Attached files

file filename
EX-31.1 - EX-31.1 - OLD SECOND BANCORP INCa11-9209_1ex31d1.htm
EX-32.2 - EX-32.2 - OLD SECOND BANCORP INCa11-9209_1ex32d2.htm
EX-31.2 - EX-31.2 - OLD SECOND BANCORP INCa11-9209_1ex31d2.htm
EX-32.1 - EX-32.1 - OLD SECOND BANCORP INCa11-9209_1ex32d1.htm

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended March 31, 2011

 

OR

 

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

 

For transition period from                to                

 

Commission File Number 0 -10537

 

OLD SECOND BANCORP, INC.

(Exact name of Registrant as specified in its charter)

 

Delaware

 

36-3143493

(State or other jurisdiction

 

(I.R.S. Employer Identification Number)

of incorporation or organization)

 

 

 

37 South River Street, Aurora, Illinois

 

60507

(Address of principal executive offices)

 

(Zip Code)

 

(630) 892-0202

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x   No o

 

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o No o

 

Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Act.  (check one):

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer x

 

Smaller reporting company o

(do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).  Yes  o  No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: As of May 5, 2011, the Registrant had outstanding 14,034,991 shares of common stock, $1.00 par value per share.

 

 

 




Table of Contents

 

PART I - FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share data)

 

 

 

(Unaudited)

 

 

 

 

 

March 31,

 

December 31,

 

 

 

2011

 

2010

 

Assets

 

 

 

 

 

Cash and due from banks

 

$

35,905

 

$

28,584

 

Interest bearing deposits with financial institutions

 

137,556

 

69,492

 

Federal funds sold

 

988

 

682

 

Cash and cash equivalents

 

174,449

 

98,758

 

Securities available-for-sale

 

142,225

 

148,647

 

Federal Home Loan Bank and Federal Reserve Bank stock

 

14,050

 

13,691

 

Loans held-for-sale

 

3,189

 

10,655

 

Loans

 

1,601,761

 

1,690,129

 

Less: allowance for loan losses

 

73,128

 

76,308

 

Net loans

 

1,528,633

 

1,613,821

 

Premises and equipment, net

 

53,650

 

54,640

 

Other real estate owned

 

85,570

 

75,613

 

Mortgage servicing rights, net

 

4,330

 

3,897

 

Core deposit and other intangible assets, net

 

5,296

 

5,525

 

Bank-owned life insurance (BOLI)

 

51,429

 

50,966

 

Other assets

 

52,585

 

47,708

 

Total assets

 

$

2,115,406

 

$

2,123,921

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Deposits:

 

 

 

 

 

Noninterest bearing demand

 

$

371,940

 

$

330,846

 

Interest bearing:

 

 

 

 

 

Savings, NOW, and money market

 

762,539

 

782,116

 

Time

 

767,870

 

795,566

 

Total deposits

 

1,902,349

 

1,908,528

 

Securities sold under repurchase agreements

 

1,878

 

2,018

 

Other short-term borrowings

 

4,579

 

4,141

 

Junior subordinated debentures

 

58,378

 

58,378

 

Subordinated debt

 

45,000

 

45,000

 

Notes payable and other borrowings

 

500

 

500

 

Other liabilities

 

22,536

 

21,398

 

Total liabilities

 

2,035,220

 

2,039,963

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

Preferred stock, ($1.00 par value; authorized 300,000 shares at March 31, 2011; series B, 5% cumulative perpetual, 73,000 shares issued and outstanding at March 31, 2011 and December 31, 2010, $1,000.00 liquidation value)

 

70,151

 

69,921

 

Common stock, $1.00 par value; authorized 60,000,000 shares; issued 18,627,858 at March 31, 2011 and 18,466,538 at December 31, 2010; outstanding 14,034,991 at March 31, 2011 and 13,911,475 at December 31, 2010

 

18,628

 

18,467

 

Additional paid-in capital

 

65,286

 

65,209

 

Retained earnings

 

24,056

 

28,335

 

Accumulated other comprehensive loss

 

(3,042

)

(3,130

)

Treasury stock, at cost, 4,592,867 shares at March 31, 2011 and 4,555,063 shares at December 31, 2010

 

(94,893

)

(94,844

)

Total stockholders’ equity

 

80,186

 

83,958

 

Total liabilities and stockholders’ equity

 

$

2,115,406

 

$

2,123,921

 

 

See accompanying notes to consolidated financial statements.

 

3



Table of Contents

 

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Operations

(In thousands, except share data)

 

 

 

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2011

 

2010

 

Interest and dividend income

 

 

 

 

 

Loans, including fees

 

$

20,869

 

$

26,632

 

Loans held-for-sale

 

51

 

72

 

Securities:

 

 

 

 

 

Taxable

 

878

 

1,238

 

Tax-exempt

 

142

 

745

 

Dividends from Federal Reserve Bank and Federal Home Loan Bank stock

 

69

 

56

 

Interest bearing deposits with financial institutions

 

70

 

16

 

Total interest and dividend income

 

22,079

 

28,759

 

Interest expense

 

 

 

 

 

Savings, NOW, and money market deposits

 

576

 

1,385

 

Time deposits

 

3,993

 

5,097

 

Securities sold under repurchase agreements

 

 

10

 

Other short-term borrowings

 

 

18

 

Junior subordinated debentures

 

1,113

 

1,072

 

Subordinated debt

 

203

 

195

 

Notes payable and other borrowings

 

4

 

1

 

Total interest expense

 

5,889

 

7,778

 

Net interest and dividend income

 

16,190

 

20,981

 

Provision for loan losses

 

4,000

 

19,220

 

Net interest and dividend income after provision for loan losses

 

12,190

 

1,761

 

Noninterest income

 

 

 

 

 

Trust income

 

1,784

 

1,657

 

Service charges on deposits

 

1,817

 

2,018

 

Secondary mortgage fees

 

227

 

223

 

Mortgage servicing income

 

370

 

163

 

Net gain on sales of mortgage loans

 

1,236

 

1,157

 

Securities gains (losses), net

 

139

 

(2

)

Increase in cash surrender value of bank-owned life insurance

 

463

 

429

 

Debit card interchange income

 

700

 

663

 

Lease revenue from other real estate owned

 

520

 

518

 

Net gain on sale of other real estate owned

 

234

 

151

 

Other income

 

1,798

 

1,290

 

Total noninterest income

 

9,288

 

8,267

 

Noninterest expense

 

 

 

 

 

Salaries and employee benefits

 

8,929

 

9,025

 

Occupancy expense, net

 

1,345

 

1,525

 

Furniture and equipment expense

 

1,460

 

1,639

 

FDIC insurance

 

1,739

 

1,428

 

General bank insurance

 

825

 

140

 

Amortization of core deposit and other intangible assets

 

229

 

282

 

Advertising expense

 

233

 

256

 

Debit card interchange expense

 

373

 

310

 

Legal fees

 

943

 

559

 

Other real estate expense

 

5,314

 

6,428

 

Other expense

 

3,208

 

3,157

 

Total noninterest expense

 

24,598

 

24,749

 

Loss before income taxes

 

(3,120

)

(14,721

)

Benefit for income taxes

 

 

(6,167

)

Net loss

 

(3,120

)

(8,554

)

Preferred stock dividends and accretion of discount

 

1,159

 

1,128

 

Net loss available to common shareholders

 

$

(4,279

)

$

(9,682

)

 

 

 

 

 

 

Share and per share information:

 

 

 

 

 

Ending number of shares

 

14,034,991

 

13,939,833

 

Average number of shares

 

13,973,870

 

13,916,650

 

Diluted average number of shares

 

14,213,701

 

14,197,223

 

Basic loss per share

 

$

(0.30

)

$

(0.69

)

Diluted loss per share

 

(0.30

)

(0.69

)

Dividends paid per share

 

 

0.01

 

 

See accompanying notes to consolidated financial statements.

 

4



Table of Contents

 

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

 

 

 

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2011

 

2010

 

Cash flows from operating activities

 

 

 

 

 

Net loss

 

$

(3,120

)

$

(8,554

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

Depreciation

 

1,083

 

1,177

 

Amortization of leasehold improvement

 

1

 

127

 

Change in market value on mortgage servicing rights

 

(62

)

 

Provision for loan losses

 

4,000

 

19,220

 

Provision for deferred tax expense

 

 

(2,232

)

Originations of loans held-for-sale

 

(48,517

)

(58,731

)

Proceeds from sales of loans held-for-sale

 

56,889

 

62,235

 

Net gain on sales of mortgage loans

 

(1,236

)

(1,157

)

Change in current income taxes payable

 

 

(249

)

Increase in cash surrender value of bank-owned life insurance

 

(463

)

(429

)

Change in accrued interest receivable and other assets

 

(5,157

)

(77

)

Change in accrued interest payable and other liabilities

 

513

 

619

 

Net premium amortization on securities

 

65

 

141

 

Securities (gains) losses, net

 

(139

)

2

 

Amortization of core deposit and other intangible assets

 

229

 

282

 

Stock based compensation

 

238

 

6

 

Net gain on sale of other real estate owned

 

(234

)

(151

)

Write-down of other real estate owned

 

2,393

 

5,091

 

Net cash provided by operating activities

 

6,483

 

17,320

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Proceeds from maturities and pre-refunds including pay down of securities available-for-sale

 

4,764

 

21,143

 

Proceeds from sales of securities available-for-sale

 

3,755

 

2,000

 

Purchases of securities available-for-sale

 

(2,000

)

(5,000

)

Purchases of Federal Reserve Bank and Federal Home Loan Bank stock

 

(359

)

 

Net change in loans

 

61,737

 

68,940

 

Investment in other real estate owned

 

(2,022

)

(10

)

Proceeds from sales of other real estate owned

 

9,357

 

4,253

 

Net purchases of premises and equipment

 

(94

)

(192

)

Net cash provided by investing activities

 

75,138

 

91,134

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Net change in deposits

 

(6,179

)

(41,815

)

Net change in securities sold under repurchase agreements

 

(140

)

2,945

 

Net change in other short-term borrowings

 

438

 

(50,608

)

Dividends paid

 

 

(1,052

)

Purchase of treasury stock

 

(49

)

(40

)

Net cash used in financing activities

 

(5,930

)

(90,570

)

Net change in cash and cash equivalents

 

75,691

 

17,884

 

Cash and cash equivalents at beginning of period

 

98,758

 

79,796

 

Cash and cash equivalents at end of period

 

$

174,449

 

$

97,680

 

 

5


 


Table of Contents

 

(In thousands)

 

 

 

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2011

 

2010

 

Supplemental cash flow information

 

 

 

 

 

Income taxes received

 

$

 

$

(3,460

)

Interest paid for deposits

 

4,893

 

6,838

 

Interest paid for borrowings

 

1,320

 

1,319

 

Non-cash transfer of loans to other real estate

 

19,451

 

18,838

 

Change in dividends declared not paid

 

929

 

(454

)

Accretion on preferred stock warrants

 

230

 

215

 

 

See accompanying notes to consolidated financial statements.

 

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Changes in

Stockholders’ Equity

(In thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

 

 

Total

 

 

 

Common

 

Preferred

 

Paid-In

 

Retained

 

Comprehensive

 

Treasury

 

Stockholders’

 

 

 

Stock

 

Stock

 

Capital

 

Earnings

 

Loss

 

Stock

 

Equity

 

Balance, December 31, 2009

 

$

18,373

 

$

69,039

 

$

64,431

 

$

141,774

 

$

(1,605

)

$

(94,804

)

$

197,208

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

(8,554

)

 

 

 

 

(8,554

)

Change in net unrealized loss on securities available-for-sale, net of $191 tax effect

 

 

 

 

 

 

 

 

 

(311

)

 

 

(311

)

Total comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,865

)

Dividends Declared, $.01 per share

 

 

 

 

 

 

 

(141

)

 

 

 

 

(141

)

Change in restricted stock

 

122

 

 

 

(122

)

 

 

 

 

 

 

 

Tax effect from vesting of restricted stock

 

 

 

 

 

(225

)

 

 

 

 

 

 

(225

)

Stock based compensation

 

 

 

 

 

231

 

 

 

 

 

 

 

231

 

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

(40

)

(40

)

Preferred dividends declared (5% per preferred share)

 

 

 

215

 

 

 

(672

)

 

 

 

 

(457

)

Adoption of mark to market of mortgage servicing rights

 

 

 

 

 

 

 

29

 

 

 

 

 

29

 

Balance, March 31, 2010

 

$

18,495

 

$

69,254

 

$

64,315

 

$

132,436

 

$

(1,916

)

$

(94,844

)

$

187,740

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2010

 

$

18,467

 

$

69,921

 

$

65,209

 

$

28,335

 

$

(3,130

)

$

(94,844

)

$

 83,958

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

(3,120

)

 

 

 

 

(3,120

)

Change in net unrealized loss on securities available-for-sale, net of $65 tax effect

 

 

 

 

 

 

 

 

 

88

 

 

 

88

 

Total comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,032

)

Change in restricted stock

 

161

 

 

 

(161

)

 

 

 

 

 

 

 

Stock based compensation

 

 

 

 

 

238

 

 

 

 

 

 

 

238

 

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

(49

)

(49

)

Preferred dividends declared (5% per preferred share)

 

 

 

230

 

 

 

(1,159

)

 

 

 

 

(929

)

Balance, March 31, 2011

 

$

18,628

 

$

70,151

 

$

65,286

 

$

24,056

 

$

(3,042

)

$

(94,893

)

$

80,186

 

 

6



Table of Contents

 

Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Table 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 financial statements are consistent with those used in the preparation of the annual financial information.  The interim financial statements reflect all normal and recurring adjustments, which are necessary, in the opinion of management, for a fair statement of results for the interim period presented.  Results for the period ended March 31, 2011, are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.  These interim financial statements 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, 2010.  Unless otherwise indicated, amounts in the tables contained in the notes 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 accounting principles generally accepted in the United States 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 financial statements and accompanying notes.  These estimates, assumptions, and judgments are based on information available as of the date of the financial statements.  Future changes in information may affect these estimates, assumptions, and judgments, which, in turn, may affect amounts reported in the financial statements.

 

All significant 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, 2010.  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 financial statements and how those values are determined.

 

In January 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-01 “Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20 (Topic 310)”.  The amendments in this Update temporarily delay the effective date of the disclosures about troubled debt restructurings in Update 2010-20 for public entities. The delay is intended to allow the Board time to complete its deliberations on what constitutes a troubled debt restructuring.  ASU 2011-01 was effective upon issuance.  The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated. Currently, that guidance is anticipated to be effective for interim and annual periods beginning on or after June 15, 2011.  Management does not expect this standard to have a material impact on the Company’s financial statements.

 

In April 2011, the FASB issued ASU No. 2011-02, Receivables (Topic 310): “A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring.”  Because of inconsistencies in practice and the increased volume of debt modifications, ASU No. 2011-02, amends FASB Accounting Standard Codification (“ASC”) 310-40, “Receivables - Troubled Debt Restructurings by Creditors”, to provide additional clarifying guidance in determining whether a creditor has granted a concession and whether a debtor is experiencing financial difficulties for purposes of determining whether a restructuring qualifies as a troubled debt restructuring.  The effective date is for the first interim or annual period beginning on or after June 15, 2011, to be applied retrospectively to restructurings taking place on or after the beginning of the fiscal year of adoption.  The impact of ASU 2011-02 on the Company’s disclosures will be reflected in Note 3 - Loans.  Management does not expect this standard to have a material impact on the Company’s financial statements.

 

7



Table of Contents

 

Note 2 — Securities

 

Securities available-for-sale are summarized as follows:

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

 

Cost

 

Gains

 

Losses

 

Value

 

March 31, 2011:

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

$

1,501

 

$

15

 

$

 

$

1,516

 

U.S. government agencies

 

38,054

 

103

 

(658

)

37,499

 

U.S. government agency mortgage-backed

 

72,497

 

1,062

 

(280

)

73,279

 

States and political subdivisions

 

17,431

 

823

 

(127

)

18,127

 

Collateralized debt obligations

 

17,864

 

 

(6,112

)

11,752

 

Equity securities

 

49

 

5

 

(2

)

52

 

 

 

$

147,396

 

$

2,008

 

$

(7,179

)

$

142,225

 

December 31, 2010:

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

$

1,501

 

$

20

 

$

 

$

1,521

 

U.S. government agencies

 

37,810

 

117

 

(501

)

37,426

 

U.S. government agency mortgage-backed

 

75,257

 

1,475

 

(1

)

76,731

 

States and political subdivisions

 

17,538

 

579

 

(263

)

17,854

 

Collateralized mortgage obligations

 

3,817

 

179

 

 

3,996

 

Collateralized debt obligations

 

17,869

 

 

(6,796

)

11,073

 

Equity securities

 

49

 

4

 

(7

)

46

 

 

 

$

153,841

 

$

2,374

 

$

(7,568

)

$

148,647

 

 

The fair value, amortized cost and weighted average yield of debt securities at March 31, 2011, by contractual maturity, were as follows. Securities not due at a single maturity date, primarily mortgage-backed securities, collateralized debt obligations and equity securities are shown separately:

 

 

 

 

 

Weighted

 

 

 

 

 

Amortized

 

Average

 

Fair

 

 

 

Cost

 

Yield

 

Value

 

Due in one year or less

 

$

4,337

 

3.03

%

$

4,363

 

Due after one year through five years

 

4,170

 

2.67

%

4,327

 

Due after five years through ten years

 

41,624

 

3.30

%

41,290

 

Due after ten years

 

6,855

 

4.73

%

7,162

 

 

 

$

56,986

 

3.41

%

$

57,142

 

Mortgage-backed securities

 

72,497

 

3.30

%

73,279

 

Collateralized debt obligations

 

17,864

 

1.65

%

11,752

 

Equity securities

 

49

 

0.16

%

52

 

 

 

$

147,396

 

3.14

%

$

142,225

 

 

The fair value, amortized cost and weighted average yield of debt securities at December 31, 2010 by contractual maturity, were as follows.  Securities not due at a single maturity date, primarily mortgage-backed securities, collateralized mortgage obligations, collateralized debt obligations and equity securities are shown separately:

 

8



Table of Contents

 

 

 

 

 

Weighted

 

 

 

 

 

Amortized

 

Average

 

Fair

 

 

 

Cost

 

Yield

 

Value

 

Due in one year or less

 

$

6,103

 

2.34

%

$

6,128

 

Due after one year through five years

 

4,240

 

2.69

%

4,421

 

Due after five years through ten years

 

39,627

 

3.19

%

39,419

 

Due after ten years

 

6,879

 

4.73

%

6,833

 

 

 

$

56,849

 

3.25

%

$

56,801

 

Mortgage-backed and collateralized mortgage obligations

 

79,074

 

3.53

%

80,727

 

Collateralized debt obligations

 

17,869

 

1.62

%

11,073

 

Equity securities

 

49

 

0.16

%

46

 

 

 

$

153,841

 

3.20

%

$

148,647

 

 

At March 31, 2011, and December 31, 2010, there were no securities of any one issuer with a fair market value, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders’ equity.

 

Securities with unrealized losses at March 31, 2011, and December 31, 2010, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

 

 

 

Less than 12 months

 

Greater than 12 months

 

 

 

 

 

in an unrealized loss position

 

in an unrealized loss position

 

Total

 

 

 

Number of

 

Unrealized

 

Fair

 

Number of

 

Unrealized

 

Fair

 

Number of

 

Unrealized

 

Fair

 

March 31, 2011

 

Securities

 

Losses

 

Value

 

Securities

 

Losses

 

Value

 

Securities

 

Losses

 

Value

 

U.S. government agencies

 

5

 

$

658

 

$

24,408

 

 

$

 

$

 

5

 

$

658

 

$

24,408

 

U.S. government agency mortgage-backed

 

6

 

280

 

33,522

 

 

 

 

6

 

280

 

33,522

 

States and political subdivisions

 

2

 

72

 

1,078

 

1

 

55

 

559

 

3

 

127

 

1,637

 

Collateralized debt obligations

 

 

 

 

2

 

6,112

 

11,752

 

2

 

6,112

 

11,752

 

Equity securities

 

1

 

2

 

45

 

 

 

 

1

 

2

 

45

 

 

 

14

 

$

1,012

 

$

59,053

 

3

 

$

6,167

 

$

12,311

 

17

 

$

7,179

 

$

71,364

 

 

 

 

Less than 12 months

 

Greater than 12 months

 

 

 

 

 

in an unrealized loss position

 

in an unrealized loss position

 

Total

 

 

 

Number of

 

Unrealized

 

Fair

 

Number of

 

Unrealized

 

Fair

 

Number of

 

Unrealized

 

Fair

 

December 31, 2010

 

Securities

 

Losses

 

Value

 

Securities

 

Losses

 

Value

 

Securities

 

Losses

 

Value

 

U.S. government agencies

 

6

 

$

501

 

$

26,309

 

 

$

 

$

 

6

 

$

501

 

$

26,309

 

U.S. government agency mortgage-backed

 

1

 

1

 

462

 

 

 

 

1

 

1

 

462

 

States and political subdivisions

 

3

 

182

 

3,323

 

1

 

81

 

533

 

4

 

263

 

3,856

 

Collateralized debt obligations

 

 

 

 

2

 

6,796

 

11,073

 

2

 

6,796

 

11,073

 

Equity securities

 

 

 

 

1

 

7

 

41

 

1

 

7

 

41

 

 

 

10

 

$

684

 

$

30,094

 

4

 

$

6,884

 

$

11,647

 

14

 

$

7,568

 

$

41,741

 

 

The total number of security positions in the investment portfolio in an unrealized loss position at March 31, 2011, and December 31, 2010, was seventeen and fourteen, respectively.  Recognition of other-than-temporary impairment was not necessary in the quarter ended March 31, 2011, or the year ended December 31, 2010.  The changes in fair values related primarily to interest rate fluctuations and other market factors and were generally not related to credit quality deterioration, although the amount of deferrals and defaults in the pooled collateralized debt obligations increased in the period from December 31, 2010 to March 31, 2011.  An increase in interest rates will generally cause a decrease in the fair value of individual securities while a decrease in interest rates typically results in an increase in fair value.  In addition to the impact of rate changes upon pricing, uncertainty in the financial markets in the periods presented has resulted in reduced liquidity for certain investments, particularly the collateralized debt obligations (“CDO”), which also impacted market pricing for the periods presented.  In the case of the CDO fair value measurement, management included a risk premium adjustment as of March 31, 2011, to reflect an estimated amount that a market participant would demand because of uncertainty in cash flows.  Management made that adjustment because the level of market activity for the CDO securities has continued to decrease and information on orderly transaction sales were not generally available.  Accordingly, management designated these securities as level 3 securities at June 30, 2009 as described in

 

9



Table of Contents

 

Note 16 of this quarterly report and maintained that designation as of March 31, 2011.  Management did not have the intent to sell the above securities and it is more likely than not the Company will not sell the securities before recovery of its cost basis.

 

Below is additional information as it relates to the collateralized debt obligation, Trapeza 2007-13A, which is secured by a pool of trust preferred securities issued by trusts sponsored by multiple financial institutions.  This collateralized debt obligation was rated AAA at the time of purchase by the Company.

 

 

 

 

 

 

 

Gross

 

S&P

 

Number of

 

Issuance

 

Issuance

 

 

 

Amortized

 

Fair

 

Unrealized

 

Credit

 

Banks in

 

Deferrals & Defaults

 

Excess Subordination

 

 

 

Cost

 

Value

 

Loss

 

Rating (1)

 

Issuance

 

Amount

 

Collateral %

 

Amount

 

Collateral %

 

March 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A1

 

$

9,213

 

$

5,952

 

$

(3,261

)

CCC+

 

63

 

$

218,750

 

29.2

%

$

172,173

 

23.0

%

Class A2A

 

8,651

 

5,800

 

(2,851

)

CCC-

 

63

 

218,750

 

29.2

%

75,173

 

10.0

%

 

 

$

17,864

 

$

11,752

 

$

(6,112

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A1

 

$

9,241

 

$

5,916

 

$

(3,325

)

CCC+

 

63

 

$

213,750

 

28.5

%

$

175,928

 

23.5

%

Class A2A

 

8,628

 

5,157

 

(3,471

)

CCC-

 

63

 

213,750

 

28.5

%

78,928

 

10.5

%

 

 

$

17,869

 

$

11,073

 

$

(6,796

)

 

 

 

 

 

 

 

 

 

 

 

 

 


(1) Moody’s credit rating for class A1 and A2A were Baa2 and Ba2, respectively, as of March 31, 2011, and December 31, 2010.  The Fitch ratings for class A1 and A2A were BBB and B, respectively, as of March 31, 2011, and December 31, 2010

 

The model assumptions used to estimate fair value in the table above included estimated collateral default rates of 3.2%, 0.9%, and 0.7% in years 1, 2, and 3, respectively.  Additionally, the estimated discount rates were Libor plus 5.25% for the A1 tranche and Libor plus 6.75% for the A2A tranche.

 

In addition to other equity securities, which are recorded at estimated fair value, the Bank owns the stock of the Federal Reserve Bank of Chicago (“FRB”) and the Federal Home Loan Bank of Chicago (“FHLBC”).  Both of these entities require the Bank to invest in their non-marketable stock as a condition of membership.  The value of the stock in each of those entities was recorded at cost in the amounts of $4.8 million and $9.3 million at March 31, 2011, and $4.4 million and $9.3 million at December 31, 2010, respectively.  The FHLBC is a governmental sponsored entity that has been under a regulatory order for a prolonged period that generally requires approval prior to redeeming or paying dividends on their common stock.  The FHLBC declared and paid a dividend in the first quarter of 2011.  The Bank continues to periodically utilize the various products and services of the FHLBC and management considers this stock to be a long-term investment.  FHLBC members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts.  FHLBC stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value.

 

10


 


Table of Contents

 

Note 3 — Loans

 

Major classifications of loans were as follows:

 

 

 

March 31, 2011

 

December 31, 2010

 

Commercial (1)

 

$

164,594

 

$

173,884

 

Real estate - commercial

 

794,251

 

821,101

 

Real estate - construction

 

104,630

 

129,601

 

Real estate - residential

 

531,311

 

557,635

 

Consumer

 

4,753

 

5,104

 

Overdraft

 

372

 

739

 

Lease financing receivables

 

2,397

 

2,774

 

 

 

$

1,602,308

 

$

1,690,838

 

Net deferred loan fees and costs

 

(547

)

(709

)

 

 

$

1,601,761

 

$

1,690,129

 

 


(1)                    Includes $24.9 million and $24.3 million as of March 31, 2011 and December 31, 2011, respectively in loans with different credit quality indicators.

 

It is the policy of the Company to review each prospective credit in order to determine an adequate level of security or collateral to obtain prior to making a loan.  The type of collateral, when required, will vary from liquid assets to real estate.  The Company’s access to collateral, in the event of borrower default, is assured through adherence to state lending laws and the Company’s lending standards and credit monitoring procedures.  The Bank generally makes loans 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 89.3% and 89.2% of the portfolio at March 31, 2011, and December 31, 2010, respectively.  The Company is committed to overseeing and managing its loan portfolio to reduce its real estate credit concentrations in accordance with the requirements of the Memorandum of Understanding (“MOU”) between the Bank and the Office of the Comptroller of the Currency (the “OCC”).  Consistent with that commitment, management has updated its asset diversification plan and policy and anticipates that the percentage of real estate lending to the overall portfolio will decrease in the future as a result of that process.  Regulatory matters are discussed in more detail in Note 15 of the consolidated financial statements included in this report.

 

11



Table of Contents

 

Aged analysis of past due loans by class of loans were as follows:

 

March 31, 2011

 

 

 

30-59 Days
Past Due

 

60-89 Days
Past Due

 

90 Days or
Greater Past
Due

 

Total Past
Due

 

Current

 

Nonaccrual

 

Total
Financing
Receivables

 

Recorded
Investment
90 days or
Greater Past
Due and
Accruing

 

Commercial

 

$

429

 

$

 

$

75

 

$

504

 

$

138,375

 

$

3,019

 

$

141,898

 

$

75

 

Real estate - commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner occupied general purpose

 

206

 

20

 

 

226

 

152,697

 

15,132

 

168,055

 

 

Owner occupied special purpose

 

1,505

 

117

 

 

1,622

 

186,818

 

24,348

 

212,788

 

 

Non-owner occupied general purpose

 

 

 

 

 

156,668

 

17,490

 

174,158

 

 

Non-owner occupied special purpose

 

 

 

 

 

103,958

 

9,608

 

113,566

 

 

Strip malls

 

 

 

 

 

61,488

 

22,664

 

84,152

 

 

Farm

 

 

 

 

 

40,338

 

1,194

 

41,532

 

 

Real estate - construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Homebuilder

 

 

 

 

 

10,468

 

24,044

 

34,512

 

 

Land

 

 

 

267

 

267

 

11,727

 

10,176

 

22,170

 

267

 

Commercial speculative

 

 

 

 

 

12,123

 

14,179

 

26,302

 

 

All other

 

49

 

 

 

49

 

16,355

 

5,242

 

21,646

 

 

Real estate - residential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investor

 

2,243

 

 

 

2,243

 

193,470

 

14,726

 

210,439

 

 

Owner occupied

 

6,424

 

 

 

6,424

 

130,876

 

15,041

 

152,341

 

 

Revolving and junior liens

 

893

 

161

 

 

1,054

 

165,588

 

1,889

 

168,531

 

 

Consumer

 

24

 

115

 

 

139

 

4,455

 

5

 

4,599

 

 

All other

 

 

 

 

 

25,072

 

 

25,072

 

 

 

 

$

11,773

 

$

413

 

$

342

 

$

12,528

 

$

1,410,476

 

$

178,757

 

$

1,601,761

 

$

342

 

 

December 31, 2010

 

 

 

30-59 Days
Past Due

 

60-89 Days
Past Due

 

90 Days or
Greater Past
Due

 

Total Past
Due

 

Current

 

Nonaccrual

 

Total
Financing
Receivables

 

Recorded
Investment
90 days or
Greater Past
Due and
Accruing

 

Commercial

 

$

375

 

$

391

 

$

216

 

$

982

 

$

147,676

 

$

3,668

 

$

152,326

 

$

216

 

Real estate - commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner occupied general purpose

 

1,156

 

2

 

 

1,158

 

158,189

 

18,610

 

177,957

 

 

Owner occupied special purpose

 

897

 

 

328

 

1,225

 

181,845

 

25,987

 

209,057

 

328

 

Non-owner occupied general purpose

 

884

 

499

 

 

1,383

 

148,406

 

25,623

 

175,412

 

 

Non-owner occupied special purpose

 

 

 

 

 

104,791

 

11,612

 

116,403

 

 

Strip malls

 

 

 

 

 

74,564

 

24,374

 

98,938

 

 

Farm

 

148

 

999

 

 

1,147

 

41,446

 

741

 

43,334

 

 

Real estate - construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Homebuilder

 

217

 

 

 

217

 

14,676

 

22,001

 

36,894

 

 

Land

 

 

586

 

 

586

 

12,324

 

20,617

 

33,527

 

 

Commercial speculative

 

 

 

 

 

21,603

 

14,881

 

36,484

 

 

All other

 

65

 

73

 

 

138

 

16,545

 

6,013

 

22,696

 

 

Real estate - residential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investor

 

2,221

 

 

469

 

2,690

 

200,011

 

21,223

 

223,924

 

469

 

Owner occupied

 

4,450

 

656

 

 

5,106

 

139,457

 

15,309

 

159,872

 

 

Revolving and junior liens

 

284

 

6

 

 

290

 

171,990

 

1,559

 

173,839

 

 

Consumer

 

9

 

2

 

 

11

 

4,931

 

7

 

4,949

 

 

All other

 

 

 

 

 

24,517

 

 

24,517

 

 

 

 

$

10,706

 

$

3,214

 

$

1,013

 

$

14,933

 

$

1,462,971

 

$

212,225

 

$

1,690,129

 

$

1,013

 

 

Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

 

Credit Quality Indicators:

 

The Company categorizes loans into credit risk categories based on current financial information, overall debt service coverage, comparisons against industry averages, historical payment experience, and current economic trends, among other factors.  The Company examines each loan and loan relationship with an outstanding balance or commitment greater than $50,000, excluding homogeneous loans such as HELOC’s 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:

 

12



Table of Contents

 

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 or of the institution’s credit position 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 institution will sustain some loss if the deficiencies are not corrected.

 

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.

 

13



Table of Contents

 

Credit Quality Indicators by class of loans were as follows:

 

March 31, 2011

 

 

 

Pass

 

Special
Mention

 

Substandard (1)

 

Doubtfull

 

Total

 

Commercial

 

$

120,798

 

$

3,616

 

$

17,484

 

$

 

$

141,898

 

Real estate - commercial

 

 

 

 

 

 

 

 

 

 

 

Owner occupied general purpose

 

121,800

 

8,099

 

38,156

 

 

168,055

 

Owner occupied special purpose

 

146,161

 

12,640

 

53,987

 

 

212,788

 

Non-owner occupied general purpose

 

122,276

 

13,496

 

38,386

 

 

174,158

 

Non-owner occupied special purpose

 

90,976

 

 

22,590

 

 

113,566

 

Strip malls

 

35,186

 

11,654

 

37,313

 

 

84,153

 

Farm

 

28,752

 

 

12,780

 

 

41,532

 

Real estate - construction

 

 

 

 

 

 

 

 

 

 

 

Homebuilder

 

7,361

 

2,204

 

24,947

 

 

34,512

 

Land

 

7,804

 

3,036

 

11,330

 

 

22,170

 

Commercial speculative

 

6,578

 

567

 

19,157

 

 

26,302

 

All other

 

14,334

 

307

 

7,004

 

 

21,645

 

Real estate - residential

 

 

 

 

 

 

 

 

 

 

 

Investor

 

153,904

 

17,793

 

38,743

 

 

210,440

 

Owner occupied

 

127,716

 

432

 

24,193

 

 

152,341

 

Revolving and junior leins

 

162,803

 

947

 

4,781

 

 

168,531

 

Consumer

 

4,583

 

 

15

 

 

4,598

 

All other

 

24,937

 

135

 

 

 

25,072

 

Total

 

$

1,175,969

 

$

74,926

 

$

350,866

 

$

 

$

1,601,761

 

 

December 31, 2010

 

 

 

Pass

 

Special
Mention

 

Substandard (1)

 

Doubtfull

 

Total

 

Commercial

 

$

130,564

 

$

4,122

 

$

17,640

 

$