture and Equipment 979 809
FDIC Insurance 34 54
Marketing 221 201
Stationery and Supplies 226 227
Amortization of Intangible Assets 351 278
Other 1,820 1,439
------- -------
Total Other Expenses 9,206 7,860
------- -------
Income Before Income Taxes 3,698 3,271
Income Tax Expense 1,164 997
------- -------
Net Income $2,534 $2,274
======= =======
Per Share Amounts:
- ------------------
Basic Earnings Per Share $0.83 $0.75
Diluted Earnings Per Share $0.83 $0.75
Dividends Declared 0.20 0.19
Average Shares Outstanding 3,049,190 3,049,190
[FN]
See accompanying notes.
Page 5
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
For the Three Months
Ended March 31,
1998 1997
---------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Interest Received $17,591 $15,448
Interest Paid (8,140) (7,189)
Paid to Suppliers and Employees (5,336) (7,694)
Trust Fees Received 1,109 1,019
Income Taxes Paid - (186)
Service Charges Received on Deposit Accounts 724 713
Mortgage Loan Originations and Purchases (141,174) (44,994)
Mortgage Loans Sold to Secondary Market 143,838 46,433
Other Income Received 804 719
------- -------
Net Cash Provided By Operating Activities 9,416 4,269
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
- ------------------------------------
Net Increase in Loans (3,166) (13,683)
Purchases of Available for Sale Securities (23,894) (13,468)
Proceeds from Maturities of Available For Sale
Securities 33,102 35,777
Capital Expenditures (706) (346)
Net Proceeds on Sales (Purchases) of Mortgage
Servicing Rights (1,157) (21)
Other, Net (393) 431
------- -------
Net Cash Provided by Investing Activities 3,786 8,690
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Net Increase (Decrease) in Deposits 845 (26,810)
Increase (Decrease)in Other Short-term Borrowings (8,092) 164
Increase in Notes Payable (2,719) -
Dividends Paid (915) (881)
Other, Net (61) (39)
------- -------
Net Cash Used in Financing Activities (10,942) (27,566)
------- -------
Net Increase (Decrease)in Cash & Cash Equivalents 2,260 (14,607)
Cash & Cash Equivalents at Beginning of Period 87,025 81,007
------- -------
Cash & Cash Equivalents at End of Period $89,285 $66,400
======= =======
Page 6
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net Income $2,534 $2,274
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 599 500
Provision for Possible Loan Losses 354 195
Increase in Taxes Payable 1,164 811
Decrease in Mortgages Held for Sale 583 924
(Increase) Decrease in Interest Receivable 766 (164)
Decrease in Interest Payable (30) (17)
Premium Amortization and Discount Accretion on
Investments 176 80
Amortization of Intangibles 351 278
Decrease in Accrued Expenses 3,018 (522)
Decrease in Prepaid Expenses (99) (90)
------- ------
Total Adjustments 6,882 1,995
------- ------
Net Cash Provided by Operating Activities $9,416 $4,269
======= ======
[FN]
See accompanying notes.
Page 7
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed in the preparation of interim financial
statements are consistent with those used in the preparation of annual
financial information. The interim financial statements reflect all
adjustments, which are normal and recurring in nature, necessary in the
opinion of management for a fair statement of results for the interim periods
presented. Results for the three months ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998.
NOTE 2 - ACCOUNTING FOR EARNING PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard (SFAS) No. 128 "Earnings Per Share" which
required adoption for periods ending after December 31, 1997 and prescribes
the calculation of earnings per share for both interim and annual financial
statements.
The following table sets forth the computation of basic and diluted earnings
per share (share and per share data not in thousands):
1998 1997
---- ----
Numerator for basic and diluted earnings per
share - net income $2,534 $2,274
========= =========
Denominator for basic earnings per share -
weighted average shares outstanding 3,049,190 3,049,190
Effect of dilutive securities - employee stock options 10,601 3,639
--------- ---------
Denominator for diluted earnings per share -
adjusted weighted average shares outstanding 3,059,791 3,052,829
========= =========
Earnings per share - basic $0.83 $0.75
Earnings per share - duluted $0.83 $0.74
NOTE 3 - BUSINESS COMBINATIONS
On May 13, 1997 Old Second issued 111,706 shares of common stock to acquire
100% of the outstanding common stock of Maple Park Bancshares, Inc. The
acquisition of Maple Park Bancshares, Inc. was accounted for as a pooling-of-
interest; accordingly, the previously reported financial statements have been
restated to include the accounts and results of operation of Maple Park
Bancshares, Inc.
NOTE 4 - REPORTING COMPREHENSIVE INCOME
As of January 1, 1998, the Corporation adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting
and display of comprehensive income and its components; however, the adoption
of this Statement had no impact on the Corporation's net income or
shareholders' equity. Statement 130 requires unrealized gains or losses on
the Corporation's available-for-sale securities, which prior to adoption were
reported separately in shareholders' equity to be included in other
comprehensive income. Prior year financial statements have been reclassified
to conform to the requirements of Statement 130.
During the first quarter of 1998 and 1997, total comprehensive income
amounted to $3,001,341 and $1,863,225, respectively.
NOTE 5 - SEGMENTS REPORTING
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" which
addresses the reporting of financial information from operating segments in
annual and interim financial statements. Management believes that it
operates under one segment as defined by SFAS No. 131 and additional
disclosure is not required.
Page 8
PART 1 - FINANCIAL INFORMATION
ITEM 2
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion analyzes the consolidated financial condition and
results of operations of Old Second Bancorp, Inc. and its subsidiaries.
FINANCIAL CONDITION
Total Assets at March 31, 1998 were $944,284,000, a decrease of $4,087,000
from the 1997 year-end total of $948,371,000. Available for Sale Securities
of $255,842,000 were down $8,625,000 and Net Loans of $530,521,000 were up
$2,812,000.
Total Deposits were $789,774,000 compared to the 1997 year-end total of
$788,929,000. Savings Deposits of $324,582,000 were up $19,925,000 (6.5%).
Time Deposits decreased $13,374,000 (3.6%). Demand Deposits of $109,058,000
were down $5,706,000 (5.0%). Securities Sold Under Agreements to Repurchase
of $19,005,000 decreased $3,921,000 and Other Short-Term Borrowings of
$3,926,000 were down $4,171,000.
Total Stockholders' Equity of $94,513,000 increased by $2,392,000 from the
1997 year-end total of $92,121,000. The increase resulted from additional
retained earnings of $1,924,000 and by an increase of $468,000 in Net
Unrealized Gain on Investments.
RESULTS OF OPERATIONS
Operating results include Net Income for Old Second Bancorp, Inc. and its
subsidiaries for the three months ended March 31, 1998 and 1997,
respectively. Net Interest Income for the three months ending March 31, 1998
of $8,540,000 was up $255,000(3.1%) over the same period in 1997. Total
Interest Income for the three months of 1998 was higher than 1997 by
$1,118,000, while Total Interest Expense was up in 1998 by $863,000.
Total Other Income for the three months ending March 31, 1998 of $4,718,000
was up $1,677,000 due primarily to higher gain on sales of loans. Total
Other Expenses for the three months ending March 31, 1998 increased
$1,346,000 (17.1%) from the same period in 1997.
Page 10
LIQUIDITY
Liquidity is generally defined as the ability to meet cash flow requirements.
For a bank, meeting cash flow requirements means having funds available to
satisfy customer credit needs as well as having funds available to meet
depositor withdrawal requests. For the Corporation, liquidity means having
funds available to pay cash dividends, debt service and operating expenses.
Liquid assets consist primarily of non-interest bearing and interest bearing
deposits, overnight federal funds sold and unpledged investment securities.
The Consolidated Statements of Cash Flows included with the financial
statements herein set forth the cash flows from operating, investing and
financing activities for the various time periods.
Net cash provided by operating activities for the three months ended March
31, 1998 was $9,416,000 and $4,269,000 for the same period in 1997. The
increase in cash flows from operating activities resulted from the
implementation of cash management techniques reducing the amount paid to
suppliers in 1998.
Net cash provided by investing activities was $3,786,000 for the three months
in 1998; while $8,690,000 was reported in 1997. The primary components of
cash flows from investing activities are funding and repayment of customer
loans and purchases and sales of investment securities. For 1998, net
increases in loans resulted in cash outflows of $3,166,000 and net
investment securities activity resulted in cash inflows of $9,208,000.
During 1997, net increases in loans resulted in cash outflows of $13,683,000
and net investment securities activity resulted in cash inflows of
$22,309,000.
Cash flows from financing activities are primarily attributable to changes in
deposit levels, short-term borrowing, notes payable and the payment of
dividends to stockholders. For the three months ending March 31, 1998, net
cash used in financing activities was $10,942,000; in 1997 net cash used in
financing activities totaled $27,566,000. For 1998, an increase in deposits
generated cash inflows of $845,000 and a decrease in Short-term Borrowing
generated cash outflows of $8,092,000. In 1997 a decrease in deposits
generated cash outflows of $26,810,000 and an increase in Short-term
Borrowings resulted in cash inflows of $164,000.
Page 11
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
A. The annual meeting of stockholders of Old Second Bancorp, Inc was
held on March 10, 1998.
B. The following matters were voted upon at this annual meeting and
the results of such votes are provided below:
Ratification and approval of the selection of Ernst & Young LLP as
the Corporation's independent auditors for the year of 1998.
For 2,539,026 Against 2,002 Abstentions 6,460
The election of three directors to serve for a term of three years
each.
Walter Alexander For 2,537,120 Against 3,114 Abstentions 7,254
William Meyer For 2,537,120 Against 3,114 Abstentions 7,254
Larry Schuster For 2,537,120 Against 3,114 Abstentions 7,254
William B. Skoglund For 2,534,959 Against 5,275 Abstentions 7,254
George Starmann III For 2,536,959 Against 3,275 Abstentions 7,254
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit 27. Financial Data Schedule
B. Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter because of
the absence of conditions under which they are required.
Page 12
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
OLD SECOND BANCORP, INC.
/s/ Ronald J. Carlson
By: Ronald J. Carlson,
President, Chief Financial Officer,
Chief Operating Officer, Secretary
and Director
Date: May 13, 1998
Page