Old Second Bancorp, Inc | For Immediate Release |
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(Nasdaq: OSBC) | July 20, 2007 |
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Contact: | J. Douglas Cheatham |
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| Chief Financial Officer |
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| (630) 906-5484 |
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Old Second Bancorp, Inc. Announces Second Quarter Earnings
AURORA, Illinois — Old Second Bancorp, Inc. (Nasdaq: OSBC) today announced second quarter earnings of $0.45 per diluted share, on earnings of $5.7 million. Diluted earnings per share were up from the first quarter of 2007, in which the Company earned $0.43 per diluted share on net income of $5.7 million. Earnings were down from the second quarter of 2006, in which the Company earned $.46 per diluted share on net income of $6.4 million. Earnings for the first half of 2007 were $.88 per diluted share, on $11.5 million in net income, compared with $.91 per diluted share in the first half of 2006, on earnings of $12.5 million. Generally, for the year to date period, balance sheet growth, an increase in noninterest income and a reduction in provision for income taxes were offset by a lower net interest margin and increased personnel and facility costs. The Company made a $588,000 provision for loan losses in the first half of 2007 whereas there was an $844,000 provision made in the first half of 2006.
Net interest income decreased from $36.2 million in the first half of 2006 to $33.5 million in the first half of 2007. Net interest income decreased from $18.1 million in the second quarter of 2006 to $17.1 million in the second quarter of 2007. Average earning assets grew $85.7 million or 3.9% from June 30, 2006 to June 30, 2007. Despite that growth, the net interest margin (tax equivalent basis), expressed as a percentage of average earning assets, declined from 3.44% in the first half of 2006 to 3.09% in the first half of 2007. The average tax-equivalent yield on earning assets increased from 6.41% to 6.76%, or 35 basis points. At the same time, the cost of interest-bearing liabilities increased from 3.38% to 4.16%, or 78 basis points.
Changes in deposit funding composition continued to contribute to an increase in interest costs and a decline of the net interest margin in the first half of 2007. The average balances of demand deposits increased nominally while lower-cost sources of funds such as NOW accounts and savings accounts decreased on average by $16.2 million, or 4.5% in the first half of 2007 as compared to the first half of 2006. At the same time, deposit growth occurred primarily in higher-cost sources of funds, such as money market and time deposit accounts, which increased on average by $65.8 million, or 16.2%, and $27.5 million, or 2.9%, respectively.
Non-deposit funding costs also increased $617,000, or 10.8%, in the first half of 2007 as compared to the first half of 2006 primarily due to a general increase in interest rates and increases in the average junior subordinated debentures and note payable balances outstanding. The proceeds from the note payable were primarily used to repurchase common stock. The Company issued a $25,774,000 subordinated debenture on April 30, 2007 to form a new trust subsidiary. The trust issued $25,000,000 in trust preferred securities that were part of a private placement of such securities. The debenture, like the trust preferred securities, matures in 30 years and the securities are callable on a quarterly basis commencing June 15, 2017. The debenture also has an interest rate equivalent to the distribution rate on the trust preferred securities, which is fixed at 6.766% through June 15, 2017 and floats at 150 basis points over the British Bankers Association three-month LIBOR rate thereafter. The Company issued the subordinated debentures to the trust in return for the aggregate net proceeds of the trust preferred offering and to finance the tender offer that was completed in May 2007.
The Company recorded a $588,000 provision for loan losses in the first half of 2007 as compared to an $844,000 provision for loan losses in the first half of 2006. Nonperforming loans increased to $5.2 million at June 30, 2007 from $3.9 million at June 30, 2006. There was no sub-prime mortgage component in the
nonperforming loan category, as the Company does not originate any portfolio loans in this market sector. The ratio of the allowance for loan losses to nonperforming loans was 320.3% as of June 30, 2007, compared with 410.33% as of June 30, 2006. Net charge-offs were $88,000 in the second quarter of 2007 and $198,000 in the second quarter of 2006. Net charge-offs were $32,000 and $80,000 in the first half of 2007 and 2006, respectively.
Provisions for loan losses are made to provide for probable and estimable losses inherent in the loan portfolio. Management determines the amount to provide for in the allowance for loan losses based upon a number of factors including loan growth, the quality and composition of the loan portfolio and loan loss experience. When measured as a percentage of loans outstanding, the allowance for loan losses was substantially unchanged at .92% and .91% at June 30, 2006 and June 30, 2007, respectively.
Noninterest income was $8.1 million during the second quarter of 2007 and $7.4 million during the second quarter of 2006, an increase of $771,000, or 10.5%. Noninterest income was $16.1 million during the first half of 2007 and $14.4 million during the first half of 2006, an increase of $1.7 million, or 11.6%. Trust income increased $180,000, or 8.8%, to $2.2 million in the second quarter of 2007 primarily due to increased levels of assets under management. Trust income was $4.4 million in the first half of 2007, an increase of $622,000, or 16.4%, from the first half of 2006 due principally to increased volume in estate administration activity coupled with the increase in assets under management as reported above. Mortgage banking income, including net gain on sales of mortgage loans, secondary market fees, and servicing income, was $1.6 million, an increase of $373,000, or 30.8%, from the second quarter of 2006. For the first half of 2007, mortgage-banking income increased $519,000, or 21.3%. The largest increase in income from mortgage operations for both the quarter and year to date period was in net gains on sale, which resulted largely from revision to secondary market execution processes. All of the remaining noninterest income categories increased in the second quarter 2007 with the exception of realized gains on sale of securities. For the first half of 2007, as compared to the first half of 2006, all noninterest income categories increased with exception of the other income component. That category decreased due to a nonrecurring gain on sale of property of $157,000 that occurred in first quarter 2006.
There were no realized gains on sales of securities in the second quarter of 2007 although $482,000 was recorded in the first half of 2007, compared with $191,000 in the second quarter of 2006, and $418,000 in the first half of 2006. On a quarterly comparative basis, service charges on deposits increased $119,000, or 5.8% in 2007. This same category increased $213,000, or 5.3% in the first half of 2007 in accordance with the Company’s moderate deposit growth and incremental changes to pricing strategies. Interchange income from debit card usage also increased $268,000, or 37.5%, in the first half of 2007, as compared to the first half of 2006, as the Company increased the number of cards outstanding and customers continued to show a preference for this payment delivery channel.
Noninterest expense was $16.8 million during the second quarter of 2007, an increase of $1.2 million, or 7.6%, from $15.6 million in the second quarter of 2006. Noninterest expense was $33.4 million during the first half of 2007, an increase of $1.6 million, or 5.1%, from $31.8 million in the second half of 2006. Salaries and benefits expense was $9.8 million during the second quarter of 2007, an increase of $853,000, or 9.6%, from $8.9 million in the second quarter of 2006.
In the first half of the year, salaries and benefits were $19.7 million in 2007 and $18.5 million in 2006, an increase of $1.2 million or 6.7%. The Company generally experiences increases in this category due to annual increases in salary and other compensation coupled with rising health care costs, but an evaluation of 2007 events is also required to understand this component. The full time equivalent employee (“FTE”) figure rose from 569 at June 30, 2006 to 582 at December 31, 2006. The FTE count then declined to 546 at June 30, 2007. The employee tally was reduced at June 30, 2007 primarily because of the 8.5% reduction in available positions that was announced April 13, 2007. While some of this decline resulted from a decision not to fill open positions, the largest portion resulted from employee layoffs. All employees in the latter category received salary continuation payments based principally on length of service, many of these
2
payment commitments continued late into the second quarter. Additionally, eight of the agreements governing continuation payments extended beyond June 30, 2007 and recognition of the related salary expense was accelerated into the current period since there was no ongoing service requirement. Approximately $229,000 in second quarter salary expense was incurred as a result of the continuation payments associated with the April restructuring.
Net occupancy and furniture and equipment expenses increased $481,000, or 20.4%, from the second quarter of 2006 to the second quarter of 2007. Net occupancy and furniture and equipment expenses increased $827,000, or 17.5%, from the first half of 2006 to the first half of 2007. The increases for both periods are primarily attributable to the Company’s expansion and development into new markets with the five new 2006 retail locations and the resultant increase in the related facility expenses. One new location was also opened on the western edge of Elgin in May 2007. On April 17, 2007, the Company announced that three leased branch facilities would be closed mainly due to market overlap in locations. These facilities will continue to provide full service through July 31, 2007 and will maintain automated teller machine access thereafter to provide continued customer convenience. In the short term, and absent a conversion to a sublease strategy, the bulk of future savings from these closures will occur as the leases expire. The expiration dates range from December 31, 2007, to February 23, 2008 and April 1, 2009.
On July 1, 2007, the Company merged its two state bank charters—Old Second Bank — Kane County and Old Second Bank — Yorkville—into its national bank charter, The Old Second National Bank of Aurora, and renamed the combined entity “Old Second National Bank”. Internal reorganizations and processing consolidations from this change will occur throughout the third quarter of 2007 and will serve to position the Company favorably to achieve additional future efficiencies. Since the amortization of core deposit intangible assets was completed December 31, 2006, there will be favorable expense comparisons throughout 2007 for this line item. Decreases in advertising expense were also realized for both the second quarter and the first half of 2007 in comparison to the same period in 2006. Other expense increased less than one percent in the second quarter of 2007 as compared to second quarter of 2006, but this category decreased $126,000, or 1.7%, from $7.5 million in the first half of 2006 to $7.3 million in the first half of 2007 as the Company emphasized cost control and review procedures.
The provision for income tax as a percentage of pretax income, or effective tax rate, decreased from 32.3% as of the second quarter of 2006 to 26.3% as of the second quarter of 2007. The provision for income tax as a percentage of pretax income decreased from 30.8% as of the first half of 2006 to 26.6% as of the first half of 2007. Increased levels of tax-exempt income from securities and bank owned life insurance helped to reduce income tax expense when comparing both the second quarter and first half of 2007 to the same period in 2006. In addition to the increased volume of tax-exempt assets, the average tax-equivalent yield on tax-exempt securities held by the Company increased from 5.45% as of June 30, 2006 to 5.73% or 28 basis points as of June 30, 2007. The reduction in effective tax rate was primarily attributable, however, to the formation of a real estate investment trust (REIT) in the third quarter of 2006 for the purpose of holding certain commercial real estate loans, residential real estate loans and other loans, as well as mortgage-backed investment securities, that were previously held by our main bank subsidiary. In addition to income tax benefits, which lowered the effective tax rate, the REIT ownership structure also provides the Company with an alternate vehicle for raising future capital as desired. A recent change to Illinois tax law related to the deductibility of REIT dividends is expected to eliminate the recognition of tax benefits related to this ownership structure beginning January 1, 2009.
Total assets were $2.56 billion as of June 30, 2007, compared with $2.46 billion as of December 31, 2006. Loans and securities available for sale grew $68.3 million and $31.8 million, respectively, during the first half of 2007, while cash and noninterest bearing due from banks declined $16.3 million. The largest changes by loan type included increases in commercial real estate construction loans of $62.1 million and residential real estate loans of $2.8 million, respectively.
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Total deposits increased $34.1 million during the first half of 2007, to $2.1 billion as of June 30, 2007. During the same period, demand deposit and NOW accounts decreased $21.7 million, to $258.9 million, and $30.2 million, to $227.3 million, respectively. The largest growth category of deposits during the first half of 2007 was money market deposit accounts, which increased by $72.1 million, from $446.2 million to $518.4 million. Time deposits increased $10.4 million from $974.1 million to $984.6 million at June 30, 2007. The largest increase in nondeposit funding sources for the first half of 2007 was the other short-term borrowings category, primarily federal funds sold, which increased $50.1 million to $177.2 million as of June 30, 2007.
As observed in the first quarter, depositors generally continued to shift out of demand and NOW accounts into money market accounts and certificates of deposit. The money market account offers the customer the advantage of liquidity while earning a higher rate of interest than a demand or NOW account and certificates of deposit allow the customer to lock in a fixed rate of interest for a period of time. This deposit shift contributed to a higher cost of funds and had a negative impact on the net interest margin. The net interest margin (tax equivalent basis) declined from 3.44% in the first half of 2006 to 3.09% in the first half of 2007. In comparing the first half of 2007 to the first half of 2006, the average cost of interest bearing funds increased 78 basis points.
The Company culminated the April 17, 2007 tender offer with a purchase of 973,251 shares of common stock at the price of $30.00 per share, or $29.2 million on May 24, 2007. The additional cost associated with the acquired treasury stock was approximately $157,000 as of June 30, 2007. The Company financed the tender offer, in part, from the aggregate net proceeds of the private placement of $25,000,000 of aggregate face value trust preferred securities that was discussed previously. Trust preferred securities qualify as Tier 1 regulatory capital and the Company treats the maximum allowable under regulatory guidelines as Tier 1 capital and the remaining as Tier 2 regulatory capital.
Non-GAAP Presentations: Management uses certain non-GAAP ratios to evaluate and measure the Company’s performance. Management presents a net interest margin calculation. The net interest margin is calculated by dividing net interest income on a tax equivalent basis by average earning assets for the period. Management believes this measure provides investors with information regarding balance sheet profitability. Management also presents an efficiency ratio that is non-GAAP. The efficiency ratio is calculated by dividing adjusted non-interest expense by the sum of net interest income on a tax equivalent basis and adjusted non-interest income. Management believes this measure provides investors with information regarding the Company’s operating efficiency and how management evaluates performance internally. The tables provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.
Forward Looking Statements: This report may contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company. Forward-looking statements are identifiable by the inclusion of such qualifications as expects, intends, believes, may, likely or other indications that the particular statements are not based upon facts but are rather based upon the company’s beliefs as of the date of this release. Actual events and results may differ significantly from those described in such forward looking statements, due to changes in the economy, interest rates or other factors. Additionally, all statements in this report, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events. For additional information concerning the Company and its business, including other factors that could materially affect the Company’s financial results, please review our filings with the Securities and Exchange Commission, including the Company’s Form 10-K for 2006.
4
Financial Highlights (unaudited)
In thousands, except share data
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| Three Months Ended |
| Year to Date |
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| June 30, |
| June 30, |
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| 2007 |
| 2006 |
| 2007 |
| 2006 |
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Summary Income Statement: |
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Net interest income |
| $ | 17,050 |
| $ | 18,090 |
| $ | 33,529 |
| $ | 36,225 |
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Provision for loan losses |
| 588 |
| 400 |
| 588 |
| 844 |
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Noninterest income |
| 8,136 |
| 7,365 |
| 16,110 |
| 14,440 |
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Noninterest expense |
| 16,832 |
| 15,647 |
| 33,417 |
| 31,795 |
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Income taxes |
| 2,040 |
| 3,042 |
| 4,160 |
| 5,555 |
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Net income |
| 5,726 |
| 6,366 |
| 11,474 |
| 12,471 |
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Key Ratios (annualized): |
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Return on average assets |
| 0.92 | % | 1.07 | % | 0.94 | % | 1.06 | % | ||||
Return on average equity |
| 15.32 | % | 16.16 | % | 14.91 | % | 16.05 | % | ||||
Net interest margin (tax equivalent) |
| 3.08 | % | 3.40 | % | 3.09 | % | 3.44 | % | ||||
Efficiency ratio |
| 64.74 | % | 59.75 | % | 65.24 | % | 61.00 | % | ||||
Tangible capital to assets |
| 5.18 | % | 6.32 | % | 5.18 | % | 6.32 | % | ||||
Total capital to risk weighted assets |
| 10.56 | % | 10.95 | % | 10.56 | % | 10.95 | % | ||||
Tier 1 capital to risk weighted assets |
| 9.23 | % | 10.10 | % | 9.23 | % | 10.10 | % | ||||
Tier 1 capital to average assets |
| 7.35 | % | 8.01 | % | 7.35 | % | 8.01 | % | ||||
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Per Share Data: |
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Basic earnings per share |
| $ | 0.45 |
| $ | 0.47 |
| $ | 0.89 |
| $ | 0.92 |
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Diluted earnings per share |
| $ | 0.45 |
| $ | 0.46 |
| $ | 0.88 |
| $ | 0.91 |
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Dividends declared per share |
| $ | 0.15 |
| $ | 0.14 |
| $ | 0.29 |
| $ | 0.27 |
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Book value per share |
| $ | 11.06 |
| $ | 11.58 |
| $ | 11.06 |
| $ | 11.58 |
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Tangible book value per share |
| $ | 10.89 |
| $ | 11.41 |
| $ | 10.89 |
| $ | 11.41 |
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Ending number of shares outstanding |
| 12,145,838 |
| 13,412,575 |
| 12,145,838 |
| 13,412,575 |
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Average number of shares outstanding |
| 12,622,032 |
| 13,524,276 |
| 12,877,048 |
| 13,526,947 |
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Diluted average shares outstanding |
| 12,766,424 |
| 13,700,186 |
| 13,019,565 |
| 13,704,869 |
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End of Period Balances: |
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Loans |
| $ | 1,832,220 |
| $ | 1,746,536 |
| $ | 1,832,220 |
| $ | 1,746,536 |
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Deposits |
| 2,096,759 |
| 2,008,021 |
| 2,096,759 |
| 2,008,021 |
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Stockholders’ equity |
| 134,375 |
| 155,328 |
| 134,375 |
| 155,328 |
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Total earning assets |
| 2,378,150 |
| 2,230,223 |
| 2,378,150 |
| 2,230,223 |
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Total assets |
| 2,555,611 |
| 2,423,139 |
| 2,555,611 |
| 2,423,139 |
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Average Balances: |
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Loans |
| $ | 1,809,404 |
| $ | 1,751,928 |
| $ | 1,784,287 |
| $ | 1,730,566 |
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Deposits |
| 2,054,500 |
| 1,973,870 |
| 2,052,321 |
| 1,974,786 |
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Stockholders’ equity |
| 149,891 |
| 157,975 |
| 155,183 |
| 156,733 |
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Total earning assets |
| 2,325,819 |
| 2,222,331 |
| 2,291,932 |
| 2,206,211 |
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Total assets |
| 2,485,927 |
| 2,378,330 |
| 2,451,312 |
| 2,361,732 |
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5
Financial Highlights, continued (unaudited)
In thousands, except share data
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| Three Months Ended |
| Year to Date |
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| June 30, |
| June 30, |
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| 2007 |
| 2006 |
| 2007 |
| 2006 |
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Asset Quality |
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Charge-offs |
| $ | 139 |
| $ | 298 |
| $ | 225 |
| $ | 344 |
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Recoveries |
| 51 |
| 100 |
| 193 |
| 264 |
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Net charge-offs |
| $ | 88 |
| $ | 198 |
| $ | 32 |
| $ | 80 |
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Provision for loan losses |
| 588 |
| 400 |
| 588 |
| 844 |
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Allowance for loan losses to loans |
| 0.91 | % | 0.92 | % | 0.91 | % | 0.92 | % | ||||
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| June 30, |
| December 31, |
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| 2007 |
| 2006 |
| 2006 |
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Nonaccrual loans |
| $ | 4,778 |
| $ | 2,857 |
| $ | 1,632 |
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Restructured loans |
| — |
| — |
| — |
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Loans past due 90 days |
| 451 |
| 1,065 |
| 583 |
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Nonperforming loans |
| 5,229 |
| 3,922 |
| 2,215 |
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Other real estate |
| — |
| 333 |
| 48 |
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Nonperforming assets |
| $ | 5,229 |
| $ | 4,255 |
| $ | 2,263 |
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Major Classifications of Loans |
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Commercial and industrial |
| $ | 173,372 |
| $ | 168,970 |
| $ | 175,621 |
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Real estate - commercial |
| 606,909 |
| 621,736 |
| 605,098 |
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Real estate - construction |
| 436,801 |
| 356,045 |
| 374,654 |
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Real estate - residential |
| 589,730 |
| 573,504 |
| 586,959 |
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Installment |
| 27,224 |
| 28,401 |
| 23,326 |
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|
| 1,834,036 |
| 1,748,656 |
| 1,765,658 |
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Unearned origination fees |
| (1,816 | ) | (2,120 | ) | (1,746 | ) | |||
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| $ | 1,832,220 |
| $ | 1,746,536 |
| $ | 1,763,912 |
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Major Classifications of Deposits |
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Noninterest bearing |
| $ | 258,946 |
| $ | 255,937 |
| $ | 280,630 |
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Savings |
| 107,645 |
| 116,619 |
| 104,229 |
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NOW accounts |
| 227,267 |
| 286,306 |
| 257,505 |
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Money market accounts |
| 518,351 |
| 399,271 |
| 446,215 |
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Certificates of deposit of less than $100,000 |
| 606,938 |
| 580,998 |
| 591,941 |
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Certificates of deposit of $100,000 or more |
| 377,612 |
| 368,890 |
| 382,173 |
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| $ | 2,096,759 |
| $ | 2,008,021 |
| $ | 2,062,693 |
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6
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
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| (unaudited) |
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| June 30, |
| December 31, |
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|
| 2007 |
| 2006 |
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Assets |
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Cash and due from banks |
| $ | 64,453 |
| $ | 80,727 |
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Interest bearing deposits with financial institutions |
| 126 |
| 5,493 |
| ||
Federal funds sold |
| 18,561 |
| 2,305 |
| ||
Cash and cash equivalents |
| 83,140 |
| 88,525 |
| ||
Securities available for sale |
| 504,648 |
| 472,897 |
| ||
Federal Home Loan Bank and Federal Reserve Bank Stock |
| 8,946 |
| 8,783 |
| ||
Loans held for sale |
| 13,649 |
| 14,378 |
| ||
Loans |
| 1,832,220 |
| 1,763,912 |
| ||
Less: allowance for loan losses |
| 16,749 |
| 16,193 |
| ||
Net loans |
| 1,815,471 |
| 1,747,719 |
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Premises and equipment, net |
| 49,452 |
| 48,404 |
| ||
Other real estate owned |
| — |
| 48 |
| ||
Mortgage servicing rights, net |
| 2,842 |
| 2,882 |
| ||
Goodwill, net |
| 2,130 |
| 2,130 |
| ||
Bank owned life insurance (BOLI) |
| 46,968 |
| 45,861 |
| ||
Accrued interest and other assets |
| 28,365 |
| 27,513 |
| ||
Total assets |
| $ | 2,555,611 |
| $ | 2,459,140 |
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Liabilities |
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Deposits: |
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Noninterest bearing demand |
| $ | 258,946 |
| $ | 280,630 |
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Interest bearing: |
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Savings, NOW, and money market |
| 853,263 |
| 807,949 |
| ||
Time |
| 984,550 |
| 974,114 |
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Total deposits |
| 2,096,759 |
| 2,062,693 |
| ||
Securities sold under repurchase agreements |
| 56,123 |
| 38,218 |
| ||
Other short-term borrowings |
| 177,179 |
| 127,090 |
| ||
Junior subordinated debentures |
| 57,399 |
| 31,625 |
| ||
Note payable |
| 16,660 |
| 16,425 |
| ||
Accrued interest and other liabilities |
| 17,116 |
| 24,534 |
| ||
Total liabilities |
| 2,421,236 |
| 2,300,585 |
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Stockholders’ Equity |
|
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Common stock |
| 16,691 |
| 16,635 |
| ||
Additional paid-in capital |
| 15,692 |
| 14,814 |
| ||
Retained earnings |
| 201,001 |
| 193,170 |
| ||
Accumulated other comprehensive loss |
| (4,260 | ) | (2,545 | ) | ||
Treasury stock |
| (94,749 | ) | (63,519 | ) | ||
Total stockholders’ equity |
| 134,375 |
| 158,555 |
| ||
Total liabilities and stockholders’ equity |
| $ | 2,555,611 |
| $ | 2,459,140 |
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7
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(In thousands, except share data)
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| (unaudited) |
| (unaudited) |
| ||||||||
|
| Three Months Ended |
| Year to Date |
| ||||||||
|
| June 30, |
| June 30, |
| ||||||||
|
| 2007 |
| 2006 |
| 2007 |
| 2006 |
| ||||
Interest and Dividend Income |
|
|
|
|
|
|
|
|
| ||||
Loans, including fees |
| $ | 32,873 |
| $ | 30,700 |
| $ | 64,180 |
| $ | 59,677 |
|
Loans held for sale |
| 218 |
| 131 |
| 347 |
| 226 |
| ||||
Securities: |
|
|
|
|
|
|
|
|
| ||||
Taxable |
| 4,028 |
| 3,167 |
| 7,923 |
| 6,351 |
| ||||
Tax-exempt |
| 1,425 |
| 1,259 |
| 2,749 |
| 2,491 |
| ||||
Federal funds sold |
| 79 |
| — |
| 137 |
| 3 |
| ||||
Interest bearing deposits |
| 8 |
| 1 |
| 24 |
| 2 |
| ||||
Total interest and dividend income |
| 38,631 |
| 35,258 |
| 75,360 |
| 68,750 |
| ||||
Interest Expense |
|
|
|
|
|
|
|
|
| ||||
Savings, NOW, and money market deposits |
| 5,798 |
| 4,152 |
| 11,532 |
| 7,830 |
| ||||
Time deposits |
| 12,104 |
| 9,828 |
| 23,944 |
| 18,957 |
| ||||
Securities sold under repurchase agreements |
| 665 |
| 507 |
| 1,218 |
| 994 |
| ||||
Other short-term borrowings |
| 1,907 |
| 2,011 |
| 3,150 |
| 3,413 |
| ||||
Junior subordinated debentures |
| 907 |
| 616 |
| 1,524 |
| 1,233 |
| ||||
Note payable |
| 200 |
| 54 |
| 463 |
| 98 |
| ||||
Total interest expense |
| 21,581 |
| 17,168 |
| 41,831 |
| 32,525 |
| ||||
Net interest and dividend income |
| 17,050 |
| 18,090 |
| 33,529 |
| 36,225 |
| ||||
Provision for loan losses |
| 588 |
| 400 |
| 588 |
| 844 |
| ||||
Net interest and dividend income after provision for loan losses |
| 16,462 |
| 17,690 |
| 32,941 |
| 35,381 |
| ||||
Noninterest Income |
|
|
|
|
|
|
|
|
| ||||
Trust income |
| 2,233 |
| 2,053 |
| 4,409 |
| 3,787 |
| ||||
Service charges on deposits |
| 2,166 |
| 2,047 |
| 4,216 |
| 4,003 |
| ||||
Secondary mortgage fees |
| 197 |
| 159 |
| 319 |
| 312 |
| ||||
Mortgage servicing income |
| 168 |
| 117 |
| 316 |
| 215 |
| ||||
Net gain on sales of mortgage loans |
| 1,219 |
| 935 |
| 2,317 |
| 1,906 |
| ||||
Securities gains (losses), net |
| — |
| 191 |
| 482 |
| 418 |
| ||||
Increase in cash surrender value of bank owned life insurance |
| 570 |
| 516 |
| 1,053 |
| 1,014 |
| ||||
Debit card interchange income |
| 519 |
| 295 |
| 982 |
| 714 |
| ||||
Other income |
| 1,064 |
| 1,052 |
| 2,016 |
| 2,071 |
| ||||
Total noninterest income |
| 8,136 |
| 7,365 |
| 16,110 |
| 14,440 |
| ||||
Noninterest Expense |
|
|
|
|
|
|
|
|
| ||||
Salaries and employee benefits |
| 9,779 |
| 8,926 |
| 19,691 |
| 18,457 |
| ||||
Occupancy expense, net |
| 1,255 |
| 1,098 |
| 2,481 |
| 2,190 |
| ||||
Furniture and equipment expense |
| 1,582 |
| 1,258 |
| 3,076 |
| 2,540 |
| ||||
Amortization of core deposit intangible assets |
| — |
| 88 |
| — |
| 177 |
| ||||
Advertising expense |
| 415 |
| 512 |
| 840 |
| 976 |
| ||||
Other expense |
| 3,801 |
| 3,765 |
| 7,329 |
| 7,455 |
| ||||
Total noninterest expense |
| 16,832 |
| 15,647 |
| 33,417 |
| 31,795 |
| ||||
Income before income taxes |
| 7,766 |
| 9,408 |
| 15,634 |
| 18,026 |
| ||||
Provision for income taxes |
| 2,040 |
| 3,042 |
| 4,160 |
| 5,555 |
| ||||
Net income |
| $ | 5,726 |
| $ | 6,366 |
| $ | 11,474 |
| $ | 12,471 |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic earnings per share |
| $ | 0.45 |
| $ | 0.47 |
| $ | 0.89 |
| $ | 0.92 |
|
Diluted earnings per share |
| 0.45 |
| 0.46 |
| 0.88 |
| 0.91 |
| ||||
Dividends declared per share |
| 0.15 |
| 0.14 |
| 0.29 |
| 0.27 |
| ||||
8
ANALYSIS OF AVERAGE BALANCES,
TAX EQUIVALENT INTEREST AND RATES
Six Months ended June 30, 2007 and 2006
(Dollar amounts in thousands- unaudited)
|
| 2007 |
| 2006 |
|
| ||||||||||||
|
| Average |
|
|
|
|
| Average |
|
|
|
|
|
| ||||
|
| Balance |
| Interest |
| Rate |
| Balance |
| Interest |
| Rate |
|
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest bearing deposits |
| $ | 1,358 |
| $ | 24 |
| 3.52 | % | $ | 750 |
| $ | 2 |
| 0.53 | % |
|
Federal funds sold |
| 5,261 |
| 137 |
| 5.18 |
| 133 |
| 3 |
| 4.49 |
|
| ||||
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Taxable |
| 343,099 |
| 7,923 |
| 4.62 |
| 326,540 |
| 6,351 |
| 3.89 |
|
| ||||
Non-taxable (tax equivalent) |
| 147,646 |
| 4,229 |
| 5.73 |
| 140,605 |
| 3,832 |
| 5.45 |
|
| ||||
Total securities |
| 490,745 |
| 12,152 |
| 4.95 |
| 467,145 |
| 10,183 |
| 4.36 |
|
| ||||
Loans and loans held for sale |
| 1,794,568 |
| 64,633 |
| 7.26 |
| 1,738,183 |
| 60,016 |
| 6.96 |
|
| ||||
Total interest earning assets |
| 2,291,932 |
| 76,946 |
| 6.76 |
| 2,206,211 |
| 70,204 |
| 6.41 |
|
| ||||
Cash and due from banks |
| 49,423 |
| — |
| — |
| 50,906 |
| — |
| — |
|
| ||||
Allowance for loan losses |
| (16,262 | ) | — |
| — |
| (15,824 | ) | — |
| — |
|
| ||||
Other noninterest-bearing assets |
| 126,219 |
| — |
| — |
| 120,439 |
| — |
| — |
|
| ||||
Total assets |
| $ | 2,451,312 |
|
|
|
|
| $ | 2,361,732 |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
NOW accounts |
| $ | 242,059 |
| $ | 1,915 |
| 1.60 | % | $ | 244,296 |
| $ | 1,480 |
| 1.22 | % |
|
Money market accounts |
| 471,763 |
| 9,175 |
| 3.92 |
| 406,006 |
| 6,068 |
| 3.01 |
|
| ||||
Savings accounts |
| 106,465 |
| 442 |
| 0.84 |
| 120,466 |
| 282 |
| 0.47 |
|
| ||||
Time deposits |
| 978,187 |
| 23,944 |
| 4.94 |
| 950,646 |
| 18,957 |
| 4.02 |
|
| ||||
Interest bearing deposits |
| 1,798,474 |
| 35,476 |
| 3.98 |
| 1,721,414 |
| 26,787 |
| 3.14 |
|
| ||||
Securities sold under repurchase agreements |
| 54,220 |
| 1,218 |
| 4.53 |
| 49,291 |
| 994 |
| 4.07 |
|
| ||||
Federal funds purchased and other borrowed funds |
| 117,670 |
| 3,150 |
| 5.32 |
| 131,148 |
| 3,413 |
| 5.18 |
|
| ||||
Junior subordinated debentures |
| 40,454 |
| 1,524 |
| 7.53 |
| 31,625 |
| 1,233 |
| 7.80 |
|
| ||||
Note payable |
| 14,729 |
| 463 |
| 6.25 |
| 3,442 |
| 98 |
| 5.66 |
|
| ||||
Total interest bearing liabilities |
| 2,025,547 |
| 41,831 |
| 4.16 |
| 1,936,920 |
| 32,525 |
| 3.38 |
|
| ||||
Noninterest bearing deposits |
| 253,847 |
| — |
| — |
| 253,372 |
| — |
| — |
|
| ||||
Accrued interest and other liabilities |
| 16,735 |
| — |
| — |
| 14,707 |
| — |
| — |
|
| ||||
Stockholders’ equity |
| 155,183 |
| — |
| — |
| 156,733 |
| — |
| — |
|
| ||||
Total liabilities and stockholders’ equity |
| $ | 2,451,312 |
|
|
|
|
| $ | 2,361,732 |
|
|
|
|
|
| ||
Net interest income (tax equivalent) |
|
|
| $ | 35,115 |
|
|
|
|
| $ | 37,679 |
|
|
|
| ||
Net interest income (tax equivalent) to total earning assets |
|
|
|
|
| 3.09 | % |
|
|
|
| 3.44 | % |
| ||||
Interest bearing liabilities to earnings assets |
| 88.38% |
|
|
|
|
| 87.79% |
|
|
|
|
|
| ||||
Notes: | Nonaccrual loans are included in the above stated average balances. |
| Tax equivalent basis is calculated using a marginal tax rate of 35%. |
9
The following tables provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent. (Dollar amounts in thousands- unaudited)
|
| Three Months Ended |
| Year to Date |
| ||||||||
|
| June 30, |
| June 30, |
| ||||||||
|
| 2007 |
| 2006 |
| 2007 |
| 2006 |
| ||||
Net Interest Margin |
|
|
|
|
|
|
|
|
| ||||
Interest income (GAAP) |
| $ | 38,631 |
| $ | 35,258 |
| $ | 75,360 |
| $ | 68,750 |
|
Taxable-equivalent adjustment: |
|
|
|
|
|
|
|
|
| ||||
Loans |
| 48 |
| 56 |
| 106 |
| 113 |
| ||||
Investments |
| 767 |
| 678 |
| 1,480 |
| 1,341 |
| ||||
Interest income - FTE |
| 39,446 |
| 35,992 |
| 76,946 |
| 70,204 |
| ||||
Interest expense (GAAP) |
| 21,581 |
| 17,168 |
| 41,831 |
| 32,525 |
| ||||
Net interest income - FTE |
| $ | 17,865 |
| $ | 18,824 |
| $ | 35,115 |
| $ | 37,679 |
|
Net interest income - (GAAP) |
| $ | 17,050 |
| $ | 18,090 |
| $ | 33,529 |
| $ | 36,225 |
|
Average interest earning assets |
| $ | 2,325,819 |
| $ | 2,222,331 |
| $ | 2,291,932 |
| $ | 2,206,211 |
|
Net interest margin (GAAP) |
| 2.94% |
| 3.26% |
| 2.95% |
| 3.31% |
| ||||
Net interest margin - FTE |
| 3.08% |
| 3.40% |
| 3.09% |
| 3.44% |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Efficiency Ratio |
|
|
|
|
|
|
|
|
| ||||
Noninterest expense |
| $ | 16,832 |
| $ | 15,647 |
| $ | 33,417 |
| $ | 31,795 |
|
Noninterest income |
| 8,136 |
| 7,365 |
| 16,110 |
| 14,440 |
| ||||
Net interest income (GAAP) |
| 17,050 |
| 18,090 |
| 33,529 |
| 36,225 |
| ||||
Taxable-equivalent adjustment: |
|
|
|
|
|
|
|
|
| ||||
Loans |
| 48 |
| 56 |
| 106 |
| 113 |
| ||||
Investments |
| 767 |
| 678 |
| 1,480 |
| 1,341 |
| ||||
Net interest income - FTE |
| 17,865 |
| 18,824 |
| 35,115 |
| 37,679 |
| ||||
Noninterest income plus net interest income - FTE |
| 26,001 |
| 26,189 |
| 51,225 |
| 52,119 |
| ||||
Efficiency ratio |
| 64.74% |
| 59.75% |
| 65.24% |
| 61.00% |
| ||||
10
