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(NASDAQ: OSBC) | Exhibit 99.1 | |
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Contact: | Bradley S. Adams | For Immediate Release |
| Chief Financial Officer | January 26, 2022 |
| (630) 906-5484 | |
Old Second Bancorp, Inc. Reports Fourth Quarter 2021 Financial Results
AURORA, IL, January 26, 2022 – Old Second Bancorp, Inc. (the “Company,” “Old Second,” “we,” “us,” and “our”) (NASDAQ: OSBC), the parent company of Old Second National Bank (the “Bank”), today announced financial results for the fourth quarter of 2021. We had a net loss of $9.1 million, or $0.26 per diluted share, for the fourth quarter of 2021, compared to net income of $8.4 million, or $0.29 per diluted share, for the third quarter of 2021, and net income of $8.0 million, or $0.27 per diluted share, for the fourth quarter of 2020. Adjusted net income, which excludes acquisition-related costs and provision for credit loss adjustments stemming from our acquisition of West Suburban Bancorp, Inc. (“West Suburban”) on December 1, 2021, a non-GAAP financial measure, was $12.5 million, or $0.36 per diluted share, for the fourth quarter of 2021. 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.
In addition to pre-tax acquisition-related costs of $12.8 million, the fourth quarter of 2021 also included acquisition-related adjustments that impacted our provision for credit losses. The fourth quarter 2021 provision for credit losses was $12.3 million, which included a $12.2 million Day Two adjustment to provision for credit losses on loans due to the inclusion of the lifetime estimated credit losses on non-purchase credit deteriorated (“PCD”) loans, and a $2.4 million Day Two provision for unfunded commitments, net of a $2.3 million reversal of the allowance for credit losses in the fourth quarter of 2021 stemming from the impact of an improved forecast related to future credit losses and economic conditions. This compares to a $1.5 million release of provision for credit losses for the third quarter of 2021, and no provision expense or release of provision expense for the fourth quarter of 2020. The reduction to net income in the fourth quarter of 2021 was partially offset by growth in net interest income, due to a full month of West Suburban loan and securities income included in the fourth quarter of 2021, net of interest expense on acquired deposits.
Operating Results
●Fourth quarter 2021 net loss was $9.1 million, reflecting a decrease in earnings of $17.5 million from the third quarter of 2021, and a decrease of $17.1 million from the fourth quarter of 2020. Adjusted net income, a non-GAAP financial measure that excludes acquisition-related costs and the Day Two provision for credit loss adjustments, was $12.5 million for the fourth quarter of 2021, which was a $3.7 million increase from adjusted net income for the third quarter of 2021, and a $4.4 million increase from the fourth quarter of 2020.
●Net interest and dividend income was $28.6 million for the fourth quarter of 2021, an increase of $6.0 million, or 26.7%, from the third quarter of 2021, and an increase of $4.8 million, or 20.0%, from the fourth quarter of 2020.
●Interest and dividend income for the fourth quarter of 2021 was $30.8 million, an increase of $6.0 million and $4.8 million from the third quarter of 2021 and fourth quarter of 2020, respectively. As of December 31, 2021, Paycheck Protection Program (“PPP”) loans outstanding totaled $38.5 million, and net loan interest and fee income recorded in 2021 year to date on all PPP loans totaled $3.1 million. Approximately $188,000 of net PPP loan fees remain unearned as of December 31, 2021.
●Interest expense for both the third and fourth quarters of 2021 totaled $2.2 million, compared to $2.1 million for the fourth quarter of 2020. The interest expense stemming from deposits acquired in the West Suburban
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acquisition was approximately $288,000 in the fourth quarter of 2021, and the purchase accounting adjustment on time deposits totaled $3.2 million based on the Day One valuation performed.
| ● | We recorded a $2.3 million release of provision expense in the fourth quarter of 2021 on the legacy Old Second portfolio, compared to a $1.5 million release of provision expense in the third quarter of 2021, and no provision expense or release of provision expense in the fourth 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 fourth quarter of 2021 included a $12.1 million Day One fair value mark on PCD loans, a $12.3 million Day Two provision related to the future estimated lifetime credit losses on non-PCD loans, and a release of the ACL on loans of $2.3 million, as well as $4.7 million of net charge-offs recorded during the quarter due primarily to two large commercial and commercial real estate credits. In addition, the ACL for unfunded commitments increased by the Day One fair valuation purchase accounting adjustments for PCD loans of $1.7 million, a $2.4 million Day Two adjustment related to estimated credit losses based on projected future funding rates, and a release of $49,000 in the fourth quarter of 2021, due to an updated forecast of credit line utilization rates. |
| ● | Noninterest income was $10.7 million for the fourth quarter of 2021, an increase of $1.3 million, or 14.2%, compared to $9.3 million for the third quarter of 2021, and an increase of $1.9 million, or 21.5%, compared to $8.8 million for the fourth quarter of 2020. Most line items within noninterest income reflected growth in the fourth quarter of 2021, compared to the third quarter of 2021 and the fourth quarter of 2020, due to the acquisition and resultant additional fee income in wealth management, service charges on deposits, and card related income. In addition, increases of $1.7 million and $2.7 million were reflected in the mark to market gain on MSRs in the fourth quarter of 2021, compared to the third quarter of 2021 and the fourth quarter of 2020, respectively. |
| ● | Noninterest expense was $38.5 million for the fourth quarter of 2021, an increase of $16.4 million, or 74.1%, compared to $22.1 million for the third quarter of 2021, and an increase of $17.3 million, or 81.3%, from $21.3 million for the fourth quarter of 2020. The increase from both the linked quarter and year over year was due to $12.8 million of acquisition-related costs in the fourth quarter of 2021, primarily within salaries and employee benefits, occupancy, furniture and equipment, computer and data processing, and consulting fees, which is within other expense. Due to the acquisition, we conducted a branch rationalization assessment to determine which of our branches were either lower volume facilities or overlapped with newly acquired branches. As a result, we recorded fixed asset write-downs of $3.8 million on four of our legacy bank branches in the fourth quarter of 2021, and we expect to list these properties for sale in 2022. Of the $31.0 million in projected acquisition-related costs announced when we entered into the merger agreement with West Suburban in July 2021, $25.7 million in total has been expensed by the Company or West Suburban as of December 31, 2021. |
| ● | We had an income tax benefit of $2.5 million for the fourth quarter of 2021, compared to a provision for income tax expense of $2.9 million for the third quarter of 2021, and $3.4 million for the fourth quarter of 2020. The decrease in tax expense was due to pre-tax losses for the fourth quarter of 2021, compared to pre-tax income for both the linked quarter and the year over year period, partially offset by an increase in non-deductible expenses, primarily due to merger-related costs incurred in the fourth quarter of 2021. |
| ● | On January 18, 2022, our Board of Directors declared a cash dividend of $0.05 per share payable on February 7, 2022, to stockholders of record as of January 28, 2022. |
President and Chief Executive Officer Jim Eccher said “We are pleased to deliver solid overall core results that represent a strong beginning to what we believe will be a very important and transformational year for Old Second. We are very encouraged about the trends and momentum in our businesses including strong loan growth, encouraging pipelines and improving levels of activity within our customer base.”
Eccher continued, “We are extremely excited to welcome the customers and employees of West Suburban Bancorp. We are making solid progress on the integration of the two companies and continue to believe the combination will deliver value to our stockholders with significant improvements in core profitability as redundancies are eliminated. We believe our initial estimates at the announcement of the transaction appear to be reasonable, and perhaps conservative, as our teams continue to make progress on systems conversions and operational planning. The additional scale has provided the capability to prioritize growth investments and we were pleased to welcome several new additions to our lending team in our leasing and real estate verticals. We also recently announced the creation of O2 Sponsor Finance led by a highly experienced and successful lending team with a long track record in providing senior cash flow facilities to private equity sponsors.
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“Looking forward, I am optimistic on loan growth trends in the near term and extremely excited on what we believe we can do over the intermediate term. The continuing deployment of excess liquidity on the balance sheet, improving loan growth and the prospect of higher rates offer the potential for expanding margins and the opportunity for the strength of Old Second’s deposit base to shine. We are excited for the future and have the resources and momentum to focus on growth and technology enhancement and building a better Old Second for our stockholders and communities.”
COVID-19 Update
We continued to face branch disruptions due to labor shortages and COVID-19-related closures in the fourth quarter of 2021. We assess customer needs daily, and announce any temporary branch closures internally for staff as well as with signage for customers. Our branch rationalization strategy, discussed above, is in process and we have notified all required regulatory agencies of any final branch closure determinations.
Capital Ratios
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| Minimum Capital | | Well Capitalized | | | | | | | | | | ||
| Adequacy with | | Under Prompt | | | | | | | | | | ||
| Capital Conservation | | Corrective Action | | December 31, | | September 30, | | December 31, | |||||
| Buffer, if applicable1 | | Provisions2 | | 2021 | | 2021 | | 2020 | |||||
The Company | | | | | | | | | | | | | | |
Common equity tier 1 capital ratio | 7.00 | % | | N/A | | | 9.46 | % | | 12.99 | % | | 11.94 | % |
Total risk-based capital ratio | 10.50 | % | | N/A | | | 12.55 | % | | 17.80 | % | | 14.26 | % |
Tier 1 risk-based capital ratio | 8.50 | % | | N/A | | | 10.06 | % | | 14.10 | % | | 13.01 | % |
Tier 1 leverage ratio | 4.00 | % | | N/A | | | 7.81 | % | | 9.81 | % | | 10.21 | % |
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The Bank | | | | | | | | | | | | | | |
Common equity tier 1 capital ratio | 7.00 | % | | 6.50 | % | | 12.41 | % | | 15.65 | % | | 13.75 | % |
Total risk-based capital ratio | 10.50 | % | | 10.00 | % | | 13.46 | % | | 16.69 | % | | 15.00 | % |
Tier 1 risk-based capital ratio | 8.50 | % | | 8.00 | % | | 12.41 | % | | 15.65 | % | | 13.75 | % |
Tier 1 leverage ratio | 4.00 | % | | 5.00 | % | | 9.58 | % | | 10.83 | % | | 10.74 | % |
1 Amounts are shown inclusive of a capital conservation buffer of 2.50%.
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 $44.7 million at December 31, 2021, compared to $29.0 million at September 30, 2021, and $23.0 million at December 31, 2020. Nonperforming loans with a total net book value of $23.8 million were acquired with our acquisition of West Suburban. Credit metrics reflected increases in nonperforming loans due to the acquisition in the fourth quarter of 2021, and management is carefully monitoring loans considered to be in a classified status. Nonperforming loans, as a percent of total loans were 1.3% at December 31, 2021, 1.5% at September 30, 2021, and 1.1% at December 31, 2020. |
| ● | OREO assets totaled $2.4 million at December 31, 2021, $1.9 million at September 30, 2021 and $2.5 million at December 31, 2020. In the fourth quarter of 2021, we acquired three OREO properties in our acquisition of West Suburban, with a total net book value of $5.6 million, and we sold two of these properties in December, which had a net book value of $5.2 million. Nonperforming assets, as a percent of total loans plus OREO, were 1.4% at December 31, 2021, compared to 1.7% at September 30, 2021, and 1.3% at December 31, 2020. |
| ● | Total loans were $3.42 billion at December 31, 2021, reflecting an increase of $1.55 billion compared to September 30, 2021, and an increase of $1.39 billion compared to December 31, 2020. Increases in both the linked quarter and year over year quarter were due to the acquisition of $1.50 billion of loans in the West Suburban acquisition, as well as organic loan growth of $81.6 million, exclusive of PPP loan paydowns in the fourth quarter of 2021. Average loans (including loans held-for-sale) for the fourth quarter of 2021 totaled $2.39 billion, reflecting an increase of $503.3 million from the third quarter of 2021 and an increase of $360.3 million from the fourth quarter of 2020. |
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| ● | Available-for-sale securities totaled $1.69 billion at December 31, 2021, compared to $715.2 million at September 30, 2021, and $496.2 million at December 31, 2020. Total securities available-for-sale increased a net $977.3 million from the linked quarter due to $1.07 billion of securities acquired in the West Suburban acquisition, and purchases of $533.9 million during the quarter, less sales of $570.8 million, the majority of which occurred immediately after our acquisition of West Suburban to reposition the portfolio based on our investment strategy. The unrealized mark to market adjustment on securities totaled $15.5 million as of December 31, 2021, compared to $19.5 million as of September 30, 2021 and $24.2 million at December 31, 2020, due to market interest rate fluctuations as well as changes year over year in the composition of the securities portfolio. |
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 | ||||||||||||||||||||||
| December 31, 2021 | | September 30, 2021 | | December 31, 2020 | ||||||||||||||||||
| Average | | Income / | | Rate | | Average | | Income / | | Rate | | Average | | Income / | | Rate | ||||||
| Balance | | Expense | | % | | Balance | | Expense | | % | | Balance | | Expense | | % | ||||||
Assets | | | | | | | | | | | | | | | | | | | | | | | |
Interest earning deposits with financial institutions | $ | 587,721 | | $ | 224 | | 0.15 | | $ | 523,561 | | $ | 203 | | 0.15 | | $ | 275,087 | | $ | 73 | | 0.11 |
Securities: | | | | | | | | | | | | | | | | | | | | | | | |
Taxable | | 842,576 | | | 2,817 | | 1.33 | | | 476,935 | | | 1,835 | | 1.53 | | | 288,089 | | | 1,458 | | 2.01 |
Non-taxable (TE)1 | | 189,697 | | | 1,674 | | 3.50 | | | 186,515 | | | 1,627 | | 3.46 | | | 193,859 | | | 1,637 | | 3.36 |
Total securities (TE)1 | | 1,032,273 | | | 4,491 | | 1.73 | | | 663,450 | | | 3,462 | | 2.07 | | | 481,948 | | | 3,095 | | 2.55 |
Dividends from FHLBC and FRBC | | 11,042 | | | 114 | | 4.10 | | | 9,917 | | | 114 | | 4.56 | | | 9,917 | | | 118 | | 4.73 |
Loans and loans held-for-sale1, 2 | | 2,393,017 | | | 26,368 | | 4.37 | | | 1,889,696 | | | 21,358 | | 4.48 | | | 2,032,741 | | | 23,067 | | 4.51 |
Total interest earning assets | | 4,024,053 | | | 31,197 | | 3.08 | | | 3,086,624 | | | 25,137 | | 3.23 | | | 2,799,693 | | | 26,353 | | 3.74 |
Cash and due from banks | | 34,225 | | | - | | - | | | 29,760 | | | - | | - | | | 30,086 | | | - | | - |
Allowance for credit losses on loans | | (34,567) | | | - | | - | | | (28,639) | | | - | | - | | | (33,255) | | | - | | - |
Other noninterest bearing assets | | 287,762 | | | - | | - | | | 185,415 | | | - | | - | | | 192,421 | | | - | | - |
Total assets | $ | 4,311,473 | | | | | | | $ | 3,273,160 | | | | | | | $ | 2,988,945 | | | | | |
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Liabilities and Stockholders' Equity | | | | | | | | | | | | | | | | | | | | | | | |
NOW accounts | $ | 567,971 | | $ | 85 | | 0.06 | | $ | 534,056 | | $ | 96 | | 0.07 | | $ | 474,470 | | $ | 96 | | 0.08 |
Money market accounts | | 611,632 | | | 142 | | 0.09 | | | 355,651 | | | 66 | | 0.07 | | | 317,780 | | | 85 | | 0.11 |
Savings accounts | | 918,835 | | | 68 | | 0.03 | | | 451,829 | | | 47 | | 0.04 | | | 391,904 | | | 69 | | 0.07 |
Time deposits | | 370,919 | | | 271 | | 0.29 | | | 331,482 | | | 330 | | 0.39 | | | 393,297 | | | 741 | | 0.75 |
Interest bearing deposits | | 2,469,357 | | | 566 | | 0.09 | | | 1,673,018 | | | 539 | | 0.13 | | | 1,577,451 | | | 991 | | 0.25 |
Securities sold under repurchase agreements | | 47,571 | | | 15 | | 0.13 | | | 46,339 | | | 15 | | 0.13 | | | 67,059 | | | 35 | | 0.21 |
Other short-term borrowings | | - | | | - | | - | | | - | | | - | | - | | | 5,448 | | | 12 | | 0.88 |
Junior subordinated debentures | | 25,773 | | | 283 | | 4.36 | | | 25,773 | | | 286 | | 4.40 | | | 25,773 | | | 283 | | 4.37 |
Subordinated debentures | | 59,201 | | | 546 | | 3.66 | | | 59,180 | | | 547 | | 3.67 | | | 44,363 | | | 673 | | - |
Senior notes | | 44,468 | | | 673 | | 6.00 | | | 44,441 | | | 673 | | 6.01 | | | - | | | - | | - |
Notes payable and other borrowings | | 20,090 | | | 107 | | 2.11 | | | 21,171 | | | 113 | | 2.12 | | | 24,407 | | | 135 | | 2.20 |
Total interest bearing liabilities | | 2,666,460 | | | 2,190 | | 0.33 | | | 1,869,922 | | | 2,173 | | 0.46 | | | 1,744,501 | | | 2,129 | | 0.33 |
Noninterest bearing deposits | | 1,193,387 | | | - | | - | | | 1,029,705 | | | - | | - | | | 903,383 | | | - | | - |
Other liabilities | | 68,314 | | | - | | - | | | 53,370 | | | - | | - | | | 39,281 | | | - | | - |
Stockholders' equity | | 383,312 | | | - | | - | | | 320,163 | | | - | | - | | | 301,780 | | | - | | - |
Total liabilities and stockholders' equity | $ | 4,311,473 | | | | | | | $ | 3,273,160 | | | | | | | $ | 2,988,945 | | | | | |
Net interest income (GAAP) | | | | $ | 28,649 | | | | | | | $ | 22,618 | | | | | | | $ | 23,877 | | |
Net interest margin (GAAP) | | | | | | | 2.82 | | | | | | | | 2.91 | | | | | | | | 3.39 |
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Net interest income (TE)1 | | | | $ | 29,007 | | | | | | | $ | 22,964 | | | | | | | $ | 24,224 | | |
Net interest margin (TE)1 | | | | | | | 2.86 | | | | | | | | 2.95 | | | | | | | | 3.44 |
Core net interest margin (TE - excluding PPP loans)1 | | | | | | | 2.84 | | | | | | | | 2.85 | | | | | | | | 3.32 |
Interest bearing liabilities to earning assets | | 66.26 | % | | | | | | | 60.58 | % | | | | | | | 62.31 | % | | | | |
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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 17, and includes fees of $1.4 million, $1.8 million, and $2.3 million for the fourth quarter of 2021, the third quarter of 2021, and the fourth quarter of 2020, respectively. Nonaccrual loans are included in the above stated average balances.
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Net interest income (TE) was $29.0 million for the fourth quarter of 2021, which reflects an increase of $6.0 million compared to the third quarter of 2021, and an increase of $4.8 million compared to the fourth quarter of 2021. The tax equivalent adjustment for the fourth quarter of 2021 was $358,000, compared to $346,000 for the third quarter of 2021, and $347,000 for the fourth quarter of 2020. Average interest earning assets increased $937.4 million to $4.02 billion for the fourth quarter of 2021, compared to the third quarter of 2021, and increased $1.22 billion in the fourth quarter of 2021, compared to the fourth quarter of 2020; both of these increases were primarily due to the West Suburban acquisition, as well as growth in interest earning deposits with financial institutions, taxable securities available-for-sale, and loans outside of the merger. Average loans, including loans held-for-sale, increased $503.3 million for the fourth quarter of 2021, compared to the third quarter of 2021, and increased $360.3 million compared to the fourth quarter of 2020. The yield on loans for the fourth quarter of 2021, compared to the third quarter of 2021, decreased 11 basis points, primarily because the yield on acquired loans is lower.
Growth in the average balance of securities for the fourth quarter of 2021, compared to the third quarter of 2021 and the fourth quarter of 2020, partially offset the decline in yields which resulted in an increase of $1.0 million in tax-equivalent interest income on securities compared to the third quarter of 2021, and an increase of $1.4 million in tax-equivalent interest income from the fourth quarter of 2020. The average yield on the total securities available-for-sale portfolio declined 82 basis points year over year. Securities acquired with the West Suburban acquisition totaled $1.07 billion and security purchases totaled $533.9 million in the fourth quarter of 2021, which were partially offset by sales of $570.8 million and paydowns, calls, and maturities of $46.9 million. Our overall yield on tax equivalent municipal securities was 3.50% for the fourth quarter of 2021, compared to 3.46% for the third quarter of 2021 and 3.36% for the fourth quarter of 2020.
The yield on average earning assets decreased 15 basis point in the fourth quarter of 2021, compared to the third quarter of 2021, and decreased 66 basis points compared to the fourth 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 15 basis points in the fourth 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 fewer alternatives for higher-yielding investments, as well as a general market trend for depositors to hold cash in more liquid interest bearing deposit accounts.
Average interest bearing liabilities increased $796.5 million in the fourth quarter of 2021, compared to the third quarter of 2021, primarily driven by a $796.3 million increase in interest bearing deposits. Average interest bearing liabilities increased $922.0 million in the fourth quarter of 2021, compared to the fourth quarter of 2020, primarily driven by an $891.9 million increase in interest bearing deposits and a $59.2 million increase in subordinated debentures. Both the linked quarter and year over year quarter increases were primarily due to the West Suburban acquisition, as well as continued deposit growth of our legacy customers. The cost of interest bearing liabilities for the fourth quarter of 2021 decreased 13 basis points from the third quarter of 2021, and decreased 16 basis points from the fourth quarter of 2020. Growth in our average noninterest bearing demand deposits of $290.0 million in the year over year period has assisted us in controlling our cost of funds stemming from average interest bearing deposits and borrowings; cost of funds totaled 0.23% for the fourth quarter of 2021, 0.30% for the third quarter of 2021, and 0.32% for the third 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”). The Notes bear interest at a fixed annual rate of 3.50% through April 14, 2026, payable semi-annually in arrears. From 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 nine basis points to 2.82% for the fourth quarter of 2021, compared to 2.91% for the third quarter of 2021, and decreased 57 basis points compared to 3.39% for the fourth quarter of 2020. Our net interest margin (TE) decreased nine basis points to 2.86% for the fourth quarter of 2021, compared to 2.95% for the third quarter of 2021, and decreased 58 basis points compared to 3.44% for the fourth quarter of 2020. Our core net interest margin (TE), a non-GAAP financial measure that excludes the impact of our PPP loans, was 2.84% for the fourth quarter of 2021, compared to 2.85% for the third quarter of 2021 and 3.32% for the fourth 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” and the table on page 18 that provides a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.
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Noninterest Income
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| | | | | | | | | | | 4th Quarter 2021 | | ||||||
Noninterest Income | | Three Months Ended | | Percent Change From | | |||||||||||||
(Dollars in thousands) | | December 31, | | September 30, | | December 31, | | September 30, | | December 31, | | |||||||
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| 2021 |
| 2021 |
| 2020 |
| 2021 |
| 2020 |
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Wealth management | | $ | 2,421 | | $ | 2,372 | | $ | 2,112 | | 2.1 | | 14.6 | | ||||
Service charges on deposits | | | 1,624 | | | 1,368 | | | 1,344 | | 18.7 | | 20.8 | | ||||
Residential mortgage banking revenue | | | | | | | | | | | | | | | ||||
Secondary mortgage fees | | | 210 | | | 240 | | | 387 | | (12.5) | | (45.7) | | ||||
Mortgage servicing rights mark to market (loss) | | | 1,463 | | | (282) | | | (1,260) | | (618.8) | | (216.1) | | ||||
Mortgage servicing income | | | 534 | | | 572 | | | 503 | | (6.6) | | 6.2 | | ||||
Net gain on sales of mortgage loans | | | 1,498 | | | 2,186 | | | 3,396 | | (31.5) | | (55.9) | | ||||
Total residential mortgage banking revenue | | | 3,705 | | | 2,716 | | | 3,026 | | 36.4 | | 22.4 | | ||||
Securities (losses) gains, net | | | (14) | | | 244 | | | - | | N/M | | N/M | | ||||
Change in cash surrender value of BOLI | | | 227 | | | 406 | | | 291 | | (44.1) | | (22.0) | | ||||
Card related income | | | 1,579 | | | 1,624 | | | 1,435 | | (2.8) | | 10.0 | | ||||
Other income | | | 1,129 | | | 610 | | | 577 | | 85.1 | | 95.7 | | ||||
Total noninterest income | | $ | 10,671 | | $ | 9,340 | | $ | 8,785 | | 14.3 | | 21.5 | | ||||
N/M - Not meaningful.
Noninterest income increased $1.3 million, or 14.3%, in the fourth quarter of 2021, compared to the third quarter of 2021, and increased $1.9 million, or 21.5%, compared to the fourth quarter of 2020. The increase from the linked quarter was primarily driven by a $989,000 increase in residential mortgage banking revenue, attributable to a $1.7 million increase in mark to market gain on MSRs stemming from market interest rate changes, partially offset by a $688,000 decrease in net gain on sales of mortgage loans in the fourth quarter of 2021, compared to the third quarter of 2021. In addition, we had increases in wealth management fees of $49,000 and service charges on deposit accounts of $256,000 in the fourth quarter of 2021, as compared to the linked quarter, which were partially offset by net losses on security sales of $14,000 in the fourth quarter of 2021, compared to net gains on security sales of $244,000 in the third quarter of 2021.
The increase in noninterest income in the fourth quarter of 2021, compared to the fourth quarter of 2020, is primarily due to a $679,000 increase in residential mortgage banking revenue, primarily comprised of a $2.7 million increase in mark to market gain on MSRs, partially offset by a $1.9 million decrease in net gain on sales of mortgage loans. Also contributing to the increase in noninterest income in the fourth quarter of 2021, compared to the fourth quarter of 2020, were increases in wealth management fees of $309,000, service charges on deposits of $280,000, and card related income of $144,000. The increase in card related income in the fourth quarter of 2021 primarily resulted from reductions in COVID-19-related restrictions and the resultant increase in consumer spending.
6
Noninterest Expense
| | | | | | | | | | | | | | | |||||||||||||
| | | | | | | | | | | 4th Quarter 2021 | | |||||||||||||||
Noninterest Expense | | Three Months Ended | | Percent Change From | | ||||||||||||||||||||||
(Dollars in thousands) | | December 31, | | September 30, | | December 31, | | September 30, | | December 31, | | ||||||||||||||||
|
| 2021 |
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||||||||||||||
Salaries | | $ | 14,164 | | $ | 9,630 | | $ | 9,978 | | 47.1 | | 42.0 | | |||||||||||||
Officers incentive | | | 1,293 | | | 1,212 | | | 680 | | 6.7 | | 90.1 | | |||||||||||||
Benefits and other | | | 2,868 | | | 2,122 | | | 2,043 | | 35.2 | | 40.4 | | |||||||||||||
Total salaries and employee benefits | | | 18,325 | | | 12,964 | | | 12,701 | | 41.4 | | 44.3 | | |||||||||||||
Occupancy, furniture and equipment expense | | | 6,395 | | | 2,418 | | | 2,259 | | 164.5 | | 183.1 | | |||||||||||||
Computer and data processing | | | 3,859 | | | 1,477 | | | 1,335 | | 161.3 | | 189.1 | | |||||||||||||
FDIC insurance | | | 371 | | | 211 | | | 194 | | 75.8 | | 91.2 | | |||||||||||||
General bank insurance | | | 360 | | | 301 | | | 266 | | 19.6 | | 35.3 | | |||||||||||||
Amortization of core deposit intangible asset | | | 296 | | | 113 | | | 120 | | 161.9 | | 146.7 | | |||||||||||||
Advertising expense | | | 81 | | | 107 | | | 70 | | (24.3) | | 15.7 | | |||||||||||||
Card related expense | | | 657 | | | 662 | | | 583 | | (0.8) | | 12.7 | | |||||||||||||
Legal fees | | | 460 | | | 455 | | | 285 | | 1.1 | | 61.4 | | |||||||||||||
Other real estate owned expense, net | | | 171 | | | 25 | | | 146 | | 584.0 | | 17.1 | | |||||||||||||
Other expense | | | 7,558 | | | 3,396 | | | 3,294 | | 122.6 | | 129.4 | | |||||||||||||
Total noninterest expense | | $ | 38,533 | | $ | 22,129 | | $ | 21,253 | | 74.1 | | 81.3 | | |||||||||||||
Efficiency ratio (GAAP)1 | | | 100.51 | % | | 68.73 | % | | 61.87 | % | | | | | |||||||||||||
Adjusted efficiency ratio (non-GAAP)2 | | | 66.08 | % | | 66.46 | % | | 61.10 | % | | | | | |||||||||||||
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 fourth quarter of 2021 increased $16.4 million, or 74.1%, compared to the third quarter of 2021, and increased $17.3 million, or 81.3%, compared to the fourth quarter of 2020. The linked quarter increase is primarily attributable to a $5.4 million increase in salaries and employee benefits, a $4.0 million increase in occupancy, furniture, and equipment, a $2.4 million increase in computer and data processing expense, and a $4.2 million increase in other expense. These increases were primarily attributable to merger-related costs incurred related to our acquisition of West Suburban. The increase in occupancy, furniture and equipment expense was primarily due to $3.8 million of branch write-downs in the fourth quarter of 2021, based on our deployment of a branch rationalization strategy following the merger. Finally, the increase in other expense was due primarily to growth in consulting fees of $3.0 million and legal fees of $100,000, which were both due to acquisition-related costs in the fourth quarter of 2021.
The year over year increase in noninterest expense is primarily attributable to a $5.6 million increase in salaries and employee benefits, a $4.1 million increase in occupancy, furniture and equipment, a $2.5 million increase in computer and data processing expense and a $4.3 million increase in other expense. Officer incentive compensation increased $613,000 in the fourth quarter of 2021, compared to the fourth quarter of 2020, as incentive accruals in 2021 were at a higher rate than the prior year. Employee benefits expense increased $825,000 in the fourth quarter of 2021, compared to the fourth quarter of 2020, due to increases stemming from additional employees from our acquisition of West Suburban and increases in employee insurance costs as more employees returned to more routine medical appointments, many of which were on hold during the first year of the COVID-19 pandemic. The increases in occupancy, furniture and equipment expense were primarily due to $3.8 million of branch write-downs in the fourth quarter of 2021, based on our deployment of a branch rationalization strategy following the merger. Finally, the increase in other expense was due primarily to growth in consulting fees of $3.0 million and legal fees of $100,000, which were both due to acquisition–related costs in the fourth quarter of 2021.
7
Earning Assets
| | | | | | | | | | | | | | |
| | | | | | | | | | | December 31, 2021 | | ||
Loans | | As of | | Percent Change From | | |||||||||
(dollars in thousands) | | December 31, | | September 30, | | December 31, | | September 30, | | December 31, | | |||
|
| 2021 |
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| |||
Commercial | | $ | 770,037 | | $ | 321,548 | | $ | 407,159 | | 139.5 | | 89.1 | |
Leases | | | 158,231 | | | 162,444 | | | 141,601 | | (2.6) | | 11.7 | |
Commercial real estate - Investor | | | 957,376 | | | 535,506 | | | 582,042 | | 78.8 | | 64.5 | |
Commercial real estate - Owner occupied | | | 573,631 | | | 330,648 | | | 333,070 | | 73.5 | | 72.2 | |
Construction | | | 206,132 | | | 108,690 | | | 98,486 | | 89.7 | | 109.3 | |
Residential real estate - Investor | | | 62,843 | | | 45,497 | | | 56,137 | | 38.1 | | 11.9 | |
Residential real estate - Owner occupied | | | 213,859 | | | 108,343 | | | 116,388 | | 97.4 | | 83.7 | |
Multifamily | | | 309,194 | | | 160,798 | | | 189,040 | | 92.3 | | 63.6 | |
HELOC | | | 115,641 | | | 69,651 | | | 80,908 | | 66.0 | | 42.9 | |
HELOC - Purchased | | | 10,626 | | | 12,370 | | | 19,487 | | (14.1) | | (45.5) | |
Other1 | | | 44,378 | | | 12,447 | | | 10,533 | | 256.5 | | 321.3 | |
Total loans | | $ | 3,421,948 | | $ | 1,867,942 | | $ | 2,034,851 | | 83.2 | | 68.2 | |
1 Other class includes consumer and overdrafts.
Total loans increased by $1.55 billion at December 31, 2021, compared to September 30, 2021, and increased $1.39 billion for the year over year period. Loan growth of $1.50 billion was driven by the acquisition of West Suburban, as well as originated loan growth of $81.6 million, excluding PPP loans. During the fourth quarter of 2021, $29.7 million of PPP loans were forgiven. As required by CECL, the balance (or amortized cost basis) of purchase credit deteriorated loans (“PCD” loans) acquired in our acquisitions 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.
| | | | | | | | | | | | | |
| | | | | | | | | | | December 31, 2021 | ||
Securities | | As of | | Percent Change From | |||||||||
(dollars in thousands) | | December 31, | | September 30, | | December 31, | | September 30, | | December 31, | |||
|
| 2021 |
| 2021 |
| 2020 |
| 2021 |
| 2020 | |||
Securities available-for-sale, at fair value | | | | | | | | | | | | | |
U.S. Treasury | | $ | 202,339 | | $ | 4,070 | | $ | 4,117 | | 4,871.5 | | 4,814.7 |
U.S. government agencies | | | 61,888 | | | 33,575 | | | 6,657 | | 84.3 | | 829.7 |
U.S. government agency mortgage-backed | | | 172,302 | | | 17,818 | | | 17,209 | | 867.0 | | 901.2 |
States and political subdivisions | | | 256,465 | | | 238,952 | | | 249,259 | | 7.3 | | 2.9 |
Corporate bonds | | | 9,887 | | | 4,992 | | | - | | 98.1 | | - |
Collateralized mortgage obligations | | | 672,967 | | | 165,414 | | | 56,585 | | 306.8 | | 1,089.3 |
Asset-backed securities | | | 236,877 | | | 189,338 | | | 131,818 | | 25.1 | | 79.7 |
Collateralized loan obligations | | | 79,763 | | | 61,029 | | | 30,533 | | 30.7 | | 161.2 |
Total securities available-for-sale | | $ | 1,692,488 | | $ | 715,188 | | $ | 496,178 | | 136.6 | | 241.1 |
| | | | | | | | | | | | | |
Our securities portfolio totaled $1.69 billion as of December 31, 2021, an increase of $977.3 million from $715.2 million as of September 30, 2021, and an increase of $1.20 billion from December 31, 2020. The increase in the portfolio during the fourth quarter of 2021, compared to the prior quarter, was driven by $1.07 billion of securities acquired in our acquisition of West Suburban, less sales of $570.5 million, the majority of which occurred immediately after the merger to reposition our portfolio into higher credit quality, lower duration issuances. In addition, we made $533.9 million of purchases in the fourth quarter of 2021, primarily of U.S. government treasuries, collateralized mortgage obligations, and asset-backed securities. The increase in the securities portfolio in the year over year period was primarily due to our acquisition of West Suburban, as well as $886.1 million of purchases in the last twelve months to utilize our excess cash on hand. We recorded security sales of $533.9 million in the fourth quarter of 2021, $26.9 million in the third quarter of 2021, and no security sales were made in the fourth quarter of 2020.
8
Asset Quality
| | | | | | | | | | | | | |
| | | | | | | | | | | December 31, 2021 | ||
Nonperforming assets | | As of | | Percent Change From | |||||||||
(dollars in thousands) | | December 31, | | September 30, | | December 31, | | September 30, | | December 31, | |||
|
| 2021 |
| 2021 |
| 2020 |
| 2021 | | 2020 | |||
Nonaccrual loans | | $ | 41,531 | | $ | 27,520 | | $ | 22,280 | | 50.9 | | 86.4 |
Performing troubled debt restructured loans accruing interest | |
| 25 | |
| 199 | |
| 331 | | (87.4) | | (92.4) |
Loans past due 90 days or more and still accruing interest | |
| 3,110 | |
| 1,233 | |
| 434 | | 152.2 | | 616.6 |
Total nonperforming loans | |
| 44,666 | |
| 28,952 | |
| 23,045 | | 54.3 | | 93.8 |
Other real estate owned | |
| 2,356 | |
| 1,912 | |
| 2,474 | | 23.2 | | (4.8) |
Total nonperforming assets | | $ | 47,022 | | $ | 30,864 | | $ | 25,519 | | 52.4 | | 84.3 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
30-89 days past due loans and still accruing interest | | $ | 10,679 | | $ | 2,829 | | $ | 11,326 | | | | |
Nonaccrual loans to total loans | | | 1.2 | % | | 1.5 | % | | 1.1 | % | | | |
Nonperforming loans to total loans | | | 1.3 | % | | 1.5 | % | | 1.1 | % | | | |
Nonperforming assets to total loans plus OREO | | | 1.4 | % | | 1.7 | % | | 1.3 | % | | | |
Purchased credit-deteriorated loans to total loans | | | 0.1 | % | | 0.5 | % | | 0.5 | % | | | |
| | | | | | | | | | | | | |
Allowance for credit losses | | $ | 44,281 | | $ | 26,949 | | $ | 33,855 | | | | |
Allowance for credit losses to total loans | | | 1.3 | % | | 1.4 | % | | 1.7 | % | | | |
Allowance for credit losses to nonaccrual loans | | | 106.6 | % | | 97.9 | % | | 152.0 | % | | | |
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 acquisitions of West Suburban Bank and ABC Bank totaled $98.7 million, net of purchase accounting adjustments, at December 31, 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 fourth quarter of 2021, 1.5% for the third quarter of 2021, and 1.1% for the fourth quarter of 2020. Nonperforming assets to total loans plus OREO was 1.4% for the fourth quarter of 2021, and 1.7% for third quarter of 2021 and 1.3% for the fourth quarter of 2020, as two large credits previously in nonaccrual were charged off in the fourth quarter of 2021. Our allowance for credit losses to total loans was 1.3% as of December 31, 2021, 1.4% as of December 31, 2021 and 1.7% as of December 31, 2020.
The following table shows classified loans by segment, which include nonaccrual loans, performing troubled debt restructurings, PCD loans if the risk rating so indicates, and all other loans considered substandard, for the following periods.
| | | | | | | | | | | | | | |
| | | | | | | | | | | December 31, 2021 | | ||
Classified loans | | As of | | Percent Change From | | |||||||||
(dollars in thousands) | �� | December 31, | | September 30, | | December 31, | | September 30, | | December 31, | | |||
|
| 2021 |
| 2021 |
| 2020 |
| 2021 |
| 2020 | | |||
Commercial | | $ | 32,719 | | $ | 467 | | $ | 2,679 | | N/M | | N/M | |
Leases | | | 3,475 | | | 4,423 | | | 3,222 | | (21.4) | | 7.9 | |
Commercial real estate - Investor | | | 10,668 | | | 8,718 | | | 5,117 | | 22.4 | | 108.5 | |
Commercial real estate - Owner occupied | | | 15,429 | | | 7,211 | | | 11,187 | | 114.0 | | 37.9 | |
Construction | | | 2,103 | | | 4,898 | | | 5,192 | | (57.1) | | (59.5) | |
Residential real estate - Investor | | | 1,265 | | | 1,154 | | | 1,516 | | 9.6 | | (16.6) | |
Residential real estate - Owner occupied | | | 4,910 | | | 4,508 | | | 4,040 | | 8.9 | | 21.5 | |
Multifamily | | | 2,278 | | | 2,327 | | | 7,558 | | (2.1) | | (69.9) | |
HELOC | | | 1,181 | | | 1,034 | | | 1,540 | | 14.2 | | (23.3) | |
HELOC - Purchased | | | 180 | | | 181 | | | - | | (0.6) | | - | |
Other1 | | | 278 | | | 2 | | | 4 | | N/M | | N/M | |
Total classified loans | | $ | 74,486 | | $ | 34,923 | | $ | 42,055 | | 113.3 | | 77.1 | |
1 Other class includes consumer and overdrafts.
N/M - Not meaningful.
Increases in classified loans noted for the fourth quarter of 2021, compared to the third quarter of 2021 and fourth quarter of 2020, were driven by our acquisition of West Suburban and the resultant increase in total loans.
9
Allowance for Credit Losses on Loans and Unfunded Commitments
At December 31, 2021, our allowance for credit losses (“ACL”) on loans totaled $44.3 million, and our ACL on unfunded commitments, included in other liabilities, totaled $6.2 million. The increase in our ACL on loans at December 31, 2021, compared to September 30, 2021, was primarily due to the acquisition-related Day One purchase accounting credit mark of $12.4 million, and a $12.3 million Day Two provision related to the future estimated lifetime credit losses on non-PCD loans. These increases to the ACL were partially offset by $4.7 million of net charge-offs recorded during the quarter, and a release of the ACL on loans of $2.3 million based on updates to our loss forecasts primarily stemming from a more favorable unemployment projection and continued updates to our loss rate forecasts. The $2.3 million release of provision expense in the fourth quarter of 2021 was an increase from the $1.5 million release of provision expense in the third quarter of 2021. The increase in our ACL on unfunded commitments at December 31, 2021, compared to September 30, 2021, was driven by a $1.7 million acquisition-related Day One purchase accounting credit mark, which will be accreted over the life of the commitments, and a $2.3 million Day Two provision for credit losses, partially offset by the $49,000 release of provision expense in the fourth quarter of 2021 due to adjustments in our funding rate assumptions based on our analysis of the last 12 months of utilization. Our ACL on loans to total loans was 1.3% as of December 31, 2021, compared to 1.4% as of September 30, 2021, and 1.7% as of December 31, 2020. The ACL on unfunded commitments totaled $6.2 million as of December 31, 2021, $2.2 million as of September 30, 2021, and $3.0 million as of December 31, 2020.
Net Charge-off Summary
| | | | | | | | | | | | | | |
Loan Charge-offs, net of recoveries | Quarters Ended | |||||||||||||
(dollars in thousands) | December 31, | | % of | | September 30, | | % of | | December 31, | | % of | |||
| 2021 | | Total 2 | | 2021 | | Total 2 | | 2020 | | Total 2 | |||
Commercial | $ | 441 | | 9.3 | | $ | (2) | | (0.8) | | $ | (93) | | (169.1) |
Leases | | 37 | | 0.8 | | | 4 | | 1.7 | | | (11) | | (20.0) |
Commercial real estate - Investor | | 2,603 | | 55.1 | | | 83 | | 35.0 | | | 471 | | 856.4 |
Commercial real estate - Owner occupied | | 1,748 | | 37.0 | | | (2) | | (0.8) | | | 86 | | 156.4 |
Construction | | - | | - | | | - | | - | | | (171) | | (310.9) |
Residential real estate - Investor | | (8) | | (0.2) | | | (7) | | (3.0) | | | (12) | | (21.8) |
Residential real estate - Owner occupied | | (30) | | (0.6) | | | (18) | | (7.6) | | | (130) | | (236.4) |
Multifamily | | - | | - | | | 183 | | 77.2 | | | - | | - |
HELOC | | (105) | | (2.2) | | | (28) | | (11.8) | | | (97) | | (176.4) |
HELOC - Purchased | | - | | - | | | - | | - | | | - | | - |
Other 1 | | 38 | | 0.8 | | | 24 | | 10.1 | | | 12 | | 21.8 |
Net charge-offs / (recoveries) | $ | 4,724 | | 100.0 | | $ | 237 | | 100.0 | | $ | 55 | | 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 fourth quarter of 2021 were $5.2 million, compared to $369,000 for the third quarter of 2021, and $810,000 for the fourth quarter of 2020. Gross recoveries were $497,000 for the fourth quarter of 2021, compared to $132,000 for the third quarter of 2021 and $755,000 for the fourth 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 $5.47 billion at December 31, 2021, an increase of $2.75 billion compared to September 30, 2021, primarily due to $2.70 billion of deposits acquired in the West Suburban acquisition. Total deposits increased $2.93 billion in the year over year period driven primarily by the West Suburban acquisition, as well as growth in our demand deposits of $137.3 million, and savings, NOW and money market accounts of $222.1 million, partially offset by a decrease in time deposits of $131.9 million.
10
Borrowings
As of December 31, 2021 and 2020, we had no other short-term borrowings, primarily due to the growth in deposits and resultant decline of our need for short-term funding.
We were indebted on senior notes totaling $44.5 million, net of deferred issuance costs, as of December 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. Subordinated debt totaled $59.2 million as of December 31, 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 $19.1 million as of December 31, 2021, and is comprised of $13.0 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 a $6.1 million 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 adjusted net income, 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 18 provide a reconciliation of each non-GAAP financial measure to the most comparable GAAP equivalent.
Cautionary Note Regarding Forward-Looking Statements
This earnings release and statements by our management may contain forward-looking statements within the Private Securities Litigation Reform Act of 1995. Forward looking statements can be identified by words such as “anticipate,” “expect,” “intend,” “believe,” “may,” “likely,” “will,” “forecast,” “project,” “looking forward,” “optimistic,” “potential,” “progress,” “prospect,” “trend,” “momentum” or other statements that indicate future periods. Examples of forward-looking statements include, but are not limited to, statements regarding the timing of branch sales related to our branch rationalization efforts, the economic outlook, our expectations related to loan growth, pipelines and customer activity, statements regarding our expectations with respect to our recent merger with West Suburban, and statements regarding the potential for expanded margins and future growth. 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 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
11
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 action; (4) risks related to future acquisitions, if any, including execution and integration risks; (5) adverse conditions in the stock market, the public debt market and other capital markets (including changes in interest rate conditions) could have a negative impact on us; (6) changes in interest rates, which 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; and (7) with respect to the merger with West Suburban, the possibility that the anticipated benefits of the transaction, including anticipated cost savings and strategic gains, are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of other unexpected factors or events. Additional risks and uncertainties are contained in the “Risk Factors” and forward-looking statements disclosure in our most recent Annual Report on Form 10-K, and Quarterly Reports on Form 10-Q. The inclusion of this forward-looking information should not be construed as a representation by us or any person that future events, plans, or expectations contemplated by us will be achieved. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.
Conference Call
We will host a call on Thursday, January 27, 2022, at 11:00 a.m. Eastern Time (10:00 a.m. Central Time) to discuss our fourth quarter 2021 financial results. Investors may listen to our call via telephone by dialing 888-506-0062, using Entry Code 310578. Investors should call into the dial-in number set forth above at least 10 minutes prior to the scheduled start of the call.
A replay of the call will be available until 11:00 a.m. Eastern Time (10:00 a.m. Central Time) on February 3, 2022, by dialing 877-481-4010, using Conference ID: 44105.
12
Old Second Bancorp, Inc. and Subsidiaries
(In thousands)
| | | | | | |
| | (unaudited) | | | | |
| | December 31, | | December 31, | ||
|
| 2021 |
| 2020 | ||
Assets | | | | | | |
Cash and due from banks | | $ | 38,565 | | $ | 24,306 |
Interest earning deposits with financial institutions | | | 713,542 | | | 305,597 |
Cash and cash equivalents | | | 752,107 | | | 329,903 |
Securities available-for-sale, at fair value | | | 1,692,488 | | | 496,178 |
Federal Home Loan Bank Chicago ("FHLBC") and Federal Reserve Bank Chicago ("FRBC") stock | | | 13,257 | | | 9,917 |
Loans held-for-sale | | | 4,737 | | | 12,611 |
Loans | | | 3,421,948 | | | 2,034,851 |
Less: allowance for credit losses on loans | | | 44,281 | | | 33,855 |
Net loans | | | 3,377,667 | | | 2,000,996 |
Premises and equipment, net | | | 88,005 | | | 45,477 |
Other real estate owned | | | 2,356 | | | 2,474 |
Mortgage servicing rights, at fair value | | | 7,097 | | | 4,224 |
Goodwill and core deposit intangible | | | 102,636 | | | 20,781 |
Bank-owned life insurance ("BOLI") | | | 105,300 | | | 63,102 |
Deferred tax assets, net | | | 6,100 | | | 8,121 |
Other assets | | | 60,434 | | | 47,053 |
Total assets | | $ | 6,212,184 | | $ | 3,040,837 |
| | | | | | |
Liabilities | | | | | | |
Deposits: | | | | | | |
Noninterest bearing demand | | $ | 1,428,055 | | $ | 909,505 |
Interest bearing: | | | | | | |
Savings, NOW, and money market | | | 3,534,367 | | | 1,202,134 |
Time | | | 503,810 | | | 425,434 |
Total deposits | | | 5,466,232 | | | 2,537,073 |
Securities sold under repurchase agreements | | | 50,337 | | | 66,980 |
Junior subordinated debentures | | | 25,773 | | | 25,773 |
Subordinated debentures | | | 59,212 | | | - |
Senior notes | | | 44,480 | | | 44,375 |
Notes payable and other borrowings | | | 19,074 | | | 23,393 |
Other liabilities | | | 45,055 | | | 36,156 |
Total liabilities | | | 5,710,163 | | | 2,733,750 |
| | | | | | |
Stockholders’ Equity | | | | | | |
Common stock | | | 44,705 | | | 34,957 |
Additional paid-in capital | | | 202,443 | | | 122,212 |
Retained earnings | | | 252,005 | | | 236,579 |
Accumulated other comprehensive income | | | 8,768 | | | 14,762 |
Treasury stock | | | (5,900) | | | (101,423) |
Total stockholders’ equity | | | 502,021 | | | 307,087 |
Total liabilities and stockholders’ equity | | $ | 6,212,184 | | $ | 3,040,837 |
| | | | | | |
13
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(In thousands, except share data)
| | | | | | | | | | | | | |
| | (unaudited) | | (unaudited) | | ||||||||
| | Three Months Ended December 31, | | Year Ended December 31, | | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
Interest and dividend income | | | | | | | | | | | | | |
Loans, including fees | | $ | 26,328 | | $ | 22,999 | | $ | 90,665 | | $ | 90,923 | |
Loans held-for-sale | | | 33 | | | 65 | | | 165 | | | 306 | |
Securities: | | | | | | | | | | | | | |
Taxable | | | 2,817 | | | 1,458 | | | 8,099 | | | 6,773 | |
Tax exempt | | | 1,323 | | | 1,293 | | | 5,174 | | | 5,471 | |
Dividends from FHLBC and FRBC stock | | | 114 | | | 118 | | | 456 | | | 484 | |
Interest bearing deposits with financial institutions | | | 224 | | | 73 | | | 656 | | | 258 | |
Total interest and dividend income | | | 30,839 | | | 26,006 | | | 105,215 | | | 104,215 | |
Interest expense | | | | | | | | | | | | | |
Savings, NOW, and money market deposits | | | 294 | | | 250 | | | 961 | | | 1,569 | |
Time deposits | | | 271 | | | 741 | | | 1,510 | | | 5,033 | |
Securities sold under repurchase agreements | | | 15 | | | 35 | | | 82 | | | 202 | |
Other short-term borrowings | | | - | | | 12 | | | - | | | 179 | |
Junior subordinated debentures | | | 283 | | | 283 | | | 1,133 | | | 2,215 | |
Subordinated debentures | | | 546 | | | - | | | 1,610 | | | - | |
Senior notes | | | 673 | | | 673 | | | 2,692 | | | 2,692 | |
Notes payable and other borrowings | | | 108 | | | 135 | | | 463 | | | 574 | |
Total interest expense | | | 2,190 | | | 2,129 | | | 8,451 | | | 12,464 | |
Net interest and dividend income | | | 28,649 | | | 23,877 | | | 96,764 | | | 91,751 | |
Provision for credit losses | | | 12,326 | | | - | | | 4,326 | | | 10,413 | |
Net interest and dividend income after provision for credit losses | | | 16,323 | | | 23,877 | | | 92,438 | | | 81,338 | |
Noninterest income | | | | | | | | | | | | | |
Wealth management | | | 2,421 | | | 2,112 | | | 9,333 | | | 6,409 | |
Service charges on deposits | | | 1,624 | | | 1,344 | | | 5,408 | | | 5,512 | |
Secondary mortgage fees | | | 210 | | | 387 | | | 1,044 | | | 1,654 | |
Mortgage servicing rights mark to market loss | | | 1,463 | | | (1,260) | | | 1,261 | | | (3,999) | |
Mortgage servicing income | | | 534 | | | 503 | | | 2,180 | | | 1,950 | |
Net gain on sales of mortgage loans | | | 1,498 | | | 3,396 | | | 9,300 | | | 15,519 | |
Securities (losses) gains, net | | | (14) | | | - | | | 232 | | | (25) | |
Change in cash surrender value of BOLI | | | 227 | | | 291 | | | 1,390 | | | 1,233 | |
Death benefit realized on BOLI | | | - | | | - | | | - | | | 57 | |
Card related income | | | 1,579 | | | 1,435 | | | 6,316 | | | 5,532 | |
Other income | | | 1,129 | | | 577 | | | 2,766 | | | 3,645 | |
Total noninterest income | | | 10,671 | | | 8,785 | | | 39,230 | | | 37,487 | |
Noninterest expense | | | | | | | | | | | | | |
Salaries and employee benefits | | | 18,325 | | | 12,701 | | | 57,691 | | | 49,547 | |
Occupancy, furniture and equipment | | | 6,395 | | | 2,259 | | | 13,583 | | | 8,498 | |
Computer and data processing | | | 3,859 | | | 1,335 | | | 7,938 | | | 5,143 | |
FDIC insurance | | | 371 | | | 194 | | | 975 | | | 597 | |
General bank insurance | | | 360 | | | 266 | | | 1,214 | | | 1,030 | |
Amortization of core deposit intangible | | | 296 | | | 120 | | | 644 | | | 494 | |
Advertising expense | | | 81 | | | 70 | | | 343 | | | 298 | |
Card related expense | | | 657 | | | 583 | | | 2,538 | | | 2,195 | |
Legal fees | | | 460 | | | 285 | | | 1,105 | | | 761 | |
Other real estate expense, net | | | 171 | | | 146 | | | 309 | | | 651 | |
Other expense | | | 7,558 | | | 3,294 | | | 17,461 | | | 12,203 | |
Total noninterest expense | | | 38,533 | | | 21,253 | | | 103,801 | | | 81,417 | |
(Loss) income before income taxes | | | (11,539) | | | 11,409 | | | 27,867 | | | 37,408 | |
(Benefit from) provision for income taxes | | | (2,472) | | | 3,362 | | | 7,823 | | | 9,583 | |
Net (loss) income | | $ | (9,067) | | $ | 8,047 | | $ | 20,044 | | $ | 27,825 | |
| | | | | | | | | | | | | |
Basic earnings per share (GAAP) | | $ | (0.27) | | $ | 0.35 | | $ | 0.66 | | $ | 0.94 | |
Diluted earnings per share (GAAP) | | | (0.26) | | | 0.34 | | | 0.65 | | | 0.92 | |
Basic earnings per share including adjusting items | | | 0.37 | | | 0.35 | | | 1.39 | | | 0.94 | |
Diluted earnings per share including adjusting items | | | 0.36 | | | 0.34 | | | 1.36 | | | 0.92 | |
Dividends declared per share | | | 0.05 | | | 0.01 | | | 0.16 | | | 0.04 | |
| | | | | | | | |
Ending common shares outstanding | | 44,461,045 | | 29,328,723 | | 44,461,045 | | 29,328,723 |
Weighted-average basic shares outstanding | | 34,015,977 | | 29,370,461 | | 30,208,663 | | 29,623,333 |
Weighted-average diluted shares outstanding | | 34,533,323 | | 29,913,030 | | 30,737,862 | | 30,174,072 |
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 | | 2nd Qtr | | 3rd Qtr | | 4th Qtr | ||||||||
Cash and due from banks | | $ | 32,549 | | $ | 30,594 | | $ | 31,354 | | $ | 30,086 | | $ | 28,461 | | $ | 29,985 | | $ | 29,760 | | $ | 34,225 |
Interest earning deposits with financial institutions | | | 27,989 | | | 153,532 | | | 263,199 | | | 275,087 | | | 359,576 | | | 499,555 | | | 523,561 | | | 587,721 |
Cash and cash equivalents | | | 60,538 | | | 184,126 | | | 294,553 | | | 305,173 | | | 388,037 | | | 529,540 | | | 553,321 | | | 621,946 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Securities available-for-sale, at fair value | | | 475,718 | | | 452,708 | | | 448,408 | | | 481,948 | | | 532,230 | | | 614,066 | | | 663,450 | | | 1,032,273 |
FHLBC and FRBC stock | | | 9,917 | | | 9,917 | | | 9,917 | | | 9,917 | | | 9,917 | | | 9,917 | | | 9,917 | | | 11,042 |
Loans held-for-sale | | | 3,623 | | | 13,978 | | | 13,384 | | | 9,503 | | | 8,616 | | | 4,860 | | | 4,908 | | | 4,271 |
Loans | | | 1,941,760 | | | 2,038,082 | | | 2,035,584 | | | 2,023,238 | | | 2,006,157 | | | 1,926,105 | | | 1,884,788 | | | 2,388,746 |
Less: allowance for credit losses on loans | | | 23,507 | | | 30,747 | | | 31,518 | | | 33,255 | | | 34,540 | | | 31,024 | | | 28,639 | | | 34,567 |
Net loans | | | 1,918,253 | | | 2,007,335 | | | 2,004,066 | | | 1,989,983 | | | 1,971,617 | | | 1,895,081 | | | 1,856,149 | | | 2,354,179 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Premises and equipment, net | | | 44,613 | | | 44,658 | | | 44,802 | | | 45,382 | | | 45,378 | | | 44,847 | | | 44,451 | | | 59,796 |
Other real estate owned | | | 5,127 | | | 5,040 | | | 3,087 | | | 2,653 | | | 2,213 | | | 2,053 | | | 1,930 | | | 1,954 |
Mortgage servicing rights, at fair value | | | 5,053 | | | 4,451 | | | 4,645 | | | 4,717 | | | 4,814 | | | 5,499 | | | 5,020 | | | 5,555 |
Goodwill and core deposit intangible | | | 21,208 | | | 21,084 | | | 20,960 | | | 20,838 | | | 20,719 | | | 20,602 | | | 20,487 | | | 26,087 |
Bank-owned life insurance ("BOLI") | | | 61,873 | | | 61,790 | | | 61,897 | | | 62,499 | | | 63,259 | | | 63,633 | | | 64,008 | | | 78,217 |
Deferred tax assets, net | | | 9,682 | | | 13,511 | | | 12,051 | | | 9,189 | | | 8,228 | | | 7,782 | | | 6,487 | | | 9,273 |
Other assets | | | 25,156 | | | 36,771 | | | 37,786 | | | 47,143 | | | 42,877 | | | 40,952 | | | 43,032 | | | 106,880 |
Total other assets | | | 172,712 | | | 187,305 | | | 185,228 | | | 192,421 | | | 187,488 | | | 185,368 | | | 185,415 | | | 287,762 |
Total assets | | $ | 2,640,761 | | $ | 2,855,369 | | $ | 2,955,556 | | $ | 2,988,945 | | $ | 3,097,905 | | $ | 3,238,832 | | $ | 3,273,160 | | $ | 4,311,473 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
Deposits: | | | | | | | | | | | | | | | | | | | | | | | | |
Noninterest bearing demand | | $ | 676,755 | | $ | 854,324 | | $ | 892,811 | | $ | 903,383 | | $ | 937,039 | | $ | 1,012,163 | | $ | 1,029,705 | | $ | 1,193,387 |
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 | | | 1,341,536 | | | 2,098,438 |
Time | | | 448,763 | | | 439,735 | | | 417,952 | | | 393,297 | | | 399,310 | | | 359,635 | | | 331,482 | | | 370,919 |
Total deposits | | | 2,151,029 | | | 2,391,062 | | | 2,466,957 | | | 2,480,834 | | | 2,573,526 | | | 2,673,242 | | | 2,702,723 | | | 3,662,744 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Securities sold under repurchase agreements | | | 47,825 | | | 45,882 | | | 54,313 | | | 67,059 | | | 82,475 | | | 67,737 | | | 46,339 | | | 47,571 |
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 | | | 25,773 | | | 25,773 |
Subordinated debentures | | | - | | | - | | | - | | | - | | | - | | | 56,081 | | | 59,180 | | | 59,201 |
Senior notes | | | 44,284 | | | 44,310 | | | 44,337 | | | 44,363 | | | 44,389 | | | 44,415 | | | 44,441 | | | 44,468 |
Notes payable and other borrowings | | | 14,762 | | | 26,551 | | | 25,482 | | | 24,407 | | | 23,330 | | | 22,250 | | | 21,171 | | | 20,090 |
Other liabilities | | | 28,490 | | | 39,613 | | | 39,589 | | | 39,281 | | | 37,801 | | | 36,553 | | | 53,370 | | | 68,314 |
Total liabilities | | | 2,356,659 | | | 2,581,587 | | | 2,664,655 | | | 2,687,165 | | | 2,787,294 | | | 2,926,052 | | | 2,952,997 | | | 3,928,161 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Stockholders' equity | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock | | | 34,900 | | | 34,957 | | | 34,957 | | | 34,957 | | | 34,957 | | | 34,957 | | | 34,958 | | | 38,248 |
Additional paid-in capital | | | 120,829 | | | 121,253 | | | 121,643 | | | 122,045 | | | 121,578 | | | 120,359 | | | 120,857 | | | 148,528 |
Retained earnings | | | 215,467 | | | 216,183 | | | 224,405 | | | 233,920 | | | 242,201 | | | 251,134 | | | 258,944 | | | 260,181 |
Accumulated other comprehensive income | | | 9,131 | | | 219 | | | 9,305 | | | 11,900 | | | 14,496 | | | 13,971 | | | 14,965 | | | 10,986 |
Treasury stock | | | (96,225) | | | (98,830) | | | (99,409) | | | (101,042) | | | (102,621) | | | (107,641) | | | (109,561) | | | (74,631) |
Total stockholders' equity | | | 284,102 | | | 273,782 | | | 290,901 | | | 301,780 | | | 310,611 | | | 312,780 | | | 320,163 | | | 383,312 |
Total liabilities and stockholders' equity | | $ | 2,640,761 | | $ | 2,855,369 | | $ | 2,955,556 | | $ | 2,988,945 | | $ | 3,097,905 | | $ | 3,238,832 | | $ | 3,273,160 | | $ | 4,311,473 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total Earning Assets | | $ | 2,459,007 | | $ | 2,668,217 | | $ | 2,770,492 | | $ | 2,799,693 | | $ | 2,916,496 | | $ | 3,054,503 | | $ | 3,086,624 | | $ | 4,024,053 |
Total Interest Bearing Liabilities | | | 1,651,414 | | | 1,687,650 | | | 1,732,255 | | | 1,744,501 | | | 1,812,454 | | | 1,877,336 | | | 1,869,922 | | | 2,666,460 |
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 |
| 2nd Qtr |
| 3rd Qtr | | 4th Qtr | ||||||||
Interest and Dividend Income | | | | | | | | | | | | | | | | | | | | | | | | |
Loans, including fees | | $ | 23,597 | | $ | 22,347 | | $ | 21,980 | | $ | 22,999 | | $ | 22,207 | | $ | 20,815 | | $ | 21,315 | | $ | 26,328 |
Loans held-for-sale | | | 36 | | | 110 | | | 95 | | | 65 | | | 55 | | | 38 | | | 39 | | | 33 |
Securities: | | | | | | | | | | | | | | | | | | | | | | | | |
Taxable | | | 2,163 | | | 1,694 | | | 1,458 | | | 1,458 | | | 1,615 | | | 1,832 | | | 1,835 | | | 2,817 |
Tax exempt | | | 1,455 | | | 1,396 | | | 1,327 | | | 1,293 | | | 1,307 | | | 1,259 | | | 1,285 | | | 1,323 |
Dividends from FHLB and FRBC stock | | | 125 | | | 123 | | | 118 | | | 118 | | | 115 | | | 113 | | | 114 | | | 114 |
Interest bearing deposits with financial institutions | | | 75 | | | 42 | | | 68 | | | 73 | | | 92 | | | 137 | | | 203 | | | 224 |
Total interest and dividend income | | | 27,451 | | | 25,712 | | | 25,046 | | | 26,006 | | | 25,391 | | | 24,194 | | | 24,791 | | | 30,839 |
Interest Expense | | | | | | | | | | | | | | | | | | | | | | | | |
Savings, NOW, and money market deposits | | | 635 | | | 385 | | | 299 | | | 250 | | | 241 | | | 217 | | | 209 | | | 294 |
Time deposits | | | 1,766 | | | 1,442 | | | 1,084 | | | 741 | | | 500 | | | 409 | | | 330 | | | 271 |
Securities sold under repurchase agreements | | | 116 | | | 23 | | | 28 | | | 35 | | | 31 | | | 21 | | | 15 | | | 15 |
Other short-term borrowings | | | 109 | | | 34 | | | 24 | | | 12 | | | - | | | - | | | - | | | - |
Junior subordinated debentures | | | 1,364 | | | 283 | | | 285 | | | 283 | | | 280 | | | 284 | | | 286 | | | 283 |
Subordinated debentures | | | - | | | | | | | | | | | | - | | | 517 | | | 547 | | | 546 |
Senior notes | | | 673 | | | 673 | | | 673 | | | 673 | | | 673 | | | 673 | | | 673 | | | 673 |
Notes payable and other borrowings | | | 130 | | | 165 | | | 144 | | | 135 | | | 123 | | | 119 | | | 113 | | | 108 |
Total interest expense | | | 4,793 | | | 3,005 | | | 2,537 | | | 2,129 | | | 1,848 | | | 2,240 | | | 2,173 | | | 2,190 |
Net interest and dividend income | | | 22,658 | | | 22,707 | | | 22,509 | | | 23,877 | | | 23,543 | | | 21,954 | | | 22,618 | | | 28,649 |
Provision for (release of) credit losses | | | 7,984 | | | 2,129 | | | 300 | | | - | | | (3,000) | | | (3,500) | | | (1,500) | | | 12,326 |
Net interest and dividend income after provision for (release of) credit losses | | | 14,674 | | | 20,578 | | | 22,209 | | | 23,877 | | | 26,543 | | | 25,454 | | | 24,118 | | | 16,323 |
Noninterest Income | | | | | | | | | | | | | | | | | | | | | | | | |
Wealth management | | | 1,906 | | | 1,998 | | | 1,889 | | | 2,112 | | | 2,151 | | | 2,389 | | | 2,372 | | | 2,421 |
Service charges on deposits | | | 1,726 | | | 1,120 | | | 1,322 | | | 1,344 | | | 1,195 | | | 1,221 | | | 1,368 | | | 1,624 |
Secondary mortgage fees | | | 270 | | | 505 | | | 492 | | | 387 | | | 322 | | | 272 | | | 240 | | | 210 |
Mortgage servicing rights mark to market (loss) gain | | | (2,134) | | | (445) | | | (160) | | | (1,260) | | | 1,113 | | | (1,033) | | | (282) | | | 1,463 |
Mortgage servicing income | | | 468 | | | 458 | | | 521 | | | 503 | | | 567 | | | 507 | | | 572 | | | 534 |
Net gain on sales of mortgage loans | | | 2,246 | | | 4,631 | | | 5,246 | | | 3,396 | | | 3,721 | | | 1,895 | | | 2,186 | | | 1,498 |
Securities (losses) gains, net | | | (24) | | | - | | | (1) | | | - | | | - | | | 2 | | | 244 | | | (14) |
Change in cash surrender value of BOLI | | | (49) | | | 532 | | | 459 | | | 291 | | | 334 | | | 423 | | | 406 | | | 227 |
Death benefit realized on BOLI | | | - | | | 59 | | | (2) | | | - | | | - | | | - | | | - | | | - |
Card related income | | | 1,287 | | | 1,311 | | | 1,499 | | | 1,435 | | | 1,447 | | | 1,666 | | | 1,624 | | | 1,579 |
Other income | | | 626 | | | 526 | | | 420 | | | 577 | | | 450 | | | 577 | | | 610 | | | 1,129 |
Total noninterest income | | | 6,322 | | | 10,695 | | | 11,685 | | | 8,785 | | | 11,300 | | | 7,919 | | | 9,340 | | | 10,671 |
Noninterest Expense | | | | | | | | | | | | | | | | | | | | | | | | |
Salaries and employee benefits | | | 12,918 | | | 11,342 | | | 12,586 | | | 12,701 | | | 13,506 | | | 12,896 | | | 12,964 | | | 18,325 |
Occupancy, furniture and equipment | | | 2,301 | | | 1,935 | | | 2,003 | | | 2,259 | | | 2,467 | | | 2,303 | | | 2,418 | | | 6,395 |
Computer and data processing | | | 1,335 | | | 1,247 | | | 1,226 | | | 1,335 | | | 1,298 | | | 1,304 | | | 1,477 | | | 3,859 |
FDIC insurance | | | 57 | | | 155 | | | 191 | | | 194 | | | 201 | | | 192 | | | 211 | | | 371 |
General bank insurance | | | 246 | | | 237 | | | 281 | | | 266 | | | 276 | | | 277 | | | 301 | | | 360 |
Amortization of core deposit intangible | | | 128 | | | 124 | | | 122 | | | 120 | | | 120 | | | 115 | | | 113 | | | 296 |
Advertising expense | | | 109 | | | 57 | | | 62 | | | 70 | | | 60 | | | 95 | | | 107 | | | 81 |
Card related expense | | | 532 | | | 514 | | | 566 | | | 583 | | | 593 | | | 626 | | | 662 | | | 657 |
Legal fees | | | 131 | | | 176 | | | 169 | | | 285 | | | 55 | | | 135 | | | 455 | | | 460 |
Other real estate expense, net | | | 237 | | | 143 | | | 125 | | | 146 | | | 36 | | | 77 | | | 25 | | | 171 |
Other expense | | | 3,008 | | | 2,966 | | | 2,935 | | | 3,294 | | | 3,126 | | | 3,381 | | | 3,396 | | | 7,558 |
Total noninterest expense | | | 21,002 | | | 18,896 | | | 20,266 | | | 21,253 | | | 21,738 | | | 21,401 | | | 22,129 | | | 38,533 |
(Loss) income before income taxes | | | (6) | | | 12,377 | | | 13,628 | | | 11,409 | | | 16,105 | | | 11,972 | | | 11,329 | | | (11,539) |
(Benefit from) provision for income taxes | | | (281) | | | 3,139 | | | 3,363 | | | 3,362 | | | 4,226 | | | 3,152 | | | 2,917 | | | (2,472) |
Net income (loss) | | $ | 275 | | $ | 9,238 | | $ | 10,265 | | $ | 8,047 | | $ | 11,879 | | $ | 8,820 | | $ | 8,412 | | $ | (9,067) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Basic earnings per share (GAAP) | | $ | 0.01 | | $ | 0.31 | | $ | 0.35 | | $ | 0.27 | | $ | 0.41 | | $ | 0.30 | | $ | 0.30 | | $ | (0.27) |
Diluted earnings per share (GAAP) | | | 0.01 | | | 0.31 | | | 0.34 | | | 0.27 | | | 0.40 | | | 0.30 | | | 0.29 | | | (0.26) |
Basic earnings per share including adjusting items | | | 0.01 | | | 0.31 | | | 0.35 | | | 0.27 | | | 0.41 | | | 0.30 | | | 0.30 | | | 0.37 |
Diluted earnings per share including adjusting items | | | 0.01 | | | 0.31 | | | 0.34 | | | 0.27 | | | 0.40 | | | 0.30 | | | 0.30 | | | 0.36 |
Dividends paid per share | | | 0.01 | | | 0.01 | | | 0.01 | | | 0.01 | | | 0.01 | | | 0.05 | | | 0.05 | | | 0.05 |
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 | | | Year Ended | |||||||||||
| | December 31, | | September 30, | | December 31, | | | December 31, | |||||||
|
| 2021 |
| 2021 | | 2020 | |
| 2021 | | 2020 | |||||
Net Income | | | | | | | | | | | | | | | | |
(Loss) income before income taxes (GAAP) | | $ | (11,539) | | $ | 11,329 | | $ | 11,409 | | | $ | 27,867 | | $ | 37,408 |
Pre-tax income adjustments: | | | | | | | | | | | | | | | | |
Provision for credit losses - Day Two | | | 14,625 | | | - | | | - | | | | 14,625 | | | - |
Merger-related costs | | | 12,765 | | | 425 | | | - | | | | 13,190 | | | - |
Adjusted net income before taxes | | | 15,851 | | | 11,754 | | | 11,409 | | | | 55,682 | | | 37,408 |
Taxes on adjusted net income | | | 3,396 | | | 3,026 | | | 3,362 | | | | 13,800 | | | 9,583 |
Adjusted net income | | $ | 12,455 | | $ | 8,728 | | $ | 8,047 | | | $ | 41,882 | | $ | 27,825 |
| | | | | | | | | | | | | | | | |
Basic earnings per share (GAAP) | | $ | (0.27) | | $ | 0.30 | | $ | 0.27 | | | $ | 0.66 | | $ | 0.94 |
Diluted earnings per share (GAAP) | | | (0.26) | | | 0.29 | | | 0.27 | | | | 0.65 | | | 0.92 |
Basic earnings per share including adjusting items | | | 0.37 | | | 0.30 | | | 0.27 | | | | 1.39 | | | 0.94 |
Diluted earnings per share including adjusting items | | | 0.36 | | | 0.30 | | | 0.27 | | | | 1.36 | | | 0.92 |
| | | | | | | | | | | | | | | | | |
| | Quarters Ended | | | Year Ended | | |||||||||||
| | December 31, | | September 30, | | December 31, | | | December 31, | | |||||||
|
| 2021 |
| 2021 | | 2020 | |
| 2021 | | 2020 | | |||||
Net Interest Margin | | | | | | | | | | | | | | | | | |
Interest income (GAAP) | | $ | 30,839 | | $ | 24,791 | | $ | 26,006 | | | $ | 105,215 | | $ | 104,215 | |
Taxable-equivalent adjustment: | | | | | | | | | | | | | | | | | |
Loans | | | 7 | | | 4 | | | 3 | | | | 18 | | | 12 | |
Securities | | | 351 | | | 342 | | | 344 | | | | 1,375 | | | 1,455 | |
Interest income (TE) | | | 31,197 | | | 25,137 | | | 26,353 | | | | 106,608 | | | 105,682 | |
Interest expense (GAAP) | | | 2,190 | | | 2,173 | | | 2,129 | | | | 8,451 | | | 12,464 | |
Net interest income (TE) | | $ | 29,007 | | $ | 22,964 | | $ | 24,224 | | | $ | 98,157 | | $ | 93,218 | |
Paycheck Protection Program ("PPP") loan - interest and net fee income | | | 435 | | | 1,138 | | | 1,777 | | | | 3,146 | | | 3,116 | |
Net interest income (TE) - excluding PPP loans | | $ | 28,572 | | $ | 21,826 | | $ | 22,447 | | | $ | 95,011 | | | 90,102 | |
Net interest income (GAAP) | | $ | 28,649 | | $ | 22,618 | | $ | 23,877 | | | $ | 96,764 | | $ | 91,751 | |
Average interest earning assets | | $ | 4,024,053 | | $ | 3,086,624 | | $ | 2,799,693 | | | $ | 3,272,951 | | $ | 2,674,957 | |
Average PPP loans | | $ | 30,729 | | $ | 53,562 | | | 111,491 | | | $ | 67,008 | | | 83,251 | |
Average interest earning assets, excluding PPP loans | | $ | 3,993,324 | | $ | 3,033,062 | | $ | 2,688,202 | | | $ | 3,205,943 | | | 2,591,706 | |
Net interest margin (GAAP) | | | 2.82 | % | | 2.91 | % | | 3.39 | % | | | 2.96 | % | | 3.43 | % |
Net interest margin (TE) | | | 2.86 | % | | 2.95 | % | | 3.44 | % | | | 3.00 | % | | 3.48 | % |
Core net interest margin (TE - excluding PPP loans) | | | 2.84 | % | | 2.85 | % | | 3.32 | % | | | 2.96 | % | | 3.48 | % |
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| | | | | | | | | | | | | | | | | | | | ||||
| | GAAP | | Non-GAAP | | ||||||||||||||||||
| | | Three Months Ended | | | Three Months Ended | | ||||||||||||||||
| | December 31, | | September 30, | | December 31, | | December 31, | | September 30, | | December 31, | | ||||||||||
| | 2021 | | 2021 | | 2020 | | 2021 | | 2021 | | 2020 | | ||||||||||
Efficiency Ratio / Adjusted Efficiency Ratio | | | | | | | | | | | | | | | | | | | | ||||
| | | | | | | | | | | | | | | | | | | | ||||
Noninterest expense | | $ | 38,533 | | $ | 22,129 | | $ | 21,253 | | $ | 38,533 | | $ | 22,129 | | $ | 21,253 | | ||||
Less amortization of core deposit | | | 296 | | | 113 | | | 120 | | | 296 | | | 113 | | | 120 | | ||||
Less other real estate expense, net | | | 171 | | | 25 | | | 146 | | | 171 | | | 25 | | | 146 | | ||||
Less merger related costs | | | N/A | | | N/A | | | N/A | | | 12,765 | | | 425 | | | - | | ||||
Noninterest expense less adjustments | | $ | 38,066 | | $ | 21,991 | | $ | 20,987 | | $ | 25,301 | | $ | 21,566 | | $ | 20,987 | | ||||
| | | | | | | | | | | | | | | | | | | | ||||
Net interest income | | $ | 28,649 | | $ | 22,618 | | $ | 23,877 | | $ | 28,649 | | $ | 22,618 | | $ | 23,877 | | ||||
Taxable-equivalent adjustment: | | | | | | | | | | | | | | | | | | | | ||||
Loans | | | N/A | | | N/A | | | N/A | �� | | 7 | | | 4 | | | 3 | | ||||
Securities | | | N/A | | | N/A | | | N/A | | | 351 | | | 342 | | | 344 | | ||||
Net interest income including adjustments | | | 28,649 | | | 22,618 | | | 23,877 | | | 29,007 | | | 22,964 | | | 24,224 | | ||||
Noninterest income | | | 10,671 | | | 9,340 | | | 8,785 | | | 10,671 | | | 9,340 | | | 8,785 | | ||||
Less death benefit related to BOLI | | | - | | | - | | | - | | | - | | | - | | | - | | ||||
Less securities (losses) gains, net | | | (14) | | | 244 | | | - | | | (14) | | | 244 | | | - | | ||||
Less MSRs mark to market gain (loss) | | | 1,463 | | | (282) | | | (1,260) | | | 1,463 | | | (282) | | | (1,260) | | ||||
Taxable-equivalent adjustment: | | | | | | | | | | | | | | | | | | | | ||||
Change in cash surrender value of BOLI | | | N/A | | | N/A | | | N/A | | | 61 | | | 108 | | | 77 | | ||||
Noninterest income (less) / including adjustments | | | 9,222 | | | 9,378 | | | 10,045 | | | 9,283 | | | 9,486 | | | 10,122 | | ||||
| | | | | | | | | | | | | | | | | | | | ||||
Net interest income including adjustments plus noninterest income (less) / including adjustments | | $ | 37,871 | | $ | 31,996 | | $ | 33,922 | | $ | 38,290 | | $ | 32,450 | | $ | 34,346 | | ||||
Efficiency ratio / Adjusted efficiency ratio | | | 100.51 | % | | 68.73 | % | | 61.87 | % | | 66.08 | % | | 66.46 | % | | 61.10 | % | ||||
18