Old Second Bancorp Earnings 2021-03-31

Balance Sheet	Income Statement	Cash Flow

UNITED STATES

Table of Contents

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, 2021


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

For transition period from to

Commission File Number 0-10537

(Exact name of Registrant as specified in its charter)


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

37 South River Street, Aurora, Illinois 60507

(Address of principal executive offices) (Zip Code)

(630) 892-0202

(Registrant’s telephone number, including area code)

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

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ ‘‘smaller reporting company,’’ and ‘‘emerging growth company’’ in Rule 12b–2 of the Exchange Act.

Large accelerated filer☐Accelerated filer☒

Non-accelerated filer☐Smaller reporting company☐Emerging growth company☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).

Yes ☐ No ☒


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	OSBC	The Nasdaq Stock Market

As of May 4, 2021, the Registrant has 28,859,521 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

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 with respect to management’s expectations regarding future plans, strategies and financial performance, including regulatory developments, industry and economic trends, and other matters. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the Company's management and on information currently available to management, can be identified by the inclusion of such qualifications as “expects,” “intends,” “believes,” “may,” “will,” “would,” “could,” “should,” “plan,” “anticipate,” “estimate,” “possible,” “likely” or other indications that the particular statements are not historical facts and refer to future periods. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and may be outside of the Company’s control. Actual events and results may differ materially from those described in such forward-looking statements due to numerous factors, including:

●

our ability to execute our growth strategy;

●

the impact of the outbreak of the novel coronavirus, or COVID-19, on our business, including the impact of the actions taken by governmental authorities to try and contain the virus or address the impact of the virus on the United States economy (including, without limitation, the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act), and the resulting effect of these items on our operations, liquidity and capital position, and on the financial condition of our borrowers and other customers;

●

negative economic conditions that adversely affect the economy, real estate values, the job market and other factors nationally and in our market area, in each case that may affect our liquidity and the performance of our loan portfolio;

●

risks related to future acquisitions, if any, including execution and integration risks;

●

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 CECL, 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;

●

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 new presidential administration and Democratic control of Congress;

●

negative changes in our capital position;

●

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, 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 2020 Annual Report on Form 10-K, in this Form 10-Q, and in subsequent filings we make with the SEC.

Table of Contents

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,
	2021		2020
Assets
Cash and due from banks	$	25,448	$	24,306
Interest earning deposits with financial institutions		415,497		305,597
Cash and cash equivalents		440,945		329,903
Securities available-for-sale, at fair value		593,280		496,178
Federal Home Loan Bank Chicago ("FHLBC") and Federal Reserve Bank Chicago ("FRBC") stock		9,917		9,917
Loans held-for-sale		7,842		12,611
Loans		1,959,625		2,034,851
Less: allowance for credit losses on loans		30,967		33,855
Net loans		1,928,658		2,000,996
Premises and equipment, net		45,055		45,477
Other real estate owned		2,163		2,474
Mortgage servicing rights, at fair value		5,889		4,224
Goodwill and core deposit intangible		20,661		20,781
Bank-owned life insurance ("BOLI")		63,436		63,102
Deferred tax assets, net		8,067		8,121
Other assets		40,739		47,053
Total assets	$	3,166,652	$	3,040,837

Liabilities
Deposits:
Noninterest bearing demand	$	982,664	$	909,505
Interest bearing:
Savings, NOW, and money market		1,290,937		1,202,134
Time		382,941		425,434
Total deposits		2,656,542		2,537,073
Securities sold under repurchase agreements		77,321		66,980
Junior subordinated debentures		25,773		25,773
Senior notes		44,402		44,375
Notes payable and other borrowings		22,314		23,393
Other liabilities		29,187		36,156
Total liabilities		2,855,539		2,733,750

Stockholders’ Equity
Common stock		34,957		34,957
Additional paid-in capital		120,075		122,212
Retained earnings		248,165		236,579
Accumulated other comprehensive income		13,266		14,762
Treasury stock		(105,350)		(101,423)
Total stockholders’ equity		311,113		307,087
Total liabilities and stockholders’ equity	$	3,166,652	$	3,040,837


	March 31, 2021		December 31, 2020
	Common		Common
	Stock		Stock
Par value	$	1.00	$	1.00
Shares authorized		60,000,000		60,000,000
Shares issued		34,957,384		34,957,384
Shares outstanding		29,018,637		29,328,723
Treasury shares		5,938,747		5,628,661

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,
	2021		2020
Interest and dividend income
Loans, including fees	$	22,207	$	23,597
Loans held-for-sale		55		36
Securities:
Taxable		1,615		2,163
Tax exempt		1,307		1,455
Dividends from FHLBC and FRBC stock		115		125
Interest bearing deposits with financial institutions		92		75
Total interest and dividend income		25,391		27,451
Interest expense
Savings, NOW, and money market deposits		241		635
Time deposits		500		1,766
Securities sold under repurchase agreements		31		116
Other short-term borrowings		-		109
Junior subordinated debentures		280		1,364
Senior notes		673		673
Notes payable and other borrowings		123		130
Total interest expense		1,848		4,793
Net interest and dividend income		23,543		22,658
(Release of) provision for credit losses		(3,000)		7,984
Net interest and dividend income after (release of) provision for credit losses		26,543		14,674
Noninterest income
Wealth management		2,151		1,906
Service charges on deposits		1,195		1,726
Secondary mortgage fees		322		270
Mortgage servicing rights mark to market gain (loss)		1,113		(2,134)
Mortgage servicing income		567		468
Net gain on sales of mortgage loans		3,721		2,246
Securities losses, net		-		(24)
Change in cash surrender value of BOLI		334		(49)
Card related income		1,447		1,287
Other income		450		626
Total noninterest income		11,300		6,322
Noninterest expense
Salaries and employee benefits		13,506		12,918
Occupancy, furniture and equipment		2,467		2,301
Computer and data processing		1,298		1,335
FDIC insurance		201		57
General bank insurance		276		246
Amortization of core deposit intangible		120		128
Advertising expense		60		109
Card related expense		593		532
Legal fees		55		131
Other real estate expense, net		36		237
Other expense		3,126		3,008
Total noninterest expense		21,738		21,002
Income (loss) before income taxes		16,105		(6)
Provision (benefit) for income taxes		4,226		(281)
Net income	$	11,879	$	275

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

See accompanying notes to consolidated financial statements.

Table of Contents

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(In thousands)


	(unaudited)
	Three Months Ended March 31,
	2021		2020
Net Income	$	11,879	$	275

Unrealized holding losses on available-for-sale securities arising during the period		(4,813)		(6,376)
Related tax benefit		1,371		1,797
Holding losses after tax on available-for-sale securities		(3,442)		(4,579)

Less: Reclassification adjustment for the net losses realized during the period
Net realized losses		-		(24)
Related tax benefit		-		7
Net realized losses after tax		-		(17)
Other comprehensive loss on available-for-sale securities		(3,442)		(4,562)

Changes in fair value of derivatives used for cash flow hedges		2,703		(2,530)
Related tax (expense) benefit		(757)		711
Other comprehensive income (loss) on cash flow hedges		1,946		(1,819)

Total other comprehensive loss		(1,496)		(6,381)
Total comprehensive income	$	10,383	$	(6,106)


	Accumulated		Accumulated		Total
	Unrealized Gain		Unrealized Gain		Accumulated Other
	(Loss) on Securities		(Loss) on Derivative		Comprehensive
	Available-for -Sale		Instruments		Income/(Loss)
For the Three Months Ended
Balance, December 31, 2019	$	6,827	$	(2,265)	$	4,562
Other comprehensive loss, net of tax		(4,562)		(1,819)		(6,381)
Balance, March 31, 2020	$	2,265	$	(4,084)	$	(1,819)

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

See accompanying notes to consolidated financial statements.

Table of Contents

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)


		(Unaudited)
	Three Months Ended March 31,
	2021		2020
Cash flows from operating activities
Net income	$	11,879	$	275
Adjustments to reconcile net income to net cash provided by operating activities:
Net premium / discount from amortization on securities		534		506
Securities losses , net		-		24
(Release of) provision for credit losses		(3,000)		7,984
Originations of loans held-for-sale		(78,284)		(50,418)
Proceeds from sales of loans held-for-sale		85,914		45,706
Net gains on sales of mortgage loans		(3,721)		(2,246)
Mortgage servicing rights mark to market (gain) loss		(1,113)		2,134
Net discount from accretion on loans		(520)		(409)
Net change in cash surrender value of BOLI		(334)		49
Net gains on sale of other real estate owned		(20)		(23)
Provision for other real estate owned valuation losses		6		158
Depreciation of fixed assets and amortization of leasehold improvements		765		662
Amortization of core deposit intangibles		120		128
Change in current income taxes receivable		3,557		(1,430)
Deferred tax expense (benefit)		668		(333)
Change in accrued interest receivable and other assets		2,200		(4,081)
Change in accrued interest payable and other liabilities		(3,375)		9,607
Stock based compensation		114		729
Net cash provided by operating activities		15,390		9,022
Cash flows from investing activities
Proceeds from maturities and calls, including pay down of securities available-for-sale		7,259		16,046
Proceeds from sales of securities available-for-sale		-

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

10-Q	2021-03-31	Filed 2021-05-07
10-K	2020-12-31	Filed 2021-03-08
10-Q	2020-09-30	Filed 2020-11-06
10-Q	2020-06-30	Filed 2020-08-10
10-Q	2020-03-31	Filed 2020-05-11
10-K	2019-12-31	Filed 2020-03-06
10-Q	2019-09-30	Filed 2019-11-07
10-Q	2019-06-30	Filed 2019-08-07
10-Q	2019-03-31	Filed 2019-05-07
10-K	2018-12-31	Filed 2019-03-07
10-Q	2018-09-30	Filed 2018-11-07
10-Q	2018-06-30	Filed 2018-08-07
10-Q	2018-03-31	Filed 2018-05-08
10-K	2017-12-31	Filed 2018-03-13
10-Q	2017-09-30	Filed 2017-11-07
10-Q	2017-06-30	Filed 2017-08-07
10-Q	2017-03-31	Filed 2017-05-08
10-K	2016-12-31	Filed 2017-03-13
10-Q	2016-09-30	Filed 2016-11-08
10-Q	2016-06-30	Filed 2016-08-08
10-Q	2016-03-31	Filed 2016-05-06
10-K	2015-12-31	Filed 2016-03-11
10-Q	2015-09-30	Filed 2015-11-06
10-Q	2015-06-30	Filed 2015-08-07
10-Q	2015-03-31	Filed 2015-05-08
10-K	2014-12-31	Filed 2015-03-12
10-Q	2014-09-30	Filed 2014-11-12
10-Q	2014-06-30	Filed 2014-08-13
10-Q	2014-03-31	Filed 2014-05-13
10-K	2013-12-31	Filed 2014-02-26
10-Q	2013-09-30	Filed 2013-11-12
10-Q	2013-06-30	Filed 2013-08-14
10-Q	2013-03-31	Filed 2013-05-15
10-K	2012-12-31	Filed 2013-03-20
10-Q	2012-09-30	Filed 2012-11-14
10-Q	2012-06-30	Filed 2012-08-14
10-Q	2012-03-31	Filed 2012-05-10
10-K	2011-12-31	Filed 2012-03-15
10-Q	2011-09-30	Filed 2011-11-09
10-Q	2011-06-30	Filed 2011-08-09
10-Q	2011-03-31	Filed 2011-05-10
10-K	2010-12-31	Filed 2011-03-16
10-Q	2010-09-30	Filed 2010-11-09
10-Q	2010-06-30	Filed 2010-08-06
10-Q	2010-03-31	Filed 2010-05-10
10-K	2009-12-31	Filed 2010-03-16

8-K	2020-10-21
8-K	2020-10-19
8-K	2020-10-01
8-K	2020-09-23
8-K	2020-08-18
8-K	2020-08-18
8-K	2020-07-22
8-K	2020-07-21
8-K	2020-07-01
8-K	2020-04-28
8-K	2020-04-22
8-K	2020-04-01
8-K	2020-01-28
8-K	2020-01-22
8-K	2020-01-21
8-K	2020-01-02
8-K	2019-10-23
8-K	2019-10-15
8-K	2019-10-01
8-K	2019-09-23
8-K	2019-08-21
8-K	2019-07-24
8-K	2019-07-16
8-K	2019-07-01
8-K	2019-06-05
8-K	2019-05-29
8-K	2019-05-22
8-K	2019-05-21
8-K	2019-04-24
8-K	2019-04-16
8-K	2019-04-01
8-K	2019-01-23
8-K	2019-01-15
8-K	2019-01-02
8-K	2018-10-24
8-K	2018-10-16
8-K	2018-10-01
8-K	2018-07-31
8-K	2018-07-25
8-K	2018-07-17
8-K	2018-07-02
8-K	2018-05-16
8-K	2018-05-15
8-K	2018-05-09
8-K	2018-04-25
8-K	2018-04-18
8-K	2018-04-02
8-K	2018-02-23
8-K	2018-01-24
8-K	2018-01-17
8-K	2018-01-02

EX-31.1	osbc-20210331ex311a70338.htm
EX-31.2	osbc-20210331ex312a7e65f.htm
EX-32.1	osbc-20210331ex321e4d543.htm
EX-32.2	osbc-20210331ex3228c1bbb.htm


	PART I
		Page Number
Item 1.	Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	59
Item 4.	Controls and Procedures	60
	PART II

Item 1.	Legal Proceedings	60
Item 1.A.	Risk Factors	60
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61
Item 3.	Defaults Upon Senior Securities	61
Item 4.	Mine Safety Disclosure	61
Item 5.	Other Information	61
Item 6.	Exhibits	62

	Signatures	63

OSBC 10Q Quarterly Report

Old Second Bancorp Earnings 2021-03-31