What the changes say
- Merger-specific risks were removed, while expanded nationwide retail lending creates new consumer-law and tax compliance exposure.
- Nonperforming loans rose 74.4% to $52.8 million, although OREO fell 93.4% to $1.4 million.
- Higher rates may compress margins, weaken variable-rate borrowers, reduce loan demand, and slow prepayments.
- Real estate lending increased to $2.97 billion but declined to 56.5% of loans from 67.2%.
What changed since the prior 10-K
New
- NewLegal, Accounting, Regulatory and Compliance Risks
Given our expanded retail business we are subject to various state consumer protection laws and tax codes
Expanded nationwide retail and specialty consumer lending exposes the company to varying consumer-protection laws and tax requirements, with potential penalties, litigation, and market restrictions.
Dropped
- DroppedRisks Relating to the Consummation of the Merger with Bancorp Financial and the Combined Company Following the Merger
Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the merger
- DroppedRisks Relating to the Consummation of the Merger with Bancorp Financial and the Combined Company Following the Merger
Combining Old Second and Bancorp Financial may be more difficult, costly or time-consuming than expected and the combined company may fail to realize the anticipated benefits of the merger
- DroppedRisks Relating to the Consummation of the Merger with Bancorp Financial and the Combined Company Following the Merger
Old Second stockholders and Bancorp Financial stockholders will each have reduced ownership and voting interest in and will exercise less influence over management of the combined company
- DroppedRisks Relating to the Consummation of the Merger with Bancorp Financial and the Combined Company Following the Merger
The combined company may be unable to retain Bancorp Financial personnel successfully after the merger is completed, and the combined company’s ability to implement its growth strategy may be harmed if it is unable to attract additional key personnel
- DroppedRisks Relating to the Consummation of the Merger with Bancorp Financial and the Combined Company Following the Merger
The merger agreement may be terminated in accordance with its terms and the merger may not be completed
- DroppedRisks Relating to the Consummation of the Merger with Bancorp Financial and the Combined Company Following the Merger
Failure to complete the merger could negatively impact Old Second and Bancorp Financial
- DroppedRisks Relating to the Consummation of the Merger with Bancorp Financial and the Combined Company Following the Merger
Old Second and Bancorp Financial will be subject to business uncertainties and contractual restrictions while the merger is pending, which could adversely affect each party’s business and operations
- DroppedRisks Relating to the Consummation of the Merger with Bancorp Financial and the Combined Company Following the Merger
A significant portion of Bancorp Financial’s loan portfolio is consumer based and challenging business, economic, or market conditions may adversely affect the combined company’s business, results of operations, and financial condition
- DroppedRisks Relating to the Consummation of the Merger with Bancorp Financial and the Combined Company Following the Merger
Old Second and Bancorp Financial will incur transaction and integration costs in connection with the merger
- DroppedRisks Relating to the Consummation of the Merger with Bancorp Financial and the Combined Company Following the Merger
Bancorp Financial stockholders have appraisal rights in the merger
- DroppedRisks Relating to the Consummation of the Merger with Bancorp Financial and the Combined Company Following the Merger
Various factors, including potential stockholder litigation, could prevent or delay the completion of the merger or otherwise negatively impact Old Second’s and/or Bancorp Financial’s business and operations
Reworded
- 62% rewrittenLegal, Accounting, Regulatory and Compliance Risks
We face risks related to the adoption of future legislation and potential changes in federal regulatory agency leadership, policies, and priorities
The discussion now broadly emphasizes fluid political conditions and possible changes in congressional, presidential, and agency leadership, rather than a Republican-controlled Congress.
- 43% rewrittenRisks Related to Economic Conditions
We are subject to interest rate risk, and a change in interest rates could have a negative effect on our net income
Adds that rates remain elevated and could compress margins, impair variable-rate borrowers, reduce loan demand and originations, and slow prepayments.
- 39% rewrittenRisks Related to Economic Conditions
Nonperforming assets take significant time to resolve, adversely affect our results of operations and financial condition and could result in further losses in the future
Nonperforming loans increased from $30.3 million to $52.8 million, while OREO decreased from $21.6 million to $1.4 million.
- 36% rewrittenLegal, Accounting, Regulatory and Compliance Risks
We could be subject to changes in tax laws, regulations, and interpretations or challenges to our income tax provision
No substantive change; the tax-law, tax-authority challenge, and audit risks remain materially the same.
- 33% rewrittenLegal, Accounting, Regulatory and Compliance Risks
From time to time we are, or may become, involved in suits, legal proceedings, information-gatherings, investigations and proceedings by governmental and self-regulatory agencies that may lead to adverse consequences
Adds management distraction and expense from responding to legal and regulatory matters even without enforcement action.
- 26% rewrittenRisks Related to Economic Conditions
Our loan portfolio is concentrated heavily in commercial and residential real estate loans, including exposure to construction loans, which involve risks specific to real estate values and the real estate markets in general
Real estate lending increased to $2.97 billion but fell from 67.2% to 56.5% of the loan portfolio.
- 23% rewrittenLegal, Accounting, Regulatory and Compliance Risks
Our business needs and future growth may require us to raise additional capital, but that capital may not be available or may be dilutive
Adds evolving regulatory capital expectations, stress testing, capital planning, concentration risk, and market listing rules to capital-raising constraints.
- 23% rewrittenLegal, Accounting, Regulatory and Compliance Risks
We are defendants in a variety of litigation and other actions
Adds that adverse rulings, settlements, or regulatory actions could materially exceed management’s expectations for pending matters.
- 23% rewrittenRisks Related to Economic Conditions
Inflationary pressures present a potential threat to our results of operation and financial condition
- 23% rewrittenLegal, Accounting, Regulatory and Compliance Risks
Our accounting estimates and risk management processes and controls rely on analytical and forecasting techniques and models and assumptions, which may not accurately predict future events
- 22% rewrittenOperational Risks
We depend on outside third parties for the processing and handling of our records and data
- 22% rewrittenLegal, Accounting, Regulatory and Compliance Risks
We may not be able to maintain a strong core deposit base or access other low-cost funding sources
All 49 risk factors
Headings as the filing states them, in filing order.
Risks Related to Economic Conditions
- 01Our business may be adversely affected by economic conditions
- 02Inflationary pressures present a potential threat to our results of operation and financial condition23% rewritten
- 03Our trust and wealth management business may be negatively impacted by changes in economic and market conditions and clients may seek legal remedies for investment performance
- 04Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks
- 05Climate change could have a material adverse impact on us and our customers
- 06If we fail to effectively manage credit risk, our business and financial condition will suffer
- 07Our allowance for credit losses, or ACL, and fair value adjustments with respect to acquired loans, may be insufficient to absorb potential losses in our loan portfolio, which may adversely affect our business, financial condition and results of operations
- 08Our loan portfolio is concentrated heavily in commercial and residential real estate loans, including exposure to construction loans, which involve risks specific to real estate values and the real estate markets in general26% rewritten
- 09Real estate market volatility and future changes in disposition strategies could result in net proceeds that differ significantly from our fair value appraisals of loan collateral and OREO and could negatively impact our operating performance
- 10We are subject to interest rate risk, and a change in interest rates could have a negative effect on our net income43% rewritten
- 11Rapidly rising interest rates will impact the value of our investment securities and the cost of our funding sources, including deposits
- 12Nonperforming assets take significant time to resolve, adversely affect our results of operations and financial condition and could result in further losses in the future39% rewritten
Operational Risks
- 13We are a community bank and our ability to maintain our reputation is critical to the success of our business and the failure to do so may materially adversely affect our performance
- 14We operate in a highly competitive industry and market area and may face severe competitive disadvantages
- 15We depend on our executive officers and other key employees, and our ability to attract additional key personnel, to continue the implementation of our long-term business strategy, and we could be harmed by the unexpected loss of their services
- 16If we are unable to offer our key management personnel long-term incentive compensation, including options, restricted stock, and restricted stock units, as part of their total compensation package, we may have difficulty retaining such personnel, which would adversely affect our operations and financial performance
- 17We depend on outside third parties for the processing and handling of our records and data22% rewritten
- 18Our use of third-party vendors and our other ongoing third-party business relationships are subject to regulatory requirements and attention
- 19We are at risk of increased losses from fraud
- 20Failure to keep pace with technological change could adversely affect our business
- 21Our information systems may experience an interruption or breach in security and cyber-attacks, all of which could have a material adverse effect on our business
- 22The development and use of Artificial Intelligence (“AI”) presents risks and challenges that may adversely impact our business
- 23We may not be able to implement our growth strategy or manage costs effectively, resulting in lower earnings or profitability
- 24Our strategic growth plans contemplate additional organic growth and potential growth through additional mergers and acquisitions, which exposes us to additional risks
- 25Future acquisitions may be delayed, impeded, or prohibited due to regulatory issues
- 26We may be exposed to difficulties in combining the operations of acquired or merged businesses, including First Merchants and Bancorp Financial, into our own operations, which may prevent us from achieving the expected benefits from our merger and acquisition activities
- 27New lines of business, products, product enhancements or services may subject us to additional risks
Industry-Related Risks
- 28Our estimate of fair values for our investments may not be realizable if we were to sell these securities today
- 29Monetary policies and regulations of the Federal Reserve could adversely affect our business, financial condition and results of operations
- 30Our deposit insurance premiums could be substantially higher in the future, which could have a material adverse effect on our future earnings
- 31Adverse developments affecting the financial services industry, such as recent bank failures or concerns involving liquidity, may have a material adverse effect on the Company’s operations
Legal, Accounting, Regulatory and Compliance Risks
- 32We face a risk of noncompliance with the Bank Secrecy Act and other anti-money laundering statutes and regulations and corresponding enforcement proceedings
- 33We may be materially and adversely affected by the highly regulated environment in which we operate
- 34We face risks related to the adoption of future legislation and potential changes in federal regulatory agency leadership, policies, and priorities62% rewritten
- 35Our accounting estimates and risk management processes and controls rely on analytical and forecasting techniques and models and assumptions, which may not accurately predict future events23% rewritten
- 36We are subject to fair lending laws, and failure to comply with these laws could lead to material penalties
- 37We could be subject to changes in tax laws, regulations, and interpretations or challenges to our income tax provision36% rewritten
- 38Given our expanded retail business we are subject to various state consumer protection laws and tax codesNew
- 39We could become subject to claims and litigation pertaining to our fiduciary responsibility
- 40We are defendants in a variety of litigation and other actions23% rewritten
- 41From time to time we are, or may become, involved in suits, legal proceedings, information-gatherings, investigations and proceedings by governmental and self-regulatory agencies that may lead to adverse consequences33% rewritten
- 42Our business needs and future growth may require us to raise additional capital, but that capital may not be available or may be dilutive23% rewritten
- 43We could experience an unexpected inability to obtain needed liquidity
- 44We may not be able to maintain a strong core deposit base or access other low-cost funding sources22% rewritten
Risks Related to an Investment in Our Common Stock
- 45Our future ability to pay dividends is subject to restrictions
- 46The trading volumes in our common stock may not provide adequate liquidity for investors
- 47The trading price of our common stock may be subject to continued significant fluctuations and volatility
- 48Shares of our common stock are subject to dilution, which could cause our common stock price to decline
- 49Certain banking laws and our governing documents may have an anti-takeover effect and may make it difficult and expensive to remove current management
Other Old Second Bancorp 10-Ks
- FY2024 10-K risk factors59 risks
Old Second Bancorp faces heavy exposure to commercial and residential real estate lending concentrations and market volatility. Growth strategies rely significantly on acquisitions and pending mergers, bringing integration and regulatory risks. Interest rate fluctuations and rising funding costs heavily impact net interest margin and profitability.
Filed Mar 06, 2025
About this page
The headings are the filing's own. The one-line readings and the overview are automated and can be wrong: read Item 1A of the 10-K for the exact wording.