Company Quick10K Filing
Quick10K
Old Second Bancorp
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$13.26 30 $396
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
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 2019-01-23 Earnings, Exhibits
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
FLIR FLIR Systems 7,010
MTG MGIC Investment 5,000
PETQ Petiq 802
JKS Jinkosolar Holding 722
LPG Doriang 429
NAK Northern Dynasty Minerals 146
FVE Five Star Senior Living 30
PIXY Shiftpixy 28
YECO Yulong Eco-Materials 0
GRWG Growgeneration 0
OSBC 2019-03-31
Part I - Financial Information
Item 1. Financial Statements
Note 1 – Summary of Significant Accounting Policies
Note 2 – Acquisitions
Note 3 – Securities
Note 4 – Loans
Note 5 – Allowance for Loan and Lease Losses
Note 6 – Other Real Estate Owned
Note 7 – Deposits
Note 8 – Borrowings
Note 9 – Junior Subordinated Debentures
Note 10 – Equity Compensation Plans
Note 11 – Earnings per Share
Note 12 – Regulatory & Capital Matters
Note 13 – Fair Value Measurements
Note 14 – Fair Values of Financial Instruments
Note 15 – Derivatives, Hedging Activities and Financial Instruments with Off-Balance Sheet Risk
Item 2.Management’S Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1.A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 osbc-20190331ex3116da894.htm
EX-31.2 osbc-20190331ex312bf1880.htm
EX-32.1 osbc-20190331ex321d36ad5.htm
EX-32.2 osbc-20190331ex322308c07.htm

Old Second Bancorp Earnings 2019-03-31

OSBC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 osbc-20190331x10q.htm 10-Q osbc-Current Folio_10Q

I  

 

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, 2019

 

OR

 

 

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

 

Picture 2

(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 filerAccelerated filer

Non-accelerated filerSmaller reporting companyEmerging 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 May 2, 2019, the Registrant has 29,896,529 shares of common stock outstanding at $1.00 par value per share.

 

 

 

 

 


 

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 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;

·

litigation or government enforcement actions;

·

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.

3

 


 

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, 

 

    

2019

    

2018

Assets

 

 

 

 

 

 

Cash and due from banks

 

$

28,898

 

$

38,599

Interest earning deposits with financial institutions

 

 

11,438

 

 

16,636

Cash and cash equivalents

 

 

40,336

 

 

55,235

Securities available-for-sale, at fair value

 

 

509,090

 

 

541,248

Federal Home Loan Bank Chicago ("FHLBC") and Federal Reserve Bank Chicago ("FRBC") stock

 

 

11,179

 

 

13,433

Loans held-for-sale

 

 

2,134

 

 

2,984

Loans

 

 

1,903,146

 

 

1,897,027

Less: allowance for loan and lease losses

 

 

19,316

 

 

19,006

Net loans

 

 

1,883,830

 

 

1,878,021

Premises and equipment, net

 

 

42,025

 

 

42,439

Other real estate owned

 

 

6,365

 

 

7,175

Mortgage servicing rights, net

 

 

6,715

 

 

7,357

Goodwill and core deposit intangible

 

 

21,682

 

 

21,814

Bank-owned life insurance ("BOLI")

 

 

62,002

 

 

61,544

Deferred tax assets, net

 

 

17,271

 

 

21,280

Other assets

 

 

20,902

 

 

23,473

Total assets

 

$

2,623,531

 

$

2,676,003

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Noninterest bearing demand

 

$

629,909

 

$

618,830

Interest bearing:

 

 

 

 

 

 

Savings, NOW, and money market

 

 

1,061,216

 

 

1,040,668

Time

 

 

432,387

 

 

457,175

Total deposits

 

 

2,123,512

 

 

2,116,673

Securities sold under repurchase agreements

 

 

42,361

 

 

46,632

Other short-term borrowings

 

 

85,000

 

 

149,500

Junior subordinated debentures

 

 

57,698

 

 

57,686

Senior notes

 

 

44,183

 

 

44,158

Notes payable and other borrowings

 

 

13,207

 

 

15,379

Other liabilities

 

 

14,315

 

 

16,894

Total liabilities

 

 

2,380,276

 

 

2,446,922

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

Common stock

 

 

34,825

 

 

34,720

Additional paid-in capital

 

 

119,126

 

 

119,081

Retained earnings

 

 

183,634

 

 

175,463

Accumulated other comprehensive income (loss)

 

 

1,736

 

 

(4,079)

Treasury stock

 

 

(96,066)

 

 

(96,104)

Total stockholders’ equity

 

 

243,255

 

 

229,081

Total liabilities and stockholders’ equity

 

$

2,623,531

 

$

2,676,003

 

 

 

 

 

 

 

 

 

March 31, 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

 

29,895,022

 

 

29,763,078

Treasury shares

 

4,930,318

 

 

4,956,439

 

See accompanying notes to consolidated financial statements.

4

 


 

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

(In thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

(unaudited)

 

 

 

Three Months Ended  March 31, 

 

 

    

2019

    

2018

    

Interest and dividend income

 

 

 

 

 

 

 

Loans, including fees

 

$

24,099

 

$

18,732

 

Loans held-for-sale

 

 

22

 

 

24

 

Securities:

 

 

 

 

 

 

 

Taxable

 

 

2,414

 

 

2,170

 

Tax exempt

 

 

2,098

 

 

2,061

 

Dividends from FHLBC and FRBC stock

 

 

149

 

 

106

 

Interest bearing deposits with financial institutions

 

 

114

 

 

49

 

Total interest and dividend income

 

 

28,896

 

 

23,142

 

Interest expense

 

 

 

 

 

 

 

Savings, NOW, and money market deposits

 

 

771

 

 

344

 

Time deposits

 

 

1,618

 

 

1,175

 

Securities sold under repurchase agreements

 

 

149

 

 

79

 

Other short-term borrowings

 

 

607

 

 

329

 

Junior subordinated debentures

 

 

927

 

 

927

 

Senior notes

 

 

672

 

 

672

 

Notes payable and other borrowings

 

 

116

 

 

 -

 

Total interest expense

 

 

4,860

 

 

3,526

 

Net interest and dividend income

 

 

24,036

 

 

19,616

 

Provision (release) for loan and lease losses

 

 

450

 

 

(722)

 

Net interest and dividend income after provision for loan and lease losses

 

 

23,586

 

 

20,338

 

Noninterest income

 

 

 

 

 

 

 

Trust income

 

 

1,486

 

 

1,495

 

Service charges on deposits

 

 

1,862

 

 

1,592

 

Secondary mortgage fees

 

 

136

 

 

162

 

Mortgage servicing rights mark to market (loss) gain

 

 

(819)

 

 

305

 

Mortgage servicing income

 

 

457

 

 

452

 

Net gain on sales of mortgage loans

 

 

762

 

 

917

 

Securities gains, net

 

 

27

 

 

35

 

Increase in cash surrender value of BOLI

 

 

458

 

 

248

 

Death benefit realized on bank-owned life insurance

 

 

 -

 

 

1,026

 

Debit card interchange income

 

 

987

 

 

1,012

 

Other income

 

 

1,126

 

 

1,261

 

Total noninterest income

 

 

6,482

 

 

8,505

 

Noninterest expense

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

11,612

 

 

10,207

 

Occupancy, furniture and equipment

 

 

1,989

 

 

1,558

 

Computer and data processing

 

 

1,332

 

 

1,344

 

FDIC insurance

 

 

174

 

 

156

 

General bank insurance

 

 

250

 

 

251

 

Amortization of core deposit intangible

 

 

132

 

 

21

 

Advertising expense

 

 

234

 

 

341

 

Debit card interchange expense

 

 

147

 

 

281

 

Legal fees

 

 

126

 

 

159

 

Other real estate expense, net

 

 

50

 

 

173

 

Other expense

 

 

3,148

 

 

2,863

 

Total noninterest expense

 

 

19,194

 

 

17,354

 

Income before income taxes

 

 

10,874

 

 

11,489

 

Provision for income taxes

 

 

2,406

 

 

2,000

 

Net income

 

$

8,468

 

$

9,489

 

Net income available to common stockholders

 

$

8,468

 

$

9,489

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.28

 

$

0.32

 

Diluted earnings per share

 

 

0.28

 

 

0.31

 

Dividends declared per share

 

 

0.01

 

 

0.01

 

 

See accompanying notes to consolidated financial statements.

5

 


 

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

(unaudited)

 

 

 

Three Months Ended  March 31, 

 

 

    

2019

    

2018

    

Net Income

 

$

8,468

 

$

9,489

 

 

 

 

 

 

 

 

 

Unrealized holding gains (losses) on available-for-sale securities arising during the period

 

 

9,192

 

 

(8,808)

 

Related tax (expense) benefit

 

 

(2,587)

 

 

2,484

 

Holding gains (losses) after tax on available-for-sale securities

 

 

6,605

 

 

(6,324)

 

 

 

 

 

 

 

 

 

Less: Reclassification adjustment for the net gains (losses) realized during the period

 

 

 

 

 

 

 

Net realized gains

 

 

27

 

 

35

 

Related tax expense

 

 

(8)

 

 

(10)

 

Net realized gains after tax

 

 

19

 

 

25

 

Other comprehensive income (loss) on available-for-sale securities

 

 

6,586

 

 

(6,349)

 

 

 

 

 

 

 

 

 

Changes in fair value of derivatives used for cash flow hedges

 

 

(1,073)

 

 

1,279

 

Related tax benefit (expense)

 

 

302

 

 

(362)

 

Other comprehensive (loss) income on cash flow hedges

 

 

(771)

 

 

917

 

 

 

 

 

 

 

 

 

Total other comprehensive income (loss)

 

 

5,815

 

 

(5,432)

 

Total comprehensive income

 

$

14,283

 

$

4,057

 

 

See accompanying notes to consolidated financial statements.

 

6

 


 

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

(Unaudited)

 

 

Three Months Ended  March 31, 

 

 

2019

 

2018

Cash flows from operating activities

 

 

 

 

 

 

Net income

 

$

8,468

 

$

9,489

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Net premium / discount from amortization (accretion) on securities

 

 

723

 

 

706

Securities gains, net

 

 

(27)

 

 

(35)

Provision for (release of) loan and lease losses

 

 

450

 

 

(722)

Originations of loans held-for-sale

 

 

(25,815)

 

 

(31,096)

Proceeds from sales of loans held-for-sale

 

 

27,224

 

 

33,305

Net gains on sales of mortgage loans

 

 

(762)

 

 

(917)

Change in fair value of mortgage servicing rights

 

 

819

 

 

(305)

Net discount / premium from (accretion) amortization on loans

 

 

(110)

 

 

51

Increase in cash surrender value of BOLI

 

 

(458)

 

 

(248)

Net gains on sale of other real estate owned

 

 

(73)

 

 

(80)

Provision for other real estate owned valuation losses

 

 

 -

 

 

112

Depreciation of fixed assets and amortization of leasehold improvements

 

 

638

 

 

537

Amortization of core deposit intangible

 

 

132

 

 

21

Change in current income taxes receivable

 

 

673

 

 

1,093

Provision for deferred tax expense

 

 

1,732

 

 

907

Change in accrued interest receivable and other assets

 

 

136

 

 

(4,081)

Accretion of purchase accounting adjustment on time deposits

 

 

(25)

 

 

 -

Amortization of purchase accounting adjustment on notes payable and other borrowings

 

 

27

 

 

 -

Amortization of junior subordinated debentures issuance costs

 

 

12

 

 

11

Amortization of senior notes issuance costs

 

 

25

 

 

25

Change in accrued interest payable and other liabilities

 

 

(1,864)

 

 

(152)

Stock based compensation

 

 

573

 

 

395

Net cash provided by operating activities

 

 

12,498

 

 

9,016

Cash flows from investing activities

 

 

 

 

 

 

Proceeds from maturities and calls including pay down of securities available-for-sale

 

 

5,279

 

 

2,391

Proceeds from sales of securities available-for-sale

 

 

81,524

 

 

2,522

Purchases of securities available-for-sale

 

 

(46,176)

 

 

(23,930)

Net proceeds from sales of FHLBC stock

 

 

2,254

 

 

2,700

Net change in loans

 

 

(6,140)

 

 

17,208

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

 

 

874

 

 

1,335

Net purchases of premises and equipment

 

 

(224)

 

 

(118)

Net cash provided by investing activities

 

 

37,391

 

 

3,253

Cash flows from financing activities

 

 

 

 

 

 

Net change in deposits

 

 

6,864

 

 

39,123

Net change in securities sold under repurchase agreements

 

 

(4,271)

 

 

11,448

Net change in other short-term borrowings

 

 

(64,500)

 

 

(70,000)

Net change in notes payable and other borrowings

 

 

(2,199)

 

 

 -

Proceeds from exercise of stock options

 

 

32

 

 

 -

Dividends paid on common stock

 

 

(297)

 

 

(296)

Purchase of treasury stock

 

 

(417)

 

 

(505)

Net cash used in financing activities

 

 

(64,788)

 

 

(20,230)

Net change in cash and cash equivalents

 

 

(14,899)

 

 

(7,961)

Cash and cash equivalents at beginning of period

 

 

55,235

 

 

55,833

Cash and cash equivalents at end of period

 

$

40,336

 

$

47,872

 

See accompanying notes to consolidated financial statements.  

7

 


 

 

 

 

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

Balance, December 31, 2017

 

$

34,626

 

$

117,742

 

$

142,959

 

$

1,479

 

$

(96,456)

 

$

200,350

Net income

 

 

 

 

 

 

 

 

9,489

 

 

 

 

 

 

 

 

9,489

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

(5,432)

 

 

 

 

 

(5,432)

Dividends declared and paid, ($0.01 per share)

 

 

 

 

 

 

 

 

(296)

 

 

 

 

 

 

 

 

(296)

Vesting of restricted stock

 

 

91

 

 

(758)

 

 

 

 

 

 

 

 

667

 

 

 -

Reclassification of stranded tax effects

 

 

 

 

 

 

 

 

(319)

 

 

319

 

 

 

 

 

 -

Stock based compensation

 

 

 

 

 

395

 

 

 

 

 

 

 

 

 

 

 

395

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(505)

 

 

(505)

Balance, March 31, 2018

 

$

34,717

 

$

117,379

 

$

151,833

 

$

(3,634)

 

$

(96,294)

 

$

204,001

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2018

 

$

34,720

 

$

119,081

 

$

175,463

 

$

(4,079)

 

$

(96,104)

 

$

229,081

Net income

 

 

 

 

 

 

 

 

8,468

 

 

 

 

 

 

 

 

8,468

Other comprehensive loss, 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

Accumulated

 

Total

 

 

Unrealized Loss

 

Unrealized

 

Accumulated Other

Components of accumulated other

 

on Securities

 

Loss on Derivative

 

Comprehensive

comprehensive income/(loss)

 

Available-for -Sale

 

Instruments

 

Income/(Loss)

Balance, December 31, 2017

 

$

2,239

 

$

(760)

 

$

1,479

Reclassification of stranded tax effects

 

 

482

 

 

(163)

 

 

319

Other comprehensive loss, net of tax

 

 

(6,350)

 

 

918

 

 

(5,432)

Balance, March 31, 2018

 

$

(3,629)

 

$

(5)

 

$

(3,634)

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2018

 

$

(4,038)

 

$

(41)

 

$

(4,079)

Other comprehensive income, net of tax

 

 

6,586

 

 

(771)

 

 

5,815

Balance, March 31, 2019

 

$

2,548

 

$

(812)

 

$

1,736

 

See accompanying notes to consolidated financial statements.

 

 

 

 

 

8

 


 

 

Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data, unaudited)

 

Note 1 – Summary of Significant Accounting Policies

 

The accounting policies followed in the preparation of the interim consolidated financial statements are consistent with those used in the preparation of the annual financial information.  The interim consolidated financial statements reflect all normal and recurring adjustments that are necessary, in the opinion of management, for a fair statement of results for the interim period presented.  Results for the period ended March 31, 2019, are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.  These interim consolidated financial statements are unaudited and should be read in conjunction with the audited financial statements and notes included in Old Second Bancorp, Inc.’s (the “Company”) annual report on Form 10-K for the year ended December 31, 2018.  Unless otherwise indicated, amounts in the tables contained in the notes to the consolidated financial statements are in thousands.  Certain items in prior periods have been reclassified to conform to the current presentation.

 

The Company’s consolidated financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”) and follow general practices within the banking industry.  Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes.  These estimates, assumptions, and judgments are based on information available as of the date of the consolidated financial statements.  Future changes in information may affect these estimates, assumptions, and judgments, which, in turn, may affect amounts reported in the consolidated financial statements.

 

Significant accounting policies are presented in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.  These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the consolidated financial statements and how those values are determined.

 

Recent Accounting Pronouncements

 

In February 2016, the FASB issued ASU No. 2016-02 “Leases (Topic 842).”  This ASU was issued to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements.  One key revision from prior guidance was to include operating leases within assets and liabilities recorded; another revision was to create a new model to follow for sale-leaseback transactions.  The impact of this pronouncement will primarily affect lessees, as virtually all of their assets will be recognized on the balance sheet, by recording a right of use asset and lease liability.  This pronouncement is effective for fiscal years beginning after December 15, 2018.  In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements” which provided additional guidance on the transition method, including application as a cumulative-effect adjustment to equity and practical expedients to use when accounting for lease components.  The Company adopted this standard as of January 1, 2019, and recorded right of use assets of $817,000 with a like lease liability.  As of March 31, 2019, the right of use assets and lessee lease liability totaled $672,000.  The Company also recorded leases receivable related to lessor leases of $174,000 as of January 1, 2019 with a like entry to lease liabilities for the lessor position; these tenant leases receivable balances and lessor lease liabilities totaled $142,000 as of March 31, 2019.  As no lease incentives, initial direct costs, or prepayments were present with any of these lease arrangements, the present value of the lessee liabilities and lessor receivables was equal to the offsetting right of use assets and lessor lease liabilities, respectively.  There was no impact to equity for the adoption of this standard on a modified retrospective basis. 

 

In June 2016, the FASB issued ASU No. 2016-13 “Measurement of Credit Losses on Financial Instruments (Topic 326).”  ASU 2016-13 was issued to provide financial statement users with more useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date to enhance the decision making process.  The new methodology to be used should reflect expected credit losses based on relevant vintage historical information, supported by reasonable forecasts of projected loss given defaults, which will affect the collectability of the reported amounts.  This new methodology will also require available-for-sale debt securities to have a credit loss recorded through an allowance rather than write-downs.  ASU 2016-13 is effective for financial statements issued for fiscal years beginning after December 15, 2019.  The Company is assessing the impact of ASU 2016-13 on its accounting and disclosures, and has determined that a loss rate model will be used for calculation of future risk assessments upon the ASU’s adoption in 2020.  The Company has accumulated historical data by loan pools and collateral classifications, and is on track to calculate estimates for at least two quarters in 2019 on a test basis to confirm the model processes and determine financial statement impact prior to adoption in 2020.  The Company is also developing internal control processes and disclosure documentation related to adoption of this standard. 

 

 

9

 


 

Table of Contents

Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data, unaudited)

 

Subsequent Events

 

On April 16, 2019, the Company’s Board of Directors declared a cash dividend of $0.01 per share payable on May 6, 2019, to stockholders of record as of April 26, 2019; dividends of $298,000 were paid to stockholders on May 6, 2019.

 

Note 2 – Acquisitions

 

On April 20, 2018, the Company acquired Greater Chicago Financial Corp. (“GCFC”) and its wholly-owned subsidiary, ABC Bank, which operated four branches in the Chicago metro area.  In addition to the acquisition price of $41.1 million, the Company retired the convertible and nonconvertible debentures held by GCFC upon acquisition, which totaled $6.6 million, including interest due.  The purchase and the retirement of the debentures were funded with the Company’s cash on hand, and all GCFC common stock was retired and cancelled simultaneous with the close of the transaction.  The Company acquired $227.6 million of loans, net of purchase accounting adjustments, and $248.5 million of deposits, net of purchase accounting adjustments for time deposits.  Purchase accounting adjustments recorded include a loan valuation mark of $11.2 million, a core deposit intangible of $3.1 million, a fixed asset valuation adjustment of $1.5 million, and goodwill of $10.2 million.  In addition, a deferred tax asset of $3.5 million was recorded as of the date of acquisition based on analysis of the fair value of assets acquired, less liabilities assumed.  None of the $10.2 million recorded as goodwill is expected to be deductible for tax purposes.  No acquisition related costs were incurred in the first quarter of 2019.  Acquisition related costs incurred by the Company for the year ended December 31, 2018, totaled $3.5 million, pre-tax, and included $1.1 million of salaries and employee benefits related expenses, and $1.8 million of data processing, computer and ATM related conversion costs. Acquisition costs incurred for the year ending December 31, 2017, related to the merger with GCFC were $65,000, and were expensed as incurred.

 

The assets and liabilities associated with the acquisition of GCFC were recorded in the Consolidated Balance Sheets at their estimated fair values as of the acquisition date.  In many cases the determination of these fair values required management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change, as noted below.  The following table shows the estimated fair value of the assets acquired and liabilities assumed as of April 20, 2018.  These fair value estimates are considered final as of March 31, 2019, and no further refinements to the values listed below are anticipated.

 

The below table summarizes the assets acquired, less the liabilities assumed, related to the GCFC/ABC Bank acquisition.  All amounts are listed at their estimated fair values as of date of acquisition, and have been accounted for under the acquisition method of accounting.

 

 

 

 

 

GCFC/ABC Bank Acquisition Summary

 

 

 

As of Date of Acquisition

 

 

 

 

 

 

April 20, 2018

Assets

 

 

 

Cash and due from banks

 

$

6,669

Interest bearing deposits with financial institutions

 

 

500

Securities available-for-sale, at fair value

 

 

72,091

Federal funds sold

 

 

4,300

FHLBC stock

 

 

1,549

Loans

 

 

227,594

Premises and equipment

 

 

5,339

Other real estate owned

 

 

401

Goodwill and core deposit intangible

 

 

13,280

Deferred tax assets, net

 

 

3,459

Other assets

 

 

1,767

Total assets

 

$

336,949

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10

 


 

Table of Contents

Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data, unaudited)

 

 

 

 

Liabilities

 

 

 

Noninterest bearing demand

 

$

58,005

Savings, NOW and money market

 

 

91,494

Time

 

 

98,999

Total deposits

 

 

248,498

Securities sold under repurchase agreements

 

 

5,623

Other short-term borrowings

 

 

10,875

Notes payable and other borrowings

 

 

23,367

Other liabilities

 

 

1,406

Total liabilities

 

 

289,769

 

 

 

 

Cash consideration paid

 

 

47,180

Total Liabilities Assumed and Cash Consideration Paid for Acquisition

 

$

336,949

 

Loans acquired in the GCFC acquisition were initially recorded at fair value with no separate allowance for loan losses.  The Company reviewed the loans at acquisition to determine which loans should be considered purchased credit impaired (“PCI loans”) defining impaired loans as those that were either not accruing interest or exhibited credit risk factors consistent with nonperforming loans at the acquisition date, or (“non-PCI loans”).

 

The following table represents the acquired loans as of date of acquisition and as of March 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

April 20, 2018

 

March 31, 2019

ABC Bank Acquired Loans

    

PCI

    

Non-PCI

    

PCI

    

Non-PCI

Fair Value

 

$

11,360

 

$

216,234

 

$

10,984

 

$

167,311

Contractually required principal and interest payments

 

 

19,447

 

 

220,308

 

 

18,046

 

 

169,002

Best estimate of contractual cash flows not expected to be collected

 

 

6,537

 

 

2,511

 

 

5,969

 

 

965

Best estimate of contractual cash flows expected to be collected

 

 

12,910

 

 

217,797

 

 

12,077

 

 

168,037

 

 

 

Note 3 – Securities

 

Investment Portfolio Management

 

Our investment portfolio serves the liquidity needs and income objectives of the Company.  While the portfolio serves as an important component of the overall liquidity management at the Bank, portions of the portfolio also serve as income producing assets.  The size and composition of the portfolio reflects liquidity needs, loan demand and interest income objectives.  Portfolio size and composition will be adjusted from time to time.  While a significant portion of the portfolio consists of readily marketable securities to address liquidity, other parts of the portfolio may reflect funds invested pending future loan demand or to maximize interest income without undue interest rate risk.

 

Investments are comprised of debt securities and non-marketable equity investments.  Securities available-for-sale are carried at fair value.  Unrealized gains and losses, net of tax, on securities available-for-sale are reported as a separate component of equity.  This balance sheet component changes as interest rates and market conditions change.  Unrealized gains and losses are not included in the calculation of regulatory capital. 

 

FHLBC and FRBC stock are considered nonmarketable equity investments.  FHLBC stock was recorded at $5.0 million at March 31, 2019, and $7.2 million at December 31, 2018. FRBC stock was recorded at $6.2 million at both March 31, 2019, and December 31, 2018. 

 

11

 


 

Table of Contents

Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share data, unaudited)

 

The following table summarizes the amortized cost and fair value of the securities portfolio at March 31, 2019, and December 31, 2018, and the corresponding amounts of gross unrealized gains and losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

March 31, 2019