I
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF | |
THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE | |
SECURITIES EXCHANGE ACT OF 1934 |
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OLD SECOND BANCORP, INC.
Form 10-Q Quarterly Report
Table of Contents
Cautionary Note Regarding Forward-Looking Statements
Page Number | ||
4 | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 39 | |
62 | ||
63 | ||
63 | ||
64 | ||
64 | ||
64 | ||
64 | ||
64 | ||
65 | ||
66 |
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, but not limited to, management’s expectations regarding future plans, strategies and financial performance, including regulatory developments, industry and economic trends and estimates and assumptions underlying accounting policies. Forward-looking statements are based on our current beliefs, expectations and assumptions and on information currently available and, can be identified by the use of words such as “expects,” “seeks to,” “intends,” “believes,” “may,” “will,” “would,” “could,” “should,” “plan,” “anticipate,” “estimate,” “possible,” “likely” or the negative thereof as well as other similar words and expressions of the future. Forward-looking statements are subject to risks, uncertainties and assumptions that are difficult to predict as to timing, extent, likelihood and degree of occurrence, which could cause our actual results to differ materially from those anticipated in or by such statements. Potential risks and uncertainties include, but are not limited to, the following:
| ● | our ability to execute our growth strategy; |
| ● | the continuing impact of COVID-19 and its variants on our business, our operations, liquidity and capital position, and on the financial condition of our borrowers and other customers; |
| ● | negative economic conditions, including inflation, that may 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 with respect to our ability to successfully expand and integrate businesses and operations that we acquire, such as our acquisition of West Suburban Bancorp, Inc., as well our ability to identify and complete future mergers or acquisitions; |
| ● | 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 our adoption of the Current Expected Credit Losses (“ CECL”) model, 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 or negative changes in our capital position; |
| ● | 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; |
| ● | 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, such as the war in Ukraine, essential utility outages, deterioration in the global economy, instability in the credit markets, labor shortages, 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 2021 Annual Report on Form 10-K and in subsequent filings we make with the SEC. |
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.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share data)
(unaudited) | ||||||
September 30, | December 31, | |||||
| 2022 |
| 2021 | |||
Assets | ||||||
Cash and due from banks | $ | | $ | | ||
Interest earning deposits with financial institutions | | | ||||
Cash and cash equivalents | | | ||||
Securities available-for-sale, at fair value | | | ||||
Federal Home Loan Bank Chicago ("FHLBC") and Federal Reserve Bank Chicago ("FRBC") stock | | | ||||
Loans held-for-sale | | | ||||
Loans | | | ||||
Less: allowance for credit losses on loans | | | ||||
Net loans | | | ||||
Premises and equipment, net | | | ||||
Other real estate owned | | | ||||
Mortgage servicing rights, at fair value | | | ||||
Goodwill | | | ||||
Core deposit intangible | | | ||||
Bank-owned life insurance ("BOLI") | | | ||||
Deferred tax assets, net | | | ||||
Other assets | | | ||||
Total assets | $ | | $ | | ||
Liabilities | ||||||
Deposits: | ||||||
Noninterest bearing demand | $ | | $ | | ||
Interest bearing: | ||||||
Savings, NOW, and money market | | | ||||
Time | | | ||||
Total deposits | | | ||||
Securities sold under repurchase agreements | | | ||||
Other short-term borrowings | | - | ||||
Junior subordinated debentures | | | ||||
Subordinated debentures | | | ||||
Senior notes | | | ||||
Notes payable and other borrowings | | | ||||
Other liabilities | | | ||||
Total liabilities | | | ||||
Stockholders’ Equity | ||||||
Common stock | | | ||||
Additional paid-in capital | | | ||||
Retained earnings | | | ||||
Accumulated other comprehensive (loss) income | ( | | ||||
Treasury stock | ( | ( | ||||
Total stockholders’ equity | | | ||||
Total liabilities and stockholders’ equity | $ | | $ | | ||
September 30, 2022 | December 31, 2021 | ||||
Common | Common | ||||
Stock |
| Stock | |||
Par value | $ | | $ | | |
Shares authorized | | | |||
Shares issued | | | |||
Shares outstanding | | | |||
Treasury shares | | | |||
See accompanying notes to consolidated financial statements.
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Old Second Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share data)
(unaudited) | (unaudited) | ||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| |||||
Interest and dividend income | |||||||||||||
Loans, including fees | $ | | $ | | $ | | $ | | |||||
Loans held-for-sale | | | | | |||||||||
Securities: | |||||||||||||
Taxable | | | | | |||||||||
Tax exempt | | | | | |||||||||
Dividends from FHLBC and FRBC stock | | | | | |||||||||
Interest bearing deposits with financial institutions | | | | | |||||||||
Total interest and dividend income | | | | | |||||||||
Interest expense | |||||||||||||
Savings, NOW, and money market deposits | | | | | |||||||||
Time deposits | | | | | |||||||||
Securities sold under repurchase agreements | | | | | |||||||||
Other short-term borrowings | | - | | - | |||||||||
Junior subordinated debentures | | | | | |||||||||
Subordinated debentures | | | | | |||||||||
Senior notes | | | | | |||||||||
Notes payable and other borrowings | | | | | |||||||||
Total interest expense | | | | | |||||||||
Net interest and dividend income | | | | | |||||||||
Provision for (release of) credit losses | | ( | | ( | |||||||||
Net interest and dividend income after provision for (release of) credit losses | | | | | |||||||||
Noninterest income | |||||||||||||
Wealth management | | | | | |||||||||
Service charges on deposits | | | | | |||||||||
Secondary mortgage fees | | | | | |||||||||
Mortgage servicing rights mark to market gain (loss) | | ( | | ( | |||||||||
Mortgage servicing income | | | | | |||||||||
Net gain on sales of mortgage loans | | | | | |||||||||
Securities (losses) gains, net | ( | | ( | | |||||||||
Change in cash surrender value of BOLI | | | | | |||||||||
Card related income | | | | | |||||||||
Other income | | | | | |||||||||
Total noninterest income | | | | | |||||||||
Noninterest expense | |||||||||||||
Salaries and employee benefits | | | | | |||||||||
Occupancy, furniture and equipment | | | | | |||||||||
Computer and data processing | | | | | |||||||||
FDIC insurance | | | | | |||||||||
General bank insurance | | | | | |||||||||
Amortization of core deposit intangible | | | | | |||||||||
Advertising expense | | | | | |||||||||
Card related expense | | | | | |||||||||
Legal fees | | | | | |||||||||
Consulting & management fees | | | | | |||||||||
Other real estate expense, net | | | | | |||||||||
Other expense | | | | | |||||||||
Total noninterest expense | | | | | |||||||||
Income before income taxes | | | | | |||||||||
Provision for income taxes | | | | | |||||||||
Net income | $ | | $ | | $ | | $ | | |||||
Basic earnings per share | $ | | $ | | $ | | $ | | |||||
Diluted earnings per share | | | | | |||||||||
Dividends declared per share | | | | | |||||||||
See accompanying notes to consolidated financial statements.
5
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Statements of Comprehensive (Loss) Income
(In thousands)
(unaudited) | (unaudited) | |||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Net Income | $ | | $ | | $ | | $ | | ||||
Unrealized holding losses on available-for-sale securities arising during the period | ( | ( | ( | ( | ||||||||
Related tax benefit | | | | | ||||||||
Holding losses, after tax, on available-for-sale securities | ( | ( | ( | ( | ||||||||
Less: Reclassification adjustment for the net (losses) gains realized during the period | ||||||||||||
Net realized (losses) gains | ( | | ( | | ||||||||
Related tax benefit (expense) | | ( | | ( | ||||||||
Net realized gains (losses) after tax | - | | ( | | ||||||||
Other comprehensive loss on available-for-sale securities | ( | ( | ( | ( | ||||||||
Changes in fair value of derivatives used for cash flow hedges | ( | | ( | | ||||||||
Related tax benefit (expense) | | ( | | ( | ||||||||
Other comprehensive (loss) income on cash flow hedges | ( | | ( | | ||||||||
Total other comprehensive loss | ( | ( | ( | ( | ||||||||
Total comprehensive (loss) income | $ | ( | $ | | $ | ( | $ | | ||||
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