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(NASDAQ:OSBC) | Exhibit 99.1 | |
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Contact: | Bradley S. Adams | For Immediate Release |
| Chief Financial Officer | July 21, 2021 |
| (630) 906-5484 | |
Old Second Reports Second Quarter Net Income of $8.8 million, or $0.30 per Diluted Share
AURORA, IL, July 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 second quarter of 2021. Our net income was $8.8 million, or $0.30 per diluted share, for the second quarter of 2021, compared to net income of $11.9 million, or $0.40 per diluted share, for the first quarter of 2021, and net income of $9.2 million, or $0.31 per diluted share, for the second quarter of 2020. Net income for the second quarter of 2021 reflected a $3.5 million pre-tax release of provision for credit losses, compared to a $3.0 million pre-tax release in the first quarter of 2021, and a $2.1 million pre-tax provision expense in the second quarter of 2020. Mortgage banking income totaled $1.6 million in the second quarter of 2021, compared to $5.7 million in the first quarter of 2021, and $5.1 million in the second quarter of 2020. Mortgage servicing rights experienced a mark to market loss of $1.0 million during the second quarter of 2021, compared to a $1.1 million gain in the prior quarter and a $445,000 loss in the second quarter of 2020. Net gain on sales of mortgage loans totaled $1.9 million in the second quarter of 2021, compared to $3.7 million in the first quarter of 2021, and $4.6 million in the second quarter of 2020, as mortgage origination and refinancing volumes declined in the current period.
Operating Results
●Second quarter 2021 net income was $8.8 million, reflecting a decrease in earnings of $3.1 million from the first quarter of 2021, and a decrease of $418,000 from the second quarter of 2020.
●Net interest and dividend income was $22.0 million for the second quarter of 2021, a decrease of $1.6 million, or 6.8%, from the first quarter of 2021, and a decrease of $754,000, or 3.3%, from second quarter of 2020.
●Interest and dividend income for the second quarter of 2021 was $24.2 million, or $1.2 million less than the first quarter of 2021, and $1.5 million less than the second 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 and second quarters of 2021. We originated 746 PPP loans totaling $136.7 million in 2020, and as of June 30, 2021, $11.6 million on 35 PPP loans originated during the first round of the PPP loan program remained outstanding. During the first and second quarters of 2021, we originated $62.3 million, or 574 loans, under the second round of the PPP loan program, of which $58.6 million, or 483 loans, remain outstanding as of June 30, 2021. Net loan interest and fee income recorded in 2021 year to date on all PPP loans totaled $1.6 million, and approximately $2.3 million of net PPP loan fees remain unearned as of June 30, 2021.
●Interest expense for the second quarter of 2021 totaled $2.2 million, compared to $1.8 million for the first quarter of 2021, and $3.0 million for the second quarter of 2020. The $393,000 increase in interest expense in the second quarter of 2021, compared to the first quarter of 2021, was primarily due to the April 6, 2021, issuance of $60.0 million of 3.50% Fixed-to-Floating Rate Subordinated Notes due April 15, 2031, which bear interest at a fixed annual rate of 3.50% until April 14, 2026. The reduction in interest expense in the year over year period was due to a decrease in market interest rates, which impacted all interest bearing deposit categories.
●We recorded a $3.5 million release of provision expense in the second quarter of 2021, compared to a $3.0 million release of provision expense in the first quarter of 2021, and a $2.1 million provision for credit losses in the second quarter of 2020, as the projected impact of the COVID-19 pandemic on future credit losses is currently anticipated to be less than prior projections. Our allowance for credit losses (“ACL”) on loans in the second quarter of 2021 consisted of a release of the ACL on loans of $2.3 million, as well as $65,000 of net
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charge-offs recorded during the quarter. In addition, the ACL for unfunded commitments decreased by $1.2 million in the second quarter of 2021, due to an updated forecast of credit line utilization rates.
| ● | Noninterest income was $7.9 million for the second quarter of 2021, a decrease of $3.4 million, or 29.9%, compared to $11.3 million for the first quarter of 2021, and a decrease of $2.8 million, or 26.0%, compared to $10.7 million for the second quarter of 2020. The decrease from the linked quarter was primarily driven by a $4.1 million decline in residential mortgage banking revenue, attributable to a $2.1 million decrease in the mark to market adjustment on MSRs and a $1.8 million decrease in net gain on the sales of mortgage loans in the second quarter of 2021, compared to the prior quarter. These decreases to noninterest income were partially offset by a $238,000 increase in wealth management income and a $218,000 increase in card related income in the current quarter compared to the linked quarter. The decrease in noninterest income in the second quarter of 2021, compared to the second quarter of 2020, was primarily due to a $3.5 million decline in residential mortgage banking revenue, attributable to a $588,000 increase in mark to market loss on MSRs and a $2.7 million decrease in net gain on sales of mortgage loans in the second quarter of 2021, compared to the second quarter of 2020. |
| ● | Noninterest expense was $21.4 million for the second quarter of 2021, a decrease of $337,000, or 1.6%, compared to $21.7 million for the first quarter of 2021, and an increase of $2.5 million, or 13.3%, from $18.9 million for the second quarter of 2020. The decrease from the linked quarter was primarily attributable to a decrease 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, a decrease in occupancy, furniture and equipment costs was related to 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, card related expense and other expense. |
| ● | The provision for income taxes expense was $3.2 million for the second quarter of 2021, compared to $4.2 million for the first quarter of 2021, and $3.1 million for the second quarter of 2020. The decrease in tax expense for the linked quarter was due to lower pre-tax income in the second quarter of 2021, and the increase in tax expense for the year over year period was primarily due to a decrease in tax-deductible expenses in the second quarter of 2021 compared to the second quarter of 2020. |
| ● | During the second quarter of 2021, we repurchased 310,900 shares of our common stock at a weighted average price of $13.55 per share, pursuant to our stock repurchase program. |
| ● | On July 20, 2021, our Board of Directors declared a cash dividend of $0.05 per share payable on August 9, 2021, to stockholders of record as of July 30, 2021. |
President and Chief Executive Officer Jim Eccher said “An improving economy and conservative positioning resulted in solid bottom line earnings and a continued return of excess capital to our stockholders through the recent increase in the common dividend and continued share repurchases. While challenges remain, our credit quality metrics and expectations have continued to improve as the Chicago area moves towards a more normalized environment. Loan demand continued to remain soft in the second quarter with utilization rates remaining low and customers using excess liquidity to pay down existing debt. The end result was a somewhat disappointing $21.9 million linked quarter decline in loans and leases held for investment, exclusive of PPP loan activity. Deposit inflows remain robust and resulted in a further increase in excess liquidity as evidenced by a $140.0 million increase in average cash on the balance sheet during the quarter. We continue to deploy a portion of the excess liquidity on our balance sheet in short duration securities with yields far below the aggregate portfolio yield. The combination of these factors largely resulted in a 39 basis point sequential quarter decline in our net interest margin but a far more modest sequential decline in net interest income. Looking forward, I am more optimistic on loan growth for the remainder of the year and believe reported margin trends are more symptomatic of the profound increase in liquidity on our balance sheet rather than any fundamental change in our business. I believe Old Second remains conservatively positioned to meet these challenges, as our expenses remain well-controlled, our business is well diversified, customer activity is increasing and our 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 as we move towards a more normal routine.”
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 June 30, 2021, our clients had requested loan payment deferrals on 506 loans totaling $237.8 million. As of June 30, 2021, 488 loans, representing $228.7 million outstanding, |
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| or 96.2% of the original loan balances deferred, have resumed payments or paid off. Active payment deferrals remain on 18 loans, with $9.1 million of balances outstanding. |
| ● | We are participating in the Coronavirus Aid, Relief and Economic Security Act (“CARES” Act). During 2021, we processed 574 loan applications for PPP loans, representing a total of $62.3 million. As of June 30, 2021, we had $11.6 million of PPP loans outstanding that were originated under the first round of the PPP loan program, and $58.6 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 June 30, 2021, $128.8 million on 802 loans have been forgiven. We anticipate receiving the remaining funds for our first round of PPP loan forgiveness from the SBA through the third quarter of 2021, and will also continue the forgiveness process for our second round of PPP loans during the remainder of 2021. |
Capital Ratios
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| Minimum Capital | | Well Capitalized | | | | | | | | | | ||
| Adequacy with | | Under Prompt | | | | | | | | | | ||
| Capital Conservation | | Corrective Action | | June 30, | | March 31, | | June 30, | |||||
| Buffer, if applicable1 | | Provisions2 | | 2021 | | 2021 | | 2020 | |||||
The Company | | | | | | | | | | | | | | |
Common equity tier 1 capital ratio | 7.00 | % | | N/A | | | 12.72 | % | | 12.43 | % | | 11.31 | % |
Total risk-based capital ratio | 10.50 | % | | N/A | | | 17.60 | % | | 14.73 | % | | 13.63 | % |
Tier 1 risk-based capital ratio | 8.50 | % | | N/A | | | 13.83 | % | | 13.53 | % | | 12.39 | % |
Tier 1 leverage ratio | 4.00 | % | | N/A | | | 9.68 | % | | 10.02 | % | | 10.06 | % |
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The Bank | | | | | | | | | | | | | | |
Common equity tier 1 capital ratio | 7.00 | % | | 6.50 | % | | 15.23 | % | | 14.59 | % | | 13.46 | % |
Total risk-based capital ratio | 10.50 | % | | 10.00 | % | | 16.33 | % | | 15.80 | % | | 14.71 | % |
Tier 1 risk-based capital ratio | 8.50 | % | | 8.00 | % | | 15.23 | % | | 14.59 | % | | 13.46 | % |
Tier 1 leverage ratio | 4.00 | % | | 5.00 | % | | 10.63 | % | | 10.78 | % | | 10.86 | % |
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 currently 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 $23.1 million at June 30, 2021, compared to $21.2 million at March 31, 2021, and $20.2 million at June 30, 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 1.2% at June 30, 2021, 1.1% at March 31, 2021, and 1.0% at June 30, 2020. |
| ● | OREO assets totaled $1.9 million at June 30, 2021, compared to $2.2 million at March 31, 2021, and $5.1 million at June 30, 2020. We recorded two property sales of $530,000 net book value in the second quarter of 2021, and write-downs of $61,000, compared to write downs of $6,000 in the first quarter of 2021, and $60,000 in the second quarter of 2020. Nonperforming assets, as a percent of total loans plus OREO, were 1.3% at June 30, 2021, compared to 1.2% at both March 31, 2021, and June 30, 2020. |
| ● | Total loans were $1.90 billion at June 30, 2021, reflecting a decrease of $56.3 million compared to March 31, 2021, and a decrease of $149.0 million compared to June 30, 2020. Decreases in the linked quarter and year over year periods were primarily due to $128.8 million of PPP loan paydowns in our commercial portfolio, net of PPP loan originations of $62.3 million in 2021, as borrower liquidity is at a high level due to federal stimulus programs and there is a general lack of incentive for making capital expenditures. Average loans (including loans held-for-sale) for the second quarter of 2021 totaled $1.93 billion, reflecting a decrease of $83.8 million from the first quarter of 2021 and a decrease of $121.1 million from the second quarter of 2020. |
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| ● | Available-for-sale securities totaled $579.9 million at June 30, 2021, compared to $593.3 million at March 31, 2021, and $447.4 million at June 30, 2020. Total securities available-for-sale decreased a net $13.4 million from the linked quarter due to maturities of $50.9 million of mortgage-backed securities, partially offset by purchases of $30.1 million of collateralized mortgage-backed securities and $17.4 million of asset-backed securities, net of calls and paydowns. The unrealized mark to market adjustment on securities increased by $3.3 million since March 31, 2021, and increased by $8.6 million in the year over year period due to 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 | ||||||||||||||||||||||||||
| June 30, 2021 | | March 31, 2021 | | June 30, 2020 | ||||||||||||||||||||||
| Average | | Income / | | Rate | | Average | | Income / | | Rate | | Average | | Income / | | Rate | ||||||||||
| Balance | | Expense | | % | | Balance | | Expense | | % | | Balance | | Expense | | % | ||||||||||
Assets | | | | | | | | | | | | | | | | | | | | | | | | ||||
Interest earning deposits with financial institutions | $ | 499,555 | | $ | 137 | | 0.11 | | $ | 359,576 | | $ | 92 | | 0.10 | | $ | 153,532 | | $ | 42 | | 0.11 | ||||
Securities: | | | | | | | | | | | | | | | | | | | | | | | | ||||
Taxable | | 425,785 | | | 1,831 | | 1.72 | | | 340,873 | | | 1,615 | | 1.92 | | | 247,868 | | | 1,694 | | 2.75 | ||||
Non-taxable (TE)1 | | 188,281 | | | 1,594 | | 3.40 | | | 191,357 | | | 1,655 | | 3.51 | | | 204,840 | | | 1,767 | | 3.47 | ||||
Total securities (TE)1 | | 614,066 | | | 3,425 | | 2.24 | | | 532,230 | | | 3,270 | | 2.49 | | | 452,708 | | | 3,461 | | 3.07 | ||||
Dividends from FHLBC and FRBC | | 9,917 | | | 113 | | 4.57 | | | 9,917 | | | 115 | | 4.70 | | | 9,917 | | | 123 | | 4.99 | ||||
Loans and loans held-for-sale1, 2 | | 1,930,965 | | | 20,858 | | 4.33 | | | 2,014,773 | | | 22,266 | | 4.48 | | | 2,052,060 | | | 22,460 | | 4.40 | ||||
Total interest earning assets | | 3,054,503 | | | 24,533 | | 3.22 | | | 2,916,496 | | | 25,743 | | 3.58 | | | 2,668,217 | | | 26,086 | | 3.93 | ||||
Cash and due from banks | | 29,985 | | | - | | - | | | 28,461 | | | - | | - | | | 30,594 | | | - | | - | ||||
Allowance for credit losses on loans | | (31,024) | | | - | | - | | | (34,540) | | | - | | - | | | (30,747) | | | - | | - | ||||
Other noninterest bearing assets | | 185,368 | | | - | | - | | | 187,488 | | | - | | - | | | 187,305 | | | - | | - | ||||
Total assets | $ | 3,238,832 | | | | | | | $ | 3,097,905 | | | | | | | $ | 2,855,369 | | | | | | ||||
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Liabilities and Stockholders' Equity | | | | | | | | | | | | | | | | | | | | | | | | ||||
NOW accounts | $ | 531,804 | | $ | 105 | | 0.08 | | $ | 495,384 | | $ | 95 | | 0.08 | | $ | 457,772 | | $ | 129 | | 0.11 | ||||
Money market accounts | | 330,536 | | | 59 | | 0.07 | | | 329,050 | | | 77 | | 0.09 | | | 279,873 | | | 85 | | 0.12 | ||||
Savings accounts | | 439,104 | | | 53 | | 0.05 | | | 412,743 | | | 69 | | 0.07 | | | 359,358 | | | 171 | | 0.19 | ||||
Time deposits | | 359,635 | | | 409 | | 0.46 | | | 399,310 | | | 500 | | 0.51 | | | 439,735 | | | 1,442 | | 1.32 | ||||
Interest bearing deposits | | 1,661,079 | | | 626 | | 0.15 | | | 1,636,487 | | | 741 | | 0.18 | | | 1,536,738 | | | 1,827 | | 0.48 | ||||
Securities sold under repurchase agreements | | 67,737 | | | 22 | | 0.13 | | | 82,475 | | | 31 | | 0.15 | | | 45,882 | | | 23 | | 0.20 | ||||
Other short-term borrowings | | 1 | | | - | | - | | | - | | | - | | - | | | 8,396 | | | 34 | | 1.63 | ||||
Junior subordinated debentures | | 25,773 | | | 285 | | 4.44 | | | 25,773 | | | 280 | | 4.41 | | | 25,773 | | | 283 | | 4.42 | ||||
Subordinated debt | | 56,081 | | | 517 | | 3.70 | | | - | | | - | | - | | | - | | | - | | - | ||||
Senior notes | | 44,415 | | | 673 | | 6.08 | | | 44,389 | | | 673 | | 6.15 | | | 44,310 | | | 673 | | 6.11 | ||||
Notes payable and other borrowings | | 22,250 | | | 118 | | 2.13 | | | 23,330 | | | 123 | | 2.14 | | | 26,551 | | | 165 | | 2.50 | ||||
Total interest bearing liabilities | | 1,877,336 | | | 2,241 | | 0.48 | | | 1,812,454 | | | 1,848 | | 0.41 | | | 1,687,650 | | | 3,005 | | 0.72 | ||||
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Noninterest bearing deposits | | 1,012,163 | | | - | | - | | | 937,039 | | | - | | - | | | 854,324 | | | - | | - | ||||
Other liabilities | | 36,553 | | | - | | - | | | 37,801 | | | - | | - | | | 39,613 | | | - | | - | ||||
Stockholders' equity | | 312,780 | | | - | | - | | | 310,611 | | | - | | - | | | 273,782 | | | - | | - | ||||
Total liabilities and stockholders' equity | $ | 3,238,832 | | | | | | | $ | 3,097,905 | | | | | | | $ | 2,855,369 | | | | | | ||||
Net interest income (GAAP) | | | | $ | 21,953 | | | | | | | $ | 23,543 | | | | | | | $ | 22,707 | | | ||||
Net interest margin (GAAP) | | | | | | | 2.88 | | | | | | | | 3.27 | | | | | | | | 3.42 | ||||
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Net interest income (TE)1 | | | | $ | 22,292 | | | | | | | $ | 23,895 | | | | | | | $ | 23,081 | | | ||||
Net interest margin (TE)1 | | | | | | | 2.93 | | | | | | | | 3.32 | | | | | | | | 3.48 | ||||
Core net interest margin (TE - excluding PPP loans)1 | | | | | | | 2.91 | | | | | | | | 3.33 | | | | | | | | 3.51 | ||||
Interest bearing liabilities to earning assets | | 61.46 | % | | | | | | | 62.14 | % | | | | | | | 63.25 | % | | | | | ||||
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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.
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 both the second quarter of 2021 and the first quarter of 2021, and $718,000 for the second quarter of 2020. Nonaccrual loans are included in the above stated average balances.
Net interest income (TE) was $22.3 million for the second quarter of 2021, which reflects a decrease of $1.6 million compared to the first quarter of 2021, and a decrease of $789,000 compared to the second quarter of 2020. The tax equivalent adjustment for the second quarter of 2021 was $339,000, compared to $352,000 for the first quarter of 2020, and $374,000 for the second quarter of 2020. Average interest earning assets increased $138.0 million to $3.05 billion for the second quarter of 2021, compared to the first quarter of 2021, and increased $386.3 million in the second quarter of 2021, compared to the second quarter of 2020; both of these increases were primarily due to growth in interest earning deposits with financial institutions and taxable securities available-for-sale. Average loans, including loans held-for-sale, decreased $83.8 million for the second quarter of 2021, compared to the first quarter of 2021, and decreased $121.1 million compared to the second quarter of 2020. The yields on loans for the second quarter of 2021, compared to the first quarter of 2021, decreased 16 basis points, primarily due to the continued rate resets on loans to lower rates. Growth in the average balance of securities for the second quarter of 2021, compared to both the first quarter of 2021 and the second quarter of 2020, offset the decline in yields compared to the first quarter of 2021, but lower yields resulted in a reduction to interest income compared to the second quarter of 2020. The average yield on the total securities available-for-sale portfolio declined 85 basis points year over year. The yield on average earning assets decreased 36 basis points in the second quarter of 2021, compared to the first quarter of 2021, and decreased 71 basis points compared to the second quarter of 2020, due to a higher amount of earning assets held in interest bearing deposits with financial institutions, which had an average yield of eleven basis points in the second quarter of 2021. The lowering of interest rates by the Federal Reserve in the first quarter of 2020 in response to the COVID-19 pandemic has resulted in the reduction of rates on many earning assets, resulting in minimal alternatives for higher-yielding investment, as well as a general market trend for depositors to hold cash in more liquid interest bearing deposit accounts.
Total securities income was $3.4 million in the second quarter of 2021, an increase of $155,000 compared to the first quarter of 2021, due primarily to an increase in volumes in the linked quarter, but a decrease of $52,000 compared to the second quarter of 2020, due to a reduction in yields in the year over year period. Security paydowns, calls, and maturities in the second quarter of 2021 totaled $60.9 million, and sales totaled $8.2 million, which were partially offset by $53.0 million of purchases, primarily in collateralized mortgage-backed securities. Our overall yield on tax equivalent municipal securities was 3.40% for the second quarter of 2021, compared to 3.51% for the first quarter of 2021, and 3.47% for the second quarter of 2020. Taxable security yields also declined in the second quarter of 2021, resulting in a decrease to the overall tax equivalent yield for the total securities portfolio of 25 basis points from March 31, 2021, and 83 basis points from June 30, 2020.
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Average interest bearing liabilities increased $64.9 million in the second quarter of 2021, compared to the first quarter of 2021, primarily driven by a $24.6 million increase in average interest bearing deposits and a $56.1 million increase in subordinated debentures. Average interest bearing liabilities increased $189.7 million in the second quarter of 2021, compared to the second quarter of 2020, primarily driven by a $124.3 million increase in interest bearing deposits, a $21.9 million increase in securities sold under repurchase agreements, and a $56.1 million increase in subordinated debentures. The cost of interest bearing liabilities for the second quarter of 2021 decreased by seven basis points from the first quarter of 2021, and decreased 24 basis points from the second quarter of 2020. Growth in our average noninterest bearing demand deposits of $157.8 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 0.31% for the second quarter of 2021, 0.27% for the first quarter of 2021, and 0.48% for the second quarter of 2020.
In the second quarter of 2021, we entered into Subordinated Note Purchase Agreements with certain qualified institutional buyers pursuant to which 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”). We sold the Notes to eligible purchasers in a private offering, and the proceeds of this issuance are intended to be used for general corporate purposes, which may include, without limitation, the redemption of existing senior debt, common stock repurchases and strategic acquisitions. 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.
Our net interest margin (GAAP) decreased 39 basis points to 2.88% for the second quarter of 2021, compared to 3.27% for the first quarter of 2021, and decreased 54 basis points compared to 3.42% for the second quarter of 2020. Our net interest margin (TE) decreased 40 basis points to 2.93% for the second quarter of 2021, compared to 3.33% for the first quarter of 2021, and decreased 55 basis points compared to 3.48% for the second quarter of 2020. Our core net interest margin (TE), a non-GAAP financial measure that excludes the impact of our PPP loans, was 2.91% for the second quarter of 2021, compared to 3.33% for the first quarter of 2021 and 3.51% for the second quarter of 2020. The reductions year over year were due primarily to the lower level of market interest rates over the majority of the past twelve months, the related rate resets on loans and securities during the past year, and the increase in liquidity on the balance sheet. 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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| | | | | | | | | | | 2nd Quarter 2021 | | ||
Noninterest Income | | Three Months Ended | | Percent Change From | | |||||||||
(Dollars in thousands) | | June 30, | | March 31, | | June 30, | | March 31, | June 30, | | ||||
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| 2021 |
| 2021 |
| 2020 |
| 2021 |
| 2020 |
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Wealth management | | $ | 2,389 | | $ | 2,151 | | $ | 1,998 | | 11.1 | | 19.6 | |
Service charges on deposits | | | 1,221 | | | 1,195 | | | 1,120 | | 2.2 | | 9.0 | |
Residential mortgage banking revenue | | | | | | | | | | | | | | |
Secondary mortgage fees | | | 272 | | | 322 | | | 505 | | (15.5) | | (46.1) | |
Mortgage servicing rights mark to market (loss) gain | | | (1,033) | | | 1,113 | | | (445) | | (192.8) | | (132.1) | |
Mortgage servicing income | | | 507 | | | 567 | | | 458 | | (10.6) | | 10.7 | |
Net gain on sales of mortgage loans | | | 1,895 | | | 3,721 | | | 4,631 | | (49.1) | | (59.1) | |
Total residential mortgage banking revenue | | | 1,641 | | | 5,723 | | | 5,149 | | (71.3) | | (68.1) | |
Securities gains, net | | | 2 | | | - | | | - | | - | | - | |
Change in cash surrender value of BOLI | | | 423 | | | 334 | | | 532 | | 26.6 | | (20.5) | |
Card related income | | | 1,666 | | | 1,447 | | | 1,311 | | 15.1 | | 27.1 | |
Other income | | | 577 | | | 450 | | | 526 | | 28.2 | | 9.7 | |
Total noninterest income | | $ | 7,919 | | $ | 11,300 | | $ | 10,695 | | (29.9) | | (26.0) | |
Noninterest income decreased $3.4 million, or 29.9%, in the second quarter of 2021, compared to the first quarter of 2021, and decreased $2.8 million, or 25.9%, compared to the second quarter of 2020. The decrease from the linked quarter was primarily driven by a $4.1 million decrease in residential mortgage banking revenue, attributable to a $2.1 million decrease in mark to market gains on MSRs stemming from market interest rate changes and a $1.8 million decrease in net gain on sales of mortgage loans in the second quarter of 2021, compared to the first quarter of 2021. These decreases to noninterest income were partially offset by a $238,000 increase in wealth management income, and a $218,000 increase in card related income in the second quarter of 2021, compared to the prior quarter.
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The decrease in noninterest income in the second quarter of 2021, compared to the second quarter of 2020, is primarily due to a $3.5 million decrease in residential mortgage banking revenue, comprised of a $588,000 decrease in mark to market MSR valuation and a $2.7 million decrease in net gain on sales of mortgage loans from the 2020 like period. Partially offsetting these decreases, wealth management and card related income increased $391,000 and $354,000, respectively, in the second quarter of 2021 compared to the second quarter of 2020. Card related income increased in the second quarter of 2021, compared to both the linked quarter and prior year quarter, resulting from reductions in COVID-19 related restrictions and the resultant increase in consumer spending.
Noninterest Expense
| | | | | | | | | | | | | | |
| | | | | | | | | | | 2nd Quarter 2021 | | ||
Noninterest Expense | | Three Months Ended | | Percent Change From | | |||||||||
(Dollars in thousands) | | June 30, | | March 31, | | June 30, | | March 31, | | June 30, | | |||
|
| 2021 |
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| |||
Salaries | | $ | 9,435 | | $ | 9,216 | | $ | 8,588 | | 2.4 | | 9.9 | |
Officers incentive | | | 1,194 | | | 1,653 | | | 968 | | (27.8) | | 23.3 | |
Benefits and other | | | 2,267 | | | 2,637 | | | 1,786 | | (14.0) | | 26.9 | |
Total salaries and employee benefits | | | 12,896 | | | 13,506 | | | 11,342 | | (4.5) | | 13.7 | |
Occupancy, furniture and equipment expense | | | 2,303 | | | 2,467 | | | 1,935 | | (6.6) | | 19.0 | |
Computer and data processing | | | 1,304 | | | 1,298 | | | 1,247 | | 0.5 | | 4.6 | |
FDIC insurance | | | 192 | | | 201 | | | 155 | | (4.5) | | 23.9 | |
General bank insurance | | | 277 | | | 276 | | | 237 | | 0.4 | | 16.9 | |
Amortization of core deposit intangible asset | | | 115 | | | 120 | | | 124 | | (4.2) | | (7.3) | |
Advertising expense | | | 95 | | | 60 | | | 57 | | 58.3 | | 66.7 | |
Card related expense | | | 626 | | | 593 | | | 514 | | 5.6 | | 21.8 | |
Legal fees | | | 135 | | | 55 | | | 176 | | 145.5 | | (23.3) | |
Other real estate owned expense, net | | | 77 | | | 36 | | | 143 | | 113.9 | | (46.2) | |
Other expense | | | 3,381 | | | 3,126 | | | 2,966 | | 8.2 | | 14.0 | |
Total noninterest expense | | $ | 21,401 | | $ | 21,738 | | $ | 18,896 | | (1.6) | | 13.3 | |
Efficiency ratio (GAAP)1 | | | 68.63 | % | | 63.98 | % | | 55.13 | % | | | | |
Adjusted efficiency ratio (non-GAAP)2 | | | 67.64 | % | | 63.16 | % | | 54.25 | % | | | | |
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 second quarter of 2021 decreased $337,000, or 1.6%, compared to the first quarter of 2021, but increased $2.5 million, or 13.3%, compared to the second quarter of 2020. The linked quarter decrease is primarily attributable to a $610,000 decrease in salaries and employee benefits in the second quarter of 2021 primarily driven by a $460,000 decrease in officer incentive compensation and a $370,000 decrease in benefits and other expenses, due to higher payroll taxes and 401K company matching expense related to the higher officer incentives in the first quarter of 2021. These decreases were partially offset by a $219,000 increase in salaries due to annual merit increases in March 2021, and a reversal of restricted stock compensation award expense in the first quarter of 2021 due to the achievement of only a partial award payout for performance-based restricted stock units. In addition, occupancy, furniture and equipment expense decreased $164,000 in the second quarter of 2021 compared to the linked quarter due to a decrease in snow removal costs and planned building maintenance. These decreases were partially offset by an increase in loan-related legal fees and other expenses, due to ongoing project-related consulting costs incurred, as well as an increase in employee related costs, as we return to more normalized events and meetings with our customers as the COVID-19 restrictions ease.
The year over year increase in noninterest expense is primarily attributable to a $1.6 million increase in salaries and employee benefits in the second quarter of 2021. Officer incentive increased $225,000 in the second quarter of 2021, compared to the second quarter of 2020, as incentive accruals in 2021 were at a higher rate than the prior year. Employee
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benefits expense increased $481,000 in the second quarter of 2021, compared to the second quarter of 2020, due to an increase in payroll taxes and 401K company matching expense commensurate with the higher salaries and incentives paid in 2021, as well as higher employee insurance costs. We also had increases in the year over year period in occupancy, furniture and equipment of $368,000 due to an increase in planned building repairs, and an increase in card related expense of $112,000 as customers began to increase their spending as the COVID-19 pandemic restrictions subsided. Finally, other expense increased $415,000 due to growth in consulting fees, and deferred director fees due to market interest rate increases year over year.
Earning Assets
| | | | | | | | | | | | | | |
| | | | | | | | | | | June 30, 2021 | | ||
Loans | | As of | | Percent Change From | | |||||||||
(dollars in thousands) | | June 30, | | March 31, | | June 30, | | March 31, | | June 30, | | |||
|
| 2021 |
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| |||
Commercial | | $ | 344,084 | | $ | 392,380 | | $ | 441,642 | | (12.3) | | (22.1) | |
Leases | | | 154,512 | | | 138,240 | | | 133,293 | | 11.8 | | 15.9 | |
Commercial real estate - Investor | | | 569,745 | | | 567,475 | | | 525,714 | | 0.4 | | 8.4 | |
Commercial real estate - Owner occupied | | | 318,259 | | | 326,857 | | | 343,982 | | (2.6) | | (7.5) | |
Construction | | | 100,544 | | | 93,745 | | | 83,939 | | 7.3 | | 19.8 | |
Residential real estate - Investor | | | 50,127 | | | 52,176 | | | 69,421 | | (3.9) | | (27.8) | |
Residential real estate - Owner occupied | | | 105,419 | | | 107,303 | | | 126,303 | | (1.8) | | (16.5) | |
Multifamily | | | 161,628 | | | 178,258 | | | 197,521 | | (9.3) | | (18.2) | |
HELOC | | | 72,475 | | | 75,604 | | | 89,170 | | (4.1) | | (18.7) | |
HELOC - Purchased | | | 14,436 | | | 17,078 | | | 26,467 | | (15.5) | | (45.5) | |
Other1 | | | 12,137 | | | 10,509 | | | 14,884 | | 15.5 | | (18.5) | |
Total loans | | $ | 1,903,366 | | $ | 1,959,625 | | $ | 2,052,336 | | (2.9) | | (7.3) | |
1 Other class includes consumer and overdrafts.
Total loans decreased by $56.3 million at June 30, 2021, compared to March 31, 2021, and decreased $149.0 million for the year over year period. Declines were noted in the majority of loan categories, except for leases, commercial real estate-investor and construction, in the year over year period, as borrowers have taken advantage of higher cash balances on hand to pay down or pay off their loans. In addition, during the second quarter of 2021, $34.7 million of PPP loans originated in 2020 were forgiven. This reduction in loans was partially offset by $62.3 million of new PPP loans originated in 2021. Decreases in the year over year period in commercial loans was primarily due to PPP loans forgiven, net of originations, as well as reductions in organic commercial loans due to payoffs related to borrower liquidity. 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.
| | | | | | | | | | | | | |
| | | | | | | | | | | June 30, 2021 | ||
Securities | | As of | | Percent Change From | |||||||||
(dollars in thousands) | | June 30, | | March 31, | | June 30, | | March 31, | | June 30, | |||
|
| 2021 |
| 2021 |
| 2020 |
| 2021 |
| 2020 | |||
Securities available-for-sale, at fair value | | | | | | | | | | | | | |
U.S. Treasury | | $ | 4,086 | | $ | 4,102 | | $ | 4,147 | | (0.4) | | (1.5) |
U.S. government agencies | | | 6,038 | | | 6,361 | | | 7,276 | | (5.1) | | (17.0) |
U.S. government agency mortgage-backed | | | 18,939 | | | 70,602 | | | 16,779 | | (73.2) | | 12.9 |
States and political subdivisions | | | 242,748 | | | 242,146 | | | 250,364 | | 0.2 | | (3.0) |
Corporate bonds | | | 31,715 | | | 34,843 | | | - | | (9.0) | | - |
Collateralized mortgage obligations | | | 101,912 | | | 74,936 | | | 56,113 | | 36.0 | | 81.6 |
Asset-backed securities | | | 145,356 | | | 130,368 | | | 80,026 | | 11.5 | | 81.6 |
Collateralized loan obligations | | | 29,154 | | | 29,922 | | | 32,731 | | (2.6) | | (10.9) |
Total securities available-for-sale | | $ | 579,948 | | $ | 593,280 | | $ | 447,436 | | (2.2) | | 29.6 |
| | | | | | | | | | | | | |
Our securities portfolio totaled $579.9 million as of June 30, 2021, a decrease of $13.3 million from $593.3 million as of March 31, 2021, and an increase of $132.5 million from June 30, 2020. The decrease in the portfolio during the second quarter of 2021, compared to the prior quarter, was driven by the rebalancing of the portfolio to mitigate risks and was due to maturities, calls, and paydowns of $60.9 million, primarily of U.S. Government agency mortgage-backed securities, as well as sales of $8.2 million of corporate bonds. These reductions to the securities available-for-sale portfolio were partially offset by $53.0 million of purchases, primarily of collateralized mortgage-
8
backed and asset-backed securities, and an increase of $3.3 million in unrealized mark to market gains for the quarter. The increase in the securities portfolio in the year over year period was primarily due to purchases in the last twelve months to utilize the excess cash on hand, and an increase in unrealized mark to market gains on securities available-for-sale of $8.6 million. Security sales of $8.2 million were recorded in the second quarter of 2021, compared to no security sales recorded in the first quarter of 2021 or the second quarter of 2020.
Asset Quality
| | | | | | | | | | | | | |
| | | | | | | | | | | June 30, 2021 | ||
Nonperforming assets | | As of | | Percent Change From | |||||||||
(dollars in thousands) | | June 30, | | March 31, | | June 30, | | March 31, | | June 30, | |||
|
| 2021 |
| 2021 |
| 2020 |
| 2021 | | 2020 | |||
Nonaccrual loans | | $ | 22,784 | | $ | 20,379 | | $ | 18,343 | | 11.8 | | 24.2 |
Performing troubled debt restructured loans accruing interest | |
| 201 | |
| 290 | |
| 978 | | (30.7) | | (79.4) |
Loans past due 90 days or more and still accruing interest | |
| 136 | |
| 513 | |
| 840 | | (73.5) | | (83.8) |
Total nonperforming loans | |
| 23,121 | |
| 21,182 | |
| 20,161 | | 9.2 | | 14.7 |
Other real estate owned | |
| 1,877 | |
| 2,163 | |
| 5,082 | | (13.2) | | (63.1) |
Total nonperforming assets | | $ | 24,998 | | $ | 23,345 | | $ | 25,243 | | 7.1 | | (1.0) |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
30-89 days past due loans and still accruing interest | | $ | 8,654 | | $ | 13,506 | | $ | 11,330 | | | | |
Nonaccrual loans to total loans | | | 1.2 | % | | 1.0 | % | | 0.9 | % | | | |
Nonperforming loans to total loans | | | 1.2 | % | | 1.1 | % | | 1.0 | % | | | |
Nonperforming assets to total loans plus OREO | | | 1.3 | % | | 1.2 | % | | 1.2 | % | | | |
Purchased credit-deteriorated loans to total loans | | | 0.5 | % | | 0.6 | % | | 0.5 | % | | | |
| | | | | | | | | | | | | |
Allowance for credit losses | | $ | 28,639 | | $ | 30,967 | | $ | 31,273 | | | | |
Allowance for credit losses to total loans | | | 1.5 | % | | 1.6 | % | | 1.5 | % | | | |
Allowance for credit losses to nonaccrual loans | | | 125.7 | % | | 152.0 | % | | 170.5 | % | | | |
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 ASU 2016-13, Current Expected Credit Losses (“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 $9.97 million, net of purchase accounting adjustments, at June 30, 2021. PCD loans that meet the definition of nonperforming loans are now included in our nonperforming disclosures. Nonperforming loans to total loans was 1.2% for the second quarter of 2021, 1.1% for the first quarter of 2021, and 1.0% for the second quarter of 2020. Nonperforming assets to total loans plus OREO was 1.3% for the second quarter of 2021, and 1.2% for both the first quarter of 2021 and second quarter of 2020, as our nonperforming loans remained stable and we continued OREO liquidations and recorded write-downs. Our allowance for credit losses to total loans was 1.5% as of both June 30, 2021 and June 30, 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.
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| | | | | | | | | | | | | | |
| | | | | | | | | | | June 30, 2021 | | ||
Classified loans | | As of | | Percent Change From | | |||||||||
(dollars in thousands) | | June 30, | | March 31, | | June 30, | | March 31, | | June 30, | | |||
|
| 2021 |
| 2021 |
| 2020 |
| 2021 |
| 2020 | | |||
Commercial | | $ | 482 | | $ | 2,397 | | $ | 8,627 | | (79.9) | | (94.4) | |
Leases | | | 3,007 | | | 3,147 | | | 254 | | (4.4) | | N/M | |
Commercial real estate - Investor | | | 5,063 | | | 5,130 | | | 5,445 | | (1.3) | | (7.0) | |
Commercial real estate - Owner occupied | | | 8,702 | | | 8,652 | | | 9,432 | | 0.6 | | (7.7) | |
Construction | | | 5,393 | | | 5,366 | | | 2,318 | | 0.5 | | 132.7 | |
Residential real estate - Investor | | | 1,082 | | | 1,435 | | | 1,454 | | (24.6) | | (25.6) | |
Residential real estate - Owner occupied | | | 4,578 | | | 4,148 | | | 4,270 | | 10.4 | | 7.2 | |
Multifamily | | | 8,477 | | | 7,846 | | | 5,562 | | 8.0 | | 52.4 | |
HELOC | | | 1,090 | | | 1,303 | | | 1,690 | | (16.3) | | (35.5) | |
HELOC - Purchased | | | - | | | - | | | 113 | | - | | (100.0) | |
Other1 | | | 2 | | | 402 | | | 353 | | (99.5) | | (99.4) | |
Total classified loans | | $ | 37,876 | | $ | 39,826 | | $ | 39,518 | | (4.9) | | (4.2) | |
N/M - Not meaningful.
1 Other class includes consumer and overdrafts.
Allowance for Credit Losses on Loans and Unfunded Commitments
At June 30, 2021, our allowance for credit losses (“ACL”) on loans totaled $28.6 million, and our ACL on unfunded commitments, included in other liabilities, totaled $2.2 million. The decrease in our ACL on loans at June 30, 2021, compared to March 31, 2021, was driven by a $2.3 million release of provision expense in the second quarter of 2021, based on updates to our loss forecasts primarily stemming from a more favorable unemployment projection. The decrease in our ACL on unfunded commitments at June 30, 2021, compared to March 31, 2021, was driven by a $1.2 million release of provision expense in the second quarter of 2021 due to adjustments in our 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 1.5% as of June 30, 2021, compared to 1.6% as of March 31, 2020, and 1.5% at June 30, 2020. The ACL on unfunded commitments totaled $2.2 million as of June 30, 2021, compared to $3.5 million as of March 31, 2021 and $5.0 million as of June 30, 2020.
Net Charge-off Summary
| | | | | | | | | | | | | | |
Loan Charge-offs, net of recoveries | Quarters Ended | |||||||||||||
(dollars in thousands) | June 30, | | % of | | March 31, | | % of | | June 30, | | % of | |||
| 2021 | | Total 2 | | 2020 | | Total 2 | | 2020 | | Total 2 | |||
Commercial | $ | 190 | | 292.3 | | $ | (18) | | 3.1 | | $ | (2) | | (1.2) |
Leases | | 28 | | 43.1 | | | - | | - | | | - | | - |
Commercial real estate - Investor | | (20) | | (30.8) | | | (20) | | 3.4 | | | (14) | | (8.4) |
Commercial real estate - Owner occupied | | 21 | | 32.3 | | | (205) | | 35.2 | | | 292 | | 174.9 |
Construction | | - | | - | | | - | | - | | | - | | - |
Residential real estate - Investor | | (10) | | (15.4) | | | (266) | | 45.7 | | | (2) | | (1.2) |
Residential real estate - Owner occupied | | (61) | | (93.8) | | | (49) | | 8.4 | | | (66) | | (39.5) |
Multifamily | | - | | - | | | - | | - | | | - | | - |
HELOC | | (72) | | (110.8) | | | (12) | | 2.1 | | | (53) | | (31.7) |
HELOC - Purchased | | - | | - | | | - | | - | | | - | | - |
Other 1 | | (11) | | (16.9) | | | (12) | | 2.1 | | | 12 | | 7.1 |
Net charge-offs / (recoveries) | $ | 65 | | 100.0 | | $ | (582) | | 100.0 | | $ | 167 | | 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 second quarter of 2021 were $300,000, compared to $42,000 for the first quarter of 2021, and $406,000 for the second quarter of 2020. Gross recoveries were $235,000 for the second quarter of 2021, compared to $624,000 for the first quarter of 2021 and $239,000 for the second quarter of 2020. Continued recoveries are indicative of the ongoing aggressive efforts by management to effectively manage and resolve prior charge-offs.
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Deposits
Total deposits were $2.68 billion at June 30, 2021, an increase of $25.5 million compared to March 31, 2021, resulting from net increases in demand deposits of $45.9 million, and net increases in savings, NOW and money market accounts of $14.2 million, partially offset by decreases in time deposits of $34.7 million. Total deposits increased $230.7 million in the year over year period driven primarily by growth in demand deposits of $137.9 million, and savings, NOW and money market accounts of $171.9 million, partially offset by a decrease in time deposits of $79.1 million.
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Borrowings
As of June 30, 2021, we had no other short-term borrowings compared to $8.3 million as of June 30, 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 June 30, 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. Subordinated debt increased $59.2 million as of June 30, 2021, consisting of $60.0 million in principal issued on April 6, 2021, net of debt issuance cost of $800,000. Notes payable and other borrowings totaled $21.2 million as of June 30, 2021, and is comprised of $15.0 million outstanding on a $20.0 million term note we originated to facilitate the March 2020 redemption of our trust preferred securities and related junior subordinated debentures issued by Old Second Capital Trust I, and $6.2 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,” “forecast,” “project,” or other statements that indicate future periods. Examples of forward-looking statements include, but are not limited to, statements regarding the economic outlook, our expectations regarding future loan growth, trends in our net interest margin, the adequacy of our allowance and our belief that we are conservatively positioned, 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
12
loss, the rates of loan growth, or adverse changes in asset quality in our loan portfolio, which may result in increased credit risk-related losses and expenses; (3) changes in legislation, regulation, policies, or administrative practices, whether by judicial, governmental, or legislative action, including, but not limited to, the Coronavirus Aid, Relief, and Economic Security Act, or the “CARES Act”; (4) risks related to future acquisitions, if any, including execution and integration risks; (5) adverse conditions in the stock market, the public debt market and other capital markets (including changes in interest rate conditions) could have a negative impact on us; 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 a call on Thursday, July 22, 2021, at 11:00 a.m. Eastern Time (10:00 a.m. Central Time) to discuss our second quarter 2021 financial results. Investors may listen to our 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 call will be available until 11:00 a.m. Eastern Time (10:00 a.m. Central Time) on July 29, 2021, by dialing 877-481-4010, using Conference ID: 42068.
13
Old Second Bancorp, Inc. and Subsidiaries
(In thousands)
| | | ��� | | | |
| | (unaudited) | | | | |
| | June 30, | | December 31, | ||
|
| 2021 |
| 2020 | ||
Assets | | | | | | |
Cash and due from banks | | $ | 29,829 | | $ | 24,306 |
Interest earning deposits with financial institutions | | | 562,931 | | | 305,597 |
Cash and cash equivalents | | | 592,760 | | | 329,903 |
Securities available-for-sale, at fair value | | | 579,948 | | | 496,178 |
Federal Home Loan Bank Chicago ("FHLBC") and Federal Reserve Bank Chicago ("FRBC") stock | | | 9,917 | | | 9,917 |
Loans held-for-sale | | | 6,814 | | | 12,611 |
Loans | | | 1,903,366 | | | 2,034,851 |
Less: allowance for credit losses on loans | | | 28,639 | | | 33,855 |
Net loans | | | 1,874,727 | | | 2,000,996 |
Premises and equipment, net | | | 44,544 | | | 45,477 |
Other real estate owned | | | 1,877 | | | 2,474 |
Mortgage servicing rights, at fair value | | | 5,267 | | | 4,224 |
Goodwill and core deposit intangible | | | 20,546 | | | 20,781 |
Bank-owned life insurance ("BOLI") | | | 63,859 | | | 63,102 |
Deferred tax assets, net | | | 6,696 | | | 8,121 |
Other assets | | | 43,679 | | | 47,053 |
Total assets | | $ | 3,250,634 | | $ | 3,040,837 |
| | | | | | |
Liabilities | | | | | | |
Deposits: | | | | | | |
Noninterest bearing demand | | $ | 1,028,558 | | $ | 909,505 |
Interest bearing: | | | | | | |
Savings, NOW, and money market | | | 1,305,180 | | | 1,202,134 |
Time | | | 348,263 | | | 425,434 |
Total deposits | | | 2,682,001 | | | 2,537,073 |
Securities sold under repurchase agreements | | | 68,566 | | | 66,980 |
Junior subordinated debentures | | | 25,773 | | | 25,773 |
Senior notes | | | 44,428 | | | 44,375 |
Subordinated debt | | | 59,169 | | | - |
Notes payable and other borrowings | | | 21,234 | | | 23,393 |
Other liabilities | | | 33,525 | | | 36,156 |
Total liabilities | | | 2,934,696 | | | 2,733,750 |
| | | | | | |
Stockholders’ Equity | | | | | | |
Common stock | | | 34,957 | | | 34,957 |
Additional paid-in capital | | | 120,572 | | | 122,212 |
Retained earnings | | | 255,536 | | | 236,579 |
Accumulated other comprehensive income | | | 14,433 | | | 14,762 |
Treasury stock | | | (109,560) | | | (101,423) |
Total stockholders’ equity | | | 315,938 | | | 307,087 |
Total liabilities and stockholders’ equity | | $ | 3,250,634 | | $ | 3,040,837 |
| | | | | | |
14
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(In thousands, except share data)
| | | | | | | | | | | | | |
| | | (unaudited) | | (unaudited) | | |||||||
| | Three Months Ended June 30, | | Six Months Ended June 30, | |||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
Interest and dividend income | | | | | | | | | | | | | |
Loans, including fees | | $ | 20,815 | | $ | 22,347 | | $ | 43,022 | | $ | 45,944 | |
Loans held-for-sale | | | 38 | | | 110 | | | 93 | | | 146 | |
Securities: | | | | | | | | | | | | | |
Taxable | | | 1,832 | | | 1,694 | | | 3,447 | | | 3,857 | |
Tax exempt | | | 1,259 | | | 1,396 | | | 2,566 | | | 2,851 | |
Dividends from FHLBC and FRBC stock | | | 113 | | | 123 | | | 228 | | | 248 | |
Interest bearing deposits with financial institutions | | | 137 | | | 42 | | | 229 | | | 117 | |
Total interest and dividend income | | | 24,194 | | | 25,712 | | | 49,585 | | | 53,163 | |
Interest expense | | | | | | | | | | | | | |
Savings, NOW, and money market deposits | | | 217 | | | 385 | | | 458 | | | 1,020 | |
Time deposits | | | 409 | | | 1,442 | | | 909 | | | 3,208 | |
Securities sold under repurchase agreements | | | 21 | | | 23 | | | 52 | | | 139 | |
Other short-term borrowings | | | - | | | 34 | | | - | | | 143 | |
Junior subordinated debentures | | | 284 | | | 283 | | | 564 | | | 1,647 | |
Subordinated debt | | | 517 | | | - | | | 517 | | | - | |
Senior notes | | | 673 | | | 673 | | | 1,346 | | | 1,346 | |
Notes payable and other borrowings | | | 119 | | | 165 | | | 242 | | | 295 | |
Total interest expense | | | 2,240 | | | 3,005 | | | 4,088 | | | 7,798 | |
Net interest and dividend income | | | 21,954 | | | 22,707 | | | 45,497 | | | 45,365 | |
Provision for (release of) credit losses | | | (3,500) | | | 2,129 | | | (6,500) | | | 10,113 | |
Net interest and dividend income after provision for (release of) credit losses | | | 25,454 | | | 20,578 | | | 51,997 | | | 35,252 | |
Noninterest income | | | | | | | | | | | | | |
Wealth management | | | 2,389 | | | 1,664 | | | 4,540 | | | 3,196 | |
Service charges on deposits | | | 1,221 | | | 1,120 | | | 2,416 | | | 2,846 | |
Secondary mortgage fees | | | 272 | | | 505 | | | 594 | | | 775 | |
Mortgage servicing rights mark to market (loss) gain | | | (1,033) | | | (445) | | | 80 | | | (2,579) | |
Mortgage servicing income | | | 507 | | | 458 | | | 1,074 | | | 926 | |
Net gain on sales of mortgage loans | | | 1,895 | | | 4,631 | | | 5,616 | | | 6,877 | |
Securities gains (losses), net | | | 2 | | | - | | | 2 | | | (24) | |
Change in cash surrender value of BOLI | | | 423 | | | 532 | | | 757 | | | 483 | |
Death benefit realized on BOLI | | | - | | | 59 | | | - | | | 59 | |
Card related income | | | 1,666 | | | 1,311 | | | 3,113 | | | 2,598 | |
Other income | | | 577 | | | 860 | | | 1,027 | | | 1,860 | |
Total noninterest income | | | 7,919 | | | 10,695 | | | 19,219 | | | 17,017 | |
Noninterest expense | | | | | | | | | | | | | |
Salaries and employee benefits | | | 12,896 | | | 11,342 | | | 26,402 | | | 24,260 | |
Occupancy, furniture and equipment | | | 2,303 | | | 1,935 | | | 4,770 | | | 4,236 | |
Computer and data processing | | | 1,304 | | | 1,247 | | | 2,602 | | | 2,582 | |
FDIC insurance | | | 192 | | | 155 | | | 393 | | | 212 | |
General bank insurance | | | 277 | | | 237 | | | 553 | | | 483 | |
Amortization of core deposit intangible | | | 115 | | | 124 | | | 235 | | | 252 | |
Advertising expense | | | 95 | | | 57 | | | 155 | | | 166 | |
Card related expense | | | 626 | | | 514 | | | 1,219 | | | 1,046 | |
Legal fees | | | 135 | | | 176 | | | 190 | | | 307 | |
Other real estate expense, net | | | 77 | | | 143 | | | 113 | | | 380 | |
Other expense | | | 3,381 | | | 2,966 | | | 6,507 | | | 5,974 | |
Total noninterest expense | | | 21,401 | | | 18,896 | | | 43,139 | | | 39,898 | |
Income before income taxes | | | 11,972 | | | 12,377 | | | 28,077 | | | 12,371 | |
Provision for income taxes | | | 3,152 | | | 3,139 | | | 7,378 | | | 2,858 | |
Net income | | $ | 8,820 | | $ | 9,238 | | $ | 20,699 | | $ | 9,513 | |
| | | | | | | | | | | | | |
Basic earnings per share | | $ | 0.30 | | $ | 0.31 | | $ | 0.71 | | $ | 0.32 | |
Diluted earnings per share | | | 0.30 | | | 0.31 | | | 0.70 | | | 0.31 | |
Dividends declared per share | | | 0.05 | | | 0.01 | | | 0.06 | | | 0.02 | |
| | | | | | | | |
Ending common shares outstanding | | 28,707,737 | | 29,589,341 | | 28,707,737 | | 29,589,341 |
Weighted-average basic shares outstanding | | 28,849,015 | | 29,637,567 | | 29,036,354 | | 29,783,665 |
Weighted-average diluted shares outstanding | | 29,367,472 | | 30,194,007 | | 29,574,962 | | 30,342,306 |
15
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 | 2nd Qtr |
| ||||||
Cash and due from banks | | $ | 32,549 | | $ | 30,594 | | $ | 31,354 | | $ | 30,086 | | $ | 28,461 | $ | 29,985 | |
Interest earning deposits with financial institutions | | | 27,989 | | | 153,532 | | | 263,199 | | | 275,087 | | | 359,576 | | 499,555 | |
Cash and cash equivalents | | | 60,538 | | | 184,126 | | | 294,553 | | | 305,173 | | | 388,037 | | 529,540 | |
| | | | | | | | | | | | | | | | | | |
Securities available-for-sale, at fair value | | | 475,718 | | | 452,708 | | | 448,408 | | | 481,948 | | | 532,230 | | 614,066 | |
FHLBC and FRBC stock | | | 9,917 | | | 9,917 | | | 9,917 | | | 9,917 | | | 9,917 | | 9,917 | |
Loans held-for-sale | | | 3,623 | | | 13,978 | | | 13,384 | | | 9,503 | | | 8,616 | | 4,860 | |
Loans | | | 1,941,760 | | | 2,038,082 | | | 2,035,584 | | | 2,023,238 | | | 2,006,157 | | 1,926,105 | |
Less: allowance for credit losses on loans | | | 23,507 | | | 30,747 | | | 31,518 | | | 33,255 | | | 34,540 | | 31,024 | |
Net loans | | | 1,918,253 | | | 2,007,335 | | | 2,004,066 | | | 1,989,983 | | | 1,971,617 | | 1,895,081 | |
| | | | | | | | | | | | | | | | | | |
Premises and equipment, net | | | 44,613 | | | 44,658 | | | 44,802 | | | 45,382 | | | 45,378 | | 44,847 | |
Other real estate owned | | | 5,127 | | | 5,040 | | | 3,087 | | | 2,653 | | | 2,213 | | 2,053 | |
Mortgage servicing rights, at fair value | | | 5,053 | | | 4,451 | | | 4,645 | | | 4,717 | | | 4,814 | | 5,499 | |
Goodwill and core deposit intangible | | | 21,208 | | | 21,084 | | | 20,960 | | | 20,838 | | | 20,719 | | 20,602 | |
Bank-owned life insurance ("BOLI") | | | 61,873 | | | 61,790 | | | 61,897 | | | 62,499 | | | 63,259 | | 63,633 | |
Deferred tax assets, net | | | 9,682 | | | 13,511 | | | 12,051 | | | 9,189 | | | 8,228 | | 7,782 | |
Other assets | | | 25,156 | | | 36,771 | | | 37,786 | | | 47,143 | | | 42,877 | | 40,952 | |
Total other assets | | | 172,712 | | | 187,305 | | | 185,228 | | | 192,421 | | | 187,488 | | 185,368 | |
Total assets | | $ | 2,640,761 | | $ | 2,855,369 | | $ | 2,955,556 | | $ | 2,988,945 | | $ | 3,097,905 | $ | 3,238,832 | |
| | | | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | | | |
Deposits: | | | | | | | | | | | | | | | | | | |
Noninterest bearing demand | | $ | 676,755 | | $ | 854,324 | | $ | 892,811 | | $ | 903,383 | | $ | 937,039 | $ | 1,012,163 | |
Interest bearing: | | | | | | | | | | | | | | | | | | |
Savings, NOW, and money market | | | 1,025,511 | | | 1,097,003 | | | 1,156,194 | | | 1,184,154 | | | 1,237,177 | | 1,301,444 | |
Time | | | 448,763 | | | 439,735 | | | 417,952 | | | 393,297 | | | 399,310 | | 359,635 | |
Total deposits | | | 2,151,029 | | | 2,391,062 | | | 2,466,957 | | | 2,480,834 | | | 2,573,526 | | 2,673,242 | |
| | | | | | | | | | | | | | | | | | |
Securities sold under repurchase agreements | | | 47,825 | | | 45,882 | | | 54,313 | | | 67,059 | | | 82,475 | | 67,737 | |
Other short-term borrowings | | | 23,069 | | | 8,396 | | | 8,204 | | | 5,448 | | | - | | 1 | |
Junior subordinated debentures | | | 47,200 | | | 25,773 | | | 25,773 | | | 25,773 | | | 25,773 | | 25,773 | |
Senior notes | | | 44,284 | | | 44,310 | | | 44,337 | | | 44,363 | | | 44,389 | | 44,415 | |
Subordinated debt | | | - | | | - | | | - | | | - | | | - | | 56,081 | |
Notes payable and other borrowings | | | 14,762 | | | 26,551 | | | 25,482 | | | 24,407 | | | 23,330 | | 22,250 | |
Other liabilities | | | 28,490 | | | 39,613 | | | 39,589 | | | 39,281 | | | 37,801 | | 36,553 | |
Total liabilities | | | 2,356,659 | | | 2,581,587 | | | 2,664,655 | | | 2,687,165 | | | 2,787,294 | | 2,926,052 | |
| | | | | | | | | | | | | | | | | | |
Stockholders' equity | | | | | | | | | | | | | | | | | | |
Common stock | | | 34,900 | | | 34,957 | | | 34,957 | | | 34,957 | | | 34,957 | | 34,957 | |
Additional paid-in capital | | | 120,829 | | | 121,253 | | | 121,643 | | | 122,045 | | | 121,578 | | 120,359 | |
Retained earnings | | | 215,467 | | | 216,183 | | | 224,405 | | | 233,920 | | | 242,201 | | 251,134 | |
Accumulated other comprehensive income | | | 9,131 | | | 219 | | | 9,305 | | | 11,900 | | | 14,496 | | 13,971 | |
Treasury stock | | | (96,225) | | | (98,830) | | | (99,409) | | | (101,042) | | | (102,621) | | (107,641) | |
Total stockholders' equity | | | 284,102 | | | 273,782 | | | 290,901 | | | 301,780 | | | 310,611 | | 312,780 | |
Total liabilities and stockholders' equity | | $ | 2,640,761 | | $ | 2,855,369 | | $ | 2,955,556 | | $ | 2,988,945 | | $ | 3,097,905 | $ | 3,238,832 | |
| | | | | | | | | | | | | | | | | | |
Total Earning Assets | | $ | 2,459,007 | | $ | 2,668,217 | | $ | 2,770,492 | | $ | 2,799,693 | | $ | 2,916,496 | $ | 3,054,503 | |
Total Interest Bearing Liabilities | | | 1,651,414 | | | 1,687,650 | | | 1,732,255 | | | 1,744,501 | | | 1,812,454 | | 1,877,336 | |
16
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 | 2nd Qtr |
| ||||||
Interest and Dividend Income | | | | | | | | | | | | | | | | | | |
Loans, including fees | | $ | 23,597 | | $ | 22,347 | | $ | 21,980 | | $ | 22,999 | | $ | 22,207 | $ | 20,815 | |
Loans held-for-sale | | | 36 | | | 110 | | | 95 | | | 65 | | | 55 | | 38 | |
Securities: | | | | | | | | | | | | | | | | | | |
Taxable | | | 2,163 | | | 1,694 | | | 1,458 | | | 1,458 | | | 1,615 | | 1,832 | |
Tax exempt | | | 1,455 | | | 1,396 | | | 1,327 | | | 1,293 | | | 1,307 | | 1,259 | |
Dividends from FHLB and FRBC stock | | | 125 | | | 123 | | | 118 | | | 118 | | | 115 | | 113 | |
Interest bearing deposits with financial institutions | | | 75 | | | 42 | | | 68 | | | 73 | | | 92 | | 137 | |
Total interest and dividend income | | | 27,451 | | | 25,712 | | | 25,046 | | | 26,006 | | | 25,391 | | 24,194 | |
Interest Expense | | | | | | | | | | | | | | | | | | |
Savings, NOW, and money market deposits | | | 635 | | | 385 | | | 299 | | | 250 | | | 241 | | 217 | |
Time deposits | | | 1,766 | | | 1,442 | | | 1,084 | | | 741 | | | 500 | | 409 | |
Securities sold under repurchase agreements | | | 116 | | | 23 | | | 28 | | | 35 | | | 31 | | 21 | |
Other short-term borrowings | | | 109 | | | 34 | | | 24 | | | 12 | | | - | | - | |
Junior subordinated debentures | | | 1,364 | | | 283 | | | 285 | | | 283 | | | 280 | | 284 | |
Subordinated debt | | | - | | | | | | | | | | | | - | | 517 | |
Senior notes | | | 673 | | | 673 | | | 673 | | | 673 | | | 673 | | 673 | |
Notes payable and other borrowings | | | 130 | | | 165 | | | 144 | | | 135 | | | 123 | | 119 | |
Total interest expense | | | 4,793 | | | 3,005 | | | 2,537 | | | 2,129 | | | 1,848 | | 2,240 | |
Net interest and dividend income | | | 22,658 | | | 22,707 | | | 22,509 | | | 23,877 | | | 23,543 | | 21,954 | |
Provision for (release of) credit losses | | | 7,984 | | | 2,129 | | | 300 | | | - | | | (3,000) | | (3,500) | |
Net interest and dividend income after provision for (release of) credit losses | | | 14,674 | | | 20,578 | | | 22,209 | | | 23,877 | | | 26,543 | | 25,454 | |
Noninterest Income | | | | | | | | | | | | | | | | | | |
Wealth management | | | 1,906 | | | 1,998 | | | 1,889 | | | 2,112 | | | 2,151 | | 2,389 | |
Service charges on deposits | | | 1,726 | | | 1,120 | | | 1,322 | | | 1,344 | | | 1,195 | | 1,221 | |
Secondary mortgage fees | | | 270 | | | 505 | | | 492 | | | 387 | | | 322 | | 272 | |
Mortgage servicing rights mark to market (loss) gain | | | (2,134) | | | (445) | | | (160) | | | (1,260) | | | 1,113 | | (1,033) | |
Mortgage servicing income | | | 468 | | | 458 | | | 521 | | | 503 | | | 567 | | 507 | |
Net gain on sales of mortgage loans | | | 2,246 | | | 4,631 | | | 5,246 | | | 3,396 | | | 3,721 | | 1,895 | |
Securities (losses) gains, net | | | (24) | | | - | | | (1) | | | - | | | - | | 2 | |
Change in cash surrender value of BOLI | | | (49) | | | 532 | | | 459 | | | 291 | | | 334 | | 423 | |
Death benefit realized on BOLI | | | - | | | 59 | | | (2) | | | - | | | - | | - | |
Card related income | | | 1,287 | | | 1,311 | | | 1,499 | | | 1,435 | | | 1,447 | | 1,666 | |
Other income | | | 626 | | | 526 | | | 420 | | | 577 | | | 450 | | 577 | |
Total noninterest income | | | 6,322 | | | 10,695 | | | 11,685 | | | 8,785 | | | 11,300 | | 7,919 | |
Noninterest Expense | | | | | | | | | | | | | | | | | | |
Salaries and employee benefits | | | 12,918 | | | 11,342 | | | 12,586 | | | 12,701 | | | 13,506 | | 12,896 | |
Occupancy, furniture and equipment | | | 2,301 | | | 1,935 | | | 2,003 | | | 2,259 | | | 2,467 | | 2,303 | |
Computer and data processing | | | 1,335 | | | 1,247 | | | 1,226 | | | 1,335 | | | 1,298 | | 1,304 | |
FDIC insurance | | | 57 | | | 155 | | | 191 | | | 194 | | | 201 | | 192 | |
General bank insurance | | | 246 | | | 237 | | | 281 | | | 266 | | | 276 | | 277 | |
Amortization of core deposit intangible | | | 128 | | | 124 | | | 122 | | | 120 | | | 120 | | 115 | |
Advertising expense | | | 109 | | | 57 | | | 62 | | | 70 | | | 60 | | 95 | |
Card related expense | | | 532 | | | 514 | | | 566 | | | 583 | | | 593 | | 626 | |
Legal fees | | | 131 | | | 176 | | | 169 | | | 285 | | | 55 | | 135 | |
Other real estate expense, net | | | 237 | | | 143 | | | 125 | | | 146 | | | 36 | | 77 | |
Other expense | | | 3,008 | | | 2,966 | | | 2,935 | | | 3,294 | | | 3,126 | | 3,381 | |
Total noninterest expense | | | 21,002 | | | 18,896 | | | 20,266 | | | 21,253 | | | 21,738 | | 21,401 | |
(Loss) income before income taxes | | | (6) | | | 12,377 | | | 13,628 | | | 11,409 | | | 16,105 | | 11,972 | |
(Benefit from) provision for income taxes | | | (281) | | | 3,139 | | | 3,363 | | | 3,362 | | | 4,226 | | 3,152 | |
Net income | | $ | 275 | | $ | 9,238 | | $ | 10,265 | | $ | 8,047 | | $ | 11,879 | $ | 8,820 | |
| | | | | | | | | | | | | | | | | | |
Basic earnings per share | | $ | 0.01 | | $ | 0.31 | | $ | 0.35 | | $ | 0.27 | | $ | 0.41 | $ | 0.30 | |
Diluted earnings per share | | | 0.01 | | | 0.31 | | | 0.34 | | | 0.27 | | | 0.40 | | 0.30 | |
Dividends paid per share | | | 0.01 | | | 0.01 | | | 0.01 | | | 0.01 | | | 0.01 | | 0.05 | |
17
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 | | | Six Months Ended | | ||||||||||||||||
| | June 30, | | March 31, | | June 30, | | | June 30, | | ||||||||||||
|
| 2021 |
| 2021 | | 2020 | |
| 2021 | | 2020 | | ||||||||||
Net Interest Margin | | | | | | | | | | | | | | | | | | |||||
Interest income (GAAP) | | $ | 24,194 | | $ | 25,391 | | $ | 25,712 | | | $ | 49,585 | | $ | 53,163 | | |||||
Taxable-equivalent adjustment: | | | | | | | | | | | | | | | | | | |||||
Loans | | | 4 | | | 4 | | | 3 | | | | 7 | | | 6 | | |||||
Securities | | | 335 | | | 348 | | | 387 | | | | 682 | | | 758 | | |||||
Interest income (TE) | | | 24,533 | | | 25,743 | | | 26,102 | | | | 50,274 | | | 53,927 | | |||||
Interest expense (GAAP) | | | 2,241 | | | 1,848 | | | 3,005 | | | | 4,088 | | | 7,798 | | |||||
Net interest income (TE) | | $ | 22,292 | | $ | 23,895 | | $ | 23,097 | | | $ | 46,186 | | $ | 46,129 | | |||||
Paycheck Protection Program ("PPP") loan - interest and net fee income | | | 832 | | | 741 | | | 603 | | | | 1,573 | | | 603 | | |||||
Net interest income (TE) - excluding PPP loans | | $ | 21,460 | | $ | 23,154 | | $ | 22,494 | | | $ | 44,613 | | | 45,526 | | |||||
Net interest income (GAAP) | | $ | 21,953 | | $ | 23,543 | | $ | 22,707 | | | $ | 45,497 | | $ | 45,365 | | |||||
Average interest earning assets | | $ | 3,054,503 | | $ | 2,916,496 | | $ | 2,668,217 | | | $ | 2,985,882 | | $ | 2,563,611 | | |||||
Average PPP loans | | $ | 94,948 | | $ | 94,149 | | | 90,447 | | | $ | 91,274 | | | 51,684 | | |||||
Average interest earning assets, excluding PPP loans | | $ | 2,959,555 | | $ | 2,822,347 | | $ | 2,577,770 | | | $ | 2,894,608 | | | 2,511,927 | | |||||
Net interest margin (GAAP) | | | 2.88 | % | | 3.27 | % | | 3.42 | % | | | 3.07 | % | | 3.56 | % | |||||
Net interest margin (TE) | | | 2.93 | % | | 3.32 | % | | 3.48 | % | | | 3.12 | % | | 3.62 | % | |||||
Core net interest margin (TE - excluding PPP loans) | | | 2.91 | % | | 3.33 | % | | 3.51 | % | | | 3.11 | % | | 3.64 | % | |||||
| | | | | | | | | | | | | | | | | | | |
| | GAAP | | Non-GAAP | | ||||||||||||||
| | | Three Months Ended | | | Three Months Ended | | ||||||||||||
| | June 30, | | March 31, | | June 30, | | June 30, | | March 31, | | June 30, | | ||||||
| | 2021 | | 2021 | | 2020 | | 2021 | | 2021 | | 2020 | | ||||||
Efficiency Ratio / Adjusted Efficiency Ratio | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Noninterest expense | | $ | 21,401 | | $ | 21,738 | | $ | 18,896 | | $ | 21,401 | | $ | 21,738 | | $ | 18,896 | |
Less amortization of core deposit | | | 115 | | | 120 | | | 124 | | | 115 | | | 120 | | | 124 | |
Less other real estate expense, net | | | 77 | | | 36 | | | 143 | | | 77 | | | 36 | | | 143 | |
Noninterest expense less adjustments | | $ | 21,209 | | $ | 21,582 | | $ | 18,629 | | $ | 21,209 | | $ | 21,582 | | $ | 18,629 | |
| | | | | | | | | | | | | | | | | | | |
Net interest income | | $ | 21,953 | | $ | 23,543 | | $ | 22,707 | | $ | 21,953 | | $ | 23,543 | | $ | 22,707 | |
Taxable-equivalent adjustment: | | | | | | | | | | | | | | | | | | | |
Loans | | | N/A | | | N/A | | | N/A | | | 4 | | | 4 | | | 7 | |
Securities | | | N/A | | | N/A | | | N/A | | | 335 | | | 348 | | | 387 | |
Net interest income including adjustments | | | 21,953 | | | 23,543 | | | 22,707 | | | 22,292 | | | 23,895 | | | 23,101 | |
Noninterest income | | | 7,920 | | | 11,300 | | | 10,695 | | | 7,920 | | | 11,300 | | | 10,695 | |
Less death benefit related to BOLI | | | - | | | - | | | 59 | | | - | | | - | | | 59 | |
Less securities gains, net | | | 2 | | | - | | | - | | | 2 | | | - | | | - | |
Less MSRs mark to market (losses) gains | | | (1,033) | | | 1,113 | | | (445) | | | (1,033) | | | 1,113 | | | (445) | |
Taxable-equivalent adjustment: | | | | | | | | | | | | | | | | | | | |
Change in cash surrender value of BOLI | | | N/A | | | N/A | | | N/A | | | 112 | | | 89 | | | 157 | |
Noninterest income (less) / including adjustments | | | 8,951 | | | 10,187 | | | 11,081 | | | 9,063 | | | 10,276 | | | 11,238 | |
| | | | | | | | | | | | | | | | | | | |
Net interest income including adjustments plus noninterest income (less) / including adjustments | | $ | 30,904 | | $ | 33,730 | | $ | 33,788 | | $ | 31,355 | | $ | 34,171 | | $ | 34,339 | |
Efficiency ratio / Adjusted efficiency ratio | | | 68.63 | % | | 63.98 | % | | 55.13 | % | | 67.64 | % | | 63.16 | % | | 54.25 | % |
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