| | |
| | |
(NASDAQ:OSBC) | Exhibit 99.1 | |
| | |
Contact: | Bradley S. Adams | For Immediate Release |
| Chief Financial Officer | April 19, 2023 |
| (630) 906-5484 | |
Old Second Bancorp, Inc. Reports First Quarter 2023 Net Income of $23.6 Million,
or $0.52 per Diluted Share
AURORA, IL, April 19, 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 first quarter of 2023. Our net income was $23.6 million, or $0.52 per diluted share, for the first quarter of 2023, compared to net income of $23.6 million, or $0.52 per diluted share, for the fourth quarter of 2022, and net income of $12.0 million, or $0.27 per diluted share, for the first quarter of 2022. Adjusted net income, a non-GAAP financial measure that excludes net pre-tax gains totaling $306,000 from branch sales, was $23.4 million, or $0.52 per diluted share, for the first quarter of 2023. See the discussion entitled “Non-GAAP Presentations” below and the tables beginning on page 16 that provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.
There was no material change in net income in the first quarter of 2023 compared to the fourth quarter of 2022. This was primarily due to the increase of $2.0 million in provision for credit losses and a decrease in noninterest income of $1.6 million in the first quarter of 2023, which were offset by a $3.8 million decrease in noninterest expense. Net income increased $11.6 million in the first quarter of 2023 compared to the first quarter of 2022. The first quarter of 2023 also included pre-tax net losses on the sale of securities of $1.7 million and a $525,000 pre-tax mark to market loss on mortgage servicing rights (“MSRs”), compared to pre-tax net losses on the sale of securities of $910,000 and a $431,000 pre-tax mark to market loss on MSRs in the fourth quarter of 2022, and a $3.0 million pre-tax gain on MSRs in the first quarter of 2022.
Operating Results
| ● | First quarter 2023 net income was $23.6 million, reflecting no material change from the fourth quarter 2022, and an increase of $11.6 million from the first quarter of 2022. Adjusted net income, a non-GAAP financial measure that excludes acquisition-related costs, net of gains on branch sales, was $23.4 million for the first quarter of 2023, a decrease of $691,000 from adjusted net income for the fourth quarter of 2022, and an increase of $7.5 million from adjusted net income for the first quarter of 2022. |
| ● | Net interest and dividend income was $64.1 million for the first quarter of 2023, reflecting no material change from the fourth quarter of 2022, and an increase of $22.9 million, or 55.4%, from the first quarter of 2022. |
| ● | We recorded a net provision for credit losses of $3.5 million in the first quarter of 2023, compared to a net provision for credit losses of $1.5 million in the fourth quarter of 2022, and no net provision for credit losses in the first quarter of 2022. |
| ● | Noninterest income was $7.4 million for the first quarter of 2023, a decrease of $1.6 million, or 17.8%, compared to $8.9 million for the fourth quarter of 2022, and a decrease of $6.1 million, or 45.4%, compared to $13.5 million for the first quarter of 2022. |
| ● | Noninterest expense was $35.9 million for the first quarter of 2023, a decrease of $3.8 million, or 9.5% compared to $39.7 million for the fourth quarter of 2022, and a decrease of $2.3 million, or 6.1%, compared to $38.3 million for the first quarter of 2022. |
1
| ● | We had a provision for income tax of $8.4 million for the first quarter of 2023, compared to a provision for income tax of $8.2 million for the fourth quarter of 2022 and a provision of $4.4 million for the first quarter of 2022. |
| ● | On April 18, 2023, our Board of Directors declared a cash dividend of $0.05 per share payable on May 8, 2023, to stockholders of record as of April 28, 2023. |
Financial Highlights
| | | | | | | | | | |
| | Quarters Ended | | |||||||
(Dollars in thousands) | | March 31, 2023 | | December 31, 2022 | | March 31, 2022 | | |||
Balance sheet summary | | | | | | | | | | |
Total assets | | $ | 5,920,283 | | $ | 5,888,317 | | $ | 6,223,791 | |
Total securities available-for-sale | | | 1,455,068 | | | 1,539,359 | | | 1,816,450 | |
Total loans | | | 4,003,354 | | | 3,869,609 | | | 3,402,370 | |
Total deposits | | | 4,897,220 | | | 5,110,723 | | | 5,544,545 | |
Total liabilities | | | 5,423,413 | | | 5,427,176 | | | 5,757,473 | |
Total equity | | | 496,870 | | | 461,141 | | | 466,318 | |
| | | | | | | | | | |
Total tangible assets | | $ | 5,820,751 | | $ | 5,788,161 | | $ | 6,121,820 | |
Total tangible equity | | | 397,338 | | | 360,985 | | | 364,347 | |
| | | | | | | | | | |
Income statement summary | | | | | | | | | | |
Net interest income | | $ | 64,086 | | $ | 64,091 | | $ | 41,232 | |
Provision for credit losses | | | 3,501 | | | 1,500 | | | - | |
Noninterest income | | | 7,350 | | | 8,946 | | | 13,463 | |
Noninterest expense | | | 35,922 | | | 39,684 | | | 38,252 | |
Net income | | | 23,607 | | | 23,615 | | | 12,020 | |
Effective tax rate | | | 26.26 | % | | 25.86 | % | | 26.90 | % |
| | | | | | | | | | |
Profitability ratios | | | | | | | | | | |
Return on average assets (ROAA) | | | 1.62 | % | | 1.58 | % | | 0.78 | % |
Return on average equity (ROAE) | | | 19.86 | | | 21.09 | | | 9.82 | |
Net interest margin (tax-equivalent) | | | 4.74 | | | 4.63 | | | 2.88 | |
Efficiency ratio | | | 47.52 | | | 52.44 | | | 72.70 | |
Return on average tangible common equity (ROATCE) | | | 25.54 | | | 27.80 | | | 12.86 | |
Tangible common equity to tangible assets (TCE/TA) | | | 6.83 | | | 6.24 | | | 5.95 | |
| | | | | | | | | | |
Per share data | | | | | | | | | | |
Diluted earnings per share | | $ | 0.52 | | $ | 0.52 | | $ | 0.27 | |
Tangible book value per share | | | 8.90 | | | 8.10 | | | 8.19 | |
| | | | | | | | | | |
Company capital ratios 1 | | | | | | | | | | |
Common equity tier 1 capital ratio | | | 9.91 | % | | 9.67 | % | | 9.73 | % |
Tier 1 risk-based capital ratio | | | 10.43 | | | 10.20 | | | 10.33 | |
Total risk-based capital ratio | | | 12.79 | | | 12.52 | | | 12.85 | |
Tier 1 leverage ratio | | | 8.56 | | | 8.14 | | | 7.00 | |
| | | | | | | | | | |
Bank capital ratios 1, 2 | | | | | | | | | | |
Common equity tier 1 capital ratio | | | 11.98 | % | | 11.70 | % | | 12.74 | % |
Tier 1 risk-based capital ratio | | | 11.98 | | | 11.70 | | | 12.74 | |
Total risk-based capital ratio | | | 13.10 | | | 12.75 | | | 13.83 | |
Tier 1 leverage ratio | | | 9.83 | | | 9.32 | | | 8.61 | |
1 Both the Company and the Bank ratios are inclusive of a capital conservation buffer of 2.50%, and both are subject to the minimum capital adequacy guidelines of 7.00%, 8.50%, 10.50%, and 4.00% for the Common equity tier 1, Tier 1 risk-based, Total risk-based and Tier 1 leverage ratios, respectively.
2 The prompt corrective action provisions are applicable only at the Bank level, and are 6.50%, 8.00%, 10.00%, and 5.00% for the Common equity tier 1, Tier 1 risk-based, Total risk-based and Tier 1 leverage ratios, respectively.
2
President and Chief Executive Officer Jim Eccher said “Old Second reported strong results in the first quarter as we earned $23.6 million in net income, an ROAA of 1.62% and an ROATCE of 25.54%. Capital levels continue to build quickly with 59 basis points of expansion in the tangible common equity ratio to 6.83% and 10% linked quarter growth in tangible book value per share. Adjusting for merger related items, our earnings per share increased by 44% over first quarter 2022. This robust earnings growth demonstrates the strength of our core deposit franchise highlighted by 186 basis points year over year, and 11 basis points over the linked quarter, of expansion in our net interest margin. Loans increased $133.7 million in the first quarter, or 3.5% through March 31, 2023, and we remain confident in our ability to generate and profitably fund loan growth in the remainder of 2023. The efficiency ratio in the first quarter was approximately 47.5% on a GAAP basis and reflects not only success in achieving cost saves but also reaching milestone profitability on significant investments in lending teams and sales people over the last fifteen months.
“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. I believe Old Second has among the very best and most granular deposit bases in the industry. We bank grandkids and grandparents and everyone in between. Over 98% of the customers that walk through our doors are fully guaranteed by FDIC insurance and we have but a few accounts that feature more than $5 million in deposit balances. Deposit balances that are uninsured, or not collateralized, are less than 20% at Old Second, compared to an industry average of approximately 50%. The average Old Second personal checking account was opened 14 years ago and has a balance of approximately $2,200. Our funding base is mature, stable and features a preponderance of lower balance accounts - accounts that people use to live their daily lives. Regardless, we will never forget that our customers place their trust in us and that all balances, large and small, are payable upon demand. We maintain a conservative and short asset duration that means our balance sheet is transitioning smoothly into a world of higher interest rates and that we can quickly summon the liquidity needed to meet any potential emergency, large or small. 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 modestly higher than cycle to date performance as we respond to competitors and take the necessary steps to protect our greatest strength.
“Continuing strong results should allow us to continue to compound book value and build capital back to our targeted levels by the end of this year. As we progress through the year, we will look to continue to reduce high cost debt on the balance sheet, evaluate share repurchase opportunities and optimize the earning asset mix in order to fund loan growth in a more competitive deposit market. We remain mindful and diligent in monitoring credit trends within the loan portfolio but remain confident in overall trends. The first quarter featured an approximate $32 million increase in nonaccrual loan balances, two thirds of which can be attributed to our most recent acquisition. These loans can be characterized as office and healthcare related and have been on our radar for quite some time. We have been stress testing maturing loan balances at higher rate levels for well over a year now and are encouraged by the results and trends we see in the portfolio.”
Asset Quality & Earning Assets
| ● | Nonperforming loans, comprised of nonaccrual loans, past due 90 days or more and still accruing, and, prior to January 1, 2023, performing troubled debt restructurings, totaled $64.5 million at March 31, 2023, $32.9 million at December 31, 2022, and $38.0 million at March 31, 2022. Nonperforming loans, as a percent of total loans were 1.6% at March 31, 2023, 0.9% at December 31, 2022, and 1.1% at March 31, 2022. The increase in the first quarter of 2023 is driven by a small number of relationships within the commercial real estate - investor and commercial real estate-owner occupied portfolios. |
| ● | Total loans were $4.00 billion at March 31, 2023, reflecting an increase of $133.7 million compared to December 31, 2022, and an increase of $601.0 million compared to March 31, 2022. The increase in the year over year quarter was largely driven by the growth in commercial, commercial real estate-investor, and multifamily portfolios. Average loans (including loans held-for-sale) for the first quarter of 2023 totaled $3.93 billion, reflecting an increase of $54.3 million from the fourth quarter of 2022 and an increase of $528.0 million from the first quarter of 2022. |
| ● | Available-for-sale securities totaled $1.46 billion at March 31, 2023, compared to $1.54 billion at December 31, 2022, and $1.82 billion at March 31, 2022. The unrealized mark to market loss on securities totaled $105.6 million as of March 31, 2023, compared to $123.5 million as of December 31, 2022, and $49.4 million as of March 31, 2022, due to market interest rate increases over the past year as well as changes year over year in the composition of the securities portfolio. Year to date unrealized losses were less than year end 2022 due to sales of securities and lower yields at the 3-year part of the curve, where our portfolio duration is. The lower rates increased the market values of our securities. During the quarter ended March 31, 2023 securities sales of $66.2 million resulted in net realized losses of $1.7 million, and sales of $27.7 million during the quarter ended December 31, 2022 resulted in net realized losses of $910,000; there were no sales for the |
3
| quarter ended March 31, 2022. We may continue to sell strategically identified securities as opportunities arise. |
Net Interest Income
| | | | | | | | | | | | | | | | | | | | | | | | |
Analysis of Average Balances, | ||||||||||||||||||||||||
Tax Equivalent Income / Expense and Rates | ||||||||||||||||||||||||
(Dollars in thousands - unaudited) | ||||||||||||||||||||||||
| ||||||||||||||||||||||||
| | Quarters Ended | ||||||||||||||||||||||
| | March 31, 2023 | | December 31, 2022 | | March 31, 2022 | ||||||||||||||||||
| | Average | | Income / | | Rate | | Average | | Income / | | Rate | | Average | | Income / | | Rate | ||||||
| | Balance | | Expense | | % | | Balance | | Expense | | % | | Balance | | Expense | | % | ||||||
Assets | | | | | | | | | | | | | | | | | | | | | | | | |
Interest earning deposits with financial institutions | | $ | 49,310 | | $ | 585 | | 4.81 | | $ | 50,377 | | $ | 461 | | 3.63 | | $ | 635,302 | | $ | 269 | | 0.17 |
Securities: | | | | | | | | | | | | | | | | | | | | | | | | |
Taxable | | | 1,330,295 | | | 10,735 | | 3.27 | | | 1,404,437 | | | 10,495 | | 2.96 | | | 1,612,635 | | | 5,169 | | 1.30 |
Non-taxable (TE)1 | | | 173,324 | | | 1,693 | | 3.96 | | | 171,567 | | | 1,697 | | 3.92 | | | 195,240 | | | 1,667 | | 3.47 |
Total securities (TE)1 | | | 1,503,619 | | | 12,428 | | 3.35 | | | 1,576,004 | | | 12,192 | | 3.07 | | | 1,807,875 | | | 6,836 | | 1.53 |
FHLBC and FRBC Stock | | | 24,905 | | | 280 | | 4.56 | | | 19,534 | | | 259 | | 5.26 | | | 16,066 | | | 153 | | 3.86 |
Loans and loans held-for-sale1, 2 | | | 3,932,492 | | | 57,228 | | 5.90 | | | 3,878,228 | | | 55,195 | | 5.65 | | | 3,404,534 | | | 36,428 | | 4.34 |
Total interest earning assets | | | 5,510,326 | | | 70,521 | | 5.19 | | | 5,524,143 | | | 68,107 | | 4.89 | | | 5,863,777 | | | 43,686 | | 3.02 |
Cash and due from banks | | | 55,140 | | | - | | - | | | 56,531 | | | - | | - | | | 42,972 | | | - | | - |
Allowance for credit losses on loans | | | (49,398) | | | - | | - | | | (48,778) | | | - | | - | | | (44,341) | | | - | | - |
Other noninterest bearing assets | | | 382,579 | | | - | | - | | | 395,726 | | | - | | - | | | 370,987 | | | - | | - |
Total assets | | $ | 5,898,647 | | | | | | | $ | 5,927,622 | | | | | | | $ | 6,233,395 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities and Stockholders' Equity | | | | | | | | | | | | | | | | | | | | | | | | |
NOW accounts | | $ | 601,030 | | $ | 242 | | 0.16 | | $ | 623,408 | | $ | 225 | | 0.14 | | $ | 599,481 | | $ | 89 | | 0.06 |
Money market accounts | | | 833,823 | | | 828 | | 0.40 | | | 901,950 | | | 477 | | 0.21 | | | 1,098,941 | | | 170 | | 0.06 |
Savings accounts | | | 1,126,040 | | | 79 | | 0.03 | | | 1,155,409 | | | 74 | | 0.03 | | | 1,201,075 | | | 138 | | 0.05 |
Time deposits | | | 434,655 | | | 664 | | 0.62 | | | 450,111 | | | 571 | | 0.50 | | | 495,452 | | | 277 | | 0.23 |
Interest bearing deposits | | | 2,995,548 | | | 1,813 | | 0.25 | | | 3,130,878 | | | 1,347 | | 0.17 | | | 3,394,949 | | | 674 | | 0.08 |
Securities sold under repurchase agreements | | | 31,080 | | | 9 | | 0.12 | | | 33,275 | | | 10 | | 0.12 | | | 39,204 | | | 11 | | 0.11 |
Other short-term borrowings | | | 200,833 | | | 2,345 | | 4.74 | | | 44,293 | | | 436 | | 3.91 | | | - | | | - | | - |
Junior subordinated debentures | | | 25,773 | | | 279 | | 4.39 | | | 25,773 | | | 287 | | 4.42 | | | 25,773 | | | 280 | | 4.41 |
Subordinated debentures | | | 59,308 | | | 546 | | 3.73 | | | 59,286 | | | 546 | | 3.65 | | | 59,222 | | | 546 | | 3.74 |
Senior notes | | | 44,599 | | | 994 | | 9.04 | | | 44,572 | | | 891 | | 7.93 | | | 44,494 | | | 485 | | 4.42 |
Notes payable and other borrowings | | | 5,400 | | | 87 | | 6.53 | | | 9,978 | | | 137 | | 5.45 | | | 19,009 | | | 103 | | 2.20 |
Total interest bearing liabilities | | | 3,362,541 | | | 6,073 | | 0.73 | | | 3,348,055 | | | 3,654 | | 0.43 | | | 3,582,651 | | | 2,099 | | 0.24 |
Noninterest bearing deposits | | | 2,002,801 | | | - | | - | | | 2,083,503 | | | - | | - | | | 2,093,293 | | | - | | - |
Other liabilities | | | 51,279 | | | - | | - | | | 51,753 | | | - | | - | | | 60,819 | | | - | | - |
Stockholders' equity | | | 482,026 | | | - | | - | | | 444,311 | | | - | | - | | | 496,632 | | | - | | - |
Total liabilities and stockholders' equity | | $ | 5,898,647 | | | | | | | $ | 5,927,622 | | | | | | | $ | 6,233,395 | | | | | |
Net interest income (GAAP) | | | | | $ | 64,086 | | | | | | | $ | 64,091 | | | | | | | $ | 41,232 | | |
Net interest margin (GAAP) | | | | | | | | 4.72 | | | | | | | | 4.60 | | | | | | | | 2.85 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net interest income (TE)1 | | | | | $ | 64,448 | | | | | | | $ | 64,453 | | | | | | | $ | 41,587 | | |
Net interest margin (TE)1 | | | | | | | | 4.74 | | | | | | | | 4.63 | | | | | | | | 2.88 |
Interest bearing liabilities to earning assets | | | 61.02 | % | | | | | | | 60.61 | % | | | | | | | 61.10 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
1 Tax equivalent (TE) basis is calculated using a marginal tax rate of 21% in 2023 and 2022. See the discussion entitled “Non-GAAP Presentations” below and the tables beginning on page 16 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 16, and includes loan fee expense of $730,000 for the first quarter of 2023, and loan fee income of $917,000 and $1.6 million for the fourth quarter of 2022 and the first quarter of 2022, respectively. Nonaccrual loans are included in the above stated average balances.
The increased yield of 30 basis points on interest earning assets compared to the linked period was driven by new higher yield originations than those in previous periods as well as repricing within the existing variable rate portfolio. Further gains were earned by replacing older, lower yielding securities with higher rate securities through a mix of maturities, and strategic purchases and sales. Changes in the market 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.
4
The year over year increase of 217 basis points on interest earning assets was driven by significant increases to benchmark rates as well as strong loan growth throughout the period specifically within the commercial and commercial real estate portfolios. The increases in benchmark interest rates impacted yields on the securities portfolio through the inverse relationship between interest rates and market value coupled with maturities and strategic sales of lower yielding assets and timely purchases of higher yielding securities, as we work to increase the weighted average yield in the portfolio.
Average balances of interest bearing deposit accounts have decreased steadily since the first quarter of 2022 through the first quarter of 2023 from $3.40 billion to $3.00 billion, with these decreases reflected in all categories aside from NOW accounts which increased nominally. We have continued to control the cost of funds over the periods reflected, with the rate of overall interest bearing deposits increasing by eight basis points to 25 basis points from 17 basis points as of December 31, 2022, and from eight basis points as of March 31, 2022. A 19 basis point increase in the cost of money market funds as of March 31, 2023 compared to December 31, 2022, and 34 basis points compared to March 31, 2022 were both due to select exception pricing and drove a significant portion of the overall increase. Time deposits saw the next largest increase of 12 basis points and 39 basis points in the quarter to date and year over year periods ending March 31, 2023, primarily due to CD rate specials we offered.
Borrowing costs increased in the first quarter of 2023 primarily due to the increase in average short term borrowings stemming from FHLB advance growth of $157.0 million since year end 2022, and average growth of $201.0 million year over year based on daily liquidity needs. Subordinated and junior subordinated debt interest expense were essentially flat over each of the periods presented. Senior notes interest expense had the most significant interest expense increase, as this issuance references three month LIBOR, and rising market interest rates resulted in a 111 basis point increase to 9.04%, from 7.93% as of December 31, 2022, and a 462 basis point increase from 4.42% as of March 31, 2022. In February 2023, we paid off the remaining balance of $9.0 million on the original $20.0 term note issued in 2020, reducing notes payable and other borrowings.
Our net interest margin (GAAP) increased 12 basis points to 4.72% for the first quarter of 2023, compared to 4.60% for the fourth quarter of 2022, and increased 187 basis points compared to 2.85% for the first quarter of 2022. Our net interest margin (TE) increased 11 basis points to 4.74% for the first quarter of 2023, compared to 4.63% for the fourth quarter of 2022 and increased 186 basis points compared to 2.88% for the first quarter of 2022. The increase in the current quarter, compared to both prior quarters, is primarily due to an increase in market interest rates, and the related rate resets on loans and securities during the past year, as well as continuing loan growth relative to more modest increase in costs of interest bearing liabilities. See the discussion entitled “Non-GAAP Presentations” and the tables beginning on page 16 that provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.
Noninterest Income
| | | | | | | | | | | | | | |
| | | | | | | | | | | First Quarter 2023 | | ||
Noninterest Income | | Three Months Ended | | Percent Change From | | |||||||||
(Dollars in thousands) | | March 31, | | December 31, | | March 31, | | December 31, | | March 31, | | |||
|
| 2023 |
| 2022 |
| 2022 |
| 2022 |
| 2022 |
| |||
Wealth management | | $ | 2,270 | | $ | 2,403 | | $ | 2,698 | | (5.5) | | (15.9) | |
Service charges on deposits | | | 2,424 | | | 2,499 | | | 2,074 | | (3.0) | | 16.9 | |
Residential mortgage banking revenue | | | | | | | | | | | | | | |
Secondary mortgage fees | | | 59 | | | 62 | | | 139 | | (4.8) | | (57.6) | |
MSRs mark to market (loss) gain | | | (525) | | | (431) | | | 2,978 | | 21.8 | | (117.6) | |
Mortgage servicing income | | | 516 | | | 518 | | | 519 | | (0.4) | | (0.6) | |
Net gain on sales of mortgage loans | | | 306 | | | 340 | | | 1,495 | | (10.0) | | (79.5) | |
Total residential mortgage banking revenue | | | 356 | | | 489 | | | 5,131 | | (27.2) | | (93.1) | |
Securities losses, net | | | (1,675) | | | (910) | | | - | | 84.1 | | N/M | |
Change in cash surrender value of BOLI | | | 242 | | | 376 | | | 124 | | (35.6) | | 95.2 | |
Card related income | | | 2,244 | | | 2,795 | | | 2,574 | | (19.7) | | (12.8) | |
Other income | | | 1,489 | | | 1,294 | | | 862 | | 15.1 | | 72.7 | |
Total noninterest income | | $ | 7,350 | | $ | 8,946 | | $ | 13,463 | | (17.8) | | (45.4) | |
N/M - Not meaningful.
Noninterest income decreased $1.6 million, or 17.8%, in the first quarter of 2023, compared to the fourth quarter of 2022, and decreased $6.1 million, or 45.4%, compared to the first quarter of 2022. The decrease from the fourth quarter of 2022 was primarily driven by a $765,000 increase in securities losses, net, based on strategic sales and a $551,000 decline in card related income primarily due to decreased activity. These decreases in noninterest income in
5
the first quarter of 2023, compared to the fourth quarter of 2022, were partially offset by a $195,000 increase in other income driven by credits received from a few vendors related to prior year service discounts.
The decrease in noninterest income of $6.1 million in the first quarter of 2023, compared to the first quarter of 2022, is primarily due to a decrease of $4.8 million in residential mortgage banking revenue due to increases in market interest rates in the year over year period reducing mortgage banking origination volume and related derivative revenue, as well as an increase in security losses of $1.7 million on strategic sales for the quarter ended March 31, 2023. These decreases were partially offset by a $350,000 increase in service charges on deposits, and a $627,000 increase in other income driven by a few vendor credits related to prior year billings and volumes of activity.
Noninterest Expense
| | | | | | | | | | | | | | |
| | | | | | | | | | | First Quarter 2023 | | ||
Noninterest Expense | | Three Months Ended | | Percent Change From | | |||||||||
(Dollars in thousands) | | March 31, | | December 31, | | March 31, | | December 31, | | March 31, | | |||
|
| 2023 |
| 2022 |
| 2022 |
| 2022 |
| 2022 |
| |||
Salaries | | $ | 16,087 | | $ | 17,487 | | $ | 15,598 | | (8.0) | | 3.1 | |
Officers incentive | | | 1,827 | | | 3,876 | | | 994 | | (52.9) | | 83.8 | |
Benefits and other | | | 4,334 | | | 2,900 | | | 3,375 | | 49.4 | | 28.4 | |
Total salaries and employee benefits | | | 22,248 | | | 24,263 | | | 19,967 | | (8.3) | | 11.4 | |
Occupancy, furniture and equipment expense | | | 3,475 | | | 4,128 | | | 3,699 | | (15.8) | | (6.1) | |
Computer and data processing | | | 1,774 | | | 2,978 | | | 6,268 | | (40.4) | | (71.7) | |
FDIC insurance | | | 584 | | | 630 | | | 410 | | (7.3) | | 42.4 | |
Net teller & bill paying | | | 502 | | | 485 | | | 1,907 | | 3.5 | | (73.7) | |
General bank insurance | | | 305 | | | 298 | | | 315 | | 2.3 | | (3.2) | |
Amortization of core deposit intangible asset | | | 624 | | | 645 | | | 665 | | (3.3) | | (6.2) | |
Advertising expense | | | 142 | | | 130 | | | 182 | | 9.2 | | (22.0) | |
Card related expense | | | 1,216 | | | 1,304 | | | 534 | | (6.7) | | 127.7 | |
Legal fees | | | 319 | | | 225 | | | 257 | | 41.8 | | 24.1 | |
Consulting & management fees | | | 790 | | | 679 | | | 616 | | 16.3 | | 28.2 | |
Other real estate owned expense, net | | | 306 | | | 34 | | | (12) | | N/M | | N/M | |
Other expense | | | 3,637 | | | 3,885 | | | 3,444 | | (6.4) | | 5.6 | |
Total noninterest expense | | $ | 35,922 | | $ | 39,684 | | $ | 38,252 | | (9.5) | | (6.1) | |
Efficiency ratio (GAAP)1 | | | 47.52 | % | | 52.44 | % | | 72.70 | % | | | | |
Adjusted efficiency ratio (non-GAAP)2 | | | 47.66 | % | | 51.29 | % | | 61.92 | % | | | | |
N/M - Not meaningful.
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 includes a tax equivalent adjustment on the change in cash surrender value of BOLI. See the discussion entitled “Non-GAAP Presentations” below and the table on page 17 that provides a reconciliation of this non-GAAP financial measure to the most comparable GAAP equivalent.
Noninterest expense for the first quarter of 2023 decreased $3.8 million, or 9.5%, compared to the fourth quarter of 2022, and decreased $2.3 million, or 6.1%, compared to the first quarter of 2022. The decrease in the first quarter of 2023 compared to the fourth quarter of 2022 was attributable to a $2.0 million decrease in salaries and employee benefits, primarily due to reductions in the officer incentive accrual, partially offset by an increase in employee benefits and other stemming from payroll taxes and 401k matching expense related to annual bonus payments made in the first quarter of 2023. In addition, a $1.2 million decrease in computer and data processing costs was recorded in the first quarter of 2023, compared to the linked quarter, primarily due to timing of software contracts and incentives. Noninterest expense was further increased by a $269,000 OREO valuation reserve recorded on two properties in the first quarter of 2023.
The year over year decrease in noninterest expense is primarily attributable to a $4.5 million decrease in computer and data processing expenses and a $1.4 million decrease in net teller & bill paying expense, both stemming from acquisition related costs in the first quarter of 2022 from our West Suburban acquisition. Partially offsetting the decrease in noninterest expense in the first quarter of 2023, compared to the first quarter of 2022, was a $2.3 million
6
increase in salaries and employee benefits and a $682,000 increase in card related expenses. Officer incentive compensation increased $833,000 in the first quarter of 2023, compared to the first quarter of 2022, as incentive accruals increased in the current year due to growth in our commercial and sponsored finance lending teams year over year.
Earning Assets
| | | | | | | | | | | | | | |
| | | | | | | | | | | March 31, 2023 | | ||
Loans | | As of | | Percent Change From | | |||||||||
(dollars in thousands) | | March 31, | | December 31, | | March 31, | | December 31, | | March 31, | | |||
|
| 2023 |
| 2022 |
| 2022 |
| 2022 |
| 2022 |
| |||
Commercial | | $ | 851,737 | | $ | 840,964 | | $ | 695,545 | | 1.3 | | 22.5 | |
Leases | | | 285,831 | | | 277,385 | | | 211,132 | | 3.0 | | 35.4 | |
Commercial real estate – investor | | | 1,056,787 | | | 987,635 | | | 748,267 | | 7.0 | | 41.2 | |
Commercial real estate – owner occupied | | | 870,115 | | | 854,879 | | | 873,292 | | 1.8 | | (0.4) | |
Construction | | | 174,683 | | | 180,535 | | | 165,558 | | (3.2) | | 5.5 | |
Residential real estate – investor | | | 56,720 | | | 57,353 | | | 62,846 | | (1.1) | | (9.7) | |
Residential real estate – owner occupied | | | 217,855 | | | 219,718 | | | 203,118 | | (0.8) | | 7.3 | |
Multifamily | | | 358,991 | | | 323,691 | | | 298,686 | | 10.9 | | 20.2 | |
HELOC | | | 104,941 | | | 109,202 | | | 120,241 | | (3.9) | | (12.7) | |
Other1 | | | 25,694 | | | 18,247 | | | 23,685 | | 40.8 | | 8.5 | |
Total loans | | $ | 4,003,354 | | $ | 3,869,609 | | $ | 3,402,370 | | 3.5 | | 17.7 | |
1 Other class includes consumer loans and overdrafts.
Total loans increased by $133.7 million at March 31, 2023, compared to December 31, 2022, and increased $601.0 million for the year over year period. Loan growth of $601.0 million in the year over year period was driven by originations of loans with new lending groups, such as the sponsor finance team, recorded within commercial loans, as well as growth in leasing, commercial real estate – investor and multifamily loans.
| | | | | | | | | | | | | |
| | | | | | | | | | | March 31, 2023 | ||
Securities | | As of | | Percent Change From | |||||||||
(dollars in thousands) | | March 31, | | December 31, | | March 31, | | December 31, | | March 31, | |||
|
| 2023 |
| 2022 |
| 2022 |
| 2022 |
| 2022 | |||
Securities available-for-sale, at fair value | | | | | | | | | | | | | |
U.S. Treasury | | $ | 214,734 | | $ | 212,129 | | $ | 220,563 | | 1.2 | | (2.6) |
U.S. government agencies | | | 56,703 | | | 56,048 | | | 59,036 | | 1.2 | | (4.0) |
U.S. government agency mortgage-backed | | | 121,938 | | | 124,990 | | | 153,148 | | (2.4) | | (20.4) |
States and political subdivisions | | | 233,506 | | | 226,128 | | | 236,408 | | 3.3 | | (1.2) |
Corporate bonds | | | 9,762 | | | 9,622 | | | 9,683 | | 1.5 | | 0.8 |
Collateralized mortgage obligations | | | 454,106 | | | 533,768 | | | 696,513 | | (14.9) | | (34.8) |
Asset-backed securities | | | 189,753 | | | 201,928 | | | 274,941 | | (6.0) | | (31.0) |
Collateralized loan obligations | | | 174,566 | | | 174,746 | | | 166,158 | | (0.1) | | 5.1 |
Total securities available-for-sale | | $ | 1,455,068 | | $ | 1,539,359 | | $ | 1,816,450 | | (5.5) | | (19.9) |
| | | | | | | | | | | | | |
Our securities portfolio totaled $1.46 billion as of March 31, 2023, a decrease of $84.3 million from $1.54 billion as of December 31, 2022, and a decrease of $361.4 million since March 31, 2022. The portfolio decrease of $84.3 million in the first quarter of 2023, compared to the prior year-end, was due to security sales of $66.2 million, which resulted in a net realized loss of $1.7 million, as well as paydowns of $37.4 million, partially offset by purchases of $4.2 million. Net unrealized losses at March 31, 2023 are $105.6 million, compared to $123.5 million and $49.4 million at December 31, 2022 and March 31, 2022 respectively. The decrease in net unrealized losses is due to changes in the market interest rate environment as well as repositioning of the portfolio through strategic sales of older lower yielding securities and purchases of higher yielding securities. The portfolio currently consists of high quality fixed-rate and floating-rate securities, with all except one security rated AA or better, displaying an effective duration of approximately 3.2 years.
7
| | | | | | | | | | | | | |
| | | | | | | | | | | March 31, 2023 | ||
Nonperforming assets | | As of | | Percent Change From | |||||||||
(dollars in thousands) | | March 31, | | December 31, | | March 31, | | December 31, | | March 31, | |||
|
| 2023 |
| 2022 |
| 2022 |
| 2022 | | 2022 | |||
Nonaccrual loans | | $ | 63,561 | | $ | 31,602 | | $ | 35,973 | | 101.1 | | 76.7 |
Performing troubled debt restructured loans accruing interest 1 | |
| N/A | |
| 49 | |
| 1,242 | | N/A | | N/A |
Loans past due 90 days or more and still accruing interest | |
| 966 | |
| 1,262 | |
| 743 | | (23.5) | | 30.0 |
Total nonperforming loans | |
| 64,527 | |
| 32,913 | |
| 37,958 | | 96.1 | | 70.0 |
Other real estate owned | |
| 1,255 | |
| 1,561 | |
| 2,374 | | (19.6) | | (47.1) |
Total nonperforming assets | | $ | 65,782 | | $ | 34,474 | | $ | 40,332 | | 90.8 | | 63.1 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
30-89 days past due loans and still accruing interest | | $ | 24,770 | | $ | 7,508 | | $ | 20,835 | | | | |
Nonaccrual loans to total loans | | | 1.6 | % | | 0.8 | % | | 1.1 | % | | | |
Nonperforming loans to total loans | | | 1.6 | % | | 0.9 | % | | 1.1 | % | | | |
Nonperforming assets to total loans plus OREO | | | 1.6 | % | | 0.9 | % | | 1.2 | % | | | |
Purchased credit-deteriorated loans to total loans | | | 1.8 | % | | 2.0 | % | | 2.7 | % | | | |
| | | | | | | | | | | | | |
Allowance for credit losses | | $ | 53,392 | | $ | 49,480 | | $ | 44,308 | | | | |
Allowance for credit losses to total loans | | | 1.3 | % | | 1.3 | % | | 1.3 | % | | | |
Allowance for credit losses to nonaccrual loans | | | 84.0 | % | | 156.6 | % | | 123.2 | % | | | |
N/A - Not applicable.
1 As of January 1, 2023, the Company prospectively adopted ASU 2022-02, Topic 326 “Troubled Debt Restructurings (“TDRs”) and Vintage Disclosures”, which eliminated the need for recognition, measurement and disclosure of TDRs going forward.
Nonperforming loans consist of nonaccrual loans and loans 90 days or more past due and still accruing interest. Prior to January 1, 2023, nonperforming loans also included performing troubled debt restructured loans accruing interest. Purchased credit-deteriorated (“PCD”) loans acquired in our acquisitions of West Suburban and ABC Bank totaled $71.0 million, net of purchase accounting adjustments, at March 31, 2023. PCD loans that meet the definition of nonperforming loans are included in our nonperforming disclosures. Nonperforming loans to total loans was 1.6% for the first quarter of 2023, 0.9% for the fourth quarter 2022, and 1.1% for the first quarter of 2022. Nonperforming assets to total loans plus OREO was 1.6% for the first quarter of 2023, 0.9% for the fourth quarter of 2022, and 1.2% for the first quarter of 2022. Our allowance for credit losses to total loans was 1.3% for the first quarter of 2023, the fourth quarter of 2022, and the first quarter of 2022.
The following table shows classified loans by segment, which include nonaccrual loans, PCD loans if the risk rating so indicates, and all other loans considered substandard, for the following periods.
| | | | | | | | | | | | | | |
| | | | | | | | | | | March 31, 2023 | | ||
Classified loans | | As of | | Percent Change From | | |||||||||
(dollars in thousands) | | March 31, | | December 31, | | March 31, | | December 31, | | March 31, | | |||
|
| 2023 |
| 2022 |
| 2022 |
| 2022 |
| 2022 | | |||
Commercial | | $ | 22,662 | | $ | 26,485 | | $ | 29,267 | | (14.4) | | (22.6) | |
Leases | | | 906 | | | 1,876 | | | 2,641 | | (51.7) | | (65.7) | |
Commercial real estate – investor | | | 52,615 | | | 27,410 | | | 8,809 | | 92.0 | | 497.3 | |
Commercial real estate – owner occupied | | | 37,545 | | | 40,890 | | | 13,259 | | (8.2) | | 183.2 | |
Construction | | | 241 | | | 1,333 | | | 3,185 | | (81.9) | | (92.4) | |
Residential real estate – investor | | | 1,702 | | | 1,714 | | | 1,544 | | (0.7) | | 10.2 | |
Residential real estate – owner occupied | | | 3,618 | | | 3,854 | | | 4,862 | | (6.1) | | (25.6) | |
Multifamily | | | 3,348 | | | 2,954 | | | 1,369 | | 13.3 | | 144.6 | |
HELOC | | | 2,635 | | | 2,411 | | | 1,669 | | 9.3 | | 57.9 | |
Other1 | | | 2 | | | 2 | | | 3 | | - | | (33.3) | |
Total classified loans | | $ | 125,274 | | $ | 108,929 | | $ | 66,608 | | 15.0 | | 88.1 | |
1 Other class includes consumer loans and overdrafts.
The $16.3 million increase in classified loans since December 31, 2022, was driven by the addition of $25.2 million classified loans in commercial real estate – investor, primarily due to three large credits, two of which are office buildings and one is an assisted living facility. Remediation work continues on these three credits, with the goal of cash
8
flows improvements with increased tenancy. Reductions in commercial and commercial real estate – owner occupied loans were noted in the first quarter of 2023 from the linked quarter due to ongoing remediation efforts.
Allowance for Credit Losses on Loans and Unfunded Commitments
At March 31, 2023, our allowance for credit losses (“ACL”) on loans totaled $53.4 million, and our ACL on unfunded commitments, included in other liabilities, totaled $3.8 million. In the first quarter of 2023, we recorded provision expense of $3.5 million based on historical loss rate updates, loan growth, our assessment of nonperforming loan metrics and trends, and estimated future credit losses. The first quarter’s provision expense consisted of a $4.7 million provision for credit losses on loans, and a $1.2 million reversal of provision for credit losses on unfunded commitments. The decrease in unfunded commitment was primarily due to a slight reduction in construction unfunded levels combined with changes in the construction loss rate which resulted in a decline of $689,000; and a reduction of $413,000 in the commercial substandard portfolio due to two upgraded credits. We recorded net charge-offs of $740,000 in the first quarter of 2023, which reduced the ACL. 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. In the first quarter of 2022, we recorded no net provision expense based on our assessment of nonperforming loan metrics and trends and estimated future credit losses. We recorded net charge-offs of $293,000 in the first quarter of 2022, which reduced the ACL. Our ACL on loans to total loans was 1.3% as of March 31, 2023, December 31, 2022, and March 31, 2022.
The $1.3 million decrease in our ACL on unfunded commitments at March 31, 2023, compared to December 31, 2022 is driven by a $1.2 million reversal of provision expense in the quarter discussed above, as well as purchase accounting accretion on unfunded commitments recorded during the quarter. The ACL on unfunded commitments totaled $3.8 million as of March 31, 2023, $5.1 million as of December 31, 2022, and $5.7 million as of March 31, 2022.
Net Charge-off Summary
| | | | | | | | | | | | | | |
Loan Charge–offs, net of recoveries | Quarters Ended | |||||||||||||
(dollars in thousands) | March 31, | | % of | | December 31, | | % of | | March 31, | | % of | |||
| 2023 | | Total 2 | | 2022 | | Total 2 | | 2022 | | Total 2 | |||
Commercial | $ | (124) | | (16.8) | | $ | (8) | | (0.9) | | $ | - | | - |
Leases | | 873 | | 118.0 | | | 191 | | 20.3 | | | - | | - |
Commercial real estate – Investor | | (17) | | (2.3) | | | 776 | | 82.6 | | | 213 | | 72.7 |
Commercial real estate – Owner occupied | | (2) | | (0.3) | | | (2) | | (0.2) | | | 113 | | 38.6 |
Residential real estate – Investor | | (19) | | (2.6) | | | (7) | | (0.7) | | | (10) | | (3.4) |
Residential real estate – Owner occupied | | (10) | | (1.4) | | | - | | - | | | (83) | | (28.3) |
Multifamily | | - | | - | | | (6) | | (0.6) | | | - | | - |
HELOC | | (29) | | (3.9) | | | (38) | | (4.0) | | | (35) | | (11.9) |
Other 1 | | 68 | | 9.3 | | | 34 | | 3.5 | | | 95 | | 32.3 |
Net charge–offs / (recoveries) | $ | 740 | | 100.0 | | $ | 940 | | 100.0 | | $ | 293 | | 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 first quarter of 2023 were $1.0 million, compared to $1.1 million for the fourth quarter of 2022 and $514,000 for the first quarter of 2022. Gross recoveries were $282,000 for the first quarter of 2023, compared to $136,000 for the fourth quarter of 2022, and $221,000 for the first quarter of 2022. Continued recoveries are indicative of the ongoing aggressive efforts by management to effectively manage and resolve prior charge-offs.
Deposits
Total deposits were $4.90 billion at March 31, 2023, a decrease of $213.5 million, or 4.2%, compared to $5.11 billion at December 31, 2022, primarily due to a decline in our noninterest bearing demand deposits of $101.6 million, followed by a decrease of $100.9 million of savings, NOW and money markets combined. The bulk of the linked quarter decline in deposit balances occurred in January 2023 and is consistent with seasonal historical trends. Deposit trends in February and March were essentially unchanged and net account growth improved significantly in the first quarter relative to trends throughout 2022 following the close of the West Suburban acquisition. Total average deposits decreased $489.9 million, or 8.9%, in the year over year period, driven by declines in our average demand deposits of $90.5 million, and savings, NOW and money markets combined of $338.6 million. In general, the bulk of the decline in
9
deposits year over year can be characterized as rate sensitive with significant flows and transfers into investing activities following significant expansion in those same accounts in the immediate aftermath of the pandemic.
Borrowings
As of March 31, 2023, we had $315.0 million in other short-term borrowings due to a short-term FHLB advance, compared to $90.0 million at December 31, 2022 and no short-term borrowings outstanding as of March 31, 2022.
During the first quarter of 2023 we paid off a $9.0 million term note payable upon maturity as of February 24, 2023. The note payable carried an interest rate of 6.32% at maturity. Please see Notes 9 and 10 of our Annual Report on Form 10-K for the year ended December 31, 2022, for further discussion of our borrowings.
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 6.
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 16 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,” “continue,” “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, deposit trends, asset-quality trends, 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; (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 deposit and funding costs, 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) elevated inflation which causes adverse risk to
10
the overall economy, and could indirectly pose challenges to our clients and to our business; (8) any increases in FDIC assessment which will increase our cost of doing business; and (9) 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, April 20, 2023, at 11:00 a.m. Eastern Time (10:00 a.m. Central Time) to discuss our first quarter 2023 financial results. Investors may listen to our call via telephone by dialing 888-506-0062, using Entry Code 510290. 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 April 27, 2023, by dialing 877-481-4010, using Conference ID: 47930.
11
Old Second Bancorp, Inc. and Subsidiaries
(In thousands)
| | | | | | |
| | (unaudited) | | | | |
| | March 31, | | December 31, | ||
|
| 2023 |
| 2022 | ||
Assets | | | | | | |
Cash and due from banks | | $ | 50,860 | | $ | 56,632 |
Interest earning deposits with financial institutions | | | 52,162 | | | 58,545 |
Cash and cash equivalents | | | 103,022 | | | 115,177 |
Securities available-for-sale, at fair value | | | 1,455,068 | | | 1,539,359 |
Federal Home Loan Bank Chicago ("FHLBC") and Federal Reserve Bank Chicago ("FRBC") stock | | | 30,205 | | | 20,530 |
Loans held-for-sale | | | 946 | | | 491 |
Loans | | | 4,003,354 | | | 3,869,609 |
Less: allowance for credit losses on loans | | | 53,392 | | | 49,480 |
Net loans | | | 3,949,962 | | | 3,820,129 |
Premises and equipment, net | | | 72,547 | | | 72,355 |
Other real estate owned | | | 1,255 | | | 1,561 |
Mortgage servicing rights, at fair value | | | 10,784 | | | 11,189 |
Goodwill | | | 86,478 | | | 86,478 |
Core deposit intangible | | | 13,054 | | | 13,678 |
Bank-owned life insurance ("BOLI") | | | 106,850 | | | 106,608 |
Deferred tax assets, net | | | 37,845 | | | 44,750 |
Other assets | | | 52,267 | | | 56,012 |
Total assets | | $ | 5,920,283 | | $ | 5,888,317 |
| | | | | | |
Liabilities | | | | | | |
Deposits: | | | | | | |
Noninterest bearing demand | | $ | 1,950,144 | | $ | 2,051,702 |
Interest bearing: | | | | | | |
Savings, NOW, and money market | | | 2,516,170 | | | 2,617,100 |
Time | | | 430,906 | | | 441,921 |
Total deposits | | | 4,897,220 | | | 5,110,723 |
Securities sold under repurchase agreements | | | 27,897 | | | 32,156 |
Other short-term borrowings | | | 315,000 | | | 90,000 |
Junior subordinated debentures | | | 25,773 | | | 25,773 |
Subordinated debentures | | | 59,318 | | | 59,297 |
Senior notes | | | 44,611 | | | 44,585 |
Notes payable and other borrowings | | | - | | | 9,000 |
Other liabilities | | | 53,594 | | | 55,642 |
Total liabilities | | | 5,423,413 | | | 5,427,176 |
| | | | | | |
Stockholders’ Equity | | | | | | |
Common stock | | | 44,705 | | | 44,705 |
Additional paid-in capital | | | 200,121 | | | 202,276 |
Retained earnings | | | 331,890 | | | 310,512 |
Accumulated other comprehensive loss | | | (79,100) | | | (93,124) |
Treasury stock | | | (746) | | | (3,228) |
Total stockholders’ equity | | | 496,870 | | | 461,141 |
Total liabilities and stockholders’ equity | | $ | 5,920,283 | | $ | 5,888,317 |
| | | | | | |
12
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(In thousands, except share data)
| | | | | | | |
| | (unaudited) | | ||||
| | Three Months Ended March 31, | | ||||
|
| 2023 |
| 2022 |
| ||
Interest and dividend income | | | | | | | |
Loans, including fees | | $ | 57,210 | | $ | 36,366 | |
Loans held-for-sale | | | 12 | | | 57 | |
Securities: | | | | | | | |
Taxable | | | 10,735 | | | 5,169 | |
Tax exempt | | | 1,337 | | | 1,317 | |
Dividends from FHLBC and FRBC stock | | | 280 | | | 153 | |
Interest bearing deposits with financial institutions | | | 585 | | | 269 | |
Total interest and dividend income | | | 70,159 | | | 43,331 | |
Interest expense | | | | | | | |
Savings, NOW, and money market deposits | | | 1,149 | | | 397 | |
Time deposits | | | 664 | | | 277 | |
Securities sold under repurchase agreements | | | 9 | | | 11 | |
Other short-term borrowings | | | 2,345 | | | - | |
Junior subordinated debentures | | | 279 | | | 280 | |
Subordinated debentures | | | 546 | | | 546 | |
Senior notes | | | 994 | | | 485 | |
Notes payable and other borrowings | | | 87 | | | 103 | |
Total interest expense | | | 6,073 | | | 2,099 | |
Net interest and dividend income | | | 64,086 | | | 41,232 | |
Provision for credit losses | | | 3,501 | | | - | |
Net interest and dividend income after provision for credit losses | | | 60,585 | | | 41,232 | |
Noninterest income | | | | | | | |
Wealth management | | | 2,270 | | | 2,698 | |
Service charges on deposits | | | 2,424 | | | 2,074 | |
Secondary mortgage fees | | | 59 | | | 139 | |
Mortgage servicing rights mark to market (loss) gain | | | (525) | | | 2,978 | |
Mortgage servicing income | | | 516 | | | 519 | |
Net gain on sales of mortgage loans | | | 306 | | | 1,495 | |
Securities losses, net | | | (1,675) | | | - | |
Change in cash surrender value of BOLI | | | 242 | | | 124 | |
Death benefit realized on BOLI | | | - | | | - | |
Card related income | | | 2,244 | | | 2,574 | |
Other income | | | 1,489 | | | 862 | |
Total noninterest income | | | 7,350 | | | 13,463 | |
Noninterest expense | | | | | | | |
Salaries and employee benefits | | | 22,248 | | | 19,967 | |
Occupancy, furniture and equipment | | | 3,475 | | | 3,699 | |
Computer and data processing | | | 1,774 | | | 6,268 | |
FDIC insurance | | | 584 | | | 410 | |
Net teller & bill paying | | | 502 | | | 1,907 | |
General bank insurance | | | 305 | | | 315 | |
Amortization of core deposit intangible | | | 624 | | | 665 | |
Advertising expense | | | 142 | | | 182 | |
Card related expense | | | 1,216 | | | 534 | |
Legal fees | | | 319 | | | 257 | |
Consulting & management fees | | | 790 | | | 616 | |
Other real estate expense, net | | | 306 | | | (12) | |
Other expense | | | 3,637 | | | 3,444 | |
Total noninterest expense | | | 35,922 | | | 38,252 | |
Income before income taxes | | | 32,013 | | | 16,443 | |
Provision for income taxes | | | 8,406 | | | 4,423 | |
Net income | | $ | 23,607 | | $ | 12,020 | |
| | | | | | | |
Basic earnings per share | | $ | 0.53 | | $ | 0.27 | |
Diluted earnings per share | | | 0.52 | | | 0.27 | |
Dividends declared per share | | | 0.05 | | | 0.05 | |
| | | | | |
Ending common shares outstanding | | 44,665,127 | | 44,461,045 | |
Weighted-average basic shares outstanding | | 44,619,118 | | 44,461,045 | |
Weighted-average diluted shares outstanding | | 45,316,598 | | 45,161,715 | |
13
Old Second Bancorp, Inc. and Subsidiaries
Quarterly Consolidated Average Balance
(In thousands, unaudited)
| | | | | | | | | | | | | | | |
| | | 2022 | | 2023 | ||||||||||
Assets |
| 1st Qtr |
| 2nd Qtr |
| 3rd Qtr |
| 4th Qtr |
| 1st Qtr | |||||
Cash and due from banks | | $ | 42,972 | | $ | 53,371 | | $ | 56,265 | | $ | 56,531 | | $ | 55,140 |
Interest earning deposits with financial institutions | | | 635,302 | | | 426,820 | | | 131,260 | | | 50,377 | | | 49,310 |
Cash and cash equivalents | | | 678,274 | | | 480,191 | | | 187,525 | | | 106,908 | | | 104,450 |
| | | | | | | | | | | | | | | |
Securities available-for-sale, at fair value | | | 1,807,875 | | | 1,792,099 | | | 1,703,348 | | | 1,576,004 | | | 1,503,619 |
FHLBC and FRBC stock | | | 16,066 | | | 20,994 | | | 19,565 | | | 19,534 | | | 24,905 |
Loans held-for-sale | | | 6,707 | | | 3,104 | | | 2,020 | | | 1,224 | | | 813 |
Loans | | | 3,397,827 | | | 3,505,806 | | | 3,751,097 | | | 3,877,004 | | | 3,931,679 |
Less: allowance for credit losses on loans | | | 44,341 | | | 44,354 | | | 45,449 | | | 48,778 | | | 49,398 |
Net loans | | | 3,353,486 | | | 3,461,452 | | | 3,705,648 | | | 3,828,226 | | | 3,882,281 |
| | | | | | | | | | | | | | | |
Premises and equipment, net | | | 86,502 | | | 73,876 | | | 71,947 | | | 72,220 | | | 72,649 |
Other real estate owned | | | 2,399 | | | 1,850 | | | 1,578 | | | 1,561 | | | 1,508 |
Mortgage servicing rights, at fair value | | | 8,218 | | | 10,525 | | | 10,639 | | | 11,322 | | | 11,127 |
Goodwill | | | 86,332 | | | 86,332 | | | 86,333 | | | 86,477 | | | 86,477 |
Core deposit intangible | | | 15,977 | | | 15,286 | | | 14,561 | | | 13,950 | | | 13,327 |
Bank-owned life insurance ("BOLI") | | | 105,396 | | | 105,463 | | | 105,448 | | | 105,754 | | | 106,655 |
Deferred tax assets, net | | | 10,689 | | | 27,154 | | | 31,738 | | | 50,533 | | | 42,237 |
Other assets | | | 55,474 | | | 53,769 | | | 55,606 | | | 53,909 | | | 48,599 |
Total other assets | | | 370,987 | | | 374,255 | | | 377,850 | | | 395,726 | | | 382,579 |
Total assets | | $ | 6,233,395 | | $ | 6,132,095 | | $ | 5,995,956 | | $ | 5,927,622 | | $ | 5,898,647 |
| | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | |
Deposits: | | | | | | | | | | | | | | | |
Noninterest bearing demand | | $ | 2,099,283 | | $ | 2,120,428 | | $ | 2,092,301 | | $ | 2,083,503 | | $ | 2,002,801 |
Interest bearing: | | | | | | | | | | | | | | | |
Savings, NOW, and money market | | | 2,893,508 | | | 2,871,861 | | | 2,765,281 | | | 2,680,767 | | | 2,560,893 |
Time | | | 495,452 | | | 469,009 | | | 459,925 | | | 450,111 | | | 434,655 |
Total deposits | | | 5,488,243 | | | 5,461,298 | | | 5,317,507 | | | 5,214,381 | | | 4,998,349 |
| | | | | | | | | | | | | | | |
Securities sold under repurchase agreements | | | 39,204 | | | 34,496 | | | 33,733 | | | 33,275 | | | 31,080 |
Other short-term borrowings | | | - | | | - | | | 5,435 | | | 44,293 | | | 200,833 |
Junior subordinated debentures | | | 25,773 | | | 25,773 | | | 25,773 | | | 25,773 | | | 25,773 |
Subordinated debentures | | | 59,222 | | | 59,244 | | | 59,265 | | | 59,286 | | | 59,308 |
Senior notes | | | 44,494 | | | 44,520 | | | 44,546 | | | 44,572 | | | 44,599 |
Notes payable and other borrowings | | | 19,009 | | | 13,103 | | | 10,989 | | | 9,978 | | | 5,400 |
Other liabilities | | | 60,818 | | | 32,636 | | | 34,949 | | | 51,753 | | | 51,279 |
Total liabilities | | | 5,736,763 | | | 5,671,070 | | | 5,532,197 | | | 5,483,311 | | | 5,416,621 |
| | | | | | | | | | | | | | | |
Stockholders' equity | | | | | | | | | | | | | | | |
Common stock | | | 44,705 | | | 44,705 | | | 44,705 | | | 44,705 | | | 44,705 |
Additional paid-in capital | | | 202,828 | | | 202,544 | | | 201,570 | | | 201,973 | | | 201,397 |
Retained earnings | | | 258,073 | | | 267,912 | | | 284,302 | | | 301,753 | | | 324,785 |
Accumulated other comprehensive loss | | | (3,074) | | | (49,151) | | | (63,216) | | | (100,817) | | | (86,736) |
Treasury stock | | | (5,900) | | | (4,985) | | | (3,602) | | | (3,303) | | | (2,125) |
Total stockholders' equity | | | 496,632 | | | 461,025 | | | 463,759 | | | 444,311 | | | 482,026 |
Total liabilities and stockholders' equity | | $ | 6,233,395 | | $ | 6,132,095 | | $ | 5,995,956 | | $ | 5,927,622 | | $ | 5,898,647 |
| | | | | | | | | | | | | | | |
Total Earning Assets | | $ | 5,863,777 | | $ | 5,748,823 | | $ | 5,607,290 | | $ | 5,524,143 | | $ | 5,510,326 |
Total Interest Bearing Liabilities | | | 3,576,662 | | | 3,518,006 | | | 3,404,947 | | | 3,348,055 | | | 3,362,541 |
14
Old Second Bancorp, Inc. and Subsidiaries
Quarterly Consolidated Statements of Income
(In thousands, except per share data, unaudited)
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | 2022 | | 2023 | ||||||||||||
|
| 1st Qtr |
| 2nd Qtr |
| 3rd Qtr |
| 4th Qtr |
| 1st Qtr | | |||||
Interest and Dividend Income | | | | | | | | | | | | | | | | |
Loans, including fees | | $ | 36,366 | | $ | 38,229 | | $ | 46,614 | | $ | 55,170 | | $ | 57,210 | |
Loans held-for-sale | | | 57 | | | 32 | | | 22 | | | 19 | | | 12 | |
Securities: | | | | | | | | | | | | | | | | |
Taxable | | | 5,169 | | | 6,786 | | | 9,116 | | | 10,495 | | | 10,735 | |
Tax exempt | | | 1,317 | | | 1,297 | | | 1,332 | | | 1,341 | | | 1,337 | |
Dividends from FHLB and FRBC stock | | | 153 | | | 263 | | | 261 | | | 259 | | | 280 | |
Interest bearing deposits with financial institutions | | | 269 | | | 782 | | | 663 | | | 461 | | | 585 | |
Total interest and dividend income | | | 43,331 | | | 47,389 | | | 58,008 | | | 67,745 | | | 70,159 | |
Interest Expense | | | | | | | | | | | | | | | | |
Savings, NOW, and money market deposits | | | 397 | | | 347 | | | 380 | | | 776 | | | 1,149 | |
Time deposits | | | 277 | | | 265 | | | 335 | | | 571 | | | 664 | |
Securities sold under repurchase agreements | | | 11 | | | 9 | | | 10 | | | 10 | | | 9 | |
Other short-term borrowings | | | - | | | | | | 44 | | | 436 | | | 2,345 | |
Junior subordinated debentures | | | 280 | | | 284 | | | 285 | | | 287 | | | 279 | |
Subordinated debentures | | | 546 | | | 547 | | | 546 | | | 546 | | | 546 | |
Senior notes | | | 485 | | | 578 | | | 728 | | | 891 | | | 994 | |
Notes payable and other borrowings | | | 103 | | | 95 | | | 111 | | | 137 | | | 87 | |
Total interest expense | | | 2,099 | | | 2,125 | | | 2,439 | | | 3,654 | | | 6,073 | |
Net interest and dividend income | | | 41,232 | | | 45,264 | | | 55,569 | | | 64,091 | | | 64,086 | |
Provision for credit losses | | | - | | | 550 | | | 4,500 | | | 1,500 | | | 3,501 | |
Net interest and dividend income after provision for credit losses | | | 41,232 | | | 44,714 | | | 51,069 | | | 62,591 | | | 60,585 | |
Noninterest Income | | | | | | | | | | | | | | | | |
Wealth management | | | 2,698 | | | 2,506 | | | 2,280 | | | 2,403 | | | 2,270 | |
Service charges on deposits | | | 2,074 | | | 2,328 | | | 2,661 | | | 2,499 | | | 2,424 | |
Secondary mortgage fees | | | 139 | | | 50 | | | 81 | | | 62 | | | 59 | |
Mortgage servicing rights mark to market gain (loss) | | | 2,978 | | | 82 | | | 548 | | | (431) | | | (525) | |
Mortgage servicing income | | | 519 | | | 579 | | | 514 | | | 518 | | | 516 | |
Net gain (loss) on sales of mortgage loans | | | 1,495 | | | (262) | | | 449 | | | 340 | | | 306 | |
Securities losses, net | | | - | | | (33) | | | (1) | | | (910) | | | (1,675) | |
Change in cash surrender value of BOLI | | | 124 | | | 72 | | | 146 | | | 376 | | | 242 | |
Card related income | | | 2,574 | | | 2,967 | | | 2,653 | | | 2,795 | | | 2,244 | |
Other income | | | 862 | | | 922 | | | 2,165 | | | 1,294 | | | 1,489 | |
Total noninterest income | | | 13,463 | | | 9,211 | | | 11,496 | | | 8,946 | | | 7,350 | |
Noninterest Expense | | | | | | | | | | | | | | | | |
Salaries and employee benefits | | | 19,967 | | | 21,332 | | | 21,011 | | | 24,263 | | | 22,248 | |
Occupancy, furniture and equipment | | | 3,699 | | | 3,046 | | | 4,119 | | | 4,128 | | | 3,475 | |
Computer and data processing | | | 6,268 | | | 4,006 | | | 2,543 | | | 2,978 | | | 1,774 | |
FDIC insurance | | | 410 | | | 702 | | | 659 | | | 630 | | | 584 | |
Net teller & bill paying | | | 1,907 | | | 834 | | | 504 | | | 485 | | | 502 | |
General bank insurance | | | 315 | | | 351 | | | 257 | | | 298 | | | 305 | |
Amortization of core deposit intangible | | | 665 | | | 659 | | | 657 | | | 645 | | | 624 | |
Advertising expense | | | 182 | | | 194 | | | 83 | | | 130 | | | 142 | |
Card related expense | | | 534 | | | 1,057 | | | 1,453 | | | 1,304 | | | 1,216 | |
Legal fees | | | 257 | | | 179 | | | 212 | | | 225 | | | 319 | |
Consulting & management fees | | | 616 | | | 523 | | | 607 | | | 679 | | | 790 | |
Other real estate (gain) expense , net | | | (12) | | | 87 | | | 21 | | | 34 | | | 306 | |
Other expense | | | 3,444 | | | 4,279 | | | 3,862 | | | 3,885 | | | 3,637 | |
Total noninterest expense | | | 38,252 | | | 37,249 | | | 35,988 | | | 39,684 | | | 35,922 | |
Income before income taxes | | | 16,443 | | | 16,676 | | | 26,577 | | | 31,853 | | | 32,013 | |
Provision for income taxes | | | 4,423 | | | 4,429 | | | 7,054 | | | 8,238 | | | 8,406 | |
Net income | | $ | 12,020 | | $ | 12,247 | | $ | 19,523 | | $ | 23,615 | | $ | 23,607 | |
| | | | | | | | | | | | | | | | |
Basic earnings per share (GAAP) | | $ | 0.27 | | $ | 0.28 | | $ | 0.43 | | $ | 0.53 | | $ | 0.53 | |
Diluted earnings per share (GAAP) | | | 0.27 | | | 0.27 | | | 0.43 | | | 0.52 | | | 0.52 | |
Dividends paid per share | | | 0.05 | | | 0.05 | | | 0.05 | | | 0.05 | | | 0.05 | |
15
Reconciliation of Non-GAAP Financial Measures
The tables below provide a reconciliation of each non-GAAP financial measure to the most comparable GAAP measure for the periods indicated. Dollar amounts below in thousands:
| | | | | | | | | | |
| | Quarters Ended | | |||||||
| | March 31, | | December 31, | | March 31, | | |||
|
| 2023 |
| 2022 | | 2022 | | |||
Net Income | | | | | | | | | | |
Income before income taxes (GAAP) | | $ | 32,013 | | $ | 31,853 | | $ | 16,443 | |
Pre-tax income adjustments: | | | | | | | | | | |
Merger-related costs, net of gains/losses on branch sales | | | (306) | | | 617 | | | 5,335 | |
Adjusted net income before taxes | | | 31,707 | | | 32,470 | | | 21,778 | |
Taxes on adjusted net income | | | 8,326 | | | 8,398 | | | 5,858 | |
Adjusted net income (non-GAAP) | | $ | 23,381 | | $ | 24,072 | | $ | 15,920 | |
| | | | | | | | | | |
Basic earnings per share (GAAP) | | $ | 0.53 | | $ | 0.53 | | $ | 0.27 | |
Diluted earnings per share (GAAP) | | | 0.52 | | | 0.52 | | | 0.27 | |
Adjusted basic earnings per share excluding acquisition-related costs (non-GAAP) | | | 0.52 | | | 0.54 | | | 0.36 | |
Adjusted diluted earnings per share excluding acquisition-related costs (non-GAAP) | | | 0.52 | | | 0.53 | | | 0.36 | |
| | | | | | | | | | |
| | Quarters Ended | | |||||||
| | March 31, | | December 31, | | March 31, | | |||
|
| 2023 |
| 2022 | | 2022 | | |||
Net Interest Margin | | | | | | | | | | |
Interest income (GAAP) | | $ | 70,159 | | $ | 67,745 | | $ | 43,331 | |
Taxable-equivalent adjustment: | | | | | | | | | | |
Loans | | | 6 | | | 6 | | | 5 | |
Securities | | | 356 | | | 356 | | | 350 | |
Interest income (TE) | | | 70,521 | | | 68,107 | | | 43,686 | |
Interest expense (GAAP) | | | 6,073 | | | 3,654 | | | 2,099 | |
Net interest income (TE) | | $ | 64,448 | | $ | 64,453 | | $ | 41,587 | |
Net interest income (GAAP) | | $ | 64,086 | | $ | 64,091 | | $ | 41,232 | |
Average interest earning assets | | $ | 5,510,326 | | $ | 5,524,143 | | $ | 5,863,777 | |
Net interest margin (GAAP) | | | 4.72 | % | | 4.60 | % | | 2.85 | % |
Net interest margin (TE) | | | 4.74 | % | | 4.63 | % | | 2.88 | % |
16
| | | | | | | | | | | | | | | | | | | |
| | GAAP | | Non-GAAP | | ||||||||||||||
| | | Three Months Ended | | | Three Months Ended | | ||||||||||||
| | March 31, | | December 31, | | March 31, | | March 31, | | December 31, | | March 31, | | ||||||
| | 2023 | | 2022 | | 2022 | | 2023 | | 2022 | | 2022 | | ||||||
Efficiency Ratio / Adjusted Efficiency Ratio | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Noninterest expense | | $ | 35,922 | | $ | 39,684 | | $ | 38,252 | | $ | 35,922 | | $ | 39,684 | | $ | 38,252 | |
Less amortization of core deposit | | | 624 | | | 645 | | | 665 | | | 624 | | | 645 | | | 665 | |
Less other real estate expense, net | | | 306 | | | 34 | | | (12) | | | 306 | | | 34 | | | (12) | |
Less acquisition related costs, net of gain on branch sales | | | N/A | | | N/A | | | N/A | | | (306) | | | 617 | | | 5,335 | |
Noninterest expense less adjustments | | $ | 34,992 | | $ | 39,005 | | $ | 37,599 | | $ | 35,298 | | $ | 38,388 | | $ | 32,264 | |
| | | | | | | | | | | | | | | | | | | |
Net interest income | | $ | 64,086 | | $ | 64,091 | | $ | 41,232 | | $ | 64,086 | | $ | 64,091 | | $ | 41,232 | |
Taxable-equivalent adjustment: | | | | | | | | | | | | | | | | | | | |
Loans | | | N/A | | | N/A | | | N/A | | | 6 | | | 6 | | | 5 | |
Securities | | | N/A | | | N/A | | | N/A | | | 356 | | | 356 | | | 350 | |
Net interest income including adjustments | | | 64,086 | | | 64,091 | | | 41,232 | | | 64,448 | | | 64,453 | | | 41,587 | |
Noninterest income | | | 7,350 | | | 8,946 | | | 13,463 | | | 7,350 | | | 8,946 | | | 13,463 | |
Less securities losses | | | (1,675) | | | (910) | | | - | | | (1,675) | | | (910) | | | - | |
Less MSRs mark to market (loss) gain | | | (525) | | | (431) | | | 2,978 | | | (525) | | | (431) | | | 2,978 | |
Taxable-equivalent adjustment: | | | | | | | | | | | | | | | | | | | |
Change in cash surrender value of BOLI | | | N/A | | | N/A | | | N/A | | | 64 | | | 100 | | | 33 | |
Noninterest income (excluding) / including adjustments | | | 9,550 | | | 10,287 | | | 10,485 | | | 9,614 | | | 10,387 | | | 10,518 | |
| | | | | | | | | | | | | | | | | | | |
Net interest income including adjustments plus noninterest income (excluding) / including adjustments | | $ | 73,636 | | $ | 74,378 | | $ | 51,717 | | $ | 74,062 | | $ | 74,840 | | $ | 52,105 | |
Efficiency ratio / Adjusted efficiency ratio | | | 47.52 | % | | 52.44 | % | | 72.70 | % | | 47.66 | % | | 51.29 | % | | 61.92 | % |
| | | | | | | | | | |
| | Quarters Ended | | |||||||
| | March 31, | | December 31, | | March 31, | | |||
| | 2023 |
| 2022 | | 2022 | | |||
Adjusted Return on Average Tangible Common Equity Ratio | | | | | | | | | | |
| | | | | | | | | | |
Net income (GAAP) | | $ | 23,607 | | $ | 23,615 | | $ | 12,020 | |
| | | | | | | | | | |
Income before income taxes (GAAP) | | $ | 32,013 | | $ | 31,853 | | $ | 16,443 | |
Pre-tax income adjustments: | | | | | | | | | | |
Amortization of core deposit intangibles | | | 624 | | | 645 | | | 665 | |
Net income, excluding intangibles amortization, before taxes | | | 32,637 | | | 32,498 | | | 17,108 | |
Taxes on net income, excluding intangible amortization, before taxes | | | 8,570 | | | 8,404 | | | 4,602 | |
Net income, excluding intangibles amortization (non-GAAP) | | $ | 24,067 | | $ | 24,094 | | $ | 12,506 | |
| | | | | | | | | | |
| | | | | | | | | | |
Total Average Common Equity | | $ | 482,026 | | | 444,311 | | $ | 496,632 | |
Less Average goodwill and intangible assets | | | 99,804 | | | 100,427 | | | 102,309 | |
Average tangible common equity (non-GAAP) | | $ | 382,222 | | $ | 343,884 | | $ | 394,323 | |
| | | | | | | | | | |
| | | | | | | | | | |
Return on average common equity (GAAP) | | | 19.86 | % | | 21.09 | % | | 9.82 | % |
Return on average tangible common equity (non-GAAP) | | | 25.54 | % | | 27.80 | % | | 12.86 | % |
17