AURORA, IL / ACCESSWIRE / July 17, 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 second quarter of 2024. Our net income was $21.9 million, or $0.48 per diluted share, for the second quarter of 2024, compared to net income of $21.3 million, or $0.47 per diluted share, for the first quarter of 2024, and net income of $25.6 million, or $0.56 per diluted share, for the second quarter of 2023. Adjusted net income, a non-GAAP financial measure that excludes certain nonrecurring items, as applicable, was $21.0 million, or $0.46 per diluted share, for the second quarter of 2024, compared to $21.3 million, or $0.47 per diluted share, for the first quarter of 2024, and $25.6 million, or $0.56 per share, for the second quarter of 2023. The adjusting item impacting the second quarter of 2024 was an $893,000 death benefit related to BOLI; the adjusting item impacting the second quarter of 2023 results included $29,000 of pre-tax losses from branch sales. See the discussion entitled "Non-GAAP Presentations" below and the tables beginning on page 17 of the full earnings release that provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent. The full earnings release can be found at www.oldsecond.com, under the investor relations tab.
Net income increased $579,000 in the second quarter of 2024 compared to the first quarter of 2024. The increase was primarily due to a $626,000 increase in noninterest income and a $364,000 decrease in noninterest expense, partially offset by a $93,000 decrease in net interest and dividend income, a $250,000 increase in provision for credit losses, and a $68,000 increase in provision for income taxes. Net income decreased $3.7 million in the second quarter of 2024 compared to the second quarter of 2023, primarily due to a decrease in net interest income of $3.9 million year over year driven by a $3.2 million increase to interest expense as a result of higher interest rates offered on deposits, as well as a reduction in interest and dividend income as the securities portfolio decreased $162.0 million during the last twelve months. Also contributing to the decrease in net income compared to the prior year like quarter was an increase in provision for credit losses of $1.8 million.
Operating Results
Second quarter 2024 net income was $21.9 million, reflecting a $579,000 increase from the first quarter of 2024, and a decrease of $3.7 million from the second quarter of 2023. Adjusted net income, as defined above, was $21.0 million for the second quarter of 2024, a decrease of $314,000 from adjusted net income for the first quarter of 2024, and a decrease of $4.6 million from adjusted net income for the second quarter of 2023.
Net interest and dividend income was $59.7 million for the second quarter of 2024, reflecting a decrease of $93,000, or 0.2%, from the first quarter of 2024, and a decrease of $3.9 million, or 6.1%, from the second quarter of 2023.
We recorded a net provision for credit losses of $3.8 million in the second quarter of 2024 compared to a net provision for credit losses of $3.5 million in the first quarter of 2024, and a net provision for credit losses of $2.0 million in the second quarter of 2023.
Noninterest income was $11.1 million for the second quarter of 2024, an increase of $626,000, or 6.0%, compared to $10.5 million for the first quarter of 2024, and an increase of $2.9 million, or 35.3%, compared to $8.2 million for the second quarter of 2023. An $893,000 death benefit on a BOLI contract was recorded in the second quarter of 2024, which did not occur in either comparative period, and $1.5 million of securities losses, net, was recorded in the second quarter of 2023; no security sales occurred in the second quarter of 2024.
Noninterest expense was $37.9 million for the second quarter of 2024, a decrease of $364,000, or 1.0% compared to $38.2 million for the first quarter of 2024, and an increase of $3.0 million, or 8.7%, compared to $34.8 million for the second quarter of 2023.
We had a provision for income tax of $7.3 million for the second quarter of 2024, compared to a provision for income tax of $7.2 million for the first quarter of 2024 and a provision of $9.4 million for the second quarter of 2023. The effective tax rate for each of the periods presented was 25.0%, 25.3%, and 26.9%, respectively.
On July 16, 2024, our Board of Directors declared a cash dividend of $0.05 per share of common stock, payable on August 5, 2024, to stockholders of record as of July 26, 2024.
Financial Highlights
| Quarters Ended |
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(Dollars in thousands) |
| June 30, |
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| March 31, |
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| June 30, |
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| 2024 |
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| 2024 |
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| 2023 |
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Balance sheet summary |
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Total assets |
| $ | 5,662,700 |
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| $ | 5,616,072 |
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| $ | 5,883,942 |
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Total securities available-for-sale |
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| 1,173,661 |
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| 1,168,797 |
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| 1,335,622 |
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Total loans |
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| 3,976,595 |
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| 3,969,411 |
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| 4,015,525 |
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Total deposits |
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| 4,521,728 |
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| 4,608,275 |
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| 4,717,582 |
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Total liabilities |
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| 5,043,365 |
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| 5,019,913 |
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| 5,369,987 |
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Total equity |
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| 619,335 |
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| 596,159 |
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| 513,955 |
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Total tangible assets |
| $ | 5,566,159 |
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| $ | 5,518,957 |
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| $ | 5,785,028 |
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Total tangible equity |
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| 522,794 |
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| 499,044 |
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| 415,041 |
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Income statement summary |
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Net interest income |
| $ | 59,690 |
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| $ | 59,783 |
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| $ | 63,580 |
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Provision for credit losses |
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| 3,750 |
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| 3,500 |
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| 2,000 |
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Noninterest income |
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| 11,127 |
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| 10,501 |
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| 8,223 |
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Noninterest expense |
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| 37,877 |
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| 38,241 |
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| 34,830 |
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Net income |
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| 21,891 |
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| 21,312 |
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| 25,562 |
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Effective tax rate |
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| 25.01 | % |
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| 25.33 | % |
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| 26.91 | % |
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Profitability ratios |
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Return on average assets (ROAA) |
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| 1.57 | % |
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| 1.51 | % |
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| 1.73 | % |
Return on average equity (ROAE) |
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| 14.55 |
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| 14.56 |
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| 20.04 |
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Net interest margin (tax-equivalent) |
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| 4.63 |
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| 4.58 |
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| 4.64 |
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Efficiency ratio |
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| 53.29 |
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| 53.59 |
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| 46.84 |
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Return on average tangible common equity (ROATCE) |
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| 17.66 |
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| 17.80 |
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| 25.30 |
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Tangible common equity to tangible assets (TCE/TA) |
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| 9.39 |
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| 9.04 |
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| 7.17 |
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Per share data |
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Diluted earnings per share |
| $ | 0.48 |
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| $ | 0.47 |
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| $ | 0.56 |
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Tangible book value per share |
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| 11.66 |
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| 11.13 |
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| 9.29 |
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Company capital ratios 1 |
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Common equity tier 1 capital ratio |
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| 12.41 | % |
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| 12.02 | % |
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| 10.29 | % |
Tier 1 risk-based capital ratio |
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| 12.94 |
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| 12.55 |
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| 10.80 |
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Total risk-based capital ratio |
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| 15.12 |
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| 14.79 |
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| 13.16 |
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Tier 1 leverage ratio |
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| 10.96 |
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| 10.47 |
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| 8.96 |
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Bank capital ratios 1, 2 |
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Common equity tier 1 capital ratio |
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| 13.50 | % |
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| 13.06 | % |
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| 11.70 | % |
Tier 1 risk-based capital ratio |
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| 13.50 |
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| 13.06 |
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| 11.70 |
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Total risk-based capital ratio |
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| 14.42 |
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| 14.03 |
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| 12.83 |
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Tier 1 leverage ratio |
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| 11.43 |
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| 10.89 |
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| 9.70 |
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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.
Chairman, President and Chief Executive Officer Jim Eccher said "Old Second reported strong results in the second quarter with exceptional profitability and significant improvement in asset quality metrics. We are reaching resolution on a number of problem loans identified in prior periods and continue to monitor trends very closely. Nonperforming and classified assets at Old Second are at their lowest levels since year end 2022 and we expect further improvement this year. Our industry continues to experience significant stress in a number of real estate lending verticals, but I believe Old Second has been proactive in identifying and addressing potential problems. The rest of the bank continues to perform well with return on average assets and return on average tangible common equity at 1.57% and 17.66%, respectively, and the efficiency ratio is at 53.29%. The net interest margin increased by five basis points this quarter to a very strong 4.63% and our tangible book value per share increased by 19% linked quarter annualized and 26% year over year. Loan growth has been tepid through the second quarter, but we are optimistic trends are improving based on recent activity and the current strength of our pipelines. Our focus remains on compounding tangible book value and maintaining strong returns on equity. We believe this level of performance is sustainable in this environment and the balance sheet remains exceptionally well positioned to capitalize on growth opportunities that may come our way in the near future."
Asset Quality & Earning Assets
Nonperforming loans, comprised of nonaccrual loans plus loans past due 90 days or more and still accruing, totaled $46.9 million at June 30, 2024, $65.1 million at March 31, 2024, and $61.2 million at June 30, 2023. Nonperforming loans, as a percent of total loans, were 1.2% at June 30, 2024, 1.6% at March 31, 2024, and 1.5% at June 30, 2023. The decrease in the second quarter of 2024 is driven by note sales and payoffs during the quarter, as well as charge-offs of $5.9 million on six loans, a $3.4 million transfer of two related loans to other real estate owned, and two non-performing loan upgrades with an aggregate balance of $2.2 million.
Total loans were $3.98 billion at June 30, 2024, reflecting an increase of $7.2 million compared to March 31, 2024, and a decrease of $38.9 million compared to June 30, 2023. The decrease year over year was largely driven by the declines in commercial, commercial real estate-investor and commercial real estate-owner occupied portfolios. Average loans (including loans held-for-sale) for the second quarter of 2024 totaled $3.96 billion, reflecting a decrease of $60.9 million from the first quarter of 2024 and a decrease of $81.7 million from the second quarter of 2023.
Available-for-sale securities totaled $1.17 billion at June 30, 2024 and March 31, 2024, compared to $1.34 billion at June 30, 2023. The unrealized mark to market loss on securities totaled $82.6 million as of June 30, 2024, compared to $85.0 million as of March 31, 2024, and $112.4 million as of June 30, 2023, due to market interest rate fluctuations as well as changes year over year in the composition of the securities portfolio. During the quarter ended June 30, 2024, we had security purchases of $142.2 million, security maturities of $95.0 million, and paydowns of $44.0 million, compared to security purchases of $15.7 million, security maturities of $2.0 million, paydowns of $30.7 million, and sales of $5.3 million during the quarter ended March 31, 2024, which resulted in net realized gains of $1,000. During the quarter ended June 30, 2023, we had no security purchases, $36.3 million of security paydowns, calls and maturities, and security sales of $74.0 million, which resulted in net realized losses of $1.5 million. We may continue to buy and 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 17 of 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, and disruptions caused from widespread cybersecurity incidents. 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, July 18, 2024, at 10:00 a.m. Eastern Time (9:00 a.m. Central Time) to discuss our second quarter 2024 financial results. Investors may listen to our call via telephone by dialing 888-506-0062, using Entry Code: 230168. 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 10:00 a.m. Eastern Time (9:00 a.m. Central Time) on July 25, 2024, by dialing 877-481-4010, using Conference ID: 50796.
Contact: | Bradley S. Adams |
| Chief Financial Officer |
| (630) 906-5484 |
SOURCE: Old Second Bancorp Inc.
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