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(NASDAQ:OSBC) | Exhibit 99.1 | |
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Contact: | Bradley S. Adams | For Immediate Release |
| Chief Financial Officer | October 26, 2022 |
| (630) 906-5484 | |
Old Second Bancorp, Inc. Reports Third Quarter 2022 Net Income of $19.5 Million,
or $0.43 per Diluted Share
AURORA, IL, October 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 third quarter of 2022. Our net income was $19.5 million, or $0.43 per diluted share, for the third quarter of 2022, compared to net income of $12.2 million, or $0.27 per diluted share, for the second quarter of 2022, and net income of $8.4 million, or $0.29 per diluted share, for the third quarter of 2021. Adjusted net income, a non-GAAP financial measure that excludes pre-tax amounts of $650,000 of acquisition related costs, net losses of $411,000 from branch sales, as well as $923,000 of pretax gains on the sale of our VISA credit card portfolio and a land trust portfolio, all related to our acquisition of West Suburban Bancorp, Inc. (“West Suburban”) on December 1, 2021, was $19.6 million, or $0.43 per diluted share, for the third quarter of 2022. See the discussion entitled “Non-GAAP Presentations” below and the tables beginning on page 17 that provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.
The increase in net income in the third quarter of 2022 was primarily due to net interest and dividend income of $55.6 million, which increased $10.3 million from the second quarter of 2022 primarily due to loan growth and market interest rate increases, and increased $33.0 million from the third quarter of 2021, as West Suburban loan and securities income, net of interest expense on acquired deposits, was included in the third quarter of 2022. The third quarter of 2022 also included a $548,000 pre-tax mark to market gain on mortgage servicing rights (“MSRs”), compared to a $82,000 pre-tax gain on MSRs in the second quarter of 2022, and a $282,000 pre-tax loss on MSRs in the third quarter of 2021.
Operating Results
1
● | We recorded a net provision for credit losses of $4.5 million in the third quarter of 2022, compared to a net provision for credit losses of $550,000 in the second quarter of 2022, and a $1.5 million release of provision expense in the third quarter of 2021. The increase in the net provision in the third quarter of 2022 was primarily driven by a $244.3 million increase in total loans, growth in credit line utilization, as well as consideration given to macroeconomic factors, such as rising market interest rates, inflation and changes in the unemployment rate. |
● | Noninterest income was $11.5 million for the third quarter of 2022, an increase of $2.3 million, or 24.8%, compared to $9.2 million for the second quarter of 2022, and an increase of $2.2 million, or 23.1%, compared to $9.3 million for the third quarter of 2021. The increase from the prior quarter was primarily due to an increase in net mortgage banking income of $1.1 million, as well as a $1.2 million increase in other income due to a gain on a Visa portfolio sale and a gain on the sale of a land trust portfolio. Service charges on deposits increased for the third quarter of 2022 by $333,000 compared to the prior quarter and increased by $1.3 million compared to the third quarter of 2021. Card related income in the third quarter of 2022 was $2.7 million, a decrease of $314,000 from the second quarter 2022, and an increase of $1.0 million over the third quarter 2021. These increases in the third quarter of 2022, compared to the third quarter of 2021, were partially offset by a decrease in net mortgage banking income of $1.1 million, primarily due to a decline in the volume of mortgages being originated due to rising market interest rates in 2022. |
● | Noninterest expense was $36.0 million for the third quarter of 2022, a decrease of $1.3 million, or 3.4% compared to $37.2 million for the second quarter of 2022, and an increase of $13.9 million, or 62.6%, compared to $22.1 million for the third quarter of 2021. The decrease from the second quarter of 2022 is the result of a decline in conversion-related data processing fees as well as a reduction in salary and employee benefit expense, partially offset by higher occupancy, furniture and equipment expense and card related expenses. Contributing to the year over year increase was $650,000 of acquisition costs in the third quarter of 2022 primarily in data processing and other expense, as well as a $411,000 net loss on branch sales. In addition, growth in salaries and employee benefits and occupancy, furniture and equipment expenses were recorded in the third quarter of 2022, primarily stemming from the additional employees and branches due to the West Suburban acquisition, as well as higher salary rates being paid in 2022. |
● | We had a provision for income tax of $7.1 million for the third quarter of 2022, compared to a provision for income tax of $4.4 million for the second quarter of 2022 and a provision for income tax of $2.9 million for the third quarter of 2021. The increase in tax expense for the third quarter of 2022 over both prior periods was due to an increase in pre-tax income. |
● | On October 18, 2022, our Board of Directors declared a cash dividend of $0.05 per share payable on November 7, 2022, to stockholders of record as of October 28, 2022. |
President and Chief Executive Officer Jim Eccher said “We are extremely pleased with our results this quarter. Our net interest margin is approaching four percent, loan balances are up 13% year to date through September 30, 2022, deposit trends are performing as expected and operating expenses remain well controlled. Our efficiency ratio in the third quarter was approximately 52% on a core basis and reflects not only the cost saves from our most recent acquisition, but also tremendous success in realizing returns on the investments in lending teams and sales people over the last twelve months. Credit remains very well behaved, though we remain mindful and diligent in monitoring trends both within the portfolio and more broadly. Third quarter return on average assets and return on average equity were 1.29% and 16.7%, respectively, and represent a return to the type of performance we had been accustomed prior to the pandemic.
“The return of relatively higher market interest rates has allowed us the opportunity to demonstrate the strength of the franchise that we are building here at Old Second. Asset repricing should remain robust in the coming quarters which will allow for further improvement in our core trends including additional expansion in the net interest margin. Deposit repricing is expected to remain excellent but will be modestly higher in the near future as we take the necessary steps to protect our greatest strength. The speed of interest rate changes this year does pose certain challenges as demonstrated by the unrealized loss position of our securities portfolio. However, we believe we have been extremely cautious and managed the risk relatively well. We remain invested at the short end of the yield curve with a weighted average portfolio duration at September 30th of 2.65 years. We currently estimate that approximately half of the current loss position will have reversed in that time assuming the current yield curve remains consistent and spreads in the market persist. I am hopeful that we will begin delivering book value growth commensurate with our financial performance in the near future. We are excited for the future and believe we have the resources and momentum to focus on growth and building a better Old Second for our stockholders and communities.”
2
Capital Ratios
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| Minimum Capital | | Well Capitalized | | | | | | | | | | ||
| Adequacy with | | Under Prompt | | | | | | | | | | ||
| Capital Conservation | | Corrective Action | | September 30, | | June 30, | | September 30, | |||||
| Buffer, if applicable1 | | Provisions2 | | 2022 | | 2022 | | 2021 | |||||
The Company | | | | | | | | | | | | | | |
Common equity tier 1 capital ratio | 7.00 | % | | N/A | | | 9.16 | % | | 9.35 | % | | 12.99 | % |
Total risk-based capital ratio | 10.50 | % | | N/A | | | 11.99 | % | | 12.27 | % | | 17.80 | % |
Tier 1 risk-based capital ratio | 8.50 | % | | N/A | | | 9.68 | % | | 9.91 | % | | 14.10 | % |
Tier 1 leverage ratio | 4.00 | % | | N/A | | | 7.70 | % | | 7.24 | % | | 9.81 | % |
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The Bank | | | | | | | | | | | | | | |
Common equity tier 1 capital ratio | 7.00 | % | | 6.50 | % | | 11.60 | % | | 12.24 | % | | 15.65 | % |
Total risk-based capital ratio | 10.50 | % | | 10.00 | % | | 12.64 | % | | 13.25 | % | | 16.69 | % |
Tier 1 risk-based capital ratio | 8.50 | % | | 8.00 | % | | 11.60 | % | | 12.24 | % | | 15.65 | % |
Tier 1 leverage ratio | 4.00 | % | | 5.00 | % | | 9.24 | % | | 8.94 | % | | 10.83 | % |
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 $52.9 million at September 30, 2022, $42.1 million at June 30, 2022, and $29.0 million at September 30, 2021. Nonperforming loans with a total net book value of $23.8 million were acquired through our acquisition of West Suburban in December 2021. 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 1.4% at September 30, 2022, 1.2% at June 30, 2022, and 1.5% at September 30, 2021. |
● | OREO assets totaled $1.6 million at both September 30, 2022 and June 30, 2022, compared to $1.9 million at September 30, 2021. In the third quarter of 2022, we had no transfers to OREO from loans and we sold one property with a total net book value of $63,000. Nonperforming assets, as a percent of total loans plus OREO, was 1.4% at September 30, 2022, 1.2% at June 30, 2022, and 1.7% at September 30, 2021. |
● | Total loans were $3.87 billion at September 30, 2022, reflecting an increase of $244.3 million compared to June 30, 2022, and an increase of $2.0 billion compared to September 30, 2021. The increase from the linked quarter was due to growth in commercial, leases and commercial real estate loans, net of paydowns, in the third quarter of 2022. Increases in the year over year quarter were due to the acquisition of $1.50 billion of loans in the West Suburban acquisition. Average loans (including loans held-for-sale) for the third quarter of 2022 totaled $3.75 billion, reflecting an increase of $244.3 million from the second quarter of 2022 and an increase of $1.86 billion from the third quarter of 2021. |
● | Available-for-sale securities totaled $1.61 billion at September 30, 2022, compared to $1.73 billion at June 30, 2022, and $715.2 million at September 30, 2021. Total securities available-for-sale decreased compared to the linked quarter due to paydowns and maturities of $83.1 million and $41.2 million in unrealized losses during the quarter. No securities were sold in the third quarter of 2022. The growth in the year over year period is due to our acquisition of West Suburban in the fourth quarter of 2021. The unrealized mark to market loss on securities totaled $131.0 million as of September 30, 2022, compared to $89.8 million as of June 30, 2022, and an unrealized mark to market gain of $19.5 million as of September 30, 2021, due to market interest rate increases as well as changes year over year in the composition of the securities portfolio. |
3
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 | ||||||||||||||||||||||
| September 30, 2022 | | June 30, 2022 | | September 30, 2021 | ||||||||||||||||||
| Average | | Income / | | Rate | | Average | | Income / | | Rate | | Average | | Income / | | Rate | ||||||
| Balance | | Expense | | % | | Balance | | Expense | | % | | Balance | | Expense | | % | ||||||
Assets | | | | | | | | | | | | | | | | | | | | | | | |
Interest earning deposits with financial institutions | $ | 131,260 | | $ | 663 | | 2.00 | | $ | 426,820 | | $ | 782 | | 0.73 | | $ | 523,561 | | $ | 203 | | 0.15 |
Securities: | | | | | | | | | | | | | | | | | | | | | | | |
Taxable | | 1,525,258 | | | 9,116 | | 2.37 | | | 1,610,713 | | | 6,786 | | 1.69 | | | 476,935 | | | 1,854 | | 1.54 |
Non-taxable (TE)1 | | 178,090 | | | 1,686 | | 3.76 | | | 181,386 | | | 1,642 | | 3.63 | | | 186,515 | | | 1,603 | | 3.42 |
Total securities (TE)1 | | 1,703,348 | | | 10,802 | | 2.52 | | | 1,792,099 | | | 8,428 | | 1.89 | | | 663,450 | | | 3,457 | | 2.07 |
Dividends from FHLBC and FRBC | | 19,565 | | | 261 | | 5.29 | | | 20,994 | | | 263 | | 5.02 | | | 9,917 | | | 114 | | 4.56 |
Loans and loans held-for-sale1, 2 | | 3,753,117 | | | 46,642 | | 4.93 | | | 3,508,856 | | | 38,267 | | 4.37 | | | 1,889,696 | | | 21,358 | | 4.48 |
Total interest earning assets | | 5,607,290 | | | 58,368 | | 4.13 | | | 5,748,769 | | | 47,740 | | 3.33 | | | 3,086,624 | | | 25,132 | | 3.23 |
Cash and due from banks | | 56,265 | | | - | | - | | | 53,371 | | | - | | - | | | 29,760 | | | - | | - |
Allowance for credit losses on loans | | (45,449) | | | - | | - | | | (44,354) | | | - | | - | | | (28,639) | | | - | | - |
Other noninterest bearing assets | | 377,850 | | | - | | - | | | 374,309 | | | - | | - | | | 185,415 | | | - | | - |
Total assets | $ | 5,995,956 | | | | | | | $ | 6,132,095 | | | | | | | $ | 3,273,160 | | | | | |
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Liabilities and Stockholders' Equity | | | | | | | | | | | | | | | | | | | | | | | |
NOW accounts | $ | 612,174 | | $ | 148 | | 0.10 | | $ | 604,176 | | $ | 102 | | 0.07 | | $ | 534,056 | | $ | 96 | | 0.07 |
Money market accounts | | 967,106 | | | 157 | | 0.06 | | | 1,054,552 | | | 155 | | 0.06 | | | 355,651 | | | 66 | | 0.07 |
Savings accounts | | 1,186,001 | | | 75 | | 0.03 | | | 1,213,133 | | | 90 | | 0.03 | | | 451,829 | | | 47 | | 0.04 |
Time deposits | | 459,925 | | | 335 | | 0.29 | | | 469,009 | | | 265 | | 0.23 | | | 331,482 | | | 330 | | 0.39 |
Interest bearing deposits | | 3,225,206 | | | 715 | | 0.09 | | | 3,340,870 | | | 612 | | 0.07 | | | 1,673,018 | | | 539 | | 0.13 |
Securities sold under repurchase agreements | | 33,733 | | | 10 | | 0.12 | | | 34,496 | | | 9 | | 0.10 | | | 46,339 | | | 15 | | 0.13 |
Other short-term borrowings | | 5,435 | | | 44 | | 3.21 | | | - | | | - | | - | | | - | | | - | | - |
Junior subordinated debentures | | 25,773 | | | 285 | | 4.39 | | | 25,773 | | | 284 | | 4.42 | | | 25,773 | | | 286 | | 4.40 |
Subordinated debentures | | 59,265 | | | 546 | | 3.66 | | | 59,244 | | | 547 | | 3.70 | | | 59,180 | | | 547 | | 3.67 |
Senior notes | | 44,546 | | | 728 | | 6.48 | | | 44,520 | | | 578 | | 5.21 | | | 44,441 | | | 673 | | 6.01 |
Notes payable and other borrowings | | 10,989 | | | 111 | | 4.01 | | | 13,103 | | | 95 | | 2.91 | | | 21,171 | | | 113 | | 2.12 |
Total interest bearing liabilities | | 3,404,947 | | | 2,439 | | 0.28 | | | 3,518,006 | | | 2,125 | | 0.24 | | | 1,869,922 | | | 2,173 | | 0.46 |
Noninterest bearing deposits | | 2,092,301 | | | - | | - | | | 2,120,428 | | | - | | - | | | 1,029,705 | | | - | | - |
Other liabilities | | 34,949 | | | - | | - | | | 32,636 | | | - | | - | | | 53,370 | | | - | | - |
Stockholders' equity | | 463,759 | | | - | | - | | | 461,025 | | | - | | - | | | 320,163 | | | - | | - |
Total liabilities and stockholders' equity | $ | 5,995,956 | | | | | | | $ | 6,132,095 | | | | | | | $ | 3,273,160 | | | | | |
Net interest income (GAAP) | | | | $ | 55,569 | | | | | | | $ | 45,264 | | | | | | | $ | 22,618 | | |
Net interest margin (GAAP) | | | | | | | 3.93 | | | | | | | | 3.16 | | | | | | | | 2.91 |
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Net interest income (TE)1 | | | | $ | 55,929 | | | | | | | $ | 45,615 | | | | | | | $ | 22,964 | | |
Net interest margin (TE)1 | | | | | | | 3.96 | | | | | | | | 3.18 | | | | | | | | 2.95 |
Interest bearing liabilities to earning assets | | 60.72 | % | | | | | | | 61.20 | % | | | | | | | 60.58 | % | | | | |
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1 Tax equivalent (TE) basis is calculated using a marginal tax rate of 21% in 2022 and 2021. See the discussion entitled “Non-GAAP Presentations” below and the tables beginning on page 17 that provides a reconciliation of each non-GAAP measures 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 $750,000, $588,000, and $1.8 million for the third quarter of 2022, second quarter of 2022, and the third quarter of 2021, respectively. Nonaccrual loans are included in the above stated average balances.
Net interest income (TE) was $56.0 million for the third quarter of 2022, which reflects an increase of $10.3 million compared to the second quarter of 2022, and an increase of $33.0 million compared to the third quarter of 2021. The tax equivalent adjustment for the third quarter of 2022 was $360,000 compared to $351,000 in the second quarter 2022, and $341,000 for the third quarter of 2021. Average interest earning assets decreased $141.5 million to $5.61 billion for the third quarter of 2022, compared to the second quarter of 2022, due to decreases in interest earning deposits with financial institutions and securities, partially offset by an increase in loans and loans held-for-sale. Average interest earning assets increased $2.52 billion in the third quarter of 2022, compared to the third quarter of 2021, primarily due to our West Suburban acquisition. Average loans, including loans held-for-sale, increased $244.3 million for the third quarter of 2022, compared to the second quarter of 2022, and increased $1.86 billion compared to the third
4
quarter of 2021. The yield on loans for the third quarter of 2022 increased 56 basis points compared to the second quarter of 2022 and increased 45 basis points compared to the third quarter of 2021.
A decrease of $88.8 million in the average balance of securities for the third quarter of 2022, compared to the second quarter of 2022, was offset by the increase in market interest rates, as increasing yields on our variable rate securities resulted in an increase of $2.4 million to interest income (TE). Significantly higher average balances and higher yields in the third quarter of 2022, compared to the third quarter of 2021, resulted in a $7.3 million increase in interest income (TE) on securities in the third quarter of 2022. The average yield on total securities available-for-sale increased 45 basis points year over year. We acquired $1.07 billion of securities with our acquisition of West Suburban in December 2021, and securities activity in the third quarter 2022 consisted of $83.1 million of paydowns, calls and maturities, and $519,000 of purchases. Our overall yield on tax equivalent municipal securities was 3.76% for the third quarter of 2022, compared to 3.63% for the second quarter of 2022 and 3.42% for the third quarter of 2021.
The yield on average earning assets increased 80 basis points in the third quarter of 2022, compared to the second quarter of 2022, and increased 90 basis points compared to the third quarter of 2021. Changes in the interest rate environment impact the portfolio at varying intervals depending on the repricing timeline of loans, as well as the securities maturity and purchase activity.
Average interest bearing liabilities decreased $113.1 million in the third quarter of 2022, compared to the second quarter of 2022, driven primarily by a $123.7 million decrease in money market accounts, savings accounts, and time deposits. Average interest bearing liabilities increased $1.54 billion in the third quarter of 2022, compared to the third quarter of 2021, primarily driven by a $1.55 billion increase in interest bearing deposits from our acquisition of West Suburban, partially offset by a $12.6 million decrease in repurchase agreements, and a $10.2 million decrease in notes payable and other borrowings. The decrease in deposits from the second quarter of 2022 are attributable to customer usage of funds, and we paid down $1.0 million of notes payable in the third quarter of 2022. The cost of interest bearing liabilities for the third quarter of 2022 increased to 28 basis points compared to 24 basis points for the second quarter of 2022 and decreased 18 basis points from 0.46% for the third quarter of 2021. An increase in our average noninterest bearing demand deposits of $1.06 billion 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, which includes the impact of noninterest bearing deposits, totaled 0.18% for the third quarter of 2022, compared to 0.15% for the second quarter of 2022 and 0.30% in the third quarter of 2021.
Our net interest margin (GAAP) increased 77 basis points to 3.93% for the third quarter of 2022, compared to 3.16% for the second quarter of 2022, and increased 102 basis points compared to 2.91% for the third quarter of 2021. Our net interest margin (TE) increased 78 basis points to 3.96% for the third quarter of 2022, compared to 3.18% for the second quarter 2022, and increased 101 basis points compared to 2.95% for the third quarter of 2021. The increases year over year were due primarily to the increased level of market interest rates over much of the past seven months, the related rate resets on loans and securities during the past year, and a decrease in our cost of funds. See the discussion entitled “Non-GAAP Presentations” and the tables beginning on page 17 that provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.
5
Noninterest Income
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| | | | | | | | | | | 3rd Quarter 2022 | | |||||||||||
Noninterest Income | | Three Months Ended | | Percent Change From | | ||||||||||||||||||
(Dollars in thousands) | | September 30, | | June 30, | | September 30, | | June 30, | | September 30, | | ||||||||||||
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| 2022 |
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| ||||||||||||
Wealth management | | $ | 2,280 | | $ | 2,506 | | $ | 2,372 | | (9.0) | | (3.9) | | |||||||||
Service charges on deposits | | | 2,661 | | | 2,328 | | | 1,368 | | 14.3 | | 94.5 | | |||||||||
Residential mortgage banking revenue | | | | | | | | | | | | | | | |||||||||
Secondary mortgage fees | | | 81 | | | 50 | | | 240 | | 62.0 | | (66.3) | | |||||||||
MSRs mark to market gain (loss) | | | 548 | | | 82 | | | (282) | | 568.3 | | (294.3) | | |||||||||
Mortgage servicing income | | | 514 | | | 579 | | | 572 | | (11.2) | | (10.1) | | |||||||||
Net gain (loss) on sales of mortgage loans | | | 449 | | | (262) | | | 2,186 | | (271.4) | | (79.5) | | |||||||||
Total residential mortgage banking revenue | | | 1,592 | | | 449 | | | 2,716 | | 254.6 | | (41.4) | | |||||||||
Securities (losses) gains, net | | | (1) | | | (33) | | | 244 | | N/M | | N/M | | |||||||||
Change in cash surrender value of BOLI | | | 146 | | | 72 | | | 406 | | 102.8 | | (64.0) | | |||||||||
Card related income | | | 2,653 | | | 2,965 | | | 1,624 | | (10.5) | | 63.4 | | |||||||||
Other income | | | 2,165 | | | 924 | | | 610 | | 134.3 | | 254.9 | | |||||||||
Total noninterest income | | $ | 11,496 | | $ | 9,211 | | $ | 9,340 | | 24.8 | | 23.1 | |
N/M - Not meaningful.
Noninterest income increased $2.3 million, or 24.8%, in the third quarter of 2022, compared to the second quarter of 2022, and increased $2.2 million, or 23.1%, compared to the third quarter of 2021. The increase from the second quarter was primarily driven by $1.1 million of growth in residential mortgage banking revenue that is attributable to an increase in mark to market gain on MSRs of $466,000, as well as a $449,000 net gain on the sale of mortgage loans, compared to a net loss of $262,000 on the sale of mortgage loans in the second quarter of 2022. The variance in mortgage banking is derived from the changing rate environment experienced during the second and third quarters and the resultant negative impact on interest rate lock commitments, as well as further increases in the fair value of mortgage servicing rights during the third quarter. Increases were also noted in service charges on deposits of $333,000, and in other income of $1.2 million primarily due to a $743,000 pretax gain on a Visa portfolio sale and a $180,000 pretax gain on the sale of a land trust portfolio, as compared to the linked quarter. These increases in noninterest income in the third quarter of 2022, compared to the second quarter of 2022, were partially offset by a $226,000 decrease in wealth management fees, and a $312,000 decrease in card related income.
The increase in noninterest income of $2.2 million in the third quarter of 2022, compared to the third quarter of 2021, is primarily due to an increase of $1.3 million in services charges of deposits, an increase of $1.0 million of card related income, and pretax gains on the sale of the Visa credit card portfolio and the land trust portfolio reported in other income. These gains were partially offset by a $1.1 million decline in residential mortgage banking revenue due to increases in interest rates effecting the mortgage banking origination volume and related derivative, offset by an increase in the fair value of mortgage servicing rights and a $260,000 decline in the cash surrender value of BOLI.
6
Noninterest Expense
| | | | | | | | | | | | | | |
| | | | | | | | | | | 3rd Quarter 2022 | | ||
Noninterest Expense | | Three Months Ended | | Percent Change From | | |||||||||
(Dollars in thousands) | | September 30, | | June 30, | | September 30, | | June 30, | | September 30, | | |||
|
| 2022 |
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| |||
Salaries | | $ | 14,711 | | $ | 15,995 | | $ | 9,630 | | (8.0) | | 52.8 | |
Officers incentive | | | 2,787 | | | 1,662 | | | 1,212 | | 67.7 | | 130.0 | |
Benefits and other | | | 3,513 | | | 3,675 | | | 2,122 | | (4.4) | | 65.6 | |
Total salaries and employee benefits | | | 21,011 | | | 21,332 | | | 12,964 | | (1.5) | | 62.1 | |
Occupancy, furniture and equipment expense | | | 4,119 | | | 3,046 | | | 2,418 | | 35.2 | | 70.3 | |
Computer and data processing | | | 2,543 | | | 4,006 | | | 1,477 | | (36.5) | | 72.2 | |
FDIC insurance | | | 659 | | | 702 | | | 211 | | (6.1) | | 212.3 | |
General bank insurance | | | 257 | | | 351 | | | 301 | | (26.8) | | (14.6) | |
Amortization of core deposit intangible asset | | | 657 | | | 659 | | | 113 | | (0.3) | | 481.4 | |
Advertising expense | | | 83 | | | 194 | | | 107 | | (57.2) | | (22.4) | |
Card related expense | | | 1,453 | | | 1,057 | | | 662 | | 37.5 | | 119.5 | |
Legal fees | | | 212 | | | 179 | | | 455 | | 18.4 | | (53.4) | |
Consulting & management fees | | | 607 | | | 523 | | | 248 | | 16.1 | | 144.8 | |
Other real estate owned expense, net | | | 22 | | | 87 | | | 25 | | (74.7) | | (12.0) | |
Other expense | | | 4,365 | | | 5,113 | | | 3,148 | | (14.6) | | 38.7 | |
Total noninterest expense | | $ | 35,988 | | $ | 37,249 | | $ | 22,129 | | (3.4) | | 62.6 | |
Efficiency ratio (GAAP)1 | | | 53.08 | % | | 67.07 | % | | 68.73 | % | | | | |
Adjusted efficiency ratio (non-GAAP)2 | | | 51.90 | % | | 62.73 | % | | 66.47 | % | | | | |
1 The efficiency ratio shown in the table above is a GAAP financial measure calculated as noninterest expense, excluding amortization of core deposits and OREO expenses, divided by the sum of net interest income and total noninterest income less net gains or losses on securities and mark to market gains or losses on MSRs.
2 The adjusted efficiency ratio shown in the table above is a non-GAAP financial measure calculated as noninterest expense, excluding amortization of core deposits, OREO expenses, and acquisition-related costs, net of gains on branch sales, divided by the sum of net interest income on a fully tax equivalent basis, total noninterest income less net gains or losses on securities, mark to market gains or losses on MSRs, and nonrecurring gains on the sale of Visa and land trust portfolios, 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 18 that provides a reconciliation of this non-GAAP financial measure to the most comparable GAAP equivalent.
Noninterest expense for the third quarter of 2022 decreased $1.3 million, or 3.4%, compared to the second quarter of 2022, and increased $13.9 million, or 62.6%, compared to the third quarter of 2021. The decrease in the third quarter of 2022 compared to the second quarter was primarily attributable to $650,000 of West Suburban acquisition-related costs for the third quarter of 2022 compared to $3.3 million for the second quarter of 2022. Acquisition-related costs in the third quarter of 2022 included $90,000 in data processing expense, compared to $1.7 million in the second quarter of 2022, primarily due to acquisition-related core system conversion costs. Partially offsetting the decrease in noninterest expense was an increase in occupancy, furniture and equipment costs of $1.1 million in the third quarter of 2022, compared to the prior quarter, due to net losses on branch sales during the quarter. Finally, our card related expense increased in the third quarter of 2022, compared to the second quarter, due to growth in customer transactions and related volume charges.
The year over year increase in noninterest expense is primarily attributable to an $8.0 million increase in salaries and employee benefits, a $1.7 million increase in occupancy, furniture and equipment, a $1.1 million increase in computer and data processing expense, and a $1.2 million increase in other expense. Officers incentive compensation increased $1.6 million in the third quarter of 2022, compared to the third quarter of 2021, as incentive accruals increased in the current year due to the acquisition of West Suburban, as well as growth in our commercial lending team. Employee benefits expense increased $1.4 million in the third quarter of 2022, compared to the third quarter of 2021, due to increases stemming from additional employees from our acquisition of West Suburban. The increase in occupancy, furniture and equipment expense year over year was due to the addition of 34 West Suburban branches in late 2021. The $1.1 million increase in computer and data processing expense was primarily due to core system conversion costs relating to the West Suburban acquisition. Finally, the increase in other expense was due primarily to growth in bill payment services, consulting fees and commercial loan related costs, primarily due to acquisition-related costs in the third quarter of 2022.
7
Earning Assets
| | | | | | | | | | | | | | |
| | | | | | | | | | | September 30, 2022 | | ||
Loans | | As of | | Percent Change From | | |||||||||
(dollars in thousands) | | September 30, | | June 30, | | September 30, | | June 30, | | September 30, | | |||
|
| 2022 |
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| |||
Commercial | | $ | 888,081 | | $ | 806,725 | | $ | 321,548 | | 10.1 | | 176.2 | |
Leases | | | 251,603 | | | 230,677 | | | 162,444 | | 9.1 | | 54.9 | |
Commercial real estate – investor | | | 941,910 | | | 834,395 | | | 420,853 | | 12.9 | | 123.8 | |
Commercial real estate – owner occupied | | | 876,951 | | | 870,181 | | | 445,301 | | 0.8 | | 96.9 | |
Construction | | | 176,700 | | | 170,037 | | | 108,690 | | 3.9 | | 62.6 | |
Residential real estate – investor | | | 59,580 | | | 61,220 | | | 45,497 | | (2.7) | | 31.0 | |
Residential real estate – owner occupied | | | 220,969 | | | 207,836 | | | 108,343 | | 6.3 | | 104.0 | |
Multifamily | | | 322,856 | | | 310,706 | | | 160,798 | | 3.9 | | 100.8 | |
HELOC | | | 116,108 | | | 120,138 | | | 82,021 | | (3.4) | | 41.6 | |
Other1 | | | 14,576 | | | 13,155 | | | 12,447 | | 10.8 | | 17.1 | |
Total loans | | $ | 3,869,334 | | $ | 3,625,070 | | $ | 1,867,942 | | 6.7 | | 107.1 | |
1 Other class includes consumer and overdrafts.
Total loans increased by $244.3 million at September 30, 2022, compared to June 30, 2022, and increased $2.0 billion for the year over year period. Loan growth of $2.0 billion in the year over year period was driven by the acquisition of West Suburban, as well as loan growth in 2022 which primarily consisted of commercial, leases, commercial real estate-owner occupied, construction and multifamily loans. As required by ASU 2016-13, per adoption of the Current Expected Credit Losses accounting standard (“CECL”), the balance (or amortized cost basis) of purchased credit deteriorated loans (or “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.
| | | | | | | | | | | | | |
| | | | | | | | | | | September 30, 2022 | ||
Securities | | As of | | Percent Change From | |||||||||
(dollars in thousands) | | September 30, | | June 30, | | September 30, | | June 30, | | September 30, | |||
|
| 2022 |
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||
Securities available-for-sale, at fair value | | | | | | | | | | | | | |
U.S. Treasury | | $ | 211,097 | | $ | 214,820 | | $ | 4,070 | | (1.7) | | N/M |
U.S. government agencies | | | 55,963 | | | 57,896 | | | 33,575 | | (3.3) | | 66.7 |
U.S. government agency mortgage-backed | | | 127,626 | | | 141,836 | | | 17,818 | | (10.0) | | 616.3 |
States and political subdivisions | | | 224,260 | | | 233,652 | | | 238,952 | | (4.0) | | (6.1) |
Corporate bonds | | | 9,543 | | | 9,543 | | | 4,992 | | - | | 91.2 |
Collateralized mortgage obligations | | | 587,846 | | | 641,498 | | | 165,414 | | (8.4) | | 255.4 |
Asset-backed securities | | | 219,587 | | | 259,622 | | | 189,338 | | (15.4) | | 16.0 |
Collateralized loan obligations | | | 173,837 | | | 175,549 | | | 61,029 | | (1.0) | | 184.8 |
Total securities available-for-sale | | $ | 1,609,759 | | $ | 1,734,416 | | $ | 715,188 | | (7.2) | | 125.1 |
| | | | | | | | | | | | | |
N/M - Not meaningful.
Our securities portfolio totaled $1.61 billion as of September 30, 2022, a decrease of $124.7 million from $1.73 billion as of June 30, 2022, and an increase of $894.6 million from $715.2 million as of September 30, 2021. The decrease in the portfolio during the third quarter of 2022, compared to the prior quarter, was driven primarily by $83.1 million of calls and pay downs on securities held as well as the effect of rising interest rates and widening credit spreads, which resulted in a $41.2 million decrease in the portfolio’s market value. Purchases during the third quarter of 2022 totaled $519,000, and there were no sales during the quarter. A loss of $1,000 was recorded on the call of securities during the quarter. The increase in the securities portfolio in the year over year period was primarily due to $1.07 billion of securities acquired as part of our acquisition of West Suburban. The portfolio currently consists of high quality fixed-rate and floating-rate securities, with all except one rated AA or better, displaying an effective duration of approximately 3.0 years.
8
Asset Quality
| | | | | | | | | | | | | |
| | | | | | | | | | | September 30, 2022 | ||
Nonperforming assets | | As of | | Percent Change From | |||||||||
(dollars in thousands) | | September 30, | | June 30, | | September 30, | | June 30, | | September 30, | |||
|
| 2022 |
| 2022 |
| 2021 |
| 2022 | | 2021 | |||
Nonaccrual loans | | $ | 32,126 | | $ | 35,712 | | $ | 27,520 | | (10.0) | | 16.7 |
Performing troubled debt restructured loans accruing interest | |
| 22 | |
| 1,108 | |
| 199 | | (98.0) | | (88.9) |
Loans past due 90 days or more and still accruing interest | |
| 20,752 | |
| 5,274 | |
| 1,233 | | 293.5 | | N/M |
Total nonperforming loans | |
| 52,900 | |
| 42,094 | |
| 28,952 | | 25.7 | | 82.7 |
Other real estate owned | |
| 1,561 | |
| 1,624 | |
| 1,912 | | (3.9) | | (18.4) |
Total nonperforming assets | | $ | 54,461 | | $ | 43,718 | | $ | 30,864 | | 24.6 | | 76.5 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
30-89 days past due loans and still accruing interest | | $ | 8,197 | | $ | 24,681 | | $ | 2,829 | | | | |
Nonaccrual loans to total loans | | | 0.8 | % | | 1.0 | % | | 1.5 | % | | | |
Nonperforming loans to total loans | | | 1.4 | % | | 1.2 | % | | 1.5 | % | | | |
Nonperforming assets to total loans plus OREO | | | 1.4 | % | | 1.2 | % | | 1.7 | % | | | |
Purchased credit-deteriorated loans to total loans | | | 2.1 | % | | 2.3 | % | | 0.3 | % | | | |
| | | | | | | | | | | | | |
Allowance for credit losses | | $ | 48,847 | | $ | 45,388 | | $ | 26,949 | | | | |
Allowance for credit losses to total loans | | | 1.3 | % | | 1.3 | % | | 1.4 | % | | | |
Allowance for credit losses to nonaccrual loans | | | 152.1 | % | | 127.1 | % | | 97.9 | % | | | |
N/M - Not meaningful.
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. PCD loans acquired in our acquisitions of West Suburban and ABC Bank totaled $79.7 million, net of purchase accounting adjustments, at September 30, 2022. PCD loans that meet the definition of nonperforming loans are included in our nonperforming disclosures. Nonperforming loans to total loans was 1.4% for the third quarter of 2022, 1.2% for the second quarter of 2022, and 1.5% for the third quarter of 2021. Nonperforming assets to total loans plus OREO was 1.4% for the third quarter of 2022, 1.2% for the second quarter of 2022, and 1.7% for the third quarter of 2021. Our allowance for credit losses to total loans was 1.3% for both the third quarter of 2022 and the second quarter of 2022, and 1.4% for the third quarter of 2021.
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.
| | | | | | | | | | | | | | |
| | | | | | | | | | | September 30, 2022 | | ||
Classified loans | | As of | | Percent Change From | | |||||||||
(dollars in thousands) | | September 30, | | June 30, | | September 30, | | June 30, | | September 30, | | |||
|
| 2022 |
| 2022 |
| 2021 |
| 2022 |
| 2021 | | |||
Commercial | | $ | 31,722 | | $ | 31,577 | | $ | 467 | | 0.5 | | N/M | |
Leases | | | 235 | | | 2,005 | | | 4,423 | | (88.3) | | (94.7) | |
Commercial real estate – investor | | | 28,252 | | | 30,407 | | | 8,718 | | (7.1) | | 224.1 | |
Commercial real estate – owner occupied | | | 42,698 | | | 28,715 | | | 7,211 | | 48.7 | | 492.1 | |
Construction | | | 1,347 | | | 1,238 | | | 4,898 | | 8.8 | | (72.5) | |
Residential real estate – investor | | | 1,285 | | | 1,246 | | | 1,154 | | 3.1 | | 11.4 | |
Residential real estate – owner occupied | | | 3,929 | | | 3,785 | | | 4,508 | | 3.8 | | (12.8) | |
Multifamily | | | 1,982 | | | 1,336 | | | 2,327 | | 48.4 | | (14.8) | |
HELOC | | | 2,278 | | | 2,853 | | | 1,215 | | (20.2) | | 87.5 | |
Other1 | | | 2 | | | 2 | | | 2 | | - | | - | |
Total classified loans | | $ | 113,730 | | $ | 103,164 | | $ | 34,923 | | 10.2 | | 225.7 | |
1 Other class includes consumer and overdrafts.
N/M - Not meaningful.
Increases in classified loans since September 30, 2021, were driven by our acquisition of West Suburban and the resultant increase in total loans during the fourth quarter of 2021. The $10.6 million increase from the linked quarter is due to one large loan being moved from watch to problem accruing status in Commercial real estate – owner occupied.
9
Allowance for Credit Losses on Loans and Unfunded Commitments
At September 30, 2022, our allowance for credit losses (“ACL”) on loans totaled $48.8 million, and our ACL on unfunded commitments, included in other liabilities, totaled $5.4 million. In the third quarter of 2022, we recorded provision expense of $4.5 million based on strong loan growth, our assessment of nonperforming loan metrics and trends, and estimated future credit losses. The third quarter’s provision expense consisted of a $3.5 million provision for credit losses on loans, and a $973,000 provision for credit losses on unfunded commitments. We recorded net charge-offs of $68,000 in the third quarter of 2022, which reduced the ACL. In the second quarter of 2022, we recorded provision expense on loans of $1.3 million, based on our assessment of nonperforming loan metrics and trends and estimated future credit losses, which was offset by a $780,000 reduction in our reserve on unfunded commitments, primarily due to an updated analysis of line utilization rates over the past twelve months. These two entries resulted in a $550,000 net impact to the provision for credit losses for the second quarter of 2022. In the third quarter of 2021, a $1.5 million release of provision expense was recorded due to revised expectations of future credit losses after one year of the COVID-19 pandemic. Our ACL on loans to total loans was 1.3% as of September 30, 2022, and June 30, 2022, compared to 1.4% as of September 30, 2021.
The increase in our ACL on unfunded commitments at September 30, 2022, compared to June 30, 2022 is driven by a $973,000 provision expense in the quarter primarily due to additional line utilization in the third quarter of 2022, partially offset by $223,000 of accretion recorded during the quarter. The ACL on unfunded commitments totaled $5.4 million as of September 30, 2022, $4.7 million as of June 30, 2022, and $2.2 million as of September 30, 2021.
Net Charge-off Summary
| | | | | | | | | | | | | | |
Loan Charge–offs, net of recoveries | Quarters Ended | |||||||||||||
(dollars in thousands) | September 30, | | % of | | June 30, | | % of | | September 30, | | % of | |||
| 2022 | | Total 2 | | 2022 | | Total 2 | | 2021 | | Total 2 | |||
Commercial | $ | 20 | | 29.4 | | $ | 44 | | 17.6 | | $ | (2) | | (0.8) |
Leases | | 178 | | 261.8 | | | - | | - | | | 4 | | 1.7 |
Commercial real estate – Investor | | 105 | | 154.4 | | | 225 | | 90.0 | | | 83 | | 35.0 |
Commercial real estate – Owner occupied | | (75) | | (110.3) | | | (7) | | (2.8) | | | (2) | | (0.8) |
Residential real estate – Investor | | (8) | | (11.8) | | | (5) | | (2.0) | | | (7) | | (3.0) |
Residential real estate – Owner occupied | | (113) | | (166.2) | | | (22) | | (8.8) | | | (18) | | (7.6) |
Multifamily | | (63) | | (92.6) | | | - | | - | | | 183 | | 77.2 |
HELOC | | (35) | | (51.5) | | | (31) | | (12.4) | | | (28) | | (11.8) |
Other 1 | | 59 | | 86.8 | | | 46 | | 18.4 | | | 24 | | 10.1 |
Net charge–offs / (recoveries) | $ | 68 | | 100.0 | | $ | 250 | | 100.0 | | $ | 237 | | 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 third quarter of 2022 were $484,000, compared to $386,000 for the second quarter of 2022 and $369,000 for the third quarter 2021. Gross recoveries were $416,000 for the third quarter of 2022, compared to $136,000 for the second quarter of 2022, and $132,000 for the third quarter of 2021. Continued recoveries are indicative of the ongoing aggressive efforts by management to effectively manage and resolve prior charge-offs.
Deposits
Total deposits were $5.28 billion at September 30, 2022, a decrease of $61.5 million compared to $5.34 billion at June 30, 2022, primarily due to declines in our savings, NOW, and money market accounts of $76.6 million and a decrease in time deposits of $4.8 million, partially offset by an increase in demand deposits of $19.9 million. Total deposits increased $2.57 billion in the year over year period, driven primarily by the $2.69 billion of deposits acquired with our West Suburban acquisition in December 2021.
Borrowings
As of September 30, 2022, we had $25.0 million in other short-term borrowings due to a short-term FHLB advance. As of June 30, 2022, and September 30, 2021, we had no other short-term borrowings, primarily due to sufficient deposit levels to meet short-term funding needs.
We were indebted on senior notes totaling $44.6 million, net of deferred issuance costs, as of September 30, 2022. We were also indebted on $25.8 million of junior subordinated debentures, net of deferred issuance
10
costs, which is related to the trust preferred securities issued by our statutory trust subsidiary, Old Second Capital Trust II. Subordinated debt totaled $59.3 million as of September 30, 2022, consisting of $60.0 million in principal issued on April 6, 2021, net of debt issuance cost of $725,000. As of September 30, 2022, compared to June 30, 2022, notes payable and other borrowings decreased $1.0 million and is comprised of $10.0 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.
Non-GAAP Presentations
Management has disclosed in this earnings release certain non-GAAP financial measures to evaluate and measure our performance, including the presentation of adjusted net income, net interest income and net interest margin on a fully taxable equivalent basis, and our efficiency ratio calculations on a taxable equivalent basis. The net interest margin fully taxable equivalent is calculated by dividing net interest income on a tax equivalent basis by average earning assets for the period. Consistent with industry practice, management has disclosed the efficiency ratio including and excluding certain items, which is discussed in the noninterest expense presentation on page 7.
We consider the use of select non-GAAP financial measures and ratios to be useful for financial and operational decision making and useful in evaluating period-to-period comparisons. We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding certain expenditures or assets that we believe are not indicative of our primary business operating results or by presenting certain metrics on a fully taxable equivalent basis. We believe these measures provide investors with information regarding balance sheet profitability, and we believe that management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, analyzing, and comparing past, present and future periods.
These non-GAAP financial measures should not be considered as a substitute for GAAP financial measures, and we strongly encourage investors to review the GAAP financial measures included in this earnings release and not to place undue reliance upon any single financial measure. In addition, because non-GAAP financial measures are not standardized, it may not be possible to compare the non-GAAP financial measures presented in this earnings release with other companies’ non-GAAP financial measures having the same or similar names. The tables beginning on page 17 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 “should,” “anticipate,” “expect,” “estimate,” “intend,” “believe,” “may,” “likely,” “will,” “forecast,” “project,” “looking forward,” “optimistic,” “hopeful,” “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 economic outlook, our expectations around our mortgage banking expenses and run rate, loan growth, pipelines and customer activity, statements regarding our expectations with respect to our acquisition of West Suburban, statements regarding our expectations with respect to the yield curve, 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 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; (7) with respect to the acquisition of 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,
11
the continued integration of the two companies or as a result of other unexpected factors or events; and (8) the adverse effects of events beyond our control that may have a destabilizing effect on financial markets and the economy, such as epidemics and pandemics, war or terrorist activities, essential utility outages, deterioration in the global economy, instability in the credit markets, disruptions in our customers’ supply chains or disruption in transportation. 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, October 27, 2022, at 11:00 a.m. Eastern Time (10:00 a.m. Central Time) to discuss our third quarter 2022 financial results. Investors may listen to our call via telephone by dialing 888-506-0062, using Entry Code 439125. 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 November 3, 2022, by dialing 877-481-4010, using Conference ID: 46648.
12
Old Second Bancorp, Inc. and Subsidiaries
(In thousands)
| | | | | | |
| | (unaudited) | | | | |
| | September 30, | | December 31, | ||
|
| 2022 |
| 2021 | ||
Assets | | | | | | |
Cash and due from banks | | $ | 64,903 | | $ | 38,565 |
Interest earning deposits with financial institutions | | | 51,251 | | | 713,542 |
Cash and cash equivalents | | | 116,154 | | | 752,107 |
Securities available-for-sale, at fair value | | | 1,609,759 | | | 1,693,632 |
Federal Home Loan Bank Chicago ("FHLBC") and Federal Reserve Bank Chicago ("FRBC") stock | | | 19,413 | | | 13,257 |
Loans held-for-sale | | | 1,297 | | | 4,737 |
Loans | | | 3,869,334 | | | 3,420,804 |
Less: allowance for credit losses on loans | | | 48,847 | | | 44,281 |
Net loans | | | 3,820,487 | | | 3,376,523 |
Premises and equipment, net | | | 77,301 | | | 88,005 |
Other real estate owned | | | 1,561 | | | 2,356 |
Mortgage servicing rights, at fair value | | | 11,461 | | | 7,097 |
Goodwill | | | 86,478 | | | 86,332 |
Core deposit intangible | | | 14,323 | | | 16,304 |
Bank-owned life insurance ("BOLI") | | | 105,642 | | | 105,300 |
Deferred tax assets, net | | | 49,620 | | | 6,100 |
Other assets | | | 54,209 | | | 60,439 |
Total assets | | $ | 5,967,705 | | $ | 6,212,189 |
| | | | | | |
Liabilities | | | | | | |
Deposits: | | | | | | |
Noninterest bearing demand | | $ | 2,098,144 | | $ | 2,093,494 |
Interest bearing: | | | | | | |
Savings, NOW, and money market | | | 2,726,596 | | | 2,868,928 |
Time | | | 456,619 | | | 503,810 |
Total deposits | | | 5,281,359 | | | 5,466,232 |
Securities sold under repurchase agreements | | | 35,497 | | | 50,337 |
Other short-term borrowings | | | 25,000 | | | - |
Junior subordinated debentures | | | 25,773 | | | 25,773 |
Subordinated debentures | | | 59,275 | | | 59,212 |
Senior notes | | | 44,559 | | | 44,480 |
Notes payable and other borrowings | | | 10,000 | | | 19,074 |
Other liabilities | | | 52,528 | | | 45,054 |
Total liabilities | | | 5,533,991 | | | 5,710,162 |
| | | | | | |
Stockholders’ Equity | | | | | | |
Common stock | | | 44,705 | | | 44,705 |
Additional paid-in capital | | | 201,700 | | | 202,443 |
Retained earnings | | | 289,126 | | | 252,011 |
Accumulated other comprehensive (loss) income | | | (98,389) | | | 8,768 |
Treasury stock | | | (3,428) | | | (5,900) |
Total stockholders’ equity | | | 433,714 | | | 502,027 |
Total liabilities and stockholders’ equity | | $ | 5,967,705 | | $ | 6,212,189 |
| | | | | | |
13
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(In thousands, except share data)
| | | | | | | | | | | | | |
| | (unaudited) | | (unaudited) | | ||||||||
| | Three Months Ended September 30, | | Nine Months Ended September 30, | |||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| ||||
Interest and dividend income | | | | | | | | | | | | | |
Loans, including fees | | $ | 46,614 | | $ | 21,315 | | $ | 121,209 | | $ | 64,337 | |
Loans held-for-sale | | | 22 | | | 39 | | | 111 | | | 132 | |
Securities: | | | | | | | | | | | | | |
Taxable | | | 9,116 | | | 1,854 | | | 21,071 | | | 5,301 | |
Tax exempt | | | 1,332 | | | 1,266 | | | 3,946 | | | 3,832 | |
Dividends from FHLBC and FRBC stock | | | 261 | | | 114 | | | 677 | | | 342 | |
Interest bearing deposits with financial institutions | | | 663 | | | 203 | | | 1,714 | | | 432 | |
Total interest and dividend income | | | 58,008 | | | 24,791 | | | 148,728 | | | 74,376 | |
Interest expense | | | | | | | | | | | | | |
Savings, NOW, and money market deposits | | | 380 | | | 209 | | | 1,124 | | | 667 | |
Time deposits | | | 335 | | | 330 | | | 877 | | | 1,239 | |
Securities sold under repurchase agreements | | | 10 | | | 15 | | | 30 | | | 67 | |
Other short-term borrowings | | | 44 | | | - | | | 44 | | | - | |
Junior subordinated debentures | | | 285 | | | 286 | | | 849 | | | 850 | |
Subordinated debentures | | | 546 | | | 547 | | | 1,639 | | | 1,064 | |
Senior notes | | | 728 | | | 673 | | | 1,791 | | | 2,019 | |
Notes payable and other borrowings | | | 111 | | | 113 | | | 309 | | | 355 | |
Total interest expense | | | 2,439 | | | 2,173 | | | 6,663 | | | 6,261 | |
Net interest and dividend income | | | 55,569 | | | 22,618 | | | 142,065 | | | 68,115 | |
Provision for (release of) credit losses | | | 4,500 | | | (1,500) | | | 5,050 | | | (8,000) | |
Net interest and dividend income after provision for (release of) credit losses | | | 51,069 | | | 24,118 | | | 137,015 | | | 76,115 | |
Noninterest income | | | | | | | | | | | | | |
Wealth management | | | 2,280 | | | 2,372 | | | 7,484 | | | 6,912 | |
Service charges on deposits | | | 2,661 | | | 1,368 | | | 7,063 | | | 3,784 | |
Secondary mortgage fees | | | 81 | | | 240 | | | 270 | | | 834 | |
Mortgage servicing rights mark to market gain (loss) | | | 548 | | | (282) | | | 3,608 | | | (202) | |
Mortgage servicing income | | | 514 | | | 572 | | | 1,612 | | | 1,646 | |
Net gain on sales of mortgage loans | | | 449 | | | 2,186 | | | 1,682 | | | 7,802 | |
Securities (losses) gains, net | | | (1) | | | 244 | | | (34) | | | 246 | |
Change in cash surrender value of BOLI | | | 146 | | | 406 | | | 342 | | | 1,163 | |
Card related income | | | 2,653 | | | 1,624 | | | 8,194 | | | 4,737 | |
Other income | | | 2,165 | | | 610 | | | 3,949 | | | 1,637 | |
Total noninterest income | | | 11,496 | | | 9,340 | | | 34,170 | | | 28,559 | |
Noninterest expense | | | | | | | | | | | | | |
Salaries and employee benefits | | | 21,011 | | | 12,964 | | | 62,310 | | | 39,366 | |
Occupancy, furniture and equipment | | | 4,119 | | | 2,418 | | | 10,864 | | | 7,188 | |
Computer and data processing | | | 2,543 | | | 1,477 | | | 12,817 | | | 4,079 | |
FDIC insurance | | | 659 | | | 211 | | | 1,771 | | | 604 | |
General bank insurance | | | 257 | | | 301 | | | 923 | | | 854 | |
Amortization of core deposit intangible | | | 657 | | | 113 | | | 1,981 | | | 348 | |
Advertising expense | | | 83 | | | 107 | | | 459 | | | 262 | |
Card related expense | | | 1,453 | | | 662 | | | 3,044 | | | 1,881 | |
Legal fees | | | 212 | | | 455 | | | 648 | | | 645 | |
Consulting & management fees | | | 607 | | | 248 | | | 1,746 | | | 914 | |
Other real estate expense, net | | | 22 | | | 25 | | | 97 | | | 138 | |
Other expense | | | 4,365 | | | 3,148 | | | 14,829 | | | 8,989 | |
Total noninterest expense | | | 35,988 | | | 22,129 | | | 111,489 | | | 65,268 | |
Income before income taxes | | | 26,577 | | | 11,329 | | | 59,696 | | | 39,406 | |
Provision for income taxes | | | 7,054 | | | 2,917 | | | 15,906 | | | 10,295 | |
Net income | | $ | 19,523 | | $ | 8,412 | | $ | 43,790 | | $ | 29,111 | |
| | | | | | | | | | | | | |
Basic earnings per share | | $ | 0.43 | | $ | 0.30 | | $ | 0.98 | | $ | 1.01 | |
Diluted earnings per share | | | 0.43 | | | 0.30 | | | 0.97 | | | 0.99 | |
Dividends declared per share | | | 0.05 | | | 0.05 | | | 0.15 | | | 0.11 | |
| | | | | | | | |
Ending common shares outstanding | | 44,572,544 | | 28,707,737 | | 44,572,544 | | 28,707,737 |
Weighted-average basic shares outstanding | | 44,565,626 | | 28,707,737 | | 44,509,072 | | 28,925,612 |
Weighted-average diluted shares outstanding | | 45,221,541 | | 29,230,280 | | 45,210,216 | | 29,458,806 |
14
Old Second Bancorp, Inc. and Subsidiaries
Quarterly Consolidated Average Balance
(In thousands, unaudited)
| | | | | | | | | | | | | | | | | | | | | |
| | | 2021 | | 2022 | ||||||||||||||||
Assets |
| 1st Qtr |
| 2nd Qtr |
| 3rd Qtr |
| 4th Qtr |
| 1st Qtr | | 2nd Qtr |
| 3rd Qtr | |||||||
Cash and due from banks | | $ | 28,461 | | $ | 29,985 | | $ | 29,760 | | $ | 34,225 | | $ | 42,972 | | $ | 53,371 | | $ | 56,265 |
Interest earning deposits with financial institutions | | | 359,576 | | | 499,555 | | | 523,561 | | | 587,721 | | | 635,302 | | | 426,820 | | | 131,260 |
Cash and cash equivalents | | | 388,037 | | | 529,540 | | | 553,321 | | | 621,946 | | | 678,274 | | | 480,191 | | | 187,525 |
| | | | | | | | | | | | | | | | | | | | | |
Securities available-for-sale, at fair value | | | 532,230 | | | 614,066 | | | 663,450 | | | 1,032,273 | | | 1,807,875 | | | 1,792,099 | | | 1,703,348 |
FHLBC and FRBC stock | | | 9,917 | | | 9,917 | | | 9,917 | | | 11,042 | | | 16,066 | | | 20,994 | | | 19,565 |
Loans held-for-sale | | | 8,616 | | | 4,860 | | | 4,908 | | | 4,271 | | | 6,707 | | | 3,050 | | | 2,020 |
Loans | | | 2,006,157 | | | 1,926,105 | | | 1,884,788 | | | 2,388,746 | | | 3,397,827 | | | 3,505,806 | | | 3,751,097 |
Less: allowance for credit losses on loans | | | 34,540 | | | 31,024 | | | 28,639 | | | 34,567 | | | 44,341 | | | 44,354 | | | 45,449 |
Net loans | | | 1,971,617 | | | 1,895,081 | | | 1,856,149 | | | 2,354,179 | | | 3,353,486 | | | 3,461,452 | | | 3,705,648 |
| | | | | | | | | | | | | | | | | | | | | |
Premises and equipment, net | | | 45,378 | | | 44,847 | | | 44,451 | | | 59,796 | | | 87,564 | | | 84,599 | | | 80,239 |
Other real estate owned | | | 2,213 | | | 2,053 | | | 1,930 | | | 1,954 | | | 2,399 | | | 1,850 | | | 1,578 |
Mortgage servicing rights, at fair value | | | 4,814 | | | 5,499 | | | 5,020 | | | 5,555 | | | 8,218 | | | 10,525 | | | 10,639 |
Goodwill | | | 18,604 | | | 18,604 | | | 18,604 | | | 19,340 | | | 86,332 | | | 86,332 | | | 86,333 |
Core deposit intangible | | | 2,115 | | | 1,998 | | | 1,883 | | | 6,747 | | | 15,977 | | | 15,286 | | | 14,561 |
Bank-owned life insurance ("BOLI") | | | 63,259 | | | 63,633 | | | 64,008 | | | 78,217 | | | 105,396 | | | 105,463 | | | 105,448 |
Deferred tax assets, net | | | 8,228 | | | 7,782 | | | 6,487 | | | 9,273 | | | 10,689 | | | 27,154 | | | 31,738 |
Other assets | | | 42,877 | | | 40,952 | | | 43,032 | | | 106,880 | | | 54,412 | | | 43,100 | | | 47,314 |
Total other assets | | | 187,488 | | | 185,368 | | | 185,415 | | | 287,762 | | | 370,987 | | | 374,309 | | | 377,850 |
Total assets | | $ | 3,097,905 | | $ | 3,238,832 | | $ | 3,273,160 | | $ | 4,311,473 | | $ | 6,233,395 | | $ | 6,132,095 | | $ | 5,995,956 |
| | | | | | | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | | | | | | |
Deposits: | | | | | | | | | | | | | | | | | | | | | |
Noninterest bearing demand | | $ | 937,039 | | $ | 1,012,163 | | $ | 1,029,705 | | $ | 1,200,445 | | $ | 2,099,283 | | $ | 2,120,428 | | $ | 2,092,301 |
Interest bearing: | | | | | | | | | | | | | | | | | | | | | |
Savings, NOW, and money market | | | 1,237,177 | | | 1,301,444 | | | 1,341,536 | | | 2,091,380 | | | 2,893,508 | | | 2,871,861 | | | 2,765,281 |
Time | | | 399,310 | | | 359,635 | | | 331,482 | | | 370,919 | | | 495,452 | | | 469,009 | | | 459,925 |
Total deposits | | | 2,573,526 | | | 2,673,242 | | | 2,702,723 | | | 3,662,744 | | | 5,488,243 | | | 5,461,298 | | | 5,317,507 |
| | | | | | | | | | | | | | | | | | | | | |
Securities sold under repurchase agreements | | | 82,475 | | | 67,737 | | | 46,339 | | | 47,571 | | | 39,204 | | | 34,496 | | | 33,733 |
Other short-term borrowings | | | - | | | 1 | | | - | | | - | | | - | | | - | | | 5,435 |
Junior subordinated debentures | | | 25,773 | | | 25,773 | | | 25,773 | | | 25,773 | | | 25,773 | | | 25,773 | | | 25,773 |
Subordinated debentures | | | - | | | 56,081 | | | 59,180 | | | 59,201 | | | 59,222 | | | 59,244 | | | 59,265 |
Senior notes | | | 44,389 | | | 44,415 | | | 44,441 | | | 44,468 | | | 44,494 | | | 44,520 | | | 44,546 |
Notes payable and other borrowings | | | 23,330 | | | 22,250 | | | 21,171 | | | 20,090 | | | 19,009 | | | 13,103 | | | 10,989 |
Other liabilities | | | 37,801 | | | 36,553 | | | 53,370 | | | 68,314 | | | 60,818 | | | 32,636 | | | 34,949 |
Total liabilities | | | 2,787,294 | | | 2,926,052 | | | 2,952,997 | | | 3,928,161 | | | 5,736,763 | | | 5,671,070 | | | 5,532,197 |
| | | | | | | | | | | | | | | | | | | | | |
Stockholders' equity | | | | | | | | | | | | | | | | | | | | | |
Common stock | | | 34,957 | | | 34,957 | | | 34,958 | | | 38,248 | | | 44,705 | | | 44,705 | | | 44,705 |
Additional paid-in capital | | | 121,578 | | | 120,359 | | | 120,857 | | | 148,528 | | | 202,828 | | | 202,544 | | | 201,570 |
Retained earnings | | | 242,201 | | | 251,134 | | | 258,944 | | | 260,181 | | | 258,073 | | | 267,912 | | | 284,302 |
Accumulated other comprehensive income (loss) | | | 14,496 | | | 13,971 | | | 14,965 | | | 10,986 | | | (3,074) | | | (49,151) | | | (63,216) |
Treasury stock | | | (102,621) | | | (107,641) | | | (109,561) | | | (74,631) | | | (5,900) | | | (4,985) | | | (3,602) |
Total stockholders' equity | | | 310,611 | | | 312,780 | | | 320,163 | | | 383,312 | | | 496,632 | | | 461,025 | | | 463,759 |
Total liabilities and stockholders' equity | | $ | 3,097,905 | | $ | 3,238,832 | | $ | 3,273,160 | | $ | 4,311,473 | | $ | 6,233,395 | | $ | 6,132,095 | | $ | 5,995,956 |
| | | | | | | | | | | | | | | | | | | | | |
Total Earning Assets | | $ | 2,916,496 | | $ | 3,054,503 | | $ | 3,086,624 | | $ | 4,024,053 | | $ | 5,863,777 | | $ | 5,748,769 | | $ | 5,607,290 |
Total Interest Bearing Liabilities | | | 1,812,454 | | | 1,877,336 | | | 1,869,922 | | | 2,659,402 | | | 3,576,662 | | | 3,518,006 | | | 3,404,947 |
15
Old Second Bancorp, Inc. and Subsidiaries
Quarterly Consolidated Statements of Income
(In thousands, except per share data, unaudited)
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2022 | |||||||||||||||||
|
| 1st Qtr |
| 2nd Qtr |
| 3rd Qtr |
| 4th Qtr |
| 1st Qtr | | 2nd Qtr |
| 3rd Qtr | |||||||
Interest and Dividend Income | | | | | | | | | | | | | | | | | | | | | |
Loans, including fees | | $ | 22,207 | | $ | 20,815 | | $ | 21,315 | | $ | 26,328 | | $ | 36,366 | | $ | 38,229 | | $ | 46,614 |
Loans held-for-sale | | | 55 | | | 38 | | | 39 | | | 33 | | | 57 | | | 32 | | | 22 |
Securities: | | | | | | | | | | | | | | | | | | | | | |
Taxable | | | 1,615 | | | 1,832 | | | 1,854 | | | 2,867 | | | 5,169 | | | 6,786 | | | 9,116 |
Tax exempt | | | 1,307 | | | 1,259 | | | 1,266 | | | 1,273 | | | 1,317 | | | 1,297 | | | 1,332 |
Dividends from FHLB and FRBC stock | | | 115 | | | 113 | | | 114 | | | 114 | | | 153 | | | 263 | | | 261 |
Interest bearing deposits with financial institutions | | | 92 | | | 137 | | | 203 | | | 224 | | | 269 | | | 782 | | | 663 |
Total interest and dividend income | | | 25,391 | | | 24,194 | | | 24,791 | | | 30,839 | | | 43,331 | | | 47,389 | | | 58,008 |
Interest Expense | | | | | | | | | | | | | | | | | | | | | |
Savings, NOW, and money market deposits | | | 241 | | | 217 | | | 209 | | | 294 | | | 397 | | | 347 | | | 380 |
Time deposits | | | 500 | | | 409 | | | 330 | | | 271 | | | 277 | | | 265 | | | 335 |
Securities sold under repurchase agreements | | | 31 | | | 21 | | | 15 | | | 15 | | | 11 | | | 9 | | | 10 |
Other short-term borrowings | | | - | | | - | | | - | | | - | | | - | | | | | | 44 |
Junior subordinated debentures | | | 280 | | | 284 | | | 286 | | | 283 | | | 280 | | | 284 | | | 285 |
Subordinated debentures | | | - | | | 517 | | | 547 | | | 546 | | | 546 | | | 547 | | | 546 |
Senior notes | | | 673 | | | 673 | | | 673 | | | 673 | | | 485 | | | 578 | | | 728 |
Notes payable and other borrowings | | | 123 | | | 119 | | | 113 | | | 108 | | | 103 | | | 95 | | | 111 |
Total interest expense | | | 1,848 | | | 2,240 | | | 2,173 | | | 2,190 | | | 2,099 | | | 2,125 | | | 2,439 |
Net interest and dividend income | | | 23,543 | | | 21,954 | | | 22,618 | | | 28,649 | | | 41,232 | | | 45,264 | | | 55,569 |
(Release of) provision for credit losses | | | (3,000) | | | (3,500) | | | (1,500) | | | 12,326 | | | - | | | 550 | | | 4,500 |
Net interest and dividend income after (release of) provision for credit losses | | | 26,543 | | | 25,454 | | | 24,118 | | | 16,323 | | | 41,232 | | | 44,714 | | | 51,069 |
Noninterest Income | | | | | | | | | | | | | | | | | | | | | |
Wealth management | | | 2,151 | | | 2,389 | | | 2,372 | | | 2,421 | | | 2,698 | | | 2,506 | | | 2,280 |
Service charges on deposits | | | 1,195 | | | 1,221 | | | 1,368 | | | 1,624 | | | 2,074 | | | 2,328 | | | 2,661 |
Secondary mortgage fees | | | 322 | | | 272 | | | 240 | | | 210 | | | 139 | | | 50 | | | 81 |
Mortgage servicing rights mark to market gain (loss) | | | 1,113 | | | (1,033) | | | (282) | | | 1,463 | | | 2,978 | | | 82 | | | 548 |
Mortgage servicing income | | | 567 | | | 507 | | | 572 | | | 534 | | | 519 | | | 579 | | | 514 |
Net gain (loss) on sales of mortgage loans | | | 3,721 | | | 1,895 | | | 2,186 | | | 1,498 | | | 1,495 | | | (262) | | | 449 |
Securities gains (losses), net | | | - | | | 2 | | | 244 | | | (14) | | | - | | | (33) | | | (1) |
Change in cash surrender value of BOLI | | | 334 | | | 423 | | | 406 | | | 227 | | | 124 | | | 72 | | | 146 |
Card related income | | | 1,447 | | | 1,666 | | | 1,624 | | | 1,579 | | | 2,574 | | | 2,967 | | | 2,653 |
Other income | | | 450 | | | 577 | | | 610 | | | 1,129 | | | 862 | | | 922 | | | 2,165 |
Total noninterest income | | | 11,300 | | | 7,919 | | | 9,340 | | | 10,671 | | | 13,463 | | | 9,211 | | | 11,496 |
Noninterest Expense | | | | | | | | | | | | | | | | | | | | | |
Salaries and employee benefits | | | 13,506 | | | 12,896 | | | 12,964 | | | 18,325 | | | 19,967 | | | 21,332 | | | 21,011 |
Occupancy, furniture and equipment | | | 2,467 | | | 2,303 | | | 2,418 | | | 6,395 | | | 3,699 | | | 3,046 | | | 4,119 |
Computer and data processing | | | 1,298 | | | 1,304 | | | 1,477 | | | 3,859 | | | 6,268 | | | 4,006 | | | 2,543 |
FDIC insurance | | | 201 | | | 192 | | | 211 | | | 371 | | | 410 | | | 702 | | | 659 |
General bank insurance | | | 276 | | | 277 | | | 301 | | | 360 | | | 315 | | | 351 | | | 257 |
Amortization of core deposit intangible | | | 120 | | | 115 | | | 113 | | | 296 | | | 665 | | | 659 | | | 657 |
Advertising expense | | | 60 | | | 95 | | | 107 | | | 81 | | | 182 | | | 194 | | | 83 |
Card related expense | | | 593 | | | 626 | | | 662 | | | 657 | | | 534 | | | 1,057 | | | 1,453 |
Legal fees | | | 55 | | | 135 | | | 455 | | | 460 | | | 257 | | | 179 | | | 212 |
Consulting & management fees | | | 417 | | | 250 | | | 247 | | | 4,091 | | | 616 | | | 523 | | | 607 |
Other real estate expense (gain), net | | | 36 | | | 77 | | | 25 | | | 29 | | | (12) | | | 87 | | | 22 |
Other expense | | | 2,709 | | | 3,131 | | | 3,149 | | | 3,609 | | | 5,351 | | | 5,113 | | | 4,365 |
Total noninterest expense | | | 21,738 | | | 21,401 | | | 22,129 | | | 38,533 | | | 38,252 | | | 37,249 | | | 35,988 |
Income (loss) before income taxes | | | 16,105 | | | 11,972 | | | 11,329 | | | (11,539) | | | 16,443 | | | 16,676 | | | 26,577 |
Provision for (benefit from) income taxes | | | 4,226 | | | 3,152 | | | 2,917 | | | (2,472) | | | 4,423 | | | 4,429 | | | 7,054 |
Net income (loss) | | $ | 11,879 | | $ | 8,820 | | $ | 8,412 | | $ | (9,067) | | $ | 12,020 | | $ | 12,247 | | $ | 19,523 |
| | | | | | | | | | | | | | | | | | | | | |
Basic earnings per share (GAAP) | | $ | 0.41 | | $ | 0.30 | | $ | 0.30 | | $ | (0.27) | | $ | 0.27 | | $ | 0.28 | | $ | 0.43 |
Diluted earnings per share (GAAP) | | | 0.40 | | | 0.30 | | | 0.29 | | | (0.26) | | | 0.27 | | | 0.27 | | | 0.43 |
Dividends paid per share | | | 0.01 | | | 0.05 | | | 0.05 | | | 0.05 | | | 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 | | |||||||
| | September 30, | | June 30, | | September 30, | | |||
|
| 2022 |
| 2022 | | 2021 | | |||
Net Income | | | | | | | | | | |
Income before income taxes (GAAP) | | $ | 26,577 | | $ | 16,676 | | $ | 11,329 | |
Pre-tax income adjustments: | | | | | | | | | | |
Merger-related costs, net of gains on branch sales | | | 1,061 | | | 2,131 | | | - | |
Gains on the sale of Visa and land trust portfolios | | | (923) | | | - | | | - | |
Adjusted net income before taxes | | | 26,715 | | | 18,807 | | | 11,329 | |
Taxes on adjusted net income | | | 7,091 | | | 4,995 | | | 2,917 | |
Adjusted net income (non-GAAP) | | $ | 19,624 | | $ | 13,812 | | $ | 8,412 | |
| | | | | | | | | | |
Basic earnings per share (GAAP) | | $ | 0.43 | | $ | 0.28 | | $ | 0.30 | |
Diluted earnings per share (GAAP) | | | 0.43 | | | 0.27 | | | 0.29 | |
Adjusted basic earnings per share excluding acquisition-related costs (non-GAAP) | | | 0.44 | | | 0.31 | | | 0.30 | |
Adjusted diluted earnings per share excluding acquisition-related costs (non-GAAP) | | | 0.43 | | | 0.31 | | | 0.29 | |
| | | | | | | | | | |
| | Quarters Ended | | |||||||
| | September 30, | | June 30, | | September 30, | | |||
|
| 2022 |
| 2022 | | 2021 | | |||
Net Interest Margin | | | | | | | | | | |
Interest income (GAAP) | | $ | 58,008 | | $ | 47,389 | | $ | 24,791 | |
Taxable-equivalent adjustment: | | | | | | | | | | |
Loans | | | 6 | | | 6 | | | 4 | |
Securities | | | 354 | | | 345 | | | 337 | |
Interest income (TE) | | | 58,368 | | | 47,740 | | | 25,132 | |
Interest expense (GAAP) | | | 2,439 | | | 2,125 | | | 2,173 | |
Net interest income (TE) | | $ | 55,929 | | $ | 45,615 | | $ | 22,959 | |
Net interest income (GAAP) | | $ | 55,569 | | $ | 45,264 | | $ | 22,618 | |
Average interest earning assets | | $ | 5,607,290 | | $ | 5,748,769 | | $ | 3,086,624 | |
Net interest margin (GAAP) | | | 3.93 | % | | 3.16 | % | | 2.91 | % |
Net interest margin (TE) | | | 3.96 | % | | 3.18 | % | | 2.95 | % |
17
| | | | | | | | | | | | | | | | | | | | ||||
| | GAAP | | Non-GAAP | | ||||||||||||||||||
| | | Three Months Ended | | | Three Months Ended | | ||||||||||||||||
| | September 30, | | June 30, | | September 30, | | September 30, | | June 30, | | September 30, | | ||||||||||
| | 2022 | | 2022 | | 2021 | | 2022 | | 2022 | | 2021 | | ||||||||||
Efficiency Ratio / Adjusted Efficiency Ratio | | | | | | | | | | | | | | | | | | | | ||||
| | | | | | | | | | | | | | | | | | | | ||||
Noninterest expense | | $ | 35,988 | | $ | 37,249 | | $ | 22,129 | | $ | 35,988 | | $ | 37,249 | | $ | 22,129 | | ||||
Less amortization of core deposit | | | 657 | | | 659 | | | 113 | | | 657 | | | 659 | | | 113 | | ||||
Less other real estate expense, net | | | 22 | | | 87 | | | 25 | | | 22 | | | 87 | | | 25 | | ||||
Less acquisition related costs, net of gain on branch sales | | | N/A | | | N/A | | | N/A | | | 1,061 | | | 2,132 | | | 425 | | ||||
Noninterest expense less adjustments | | $ | 35,309 | | $ | 36,503 | | $ | 21,991 | | $ | 34,248 | | $ | 34,371 | | $ | 21,566 | | ||||
| | | | | | | | | | | | | | | | | | | | ||||
Net interest income | | $ | 55,569 | | $ | 45,264 | | $ | 22,618 | | $ | 55,569 | | $ | 45,264 | | $ | 22,618 | | ||||
Taxable-equivalent adjustment: | | | | | | | | | | | | | | | | | | | | ||||
Loans | | | N/A | | | N/A | | | N/A | | | 6 | | | 6 | | | 4 | | ||||
Securities | | | N/A | | | N/A | | | N/A | | | 354 | | | 345 | | | 337 | | ||||
Net interest income including adjustments | | | 55,569 | | | 45,264 | | | 22,618 | | | 55,929 | | | 45,615 | | | 22,959 | | ||||
Noninterest income | | | 11,496 | | | 9,211 | | | 9,340 | | | 11,496 | | | 9,211 | | | 9,340 | | ||||
Less securities (losses) gains | | | (1) | | | (33) | | | 244 | | | (1) | | | (33) | | | 244 | | ||||
Less MSRs mark to market gain (loss) | | | 548 | | | 82 | | | (282) | | | 548 | | | 82 | | | (282) | | ||||
Less gain on Visa credit card portfolio sale | | | N/A | | | N/A | | | N/A | | | 743 | | | - | | | - | | ||||
Less gain on sale of land trust portfolio | | | N/A | | | N/A | | | N/A | | | 180 | | | - | | | - | | ||||
Taxable-equivalent adjustment: | | | | | | | | | | | | | | | | | | | | ||||
Change in cash surrender value of BOLI | | | N/A | | | N/A | | | N/A | | | 39 | | | 19 | | | 108 | | ||||
Noninterest income (less) / including adjustments | | | 10,949 | | | 9,162 | | | 9,378 | | | 10,065 | | | 9,181 | | | 9,486 | | ||||
| | | | | | | | | | | | | | | | | | | | ||||
Net interest income including adjustments plus noninterest income (less) / including adjustments | | $ | 66,518 | | $ | 54,426 | | $ | 31,996 | | $ | 65,994 | | $ | 54,796 | | $ | 32,445 | | ||||
Efficiency ratio / Adjusted efficiency ratio | | | 53.08 | % | | 67.07 | % | | 68.73 | % | | 51.90 | % | | 62.73 | % | | 66.47 | % |
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