Old Second Bancorp Earnings 2019-09-30

OSBC 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

Comparables ($MM TTM)
Ticker	M Cap	Assets	Liab	Rev	G Profit	Net Inc	EBITDA	EV	G Margin	EV/EBITDA	ROA
AMNB	394	2,418	2,106	0	0	16	34	339		10.0	1%
RBB	393	2,802	2,408	2	0	38	93	496	0%	5.3	1%
BHB	385	3,688	3,297	21	0	30	86	515	0%	6.0	1%
OSBC	380	2,624	2,366	0	0	36	69	322		4.7	1%
SONA	379	2,724	2,362	0	0	32	73	346		4.7	1%
CATC	374	2,741	2,504	0	0	22	44	336		7.6	1%
BWB	370	2,124	1,894	0	0	30	46	304		6.6	1%
CIVB	369	2,203	1,879	17	0	26	41	369	0%	9.0	1%
GNTY	362	2,333	2,083	0	0	23	52	269		5.2	1%
WTBA	357	2,363	2,161	0	0	28	66	380		5.8	1%

10-Q 1 osbc-20190930x10q.htm 10-Q osbc-Current Folio_10Q

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 September 30, 2019


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

For transition period from to

Commission File Number 0-10537

(Exact name of Registrant as specified in its charter)


Delaware		36-3143493
(State or other jurisdiction		(I.R.S. Employer Identification Number)
of incorporation or organization)

37 South River Street, Aurora, Illinois 60507

(Address of principal executive offices) (Zip Code)

(630) 892-0202

(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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☐

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
Preferred Securities of Old Second Capital Trust I	OSBCP	The Nasdaq Stock Market

As of November 4, 2019, the Registrant has 29,903,154 shares of common stock outstanding at $1.00 par value per share.

OLD SECOND BANCORP, INC.

Form 10-Q Quarterly Report

Table of Contents

Cautionary Note Regarding Forward Looking Statements


	PART I
		Page Number
Item 1.	Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	57
Item 4.	Controls and Procedures	58
	PART II

Item 1.	Legal Proceedings	59
Item 1.A.	Risk Factors	59
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59
Item 3.	Defaults Upon Senior Securities	59
Item 4.	Mine Safety Disclosure	59
Item 5.	Other Information	59
Item 6.	Exhibits	59

	Signatures	60

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:

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;

our ability to achieve anticipated results from our acquisition of Greater Chicago Financial Corp. depends on the state of the economic and financial markets going forward. Specifically, we may incur more credit losses than expected, cost savings may be less than expected, anticipated strategic gains may be significantly harder or take longer to achieve than expected or may not be achieved in their entirety, and customer attrition may be greater than expected;

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;

competitive pressures from other financial service businesses and from nontraditional financial technology (“FinTech”) companies;

any negative perception of our reputation or financial strength;

ability to raise additional capital on acceptable terms when needed;

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 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;

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 impact on our financial statements;

our ability to receive dividends from our subsidiaries;

a decrease in our regulatory capital ratios;

adverse federal or state tax assessments;

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 the Dodd-Frank Act; and

each of the factors and risks under the heading “Risk Factors” in our 2018 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.

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,
	2019		2018
Assets
Cash and due from banks	$	42,671	$	38,599
Interest earning deposits with financial institutions		11,366		16,636
Cash and cash equivalents		54,037		55,235
Securities available-for-sale, at fair value		488,422		541,248
Federal Home Loan Bank Chicago ("FHLBC") and Federal Reserve Bank Chicago ("FRBC") stock		10,711		13,433
Loans held-for-sale		5,592		2,984
Loans		1,899,811		1,897,027
Less: allowance for loan and lease losses		19,651		19,006
Net loans		1,880,160		1,878,021
Premises and equipment, net		42,900		42,439
Other real estate owned		4,682		7,175
Mortgage servicing rights, net		5,361		7,357
Goodwill and core deposit intangible		21,404		21,814
Bank-owned life insurance ("BOLI")		62,589		61,544
Deferred tax assets, net		12,691		21,280
Other assets		25,766		23,473
Total assets	$	2,614,315	$	2,676,003

Liabilities
Deposits:
Noninterest bearing demand	$	643,355	$	618,830
Interest bearing:
Savings, NOW, and money market		1,004,501		1,040,668
Time		426,635		457,175
Total deposits		2,074,491		2,116,673
Securities sold under repurchase agreements		48,870		46,632
Other short-term borrowings		84,000		149,500
Junior subordinated debentures		57,722		57,686
Senior notes		44,244		44,158
Notes payable and other borrowings		8,856		15,379
Other liabilities		26,111		16,894
Total liabilities		2,344,294		2,446,922

Stockholders’ Equity
Common stock		34,825		34,720
Additional paid-in capital		120,291		119,081
Retained earnings		204,486		175,463
Accumulated other comprehensive income (loss)		6,371		(4,079)
Treasury stock		(95,952)		(96,104)
Total stockholders’ equity		270,021		229,081
Total liabilities and stockholders’ equity	$	2,614,315	$	2,676,003


	September 30, 2019		December 31, 2018
	Common		Common
	Stock		Stock
Par value	$	1.00	$	1.00
Shares authorized		60,000,000		60,000,000
Shares issued		34,825,340		34,719,517
Shares outstanding		29,903,154		29,763,078
Treasury shares		4,922,186		4,956,439

See accompanying notes to consolidated financial statements.

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,
	2019		2018		2019		2018
Interest and dividend income
Loans, including fees	$	25,109	$	23,377	$	74,132	$	64,625
Loans held-for-sale		47		39		100		94
Securities:
Taxable		2,296		2,491		6,933		7,053
Tax exempt		1,719		2,064		5,958		6,239
Dividends from FHLBC and FRBC stock		154		121		459		338
Interest bearing deposits with financial institutions		119		84		344		230
Total interest and dividend income		29,444		28,176		87,926		78,579
Interest expense
Savings, NOW, and money market deposits		724		642		2,254		1,487
Time deposits		1,672		1,568		4,931		4,187
Securities sold under repurchase agreements		135		140		431		323
Other short-term borrowings		429		311		1,611		916
Junior subordinated debentures		933		930		2,791		2,784
Senior notes		682		672		2,026		2,016
Notes payable and other borrowings		89		173		312		268
Total interest expense		4,664		4,436		14,356		11,981
Net interest and dividend income		24,780		23,740		73,570		66,598
Provision for loan and lease losses		550		-		1,450		728
Net interest and dividend income after provision for loan and lease losses		24,230		23,740		72,120		65,870
Noninterest income
Trust income		1,730		1,644		4,955		4,784
Service charges on deposits		2,020		1,923		5,841		5,284
Secondary mortgage fees		282		199		621		556
Mortgage servicing rights mark to market (loss) gain		(946)		(11)		(2,902)		189
Mortgage servicing income		460		471		1,408		1,550
Net gain on sales of mortgage loans		2,074		965		3,999		3,122
Securities gains, net		3,463		13		4,476		360
Increase in cash surrender value of BOLI		267		347		1,045		946
Death benefit realized on BOLI		-		-		-		1,026
Debit card interchange income		1,124		1,135		3,277		3,279
Other income		1,459		1,128		3,838		3,755
Total noninterest income		11,933		7,814		26,558		24,851
Noninterest expense
Salaries and employee benefits		12,062		11,165		35,261		33,727
Occupancy, furniture and equipment		2,235		1,782		6,149		4,992
Computer and data processing		1,490		1,247		4,346		5,332
FDIC insurance		(114)		162		176		483
General bank insurance		270		230		756		780
Amortization of core deposit intangible		157		136		410		254
Advertising expense		360		492		975		1,325
Debit card interchange expense		279		320		659		902
Legal fees		111		243		480		688
Other real estate expense, net		26		(370)		324		232
Other expense		3,078		3,304		9,738		9,636
Total noninterest expense		19,954		18,711		59,274		58,351
Income before income taxes		16,209		12,843		39,404		32,370
Provision for income taxes		4,036		3,201		9,485		6,978
Net income	$	12,173	$	9,642	$	29,919	$	25,392

Basic earnings per share	$	0.41	$	0.32	$	1.00	$	0.85
Diluted earnings per share		0.40		0.32		0.98		0.84
Dividends declared per share		0.01		0.01		0.03		0.03

See accompanying notes to consolidated financial statements.

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(In thousands)


	(unaudited)				(unaudited)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Net Income	$	12,173	$	9,642	$	29,919	$	25,392

Unrealized holding gains (losses) on available-for-sale securities arising during the period		5,824		(2,801)		23,661		(12,999)
Related tax (expense) benefit		(1,638)		788		(6,657)		3,664
Holding gains (losses) after tax on available-for-sale securities		4,186		(2,013)		17,004		(9,335)

Less: Reclassification adjustment for the net gains realized during the period
Net realized gains		3,463		13		4,476		360
Related tax expense		(973)		(3)		(1,257)		(100)
Net realized gains after tax		2,490		10		3,219		260
Other comprehensive income (loss) on available-for-sale securities		1,696		(2,023)		13,785		(9,595)

Changes in fair value of derivatives used for cash flow hedges		(1,996)		628		(4,638)		2,422
Related tax benefit (expense)		559		(176)		1,303		(683)
Other comprehensive (loss) income on cash flow hedges		(1,437)		452		(3,335)		1,739

Total other comprehensive income (loss)		259		(1,571)		10,450		(7,856)
Total comprehensive income	$	12,432	$	8,071	$	40,369	$	17,536


	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, June 30, 2019	$	8,051	$	(1,939)	$	6,112
Other comprehensive income (loss), net of tax		1,696		(1,437)		259
Balance, September 30, 2019	$	9,747	$	(3,376)	$	6,371

Balance, June 30, 2018	$	(4,851)	$	364	$	(4,487)
Other comprehensive (loss) income, net of tax		(2,023)		452		(1,571)
Balance, September 30, 2018	$	(6,874)	$	816	$	(6,058)



For the nine Months Ended
Balance, December 31, 2018	$	(4,038)	$	(41)	$	(4,079)
Other comprehensive income (loss), net of tax		13,785		(3,335)		10,450
Balance, September 30, 2019	$	9,747	$	(3,376)	$	6,371

Balance, December 31, 2017	$	2,239	$	(760)	$	1,479
Reclassification of stranded tax effects		482		(163)		319
Other comprehensive (loss) income, net of tax		(9,595)		1,739		(7,856)
Balance, September 30, 2018	$	(6,874)	$	816	$	(6,058)

See accompanying notes to consolidated financial statements.

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)


		(Unaudited)
	Nine Months Ended September 30,
	2019		2018
Cash flows from operating activities
Net income	$	29,919	$	25,392
Adjustments to reconcile net income to net cash provided by operating activities:
Net premium / discount from amortization on securities		2,128		2,128
Securities gains, net		(4,476)		(360)
Provision for loan and lease losses		1,450		728
Originations of loans held-for-sale		(126,929)		(107,947)
Proceeds from sales of loans held-for-sale		127,455		111,169
Net gains on sales of mortgage loans		(3,999)		(3,122)
Mortgage servicing rights mark to market loss (gain)		2,902		(189)
Net discount / premium from accretion on loans		(1,052)		(776)
Increase in cash surrender value of BOLI		(1,045)		(946)
Net gains on sale of other real estate owned		(254)		(716)
Provision for other real estate owned valuation losses		399		485
Depreciation of fixed assets and amortization of leasehold improvements		1,869		1,778
Net (gains) on disposal and transfer of fixed assets		(32)		-
Amortization of core deposit intangible		410		254
Change in current income taxes receivable		3,319		671
Provision for deferred tax expense		4,493		6,777
Change in accrued interest receivable and other assets		(7,441)		533
Accretion of purchase accounting adjustment on time deposits		(38)		-
Amortization of purchase accounting adjustment on notes payable and other borrowings		75		-
Amortization of junior subordinated debentures issuance costs		36		35
Amortization of senior notes issuance costs		86		75
Change in accrued interest payable and other liabilities		6,366		2,432
Stock based compensation		1,905		1,641
Net cash provided by operating activities		37,546		40,042
Cash flows from investing activities
Proceeds from maturities and calls including pay down of securities available-for-sale		32,631		32,890
Proceeds from sales of securities available-for-sale		177,824		94,663
Purchases of securities available-for-sale		(136,096)		(71,488)
Net proceeds from sales of FHLBC stock		2,722		2,627
Net disbursements from purchases of FRB stock		-		(1,421)
Net change in loans		(2,833)		9,988
Proceeds from claims on BOLI		-		1,204
Improvements in other real estate owned		-		(59)
Proceeds from sales of other real estate owned, net of participation purchase		2,644		4,292
Proceeds from disposition of fixed assets		32		-
Net purchases of premises and equipment		(2,330)		(1,563)
Cash paid for acquisition, net of cash and cash equivalents retained		-		(35,711)
Net cash provided by investing activities		74,594		35,422
Cash flows from financing activities
Net change in deposits		(42,144)		(39,053)
Net change in securities sold under repurchase agreements		2,238		8,792
Net change in other short-term borrowings		(65,500)		(44,000)
Net change in notes payable and other borrowings		(6,598)		(5,317)
Proceeds from exercise of stock options		32		-
Dividends paid on common stock		(896)		(892)
Purchase of treasury stock		(470)		(505)
Net cash used in financing activities		(113,338)		(80,975)
Net change in cash and cash equivalents		(1,198)		(5,511)
Cash and cash equivalents at beginning of period		55,235		55,833
Cash and cash equivalents at end of period	$	54,037	$	50,322

See accompanying notes to consolidated financial statements.

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Changes in

Stockholders’ Equity

(In thousands)

Accumulated

Additional

Other

Total

Common

Paid-In

Retained

Comprehensive

Treasury

Stockholders’

Stock

Capital

Earnings

Income (Loss)

Stock

Equity

For the Three Months Ended

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$0.00	30	$380

10-Q	2019-11-07	Quarter: 2019-09-30
10-Q	2019-08-07	Quarter: 2019-06-30
10-Q	2019-05-07	Quarter: 2019-03-31
10-K	2019-03-07	Annual: 2018-12-31
10-Q	2018-11-07	Quarter: 2018-09-30
10-Q	2018-08-07	Quarter: 2018-06-30
10-Q	2018-05-08	Quarter: 2018-03-31
10-K	2018-03-13	Annual: 2017-12-31
10-Q	2017-11-07	Quarter: 2017-09-30
10-Q	2017-08-07	Quarter: 2017-06-30
10-Q	2017-05-08	Quarter: 2017-03-31
10-K	2017-03-13	Annual: 2016-12-31
10-Q	2016-11-08	Quarter: 2016-09-30
10-Q	2016-08-08	Quarter: 2016-06-30
10-Q	2016-05-06	Quarter: 2016-03-31
10-K	2016-03-11	Annual: 2015-12-31
10-Q	2015-11-06	Quarter: 2015-09-30
10-Q	2015-08-07	Quarter: 2015-06-30
10-Q	2015-05-08	Quarter: 2015-03-31
10-K	2015-03-12	Annual: 2014-12-31
10-Q	2014-11-12	Quarter: 2014-09-30
10-Q	2014-08-13	Quarter: 2014-06-30
10-Q	2014-05-13	Quarter: 2014-03-31
10-K	2014-02-26	Annual: 2013-12-31
10-Q	2013-11-12	Quarter: 2013-09-30
10-Q	2013-08-14	Quarter: 2013-06-30
10-Q	2013-05-15	Quarter: 2013-03-31
10-K	2013-03-20	Annual: 2012-12-31
10-Q	2012-11-14	Quarter: 2012-09-30
10-Q	2012-08-14	Quarter: 2012-06-30
10-Q	2012-05-10	Quarter: 2012-03-31
10-K	2012-03-15	Annual: 2011-12-31
10-Q	2011-11-09	Quarter: 2011-09-30
10-Q	2011-08-09	Quarter: 2011-06-30
10-Q	2011-05-10	Quarter: 2011-03-31
10-K	2011-03-16	Annual: 2010-12-31
10-Q	2010-11-09	Quarter: 2010-09-30
10-Q	2010-08-06	Quarter: 2010-06-30
10-Q	2010-05-10	Quarter: 2010-03-31
10-K	2010-03-16	Annual: 2009-12-31

8-K	2020-01-28	Regulation FD
8-K	2020-01-22	Earnings, Exhibits
8-K	2020-01-21
8-K	2019-10-23
8-K	2019-10-15
8-K	2019-10-01	Other Events
8-K	2019-09-23	Other Events
8-K	2019-08-21	Amend Bylaw, Exhibits
8-K	2019-07-24	Earnings, Exhibits
8-K	2019-07-16
8-K	2019-07-01	Other Events
8-K	2019-06-05	Amend Bylaw, Exhibits
8-K	2019-05-29	Other Events
8-K	2019-05-22	Officers, Shareholder Vote, Other Events, Exhibits
8-K	2019-05-21	Regulation FD, Exhibits
8-K	2019-04-24	Earnings, Exhibits
8-K	2019-04-16
8-K	2019-04-01	Other Events
8-K	2019-01-23	Earnings, Exhibits
8-K	2019-01-15
8-K	2019-01-02	Other Events
8-K	2018-10-24	Earnings, Exhibits
8-K	2018-10-16
8-K	2018-10-01	Other Events
8-K	2018-07-31	Regulation FD, Exhibits
8-K	2018-07-25	Earnings, Exhibits
8-K	2018-07-17
8-K	2018-07-02	Other Events
8-K	2018-05-16	Officers, Shareholder Vote, Regulation FD
8-K	2018-05-15	Regulation FD, Exhibits
8-K	2018-05-09	Regulation FD, Exhibits
8-K	2018-04-25	Earnings, Exhibits
8-K	2018-04-18	Other Events, Exhibits
8-K	2018-04-02	Other Events
8-K	2018-02-23	Exhibits
8-K	2018-01-24	Earnings, Exhibits
8-K	2018-01-17
8-K	2018-01-02	Other Events

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EX-31.2	osbc-20190930ex31209c7e4.htm
EX-32.1	osbc-20190930ex321d54704.htm
EX-32.2	osbc-20190930ex322bb4982.htm