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 June 30, 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.
3,005,056 shares of no par value common stock are outstanding as of
August 13, 1998.
There are no exhibits with this Form 10-Q.
Page 1
Part I - Financial Information
Item 1 - Financial Statements
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA)
June 30, December 31,
1998 1997
--------- -----------
ASSETS
- ------
Cash and Due from Banks, Non-Interest Bearing $ 36,604 $ 40,625
Interest Bearing Deposits With Banks 350 350
Federal Funds Sold 76,235 46,050
-------- --------
Total Cash and Cash Equivalents 113,189 87,025
Available for Sale Securities 254,167 264,467
Loans Held for Sale 25,435 26,927
Loans 545,369 534,980
Less: Allowance For Possible Loan Losses 7,481 6,923
Unearned Income 296 348
-------- --------
Loans, Net 537,592 527,709
Bank Premises and Equipment, Net 20,967 20,805
Other Assets 21,934 21,438
-------- --------
TOTAL ASSETS $973,284 $948,371
======== ========
LIABILITIES
- -----------
Deposits:
Demand $117,469 $114,764
Savings 339,310 304,657
Time 351,566 369,508
-------- --------
Total Deposits 808,345 788,929
-------- --------
Federal Funds Purchased and Securities Sold
Under Agreements To Repurchase 25,867 22,926
Other Short-Term Borrowings 7,486 8,097
Note Payable 21,277 24,133
Other Liabilities 14,149 12,165
-------- --------
Total Liabilities 877,124 856,250
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 at June 30, 1998: 3,005,056
Outstanding at Dec. 31, 1997: 3,049,300 15,874 15,844
Retained Earnings 78,969 74,924
Net Unrealized Gain on Investments 1,317 1,353
-------- --------
Total Stockholders' Equity 96,160 92,121
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $973,284 $948,371
======== ========
See accompanying notes.
Page 2
OLD SECOND BANCORP, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
Three Months Ended
June 30,
--------------------------
1998 1997
--------------------------
INTEREST INCOME:
- ----------------
Interest and Fees on Loans $12,356 $11,141
Interest and Dividends on Available-
for-Sale Securities:
Taxable 3,049 3,193
Exempt From Federal Income Tax 763 865
Interest on Federal Funds Sold 806 446
Interest on Interest Bearing Deposits 7 2
------- -------
Total Interest Income 16,981 15,647
------- -------
INTEREST EXPENSE:
- -----------------
Savings Deposits 2,267 1,882
Time Deposits 5,009 5,361
Other Short-Term Borrowings 680 200
------- -------
Total Interest Expense 7,956 7,443
------- -------
Net Interest Income 9,025 8,204
Provision for Possible Loan Losses 346 350
------- -------
Net Interest Income After Provision for
Possible Loan Losses 8,679 7,854
OTHER INCOME:
- -------------
Trust Fees 1,025 1,003
Service Charges on Deposit Accounts 816 792
Gain on Sales of Loans 2,108 553
Other Income 974 755
------- -------
Total Other Income 4,923 3,103
OTHER EXPENSES:
- ---------------
Salaries and Employee Benefits 5,161 4,455
Net Occupancy of Bank Premises 567 532
Furniture and Equipment 1,065 776
FDIC Insurance 33 60
Marketing 289 334
Stationery and Supplies 225 261
Amortization of Intangible Assets 370 281
Other 1,872 1,938
------- -------
Total Other Expenses 9,582 8,637
------- -------
Income Before Income Taxes 4,020 2,320
Income Tax Expense 1,290 825
------- -------
Net Income $2,730 $1,495
======= =======
Per Share Amounts:
- ------------------
Basic Earnings Per Share $0.90 $0.49
Diluted Earnings Per Share 0.89 0.49
Dividends Declared 0.20 0.20
Average Shares Outstanding 3,049,409 3,049,190
See accompanying notes.
Page 3
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
Six Months Ended
June 30,
--------------------------
1998 1997
--------------------------
INTEREST INCOME:
- ----------------
Interest and Fees on Loans $24,459 $22,037
Interest and Dividends on Available-
for-Sale Securities:
Taxable 6,060 6,565
Exempt From Federal Income Tax 1,540 1,683
Interest on Federal Funds Sold 1,558 887
Interest on Interest Bearing Deposits 14 7
------- -------
Total Interest Income 33,631 31,179
------- -------
INTEREST EXPENSE:
- -----------------
Savings Deposits 4,402 3,782
Time Deposits 10,341 10,552
Other Short-Term Borrowings 1,323 356
------- -------
Total Interest Expense 16,066 14,690
------- -------
Net Interest Income 17,565 16,489
Provision for Possible Loan Losses 700 545
------- -------
Net Interest Income After Provision for
Possible Loan Losses 16,865 15,944
OTHER INCOME:
- -------------
Trust Fees 2,134 2,022
Service Charges on Deposit Accounts 1,540 1,505
Gain on Sales of Loans 4,189 1,220
Other Income 1,783 1,397
------- -------
Total Other Income 9,646 6,144
OTHER EXPENSES:
- ---------------
Salaries and Employee Benefits 10,161 8,780
Net Occupancy of Bank Premises 1,142 1,059
Furniture and Equipment 2,049 1,593
FDIC Insurance 67 114
Marketing 510 535
Stationery and Supplies 451 488
Amortization of Intangible Assets 721 568
Other 3,692 3,360
------- -------
Total Other Expenses 18,793 16,497
------- -------
Income Before Income Taxes 7,718 5,591
Income Tax Expense 2,454 1,822
------- -------
Net Income $5,264 $3,769
======= =======
Per Share Amounts:
- ------------------
Basic Earnings Per Share $1.73 $1.24
Diluted Earnings Per Share 1.72 1.23
Dividends Declared 0.40 0.39
Average Shares Outstanding 3,049,300 3,049,190
See accompanying notes.
Page 4
OLD SECOND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
For the Six Months
Ended June 30,
1998 1997
--------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Interest Received $34,744 $30,708
Interest Paid (16,484) (14,764)
Paid to Suppliers and Employees (13,951) (14,369)
Trust Fees Received 2,134 2,022
Income Taxes Paid (2,528) (1,612)
Service Charges Received on Deposit Accounts 1,540 1,505
Mortgage Loan Originations and Purchases (304,581) (104,041)
Mortgage Loans Sold to Secondary Market 310,276 99,271
Other Income Received 1,784 1,396
-------- --------
Net Cash Provided By Operating Activities 12,934 116
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Net Increase in Loans (10,588) (32,850)
Purchases of Available for Sale Securities (46,329) (14,470)
Proceeds from Sales and Maturities of Available
For Sale Securities 56,270 45,955
Capital Expenditures (1,358) (2,719)
Net Proceeds on Purchases of Mortgage
Servicing Rights (2,366) (37)
Other, Net 169 (223)
-------- --------
Net Cash Used In Investing Activities (4,202) (4,344)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Net Increase (Decrease) in Deposits 19,415 (9,720)
Net Increase in Other Short-term Borrowings 2,332 18,108
Payments of Notes Payable (2,856) (1,017)
Dividends Paid (1,494) (1,469)
Other, Net 34 417
-------- --------
Net Cash Provided By Financing Activities 17,431 6,319
-------- --------
Net Increase in Cash & Cash Equivalents 26,163 2,091
Cash & Cash Equivalents at Beginning of Year 87,025 81,007
-------- --------
Cash & Cash Equivalents at End of Period $113,188 $83,098
======== ========
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net Income $5,264 $3,769
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 1,214 1,006
Provision for Possible Loan Losses 706 545
Increase (Decrease) in Taxes Payable (74) 210
Net (Increase) Decrease in Mortgage Loans
Held for Sale 1,492 (5,990)
(Increase) Decrease in Interest Receivable 815 (735)
Decrease in Interest Payable (417) (73)
Premium Amortization and Discount Accretion
on Investments 298 264
Amortization of Intangibles 734 568
Decrease in Accrued Expenses 2,731 2,268
(Increase) Decrease in Prepaid Expenses 171 (1,716)
------- -------
Total Adjustments 7,670 (3,653)
------- -------
Net Cash Provided by Operating Activities $12,934 $116
======= =======
See accompanying notes.
Page 5
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 six months ended June 30, 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 for the quarter ended June 30, 1998 (share and per share data not
in thousands):
1998 1997
------ ------
Numerator for basic and diluted earnings per
share - net income $2,730 $1,495
====== ======
Denominator for basic earnings per share - weighted
average shares outstanding 3,049,409 3,049,190
Effect of dilutive securities - employee stock
options 10,430 3,856
------ ------
Denominator for diluted earnings per share - adjusted
weighted average Shares outstanding 3,059,839 3,053,046
========= =========
Earnings per share - basic $ 0.90 $ 0.49
Earnings per share - diluted $ 0.89 $ 0.49
The following table sets forth the computation of basic and diluted earnings
per share year-to-date for the period ended June 30, 1998 (share and per
share data not in thousands):
1998 1997
------ ------
Numerator for basic and diluted earnings per
share - net income $5,264 $3,769
====== ======
Denominator for basic earnings per share - weighted
average shares Outstanding 3,049,300 3,049,190
Effect of dilutive securities - employee stock
options 10,165 3,398
------ ------
Denominator for diluted earnings per share - adjusted
weighted average Shares outstanding 3,059,465 3,052,588
========= =========
Earnings per share - basic $ 1.73 $ 1.24
Earnings per share - diluted 1.72 1.23
Page 6
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - continued
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 second quarter total comprehensive income amounted to $2,226,238
for 1998 and $2,166,281 for 1997. For June 30, 1998 and 1997, year to date
comprehensive income totaled $5,227,579 and $4,029,506, 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.
NOTE 6 - IMPACT OF YEAR 2000
The Corporation is currently in the process of addressing the potential
problems that could occur on January 1, 2000. The problem could effect a
wide variety of automated information systems, such as mainframe
applications, personal computers, communications systems, environmental
systems and other information systems. The Corporation has identified area
of operations critical for the delivery of its products and services. The
majority of the programs/applications used in the Corporation's operations
are purchased from outside vendors. The vendors providing the software are
responsible for maintenance of the systems and modifications to enable
uninterrupted usage after December 31, 1999. The Corporation's goal is to
have the plan complete and to be fully compliant by December 31, 1998. The
vendor of the Corporation's core operating system has already provided
certification of compliance with the year 2000 issue. Testing of the system
will occur during 1998. The Corporation's plan also includes reviewing any
potential risks associated with the loan and investment portfolios due to
the year 2000 issue.
Based on currently available information, Management does not anticipate that
the cost to address year 2000 issues will have a materially adverse impact
on the Corporation's financial condition or results of operations.
NOTE 7
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities", which
is required to be adopted in years beginning after June 15, 1999. Because
of the Corporation's minimal use of derivatives, management does not
anticipate that the adoption of the new Statement will have a material effect
on the Corporation's financial condition or results of operations.
Page 7
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 June 30, 1998 were $973,284,000, an increase of $24,913,000
from the 1997 year-end total of $948,371,000. Available for Sale Securities
of $254,167,000 were down $10,300,000 and Net Loans of $537,592,000 were up
$9,883,000.
Total Deposits were $808,345,000 compared to the 1997 year-end total of
$788,929,000. Savings Deposits of $339,310,000 were up $34,653,000 (11.4%).
Time Deposits decreased $17,942,000 (4.9%). Demand Deposits of $117,469,000
were up $2,705,000 (2.4%). Securities Sold Under Agreements to Repurchase of
$25,867,000 increased $2,941,000 and Other Short-Term Borrowings of
$7,486,000 were down $611,000.
Total Stockholders' Equity of $96,160,000 increased by $4,039,000 from the
1997 year-end total of $92,121,000. The increase resulted from additional
retained earnings of $4,045,000.
RESULTS OF OPERATIONS
Operating results include Net Income for Old Second Bancorp, Inc. and its
subsidiaries for the three and six months ended June 30, 1998 and 1997,
respectively.
For the three months ending June 30, 1998 Net Interest Income of $9,025,000
was up $821,000 (10.0%) over the like period in 1997. Total Interest Income
for the three months of 1998 of 16,981,000 was higher than 1997 by 1,334,000
Total Interest Expense of $7,956,000 increased by $513,000 over the same
period a year ago.
Total Other Income for the quarter ending June 30, 1998 of $4,923,000 was
up $1,820,000 from the same period a year ago. The increase is
primarily due to the increase in Gain on Sales of Loans of $2,108,000 for
June 30, 1998, an increase of $1,577,000 over the six months ended June 30,
1997.
For the three months ending June 30, 1998 Total Other Expenses increased
$945,000 (10.9%) from the same period in 1997. Furniture and Equipment
increased $289,000 (37.4%) over the six months period in 1997.
Net Interest Income for the six months ending June 30, 1998 of $17,565,000
was up $1,076,000 (6.5%) over the same period in 1997. Total Interest Income
for the six months of 1998 was higher than 1997 by $2,452,000, while Total
Interest Expense was up in 1998 by $1,376,000.
Total Other Income for the six months ending June 30, 1998 of $9,646,000 was
up $3,502,000 due primarily to higher gain on sales of loans. Total Other
Expenses for the six months ending June 30, 1998 increased $2,296,000 (13.9)
from the same period in 1997.
Page 8
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 six months ended June 30,
1998 was $12,934,000 and $116,00 for the six months ended June 30, 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 used by investing activities was $4,202,000 for the six months in
1998; while $4,344,000 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 $10,588,000 and net investment securities
activity resulted in cash inflows of $9,941,000. During 1997, net increases
in loans resulted in cash outflows of $32,850,000 and net investment
securities activity resulted in cash inflows of $31,485,000.
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 six months ending June 30, 1998, net cash
provided in financing activities was $17,431,000; in 1997 net cash provided
in financing activities totaled $6,319,000. For 1998, an increase in deposits
generated cash inflows of $19,415,000 an increase in Short-term Borrowing
generated cash inflows of $2,332,000. In 1997 a decrease in deposits
generated cash outflows of $9,720,000 and an increase in Short-term
Borrowings resulted in cash inflows of $18,108,000.
Page 9
PART II - OTHER INFORMATION
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 10
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/ Jean A. Pooley
------------------------
By: Jean A. Pooley
Chief Financial Officer
Date: August 14, 1998
Page 11