EX-99.1 2 osbc-20190424ex99199657b.htm EX-99.1 Ex_99-1

 

 

 

 

Picture 1

 

 

 

 

 

 

 

 

 

(NASDAQ:OSBC)

Exhibit 99.1

 

 

 

Contact:

Bradley S. Adams

For Immediate Release

 

Chief Financial Officer

April 24, 2019

 

(630) 906-5484

 

 

 

Old Second Reports First Quarter 2019 Net Income of $8.5 million

AURORA, IL, April 24, 2019  – Old Second Bancorp, Inc. (the “Company” or “Old Second”) (NASDAQ: OSBC), the parent company of Old Second National Bank (the “Bank”), today announced financial results for the first quarter of 2019.  The Company’s net income was $8.5 million, or $0.28 per diluted share, for the first quarter of 2019, compared to net income of $8.6 million, or $0.28 per diluted share, in the fourth quarter of 2018, and net income of $9.5 million, or $0.31 per diluted share, for the first quarter of 2018.

Operating Results

·

First quarter 2019 net income was $8.5 million, reflecting a decrease in earnings of $152,000 from the fourth quarter of 2018, and a decrease in earnings of $1.0 million from the first quarter of 2018.    First quarter 2019 financial results were negatively impacted by an $819,000 mark to market loss on mortgage servicing rights, of which $642,000 related solely to movements in interest rates, compared to a $923,000 loss in the fourth quarter of 2018, of which $683,000 related to movements in interest rates.

·

Adjusted net income, a non-GAAP financial measure, was $8.5 million, or $0.28 per diluted share, for the first quarter of 2019, compared to adjusted net income of $8.7 million, or $0.29 per diluted share, for the fourth quarter of 2018, and adjusted net income of $8.1 million, or $0.27 per diluted share, for the first quarter of 2018.  

o

First quarter 2018 adjusted net income excluded a $1.0 million bank owned life insurance (“BOLI”) death claim, $596,000 of insurance proceeds, after tax, recovered on a previously charged off credit that was taken as a release to the provision for loan and lease losses, and $203,000 in costs, after tax, related to our acquisition of Greater Chicago Financial Corp. and its wholly owned subsidiary, ABC Bank, which was completed on April 20, 2018.

See the discussion entitled “Non-GAAP Presentations” below and the table on page 15 that provides a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

·

Net interest and dividend income was $24.0 million for the first quarter of 2019, a decrease of $304,000, or 1.2%, from $24.3 million for the fourth quarter of 2018, and an increase of $4.4 million, or 22.5%, from $19.6 million for first quarter of 2018.  Net interest and dividend income in the first quarter of 2019 was favorably impacted by loan growth over the past year, as well as the December 2018 increase in interest rates and $379,000 of purchase accounting accretion, compared to $662,000 of purchase accounting accretion in the fourth quarter of 2018, and $148,000 in the first quarter of 2018.   Purchase accounting accretion income realized before the second quarter of 2018 was due to our purchase of the Chicago branch of Talmer Bank and Trust in late 2016.  Beginning in the second quarter of 2018, purchase accounting accretion income also included the impact of our acquisition of ABC Bank on April 20, 2018.

1

 

 

·

   Noninterest income was $6.5 million for the first quarter of 2019, compared to $6.5 million for the fourth quarter of 2018 and $8.5 million for the first quarter of 2018.  Total noninterest income remained steady in the first quarter of 2019, compared to the fourth quarter of 2018, as reductions in trust income, service charges on deposit accounts and debit card interchange income in the first quarter of 2019 were largely offset by growth in total residential mortgage banking revenue and an increase in the cash surrender value of BOLI.  The decrease in noninterest income for the first quarter of 2019, compared to the first quarter of 2018, was driven primarily by the death benefit received on a BOLI claim in the first quarter of 2018, as well as a decline in the mortgage servicing rights carrying value of $819,000 in the first quarter of 2019, compared to a $305,000 increase in the mortgage servicing rights carrying value in the first quarter of 2019.  

·

Noninterest expense was $19.2 million for the first quarter of 2019, reflecting an increase of $417,000, or 2.2%, compared to $18.8 million for the fourth quarter of 2018, and an increase of $1.8 million, or 10.6%, from $17.4 million for the first quarter of 2018.  The increase in noninterest expense in the first quarter of 2019, compared to the fourth quarter of 2018, was primarily attributable to growth in salaries and employee benefits expense primarily due to higher payroll taxes and deferred compensation expense.  The increase in noninterest expense in the first quarter of 2019, compared to the first quarter of 2018, is attributable to the ABC Bank acquisition in April 2018, which resulted in an increase in salaries and employee benefits expense, occupancy, furniture and equipment expenses, and amortization of core deposit intangibles. 

·

The provision for income taxes totaled $2.4 million for the first quarter of 2019, compared to $2.9 million for the fourth quarter of 2018 and $2.0 million for the first quarter of 2018.  The linked quarter reduction of $539,000 was primarily due to a decrease of $691,000 in pretax income in the first quarter of 2019, compared to the fourth quarter of 2018, as well as income tax credits in the first quarter of 2019 stemming from vested stock awards.  The $406,000 increase in provision for income taxes for the year over year quarter was primarily due to the $1.0 million nontaxable death benefit realized on BOLI in the first quarter of 2018.

·

On April 16, 2019, the Company’s Board of Directors declared a cash dividend of $0.01 per share payable on May 6, 2019, to stockholders of record as of April 26, 2019.

Capital Ratios

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

March 31, 

 

Well-Capitalized  1

 

2019

 

2018

 

2018

The Company

 

 

 

 

 

 

 

 

 

 

 

Common equity tier 1 capital ratio

N/A

 

 

9.75

%

 

9.29

%

 

9.82

%

Total risk-based capital ratio

N/A

 

 

13.17

%

 

12.63

%

 

13.58

%

Tier 1 risk-based capital ratio

N/A

 

 

12.30

%

 

11.78

%

 

12.63

%

Tier 1 leverage ratio

N/A

 

 

10.44

%

 

10.08

%

 

10.44

%

 

 

 

 

 

 

 

 

 

 

 

 

The Bank

 

 

 

 

 

 

 

 

 

 

 

Common equity tier 1 capital ratio

6.50

%

 

13.60

%

 

13.29

%

 

13.56

%

Total risk-based capital ratio

10.00

%

 

14.47

%

 

14.14

%

 

14.51

%

Tier 1 risk-based capital ratio

8.00

%

 

13.60

%

 

13.29

%

 

13.56

%

Tier 1 leverage ratio

5.00

%

 

11.54

%

 

11.36

%

 

11.19

%

 

1 Represents ratios required to be considered well capitalized under prompt corrective action provisions. The prompt corrective action provisions are only applicable at the bank level.

 

·

The ratios shown above exceed levels required to be considered “well capitalized.”

2

 

 

Asset Quality & Earning Assets

 

·

Nonperforming loans totaled $14.9 million at March 31, 2019, compared to $16.3 million at December 31, 2018, and $12.8 million at March 31, 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 were 0.8% at March 31, 2019, 0.9% at December 31, 2018, and 0.8%  at March 31, 2018.  Purchased credit impaired (“PCI”) loans, which are not considered nonperforming loans due to their accretable yield, from our acquisition of ABC Bank totaled $10.9 million, net of purchase accounting adjustments, at March 31, 2019. 

·

OREO assets totaled $6.4 million at March 31, 2019, compared to $7.2 million at December 31, 2018, and $7.1 million at March 31, 2018. No valuation writedowns were recorded in the first quarter of 2019, compared to $96,000 recorded in the fourth quarter of 2018 and $112,000 in the first quarter of 2018. Nonperforming assets, as a percent of total loans plus OREO, was 1.1% at March 31, 2019, and 1.2% at both December 31, 2018, and March 31, 2018.

·

Total loans were $1.90 billion at March 31, 2019, reflecting an increase of $6.1 million compared to December 31, 2018, due primarily to growth in the commercial, leases, and real estate-commercial  portfolios.  Average loans (including loans held-for-sale) for the first quarter of 2019 were $1.90 billion, reflecting an increase of $37.6 million from the fourth quarter of 2018, and an increase of $292.6 million from the first quarter of 2018.  Growth in the year over year period is primarily due to our acquisition of ABC Bank, which included $227.6 million of loans recorded, net of purchase accounting adjustments.

·

Available-for-sale securities totaled $509.1 million at March 31, 2019, compared to $541.2 million at December 31, 2018, and $550.9 million at March 31, 2018.  Pretax net security gains of $27,000 were recorded in the first quarter of 2019, compared to no gains or losses in the fourth quarter of 2018, and pretax net security gains of $35,000 in the first quarter of 2018.  

3

 

Net Interest Income

 

ANALYSIS OF AVERAGE BALANCES,

TAX EQUIVALENT INCOME / EXPENSE AND RATES

(Dollars in thousands - unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarters Ended

 

March 31, 2019

 

December 31, 2018

 

March 31, 2018

 

Average

 

Income /

 

Rate

 

Average

 

Income /

 

Rate

 

Average

 

Income /

 

Rate

 

Balance

 

Expense

 

%

 

Balance

 

Expense

 

%

 

Balance

 

Expense

 

%

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest earning deposits with financial institutions

$

18,842

 

$

114

 

2.45

 

$

19,142

 

$

104

 

2.16

 

$

13,819

 

$

49

 

1.44

Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

236,882

 

 

2,414

 

4.13

 

 

269,236

 

 

2,524

 

3.72

 

 

269,330

 

 

2,170

 

3.27

Non-taxable (TE)

 

276,609

 

 

2,656

 

3.89

 

 

269,646

 

 

2,661

 

3.92

 

 

279,831

 

 

2,609

 

3.78

Total securities

 

513,491

 

 

5,070

 

4.00

 

 

538,882

 

 

5,185

 

3.82

 

 

549,161

 

 

4,779

 

3.53

Dividends from FHLBC and FRBC

 

11,463

 

 

149

 

5.27

 

 

10,758

 

 

131

 

4.83

 

 

8,920

 

 

106

 

4.82

Loans and loans held-for-sale 1, 2

 

1,895,512

 

 

24,126

 

5.16

 

 

1,857,900

 

 

24,182

 

5.16

 

 

1,602,947

 

 

18,767

 

4.75

Total interest earning assets

 

2,439,308

 

 

29,459

 

4.90

 

 

2,426,682

 

 

29,602

 

4.84

 

 

2,174,847

 

 

23,701

 

4.42

Cash and due from banks

 

33,749

 

 

 -

 

 -

 

 

34,915

 

 

 -

 

 -

 

 

29,776

 

 

 -

 

 -

Allowance for loan and lease losses

 

(19,235)

 

 

 -

 

 -

 

 

(19,247)

 

 

 -

 

 -

 

 

(18,263)

 

 

 -

 

 -

Other noninterest bearing assets

 

181,767

 

 

 -

 

 -

 

 

187,355

 

 

 -

 

 -

 

 

166,507

 

 

 -

 

 -

Total assets

$

2,635,589

 

 

 

 

 

 

$

2,629,705

 

 

 

 

 

 

$

2,352,867

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOW accounts

$

448,518

 

$

379

 

0.34

 

$

429,042

 

$

263

 

0.24

 

$

429,301

 

$

176

 

0.17

Money market accounts

 

299,305

 

 

270

 

0.37

 

 

315,857

 

 

292

 

0.37

 

 

275,334

 

 

109

 

0.16

Savings accounts

 

307,740

 

 

122

 

0.16

 

 

300,845

 

 

115

 

0.15

 

 

266,363

 

 

59

 

0.09

Time deposits

 

445,076

 

 

1,618

 

1.47

 

 

461,677

 

 

1,643

 

1.41

 

 

382,422

 

 

1,175

 

1.25

Interest bearing deposits

 

1,500,639

 

 

2,389

 

0.65

 

 

1,507,421

 

 

2,313

 

0.61

 

 

1,353,420

 

 

1,519

 

0.46

Securities sold under repurchase agreements

 

45,157

 

 

149

 

1.34

 

 

44,628

 

 

138

 

1.23

 

 

40,275

 

 

79

 

0.80

Other short-term borrowings

 

98,328

 

 

606

 

2.50

 

 

83,588

 

 

512

 

2.43

 

 

87,444

 

 

329

 

1.53

Junior subordinated debentures

 

57,692

 

 

927

 

6.52

 

 

57,681

 

 

933

 

6.42

 

 

57,645

 

 

927

 

6.52

Senior notes

 

44,171

 

 

672

 

6.17

 

 

44,146

 

 

672

 

6.04

 

 

44,071

 

 

672

 

6.18

Notes payable and other borrowings

 

15,273

 

 

116

 

3.08

 

 

17,987

 

 

130

 

2.87

 

 

 -

 

 

 -

 

 -

Total interest bearing liabilities

 

1,761,260

 

 

4,859

 

1.12

 

 

1,755,451

 

 

4,698

 

1.06

 

 

1,582,855

 

 

3,526

 

0.90

Noninterest bearing deposits

 

625,423

 

 

 -

 

 -

 

 

634,611

 

 

 -

 

 -

 

 

554,624

 

 

 -

 

 -

Other liabilities

 

13,750

 

 

 -

 

 -

 

 

17,108

 

 

 -

 

 -

 

 

13,969

 

 

 -

 

 -

Stockholders' equity

 

235,156

 

 

 -

 

 -

 

 

222,535

 

 

 -

 

 -

 

 

201,419

 

 

 -

 

 -

Total liabilities and stockholders' equity

$

2,635,589

 

 

 

 

 

 

$

2,629,705

 

 

 

 

 

 

$

2,352,867

 

 

 

 

 

Net interest income (TE) 2

 

 

 

$

24,600

 

 

 

 

 

 

$

24,904

 

 

 

 

 

 

$

20,175

 

 

Net interest margin (TE)  2

 

 

 

 

 

 

4.09

 

 

 

 

 

 

 

4.07

 

 

 

 

 

 

 

3.76

Interest bearing liabilities to earning assets

 

72.20

%

 

 

 

 

 

 

72.34

%

 

 

 

 

 

 

72.78

%

 

 

 

 

 

1 Interest income from loans is shown on a tax equivalent basis, which is a non-GAAP financial measure as discussed in the table on page 15, and includes fees of $229,000 for the first quarter of 2019, $508,000 for the fourth quarter of 2018, and $182,000 for the first quarter of 2018. 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 15 that provides a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

Tax equivalent net interest income was $24.6 million for the quarter ended March 31, 2019, which reflects a decrease of $304,000 compared to the fourth quarter of 2018, and an increase of $4.4 million compared to the first quarter of 2018.  The tax equivalent adjustment for the first quarter of 2019 was $563,000, compared to $564,000 for the fourth quarter of 2018, and $559,000 for the first quarter of 2018.   Growth in interest earning assets in the first quarter of 2019, compared to the fourth quarter of 2018, was primarily due to organic loan growth, while growth in both the first quarter of 2019 and fourth quarter of 2018, compared to the first quarter of 2018, was primarily due to our acquisition of ABC Bank in April 2018, which resulted in the addition of $227.6 million of loans recorded, net of purchase accounting adjustments.  Quarterly average earning assets increased $12.6 million to $2.44 billion for the quarter ended March 31, 2019,  compared to $2.43 billion for the fourth quarter of 2018, while the yield on average earning assets increased six basis points over the same period.  Average loan growth, including loans held-for-sale, was $37.6 million for the quarter ended March 31, 2019, compared to the quarter ended December 31, 2018, while the year over year growth in first quarter average loans, including loans held-for-sale, was $292.6 million.   In addition to the ABC Bank acquisition in the second quarter of 2018, the year over year growth was also due to organic loan growth over the last twelve months, driven primarily by commercial loan and lease portfolio originations, as well as a home equity loan (“HELOC”) portfolio purchase of $20.7 million in the fourth quarter of 2018.  

4

 

Tax equivalent securities income decreased $115,000 in the first quarter of 2019 compared to the fourth quarter of 2018, but increased by $291,000 in the first quarter of 2019, compared to the first quarter of 2018,  due primarily to higher yielding taxable securities held.  Our securities portfolio has been repositioned in the last year into higher yielding taxable and tax exempt securities, while lower yielding securities were sold or called.  This has resulted in a lower security volume, but a higher yield overall.  The rising interest rate environment drove a 41 basis point increase for taxable securities income in the first quarter of 2019, compared to the fourth quarter of 2018, and an 86 basis point increase from the first quarter of 2018. 

 The cost of interest bearing liabilities for the first quarter of 2019 increased by six basis points from the fourth quarter of 2018, and increased by 22 basis points from the first quarter of 2018.  Average interest bearing liabilities increased $5.8 million in the first quarter of 2019, compared to the fourth quarter of 2018, primarily driven by an increase in other short-term borrowings.  Due to the decline in funding available from average deposits and average loan growth, average short-term borrowings increased $14.7 million in the first quarter of 2019, compared to the fourth quarter of 2018.  Total average interest bearing liabilities increased $178.4 million in the first quarter of 2019, compared to the first quarter of 2018, due to the ABC Bank acquisition, which resulted in the addition of $248.5 million of deposits and $40.0 million of borrowings, net of purchase accounting adjustments.  Growth in average demand deposits in the year over year period of $70.8 million has assisted the Company in controlling the cost of funds stemming from average interest bearing deposits, which totaled 0.65% for the first quarter of 2019.   In addition to the ABC acquisition, the increase in the overall cost of funds is also due to the rising rate environment. 

 

For the quarter ended March 31, 2019, average other short-term borrowings, which consisted solely of FHLBC advances at period end, increased to $98.3 million compared to $83.6 million for the quarter ended December 31, 2018, and  $87.4 million for the quarter ended March 31, 2018.  Average rates paid on short-term FHLBC advances have increased from 1.53% in the first quarter of 2018 to 2.50% for the first quarter of 2019, reflecting the rising interest rate environment.  The Company’s junior subordinated debt issuances and senior debt issuance reflected no material change in rates or volume from the linked quarter or year over year quarter. Finally, average notes payable and other borrowings included $15.3 million and $18.0 million of long-term FHLBC advances acquired in our acquisition of ABC Bank for the first quarter of 2019 and fourth quarter of 2018, respectively.

 

The net interest margin (TE) increased two basis points to 4.09% for the first quarter of 2019 compared to 4.07% for the fourth quarter of 2018 due primarily to the rising interest rate environment, which increased income from average earning assets more significantly than expenses related to average interest bearing liabilities, as well as growth in interest earning assets.   The net interest margin (TE) in the first quarter of 2019 was 33 basis points higher than the first quarter of 2018, due primarily to increases in total interest earning assets and purchase accounting accretion stemming from our acquisition of ABC Bank, as well as the rising interest rate environment, which increased income from average earning assets more significantly than expenses on average interest bearing liabilities.

 

 

Noninterest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1st Quarter 2019

 

Noninterest Income

 

Three Months Ended

 

Percent Change From

 

(dollars in thousands)

 

March 31, 

 

December 31, 

 

March 31, 

 

December 31, 

 

March 31, 

 

 

    

2019

    

2018

    

2018

    

2018

    

2018

 

Trust income

 

$

1,486

 

$

1,633

 

$

1,495

 

(9.0)

 

(0.6)

 

Service charges on deposits

 

 

1,862

 

 

2,044

 

 

1,592

 

(8.9)

 

17.0

 

Residential mortgage banking revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secondary mortgage fees

 

 

136

 

 

140

 

 

162

 

(2.9)

 

(16.0)

 

Mortgage servicing rights mark to market (loss)

 

 

(819)

 

 

(923)

 

 

305

 

11.3

 

(368.5)

 

Mortgage servicing income

 

 

457

 

 

389

 

 

452

 

17.5

 

1.1

 

Net gain on sales of mortgage loans

 

 

762

 

 

669

 

 

917

 

13.9

 

(16.9)

 

Total residential mortgage banking revenue

 

 

536

 

 

275

 

 

1,836

 

94.9

 

(70.8)

 

Securities gain, net

 

 

27

 

 

 -

 

 

35

 

N/M

 

(22.9)

 

Increase in cash surrender value of BOLI

 

 

458

 

 

38

 

 

248

 

N/M

 

84.7

 

Death benefit realized on BOLI

 

 

 -

 

 

 -

 

 

1,026

 

 -

 

(100.0)

 

Debit card interchange income

 

 

987

 

 

1,141

 

 

1,012

 

(13.5)

 

(2.5)

 

Other income

 

 

1,126

 

 

1,371

 

 

1,261

 

(17.9)

 

(10.7)

 

Total noninterest income

 

$

6,482

 

$

6,502

 

$

8,505

 

(0.3)

 

(23.8)

 

The nominal decrease in noninterest income in the first quarter of 2019, compared to the fourth quarter of 2018, was driven primarily by reductions in trust income, service charges on deposits, debit card interchange income

5

 

and other income which reduced net income by an aggregate of $728,000. These reductions were largely offset by aggregate increases of $708,000 resulting from growth in total residential mortgage banking revenue, securities gain, net, and an increase in the cash surrender value of BOLI.

The decrease in noninterest income for the year over year period of $2.0 million was primarily driven by a $1.3 million reduction in total residential mortgage banking revenue stemming from rising interest rates and the resultant mark to market loss on mortgage servicing rights.  In addition, the first quarter of 2018 included a death benefit received on a BOLI claim of $1.0 million which was not repeated in 2019.  These reductions were partially offset by aggregate increases of $480,000 resulting from growth in service charges on deposits and the cash surrender value of BOLI.  The decrease in other income for the first quarter of 2019, compared to the first quarter of 2018, was primarily attributable to commercial swap fee income which decreased $56,000, and legal fee recoveries of $215,000 recorded in the first quarter of 2018. 

 

Noninterest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1st Quarter 2019

 

Noninterest Expense

 

Three Months Ended

 

Percent  Change From

 

(dollars in thousands)

 

March 31, 

 

December 31, 

 

March 31, 

 

December 31, 

 

March 31, 

 

 

    

2019

    

2018

    

2018

    

2018

    

2018

 

Salaries

 

$

8,634

 

$

8,484

 

$

7,335

 

1.8

 

17.7

 

Officers incentive

 

 

882

 

 

784

 

 

787

 

12.5

 

12.1

 

Benefits and other

 

 

2,096

 

 

1,167

 

 

2,085

 

79.6

 

0.5

 

Total salaries and employee benefits

 

 

11,612

 

 

10,435

 

 

10,207

 

11.3

 

13.8

 

Occupancy, furniture and equipment expense

 

 

1,989

 

 

1,922

 

 

1,558

 

3.5

 

27.7

 

Computer and data processing

 

 

1,332

 

 

1,413

 

 

1,344

 

(5.7)

 

(0.9)

 

FDIC insurance

 

 

174

 

 

170

 

 

156

 

2.4

 

11.5

 

General bank insurance

 

 

250

 

 

259

 

 

251

 

(3.5)

 

(0.4)

 

Amortization of core deposit intangible asset

 

 

132

 

 

133

 

 

21

 

(0.8)

 

528.6

 

Advertising expense

 

 

234

 

 

242

 

 

341

 

(3.3)

 

(31.4)

 

Debit card interchange expense

 

 

147

 

 

38

 

 

281

 

286.8

 

(47.7)

 

Legal fees

 

 

126

 

 

147

 

 

159

 

(14.3)

 

(20.8)

 

Other real estate owned expense, net

 

 

50

 

 

165

 

 

173

 

(69.7)

 

(71.1)

 

Other expense

 

 

3,148

 

 

3,853

 

 

2,863

 

(18.3)

 

10.0

 

Total noninterest expense

 

$

19,194

 

$

18,777

 

$

17,354

 

2.2

 

10.6

 

Efficiency ratio (GAAP)

 

 

62.35

%

 

59.92

%

 

63.41

%

 

 

 

 

Adjusted efficiency ratio (non-GAAP)1

 

 

60.98

%

 

58.44

%

 

61.10

%

 

 

 

 

 

1 The 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 related 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 includes a tax equivalent adjustment on the increase in cash surrender value of BOLI. See the discussion entitled “Non-GAAP Presentations” below and the table on page 15 that provides a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

Noninterest expense for the first quarter of 2019 increased $417,000, or 2.2%, compared to the fourth quarter of 2018, and increased $1.8 million, or 10.6%, compared to the first quarter of 2018.  The linked quarter increase is primarily attributable to a $1.2 million increase in salaries and employee benefits, as the fourth quarter of 2018 reflected various accrual reversals and lower levels of payroll taxes. This increase was partially offset by a $705,000 decrease in other expense in the first quarter of 2019, compared to the fourth quarter of 2018, due to an accrual recorded in late 2018 for a commercial mortgage loan escrow, as well as other year-end accruals for appraisals and consulting expenses. The year over year variance is primarily attributable to our ABC Bank acquisition, which resulted in an increase in salaries and employee benefits expense of $1.4 million, occupancy, furniture and equipment expenses of $431,000, and amortization of core deposit intangibles of $111,000 for the first quarter of 2019, compared to the first quarter of 2018.  Partially offsetting the year over year increases were reductions to debit card interchange expense of $134,000 in the first quarter of 2019 due to an accrual reduction regarding a discontinued debit card points program, a reduction in OREO valuation reserve expense of $112,000, and a decrease in advertising expense of $107,000.  Other expense increased in the first quarter of 2019, compared to the first quarter of 2018, due to director’s fees, external audit fees, and growth in ATM operating expenses attributable to additional ATMs acquired from our ABC Bank acquisition.

 

6

 

Earning Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

Loans

 

As of

 

Percent Change From

 

(dollars in thousands)

 

March 31, 

 

December 31, 

 

March 31, 

 

December 31, 

 

March 31, 

 

 

    

2019

    

2018

    

2018

    

2018

    

2018

 

Commercial

 

$

324,450

 

$

314,323

 

$

281,134

 

3.2

 

15.4

 

Leases

 

 

87,730

 

 

78,806

 

 

66,344

 

11.3

 

32.2

 

Real estate - commercial

 

 

835,904

 

 

820,941

 

 

713,422

 

1.8

 

17.2

 

Real estate - construction

 

 

94,787

 

 

108,390

 

 

91,479

 

(12.6)

 

3.6

 

Real estate - residential

 

 

399,866

 

 

407,068

 

 

309,376

 

(1.8)

 

29.2

 

Home equity line of credit "HELOC"

 

 

133,859

 

 

140,442

 

 

129,234

 

(4.7)

 

3.6

 

Other1  

 

 

14,018

 

 

14,439

 

 

9,845

 

(2.9)

 

42.4

 

Total loans, excluding deferred loan costs and PCI

 

 

1,890,614

 

 

1,884,409

 

 

1,600,834

 

0.3

 

18.1

 

Net deferred loan costs

 

 

1,681

 

 

1,653

 

 

978

 

1.7

 

71.9

 

Total loans, excluding PCI

 

 

1,892,295

 

 

1,886,062

 

 

1,601,812

 

0.3

 

18.1

 

PCI loans, net of purchase accounting adjustments

 

 

10,851

 

 

10,965

 

 

 -

 

(1.0)

 

N/M

 

Total loans

 

$

1,903,146

 

$

1,897,027

 

$

1,601,812

 

0.3

 

18.8

 

N/M - Not meaningful.

1 Other class includes consumer and overdrafts.

 

Total loans increased by $6.1 million at the end of the first quarter of 2019 compared to December 31, 2018,  and increased $301.3 million year over year.  The majority of the year over year increase is due to $227.6 million of loans recorded, net of purchase accounting adjustments, from our acquisition of ABC Bank in April 2018.  In addition, the Company experienced organic commercial loan and lease growth in the year over year period, and also made purchases of HELOCs totaling $20.7 million in the fourth quarter of 2018.    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

Securities

 

As of

 

Percent Change From

 

(dollars in thousands)

 

March 31, 

 

December 31, 

 

March 31, 

 

December 31, 

 

March 31, 

 

 

    

2019

    

2018

    

2018

    

2018

    

2018

 

Securities available-for-sale, at fair value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

$

3,960

 

$

3,923

 

$

3,895

 

0.9

 

1.7

 

U.S. government agencies

 

 

10,360

 

 

10,951

 

 

12,730

 

(5.4)

 

(18.6)

 

U.S. government agency mortgage-backed

 

 

15,306

 

 

14,075

 

 

13,844

 

8.7

 

10.6

 

States and political subdivisions

 

 

281,172

 

 

274,067

 

 

285,540

 

2.6

 

(1.5)

 

Corporate bonds

 

 

 -

 

 

 -

 

 

703

 

 -

 

(100.0)

 

Collateralized mortgage obligations

 

 

64,330

 

 

64,429

 

 

63,744

 

(0.2)

 

0.9

 

Asset-backed securities

 

 

70,811

 

 

109,514

 

 

110,870

 

(35.3)

 

(36.1)

 

Collateralized loan obligations

 

 

63,151

 

 

64,289

 

 

59,616

 

(1.8)

 

5.9

 

Total securities available-for-sale

 

$

509,090

 

$

541,248

 

$

550,942

 

(5.9)

 

(7.6)

 

 

The investment portfolio was $509.1 million as of March 31, 2019, a decrease of $32.2 million from $541.2 million as of December 31, 2018, and a decrease of $41.9 million from March 31, 2018.  The portfolio composition has remained relatively static over the most recent quarter, with the one exception being a decline in asset-backed securities of $38.7 million.  The largely consistent portfolio composition is due to lack of relative value among possible investment sectors and consequent opportunities to shift allocation of investments from lower return sectors to those with higher returns.  The activity that did occur in the first quarter of 2019 resulted in net securities gains of $27,000, compared to no security gains or losses in the fourth quarter of 2018, and $35,000 of net security gains in the first quarter of 2018.

 

 

7

 

Asset Quality

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

Nonperforming assets

 

As of

 

Percent Change From

(dollars in thousands)

 

March 31, 

 

December 31, 

 

March 31, 

 

December 31, 

 

March 31, 

 

  

2019

  

2018

  

2018

  

2018

 

2018

Nonaccrual loans

 

$

13,383

 

$

13,741

 

$

11,059

 

(2.6)

 

21.0

Performing troubled debt restructured loans accruing interest

 

 

1,550

 

 

1,683

 

 

1,332

 

(7.9)

 

16.4

Loans past due 90 days or more and still accruing interest

 

 

 4

 

 

917

 

 

401

 

(99.6)

 

(99.0)

Total nonperforming loans

 

 

14,937

 

 

16,341

 

 

12,792

 

(8.6)

 

16.8

Other real estate owned

 

 

6,365

 

 

7,175

 

 

7,063

 

(11.3)

 

(9.9)

Total nonperforming assets

 

$

21,302

 

$

23,516

 

$

19,855

 

(9.4)

 

7.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PCI loans, net of purchase accounting adjustments

 

$

10,851

 

$

10,965

 

$

 -

 

(1.0)

 

N/M

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30-89 days past due loans

 

$

7,544

 

$

10,989

 

$

3,001

 

 

 

 

Nonaccrual loans to total loans

 

 

0.7

%

 

0.7

%

 

0.7

%

 

 

 

Nonperforming loans to total loans

 

 

0.8

%

 

0.9

%

 

0.8

%

 

 

 

Nonperforming assets to total loans plus OREO

 

 

1.1

%

 

1.2

%

 

1.2

%

 

 

 

Purchased credit-impaired loans to total loans

 

 

0.6

%

 

0.6

%

 

 -

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan and lease losses

 

$

19,316

 

$

19,006

 

$

18,188

 

 

 

 

Allowance for loan and lease losses to total loans

 

 

1.0

%

 

1.0

%

 

1.1

%

 

 

 

Allowance for loan and lease losses to nonaccrual loans

 

 

144.3

%

 

138.3

%

 

164.5

%

 

 

 

 

N/M - Not meaningful.

 

Nonperforming loans consist of nonaccrual loans, performing troubled debt restructured loans accruing interest and loans 90 days or more past due and still accruing interest.  We do not consider 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.  Nonperforming loans to total loans was 0.8% in the first quarter of 2019, 0.9% in the fourth quarter of 2018, and 0.8% for the first quarter of 2018.  Nonperforming assets to total loans plus OREO ended at 1.1% in the first quarter of 2019 compared to 1.2% in the fourth quarter of 2018, and 1.2% for the first quarter of 2018, reflecting stable nonperforming metrics as loan portfolio growth occurred over the last year, as well as continued OREO liquidations over the past year and write-downs recorded in 2018.  Finally, the allowance for loan and lease losses to total loans was 1.0% as of March 31, 2019, and December 31, 2018, which is a slight decrease from 1.1% for the first quarter of 2018. 

The following tables detail the accretable discount on all of our purchased loans as of March 31, 2019 and December 31, 2018.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

Purchases

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Accretion

 

 

(365)

 

 

(14)

 

 

 -

 

 

(379)

Ending balance, March 31, 2019

 

$

1,502

 

$

1,085

 

$

5,969

 

$

8,556

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accretable Discount - Non-PCI Loans

 

Accretable Discount - PCI Loans

 

Non-Accretable Discount - PCI Loans

 

Total

Beginning balance, October 1, 2018

 

$

2,310

 

$

1,218

 

$

6,069

 

$

9,597

Purchases

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Accretion

 

 

(443)

 

 

(119)

 

 

(100)

 

 

(662)

Ending balance, December 31, 2018

 

$

1,867

 

$

1,099

 

$

5,969

 

$

8,935

 

.

8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

Classified loans

 

As of

 

Percent Change From

 

(dollars in thousands)

 

March 31, 

 

December 31, 

 

March 31, 

 

December 31, 

 

March 31, 

 

 

    

2019

    

2018

    

2018

    

2018

    

2018

 

Commercial

 

$

7,075

 

$

137

 

$

 -

 

N/M

 

N/M

 

Leases

 

 

114

 

 

 -

 

 

610

 

N/M

 

(81.3)

 

Real estate-commercial, nonfarm

 

 

22,079

 

 

22,661

 

 

6,098

 

(2.6)

 

262.1

 

Real estate-commercial, farm

 

 

1,222

 

 

1,222

 

 

2,439

 

 -

 

(49.9)

 

Real estate-construction

 

 

2,589

 

 

2,610

 

 

371

 

(0.8)

 

597.8

 

Real estate-residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investor

 

 

991

 

 

1,216

 

 

436

 

(18.5)

 

127.3

 

Multi-Family

 

 

487

 

 

979

 

 

 -

 

(50.3)

 

N/M

 

Owner occupied

 

 

4,728

 

 

4,524

 

 

5,476

 

4.5

 

(13.7)

 

HELOC

 

 

1,966

 

 

1,889

 

 

2,038

 

4.1

 

(3.5)

 

Other1

 

 

28

 

 

31

 

 

18

 

(9.7)

 

55.6

 

Total classified loans, excluding PCI

 

 

41,279

 

 

35,269

 

 

17,486

 

17.0

 

136.1

 

PCI loans, net of purchase accounting adjustments

 

 

10,851

 

 

10,965

 

 

 -

 

(1.0)

 

N/M

 

Total classified loans

 

$

52,130

 

$

46,234

 

$

17,486

 

12.8

 

198.1

 

 

N/M - Not meaningful.

1 Other class includes consumer and overdrafts.

 

Classified loans include nonaccrual, performing troubled debt restructurings, PCI loans, and all other loans considered substandard, as shown above.  Classified loans totaled $52.1 million as of March 31, 2019, an increase of $5.9 million, or 12.8%, from the prior quarter, and an increase of $34.6 million, or 198.1%, from the like quarter of 2018.   The $10.9 million of PCI loans as of March 31, 2019, and $11.0 million as of December 31, 2018, stems from our acquisition of ABC Bank.

 

Net Charge-off Summary

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan Charge-offs, net of recoveries

Quarters Ended

(dollars in thousands)

March 31, 

 

% of

 

December 31, 

 

% of

 

March 31, 

 

% of

 

2019

 

Total 2

 

2018

 

Total  2

 

2018

 

Total 2

Commercial

$

(18)

 

(12.9)

 

$

(13)

 

(1.6)

 

$

(1)

 

0.1

Leases

 

 -

 

 -

 

 

 -

 

 -

 

 

 5

 

(0.3)

Real estate-commercial, nonfarm

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner general purpose

 

87

 

62.1

 

 

14

 

1.7

 

 

(41)

 

2.8

Owner special purpose

 

(3)

 

(2.1)

 

 

 -

 

 -

 

 

(21)

 

1.4

Non-owner general purpose

 

(15)

 

(10.7)

 

 

903

 

109.9

 

 

(313)

 

21.6

Non-owner special purpose

 

139

 

99.3

 

 

 -

 

 -

 

 

(1)

 

0.1

Retail properties

 

 -

 

 -

 

 

 -

 

 -

 

 

(87)

 

6.0

Total real estate-commercial, nonfarm

 

208

 

148.6

 

 

917

 

111.6

 

 

(463)

 

31.9

Real estate-construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Homebuilder

 

(1)

 

(0.7)

 

 

 -

 

 -

 

 

 2

 

(0.1)

Land

 

 -

 

 -

 

 

 -

 

 -

 

 

(4)

 

0.3

Commercial speculative

 

 2

 

1.4

 

 

 -

 

 -

 

 

(18)

 

1.2

All other

 

 -

 

 -

 

 

 -

 

 -

 

 

 1

 

(0.1)

Total real estate-construction

 

 1

 

0.7

 

 

 -

 

 -

 

 

(19)

 

1.3

Real estate-residential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investor

 

(10)

 

(7.1)

 

 

(11)

 

(1.3)

 

 

(30)

 

2.1

Multi-Family

 

(8)

 

(5.7)

 

 

(15)

 

(1.8)

 

 

(175)

 

12.1

Owner occupied

 

(14)

 

(10.0)

 

 

(11)

 

(1.3)

 

 

(766)

 

52.9

Total real estate-residential

 

(32)

 

(22.8)

 

 

(37)

 

(4.4)

 

 

(971)

 

67.1

HELOC

 

(46)

 

(32.9)

 

 

(81)

 

(9.9)

 

 

(20)

 

1.4

Other1

 

27

 

19.3

 

 

36

 

4.3

 

 

20

 

(1.5)

Net charge-offs / (recoveries) 

$

140

 

100.0

 

$

822

 

100.0

 

$

(1,449)

 

100.0

 

1 Other class includes consumer and overdrafts.

2 Represents the percentage of net charge-offs attributable to each category of loans.

 

Gross charge-offs for the quarter ended March 31, 2019, were $345,000 compared to $1.1 million for the quarter ended December 31, 2018, and a minimal level for the quarter ended March 31, 2018.  Gross recoveries were $205,000 for the quarter ended March 31, 2019, compared to $229,000 for the quarter ended December 31, 2018, and

9

 

$1.4 million for the first quarter of 2018. Continued recoveries are indicative of the ongoing aggressive efforts by management to effectively manage and resolve prior charge-offs. 

 

Deposits

 

Total deposits were $2.12 billion at March 31, 2019, which reflects an increase of $6.8 million compared to December 31, 2018, stemming from aggregate growth in demand, savings and NOW accounts of $49.6 million, which was partially offset by decreases in money market and time deposits of $43.0 million.  Year over year, total deposits increased $161.5 million reflecting increases in all major deposit categories, due primarily to $248.5 million of deposits purchased in our ABC Bank acquisition in April 2018. 

 

Borrowings

 

As of March 31, 2019, we had $85.0 million outstanding in other short-term borrowings compared to $149.5 million as of December 31, 2018, and $45.0 million as of March 31, 2018.

 

The Company is indebted on senior notes totaling $44.2 million, net of deferred issuance costs, as of March 31, 2019.  The Company is also indebted on $57.7 million of junior subordinated debentures, net of deferred issuance costs, 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.  Notes payable and other borrowings is comprised of $13.2 million of long-term FHLBC advances acquired with our ABC Bank acquisition, with terms ranging from June 29, 2020, to February 2, 2026.

 

Non-GAAP Presentations: Management has disclosed in this earnings release certain non-GAAP financial measures to evaluate and measure the Company’s performance, including adjusted net income, adjusted earnings per share, the presentation of net interest income and net interest margin on a fully taxable equivalent basis, and efficiency ratio calculations.  Management believes the adjusted earnings per share data is more informative for the user if the per share impact of certain activity is excluded for quarterly comparative purposes. The net interest margin is calculated by dividing net interest income on a tax equivalent basis by average earning assets for the period.  Management believes this measure provides investors with information regarding balance sheet profitability.  Consistent with industry practice, management has disclosed the efficiency ratio including and excluding certain items, which is discussed in the noninterest expense presentation on page 6.  These non-GAAP financial measures should not be considered as a substitute for GAAP financial measures, and we strongly encourage investors to review the GAAP financial measures included in this earnings release and not to place undue reliance upon any single financial measure. In addition, because non-GAAP financial measures are not standardized, it may not be possible to compare the non-GAAP financial measures presented in this earnings release with other companies’ non-GAAP financial measures having the same or similar names. The tables on page 15 provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent. 

Forward-Looking Statements:  This earnings release contains forward-looking statements.  Forward looking statements can be identified by words such  as “anticipated,” “expects,”  “intends,” “believes,” “may,” “likely,” “will” or other that indicate future periods.  Such forward-looking statements are subject to risks, uncertainties, and other factors, including a downturn in the economy, particularly in the Company’s markets, volatile credit and financial markets both domestic and foreign, potential deterioration in real estate values, regulatory changes and excessive loan losses, as well as additional risks and uncertainties contained in the “Risk Factors” and forward-looking statements disclosure contained in the Company’s most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, any or all of which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. The inclusion of this forward-looking information should not be construed as a representation by the Company or any person that future events, plans, or expectations contemplated by the Company will be achieved. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

 

Conference Call

 

The Company will host an earnings call on Thursday, April 25, 2019, at 11:00 a.m. Eastern Time (10:00 a.m. Central Time).  Investors may listen to the Company’s earnings call via telephone by dialing 844-602-0380.  Investors should call into the dial-in number set forth above at least 10 minutes prior to the scheduled start of the call.

A replay of the earnings call will be available until 11:00 a.m. Eastern Time (10:00 a.m. Central Time) on May 2, 2019, by dialing 877-481-4010, using Conference ID:  45525.

 

10

 

 

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands)

 

 

 

 

 

 

 

 

 

 

(unaudited)

 

 

 

 

 

March 31, 

 

December 31, 

 

    

2019

    

2018

Assets

 

 

 

 

 

 

Cash and due from banks

 

$

28,898

 

$

38,599

Interest earning deposits with financial institutions

 

 

11,438

 

 

16,636

Cash and cash equivalents

 

 

40,336

 

 

55,235

Securities available-for-sale, at fair value

 

 

509,090

 

 

541,248

Federal Home Loan Bank Chicago ("FHLBC") and Federal Reserve Bank Chicago ("FRBC") stock

 

 

11,179

 

 

13,433

Loans held-for-sale

 

 

2,134

 

 

2,984

Loans

 

 

1,903,146

 

 

1,897,027

Less: allowance for loan and lease losses

 

 

19,316

 

 

19,006

Net loans

 

 

1,883,830

 

 

1,878,021

Premises and equipment, net

 

 

42,025

 

 

42,439

Other real estate owned

 

 

6,365

 

 

7,175

Mortgage servicing rights, net

 

 

6,715

 

 

7,357

Goodwill and core deposit intangible

 

 

21,682

 

 

21,814

Bank-owned life insurance ("BOLI")

 

 

62,002

 

 

61,544

Deferred tax assets, net

 

 

17,271

 

 

21,280

Other assets

 

 

20,902

 

 

23,473

Total assets

 

$

2,623,531

 

$

2,676,003

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Noninterest bearing demand

 

$

629,909

 

$

618,830

Interest bearing:

 

 

 

 

 

 

Savings, NOW, and money market

 

 

1,061,216

 

 

1,040,668

Time

 

 

432,387

 

 

457,175

Total deposits

 

 

2,123,512

 

 

2,116,673

Securities sold under repurchase agreements

 

 

42,361

 

 

46,632

Other short-term borrowings

 

 

85,000

 

 

149,500

Junior subordinated debentures

 

 

57,698

 

 

57,686

Senior notes

 

 

44,183

 

 

44,158

Notes payable and other borrowings

 

 

13,207

 

 

15,379

Other liabilities

 

 

14,315

 

 

16,894

Total liabilities

 

 

2,380,276

 

 

2,446,922

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

Common stock

 

 

34,825

 

 

34,720

Additional paid-in capital

 

 

119,126

 

 

119,081

Retained earnings

 

 

183,634

 

 

175,463

Accumulated other comprehensive (loss) income

 

 

1,736

 

 

(4,079)

Treasury stock

 

 

(96,066)

 

 

(96,104)

Total stockholders’ equity

 

 

243,255

 

 

229,081

Total liabilities and stockholders’ equity

 

$

2,623,531

 

$

2,676,003

11

 

 

 

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

(In thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

(unaudited)

 

 

 

Three Months Ended  March 31, 

 

 

    

2019

    

2018

    

Interest and dividend income

 

 

 

 

 

 

 

Loans, including fees

 

$

24,099

 

$

18,732

 

Loans held-for-sale

 

 

22

 

 

24

 

Securities:

 

 

 

 

 

 

 

Taxable

 

 

2,414

 

 

2,170

 

Tax exempt

 

 

2,098

 

 

2,061

 

Dividends from FHLBC and FRBC stock

 

 

149

 

 

106

 

Interest bearing deposits with financial institutions

 

 

114

 

 

49

 

Total interest and dividend income

 

 

28,896

 

 

23,142

 

Interest expense

 

 

 

 

 

 

 

Savings, NOW, and money market deposits

 

 

771

 

 

344

 

Time deposits

 

 

1,618

 

 

1,175

 

Securities sold under repurchase agreements

 

 

149

 

 

79

 

Other short-term borrowings

 

 

606

 

 

329

 

Junior subordinated debentures

 

 

927

 

 

927

 

Senior notes

 

 

672

 

 

672

 

Notes payable and other borrowings

 

 

116

 

 

 -

 

Total interest expense

 

 

4,859

 

 

3,526

 

Net interest and dividend income

 

 

24,036

 

 

19,616

 

Provision (release) for loan and lease losses

 

 

450

 

 

(722)

 

Net interest and dividend income after provision for loan and lease losses

 

 

23,586

 

 

20,338

 

Noninterest income

 

 

 

 

 

 

 

Trust income

 

 

1,486

 

 

1,495

 

Service charges on deposits

 

 

1,862

 

 

1,592

 

Secondary mortgage fees

 

 

136

 

 

162

 

Mortgage servicing rights mark to market (loss)

 

 

(819)

 

 

305

 

Mortgage servicing income

 

 

457

 

 

452

 

Net gain on sales of mortgage loans

 

 

762

 

 

917

 

Securities gains (losses), net

 

 

27

 

 

35

 

Increase in cash surrender value of BOLI

 

 

458

 

 

248

 

Death benefit realized on bank-owned life insurance

 

 

 -

 

 

1,026

 

Debit card interchange income

 

 

987

 

 

1,012

 

Other income

 

 

1,126

 

 

1,261

 

Total noninterest income

 

 

6,482

 

 

8,505

 

Noninterest expense

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

11,612

 

 

10,207

 

Occupancy, furniture and equipment

 

 

1,989

 

 

1,558

 

Computer and data processing

 

 

1,332

 

 

1,344

 

FDIC insurance

 

 

174

 

 

156

 

General bank insurance

 

 

250

 

 

251

 

Amortization of core deposit intangible

 

 

132

 

 

21

 

Advertising expense

 

 

234

 

 

341

 

Debit card interchange expense

 

 

147

 

 

281

 

Legal fees

 

 

126

 

 

159

 

Other real estate expense, net

 

 

50

 

 

173

 

Other expense

 

 

3,148

 

 

2,863

 

Total noninterest expense

 

 

19,194

 

 

17,354

 

Income before income taxes

 

 

10,874

 

 

11,489

 

Provision for income taxes

 

 

2,406

 

 

2,000

 

Net income available to common stockholders

 

$

8,468

 

$

9,489

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.28

 

$

0.32

 

Diluted earnings per share

 

 

0.28

 

 

0.31

 

Dividends declared per share

 

 

0.01

 

 

0.01

 

 

 

 

 

 

 

 

 

 

Ending common shares outstanding

 

29,895,022

 

29,747,078

 

Weighted-average basic shares outstanding

 

29,845,653

 

29,659,454

 

Weighted-average diluted shares outstanding

 

30,343,631

 

30,168,748

 

12

 

Old Second Bancorp, Inc. and Subsidiaries

Quarterly Consolidated Average Balance

(In thousands, unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2018

 

2019

Assets

    

1st Qtr

    

2nd Qtr

    

3rd Qtr

    

4th Qtr

    

1st Qtr

Cash and due from banks

 

$

29,776

 

$

36,720

 

$

34,608

 

$

34,915

 

$

33,749

Interest earning deposits with financial institutions

 

 

13,819

 

 

19,161

 

 

17,975

 

 

19,142

 

 

18,842

Cash and cash equivalents

 

 

43,595

 

 

55,881

 

 

52,583

 

 

54,057

 

 

52,591

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available-for-sale, at fair value

 

 

549,161

 

 

555,202

 

 

542,297

 

 

538,882

 

 

513,491

FHLBC and FRBC stock

 

 

8,920

 

 

8,619

 

 

8,905

 

 

10,758

 

 

11,463

Loans held-for-sale

 

 

2,353

 

 

2,868

 

 

3,220

 

 

2,617

 

 

1,853

Loans

 

 

1,600,594

 

 

1,806,209

 

 

1,839,341

 

 

1,855,283

 

 

1,893,659

Less: allowance for loan and lease losses

 

 

18,263

 

 

18,494

 

 

19,696

 

 

19,247

 

 

19,235

Net loans

 

 

1,582,331

 

 

1,787,715

 

 

1,819,645

 

 

1,836,036

 

 

1,874,424

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premises and equipment, net

 

 

37,472

 

 

41,796

 

 

42,651

 

 

42,731

 

 

42,270

Other real  estate owned

 

 

7,884

 

 

7,951

 

 

7,801

 

 

7,159

 

 

6,779

Mortgage servicing rights, net

 

 

7,347

 

 

7,697

 

 

7,915

 

 

8,130

 

 

7,334

Goodwill and core deposit intangible

 

 

8,911

 

 

9,035

 

 

21,990

 

 

21,879

 

 

21,747

Bank-owned life insurance ("BOLI")

 

 

61,273

 

 

60,920

 

 

61,283

 

 

61,616

 

 

61,661

Deferred tax assets, net

 

 

26,739

 

 

26,825

 

 

27,680

 

 

25,531

 

 

20,878

Other assets

 

 

16,881

 

 

22,384

 

 

21,976

 

 

20,309

 

 

21,098

Total other assets

 

 

166,507

 

 

176,608

 

 

191,296

 

 

187,355

 

 

181,767

Total assets

 

$

2,352,867

 

$

2,586,893

 

$

2,617,946

 

$

2,629,705

 

$

2,635,589

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest bearing demand

 

$

554,624

 

$

618,765

 

$

625,982

 

$

634,611

 

$

625,423

Interest bearing:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings, NOW, and money market

 

 

970,998

 

 

1,059,601

 

 

1,064,801

 

 

1,045,744

 

 

1,055,563

Time

 

 

382,422

 

 

460,909

 

 

467,933

 

 

461,677

 

 

445,076

Total deposits

 

 

1,908,044

 

 

2,139,275

 

 

2,158,716

 

 

2,142,032

 

 

2,126,062

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities sold under repurchase agreements

 

 

40,275

 

 

44,655

 

 

46,850

 

 

44,628

 

 

45,157

Other short-term borrowings

 

 

87,444

 

 

58,199

 

 

55,119

 

 

83,588

 

 

98,328

Junior subordinated debentures

 

 

57,645

 

 

57,657

 

 

57,669

 

 

57,681

 

 

57,692

Senior Notes

 

 

44,071

 

 

44,096

 

 

44,121

 

 

44,146

 

 

44,171

Notes payable and other borrowings

 

 

 -

 

 

19,795

 

 

20,768

 

 

17,987

 

 

15,273

Other liabilities

 

 

13,969

 

 

15,679

 

 

20,142

 

 

17,108

 

 

13,750

Total liabilities

 

 

2,151,448

 

 

2,379,356

 

 

2,403,385

 

 

2,407,170

 

 

2,400,433

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

34,647

 

 

34,717

 

 

34,717

 

 

34,717

 

 

34,775

Additional paid-in capital

 

 

117,734

 

 

117,793

 

 

118,366

 

 

118,800

 

 

119,051

Retained earnings

 

 

147,309

 

 

155,553

 

 

162,486

 

 

172,363

 

 

180,398

Accumulated other comprehensive loss

 

 

(1,871)

 

 

(4,232)

 

 

(4,714)

 

 

(7,204)

 

 

(3,102)

Treasury stock

 

 

(96,400)

 

 

(96,294)

 

 

(96,294)

 

 

(96,141)

 

 

(95,966)

Total stockholders' equity

 

 

201,419

 

 

207,537

 

 

214,561

 

 

222,535

 

 

235,156

Total liabilities and stockholders' equity

 

$

2,352,867

 

$

2,586,893

 

$

2,617,946

 

$

2,629,705

 

$

2,635,589

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Earning Assets

 

$

2,174,847

 

$

2,392,059

 

$

2,411,738

 

$

2,426,682

 

$

2,439,308

Total Interest Bearing Liabilities

 

 

1,582,855

 

 

1,744,912

 

 

1,757,261

 

 

1,755,451

 

 

1,761,260

 

 

 

13

 

 

 

Old Second Bancorp, Inc. and Subsidiaries

Quarterly Consolidated Statements of Income

(In thousands, except per share data, unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2018

 

2019

 

    

1st Qtr

    

2nd Qtr

    

3rd Qtr

    

4th Qtr

    

1st Qtr

Interest and Dividend Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

18,732

 

$

22,512

 

$

23,377

 

$

24,144

 

$

24,099

Loans held-for-sale

 

 

24

 

 

35

 

 

39

 

 

33

 

 

22

Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

2,170

 

 

2,392

 

 

2,491

 

 

2,524

 

 

2,414

Tax exempt

 

 

2,061

 

 

2,114

 

 

2,064

 

 

2,102

 

 

2,098

Dividends from FHLB and FRBC stock

 

 

106

 

 

111

 

 

121

 

 

131

 

 

149

Interest bearing deposits with financial institutions

 

 

49

 

 

97

 

 

84

 

 

104

 

 

114

Total interest and dividend income

 

 

23,142

 

 

27,261

 

 

28,176

 

 

29,038

 

 

28,896

Interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings, NOW, and money market deposits

 

 

344

 

 

501

 

 

642

 

 

670

 

 

771

Time deposits

 

 

1,175

 

 

1,444

 

 

1,568

 

 

1,643

 

 

1,618

Securities sold under repurchase agreements

 

 

79

 

 

104

 

 

140

 

 

138

 

 

149

Other short-term borrowings

 

 

329

 

 

276

 

 

311

 

 

512

 

 

606

Junior subordinated debentures

 

 

927

 

 

927

 

 

930

 

 

933

 

 

927

Senior notes

 

 

672

 

 

672

 

 

672

 

 

672

 

 

672

Notes payable and other borrowings

 

 

 -

 

 

95

 

 

173

 

 

130

 

 

116

Total interest expense

 

 

3,526

 

 

4,019

 

 

4,436

 

 

4,698

 

 

4,859

Net interest and dividend income

 

 

19,616

 

 

23,242

 

 

23,740

 

 

24,340

 

 

24,036

Provision (release) for loan and lease losses

 

 

(722)

 

 

1,450

 

 

 -

 

 

500

 

 

450

Net interest and dividend income after provision (release) for loan and lease losses

 

 

20,338

 

 

21,792

 

 

23,740

 

 

23,840

 

 

23,586

Noninterest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trust income

 

 

1,495

 

 

1,645

 

 

1,644

 

 

1,633

 

 

1,486

Service charges on deposits

 

 

1,592

 

 

1,769

 

 

1,923

 

 

2,044

 

 

1,862

Secondary mortgage fees

 

 

162

 

 

195

 

 

199

 

 

140

 

 

136

Mortgage servicing rights mark to market (loss) gain

 

 

305

 

 

(105)

 

 

(11)

 

 

(923)

 

 

(819)

Mortgage servicing income

 

 

452

 

 

627

 

 

471

 

 

389

 

 

457

Net gain on sales of mortgage loans

 

 

917

 

 

1,240

 

 

965

 

 

669

 

 

762

Securities (loss) gain, net

 

 

35

 

 

312

 

 

13

 

 

 -

 

 

27

Increase in cash surrender value of BOLI

 

 

248

 

 

351

 

 

347

 

 

38

 

 

458

Death benefit realized on bank-owned life insurance

 

 

1,026

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Debit card interchange income

 

 

1,012

 

 

1,132

 

 

1,135

 

 

1,141

 

 

987

Other income

 

 

1,261

 

 

1,366

 

 

1,128

 

 

1,371

 

 

1,126

Total noninterest income

 

 

8,505

 

 

8,532

 

 

7,814

 

 

6,502

 

 

6,482

Noninterest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

10,207

 

 

12,355

 

 

11,165

 

 

10,435

 

 

11,612

Occupancy, furniture and equipment

 

 

1,558

 

 

1,652

 

 

1,782

 

 

1,922

 

 

1,989

Computer and data processing

 

 

1,344

 

 

2,741

 

 

1,247

 

 

1,413

 

 

1,332

FDIC insurance

 

 

156

 

 

165

 

 

162

 

 

170

 

 

174

General bank insurance

 

 

251

 

 

299

 

 

230

 

 

259

 

 

250

Amortization of core deposit intangible

 

 

21

 

 

97

 

 

136

 

 

133

 

 

132

Advertising expense

 

 

341

 

 

492

 

 

492

 

 

242

 

 

234

Debit card interchange expense

 

 

281

 

 

301

 

 

320

 

 

38

 

 

147

Legal fees

 

 

159

 

 

286

 

 

243

 

 

147

 

 

126

Other real estate expense, net

 

 

173

 

 

429

 

 

(370)

 

 

165

 

 

50

Other expense

 

 

2,863

 

 

3,469

 

 

3,304

 

 

3,853

 

 

3,148

Total noninterest expense

 

 

17,354

 

 

22,286

 

 

18,711

 

 

18,777

 

 

19,194

Income before income taxes

 

 

11,489

 

 

8,038

 

 

12,843

 

 

11,565

 

 

10,874

Provision for income taxes

 

 

2,000

 

 

1,777

 

 

3,201

 

 

2,945

 

 

2,406

Net income (loss)

 

$

9,489

 

$

6,261

 

$

9,642

 

$

8,620

 

$

8,468

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share

 

$

0.32

 

$

0.21

 

$

0.32

 

$

0.29

 

$

0.28

Diluted earnings (loss) per share

 

 

0.31

 

 

0.21

 

 

0.32

 

 

0.28

 

 

0.28

Dividends paid per share

 

 

0.01

 

 

0.01

 

 

0.01

 

 

0.01

 

 

0.01

 

14

 

 

Reconciliation of Non-GAAP Financial Measures

The tables below provide a reconciliation of each non-GAAP financial measure to the most comparable GAAP measure for the periods indicated. Dollar amounts below in thousands, except per share data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarters Ended

 

 

March 31, 2019

 

December 31, 2018

 

March 31, 2018

 

 

Amount

 

Per share

 

Amount

 

Per Share

 

Amount

 

Per Share

Adjusted Net Income and adjusted diluted earnings per share (EPS), excluding certain items

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (GAAP)

 

$

8,468

 

$

0.28

 

$

8,620

 

$

0.28

 

$

9,489

 

$

0.31

(Less) / Add:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition related costs, net, after tax

 

 

 -

 

 

 -

 

 

89

 

 

0.01

 

 

203

 

 

0.01

Impact of BOLI death claim

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(1,026)

 

 

(0.03)

Provision for loan loss release due to insurance recovery, after tax

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(596)

 

 

(0.02)

Adjusted net income, excluding certain items

 

$

8,468

 

$

0.28

 

$

8,709

 

$

0.29

 

$

8,070

 

$

0.27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarters Ended

 

 

 

March 31, 

 

December 31, 

 

March 31, 

 

 

    

2019

    

2018

 

2018

 

Net Interest Margin

 

 

 

 

 

 

 

 

 

 

Interest income (GAAP)

 

$

28,896

 

$

29,038

 

$

23,142

 

Taxable-equivalent adjustment:

 

 

 

 

 

 

 

 

 

 

Loans

 

 

 5

 

 

 5

 

 

11

 

Securities

 

 

558

 

 

559

 

 

548

 

Interest income (TE)

 

 

29,459

 

 

29,602

 

 

23,701

 

Interest expense (GAAP)

 

 

4,859

 

 

4,698

 

 

3,526

 

Net interest income (TE)

 

$

24,600

 

$

24,904

 

$

20,175

 

Net interest income  (GAAP)

 

$

24,037

 

$

24,340

 

$

19,616

 

Average interest earning assets

 

$

2,439,308

 

$

2,426,682

 

$

2,174,847

 

Net interest margin (GAAP)

 

 
4.00

%

 
3.98

%

 
3.66

%

Net interest margin  (TE)

 

 
4.09

%

 
4.07

%

 
3.76

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

December 31, 

 

March 31, 

 

 

 

2019

 

2018

 

2018

 

Efficiency Ratio

 

 

 

 

 

 

 

 

 

 

Noninterest expense (GAAP)

 

$

19,194

 

$

18,777

 

$

17,354

 

Less amortization of core deposit (GAAP)

 

 

132

 

 

133

 

 

21

 

Less other real estate expense, net (GAAP)

 

 

50

 

 

165

 

 

173

 

Less acquisition related costs

 

 

 -

 

 

119

 

 

246

 

Adjusted noninterest expense

 

$

19,012

 

$

18,360

 

$

16,914

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income (GAAP)

 

$

24,036

 

$

24,340

 

$

19,616

 

Taxable-equivalent adjustment:

 

 

 

 

 

 

 

 

 

 

Loans

 

 

 5

 

 

 5

 

 

11

 

Securities

 

 

558

 

 

559

 

 

548

 

Net interest income (TE)

 

 

24,599

 

 

24,904

 

 

20,175

 

Noninterest income (GAAP)

 

 

6,482

 

 

6,502

 

 

8,505

 

Taxable-equivalent adjustment:

 

 

 

 

 

 

 

 

 

 

Increase in cash surrender value of BOLI (TE)

 

 

122

 

 

10

 

 

66

 

Noninterest income  (TE)

 

 

6,604

 

 

6,512

 

 

8,571

 

Less death benefit related to BOLI (GAAP)

 

 

 -

 

 

 -

 

 

1,026

 

Less securities gain (loss), net (GAAP)

 

 

27

 

 

 -

 

 

35

 

Adjusted noninterest income, plus net interest income (TE)

 

$

31,176

 

$

31,416

 

$

27,685

 

Efficiency ratio (GAAP)

 

 

62.35

%

 

59.92

%

 

63.41

%

Adjusted efficiency ratio (non-GAAP)

 

 

60.98

%

 

58.44

%

 

61.10

%

 

15