OLD SECOND BANCORP INC [OSBC] Filings

10-Q 1 tmb-20220331x10q.htm 10-Q UNITED STATES

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, 2022


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

For transition period from to

Commission File Number 000-10537

(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, 2022, the Registrant has 44,461,045 shares of common stock outstanding at $1.00 par value per share.

Table of Contents

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	38
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	58
Item 4.	Controls and Procedures	59
	PART II

Item 1.	Legal Proceedings	60
Item 1.A.	Risk Factors	60
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60
Item 3.	Defaults Upon Senior Securities	60
Item 4.	Mine Safety Disclosure	60
Item 5.	Other Information	60
Item 6.	Exhibits	61

	Signatures	62

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report and other publicly available documents of the Company contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act, including, but not limited to, management’s expectations regarding future plans, strategies and financial performance, including regulatory developments, industry and economic trends and estimates and assumptions underlying accounting policies. Forward-looking statements are based on our current beliefs, expectations and assumptions and on information currently available and, can be identified by the use of words such as “expects,” “intends,” “believes,” “may,” “will,” “would,” “could,” “should,” “plan,” “anticipate,” “estimate,” “possible,” “likely” or the negative thereof as well as other similar words and expressions of the future. Forward-looking statements are subject to risks, uncertainties and assumptions that are difficult to predict as to timing, extent, likelihood and degree of occurrence, which could cause our actual results to differ materially from those anticipated in or by such statements. Potential risks and uncertainties include, but are not limited to, the following:

●

our ability to execute our growth strategy;

●

the continuing impact of COVID-19 and its variants on our business, 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 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, including inflation, that may adversely affect the economy, real estate values, the job market and other factors nationally and in our market area, in each case that may affect our liquidity and the performance of our loan portfolio;

●

risks with respect to our ability to successfully expand and integrate businesses and operations that we acquire, such as the recent acquisition of West Suburban Bancorp, Inc., as well our ability to identify and complete future mergers or acquisitions;

●

the financial success and viability of the borrowers of our commercial loans;

●

changes in U.S. monetary policy, the level and volatility of interest rates, the capital markets and other market conditions that may affect, among other things, our liquidity and the value of our assets and liabilities;

●

the transition away from LIBOR to an alternative reference rate;

●

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

●

any negative perception of our reputation or financial strength;

●

our ability to raise additional capital on acceptable terms when needed;

●

our ability to raise cost-effective funding to support business plans when needed;

●

our ability to use technology to provide products and services that will satisfy customer demands and create efficiencies in operations;

●

adverse effects on our information technology systems resulting from system failures, human error or cyberattacks;

●

adverse effects of failures by our vendors to provide agreed upon services in the manner and at the cost agreed, particularly our information technology vendors and those vendors performing a service on the Company’s behalf;

●

the impact of any claims or legal actions, including any effect on our reputation;

●

losses incurred in connection with repurchases and indemnification payments related to mortgages;

●

the soundness of other financial institutions and other counter-party risk;

●

changes in accounting standards, rules and interpretations and the related impact on our financial statements, including assumptions surrounding the ongoing impact of our adoption of the Current Expected Credit Losses (“ CECL”) model, which are subject to change based on a number of factors including changes in our macroeconomic forecasts, credit quality, loan composition and other factors;

●

our ability to receive dividends from our subsidiaries;

●

a decrease in our regulatory capital ratios or negative changes in our capital position;

●

adverse federal or state tax assessments, or changes in tax laws or policies;

●

risks associated with actual or potential litigation or investigations by customers, regulatory agencies or others;

●

legislative or regulatory changes, particularly changes in regulation of financial services companies;

●

increased costs of compliance, heightened regulatory capital requirements and other risks associated with changes in regulation and the current regulatory environment, including changes as a result of the current presidential administration and Democratic control of Congress;

●

the adverse effects of events beyond our control that may have a destabilizing effect on financial markets and the economy, such as epidemics and pandemics (including COVID-19), war or terrorist activities, such as the war in Ukraine, essential utility outages, deterioration in the global economy, instability in the credit markets, disruptions in our customers’ supply chains or disruption in transportation;

●

changes in trade policy and any related tariffs; and

●

each of the factors and risks under the heading “Risk Factors” in our 2021 Annual Report on Form 10-K and in subsequent filings we make with the SEC.

Because the Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain, there can be no assurances that future actual results will correspond to any forward-looking statements and you should not rely on any forward-looking statements. Additionally, all statements in this Form 10-Q, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events, except as required by applicable law.

Table of Contents

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,
	2022		2021
Assets
Cash and due from banks	$	41,511	$	38,565
Interest earning deposits with financial institutions		593,166		713,542
Cash and cash equivalents		634,677		752,107
Securities available-for-sale, at fair value		1,816,450		1,692,488
Federal Home Loan Bank Chicago ("FHLBC") and Federal Reserve Bank Chicago ("FRBC") stock		21,974		13,257
Loans held-for-sale		8,075		4,737
Loans		3,402,370		3,421,948
Less: allowance for credit losses on loans		44,308		44,281
Net loans		3,358,062		3,377,667
Premises and equipment, net		86,156		88,005
Other real estate owned		2,374		2,356
Mortgage servicing rights, at fair value		10,376		7,097
Goodwill		86,332		86,332
Core deposit intangible		15,639		16,304
Bank-owned life insurance ("BOLI")		105,424		105,300
Deferred tax assets, net		22,628		6,100
Other assets		55,579		60,439
Total assets	$	6,223,746	$	6,212,189

Liabilities
Deposits:
Noninterest bearing demand	$	1,461,712	$	1,428,055
Interest bearing:
Savings, NOW, and money market		3,605,457		3,534,367
Time		477,556		503,810
Total deposits		5,544,725		5,466,232
Securities sold under repurchase agreements		33,521		50,337
Junior subordinated debentures		25,773		25,773
Subordinated debentures		59,233		59,212
Senior notes		44,506		44,480
Notes payable and other borrowings		17,992		19,074
Other liabilities		31,678		45,054
Total liabilities		5,757,428		5,710,162

Stockholders’ Equity
Common stock		44,705		44,705
Additional paid-in capital		203,190		202,443
Retained earnings		261,807		252,011
Accumulated other comprehensive (loss) income		(37,484)		8,768
Treasury stock		(5,900)		(5,900)
Total stockholders’ equity		466,318		502,027
Total liabilities and stockholders’ equity	$	6,223,746	$	6,212,189


	March 31, 2022		December 31, 2021
	Common		Common
	Stock		Stock
Par value	$	1.00	$	1.00
Shares authorized		60,000,000		60,000,000
Shares issued		44,705,150		44,705,150
Shares outstanding		44,461,045		44,461,045
Treasury shares		244,105		244,105

See accompanying notes to consolidated financial statements.

Table of Contents

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

(In thousands, except per share data)


	(unaudited)
	Three Months Ended March 31,
	2022		2021
Interest and dividend income
Loans, including fees	$	36,376	$	22,207
Loans held-for-sale		57		55
Securities:
Taxable		5,047		1,615
Tax exempt		1,433		1,307
Dividends from FHLBC and FRBC stock		153		115
Interest bearing deposits with financial institutions		269		92
Total interest and dividend income		43,335		25,391
Interest expense
Savings, NOW, and money market deposits		397		241
Time deposits		277		500
Securities sold under repurchase agreements		11		31
Junior subordinated debentures		280		280
Subordinated debentures		546		-
Senior notes		485		673
Notes payable and other borrowings		103		123
Total interest expense		2,099		1,848
Net interest and dividend income		41,236		23,543
Release of credit losses		-		(3,000)
Net interest and dividend income after release of credit losses		41,236		26,543
Noninterest income
Wealth management		2,698		2,151
Service charges on deposits		2,090		1,195
Secondary mortgage fees		139		322
Mortgage servicing rights mark to market gain		2,978		1,113
Mortgage servicing income		518		567
Net gain on sales of mortgage loans		1,495		3,721
Change in cash surrender value of BOLI		124		334
Card related income		2,550		1,447
Other income		901		450
Total noninterest income		13,493		11,300
Noninterest expense
Salaries and employee benefits		19,967		13,506
Occupancy, furniture and equipment		3,733		2,467
Computer and data processing		6,228		1,298
FDIC insurance		410		201
General bank insurance		315		276
Amortization of core deposit intangible		665		120
Advertising expense		182		60
Card related expense		534		593
Legal fees		294		55
Consulting & management fees		605		416
Other real estate (gain) expense, net		(12)		36
Other expense		5,365		2,710
Total noninterest expense		38,286		21,738
Income before income taxes		16,443		16,105
Provision for income taxes		4,423		4,226
Net income	$	12,020	$	11,879

Basic earnings per share	$	0.27	$	0.41
Diluted earnings per share		0.27		0.40
Dividends declared per share		0.05		0.01

See accompanying notes to consolidated financial statements.

Table of Contents

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Comprehensive (Loss) Income

(In thousands)


	(unaudited)
	Three Months Ended March 31,
	2022		2021
Net Income	$	12,020	$	11,879

Unrealized holding losses on available-for-sale securities arising during the period		(64,829)		(4,813)
Related tax benefit		18,153		1,371
Holding losses, after tax, on available-for-sale securities		(46,676)		(3,442)

Less: Reclassification adjustment for the net gains (losses) realized during the period
Net realized gains (losses)		-		-
Related tax benefit (expense)		-		-
Net realized gains (losses) after tax		-		-
Other comprehensive loss on available-for-sale securities		(46,676)		(3,442)

Changes in fair value of derivatives used for cash flow hedges		589		2,703
Related tax expense		(165)		(757)
Other comprehensive income on cash flow hedges		424		1,946

Total other comprehensive loss		(46,252)		(1,496)
Total comprehensive (loss) income	$	(34,232)	$	10,383



	Accumulated		Accumulated		Total
	Unrealized Gain		Unrealized Gain		Accumulated Other
	(Loss) on Securities		(Loss) on Derivative		Comprehensive
(unaudited)	Available-for -Sale		Instruments		Income/(Loss)
For the Three Months Ended
Balance, December 31, 2020	$	17,413	$	(2,651)	$	14,762
Other comprehensive (loss) income, net of tax		(3,442)		1,946		(1,496)
Balance, March 31, 2021	$	13,971	$	(705)	$	13,266

Balance, December 31, 2021	$	11,139	$	(2,371)	$	8,768
Other comprehensive (loss) income, net of tax		(46,676)		424		(46,252)
Balance, March 31, 2022	$	(35,537)	$	(1,947)	$	(37,484)

See accompanying notes to consolidated financial statements.

Table of Contents

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)


	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities
Net income	$	12,020	$	11,879
Adjustments to reconcile net income to net cash provided by operating activities:
Net premium / discount amortization on securities		1,809		534
Release of provision for credit losses		-		(3,000)
Originations of loans held-for-sale		(32,739)		(78,284)
Proceeds from sales of loans held-for-sale		30,791		85,914
Net gains on sales of mortgage loans		(1,495)		(3,721)
Mortgage servicing rights mark to market loss		(2,978)		(1,113)
Net accretion of discount on loans		(2,382)		(520)
Net change in cash surrender value of BOLI		(124)		(334)
Net gains on sale of other real estate owned		(49)		(20)
Provision for other real estate owned valuation losses		-		6
Depreciation of fixed assets and amortization of leasehold improvements		1,086		765
Amortization of core deposit intangibles		665		120
Change in current income taxes receivable		2,955		3,557
Deferred tax expense (benefit)		1,458		668
Change in accrued interest receivable and other assets		902		2,200
Accretion of purchase accounting adjustment on time deposits		(424)		-
Amortization of senior and subordinated debentures issuance costs		47		26
Change in accrued interest payable and other liabilities		(12,011)		(3,401)
Stock based compensation		747		114
Net cash provided by operating activities		278		15,390
Cash flows from investing activities
Proceeds from maturities and calls, including pay down of securities available-for-sale		75,650		7,259
Purchases of securities available-for-sale		(266,250)		(109,708)
Purchases of FHLBC/FRBC stock		(8,717)		-
Net change in loans		21,900		75,858
Proceeds from sales of other real estate owned, net of participations and improvements		118		325
Proceeds from disposition of fixed assets		1,250		-
Net purchases of premises and equipment		(487)		(343)
Net cash used in investing activities		(176,536)		(26,609)
Cash flows from financing activities
Net change in deposits		78,917		119,469
Net change in securities sold under repurchase agreements		(16,816)		10,341
Repayment of term note		(1,000)		(1,000)
Net change in notes payable and other borrowings, excluding term note		(81)		(78)
Dividends paid on common stock		(2,192)		(293)
Purchase of treasury stock		-		(6,178)
Net cash provided by financing activities		58,828		122,261
Net change in cash and cash equivalents		(117,430)		111,042
Cash and cash equivalents at beginning of period		752,107		329,903
Cash and cash equivalents at end of period	$	634,677	$	440,945

See accompanying notes to consolidated financial statements.

Table of Contents

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, 2020	$	34,957	$	122,212	$	236,579	$	14,762	$	(101,423)	$	307,087
Net income						11,879						11,879
Other comprehensive loss, net of tax								(1,496)				(1,496)
Dividends declared and paid, ($0.01 per share)						(293)						(293)
Vesting of restricted stock				(2,251)						2,251		-
Stock based compensation				114								114
Purchase of treasury stock from taxes withheld on stock awards										(577)		(577)
Purchase of treasury stock from stock repurchase program

OLD SECOND BANCORP INC [OSBC] Filings
10-Q	[2022-05-09]
10-K	[2022-03-10]
10-Q	[2021-11-05]
10-Q	[2021-08-06]
10-Q	[2021-05-07]
10-K	[2021-03-08]
10-Q	[2020-11-06]
10-Q	[2020-08-07]
10-Q	[2020-05-11]
10-K	[2020-03-06]
10-Q	[2019-11-07]
10-Q	[2019-08-07]
10-Q	[2019-05-07]
10-K	[2019-03-07]
10-Q	[2018-11-07]
10-Q	[2018-08-07]
10-Q	[2018-05-08]
10-K	[2018-03-13]
10-Q	[2017-11-07]
10-Q	[2017-08-07]
10-Q	[2017-05-08]
10-K	[2017-03-13]
10-Q	[2016-11-08]
10-Q	[2016-08-08]
10-Q	[2016-05-06]
10-K	[2016-03-11]
10-Q	[2015-11-06]
10-Q	[2015-08-07]
10-Q	[2015-05-08]
10-K	[2015-03-12]
10-Q	[2014-11-12]
10-Q	[2014-08-13]
10-Q	[2014-05-13]
10-K	[2014-02-26]
S-1	[2014-01-17]
10-Q	[2013-11-12]
10-Q	[2013-08-14]
10-Q	[2013-05-15]
10-K	[2013-03-20]
10-Q	[2012-11-14]
10-Q	[2012-08-14]
10-Q	[2012-05-10]
10-K	[2012-03-15]