Old Second Bancorp Earnings 2020-03-31

Balance Sheet	Income Statement	Cash Flow

10-Q 1 osbc-20200331x10q.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 March 31, 2020


☐	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

As of May 5, 2020, the Registrant has 29,684,419 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	5
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	59
	PART II

Item 1.	Legal Proceedings	59
Item 1.A.	Risk Factors	59
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	62
Item 3.	Defaults Upon Senior Securities	63
Item 4.	Mine Safety Disclosure	63
Item 5.	Other Information	63
Item 6.	Exhibits	63

	Signatures	64

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, including realizing the benefits from our recent strategic hires;

the impact of the recent 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;

our ability to achieve anticipated results from any bank acquisition 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 raise cost-effective funding to support business plans 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 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 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;

negative changes in our capital position;

the adverse effects of events such as outbreaks of contagious disease, war or terrorist activities, or essential utility outages, including deterioration in the global economy, instability in credit markets and disruptions in our customers’ supply chains and transportation;

changes in trade policy and any related tariffs; and

each of the factors and risks under the heading “Risk Factors” in our 2019 Annual Report on Form 10-K, Part II, Item 1A, Risk Factors, in this Form 10-Q, 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)
	March 31,		December 31,
	2020		2019
Assets
Cash and due from banks	$	27,627	$	34,096
Interest earning deposits with financial institutions		45,511		16,536
Cash and cash equivalents		73,138		50,632
Securities available-for-sale, at fair value		449,694		484,648
Federal Home Loan Bank Chicago ("FHLBC") and Federal Reserve Bank Chicago ("FRBC") stock		9,917		9,917
Loans held-for-sale		10,049		3,061
Loans		1,957,204		1,930,812
Less: allowance for credit losses on loans		30,045		19,789
Net loans		1,927,159		1,911,023
Premises and equipment, net		44,579		44,354
Other real estate owned		5,049		5,004
Mortgage servicing rights, net		4,108		5,935
Goodwill and core deposit intangible		21,147		21,275
Bank-owned life insurance ("BOLI")		61,714		61,763
Deferred tax assets, net		14,292		11,459
Other assets		35,964		26,474
Total assets	$	2,656,810	$	2,635,545

Liabilities
Deposits:
Noninterest bearing demand	$	702,598	$	669,795
Interest bearing:
Savings, NOW, and money market		1,043,572		1,015,285
Time		449,472		441,669
Total deposits		2,195,642		2,126,749
Securities sold under repurchase agreements		51,236		48,693
Other short-term borrowings		6,375		48,500
Junior subordinated debentures		25,773		57,734
Senior notes		44,297		44,270
Notes payable and other borrowings		26,609		6,673
Other liabilities		41,101		25,062
Total liabilities		2,391,033		2,357,681

Stockholders’ Equity
Common stock		34,957		34,854
Additional paid-in capital		121,081		120,657
Retained earnings		209,915		213,723
Accumulated other comprehensive (loss) income		(1,819)		4,562
Treasury stock		(98,357)		(95,932)
Total stockholders’ equity		265,777		277,864
Total liabilities and stockholders’ equity	$	2,656,810	$	2,635,545


	March 31, 2020		December 31, 2019
	Common		Common
	Stock		Stock
Par value	$	1.00	$	1.00
Shares authorized		60,000,000		60,000,000
Shares issued		34,957,384		34,853,757
Shares outstanding		29,706,390		29,931,809
Treasury shares		5,250,994		4,921,948

See accompanying notes to consolidated financial statements.

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

(In thousands, except per share data)


		(unaudited)
	Three Months Ended March 31,
	2020		2019
Interest and dividend income
Loans, including fees	$	23,597	$	24,099
Loans held-for-sale		36		22
Securities:
Taxable		2,163		2,414
Tax exempt		1,455		2,098
Dividends from FHLBC and FRBC stock		125		149
Interest bearing deposits with financial institutions		75		114
Total interest and dividend income		27,451		28,896
Interest expense
Savings, NOW, and money market deposits		635		771
Time deposits		1,766		1,618
Securities sold under repurchase agreements		116		149
Other short-term borrowings		109		607
Junior subordinated debentures		1,364		927
Senior notes		673		672
Notes payable and other borrowings		130		116
Total interest expense		4,793		4,860
Net interest and dividend income		22,658		24,036
Provision for credit losses		7,984		450
Net interest and dividend income after provision for credit losses		14,674		23,586
Noninterest income
Trust income		1,532		1,486
Service charges on deposits		1,726		1,862
Secondary mortgage fees		270		136
Mortgage servicing rights mark to market loss		(2,134)		(819)
Mortgage servicing income		468		457
Net gain on sales of mortgage loans		2,246		762
Securities (losses) gains, net		(24)		27
Change in cash surrender value of BOLI		(49)		458
Card related income		1,287		1,285
Other income		1,000		828
Total noninterest income		6,322		6,482
Noninterest expense
Salaries and employee benefits		12,918		11,612
Occupancy, furniture and equipment		2,301		1,989
Computer and data processing		1,335		1,332
FDIC insurance		57		174
General bank insurance		246		250
Amortization of core deposit intangible		128		132
Advertising expense		109		234
Card related expense		532		355
Legal fees		131		126
Other real estate expense, net		237		50
Other expense		3,008		2,940
Total noninterest expense		21,002		19,194
(Loss) income before income taxes		(6)		10,874
(Benefit from) provision for income taxes		(281)		2,406
Net income	$	275	$	8,468

Basic earnings per share	$	0.01	$	0.28
Diluted earnings per share		0.01		0.28
Dividends declared per share		0.01		0.01

See accompanying notes to consolidated financial statements.

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(In thousands)


		(unaudited)
	Three Months Ended March 31,
	2020		2019
Net Income	$	275	$	8,468

Unrealized holding (losses) gains on available-for-sale securities arising during the period		(6,376)		9,192
Related tax benefit (expense)		1,797		(2,587)
Holding (losses) gains after tax on available-for-sale securities		(4,579)		6,605

Less: Reclassification adjustment for the net (losses) gains realized during the period
Net realized (losses) gains		(24)		27
Related tax benefit (expense)		7		(8)
Net realized (losses) gains after tax		(17)		19
Other comprehensive (loss) income on available-for-sale securities		(4,562)		6,586

Changes in fair value of derivatives used for cash flow hedges		(2,530)		(1,073)
Related tax benefit		711		302
Other comprehensive loss on cash flow hedges		(1,819)		(771)

Total other comprehensive (loss) income		(6,381)		5,815
Total comprehensive (loss) income	$	(6,106)	$	14,283


	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, 2018	$	(4,038)	$	(41)	$	(4,079)
Other comprehensive income (loss), net of tax		6,586		(771)		5,815
Balance, March 31, 2019	$	2,548	$	(812)	$	1,736

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)

See accompanying notes to consolidated financial statements.

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)


		(Unaudited)
	Three Months Ended March 31,
	2020		2019
Cash flows from operating activities
Net income	$	275	$	8,468
Adjustments to reconcile net income to net cash provided by operating activities:
Net premium / discount from amortization on securities		506		723
Securities losses (gains), net		24		(27)
Provision for credit losses		7,984		450
Originations of loans held-for-sale		(50,418)		(25,815)
Proceeds from sales of loans held-for-sale		45,706		27,224
Net gains on sales of mortgage loans		(2,246)		(762)
Mortgage servicing rights mark to market loss		2,134		819
Net discount from accretion on loans		(409)		(110)
Net change in cash surrender value of BOLI		49		(458)
Net gains on sale of other real estate owned		(23)		(73)
Provision for other real estate owned valuation losses		158		-
Depreciation of fixed assets and amortization of leasehold improvements		662		638
Amortization of core deposit intangibles		128		132
Change in current income taxes (payable) / receivable		(1,430)		673
(Benefit from) / Provision for deferred tax expense		(333)		1,732
Change in accrued interest receivable and other assets		(4,081)		136
Amortization of purchase accounting adjustment on notes payable and other borrowings		12		27
Amortization of junior subordinated debentures issuance costs		643		12
Amortization of senior notes issuance costs		27		25
Change in accrued interest payable and other liabilities		8,925		(1,889)
Stock based compensation		729		573
Net cash provided by operating activities		9,022		12,498
Cash flows from investing activities
Proceeds from maturities and calls, including pay down of securities available-for-sale		16,046		5,279
Proceeds from sales of securities available-for-sale		18,126		81,524
Purchases of securities available-for-sale		(6,100)		(46,176)
Net proceeds from sales of FHLBC stock		-		2,254
Net change in loans		(27,716)		(6,140)
Proceeds from sales of other real estate owned, net of participation purchase		311		874
Net purchases of premises and equipment		(887)		(224)
Net cash (used in) provided by investing activities		(220)		37,391
Cash flows from financing activities
Net change in deposits		68,893		6,864
Net change in securities sold under repurchase agreements		2,543		(4,271)
Net change in other short-term borrowings		(42,125)		(64,500)
Redemption of junior subordinated debentures		(32,604)		-
Issuance of term note		20,000		-
Net change in notes payable and other borrowings, excluding term note issuance		(76)		(2,199)
Proceeds from exercise of stock options		-		32
Dividends paid on common stock		(300)		(297)
Purchase of treasury stock		(2,627)		(417)
Net cash provided by (used in) financing activities		13,704		(64,788)
Net change in cash and cash equivalents		22,506		(14,899)
Cash and cash equivalents at beginning of period		50,632		55,235
Cash and cash equivalents at end of period	$	73,138	$	40,336

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
(unaudited)	Common		Paid-In		Retained		Comprehensive		Treasury		Stockholders’
	Stock		Capital		Earnings		Income (Loss)		Stock		Equity
For the Three Months Ended

Balance, December 31, 2018	$	34,720	$	119,081	$	175,463	$	(4,079)	$	(96,104)	$	229,081
Net income						8,468						8,468
Other comprehensive income, net of tax								5,815				5,815
Dividends declared and paid, ($0.01 per share)						(297)						(297)
Vesting of restricted stock		103		(222)						119		-
Stock option exercised		2		7						23		32
Stock warrants exercised				(313)						313		-
Stock based compensation				573								573
Purchase of treasury stock										(417)		(417)
Balance, March 31, 2019	$	34,825	$	119,126	$	183,634	$	1,736	$	(96,066)	$	243,255

Balance, December 31, 2019	$	34,854	$	120,657	$	213,723	$	4,562	$	(95,932)	$	277,864
Net income						275						275
Other comprehensive loss, net of tax								(6,381)				(6,381)
Adoption of ASU 2016-13						(3,783)						(3,783)
Dividends declared and paid, ($0.01 per share)						(300)						(300)
Vesting of restricted stock		103		(305)						202		-
Stock option exercised												-
Stock based compensation				729

Price	12.36	EPS	1
Shares	30	P/E	13
MCap	376	P/FCF	10
Net Debt	-54	EBIT	54
TEV	322	TEV/EBIT	6
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-03-31	Filed 2020-05-11
10-K	2019-12-31	Filed 2020-03-06
10-Q	2019-09-30	Filed 2019-11-07
10-Q	2019-06-30	Filed 2019-08-07
10-Q	2019-03-31	Filed 2019-05-07
10-K	2018-12-31	Filed 2019-03-07
10-Q	2018-09-30	Filed 2018-11-07
10-Q	2018-06-30	Filed 2018-08-07
10-Q	2018-03-31	Filed 2018-05-08
10-K	2017-12-31	Filed 2018-03-13
10-Q	2017-09-30	Filed 2017-11-07
10-Q	2017-06-30	Filed 2017-08-07
10-Q	2017-03-31	Filed 2017-05-08
10-K	2016-12-31	Filed 2017-03-13
10-Q	2016-09-30	Filed 2016-11-08
10-Q	2016-06-30	Filed 2016-08-08
10-Q	2016-03-31	Filed 2016-05-06
10-K	2015-12-31	Filed 2016-03-11
10-Q	2015-09-30	Filed 2015-11-06
10-Q	2015-06-30	Filed 2015-08-07
10-Q	2015-03-31	Filed 2015-05-08
10-K	2014-12-31	Filed 2015-03-12
10-Q	2014-09-30	Filed 2014-11-12
10-Q	2014-06-30	Filed 2014-08-13
10-Q	2014-03-31	Filed 2014-05-13
10-K	2013-12-31	Filed 2014-02-26
10-Q	2013-09-30	Filed 2013-11-12
10-Q	2013-06-30	Filed 2013-08-14
10-Q	2013-03-31	Filed 2013-05-15
10-K	2012-12-31	Filed 2013-03-20
10-Q	2012-09-30	Filed 2012-11-14
10-Q	2012-06-30	Filed 2012-08-14
10-Q	2012-03-31	Filed 2012-05-10
10-K	2011-12-31	Filed 2012-03-15
10-Q	2011-09-30	Filed 2011-11-09
10-Q	2011-06-30	Filed 2011-08-09
10-Q	2011-03-31	Filed 2011-05-10
10-K	2010-12-31	Filed 2011-03-16
10-Q	2010-09-30	Filed 2010-11-09
10-Q	2010-06-30	Filed 2010-08-06
10-Q	2010-03-31	Filed 2010-05-10
10-K	2009-12-31	Filed 2010-03-16

8-K	2020-04-28
8-K	2020-04-22
8-K	2020-04-01
8-K	2020-01-28
8-K	2020-01-22
8-K	2020-01-21
8-K	2020-01-02
8-K	2019-10-23
8-K	2019-10-15
8-K	2019-10-01
8-K	2019-09-23
8-K	2019-08-21
8-K	2019-07-24
8-K	2019-07-16
8-K	2019-07-01
8-K	2019-06-05
8-K	2019-05-29
8-K	2019-05-22
8-K	2019-05-21
8-K	2019-04-24
8-K	2019-04-16
8-K	2019-04-01
8-K	2019-01-23
8-K	2019-01-15
8-K	2019-01-02
8-K	2018-10-24
8-K	2018-10-16
8-K	2018-10-01
8-K	2018-07-31
8-K	2018-07-25
8-K	2018-07-17
8-K	2018-07-02
8-K	2018-05-16
8-K	2018-05-15
8-K	2018-05-09
8-K	2018-04-25
8-K	2018-04-18
8-K	2018-04-02
8-K	2018-02-23
8-K	2018-01-24
8-K	2018-01-17
8-K	2018-01-02

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OSBC 10Q Quarterly Report

Old Second Bancorp Earnings 2020-03-31