-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IapvZXGjWoFCecE/C31VngVigLAOAcOIL2zO54TOM0+S34EhF8a6Eb2upsOuGGYP Vdx6CW1sw0sFWwkSAbZaEw== 0000912057-00-014371.txt : 20000411 0000912057-00-014371.hdr.sgml : 20000411 ACCESSION NUMBER: 0000912057-00-014371 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OLD SECOND BANCORP INC CENTRAL INDEX KEY: 0000357173 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 363143493 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-10537 FILM NUMBER: 582874 BUSINESS ADDRESS: STREET 1: 37 S RIVER ST CITY: AURORA STATE: IL ZIP: 60507 BUSINESS PHONE: 7088920202 MAIL ADDRESS: STREET 1: 37 SOUTH RIVER STREET CITY: AURORA STATE: IL ZIP: 60507 10-K405 1 FORM 10-K405 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO _________ Commission file number 0-10537 ------------ OLD SECOND BANCORP, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) DELAWARE 36-3143493 - ------------------------ --------------------------------------- (State of Incorporation) (I.R.S. Employer Identification Number) 37 SOUTH RIVER STREET, AURORA, ILLINOIS 60506 ------------------------------------------------------------ (Address of principal executive offices, including Zip Code) (630) 892-0202 ---------------------------------------------------- (Registrant's telephone number, including Area Code) Securities registered pursuant to Section 12(b) of the Act: Title of Class Name of each exchange on which registered NONE NONE -------------- ----------------------------------------- Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $1.00 PAR VALUE ----------------------------- (Title of Class) PREFERRED STOCK --------------- (Title of Class) 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 X NO ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of registrant's knowledge, in definitive proxy or information statements incorporated by Reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of March 21, 2000, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was approximately $120 million* based upon the price of the last sale on that date. The number of shares outstanding of the registrant's common stock, par value $1.00 per share, was 5,904,754 at March 21, 2000. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's 1999Annual Report are incorporated by reference into Parts I, II and IV. Portions of the Company's Proxy Statement for the 2000 Annual Meeting of Stockholders are incorporated by reference into Part III. - ---------------- * Based on the last reported price of an actual transaction in registrant's common stock on March 21, 2000 and reports of beneficial ownership filed by directors and executive officers of registrant and by beneficial owners of more than 5% of the outstanding shares of common stock of registrant; however, such determination of shares owned by affiliates does not constitute an admission of affiliate status or beneficial interest in shares of registrant's common stock. OLD SECOND BANCORP, INC. FORM 10-K INDEX
PART I Page No. ------ -------- Item 1 Business 3 - 12 Item 2 Properties 13 Item 3 Legal Proceedings 13 Item 4 Submission of Matters to a Vote of Security Holders 13 PART II ------- Item 5 Market for the Registrant's Common Equity and Related Stockholder Matters 13 Item 6 Selected Financial Data 13 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 7A Quantitative and Qualitative Disclosures about Market Risk 14 Item 8 Financial Statements and Supplementary Data 14 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 14 PART III -------- Item 10 Directors and Executive Officers of the Registrant 14 Item 11 Executive Compensation 15 Item 12 Security Ownership of Certain Beneficial Owners and Management 15 Item 13 Certain Relationships and Related Transactions 15 PART IV ------- Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 15 - 16 Signatures 17
Page 2 PART I ITEM 1. BUSINESS Old Second Bancorp, Inc. (the "Company" or the "Registrant") was organized under the laws of Delaware on September 8, 1981. It is a registered bank holding company under the Bank Holding Company Act of 1956 (the "Act"). The Company's office is located at 37 South River Street, Aurora, Illinois 60506. The Company conducts a full service community banking and trust business through its wholly-owned subsidiaries, The Old Second National Bank of Aurora, Yorkville National Bank, Bank of Sugar Grove, Burlington Bank, Kane County Bank and Trust Company, and Maple Park Mortgage. The banking subsidiaries are referred to herein as "the Banks." During 1999, the Company simplified its organizational structure by eliminating two bank charters. The Old Second Community Bank of North Aurora and Old Second Community Bank of Aurora were merged into The Old Second National Bank of Aurora ("Old Second"). The Banks' full service banking businesses include the customary consumer and commercial products and services which banks provide. The following services are included: demand, savings, time deposit, individual retirement and Keogh deposit accounts; commercial, industrial, consumer and real estate lending, including installment loans, student loans, farm loans, lines of credit and overdraft checking; safe deposit operations; trust services; and an extensive variety of additional services tailored to the needs of individual customers, such as the acquisition of U.S. Treasury notes and bonds, the sale of traveler's checks, money orders, cashier's checks and foreign currency, direct deposit, discount brokerage debit cards, credit cards, and other special services. Commercial and consumer loans are made to corporations, partnerships and individuals, primarily on a secured basis. Commercial lending focuses on business, capital, construction, inventory and real estate lending. Installment lending includes direct and indirect loans to consumers and commercial customers. Maple Park Mortgage ("Maple Park") originates residential mortgages and handles the secondary marketing of those mortgages. The Company's market area is highly competitive. Many financial institutions based in Aurora's surrounding communities and in Chicago, Illinois, operate banking offices in the greater Aurora area or actively compete for customers within the Company's market area. The Company also faces competition from finance companies, insurance companies, mortgage companies, securities brokerage firms, money market funds, loan production offices and other providers of financial services. The Company competes for loans principally through the range and quality of the services it provides, interest rates and loan fees. The Company believes that its long-standing presence in the community and personal service philosophy enhances its ability to compete favorably in attracting and retaining individual and business customers. The Company actively solicits deposit-related clients and competes for deposits by offering customers personal attention, professional service and competitive interest rates. Old Second Bank's primary market area is Aurora, Illinois, and its surrounding communities. The city of Aurora is located in northeastern Illinois, approximately 40 miles west of Chicago. Strategically situated on U.S. Interstate 88 (the East-West Tollway), Aurora is near the center of the four county area comprised of DuPage, Kane, Kendall and Will counties. Based upon the 1990 census, these counties together represent a market of more than 1.4 million people. The city of Aurora has a current reported population of approximately 120,000 residents. The banks offer banking services for retail, commercial, industrial, and public entity customers in the Aurora, Maple Park, Kaneville, North Aurora, Yorkville, Plano, Ottawa, Burlington, Elburn, Wasco and Sugar Grove communities and surrounding areas. Old Second also offers complete trust and other fiduciary services to commercial customers and individuals. Non-FDIC insured mutual funds, stocks, bonds, securities and annuities are provided by LPL Financial Services, Inc., a registered broker/dealer and member NASD, SIPC. The Banks are subject to vigorous competition from other banks and savings and loan associations, as well as credit unions and other financial institutions in the area. Within the Aurora banking market, which is geographically covers the southern two-thirds of Kane County and the northern one-third of Kendall County, there are in excess of 20 other banks. Page 3 Within the Yorkville National Bank market, which includes portions of Kane and LaSalle counties and all of Kendall county, there are approximately 10 other banks or banking facilities and several savings and loan associations. Since 1992, Maple Park has developed a wholesale (correspondent) division primarily engaged in soliciting mortgage loans in Iowa, Colorado, Wyoming and Illinois. The wholesale division emphasizes developing relationships with financial institutions. Maple Park currently holds contracts with over 300 banks and credit unions. Maple Park operates as a mortgage broker offering a wide range of products including conventional, fixed and adjustable-rate mortgages. The New Leaf division of Maple Park is located in St. Charles and specializes in assisting prospective and current homeowners who do not qualify in the traditional market to obtain mortgages. Maple Park faces vigorous competition in all phases of its retail and correspondent divisions. Competition for its retail products is principally based on location, convenience, quality and price. Within its retail mortgage banking market, there are approximately six large companies offering mortgage banking products and services and a number of small or mid-sized brokerage operations. Maple Park believes that competition for its correspondent division is primarily based on convenience, quality and price. There are several large national companies competing in their correspondent markets. At December 31, 1999, the Company employed 536 full-time equivalent employees. The Company places a high priority on staff development, which involves extensive training, including customer service training. New employees are selected on the basis of both technical skills and customer service capabilities. None of the Company's employees are covered by a collective bargaining agreement with the Company. The Company offers a variety of employee benefits and management considers its employee relations to be excellent. SUPERVISION AND REGULATION Financial institutions and their holding companies are extensively regulated under federal and state law. As a result, the growth and earnings performance of the Company can be affected not only by management decisions and general economic conditions, but also by the requirements of applicable state and federal statutes and regulations and the policies of various governmental regulatory authorities, including the Office of the Comptroller of the Currency (the "OCC"), the Board of Governors of the Federal Reserve System (the "Federal Reserve"), the Federal Deposit Insurance Company (the "FDIC"), the Illinois Office of Banks and Real Estate (the "Office"), the Internal Revenue Service and state taxing authorities and the Securities and Exchange Commission (the "SEC"). The effect of applicable statutes, regulations and regulatory policies can be significant, and cannot be predicted with a high degree of certainty. As a bank holding company, the Company is registered with, and is subject to regulation by, the Federal Reserve under the Bank Holding Company Act, as amended (the "BHCA"). In accordance with Federal Reserve policy, the Company is expected to act as a source of financial strength to the Bank and to commit resources to support the Bank in circumstances where the Company might not otherwise do so. Under the BHCA, the Company is subject to periodic examination by the Federal Reserve. The Company is also required to file with the Federal Reserve periodic reports of the Company's operations and such additional information regarding the Company and its subsidiary as the Federal Reserve may require. Under the BHCA, a bank holding company must obtain Federal Reserve approval before: (i) acquiring, directly or indirectly, ownership or control of any voting shares of another bank or bank holding company if, after the acquisition, it would own or control more than 5% of the shares of the other bank or bank holding company (unless it already owns or controls the majority of such shares); (ii) acquiring all or substantially all of the assets of another bank; or (iii) merging or consolidating with another bank holding company. Subject to certain conditions (including certain deposit concentration limits established by the BHCA), the Federal Reserve may allow a bank holding company to acquire banks located in any state of the United States without regard to whether the acquisition is prohibited by the law of the state in which the target bank is located. In approving interstate acquisitions, however, the Federal Reserve is required to give effect to applicable state law limitations on the aggregate amount of deposits that may be held by the acquiring bank holding company and its insured depository institution affiliates in the state in which the target bank is located (provided that those limits do not discriminate against out-of-state depository institutions or their holding companies) and state laws which require that the target bank have been in existence for a minimum period of time (not to exceed five years) before being acquired by an out-of-state bank holding company. The BHCA also generally prohibits the Company from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank and from engaging in any business other than that of banking, Page 4 managing and controlling banks or furnishing services to banks and their subsidiaries. This general prohibition is subject to a number of exceptions. The principal exception allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the Federal Reserve to be "so closely related to banking ... as to be a proper incident thereto." Under current regulations of the Federal Reserve, bank holding companies and their non-bank subsidiaries are permitted to engage in a variety of banking-related businesses, including the operation of a thrift, sales and consumer finance, equipment leasing, the operation of a computer service bureau (including software development), and mortgage banking and brokerage. The BHCA generally does not place territorial restrictions on the domestic activities of non-bank subsidiaries of bank holding companies. Federal law also prohibits any person or company from acquiring "control" of a bank or a bank holding company without prior notice to the appropriate federal bank regulator. "Control" is defined in certain cases as the acquisition of 10% of the outstanding shares of a bank or bank holding company. The Illinois Bank Holding Company Act permits Illinois bank holding companies to acquire control of banks in any state and permits bank holding companies whose principal place of business is in another state to acquire control of Illinois banks or bank holding companies upon satisfactory application to the Illinois office of Banks and Real Estate. Under the Illinois Banking Act (the "IBA") and the National Bank Act impose limitations on the amount of dividends that may be paid by banks. Generally, a bank may pay dividends out of its undivided profits, in such amounts and at such time as the bank's board of directors deems prudent. Without prior approval, however, a bank may not pay dividends in any calendar year which, in the aggregate, exceed the bank's year-to-date net income plus the bank's retained net income for the two preceding years. The payment of dividends by any financial institution or its holding company is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and a financial institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized. As described above, the Bank exceeded its minimum capital requirements under applicable guidelines as of December 31, 1999. As of December 31, 1999, approximately $10.8 million was available to be paid as dividends to the Company by the Bank. Notwithstanding the availability of funds for dividends, however, banking regulators may prohibit the payment of any dividends by the Bank if it is determined that such payment would constitute an unsafe or unsound practice. Federal banking regulators require banks and bank holding companies to maintain minimum levels of capital. If capital falls below minimum guideline levels, a bank holding company, among other things, may be denied approval to acquire or establish additional banks or non-bank businesses. The capital guidelines establish the following minimum regulatory capital requirements: a risk-based requirement expressed as a percentage of total risk-weighted assets, and a leverage requirement expressed as a percentage of total assets. The risk-based requirement consists of a minimum ratio of total capital to total risk-weighted assets of 8%, at least one-half of which must be Tier 1 capital. The leverage requirement consists of a minimum ratio of Tier 1 capital to total assets of 3% for the most highly rated companies, with a minimum requirement of 4% for all others. For purposes of these capital standards, Tier 1 capital consists primarily of permanent stockholders' equity less intangible assets (other than certain mortgage servicing rights and purchased credit card relationships). Total capital consists primarily of Tier 1 capital plus certain other debt and equity instruments which do not qualify as Tier 1 capital and a portion of the Company's allowance for loan and lease losses. The risk-based and leverage standards described above are minimum requirements. Higher capital levels will be required if warranted by the particular circumstances or risk profiles of individual banking organizations. For example, the capital guidelines contemplate that additional capital may be required to take adequate account of, among other things, interest rate risk, or the risks posed by concentrations of credit, nontraditional activities or securities trading activities. Further, any banking organization experiencing or anticipating significant growth would be expected to maintain capital ratios, including tangible capital positions (i.e., Tier 1 capital less all intangible assets), well above the minimum levels. As of December 31, 1999, the Company had regulatory capital in excess of the Federal Reserve's minimum requirements, with a risk-based capital ratio of 14.61% and a leverage ratio of 10.17%. The Delaware General Company Law (the "DGCL") allows the Company to pay dividends only out of its surplus (as Page 5 defined and computed in accordance with the provisions of the DGCL) or if the Company has no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. Additionally, the Federal Reserve has issued a policy statement with regard to the payment of cash dividends by bank holding companies. The policy statement provides that a bank holding company should not pay cash dividends which exceed its net income or which can only be funded in ways that weaken the bank holding company's financial health, such as by borrowing. The Federal Reserve also possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations. Among these powers is the ability to proscribe the payment of dividends by banks and bank holding companies. The Company's common stock is registered with the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Consequently, the Company is subject to the information, proxy solicitation, insider trading and other restrictions and requirements of the SEC under the Exchange Act. As FDIC-insured institutions, the banks are required to pay deposit insurance premium assessments to the FDIC. The FDIC has adopted a risk-based assessment system under which all insured depository institutions are placed into one of nine categories and assessed insurance premiums based upon their respective levels of capital and results of supervisory evaluations. Institutions classified as well-capitalized (as defined by the FDIC) and considered healthy pay the lowest premium while institutions that are less than adequately capitalized (as defined by the FDIC) and considered of substantial supervisory concern pay the highest premium. Risk classification of all insured institutions is made by the FDIC for each semi-annual assessment period. The FDIC may terminate the deposit insurance of any insured depository institution if the FDIC determines, after a hearing, that the institution (i) has engaged or is engaging in unsafe or unsound practices, (ii) is in an unsafe or unsound condition to continue operations or (iii) has violated any applicable law, regulation, order, or any condition imposed in writing by, or written agreement with, the FDIC. The FDIC may also suspend deposit insurance temporarily during the hearing process for a permanent termination of insurance if the institution has no tangible capital. Management of the Company is not aware of any activity or condition that could result in termination of the deposit insurance of the Bank. Federal law provides the federal banking regulators with broad power to take prompt corrective action to resolve the problems of undercapitalized institutions. The extent of the regulators' powers depends on whether the institution in question is "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" or "critically undercapitalized," in each case as defined by regulation. Depending upon the capital category to which an institution is assigned, the regulators' corrective powers include: requiring the institution to submit a capital restoration plan; limiting the institution's asset growth and restricting its activities; requiring the institution to issue additional capital stock (including additional voting stock) or to be acquired; restricting transactions between the institution and its affiliates; restricting the interest rate the institution may pay on deposits; ordering a new election of directors of the institution; requiring that senior executive officers or directors be dismissed; prohibiting the institution from accepting deposits from correspondent banks; requiring the institution to divest certain subsidiaries; prohibiting the payment of principal or interest on subordinated debt; and ultimately, appointing a receiver for the institution. As of December 31, 1999, the Company and the banks were well capitalized. National banks headquartered in Illinois, such as the Bank, have the same branching rights in Illinois as banks chartered under Illinois law. Illinois law grants Illinois-chartered banks the authority to establish branches anywhere in the State of Illinois, subject to receipt of all required regulatory approvals. Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Riegle-Neal Act"), both state and national banks are allowed to establish interstate branch networks through acquisitions of other banks, subject to certain conditions, including certain limitations on the aggregate amount of deposits that may be held by the surviving bank and all of its insured depository institution affiliates. The establishment of new interstate branches or the acquisition of individual branches of a bank in another state (rather than the acquisition of an out-of-state bank in its entirety) is allowed by the Riegle-Neal Act only if specifically authorized by state law. The legislation allowed individual states to "opt-out" of certain provisions of the Riegle-Neal Act by enacting appropriate legislation prior to June 1, 1997. Illinois has enacted legislation permitting interstate mergers beginning on June 1, 1997, subject to certain conditions, including a prohibition against interstate mergers involving an Illinois bank that has been in existence and continuous operation for fewer than five years. Page 6 Federal Reserve regulations, as presently in effect, require depository institutions to maintain non-interest earning reserves against their transaction accounts (primarily NOW and regular checking accounts), as follows: for transaction accounts aggregating $39.3 million or less, the reserve requirement is 3% of total transaction accounts; and for transaction accounts aggregating in excess of $39.3 million, the reserve requirement is $1.179 million plus 10% of the aggregate amount of total transaction accounts in excess of $39.3 million. The first $5.0 million of otherwise reservable balances are exempted from the reserve requirements. These reserve requirements are subject to annual adjustment by the Federal Reserve. The Bank is in compliance with the foregoing requirements. STATISTICAL DATA The statistical data required by Guide 3 of the Guides for Preparation and Filing of Reports and Registration Statements under the Securities Exchange Act of 1934 is set forth in the following pages. This data should be read in conjunction with the consolidated financial statements, related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" as set forth in the 1999 Annual Report incorporated herein by reference (attached hereto as Exhibit 13). All dollars in the tables are expressed in thousands. Page 7 The following table sets forth certain information relating to the Company's average consolidated balance sheets and reflects the yield on average earning assets and cost of average liabilities for the years indicated. Rates are derived by dividing the related interest by the average balance of assets or liabilities. Average balances are derived from daily balances. ANALYSIS OF AVERAGE BALANCES, TAX EQUIVALENT INTEREST AND RATES YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
1999 1998 --------------------------------- --------------------------------- Average Average Balance Interest Rate Balance Interest Rate ---------- ---------- -------- ----------- --------- ------- ASSETS Interest bearing deposits $ 545 $ 35 6.42% $ 412 $ 26 6.31% Federal funds sold 31,720 1,566 4.94 62,980 3,372 5.35 Securities: Taxable 223,707 13,421 6.00 197,219 12,231 6.20 Non-taxable (tax equivalent) 52,749 3,676 6.97 56,785 4,008 7.06 ---------- ---------- -------- ----------- --------- ------- Total securities 276,456 17,097 6.18 254,004 16,239 6.39 Loans and loans held for sale 600,917 49,319 8.21 575,239 49,598 8.62 ---------- ---------- -------- ----------- --------- ------- Total interest earning assets 909,638 68,017 7.48 892,635 69,235 7.76 Cash and due from banks 34,923 - - 35,824 - - Allowance for loan losses (8,244) - - (7,478) - - Other noninterest-bearing assets 45,628 - - 41,439 - - ---------- ---------- -------- ----------- --------- ------- Total assets $ 981,945 68,017 6.93 $ 962,420 69,235 7.19 ========== ---------- -------- =========== --------- ------- LIABILITIES AND STOCKHOLDERS' EQUITY Interest bearing transaction accounts $ 67,090 1,120 1.67 $ 91,003 1,496 1.64 Savings accounts 308,422 8,478 2.75 244,048 7,580 3.11 Time deposits 335,862 17,618 5.25 354,642 20,287 5.72 ---------- ---------- -------- ----------- --------- ------- Interest bearing deposits 711,374 27,216 3.83 689,693 29,363 4.26 Repurchase agreements 18,146 698 3.85 19,511 828 4.24 Federal funds purchased and other borrowed funds 2,921 122 4.18 3,102 162 5.22 Notes payable 18,965 1,118 5.90 29,343 1,876 6.39 ---------- ---------- -------- ----------- --------- ------- Total interest bearing liabilities 751,406 29,154 3.88 741,649 32,229 4.35 Noninterest bearing deposits 116,623 - - 115,723 - - Accrued interest and other liabilities 11,032 - - 10,570 - - Stockholders' equity 102,884 - - 94,478 - - ---------- ---------- -------- ----------- --------- ------- Total liabilities and stockholders' equity $ 981,945 29,154 2.97 $ 962,420 32,229 3.35 ========== ---------- -------- =========== --------- ------- Net interest income (tax equivalent) $ 38,863 $ 37,006 ========== ========= Net interest income (tax equivalent) to total earning assets 4.27% 4.15% ========== ========= Interest bearing liabilities to earnings assets 82.60% 83.09% ========== =========== 1997 -------------------------------- Average Balance Interest Rate ---------- --------- -------- ASSETS Interest bearing deposits $ 298 $ 22 7.38% Federal funds sold 43,803 2,407 5.50 Securities: Taxable 204,352 13,025 6.37 Non-taxable (tax equivalent) 61,830 4,425 7.16 ---------- --------- -------- Total securities 266,182 17,450 6.56 Loans and loans held for sale 521,680 46,585 8.93 ---------- --------- -------- Total interest earning assets 831,963 66,464 7.99 Cash and due from banks 34,513 - - Allowance for loan losses (6,664) - - Other noninterest-bearing assets 41,548 - - ---------- --------- -------- Total assets $ 901,360 66,464 7.37 ========== --------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY Interest bearing transaction accounts $ 111,170 2,194 1.97 Savings accounts 185,304 5,726 3.09 Time deposits 373,433 21,672 5.80 ---------- --------- -------- Interest bearing deposits 669,907 29,592 4.42 Repurchase agreements 13,958 690 4.94 Federal funds purchased and other borrowed funds 3,415 180 5.27 Notes payable 8,991 589 6.55 ---------- --------- -------- Total interest bearing liabilities 696,271 31,051 4.46 Noninterest bearing deposits 109,219 - - Accrued interest and other liabilities 9,014 - - Stockholders' equity 86,856 - - ---------- --------- -------- Total liabilities and stockholders' equity $ 901,360 31,051 3.44 ========== --------- -------- Net interest income (tax equivalent) $ 35,413 ========= Net interest income (tax equivalent) to total earning assets 4.26% ========= Interest bearing liabilities to earnings assets 83.69% ==========
Notes: Nonaccrual loans are included in the above stated average balances. Tax equivalent basis is calculated using a marginal tax rate of 34%. Page 8 The following table allocates the changes in net interest income to changes in either average balances or average rates for earnings assets and interest bearing liabilities. The changes in interest due to both volume and rate have been allocated proportionately to the change due to balance and due to rate. Interest income is measured on a tax equivalent basis using a 34% rate. ANALYSIS OF YEAR-TO-YEAR CHANGES IN NET INTEREST INCOME
1999 Compared to 1998 1998 Compared to 1997 ----------------------------------------- ----------------------------------------- Change Due to Change Due to -------------------------- -------------------------- Average Average Total Average Average Total Balance Rate Change Balance Rate Change ------------ ----------- ------------ ----------- ----------- ------------ EARNING ASSETS/INTEREST INCOME Interest bearing deposits $ 8 $ 1 $ 9 $ 7 $ (3) $ 4 Federal funds sold (1,562) (244) (1,806) 1,028 (63) 965 Securities: Taxable 1,600 (410) 1,190 (448) (346) (794) Tax-exempt (282) (50) (332) (357) (60) (417) Loans and loans held for sale 2,163 (2,442) (279) 4,659 (1,646) 3,013 ------------ ----------- ------------ ----------- ----------- ------------ TOTAL EARNING ASSETS 1,927 (3,145) (1,218) 4,889 (2,118) 2,771 ------------ ----------- ------------ ----------- ----------- ------------ LIABILITIES/INTEREST EXPENSE Interest bearing transaction accounts (399) 23 (376) (364) (334) (698) Savings accounts 1,839 (941) 898 1,824 30 1,854 Time deposits (1,039) (1,630) (2,669) (1,079) (306) (1,385) Repurchase agreements (56) (74) (130) 246 (108) 138 Federal funds purchased and other borrowed funds (9) (31) (40) (16) (2) (18) Notes payable (621) (137) (758) 1,301 (14) 1,287 ------------ ----------- ------------ ----------- ----------- ------------ INTEREST BEARING LIABILITIES (285) (2,790) (3,075) 1,912 (734) 1,178 ------------ ----------- ------------ ----------- ----------- ------------ NET INTEREST INCOME $ 2,212 $ (355) $ 1,857 $ 2,977 $ (1,384) $ 1,593 ============ =========== ============ =========== =========== ============ The following table presents the composition of the securities portfolio by major category as of December 31, of each year indicated: SECURITIES PORTFOLIO COMPOSITION 1999 1998 1997 ------------------------- -------------------------- ------------------------- % of % of % of Amount Portfolio Amount Portfolio Amount Portfolio ------------- ----------- ------------- ----------- ------------- ---------- SECURITIES AVAILABLE FOR SALE U.S. Treasury securities $ 10,016 3.70% $ 9,742 3.33% $ 15,806 5.98% U.S. Government agencies 166,186 61.34 181,915 62.22 144,311 54.57 States and political subdivisions 66,900 24.69 67,044 22.93 77,200 29.19 Mortgage-backed securities 25,245 9.32 31,212 10.68 25,407 9.61 Other securities 2,565 0.95 2,452 0.84 1,743 0.66 ------------- ----------- ------------- ----------- ------------- ---------- $ 270,912 100.00% $ 292,365 100.00% $ 264,467 100.00% ============= =========== ============= =========== ============= ==========
Page 9 The following table presents the expected maturities or call dates and weighted average yield of securities by major category as of December 31, 1999. Yields are calculated on a tax equivalent basis using a 34% rate. SECURITIES AVAILABLE FOR SALE - MATURITY AND YIELDS
After One But After Five But Within One Year Within Five Year Within Ten Year ------------------- --------------------- ------------------- Amount Yield Amount Yield Amount Yield --------- ------ ---------- -------- --------- ------ U.S. Treasury securities $ 5,504 3.70% $ 4,512 4.01% $ - - % U.S. government agencies 28,045 3.78 121,687 3.94 13,701 3.91 U.S. government agency mortgage backed securities - - 87 5.81 80 4.00 States and political subdivisions 6,479 5.43 30,443 5.05 18,063 4.72 Collateralized mortgage obligations - - 166 3.94 6,193 3.91 Other securities - - 2 4.01 - - --------- ------ ---------- -------- --------- ------ Total $ 40,028 4.04% $ 156,897 4.16% $ 38,037 4.29% ========= ====== ========== ======== ========= ====== After Ten Years Total ------------------- --------------------- Amount Yield Amount Yield --------- ------ ---------- -------- U.S. Treasury securities $ - -% $ 10,016 3.84% U.S. government agencies - - 163,433 3.91 U.S. government agency mortgage backed securities 2,587 4.00 2,754 4.06 States and political subdivisions 11,915 4.72 66,900 4.94 Collateralized mortgage obligations 18,885 3.91 25,244 3.91 Other securities 2,563 2.56 2,565 2.56 --------- ------ ---------- -------- Total $ 35,950 6.79% $ 270,912 4.15% ========= ====== ========== ======== As of December 31, 1999, net unrealized losses of $3,280,000, reduced by deferred income taxes of $1,303,000, resulted in a decrease in equity capital of $1,977,000. As of December 31, 1998, net unrealized gains of $4,613,000, reduced by deferred income taxes of $1,790,000, resulted in an increase in equity capital of $2,823,000. The following table presents the composition of the loan portfolio at December 31, for the years indicated: LOAN PORTFOLIO 1999 1998 1997 1996 1995 ------------- ------------ ------------ ------------ ------------ Commercial and industrial $ 151,771 $ 143,047 $ 146,591 $ 143,961 $ 141,948 Real estate - commercial* 175,010 165,459 287,167 248,742 239,081 Real estate - construction 58,833 46,361 43,095 40,437 35,653 Real estate - residential* 159,743 144,434 - - - Installment 65,491 57,471 58,127 49,164 45,847 ------------- ------------ ------------ ------------ ------------ Gross loans 610,848 556,772 534,980 482,304 462,529 Unearned discount (78) (227) (348) (390) (502) ------------- ------------ ------------ ------------ ------------ Total loans 610,770 556,545 534,632 481,914 462,027 Allowance for loan losses (8,444) (7,823) (6,923) (6,403) (5,676) ------------- ------------ ------------ ------------ ------------ Loans, net $ 602,326 $ 548,722 $ 527,709 $ 475,511 $ 456,351 ============== ============= ============= ============= ============= * Real estate residential loans for years prior to 1998 are included in Real estate commercial loans in the preceding table. The following table sets forth the remaining contractual maturities for certain loan categories at December 31, 1999: MATURITY AND RATE SENSITIVITY OF LOANS Over 1 Year Through 5 Years Over 5 Years ---------------------------- ---------------------------- One Year Fixed Floating Fixed Floating or Less Rate Rate Rate Rate Total ------------ ------------ ------------ ------------ ------------- ------------ Commercial and industrial $ 102,750 $ 43,698 $ 4,435 $ 744 $ 144 $ 151,771 Real estate 95,437 174,326 106,359 13,438 4,026 393,586 Installment 33,900 31,493 8 90 - 65,491 ------------ ------------ ------------ ------------ ------------- ------------ Total $ 232,087 $ 249,517 $ 110,802 $ 14,272 $ 4,170 $ 610,848 ============ ============ ============ ============ ============= ============
Page 10 The following table sets forth the amounts of nonperforming assets at December 31, of the years indicated: NONPERFORMING ASSETS
1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- Nonaccrual loans $ 1,298 $ 768 $ 2,189 $ 3,505 $ 4,514 Loans past due 90 days or more and still accruing interest 742 1,417 1,011 622 245 Restructured loans - 13 122 - 58 ----------- ----------- ----------- ----------- ----------- Total nonperforming loans 2,040 2,198 3,322 4,127 4,817 Other real estate 79 497 482 126 119 ----------- ----------- ----------- ----------- ----------- Total nonperforming assets $ 2,119 $ 2,695 $ 3,804 $ 4,253 $ 4,936 =========== =========== =========== =========== =========== Accrual of interest is discontinued on a loan when principal or interest is ninety days or more past due, unless the loan is well secured and in the process of collection. When a loan is placed on nonaccrual status, interest previously accrued but not collected in the current period is reversed against current period interest income. Interest accrued in prior years but not collected is charged against the allowance for loan losses. Interest income of approximately $50,000, $23,000, and $84,000 was recorded during 1999, 1998, and 1997, on loans in nonaccrual status at year-end. Interest income which would have been recognized during 1999, 1998, and 1997, had these loans been on an accrual basis throughout the year, was approximately $142,000, $114,000, and $273,000. The following table summarizes, for the years indicated, activity in the allowance for loan losses, including amounts charged off, amounts of recoveries, additions to the allowance charged to operating expense, and the ratio of net charge-offs to average loans outstanding: ANALYSIS OF ALLOWANCE FOR LOAN LOSSES 1999 1998 1997 1996 1995 ------------ ------------ ------------ ------------ ------------ Average total loans (exclusive of loans held for sale) $ 579,660 $ 543,965 $ 521,906 $ 454,708 $ 434,403 ============ ============ ============ ============ ============ Allowance at beginning of year $ 7,823 $ 6,923 $ 6,968 $ 6,686 $ 6,370 Charge-offs: Commercial and industrial 48 286 1,285 615 3,299 Real estate 366 10 148 117 134 Installment and other loans 238 256 209 169 185 ------------ ------------ ------------ ------------ ------------ Total charge-offs 652 552 1,642 901 3,618 ------------ ------------ ------------ ------------ ------------ Recoveries: Commercial and industrial 20 132 176 362 431 Real estate 246 45 105 - 11 Installment and other loans 77 62 60 73 93 ------------ ------------ ------------ ------------ ------------ Total recoveries 343 239 341 435 535 ------------ ------------ ------------ ------------ ------------ Net charge-offs 309 313 1,301 466 3,083 Provision for loan losses 930 1,213 1,256 748 3,399 ------------ ------------ ------------ ------------ ------------ Allowance at end of period $ 8,444 $ 7,823 $ 6,923 $ 6,968 $ 6,686 ============ ============ ============ ============ ============ Net charge-offs to average loans 0.05% 0.06% 0.25% 0.10% 0.71% Allowance at year end to average loans 1.46% 1.44% 1.33% 1.53% 1.54%
The provision for loan losses is based upon management's estimate of anticipated loan losses and its evaluation of the adequacy of the allowance for loan losses. Factors which influence management's judgement in estimating loan losses are the composition of the portfolio, past loss experience, loan delinquencies, nonperforming loans, and other factors that, in management's judgment, deserve evaluation in estimating loan losses. Page 11 The following table shows the Company's allocation of the allowance for loan losses by types of loans and the amount of unallocated allowance, at December 31, of the years indicated: ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
1999 1998 1997 1996 1995 -------------------------------------------------------------------------------------------------------- Loan Type Loan Type Loan Type Loan Type Loan Type to Total to Total to Total to Total to Total Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans --------- -------- --------- -------- --------- -------- --------- -------- --------- -------- Commercial and industrial $ 5,040 24.9% $ 4,675 25.7% $ 4,100 27.4% $ 4,100 29.8% $ 3,990 35.8% Real estate - construction 230 9.6 210 8.3 185 8.1 185 8.4 180 7.9 Real estate - mortgage 1,370 54.8 1,250 55.7 1,060 53.6 1,060 51.6 1,040 45.3 Installment and other loans 1,665 10.7 1,545 10.3 1,430 10.9 1,430 10.2 1,248 11.0 Unallocated 139 143 148 193 228 --------- -------- --------- -------- --------- -------- --------- -------- --------- -------- Total $ 8,444 100.0% $ 7,823 100.0% $ 6,923 100.0% $ 6,968 100.0% $ 6,686 100.0% ========= ======== ========= ======== ========= ======== ========= ======== ========= ======== The following table sets forth the amount and maturities of deposits of $100,000 or more at December 31, 1999: TIME DEPOSITS OF $100,000 OR MORE 3 months or less $ 31,618 Over 3 months through 6 months 28,637 Over 6 months through 12 months 10,458 Over 12 months 4,984 ------------ $ 75,697 ============ The following table reflects categories of short-term borrowings having average balances during the year greater than 30% of stockholders' equity of the Company at the end of the year. During each year reported, securities sold under repurchase agreements are the only category meeting this criteria. Information presented is as of or for the year ended December 31, for the years indicated: SHORT-TERM BORROWINGS 1999 1998 1997 ------------- ------------- ------------- Balance at end of year $ 27,610 $ 37,107 $ 31,023 Weighted average interest rate 3.08% 2.49% 4.37% Maximum month-end amount outstanding during the year $ 31,499 $ 37,107 $ 31,021 Average amount outstanding during the year $ 20,974 $ 22,640 $ 17,296 Weighted average interest rate during the year 3.91% 4.37% 5.02% The following table presents selected financial ratios as of or for the year ended December 31, for the years indicated: SELECTED RATIOS 1999 1998 1997 ----------- ----------- ----------- Return on average total assets 1.26% 1.15% 1.06% Return on average equity 12.06% 11.69% 11.04% Average equity to average assets 10.48% 9.82% 9.64% Dividend payout ratio 28.43% 24.86% 28.66%
Page 12 ITEM 2. PROPERTIES Old Second is located at 37 South River Street, Aurora, Illinois. Old Second has full-service branches located in Illinois at: 200 West John Street, North Aurora; 1350 North Farnsworth Avenue, Aurora; 1991 West Wilson Street, Batavia; 4080 Fox Valley Center Drive, Aurora; 555 Redwood Drive, Aurora; 1200 Douglas Road, Oswego; 1100 South County Line Road, Maple Park, and 2 S 101 Harter Road, Kaneville. Old Second has trust offices at 37 South River Street in Aurora and 321 James Street in Geneva. Yorkville National Bank is located at 102 East Van Emmon Street, Yorkville, with branches at 408 East Countryside Parkway in Yorkville, 6800 West Route 34 in Plano and 323 East Norris Drive in Ottawa. Burlington Bank is located at 194 South Main Street in Burlington. Kane County Bank and Trust Company is located at 749 North Main Street in Elburn with a branch at 40W422 Route 64 in Wasco. Bank of Sugar Grove is located on Cross Street at Illinois Route 47, Sugar Grove. With the exception of Yorkville's main banking facility, all Banks have onsite 24 hour Automatic Teller Machines ("ATMs"). Old Second also has two offsite ATMs, and Yorkville has one offsite ATM. Their customers can use certain other financial institutions' offsite ATMs to complete deposit, withdrawal, transfer, and other banking transactions. Maple Park operates a retail division from leased offices in St. Charles, Sycamore, Oswego, and Rockford, Illinois. The main office is located at 1450 West Main Street in St. Charles. ITEM 3. LEGAL PROCEEDINGS The Company has certain collection suits in the ordinary course of business against its debtors and is a defendant in legal actions arising from normal business activities. Management, after consultation with legal counsel, believes that the ultimate liabilities, if any, resulting from these actions will not have a material adverse effect on the financial position of the Bank or on the consolidated financial position of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company incorporates by reference the information contained on page 29 of the 1999 Annual Report (attached hereto as Exhibit 13) under the caption "Corporate Information." As of March 21, 2000, there were 1,261 holders of record of the Company's common stock. The Company also incorporates by reference the information contained on page 24 of the 1999 Annual Report (attached hereto as Exhibit 13) under the "Notes to Consolidated Financial Statements Note P: Capital" ITEM 6. SELECTED FINANCIAL DATA The Company incorporates by reference the information contained on page 4 of the 1999 Annual Report (attached hereto as Exhibit 13) under the caption "Old Second Bancorp, Inc. and Subsidiaries Financial Highlights." ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company incorporates by reference the information contained on pages 5 - 10 of the 1999 Annual Report (attached hereto as Exhibit 13) under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations." Page 13 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company incorporates by reference the information contained on pages 9 and 10 of the 1999 Annual Report (attached hereto as Exhibit 13) under the caption "Interest Rate Risk." ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company incorporates by reference the following financial statements and related notes from the 1999 Annual Report (attached hereto as Exhibit 13):
ANNUAL REPORT PAGE NO. ------------- Consolidated Balance Sheets 11 Consolidated Statements of Income 12 Consolidated Statements of Cash Flows 13 Consolidated Statements of Changes in Stockholders' Equity 14 Notes to Consolidated Financial Statements 15-27 Independent Auditors' Report 28 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Company incorporates by reference the information contained in the Proxy Statement for the 2000 Annual Meeting of Stockholders on pages 5 through 8 under the caption "Election of Directors" and on page 3 under the caption "Compliance with Section 16(a) of the Exchange Act." EXECUTIVE OFFICERS OF THE REGISTRANT AND SUBSIDIARY NAME, AGE AND YEAR BECAME EXECUTIVE OFFICER OF THE REGISTRANT POSITIONS WITH REGISTRANT - ------------------------- --------------------------------- James Benson Chairman of the Board Age 69 1971 William B. Skoglund President and CEO of Old Second Bancorp, Inc. Age 49 1992 President and CEO of Old Second National Bank George Starmenn III Executive Vice President and Secretary of Old Second Bancorp, Inc. Age 56 1995 Executive Vice President and Senior Trust Officer of Old Second National Bank J. Douglas Cheatham Vice President and Chief Financial Officer of Old Second Bancorp, Inc. Age 43 1999
There are no arrangements or understandings between any of the executive officers or any other persons pursuant to which any of the executive officers have been selected for their respective positions. Page 14 ITEM 11. EXECUTIVE COMPENSATION The Company incorporates by reference the information contained on pages 5 - 8 of the Proxy Statement for the 2000 Annual Meeting of Stockholders under the caption "Election of Directors," and on pages 8 - 9 under the caption "Executive Compensation." The sections in the Proxy Statement marked "Compensation Committee Report on Executive Compensation" and "Comparison of Five Year Cumulative Total Return" are furnished for the information of the Commission and are not deemed to be "filed" as part of this Form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The Company incorporates by reference the information contained on pages 3 - 5 of the Proxy Statement for the 2000 Annual Meeting of Stockholders under the caption "Voting Securities and Principal Holders Thereof." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company incorporates by reference the information contained on pages 14, 16 and 17 of the Proxy Statement for the 2000 Annual Meeting of Stockholders. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) INDEX TO FINANCIAL STATEMENTS The following consolidated financial statements and related notes are incorporated by reference from the 1999 Annual Report (attached hereto as Exhibit 13).
ANNUAL REPORT PAGE NO. ------------- Consolidated Balance Sheets 11 Consolidated Statements of Income 12 Consolidated Statements of Cash Flows 13 Consolidated Statements of Changes in Stockholders' Equity 14 Notes to Consolidated Financial Statements 15-27 Independent Auditors' Report 28
(a)(2) FINANCIAL STATEMENT SCHEDULES All financial statement schedules as required by Item 8 and Item 14 of Form 10-K have been omitted because the information requested is either not applicable or has been included in the consolidated financial statements or notes thereto. Page 15 (a)(3) EXHIBITS The following exhibits required by Item 601 of Regulation S-K are included along with this 10-K filing:
ITEM 601 TABLE II. NO. ------------- (3)(a) Articles of Incorporation of Old Second Bancorp, Inc. (filed as an exhibit to of the Company's S-14 filed on January 22, 1982.) (3)(b) By-laws of Old Second Bancorp, Inc. (filed as an exhibit to of the Company's S-14 filed on January 22, 1982.) (10)(d) Form of Compensation and Benefits Assurance Agreements (13) The Company's 1999 Annual Report to Stockholders (22) A list of all subsidiaries of the Company (23) Consent of Ernst & Young, LLP (27) Financial Data Schedule
(b) REPORTS ON FORM 8-K None Page 16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. BY: /s/ JAMES E. BENSON -------------------------------- James E. Benson Chairman of the Board BY: /s/ WILLIAM B. SKOGLUND -------------------------------- William B. Skoglund President and Chief Executive Officer DATE: March 27, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ JAMES BENSON Chairman of the Board, Director March 27, 2000 - ------------------------------------ Calvin R. Myers President and Chief Executive Officer /s/ WILLIAM B. SKOGLUND President and Chief Executive Officer, Director March 27, 2000 - ------------------------------------ William B. Skoglund /s/ WALTER ALEXANDER Director March 27, 2000 - ------------------------------------ Walter Alexander /s/ MARVIN FAGEL Director March 27, 2000 - ------------------------------------ Marvin Fagel /s/ WILLIAM KANE Director March 27, 2000 - ------------------------------------ William Kane /s/ KENNETH LINDGREN Director March 27, 2000 - ------------------------------------ Kenneth Lindgren /s/ JESSE MABERRY Director March 27, 2000 - ------------------------------------ Jesse Maberry /s/ WILLIAM MEYER Director March 27, 2000 - ------------------------------------ William Meyer /s/ LARRY SCHUSTER Director March 27, 2000 - ------------------------------------ Larry Schuster /s/ GEORGE STARMANN III Director March 27, 2000 - ------------------------------------ George Starmann III
Page 17
EXHIBIT SEQUENTIAL NO. DESCRIPTION OF EXHIBITS PAGE NO. - ----------------------------------------------------------------------------------------------------------------------------------- (3)(a) Articles of Incorporation of Old Second Bancorp, Inc. (filed as an exhibit to of the Company's S-14 -- filed on January 22, 1982.) - ----------------------------------------------------------------------------------------------------------------------------------- (3)(b) By-laws of Old Second Bancorp, Inc. (filed as an exhibit to of the Company's S-14 filed on January -- 22, 1982.) - ----------------------------------------------------------------------------------------------------------------------------------- (10)(d) Form of Compensation and Benefits Assurance Agreement -- - ----------------------------------------------------------------------------------------------------------------------------------- (13) The Company's 1999 Annual Report to Stockholders 20-50 - ----------------------------------------------------------------------------------------------------------------------------------- (22) A list of all subsidiaries of the Company 51 - ----------------------------------------------------------------------------------------------------------------------------------- (23) Consent of Ernst & Young LLP 52 - ----------------------------------------------------------------------------------------------------------------------------------- (27) Financial Data Schedule -- - -----------------------------------------------------------------------------------------------------------------------------------
Page 18 EX-10.(D) 2 EXHIBIT 10(D) Exhibit (10)(d) COMPENSATION AND BENEFITS ASSURANCE AGREEMENT FOR OLD SECOND BANCORP, INC. (AMENDED 3/1/2000) Page 19 CONTENTS
PAGE Section 1. Term of Agreement 1 Section 2. Severance Benefits 2 Section 3. Excise Tax 5 Section 4. Successors and Assignments 6 Section 5. Restrictive Covenants 6 Section 6. Miscellaneous 7 Section 7. Contractual Rights and Legal Remedies 8
Page 20 COMPENSATION AND BENEFITS ASSURANCE AGREEMENT This COMPENSATION AND BENEFITS ASSURANCE AGREEMENT (this "Agreement") is made, entered into, and is effective as of this 1ST DAY OF APRIL, 2000 (the "Effective Date") by and between Old Second Bancorp, Inc. (hereinafter referred to as the "Company") and ________________________________, (hereinafter referred to as the "Executive"). WHEREAS, the Executive is presently employed by The Old Second National Bank of Aurora, Aurora, Illinois (the "Bank"), in a key management capacity; and WHEREAS, the Executive possesses considerable experience and knowledge of the business and affairs of the Company concerning its policies, methods, personnel, and operations; and WHEREAS, the Company is the holder, directly and indirectly, of all of the issued and outstanding stock of the Bank; and WHEREAS, the Company is desirous of assuring the continued employment of the Executive in a key management capacity, and the Executive is desirous of having such assurances. NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements of the parties set forth in this Agreement, and of other good and valuable consideration including, but not limited to, the Executive's continuing employment with the Company, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: SECTION 1. TERM OF AGREEMENT This Agreement will commence on the Effective Date and shall continue in effect for one full calendar year (through March 31, 2001) (the "Initial Term"). The term of this Agreement automatically shall be extended for one additional year at the end of the initial Term, and then again after each successive one-year period thereafter (each such one-year period following the Initial Term a "Successive Period"). However, either party may terminate this Agreement at the end of the Initial Term, or at the end of any Successive Period thereafter, by giving the other party written notice of intent not to renew delivered at least ninety (90) calendar days prior to the end of such Initial Term or Successive Period. Except as otherwise provided, if such notice is properly delivered by either party, this Agreement, along with all corresponding rights, duties, and covenants, shall automatically expire at the end of the Initial Term or Successive Period then in progress. In the event that a "Change in Control" of the Company occurs (as such term is hereinafter defined) during the Initial Term or any Successive Period, upon the effective date of such Change in Control, the term of this Agreement shall automatically and irrevocably be renewed for a period of twenty-four (24) full calendar months from the effective date of such Change in Control (such 24-month period being hereinafter referred to as the "Extended Period"). This Agreement shall thereafter automatically terminate following the twenty-four (24) month Change-in-Control renewal period. Further, this Agreement shall be assigned to, and shall be assumed by, the purchaser in such Change in Control, as further provided in Section 4 herein. SECTION 2. SEVERANCE BENEFITS 2.1. RIGHT TO SEVERANCE BENEFITS. The Executive shall be entitled to receive from the Company Severance Benefits as described in Paragraph 2.3 and Section 3 herein, if during the term of this Agreement there has been a Change in Control of the Company or the Bank (as defined in Paragraph 2.4 herein) and if, within the Extended Period, the Executive's employment with the Bank shall end for any reason specified in Paragraph 2.2 herein as being a Qualifying Termination. The Severance Benefits described in Paragraphs 2.3(a) and 2.3(b) herein shall be paid in cash to the Executive in a single lump sum as soon as practicable following the Qualifying Termination, but in no event later than thirty (30) calendar days from such date. Notwithstanding the foregoing, Severance Benefits which become due pursuant to the circumstances described in Paragraphs 2.2(c) and 4.1 shall be paid immediately. Page 21 2.2. QUALIFYING TERMINATION. The occurrence of any one or more of the following events (i.e., a "Qualifying Termination") within the Extended Period shall trigger the payment of Severance Benefits to the Executive, as such benefits are described under Paragraph 2.3 herein: (a) The Bank's involuntary termination of the Executive's employment without Cause (as such term is defined in Paragraph 2.6 herein); (b) The Executive's voluntary termination of employment for Good Reason (as such term is defined in paragraph 2.5 herein); and (c) The Company or the Bank, or any successor company, commits a material breach of any of the provisions of this Agreement including, but not limited to the Company failing to obtain the assumption of, or the successor company refusing to assume the obligations of this Agreement pursuant to Paragraph 4.1 herein. A Qualifying Termination shall not include a termination of the Executive's employment within ____________ (__) calendar months after a Change in Control by reason of death, disability, the Executive's voluntary termination without Good Reason, or the Bank's involuntary termination of the Executive's employment for Cause. 2.3. DESCRIPTION OF SEVERANCE BENEFITS. In the event that the Executive becomes entitled to receive Severance Benefits, as provided in Paragraphs 2.1 and 2.2 herein, the Company (or the Bank at the direction of the Company) shall, within the time limits stated in Paragraph 2.1, pay to the Executive and provide the Executive with the following: (a) A lump-sum cash amount equal to the Executive's unpaid Base Salary (as such term is defined in Paragraph 2.7 herein), accrued vacation pay, unreimbursed business expenses, and all other items earned by and owed to the Executive through and including the date of the Qualifying Termination. Such payment shall constitute full satisfaction for these amounts owed to the Executive. (b) A lump-sum cash amount equal to ___ (_) multiplied by the greater of the Executive's annual rate of Base Salary in effect upon the date of the Qualifying Termination, or the Executive's annual rate of Base Salary in effect immediately prior to the occurrence of the Change in Control. (c) Immediate 100% vesting of all stock options, and any other awards which had been provided to the Executive by the Bank under any incentive compensation plan. (d) At the exact same cost to the Executive, and at the same coverage level as in effect as of the Executive's date of Qualifying Termination (subject to changes in coverage levels applicable to all employees generally), a continuation of the Executive's (and the Executive's eligible dependents') health insurance coverage for twenty-four (24) months from the date of the Qualifying Termination. The applicable COBRA health insurance benefit continuation period shall begin at the end of this twenty-four (24) month benefit continuation period. The providing of health insurance benefits by the Company shall be discontinued prior to the end of the twenty-four (24) month continuation period in the event that the Executive subsequently becomes covered under the health insurance coverage of a subsequent employer which does not contain any exclusion or limitation with respect to any preexisting condition of the Executive or the Executive's eligible dependents. For purposes of enforcing this offset provision, the Executive shall have duty to inform the Company as to the terms and conditions of any subsequent employment and the corresponding benefits earned from such employment. The Executive shall provide, or cause to provide, to the Company in writing correct, complete, and timely information concerning the same. (e) The Executive shall be entitled to receive standard outplacement services from a nationally recognized outplacement firm of the Executive's selection, for a period of up to one (1) year from the Executive's date Page 22 of Qualifying Termination. However, such service shall be at the Company's expense to a maximum amount not to exceed twenty thousand dollars ($20,000). 2.4. DEFINITION OF "CHANGE IN CONTROL." "Change in Control" of the Company or the Bank means, and shall be deemed to have occurred upon, the first to occur of any of the following events: (a) Any Person or Persons acting in concert (other than those Persons in control of the Company or the Bank as of the Effective Date, or other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the stock Company) becomes the Beneficial Owner, directly or indirectly, of securities of the Company or the Bank representing twenty percent (20%) or more of the combined voting power of the Company's or the Bank's then outstanding securities; or (b) During any period of ___(__) consecutive years (not including any period prior to the Effective Date), individuals who at the beginning of such period constitute the Board of Directors of the Company cease for any reason to constitute a majority thereof; or (c) The stockholders of the Company approve: (i) a plan of complete liquidation of the Company or the Bank; or (ii) an agreement for the sale or disposition of all or substantially all of the Company's or the Bank's assets; or (iii) a merger, consolidation, or reorganization of the Company or the Bank with or involving any other corporation or bank, other than a merger, consolidation, or reorganization that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least seventy five (75%) of the combined voting power of the voting securities of the Company (or such surviving entity) outstanding immediately after such merger, consolidation, or reorganization. However, in no event shall a "Change in Control" be deemed to have occurred, with respect to the Executive, if the Executive is part of a purchasing group which consummates the Change-in-Control transaction. The Executive shall be deemed "part of a purchasing group" for purposes of the preceding sentence if the Executive is an equity participant in the purchasing company or group (except for: (i) passive ownership of less than one percent (1%) of the stock of the purchasing company; or (ii) ownership of equity participation in the purchasing company or group which is otherwise not significant, as determined prior to the Change in Control by a majority of the nonemployee continuing Directors). 2.5. DEFINITION OF "GOOD REASON." "Good Reason" shall mean, without the Executive's express written consent, the occurrence by any one or more of the following within the Extended Period: (a) The assignment of the Executive to duties inconsistent with the Executive's position, duties, responsibilities, and status as an officer of the Bank, or a reduction or alteration in the nature or status of the Executive's authorities, duties, or responsibilities from those in effect as of ninety (90) calendar days prior to the Change in Control, other than an insubstantial and inadvertent act that is remedied by the Company promptly after receipt of notice thereof given by the Executive. (b) The Bank's requiring the Executive to be based at a location in excess of twenty-five (25) miles from the location of the Executive's principal job location or office immediately prior to the Change in Control; except for required travel on the Bank's business to an extent consistent with the Executive's then present business travel obligations. (c) A reduction by the Bank of the Executive's Base Salary in effect on the Effective Date, or as the same shall be increased from time to time. (d) The failure of the Bank to keep in effect any of the Bank's compensation, health and welfare benefits, or perquisite programs under which the Executive receives value, as such programs exist immediately prior to the Change in Control, or the failure of the Bank to meet the funding requirements, if any, of each of the programs. However, the replacement of an existing program with a new program will be permissible (and not grounds for a Good Reason termination) if done for all employees generally. Page 23 (e) Any breach by the Company of its obligation under Section 4 of this Agreement or any failure of a successor company to assume and agree to perform the Company's entire obligations under this Agreement, as required by Section 4 herein. The Executive's right to terminate employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason herein. 2.6 DEFINITION OF "CAUSE." "Cause" shall mean the occurrence of any one or more of the following: (a) A demonstrably willful and deliberate act or failure to act by the Executive (other than as a result of incapacity due to physical or mental illness) which is committed in bad faith, without reasonable belief that such action or inaction is in the best interests of the Company, which causes actual material financial injury to the Bank and which act or inaction is not remedied within fifteen (15) business days of written notice from the Bank; or (b) The Executive's conviction for committing an act of fraud, embezzlement, theft, or any other act constituting a felony involving moral turpitude which causes material harm, financial or otherwise, to the Bank. 2.7 OTHER DEFINED TERMS. The following terms shall have the meanings set forth below: (a) "Base Salary" means, at any time, the then-regular annual rate of pay which the Executive is receiving as salary, excluding amounts: (i) designated by the Company as payment toward reimbursement of expenses; of (ii) received under incentive or other bonus plans, regardless of whether or not the amounts are deferred. (b) "Beneficial Owner" shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act (as such term is defined below). (c) "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto. (d) "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) thereof. SECTION 3. EXCISE TAX 3.1. EXCISE TAX PAYMENT. If any portion of the Severance Benefits or any other payment under this Agreement, or under any other agreement with, or plan of the Company or Bank, including but not limited to stock options and other long-term incentives (in the aggregate "Total Payments") would constitute an "excess parachute payment," such that a golden parachute excise tax is due, the Company (or the Bank at the Company's direction) shall provide to the Executive, in cash, an additional payment in an amount to cover the full cost of any excise tax and the Executive's state and federal income and employment taxes on this additional payment (cumulatively, the "Gross-Up Payment"). This Gross-Up Payment shall be made a soon as possible following the date of the Executive's Qualifying Termination, but in no event later than thirty (30) calendar days of such date. For purposes of this Agreement, the term "excess parachute payment" shall have the meaning assigned to such term in Section 280G of the Internal Revenue Code, as amended (the "Code"), and the term "excise tax" shall mean the tax imposed on such excess parachute payment pursuant to Sections 280G and 4999 of the Code. 3.2. SUBSEQUENT RECALCULATION. In the event the Internal Revenue Service subsequently adjusts the excise tax computation herein described, the Company (or the Bank at the Company's direction) shall reimburse the Executive for the full amount necessary to make the Executive whole on an after-tax basis (less any amounts received by the Executive that the Executive would not have received had the computations initially been computed as subsequently adjusted), including the Page 24 value of any underpaid excise tax, and any related interest and/or penalties due to the Internal Revenue Service. SECTION 4. SUCCESSORS AND ASSIGNMENTS 4.1. SUCCESSORS. The Company will require any successor (whether via a Change in Control, direct or indirect, by purchase, merger, consolidation, or otherwise) of the Company or the Bank to expressly assume and agree to perform the obligations under this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall, as of the date immediately preceding the date of a Change in Control, automatically give the Executive Good Reason to collect, immediately, full benefits hereunder as a Qualifying Termination. 4.2. ASSIGNMENT BY EXECUTIVE. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. If an Executive should die while any amount is still payable to the Executive hereunder, had the Executive continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee, or if there is no such designee, to the Executive's estate. An Executive's rights hereunder shall not otherwise be assignable. SECTION 5. RESTRICTIVE COVENANTS 5.1. COVENANTS. Without the prior written consent of the Company, and where the Executive is entitled to receive the Severance Benefits pursuant to the terms of this Agreement, during the 24-month period next following the Executive's termination of employment with the Bank, the Executive shall not, directly or indirectly: (a) DISCLOSURE OF INFORMATION. Use, attempt to use, disclose, or otherwise make known to any person or entity (other than the Board of Directors of the Company or the Bank): (i) Any confidential or proprietary knowledge or information, including without limitation, lists of customers, processes, and systems, as well as any data and records pertaining thereto, which the Executive may acquire in the course of his employment. (ii) Any confidential or proprietary knowledge or information of a confidential nature (including but not limited to all unpublished matters) relating to, within limitation, the business, properties, accounting, books and records, computer systems and programs, or memoranda of the Company or the Bank. 5.2 ACKNOWLEDGMENT OF COVENANTS. The parties hereto acknowledge that the Executive's services are of a special, extraordinary, and intellectual character which gives him unique value, and that the business of the Company and its subsidiaries is highly competitive, and that violation of any of the covenants provided in this Section 5 would cause immediate, immeasurable, and irreparable harm, loss and damage to the Company not adequately compensable by a monetary award. The Executive acknowledges that the time and scope of activity restrained by the provisions of this Section 5 are reasonable and do not impose a greater restraint than is necessary to protect the goodwill of the Company's business. The Executive further acknowledges that he and the Company have negotiated and bargained for the terms of this Agreement and that the Executive has received adequate consideration for entering into the Agreement. In the event of any such breach or threatened breach by the Executive of any one or more of such covenants, the Company shall be entitled to such equitable and injunctive relief as may be available to restrain the Executive from violating the provisions hereof. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available at law or in equity for such breach or threatened breach, including the recovery of damages and the immediate termination of the employment of the Executive hereunder. SECTION 6. MISCELLANEOUS 6.1. (a) ADMINISTRATION. This Agreement shall be administered by the Board of Directors of the Company, or Page 25 by a Committee of the Board consisting of Board members designated by the Board (the "Compensation Committee"). The Compensation Committee (with the approval of the Board, if the Board is not the Compensation Committee) is authorized to interpret this Agreement, to prescribe and rescind rules and regulations, and to make all other determinations necessary or advisable for the administration of this Agreement. In fulfilling its administrative duties hereunder, the Compensation Committee may rely on outside counsel, independent accountants, or other consultants to render advice or assistance. (b) CLAIMS PROCEDURE. If the Executive believes that he is being denied a benefit to which he is entitled under the Agreement, he may file a written request for such benefit with the Company, setting forth his claim. Upon receipt of the claim, the Company shall advise the Executive that a reply will be forthcoming within 15 days and shall, in fact, deliver such reply with such period. The Company may, however, extend the reply period for an additional 15 days for reasonable cause. If the claim is denied in whole or in part, the Company shall adopt a written opinion, using language calculated to be understood by the Executive, setting forth: (i) The specific reason or reasons for such denied; (ii) The specific reference to pertinent provisions of this Agreement on which such denial is based; (iii) A description of any additional material or information necessary for the Executive to perfect his claim and an explanation why such material or such information is necessary; (iv) Appropriate information as to the steps to be taken if the Executive wishes to submit the claim for review; and (v) The time limits for requesting the review under (c) below. (c) REQUEST FOR CLAIM DECISION REVIEW. Within 30 days after receipt by the Executive of the written opinion described above, the Executive may request in writing that the President of the Company review the description of the Company. Such request must be addressed to the President of the Company, at its then principal place of business. The Executive of his duly authorized representative may, but need not, review the pertinent documents and submit issues and comments in writing for consideration by the Company. If the Executive does not request a review of the Company's determination by the President of the Company within such 30-day period, he shall be barred and estopped from challenging the Company's determination. Within 30 days after the President's receipt of a request for review, he will review the Company's determination. After considering all materials presented by the Executive, the President will render a written opinion, written in a manner calculated to be understood by the Executive, setting forth specific reasons for the decision and containing specific references to the pertinent provisions of this Agreement on which the decision is based. 6.2. NOTICES. Any notice required to be delivered to the Company, the Compensation Committee or the President of the Company by the Executive hereunder shall be properly delivered to the Company when personally delivered to (including by a reputable overnight courier), or actually received through the U.S. mail, postage prepaid, by: Old Second Bancorp, Inc. 37 South River Street Aurora, IL 60506 Any notice required to be delivered to the Executive by the Company, the Compensation Committee or the President of the Company hereunder shall be properly delivered to the Executive when personally delivered to (including by a reputable overnight courier), or actually received through he U.S. mail, postage prepaid, by the Executive at his last known address as reflected on the books and records of the Company. SECTION 7. CONTRACTUAL RIGHTS AND LEGAL REMEDIES 7.1. CONTRACTUAL RIGHTS TO BENEFITS. This Agreement establishes in the Executive a right to the benefits to which the Executive is entitled hereunder. However, except as expressly stated herein, nothing herein contained shall require or be Page 26 deemed to require, or prohibit or be deemed to prohibit, the Company to segregate, earmark, or otherwise set aside any funds or other assets, in trust or otherwise, to provide for any payments to be made or required hereunder. 7.2. LEGAL FEES AND EXPENSES. The Company shall pay all legal fees, costs of litigation, prejudgment interest, and other expenses which are incurred in good faith by the Executive as a result of the Company's refusal to provide the Severance Benefits to which the Executive becomes entitled under this Agreement. In addition, if the Executive shall resort to either litigation or arbitration in order to secure the payment by the Company of the Severance Benefits, and the Executive is successful in such litigation or arbitration, then the Company shall also pay to the Executive an additional amount equal to 25% of the Severance Benefits. Whether or not the Executive has been successful in such litigation or arbitration shall also be determined in the same proceeding. 7.3. ARBITRATION. The Executive shall have the right and option to elect (in lieu of litigation) to have any dispute or controversy arising under or in connection with this Agreement settled by arbitration, conducted before a panel of three (3) arbitrators sitting in a location selected by the Executive within fifty (50) miles from the location of his or her job with the Company, in accordance with the rules of the American Arbitration Association then in effect. The Executive's election to arbitrate, as herein provided, and the decision of the arbitrators in that proceeding, shall be binding on the Company and Executive. Judgment may be entered on the award of the arbitrator in any court having jurisdiction. All expenses of such arbitration, including the fees and expenses of the counsel for the Executive, shall be borne by the Company. 7.4. UNFUNDED AGREEMENT. This Agreement is intended to be an unfunded general asset promise for a select, highly compensated member of the Company's management and, therefore, is intended to be exempt from the substantive provisions of the Employee Retirement Income Security Act of 1974 as amended. 7.5. EXCLUSIVITY OF BENEFITS. Unless specifically provided herein, neither the provisions of this Agreement nor the benefits provided hereunder shall reduce any amounts otherwise payable, or in any way diminish the Executive's rights as an employee of the Company, whether existing now or hereafter, under any compensation and/or benefit plans (qualified or nonqualified), programs, policies, or practices provided by the Company, for which the Executive may qualify. Vested benefits or other amounts which the Executive is otherwise entitled to receive under any plan, policy, practice, or program of the Company, at or subsequent to the Executive's date of Qualifying Termination, shall be payable in accordance with such plan, policy, practice, or program except as expressly modified by this Agreement. 7.6. INCLUDABLE COMPENSATION. Severance Benefits provided hereunder shall not be considered "includable compensation" for purposes of determining the Executive's benefits under any other plan or program of the Company. 7.7. EMPLOYMENT STATUS. Nothing herein contained shall be deemed to create an employment agreement between the Company and the Executive providing for the employment of the Executive by the Company for any fixed period of time. The Executive's employment with the company is terminable at will by the Company or the Executive and each shall have the right to terminate the Executive's employment with the Company at any time, with or without Cause, subject to the Company's obligation to provide Severance Benefits as required hereunder. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, nor shall the amount of any payment hereunder be reduced by any compensation earned by the Executive as a result of employment by another employer, other than as provided in Paragraph 2.3(d) herein. 7.8. ENTIRE AGREEMENT. This Agreement represents the entire agreement between the parties with respect to the subject matter hereof, and supersedes all prior discussion, negotiations, and agreements concerning the subject matter hereof, including, but not limited to, any prior severance agreement made between the Executive and the Company. 7.9. TAX WITHHOLDING. The Company shall withhold from any amounts payable under this Agreement all federal, state, city, or other taxes as legally required to be withheld. Page 27 7.10. WAIVER OF RIGHTS. Except as otherwise provided herein, the Executive's acceptance of Severance Benefits, the Gross-Up Payment (if applicable), and any other payments required hereunder shall be deemed to be a waiver of all rights and claims of the Executive against the company pertaining to any matters arising under this Agreement. 7.11. SEVERABILITY. In the event any provision of the Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Agreement, and the Agreement shall be construed and enforced as if the illegal or invalid provision had not been included. 7.12. APPLICABLE LAW. To the extent not preempted by the laws of the United States, the laws of the State of Illinois shall be the controlling law in all matters relating to the Agreement. IN WITNESS WHEREOF, the Company has executed this Agreement, to be effective as of the day and year first written above. ATTEST: OLD SECOND BANCORP, INC. By: By: --------------------------- --------------------------------- Title: ------------------------------- ------------------------------------- Name Page 28 SCHEDULE A TO EXHIBIT (10)(d) Length of Agreement if Executive's Name Change of Control Occurs - ---------------- ------------------------ William B. Skoglund 3 Years George Starmann III 2 Years J. Douglas Cheatham 2 Years Page 29 Exhibit 22 LIST OF SUBSIDIARIES SUBSIDIARIES OF THE COMPANY The Old Second National Bank of Aurora Yorkville National Bank Kane County Bank and Trust Company Bank of Sugar Grove Burlington Bank Maple Park Mortgage EX-13 3 EXHIBIT 13 OLD SECOND BANCORP, INC. AND SUBSIDIARIES FINANCIAL HIGHLIGHTS (IN THOUSANDS, EXCEPT SHARE DATA)
1999 1998 1997 1996 1995 BALANCE SHEET ITEMS AT YEAR-END Total assets .......................... $ 998,508 $1,014,292 $ 948,371 $ 889,844 $ 847,165 Net loans ............................. 602,326 548,722 527,709 474,946 455,341 Deposits .............................. 848,336 826,331 788,929 789,969 737,991 Notes payable ......................... 9,467 36,189 24,133 1,017 11,407 Stockholders' equity before accumulated other comprehensive income .......... 105,738 99,103 90,768 83,896 78,096 Stockholders' equity .................. 103,761 101,926 92,121 84,200 79,615 RESULTS OF OPERATIONS Net interest income ................... $ 37,835 $ 35,910 $ 34,127 $ 31,899 $ 30,917 Provision for loan losses ............. 930 1,213 1,256 748 3,399 Net income ............................ 12,408 11,049 9,594 8,337 8,756 PER SHARE DATA Basic earnings per share .............. $ 2.04 $ 1.81 $ 1.57 $ 1.37 $ 1.44 Diluted earnings per share ............ 2.04 1.81 1.57 1.37 1.44 Dividends declared .................... 0.58 0.45 0.45 0.42 0.35 Stockholders' equity before accumulated other comprehensive income .......... 17.56 16.24 14.88 13.76 12.81 Stockholders' equity .................. 17.23 16.70 15.11 13.81 13.05 Weighted average shares outstanding ... 6,082,270 6,099,510 6,098,380 6,098,584 6,098,824 Shares outstanding at year-end ........ 6,020,862 6,102,362 6,098,380 6,098,380 6,098,824
NOTE: Prior years have been restated to reflect the acquisition of Maple Park Bancshares, Inc. on May 13, 1997, which was accounted for as a pooling-of-interests. The number of shares and per share amounts have been adjusted to reflect a five-for-four stock split in 1996 and a two-for-one stock split in 1999. 4 OLD SECOND BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The consolidated financial statements include Old Second Bancorp, Inc. and its wholly-owned subsidiaries; The Old Second National Bank of Aurora, Yorkville National Bank, Bank of Sugar Grove, Burlington Bank, Kane County Bank and Trust Company, and Maple Park Mortgage, together referred to as "the Company." The banking subsidiaries are referred to herein as "the Banks." Inter-company transactions and balances are eliminated in consolidation. During 1999, the Company simplified its organizational structure by eliminating two bank charters. The Old Second Community Bank of North Aurora and Old Second Community Bank of Aurora were merged into The Old Second National Bank of Aurora ("Old Second"). The mergers qualified as tax-free reorganizations and were accounted for as internal reorganizations. The Company provides financial services through its offices located in Kane, Kendall, DeKalb, DuPage, Lake, LaSalle, and Winnebago counties in Illinois. Its primary deposit products are checking, savings, and certificates of deposit, and its primary lending products are residential and commercial mortgages, construction lending, commercial, and installment loans. A major portion of loans are secured by various forms of collateral including real estate, business assets, consumer property, and other items, although borrower cash flow may also be a primary source of repayment. Maple Park Mortgage provides mortgage-banking services and Old Second also engages in trust operations. The Board of Directors declared a two-for-one stock split on the Company's common stock effective May 17, 1999. References to earnings per share and dividends per share for all periods have been restated to reflect the stock split. Net income of $12,408,000, or $2.04 per share was achieved in 1999, which compares with $11,049,000, or $1.81 per share in 1998, and $9,594,000 or $1.57 per share in 1997. Diluted earnings per share were $2.04, $1.81, and $1.57 in 1999, 1998, and 1997, respectively. Increases in net interest income contributed to these increases. Net interest income grew $1.9 million (5.4%) to $37.8 million in 1999, and grew $1.8 million (5.2%) to $35.9 million in 1998, due to an increase in earning assets in each year and an increase in the net interest margin. Although period-end assets declined $15.8 million from December 31, 1998 to December 31, 1999, average assets were $981.9 million or $19.5 million higher in 1999 than in 1998. RESULTS OF OPERATIONS NET INTEREST INCOME Net interest income is the difference between interest income earned on earning assets and interest expense paid on interest bearing liabilities. As such, net interest income is affected by changes in the volume and yields on earning assets, and the volume and rates paid on interest bearing liabilities. Net interest margin is the ratio of tax-equivalent net interest income to average earning assets. Net interest income was $37.8 million in 1999 and $35.9 million in 1998. This increase resulted from an increase in average earning assets and a change in the mix of earning assets. Average earning assets increased from $893.6 million in 1998 to $909.6 million in 1999, an increase of $16 million. In addition, a greater portion of earning assets were allocated to higher yielding loans. Average loans increased from $544.0 million in 1998 to $579.7 million in 1999. The increase in net interest income from $34.1 million in 1997 to $35.9 million in 1998 was the result of an increase in average earning assets that more than offset a decline in the net interest margin in 1998. The net interest margin was 4.27%, 4.14%, and 4.23% in 1999, 1998, and 1997, respectively. 5 MANAGEMENT'S DISCUSSION-CONTINUED PROVISION FOR LOAN LOSSES The provision for loan losses was $930,000 during 1999, $1,213,000 during 1998, and $1,256,000 during 1997. Provisions for loan losses are made to recognize current period net charge-off activity, and to provide for future losses on loans which are identified as probable and estimable in the loan review process. Net charge-offs were $309,000, $313,000, and $1,301,000 in 1999, 1998, and 1997, respectively. When compared with total loans, net charge-offs as a percent of total loans were 0.05%, 0.06%, and 0.24% in 1999, 1998, and 1997, respectively. The allowance for loan losses was $8.4 million or 1.38% of loans and 414% of nonperforming loans as of December 31, 1999. This compares with an allowance for loan losses of $7.8 million or 1.41% of total loans as of December 31, 1998, which was 356% of nonperforming loans. Nonperforming loans are defined as nonaccrual loans, restructured loans, and loans past due ninety days or more and still accruing. The adequacy of the allowance for loan losses is determined by management based on factors that include the overall composition of the loan portfolio, types of loans, past loss experience, loan delinquencies, potential substandard and doubtful credits, and other factors that, in management's judgment, deserve evaluation in estimating loan losses. NONINTEREST INCOME Noninterest income was $18.6 million in 1999, $20.4 million in 1998, and $14.0 million in 1997. Trust income was $4,473,000 in 1999, an increase of $319,000 (7.7%) from $4,154,000 in 1998. Assets under management were approximately $652 million in 1999, $611 million in 1998, and $555 million in 1997. Trust income grew $237,000 (6.1%) in 1998, compared with $3,917,000 in 1997. Service charges on deposits were $3,285,000, $3,139,000, and $3,134,000 in 1999, 1998, and 1997. The increase in service charges on deposit during this three-year period is approximately equivalent to the increase in noninterest bearing deposits. Other income included a $258,000 gain on the sale of an unused bank building in 1999. Mortgage banking income, including secondary mortgage fees, mortgage servicing income, and gains on sales of loans totaled $8.7 million, $11.7 million, and $5.4 million in 1999, 1998, and 1997. Mortgage banking income is largely volume-driven and mortgage activity is susceptible to changes in interest rates and general economic conditions. As a result of increases in market interest rates in 1999, loan originations and sales volume were down in 1999, compared to 1998. Loans sold were approximately $458 million in 1999 and $650 million in 1998. Unamortized mortgage servicing rights totaled approximately $7.7 million as of December 31, 1999, and approximately $5.8 million as of December 31, 1998. During the first quarter of 2000, Maple Park Mortgage entered into an agreement to sell the majority of its mortgage servicing rights. A gain of $765,000 was recorded at the time of the sale. A portion of the price has been retained by the purchaser for possible loan prepayments in excess of that considered in the contract. In future periods, Maple Park Mortgage will sell mortgage loans on a servicing-released basis instead of retaining originated servicing rights. NONINTEREST EXPENSES Noninterest expenses were $37.3 million in 1999, $39.0 million in 1998, and $33.2 million in 1997. The efficiency ratio was 64.92% in 1999, 67.95% in 1998, and 67.28% in 1997. The efficiency ratio measures noninterest expenses as a percent of tax-equivalent gross revenues. The decline in the ratio in 1999 reflects greater cost-efficiency than that which was achieved in 1998. Because the mortgage banking business generally operates on a narrower margin than the banking business, there will tend to be upward pressure on the Company's efficiency ratio during years in which mortgage volume increases. Salaries and employee benefits were $20.7 million in both 1999 and 1998, and $18.0 million in 1997. Consolidation of the banks from seven separate charters to five charters, accompanied by continued efforts to improve cost-efficiency, resulted in no increase in aggregate salaries and benefits in 1999. Although the volume-driven nature of the mortgage banking business 6 MANAGEMENT'S DISCUSSION-CONTINUED can impact growth in the Company's salaries and benefits, mortgage banking salaries and benefits declined $85,000 (2.9%) during 1999. The $2.7 million increase in salaries and employees benefits during 1998 included a $1.8 million increase related to mortgage banking activities. Salaries related to core banking operations increased 6.6% from 1998. Occupancy expenses have increased from $2,162,000 in 1997 to $2,358,000 in 1998, and $2,431,000 in 1999. During 1999, a mortgage office was closed in order to reduce costs and an unused building was sold. These changes are expected to help control occupancy expenses. Furniture and equipment expenses were $3,529,000 in 1999, $3,970,000 in 1998, and $3,275,000 in 1997. During 1998, check image processing was implemented, the Company's mainframe computer was upgraded, and the computer network was upgraded. One-time costs associated with these improvements were principally responsible for the higher cost in 1998. Amortization of mortgage servicing rights, net of changes in the valuation allowance, was $462,000 in 1999, $1,370,000 in 1998, and $390,000 in 1997. As discussed above, the Maple Park Mortgage subsidiary has entered into an agreement to sell the majority of its mortgage servicing rights in 2000. Future mortgage loans will be originated and sold on a servicing-released basis. As a result, the amount and volatility of servicing rights amortization will be substantially reduced. INCOME TAXES The Company's provision for Federal and State of Illinois income taxes was $5,780,000, $5,036,000, and $4,018,000 during the years ended December 31, 1999, 1998, and 1997. The effective income tax rate for these years was 31.8%, 31.3%, and 29.5%. The increase in the effective tax rate was primarily the result of tax exempt income declining from $3.3 million in 1997, to $3.0 million in 1998, and $2.6 million in 1999. FINANCIAL CONDITION Total assets were $998.5 million as of December 31, 1999, a decline of $15.8 million from December 31, 1998. A significant portion of this decline is associated with a decline in loans held for sale from $36.7 million to $8.4 million during 1999. At the same time, notes payable, which principally fund loans held for sale, declined similarly from $36.2 million to $9.5 million. During 1999 assets were reallocated from Federal funds sold and investments to loans, which generally earn a higher rate of interest. INVESTMENTS In order to support loan growth, securities decreased $21.5 million during 1999, from $292.4 million as of December 31, 1998, to $270.9 million as of December 31, 1999. U.S. government agency securities were $166.2 million at December 31, 1999, a decline of $15.7 million from a year earlier. U.S. government agency securities comprised 61.4% of the portfolio as of December 31, 1999, and 62.2% of the portfolio as of December 31, 1998. Mortgage backed securities declined $6.0 million, from $31.2 million to $25.2 million during 1999. The changes in U.S. government agency securities and mortgage backed securities did not represent a change in the Company's investment policy. Other categories of securities remained at levels that were similar to the year-end 1998 amounts. LOANS Total loans increased $54.3 million (9.7%) during 1999, from $556.5 million as of year-end 1998 to $610.8 million as of year-end 1999. All of the major categories of loans increased, with the most significant changes occurring in construction lending and residential real estate loans. Construction loans increased from $46.4 million as of year-end 1998 to $58.8 million as of year-end 1999, an increase of $12.4 million or 26.7%. Residential mortgages increased $15.3 million (10.6%) from $144.4 million to $159.7 million over the same period of time. The loan portfolio generally reflects the profile of the communities in which the Company operates. In a 7 MANAGEMENT'S DISCUSSION-CONTINUED growing area, real estate lending (including commercial, residential, and construction), is a significant portion of the portfolio. In the aggregate, these categories comprised 64% of the portfolio as of both December 31, 1999, and December 31, 1998. SOURCES OF FUNDS The Company's primary source of funds is customer deposits. Total deposits grew $22.0 million during 1999, to $848.3 million as of December 31, 1999. Most of the growth was in noninterest-bearing checking accounts, NOW accounts, and money market accounts. Noninterest-bearing accounts grew $6.8 million (5.7%), NOW accounts grew $18.0 million (27.5%) and money market accounts grew $12.8 million (6.7%) during 1999. At the same time, savings decreased $3.5 million (3.5%), certificates of deposit of less than $100,000 decreased $9.0 million (3.5%), and certificates of deposit of $100,000 or more decreased $3.2 million (4.2%). While total deposits grew $22 million in the aggregate, these changes reflect a movement from long-term deposits to immediately available deposits. While the Banks' deposit products and general pricing philosophy did not change significantly during 1999, the movement to immediately available deposits reflect general customer preference during the year. The Company also utilizes repurchase agreements as a source of funds. Repurchase agreements were $17.3 million as of December 31, 1999, a decline of $15.3 million from $32.6 million as of December 31, 1998. Repurchase agreements are generally for short term purposes, and are subject to variation in balances. CAPITAL Total stockholders' equity increased $1.9 million during 1999, from $101.9 million as of December 31, 1998, to $103.8 million as of December 31, 1999. Net income of $12.4 million, reduced by dividends of $3.5 million, contributed retained earnings of $8.9 million during 1999. Stockholders' equity was further reduced by a decline of $4.8 million in net unrealized securities gains and losses. In 1998, net income of $11.0 million, reduced by dividends of $2.7 million and increased by an increase in net unrealized gains and losses on securities of $1.5 million, resulted in an increase in stockholders' equity of $9.8 million. Also during 1998, the exercise of stock options contributed $31,000 to stockholders' equity. During 1999, the Company purchased 81,500 shares of its common stock, reducing outstanding shares from 6,102,362 as of year-end 1998 to 6,020,862 as of year-end 1999. This reduced stockholders' equity by $2,280,000. It is anticipated that this action will enhance return on equity and earnings per share. Return on equity was 12.06% in 1999 and 11.69% in 1998. Bank regulators have adopted capital standards by which all banks and bank holding companies will be evaluated (discussed in Note Q to the consolidated financial statements). The Company and the Banks were categorized as well capitalized as of December 31, 1999. Management is not aware of any conditions or events since the most recent regulatory notification that would change the Company's or the Banks' categories. The Company's total capital ratio, tier 1 capital to risk weighted assets ratio, and tier 1 capital to average assets ratio were 15.84%, 14.61%, and 10.17%, respectively, as of December 31, 1999. Dividends declared during 1999 were $0.58 per share, an increase of 29% from $0.45 per share in 1998. The dividend payout ratios were 28.4% and 24.9% during 1999 and 1998, respectively. LIQUIDITY Liquidity is the Company's ability to fund its operations, meet depositor withdrawals, to provide for customer's credit needs, and to meet maturing obligations and existing commitments. The liquidity of the Company principally depends on cash flows from operating activities, investments in and maturity of assets, changes in balances of deposits and borrowings and its ability to borrow funds. Net cash inflows from operations were $40.0 million during 1999, including cash inflows from a reduction in loans held for sale of $25.9 million. Net cash outflows for investing activities were $43.0 million in 1999, primarily as a result of $54.5 million in net principal on disbursed-on loans. Net cash outflows for financing activities were 8 MANAGEMENT'S DISCUSSION-CONTINUED $19.8 million in 1999, which included a net increase in deposits of $22.0 million, reduced by declines in repurchase agreements, short-term borrowing, and notes payable of an aggregate $36.2 million. INTEREST RATE RISK The impact of movements in general market interest rates on a financial institution's financial condition, including capital adequacy, earnings, and liquidity, is known as interest rate risk. Interest rate risk is the Company's primary market risk. As a financial institution, accepting and managing this risk is an inherent aspect of the Company's business. However, safe and sound management of interest rate risk requires that it be maintained at prudent levels. The Company analyzes interest rate risk by examining the extent to which assets and liabilities are interest rate sensitive. The interest sensitivity gap is defined as the difference between the amount of interest earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that time period. A gap is considered positive when the amount of interest sensitive assets exceeds the amount of interest sensitive liabilities. A gap is considered negative when the amount of interest sensitive liabilities exceeds the amount of interest sensitive assets. During a period of rising interest rates, a negative gap would tend to result in a decrease in net interest income while a positive gap would tend to positively affect net interest income. The Company's policy is to manage the balance sheet such that fluctuations in the net interest margin are minimized regardless of the level of interest rates. The tables on page 10 do not necessarily indicate the future impact of general interest rate movements on the Company's net interest income because the repricing of certain assets and liabilities is discretionary and is subject to competitive and other pressures. As a result, assets and liabilities indicated as repricing within the same period may in fact reprice at different times and at different rate levels. Assets and liabilities are reported in the earliest time frame in which maturity or repricing may occur. Although securities available for sale are reported in the earliest time frame in which maturity or repricing may occur, these securities may be sold in response to changes in interest rates or liquidity needs. IMPACT OF YEAR 2000 In anticipation of the change in date after December 31, 1999, the Company reviewed systems that were critical for the delivery of its products and services and identified potential problems by performing an inventory and review of all software applications. In addition, the Company reviewed potential risks associated with loan and investment portfolios. Contingency plans were in place to address potential problems had they occurred. The Company did not experience significant problems as a result of the change to the year 2000. The cost of addressing the issue did not have a material impact on the Company's financial condition or results of operations. While unanticipated problems can not be precluded, management does not expect additional costs or exposure to risks associated with date change problems. EFFECTS OF INFLATION In management's opinion, changes in interest rates affect the financial condition of a financial institution to a far greater degree than changes in the inflation rate. While interest rates are greatly influenced by changes in the inflation rate, they do not change at the same rate or in the same magnitude as the inflation rate. Rather, interest rate volatility is based on changes in the expected rate of inflation, as well as on changes in monetary and fiscal policies. A financial institution's ability to be relatively unaffected by changes in interest rates is a good indicator of its capability to perform in today's volatile economic environment. The Company seeks to insulate itself from interest rate volatility by ensuring that rate sensitive assets and rate sensitive liabilities respond to changes in interest rates in a similar time frame and to a similar degree. 9 MANAGEMENT'S DISCUSSION-CONTINUED Expected Maturity of Interest-Earning Assets and Interest-Bearing Liabilities
Expected Maturity Dates -------------------------------------------------------------------------------- 1 Year 2 Years 3 Years 4 Years 5 Years Thereafter Total ------ ------- ------- ------- ------- ---------- ----- 1999 INTEREST-EARNING ASSETS Deposit with banks ......... $ 575 $ -- $ -- $ -- $ -- $ -- $ 575 Average interest rate ...... 4.75% 4.75% Federal funds sold ......... $ 25,900 $ -- $ -- $ -- $ -- $ -- $ 25,900 Average interest rate ...... 5.26% 5.26% Securities ................. $ 30,799 $ 38,073 $ 35,669 $ 57,675 $ 34,186 $ 74,510 $ 270,912 Average interest rate ...... 7.37% 6.06% 5.76% 5.78% 5.91% 5.76% 5.98% Fixed rate loans ........... $ 123,409 $ 68,370 $ 58,055 $ 58,193 $ 59,817 $ 11,446 $ 379,290 Average interest rate ...... 7.89% 8.19% 8.19% 7.74% 7.22% 7.91% 7.70% Adjustable rate loans ...... $ 149,130 $ 21.016 $ 26,258 $ 20,291 $ 19,941 $ 3,281 $ 239,917 Average interest rate ...... 8.74% 7.67% 7.91% 7.26% 7.36% 7.68% 8.30% --------- ------------ --------- --------- --------- --------- --------- Total ...................... $ 329,813 $ 127,459 $ 119,982 $ 136,159 $ 113,944 $ 89,237 $ 916,594 ========= ============ ========= ========= ========= ========= ========= INTEREST-BEARING LIABILITIES Interest-bearing deposits .. $ 420,463 $ 80,439 $ 9,059 $ 18,670 $ 2,380 $ 190,516 $ 721,527 Average-interest rate ...... 4.37% 5.44% 5.42% 5.26% 5.00% 1.94% 3.89% Short-term borrowing ....... $ 27,610 $ -- $ -- $ -- $ -- $ -- $ 27,610 Average interest rate ...... 4.24% 4.75% Notes payable .............. $ 9,467 $ -- $ -- $ -- $ -- $ -- $ 9,467 Average interest rate ...... 9.79% 4.75% --------- ------------ --------- --------- --------- --------- --------- Total ...................... $ 457,540 $ 80,439 $ 9,059 $ 18,670 $ 2,380 $ 190,516 $ 758,604 ========= ============ ========= ========= ========= ========= ========= Period gap ................. $(127,727) $ 47,020 $ 110,923 $ 117,489 $ 111,564 $(101,279) $ 157,990 Cumulative gap ............. (127,727) (80,707) 30,216 147,705 259,269 157,990 1998 INTEREST-EARNING ASSETS Deposit with banks ......... $ 475 $ -- $ -- $ -- $ -- $ -- $ 475 Average interest rate ...... 4.10% 4.10% Federal funds sold ......... $ 49,475 $ -- $ -- $ -- $ -- $ -- $ 49,475 Average interest rate ...... 4.70% 4.70% Securities ................. $ 49,725 $ 40,207 $ 46,934 $ 33,224 $ 50,196 $ 72,079 $ 292,365 Average interest rate ...... 5.90% 5.85% 6.10% 5.72% 5.66% 5.85% 5.85% Fixed rate loans ........... $ 147,760 $ 57,347 $ 58,582 $ 37,418 $ 46,273 $ 19,366 $ 366,746 Average interest rate ...... 8.14% 8.53% 7.95% 8.28% 7.68% 8.15% 8.13% Adjustable rate loans ...... $ 136,910 $ 19,518 $ 25,623 $ 19,273 $ 21,656 $ 3,505 $ 226,485 Average interest rate ...... 8.54% 7.93% 7.69% 8.06% 7.23% 7.96% 8.22% --------- ------------ --------- --------- --------- --------- --------- Total ...................... $ 384,345 $ 117,072 $ 131,139 $ 89,915 $ 118,125 $ 94,950 $ 935,546 ========= ============ ========= ========= ========= ========= ========= INTEREST-BEARING LIABILITIES Interest-bearing deposits .. $ 405,504 $ 78,087 $ 23,584 $ 4,810 $ 6,087 $ 187,567 $ 706,359 Average-interest rate ...... 4.37% 5.44% 5.42% 5.26% 5.00% 1.94% 3.89% Short-term borrowing ....... $ 37,107 $ -- $ -- $ -- $ -- $ -- $ 37,107 Average interest rate ...... 3.37% 3.37% Notes payable .............. $ 36,189 $ -- $ -- $ -- $ -- $ -- $ 36,189 Average interest rate ...... 5.88% 5.88% --------- ------------ --------- --------- --------- --------- --------- Total ...................... $ 478,800 $ 78,807 $ 23,584 $ 4,810 $ 6,087 $ 187,567 $ 779,655 ========= ============ ========= ========= ========= ========= ========= Period gap ................. $ (94,455) $ 38,265 $ 107,555 $ 85,105 $ 112,038 $ (92,617) $ 155,891 Cumulative gap ............. (94,455) (56,190) 51,365 136,470 248,508 155,891
10 OLD SECOND BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
1999 1998 ------- ------- ASSETS Cash and due from banks.......................... $ 43,375 $ 42,677 Federal funds sold............................... 25,900 49,475 ------- ------- Cash and cash equivalents....................... 69,275 92,152 Securities available for sale.................... 270,912 292,365 Loans held for sale.............................. 8,437 36,686 Loans............................................ 610,770 556,545 Allowance for possible loan losses............... 8,444 7,823 ---------- ----------- Net loans....................................... 602,326 548,722 Premises and equipment, net...................... 20,665 20,950 Other real estate owned.......................... 79 497 Mortgage servicing rights, net................... 7,658 5,760 Goodwill, net.................................... 3,004 3,446 Core deposit intangible assets, net.............. 2,487 2,842 Accrued interest and other assets................ 13,665 10,872 ---------- ----------- Total assets.................................... $ 998,508 $ 1,014,292 ========== =========== LIABILITIES Deposits Demand.......................................... $ 126,808 $ 119,972 Savings......................................... 387,647 360,321 Time............................................ 333,881 346,038 ---------- ----------- Total deposits............................... 848,336 826,331 Securities sold under repurchase agreements...... 17,289 32,590 Other short-term borrowings...................... 10,321 4,517 Notes payable.................................... 9,467 36,189 Accrued interest and other liabilities........... 9,334 12,739 ---------- ----------- Total liabilities............................... 894,747 912,366 STOCKHOLDERS' EQUITY Preferred stock, $1 par value; authorized 300,000 shares, none issued......... - - Common stock, $1 par value; authorized 10,000,000 shares; issued 6,102,362 in 1999 and 6,102,362 in 1998 outstanding 6,020,862 in 1999 and 6,102,362 in 1998.............................. 15,875 15,875 Retained earnings................................ 92,143 83,328 Accumulated other comprehensive income (loss).... (1,977) 2,823 Treasury stock, at cost, 81,500 shares in 1999... (2,280) - ---------- ----------- Total stockholders' equity.................... 103,761 101,926 ---------- ----------- Total liabilities and stockholders' equity.... $ 998,508 $1,014,292 ========== ===========
See accompanying notes to consolidated financial statements. 11 OLD SECOND BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997 (IN THOUSANDS, EXCEPT SHARE DATA)
1999 1998 1997 --------- ----------- --------- INTEREST INCOME Loans, including fees................................. $ 47,643 $ 47,320 $ 45,775 Loans held for sale................................... 1,676 2,199 647 Securities: Taxable............................................. 13,421 12,231 13,025 Tax-exempt.......................................... 2,648 2,991 3,302 Federal funds sold.................................... 1,566 3,372 2,407 Interest bearing deposits............................. 35 26 22 --------- ----------- --------- Total interest income............................... 66,989 68,139 65,178 INTEREST EXPENSE Savings deposits...................................... 9,598 9,076 7,920 Time deposits......................................... 17,618 20,287 21,672 Repurchase agreements................................. 698 828 670 Other short-term borrowing............................ 122 162 178 Notes payable......................................... 1,118 1,876 611 --------- ----------- --------- Total interest expense.............................. 29,154 32,229 31,051 --------- ----------- --------- Net interest income................................. 37,835 35,910 34,127 Provision for loan losses............................. 930 1,213 1,256 --------- ----------- --------- Net interest income after provision for loan losses 36,905 34,697 32,871 NONINTEREST INCOME Trust income.......................................... 4,473 4,154 3,917 Service charges on deposits........................... 3,285 3,139 3,134 Secondary mortgage fees............................... 951 1,557 926 Mortgage servicing income............................. 1,811 1,045 484 Gain on sale of loans................................. 5,902 9,119 4,035 Securities gains, net................................. - 10 (1) Other income.......................................... 2,137 1,353 1,464 --------- ----------- --------- Total noninterest income............................ 18,559 20,377 13,959 NONINTEREST EXPENSES Salaries and employee benefits........................ 20,660 20,657 17,953 Occupancy expense, net................................ 2,431 2,358 2,162 Furniture and equipment expense....................... 3,529 3,970 3,275 Amortization of goodwill.............................. 441 441 441 Amortization of core deposit intangible assets........ 355 355 308 Amortization of mortgage servicing rights, net of changes in valuation allowance...................... 462 1,370 390 Other expense......................................... 9,398 9,838 8,689 --------- ----------- --------- Total noninterest expense........................... 37,276 38,989 33,218 --------- ----------- --------- Income before income taxes............................ 18,188 16,085 13,612 Provision for income taxes............................ 5,780 5,036 4,018 --------- ----------- --------- Net income.......................................... $ 12,408 $ 11,049 $ 9,594 ========= =========== ========= Basic earnings per share.............................. $ 2.04 $ 1.81 $ 1.57 Diluted earnings per share............................ 2.04 1.81 1.57
See accompanying notes to consolidated financial statements. 12 OLD SECOND BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997 (IN THOUSANDS)
1999 1998 1997 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income ............................................................... $ 12,408 $ 11,049 $ 9,594 Adjustments to reconcile net income to net cash from operating activities: Depreciation ........................................................... 2,013 2,202 1,876 Amortization of mortgage servicing rights, net of change in valuation allowance ............................................... 462 1,370 390 Provision for loan losses .............................................. 930 1,213 1,256 Net change in mortgage loans held for sale .............................. 25,890 (15,535) (23,471) Deferred taxes .......................................................... (738) (697) (282) Change in current income taxes payable .................................. 4,306 208 (606) Change in accrued interest and other assets ............................. (2,793) 1,646 1,740 Change in accrued interest and other liabilities ........................ (4,026) 285 3,967 Premium amortization and discount accretion on securities .............. 704 624 587 Securities losses (gains), net ......................................... -- 10 (1) Amortization of goodwill ............................................... 441 441 441 Amortization of core deposit intangible assets ......................... 355 355 308 Other, net ............................................................. -- (1) (37) --------- --------- --------- Net cash from operating activities ....................................... 39,952 3,170 (4,238) --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturities of securities available for sale ...... 76,959 107,159 80,809 Purchases of securities available for sale ............................... (64,100) (133,290) (57,078) Net principal disbursed or repaid on loans ............................... (54,534) (22,226) (54,019) Proceeds from sales of other real estate ................................. 418 (15) (356) Property and equipment expenditures ...................................... (1,728) (2,347) (3,271) --------- --------- --------- Net cash from investing activities ..................................... (42,985) (50,719) (33,915) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Net change in deposits ................................................... 22,005 37,402 (1,040) Net change in repurchase agreements ...................................... (15,301) 9,664 21,088 Net change in other short-term borrowings ................................ 5,804 (3,580) 3,696 Net change in notes payable .............................................. (26,722) 12,056 23,116 Proceeds from exercise of incentive stock options ........................ -- 31 -- Dividends paid ........................................................... (3,350) (2,897) (2,689) Purchase of treasury stock ............................................... (2,280) -- -- --------- --------- --------- Net cash from financing activities ..................................... (19,844) 52,676 44,171 --------- --------- --------- Net change in cash and cash equivalents ................................ (22,877) 5,127 6,018 Cash and cash equivalents at beginning of period ....................... 92,152 87,025 81,007 Cash and cash equivalent at end of period .............................. $ 69,275 $ 92,152 $ 87,025 ========= ========= ========= SUPPLEMENTAL DISCLOSURES Income taxes paid ...................................................... $ 5,202 $ 5,478 $ 3,695 Interest paid .......................................................... 29,281 32,626 31,194
See accompanying notes to consolidated financial statements. 13 OLD SECOND BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERSO EQUITY YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997 (IN THOUSANDS)
Accumulated Other Total Common Retained Comprehensive Treasury Stockholders' Stock Earnings Income(loss) Stock Equity -------- --------- ----------- -------- ------------- Balance at December 31, 1996 ........ $ 15,844 $ 68,052 $ 304 $ -- $ 84,200 Comprehensive income: Net income ......................... -- 9,594 -- -- 9,594 Change in net unrealized gain on securities held for sale ....... -- -- 1,049 -- 1,049 -------- Total comprehensive income ......... 10,643 Dividends declared, $.45 per share .. -- (2,722) -- -- (2,722) -------- --------- -------- --------- -------- Balance at December 31, 1997 ........ 15,844 74,924 1,353 -- 92,121 Comprehensive income: Net income ......................... -- 11,049 -- -- 11,049 Change in net unrealized gain on securities held for sale ....... -- -- 1,470 -- 1,470 -------- Total comprehensive income ......... 12,519 Dividends declared, $.45 per share .. -- (2,745) -- -- (2,745) Stock options exercised ............. 31 -- -- -- 31 -------- --------- -------- --------- -------- Balance at December 31,1998 ......... 15,875 83,228 2,823 -- 101,926 Comprehensive income: Net income ......................... -- 12,408 -- -- 12,408 Change in net unrealized gain (loss) on securities held for sale ....... -- -- (4,800) -- (4,800) -------- Total comprehensive income ......... 7,608 Dividends declared, $.58 per share .. -- (3,493) -- -- (3,493) Purchase of treasury stock .......... -- -- -- (2,280) (2,280) -------- --------- -------- --------- -------- Balance at December 31, 1999 ........ $ 15,875 $ 92,143 $ (1,977) $ (2,280) $103,761 ======== ========= ======== ========= ========
See accompanying notes to consolidated financial statements. 14 OLD SECOND BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998, AND 1997 (TABLE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE) Note A: Summary of Significant Accounting Policies NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include Old Second Bancorp, Inc. and its wholly-owned subsidiaries; The Old Second National Bank of Aurora, Yorkville National Bank, Bank of Sugar Grove, Burlington Bank, Kane County Bank and Trust Company, and Maple Park Mortgage, together referred to as "the Company." The banking subsidiaries are referred to herein as "the Banks." Inter-company transactions and balances are eliminated in consolidation. During 1999, the Company simplified its organizational structure by eliminating two bank charters. The Old Second Community Bank of North Aurora and Old Second Community Bank of Aurora were merged into The Old Second National Bank of Aurora ("Old Second"). The mergers qualified as tax-free reorganizations and were accounted for as internal reorganizations. Certain 1998 and 1997 amounts have been reclassified to conform to the 1999 presentation. The Company provides financial services through its offices located in Kane, Kendall, DeKalb, DuPage, Lake, LaSalle, and Winnebago counties in Illinois. Its primary deposit products are checking, savings, and certificates of deposit, and its primary lending products are residential and commercial mortgages, construction lending, commercial, and installment loans. A major portion of loans are secured by various forms of collateral including real estate, business assets, consumer property, and other items, although borrower cash flow may also be a primary source of repayment. Maple Park Mortgage provides mortgage-banking services and Old Second also engages in trust operations. USE OF ESTIMATES: To prepare financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ. STATEMENT OF CASH FLOWS: For purposes of the statement of cash flows, the Company considers cash and due from banks and Federal funds sold to be cash and cash equivalents. Generally, Federal funds are sold for one-day periods. SECURITIES: Securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income. Interest income includes amortization of purchase premium or discount. Realized gains and losses are determined based on the amortized cost of the specific security sold. LOANS HELD FOR SALE: Maple Park Mortgage originates residential mortgage loans which are sold in the secondary market, including loans secured under programs with the Federal Home Loan Mortgage Corporation ("FHLMC") and the Federal National Mortgage Association ("FNMA"). Loans held for sale may be hedged with forward sales commitments in order to minimize interest rate risk by contracting for the sale of loans in the future at specified prices. Gains and losses from hedging transactions on loans held for sale are included in the cost of the loans in determining the gain or loss when the loans are sold. Loans held for sale are carried at the lower of aggregate cost or fair value. LOANS: Loans are reported at the principal balance outstanding, net of unearned interest, deferred loan fees and costs, and an allowance for loan losses. Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term. The accrual of interest income is discontinued when full loan repayment is in doubt. Payments received on such loans are reported as principal reductions. ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is a valuation allowance for credit losses, increased by the provision for loan losses and decreased by charge-offs less recoveries. Management estimates the allowance balance required using past loan loss experience, known and inherent risks in the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific 15 NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED loans, but the entire allowance is available for any loan that, in management's judgment, should be charged-off. A loan is considered impaired when the carrying amount of the loan exceeds the present value of the future cash flows, discounted at the loan's original effective interest rate. When a loan is collateral dependent, management measures impairment based on the fair value of underlying collateral. There was no material impairment as of December 31, 1999 or December 31, 1998. PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less accumulated depreciation and amortization. When property is retired or otherwise disposed of, the carrying amount, net of sale proceeds in the event of a sale of assets, is recognized as a gain or loss at the time of disposal. Depreciation is computed over estimated useful lives of ten to forty years for premises and five to ten years for furniture and equipment principally by the use of accelerated depreciation methods. Expenditures for maintenance and repair are expensed as incurred, and expenditures for major renovations are capitalized. OTHER REAL ESTATE OWNED: Real estate acquired in settlement of loans is recorded at the lower of net book value or fair value when acquired, less estimated costs to sell. The excess of net book value over fair value at the foreclosure date is charged to the allowance for loan losses. If fair value declines after acquisition, the reported amount is reduced to the lower of the initial amount or fair value less costs to sell. MORTGAGE SERVICING RIGHTS: Servicing rights are recognized as assets for purchased rights and for the allocated value of servicing rights retained on loans sold. Servicing rights are amortized in proportion to, and over the period of estimated net servicing revenues. Impairment is evaluated based on the fair value of the rights, using groupings of the underlying loans as to interest rates and then, secondarily, as to geographic and prepayment characteristics. Any impairment of a grouping is reported as an adjustment to the valuation allowance. GOODWILL AND CORE DEPOSIT INTANGIBLES: Goodwill is the excess of purchase price over identified net assets acquired in an acquisition. Goodwill is being amortized on the straight-line method over 15 years. The core deposit intangibles are being amortized using the straight-line method over 10 years. LONG-TERM ASSETS: These assets, including intangibles, are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at discounted amounts. TRUST ASSETS AND FEES: Assets held in fiduciary or agency capacities are not included in the consolidated balance sheets because such amounts are not assets of the Company. Income from trust fees is recorded on the cash basis, which does not result in a material difference from the accrual basis. RETIREMENT PLAN COSTS: The Company uses the "projected unit credit" actuarial method for financial reporting purposes and the entry age cost method for the funding of the qualified plan. LONG-TERM INCENTIVE PLAN: No expense for stock options is recorded, as the grant price equals the market price of the stock at grant date. Pro-forma disclosures (included in Note M) show the effect on income and earnings per share had the option's fair value been recorded as compensation, using an option-pricing model. COMMON STOCK SPLIT: The board of directors declared a two-for-one stock split on the Company's common stock in May, 1999. All references to the number of common shares and per share amounts in the consolidated financial statements and related footnotes have been restated as appropriate to reflect the effect of the stock split for all periods presented. INCOME TAXES: Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax basis of assets and liabilities, computed using enacted tax rates. EARNINGS PER SHARE: Basic earnings per share is net income divided by the weighted-average number of common shares outstanding during the year. Diluted earnings per share includes the dilutive effects of additional potential common shares issuable under stock options computed based on the treasury stock method. Earnings and dividends per share are restated for all stock splits and dividends through the date of issue of the consolidated financial statements. 16 NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED SEGMENT REPORTING: Beginning January 1, 1998, Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" requires reporting of information regarding reportable operating segments The Corporation has determined that it has one reportable segment--commercial banking. As such, additional segment information is not required to be disclosed. The Corporation offers the following products and services to external customers: deposits, loans, and trust services. Revenues for each of these products and services are disclosed in the Consolidated Statements of Income. DIVIDEND RESTRICTION: Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Banks to the Company or by the Company to shareholders. NEW ACCOUNTING PRONOUNCEMENT: In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, which is required to be adopted in years beginning after June 15, 2000. Because of the Company's minimal use of derivatives, management does not anticipate that the adoption of the new Statement will have a significant effect on earnings or the financial position of the Company. NOTE B: CASH AND DUE FROM BANKS Old Second and Yorkville National Bank ("Yorkville") are required to maintain reserve balances with the Federal Reserve Bank. In accordance with Federal Reserve Bank requirements, average reserve balances were $4,720,000 and $993,000 for Old Second and Yorkville during 1999. NOTE C: SECURITIES Year-end securities available for sale were as follows:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value -------- ------ -------- -------- 1999 U.S. Treasury ................... $ 10,043 $ 3 $ 30 $ 10,016 U.S. Government agencies ........ 169,271 105 3,190 166,186 States and political subdivisions 66,685 808 593 66,900 Mortgage-backed securities ...... 25,623 67 445 25,245 Other securities ................ 2,565 -- -- 2,565 -------- ------ -------- -------- $274,187 $ 983 $ 4,258 $270,912 ======== ====== ======== ======== 1998 U.S. Treasury ................... $ 9,552 $ 190 $ -- $ 9,742 U.S. Government agencies ........ 179,844 2,341 270 181,915 States and political subdivisions 64,671 2,400 27 67,044 Mortgage-backed securities ...... 31,233 135 156 31,212 Other securities ................ 2,452 -- -- 2,452 -------- ------ -------- -------- $287,752 $5,066 $ 453 $292,365 ======== ====== ======== ========
17 NOTE C: SECURITIES-CONTINUED
Amortized Fair Cost Value -------- -------- Due in one year or less ........................ $ 40,114 $ 40,028 Due after one year through five years .......... 158,937 156,731 Due after five years through ten years ......... 32,276 31,844 Due after ten years ............................ 17,237 17,064 -------- -------- 248,564 245,667 Mortgage-backed securities ..................... 25,623 25,245 -------- -------- $274,187 $270,912 ======== ========
Securities with aggregate amortized costs of approximately $83.6 million and $88.1 million at December 31, 1999 and 1998, were pledged to secure public deposits and securities sold under repurchase agreements and for other purposes required or permitted by law. NOTE D: LOANS Major classifications of loans were as follows:
1999 1998 -------- -------- Commercial and industrial ................ $151,771 $143,047 Real estate - commercial ................. 175,010 165,459 Real estate - construction ............... 58,833 46,361 Real estate - residential ................ 159,743 144,434 Installment .............................. 65,491 57,471 -------- -------- 610,848 556,772 Unearned discount ........................ (78) (227) -------- -------- $610,770 $556,545 ======== ========
Past due and nonaccrual loans were as follows:
1999 1998 1997 ------ ------ ------ Nonaccrual loans ................................................ $1,298 $ 768 $2,189 Interest income recorded on nonaccrual loans .................... 50 23 84 Interest income which would have been accrued on nonaccrual loans 142 114 273 Loans 90 days or more past due and still accruing interest ...... 742 1,417 1,011
Loans to principal officers, directors, and their affiliates in 1999 were as follows:
1999 1998 -------- -------- Beginning balance .................. $ 17,997 $ 17,343 New Loans .......................... 46,525 41,833 Repayments ......................... (36,747) (40,480) Other changes ...................... (870) (699) -------- -------- Ending balance ..................... $ 26,905 $ 17,997 ======== ========
It is the policy of the Company to review each prospective credit in order to determine an adequate level of security or collateral to obtain prior to making a loan. The type of collateral, when required, will vary in ranges from liquid assets to real estate. The Company's access to collateral, in the event of borrower default, is assured through adherence to state lending laws and the Company's lending standards and credit monitoring procedures. The Banks make loans within their market areas. There are no significant concentrations of loans where the customers' ability to honor loan terms are dependent upon a single economic sector. 18 NOTE E: ALLOWANCE FOR LOAN LOSSES Changes in the allowance for loans losses were as follows:
1999 1998 1997 ------- -------- --------- Balance at beginning of year ...... $ 7,823 $ 6,923 $ 6,968 Provision for loan losses ......... 930 1,213 1,256 Loans charged-off ................. (652) (552) (1,642) Recoveries ........................ 343 239 341 ------- ------- ------- Balance at end of year ............ $ 8,444 $ 7,823 $ 6,923 ------- ------- ------- ------- ------- -------
NOTE F: PREMISES AND EQUIPMENT Year-end premises and equipment were as follows:
December 31, 1999 December 31, 1998 ---------------------------------------- ------------------------------------------ Accumulated Net Book Accumulated Net Book Cost Amortization Value Cost Amortization Value ---- ------------ ----- ---- ------------ ----- Land .................. $ 4,861 $ -- $ 4,861 $ 4,899 $ -- $ 4,899 Premises .............. 22,222 9,564 12,658 21,605 9,134 12,471 Furniture and equipment 14,903 11,757 3,146 14,588 11,008 3,580 ------- ------- ------- ------- ------- ------- $41,986 $21,321 $20,665 $41,092 $20,142 $20,950 ======= ======= ======= ======= ======= =======
NOTE G: INTANGIBLE ASSETS Year-end intangible assets were as follows:
December 31, 1999 December 31, 1998 ---------------------------------------- --------------------------------------- Accumulated Net Book Accumulated Net Book Cost Amortization Value Cost Amortization Value ---- ------------ ----- ---- ------------ ----- Goodwill .............. $ 6,561 $3,557 $ 3,004 $ 6,561 $3,115 $3,446 Core deposit intangible 3,505 1,018 2,487 3,505 663 2,842 ------- ------ ------- ------- ------ ------ $10,066 $4,575 $ 5,491 $10,066 $3,778 $6,288 ======= ====== ======= ======= ====== ======
NOTE H: MORTGAGE SERVICING RIGHTS Activity for capitalized mortgage servicing rights was as follows:
1999 1998 1997 ------- ------- ------- Balance at beginning of year ................................. $ 6,949 $ 2,543 $ 2,403 Origination of mortgage servicing rights ..................... 2,360 4,839 530 Amortization ................................................. (887) (433) (390) ------- ------- ------- Balance at end of year ....................................... $ 8,422 $ 6,949 $ 2,543 ======= ======= ======= Changes in the valuation for servicing assets were as follows: Balance at beginning of year ................................. $ 1,189 $ 252 $ 252 Provisions for impairment .................................... 75 937 -- Recoveries ................................................... (500) -- -- ------- ------- ------- Balance at end of year ....................................... $ 764 $ 1,189 $ 252 ------- ------- ------- ------- ------- ------- Net balance .................................................. $ 7,658 $ 5,760 $ 2,291 ======= ======= =======
19 NOTE I: DEPOSITS Major classifications of deposits were as follows:
1999 1998 -------- -------- Noninterest bearing .............................. $126,808 $119,972 Savings .......................................... 98,934 102,428 NOW accounts ..................................... 83,362 65,359 Money market accounts ............................ 205,351 192,534 Certificates of deposit of less than $100,000 .... 258,184 267,158 Certificates of deposit of $100,000 or more ...... 75,697 78,880 -------- -------- $848,336 $826,331 ======== ========
At year-end 1999, scheduled maturities of time deposits were as follows: 2000....................................................... $223,332 2001....................................................... 80,440 2002....................................................... 9,059 2003....................................................... 18,670 2004....................................................... 2,380 -------- Total $333,881 ========
NOTE J: BORROWING At December 31, 1999 and 1998, respectively, $9.5 million and $36.2 million were outstanding for a line of credit extended to Maple Park Mortgage for the funding of loans held for sale. There is $60 million available through this line of credit which is issued by Firstar Bank Milwaukee, N.A. and is due March 31, 2000. Interest payments are due on a monthly basis at a rate of 1% over the previous month average federal funds rate. The note is secured by a Mortgage Notes (purchase money) Security Agreement dated May 27, 1999 and is guaranteed by the Company. At December 31, 1999 and 1998, respectively, short term borrowings totaled $27.6 million at a weighted average rate of 3.9% and $37.1 million at a weighted average rate of 4.4%. NOTE K: INCOME TAXES Income tax expense (benefit) was as follows:
1999 1998 1997 ------- ------- ------- Current federal ............. $ 5,908 $ 4,949 $ 3,927 Current state ............... 610 784 373 Deferred federal ............ (672) (550) (221) Deferred state .............. (66) (147) (61) ------- ------- ------- $ 5,780 $ 5,036 $ 4,018 ======= ======= =======
20 NOTE K: INCOME TAXES-CONTINUED The following were the components of the deferred tax assets and liabilities as of December 31:
1999 1998 ------- ------- Allowance for loan losses .......................... $ 3,247 $ 2,400 Pension ............................................ 225 288 Other assets ....................................... 966 403 ------- ------- Deferred tax assets ................................ 4,438 3,091 Accumulated depreciation ........................... (793) (647) Net premiums and discounts on securities ........... (249) (185) Other liabilities .................................. (399) -- ------- ------- Deferred tax liabilities ........................... (1,441) (832) ------- ------- 2,997 2,259 Tax effect of net unrealized gain on investments ... 1,303 (1,790) ------- ------- Net deferred tax asset ............................. $ 4,300 $ 469 ======= =======
The components of the provision for deferred income taxes were as follows:
1999 1998 1997 ----- ----- ----- Allowance for loan losses .................. $(847) $(215) $ (60) Accumulated depreciation ................... 146 (237) 11 Pension .................................... 63 (67) (9) Net premiums and discounts on securities ... 64 (132) (244) Other, net ................................. (164) (46) 20 ----- ----- ----- $(738) $(697) $(282) ===== ===== =====
Effective tax rates differ from federal statutory rates applied to financial statement income due to the following:
1999 1998 1997 ------- ------- ------- Tax at statutory federal income tax rate ....................... $ 6,366 $ 5,469 $ 4,628 Nontaxable interest income, net of disallowed interest deduction (918) (1,019) (1,104) Goodwill amortization .......................................... 154 150 150 State income taxes, net of federal benefit ..................... 354 421 183 Other, net ..................................................... (176) 15 161 ------- ------- ------- $ 5,780 $ 5,036 $ 4,018 ======= ======= =======
21 NOTE L: RETIREMENT PLANS The Company has a noncontributory defined benefit retirement plan covering substantially all full-time and regular part-time employees of the banking subsidiaries. Generally, benefits are based on years of service and compensation. Certain participants in the defined benefit plan are also covered by an unfunded supplemental retirement plan. The purpose of this plan is to extend full retirement benefits to individuals without regard to statutory limitations for qualified plans. The following table sets forth the plans' status and amounts recognized in these financial statements:
1999 1998 1997 ------- ------- ------- Accumulated benefit obligation ....................... $ 5,907 $ 6,139 $ 6,020 CHANGE IN THE PROJECTED BENEFIT OBLIGATION Projected benefit obligation at beginning of year .... $ 7,900 $ 7,753 $ 6,734 Service cost ......................................... 510 510 428 Interest cost ........................................ 518 511 481 Plan amendments ...................................... -- 10 107 Actuarial (Gain) Loss ................................ (518) 433 322 Benefits paid ........................................ (850) (1,317) (319) ------- ------- ------- Projected benefit obligation at end of year .......... $ 7,560 $ 7,900 $ 7,753 ======= ======= ======= CHANGE IN PLAN ASSETS Fair value of assets at beginning of year ............ $ 7,759 $ 7,648 $ 6,770 Actuarial return on plan assets ...................... 1,078 866 1,077 Employer contributions ............................... 130 562 120 Benefits paid ........................................ (850) (1,317) (319) ------- ------- ------- Projected benefit obligation at end of year .......... $ 8,117 $ 7,759 $ 7,648 ======= ======= ======= ACCRUED PENSION COST Funded status ........................................ $ 557 $ (140) $ (105) Unrecognized gain .................................... (1,523) (514) (653) Unrecognized prior service cost ...................... 216 239 252 Unrecognized net transition asset .................... (343) (430) (516) ------- ------- ------- Accrued pension cost ................................. $(1,093) $ (845) $(1,022) ======= ======= ======= NET PERIODIC PENSION COST Service cost ......................................... $ 510 $ 510 $ 428 Interest cost ........................................ 518 511 481 Expected return on assets ............................ (590) (573) (516) Amortization of unrecognized: Net Loss ............................................. 4 -- -- Prior service cost ................................... 22 23 22 Net asset ............................................ (86) (86) (86) ------- ------- ------- Net periodic pension cost ............................ $ 378 $ 385 $ 329 ======= ======= ======= AMOUNTS APPLICABLE TO THE SUPPLEMENTAL RETIREMENT PLAN Projected benefit obligation ......................... $ 392 $ 299 $ 373 Accumulated benefit obligation ....................... 261 195 286 KEY ASSUMPTIONS Discount rate ........................................ 7.50% 6.50% 6.75% Long-term rate of return on assets ................... 8.50% 8.00% 8.00% Salary increases ..................................... 5.00% 4.50% 4.50%
The Company maintains contributory and non-contributory profit sharing plans covering substantially all full-time and regular part-time employees. The expense of these plans was $739,000 in 1999, $737,000 in 1998, and $644,000 in 1997. 22 NOTE M: LONG-TERM INCENTIVE PLAN The Long-Term Incentive Plan (the "Incentive Plan") authorizes the granting of stock options and stock appreciation rights at the discretion of the Board of Directors. The Incentive Plan requires the exercise price of any stock option to be at least equal to the fair market value of Company common stock on the date the option is granted. All stock options are granted for a maximum term of ten years, with vesting occurring over the first three years. As of December 31, 1999, there were no stock appreciation rights issued under the Incentive Plan. Activity in the Incentive Plan and options outstanding as of year-end were as follows:
1999 1998 1997 -------------------- ------------------- ------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------- ------- ------ ------- ------ ------- Beginning outstanding ...... 98,068 $23.594 83,300 $22.295 55,200 $18.245 Granted .................... 39,200 27.683 23,000 26.000 28,100 30.250 Exercised .................. -- -- (8,232) 17.167 -- -- ------- ------- ------ ------- ------ ------- Ending outstanding ......... 137,268 $24.762 98,068 $23.594 83,300 $22.295 ======= ======= ====== ======= ====== ======= At year-end: Options exercisable ...... 73,368 $ 22.24 49,603 $ 20.39 30,064 $ 17.75 Weighted average contractual life in years .......... 8.0 8.4 8.8 Weighted average fair value of options granted during the year ........ $ 7.95 $ 6.36 $ 6.00
The following pro forma information presents net income and earnings per share had the fair value method of Statement of Financial Accounting Standards No. 123 been used to measure compensation cost for stock option plans:
1999 1998 1997 ---------- ---------- ---------- Net income as reported ............... $ 12,408 $ 11,049 $ 9,594 Pro forma net income ................. 11,739 10,667 9,288 Basic earnings per share as reported . 2.04 1.81 1.57 Pro forma basic earnings per share ... 1.93 1.75 1.52 Diluted earnings per share as reported 2.04 1.81 1.57 Pro forma diluted earnings per share . 1.93 1.74 1.52
The pro forma effects were computed using option pricing models with the following assumptions:
1999 1998 1997 ---- ---- ---- Risk free interest rate ....... 5.75% 4.50% 5.50% Expected option life, in years 10 10 10 Expected stock price volatility 20.1% 18.7% 13.7% Dividend yield ................ 2.00% 2.00% 2.00%
23 NOTE N: EARNINGS PER SHARE
1999 1998 1997 ----------- ---------- ---------- BASIC EARNINGS PER SHARE Weighted-average common shares outstanding...... 6,082,270 6,099,510 6,098,380 Net income available to common stockholders..... $ 12,408 $ 11,049 $ 9,594 Basic earnings per share ....................... $ 2.04 $ 1.81 $ 1.57 DILUTED EARNINGS PER SHARE Weighted-average common shares outstanding...... 6,082,270 6,099,510 6,098,380 Dilutive effect of stock options ............... 13,181 14,467 8,678 --------- --------- --------- Diluted average common shares outstanding....... 6,095,451 6,113,977 6,107,058 Net income available to common stockholders..... $ 12,408 $ 11,049 $ 9,594 Diluted earnings per share ..................... $ 2.04 $ 1.81 $ 1.57
NOTE O: COMMITMENTS AND CONTINGENCIES In the normal course of business, there are outstanding commitments and contingent liabilities that are not reflected in the financial statemtents. Commitments and contingent liabilities include financial instruments that involve, to varying degrees, elements of credit, interest rate, and liquidity risk. In management's opinion, these do not represent unusual risks and management does not anticipate significant losses as a result of these transactions. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Standby letters of credit outstanding at December 31, 1999 were approximately $7,627,000. Firm commitments to fund loans in the future were approximately $221,773,000 as of December 31, 1999. As of December 31, 1999, there were other commitments and contingent liabilities arising in the normal course of business that, in management's opinion, will not have a material effect on future financial results. NOTE P: CAPITAL The Company and the Banks are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgements by regulators. Failure to meet capital requirements can initiate regulatory action. Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and plans for capital restoration are required. As of the Company's and the Banks' most recent regulatory notification, the Company and the Banks were categorized as well capitalized. Management is not aware of any conditions or events since the most recent regulatory notification that would change the Company's or the Banks' categories. 24 NOTE P: CAPITAL-CONTINUED Capital levels and minimum required levels:
Actual Minimum Required for Minimum Required to be Capital Adequacy Purposes Well Capitalized ------------------------- ------------------------- ---------------------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- 1999 Total capital to risk weighted assets Consolidated................................. $ 108,691 15.84% $ 54,894 8.00% $ 68,618 10.00% Old Second................................... 66,061 14.81% 35,685 8.00% 44,606 10.00% Tier 1 capital to risk weighted assets Consolidated................................. 100,247 14.61% 27,446 4.00% 41,169 6.00% Old Second................................... 60,509 13.57% 17,836 4.00% 26,754 6.00% Tier 1 capital to average assets Consolidated................................. 100,247 10.17% 39,429 4.00% 49,286 5.00% Old Second................................... 60,509 9.17% 26,394 4.00% 32,993 5.00% 1998 Total capital to risk weighted assets Consolidated................................. 100,639 15.52% 51,876 8.00% 64,845 10.00% Old Second*.................................. 60,083 14.12% 34,041 8.00% 42,552 10.00% Tier 1 capital to risk weighted assets Consolidated................................. 92,815 14.32% 25,926 4.00% 38,889 6.00% Old Second*.................................. 55,072 12.94% 17,024 4.00% 25,536 6.00% Tier 1 capital to average assets Consolidated................................. 92,815 9.28% 40,006 4.00% 50,008 5.00% Old Second*.................................. 55,072 9.51% 23,164 4.00% 28,955 5.00%
*Restated to reflect the 1999 merger of subsidiary banks accounted for as an internal reorganization. National and state bank regulations and capital guidelines limit the amount of dividends that may be paid by the Banks without prior regulatory approval. At December 31, 1999, approximately $10,798,000 was available for the payment of dividends by the Banks to the Company. NOTE Q: FAIR VALUES OF FINANCIAL INSTRUMENTS The estimated fair value approximates carrying amount for all items except those described below. Fair values of loans were estimated for portfolios of loans with similar financial characteristics, such as type and fixed or variable interest rate terms. Cash flows were discounted using current rates at which similar loans would be made to borrowers with similar ratings and for similar maturities. The fair value of time deposits was estimated using discounted future cash flows at current rates offered for deposits of similar remaining maturities. The fair value of borrowing was estimated based on interest rates available to the Company for debt with similar terms and remaining maturities. 25 NOTE Q: FAIR VALUES OF FINANCIAL INSTRUMENTS-CONTINUED The carrying amount and estimated fair values of financial instruments were as follows:
1999 1998 ----------------------- ---------------------- Carrying Fair Carrying Fair Amount Value Amount Value -------- -------- -------- -------- FINANCIAL ASSETS Cash and cash equivalents ............ $ 69,275 $ 69,275 $ 92,152 $ 92,152 Securities available for sale ........ 270,912 270,912 292,365 292,365 Loans held for sale .................. 8,437 8,437 36,686 36,686 Loans, net ........................... 602,326 603,138 548,722 557,755 -------- -------- -------- -------- $950,950 $951,762 $969,925 $978,958 ======== ======== ======== ======== FINANCIAL LIABILITIES Deposits ............................. $848,336 $847,736 $826,331 $834,104 Federal funds purchased and securities 17,289 17,289 32,590 32,590 Other short-term borrowing ........... 10,321 10,321 4,517 4,517 Notes payable ........................ 9,467 9,467 36,189 36,189 -------- -------- -------- -------- $885,413 $884,813 $899,627 $907,400 -------- -------- -------- -------- -------- -------- -------- --------
NOTE R: SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following represents unaudited quarterly financial information for the periods indicated:
1999 1998 ---------------------------------------------- ---------------------------------------------- 4th 3rd 2nd 1st 4th 3rd 2nd 1st ------- ------- ------- ------- ------- ------- ------- ------- Interest income .......... $17,229 $16,699 $16,519 $16,542 $17,179 $17,329 $16,981 $16,650 Interest expense ......... 7,489 7,216 7,106 7,343 8,000 8,163 7,956 8,110 Net interest income ...... 9,740 9,483 9,413 9,199 9,179 9,166 9,025 8,540 Provision for loan losses 219 264 246 201 206 307 346 354 Income before taxes ...... 4,765 4,533 4,606 4,284 4,195 4,172 4,020 3,698 Net income ............... 3,266 3,094 3,115 2,933 2,983 2,802 2,730 2,534 Basic earnings per share . 0.54 0.51 0.51 0.48 0.49 0.45 0.45 0.42 Diluted earnings per share 0.54 0.51 0.51 0.48 0.49 0.45 0.45 0.42
NOTE S: PARENT COMPANY CONDENSED FINANCIAL INFORMATION Condensed Balance Sheets as of December 31 were as follows:
1999 1998 -------- -------- ASSETS Noninterest-bearing deposit with bank subsidiary $ 1,983 $ 2,365 Loan to subsidiary ............................. 8,050 2,500 Investment in subsidiaries, at equity .......... 94,636 93,085 Securities available for sale .................. 152 590 Other assets ................................... 82 4,795 -------- -------- $104,903 $103,335 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY ........... $ 1,142 $ 1,409 Other liabilities .............................. 103,761 101,926 -------- -------- Stockholders' equity ........................... $104,903 $103,335 -------- -------- -------- --------
26 NOTE S: PARENT COMPANY CONDENSED FINANCIAL INFORMATION-CONTINUED Condensed Statements of Income for the years ended December 31 were as follows:
1999 1998 1997 -------- -------- -------- Operating income ................................. $ 4,631 $ 4,744 $ 3,915 Cash dividends received from subsidiaries ........ 521 149 161 -------- -------- ------- Interest income .................................. 5,152 4,893 4,076 -------- -------- ------- Operating expenses ............................... 108 566 511 -------- -------- ------- Other expenses ................................... 108 566 511 -------- -------- ------- Income before income taxes and equity in undistributed net income of subsidiaries ....... 5,044 4,327 3,565 -------- -------- ------- Income tax benefit ............................... (32) (185) (192) -------- -------- ------- Income before equity in undistributed net income of subsidiaries ..................... 5,076 4,512 3,757 Equity in undistributed net income of subsidiaries 7,332 6,537 5,837 -------- -------- ------- Net income ....................................... $ 12,408 $ 11,049 $ 9,594 ======== ======== =======
Condensed Statements of Cash Flows for the years ended December 31 were as follows:
1999 1998 1997 -------- -------- ------- CASH FLOWS FROM OPERATING ACTIVITIES Net income .......................................................... $ 12,408 $ 11,049 $ 9,594 Adjustments to reconcile net income to net cash from operating activities: Equity in undistributed net income of subsidiaries ................ (7,332) (6,537) (5,837) Increase (decrease) in taxes payable .............................. 173 344 (69) (Increase) decrease in other assets ............................... 4,764 (11) 16 Other, net ........................................................ 385 188 (21) -------- -------- ------- Net cash from operating activities ................................ 10,398 5,033 3,683 -------- -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of securities available for sale ........................... -- -- (500) Proceeds from sales and maturities of securities available for sale 400 1,500 1,200 Investment in subsidiaries .......................................... (5,550) (2,500) (2,574) -------- -------- ------- Net cash from investing activities .................................. (5,150) (1,000) (1,874) -------- -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid ...................................................... (3,350) (2,897) (2,689) Treasury stock purchased ............................................ (2,280) -- -- Proceeds from exercise of stock options ............................. -- 31 -- -------- -------- ------- Net cash from financing activities ................................ (5,630) (2,866) (2,689) -------- -------- ------- Net change in cash and cash equivalents ........................... (382) 1,167 (880) Cash and cash equivalents at beginning of year .................... 2,365 1,198 2,078 -------- -------- ------- Cash and cash equivalents at end of year .......................... $ 1,983 $ 2,365 $ 1,198 ======== ======== =======
27 ERNST & YOUNG LLP Sears Tower Phone: 312 879 2000 233 South Wacker Drive Chicago, Illinois 60606-6301 REPORT OF INDEPENDENT ACCOUNTANTS Stockholders and Board of Directors Old Second Bancorp, Inc. We have audited the accompanying consolidated balance sheets of Old Second Bancorp, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Old Second Bancorp, Inc. and Subsidiaries as of December 31, 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. ERNST & YOUNG LLP January 28, 2000 Ernst & Young LLP is a member of Ernst & Young International, Ltd. 28 OLD SECOND BANCORP, INC. AND SUBSIDIARIES CORPORATE INFORMATION MARKET FOR THE COMPANY'S COMMON STOCK The Company's common stock trades on The Nasdaq Stock Market under the symbol "OSBC." As of December 31, 1999, the Company had 1,267 stockholders of record of its common stock. The following table sets forth the range of prices during each quarter for 1998 and 1999.
1999 1998 --------------- --------------- High Low High Low First quarter.......... $25.88 $31.88 $29.00 $27.53 Second quarter......... 25.13 33.13 30.50 27.38 Third quarter.......... 26.38 30.63 22.50 30.00 Fourth quarter......... 28.09 25.50 27.60 21.69
REPORT ON FORM 10-K Copies of the Company's 1999 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission will be furnished to each stockholder upon written request to: J. Douglas Cheatham, Vice President and Chief Financial Officer, Old Second Bancorp, Inc., 37 South River Street, Aurora, Illinois 60506-4172. 29 OLD SECOND BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS YEARS ENDED DECEMBER 31, 1999 (IN THOUSANDS)
The Old Second Kane National Yorkville County Bank of National Burlington Bank & Aurora Bank Bank Trust -------- -------- -------- -------- ASSETS Cash and due from banks .................... $ 33,021 $ 5,068 $ 1,161 $ 3,185 Federal funds sold ......................... 17,155 1,600 5,200 2,750 -------- -------- -------- -------- Cash and cash equivalents ................. 50,176 6,668 6,361 5,935 Securities available for sale .............. 191,784 34,579 9,798 27,203 Loans held for sale ........................ -- -- -- -- Loans ...................................... 402,053 104,298 27,397 39,031 Allowance for loan losses .................. 5,552 1,299 347 723 -------- -------- -------- -------- Net loans ................................ 396,501 102,999 27,050 38,308 Premises and equipment, net ................ 13,609 2,618 412 2,371 Other real estate owned .................... -- 79 -- -- Mortgage servicing rights, net ............. -- -- -- -- Goodwill, net .............................. -- 25 599 2,380 Core deposit intangible assets, net ........ -- 2,487 -- -- Investment in subsidiaries ................. -- -- -- -- Accrued interest and other assets .......... 8,004 2,039 528 1,724 -------- -------- -------- -------- Total assets ............................. $660,074 $151,494 $ 44,748 $ 77,921 ======== ======== ======== ======== LIABILITIES Deposits Demand ................................... $ 98,094 $ 15,289 $ 2,767 $ 9,402 Savings .................................. 245,077 64,023 21,920 39,167 Time ..................................... 228,654 56,016 14,868 17,684 -------- -------- -------- -------- Total deposits ......................... 571,825 135,328 39,555 66,253 Securities sold under repurchase agreements 15,653 1,636 -- -- Other short-term borrowing ................. 8,825 209 -- 1,287 Notes payable .............................. -- -- -- -- Accrued interest and other liabilities ..... 4,720 970 370 608 -------- -------- -------- -------- Total liabilities ...................... 601,023 138,143 39,925 68,148 STOCKHOLDERS' EQUITY Common stock ............................... 2,160 525 250 1,000 Surplus .................................... 8,988 2,025 3,532 8,250 Retained earnings .......................... 49,362 10,944 1,110 797 Unrealized net gain (loss) on............... securities available for sale ............ (1,459) (143) (69) (274) Treasury stock ............................. -- -- -- -- -------- -------- -------- -------- Total stockholders' equity ............... 59,051 13,351 4,823 9,773 -------- -------- -------- -------- Total liabilities and stockholders' equity $660,074 $151,494 $ 44,748 $ 77,921 ======== ======== ======== ========
30
Old Second Old Second Bank of Bancorp, Bancorp, Sugar Maple Park Inc. Parent Consolidation Inc. Grove Mortgage Only Adjustments Consolidated - -------- -------- -------- ----------- ------------ $ 778 $ 146 $ 1,983 $ (1,967) $ 43,375 -- -- -- (805) 25,900 - -------- -------- -------- --------- -------- 778 146 1,983 (2,772) 69,275 7,396 -- 152 -- 270,912 -- 8,437 -- -- 8,437 35,131 2,860 8,050 (8,050) 610,770 433 90 -- -- 8,444 - -------- -------- -------- --------- -------- 34,698 2,770 8,050 (8,050) 602,326 1,070 430 -- 155 20,665 -- -- -- -- 79 -- 7,658 -- -- 7,658 -- -- -- -- 3,004 -- -- -- -- 2,487 -- -- 94,636 (94,636) -- 978 675 82 (365) 13,665 - -------- -------- -------- --------- -------- $ 44,920 $ 20,116 $104,903 $(105,668) $998,508 ======== ======== ======== ========= ======== $ 4,844 $ -- $ -- $ (3,588) $126,808 17,034 -- -- 426 387,647 16,659 -- -- -- 333,881 - -------- -------- -------- --------- -------- 38,537 -- -- (3,162) 848,336 -- -- -- -- 17,289 805 -- -- (805) 10,321 -- 17,517 -- (8,050) 9,467 553 141 1,142 830 9,334 - -------- -------- -------- --------- -------- 39,895 17,658 1,142 (11,187) 894,747 260 10 15,875 (4,205) 15,875 2,300 -- -- (25,095) -- 2,497 2,448 92,143 (67,158) 92,143 (32) -- (1,977) 1,977 (1,977) -- -- (2,280) -- (2,280) - -------- -------- -------- --------- -------- 5,025 2,458 103,761 (94,481) 103,761 - -------- -------- -------- --------- -------- $ 44,920 $ 20,116 $104,903 $(105,668) $998,508 ======== ======== ======== ========= ========
31 EX-22 4 EXHIBIT 22 Exhibit 22 LIST OF SUBSIDIARIES
SUBSIDIARIES OF THE COMPANY INCORPORATED UNDER LAWS OF PERCENT OWNED BY THE COMPANY - --------------------------- -------------------------- ---------------------------- The Old Second National Bank of Aurora United States 100% Yorkville National Bank United States 100% Burlington Bank State of Illinois 100% Kane County Bank and Trust Company State of Illinois 100% Bank of Sugar Grove State of Illinois 100% Maple Park Mortgage State of Illinois 100%
EX-23 5 EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-87722) pertaining to the Old Second Bancorp, Inc. Long-Term Incentive Plan of our report dated January 28, 2000, with respect to the consolidated financial statements of Old Second Bancorp, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 1999. We also consent to the incorporation by reference in the Registration Statement (Form S-3 No. 333-31049) pertaining to the registration of shares of Old Bancorp, Inc. common stock issued in the Maple Park Bancshares, Inc. merger of our report dated January 28, 2000, with respect to the consolidated financial statements of Old Second Bancorp, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 1999. Chicago, Illinois March 29, 2000 EX-27 6 EXHIBIT 27
9 1,000 YEAR DEC-31-1999 DEC-31-1999 42,800 575 25,900 0 270,912 0 0 610,770 8,444 998,508 848,336 37,077 9,334 0 0 0 15,875 87,886 998,508 49,319 16,069 1,601 66,989 27,216 29,154 37,835 930 0 37,276 18,188 12,408 0 0 12,408 2.04 2.04 4.27 1,298 742 0 5,911 7,823 652 343 8,444 8,444 0 0
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