I
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF |
| THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20172019
OR
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|
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
| SECURITIES EXCHANGE ACT OF 1934 |
For transition period from to
Commission File Number 0 -105370-10537
(Exact name of Registrant as specified in its charter)
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Delaware |
| 36-3143493 |
(State or other jurisdiction |
| (I.R.S. Employer Identification Number) |
of incorporation or organization) |
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37 South River Street, Aurora, Illinois 60507
(Address of principal executive offices) (Zip Code)
(630) 892-0202
(Registrant’s telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ ‘‘smaller reporting company,’’ and ‘‘emerging growth company’’ in Rule 12b–2 of the Exchange Act.
Large accelerated filer☐Accelerated filer☒
Non-accelerated filer☐Smaller reporting company☐Emerging growth company☐
(Do not check if a smaller reporting company)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).
Yes ☐ No ☒
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | OSBC | The Nasdaq Stock Market |
Preferred Securities of Old Second Capital Trust I | OSBCP | The Nasdaq Stock Market |
As of November 3, 2017,August 2, 2019, the Registrant had 29,627,086has 29,896,529 shares of common stock outstanding at $1.00 par value per share.
OLD SECOND BANCORP, INC.
Form 10-Q Quarterly Report
Cautionary Note Regarding Forward Looking Statements
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||
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2
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report and other publicly available documents of the Company contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act, including with respect to management’s expectations regarding future plans, strategies and financial performance, including regulatory developments, industry and economic trends, and other matters. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the Company's management and on information currently available to management, can be identified by the inclusion of such qualifications as “expects,” “intends,” “believes,” “may,” “will,” “would,” “could,” “should,” “plan,” “anticipate,” “estimate,” “possible,” “likely” or other indications that the particular statements are not historical facts and refer to future periods. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and may be outside of the Company’s control. Actual events and results may differ materially from those described in such forward-looking statements due to numerous factors, including:
· | negative economic conditions that adversely affect the economy, real estate values, the job market and other factors nationally and in our market area, in each case that may affect our liquidity and the performance of our loan portfolio; |
· | our ability to achieve anticipated results from our acquisition of Greater Chicago Financial Corp. depends on the state of the economic and financial markets going forward. Specifically, we may incur more credit losses than expected, cost savings may be less than expected, anticipated strategic gains may be significantly harder or take longer to achieve than expected or may not be achieved in their entirety, and customer attrition may be greater than expected; |
· | the financial success and viability of the borrowers of our commercial loans; |
· | changes in U.S. monetary policy, the level and volatility of interest rates, the capital markets and other market conditions that may affect, among other things, our liquidity and the value of our assets and liabilities; |
· | competitive pressures from other financial service businesses and from nontraditional financial technology (“FinTech”) companies; |
· | any negative perception of our reputation or financial strength; |
· | ability to raise additional capital on acceptable terms when needed; |
· | ability to use technology to provide products and services that will satisfy customer demands and create efficiencies in operations; |
· | adverse effects on our information technology systems resulting from failures, human error or cyberattacks; |
· | adverse effects of failures by our vendors to provide agreed upon services in the manner and at the cost agreed, particularly our information technology vendors; |
· | the impact of any claims or legal actions, including any effect on our reputation; |
· | losses incurred in connection with repurchases and indemnification payments related to mortgages; |
· | the soundness of other financial institutions and other counter-party risk; |
· | changes in accounting standards, rules and interpretations and the impact on our financial statements; |
· | our ability to receive dividends from our subsidiaries; |
· | a decrease in our regulatory capital ratios; |
· | adverse federal or state tax assessments; |
· | litigation or government enforcement actions; |
· | legislative or regulatory changes, particularly changes in regulation of financial services companies; |
· | increased costs of compliance, heightened regulatory capital requirements and other risks associated with changes in regulation and the current regulatory environment, including the Dodd-Frank Act; and |
· | each of the factors and risks under the heading “Risk Factors” in our 2018 Annual Report on Form 10-K and in subsequent filings we make with the SEC. |
Because the Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain, there can be no assurances that future actual results will correspond to any forward-looking statements and you should not rely on any forward-looking statements. Additionally, all statements in this Form 10-Q, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events, except as required by applicable law.
3
PART I - FINANCIAL INFORMATION
Old Second Bancorp, Inc. and Subsidiaries
(In thousands, except share data)
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| (unaudited) |
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| (unaudited) |
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|
| September 30, |
| December 31, |
| June 30, |
| December 31, | ||||
|
| 2017 |
| 2016 |
| 2019 |
| 2018 | ||||
Assets |
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Cash and due from banks |
| $ | 32,772 |
| $ | 33,805 |
| $ | 38,036 |
| $ | 38,599 |
Interest bearing deposits with financial institutions |
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| 14,730 |
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| 13,529 | ||||||
Interest earning deposits with financial institutions |
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| 20,181 |
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| 16,636 | ||||||
Cash and cash equivalents |
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| 47,502 |
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| 47,334 |
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| 58,217 |
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| 55,235 |
Securities available-for-sale, at fair value |
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| 533,484 |
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| 531,838 |
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| 492,080 |
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| 541,248 |
Federal Home Loan Bank Chicago ("FHLBC") and Federal Reserve Bank Chicago ("FRBC") stock |
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| 10,393 |
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| 7,918 |
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| 10,608 |
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| 13,433 |
Loans held-for-sale |
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| 1,641 |
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| 4,918 |
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| 5,142 |
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| 2,984 |
Loans |
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| 1,594,191 |
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| 1,478,809 |
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| 1,902,943 |
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| 1,897,027 |
Less: allowance for loan losses |
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| 16,465 |
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| 16,158 | ||||||
Less: allowance for loan and lease losses |
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| 19,372 |
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| 19,006 | ||||||
Net loans |
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| 1,577,726 |
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| 1,462,651 |
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| 1,883,571 |
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| 1,878,021 |
Premises and equipment, net |
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| 37,971 |
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| 38,977 |
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| 42,551 |
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| 42,439 |
Other real estate owned |
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| 9,024 |
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| 11,916 |
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| 5,668 |
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| 7,175 |
Mortgage servicing rights, net |
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| 6,684 |
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| 6,489 |
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| 5,818 |
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| 7,357 |
Goodwill and core deposit intangible |
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| 8,944 |
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| 9,018 |
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| 21,561 |
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| 21,814 |
Bank-owned life insurance ("BOLI") |
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| 61,403 |
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| 60,332 |
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| 62,322 |
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| 61,544 |
Deferred tax assets, net |
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| 42,394 |
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| 53,464 |
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| 14,277 |
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| 21,280 |
Other assets |
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| 23,241 |
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| 16,333 |
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| 21,791 |
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| 23,473 |
Total assets |
| $ | 2,360,407 |
| $ | 2,251,188 |
| $ | 2,623,606 |
| $ | 2,676,003 |
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Liabilities |
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Deposits: |
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Noninterest bearing demand |
| $ | 556,874 |
| $ | 513,688 |
| $ | 632,900 |
| $ | 618,830 |
Interest bearing: |
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Savings, NOW, and money market |
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| 947,969 |
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| 950,849 |
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| 1,023,621 |
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| 1,040,668 |
Time |
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| 384,272 |
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| 402,248 |
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| 421,253 |
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| 457,175 |
Total deposits |
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| 1,889,115 |
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| 1,866,785 |
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| 2,077,774 |
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| 2,116,673 |
Securities sold under repurchase agreements |
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| 26,853 |
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| 25,715 |
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| 54,166 |
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| 46,632 |
Other short-term borrowings |
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| 125,000 |
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| 70,000 |
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| 87,125 |
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| 149,500 |
Junior subordinated debentures |
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| 57,627 |
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| 57,591 |
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| 57,710 |
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| 57,686 |
Senior notes |
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| 44,033 |
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| 43,998 |
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| 44,208 |
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| 44,158 |
Notes payable and other borrowings |
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| 11,035 |
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| 15,379 | ||||||
Other liabilities |
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| 17,016 |
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| 11,889 |
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| 34,324 |
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| 16,894 |
Total liabilities |
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| 2,159,644 |
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| 2,075,978 |
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| 2,366,342 |
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| 2,446,922 |
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Stockholders’ Equity |
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Common stock |
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| 34,626 |
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| 34,534 |
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| 34,825 |
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| 34,720 |
Additional paid-in capital |
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| 117,458 |
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| 116,653 |
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| 119,762 |
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| 119,081 |
Retained earnings |
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| 145,767 |
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| 129,005 |
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| 192,612 |
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| 175,463 |
Accumulated other comprehensive loss |
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| (632) |
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| (8,762) | ||||||
Accumulated other comprehensive income (loss) |
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| 6,112 |
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| (4,079) | ||||||
Treasury stock |
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| (96,456) |
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| (96,220) |
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| (96,047) |
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| (96,104) |
Total stockholders’ equity |
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| 200,763 |
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| 175,210 |
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| 257,264 |
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| 229,081 |
Total liabilities and stockholders’ equity |
| $ | 2,360,407 |
| $ | 2,251,188 |
| $ | 2,623,606 |
| $ | 2,676,003 |
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|
| September 30, 2017 |
| December 31, 2016 | June 30, 2019 |
| December 31, 2018 | ||||
| Common |
| Common | Common |
| Common | ||||
| Stock |
| Stock | Stock |
| Stock | ||||
Par value | $ | 1.00 |
| $ | 1.00 | $ | 1.00 |
| $ | 1.00 |
Shares authorized |
| 60,000,000 |
|
| 60,000,000 |
| 60,000,000 |
|
| 60,000,000 |
Shares issued |
| 34,625,734 |
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| 34,534,234 |
| 34,825,340 |
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| 34,719,517 |
Shares outstanding |
| 29,627,086 |
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| 29,556,216 |
| 29,896,529 |
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| 29,763,078 |
Treasury shares |
| 4,998,648 |
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| 4,978,018 |
| 4,928,811 |
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| 4,956,439 |
See accompanying notes to consolidated financial statements.
34
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share data)
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| (unaudited) |
| (unaudited) |
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| (unaudited) |
| (unaudited) |
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| Quarters Ended September 30, |
| Nine Months Ended September 30, |
| Three Months Ended June 30, |
| Six Months Ended June 30, | ||||||||||||||||||
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| 2017 |
| 2016 |
| 2017 |
| 2016 |
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| 2019 |
| 2018 |
| 2019 |
| 2018 |
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Interest and dividend income |
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Loans, including fees |
| $ | 18,208 |
| $ | 13,496 |
| $ | 52,202 |
| $ | 39,593 |
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| $ | 24,924 |
| $ | 22,512 |
| $ | 49,023 |
| $ | 41,248 |
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Loans held-for-sale |
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| 34 |
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| 48 |
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| 95 |
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| 115 |
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| 31 |
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| 35 |
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| 53 |
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| 55 |
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Securities: |
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Taxable |
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| 2,424 |
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| 3,954 |
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| 7,994 |
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| 12,547 |
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| 2,223 |
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| 2,392 |
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| 4,637 |
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| 4,562 |
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Tax exempt |
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| 1,628 |
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| 180 |
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| 4,188 |
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| 579 |
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| 2,141 |
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| 2,114 |
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| 4,239 |
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| 4,175 |
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Dividends from FHLBC and FRBC stock |
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| 94 |
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| 83 |
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| 271 |
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| 251 |
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| 156 |
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| 111 |
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| 305 |
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| 217 |
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Interest bearing deposits with financial institutions |
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| 37 |
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| 64 |
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| 91 |
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| 98 |
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| 111 |
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| 97 |
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| 225 |
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| 146 |
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Total interest and dividend income |
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| 22,425 |
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| 17,825 |
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| 64,841 |
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| 53,183 |
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| 29,586 |
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| 27,261 |
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| 58,482 |
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| 50,403 |
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Interest expense |
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Savings, NOW, and money market deposits |
|
| 239 |
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| 193 |
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| 695 |
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| 577 |
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| 759 |
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| 501 |
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| 1,530 |
|
| 845 |
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Time deposits |
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| 1,077 |
|
| 931 |
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| 3,081 |
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| 2,622 |
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| 1,641 |
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| 1,444 |
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| 3,259 |
|
| 2,619 |
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Securities sold under repurchase agreements |
|
| 147 |
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| 104 |
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| 296 |
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| 183 |
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Other short-term borrowings |
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| 224 |
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| 23 |
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| 482 |
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| 69 |
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| 575 |
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| 276 |
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| 1,182 |
|
| 605 |
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Junior subordinated debentures |
|
| 930 |
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| 1,084 |
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| 3,073 |
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| 3,251 |
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| 931 |
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| 927 |
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| 1,858 |
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| 1,854 |
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Senior notes |
|
| 672 |
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| - |
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| 2,017 |
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| - |
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| 672 |
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| 672 |
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| 1,344 |
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| 1,344 |
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Subordinated debt |
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| - |
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| 245 |
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| - |
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| 727 |
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Notes payable and other borrowings |
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| - |
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| 2 |
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| - |
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| 6 |
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| 107 |
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| 95 |
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| 223 |
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| 95 |
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Total interest expense |
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| 3,142 |
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| 2,478 |
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| 9,348 |
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| 7,252 |
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| 4,832 |
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| 4,019 |
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| 9,692 |
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| 7,545 |
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Net interest and dividend income |
|
| 19,283 |
|
| 15,347 |
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| 55,493 |
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| 45,931 |
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| 24,754 |
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| 23,242 |
|
| 48,790 |
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| 42,858 |
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Provision for loan losses |
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| 300 |
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| - |
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| 1,050 |
|
| - |
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Net interest and dividend income after provision for loan losses |
|
| 18,983 |
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| 15,347 |
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| 54,443 |
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| 45,931 |
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Provision for loan and lease losses |
|
| 450 |
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| 1,450 |
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| 900 |
|
| 728 |
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Net interest and dividend income after provision for loan and lease losses |
|
| 24,304 |
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| 21,792 |
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| 47,890 |
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| 42,130 |
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Noninterest income |
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Trust income |
|
| 1,468 |
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| 1,403 |
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| 4,564 |
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| 4,274 |
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| 1,739 |
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| 1,645 |
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| 3,225 |
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| 3,140 |
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Service charges on deposits |
|
| 1,722 |
|
| 1,756 |
|
| 4,955 |
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| 4,961 |
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|
| 1,959 |
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| 1,769 |
|
| 3,821 |
|
| 3,361 |
|
Secondary mortgage fees |
|
| 195 |
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| 322 |
|
| 594 |
|
| 795 |
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|
| 203 |
|
| 195 |
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| 339 |
|
| 357 |
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Mortgage servicing rights mark to market loss |
|
| (194) |
|
| (147) |
|
| (756) |
|
| (1,921) |
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Mortgage servicing rights mark to market (loss) gain |
|
| (1,137) |
|
| (105) |
|
| (1,956) |
|
| 200 |
| |||||||||||||
Mortgage servicing income |
|
| 451 |
|
| 437 |
|
| 1,330 |
|
| 1,280 |
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|
| 491 |
|
| 627 |
|
| 948 |
|
| 1,079 |
|
Net gain on sales of mortgage loans |
|
| 1,095 |
|
| 2,177 |
|
| 3,715 |
|
| 5,031 |
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|
| 1,163 |
|
| 1,240 |
|
| 1,925 |
|
| 2,157 |
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Securities gain (loss), net |
|
| 102 |
|
| (1,959) |
|
| (165) |
|
| (2,020) |
| |||||||||||||
Securities gains, net |
|
| 986 |
|
| 312 |
|
| 1,013 |
|
| 347 |
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Increase in cash surrender value of BOLI |
|
| 362 |
|
| 383 |
|
| 1,071 |
|
| 987 |
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|
| 320 |
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| 351 |
|
| 778 |
|
| 599 |
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Death benefit realized on BOLI |
|
| - |
|
| - |
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| - |
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| 1,026 |
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Debit card interchange income |
|
| 1,075 |
|
| 1,013 |
|
| 3,131 |
|
| 3,009 |
|
|
| 1,166 |
|
| 1,132 |
|
| 2,153 |
|
| 2,144 |
|
Gain (loss) on disposal and transfer of fixed assets, net |
|
| - |
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| - |
|
| 10 |
|
| (1) |
| |||||||||||||
Other income |
|
| 1,567 |
|
| 1,209 |
|
| 3,739 |
|
| 3,751 |
|
|
| 1,253 |
|
| 1,366 |
|
| 2,379 |
|
| 2,627 |
|
Total noninterest income |
|
| 7,843 |
|
| 6,594 |
|
| 22,188 |
|
| 20,146 |
|
|
| 8,143 |
|
| 8,532 |
|
| 14,625 |
|
| 17,037 |
|
Noninterest expense |
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|
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|
|
|
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Salaries and employee benefits |
|
| 10,049 |
|
| 9,014 |
|
| 31,167 |
|
| 26,854 |
|
|
| 11,587 |
|
| 12,355 |
|
| 23,199 |
|
| 22,562 |
|
Occupancy, furniture and equipment |
|
| 1,482 |
|
| 1,500 |
|
| 4,510 |
|
| 4,427 |
|
|
| 1,925 |
|
| 1,652 |
|
| 3,914 |
|
| 3,210 |
|
Computer and data processing |
|
| 1,081 |
|
| 1,105 |
|
| 3,283 |
|
| 3,093 |
|
|
| 1,524 |
|
| 2,741 |
|
| 2,856 |
|
| 4,085 |
|
FDIC insurance |
|
| 199 |
|
| 228 |
|
| 512 |
|
| 793 |
|
|
| 116 |
|
| 165 |
|
| 290 |
|
| 321 |
|
General bank insurance |
|
| 246 |
|
| 269 |
|
| 780 |
|
| 839 |
|
|
| 236 |
|
| 299 |
|
| 486 |
|
| 550 |
|
Amortization of core deposit intangible |
|
| 24 |
|
| - |
|
| 74 |
|
| - |
|
|
| 121 |
|
| 97 |
|
| 253 |
|
| 118 |
|
Advertising expense |
|
| 255 |
|
| 430 |
|
| 1,093 |
|
| 1,212 |
|
|
| 381 |
|
| 492 |
|
| 615 |
|
| 833 |
|
Debit card interchange expense |
|
| 285 |
|
| 363 |
|
| 1,033 |
|
| 1,186 |
|
|
| 233 |
|
| 301 |
|
| 380 |
|
| 582 |
|
Legal fees |
|
| 162 |
|
| 242 |
|
| 450 |
|
| 594 |
|
|
| 243 |
|
| 286 |
|
| 369 |
|
| 445 |
|
Other real estate expense, net |
|
| 680 |
|
| 426 |
|
| 1,928 |
|
| 2,043 |
|
|
| 248 |
|
| 429 |
|
| 298 |
|
| 602 |
|
Other expense |
|
| 2,455 |
|
| 3,005 |
|
| 8,128 |
|
| 8,505 |
|
|
| 3,512 |
|
| 3,469 |
|
| 6,660 |
|
| 6,332 |
|
Total noninterest expense |
|
| 16,918 |
|
| 16,582 |
|
| 52,958 |
|
| 49,546 |
|
|
| 20,126 |
|
| 22,286 |
|
| 39,320 |
|
| 39,640 |
|
Income before income taxes |
|
| 9,908 |
|
| 5,359 |
|
| 23,673 |
|
| 16,531 |
|
|
| 12,321 |
|
| 8,038 |
|
| 23,195 |
|
| 19,527 |
|
Provision for income taxes |
|
| 1,831 |
|
| 1,860 |
|
| 6,023 |
|
| 5,865 |
|
|
| 3,043 |
|
| 1,777 |
|
| 5,449 |
|
| 3,777 |
|
Net income |
| $ | 8,077 |
| $ | 3,499 |
| $ | 17,650 |
| $ | 10,666 |
|
| $ | 9,278 |
| $ | 6,261 |
| $ | 17,746 |
| $ | 15,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
| $ | 0.27 |
| $ | 0.12 |
| $ | 0.60 |
| $ | 0.36 |
|
| $ | 0.31 |
| $ | 0.21 |
| $ | 0.59 |
| $ | 0.53 |
|
Diluted earnings per share |
|
| 0.27 |
|
| 0.12 |
|
| 0.59 |
|
| 0.36 |
|
|
| 0.31 |
|
| 0.21 |
|
| 0.58 |
|
| 0.52 |
|
Dividends declared per share |
|
| 0.01 |
|
| 0.01 |
|
| 0.02 |
|
| 0.02 |
|
See accompanying notes to consolidated financial statements.
45
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (unaudited) |
| (unaudited) | ||||||||
|
| Quarters Ended September 30, |
| Nine Months Ended September 30, | ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Net Income |
| $ | 8,077 |
| $ | 3,499 |
| $ | 17,650 |
| $ | 10,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) on available-for-sale securities arising during the period |
|
| 2,971 |
|
| (616) |
|
| 13,798 |
|
| 5,151 |
Related tax (expense) benefit |
|
| (1,191) |
|
| 237 |
|
| (5,516) |
|
| (2,071) |
Holding gains (losses) after tax on available-for-sale securities |
|
| 1,780 |
|
| (379) |
|
| 8,282 |
|
| 3,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Reclassification adjustment for the net gains (losses) realized during the period |
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gains (losses) |
|
| 102 |
|
| (1,959) |
|
| (165) |
|
| (2,020) |
Income tax (expense) benefit on net realized gains (losses) |
|
| (42) |
|
| 782 |
|
| 64 |
|
| 807 |
Net realized gains (losses) after tax |
|
| 60 |
|
| (1,177) |
|
| (101) |
|
| (1,213) |
Other comprehensive income on available-for-sale securities |
|
| 1,720 |
|
| 798 |
|
| 8,383 |
|
| 4,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion and reversal of net unrealized holding gains on held-to-maturity securities |
|
| - |
|
| - |
|
| - |
|
| 5,939 |
Related tax expense |
|
| - |
|
| - |
|
| - |
|
| (2,446) |
Other comprehensive income on held-to-maturity securities |
|
| - |
|
| - |
|
| - |
|
| 3,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in fair value of derivatives used for cashflow hedges |
|
| 19 |
|
| (254) |
|
| (445) |
|
| (4,278) |
Related tax benefit |
|
| 8 |
|
| 102 |
|
| 192 |
|
| 1,714 |
Other comprehensive income (loss) on cashflow hedges |
|
| 27 |
|
| (152) |
|
| (253) |
|
| (2,564) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income |
|
| 1,747 |
|
| 646 |
|
| 8,130 |
|
| 5,222 |
Total comprehensive income |
| $ | 9,824 |
| $ | 4,145 |
| $ | 25,780 |
| $ | 15,888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (unaudited) |
| (unaudited) | ||||||||
|
| Three Months Ended June 30, |
| Six Months Ended June 30, | ||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Net Income |
| $ | 9,278 |
| $ | 6,261 |
| $ | 17,746 |
| $ | 15,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) on available-for-sale securities arising during the period |
|
| 8,645 |
|
| (1,391) |
|
| 17,837 |
|
| (10,199) |
Related tax (expense) benefit |
|
| (2,432) |
|
| 392 |
|
| (5,019) |
|
| 2,876 |
Holding gains (losses) after tax on available-for-sale securities |
|
| 6,213 |
|
| (999) |
|
| 12,818 |
|
| (7,323) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Reclassification adjustment for the net gains realized during the period |
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gains |
|
| 986 |
|
| 312 |
|
| 1,013 |
|
| 347 |
Related tax expense |
|
| (276) |
|
| (88) |
|
| (284) |
|
| (98) |
Net realized gains after tax |
|
| 710 |
|
| 224 |
|
| 729 |
|
| 249 |
Other comprehensive income (loss) on available-for-sale securities |
|
| 5,503 |
|
| (1,223) |
|
| 12,089 |
|
| (7,572) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in fair value of derivatives used for cash flow hedges |
|
| (1,569) |
|
| 515 |
|
| (2,642) |
|
| 1,794 |
Related tax benefit (expense) |
|
| 442 |
|
| (145) |
|
| 744 |
|
| (507) |
Other comprehensive (loss) income on cash flow hedges |
|
| (1,127) |
|
| 370 |
|
| (1,898) |
|
| 1,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss) |
|
| 4,376 |
|
| (853) |
|
| 10,191 |
|
| (6,285) |
Total comprehensive income |
| $ | 13,654 |
| $ | 5,408 |
| $ | 27,937 |
| $ | 9,465 |
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
| Accumulated |
| Total | |||
|
| Unrealized Gain |
| Unrealized Gain |
| Accumulated Other | |||
|
| (Loss) on Securities |
| (Loss) on Derivative |
| Comprehensive | |||
|
| Available-for -Sale |
| Instruments |
| Income/(Loss) | |||
For the Three Months Ended |
|
|
|
|
|
|
|
|
|
Balance, March 31, 2019 |
| $ | 2,548 |
| $ | (812) |
| $ | 1,736 |
Other comprehensive income (loss), net of tax |
|
| 5,503 |
|
| (1,127) |
|
| 4,376 |
Balance, June 30, 2019 |
| $ | 8,051 |
| $ | (1,939) |
| $ | 6,112 |
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2018 |
| $ | (3,629) |
| $ | (5) |
| $ | (3,634) |
Other comprehensive (loss) income, net of tax |
|
| (1,222) |
|
| 369 |
|
| (853) |
Balance, June 30, 2018 |
| $ | (4,851) |
| $ | 364 |
| $ | (4,487) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended |
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018 |
| $ | (4,038) |
| $ | (41) |
| $ | (4,079) |
Other comprehensive income (loss), net of tax |
|
| 12,089 |
|
| (1,898) |
|
| 10,191 |
Balance, June 30, 2019 |
| $ | 8,051 |
| $ | (1,939) |
| $ | 6,112 |
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2017 |
| $ | 2,239 |
| $ | (760) |
| $ | 1,479 |
Reclassification of stranded tax effects |
|
| 482 |
|
| (163) |
|
| 319 |
Other comprehensive (loss) income, net of tax |
|
| (7,572) |
|
| 1,287 |
|
| (6,285) |
Balance, June 30, 2018 |
| $ | (4,851) |
| $ | 364 |
| $ | (4,487) |
See accompanying notes to consolidated financial statements.
56
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
| (unaudited) | |||||
|
| Nine Months Ended September 30, | ||||||
|
|
| 2017 |
| 2016 |
| ||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net income |
|
| $ | 17,650 |
| $ | 10,666 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation of fixed assets and amortization of leasehold improvements |
|
|
| 1,760 |
|
| 1,682 |
|
Change in fair value of mortgage servicing rights |
|
|
| 756 |
|
| 1,921 |
|
Loan loss reserve |
|
|
| 1,050 |
|
| - |
|
Provision for deferred tax expense |
|
|
| 5,682 |
|
| 5,476 |
|
Originations of loans held-for-sale |
|
|
| (113,077) |
|
| (147,187) |
|
Proceeds from sales of loans held-for-sale |
|
|
| 119,059 |
|
| 150,247 |
|
Net gain on sales of mortgage loans |
|
|
| (3,715) |
|
| (5,031) |
|
Net discount accretion of purchase accounting adjustment on loans |
|
|
| (1,115) |
|
| - |
|
Change in current income taxes receivable |
|
|
| 111 |
|
| 300 |
|
Increase in cash surrender value of BOLI |
|
|
| (1,071) |
|
| (987) |
|
Change in accrued interest receivable and other assets |
|
|
| (6,849) |
|
| (2,659) |
|
Change in accrued interest payable and other liabilities |
|
|
| 4,571 |
|
| (246) |
|
Net premium amortization/discount (accretion) on securities |
|
|
| 1,320 |
|
| (517) |
|
Securities losses, net |
|
|
| 165 |
|
| 2,020 |
|
Amortization of core deposit |
|
|
| 74 |
|
| - |
|
Amortization of junior subordinated debentures issuance costs |
|
|
| 36 |
|
| 36 |
|
Amortization of senior notes issuance costs |
|
|
| 77 |
|
| - |
|
Stock based compensation |
|
|
| 897 |
|
| 482 |
|
Net gain on sale of other real estate owned |
|
|
| (454) |
|
| (316) |
|
Provision for other real estate owned losses |
|
|
| 1,630 |
|
| 1,305 |
|
Net (gain) loss on disposal and transfer of fixed assets |
|
|
| (10) |
|
| 1 |
|
Net cash provided by operating activities |
|
|
| 28,547 |
|
| 17,193 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Proceeds from maturities and calls including pay down of securities available-for-sale |
|
|
| 105,327 |
|
| 62,868 |
|
Proceeds from sales of securities available-for-sale |
|
|
| 152,476 |
|
| 271,374 |
|
Purchases of securities available-for-sale |
|
|
| (246,971) |
|
| (153,252) |
|
Proceeds from maturities and calls including pay down of securities held-to-maturity |
|
|
| - |
|
| 3,372 |
|
Net disbursements/proceeds from (purchases) sales of FHLBC stock |
|
|
| (2,475) |
|
| 600 |
|
Net change in loans |
|
|
| (118,711) |
|
| (71,600) |
|
Improvements in other real estate owned |
|
|
| - |
|
| (16) |
|
Proceeds from sales of other real estate owned, net of participation purchase |
|
|
| 5,512 |
|
| 5,247 |
|
Proceeds from disposition of premises and equipment |
|
|
| 13 |
|
| - |
|
Net purchases of premises and equipment |
|
|
| (852) |
|
| (1,163) |
|
Net cash used in (provided by) investing activities |
|
|
| (105,681) |
|
| 117,430 |
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Net change in deposits |
|
|
| 22,330 |
|
| 18,296 |
|
Net change in securities sold under repurchase agreements |
|
|
| 1,138 |
|
| 12,536 |
|
Net change in other short-term borrowings |
|
|
| 55,000 |
|
| (15,000) |
|
Payment of senior note issuance costs |
|
|
| (42) |
|
| - |
|
Dividends paid on common stock |
|
|
| (888) |
|
| (592) |
|
Purchase of treasury stock |
|
|
| (236) |
|
| (254) |
|
Net cash provided by financing activities |
|
|
| 77,302 |
|
| 14,986 |
|
Net change in cash and cash equivalents |
|
|
| 168 |
|
| 149,609 |
|
Cash and cash equivalents at beginning of period |
|
|
| 47,334 |
|
| 40,338 |
|
Cash and cash equivalents at end of period |
|
| $ | 47,502 |
| $ | 189,947 |
|
6
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows - Continued
(In thousands)
|
|
|
|
|
|
|
|
| (unaudited) | ||||
|
| Nine Months Ended September 30, | ||||
Supplemental cash flow information |
| 2017 |
| 2016 | ||
Income taxes paid, net |
| $ | 230 |
| $ | 160 |
Interest paid for deposits |
|
| 3,802 |
|
| 3,142 |
Interest paid for borrowings |
|
| 4,890 |
|
| 4,021 |
Non-cash transfer of loans to other real estate owned |
|
| 3,701 |
|
| 1,223 |
Non-cash transfer of premises to other real estate owned |
|
| 95 |
|
| - |
Non-cash transfer of securities held-to-maturity to securities available-for-sale |
|
| - |
|
| 244,823 |
|
|
|
|
|
|
|
|
|
| (Unaudited) | |||
|
| Six Months Ended June 30, | ||||
|
| 2019 |
| 2018 | ||
Cash flows from operating activities |
|
|
|
|
|
|
Net income |
| $ | 17,746 |
| $ | 15,750 |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
Net premium / discount from amortization on securities |
|
| 1,476 |
|
| 1,388 |
Securities gains, net |
|
| (1,013) |
|
| (347) |
Provision for loan and lease losses |
|
| 900 |
|
| 728 |
Originations of loans held-for-sale |
|
| (64,762) |
|
| (72,820) |
Proceeds from sales of loans held-for-sale |
|
| 64,181 |
|
| 73,187 |
Net gains on sales of mortgage loans |
|
| (1,925) |
|
| (2,157) |
Change in fair value of mortgage servicing rights |
|
| 1,956 |
|
| (200) |
Net discount / premium from accretion on loans |
|
| (246) |
|
| (776) |
Increase in cash surrender value of BOLI |
|
| (778) |
|
| (599) |
Net gains on sale of other real estate owned |
|
| (150) |
|
| (104) |
Provision for other real estate owned valuation losses |
|
| 196 |
|
| 366 |
Depreciation of fixed assets and amortization of leasehold improvements |
|
| 1,278 |
|
| 1,142 |
Net (gains) / losses on disposal and transfer of fixed assets |
|
| (3) |
|
| - |
Amortization of core deposit intangible |
|
| 253 |
|
| 118 |
Change in current income taxes receivable |
|
| 2,395 |
|
| 197 |
Provision for deferred tax expense |
|
| 3,013 |
|
| 3,468 |
Change in accrued interest receivable and other assets |
|
| (2,570) |
|
| (1,075) |
Accretion of purchase accounting adjustment on time deposits |
|
| (38) |
|
| - |
Amortization of purchase accounting adjustment on notes payable and other borrowings |
|
| 54 |
|
| - |
Amortization of junior subordinated debentures issuance costs |
|
| 24 |
|
| 23 |
Amortization of senior notes issuance costs |
|
| 50 |
|
| 50 |
Change in accrued interest payable and other liabilities |
|
| 16,575 |
|
| 8,195 |
Stock based compensation |
|
| 1,241 |
|
| 1,098 |
Net cash provided by operating activities |
|
| 39,853 |
|
| 27,632 |
Cash flows from investing activities |
|
|
|
|
|
|
Proceeds from maturities and calls including pay down of securities available-for-sale |
|
| 27,863 |
|
| 20,136 |
Proceeds from sales of securities available-for-sale |
|
| 120,596 |
|
| 92,746 |
Purchases of securities available-for-sale |
|
| (82,930) |
|
| (54,550) |
Net proceeds from sales of FHLBC stock |
|
| 2,825 |
|
| 2,624 |
Net change in loans |
|
| (6,195) |
|
| (4,418) |
Proceeds from claims on BOLI |
|
| - |
|
| 1,204 |
Improvements in other real estate owned |
|
| - |
|
| (59) |
Proceeds from sales of other real estate owned, net of participation purchase |
|
| 1,452 |
|
| 2,068 |
Proceeds from disposition of fixed assets |
|
| 3 |
|
| - |
Net purchases of premises and equipment |
|
| (1,390) |
|
| (710) |
Cash paid for acquisition, net of cash and cash equivalents retained |
|
| - |
|
| (35,711) |
Net cash provided by investing activities |
|
| 62,224 |
|
| 23,330 |
Cash flows from financing activities |
|
|
|
|
|
|
Net change in deposits |
|
| (38,861) |
|
| (9,587) |
Net change in securities sold under repurchase agreements |
|
| 7,534 |
|
| 18,497 |
Net change in other short-term borrowings |
|
| (62,375) |
|
| (49,298) |
Net change in notes payable and other borrowings |
|
| (4,398) |
|
| - |
Proceeds from exercise of stock options |
|
| 32 |
|
| - |
Dividends paid on common stock |
|
| (597) |
|
| (594) |
Purchase of treasury stock |
|
| (430) |
|
| (505) |
Net cash used in financing activities |
|
| (99,095) |
|
| (41,487) |
Net change in cash and cash equivalents |
|
| 2,982 |
|
| 9,475 |
Cash and cash equivalents at beginning of period |
|
| 55,235 |
|
| 55,833 |
Cash and cash equivalents at end of period |
| $ | 58,217 |
| $ | 65,308 |
See accompanying notes to consolidated financial statements.
7
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Statements of Changes in
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
| ||||||||||
|
|
|
|
| Additional |
|
|
| Other |
|
|
| Total |
|
|
|
| Additional |
|
|
| Other |
|
|
| Total | ||||||||||
|
| Common |
| Paid-In |
| Retained |
| Comprehensive |
| Treasury |
| Stockholders’ |
| Common |
| Paid-In |
| Retained |
| Comprehensive |
| Treasury |
| Stockholders’ | ||||||||||||
|
| Stock |
| Capital |
| Earnings |
| Loss |
| Stock |
| Equity |
| Stock |
| Capital |
| Earnings |
| Income (Loss) |
| Stock |
| Equity | ||||||||||||
Balance, December 31, 2015 |
| $ | 34,427 |
| $ | 115,918 |
| $ | 114,209 |
| $ | (12,659) |
| $ | (95,966) |
| $ | 155,929 | ||||||||||||||||||
For the Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Balance, March 31, 2019 |
| $ | 34,825 |
| $ | 119,126 |
| $ | 183,634 |
| $ | 1,736 |
| $ | (96,066) |
| $ | 243,255 | ||||||||||||||||||
Net income |
|
|
|
|
|
|
|
| 10,666 |
|
|
|
|
|
|
|
| 10,666 |
|
|
|
|
|
|
|
| 9,278 |
|
|
|
|
|
|
|
| 9,278 |
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
|
| 5,222 |
|
|
|
|
| 5,222 |
|
|
|
|
|
|
|
|
|
|
| 4,376 |
|
|
|
|
| 4,376 |
Dividends declared and paid |
|
|
|
|
|
|
|
| (592) |
|
|
|
|
|
|
|
| (592) | ||||||||||||||||||
Vesting of restricted stock |
|
| 106 |
|
| (106) |
|
|
|
|
|
|
|
|
|
|
| - | ||||||||||||||||||
Tax effect from vesting of restricted stock |
|
|
|
|
| 174 |
|
|
|
|
|
|
|
|
|
|
| 174 | ||||||||||||||||||
Stock based compensation |
|
|
|
|
| 482 |
|
|
|
|
|
|
|
|
|
|
| 482 | ||||||||||||||||||
Purchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (254) |
|
| (254) | ||||||||||||||||||
Balance, September 30, 2016 |
| $ | 34,533 |
| $ | 116,468 |
| $ | 124,283 |
| $ | (7,437) |
| $ | (96,220) |
| $ | 171,627 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Balance, December 31, 2016 |
| $ | 34,534 |
| $ | 116,653 |
| $ | 129,005 |
| $ | (8,762) |
| $ | (96,220) |
| $ | 175,210 | ||||||||||||||||||
Net income |
|
|
|
|
|
|
|
| 17,650 |
|
|
|
|
|
|
|
| 17,650 | ||||||||||||||||||
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
|
| 8,130 |
|
|
|
|
| 8,130 | ||||||||||||||||||
Dividends declared and paid |
|
|
|
|
|
|
|
| (888) |
|
|
|
|
|
|
|
| (888) | ||||||||||||||||||
Dividends declared and paid, ($0.01 per share) |
|
|
|
|
|
|
|
| (300) |
|
|
|
|
|
|
|
| (300) | ||||||||||||||||||
Vesting of restricted stock |
|
| 92 |
|
| (92) |
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
| (32) |
|
|
|
|
|
|
|
| 32 |
|
| - |
Stock based compensation |
|
|
|
|
| 897 |
|
|
|
|
|
|
|
|
|
|
| 897 |
|
|
|
|
| 668 |
|
|
|
|
|
|
|
|
|
|
| 668 |
Purchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (236) |
|
| (236) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (13) |
|
| (13) |
Balance, September 30, 2017 |
| $ | 34,626 |
| $ | 117,458 |
| $ | 145,767 |
| $ | (632) |
| $ | (96,456) |
| $ | 200,763 | ||||||||||||||||||
Balance, June 30, 2019 |
| $ | 34,825 |
| $ | 119,762 |
| $ | 192,612 |
| $ | 6,112 |
| $ | (96,047) |
| $ | 257,264 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Balance, March 31, 2018 |
| $ | 34,717 |
| $ | 117,379 |
| $ | 151,833 |
| $ | (3,634) |
| $ | (96,294) |
| $ | 204,001 | ||||||||||||||||||
Net income |
|
|
|
|
|
|
|
| 6,261 |
|
|
|
|
|
|
|
| 6,261 | ||||||||||||||||||
Other comprehensive loss, net of tax |
|
|
|
|
|
|
|
|
|
|
| (853) |
|
|
|
|
| (853) | ||||||||||||||||||
Dividends declared and paid, ($0.01 per share) |
|
|
|
|
|
|
|
| (298) |
|
|
|
|
|
|
|
| (298) | ||||||||||||||||||
Stock based compensation |
|
|
|
|
| 703 |
|
|
|
|
|
|
|
|
|
|
| 703 | ||||||||||||||||||
Balance, June 30, 2018 |
| $ | 34,717 |
| $ | 118,082 |
| $ | 157,796 |
| $ | (4,487) |
| $ | (96,294) |
| $ | 209,814 |
Seeaccompanyingnotestoconsolidatedfinancialstatements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
| |
|
|
|
|
| Additional |
|
|
|
| Other |
|
|
|
| Total | |||
|
| Common |
| Paid-In |
| Retained |
| Comprehensive |
| Treasury |
| Stockholders’ | ||||||
|
| Stock |
| Capital |
| Earnings |
| Income (Loss) |
| Stock |
| Equity | ||||||
For the Six Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018 |
| $ | 34,720 |
| $ | 119,081 |
| $ | 175,463 |
| $ | (4,079) |
| $ | (96,104) |
| $ | 229,081 |
Net income |
|
|
|
|
|
|
|
| 17,746 |
|
|
|
|
|
|
|
| 17,746 |
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
|
| 10,191 |
|
|
|
|
| 10,191 |
Dividends declared and paid, ($0.01 per share) |
|
|
|
|
|
|
|
| (597) |
|
|
|
|
|
|
|
| (597) |
Vesting of restricted stock |
|
| 103 |
|
| (254) |
|
|
|
|
|
|
|
| 151 |
|
| - |
Stock option exercised |
|
| 2 |
|
| 7 |
|
|
|
|
|
|
|
| 23 |
|
| 32 |
Stock warrants exercised |
|
|
|
|
| (313) |
|
|
|
|
|
|
|
| 313 |
|
| - |
Stock based compensation |
|
|
|
|
| 1,241 |
|
|
|
|
|
|
|
|
|
|
| 1,241 |
Purchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (430) |
|
| (430) |
Balance, June 30, 2019 |
| $ | 34,825 |
| $ | 119,762 |
| $ | 192,612 |
| $ | 6,112 |
| $ | (96,047) |
| $ | 257,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2017 |
| $ | 34,626 |
| $ | 117,742 |
| $ | 142,959 |
| $ | 1,479 |
| $ | (96,456) |
| $ | 200,350 |
Net income |
|
|
|
|
|
|
|
| 15,750 |
|
|
|
|
|
|
|
| 15,750 |
Other comprehensive loss, net of tax |
|
|
|
|
|
|
|
|
|
|
| (6,285) |
|
|
|
|
| (6,285) |
Dividends declared and paid, ($0.01 per share) |
|
|
|
|
|
|
|
| (594) |
|
|
|
|
|
|
|
| (594) |
Vesting of restricted stock |
|
| 91 |
|
| (758) |
|
|
|
|
|
|
|
| 667 |
|
| - |
Reclassification of stranded tax effects |
|
|
|
|
|
|
|
| (319) |
|
| 319 |
|
|
|
|
| - |
Stock based compensation |
|
|
|
|
| 1,098 |
|
|
|
|
|
|
|
|
|
|
| 1,098 |
Purchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (505) |
|
| (505) |
Balance, June 30, 2018 |
| $ | 34,717 |
| $ | 118,082 |
| $ | 157,796 |
| $ | (4,487) |
| $ | (96,294) |
| $ | 209,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(TableDollar amounts in thousands, except per share data, unaudited)
Note 1 – Summary of Significant Accounting Policies
The accounting policies followed in the preparation of the interim consolidated financial statements are consistent with those used in the preparation of the annual financial information. The interim consolidated financial statements reflect all normal and recurring adjustments that are necessary, in the opinion of management, for a fair statement of results for the interim period presented. Results for the period ended SeptemberJune 30, 2017,2019, are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2019. These interim consolidated financial statements are unaudited and should be read in conjunction with the audited financial statements and notes included in Old Second Bancorp, Inc.’s (the “Company”) annual report on Form 10-K for the year ended December 31, 2016.2018. Unless otherwise indicated, amounts in the tables contained in the notes to the consolidated financial statements are in thousands. Certain items in prior periods have been reclassified to conform to the current presentation.
The Company’s consolidated financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”) and follow general practices within the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the consolidated financial statements. Future changes in information may affect these estimates, assumptions, and judgments, which, in turn, may affect amounts reported in the consolidated financial statements.
All significantSignificant accounting policies are presented in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2018. These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the consolidated financial statements and how those values are determined.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09 "Revenue from Contracts with Customers (Topic 606)." The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. In August 2015, the FASB issued ASU 2015-14 “Revenue from Contracts with Customers (Topic 606) Deferral of the Effective Date.” This accounting standards update defers the effective date of ASU 2014-09 for an additional year. ASU 2015-14 will be effective for annual reporting periods beginning after December 15, 2017. The amendments can be applied retrospectively to each prior reporting period or retrospectively with the cumulative effect of initially applying this update recognized at the date of initial application. Early application is not permitted. In March 2016, the FASB issued ASU 2016-08 “Revenue from Contracts with Customers (TOPIC 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” and in April 2016, the FASB issued ASU 2016-10 “Revenue from Contracts with Customers (TOPIC 606): Identifying Performance Obligations and Licensing.” ASU 2016-08 requires the entity to determine if it is acting as a principal with control over the goods or services it is contractually obligated to provide, or an agent with no control over specified goods or services provided by another party to a customer. ASU 2016-10 was issued to further clarify ASU 2014-09 implementation regarding identifying performance obligation materiality, identification of key contract components, and scope. The Company is assessing the impact of ASU 2014-09 and other related ASUs as noted above on its accounting and disclosures within noninterest income, as any interest income impact was not included in the scope of this final ASU pronouncement. Adoption of this ASU is expected to affect the methodology used to record certain recurring revenue streams within trust and asset management fees, but this impact is not anticipated to be significant to the Company’s financial statements. The Company will adopt ASU 2015-14 and related issuances on January 1, 2018, with a cumulative effect adjustment to opening retained earnings, if an adjustment is deemed to be material.
In February 2016, the FASB issued ASU No. 2016-02 “Leases (Topic 842).” This ASU was issued to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. One key revision from prior guidance was to include operating leases within assets and liabilities recorded; another revision was included which createdto create a new model to follow for sale-leaseback transactions. The impact of this pronouncement will primarily affect lessees, primarily, as virtually all of their assets will be recognized on the balance sheet, by recording a right of use asset and lease liability. This pronouncement is effective for fiscal years beginning after December 15, 2018. The Company is assessing the impact of ASU 2016-02 on its accounting and disclosures.
In March 2016,July 2018, the FASB issued ASU No. 2016-09 “2018-11, Stock Compensation -“Leases (Topic 842): Targeted Improvements to Employee Share-Based Payment Accounting (Topic 718).” FASB issuedwhich provided additional guidance on the transition method, including application as a cumulative-effect adjustment to equity and practical expedients to use when accounting for lease components. The Company adopted this ASUstandard as partof January 1, 2019, and recorded right of use assets of $817,000 with a like lease liability. As of June 30, 2019, the right of use assets and lessee lease liability both totaled $561,000. As no lease incentives, initial direct costs, or prepayments were present with any of these lease arrangements, the present value of the Simplification Initiative. This ASU involves several aspectslessee liabilities was equal to the offsetting right of use assets. The Company also recorded leases receivable related to lessor leases of $174,000 as of January 1, 2019 with a like entry to lease liabilities for the accountinglessor position; these tenant leases receivable balances and lessor lease liabilities both totaled approximately $100,000 as of June 30, 2019. There was no impact to equity for share-based payment transactions, including the income tax consequences, classification of awards as either equity or
9
liability, and classification on the statement of cash flows. ASU 2016-09 is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. This standard was adopted by the Company effective January 2017; the adoption of this standard did not haveon a material effect on the Company’s operating results or financial condition.modified retrospective basis.
In June 2016, the FASB issued ASU No. 2016-13 “Measurement of Credit Losses on Financial Instruments (Topic 326).” This ASU 2016-13 was issued to provide financial statement users with more useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date to enhance the decision making process. The new methodology to be used should reflect expected credit losses based on relevant vintage historical information, supported by reasonable forecasts of projected loss given defaults, which will affect the collectability of the reported amounts. This new methodology will also require available-for-sale debt securities to have a credit loss recorded through an allowance rather than write-downs. ASU 2016-13 is effective for financial statements issued for fiscal years beginning after December 15, 2019. The Company is assessing the impact of ASU 2016-13 on its accounting and disclosures, and has determined that a combination of loss rate models utilizing weighted average remaining life, migration and vintage analysis will be used for calculation of future expected losses based on data availability and the characteristics of each loan pool being assessed upon the ASU’s adoption in 2020. The Company has accumulated historical data by loan pools and collateral classifications, and is on track to calculate estimates for the last two quarters in 2019 on a parallel test basis to confirm the processmodel processes and determine financial statement impact prior to adoption in 2020. The Company is also developing internal control processes and disclosure documentation related to adoption of accumulating data and evaluating model options to support future risk assessments.this standard.
In March 2017, the FASB issued ASU No. 2017-08 “Receivables-Nonrefundable Fees and Other Costs – Premium Amortization on Purchased Callable Debt Securities (Subtopic 310-20).” This ASU was issued to shorten the amortization period for the premium to the earliest call date on debt securities. This premium is required to be recorded as a reduction to net interest margin during the shorter yield to call period, as compared to prior practice of amortizing the premium as a reduction to net interest margin over the contractual life of the instrument. This ASU does not change the current method of amortizing any discount over the contractual life of the debt security, and this pronouncement is effective for fiscal years beginning after December 15, 2018, with earlier adoption permitted. The Company adopted ASU 2017-08 as a change in accounting principle in the third quarter of 2017 on a modified retrospective basis, which required the Company to reflect its adoption effective January 1, 2017. The effect of amortizing the premium over a shorter period negatively impacted the net interest margin for the first nine months of 2017, and will continue to decrease future quarterly net interest income by approximately 10 basis points a quarter until the premium, which is $25.0 million as of September 30, 2017, is fully amortized. As a result of management’s analysis, the impact of the change in accounting principle as a result of ASU 2017-08 to adjust beginning of year retained earnings was considered insignificant and, accordingly, the impact was adjusted through current period earnings.
9
In August 2017, the FASB issued ASU 2017-12, “TableDerivativesof Contents
Old Second Bancorp, Inc. and Hedging:Targeted ImprovementsSubsidiaries
Notes to Accounting for Hedging Activities”. The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. ASU 2017-12 is effective for public business entities for fiscal years beginning after December 15, 2018, with early adoption, including adoptionConsolidated Financial Statements
(Dollar amounts in an interim period, permitted. The Company plans to adopt ASU 2017-12 on January 1, 2018. ASU 2017-12 requires a modified retrospective transition method in which the Company will recognize the cumulative effect of the change on the opening balance of each affected component of equity in the statement of financial position as of the date of adoption. While the Company continues to assess all potential impacts of the standard, we currently expect adoption to have an immaterial impact on our consolidated financial statements.thousands, except per share data, unaudited)
Subsequent Events
On October 17, 2017,July 16, 2019, the Company’s Board of Directors declared a cash dividend of $0.01 per share payable on November 6, 2017,August 5, 2019, to stockholders of record as of October 27, 2017;July 26, 2019; dividends of $296,000$299,000 were paid to stockholders on November 6, 2017.August 5, 2019.
Note 2 – Acquisitions
On October 28, 2016,April 20, 2018, the Company acquired Greater Chicago Financial Corp. (“GCFC”) and its wholly-owned subsidiary, ABC Bank, acquiredwhich operated four branches in the Chicago branchmetro area. In addition to the acquisition price of Talmer Bank$41.1 million, the Company retired the convertible and Trust,nonconvertible debentures held by GCFC upon acquisition, which totaled $6.6 million, including interest due. The purchase and the banking subsidiaryretirement of Talmer Bancorp, Inc. (“Talmer”). Asthe debentures were funded with the Company’s cash on hand, and all GCFC common stock was retired and cancelled simultaneous with the close of the transaction. The Company acquired $227.6 million of loans, net of purchase accounting adjustments, and $248.5 million of deposits, net of purchase accounting adjustments for time deposits. Purchase accounting adjustments recorded include a resultloan valuation mark of this transaction,$11.2 million, a core deposit intangible of $3.1 million, a fixed asset valuation adjustment of $1.5 million, and goodwill of $10.2 million. In addition, a deferred tax asset of $3.5 million was recorded as of the Bank recorded assets with adate of acquisition based on analysis of the fair value of approximately $230.9assets acquired, less liabilities assumed. None of the $10.2 million including approximately $221.0recorded as goodwill is expected to be deductible for tax purposes. No acquisition related costs were incurred in the first quarter of 2019. Acquisition related costs incurred by the Company for the year ended December 31, 2018, totaled $3.5 million, pre-tax, and included $1.1 million of loans,salaries and assumed depositsemployee benefits related expenses, and $1.8 million of data processing, computer and ATM related conversion costs. Acquisition costs incurred for the year ending December 31, 2017, related to the merger with aGCFC were $65,000, and were expensed as incurred.
The assets and liabilities associated with the acquisition of GCFC were recorded in the Consolidated Balance Sheets at their estimated fair values as of the acquisition date. In many cases the determination of these fair values required management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change, as noted below. The following table shows the estimated fair value of approximately $48.9 million. Goodwillthe assets acquired and liabilities assumed as of $8.4 million was included withinApril 20, 2018. These fair value estimates were considered final as of March 31, 2019, and no further refinements to the totalvalues listed below are anticipated.
The below table summarizes the assets acquired, less the liabilities assumed, related to the GCFC/ABC Bank acquisition. All amounts are listed at their estimated fair values as of date of acquisition, and have been accounted for under the acquisition method of accounting.
|
|
|
|
GCFC/ABC Bank Acquisition Summary |
|
|
|
As of Date of Acquisition |
|
|
|
|
|
| April 20, 2018 |
Assets |
|
|
|
Cash and due from banks |
| $ | 6,669 |
Interest bearing deposits with financial institutions |
|
| 500 |
Securities available-for-sale, at fair value |
|
| 72,091 |
Federal funds sold |
|
| 4,300 |
FHLBC stock |
|
| 1,549 |
Loans |
|
| 227,594 |
Premises and equipment |
|
| 5,339 |
Other real estate owned |
|
| 401 |
Goodwill and core deposit intangible |
|
| 13,280 |
Deferred tax assets, net |
|
| 3,459 |
Other assets |
|
| 1,767 |
Total assets |
| $ | 336,949 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
|
|
|
|
Liabilities |
|
|
|
Noninterest bearing demand |
| $ | 58,005 |
Savings, NOW and money market |
|
| 91,494 |
Time |
|
| 98,999 |
Total deposits |
|
| 248,498 |
Securities sold under repurchase agreements |
|
| 5,623 |
Other short-term borrowings |
|
| 10,875 |
Notes payable and other borrowings |
|
| 23,367 |
Other liabilities |
|
| 1,406 |
Total liabilities |
|
| 289,769 |
|
|
|
|
Cash consideration paid |
|
| 47,180 |
Total Liabilities Assumed and Cash Consideration Paid for Acquisition |
| $ | 336,949 |
Loans acquired in the GCFC acquisition were initially recorded upon acquisition; net cashat fair value with no separate allowance for loan losses. The Company reviewed the loans at acquisition to determine which loans should be considered purchased credit impaired (“PCI loans”), defined as impaired loans as those that were either not accruing interest or exhibited credit risk factors consistent with nonperforming loans at the acquisition date, or purchased non-credit impaired loans (“non-PCI loans”), defined as loans acquired that did not show signs of $181.5 million was paid fordeteriorated credit quality at acquisition.
The following table represents the purchase.acquired loans as of date of acquisition and as of June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| April 20, 2018 |
| June 30, 2019 | ||||||||
ABC Bank Acquired Loans |
| PCI |
| Non-PCI |
| PCI |
| Non-PCI | ||||
Fair Value |
| $ | 11,360 |
| $ | 216,234 |
| $ | 11,889 |
| $ | 164,645 |
Contractually required principal and interest payments |
|
| 19,447 |
|
| 220,308 |
|
| 18,393 |
|
| 166,194 |
Best estimate of contractual cash flows not expected to be collected |
|
| 6,537 |
|
| 2,511 |
|
| 5,500 |
|
| 759 |
Best estimate of contractual cash flows expected to be collected |
|
| 12,910 |
|
| 217,797 |
|
| 12,893 |
|
| 165,435 |
Note 3 – Securities
Investment Portfolio Management
Our investment portfolio serves the liquidity needs and income objectives of the Company. While the portfolio serves as an important component of the overall liquidity management at the Bank, portions of the portfolio also serve as income producing assets. The size and composition of the portfolio reflects liquidity needs, loan demand and interest income objectives. Portfolio size and composition will be adjusted from time to time. While a significant portion of the portfolio consists of readily marketable securities to address liquidity, other parts of the portfolio may reflect funds invested pending future loan demand or to maximize interest income without undue interest rate risk.
10
Investments are comprised of debt securities and non-marketable equity investments. Securities available-for-sale are carried at fair value. Unrealized gains and losses, net of tax, on securities available-for-sale are reported as a separate component of equity. This balance sheet component changes as interest rates and market conditions change. Unrealized gains and losses are not included in the calculation of regulatory capital.
FHLBC and FRBC stock are considered nonmarketable equity investments. FHLBC stock was recorded at $5.6$4.4 million at SeptemberJune 30, 2017,2019, and $3.1$7.2 million at December 31, 2016, and is necessary to maintain access to FHLBC advances, which are utilized as a component to meet the Bank’s daily funding needs.2018. FRBC stock was recorded at $4.8$6.2 million at SeptemberJune 30, 2017,2019, and December 31, 2016. 2018.
11
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
The following table summarizestables summarize the amortized cost and fair value of the securities portfolio at SeptemberJune 30, 2017,2019, and December 31, 2016,2018, and the corresponding amounts of gross unrealized gains and losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
| Gross |
| Gross |
|
|
|
|
|
|
| Gross |
| Gross |
|
|
| |||||||||
|
| Amortized |
| Unrealized |
| Unrealized |
| Fair |
| Amortized |
| Unrealized |
| Unrealized |
| Fair | |||||||||||||
September 30, 2017 |
| Cost |
| Gains |
| Losses |
| Value | |||||||||||||||||||||
June 30, 2019 |
| Cost |
| Gains |
| Losses |
| Value | |||||||||||||||||||||
Securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
U.S. Treasuries |
| $ | 4,001 |
| $ | - |
| $ | (11) |
| $ | 3,990 |
| $ | 4,008 |
| $ | 17 |
| $ | - |
| $ | 4,025 | |||||
U.S. government agencies |
|
| 13,475 |
|
| 15 |
|
| (39) |
|
| 13,451 |
|
| 9,954 |
|
| - |
|
| (142) |
|
| 9,812 | |||||
U.S. government agencies mortgage-backed |
|
| 11,131 |
|
| 18 |
|
| (119) |
|
| 11,030 |
|
| 16,586 |
|
| 462 |
|
| (49) |
|
| 16,999 | |||||
States and political subdivisions |
|
| 224,648 |
|
| 5,173 |
|
| (789) |
|
| 229,032 |
|
| 241,176 |
|
| 11,236 |
|
| (1,117) |
|
| 251,295 | |||||
Corporate bonds |
|
| 10,823 |
|
| 20 |
|
| (266) |
|
| 10,577 | |||||||||||||||||
Collateralized mortgage obligations |
|
| 81,693 |
|
| 228 |
|
| (1,535) |
|
| 80,386 |
|
| 64,207 |
|
| 866 |
|
| (206) |
|
| 64,867 | |||||
Asset-backed securities |
|
| 134,542 |
|
| 865 |
|
| (3,648) |
|
| 131,759 |
|
| 82,119 |
|
| 888 |
|
| (282) |
|
| 82,725 | |||||
Collateralized loan obligations |
|
| 52,803 |
|
| 505 |
|
| (49) |
|
| 53,259 |
|
| 62,825 |
|
| 55 |
|
| (523) |
|
| 62,357 | |||||
Total securities available-for-sale |
| $ | 533,116 |
| $ | 6,824 |
| $ | (6,456) |
| $ | 533,484 |
| $ | 480,875 |
| $ | 13,524 |
| $ | (2,319) |
| $ | 492,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross |
| Gross |
|
|
|
|
|
|
| Gross |
| Gross |
|
|
| ||||
|
| Amortized |
| Unrealized |
| Unrealized |
| Fair |
| Amortized |
| Unrealized |
| Unrealized |
| Fair | ||||||||
December 31, 2016 |
| Cost |
| Gains |
| Losses |
| Value | ||||||||||||||||
December 31, 2018 |
| Cost |
| Gains |
| Losses |
| Value | ||||||||||||||||
Securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
| $ | 4,006 |
| $ | - |
| $ | (83) |
| $ | 3,923 | ||||||||||||
U.S. government agencies |
|
| 11,112 |
|
| - |
|
| (161) |
|
| 10,951 | ||||||||||||
U.S. government agencies mortgage-backed |
| $ | 42,511 |
| $ | - |
| $ | (977) |
| $ | 41,534 |
|
| 14,407 |
|
| 45 |
|
| (377) |
|
| 14,075 |
States and political subdivisions |
|
| 68,718 |
|
| 258 |
|
| (273) |
|
| 68,703 |
|
| 277,112 |
|
| 1,916 |
|
| (4,961) |
|
| 274,067 |
Corporate bonds |
|
| 10,957 |
|
| 9 |
|
| (336) |
|
| 10,630 | ||||||||||||
Collateralized mortgage obligations |
|
| 174,352 |
|
| 374 |
|
| (3,799) |
|
| 170,927 |
|
| 66,494 |
|
| 79 |
|
| (2,144) |
|
| 64,429 |
Asset-backed securities |
|
| 146,391 |
|
| 341 |
|
| (8,325) |
|
| 138,407 |
|
| 108,574 |
|
| 1,165 |
|
| (225) |
|
| 109,514 |
Collateralized loan obligations |
|
| 102,504 |
|
| 29 |
|
| (896) |
|
| 101,637 |
|
| 65,162 |
|
| 24 |
|
| (897) |
|
| 64,289 |
Total securities available-for-sale |
| $ | 545,433 |
| $ | 1,011 |
| $ | (14,606) |
| $ | 531,838 |
| $ | 546,867 |
| $ | 3,229 |
| $ | (8,848) |
| $ | 541,248 |
The fair value, amortized cost and weighted average yield of debt securities at SeptemberJune 30, 2017,2019, by contractual maturity, were as follows in the table below. Securities not due at a single maturity date are shown separately.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
|
|
|
|
|
|
|
|
| Weighted |
|
|
|
|
|
|
| Amortized |
| Average |
|
| Fair |
|
| Amortized |
| Average |
|
| Fair |
| ||||
Securities available-for-sale |
| Cost |
| Yield |
|
| Value |
|
| Cost |
| Yield |
|
| Value |
| ||||
Due in one year or less |
| $ | 3,400 |
| 2.60 | % |
| $ | 3,405 |
|
| $ | 2,489 |
| 2.50 | % |
| $ | 2,493 |
|
Due after one year through five years |
|
| 5,846 |
| 2.74 |
|
|
| 5,831 |
|
|
| 4,659 |
| 1.88 |
|
|
| 4,679 |
|
Due after five years through ten years |
|
| 16,105 |
| 2.52 |
|
|
| 16,057 |
|
|
| 4,658 |
| 3.29 |
|
|
| 4,922 |
|
Due after ten years |
|
| 227,596 |
| 2.98 |
|
|
| 231,757 |
|
|
| 243,332 |
| 3.15 |
|
|
| 253,038 |
|
|
|
| 252,947 |
| 2.94 |
|
|
| 257,050 |
|
|
| 255,138 |
| 3.12 |
|
|
| 265,132 |
|
Mortgage-backed and collateralized mortgage obligations |
|
| 92,824 |
| 2.72 |
|
|
| 91,416 |
|
|
| 80,793 |
| 3.16 |
|
|
| 81,866 |
|
Asset-backed securities |
|
| 134,542 |
| 2.41 |
|
|
| 131,759 |
|
|
| 82,119 |
| 3.06 |
|
|
| 82,725 |
|
Collateralized loan obligations |
|
| 52,803 |
| 4.38 |
|
|
| 53,259 |
|
|
| 62,825 |
| 4.90 |
|
|
| 62,357 |
|
Total securities available-for-sale |
| $ | 533,116 |
| 2.91 | % |
| $ | 533,484 |
|
| $ | 480,875 |
| 3.35 | % |
| $ | 492,080 |
|
At SeptemberJune 30, 2017,2019, the Company’s investments include $110.6included $55.7 million of asset-backed securities that are backed by student loans originated under the Federal Family Education Loan program (“FFEL”). Under the FFEL, private lenders made federally guaranteed student loans to parents and students. While the program was modified several times before elimination in 2010, FFEL securities are generally guaranteed by the U.S Department of Education “DOE”(“DOE”) at not less than 97% of the outstanding principal amount of the loans. The guarantee will reduce to 85% if the DOE receives reimbursement requests in excess of 5% of insured loans; reimbursement
11
will drop to 75% if reimbursement requests exceed 9% of insured loans. In addition to the U.S. Department of EducationDOE guarantee, total added credit enhancement in the form of overcollateralization and/or subordination amounted to $12.3$4.7 million, or 10.42%,8.23% of outstanding principal.
12
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
The Company has invested in securities issued from three originators that individually amount to over 10% of the Company’s stockholders equity. Information regarding these three issuers and the value of the securities issued follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
|
| June 30, 2019 | ||||||||
|
| Amortized |
| Fair |
|
| Amortized |
| Fair | ||||
Issuer |
| Cost |
| Value |
|
| Cost |
| Value | ||||
GCO Education Loan Funding Corp |
| $ | 27,555 |
| $ | 26,505 |
|
| $ | 27,809 |
| $ | 27,593 |
Towd Point Mortgage Trust |
|
| 29,544 |
|
| 29,445 |
|
|
| 33,927 |
|
| 34,472 |
Student Loan Marketing Assocation |
|
| 25,654 |
|
| 25,803 |
| ||||||
Student Loan Marketing Association |
|
| 25,831 |
|
| 26,091 |
Securities with unrealized losses at SeptemberJune 30, 2017,2019, and December 31, 2016,2018, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows (in thousands except for number of securities):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Less than 12 months |
| 12 months or more |
|
|
|
|
|
|
|
|
| Less than 12 months |
| 12 months or more |
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
September 30, 2017 |
| in an unrealized loss position |
| in an unrealized loss position |
| Total | ||||||||||||||||||||||||||||||||||||||||||
June 30, 2019 |
| in an unrealized loss position |
| in an unrealized loss position |
| Total | ||||||||||||||||||||||||||||||||||||||||||
|
| Number of |
| Unrealized |
| Fair |
| Number of |
| Unrealized |
| Fair |
| Number of |
| Unrealized |
| Fair |
| Number of |
| Unrealized |
| Fair |
| Number of |
| Unrealized |
| Fair |
| Number of |
| Unrealized |
| Fair | ||||||||||||
Securities available-for-sale |
| Securities |
| Losses |
| Value |
| Securities |
| Losses |
| Value |
| Securities |
| Losses |
| Value |
| Securities |
| Losses |
| Value |
| Securities |
| Losses |
| Value |
| Securities |
| Losses |
| Value | ||||||||||||
U.S. Treasuries |
| 1 |
| $ | 11 |
| $ | 3,990 |
| - |
| $ | - |
| $ | - |
| 1 |
| $ | 11 |
| $ | 3,990 |
| - |
| $ | - |
| $ | - |
| - |
| $ | - |
| $ | - |
| - |
| $ | - |
| $ | - |
U.S. government agencies |
| 2 |
|
| 39 |
|
| 6,701 |
| - |
|
| - |
|
| - |
| 2 |
|
| 39 |
|
| 6,701 |
| - |
|
| - |
|
| - |
| 4 |
|
| 142 |
|
| 9,812 |
| 4 |
|
| 142 |
|
| 9,812 |
U.S. government agencies mortgage-backed |
| 2 |
|
| 13 |
|
| 2,089 |
| 4 |
|
| 106 |
|
| 4,096 |
| 6 |
|
| 119 |
|
| 6,185 |
| - |
|
| - |
|
| - |
| 6 |
|
| 49 |
|
| 4,039 |
| 6 |
|
| 49 |
|
| 4,039 |
States and political subdivisions |
| 7 |
|
| 789 |
|
| 24,843 |
| - |
|
| - |
|
| - |
| 7 |
|
| 789 |
|
| 24,843 |
| - |
|
| - |
|
| - |
| 7 |
|
| 1,117 |
|
| 28,016 |
| 7 |
|
| 1,117 |
|
| 28,016 |
Corporate bonds |
| - |
|
| - |
|
| - |
| 3 |
|
| 266 |
|
| 10,078 |
| 3 |
|
| 266 |
|
| 10,078 | ||||||||||||||||||||||||
Collateralized mortgage obligations |
| 4 |
|
| 238 |
|
| 21,281 |
| 8 |
|
| 1,297 |
|
| 43,684 |
| 12 |
|
| 1,535 |
|
| 64,965 |
| - |
|
| - |
|
| - |
| 6 |
|
| 206 |
|
| 24,995 |
| 6 |
|
| 206 |
|
| 24,995 |
Asset-backed securities |
| 1 |
|
| 265 |
|
| 4,293 |
| 9 |
|
| 3,383 |
|
| 76,725 |
| 10 |
|
| 3,648 |
|
| 81,018 |
| 1 |
|
| 215 |
|
| 27,593 |
| 1 |
|
| 67 |
|
| 3,208 |
| 2 |
|
| 282 |
|
| 30,801 |
Collateralized loan obligations |
| 1 |
|
| 49 |
|
| 7,948 |
| - |
|
| - |
|
| - |
| 1 |
|
| 49 |
|
| 7,948 |
| 3 |
|
| 90 |
|
| 17,077 |
| 4 |
|
| 433 |
|
| 24,979 |
| 7 |
|
| 523 |
|
| 42,056 |
Total securities available-for-sale |
| 18 |
| $ | 1,404 |
| $ | 71,145 |
| 24 |
| $ | 5,052 |
| $ | 134,583 |
| 42 |
| $ | 6,456 |
| $ | 205,728 |
| 4 |
| $ | 305 |
| $ | 44,670 |
| 28 |
| $ | 2,014 |
| $ | 95,049 |
| 32 |
| $ | 2,319 |
| $ | 139,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Less than 12 months |
| 12 months or more |
|
|
|
|
|
|
|
|
| Less than 12 months |
| 12 months or more |
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
December 31, 2016 |
| in an unrealized loss position |
| in an unrealized loss position |
| Total | ||||||||||||||||||||||||||||||||||||||||||
December 31, 2018 |
| in an unrealized loss position |
| in an unrealized loss position |
| Total | ||||||||||||||||||||||||||||||||||||||||||
|
| Number of |
| Unrealized |
|
| Fair |
| Number of |
| Unrealized |
|
| Fair |
| Number of |
| Unrealized |
|
| Fair |
| Number of |
| Unrealized |
|
| Fair |
| Number of |
| Unrealized |
|
| Fair |
| Number of |
| Unrealized |
|
| Fair | ||||||
Securities available-for-sale |
| Securities |
| Losses |
|
| Value |
| Securities |
| Losses |
|
| Value |
| Securities |
| Losses |
|
| Value |
| Securities |
| Losses |
|
| Value |
| Securities |
| Losses |
|
| Value |
| Securities |
| Losses |
|
| Value | ||||||
U.S. Treasuries |
| - |
| $ | - |
| $ | - |
| 1 |
| $ | 83 |
| $ | 3,923 |
| 1 |
| $ | 83 |
| $ | 3,923 | ||||||||||||||||||||||||
U.S. government agencies |
| 3 |
|
| 100 |
|
| 7,385 |
| 1 |
|
| 61 |
|
| 3,566 |
| 4 |
|
| 161 |
|
| 10,951 | ||||||||||||||||||||||||
U.S. government agencies mortgage-backed |
| 11 |
| $ | 957 |
| $ | 40,636 |
| 1 |
| $ | 20 |
| $ | 898 |
| 12 |
| $ | 977 |
| $ | 41,534 |
| - |
|
| - |
|
| - |
| 11 |
|
| 377 |
|
| 11,439 |
| 11 |
|
| 377 |
|
| 11,439 |
States and political subdivisions |
| 12 |
|
| 273 |
|
| 35,241 |
| - |
|
| - |
|
| - |
| 12 |
|
| 273 |
|
| 35,241 |
| 4 |
|
| 126 |
|
| 17,713 |
| 33 |
|
| 4,835 |
|
| 110,326 |
| 37 |
|
| 4,961 |
|
| 128,039 |
Corporate bonds |
| 1 |
|
| 183 |
|
| 4,817 |
| 2 |
|
| 153 |
|
| 5,328 |
| 3 |
|
| 336 |
|
| 10,145 | ||||||||||||||||||||||||
Collateralized mortgage obligations |
| 16 |
|
| 3,402 |
|
| 117,752 |
| 7 |
|
| 397 |
|
| 18,109 |
| 23 |
|
| 3,799 |
|
| 135,861 |
| 2 |
|
| 309 |
|
| 15,211 |
| 10 |
|
| 1,835 |
|
| 43,687 |
| 12 |
|
| 2,144 |
|
| 58,898 |
Asset-backed securities |
| 4 |
|
| 328 |
|
| 17,604 |
| 12 |
|
| 7,997 |
|
| 107,112 |
| 16 |
|
| 8,325 |
|
| 124,716 |
| - |
|
| - |
|
| - |
| 4 |
|
| 225 |
|
| 16,473 |
| 4 |
|
| 225 |
|
| 16,473 |
Collateralized loan obligations |
| - |
|
| - |
|
| - |
| 12 |
|
| 896 |
|
| 81,613 |
| 12 |
|
| 896 |
|
| 81,613 |
| 7 |
|
| 721 |
|
| 46,547 |
| 1 |
|
| 176 |
|
| 7,824 |
| 8 |
|
| 897 |
|
| 54,371 |
Total securities available-for-sale |
| 44 |
| $ | 5,143 |
| $ | 216,050 |
| 34 |
| $ | 9,463 |
| $ | 213,060 |
| 78 |
| $ | 14,606 |
| $ | 429,110 |
| 16 |
| $ | 1,256 |
| $ | 86,856 |
| 61 |
| $ | 7,592 |
| $ | 197,238 |
| 77 |
| $ | 8,848 |
| $ | 284,094 |
Recognition of other-than-temporary impairment was not necessary inas of the three and nine months ended SeptemberJune 30, 2017 or 2016.2019. The changes in fair value related primarily to interest rate fluctuations. Our review of other-than-temporary impairment determined that there was no credit quality deterioration.
The following table presents net realized gains (losses) on securities available-for-sale for the quartersthree and ninesix months ended SeptemberJune 30, 20172019 and 2016.2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended |
|
| Nine Months Ended |
|
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||
|
|
| September 30, |
|
| September 30, |
|
|
| June 30, |
|
| June 30, |
| ||||||||||||
Securities available-for-sale |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||||||
Proceeds from sales of securities |
| $ | 39,072 |
| $ | 90,224 |
| $ | 120,596 |
| $ | 92,746 |
| |||||||||||||
Gross realized gains on securities |
| $ | 474 |
| $ | 1,380 |
| $ | 911 |
| $ | 1,518 |
|
|
| 986 |
|
| 312 |
|
| 1,591 |
|
| 347 |
|
Gross realized losses on securities |
|
| (371) |
|
| (3,339) |
|
| (1,076) |
|
| (3,538) |
|
|
| - |
|
| — |
|
| (578) |
|
| — |
|
Securities realized gains (losses), net |
| $ | 103 |
| $ | (1,959) |
| $ | (165) |
| $ | (2,020) |
| |||||||||||||
Net realized gains |
| $ | 986 |
| $ | 312 |
| $ | 1,013 |
| $ | 347 |
| |||||||||||||
Income tax expense on net realized gains |
| $ | (276) |
| $ | (88) |
| $ | (284) |
| $ | (98) |
| |||||||||||||
Effective tax rate applied |
|
| 28.0 | % |
| 28.2 | % |
| 28.0 | % |
| 28.2 | % |
The majoritySecurities valued at $324.9 million as of the net realized losses in the prior yearJune 30, 2019, an increase from $318.4 million at year-end 2018, were incurredpledged to meet the funding needs related to the Talmer branch acquisition in late 2016.
secure deposits and borrowings, and for other purposes.
1213
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
Note 4 – Loans
Major classifications of loans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
| December 31, 2016 |
|
| June 30, 2019 |
| December 31, 2018 |
| ||||
Commercial |
| $ | 257,356 |
| $ | 228,113 |
|
| $ | 337,848 |
| $ | 314,323 |
|
Leases |
|
| 69,305 |
|
| 55,451 |
|
|
| 98,379 |
|
| 78,806 |
|
Real estate - commercial |
|
| 739,136 |
|
| 736,247 |
|
|
| 825,091 |
|
| 820,941 |
|
Real estate - construction |
|
| 94,868 |
|
| 64,720 |
|
|
| 93,079 |
|
| 108,390 |
|
Real estate - residential |
|
| 419,583 |
|
| 377,851 |
|
|
| 393,547 |
|
| 407,068 |
|
Consumer |
|
| 2,770 |
|
| 3,237 |
| |||||||
HELOC |
|
| 128,673 |
|
| 140,442 |
| |||||||
Other1 |
|
| 10,550 |
|
| 11,973 |
|
|
| 13,533 |
|
| 14,439 |
|
|
|
| 1,593,568 |
|
| 1,477,592 |
| |||||||
Total loans, excluding deferred loan costs and PCI loans |
|
| 1,890,150 |
|
| 1,884,409 |
| |||||||
Net deferred loan costs |
|
| 623 |
|
| 1,217 |
|
|
| 1,959 |
|
| 1,653 |
|
Total loans, excluding PCI loans |
|
| 1,892,109 |
|
| 1,886,062 |
| |||||||
PCI loans, net of purchase accounting adjustments |
|
| 10,834 |
|
| 10,965 |
| |||||||
Total loans |
| $ | 1,594,191 |
| $ | 1,478,809 |
|
| $ | 1,902,943 |
| $ | 1,897,027 |
|
1 The “Other” class includes consumer and overdrafts.
It is the policy of the Company to review each prospective credit prior to making a loan in order to determine if an adequate level of security or collateral has been obtained. The type of collateral, when required, will vary from liquid assets to real estate. The Company’s access to collateral, in the event of borrower default, is assured through adherence to lending laws, the Company’s lending standards and credit monitoring procedures. With selected exceptions, the Bank makes loans solely within its market area. There are no significant concentrations of loans where the customers’ ability to honor loan terms is dependent upon a single economic sector, although the real estate related categories listed above represent 78.6%75.7% and 79.7%77.9% of the portfolio at SeptemberJune 30, 2017,2019, and December 31, 2016,2018, respectively.
Aged analysis of past due loans by class of loans was as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Recorded | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investment | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 90 days or |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 90 days or | ||
|
|
|
|
|
|
|
| 90 Days or |
|
|
|
|
|
|
|
|
|
|
|
|
| Greater Past |
|
|
|
|
|
|
| 90 Days or |
|
|
|
|
|
|
|
|
|
|
|
|
| Greater Past | ||||
|
| 30-59 Days |
| 60-89 Days |
| Greater Past |
| Total Past |
|
|
|
|
|
|
|
|
|
| Due and |
| 30-59 Days |
| 60-89 Days |
| Greater Past |
| Total Past |
|
|
|
|
|
|
|
|
|
| Due and | ||||||||||
September 30, 2017 |
| Past Due |
| Past Due |
| Due |
| Due |
| Current |
| Nonaccrual |
| Total Loans |
| Accruing | ||||||||||||||||||||||||||||||||
June 30, 2019 |
| Past Due |
| Past Due |
| Due |
| Due |
| Current |
| Nonaccrual |
| Total Loans |
| Accruing | ||||||||||||||||||||||||||||||||
Commercial |
| $ | - |
| $ | 89 |
| $ | - |
| $ | 89 |
| $ | 257,060 |
| $ | 207 |
| $ | 257,356 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 337,697 |
| $ | 151 |
| $ | 337,848 |
| $ | - |
Leases |
|
| - |
|
| 685 |
|
| 149 |
|
| 834 |
|
| 68,275 |
|
| 196 |
|
| 69,305 |
|
| 156 |
|
| 143 |
|
| - |
|
| - |
|
| 143 |
|
| 98,111 |
|
| 125 |
|
| 98,379 |
|
| - |
Real estate - commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied general purpose |
|
| 253 |
|
| - |
|
| 537 |
|
| 790 |
|
| 154,429 |
|
| 457 |
|
| 155,676 |
|
| 561 |
|
| 654 |
|
| - |
|
| - |
|
| 654 |
|
| 145,155 |
|
| 1,395 |
|
| 147,204 |
|
| - |
Owner occupied special purpose |
|
| 513 |
|
| - |
|
| - |
|
| 513 |
|
| 172,866 |
|
| 359 |
|
| 173,738 |
|
| - |
|
| 828 |
|
| - |
|
| - |
|
| 828 |
|
| 186,249 |
|
| 499 |
|
| 187,576 |
|
| - |
Non-owner occupied general purpose |
|
| 649 |
|
| - |
|
| - |
|
| 649 |
|
| 251,933 |
|
| 1,165 |
|
| 253,747 |
|
| - |
|
| 2,241 |
|
| 149 |
|
| - |
|
| 2,390 |
|
| 323,258 |
|
| 568 |
|
| 326,216 |
|
| - |
Non-owner occupied special purpose |
|
| - |
|
| 248 |
|
| - |
|
| 248 |
|
| 93,498 |
|
| - |
|
| 93,746 |
|
| - |
|
| 144 |
|
| - |
|
| - |
|
| 144 |
|
| 97,051 |
|
| 2,960 |
|
| 100,155 |
|
| - |
Retail properties |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 45,149 |
|
| 1,113 |
|
| 46,262 |
|
| - |
|
| 604 |
|
| - |
|
| - |
|
| 604 |
|
| 48,793 |
|
| 1,138 |
|
| 50,535 |
|
| - |
Farm |
|
| - |
|
| - |
|
| 383 |
|
| 383 |
|
| 15,584 |
|
| - |
|
| 15,967 |
|
| 387 |
|
| 1,210 |
|
| - |
|
| - |
|
| 1,210 |
|
| 12,195 |
|
| - |
|
| 13,405 |
|
| - |
Real estate - construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilder |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 2,644 |
|
| - |
|
| 2,644 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 4,370 |
|
| - |
|
| 4,370 |
|
| - |
Land |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 3,235 |
|
| - |
|
| 3,235 |
|
| - |
|
| 342 |
|
| - |
|
| - |
|
| 342 |
|
| 2,625 |
|
| - |
|
| 2,967 |
|
| - |
Commercial speculative |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 34,817 |
|
| - |
|
| 34,817 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 59,216 |
|
| - |
|
| 59,216 |
|
| - |
All other |
|
| 63 |
|
| - |
|
| - |
|
| 63 |
|
| 53,904 |
|
| 205 |
|
| 54,172 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 26,424 |
|
| 102 |
|
| 26,526 |
|
| - |
Real estate - residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 52,361 |
|
| 492 |
|
| 52,853 |
|
| - |
|
| 685 |
|
| 140 |
|
| - |
|
| 825 |
|
| 67,782 |
|
| 383 |
|
| 68,990 |
|
| - |
Multifamily |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 117,544 |
|
| 4,757 |
|
| 122,301 |
|
| - | ||||||||||||||||||||||||
Multi-family |
|
| 69 |
|
| - |
|
| - |
|
| 69 |
|
| 191,695 |
|
| - |
|
| 191,764 |
|
| - | ||||||||||||||||||||||||
Owner occupied |
|
| 40 |
|
| - |
|
| - |
|
| 40 |
|
| 124,414 |
|
| 4,127 |
|
| 128,581 |
|
| - |
|
| 553 |
|
| 202 |
|
| - |
|
| 755 |
|
| 129,413 |
|
| 2,625 |
|
| 132,793 |
|
| - |
Revolving and junior liens |
|
| 732 |
|
| 22 |
|
| 100 |
|
| 854 |
|
| 113,956 |
|
| 1,038 |
|
| 115,848 |
|
| 103 | ||||||||||||||||||||||||
Consumer |
|
| 2 |
|
| - |
|
| - |
|
| 2 |
|
| 2,760 |
|
| 8 |
|
| 2,770 |
|
| - | ||||||||||||||||||||||||
HELOC |
|
| 331 |
|
| 138 |
|
| - |
|
| 469 |
|
| 127,085 |
|
| 1,119 |
|
| 128,673 |
|
| - | ||||||||||||||||||||||||
Other1 |
|
| 1 |
|
| - |
|
| - |
|
| 1 |
|
| 11,172 |
|
| - |
|
| 11,173 |
|
| - |
|
| 6 |
|
| - |
|
| - |
|
| 6 |
|
| 15,462 |
|
| 24 |
|
| 15,492 |
|
| - |
Total, excluding PCI loans |
| $ | 7,810 |
| $ | 629 |
| $ | - |
| $ | 8,439 |
| $ | 1,872,581 |
| $ | 11,089 |
| $ | 1,892,109 |
| $ | - | ||||||||||||||||||||||||
PCI loans, net of purchase accounting adjustments |
|
| 449 |
|
| - |
|
| - |
|
| 449 |
|
| 7,029 |
|
| 3,356 |
|
| 10,834 |
|
| - | ||||||||||||||||||||||||
Total |
| $ | 2,253 |
| $ | 1,044 |
| $ | 1,169 |
| $ | 4,466 |
| $ | 1,575,601 |
| $ | 14,124 |
| $ | 1,594,191 |
| $ | 1,207 |
| $ | 8,259 |
| $ | 629 |
| $ | - |
| $ | 8,888 |
| $ | 1,879,610 |
| $ | 14,445 |
| $ | 1,902,943 |
| $ | - |
1314
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Recorded | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investment | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 90 days or |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 90 days or | ||
|
|
|
|
|
|
|
| 90 Days or |
|
|
|
|
|
|
|
|
|
|
|
|
| Greater Past |
|
|
|
|
|
|
| 90 Days or |
|
|
|
|
|
|
|
|
|
|
|
|
| Greater Past | ||||
|
| 30-59 Days |
| 60-89 Days |
| Greater Past |
| Total Past |
|
|
|
|
|
|
|
|
|
| Due and |
| 30-59 Days |
| 60-89 Days |
| Greater Past |
| Total Past |
|
|
|
|
|
|
|
|
|
| Due and | ||||||||||
December 31, 2016 |
| Past Due |
| Past Due |
| Due |
| Due |
| Current |
| Nonaccrual |
| Total Loans |
| Accruing | ||||||||||||||||||||||||||||||||
December 31, 2018 |
| Past Due |
| Past Due |
| Due |
| Due |
| Current |
| Nonaccrual |
| Total Loans |
| Accruing | ||||||||||||||||||||||||||||||||
Commercial |
| $ | 57 |
| $ | 74 |
| $ | - |
| $ | 131 |
| $ | 227,742 |
| $ | 240 |
| $ | 228,113 |
| $ | - |
| $ | 58 |
| $ | - |
| $ | 352 |
| $ | 410 |
| $ | 313,913 |
| $ | - |
| $ | 314,323 |
| $ | 361 |
Leases |
|
| - |
|
| 286 |
|
|
|
|
| 286 |
|
| 54,799 |
|
| 366 |
|
| 55,451 |
|
|
|
|
| - |
|
| - |
|
| - |
|
| - |
|
| 78,806 |
|
| - |
|
| 78,806 |
|
| - |
Real estate - commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied general purpose |
|
| 758 |
|
| - |
|
| - |
|
| 758 |
|
| 135,599 |
|
| 879 |
|
| 137,236 |
|
| - |
|
| 1,768 |
|
| - |
|
| 33 |
|
| 1,801 |
|
| 160,892 |
|
| 1,579 |
|
| 164,272 |
|
| 36 |
Owner occupied special purpose |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 177,755 |
|
| 385 |
|
| 178,140 |
|
| - |
|
| 826 |
|
| 135 |
|
| - |
|
| 961 |
|
| 192,426 |
|
| 395 |
|
| 193,782 |
|
| - |
Non-owner occupied general purpose |
|
| 667 |
|
| 379 |
|
| - |
|
| 1,046 |
|
| 229,315 |
|
| 1,930 |
|
| 232,291 |
|
| - |
|
| 2,832 |
|
| 203 |
|
| - |
|
| 3,035 |
|
| 286,115 |
|
| 4,236 |
|
| 293,386 |
|
| - |
Non-owner occupied special purpose |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 118,052 |
|
| 1,013 |
|
| 119,065 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 106,036 |
|
| 3,099 |
|
| 109,135 |
|
| - |
Retail properties |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 53,474 |
|
| 1,179 |
|
| 54,653 |
|
| - |
|
| - |
|
| 620 |
|
| - |
|
| 620 |
|
| 45,968 |
|
| - |
|
| 46,588 |
|
| - |
Farm |
|
| 1,353 |
|
| - |
|
| - |
|
| 1,353 |
|
| 13,509 |
|
| - |
|
| 14,862 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 13,778 |
|
| - |
|
| 13,778 |
|
| - |
Real estate - construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilder |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 3,883 |
|
| - |
|
| 3,883 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 5,102 |
|
| - |
|
| 5,102 |
|
| - |
Land |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 3,029 |
|
| - |
|
| 3,029 |
|
| - |
|
| 266 |
|
| - |
|
| - |
|
| 266 |
|
| 2,478 |
|
| - |
|
| 2,744 |
|
| - |
Commercial speculative |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 22,654 |
|
| 74 |
|
| 22,728 |
|
| - |
|
| - |
|
| - |
|
| 350 |
|
| 350 |
|
| 55,060 |
|
| - |
|
| 55,410 |
|
| 355 |
All other |
|
| 364 |
|
| - |
|
| - |
|
| 364 |
|
| 34,509 |
|
| 207 |
|
| 35,080 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 45,028 |
|
| 106 |
|
| 45,134 |
|
| - |
Real estate - residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor |
|
| 237 |
|
| - |
|
| - |
|
| 237 |
|
| 54,924 |
|
| 936 |
|
| 56,097 |
|
| - |
|
| 801 |
|
| 156 |
|
| - |
|
| 957 |
|
| 69,148 |
|
| 353 |
|
| 70,458 |
|
| - |
Multifamily |
|
| - |
|
| - |
|
|
|
|
| - |
|
| 96,502 |
|
| - |
|
| 96,502 |
|
|
| ||||||||||||||||||||||||
Multi-family |
|
| 545 |
|
| - |
|
| 179 |
|
| 724 |
|
| 195,504 |
|
| - |
|
| 196,228 |
|
| 180 | ||||||||||||||||||||||||
Owner occupied |
|
| 274 |
|
| - |
|
| - |
|
| 274 |
|
| 116,900 |
|
| 6,452 |
|
| 123,626 |
|
| - |
|
| 1,241 |
|
| 705 |
|
| - |
|
| 1,946 |
|
| 135,360 |
|
| 3,076 |
|
| 140,382 |
|
| - |
Revolving and junior liens |
|
| 225 |
|
| 405 |
|
| - |
|
| 630 |
|
| 99,374 |
|
| 1,622 |
|
| 101,626 |
|
| - | ||||||||||||||||||||||||
Consumer |
|
| 10 |
|
| 36 |
|
| - |
|
| 46 |
|
| 3,191 |
|
| - |
|
| 3,237 |
|
| - | ||||||||||||||||||||||||
HELOC |
|
| 775 |
|
| - |
|
| - |
|
| 775 |
|
| 138,801 |
|
| 866 |
|
| 140,442 |
|
| - | ||||||||||||||||||||||||
Other1 |
|
| 14 |
|
| - |
|
| - |
|
| 14 |
|
| 13,176 |
|
| - |
|
| 13,190 |
|
| - |
|
| 53 |
|
| 5 |
|
| 3 |
|
| 61 |
|
| 16,000 |
|
| 31 |
|
| 16,092 |
|
| 3 |
Total, excluding PCI loans |
| $ | 9,165 |
| $ | 1,824 |
| $ | 917 |
| $ | 11,906 |
| $ | 1,860,415 |
| $ | 13,741 |
| $ | 1,886,062 |
| $ | 935 | ||||||||||||||||||||||||
PCI loans, net of purchase accounting adjustments |
|
| 1,452 |
|
| - |
|
| - |
|
| 1,452 |
|
| 7,248 |
|
| 2,265 |
|
| 10,965 |
|
| - | ||||||||||||||||||||||||
Total |
| $ | 3,959 |
| $ | 1,180 |
| $ | - |
| $ | 5,139 |
| $ | 1,458,387 |
| $ | 15,283 |
| $ | 1,478,809 |
| $ | - |
| $ | 10,617 |
| $ | 1,824 |
| $ | 917 |
| $ | 13,358 |
| $ | 1,867,663 |
| $ | 16,006 |
| $ | 1,897,027 |
| $ | 935 |
1 The “Other” class includes consumer, overdrafts and net deferred costs.
Credit Quality Indicators
The Company categorizes loans into credit risk categories based on current financial information, overall debt service coverage, comparison againstto industry averages, historical payment experience, and current economic trends. This analysis includes loans with outstanding balances or commitments greater than $50,000 and excludes homogeneous loans such as home equity lines of credit and residential mortgages. Loans with a classified risk rating are reviewed quarterly regardless of size or loan type. The Company uses the following definitions for classified risk ratings:
Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan at some future date.
Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institutionBank will sustain some loss if the deficiencies are not corrected. The substandard credit quality indicator includes both potential problem loans that are currently performing and nonperforming loans.
Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Credits that are not covered by the definitions above are pass credits, which are not considered to be adversely rated.
1415
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
Credit Quality Indicators by class of loans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017 |
|
|
|
| Special |
|
|
|
|
|
|
|
|
| ||||||||||||||||
June 30, 2019 |
|
|
|
| Special |
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
| Pass |
| Mention |
| Substandard 1 |
| Doubtful |
| Total |
| Pass |
| Mention |
| Substandard |
| Doubtful |
| Total | ||||||||||
Commercial |
| $ | 245,603 |
| $ | 11,371 |
| $ | 382 |
| $ | - |
| $ | 257,356 |
| $ | 326,965 |
| $ | 3,179 |
| $ | 7,704 |
| $ | - |
| $ | 337,848 |
Leases |
|
| 68,274 |
|
| - |
|
| 1,031 |
|
| - |
|
| 69,305 |
|
| 98,254 |
|
| - |
|
| 125 |
|
| - |
|
| 98,379 |
Real estate - commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied general purpose |
|
| 153,039 |
|
| 1,274 |
|
| 1,363 |
|
| - |
|
| 155,676 |
|
| 142,385 |
|
| 1,357 |
|
| 3,462 |
|
| - |
|
| 147,204 |
Owner occupied special purpose |
|
| 172,216 |
|
| 1,163 |
|
| 359 |
|
| - |
|
| 173,738 |
|
| 175,763 |
|
| 4,880 |
|
| 6,933 |
|
| - |
|
| 187,576 |
Non-owner occupied general purpose |
|
| 250,497 |
|
| 2,085 |
|
| 1,165 |
|
| - |
|
| 253,747 |
|
| 320,735 |
|
| 788 |
|
| 4,693 |
|
| - |
|
| 326,216 |
Non-owner occupied special purpose |
|
| 90,113 |
|
| - |
|
| 3,633 |
|
| - |
|
| 93,746 |
|
| 97,195 |
|
| - |
|
| 2,960 |
|
| - |
|
| 100,155 |
Retail Properties |
|
| 43,922 |
|
| 1,227 |
|
| 1,113 |
|
| - |
|
| 46,262 |
|
| 48,793 |
|
| 604 |
|
| 1,138 |
|
| - |
|
| 50,535 |
Farm |
|
| 13,472 |
|
| - |
|
| 2,495 |
|
| - |
|
| 15,967 |
|
| 10,977 |
|
| 1,218 |
|
| 1,210 |
|
| - |
|
| 13,405 |
Real estate - construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilder |
|
| 2,644 |
|
| - |
|
| - |
|
| - |
|
| 2,644 |
|
| 4,370 |
|
| - |
|
| - |
|
| - |
|
| 4,370 |
Land |
|
| 3,235 |
|
| - |
|
| - |
|
| - |
|
| 3,235 |
|
| 2,967 |
|
| - |
|
| - |
|
| - |
|
| 2,967 |
Commercial speculative |
|
| 34,817 |
|
| - |
|
| - |
|
| - |
|
| 34,817 |
|
| 59,216 |
|
| - |
|
| - |
|
| - |
|
| 59,216 |
All other |
|
| 52,898 |
|
| 894 |
|
| 380 |
|
| - |
|
| 54,172 |
|
| 26,253 |
|
| - |
|
| 273 |
|
| - |
|
| 26,526 |
Real estate - residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor |
|
| 52,205 |
|
| - |
|
| 648 |
|
| - |
|
| 52,853 |
|
| 67,961 |
|
| - |
|
| 1,029 |
|
| - |
|
| 68,990 |
Multifamily |
|
| 117,544 |
|
| - |
|
| 4,757 |
|
| - |
|
| 122,301 | |||||||||||||||
Multi-Family |
|
| 191,271 |
|
| - |
|
| 493 |
|
| - |
|
| 191,764 | |||||||||||||||
Owner occupied |
|
| 123,600 |
|
| 563 |
|
| 4,418 |
|
| - |
|
| 128,581 |
|
| 128,885 |
|
| 135 |
|
| 3,773 |
|
| - |
|
| 132,793 |
Revolving and junior liens |
|
| 113,871 |
|
| - |
|
| 1,977 |
|
| - |
|
| 115,848 | |||||||||||||||
Consumer |
|
| 2,762 |
|
| - |
|
| 8 |
|
| - |
|
| 2,770 | |||||||||||||||
Other |
|
| 11,173 |
|
| - |
|
| - |
|
| - |
|
| 11,173 | |||||||||||||||
HELOC |
|
| 126,455 |
|
| 140 |
|
| 2,078 |
|
| - |
|
| 128,673 | |||||||||||||||
Other 1 |
|
| 15,468 |
|
| - |
|
| 24 |
|
| - |
|
| 15,492 | |||||||||||||||
Total, excluding PCI loans |
| $ | 1,843,913 |
| $ | 12,301 |
| $ | 35,895 |
| $ | - |
| $ | 1,892,109 | |||||||||||||||
PCI loans, net of purchase accounting adjustments |
|
| 820 |
|
| 1,725 |
|
| 8,289 |
|
| - |
|
| 10,834 | |||||||||||||||
Total |
| $ | 1,551,885 |
| $ | 18,577 |
| $ | 23,729 |
| $ | - |
| $ | 1,594,191 |
| $ | 1,844,733 |
| $ | 14,026 |
| $ | 44,184 |
| $ | - |
| $ | 1,902,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
|
|
| Special |
|
|
|
|
|
|
|
|
| |
|
| Pass |
| Mention |
| Substandard 1 |
| Doubtful |
| Total | |||||
Commercial |
| $ | 214,028 |
| $ | 11,558 |
| $ | 2,527 |
| $ | - |
| $ | 228,113 |
Leases |
|
| 53,366 |
|
| 976 |
|
| 1,109 |
|
|
|
|
| 55,451 |
Real estate - commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied general purpose |
|
| 135,503 |
|
| 53 |
|
| 1,680 |
|
| - |
|
| 137,236 |
Owner occupied special purpose |
|
| 172,353 |
|
| 5,402 |
|
| 385 |
|
| - |
|
| 178,140 |
Non-owner occupied general purpose |
|
| 229,448 |
|
| 913 |
|
| 1,930 |
|
| - |
|
| 232,291 |
Non-owner occupied special purpose |
|
| 114,293 |
|
| - |
|
| 4,772 |
|
| - |
|
| 119,065 |
Retail Properties |
|
| 52,207 |
|
| 1,267 |
|
| 1,179 |
|
| - |
|
| 54,653 |
Farm |
|
| 11,840 |
|
| 1,240 |
|
| 1,782 |
|
| - |
|
| 14,862 |
Real estate - construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilder |
|
| 3,883 |
|
| - |
|
| - |
|
| - |
|
| 3,883 |
Land |
|
| 3,029 |
|
| - |
|
| - |
|
| - |
|
| 3,029 |
Commercial speculative |
|
| 22,654 |
|
| - |
|
| 74 |
|
| - |
|
| 22,728 |
All other |
|
| 34,696 |
|
| - |
|
| 384 |
|
| - |
|
| 35,080 |
Real estate - residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor |
|
| 55,001 |
|
| - |
|
| 1,096 |
|
| - |
|
| 56,097 |
Multifamily |
|
| 96,502 |
|
| - |
|
| - |
|
| - |
|
| 96,502 |
Owner occupied |
|
| 115,831 |
|
| 570 |
|
| 7,225 |
|
| - |
|
| 123,626 |
Revolving and junior liens |
|
| 99,286 |
|
| - |
|
| 2,340 |
|
| - |
|
| 101,626 |
Consumer |
|
| 3,236 |
|
| - |
|
| 1 |
|
| - |
|
| 3,237 |
Other |
|
| 13,165 |
|
| 25 |
|
| - |
|
| - |
|
| 13,190 |
Total |
| $ | 1,430,321 |
| $ | 22,004 |
| $ | 26,484 |
| $ | - |
| $ | 1,478,809 |
16
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018 |
|
|
|
| Special |
|
|
|
|
|
|
|
|
| |
|
| Pass |
| Mention |
| Substandard |
| Doubtful |
| Total | |||||
Commercial |
| $ | 305,993 |
| $ | 8,193 |
| $ | 137 |
| $ | - |
| $ | 314,323 |
Leases |
|
| 78,806 |
|
| - |
|
| - |
|
| - |
|
| 78,806 |
Real estate - commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied general purpose |
|
| 157,334 |
|
| 1,660 |
|
| 5,278 |
|
| - |
|
| 164,272 |
Owner occupied special purpose |
|
| 186,218 |
|
| 3,429 |
|
| 4,135 |
|
| - |
|
| 193,782 |
Non-owner occupied general purpose |
|
| 284,818 |
|
| 202 |
|
| 8,366 |
|
| - |
|
| 293,386 |
Non-owner occupied special purpose |
|
| 104,526 |
|
| 1,510 |
|
| 3,099 |
|
| - |
|
| 109,135 |
Retail Properties |
|
| 44,805 |
|
| - |
|
| 1,783 |
|
| - |
|
| 46,588 |
Farm |
|
| 11,307 |
|
| 1,249 |
|
| 1,222 |
|
| - |
|
| 13,778 |
Real estate - construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilder |
|
| 5,102 |
|
| - |
|
| - |
|
| - |
|
| 5,102 |
Land |
|
| 2,744 |
|
| - |
|
| - |
|
| - |
|
| 2,744 |
Commercial speculative |
|
| 55,410 |
|
| - |
|
| - |
|
| - |
|
| 55,410 |
All other |
|
| 42,524 |
|
| - |
|
| 2,610 |
|
| - |
|
| 45,134 |
Real estate - residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor |
|
| 69,242 |
|
| - |
|
| 1,216 |
|
| - |
|
| 70,458 |
Multi-Family |
|
| 195,249 |
|
| - |
|
| 979 |
|
| - |
|
| 196,228 |
Owner occupied |
|
| 135,858 |
|
| - |
|
| 4,524 |
|
| - |
|
| 140,382 |
HELOC |
|
| 138,553 |
|
| - |
|
| 1,889 |
|
| - |
|
| 140,442 |
Other 1 |
|
| 16,061 |
|
| - |
|
| 31 |
|
| - |
|
| 16,092 |
Total, excluding PCI loans |
| $ | 1,834,550 |
| $ | 16,243 |
| $ | 35,269 |
| $ | - |
| $ | 1,886,062 |
PCI loans, net of purchase accounting adjustments |
|
| 907 |
|
| 2,906 |
|
| 7,152 |
|
| - |
|
| 10,965 |
Total |
| $ | 1,835,457 |
| $ | 19,149 |
| $ | 42,421 |
| $ | - |
| $ | 1,897,027 |
1 The substandard credit quality indicator“Other” class includes both potential problem loans that are currently performingconsumer, overdrafts and nonperforming loans.net deferred costs.
The Company had $1.2 million$519,000 and $1.8 million$448,000 in residential real estate loans in the process of foreclosure as of SeptemberJune 30, 2017,2019, and December 31, 2016,2018, respectively. The Company also had $937,000 and $225,000 in residential real estate included in OREO as of September 30, 2017, and December 31, 2016, respectively.
1517
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
ImpairedThe following tables set forth the recorded investments, unpaid principal balance and related allowance, excluding purchased credit-impaired loans, which include nonaccrual loans and accruing troubled debt restructurings, by class of loans as of June 30, 2019 and for the September 30, 2017 periods listed were as follows:three and six months then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended | |||||||||||||||
|
| As of June 30, 2019 |
| June 30, 2019 |
| June 30, 2019 | |||||||||||||||
|
|
|
|
| Unpaid |
|
|
|
| Average |
| Interest |
| Average |
| Interest | |||||
|
| Recorded |
| Principal |
| Related |
| Recorded |
| Income |
| Recorded |
| Income | |||||||
|
| Investment |
| Balance |
| Allowance |
| Investment |
| Recognized |
| Investment |
| Recognized | |||||||
With no related allowance recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
Leases |
|
| 11 |
|
| 11 |
|
| - |
|
| 63 |
|
| - |
|
| 6 |
|
| - |
Commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied general purpose |
|
| 963 |
|
| 1,163 |
|
| - |
|
| 1,386 |
|
| 2 |
|
| 1,311 |
|
| 3 |
Owner occupied special purpose |
|
| 499 |
|
| 652 |
|
| - |
|
| 508 |
|
| - |
|
| 447 |
|
| - |
Non-owner occupied general purpose |
|
| 568 |
|
| 590 |
|
| - |
|
| 572 |
|
| - |
|
| 853 |
|
| - |
Non-owner occupied special purpose |
|
| 2,960 |
|
| 3,575 |
|
| - |
|
| 2,960 |
|
| - |
|
| 1,480 |
|
| - |
Retail properties |
|
| 1,138 |
|
| 1,159 |
|
| - |
|
| 569 |
|
| - |
|
| 569 |
|
| - |
Farm |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilder |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Land |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Commercial speculative |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
All other |
|
| 102 |
|
| 132 |
|
| - |
|
| 102 |
|
| - |
|
| 75 |
|
| - |
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor |
|
| 383 |
|
| 500 |
|
| - |
|
| 360 |
|
| - |
|
| 368 |
|
| - |
Multi-Family |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Owner occupied |
|
| 3,096 |
|
| 4,588 |
|
| - |
|
| 3,354 |
|
| 11 |
|
| 3,228 |
|
| 21 |
HELOC |
|
| 1,118 |
|
| 1,483 |
|
| - |
|
| 1,039 |
|
| 1 |
|
| 1,001 |
|
| 1 |
Other 1 |
|
| 4 |
|
| 5 |
|
| - |
|
| 5 |
|
| - |
|
| 5 |
|
| - |
Total impaired loans with no recorded allowance |
|
| 10,842 |
|
| 13,858 |
|
| - |
|
| 10,918 |
|
| 14 |
|
| 9,343 |
|
| 25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
| 151 |
|
| 151 |
|
| - |
|
| 75 |
|
| - |
|
| 76 |
|
| - |
Leases |
|
| 114 |
|
| 154 |
|
| 125 |
|
| 57 |
|
| - |
|
| 57 |
|
| - |
Commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied general purpose |
|
| 664 |
|
| 685 |
|
| 199 |
|
| 419 |
|
| 2 |
|
| 530 |
|
| 8 |
Owner occupied special purpose |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Non-owner occupied general purpose |
|
| 56 |
|
| 57 |
|
| 1 |
|
| 1,512 |
|
| - |
|
| 1,577 |
|
| 2 |
Non-owner occupied special purpose |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 1,549 |
|
| - |
Retail properties |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Farm |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilder |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Land |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Commercial speculative |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
All other |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 29 |
|
| - |
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor |
|
| 798 |
|
| 798 |
|
| 4 |
|
| 800 |
|
| 11 |
|
| 803 |
|
| 22 |
Multi-Family |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Owner occupied |
|
| 3,363 |
|
| 3,363 |
|
| 41 |
|
| 3,402 |
|
| 41 |
|
| 3,519 |
|
| 80 |
HELOC |
|
| 1,381 |
|
| 1,381 |
|
| 76 |
|
| 1,402 |
|
| 19 |
|
| 1,369 |
|
| 39 |
Other 1 |
|
| 20 |
|
| 21 |
|
| 9 |
|
| 21 |
|
| - |
|
| 22 |
|
| - |
Total impaired loans with a recorded allowance |
|
| 6,547 |
|
| 6,610 |
|
| 455 |
|
| 7,688 |
|
| 73 |
|
| 9,531 |
|
| 151 |
Total impaired loans |
| $ | 17,389 |
| $ | 20,468 |
| $ | 455 |
| $ | 18,606 |
| $ | 87 |
| $ | 18,874 |
| $ | 176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended | |||||||||||
|
| As of September 30, 2017 |
| September 30, 2017 | |||||||||||
|
|
|
|
| Unpaid |
|
|
|
| Average |
| Interest | |||
|
| Recorded |
| Principal |
| Related |
| Recorded |
| Income | |||||
|
| Investment |
| Balance |
| Allowance |
| Investment |
| Recognized | |||||
With no related allowance recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| $ | 207 |
| $ | 360 |
| $ | - |
| $ | 123 |
| $ | - |
Leases |
|
| 196 |
|
| 227 |
|
| - |
|
| 281 |
|
| - |
Commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied general purpose |
|
| 457 |
|
| 495 |
|
| - |
|
| 1,169 |
|
| - |
Owner occupied special purpose |
|
| 359 |
|
| 509 |
|
| - |
|
| 372 |
|
| - |
Non-owner occupied general purpose |
|
| 1,218 |
|
| 1,592 |
|
| - |
|
| 1,481 |
|
| 2 |
Non-owner occupied special purpose |
|
| - |
|
| - |
|
| - |
|
| 507 |
|
| - |
Retail properties |
|
| 1,113 |
|
| 1,199 |
|
| - |
|
| 1,146 |
|
| - |
Farm |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilder |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Land |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Commercial speculative |
|
| - |
|
| - |
|
| - |
|
| 37 |
|
| - |
All other |
|
| 205 |
|
| 231 |
|
| - |
|
| 206 |
|
| - |
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor |
|
| 1,374 |
|
| 1,627 |
|
| - |
|
| 1,607 |
|
| 36 |
Multifamily |
|
| 4,757 |
|
| 4,965 |
|
| - |
|
| 2,379 |
|
| - |
Owner occupied |
|
| 8,150 |
|
| 9,524 |
|
| - |
|
| 8,987 |
|
| 119 |
Revolving and junior liens |
|
| 1,991 |
|
| 2,173 |
|
| - |
|
| 2,237 |
|
| 27 |
Consumer |
|
| 8 |
|
| 8 |
|
| - |
|
| 104 |
|
| - |
Total impaired loans with no recorded allowance |
|
| 20,035 |
|
| 22,910 |
|
| - |
|
| 20,636 |
|
| 184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Leases |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied general purpose |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Owner occupied special purpose |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Non-owner occupied general purpose |
|
| - |
|
| - |
|
| - |
|
| 123 |
|
| - |
Non-owner occupied special purpose |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Retail properties |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Farm |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilder |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Land |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Commercial speculative |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
All other |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Multifamily |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Owner occupied |
|
| - |
|
| - |
|
| - |
|
| 402 |
|
| - |
Revolving and junior liens |
|
| 51 |
|
| 51 |
|
| 6 |
|
| 26 |
|
| 2 |
Consumer |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Total impaired loans with a recorded allowance |
|
| 51 |
|
| 51 |
|
| 6 |
|
| 551 |
|
| 2 |
Total impaired loans |
| $ | 20,086 |
| $ | 22,961 |
| $ | 6 |
| $ | 21,187 |
| $ | 186 |
1 The “Other” class includes consumer, overdrafts and net deferred costs.
1618
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
Impaired loans by class of loans as of December 31, 2016,2018, and for the ninethree and six months ended SeptemberJune 30, 2016,2018, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended | ||||||||||||
|
| As of December 31, 2016 |
| September 30, 2016 |
| As of December 31, 2018 |
| June 30, 2018 |
| June 30, 2018 | ||||||||||||||||||||||||||
|
|
|
| Unpaid |
|
|
| Average |
| Interest |
|
|
| Unpaid |
|
|
| Average |
| Interest |
| Average |
| Interest | ||||||||||||
|
| Recorded |
| Principal |
| Related |
| Recorded |
| Income |
| Recorded |
| Principal |
| Related |
| Recorded |
| Income |
| Recorded |
| Income | ||||||||||||
|
| Investment |
| Balance |
| Allowance |
| Investment |
| Recognized |
| Investment |
| Balance |
| Allowance |
| Investment |
| Recognized |
| Investment |
| Recognized | ||||||||||||
With no related allowance recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| $ | 240 |
| $ | 388 |
| $ | - |
| $ | 326 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
Leases |
|
| 366 |
|
| 371 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 89 |
|
| - |
Commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied general purpose |
|
| 1,881 |
|
| 2,131 |
|
| - |
|
| 2,412 |
|
| 66 |
|
| 1,659 |
|
| 1,782 |
|
| - |
|
| 645 |
|
| 3 |
|
| 683 |
|
| 3 |
Owner occupied special purpose |
|
| 385 |
|
| 518 |
|
| - |
|
| 580 |
|
| - |
|
| 395 |
|
| 530 |
|
| - |
|
| 433 |
|
| - |
|
| 384 |
|
| - |
Non-owner occupied general purpose |
|
| 1,744 |
|
| 2,010 |
|
| - |
|
| 1,655 |
|
| 2 |
|
| 1,138 |
|
| 1,159 |
|
| - |
|
| 40 |
|
| - |
|
| 601 |
|
| - |
Non-owner occupied special purpose |
|
| 1,013 |
|
| 1,649 |
|
| - |
|
| 506 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Retail properties |
|
| 1,179 |
|
| 1,235 |
|
| - |
|
| 990 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 541 |
|
| - |
Farm |
|
| - |
|
| - |
|
| - |
|
| 636 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilder |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Land |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Commercial speculative |
|
| 74 |
|
| 81 |
|
| - |
|
| 80 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
All other |
|
| 207 |
|
| 221 |
|
| - |
|
| - |
|
| - |
|
| 49 |
|
| 73 |
|
| - |
|
| 195 |
|
| - |
|
| 197 |
|
| - |
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor |
|
| 1,841 |
|
| 2,308 |
|
| - |
|
| 1,864 |
|
| 35 |
|
| 353 |
|
| 459 |
|
| - |
|
| 366 |
|
| - |
|
| 371 |
|
| - |
Multifamily |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - | |||||||||||||||||||||
Multi-Family |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 2,362 |
|
| - | |||||||||||||||
Owner occupied |
|
| 9,824 |
|
| 11,391 |
|
| - |
|
| 9,916 |
|
| 120 |
|
| 3,359 |
|
| 4,882 |
|
| - |
|
| 4,696 |
|
| 9 |
|
| 4,726 |
|
| 18 |
Revolving and junior liens |
|
| 2,484 |
|
| 3,018 |
|
| - |
|
| 2,527 |
|
| 9 | |||||||||||||||||||||
Consumer |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - | |||||||||||||||||||||
HELOC |
|
| 884 |
|
| 1,003 |
|
| - |
|
| 933 |
|
| 1 |
|
| 933 |
|
| 1 | |||||||||||||||
Other 1 |
|
| 7 |
|
| 7 |
|
| - |
|
| 17 |
|
| - |
|
| 11 |
|
| - | |||||||||||||||
Total impaired loans with no recorded allowance |
|
| 21,238 |
|
| 25,321 |
|
| - |
|
| 21,492 |
|
| 232 |
|
| 7,844 |
|
| 9,895 |
|
| - |
|
| 7,325 |
|
| 13 |
|
| 10,898 |
|
| 22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
| - |
|
| - |
|
| - |
|
| 2 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Leases |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied general purpose |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 396 |
|
| 396 |
|
| 3 |
|
| 152 |
|
| - |
|
| - |
|
| - |
Owner occupied special purpose |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Non-owner occupied general purpose |
|
| 246 |
|
| 595 |
|
| 246 |
|
| 132 |
|
| 31 |
|
| 3,098 |
|
| 4,038 |
|
| 97 |
|
| - |
|
| - |
|
| - |
|
| - |
Non-owner occupied special purpose |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 3,099 |
|
| 3,575 |
|
| 139 |
|
| 3,337 |
|
| - |
|
| 1,550 |
|
| - |
Retail properties |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Farm |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilder |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Land |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Commercial speculative |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
All other |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 57 |
|
| 58 |
|
| 1 |
|
| - |
|
| - |
|
| - |
|
| - |
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 808 |
|
| 808 |
|
| 4 |
|
| 819 |
|
| 11 |
|
| 822 |
|
| 22 |
Multifamily |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - | |||||||||||||||||||||
Multi-Family |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - | |||||||||||||||
Owner occupied |
|
| 803 |
|
| 853 |
|
| 803 |
|
| 356 |
|
| - |
|
| 3,676 |
|
| 3,679 |
|
| 46 |
|
| 3,661 |
|
| 36 |
|
| 3,544 |
|
| 73 |
Revolving and junior liens |
|
| - |
|
| - |
|
| - |
|
| 23 |
|
| - | |||||||||||||||||||||
Consumer |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - | |||||||||||||||||||||
HELOC |
|
| 1,357 |
|
| 1,357 |
|
| 49 |
|
| 1,232 |
|
| 13 |
|
| 1,153 |
|
| 24 | |||||||||||||||
Other 1 |
|
| 24 |
|
| 25 |
|
| 13 |
|
| 2 |
|
| - |
|
| 2 |
|
| - | |||||||||||||||
Total impaired loans with a recorded allowance |
|
| 1,049 |
|
| 1,448 |
|
| 1,049 |
|
| 513 |
|
| 31 |
|
| 12,515 |
|
| 13,936 |
|
| 352 |
|
| 9,203 |
|
| 60 |
|
| 7,071 |
|
| 119 |
Total impaired loans |
| $ | 22,287 |
| $ | 26,769 |
| $ | 1,049 |
| $ | 22,005 |
| $ | 263 |
| $ | 20,359 |
| $ | 23,831 |
| $ | 352 |
| $ | 16,528 |
| $ | 73 |
| $ | 17,969 |
| $ | 141 |
1 The “Other” class includes consumer, overdrafts and net deferred costs.
19
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
Troubled debt restructurings (“TDRs”) are loans for which the contractual terms have been modified and both of these conditions exist: (1) there is a concession to the borrower and (2) the borrower is experiencing financial difficulties. Loans are restructured on a case-by-case basis during the loan collection process with modifications generally initiated at the request of the borrower. These modifications may include reduction in interest rates, extension of term, deferrals of principal, and other modifications. The Bank participates in the U.S. Department of the Treasury’s (the “Treasury”) Home Affordable Modification Program (“HAMP”) which gives qualifying homeowners an opportunity to refinance into more affordable monthly payments.
17
The specific allocation of the allowance for loan and lease losses for TDRs is determined by calculating the present value of the TDR cash flows by discounting the original payment less an assumption for probability of default at the original note’s issue rate, and adding this amount to the present value of collateral less selling costs. If the resulting amount is less than the recorded book value, the Bank either establishes a valuation allowance (i.e., specific reserve) as a component of the allowance for loan and lease losses or charges off the impaired balance if it determines that such amount is a confirmed loss. This method is used consistently for all segments of the portfolio. The allowance for loan and lease losses also includes an allowance based on a loss migration analysis for each loan category on loans and leases that are not individually evaluated for specific impairment. All loans charged-off, including TDRs charged-off, are factored into this calculation by portfolio segment.
TDRs that were modified during the period are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| TDR Modifications |
| TDR Modifications |
| ||||||||||||
|
| Quarter Ended September 30, 2017 |
| Nine Months Ended September 30, 2017 |
| ||||||||||||
|
| # of |
| Pre-modification |
| Post-modification |
| # of |
| Pre-modification |
| Post-modification |
| ||||
|
| contracts |
| recorded investment |
| recorded investment |
| contracts |
| recorded investment |
| recorded investment |
| ||||
Troubled debt restructurings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HAMP1 |
| 1 |
| $ | 36 |
| $ | 33 |
| 1 |
| $ | 36 |
| $ | 33 |
|
Other2 |
| 1 |
|
| 42 |
|
| 42 |
| 1 |
|
| 42 |
|
| 42 |
|
Revolving and junior liens |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HAMP1 |
| 1 |
|
| 49 |
|
| 49 |
| 1 |
|
| 49 |
|
| 49 |
|
Other2 |
| 1 |
|
| 49 |
|
| 33 |
| 7 |
|
| 448 |
|
| 418 |
|
Total |
| 4 |
| $ | 176 |
| $ | 157 |
| 10 |
| $ | 575 |
| $ | 542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| TDR Modifications |
| TDR Modifications |
| ||||||||||||
|
| Three Months Ended June 30, 2019 |
| Six Months Ended June 30, 2019 |
| ||||||||||||
|
| # of |
| Pre-modification |
| Post-modification |
| # of |
| Pre-modification |
| Post-modification |
| ||||
|
| contracts |
| recorded investment |
| recorded investment |
| contracts |
| recorded investment |
| recorded investment |
| ||||
Troubled debt restructurings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor occupied general purpose |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other1 |
| - |
| $ | - |
| $ | - |
| 1 |
| $ | 58 |
| $ | 57 |
|
Real estate - residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HAMP2 |
| 2 |
|
| 294 |
|
| 292 |
| 3 |
|
| 399 |
|
| 299 |
|
HELOC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HAMP2 |
| - |
|
| - |
|
| - |
| 1 |
|
| 39 |
|
| 34 |
|
Other1 |
| - |
|
| - |
|
| - |
| 1 |
|
| 39 |
|
| 39 |
|
Total |
| 2 |
| $ | 294 |
| $ | 292 |
| 6 |
| $ | 535 |
| $ | 429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| TDR Modifications |
| TDR Modifications |
|
| TDR Modifications |
| TDR Modifications |
| ||||||||||||||||||||||||
|
| Quarter Ended September 30, 2016 |
| Nine Months Ended September 30, 2016 |
|
| Three Months Ended June 30, 2018 |
| Six Months Ended June 30, 2018 |
| ||||||||||||||||||||||||
|
| # of |
| Pre-modification |
| Post-modification |
| # of |
| Pre-modification |
| Post-modification |
|
| # of |
| Pre-modification |
| Post-modification |
| # of |
| Pre-modification |
| Post-modification |
| ||||||||
|
| contracts |
| recorded investment |
| recorded investment |
| contracts |
| recorded investment |
| recorded investment |
|
| contracts |
| recorded investment |
| recorded investment |
| contracts |
| recorded investment |
| recorded investment |
| ||||||||
Troubled debt restructurings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Real estate - commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Other2 |
| - |
| $ | - |
| $ | - |
| 2 |
| $ | 312 |
| $ | 211 |
| |||||||||||||||||
Owner occupied special purpose |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Other1 |
| 1 |
| $ | 110 |
| $ | 56 |
| 1 |
| $ | 110 |
| $ | 56 |
| |||||||||||||||||
Real estate - residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HAMP1 |
| - |
|
| - |
|
| - |
| 1 |
|
| 239 |
|
| 235 |
| |||||||||||||||||
Revolving and junior liens |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
HAMP1 |
| - |
|
| - |
|
|
|
| 4 |
|
| 469 |
|
| 433 |
| |||||||||||||||||
Other2 |
| 1 |
|
| 70 |
|
| 70 |
| 1 |
|
| 70 |
|
| 70 |
| |||||||||||||||||
HAMP2 |
| 1 |
|
| 49 |
|
| 39 |
| 1 |
|
| 49 |
|
| 39 |
| |||||||||||||||||
HELOC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Rate3 |
|
|
|
|
|
|
|
|
| 1 |
| 24 |
| 24 |
| |||||||||||||||||||
Other1 |
| 3 |
|
| 305 |
|
| 287 |
| 7 |
|
| 523 |
|
| 503 |
| |||||||||||||||||
Total |
| 1 |
| $ | 70 |
| $ | 70 |
| 8 |
| $ | 1,090 |
| $ | 949 |
|
| 5 |
| $ | 464 |
| $ | 382 |
| 10 |
| $ | 706 |
| $ | 622 |
|
20
1Table HAMP: Home Affordable Modification Programof Contents
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
21 Other: Change of terms from bankruptcy courtcourt.
2HAMP: Home Affordable Modification Program.
3 Rate: Refers to interest rate reduction.
TDRs are classified as being in default on a case-by-case basis when they fail to be in compliance with the modified terms. There was no TDR default activity for the nine monthsperiods ended SeptemberJune 30, 2017,2019 and SeptemberJune 30, 2016,2018, for loans that were restructured within the 12 month period prior to default.
The following table details the accretable discount on all of the Company’s purchased loans, both non-PCI loans and PCI loans as of June 30, 2019. The Company’s PCI loans were recorded commensurate with the second quarter 2018 acquisition of ABC Bank; no PCI loans were held prior to that time. Non-PCI loan activity during the first quarter of 2018 stemmed from the Company’s acquisition of the Chicago branch of Talmer Bank and Trust in late 2016. The accretable discount recorded in the second quarter of 2019 totaled $1.1 million; the balance of the non-PCI loan discount was $10.8 million as of June 30, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Accounting Accretion |
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
| Accretable Discount- Non-PCI Loans |
| Accretable Discount- PCI Loans |
| Non-Accretable Discount- PCI Loans |
| Total | ||||
Beginning balance, April 1, 2019 |
| $ | 1,502 |
| $ | 1,085 |
| $ | 5,969 |
| $ | 8,556 |
Accretion |
|
| (286) |
|
| (108) |
|
| - |
|
| (394) |
Charge-offs |
|
| - |
|
| (48) |
|
| (467) |
|
| (515) |
Transfer |
|
| - |
|
| 2 |
|
| (2) |
|
| - |
Balance, June 30, 2019 |
| $ | 1,216 |
| $ | 931 |
| $ | 5,500 |
| $ | 7,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended |
| Accretable Discount - Non-PCI Loans |
| Accretable Discount - PCI Loans |
| Non-Accretable Discount - PCI Loans |
| Total | ||||
Beginning balance, January 1, 2019 |
| $ | 1,867 |
| $ | 1,099 |
| $ | 5,969 |
| $ | 8,935 |
Accretion |
|
| (651) |
|
| (122) |
|
|
|
|
| (773) |
Charge-offs |
|
|
|
|
| (48) |
|
| (467) |
|
| (515) |
Transfer |
|
|
|
|
| 2 |
|
| (2) |
|
| - |
Balance, June 30, 2019 |
| $ | 1,216 |
| $ | 931 |
| $ | 5,500 |
| $ | 7,647 |
1821
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
Note 5 – Allowance for Loan and Lease Losses
Changes in the allowance for loan and lease losses by segment of loans based on method of impairment for the three and six months ended June 30, 2019, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Real Estate |
| Real Estate |
| Real Estate |
|
|
|
|
|
| ||||||||
Allowance for loan and lease losses: |
| Commercial |
| Leases |
| Commercial |
| Construction |
| Residential |
| HELOC |
| Other1 |
| Total | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 3,052 |
| $ | 805 |
| $ | 10,020 |
| $ | 800 |
| $ | 1,956 |
| $ | 1,325 |
| $ | 1,358 |
| $ | 19,316 |
Charge-offs |
|
| 67 |
|
| - |
|
| 42 |
|
| 1 |
|
| - |
|
| 279 |
|
| 85 |
|
| 474 |
Recoveries |
|
| 6 |
|
| - |
|
| 12 |
|
| 2 |
|
| 14 |
|
| 12 |
|
| 34 |
|
| 80 |
Provision (Release) |
|
| 386 |
|
| 156 |
|
| 527 |
|
| 19 |
|
| (180) |
|
| 277 |
|
| (735) |
|
| 450 |
Ending balance |
| $ | 3,377 |
| $ | 961 |
| $ | 10,517 |
| $ | 820 |
| $ | 1,790 |
| $ | 1,335 |
| $ | 572 |
| $ | 19,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 2,832 |
| $ | 734 |
| $ | 10,470 |
| $ | 969 |
| $ | 1,931 |
| $ | 1,449 |
| $ | 621 |
| $ | 19,006 |
Charge-offs |
|
| 79 |
|
| - |
|
| 273 |
|
| 1 |
|
| 18 |
|
| 279 |
|
| 169 |
|
| 819 |
Recoveries |
|
| 36 |
|
| - |
|
| 35 |
|
| 1 |
|
| 64 |
|
| 58 |
|
| 91 |
|
| 285 |
Provision (Release) |
|
| 588 |
|
| 227 |
|
| 285 |
|
| (149) |
|
| (187) |
|
| 107 |
|
| 29 |
|
| 900 |
Ending balance |
| $ | 3,377 |
| $ | 961 |
| $ | 10,517 |
| $ | 820 |
| $ | 1,790 |
| $ | 1,335 |
| $ | 572 |
| $ | 19,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: Individually evaluated for impairment |
| $ | 113 |
| $ | 12 |
| $ | 206 |
| $ | - |
| $ | 45 |
| $ | 70 |
| $ | 9 |
| $ | 455 |
Ending balance: Collectively evaluated for impairment |
|
| 3,264 |
|
| 949 |
|
| 9,907 |
|
| 820 |
|
| 1,745 |
|
| 1,265 |
|
| 563 |
|
| 18,513 |
Ending balance: Acquired and accounted for ASC 310-30 |
|
| - |
|
| - |
|
| 404 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 404 |
Total ending allowance balance |
| $ | 3,377 |
| $ | 961 |
| $ | 10,517 |
| $ | 820 |
| $ | 1,790 |
| $ | 1,335 |
| $ | 572 |
| $ | 19,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: Individually evaluated for Impairment |
| $ | 151 |
| $ | 125 |
| $ | 6,848 |
| $ | 102 |
| $ | 7,640 |
| $ | 2,499 |
| $ | 24 |
| $ | 17,389 |
Ending balance: Collectively evaluated for impairment |
|
| 337,697 |
|
| 98,254 |
|
| 818,243 |
|
| 92,977 |
|
| 385,907 |
|
| 126,174 |
|
| 15,468 |
|
| 1,874,720 |
Ending balance: Acquired and accounted for ASC 310-30 |
|
| - |
|
| - |
|
| 4,092 |
|
| 674 |
|
| 6,068 |
|
| - |
|
| - |
|
| 10,834 |
Total ending loans balance |
| $ | 337,848 |
| $ | 98,379 |
| $ | 829,183 |
| $ | 93,753 |
| $ | 399,615 |
| $ | 128,673 |
| $ | 15,492 |
| $ | 1,902,943 |
1 The “Other” class includes consumer, overdrafts and net deferred costs.
Changes in the allowance for loan and lease losses by segment of loans based on method of impairment for three and ninesix months ended SeptemberJune 30, 2017,2018, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Real Estate |
| Real Estate |
| Real Estate |
|
|
|
|
|
|
|
|
|
|
| Real Estate |
| Real Estate |
| Real Estate |
|
|
|
|
|
| ||||||||||||||||
Allowance for loan losses: |
| Commercial |
| Leases |
| Commercial |
| Construction |
| Residential |
| Consumer |
| Other |
| Total | ||||||||||||||||||||||||||||||||
Three months ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Allowance for loan and lease losses: |
| Commercial |
| Leases |
| Commercial |
| Construction |
| Residential |
| HELOC |
| Other1 |
| Total | ||||||||||||||||||||||||||||||||
Three months ended June 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Beginning balance |
| $ | 2,150 |
| $ | 791 |
| $ | 8,107 |
| $ | 857 |
| $ | 2,576 |
| $ | 848 |
| $ | 507 |
| $ | 15,836 |
| $ | 2,604 |
| $ | 617 |
| $ | 9,565 |
| $ | 1,143 |
| $ | 1,854 |
| $ | 1,535 |
| $ | 870 |
| $ | 18,188 |
Charge-offs |
|
| 13 |
|
| 98 |
|
| 22 |
|
| 19 |
|
| 7 |
|
| 82 |
|
| - |
|
| 241 |
|
| 15 |
|
| 8 |
|
| 504 |
|
| - |
|
| 5 |
|
| 65 |
|
| 102 |
|
| 699 |
Recoveries |
|
| 6 |
|
| - |
|
| 43 |
|
| 11 |
|
| 459 |
|
| 45 |
|
| 6 |
|
| 570 |
|
| 92 |
|
| - |
|
| 21 |
|
| - |
|
| 105 |
|
| 91 |
|
| 73 |
|
| 382 |
(Release) Provision |
|
| (104) |
|
| 77 |
|
| 505 |
|
| 165 |
|
| (607) |
|
| (1) |
|
| 265 |
|
| 300 |
|
| (5) |
|
| 25 |
|
| 1,455 |
|
| 255 |
|
| (136) |
|
| (171) |
|
| 27 |
|
| 1,450 |
Ending balance |
| $ | 2,039 |
| $ | 770 |
| $ | 8,633 |
| $ | 1,014 |
| $ | 2,421 |
| $ | 810 |
| $ | 778 |
| $ | 16,465 |
| $ | 2,676 |
| $ | 634 |
| $ | 10,537 |
| $ | 1,398 |
| $ | 1,818 |
| $ | 1,390 |
| $ | 868 |
| $ | 19,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Six months ended June 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Beginning balance |
| $ | 1,629 |
| $ | 633 |
| $ | 9,547 |
| $ | 389 |
| $ | 2,692 |
| $ | 833 |
| $ | 435 |
| $ | 16,158 |
| $ | 2,453 |
| $ | 692 |
| $ | 9,522 |
| $ | 923 |
| $ | 1,846 |
| $ | 1,446 |
| $ | 579 |
| $ | 17,461 |
Charge-offs |
|
| 20 |
|
| 215 |
|
| 300 |
|
| 23 |
|
| 1,178 |
|
| 262 |
|
| - |
|
| 1,998 |
|
| 31 |
|
| 13 |
|
| 408 |
|
| (16) |
|
| (55) |
|
| 92 |
|
| 201 |
|
| 674 |
Recoveries |
|
| 13 |
|
| - |
|
| 124 |
|
| 89 |
|
| 850 |
|
| 166 |
|
| 13 |
|
| 1,255 |
|
| 109 |
|
| - |
|
| 388 |
|
| 3 |
|
| 1,016 |
|
| 138 |
|
| 152 |
|
| 1,806 |
Provision (Release) |
|
| 417 |
|
| 352 |
|
| (738) |
|
| 559 |
|
| 57 |
|
| 73 |
|
| 330 |
|
| 1,050 |
|
| 145 |
|
| (45) |
|
| 1,035 |
|
| 456 |
|
| (1,099) |
|
| (102) |
|
| 338 |
|
| 728 |
Ending balance |
| $ | 2,039 |
| $ | 770 |
| $ | 8,633 |
| $ | 1,014 |
| $ | 2,421 |
| $ | 810 |
| $ | 778 |
| $ | 16,465 |
| $ | 2,676 |
| $ | 634 |
| $ | 10,537 |
| $ | 1,398 |
| $ | 1,818 |
| $ | 1,390 |
| $ | 868 |
| $ | 19,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: Individually evaluated for impairment |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 6 |
| $ | - |
| $ | - |
| $ | 6 |
| $ | - |
| $ | - |
| $ | 503 |
| $ | - |
| $ | 85 |
| $ | - |
| $ | - |
| $ | 588 |
Ending balance: Collectively evaluated for impairment |
| $ | 2,039 |
| $ | 770 |
| $ | 8,633 |
| $ | 1,014 |
| $ | 2,415 |
| $ | 810 |
| $ | 778 |
| $ | 16,459 |
|
| 2,676 |
|
| 634 |
|
| 10,034 |
|
| 1,398 |
|
| 1,733 |
|
| 1,390 |
|
| 868 |
|
| 18,733 |
Ending balance: Acquired and accounted for ASC 310-30 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - | ||||||||||||||||||||||||
Total ending allowance balance |
| $ | 2,676 |
| $ | 634 |
| $ | 10,537 |
| $ | 1,398 |
| $ | 1,818 |
| $ | 1,390 |
| $ | 868 |
| $ | 19,321 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
| $ | 257,356 |
| $ | 69,305 |
| $ | 739,136 |
| $ | 94,868 |
| $ | 419,583 |
| $ | 2,770 |
| $ | 11,173 |
| $ | 1,594,191 | ||||||||||||||||||||||||
Ending balance: Individually evaluated for impairment |
| $ | 207 |
| $ | 196 |
| $ | 3,147 |
| $ | 205 |
| $ | 16,323 |
| $ | 8 |
| $ | - |
| $ | 20,086 |
| $ | - |
| $ | - |
| $ | 4,475 |
| $ | 193 |
| $ | 11,138 |
| $ | - |
| $ | 19 |
| $ | 15,825 |
Ending balance: Collectively evaluated for impairment |
| $ | 257,149 |
| $ | 69,109 |
| $ | 735,989 |
| $ | 94,663 |
| $ | 403,260 |
| $ | 2,762 |
| $ | 11,173 |
| $ | 1,574,105 |
|
| 299,536 |
|
| 66,687 |
|
| 803,789 |
|
| 115,293 |
|
| 393,770 |
|
| 127,986 |
|
| 15,062 |
|
| 1,822,123 |
Ending balance: Acquired and accounted for ASC 310-30 |
|
| 2 |
|
| - |
|
| 4,146 |
|
| 1,556 |
|
| 5,509 |
|
| - |
|
| 1 |
|
| 11,214 | ||||||||||||||||||||||||
Total ending loan balance |
| $ | 299,538 |
| $ | 66,687 |
| $ | 812,410 |
| $ | 117,042 |
| $ | 410,417 |
| $ | 127,986 |
| $ | 15,082 |
| $ | 1,849,162 |
Changes in the allowance for loan losses by segment of loans based on method of impairment for three and nine months ended September 30, 2016, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Real Estate |
| Real Estate |
| Real Estate |
|
|
|
|
|
| ||||||||
Allowance for loan losses: |
| Commercial |
| Leases |
| Commercial |
| Construction |
| Residential |
| Consumer |
| Other |
| Total | ||||||||
Three months ended September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 1,420 |
| $ | 275 |
| $ | 8,954 |
| $ | 380 |
| $ | 2,933 |
| $ | 862 |
| $ | 998 |
| $ | 15,822 |
Charge-offs |
|
| 76 |
|
| - |
|
| 792 |
|
| 9 |
|
| 220 |
|
| 100 |
|
| - |
|
| 1,197 |
Recoveries |
|
| 10 |
|
| - |
|
| 27 |
|
| 60 |
|
| 199 |
|
| 57 |
|
| 5 |
|
| 358 |
Provision (Release) |
|
| 141 |
|
| 71 |
|
| 753 |
|
| 39 |
|
| (577) |
|
| 118 |
|
| (545) |
|
| - |
Ending balance |
| $ | 1,495 |
| $ | 346 |
| $ | 8,942 |
| $ | 470 |
| $ | 2,335 |
| $ | 937 |
| $ | 458 |
| $ | 14,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 2,041 |
| $ | 55 |
| $ | 9,013 |
| $ | 265 |
| $ | 1,694 |
| $ | 1,190 |
| $ | 1,965 |
| $ | 16,223 |
Charge-offs |
|
| 95 |
|
| 13 |
|
| 1,484 |
|
| 9 |
|
| 657 |
|
| 250 |
|
| - |
|
| 2,508 |
Recoveries |
|
| 22 |
|
| - |
|
| 255 |
|
| 71 |
|
| 718 |
|
| 184 |
|
| 18 |
|
| 1,268 |
(Release) Provision |
|
| (473) |
|
| 304 |
|
| 1,158 |
|
| 143 |
|
| 580 |
|
| (187) |
|
| (1,525) |
|
| - |
Ending balance |
| $ | 1,495 |
| $ | 346 |
| $ | 8,942 |
| $ | 470 |
| $ | 2,335 |
| $ | 937 |
| $ | 458 |
| $ | 14,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: Individually evaluated for impairment |
| $ | - |
| $ | - |
| $ | 264 |
| $ | - |
| $ | 250 |
| $ | - |
| $ | - |
| $ | 514 |
Ending balance: Collectively evaluated for impairment |
| $ | 1,495 |
| $ | 346 |
| $ | 8,678 |
| $ | 470 |
| $ | 2,085 |
| $ | 937 |
| $ | 458 |
| $ | 14,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
| $ | 136,819 |
| $ | 47,215 |
| $ | 617,280 |
| $ | 28,786 |
| $ | 357,846 |
| $ | 3,325 |
| $ | 11,581 |
| $ | 1,202,852 |
Ending balance: Individually evaluated for impairment |
| $ | 583 |
| $ | - |
| $ | 8,426 |
| $ | 76 |
| $ | 14,038 |
| $ | - |
| $ | - |
| $ | 23,123 |
Ending balance: Collectively evaluated for impairment |
| $ | 136,236 |
| $ | 47,215 |
| $ | 608,854 |
| $ | 28,710 |
| $ | 343,808 |
| $ | 3,325 |
| $ | 11,581 |
| $ | 1,179,729 |
1922
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
1 The “Other” class includes consumer, overdrafts and net deferred costs.
Note 6 – Other Real Estate Owned
Details related to the activity in the other real estate owned (“OREO”) portfolio, net of valuation reserve, for the periods presented are itemized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarters Ended |
| Nine Months Ended |
|
| Three Months Ended |
| Six Months Ended |
| ||||||||||||||||
|
| September 30, |
| September 30, |
|
| June 30, |
| June 30, |
| ||||||||||||||||
Other real estate owned |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||||||
Balance at beginning of period |
| $ | 11,724 |
| $ | 16,252 |
| $ | 11,916 |
| $ | 19,141 |
|
| $ | 6,365 |
| $ | 7,063 |
| $ | 7,175 |
| $ | 8,371 |
|
Property additions |
|
| 176 |
|
| 255 |
|
| 3,796 |
|
| 1,223 |
| |||||||||||||
Property additions, net of acquisition adjustments |
|
| - |
|
| 2,812 |
|
| - |
|
| 2,812 |
| |||||||||||||
Property improvements |
|
| - |
|
| 4 |
|
| - |
|
| 16 |
|
|
| - |
|
| - |
|
| - |
|
| 59 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from property disposals, net of participation purchase and of gains/losses |
|
| 1,956 |
|
| 2,002 |
|
| 5,058 |
|
| 4,931 |
|
|
| 501 |
|
| 709 |
|
| 1,302 |
|
| 1,964 |
|
Period valuation adjustments |
|
| 920 |
|
| 365 |
|
| 1,630 |
|
| 1,305 |
|
|
| 196 |
|
| 254 |
|
| 196 |
|
| 366 |
|
Other adjustments |
|
| - |
|
|
|
|
| 9 |
|
| - |
| |||||||||||||
Balance at end of period |
| $ | 9,024 |
| $ | 14,144 |
| $ | 9,024 |
| $ | 14,144 |
|
| $ | 5,668 |
| $ | 8,912 |
| $ | 5,668 |
| $ | 8,912 |
|
Activity in the valuation allowance was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarters Ended |
| Nine Months Ended |
|
| Three Months Ended |
| Six Months Ended |
| ||||||||||||||||
|
| September 30, |
| September 30, |
|
| June 30, |
| June 30, |
| ||||||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||||||
Balance at beginning of period |
| $ | 8,304 |
| $ | 13,377 |
| $ | 9,982 |
| $ | 14,127 |
|
| $ | 7,875 |
| $ | 8,099 |
| $ | 8,027 |
| $ | 8,208 |
|
Provision for unrealized losses |
|
| 920 |
|
| 365 |
|
| 1,630 |
|
| 1,305 |
|
|
| 196 |
|
| 254 |
|
| 196 |
|
| 366 |
|
Reductions taken on sales |
|
| (421) |
|
| (488) |
|
| (2,809) |
|
| (2,178) |
|
|
| (10) |
|
| (5) |
|
| (162) |
|
| (226) |
|
Balance at end of period |
| $ | 8,803 |
| $ | 13,254 |
| $ | 8,803 |
| $ | 13,254 |
|
| $ | 8,061 |
| $ | 8,348 |
| $ | 8,061 |
| $ | 8,348 |
|
Expenses related to OREO, net of lease revenue includes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarters Ended |
| Nine Months Ended |
|
| Three Months Ended |
| Six Months Ended |
| ||||||||||||||||
|
| September 30, |
| September 30, |
|
| June 30, |
| June 30, |
| ||||||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||||||
Gain on sales, net |
| $ | (276) |
| $ | (249) |
| $ | (454) |
| $ | (316) |
|
| $ | (77) |
| $ | (24) |
| $ | (150) |
| $ | (104) |
|
Provision for unrealized losses |
|
| 920 |
|
| 365 |
|
| 1,630 |
|
| 1,305 |
|
|
| 196 |
|
| 254 |
|
| 196 |
|
| 366 |
|
Operating expenses |
|
| 221 |
|
| 361 |
|
| 1,037 |
|
| 1,217 |
|
|
| 129 |
|
| 213 |
|
| 257 |
|
| 369 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease revenue |
|
| 185 |
|
| 51 |
|
| 285 |
|
| 163 |
|
|
| - |
|
| 14 |
|
| 5 |
|
| 29 |
|
Net OREO expense |
| $ | 680 |
| $ | 426 |
| $ | 1,928 |
| $ | 2,043 |
|
| $ | 248 |
| $ | 429 |
| $ | 298 |
| $ | 602 |
|
Note 7 – Deposits
Major classifications of deposits were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| September 30, 2017 |
| December 31, 2016 |
|
| June 30, 2019 |
| December 31, 2018 |
| ||||
Noninterest bearing demand |
| $ | 556,874 |
| $ | 513,688 |
|
| $ | 632,900 |
| $ | 618,830 |
|
Savings |
|
| 260,268 |
|
| 256,159 |
|
|
| 311,887 |
|
| 304,400 |
|
NOW accounts |
|
| 417,054 |
|
| 419,417 |
|
|
| 426,511 |
|
| 425,878 |
|
Money market accounts |
|
| 270,647 |
|
| 275,273 |
|
|
| 285,223 |
|
| 310,390 |
|
Certificates of deposit of less than $100,000 |
|
| 219,152 |
|
| 228,993 |
|
|
| 220,973 |
|
| 230,781 |
|
Certificates of deposit of $100,000 through $250,000 |
|
| 114,373 |
|
| 110,992 |
|
|
| 144,148 |
|
| 159,953 |
|
Certificates of deposit of more than $250,000 |
|
| 50,747 |
|
| 62,263 |
|
|
| 56,132 |
|
| 66,441 |
|
Total deposits |
| $ | 1,889,115 |
| $ | 1,866,785 |
|
| $ | 2,077,774 |
| $ | 2,116,673 |
|
2023
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
Note 8 – Borrowings
The following table is a summary of borrowings as of SeptemberJune 30, 2017,2019, and December 31, 2016.2018. Junior subordinated debentures are discussed in detail in Note 9:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
| December 31, 2016 |
|
| June 30, 2019 |
| December 31, 2018 |
| ||||
Securities sold under repurchase agreements |
| $ | 26,853 |
| $ | 25,715 |
|
| $ | 54,166 |
| $ | 46,632 |
|
FHLBC advances1 |
|
| 125,000 |
|
| 70,000 |
| |||||||
Other short-term borrowings 1 |
|
| 87,125 |
|
| 149,500 |
| |||||||
Junior subordinated debentures |
|
| 57,627 |
|
| 57,591 |
|
|
| 57,710 |
|
| 57,686 |
|
Senior notes |
|
| 44,033 |
|
| 43,998 |
|
|
| 44,208 |
|
| 44,158 |
|
Notes payable and other borrowings |
|
| 11,035 |
|
| 15,379 |
| |||||||
Total borrowings |
| $ | 253,513 |
| $ | 197,304 |
|
| $ | 254,244 |
| $ | 313,355 |
|
1 Included in otherIncludes short-term borrowings onFHLBC advances for both periods presented as well as the balance sheet.outstanding portion of an operating line of credit as of December 31, 2018, which totaled $4 million.
The Company enters into deposit sweep transactions where the transaction amounts are secured by pledged securities. These transactions consistently mature overnight from the transaction date and are governed by sweep repurchase agreements. All sweep repurchase agreements are treated as financings secured by U.S. government agencies and collateralized mortgage-backed securities and had a carrying amount of $26.9$54.2 million at SeptemberJune 30, 2017,2019, and $25.7$46.6 million at December 31, 2016.2018. The fair value of the pledged collateral was $41.5$73.8 million at SeptemberJune 30, 20172019 and $43.0$72.8 million at December 31, 2016.2018. At SeptemberJune 30, 2017,2019, there were no customers with secured balances exceeding 10% of stockholders’ equity.
The Company’s borrowings at the FHLBC require the Bank to be a member and invest in the stock of the FHLBC. Total borrowings are generally limited to the lower of 35% of total assets or 60% of the book value of certain mortgage loans. As of SeptemberJune 30, 2017,2019, the Bank had $125.0$87.1 million in short-term advances outstanding under the FHLBC as compared to $70.0$145.5 million outstanding as of December 31, 2016. As2018; $65.0 million and $10.0 million of Septemberthe June 30, 2017,2019, balance was issued at 2.43% and 2.45%, respectively, and the remaining $12.1 million was issued at rates ranging from 1.60% to 2.03%. The additional $4.0 million in other short-term borrowings as of December 31, 2018, was the outstanding portion of a $20.0 million line of credit the Company has with a correspondent bank for short-term funding needs; advances under the line can be outstanding up to 360 days from the date of issuance. This line of credit was repaid with operating cash on hand in late January 2019. The Bank also assumed $23.4 million of long-term FHLBC advances with the ABC Bank acquisition. At June 30, 2019, these advances have a total outstanding balance of $11.0 million and are scheduled to mature over the next seven years with interest rates ranging between 2.19% and 2.83%. FHLBC stock held at June 30, 2019 was valued at $5.6$4.4 million, and any potential FHLBC advances were collateralized by securities with a fair value of $87.4$78.2 million and loans with a principal balance of $251.3$605.9 million, which carried a FHLBC calculated combined collateral value of $273.8$489.6 million. The Company had excess collateral of $74.5$317.2 million available to secure borrowings at SeptemberJune 30, 2017.2019. The increase of 394.5% since December 2018 is due to the completion of an analysis of FHLB loan collateral eligibility in the first quarter of 2019, which expanded the capacity of funding at the FHLB as additional loan collateral was deemed acceptable.
The Company completed a debt retirement and simultaneous senior debt offering in the fourth quarter of 2016. Subordinated debt of $45.0also has $44.2 million and $500,000 of senior notes outstanding, were paid off with the proceedsnet of a $45.0 million senior notesdeferred issuance costs, as of June 30, 2019 and cash on hand.December 31, 2018. The senior notes maturewere issued in December 2016 with a ten years maturity, and terms include interest payable semiannually at 5.75% for five years. Beginning December 2021, the senior debt will pay interest at a floating rate, with interest payable quarterly at three month LIBOR plus 385 basis points. The notes are redeemable, in whole or in part, at the option of the Company, beginning with the interest payment date on December 31, 2021, and on any floating rate interest payment date thereafter, at a redemption price equal to 100% of the principal amount of the notes plus accrued and unpaid interest. DebtAs of June 30, 2019 and December 31, 2018, unamortized debt issuance costs incurred forrelated to the senior notes issuance totaled $1.0 million,were $791,000 and are being deferred$842,000, respectively, and recorded to expense over the ten year term of the notes. The unamortized costs are included as a reduction toof the balance of the senior notes on the Consolidated Balance Sheet. These deferred issuance costs will be amortized to interest expense over the ten year term of the notes and are included in the Consolidated Statements of Income.
Note 9 – Junior Subordinated Debentures
The Company completed the sale of $27.5 million of cumulative trust preferred securities by its unconsolidated subsidiary, Old Second Capital Trust I, in June 2003. An additional $4.1 million of cumulative trust preferred securities were sold in July 2003. The trust preferred securities may remain outstanding for a 30-year term but, subject to regulatory approval, can be called in whole or in part by the Company after June 30, 2008. When not in deferral, distributionsDistributions on the securities are payable quarterly at an annual rate of 7.80%., unless the Company
24
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
elects to defer such interest payments as permitted by the terms of the securities. The Company issued a new $32.6 million subordinated debenture to Old Second Capital Trust I in return for the aggregate net proceeds of this trust preferred offering. The interest rate and payment frequency on the debenture are equivalent to the cash distribution basis on the trust preferred securities.
The Company issued an additional $25.0 million of cumulative trust preferred securities through a private placement completed by an additional, unconsolidated subsidiary, Old Second Capital Trust II, in April 2007. These trust preferred securities also mature in 30 years, but subject to the aforementioned regulatory approval, can be called in whole or in part on a quarterly basis commencing June 15, 2017. The quarterly cash distributions on the securities were fixed at 6.77% through June 15, 2017, and float at 150 basis points over three-month LIBOR thereafter. The Trust II issuance converted from fixed to floating rate at three month LIBOR plus 150 basis points on June 15, 2017. Upon conversion to a floating rate, a cash flow hedge was initiated which resulted in the total interest rate paid on the debt of 4.30%4.40% as of SeptemberJune 30, 2017,2019, compared to the rate paid prior to June 15, 2017 of 6.77%. The Company issued a new $25.8 million subordinated debenture to Old Second Capital Trust II in return for the aggregate net proceeds of this trust preferred offering. The interest rate and payment frequency on the debenture are equivalent to the cash distribution basis on the trust preferred securities.
Both of the debentures issued by the Company are disclosed on the Consolidated Balance Sheet as junior subordinated debentures and the related interest expense for each issuance is included in the Consolidated Statements of Income. As of SeptemberJune 30, 2017,2019, and December 31, 2016,2018, unamortized debt issuance costs related to the junior subordinated debentures were
21
$752,000$668,000 and $787,000$692,000 respectively, and are included as a reduction to the balance of the junior subordinated debentures on the Consolidated Balance Sheet. These deferred issuance costs will be amortized to interest expense over the 30-year term of the notes and are included in the Consolidated Statements of Income.
Note 10 – Equity Compensation Plans
Stock-based awards are outstanding under the Company’s 2008 Equity Incentive Plan (the “2008 Plan”) and, the Company’s 2014 Equity Incentive Plan, as amended (the “2014 Plan”), and the Company’s 2019 Equity Incentive Plan” (the “2019 Plan” and together with the 2008 Plan and the 2014 Plan, the “Plans”). The 20142019 Plan was approved at the 2014May 2019 annual stockholders’ meeting and the number of stockholders; a maximum of 375,000authorized shares were authorized to be issued under this plan.the 2019 Plan is fixed at 600,000. Following approval of the 2014 Plan, no further awards willwere to be granted under the 2008 Plan or any other prior Company equity compensation plan.Atplan, and following the May 2016 annual stockholders meeting, an amendment toapproval of the 2019 Plan, no further awards will be granted under the 2014 Plan authorized an additional 600,000 shares to be issued, which resulted in a total of 975,000 shares authorized for issuance under this plan.Plan. The 20142019 Plan authorizes the granting of qualified stock options, non-qualified stock options, restricted stock, restricted stock units, and stock appreciation rights.rights (“SARs”). Awards may be granted to selected directors, and officers, employees or employeeseligible service providers under the 20142019 Plan at the discretion of the Compensation Committee of the Company’s Board of Directors. As of SeptemberJune 30, 2017, 453,2092019, 460,394 shares remained available for issuance under the 20142019 Plan.
There were 4,500 stock options exercised and no stock options granted in the six months ended June 30, 2019, and no stock options granted or exercised in the third quarter of 2017 and 2016.six months ended June 30, 2018. All stock options are granted for a term of ten years. There is no unrecognized compensation cost related to unvested stock options as all stock options of the Company’s common stock have fully vested.
A summary of stock option activity in the Plans for the ninesix months ended SeptemberJune 30, 2017,2019, is as follows:
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
| Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
| Average |
|
|
|
|
|
|
|
|
| Weighted- |
|
|
| |
|
|
|
| Average |
| Remaining |
|
|
|
|
|
| Weighted |
| Average |
|
|
| ||
|
|
|
| Exercise |
| Contractual |
| Aggregate |
|
|
| Average |
| Remaining |
|
|
| |||
|
| Shares |
| Price |
| Term (years) |
| Intrinsic Value |
|
|
| Exercise |
| Contractual |
| Aggregate | ||||
|
|
|
|
|
|
|
|
|
|
|
| Shares |
| per Price |
| Term (years) |
| Intrinsic Value | ||
Beginning outstanding |
| 94,500 |
| $ | 25.82 |
| - |
|
| - |
| 4,500 |
| $ | 7.49 |
| 0.1 |
| $ | 25 |
Canceled |
| - |
|
| - |
| - |
|
| - |
| - |
|
| - |
| - |
|
| - |
Exercised |
| (4,500) |
|
| 7.49 |
| - |
|
| (27) | ||||||||||
Expired |
| - |
|
| - |
| - |
|
| - |
| - |
|
| - |
| - |
|
| - |
Exercised |
| - |
|
| - |
| - |
|
| - | ||||||||||
Ending outstanding |
| 94,500 |
| $ | 25.82 |
| 0.3 |
| $ | - |
| - |
| $ | - |
| - |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period |
| 94,500 |
| $ | 25.82 |
| 0.3 |
| $ | - |
| - |
| $ | - |
| - |
| $ | - |
Generally, restricted stock and restricted stock units granted under the Plans vest three years from the grant date, but the Compensation Committee of the Company’s Board of Directors has discretionary authority to change some terms including the amount of time until the vest date.
Awards under the 2008 Plan will become fully vested upon a merger or change
25
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in control of the Company. thousands, except per share data, unaudited)
Under the 20142019 Plan, unless otherwise provided in an award agreement, upon the occurrence of a change in control, ofall stock options and SARs then held by the Company,participant will become fully exercisable immediately if, and all stock awards and cash incentive awards will become fully earned and vested immediately if, (i) the 20142019 Plan is not an obligation of the successor entity following thea change in control or (ii) the 20142019 Plan is an obligation of the successor entity following thea change in control and the participant incurs a termination of service without cause or for good reason following the change in control. Notwithstanding the immediately preceding sentence, if the vesting of an involuntary termination,award is conditioned upon the achievement of performance measures, then such vesting will generally be subject to the stock options, stock appreciation rights, stock awardsfollowing: if, at the time of the change in control, the performance measures are less than 50% attained (pro rata based upon the time of the period through the change in control), the award will become vested and cash incentive awards underexercisable on a fractional basis with the 2014 Plannumerator being equal to the percentage of attainment and the denominator being 50%; and if, at the time of the change in control, the performance measures are at least 50% attained (pro rata based upon the time of the period through the change in control), the award will become fully exercisableearned and vested. Performance-based awards generally will vest basedvested immediately upon the level of achievement of the applicable performance measures through the change in control.
The Company granted restricted stock under its equity compensation plans beginning in 2005 and it began granting restricted stock units in February 2009. RestrictedAwards of restricted stock awards under the Plans generally entitle holders to voting and dividend rights upon grant and are subject to forfeiture until certain restrictions have lapsed including employment for a specific period. RestrictedAwards of restricted stock units under the Plans are also subject to forfeiture until certain restrictions have lapsed including employment for a specific period, but do not entitle holders to voting rights until the restricted period ends and shares are transferred in connection with the units.
There were 161,500139,606 restricted awardsstock units issued under the 2019 Plan during the six months ended June 30, 2019. There were 254,281 restricted stock units issued under the 2014 Plan during the ninesix months ended SeptemberJune 30, 2017. There were 130,000 restricted awards issuedduring the nine months ended September 30, 2016.2018. Compensation expense is recognized over the vesting period of the restricted awardstock unit based on the market value of the award on the issue date. Total compensation cost that has been recorded for the 2014 PlanPlans was $925,100$1.3 million and $485,000$1.1 million in the first ninesix months of 20172019 and 2016,2018, respectively.
22
A summary of changes in the Company’s unvested restricted awards for the ninesix months ended SeptemberJune 30, 2017,2019, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
| June 30, 2019 | ||||||
|
|
|
| Weighted |
|
|
| Weighted | ||
|
| Restricted |
| Average |
| Restricted |
| Average | ||
|
| Stock Shares |
| Grant Date |
| Stock Shares |
| Grant Date | ||
|
| and Units |
| Fair Value |
| and Units |
| Fair Value | ||
Nonvested at January 1 |
| 409,000 |
| $ | 5.89 | |||||
Unvested at January 1 |
| 552,281 |
| $ | 11.30 | |||||
Granted |
| 161,500 |
|
| 11.04 |
| 139,606 |
|
| 12.81 |
Vested |
| (91,500) |
|
| 5.07 |
| (113,937) |
|
| 7.40 |
Forfeited |
| (14,000) |
|
| 7.53 |
| - |
|
| - |
Nonvested at September 30 |
| 465,000 |
| $ | 7.79 | |||||
Unvested at June 30 |
| 577,950 |
| $ | 12.44 |
Total unrecognized compensation cost of restricted awards was $2.0$3.8 million as of SeptemberJune 30, 2017,2019, which is expected to be recognized over a weighted-average period of 2.112.07 years. Total unrecognized compensation cost
26
Tableof restricted awards was $1.1 million as of September 30, 2016, which was expectedContents
Old Second Bancorp, Inc. and Subsidiaries
Notes to be recognized over a weighted-average period of 1.99 years.Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
Note 11 – Earnings Per Share
The earnings per share – both basic and diluted – are included below as of September 30 (in thousands except for share and per share data):June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarters Ended September 30, |
| Nine Months Ended September 30, |
|
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||||||
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
|
| 29,627,086 |
|
| 29,554,716 |
|
| 29,591,811 |
|
| 29,524,796 |
|
|
| 29,896,231 |
|
| 29,747,078 |
|
| 29,871,081 |
|
| 29,703,508 |
|
Net income |
| $ | 8,077 |
| $ | 3,499 |
| $ | 17,650 |
| $ | 10,666 |
|
| $ | 9,278 |
| $ | 6,261 |
| $ | 17,746 |
| $ | 15,750 |
|
Basic earnings per share |
| $ | 0.27 |
| $ | 0.12 |
| $ | 0.60 |
| $ | 0.36 |
|
| $ | 0.31 |
| $ | 0.21 |
| $ | 0.59 |
| $ | 0.53 |
|
|
|
|
|
|
|
|
|
|
|
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| |||||||||||||
Diluted earnings per share: |
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Weighted-average common shares outstanding |
|
| 29,627,086 |
|
| 29,554,716 |
|
| 29,591,811 |
|
| 29,524,796 |
|
|
| 29,896,231 |
|
| 29,747,078 |
|
| 29,871,081 |
|
| 29,703,508 |
|
Dilutive effect of nonvested restricted awards1 |
|
| 473,967 |
|
| 282,228 |
|
| 425,081 |
|
| 303,221 |
| |||||||||||||
Dilutive effect of stock options |
|
| 2,556 |
|
| 1,238 |
|
| 2,473 |
|
| 413 |
| |||||||||||||
Dilutive effect of unvested restricted awards |
|
| 493,661 |
|
| 539,166 |
|
| 495,808 |
|
| 506,234 |
| |||||||||||||
Dilutive effect of stock options and warrants |
|
| - |
|
| 51,038 |
|
| - |
|
| 43,698 |
| |||||||||||||
Diluted average common shares outstanding |
|
| 30,103,609 |
|
| 29,838,182 |
|
| 30,019,365 |
|
| 29,828,430 |
|
|
| 30,389,892 |
|
| 30,337,282 |
|
| 30,366,889 |
|
| 30,253,440 |
|
Net Income |
| $ | 8,077 |
| $ | 3,499 |
| $ | 17,650 |
| $ | 10,666 |
| |||||||||||||
Net income |
| $ | 9,278 |
| $ | 6,261 |
| $ | 17,746 |
| $ | 15,750 |
| |||||||||||||
Diluted earnings per share |
| $ | 0.27 |
| $ | 0.12 |
| $ | 0.59 |
| $ | 0.36 |
|
| $ | 0.31 |
| $ | 0.21 |
| $ | 0.58 |
| $ | 0.52 |
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|
Number of antidilutive options and warrants excluded from the diluted earnings per share calculation |
|
| 900,839 |
|
| 967,339 |
|
| 900,839 |
|
| 977,426 |
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| |||||||||||||
1 Includes the common stock equivalents for restricted share rights that are dilutive.
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|
The above 2018 earnings per share calculation did not includealso includes a warrant for 815,339 shares of common stock, at an exercise price of $13.43 per share, that was outstanding as of SeptemberJune 30, 2017,2018, and September 30, 2016, because the warrant was anti-dilutive. Of note, the ten yearconsidered dilutive. The ten-year warrant was issued in 2009, and was sold at auction by the U.S. Treasury in June 2013 to a third party investor. This warrant was not included as a dilutive factor as of June 30, 2019, due to its cashless exercise on January 16, 2019. As of the date of exercise, the Company’s closing market stock price was $14.23 per share, resulting in 45,836 shares being issued. The cashless warrant exercise resulted in a net $313,000 reduction to treasury stock as these shares were issued from stock held by the Company.
Note 12 – Regulatory & Capital Matters
The Bank is subject to the risk-based capital regulatory guidelines, which include the methodology for calculating the risk-weighted Bank assets, developed by the Office of the Comptroller of the Currency (the “OCC”) and the other bank regulatory agencies. In connection with the current economic environment, the Bank’s current level of nonperforming assets and the risk-based capital regulatory guidelines, the Bank’s Board of Directors has determined thatestablished an internal guideline requiring the Bank shouldto maintain a Tier 1 leverage capital ratio at or above eight percent (8%) and a total risk-based capital ratio at or above twelve percent (12%). At SeptemberJune 30, 2017,2019, the Bank exceeded those thresholds.
At SeptemberJune 30, 2017,2019, the Bank’s Tier 1 capital leverage ratio was 10.63%11.96%, an increase of 3960 basis pointpoints from December 31, 2016,2018, and is well above the 8.00% objective. The Bank’s total capital ratio was 13.52%14.83%, an increase of 769 basis points from December 31, 2016,2018, and also modestlywell above the objective of 12.00%.
23
Bank holding companies are generally required to maintain minimum levels of capital in accordance with capital guidelines implemented by the Board of Governors of the Federal Reserve System. The general bank and holding company capital adequacy guidelines are shown in the accompanying table, as are the capital ratios of the Company and the Bank, as of SeptemberJune 30, 2017,2019 and December 31, 2016.2018.
In July 2013, the U.S. federal banking authorities issued final rules (the “Basel III Rules”) establishing more stringent regulatory capital requirements for U.S. banking institutions, which went into effect on January 1, 2015. The Basel III Rules are applicable to all banking organizations that are subject to minimum capital requirements, including federal and state banks and savings and loan associations, as well as to bank and savings and loan holding companies, other than “small bank holding companies” generally holding companies with consolidated assets of less than $3 billion. The Company is currently considered a “small bank holding company.” A detailed discussion of the Basel III Rules is included in Part I, Item 1 of the Company’s Form 10-K for the year ended December 31, 2016,2018, under the heading “Supervision and Regulation.”
At SeptemberJune 30, 2017,2019, and December 31, 2016,2018, the Company, on a consolidated basis, exceeded the minimum thresholds to be considered “well capitalized” under current regulatory defined capital ratios.
27
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
Capital levels and industry defined regulatory minimum required levels are as follows:
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| Minimum Capital |
| To Be Well Capitalized Under |
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| Minimum Capital |
| To Be Well Capitalized Under |
| ||||||||||||||
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| Adequacy with Capital |
| Prompt Corrective |
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| Adequacy with Capital |
| Prompt Corrective |
| ||||||||||||||
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| Actual |
| Conservation Buffer if applicable1 |
| Action Provisions2 |
|
| Actual |
| Conservation Buffer if applicable1 |
| Action Provisions2 |
| ||||||||||||||||||||||
|
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio |
|
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio |
| ||||||||||
September 30, 2017 |
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June 30, 2019 |
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| ||||||||||||||||||
Common equity tier 1 capital to risk weighted assets |
|
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Consolidated |
| $ | 170,622 |
| 8.88 | % |
| $ | 110,482 |
| 5.750 | % |
|
| N/A |
| N/A |
|
| $ | 226,851 |
| 10.26 | % |
| $ | 154,772 |
| 7.000 | % |
|
| N/A |
| N/A |
|
Old Second Bank |
|
| 243,109 |
| 12.67 |
|
|
| 110,330 |
| 5.750 |
|
| $ | 124,720 |
| 6.50 | % |
|
| 311,457 |
| 13.96 |
|
|
| 156,175 |
| 7.000 |
|
| $ | 145,019 |
| 6.50 | % |
Total capital to risk weighted assets |
|
|
|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Consolidated |
|
| 239,269 |
| 12.46 |
|
|
| 177,627 |
| 9.250 |
|
|
| N/A |
| N/A |
|
|
| 302,844 |
| 13.70 |
|
|
| 232,107 |
| 10.500 |
|
|
| N/A |
| N/A |
|
Old Second Bank |
|
| 259,569 |
| 13.52 |
|
|
| 177,590 |
| 9.250 |
|
|
| 191,989 |
| 10.00 |
|
|
| 330,825 |
| 14.83 |
|
|
| 234,232 |
| 10.500 |
|
|
| 223,078 |
| 10.00 |
|
Tier 1 capital to risk weighted assets |
|
|
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|
|
|
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Consolidated |
|
| 221,579 |
| 11.54 |
|
|
| 139,207 |
| 7.250 |
|
|
| N/A |
| N/A |
|
|
| 283,476 |
| 12.83 |
|
|
| 187,806 |
| 8.500 |
|
|
| N/A |
| N/A |
|
Old Second Bank |
|
| 243,109 |
| 12.67 |
|
|
| 139,111 |
| 7.250 |
|
|
| 153,502 |
| 8.00 |
|
|
| 311,457 |
| 13.96 |
|
|
| 189,641 |
| 8.500 |
|
|
| 178,485 |
| 8.00 |
|
Tier 1 capital to average assets |
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
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Consolidated |
|
| 221,579 |
| 9.69 |
|
|
| 91,467 |
| 4.00 |
|
|
| N/A |
| N/A |
|
|
| 283,476 |
| 10.85 |
|
|
| 104,507 |
| 4.00 |
|
|
| N/A |
| N/A |
|
Old Second Bank |
|
| 243,109 |
| 10.63 |
|
|
| 91,480 |
| 4.00 |
|
|
| 114,350 |
| 5.00 |
|
|
| 311,457 |
| 11.96 |
|
|
| 104,166 |
| 4.00 |
|
|
| 130,208 |
| 5.00 |
|
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December 31, 2016 |
|
|
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|
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|
|
|
|
|
|
| ||||||||||||||||||
December 31, 2018 |
|
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|
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|
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|
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| ||||||||||||||||||
Common equity tier 1 capital to risk weighted assets |
|
|
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|
|
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|
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Consolidated |
| $ | 154,537 |
| 8.76 | % |
| $ | 90,411 |
| 5.125 | % |
|
| N/A |
| N/A |
|
| $ | 207,597 |
| 9.29 | % |
| $ | 142,444 |
| 6.375 | % |
|
| N/A |
| N/A |
|
Old Second Bank |
|
| 221,153 |
| 12.53 |
|
|
| 90,456 |
| 5.125 |
|
| $ | 114,724 |
| 6.50 | % |
|
| 295,599 |
| 13.29 |
|
|
| 141,791 |
| 6.375 |
|
| $ | 144,571 |
| 6.50 | % |
Total capital to risk weighted assets |
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Consolidated |
|
| 216,769 |
| 12.29 |
|
|
| 152,126 |
| 8.625 |
|
|
| N/A |
| N/A |
|
|
| 282,126 |
| 12.63 |
|
|
| 220,648 |
| 9.875 |
|
|
| N/A |
| N/A |
|
Old Second Bank |
|
| 237,306 |
| 13.45 |
|
|
| 152,176 |
| 8.625 |
|
|
| 176,436 |
| 10.00 |
|
|
| 314,600 |
| 14.14 |
|
|
| 219,637 |
| 9.875 |
|
|
| 222,417 |
| 10.00 |
|
Tier 1 capital to risk weighted assets |
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Consolidated |
|
| 191,988 |
| 10.88 |
|
|
| 116,904 |
| 6.625 |
|
|
| N/A |
| N/A |
|
|
| 263,125 |
| 11.78 |
|
|
| 175,960 |
| 7.875 |
|
|
| N/A |
| N/A |
|
Old Second Bank |
|
| 221,153 |
| 12.53 |
|
|
| 116,930 |
| 6.625 |
|
|
| 141,199 |
| 8.00 |
|
|
| 295,599 |
| 13.29 |
|
|
| 175,153 |
| 7.875 |
|
|
| 177,934 |
| 8.00 |
|
Tier 1 capital to average assets |
|
|
|
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|
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|
|
|
|
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|
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|
Consolidated |
|
| 191,988 |
| 8.90 |
|
|
| 86,287 |
| 4.00 |
|
|
| N/A |
| N/A |
|
|
| 263,125 |
| 10.08 |
|
|
| 104,415 |
| 4.00 |
|
|
| N/A |
| N/A |
|
Old Second Bank |
|
| 221,153 |
| 10.24 |
|
|
| 86,388 |
| 4.00 |
|
|
| 107,985 |
| 5.00 |
|
|
| 295,599 |
| 11.36 |
|
|
| 104,084 |
| 4.00 |
|
|
| 130,105 |
| 5.00 |
|
1 As of SeptemberJune 30, 2017,2019, amounts are shown inclusive of a capital conservation buffer of 1.25%2.50%; as compared to December 31, 2016,2018, of 0.625%1.875%.
2 The Bank exceeded the general minimum regulatory requirements to be considered “well capitalized.”
Dividend Restrictions
In addition to the above requirements, banking regulations and capital guidelines generally limit the amount of dividends that may be paid by a bank without prior regulatory approval. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s profits, combined with the retained profit of the previous two years, subject to the capital requirements described above. Pursuant to the Basel III rules that came into effect January 1, 2015 and were fully phased in as of January 1, 2019, the Bank must keep a capital conservation buffer of 0.625% for 2016, 1.25% for 2017, 1.875% for 2018, and 2.5% for 2019 and thereafter of2.50% above the new regulatory minimum capital requirements, which must consist entirely of Common Equity Tier 1 capital in order to avoid additional limitations on capital distributions and certain other payments.
24
Note 13 – Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy established by the Company also requires an entity to maximize the use of observable
28
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
inputs and minimize the use of unobservable inputs when measuring fair value. Three levels of inputs that may be used to measure fair value are:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Company has the ability to access as of the measurement date.
Level 2: Significant observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a company’s own view about the assumptions that market participants would use in pricing an asset or liability.
The majority of securities available-for-sale are valued by external pricing services or dealer market participants and are classified in Level 2 of the fair value hierarchy. Both market and income valuation approaches are utilized. Quarterly, the Company evaluates the methodologies used by the external pricing services or dealer market participants to develop the fair values to determine whether the results of the valuations are representative of an exit price in the Company’s principal markets and an appropriate representation of fair value. The Company uses the following methods and significant assumptions to estimate fair value:
· | Government-sponsored agency debt securities are primarily priced using available market information through processes such as benchmark spreads, market valuations of like securities, like securities groupings and matrix pricing. |
· | Other government-sponsored agency securities, MBS and some of the actively traded real estate mortgage investment conduits and collateralized mortgage obligations are priced using available market information including benchmark yields, prepayment speeds, spreads, volatility of similar securities and trade date. |
· | State and political subdivisions are largely grouped by characteristics (e.g., geographical data and source of revenue in trade dissemination systems). Because some securities are not traded daily and due to other grouping limitations, active market quotes are often obtained using benchmarking for like securities. |
· | Auction rate securities are priced using market spreads, cash flows, prepayment speeds, and loss analytics. Therefore, the valuations of auction rate asset-backed securities are considered Level 2 valuations. |
· | Asset-backed collateralized loan obligations were priced using data from a pricing matrix supported by our bond accounting service provider and are therefore considered Level 2 valuations. |
· | Annually every security holding is priced by a pricing service independent of the regular and recurring pricing services used. The independent service provides a measurement to indicate if the price assigned by the regular service is within or outside of a reasonable range. Management reviews this report and applies judgment in adjusting calculations at year end related to securities pricing. |
· | Residential mortgage loans available for sale in the secondary market are carried at fair market value. The fair value of loans held-for-sale is determined using quoted secondary market prices. |
· | Lending related commitments to fund certain residential mortgage loans, e.g., residential mortgage loans with locked interest rates to be sold in the secondary market and forward commitments for the future delivery of mortgage loans to third party investors, as well as forward commitments for future delivery of MBS are considered derivatives. Fair values are estimated based on observable changes in mortgage interest rates including prices for MBS from the date of the commitment and do not typically involve significant judgments by management. |
· | The fair value of mortgage servicing rights is based on a valuation model that calculates the present value of estimated net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income to derive the resultant value. The Company is able to compare the valuation model inputs, such as the discount rate, prepayment speeds, weighted average delinquency and foreclosure/bankruptcy rates to widely available published industry data for reasonableness. |
· | Interest rate swap positions, both assets and liabilities, are based on valuation pricing models using an income approach reflecting readily observable market parameters such as interest rate yield curves. |
· | The fair value of impaired loans with specific allocations of the allowance for loan and lease losses is essentially based on recent real estate appraisals or the fair value of the collateralized asset. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are made in the appraisal process by the appraisers to reflect differences between the available comparable sales and income data. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. |
· | Nonrecurring adjustments to certain commercial and residential real estate properties classified as OREO are measured at the lower of carrying amount or fair value, less costs to sell. Fair values are based on third party appraisals of the property, |
2529
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
resulting in a Level 3 classification. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized. |
Assets and Liabilities Measured at Fair Value on a Recurring Basis:
The tables below present the balance of assets and liabilities at SeptemberJune 30, 2017,2019, and December 31, 2016,2018, respectively, measured by the Company at fair value on a recurring basis:
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| September 30, 2017 |
| June 30, 2019 | ||||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||
Assets: |
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|
Securities available-for-sale |
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|
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|
|
U.S. Treasury |
| $ | 3,990 |
| $ | - |
| $ | - |
| $ | 3,990 |
| $ | 4,025 |
| $ | - |
| $ | - |
| $ | 4,025 |
U.S. government agencies |
|
| - |
|
| 13,451 |
|
| - |
|
| 13,451 |
|
| - |
|
| 9,812 |
|
| - |
|
| 9,812 |
U.S. government agencies mortgage-backed |
|
| - |
|
| 11,030 |
|
| - |
|
| 11,030 |
|
| - |
|
| 16,999 |
|
| - |
|
| 16,999 |
States and political subdivisions |
|
| - |
|
| 216,672 |
|
| 12,360 |
|
| 229,032 |
|
| - |
|
| 244,120 |
|
| 7,175 |
|
| 251,295 |
Corporate bonds |
|
| - |
|
| 10,577 |
|
| - |
|
| 10,577 | ||||||||||||
Collateralized mortgage obligations |
|
| - |
|
| 77,894 |
|
| 2,492 |
|
| 80,386 |
|
| - |
|
| 64,867 |
|
| - |
|
| 64,867 |
Asset-backed securities |
|
| - |
|
| 131,759 |
|
| - |
|
| 131,759 |
|
| - |
|
| 82,725 |
|
| - |
|
| 82,725 |
Collateralized loan obligations |
|
| - |
|
| 53,259 |
|
| - |
|
| 53,259 |
|
| - |
|
| 62,357 |
|
| - |
|
| 62,357 |
Loans held-for-sale |
|
| - |
|
| 1,641 |
|
| - |
|
| 1,641 |
|
| - |
|
| 5,142 |
|
| - |
|
| 5,142 |
Mortgage servicing rights |
|
| - |
|
| - |
|
| 6,684 |
|
| 6,684 |
|
| - |
|
| - |
|
| 5,819 |
|
| 5,819 |
Interest rate swap agreements |
|
| - |
|
| 128 |
|
| - |
|
| 128 |
|
| - |
|
| 2,695 |
|
| - |
|
| 2,695 |
Mortgage banking derivatives |
|
| - |
|
| 289 |
|
| - |
|
| 289 |
|
| - |
|
| 298 |
|
| - |
|
| 298 |
Total |
| $ | 3,990 |
| $ | 516,700 |
| $ | 21,536 |
| $ | 542,226 |
| $ | 4,025 |
| $ | 489,015 |
| $ | 12,994 |
| $ | 506,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements, including risk participation agreements |
| $ | - |
| $ | 1,566 |
| $ | - |
| $ | 1,566 |
| $ | - |
| $ | 5,446 |
| $ | - |
| $ | 5,446 |
Total |
| $ | - |
| $ | 1,566 |
| $ | - |
| $ | 1,566 |
| $ | - |
| $ | 5,446 |
| $ | - |
| $ | 5,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2016 |
| December 31, 2018 | ||||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
| $ | 3,923 |
| $ | - |
| $ | - |
| $ | 3,923 | ||||||||||||
U.S. government agencies |
|
| - |
|
| 10,951 |
|
| - |
|
| 10,951 | ||||||||||||
U.S. government agencies mortgage-backed |
| $ | - |
| $ | 41,534 |
| $ | - |
| $ | 41,534 |
|
| - |
|
| 14,075 |
|
| - |
|
| 14,075 |
States and political subdivisions |
|
| - |
|
| 46,477 |
|
| 22,226 |
|
| 68,703 |
|
| - |
|
| 265,902 |
|
| 8,165 |
|
| 274,067 |
Corporate bonds |
|
| - |
|
| 10,630 |
|
| - |
|
| 10,630 |
|
| - |
|
| - |
|
| - |
|
| - |
Collateralized mortgage obligations |
|
| - |
|
| 167,808 |
|
| 3,119 |
|
| 170,927 |
|
| - |
|
| 64,429 |
|
| - |
|
| 64,429 |
Asset-backed securities |
|
| - |
|
| 138,407 |
|
| - |
|
| 138,407 |
|
| - |
|
| 109,514 |
|
| - |
|
| 109,514 |
Collateralized loan obligations |
|
| - |
|
| 101,637 |
|
| - |
|
| 101,637 |
|
| - |
|
| 64,289 |
|
| - |
|
| 64,289 |
Loans held-for-sale |
|
| - |
|
| 4,918 |
|
| - |
|
| 4,918 |
|
| - |
|
| 2,984 |
|
| - |
|
| 2,984 |
Mortgage servicing rights |
|
| - |
|
| - |
|
| 6,489 |
|
| 6,489 |
|
| - |
|
| - |
|
| 7,357 |
|
| 7,357 |
Interest rate swap agreements |
|
| - |
|
| 673 |
|
| - |
|
| 673 |
|
| - |
|
| 672 |
|
| - |
|
| 672 |
Mortgage banking derivatives |
|
| - |
|
| 287 |
|
| - |
|
| 287 |
|
| - |
|
| 159 |
|
| - |
|
| 159 |
Total |
| $ | - |
| $ | 512,371 |
| $ | 31,834 |
| $ | 544,205 |
| $ | 3,923 |
| $ | 532,975 |
| $ | 15,522 |
| $ | 552,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements, including risk participation agreements |
| $ | - |
| $ | 1,667 |
| $ | - |
| $ | 1,667 |
| $ | - |
| $ | 756 |
| $ | - |
| $ | 756 |
Total |
| $ | - |
| $ | 1,667 |
| $ | - |
| $ | 1,667 |
| $ | - |
| $ | 756 |
| $ | - |
| $ | 756 |
2630
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Nine Months Ended September 30, 2017 |
| Six Months Ended June 30, 2019 | ||||||||||||||
|
| Securities available-for-sale |
|
|
|
| Securities available-for-sale |
|
| |||||||||
|
| Collateralized |
| States and |
| Mortgage |
| Collateralized |
| States and |
| Mortgage | ||||||
|
| Mortgage |
| Political |
| Servicing |
| Mortgage |
| Political |
| Servicing | ||||||
|
| Obligation |
| Subdivisions |
| Rights |
| Obligation |
| Subdivisions |
| Rights | ||||||
Beginning balance January 1, 2017 |
| $ | 3,119 |
| $ | 22,226 |
| $ | 6,489 | |||||||||
Beginning balance January 1, 2019 |
| $ | - |
| $ | 8,165 |
| $ | 7,357 | |||||||||
Transfers into Level 3 |
| - |
|
| - |
| - | |||||||||||
Transfers out of Level 3 |
| - |
|
| - |
| - | |||||||||||
Total gains or losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Included in earnings (or changes in net assets) |
|
| 32 |
|
| - |
|
| (354) | |||||||||
Included in earnings |
| - |
|
| (17) |
| (1,701) | |||||||||||
Included in other comprehensive income |
|
| 7 |
|
| (501) |
|
| - |
| - |
|
| 500 |
| - | ||
Purchases, issuances, sales, and settlements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Purchases |
|
| - |
|
| 10,994 |
|
| - |
| - |
|
| 17,554 |
| - | ||
Issuances |
|
| - |
|
| - |
|
| 951 |
| - |
|
| - |
| 417 | ||
Settlements |
|
| (666) |
|
| (20,359) |
|
| (402) |
|
| - |
|
| (19,027) |
|
| (254) |
Ending balance September 30, 2017 |
| $ | 2,492 |
| $ | 12,360 |
| $ | 6,684 | |||||||||
Ending balance June 30, 2019 |
| $ | - |
| $ | 7,175 |
| $ | 5,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Nine Months Ended September 30, 2016 |
| Six Months Ended June 30, 2018 | |||||||||||
|
| Securities available-for-sale |
|
|
|
| Securities available-for-sale |
|
| ||||||
|
| States and |
| Mortgage |
| Collateralized |
| States and |
| Mortgage | |||||
|
| Political |
| Servicing |
| Mortgage |
| Political |
| Servicing | |||||
|
| Subdivisions |
| Rights |
| Obligation |
| Subdivisions |
| Rights | |||||
Beginning balance January 1, 2016 |
| $ | 111 |
| $ | 5,847 | |||||||||
Beginning balance January 1, 2018 |
| $ | 2,268 |
| $ | 14,261 |
| $ | 6,944 | ||||||
Transfers into Level 3 |
|
| - |
|
| - |
| - | |||||||
Transfers out of Level 3 |
|
| (42) |
|
| - |
|
| - |
|
| - |
| - | |
Total gains or losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Included in earnings (or changes in net assets) |
|
| - |
|
| (1,394) | |||||||||
Included in earnings |
|
| 26 |
|
| - |
| 520 | |||||||
Included in other comprehensive income |
|
| 9 |
|
| - |
|
| 31 |
|
| (551) |
| - | |
Purchases, issuances, sales, and settlements |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Purchases |
|
| - |
|
| 19,934 |
| - | |||||||
Issuances |
|
| - |
|
| 1,148 |
|
| - |
|
| - |
| 668 | |
Settlements |
|
| (78) |
|
| (526) |
|
| (554) |
|
| (15,195) |
|
| (320) |
Ending balance September 30, 2016 |
| $ | - |
| $ | 5,075 | |||||||||
Ending balance June 30, 2018 |
| $ | 1,771 |
| $ | 18,449 |
| $ | 7,812 |
The following table and commentary presents quantitative and qualitative information about Level 3 fair value measurements as of SeptemberJune 30, 2017:2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
|
|
|
|
|
|
|
|
|
| Weighted | ||
Measured at fair value |
|
|
|
|
|
| Unobservable |
|
|
| Average |
|
|
|
|
|
| Unobservable |
|
|
| Average | ||
on a recurring basis: |
| Fair Value |
| Valuation Methodology |
| Inputs |
| Range of Input |
| of Inputs |
| Fair Value |
| Valuation Methodology |
| Inputs |
| Range of Input |
| of Inputs | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights |
| $ | 6,684 |
| Discounted Cash Flow |
| Discount Rate |
| 10.0 - 1576.2% |
| 10.2 | % |
| $ | 5,819 |
| Discounted Cash Flow |
| Discount Rate |
| 8.9% - 22.1% |
| 10.1 | % |
|
|
|
|
|
|
| Prepayment Speed |
| 7.0 - 68.3% |
| 10.0 | % |
|
|
|
|
|
| Prepayment Speed |
| 7.0 - 69.0% |
| 14.2 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
The following table and commentary presents quantitative and qualitative information about Level 3 fair value measurements as of December 31, 2016:2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
|
|
|
|
|
|
|
|
|
| Weighted | ||
Measured at fair value |
|
|
|
|
|
| Unobservable |
|
|
| Average |
|
|
|
|
|
| Unobservable |
|
|
| Average | ||
on a recurring basis: |
| Fair Value |
| Valuation Methodology |
| Inputs |
| Range of Input |
| of Inputs |
| Fair Value |
| Valuation Methodology |
| Inputs |
| Range of Input |
| of Inputs | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights |
| $ | 6,489 |
| Discounted Cash Flow |
| Discount Rate |
| 10.0 - 17.0% |
| 10.2 | % |
| $ | 7,357 |
| Discounted Cash Flow |
| Discount Rate |
| 10.0 - 229.7% |
| 10.2 | % |
|
|
|
|
|
|
| Prepayment Speed |
| 6.5 - 77.8% |
| 9.6 | % |
|
|
|
|
|
| Prepayment Speed |
| 7.0 - 68.9% |
| 9.6 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
27
In addition to the above, Level 3 fair value measurement included $12.4$7.2 million for state and political subdivisions representing various local municipality securities and $2.5 million of collateralized mortgage obligations at SeptemberJune 30, 2017. Both of these were2019. This was classified as securities available-for-sale, and werewas valued using a discount based on market spreads of similar assets, but the liquidity premium was an unobservable input. The state and political subdivisions securities balance in Level 3 fair value at SeptemberJune 30, 2016,2018, was zero; the securities were transferred to$18.4 million and collateralized mortgage obligation balance in Level 3 in the fourth quarterwas $1.8 million. Both of 2016. Given the small dollar amountthese were classified as securities available-for-sale, and size of the municipality involved, this is categorized as Level 3were valued using a discount based on market spreads of similar assets, but the payment stream received by the Company from the municipality. That payment stream is otherwiseliquidity premium was an unobservable input.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis:
The Company may be required, from time to time, to measure certain other assets at fair value on a nonrecurring basis in accordance with GAAP. These assets consist of impaired loans and OREO. For assets measured at fair value on a nonrecurring basis at SeptemberJune 30, 2017,2019, and December 31, 2016,2018, respectively, the following tables provide the level of valuation assumptions used to determine each valuation and the carrying value of the related assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
| June 30, 2019 | ||||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||
Impaired loans1 |
| $ | - |
| $ | - |
| $ | 45 |
| $ | 45 |
| $ | - |
| $ | - |
| $ | 6,092 |
| $ | 6,092 |
Other real estate owned, net2 |
|
| - |
|
| - |
|
| 9,024 |
|
| 9,024 |
|
| - |
|
| - |
|
| 5,668 |
|
| 5,668 |
Total |
| $ | - |
| $ | - |
| $ | 9,069 |
| $ | 9,069 |
| $ | - |
| $ | - |
| $ | 11,760 |
| $ | 11,760 |
1 Represents carrying value and related write-downs of loans for which adjustments are substantially based on the appraised value of collateral for collateral-dependent loans; had a carrying amount of $51,000$6.5 million and a valuation allowance of $6,000$455,000 resulting in a decreasean increase of specific allocations within the allowance for loan and lease losses of $92,000$103,000 for the ninesix months ended SeptemberJune 30, 2017.2019.
2 OREO is measured at the lower of carrying or fair value less costs to sell, and had a net carrying amount of $9.0$5.7 million, which is made up of the outstanding balance of $18.7$14.7 million, net of a valuation allowance of $8.8$8.1 million and participations of $900,000$937,000 at SeptemberJune 30, 2017.2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2016 |
| December 31, 2018 | ||||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||
Impaired loans1 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 12,163 |
| $ | 12,163 |
Other real estate owned, net2 |
|
| - |
|
| - |
|
| 11,916 |
|
| 11,916 |
|
| - |
|
| - |
|
| 7,175 |
|
| 7,175 |
Total |
| $ | - |
| $ | - |
| $ | 11,916 |
| $ | 11,916 |
| $ | - |
| $ | - |
| $ | 19,338 |
| $ | 19,338 |
1 Represents carrying value and related write-downs of loans for which adjustments are substantially based on the appraised value of collateral for collateral-dependent loans; had a carrying amount of $12.5 million and a valuation allowance of $1.0 million,$352,000, resulting in an increase of specific allocations within the allowance for loan and lease losses of $1.0 million$208,000 for the year December 31, 2016.2018.
2 OREO is measured at the lower of carrying or fair value less costs to sell, and had a net carrying amount of $11.9$7.2 million, which is made up of the outstanding balance of $23.5$16.0 million, net of a valuation allowance of $10.0$8.0 million and participations of $1.6 million,$900,000, at December 31, 2016.2018.
The Company has estimated the fair values of these assets based primarily on Level 3 inputs. OREO and impaired loans are generally valued using the fair value of collateral provided by third party appraisals. These valuations include assumptions related to cash flow projections, discount rates, and recent comparable sales. The numerical ranges of unobservable inputs for these valuation assumptions are not meaningful.
32
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
Note 14 – Fair Values of Financial Instruments
The estimated fair values approximate carrying amount for all items except those described in the following table. Securities available-for-sale fair values are based upon market prices or dealer quotes, and if no such information is available, on the rate and term of the security. The carrying value of FHLBC stock approximates fair value as the stock is nonmarketable and can only be sold to the FHLBC or another member institution at par. FHLBC stock is carried at cost and considered a Level 2 fair value. FairAs of June 30, 2019 and 2018, the fair values of loans wereand leases are estimated on an exit price basis incorporating discounts for portfolios of loans with similar financial characteristics, such as typecredit, liquidity 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.marketability factors. The fair value of time deposits is estimated using discounted future cash flows at current rates offered for deposits of similar remaining maturities. The fair values of borrowings were estimated based on interest rates available to the Company for debt with similar terms and remaining maturities. The fair value of off balance sheet volume is not considered material.
28
The carrying amount and estimated fair values of financial instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
| June 30, 2019 | ||||||||||||||||||||||||||
|
| Carrying |
| Fair |
|
|
|
|
|
|
|
|
|
| Carrying |
| Fair |
|
|
|
|
|
|
|
|
| ||||
|
| Amount |
| Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Amount |
| Value |
| Level 1 |
| Level 2 |
| Level 3 | ||||||||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
| $ | 32,772 |
| $ | 32,772 |
| $ | 32,772 |
| $ | - |
| $ | - |
| $ | 38,036 |
| $ | 38,036 |
| $ | 38,036 |
| $ | - |
| $ | - |
Interest bearing deposits with financial institutions |
|
| 14,730 |
|
| 14,730 |
|
| 14,730 |
|
| - |
|
| - |
|
| 20,181 |
|
| 20,181 |
|
| 20,181 |
|
| - |
|
| - |
Securities available-for-sale |
|
| 533,484 |
|
| 533,484 |
|
| 3,990 |
|
| 514,642 |
|
| 14,852 |
|
| 492,080 |
|
| 492,080 |
|
| 4,025 |
|
| 480,880 |
|
| 7,175 |
FHLBC and FRBC Stock |
|
| 10,393 |
|
| 10,393 |
|
| - |
|
| 10,393 |
|
| - | |||||||||||||||
FHLBC and FRBC stock |
|
| 10,608 |
|
| 10,608 |
|
| - |
|
| 10,608 |
|
| - | |||||||||||||||
Loans held-for-sale |
|
| 1,641 |
|
| 1,641 |
|
| - |
|
| 1,641 |
|
| - |
|
| 5,142 |
|
| 5,142 |
|
| - |
|
| 5,142 |
|
| - |
Loans, net |
|
| 1,577,726 |
|
| 1,568,457 |
|
| - |
|
| - |
|
| 1,568,457 | |||||||||||||||
Net loans |
|
| 1,883,571 |
|
| 1,913,235 |
|
| - |
|
| - |
|
| 1,913,235 | |||||||||||||||
Accrued interest receivable |
|
| 8,669 |
|
| 8,669 |
|
| - |
|
| 8,669 |
|
| - |
|
| 11,096 |
|
| 11,096 |
|
| - |
|
| 11,096 |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing deposits |
| $ | 556,874 |
| $ | 556,874 |
| $ | 556,874 |
| $ | - |
| $ | - |
| $ | 632,900 |
| $ | 632,900 |
| $ | 632,900 |
| $ | - |
| $ | - |
Interest bearing deposits |
|
| 1,332,241 |
|
| 1,329,668 |
|
| - |
|
| 1,329,668 |
|
| - |
|
| 1,444,874 |
|
| 1,444,338 |
|
| - |
|
| 1,444,338 |
|
| - |
Securities sold under repurchase agreements |
|
| 26,853 |
|
| 26,853 |
|
| - |
|
| 26,853 |
|
| - |
|
| 54,166 |
|
| 54,166 |
|
| - |
|
| 54,166 |
|
| - |
Other short-term borrowings |
|
| 125,000 |
|
| 125,000 |
|
| - |
|
| 125,000 |
|
| - |
|
| 87,125 |
|
| 87,125 |
|
| - |
|
| 87,125 |
|
| - |
Junior subordinated debentures |
|
| 57,627 |
|
| 59,524 |
|
| 33,320 |
|
| 26,204 |
|
| - |
|
| 57,710 |
|
| 42,874 |
|
| 34,284 |
|
| 8,590 |
|
| - |
Senior notes |
|
| 44,033 |
|
| 46,958 |
|
| - |
|
| 46,958 |
|
| - |
|
| 44,208 |
|
| 45,784 |
|
| 45,784 |
|
| - |
|
| - |
Note payable and other borrowings |
|
| 11,035 |
|
| 11,035 |
|
| - |
|
| 11,035 |
|
| - | |||||||||||||||
Interest rate swap agreements |
|
| 1,439 |
|
| 1,439 |
|
| - |
|
| 1,439 |
|
| - |
|
| 2,700 |
|
| 2,700 |
|
| - |
|
| 2,700 |
|
| - |
Borrowing interest payable |
|
| 773 |
|
| 773 |
|
| - |
|
| 773 |
|
| - |
|
| 116 |
|
| 116 |
|
| - |
|
| 116 |
|
| - |
Deposit interest payable |
|
| 573 |
|
| 573 |
|
| - |
|
| 573 |
|
| - |
|
| 914 |
|
| 914 |
|
| - |
|
| 914 |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2016 | |||||||||||||
|
| Carrying |
| Fair |
|
|
|
|
|
| |||||
|
| Amount |
| Value |
| Level 1 |
| Level 2 |
| Level 3 | |||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
| $ | 33,805 |
| $ | 33,805 |
| $ | 33,805 |
| $ | - |
| $ | - |
Interest bearing deposits with financial institutions |
|
| 13,529 |
|
| 13,529 |
|
| 13,529 |
|
| - |
|
| - |
Securities available-for-sale |
|
| 531,838 |
|
| 531,838 |
|
| - |
|
| 506,493 |
|
| 25,345 |
FHLBC and FRBC Stock |
|
| 7,918 |
|
| 7,918 |
|
| - |
|
| 7,918 |
|
| - |
Loans held-for-sale |
|
| 4,918 |
|
| 4,918 |
|
| - |
|
| 4,918 |
|
| - |
Loans, net |
|
| 1,462,651 |
|
| 1,453,429 |
|
| - |
|
| - |
|
| 1,453,429 |
Accrued interest receivable |
|
| 5,928 |
|
| 5,928 |
|
| - |
|
| 5,928 |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing deposits |
| $ | 513,688 |
| $ | 513,688 |
| $ | 513,688 |
| $ | - |
| $ | - |
Interest bearing deposits |
|
| 1,353,097 |
|
| 1,351,000 |
|
| - |
|
| 1,351,000 |
|
| - |
Securities sold under repurchase agreements |
|
| 25,715 |
|
| 25,715 |
|
| - |
|
| 25,715 |
|
| - |
Other short-term borrowings |
|
| 70,000 |
|
| 70,000 |
|
| - |
|
| 70,000 |
|
| - |
Junior subordinated debentures |
|
| 57,591 |
|
| 55,163 |
|
| 32,404 |
|
| 22,759 |
|
| - |
Subordinated debenture |
|
| 43,998 |
|
| 43,998 |
|
| - |
|
| 43,998 |
|
| - |
Interest rate swap agreements |
|
| 994 |
|
| 994 |
|
| - |
|
| 994 |
|
| - |
Borrowing interest payable |
|
| 202 |
|
| 202 |
|
| - |
|
| 202 |
|
| - |
Deposit interest payable |
|
| 599 |
|
| 599 |
|
| - |
|
| 599 |
|
| - |
Note 15 – Financial Instruments with Off-Balance Sheet Risk and Derivative Transactions
To meet the financing needs of its customers, the Bank, as a subsidiary of the Company, is a party to various financial instruments with off-balance-sheet risk in the normal course of business. These off-balance-sheet financial instruments include commitments to originate and sell loans as well as financial standby, performance standby and commercial letters of credit. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheet. The Bank’s exposure to credit loss for loan commitments and letters of credit is represented by the dollar amount of those instruments. Management generally uses the same credit policies and collateral requirements in making commitments and conditional obligations as it does for on-balance-sheet instruments.
2933
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2018 | |||||||||||||
|
| Carrying |
| Fair |
|
|
|
|
|
| |||||
|
| Amount |
| Value |
| Level 1 |
| Level 2 |
| Level 3 | |||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
| $ | 38,599 |
| $ | 38,599 |
| $ | 38,599 |
| $ | - |
| $ | - |
Interest bearing deposits with financial institutions |
|
| 16,636 |
|
| 16,636 |
|
| 16,636 |
|
| - |
|
| - |
Securities available-for-sale |
|
| 541,248 |
|
| 541,248 |
|
| 3,923 |
|
| 529,160 |
|
| 8,165 |
FHLBC and FRBC stock |
|
| 13,433 |
|
| 13,433 |
|
| - |
|
| 13,433 |
|
| - |
Loans held-for-sale |
|
| 2,984 |
|
| 2,984 |
|
| - |
|
| 2,984 |
|
| - |
Net loans |
|
| 1,878,021 |
|
| 1,867,594 |
|
| - |
|
| - |
|
| 1,867,594 |
Accrued interest receivable |
|
| 10,940 |
|
| 10,940 |
|
| - |
|
| 10,940 |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing deposits |
| $ | 618,830 |
| $ | 618,830 |
| $ | 618,830 |
| $ | - |
| $ | - |
Interest bearing deposits |
|
| 1,497,843 |
|
| 1,495,614 |
|
| - |
|
| 1,495,614 |
|
| - |
Securities sold under repurchase agreements |
|
| 46,632 |
|
| 46,632 |
|
| - |
|
| 46,632 |
|
| - |
Other short-term borrowings |
|
| 149,500 |
|
| 149,500 |
|
| - |
|
| 149,500 |
|
| - |
Junior subordinated debentures |
|
| 57,686 |
|
| 47,625 |
|
| 32,989 |
|
| 14,636 |
|
| - |
Senior notes |
|
| 44,158 |
|
| 45,008 |
|
| 45,008 |
|
| - |
|
| - |
Note payable and other borrowings |
|
| 15,379 |
|
| 15,379 |
|
| - |
|
| 15,379 |
|
| - |
Interest rate swap agreements |
|
| 58 |
|
| 58 |
|
| - |
|
| 58 |
|
| - |
Borrowing interest payable |
|
| 281 |
|
| 281 |
|
| - |
|
| 281 |
|
| - |
Deposit interest payable |
|
| 973 |
|
| 973 |
|
| - |
|
| 973 |
|
| - |
Interest Rate Swap Designated as a Cash Flow Hedge
The Company entered into a forward starting interest rate swap on August 18, 2015,Note 15 – Derivatives, Hedging Activities and Financial Instruments with an effective date of June 15, 2017. This transaction had a notional amount totaling $25.8 million as of September 30, 2017, was designated as a cash flow hedge of certain junior subordinated debentures and was determined to be fully effective during the period presented. As such, no amount of ineffectiveness has been included in net income. Therefore, the aggregate fair value of the swap is recorded in other assets with changes in fair value recorded in other comprehensive income. The amount included in other comprehensive income would be reclassified to current earnings should all or a portion of the hedge no longer be considered effective. The Company expects the hedge to remain fully effective during the remaining term of the swap. The Bank will pay the counterparty a fixed rate and receive a floating rate based on three month LIBOR. Management concluded that it would be advantageous to enter this transaction given that the Company has trust preferred securitiesthat changed from fixed rate to floating rate on June 15, 2017. The cash flow hedge has a maturity date of June 15, 2037.Off-Balance Sheet Risk
Summary information about the interest rate swap designated as a cash flow hedge is as follows:
|
|
|
|
|
|
|
|
|
|
| As of | ||||||
|
| September 30, 2017 |
| December 31, 2016 | ||||
Notional amount |
| $ | 25,774 |
|
| $ | 25,774 |
|
Unrealized loss |
|
| (1,439) |
|
|
| (994) |
|
Other Interest Rate SwapsRisk Management Objective of Using Derivatives
The Bank also hasCompany is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative positionsfinancial instruments. Specifically, the Company enters into derivative financial instruments to assist with risk managementmanage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are not designated as hedging instruments. Thesedetermined by interest rates. The Company’s derivative positions relatefinancial instruments are used to transactionsmanage differences in which the Bank enters anamount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s loan portfolio.
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate swap with a client while at the same time entering into an offsettingderivatives are to add stability to interest expense and to manage its exposure to interest rate swap with another financial institution. Per contractual requirements withmovements. To accomplish this objective, the correspondent financial institution, the Bank had $4.2 million in securities available-for-sale pledged to supportCompany primarily uses interest rate swap activity with one correspondent financial institution at September 30, 2017. The Bank had $6.2 million in securities pledged to support interest rate swap activity with one correspondent financial institution at December 31, 2016.
In connection with each transaction, the Bank agreed to pay interest to the client on a notional amount at a variable interest rate and receive interest from the client on the same notional amount at a fixed interest rate. At the same time, the Bank agreed to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows the client to convert a variable rate loan to a fixed rate loan and isswaps as part of the Company’sits interest rate risk management strategy. BecauseInterest rate swaps designated as cash flow hedges involve the Bank actsreceipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. During 2019 and 2018, such derivatives were used to hedge the variable cash flows associated with existing variable-rate borrowings.
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in Accumulated Other Comprehensive Income and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are received on the Company’s variable-rate borrowings. During the next twelve months, the Company estimates that an additional $207,000 will be reclassified as an intermediary forincrease to interest expense.
Non-designated Hedges
Derivatives not designated as hedges are not speculative and result from a service the client,Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that
34
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the underlying derivative contracts offset each othercustomer derivatives and do not generally affect the results of operations. Fair value measurements include an assessment of credit risk related to the client’s ability to perform on their contract position, however, and valuation estimates related to that exposureoffsetting derivatives are discussedrecognized directly in Note 13 above. At September 30, 2017, the notional amount of non-hedging interest rate swaps was $349.4 million with a weighted average maturity of 6.7 years. At December 31, 2016, the notional amount of non-hedging interest rate swaps was $85.8 million with a weighted average maturity of 7.3 years. The Bank offsets derivative assets and liabilities that are subject to a master netting arrangement.earnings.
The BankCompany also grants mortgage loan interest rate lock commitments to borrowers, subject to normal loan underwriting standards. The interest rate risk associated with these loan interest rate lock commitments is managed with contracts for future deliveries of loans as well as selling forward mortgage-backed securities contracts. Loan interest rate lock commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Commitments to originate residential mortgage loans held-for-sale and forward commitments to sell residential mortgage loans or forward MBS contracts are considered derivative instruments and changes in the fair value are recorded to mortgage banking revenue. Fair values are estimated based on observable changes in mortgage interest rates including mortgage-backed securities prices from the date of the commitment.
Disclosure of Fair Values of Derivative Instruments on the Balance Sheet
The Company entered into a forward starting interest rate swap on August 18, 2015, with an effective date of June 15, 2017. This transaction had a notional amount totaling $25.8 million as of December 31, 2018, was designated as a cash flow hedge of certain junior subordinated debentures and was determined to be fully effective during the period presented. As such, no amount of ineffectiveness has been included in net income. Therefore, the aggregate fair value of the swap is recorded in other liabilities with changes in fair value recorded in other comprehensive income, net of tax. The amount included in other comprehensive income would be reclassified to current earnings should all or a portion of the hedge no longer be considered effective. The Company expects the hedge to remain fully effective during the remaining term of the swap. The Bank will pay the counterparty a fixed rate and receive a floating rate based on three month LIBOR. The trust preferred securitieschanged from fixed rate to floating rate in June 15, 2017. The cash flow hedge has a maturity date of June 15, 2037.
The Bank also has interest rate derivative positions to assist with risk management that are not designated as hedging instruments. These derivative positions relate to transactions in which the Bank enters an interest rate swap with a client while at the same time entering into an offsetting interest rate swap with another financial institution. The Bank had $69,000 of cash collateral pledged with one correspondent financial institution to support interest rate swap activity at June 30, 2019; $6.1 million of investment securities were required to be pledged to two correspondent financial institutions. The Bank had $260,000 of cash collateral pledged with one correspondent financial institution to support interest rate swap activity at December 31, 2018; no investment securities were required to be pledged. At June 30, 2019, the notional amount of non-hedging interest rate swaps was $182.0 million with a weighted average maturity of 6.1 years. At December 31, 2018, the notional amount of non-hedging interest rate swaps was $188.9 million with a weighted average maturity of 6.6 years. The Bank offsets derivative assets and liabilities that are subject to a master netting arrangement.
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Balance Sheet as of June 30, 2019 and December 31, 2018.
Fair Value of Derivative Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2019 | ||||
| No. of Trans. |
| Notional Amount $ |
| Balance Sheet Location | Fair Value $ |
| Balance Sheet Location | Fair Value $ |
Derivatives designated as hedging instruments |
|
|
|
|
|
|
|
|
|
Interest rate swaps | 1 |
| 25,774 |
| Other Assets | - |
| Other Liabilities | 2,700 |
Total derivatives designated as hedging instruments |
|
|
|
|
| - |
|
| 2,700 |
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
|
Interest rate swaps with commercial loan customers | 25 |
| 182,033 |
| Other Assets | 2,695 |
| Other Liabilities | 2,695 |
Interest rate lock commitments and forward contracts | 149 |
| 59,296 |
| Other Assets | 298 |
| Other Liabilities | - |
Other contracts | 3 |
| 18,048 |
| Other Assets | - |
| Other Liabilities | 51 |
Total derivatives not designated as hedging instruments |
|
|
|
|
| 2,993 |
|
| 2,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3035
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
|
|
|
|
| December 31, 2018 | ||||
| No. of Trans. |
| Notional Amount $ |
| Balance Sheet Location | Fair Value $ |
| Balance Sheet Location | Fair Value $ |
Derivatives designated as hedging instruments |
|
|
|
|
|
|
|
|
|
Interest rate swaps | 1 |
| 25,774 |
| Other Assets | - |
| Other Liabilities | 58 |
Total derivatives designated as hedging instruments |
|
|
|
|
| - |
|
| 58 |
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
|
Interest rate swaps with commercial loan customers | 25 |
| 188,931 |
| Other Assets | 672 |
| Other Liabilities | 672 |
Interest rate lock commitments and forward contracts | 63 |
| 18,130 |
| Other Assets | 159 |
| Other Liabilities | - |
Other contracts | 3 |
| 18,155 |
| Other Assets | - |
| Other Liabilities | 26 |
Total derivatives not designated as hedging instruments |
|
|
|
|
| 831 |
|
| 698 |
The following table presents derivatives not designated as hedging instruments as of September 30, 2017, and periodic changes in the valuesDisclosure of the interest rate swaps are reported in other noninterest income. Periodic changes in the valueEffect of the forward contracts related to mortgage loan origination are reported in the net gain on sales of mortgage loans.Fair Value and Cash Flow Hedge Accounting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Asset Derivatives |
| Liability Derivatives | ||||||
|
| Notional or |
|
|
|
|
|
|
|
| |||
|
| Contractual |
| Balance Sheet |
|
|
|
| Balance Sheet |
|
|
| |
|
| Amount |
| Location |
| Fair Value |
| Location |
| Fair Value | |||
Interest rate swap contracts net of credit valuation |
| $ | 349,367 |
| Other Assets |
| $ | 128 |
| Other Liabilities |
| $ | 128 |
Interest rate lock commitments and forward contracts |
|
| 28,591 |
| Other Assets |
|
| 289 |
| N/A |
|
| - |
Total |
|
|
|
|
|
| $ | 417 |
|
|
| $ | 128 |
The following table presentsfair value and cash flow hedge accounting related to derivatives not designated as hedging instrumentscovered under ASC Subtopic 815-20 impacted Accumulated Other Comprehensive Income (“AOCI”) and the Income Statement. The gain recognized in AOCI on derivatives totaled $1.6 million as of December 31, 2016.June 30, 2019, and a loss in AOCI of $473,000 as of June 30, 2018. The amount of the loss reclassified from AOCI to interest income on the income statement totaled $10,000 and $42,000 for the three months ended June 30, 2019, and June 30, 2018, respectively. The amount of the loss reclassified from AOCI to interest income or interest expense on the income statement totaled $15,000 and $116,000 for the six months ended June 30, 2019, and June 30, 2018, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Asset Derivatives |
| Liability Derivatives | ||||||
|
| Notional or |
|
|
|
|
|
|
|
| |||
|
| Contractual |
| Balance Sheet |
|
|
|
| Balance Sheet |
|
|
| |
|
| Amount |
| Location |
| Fair Value |
| Location |
| Fair Value | |||
Interest rate swap contracts net of credit valuation |
| $ | 85,807 |
| Other Assets |
| $ | 673 |
| Other Liabilities |
| $ | 673 |
Interest rate lock commitments and forward contracts |
|
| 31,980 |
| Other Assets |
|
| 287 |
| N/A |
|
| - |
Total |
|
|
|
|
|
| $ | 960 |
|
|
| $ | 673 |
Credit-risk-related Contingent Features
For derivative transactions involving counterparties who are lending customers of the Company, the derivative credit exposure is managed through the normal credit review and monitoring process, which may include collateralization, financial covenants and/or financial guarantees of affiliated parties. Agreements with such customers require that losses associated with derivative transactions receive payment priority from any funds recovered should a customer default and ultimate disposition of collateral or guarantees occur.
Credit exposure to broker/dealer counterparties is managed through agreements with each derivative counterparty that require collateralization of fair value gains owed by such counterparties. Some small degree of credit exposure exists due to timing differences between when a gain may occur and the subsequent point in time that collateral is delivered to secure that gain. This is monitored by the Company and procedures are in place to minimize this exposure. Such agreements also require the Company to collateralize counterparties in circumstances wherein the fair value of the derivatives result in loss to the Company.
Other provisions of such agreements include the definition of certain events that may lead to the declaration of default and/or the early termination of the derivative transaction(s):
· | If the Company either defaults or is capable of being declared in default on any of its indebtedness (exclusive of deposit obligations), then the Company could also be declared in default on its derivative obligations. |
· | If a merger occurs that materially changes the Company's creditworthiness in an adverse manner. |
· | If certain specified adverse regulatory actions occur, such as the issuance of a Cease and Desist Order, or citations for actions considered Unsafe and Unsound or that may lead to the termination of deposit insurance coverage by the Federal Deposit Insurance Corporation. |
The Bank also issues letters of credit, which are conditional commitments that guarantee the performance of a customer to a third party. The credit risk involved and collateral obtained in issuing letters of credit are essentially the same as that involved in extending loan commitments to our customers. In addition to customer related commitments, the Company is responsible for letters of credit commitments that relate to properties held in OREO. The following table represents the Company’s contractual commitments due to letters of credit as of SeptemberJune 30, 2017,2019, and December 31, 2016.2018.
36
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
The following table is a summary of letter of credit commitments (in thousands):commitments:
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| September 30, 2017 |
| December 31, 2016 |
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| June 30, 2019 |
| December 31, 2018 |
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| Fixed |
| Variable |
| Total |
| Fixed |
| Variable |
| Total |
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| Fixed |
| Variable |
| Total |
| Fixed |
| Variable |
| Total |
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Letters of credit: |
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Borrower: |
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Financial standby |
| $ | 177 |
| $ | 3,748 |
| $ | 3,925 |
| $ | 137 |
| $ | 4,047 |
| $ | 4,184 |
|
| $ | 339 |
| $ | 6,468 |
| $ | 6,807 |
| $ | 327 |
| $ | 7,158 |
| $ | 7,485 |
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Commercial standby |
|
| - |
|
| 122 |
|
| 122 |
|
| - |
|
| 126 |
|
| 126 |
|
|
| - |
|
| 1,613 |
|
| 1,613 |
|
| - |
|
| 397 |
|
| 397 |
|
Performance standby |
|
| 66 |
|
| 7,912 |
|
| 7,978 |
|
| 83 |
|
| 8,498 |
|
| 8,581 |
|
|
| 251 |
|
| 6,174 |
|
| 6,425 |
|
| 532 |
|
| 6,381 |
|
| 6,913 |
|
|
|
| 243 |
|
| 11,782 |
|
| 12,025 |
|
| 220 |
|
| 12,671 |
|
| 12,891 |
|
|
| 590 |
|
| 14,255 |
|
| 14,845 |
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| 859 |
|
| 13,936 |
|
| 14,795 |
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Non-borrower: |
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Performance standby |
|
| - |
|
| 422 |
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| 422 |
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| 95 |
|
| 525 |
|
| 620 |
|
|
| - |
|
| 67 |
|
| 67 |
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| - |
|
| 67 |
|
| 67 |
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Total letters of credit |
| $ | 243 |
| $ | 12,204 |
| $ | 12,447 |
| $ | 315 |
| $ | 13,196 |
| $ | 13,511 |
|
| $ | 590 |
| $ | 14,322 |
| $ | 14,912 |
| $ | 859 |
| $ | 14,003 |
| $ | 14,862 |
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3137
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The Company is a financial services company with its main headquarters located in Aurora, Illinois. The Company is the holding company of Old Second National Bank (the “Bank”), a national banking organization headquartered in Aurora, Illinois, thatfollowing discussion provides commercial and retail banking services, as well as a full complement of trust and wealth management services. The Company has offices located in Cook, Kane, Kendall, DeKalb, DuPage, LaSalle and Will counties in Illinois. The following management’s discussion and analysis presentsadditional information concerningregarding our financial condition as of September 30, 2017, as compared to December 31, 2016, and the results of operations for the three and ninesix months Septemberended June 30, 2017,2019, as compared to June 30, 2018, and Septemberour financial condition at June 30, 2016.2019 compared to December 31, 2018. This discussion and analysis is bestshould be read in conjunction with our consolidated financial statements as well as the financial and statistical data appearing elsewhere in this report and our Form 10-K for the year ended December 31, 2016.2018. The results of operations for the quarter Septemberthree and six months ended June 30, 2017,2019, are not necessarily indicative of future results.results (dollar amounts in thousands, except per share data, unaudited).
In this report, unless the context suggests otherwise, references to the “Company,” “we,” “us,” and “our” mean the combined business of Old Second Bancorp, Inc. and its subsidiary bank, Old Second National Bank (the “Bank”).
We have made, and will continue to make, various forward-looking statements with respect to financial and business matters. Comments regarding our business that are not historical facts are considered forward-looking statements that involve inherent risks and uncertainties. Actual results may differ materially from those contained in these forward-looking statements. For additional information regarding our cautionary disclosures, see the “Cautionary Note Regarding Forward-Looking Statements” on page 3 of this report.
Business Overview
The Company is a bank holding company headquartered in Aurora, Illinois. Through our wholly-owned subsidiary bank, Old Second National Bank, a national banking organization also headquartered in Aurora, Illinois, we offer a wide range of financial services through our 29 banking centers located in Cook, DeKalb, DuPage, Kane, Kendall, LaSalle and Will counties in Illinois. These banking centers offer access to a full range of traditional retail and commercial banking services including treasury management operations as well as fiduciary and wealth management services. We focus our business on establishing and maintaining relationships with our clients while maintaining a commitment to provide for the financial services needs of the communities in which we operate. We emphasize relationships with individual customers as well as small to medium-sized businesses throughout our market area. We also have extensive wealth management services, which includes a registered investment advisory platform in addition to trust administration and trust services related to personal and corporate trusts and employee benefit plan administration services.
Financial Overview
Our community-focused banking franchise has experienced total asset and overall market growth in the past year,second quarter of 2019, compared to the first quarter of 2019 and isthe second quarter of 2018, and we believe we are positioned for further successgrowth as we continue to serve our customers’ needs in a competitive economic environment. IndustryWhile industry and regulatory developments in the past few years have made it challenging to attain the levels of profitability and growth reflected a decade ago. Asprior to the economic recession of 2007-2009, we lookare continuing to seek to provide value to our customers and the communities in which we operate, by executing on growth opportunities identified in our local markets are being developed intoand developing new banking relationships. WeOverall stable market conditions over the past few years are encouraged by sustainedreflected in the financials presented for the reporting period ended June 30, 2019.
The following provides an overview of some of the factors impacting our financial performance for the quarter ending June 30, 2019:
· | This is the fifth quarter of results of operations that included our acquisition of Greater Chicago Financial Corp., and its wholly-owned subsidiary bank, ABC Bank, which closed on April 20, 2018. |
· | Net income for the second quarter of 2019 was $9.3 million, or $0.31 per diluted share, compared to $6.3 million, or $0.21 per diluted share, for the second quarter of 2018. Net income for the six months ended June 30, 2019, totaled $17.7 million, or $0.58 per diluted share, compared to $15.8 million, or $0.52 per diluted share for the six months ended June 30, 2018. |
· | Net interest and dividend income was $24.8 million for the second quarter of 2019, compared to $23.2 million for the second quarter of 2018. The increase was primarily due to a full period of the increased loan volume resulting from our acquisition of ABC Bank on April 20, 2018, which added $227.6 million in loans, net of purchase accounting adjustments, as well as the increase in interest rates in the year over year period. Net interest and dividend income was $48.8 million for the six months ended June 30, 2019, compared to $42.9 million for the like period in 2018. |
· | Noninterest income was $8.1 million for the second quarter of 2019, compared to $8.5 million for the second quarter of 2018. The reduction was primarily due to a $1.1 million interest rate driven mark to market loss on mortgage servicing rights (“MSR”) recorded in the second quarter of 2019, compared to $105,000 of MSR losses recorded in the second quarter of 2018, which was partially offset by security gains, net, of $986,000 for the second quarter of 2019. Noninterest income was $14.6 million for the six months ended June 30, 2019, which reflected a 14.2% decrease from the like period in 2018, due primarily to a decline of $2.2 million in income related to MSR losses for the six month period. |
38
· | Noninterest expense was $20.1 million for the second quarter of 2019, compared to $22.3 million for the second quarter of 2018, which reflects a decrease of $2.2 million, or 9.7%. The decrease in expense was due to our acquisition of ABC Bank, which resulted in higher costs in the second quarter of 2018 due to data conversion and salary continuation and retention agreements issued to ABC Bank employees. For the six months ended June 30, 2019, noninterest expense totaled $39.3 million, compared to $39.6 million for the like 2018 period, reflecting a decrease of $320,000, or 0.8%. |
· | Income tax expense increased in the second quarter of 2019 period compared to the like 2018 period due primarily to the increase in pretax income of $4.3 million. The effective tax rate for the three months ended June 30, 2019, was 24.7%, compared to 22.1% for the three months ended June 30, 2018. Income tax expense for the six months ended June 30, 2019, totaled $5.4 million, which was $1.7 million, or 44.3%, higher than the income tax expense for the six months ended June 30, 2018, due primarily to the increase in pretax income of $3.7 million. |
· | Asset quality remained consistent; with nonperforming loans as a percent of total loans remaining relatively steady at 0.7% as of June 30, 2019 and 0.8% as of June 30, 2018. |
· | We added $11.4 million of purchase credit impaired loans (“PCI loans”), net of purchase accounting adjustments, in our acquisition of ABC Bank in the second quarter of 2018. As of June 30, 2019, PCI loans, net of purchase accounting adjustments, totaled $10.8 million, and PCI loans to total loans was 0.6%. We had no PCI loans before our acquisition of ABC Bank. |
Critical Accounting Policies
Our consolidated financial statements are prepared based on the application of accounting policies in accordance with generally accepted accounting principles (“GAAP”) and follow general practices within the banking industry. These policies require the reliance on estimates and assumptions, which may prove inaccurate or are subject to variations. These estimates, assumptions, and judgments are based on information available as of the date of the consolidated financial statements. Future changes in information may affect these estimates, assumptions, and judgments, which, in turn, may affect amounts reported in the consolidated financial statements. Changes in underlying factors, assumptions, or estimates could have a material impact on our future financial condition and results of operations. The most critical of these significant accounting policies are the policies related to the allowance for loan and lease losses, fair valuation methodologies, income taxes and the accounting related to loans acquired in business combinations. Our significant accounting policies are more fully described in Note 1 to the audited consolidated financial statements contained in our credit performance as nonperforming loan totals remain at low levelsAnnual Report on Form 10-K for the year ended December 31, 2018, and strong sales effortsthe more significant assumptions and estimates made by management are more fully described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2018. There have driven loan growth and portfolio diversity. The Company generated increasedbeen no material changes to our significant accounting policies or the estimates made pursuant to those policies from those disclosed in our 2018 Annual Report on Form 10-K during the most recent quarter.
Non-GAAP Financial Measures
This report contains references to financial measures that are not defined in GAAP. Such non-GAAP financial measures include the presentation of net interest income and net interest income to interest earning assets on a tax equivalent (“TE”) basis, our adjusted efficiency ratio and our tangible common equity to tangible assets ratio. Management believes that the presentation of these non-GAAP financial measures (a) provides important supplemental information that contributes to a proper understanding of our operating performance, (b) enables a more complete understanding of factors and trends affecting our business, and (c) allows investors to evaluate our performance in a manner similar to management, the financial services industry, bank stock analysts, and bank regulators. Management uses non-GAAP measures as follows: in the three month periodpreparation of our operating budgets, monthly financial performance reporting, and in our presentation to investors of our performance. However, we acknowledge that these non-GAAP financial measures have a number of limitations. Limitations associated with non-GAAP financial measures include the risk that persons might disagree as to the appropriateness of items comprising these measures and that different companies might calculate these measures differently. These disclosures should not be considered an alternative to our GAAP results. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is presented below or alongside the first instance where each non-GAAP financial measure is used.
Results of Operations
Overview
Three months ended SeptemberJune 30, 2017, as2019 and 2018
Our income before taxes was $12.3 million in the second quarter of 2019, compared to $8.0 million in the second quarter of 2018. The $4.3 million increase in pretax income for the second quarter of 2019, compared to the like 2018 quarter, resulted in an increase to income tax expense of $1.3 million for the second quarter of 2019, compared to the like 2018 quarter. Our net income was $9.3
39
million, or $0.31 per diluted share, for the second quarter of 2019, compared to net income of $6.3 million, or $0.21 per diluted share, for the second quarter of 2018.
The increase in net income was impacted by a $2.3 million increase in interest and dividend income in the second quarter of 2019, compared to the second quarter of 2018, primarily as a result of higher loan yields in the 2019 period ended September 30, 2016. The Company’sdue to rising interest rates, as well as the impact of a full period of the increased loan volume resulting from our ABC Bank acquisition, partially offset by a $813,000 increase in interest expense. In addition, our noninterest expense decreased $2.2 million in the second quarter of 2019, compared to the like quarter in 2018, which was partially offset by a decrease of $389,000 in noninterest income growth also contributedin the second quarter of 2019, compared to the overallsecond quarter of 2018.
Management has remained diligent in reviewing our loan portfolio to analyze and determine if charge-offs are required. Average loan growth, including loans held for sale, in the second quarter of 2019 totaled $1.8 million, primarily in commercial loans and leases. Management’s review of the loan portfolio resulted in $450,000 of provision expense in the second quarter of 2019, based on analysis of the allowance and loan portfolio held, a decrease of $1.0 million, compared to $1.5 million in provision expense in the like 2018 quarter. The allowance for loan and lease loss analysis methodology remained consistent, with no material changes incorporated in the second quarter of 2019 from the prior quarter.
Six months ended June 30, 2019 and 2018
Our income before taxes was $23.2 million for the six months ended June 30, 2019, compared to $19.5 million for the six months ended June 30, 2018. Our net income was $17.7 million, or $0.58 per diluted share, for the six months ended June 30, 2019, compared to net income of $15.8 million, or $0.52 per diluted share, for the six months ended June 30, 2018.
The increase in earningsnet income was impacted by an $8.1 million increase in interest and dividend income for the third quarter and ninesix months ended SeptemberJune 30, 20172019, compared the like period of 2018, driven by increased average loan volumes due to the ABC Bank acquisition and organic loan growth, as comparedwell higher yields on loans due to like periodsthe rising interest rate environment, partially offset by a $2.1 million increase in the prior year. However, the positive earnings impact of the growthinterest expense and an additional $228,000 in provision expense. Also impacting net interest income andwas a $2.4 million decrease in noninterest income for the thirdsix months ended June 30, 2019, compared to the 2018 period, driven primarily by mark to market losses of $2.0 million on MSR’s for the six months ended June 30, 2019, compared to a $200,000 gain on mark to market losses on MSRs in the like 2018 period.
Net Interest Income
Net interest income, which is our primary source of earnings, is the difference between interest income earned on interest-earning assets, such as loans and investment securities, as well as accretion income on purchased loans, and interest incurred on interest-bearing liabilities, such as deposits and borrowings. Net interest income depends upon the relative mix of interest-earning assets and interest-bearing liabilities, the ratio of interest-earning assets to total assets and of interest-bearing liabilities to total funding sources, and movements in market interest rates. Our net interest income can be significantly influenced by a variety of factors, including overall loan demand, economic conditions, credit risk, the amount of nonearning assets including nonperforming loans and OREO, the amounts of and rates at which assets and liabilities reprice, variances in prepayment of loans and securities, early withdrawal of deposits, exercise of call options on borrowings or securities, a general rise or decline in interest rates, changes in the slope of the yield-curve, and balance sheet growth or contraction.
Three months ended June 30, 2019 and 2018
Our net interest and dividend income increased by $1.5 million, from $23.2 million for the second quarter of 2018, to $24.8 million for the second quarter of 2019. Our interest and nine monthsdividend income increased $690,000, or 2.4%, for the second quarter 2019, compared to the first quarter of 2017 was partially offset by2019, and reflected an increase in noninterest expense. Noninterest expensesof $2.3 million, or 8.5%, compared to the second quarter of 2018. Tax equivalent interest and dividend income increased by $2.3 million, or 8.4%, from $27.8 million for the second quarter of 2018, to $30.2 million for the second quarter of 2019.
Average earning assets for the second quarter of 2019 were negatively impacted primarily by$2.45 billion, reflecting an increase in employee costsof $8.4 million compared to the first quarter of 2019, and an increase of $55.6 million compared to the second quarter of 2018. Total average loans, including loans held-for-sale, totaled $1.90 billion in the year over year periods. Finally, an income tax benefit was recorded in the thirdsecond quarter of 2017 due to a State2019, which reflected an increase of Illinois tax rate increase; this credit had a significantly favorable impact which contributed$1.8 million compared to the first quarter of 2019, and an increase of $88.2 million compared to the second quarter of 2018. The growth in netaverage balances and resultant interest income in the year over year periods forperiod was primarily due to $227.6 million of loans acquired, net of purchase accounting adjustments, in our acquisition of ABC Bank on April 20, 2018. Organic loan growth and the quarterrising interest rate environment also drove growth in interest and nine months.
Results of Operations
Net income before taxes of $9.9 million individend income. For the thirdsecond quarter of 2017 compares to $5.4 million in the third quarter of 2016. When2019, yields on average securities increased by 14 basis points and yields on average loans increased by 28 basis points, each compared to the thirdsecond quarter of 2016, the third quarter of 2017 reflected higher levels of net interest and dividend income, a provision for loan loss of $300,000, and increased levels of noninterest income and noninterest expense. Noninterest income in the 2017 period was favorably impacted by net gains recorded on securities portfolio sales as compared to net losses in the like prior year period, as well as an increase in trust revenue2018, due to growth in our customer base. Noninterest expense increased in the third quarter of 2017 when compared to the third quarter of 2016 primarily due to an increase in salaries and employee benefits due to higher insurance costs, as well as an increase in OREO related valuation costs. An income tax benefit of $1.6 million was recorded in the third quarter of 2017 due to a State of Illinois taxrising interest rate change; this nonrecurring item increased the Company’s deferred tax asset by a like amount.
Net income before taxes of $23.7 million for the nine months ended September 30, 2017 was favorable as compared to the $16.5 million pretax income for the nine months ended September 30, 2016. Net interest margin was the largest contributor to this favorable variance, as loan growth and securities repositioning have resulted in increased volumes and more favorable yields for the year to date period.
Management has remained diligent with loan portfolio review to analyze loan quality and decide whether charge-offs are required. In the third quarter of 2017, management’s review of the loan portfolio concluded that an additional provision for loan losses should be recorded of $300,000, stemming from third quarter 2017 loan growth and collateral shortfalls on a few credits as a result of updated appraisals. The allowance for loan losses was adequate and appropriate for estimated incurred losses at September 30, 2016; neither a loan loss reserve release nor an additional loan loss provision was deemed necessary for the like 2016 quarter.
Earnings for the third quarter of 2017 were $0.27 per diluted share on $8.1 million of net income as compared to $0.12 per diluted share on net income of $3.5 million for the third quarter of 2016. For the nine month period ended September 30, 2017, earnings were $0.59 per diluted share on $17.7 million of net income, as compared to $0.36 per diluted share on $10.7 million of income for the prior year like period. Earnings growth in the 2017 period, as compared to the like 2016 period, stems from the acquisition of the Chicago branch of Talmer Bank and Trust, which was completed on October 28, 2016. This acquisition resulted in a cash payment of $181.5 million for loans, net of purchased loan discount totaling $221.0 million, deposits of $48.9 million, goodwill of $8.4 million, core deposit intangible of $659,000, and other immaterial assets and liabilities. The performance of the acquired loan portfolio, security portfolio restructuring to higher yielding instruments, and robust organic loan growth in the year over year period were the primary factors driving the earnings increase for the 2017 third quarter and year to date periods. environment.
3240
Net Interest Income
NetAverage interest and dividend income increased by $3.9bearing liabilities decreased $40.8 million, from $15.3 million for the quarter ended September 30, 2016, to $19.3 million for the quarter ended September 30, 2017. Total average loans, including loans held-for-sale, increased by $44.3 millionor 2.3%, in the third quarter of 2017 as compared to the second quarter of 2017, and $361.9 million as2019, compared to the thirdfirst quarter of 2016. Average earning assets were $2.12 billion2019, and decreased $24.4 million, or 1.4%, compared to second quarter of 2018. The reduction in average interest bearing deposits from the prior quarter and prior year periods was partially offset with growth in noninterest bearing deposits, primarily commercial demand deposits, of $26.8 million for the thirdyear over year period. Average other short-term borrowings, which primarily consist of FHLBC advances, decreased $5.0 million in the second quarter of 2017, which reflected an increase2019, compared to the first quarter of $6.42019, and increased $35.2 million, compared to the second quarter of 2017,2018. The average rate paid on short-term FHLBC advances were impacted by the higher interest rate environment resulting in an average rate of 2.47% for the second quarter of 2019, compared to 2.50% for the first quarter of 2019, and 1.90% for the second quarter of 2018. In addition, we acquired notes payable and other borrowings in our acquisition of ABC Bank, consisting solely of long-term FHLBC advances, which resulted in an increase to average interest bearing liabilities of $13.1 million for the second quarter of 2019, an increase of $15.3 million for the first quarter of 2019, and an increase of $212.5$19.8 million as compared tofor the thirdsecond quarter of 2016.2018. The significant increase in interest and dividend income of $3.9 million, or 25.6%, in the three months ended September 30, 2017 as compared to the like 2016 period, was driven by growth in the loan portfolio primarily due to the Talmer branch acquisition. In addition, the average yield on the securities portfolio increased by 103 basis points in the year over year period due to portfolio repositioning to higher yielding tax exempt securities; the average tax exempt securities portfolio increased by $185.5 million, and earned 138 basis points more in the third quarter of 2017 as compared to the third quarter of 2016.
Quarterly average interest bearing liabilities as of September 30, 2017, decreased $11.9 million, or 0.8%, compared to June 30, 2017, but increased $87.8 million, or 6.0%, when compared to September 30, 2016. Growth from the prior year like period was due to the Talmer branch purchase of $48.9 million of commercial deposits, as well as organic commercial deposit growth. As the deposit growth in the year over year period was driven by commercial demand accounts, the cost of funds did not materially increase from this volume change. However, each quarter presented reflects an increase inon these long-term advances was 3.28% for the FHLBC borrowing, which is within other short-term borrowings, as this facility was used to fund loan growth. The cost of interest bearing liabilities in the thirdsecond quarter of 2017 increased to 80 basis points from 67 basis points in2019, 3.08% for the thirdfirst quarter of 2016, primarily due to2019, and 1.92% for the senior note issuance in late 2016.second quarter of 2018. The $45.0 million senior debt issuance, atrate on our junior subordinated debentures was within a seven basis point range over the past year, reflecting an average costrate of 6.11% in6.47% for the thirdsecond quarter of 2017 net of issuance costs, replaced2019, 6.52% for the prior subordinated notes outstanding, which had an average cost of 2.13% in the thirdfirst quarter of 2016. This issuance resulted in a $430,000 increase to interest expense, which drove2019, and 6.45% for the overall higher costsecond quarter of funds in 2017.2018.
TheOur net interest margin, (onon a tax-equivalent basis),(TE) basis, expressed as a percentage of average earning assets, was 3.77% in4.15% for the thirdsecond quarter of 2017,2019, reflecting a six basis point increase from the first quarter of 2019, and an increase of 616 basis points from the second quarter of 2017, and growth of 55 basis points from the third quarter of 2016.2018. The average tax-equivalent yield on earning assets increased to 4.32%4.94% for the thirdsecond quarter of 2017, as2019, compared to 3.70%4.90% for the thirdfirst quarter of 2016.2019, and 4.67% for the second quarter of 2018. Increases in net interest margin and yield on average earning assets for the thirdsecond quarter of 2017 as2019, compared to prior periods presentedthe first quarter of 2019, was attributable to growth in loan volumes and rates, as well asand the securities portfolio repositioningincrease in net interest margin was also due to higher yielding tax exempt holdings, as discussed above.growth in noninterest bearing demand accounts, which are a less expensive source of funding. The cost of funds on interest bearing liabilities was 0.80%1.13% for the thirdsecond quarter of 2017 and 0.67%2019, 1.12% for the thirdfirst quarter of 2016. 2019, and 0.92% for the second quarter of 2018. The increase in our cost of funds in each period was driven by the rising interest rate environment, specifically impacting the rates on NOW accounts, newly issued time deposits and FHLBC advances.
Tax equivalentSix months ended June 30, 2019 and 2018
Our net interest and dividend income increased by $11.5$5.9 million, from $46.3$42.9 million for the ninesix months ended SeptemberJune 30, 2016,2018, to $57.8$48.8 million for the ninesix months ended SeptemberJune 30, 2017. 2019. Our interest and dividend income increased $8.1 million, or 16.0%, for the six months ended June 30, 2019, compared to the six months ended June 30, 2018. Tax equivalent interest and dividend income increased by $8.1 million from $51.5 million for the six months ended June 30, 2018 to $59.6 million for the six months ended June 30, 2019.
Average earning assets for the ninesix months ended SeptemberJune 30, 2017 increased $188.42019 were $2.44 billion, reflecting an increase of $159.5 million as compared to the like average period in 2016, and thesix months ended June 30, 2018. The yield on average earning assets for the ninesix months ended June 30, 2019 was 4.92%, compared to 4.55% for the six months ended June 30, 2018. Total average loans, including loans held-for-sale, totaled $1.90 billion for the six months ended June 30, 2019, which reflected an increase of 2017$189.8 million compared to the six months ended June 30, 2018. The growth in average loan balances and the resultant interest income was 4.22%primarily due to $227.6 million of loans acquired, net of purchase accounting adjustments, in our acquisition of ABC Bank on April 20, 2018, organic loan growth and the rising interest rate environment. For the six months ended June 30, 2019, yields on average securities increased by 30 basis points and yields on average loans increased by 37 basis points, each as compared to 3.69% for the like 2016 period. six months ended June 30, 2018, due primarily to the rising interest rate environment.
Average interest bearing liabilities increased $76.4 million, or 4.6%, in the six months ended June 30, 2019, compared to the six months ended June 30, 2018. The increase was due primarily to increases in interest bearing deposits of $46.8 million and other short-term borrowings of $23.1 million, which primarily consist of FHLBC advances. The average rate paid on short-term FHLBC advances were impacted by the higher interest rate environment, resulting in an average rate of 2.49% for the ninesix months ended SeptemberJune 30, 2017, increased $74.5 million, or 5.0%, when2019, compared to like prior year period. Net1.68% for the six months ended June 30, 2018. In addition, we acquired notes payable and other borrowings in our acquisition of ABC Bank, consisting solely of long-term FHLBC advances, which resulted in an increase to average interest bearing liabilities of $14.1 million for the six months ended June 30, 2019 and an increase of $10.0 million for the six months ended June 30, 2018. The average cost of funds on these long-term advances was 3.16% for the six months ended June 30, 2019, compared to 1.92% for the six months ended June 30, 2018. The rate on our junior subordinated debentures was 6.49% for both the six months ended June 30, 2019 and 2018.
Our net interest margin (TE) for the six months ended June 30, 2019, was 4.12% compared to 3.88% for the six months ended June 30, 2018, reflecting a 24 basis point increase. The increase in net interest margin for the ninesix months ended SeptemberJune 30, 2017, was 3.68%, as2019, compared to 3.23% for the ninesix months ended SeptemberJune 30, 2016, for an increase2018, was due primarily to the ABC Bank acquisition and organic loan growth, as well as a shift to noninterest bearing deposit accounts, which partially offset increases in cost of 45 basis points.funds due to the rising rate environment.
Management continuedWe continue to observe competitive pressure to maintain reduced interest rates on loans retained at renewal. While the Bankour loan prices loansare targeted to achieve certain returnreturns on equity, targets, significant competition for both commercial and industrial loans as well as commercial real estate loans has put pressure on loan yields, and our stringent underwriting standards limit our ability to make higher-yielding loans.
41
The following tables set forth certain information relating to the Company’sour average consolidated balance sheetssheet and reflect the yield on average earning assets and cost of average interest bearing liabilities for the periods indicated. These yields reflect the related interest, on an annualized basis, divided by the average balance of assets or liabilities over the applicable period. Average balances are derived from daily balances. For purposes of discussion, net interest income and net interest income to total earning assets onin the following tables have been adjusted to a non-GAAP tax equivalent (“TE”) basis using a marginal rate of 35%21% in 2019 and 2018 to more appropriately compare returns on tax-exempt loans and securities to other earning assets.
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Analysis of Average Balances, | |||||||||||||||||||||||
Tax Equivalent Income / Expense and Rates | |||||||||||||||||||||||
Quarters Ended |
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| June 30, 2019 |
| March 31, 2019 |
| June 30, 2018 | ||||||||||||||||||
| Average |
| Income / |
| Rate |
| Average |
| Income / |
| Rate |
| Average |
| Income / |
| Rate | ||||||
| Balance |
| Expense |
| % |
| Balance |
| Expense |
| % |
| Balance |
| Expense |
| % | ||||||
Assets |
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Interest earning deposits with financial institutions | $ | 19,053 |
| $ | 111 |
| 2.34 |
| $ | 18,842 |
| $ | 114 |
| 2.45 |
| $ | 19,161 |
| $ | 97 |
| 2.03 |
Securities: |
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Taxable |
| 229,263 |
|
| 2,223 |
| 3.89 |
|
| 236,882 |
|
| 2,414 |
| 4.13 |
|
| 268,591 |
|
| 2,392 |
| 3.57 |
Non-taxable (TE)2 |
| 290,743 |
|
| 2,710 |
| 3.74 |
|
| 276,609 |
|
| 2,656 |
| 3.89 |
|
| 286,611 |
|
| 2,676 |
| 3.74 |
Total securities |
| 520,006 |
|
| 4,933 |
| 3.80 |
|
| 513,491 |
|
| 5,070 |
| 4.00 |
|
| 555,202 |
|
| 5,068 |
| 3.66 |
Dividends from FHLBC and FRBC |
| 11,317 |
|
| 156 |
| 5.53 |
|
| 11,463 |
|
| 149 |
| 5.27 |
|
| 8,619 |
|
| 111 |
| 5.17 |
Loans and loans held-for-sale 1, 2 |
| 1,897,324 |
|
| 24,958 |
| 5.28 |
|
| 1,895,512 |
|
| 24,126 |
| 5.16 |
|
| 1,809,077 |
|
| 22,552 |
| 5.00 |
Total interest earning assets |
| 2,447,700 |
|
| 30,158 |
| 4.94 |
|
| 2,439,308 |
|
| 29,459 |
| 4.90 |
|
| 2,392,059 |
|
| 27,828 |
| 4.67 |
Cash and due from banks |
| 33,618 |
|
| - |
| - |
|
| 33,749 |
|
| - |
| - |
|
| 36,720 |
|
| - |
| - |
Allowance for loan and lease losses |
| (19,435) |
|
| - |
| - |
|
| (19,235) |
|
| - |
| - |
|
| (18,494) |
|
| - |
| - |
Other noninterest bearing assets |
| 174,075 |
|
| - |
| - |
|
| 181,767 |
|
| - |
| - |
|
| 176,608 |
|
| - |
| - |
Total assets | $ | 2,635,958 |
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| $ | 2,635,589 |
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| $ | 2,586,893 |
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Liabilities and Stockholders' Equity |
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NOW accounts | $ | 442,430 |
| $ | 373 |
| 0.34 |
| $ | 448,518 |
| $ | 379 |
| 0.34 |
| $ | 443,586 |
| $ | 238 |
| 0.22 |
Money market accounts |
| 288,698 |
|
| 262 |
| 0.36 |
|
| 299,305 |
|
| 270 |
| 0.37 |
|
| 317,775 |
|
| 193 |
| 0.24 |
Savings accounts |
| 313,822 |
|
| 124 |
| 0.16 |
|
| 307,740 |
|
| 122 |
| 0.16 |
|
| 298,240 |
|
| 70 |
| 0.09 |
Time deposits |
| 422,975 |
|
| 1,641 |
| 1.56 |
|
| 445,076 |
|
| 1,618 |
| 1.47 |
|
| 460,909 |
|
| 1,444 |
| 1.26 |
Interest bearing deposits |
| 1,467,925 |
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| 2,400 |
| 0.66 |
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| 1,500,639 |
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| 2,389 |
| 0.65 |
|
| 1,520,510 |
|
| 1,945 |
| 0.51 |
Securities sold under repurchase agreements |
| 44,184 |
|
| 147 |
| 1.33 |
|
| 45,157 |
|
| 149 |
| 1.34 |
|
| 44,655 |
|
| 104 |
| 0.93 |
Other short-term borrowings |
| 93,369 |
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| 575 |
| 2.47 |
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| 98,328 |
|
| 607 |
| 2.50 |
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| 58,199 |
|
| 276 |
| 1.90 |
Junior subordinated debentures |
| 57,704 |
|
| 931 |
| 6.47 |
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| 57,692 |
|
| 927 |
| 6.52 |
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| 57,657 |
|
| 927 |
| 6.45 |
Senior notes |
| 44,196 |
|
| 672 |
| 6.10 |
|
| 44,171 |
|
| 672 |
| 6.17 |
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| 44,096 |
|
| 672 |
| 6.11 |
Notes payable and other borrowings |
| 13,101 |
|
| 107 |
| 3.28 |
|
| 15,273 |
|
| 116 |
| 3.08 |
|
| 19,795 |
|
| 95 |
| 1.92 |
Total interest bearing liabilities |
| 1,720,479 |
|
| 4,832 |
| 1.13 |
|
| 1,761,260 |
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| 4,860 |
| 1.12 |
|
| 1,744,912 |
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| 4,019 |
| 0.92 |
Noninterest bearing deposits |
| 645,580 |
|
| - |
| - |
|
| 625,423 |
|
| - |
| - |
|
| 618,765 |
|
| - |
| - |
Other liabilities |
| 19,586 |
|
| - |
| - |
|
| 13,750 |
|
| - |
| - |
|
| 15,679 |
|
| - |
| - |
Stockholders' equity |
| 250,313 |
|
| - |
| - |
|
| 235,156 |
|
| - |
| - |
|
| 207,537 |
|
| - |
| - |
Total liabilities and stockholders' equity | $ | 2,635,958 |
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| $ | 2,635,589 |
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| $ | 2,586,893 |
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Net interest income (TE) 2 |
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| $ | 25,326 |
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| $ | 24,599 |
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| $ | 23,809 |
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Net interest margin (TE) 2 |
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| 4.15 |
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| 4.09 |
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| 3.99 |
Interest bearing liabilities to earning assets |
| 70.29 | % |
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| 72.20 | % |
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| 72.95 | % |
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1Interest income from loans is shown on a tax equivalent basis, which is a non-GAAP financial measure, as discussed in the table on page 39, and includes fees of $184,000, $229,000 and $233,000 for the second quarter of 2019, the first quarter of 2019, and the second quarter of 2018, respectively. Nonaccrual loans are included in the above-stated average balances.
2 Tax equivalent basis is calculated using a marginal tax rate of 21% in 2019 and 2018. See the discussion entitled “Non-GAAP Presentations” below and the table on page 45 that provides a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.
3342
ANALYSIS OF AVERAGE BALANCES,
TAX EQUIVALENT INTEREST AND RATES
(In thousands - unaudited)
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Analysis of Average Balances, | Analysis of Average Balances, | |||||||||||||||||||||||||||||||||||||
Tax Equivalent Income / Expense and Rates | Tax Equivalent Income / Expense and Rates | |||||||||||||||||||||||||||||||||||||
Six Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||
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| Quarters Ended |
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| September 30, 2017 |
| June 30, 2017 |
| September 30, 2016 | 2019 |
| 2018 | ||||||||||||||||||||||||||||||
| Average |
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| Rate |
| Average |
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| Rate |
| Average |
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| Rate | Average |
| Income / |
| Rate |
| Average |
| Income / |
| Rate | |||||||
| Balance |
| Interest |
| % |
| Balance |
| Interest |
| % |
| Balance |
| Interest |
| % | Balance |
| Expense |
| % |
| Balance |
| Expense |
| % | ||||||||||
Assets |
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Interest bearing deposits with financial institutions | $ | 11,685 |
| $ | 37 |
| 1.24 |
| $ | 11,938 |
| $ | 31 |
| 1.03 |
| $ | 50,054 |
| $ | 64 |
| 0.50 | |||||||||||||||
Interest earning deposits with financial institutions | $ | 18,948 |
| $ | 225 |
| 2.39 |
| $ | 16,505 |
| $ | 146 |
| 1.78 | |||||||||||||||||||||||
Securities: |
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Taxable |
| 327,892 |
|
| 2,424 |
| 2.96 |
|
| 361,504 |
|
| 2,607 |
| 2.88 |
|
| 624,844 |
|
| 3,954 |
| 2.53 |
| 233,051 |
|
| 4,637 |
| 4.01 |
|
| 268,959 |
|
| 4,562 |
| 3.42 |
Non-taxable (TE) |
| 220,540 |
|
| 2,504 |
| 4.54 |
|
| 225,182 |
|
| 2,536 |
| 4.50 |
|
| 35,046 |
|
| 277 |
| 3.16 | |||||||||||||||
Non-taxable (TE)2 |
| 283,715 |
|
| 5,366 |
| 3.81 |
|
| 283,240 |
|
| 5,285 |
| 3.76 | |||||||||||||||||||||||
Total securities |
| 548,432 |
|
| 4,928 |
| 3.59 |
|
| 586,686 |
|
| 5,143 |
| 3.51 |
|
| 659,890 |
|
| 4,231 |
| 2.56 |
| 516,766 |
|
| 10,003 |
| 3.90 |
|
| 552,199 |
|
| 9,847 |
| 3.60 |
Dividends from FHLBC and FRBC |
| 8,339 |
|
| 94 |
| 4.51 |
|
| 7,699 |
|
| 92 |
| 4.78 |
|
| 7,918 |
|
| 83 |
| 4.19 |
| 11,390 |
|
| 305 |
| 5.40 |
|
| 8,769 |
|
| 217 |
| 4.99 |
Loans and loans held-for-sale1 |
| 1,553,473 |
|
| 18,265 |
| 4.60 |
|
| 1,509,188 |
|
| 17,445 |
| 4.57 |
|
| 1,191,574 |
|
| 13,567 |
| 4.46 | |||||||||||||||
Loans and loans held-for-sale 1 , 2 |
| 1,896,422 |
|
| 49,084 |
| 5.22 |
|
| 1,706,581 |
|
| 41,319 |
| 4.88 | |||||||||||||||||||||||
Total interest earning assets |
| 2,121,929 |
|
| 23,324 |
| 4.32 |
|
| 2,115,511 |
|
| 22,711 |
| 4.26 |
|
| 1,909,436 |
|
| 17,945 |
| 3.70 |
| 2,443,526 |
|
| 59,617 |
| 4.92 |
|
| 2,284,054 |
|
| 51,529 |
| 4.55 |
Cash and due from banks |
| 31,028 |
|
| - |
| - |
|
| 39,425 |
|
| - |
| - |
|
| 41,344 |
|
| - |
| - |
| 33,683 |
|
| - |
| - |
|
| 33,267 |
|
| - |
| - |
Allowance for loan losses |
| (16,478) |
|
| - |
| - |
|
| (15,779) |
|
| - |
| - |
|
| (15,767) |
|
| - |
| - | |||||||||||||||
Allowance for loan and lease losses |
| (19,335) |
|
| - |
| - |
|
| (18,379) |
|
| - |
| - | |||||||||||||||||||||||
Other noninterest bearing assets |
| 185,906 |
|
| - |
| - |
|
| 189,928 |
|
| - |
| - |
|
| 190,213 |
|
| - |
| - |
| 177,904 |
|
| - |
| - |
|
| 171,585 |
|
| - |
| - |
Total assets | $ | 2,322,385 |
|
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| $ | 2,329,085 |
|
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| $ | 2,125,226 |
|
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| $ | 2,635,778 |
|
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| $ | 2,470,527 |
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Liabilities and Stockholders' Equity |
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NOW accounts | $ | 422,913 |
| $ | 108 |
| 0.10 |
| $ | 432,248 |
| $ | 107 |
| 0.10 |
| $ | 384,588 |
| $ | 89 |
| 0.09 | $ | 445,457 |
| $ | 752 |
| 0.34 |
| $ | 436,483 |
| $ | 414 |
| 0.19 |
Money market accounts |
| 273,440 |
|
| 85 |
| 0.12 |
|
| 280,482 |
|
| 86 |
| 0.12 |
|
| 265,135 |
|
| 64 |
| 0.10 |
| 293,972 |
|
| 532 |
| 0.36 |
|
| 296,672 |
|
| 302 |
| 0.21 |
Savings accounts |
| 262,573 |
|
| 46 |
| 0.07 |
|
| 265,066 |
|
| 40 |
| 0.06 |
|
| 257,808 |
|
| 40 |
| 0.06 |
| 310,798 |
|
| 246 |
| 0.16 |
|
| 282,390 |
|
| 129 |
| 0.09 |
Time deposits |
| 389,037 |
|
| 1,077 |
| 1.10 |
|
| 392,779 |
|
| 1,025 |
| 1.05 |
|
| 401,999 |
|
| 931 |
| 0.92 |
| 433,964 |
|
| 3,259 |
| 1.51 |
|
| 421,882 |
|
| 2,619 |
| 1.25 |
Interest bearing deposits |
| 1,347,963 |
|
| 1,316 |
| 0.39 |
|
| 1,370,575 |
|
| 1,258 |
| 0.37 |
|
| 1,309,530 |
|
| 1,124 |
| 0.34 |
| 1,484,191 |
|
| 4,789 |
| 0.65 |
|
| 1,437,427 |
|
| 3,464 |
| 0.49 |
Securities sold under repurchase agreements |
| 32,800 |
|
| 4 |
| 0.05 |
|
| 35,652 |
|
| 4 |
| 0.05 |
|
| 31,892 |
|
| 1 |
| 0.01 |
| 44,668 |
|
| 296 |
| 1.34 |
|
| 42,477 |
|
| 183 |
| 0.87 |
Other short-term borrowings |
| 72,065 |
|
| 220 |
| 1.19 |
|
| 58,572 |
|
| 146 |
| 0.99 |
|
| 22,174 |
|
| 22 |
| 0.39 |
| 95,835 |
|
| 1,182 |
| 2.49 |
|
| 72,741 |
|
| 605 |
| 1.68 |
Junior subordinated debentures |
| 57,621 |
|
| 930 |
| 6.46 |
|
| 57,609 |
|
| 1,059 |
| 7.35 |
|
| 57,573 |
|
| 1,084 |
| 7.53 |
| 57,698 |
|
| 1,858 |
| 6.49 |
|
| 57,651 |
|
| 1,854 |
| 6.49 |
Senior notes |
| 44,021 |
|
| 672 |
| 6.11 |
|
| 43,995 |
|
| 672 |
| 6.11 |
|
| - |
|
| - |
| - |
| 44,184 |
|
| 1,344 |
| 6.13 |
|
| 44,084 |
|
| 1,344 |
| 6.15 |
Subordinated debt |
| - |
|
| - |
| - |
|
| - |
|
| - |
| - |
|
| 45,000 |
|
| 245 |
| 2.13 | |||||||||||||||
Notes payable and other borrowings |
| - |
|
| - |
| - |
|
| - |
|
| - |
| - |
|
| 500 |
|
| 2 |
| 1.57 |
| 14,181 |
|
| 222 |
| 3.16 |
|
| 9,952 |
|
| 95 |
| 1.92 |
Total interest bearing liabilities |
| 1,554,470 |
|
| 3,142 |
| 0.80 |
|
| 1,566,403 |
|
| 3,139 |
| 0.80 |
|
| 1,466,669 |
|
| 2,478 |
| 0.67 |
| 1,740,757 |
|
| 9,691 |
| 1.12 |
|
| 1,664,332 |
|
| 7,545 |
| 0.91 |
Noninterest bearing deposits |
| 551,768 |
|
| - |
| - |
|
| 557,265 |
|
| - |
| - |
|
| 472,599 |
|
| - |
| - |
| 635,557 |
|
| - |
| - |
|
| 586,871 |
|
| - |
| - |
Other liabilities |
| 19,395 |
|
| - |
| - |
|
| 18,047 |
|
| - |
| - |
|
| 15,539 |
|
| - |
| - |
| 16,688 |
|
| - |
| - |
|
| 14,829 |
|
| - |
| - |
Stockholders' equity |
| 196,752 |
|
| - |
| - |
|
| 187,370 |
|
| - |
| - |
|
| 170,419 |
|
| - |
| - |
| 242,776 |
|
| - |
| - |
|
| 204,495 |
|
| - |
| - |
Total liabilities and stockholders' equity | $ | 2,322,385 |
|
|
|
|
|
| $ | 2,329,085 |
|
|
|
|
|
| $ | 2,125,226 |
|
|
|
|
| $ | 2,635,778 |
|
|
|
|
|
| $ | 2,470,527 |
|
|
|
|
|
Net interest income (TE) |
|
|
| $ | 20,182 |
|
|
|
|
|
| $ | 19,572 |
|
|
|
|
|
| $ | 15,467 |
|
| |||||||||||||||
Net interest income (TE) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
to total earning assets |
|
|
|
|
|
| 3.77 |
|
|
|
|
|
|
| 3.71 |
|
|
|
|
|
|
| 3.22 | |||||||||||||||
Net interest income (TE) 2 |
|
|
| $ | 49,926 |
|
|
|
|
|
| $ | 43,984 |
|
| |||||||||||||||||||||||
Net interest margin (TE) 2 |
|
|
|
|
|
| 4.12 |
|
|
|
|
|
|
| 3.88 | |||||||||||||||||||||||
Interest bearing liabilities to earning assets |
| 73.26 | % |
|
|
|
|
|
| 74.04 | % |
|
|
|
|
|
| 76.81 | % |
|
|
|
|
| 71.24 | % |
|
|
|
|
|
| 72.87 | % |
|
|
|
|
1 Interest income from loans is shown on a TEtax equivalent basis, which is a non-GAAP financial measure, as discussed belowin the table on page 39, and includes fees of $722,000, $573,000$413,000 and $700,000$415,000 for the third quarterfirst six months of 2017, the fourth quarter of 20162019 and the third quarter of 2016,2018, respectively. Nonaccrual loans are included in the above-stated average balances.
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analysis of Average Balances, | |||||||||||||||
Tax Equivalent Interest and Rates | |||||||||||||||
Nine Months Ended September 30, 2017, and 2016 | |||||||||||||||
(In thousands - unaudited) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2017 |
| 2016 | ||||||||||||
| Average |
|
|
|
| Rate |
| Average |
|
|
|
| Rate | ||
| Balance |
| Interest |
| % |
| Balance |
| Interest |
| % | ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits with financial institutions | $ | 11,913 |
| $ | 91 |
| 1.01 |
| $ | 25,960 |
| $ | 98 |
| 0.50 |
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
| 370,161 |
|
| 7,994 |
| 2.88 |
|
| 682,997 |
|
| 12,547 |
| 2.45 |
Non-taxable (TE) |
| 196,120 |
|
| 6,443 |
| 4.38 |
|
| 36,340 |
|
| 891 |
| 3.27 |
Total securities |
| 566,281 |
|
| 14,437 |
| 3.40 |
|
| 719,337 |
|
| 13,438 |
| 2.49 |
Dividends from FHLBC and FRBC |
| 7,886 |
|
| 271 |
| 4.58 |
|
| 7,955 |
|
| 251 |
| 4.21 |
Loans and loans held-for-sale1 |
| 1,516,872 |
|
| 52,365 |
| 4.55 |
|
| 1,161,312 |
|
| 39,778 |
| 4.50 |
Total interest earning assets |
| 2,102,952 |
|
| 67,164 |
| 4.22 |
|
| 1,914,564 |
|
| 53,565 |
| 3.69 |
Cash and due from banks |
| 34,670 |
|
| - |
| - |
|
| 32,617 |
|
| - |
| - |
Allowance for loan losses |
| (16,184) |
|
| - |
| - |
|
| (16,145) |
|
| - |
| - |
Other noninterest bearing assets |
| 189,533 |
|
| - |
| - |
|
| 193,443 |
|
| - |
| - |
Total assets | $ | 2,310,971 |
|
|
|
|
|
| $ | 2,124,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts | $ | 427,242 |
| $ | 316 |
| 0.10 |
| $ | 383,870 |
| $ | 261 |
| 0.09 |
Money market accounts |
| 279,143 |
|
| 254 |
| 0.12 |
|
| 272,657 |
|
| 198 |
| 0.10 |
Savings accounts |
| 262,352 |
|
| 125 |
| 0.06 |
|
| 258,062 |
|
| 118 |
| 0.06 |
Time deposits |
| 392,049 |
|
| 3,081 |
| 1.05 |
|
| 404,210 |
|
| 2,622 |
| 0.87 |
Interest bearing deposits |
| 1,360,786 |
|
| 3,776 |
| 0.37 |
|
| 1,318,799 |
|
| 3,199 |
| 0.32 |
Securities sold under repurchase agreements |
| 32,764 |
|
| 10 |
| 0.04 |
|
| 35,022 |
|
| 3 |
| 0.01 |
Other short-term borrowings |
| 62,308 |
|
| 472 |
| 1.00 |
|
| 26,040 |
|
| 66 |
| 0.33 |
Junior subordinated debentures |
| 57,609 |
|
| 3,073 |
| 7.11 |
|
| 57,561 |
|
| 3,251 |
| 7.53 |
Senior notes |
| 43,998 |
|
| 2,017 |
| 6.11 |
|
| - |
|
| - |
| - |
Subordinated debt |
| - |
|
| - |
| - |
|
| 45,000 |
|
| 727 |
| 2.12 |
Notes payable and other borrowings |
| - |
|
| - |
| - |
|
| 500 |
|
| 6 |
| 1.58 |
Total interest bearing liabilities |
| 1,557,465 |
|
| 9,348 |
| 0.80 |
|
| 1,482,922 |
|
| 7,252 |
| 0.65 |
Noninterest bearing deposits |
| 544,925 |
|
| - |
| - |
|
| 465,094 |
|
| - |
| - |
Other liabilities |
| 20,814 |
|
| - |
| - |
|
| 13,037 |
|
| - |
| - |
Stockholders' equity |
| 187,767 |
|
| - |
| - |
|
| 163,426 |
|
| - |
| - |
Total liabilities and stockholders' equity | $ | 2,310,971 |
|
|
|
|
|
| $ | 2,124,479 |
|
|
|
|
|
Net interest income (TE) |
|
|
| $ | 57,816 |
|
|
|
|
|
| $ | 46,313 |
|
|
Net interest income (TE) to total earning assets |
|
|
|
|
|
| 3.68 |
|
|
|
|
|
|
| 3.23 |
Interest bearing liabilities to earning assets |
| 74.06 | % |
|
|
|
|
|
| 77.45 | % |
|
|
|
|
1Interest income from loans is shown on a TE basis as discussed21% in 2019 and 2018. See the discussion entitled “Non-GAAP Presentations” below and includes feesthe table on page 45 that provides a reconciliation of $1.8 million foreach non-GAAP measure to the first nine months of 2017 and 2016. Nonaccrual loans are included in the above-stated average balances.most comparable GAAP equivalent.
35
Tax-Equivalent Non-GAAP Financial Measures
Management, in order to evaluate and measure performance, uses certain non-GAAP performance measures and ratios. This includes tax-equivalent net interest income (including its individual components) and net interest margin (including its individual components) to total average interest earning assets. Management believes that these measures and ratios provide users of the financial information with a more accurate view of the performance of the interest earning assets and interest bearing liabilities and of the Company’s operating efficiency for comparison purposes. Other financial holding companies may define or calculate these measures and ratios differently. See the tables and notes below for supplemental data and the corresponding reconciliations to GAAP financial measures for the three month periods ended September 30, 2017, June 30, 2017, and September 30, 2016, and the nine month periods ended September 30, 2017 and 2016.
Net interest income (TE) and net interest income (TE) to earning assets are non-GAAP measures that have been adjusted toon a non-GAAP TE basis using a marginal rate of 35%21% for 2019 and 2018 to more appropriately compare returns on tax-exempt loans and securities to other earning assets. The table below provides a reconciliation of each non-GAAP TE(TE) measure to the GAAP equivalent for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarters Ended |
|
| Nine Months Ended |
| |||||||||||
|
| September 30, |
| June 30, |
| September 30, |
|
| September 30, |
| |||||||
|
| 2017 |
| 2017 |
| 2016 |
|
| 2017 |
| 2016 |
| |||||
Net Interest Margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (GAAP) |
| $ | 22,425 |
| $ | 21,800 |
| $ | 17,825 |
|
| $ | 64,841 |
| $ | 53,183 |
|
Taxable-equivalent adjustment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
| 23 |
|
| 23 |
|
| 23 |
|
|
| 68 |
|
| 70 |
|
Securities |
|
| 876 |
|
| 888 |
|
| 97 |
|
|
| 2,255 |
|
| 312 |
|
Interest income (TE) |
|
| 23,324 |
|
| 22,711 |
|
| 17,945 |
|
|
| 67,164 |
|
| 53,565 |
|
Interest expense (GAAP) |
|
| 3,142 |
|
| 3,139 |
|
| 2,478 |
|
|
| 9,348 |
|
| 7,252 |
|
Net interest income (TE) |
| $ | 20,182 |
| $ | 19,572 |
| $ | 15,467 |
|
| $ | 57,816 |
| $ | 46,313 |
|
Net interest income (GAAP) |
| $ | 19,283 |
| $ | 18,661 |
| $ | 15,347 |
|
| $ | 55,493 |
| $ | 45,931 |
|
Average interest earning assets |
| $ | 2,121,929 |
| $ | 2,115,511 |
| $ | 1,909,436 |
|
| $ | 2,102,952 |
| $ | 1,914,564 |
|
Net interest margin (GAAP) |
|
| 3.61 | % |
| 3.54 | % |
| 3.20 | % |
|
| 3.53 | % |
| 3.20 | % |
Net interest margin (TE) |
|
| 3.77 | % |
| 3.71 | % |
| 3.22 | % |
|
| 3.68 | % |
| 3.23 | % |
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
|
| Six Months Ended |
| |||||||||||
|
| June 30, |
| March 31, |
| June 30, |
|
| June 30, |
| |||||||
|
| 2019 |
| 2019 |
| 2018 |
|
| 2019 |
| 2018 |
| |||||
Net Interest Margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (GAAP) |
| $ | 29,586 |
| $ | 28,896 |
| $ | 27,261 |
|
| $ | 58,482 |
| $ | 50,403 |
|
Taxable-equivalent adjustment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
| 3 |
|
| 5 |
|
| 5 |
|
|
| 8 |
|
| 16 |
|
Securities |
|
| 569 |
|
| 558 |
|
| 562 |
|
|
| 1,127 |
|
| 1,110 |
|
Interest income (TE) |
|
| 30,158 |
|
| 29,459 |
|
| 27,828 |
|
|
| 59,617 |
|
| 51,529 |
|
Interest expense (GAAP) |
|
| 4,832 |
|
| 4,860 |
|
| 4,019 |
|
|
| 9,692 |
|
| 7,545 |
|
Net interest income (TE) |
| $ | 25,326 |
| $ | 24,599 |
| $ | 23,809 |
|
| $ | 49,925 |
| $ | 43,984 |
|
Net interest income (GAAP) |
| $ | 24,754 |
| $ | 24,036 |
| $ | 23,242 |
|
| $ | 48,790 |
| $ | 42,858 |
|
Average interest earning assets |
| $ | 2,447,700 |
| $ | 2,439,308 |
| $ | 2,392,059 |
|
| $ | 2,443,526 |
| $ | 2,284,054 |
|
Net interest margin (GAAP) |
|
| 4.06 | % |
| 4.00 | % |
| 3.90 | % |
|
| 4.03 | % |
| 3.78 | % |
Net interest margin (TE) |
|
| 4.15 | % |
| 4.09 | % |
| 3.99 | % |
|
| 4.12 | % |
| 3.88 | % |
Noninterest Income and Expense
Three months ended June 30, 2019 and 2018
The following table details the major components of noninterest income for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2nd Quarter 2019 |
| ||
Noninterest Income |
| Three Months Ended |
| Percent Change From |
| |||||||||
(dollars in thousands) |
| June 30, |
| March 31, |
| June 30, |
| March 31, |
| June 30, |
| |||
|
| 2019 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| |||
Trust income |
| $ | 1,739 |
| $ | 1,486 |
| $ | 1,645 |
| 17.0 |
| 5.7 |
|
Service charges on deposits |
|
| 1,959 |
|
| 1,862 |
|
| 1,769 |
| 5.2 |
| 10.7 |
|
Residential mortgage banking revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secondary mortgage fees |
|
| 203 |
|
| 136 |
|
| 195 |
| 49.3 |
| 4.1 |
|
Mortgage servicing rights mark to market (loss) |
|
| (1,137) |
|
| (819) |
|
| (105) |
| (38.8) |
| (982.9) |
|
Mortgage servicing income |
|
| 491 |
|
| 457 |
|
| 627 |
| 7.4 |
| (21.7) |
|
Net gain on sales of mortgage loans |
|
| 1,163 |
|
| 762 |
|
| 1,240 |
| 52.6 |
| (6.2) |
|
Total residential mortgage banking revenue |
|
| 720 |
|
| 536 |
|
| 1,957 |
| 34.3 |
| (63.2) |
|
Securities gain, net |
|
| 986 |
|
| 27 |
|
| 312 |
| N/M |
| 216.0 |
|
Increase in cash surrender value of BOLI |
|
| 320 |
|
| 458 |
|
| 351 |
| (30.1) |
| (8.8) |
|
Debit card interchange income |
|
| 1,166 |
|
| 987 |
|
| 1,132 |
| 18.1 |
| 3.0 |
|
Other income |
|
| 1,253 |
|
| 1,126 |
|
| 1,366 |
| 11.3 |
| (8.3) |
|
Total noninterest income |
| $ | 8,143 |
| $ | 6,482 |
| $ | 8,532 |
| 25.6 |
| (4.6) |
|
Noninterest income for the second quarter of 2019 increased $1.7 million, or 25.6%, compared to the first quarter of 2019, and decreased $389,000, or 4.6%, compared to the second quarter of 2018.
The increase in noninterest income in the second quarter of 2019, compared to the first quarter of 2019, was driven primarily by a $959,000 increase in securities gain, net, due to select security sales in the second quarter. In addition, increases were reflected in trust income, service charges on deposits, total residential mortgage banking revenue, debit card interchange income, and other income, which resulted in an aggregate $840,000 increase in noninterest income in the second quarter of 2019, compared to the first quarter of 2019. These increases were partially offset by an increase in MSR mark to market losses of $318,000 in the second quarter of 2019, compared to the prior linked quarter, due to interest rate driven valuation reductions and a decrease of $138,000 related to the cash surrender value of BOLI in the second quarter of 2019, compared to the prior linked quarter.
The decrease in noninterest income for the year over year period of $389,000 was primarily driven by a $1.2 million reduction in total residential mortgage banking revenue in the second quarter of 2019, resulting primarily from an increase in MSR mark to market losses of $1.0 million due to interest rate valuation reductions. These reductions were partially offset by aggregate increases of $992,000 resulting from growth in trust income, service charges on deposits, securities gain, net, and debit card interchange income.
44
Six months ended June 30, 2019 and 2018
The following table details the major components of noninterest income for the periods presented:
|
|
|
|
|
|
|
|
|
Noninterest Income |
| Six Months Ended |
| YTD | ||||
(dollars in thousands) |
| June 30, |
| June 30, |
| Percent | ||
|
| 2019 |
| 2018 |
| Change | ||
Trust income |
| $ | 3,225 |
| $ | 3,140 |
| 2.7 |
Service charges on deposits |
|
| 3,821 |
|
| 3,361 |
| 13.7 |
Residential mortgage banking revenue |
|
|
|
|
|
|
|
|
Secondary mortgage fees |
|
| 339 |
|
| 357 |
| (5.0) |
Mortgage servicing rights mark to market (loss) gain |
|
| (1,956) |
|
| 200 |
| N/M |
Mortgage servicing income |
|
| 948 |
|
| 1,079 |
| (12.1) |
Net gain on sales of mortgage loans |
|
| 1,925 |
|
| 2,157 |
| (10.8) |
Total residential mortgage banking revenue |
|
| 1,256 |
|
| 3,793 |
| (66.9) |
Securities gain, net |
|
| 1,013 |
|
| 347 |
| 191.9 |
Increase in cash surrender value of BOLI |
|
| 778 |
|
| 599 |
| 29.9 |
Death benefit realized on BOLI |
|
| - |
|
| 1,026 |
| (100.0) |
Debit card interchange income |
|
| 2,153 |
|
| 2,144 |
| 0.4 |
Other income |
|
| 2,379 |
|
| 2,627 |
| (9.4) |
Total noninterest income |
| $ | 14,625 |
| $ | 17,037 |
| (14.2) |
N/M - Not meaningful
Noninterest income for the six months ended June 30, 2019 decreased $2.4 million, or 14.2%, compared to the six months ended June 30, 2018. The decrease in noninterest income for the six months ended June 30, 2019, compared to the prior year period, was primarily driven by a $2.0 million reduction in total residential mortgage banking revenue stemming from rising interest rates and the resultant MSR mark to market valuation losses, and a reduction in other income due to a decline in commercial swap fees. These decreases were partially offset by an increase in service charges on deposits, securities gain, net, and an increase in income due to the change in the cash surrender value of BOLI.
Three months ended June 30, 2019 and 2018
The following table details the major components of noninterest expense for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2nd Quarter 2019 |
| ||
Noninterest Expense |
| Three Months Ended |
| Percent Change From |
| |||||||||
(dollars in thousands) |
| June 30, |
| March 31, |
| June 30, |
| March 31, |
| June 30, |
| |||
|
| 2019 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| |||
Salaries |
| $ | 9,004 |
| $ | 8,634 |
| $ | 9,703 |
| 4.3 |
| (7.2) |
|
Officers incentive |
|
| 893 |
|
| 882 |
|
| 740 |
| 1.2 |
| 20.7 |
|
Benefits and other |
|
| 1,690 |
|
| 2,096 |
|
| 1,912 |
| (19.4) |
| (11.6) |
|
Total salaries and employee benefits |
|
| 11,587 |
|
| 11,612 |
|
| 12,355 |
| (0.2) |
| (6.2) |
|
Occupancy, furniture and equipment expense |
|
| 1,925 |
|
| 1,989 |
|
| 1,652 |
| (3.2) |
| 16.5 |
|
Computer and data processing |
|
| 1,524 |
|
| 1,332 |
|
| 2,741 |
| 14.4 |
| (44.4) |
|
FDIC insurance |
|
| 116 |
|
| 174 |
|
| 165 |
| (33.3) |
| (29.7) |
|
General bank insurance |
|
| 236 |
|
| 250 |
|
| 299 |
| (5.6) |
| (21.1) |
|
Amortization of core deposit intangible asset |
|
| 121 |
|
| 132 |
|
| 97 |
| (8.3) |
| 24.7 |
|
Advertising expense |
|
| 381 |
|
| 234 |
|
| 492 |
| 62.8 |
| (22.6) |
|
Debit card interchange expense |
|
| 233 |
|
| 147 |
|
| 301 |
| 58.5 |
| (22.6) |
|
Legal fees |
|
| 243 |
|
| 126 |
|
| 286 |
| 92.9 |
| (15.0) |
|
Other real estate owned expense, net |
|
| 248 |
|
| 50 |
|
| 429 |
| 396.0 |
| (42.2) |
|
Other expense |
|
| 3,512 |
|
| 3,148 |
|
| 3,469 |
| 11.6 |
| 1.2 |
|
Total noninterest expense |
| $ | 20,126 |
| $ | 19,194 |
| $ | 22,286 |
| 4.9 |
| (9.7) |
|
Efficiency ratio (GAAP)1 |
|
| 61.91 | % |
| 62.35 | % |
| 69.16 | % |
|
|
|
|
Adjusted efficiency ratio (non-GAAP)2 |
|
| 60.66 | % |
| 60.98 | % |
| 57.88 | % |
|
|
|
|
1 The efficiency ratio shown in the table above is a GAAP financial measure calculated as noninterest expense, excluding OREO expenses and amortization of core deposits, divided by the sum of net interest income and total noninterest income less net gains and
45
losses on securities and any BOLI death benefit recorded.
2The adjusted efficiency ratio shown in the table above is a non-GAAP financial measure calculated as noninterest expense, excluding OREO expenses, amortization of core deposits and acquisition costs, divided by the sum of net interest income on a fully tax equivalent basis, total noninterest income less net gains and losses on securities and any BOLI death benefit, and includes a tax equivalent adjustment on the increase in cash surrender value of BOLI recorded.
See the section entitled “Reconciliation of Adjusted Efficiency Ratio Non-GAAP Financial Measures” on page 48 for a reconciliation of this non-GAAP measure to the most comparable GAAP equivalent.
Noninterest expense for the second quarter of 2019 increased $932,000, or 4.9%, compared to the first quarter of 2019, and decreased $2.2 million, or 9.7%, compared to the second quarter of 2018.
The increase in noninterest expense in the second quarter of 2019, compared to the first quarter of 2019, was primarily attributable to a $198,000 increase in other real estate expense, net, due to valuation writedowns, and an increase of $364,000 in other expense due to growth in appraisal and commercial loan related fees, consulting fees, and the timing of audit fees. Computer and data processing also reflected an increase in the second quarter of 2019, compared to the first quarter of 2019, as various projects with software requirements were renewed or enhanced in the current quarter.
The decrease in noninterest expense in the second quarter of 2019, compared to the second quarter of 2018, is primarily attributable to ABC Bank acquisition-related costs recorded in the second quarter of 2018, such as data conversion costs included within computer and data processing, salaries expense stemming from employee continuation and retention accruals, and advertising expense. An increase was reflected in occupancy, furniture and equipment expense of $273,000 for the second quarter of 2019, compared to the second quarter of 2018, which partially offset the overall decrease in noninterest expense in the second quarter of 2019, as we acquired four additional branches with the ABC Bank acquisition, and recorded the commensurate additional costs associated with those branches for a full quarter in the 2019 period.
Six months ended June 30, 2019 and 2018
The following table details the major components of noninterest expense for the periods presented:
|
|
|
|
|
|
|
|
|
Noninterest Expense |
| Six Months Ended |
| YTD | ||||
(dollars in thousands) |
| June 30, |
| June 30, |
| Percent | ||
|
| 2019 |
| 2018 |
| Change | ||
Salaries |
| $ | 17,638 |
| $ | 17,038 |
| 3.5 |
Officers incentive |
|
| 1,775 |
|
| 1,527 |
| 16.2 |
Benefits and other |
|
| 3,786 |
|
| 3,997 |
| (5.3) |
Total salaries and employee benefits |
|
| 23,199 |
|
| 22,562 |
| 2.8 |
Occupancy, furniture and equipment expense |
|
| 3,914 |
|
| 3,210 |
| 21.9 |
Computer and data processing |
|
| 2,856 |
|
| 4,085 |
| (30.1) |
FDIC insurance |
|
| 290 |
|
| 321 |
| (9.7) |
General bank insurance |
|
| 486 |
|
| 550 |
| (11.6) |
Amortization of core deposit intangible asset |
|
| 253 |
|
| 118 |
| 114.4 |
Advertising expense |
|
| 615 |
|
| 833 |
| (26.2) |
Debit card interchange expense |
|
| 380 |
|
| 582 |
| (34.7) |
Legal fees |
|
| 369 |
|
| 445 |
| (17.1) |
Other real estate owned expense, net |
|
| 298 |
|
| 602 |
| (50.5) |
Other expense |
|
| 6,660 |
|
| 6,332 |
| 5.2 |
Total noninterest expense |
| $ | 39,320 |
| $ | 39,640 |
| (0.8) |
Efficiency ratio (GAAP)1 |
|
| 62.13 | % |
| 66.50 | % |
|
Adjusted efficiency ratio (non-GAAP)2 |
|
| 60.82 | % |
| 59.10 | % |
|
1 The efficiency ratio shown in the table above is a GAAP financial measure calculated as noninterest expense, excluding OREO expenses and amortization of core deposits, divided by the sum of net interest income and total noninterest income less net gains and losses on securities and any BOLI death benefit recorded.
2The adjusted efficiency ratio shown in the table above is a non-GAAP financial measure calculated as noninterest expense, excluding OREO expenses, amortization of core deposits and acquisition costs, divided by the sum of net interest income on a fully tax equivalent basis, total noninterest income less net gains and losses on securities and any BOLI death benefit, and includes a tax equivalent adjustment on the increase in cash surrender value of BOLI recorded.
See the section entitled “Reconciliation of Adjusted Efficiency Ratio Non-GAAP Financial Measures” on page 48 for a reconciliation
46
of this non-GAAP measure to the most comparable GAAP equivalent.
Noninterest expense for the six months ended June 30, 2019, decreased $320,000, or 0.8%, compared to the six months ended June 30, 2018, primarily due to the decrease in computer and data processing costs year over year of $1.2 million. The higher costs in the 2018 period were related to the ABC Bank acquisition data conversion in the second quarter of 2018. In addition, other real estate owned expense, net, decreased $304,000 in the six months ended June 30. 2019, compared to the six months ended June 30, 2018, driven by the decline in other real estate held. Partially offsetting these decreases were increases in occupancy, furniture and equipment expenses of $704,000, amortization of core deposit intangibles of $135,000, and other expenses increased $328,000 due primarily to consulting fees and commercial loan related costs.
Reconciliation of Adjusted Efficiency Ratio Non-GAAP Financial Measures
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| GAAP |
| Non-GAAP |
| ||||||||||||||
|
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||||
|
| June 30, |
| March 31, |
| June 30, |
| June 30, |
| March 31, |
| June 30, |
| ||||||
|
| 2019 |
| 2019 |
| 2018 |
| 2019 |
| 2019 |
| 2018 |
| ||||||
Efficiency Ratio / Adjusted Efficiency Ratio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
| $ | 20,126 |
| $ | 19,194 |
| $ | 22,286 |
| $ | 20,126 |
| $ | 19,194 |
| $ | 22,286 |
|
Less amortization of core deposit |
|
| 121 |
|
| 132 |
|
| 97 |
|
| 121 |
|
| 132 |
|
| 97 |
|
Less other real estate expense, net |
|
| 248 |
|
| 50 |
|
| 429 |
|
| 248 |
|
| 50 |
|
| 429 |
|
Less acquisition related costs |
|
| N/A |
|
| N/A |
|
| N/A |
|
| - |
|
| - |
|
| 3,168 |
|
Noninterest expense less adjustments |
| $ | 19,757 |
| $ | 19,012 |
| $ | 21,760 |
| $ | 19,757 |
| $ | 19,012 |
| $ | 18,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
| $ | 24,754 |
| $ | 24,036 |
| $ | 23,242 |
| $ | 24,754 |
| $ | 24,036 |
| $ | 23,242 |
|
Taxable-equivalent adjustment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
| N/A |
|
| N/A |
|
| N/A |
|
| 3 |
|
| 5 |
|
| 5 |
|
Securities |
|
| N/A |
|
| N/A |
|
| N/A |
|
| 569 |
|
| 558 |
|
| 562 |
|
Net interest income including adjustments |
|
| 24,754 |
|
| 24,036 |
|
| 23,242 |
|
| 25,326 |
|
| 24,599 |
|
| 23,809 |
|
Noninterest income |
|
| 8,143 |
|
| 6,482 |
|
| 8,532 |
|
| 8,143 |
|
| 6,482 |
|
| 8,532 |
|
Less securities gain, net |
|
| 986 |
|
| 27 |
|
| 312 |
|
| 986 |
|
| 27 |
|
| 312 |
|
Taxable-equivalent adjustment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash surrender value of BOLI |
|
| N/A |
|
| N/A |
|
| N/A |
|
| 85 |
|
| 122 |
|
| 93 |
|
Noninterest income (less) / including adjustments |
|
| 7,157 |
|
| 6,455 |
|
| 8,220 |
|
| 7,242 |
|
| 6,577 |
|
| 8,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income including adjustments plus noninterest income (less) / including adjustments |
| $ | 31,911 |
| $ | 30,491 |
| $ | 31,462 |
| $ | 32,568 |
| $ | 31,176 |
| $ | 32,122 |
|
Efficiency ratio / Adjusted efficiency ratio |
|
| 61.91 | % |
| 62.35 | % |
| 69.16 | % |
| 60.66 | % |
| 60.98 | % |
| 57.88 | % |
Income Taxes
We recorded tax expense of $3.0 million on $12.3 million of pretax income for the second quarter of 2019, compared to income tax expense of $2.4 million in the first quarter of 2019, and $1.8 million of income tax expense in the second quarter of 2018. The effective tax rate for the second quarter of 2019 was 24.7%, compared to 22.1% for the first quarter of 2019, and 22.1% for the second quarter of 2018. The effective tax rate for the second quarter of 2019 was higher than the prior linked quarter due to a tax benefit recorded related to restricted stock awards which vested in the first quarter of 2019, while the effective tax rate for the second quarter of 2019 reflected an increase over the prior year like quarter due to higher levels of taxable income in the second quarter of 2019.
We recorded tax expense of $5.4 million on $23.2 million of pretax income for the six months ended June 30, 2019, compared to income tax expense of $3.8 million on $19.5 million of pretax income for the six months ended June 30, 2018. The effective tax rate for the six months ended June 30, 2019 was 23.5%, which was an increase from the effective tax rate of 19.3% for the six months ended June 30, 2018, due to higher levels of taxable income in the second quarter of 2019, as the 2018 period included $1.0 million of proceeds from a nontaxable BOLI death benefit.
Income tax expense reflected all relevant statutory tax rates and GAAP accounting. There were no significant changes in our ability to utilize the deferred tax assets during the quarter ended June 30, 2019. We had no valuation reserve on the deferred tax assets as of June 30, 2019.
Financial Condition
Total assets decreased $52.4 million from $2.68 billion at December 31, 2018, to $2.62 billion at June��30, 2019, due primarily to a decrease of $49.2 million in securities available-for-sale, as well as a $7.0 million decrease in the deferred tax assets, net. Total loans
47
as of June 30, 2019, increased $5.9 million, or 0.3%, compared to December 31, 2018. Total deposits were $2.08 billion at June 30, 2019, a decrease of $38.9 million from December 31, 2018, primarily due to reductions in time, NOWs and money markets, partially offset by an increase in noninterest bearing demand accounts.
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|
|
| June 30, 2019 | ||
Securities |
| As of |
| Percent Change From | |||||||||
|
| June 30, |
| December 31, |
| June 30, |
| December 31, |
| June 30, | |||
|
| 2019 |
| 2018 |
| 2018 |
| 2018 |
| 2018 | |||
Securities available-for-sale, at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasuries |
| $ | 4,025 |
| $ | 3,923 |
| $ | 3,876 |
| 2.6 |
| 3.8 |
U.S. government agencies |
|
| 9,812 |
|
| 10,951 |
|
| 12,216 |
| (10.4) |
| (19.7) |
U.S. government agencies mortgage-backed |
|
| 16,999 |
|
| 14,075 |
|
| 13,407 |
| 20.8 |
| 26.8 |
States and political subdivisions |
|
| 251,295 |
|
| 274,067 |
|
| 276,112 |
| (8.3) |
| (9.0) |
Corporate bonds |
|
| - |
|
| - |
|
| 700 |
| - |
| (100.0) |
Collateralized mortgage obligations |
|
| 64,867 |
|
| 64,429 |
|
| 61,432 |
| 0.7 |
| 5.6 |
Asset-backed securities |
|
| 82,725 |
|
| 109,514 |
|
| 109,263 |
| (24.5) |
| (24.3) |
Collateralized loan obligations |
|
| 62,357 |
|
| 64,289 |
|
| 66,638 |
| (3.0) |
| (6.4) |
Total securities |
| $ | 492,080 |
| $ | 541,248 |
| $ | 543,644 |
| (9.1) |
| (9.5) |
Available-for-sale security sales during the three months ended June 30, 2019 totaled $32.1 million and consisted of asset-backed securities and state and political subdivisions, whereas purchases during the three month period were primarily tax exempt state and political subdivisions securities. During the second quarter of 2019 security sales resulted in net realized gains of $986,000, compared to $27,000 of security gains, net, for the first quarter of 2019, and security gains, net, of $312,000 for the second quarter of 2018.
Loans
Total loans were $1.90 billion as of June 30, 2019, an increase of $5.9 million from December 31, 2018. The increase in total loans for the six month period was due primarily to organic growth in commercial loans, leases, and real estate-commercial loans. Total loans increased $53.8 million from June 30, 2018 to June 30, 2019, due primarily to organic loan growth in commercial, leases, and real estate-commercial, as well as a select HELOC bulk loan purchase of $20.7 million in November 2018.
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|
|
|
|
| June 30, 2019 | ||
Loans | As of |
| Percent Change From | |||||||||
| June 30, |
| December 31, |
| June 30, |
| December 31, |
| June 30, | |||
| 2019 |
| 2018 |
| 2018 |
| 2018 |
| 2018 | |||
Commercial | $ | 337,848 |
| $ | 314,323 |
| $ | 299,536 |
| 7.5 |
| 12.8 |
Leases |
| 98,379 |
|
| 78,806 |
|
| 66,687 |
| 24.8 |
| 47.5 |
Real estate - commercial |
| 825,091 |
|
| 820,941 |
|
| 808,264 |
| 0.5 |
| 2.1 |
Real estate - construction |
| 93,079 |
|
| 108,390 |
|
| 115,486 |
| (14.1) |
| (19.4) |
Real estate - residential |
| 393,547 |
|
| 407,068 |
|
| 404,908 |
| (3.3) |
| (2.8) |
HELOC |
| 128,673 |
|
| 140,442 |
|
| 127,986 |
| (8.4) |
| 0.5 |
Other 1 |
| 13,533 |
|
| 14,439 |
|
| 13,969 |
| (6.3) |
| (3.1) |
Total loans, excluding deferred loan costs and PCI loans |
| 1,890,150 |
|
| 1,884,409 |
|
| 1,836,836 |
| 0.3 |
| 2.9 |
Net deferred loan costs |
| 1,959 |
|
| 1,653 |
|
| 1,112 |
| 18.5 |
| 76.2 |
Total loans, excluding PCI loans |
| 1,892,109 |
|
| 1,886,062 |
|
| 1,837,948 |
| 0.3 |
| 2.9 |
PCI loans, net of purchase accounting adjustments |
| 10,834 |
|
| 10,965 |
|
| 11,214 |
| (1.2) |
| (3.4) |
Total loans | $ | 1,902,943 |
| $ | 1,897,027 |
| $ | 1,849,162 |
| 0.3 |
| 2.9 |
1 The “Other” class includes consumer and overdrafts.
The quality of our loan portfolio is impacted not only by our credit decisions but also by the economic health of the communities in which we operate. Since we are located in a corridor with significant open space and undeveloped real estate, real estate lending (including commercial, construction, residential, and HELOCs) has been and continues to be a sizeable portion of our portfolio. These categories comprised 75.7% of the portfolio as of June 30, 2019, compared to 77.9% of the portfolio as of December 31, 2018. We continue to oversee and manage our loan portfolio in accordance with interagency guidance on risk management.
Asset Quality
The CompanyWe recorded a $450,000 provision for loan and lease losses expensefor the quarter ended June 30, 2019, compared to a provision of $300,000 in$1.5 million for the thirdquarter ended June 30, 2018. In the second quarter of 2017. On2019, we determined provision expense was necessary at a quarterly basis, management
48
level approximately commensurate with net charge-offs for the quarter, which were $394,000. Runoffs on our acquired loan portfolios are trending with expectations. Management estimates the amount of provision required on a quarterly basis and records the appropriate provision expense, or release of expense, to maintain an adequate reserve for all potential and estimated loan and lease losses.
Nonperforming loans increasedconsist of nonaccrual loans, performing restructured accruing loans and loans 90 days or greater past due. We do not consider our PCI loans, which showed evidence of deteriorated credit quality at acquisition, to be nonperforming assets as long as their cash flows and the timing of such cash flows continue to be estimable and probable of collection. Therefore, interest income is recognized through accretion of the difference between the carrying value of these loans and the present value of expected future cash flows. As a result, management has excluded PCI loans from the nonperforming loans in the table below. Remediation work continues in all segments. Nonperforming loans decreased by $270,000$3.7 million at SeptemberJune 30, 2017,2019, to $12.7 million from $16.0$16.3 million at December 31, 2016.2018. Credit metrics continue to be relatively stable regarding nonperforming loan levels, and management is carefully monitoring loans considered to be in a classified status. Nonperforming loans as a percent of total loans decreased to 1.0%0.7% as of SeptemberJune 30, 2017,2019, from 1.1%0.9% as of December 31, 2016,2018, and 1.4%increased slightly from 0.6% as of SeptemberJune 30, 2016.2018. The distribution of the Company’sour nonperforming loans is includedshown in the following table.
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| |
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| September 30, 2017 |
|
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|
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|
|
| June 30, 2019 |
| ||||||||
Nonperforming Loans | As of |
| Percent Change From |
| As of |
| Percent Change From |
| ||||||||||||||||||||||
(in thousands) | September 30, |
| December 31, |
| September 30, |
| December 31, |
| September 30, |
| ||||||||||||||||||||
| 2017 |
| 2016 |
| 2016 |
| 2016 |
| 2016 |
| June 30, |
| December 31, |
| June 30, |
| December 31, |
| June 30, |
| ||||||||||
| 2019 |
| 2018 |
| 2018 |
| 2018 |
| 2018 |
| ||||||||||||||||||||
Commercial | $ | 151 |
| $ | 352 |
| $ | - |
| (57.1) |
|
| N/M |
| ||||||||||||||||
Leases |
| 125 |
|
| - |
|
| - |
| N/M |
|
| N/M |
| ||||||||||||||||
Real estate-commercial, nonfarm |
| 6,773 |
|
| 9,738 |
|
| 5,012 |
| (30.4) |
|
| 35.1 |
| ||||||||||||||||
Real estate-construction | $ | 205 |
| $ | 281 |
| $ | 76 |
| (27.0) |
|
| 169.7 |
|
|
| 102 |
|
| 455 |
|
| 635 |
| (77.6) |
|
| (83.9) |
| |
Real estate-residential: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Investor |
| 492 |
|
| 936 |
|
| 1,364 |
| (47.4) |
|
| (63.9) |
|
|
| 383 |
|
| 353 |
|
| 409 |
| 8.5 |
|
| (6.4) |
| |
Multifamily |
| 4,757 |
|
| - |
|
| - |
| N/M |
|
| N/M |
|
| |||||||||||||||
Multi-Family |
| - |
|
| 179 |
|
| - |
| (100.0) |
|
| N/M |
| ||||||||||||||||
Owner occupied |
| 4,266 |
|
| 6,552 |
|
| 5,755 |
| (34.9) |
|
| (25.9) |
|
|
| 3,228 |
|
| 3,616 |
|
| 4,278 |
| (10.7) |
|
| (24.5) |
| |
Revolving and junior liens |
| 1,977 |
|
| 2,240 |
|
| 2,257 |
| (11.7) |
|
| (12.4) |
|
| |||||||||||||||
Real estate-commercial, nonfarm |
| 3,631 |
|
| 5,386 |
|
| 7,345 |
| (32.6) |
|
| (50.6) |
|
| |||||||||||||||
Real estate-commercial, farm |
| 383 |
|
| - |
|
| - |
| N/M |
|
| N/M |
|
| |||||||||||||||
Commercial |
| 207 |
|
| 240 |
|
| 583 |
| (13.8) |
|
| (64.5) |
|
| |||||||||||||||
Leases |
| 345 |
|
| 366 |
|
| - |
| (5.7) |
|
| N/M |
|
| |||||||||||||||
Other |
| 8 |
|
| - |
|
| - |
| N/M |
|
| N/M |
|
| |||||||||||||||
HELOC |
| 1,873 |
|
| 1,614 |
|
| 1,524 |
| 16.0 |
|
| 22.9 |
| ||||||||||||||||
Other 1 |
| 24 |
|
| 34 |
|
| 16 |
| (29.4) |
|
| 50.0 |
| ||||||||||||||||
Total nonperforming loans | $ | 16,271 |
| $ | 16,001 |
| $ | 17,380 |
| 1.7 |
|
| (6.4) |
|
| $ | 12,659 |
| $ | 16,341 |
| $ | 11,874 |
| (22.5) |
|
| 6.6 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/M - Not meaningful
1 The “Other” class includes consumer and overdrafts.
3649
N/M - Not Meaningful
Nonperforming loans consist of nonaccrual loans, nonperforming restructured accruing loans and loans 90 days or greater past due. Remediation work continues in all segments.
|
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|
|
|
|
Loan Charge-offs, net of recoveries | Quarters Ended | Three Months Ended | ||||||||||||||||||||||||||
(in thousands) | September 30, |
| % of |
| June 30, |
| % of |
| September 30, |
| % of | |||||||||||||||||
| 2017 |
| Total1 |
| 2017 |
| Total1 |
| 2016 |
| Total1 | June 30, |
| % of |
| March 31, |
| % of |
| June 30, |
| % of | ||||||
Real estate-construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Homebuilder | $ | - |
| - |
| $ | (1) |
| (0.2) |
| $ | (7) |
| (0.8) | ||||||||||||||
Land |
| - |
| - |
|
| (48) |
| (7.3) |
|
| (2) |
| (0.2) | ||||||||||||||
All other |
| 8 |
| (2.4) |
|
| (11) |
| (1.7) |
|
| (42) |
| (5.0) | ||||||||||||||
Total real estate-construction |
| 8 |
| (2.4) |
|
| (60) |
| (9.2) |
|
| (51) |
| (6.0) | ||||||||||||||
Real estate-residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Investor |
| (28) |
| 8.5 |
|
| (16) |
| (2.4) |
|
| (3) |
| (0.4) | ||||||||||||||
Multifamily |
| (17) |
| 5.2 |
|
| 129 |
| 19.7 |
|
| (13) |
| (1.5) | ||||||||||||||
Owner occupied |
| (40) |
| 12.2 |
|
| 723 |
| 110.4 |
|
| (75) |
| (8.9) | ||||||||||||||
Revolving and junior liens |
| (367) |
| 111.5 |
|
| (109) |
| (16.6) |
|
| 112 |
| 13.3 | ||||||||||||||
Total real estate-residential |
| (452) |
| 137.4 |
|
| 727 |
| 111.1 |
|
| 21 |
| 2.5 | ||||||||||||||
| 2019 |
| Total1 |
| 2019 |
| Total1 |
| 2018 |
| Total1 | |||||||||||||||||
Commercial | $ | 61 |
| 15.5 |
| $ | (18) |
| (12.9) |
| $ | (77) |
| (24.3) | ||||||||||||||
Leases |
| - |
| - |
|
| - |
| - |
|
| 8 |
| 2.5 | ||||||||||||||
Real estate-commercial, nonfarm |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner general purpose |
| - |
| - |
|
| (1) |
| (0.2) |
|
| - |
| - |
| 42 |
| 10.7 |
|
| 87 |
| 62.1 |
|
| 27 |
| 8.5 |
Owner special purpose |
| - |
| - |
|
| (6) |
| (0.9) |
|
| (3) |
| (0.4) |
| - |
| - |
|
| (3) |
| (2.1) |
|
| - |
| - |
Non-owner general purpose |
| (43) |
| 13.1 |
|
| (39) |
| (6.0) |
|
| 132 |
| 15.7 |
| (12) |
| (3.0) |
|
| (15) |
| (10.7) |
|
| (20) |
| (6.3) |
Non-owner special purpose |
| - |
| - |
|
| - |
| - |
|
| 636 |
| 75.8 |
| - |
| - |
|
| 139 |
| 99.3 |
|
| 476 |
| 150.2 |
Retail properties |
| 22 |
| (6.80) |
|
| 4 |
| 0.6 |
|
| - |
| - |
| - |
| - |
|
|
|
| - |
|
| - |
| - |
Total real estate-commercial, nonfarm |
| (21) |
| 6.3 |
|
| (42) |
| (6.5) |
|
| 765 |
| 91.1 |
| 30 |
| 7.7 |
|
| 208 |
| 148.6 |
|
| 483 |
| 152.4 |
Real estate-commercial, farm |
| - |
| - |
|
| - |
| - |
|
| - |
| - |
| - |
| - |
|
| - |
| - |
|
| - |
| - |
Commercial |
| 7 |
| (2.1) |
|
| 1 |
| 0.2 |
|
| 66 |
| 7.9 | ||||||||||||||
Leases |
| 98 |
| (29.8) |
|
| - |
| - |
|
| - |
| - | ||||||||||||||
Consumer |
| 37 |
| (11.2) |
|
| 34 |
| 5.2 |
|
| 43 |
| 5.1 | ||||||||||||||
Other |
| (6) |
| 1.8 |
|
| (5) |
| (0.8) |
|
| (5) |
| (0.6) | ||||||||||||||
Net (recoveries) / charge-offs | $ | (329) |
| 100.0 |
| $ | 655 |
| 100.0 |
| $ | 839 |
| 100.0 | ||||||||||||||
Real estate-construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Homebuilder |
| - |
| - |
|
| (1) |
| (0.7) |
|
| - |
| - | ||||||||||||||
Land |
| - |
| - |
|
| - |
| - |
|
| (2) |
| (0.6) | ||||||||||||||
Commercial speculative |
| (2) |
| (0.5) |
|
| 2 |
| 1.4 |
|
| - |
| - | ||||||||||||||
All other |
| 1 |
| 0.3 |
|
|
|
| - |
|
| 2 |
| 0.6 | ||||||||||||||
Total real estate-construction |
| (1) |
| (0.2) |
|
| 1 |
| 0.7 |
|
| - |
| - | ||||||||||||||
Real estate-residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Investor |
| (3) |
| (0.8) |
|
| (10) |
| (7.1) |
|
| (63) |
| (19.9) | ||||||||||||||
Multi-Family |
| - |
| - |
|
| (8) |
| (5.7) |
|
| (11) |
| (3.5) | ||||||||||||||
Owner occupied |
| (11) |
| (2.8) |
|
| (14) |
| (10.0) |
|
| (26) |
| (8.2) | ||||||||||||||
Total real estate-residential |
| (14) |
| (3.6) |
|
| (32) |
| (22.8) |
|
| (100) |
| (31.6) | ||||||||||||||
HELOC |
| 267 |
| 67.8 |
|
| (46) |
| (32.9) |
|
| (26) |
| (8.2) | ||||||||||||||
Other 2 |
| 51 |
| 12.8 |
|
| 27 |
| 19.3 |
|
| 29 |
| 9.2 | ||||||||||||||
Net charge-offs / (recoveries) | $ | 394 |
| 100.0 |
| $ | 140 |
| 100.0 |
| $ | 317 |
| 100.0 | ||||||||||||||
|
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|
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|
|
|
|
|
|
1 Represents the percentage of net charge-offs attributable to each category of loans.
2 The “Other” class includes consumer and overdrafts.
Net recoveriescharge-offs of $394,000 were recorded for the thirdsecond quarter of 2017 reflected2019, compared to net charge-offs of $140,000 for the first quarter of 2019 and net charge-offs of $317,000 for the second quarter of 2018, reflecting continuing management attention to credit quality. Gross charge-offs for the quarter ended September 30, 2017 were $241,000 compared to $1.2 million for the quarter ended September 30, 2016. Gross recoveries for the quarter ended September 30, 2017 were $570,000 compared to $358,000 for the quarter ended September 30, 2016. In comparison to the linked quarter, the third quarter of 2017quality and remediation efforts. We have continued to reflectour conservative loan valuations and aggressive recovery efforts on prior charge-offs.
The following table shows classified assets by segment for the following periods.
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|
|
|
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|
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|
|
|
|
|
| September 30, 2017 |
|
|
|
|
|
|
|
|
|
| June 30, 2019 | ||||||||
Classified Loans | As of |
| Percent Change From |
| |||||||||||||||||||||||||
(in thousands) | September 30, |
| December 31, |
| September 30, |
| December 31, |
| September 30, |
| |||||||||||||||||||
Classified Assets | As of |
| Percent Change From | ||||||||||||||||||||||||||
| 2017 |
| 2016 |
| 2016 |
| 2016 |
| 2016 |
| June 30, |
| December 31, |
| June 30, |
| December 31, |
| June 30, | ||||||||||
| 2019 |
| 2018 |
| 2018 |
| 2018 |
| 2018 | ||||||||||||||||||||
Commercial | $ | 7,704 |
| $ | 137 |
| $ | 393 |
| N/M |
|
| N/M |
| |||||||||||||||
Leases |
| 125 |
|
| - |
|
| 539 |
| N/M |
|
| (76.8) |
| |||||||||||||||
Real estate-commercial, nonfarm |
| 19,186 |
|
| 22,661 |
|
| 12,362 |
| (15.3) |
|
| 55.2 |
| |||||||||||||||
Real estate-commercial, farm |
| 1,210 |
|
| 1,222 |
|
| 1,248 |
| (1.0) |
|
| (3.0) |
| |||||||||||||||
Real estate-construction | $ | 380 |
| $ | 458 |
| $ | 254 |
| (17.0) |
|
| 49.6 |
|
|
| 273 |
|
| 2,610 |
|
| 366 |
| (89.5) |
|
| (25.4) |
|
Real estate-residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor |
| 648 |
|
| 1,096 |
|
| 1,171 |
| (40.9) |
|
| (44.7) |
|
|
| 1,029 |
|
| 1,216 |
|
| 1,029 |
| (15.4) |
|
| - |
|
Multifamily |
| 4,757 |
|
| - |
|
| - |
| N/M |
|
| N/M |
|
| ||||||||||||||
Multi-Family |
| 493 |
|
| 979 |
|
| 3,302 |
| (49.6) |
|
| (85.1) |
| |||||||||||||||
Owner occupied |
| 4,418 |
|
| 7,225 |
|
| 6,432 |
| (38.9) |
|
| (31.3) |
|
|
| 3,773 |
|
| 4,524 |
|
| 5,428 |
| (16.6) |
|
| (30.5) |
|
Revolving and junior liens |
| 1,977 |
|
| 2,340 |
|
| 3,078 |
| (15.5) |
|
| (35.8) |
|
| ||||||||||||||
Real estate-commercial, nonfarm |
| 7,633 |
|
| 9,946 |
|
| 13,220 |
| (23.3) |
|
| (42.3) |
|
| ||||||||||||||
Real estate-commercial, farm |
| 2,495 |
|
| 1,782 |
|
| 1,801 |
| 40.0 |
|
| N/M |
|
| ||||||||||||||
Commercial |
| 382 |
|
| 2,527 |
|
| 1,519 |
| (84.9) |
|
| (74.9) |
|
| ||||||||||||||
Leases |
| 1,031 |
|
| 1,109 |
|
| 783 |
| (7.0) |
|
| 31.7 |
|
| ||||||||||||||
Consumer |
| 8 |
|
| 1 |
|
| 1 |
| N/M |
|
| N/M |
|
| ||||||||||||||
HELOC |
| 2,078 |
|
| 1,889 |
|
| 1,633 |
| 10.0 |
|
| 27.3 |
| |||||||||||||||
Other 1 |
| 24 |
|
| 31 |
|
| 18 |
| (22.6) |
|
| 33.3 |
| |||||||||||||||
Total classified loans | $ | 23,729 |
| $ | 26,484 |
| $ | 28,259 |
| (10.4) |
|
| (16.0) |
|
|
| 35,895 |
|
| 35,269 |
|
| 26,318 |
| 1.8 |
|
| 36.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Other real estate owned |
| 5,668 |
|
| 7,175 |
|
| 8,912 |
| (21.0) |
|
| (36.4) |
| |||||||||||||||
Total classified assets, excluding PCI loans |
| 41,563 |
|
| 42,444 |
|
| 35,230 |
| (2.1) |
|
| 18.0 |
| |||||||||||||||
PCI, net of purchase accounting adjustments |
| 10,834 |
|
| 10,965 |
|
| 11,214 |
| (1.2) |
|
| (3.4) |
| |||||||||||||||
Total classified assets | $ | 52,397 |
| $ | 53,409 |
| $ | 46,444 |
| (1.9) |
|
| 12.8 |
|
N/M - Not Meaningfulmeaningful
1 The “Other” class includes consumer and overdrafts.
3750
Classified loans include nonaccrual, performing troubled debt restructurings and all other loans considered substandard. Classified assets include both classified loans and OREO. Loans classified as substandard are inadequately protected by either the current net worth and ability to meet payment obligations of the obligor, or by the collateral pledged to secure the loan, if any. These loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt and carry the distinct possibility that the Companywe will sustain some loss if deficiencies remain uncorrected.
Classified assets include bothTotal classified loans increased as of June 30, 2019, from the levels at December 31, 2018 and OREO.June 30, 2018, primarily due to one large commercial credit which moved to classified status in the first quarter of 2019. Total classified assets reflected a slight decline as of June 30, 2019, from the level at December 31, 2018, and an increase compared to the level one year ago. Management monitors a ratio of classified assets to the sum of Bank Tier 1 capital and the allowance for loan and lease losses as another measure of overall change in loan related asset quality. Thisquality, which is referred to as the “classified assets ratio.” The classified assets ratio ended at 12.62%was 12.56% for the period ended SeptemberJune 30, 2017.2019, compared to 13.49% as of December 31, 2018 and 12.01% as of June 30, 2018. The decrease in the classified assets ratio for the quarter ended June 30, 2019, compared to December 31, 2018, is due to a $1.5 million decrease in other real estate owned and the continuing accretion of PCI loans, net of purchase accounting adjustments.
Allowance for Loan and Lease Losses
Below is a reconciliation of the activity for loan losses for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
|
| Quarters Ended |
|
| Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
| September 30, |
| June 30, |
| September 30, |
| September 30, |
| September 30, |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||||||
| 2017 |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| June 30, |
| March 31, |
| June 30, |
| June 30, |
| June 30, |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2019 |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| |||||||||||||||
Allowance at beginning of period | $ | 15,836 |
| $ | 15,741 |
| $ | 15,822 |
|
| $ | 16,158 |
| $ | 16,223 |
|
| $ | 19,316 |
| $ | 19,006 |
| $ | 18,188 |
|
| $ | 19,006 |
| $ | 17,461 |
|
| ||||||
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Commercial |
| 13 |
| 6 |
| 76 |
|
|
| 20 |
|
| 95 |
|
|
| 67 |
| 12 |
| 15 |
|
|
| 79 |
|
| 31 |
|
| ||||||||||
Leases |
| 98 |
| - |
| - |
|
|
| 215 |
|
| 13 |
|
|
| - |
| - |
| 8 |
|
|
| - |
|
| 13 |
|
| ||||||||||
Real estate - commercial |
| 22 |
| 4 |
| 792 |
|
|
| 300 |
|
| 1,484 |
|
|
| 42 |
| 231 |
| 504 |
|
|
| 273 |
|
| 408 |
|
| ||||||||||
Real estate - construction |
| 19 |
| - |
| 9 |
|
|
| 23 |
|
| 9 |
|
|
| 1 |
| - |
| - |
|
|
| 1 |
|
| (16) |
|
| ||||||||||
Real estate - residential |
| 7 |
| 976 |
| 220 |
|
|
| 1,178 |
|
| 657 |
|
|
| - |
| 18 |
| 5 |
|
|
| 18 |
|
| (55) |
|
| ||||||||||
Consumer |
| 82 |
| 80 |
| 100 |
|
|
| 262 |
|
| 250 |
|
| |||||||||||||||||||||||||
Other |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| ||||||||||||||||||||
HELOC |
| 279 |
| - |
| 65 |
|
|
| 279 |
|
| 92 |
|
| |||||||||||||||||||||||||
Other 1 |
| 85 |
|
|
| 84 |
|
|
| 102 |
|
|
| 169 |
|
|
| 201 |
|
| ||||||||||||||||||||
Total charge-offs |
| 241 |
|
|
| 1,066 |
|
|
| 1,197 |
|
|
| 1,998 |
|
|
| 2,508 |
|
|
| 474 |
|
|
| 345 |
|
|
| 699 |
|
|
| 819 |
|
|
| 674 |
|
|
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Commercial |
| 6 |
| 5 |
| 10 |
|
|
| 13 |
|
| 22 |
|
|
| 6 |
| 30 |
| 92 |
|
|
| 36 |
|
| 109 |
|
| ||||||||||
Leases |
| - |
| - |
| - |
|
|
| - |
|
| - |
|
|
| - |
| - |
| - |
|
|
| - |
|
| - |
|
| ||||||||||
Real estate - commercial |
| 43 |
| 46 |
| 27 |
|
|
| 124 |
|
| 255 |
|
|
| 12 |
| 23 |
| 21 |
|
|
| 35 |
|
| 388 |
|
| ||||||||||
Real estate - construction |
| 11 |
| 60 |
| 60 |
|
|
| 89 |
|
| 71 |
|
|
| 2 |
| (1) |
| - |
|
|
| 1 |
|
| 3 |
|
| ||||||||||
Real estate - residential |
| 459 |
| 249 |
| 199 |
|
|
| 850 |
|
| 718 |
|
|
| 14 |
| 50 |
| 105 |
|
|
| 64 |
|
| 1,016 |
|
| ||||||||||
Consumer |
| 45 |
| 46 |
| 57 |
|
|
| 166 |
|
| 184 |
|
| |||||||||||||||||||||||||
Other |
| 6 |
|
|
| 5 |
|
|
| 5 |
|
|
| 13 |
|
|
| 18 |
|
| ||||||||||||||||||||
HELOC |
| 12 |
| 46 |
| 91 |
|
|
| 58 |
|
| 138 |
|
| |||||||||||||||||||||||||
Other 1 |
| 34 |
|
|
| 57 |
|
|
| 73 |
|
|
| 91 |
|
|
| 152 |
|
| ||||||||||||||||||||
Total recoveries |
| 570 |
|
|
| 411 |
|
|
| 358 |
|
|
| 1,255 |
|
|
| 1,268 |
|
|
| 80 |
|
|
| 205 |
|
|
| 382 |
|
|
| 285 |
|
|
| 1,806 |
|
|
Net (recoveries) / charge-offs |
| (329) |
| 655 |
| 839 |
|
|
| 743 |
|
| 1,240 |
|
| |||||||||||||||||||||||||
Loan loss reserve provision |
| 300 |
|
|
| 750 |
|
|
| - |
|
|
| 1,050 |
|
|
| - |
|
| ||||||||||||||||||||
Net charge-offs / (recoveries) |
| 394 |
| 140 |
| 317 |
|
|
| 534 |
|
| (1,132) |
|
| |||||||||||||||||||||||||
Provision (release) for loan and lease losses |
| 450 |
|
|
| 450 |
|
|
| 1,450 |
|
|
| 900 |
|
|
| 728 |
|
| ||||||||||||||||||||
Allowance at end of period | $ | 16,465 |
|
| $ | 15,836 |
|
| $ | 14,983 |
|
| $ | 16,465 |
|
| $ | 14,983 |
|
| $ | 19,372 |
|
| $ | 19,316 |
|
| $ | 19,321 |
|
| $ | 19,372 |
|
| $ | 19,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Average total loans (exclusive of loans held-for-sale) | $ | 1,550,229 |
| $ | 1,505,572 |
| $ | 1,186,279 |
|
| $ | 1,513,693 |
| $ | 1,157,159 |
|
| $ | 1,894,454 |
| $ | 1,893,659 |
| $ | 1,806,209 |
|
| $ | 1,894,058 |
| $ | 1,703,969 |
|
| ||||||
Net (recoveries) / charge-offs to average loans |
| (0.02) | % |
| 0.04 | % |
| 0.07 | % |
|
| 0.05 | % |
|
| 0.11 | % |
| ||||||||||||||||||||||
Net charge-offs / (recoveries) to average loans |
| 0.02 | % |
| 0.01 | % |
| 0.02 | % |
|
| 0.03 | % |
|
| (0.07) | % |
| ||||||||||||||||||||||
Allowance at period end to average loans |
| 1.06 | % |
| 1.05 | % |
| 1.26 | % |
|
| 1.09 | % |
|
| 1.29 | % |
|
| 1.02 | % |
| 1.02 | % |
| 1.07 | % |
|
| 1.02 | % |
|
| 1.13 | % |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Ending balance: Individually evaluated for impairment | $ | 6 |
|
| $ | 98 |
|
| $ | 514 |
|
| $ | 6 |
|
| $ | 514 |
|
| $ | 455 |
|
| $ | 222 |
|
| $ | 498 |
|
| $ | 455 |
|
| $ | 498 |
|
|
Ending balance: Collectively evaluated for impairment | $ | 16,459 |
|
| $ | 15,738 |
|
| $ | 14,469 |
|
| $ | 16,459 |
|
| $ | 14,469 |
|
| $ | 18,513 |
|
| $ | 19,094 |
|
| $ | 18,823 |
|
| $ | 18,513 |
|
| $ | 18,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Ending balance: Acquired and accounted for ASC 310-30 | $ | 404 |
|
| $ | - |
|
| $ | - |
|
| $ | 404 |
|
| $ | - |
|
|
1 The “Other” class includes consumer and overdrafts.
Net charge-offs for the quarter ended June 30, 2019, totaled $394,000, compared to $140,000 for the quarter ended March 31, 2019, and $317,000 for the quarter ended June 30, 2018. The coverage ratio of the allowance for loan and lease losses to nonperforming loans was 101.2% as of September 30, 2017, which was a minimal reduction from the coverage of 101.4%153.0% as of June 30, 2017, but greater than2019, which was an increase from the 86.2% coverage ratio of 129.3% as of SeptemberMarch 31, 2019, and a decrease from 162.7% as of June 30, 2016.2018. When measured as a percentage of average loans, as of September 30, 2017,our total allowance for loan and lease losses increased to 1.06%was 1.02% of totalquarterly average loans from 1.05% as of June 30, 2017,2019 and decreased from 1.26%March 31, 2019 and 1.07% as of average loans at SeptemberJune 30, 2016.2018. The total allowance for loan
51
and lease losses as a percent of total period end loans was 1.15%1.05% as of SeptemberJune 30, 2017,2019, excluding the loans acquired fromin our acquisition of ABC Bank and in our Talmer branch purchase.
In accordance with the accounting guidance for business combinations, there was no allowance brought forward on any of the acquired loans in our acquisition of ABC Bank or our Talmer branch purchase. For purchased non-credit impaired loans (“non-PCI loans”), which refers to loans acquired in our acquisition that did not show signs of credit deterioration at acquisition, credit discounts representing the principal losses expected over the life of the loan are a component of the initial fair value and the discount is accreted to interest income over the life of the loan. Subsequent to the purchase date, the method used to evaluate the sufficiency of the credit discount is similar to organic loans, and if necessary, additional reserves are recognized in the allowance for loan and lease losses. The aggregate non-PCI loans related to our acquisition of ABC Bank and the Talmer branch acquisition, which are effectively “reserved” for potential future losses in the remaining $667,000 credit mark componentpurchase totaled $227.1 million as of theJune 30, 2019, net of purchase accounting discount recorded.adjustments of $1.2 million, which included $915,000 of credit discounts. At June 30, 2019, of our $19.4 million allowance for loan and lease losses, $1.5 million related to non-PCI loans. In management’s judgment, an adequate allowance for estimated losses has been established for inherent losses at SeptemberJune 30, 2017,2019, and general changes in lending policy, procedures and staffing, as well as other external factors. However, there can be no assurance that actual losses will not exceed the estimated amounts in the future, based on unforeseen economic events, changes in business climates and the condition of collateral at the time of default and repossession. Loan loss
We recorded PCI loans, which refers to loans that showed evidence of deteriorated credit quality upon purchase, in our acquisition of ABC Bank. PCI loans totaled $10.8 million, net of purchase accounting adjustments, as of June 30, 2019, and included $5.5 million of credit discounts as of June 30, 2019. We perform re-estimations of cash flows on our PCI loan portfolio on a quarterly basis. Any decline in expected cash flows as a result of these re-estimations, due in any part to a change in credit, is deemed credit impairment, and recorded as provision for loan and lease losses during the quarter ended September 30, 2017, increased $300,000period. Any decline in expected cash flows due only to changes in expected timing of cash flows is recognized prospectively as compareda decrease in yield on the loan and any improvement in expected cash flows, once any previously recorded impairment is recaptured, is recognized prospectively as an adjustment to like quarter of 2016 and decreased $450,000 as compared to second quarter of 2017.the yield on the loan.
38
Other Real Estate Owned
As of SeptemberJune 30, 2017,2019, OREO endeddecreased to $5.7 million, compared to $7.2 million at $9.0 million. This compares to $11.7December 31, 2018, and $8.9 million at June 30, 2017, and $14.1 million at September 30, 2016. New2018. There were no additions to the OREO portfolio of $176,000 in the third quarter of 2017 were minimal. Valuation write-downs continued with an expense of $920,000 in the third quarter of 2017, the majority of which was recorded on three properties, compared to $392,000 in the second quarter of 2017 and $365,0002019. Property disposals in the thirdsecond quarter of 2016. The OREO net book value decreased2019 totaled $501,000 due to three property sales. Five valuation write-downs occurred in the first nine monthssecond quarter of 2017 due2019 with an expense total of $195,000, compared to 24 property sales, net$254,000 of a participation purchase. These sales provided $5.5 million in total proceeds, including net gains on OREO sales of $454,000. In addition, net valuation reserve write-downs of $1.6 million on 35 OREO properties were recorded in the first nine monthssecond quarter of 2017; both of these reductions were partially offset by 13 property transfers into OREO from nonaccrual or fixed asset status totaling $3.8 million.2018.
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 | ||||
OREO | Quarters Ended |
| Percent Change From | |||||||||||
(in thousands) | September 30, |
| June 30, |
| September 30, |
| June 30, |
| September 30, | |||||
| 2017 |
| 2017 |
| 2016 |
| 2017 |
| 2016 | |||||
Beginning balance | $ | 11,724 |
| $ | 13,481 |
| $ | 16,252 |
| (13.0) |
|
| (27.9) |
|
Property additions |
| 176 |
|
| 204 |
|
| 255 |
| (13.7) |
|
| (31.0) |
|
Property improvements |
| - |
|
| - |
|
| 4 |
| N/M |
|
| N/M |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property disposals |
| 1,956 |
|
| 1,569 |
|
| 2,002 |
| 24.7 |
|
| (2.3) |
|
Period valuation adjustments |
| 920 |
|
| 392 |
|
| 365 |
| 134.7 |
|
| 152.1 |
|
Total other real estate owned | $ | 9,024 |
| $ | 11,724 |
| $ | 14,144 |
| (23.0) |
|
| (36.2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2019 | ||||
OREO | Three Months Ended |
| Percent Change From | |||||||||||
| June 30, |
| December 31, |
| June 30, |
| December 31, |
| June 30, | |||||
| 2019 |
| 2018 |
| 2018 |
| 2018 |
| 2018 | |||||
Balance at beginning of period | $ | 6,365 |
| $ | 6,964 |
| $ | 7,063 |
| (8.6) |
|
| (9.9) |
|
Property additions, net of acquisition adjustments |
| - |
|
| 721 |
|
| 2,812 |
| (100.0) |
|
| - |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from property disposals, net of participation purchase and of gains/losses |
| 501 |
|
| 414 |
|
| 709 |
| 21.0 |
|
| (29.3) |
|
Period valuation adjustments |
| 196 |
|
| 96 |
|
| 254 |
| 104.2 |
|
| (22.8) |
|
Balance at end of period | $ | 5,668 |
| $ | 7,175 |
| $ | 8,912 |
| (21.0) |
|
| (36.4) |
|
N/M - Not Meaningful
In management’s judgment, the property valuation allowance as established presents OREO at current estimates of fair value less estimated costs to sell; however, there can be no assurance that additional losses will not be incurred on disposals or upon updates to valuations in the future. Of note, properties valued in total at $5.2$4.5 million, or approximately 57.5%80.2% of total OREO at SeptemberJune 30, 2017,2019, have been in OREO for five years or more. The appropriate regulatory approval has been obtained for any OREO properties held in excess of five years.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OREO Properties by Type |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) | September 30, 2017 |
| December 31, 2016 |
| September 30, 2016 | |||||||||||||||||||||||||||||
| June 30, 2019 |
| December 31, 2018 |
| June 30, 2018 | |||||||||||||||||||||||||||||
|
| Amount |
| % of Total |
|
| Amount |
| % of Total |
|
| Amount |
| % of Total |
| Amount |
| % of Total |
|
| Amount |
| % of Total |
|
| Amount |
| % of Total | ||||||
Single family residence | $ | 937 |
| 11 | % |
| $ | 225 |
| 2 | % |
| $ | 1,218 |
| 9 | % | $ | 370 |
| 7 | % |
| $ | 1,137 |
| 16 | % |
| $ | 2,460 |
| 4 | % |
Lots (single family and commercial) |
| 5,536 |
| 61 | % |
|
| 7,322 |
| 61 | % |
|
| 8,795 |
| 62 | % |
| 4,162 |
| 73 | % |
|
| 4,310 |
| 60 | % |
|
| 4,395 |
| 49 | % |
Vacant land |
| 628 |
| 7 | % |
|
| 636 |
| 5 | % |
|
| 636 |
| 4 | % |
| 440 |
| 8 | % |
|
| 470 |
| 6 | % |
|
| 470 |
| 5 | % |
Multi-family |
| - |
| 0 | % |
|
| 264 |
| 2 | % |
|
| 264 |
| 2 | % | |||||||||||||||||
Commercial property |
| 1,923 |
| 21 | % |
|
| 3,469 |
| 30 | % |
|
| 3,231 |
| 23 | % |
| 696 |
| 12 | % |
|
| 1,258 |
| 18 | % |
|
| 1,587 |
| 18 | % |
Total OREO properties | $ | 9,024 |
| 100 | % |
| $ | 11,916 |
| 100 | % |
| $ | 14,144 |
| 100 | % | |||||||||||||||||
Total other real estate owned | $ | 5,668 |
| 100 | % |
| $ | 7,175 |
| 100 | % |
| $ | 8,912 |
| 76 | % | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3rd Quarter 2017 |
| ||
Noninterest Income |
| Quarters Ended |
| Percent Change From |
| |||||||||
(in thousands) |
| September 30, |
| June 30, |
| September 30, |
| June 30, |
| September 30, |
| |||
|
| 2017 |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| |||
Trust income |
| $ | 1,468 |
| $ | 1,638 |
| $ | 1,403 |
| (10.4) |
| 4.6 |
|
Service charges on deposits |
|
| 1,722 |
|
| 1,615 |
|
| 1,756 |
| 6.6 |
| (1.9) |
|
Residential mortgage banking revenue |
|
| 1,547 |
|
| 1,711 |
|
| 2,789 |
| (9.6) |
| (44.5) |
|
Securities gain (loss), net |
|
| 102 |
|
| (131) |
|
| (1,959) |
| 177.9 |
| 105.2 |
|
Increase in cash surrender value of BOLI |
|
| 362 |
|
| 350 |
|
| 383 |
| 3.4 |
| (5.5) |
|
Debit card interchange income |
|
| 1,075 |
|
| 1,081 |
|
| 1,013 |
| (0.6) |
| 6.1 |
|
Gain on disposal and transfer of fixed assets |
|
| - |
|
| 12 |
|
| - |
| N/M |
| N/M |
|
Other income |
|
| 1,567 |
|
| 1,041 |
|
| 1,209 |
| 50.5 |
| 29.6 |
|
Total noninterest income |
| $ | 7,843 |
| $ | 7,317 |
| $ | 6,594 |
| 7.2 |
| 18.9 |
|
N/M - Not Meaningful
3952
Of the noninterest income categories, securities gain (loss), net, experienced the largest increases on both a linked quarterDeposits and year over year basis, as shown above, primarily due to more favorable investment sales in 2017. The net security losses incurred in 2016 were necessary for liquidity purposes due to funding needs related to the Talmer branch purchase. Mortgage banking revenues have decreased over the last year as the rising rate environment has reduced originations and refinancing; mortgage loans held for sale originations are $34.1 million less year to date 2017 than the prior year to date period. Finally, the favorable variance in other income was driven by growth in commercial loan swap fee income; $547,000 of commercial loan swap fee income was recorded in the third quarter of 2017, as compared to $175,000 in the third quarter of 2016.Borrowings
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3rd Quarter 2017 |
| ||
Noninterest Expense |
| Quarters Ended |
| Percent Change From |
| |||||||||
(in thousands) |
| September 30, |
| June 30, |
| September 30, |
| June 30, |
| September 30, |
| |||
|
| 2017 |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| |||
Salaries |
| $ | 7,704 |
| $ | 7,972 |
| $ | 7,205 |
| (3.4) |
| 6.9 |
|
Bonus |
|
| 1,114 |
|
| 854 |
|
| 521 |
| 30.4 |
| 113.8 |
|
Benefits and other |
|
| 1,231 |
|
| 1,719 |
|
| 1,288 |
| (28.4) |
| (4.4) |
|
Total salaries and employee benefits |
|
| 10,049 |
|
| 10,545 |
|
| 9,014 |
| (4.7) |
| 11.5 |
|
Occupancy, furniture and equipment expense |
|
| 1,482 |
|
| 1,462 |
|
| 1,500 |
| 1.4 |
| (1.2) |
|
Computer and data processing |
|
| 1,081 |
|
| 1,112 |
|
| 1,105 |
| (2.8) |
| (2.2) |
|
FDIC insurance |
|
| 199 |
|
| 165 |
|
| 228 |
| 20.6 |
| (12.7) |
|
General bank insurance |
|
| 246 |
|
| 264 |
|
| 269 |
| (6.8) |
| (8.6) |
|
Amortization of core deposit intangible asset |
|
| 24 |
|
| 25 |
|
| - |
| (4.0) |
| N/M |
|
Advertising expense |
|
| 255 |
|
| 452 |
|
| 430 |
| (43.6) |
| (40.7) | �� |
Debit card interchange expense |
|
| 285 |
|
| 399 |
|
| 363 |
| (28.6) |
| (21.5) |
|
Legal fees |
|
| 162 |
|
| 184 |
|
| 242 |
| (12.0) |
| (33.1) |
|
Other real estate owned expense, net |
|
| 680 |
|
| 539 |
|
| 426 |
| 26.2 |
| 59.6 |
|
Other expense |
|
| 2,455 |
|
| 2,839 |
|
| 3,005 |
| (13.5) |
| (18.3) |
|
Total noninterest expense |
| $ | 16,918 |
| $ | 17,986 |
| $ | 16,582 |
| (5.9) |
| 2.0 |
|
Efficiency ratio (defined below) |
|
| 57.66 | % |
| 64.03 | % |
| 66.21 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2019 | ||
Deposits | As of |
| Percent Change From | |||||||||
| June 30, |
| December 31, |
| June 30, |
| December 31, |
| June 30, | |||
| 2019 |
| 2018 |
| 2018 |
| 2018 |
| 2018 | |||
Noninterest bearing demand | $ | 632,900 |
| $ | 618,830 |
| $ | 620,807 |
| 2.3 |
| 1.9 |
Savings |
| 311,887 |
|
| 304,400 |
|
| 301,832 |
| 2.5 |
| 3.3 |
NOW accounts |
| 426,511 |
|
| 425,878 |
|
| 435,514 |
| 0.1 |
| (2.1) |
Money market accounts |
| 285,223 |
|
| 310,390 |
|
| 320,949 |
| (8.1) |
| (11.1) |
Certificates of deposit of less than $100,000 |
| 220,973 |
|
| 230,781 |
|
| 249,049 |
| (4.2) |
| (11.3) |
Certificates of deposit of $100,000 through $250,000 |
| 144,148 |
|
| 159,953 |
|
| 175,174 |
| (9.9) |
| (17.7) |
Certificates of deposit of more than $250,000 |
| 56,132 |
|
| 66,441 |
|
| 58,526 |
| (15.5) |
| (4.1) |
Total deposits | $ | 2,077,774 |
| $ | 2,116,673 |
| $ | 2,161,851 |
| (1.8) |
| (3.9) |
N/M - Not Meaningful
The efficiency ratio shown in the table above is calculated as noninterest expense excluding OREO expenses, amortizationTotal deposits were $2.08 billion at June 30, 2019, which reflects a $38.9 million decrease from total deposits of core deposits$2.12 billion at December 31, 2018, and acquisition costs, divided by the suma decrease of net interest income on a fully tax equivalent basis, total noninterest income less net gains and losses on securities and includes a tax equivalent adjustment on the increase in cash surrender value of BOLI.
Third quarter 2017 noninterest expense decreased $1.1$84.1 million from the second quarter of 2017, and increased $336,000 from the third quarter of 2016. These variances are primarily due to salary and employee benefit related cost fluctuations due to certain one-time costs recorded$2.16 billion at June 30, 2018. The decrease in 2017, as well as an increase in employee insurance premiums in 2017. The second quarter of 2017 included a one-time cost incurred related to executive relocation and recruitment of $294,000, as well as higher levels of employee insurance costs asdeposits at June 30, 2019, compared to the prior year. Although the overall employee count has not significantly increasedDecember 31, 2018, was due primarily to declines in money market accounts and certificates of deposit, which was partially offset by growth in noninterest bearing demand, savings and NOW accounts. The reduction in deposits in the year over year period the hiringreflected an aggregate decrease in NOW, money market and time deposits of additional staff$106.2 million or 126.3%, partially offset by aggregate increases in compliancedemand deposits and risk management roles has increased the overall wage basesavings accounts of the Company. A reduction in debit card interchange expense was recorded in the third quarter of 2017 due$22.1 million, or 2.6% In addition to reversal of an accrualtotal deposit growth experienced related to the debit card rewards program. Finally, other expense has declined over the last year due to reductionsour ABC Bank acquisition, an increase in loan related expenses, including remediation costs as the loan portfolio quality continues to improve.
Other expenses have minimal fluctuations, as continued efficiencies with operational processes have contributed to maintaining the majority of noninterest expense components with insignificant variation.
Income Taxes
The Company recorded a tax expense of $1.8 million on $9.9 million pre-tax income for the third quarter of 2017. Income tax expense reflected all relevant statutory tax rates and GAAP accounting. The effective tax rate for the third quarter of 2017 was 18.5%, a decrease from 28.9%bearing demand deposits in the second quarter of 2017 and 34.7% in the third quarter of 2016. A nonrecurring income tax benefit of $1.6 million was recorded in the third quarter of 2017, stemming from the State of Illinois tax rate increase effective July 1, 2017, which increased the Company’s net deferred tax asset by a like amount. In addition, the impact of the tax exempt securities growth in the first and second quarters of 2017 contributed to the tax rate decrease in the third quarter of 2017 as2019 compared to the prior year.
There have been no significant changes in the Company’s ability to utilize the deferred tax assets through September 30, 2017. The Company has no valuation reserve on the deferred tax assets as of September 30, 2017.
40
Financial Condition
Total assets increased $109.2 million from $2.25 billion as of December 31, 2016, to $2.36 billion at September 30, 2017, due primarily to organic loan growth. Total loans increased $115.4 million, or 7.8%, when compared to December 31, 2016, which was funded by significant deposit growth and FHLBC advances. Securities increased a modest $1.6 million in total, but the securities portfolio experienced select significant shifts in type of investments held year to date.
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| September 30, 2017 | ||
Securities |
| As of |
| Percent Change From | |||||||||
(in thousands) |
| September 30, |
| December 31, |
| September 30, |
| December 31, |
| September 30, | |||
|
| 2017 |
| 2016 |
| 2016 |
| 2016 |
| 2016 | |||
Securities available-for-sale, at fair value |
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|
|
U.S. Treasuries |
| $ | 3,990 |
| $ | - |
| $ | - |
| N/M |
| N/M |
U.S. government agencies |
|
| 13,451 |
|
| - |
|
| 1,503 |
| N/M |
| N/M |
U.S. government agencies mortgage-backed |
|
| 11,030 |
|
| 41,534 |
|
| 43,723 |
| (73.4) |
| (74.8) |
States and political subdivisions |
|
| 229,032 |
|
| 68,703 |
|
| 22,254 |
| 233.4 |
| 929.2 |
Corporate bonds |
|
| 10,577 |
|
| 10,630 |
|
| 10,730 |
| (0.5) |
| (1.4) |
Collateralized mortgage obligations |
|
| 80,386 |
|
| 170,927 |
|
| 204,390 |
| (53.0) |
| (60.7) |
Asset-backed securities |
|
| 131,759 |
|
| 138,407 |
|
| 140,173 |
| (4.8) |
| (6.0) |
Collateralized loan obligations |
|
| 53,259 |
|
| 101,637 |
|
| 108,284 |
| (47.6) |
| (50.8) |
Total securities |
| $ | 533,484 |
| $ | 531,838 |
| $ | 531,057 |
| 0.3 |
| 0.5 |
N/M - Not Meaningful
The securities portfolio ended the thirdfirst quarter of 2017 at $533.5 million, an increase of $1.6 million from $531.8 million at December 31, 2016,2019 and an increase of $2.4 million from September 30, 2016. Available-for-sale purchases during the third quarter of 2017 and year over year periods were primarily tax exempt state and political subdivisions securities; treasuries and government agencies also increased in thelike period ending September 30, 2017. This portfolio repositioning was performedattributable to enhance overall asset yield due to the rising interest rate environment. During the third quarter of 2017 security sales resulted in net realized gains of $102,000, as compared to net realized losses of $193,000 for the fourth quarter of 2016 and losses of $2.0 million for the third quarter of 2016.
Loans
Total loans were $1.59 billion as of September 30, 2017, an increase of $115.4 million from the total as of December 31, 2016, driven by growth in the commercial, real estate-construction and leases portfolios. In addition, a home equity portfolio purchase of $16.7 million from TCF Bank in the second quarter of 2017 contributed to the total residential real estate growth of $41.7 million for the 2017 year to date period. Loan portfolio repositioning continued to drive reductions in commercial real estate concentrations, and to grow commercial and lease financing to diversify the portfolio. Total loans increased $391.7 million from September 30, 2016, due to the organic growth previously discussed as well as $221.0 million of loans from the Talmer branch purchase.
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| September 30, 2017 | ||
Loans | As of |
| Percent Change From | |||||||||
(in thousands) | September 30, |
| December 31, |
| September 30, |
| December 31, |
| September 30, | |||
| 2017 |
| 2016 |
| 2016 |
| 2016 |
| 2016 | |||
Commercial | $ | 257,356 |
| $ | 228,113 |
| $ | 136,819 |
| 12.8 |
| 88.1 |
Leases |
| 69,305 |
|
| 55,451 |
|
| 47,215 |
| 25.0 |
| 46.8 |
Real estate - commercial |
| 739,136 |
|
| 736,247 |
|
| 617,280 |
| 0.4 |
| 19.7 |
Real estate - construction |
| 94,868 |
|
| 64,720 |
|
| 28,786 |
| 46.6 |
| 229.6 |
Real estate - residential |
| 419,583 |
|
| 377,851 |
|
| 357,846 |
| 11.0 |
| 17.3 |
Consumer |
| 2,770 |
|
| 3,237 |
|
| 3,325 |
| (14.4) |
| (16.7) |
Other |
| 10,550 |
|
| 11,973 |
|
| 10,517 |
| (11.9) |
| 0.3 |
|
| 1,593,568 |
|
| 1,477,592 |
|
| 1,201,788 |
| 7.8 |
| 32.6 |
Net deferred loan costs |
| 623 |
|
| 1,217 |
|
| 1,064 |
| (48.8) |
| (41.4) |
Total loans | $ | 1,594,191 |
| $ | 1,478,809 |
| $ | 1,202,852 |
| 7.8 |
| 32.5 |
The quality of the loan portfolio is impacted by not only Company credit decisions but also the economic health of the communities in which the Company operates. As the Company is located in a corridor with significant open space and undeveloped real estate, real estate lending (including commercial, residential, and construction) has been and continues to be a sizeable portion of the portfolio. These categories comprised 78.6% of the portfolio as of September 30, 2017, compared to 79.7% of the portfolio as of
41
December 31, 2016. The Company continues to oversee and manage its loan portfolio in accordance with interagency guidance on risk management.
Deposits and Borrowings
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| September 30, 2017 | ||
Deposits | As of |
| Percent Change From | |||||||||
(in thousands) | September 30, |
| December 31, |
| September 30, |
| December 31, |
| September 30, | |||
| 2017 |
| 2016 |
| 2016 |
| 2016 |
| 2016 | |||
Noninterest bearing demand | $ | 556,874 |
| $ | 513,688 |
| $ | 473,477 |
| 8.4 |
| 17.6 |
Savings |
| 260,268 |
|
| 256,159 |
|
| 253,454 |
| 1.6 |
| 2.7 |
NOW accounts |
| 417,054 |
|
| 419,417 |
|
| 391,188 |
| (0.6) |
| 6.6 |
Money market accounts |
| 270,647 |
|
| 275,273 |
|
| 259,495 |
| (1.7) |
| 4.3 |
Certificates of deposit of less than $100,000 |
| 219,152 |
|
| 228,993 |
|
| 230,748 |
| (4.3) |
| (5.0) |
Certificates of deposit of $100,000 through $250,000 |
| 114,373 |
|
| 110,992 |
|
| 105,868 |
| 3.0 |
| 8.0 |
Certificates of deposit of more than $250,000 |
| 50,747 |
|
| 62,263 |
|
| 63,152 |
| (18.5) |
| (19.6) |
Total deposits | $ | 1,889,115 |
| $ | 1,866,785 |
| $ | 1,777,382 |
| 1.2 |
| 6.3 |
Total deposits were $1.89 billion on September 30, 2017, which reflects a $22.3 million increase from total deposits of $1.87 billion as of December 31, 2016, and a $111.7 million increase from $1.78 billion as of September 30, 2016. Total noninterest bearing demand accounts experienced increases of $43.2 million, or 8.4%, in volumes for the first nine months of 2017, while certificates of deposit reflected a decrease of $18.0 million, or 4.5%, for the same period. Growth in deposits in the third quarter of 2017 was attributed to seasonal tax refunds, as well as strong commercial demand deposit growth stemming from seasonal and operational fundsfund increases as well as growth in commercial loan clients. The total deposit growth of 6.3% inclients over the year over year period is also partially attributable to the $48.9 million of deposits acquired with the Talmer branch purchase in 2016.past year.
In addition to deposits, the Bankwe obtained funding from other sources in all periods presented. Securities sold under repurchase agreements totaled $26.9$54.2 million at SeptemberJune 30, 2017,2019, a $7.5 million, or 16.3%, an increase from $25.7$46.6 million at December 31, 2016. The Bank2018. We also recorded an advanceshort-term borrowings of $125.0$87.1 million from Federal Home Loan Bank of Chicagothe FHLBC at SeptemberJune 30, 2017,2019, as compared to $70.0$149.5 million in short-term borrowings at December 31, 2016.2018. We assumed $23.4 million of long-term FHLBC advances in our ABC Bank acquisition, with maturities scheduled over the next seven years and paying interest at rates of 1.60% to 2.83%. These long-term advances totaled $11.0 million as of June 30, 2019, compared to $15.4 million as of December 31, 2018.
The Company is indebted on senior notes totaling $44.0$44.2 million, net of deferred issuance costs, which were issued in the fourth quarteras of 2016.June 30, 2019. These notes mature in December 2026, and include interest payable semiannuallysemi-annually at 5.75% for five years. Beginning December 2021, the interest becomes payable quarterly at three month LIBOR plus 385 basis points. The Company is also indebted on $57.6$57.7 million, net of deferred issuance costs, of junior subordinated debentures, which are related to the trust preferred securities issued by its two statutory trust subsidiaries, Old Second Capital Trust I and Old Second Capital Trust II (“Trust II”). The Trust II issuance converted from fixed to floating rate at three month LIBOR plus 150 basis points on June 15, 2017. Upon conversion to a floating rate, we initiated a cash flow hedge was initiated which resulted in the total interest rate paid on this debt of 4.30%4.40% as of SeptemberJune 30, 2017,2019, as compared to 6.77%, which was the rate paid during the period prior to the June 15, 2017 rate reset.
Capital
As of SeptemberJune 30, 2017,2019, total stockholders’ equity was $200.8$257.3 million, which was an increase of $25.6$28.2 million from $175.2$229.1 million as of December 31, 2016.2018. This increase is directly attributable to ninenet income of $17.7 million for the first six months of net income in 20172019, and a reductionchange in the accumulated other comprehensive net income (loss), which was a net loss offset slightly by $888,000of $4.1 million at December 31, 2018, and a net gain of $6.1 million as of June 30, 2019. In addition, we paid $597,000 of dividends paid to our common shareholdersstockholders in 2017.the six months ended June 30, 2019.
In 2015, the Company redeemed all outstanding shares of the Company’s Series B preferred stock; as of September 30, 2015, no shares of the Series B Stock remained outstanding. After this redemption, the Company’sOur total stockholders’ equity continues to includein 2018 included $4.8 million related to reflect the value of a ten yearten-year warrant to purchase shares of itsour common stock, with an exercise price of $13.43 per share,share. We issued the warrant in January 2009 as part of the originalour Series B preferred stock issuance. A discussionWe redeemed all of our Series B preferred stock as of September 30, 2015. The warrant was subsequently sold at auction by the U.S. Treasury in June 2013 to a third party investor. The warrant was exercised on January 16, 2019, in a cashless transaction. As of the 2009 issuance, including this warrant, is includeddate of exercise, our closing market stock price was $14.23 per share, resulting in Item 7, “Management’s Discussion45,836 shares being issued, and Analysis of Financial Condition and Results of Operations” of the Company’s Form 10-K for the year ended December 31, 2016, under the heading “Capital”.a net $313,000 reduction to treasury stock.
4253
The following table shows the regulatory capital ratios and the current well capitalized regulatory requirements for the Company and the Bank as of the dates indicated:
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| Well-Capitalized Plus Capital |
| June 30, |
| December 31, |
| June 30, | ||||
|
| Conservation Buffer1 |
| 2019 |
| 2018 |
| 2018 | ||||
The Company |
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Common equity tier 1 capital ratio |
| N/A |
|
| 10.26 | % |
| 9.29 | % |
| 8.49 | % |
Total risk-based capital ratio |
| N/A |
|
| 13.70 | % |
| 12.63 | % |
| 11.87 | % |
Tier 1 risk-based capital ratio |
| N/A |
|
| 12.83 | % |
| 11.78 | % |
| 10.99 | % |
Tier 1 leverage ratio |
| N/A |
|
| 10.85 | % |
| 10.08 | % |
| 9.37 | % |
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The Bank |
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Common equity tier 1 capital ratio |
| 7.00 | % |
| 13.96 | % |
| 13.29 | % |
| 12.62 | % |
Total risk-based capital ratio |
| 10.50 | % |
| 14.83 | % |
| 14.14 | % |
| 13.51 | % |
Tier 1 risk-based capital ratio |
| 8.50 | % |
| 13.96 | % |
| 13.29 | % |
| 12.62 | % |
Tier 1 leverage ratio |
| 5.00 | % |
| 11.96 | % |
| 11.36 | % |
| 10.75 | % |
1Represents ratios required to be considered well capitalized under prompt corrective action provisions plus the now fully-phased in capital conservation buffer of 2.5%. The prompt corrective action provisions are only applicable at the Bank level.
The Company’sAs of June 30, 2019, the Company, on a consolidated basis, exceeded the minimum capital ratios to be deemed “well capitalized” and met the now fully phased-in capital conservation buffer requirements. In addition to the above regulatory ratios, our GAAP common equity to total assets ratio, which is used as a performance measurement for capital analysis and peer comparisons, increased from 8.56% at December 31, 2018, to 9.81% at June 30, 2019, due to net income generated for the first six months of 2019, as well as a more favorable position related to unrealized gains on securities available-for-sale. Our GAAP tangible common equity to tangible assets ratio was 9.06% at June 30, 2019, compared to 7.81% as of December 31, 2018. Our non-GAAP tangible common equity to tangible assets ratio, was 8.16%which management also considers a valuable performance measurement for capital analysis, increased from 7.83% at September 30, 2017, compared to 7.41% as of December 31, 2016,2018 to 9.08% at June 30, 2019.
Reconciliation of Tangible Common Equity to Tangible Assets Ratio Non-GAAP Measure
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| June 30, 2019 |
|
| December 31, 2018 |
| ||||||||||
| GAAP |
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| Non-GAAP |
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| GAAP |
|
| Non-GAAP |
| ||||
Tangible common equity |
|
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|
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Total Equity | $ | 257,264 |
|
| $ | 257,264 |
|
| $ | 229,081 |
|
| $ | 229,081 |
|
Less: Goodwill and intangible assets |
| 21,561 |
|
|
| 21,561 |
|
|
| 21,814 |
|
|
| 21,814 |
|
Add: Limitation of exclusion of core deposit intangible (80%) |
| N/A |
|
|
| 591 |
|
|
| N/A |
|
|
| 642 |
|
Adjusted goodwill and intangible assets |
| 21,561 |
|
|
| 20,970 |
|
|
| 21,814 |
|
|
| 21,172 |
|
Tangible common equity | $ | 235,703 |
|
| $ | 236,294 |
|
| $ | 207,267 |
|
| $ | 207,909 |
|
Tangible assets |
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Total assets | $ | 2,623,606 |
|
| $ | 2,623,606 |
|
| $ | 2,676,003 |
|
| $ | 2,676,003 |
|
Less: Adjusted goodwill and intangible assets |
| 21,561 |
|
|
| 20,970 |
|
|
| 21,814 |
|
|
| 21,172 |
|
Tangible assets | $ | 2,602,045 |
|
| $ | 2,602,636 |
|
| $ | 2,654,189 |
|
| $ | 2,654,831 |
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Common equity to total assets |
| 9.81 | % |
|
| 9.81 | % |
|
| 8.56 | % |
|
| 8.56 | % |
Tangible common equity to tangible assets |
| 9.06 | % |
|
| 9.08 | % |
|
| 7.81 | % |
|
| 7.83 | % |
The non-GAAP intangible asset exclusion reflects the 80% core deposit limitation per Basel III guidelines within risk based capital calculations, and 8.12% at September 30, 2016.
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|
| (unaudited) | |||||||
|
| As of September 30, |
| As of December 31, |
| As of September 30, | |||
(in thousands) |
| 2017 |
| 2016 |
| 2016 | |||
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Tier 1 capital |
|
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Total equity |
| $ | 200,763 |
| $ | 175,210 |
| $ | 171,627 |
Tier 1 adjustments: |
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Trust preferred securities allowed |
|
| 55,395 |
|
| 47,997 |
|
| 48,728 |
Cumulative other comprehensive loss |
|
| 632 |
|
| 8,762 |
|
| 7,437 |
Disallowed intangible assets |
|
| (8,830) |
|
| (8,761) |
|
| - |
Disallowed deferred tax assets |
|
| (26,381) |
|
| (31,220) |
|
| (32,882) |
Tier 1 capital |
| $ | 221,579 |
| $ | 191,988 |
| $ | 194,910 |
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Tangible common equity |
|
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|
|
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|
|
|
Total Equity |
| $ | 200,763 |
| $ | 175,210 |
| $ | 171,627 |
Less: Intangible assets |
|
| 8,830 |
|
| 8,761 |
|
| - |
Tangible common equity |
| $ | 191,933 |
| $ | 166,449 |
| $ | 171,627 |
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Tangible assets |
|
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Total assets |
| $ | 2,360,407 |
| $ | 2,251,188 |
| $ | 2,112,751 |
Less: Goodwill and intangible assets |
|
| 8,830 |
|
| 8,761 |
|
| - |
Tangible assets |
| $ | 2,351,577 |
| $ | 2,242,427 |
| $ | 2,112,751 |
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is useful for us when reviewing risk based capital ratios and equity performance metrics.
Liquidity
Liquidity is the Company’sour ability to fund operations, to meet depositor withdrawals, to provide for customers’ credit needs, and to meet maturing obligations and existing commitments. TheOur liquidity of the Company principally depends on our cash flows from operating activities, investment in and maturity of assets, changes in balances of deposits and borrowings, and itsour ability to borrow funds. The Company monitors itsWe monitor our borrowing capacity at the FHLBC as part of itsour liquidity management process as supervised by theour Asset and Liability Committee (“ALCO”) and reviewed by theour Board of Directors.
Net cash inflows from operating activities were $28.5$39.9 million during the first ninesix months of 2017,2019, compared with net cash inflows of $17.2$27.6 million in the same period in 2016.of 2018. Proceeds from sales of loans held-for-sale, net of funds used to originate loans held-for-sale,
54
were a source of outflows for the first six months of 2019 and inflows for the first nine months of 2017 and 2016.2018. Interest paid, net of interest received, combined with changes in other assets and liabilities were a source of outflowsinflows for the first ninesix months of 20172019 and 2016.2018. The management of investing and financing activities, as well as market conditions, determines the level and the stability of net interest cash flows. Management’s policy is to mitigate the impact of changes in market interest rates to the extent possible, as part of the balance sheet management process.
Net cash outflowsinflows from investing activities were $105.7$62.2 million in the first ninesix months of 2017,2019, compared to net cash inflows of $117.4$23.3 million in the same period in 2016.2018. In the first ninesix months of 2017,2019, securities transactions accounted for net inflows of $10.8$68.4 million, and the principal change on loans accounted for net outflows of $6.2 million. In the first six months of 2018, securities transactions accounted for net inflows of $61.0 million, and net principal disbursed on loans accounted for net outflows of $118.7$4.4 million. In the first nine monthsProceeds from claims on BOLI, net of 2016, securities transactionspremiums paid, accounted for net inflows of $184.4$1.2 million and net principal disbursed on loans accounted for net outflowsin the second quarter of $71.6 million.2018; there were no BOLI death benefits received in the second quarter of 2019. Proceeds from sales of OREO accounted for $5.5 million$1.5 and $5.2$2.1 million in investing cash inflows for the first ninesix months of 20172019 and 2016,2018, respectively.
Net cash inflowsoutflows from financing activities in the first ninesix months of 20172019 were $77.3$99.1 million, compared with net cash inflowsoutflows of $15.0$41.5 million in the first ninesix months of 2016.2018. Net deposit inflowsoutflows in the first ninesix months of 20172019 were $22.3$38.9 million compared to net deposit inflowsoutflows of $18.3$9.6 million in the first ninesix months of 2016.2018. Other short-term borrowings had net cash inflows related to FHLBC advancesoutflows of $55.0$62.4 million in the first ninesix months of 20172019 and outflows of $15.0$49.3 million in the first ninesix months of 2016.2018. Changes in securities sold under repurchase agreements accounted for $1.1$7.5 million in net inflows and $12.5$18.5 million in net inflows in the first ninesix months of 20172019 and 2016,2018, respectively.
Cash and cash equivalents for the ninesix months ended SeptemberJune 30, 2017,2019, totaled $47.5$58.2 million, as compared to $189.9$65.3 million as of SeptemberJune 30, 2016. The significantly higher balance at2018. In addition to cash and cash equivalents on hand or held as deposits with other financial institutions, we rely on funding sources from customer deposits, cash flows from securities available-for-sale and loans, and a line of credit with the endFHLBC to meet potential liquidity needs. These sources of liquidity are immediately available to satisfy any funding requirements due to depositor or borrower demands through the 2016 period was in anticipationordinary course of our business. Additional sources of funding include a $20 million undrawn line of credit held by the $181.5Company with a third party financial institution, as well as unpledged securities available-for-sale. As of June 30, 2019, our unused borrowing capacity from the FHLBC totaled $317.2 million, paid for the Talmer branch purchase in October 2016.and unpledged securities available-for-sale totaled $153.5 million.
43
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
As part of itsour normal operations, the Company iswe are subject to interest-rate risk on the assets it investswe invest in (primarily loans and securities) and the liabilities it fundswe fund with (primarily customer deposits and borrowed funds), as well as its ability to manage such risk.. Fluctuations in interest rates may result in changes in the fair market values of the Company’sour financial instruments, cash flows, and net interest income. Like most financial institutions, the Company haswe have an exposure to changes in both short-term and long-term interest rates.
In June 2017,December 2018, the Federal Reserve raised short-term interest rates by 0.25%. There is a generalcurrent market expectation that the Federal Reserve will movereduce short-term interest rates higher in Decemberthe latter half of 2017.2019. Generally, Federal Reserve actions have not had a significant impact on long-term rates, although Federal Reserve officials have announced a schedule to endbegan ending the reinvestment inof their securities portfolio startingcash flow in October 2017 which could result in increases in long-term rates. The Company managesrates if federal budget deficits continue to increase. We manage interest rate risk within guidelines established by a policy which limits theare intended to limit our amount of rate exposure. In practice, we seek to manage our interest rate risk exposure is maintained well within those guidelines. our guidelines so that such exposure does not pose a material risk to our future earnings.
The Company manages
We manage various market risks in itsthe normal course of our operations, including credit, liquidity risk, and interest-rate risk. Other types of market risk, such as foreign currency exchange risk and commodity price risk, do not arise in the normal course of the Company’sour business activities and operations. In addition, since the Company doeswe do not hold a trading portfolio, it iswe are not exposed to significant market risk from trading activities. The Company’sOur interest rate risk exposures estimated at September 30, 2017, and December 31, 2016,2018 and June 30, 2019 are outlined in the table below.
The Company'sOur net income can be significantly influenced by a variety of external factors, including: overall economic conditions, policies and actions of regulatory authorities, the amounts of and rates at which assets and liabilities reprice, variances in prepayment of loans and securities other than those that are assumed, early withdrawal of deposits, exercise of call options on borrowings or securities, competition, a general rise or decline in interest rates, changes in the slope of the yield-curve, changes in historical relationships between indices (such as LIBOR and prime), and balance sheet growth or contraction. The Company'sOur ALCO committee seeks to manage interest rate risk under a variety of rate environments by structuring the Company'sour balance sheet and off-balance sheet positions, which includeincludes interest rate swap derivatives as discussed in Note 15 of the financial statements included in this quarterly report. TheWe seek to monitor and manage interest rate risk is monitored and managed within our approved policy guidelines and limits.
The Company utilizesWe utilize simulation analysis to quantify the impact of various rate scenarios on our net interest income. Specific cash flows, repricing characteristics, and embedded options of the assets and liabilities held by the Companyus are incorporated into the simulation model. Earnings at risk isare calculated by comparing the net interest income of a stable interest rate environment to the net interest income of a
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different interest rate environmentsenvironment in order to determine the percentage change. Significant declines in interest rates that occurred during the first half of 2012 have made it impossible to calculate valid interest rate scenarios for rate declines of 2.0% or more, a situation that continues to date. As of September 30, 2017 and December 31, 2016, the Company’s analyses reflected2018, we had modest amounts of earnings gains (in both dollars and percentage) should interest rates rise, and limited earnings reductions should interest rates fall. The changes in income across the various interest rate scenarios as of September 30, 2017June 2019 were similarlargely unchanged compared to those increasesof December 2018. The general balance sheet composition, both assets and liabilities, did not change appreciably during the quarter, which resulted in Federal Home Loan Bank borrowings.little change to our interest rate risk profile. Overall, management considers the current level of interest rate risksrisk to be moderate, but intends to continue closely monitoring changes in that risk in case corrective actions might be needed in the future. The Federal fundsFunds rate and the Bank’sBank's prime rate remained unchanged during the quarter at 1.25%2.50% and 4.25%5.50%, respectively.
The following table summarizes the effect on annual income before income taxes based upon an immediate increase or decrease in interest rates of 0.5% and, 1%, and an increase of 2% assumingand no change in the slope of the yield curve. Because of declines in market interest rates, it was not possible to calculate a decrease of 2% because many of the market interest rates would fall below zero in that scenario.
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| Analysis of Net Interest Income Sensitivity |
| Analysis of Net Interest Income Sensitivity | ||||||||||||||||||||||||||||||||||||||||
(dollars in thousands) |
| Immediate Changes in Rates | ||||||||||||||||||||||||||||||||||||||||||
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| (1.0) | % |
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| (0.5) | % |
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| 0.5 | % |
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| 1.0 | % |
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| 2.0 | % |
| Immediate Changes in Rates | ||||||||||||||||||||||
September 30, 2017 |
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| (1.0) | % |
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June 30, 2019 |
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Dollar change |
| $ | (4,860) |
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| $ | (2,159) |
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| $ | 1,175 |
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| $ | 2,393 |
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| $ | 4,630 |
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| N/A |
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| $ | (5,329) |
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| $ | (2,037) |
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| $ | 1,386 |
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| $ | 2,705 |
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| $ | 5,149 |
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Percent change |
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| 1.6 | % |
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| 3.2 | % |
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| 6.2 | % |
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| (5.5) | % |
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| 1.4 | % |
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| 2.8 | % |
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| 5.4 | % |
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December 31, 2016 |
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December 31, 2018 |
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Dollar change |
| $ | (4,404) |
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| $ | 1,145 |
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| $ | 2,406 |
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| $ | 4,866 |
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Percent change |
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| 1.1 | % |
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| 2.1 | % |
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| 4.2 | % |
The amounts and assumptions used in the simulation model should not be viewed as indicative of expected actual results. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and management strategies. The above results do not take into account any management action to mitigate potential risk.
44
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended, as of SeptemberJune 30, 2017.2019. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of SeptemberJune 30, 2017,2019, the Company’s internal controls were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities and Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified.
There were no changes in the Company’s internal controls over financial reporting during the quarter ended SeptemberJune 30, 2017,2019, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Forward-looking Statements
This document (including information incorporated by reference) contains, and future oral and written statements of the Company and its management may contain, forward-looking statements, within the meaning of such term in the Private Securities Litigation Reform Act of 1995, with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the Company’s management and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “intend,” “estimate,” “may,” “will,” “would,” “could,” “should” or other similar expressions. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events.
The Company’s ability to predict results ordesign of any system of controls and procedures is based in part upon certain assumptions about the actual effectlikelihood of future plans or strategies is inherently uncertain. The factors, which could have a material adverse effect on the operations andevents. There can be no assurance that any design will succeed in achieving its stated goals under all potential future prospectsconditions, regardless of the Company and its subsidiaries, are detailed in the “Risk Factors” section included under Item 1.A. of Part I of the Company’s most recent Annual Report in Form 10-K. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.how remote.
The Company and its subsidiaries, from time to time, are involved in collection suits in the ordinary course of business against its debtors and are defendants 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.
There have been no material changes from the risk factors set forth in Part I, Item 1.A. “Risk Factors,” of the Company’s Form 10-K for the year ended December 31, 2016 and the risk factors set forth under the heading “Risk Factors” in the Company’s Registration Statement 2018.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
N/ANot applicable
None.
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Exhibits:
3.1 | |
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10.1 | |
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10.2 | |
10.3 | |
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31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a). |
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31.2 | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a). |
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32.1 | |
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32.2 | |
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101 | Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets at |
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| * As provided in Rule 406T of Regulation S-T, these interactive data files shall not be deemed “filed” for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934 as amended, or otherwise subject to liability under those sections. |
4657
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| OLD SECOND BANCORP, INC. | ||||||
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| BY: | /s/ James L. Eccher | |||||
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| James L. Eccher | |||||
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| President and Chief Executive Officer | |||||
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| (principal executive officer) | |||||
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| BY: | /s/ Bradley S. Adams | |||||
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| Bradley S. Adams | |||||
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| Executive Vice President and Chief Financial Officer | |||||
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| (principal financial and accounting officer) | |||||
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DATE: |
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4758