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(NASDAQ:OSBC) | Exhibit 99.1 | |
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Contact: | Bradley S. Adams | For Immediate Release |
| Chief Financial Officer | April 21, 2021 |
| (630) 906-5484 | |
Old Second Reports First Quarter Net Income of $11.9 million, or $0.40 per Diluted Share, Increases Quarterly Dividend to $0.05 per Share
AURORA, IL, April 21, 2021 – Old Second Bancorp, Inc. (the “Company,” “we,” “us,” and “our”) (NASDAQ: OSBC), the parent company of Old Second National Bank (the “Bank”), today announced financial results for the first quarter of 2021. Our net income was $11.9 million, or $0.40 per diluted share, for the first quarter of 2021, compared to net income of $8.0 million, or $0.27 per diluted share, for the fourth quarter of 2020, and net income of $275,000, or $0.01 per diluted share, for the first quarter of 2020. Net income for the first quarter of 2021 reflects a reversal of provision for credit losses of $3.0 million pre-tax, compared to no provision expense recorded in the fourth quarter of 2020, and an $8.0 million pre-tax provision recorded in the first quarter of 2020. Mortgage banking income totaled $5.7 million in the first quarter of 2021, which reflected a $2.7 million increase from the fourth quarter of 2020, and a $4.9 million increase from the first quarter of 2020, primarily due to mark to market gains on mortgage servicing rights (“MSRs”) of $1.1 million in the first quarter of 2021, compared to mark to market losses of $1.3 million and $2.1 million in the fourth quarter of 2020 and the first quarter of 2020, respectively.
On April 20, 2021, our board of directors approved a 400% increase to the quarterly dividend, from $0.01 per common share to $0.05 per common share, to be paid to stockholders of record on April 30, 2021, payable May 10, 2021.
Operating Results
●First quarter 2021 net income was $11.9 million, reflecting an increase in earnings of $3.8 million from the fourth quarter of 2020, and an increase of $11.6 million from the first quarter of 2020.
●Net interest and dividend income was $23.5 million for the first quarter of 2021, a decrease of $334,000, or 1.4%, from the fourth quarter of 2020, but an increase of $885,000, or 3.9%, from first quarter of 2020.
●Interest and dividend income for the first quarter of 2021 was $25.4 million, or $615,000 less than the fourth quarter of 2020 and $2.1 million less than the first quarter of 2020, primarily due to a decrease in market interest rates over the past year. Interest and dividend income was favorably impacted by loan fees earned on forgiven Paycheck Protection Program (“PPP”) loans during the first quarter of 2021. We originated 746 PPP loans totaling $136.7 million in 2020, and as of March 31, 2021, $46.3 million on 134 PPP loans originated during the first round of the PPP loan program remained outstanding. During the first quarter of 2021, we originated $58.3 million, or 481 loans, under the second round of the PPP loan program. Net loan interest and fee income recorded in 2021 year to date on all PPP loans totaled $741,000, and approximately $2.3 million of net PPP loan fees remain unearned as of March 31, 2021.
●Interest expense for the first quarter of 2021 totaled $1.8 million, compared to $2.1 million for the fourth quarter of 2020, and $4.8 million for the first quarter of 2020. The reduction in interest expense was primarily due to a decrease in market interest rates in the year over year period. In addition, in March 2020 we redeemed our 7.8% cumulative trust preferred securities issued by Old Second Capital Trust I and related debentures, which totaled $32.6 million. Upon redemption, we recognized the remaining unamortized debt issuance costs of $635,000, which increased first quarter 2020 interest expense.
●We recorded a $3.0 million reversal of provision for credit losses in the first quarter of 2021, compared to no provision for credit losses in the fourth quarter of 2020, and an $8.0 million provision for credit losses in the first quarter of 2020, due both to our adoption of the current expected credit losses accounting standard
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(“CECL”) on January 1, 2020, and the potential impact of the COVID-19 pandemic. Allowance for credit losses (“ACL”) on loans activity in the first quarter of 2021 consisted of a reversal in the ACL on loans of $3.5 million, as well as $582,000 of net recoveries recorded during the quarter. In addition, the allowance for unfunded commitments increased by $470,000 in the first quarter of 2021, due to an updated forecast of credit line utilization rates.
| ● | Noninterest income was $11.3 million for the first quarter of 2021, an increase of $2.5 million, or 28.6%, compared to $8.8 million for the fourth quarter of 2020, and an increase of $5.0 million, or 78.7%, compared to $6.3 million for the first quarter of 2020. The increase from the linked quarter was primarily driven by $2.7 million of growth in residential mortgage banking revenue, attributable to a $2.4 million increase in the mark to market adjustment on MSRs and a $325,000 increase in net gains on sales of mortgage loans in the first quarter of 2021, compared to the prior quarter. In addition, wealth management income increased $444,000 in the current quarter over the linked quarter. The increase in noninterest income in the first quarter of 2021, compared to the first quarter of 2020, was primarily due to $4.9 million of growth in residential mortgage banking revenue, attributable to a $3.2 million increase in the mark to market adjustment on MSRs and a $1.5 million increase in net gains on sales of mortgage loans in the first quarter of 2021, compared to the prior year like quarter. |
| ● | Noninterest expense was $21.7 million for the first quarter of 2021, an increase of $485,000, or 2.3%, compared to $21.3 million for the fourth quarter of 2020, and an increase of $736,000, or 3.5%, from $21.0 million for the first quarter of 2020. The increase compared to the linked quarter was primarily attributable to an increase in salaries and employee benefits expense stemming from additional officer incentive compensation expenses paid out in early 2021, and the related increase in payroll taxes and 401K company match expense. In addition, growth in occupancy, furniture and equipment costs occurred due to an increase in snow removal costs and building maintenance due to weather conditions in February 2021. The increase in noninterest expense in the year over year period was primarily due to salaries and employee benefits expense, occupancy, furniture and equipment expenses and FDIC insurance costs. |
| ● | The provision for income taxes expense was $4.2 million for the first quarter of 2021, compared to $3.4 million for the fourth quarter of 2020, and a $281,000 tax benefit for the first quarter of 2020. The increase in tax expense for the linked quarter and year over year period was primarily due to higher pretax income in the first quarter of 2021. |
| ● | On April 6, 2021, we sold and 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 Notes were offered and sold to eligible purchasers in a private offering in reliance on the exemption from the registration requirements of Section 4(a)(2) of the Securities Act of 1933, as amended and the provisions of Regulation D promulgated thereunder. The Company intends to use the net proceeds from the offering for general corporate purposes, which may include, without limitation, the redemption of existing senior debt, common stock repurchases and strategic acquisitions. The Notes will 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 SOFR (as defined in the Note) plus 273 basis points, payable quarterly in arrears. |
President and Chief Executive Officer Jim Eccher said "First quarter results in 2021 were very positive as we continued the momentum from 2020. As we continue to navigate the challenges of the pandemic, we posted solid financial results, delivered strong operating leverage, grew deposits and continued to build our capital position. Credit trends continued to improve and we accordingly reduced our loan loss reserves as the vast majority of our clients have weathered the pandemic and have returned to original payment terms. While we do expect the possibility of losses, the severity levels predicted in our model have materially improved. I believe Old Second remains conservatively positioned to meet the challenges of the coming year, as our expenses remain well-controlled, our business is well diversified and underwriting has remained disciplined and consistent. I would like to thank our employees for their continued hard work in delivering a solid quarter while delivering exceptional customer service during these challenging times.”
Eccher continued, “We are happy to announce that on April 20, 2021, the Board of Directors declared a quarterly dividend of $0.05 per share of common stock to stockholders of record on April 30, 2021, payable May 10, 2021. We are very pleased to provide our stockholders with this 400% increase in their quarterly dividend, compared to the previous quarter. We believe this increase reflects our strong financial results and regulatory capital positions for the quarter, the strength of our balance sheet and our belief that asset quality trends are continuing to improve. In addition, during the first quarter of 2021, we repurchased 455,134 shares, or 1.6% of shares outstanding, at a weighted average price of $12.31 per share pursuant to our stock repurchase program.”
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COVID-19 Update
| ● | Late in the first quarter of 2020, we began granting loan payment deferrals to certain borrowers affected by the pandemic. For the period April 1, 2020 through March 31, 2021, our clients had requested loan payment deferrals on 504 loans totaling $237.7 million. As of March 31, 2021, 464 loans, representing $218.4 million outstanding, or 91.9% of the original loan balances deferred, have resumed payments or paid off. Active payment deferrals remain on 40 loans, with $19.2 million of balances outstanding. |
| ● | We are participating in the Coronavirus Aid, Relief and Economic Security Act (“CARES” Act). During 2021, we processed 481 loan applications for PPP loans, representing a total of $58.3 million. As of March 31, 2021, we had $46.3 million of PPP loans outstanding that were originated under the first round of the PPP loan program, and $58.3 million of PPP loans outstanding that were originated under the second round of the PPP loan program. Early in the fourth quarter of 2020, we started to submit applications for PPP loan forgiveness to the SBA, and as of March 31, 2021, $90.8 million on 620 loans have been forgiven. We anticipate receiving funds for our first round of PPP loan forgiveness from the SBA through the second quarter of 2021, and will start the forgiveness process for our second round of PPP loans later in 2021. |
Capital Ratios
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| Minimum Capital | | Well Capitalized | | | | | | | | | | ||
| Adequacy with | | Under Prompt | | | | | | | | | | ||
| Capital Conservation | | Corrective Action | | March 31, | | December 31, | | March 31, | |||||
| Buffer, if applicable1 | | Provisions2 | | 2021 | | 2020 | | 2020 | |||||
The Company | | | | | | | | | | | | | | |
Common equity tier 1 capital ratio | 7.00 | % | | N/A | | | 12.45 | % | | 11.94 | % | | 10.85 | % |
Total risk-based capital ratio | 10.50 | % | | N/A | | | 14.76 | % | | 14.26 | % | | 13.09 | % |
Tier 1 risk-based capital ratio | 8.50 | % | | N/A | | | 13.55 | % | | 13.01 | % | | 11.93 | % |
Tier 1 leverage ratio | 4.00 | % | | N/A | | | 10.02 | % | | 10.21 | % | | 10.57 | % |
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The Bank | | | | | | | | | | | | | | |
Common equity tier 1 capital ratio | 7.00 | % | | 6.50 | % | | 14.62 | % | | 13.75 | % | | 12.89 | % |
Total risk-based capital ratio | 10.50 | % | | 10.00 | % | | 15.83 | % | | 15.00 | % | | 14.07 | % |
Tier 1 risk-based capital ratio | 8.50 | % | | 8.00 | % | | 14.62 | % | | 13.75 | % | | 12.89 | % |
Tier 1 leverage ratio | 4.00 | % | | 5.00 | % | | 10.78 | % | | 10.74 | % | | 11.36 | % |
1 Amounts are shown inclusive of a capital conservation buffer of 2.50%. Under the Federal Reserve’s Small Bank Holding Company Policy Statement, the Company is not subject to the minimum capital adequacy and capital conservation buffer capital requirements at the holding company level, unless otherwise advised by the Federal Reserve (such capital requirements are applicable only at the Bank level). Although the minimum regulatory capital requirements are not applicable to the Company, we calculate these ratios for our own planning and monitoring purposes.
2 The prompt corrective action provisions are only applicable at the Bank level.
| ● | The ratios shown above exceed levels required to be considered “well capitalized.” |
Asset Quality & Earning Assets
| ● | Nonperforming loans totaled $21.2 million at March 31, 2021, compared to $23.0 million at December 31, 2020, and $21.8 million at March 31, 2020. Credit metrics continue to be relatively stable regarding nonperforming loan levels, and management is carefully monitoring loans considered to be in a classified status. Nonperforming loans, as a percent of total loans were 1.1% at each of March 31, 2021, December 31, 2020, and March 31, 2020. |
| ● | OREO assets totaled $2.2 million at March 31, 2021, compared to $2.5 million at December 31, 2020, and $5.0 million at March 31, 2020. We recorded one property sale of $305,000 net book value in the first quarter of 2021, and write-downs of $6,000, compared to write downs of $93,000 in the fourth quarter of 2020, and $158,000 in the first quarter of 2020. Nonperforming assets, as a percent of total loans plus OREO, were 1.2% at March 31, 2021, 1.3% at December 31, 2020, and 1.4% at March 31, 2020. |
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| ● | Total loans were $2.00 billion at March 31, 2021, reflecting a decrease of $75.2 million compared to December 31, 2020, and an increase of $2.4 million compared to March 31, 2020. An increase in our commercial portfolio stemming from PPP loan originations of $58.3 million in the first quarter of 2021 was more than offset by paydowns and payoffs, as borrower liquidity is at a high level due to federal stimulus programs and a general lack of incentive for capital expenditures. Average loans (including loans held-for-sale) for the first quarter of 2021 totaled $2.01 billion, reflecting a decrease of $18.0 million from the fourth quarter of 2020 but an increase of $69.4 million from the first quarter of 2020. |
| ● | Available-for-sale securities totaled $593.3 million at March 31, 2021, compared to $496.2 million at December 31, 2020, and $449.7 million at March 31, 2020. Total securities available-for-sale increased a net $97.1 million from the linked quarter due to a purchase of $55.2 million of mortgage backed securities, $34.8 million of corporate bonds, and $19.8 million of collateralized mortgage obligations, partially offset by $7.3 million of calls and paydowns. The unrealized mark to market adjustment on securities decreased by $4.8 million since December 31, 2020, but increased by $16.3 million in the year over year period due to the market interest rate fluctuations. |
Net Interest Income
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Analysis of Average Balances, | |||||||||||||||||||||||
Tax Equivalent Income / Expense and Rates | |||||||||||||||||||||||
(Dollars in thousands - unaudited) | |||||||||||||||||||||||
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| Quarters Ended | ||||||||||||||||||||||
| March 31, 2021 | | December 31, 2020 | | March 31, 2020 | ||||||||||||||||||
| Average | | Income / | | Rate | | Average | | Income / | | Rate | | Average | | Income / | | Rate | ||||||
| Balance | | Expense | | % | | Balance | | Expense | | % | | Balance | | Expense | | % | ||||||
Assets | | | | | | | | | | | | | | | | | | | | | | | |
Interest earning deposits with financial institutions | $ | 359,576 | | $ | 92 | | 0.10 | | $ | 275,087 | | $ | 73 | | 0.11 | | $ | 27,989 | | $ | 75 | | 1.08 |
Securities: | | | | | | | | | | | | | | | | | | | | | | | |
Taxable | | 340,873 | | | 1,615 | | 1.92 | | | 288,089 | | | 1,458 | | 2.01 | | | 273,429 | | | 2,163 | | 3.18 |
Non-taxable (TE)1 | | 191,357 | | | 1,655 | | 3.51 | | | 193,859 | | | 1,637 | | 3.36 | | | 202,289 | | | 1,842 | | 3.66 |
Total securities (TE)1 | | 532,230 | | | 3,270 | | 2.49 | | | 481,948 | | | 3,095 | | 2.55 | | | 475,718 | | | 4,005 | | 3.39 |
Dividends from FHLBC and FRBC | | 9,917 | | | 115 | | 4.70 | | | 9,917 | | | 118 | | 4.73 | | | 9,917 | | | 125 | | 5.07 |
Loans and loans held-for-sale1, 2 | | 2,014,773 | | | 22,266 | | 4.48 | | | 2,032,741 | | | 23,067 | | 4.51 | | | 1,945,383 | | | 23,636 | | 4.89 |
Total interest earning assets | | 2,916,496 | | | 25,743 | | 3.58 | | | 2,799,693 | | | 26,353 | | 3.74 | | | 2,459,007 | | | 27,841 | | 4.55 |
Cash and due from banks | | 28,461 | | | - | | - | | | 30,086 | | | - | | - | | | 32,549 | | | - | | - |
Allowance for credit losses on loans | | (34,540) | | | - | | - | | | (33,255) | | | - | | - | | | (23,507) | | | - | | - |
Other noninterest bearing assets | | 187,488 | | | - | | - | | | 192,421 | | | - | | - | | | 172,712 | | | - | | - |
Total assets | $ | 3,097,905 | | | | | | | $ | 2,988,945 | | | | | | | $ | 2,640,761 | | | | | |
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Liabilities and Stockholders' Equity | | | | | | | | | | | | | | | | | | | | | | | |
NOW accounts | $ | 495,384 | | $ | 95 | | 0.08 | | $ | 474,470 | | $ | 96 | | 0.08 | | $ | 422,065 | | $ | 233 | | 0.22 |
Money market accounts | | 329,050 | | | 77 | | 0.09 | | | 317,780 | | | 85 | | 0.11 | | | 280,828 | | | 236 | | 0.34 |
Savings accounts | | 412,743 | | | 69 | | 0.07 | | | 391,904 | | | 69 | | 0.07 | | | 322,618 | | | 166 | | 0.21 |
Time deposits | | 399,310 | | | 500 | | 0.51 | | | 393,297 | | | 741 | | 0.75 | | | 448,763 | | | 1,766 | | 1.58 |
Interest bearing deposits | | 1,636,487 | | | 741 | | 0.18 | | | 1,577,451 | | | 991 | | 0.25 | | | 1,474,274 | | | 2,401 | | 0.66 |
Securities sold under repurchase agreements | | 82,475 | | | 31 | | 0.15 | | | 67,059 | | | 35 | | 0.21 | | | 47,825 | | | 116 | | 0.98 |
Other short-term borrowings | | - | | | - | | - | | | 5,448 | | | 12 | | 0.88 | | | 23,069 | | | 109 | | 1.90 |
Junior subordinated debentures | | 25,773 | | | 280 | | 4.41 | | | 25,773 | | | 283 | | 4.37 | | | 47,200 | | | 1,364 | | 11.62 |
Senior notes | | 44,389 | | | 673 | | 6.15 | | | 44,363 | | | 673 | | 6.04 | | | 44,284 | | | 673 | | 6.11 |
Notes payable and other borrowings | | 23,330 | | | 123 | | 2.14 | | | 24,407 | | | 135 | | 2.20 | | | 14,762 | | | 130 | | 3.54 |
Total interest bearing liabilities | | 1,812,454 | | | 1,848 | | 0.41 | | | 1,744,501 | | | 2,129 | | 0.49 | | | 1,651,414 | | | 4,793 | | 1.17 |
Noninterest bearing deposits | | 937,039 | | | - | | - | | | 903,383 | | | - | | - | | | 676,755 | | | - | | - |
Other liabilities | | 37,801 | | | - | | - | | | 39,281 | | | - | | - | | | 28,490 | | | - | | - |
Stockholders' equity | | 310,611 | | | - | | - | | | 301,780 | | | - | | - | | | 284,102 | | | - | | - |
Total liabilities and stockholders' equity | $ | 3,097,905 | | | | | | | $ | 2,988,945 | | | | | | | $ | 2,640,761 | | | | | |
Net interest income (GAAP) | | | | $ | 23,543 | | | | | | | $ | 23,877 | | | | | | | $ | 22,658 | | |
Net interest margin (GAAP) | | | | | | | 3.27 | | | | | | | | 3.39 | | | | | | | | 3.71 |
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Net interest income (TE)1 | | | | $ | 23,895 | | | | | | | $ | 24,224 | | | | | | | $ | 23,048 | | |
Net interest margin (TE)1 | | | | | | | 3.32 | | | | | | | | 3.44 | | | | | | | | 3.77 |
Core net interest margin (TE - excluding PPP loans)1 | | | | | | | 3.33 | | | | | | | | 3.32 | | | | | | | | 3.77 |
Interest bearing liabilities to earning assets | | 62.14 | % | | | | | | | 62.31 | % | | | | | | | 67.16 | % | | | | |
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1 Tax equivalent (TE) basis is calculated using a marginal tax rate of 21% in 2021 and 2020. See the discussion entitled “Non-GAAP Presentations” below and the table on page 17 that provides a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.
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2 Interest income from loans is shown on a tax equivalent basis, which is a non-GAAP financial measure as discussed in the table on page 16, and includes fees of $1.3 million for the first quarter of 2021, $2.3 million for the fourth quarter of 2020, and $294,000 for the first quarter of 2020. Nonaccrual loans are included in the above stated average balances.
Net interest income (TE) was $23.9 million for the first quarter of 2021, which reflects a decrease of $329,000 compared to the fourth quarter of 2020, and an increase of $847,000 compared to the first quarter of 2020. The tax equivalent adjustment for the first quarter of 2021 was $352,000, compared to $347,000 for the fourth quarter of 2020, and $390,000 for the first quarter of 2020. Average interest earning assets increased $116.8 million to $2.92 billion for the first quarter of 2021, compared to the fourth quarter of 2020, primarily due to growth in interest earning deposits with financial institutions and taxable securities available-for-sale. Average interest earning assets increased $457.5 million in the first quarter of 2021, compared to the first quarter of 2020, primarily due to growth in interest earning deposits with financial institutions, taxable securities available-for-sale and loans. Average loans, including loans held-for-sale, decreased $18.0 million for the first quarter of 2021, compared to the fourth quarter of 2020, but increased $69.4 million compared to the first quarter of 2020. The yields on loans for the first quarter of 2021 compared to the fourth quarter of 2020, decreased three basis points, primarily due to the loan fees recognized on forgiven PPP loans in the fourth quarter of 2020. Growth in the balance of securities for the first quarter of 2021, compared to both the fourth quarter of 2020 and the first quarter of 2020, was more than offset by the aggregate impact of the decline in yields on these balances. The yield on average earning assets decreased 16 basis points in the first quarter of 2021, compared to the fourth quarter of 2020, due to the PPP loan fees noted above, and decreased 97 basis points compared to the first quarter of 2020, primarily due to the lowering of interest rates by the Federal Reserve in the first quarter of 2020 in response to the COVID-19 pandemic, and PPP loans issued over the past year at 1.00%.
Total securities income was $3.3 million in the first quarter of 2021, an increase of $175,000 compared to the fourth quarter of 2020, due primarily to an increase in volumes in the linked quarter, and a decrease of $735,000 compared to the first quarter of 2020, due to a reduction in yields in the year over year period. Security paydowns, calls, and maturities in the first quarter of 2021 totaled $7.3 million, which were offset by $109.7 million of purchases, primarily in mortgage backed securities. Our overall yield on tax equivalent municipal securities was 3.51% for the first quarter of 2021, compared to 3.36% for the fourth quarter of 2020, and 3.66% for the first quarter of 2020. Taxable security yields also declined in the first quarter of 2021, resulting in a decrease to the overall tax equivalent yield for the total securities portfolio of six basis points from December 31, 2020, and 90 basis points from March 31, 2020.
Average interest bearing liabilities increased $68.0 million in the first quarter of 2021, compared to the fourth quarter of 2020, driven by a $59.0 million increase in average interest bearing deposits, and a $15.4 million increase in average securities sold under repurchase agreements for the linked quarter. Average interest bearing liabilities increased $161.0 million in the first quarter of 2021, compared to the first quarter of 2020, primarily driven by a $162.2 million increase in interest bearing deposits, a $34.7 million increase in securities sold under repurchase agreements, and a $8.6 million increase in notes payable and other borrowings, partially offset by a reduction in other short-term borrowings of $23.1 million, and a $21.4 million decrease in junior subordinated debentures. The cost of interest bearing liabilities for the first quarter of 2021 decreased by eight basis points from the fourth quarter of 2020, and decreased 76 basis points from the first quarter of 2020. Growth in our average noninterest bearing demand deposits of $260.3 million in the year over year period has assisted us in controlling our cost of funds stemming from average interest bearing deposits and borrowings, which totaled 0.27% for the first quarter of 2021, 0.32% for the fourth quarter of 2020, and 0.83% for the first quarter of 2020.
For the first quarter of 2021, we had no average other short-term borrowings outstanding, compared to $5.4 million for the fourth quarter of 2020, which primarily consisted of FHLBC advances, and $23.1 million for the first quarter of 2020. The decrease in average junior subordinated debentures year over year stems from the March 2020 redemption of our trust preferred securities issued by Old Second Capital Trust I and related junior subordinated debentures, which resulted in a payment of $33.0 million, including accrued interest. The redemption was funded with cash on hand and a $20.0 million term note issued at one month Libor plus 1.75%, with principal and interest payable over the next two years; $16.0 million of this term note is outstanding and included within notes payable and other borrowings as of December 31, 2020 and March 31, 2021.
Our net interest margin (GAAP) decreased 12 basis points to 3.27% for the first quarter of 2021, compared to 3.39% for the fourth quarter of 2020, and decreased 44 basis points compared to 3.71% for the fourth quarter of 2020. Our net interest margin (TE) decreased 12 basis points to 3.32% for the first quarter of 2021, compared to 3.44% for the fourth quarter of 2020, and decreased 45 basis points compared to 3.77% for the first quarter of 2020. Our core net interest margin (TE), a non-GAAP financial measure that excludes the impact of our PPP loans, was 3.33% for the first quarter of 2021, compared to 3.32% for the fourth quarter of 2020 and 3.77% for the first quarter of 2020. The net interest margin (TE) decreased in the first quarter of 2021, compared to the fourth quarter of 2020, due to fee income recorded on $28.2 million of forgiven PPP loans in the first quarter of 2021, compared to $62.6 million of forgiven PPP loans in the fourth quarter of 2020. The reductions year over year were due primarily to low interest rates over the
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majority of the past twelve months. See the discussion entitled “Non-GAAP Presentations” in the table on page 17 that provides a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.
Noninterest Income
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| | | | | | | | | | | 1st Quarter 2021 | | |||||
Noninterest Income | | Three Months Ended | | Percent Change From | | ||||||||||||
(Dollars in thousands) | | March 31, | | December 31, | | March 31, | | December 31, | March 31, | | |||||||
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| 2021 |
| 2020 |
| 2020 |
| 2020 |
| 2020 |
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Wealth management | | $ | 2,151 | | $ | 2,112 | | $ | 1,906 | | 1.8 | | 12.9 | | |||
Service charges on deposits | | | 1,195 | | | 1,344 | | | 1,726 | | (11.1) | | (30.8) | | |||
Residential mortgage banking revenue | | | | | | | | | | | | | | | |||
Secondary mortgage fees | | | 322 | | | 387 | | | 270 | | (16.8) | | 19.3 | | |||
Mortgage servicing rights mark to market gain (loss) | | | 1,113 | | | (1,260) | | | (2,134) | | 188.3 | | 152.2 | | |||
Mortgage servicing income | | | 567 | | | 503 | | | 468 | | 12.7 | | 21.2 | | |||
Net gain on sales of mortgage loans | | | 3,721 | | | 3,396 | | | 2,246 | | 9.6 | | 65.7 | | |||
Total residential mortgage banking revenue | | | 5,723 | | | 3,026 | | | 850 | | 89.1 | | 573.3 | | |||
Securities losses, net | | | - | | | - | | | (24) | | - | | 100.0 | | |||
Change in cash surrender value of BOLI | | | 334 | | | 291 | | | (49) | | 14.8 | | 781.6 | | |||
Card related income | | | 1,447 | | | 1,435 | | | 1,287 | | 0.8 | | 12.4 | | |||
Other income | | | 450 | | | 577 | | | 626 | | (22.0) | | (28.1) | | |||
Total noninterest income | | $ | 11,300 | | $ | 8,785 | | $ | 6,322 | | 28.6 | | 78.7 | | |||
Noninterest income increased $2.5 million, or 28.6%, in the first quarter of 2021, compared to the fourth quarter of 2020, and increased $5.0 million, or 78.7%, compared to the first quarter of 2020. The increase from the linked quarter was primarily driven by a $2.7 million increase in residential mortgage banking revenue, attributable to a $2.4 million increase in mark to market gains on MSRs stemming from market interest rate changes and a $325,000 increase in net gain on sales of mortgage loans in the first quarter of 2021.
The increase in noninterest income in the first quarter of 2021 compared to the first quarter of 2020 is primarily due to a $4.9 million increase in residential mortgage banking revenue, comprised of a $3.2 million increase in mark to market gains on MSRs and a $1.5 million increase in net gain on sales of mortgage loans from the 2020 like period. In addition, the first quarter of 2021 also included increases in wealth management of $245,000 and cash surrender value of BOLI of $383,000 due to market interest rate growth since March 31, 2020. Partially offsetting these increases, service charges on deposits decreased $531,000 year over year due to reductions in commercial and consumer spending during the COVID-19 pandemic, and a related decline in overdraft fees recorded.
These year over year increases were partially offset by decreases of $531,000 in service charges on deposits and $176,000 in other income, mainly attributable to a $95,000 decrease in commercial interest rate swaps.
6
Noninterest Expense
| | | | | | | | | | | | | | |
| | | | | | | | | | | 1st Quarter 2021 | | ||
Noninterest Expense | | Three Months Ended | | Percent Change From | | |||||||||
(Dollars in thousands) | | March 31, | | December 31, | | March 31, | | December 31, | | March 31, | | |||
|
| 2021 |
| 2020 |
| 2020 |
| 2020 |
| 2020 |
| |||
Salaries | | $ | 9,216 | | $ | 9,978 | | $ | 9,761 | | (7.6) | | (5.6) | |
Officers incentive | | | 1,653 | | | 680 | | | 958 | | 143.1 | | 72.5 | |
Benefits and other | | | 2,637 | | | 2,043 | | | 2,199 | | 29.1 | | 19.9 | |
Total salaries and employee benefits | | | 13,506 | | | 12,701 | | | 12,918 | | 6.3 | | 4.6 | |
Occupancy, furniture and equipment expense | | | 2,467 | | | 2,259 | | | 2,301 | | 9.2 | | 7.2 | |
Computer and data processing | | | 1,298 | | | 1,335 | | | 1,335 | | (2.8) | | (2.8) | |
FDIC insurance | | | 201 | | | 194 | | | 57 | | 3.6 | | 252.6 | |
General bank insurance | | | 276 | | | 266 | | | 246 | | 3.8 | | 12.2 | |
Amortization of core deposit intangible asset | | | 120 | | | 120 | | | 128 | | - | | (6.3) | |
Advertising expense | | | 60 | | | 70 | | | 109 | | (14.3) | | (45.0) | |
Card related expense | | | 593 | | | 583 | | | 532 | | 1.7 | | 11.5 | |
Legal fees | | | 55 | | | 285 | | | 131 | | (80.7) | | (58.0) | |
Other real estate owned expense, net | | | 36 | | | 146 | | | 237 | | (75.3) | | (84.8) | |
Other expense | | | 3,126 | | | 3,294 | | | 3,008 | | (5.1) | | 3.9 | |
Total noninterest expense | | $ | 21,738 | | $ | 21,253 | | $ | 21,002 | | 2.3 | | 3.5 | |
Efficiency ratio (GAAP)1 | | | 63.98 | % | | 61.87 | % | | 66.28 | % | | | | |
Adjusted efficiency ratio (non-GAAP)2 | | | 63.19 | % | | 61.10 | % | | 65.48 | % | | | | |
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 any BOLI death benefit recorded, 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 and OREO expenses, divided by the sum of net interest income on a fully tax equivalent basis, total noninterest income less net gains or losses on securities and 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 Presentations” below and the table on page 17 that provides a reconciliation of each non-GAAP financial measure to the most comparable GAAP equivalent.
Noninterest expense for the first quarter of 2021 increased $485,000, or 2.3%, compared to the fourth quarter of 2020, and increased $736,000, or 3.5%, compared to the first quarter of 2020. The linked quarter increase is primarily attributable to an $805,000 increase in salaries and employee benefits in the first quarter of 2021. Officer incentive increased $973,000 due to an under accrual of payouts in early 2021 for 2020 performance, and a resultant increase in the first quarter 2021 accrual, while benefits expense increased $594,000 due to higher payroll taxes and 401K company matching expense related to the higher officer incentive payouts. These increases were partially offset by a decline of $792,000 in salaries, $362,000 of which was due to an increase in deferrals on new loan originations stemming from the second round of PPP loans in the first quarter of 2021, and $354,000 was due to the reversal of restricted stock compensation award expense due to the achievement of only a partial award payout for performance-based restricted stock units. In addition, occupancy, furniture and equipment expense increased $208,000 in the first quarter of 2021 compared to the linked quarter due to an increase in snow removal costs and planned building maintenance. These increases were partially offset by a $230,000 decrease in legal fees due to decreased loan production, a $37,000 decrease in computer and data processing expense, and a $110,000 decrease in other real estate owned expense, net, primarily due to an $87,000 reduction in OREO valuation reserve expense. Other expenses also decreased due to fraud and robbery losses of $147,000 incurred in the fourth quarter of 2020.
The year over year increase in noninterest expense is primarily attributable to a $588,000 increase in salaries and employee benefits in the first quarter of 2021. Officer incentive increased $695,000 due to the under accrual mentioned above, and accruals for 2021 officer incentive were at a higher rate than the prior year. Employee benefits expense increased $438,000 due to an increase in payroll taxes and 401K company matching expense commensurate with the higher officer incentive payout in 2021. This was partially offset by a decrease of $545,000 in salaries, primarily due to a $334,000 increase in salary deferrals related to new PPP loan originations in the first quarter of 2021. We also had increases in the year over year period in occupancy, furniture and equipment of $166,000 due to an increase in snow removal expense and planned building repairs, and an increase in FDIC insurance of $144,000 due to assessment credits received in the prior year. These increases were partially offset by decreases of $49,000 in advertising expense, $76,000
7
in legal fees and $201,000 in other real estate owned, net, primarily due to a $152,000 reduction in valuation reserves in the year over year period.
Earning Assets
| | | | | | | | | | | | | | |
| | | | | | | | | | | March 31, 2021 | | ||
Loans | | As of | | Percent Change From | | |||||||||
(dollars in thousands) | | March 31, | | December 31, | | March 31, | | December 31, | | March 31, | | |||
|
| 2021 |
| 2020 |
| 2020 |
| 2020 |
| 2020 |
| |||
Commercial | | $ | 392,380 | | $ | 407,159 | | $ | 364,626 | | (3.6) | | 7.6 | |
Leases | | | 138,240 | | | 141,601 | | | 126,237 | | (2.4) | | 9.5 | |
Commercial real estate - Investor | | | 567,475 | | | 582,042 | | | 503,905 | | (2.5) | | 12.6 | |
Commercial real estate - Owner occupied | | | 326,857 | | | 333,070 | | | 349,595 | | (1.9) | | (6.5) | |
Construction | | | 93,745 | | | 98,486 | | | 78,159 | | (4.8) | | 19.9 | |
Residential real estate - Investor | | | 52,176 | | | 56,137 | | | 69,429 | | (7.1) | | (24.8) | |
Residential real estate - Owner occupied | | | 107,303 | | | 116,388 | | | 129,982 | | (7.8) | | (17.4) | |
Multifamily | | | 178,258 | | | 189,040 | | | 195,297 | | (5.7) | | (8.7) | |
HELOC | | | 75,604 | | | 80,908 | | | 93,165 | | (6.6) | | (18.8) | |
HELOC - Purchased | | | 17,078 | | | 19,487 | | | 30,880 | | (12.4) | | (44.7) | |
Other1 | | | 10,509 | | | 10,533 | | | 15,929 | | (0.2) | | (34.0) | |
Total loans | | $ | 1,959,625 | | $ | 2,034,851 | | $ | 1,957,204 | | (3.7) | | 0.1 | |
1 Other class includes consumer and overdrafts.
Total loans decreased by $75.2 million at March 31, 2021, compared to December 31, 2020, and increased $2.4 million for the year over year period. Declines were noted in all loan categories from the December 31, 2020 balances, as borrowers have taken advantage of higher cash balances on hand to pay down or pay off their loans. In addition, during the first quarter of 2021, $27.8 million of PPP loans originated in 2020 were forgiven. This reduction in loans was partially offset by $58.3 million of new PPP loans originated in 2021. Growth in the year over year period in commercial loans was primarily due to PPP loan originations, which totaled $104.5 million outstanding as of March 31, 2021. In addition, we also had organic growth primarily in our leases, commercial real estate-investor and construction loan portfolios. As required by CECL, the balance (or amortized cost basis) of purchase credit deteriorated loans (“PCD” loans) are carried on a gross basis (rather than net of the associated credit loss estimate), and the expected credit losses for PCD loans are estimated and separately recognized as part of the allowance for credit losses.
| | | | | | | | | | | | | |
| | | | | | | | | | | March 31, 2021 | ||
Securities | | As of | | Percent Change From | |||||||||
(dollars in thousands) | | March 31, | | December 31, | | March 31, | | December 31, | | March 31, | |||
|
| 2021 |
| 2020 |
| 2020 |
| 2020 |
| 2020 | |||
Securities available-for-sale, at fair value | | | | | | | | | | | | | |
U.S. Treasury | | $ | 4,102 | | $ | 4,117 | | $ | 4,152 | | (0.4) | | (1.2) |
U.S. government agencies | | | 6,361 | | | 6,657 | | | 7,723 | | (4.4) | | (17.6) |
U.S. government agency mortgage-backed | | | 70,602 | | | 17,209 | | | 17,255 | | 310.3 | | 309.2 |
States and political subdivisions | | | 242,146 | | | 249,259 | | | 255,095 | | (2.9) | | (5.1) |
Corporate bonds | | | 34,843 | | | - | | | - | | - | | - |
Collateralized mortgage obligations | | | 74,936 | | | 56,585 | | | 53,403 | | 32.4 | | 40.3 |
Asset-backed securities | | | 130,368 | | | 131,818 | | | 77,727 | | (1.1) | | 67.7 |
Collateralized loan obligations | | | 29,922 | | | 30,533 | | | 34,339 | | (2.0) | | (12.9) |
Total securities available-for-sale | | $ | 593,280 | | $ | 496,178 | | $ | 449,694 | | 19.6 | | 31.9 |
| | | | | | | | | | | | | |
Our securities portfolio totaled $593.3 million as of March 31, 2021, an increase of $97.1 million from $496.2 million as of December 31, 2020, and an increase of $143.6 million from March 31, 2020. The increase in the portfolio during the first quarter of 2021, compared to the prior quarter, was due to purchases of $55.2 million of mortgage-backed securities, $34.8 million of corporate bonds, and $19.8 million of collateralized mortgage-backed securities, partially offset by unrealized mark to market gain reductions of $4.8 million and by $7.3 million of security paydowns. The increase in the securities portfolio in the year over year period was primarily due to the purchases noted above, and an increase in unrealized mark to market gains on securities available-for-sale of $16.3 million. No security sales were recorded in the first quarter of 2021 or the fourth quarter of 2020, and net security losses of $24,000 were recorded in the first quarter of 2020.
8
Asset Quality
| | | | | | | | | | | | | |
| | | | | | | | | | | March 31, 2021 | ||
Nonperforming assets | | As of | | Percent Change From | |||||||||
(dollars in thousands) | | March 31, | | December 31, | | March 31, | | December 31, | | March 31, | |||
|
| 2021 |
| 2020 |
| 2020 |
| 2020 | | 2020 | |||
Nonaccrual loans | | $ | 20,379 | | $ | 22,280 | | $ | 19,497 | | (8.5) | | 4.5 |
Performing troubled debt restructured loans accruing interest | |
| 290 | |
| 331 | |
| 934 | | (12.4) | | (69.0) |
Loans past due 90 days or more and still accruing interest | |
| 513 | |
| 434 | |
| 1,406 | | 18.2 | | (63.5) |
Total nonperforming loans | |
| 21,182 | |
| 23,045 | |
| 21,837 | | (8.1) | | (3.0) |
Other real estate owned | |
| 2,163 | |
| 2,474 | |
| 5,049 | | (12.6) | | (57.2) |
Total nonperforming assets | | $ | 23,345 | | $ | 25,519 | | $ | 26,886 | | (8.5) | | (13.2) |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
30-89 days past due loans and still accruing interest | | $ | 13,506 | | $ | 11,326 | | $ | 16,173 | | | | |
Nonaccrual loans to total loans | | | 1.0 | % | | 1.1 | % | | 1.0 | % | | | |
Nonperforming loans to total loans | | | 1.1 | % | | 1.1 | % | | 1.1 | % | | | |
Nonperforming assets to total loans plus OREO | | | 1.2 | % | | 1.3 | % | | 1.4 | % | | | |
| | | | | | | | | | | | | |
Allowance for credit losses | | $ | 30,967 | | $ | 33,855 | | $ | 30,045 | | | | |
Allowance for credit losses to total loans | | | 1.6 | % | | 1.7 | % | | 1.5 | % | | | |
Allowance for credit losses to nonaccrual loans | | | 152.0 | % | | 152.0 | % | | 154.1 | % | | | |
Nonperforming loans consist of nonaccrual loans, performing troubled debt restructured loans accruing interest and loans 90 days or more past due and still accruing interest. Our adoption of CECL on January 1, 2020, resulted in a change in the accounting for purchased credit impaired (“PCI”) loans, which are now considered purchased credit deteriorated (“PCD”) loans under CECL. PCD loans acquired in our acquisition of ABC Bank totaled $10.0 million, net of purchase accounting adjustments, at March 31, 2021. PCD loans that meet the definition of nonperforming loans are now included in our nonperforming disclosures. Nonperforming loans to total loans reflected no change over the periods presented, and was 1.1% for the first quarter of 2021, the fourth quarter of 2020, and the first quarter of 2020. Nonperforming assets to total loans plus OREO remained stable and ended at 1.2% for the first quarter of 2021, 1.3 % for the fourth quarter of 2020, and 1.4% for the first quarter of 2020, as our loan portfolio grew year over year and we continued OREO liquidations and recorded write-downs. Our allowance for credit losses to total loans was 1.6% as of March 31, 2021, 1.7% as of December 31, 2020 and 1.5% as of March 31, 2020.
The following table shows classified loans by segment, which include nonaccrual, performing troubled debt restructurings, PCD loans if the risk rating so indicates, and all other loans considered substandard, for the following periods.
| | | | | | | | | | | | | | |
| | | | | | | | | | | March 31, 2021 | | ||
Classified loans | | As of | | Percent Change From | | |||||||||
(dollars in thousands) | | March 31, | | December 31, | | March 31, | | December 31, | | March 31, | | |||
|
| 2021 |
| 2020 |
| 2020 |
| 2020 |
| 2020 | | |||
Commercial | | $ | 2,397 | | $ | 2,679 | | $ | 11,260 | | (10.5) | | (78.7) | |
Leases | | | 3,146 | | | 3,222 | | | 264 | | (2.4) | | N/M | |
Commercial real estate - Investor | | | 5,130 | | | 5,117 | | | 6,073 | | 0.3 | | (15.5) | |
Commercial real estate - Owner occupied | | | 8,652 | | | 11,187 | | | 10,504 | | (22.7) | | (17.6) | |
Construction | | | 5,367 | | | 5,192 | | | 2,414 | | 3.4 | | 122.3 | |
Residential real estate - Investor | | | 1,435 | | | 1,516 | | | 1,452 | | (5.3) | | (1.2) | |
Residential real estate - Owner occupied | | | 4,148 | | | 4,040 | | | 4,568 | | 2.7 | | (9.2) | |
Multifamily | | | 7,846 | | | 7,558 | | | 5,374 | | 3.8 | | 46.0 | |
HELOC | | | 1,303 | | | 1,540 | | | 1,628 | | (15.4) | | (20.0) | |
HELOC - Purchased | | | - | | | - | | | 114 | | - | | (100.0) | |
Other1 | | | 402 | | | 4 | | | 349 | | N/M | | 15.2 | |
Total classified loans | | $ | 39,826 | | $ | 42,055 | | $ | 44,000 | | (5.3) | | (9.5) | |
N/M - Not meaningful.
1 Other class includes consumer and overdrafts.
9
Allowance for Credit Losses on Loans and Unfunded Commitments
At March 31, 2021, our allowance for credit losses (“ACL”) on loans totaled $31.0 million, and our ACL on unfunded commitments, included in other liabilities, totaled $3.5 million. The decrease in our ACL on loans from year-end 2020 was driven by a $3.5 million provision release recorded in the first quarter of 2021, based on loss forecast updates primarily stemming from a more favorable unemployment projection. The increase in our ACL on unfunded commitments from year-end 2020 was driven by $470,000 of provision expense recorded in the first quarter of 2021 due to adjustments in the funding rate assumptions based on our analysis of the last 12 months of utilization. The total increase in the ACL during 2020 reflected forecasted credit deterioration due to the COVID-19 pandemic and the resultant recession. Our ACL on loans to total loans was 1.6% as of March 31, 2021, compared to 1.7% as of December 31, 2020, and 1.5% at March 31, 2020. The ACL on unfunded commitments totaled $3.5 million as of March 31, 2021, compared to $3.0 million as of December 31, 2020 and $4.2 million as of March 31, 2020.
Net Charge-off Summary
| | | | | | | | | | | | | | |
Loan Charge-offs, net of recoveries | Quarters Ended | |||||||||||||
(dollars in thousands) | March 31, | | % of | | December 31, | | % of | | March 31, | | % of | |||
| 2021 | | Total 2 | | 2020 | | Total 2 | | 2020 | | Total 2 | |||
Commercial | $ | (18) | | 3.1 | | $ | (93) | | (169.1) | | $ | 85 | | 7.6 |
Leases | | - | | - | | | (11) | | (20.0) | | | - | | - |
Commercial real estate - Investor | | (20) | | 3.4 | | | 471 | | 856.4 | | | (8) | | (0.7) |
Commercial real estate - Owner occupied | | (205) | | 35.2 | | | 86 | | 156.4 | | | 1,108 | | 98.8 |
Construction | | - | | - | | | (171) | | (310.9) | | | - | | - |
Residential real estate - Investor | | (266) | | 45.7 | | | (12) | | (21.8) | | | (20) | | (1.8) |
Residential real estate - Owner occupied | | (49) | | 8.4 | | | (130) | | (236.4) | | | (23) | | (2.0) |
Multifamily | | - | | - | | | - | | - | | | - | | - |
HELOC | | (12) | | 2.1 | | | (97) | | (176.4) | | | (58) | | (5.2) |
HELOC - Purchased | | - | | - | | | - | | - | | | - | | - |
Other 1 | | (12) | | 2.1 | | | 12 | | 21.8 | | | 38 | | 3.3 |
Net charge-offs / (recoveries) | $ | (582) | | 100.0 | | $ | 55 | | 100.0 | | $ | 1,122 | | 100.0 |
| | | | | | | | | | | | | | |
1 Other class includes consumer and overdrafts.
2 Represents the percentage of net charge-offs attributable to each category of loans.
Gross charge-offs for the first quarter of 2021 were $42,000, compared to $810,000 for the fourth quarter of 2020, and $1.4 million for the first quarter of 2020. Gross recoveries were $624,000 for the first quarter of 2021, compared to $755,000 for the fourth quarter of 2020 and $279,000 for the first quarter of 2020. Continued recoveries are indicative of the ongoing aggressive efforts by management to effectively manage and resolve prior charge-offs.
Deposits
Total deposits were $2.66 billion at March 31, 2021, an increase of $119.5 million compared to December 31, 2020, resulting from net increases in demand deposits of $73.2 million, and net increases in savings, NOW and money market accounts of $88.8 million, partially offset by decreases in time deposits of $42.5 million. Total deposits increased $460.9 million in the year over year period driven primarily by growth in demand deposits of $280.1 million, and savings, NOW and money market accounts of $247.4 million, partially offset by a decrease in time deposits of $66.5 million.
10
Borrowings
As of March 31, 2021 and December 31, 2020, we had no other short-term borrowings compared to $6.4 million as of March 31, 2020. Due to growth in deposits, our need for short-term funding in 2021 has declined year over year.
We were indebted on senior notes totaling $44.4 million, net of deferred issuance costs, as of March 31, 2021. We were also indebted on $25.8 million of junior subordinated debentures, net of deferred issuance costs, which is related to the trust preferred securities issued by our statutory trust subsidiary, Old Second Capital Trust II. On March 2, 2020, we redeemed the trust preferred securities and related junior subordinated debentures issued by Old Second Capital Trust I, which resulted in a decrease in junior subordinated debentures of $32.0 million. Notes payable and other borrowings totaled $22.3 million as of March 31, 2021, and is comprised of $16.0 million outstanding on a $20.0 million term note we originated to facilitate the redemption of our trust preferred securities and related junior subordinated debentures issued by Old Second Capital Trust I, and $6.3 million of a long-term FHLBC advance acquired in our ABC Bank acquisition that matures on February 2, 2026.
Non-GAAP Presentations: Management has disclosed in this earnings release certain non-GAAP financial measures to evaluate and measure our performance, including the presentation of net interest income and net interest margin on a fully taxable equivalent basis, our efficiency ratio calculations and core net interest margin on a taxable equivalent basis. The net interest margin fully taxable equivalent is calculated by dividing net interest income on a tax equivalent basis by average earning assets for the period. Consistent with industry practice, management has disclosed the efficiency ratio including and excluding certain items, which is discussed in the noninterest expense presentation on page 7. Our core net interest margin on a taxable equivalent basis excludes the impact of our PPP loans.
We consider the use of select non-GAAP financial measures and ratios to be useful for financial and operational decision making and useful in evaluating period-to-period comparisons. We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding certain expenditures or assets that we believe are not indicative of our primary business operating results or by presenting certain metrics on a fully taxable equivalent basis. We believe these measures provide investors with information regarding balance sheet profitability, and we believe that management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, analyzing and comparing past, present and future periods.
These non-GAAP financial measures should not be considered as a substitute for GAAP financial measures, and we strongly encourage investors to review the GAAP financial measures included in this earnings release and not to place undue reliance upon any single financial measure. In addition, because non-GAAP financial measures are not standardized, it may not be possible to compare the non-GAAP financial measures presented in this earnings release with other companies’ non-GAAP financial measures having the same or similar names. The tables on page 17 provide a reconciliation of each non-GAAP financial measure to the most comparable GAAP equivalent.
Forward-Looking Statements: This earnings release and statements by our management may contain forward-looking statements within the Private Securities Litigation Reform Act of 1995. Forward looking statements can be identified by words such as “anticipate,” “expect,” “intend,” “believe,” “may,” “likely,” “will” or other statements that indicate future periods. Examples of forward-looking statements include, but are not limited to, statements regarding the economic outlook, the adequacy of our allowance and our belief that we are conservatively positioned to meet the challenges of the coming year, as well as statements regarding asset quality trends and the anticipated timing of our receipt of funds for PPP loan forgiveness. Such forward-looking statements are subject to risks, uncertainties, and other factors, which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements, (1) the strength of the United States economy in general and the strength of the local economies in which we conduct our operations may be different than expected, including, but not limited to, due to the negative impacts and disruptions resulting from the global coronavirus, (“COVID-19”) pandemic, on the economies and communities we serve, which has had and may continue to have an adverse impact on our business, operations and performance, and could continue to have a negative impact on our credit portfolio, share price, borrowers, and on the economy as a whole, both domestically and globally; (2) the rate of delinquencies and amounts of charge-offs, the level of allowance for credit loss, the rates of loan growth, or adverse changes in asset quality in our loan portfolio, which may result in increased credit risk-related losses and expenses; (3) changes in legislation, regulation, policies, or administrative practices, whether by judicial, governmental, or legislative
11
action, including, but not limited to, the Coronavirus Aid, Relief, and Economic Security Act, or the “CARES Act”; (4) adverse conditions in the stock market, the public debt market and other capital markets (including changes in interest rate conditions) could have a negative impact on us; and (5) changes in interest rates, which may affect our net income, prepayment penalty income, mortgage banking income, and other future cash flows, or the market value of our assets, including our investment securities. Additional risks and uncertainties are contained in the “Risk Factors” and forward-looking statements disclosure in our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. The inclusion of this forward-looking information should not be construed as a representation by us or any person that future events, plans, or expectations contemplated by us will be achieved. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.
Conference Call
We will host an earnings call on Thursday, April 22, 2021, at 11:00 a.m. Eastern Time (10:00 a.m. Central Time). Investors may listen to our earnings call via telephone by dialing 877-407-9124. Investors should call into the dial-in number set forth above at least 10 minutes prior to the scheduled start of the call.
A replay of the earnings call will be available until 11:00 a.m. Eastern Time (10:00 a.m. Central Time) on April 29, 2021, by dialing 877-481-4010, using Conference ID: 40524.
12
Old Second Bancorp, Inc. and Subsidiaries
(In thousands)
| | | | | | |
| | (unaudited) | | | | |
| | March 31, | | December 31, | ||
|
| 2021 |
| 2020 | ||
Assets | | | | | | |
Cash and due from banks | | $ | 25,448 | | $ | 24,306 |
Interest earning deposits with financial institutions | | | 415,497 | | | 305,597 |
Cash and cash equivalents | | | 440,945 | | | 329,903 |
Securities available-for-sale, at fair value | | | 593,280 | | | 496,178 |
Federal Home Loan Bank Chicago ("FHLBC") and Federal Reserve Bank Chicago ("FRBC") stock | | | 9,917 | | | 9,917 |
Loans held-for-sale | | | 7,842 | | | 12,611 |
Loans | | | 1,959,625 | | | 2,034,851 |
Less: allowance for credit losses on loans | | | 30,967 | | | 33,855 |
Net loans | | | 1,928,658 | | | 2,000,996 |
Premises and equipment, net | | | 45,055 | | | 45,477 |
Other real estate owned | | | 2,163 | | | 2,474 |
Mortgage servicing rights, net | | | 5,889 | | | 4,224 |
Goodwill and core deposit intangible | | | 20,661 | | | 20,781 |
Bank-owned life insurance ("BOLI") | | | 63,436 | | | 63,102 |
Deferred tax assets, net | | | 8,067 | | | 8,121 |
Other assets | | | 40,739 | | | 47,053 |
Total assets | | $ | 3,166,652 | | $ | 3,040,837 |
| | | | | | |
Liabilities | | | | | | |
Deposits: | | | | | | |
Noninterest bearing demand | | $ | 982,664 | | $ | 909,505 |
Interest bearing: | | | | | | |
Savings, NOW, and money market | | | 1,290,937 | | | 1,202,134 |
Time | | | 382,941 | | | 425,434 |
Total deposits | | | 2,656,542 | | | 2,537,073 |
Securities sold under repurchase agreements | | | 77,321 | | | 66,980 |
Junior subordinated debentures | | | 25,773 | | | 25,773 |
Senior notes | | | 44,402 | | | 44,375 |
Notes payable and other borrowings | | | 22,314 | | | 23,393 |
Other liabilities | | | 29,187 | | | 36,156 |
Total liabilities | | | 2,855,539 | | | 2,733,750 |
| | | | | | |
Stockholders’ Equity | | | | | | |
Common stock | | | 34,957 | | | 34,957 |
Additional paid-in capital | | | 120,075 | | | 122,212 |
Retained earnings | | | 248,165 | | | 236,579 |
Accumulated other comprehensive income | | | 13,266 | | | 14,762 |
Treasury stock | | | (105,350) | | | (101,423) |
Total stockholders’ equity | | | 311,113 | | | 307,087 |
Total liabilities and stockholders’ equity | | $ | 3,166,652 | | $ | 3,040,837 |
| | | | | | |
13
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(In thousands, except share data)
| | | | | | | |
| | | (unaudited) | | |||
| | Three Months Ended March 31, | | ||||
|
| 2021 |
| 2020 |
| ||
Interest and dividend income | | | | | | | |
Loans, including fees | | $ | 22,207 | | $ | 23,597 | |
Loans held-for-sale | | | 55 | | | 36 | |
Securities: | | | | | | | |
Taxable | | | 1,615 | | | 2,163 | |
Tax exempt | | | 1,307 | | | 1,455 | |
Dividends from FHLBC and FRBC stock | | | 115 | | | 125 | |
Interest bearing deposits with financial institutions | | | 92 | | | 75 | |
Total interest and dividend income | | | 25,391 | | | 27,451 | |
Interest expense | | | | | | | |
Savings, NOW, and money market deposits | | | 241 | | | 635 | |
Time deposits | | | 500 | | | 1,766 | |
Securities sold under repurchase agreements | | | 31 | | | 116 | |
Other short-term borrowings | | | - | | | 109 | |
Junior subordinated debentures | | | 280 | | | 1,364 | |
Senior notes | | | 673 | | | 673 | |
Notes payable and other borrowings | | | 123 | | | 130 | |
Total interest expense | | | 1,848 | | | 4,793 | |
Net interest and dividend income | | | 23,543 | | | 22,658 | |
(Release) provision for credit losses | | | (3,000) | | | 7,984 | |
Net interest and dividend income after provision for credit losses | | | 26,543 | | | 14,674 | |
Noninterest income | | | | | | | |
Wealth management | | | 2,151 | | | 1,906 | |
Service charges on deposits | | | 1,195 | | | 1,726 | |
Secondary mortgage fees | | | 322 | | | 270 | |
Mortgage servicing rights mark to market gain (loss) | | | 1,113 | | | (2,134) | |
Mortgage servicing income | | | 567 | | | 468 | |
Net gain on sales of mortgage loans | | | 3,721 | | | 2,246 | |
Securities losses, net | | | - | | | (24) | |
Change in cash surrender value of BOLI | | | 334 | | | (49) | |
Card related income | | | 1,447 | | | 1,287 | |
Other income | | | 450 | | | 626 | |
Total noninterest income | | | 11,300 | | | 6,322 | |
Noninterest expense | | | | | | | |
Salaries and employee benefits | | | 13,506 | | | 12,918 | |
Occupancy, furniture and equipment | | | 2,467 | | | 2,301 | |
Computer and data processing | | | 1,298 | | | 1,335 | |
FDIC insurance | | | 201 | | | 57 | |
General bank insurance | | | 276 | | | 246 | |
Amortization of core deposit intangible | | | 120 | | | 128 | |
Advertising expense | | | 60 | | | 109 | |
Card related expense | | | 593 | | | 532 | |
Legal fees | | | 55 | | | 131 | |
Other real estate expense, net | | | 36 | | | 237 | |
Other expense | | | 3,126 | | | 3,008 | |
Total noninterest expense | | | 21,738 | | | 21,002 | |
Income (loss) before income taxes | | | 16,105 | | | (6) | |
Provision for income taxes | | | 4,226 | | | (281) | |
Net income | | $ | 11,879 | | $ | 275 | |
| | | | | | | |
Basic earnings per share | | $ | 0.41 | | $ | 0.01 | |
Diluted earnings per share | | | 0.40 | | | 0.01 | |
Dividends declared per share | | | 0.01 | | | 0.01 | |
| | | | | |
Ending common shares outstanding | | 29,018,637 | | 29,706,390 | |
Weighted-average basic shares outstanding | | 29,225,775 | | 29,929,763 | |
Weighted-average diluted shares outstanding | | 29,784,757 | | 30,490,605 | |
14
Old Second Bancorp, Inc. and Subsidiaries
Quarterly Consolidated Average Balance
(In thousands, unaudited)
| | | | | | | | | | | | | | | |
| | | 2020 | | 2021 | ||||||||||
Assets |
| 1st Qtr |
| 2nd Qtr |
| 3rd Qtr |
| 4th Qtr |
| 1st Qtr | |||||
Cash and due from banks | | $ | 32,549 | | $ | 30,594 | | $ | 31,354 | | $ | 30,086 | | $ | 28,461 |
Interest earning deposits with financial institutions | | | 27,989 | | | 153,532 | | | 263,199 | | | 275,087 | | | 359,576 |
Cash and cash equivalents | | | 60,538 | | | 184,126 | | | 294,553 | | | 305,173 | | | 388,037 |
| | | | | | | | | | | | | | | |
Securities available-for-sale, at fair value | | | 475,718 | | | 452,708 | | | 448,408 | | | 481,948 | | | 532,230 |
FHLBC and FRBC stock | | | 9,917 | | | 9,917 | | | 9,917 | | | 9,917 | | | 9,917 |
Loans held-for-sale | | | 3,623 | | | 13,978 | | | 13,384 | | | 9,503 | | | 8,616 |
Loans | �� | | 1,941,760 | | | 2,038,082 | | | 2,035,584 | | | 2,023,238 | | | 2,006,157 |
Less: allowance for credit losses on loans | | | 23,507 | | | 30,747 | | | 31,518 | | | 33,255 | | | 34,540 |
Net loans | | | 1,918,253 | | | 2,007,335 | | | 2,004,066 | | | 1,989,983 | | | 1,971,617 |
| | | | | | | | | | | | | | | |
Premises and equipment, net | | | 44,613 | | | 44,658 | | | 44,802 | | | 45,382 | | | 45,378 |
Other real estate owned | | | 5,127 | | | 5,040 | | | 3,087 | | | 2,653 | | | 2,213 |
Mortgage servicing rights, net | | | 5,053 | | | 4,451 | | | 4,645 | | | 4,717 | | | 4,814 |
Goodwill and core deposit intangible | | | 21,208 | | | 21,084 | | | 20,960 | | | 20,838 | | | 20,719 |
Bank-owned life insurance ("BOLI") | | | 61,873 | | | 61,790 | | | 61,897 | | | 62,499 | | | 63,259 |
Deferred tax assets, net | | | 9,682 | | | 13,511 | | | 12,051 | | | 9,189 | | | 8,228 |
Other assets | | | 25,156 | | | 36,771 | | | 37,786 | | | 47,143 | | | 42,877 |
Total other assets | | | 172,712 | | | 187,305 | | | 185,228 | | | 192,421 | | | 187,488 |
Total assets | | $ | 2,640,761 | | $ | 2,855,369 | | $ | 2,955,556 | | $ | 2,988,945 | | $ | 3,097,905 |
| | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | |
Deposits: | | | | | | | | | | | | | | | |
Noninterest bearing demand | | $ | 676,755 | | $ | 854,324 | | $ | 892,811 | | $ | 903,383 | | $ | 937,039 |
Interest bearing: | | | | | | | | | | | | | | | |
Savings, NOW, and money market | | | 1,025,511 | | | 1,097,003 | | | 1,156,194 | | | 1,184,154 | | | 1,237,177 |
Time | | | 448,763 | | | 439,735 | | | 417,952 | | | 393,297 | | | 399,310 |
Total deposits | | | 2,151,029 | | | 2,391,062 | | | 2,466,957 | | | 2,480,834 | | | 2,573,526 |
| | | | | | | | | | | | | | | |
Securities sold under repurchase agreements | | | 47,825 | | | 45,882 | | | 54,313 | | | 67,059 | | | 82,475 |
Other short-term borrowings | | | 23,069 | | | 8,396 | | | 8,204 | | | 5,448 | | | - |
Junior subordinated debentures | | | 47,200 | | | 25,773 | | | 25,773 | | | 25,773 | | | 25,773 |
Senior notes | | | 44,284 | | | 44,310 | | | 44,337 | | | 44,363 | | | 44,389 |
Notes payable and other borrowings | | | 14,762 | | | 26,551 | | | 25,482 | | | 24,407 | | | 23,330 |
Other liabilities | | | 28,490 | | | 39,613 | | | 39,589 | | | 39,281 | | | 37,801 |
Total liabilities | | | 2,356,659 | | | 2,581,587 | | | 2,664,655 | | | 2,687,165 | | | 2,787,294 |
| | | | | | | | | | | | | | | |
Stockholders' equity | | | | | | | | | | | | | | | |
Common stock | | | 34,900 | | | 34,957 | | | 34,957 | | | 34,957 | | | 34,957 |
Additional paid-in capital | | | 120,829 | | | 121,253 | | | 121,643 | | | 122,045 | | | 121,578 |
Retained earnings | | | 215,467 | | | 216,183 | | | 224,405 | | | 233,920 | | | 242,201 |
Accumulated other comprehensive income | | | 9,131 | | | 219 | | | 9,305 | | | 11,900 | | | 14,496 |
Treasury stock | | | (96,225) | | | (98,830) | | | (99,409) | | | (101,042) | | | (102,621) |
Total stockholders' equity | | | 284,102 | | | 273,782 | | | 290,901 | | | 301,780 | | | 310,611 |
Total liabilities and stockholders' equity | | $ | 2,640,761 | | $ | 2,855,369 | | $ | 2,955,556 | | $ | 2,988,945 | | $ | 3,097,905 |
| | | | | | | | | | | | | | | |
Total Earning Assets | | $ | 2,459,007 | | $ | 2,668,217 | | $ | 2,770,492 | | $ | 2,799,693 | | $ | 2,916,496 |
Total Interest Bearing Liabilities | | | 1,651,414 | | | 1,687,650 | | | 1,732,255 | | | 1,744,501 | | | 1,812,454 |
15
Old Second Bancorp, Inc. and Subsidiaries
Quarterly Consolidated Statements of Income
(In thousands, except per share data, unaudited)
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | 2020 | | 2021 | |||||||||||
|
| 1st Qtr |
| 2nd Qtr |
| 3rd Qtr |
| 4th Qtr |
| 1st Qtr | |||||
Interest and Dividend Income | | | | | | | | | | | | | | | |
Loans, including fees | | $ | 23,597 | | $ | 22,347 | | $ | 21,980 | | $ | 22,999 | | $ | 22,207 |
Loans held-for-sale | | | 36 | | | 110 | | | 95 | | | 65 | | | 55 |
Securities: | | | | | | | | | | | | | | | |
Taxable | | | 2,163 | | | 1,694 | | | 1,458 | | | 1,458 | | | 1,615 |
Tax exempt | | | 1,455 | | | 1,396 | | | 1,327 | | | 1,293 | | | 1,307 |
Dividends from FHLB and FRBC stock | | | 125 | | | 123 | | | 118 | | | 118 | | | 115 |
Interest bearing deposits with financial institutions | | | 75 | | | 42 | | | 68 | | | 73 | | | 92 |
Total interest and dividend income | | | 27,451 | | | 25,712 | | | 25,046 | | | 26,006 | | | 25,391 |
Interest Expense | | | | | | | | | | | | | | | |
Savings, NOW, and money market deposits | | | 635 | | | 385 | | | 299 | | | 250 | | | 241 |
Time deposits | | | 1,766 | | | 1,442 | | | 1,084 | | | 741 | | | 500 |
Securities sold under repurchase agreements | | | 116 | | | 23 | | | 28 | | | 35 | | | 31 |
Other short-term borrowings | | | 109 | | | 34 | | | 24 | | | 12 | | | - |
Junior subordinated debentures | | | 1,364 | | | 283 | | | 285 | | | 283 | | | 280 |
Senior notes | | | 673 | | | 673 | | | 673 | | | 673 | | | 673 |
Notes payable and other borrowings | | | 130 | | | 165 | | | 144 | | | 135 | | | 123 |
Total interest expense | | | 4,793 | | | 3,005 | | | 2,537 | | | 2,129 | | | 1,848 |
Net interest and dividend income | | | 22,658 | | | 22,707 | | | 22,509 | | | 23,877 | | | 23,543 |
(Release) provision for credit losses | | | 7,984 | | | 2,129 | | | 300 | | | - | | | (3,000) |
Net interest and dividend income after provision for credit losses | | | 14,674 | | | 20,578 | | | 22,209 | | | 23,877 | | | 26,543 |
Noninterest Income | | | | | | | | | | | | | | | |
Wealth management | | | 1,906 | | | 1,998 | | | 1,889 | | | 2,112 | | | 2,151 |
Service charges on deposits | | | 1,726 | | | 1,120 | | | 1,322 | | | 1,344 | | | 1,195 |
Secondary mortgage fees | | | 270 | | | 505 | | | 492 | | | 387 | | | 322 |
Mortgage servicing rights mark to market (loss) gain | | | (2,134) | | | (445) | | | (160) | | | (1,260) | | | 1,113 |
Mortgage servicing income | | | 468 | | | 458 | | | 521 | | | 503 | | | 567 |
Net gain on sales of mortgage loans | | | 2,246 | | | 4,631 | | | 5,246 | | | 3,396 | | | 3,721 |
Securities losses, net | | | (24) | | | - | | | (1) | | | - | | | - |
Change in cash surrender value of BOLI | | | (49) | | | 532 | | | 459 | | | 291 | | | 334 |
Death benefit realized on BOLI | | | - | | | 59 | | | (2) | | | - | | | - |
Card related income | | | 1,287 | | | 1,311 | | | 1,499 | | | 1,435 | | | 1,447 |
Other income | | | 626 | | | 526 | | | 420 | | | 577 | | | 450 |
Total noninterest income | | | 6,322 | | | 10,695 | | | 11,685 | | | 8,785 | | | 11,300 |
Noninterest Expense | | | | | | | | | | | | | | | |
Salaries and employee benefits | | | 12,918 | | | 11,342 | | | 12,586 | | | 12,701 | | | 13,506 |
Occupancy, furniture and equipment | | | 2,301 | | | 1,935 | | | 2,003 | | | 2,259 | | | 2,467 |
Computer and data processing | | | 1,335 | | | 1,247 | | | 1,226 | | | 1,335 | | | 1,298 |
FDIC insurance | | | 57 | | | 155 | | | 191 | | | 194 | | | 201 |
General bank insurance | | | 246 | | | 237 | | | 281 | | | 266 | | | 276 |
Amortization of core deposit intangible | | | 128 | | | 124 | | | 122 | | | 120 | | | 120 |
Advertising expense | | | 109 | | | 57 | | | 62 | | | 70 | | | 60 |
Card related expense | | | 532 | | | 514 | | | 566 | | | 583 | | | 593 |
Legal fees | | | 131 | | | 176 | | | 169 | | | 285 | | | 55 |
Other real estate expense, net | | | 237 | | | 143 | | | 125 | | | 146 | | | 36 |
Other expense | | | 3,008 | | | 2,966 | | | 2,935 | | | 3,294 | | | 3,126 |
Total noninterest expense | | | 21,002 | | | 18,896 | | | 20,266 | | | 21,253 | | | 21,738 |
(Loss) income before income taxes | | | (6) | | | 12,377 | | | 13,628 | | | 11,409 | | | 16,105 |
(Benefit from) Provision for income taxes | | | (281) | | | 3,139 | | | 3,363 | | | 3,362 | | | 4,226 |
Net income | | $ | 275 | | $ | 9,238 | | $ | 10,265 | | $ | 8,047 | | $ | 11,879 |
| | | | | | | | | | | | | | | |
Basic earnings per share | | $ | 0.01 | | $ | 0.31 | | $ | 0.35 | | $ | 0.27 | | $ | 0.41 |
Diluted earnings per share | | | 0.01 | | | 0.31 | | | 0.34 | | | 0.27 | | | 0.40 |
Dividends paid per share | | | 0.01 | | | 0.01 | | | 0.01 | | | 0.01 | | | 0.01 |
16
Reconciliation of Non-GAAP Financial Measures
The tables below provide a reconciliation of each non-GAAP financial measure to the most comparable GAAP measure for the periods indicated. Dollar amounts below in thousands:
| | | | | | | | | | | |
| | Quarters Ended | | ||||||||
| | March 31, | | December 31 | | March 31, | | ||||
|
| 2021 |
| 2020 | | 2020 | | ||||
Net Interest Margin | | | | | | | | | | | |
Interest income (GAAP) | | $ | 25,391 | | $ | 26,006 | | $ | 27,451 | | |
Taxable-equivalent adjustment: | | | | | | | | | | | |
Loans | | | 4 | | | 3 | | | 3 | | |
Securities | | | 348 | | | 344 | | | 387 | | |
Interest income (TE) | | | 25,743 | | | 26,353 | | | 27,841 | | |
Interest expense (GAAP) | | | 1,848 | | | 2,129 | | | 4,793 | | |
Net interest income (TE) | | $ | 23,895 | | $ | 24,224 | | $ | 23,048 | | |
Paycheck Protection Program ("PPP") loan - interest and net fee income | | | 741 | | | 1,777 | | | NA | | |
Net interest income (TE) - excluding PPP loans | | $ | 23,154 | | $ | 22,447 | | $ | 23,048 | | |
Net interest income (GAAP) | | $ | 23,543 | | $ | 23,877 | | $ | 22,658 | | |
Average interest earning assets | | $ | 2,916,496 | | $ | 2,799,693 | | $ | 2,459,007 | | |
Average PPP loans | | $ | 94,149 | | $ | 111,491 | | | N/A | | |
Average interest earning assets, excluding PPP loans | | $ | 2,822,347 | | $ | 2,688,202 | | $ | 2,459,007 | | |
Net interest margin (GAAP) | | | 3.27 | % | | 3.39 | % | | 3.71 | % | |
Net interest margin (TE) | | | 3.32 | % | | 3.44 | % | | 3.77 | % | |
Core net interest margin (TE - excluding PPP loans) | | | 3.33 | % | | 3.32 | % | | 3.77 | % | |
| | | | | | | | | | | | | | | | | | | |
| | GAAP | | Non-GAAP | | ||||||||||||||
| | | Three Months Ended | | | Three Months Ended | | ||||||||||||
| | March 31, | | December 31, | | March 31, | | March 31, | | December 31, | | March 31, | | ||||||
| | 2021 | | 2020 | | 2020 | | 2021 | | 2020 | | 2020 | | ||||||
Efficiency Ratio / Adjusted Efficiency Ratio | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Noninterest expense | | $ | 21,738 | | $ | 21,253 | | $ | 21,002 | | $ | 21,738 | | $ | 21,253 | | $ | 21,002 | |
Less amortization of core deposit | | | 120 | | | 120 | | | 128 | | | 120 | | | 120 | | | 128 | |
Less other real estate expense, net | | | 36 | | | 146 | | | 237 | | | 36 | | | 146 | | | 237 | |
Noninterest expense less adjustments | | $ | 21,582 | | $ | 20,987 | | $ | 20,637 | | $ | 21,582 | | $ | 20,987 | | $ | 20,637 | |
| | | | | | | | | | | | | | | | | | | |
Net interest income | | $ | 23,543 | | $ | 23,877 | | $ | 22,658 | | $ | 23,543 | | $ | 23,877 | | $ | 22,658 | |
Taxable-equivalent adjustment: | | | | | | | | | | | | | | | | | | | |
Loans | | | N/A | | | N/A | | | N/A | | | 4 | | | 3 | | | 3 | |
Securities | | | N/A | | | N/A | | | N/A | | | 348 | | | 344 | | | 387 | |
Net interest income including adjustments | | | 23,543 | | | 23,877 | | | 22,658 | | | 23,895 | | | 24,224 | | | 23,048 | |
Noninterest income | | | 11,300 | | | 8,785 | | | 6,322 | | | 11,300 | | | 8,785 | | | 6,322 | |
Less death benefit related to BOLI | | | - | | | - | | | - | | | - | | | - | | | - | |
Less securities losses, net | | | - | | | - | | | (24) | | | - | | | - | | | (24) | |
Less MSRs mark to market gains (losses) | | | 1,113 | | | (1,260) | | | (2,134) | | | 1,113 | | | (1,260) | | | (2,134) | |
Taxable-equivalent adjustment: | | | | | | | | | | | | | | | | | | | |
Change in cash surrender value of BOLI | | | N/A | | | N/A | | | N/A | | | 89 | | | 77 | | | (13) | |
Noninterest income (less) / including adjustments | | | 10,187 | | | 10,045 | | | 8,480 | | | 10,276 | | | 10,122 | | | 8,467 | |
| | | | | | | | | | | | | | | | | | | |
Net interest income including adjustments plus noninterest income (less) / including adjustments | | $ | 33,730 | | $ | 33,922 | | $ | 31,138 | | $ | 34,171 | | $ | 34,346 | | $ | 31,515 | |
Efficiency ratio / Adjusted efficiency ratio | | | 63.98 | % | | 61.87 | % | | 66.28 | % | | 63.16 | % | | 61.10 | % | | 65.48 | % |
17