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 September 30, 1995 Commission file No. 0-10537 Old Second Bancorp, Inc. (Exact name of registrant as specified in its charter) Delaware 36-3143493 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 37 South River Street, Aurora, Illinois 60507 (Address of principal executive offices) (Zip Code) (708) 892-0202 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report.) 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 92 days. Yes [X] No[ ] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. 2,350,165 shares of no par value common stock are outstanding as of October 27, 1995. There is one exhibit with this Form 10-Q. Page 1 of 11 Pages
<TABLE> Part I - Financial Information Item 1 - Financial Statements OLD SECOND BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS EXCEPT SHARE DATA) <CAPTION> September 30, December 31, 1995 1994 --------- --------- <S> <C> <C> ASSETS ------ Cash and Due from Banks, Non- Interest Bearing $46,533 $43,201 Interest Bearing Deposits With Banks 400 400 Federal Funds Sold 42,770 35,150 ------- ------- Total Cash and Cash Equivalents 89,703 78,751 Available for Sale Securities 262,817 239,147 Held to Maturity Securities 7,012 ------- ------- Total Investment Securities 262,817 246,159 Loans 385,953 357,019 Less:Allowance For Possible Loan Losses 5,473 5,753 Unearned Income 578 605 ------- ------- Loans, Net 379,902 350,661 Bank Premises and Equipment, Net 14,117 14,303 Other Assets 14,882 18,322 ------- ------- TOTAL ASSETS $761,421 $708,196 ======= ======= LIABILITIES ----------- Deposits: Demand $ 93,687 $111,044 Savings 279,437 270,037 Time 296,464 250,805 ------- ------- Total Deposits 669,588 631,886 Securities Sold Under Agreements to Repurchase 6,854 6,791 Other Short-Term Borrowings 4,736 2,786 Note Payable 40 80 Other Liabilities 6,374 5,052 ------- ------- Total Liabilities 687,592 646,595 ------- ------- STOCKHOLDERS' EQUITY -------------------- Preferred Stock, no par value, 300,000 shares authorized, none issued Common Stock, no par value shares authorized: 3,500,000 shares issued: 2,350,165 15,377 15,377 Retained Earnings 57,285 51,859 Net Unrealized Gain (Loss) on Investments 1,167 (5,635) ------- ------- Total Stockholders' Equity 73,829 61,601 ------- ------- TOTAL LIABILITIES&STOCKHOLDERS' EQUITY $761,421 $708,196 ======= ======= <FN> See accompanying notes. Page 2 </TABLE>
<TABLE> OLD SECOND BANCORP, INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) <CAPTION> Three Months Ended September 30, ------------------ 1995 1994 ------ ------ <S> <C> <C> INTEREST INCOME: --------------- Interest and Fees on Loans $8,625 $7,370 Interest and Dividends on Investment Securities: Taxable 3,112 3,110 Exempt From Federal Income Tax 1,052 911 Interest on Federal Funds Sold 648 290 Interest on Interest Bear. Dep. 5 8 ------ ------ Total Interest Income 13,442 11,689 ------ ------ INTEREST EXPENSE: ---------------- Savings Deposits 1,998 1,821 Time Deposits 4,266 2,780 Securities Sold Under Agreements To Repurchase 61 18 Other Short-Term Borrowings 54 23 Note Payable 1 2 ------ ------ Total Interest Expense 6,380 4,644 ------ ------ Net Interest Income 7,062 7,045 Provision for Possible Loan Losses 20 5 ------ ------ Net Interest Income After Provision for Possible Loan Losses 7,042 7,040 OTHER INCOME: ------------ Trust Fees 789 729 Service Charges on Deposit Accounts 624 648 Other Income 380 262 Securities Gains 0 4 ------ ------ Total Other Income 1,793 1,643 ------ ------ OTHER EXPENSES: -------------- Salaries and Employee Benefits 3,007 2,876 Net Occupancy of Bank Premises 475 386 Furniture and Equipment 505 435 FDIC Insurance (36) 334 Marketing 248 202 Stationery and Supplies 204 165 Goodwill Amortization 129 129 Other 1,088 1,052 ------ ------ Total Other Expenses 5,620 5,579 ------ ------ Income Before Income Taxes 3,215 3,104 Income Tax Expense 924 895 ------ ------ Net Income $2,291 $2,209 ====== ====== Per Share Amounts: ----------------- Net Income $0.97 $0.94 Dividends Declared 0.20 0.20 Average Shares Outstanding 2,350,165 2,350,165 (TABLE CONTINUED) Nine Months Ended September 30, ---------------- 1995 1994 ------ ------ <S> <C> <C> INTEREST INCOME: --------------- Interest and Fees on Loans $25,281 $21,108 Interest and Dividends on Investment Securities: Taxable 9,141 8,623 Exempt From Federal Income Tax 3,015 2,768 Interest on Federal Funds Sold 1,520 817 Interest on Interest Bear. Dep. 16 31 ------ ------ Total Interest Income 38,973 33,347 ------ ------ INTEREST EXPENSE: ---------------- Savings Deposits 5,739 5,158 Time Deposits 11,659 8,072 Securities Sold Under Agreements To Repurchase 90 35 Other Short-Term Borrowings 152 85 Notes Payable 3 45 ------ ------ Total Interest Expense 17,643 13,395 ------ ------ Net Interest Income 21,330 19,952 Provision for Possible Loan Losses 79 167 ------ ------ Net Interest Income After Provision for Possible Loan Losses 21,251 19,785 OTHER INCOME: ------------ Trust Fees 2,383 2,139 Service Charges on Deposit Accounts 1,845 1,855 Other Income 961 1,073 Securities Gains 0 4 ------ ------ Total Other Income 5,189 5,071 ------ ------ OTHER EXPENSES: -------------- Salaries and Employee Benefits 9,101 8,796 Net Occupancy of Bank Premises 1,221 1,189 Furniture and Equipment 1,440 1,483 FDIC Insurance 661 985 Marketing 584 615 Stationery and Supplies 527 471 Goodwill Amortization 387 387 Other 3,100 3,133 ------ ------ Total Other Expenses 17,021 17,059 ------ ------ Income Before Income Taxes 9,419 7,797 Income Tax Expense 2,667 2,105 ------ ------ Net Income $6,752 $5,692 ====== ====== Per Share Amounts: ----------------- Net Income $2.87 $2.42 Dividends Declared 0.60 0.60 Average Shares Outstanding 2,350,165 2,350,165 <FN> See accompanying notes. Page 3 </TABLE>
<TABLE> OLD SECOND BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS) <CAPTION> For the Nine Months Ended September 30, 1995 1994 ----- ----- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: ------------------------------------- Interest Received $38,728 $33,170 Interest Paid (16,956) (13,497) Paid to Suppliers and Employees (16,297) (16,327) Trust Fees Received 2,383 2,139 Income Taxes Paid (2,595) (2,358) Service Charges Received on Deposit Accounts 1,845 1,855 (Increase) Decrease Mortgages Held for Resale (1,368) 6,195 Other Income Received 961 1,073 ------ ------ Net Cash Provided By Operating Activities 6,701 12,250 ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES: ------------------------------------- Net Increase in Loans (27,952) (18,812) Purchases of Available for Sale Securities (33,409) (40,840) Proceeds from Maturities of Available for Sale Securities 27,383 24,173 Purchases of Held to Maturity Securities (2,441) Proceeds from Maturities of Held to Maturity Securities 2,425 Capital Expenditures (775) (912) Other, Net 789 109 ------ ------ Net Cash Used in Investing Activities (33,964) (36,298) ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES: ------------------------------------- Net Increase in Deposits 37,702 30,249 Increase (Decrease) in Other Short-term Borrowings 2,013 (3,111) Decrease in Notes Payable (40) (3,088) Dividends Paid (1,500) (1,285) Other, Net 40 (412) ------ ------ Net Cash Provided by Financing Activities 38,215 22,353 ------ ------ Net Increase (Decrease) in Cash & Cash Equivalents 89,703 (1,695) Cash & Cash Equivalents at Beginning of Period 78,751 68,519 ------ ------ Cash & Cash Equivalents at End of Period $10,952 $66,824 ====== ====== RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net Income $6,752 $5,692 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation 961 963 Provision for Possible Loan Losses 79 167 Increase (Decrease) in Taxes Payable 142 (208) Benefit for Deferred Income Taxes (70) (45) Increase in Interest Receivable (723) (888) Increase(Decrease) in Interest Payable 688 (101) Net Premium Amortization 477 711 Goodwill Amortization 387 387 (Increase) Decrease Mortgages Held for Resale (1,368) 6,195 Decrease in Accrued Expenses (347) (208) Increase in Prepaid Expenses (277) (411) Securities Gains (4) --- ----- Total Adjustments (51) 6,558 --- ----- Net Cash Provided by Operating Activities $6,701 $12,250 ===== ====== <FN> See accompanying notes. Page 4 </TABLE>
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies followed in the preparation of interim financial statements are consistent with those used in the preparation of annual financial information. The interim financial statements reflect all adjustments, which are normal and recurring in nature, necessary in the opinion of management to a fair statement of results for the interim periods presented. Results for the nine months ended September 30, 1995 are not necessarily indicative of the results that may be expected for the year ended December 31, 1995. NOTE 2 - ACCOUNTING FOR IMPAIRMENT OF A LOAN Effective January 1, 1995, the Corporation prospectively adopted Financial Accounting Standards Number 114 "Accounting by Creditors for Impairment of a Loan". Adoption of this standard had no material effect on the Corporation's financial position or results of operation. NOTE 3 - BUSINESS COMBINATIONS On June 30, 1995 Old Second issued 208,000 shares of common stock to acquire 100% of the outstanding common stock of Bank of Sugar Grove. The acquisition of Bank of Sugar Grove was accounted for as a pooling-of-interests; accordingly, the financial statements have been restated for all periods presented to include the accounts and results of operation of Bank of Sugar Grove. Operating results of Old Second and Bank of Sugar Grove for the three months and nine months ended September 30, 1995 and 1994, prior to restatement are as follows: <TABLE> Three Months Ended September 30, 1995 1994 (In thousands) ----- ----- <S> <C> <C> Old Second Net Interest Income $6,643 $6,623 Net Income 2,247 2,127 Sugar Grove Net Interest Income 419 422 Net Income 44 82 Combined Net Interest Income 7,062 7,045 Net Income 2,291 2,209 (TABLE CONTINUED) Nine Months Ended September 30, 1995 1994 (In thousands) ----- ----- Old Second Net Interest Income $19,944 $18,723 Net Income 6,436 5,507 Sugar Grove Net Interest Income 1,386 1,229 Net Income 316 185 Combined Net Interest Income 21,330 19,952 Net Income 6,752 5,692 </TABLE> Page 5
NOTE 4 - INVESTMENT SECURITIES On June 30, 1995, Sugar Groves' Held to Maturity Securities were transferred to Available for Sale Securities to conform with Old Second's investment classifications. In accordance with Statement of Financial Accounting Standard Number 115 "Accounting for Certain Investments in Debt and Equity Securities", Held to Maturity Securities were previously reported at amortized cost. At June 30, 1995 the amortized cost was $10,645,000 with a fair value of $10,815,000. Available for Sale Securities are reported at fair value with net unrealized gains and losses reported as a separate component of Stockholders' Equity. Since this transaction resulted in no cash inflows or outflows during the period, it has not been disclosed on the face of the Statement of Cash Flows. Page 6
PART 1 - FINANCIAL INFORMATION ITEM 2 OLD SECOND BANCORP, INC. AND SUBSIDIARIES MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion analyzes the consolidated financial condition and results of operations of Old Second Bancorp, Inc. and its subsidiaries. FINANCIAL CONDITION Total Assets at September 30, 1995 of $761,421,000 were up 7.5% from the 1994 year-end total of $708,196,000. Total Investment Securities increased $16,658,000 (6.8%). To conform with Old Second's investment classifications, Sugar Groves' held to maturity securities were transferred to the available for sale classification on June 30, 1995. Net Loans increased $29,241,000 (8.3%). Total Deposits of $669,588,000 were up 6.0% from the 1994 year-end total of $631,886,000. Time Deposits increased $45,659,000 (18.2%) as depositors appeared to be taking advantage of higher rates on Certificates of Deposit. Other Short-Term Borrowings increased $1,950,000 from 1994 year-end. The increase in deposits and short-term borrowings provided funds for the increase in investments and loan activity as well as an increase in federal funds sold. Total Stockholders' Equity of $73,829,000 was up $12,228,000 from the 1994 year-end total of $61,601,000. The increase was due to additional Retained Earnings of $5,426,000 and the change in the Net Unrealized Gain (Loss) on Investments which resulted in an increase of $6,802,000. Page 7
RESULTS OF OPERATIONS Operating results include net income for Old Second Bancorp, Inc. and its subsidiaries for the nine months ended September 30, 1995 and 1994. Net Interest Income for the three months ended September 30, 1995 of $7,062,000 was up $17,000 over the like period of 1994. Net Interest Income for the quarter in 1994 included an adjustment to discount accretion on investments that resulted in $172,000 additional interest income. Net Interest Income for the nine months of $21,330,000 was up $1,378,000 (6.9%) over the first nine months of 1994. The increase in Net Interest Income was attributable mainly to volume. Total Interest Income for the three and nine months of 1995 was higher than 1994 by $1,753,000 (15.0%) and $5,626,000 (16.9%), respectively. Total Interest Expense for the three and nine months ended September 30, 1995 increased $1,736,000 (37.4%) and $4,248,000 (31.7%), respectively, from the same period in 1994. Total Other Income for the three months ending September 30, 1995 of $1,793,000 was up $150,000 (9.1%) from the same period a year ago. Other Income increased $118,000 (45.0%) and Trust Fees increased $60,000 (8.2%) for the quarter. For the nine months, Total Other Income increased $118,000 from the like time period in 1994, due primarily to an increase in Trust Fees. Total Other Expenses for the three and nine months of 1995 remained substantially the same as the like periods in 1994. For the quarter and nine months, Salaries and Employee Benefits increased $131,000 and $305,000, respectively. Federal Deposit Insurance decreased $370,000 and $324,000 for the quarter and nine months, respectively, due primarily to a refund of $387,000 in September 1995. LIQUIDITY Liquidity is generally defined as the ability to meet cash flow requirements. For a bank, meeting cash flow requirements means having funds available to satisfy customer credit needs as well as having funds available to meet depositor withdrawal requests. For the Corporation, liquidity means having funds available to pay cash dividends, debt service and operating expenses. Liquid assets consist primarily of non-interest bearing and interest bearing deposits, overnight federal funds sold and unpledged investment securities. The Consolidated Statements of Cash Flows included with the financial statements herein set forth the cash flows from operating, investing and financing activities for the various time periods. Page 8
Net cash provided by operating activities was $6,701,000 and $12,250,000 for the nine months ended September 30, 1995 and 1994, respectively. The decrease in cash flows from operating activities was primarily attributable to increased activity in Mortgages Held for Resale for the nine months in 1995 as compared to the same period in 1994. Net cash used in investing activities was $33,964,000 and $36,298,000 for the nine months ended September 30, 1995 and 1994, respectively. The primary components of cash flows from investing activities are funding and repayment of customer loans and purchases and sales of investment securities. The net increase in loans offset by lower investment securities purchase activity in 1995 generated lower cash outflows than the same period in 1994. Cash flows from financing activities are primarily attributable to changes in deposit levels, short-term borrowings and notes payable, and the payment of dividends to stockholders. For the nine months, net cash of $38,215,000 and $22,353,000 was provided by financing activities for 1995 and 1994, respectively. An increase in deposits generated cash inflows of $37,702,000 and $30,249,000 for the first nine months of 1995 and 1994, respectively. Short-Term Borrowings resulted in cash outflows of $2,013,000 for the nine months ended September 30, 1995 and cash inflows of $3,111,000 for the same period in 1994. Page 9
PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K A. Exhibits Exhibit 27. Financial Data Schedule B. Reports on Form 8-K Information contained in Item 5 of Bancorp's Form 8-K Current Report dated July 17, 1995 regarding issuance of common stock for the acquisition of Bank of Sugar Grove is incorporated by reference in this Form 10-Q. Page 10
SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OLD SECOND BANCORP, INC. /s/ R J CARLSON By: R.J. Carlson, President, Chief Financial Officer, Secretary and Director Date: 11/15/95 OLD SECOND BANCORP, INC. 37 SOUTH RIVER STREET AURORA ILLINOIS 60507 Page 11