I
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended September 30, 2017March 31, 2024
OR
For transition period fromto
Commission File Number 0 -10537000-10537
(Exact name of Registrant as specified in its charter)
| | |
Delaware | | 36-3143493 |
(State or other jurisdiction | | (I.R.S. Employer Identification Number) |
of incorporation or organization) | | |
37 South River Street, Aurora, Illinois60507
(Address of principal executive offices) (Zip Code)
(630) (630) 892-0202
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | OSBC | The Nasdaq Stock Market |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ ‘‘smaller reporting company,’’ and ‘‘emerging growth company’’ in Rule 12b–2 of the Exchange Act.
Large accelerated filer☐Accelerated filer☒
Non-accelerated filer☐Smaller reporting company☐Emerging growth company☐
(Do not check if a smaller reporting company)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).
Yes ☐ No ☒
As of NovemberMay 3, 2017,2024, the Registrant had 29,627,086has 44,845,629 shares of common stock outstanding at $1.00 par value per share.
OLD SECOND BANCORP, INC.
Form 10-Q Quarterly Report
Cautionary Note Regarding Forward-Looking Statements
| | |
| | |
| | Page Number |
4 | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 38 | |
58 | ||
59 | ||
| | |
| | |
60 | ||
60 | ||
60 | ||
60 | ||
61 | ||
61 | ||
62 | ||
| | |
| 63 |
2
2
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report and other publicly available documents of the Company contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act, including, but not limited to, management’s expectations regarding future plans, strategies and financial performance, including regulatory developments, industry and economic trends and estimates and assumptions underlying accounting policies. Forward-looking statements are based on our current beliefs, expectations and assumptions and on information currently available and, can be identified by the use of words such as “expects,” “intends,” “believes,” “may,” “will,” “would,” “could,” “should,” “plan,” “anticipate,” “estimate,” “possible,” “likely” or the negative thereof as well as other similar words and expressions of the future. Forward-looking statements are subject to risks, uncertainties and assumptions that are difficult to predict as to timing, extent, likelihood and degree of occurrence, which could cause our actual results to differ materially from those anticipated in or by such statements. Potential risks and uncertainties include, but are not limited to, the following:
● | our ability to execute our growth strategy; |
● | negative economic conditions that adversely affect the economy, real estate values, the job market and other factors nationally and in our market area, in each case that may affect our liquidity and the performance of our loan portfolio; |
● | risks with respect to our ability to successfully expand and integrate businesses and operations that we acquire, as well our ability to identify and complete future mergers or acquisitions; |
● | the financial success and viability of the borrowers of our commercial loans; |
● | changes in U.S. monetary policy, the level and volatility of interest rates, the capital markets and other market conditions that may affect, among other things, our liquidity and the value of our assets and liabilities; |
● | competitive pressures from other financial service businesses and from nontraditional financial technology (“FinTech”) companies; |
● | any negative perception of our reputation or financial strength; |
● | our ability to raise additional capital on acceptable terms when needed; |
● | our ability to raise cost-effective funding to support business plans when needed: |
● | our ability to use technology to provide products and services that will satisfy customer demands and create efficiencies in operations; |
● | adverse effects on our information technology systems resulting from system failures, human error or cyberattacks; |
● | adverse effects of failures by our vendors to provide agreed upon services in the manner and at the cost agreed, particularly our information technology vendors and those vendors performing a service on the Company’s behalf; |
● | the impact of any claims or legal actions, including any effect on our reputation; |
● | losses incurred in connection with repurchases and indemnification payments related to mortgages; |
● | the soundness of other financial institutions and other counter-party risk; |
● | changes in accounting standards, rules and interpretations and the related impact on our financial statements; |
● | our ability to receive dividends from our subsidiaries; |
● | a decrease in our regulatory capital ratios or negative changes in our capital position; |
● | adverse federal or state tax assessments, or changes in tax laws or policies; |
● | risks associated with actual or potential litigation or investigations by customers, regulatory agencies or others; |
● | legislative or regulatory changes, particularly changes in regulation of financial services companies; |
● | increased costs of compliance, heightened regulatory capital requirements and other risks associated with changes in regulation and the current regulatory environment; |
● | risks associated with complex and changing regulatory environments, including, among others, with respect to data privacy, artificial intelligence, information security, climate change or other environmental, social and governance matters, and labor matters, relating to our operations; |
● | 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, such as the war in Ukraine, the Middle East conflict, and the conflict between China and Taiwan, essential utility outages, deterioration in the global economy, instability in the credit markets, disruptions in our customers’ supply chains or disruption in transportation; |
● | changes in trade policy and any related tariffs; and |
● | each of the factors and risks under the heading “Risk Factors” in our 2023 Annual Report on Form 10-K and in subsequent filings we make with the SEC. |
Because the Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain, there can be no assurances that future actual results will correspond to any forward-looking statements and you should not rely on any forward-looking statements. Additionally, all statements in this Form 10-Q, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events, except as required by applicable law.
3
PART I -– FINANCIAL INFORMATION
Item 1. Financial Statements
Old Second Bancorp, Inc. and Subsidiaries
(In thousands, except share data)
|
|
|
|
|
|
|
|
| (unaudited) |
|
|
| |
|
| September 30, |
| December 31, | ||
|
| 2017 |
| 2016 | ||
Assets |
|
|
|
|
|
|
Cash and due from banks |
| $ | 32,772 |
| $ | 33,805 |
Interest bearing deposits with financial institutions |
|
| 14,730 |
|
| 13,529 |
Cash and cash equivalents |
|
| 47,502 |
|
| 47,334 |
Securities available-for-sale, at fair value |
|
| 533,484 |
|
| 531,838 |
Federal Home Loan Bank Chicago ("FHLBC") and Federal Reserve Bank Chicago ("FRBC") stock |
|
| 10,393 |
|
| 7,918 |
Loans held-for-sale |
|
| 1,641 |
|
| 4,918 |
Loans |
|
| 1,594,191 |
|
| 1,478,809 |
Less: allowance for loan losses |
|
| 16,465 |
|
| 16,158 |
Net loans |
|
| 1,577,726 |
|
| 1,462,651 |
Premises and equipment, net |
|
| 37,971 |
|
| 38,977 |
Other real estate owned |
|
| 9,024 |
|
| 11,916 |
Mortgage servicing rights, net |
|
| 6,684 |
|
| 6,489 |
Goodwill and core deposit intangible |
|
| 8,944 |
|
| 9,018 |
Bank-owned life insurance ("BOLI") |
|
| 61,403 |
|
| 60,332 |
Deferred tax assets, net |
|
| 42,394 |
|
| 53,464 |
Other assets |
|
| 23,241 |
|
| 16,333 |
Total assets |
| $ | 2,360,407 |
| $ | 2,251,188 |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
Noninterest bearing demand |
| $ | 556,874 |
| $ | 513,688 |
Interest bearing: |
|
|
|
|
|
|
Savings, NOW, and money market |
|
| 947,969 |
|
| 950,849 |
Time |
|
| 384,272 |
|
| 402,248 |
Total deposits |
|
| 1,889,115 |
|
| 1,866,785 |
Securities sold under repurchase agreements |
|
| 26,853 |
|
| 25,715 |
Other short-term borrowings |
|
| 125,000 |
|
| 70,000 |
Junior subordinated debentures |
|
| 57,627 |
|
| 57,591 |
Senior notes |
|
| 44,033 |
|
| 43,998 |
Other liabilities |
|
| 17,016 |
|
| 11,889 |
Total liabilities |
|
| 2,159,644 |
|
| 2,075,978 |
|
|
|
|
|
|
|
Stockholders’ Equity |
|
|
|
|
|
|
Common stock |
|
| 34,626 |
|
| 34,534 |
Additional paid-in capital |
|
| 117,458 |
|
| 116,653 |
Retained earnings |
|
| 145,767 |
|
| 129,005 |
Accumulated other comprehensive loss |
|
| (632) |
|
| (8,762) |
Treasury stock |
|
| (96,456) |
|
| (96,220) |
Total stockholders’ equity |
|
| 200,763 |
|
| 175,210 |
Total liabilities and stockholders’ equity |
| $ | 2,360,407 |
| $ | 2,251,188 |
| | | | | | |
| | (unaudited) | | | | |
| | March 31, | | December 31, | ||
|
| 2024 |
| 2023 | ||
Assets | | | | | | |
Cash and due from banks | | $ | 48,841 | | $ | 55,534 |
Interest earning deposits with financial institutions | | | 49,253 | | | 44,611 |
Cash and cash equivalents | | | 98,094 | | | 100,145 |
Securities available-for-sale, at fair value | | | 1,168,797 | | | 1,192,829 |
Federal Home Loan Bank Chicago (“FHLBC”) and Federal Reserve Bank Chicago (“FRBC”) stock | | | 28,518 | | | 33,355 |
Loans held-for-sale | | | 1,072 | | | 1,322 |
Loans | | | 3,969,411 | | | 4,042,953 |
Less: allowance for credit losses on loans | | | 44,113 | | | 44,264 |
Net loans | | | 3,925,298 | | | 3,998,689 |
Premises and equipment, net | | | 81,290 | | | 79,310 |
Other real estate owned | | | 5,123 | | | 5,123 |
Mortgage servicing rights, at fair value | | | 10,564 | | | 10,344 |
Goodwill | | | 86,478 | | | 86,478 |
Core deposit intangible | | | 10,637 | | | 11,217 |
Bank-owned life insurance (“BOLI”) | | | 110,490 | | | 109,318 |
Deferred tax assets, net | | | 31,699 | | | 31,077 |
Other assets | | | 58,012 | | | 63,592 |
Total assets | | $ | 5,616,072 | | $ | 5,722,799 |
| | | | | | |
Liabilities | | | | | | |
Deposits: | | | | | | |
Noninterest bearing demand | | $ | 1,799,927 | | $ | 1,834,891 |
Interest bearing: | | | | | | |
Savings, NOW, and money market | | | 2,221,696 | | | 2,207,949 |
Time | | | 586,652 | | | 527,906 |
Total deposits | | | 4,608,275 | | | 4,570,746 |
Securities sold under repurchase agreements | | | 33,546 | | | 26,470 |
Other short-term borrowings | | | 220,000 | | | 405,000 |
Junior subordinated debentures | | | 25,773 | | | 25,773 |
Subordinated debentures | | | 59,403 | | | 59,382 |
Other liabilities | | | 72,916 | | | 58,147 |
Total liabilities | | | 5,019,913 | | | 5,145,518 |
| | | | | | |
Stockholders’ Equity | | | | | | |
Common stock | | | 44,908 | | | 44,705 |
Additional paid-in capital | | | 203,129 | | | 202,223 |
Retained earnings | | | 412,388 | | | 393,311 |
Accumulated other comprehensive loss | | | (63,361) | | | (62,781) |
Treasury stock | | | (905) | | | (177) |
Total stockholders’ equity | | | 596,159 | | | 577,281 |
Total liabilities and stockholders’ equity | | $ | 5,616,072 | | $ | 5,722,799 |
| | | | | | |
| | | | | |
| March 31, 2024 | | December 31, 2023 | ||
| Common | | Common | ||
| Stock |
| Stock | ||
Par value | $ | 1.00 | | $ | 1.00 |
Shares authorized | | 60,000,000 | | | 60,000,000 |
Shares issued | | 44,907,619 | | | 44,705,150 |
Shares outstanding | | 44,845,629 | | | 44,697,917 |
Treasury shares | | 61,990 | | | 7,233 |
|
|
|
|
|
|
| September 30, 2017 |
| December 31, 2016 | ||
| Common |
| Common | ||
| Stock |
| Stock | ||
Par value | $ | 1.00 |
| $ | 1.00 |
Shares authorized |
| 60,000,000 |
|
| 60,000,000 |
Shares issued |
| 34,625,734 |
|
| 34,534,234 |
Shares outstanding |
| 29,627,086 |
|
| 29,556,216 |
Treasury shares |
| 4,998,648 |
|
| 4,978,018 |
See accompanying notes to consolidated financial statements.
3
4
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (unaudited) |
| (unaudited) |
| ||||||||
|
| Quarters Ended September 30, |
| Nine Months Ended September 30, | |||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Interest and dividend income |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees |
| $ | 18,208 |
| $ | 13,496 |
| $ | 52,202 |
| $ | 39,593 |
|
Loans held-for-sale |
|
| 34 |
|
| 48 |
|
| 95 |
|
| 115 |
|
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
| 2,424 |
|
| 3,954 |
|
| 7,994 |
|
| 12,547 |
|
Tax exempt |
|
| 1,628 |
|
| 180 |
|
| 4,188 |
|
| 579 |
|
Dividends from FHLBC and FRBC stock |
|
| 94 |
|
| 83 |
|
| 271 |
|
| 251 |
|
Interest bearing deposits with financial institutions |
|
| 37 |
|
| 64 |
|
| 91 |
|
| 98 |
|
Total interest and dividend income |
|
| 22,425 |
|
| 17,825 |
|
| 64,841 |
|
| 53,183 |
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings, NOW, and money market deposits |
|
| 239 |
|
| 193 |
|
| 695 |
|
| 577 |
|
Time deposits |
|
| 1,077 |
|
| 931 |
|
| 3,081 |
|
| 2,622 |
|
Other short-term borrowings |
|
| 224 |
|
| 23 |
|
| 482 |
|
| 69 |
|
Junior subordinated debentures |
|
| 930 |
|
| 1,084 |
|
| 3,073 |
|
| 3,251 |
|
Senior notes |
|
| 672 |
|
| - |
|
| 2,017 |
|
| - |
|
Subordinated debt |
|
| - |
|
| 245 |
|
| - |
|
| 727 |
|
Notes payable and other borrowings |
|
| - |
|
| 2 |
|
| - |
|
| 6 |
|
Total interest expense |
|
| 3,142 |
|
| 2,478 |
|
| 9,348 |
|
| 7,252 |
|
Net interest and dividend income |
|
| 19,283 |
|
| 15,347 |
|
| 55,493 |
|
| 45,931 |
|
Provision for loan losses |
|
| 300 |
|
| - |
|
| 1,050 |
|
| - |
|
Net interest and dividend income after provision for loan losses |
|
| 18,983 |
|
| 15,347 |
|
| 54,443 |
|
| 45,931 |
|
Noninterest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust income |
|
| 1,468 |
|
| 1,403 |
|
| 4,564 |
|
| 4,274 |
|
Service charges on deposits |
|
| 1,722 |
|
| 1,756 |
|
| 4,955 |
|
| 4,961 |
|
Secondary mortgage fees |
|
| 195 |
|
| 322 |
|
| 594 |
|
| 795 |
|
Mortgage servicing rights mark to market loss |
|
| (194) |
|
| (147) |
|
| (756) |
|
| (1,921) |
|
Mortgage servicing income |
|
| 451 |
|
| 437 |
|
| 1,330 |
|
| 1,280 |
|
Net gain on sales of mortgage loans |
|
| 1,095 |
|
| 2,177 |
|
| 3,715 |
|
| 5,031 |
|
Securities gain (loss), net |
|
| 102 |
|
| (1,959) |
|
| (165) |
|
| (2,020) |
|
Increase in cash surrender value of BOLI |
|
| 362 |
|
| 383 |
|
| 1,071 |
|
| 987 |
|
Debit card interchange income |
|
| 1,075 |
|
| 1,013 |
|
| 3,131 |
|
| 3,009 |
|
Gain (loss) on disposal and transfer of fixed assets, net |
|
| - |
|
| - |
|
| 10 |
|
| (1) |
|
Other income |
|
| 1,567 |
|
| 1,209 |
|
| 3,739 |
|
| 3,751 |
|
Total noninterest income |
|
| 7,843 |
|
| 6,594 |
|
| 22,188 |
|
| 20,146 |
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
| 10,049 |
|
| 9,014 |
|
| 31,167 |
|
| 26,854 |
|
Occupancy, furniture and equipment |
|
| 1,482 |
|
| 1,500 |
|
| 4,510 |
|
| 4,427 |
|
Computer and data processing |
|
| 1,081 |
|
| 1,105 |
|
| 3,283 |
|
| 3,093 |
|
FDIC insurance |
|
| 199 |
|
| 228 |
|
| 512 |
|
| 793 |
|
General bank insurance |
|
| 246 |
|
| 269 |
|
| 780 |
|
| 839 |
|
Amortization of core deposit intangible |
|
| 24 |
|
| - |
|
| 74 |
|
| - |
|
Advertising expense |
|
| 255 |
|
| 430 |
|
| 1,093 |
|
| 1,212 |
|
Debit card interchange expense |
|
| 285 |
|
| 363 |
|
| 1,033 |
|
| 1,186 |
|
Legal fees |
|
| 162 |
|
| 242 |
|
| 450 |
|
| 594 |
|
Other real estate expense, net |
|
| 680 |
|
| 426 |
|
| 1,928 |
|
| 2,043 |
|
Other expense |
|
| 2,455 |
|
| 3,005 |
|
| 8,128 |
|
| 8,505 |
|
Total noninterest expense |
|
| 16,918 |
|
| 16,582 |
|
| 52,958 |
|
| 49,546 |
|
Income before income taxes |
|
| 9,908 |
|
| 5,359 |
|
| 23,673 |
|
| 16,531 |
|
Provision for income taxes |
|
| 1,831 |
|
| 1,860 |
|
| 6,023 |
|
| 5,865 |
|
Net income |
| $ | 8,077 |
| $ | 3,499 |
| $ | 17,650 |
| $ | 10,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
| $ | 0.27 |
| $ | 0.12 |
| $ | 0.60 |
| $ | 0.36 |
|
Diluted earnings per share |
|
| 0.27 |
|
| 0.12 |
|
| 0.59 |
|
| 0.36 |
|
| | | | | | | |
| | (unaudited) | | ||||
| | Three Months Ended March 31, | | ||||
|
| 2024 |
| 2023 |
| ||
Interest and dividend income | | | | | | | |
Loans, including fees | | $ | 62,673 | | $ | 57,210 | |
Loans held-for-sale | | | 14 | | | 12 | |
Securities: | | | | | | | |
Taxable | | | 8,092 | | | 10,735 | |
Tax exempt | | | 1,306 | | | 1,337 | |
Dividends from FHLBC and FRBC stock | | | 635 | | | 280 | |
Interest bearing deposits with financial institutions | | | 610 | | | 585 | |
Total interest and dividend income | | | 73,330 | | | 70,159 | |
Interest expense | | | | | | | |
Savings, NOW, and money market deposits | | | 4,037 | | | 1,149 | |
Time deposits | | | 4,041 | | | 664 | |
Securities sold under repurchase agreements | | | 86 | | | 9 | |
Other short-term borrowings | | | 4,557 | | | 2,345 | |
Junior subordinated debentures | | | 280 | | | 279 | |
Subordinated debentures | | | 546 | | | 546 | |
Senior notes | | | - | | | 994 | |
Notes payable and other borrowings | | | - | | | 87 | |
Total interest expense | | | 13,547 | | | 6,073 | |
Net interest and dividend income | | | 59,783 | | | 64,086 | |
Provision for credit losses | | | 3,500 | | | 3,501 | |
Net interest and dividend income after provision for credit losses | | | 56,283 | | | 60,585 | |
Noninterest income | | | | | | | |
Wealth management | | | 2,561 | | | 2,270 | |
Service charges on deposits | | | 2,415 | | | 2,424 | |
Secondary mortgage fees | | | 50 | | | 59 | |
Mortgage servicing rights mark to market gain (loss) | | | 94 | | | (525) | |
Mortgage servicing income | | | 488 | | | 516 | |
Net gain on sales of mortgage loans | | | 314 | | | 306 | |
Securities gains (losses), net | | | 1 | | | (1,675) | |
Change in cash surrender value of BOLI | | | 1,172 | | | 242 | |
Card related income | | | 2,376 | | | 2,244 | |
Other income | | | 1,030 | | | 1,489 | |
Total noninterest income | | | 10,501 | | | 7,350 | |
Noninterest expense | | | | | | | |
Salaries and employee benefits | | | 24,312 | | | 22,248 | |
Occupancy, furniture and equipment | | | 3,927 | | | 3,475 | |
Computer and data processing | | | 2,255 | | | 1,774 | |
FDIC insurance | | | 667 | | | 584 | |
Net teller & bill paying | | | 521 | | | 502 | |
General bank insurance | | | 309 | | | 305 | |
Amortization of core deposit intangible | | | 580 | | | 624 | |
Advertising expense | | | 192 | | | 142 | |
Card related expense | | | 1,277 | | | 1,216 | |
Legal fees | | | 226 | | | 319 | |
Consulting & management fees | | | 336 | | | 790 | |
Other real estate expense, net | | | 46 | | | 306 | |
Other expense | | | 3,593 | | | 3,637 | |
Total noninterest expense | | | 38,241 | | | 35,922 | |
Income before income taxes | | | 28,543 | | | 32,013 | |
Provision for income taxes | | | 7,231 | | | 8,406 | |
Net income | | $ | 21,312 | | $ | 23,607 | |
| | | | | | | |
Basic earnings per share | | $ | 0.48 | | $ | 0.53 | |
Diluted earnings per share | | | 0.47 | | | 0.52 | |
Dividends declared per share | | | 0.05 | | | 0.05 | |
See accompanying notes to consolidated financial statements.
4
5
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (unaudited) |
| (unaudited) | ||||||||
|
| Quarters Ended September 30, |
| Nine Months Ended September 30, | ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Net Income |
| $ | 8,077 |
| $ | 3,499 |
| $ | 17,650 |
| $ | 10,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) on available-for-sale securities arising during the period |
|
| 2,971 |
|
| (616) |
|
| 13,798 |
|
| 5,151 |
Related tax (expense) benefit |
|
| (1,191) |
|
| 237 |
|
| (5,516) |
|
| (2,071) |
Holding gains (losses) after tax on available-for-sale securities |
|
| 1,780 |
|
| (379) |
|
| 8,282 |
|
| 3,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Reclassification adjustment for the net gains (losses) realized during the period |
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gains (losses) |
|
| 102 |
|
| (1,959) |
|
| (165) |
|
| (2,020) |
Income tax (expense) benefit on net realized gains (losses) |
|
| (42) |
|
| 782 |
|
| 64 |
|
| 807 |
Net realized gains (losses) after tax |
|
| 60 |
|
| (1,177) |
|
| (101) |
|
| (1,213) |
Other comprehensive income on available-for-sale securities |
|
| 1,720 |
|
| 798 |
|
| 8,383 |
|
| 4,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion and reversal of net unrealized holding gains on held-to-maturity securities |
|
| - |
|
| - |
|
| - |
|
| 5,939 |
Related tax expense |
|
| - |
|
| - |
|
| - |
|
| (2,446) |
Other comprehensive income on held-to-maturity securities |
|
| - |
|
| - |
|
| - |
|
| 3,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in fair value of derivatives used for cashflow hedges |
|
| 19 |
|
| (254) |
|
| (445) |
|
| (4,278) |
Related tax benefit |
|
| 8 |
|
| 102 |
|
| 192 |
|
| 1,714 |
Other comprehensive income (loss) on cashflow hedges |
|
| 27 |
|
| (152) |
|
| (253) |
|
| (2,564) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income |
|
| 1,747 |
|
| 646 |
|
| 8,130 |
|
| 5,222 |
Total comprehensive income |
| $ | 9,824 |
| $ | 4,145 |
| $ | 25,780 |
| $ | 15,888 |
| | | | | | |
| | (unaudited) | ||||
| | Three Months Ended March 31, | ||||
|
| 2024 |
| 2023 | ||
Net Income | | $ | 21,312 | | $ | 23,607 |
| | | | | | |
Unrealized holding (losses) gains on available-for-sale securities arising during the period | | | (876) | | | 16,210 |
Related tax benefit (expense) | | | 245 | | | (4,536) |
Holding (losses) gains, after tax, on available-for-sale securities | | | (631) | | | 11,674 |
| | | | | | |
Less: Reclassification adjustment for the net gains (losses) realized during the period | | | | | | |
Net realized gains (losses) | | | 1 | | | (1,675) |
Related tax benefit | | | - | | | 471 |
Net realized gains (losses) after tax | | | 1 | | | (1,204) |
Other comprehensive (loss) income on available-for-sale securities | | | (632) | | | 12,878 |
| | | | | | |
Changes in fair value of derivatives used for cash flow hedges | | | 52 | | | 1,602 |
Related tax expense | | | - | | | (456) |
Other comprehensive income on cash flow hedges | | | 52 | | | 1,146 |
| | | | | | |
Total other comprehensive (loss) income | | | (580) | | | 14,024 |
Total comprehensive income | | $ | 20,732 | | $ | 37,631 |
| | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | Accumulated | | Accumulated | | Total | |||
| | Unrealized Gain | | Unrealized Gain | | Accumulated Other | |||
| | (Loss) on Securities | | (Loss) on Derivative | | Comprehensive | |||
(unaudited) | | Available-for -Sale | | Instruments | | Income/(Loss) | |||
For the Three Months Ended | | | | | | | | | |
Balance, January 1, 2023 | | $ | (88,892) | | $ | (4,232) | | $ | (93,124) |
Other comprehensive income, net of tax | | | 12,878 | | | 1,146 | | | 14,024 |
Balance, March 31, 2023 | | $ | (76,014) | | $ | (3,086) | | $ | (79,100) |
| | | | | | | | | |
Balance, January 1, 2024 | | $ | (60,590) | | $ | (2,191) | | $ | (62,781) |
Other comprehensive (loss) income, net of tax | | | (632) | | | 52 | | | (580) |
Balance, March 31, 2024 | | $ | (61,222) | | $ | (2,139) | | $ | (63,361) |
See accompanying notes to consolidated financial statements.
5
6
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
| (unaudited) | |||||
|
| Nine Months Ended September 30, | ||||||
|
|
| 2017 |
| 2016 |
| ||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net income |
|
| $ | 17,650 |
| $ | 10,666 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation of fixed assets and amortization of leasehold improvements |
|
|
| 1,760 |
|
| 1,682 |
|
Change in fair value of mortgage servicing rights |
|
|
| 756 |
|
| 1,921 |
|
Loan loss reserve |
|
|
| 1,050 |
|
| - |
|
Provision for deferred tax expense |
|
|
| 5,682 |
|
| 5,476 |
|
Originations of loans held-for-sale |
|
|
| (113,077) |
|
| (147,187) |
|
Proceeds from sales of loans held-for-sale |
|
|
| 119,059 |
|
| 150,247 |
|
Net gain on sales of mortgage loans |
|
|
| (3,715) |
|
| (5,031) |
|
Net discount accretion of purchase accounting adjustment on loans |
|
|
| (1,115) |
|
| - |
|
Change in current income taxes receivable |
|
|
| 111 |
|
| 300 |
|
Increase in cash surrender value of BOLI |
|
|
| (1,071) |
|
| (987) |
|
Change in accrued interest receivable and other assets |
|
|
| (6,849) |
|
| (2,659) |
|
Change in accrued interest payable and other liabilities |
|
|
| 4,571 |
|
| (246) |
|
Net premium amortization/discount (accretion) on securities |
|
|
| 1,320 |
|
| (517) |
|
Securities losses, net |
|
|
| 165 |
|
| 2,020 |
|
Amortization of core deposit |
|
|
| 74 |
|
| - |
|
Amortization of junior subordinated debentures issuance costs |
|
|
| 36 |
|
| 36 |
|
Amortization of senior notes issuance costs |
|
|
| 77 |
|
| - |
|
Stock based compensation |
|
|
| 897 |
|
| 482 |
|
Net gain on sale of other real estate owned |
|
|
| (454) |
|
| (316) |
|
Provision for other real estate owned losses |
|
|
| 1,630 |
|
| 1,305 |
|
Net (gain) loss on disposal and transfer of fixed assets |
|
|
| (10) |
|
| 1 |
|
Net cash provided by operating activities |
|
|
| 28,547 |
|
| 17,193 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Proceeds from maturities and calls including pay down of securities available-for-sale |
|
|
| 105,327 |
|
| 62,868 |
|
Proceeds from sales of securities available-for-sale |
|
|
| 152,476 |
|
| 271,374 |
|
Purchases of securities available-for-sale |
|
|
| (246,971) |
|
| (153,252) |
|
Proceeds from maturities and calls including pay down of securities held-to-maturity |
|
|
| - |
|
| 3,372 |
|
Net disbursements/proceeds from (purchases) sales of FHLBC stock |
|
|
| (2,475) |
|
| 600 |
|
Net change in loans |
|
|
| (118,711) |
|
| (71,600) |
|
Improvements in other real estate owned |
|
|
| - |
|
| (16) |
|
Proceeds from sales of other real estate owned, net of participation purchase |
|
|
| 5,512 |
|
| 5,247 |
|
Proceeds from disposition of premises and equipment |
|
|
| 13 |
|
| - |
|
Net purchases of premises and equipment |
|
|
| (852) |
|
| (1,163) |
|
Net cash used in (provided by) investing activities |
|
|
| (105,681) |
|
| 117,430 |
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Net change in deposits |
|
|
| 22,330 |
|
| 18,296 |
|
Net change in securities sold under repurchase agreements |
|
|
| 1,138 |
|
| 12,536 |
|
Net change in other short-term borrowings |
|
|
| 55,000 |
|
| (15,000) |
|
Payment of senior note issuance costs |
|
|
| (42) |
|
| - |
|
Dividends paid on common stock |
|
|
| (888) |
|
| (592) |
|
Purchase of treasury stock |
|
|
| (236) |
|
| (254) |
|
Net cash provided by financing activities |
|
|
| 77,302 |
|
| 14,986 |
|
Net change in cash and cash equivalents |
|
|
| 168 |
|
| 149,609 |
|
Cash and cash equivalents at beginning of period |
|
|
| 47,334 |
|
| 40,338 |
|
Cash and cash equivalents at end of period |
|
| $ | 47,502 |
| $ | 189,947 |
|
| | | | | | |
| | (unaudited) | ||||
| | Three Months Ended March 31, | ||||
| | 2024 |
| 2023 | ||
Cash flows from operating activities | | | | | | |
Net income | | $ | 21,312 | | $ | 23,607 |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Net premium / discount amortization on securities | | | 821 | | | 799 |
Securities (gains) losses, net | | | (1) | | | 1,675 |
Provision for credit losses | | | 3,500 | | | 3,501 |
Originations of loans held-for-sale | | | (9,103) | | | (10,206) |
Proceeds from sales of loans held-for-sale | | | 9,536 | | | 9,957 |
Net gains on sales of mortgage loans | | | (314) | | | (306) |
Mortgage servicing rights mark to market (gain) loss | | | (94) | | | 525 |
Net accretion of discount on loans and unfunded commitments | | | (157) | | | (1,180) |
Net change in cash surrender value of BOLI | | | (1,172) | | | (242) |
Net losses on sale of other real estate owned | | | - | | | 28 |
Provision for other real estate owned valuation losses | | | - | | | 269 |
Depreciation of fixed assets and amortization of leasehold improvements | | | 1,350 | | | 1,046 |
Net gains on disposal and transfer of fixed assets | | | - | | | (434) |
Amortization of core deposit intangibles | | | 580 | | | 624 |
Change in current income taxes receivable | | | 4,825 | | | 7,043 |
Deferred tax (benefit) expense | | | (375) | | | 1,442 |
Change in accrued interest receivable and other assets | | | 1,543 | | | 2,635 |
Accretion of purchase accounting adjustment on time deposits | | | (78) | | | (367) |
Change in accrued interest payable and other liabilities | | | 14,059 | | | (6,344) |
Stock based compensation | | | 1,058 | | | 932 |
Net cash provided by operating activities | | | 47,290 | | | 35,004 |
Cash flows from investing activities | | | | | | |
Proceeds from maturities and calls, including pay down of securities available-for-sale | | | 32,665 | | | 37,718 |
Proceeds from sales of securities available-for-sale | | | 5,331 | | | 66,170 |
Purchases of securities available-for-sale | | | (15,661) | | | (4,186) |
Proceeds from redemptions (purchases) of FHLBC/FRBC stock | | | 4,837 | | | (9,675) |
Net change in loans | | | 70,048 | | | (132,445) |
Proceeds from sales of other real estate owned, net of participations and improvements | | | - | | | 300 |
Proceeds from disposition of premises and equipment | | | - | | | 756 |
Net purchases of premises and equipment | | | (3,330) | | | (1,560) |
Net cash provided by (used in) investing activities | | | 93,890 | | | (42,922) |
Cash flows from financing activities | | | | | | |
Net change in deposits | | | 37,607 | | | (213,136) |
Net change in securities sold under repurchase agreements | | | 7,076 | | | (4,259) |
Net change in other short-term borrowings | | | (185,000) | | | 225,000 |
Repayment of term note | | | - | | | (9,000) |
Vesting of restricted stock | | | 99 | | | - |
Dividends paid on common stock | | | (2,237) | | | (2,237) |
Purchase of treasury stock | | | (776) | | | (605) |
Net cash (used in) provided by financing activities | | | (143,231) | | | (4,237) |
Net change in cash and cash equivalents | | | (2,051) | | | (12,155) |
Cash and cash equivalents at beginning of period | | | 100,145 | | | 115,177 |
Cash and cash equivalents at end of period | | $ | 98,094 | | $ | 103,022 |
| | | | | | |
6
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows - Continued
(In thousands)
|
|
|
|
|
|
|
|
| (unaudited) | ||||
|
| Nine Months Ended September 30, | ||||
Supplemental cash flow information |
| 2017 |
| 2016 | ||
Income taxes paid, net |
| $ | 230 |
| $ | 160 |
Interest paid for deposits |
|
| 3,802 |
|
| 3,142 |
Interest paid for borrowings |
|
| 4,890 |
|
| 4,021 |
Non-cash transfer of loans to other real estate owned |
|
| 3,701 |
|
| 1,223 |
Non-cash transfer of premises to other real estate owned |
|
| 95 |
|
| - |
Non-cash transfer of securities held-to-maturity to securities available-for-sale |
|
| - |
|
| 244,823 |
See accompanying notes to consolidated financial statements.
7
7
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Statements of Changes in
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
| |
|
|
|
|
| Additional |
|
|
|
| Other |
|
|
|
| Total | |||
|
| Common |
| Paid-In |
| Retained |
| Comprehensive |
| Treasury |
| Stockholders’ | ||||||
|
| Stock |
| Capital |
| Earnings |
| Loss |
| Stock |
| Equity | ||||||
Balance, December 31, 2015 |
| $ | 34,427 |
| $ | 115,918 |
| $ | 114,209 |
| $ | (12,659) |
| $ | (95,966) |
| $ | 155,929 |
Net income |
|
|
|
|
|
|
|
| 10,666 |
|
|
|
|
|
|
|
| 10,666 |
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
|
| 5,222 |
|
|
|
|
| 5,222 |
Dividends declared and paid |
|
|
|
|
|
|
|
| (592) |
|
|
|
|
|
|
|
| (592) |
Vesting of restricted stock |
|
| 106 |
|
| (106) |
|
|
|
|
|
|
|
|
|
|
| - |
Tax effect from vesting of restricted stock |
|
|
|
|
| 174 |
|
|
|
|
|
|
|
|
|
|
| 174 |
Stock based compensation |
|
|
|
|
| 482 |
|
|
|
|
|
|
|
|
|
|
| 482 |
Purchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (254) |
|
| (254) |
Balance, September 30, 2016 |
| $ | 34,533 |
| $ | 116,468 |
| $ | 124,283 |
| $ | (7,437) |
| $ | (96,220) |
| $ | 171,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016 |
| $ | 34,534 |
| $ | 116,653 |
| $ | 129,005 |
| $ | (8,762) |
| $ | (96,220) |
| $ | 175,210 |
Net income |
|
|
|
|
|
|
|
| 17,650 |
|
|
|
|
|
|
|
| 17,650 |
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
|
| 8,130 |
|
|
|
|
| 8,130 |
Dividends declared and paid |
|
|
|
|
|
|
|
| (888) |
|
|
|
|
|
|
|
| (888) |
Vesting of restricted stock |
|
| 92 |
|
| (92) |
|
|
|
|
|
|
|
|
|
|
| - |
Stock based compensation |
|
|
|
|
| 897 |
|
|
|
|
|
|
|
|
|
|
| 897 |
Purchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (236) |
|
| (236) |
Balance, September 30, 2017 |
| $ | 34,626 |
| $ | 117,458 |
| $ | 145,767 |
| $ | (632) |
| $ | (96,456) |
| $ | 200,763 |
Seeaccompanyingnotestoconsolidatedfinancialstatements.
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Accumulated | | | | | | | |
| | | | | Additional | | | | | Other | | | | | Total | |||
(unaudited) | Common | | Paid-In | | Retained | | Comprehensive | | Treasury | | Stockholders’ | |||||||
|
| Stock |
| Capital |
| Earnings |
| (Loss) Income |
| Stock |
| Equity | ||||||
For the Three Months Ended | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Balance, January 1, 2023 | | $ | 44,705 | | $ | 202,276 | | $ | 310,512 | | $ | (93,124) | | $ | (3,228) | | $ | 461,141 |
Net income | | | | | | | | | 23,607 | | | | | | | | | 23,607 |
Other comprehensive income, net of tax | | | | | | | | | | | | 14,024 | | | | | | 14,024 |
Dividends declared on common stock, ($0.05 per share) | | | | | | | | | (2,229) | | | | | | | | | (2,229) |
Vesting of restricted stock | | | | | | (3,087) | | | | | | | | | 3,087 | | | - |
Stock based compensation | | | | | | 932 | | | | | | | | | | | | 932 |
Purchase of treasury stock from taxes withheld on stock awards | | | | | | | | | | | | | | | (605) | | | (605) |
Balance, March 31, 2023 | | $ | 44,705 | | $ | 200,121 | | $ | 331,890 | | $ | (79,100) | | $ | (746) | | $ | 496,870 |
| | | | | | | | | | | | | | | | | | |
Balance, January 1, 2024 | | $ | 44,705 | | $ | 202,223 | | $ | 393,311 | | $ | (62,781) | | $ | (177) | | $ | 577,281 |
Net income | | | | | | | | | 21,312 | | | | | | | | | 21,312 |
Other comprehensive loss, net of tax | | | | | | | | | | | | (580) | | | | | | (580) |
Dividends declared on common stock, ($0.05 per share) | | | | | | | | | (2,235) | | | | | | | | | (2,235) |
Vesting of restricted stock | | | 203 | | | (152) | | | | | | | | | 48 | | | 99 |
Stock based compensation | | | | | | 1,058 | | | | | | | | | | | | 1,058 |
Purchase of treasury stock from taxes withheld on stock awards | | | | | | | | | | | | | | | (776) | | | (776) |
Balance, March 31, 2024 | | $ | 44,908 | | $ | 203,129 | | $ | 412,388 | | $ | (63,361) | | $ | (905) | | $ | 596,159 |
8
8
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(TableDollar amounts in thousands, except per share data, unaudited)
Note 1 – SummaryBasis of Presentation and Changes in Significant Accounting Policies
The accounting policies followed in the preparation of the interim consolidated financial statements are consistent with those used in the preparation of the annual financial information. The interim consolidated financial statements reflect all normal and recurring adjustments that are necessary, in the opinion of management, for a fair statement of results for the interim period presented. Results for the period ended September 30, 2017,March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2024. These interim consolidated financial statements and accompanying notes are unaudited and should be read in conjunction with the audited financial statements and notes included in Old Second Bancorp, Inc.’s (the “Company”) annual report on Form 10-K for the year ended December 31, 2016.2023. Unless otherwise indicated, dollar amounts in the tables contained in the notes to the consolidated financial statements are in thousands. Certain items in prior periods have been reclassified to conform to the current presentation.
The Company’s consolidated financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”) and follow general practices within the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the consolidated financial statements. Future changes in information may affect these estimates, assumptions, and judgments, which, in turn, may affect amounts reported in the consolidated financial statements.
AllRecent Accounting Pronouncements
The following is a summary of recent accounting pronouncements that have impacted or could potentially affect the Company:
ASU 2023-06 – On October 9, 2023, the FASB issued ASU 2023-06 “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative.” The amendments in the ASU modify the disclosure or presentation requirements of a variety of Topics in the Codification. Certain of the amendments represent clarifications to, or technical corrections of, the current requirements. Each amendment in the ASU will only become effective if the SEC removes the related disclosure or presentation requirement from its existing regulations by June 30, 2027. The amendments in this ASU are not expected to have a material impact on the financial statements of the Company.
ASU 2023-09 – On December 14, 2023, the FASB issued ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”. The amendments require that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation, and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income (or loss) by the applicable statutory income tax rate). The amendments require that all entities disclose on an annual basis the following information about income taxes paid: (1) The amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes, and (2) The amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5 percent of total income taxes paid (net of refunds received). The amendments also require that all entities disclose the following information: (1) Income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign, and (2) Income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign. The ASU is effective for public business entities for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The amendments should be applied on a prospective basis. Retrospective application is permitted. The Company will adopt this ASU for the reporting period beginning January 1, 2025, and does not expect the amendments to have a material impact to the financial statements of the Company.
ASU 2024-01 – On March 21, 2024, the FASB issued ASU 2024-01 “Compensation - Stock Compensation (Topic 718) - Scope Application of Profits Interest and Similar Awards”which clarifies how an entity determines whether a profits interest or similar award is within the scope of Topic 718, or is not a share-based payment arrangement and therefore within the scope of other guidance. ASU 2024-01 provides an illustrative example with multiple fact patterns and also amends certain language in the “Scope” and “Scope Exceptions” sections of Topic 718 to improve its clarity and operability without changing the guidance. Entities can apply the amendments either retrospectively to all prior periods presented in the financial statements or prospectively to profits interest and similar awards granted or modified on or after the date of adoption. If prospective application is elected, an entity must disclose the nature of and reason for the change in accounting principle. ASU 2024-01 is effective January 1, 2025, including interim periods, and is not expected to have a material impact the financial statements of the Company.
9
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
ASU 2024-02 – On March 29, 2024, the FASB issued ASU 2024-02 “Codification Improvements” amends the Codification to remove references to various concept statements and impacts a variety of topics in the Codification. The amendments apply to all reporting entities within the scope of the affected accounting guidance, but in most instances the references removed are extraneous and not required to understand or apply the guidance. Generally, the amendments in ASU 2024-02 are not intended to result in significant accounting changes for most entities. ASU 2024-02 is effective January 1, 2025 and is not expected to have a material impact the financial statements of the Company.
Change in Significant Accounting Policies
Significant accounting policies are presented in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2023. These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the consolidated financial statements and how those values are determined.
Recent Accounting Pronouncements
In May 2014, During the FASB issued ASU No. 2014-09 "Revenue from Contracts with Customers (Topic 606)." The core principlefirst quarter of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. In August 2015, the FASB issued ASU 2015-14 “Revenue from Contracts with Customers (Topic 606) Deferral of the Effective Date.” This accounting standards update defers the effective date of ASU 2014-09 for an additional year. ASU 2015-14 will be effective for annual reporting periods beginning after December 15, 2017. The amendments can be applied retrospectively to each prior reporting period or retrospectively with the cumulative effect of initially applying this update recognized at the date of initial application. Early application is not permitted. In March 2016, the FASB issued ASU 2016-08 “Revenue from Contracts with Customers (TOPIC 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” and in April 2016, the FASB issued ASU 2016-10 “Revenue from Contracts with Customers (TOPIC 606): Identifying Performance Obligations and Licensing.” ASU 2016-08 requires the entity to determine if it is acting as a principal with control over the goods or services it is contractually obligated to provide, or an agent with no control over specified goods or services provided by another party to a customer. ASU 2016-10 was issued to further clarify ASU 2014-09 implementation regarding identifying performance obligation materiality, identification of key contract components, and scope. The Company is assessing the impact of ASU 2014-09 and other related ASUs as noted above on its accounting and disclosures within noninterest income, as any interest income impact was not included in the scope of this final ASU pronouncement. Adoption of this ASU is expected to affect the methodology used to record certain recurring revenue streams within trust and asset management fees, but this impact is not anticipated to be significant to the Company’s financial statements. The Company will adopt ASU 2015-14 and related issuances on January 1, 2018, with a cumulative effect adjustment to opening retained earnings, if an adjustment is deemed to be material.
In February 2016, the FASB issued ASU No. 2016-02 “Leases (Topic 842).” This ASU was issued to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. One key revision from prior guidance was to include operating leases within assets and liabilities recorded; another revision was included which created a new model to follow for sale-leaseback transactions. The impact of this pronouncement will affect lessees primarily, as virtually all of their assets will be recognized on the balance sheet, by recording a right of use asset and lease liability. This pronouncement is effective for fiscal years beginning after December 15, 2018. The Company is assessing the impact of ASU 2016-02 on its accounting and disclosures.
In March 2016, the FASB issued ASU No. 2016-09 “Stock Compensation - Improvements to Employee Share-Based Payment Accounting (Topic 718).” FASB issued this ASU as part of the Simplification Initiative. This ASU involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or
9
liability, and classification on the statement of cash flows. ASU 2016-09 is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. This standard was adopted by2024, the Company effective January 2017; the adoption of this standard did not have a material effect on the Company’s operating resultshad no changes to significant accounting policies or financial condition.estimates.
In June 2016, the FASB issued ASU No. 2016-13 “Measurement of Credit Losses on Financial Instruments (Topic 326).” ASU 2016-13 was issued to provide financial statement users with more useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date to enhance the decision making process. The new methodology to be used should reflect expected credit losses based on relevant vintage historical information, supported by reasonable forecasts of projected loss given defaults, which will affect the collectability of the reported amounts. This new methodology will also require available-for-sale debt securities to have a credit loss recorded through an allowance rather than write-downs. ASU 2016-13 is effective for financial statements issued for fiscal years beginning after December 15, 2019. The Company is assessing the impact of ASU 2016-13 on its accounting and disclosures, and is in the process of accumulating data and evaluating model options to support future risk assessments.
In March 2017, the FASB issued ASU No. 2017-08 “Receivables-Nonrefundable Fees and Other Costs – Premium Amortization on Purchased Callable Debt Securities (Subtopic 310-20).” This ASU was issued to shorten the amortization period for the premium to the earliest call date on debt securities. This premium is required to be recorded as a reduction to net interest margin during the shorter yield to call period, as compared to prior practice of amortizing the premium as a reduction to net interest margin over the contractual life of the instrument. This ASU does not change the current method of amortizing any discount over the contractual life of the debt security, and this pronouncement is effective for fiscal years beginning after December 15, 2018, with earlier adoption permitted. The Company adopted ASU 2017-08 as a change in accounting principle in the third quarter of 2017 on a modified retrospective basis, which required the Company to reflect its adoption effective January 1, 2017. The effect of amortizing the premium over a shorter period negatively impacted the net interest margin for the first nine months of 2017, and will continue to decrease future quarterly net interest income by approximately 10 basis points a quarter until the premium, which is $25.0 million as of September 30, 2017, is fully amortized. As a result of management’s analysis, the impact of the change in accounting principle as a result of ASU 2017-08 to adjust beginning of year retained earnings was considered insignificant and, accordingly, the impact was adjusted through current period earnings.
In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging:Targeted Improvements to Accounting for Hedging Activities”. The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. ASU 2017-12 is effective for public business entities for fiscal years beginning after December 15, 2018, with early adoption, including adoption in an interim period, permitted. The Company plans to adopt ASU 2017-12 on January 1, 2018. ASU 2017-12 requires a modified retrospective transition method in which the Company will recognize the cumulative effect of the change on the opening balance of each affected component of equity in the statement of financial position as of the date of adoption. While the Company continues to assess all potential impacts of the standard, we currently expect adoption to have an immaterial impact on our consolidated financial statements.
Subsequent Events
On October 17, 2017, the Company’sApril 16, 2024, our Board of Directors declared a cash dividend of $0.01$0.05 per share of common stock payable on NovemberMay 6, 2017,2024, to stockholders of record as of October 27, 2017;April 26, 2024; dividends of $296,000$2.2 million were paid to stockholders on NovemberMay 6, 2017.2024.
10
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
Note 2 – AcquisitionsSecurities
On October 28, 2016, the Bank acquired the Chicago branch of Talmer Bank and Trust, the banking subsidiary of Talmer Bancorp, Inc. (“Talmer”). As a result of this transaction, the Bank recorded assets with a fair value of approximately $230.9 million, including approximately $221.0 million of loans, and assumed deposits with a fair value of approximately $48.9 million. Goodwill of $8.4 million was included within the total assets recorded upon acquisition; net cash of $181.5 million was paid for the purchase.
Note 3 – Securities
Investment Portfolio Management
Our investment portfolio serves the liquidity needs and income objectives of the Company. While the portfolio serves as an important component of the overall liquidity management at the Bank, portions of the portfolio also serve as income producing assets. The size and composition of the portfolio reflects liquidity needs, loan demand and interest income objectives. Portfolio size and composition will be adjusted from time to time. While a significant portion of the portfolio consists of readily marketable securities to address liquidity, other parts of the portfolio may reflect funds invested pending future loan demand or to maximize interest income without undue interest rate risk.
10
Investments are comprised of debt securities and non-marketable equity investments. Securities available-for-sale are carried at fair value. Unrealized gains and losses, net of tax, on securities available-for-sale are reported as a separate component of equity. This balance sheet component changes as interest rates and market conditions change. Unrealized gains and losses are not included in the calculation of regulatory capital.
FHLBCFederal Home Loan Bank of Chicago (“FHLBC”) and FRBCFederal Reserve Bank of Chicago (“FRBC”) stock are considered nonmarketable equity investments. FHLBC stock was recorded at $5.6$13.6 million at September 30, 2017,March 31, 2024 and $3.1$18.5 million at December 31, 2016, and is necessary to maintain access to FHLBC advances, which are utilized as a component to meet the Bank’s daily funding needs.2023. FRBC stock was recorded at $4.8$14.9 million at September 30, 2017,March 31, 2024 and December 31, 2016. 2023.
The following table summarizestables summarize the amortized cost and fair value of the securities portfolio at September 30, 2017,March 31, 2024, and December 31, 2016,2023, and the corresponding amounts of gross unrealized gains and losses:
|
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|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
|
|
|
| Gross |
| Gross |
|
|
| |||||||||||||||||||
|
| Amortized |
| Unrealized |
| Unrealized |
| Fair | |||||||||||||||||||||
September 30, 2017 |
| Cost |
| Gains |
| Losses |
| Value | |||||||||||||||||||||
| | | | | | | | | | | | | |||||||||||||||||
| | | | | Gross | | Gross | | | | |||||||||||||||||||
| | Amortized | | Unrealized | | Unrealized | | Fair | |||||||||||||||||||||
March 31, 2024 |
| Cost1 |
| Gains |
| Losses | | Value | |||||||||||||||||||||
Securities available-for-sale |
|
|
|
|
|
|
|
| | | | | | | | | | ||||||||||||
U.S. Treasuries |
| $ | 4,001 |
| $ | - |
| $ | (11) |
| $ | 3,990 | |||||||||||||||||
U.S. Treasury | | $ | 174,712 | | $ | - | | $ | (3,712) | | $ | 171,000 | |||||||||||||||||
U.S. government agencies |
|
| 13,475 |
|
| 15 |
|
| (39) |
|
| 13,451 | | | 59,829 | | | - | | | (2,850) | | | 56,979 | |||||
U.S. government agencies mortgage-backed |
|
| 11,131 |
|
| 18 |
|
| (119) |
|
| 11,030 | | | 114,061 | | | - | | | (12,986) | | | 101,075 | |||||
States and political subdivisions |
|
| 224,648 |
|
| 5,173 |
|
| (789) |
|
| 229,032 | | | 233,343 | | | 682 | | | (11,283) | | | 222,742 | |||||
Corporate bonds |
|
| 10,823 |
|
| 20 |
|
| (266) |
|
| 10,577 | |||||||||||||||||
Collateralized mortgage obligations |
|
| 81,693 |
|
| 228 |
|
| (1,535) |
|
| 80,386 | | | 431,084 | | | 272 | | | (51,753) | | | 379,603 | |||||
Asset-backed securities |
|
| 134,542 |
|
| 865 |
|
| (3,648) |
|
| 131,759 | | | 69,666 | | | 37 | | | (2,996) | | | 66,707 | |||||
Collateralized loan obligations |
|
| 52,803 |
|
| 505 |
|
| (49) |
|
| 53,259 | | | 171,131 | | | 52 | | | (492) | | | 170,691 | |||||
Total securities available-for-sale |
| $ | 533,116 |
| $ | 6,824 |
| $ | (6,456) |
| $ | 533,484 | | $ | 1,253,826 | | $ | 1,043 | | $ | (86,072) | | $ | 1,168,797 | |||||
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | Gross | | Gross | | | | ||
| | Amortized | | Unrealized | | Unrealized | | Fair | ||||
December 31, 2023 |
| Cost1 |
| Gains |
| Losses | | Value | ||||
Securities available-for-sale | | | | | | | | | | | | |
U.S. Treasury | | $ | 174,602 | | $ | - | | $ | (5,028) | | $ | 169,574 |
U.S. government agencies | | | 60,011 | | | - | | | (3,052) | | | 56,959 |
U.S. government agencies mortgage-backed | | | 118,492 | | | - | | | (12,122) | | | 106,370 |
States and political subdivisions | | | 236,072 | | | 1,325 | | | (10,332) | | | 227,065 |
Collateralized mortgage obligations | | | 442,987 | | | 421 | | | (50,864) | | | 392,544 |
Asset-backed securities | | | 71,616 | | | 42 | | | (3,222) | | | 68,436 |
Collateralized loan obligations | | | 173,201 | | | 30 | | | (1,350) | | | 171,881 |
Total securities available-for-sale | | $ | 1,276,981 | | $ | 1,818 | | $ | (85,970) | | $ | 1,192,829 |
| | | | | | | | | | | | |
1Excludes accrued interest receivable of $6.3 million and $6.6 million at March 31, 2024 and December 31, 2023, respectively, that is recorded in other assets on the consolidated balance sheets.
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|
|
|
|
|
|
| Gross |
| Gross |
|
|
| ||
|
| Amortized |
| Unrealized |
| Unrealized |
| Fair | ||||
December 31, 2016 |
| Cost |
| Gains |
| Losses |
| Value | ||||
Securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies mortgage-backed |
| $ | 42,511 |
| $ | - |
| $ | (977) |
| $ | 41,534 |
States and political subdivisions |
|
| 68,718 |
|
| 258 |
|
| (273) |
|
| 68,703 |
Corporate bonds |
|
| 10,957 |
|
| 9 |
|
| (336) |
|
| 10,630 |
Collateralized mortgage obligations |
|
| 174,352 |
|
| 374 |
|
| (3,799) |
|
| 170,927 |
Asset-backed securities |
|
| 146,391 |
|
| 341 |
|
| (8,325) |
|
| 138,407 |
Collateralized loan obligations |
|
| 102,504 |
|
| 29 |
|
| (896) |
|
| 101,637 |
Total securities available-for-sale |
| $ | 545,433 |
| $ | 1,011 |
| $ | (14,606) |
| $ | 531,838 |
11
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
The fair value, amortized cost and weighted average yield of debt securities at September 30, 2017,March 31, 2024, by contractual maturity, were as followsare listed in the table below. Securities not due at a single maturity date are shown separately.
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| ||||||||||
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| Weighted |
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| ||||||||||
|
| Amortized |
| Average |
|
| Fair |
| ||||||||||||
| | | | | | | | | | | ||||||||||
| | | | | Weighted | | | | | | ||||||||||
| | Amortized | | Average | | | Fair | | ||||||||||||
Securities available-for-sale |
| Cost |
| Yield |
|
| Value |
|
| Cost |
| Yield | |
| Value |
| ||||
Due in one year or less |
| $ | 3,400 |
| 2.60 | % |
| $ | 3,405 |
| | $ | 197,825 | | 1.05 | % | | $ | 193,861 | |
Due after one year through five years |
|
| 5,846 |
| 2.74 |
|
|
| 5,831 |
| | | 53,675 | | 1.92 | | | | 50,940 | |
Due after five years through ten years |
|
| 16,105 |
| 2.52 |
|
|
| 16,057 |
| | | 56,283 | | 2.77 | | | | 51,681 | |
Due after ten years |
|
| 227,596 |
| 2.98 |
|
|
| 231,757 |
| | | 160,101 | | 3.11 | | | | 154,239 | |
|
|
| 252,947 |
| 2.94 |
|
|
| 257,050 |
| ||||||||||
| | | 467,884 | | 2.06 | | | | 450,721 | | ||||||||||
Mortgage-backed and collateralized mortgage obligations |
|
| 92,824 |
| 2.72 |
|
|
| 91,416 |
| | | 545,145 | | 2.43 | | | | 480,678 | |
Asset-backed securities |
|
| 134,542 |
| 2.41 |
|
|
| 131,759 |
| | | 69,666 | | 4.06 | | | | 66,707 | |
Collateralized loan obligations |
|
| 52,803 |
| 4.38 |
|
|
| 53,259 |
| | | 171,131 | | 6.84 | | | | 170,691 | |
Total securities available-for-sale |
| $ | 533,116 |
| 2.91 | % |
| $ | 533,484 |
| | $ | 1,253,826 | | 2.99 | % | | $ | 1,168,797 | |
At September 30, 2017, March 31, 2024, the Company’s investments include $110.6 million of asset-backed securities that are backed by student loans originated under the Federal Family Education Loan program (“FFEL”). Under the FFEL, private lenders made federally guaranteed student loans to parents and students. While the program was modified several times before elimination in 2010, FFEL securities are generally guaranteed by the U.S Department of Education “DOE”) at not less than 97% of the outstanding principal amount of the loans. The guarantee will reduce to 85% if the DOE receives reimbursement requests in excess of 5% of insured loans; reimbursement
11
will drop to 75% if reimbursement requests exceed 9% of insured loans. In addition to the U.S. Department of Education guarantee, total added credit enhancement in the form of overcollateralization and/or subordination amounted to $12.3 million, or 10.42%, of outstanding principal.
The Company has invested inhad no securities issued from three originators thatany one originator, other than the U.S. Government and its agencies, which individually amountamounted to over 10% of the Company’s stockholdersstockholders’ equity. Information regarding these three issuers and the value of the securities issued follows:
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|
| September 30, 2017 |
| ||||
|
| Amortized |
| Fair |
| ||
Issuer |
| Cost |
| Value |
| ||
GCO Education Loan Funding Corp |
| $ | 27,555 |
| $ | 26,505 |
|
Towd Point Mortgage Trust |
|
| 29,544 |
|
| 29,445 |
|
Student Loan Marketing Assocation |
|
| 25,654 |
|
| 25,803 |
|
Securities with unrealized losses with no corresponding allowance for credit losses at September 30, 2017,March 31, 2024 and December 31, 2016,2023, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows (in thousands except for number of securities):
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| ||||||||||||||||||||||||
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| Less than 12 months |
| 12 months or more |
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| ||||||||||||||||||||||||||||||||||||
September 30, 2017 |
| in an unrealized loss position |
| in an unrealized loss position |
| Total | ||||||||||||||||||||||||||||||||||||||||||
|
| Number of |
| Unrealized |
| Fair |
| Number of |
| Unrealized |
| Fair |
| Number of |
| Unrealized |
| Fair | ||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
| | Less than 12 months | | 12 months or more | | | | | | | | | ||||||||||||||||||||||||||||||||||||
March 31, 2024 | | in an unrealized loss position | | in an unrealized loss position | | Total | ||||||||||||||||||||||||||||||||||||||||||
| | Number of | | Unrealized | | Fair | | Number of | | Unrealized | | Fair | | Number of | | Unrealized | | Fair | ||||||||||||||||||||||||||||||
Securities available-for-sale |
| Securities |
| Losses |
| Value |
| Securities |
| Losses |
| Value |
| Securities |
| Losses |
| Value |
| Securities |
| Losses |
| Value |
| Securities |
| Losses |
| Value |
| Securities |
| Losses |
| Value | ||||||||||||
U.S. Treasuries |
| 1 |
| $ | 11 |
| $ | 3,990 |
| - |
| $ | - |
| $ | - |
| 1 |
| $ | 11 |
| $ | 3,990 | | - | | $ | - | | $ | - | | 4 | | $ | 3,712 | | $ | 171,000 | | 4 | | $ | 3,712 | | $ | 171,000 |
U.S. government agencies |
| 2 |
|
| 39 |
|
| 6,701 |
| - |
|
| - |
|
| - |
| 2 |
|
| 39 |
|
| 6,701 | | - | | | - | | | - | | 9 | | | 2,850 | | | 56,979 | | 9 | | | 2,850 | | | 56,979 |
U.S. government agencies mortgage-backed |
| 2 |
|
| 13 |
|
| 2,089 |
| 4 |
|
| 106 |
|
| 4,096 |
| 6 |
|
| 119 |
|
| 6,185 | | - | | | - | | | - | | 128 | | | 12,986 | | | 101,075 | | 128 | | | 12,986 | | | 101,075 |
States and political subdivisions |
| 7 |
|
| 789 |
|
| 24,843 |
| - |
|
| - |
|
| - |
| 7 |
|
| 789 |
|
| 24,843 | | 20 | | | 299 | | | 63,127 | | 35 | | | 10,984 | | | 126,955 | | 55 | | | 11,283 | | | 190,082 |
Corporate bonds |
| - |
|
| - |
|
| - |
| 3 |
|
| 266 |
|
| 10,078 |
| 3 |
|
| 266 |
|
| 10,078 | ||||||||||||||||||||||||
Collateralized mortgage obligations |
| 4 |
|
| 238 |
|
| 21,281 |
| 8 |
|
| 1,297 |
|
| 43,684 |
| 12 |
|
| 1,535 |
|
| 64,965 | | - | | | - | | | - | | 144 | | | 51,753 | | | 364,263 | | 144 | | | 51,753 | | | 364,263 |
Asset-backed securities |
| 1 |
|
| 265 |
|
| 4,293 |
| 9 |
|
| 3,383 |
|
| 76,725 |
| 10 |
|
| 3,648 |
|
| 81,018 | | - | | | - | | | - | | 18 | | | 2,996 | | | 60,864 | | 18 | | | 2,996 | | | 60,864 |
Collateralized loan obligations |
| 1 |
|
| 49 |
|
| 7,948 |
| - |
|
| - |
|
| - |
| 1 |
|
| 49 |
|
| 7,948 | | 2 | | | 7 | | | 10,396 | | 15 | | | 485 | | | 99,070 | | 17 | | | 492 | | | 109,466 |
Total securities available-for-sale |
| 18 |
| $ | 1,404 |
| $ | 71,145 |
| 24 |
| $ | 5,052 |
| $ | 134,583 |
| 42 |
| $ | 6,456 |
| $ | 205,728 | | 22 | | $ | 306 | | $ | 73,523 | | 353 | | $ | 85,766 | | $ | 980,206 | | 375 | | $ | 86,072 | | $ | 1,053,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
|
| Less than 12 months |
| 12 months or more |
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
December 31, 2016 |
| in an unrealized loss position |
| in an unrealized loss position |
| Total | ||||||||||||||||||||||||||||||||||||||||||
|
| Number of |
| Unrealized |
|
| Fair |
| Number of |
| Unrealized |
|
| Fair |
| Number of |
| Unrealized |
|
| Fair | |||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
| | Less than 12 months | | 12 months or more | | | | | | | | | ||||||||||||||||||||||||||||||||||||
December 31, 2023 | | in an unrealized loss position | | in an unrealized loss position | | Total | ||||||||||||||||||||||||||||||||||||||||||
| | Number of | | Unrealized | | | Fair | | Number of | | Unrealized | | | Fair | | Number of | | Unrealized | | | Fair | |||||||||||||||||||||||||||
Securities available-for-sale |
| Securities |
| Losses |
|
| Value |
| Securities |
| Losses |
|
| Value |
| Securities |
| Losses |
|
| Value |
| Securities |
| Losses |
| | Value |
| Securities |
| Losses |
| | Value |
| Securities |
| Losses |
| | Value | ||||||
U.S. Treasuries | | - | | $ | - | | $ | - | | 4 | | $ | 5,028 | | $ | 169,574 | | 4 | | $ | 5,028 | | $ | 169,574 | ||||||||||||||||||||||||
U.S. government agencies | | - | | | - | | | - | | 9 | | | 3,052 | | | 56,959 | | 9 | | | 3,052 | | | 56,959 | ||||||||||||||||||||||||
U.S. government agencies mortgage-backed |
| 11 |
| $ | 957 |
| $ | 40,636 |
| 1 |
| $ | 20 |
| $ | 898 |
| 12 |
| $ | 977 |
| $ | 41,534 | | - | | | - | | | - | | 128 | | | 12,122 | | | 106,370 | | 128 | | | 12,122 | | | 106,370 |
States and political subdivisions |
| 12 |
|
| 273 |
|
| 35,241 |
| - |
|
| - |
|
| - |
| 12 |
|
| 273 |
|
| 35,241 | | 12 | | | 137 | | | 27,974 | | 25 | | | 10,195 | | | 106,138 | | 37 | | | 10,332 | | | 134,112 |
Corporate bonds |
| 1 |
|
| 183 |
|
| 4,817 |
| 2 |
|
| 153 |
|
| 5,328 |
| 3 |
|
| 336 |
|
| 10,145 | ||||||||||||||||||||||||
Collateralized mortgage obligations |
| 16 |
|
| 3,402 |
|
| 117,752 |
| 7 |
|
| 397 |
|
| 18,109 |
| 23 |
|
| 3,799 |
|
| 135,861 | | 2 | | | 8 | | | 734 | | 143 | | | 50,856 | | | 376,236 | | 145 | | | 50,864 | | | 376,970 |
Asset-backed securities |
| 4 |
|
| 328 |
|
| 17,604 |
| 12 |
|
| 7,997 |
|
| 107,112 |
| 16 |
|
| 8,325 |
|
| 124,716 | | - | | | - | | | - | | 19 | | | 3,222 | | | 63,941 | | 19 | | | 3,222 | | | 63,941 |
Collateralized loan obligations |
| - |
|
| - |
|
| - |
| 12 |
|
| 896 |
|
| 81,613 |
| 12 |
|
| 896 |
|
| 81,613 | | - | | | - | | | - | | 25 | | | 1,350 | | | 150,902 | | 25 | | | 1,350 | | | 150,902 |
Total securities available-for-sale |
| 44 |
| $ | 5,143 |
| $ | 216,050 |
| 34 |
| $ | 9,463 |
| $ | 213,060 |
| 78 |
| $ | 14,606 |
| $ | 429,110 | | 14 | | $ | 145 | | $ | 28,708 | | 353 | | $ | 85,825 | | $ | 1,030,120 | | 367 | | $ | 85,970 | | $ | 1,058,828 |
| | | | | | | | | | | | | | | | | | | | | | | | |
RecognitionEach quarter, we perform an analysis to determine if any of other-than-temporary impairment was not necessary in the three and nine months ended September 30, 2017 or 2016. The changes in fair value related primarilyunrealized losses on securities available-for-sale are comprised of credit losses as compared to unrealized losses due to market interest rate fluctuations.adjustments. Our assessment includes a review of other-than-temporary impairmentthe unrealized loss for each security issuance held; the financial condition and near-term prospects of the issuer, including external credit ratings and recent downgrades; and our ability and intent to hold the security for a period of time sufficient for a recovery in value. We also consider the extent to which the securities are issued by the federal government or its agencies, and any guarantee of issued amounts by those agencies. The portfolio continues to consist of a mix of fixed and floating-rate, high quality securities, largely rated AA (or better), displaying an overall effective duration of approximately 3.0 years. No credit losses were determined thatto be present as of March 31, 2024, as there was no credit quality deterioration.deterioration noted. Therefore, no provision for credit losses on securities was recognized for the first quarter of 2024.
12
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
The following table presents net realized gains (losses)losses on securities available-for-sale for the quartersthree months ended:
| | | | | | | | |
| | | Three Months Ended | | | |||
| | | March 31, | | | |||
Securities available-for-sale |
| 2024 |
| 2023 |
| | ||
Proceeds from sales of securities | | $ | 5,331 | | $ | 66,170 | | |
Gross realized gains on securities | | $ | 1 | | $ | - | | |
Gross realized losses on securities | |
| - | |
| (1,675) | | |
Net realized gains (losses) | | $ | 1 | | $ | (1,675) | | |
Income tax benefit on net realized losses | | $ | - | | $ | 471 | | |
Effective tax rate applied | | | 0.0 | % | | 28.1 | % | |
As of March 31, 2024, securities valued at $804.9 million were pledged for borrowings, and nine months ended September 30, 2017for other purposes, a decrease from $810.2 million of securities pledged at year-end 2023.
Note 3 – Loans and 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended |
|
| Nine Months Ended |
| ||||||
|
|
| September 30, |
|
| September 30, |
| ||||||
Securities available-for-sale |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Gross realized gains on securities |
| $ | 474 |
| $ | 1,380 |
| $ | 911 |
| $ | 1,518 |
|
Gross realized losses on securities |
|
| (371) |
|
| (3,339) |
|
| (1,076) |
|
| (3,538) |
|
Securities realized gains (losses), net |
| $ | 103 |
| $ | (1,959) |
| $ | (165) |
| $ | (2,020) |
|
Allowance for Credit Losses on Loans
The majority of the net realized losses in the prior year were incurred to meet the funding needs related to the Talmer branch acquisition in late 2016.
12
Note 4 – Loans
Major classificationssegments of loans were as follows:
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
| December 31, 2016 |
| ||
Commercial |
| $ | 257,356 |
| $ | 228,113 |
|
Leases |
|
| 69,305 |
|
| 55,451 |
|
Real estate - commercial |
|
| 739,136 |
|
| 736,247 |
|
Real estate - construction |
|
| 94,868 |
|
| 64,720 |
|
Real estate - residential |
|
| 419,583 |
|
| 377,851 |
|
Consumer |
|
| 2,770 |
|
| 3,237 |
|
Other1 |
|
| 10,550 |
|
| 11,973 |
|
|
|
| 1,593,568 |
|
| 1,477,592 |
|
Net deferred loan costs |
|
| 623 |
|
| 1,217 |
|
Total loans |
| $ | 1,594,191 |
| $ | 1,478,809 |
|
| | | | | | |
|
| March 31, 2024 |
| December 31, 2023 | ||
Commercial | | $ | 796,552 | | $ | 841,697 |
Leases | | | 425,615 | | | 398,223 |
Commercial real estate – investor | | | 1,018,382 | | | 1,034,424 |
Commercial real estate – owner occupied | | | 782,603 | | | 796,538 |
Construction | | | 169,174 | | | 165,380 |
Residential real estate – investor | | | 51,522 | | | 52,595 |
Residential real estate – owner occupied | | | 220,223 | | | 226,248 |
Multifamily | | | 387,479 | | | 401,696 |
HELOC | | | 98,762 | | | 103,237 |
Other 1 | | | 19,099 | | | 22,915 |
Total loans | | | 3,969,411 | | | 4,042,953 |
Allowance for credit losses on loans | | | (44,113) | | | (44,264) |
Net loans 2 | | $ | 3,925,298 | | $ | 3,998,689 |
1 The “Other” classsegment includes overdrafts.consumer loans and overdrafts in this table and in subsequent tables within Note 3 – Loans and Allowance for Credit Losses on Loans.
2 Excludes accrued interest receivable of $19.4 million and $20.5 million at March 31, 2024 and December 31, 2023, respectively, that is recorded in other assets on the consolidated balance sheets.
It is the policy of the Company to review each prospective credit prior to making a loan in order to determine if an adequate level of security or collateral has been obtained. The type of collateral, when required, will vary from liquid assets to real estate. The Company’sCompany seeks to assure access to collateral, in the event of borrower default, is assured through adherence to lending laws, the Company’s lending standards and credit monitoring procedures. With selected exceptions,Although the Bank makes loans solelyprimarily within its market area. Therearea, there are no significant concentrations of loans where the customers’ ability to honor loan terms is dependent upon a single economic sector, although thesector. The real estate related categories listed above represent 78.6%68.7% and 79.7%68.8% of the portfolio at September 30, 2017,March 31, 2024, and December 31, 2016,2023, respectively, and include a mix of owner occupied and non-owner occupied commercial real estate, residential, construction and multifamily loans.
13
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
The following tables represent the activity in the allowance for credit losses for loans, or the ACL, for the three months ended March 31, 2024 and 2023:
| | | | | | | | | | | | | | | |
| | | | | | | | | | | |||||
| | | | Provision for | | | | | | | |||||
| | Beginning | | (Release of) | | | | | | Ending | |||||
Allowance for credit losses |
| Balance |
| Credit Losses |
| Charge-offs |
| Recoveries |
| Balance | |||||
Three months ended March 31, 2024 | | | | | | | | | | | | | | | |
Commercial | | $ | 3,998 | | $ | 2,326 | | $ | 15 | | $ | 73 | | $ | 6,382 |
Leases | | | 2,952 | | | (33) | | | - | | | 40 | | | 2,959 |
Commercial real estate – investor | | | 17,105 | | | (902) | | | 16 | | | 83 | | | 16,270 |
Commercial real estate – owner occupied | | | 12,280 | | | 2,580 | | | 3,887 | | | 19 | | | 10,992 |
Construction | | | 1,038 | | | 59 | | | - | | | - | | | 1,097 |
Residential real estate – investor | | | 669 | | | (35) | | | - | | | 2 | | | 636 |
Residential real estate – owner occupied | | | 1,821 | | | (169) | | | - | | | 8 | | | 1,660 |
Multifamily | | | 2,728 | | | (135) | | | - | | | - | | | 2,593 |
HELOC | | | 1,656 | | | (165) | | | - | | | 17 | | | 1,508 |
Other | | | 17 | | | 18 | | | 70 | | | 51 | | | 16 |
Total | | $ | 44,264 | | $ | 3,544 | | $ | 3,988 | | $ | 293 | | $ | 44,113 |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | ||||
| | | | Provision for | | | | | | | |||||
| | Beginning | | (Release of) | | | | | | Ending | |||||
Allowance for credit losses |
| Balance |
| Credit Losses |
| Charge-offs |
| Recoveries |
| Balance | |||||
Three months ended March 31, 2023 | | | | | | | | | | | | | | | |
Commercial | | $ | 11,968 | | $ | (581) | | $ | 27 | | $ | 151 | | $ | 11,511 |
Leases | | | 2,865 | | | 774 | | | 882 | | | 9 | | | 2,766 |
Commercial real estate – investor | | | 10,674 | | | 4,569 | | | - | | | 17 | | | 15,260 |
Commercial real estate – owner occupied | | | 15,001 | | | 573 | | | - | | | 2 | | | 15,576 |
Construction | | | 1,546 | | | (501) | | | - | | | - | | | 1,045 |
Residential real estate – investor | | | 768 | | | (41) | | | - | | | 19 | | | 746 |
Residential real estate – owner occupied | | | 2,046 | | | (334) | | | - | | | 10 | | | 1,722 |
Multifamily | | | 2,453 | | | 212 | | | - | | | - | | | 2,665 |
HELOC | | | 1,806 | | | (47) | | | - | | | 29 | | | 1,788 |
Other | | | 353 | | | 28 | | | 113 | | | 45 | | | 313 |
Total | | $ | 49,480 | | $ | 4,652 | | $ | 1,022 | | $ | 282 | | $ | 53,392 |
14
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
At March 31, 2024, our allowance for credit losses (“ACL”) on loans totaled $44.1 million, and our ACL on unfunded commitments, included in other liabilities, totaled $2.7 million. During the first three months of 2024, we recorded net provision expense of $3.5 million based on historical loss rate updates driven by higher charge offs in commercial real estate-investor, downward risk rating migration, and our assessment of estimated future credit losses. The ACL on loans excludes $2.7 million, $2.7 million and $3.8 million of allowance for unfunded commitments as of March 31, 2024, December 31, 2023, and March 31, 2023, respectively, recorded within other liabilities.
Generally, the Bank considers a loan to be collateral dependent when, based on current information and events, it is probable that foreclosure could be initiated. Additionally, the Bank will review all loans meeting the criteria for individual analysis, to determine if repayment or satisfaction of the loan is expected through the sale of collateral. This will generally be the case for credits with high loan-to-values. Exceptions to this policy would include loans with guarantors or sponsors that have the means and willingness to support the obligation. Non-accruing loans with an outstanding balance of $500,000 or more are assessed on an individual loan level basis. When a financial asset is deemed collateral-dependent, the level of credit loss is measured by the difference between amortized cost of the financial asset and the fair value of collateral adjusted for estimated cost to sell. The Company had $59.3 million and $63.1 million of collateral dependent loans secured by real estate or business assets as of March 31, 2024, and December 31, 2023, respectively.
The following tables present the collateral dependent loans and the related ACL allocated by segment of loans as of March 31, 2024 and December 31, 2023:
| | | | | | | | | | | | | | | | | | |
| | | | | Accounts | | | | | | | | ACL | |||||
March 31, 2024 | | Real Estate | | Receivable | | Equipment | | Other | | Total | | Allocation | ||||||
Commercial | | $ | - | | $ | - | | $ | 571 | | $ | 1,354 | | $ | 1,925 | | $ | 1,356 |
Leases | | | - | | | - | | | - | | | - | | | - | | | - |
Commercial real estate – investor | | | 16,128 | | | - | | | - | | | - | | | 16,128 | | | 3,569 |
Commercial real estate – owner occupied | | | 30,847 | | | - | | | - | | | - | | | 30,847 | | | 1,239 |
Construction | | | 7,119 | | | - | | | - | | | - | | | 7,119 | | | - |
Residential real estate – investor | | | 409 | | | - | | | - | | | - | | | 409 | | | - |
Residential real estate – owner occupied | | | 1,506 | | | - | | | - | | | - | | | 1,506 | | | - |
Multifamily | | | 1,373 | | | - | | | - | | | - | | | 1,373 | | | - |
HELOC | | | 39 | | | - | | | - | | | - | | | 39 | | | - |
Total | | $ | 57,421 | | $ | - | | $ | 571 | | $ | 1,354 | | $ | 59,346 | | $ | 6,164 |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | Accounts | | | | | | | | ACL | |||||
December 31, 2023 | | Real Estate | | Receivable | | Equipment | | Other | | Total | | Allocation | ||||||
Commercial | | $ | 837 | | $ | 797 | | $ | - | | $ | - | | $ | 1,634 | | $ | 2 |
Leases | | | - | | | - | | | 321 | | | - | | | 321 | | | 320 |
Commercial real estate – investor | | | 15,735 | | | - | | | - | | | - | | | 15,735 | | | 3,656 |
Commercial real estate – owner occupied | | | 34,894 | | | - | | | - | | | - | | | 34,894 | | | 3,900 |
Construction | | | 7,162 | | | - | | | - | | | - | | | 7,162 | | | - |
Residential real estate – investor | | | 422 | | | - | | | - | | | - | | | 422 | | | - |
Residential real estate – owner occupied | | | 1,506 | | | - | | | - | | | - | | | 1,506 | | | - |
Multifamily | | | 1,402 | | | - | | | - | | | - | | | 1,402 | | | - |
HELOC | | | 39 | | | - | | | - | | | - | | | 39 | | | - |
Total | | $ | 61,997 | | $ | 797 | | $ | 321 | | $ | - | | $ | 63,115 | | $ | 7,878 |
| | | | | | | | | | | | | | | | | | |
15
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
Aged analysis of past due loans by classsegments of loans was as follows:
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|
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|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Recorded | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investment | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 90 days or | |
|
|
|
|
|
|
|
| 90 Days or |
|
|
|
|
|
|
|
|
|
|
|
|
| Greater Past | ||
|
| 30-59 Days |
| 60-89 Days |
| Greater Past |
| Total Past |
|
|
|
|
|
|
|
|
|
| Due and | |||||
September 30, 2017 |
| Past Due |
| Past Due |
| Due |
| Due |
| Current |
| Nonaccrual |
| Total Loans |
| Accruing | ||||||||
Commercial |
| $ | - |
| $ | 89 |
| $ | - |
| $ | 89 |
| $ | 257,060 |
| $ | 207 |
| $ | 257,356 |
| $ | - |
Leases |
|
| - |
|
| 685 |
|
| 149 |
|
| 834 |
|
| 68,275 |
|
| 196 |
|
| 69,305 |
|
| 156 |
Real estate - commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied general purpose |
|
| 253 |
|
| - |
|
| 537 |
|
| 790 |
|
| 154,429 |
|
| 457 |
|
| 155,676 |
|
| 561 |
Owner occupied special purpose |
|
| 513 |
|
| - |
|
| - |
|
| 513 |
|
| 172,866 |
|
| 359 |
|
| 173,738 |
|
| - |
Non-owner occupied general purpose |
|
| 649 |
|
| - |
|
| - |
|
| 649 |
|
| 251,933 |
|
| 1,165 |
|
| 253,747 |
|
| - |
Non-owner occupied special purpose |
|
| - |
|
| 248 |
|
| - |
|
| 248 |
|
| 93,498 |
|
| - |
|
| 93,746 |
|
| - |
Retail properties |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 45,149 |
|
| 1,113 |
|
| 46,262 |
|
| - |
Farm |
|
| - |
|
| - |
|
| 383 |
|
| 383 |
|
| 15,584 |
|
| - |
|
| 15,967 |
|
| 387 |
Real estate - construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilder |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 2,644 |
|
| - |
|
| 2,644 |
|
| - |
Land |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 3,235 |
|
| - |
|
| 3,235 |
|
| - |
Commercial speculative |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 34,817 |
|
| - |
|
| 34,817 |
|
| - |
All other |
|
| 63 |
|
| - |
|
| - |
|
| 63 |
|
| 53,904 |
|
| 205 |
|
| 54,172 |
|
| - |
Real estate - residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 52,361 |
|
| 492 |
|
| 52,853 |
|
| - |
Multifamily |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 117,544 |
|
| 4,757 |
|
| 122,301 |
|
| - |
Owner occupied |
|
| 40 |
|
| - |
|
| - |
|
| 40 |
|
| 124,414 |
|
| 4,127 |
|
| 128,581 |
|
| - |
Revolving and junior liens |
|
| 732 |
|
| 22 |
|
| 100 |
|
| 854 |
|
| 113,956 |
|
| 1,038 |
|
| 115,848 |
|
| 103 |
Consumer |
|
| 2 |
|
| - |
|
| - |
|
| 2 |
|
| 2,760 |
|
| 8 |
|
| 2,770 |
|
| - |
Other1 |
|
| 1 |
|
| - |
|
| - |
|
| 1 |
|
| 11,172 |
|
| - |
|
| 11,173 |
|
| - |
Total |
| $ | 2,253 |
| $ | 1,044 |
| $ | 1,169 |
| $ | 4,466 |
| $ | 1,575,601 |
| $ | 14,124 |
| $ | 1,594,191 |
| $ | 1,207 |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | 90 days or | |
| | | | | | | | 90 Days or | | | | | | | | | | | Greater Past | ||
| | 30-59 Days | | 60-89 Days | | Greater Past | | Total Past | | | | | | | | Due and | |||||
March 31, 2024 | | Past Due |
| Past Due |
| Due |
| Due |
| Current |
| Total Loans |
| Accruing | |||||||
Commercial | | $ | 12,429 | | $ | 703 | | $ | 822 | | $ | 13,954 | | $ | 782,598 | | $ | 796,552 | | $ | 748 |
Leases | | | 1,108 | | | - | | | 401 | | | 1,509 | | | 424,106 | | | 425,615 | | | - |
Commercial real estate – investor | | | 434 | | | - | | | 4,966 | | | 5,400 | | | 1,012,982 | | | 1,018,382 | | | - |
Commercial real estate – owner occupied | | | 971 | | | 3,776 | | | 22,899 | | | 27,646 | | | 754,957 | | | 782,603 | | | - |
Construction | | | 4,220 | | | - | | | 7,119 | | | 11,339 | | | 157,835 | | | 169,174 | | | - |
Residential real estate – investor | | | - | | | 54 | | | 249 | | | 303 | | | 51,219 | | | 51,522 | | | - |
Residential real estate – owner occupied | | | 656 | | | 233 | | | 2,086 | | | 2,975 | | | 217,248 | | | 220,223 | | | - |
Multifamily | | | - | | | 304 | | | 534 | | | 838 | | | 386,641 | | | 387,479 | | | - |
HELOC | | | 177 | | | 237 | | | 268 | | | 682 | | | 98,080 | | | 98,762 | | | 41 |
Other | | | - | | | - | | | - | | | - | | | 19,099 | | | 19,099 | | | - |
Total | | $ | 19,995 | | $ | 5,307 | | $ | 39,344 | | $ | 64,646 | | $ | 3,904,765 | | $ | 3,969,411 | | $ | 789 |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | 90 days or | |
| | | | | | | | 90 Days or | | | | | | | | | | | Greater Past | ||
| | 30-59 Days | | 60-89 Days | | Greater Past | | Total Past | | | | | | | | Due and | |||||
December 31, 2023 | | Past Due |
| Past Due |
| Due |
| Due |
| Current |
| Total Loans |
| Accruing | |||||||
Commercial | | $ | 982 | | $ | - | | $ | 1,228 | | $ | 2,210 | | $ | 839,487 | | $ | 841,697 | | $ | 1,155 |
Leases | | | 599 | | | - | | | 347 | | | 946 | | | 397,277 | | | 398,223 | | | - |
Commercial real estate – investor | | | 1,209 | | | - | | | 6,087 | | | 7,296 | | | 1,027,128 | | | 1,034,424 | | | - |
Commercial real estate – owner occupied | | | 2,103 | | | 3,726 | | | 15,645 | | | 21,474 | | | 775,064 | | | 796,538 | | | - |
Construction | | | 2,540 | | | 307 | | | 7,161 | | | 10,008 | | | 155,372 | | | 165,380 | | | - |
Residential real estate – investor | | | 540 | | | 579 | | | 168 | | | 1,287 | | | 51,308 | | | 52,595 | | | - |
Residential real estate – owner occupied | | | 553 | | | 125 | | | 1,944 | | | 2,622 | | | 223,626 | | | 226,248 | | | - |
Multifamily | | | 1,085 | | | - | | | 233 | | | 1,318 | | | 400,378 | | | 401,696 | | | - |
HELOC | | | 565 | | | 1,396 | | | 269 | | | 2,230 | | | 101,007 | | | 103,237 | | | 41 |
Other | | | - | | | 1 | | | - | | | 1 | | | 22,914 | | | 22,915 | | | - |
Total | | $ | 10,176 | | $ | 6,134 | | $ | 33,082 | | $ | 49,392 | | $ | 3,993,561 | | $ | 4,042,953 | | $ | 1,196 |
13
The table presents all nonaccrual loans as of March 31, 2024, and December 31, 2023:
| | | | | | | | | | | | |
Nonaccrual loan detail |
| March 31, 2024 |
| With no ACL |
| December 31, 2023 |
| With no ACL | ||||
Commercial | | $ | 1,998 | | $ | 644 | | $ | 870 | | $ | 870 |
Leases | | | 595 | | | 595 | | | 639 | | | 318 |
Commercial real estate – investor | | | 16,128 | | | 8,568 | | | 16,572 | | | 8,926 |
Commercial real estate – owner occupied | | | 30,897 | | | 8,271 | | | 34,946 | | | 8,429 |
Construction | | | 7,119 | | | 7,119 | | | 7,162 | | | 7,162 |
Residential real estate – investor | | | 1,299 | | | 1,299 | | | 1,331 | | | 1,331 |
Residential real estate – owner occupied | | | 3,031 | | | 3,031 | | | 3,078 | | | 3,078 |
Multifamily | | | 1,959 | | | 1,959 | | | 1,775 | | | 1,775 |
HELOC | | | 1,298 | | | 1,298 | | | 1,210 | | | 1,210 |
Other | | | - | | | - | | | - | | | - |
Total | | $ | 64,324 | | $ | 32,784 | | $ | 67,583 | | $ | 33,099 |
The Company recognized $34,000 of interest on nonaccrual loans during the three months ended March 31, 2024.
16
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
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|
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|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|
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|
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| Recorded | |
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
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| Investment | |
|
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|
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|
|
|
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|
|
|
|
|
|
|
|
| 90 days or | |
|
|
|
|
|
|
|
| 90 Days or |
|
|
|
|
|
|
|
|
|
|
|
|
| Greater Past | ||
|
| 30-59 Days |
| 60-89 Days |
| Greater Past |
| Total Past |
|
|
|
|
|
|
|
|
|
| Due and | |||||
December 31, 2016 |
| Past Due |
| Past Due |
| Due |
| Due |
| Current |
| Nonaccrual |
| Total Loans |
| Accruing | ||||||||
Commercial |
| $ | 57 |
| $ | 74 |
| $ | - |
| $ | 131 |
| $ | 227,742 |
| $ | 240 |
| $ | 228,113 |
| $ | - |
Leases |
|
| - |
|
| 286 |
|
|
|
|
| 286 |
|
| 54,799 |
|
| 366 |
|
| 55,451 |
|
|
|
Real estate - commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied general purpose |
|
| 758 |
|
| - |
|
| - |
|
| 758 |
|
| 135,599 |
|
| 879 |
|
| 137,236 |
|
| - |
Owner occupied special purpose |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 177,755 |
|
| 385 |
|
| 178,140 |
|
| - |
Non-owner occupied general purpose |
|
| 667 |
|
| 379 |
|
| - |
|
| 1,046 |
|
| 229,315 |
|
| 1,930 |
|
| 232,291 |
|
| - |
Non-owner occupied special purpose |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 118,052 |
|
| 1,013 |
|
| 119,065 |
|
| - |
Retail properties |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 53,474 |
|
| 1,179 |
|
| 54,653 |
|
| - |
Farm |
|
| 1,353 |
|
| - |
|
| - |
|
| 1,353 |
|
| 13,509 |
|
| - |
|
| 14,862 |
|
| - |
Real estate - construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilder |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 3,883 |
|
| - |
|
| 3,883 |
|
| - |
Land |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 3,029 |
|
| - |
|
| 3,029 |
|
| - |
Commercial speculative |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 22,654 |
|
| 74 |
|
| 22,728 |
|
| - |
All other |
|
| 364 |
|
| - |
|
| - |
|
| 364 |
|
| 34,509 |
|
| 207 |
|
| 35,080 |
|
| - |
Real estate - residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor |
|
| 237 |
|
| - |
|
| - |
|
| 237 |
|
| 54,924 |
|
| 936 |
|
| 56,097 |
|
| - |
Multifamily |
|
| - |
|
| - |
|
|
|
|
| - |
|
| 96,502 |
|
| - |
|
| 96,502 |
|
|
|
Owner occupied |
|
| 274 |
|
| - |
|
| - |
|
| 274 |
|
| 116,900 |
|
| 6,452 |
|
| 123,626 |
|
| - |
Revolving and junior liens |
|
| 225 |
|
| 405 |
|
| - |
|
| 630 |
|
| 99,374 |
|
| 1,622 |
|
| 101,626 |
|
| - |
Consumer |
|
| 10 |
|
| 36 |
|
| - |
|
| 46 |
|
| 3,191 |
|
| - |
|
| 3,237 |
|
| - |
Other1 |
|
| 14 |
|
| - |
|
| - |
|
| 14 |
|
| 13,176 |
|
| - |
|
| 13,190 |
|
| - |
Total |
| $ | 3,959 |
| $ | 1,180 |
| $ | - |
| $ | 5,139 |
| $ | 1,458,387 |
| $ | 15,283 |
| $ | 1,478,809 |
| $ | - |
1 The “Other” class includes overdrafts and net deferred costs.
Credit Quality Indicators
The Company categorizes loans into credit risk categories based on current financial information, overall debt service coverage, comparison againstto industry averages, historical payment experience, and current economic trends. This analysis includes loans with outstanding balances or commitments greater than $50,000 and excludes homogeneous loans such as home equity lines of credit and residential mortgages. Loans with a classified risk rating are reviewed quarterly regardless of size or loan type. The Company uses the following definitions for classified risk ratings:
Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan at some future date.
Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institutionBank will sustain some loss if the deficiencies are not corrected. The substandard credit quality indicator includes both potential problem loans that are currently performing and nonperforming loans.
Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Credits that are not covered by the definitions above are pass credits, which are not considered to be adversely rated.
14
17
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
Credit Quality Indicatorsquality indicators by class of loansloan segment and loan origination date at March 31, 2024 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| 2024 |
| 2023 |
| 2022 |
| 2021 |
| 2020 |
| Prior |
| Revolving |
| Revolving |
| Total | |||||||||
Commercial | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 10,284 | | $ | 313,611 | | $ | 125,215 | | $ | 28,810 | | $ | 10,497 | | $ | 19,834 | | $ | 252,098 | | $ | | | $ | 760,349 |
Special Mention | | | - | | | - | | | 3,598 | | | 3,064 | | | 111 | | | - | | | 14,187 | | | - | | | 20,960 |
Substandard | | | - | | | - | | | 4,703 | | | 178 | | | - | | | - | | | 10,362 | | | - | | | 15,243 |
Total commercial | | | 10,284 | | | 313,611 | | | 133,516 | | | 32,052 | | | 10,608 | | | 19,834 | | | 276,647 | | | - | | | 796,552 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Leases | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 61,834 | | | 205,567 | | $ | 100,256 | | | 36,105 | | | 12,450 | | | 7,094 | | | - | | | - | | | 423,306 |
Special Mention | | | - | | | 308 | | | 380 | | | 1,015 | | | - | | | 11 | | | - | | | - | | | 1,714 |
Substandard | | | - | | | - | | | 392 | | | 203 | | | - | | | - | | | - | | | - | | | 595 |
Total leases | | | 61,834 | | | 205,875 | | | 101,028 | | | 37,323 | | | 12,450 | | | 7,105 | | | - | | | - | | | 425,615 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial real estate – investor | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 46,126 | | | 200,397 | | | 341,405 | | | 170,710 | | | 94,342 | | | 101,984 | | | 20,264 | | | - | | | 975,228 |
Special Mention | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Substandard | | | - | | | 1,648 | | | 4,128 | | | 2,796 | | | 5,286 | | | 17,065 | | | 12,231 | | | - | | | 43,154 |
Total commercial real estate – investor | | | 46,126 | | | 202,045 | | | 345,533 | | | 173,506 | | | 99,628 | | | 119,049 | | | 32,495 | | | - | | | 1,018,382 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial real estate – owner occupied | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 7,877 | | | 137,719 | | | 151,782 | | | 185,939 | | | 85,511 | | | 124,527 | | | 1,828 | | | - | | | 695,183 |
Special Mention | | | - | | | 1,638 | | | 18,249 | | | 1,452 | | | 3,104 | | | 1,710 | | | - | | | - | | | 26,153 |
Substandard | | | - | | | - | | | 14,647 | | | 15,732 | | | 13,419 | | | 17,469 | | | - | | | - | | | 61,267 |
Total commercial real estate – owner occupied | | | 7,877 | | | 139,357 | | | 184,678 | | | 203,123 | | | 102,034 | | | 143,706 | | | 1,828 | | | - | | | 782,603 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Construction | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 10,236 | | | 42,569 | | | 77,717 | | | 26,818 | | | 95 | | | 1,747 | | | 2,525 | | | - | | | 161,707 |
Special Mention | | | - | | | - | | | 348 | | | - | | | - | | | - | | | - | | | - | | | 348 |
Substandard | | | - | | | - | | | 7,119 | | | - | | | - | | | - | | | - | | | - | | | 7,119 |
Total construction | | | 10,236 | | | 42,569 | | | 85,184 | | | 26,818 | | | 95 | | | 1,747 | | | 2,525 | | | - | | | 169,174 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential real estate – investor | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 1,101 | | | 4,925 | | | 14,269 | | | 8,516 | | | 6,137 | | | 13,704 | | | 1,506 | | | - | | | 50,158 |
Special Mention | | | - | | | - | | | - | | | 65 | | | - | | | - | | | - | | | - | | | 65 |
Substandard | | | - | | | - | | | 378 | | | - | | | - | | | 921 | | | - | | | - | | | 1,299 |
Total residential real estate – investor | | | 1,101 | | | 4,925 | | | 14,647 | | | 8,581 | | | 6,137 | | | 14,625 | | | 1,506 | | | - | | | 51,522 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential real estate – owner occupied | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 1,397 | | | 31,591 | | | 40,203 | | | 39,818 | | | 24,764 | | | 78,480 | | | 802 | | | - | | | 217,055 |
Special Mention | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Substandard | | | - | | | - | | | - | | | - | | | 189 | | | 2,979 | | | - | | | - | | | 3,168 |
Total residential real estate – owner occupied | | | 1,397 | | | 31,591 | | | 40,203 | | | 39,818 | | | 24,953 | | | 81,459 | | | 802 | | | - | | | 220,223 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Multifamily | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 1,240 | | | 75,556 | | | 71,322 | | | 117,695 | | | 51,661 | | | 51,998 | | | 566 | | | - | | | 370,038 |
Special Mention | | | - | | | - | | | 164 | | | 13,374 | | | 311 | | | 1,633 | | | - | | | - | | | 15,482 |
Substandard | | | - | | | - | | | 976 | | | - | | | 214 | | | 769 | | | - | | | - | | | 1,959 |
Total multifamily | | | 1,240 | | | 75,556 | | | 72,462 | | | 131,069 | | | 52,186 | | | 54,400 | | | 566 | | | - | | | 387,479 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
HELOC | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 725 | | | 2,678 | | | 2,534 | | | 449 | | | 1,545 | | | 4,297 | | | 84,886 | | | - | | | 97,114 |
Special Mention | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Substandard | | | - | | | - | | | 25 | | | - | | | 41 | | | 292 | | | 1,290 | | | - | | | 1,648 |
Total HELOC | | | 725 | | | 2,678 | | | 2,559 | | | 449 | | | 1,586 | | | 4,589 | | | 86,176 | | | - | | | 98,762 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 1,575 | | | 3,354 | | | 1,601 | | | 1,029 | | | 127 | | | 144 | | | 11,269 | | | - | | | 19,099 |
Special Mention | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Substandard | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Total other | | | 1,575 | | | 3,354 | | | 1,601 | | | 1,029 | | | 127 | | | 144 | | | 11,269 | | | - | | | 19,099 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total loans | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 142,395 | | | 1,017,967 | | | 926,304 | | | 615,889 | | | 287,129 | | | 403,809 | | | 375,744 | | | - | | | 3,769,237 |
Special Mention | | | - | | | 1,946 | | | 22,739 | | | 18,970 | | | 3,526 | | | 3,354 | | | 14,187 | | | - | | | 64,722 |
Substandard | | | - | | | 1,648 | | | 32,368 | | | 18,909 | | | 19,149 | | | 39,495 | | | 23,883 | | | - | | | 135,452 |
Total loans | | $ | 142,395 | | $ | 1,021,561 | | $ | 981,411 | | $ | 653,768 | | $ | 309,804 | | $ | 446,658 | | $ | 413,814 | | $ | - | | $ | 3,969,411 |
|
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|
September 30, 2017 |
|
|
|
| Special |
|
|
|
|
|
|
|
|
| |
|
| Pass |
| Mention |
| Substandard 1 |
| Doubtful |
| Total | |||||
Commercial |
| $ | 245,603 |
| $ | 11,371 |
| $ | 382 |
| $ | - |
| $ | 257,356 |
Leases |
|
| 68,274 |
|
| - |
|
| 1,031 |
|
| - |
|
| 69,305 |
Real estate - commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied general purpose |
|
| 153,039 |
|
| 1,274 |
|
| 1,363 |
|
| - |
|
| 155,676 |
Owner occupied special purpose |
|
| 172,216 |
|
| 1,163 |
|
| 359 |
|
| - |
|
| 173,738 |
Non-owner occupied general purpose |
|
| 250,497 |
|
| 2,085 |
|
| 1,165 |
|
| - |
|
| 253,747 |
Non-owner occupied special purpose |
|
| 90,113 |
|
| - |
|
| 3,633 |
|
| - |
|
| 93,746 |
Retail Properties |
|
| 43,922 |
|
| 1,227 |
|
| 1,113 |
|
| - |
|
| 46,262 |
Farm |
|
| 13,472 |
|
| - |
|
| 2,495 |
|
| - |
|
| 15,967 |
Real estate - construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilder |
|
| 2,644 |
|
| - |
|
| - |
|
| - |
|
| 2,644 |
Land |
|
| 3,235 |
|
| - |
|
| - |
|
| - |
|
| 3,235 |
Commercial speculative |
|
| 34,817 |
|
| - |
|
| - |
|
| - |
|
| 34,817 |
All other |
|
| 52,898 |
|
| 894 |
|
| 380 |
|
| - |
|
| 54,172 |
Real estate - residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor |
|
| 52,205 |
|
| - |
|
| 648 |
|
| - |
|
| 52,853 |
Multifamily |
|
| 117,544 |
|
| - |
|
| 4,757 |
|
| - |
|
| 122,301 |
Owner occupied |
|
| 123,600 |
|
| 563 |
|
| 4,418 |
|
| - |
|
| 128,581 |
Revolving and junior liens |
|
| 113,871 |
|
| - |
|
| 1,977 |
|
| - |
|
| 115,848 |
Consumer |
|
| 2,762 |
|
| - |
|
| 8 |
|
| - |
|
| 2,770 |
Other |
|
| 11,173 |
|
| - |
|
| - |
|
| - |
|
| 11,173 |
Total |
| $ | 1,551,885 |
| $ | 18,577 |
| $ | 23,729 |
| $ | - |
| $ | 1,594,191 |
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
|
|
| Special |
|
|
|
|
|
|
|
|
| |
|
| Pass |
| Mention |
| Substandard 1 |
| Doubtful |
| Total | |||||
Commercial |
| $ | 214,028 |
| $ | 11,558 |
| $ | 2,527 |
| $ | - |
| $ | 228,113 |
Leases |
|
| 53,366 |
|
| 976 |
|
| 1,109 |
|
|
|
|
| 55,451 |
Real estate - commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied general purpose |
|
| 135,503 |
|
| 53 |
|
| 1,680 |
|
| - |
|
| 137,236 |
Owner occupied special purpose |
|
| 172,353 |
|
| 5,402 |
|
| 385 |
|
| - |
|
| 178,140 |
Non-owner occupied general purpose |
|
| 229,448 |
|
| 913 |
|
| 1,930 |
|
| - |
|
| 232,291 |
Non-owner occupied special purpose |
|
| 114,293 |
|
| - |
|
| 4,772 |
|
| - |
|
| 119,065 |
Retail Properties |
|
| 52,207 |
|
| 1,267 |
|
| 1,179 |
|
| - |
|
| 54,653 |
Farm |
|
| 11,840 |
|
| 1,240 |
|
| 1,782 |
|
| - |
|
| 14,862 |
Real estate - construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilder |
|
| 3,883 |
|
| - |
|
| - |
|
| - |
|
| 3,883 |
Land |
|
| 3,029 |
|
| - |
|
| - |
|
| - |
|
| 3,029 |
Commercial speculative |
|
| 22,654 |
|
| - |
|
| 74 |
|
| - |
|
| 22,728 |
All other |
|
| 34,696 |
|
| - |
|
| 384 |
|
| - |
|
| 35,080 |
Real estate - residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor |
|
| 55,001 |
|
| - |
|
| 1,096 |
|
| - |
|
| 56,097 |
Multifamily |
|
| 96,502 |
|
| - |
|
| - |
|
| - |
|
| 96,502 |
Owner occupied |
|
| 115,831 |
|
| 570 |
|
| 7,225 |
|
| - |
|
| 123,626 |
Revolving and junior liens |
|
| 99,286 |
|
| - |
|
| 2,340 |
|
| - |
|
| 101,626 |
Consumer |
|
| 3,236 |
|
| - |
|
| 1 |
|
| - |
|
| 3,237 |
Other |
|
| 13,165 |
|
| 25 |
|
| - |
|
| - |
|
| 13,190 |
Total |
| $ | 1,430,321 |
| $ | 22,004 |
| $ | 26,484 |
| $ | - |
| $ | 1,478,809 |
Old Second Bancorp, Inc. and Subsidiaries
1Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
Credit quality indicators by loan segment and loan origination date at December 31, 2023, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| 2023 |
| 2022 |
| 2021 |
| 2020 |
| 2019 |
| Prior |
| Revolving |
| Revolving |
| Total | |||||||||
Commercial | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 318,569 | | $ | 136,668 | | $ | 35,901 | | $ | 11,983 | | $ | 18,390 | | $ | 3,426 | | $ | 298,931 | | $ | 1,408 | | $ | 825,276 |
Special Mention | | | - | | | 2,737 | | | 707 | | | 171 | | | - | | | - | | | 4,392 | | | - | | | 8,007 |
Substandard | | | - | | | 2,099 | | | 146 | | | - | | | 199 | | | - | | | 5,970 | | | - | | | 8,414 |
Total commercial | | | 318,569 | | | 141,504 | | | 36,754 | | | 12,154 | | | 18,589 | | | 3,426 | | | 309,293 | | | 1,408 | | | 841,697 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Leases | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 219,163 | | | 113,074 | | $ | 42,275 | | | 14,663 | | | 6,975 | | | 1,255 | | | - | | | - | | | 397,405 |
Special Mention | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Substandard | | | - | | | 407 | | | 203 | | | - | | | 208 | | | - | | | - | | | - | | | 818 |
Total leases | | | 219,163 | | | 113,481 | | | 42,478 | | | 14,663 | | | 7,183 | | | 1,255 | | | - | | | - | | | 398,223 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial real estate – investor | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 159,654 | | | 367,512 | | | 218,084 | | | 108,384 | | | 54,322 | | | 63,281 | | | 8,122 | | | - | | | 979,359 |
Special Mention | | | - | | | - | | | 11,267 | | | - | | | - | | | - | | | - | | | - | | | 11,267 |
Substandard | | | - | | | - | | | 838 | | | 5,327 | | | 15,658 | | | 9,648 | | | 12,327 | | | - | | | 43,798 |
Total commercial real estate – investor | | | 159,654 | | | 367,512 | | | 230,189 | | | 113,711 | | | 69,980 | | | 72,929 | | | 20,449 | | | - | | | 1,034,424 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial real estate – owner occupied | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 124,059 | | | 134,383 | | | 177,553 | | | 103,109 | | | 42,839 | | | 91,062 | | | 33,243 | | | - | | | 706,248 |
Special Mention | | | 1,650 | | | 17,415 | | | 9,585 | | | 3,128 | | | 218 | | | 3,681 | | | - | | | - | | | 35,677 |
Substandard | | | - | | | 14,630 | | | 18,817 | | | 4,571 | | | 14,809 | | | 1,786 | | | - | | | - | | | 54,613 |
Total commercial real estate – owner occupied | | | 125,709 | | | 166,428 | | | 205,955 | | | 110,808 | | | 57,866 | | | 96,529 | | | 33,243 | | | - | | | 796,538 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Construction | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 42,808 | | | 66,513 | | | 32,942 | | | 100 | | | 1,593 | | | 1,083 | | | 3,186 | | | - | | | 148,225 |
Special Mention | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Substandard | | | - | | | - | | | - | | | 9,993 | | | - | | | 7,162 | | | - | | | - | | | 17,155 |
Total construction | | | 42,808 | | | 66,513 | | | 32,942 | | | 10,093 | | | 1,593 | | | 8,245 | | | 3,186 | | | - | | | 165,380 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential real estate – investor | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 5,062 | | | 14,434 | | | 9,027 | | | 6,227 | | | 6,508 | | | 8,469 | | | 1,471 | | | - | | | 51,198 |
Special Mention | | | - | | | - | | | 66 | | | - | | | - | | | - | | | - | | | - | | | 66 |
Substandard | | | - | | | 390 | | | - | | | - | | | 408 | | | 533 | | | - | | | - | | | 1,331 |
Total residential real estate – investor | | | 5,062 | | | 14,824 | | | 9,093 | | | 6,227 | | | 6,916 | | | 9,002 | | | 1,471 | | | - | | | 52,595 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential real estate – owner occupied | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 32,574 | | | 41,528 | | | 40,335 | | | 25,322 | | | 14,233 | | | 68,277 | | | 763 | | | - | | | 223,032 |
Special Mention | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Substandard | | | - | | | - | | | - | | | 191 | | | 685 | | | 2,340 | | | - | | | - | | | 3,216 |
Total residential real estate – owner occupied | | | 32,574 | | | 41,528 | | | 40,335 | | | 25,513 | | | 14,918 | | | 70,617 | | | 763 | | | - | | | 226,248 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Multifamily | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 55,310 | | | 79,060 | | | 123,834 | | | 72,539 | | | 12,231 | | | 40,825 | | | 562 | | | - | | | 384,361 |
Special Mention | | | - | | | 168 | | | 13,425 | | | 322 | | | 1,645 | | | - | | | - | | | - | | | 15,560 |
Substandard | | | - | | | 1,009 | | | - | | | - | | | - | | | 766 | | | - | | | - | | | 1,775 |
Total multifamily | | | 55,310 | | | 80,237 | | | 137,259 | | | 72,861 | | | 13,876 | | | 41,591 | | | 562 | | | - | | | 401,696 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
HELOC | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 2,735 | | | 2,679 | | | 490 | | | 1,757 | | | 1,756 | | | 2,995 | | | 89,161 | | | - | | | 101,573 |
Special Mention | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Substandard | | | - | | | 25 | | | 1 | | | 41 | | | 24 | | | 184 | | | 1,389 | | | - | | | 1,664 |
Total HELOC | | | 2,735 | | | 2,704 | | | 491 | | | 1,798 | | | 1,780 | | | 3,179 | | | 90,550 | | | - | | | 103,237 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 4,060 | | | 2,278 | | | 1,569 | | | 153 | | | 85 | | | 73 | | | 14,697 | | | - | | | 22,915 |
Special Mention | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Substandard | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | - |
Total other | | | 4,060 | | | 2,278 | | | 1,569 | | | 153 | | | 85 | | | 73 | | | 14,697 | | | - | | | 22,915 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total loans | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 963,994 | | | 958,129 | | | 682,010 | | | 344,237 | | | 158,932 | | | 280,746 | | | 450,136 | | | 1,408 | | | 3,839,592 |
Special Mention | | | 1,650 | | | 20,320 | | | 35,050 | | | 3,621 | | | 1,863 | | | 3,681 | | | 4,392 | | | - | | | 70,577 |
Substandard | | | - | | | 18,560 | | | 20,005 | | | 20,123 | | | 31,991 | | | 22,419 | | | 19,686 | | | - | | | 132,784 |
Total loans | | $ | 965,644 | | $ | 997,009 | | $ | 737,065 | | $ | 367,981 | | $ | 192,786 | | $ | 306,846 | | $ | 474,214 | | $ | 1,408 | | $ | 4,042,953 |
19
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
The substandard credit quality indicator includes both potential problem loans that are currently performinggross charge-offs activity by loan type and nonperforming loans.year of origination for the three months ended March 31, 2024 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended March 31, 2024 |
| 2024 |
| 2023 |
| 2022 |
| 2021 |
| 2020 |
| Prior |
| Revolving |
| Revolving |
| Total | |||||||||
Commercial | | $ | - | | | - | | | - | | | - | | | - | | | 15 | | $ | - | | $ | - | | $ | 15 |
Commercial real estate – investor | | | - | | | - | | | - | | | - | | | 16 | | | - | | | - | | | - | | | 16 |
Commercial real estate – owner occupied | | | - | | | | | | - | | | 3,853 | | | - | | | 34 | | | - | | | - | | | 3,887 |
Other | | | - | | | - | | | - | | | - | | | - | | | 70 | | | - | | | - | | | 70 |
Total | | $ | - | | $ | - | | $ | - | | $ | 3,853 | | $ | 16 | | $ | 119 | | | - | | | - | | $ | 3,988 |
The Company had $1.2 million$378,000 and $1.8 million$170,000 in residential real estate loans in the process of foreclosure as of September 30, 2017,March 31, 2024 and December 31, 2016,2023, respectively. The Company also had $937,000 and $225,000
There were six loans modified during the three-month period ending March 31, 2024, totaling $18.6 million in residential real estate includedaggregate, which were experiencing financial difficulty. There were three loans modified during the three-month period ending March 31, 2023, totaling $2.8 million in OREOaggregate, which were experiencing financial difficulty. There were no modified loans experiencing financial difficulty in payment default as of September 30, 2017,March 31, 2024 and DecemberMarch 31, 2016, respectively.2023.
15
Impaired loans, which include nonaccrual loans and accruing troubled debt restructurings, by classThe following tables present the amortized costs basis of loans for the September 30, 2017 periods listedat March 31, 2024, and March 31, 2023 that were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended | |||||||||||
|
| As of September 30, 2017 |
| September 30, 2017 | |||||||||||
|
|
|
|
| Unpaid |
|
|
|
| Average |
| Interest | |||
|
| Recorded |
| Principal |
| Related |
| Recorded |
| Income | |||||
|
| Investment |
| Balance |
| Allowance |
| Investment |
| Recognized | |||||
With no related allowance recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| $ | 207 |
| $ | 360 |
| $ | - |
| $ | 123 |
| $ | - |
Leases |
|
| 196 |
|
| 227 |
|
| - |
|
| 281 |
|
| - |
Commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied general purpose |
|
| 457 |
|
| 495 |
|
| - |
|
| 1,169 |
|
| - |
Owner occupied special purpose |
|
| 359 |
|
| 509 |
|
| - |
|
| 372 |
|
| - |
Non-owner occupied general purpose |
|
| 1,218 |
|
| 1,592 |
|
| - |
|
| 1,481 |
|
| 2 |
Non-owner occupied special purpose |
|
| - |
|
| - |
|
| - |
|
| 507 |
|
| - |
Retail properties |
|
| 1,113 |
|
| 1,199 |
|
| - |
|
| 1,146 |
|
| - |
Farm |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilder |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Land |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Commercial speculative |
|
| - |
|
| - |
|
| - |
|
| 37 |
|
| - |
All other |
|
| 205 |
|
| 231 |
|
| - |
|
| 206 |
|
| - |
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor |
|
| 1,374 |
|
| 1,627 |
|
| - |
|
| 1,607 |
|
| 36 |
Multifamily |
|
| 4,757 |
|
| 4,965 |
|
| - |
|
| 2,379 |
|
| - |
Owner occupied |
|
| 8,150 |
|
| 9,524 |
|
| - |
|
| 8,987 |
|
| 119 |
Revolving and junior liens |
|
| 1,991 |
|
| 2,173 |
|
| - |
|
| 2,237 |
|
| 27 |
Consumer |
|
| 8 |
|
| 8 |
|
| - |
|
| 104 |
|
| - |
Total impaired loans with no recorded allowance |
|
| 20,035 |
|
| 22,910 |
|
| - |
|
| 20,636 |
|
| 184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Leases |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied general purpose |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Owner occupied special purpose |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Non-owner occupied general purpose |
|
| - |
|
| - |
|
| - |
|
| 123 |
|
| - |
Non-owner occupied special purpose |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Retail properties |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Farm |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilder |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Land |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Commercial speculative |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
All other |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Multifamily |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Owner occupied |
|
| - |
|
| - |
|
| - |
|
| 402 |
|
| - |
Revolving and junior liens |
|
| 51 |
|
| 51 |
|
| 6 |
|
| 26 |
|
| 2 |
Consumer |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Total impaired loans with a recorded allowance |
|
| 51 |
|
| 51 |
|
| 6 |
|
| 551 |
|
| 2 |
Total impaired loans |
| $ | 20,086 |
| $ | 22,961 |
| $ | 6 |
| $ | 21,187 |
| $ | 186 |
16
Impaired loans by class of loans as of December 31, 2016, and for the nine months ended September 30, 2016, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended | ||||
|
| As of December 31, 2016 |
| September 30, 2016 | |||||||||||
|
|
|
| Unpaid |
|
|
| Average |
| Interest | |||||
|
| Recorded |
| Principal |
| Related |
| Recorded |
| Income | |||||
|
| Investment |
| Balance |
| Allowance |
| Investment |
| Recognized | |||||
With no related allowance recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| $ | 240 |
| $ | 388 |
| $ | - |
| $ | 326 |
| $ | - |
Leases |
|
| 366 |
|
| 371 |
|
| - |
|
| - |
|
| - |
Commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied general purpose |
|
| 1,881 |
|
| 2,131 |
|
| - |
|
| 2,412 |
|
| 66 |
Owner occupied special purpose |
|
| 385 |
|
| 518 |
|
| - |
|
| 580 |
|
| - |
Non-owner occupied general purpose |
|
| 1,744 |
|
| 2,010 |
|
| - |
|
| 1,655 |
|
| 2 |
Non-owner occupied special purpose |
|
| 1,013 |
|
| 1,649 |
|
| - |
|
| 506 |
|
| - |
Retail properties |
|
| 1,179 |
|
| 1,235 |
|
| - |
|
| 990 |
|
| - |
Farm |
|
| - |
|
| - |
|
| - |
|
| 636 |
|
| - |
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilder |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Land |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Commercial speculative |
|
| 74 |
|
| 81 |
|
| - |
|
| 80 |
|
| - |
All other |
|
| 207 |
|
| 221 |
|
| - |
|
| - |
|
| - |
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor |
|
| 1,841 |
|
| 2,308 |
|
| - |
|
| 1,864 |
|
| 35 |
Multifamily |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Owner occupied |
|
| 9,824 |
|
| 11,391 |
|
| - |
|
| 9,916 |
|
| 120 |
Revolving and junior liens |
|
| 2,484 |
|
| 3,018 |
|
| - |
|
| 2,527 |
|
| 9 |
Consumer |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Total impaired loans with no recorded allowance |
|
| 21,238 |
|
| 25,321 |
|
| - |
|
| 21,492 |
|
| 232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
| - |
|
| - |
|
| - |
|
| 2 |
|
| - |
Leases |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied general purpose |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Owner occupied special purpose |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Non-owner occupied general purpose |
|
| 246 |
|
| 595 |
|
| 246 |
|
| 132 |
|
| 31 |
Non-owner occupied special purpose |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Retail properties |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Farm |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilder |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Land |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Commercial speculative |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
All other |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Multifamily |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Owner occupied |
|
| 803 |
|
| 853 |
|
| 803 |
|
| 356 |
|
| - |
Revolving and junior liens |
|
| - |
|
| - |
|
| - |
|
| 23 |
|
| - |
Consumer |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
Total impaired loans with a recorded allowance |
|
| 1,049 |
|
| 1,448 |
|
| 1,049 |
|
| 513 |
|
| 31 |
Total impaired loans |
| $ | 22,287 |
| $ | 26,769 |
| $ | 1,049 |
| $ | 22,005 |
| $ | 263 |
Troubled debt restructurings (“TDRs”) are loans for which the contractual terms have been modified and both of these conditions exist: (1) there is a concession to the borrower and (2) the borrower is experiencing financial difficulties. Loans are restructured on a case-by-case basis during the loan collection process with modifications generally initiated at the request of the borrower. These modifications may include reduction in interest rates, extension of term, deferrals of principal,difficulty and other modifications. The Bank participates in the U.S. Department of the Treasury’s (the “Treasury”) Home Affordable Modification Program (“HAMP”) which gives qualifying homeowners an opportunity to refinance into more affordable monthly payments.
17
The specific allocation of the allowance for loan losses for TDRs is determined by calculating the present value of the TDR cash flows by discounting the original payment less an assumption for probability of default at the original note’s issue rate, and adding this amount to the present value of collateral less selling costs. If the resulting amount is less than the recorded book value, the Bank either establishes a valuation allowance (i.e., specific reserve) as a component of the allowance for loan losses or charges off the impaired balance if it determines that such amount is a confirmed loss. This method is used consistently for all segments of the portfolio. The allowance for loan losses also includes an allowance based on a loss migration analysis for each loan category on loans that are not individually evaluated for specific impairment. All loans charged-off, including TDRs charged-off, are factored into this calculation by portfolio segment.
TDRs that were modified during the period are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| TDR Modifications |
| TDR Modifications |
| ||||||||||||
|
| Quarter Ended September 30, 2017 |
| Nine Months Ended September 30, 2017 |
| ||||||||||||
|
| # of |
| Pre-modification |
| Post-modification |
| # of |
| Pre-modification |
| Post-modification |
| ||||
|
| contracts |
| recorded investment |
| recorded investment |
| contracts |
| recorded investment |
| recorded investment |
| ||||
Troubled debt restructurings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HAMP1 |
| 1 |
| $ | 36 |
| $ | 33 |
| 1 |
| $ | 36 |
| $ | 33 |
|
Other2 |
| 1 |
|
| 42 |
|
| 42 |
| 1 |
|
| 42 |
|
| 42 |
|
Revolving and junior liens |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HAMP1 |
| 1 |
|
| 49 |
|
| 49 |
| 1 |
|
| 49 |
|
| 49 |
|
Other2 |
| 1 |
|
| 49 |
|
| 33 |
| 7 |
|
| 448 |
|
| 418 |
|
Total |
| 4 |
| $ | 176 |
| $ | 157 |
| 10 |
| $ | 575 |
| $ | 542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| TDR Modifications |
| TDR Modifications |
| ||||||||||||
|
| Quarter Ended September 30, 2016 |
| Nine Months Ended September 30, 2016 |
| ||||||||||||
|
| # of |
| Pre-modification |
| Post-modification |
| # of |
| Pre-modification |
| Post-modification |
| ||||
|
| contracts |
| recorded investment |
| recorded investment |
| contracts |
| recorded investment |
| recorded investment |
| ||||
Troubled debt restructurings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other2 |
| - |
| $ | - |
| $ | - |
| 2 |
| $ | 312 |
| $ | 211 |
|
Real estate - residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HAMP1 |
| - |
|
| - |
|
| - |
| 1 |
|
| 239 |
|
| 235 |
|
Revolving and junior liens |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HAMP1 |
| - |
|
| - |
|
|
|
| 4 |
|
| 469 |
|
| 433 |
|
Other2 |
| 1 |
|
| 70 |
|
| 70 |
| 1 |
|
| 70 |
|
| 70 |
|
Total |
| 1 |
| $ | 70 |
| $ | 70 |
| 8 |
| $ | 1,090 |
| $ | 949 |
|
1HAMP: Home Affordable Modification Program
2Other: Changeended March 31, 2024, and March 31, 2023, by class and by type of terms from bankruptcy court
TDRs are classified as being in default on a case-by-casemodification. The percentage of the amortized cost basis when they fail to be in compliance with the modified terms. There was no TDR default activity for the nine months ended September 30, 2017, and September 30, 2016, forof loans that were restructured withinmodified to borrowers in financial distress as compared to the 12 month period prior to default.amortized cost basis of each class of financing receivable is also presented below.
| | | | | | | | | | | | | | |
March 31, 2024 | | Term Extension | | Combination - Term Extension and Interest Rate Modification | | Combination - Term Extension and Payment Modification (1) | | Total Loans Modified | | % of Total Loan Segment Modified to Total Loan Segment | ||||
Commercial | | $ | 247 | | $ | - | | $ | - | | $ | 247 | | 0.0% |
Commercial real estate – investor | | | - | | | - | | | 1,958 | | | 1,958 | | 0.2% |
Commercial real estate – owner occupied | | | 12,244 | | | 3,309 | | | 854 | | | 16,407 | | 2.1% |
Total | | $ | 12,491 | | $ | 3,309 | | $ | 2,812 | | $ | 18,612 | | 0.5% |
| | | | | | | | | | | | | | |
March 31, 2023 | | Term Extension | | Combination - Term Extension and Interest Rate Modification | | Combination - Term Extension and Payment Modification (1) | | Total Loans Modified | | % of Total Loan Segment Modified to Total Loan Segment | ||||
Commercial | | $ | - | | $ | 979 | | $ | - | | $ | 979 | | 0.1% |
Commercial real estate – investor | | | - | | | - | | | 1,774 | | | 1,774 | | 0.2% |
HELOC | | | 20 | | | - | | | - | | | 20 | | 0.0% |
Total | | $ | 20 | | $ | 979 | | $ | 1,774 | | $ | 2,773 | | 0.1% |
181 Payment modifications are either contractual delays in payment or a modificationof the payment amount.
20
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
Note 5 – Allowance for Loan Losses
Changes inThe Company closely monitors the allowance forperformance of loan losses by segmentmodifications to borrowers experiencing financial difficulty. The following tables present the performance of loans based on methodthat have been modified as of impairmentMarch 31, 2024 and March 31, 2023.
| | | | | | | | | | | | | | | | | | |
March 31, 2024 | | 30-59 days past due | | 60-89 Days Past Due | | 90 Days or Greater Past Due | | Total Past Due | | Current | | Total Loans Modified | ||||||
Commercial | | $ | - | | $ | - | | $ | - | | $ | - | | $ | 247 | | $ | 247 |
Commercial real estate – investor | | | - | | | - | | | - | | | - | | | 1,958 | | | 1,958 |
Commercial real estate – owner occupied | | | - | | | - | | | - | | | - | | | 16,407 | | | 16,407 |
Total | | $ | - | | $ | - | | $ | - | | $ | - | | $ | 18,612 | | $ | 18,612 |
| | | | | | | | | | | | | | | | | | |
March 31, 2023 | | 30-59 days past due | | 60-89 Days Past Due | | 90 Days or Greater Past Due | | Total Past Due | | Current | | Total Loans Modified | ||||||
Commercial | | $ | - | | $ | - | | $ | - | | $ | - | | $ | 979 | | $ | 979 |
Commercial real estate – investor | | | - | | | - | | | - | | | - | | | 1,774 | | | 1,774 |
HELOC | | | - | | | - | | | - | | | - | | | 20 | | | 20 |
Total | | $ | - | | $ | - | | $ | - | | $ | - | | $ | 2,773 | | $ | 2,773 |
The following tables summarize the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for threethe period ended March 31, 2024, and nine months ended September 30, 2017, wereMarch 31, 2023. The Company had two loans that had a payment modification as follows:of March 31, 2024. One changed to a single payment at maturity and the other had a reduction of monthly payment until maturity; the financial impact of these modifications is immaterial. As of March 31, 2023, there was one loan that had a payment modification to a single payment at maturity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Real Estate |
| Real Estate |
| Real Estate |
|
|
|
|
|
| ||||||||
Allowance for loan losses: |
| Commercial |
| Leases |
| Commercial |
| Construction |
| Residential |
| Consumer |
| Other |
| Total | ||||||||
Three months ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 2,150 |
| $ | 791 |
| $ | 8,107 |
| $ | 857 |
| $ | 2,576 |
| $ | 848 |
| $ | 507 |
| $ | 15,836 |
Charge-offs |
|
| 13 |
|
| 98 |
|
| 22 |
|
| 19 |
|
| 7 |
|
| 82 |
|
| - |
|
| 241 |
Recoveries |
|
| 6 |
|
| - |
|
| 43 |
|
| 11 |
|
| 459 |
|
| 45 |
|
| 6 |
|
| 570 |
(Release) Provision |
|
| (104) |
|
| 77 |
|
| 505 |
|
| 165 |
|
| (607) |
|
| (1) |
|
| 265 |
|
| 300 |
Ending balance |
| $ | 2,039 |
| $ | 770 |
| $ | 8,633 |
| $ | 1,014 |
| $ | 2,421 |
| $ | 810 |
| $ | 778 |
| $ | 16,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 1,629 |
| $ | 633 |
| $ | 9,547 |
| $ | 389 |
| $ | 2,692 |
| $ | 833 |
| $ | 435 |
| $ | 16,158 |
Charge-offs |
|
| 20 |
|
| 215 |
|
| 300 |
|
| 23 |
|
| 1,178 |
|
| 262 |
|
| - |
|
| 1,998 |
Recoveries |
|
| 13 |
|
| - |
|
| 124 |
|
| 89 |
|
| 850 |
|
| 166 |
|
| 13 |
|
| 1,255 |
Provision (Release) |
|
| 417 |
|
| 352 |
|
| (738) |
|
| 559 |
|
| 57 |
|
| 73 |
|
| 330 |
|
| 1,050 |
Ending balance |
| $ | 2,039 |
| $ | 770 |
| $ | 8,633 |
| $ | 1,014 |
| $ | 2,421 |
| $ | 810 |
| $ | 778 |
| $ | 16,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: Individually evaluated for impairment |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 6 |
| $ | - |
| $ | - |
| $ | 6 |
Ending balance: Collectively evaluated for impairment |
| $ | 2,039 |
| $ | 770 |
| $ | 8,633 |
| $ | 1,014 |
| $ | 2,415 |
| $ | 810 |
| $ | 778 |
| $ | 16,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
| $ | 257,356 |
| $ | 69,305 |
| $ | 739,136 |
| $ | 94,868 |
| $ | 419,583 |
| $ | 2,770 |
| $ | 11,173 |
| $ | 1,594,191 |
Ending balance: Individually evaluated for impairment |
| $ | 207 |
| $ | 196 |
| $ | 3,147 |
| $ | 205 |
| $ | 16,323 |
| $ | 8 |
| $ | - |
| $ | 20,086 |
Ending balance: Collectively evaluated for impairment |
| $ | 257,149 |
| $ | 69,109 |
| $ | 735,989 |
| $ | 94,663 |
| $ | 403,260 |
| $ | 2,762 |
| $ | 11,173 |
| $ | 1,574,105 |
| | | | | | | | | | |
March 31, 2024 | | Weighted-Average Term Extension (In Months) | | Weighted-Average Interest Rate Change | | Weighted-Average Delay of Payment (In Months) | ||||
Commercial | | | 4.00 | | | - | % | | | - |
Commercial real estate – investor | | | 24.00 | | | - | | | | - |
Commercial real estate – owner occupied | | | 5.24 | | | 0.15 | | | | - |
Total | | | 7.20 | | | 0.15 | % | | | - |
| | | | | | | | | | |
March 31, 2023 | | Weighted-Average Term Extension (In Months) | | Weighted-Average Interest Rate Change | | Weighted-Average Delay of Payment (In Months) | ||||
Commercial | | | 4.00 | | | 5.00 | % | | | - |
Commercial real estate – investor | | | 8.00 | | | - | | | | 7.00 |
HELOC | | | 24.00 | | | - | | | | - |
Total | | | 6.71 | | | 5.00 | % | | | 7.00 |
Changes in the allowance for loan losses by segment of loans based on method of impairment for three and nine months ended September 30, 2016, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Real Estate |
| Real Estate |
| Real Estate |
|
|
|
|
|
| ||||||||
Allowance for loan losses: |
| Commercial |
| Leases |
| Commercial |
| Construction |
| Residential |
| Consumer |
| Other |
| Total | ||||||||
Three months ended September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 1,420 |
| $ | 275 |
| $ | 8,954 |
| $ | 380 |
| $ | 2,933 |
| $ | 862 |
| $ | 998 |
| $ | 15,822 |
Charge-offs |
|
| 76 |
|
| - |
|
| 792 |
|
| 9 |
|
| 220 |
|
| 100 |
|
| - |
|
| 1,197 |
Recoveries |
|
| 10 |
|
| - |
|
| 27 |
|
| 60 |
|
| 199 |
|
| 57 |
|
| 5 |
|
| 358 |
Provision (Release) |
|
| 141 |
|
| 71 |
|
| 753 |
|
| 39 |
|
| (577) |
|
| 118 |
|
| (545) |
|
| - |
Ending balance |
| $ | 1,495 |
| $ | 346 |
| $ | 8,942 |
| $ | 470 |
| $ | 2,335 |
| $ | 937 |
| $ | 458 |
| $ | 14,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 2,041 |
| $ | 55 |
| $ | 9,013 |
| $ | 265 |
| $ | 1,694 |
| $ | 1,190 |
| $ | 1,965 |
| $ | 16,223 |
Charge-offs |
|
| 95 |
|
| 13 |
|
| 1,484 |
|
| 9 |
|
| 657 |
|
| 250 |
|
| - |
|
| 2,508 |
Recoveries |
|
| 22 |
|
| - |
|
| 255 |
|
| 71 |
|
| 718 |
|
| 184 |
|
| 18 |
|
| 1,268 |
(Release) Provision |
|
| (473) |
|
| 304 |
|
| 1,158 |
|
| 143 |
|
| 580 |
|
| (187) |
|
| (1,525) |
|
| - |
Ending balance |
| $ | 1,495 |
| $ | 346 |
| $ | 8,942 |
| $ | 470 |
| $ | 2,335 |
| $ | 937 |
| $ | 458 |
| $ | 14,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: Individually evaluated for impairment |
| $ | - |
| $ | - |
| $ | 264 |
| $ | - |
| $ | 250 |
| $ | - |
| $ | - |
| $ | 514 |
Ending balance: Collectively evaluated for impairment |
| $ | 1,495 |
| $ | 346 |
| $ | 8,678 |
| $ | 470 |
| $ | 2,085 |
| $ | 937 |
| $ | 458 |
| $ | 14,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
| $ | 136,819 |
| $ | 47,215 |
| $ | 617,280 |
| $ | 28,786 |
| $ | 357,846 |
| $ | 3,325 |
| $ | 11,581 |
| $ | 1,202,852 |
Ending balance: Individually evaluated for impairment |
| $ | 583 |
| $ | - |
| $ | 8,426 |
| $ | 76 |
| $ | 14,038 |
| $ | - |
| $ | - |
| $ | 23,123 |
Ending balance: Collectively evaluated for impairment |
| $ | 136,236 |
| $ | 47,215 |
| $ | 608,854 |
| $ | 28,710 |
| $ | 343,808 |
| $ | 3,325 |
| $ | 11,581 |
| $ | 1,179,729 |
19
21
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
Note 64 – Other Real Estate Owned
Details related to the activity in the other real estate owned (“OREO”) portfolio, net of valuation reserve, for the periods presented are itemized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| Quarters Ended |
| Nine Months Ended |
| |||||||||||||||
|
| September 30, |
| September 30, |
| |||||||||||||||
| | | | | | | | |||||||||||||
| | Three Months Ended | | |||||||||||||||||
|
| March 31, |
| |||||||||||||||||
Other real estate owned |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| 2024 |
| 2023 |
| ||||||
Balance at beginning of period |
| $ | 11,724 |
| $ | 16,252 |
| $ | 11,916 |
| $ | 19,141 |
| | $ | 5,123 | | $ | 1,561 | |
Property additions |
|
| 176 |
|
| 255 |
|
| 3,796 |
|
| 1,223 |
| |||||||
Property improvements |
|
| - |
|
| 4 |
|
| - |
|
| 16 |
| |||||||
Property additions, net of acquisition adjustments | | | - | | | 291 | | |||||||||||||
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | |
Proceeds from property disposals, net of participation purchase and of gains/losses |
|
| 1,956 |
|
| 2,002 |
|
| 5,058 |
|
| 4,931 |
| |||||||
Period valuation adjustments |
|
| 920 |
|
| 365 |
|
| 1,630 |
|
| 1,305 |
| |||||||
Proceeds from property disposals, net of participation purchase and gains/losses | | | - | | | 328 | | |||||||||||||
Period valuation write-down | | | - | | | 269 | | |||||||||||||
Balance at end of period |
| $ | 9,024 |
| $ | 14,144 |
| $ | 9,024 |
| $ | 14,144 |
| | $ | 5,123 | | $ | 1,255 | |
Activity in the valuation allowance was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| Quarters Ended |
| Nine Months Ended |
| |||||||||||||||
|
| September 30, |
| September 30, |
| |||||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| |||||||||||
| | | | | | | | |||||||||||||
|
| Three Months Ended | | |||||||||||||||||
|
| March 31, |
| |||||||||||||||||
|
| 2024 |
| 2023 |
| |||||||||||||||
Balance at beginning of period |
| $ | 8,304 |
| $ | 13,377 |
| $ | 9,982 |
| $ | 14,127 |
| | $ | 118 | | $ | 856 | |
Provision for unrealized losses |
|
| 920 |
|
| 365 |
|
| 1,630 |
|
| 1,305 |
| | | - | | | 269 | |
Reductions taken on sales |
|
| (421) |
|
| (488) |
|
| (2,809) |
|
| (2,178) |
| | | - | | | (272) | |
Balance at end of period |
| $ | 8,803 |
| $ | 13,254 |
| $ | 8,803 |
| $ | 13,254 |
| | $ | 118 | | $ | 853 | |
| | | | | | | |
Expenses related to OREO, net of lease revenue includes:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| Quarters Ended |
| Nine Months Ended |
| |||||||||||||||
|
| September 30, |
| September 30, |
| |||||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| |||||||||||
| | | | | | | | |||||||||||||
| | Three Months Ended | | |||||||||||||||||
| | March 31, |
| |||||||||||||||||
|
| 2024 |
| 2023 |
| |||||||||||||||
Gain on sales, net |
| $ | (276) |
| $ | (249) |
| $ | (454) |
| $ | (316) |
| | $ | - | | $ | 28 | |
Provision for unrealized losses |
|
| 920 |
|
| 365 |
|
| 1,630 |
|
| 1,305 |
| | | - | | | 269 | |
Operating expenses |
|
| 221 |
|
| 361 |
|
| 1,037 |
|
| 1,217 |
| | | 113 | | | 9 | |
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | |
Lease revenue |
|
| 185 |
|
| 51 |
|
| 285 |
|
| 163 |
| | | 67 | | | - | |
Net OREO expense |
| $ | 680 |
| $ | 426 |
| $ | 1,928 |
| $ | 2,043 |
| | $ | 46 | | $ | 306 | |
Note 75 – Deposits
Major classifications of deposits were as follows:
|
|
|
|
|
|
| ||||||||
|
| September 30, 2017 |
| December 31, 2016 |
| |||||||||
| | | | | | | | |||||||
|
| March 31, 2024 |
| December 31, 2023 |
| |||||||||
Noninterest bearing demand |
| $ | 556,874 |
| $ | 513,688 |
| | $ | 1,799,927 | | $ | 1,834,891 | |
Savings |
|
| 260,268 |
|
| 256,159 |
| | | 955,528 | | | 971,334 | |
NOW accounts |
|
| 417,054 |
|
| 419,417 |
| | | 569,814 | | | 565,375 | |
Money market accounts |
|
| 270,647 |
|
| 275,273 |
| | | 696,354 | | | 671,240 | |
Certificates of deposit of less than $100,000 |
|
| 219,152 |
|
| 228,993 |
| | | 289,962 | | | 266,035 | |
Certificates of deposit of $100,000 through $250,000 |
|
| 114,373 |
|
| 110,992 |
| | | 205,638 | | | 180,289 | |
Certificates of deposit of more than $250,000 |
|
| 50,747 |
|
| 62,263 |
| | | 91,052 | | | 81,582 | |
Total deposits |
| $ | 1,889,115 |
| $ | 1,866,785 |
| | $ | 4,608,275 | | $ | 4,570,746 | |
| | | | | | | |
20
22
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
Note 86 – Borrowings
The following table is a summary of borrowings as of September 30, 2017,March 31, 2024 and December 31, 2016.2023. Junior subordinated debentures are discussed in more detail in Note 9:7.
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
| December 31, 2016 |
| ||
Securities sold under repurchase agreements |
| $ | 26,853 |
| $ | 25,715 |
|
FHLBC advances1 |
|
| 125,000 |
|
| 70,000 |
|
Junior subordinated debentures |
|
| 57,627 |
|
| 57,591 |
|
Senior notes |
|
| 44,033 |
|
| 43,998 |
|
Total borrowings |
| $ | 253,513 |
| $ | 197,304 |
|
| | | | | | | |
|
| March 31, 2024 |
| December 31, 2023 |
| ||
Securities sold under repurchase agreements | | $ | 33,546 | | $ | 26,470 | |
Other short-term borrowings | | | 220,000 | | | 405,000 | |
Junior subordinated debentures1 | | | 25,773 | | | 25,773 | |
Subordinated debentures | | | 59,403 | | | 59,382 | |
Total borrowings | | $ | 338,722 | | $ | 516,625 | |
| | | | | | | |
1Included in other short-term borrowings on the balance sheet.See Note 7: Junior Subordinated Debentures.
The Company enters into deposit sweep transactions where the transaction amounts are secured by pledged securities. These transactions consistently mature overnight from the transaction date and are governed by sweep repurchase agreements. All sweep repurchase agreements are treated as financings secured by U.S. government agencies and collateralized mortgage-backed securities, and had a carrying amount of $26.9$33.5 million at September 30, 2017,March 31, 2024, and $25.7$26.5 million at December 31, 2016.2023. The fair value of the pledged collateral was $41.5$45.2 million at September 30, 2017March 31, 2024, and $43.0$45.7 million at December 31, 2016.2023. At September 30, 2017,March 31, 2024, there were no customers with secured balances exceeding 10% of stockholders’ equity.
The Company’s borrowings at the FHLBC require the Bank to be a member and invest in the stock of the FHLBC. Total borrowings are generally limited to the lower of 35% of total assets or 60% of the book value of certain mortgage loans. As of September 30, 2017,March 31, 2024, the Bank had $125.0$220.0 million in short-term advances outstanding under the FHLBC, as compared to $70.0and $405.0 million outstandingin short-term advances as of December 31, 2016. As of September 30, 2017,2023. FHLBC stock held at March 31, 2024 was valued at $5.6$13.6 million, and any potential FHLBC advances were collateralized by securities with a fair value of $87.4 millionloans and loanssecurities with a principal balance of $251.3 million,$1.44 billion, which carried a FHLBC calculatedFHLBC-calculated combined collateral value of $273.8 million.$998.9 billion. The Company had excess collateral of $74.5$778.9 million available to secure borrowings at September 30, 2017.March 31, 2024.
In the second quarter of 2021, we issued $60.0 million in aggregate principal amount of our 3.50% Fixed-to-Floating Rate Subordinated Notes due April 15, 2031 (the “Notes”). The Company used the net proceeds from the offering for general corporate purposes. The Notes bear interest at a fixed annual rate of 3.50%, from and including the date of issuance to but excluding April 15, 2026, payable semi-annually in arrears. From and including April 15, 2026 to, but excluding the maturity date or early redemption date, the interest rate will reset quarterly to an interest rate per annum equal to three-month Term Secured Overnight Financing Rate (“SOFR”) (as defined by the Note) plus 273 basis points, payable quarterly in arrears. As of March 31, 2024 and December 31, 2023, we had $59.4 million of subordinated debentures outstanding, net of deferred issuance cost.
The Company completed a debt retirement and simultaneous senior debt offering in the fourth quarter of 2016. Subordinated debt of $45.0 million and $500,000 ofissued senior notes outstanding were paid offin December 2016 with the proceeds of a $45.0 million senior notes issuance and cash on hand. The senior notes mature in ten years,ten-year maturity, and terms includeincluded interest payable semiannually at 5.75% for five years. Beginning December 31, 2021, the senior debt willbegan to pay interest at a floating rate, with interest payable quarterly at three month LIBOR plus 385 basis points. The notes arewere redeemable, in whole or in part, at the option of the Company, beginning with the interest payment date on December 31, 2021, and on any floating rate interest payment date thereafter, at a redemption price equal to 100% of the principal amount of the notes plus accrued and unpaid interest. DebtOn June 30, 2023, we redeemed all of the $45.0 million senior notes, at which point the interest rate was 9.39%. Upon redemption, the related deferred debt issuance costs incurredof $362,000 was also recorded as interest expense, resulting in an effective cost of this debt issuance of 12.85% for the senior notes issuance totaled $1.0second quarter of 2023.
On February 24, 2020, the Company originated a $20.0 million three-year term note with a correspondent bank. The term note was issued at one-month LIBOR plus 175 basis points, and are being deferredrequired principal payments quarterly and recorded to expense over the ten year term of the notes. The unamortized costs areinterest payments monthly. This note was included as a reduction to the balance of the senior noteswithin Notes payable and other borrowings on the Consolidated Balance Sheet.Sheets, and the remaining $9.0 million balance of the note was paid off on February 24, 2023. The Company also has an undrawn line of credit of $30.0 million with a correspondent bank to be used for short-term funding needs; advances under this line can be outstanding up to 360 days from the date of issuance. This line of credit has not been utilized since early 2019.
23
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
Note 97 – Junior Subordinated Debentures
The Company completed the sale of $27.5 million of cumulative trust preferred securities by its unconsolidated subsidiary, Old Second Capital Trust I, in June 2003. An additional $4.1 million of cumulative trust preferred securities were sold in July 2003. The trust preferred securities may remain outstanding for a 30-year term but, subject to regulatory approval, can be called in whole or in part by the Company after June 30, 2008. When not in deferral, distributions on the securities are payable quarterly at an annual rate of 7.80%. The Company issued a new $32.6 million subordinated debenture to Old Second Capital Trust I in return for the aggregate net proceeds of this trust preferred offering. The interest rate and payment frequency on the debenture are equivalent to the cash distribution basis on the trust preferred securities.
The Company issued an additional $25.0 million of cumulative trust preferred securities through a private placement completed by an additional, unconsolidated subsidiary, Old Second Capital Trust II, in April 2007. These trust preferred securities also mature in 30 years, but subject to the aforementioned regulatory approval, can be called in whole or in part on a quarterly basis commencing June 15, 2017. The quarterly cash distributions on the securities were fixed at 6.77% through June 15, 2017, and float atnow have a floating rate of 150 basis points over three-month LIBOR thereafter. The Trust II issuance converted from fixed to floating rate at three month LIBOR plus 150 basis points on June 15, 2017.SOFR. Upon conversion to a floating rate, a cash flow hedge was initiated which resulted in the total interest rate paid on the debt of 4.30% as of September 30, 2017, compared to4.37% and 4.39% for the rate paid prior to June 15, 2017 of 6.77%.quarters ended March 31, 2024 and March 31, 2023, respectively. The Company issued a new $25.8 million subordinated debenture to Old Second Capital Trust II in return for the aggregate net proceeds of this trust preferred offering. The interest rate and payment frequency on the debenture are equivalent to the cash distribution basis on the trust preferred securities. Both of the
The junior subordinated debentures issued by the Company are disclosed on the Consolidated Balance Sheet as junior subordinated debenturesSheets, and the related interest expense for each issuance is included in the Consolidated Statements of Income. As of September 30, 2017,March 31, 2024 and December 31, 2016,2023, the remaining unamortized debt issuance costs related to the junior subordinated debentures were
21
$752,000 and $787,000 respectively,less than $1,000 and are included as a reduction to the balance of the junior subordinated debentures on the Consolidated Balance Sheet.Sheets. The remaining deferred issuance costs on the junior subordinated debentures related to the issuance of Old Second Capital Trust II will be amortized to interest expense over the remainder of the 30-year term of the notes and are included in the Consolidated Statements of Income.
Note 108 – Equity Compensation Plans
Stock-based awards are outstanding under the Company’s 20082019 Equity Incentive Plan, as amended and restated (the “2008“2019 Plan”) and the Company’s 2014 Equity Incentive Plan (the “2014 Plan,” and together with the 2008 Plan, the “Plans”). The 20142019 Plan was originally approved at the 2014May 2019 annual stockholders’ meeting and authorized 600,000 shares, and at the May 2021 annual stockholders’ meeting, the Company obtained stockholder approval to increase the number of stockholders; a maximumshares of 375,000common stock authorized for issuance under the 2019 Plan by 1,200,000 shares, were authorizedfrom 600,000 shares to be issued under this plan.1,800,000 shares. Following the approval of the 20142019 Plan, no further awards will be granted under the 2008 Plan or any other Company equity compensationprior plan.At the May 2016 annual stockholders meeting, an amendment to the 2014 Plan authorized an additional 600,000 shares to be issued, which resulted in a total of 975,000 shares authorized for issuance under this plan.
The 20142019 Plan authorizes the granting of qualified stock options, non-qualified stock options, restricted stock, restricted stock units, and stock appreciation rights.rights (“SARs”). Awards may be granted to selected directors, and officers, employees or employeeseligible service providers under the 20142019 Plan at the discretion of the Compensation Committee of the Company’s Board of Directors. As of September 30, 2017, 453,209March 31, 2024, 712,201 shares remained available for issuance under the 20142019 Plan.
There were no stock options The Company has granted or exercised in the third quarter of 2017 and 2016. All stock options are granted for a term of ten years. There is no unrecognized compensation cost related to unvested stock options as all stock options of the Company’s common stock have fully vested.
A summary of stock option activity in the Plans for the nine months ended September 30, 2017, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted- |
|
|
|
|
|
|
| Weighted |
| Average |
|
|
| |
|
|
|
| Average |
| Remaining |
|
|
| |
|
|
|
| Exercise |
| Contractual |
| Aggregate | ||
|
| Shares |
| Price |
| Term (years) |
| Intrinsic Value | ||
|
|
|
|
|
|
|
|
|
|
|
Beginning outstanding |
| 94,500 |
| $ | 25.82 |
| - |
|
| - |
Canceled |
| - |
|
| - |
| - |
|
| - |
Expired |
| - |
|
| - |
| - |
|
| - |
Exercised |
| - |
|
| - |
| - |
|
| - |
Ending outstanding |
| 94,500 |
| $ | 25.82 |
| 0.3 |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period |
| 94,500 |
| $ | 25.82 |
| 0.3 |
| $ | - |
Generally,only restricted stock andunits under the 2019 Equity Plan.
Generally, restricted stock units granted under the Plans2019 Plan vest three years from the grant date, but the Compensation Committee of the Company’s Board of Directors has discretionary authority to change somethe terms of particular awards including the amount of time until the vest date.vesting schedule.
Awards under the 2008 Plan will become fully vested upon a merger or change in control of the Company. Under the 20142019 Plan, unless otherwise provided in an award agreement, upon the occurrence of a change in control, ofall equity awards then held by the Company,participant will become fully exercisable immediately if, and all stock awards and cash incentive awards will become fully earned and vested immediately if, (i) the 20142019 Plan is not an obligation of the successor entity following thea change in control or (ii) the 20142019 Plan is an obligation of the successor entity following thea change in control and the participant incurs a termination of service without cause or for good reason following the change in control. Notwithstanding the immediately preceding sentence, if the vesting of an involuntary termination,award is conditioned upon the achievement of performance measures, then such vesting will generally be subject to the stock options, stock appreciation rights, stock awards and cash incentive awards underfollowing: if, at the 2014 Plan will become fully exercisable and vested. Performance-based awards generally will vesttime of the change in control, the performance measures are less than 50% attained (pro rata based upon the level of achievementtime of the applicable performance measuresperiod through the change in control), the award will become vested and exercisable on a fractional basis with the numerator being equal to the percentage of attainment and the denominator being 50%; and if, at the time of the change in control, the performance measures are at least 50% attained (pro rata based upon the time of the period through the change in control), the award will become fully earned and vested immediately upon the change in control.
The Company grantedAwards of restricted stock under its equity compensation plans beginning in 2005 and it began granting restricted stock units in February 2009. Restricted stock awards under the Plans2019 Plan generally entitle holders to voting and dividend rights upon grant and are subject to forfeiture until certain restrictions have lapsed including employment for a specific period. RestrictedAwards of restricted stock units under the Plans2019 Plan are also subject to forfeiture until certain restrictions have lapsed including employment for a specific period, but do not entitle holders to voting rights until the restricted period ends and shares are transferred in connection with the units.
24
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
There were 161,500338,235 and 230,399 restricted awardsstock units issued under the 20142019 Plan during the ninethree months ended September 30, 2017. There were 130,000 restricted awards issuedduring the nine months ended September 30, 2016.March 31, 2024 and March 31, 2023, respectively. Compensation expense is recognized over the vesting period of the restricted awardstock units based on the market value of the award on the issue date. Total compensation cost that has been recorded for the 20142019 Plan was $925,100$1.2 million for the three months ended March 31, 2024 and $485,000 in$948,000 for the first ninethree months of 2017 and 2016, respectively.ended March 31, 2023.
22
A summary of changes in the Company’s unvested restricted awards for the ninethree months ended September 30, 2017,March 31, 2024, is as follows:
|
|
|
|
|
| |||||
|
| September 30, 2017 | ||||||||
|
|
|
| Weighted | ||||||
|
| Restricted |
| Average | ||||||
|
| Stock Shares |
| Grant Date | ||||||
|
| and Units |
| Fair Value | ||||||
Nonvested at January 1 |
| 409,000 |
| $ | 5.89 | |||||
| | | | | | |||||
| | March 31, 2024 | ||||||||
| | | | Weighted | ||||||
| | Restricted | | Average | ||||||
| | Stock Shares | | Grant Date | ||||||
|
| and Units |
| Fair Value | ||||||
Unvested at January 1 | | 709,237 | | $ | 14.26 | |||||
Granted |
| 161,500 |
|
| 11.04 | | 338,235 | | | 13.44 |
Vested |
| (91,500) |
|
| 5.07 | | (204,969) | | | 11.32 |
Forfeited |
| (14,000) |
|
| 7.53 | | (3,000) | | | 12.35 |
Nonvested at September 30 |
| 465,000 |
| $ | 7.79 | |||||
Unvested at March 31 | | 839,503 | | $ | 14.65 | |||||
| | | | | |
Total unrecognized compensation cost of restricted awards was $2.0$6.9 million as of September 30, 2017,March 31, 2024, which is expected to be recognized over a weighted-average period of 2.112.19 years. Total unrecognized compensation cost of restricted awards was $1.1 million as of September 30, 2016, which was expected to be recognized over a weighted-average period of 1.99 years.
Note 119 – Earnings Per Share
The earnings per share, – both basic and diluted, – are included below as follows:
| | | | | | | | |
| | Three Months Ended March 31, | | | ||||
|
| 2024 |
| 2023 |
|
| ||
Basic earnings per share: | | | | | | | | |
Weighted-average common shares outstanding | | | 44,758,559 | | | 44,619,118 | | |
Net income | | $ | 21,312 | | $ | 23,607 | | |
Basic earnings per share | | $ | 0.48 | | $ | 0.53 | | |
| | | | | | | | |
Diluted earnings per share: | | | | | | | | |
Weighted-average common shares outstanding | | | 44,758,559 | | | 44,619,118 | | |
Dilutive effect of unvested restricted awards 1 | | | 765,325 | | | 697,480 | | |
Diluted average common shares outstanding | | | 45,523,884 | | | 45,316,598 | | |
| | | | | | | | |
Net Income | | $ | 21,312 | | $ | 23,607 | | |
Diluted earnings per share | | $ | 0.47 | | $ | 0.52 | | |
| | | | | | | | |
| | | | | | | | |
1 Includes the common stock equivalents for restricted share rights that are dilutive. | |
25
Table of September 30 (inContents
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except for share and per share data):data, unaudited)
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| Quarters Ended September 30, |
| Nine Months Ended September 30, |
| ||||||||
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| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Basic earnings per share: |
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|
|
|
Weighted-average common shares outstanding |
|
| 29,627,086 |
|
| 29,554,716 |
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| 29,591,811 |
|
| 29,524,796 |
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Net income |
| $ | 8,077 |
| $ | 3,499 |
| $ | 17,650 |
| $ | 10,666 |
|
Basic earnings per share |
| $ | 0.27 |
| $ | 0.12 |
| $ | 0.60 |
| $ | 0.36 |
|
Diluted earnings per share: |
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|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
|
| 29,627,086 |
|
| 29,554,716 |
|
| 29,591,811 |
|
| 29,524,796 |
|
Dilutive effect of nonvested restricted awards1 |
|
| 473,967 |
|
| 282,228 |
|
| 425,081 |
|
| 303,221 |
|
Dilutive effect of stock options |
|
| 2,556 |
|
| 1,238 |
|
| 2,473 |
|
| 413 |
|
Diluted average common shares outstanding |
|
| 30,103,609 |
|
| 29,838,182 |
|
| 30,019,365 |
|
| 29,828,430 |
|
Net Income |
| $ | 8,077 |
| $ | 3,499 |
| $ | 17,650 |
| $ | 10,666 |
|
Diluted earnings per share |
| $ | 0.27 |
| $ | 0.12 |
| $ | 0.59 |
| $ | 0.36 |
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|
|
Number of antidilutive options and warrants excluded from the diluted earnings per share calculation |
|
| 900,839 |
|
| 967,339 |
|
| 900,839 |
|
| 977,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Includes the common stock equivalents for restricted share rights that are dilutive.
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|
The above earnings per share calculation did not include a warrant for 815,339 shares of common stock, at an exercise price of $13.43 per share, that was outstanding as of September 30, 2017, and September 30, 2016, because the warrant was anti-dilutive. Of note, the ten year warrant was issued in 2009, and was sold at auction by the Treasury in June 2013 to a third party investor.
Note 12 10 – Regulatory & Capital Matters
The Bank is subject to the risk-based capital regulatory guidelines, which include the methodology for calculating the risk-weighted Bank assets, developed by the Office of the Comptroller of the Currency (the “OCC”) and the other bank regulatory agencies. In connection with the current economic environment, the Bank’s current level of nonperforming assets and the risk-based capital regulatory guidelines, the Bank’s Board of Directors has determined thatestablished an internal guideline requiring the Bank shouldto maintain a Tier 1 leverage capital ratio at or above eight percent (8%) and a total risk-based capital ratio at or above twelve percent (12%). At September 30, 2017,March 31, 2024, the Bank exceeded those thresholds.
At September 30, 2017,March 31, 2024, the Bank’s Tier 1 capital leverage ratio was 10.63%10.89%, an increase of 3948 basis pointpoints from December 31, 2016,2023, and is well above the 8.00% objective. The Bank’s total capital ratio was 13.52%14.03%, an increase of 779 basis points from December 31, 2016,2023, and also modestly above the objective of 12.00%.
23
Bank holding companies are generally required to maintain minimum levels of capital in accordance with capital guidelines implemented by the Board of Governors of the Federal Reserve System. The general bank and holding company capital adequacy guidelines are shown in the accompanying table, as are the capital ratios of the Company and the Bank, as of September 30, 2017,March 31, 2024 and December 31, 2016.2023.
In July 2013, the U.S. federalThe Basel III Rules are applicable to all banking authorities issued final rules (the “Basel III Rules”) establishing more stringent regulatoryorganizations that are subject to minimum capital requirements, for U.S. banking institutions,including federal and state banks and savings and loan associations, as well as to bank and savings and loan holding companies, other than “small bank holding companies,” which went into effect on January 1, 2015.are generally holding companies with consolidated assets of less than $3.0 billion. A detailed discussion of the Basel III Rules is included in Part I, Item 1 of the Company’s Form 10-K for the year ended December 31, 2016,2023, under the heading “Supervision and Regulation.”
At September 30, 2017,March 31, 2024 and December 31, 2016,2023, the Company, on a consolidated basis, exceeded the minimum thresholds to be considered “well capitalized” under current regulatory defined capital ratios.
26
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
Capital levels and industry defined regulatory minimum required levels are as follows:
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| Minimum Capital |
| To Be Well Capitalized Under |
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| Adequacy with Capital |
| Prompt Corrective |
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| Actual |
| Conservation Buffer if applicable1 |
| Action Provisions2 |
| |||||||||||||||||||||||||||||
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| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio |
| |||||||||||||||||||||||
September 30, 2017 |
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| | | | | | | | | | | | | | | | | | | ||||||||||||||||||
| | | | | | | | | | | | | | | ||||||||||||||||||||||
| | | | | | | | Minimum Capital | | Well Capitalized | | |||||||||||||||||||||||||
| | | | | | | | Adequacy with Capital | | Under Prompt Corrective | | |||||||||||||||||||||||||
| | Actual | | Conservation Buffer, if applicable1 | | Action Provisions2 | | |||||||||||||||||||||||||||||
|
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio | | |||||||||||||||||||||||
March 31, 2024 | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Common equity tier 1 capital to risk weighted assets |
|
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|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | |
Consolidated |
| $ | 170,622 |
| 8.88 | % |
| $ | 110,482 |
| 5.750 | % |
|
| N/A |
| N/A |
| | $ | 566,730 | | 12.02 | % | | $ | 330,042 | | 7.00 | % | | | N/A | | N/A | |
Old Second Bank |
|
| 243,109 |
| 12.67 |
|
|
| 110,330 |
| 5.750 |
|
| $ | 124,720 |
| 6.50 | % | | | 614,947 | | 13.06 | | | | 329,604 | | 7.00 | | | $ | 306,061 | | 6.50 | % |
Total capital to risk weighted assets |
|
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|
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|
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|
|
| | | | | | | | | | | | | | | | | | |
Consolidated |
|
| 239,269 |
| 12.46 |
|
|
| 177,627 |
| 9.250 |
|
|
| N/A |
| N/A |
| | | 697,211 | | 14.79 | | | | 494,977 | | 10.50 | | | | N/A | | N/A | |
Old Second Bank |
|
| 259,569 |
| 13.52 |
|
|
| 177,590 |
| 9.250 |
|
|
| 191,989 |
| 10.00 |
| | | 660,429 | | 14.03 | | | | 494,263 | | 10.50 | | | | 470,726 | | 10.00 | |
Tier 1 capital to risk weighted assets |
|
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| | | | | | | | | | | | | | | | | | |
Consolidated |
|
| 221,579 |
| 11.54 |
|
|
| 139,207 |
| 7.250 |
|
|
| N/A |
| N/A |
| | | 591,730 | | 12.55 | | | | 400,773 | | 8.50 | | | | N/A | | N/A | |
Old Second Bank |
|
| 243,109 |
| 12.67 |
|
|
| 139,111 |
| 7.250 |
|
|
| 153,502 |
| 8.00 |
| | | 614,947 | | 13.06 | | | | 400,233 | | 8.50 | | | | 376,690 | | 8.00 | |
Tier 1 capital to average assets |
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| | | | | | | | | | | | | | | | | | |
Consolidated |
|
| 221,579 |
| 9.69 |
|
|
| 91,467 |
| 4.00 |
|
|
| N/A |
| N/A |
| | | 591,730 | | 10.47 | | | | 226,067 | | 4.00 | | | | N/A | | N/A | |
Old Second Bank |
|
| 243,109 |
| 10.63 |
|
|
| 91,480 |
| 4.00 |
|
|
| 114,350 |
| 5.00 |
| | | 614,947 | | 10.89 | | | | 225,876 | | 4.00 | | | | 282,345 | | 5.00 | |
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| ||||||||||||||||||
December 31, 2016 |
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| ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||
December 31, 2023 | | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Common equity tier 1 capital to risk weighted assets |
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| | | | | | | | | | | | | | | | | | |
Consolidated |
| $ | 154,537 |
| 8.76 | % |
| $ | 90,411 |
| 5.125 | % |
|
| N/A |
| N/A |
| | $ | 547,721 | | 11.37 | % | | $ | 337,207 | | 7.00 | % | | | N/A | | N/A | |
Old Second Bank |
|
| 221,153 |
| 12.53 |
|
|
| 90,456 |
| 5.125 |
|
| $ | 114,724 |
| 6.50 | % | | | 592,413 | | 12.32 | | | | 336,598 | | 7.00 | | | $ | 312,556 | | 6.50 | % |
Total capital to risk weighted assets |
|
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| | | | | | | | | | | | | | | | | | |
Consolidated |
|
| 216,769 |
| 12.29 |
|
|
| 152,126 |
| 8.625 |
|
|
| N/A |
| N/A |
| | | 677,076 | | 14.06 | | | | 505,640 | | 10.50 | | | | N/A | | N/A | |
Old Second Bank |
|
| 237,306 |
| 13.45 |
|
|
| 152,176 |
| 8.625 |
|
|
| 176,436 |
| 10.00 |
| | | 636,768 | | 13.24 | | | | 504,990 | | 10.50 | | | | 480,943 | | 10.00 | |
Tier 1 capital to risk weighted assets |
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| | | | | | | | | | | | | | | | | | |
Consolidated |
|
| 191,988 |
| 10.88 |
|
|
| 116,904 |
| 6.625 |
|
|
| N/A |
| N/A |
| | | 572,721 | | 11.89 | | | | 409,430 | | 8.50 | | | | N/A | | N/A | |
Old Second Bank |
|
| 221,153 |
| 12.53 |
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|
| 116,930 |
| 6.625 |
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|
| 141,199 |
| 8.00 |
| | | 592,413 | | 12.32 | | | | 408,727 | | 8.50 | | | | 384,684 | | 8.00 | |
Tier 1 capital to average assets |
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| | | | | | | | | | | | | | | | | | |
Consolidated |
|
| 191,988 |
| 8.90 |
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| 86,287 |
| 4.00 |
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| N/A |
| N/A |
| | | 572,721 | | 10.06 | | | | 227,722 | | 4.00 | | | | N/A | | N/A | |
Old Second Bank |
|
| 221,153 |
| 10.24 |
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| 86,388 |
| 4.00 |
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| 107,985 |
| 5.00 |
| | | 592,413 | | 10.41 | | | | 227,632 | | 4.00 | | | | 284,540 | | 5.00 | |
1 As of September 30, 2017, amountsAmounts are shown inclusive of a capital conservation buffer of 1.25%; as compared to December 31, 2016, of 0.625%2.50%.
2The prompt corrective action provisions are only applicable at the Bank level. The Bank exceeded the general minimum regulatory requirements to be considered “well capitalized.”
As part of its response to the impact of the COVID-19 pandemic, in the first quarter of 2020, U.S. federal regulatory authorities issued an interim final rule that provided banking organizations that adopted the Current Expected Credit Losses (“CECL”) methodology during the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay (i.e., a five-year transition in total). In connection with our adoption of CECL on January 1, 2020, we elected to utilize the five-year CECL transition. As of March 31, 2024, the capital measures of the Company exclude $951,000, which is the modified CECL transition adjustment.
27
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
Dividend Restrictions
In addition to the above requirements, banking regulations and capital guidelines generally limit the amount of dividends that may be paid by a bank without prior regulatory approval. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s profits, combined with the retained profit of the previous two years, subject to the capital requirements described above. As of March 31, 2024, the Bank had capacity to pay dividends of $93.7 million to the Company without prior regulatory approval. Pursuant to the Basel III rules, that came into effect January 1, 2015, the Bank must keep a capital conservation buffer of 0.625% for 2016, 1.25% for 2017, 1.875% for 2018, and 2.5% for 2019 and thereafter of2.50% above the regulatory minimum capital requirements, which must consist entirely of Common Equity Tier 1 capital in order to avoid additional limitations on capital distributions and certain other payments.
24
Note 13 11 – Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy established by the Company also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Three levels of inputs that may be used to measure fair value are:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Company has the ability to access as of the measurement date.
Level 2: Significant observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a company’s own view about the assumptions that market participants would use in pricing an asset or liability.
There were no transfers between levels at March 31, 2024, however the Company reclassified one states and political subdivisions security to an asset-backed security in all periods presented. During the three-month period ended March 31, 2023, $14.9 million of asset-backed securities and $6.8 million of collateralized mortgage obligations were transferred to Level 2 from Level 3.
The majority of securities available-for-sale are valued by external pricing services or dealer market participants and are classified in Level 2 of the fair value hierarchy. Both market and income valuation approaches are utilized. Quarterly, the Company evaluates the methodologies used by the external pricing services or dealer market participants to develop the fair values to determine whether the results of the valuations are representative of an exit price in the Company’s principal markets and an appropriate representation of fair value. The Company uses the following methods and significant assumptions to estimate fair value:
● |
| Government-sponsored agency debt securities are primarily priced using available market information through processes such as benchmark spreads, market valuations of like securities, like securities groupings and matrix pricing. |
● |
| Other government-sponsored agency securities, |
● |
| State and political subdivisions are largely grouped by characteristics (e.g., geographical data and source of revenue in trade dissemination systems). Because some securities are not traded daily and due to other grouping limitations, active market quotes are often obtained using benchmarking for like securities. |
● |
| Auction rate securities are priced using market spreads, cash flows, prepayment speeds, and loss analytics. Therefore, the valuations of auction rate asset-backed securities are considered Level 2 valuations. |
● |
| Asset-backed collateralized loan obligations were priced using data from a pricing matrix supported by our bond accounting service provider and are therefore considered Level 2 valuations. |
● |
| Annually every security holding is priced by a pricing service independent of the regular and recurring pricing services used. The independent service provides a measurement to indicate if the price assigned by the regular service is within or outside of a reasonable range. Management reviews this report and applies judgment in adjusting calculations at year end related to securities pricing. |
28
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
● |
| Residential mortgage loans available for sale in the secondary market are carried at fair market value. The fair value of loans held-for-sale is determined using quoted secondary market prices. |
● |
| Lending related commitments to fund certain residential mortgage loans, e.g., residential mortgage loans with locked interest rates to be sold in the secondary market and forward commitments for the future delivery of mortgage loans to third party investors, as well as forward commitments for future delivery of MBS, are considered derivatives. Fair values are estimated based on observable changes in mortgage interest rates including prices for MBS from the date of the commitment and do not typically involve significant judgments by management. |
● |
| The fair value of mortgage servicing rights is based on a valuation model that calculates the present value of estimated net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income to derive the resultant value. The Company is able to compare the valuation model inputs, such as the discount rate, prepayment speeds, weighted average delinquency and foreclosure/bankruptcy rates to widely available published industry data for reasonableness. |
● |
| Interest rate swap positions, both assets and liabilities, are based on valuation pricing models using an income approach reflecting readily observable market parameters such as interest rate yield curves. |
● |
| The fair value of |
● |
| Nonrecurring adjustments to certain commercial and residential real estate properties classified as |
25
resulting in a Level 3 |
Assets and Liabilities Measured at Fair Value on a Recurring Basis:
The tables below present the balance of assets and liabilities at September 30, 2017,March 31, 2024 and December 31, 2016,2023, respectively, measured by the Company at fair value on a recurring basis:
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| ||||||||||||
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| September 30, 2017 | ||||||||||||||||||||||
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| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | March 31, 2024 | ||||||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||||||||||
Assets: |
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|
|
| | | | | | | | | | | | |
Securities available-for-sale |
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|
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|
|
|
| | | | | | | | | | | | |
U.S. Treasury |
| $ | 3,990 |
| $ | - |
| $ | - |
| $ | 3,990 | | $ | 171,000 | | $ | - | | $ | - | | $ | 171,000 |
U.S. government agencies |
|
| - |
|
| 13,451 |
|
| - |
|
| 13,451 | | | - | | | 56,979 | | | - | | | 56,979 |
U.S. government agencies mortgage-backed |
|
| - |
|
| 11,030 |
|
| - |
|
| 11,030 | | | - | | | 101,075 | | | - | | | 101,075 |
States and political subdivisions |
|
| - |
|
| 216,672 |
|
| 12,360 |
|
| 229,032 | | | - | | | 209,839 | | | 12,903 | | | 222,742 |
Corporate bonds |
|
| - |
|
| 10,577 |
|
| - |
|
| 10,577 | ||||||||||||
Collateralized mortgage obligations |
|
| - |
|
| 77,894 |
|
| 2,492 |
|
| 80,386 | | | - | | | 379,603 | | | - | | | 379,603 |
Asset-backed securities |
|
| - |
|
| 131,759 |
|
| - |
|
| 131,759 | | | - | | | 64,222 | | | 2,485 | | | 66,707 |
Collateralized loan obligations |
|
| - |
|
| 53,259 |
|
| - |
|
| 53,259 | | | - | | | 170,691 | | | - | | | 170,691 |
Loans held-for-sale |
|
| - |
|
| 1,641 |
|
| - |
|
| 1,641 | | | - | | | 1,072 | | | - | | | 1,072 |
Mortgage servicing rights |
|
| - |
|
| - |
|
| 6,684 |
|
| 6,684 | | | - | | | - | | | 10,564 | | | 10,564 |
Interest rate swap agreements |
|
| - |
|
| 128 |
|
| - |
|
| 128 | ||||||||||||
Interest rate swap agreements, including risk participation agreement | | | - | | | 6,001 | | | - | | | 6,001 | ||||||||||||
Mortgage banking derivatives |
|
| - |
|
| 289 |
|
| - |
|
| 289 | | | - | | | 49 | | | - | | | 49 |
Total |
| $ | 3,990 |
| $ | 516,700 |
| $ | 21,536 |
| $ | 542,226 | | $ | 171,000 | | $ | 989,531 | | $ | 25,952 | | $ | 1,186,483 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
| | | | | | | | | | | | | ||||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | |
Interest rate swap agreements, including risk participation agreements |
| $ | - |
| $ | 1,566 |
| $ | - |
| $ | 1,566 | | $ | - | | $ | 8,917 | | $ | - | | $ | 8,917 |
Total |
| $ | - |
| $ | 1,566 |
| $ | - |
| $ | 1,566 | | $ | - | | $ | 8,917 | | $ | - | | $ | 8,917 |
| | | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2016 | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies mortgage-backed |
| $ | - |
| $ | 41,534 |
| $ | - |
| $ | 41,534 |
States and political subdivisions |
|
| - |
|
| 46,477 |
|
| 22,226 |
|
| 68,703 |
Corporate bonds |
|
| - |
|
| 10,630 |
|
| - |
|
| 10,630 |
Collateralized mortgage obligations |
|
| - |
|
| 167,808 |
|
| 3,119 |
|
| 170,927 |
Asset-backed securities |
|
| - |
|
| 138,407 |
|
| - |
|
| 138,407 |
Collateralized loan obligations |
|
| - |
|
| 101,637 |
|
| - |
|
| 101,637 |
Loans held-for-sale |
|
| - |
|
| 4,918 |
|
| - |
|
| 4,918 |
Mortgage servicing rights |
|
| - |
|
| - |
|
| 6,489 |
|
| 6,489 |
Interest rate swap agreements |
|
| - |
|
| 673 |
|
| - |
|
| 673 |
Mortgage banking derivatives |
|
| - |
|
| 287 |
|
| - |
|
| 287 |
Total |
| $ | - |
| $ | 512,371 |
| $ | 31,834 |
| $ | 544,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements, including risk participation agreements |
| $ | - |
| $ | 1,667 |
| $ | - |
| $ | 1,667 |
Total |
| $ | - |
| $ | 1,667 |
| $ | - |
| $ | 1,667 |
26
29
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
| | | | | | | | | | | | |
| | December 31, 2023 | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Assets: | | | | | | | | | | | | |
Securities available-for-sale | | | | | | | | | | | | |
U.S. Treasury | | $ | 169,574 | | $ | - | | $ | - | | $ | 169,574 |
U.S. government agencies | | | - | | | 56,959 | | | - | | | 56,959 |
U.S. government agencies mortgage-backed | | | - | | | 106,370 | | | - | | | 106,370 |
States and political subdivisions | | | - | | | 214,006 | | | 13,059 | | | 227,065 |
Collateralized mortgage obligations | | | - | | | 392,544 | | | - | | | 392,544 |
Asset-backed securities | | | - | | | 66,166 | | | 2,270 | | | 68,436 |
Collateralized loan obligations | | | - | | | 171,881 | | | - | | | 171,881 |
Loans held-for-sale | | | - | | | 1,322 | | | - | | | 1,322 |
Mortgage servicing rights | | | - | | | - | | | 10,344 | | | 10,344 |
Interest rate swap agreements | | | - | | | 5,391 | | | - | | | 5,391 |
Mortgage banking derivatives | | | - | | | (10) | | | - | | | (10) |
Total | | $ | 169,574 | | $ | 1,014,629 | | $ | 25,673 | | $ | 1,209,876 |
| | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | |
Interest rate swap agreements, including risk participation agreements | | $ | - | | $ | 8,324 | | $ | - | | $ | 8,324 |
Total | | $ | - | | $ | 8,324 | | $ | - | | $ | 8,324 |
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are as follows:
| | | | | | | | | |
| | | Three Months Ended March 31, 2024 | ||||||
| | Securities available-for-sale | | | | ||||
| | | | States and | | Mortgage | |||
| | Asset-backed | | Political | | Servicing | |||
|
| Securities | | Subdivisions |
| Rights | |||
Beginning balance January 1, 2024 | | $ | 2,270 | | $ | 13,059 | | $ | 10,344 |
Transfers out of Level 3 | | | - | | | - | | | - |
Total gains or losses | | | | | | | | | |
Included in earnings | | | - | | | (33) | | | 172 |
Included in other comprehensive income | | | (29) | | | (89) | | | - |
Purchases, issuances, sales, and settlements | | | | | | | | | |
Purchases | | | 259 | | | - | | | - |
Issuances | | | - | | | - | | | 126 |
Settlements | | | (15) | | | (34) | | | (78) |
Ending balance March 31, 2024 | | $ | 2,485 | | $ | 12,903 | | $ | 10,564 |
| | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, 2017 | |||||||
|
| Securities available-for-sale |
|
|
| ||||
|
| Collateralized |
| States and |
| Mortgage | |||
|
| Mortgage |
| Political |
| Servicing | |||
|
| Obligation |
| Subdivisions |
| Rights | |||
Beginning balance January 1, 2017 |
| $ | 3,119 |
| $ | 22,226 |
| $ | 6,489 |
Total gains or losses |
|
|
|
|
|
|
|
|
|
Included in earnings (or changes in net assets) |
|
| 32 |
|
| - |
|
| (354) |
Included in other comprehensive income |
|
| 7 |
|
| (501) |
|
| - |
Purchases, issuances, sales, and settlements |
|
|
|
|
|
|
|
|
|
Purchases |
|
| - |
|
| 10,994 |
|
| - |
Issuances |
|
| - |
|
| - |
|
| 951 |
Settlements |
|
| (666) |
|
| (20,359) |
|
| (402) |
Ending balance September 30, 2017 |
| $ | 2,492 |
| $ | 12,360 |
| $ | 6,684 |
30
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, 2016 | ||||
|
| Securities available-for-sale |
|
|
| |
|
| States and |
| Mortgage | ||
|
| Political |
| Servicing | ||
|
| Subdivisions |
| Rights | ||
Beginning balance January 1, 2016 |
| $ | 111 |
| $ | 5,847 |
Transfers out of Level 3 |
|
| (42) |
|
| - |
Total gains or losses |
|
|
|
|
|
|
Included in earnings (or changes in net assets) |
|
| - |
|
| (1,394) |
Included in other comprehensive income |
|
| 9 |
|
| - |
Purchases, issuances, sales, and settlements |
|
|
|
|
|
|
Issuances |
|
| - |
|
| 1,148 |
Settlements |
|
| (78) |
|
| (526) |
Ending balance September 30, 2016 |
| $ | - |
| $ | 5,075 |
| | | | | | | | | | | | | |
| | | Three Months Ended March 31, 2023 | | |||||||||
| | | Securities available-for-sale | | | | | ||||||
| | | | Collateralized | | States and | | Mortgage | | ||||
| | Asset-backed | | Mortgage | | Political | | Servicing | | ||||
|
| Securities | | Obligations | | Subdivisions |
| Rights |
| ||||
Beginning balance January 1, 2023 | | $ | 16,741 | | $ | 6,770 | | $ | 12,501 | | $ | 11,189 | |
Transfers into Level 3 | | | - | | | - | | | - | | | - | |
Transfers out of Level 3 | | | (14,885) | | | (6,764) | | | - | | | - | |
Total gains or losses | | | | | | | | | | | | | |
Included in earnings | | | (11) | | | - | | | (34) | | | (471) | |
Included in other comprehensive income | | | 219 | | | (6) | | | 430 | | | - | |
Purchases, issuances, sales, and settlements | | | | | | | | | | | | | |
Purchases | | | 406 | | | - | | | - | | | - | |
Issuances | | | - | | | - | | | - | | | 120 | |
Settlements | | | (355) | | | - | | | (33) | | | (54) | |
Ending balance March 31, 2023 | | $ | 2,115 | | $ | - | | $ | 12,864 | | $ | 10,784 | |
The following table and commentary presentspresent quantitative and qualitative information about Level 3 fair value measurements as of September 30, 2017:March 31, 2024:
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
| Weighted | |||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | | | | | | | | | | Weighted | |||||||||||||
Measured at fair value |
|
|
|
|
|
| Unobservable |
|
|
| Average | | | | | | | Significant Unobservable | | | | Average | ||
on a recurring basis: |
| Fair Value |
| Valuation Methodology |
| Inputs |
| Range of Input |
| of Inputs |
| Fair Value |
| Valuation Methodology |
| Inputs |
| Range of Input |
| of Inputs | ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
| | | | | | | | | | | | | ||||||||||||
States and political subdivisions | | $ | 12,903 | | Discounted Cash Flow | | Discount Rate | | 3.2 – 3.7% | | 3.5 | % | ||||||||||||
| | | | | | | Liquidity Premium | | 0.5 – 0.5% | | 0.5 | % | ||||||||||||
| | | | | | | | | | | | | ||||||||||||
Asset-backed securities | | $ | 2,485 | | Discounted Cash Flow | | Discount Rate | | 5.5 - 5.5% | | 5.5 | % | ||||||||||||
| | | | | | | | | | | | | ||||||||||||
Mortgage servicing rights |
| $ | 6,684 |
| Discounted Cash Flow |
| Discount Rate |
| 10.0 - 1576.2% |
| 10.2 | % | | $ | 10,564 | | Discounted Cash Flow | | Discount Rate | | 9.0 – 11.0% | | 9.0 | % |
|
|
|
|
|
|
| Prepayment Speed |
| 7.0 - 68.3% |
| 10.0 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
| | | | | | | Prepayment Speed | | 5.2 – 31.5% | | 6.1 | % | ||||||||||||
| | | | | | | | | | | | |
The following table and commentary presentspresent quantitative and qualitative information about Level 3 fair value measurements as of December 31, 2016:2023:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted | |
Measured at fair value |
|
|
|
|
|
| Unobservable |
|
|
| Average | |
on a recurring basis: |
| Fair Value |
| Valuation Methodology |
| Inputs |
| Range of Input |
| of Inputs | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights |
| $ | 6,489 |
| Discounted Cash Flow |
| Discount Rate |
| 10.0 - 17.0% |
| 10.2 | % |
|
|
|
|
|
|
| Prepayment Speed |
| 6.5 - 77.8% |
| 9.6 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | |
| | | | | | | | | | | Weighted | |
Measured at fair value | | | | | | | Significant Unobservable | | | | Average | |
on a recurring basis: |
| Fair Value |
| Valuation Methodology |
| Inputs |
| Range of Input |
| of Inputs | ||
| | | | | | | | | | | | |
States and political subdivisions | | $ | 13,059 | | Discounted Cash Flow | | Discount Rate | | 3.2– 5.4% | | 4.7 | % |
| | | | | | | Liquidity Premium | | 0.5 - 0.5% | | 0.5 | % |
| | | | | | | | | | | | |
Asset-backed securities | | $ | 2,270 | | Discounted Cash Flow | | Discount Rate | | 5.6 - 5.6% | | 5.6 | % |
| | | | | | | | | | | | |
Mortgage servicing rights | | $ | 10,344 | | Discounted Cash Flow | | Discount Rate | | 9.0 – 11.0% | | 9.0 | % |
| | | | | | | Prepayment Speed | | 5.1 - 33.0% | | 6.6 | % |
27
31
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
In addition to the above, Level 3 fair value measurement included $12.4 million for state and political subdivisions representing various local municipality securities and $2.5 million of collateralized mortgage obligations at September 30, 2017. Both of these were classified as securities available-for-sale, and were valued using a discount based on market spreads of similar assets, but the liquidity premium was an unobservable input. The state and political subdivisions securities balance in Level 3 fair value at September 30, 2016, was zero; the securities were transferred to Level 3 in the fourth quarter of 2016. Given the small dollar amount and size of the municipality involved, this is categorized as Level 3 based on the payment stream received by the Company from the municipality. That payment stream is otherwise an unobservable input.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis:
The Company may be required, from time to time, to measure certain other assets at fair value on a nonrecurring basis in accordance with GAAP. These assets consist of impairedindividually evaluated loans and OREO. For assets measured at fair value on a nonrecurring basis at September 30, 2017,March 31, 2024 and December 31, 2016,2023, respectively, the following tables provide the level of valuation assumptions used to determine each valuation and the carrying value of the related assets:
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| September 30, 2017 | ||||||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||||||||||
Impaired loans1 |
| $ | - |
| $ | - |
| $ | 45 |
| $ | 45 | ||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | March 31, 2024 | ||||||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||||||||||
Individually evaluated loans1 | | $ | - | | $ | - | | $ | 53,182 | | $ | 53,182 | ||||||||||||
Other real estate owned, net2 |
|
| - |
|
| - |
|
| 9,024 |
|
| 9,024 | | | - | | | - | | | 5,123 | | | 5,123 |
Total |
| $ | - |
| $ | - |
| $ | 9,069 |
| $ | 9,069 | | $ | - | | $ | - | | $ | 58,305 | | $ | 58,305 |
1Represents carrying value and related write-downs of loans for which adjustments are substantially based on the appraised value of collateral for collateral-dependent loans;loans, which had a carrying amount of $51,000$59.3 million and a valuation allowance of $6,000$6.2 million resulting in a decrease of specific allocations within the allowance for loancredit losses on loans of $92,000$4.9 million for the ninethree months ended September 30, 2017.March 31, 2024.
2OREO is measured at the lower of carrying or fair value, less costs to sell, and had a net carrying amount of $9.0$5.1 million at March 31, 2024, which is made up of the outstanding balance of $18.7$5.2 million, net of a valuation allowance of $8.8 million and participations of $900,000 at September 30, 2017.$118,000.
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| December 31, 2016 | ||||||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||||||||||
Impaired loans1 |
| $ | - |
| $ | - |
| $ | - |
| $ | - | ||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | December 31, 2023 | ||||||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||||||||||
Individually evaluated loans1 | | $ | - | | $ | - | | $ | 66,180 | | $ | 66,180 | ||||||||||||
Other real estate owned, net2 |
|
| - |
|
| - |
|
| 11,916 |
|
| 11,916 | | | - | | | - | | | 5,123 | | | 5,123 |
Total |
| $ | - |
| $ | - |
| $ | 11,916 |
| $ | 11,916 | | $ | - | | $ | - | | $ | 71,303 | | $ | 71,303 |
1Represents carrying value and related write-downs of loans for which adjustments are substantially based on the appraised value of collateral for collateral-dependent loans;loans, which had a carrying amount of $77.3 million and a valuation allowance of $1.0$11.1 million resulting in an increasea decrease of specific allocations within the allowance for loancredit losses on loans of $1.0$6.5 million for the year December 31, 2016.2023.
2OREO is measured at the lower of carrying or fair value, less costs to sell, and had a net carrying amount of $11.9$5.1 million at December 31, 2023, which is made up of the outstanding balance of $23.5$5.2 million, net of a valuation allowance of $10.0 million and participations of $1.6 million, at December 31, 2016.$118,000.
The Company has estimated the fair values of these assets based primarily on Level 3 inputs. OREO and impairedindividually evaluated loans are generally valued using the fair value of collateral provided by third party appraisals. These valuations include assumptions related to cash flow projections, discount rates, and recent comparable sales. The numerical ranges of unobservable inputs for these valuation assumptions are not meaningful.
Note 1412 – Fair Values of Financial Instruments
The estimated fair values approximate carrying amount for all items except those described in the following table. Securities available-for-sale fair values are based upon market prices or dealer quotes, and if no such information is available, on the rate and term of the security. The carrying value of FHLBC stock approximates fair value as the stock is nonmarketable and can only be sold to the FHLBC or another member institution at par. FHLBC stock is carried at costAt March 31, 2024 and considered a Level 2December 31, 2023, the fair value. Fair values of loans wereare estimated on an exit price basis incorporating discounts for portfolios of loans with similar financial characteristics, such as typecredit, liquidity and fixed or variable interest rate terms. Cash flows were discounted using current rates at which similar loans would be made to borrowers with similar ratings and for similar maturities.marketability factors. The fair value of time deposits iswas estimated using discounted future cash flows at current rates offered for deposits of similar remaining maturities. The fair values of borrowings were estimated based on interest rates available to the Company for debt with similar terms and remaining maturities. The fair value of off balance sheet volume iswas not considered material.
28
32
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
The carrying amount and estimated fair values of financial instruments were as follows:
| | | | | | | | | | | | | | | |
| | March 31, 2024 | |||||||||||||
| | Carrying | | Fair | | | | | | | | | | ||
|
| Amount |
| Value |
| Level 1 |
| Level 2 |
| Level 3 | |||||
Financial assets: | | | | | | | | | | | | | | | |
Cash and due from banks | | $ | 48,841 | | $ | 48,841 | | $ | 48,841 | | $ | - | | $ | - |
Interest earning deposits with financial institutions | | | 49,253 | | | 49,253 | | | 49,253 | | | - | | | - |
Securities available-for-sale | | | 1,168,797 | | | 1,168,797 | | | 171,000 | | | 982,409 | | | 15,388 |
FHLBC and FRBC stock | | | 28,518 | | | 28,518 | | | - | | | 28,518 | | | - |
Loans held-for-sale | | | 1,072 | | | 1,072 | | | - | | | 1,072 | | | - |
Net loans | | | 3,925,298 | | | 3,841,563 | | | - | | | - | | | 3,841,563 |
Mortgage servicing rights | | | 10,564 | | | 10,564 | | | | | | | | | 10,564 |
Interest rate swap agreements | | | 5,947 | | | 5,947 | | | - | | | 5,947 | | | - |
Interest rate lock commitments and forward contracts | | | 49 | | | 49 | | | - | | | 49 | | | - |
Interest receivable on securities and loans | | | 25,735 | | | 25,735 | | | - | | | 25,735 | | | - |
| | | | | | | | | | | | | | | |
Financial liabilities: | | | | | | | | | | | | | | | |
Noninterest bearing deposits | | $ | 1,799,927 | | $ | 1,799,927 | | $ | 1,799,927 | | $ | - | | $ | - |
Interest bearing deposits | | | 2,808,348 | | | 2,798,825 | | | - | | | 2,798,825 | | | - |
Securities sold under repurchase agreements | | | 33,546 | | | 33,546 | | | - | | | 33,546 | | | - |
Other short-term borrowings | | | 220,000 | | | 220,000 | | | - | | | 220,000 | | | - |
Junior subordinated debentures | | | 25,773 | | | 20,619 | | | - | | | 20,619 | | | - |
Subordinated debentures | | | 59,403 | | | 49,797 | | | - | | | 49,797 | | | - |
Interest rate swap agreements | | | 8,917 | | | 8,917 | | | - | | | 8,917 | | | - |
Interest payable on deposits and borrowings | | | 3,617 | | | 3,617 | | | - | | | 3,617 | | | - |
| | | | | | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 | |||||||||||||
|
| Carrying |
| Fair |
|
|
|
|
|
|
|
|
| ||
|
| Amount |
| Value |
| Level 1 |
| Level 2 |
| Level 3 | |||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
| $ | 32,772 |
| $ | 32,772 |
| $ | 32,772 |
| $ | - |
| $ | - |
Interest bearing deposits with financial institutions |
|
| 14,730 |
|
| 14,730 |
|
| 14,730 |
|
| - |
|
| - |
Securities available-for-sale |
|
| 533,484 |
|
| 533,484 |
|
| 3,990 |
|
| 514,642 |
|
| 14,852 |
FHLBC and FRBC Stock |
|
| 10,393 |
|
| 10,393 |
|
| - |
|
| 10,393 |
|
| - |
Loans held-for-sale |
|
| 1,641 |
|
| 1,641 |
|
| - |
|
| 1,641 |
|
| - |
Loans, net |
|
| 1,577,726 |
|
| 1,568,457 |
|
| - |
|
| - |
|
| 1,568,457 |
Accrued interest receivable |
|
| 8,669 |
|
| 8,669 |
|
| - |
|
| 8,669 |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing deposits |
| $ | 556,874 |
| $ | 556,874 |
| $ | 556,874 |
| $ | - |
| $ | - |
Interest bearing deposits |
|
| 1,332,241 |
|
| 1,329,668 |
|
| - |
|
| 1,329,668 |
|
| - |
Securities sold under repurchase agreements |
|
| 26,853 |
|
| 26,853 |
|
| - |
|
| 26,853 |
|
| - |
Other short-term borrowings |
|
| 125,000 |
|
| 125,000 |
|
| - |
|
| 125,000 |
|
| - |
Junior subordinated debentures |
|
| 57,627 |
|
| 59,524 |
|
| 33,320 |
|
| 26,204 |
|
| - |
Senior notes |
|
| 44,033 |
|
| 46,958 |
|
| - |
|
| 46,958 |
|
| - |
Interest rate swap agreements |
|
| 1,439 |
|
| 1,439 |
|
| - |
|
| 1,439 |
|
| - |
Borrowing interest payable |
|
| 773 |
|
| 773 |
|
| - |
|
| 773 |
|
| - |
Deposit interest payable |
|
| 573 |
|
| 573 |
|
| - |
|
| 573 |
|
| - |
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2016 | |||||||||||||
|
| Carrying |
| Fair |
|
|
|
|
|
| |||||
|
| Amount |
| Value |
| Level 1 |
| Level 2 |
| Level 3 | |||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
| $ | 33,805 |
| $ | 33,805 |
| $ | 33,805 |
| $ | - |
| $ | - |
Interest bearing deposits with financial institutions |
|
| 13,529 |
|
| 13,529 |
|
| 13,529 |
|
| - |
|
| - |
Securities available-for-sale |
|
| 531,838 |
|
| 531,838 |
|
| - |
|
| 506,493 |
|
| 25,345 |
FHLBC and FRBC Stock |
|
| 7,918 |
|
| 7,918 |
|
| - |
|
| 7,918 |
|
| - |
Loans held-for-sale |
|
| 4,918 |
|
| 4,918 |
|
| - |
|
| 4,918 |
|
| - |
Loans, net |
|
| 1,462,651 |
|
| 1,453,429 |
|
| - |
|
| - |
|
| 1,453,429 |
Accrued interest receivable |
|
| 5,928 |
|
| 5,928 |
|
| - |
|
| 5,928 |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing deposits |
| $ | 513,688 |
| $ | 513,688 |
| $ | 513,688 |
| $ | - |
| $ | - |
Interest bearing deposits |
|
| 1,353,097 |
|
| 1,351,000 |
|
| - |
|
| 1,351,000 |
|
| - |
Securities sold under repurchase agreements |
|
| 25,715 |
|
| 25,715 |
|
| - |
|
| 25,715 |
|
| - |
Other short-term borrowings |
|
| 70,000 |
|
| 70,000 |
|
| - |
|
| 70,000 |
|
| - |
Junior subordinated debentures |
|
| 57,591 |
|
| 55,163 |
|
| 32,404 |
|
| 22,759 |
|
| - |
Subordinated debenture |
|
| 43,998 |
|
| 43,998 |
|
| - |
|
| 43,998 |
|
| - |
Interest rate swap agreements |
|
| 994 |
|
| 994 |
|
| - |
|
| 994 |
|
| - |
Borrowing interest payable |
|
| 202 |
|
| 202 |
|
| - |
|
| 202 |
|
| - |
Deposit interest payable |
|
| 599 |
|
| 599 |
|
| - |
|
| 599 |
|
| - |
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
| | | | | | | | | | | | | | | |
| | December 31, 2023 | |||||||||||||
| | Carrying | | Fair | | | | | | | |||||
|
| Amount |
| Value |
| Level 1 |
| Level 2 |
| Level 3 | |||||
Financial assets: | | | | | | | | | | | | | | | |
Cash and due from banks | | $ | 55,534 | | $ | 55,534 | | $ | 55,534 | | $ | - | | $ | - |
Interest earning deposits with financial institutions | | | 44,611 | | | 44,611 | | | 44,611 | | | - | | | - |
Securities available-for-sale | | | 1,192,829 | | | 1,192,829 | | | 169,574 | | | 1,007,926 | | | 15,329 |
FHLBC and FRBC stock | | | 33,355 | | | 33,355 | | | - | | | 33,355 | | | - |
Loans held-for-sale | | | 1,322 | | | 1,322 | | | - | | | 1,322 | | | - |
Net loans | | | 3,998,689 | | | 3,876,381 | | | - | | | - | | | 3,876,381 |
Mortgage servicing rights | | | 10,344 | | | 10,344 | | | | | | | | | 10,344 |
Interest rate swap agreements | | | 5,302 | | | 5,302 | | | - | | | 5,302 | | | - |
Interest rate lock commitments and forward contracts | | | (10) | | | (10) | | | - | | | (10) | | | - |
Interest receivable on securities and loans | | | 27,159 | | | 27,159 | | | - | | | 27,159 | | | - |
| | | | | | | | | | | | | | | |
Financial liabilities: | | | | | | | | | | | | | | | |
Noninterest bearing deposits | | $ | 1,834,891 | | $ | 1,834,891 | | $ | 1,834,891 | | $ | - | | $ | - |
Interest bearing deposits | | | 2,735,855 | | | 2,726,223 | | | - | | | 2,726,223 | | | - |
Securities sold under repurchase agreements | | | 26,470 | | | 26,470 | | | - | | | 26,470 | | | - |
Junior subordinated debentures | | | 405,000 | | | 405,000 | | | - | | | 405,000 | | | - |
Subordinated debentures | | | 25,773 | | | 20,361 | | | - | | | 20,361 | | | - |
Senior notes | | | 59,382 | | | 47,982 | | | | | | 47,982 | | | |
Interest rate swap agreements | | | 8,234 | | | 8,324 | | | - | | | 8,324 | | | - |
Interest payable on deposits and borrowings | | | 2,962 | | | 2,962 | | | - | | | 2,962 | | | - |
| | | | | | | | | | | | | | | |
Note 1513 – Derivatives, Hedging Activities and Financial Instruments with Off-Balance Sheet Risk
Risk Management Objective of Using Derivatives
The Company is exposed to certain risk arising from both its business operations and Derivative Transactions
To meet the financing needseconomic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its customers,core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the Bank, as a subsidiaryamount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s loan portfolio.
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest income and expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company is a party to various financial instruments with off-balance-sheet risk in the normal courseprimarily uses interest rate swaps as part of business. These off-balance-sheet financial instruments include commitments to originate and sell loans as well as financial standby, performance standby and commercial letters of credit. The instruments involve, to varying degrees, elements of credit andits interest rate risk in excess of the amount recognized in the consolidated balance sheet.management strategy. The Bank’s exposure to credit loss for loan commitments and letters of credit is represented by the dollar amount of those instruments. Management generally uses the same credit policies and collateral requirements in making commitments and conditional obligations as it does for on-balance-sheet instruments.
29
Interest Rate Swap Designated as a Cash Flow Hedge
The Company entered into a forward starting interest rate swap on August 18, 2015, with an effective date of June 15, 2017. This transaction had a notional amount totaling $25.8 million as of September 30, 2017, was designated as a cash flow hedge of certain junior subordinated debentures and was determined to be fully effective during the period presented. As such, no amount of ineffectiveness has been included in net income. Therefore, the aggregate fair value of the swapswaps is recorded in other assets or other liabilities with changes in fair value recorded in other comprehensive income.income, net of tax. The amount included in other comprehensive income would be reclassified to current earnings should all or a portion of the hedge no longer be considered effective. For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income and subsequently reclassified into interest income or interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest income or expense as interest payments are received on the variable rate loan pools or paid on the Company’s fixed-rate borrowings.
34
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
Interest rate swaps with notional amounts totaling $300.0 million as of March 31, 2024, and December 31, 2023, were designated as cash flow hedges of certain variable rate commercial and commercial real estate loan pools. Each of these hedges were executed to pay variable and receive fixed rate cash flows. Each of these hedges was determined to be effective during all periods presented and the Company expects the hedges to remain effective during the remaining terms of the swaps.
An interest rate swap with a notional amount of $25.8 million as of March 31, 2024 and December 31, 2023, is designated as a cash flow hedge of junior subordinated debentures and was executed to pay fixed and receive variable rate cash flows. The hedge was determined to be effective during all periods presented and the Company expects the hedge to remain fully effective during the remaining termterms of the swap.
During the next twelve months, the Company estimates that an additional $5.5 million will be reclassified as an increase to interest income and an additional $609,000 will be reclassified as an increase to interest expense.
Non-designated Hedges
Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Bank will pay the counterparty a fixedCompany executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. The notional amounts of interest rate swaps with its loan customers as of March 31, 2024 and receive a floatingDecember 31, 2023 were $107.0 million and $104.8 million, respectively. Those interest rate based on three month LIBOR. Management concluded that it would be advantageous to enter this transaction givenswaps are simultaneously hedged by offsetting derivatives that the Company has trust preferred securitiesexecutes with a third party, such that changedthe Company minimizes its net risk exposure resulting from fixed rate to floating rate on June 15, 2017. The cash flow hedge has a maturity date of June 15, 2037.
Summary information aboutsuch transactions. As the interest rate swap designated as a cash flowderivatives associated with this program do not meet the strict hedge is as follows:
|
|
|
|
|
|
|
|
|
|
| As of | ||||||
|
| September 30, 2017 |
| December 31, 2016 | ||||
Notional amount |
| $ | 25,774 |
|
| $ | 25,774 |
|
Unrealized loss |
|
| (1,439) |
|
|
| (994) |
|
Other Interest Rate Swaps
The Bank also has interest rate derivative positions to assist with risk management that are not designated as hedging instruments. These derivative positions relate to transactions in which the Bank enters an interest rate swap with a client while at the same time entering into an offsetting interest rate swap with another financial institution. Per contractualaccounting requirements, with the correspondent financial institution, the Bank had $4.2 million in securities available-for-sale pledged to support interest rate swap activity with one correspondent financial institution at September 30, 2017. The Bank had $6.2 million in securities pledged to support interest rate swap activity with one correspondent financial institution at December 31, 2016.
In connection with each transaction, the Bank agreed to pay interest to the client on a notional amount at a variable interest rate and receive interest from the client on the same notional amount at a fixed interest rate. At the same time, the Bank agreed to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows the client to convert a variable rate loan to a fixed rate loan and is part of the Company’s interest rate risk management strategy. Because the Bank acts as an intermediary for the client, changes in the fair value of both the underlying derivative contracts offset each othercustomer derivatives and do not generally affect the resultsoffsetting derivatives are recognized directly in earnings.
At March 31, 2024 and December 31, 2023, the Company had $6.6 million and $7.3 million of operations. Fair value measurements include an assessmentcash collateral pledged with two correspondent financial institutions, respectively. The Company held $5.7 million and $4.1 million of credit risk relatedcash pledged from one correspondent financial institution to support the client’s ability to perform on their contract position, however, and valuation estimates related to that exposure are discussed in Note 13 above. At September 30, 2017, the notional amount of non-hedging interest rate swaps was $349.4 million with a weighted average maturity of 6.7 years. At Decemberswap activity during the periods presented, respectively. No investment securities were required to be pledged to any correspondent financial institution during 2024 through March 31, 2016, the notional amount of non-hedging interest rate swaps was $85.8 million with a weighted average maturity of 7.3 years.2024, or during 2023. The BankCompany offsets derivative assets and liabilities that are subject to a master netting arrangement.
The BankCompany also grants mortgage loan interest rate lock commitments to borrowers, subject to normal loan underwriting standards. The interest rate risk associated with these loan interest rate lock commitments is managed with contracts for future deliveries of loans as well as selling forward mortgage-backed securities contracts. Loan interest rate lock commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The notional amount of these commitments at March 31, 2024 and December 31, 2023 was $9.5 million and $8.4 million, respectively. Commitments to originate residential mortgage loans held-for-sale and forward commitments to sell residential mortgage loans or forward MBS contracts are considered derivative instruments and changes in the fair value are recorded to mortgage banking revenue. Fair values are estimated based on observable changes in mortgage interest rates including mortgage-backed securities prices from the date of the commitment.
30
35
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
The following table below presents derivatives not designated as hedging instruments as of September 30, 2017, and periodic changes in the values of the interest rate swaps are reported in other noninterest income. Periodic changes in thefair value of the forward contractsCompany’s derivative financial instruments as well as their classification on the Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023.
Fair Value of Derivative Instruments
| | | | | | | | | |
| | | | | March 31, 2024 | ||||
| No. of Trans. | | Notional Amount $ | | Balance Sheet Location | Fair Value $ | | Balance Sheet Location | Fair Value $ |
Derivatives designated as hedging instruments | | | | | | | | | |
Interest rate swap agreements | 5 | | 325,774 | | Other Assets | 3,361 | | Other Liabilities | 6,331 |
Total derivatives designated as hedging instruments | | | | | | 3,361 | | | 6,331 |
| | | | | | | | | |
Derivatives not designated as hedging instruments | | | | | | | | | |
Interest rate swaps with commercial loan customers | 16 | | 106,958 | | Other Assets | 2,586 | | Other Liabilities | 2,586 |
Interest rate lock commitments and forward contracts | 38 | | 9,487 | | Other Assets | 49 | | Other Liabilities | - |
Other contracts | 4 | | 46,687 | | Other Assets | 54 | | Other Liabilities | - |
Total derivatives not designated as hedging instruments | | | | | | 2,689 | | | 2,586 |
| | | | | | | | | |
| | | | | | | | | |
| | | | | December 31, 2023 | ||||
| No. of Trans. | | Notional Amount $ | | Balance Sheet Location | Fair Value $ | | Balance Sheet Location | Fair Value $ |
Derivatives designated as hedging instruments | | | | | | | | | |
Interest rate swap agreements | 5 | | 325,774 | | Other Assets | 2,576 | | Other Liabilities | 5,598 |
Total derivatives designated as hedging instruments | | | | | | 2,576 | | | 5,598 |
| | | | | | | | | |
Derivatives not designated as hedging instruments | | | | | | | | | |
Interest rate swaps with commercial loan customers | 17 | | 104,777 | | Other Assets | 2,726 | | Other Liabilities | 2,726 |
Interest rate lock commitments and forward contracts | 24 | | 8,375 | | Other Assets | (10) | | Other Liabilities | - |
Other contracts | 4 | | 44,790 | | Other Assets | 89 | | Other Liabilities | - |
Total derivatives not designated as hedging instruments | | | | | | 2,805 | | | 2,726 |
Disclosure of the Effect of Fair Value and Cash Flow Hedge Accounting
The fair value and cash flow hedge accounting related to mortgage loan origination are reportedderivatives covered under ASC Subtopic 815-20 impacted Accumulated Other Comprehensive Income (“AOCI”) and the Income Statement. The loss recognized in the net gainAOCI on sales of mortgage loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Asset Derivatives |
| Liability Derivatives | ||||||
|
| Notional or |
|
|
|
|
|
|
|
| |||
|
| Contractual |
| Balance Sheet |
|
|
|
| Balance Sheet |
|
|
| |
|
| Amount |
| Location |
| Fair Value |
| Location |
| Fair Value | |||
Interest rate swap contracts net of credit valuation |
| $ | 349,367 |
| Other Assets |
| $ | 128 |
| Other Liabilities |
| $ | 128 |
Interest rate lock commitments and forward contracts |
|
| 28,591 |
| Other Assets |
|
| 289 |
| N/A |
|
| - |
Total |
|
|
|
|
|
| $ | 417 |
|
|
| $ | 128 |
The following table presents derivatives not designated as hedging instrumentstotaled $2.1 million as of DecemberMarch 31, 2016.2024, and $3.1 million as of March 31, 2023. The amount of the loss reclassified from AOCI to net interest income on the income statement was $1.6 million for the three months ended March 31, 2024 and $1.0 million for the three months ended March 31, 2023.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Asset Derivatives |
| Liability Derivatives | ||||||
|
| Notional or |
|
|
|
|
|
|
|
| |||
|
| Contractual |
| Balance Sheet |
|
|
|
| Balance Sheet |
|
|
| |
|
| Amount |
| Location |
| Fair Value |
| Location |
| Fair Value | |||
Interest rate swap contracts net of credit valuation |
| $ | 85,807 |
| Other Assets |
| $ | 673 |
| Other Liabilities |
| $ | 673 |
Interest rate lock commitments and forward contracts |
|
| 31,980 |
| Other Assets |
|
| 287 |
| N/A |
|
| - |
Total |
|
|
|
|
|
| $ | 960 |
|
|
| $ | 673 |
Credit-risk-related Contingent Features
For derivative transactions involving counterparties who are lending customers of the Company, the derivative credit exposure is managed through the normal credit review and monitoring process, which may include collateralization, financial covenants and/or financial guarantees of affiliated parties. Agreements with such customers require that losses associated with derivative transactions receive payment priority from any funds recovered should a customer default and ultimate disposition of collateral or guarantees occur.
Credit exposure to broker/dealer counterparties is managed through agreements with each derivative counterparty that require collateralization of fair value gains owed by such counterparties. Some small degree of credit exposure exists due to timing differences between when a gain may occur and the subsequent point in time that collateral is delivered to secure that gain. This is monitored by the Company and procedures are in place to minimize this exposure. Such agreements also require the Company to collateralize counterparties in circumstances wherein the fair value of the derivatives result in loss to the Company.
36
Old Second Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data, unaudited)
Other provisions of such agreements include the definition of certain events that may lead to the declaration of default and/or the early termination of the derivative transaction(s):
● | If the Company either defaults or is capable of being declared in default on any of its indebtedness (exclusive of deposit obligations), then the Company could also be declared in default on its derivative obligations. |
● | If a merger occurs that materially changes the Company's creditworthiness in an adverse manner. |
● | If certain specified adverse regulatory actions occur, such as the issuance of a Cease and Desist Order, or citations for actions considered Unsafe and Unsound or that may lead to the termination of deposit insurance coverage by the FDIC. |
The Bank also issues letters of credit, which are conditional commitments that guarantee the performance of a customer to a third party. The credit risk involved and collateral obtained in issuing letters of credit are essentially the same as that involved in extending loan commitments to our customers. In addition to customer related commitments, the Company is responsible for letters of credit commitments that relate to properties held in OREO. The following table represents the Company’s contractual commitments due to letters of credit as of September 30, 2017,March 31, 2024, and December 31, 2016.2023.
The following table is a summary of letter of credit commitments:
| | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 | | ||||||||||||||
|
| Fixed |
| Variable |
| Total |
| Fixed |
| Variable |
| Total |
| ||||||
Letters of credit: | | | | | | | | | | | | | | | | | | | |
Borrower: | | | | | | | | | | | | | | | | | | | |
Financial standby | | $ | 229 | | $ | 17,276 | | $ | 17,505 | | $ | 173 | | $ | 16,621 | | $ | 16,794 | |
Performance standby | | | 562 | | | 12,344 | | | 12,906 | | | 562 | | | 13,689 | | | 14,251 | |
| | | 791 | | | 29,620 | | | 30,411 | | | 735 | | | 30,310 | | | 31,045 | |
Non-borrower: | | | | | | | | | | | | | | | | | | | |
Performance standby | | | - | | | 67 | | | 67 | | | - | | | 67 | | | 67 | |
Total letters of credit | | $ | 791 | | $ | 29,687 | | $ | 30,478 | | $ | 735 | | $ | 30,377 | | $ | 31,112 | |
| | | | | | | | | | | | | | | | | | | |
Unused loan commitments: | | $ | 148,769 | | $ | 629,544 | | $ | 778,313 | | $ | 140,305 | | $ | 694,960 | | $ | 835,265 | |
As of March 31, 2024, the Company evaluated current market conditions, including any impacts related to market interest rate changes and unused line of credit utilization trends during the first quarter of 2024, and based on that analysis under the CECL methodology, the Company determined credit losses related to unfunded commitments (in thousands):totaled $2.7 million. The resultant decrease in the ACL for unfunded commitments of $44,000 for the first quarter of 2024, compared to the prior quarter end, is primarily related adjustments to historical benchmark assumptions, such as the funding rates and the period used to forecast those rates within the ACL calculation. The Company will continue to assess the credit risk at least quarterly, and adjust the allowance for unfunded commitments, which is carried within other liabilities on our Consolidated Balance Sheets, as needed, with the appropriate offsetting entry to the provision for credit losses on our Consolidated Statements of Income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
| December 31, 2016 |
| ||||||||||||||
|
| Fixed |
| Variable |
| Total |
| Fixed |
| Variable |
| Total |
| ||||||
Letters of credit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrower: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial standby |
| $ | 177 |
| $ | 3,748 |
| $ | 3,925 |
| $ | 137 |
| $ | 4,047 |
| $ | 4,184 |
|
Commercial standby |
|
| - |
|
| 122 |
|
| 122 |
|
| - |
|
| 126 |
|
| 126 |
|
Performance standby |
|
| 66 |
|
| 7,912 |
|
| 7,978 |
|
| 83 |
|
| 8,498 |
|
| 8,581 |
|
|
|
| 243 |
|
| 11,782 |
|
| 12,025 |
|
| 220 |
|
| 12,671 |
|
| 12,891 |
|
Non-borrower: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance standby |
|
| - |
|
| 422 |
|
| 422 |
|
| 95 |
|
| 525 |
|
| 620 |
|
Total letters of credit |
| $ | 243 |
| $ | 12,204 |
| $ | 12,447 |
| $ | 315 |
| $ | 13,196 |
| $ | 13,511 |
|
|
|
|
|
|
|
|
|
|
|
|
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31
37
Item 2.Management’s2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The Company is a financial services company with its main headquarters located in Aurora, Illinois. The Company isfollowing discussion provides additional information regarding our operations for the holding company of Old Second National Bank (the “Bank”), a national banking organization headquartered in Aurora, Illinois, that provides commercialthree months ended March 31, 2024, compared to the three months ended March 31, 2023, and retail banking services, as well as a full complement of trust and wealth management services. The Company has offices located in Cook, Kane, Kendall, DeKalb, DuPage, LaSalle and Will counties in Illinois. The following management’s discussion and analysis presents information concerning our financial condition as of September 30, 2017, asat March 31, 2024, compared to December 31, 2016, and the results of operations for the three and nine months September 30, 2017, and September 30, 2016.2023. This discussion and analysis is bestshould be read in conjunction with our consolidated financial statements as well as the financial and statistical data appearing elsewhere in this report and our Form 10-K for the year ended December 31, 2016.2023. The results of operations for the quarter September 30, 2017,three months ended March 31, 2024, are not necessarily indicative of future results.
Our community-focused banking franchise has experienced growth Dollar amounts presented in the past year,following tables are in thousands, except per share data, and is positioned for further success as weMarch 31, 2024 and 2023 amounts are unaudited.
In this report, unless the context suggests otherwise, references to the “Company,” “we,” “us,” and “our” mean the combined business of Old Second Bancorp, Inc. and its subsidiary bank, Old Second National Bank (the “Bank”).
We have made, and will continue to servemake, various forward-looking statements with respect to financial and business matters. Comments regarding our customers’ needsbusiness that are not historical facts are considered forward-looking statements that involve inherent risks and uncertainties. Actual results may differ materially from those contained in these forward-looking statements. For additional information regarding our cautionary disclosures, see the “Cautionary Note Regarding Forward-Looking Statements” on page 3 of this report.
Business Overview
The Company is a competitive economic environment. Industrybank holding company headquartered in Aurora, Illinois. Through our wholly-owned subsidiary bank, Old Second National Bank, a national banking organization also headquartered in Aurora, Illinois, we offer a wide range of financial services through our 48 banking centers located in Cook, DeKalb, DuPage, Kane, Kendall, LaSalle and regulatory developmentsWill counties in the past few years have made it challengingIllinois. These banking centers offer access to attain the levelsa full range of profitabilitytraditional retail and growth reflectedcommercial banking services including treasury management operations as well as fiduciary and wealth management services. We focus our business on establishing and maintaining relationships with our clients while maintaining a decade ago. As we lookcommitment to provide value to our customers andfor the financial services needs of the communities in which we operate, growth opportunities identifiedoperate. We emphasize relationships with individual customers as well as small to medium-sized businesses throughout our market area. We also have extensive wealth management services, which includes a registered investment advisory platform in our local markets are being developed into new banking relationships. We are encouraged by sustained quality in our credit performance as nonperforming loan totals remain at low levelsaddition to trust administration and strong sales efforts have driven loan growthtrust services related to personal and portfolio diversity. The Company generated increasedcorporate trusts and employee benefit plan administration services.
Our results of operations depend generally on net interest income, which is the difference between interest income from interest-earning assets and interest expense on interest-bearing liabilities. Net interest income is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. In addition, we are subject to interest rate risk to the degree that our interest-earning assets mature or reprice at different times, or at different speeds, than our interest-bearing liabilities. Our results of operations are also affected by noninterest income, such as service charges, wealth management fees, loan fees, gains from the sale of newly originated loans, gains or losses on investments and certain other noninterest related items. Our principal operating expenses, aside from interest expense, consist of compensation and employee benefits, occupancy costs, professional fees, data processing expenses and provision for credit losses.
We are significantly impacted by prevailing economic conditions, including federal monetary and fiscal policies, and federal regulations of financial institutions. Deposit balances are influenced by numerous factors such as competing investments, the level of income and the personal rate of savings within our market areas. Factors influencing lending activities include the demand for housing and the interest rate pricing competition from other lending institutions.
As of March 31, 2024, all of our capital ratios were in excess of all regulatory requirements. While we believe that we have sufficient capital to withstand an extended economic recession, our reported and regulatory capital ratios could be adversely impacted by credit losses.
38
Financial Overview
Net income for the first quarter of 2024 was $21.3 million, or $0.47 per diluted share, compared to $23.6 million, or $0.52 per diluted share, for the first quarter of 2023. The decrease was primarily due to a reduction in net interest and dividend income from contraction in our securities portfolio as well as higher market rates and increased short-term borrowing, which resulted in a $7.5 million increase to interest expense. Partially offsetting these changes was growth in loan related income due to higher market interest rates in the first quarter of 2024 compared to the like quarter in 2023. Noninterest income increased in the first quarter of 2024, compared to the like quarter of 2023, as a result of a reduction in net losses on security sales, growth in mortgage banking revenues, and an increase in the cash surrender value of BOLI. An increase was also noted in noninterest expense for the current quarter, primarily due to higher salaries and employee benefits. Adjusted net income, a non-GAAP financial measure that excludes certain nonrecurring items, as applicable, was $21.3 million for the first quarter of 2024, compared to $19.1 million for the fourth quarter of 2023, and $23.4 million for the first quarter of 2023. See the discussion entitled “Non-GAAP Financial Measures” on page 40, as well as the table below, which provides a reconciliation of this non-GAAP measure to the most comparable GAAP equivalents.
| | | | | | | | | | |
| | Quarters Ended | | |||||||
| | March 31, | | December 31, | | March 31, | | |||
|
| 2024 |
| 2023 | | 2023 | | |||
Net Income | | | | | | | | | | |
Income before income taxes (GAAP) | | $ | 28,543 | | $ | 24,938 | | $ | 32,013 | |
Pre-tax income adjustments: | | | | | | | | | | |
Litigation related expenses | | | - | | | 1,200 | | | - | |
Losses/(gains) on branch sales, net | | | - | | | 19 | | | (306) | |
Adjusted net income before taxes | | | 28,543 | | | 26,157 | | | 31,707 | |
Taxes on adjusted net income | | | 7,231 | | | 7,041 | | | 8,326 | |
Adjusted net income (non-GAAP) | | $ | 21,312 | | $ | 19,116 | | $ | 23,381 | |
| | | | | | | | | | |
Basic earnings per share (GAAP) | | $ | 0.48 | | $ | 0.40 | | $ | 0.53 | |
Diluted earnings per share (GAAP) | | | 0.47 | | | 0.40 | | | 0.52 | |
Adjusted basic earnings per share (non-GAAP) | | | 0.48 | | | 0.43 | | | 0.52 | |
Adjusted diluted earnings per share (non-GAAP) | | | 0.47 | | | 0.42 | | | 0.52 | |
The following provides an overview of some of the factors impacting our financial performance for the three month period ended September 30, 2017, asMarch 31, 2024, compared to the like period ended September 30, 2016. The Company’sMarch 31, 2023:
● | Net interest and dividend income was $59.8 million for the first quarter of 2024, compared to $64.1 million for the first quarter of 2023. The reduction in interest and dividend income in the first quarter of 2024 was primarily due to higher borrowing costs, partially offset by higher loan yields. |
● | We recorded a net provision for credit losses of $3.5 million in the first quarter of 2024, driven by a $3.5 million increase in the allowance for credit losses on loans based on increased historical loss rate updates given current quarter charge-offs, our assessment of nonperforming loan metrics and trends, downward risk rating migration, and estimated future credit losses, net of a reversal of $44,000 in our allowance for unfunded commitments based on an adjustment of historical benchmark assumptions, such as funding rates and the period used to forecast those rates, within the ACL calculation. We recorded a net provision for credit loss of $3.5 million in the first quarter of 2023. |
● | Noninterest income was $10.5 million for the first quarter of 2024, compared to $7.4 million for the first quarter of 2023. Contributing to the increase were security gains of $1,000 due to strategic sales in the first quarter of 2024, compared to losses on the sale of securities of $1.7 million in the first quarter of 2023. Also contributing to the growth in noninterest income was a $291,000 increase in wealth management income, a $590,000 increase in mortgage banking revenue and a $930,000 increase in the cash surrender value of BOLI. These increases were partially offset by a decrease of $459,000 in other income primarily due to a one-time vendor credit received in the first quarter of 2023; no like credit was received in 2024. |
39
● | Noninterest expense was $38.2 million for the first quarter of 2024, compared to $35.9 million for the first quarter of 2023, an increase of $2.3 million, or 6.5%. Contributing to the increase in noninterest expense in the first quarter of 2024 was higher salaries and employee benefits as well as increases in occupancy furniture and equipment and computer and data processing expenses. Partially offsetting the increase in noninterest expense was a reduction in consulting & management fees and as well as OREO valuation reserve expense, which is included in other real estate expense, net. |
● | We had a provision for income tax expense of $7.2 million for the first quarter of 2024, compared to a provision for income tax expense of $8.4 million for the first quarter of 2023. The effective tax rate for these two periods was 25.3% and 26.3%, respectively. |
● | Our community-focused banking franchise experienced a decrease of $73.5 million in total loans in the first quarter of 2024, compared to the year ended December 31, 2023, and a decrease of $33.9 million in total loans compared to the first quarter of 2023. We believe we are positioned for loan growth in 2024, though likely at a slower pace than in recent years, as we continue to serve our customers’ needs in a competitive economic environment. We continue to seek to provide value to our customers and the communities in which we operate, by executing on growth opportunities in our local markets and developing new banking relationships, while seeking to ensure the safety and soundness of our Bank, our customers, and our employees. |
● | Nonaccrual loans decreased $3.3 million as of March 31, 2024, compared to December 31, 2023, but increased $763,000 compared to March 31, 2023. The reduction in nonaccrual loans in the first quarter of 2024, compared to the prior quarter, was primarily due to a $3.9 million partial charge-off on a large healthcare loan. The increase in nonaccrual loans year over year is due to various downgrades in the last twelve months, primarily related to CRE-Owner Occupied and CRE-Investor portfolios, the majority of which are office and healthcare loans. Nonperforming loans as a percent of total loans was 1.6% as of March 31, 2024, compared to 1.7% as of December 31, 2023, and 1.6% as of March 31, 2023. Classified assets increased to $140.6 million as of March 31, 2024, which is $2.7 million, or 1.9% more than December 31, 2023, and $14.0 million, or 11.1%, more than March 31, 2023. |
Critical Accounting Estimates
Our consolidated financial statements are prepared based on the application of accounting policies in accordance with generally accepted accounting principles (“GAAP”) and follow general practices within the banking industry. These policies require the reliance on estimates and assumptions, which may prove inaccurate or are subject to variations. These estimates, assumptions, and judgments are based on information available as of the date of the consolidated financial statements. Future changes in information may affect these estimates, assumptions, and judgments, which, in turn, may affect amounts reported in the consolidated financial statements. Changes in underlying factors, assumptions, or estimates could have a material impact on our future financial condition and results of operations.
Of the significant accounting policies used in the preparation of our consolidated financial statements, we have identified certain items as critical accounting policies based on the associated estimates, assumptions, judgments and complexity. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2023. There have been no material changes to our critical accounting policies or the estimates made pursuant to those policies during the most recent quarter from those disclosed in our 2023 Annual Report in Form 10-K.
Non-GAAP Financial Measures
This report contains references to financial measures that are not defined in GAAP. Such non-GAAP financial measures include the presentation of net interest income and net interest margin on a tax equivalent (“TE”) basis, adjusted net income, adjusted basic and diluted earnings per share, our adjusted efficiency ratio, and our tangible common equity to tangible assets ratio. Management believes that the presentation of these non-GAAP financial measures (a) provides important supplemental information that contributes to a proper understanding of our operating performance, (b) enables a more complete understanding of factors and trends affecting our business, and (c) allows investors to evaluate our performance in a manner similar to management, the financial services industry, bank stock analysts, and bank regulators. Management uses non-GAAP measures as follows: in the preparation of our operating budgets, monthly financial performance reporting, and in our presentation of our performance to investors. However, we acknowledge that these non-GAAP financial measures have a number of limitations. Limitations associated with non-GAAP financial measures include the risk that persons might disagree as to the appropriateness of items comprising these measures and that different companies might calculate these measures differently. These measures should not be considered an alternative to our GAAP results. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is presented below or alongside the first instance where each non-GAAP financial measure is used.
40
Results of Operations
Overview
Three months ended March 31, 2024 and 2023
Our income before taxes was $28.5 million in the first quarter of 2024 compared to $32.0 million in the first quarter of 2023. This decrease in pretax income was primarily due to a $4.3 million decrease in net interest and dividend income. Income before taxes was positively impacted by a $3.2 million increase in noninterest income, growthprimarily due to $1,000 of security gains, net, in the first quarter of 2024 compared to $1.7 million of security losses, net, in the first quarter of 2023 as well as a $590,000 increase in mortgage banking income. Income before taxes was negatively impacted by a $2.3 million increase in noninterest expense primarily due to a $2.1 million increase in salary and employee benefits expense in the first quarter of 2024. Our net income was $21.3 million, or $0.47 per diluted share, for the first quarter of 2024, compared to net income of $23.6 million, or $0.52 per diluted share, for the first quarter of 2023. The Bank remains well positioned to navigate uncertain macroeconomics; we have mitigated interest rate risk, controlled expenses in an inflationary environment, and actively managed daily liquidity. Furthermore, we continue to possess strong liquidity metrics and an outsized securities portfolio for funding needs.
Net interest and dividend income was $59.8 million in the first quarter of 2024, compared to $64.1 million in the first quarter of 2023. The $4.3 million decrease was driven by an increase in interest expense in the first quarter of 2024, compared to the first quarter of 2023, primarily due to a rise in deposit interest rates and borrowing costs. Decreases in our securities portfolio also contributed to the overall increasedecrease in earnings for the third quarter and nine months ended September 30, 2017 as compared to like periods in the prior year. However, the positive earnings impact of the growth in net interest income and noninterest income for the third quarter and nine months of 2017 was partially offset by an increase in noninterest expense. Noninterest expenses were negatively impacted primarily by an increase in employee costs in the year over year periods. Finally, an income tax benefit was recorded in the third quarter of 2017 due to a State of Illinois tax rate increase; this credit had a significantly favorable impact which contributed to the increase in net income in the year over year periods for the quarter and nine months.
Results of Operations
Net income before taxes of $9.9 million in the third quarter of 2017 compares to $5.4 million in the third quarter of 2016. When compared to the third quarter of 2016, the third quarter of 2017 reflected higher levels of net interest and dividend income a provision for loan lossduring the first quarter of $300,000, and increased levels2024. Partially offsetting the decrease during the first quarter of noninterest income and noninterest expense. Noninterest income in the 2017 period was favorably impacted by net gains recorded on securities portfolio sales as2024 compared to net losses in the like priorquarter a year period,ago was growth in our loan related income due to the effect of higher market interest rates on our loan portfolios.
Net Interest Income
Net interest income, which is our primary source of earnings, is the difference between interest income earned on interest-earning assets, such as loans and investment securities, as well as an increaseaccretion income on purchased loans, and interest incurred on interest-bearing liabilities, such as deposits and borrowings. Net interest income depends upon the relative mix of interest-earning assets and interest-bearing liabilities, the ratio of interest-earning assets to total assets and of interest-bearing liabilities to total funding sources, and movements in trust revenue due to growthmarket interest rates. Our net interest income can be significantly influenced by a variety of factors, including overall loan demand, economic conditions, credit risk, the amount of nonearning assets including nonperforming loans and OREO, the amounts of and rates at which assets and liabilities reprice, variances in our customer base. Noninterest expense increasedprepayment of loans and securities, early withdrawal of deposits, exercise of call options on borrowings or securities, a general rise or decline in interest rates, changes in the third quarterslope of 2017 whenthe yield-curve, and balance sheet growth or contraction.
Three months ended March 31, 2024 and 2023
The increased yield of six basis points on interest earning assets compared to the thirdlinked period was driven by repricing within the existing loan portfolios, and, to a lesser extent, the growth in the average balance of loans over the quarter. In addition, rates paid on FHLB dividends increased quarter over linked quarter. Changes in the market interest rate environment impact earning assets at varying intervals depending on the repricing timeline of loans, as well as the securities maturity, paydown and purchase activities.
The year over year increase of 42 basis points on interest earning assets was primarily driven by significant increases to benchmark interest rates over the past twelve months, primarily impacting variable rate loans. This increase was partially offset by the reduction in securities available for sale income during the quarter ended March 31, 2024, compared to the prior quarter and year over year quarter, as both security volumes and rates decreased.
Average balances of interest-bearing deposit accounts have increased steadily since the fourth quarter of 20162023 through the first quarter of 2024, from $2.74 billion to $2.76 billion, as time deposits increased due to CD rate specials, partially offset by reductions in other deposit categories as customers sought higher yielding products. We have continued to control the cost of funds over the periods reflected, with the average rate of overall interest-bearing deposits increasing to 118 basis points for the quarter ended March 31, 2024, from 89 basis points for the quarter ended December 31, 2023, and from 25 basis points for the quarter ended March 31, 2023. A 24 basis point increase in the cost of money market funds for the quarter ended March 31, 2024 compared to prior linked quarter, and a 110 basis point increase compared to the prior year like quarter were both due to select deposit account exception pricing, and drove a significant portion of the overall increase. Average rates paid on time deposits for the quarter ended March 31, 2024 increased by 65 basis points and 229 basis points in the quarter over linked quarter and year over year quarters, respectively, primarily due to CD rate specials we offered.
41
Borrowing costs decreased in the first quarter of 2024, compared to the fourth quarter of 2023, primarily due to the $58.5 million decrease in average other short-term borrowings stemming from a decrease in average FHLB advances over the prior quarter. The increase of $131.4 million year over year of average FHLB advances was based on daily liquidity needs, and was the primary driver of the $2.2 million increase to interest expense due to other short-term borrowings. Subordinated and junior subordinated debt interest expense were essentially flat over each of the periods presented. Senior notes had the most significant interest expense decrease year over year, as we redeemed all of the $45.0 million senior notes, net of deferred issuance costs, in June 2023, resulting in senior notes having no balance after that time. In February 2023, we paid off the remaining balance of $9.0 million on the original $20.0 million term note issued in 2020, resulting in notes payable and other borrowings having no balance after that time.
Our net interest margin (GAAP) decreased four basis points to 4.55% for the first quarter of 2024, compared to 4.59% for the fourth quarter of 2023, and decreased 17 basis points compared to 4.72% for the first quarter of 2023. Our net interest margin (TE) decreased four basis points to 4.58% for the first quarter of 2024, compared to 4.62% for the fourth quarter of 2023, and decreased 16 basis points compared to 4.74% for the first quarter of 2023. The decrease in the first quarter of 2024, compared to the prior quarter, is driven by higher interest expense due to the current interest rate environment and its effect on interest bearing deposits. The decrease in the first quarter of 2024, compared to the prior year like quarter, is primarily due to an increase in salariesmarket interest rates, and employee benefits due to higher insurance costs, as well as anthe related increase in OREO related valuation costs. An income tax benefitcosts of $1.6 million was recorded ininterest-bearing liabilities. See the third quarterdiscussion entitled “Non-GAAP Financial Measures” and the table on page 46 that provides a reconciliation of 2017 due to a State of Illinois tax rate change; this nonrecurring item increased the Company’s deferred tax asset by a like amount.
Net income before taxes of $23.7 million for the nine months ended September 30, 2017 was favorable as comparedeach non-GAAP measure to the $16.5 million pretax income formost comparable GAAP equivalent.
42
| | | | | | | | | | | | | | | | | | | | | | | | |
Analysis of Average Balances, | ||||||||||||||||||||||||
Tax Equivalent Income / Expense and Rates | ||||||||||||||||||||||||
(Dollars in thousands - unaudited) | ||||||||||||||||||||||||
| ||||||||||||||||||||||||
| | Quarters Ended | ||||||||||||||||||||||
| | March 31, 2024 | | December 31, 2023 | | March 31, 2023 | ||||||||||||||||||
| | Average | | Income / | | Rate | | Average | | Income / | | Rate | | Average | | Income / | | Rate | ||||||
| | Balance | | Expense | | % | | Balance | | Expense | | % | | Balance | | Expense | | % | ||||||
Assets | | | | | | | | | | | | | | | | | | | | | | | | |
Interest earning deposits with financial institutions | | $ | 48,088 | | $ | 610 | | 5.10 | | $ | 47,865 | | $ | 616 | | 5.11 | | $ | 49,310 | | $ | 585 | | 4.81 |
Securities: | | | | | | | | | | | | | | | | | | | | | | | | |
Taxable | | | 1,016,112 | | | 8,092 | | 3.20 | | | 1,027,366 | | | 8,329 | | 3.22 | | | 1,330,295 | | | 10,735 | | 3.27 |
Non-taxable (TE)1 | | | 166,776 | | | 1,653 | | 3.99 | | | 164,655 | | | 1,674 | | 4.03 | | | 173,324 | | | 1,693 | | 3.96 |
Total securities (TE)1 | | | 1,182,888 | | | 9,745 | | 3.31 | | | 1,192,021 | | | 10,003 | | 3.33 | | | 1,503,619 | | | 12,428 | | 3.35 |
FHLBC and FRBC Stock | | | 31,800 | | | 635 | | 8.03 | | | 34,371 | | | 647 | | 7.47 | | | 24,905 | | | 280 | | 4.56 |
Loans and loans held-for-sale1, 2 | | | 4,019,377 | | | 62,698 | | 6.27 | | | 4,016,480 | | | 62,793 | | 6.20 | | | 3,932,492 | | | 57,228 | | 5.90 |
Total interest earning assets | | | 5,282,153 | | | 73,688 | | 5.61 | | | 5,290,737 | | | 74,059 | | 5.55 | | | 5,510,326 | | | 70,521 | | 5.19 |
Cash and due from banks | | | 54,533 | | | - | | - | | | 57,723 | | | - | | - | | | 55,140 | | | - | | - |
Allowance for credit losses on loans | | | (44,295) | | | - | | - | | | (50,023) | | | - | | - | | | (49,398) | | | - | | - |
Other noninterest bearing assets | | | 384,332 | | | - | | - | | | 396,297 | | | - | | - | | | 382,579 | | | - | | - |
Total assets | | $ | 5,676,723 | | | | | | | $ | 5,694,734 | | | | | | | $ | 5,898,647 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities and Stockholders' Equity | | | | | | | | | | | | | | | | | | | | | | | | |
NOW accounts | | $ | 553,844 | | $ | 829 | | 0.60 | | $ | 563,603 | | $ | 595 | | 0.42 | | $ | 601,030 | | $ | 242 | | 0.16 |
Money market accounts | | | 689,996 | | | 2,575 | | 1.50 | | | 692,720 | | | 2,200 | | 1.26 | | | 833,823 | | | 828 | | 0.40 |
Savings accounts | | | 958,645 | | | 633 | | 0.27 | | | 985,614 | | | 517 | | 0.21 | | | 1,126,040 | | | 79 | | 0.03 |
Time deposits | | | 558,463 | | | 4,041 | | 2.91 | | | 497,472 | | | 2,833 | | 2.26 | | | 434,655 | | | 664 | | 0.62 |
Interest bearing deposits | | | 2,760,948 | | | 8,078 | | 1.18 | | | 2,739,409 | | | 6,145 | | 0.89 | | | 2,995,548 | | | 1,813 | | 0.25 |
Securities sold under repurchase agreements | | | 30,061 | | | 86 | | 1.15 | | | 28,526 | | | 51 | | 0.71 | | | 31,080 | | | 9 | | 0.12 |
Other short-term borrowings | | | 332,198 | | | 4,557 | | 5.52 | | | 390,652 | | | 5,429 | | 5.51 | | | 200,833 | | | 2,345 | | 4.74 |
Junior subordinated debentures | | | 25,773 | | | 280 | | 4.37 | | | 25,773 | | | 290 | | 4.46 | | | 25,773 | | | 279 | | 4.39 |
Subordinated debentures | | | 59,393 | | | 546 | | 3.70 | | | 59,372 | | | 546 | | 3.65 | | | 59,308 | | | 546 | | 3.73 |
Senior notes | | | - | | | - | | - | | | - | | | - | | - | | | 44,599 | | | 994 | | 9.04 |
Notes payable and other borrowings | | | - | | | - | | - | | | - | | | - | | - | | | 5,400 | | | 87 | | 6.53 |
Total interest bearing liabilities | | | 3,208,373 | | | 13,547 | | 1.70 | | | 3,243,732 | | | 12,461 | | 1.52 | | | 3,362,541 | | | 6,073 | | 0.73 |
Noninterest bearing deposits | | | 1,819,476 | | | - | | - | | | 1,838,325 | | | - | | - | | | 2,002,801 | | | - | | - |
Other liabilities | | | 60,024 | | | - | | - | | | 63,971 | | | - | | - | | | 51,279 | | | - | | - |
Stockholders' equity | | | 588,850 | | | - | | - | | | 548,706 | | | - | | - | | | 482,026 | | | - | | - |
Total liabilities and stockholders' equity | | $ | 5,676,723 | | | | | | | $ | 5,694,734 | | | | | | | $ | 5,898,647 | | | | | |
Net interest income (GAAP) | | | | | $ | 59,783 | | | | | | | $ | 61,235 | | | | | | | $ | 64,086 | | |
Net interest margin (GAAP) | | | | | | | | 4.55 | | | | | | | | 4.59 | | | | | | | | 4.72 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net interest income (TE)1 | | | | | $ | 60,141 | | | | | | | $ | 61,598 | | | | | | | $ | 64,448 | | |
Net interest margin (TE)1 | | | | | | | | 4.58 | | | | | | | | 4.62 | | | | | | | | 4.74 |
Interest bearing liabilities to earning assets | | | 60.74 | % | | | | | | | 61.31 | % | | | | | | | 61.02 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
1 Represents a non-GAAP financial measure. See the nine months ended September 30, 2016. Net interest margin was the largest contributor to this favorable variance, as loan growth and securities repositioning have resulted in increased volumes and more favorable yields for the year to date period.
Management has remained diligent with loan portfolio review to analyze loan quality and decide whether charge-offs are required. In the third quarterdiscussion entitled “Reconciliation of 2017, management’s reviewTax-Equivalent Non-GAAP Financial Measures” below that provides a reconciliation of the loan portfolio concluded that an additional provision for loan losses should be recorded of $300,000, stemming from third quarter 2017 loan growth and collateral shortfalls on a few credits as a result of updated appraisals. The allowance for loan losses was adequate and appropriate for estimated incurred losses at September 30, 2016; neither a loan loss reserve release nor an additional loan loss provision was deemed necessary for the like 2016 quarter.
Earnings for the third quarter of 2017 were $0.27 per diluted share on $8.1 million of net income as compared to $0.12 per diluted share on net income of $3.5 million for the third quarter of 2016. For the nine month period ended September 30, 2017, earnings were $0.59 per diluted share on $17.7 million of net income, as compared to $0.36 per diluted share on $10.7 million of income for the prior year like period. Earnings growth in the 2017 period, as comparedeach non-GAAP measure to the like 2016 period, stems from the acquisition of the Chicago branch of Talmer Bank and Trust, which was completed on October 28, 2016. This acquisition resulted in a cash payment of $181.5 million for loans, net of purchased loan discount totaling $221.0 million, deposits of $48.9 million, goodwill of $8.4 million, core deposit intangible of $659,000, and other immaterial assets and liabilities. The performance of the acquired loan portfolio, security portfolio restructuring to higher yielding instruments, and robust organic loan growth in the year over year period were the primary factors driving the earnings increase for the 2017 third quarter and year to date periods.
32
Net Interest Income
Net interest and dividend income increased by $3.9 million from $15.3 million for the quarter ended September 30, 2016, to $19.3 million for the quarter ended September 30, 2017. Total average loans, including loans held-for-sale, increased by $44.3 million in the third quarter of 2017 as compared to the second quarter of 2017, and $361.9 million as compared to the third quarter of 2016. Average earning assets were $2.12 billion for the third quarter of 2017, which reflected an increase of $6.4 million compared to the second quarter of 2017, and an increase of $212.5 million as compared to the third quarter of 2016. The significant increase in interest and dividend income of $3.9 million, or 25.6%, in the three months ended September 30, 2017 as compared to the like 2016 period, was driven by growth in the loan portfolio primarily due to the Talmer branch acquisition. In addition, the average yield on the securities portfolio increased by 103 basis points in the year over year period due to portfolio repositioning to higher yielding tax exempt securities; the average tax exempt securities portfolio increased by $185.5 million, and earned 138 basis points more in the third quarter of 2017 as compared to the third quarter of 2016.
Quarterly average interest bearing liabilities as of September 30, 2017, decreased $11.9 million, or 0.8%, compared to June 30, 2017, but increased $87.8 million, or 6.0%, when compared to September 30, 2016. Growth from the prior year like period was due to the Talmer branch purchase of $48.9 million of commercial deposits, as well as organic commercial deposit growth. As the deposit growth in the year over year period was driven by commercial demand accounts, the cost of funds did not materially increase from this volume change. However, each quarter presented reflects an increase in the FHLBC borrowing, which is within other short-term borrowings, as this facility was used to fund loan growth. The cost of interest bearing liabilities in the third quarter of 2017 increased to 80 basis points from 67 basis points in the third quarter of 2016, primarily due to the senior note issuance in late 2016. The $45.0 million senior debt issuance, at an average cost of 6.11% in the third quarter of 2017 net of issuance costs, replaced the prior subordinated notes outstanding, which had an average cost of 2.13% in the third quarter of 2016. This issuance resulted in a $430,000 increase to interest expense, which drove the overall higher cost of funds in 2017.
The net interest margin (on a tax-equivalent basis), expressed as a percentage of average earning assets, was 3.77% in the third quarter of 2017, reflecting an increase of 6 basis points from the second quarter of 2017, and growth of 55 basis points from the third quarter of 2016. The average tax-equivalent yield on earning assets increased to 4.32% for the third quarter of 2017, as compared to 3.70% for the third quarter of 2016. Increases in net interest margin and yield on average earning assets for the third quarter of 2017 as compared to prior periods presented was attributable to growth in loan volumes and rates, as well as the securities portfolio repositioning to higher yielding tax exempt holdings, as discussed above. The cost of funds on interest bearing liabilities was 0.80% for the third quarter of 2017 and 0.67% for the third quarter of 2016.
most comparable GAAP equivalent. Tax equivalent net interest and dividend income increased by $11.5 million from $46.3 million for the nine months ended September 30, 2016, to $57.8 million for the nine months ended September 30, 2017. Average earning assets for the nine months ended September 30, 2017 increased $188.4 million as compared to the like average period in 2016, and the yield on average earning assets for the nine months of 2017 was 4.22% as compared to 3.69% for the like 2016 period. Average interest bearing liabilities for the nine months ended September 30, 2017, increased $74.5 million, or 5.0%, when compared to like prior year period. Net interest margin for the nine months ended September 30, 2017, was 3.68%, as compared to 3.23% for the nine months ended September 30, 2016, for an increase of 45 basis points.
Management continued to observe competitive pressure to maintain reduced interest rates on loans retained at renewal. While the Bank prices loans to achieve certain return on equity targets, significant competition for both commercial and industrial as well as commercial real estate loans has put pressure on loan yields, and our stringent underwriting standards limit our ability to make higher-yielding loans.
The following tables set forth certain information relating to the Company’s average consolidated balance sheets and reflect the yield on average earning assets and cost of average interest bearing liabilities for the periods indicated. These yields reflect the related interest, on an annualized basis, divided by the average balance of assets or liabilities over the applicable period. Average balances are derived from daily balances. For purposes of discussion, net interest income and net interest income to total earning assets on the following tables have been adjusted to a non-GAAP tax equivalent (“TE”) basisis calculated using a marginal tax rate of 35% to more appropriately compare returns on tax-exempt loans21% in 2024 and securities to other earning assets.2023.
33
ANALYSIS OF AVERAGE BALANCES,
TAX EQUIVALENT INTEREST AND RATES
(In thousands - unaudited)
|
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| Quarters Ended | ||||||||||||||||||||||
| September 30, 2017 |
| June 30, 2017 |
| September 30, 2016 | ||||||||||||||||||
| Average |
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| Rate |
| Average |
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| Rate |
| Average |
|
|
|
| Rate | |||
| Balance |
| Interest |
| % |
| Balance |
| Interest |
| % |
| Balance |
| Interest |
| % | ||||||
Assets |
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Interest bearing deposits with financial institutions | $ | 11,685 |
| $ | 37 |
| 1.24 |
| $ | 11,938 |
| $ | 31 |
| 1.03 |
| $ | 50,054 |
| $ | 64 |
| 0.50 |
Securities: |
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|
|
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|
|
|
|
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|
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|
|
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|
|
Taxable |
| 327,892 |
|
| 2,424 |
| 2.96 |
|
| 361,504 |
|
| 2,607 |
| 2.88 |
|
| 624,844 |
|
| 3,954 |
| 2.53 |
Non-taxable (TE) |
| 220,540 |
|
| 2,504 |
| 4.54 |
|
| 225,182 |
|
| 2,536 |
| 4.50 |
|
| 35,046 |
|
| 277 |
| 3.16 |
Total securities |
| 548,432 |
|
| 4,928 |
| 3.59 |
|
| 586,686 |
|
| 5,143 |
| 3.51 |
|
| 659,890 |
|
| 4,231 |
| 2.56 |
Dividends from FHLBC and FRBC |
| 8,339 |
|
| 94 |
| 4.51 |
|
| 7,699 |
|
| 92 |
| 4.78 |
|
| 7,918 |
|
| 83 |
| 4.19 |
Loans and loans held-for-sale1 |
| 1,553,473 |
|
| 18,265 |
| 4.60 |
|
| 1,509,188 |
|
| 17,445 |
| 4.57 |
|
| 1,191,574 |
|
| 13,567 |
| 4.46 |
Total interest earning assets |
| 2,121,929 |
|
| 23,324 |
| 4.32 |
|
| 2,115,511 |
|
| 22,711 |
| 4.26 |
|
| 1,909,436 |
|
| 17,945 |
| 3.70 |
Cash and due from banks |
| 31,028 |
|
| - |
| - |
|
| 39,425 |
|
| - |
| - |
|
| 41,344 |
|
| - |
| - |
Allowance for loan losses |
| (16,478) |
|
| - |
| - |
|
| (15,779) |
|
| - |
| - |
|
| (15,767) |
|
| - |
| - |
Other noninterest bearing assets |
| 185,906 |
|
| - |
| - |
|
| 189,928 |
|
| - |
| - |
|
| 190,213 |
|
| - |
| - |
Total assets | $ | 2,322,385 |
|
|
|
|
|
| $ | 2,329,085 |
|
|
|
|
|
| $ | 2,125,226 |
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Liabilities and Stockholders' Equity |
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NOW accounts | $ | 422,913 |
| $ | 108 |
| 0.10 |
| $ | 432,248 |
| $ | 107 |
| 0.10 |
| $ | 384,588 |
| $ | 89 |
| 0.09 |
Money market accounts |
| 273,440 |
|
| 85 |
| 0.12 |
|
| 280,482 |
|
| 86 |
| 0.12 |
|
| 265,135 |
|
| 64 |
| 0.10 |
Savings accounts |
| 262,573 |
|
| 46 |
| 0.07 |
|
| 265,066 |
|
| 40 |
| 0.06 |
|
| 257,808 |
|
| 40 |
| 0.06 |
Time deposits |
| 389,037 |
|
| 1,077 |
| 1.10 |
|
| 392,779 |
|
| 1,025 |
| 1.05 |
|
| 401,999 |
|
| 931 |
| 0.92 |
Interest bearing deposits |
| 1,347,963 |
|
| 1,316 |
| 0.39 |
|
| 1,370,575 |
|
| 1,258 |
| 0.37 |
|
| 1,309,530 |
|
| 1,124 |
| 0.34 |
Securities sold under repurchase agreements |
| 32,800 |
|
| 4 |
| 0.05 |
|
| 35,652 |
|
| 4 |
| 0.05 |
|
| 31,892 |
|
| 1 |
| 0.01 |
Other short-term borrowings |
| 72,065 |
|
| 220 |
| 1.19 |
|
| 58,572 |
|
| 146 |
| 0.99 |
|
| 22,174 |
|
| 22 |
| 0.39 |
Junior subordinated debentures |
| 57,621 |
|
| 930 |
| 6.46 |
|
| 57,609 |
|
| 1,059 |
| 7.35 |
|
| 57,573 |
|
| 1,084 |
| 7.53 |
Senior notes |
| 44,021 |
|
| 672 |
| 6.11 |
|
| 43,995 |
|
| 672 |
| 6.11 |
|
| - |
|
| - |
| - |
Subordinated debt |
| - |
|
| - |
| - |
|
| - |
|
| - |
| - |
|
| 45,000 |
|
| 245 |
| 2.13 |
Notes payable and other borrowings |
| - |
|
| - |
| - |
|
| - |
|
| - |
| - |
|
| 500 |
|
| 2 |
| 1.57 |
Total interest bearing liabilities |
| 1,554,470 |
|
| 3,142 |
| 0.80 |
|
| 1,566,403 |
|
| 3,139 |
| 0.80 |
|
| 1,466,669 |
|
| 2,478 |
| 0.67 |
Noninterest bearing deposits |
| 551,768 |
|
| - |
| - |
|
| 557,265 |
|
| - |
| - |
|
| 472,599 |
|
| - |
| - |
Other liabilities |
| 19,395 |
|
| - |
| - |
|
| 18,047 |
|
| - |
| - |
|
| 15,539 |
|
| - |
| - |
Stockholders' equity |
| 196,752 |
|
| - |
| - |
|
| 187,370 |
|
| - |
| - |
|
| 170,419 |
|
| - |
| - |
Total liabilities and stockholders' equity | $ | 2,322,385 |
|
|
|
|
|
| $ | 2,329,085 |
|
|
|
|
|
| $ | 2,125,226 |
|
|
|
|
|
Net interest income (TE) |
|
|
| $ | 20,182 |
|
|
|
|
|
| $ | 19,572 |
|
|
|
|
|
| $ | 15,467 |
|
|
Net interest income (TE) |
|
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to total earning assets |
|
|
|
|
|
| 3.77 |
|
|
|
|
|
|
| 3.71 |
|
|
|
|
|
|
| 3.22 |
Interest bearing liabilities to earning assets |
| 73.26 | % |
|
|
|
|
|
| 74.04 | % |
|
|
|
|
|
| 76.81 | % |
|
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|
12Interest income from loans is shown on a TEtax equivalent basis, which is a non-GAAP financial measure, as discussed belowin the table on page 44, and includes feesloan fee expense of $722,000, $573,000 and $700,000$867,000 for the thirdfirst quarter of 2017,2024, $922,000 for the fourth quarter of 20162023, and $730,000 for the thirdfirst quarter of 2016, respectively.2023. Nonaccrual loans are included in the above-stated average balances.
34
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|
Analysis of Average Balances, | |||||||||||||||
Tax Equivalent Interest and Rates | |||||||||||||||
Nine Months Ended September 30, 2017, and 2016 | |||||||||||||||
(In thousands - unaudited) | |||||||||||||||
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|
|
| 2017 |
| 2016 | ||||||||||||
| Average |
|
|
|
| Rate |
| Average |
|
|
|
| Rate | ||
| Balance |
| Interest |
| % |
| Balance |
| Interest |
| % | ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits with financial institutions | $ | 11,913 |
| $ | 91 |
| 1.01 |
| $ | 25,960 |
| $ | 98 |
| 0.50 |
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
| 370,161 |
|
| 7,994 |
| 2.88 |
|
| 682,997 |
|
| 12,547 |
| 2.45 |
Non-taxable (TE) |
| 196,120 |
|
| 6,443 |
| 4.38 |
|
| 36,340 |
|
| 891 |
| 3.27 |
Total securities |
| 566,281 |
|
| 14,437 |
| 3.40 |
|
| 719,337 |
|
| 13,438 |
| 2.49 |
Dividends from FHLBC and FRBC |
| 7,886 |
|
| 271 |
| 4.58 |
|
| 7,955 |
|
| 251 |
| 4.21 |
Loans and loans held-for-sale1 |
| 1,516,872 |
|
| 52,365 |
| 4.55 |
|
| 1,161,312 |
|
| 39,778 |
| 4.50 |
Total interest earning assets |
| 2,102,952 |
|
| 67,164 |
| 4.22 |
|
| 1,914,564 |
|
| 53,565 |
| 3.69 |
Cash and due from banks |
| 34,670 |
|
| - |
| - |
|
| 32,617 |
|
| - |
| - |
Allowance for loan losses |
| (16,184) |
|
| - |
| - |
|
| (16,145) |
|
| - |
| - |
Other noninterest bearing assets |
| 189,533 |
|
| - |
| - |
|
| 193,443 |
|
| - |
| - |
Total assets | $ | 2,310,971 |
|
|
|
|
|
| $ | 2,124,479 |
|
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Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts | $ | 427,242 |
| $ | 316 |
| 0.10 |
| $ | 383,870 |
| $ | 261 |
| 0.09 |
Money market accounts |
| 279,143 |
|
| 254 |
| 0.12 |
|
| 272,657 |
|
| 198 |
| 0.10 |
Savings accounts |
| 262,352 |
|
| 125 |
| 0.06 |
|
| 258,062 |
|
| 118 |
| 0.06 |
Time deposits |
| 392,049 |
|
| 3,081 |
| 1.05 |
|
| 404,210 |
|
| 2,622 |
| 0.87 |
Interest bearing deposits |
| 1,360,786 |
|
| 3,776 |
| 0.37 |
|
| 1,318,799 |
|
| 3,199 |
| 0.32 |
Securities sold under repurchase agreements |
| 32,764 |
|
| 10 |
| 0.04 |
|
| 35,022 |
|
| 3 |
| 0.01 |
Other short-term borrowings |
| 62,308 |
|
| 472 |
| 1.00 |
|
| 26,040 |
|
| 66 |
| 0.33 |
Junior subordinated debentures |
| 57,609 |
|
| 3,073 |
| 7.11 |
|
| 57,561 |
|
| 3,251 |
| 7.53 |
Senior notes |
| 43,998 |
|
| 2,017 |
| 6.11 |
|
| - |
|
| - |
| - |
Subordinated debt |
| - |
|
| - |
| - |
|
| 45,000 |
|
| 727 |
| 2.12 |
Notes payable and other borrowings |
| - |
|
| - |
| - |
|
| 500 |
|
| 6 |
| 1.58 |
Total interest bearing liabilities |
| 1,557,465 |
|
| 9,348 |
| 0.80 |
|
| 1,482,922 |
|
| 7,252 |
| 0.65 |
Noninterest bearing deposits |
| 544,925 |
|
| - |
| - |
|
| 465,094 |
|
| - |
| - |
Other liabilities |
| 20,814 |
|
| - |
| - |
|
| 13,037 |
|
| - |
| - |
Stockholders' equity |
| 187,767 |
|
| - |
| - |
|
| 163,426 |
|
| - |
| - |
Total liabilities and stockholders' equity | $ | 2,310,971 |
|
|
|
|
|
| $ | 2,124,479 |
|
|
|
|
|
Net interest income (TE) |
|
|
| $ | 57,816 |
|
|
|
|
|
| $ | 46,313 |
|
|
Net interest income (TE) to total earning assets |
|
|
|
|
|
| 3.68 |
|
|
|
|
|
|
| 3.23 |
Interest bearing liabilities to earning assets |
| 74.06 | % |
|
|
|
|
|
| 77.45 | % |
|
|
|
|
1Interest income from loans is shown on a TE basis as discussed below and includes fees of $1.8 million for the first nine months of 2017 and 2016. Nonaccrual loans are included in the above-stated average balances.
35
Reconciliation of Tax-Equivalent (TE) Non-GAAP Financial Measures
Management, in order to evaluate and measure performance, uses certain non-GAAP performance measures and ratios. This includes tax-equivalent net interest income (including its individual components) and net interest margin (including its individual components) to total average interest earning assets. Management believes that these measures and ratios provide users of the financial information with a more accurate view of the performance of the interest earning assets and interest bearing liabilities and of the Company’s operating efficiency for comparison purposes. Other financial holding companies may define or calculate these measures and ratios differently. See the tables and notes below for supplemental data and the corresponding reconciliations to GAAP financial measures for the three month periods ended September 30, 2017, June 30, 2017, and September 30, 2016, and the nine month periods ended September 30, 2017 and 2016.
Net interest and dividend income (TE) and net interest income (TE) to average interest earning assets are non-GAAP measures that have been adjusted toon a non-GAAP TE basis using a marginal rate of 35%21% for 2024 and 2023 to compare returns more appropriately compare returns on tax-exempt loans and securities to other earning assets. The table below provides a reconciliation of each non-GAAP TE(TE) measure to the GAAP equivalent for the periods indicated:
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|
|
| ||||||||||
|
| Quarters Ended |
|
| Nine Months Ended |
| |||||||||||||||||||||
|
| September 30, |
| June 30, |
| September 30, |
|
| September 30, |
| |||||||||||||||||
|
| 2017 |
| 2017 |
| 2016 |
|
| 2017 |
| 2016 |
| |||||||||||||||
| | | | | | | | | | | |||||||||||||||||
| | Three Months Ended | | ||||||||||||||||||||||||
| | March 31, | | December 31, | | March 31, | | ||||||||||||||||||||
Net Interest Margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2024 |
| 2023 | | 2023 | | |||
| | | | | | | | | | | |||||||||||||||||
| | | | | | | | | | | |||||||||||||||||
Interest income (GAAP) |
| $ | 22,425 |
| $ | 21,800 |
| $ | 17,825 |
|
| $ | 64,841 |
| $ | 53,183 |
| | $ | 73,330 | | $ | 73,696 | | $ | 70,159 | |
Taxable-equivalent adjustment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Loans |
|
| 23 |
|
| 23 |
|
| 23 |
|
|
| 68 |
|
| 70 |
| | | 11 | | | 11 | | | 6 | |
Securities |
|
| 876 |
|
| 888 |
|
| 97 |
|
|
| 2,255 |
|
| 312 |
| | | 347 | | | 352 | | | 356 | |
Interest income (TE) |
|
| 23,324 |
|
| 22,711 |
|
| 17,945 |
|
|
| 67,164 |
|
| 53,565 |
| ||||||||||
Interest and dividend income (TE) | | | 73,688 | | | 74,059 | | | 70,521 | | |||||||||||||||||
Interest expense (GAAP) |
|
| 3,142 |
|
| 3,139 |
|
| 2,478 |
|
|
| 9,348 |
|
| 7,252 |
| | | 13,547 | | | 12,461 | | | 6,073 | |
Net interest income (TE) |
| $ | 20,182 |
| $ | 19,572 |
| $ | 15,467 |
|
| $ | 57,816 |
| $ | 46,313 |
| | $ | 60,141 | | $ | 61,598 | | $ | 64,448 | |
Net interest income (GAAP) |
| $ | 19,283 |
| $ | 18,661 |
| $ | 15,347 |
|
| $ | 55,493 |
| $ | 45,931 |
| | $ | 59,783 | | $ | 61,235 | | $ | 64,086 | |
Average interest earning assets |
| $ | 2,121,929 |
| $ | 2,115,511 |
| $ | 1,909,436 |
|
| $ | 2,102,952 |
| $ | 1,914,564 |
| | $ | 5,282,153 | | $ | 5,290,737 | | $ | 5,510,326 | |
Net interest margin (TE) | | | 4.58 | % | | 4.62 | % | | 4.74 | % | |||||||||||||||||
Net interest margin (GAAP) |
|
| 3.61 | % |
| 3.54 | % |
| 3.20 | % |
|
| 3.53 | % |
| 3.20 | % | | | 4.55 | % | | 4.59 | % | | 4.72 | % |
Net interest margin (TE) |
|
| 3.77 | % |
| 3.71 | % |
| 3.22 | % |
|
| 3.68 | % |
| 3.23 | % |
Noninterest Income
Asset Quality
Three months ended March 31, 2024 and 2023
The following table details the major components of noninterest income for the periods presented:
| | | | | | | | | | | | | | |
| | | | | | | | | | | First Quarter 2024 | | ||
Noninterest Income | | Three Months Ended | | Percent Change From | | |||||||||
(Dollars in thousands) | | March 31, | | December 31, | | March 31, | | December 31, | | March 31, | | |||
|
| 2024 |
| 2023 |
| 2023 |
| 2023 |
| 2023 |
| |||
Wealth management | | $ | 2,561 | | $ | 2,600 | | $ | 2,270 | | (1.5) | | 12.8 | |
Service charges on deposits | | | 2,415 | | | 2,527 | | | 2,424 | | (4.4) | | (0.4) | |
Residential mortgage banking revenue | | | | | | | | | | | | | | |
Secondary mortgage fees | | | 50 | | | 58 | | | 59 | | (13.8) | | (15.3) | |
MSRs mark to market gain (loss) | | | 94 | | | (1,277) | | | (525) | | 107.4 | | 117.9 | |
Mortgage servicing income | | | 488 | | | 495 | | | 516 | | (1.4) | | (5.4) | |
Net gain on sales of mortgage loans | | | 314 | | | 366 | | | 306 | | (14.2) | | 2.6 | |
Total residential mortgage banking revenue | | | 946 | | | (358) | | | 356 | | 364.2 | | 165.7 | |
Securities gains (losses), net | | | 1 | | | (2) | | | (1,675) | | 150.0 | | 100.1 | |
Change in cash surrender value of BOLI | | | 1,172 | | | 541 | | | 242 | | 116.6 | | 384.3 | |
Card related income | | | 2,376 | | | 2,511 | | | 2,244 | | (5.4) | | 5.9 | |
Other income | | | 1,030 | | | 910 | | | 1,489 | | 13.2 | | (30.8) | |
Total noninterest income | | $ | 10,501 | | $ | 8,729 | | $ | 7,350 | | 20.3 | | 42.9 | |
Noninterest income increased $1.8 million, or 20.3%, in the first quarter of 2024, compared to the fourth quarter of 2023, and increased $3.2 million, or 42.9%, compared to the first quarter of 2023. The increase from the fourth quarter of 2023 was primarily driven by a $1.3 million increase in residential mortgage banking revenue primarily due to MSRs mark to market gains, and a $631,000 increase in the cash surrender value of BOLI, both of which were due to market interest rate changes in the first quarter, as well as a $120,000 increase in other income, partially offset by a $39,000 decrease in wealth management income, a $112,000 decrease in service charges on deposits, and a $135,000 decrease in card related income.
44
The increase in noninterest income of $3.2 million in the first quarter of 2024, compared to the first quarter of 2023, is primarily due to a $291,000 increase in wealth management income primarily due to an increase in advisory fees, a $590,000 increase in mortgage banking revenue mainly due to a $619,000 increase in MSRs mark to market gain, $1,000 of realized gains on sales of securities in the first quarter of 2024 compared to realized losses on the sale of securities of $1.7 million in the first quarter of 2023, a $930,000 increase in the cash surrender value of BOLI, and a $132,000 increase in card related income. These increases were partially offset by a $459,000 decrease in other income, as the 2023 period included a one-time credit from a software vendor of $457,000.
Noninterest Expense
Three months ended March 31, 2024 and 2023
The following table details the major components of noninterest expense for the periods presented:
| | | | | | | | | | | | | | |
| | | | | | | | | | | First Quarter 2024 | | ||
Noninterest Expense | | Three Months Ended | | Percent Change From | | |||||||||
(Dollars in thousands) | | March 31, | | December 31, | | March 31, | | December 31, | | March 31, | | |||
|
| 2024 |
| 2023 |
| 2023 |
| 2023 |
| 2023 |
| |||
Salaries | | $ | 17,647 | | $ | 16,738 | | $ | 16,087 | | 5.4 | | 9.7 | |
Officers' incentive | | | 2,148 | | | 1,450 | | | 1,827 | | 48.1 | | 17.6 | |
Benefits and other | | | 4,517 | | | 3,217 | | | 4,334 | | 40.4 | | 4.2 | |
Total salaries and employee benefits | | | 24,312 | | | 21,405 | | | 22,248 | | 13.6 | | 9.3 | |
Occupancy, furniture and equipment expense | | | 3,927 | | | 3,817 | | | 3,475 | | 2.9 | | 13.0 | |
Computer and data processing | | | 2,255 | | | 2,291 | | | 1,774 | | (1.6) | | 27.1 | |
FDIC insurance | | | 667 | | | 583 | | | 584 | | 14.4 | | 14.2 | |
Net teller & bill paying | | | 521 | | | 564 | | | 502 | | (7.6) | | 3.8 | |
General bank insurance | | | 309 | | | 301 | | | 305 | | 2.7 | | 1.3 | |
Amortization of core deposit intangible asset | | | 580 | | | 603 | | | 624 | | (3.8) | | (7.1) | |
Advertising expense | | | 192 | | | 383 | | | 142 | | (49.9) | | 35.2 | |
Card related expense | | | 1,277 | | | 1,338 | | | 1,216 | | (4.6) | | 5.0 | |
Legal fees | | | 226 | | | 228 | | | 319 | | (0.9) | | (29.2) | |
Consulting & management fees | | | 336 | | | 556 | | | 790 | | (39.6) | | (57.5) | |
Other real estate owned expense, net | | | 46 | | | 218 | | | 306 | | (78.9) | | (85.0) | |
Other expense | | | 3,593 | | | 4,739 | | | 3,637 | | (24.2) | | (1.2) | |
Total noninterest expense | | $ | 38,241 | | $ | 37,026 | | $ | 35,922 | | 3.3 | | 6.5 | |
Efficiency ratio (GAAP)1 | | | 53.59 | % | | 50.82 | % | | 47.52 | % | | | | |
Adjusted efficiency ratio (non-GAAP)2 | | | 53.09 | % | | 48.76 | % | | 47.66 | % | | | | |
1 The efficiency ratio shown in the table above is a GAAP financial measure calculated as noninterest expense, excluding amortization of core deposits and OREO expenses, divided by the sum of net interest income and total noninterest income less net gains or losses on securities, and mark to market gains or losses on MSRs.
2 The adjusted efficiency ratio shown in the table above is a non-GAAP financial measure calculated as noninterest expense, excluding amortization of core deposits, OREO expenses, litigation expense, and net gains on branch sales, divided by the sum of net interest income on a fully tax equivalent basis, total noninterest income less net gains or losses on securities, mark to market gains or losses on MSRs, and includes a tax equivalent adjustment on the change in cash surrender value of BOLI. See the discussion entitled “Non-GAAP Financial Measures” above and the table on page 46 that provides a reconciliation of this non-GAAP financial measure to the most comparable GAAP equivalent.
45
Noninterest expense for the first quarter of 2024 increased $1.2 million, or 3.3%, compared to the fourth quarter of 2023, and increased $2.3 million, or 6.5%, compared to the first quarter of 2023. The increase in the first quarter of 2024 compared to the fourth quarter of 2023 was attributable to a $2.9 million increase in salaries and employee benefits, with increases reflected primarily in salaries due to annual merit increases, restricted stock expense and officers’ incentives due to annual payout true-ups, payroll taxes related to these annual payouts, and deferred executive compensation due to changes in market interest rates. Also contributing to the noninterest expense increase in the first quarter of 2024 was a $110,000 increase in occupancy, furniture and equipment and an $84,000 increase in FDIC insurance. Partially offsetting the increase in noninterest expense in the first quarter of 2024 compared to the fourth quarter of 2023 was a $191,000 decrease in advertising expense, a $61,000 decrease in card related expense, a $220,000 decrease in consulting & management fees, a $172,000 decrease in OREO related expense, and a $1.1 million decrease in other expense due to a $1.2 million litigation expense recorded in the fourth quarter of 2023 for a pending overdraft fee compliance claim.
The Companyyear over year increase in noninterest expense is primarily attributable to a $2.1 million increase in salaries and employee benefits, driven by increases in annual base salary rates, restricted stock expense, officers’ incentives, and deferred employee compensation due to market interest rate changes. Also contributing to the increase was a $452,000 increase in occupancy, furniture and equipment, primarily due to branch remodeling and offset by net gains on sales of branches in 2023, and a $481,000 increase in computer and data processing partially due to core processor credits received in 2023. Partially offsetting the increase in noninterest expense in the first quarter of 2024, compared to the first quarter of 2023, was a $93,000 decrease in legal fees, a $454,000 decrease in consulting & management fees, and a $260,000 decrease in OREO related expenses.
Reconciliation of Adjusted Efficiency Ratio Non-GAAP Financial Measures
| | | | | | | | | | | | | | | | | | | |
| | GAAP | | Non-GAAP | | ||||||||||||||
| | | Three Months Ended | | | Three Months Ended | | ||||||||||||
| | March 31, | | December 31, | | March 31, | | March 31, | | December 31, | | March 31, | | ||||||
| | 2024 | | 2023 | | 2023 | | 2024 | | 2023 | | 2023 | | ||||||
Efficiency Ratio / Adjusted Efficiency Ratio | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Noninterest expense | | $ | 38,241 | | $ | 37,026 | | $ | 35,922 | | $ | 38,241 | | $ | 37,026 | | $ | 35,922 | |
Less amortization of core deposit | | | 580 | | | 603 | | | 624 | | | 580 | | | 603 | | | 624 | |
Less other real estate expense, net | | | 46 | | | 218 | | | 306 | | | 46 | | | 218 | | | 306 | |
Less litigation related expense | | | N/A | | | N/A | | | N/A | | | - | | | 1,200 | | | - | |
Less losses/(gains) on branch sales, net | | | N/A | | | N/A | | | N/A | | | - | | | 19 | | | (306) | |
Noninterest expense less adjustments | | $ | 37,615 | | $ | 36,205 | | $ | 34,992 | | $ | 37,615 | | $ | 34,986 | | $ | 35,298 | |
| | | | | | | | | | | | | | | | | | | |
Net interest income | | $ | 59,783 | | $ | 61,235 | | $ | 64,086 | | $ | 59,783 | | $ | 61,235 | | $ | 64,086 | |
Taxable-equivalent adjustment: | | | | | | | | | | | | | | | | | | | |
Loans | | | N/A | | | N/A | | | N/A | | | 11 | | | 11 | | | 6 | |
Securities | | | N/A | | | N/A | | | N/A | | | 347 | | | 352 | | | 356 | |
Net interest income including adjustments | | | 59,783 | | | 61,235 | | | 64,086 | | | 60,141 | | | 61,598 | | | 64,448 | |
Noninterest income | | | 10,501 | | | 8,729 | | | 7,350 | | | 10,501 | | | 8,729 | | | 7,350 | |
Less securities gains (losses) | | | 1 | | | (2) | | | (1,675) | | | 1 | | | (2) | | | (1,675) | |
Less MSRs mark to market gains (losses) | | | 94 | | | (1,277) | | | (525) | | | 94 | | | (1,277) | | | (525) | |
Taxable-equivalent adjustment: | | | | | | | | | | | | | | | | | | | |
Change in cash surrender value of BOLI | | | N/A | | | N/A | | | N/A | | | 311 | | | 144 | | | 64 | |
Noninterest income (excluding) / including adjustments | | | 10,406 | | | 10,008 | | | 9,550 | | | 10,717 | | | 10,152 | | | 9,614 | |
| | | | | | | | | | | | | | | | | | | |
Net interest income including adjustments plus noninterest income (excluding) / including adjustments | | $ | 70,189 | | $ | 71,243 | | $ | 73,636 | | $ | 70,858 | | $ | 71,750 | | $ | 74,062 | |
Efficiency ratio / Adjusted efficiency ratio | | | 53.59 | % | | 50.82 | % | | 47.52 | % | | 53.09 | % | | 48.76 | % | | 47.66 | % |
N/A - not applicable
46
Income Taxes
We recorded a provision for loan lossesincome tax expense of $300,000$7.2 million for the first quarter of 2024 on $28.5 million of pretax income, compared to income tax expense of $6.7 million on $24.9 million of pretax income in the thirdfourth quarter of 2017. On2023, and income tax expense of $8.4 million on $32.0 million of pretax income in the first quarter of 2023. Our effective tax rate was 25.3% in the first quarter of 2024, 26.9% for the fourth quarter of 2023, and 26.3% for the first quarter of 2023. The slight reduction in the effective tax rate for the first quarter of 2024 reflects the impact of credits to tax expense related to vested stock awards in the first quarter 2024, which occurs annually each February; these stock awards were larger in the first quarter of 2024 than the like 2023 period.
Income tax expense reflected all relevant statutory tax rates and GAAP accounting. There were no significant changes in our ability to utilize our deferred tax assets during the quarter ended March 31, 2024. We had no valuation reserve on the deferred tax assets as of March 31, 2024.
Financial Condition
Total assets decreased $106.7 million to $5.62 billion at March 31, 2024, from $5.72 billion at December 31, 2023, due primarily to the decrease of $24.0 million in securities available-for-sale, the decrease of $73.5 million in total loans, and the $5.6 million decrease in other assets. The decrease in securities available-for-sale was primarily due to paydowns and strategic sales. These decreases were partially offset by increases in premises and equipment of $2.0 million and BOLI of $1.2 million. We continue to actively assess potential investment opportunities to utilize our excess liquidity. Total deposits were $4.61 billion at March 31, 2024, an increase of $37.5 million from December 31, 2023, primarily due to seasonal tax refunds, as well as deposit rate specials.
| | | | | | | | | | | | | |
| | | | | | | | | | | March 31, 2024 | ||
Securities | | As of | | Percent Change From | |||||||||
(Dollars in thousands) | | March 31, | | December 31, | | March 31, | | December 31, | | March 31, | |||
|
| 2024 |
| 2023 |
| 2023 |
| 2023 |
| 2023 | |||
Securities available-for-sale, at fair value | | | | | | | | | | | | | |
U.S. Treasuries | | $ | 171,000 | | $ | 169,574 | | $ | 214,734 | | 0.8 | | (20.4) |
U.S. government agencies | | | 56,979 | | | 56,959 | | | 56,703 | | 0.0 | | 0.5 |
U.S. government agencies mortgage-backed | | | 101,075 | | | 106,370 | | | 121,938 | | (5.0) | | (17.1) |
States and political subdivisions | | | 222,742 | | | 227,065 | | | 231,391 | | (1.9) | | (3.7) |
Corporate bonds | | | - | | | - | | | 9,762 | | N/M | | (100.0) |
Collateralized mortgage obligations | | | 379,603 | | | 392,544 | | | 454,106 | | (3.3) | | (16.4) |
Asset-backed securities | | | 66,707 | | | 68,436 | | | 191,868 | | (2.5) | | (65.2) |
Collateralized loan obligations | | | 170,691 | | | 171,881 | | | 174,566 | | (0.7) | | (2.2) |
Total securities | | $ | 1,168,797 | | $ | 1,192,829 | | $ | 1,455,068 | | (2.0) | | (19.7) |
| | | | | | | | | | | | | |
N/M – Not meaningful.
47
Securities available-for-sale decreased $24.0 million as of March 31, 2024 compared to December 31, 2023, and decreased $286.3 million compared to March 31, 2023. The decrease in the portfolio during the first quarter of 2024 was driven by paydowns totaling $30.7 million, securities sales totaling $5.3 million, and maturities totaling $2.0 million, partially offset by $15.7 million in purchases. We continue to seek to position the portfolio in higher credit quality, shorter duration securities with an appropriate mix of fixed- and floating-rate exposures.
| | | | | | | | | | | | |
| | | | | | | | | | March 31, 2024 | ||
Loans | As of | | Percent Change From | |||||||||
(Dollars in thousands) | March 31, | | December 31, | | March 31, | | December 31, | | March 31, | |||
| 2024 | | 2023 | | 2023 | | 2023 |
| 2023 | |||
Commercial | $ | 796,552 | | $ | 841,697 | | $ | 851,737 | | (5.4) | | (6.5) |
Leases | | 425,615 | | | 398,223 | | | 285,831 | | 6.9 | | 48.9 |
Commercial real estate – investor | | 1,018,382 | | | 1,034,424 | | | 1,056,787 | | (1.6) | | (3.6) |
Commercial real estate – owner occupied | | 782,603 | | | 796,538 | | | 870,115 | | (1.7) | | (10.1) |
Construction | | 169,174 | | | 165,380 | | | 174,683 | | 2.3 | | (3.2) |
Residential real estate – investor | | 51,522 | | | 52,595 | | | 56,720 | | (2.0) | | (9.2) |
Residential real estate – owner occupied | | 220,223 | | | 226,248 | | | 217,855 | | (2.7) | | 1.1 |
Multifamily | | 387,479 | | | 401,696 | | | 358,991 | | (3.5) | | 7.9 |
HELOC | | 98,762 | | | 103,237 | | | 104,941 | | (4.3) | | (5.9) |
Other 1 | | 19,099 | | | 22,915 | | | 25,694 | | (16.7) | | (25.7) |
Total loans | $ | 3,969,411 | | $ | 4,042,953 | | $ | 4,003,354 | | (1.8) | | (0.8) |
1 The “Other” segment includes consumer loans and overdrafts.
Total loans were $3.97 billion as of March 31, 2024, a quarterlydecrease of $73.5 million from December 31, 2023. The decrease in total loans in the first three months of 2024, compared to December 31, 2023, was due primarily to paydowns, net of originations, within commercial of $45.1 million, commercial real estate – investor of $16.0 million and multifamily of $14.2 million offset by net increases in leases of $27.4 million from December 31, 2023. Total loans decreased $33.9 million from March 31, 2023 to March 31, 2024, primarily due to paydowns, net of originations, within commercial of $55.2 million, commercial real estate - investor of $38.4 million, and commercial real estate – owner occupied of $87.5 million, offset by net increases in leases of $139.8 million and multifamily of $28.5 million. As required by CECL, the balance (or amortized cost basis) of purchased credit deteriorated loans, or PCD loans (discussed below) is carried on a gross basis management estimates(rather than net of the amount requiredassociated credit loss estimate), and records the appropriate provisionexpected credit losses for PCD loans are estimated and separately recognized as part of the allowance for credit losses, or releaseACL.
The quality of our loan portfolio is impacted not only by our credit decisions but also by the economic health of the communities in which we operate. Since we are located in a corridor with significant open space and undeveloped real estate, real estate lending (including commercial real estate, construction, residential, multifamily, and HELOCs) has been and continues to maintain an adequate reservebe a sizeable portion of our portfolio. These categories comprised 68.7% of the portfolio as of March 31, 2024, compared to 68.8% of the portfolio as of December 31, 2023. At March 31, 2024, our outstanding commercial real estate loans and undrawn commercial real estate commitments, excluding owner occupied real estate were equal to 268.8% of our Tier 1 capital plus allowance for all potentialcredit losses, a decrease from 286.9% at December 31, 2023. We continue to oversee and estimatedseek to manage our loan losses.portfolio in accordance with interagency guidance on risk management.
Asset Quality
Nonperforming loans increasedconsist of nonaccrual loans and loans 90 days or greater past due. Nonperforming loans decreased by $270,000$3.7 million to $65.1 million at September 30, 2017,March 31, 2024 from $16.0$68.8 million at December 31, 2016. Credit metrics continue to be relatively stable regarding2023 and increased $586,000 from $64.5 million at March 31, 2023. Purchased credit deteriorated loans, or PCD loans, are purchased loans that, as of the date of acquisition, we determined had experienced a more-than-insignificant deterioration in credit quality since origination. PCD loans and their related deferred loan costs are included in our nonperforming loan levels, and management isdisclosures, if such loans otherwise meet the definition of a nonperforming loan. Management continues to carefully monitoringmonitor loans considered to be in a classified status. Nonperforming loans as a percent of total loans decreased to 1.0%were 1.6% as of September 30, 2017, from 1.1%March 31, 2024, 1.7% as of December 31, 2016,2023, and 1.4%1.6% as of September 30, 2016.March 31, 2023. The distribution of the Company’sour nonperforming loans is includedshown in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
| ||||
Nonperforming Loans | As of |
| Percent Change From |
| |||||||||||
(in thousands) | September 30, |
| December 31, |
| September 30, |
| December 31, |
| September 30, |
| |||||
| 2017 |
| 2016 |
| 2016 |
| 2016 |
| 2016 |
| |||||
Real estate-construction | $ | 205 |
| $ | 281 |
| $ | 76 |
| (27.0) |
|
| 169.7 |
|
|
Real estate-residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor |
| 492 |
|
| 936 |
|
| 1,364 |
| (47.4) |
|
| (63.9) |
|
|
Multifamily |
| 4,757 |
|
| - |
|
| - |
| N/M |
|
| N/M |
|
|
Owner occupied |
| 4,266 |
|
| 6,552 |
|
| 5,755 |
| (34.9) |
|
| (25.9) |
|
|
Revolving and junior liens |
| 1,977 |
|
| 2,240 |
|
| 2,257 |
| (11.7) |
|
| (12.4) |
|
|
Real estate-commercial, nonfarm |
| 3,631 |
|
| 5,386 |
|
| 7,345 |
| (32.6) |
|
| (50.6) |
|
|
Real estate-commercial, farm |
| 383 |
|
| - |
|
| - |
| N/M |
|
| N/M |
|
|
Commercial |
| 207 |
|
| 240 |
|
| 583 |
| (13.8) |
|
| (64.5) |
|
|
Leases |
| 345 |
|
| 366 |
|
| - |
| (5.7) |
|
| N/M |
|
|
Other |
| 8 |
|
| - |
|
| - |
| N/M |
|
| N/M |
|
|
Total nonperforming loans | $ | 16,271 |
| $ | 16,001 |
| $ | 17,380 |
| 1.7 |
|
| (6.4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
48
| | | | | | | | | | | | | | | |
| | | | | | | | | | March 31, 2024 | | ||||
Nonperforming Loans | As of | | Percent Change From | | |||||||||||
(Dollars in thousands) | March 31, | | December 31, | | March 31, | | December 31, | | March 31, | | |||||
| 2024 | | 2023 | | 2023 | | 2023 | | 2023 | | |||||
Commercial | $ | 2,746 | | $ | 2,025 | | $ | 2,811 | | 35.6 | | | (2.3) | | |
Leases | | 595 | | | 639 | | | 856 | | (6.9) | | | (30.5) | | |
Commercial real estate – investor | | 16,128 | | | 16,572 | | | 30,397 | | (2.7) | | | (46.9) | | |
Commercial real estate – owner occupied | | 30,897 | | | 34,946 | | | 19,691 | | (11.6) | | | 56.9 | | |
Construction | | 7,119 | | | 7,162 | | | 241 | | (0.6) | | | N/M | | |
Residential real estate – investor | | 1,299 | | | 1,331 | | | 1,555 | | (2.4) | | | (16.5) | | |
Residential real estate – owner occupied | | 3,031 | | | 3,078 | | | 4,038 | | (1.5) | | | (24.9) | | |
Multifamily | | 1,959 | | | 1,775 | | | 2,495 | | 10.4 | | | (21.5) | | |
HELOC | | 1,339 | | | 1,251 | | | 2,441 | | 7.0 | | | (45.1) | | |
Other 1 | | - | | | - | | | 2 | | - | | | (100.0) | | |
Total nonperforming loans | $ | 65,113 | | $ | 68,779 | | $ | 64,527 | | (5.3) | | | 0.9 | | |
| | | | | | | | | | | | | | | |
N/M - Not Meaningful
Nonperforming loans consist of nonaccrual loans, nonperforming restructured accruing1 The “Other” segment includes consumer loans and loans 90 days or greater past due. Remediation work continuesoverdrafts.
N/M – Not meaningful.
The components of our nonperforming assets are shown in all segments.the following table.
| | | | | | | | | | | | | |
| | | | | | | | | | | March 31, 2024 | ||
Nonperforming Assets | | As of | | Percent Change From | |||||||||
(Dollars in thousands) | | March 31, | | December 31, | | March 31, | | December 31, | | March 31, | |||
|
| 2024 |
| 2023 |
| 2023 |
| 2023 | | 2023 | |||
Nonaccrual loans | | $ | 64,324 | | $ | 67,583 | | $ | 63,561 | | (4.8) | | 1.2 |
Loans past due 90 days or more and still accruing interest | |
| 789 | |
| 1,196 | |
| 966 | | (34.0) | | (18.3) |
Total nonperforming loans | |
| 65,113 | |
| 68,779 | |
| 64,527 | | (5.3) | | 0.9 |
Other real estate owned | |
| 5,123 | |
| 5,123 | |
| 1,255 | | - | | 308.2 |
Total nonperforming assets | | $ | 70,236 | | $ | 73,902 | | $ | 65,782 | | (5.0) | | 6.8 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
30-89 days past due loans and still accruing interest | | $ | 21,183 | | $ | 13,668 | | $ | 24,770 | | | | |
Nonaccrual loans to total loans | | | 1.6 | % | | 1.7 | % | | 1.6 | % | | | |
Nonperforming loans to total loans | | | 1.6 | % | | 1.7 | % | | 1.6 | % | | | |
Nonperforming assets to total loans plus OREO | | | 1.8 | % | | 1.8 | % | | 1.6 | % | | | |
| | | | | | | | | | | | | |
Allowance for credit losses | | $ | 44,113 | | $ | 44,264 | | $ | 53,392 | | | | |
Allowance for credit losses to total loans | | | 1.1 | % | | 1.1 | % | | 1.3 | % | | | |
Allowance for credit losses to nonaccrual loans | | | 68.6 | % | | 65.5 | % | | 84.0 | % | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Charge-offs, net of recoveries | Quarters Ended | |||||||||||||
(in thousands) | September 30, |
| % of |
| June 30, |
| % of |
| September 30, |
| % of | |||
| 2017 |
| Total1 |
| 2017 |
| Total1 |
| 2016 |
| Total1 | |||
Real estate-construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilder | $ | - |
| - |
| $ | (1) |
| (0.2) |
| $ | (7) |
| (0.8) |
Land |
| - |
| - |
|
| (48) |
| (7.3) |
|
| (2) |
| (0.2) |
All other |
| 8 |
| (2.4) |
|
| (11) |
| (1.7) |
|
| (42) |
| (5.0) |
Total real estate-construction |
| 8 |
| (2.4) |
|
| (60) |
| (9.2) |
|
| (51) |
| (6.0) |
Real estate-residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor |
| (28) |
| 8.5 |
|
| (16) |
| (2.4) |
|
| (3) |
| (0.4) |
Multifamily |
| (17) |
| 5.2 |
|
| 129 |
| 19.7 |
|
| (13) |
| (1.5) |
Owner occupied |
| (40) |
| 12.2 |
|
| 723 |
| 110.4 |
|
| (75) |
| (8.9) |
Revolving and junior liens |
| (367) |
| 111.5 |
|
| (109) |
| (16.6) |
|
| 112 |
| 13.3 |
Total real estate-residential |
| (452) |
| 137.4 |
|
| 727 |
| 111.1 |
|
| 21 |
| 2.5 |
Real estate-commercial, nonfarm |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner general purpose |
| - |
| - |
|
| (1) |
| (0.2) |
|
| - |
| - |
Owner special purpose |
| - |
| - |
|
| (6) |
| (0.9) |
|
| (3) |
| (0.4) |
Non-owner general purpose |
| (43) |
| 13.1 |
|
| (39) |
| (6.0) |
|
| 132 |
| 15.7 |
Non-owner special purpose |
| - |
| - |
|
| - |
| - |
|
| 636 |
| 75.8 |
Retail properties |
| 22 |
| (6.80) |
|
| 4 |
| 0.6 |
|
| - |
| - |
Total real estate-commercial, nonfarm |
| (21) |
| 6.3 |
|
| (42) |
| (6.5) |
|
| 765 |
| 91.1 |
Real estate-commercial, farm |
| - |
| - |
|
| - |
| - |
|
| - |
| - |
Commercial |
| 7 |
| (2.1) |
|
| 1 |
| 0.2 |
|
| 66 |
| 7.9 |
Leases |
| 98 |
| (29.8) |
|
| - |
| - |
|
| - |
| - |
Consumer |
| 37 |
| (11.2) |
|
| 34 |
| 5.2 |
|
| 43 |
| 5.1 |
Other |
| (6) |
| 1.8 |
|
| (5) |
| (0.8) |
|
| (5) |
| (0.6) |
Net (recoveries) / charge-offs | $ | (329) |
| 100.0 |
| $ | 655 |
| 100.0 |
| $ | 839 |
| 100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
Loan charge-offs, net of recoveries, for the first quarter of 2024, prior linked quarter and year over year quarter are shown in the following table.
| | | | | | | | | | | | | | |
Loan Charge–offs, Net of Recoveries | Three Months Ended | |||||||||||||
(Dollars in thousands) | March 31, | | % of | | December 31, | | % of | | March 31, | | % of | |||
| 2024 | | Total1 | | 2023 | | Total1 | | 2023 | | Total1 | |||
Commercial | $ | (58) | | (1.6) | | $ | 71 | | 0.5 | | $ | (124) | | (16.8) |
Leases | | (40) | | (1.1) | | | (8) | | (0.1) | | | 873 | | 118.0 |
Commercial real estate – investor | | (67) | | (1.8) | | | 4,951 | | 32.0 | | | (17) | | (2.3) |
Commercial real estate – owner occupied | | 3,868 | | 104.7 | | | 10,443 | | 67.5 | | | (2) | | (0.3) |
Residential real estate – investor | | (2) | | (0.1) | | | (3) | | - | | | (19) | | (2.6) |
Residential real estate – owner occupied | | (8) | | (0.2) | | | (8) | | (0.1) | | | (10) | | (1.4) |
HELOC | | (17) | | (0.5) | | | (17) | | (0.1) | | | (29) | | (3.9) |
Other 2 | | 19 | | 0.6 | | | 31 | | 0.3 | | | 68 | | 9.3 |
Net charge–offs | $ | 3,695 | | 100.0 | | $ | 15,460 | | 100.0 | | $ | 740 | | 100.0 |
| | | | | | | | | | | | | | |
1Represents the percentage of net charge-offs attributable to each category of loans.
2 The “Other” segment includes consumer and overdrafts.
Net recoveriescharge-offs of $3.7 million were recorded for the thirdfirst quarter of 2017 reflected2024, compared to net charge-offs of $15.5 million for the fourth quarter of 2023, and net charge-offs of $740,000 for the first quarter of 2023, reflecting continuing management attention to credit quality. Grossquality and remediation efforts. The net charge-offs for the first quarter ended September 30, 2017of 2024 were $241,000 comparedprimarily due to $1.2a $3.9 million for the quarter ended September 30, 2016. Gross recoveries for the quarter ended September 30, 2017 were $570,000 compared to $358,000 for the quarter ended September 30, 2016. In comparisoncharge off of a commercial real estate – owner occupied loan. The commercial real estate – owner occupied credit had a reported reserve allocation of $3.9 million prior to the linked quarter, the thirdfirst quarter of 20172024 charge-off. We have continued to reflectour conservative loan valuations and aggressive recovery efforts on prior charge-offs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
| ||||
Classified Loans | As of |
| Percent Change From |
| |||||||||||
(in thousands) | September 30, |
| December 31, |
| September 30, |
| December 31, |
| September 30, |
| |||||
| 2017 |
| 2016 |
| 2016 |
| 2016 |
| 2016 |
| |||||
Real estate-construction | $ | 380 |
| $ | 458 |
| $ | 254 |
| (17.0) |
|
| 49.6 |
|
|
Real estate-residential: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor |
| 648 |
|
| 1,096 |
|
| 1,171 |
| (40.9) |
|
| (44.7) |
|
|
Multifamily |
| 4,757 |
|
| - |
|
| - |
| N/M |
|
| N/M |
|
|
Owner occupied |
| 4,418 |
|
| 7,225 |
|
| 6,432 |
| (38.9) |
|
| (31.3) |
|
|
Revolving and junior liens |
| 1,977 |
|
| 2,340 |
|
| 3,078 |
| (15.5) |
|
| (35.8) |
|
|
Real estate-commercial, nonfarm |
| 7,633 |
|
| 9,946 |
|
| 13,220 |
| (23.3) |
|
| (42.3) |
|
|
Real estate-commercial, farm |
| 2,495 |
|
| 1,782 |
|
| 1,801 |
| 40.0 |
|
| N/M |
|
|
Commercial |
| 382 |
|
| 2,527 |
|
| 1,519 |
| (84.9) |
|
| (74.9) |
|
|
Leases |
| 1,031 |
|
| 1,109 |
|
| 783 |
| (7.0) |
|
| 31.7 |
|
|
Consumer |
| 8 |
|
| 1 |
|
| 1 |
| N/M |
|
| N/M |
|
|
Total classified loans | $ | 23,729 |
| $ | 26,484 |
| $ | 28,259 |
| (10.4) |
|
| (16.0) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/M - Not Meaningful
37
Classified loans include nonaccrual performing troubled debt restructuringsloans and all other loans considered substandard. Classified assets include both classified loans and OREO. Loans classified as substandard are inadequately protected by either the current net worth and ability to meet payment obligations of the obligor, or by the collateral pledged to secure the loan, if any. These loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt and carry the distinct possibility that the Companywe will sustain some loss if deficiencies remain uncorrected.
Classified
The following table shows classified assets include bothby segment for the following periods.
| | | | | | | | | | | | | | |
| | | | | | | | | | March 31, 2024 | ||||
Classified Assets | As of | | Percent Change From | |||||||||||
(Dollars in thousands) | March 31, | | December 31, | | March 31, | | December 31, | | March 31, | |||||
| 2024 | | 2023 | | 2023 | | 2023 | | 2023 | |||||
Commercial | $ | 15,243 | | $ | 8,414 | | $ | 22,662 | | 81.2 | | | (32.7) | |
Leases | | 595 | | | 818 | | | 906 | | (27.3) | | | (34.3) | |
Commercial real estate – investor | | 43,154 | | | 43,798 | | | 52,615 | | (1.5) | | | (18.0) | |
Commercial real estate – owner occupied | | 61,267 | | | 54,613 | | | 37,545 | | 12.2 | | | 63.2 | |
Construction | | 7,119 | | | 17,155 | | | 241 | | (58.5) | | | N/M | |
Residential real estate – investor | | 1,299 | | | 1,331 | | | 1,702 | | (2.4) | | | (23.7) | |
Residential real estate – owner occupied | | 3,168 | | | 3,216 | | | 3,618 | | (1.5) | | | (12.4) | |
Multifamily | | 1,959 | | | 1,775 | | | 3,348 | | 10.4 | | | (41.5) | |
HELOC | | 1,648 | | | 1,664 | | | 2,635 | | (1.0) | | | (37.5) | |
Other 1 | | - | | | - | | | 2 | | - | | | (100.0) | |
Total classified loans | | 135,452 | | | 132,784 | | | 125,274 | | 2.0 | | | 8.1 | |
Other real estate owned | | 5,123 | | | 5,123 | | | 1,255 | | N/M | | | 308.2 | |
Total classified assets | $ | 140,575 | | $ | 137,907 | | $ | 126,529 | | 1.9 | | | 11.1 | |
| | | | | | | | | | | | | | |
1 The “Other” segment includes consumer loans and overdrafts.
N/M - Not meaningful
50
Total classified loans and OREO.classified assets increased $2.7 million as of March 31, 2024 from December 31, 2023. The increase since December 31, 2023 is due to the additions of $15.9 million, the majority of which consisted of three relationships totaling $14.7 million. Commercial loans were the majority of the additions, consisting of seven loans totaling $11.6 million and one relationship in commercial real estate – owner occupied totaling $3.3 million. The additions are offset by $13.2 million of outflows, most driven by $6.3 million of loan rating upgrades, and a $3.9 million partial charge off. The increase from March 31, 2023 is primarily due to additions to commercial real estate – owner occupied. Management monitors a ratio of classified assets to the sum of Bank Tier 1 capital and the allowance for loan and lease lossesACL on loans as another measure of overall change in loan related asset quality. Thisquality, which is referred to as the “classified assets ratio.” The classified assets ratio ended at 12.62%was 21.33% for the period ended September 30, 2017.March 31, 2024, compared to 21.66% as of December 31, 2023, and 20.04% as of March 31, 2023.
Allowance for LoanCredit Losses on Loans
The provision for credit losses, which includes a provision for losses on unfunded commitments, is a charge to earnings to maintain the allowance for credit losses (“ACL”) at a level consistent with management’s assessment of expected losses in the loan portfolio at the balance sheet date.
At March 31, 2024, our ACL on loans totaled $44.1 million, and our ACL on unfunded commitments, included in other liabilities, totaled $2.7 million. In the first quarter of 2024, we recorded provision expense on loans of $3.5 million, based on historical loss rates, our assessment of nonperforming loan metrics and trends, downward risk rating migrations, and estimated future credit losses, and a $44,000 reversal of provision on unfunded commitments, primarily due to an adjustment of historical benchmark assumptions, such as funding rates and the period used to forecast those rates, within the ACL calculation. These adjustments resulted in a $3.5 million net impact to the provision for credit losses for the first quarter of 2024.
Management estimates the amount of provision required on a quarterly basis and records the appropriate provision expense, or release of expense, to maintain an adequate reserve for all potential and estimated credit losses on loans, leases and unfunded commitments. The ACL on loans totaled $44.1 million as of March 31, 2024, $44.3 million as of December 31, 2023, and $53.4 million as of March 31, 2023. Our ACL on loans to total loans was 1.1% as of March 31, 2024, compared to 1.1% as of December 31, 2023 and 1.3% as of March 31, 2023. See Item 7 – Critical Accounting Estimates in the Management Discussion and Analysis in our 2023 Annual Report in Form 10-K for discussion of our ACL methodology on loans. Allocations of the ACL may be made for specific loans, but the entire allowance is available for any loan that, in our judgment, should be charged-off.
51
Below is a reconciliation of the activity in the allowance for loancredit losses on loans for the periods indicated (in(dollars in thousands):
| | | | | | | | | | | |
| | Three Months Ended | | ||||||||
| March 31, | | December 31, | | March 31, | ||||||
| 2024 | | 2023 | | 2023 | ||||||
Allowance at beginning of period | $ | 44,264 | | | $ | 51,729 | | | $ | 49,480 | |
Charge–offs: | | | | | | | | | | | |
Commercial | | 15 | | | | 458 | | | | 27 | |
Leases | | - | | | | - | | | | 882 | |
Commercial real estate – investor | | 16 | | | | 4,971 | | | | - | |
Commercial real estate – owner occupied | | 3,887 | | | | 10,455 | | | | - | |
Construction | | - | | | | - | | | | - | |
Residential real estate – investor | | - | | | | - | | | | - | |
Residential real estate – owner occupied | | - | | | | - | | | | - | |
Multifamily | | - | | | | - | | | | - | |
HELOC | | - | | | | - | | | | - | |
Other 1 | | 70 | | | | 67 | | | | 113 | |
Total charge–offs | | 3,988 | | | | 15,951 | | | | 1,022 | |
Recoveries: | | | | | | | | | | | |
Commercial | | 73 | | | | 387 | | | | 151 | |
Leases | | 40 | | | | 8 | | | | 9 | |
Commercial real estate – investor | | 83 | | | | 20 | | | | 17 | |
Commercial real estate – owner occupied | | 19 | | | | 12 | | | | 2 | |
Construction | | - | | | | - | | | | - | |
Residential real estate – investor | | 2 | | | | 3 | | | | 19 | |
Residential real estate – owner occupied | | 8 | | | | 8 | | | | 10 | |
Multifamily | | - | | | | - | | | | - | |
HELOC | | 17 | | | | 17 | | | | 29 | |
Other 1 | | 51 | | | | 36 | | | | 45 | |
Total recoveries | | 293 | | | | 491 | | | | 282 | |
Net charge-offs | | 3,695 | | | | 15,460 | | | | 740 | |
Provision for credit losses on loans | | 3,544 | | | | 7,995 | | | | 4,652 | |
Allowance at end of period | $ | 44,113 | | | $ | 44,264 | | | $ | 53,392 | |
| | | | | | | | | | | |
Average total loans (exclusive of loans held–for–sale) | $ | 4,018,631 | | | $ | 4,014,771 | | | $ | 3,931,679 | |
Net charge–offs to average loans | | 0.37 | % | | | 1.53 | % | | | 0.08 | % |
Allowance at period end to average loans | | 1.10 | % | | | 1.10 | % | | | 1.36 | % |
| | | | | | | | | | | |
1 The “Other” segment includes consumer loans and overdrafts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarters Ended |
|
| Nine Months Ended |
| ||||||||||||||
| September 30, |
| June 30, |
| September 30, |
| September 30, |
| September 30, |
| ||||||||||
| 2017 |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance at beginning of period | $ | 15,836 |
|
| $ | 15,741 |
|
| $ | 15,822 |
|
| $ | 16,158 |
|
| $ | 16,223 |
|
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| 13 |
|
|
| 6 |
|
|
| 76 |
|
|
| 20 |
|
|
| 95 |
|
|
Leases |
| 98 |
|
|
| - |
|
|
| - |
|
|
| 215 |
|
|
| 13 |
|
|
Real estate - commercial |
| 22 |
|
|
| 4 |
|
|
| 792 |
|
|
| 300 |
|
|
| 1,484 |
|
|
Real estate - construction |
| 19 |
|
|
| - |
|
|
| 9 |
|
|
| 23 |
|
|
| 9 |
|
|
Real estate - residential |
| 7 |
|
|
| 976 |
|
|
| 220 |
|
|
| 1,178 |
|
|
| 657 |
|
|
Consumer |
| 82 |
|
|
| 80 |
|
|
| 100 |
|
|
| 262 |
|
|
| 250 |
|
|
Other |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
Total charge-offs |
| 241 |
|
|
| 1,066 |
|
|
| 1,197 |
|
|
| 1,998 |
|
|
| 2,508 |
|
|
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| 6 |
|
|
| 5 |
|
|
| 10 |
|
|
| 13 |
|
|
| 22 |
|
|
Leases |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
Real estate - commercial |
| 43 |
|
|
| 46 |
|
|
| 27 |
|
|
| 124 |
|
|
| 255 |
|
|
Real estate - construction |
| 11 |
|
|
| 60 |
|
|
| 60 |
|
|
| 89 |
|
|
| 71 |
|
|
Real estate - residential |
| 459 |
|
|
| 249 |
|
|
| 199 |
|
|
| 850 |
|
|
| 718 |
|
|
Consumer |
| 45 |
|
|
| 46 |
|
|
| 57 |
|
|
| 166 |
|
|
| 184 |
|
|
Other |
| 6 |
|
|
| 5 |
|
|
| 5 |
|
|
| 13 |
|
|
| 18 |
|
|
Total recoveries |
| 570 |
|
|
| 411 |
|
|
| 358 |
|
|
| 1,255 |
|
|
| 1,268 |
|
|
Net (recoveries) / charge-offs |
| (329) |
|
|
| 655 |
|
|
| 839 |
|
|
| 743 |
|
|
| 1,240 |
|
|
Loan loss reserve provision |
| 300 |
|
|
| 750 |
|
|
| - |
|
|
| 1,050 |
|
|
| - |
|
|
Allowance at end of period | $ | 16,465 |
|
| $ | 15,836 |
|
| $ | 14,983 |
|
| $ | 16,465 |
|
| $ | 14,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average total loans (exclusive of loans held-for-sale) | $ | 1,550,229 |
|
| $ | 1,505,572 |
|
| $ | 1,186,279 |
|
| $ | 1,513,693 |
|
| $ | 1,157,159 |
|
|
Net (recoveries) / charge-offs to average loans |
| (0.02) | % |
|
| 0.04 | % |
|
| 0.07 | % |
|
| 0.05 | % |
|
| 0.11 | % |
|
Allowance at period end to average loans |
| 1.06 | % |
|
| 1.05 | % |
|
| 1.26 | % |
|
| 1.09 | % |
|
| 1.29 | % |
|
|
|
|
|
|
|
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Ending balance: Individually evaluated for impairment | $ | 6 |
|
| $ | 98 |
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| $ | 514 |
|
| $ | 6 |
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| $ | 514 |
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Ending balance: Collectively evaluated for impairment | $ | 16,459 |
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| $ | 15,738 |
|
| $ | 14,469 |
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| $ | 16,459 |
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| $ | 14,469 |
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The coverage ratio of the allowance for loan lossesACL on loans to nonperforming loans was 101.2%67.8% as of September 30, 2017,March 31, 2024, which was a minimal reductionan increase from the coverage ratio of 101.4%64.4% as of June 30, 2017, but greater than the 86.2% coverage ratioDecember 31, 2023 and a decrease from 82.7% as of September 30, 2016.March 31, 2023. When measured as a percentage of average loans, as of September 30, 2017,our total allowance for loan and lease losses increased to 1.06% of total loans from 1.05% as of June 30, 2017, and decreased from 1.26% of average loans at September 30, 2016. The total allowance for loan and lease losses as a percent of total period endACL on loans was 1.15% as of September 30, 2017, excluding the loans acquired from the Talmer branch acquisition, which are effectively “reserved” for potential future losses in the remaining $667,000 credit mark component of the purchase accounting discount recorded. 1.10% at March 31, 2024, 1.10% at December 31, 2023, and 1.36% at March 31, 2023.
In management’s judgment, an adequate allowance for estimated lossesACL has been established for inherentto encompass the current lifetime expected credit losses at September 30, 2017,March 31, 2024, and general changes in lending policy, procedures and staffing, as well as other external factors. However, there can be no assurance that actual losses will not exceed the estimated amounts in the future, based on unforeseen economic events, changes in business climates and the condition of collateral at the time of default and repossession. Loan loss provision forContinued volatility in the quarter ended September 30, 2017, increased $300,000economic environment stemming from the impacts of and response to inflation, potential recession, and the war in Ukraine and the conflict in the Middle East, and the associated effects on our customers, or other factors, such as compared to like quarterchanges in business climates and the condition of 2016 and decreased $450,000 as compared to second quartercollateral at the time of 2017.default or repossession, may revise our current expectations of future credit losses in future reporting periods.
38
52
Other Real Estate Owned
As of September 30, 2017,March 31, 2024, OREO ended at $9.0 million. This compares to $11.7totaled $5.1 million, reflecting no change from December 31, 2023, and an increase of $3.9 million from $1.3 million at June 30, 2017, and $14.1 million at September 30, 2016. NewMarch 31, 2023. There were no property additions toor disposals in the OREO portfolio of $176,000 in the third quarter of 2017 were minimal. Valuation write-downs continued with an expense of $920,000 in the third quarter of 2017, the majority of which was recorded on three properties, compared to $392,000 in the second quarter of 2017 and $365,000 in the third quarter of 2016. The OREO net book value decreased in the first nine monthsquarter of 2017 due to 24 property sales, net of a participation purchase. These sales provided $5.5 million in total proceeds, including net gains on OREO sales of $454,000. In addition, net2024. No valuation reserve write-downs of $1.6 million on 35 OREO properties were recordedadjustments occurred in the first nine monthsquarter of 2017; both2024 or in the fourth quarter of these reductions were partially offset by 13 property transfers into OREO from nonaccrual or fixed asset status2023. In the first quarter of 2023, we recorded two write-downs totaling $3.8 million.$273,000 as well as a write-up for $4,000, totaling a net $269,000 increase in valuation reserve.
| | | | | | | | | | | | | | |
| | | | | | | | | | March 31, 2024 | ||||
OREO | Three Months Ended | | Percent Change From | |||||||||||
(Dollars in thousands) | March 31, | | December 31, | | March 31, | | December 31, | | March 31, | |||||
| 2024 | | 2023 | | 2023 | | 2023 | | 2023 | |||||
Balance at beginning of period | $ | 5,123 | | $ | 407 | | $ | 1,561 | | N/M | | | 228.2 | |
Property additions, net of acquisition adjustments | | - | | | 4,894 | | | 291 | | (100.0) | | | (100.0) | |
Less: | | | | | | | | | | | | | | |
Proceeds from property disposals, net of participation purchase and of gains/losses | | - | | | 178 | | | 328 | | (100.0) | | | (100.0) | |
Period valuation write-down | | - | | | - | | | 269 | | - | | | (100.0) | |
Balance at end of period | $ | 5,123 | | $ | 5,123 | | $ | 1,255 | | - | | | 308.2 | |
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| September 30, 2017 | ||||
OREO | Quarters Ended |
| Percent Change From | |||||||||||
(in thousands) | September 30, |
| June 30, |
| September 30, |
| June 30, |
| September 30, | |||||
| 2017 |
| 2017 |
| 2016 |
| 2017 |
| 2016 | |||||
Beginning balance | $ | 11,724 |
| $ | 13,481 |
| $ | 16,252 |
| (13.0) |
|
| (27.9) |
|
Property additions |
| 176 |
|
| 204 |
|
| 255 |
| (13.7) |
|
| (31.0) |
|
Property improvements |
| - |
|
| - |
|
| 4 |
| N/M |
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| N/M |
|
Less: |
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Property disposals |
| 1,956 |
|
| 1,569 |
|
| 2,002 |
| 24.7 |
|
| (2.3) |
|
Period valuation adjustments |
| 920 |
|
| 392 |
|
| 365 |
| 134.7 |
|
| 152.1 |
|
Total other real estate owned | $ | 9,024 |
| $ | 11,724 |
| $ | 14,144 |
| (23.0) |
|
| (36.2) |
|
N/M - Not Meaningfulmeaningful
In management’s judgment, the property valuation allowance as established presents OREO at current estimates of fair value less estimated costs to sell; however, there can be no assurance that additional losses will not be incurred on disposals or upon updates to valuations in the future. Of note, properties valued in total at $5.2 million, or approximately 57.5% of total OREO at September 30, 2017, have been in OREO for five years or more. The appropriate regulatory approval has been obtained for any OREO properties held in excess of five years.
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OREO Properties by Type |
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(in thousands) | September 30, 2017 |
| December 31, 2016 |
| September 30, 2016 | |||||||||||||||||||||||||||||
|
| Amount |
| % of Total |
|
| Amount |
| % of Total |
|
| Amount |
| % of Total | ||||||||||||||||||||
(Dollars in thousands) | March 31, 2024 | | December 31, 2023 | | March 31, 2023 | |||||||||||||||||||||||||||||
| | Amount | | % of Total | | | Amount | | % of Total | | | Amount | | % of Total | ||||||||||||||||||||
Single family residence | $ | 937 |
| 11 | % |
| $ | 225 |
| 2 | % |
| $ | 1,218 |
| 9 | % | $ | - | | - | % | | $ | - | | - | % | | $ | 291 | | 23 | % |
Lots (single family and commercial) |
| 5,536 |
| 61 | % |
|
| 7,322 |
| 61 | % |
|
| 8,795 |
| 62 | % | | - | | - | | | | - | | - | | | | 767 | | 61 | |
Vacant land |
| 628 |
| 7 | % |
|
| 636 |
| 5 | % |
|
| 636 |
| 4 | % | | 197 | | 4 | | | | 197 | | 4 | | | | 197 | | 16 | |
Multi-family |
| - |
| 0 | % |
|
| 264 |
| 2 | % |
|
| 264 |
| 2 | % | | - | | - | | | | - | | - | | | | - | | - | |
Commercial property |
| 1,923 |
| 21 | % |
|
| 3,469 |
| 30 | % |
|
| 3,231 |
| 23 | % | | 4,926 | | 96 | | | | 4,926 | | 96 | | | | - | | - | |
Total OREO properties | $ | 9,024 |
| 100 | % |
| $ | 11,916 |
| 100 | % |
| $ | 14,144 |
| 100 | % | |||||||||||||||||
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Total other real estate owned | $ | 5,123 | | 100 | % | | $ | 5,123 | | 100 | % | | $ | 1,255 | | 100 | % | |||||||||||||||||
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Deposits and Borrowings
| | | | | | | | | | | | |
| | | | | | | | | | March 31, 2024 | ||
Deposits | As of | | Percent Change From | |||||||||
(Dollars in thousands) | March 31, | | December 31, | | March 31, | | December 31, | | March 31, | |||
| 2024 | | 2023 | | 2023 | | 2023 |
| 2023 | |||
Noninterest bearing demand | $ | 1,799,927 | | $ | 1,834,891 | | $ | 1,950,144 | | (1.9) | | (7.7) |
Savings | | 955,528 | | | 971,334 | | | 1,108,610 | | (1.6) | | (13.8) |
NOW accounts | | 569,814 | | | 565,375 | | | 608,260 | | 0.8 | | (6.3) |
Money market accounts | | 696,354 | | | 671,240 | | | 799,300 | | 3.7 | | (12.9) |
Certificates of deposit of less than $100,000 | | 289,962 | | | 266,035 | | | 238,257 | | 9.0 | | 21.7 |
Certificates of deposit of $100,000 through $250,000 | | 205,638 | | | 180,289 | | | 147,887 | | 14.1 | | 39.1 |
Certificates of deposit of more than $250,000 | | 91,052 | | | 81,582 | | | 44,762 | | 11.6 | | 103.4 |
Total deposits | $ | 4,608,275 | | $ | 4,570,746 | | $ | 4,897,220 | | 0.8 | | (5.9) |
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| 3rd Quarter 2017 |
| ||
Noninterest Income |
| Quarters Ended |
| Percent Change From |
| |||||||||
(in thousands) |
| September 30, |
| June 30, |
| September 30, |
| June 30, |
| September 30, |
| |||
|
| 2017 |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| |||
Trust income |
| $ | 1,468 |
| $ | 1,638 |
| $ | 1,403 |
| (10.4) |
| 4.6 |
|
Service charges on deposits |
|
| 1,722 |
|
| 1,615 |
|
| 1,756 |
| 6.6 |
| (1.9) |
|
Residential mortgage banking revenue |
|
| 1,547 |
|
| 1,711 |
|
| 2,789 |
| (9.6) |
| (44.5) |
|
Securities gain (loss), net |
|
| 102 |
|
| (131) |
|
| (1,959) |
| 177.9 |
| 105.2 |
|
Increase in cash surrender value of BOLI |
|
| 362 |
|
| 350 |
|
| 383 |
| 3.4 |
| (5.5) |
|
Debit card interchange income |
|
| 1,075 |
|
| 1,081 |
|
| 1,013 |
| (0.6) |
| 6.1 |
|
Gain on disposal and transfer of fixed assets |
|
| - |
|
| 12 |
|
| - |
| N/M |
| N/M |
|
Other income |
|
| 1,567 |
|
| 1,041 |
|
| 1,209 |
| 50.5 |
| 29.6 |
|
Total noninterest income |
| $ | 7,843 |
| $ | 7,317 |
| $ | 6,594 |
| 7.2 |
| 18.9 |
|
N/M - Not Meaningful
39
53
Of the noninterest income categories, securities gain (loss), net, experienced the largest increases on bothTotal deposits were $4.61 billion at March 31, 2024, which reflects a linked quarter$37.5 million increase from total deposits of $4.57 billion at December 31, 2023, and year over year basis, as shown above,a decrease of $288.9 million from total deposits of $4.90 billion at March 31, 2023. The increase in deposits at March 31, 2024, compared to December 31, 2023, was primarily due to more favorable investment salesincreases in 2017.time deposits of $58.7 million and money market and NOW accounts of $29.6 million, partially offset by decreases in noninterest bearing deposits of $35.0 million and savings accounts of $15.8 million. The net security losses incurreddecrease in 2016 were necessary for liquidity purposes due to funding needs related to the Talmer branch purchase. Mortgage banking revenues have decreased over the last year as the rising rate environment has reduced originations and refinancing; mortgage loans held for sale originations are $34.1 million less year to date 2017 than the prior year to date period. Finally, the favorable variance in other income was driven by growth in commercial loan swap fee income; $547,000 of commercial loan swap fee income was recorded in the third quarter of 2017, asdeposits at March 31, 2024, compared to $175,000 in the third quarter of 2016.
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| 3rd Quarter 2017 |
| ||
Noninterest Expense |
| Quarters Ended |
| Percent Change From |
| |||||||||
(in thousands) |
| September 30, |
| June 30, |
| September 30, |
| June 30, |
| September 30, |
| |||
|
| 2017 |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| |||
Salaries |
| $ | 7,704 |
| $ | 7,972 |
| $ | 7,205 |
| (3.4) |
| 6.9 |
|
Bonus |
|
| 1,114 |
|
| 854 |
|
| 521 |
| 30.4 |
| 113.8 |
|
Benefits and other |
|
| 1,231 |
|
| 1,719 |
|
| 1,288 |
| (28.4) |
| (4.4) |
|
Total salaries and employee benefits |
|
| 10,049 |
|
| 10,545 |
|
| 9,014 |
| (4.7) |
| 11.5 |
|
Occupancy, furniture and equipment expense |
|
| 1,482 |
|
| 1,462 |
|
| 1,500 |
| 1.4 |
| (1.2) |
|
Computer and data processing |
|
| 1,081 |
|
| 1,112 |
|
| 1,105 |
| (2.8) |
| (2.2) |
|
FDIC insurance |
|
| 199 |
|
| 165 |
|
| 228 |
| 20.6 |
| (12.7) |
|
General bank insurance |
|
| 246 |
|
| 264 |
|
| 269 |
| (6.8) |
| (8.6) |
|
Amortization of core deposit intangible asset |
|
| 24 |
|
| 25 |
|
| - |
| (4.0) |
| N/M |
|
Advertising expense |
|
| 255 |
|
| 452 |
|
| 430 |
| (43.6) |
| (40.7) | �� |
Debit card interchange expense |
|
| 285 |
|
| 399 |
|
| 363 |
| (28.6) |
| (21.5) |
|
Legal fees |
|
| 162 |
|
| 184 |
|
| 242 |
| (12.0) |
| (33.1) |
|
Other real estate owned expense, net |
|
| 680 |
|
| 539 |
|
| 426 |
| 26.2 |
| 59.6 |
|
Other expense |
|
| 2,455 |
|
| 2,839 |
|
| 3,005 |
| (13.5) |
| (18.3) |
|
Total noninterest expense |
| $ | 16,918 |
| $ | 17,986 |
| $ | 16,582 |
| (5.9) |
| 2.0 |
|
Efficiency ratio (defined below) |
|
| 57.66 | % |
| 64.03 | % |
| 66.21 | % |
|
|
|
|
N/M - Not Meaningful
The efficiency ratio shown in the table above is calculated as noninterest expense excluding OREO expenses, amortization of core deposits and acquisition 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.
Third quarter 2017 noninterest expense decreased $1.1 million from the second quarter of 2017, and increased $336,000 from the third quarter of 2016. These variances areMarch 31, 2023, was primarily due to salarydecreases in noninterest bearing deposits of $150.2 million, savings accounts of $153.1 million, and employee benefit related cost fluctuations due to certain one-time costs recorded in 2017, as well asmoney market accounts of $102.9 million, partially offset by an increase in employee insurance premiums in 2017. The second quartertime deposits of 2017 included a one-time cost incurred related to executive relocation and recruitment of $294,000, as well as higher levels of employee insurance costs as compared to the prior year. Although the overall employee count has not significantly increased$155.7 million. Total quarterly average deposits decreased $417.9 million, or 8.4%, in the year over year period, driven by declines in our average demand deposits of $183.3 million, and savings, NOW and money markets combined of $358.4 million, partially offset by an increase in average time deposits of $123.8 million year over year. In general, the hiring of additional staff in compliance and risk management roles has increased the overall wage basebulk of the Company. A reductiondecline in debit card interchange expense was recorded in the third quarter of 2017 due to reversal of an accrual related to the debit card rewards program. Finally, other expense has declined over the last year due to reductions in loan related expenses, including remediation costs as the loan portfolio quality continues to improve.
Other expenses have minimal fluctuations, as continued efficiencies with operational processes have contributed to maintaining the majority of noninterest expense components with insignificant variation.
Income Taxes
The Company recorded a tax expense of $1.8 million on $9.9 million pre-tax income for the third quarter of 2017. Income tax expense reflected all relevant statutory tax rates and GAAP accounting. The effective tax rate for the third quarter of 2017 was 18.5%, a decrease from 28.9% in the second quarter of 2017 and 34.7% in the third quarter of 2016. A nonrecurring income tax benefit of $1.6 million was recorded in the third quarter of 2017, stemming from the State of Illinois tax rate increase effective July 1, 2017, which increased the Company’s net deferred tax asset by a like amount. In addition, the impact of the tax exempt securities growth in the first and second quarters of 2017 contributed to the tax rate decrease in the third quarter of 2017 as compared to the prior year.
There have been no significant changes in the Company’s ability to utilize the deferred tax assets through September 30, 2017. The Company has no valuation reserve on the deferred tax assets as of September 30, 2017.
40
Financial Condition
Total assets increased $109.2 million from $2.25 billion as of December 31, 2016, to $2.36 billion at September 30, 2017, due primarily to organic loan growth. Total loans increased $115.4 million, or 7.8%, when compared to December 31, 2016, which was funded by significant deposit growth and FHLBC advances. Securities increased a modest $1.6 million in total, but the securities portfolio experienced select significant shifts in type of investments held year to date.
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| September 30, 2017 | ||
Securities |
| As of |
| Percent Change From | |||||||||
(in thousands) |
| September 30, |
| December 31, |
| September 30, |
| December 31, |
| September 30, | |||
|
| 2017 |
| 2016 |
| 2016 |
| 2016 |
| 2016 | |||
Securities available-for-sale, at fair value |
|
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|
U.S. Treasuries |
| $ | 3,990 |
| $ | - |
| $ | - |
| N/M |
| N/M |
U.S. government agencies |
|
| 13,451 |
|
| - |
|
| 1,503 |
| N/M |
| N/M |
U.S. government agencies mortgage-backed |
|
| 11,030 |
|
| 41,534 |
|
| 43,723 |
| (73.4) |
| (74.8) |
States and political subdivisions |
|
| 229,032 |
|
| 68,703 |
|
| 22,254 |
| 233.4 |
| 929.2 |
Corporate bonds |
|
| 10,577 |
|
| 10,630 |
|
| 10,730 |
| (0.5) |
| (1.4) |
Collateralized mortgage obligations |
|
| 80,386 |
|
| 170,927 |
|
| 204,390 |
| (53.0) |
| (60.7) |
Asset-backed securities |
|
| 131,759 |
|
| 138,407 |
|
| 140,173 |
| (4.8) |
| (6.0) |
Collateralized loan obligations |
|
| 53,259 |
|
| 101,637 |
|
| 108,284 |
| (47.6) |
| (50.8) |
Total securities |
| $ | 533,484 |
| $ | 531,838 |
| $ | 531,057 |
| 0.3 |
| 0.5 |
N/M - Not Meaningful
The securities portfolio ended the third quarter of 2017 at $533.5 million, an increase of $1.6 million from $531.8 million at December 31, 2016, and an increase of $2.4 million from September 30, 2016. Available-for-sale purchases during the third quarter of 2017 anddeposits year over year periods were primarily tax exempt statecan be characterized as rate sensitive with significant flows and political subdivisions securities; treasuriestransfers into investing activities.
The following table presents estimated insured and government agencies also increased in the period ending September 30, 2017. This portfolio repositioning was performed to enhance overall asset yield due to the rising interest rate environment. During the third quarter of 2017 security sales resulted in net realized gains of $102,000, as compared to net realized losses of $193,000 for the fourth quarter of 2016uninsured deposits at March 31, 2024 and losses of $2.0 million for the third quarter of 2016.
Loans
Total loans were $1.59 billion as of September 30, 2017, an increase of $115.4 million from the total as of December 31, 2016, driven2023 by growth indeposit type, as well as the commercial, real estate-construction and leases portfolios. In addition, a home equity portfolio purchase of $16.7 million from TCF Bank in the second quarter of 2017 contributed to the total residential real estate growth of $41.7 millionweighted average rates for the 2017each year to date ending period. Loan portfolio repositioning continued to drive reductions in commercial real estate concentrations, and to grow commercial and lease financing to diversify the portfolio. Total loans increased $391.7 million from September 30, 2016, due to the organic growth previously discussed as well as $221.0 million of loans from the Talmer branch purchase.
| | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands) | March 31, 2024 | | | December 31, 2023 | |||||||||||||||||||
| Total Deposits | | Insured Deposits | | Uninsured Deposits | | Average Rate Paid | | Total Deposits | | Insured Deposits | | Uninsured Deposits | | Average Rate Paid | ||||||||
Noninterest bearing demand | $ | 1,799,927 | | $ | 1,181,856 | | $ | 618,069 | | - | % | | $ | 1,834,891 | | $ | 1,137,089 | | $ | 697,802 | | - | % |
Savings | | 955,528 | | | 891,407 | | | 64,121 | | 0.27 | | | | 971,334 | | | 905,163 | | | 66,171 | | 0.11 | |
NOW accounts | | 569,814 | | | 416,195 | | | 153,620 | | 0.60 | | | | 565,375 | | | 414,005 | | | 151,370 | | 0.27 | |
Money market accounts | | 696,354 | | | 470,759 | | | 225,595 | | 1.50 | | | | 671,240 | | | 473,006 | | | 198,234 | | 0.80 | |
Time deposits | | 586,652 | | | 501,928 | | | 84,724 | | 2.91 | | | | 527,906 | | | 452,000 | | | 75,906 | | 1.45 | |
Total | $ | 4,608,275 | | $ | 3,462,145 | | $ | 1,146,129 | | 0.71 | % | | $ | 4,570,746 | | $ | 3,381,263 | | $ | 1,189,483 | | 0.32 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
Collateralized public funds | $ | 246,464 | | $ | 14,980 | | $ | 231,484 | | | | | $ | 247,202 | | $ | 15,211 | | $ | 231,991 | | | |
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|
|
|
|
|
|
|
|
| September 30, 2017 | ||
Loans | As of |
| Percent Change From | |||||||||
(in thousands) | September 30, |
| December 31, |
| September 30, |
| December 31, |
| September 30, | |||
| 2017 |
| 2016 |
| 2016 |
| 2016 |
| 2016 | |||
Commercial | $ | 257,356 |
| $ | 228,113 |
| $ | 136,819 |
| 12.8 |
| 88.1 |
Leases |
| 69,305 |
|
| 55,451 |
|
| 47,215 |
| 25.0 |
| 46.8 |
Real estate - commercial |
| 739,136 |
|
| 736,247 |
|
| 617,280 |
| 0.4 |
| 19.7 |
Real estate - construction |
| 94,868 |
|
| 64,720 |
|
| 28,786 |
| 46.6 |
| 229.6 |
Real estate - residential |
| 419,583 |
|
| 377,851 |
|
| 357,846 |
| 11.0 |
| 17.3 |
Consumer |
| 2,770 |
|
| 3,237 |
|
| 3,325 |
| (14.4) |
| (16.7) |
Other |
| 10,550 |
|
| 11,973 |
|
| 10,517 |
| (11.9) |
| 0.3 |
|
| 1,593,568 |
|
| 1,477,592 |
|
| 1,201,788 |
| 7.8 |
| 32.6 |
Net deferred loan costs |
| 623 |
|
| 1,217 |
|
| 1,064 |
| (48.8) |
| (41.4) |
Total loans | $ | 1,594,191 |
| $ | 1,478,809 |
| $ | 1,202,852 |
| 7.8 |
| 32.5 |
The quality of the loan portfolio is impacted by not only Company credit decisions but also the economic health of the communities in which the Company operates. As the Company is located in a corridor with significant open space and undeveloped real estate, real estate lending (including commercial, residential, and construction) has been and continues to be a sizeable portion of the portfolio. These categories comprised 78.6% of the portfolio as of September 30, 2017, compared to 79.7% of the portfolio as of
41
December 31, 2016. The Company continues to oversee and manage its loan portfolio in accordance with interagency guidance on risk management.
Deposits and Borrowings
|
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|
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|
|
|
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|
| September 30, 2017 | ||
Deposits | As of |
| Percent Change From | |||||||||
(in thousands) | September 30, |
| December 31, |
| September 30, |
| December 31, |
| September 30, | |||
| 2017 |
| 2016 |
| 2016 |
| 2016 |
| 2016 | |||
Noninterest bearing demand | $ | 556,874 |
| $ | 513,688 |
| $ | 473,477 |
| 8.4 |
| 17.6 |
Savings |
| 260,268 |
|
| 256,159 |
|
| 253,454 |
| 1.6 |
| 2.7 |
NOW accounts |
| 417,054 |
|
| 419,417 |
|
| 391,188 |
| (0.6) |
| 6.6 |
Money market accounts |
| 270,647 |
|
| 275,273 |
|
| 259,495 |
| (1.7) |
| 4.3 |
Certificates of deposit of less than $100,000 |
| 219,152 |
|
| 228,993 |
|
| 230,748 |
| (4.3) |
| (5.0) |
Certificates of deposit of $100,000 through $250,000 |
| 114,373 |
|
| 110,992 |
|
| 105,868 |
| 3.0 |
| 8.0 |
Certificates of deposit of more than $250,000 |
| 50,747 |
|
| 62,263 |
|
| 63,152 |
| (18.5) |
| (19.6) |
Total deposits | $ | 1,889,115 |
| $ | 1,866,785 |
| $ | 1,777,382 |
| 1.2 |
| 6.3 |
Total deposits were $1.89 billion on September 30, 2017,increased 0.8% for the three months ended March 31, 2024, which reflects that our efforts on retaining and acquiring new deposits have been effective. Competitive rate pressures have eased, however, there is a $22.3 million increase from totalcontinued remix into our time deposits of $1.87 billionand interest bearing accounts, drawn by higher rates. Overall, our deposit level remains stable as of December 31, 2016,we continue to monitor customer relationships and a $111.7 million increase from $1.78 billion as of September 30, 2016. Total noninterest bearing demand accounts experienced increases of $43.2 million, or 8.4%, in volumes for the first nine months of 2017, while certificates of deposit reflected a decrease of $18.0 million, or 4.5%, for the same period. Growth in deposits in the third quarter of 2017 was attributed to seasonal tax refunds, as well as strong commercial demand deposit growth stemming from seasonal and operational funds increases as well as growth in commercial loan clients. The total deposit growth of 6.3% in the year over year period is also partially attributable to the $48.9 million of deposits acquired with the Talmer branch purchase in 2016.liquidity closely.
In addition to deposits, the Bank obtainedwe used other liquidity sources for our funding from other sourcesneeds in all periods presented.presented, such as repurchase agreements and other short-term borrowings with the FHLBC. Securities sold under repurchase agreements totaled $26.9$33.5 million at September 30, 2017, anMarch 31, 2024, a $7.1 million, or 26.7%, increase from $25.7$26.5 million at December 31, 2016.2023, and an increase of $5.6 million, or 20.2%, from March 31, 2023. The Bank also recorded an advanceoutstanding balance of $125.0our short-term FHLBC borrowings was $220.0 million from Federal Home Loan Bankas of Chicago at September 30, 2017,March 31, 2024, $405.0 million as compared to $70.0 million atof December 31, 2016.2023, and $315.0 million as of March 31, 2023.
The Company isWe are also indebted on senior notes totaling $44.0$25.8 million of junior subordinated debentures, net of deferred issuance costs, which were issued in the fourth quarteras of 2016. These notes mature in December 2026, and include interest payable semiannually at 5.75% for five years. Beginning December 2021, the interest becomes payable quarterly at three month LIBOR plus 385 basis points. The Company is also indebted on $57.6 million, net of deferred issuance costs, of junior subordinated debentures,March 31, 2024, which are related to the trust preferred securities issued by its two statutory trust subsidiaries, Old Second Capital Trust I andsubsidiary, Old Second Capital Trust II (“Trust II”). The Trust II issuance converted from fixed to floating rate at three month LIBOR, which is now three month Term SOFR, plus 150 basis points onbeginning June 15, 2017. Upon conversion to a floating rate, we initiated a cash flow hedge was initiated which resulted in the total interest rate paid on this debt of 4.30%4.37% as of September 30, 2017,March 31, 2024, as compared to 6.77%, which was the rate paid during the period prior to the June 15, 2017 rate reset.
CapitalIn the second quarter of 2021, we entered into Subordinated Note Purchase Agreements with certain qualified institutional buyers pursuant to which we issued $60.0 million in aggregate principal amount of our 3.50% Fixed-to-Floating Rate Subordinated Notes due April 15, 2031 (the “Notes”). We sold the Notes to eligible purchasers in a private offering, and the proceeds of this issuance were used for general corporate purposes. The Notes bear interest at a fixed annual rate of 3.50% through April 14, 2026, payable semi-annually in arrears. As of April 15, 2026 forward, the interest rate on the Notes will generally reset quarterly to a rate equal to three-month Term SOFR (as defined by the Note) plus 273 basis points, payable quarterly in arrears. The Notes have a stated maturity of April 15, 2031, and are redeemable, in whole are in part, on April 15, 2026, or any interest payment date thereafter, and at any time upon the occurrence of certain events. As of March 31, 2024, we had $59.4 million of subordinated debentures outstanding, net of deferred issuance costs.
In December 2016, we completed a $45.0 million senior note issuance. The notes had a ten-year term, and included interest payable semiannually at 5.75% for five years. Beginning December 31, 2021, the interest became payable quarterly at three month LIBOR plus 385 basis points. On June 30, 2023, the senior notes were redeemed in full. The remaining balance of deferred debt issuance costs of $362,000 related to these senior notes was recognized as interest expense as of June 30, 2023.
54
On February 24, 2023, we paid off the remaining $9.0 million balance in notes payable and other borrowings, resulting in no balance in this line item as of March 31, 2024, December 31, 2023, and March 31, 2023. The balance in notes payable was related to a $20.0 million term note originated with a correspondent bank in the first quarter of 2020, to facilitate the redemption of our Old Second Capital Trust I trust preferred securities and related junior subordinated debentures, completed on March 2, 2020.
Capital
As of September 30, 2017,March 31, 2024, total stockholders’ equity was $200.8$596.2 million, which was an increase of $25.6$18.9 million from $175.2$577.3 million as of December 31, 2016.2023. This increase is directlywas largely attributable to ninenet income of $21.3 million in the first three months of net income in 2017 and a reduction in the accumulated other comprehensive net loss,2024, partially offset slightly by $888,000$2.2 million of dividends paid to our common shareholders in 2017.
stockholders. In 2015, the Company redeemed all outstanding shares of the Company’s Series B preferred stock; as of September 30, 2015, no shares of the Series B Stock remained outstanding. After this redemption, the Company’saddition, total stockholders’ equity continuesas of March 31, 2024 increased over December 31, 2023, due to include $4.8a reduction in unrealized net losses on available-for-sale securities, which contributed to the overall decrease in accumulated other comprehensive loss of $580,000 in the first three months of 2024, due to changes in market interest rates. Total stockholders’ equity as of March 31, 2024 increased $99.3 million compared to reflectMarch 31, 2023 due to net income year over year and the valuedecrease in accumulated other comprehensive loss of $15.7 million year over year.
The following table shows the regulatory capital ratios and the current well capitalized regulatory requirements for the Company and the Bank as of the dates indicated:
| | | | | | | | | | | | | | | |
| | Minimum Capital | | Well Capitalized | | | | | | | | | | ||
| | Adequacy with | | Under Prompt | | | | | | | | | | ||
| | Capital Conservation | | | Corrective Action | | March 31, | | December 31, | | March 31, | ||||
| | Buffer, if applicable1 | | Provisions2 | | 2024 | | 2023 | | 2023 | |||||
The Company | | | | | | | | | | | | | | | |
Common equity tier 1 capital ratio | | 7.00 | % | | N/A | | | 12.02 | % | | 11.37 | % | | 9.91 | % |
Total risk-based capital ratio | | 10.50 | | | N/A | | | 14.79 | | | 14.06 | | | 12.79 | |
Tier 1 risk-based capital ratio | | 8.50 | | | N/A | | | 12.55 | | | 11.89 | | | 10.43 | |
Tier 1 leverage ratio | | 4.00 | | | N/A | | | 10.47 | | | 10.06 | | | 8.56 | |
| | | | | | | | | | | | | | | |
The Bank | | | | | | | | | | | | | | | |
Common equity tier 1 capital ratio | | 7.00 | % | | 6.50 | % | | 13.06 | % | | 12.32 | % | | 11.98 | % |
Total risk-based capital ratio | | 10.50 | | | 10.00 | | | 14.03 | | | 13.24 | | | 13.10 | |
Tier 1 risk-based capital ratio | | 8.50 | | | 8.00 | | | 13.06 | | | 12.32 | | | 11.98 | |
Tier 1 leverage ratio | | 4.00 | | | 5.00 | | | 10.89 | | | 10.41 | | | 9.83 | |
1Amounts are shown inclusive of a ten year warrant to purchase sharescapital conservation buffer of 2.50%.
2 The prompt corrective action provisions are only applicable at the Bank level.
As part of its common stock, with an exercise price of $13.43 per share, issued in January 2009 as partresponse to the impact of the original Series B issuance. A discussionCOVID-19 pandemic, in the first quarter of 2020, U.S. federal regulatory authorities issued an interim final rule that provided banking organizations that adopted CECL during the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of the 2009 issuance, including this warrant,capital benefit provided during the initial two-year delay (i.e., a five-year transition in total). In connection with our adoption of CECL on January 1, 2020, we elected to utilize the five-year CECL transition. As of March 31, 2024, our capital measures exclude $951,000, which is included in Item 7, “Management’s Discussionthe modified CECL transition adjustment.
As of March 31, 2024, the Company, on a consolidated basis, exceeded the minimum capital ratios to be deemed “well capitalized” and Analysis of Financial Conditionmet the capital conservation buffer requirements. In addition to the above regulatory ratios, our GAAP common equity to total assets ratio, which is used as a performance measurement for capital analysis and Results of Operations” of the Company’s Form 10-K for the year endedpeer comparisons, increased from 10.09% at December 31, 2016, under the heading “Capital”.
42
The Company’sDecember 31, 2023. Our non-GAAP tangible common equity to tangible assets ratio, was 8.16%which management also considers a valuable performance measurement for capital analysis, increased from 8.56% at September 30, 2017, compared to 7.41% as of December 31, 2016,2023, to 9.08% at March 31, 2024, primarily due to an increase in tangible common equity in the first quarter of 2024. The increase in tangible common equity was primarily due to an increase in retained earnings of $19.1 million.
55
Reconciliation of Tangible Common Equity to Tangible Assets Ratio Non-GAAP Measure
| | | | | | | | | | | | | | | |
| March 31, 2024 | | | December 31, 2023 | | ||||||||||
Tangible common equity | GAAP | | | Non-GAAP | | | GAAP | | | Non-GAAP | | ||||
(Dollars in thousands) | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Total Equity | $ | 596,159 | | | $ | 596,159 | | | $ | 577,281 | | | $ | 577,281 | |
Less: Goodwill and intangible assets | | 97,115 | | | | 97,115 | | | | 97,695 | | | | 97,695 | |
Add: Limitation of exclusion of core deposit intangible (80%) | | N/A | | | | 2,127 | | | | N/A | | | | 2,243 | |
Adjusted goodwill and intangible assets | | 97,115 | | | | 94,988 | | | | 97,695 | | | | 95,452 | |
Tangible common equity | $ | 499,044 | | | $ | 501,171 | | | $ | 479,586 | | | $ | 481,829 | |
Tangible assets | | | | | | | | | | | | | | | |
Total assets | $ | 5,616,072 | | | $ | 5,616,072 | | | $ | 5,722,799 | | | $ | 5,722,799 | |
Less: Adjusted goodwill and intangible assets | | 97,115 | | | | 94,988 | | | | 97,695 | | | | 95,452 | |
Tangible assets | $ | 5,518,957 | | | $ | 5,521,084 | | | $ | 5,625,104 | | | $ | 5,627,347 | |
| | | | | | | | | | | | | | | |
Common equity to total assets | | 10.62 | % | | | 10.62 | % | | | 10.09 | % | | | 10.09 | % |
Tangible common equity to tangible assets | | 9.04 | % | | | 9.08 | % | | | 8.53 | % | | | 8.56 | % |
The non-GAAP intangible asset exclusion reflects the 80% core deposit limitation per Basel III guidelines within risk-based capital calculations, and 8.12% at September 30, 2016.
|
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|
|
|
|
|
|
|
| (unaudited) | |||||||
|
| As of September 30, |
| As of December 31, |
| As of September 30, | |||
(in thousands) |
| 2017 |
| 2016 |
| 2016 | |||
|
|
|
|
|
|
|
|
|
|
Tier 1 capital |
|
|
|
|
|
|
|
|
|
Total equity |
| $ | 200,763 |
| $ | 175,210 |
| $ | 171,627 |
Tier 1 adjustments: |
|
|
|
|
|
|
|
|
|
Trust preferred securities allowed |
|
| 55,395 |
|
| 47,997 |
|
| 48,728 |
Cumulative other comprehensive loss |
|
| 632 |
|
| 8,762 |
|
| 7,437 |
Disallowed intangible assets |
|
| (8,830) |
|
| (8,761) |
|
| - |
Disallowed deferred tax assets |
|
| (26,381) |
|
| (31,220) |
|
| (32,882) |
Tier 1 capital |
| $ | 221,579 |
| $ | 191,988 |
| $ | 194,910 |
|
|
|
|
|
|
|
|
|
|
Tangible common equity |
|
|
|
|
|
|
|
|
|
Total Equity |
| $ | 200,763 |
| $ | 175,210 |
| $ | 171,627 |
Less: Intangible assets |
|
| 8,830 |
|
| 8,761 |
|
| - |
Tangible common equity |
| $ | 191,933 |
| $ | 166,449 |
| $ | 171,627 |
|
|
|
|
|
|
|
|
|
|
Tangible assets |
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 2,360,407 |
| $ | 2,251,188 |
| $ | 2,112,751 |
Less: Goodwill and intangible assets |
|
| 8,830 |
|
| 8,761 |
|
| - |
Tangible assets |
| $ | 2,351,577 |
| $ | 2,242,427 |
| $ | 2,112,751 |
|
|
|
|
|
|
|
|
|
|
is useful for us when reviewing risk-based capital ratios and equity performance metrics.
Liquidity
Liquidity
Liquidity is the Company’sour ability to fund operations, to meet depositor withdrawals, to provide for customers’ credit needs, and to meet maturing obligations and existing commitments. TheOur liquidity of the Company principally depends on our cash flows from operating activities, investment in and maturity of assets, changes in balances of deposits and borrowings, and itsour ability to borrow funds. In the first quarter of 2024, we experienced a decrease in loans, while deposits trended up as the rates offered on our deposit products remain competitive to peers. We managed the change in our funding through borrowing from the Federal Home Loan Bank of Chicago (“FHLBC”) and sales of securities, which resulted in minimal losses and mitigated our interest rate risk profile. The Company monitorsbank failures that occurred in 2023 exemplify the potentially serious results of the unexpected inability of insured depository institutions to obtain needed liquidity to satisfy deposit withdrawal requests, including how quickly such requests can accelerate once uninsured depositors lose confidence in an institution’s ability to satisfy its obligations to depositors. We seek to ensure our funding needs are met by maintaining a level of liquidity through asset and liability management. We monitor our borrowing capacity at the FHLBC as part of itsour liquidity management process as supervised by theour Asset and Liability Committee (“ALCO”) and reviewed by theour Board of Directors. In addition, our senior management team monitors cash balances daily to ensure we have adequate liquidity to meet our operational and financing needs. As of March 31, 2024, our cash on hand liquidity totaled $98.1 million, a decrease of $2.1 million over cash balances held as of December 31, 2023.
Net cash inflows from operating activities were $28.5$47.3 million during the first ninethree months of 2017,2024, compared with net cash inflows of $17.2$35.0 million in the same period in 2016.of 2023. Proceeds from sales of loans held-for-sale, net of funds used to originate loans held-for-sale, were a source of inflows for the first ninethree months of 2017 and 2016.2024 compared to a source of outflows for the like period of 2023. Interest paid, net of interest received, combined with changes in other assets and liabilities were a source of inflows for the three months ended March 31, 2024 and source of outflows for the first nine monthslike period of 2017 and 2016.2023. The management of investing and financing activities, as well as market conditions, determines the level and the stability of net interest cash flows. Management’s policy is to mitigate the impact of changes in market interest rates to the extent possible, as part of the balance sheet management process.
Net cash outflowsinflows from investing activities were $105.7$93.9 million in the first ninethree months of 2017,ended March 31, 2024, compared to net cash inflowsoutflows of $117.4$42.9 million in the same period in 2016.2023. In the first ninethree months of 2017,2024, securities transactions accounted for net inflows of $10.8$22.3 million, and netthe principal disbursedchange on loans accounted for net outflowsinflows of $118.7$70.0 million. In the first ninethree months of 2016,2023, securities transactions accounted for net inflows of $184.4$99.7 million, and net principal disbursed on loans funded, net of paydowns, accounted for net outflows of $71.6$132.4 million. Proceeds from sales
56
Net cash inflowsoutflows from financing activities in the first ninethree months of 2017ended March 31, 2024, were $77.3$143.2 million, compared with net cash inflowsoutflows of $15.0$4.2 million in the first ninethree months of 2016.ended March 31, 2023. Net deposit inflows in the first ninethree months of 20172024 were $22.3$37.6 million compared to net deposit inflowsoutflows of $18.3$213.1 million in the first ninethree months of 2016.2023. Other short-term borrowings had $185.0 million of net cash outflows in the first three months of 2024, compared to net cash inflows related to FHLBC advances of $55.0$225.0 million for other short-term borrowings in the first ninethree months of 2017 and outflows of $15.0 million in the first nine months of 2016.2023. Changes in securities sold under repurchase agreements accounted for $1.1inflows of $7.1 million and $12.5outflows of $4.3 million for the three months ended March 31, 2024 and 2023, respectively. Dividends paid on our common stock totaled $2.2 million for both the three months ended March 31, 2024 and 2023. Vesting of restricted stock accounted for inflows of $99,000 in net inflowsthe three months ended March 31, 2024, compared to no cash flows from vestings of restricted stock in the same period of 2023. The purchase of treasury stock in the first ninethree months of 2017 and 2016, respectively.2024 due to shares acquired with equity award vestings resulted in outflows of $776,000, compared to cash outflows of $605,000 in the first three months of 2023 related to shares acquired from equity award vestings.
Cash and cash equivalents for the ninethree months ended September 30, 2017,March 31, 2024, totaled $47.5$98.1 million, as compared to $189.9$100.1 million as of September 30, 2016.December 31, 2023 and $103.0 million as of March 31, 2023. The significantly higher balance at the end of the 2016 period wasdecrease in anticipation of the $181.5 million paidcash and cash equivalents for the Talmer branch purchasethree months ended March 31, 2024 was mainly attributable to the decrease in October 2016.FHLB advances during the period, partially offset by the decrease in our loan portfolio, sales of securities, and the increase in customer deposits during the first three months of 2024. The year over year decrease is driven by decreased FHLB advances and increased customer use of deposits, partially offset by a decline in loans and sales of securities. In addition to cash and cash equivalents on hand or held as deposits with other financial institutions, we rely on funding sources from customer deposits, cash flows from securities available-for-sale and loans, and a line of credit with the FHLBC to meet potential liquidity needs. These sources of liquidity are immediately available to satisfy any funding requirements due to depositor or borrower demands through the ordinary course of our business. Additional sources of funding include a $30.0 million undrawn line of credit held by the Company with a third party financial institution, as well as unpledged securities available-for-sale.
43
57
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
As part of itsour normal operations, the Company iswe are subject to interest-rate risk on the assets it investswe invest in (primarily loans and securities) and the liabilities it fundswe fund (primarily customer deposits and borrowed funds), as well as its ability to manage such risk.. Fluctuations in interest rates may result in changes in the fair market values of the Company’sour financial instruments, cash flows, and net interest income. Like most financial institutions, the Company haswe have an exposure to changes in both short-term and long-term interest rates. A financial institution’s ability to be relatively unaffected by changes in interest rates is a good indicator of its capability to perform in a volatile rate environment. We mitigate the impact of interest rate volatility to the Bank by managing our rate sensitivity under various scenarios.
In June 2017, theThe Federal Reserve raised short-term interestBoard (“FRB”) held rates unchanged in the first quarter of 2024, which was widely expected by 0.25%. There ismarket participants. The timing of rate cuts and implied Federal Funds Rate for 2024 have shifted, with a general market expectation thatcurrent outlook for higher rates for a longer time given an increase in the Federal Reserve will move short-term rates higherlatest Consumer Price Index (“CPI”) data and continued economic activity. The FRB continued to shrink its balance sheet, ending 2023 at $7.7 trillion, down from a peak of $8.7 trillion in December of 2017. Generally, Federal Reserve actions have not had a significant impact on long-term rates, although Federal Reserve officials have announced a schedule to end reinvestment in their securities portfolio starting October 2017, which could result in increases in long-term rates. The Company managesMarch 2023.
We manage interest rate risk within guidelines established by a policy which limitsare intended to limit the amount of rate exposure. In practice, we seek to manage our interest rate risk exposure is maintained well within those guidelines.
The Company managesour guidelines so that such exposure does not pose a material risk to our future earnings. We manage various market risks in itsthe normal course of our operations, including credit, liquidity risk, and interest-rate risk. Other types of market risk, such as foreign currency exchange risk and commodity price risk, do not arise in the normal course of the Company’sour business activities and operations. In addition, since the Company doeswe do not hold a trading portfolio, it iswe are not exposed to significant market risk from trading activities. The Company’sOur interest rate risk exposures estimated at September 30, 2017,March 31, 2024 and December 31, 2016,2023 are outlined in the table below.
The Company'sOur net income can be significantly influenced by a variety of external factors, including: overall economic conditions, policies and actions of regulatory authorities, the amounts of and rates at which assets and liabilities reprice, variances in prepayment of loans and securities other than those that are assumed, early withdrawal of deposits, exercise of call options on borrowings or securities, competition, a general rise or decline in interest rates, changes in the slope of the yield-curve, changes in historical relationships between indices (such as LIBORSOFR and prime)Prime), and balance sheet growth or contraction. The Company's ALCOOur asset-liability committee seeks to manage interest rate risk under a variety of rate environments by structuring the Company's balanceour on-balance sheet and off-balance sheet positions, which includeincludes interest rate swap derivatives as discussed in Note 1519 of theour consolidated financial statements includedfound in this quarterly report. Thein our Annual Report on Form 10-K for the year ended December 31, 2023. We seek to monitor and manage interest rate risk is monitored and managed within approved policy guidelines and limits. Asset and liability modeling and tracking is performed and presented to the asset-liability committee and the Board of Directors no less than quarterly. The presentations discuss our current and historical interest rate risk posture, shifts in the balance sheet composition, and the impact of interest rate movements on earnings and equity. Our current balance sheet is a moderately asset sensitive profile, as our variable rate assets reprice faster than our longer duration, low beta deposit base. The market events of failed liquidity management at other banks have been discussed and reviewed by the asset-liability committee. The committee concluded that we continue to have a strong liquidity position and no new liquidity risks were identified. Prudently, we added new measures to assess liquidity risk and enhanced our reports to segment deposits by insured, uninsured, collateralized deposits; and monitor the bank’s funding sources and uses on a regular basis.
The Company utilizesWe also have a Risk Committee, chaired by our Chief Risk Officer, which reports no less than quarterly to senior management as well as our Board of Directors regarding compliance with risk tolerance limits, key risk factor changes, both internally and externally, due to portfolio changes as well as market conditions. Our enterprise risk management framework is governed by this committee, with input being provided by line of business managers, senior management and the Board.
We use simulation analysis to quantify the impact of various rate scenarios on our net interest income. Specific cash flows, repricing characteristics, and embedded options of the assets and liabilities held by the Companyus are incorporated into the simulation model. Earnings at risk isare calculated by comparing the net interest income of a stable interest rate environment to the net interest income of a different interest rate environmentsenvironment in order to determine the percentage change. Significant declines in interest rates that occurred during the first half of 2012 have made it impossible to calculate valid interest rate scenarios for rate declines of 2.0% or more, a situation that continues to date. As of September 30, 2017 and DecemberMarch 31, 2016, the Company’s analyses reflected2024, our net interest income profile remained sensitive to earnings gains (in both dollars and percentage) should interest rates rise,rise. Our profile is slightly more asset sensitive compared to December 31, 2023, due to a decrease in operating borrowings from principal return on Assets, mild increase in funding, and earnings reductions should interest rates fall. The changes in income across the various interest rate scenarios ascashflow from earnings.
58
The following table summarizes the effect on annual income before income taxes based upon an immediate increase or decrease in interest rates of 0.5% and 1%, 1.0%, and an increase of 2% assuming2.0%, with no change in the slope of the yield curve.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Analysis of Net Interest Income Sensitivity | ||||||||||||||||||||||
| | Immediate Changes in Rates | ||||||||||||||||||||||
(Dollars in thousands) | |
| (2.0) | % | |
| (1.0) | % |
|
| (0.5) | % |
|
| 0.5 | % |
|
| 1.0 | % |
|
| 2.0 | % |
March 31, 2024 | | | | | | | | | | | | | | | | | | | | | | | | |
Dollar change | | $ | (39,454) | | | $ | (19,666) | | | $ | (9,736) | | | $ | 10,024 | | | $ | 20,139 | | | $ | 38,549 | |
Percent change | | | (15.4) | % | | | (7.7) | % | | | (3.8) | % | | | 3.9 | % | | | 7.9 | % | | | 15.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2023 | | | | | | | | | | | | | | | | | | | | | | | | |
Dollar change | | $ | (36,337) | | | $ | (18,117) | | | $ | (8,982) | | | $ | 9,354 | | | $ | 18,818 | | | $ | 36,453 | |
Percent change | | | (14.7) | % | | | (7.3) | % | | | (3.6) | % | | | 3.8 | % | | | 7.6 | % | | | 14.7 | % |
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|
| Analysis of Net Interest Income Sensitivity | ||||||||||||||||||
(dollars in thousands) |
| Immediate Changes in Rates | ||||||||||||||||||
|
|
| (1.0) | % |
|
| (0.5) | % |
|
| 0.5 | % |
|
| 1.0 | % |
|
| 2.0 | % |
September 30, 2017 |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar change |
| $ | (4,860) |
|
| $ | (2,159) |
|
| $ | 1,175 |
|
| $ | 2,393 |
|
| $ | 4,630 |
|
Percent change |
|
| (6.5) | % |
|
| (2.9) | % |
|
| 1.6 | % |
|
| 3.2 | % |
|
| 6.2 | % |
|
|
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|
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December 31, 2016 |
|
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|
|
|
|
|
|
Dollar change |
| $ | (4,404) |
|
| $ | (2,141) |
|
| $ | 1,145 |
|
| $ | 2,406 |
|
| $ | 4,866 |
|
Percent change |
|
| (6.6) | % |
|
| (3.2) | % |
|
| 1.7 | % |
|
| 3.6 | % |
|
| 7.3 | % |
The amounts and assumptions used in the simulation model should not be viewed as indicative of expected actual results. Actual results will differ from simulated results due to timing, magnitude, balance sheet composition and frequency of interest rate changes as well as changes in market conditions and management strategies. The above results do not take into account any management action to mitigate potential risk.
44Effects of Inflation
high inflation put upwards pressure to our expenses, which could impact our profits. Furthermore, higher costs of living weaken the financial condition of our borrowers which could affect our credit profile. Inflation has declined to a comfortable level and has minimal direct impact to our results.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended, as of September 30, 2017.March 31, 2024. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2017,March 31, 2024, the Company’s internal controls were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities and Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified.
There were no changes in the Company’s internal controls over financial reporting during the quarter ended September 30, 2017,March 31, 2024, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Forward-looking Statements
This document (including information incorporated by reference) contains,The design of any system of controls and future oral and written statementsprocedures is based in part upon certain assumptions about the likelihood of the Company and its management may contain, forward-looking statements, within the meaning of such term in the Private Securities Litigation Reform Act of 1995, with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the Company’s management and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “intend,” “estimate,” “may,” “will,” “would,” “could,” “should” or other similar expressions. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
The Company’s ability to predict results or the actual effect59
PART II - OTHER INFORMATION
The Company and its subsidiaries, from time to time, are involved in collection suits in the ordinary course of business against its debtors and are defendants in legal actions arising from normal business activities. Management, after consultation with legal counsel, believes that the ultimate liabilities, if any, resulting from these actions will not have a material adverse effect on the financial position of the Bank or on the consolidated financial position of the Company.
Investing in shares of our common stock involves certain risks, including those identified and described in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as well as cautionary statements contained in this Quarterly Report, on Form 10-Q, including those under the caption “Cautionary Note Regarding Forward-Looking Statements.”
There have been no material changes fromto the risk factors set forthpreviously disclosed in Part I, Item 1.A. “Risk Factors,” of the Company’s (i) Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and the risk factors set forth under the heading “Risk Factors” in the Company’s Registration Statement of Form S-3 (File No. 333-219680), which are incorporated herein by reference. Please refer to those sections of the Company’s Form 10-K and Registration Statement on Form S-3 for disclosures regarding the risks and uncertainties related to the Company’s business.2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Stock Repurchases
In December 2023, our board of directors authorized the repurchase of up to 2,234,896 shares of our common stock (the “Repurchase Program”). The Company received notice of non-objection in January 2024 from the Federal Reserve Bank of Chicago for the Repurchase Program. Under the Repurchase Program, repurchases may be made through December 31, 2024, will not exceed $17.50 per share, and the aggregate value of share repurchases will not exceed $39.1 million. We may make repurchases under the Repurchase Program from time to time through open market purchases, trading plans established in accordance with SEC rules, privately negotiated transactions, or by other means.
The actual means and timing of any repurchases, quantity of purchased shares and prices will be, subject to certain limitations, at the discretion of management and will depend on a number of factors, including, without limitation, market prices of our common stock, general market and economic conditions, and applicable legal and regulatory requirements. Repurchases under the Repurchase Program may be initiated, discontinued, suspended or restarted at any time provided that repurchases under the Repurchase Program after December 31, 2024, would require Federal Reserve non-objection or approval. We are not obligated to repurchase any shares under the Repurchase Program.
The following table presents our stock repurchases for the quarter ended March 31, 2024.
| | | | | | | | | |
| | | | | | | Total Number of | | Maximum Number |
| | Total | | | | | Shares Purchased | | of Shares that May |
| | Number of | | | Average | | as Part of Publicly | | Yet Be |
| | Shares | | | Price Paid | | Announced Plans | | Purchased Under |
| | Purchased (a) | | | per Share (b) | | or Programs (c)1 | | the Plans or Programs (d) |
January 1, 2024 - January 31, 2024 | | - | | $ | - | | - | | 2,234,896 |
February 1, 2024 - February 29, 2024 | | - | | | - | | - | | 2,234,896 |
March 1, 2024 - March 31, 2024 | | - | | | - | | - | | 2,234,896 |
Total | | - | | $ | - | | - | | 2,234,896 |
| | | | | | | | | |
1 We announced our Repurchase Program, which will expire on December 31, 2024 unless further extended as described above, in our Current Report on Form 8-K filed on January 3, 2024, and 2,234,896 shares remained available for repurchase under the Repurchase Program as of March 31, 2024.
None.
Item 3. Defaults Upon Senior Securities
None.
60
45During the three months ended March 31, 2024, no director or “officer” of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
61
Exhibits:
| |
| |
10.1 | |
| |
| |
31.1 | |
| |
31.2 | |
| |
32.1 | |
| |
32.2 | |
| |
101 | Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets at |
| |
104 | Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document). |
| |
| |
|
|
46
62
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | ||||
| OLD SECOND BANCORP, INC. | ||||||
| | ||||||
| | ||||||
| BY: | /s/ James L. Eccher | |||||
| | James L. Eccher | |||||
| |
| |||||
| | (principal executive officer) | |||||
| | ||||||
| | ||||||
| BY: | /s/ Bradley S. Adams | |||||
| | Bradley S. Adams | |||||
| | Executive Vice President, Chief Operating Officer and Chief Financial Officer | |||||
| | (principal financial and accounting officer) | |||||
| | ||||||
| | ||||||
DATE: | |
47
63