Old Second Bancorp, Inc. Reports First Quarter 2023 Net Income of $23.6 Million, or $0.52 per Diluted Share

Rhea-AI Summary

Old Second Bancorp (NASDAQ: OSBC) reported first quarter 2023 net income of $23.6 million, or $0.52 per diluted share, unchanged from the previous quarter but a notable increase from $12.0 million, or $0.27 per diluted share, a year earlier.

Adjusted net income was $23.4 million, a slight decrease from the prior quarter. The increase in annual net income is attributed to a $22.9 million rise in net interest and dividend income, despite a $1.6 million drop in noninterest income. The company declared a cash dividend of $0.05 per share, payable on May 8, 2023. Key metrics include a net provision for credit losses of $3.5 million and nonperforming loans totaling 1.6% of total loans.

Positive

• Net income for Q1 2023 was $23.6 million, consistent with Q4 2022 and significantly up from $12.0 million in Q1 2022.
• Net interest and dividend income rose by $22.9 million, or 55.4%, from Q1 2022.
• Cost control efforts resulted in a $3.8 million decrease in noninterest expense.
• Tangible common equity ratio improved to 6.83%, reflecting a 59 basis points increase.
• Shareholders can expect a cash dividend of $0.05 per share.

Negative

• Provision for credit losses increased to $3.5 million from $1.5 million in Q4 2022.
• Noninterest income fell by $1.6 million, or 17.8%, compared to Q4 2022.
• Nonperforming loans increased to $64.5 million, representing 1.6% of total loans, up from 0.9% in the previous quarter.

AURORA, IL / ACCESSWIRE / April 19, 2023 / Old Second Bancorp, Inc. (the "Company," "Old Second," "we," "us," and "our") (NASDAQ:OSBC), the parent company of Old Second National Bank (the "Bank"), today announced financial results for the first quarter of 2023. Our net income was $23.6 million, or $0.52 per diluted share, for the first quarter of 2023, compared to net income of $23.6 million, or $0.52 per diluted share, for the fourth quarter of 2022, and net income of $12.0 million, or $0.27 per diluted share, for the first quarter of 2022. Adjusted net income, a non-GAAP financial measure that excludes net pre-tax gains totaling $306,000 from branch sales, was $23.4 million, or $0.52 per diluted share, for the first quarter of 2023. See the discussion entitled "Non-GAAP Presentations" below and the tables beginning on page 16 that provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

There was no material change in net income in the first quarter of 2023 compared to the fourth quarter of 2022. This was primarily due to the increase of $2.0 million in provision for credit losses and a decrease in noninterest income of $1.6 million in the first quarter of 2023, which were offset by a $3.8 million decrease in noninterest expense. Net income increased $11.6 million in the first quarter of 2023 compared to the first quarter of 2022. The first quarter of 2023 also included pre-tax net losses on the sale of securities of $1.7 million and a $525,000 pre-tax mark to market loss on mortgage servicing rights ("MSRs"), compared to pre-tax net losses on the sale of securities of $910,000 and a $431,000 pre-tax mark to market loss on MSRs in the fourth quarter of 2022, and a $3.0 million pre-tax gain on MSRs in the first quarter of 2022.

Operating Results

• First quarter 2023 net income was $23.6 million, reflecting no material change from the fourth quarter 2022, and an increase of $11.6 million from the first quarter of 2022. Adjusted net income, a non-GAAP financial measure that excludes acquisition-related costs, net of gains on branch sales, was $23.4 million for the first quarter of 2023, a decrease of $691,000 from adjusted net income for the fourth quarter of 2022, and an increase of $7.5 million from adjusted net income for the first quarter of 2022.
• Net interest and dividend income was $64.1 million for the first quarter of 2023, reflecting no material change from the fourth quarter of 2022, and an increase of $22.9 million, or 55.4%, from the first quarter of 2022.
• We recorded a net provision for credit losses of $3.5 million in the first quarter of 2023, compared to a net provision for credit losses of $1.5 million in the fourth quarter of 2022, and no net provision for credit losses in the first quarter of 2022.
• Noninterest income was $7.4 million for the first quarter of 2023, a decrease of $1.6 million, or 17.8%, compared to $8.9 million for the fourth quarter of 2022, and a decrease of $6.1 million, or 45.4%, compared to $13.5 million for the first quarter of 2022.
• Noninterest expense was $35.9 million for the first quarter of 2023, a decrease of $3.8 million, or 9.5% compared to $39.7 million for the fourth quarter of 2022, and a decrease of $2.3 million, or 6.1%, compared to $38.3 million for the first quarter of 2022.
• We had a provision for income tax of $8.4 million for the first quarter of 2023, compared to a provision for income tax of $8.2 million for the fourth quarter of 2022 and a provision of $4.4 million for the first quarter of 2022.
• On April 18, 2023, our Board of Directors declared a cash dividend of $0.05 per share payable on May 8, 2023, to stockholders of record as of April 28, 2023.

Financial Highlights

	Quarters Ended
(Dollars in thousands)	March 31, 2023				December 31, 2022				March 31, 2022
Balance sheet summary
Total assets	$	5,920,283			$	5,888,317			$	6,223,791
Total securities available-for-sale		1,455,068				1,539,359				1,816,450
Total loans		4,003,354				3,869,609				3,402,370
Total deposits		4,897,220				5,110,723				5,544,545
Total liabilities		5,423,413				5,427,176				5,757,473
Total equity		496,870				461,141				466,318
Total tangible assets	$	5,820,751			$	5,788,161			$	6,121,820
Total tangible equity		397,338				360,985				364,347
Income statement summary
Net interest income	$	64,086			$	64,091			$	41,232
Provision for credit losses		3,501				1,500				-
Noninterest income		7,350				8,946				13,463
Noninterest expense		35,922				39,684				38,252
Net income		23,607				23,615				12,020
Effective tax rate		26.26	%			25.86	%			26.90	%
Profitability ratios
Return on average assets (ROAA)		1.62	%			1.58	%			0.78	%
Return on average equity (ROAE)		19.86				21.09				9.82
Net interest margin (tax-equivalent)		4.74				4.63				2.88
Efficiency ratio		47.52				52.44				72.70
Return on average tangible common equity (ROATCE)		25.54				27.80				12.86
Tangible common equity to tangible assets (TCE/TA)		6.83				6.24				5.95
Per share data
Diluted earnings per share	$	0.52			$	0.52			$	0.27
Tangible book value per share		8.90				8.10				8.19
Company capital ratios 1
Common equity tier 1 capital ratio		9.91	%			9.67	%			9.73	%
Tier 1 risk-based capital ratio		10.43				10.20				10.33
Total risk-based capital ratio		12.79				12.52				12.85
Tier 1 leverage ratio		8.56				8.14				7.00
Bank capital ratios 1, 2
Common equity tier 1 capital ratio		11.98	%			11.70	%			12.74	%
Tier 1 risk-based capital ratio		11.98				11.70				12.74
Total risk-based capital ratio		13.10				12.75				13.83
Tier 1 leverage ratio		9.83				9.32				8.61

¹ Both the Company and the Bank ratios are inclusive of a capital conservation buffer of 2.50%, and both are subject to the minimum capital adequacy guidelines of 7.00%, 8.50%, 10.50%, and 4.00% for the Common equity tier 1, Tier 1 risk-based, Total risk-based and Tier 1 leverage ratios, respectively.

² The prompt corrective action provisions are applicable only at the Bank level, and are 6.50%, 8.00%, 10.00%, and 5.00% for the Common equity tier 1, Tier 1 risk-based, Total risk-based and Tier 1 leverage ratios, respectively.

President and Chief Executive Officer Jim Eccher said, "Old Second reported strong results in the first quarter as we earned $23.6 million in net income, an ROAA of 1.62% and an ROATCE of 25.54%. Capital levels continue to build quickly with 59 basis points of expansion in the tangible common equity ratio to 6.83% and 10% linked quarter growth in tangible book value per share. Adjusting for merger related items, our earnings per share increased by 44% over first quarter 2022. This robust earnings growth demonstrates the strength of our core deposit franchise highlighted by 186 basis points year over year, and 11 basis points over the linked quarter, of expansion in our net interest margin. Loans increased $133.7 million in the first quarter, or 3.5% through March 31, 2023, and we remain confident in our ability to generate and profitably fund loan growth in the remainder of 2023. The efficiency ratio in the first quarter was approximately 47.5% on a GAAP basis and reflects not only success in achieving cost saves but also reaching milestone profitability on significant investments in lending teams and sales people over the last fifteen months.

"The return of relatively higher market interest rates has allowed us the opportunity to demonstrate the strength of the franchise that we are building here at Old Second. I believe Old Second has among the very best and most granular deposit bases in the industry. We bank grandkids and grandparents and everyone in between. Over 98% of the customers that walk through our doors are fully guaranteed by FDIC insurance and we have but a few accounts that feature more than $5 million in deposit balances. Deposit balances that are uninsured, or not collateralized, are less than 20% at Old Second, compared to an industry average of approximately 50%. The average Old Second personal checking account was opened 14 years ago and has a balance of approximately $2,200. Our funding base is mature, stable and features a preponderance of lower balance accounts - accounts that people use to live their daily lives. Regardless, we will never forget that our customers place their trust in us and that all balances, large and small, are payable upon demand. We maintain a conservative and short asset duration that means our balance sheet is transitioning smoothly into a world of higher interest rates and that we can quickly summon the liquidity needed to meet any potential emergency, large or small. Asset repricing should continue in the coming quarters which will allow for additional improvement in our core trends. Deposit repricing is expected to remain excellent but modestly higher than cycle to date performance as we respond to competitors and take the necessary steps to protect our greatest strength.

"Continuing strong results should allow us to continue to compound book value and build capital back to our targeted levels by the end of this year. As we progress through the year, we will look to continue to reduce high cost debt on the balance sheet, evaluate share repurchase opportunities and optimize the earning asset mix in order to fund loan growth in a more competitive deposit market. We remain mindful and diligent in monitoring credit trends within the loan portfolio but remain confident in overall trends. The first quarter featured an approximate $32 million increase in nonaccrual loan balances, two thirds of which can be attributed to our most recent acquisition. These loans can be characterized as office and healthcare related and have been on our radar for quite some time. We have been stress testing maturing loan balances at higher rate levels for well over a year now and are encouraged by the results and trends we see in the portfolio."

Asset Quality & Earning Assets

• Nonperforming loans, comprised of nonaccrual loans, past due 90 days or more and still accruing, and, prior to January 1, 2023, performing troubled debt restructurings, totaled $64.5 million at March 31, 2023, $32.9 million at December 31, 2022, and $38.0 million at March 31, 2022. Nonperforming loans, as a percent of total loans were 1.6% at March 31, 2023, 0.9% at December 31, 2022, and 1.1% at March 31, 2022. The increase in the first quarter of 2023 is driven by a small number of relationships within the commercial real estate - investor and commercial real estate-owner occupied portfolios.
• Total loans were $4.00 billion at March 31, 2023, reflecting an increase of $133.7 million compared to December 31, 2022, and an increase of $601.0 million compared to March 31, 2022. The increase in the year over year quarter was largely driven by the growth in commercial, commercial real estate-investor, and multifamily portfolios. Average loans (including loans held-for-sale) for the first quarter of 2023 totaled $3.93 billion, reflecting an increase of $54.3 million from the fourth quarter of 2022 and an increase of $528.0 million from the first quarter of 2022.
• Available-for-sale securities totaled $1.46 billion at March 31, 2023, compared to $1.54 billion at December 31, 2022, and $1.82 billion at March 31, 2022. The unrealized mark to market loss on securities totaled $105.6 million as of March 31, 2023, compared to $123.5 million as of December 31, 2022, and $49.4 million as of March 31, 2022, due to market interest rate increases over the past year as well as changes year over year in the composition of the securities portfolio. Year to date unrealized losses were less than year end 2022 due to sales of securities and lower yields at the 3-year part of the curve, where our portfolio duration is. The lower rates increased the market values of our securities. During the quarter ended March 31, 2023 securities sales of $66.2 million resulted in net realized losses of $1.7 million, and sales of $27.7 million during the quarter ended December 31, 2022 resulted in net realized losses of $910,000; there were no sales for the quarter ended March 31, 2022. We may continue to sell strategically identified securities as opportunities arise.

See the full First Quarter 2023 OSBC Earnings Release on our website at www.oldsecond.com, on the main page or by clicking on the Investor Relations tab, under SEC Filings.

Non-GAAP Presentations

Management has disclosed in this earnings release certain non-GAAP financial measures to evaluate and measure our performance, including the presentation of adjusted net income, net interest income and net interest margin on a fully taxable equivalent basis, and our efficiency ratio calculations on a taxable equivalent basis. The net interest margin fully taxable equivalent is calculated by dividing net interest income on a tax equivalent basis by average earning assets for the period. 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.

We consider the use of select non-GAAP financial measures and ratios to be useful for financial and operational decision making and useful in evaluating period-to-period comparisons. We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding certain expenditures or assets that we believe are not indicative of our primary business operating results or by presenting certain metrics on a fully taxable equivalent basis. We believe these measures provide investors with information regarding balance sheet profitability, and we believe that management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, analyzing, and comparing past, present and future periods.

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 beginning on page 16 provide a reconciliation of each non-GAAP financial measure to the most comparable GAAP equivalent.

Cautionary Note Regarding Forward-Looking Statements

This earnings release and statements by our management may contain forward-looking statements within the Private Securities Litigation Reform Act of 1995. Forward looking statements can be identified by words such as "should," "anticipate," "expect," "estimate," "intend," "believe," "may," "likely," "will," "forecast," "project," "looking forward," "optimistic," "hopeful," "potential," "progress," "prospect," "remain," "continue," "trend," "momentum" or other statements that indicate future periods. Examples of forward-looking statements include, but are not limited to, statements regarding the economic outlook, loan growth, deposit trends, asset-quality trends, pipelines and customer activity, statements regarding our expectations with respect to the yield curve, and statements regarding the potential for expanded margins and future growth. Such forward-looking statements are subject to risks, uncertainties, and other factors, which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements, (1) the strength of the United States economy in general and the strength of the local economies in which we conduct our operations may be different than expected; (2) the rate of delinquencies and amounts of charge-offs, the level of allowance for credit loss, the rates of loan growth, or adverse changes in asset quality in our loan portfolio, which may result in increased credit risk-related losses and expenses; (3) changes in legislation, regulation, policies, or administrative practices, whether by judicial, governmental, or legislative action; (4) risks related to future acquisitions, if any, including execution and integration risks; (5) adverse conditions in the stock market, the public debt market and other capital markets (including changes in interest rate conditions) could have a negative impact on us; (6) changes in interest rates, which may affect our deposit and funding costs, net income, prepayment penalty income, mortgage banking income, and other future cash flows, or the market value of our assets, including our investment securities; (7) elevated inflation which causes adverse risk to the overall economy, and could indirectly pose challenges to our clients and to our business; (8) any increases in FDIC assessment which will increase our cost of doing business; and (9) the adverse effects of events beyond our control that may have a destabilizing effect on financial markets and the economy, such as epidemics and pandemics, war or terrorist activities, essential utility outages, deterioration in the global economy, instability in the credit markets, disruptions in our customers' supply chains or disruption in transportation. Additional risks and uncertainties are contained in the "Risk Factors" and forward-looking statements disclosure in our most recent Annual Report on Form 10-K, and Quarterly Reports on Form 10-Q. The inclusion of this forward-looking information should not be construed as a representation by us or any person that future events, plans, or expectations contemplated by us will be achieved. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

Conference Call

We will host a call on Thursday, April 20, 2023, at 11:00 a.m. Eastern Time (10:00 a.m. Central Time) to discuss our first quarter 2023 financial results. Investors may listen to our call via telephone by dialing 888-506-0062, using Entry Code 510290. 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 call will be available until 11:00 a.m. Eastern Time (10:00 a.m. Central Time) on April 27, 2023, by dialing 877-481-4010, using Conference ID: 47930.

Contact:
Bradley S. Adams
Chief Financial Officer
(630) 906-5484

SOURCE: Old Second Bancorp Inc.

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FAQ

What were Old Second Bancorp's financial results for Q1 2023?

Old Second Bancorp reported a net income of $23.6 million, or $0.52 per diluted share, for Q1 2023.

How does the Q1 2023 net income compare to previous quarters for OSBC?

The Q1 2023 net income is unchanged from Q4 2022 and significantly higher than $12.0 million reported in Q1 2022.

What is the cash dividend declared by Old Second Bancorp?

Old Second Bancorp declared a cash dividend of $0.05 per share, payable on May 8, 2023.

What is the provision for credit losses for Old Second Bancorp in Q1 2023?

The provision for credit losses in Q1 2023 was $3.5 million, increased from $1.5 million in Q4 2022.

What are the key metrics for nonperforming loans for OSBC?

Nonperforming loans totaled $64.5 million in Q1 2023, which is 1.6% of total loans.