Old Second Bancorp Earnings 2019-03-31

OSBC 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

10-Q 1 osbc-20190331x10q.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, 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 May 2, 2019, the Registrant has 29,896,529 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	36
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	50
Item 4.	Controls and Procedures	51
	PART II

Item 1.	Legal Proceedings	51
Item 1.A.	Risk Factors	51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3.	Defaults Upon Senior Securities	52
Item 4.	Mine Safety Disclosure	52
Item 5.	Other Information	52
Item 6.	Exhibits	52

	Signatures	53

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.

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.

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.

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.

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.

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.

Table of Contents

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.

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

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.

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

Amortized

Unrealized

Fair

March 31, 2019

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

EX-31.1	osbc-20190331ex3116da894.htm
EX-31.2	osbc-20190331ex312bf1880.htm
EX-32.1	osbc-20190331ex321d36ad5.htm
EX-32.2	osbc-20190331ex322308c07.htm