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(NASDAQ:OSBC) | Exhibit 99.1 | |
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Contact: | Bradley S. Adams | For Immediate Release |
| Chief Financial Officer | January 25, 2023 |
| (630) 906-5484 | |
Old Second Bancorp, Inc. Reports Fourth Quarter 2022 Net Income of $23.6 Million,
or $0.52 per Diluted Share
AURORA, IL, January 25, 2023 – 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 2022. Our net income was $23.6 million, or $0.52 per diluted share, for the fourth quarter of 2022, compared to net income of $19.5 million, or $0.43 per diluted share, for the third quarter of 2022, and a net loss of $9.1 million, or $0.26 per diluted share, for the fourth quarter of 2021. Adjusted net income, a non-GAAP financial measure that excludes pre-tax amounts of $645,000 of acquisition related costs, and net of gains totaling $28,000 from branch sales, all related to our acquisition of West Suburban Bancorp, Inc. (“West Suburban”) on December 1, 2021, was $24.1 million, or $0.53 per diluted share, for the fourth 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 fourth quarter of 2022 was primarily due to net interest and dividend income of $64.1 million, which increased $8.5 million from the third quarter of 2022 primarily due to the impact of market interest rate increases on loans and securities, and increased $35.5 million from the fourth quarter of 2021. The fourth quarter of 2022 also included pre-tax net losses on the sale of securities of $910,000 and a $431,000 pre-tax mark to market loss on mortgage servicing rights (“MSRs”), compared to a $548,000 pre-tax gain on MSRs in the third quarter of 2022, and a $1.5 million pre-tax gain on MSRs in the fourth quarter of 2021.
Operating Results
| ● | Fourth quarter 2022 net income was $23.6 million, reflecting an increase in earnings of $4.1 million from the third quarter 2022, and an increase of $32.7 million from the fourth quarter of 2021. Adjusted net income, a non-GAAP financial measure that excludes acquisition-related costs, net of gains on branch sales, was $24.1 million for the fourth quarter of 2022, an increase of $4.4 million from adjusted net income for the third quarter of 2022, and an increase of $11.6 million from adjusted net income for the fourth quarter of 2021. |
| ● | Net interest and dividend income was $64.1 million for the fourth quarter of 2022, an increase of $8.5 million, or 15.3%, from the third quarter of 2022, and an increase of $35.5 million, or 124.1%, from fourth quarter of 2021. |
| ● | Interest and dividend income for the fourth quarter of 2022 was $67.7 million, an increase of $9.7 million from the third quarter of 2022, and an increase of $37.0 million from the fourth quarter 2021. Growth in interest and dividend income in 2022 reflected the market interest rate increases in 2022, as well as the inclusion of West Suburban loan and securities income. |
| ● | Interest expense for the fourth quarter of 2022 was $3.7 million, an increase of $1.2 million from the third quarter of 2022, and an increase of $1.5 million from the fourth quarter of 2021. The year-over-year increase in interest expense stems primarily from an increase in average interest bearing deposits and the interest paid |
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| on short-term FHLB advances during the fourth quarter of 2022, which were partially offset by the pay down of $10.1 million of notes payable and other borrowings year over year. |
| ● | We recorded a net provision for credit losses of $1.5 million in the fourth quarter of 2022, compared to a net provision for credit losses of $4.5 million in the third quarter of 2022, and a net provision for credit losses of $12.3 million in the fourth quarter of 2021. The decrease in the net provision in the fourth quarter of 2022 compared to the linked quarter was primarily due to a reduction in loan growth and improved credit metrics, and the reduction from the prior year like quarter was due to the higher provision level recorded in the fourth quarter of 2021 stemming from the Day Two accounting adjustments applied to the West Suburban loan portfolio acquired on December 1, 2021. |
| ● | Noninterest income was $8.9 million for the fourth quarter of 2022, a decrease of $2.6 million, or 22.2%, compared to $11.5 million for the third quarter of 2022, and a decrease of $1.8 million, or 16.4%, compared to $10.7 million for the fourth quarter of 2021. The $2.6 million decrease from the prior quarter was primarily due to a decrease in net mortgage banking income of $1.1 million, an increase in securities losses, net, of $909,000, and an $871,000 decrease in other income, primarily due to gains recorded in the third quarter of 2022 on the sale of a Visa credit card portfolio and the sale of a land trust portfolio. The $1.8 million decrease in the fourth quarter of 2022, compared to the fourth quarter of 2021, was primarily due to a decrease in net mortgage banking income of $3.2 million, primarily due to a decline in the volume of mortgages being originated due to rising market interest rates in 2022, as well as a $431,000 pre-tax mark to market loss recorded in the fourth quarter of 2022 compared to a $1.5 million pre-tax gain recorded in the fourth quarter of 2021. This reduction was partially offset by an increase of $880,000 in service charges on deposits, and an $819,000 increase in card related income in the fourth quarter of 2022, compared to the like quarter of 2021, due to a full quarter of West Suburban activity in the current year. |
| ● | Noninterest expense was $39.7 million for the fourth quarter of 2022, an increase of $3.7 million, or 10.3% compared to $36.0 million for the third quarter of 2022, and an increase of $1.2 million, or 3.0%, compared to $38.5 million for the fourth quarter of 2021. The increase from the third quarter of 2022 is the result of an increase in salary and employee benefits and computer and data processing expense, partially offset by lower card related expenses. The increase from the fourth quarter of 2021 is primarily due to growth in salaries and employee benefits expenses recorded in the fourth quarter of 2022, primarily stemming from a full quarter of the additional employees included due to the West Suburban acquisition, as well as higher salary rates being paid in 2022, partially offset by reductions in consulting and management fees, occupancy, furniture and equipment, and computer and data processing. |
| ● | We had a provision for income tax of $8.2 million for the fourth quarter of 2022, compared to a provision for income tax of $7.1 million for the third quarter of 2022 and an income tax benefit of $2.5 million for the fourth quarter of 2021. The increase in tax expense for the fourth quarter of 2022 over both prior periods was due to an increase in pre-tax income. |
| ● | On January 17, 2023, our Board of Directors declared a cash dividend of $0.05 per share payable on February 6, 2023, to stockholders of record as of January 27, 2023. |
President and Chief Executive Officer Jim Eccher said “Old Second reported strong results in the fourth quarter as we earned $23.6 million in net income and an ROATCE of 28%, while strengthening the balance sheet and making prudent investments in the future of the franchise. This robust earnings growth demonstrates the strength of our core deposit franchise highlighted by 67 basis points of linked quarter tax equivalent net interest margin expansion to 4.63%. Loans were essentially unchanged in the fourth quarter but up 13% compared to December 31, 2021, and we remain confident in our ability to grow loans meaningfully in 2023. The efficiency ratio in the fourth quarter was approximately 52% on a GAAP 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. Fourth quarter return on average assets and return on average equity were 1.58% and 21.09%, respectively, and represent a return to the type of performance we had been accustomed to prior to the pandemic. We are pleased with both the improvement and absolute levels of credit metrics this quarter, though we remain mindful and diligent in monitoring trends both within the portfolio and more broadly.
“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 continue in the coming quarters which will allow for additional improvement in our core trends. Deposit repricing is expected to remain excellent but will be modestly higher in the near future as we respond to competitors and take the necessary steps to protect our greatest strength. Continuing strong results should allow us to compound book value and continue to quickly build capital back to our targeted levels following our acquisition late last year. I feel reasonably safe in commenting that Old Second
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delivered upon most of the goals we set for ourselves this past year and believe we have excellent momentum for the future. Our focus next year is squarely on customer acquisition and capitalizing on growth opportunities in our markets while making the investments to manage risk and provide quality service and customer experience. We are excited for the opportunities ahead of us and believe we have the resources and momentum to focus on growth and building a better Old Second for our stockholders, communities and customers. We are second because they come first.”
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 | | 2022 | | 2022 | | 2021 | |||||
The Company | | | | | | | | | | | | | | |
Common equity tier 1 capital ratio | 7.00 | % | | N/A | | | 9.67 | % | | 9.16 | % | | 9.46 | % |
Total risk-based capital ratio | 10.50 | % | | N/A | | | 12.52 | % | | 11.99 | % | | 12.55 | % |
Tier 1 risk-based capital ratio | 8.50 | % | | N/A | | | 10.20 | % | | 9.68 | % | | 10.06 | % |
Tier 1 leverage ratio | 4.00 | % | | N/A | | | 8.14 | % | | 7.70 | % | | 7.81 | % |
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The Bank | | | | | | | | | | | | | | |
Common equity tier 1 capital ratio | 7.00 | % | | 6.50 | % | | 11.70 | % | | 11.60 | % | | 12.41 | % |
Total risk-based capital ratio | 10.50 | % | | 10.00 | % | | 12.75 | % | | 12.64 | % | | 13.46 | % |
Tier 1 risk-based capital ratio | 8.50 | % | | 8.00 | % | | 11.70 | % | | 11.60 | % | | 12.41 | % |
Tier 1 leverage ratio | 4.00 | % | | 5.00 | % | | 9.32 | % | | 9.24 | % | | 9.58 | % |
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 $32.9 million at December 31, 2022 and $44.7 million at December 31, 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 decreases in nonperforming loans from the linked quarter and year over year due to remediation efforts that are ongoing, and management is carefully monitoring loans considered to be in a classified status. Nonperforming loans, as a percent of total loans were 0.9% at December 31, 2022, 1.4% at September 30, 2022, and 1.3% at December 31, 2021. |
| ● | OREO assets totaled $1.6 million at both December 31, 2022 and September 30, 2022 compared to $2.4 million at December 31, 2021. There were no transfers to OREO from loans and there were no properties sold during the fourth quarter of 2022. Nonperforming assets, as a percent of total loans plus OREO, was 0.9% at December 31, 2022, and 1.4% at both September 30, 2022 and December 31, 2021. |
| ● | Total loans were $3.87 billion at December 31, 2022, reflecting an increase of $275,000 compared to September 30, 2022, and an increase of $448.8 million compared to December 31, 2021. The increase in the year over year quarter was largely driven by commercial real estate and lease growth. Average loans (including loans held-for-sale) for the fourth quarter of 2022 totaled $3.88 billion, reflecting an increase of $125.1 million from the third quarter of 2022 and an increase of $1.49 billion from the fourth quarter of 2021. |
| ● | Available-for-sale securities totaled $1.54 billion at December 31, 2022, compared to $1.61 billion at September 30, 2022, and $1.69 billion at December 31, 2021. Total securities available-for-sale decreased compared to the linked quarter due to paydowns and maturities of $48.4 million, sales of $27.7 million resulting in realized net losses of $910,000, which were partially offset by $7.5 million in unrealized gains during the quarter. No securities were purchased in the fourth quarter of 2022. The decrease in the year over year period is due to a combination of paydowns and maturities, as well as sales and unrealized losses. The unrealized mark to market loss on securities totaled $123.5 million as of December 31, 2022, compared to $131.0 million as of September 30, 2022, and an unrealized mark to market gain of $15.5 million as of December 31, 2021, due to market interest rate increases as well as changes year over year in the composition of the securities portfolio. |
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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, 2022 | | September 30, 2022 | | December 31, 2021 | ||||||||||||||||||
| Average | | Income / | | Rate | | Average | | Income / | | Rate | | Average | | Income / | | Rate | ||||||
| Balance | | Expense | | % | | Balance | | Expense | | % | | Balance | | Expense | | % | ||||||
Assets | | | | | | | | | | | | | | | | | | | | | | | |
Interest earning deposits with financial institutions | $ | 50,377 | | $ | 461 | | 3.63 | | $ | 131,260 | | $ | 663 | | 2.00 | | $ | 587,721 | | $ | 225 | | 0.15 |
Securities: | | | | | | | | | | | | | | | | | | | | | | | |
Taxable | | 1,404,437 | | | 10,495 | | 2.96 | | | 1,525,258 | | | 9,116 | | 2.37 | | | 842,962 | | | 2,867 | | 1.35 |
Non-taxable (TE)1 | | 171,567 | | | 1,697 | | 3.92 | | | 178,090 | | | 1,686 | | 3.76 | | | 189,697 | | | 1,613 | | 3.38 |
Total securities (TE)1 | | 1,576,004 | | | 12,192 | | 3.07 | | | 1,703,348 | | | 10,802 | | 2.52 | | | 1,032,659 | | | 4,480 | | 1.72 |
Dividends from FHLBC and FRBC | | 19,534 | | | 259 | | 5.26 | | | 19,565 | | | 261 | | 5.29 | | | 11,042 | | | 114 | | 4.10 |
Loans and loans held-for-sale1, 2 | | 3,878,228 | | | 55,195 | | 5.65 | | | 3,753,117 | | | 46,642 | | 4.93 | | | 2,392,631 | | | 26,314 | | 4.36 |
Total interest earning assets | | 5,524,143 | | | 68,107 | | 4.89 | | | 5,607,290 | | | 58,368 | | 4.13 | | | 4,024,053 | | | 31,133 | | 3.07 |
Cash and due from banks | | 56,531 | | | - | | - | | | 56,265 | | | - | | - | | | 34,225 | | | - | | - |
Allowance for credit losses on loans | | (48,778) | | | - | | - | | | (45,449) | | | - | | - | | | (34,567) | | | - | | - |
Other noninterest bearing assets | | 395,726 | | | - | | - | | | 377,850 | | | - | | - | | | 287,762 | | | - | | - |
Total assets | $ | 5,927,622 | | | | | | | $ | 5,995,956 | | | | | | | $ | 4,311,473 | | | | | |
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Liabilities and Stockholders' Equity | | | | | | | | | | | | | | | | | | | | | | | |
NOW accounts | $ | 623,408 | | $ | 225 | | 0.14 | | $ | 612,174 | | $ | 148 | | 0.10 | | $ | 774,367 | | $ | 85 | | 0.04 |
Money market accounts | | 901,950 | | | 477 | | 0.21 | | | 967,106 | | | 157 | | 0.06 | | | 611,651 | | | 142 | | 0.09 |
Savings accounts | | 1,155,409 | | | 74 | | 0.03 | | | 1,186,001 | | | 75 | | 0.03 | | | 705,124 | | | 68 | | 0.04 |
Time deposits | | 450,111 | | | 571 | | 0.50 | | | 459,925 | | | 335 | | 0.29 | | | 370,919 | | | 271 | | 0.29 |
Interest bearing deposits | | 3,130,878 | | | 1,347 | | 0.17 | | | 3,225,206 | | | 715 | | 0.09 | | | 2,462,061 | | | 566 | | 0.09 |
Securities sold under repurchase agreements | | 33,275 | | | 10 | | 0.12 | | | 33,733 | | | 10 | | 0.12 | | | 47,571 | | | 14 | | 0.12 |
Other short-term borrowings | | 44,293 | | | 436 | | 3.91 | | | 5,435 | | | 44 | | 3.21 | | | - | | | - | | - |
Junior subordinated debentures | | 25,773 | | | 287 | | 4.42 | | | 25,773 | | | 285 | | 4.39 | | | 25,773 | | | 283 | | 4.36 |
Subordinated debentures | | 59,286 | | | 546 | | 3.65 | | | 59,265 | | | 546 | | 3.66 | | | 59,201 | | | 546 | | 3.66 |
Senior notes | | 44,572 | | | 891 | | 7.93 | | | 44,546 | | | 728 | | 6.48 | | | 44,468 | | | 673 | | 6.00 |
Notes payable and other borrowings | | 9,978 | | | 137 | | 5.45 | | | 10,989 | | | 111 | | 4.01 | | | 20,090 | | | 108 | | 2.13 |
Total interest bearing liabilities | | 3,348,055 | | | 3,654 | | 0.43 | | | 3,404,947 | | | 2,439 | | 0.28 | | | 2,659,164 | | | 2,190 | | 0.33 |
Noninterest bearing deposits | | 2,083,503 | | | - | | - | | | 2,092,301 | | | - | | - | | | 1,200,445 | | | - | | - |
Other liabilities | | 51,753 | | | - | | - | | | 34,949 | | | - | | - | | | 68,552 | | | - | | - |
Stockholders' equity | | 444,311 | | | - | | - | | | 463,759 | | | - | | - | | | 383,312 | | | - | | - |
Total liabilities and stockholders' equity | $ | 5,927,622 | | | | | | | $ | 5,995,956 | | | | | | | $ | 4,311,473 | | | | | |
Net interest income (GAAP) | | | | $ | 64,091 | | | | | | | $ | 55,569 | | | | | | | $ | 28,600 | | |
Net interest margin (GAAP) | | | | | | | 4.60 | | | | | | | | 3.93 | | | | | | | | 2.82 |
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Net interest income (TE)1 | | | | $ | 64,453 | | | | | | | $ | 55,929 | | | | | | | $ | 28,943 | | |
Net interest margin (TE)1 | | | | | | | 4.63 | | | | | | | | 3.96 | | | | | | | | 2.85 |
Interest bearing liabilities to earning assets | | 60.61 | % | | | | | | | 60.72 | % | | | | | | | 66.08 | % | | | | |
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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 $917,000, $750,000, and $1.5 million for the fourth quarter of 2022, third quarter of 2022, and the fourth quarter of 2021, respectively. Nonaccrual loans are included in the above stated average balances.
Net interest income (TE) was $64.5 million for the fourth quarter of December 31, 2022, which reflects an increase of $8.5 million compared to the third quarter of 2022, and an increase of $35.5 million compared to the fourth quarter of 2021. The tax equivalent adjustment for the fourth quarter of 2022 was $362,000 compared to $360,000 in the third quarter 2022, and $343,000 for the fourth quarter of 2021. Average interest earning assets decreased $83.1 million to $5.52 billion for the fourth quarter of 2022, compared to the third 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 $1.50 billion in the fourth quarter of 2022, compared to the fourth quarter of
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2021, primarily due to our West Suburban acquisition. Average loans, including loans held-for-sale, increased $125.1 million for the fourth quarter of 2022, compared to the third quarter of 2022, and increased $1.49 billion compared to the fourth quarter of 2021. The yield on loans for the fourth quarter of 2022 increased 72 basis points compared to the third quarter of 2022 and increased 129 basis points compared to the fourth quarter of 2021.
A decrease of $127.3 million in the average balance of securities for the fourth quarter of 2022, compared to the third 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 $1.4 million to interest income (TE). Significantly higher average balances and higher yields in the fourth quarter of 2022, compared to the fourth quarter of 2021, resulted in a $7.7 million increase in interest income (TE) on securities in the fourth quarter of 2022. The average yield on total securities available-for-sale increased 135 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 fourth quarter 2022 consisted of $48.4 million of paydowns, calls and maturities, and $27.7 million of sales. Our overall yield on tax equivalent municipal securities was 3.92% for the fourth quarter of 2022, compared to 3.76% for the third quarter of 2022 and 3.38% for the fourth quarter of 2021.
The yield on average earning assets increased 76 basis points in the fourth quarter of 2022, compared to the third quarter of 2022, and increased 182 basis points compared to the fourth 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 $56.9 million in the fourth quarter of 2022, compared to the third quarter of 2022, driven primarily by a $105.6 million decrease in money market accounts, savings accounts, and time deposits. Average interest bearing liabilities increased $688.9 million in the fourth quarter of 2022, compared to the fourth quarter of 2021, primarily driven by a $668.8 million increase in interest bearing deposits from our acquisition of West Suburban, partially offset by a $14.3 million decrease in repurchase agreements, and a $10.1 million decrease in notes payable and other borrowings. The decrease in deposits from the third quarter of 2022 are attributable to customer usage of funds, and we paid down $1.0 million of notes payable in the fourth quarter of 2022. The cost of interest bearing liabilities for the fourth quarter of 2022 increased to 43 basis points compared to 28 basis points for the third quarter of 2022 and increased 10 basis points from 33 basis points for the fourth quarter of 2021. An increase in our average noninterest bearing demand deposits of $883.1 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, which includes the impact of noninterest bearing deposits, totaled 0.27% for the fourth quarter of 2022, compared to 0.18% for the third quarter of 2022 and 0.23% in the fourth quarter of 2021.
Our net interest margin (GAAP) increased 67 basis points to 4.60% for the fourth quarter of 2022, compared to 3.93% for the third quarter of 2022, and increased 178 basis points compared to 2.82% for the fourth quarter of 2021. Our net interest margin (TE) increased 67 basis points to 4.63% for the fourth quarter of 2022, compared to 3.96% for the third quarter 2022, and increased 178 basis points compared to 2.85% for the fourth quarter of 2021. The increases year over year were due primarily to the increased level of market interest rates over much of the past year, and the related rate resets on loans and securities during the past year. 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.
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Noninterest Income
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| | | | | | | | | | | 4th Quarter 2022 | | ||||||||||||
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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| 2022 |
| 2022 |
| 2021 |
| 2022 |
| 2021 |
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Wealth management | | $ | 2,403 | | $ | 2,280 | | $ | 2,495 | | 5.4 | | (3.7) | | ||||||||||
Service charges on deposits | | | 2,499 | | | 2,661 | | | 1,619 | | (6.1) | | 54.4 | | ||||||||||
Residential mortgage banking revenue | | | | | | | | | | | | | | | ||||||||||
Secondary mortgage fees | | | 62 | | | 81 | | | 210 | | (23.5) | | (70.5) | | ||||||||||
MSRs mark to market (loss) gain | | | (431) | | | 548 | | | 1,462 | | (178.6) | | (129.5) | | ||||||||||
Mortgage servicing income | | | 518 | | | 514 | | | 535 | | 0.8 | | (3.2) | | ||||||||||
Net gain on sales of mortgage loans | | | 340 | | | 449 | | | 1,498 | | (24.3) | | (77.3) | | ||||||||||
Total residential mortgage banking revenue | | | 489 | | | 1,592 | | | 3,705 | | (69.3) | | (86.8) | | ||||||||||
Securities losses, net | | | (910) | | | (1) | | | (14) | | N/M | | N/M | | ||||||||||
Change in cash surrender value of BOLI | | | 376 | | | 146 | | | 228 | | 157.5 | | 64.9 | | ||||||||||
Card related income | | | 2,795 | | | 2,653 | | | 1,976 | | 5.4 | | 41.4 | | ||||||||||
Other income | | | 1,294 | | | 2,165 | | | 693 | | (40.2) | | 86.7 | | ||||||||||
Total noninterest income | | $ | 8,946 | | $ | 11,496 | | $ | 10,702 | | (22.2) | | (16.4) | | ||||||||||
N/M - Not meaningful.
Noninterest income decreased $2.6 million, or 22.2%, in the fourth quarter of 2022, compared to the third quarter of 2022, and decreased $1.8 million, or 16.4%, compared to the fourth quarter of 2021. The decrease from the third quarter of 2022 was primarily driven by $1.1 million decline in residential mortgage banking revenue attributable to an increase in mark to market losses on MSRs of $979,000, as well as a $109,000 reduction in net gain on the sale of mortgage loans. The variance in mortgage banking is derived from the changing interest rate environment experienced during the third and fourth quarters and the resultant negative impact on interest rate lock commitments, as well as a decline in the fair value of MSRs during the fourth quarter. Also contributing to the decrease of noninterest income in the fourth quarter of 2022, compared to the prior quarter, were securities losses, net, of $910,000, and a reduction in other income of $871,000 primarily due to gains on the sales of the Visa card and land trust portfolios in the third quarter of 2022. These decreases in noninterest income in the fourth quarter of 2022, compared to the third quarter of 2022, were partially offset by a $123,000 increase in wealth management fees, a $230,000 increase in the cash surrender value of BOLI, and a $142,000 increase in card related income.
The decrease in noninterest income of $1.8 million in the fourth quarter of 2022, compared to the fourth quarter of 2021, is primarily due to a decrease of $3.2 million in residential mortgage banking revenue due to increases in interest rates in 2022 affecting the mortgage banking origination volume and related derivative revenue. An increase in security losses of $896,000 for the year over year quarter also contributed to the decrease over the two periods. The decreases in noninterest income in the fourth quarter of 2022, compared to the fourth quarter of 2021, were partially offset by a $880,000 increase in services charges of deposits, a $148,000 increase in the cash surrender value on BOLI, a $819,000 increase in card related income, and a $601,000 increase in other income, all related to a full quarter of West Suburban activity in the fourth quarter of 2022.
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Noninterest Expense
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| | | | | | | | | | | 4th Quarter 2022 | | |||||||||||||||
Noninterest Expense | | Three Months Ended | | Percent Change From | | ||||||||||||||||||||||
(Dollars in thousands) | | December 31, | | September 30, | | December 31, | | September 30, | | December 31, | | ||||||||||||||||
|
| 2022 |
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| ||||||||||||||||
Salaries | | $ | 17,487 | | $ | 14,711 | | $ | 14,164 | | 18.9 | | 23.5 | | |||||||||||||
Officers incentive | | | 3,876 | | | 2,787 | | | 1,292 | | 39.1 | | 200.0 | | |||||||||||||
Benefits and other | | | 2,900 | | | 3,513 | | | 2,869 | | (17.4) | | 1.1 | | |||||||||||||
Total salaries and employee benefits | | | 24,263 | | | 21,011 | | | 18,325 | | 15.5 | | 32.4 | | |||||||||||||
Occupancy, furniture and equipment expense | | | 4,128 | | | 4,119 | | | 6,360 | | 0.2 | | (35.1) | | |||||||||||||
Computer and data processing | | | 2,978 | | | 2,543 | | | 3,857 | | 17.1 | | (22.8) | | |||||||||||||
FDIC insurance | | | 630 | | | 659 | | | 371 | | (4.4) | | 69.8 | | |||||||||||||
General bank insurance | | | 298 | | | 257 | | | 360 | | 16.0 | | (17.2) | | |||||||||||||
Amortization of core deposit intangible asset | | | 645 | | | 657 | | | 296 | | (1.8) | | 117.9 | | |||||||||||||
Advertising expense | | | 130 | | | 83 | | | 81 | | 56.6 | | 60.5 | | |||||||||||||
Card related expense | | | 1,304 | | | 1,453 | | | 657 | | (10.3) | | 98.5 | | |||||||||||||
Legal fees | | | 225 | | | 212 | | | 451 | | 6.1 | | (50.1) | | |||||||||||||
Consulting & management fees | | | 679 | | | 607 | | | 4,091 | | 11.9 | | (83.4) | | |||||||||||||
Other real estate owned expense, net | | | 34 | | | 22 | | | 14 | | 54.5 | | 142.9 | | |||||||||||||
Other expense | | | 4,370 | | | 4,365 | | | 3,652 | | 0.1 | | 19.7 | | |||||||||||||
Total noninterest expense | | $ | 39,684 | | $ | 35,988 | | $ | 38,515 | | 10.3 | | 3.0 | | |||||||||||||
Efficiency ratio (GAAP)1 | | | 52.44 | % | | 53.08 | % | | 100.51 | % | | | | | |||||||||||||
Adjusted efficiency ratio (non-GAAP)2 | | | 51.29 | % | | 51.90 | % | | 66.49 | % | | | | | |||||||||||||
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 credit card 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 fourth quarter of 2022 increased $3.7 million, or 10.3%, compared to the third quarter of 2022, and increased $1.2 million, or 3.0%, compared to the fourth quarter of 2021. The increase in the fourth quarter of 2022 compared to the third quarter was attributable to a $3.3 million increase in salaries and employee benefits primarily due to an increase in employee salary rates, and an increase in computer and data processing costs, primarily due to timing of software contracts and incentives. Partially offsetting the increase in noninterest expense in the fourth quarter of 2022 was a $149,000 decrease in our card related expense, compared to the third quarter, due to a timing difference in the third quarter with card related invoices.
The year over year increase in noninterest expense is primarily attributable to a $5.9 million increase in salaries and employee benefits, a $259,000 increase in FDIC insurance, a $349,000 increase in the amortization of core deposit intangibles, a $647,000 increase in card related expense, and a $718,000 increase in other expense. Officer incentive compensation increased $2.6 million in the fourth quarter of 2022, compared to the fourth 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 and sponsored finance lending teams. The increase in other expense was due primarily to growth in bill payment services and commercial loan related costs, primarily due to higher volumes of activity in the fourth quarter of 2022. Partially offsetting the increase in noninterest expense in the fourth quarter of 2022, compared to the fourth quarter of 2021, was a $2.2 million decrease in occupancy, furniture and equipment, and a $3.4 million decrease in consulting and management fees, as acquisition related costs such as fixed asset writedowns and investment banker fees, were incurred in late 2021.
7
Earning Assets
| | | | | | | | | | | | | | |
| | | | | | | | | | | December 31, 2022 | | ||
Loans | | As of | | Percent Change From | | |||||||||
(dollars in thousands) | | December 31, | | September 30, | | December 31, | | September 30, | | December 31, | | |||
|
| 2022 |
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| |||
Commercial | | $ | 840,964 | | $ | 888,081 | | $ | 771,474 | | (5.3) | | 9.0 | |
Leases | | | 277,385 | | | 251,603 | | | 176,031 | | 10.2 | | 57.6 | |
Commercial real estate – investor | | | 987,635 | | | 941,910 | | | 799,928 | | 4.9 | | 23.5 | |
Commercial real estate – owner occupied | | | 854,879 | | | 876,951 | | | 731,845 | | (2.5) | | 16.8 | |
Construction | | | 180,535 | | | 176,700 | | | 206,132 | | 2.2 | | (12.4) | |
Residential real estate – investor | | | 57,353 | | | 59,580 | | | 63,399 | | (3.7) | | (9.5) | |
Residential real estate – owner occupied | | | 219,718 | | | 220,969 | | | 213,248 | | (0.6) | | 3.0 | |
Multifamily | | | 323,691 | | | 322,856 | | | 309,164 | | 0.3 | | 4.7 | |
HELOC | | | 109,202 | | | 116,108 | | | 126,290 | | (5.9) | | (13.5) | |
Other1 | | | 18,247 | | | 14,576 | | | 23,293 | | 25.2 | | (21.7) | |
Total loans | | $ | 3,869,609 | | $ | 3,869,334 | | $ | 3,420,804 | | 0.0 | | 13.1 | |
1 Other class includes consumer loans and overdrafts.
Total loans increased by $275,000 at December 31, 2022, compared to September 30, 2022, and increased $448.8 million for the year over year period. Loan growth of $448.8 million in the year over year period was driven by originations of loans with new lending groups, such as the sponsor finance team, as well as growth in commercial, leasing and commercial real estate 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.
| | | | | | | | | | | | | |
| | | | | | | | | | | December 31, 2022 | ||
Securities | | As of | | Percent Change From | |||||||||
(dollars in thousands) | | December 31, | | September 30, | | December 31, | | September 30, | | December 31, | |||
|
| 2022 |
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||
Securities available-for-sale, at fair value | | | | | | | | | | | | | |
U.S. Treasury | | $ | 212,129 | | $ | 211,097 | | $ | 202,339 | | 0.5 | | 4.8 |
U.S. government agencies | | | 56,048 | | | 55,963 | | | 61,888 | | 0.2 | | (9.4) |
U.S. government agency mortgage-backed | | | 124,990 | | | 127,626 | | | 172,302 | | (2.1) | | (27.5) |
States and political subdivisions | | | 226,128 | | | 224,259 | | | 257,609 | | 0.8 | | (12.2) |
Corporate bonds | | | 9,622 | | | 9,544 | | | 9,887 | | 0.8 | | (2.7) |
Collateralized mortgage obligations | | | 533,768 | | | 587,846 | | | 672,967 | | (9.2) | | (20.7) |
Asset-backed securities | | | 201,928 | | | 219,587 | | | 236,877 | | (8.0) | | (14.8) |
Collateralized loan obligations | | | 174,746 | | | 173,837 | | | 79,763 | | 0.5 | | 119.1 |
Total securities available-for-sale | | $ | 1,539,359 | | $ | 1,609,759 | | $ | 1,693,632 | | (4.4) | | (9.1) |
| | | | | | | | | | | | | |
Our securities portfolio totaled $1.54 billion as of December 31, 2022, a decrease of $70.4 million from $1.61 billion as of September 30, 2022, and a decrease of $154.3 million from $1.69 billion as of December 31, 2021. The decrease in the portfolio during the fourth quarter of 2022, compared to the prior quarter, was driven primarily by $48.4 million of calls and pay downs on securities held, and sales of $27.7 million, as well as the effect of changing market conditions, which resulted in a $7.5 million increase in the portfolio’s market value. There were no purchases during the fourth quarter, and the sale of $27.7 million of securities resulted in net realized losses of $910,000. The year over year decrease is the result of $279.8 million of paydowns, $31.0 million of sales resulting in $944,000 of net realized losses, as well as a year over year change in unrealized losses of $138.9 million as of December 31, 2022, due to the rising rate environment. These reductions to the securities portfolio were partially offset by $301.6 million of purchases during 2022. 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
| | | | | | | | | | | | | |
| | | | | | | | | | | December 31, 2022 | ||
Nonperforming assets | | As of | | Percent Change From | |||||||||
(dollars in thousands) | | December 31, | | September 30, | | December 31, | | September 30, | | December 31, | |||
|
| 2022 |
| 2022 |
| 2021 |
| 2022 | | 2021 | |||
Nonaccrual loans | | $ | 31,602 | | $ | 32,126 | | $ | 41,531 | | (1.6) | | (23.9) |
Performing troubled debt restructured loans accruing interest | |
| 49 | |
| 22 | |
| 25 | | 122.7 | | 96.0 |
Loans past due 90 days or more and still accruing interest | |
| 1,262 | |
| 20,752 | |
| 3,110 | | (93.9) | | (59.4) |
Total nonperforming loans | |
| 32,913 | |
| 52,900 | |
| 44,666 | | (37.8) | | (26.3) |
Other real estate owned | |
| 1,561 | |
| 1,561 | |
| 2,356 | | - | | (33.7) |
Total nonperforming assets | | $ | 34,474 | | $ | 54,461 | | $ | 47,022 | | (36.7) | | (26.7) |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
30-89 days past due loans and still accruing interest | | $ | 7,508 | | $ | 8,379 | | $ | 10,679 | | | | |
Nonaccrual loans to total loans | | | 0.8 | % | | 0.8 | % | | 1.2 | % | | | |
Nonperforming loans to total loans | | | 0.9 | % | | 1.4 | % | | 1.3 | % | | | |
Nonperforming assets to total loans plus OREO | | | 0.9 | % | | 1.4 | % | | 1.4 | % | | | |
Purchased credit-deteriorated loans to total loans | | | 2.0 | % | | 2.1 | % | | 3.1 | % | | | |
| | | | | | | | | | | | | |
Allowance for credit losses | | $ | 49,480 | | $ | 48,847 | | $ | 44,281 | | | | |
Allowance for credit losses to total loans | | | 1.3 | % | | 1.3 | % | | 1.3 | % | | | |
Allowance for credit losses to nonaccrual loans | | | 156.6 | % | | 152.1 | % | | 106.6 | % | | | |
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 $77.2 million, net of purchase accounting adjustments, at December 31, 2022. PCD loans that meet the definition of nonperforming loans are included in our nonperforming disclosures. Nonperforming loans to total loans was 0.9% for the fourth quarter of 2022, 1.4% for the third quarter of 2022, and 1.3% for the fourth quarter of 2021. Nonperforming assets to total loans plus OREO was 0.9% for the fourth quarter of 2022, and 1.4% for both the third quarter of 2022, and the fourth quarter of 2021. Our allowance for credit losses to total loans was 1.3% for the fourth quarter of 2022, the third quarter of 2022, and the fourth 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.
| | | | | | | | | | | | | | |
| | | | | | | | | | | December 31, 2022 | | ||
Classified loans | | As of | | Percent Change From | | |||||||||
(dollars in thousands) | | December 31, | | September 30, | | December 31, | | September 30, | | December 31, | | |||
|
| 2022 |
| 2022 |
| 2021 |
| 2022 |
| 2021 | | |||
Commercial | | $ | 26,485 | | $ | 31,722 | | $ | 32,712 | | (16.5) | | (19.0) | |
Leases | | | 1,876 | | | 235 | | | 3,754 | | N/M | | (50.0) | |
Commercial real estate – investor | | | 27,410 | | | 28,252 | | | 10,667 | | (3.0) | | 157.0 | |
Commercial real estate – owner occupied | | | 40,890 | | | 42,698 | | | 15,429 | | (4.2) | | 165.0 | |
Construction | | | 1,333 | | | 1,347 | | | 2,104 | | (1.0) | | (36.6) | |
Residential real estate – investor | | | 1,714 | | | 1,285 | | | 1,265 | | 33.4 | | 35.5 | |
Residential real estate – owner occupied | | | 3,854 | | | 3,929 | | | 5,099 | | (1.9) | | (24.4) | |
Multifamily | | | 2,954 | | | 1,982 | | | 2,278 | | 49.0 | | 29.7 | |
HELOC | | | 2,411 | | | 2,278 | | | 1,423 | | 5.8 | | 69.4 | |
Other1 | | | 2 | | | 2 | | | 10 | | - | | (80.0) | |
Total classified loans | | $ | 108,929 | | $ | 113,730 | | $ | 74,741 | | (4.2) | | 45.7 | |
N/M – Not meaningful
1 Other class includes consumer loans and overdrafts.
The $4.8 million decrease in classified loans since September 30, 2022, was driven by the collection of payments, charge-offs or upgrades to certain substandard loans during the fourth quarter of 2022. Reductions in commercial and commercial real estate loans were noted in the fourth quarter of 2022 from the linked quarter due to ongoing remediation efforts.
9
Allowance for Credit Losses on Loans and Unfunded Commitments
At December 31, 2022, our allowance for credit losses (“ACL”) on loans totaled $49.5 million, and our ACL on unfunded commitments, included in other liabilities, totaled $5.1 million. In the fourth quarter of 2022, we recorded provision expense of $1.5 million based on historical loss rate updates, loan growth, our assessment of nonperforming loan metrics and trends, and estimated future credit losses. The fourth quarter’s provision expense consisted of a $1.6 million provision for credit losses on loans, and a $74,000 reversal of provision for credit losses on unfunded commitments. We recorded net charge-offs of $940,000 in the fourth quarter of 2022, which reduced the ACL. In the third quarter of 2022, we recorded provision expense on loans of $3.5 million, based on our assessment of nonperforming loan metrics and trends and estimated future credit losses, and a $973,000 provision expense related to 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 $4.5 million net impact to the provision for credit losses for the third quarter of 2022. In the fourth quarter of 2021, due to our acquisition of West Suburban, a Day One purchase accounting credit mark of $12.1 million and a Day Two provision of $12.3 million related to the credit mark for estimated lifetime credit losses on non-PCD loans acquired was recorded. These increases to the ACL were partially offset by $4.7 million of net charge-offs recorded during the fourth quarter of 2021, and a release of the ACL on legacy bank loans of $2.3 million based on updates to our loss forecasts. Our ACL on loans to total loans was 1.3% as of December 31, 2022, September 30, 2022, and December 31, 2021.
The $297,000 decrease in our ACL on unfunded commitments at December 31, 2022, compared to September 30, 2022 is driven by a $74,000 reversal of provision expense in the quarter primarily due to an updated line utilization assessment in the fourth quarter of 2022, and $223,000 of purchase accounting accretion recorded during the quarter. The ACL on unfunded commitments totaled $5.1 million as of December 31, 2022, $5.4 million as of September 30, 2022, and $6.2 million as of December 31, 2021.
Net Charge-off Summary
| | | | | | | | | | | | | | |
Loan Charge–offs, net of recoveries | Quarters Ended | |||||||||||||
(dollars in thousands) | December 31, | | % of | | September 30, | | % of | | December 31, | | % of | |||
| 2022 | | Total 2 | | 2022 | | Total 2 | | 2021 | | Total 2 | |||
Commercial | $ | (8) | | (0.9) | | $ | 20 | | 29.4 | | $ | 441 | | 9.3 |
Leases | | 191 | | 20.3 | | | 178 | | 261.8 | | | 37 | | 0.8 |
Commercial real estate – Investor | | 776 | | 82.6 | | | 105 | | 154.4 | | | 2,603 | | 55.1 |
Commercial real estate – Owner occupied | | (2) | | (0.2) | | | (75) | | (110.3) | | | 1,748 | | 37.0 |
Residential real estate – Investor | | (7) | | (0.7) | | | (8) | | (11.8) | | | (8) | | (0.2) |
Residential real estate – Owner occupied | | - | | - | | | (113) | | (166.2) | | | (30) | | (0.6) |
Multifamily | | (6) | | (0.6) | | | (63) | | (92.6) | | | - | | - |
HELOC | | (38) | | (4.0) | | | (35) | | (51.5) | | | (105) | | (2.2) |
Other 1 | | 34 | | 3.5 | | | 59 | | 86.8 | | | 38 | | 0.8 |
Net charge–offs / (recoveries) | $ | 940 | | 100.0 | | $ | 68 | | 100.0 | | $ | 4,724 | | 100.0 |
| | | | | | | | | | | | | | |
1 Other class includes consumer loans and overdrafts.
2 Represents the percentage of net charge-offs attributable to each category of loans.
Gross charge-offs for the fourth quarter of 2022 were $1.1 million, compared to $484,000 for the third quarter of 2022 and $5.2 million for the fourth quarter of 2021. Gross recoveries were $136,000 for the fourth quarter of 2022, compared to $416,000 for the third quarter of 2022, and $497,000 for the fourth 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 $5.11 billion at December 31, 2022, a decrease of $170.6 million compared to $5.28 billion at September 30, 2022, primarily due to a decline in our savings, NOW, and money market accounts of $109.5 million. In addition, demand deposits decreased $46.4 million and time deposits decreased $14.7 million from September 30, 2022 to December 31, 2022. Total deposits decreased $355.5 million in the year over year period, due to declines in our demand deposits of $36.0 million, savings, NOW, and money market accounts of $257.7 million, and time deposits of $61.9 million.
10
Borrowings
As of December 31, 2022, we had $90.0 million in other short-term borrowings due to a short-term FHLB advance. As of September 30, 2022, we had $25.0 million in other short-term borrowings, and we had no short-term borrowings outstanding as of December 31, 2021.
We were indebted on senior notes totaling $44.6 million, net of deferred issuance costs, as of December 31, 2022. 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 $59.3 million as of December 31, 2022, consisting of $60.0 million in principal issued on April 6, 2021, net of debt issuance cost of $703,000. As of December 31, 2022, compared to September 30, 2022, notes payable and other borrowings decreased $1.0 million and is comprised of $9.0 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,” “remain”, “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, loan growth, pipelines and customer activity, 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
11
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, 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, January 26, 2023, at 11:00 a.m. Eastern Time (10:00 a.m. Central Time) to discuss our fourth quarter 2022 financial results. Investors may listen to our call via telephone by dialing 888-506-0062, using Entry Code 685093. 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 2, 2023, by dialing 877-481-4010, using Conference ID: 47379.
12
Old Second Bancorp, Inc. and Subsidiaries
(In thousands)
| | | | | | |
| | (unaudited) | | | | |
| | December 31, | | December 31, | ||
|
| 2022 |
| 2021 | ||
Assets | | | | | | |
Cash and due from banks | | $ | 56,632 | | $ | 38,565 |
Interest earning deposits with financial institutions | | | 58,545 | | | 713,542 |
Cash and cash equivalents | | | 115,177 | | | 752,107 |
Securities available-for-sale, at fair value | | | 1,539,359 | | | 1,693,632 |
Federal Home Loan Bank Chicago ("FHLBC") and Federal Reserve Bank Chicago ("FRBC") stock | | | 20,530 | | | 13,257 |
Loans held-for-sale | | | 491 | | | 4,737 |
Loans | | | 3,869,609 | | | 3,420,804 |
Less: allowance for credit losses on loans | | | 49,480 | | | 44,281 |
Net loans | | | 3,820,129 | | | 3,376,523 |
Premises and equipment, net | | | 76,923 | | | 88,005 |
Other real estate owned | | | 1,561 | | | 2,356 |
Mortgage servicing rights, at fair value | | | 11,189 | | | 7,097 |
Goodwill | | | 86,478 | | | 86,332 |
Core deposit intangible | | | 13,678 | | | 16,304 |
Bank-owned life insurance ("BOLI") | | | 106,608 | | | 105,300 |
Deferred tax assets, net | | | 44,750 | | | 6,100 |
Other assets | | | 51,444 | | | 60,439 |
Total assets | | $ | 5,888,317 | | $ | 6,212,189 |
| | | | | | |
Liabilities | | | | | | |
Deposits: | | | | | | |
Noninterest bearing demand | | $ | 2,051,702 | | $ | 2,087,649 |
Interest bearing: | | | | | | |
Savings, NOW, and money market | | | 2,617,100 | | | 2,874,773 |
Time | | | 441,921 | | | 503,810 |
Total deposits | | | 5,110,723 | | | 5,466,232 |
Securities sold under repurchase agreements | | | 32,156 | | | 50,337 |
Other short-term borrowings | | | 90,000 | | | - |
Junior subordinated debentures | | | 25,773 | | | 25,773 |
Subordinated debentures | | | 59,297 | | | 59,212 |
Senior notes | | | 44,585 | | | 44,480 |
Notes payable and other borrowings | | | 9,000 | | | 19,074 |
Other liabilities | | | 55,642 | | | 45,054 |
Total liabilities | | | 5,427,176 | | | 5,710,162 |
| | | | | | |
Stockholders’ Equity | | | | | | |
Common stock | | | 44,705 | | | 44,705 |
Additional paid-in capital | | | 202,276 | | | 202,443 |
Retained earnings | | | 310,512 | | | 252,011 |
Accumulated other comprehensive (loss) income | | | (93,124) | | | 8,768 |
Treasury stock | | | (3,228) | | | (5,900) |
Total stockholders’ equity | | | 461,141 | | | 502,027 |
Total liabilities and stockholders’ equity | | $ | 5,888,317 | | $ | 6,212,189 |
| | | | | | |
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, | |||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| ||||
Interest and dividend income | | | | | | | | | | | | | |
Loans, including fees | | $ | 55,170 | | $ | 26,276 | | $ | 176,379 | | $ | 90,613 | |
Loans held-for-sale | | | 19 | | | 34 | | | 130 | | | 165 | |
Securities: | | | | | | | | | | | | | |
Taxable | | | 10,495 | | | 2,867 | | | 31,566 | | | 8,168 | |
Tax exempt | | | 1,341 | | | 1,274 | | | 5,287 | | | 5,107 | |
Dividends from FHLBC and FRBC stock | | | 259 | | | 114 | | | 936 | | | 456 | |
Interest bearing deposits with financial institutions | | | 461 | | | 225 | | | 2,175 | | | 656 | |
Total interest and dividend income | | | 67,745 | | | 30,790 | | | 216,473 | | | 105,165 | |
Interest expense | | | | | | | | | | | | | |
Savings, NOW, and money market deposits | | | 776 | | | 295 | | | 1,900 | | | 961 | |
Time deposits | | | 571 | | | 271 | | | 1,448 | | | 1,510 | |
Securities sold under repurchase agreements | | | 10 | | | 14 | | | 40 | | | 82 | |
Other short-term borrowings | | | 436 | | | - | | | 480 | | | - | |
Junior subordinated debentures | | | 287 | | | 283 | | | 1,136 | | | 1,133 | |
Subordinated debentures | | | 546 | | | 546 | | | 2,185 | | | 1,610 | |
Senior notes | | | 891 | | | 673 | | | 2,682 | | | 2,692 | |
Notes payable and other borrowings | | | 137 | | | 108 | | | 446 | | | 462 | |
Total interest expense | | | 3,654 | | | 2,190 | | | 10,317 | | | 8,450 | |
Net interest and dividend income | | | 64,091 | | | 28,600 | | | 206,156 | | | 96,715 | |
Provision for credit losses | | | 1,500 | | | 12,326 | | | 6,550 | | | 4,326 | |
Net interest and dividend income after provision for credit losses | | | 62,591 | | | 16,274 | | | 199,606 | | | 92,389 | |
Noninterest income | | | | | | | | | | | | | |
Wealth management | | | 2,403 | | | 2,495 | | | 9,887 | | | 9,408 | |
Service charges on deposits | | | 2,499 | | | 1,619 | | | 9,562 | | | 5,403 | |
Secondary mortgage fees | | | 62 | | | 210 | | | 332 | | | 1,044 | |
Mortgage servicing rights mark to market (loss) gain | | | (431) | | | 1,462 | | | 3,177 | | | 1,261 | |
Mortgage servicing income | | | 518 | | | 535 | | | 2,130 | | | 2,181 | |
Net gain on sales of mortgage loans | | | 340 | | | 1,498 | | | 2,022 | | | 9,300 | |
Securities (losses) gains, net | | | (910) | | | (14) | | | (944) | | | 232 | |
Change in cash surrender value of BOLI | | | 376 | | | 228 | | | 718 | | | 1,390 | |
Card related income | | | 2,795 | | | 1,976 | | | 10,989 | | | 6,712 | |
Other income | | | 1,294 | | | 693 | | | 5,243 | | | 2,329 | |
Total noninterest income | | | 8,946 | | | 10,702 | ��� | | 43,116 | | | 39,260 | |
Noninterest expense | | | | | | | | | | | | | |
Salaries and employee benefits | | | 24,263 | | | 18,325 | | | 86,573 | | | 57,691 | |
Occupancy, furniture and equipment | | | 4,128 | | | 6,360 | | | 14,992 | | | 13,548 | |
Computer and data processing | | | 2,978 | | | 3,857 | | | 15,795 | | | 7,936 | |
FDIC insurance | | | 630 | | | 371 | | | 2,401 | | | 975 | |
General bank insurance | | | 298 | | | 360 | | | 1,221 | | | 1,214 | |
Amortization of core deposit intangible | | | 645 | | | 296 | | | 2,626 | | | 644 | |
Advertising expense | | | 130 | | | 81 | | | 589 | | | 343 | |
Card related expense | | | 1,304 | | | 657 | | | 4,348 | | | 2,538 | |
Legal fees | | | 225 | | | 451 | | | 873 | | | 1,096 | |
Consulting & management fees | | | 679 | | | 4,091 | | | 2,425 | | | 5,005 | |
Other real estate expense, net | | | 34 | | | 14 | | | 131 | | | 151 | |
Other expense | | | 4,370 | | | 3,652 | | | 19,199 | | | 12,641 | |
Total noninterest expense | | | 39,684 | | | 38,515 | | | 151,173 | | | 103,782 | |
Income (loss) before income taxes | | | 31,853 | | | (11,539) | | | 91,549 | | | 27,867 | |
Provision for (benefit from) income taxes | | | 8,238 | | | (2,472) | | | 24,144 | | | 7,823 | |
Net income (loss) | | $ | 23,615 | | $ | (9,067) | | $ | 67,405 | | $ | 20,044 | |
| | | | | | | | | | | | | |
Basic earnings per share | | $ | 0.53 | | $ | (0.27) | | $ | 1.51 | | $ | 0.66 | |
Diluted earnings per share | | | 0.52 | | | (0.26) | | | 1.49 | | | 0.65 | |
Dividends declared per share | | | 0.05 | | | 0.05 | | | 0.20 | | | 0.16 | |
| | | | | | | | |
Ending common shares outstanding | | 44,582,311 | | 44,461,045 | | 44,582,311 | | 44,461,045 |
Weighted-average basic shares outstanding | | 44,578,830 | | 28,707,737 | | 44,526,655 | | 30,208,663 |
Weighted-average diluted shares outstanding | | 45,228,212 | | 29,230,280 | | 45,213,088 | | 30,737,862 |
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 | | 4th Qtr | ||||||||
Cash and due from banks | | $ | 28,461 | | $ | 29,985 | | $ | 29,760 | | $ | 34,225 | | $ | 42,972 | | $ | 53,371 | | $ | 56,265 | | $ | 56,531 |
Interest earning deposits with financial institutions | | | 359,576 | | | 499,555 | | | 523,561 | | | 587,721 | | | 635,302 | | | 426,820 | | | 131,260 | | | 50,377 |
Cash and cash equivalents | | | 388,037 | | | 529,540 | | | 553,321 | | | 621,946 | | | 678,274 | | | 480,191 | | | 187,525 | | | 106,908 |
| | | | | | | | | | | | | | | | | | | | | | | | |
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 | | | 1,576,004 |
FHLBC and FRBC stock | | | 9,917 | | | 9,917 | | | 9,917 | | | 11,042 | | | 16,066 | | | 20,994 | | | 19,565 | | | 19,534 |
Loans held-for-sale | | | 8,616 | | | 4,860 | | | 4,908 | | | 4,271 | | | 6,707 | | | 3,050 | | | 2,020 | | | 1,224 |
Loans | | | 2,006,157 | | | 1,926,105 | | | 1,884,788 | | | 2,388,746 | | | 3,397,827 | | | 3,505,806 | | | 3,751,097 | | | 3,877,004 |
Less: allowance for credit losses on loans | | | 34,540 | | | 31,024 | | | 28,639 | | | 34,567 | | | 44,341 | | | 44,354 | | | 45,449 | | | 48,778 |
Net loans | | | 1,971,617 | | | 1,895,081 | | | 1,856,149 | | | 2,354,179 | | | 3,353,486 | | | 3,461,452 | | | 3,705,648 | | | 3,828,226 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Premises and equipment, net | | | 45,378 | | | 44,847 | | | 44,451 | | | 59,796 | | | 87,564 | | | 84,599 | | | 80,239 | | | 77,127 |
Other real estate owned | | | 2,213 | | | 2,053 | | | 1,930 | | | 1,954 | | | 2,399 | | | 1,850 | | | 1,578 | | | 1,561 |
Mortgage servicing rights, at fair value | | | 4,814 | | | 5,499 | | | 5,020 | | | 5,555 | | | 8,218 | | | 10,525 | | | 10,639 | | | 11,322 |
Goodwill | | | 18,604 | | | 18,604 | | | 18,604 | | | 19,340 | | | 86,332 | | | 86,332 | | | 86,333 | | | 86,477 |
Core deposit intangible | | | 2,115 | | | 1,998 | | | 1,883 | | | 6,747 | | | 15,977 | | | 15,286 | | | 14,561 | | | 13,950 |
Bank-owned life insurance ("BOLI") | | | 63,259 | | | 63,633 | | | 64,008 | | | 78,217 | | | 105,396 | | | 105,463 | | | 105,448 | | | 105,754 |
Deferred tax assets, net | | | 8,228 | | | 7,782 | | | 6,487 | | | 9,273 | | | 10,689 | | | 27,154 | | | 31,738 | | | 50,533 |
Other assets | | | 42,877 | | | 40,952 | | | 43,032 | | | 106,880 | | | 54,412 | | | 43,100 | | | 47,314 | | | 49,002 |
Total other assets | | | 187,488 | | | 185,368 | | | 185,415 | | | 287,762 | | | 370,987 | | | 374,309 | | | 377,850 | | | 395,726 |
Total assets | | $ | 3,097,905 | | $ | 3,238,832 | | $ | 3,273,160 | | $ | 4,311,473 | | $ | 6,233,395 | | $ | 6,132,095 | | $ | 5,995,956 | | $ | 5,927,622 |
| | | | | | | | | | | | | | | | | | | | | | | | |
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 | | $ | 2,083,503 |
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 | | | 2,680,767 |
Time | | | 399,310 | | | 359,635 | | | 331,482 | | | 370,919 | | | 495,452 | | | 469,009 | | | 459,925 | | | 450,111 |
Total deposits | | | 2,573,526 | | | 2,673,242 | | | 2,702,723 | | | 3,662,744 | | | 5,488,243 | | | 5,461,298 | | | 5,317,507 | | | 5,214,381 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Securities sold under repurchase agreements | | | 82,475 | | | 67,737 | | | 46,339 | | | 47,571 | | | 39,204 | | | 34,496 | | | 33,733 | | | 33,275 |
Other short-term borrowings | | | - | | | 1 | | | - | | | - | | | - | | | - | | | 5,435 | | | 44,293 |
Junior subordinated debentures | | | 25,773 | | | 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 | | | 59,286 |
Senior notes | | | 44,389 | | | 44,415 | | | 44,441 | | | 44,468 | | | 44,494 | | | 44,520 | | | 44,546 | | | 44,572 |
Notes payable and other borrowings | | | 23,330 | | | 22,250 | | | 21,171 | | | 20,090 | | | 19,009 | | | 13,103 | | | 10,989 | | | 9,978 |
Other liabilities | | | 37,801 | | | 36,553 | | | 53,370 | | | 68,314 | | | 60,818 | | | 32,636 | | | 34,949 | | | 51,753 |
Total liabilities | | | 2,787,294 | | | 2,926,052 | | | 2,952,997 | | | 3,928,161 | | | 5,736,763 | | | 5,671,070 | | | 5,532,197 | | | 5,483,311 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Stockholders' equity | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock | | | 34,957 | | | 34,957 | | | 34,958 | | | 38,248 | | | 44,705 | | | 44,705 | | | 44,705 | | | 44,705 |
Additional paid-in capital | | | 121,578 | | | 120,359 | | | 120,857 | | | 148,528 | | | 202,828 | | | 202,544 | | | 201,570 | | | 201,973 |
Retained earnings | | | 242,201 | | | 251,134 | | | 258,944 | | | 260,181 | | | 258,073 | | | 267,912 | | | 284,302 | | | 301,753 |
Accumulated other comprehensive income (loss) | | | 14,496 | | | 13,971 | | | 14,965 | | | 10,986 | | | (3,074) | | | (49,151) | | | (63,216) | | | (100,817) |
Treasury stock | | | (102,621) | | | (107,641) | | | (109,561) | | | (74,631) | | | (5,900) | | | (4,985) | | | (3,602) | | | (3,303) |
Total stockholders' equity | | | 310,611 | | | 312,780 | | | 320,163 | | | 383,312 | | | 496,632 | | | 461,025 | | | 463,759 | | | 444,311 |
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 | | $ | 5,927,622 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total Earning Assets | | $ | 2,916,496 | | $ | 3,054,503 | | $ | 3,086,624 | | $ | 4,024,053 | | $ | 5,863,777 | | $ | 5,748,769 | | $ | 5,607,290 | | $ | 5,524,143 |
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 | | | 3,348,055 |
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 | | 4th Qtr | ||||||||
Interest and Dividend Income | | | | | | | | | | | | | | | | | | | | | | | | |
Loans, including fees | | $ | 22,207 | | $ | 20,815 | | $ | 21,315 | | $ | 26,276 | | $ | 36,366 | | $ | 38,229 | | $ | 46,614 | | | 55,170 |
Loans held-for-sale | | | 55 | | | 38 | | | 39 | | | 34 | | | 57 | | | 32 | | | 22 | | | 19 |
Securities: | | | | | | | | | | | | | | | | | | | | | | | | |
Taxable | | | 1,615 | | | 1,832 | | | 1,854 | | | 2,867 | | | 5,169 | | | 6,786 | | | 9,116 | | | 10,495 |
Tax exempt | | | 1,307 | | | 1,259 | | | 1,266 | | | 1,274 | | | 1,317 | | | 1,297 | | | 1,332 | | | 1,341 |
Dividends from FHLB and FRBC stock | | | 115 | | | 113 | | | 114 | | | 114 | | | 153 | | | 263 | | | 261 | | | 259 |
Interest bearing deposits with financial institutions | | | 92 | | | 137 | | | 203 | | | 225 | | | 269 | | | 782 | | | 663 | | | 461 |
Total interest and dividend income | | | 25,391 | | | 24,194 | | | 24,791 | | | 30,790 | | | 43,331 | | | 47,389 | | | 58,008 | | | 67,745 |
Interest Expense | | | | | | | | | | | | | | | | | | | | | | | | |
Savings, NOW, and money market deposits | | | 241 | | | 217 | | | 209 | | | 295 | | | 397 | | | 347 | | | 380 | | | 776 |
Time deposits | | | 500 | | | 409 | | | 330 | | | 271 | | | 277 | | | 265 | | | 335 | | | 571 |
Securities sold under repurchase agreements | | | 31 | | | 21 | | | 15 | | | 14 | | | 11 | | | 9 | | | 10 | | | 10 |
Other short-term borrowings | | | - | | | - | | | - | | | - | | | - | | | | | | 44 | | | 436 |
Junior subordinated debentures | | | 280 | | | 284 | | | 286 | | | 283 | | | 280 | | | 284 | | | 285 | | | 287 |
Subordinated debentures | | | - | | | 517 | | | 547 | | | 546 | | | 546 | | | 547 | | | 546 | | | 546 |
Senior notes | | | 673 | | | 673 | | | 673 | | | 673 | | | 485 | | | 578 | | | 728 | | | 891 |
Notes payable and other borrowings | | | 123 | | | 119 | | | 113 | | | 108 | | | 103 | | | 95 | | | 111 | | | 137 |
Total interest expense | | | 1,848 | | | 2,240 | | | 2,173 | | | 2,190 | | | 2,099 | | | 2,125 | | | 2,439 | | | 3,654 |
Net interest and dividend income | | | 23,543 | | | 21,954 | | | 22,618 | | | 28,600 | | | 41,232 | | | 45,264 | | | 55,569 | | | 64,091 |
(Release of) provision for credit losses | | | (3,000) | | | (3,500) | | | (1,500) | | | 12,326 | | | - | | | 550 | | | 4,500 | | | 1,500 |
Net interest and dividend income after (release of) provision for credit losses | | | 26,543 | | | 25,454 | | | 24,118 | | | 16,274 | | | 41,232 | | | 44,714 | | | 51,069 | | | 62,591 |
Noninterest Income | | | | | | | | | | | | | | | | | | | | | | | | |
Wealth management | | | 2,151 | | | 2,389 | | | 2,372 | | | 2,495 | | | 2,698 | | | 2,506 | | | 2,280 | | | 2,403 |
Service charges on deposits | | | 1,195 | | | 1,221 | | | 1,368 | | | 1,619 | | | 2,074 | | | 2,328 | | | 2,661 | | | 2,499 |
Secondary mortgage fees | | | 322 | | | 272 | | | 240 | | | 210 | | | 139 | | | 50 | | | 81 | | | 62 |
Mortgage servicing rights mark to market gain (loss) | | | 1,113 | | | (1,033) | | | (282) | | | 1,462 | | | 2,978 | | | 82 | | | 548 | | | (431) |
Mortgage servicing income | | | 567 | | | 507 | | | 572 | | | 535 | | | 519 | | | 579 | | | 514 | | | 518 |
Net gain (loss) on sales of mortgage loans | | | 3,721 | | | 1,895 | | | 2,186 | | | 1,498 | | | 1,495 | | | (262) | | | 449 | | | 340 |
Securities gains (losses), net | | | - | | | 2 | | | 244 | | | (14) | | | - | | | (33) | | | (1) | | | (910) |
Change in cash surrender value of BOLI | | | 334 | | | 423 | | | 406 | | | 228 | | | 124 | | | 72 | | | 146 | | | 376 |
Card related income | | | 1,447 | | | 1,666 | | | 1,624 | | | 1,976 | | | 2,574 | | | 2,967 | | | 2,653 | | | 2,795 |
Other income | | | 450 | | | 577 | | | 610 | | | 693 | | | 862 | | | 922 | | | 2,165 | | | 1,294 |
Total noninterest income | | | 11,300 | | | 7,919 | | | 9,340 | | | 10,702 | | | 13,463 | | | 9,211 | | | 11,496 | | | 8,946 |
Noninterest Expense | | | | | | | | | | | | | | | | | | | | | | | | |
Salaries and employee benefits | | | 13,506 | | | 12,896 | | | 12,964 | | | 18,325 | | | 19,967 | | | 21,332 | | | 21,011 | | | 24,263 |
Occupancy, furniture and equipment | | | 2,467 | | | 2,303 | | | 2,418 | | | 6,360 | | | 3,699 | | | 3,046 | | | 4,119 | | | 4,128 |
Computer and data processing | | | 1,298 | | | 1,304 | | | 1,477 | | | 3,857 | | | 6,268 | | | 4,006 | | | 2,543 | | | 2,978 |
FDIC insurance | | | 201 | | | 192 | | | 211 | | | 371 | | | 410 | | | 702 | | | 659 | | | 630 |
General bank insurance | | | 276 | | | 277 | | | 301 | | | 360 | | | 315 | | | 351 | | | 257 | | | 298 |
Amortization of core deposit intangible | | | 120 | | | 115 | | | 113 | | | 296 | | | 665 | | | 659 | | | 657 | | | 645 |
Advertising expense | | | 60 | | | 95 | | | 107 | | | 81 | | | 182 | | | 194 | | | 83 | | | 130 |
Card related expense | | | 593 | | | 626 | | | 662 | | | 657 | | | 534 | | | 1,057 | | | 1,453 | | | 1,304 |
Legal fees | | | 55 | | | 135 | | | 455 | | | 451 | | | 257 | | | 179 | | | 212 | | | 225 |
Consulting & management fees | | | 417 | | | 250 | | | 247 | | | 4,091 | | | 616 | | | 523 | | | 607 | | | 679 |
Other real estate expense (gain), net | | | 36 | | | 77 | | | 25 | | | 14 | | | (12) | | | 87 | | | 22 | | | 34 |
Other expense | | | 2,709 | | | 3,131 | | | 3,149 | | | 3,652 | | | 5,351 | | | 5,113 | | | 4,365 | | | 4,370 |
Total noninterest expense | | | 21,738 | | | 21,401 | | | 22,129 | | | 38,515 | | | 38,252 | | | 37,249 | | | 35,988 | | | 39,684 |
Income (loss) before income taxes | | | 16,105 | | | 11,972 | | | 11,329 | | | (11,539) | | | 16,443 | | | 16,676 | | | 26,577 | | | 31,853 |
Provision for (benefit from) income taxes | | | 4,226 | | | 3,152 | | | 2,917 | | | (2,472) | | | 4,423 | | | 4,429 | | | 7,054 | | | 8,238 |
Net income (loss) | | $ | 11,879 | | $ | 8,820 | | $ | 8,412 | | $ | (9,067) | | $ | 12,020 | | $ | 12,247 | | $ | 19,523 | | $ | 23,615 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Basic earnings per share (GAAP) | | $ | 0.41 | | $ | 0.30 | | $ | 0.30 | | $ | (0.27) | | $ | 0.27 | | $ | 0.28 | | $ | 0.43 | | $ | 0.53 |
Diluted earnings per share (GAAP) | | | 0.40 | | | 0.30 | | | 0.29 | | | (0.26) | | | 0.27 | | | 0.27 | | | 0.43 | | | 0.52 |
Dividends paid per share | | | 0.01 | | | 0.05 | | | 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 | | |||||||
| | December 31, | | September 30, | | December 31, | | |||
|
| 2022 |
| 2022 | | 2021 | | |||
Net Income | | | | | | | | | | |
Income before income taxes (GAAP) | | $ | 31,853 | | $ | 26,577 | | $ | (11,539) | |
Pre-tax income adjustments: | | | | | | | | | | |
Provision for credit losses - Day Two | | | - | | | - | | | 14,625 | |
Merger-related costs, net of gains/losses on branch sales | | | 617 | | | 1,061 | | | 12,765 | |
Gains on the sale of Visa credit card and land trust portfolios | | | - | | | (923) | | | - | |
Adjusted net income before taxes | | | 32,470 | | | 26,715 | | | 15,851 | |
Taxes on adjusted net income | | | 8,398 | | | 7,091 | | | 3,396 | |
Adjusted net income (non-GAAP) | | $ | 24,072 | | $ | 19,624 | | $ | 12,455 | |
| | | | | | | | | | |
Basic earnings per share (GAAP) | | $ | 0.53 | | $ | 0.43 | | $ | (0.27) | |
Diluted earnings per share (GAAP) | | | 0.52 | | | 0.43 | | | (0.26) | |
Adjusted basic earnings per share excluding acquisition-related costs (non-GAAP) | | | 0.54 | | | 0.44 | | | 0.37 | |
Adjusted diluted earnings per share excluding acquisition-related costs (non-GAAP) | | | 0.53 | | | 0.43 | | | 0.36 | |
| | | | | | | | | | | | | | | | | |
| | Quarters Ended | | | Year Ended | | |||||||||||
| | December 31, | | September 30, | | December 31, | | | December 31, | | |||||||
|
| 2022 |
| 2022 | | 2021 | |
| 2022 | | 2021 | | |||||
Net Interest Margin | | | | | | | | | | | | | | | | | |
Interest income (GAAP) | | $ | 67,745 | | $ | 58,008 | | $ | 30,790 | | | $ | 216,473 | | $ | 105,165 | |
Taxable-equivalent adjustment: | | | | | | | | | | | | | | | | | |
Loans | | | 6 | | | 6 | | | 4 | | | | 23 | | | 15 | |
Securities | | | 356 | | | 354 | | | 339 | | | | 1,405 | | | 1,357 | |
Interest income (TE) | | | 68,107 | | | 58,368 | | | 31,133 | | | | 217,901 | | | 106,537 | |
Interest expense (GAAP) | | | 3,654 | | | 2,439 | | | 2,190 | | | | 10,317 | | | 8,450 | |
Net interest income (TE) | | $ | 64,453 | | $ | 55,929 | | $ | 28,943 | | | $ | 207,584 | | $ | 98,087 | |
Net interest income (GAAP) | | $ | 64,091 | | $ | 55,569 | | $ | 28,600 | | | $ | 206,156 | | $ | 96,715 | |
Average interest earning assets | | $ | 5,524,143 | | $ | 5,607,290 | | $ | 4,024,053 | | | $ | 5,684,862 | | $ | 3,272,951 | |
Net interest margin (GAAP) | | | 4.60 | % | | 3.93 | % | | 2.82 | % | | | 3.63 | % | | 2.95 | % |
Net interest margin (TE) | | | 4.63 | % | | 3.96 | % | | 2.85 | % | | | 3.65 | % | | 3.00 | % |
17
| | | | | | | | | | | | | | | | | | | |
| | GAAP | | Non-GAAP | | ||||||||||||||
| | | Three Months Ended | | | Three Months Ended | | ||||||||||||
| | December 31, | | September 30, | | December 31, | | December 31, | | September 30, | | December 31, | | ||||||
| | 2022 | | 2022 | | 2021 | | 2022 | | 2022 | | 2021 | | ||||||
Efficiency Ratio / Adjusted Efficiency Ratio | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Noninterest expense | | $ | 39,684 | | $ | 35,988 | | $ | 38,515 | | $ | 39,684 | | $ | 35,988 | | $ | 38,515 | |
Less amortization of core deposit | | | 645 | | | 657 | | | 296 | | | 645 | | | 657 | | | 296 | |
Less other real estate expense, net | | | 34 | | | 22 | | | 14 | | | 34 | | | 22 | | | 14 | |
Less acquisition related costs, net of gain on branch sales | | | N/A | | | N/A | | | N/A | | | 617 | | | 1,061 | | | 12,766 | |
Noninterest expense less adjustments | | $ | 39,005 | | $ | 35,309 | | $ | 38,205 | | $ | 38,388 | | $ | 34,248 | | $ | 25,439 | |
| | | | | | | | | | | | | | | | | | | |
Net interest income | | $ | 64,091 | | $ | 55,569 | | $ | 28,600 | | $ | 64,091 | | $ | 55,569 | | $ | 28,600 | |
Taxable-equivalent adjustment: | | | | | | | | | | | | | | | | | | | |
Loans | | | N/A | | | N/A | | | N/A | | | 6 | | | 6 | | | 4 | |
Securities | | | N/A | | | N/A | | | N/A | | | 356 | | | 354 | | | 339 | |
Net interest income including adjustments | | | 64,091 | | | 55,569 | | | 28,600 | | | 64,453 | | | 55,929 | | | 28,943 | |
Noninterest income | | | 8,946 | | | 11,496 | | | 10,702 | | | 8,946 | | | 11,496 | | | 10,702 | |
Less securities losses | | | (910) | | | (1) | | | (14) | | | (910) | | | (1) | | | (14) | |
Less MSRs mark to market (loss) gain | | | (431) | | | 548 | | | 1,462 | | | (431) | | | 548 | | | 1,462 | |
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 | | | 100 | | | 39 | | | 61 | |
Noninterest income (less) / including adjustments | | | 10,287 | | | 10,949 | | | 9,254 | | | 10,387 | | | 10,065 | | | 9,315 | |
| | | | | | | | | | | | | | | | | | | |
Net interest income including adjustments plus noninterest income (less) / including adjustments | | $ | 74,378 | | $ | 66,518 | | $ | 37,854 | | $ | 74,840 | | $ | 65,994 | | $ | 38,258 | |
Efficiency ratio / Adjusted efficiency ratio | | | 52.44 | % | | 53.08 | % | | 100.93 | % | | 51.29 | % | | 51.90 | % | | 66.49 | % |
| | | | | | | | | | | | | | | | | |
| | Quarters Ended | | | Year Ended | | |||||||||||
| | December 31, | | September 30, | | December 31, | | | December 31, | | |||||||
| | 2022 |
| 2022 | | 2021 | | | 2022 |
| 2021 | | |||||
Return on Average Tangible Common Equity Ratio | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Net income (loss) (GAAP) | | $ | 23,615 | | $ | 19,523 | | $ | (9,067) | | | $ | 67,405 | | $ | 20,044 | |
| | | | | | | | | | | | | | | | | |
Income before income taxes (GAAP) | | $ | 31,853 | | $ | 26,577 | | $ | (11,539) | | | $ | 91,549 | | $ | 27,867 | |
Pre-tax income adjustments: | | | | | | | | | | | | | | | | | |
Provision for credit losses - Day Two | | | - | | | - | | | 14,625 | | | | - | | | 14,625 | |
Merger-related costs, net of gains on branch sales | | | 617 | | | 1,061 | | | 12,765 | | | | 9,144 | | | 13,190 | |
Gains on the sale of Visa credit card and land trust portfolios | | | - | | | (953) | | | - | | | | (923) | | | - | |
Amortization of core deposit intangibles | | | 645 | | | 657 | | | 296 | | | | 2,627 | | | 644 | |
Adjusted net income, excluding intangibles amortization, before taxes | | | 33,115 | | | 27,342 | | | 16,147 | | | | 102,397 | | | 56,326 | |
Taxes on adjusted net income | | | 8,564 | | | 7,257 | | | 3,459 | | | | 27,033 | | | 13,958 | |
Adjusted net income, excluding intangibles amortization (non-GAAP) | | $ | 24,551 | | $ | 20,085 | | $ | 12,688 | | | $ | 75,364 | | $ | 42,368 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Total Average Common Equity | | $ | 444,311 | | | 463,759 | | $ | 383,312 | | | $ | 466,281 | | $ | 331,883 | |
Less Average goodwill and intangible assets | | | 100,427 | | | 100,894 | | | 26,087 | | | | 101,306 | | | 21,985 | |
Average tangible common equity (non-GAAP) | | $ | 343,884 | | $ | 362,865 | | $ | 357,225 | | | $ | 364,975 | | $ | 309,898 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Return on average common equity (GAAP) | | | 21.09 | % | | 16.70 | % | | (9.38) | % | | | 14.46 | % | | 6.04 | % |
Adjusted return on average tangible common equity (non-GAAP) | | | 28.33 | % | | 21.96 | % | | 14.09 | % | | | 20.65 | % | | 13.67 | % |
18