Old Second Bancorp, Inc. Reports Fourth Quarter 2023 Net Income of $18.2 Million, or $0.40 per Diluted Share
- The company's total assets were $5.72 billion, with a net interest income of $61.2 million.
- Nonperforming loans increased, impacting the overall asset quality.
- The Board declared a cash dividend of $0.05 per share.
- The company reported a decrease in net income, net interest income, and noninterest income, while the provision for credit losses increased.
- The effective tax rate also saw a slight increase.
Insights
The recent financial results from Old Second Bancorp reveal a notable decline in net income both quarter-over-quarter and year-over-year. This decrease is attributed primarily to a heightened provision for credit losses and increased interest expenses. The bank's net interest margin, a critical measure of profitability, has shown a slight decrease, which is concerning given the rising market interest rates that impact borrowing costs and the interest income from loans.
From a balance sheet perspective, the company's total assets have decreased compared to the previous quarter and year, indicating a potential contraction in business size or a strategic reduction in assets. However, the capital ratios remain above the regulatory requirements, which suggests financial stability and a buffer against potential losses.
The bank's proactive approach in addressing credit quality, particularly in commercial real estate loans, is a positive sign for risk management. However, investors should monitor these developments closely, as further deterioration could impact future earnings. The dividend declaration indicates a commitment to shareholder returns, albeit the amount should be evaluated in the context of the bank's overall financial health.
Old Second Bancorp's financial results reflect broader economic trends, such as rising interest rates that have led to increased borrowing costs and pressure on net interest income. This is a trend observed across the banking sector, suggesting that Old Second is not alone in facing these challenges. The decrease in noninterest income and the increase in nonperforming loans highlight potential vulnerabilities in the bank's revenue streams and asset quality.
The bank's efficiency ratio improvements suggest effective cost management, an essential factor for maintaining profitability in a challenging interest rate environment. The management's cautious economic outlook compared to market consensus indicates a conservative approach to future planning, which could resonate well with risk-averse investors. However, the tight spreads in deposit and lending markets could pressure margins if these conditions persist.
The financial results of Old Second Bancorp should be viewed against the backdrop of the macroeconomic environment, particularly the Federal Reserve's interest rate policies. The increased provision for credit losses may signal expectations of economic headwinds, which could affect loan performance and default rates. A bank's ability to navigate these conditions is crucial for long-term sustainability.
The bank's tangible common equity to tangible assets ratio has improved, which is a positive indicator of its capital adequacy and ability to absorb potential losses. This metric is particularly important for understanding the bank's leverage and risk exposure. The management's commentary on asset quality trends and their confidence in credit quality, barring a significant recession, provides insight into their risk assessment and strategic focus areas.
AURORA, IL / ACCESSWIRE / January 24, 2024 / 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 fourth quarter of 2023. Our net income was
Net income decreased
Operating Results
- Fourth quarter 2023 net income was
$18.2 million , reflecting a$6.1 million decrease from the third quarter 2023, and a decrease of$5.4 million from the fourth quarter of 2022. Adjusted net income, as defined above, was$19.1 million for the fourth quarter of 2023, a decrease of$5.7 million from adjusted net income for the third quarter of 2023, and a decrease of$4.9 million from adjusted net income for the fourth quarter of 2022. - Net interest and dividend income was
$61.2 million for the fourth quarter of 2023, reflecting a decrease of$1.8 million , or2.8% , from the third quarter of 2023, and a decrease of$2.9 million , or4.5% , from the fourth quarter of 2022. - We recorded a net provision for credit losses of
$8.0 million in the fourth quarter of 2023, compared to a net provision for credit losses of$3.0 million in the third quarter of 2023, and a net provision for credit losses of$1.5 million in the fourth quarter of 2022. - Noninterest income was
$8.7 million for the fourth quarter of 2023, a decrease of$1.1 million , or11.6% , compared to$9.9 million for the third quarter of 2023, and a decrease of$217,000 , or2.4% , compared to$8.9 million for the fourth quarter of 2022. - Noninterest expense was
$37.0 million for the fourth quarter of 2023, a decrease of$397,000 , or1.1% compared to$37.4 million for the third quarter of 2023, and a decrease of$2.7 million , or6.7% , compared to$39.7 million for the fourth quarter of 2022. - We had a provision for income tax of
$6.7 million for the fourth quarter of 2023, compared to a provision for income tax of$8.1 million for the third quarter of 2023 and a provision of$8.2 million for the fourth quarter of 2022. The effective tax rate for each of the periods presented was26.9% ,25.1% , and25.9% , respectively. - On January 16, 2024, our Board of Directors declared a cash dividend of
$0.05 per share payable on February 5, 2024, to stockholders of record as of January 26, 2024.
Financial Highlights
| Quarters Ended | ||||||||||||
(Dollars in thousands) | December 31, | September 30, | December 31, | |||||||||
| 2023 | 2023 | 2022 | ||||||||||
Balance sheet summary | ||||||||||||
Total assets | $ | 5,722,799 | $ | 5,758,156 | $ | 5,888,317 | ||||||
Total securities available-for-sale | 1,192,829 | 1,229,618 | 1,539,359 | |||||||||
Total loans | 4,042,953 | 4,029,543 | 3,869,609 | |||||||||
Total deposits | 4,570,746 | 4,614,320 | 5,110,723 | |||||||||
Total liabilities | 5,145,518 | 5,225,598 | 5,427,176 | |||||||||
Total equity | 577,281 | 532,558 | 461,141 | |||||||||
Total tangible assets | $ | 5,625,104 | $ | 5,659,858 | $ | 5,788,161 | ||||||
Total tangible equity | 479,586 | 434,260 | 360,985 | |||||||||
Income statement summary | ||||||||||||
Net interest income | $ | 61,235 | $ | 63,030 | $ | 64,091 | ||||||
Provision for credit losses | 8,000 | 3,000 | 1,500 | |||||||||
Noninterest income | 8,729 | 9,877 | 8,946 | |||||||||
Noninterest expense | 37,026 | 37,423 | 39,684 | |||||||||
Net income | 18,225 | 24,335 | 23,615 | |||||||||
Effective tax rate | 26.92 | % | 25.09 | % | 25.86 | % | ||||||
Profitability ratios | ||||||||||||
Return on average assets (ROAA) | 1.27 | % | 1.67 | % | 1.58 | % | ||||||
Return on average equity (ROAE) | 13.18 | 18.21 | 21.09 | |||||||||
Net interest margin (tax-equivalent) | 4.62 | 4.66 | 4.63 | |||||||||
Efficiency ratio | 50.82 | 50.08 | 52.44 | |||||||||
Return on average tangible common equity (ROATCE) | 16.43 | 22.80 | 27.80 | |||||||||
Tangible common equity to tangible assets (TCE/TA) | 8.53 | 7.67 | 6.24 | |||||||||
Per share data | ||||||||||||
Diluted earnings per share | $ | 0.40 | $ | 0.54 | $ | 0.52 | ||||||
Tangible book value per share | 10.73 | 9.72 | 8.10 | |||||||||
Company capital ratios 1 | ||||||||||||
Common equity tier 1 capital ratio | 11.37 | % | 11.00 | % | 9.67 | % | ||||||
Tier 1 risk-based capital ratio | 11.89 | 11.52 | 10.20 | |||||||||
Total risk-based capital ratio | 14.06 | 13.84 | 12.52 | |||||||||
Tier 1 leverage ratio | 10.06 | 9.62 | 8.14 | |||||||||
Bank capital ratios 1, 2 | ||||||||||||
Common equity tier 1 capital ratio | 12.32 | % | 12.49 | % | 11.70 | % | ||||||
Tier 1 risk-based capital ratio | 12.32 | 12.49 | 11.70 | |||||||||
Total risk-based capital ratio | 13.24 | 13.57 | 12.75 | |||||||||
Tier 1 leverage ratio | 10.41 | 10.43 | 9.32 | |||||||||
1 Both the Company and the Bank ratios are inclusive of a capital conservation buffer of
2 The prompt corrective action provisions are applicable only at the Bank level, and are
Chairman, President and Chief Executive Officer Jim Eccher said "Profitability at Old Second remains exceptionally strong and balance sheet strengthening continues with our tangible common equity to tangible assets ratio increasing by 86 basis points linked quarter to
Asset Quality & Earning Assets
- Nonperforming loans, comprised of nonaccrual loans plus loans past due 90 days or more and still accruing, and, prior to January 1, 2023, performing troubled debt restructurings, totaled
$68.8 million at December 31, 2023,$63.3 million at September 30, 2023, and$32.9 million at December 31, 2022. Nonperforming loans, as a percent of total loans, were1.7% at December 31, 2023,1.6% at September 30, 2023, and0.9% at December 31, 2022. The increase in the fourth quarter of 2023 is driven by the downgrade of a few credits during the quarter, due primarily to office-related loans and assisted living properties within the commercial real estate-investor portfolio and debt service coverage shortfalls. - Total loans were
$4.04 billion at December 31, 2023, reflecting an increase of$13.4 million compared to September 30, 2023, and an increase of$173.3 million compared to December 31, 2022. The increase year over year was largely driven by the growth in leases, commercial real estate-investor, and multifamily portfolios. Average loans (including loans held-for-sale) for the fourth quarter of 2023 totaled$4.02 billion , reflecting an increase of$5.6 million from the third quarter of 2023 and an increase of$138.3 million from the fourth quarter of 2022. - Available-for-sale securities totaled
$1.19 billion at December 31, 2023, compared to$1.23 billion at September 30, 2023, and$1.54 billion at December 31, 2022. The unrealized mark to market loss on securities totaled$84.2 million as of December 31, 2023, compared to$120.5 million as of September 30, 2023, and$123.5 million as of December 31, 2022, due to market interest rate fluctuations as well as changes year over year in the composition of the securities portfolio. During the quarter ended December 31, 2023, there were no securities sold, however$55.9 million of maturities and calls resulted in net realized losses of$2,000 , compared to sales of$65.6 million during the quarter ended September 30, 2023, which resulted in net realized losses of$924,000 , and security sales of$27.7 million for the quarter ended December 31, 2022, which resulted in net realized losses of$910,000. We may continue to sell strategically identified securities as opportunities arise.
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 7 of the full filing of this release; see the investor relations tab at oldsecond.com for this full release.
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 17of the full filing of this release provide a reconciliation of each non-GAAP financial measure to the most comparable GAAP equivalent; see the investor relations tab at oldsecond.com for this full release.
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," "deliver," "continue," "trend," "momentum," "remainder," "beyond," "and "near" 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 and funding, asset-quality trends, balance sheet growth, and building capital. 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 has and may continue to 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; and (8) 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, January 25, 2024, at 11:00 a.m. Eastern Time (10:00 a.m. Central Time) to discuss our fourth quarter 2023 financial results. Investors may listen to our call via telephone by dialing 888-506-0062, using Entry Code: 675276. 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 February 1, 2024, by dialing 877-481-4010, using Conference ID: 49609.
Contact:
Bradley S. Adams
Chief Financial Officer
(630) 906-5484
SOURCE: Old Second Bancorp Inc.
View the original press release on accesswire.com
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