Exhibit 99.1
Old Second Bancorp, Inc. | | For Immediate Release |
(Nasdaq: OSBC) | | April 25, 2008 |
Contact: J. Douglas Cheatham
Chief Financial Officer
(630) 906-5484
Old Second Bancorp, Inc. Announces First Quarter Earnings
AURORA, Illinois — Old Second Bancorp, Inc. (Nasdaq: OSBC) today announced first quarter earnings of $0.42 per diluted share, on earnings of $5.56 million, which included the contribution to earnings of the HeritageBanc, Inc. (“Heritage”) acquisition from the February 8th closing date. Diluted earnings per share were down slightly from the first quarter of 2007, in which the Company earned $0.43 per diluted share on net income of $5.75 million. The Company recorded a $900,000 provision for loan losses in the first quarter of 2008 whereas there was no loan loss provision made in the first quarter of 2007.
The acquisition of Heritage, which was announced in November 2007, closed on February 8, 2008, and the systems conversions were completed by the middle of March. “The outstanding efforts of our employees in the closing of the transaction and the integration of the organizations following the merger should position the Company to begin to realize the economic benefits of the transaction in the second quarter of 2008,” said William B. Skoglund, Chairman of the Board. He added, “In addition to cost saves, the Company also expects to realize revenue enhancements by applying its relationship focused banking strategies, which include offering the new client base wealth management services, as well as expanded mortgage, treasury and retail services in addition to the traditional loan and deposit products previously offered by Heritage”.
The transaction charges related to Heritage, net of taxes calculated at a 35% statutory rate, totaled $434,000, or $.03 per diluted share. Core net income, which is calculated by excluding these transaction costs, in the first quarter of 2008 was $6.0 million, which equates to core diluted earnings per share of $0.45. Management believes that the exclusion of the aforementioned charges more accurately reflects income from continuing operations, and references to core net income, core diluted earnings per share, and ratios identified as “core” in the Key Ratios and efficiency ratio reconcilement section of this earnings release are all non-GAAP measurements.
Net interest income increased from $16.5 million in the first quarter of 2007 to $19.9 million in the first quarter of 2008. Average earning assets grew $369.4 million, or 16.4%, from March 31, 2007 to March 31, 2008 with Heritage contributing approximately $192.7 million of that growth. Average interest bearing liabilities increased $314.8 million, or 15.9%, during the same period. The net interest margin (tax equivalent basis), expressed as a percentage of average earning assets, increased from 3.10% in the first quarter of 2007 to 3.18% in the first quarter of 2008. The average tax-equivalent yield on earning assets decreased from 6.64%, in the first quarter of 2007 to 6.28%, or 36 basis points, in the first quarter of 2008. At the same time, however, the cost of funds on interest-bearing liabilities decreased from 4.13% to 3.64%, or 49 basis points. The interest income produced from the growth in earning assets more than offset the cost of funding that growth in balances. Additionally, the general decrease in interest rates lowered interest expense to a greater degree than it reduced interest income.
The Company recorded a $900,000 provision for loan losses in first quarter of 2008 whereas there was no provision in the first or fourth quarters of 2007, and a $1.2 million provision for the full year of 2007. Nonperforming loans increased to $13.3 million at March 31, 2008 from $6.0 million at December 31, 2007, and $1.7 million at March 31, 2007. In the first quarter of 2008 and the fourth quarter of 2007, the Company recorded net loan charge-offs of $627,000 and $469,000 respectively. In the first quarter of 2007, the Company had a small net recovery position of $56,000. Provisions for loan losses are made to provide for probable and estimable losses inherent in the loan portfolio.
The $7.3 million increase in nonperforming loans from December 31, 2007 included the addition of $8.3 million in loans, offset by $881,000 in reductions that included full repayment of two previously reported nonperforming loans. The $8.3 million in additional loans were spread across different sectors of the real estate market, which included seven commercial real estate loans totaling $4.9 million, ten residential real estate properties totaling $2.7 million, and $709,000 in residential real estate construction loans to one borrower on homes that have recently been completed. The three largest real estate commercial loan additions included the following:
· A $2.1 million loan on a multi-tenant commercial building that recently experienced a high vacancy rate. The loan was originally structured with a guarantor, which the Company believes has the capacity to provide some repayment support, although, a final workout plan has not been established.
· A $1.2 million apartment building loan that has a sales contract under negotiation. The Company has made a specific loan loss allocation for the estimated shortfall on any sale.
· A $883,000 commercial loan collateralized by an industrial building where the Company has a first lien position with an original loan to collateral advance rate of 50% based upon the initial appraised value. That property is in foreclosure with another lender holding a junior mortgage position, which generally strengthens the Company’s workout position, but could also prolong the liquidation process.
There are ten nonperforming residential real estate loans in various stages of foreclosure. Most of the residential real estate loans were underwritten with an original loan to collateral advance rate of no more than 80%, and those underwritten at a higher advance rate have added credit support in the form of mortgage insurance. The Company evaluated the loss exposure of all of the above loans individually, and designated specific portions of the allowance for loan losses based upon respective estimates of the revised collateral value under the currently weakened real estate market conditions.
The ratio of the allowance for loan losses to nonperforming loans was 151.5% as of March 31, 2008 as compared to 282.0% at year end 2007 and 932.8% at March 31, 2007. 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. While the amount of nonperforming loans had decreased in the first part of 2007, management detected a general deceleration in real estate building and development activity as compared to prior years. While borrowers generally continued to perform on their commercial real estate obligations, management believed that the slowdown in the development and construction sector combined with the Company’s concentration in these types of loans represented increased risk. These environmental factors were included in the assessment of the adequacy of the allowance for loan losses. Additionally, management believed that the allowance for loan losses brought over in the Heritage transaction was adequate to address the risks specific to the loan portfolio purchased. When measured as a percentage of loans outstanding, the allowance for loan losses was 0.92% at March 31, 2008, 0.89% at December 31, 2007 and 0.91% as of March 31, 2007.
Noninterest income was $8.9 million during the first quarter of 2008 and $8.0 million during the first quarter of 2007, an increase of $886,000, or 11.1%, $301,000 of which was attributable to Heritage. Mortgage banking income, including net gain on sales of mortgage loans, secondary market fees, and servicing income, was $2.4 million, an increase of $1.0 million, or 74.0%, from the first quarter of 2007. Heritage contributed $107,000 of the mortgage banking increase. The largest increase in income from mortgage operations was in net gain on sales, which resulted from increased volume despite market turbulence. In early 2007, the Company reengineered its secondary mortgage lending operations and systems including its approach to pricing, compensation and geographic distribution of lenders. As the year progressed and the secondary market became increasingly complex in product offering and began to experience pricing volatility, the Company was better positioned as a result of the changes to efficiently close loans and provide a consistent customer relationship experience. Realized gains on securities totaled $308,000 in the first quarter of 2008, which consisted of $95,000 from sold securities and $213,000 from called securities. In the first quarter of 2007, there was $482,000 in realized gains from sold securities. Bank owned life insurance (“BOLI”) income decreased $196,000, or 40.6%, from $483,000 to $287,000 in 2008, due to the decreasing interest rates available on the underlying insurance investments.
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Interchange income from debit card usage also increased $88,000, or 19.0%, in the first quarter of 2008 as customers continued to show a preference for this payment method. Other noninterest income increased $145,000, or 15.2%, with the former Heritage operations contributing $55,000 of that increase. The primary sources for the increase in the other income category were letter of credit and credit card processing fees.
Noninterest expense was $20.2 million during the first quarter of 2008, an increase of $3.6 million, or 21.6%, from $16.6 million in the first quarter of 2007. Approximately $667,000 of this amount was related to one-time merger costs. Salaries and benefits expense was $11.6 million during the first quarter of 2008, an increase of $1.7 million, or 17.3%, from $9.9 million in the first quarter of 2007. The increase in personnel expenses related to normal annual increases in compensation rates and increased staffing levels that included the addition of permanent and transitional employees from Heritage. The full time equivalent count rose from 579 in the first quarter of 2007 to 630 in the first quarter of 2008, which included 81 full time equivalent Heritage employees. Salary and basic benefit costs related to Heritage are expected to decrease by approximately $134,000 in the second quarter and $311,000 in the third quarter as 35 full and part-time positions are scheduled for elimination during the second quarter. The 2008 expense for the discretionary profit sharing and management bonus plans also increased as compared to first quarter 2007, as did the commission expense related to mortgage loan sales activity.
Occupancy expense increased $212,000, or 17.3%, from the first quarter of 2007 to the first quarter of 2008. On a comparative basis, facility expense in 2008 incorporated one new retail branch that opened in May 2007 as well as the five new Heritage retail locations and one mobile banking facility. Approximately $83,000 in first quarter 2008 net occupancy expense was attributable to Heritage whereas an additional $55,000 was due to a one-time settlement charge to close a leased mortgage origination office. With the prolonged winter weather conditions in 2008, the Company also recorded a general increase in utility and maintenance costs. Furniture and equipment expense increased $292,000, or 19.6%, from the first quarter of 2007 to the first quarter of 2008, and substantially all of this increase was attributable to one-time conversion costs. Advertising expense in 2008 decreased by $53,000, or 12.5%, when compared to the same period in 2007. Included in the 2008 advertising expense was $29,000 in one-time costs related to the distribution of Heritage marketing and disclosure related materials. Other expense increased $1.2 million, or 34.4%, primarily due to the resumption of FDIC insurance premiums as prior credits expired, mortgage servicing rights impairment recognition and, to a lesser degree, increased amortization charges related to those rights, recruitment fees and increased sales incentive program costs. Approximately $46,000 of the increase in other expenses was directly attributable to the Heritage acquisition.
The provision for income tax as a percentage of pretax income, or effective tax rate, increased from 26.9% in of the first quarter of 2007 to 28.1% in the first quarter of 2008 versus 28.4% in the fourth quarter of 2007. Increased levels of tax-exempt income from securities helped to reduce federal income tax expense in the first quarter of 2008, but this benefit was more than offset by a reduction in BOLI income in the same period. The effective tax rate also increased in 2008 due to a change in Illinois tax law. Under the revised law, the receipts of Old Second Management, LLC (“OSM”), an investment subsidiary of the bank, no longer qualified as an excluded company and now requires inclusion in the unitary tax return. The Illinois tax law revision is also expected to change the deductibility of REIT dividends beginning January 1, 2009, which will eliminate the recognition of a substantial portion of the tax benefits related to this ownership structure. OSM owns 100% of the common stock of a real estate investment trust (REIT) which holds fixed and variable rate real estate loans that were previously held by our main bank subsidiary. In addition to providing income tax benefits, which lower the effective tax rate, the REIT ownership structure also provides the Company with a vehicle for raising future capital as desired. The general decrease in market and loan portfolio interest rates lowered the amount of interest income generated by the REIT in the first quarter of 2008, as did a modest decrease in the loan balances held by that subsidiary.
Total assets as of March 31, 2008 increased $342.1 million, to $3.0 billion, from $2.7 billion as of December 31, 2007. Loans grew $288.6 million at quarter end 2008, with Heritage contributing $288.3 million of that increase. Securities available for sale decreased $16.4 million during the first quarter of 2008.
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The amount of goodwill recorded is preliminary and may fluctuate based upon finalizing asset and liability fair value calculations and merger expense estimates. Preliminary estimates of goodwill and core deposit and other intangible assets related to the Heritage acquisition were $57.0 million and $8.7 million, respectively. The largest changes by loan type included increases in commercial real estate and real estate construction loans of $88.6 million and $101.0 million, respectively. Commercial and industrial loans grew $42.9 million whereas residential real estate loans increased $39.3 million in the same first quarter comparison.
Total deposits increased $306.0 million during the first quarter of 2008, to $2.42 billion as of March 31, 2008, with Heritage contributing approximately $295.0 million as of the current quarter end. The category of deposits that grew the most in the first quarter of 2008 was certificates of deposits, which increased $144.2 million as customers moved to lock in rates in a declining interest rate environment. Money market deposit accounts also increased by $57.1 million, from $505.7 million to $562.8 million during the same period. At quarter end 2008, the new bank branches provided the growth in lower cost sources of fund categories, which included a demand deposit increase of $41.3 million and an aggregate increase in the savings, NOW, and money market deposit total of $120.5 million. The net interest margin (tax equivalent basis) increased from 3.10% in the first quarter of 2007 to 3.18% in the first quarter of 2008. In comparing the first quarter of 2007 to the first quarter of 2008, the average cost of interest bearing funds decreased 49 basis points.
On January 31, 2008, the Company entered into a $75.5 million credit facility with LaSalle Bank National Association. Part of this new credit facility replaced $30.0 million of the revolving line of credit facility obligation previously held between the Company and Marshall & Ilsley Bank. The new $75.5 million credit facility was comprised of a $30.5 million senior debt facility and $45.0 million of subordinated debt. The proceeds of the $45.0 million of subordinated debt were used to finance the acquisition of Heritage including transaction costs. The Company paid consideration of $43.0 million in cash and 1,563,636 shares of Company stock valued at $27.50 per share, for a total transaction value of $86.0 million, to consummate the acquisition of 100% of the outstanding stock of Heritage on February 8, 2008. Other major first quarter 2008 borrowing category changes from December 31, 2007 included a decrease of $77.1 million, or 46.7%, in overnight federal funds purchased and a $20.6 million increase in other short-term borrowings, which was primarily comprised of Federal Home Loan Bank of Chicago (“FHLBC”) advances. That latter source of funds is also floating rate and is indexed at a four basis point spread above the daily effective FHLBC federal funds rate.
Non-GAAP Presentations: In addition to the “core” earnings discussion related to the Heritage acquisition transaction costs found on page 1 of this earnings release, management has traditionally disclosed other certain non-GAAP ratios to evaluate and measure the Company’s performance, including 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 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. 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 document, 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
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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 2007.
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Financial Highlights (unaudited)
In thousands, except share data
| | Quarter Ended
March 31, | | Year Ended
December 31, | |
| | 2008 | | 2007 | | 2007 | |
Summary Income Statement: | | | | | | | |
Net interest income | | $ | 19,940 | | $ | 16,479 | | $ | 68,598 | |
Provision for loan losses | | 900 | | — | | 1,188 | |
Noninterest income | | 8,860 | | 7,974 | | 31,855 | |
Noninterest expense | | 20,161 | | 16,585 | | 66,473 | |
Income taxes | | 2,175 | | 2,120 | | 8,820 | |
Net income | | 5,564 | | 5,748 | | 23,972 | |
| | | | | | | |
Key Ratios (annualized): | | | | | | | |
Return on average assets | | 0.79 | % | 0.96 | % | 0.95 | % |
Return on average equity | | 12.46 | % | 14.52 | % | 16.13 | % |
Core return on average assets (non-GAAP)(1) | | 0.85 | % | — | | — | |
Core return on average equity (non-GAAP)(1) | | 13.43 | % | — | | — | |
Net interest margin (non-GAAP tax equivalent)(2) | | 3.18 | % | 3.10 | % | 3.05 | % |
Efficiency ratio (non-GAAP tax equivalent)(2) | | 68.01 | % | 65.75 | % | 64.08 | % |
Core efficiency ratio (non-GAAP)(2) | | 66.55 | % | — | | — | |
Tangible capital to assets | | 4.47 | % | 6.56 | % | 5.56 | % |
Total capital to risk weighted assets | | 10.37 | % | 10.86 | % | 10.58 | % |
Tier 1 capital to risk weighted assets | | 7.65 | % | 10.02 | % | 9.45 | % |
Tier 1 capital to average assets | | 6.65 | % | 7.96 | % | 7.50 | % |
| | | | | | | |
Per Share Data: | | | | | | | |
Basic earnings per share | | $ | 0.43 | | $ | 0.44 | | $ | 1.92 | |
Diluted earnings per share | | $ | 0.42 | | $ | 0.43 | | $ | 1.89 | |
Core diluted earnings per share(non-GAAP)(1) | | $ | 0.45 | | — | | — | |
Dividends declared per share | | $ | 0.15 | | $ | 0.14 | | $ | 0.59 | |
Book value per share | | $ | 14.47 | | $ | 12.37 | | $ | 12.34 | |
Tangible book value per share | | $ | 9.53 | | $ | 12.21 | | $ | 12.16 | |
Ending number of shares outstanding | | 13,740,186 | | 13,110,423 | | 12,149,296 | |
Average number of shares outstanding | | 13,070,056 | | 13,134,897 | | 12,508,551 | |
Diluted average shares outstanding | | 13,216,375 | | 13,267,077 | | 12,655,306 | |
| | | | | | | |
End of Period Balances: | | | | | | | |
Loans | | $ | 2,179,656 | | $ | 1,776,289 | | $ | 1,891,110 | |
Deposits | | 2,419,610 | | 2,065,863 | | 2,113,618 | |
Stockholders’ equity | | 198,771 | | 162,221 | | 149,889 | |
Total earning assets | | 2,749,806 | | 2,282,769 | | 2,480,366 | |
Total assets | | 3,000,645 | | 2,444,031 | | 2,658,576 | |
(1) As per the discussion on page 1, core net income is the numerator of each of these measures is defined by management as net income from operations plus $434,000 of acquisition transaction costs, net of a tax rate adjustment of 35%.
(2) Tabular disclosures of the tax equivalent calculation including the net interest margin, efficiency ratio and the core efficiency ratio as adjusted for the $434,000 net of tax acquisition costs are presented on page 11.
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Financial Highlights, continued (unaudited)
In thousands, except share data
| | Quarter Ended
March 31, | | Year ended
December 31, | |
| | 2008 | | 2007 | | 2007 | |
Average Balances: | | | | | | | |
Loans | | $ | 2,048,417 | | $ | 1,758,891 | | $ | 1,825,176 | |
Deposits | | 2,281,050 | | 2,050,118 | | 2,096,241 | |
Stockholders’ equity | | 179,599 | | 160,534 | | 148,652 | |
Total earning assets | | 2,627,060 | | 2,257,669 | | 2,355,624 | |
Total assets | | 2,826,602 | | 2,416,312 | | 2,515,740 | |
| | | | | | | |
Asset Quality | | | | | | | |
Charge-offs | | $ | 707 | | $ | 86 | | $ | 1,069 | |
Recoveries | | 80 | | 142 | | 523 | |
Net charge-offs (recoveries) | | $ | 627 | | $ | (56 | ) | $ | 546 | |
Provision for loan losses | | 900 | | — | | 1,188 | |
Allowance for loan losses to loans | | 0.92 | % | 0.91 | % | 0.89 | % |
| | | | | | | |
Nonaccrual loans | | $ | 12,354 | | $ | 1,598 | | $ | 5,346 | |
Restructured loans | | — | | — | | — | |
Loans past due 90 days | | 943 | | 144 | | 625 | |
Nonperforming loans | | 13,297 | | 1,742 | | 5,971 | |
Other real estate | | — | | — | | — | |
Nonperforming assets | | $ | 13,297 | | $ | 1,742 | | $ | 5,971 | |
| | | | | | | |
Major Classifications of Loans | | | | | | | |
Commercial and industrial | | $ | 240,007 | | $ | 169,216 | | $ | 197,124 | |
Real estate - commercial | | 722,525 | | 613,750 | | 633,909 | |
Real estate - construction | | 500,040 | | 395,764 | | 399,087 | |
Real estate - residential | | 673,575 | | 572,483 | | 634,266 | |
Installment | | 38,098 | | 21,281 | | 20,428 | |
Lease financing receivables | | 6,886 | | 5,288 | | 7,922 | |
| | 2,181,131 | | 1,777,782 | | 1,892,736 | |
Unearned origination fees | | (1,475 | ) | (1,493 | ) | (1,626 | ) |
| | $ | 2,179,656 | | $ | 1,776,289 | | $ | 1,891,110 | |
| | | | | | | |
Major Classifications of Deposits | | | | | | | |
Noninterest bearing | | $ | 312,813 | | $ | 259,349 | | $ | 271,549 | |
Savings | | 117,915 | | 108,361 | | 96,425 | |
NOW accounts | | 289,223 | | 245,032 | | 247,262 | |
Money market accounts | | 562,774 | | 474,709 | | 505,678 | |
Certificates of deposits of less than $100,000 | | 659,426 | | 589,178 | | 599,034 | |
Certificates of deposits of $100,000 or more | | 477,459 | | 389,234 | | 393,670 | |
| | $ | 2,419,610 | | $ | 2,065,863 | | $ | 2,113,618 | |
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Old Second Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
| | (unaudited) | | | |
| | March 31, | | December 31, | |
| | 2008 | | 2007 | |
Assets | | | | | |
Cash and due from banks | | $ | 67,912 | | $ | 60,804 | |
Interest bearing deposits with financial institutions | | 1,723 | | 403 | |
Federal funds sold | | 2,800 | | 2,370 | |
Short-term securities available for sale | | 820 | | 1,162 | |
Cash and cash equivalents | | 73,255 | | 64,739 | |
Securities available for sale | | 543,681 | | 559,697 | |
Federal Home Loan Bank and Federal Reserve Bank stock | | 10,417 | | 8,947 | |
Loans held for sale | | 10,709 | | 16,677 | |
Loans | | 2,179,656 | | 1,891,110 | |
Less: allowance for loan losses | | 20,147 | | 16,835 | |
Net loans | | 2,159,509 | | 1,874,275 | |
Premises and equipment, net | | 61,200 | | 49,698 | |
Other real estate owned | | — | | — | |
Mortgage servicing rights, net | | 2,108 | | 2,482 | |
Goodwill, net | | 59,078 | | 2,130 | |
Core deposit and other intangible asset, net | | 8,718 | | — | |
Bank owned life insurance (BOLI) | | 48,223 | | 47,936 | |
Accrued interest and other assets | | 23,747 | | 31,995 | |
Total assets | | $ | 3,000,645 | | $ | 2,658,576 | |
| | | | | |
Liabilities | | | | | |
Deposits: | | | | | |
Noninterest bearing demand | | $ | 312,813 | | $ | 271,549 | |
Interest bearing: | | | | | |
Savings, NOW, and money market | | 969,912 | | 849,365 | |
Time | | 1,136,885 | | 992,704 | |
Total deposits | | 2,419,610 | | 2,113,618 | |
Securities sold under repurchase agreements | | 38,919 | | 53,222 | |
Federal funds purchased | | 88,000 | | 165,100 | |
Other short-term borrowings | | 103,497 | | 82,873 | |
Junior subordinated debentures | | 58,378 | | 57,399 | |
Subordinated debt | | 45,000 | | — | |
Notes payable and other borrowings | | 25,590 | | 18,610 | |
Accrued interest and other liabilities | | 22,880 | | 17,865 | |
Total liabilities | | 2,801,874 | | 2,508,687 | |
| | | | | |
Stockholders’ Equity | | | | | |
Common stock | | 18,286 | | 16,695 | |
Additional paid-in capital | | 57,776 | | 16,114 | |
Retained earnings | | 213,381 | | 209,867 | |
Accumulated other comprehensive income | | 4,086 | | 1,971 | |
Treasury stock | | (94,758 | ) | (94,758 | ) |
Total stockholders’ equity | | 198,771 | | 149,889 | |
Total liabilities and stockholders’ equity | | $ | 3,000,645 | | $ | 2,658,576 | |
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Old Second Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(In thousands, except share data)
| | (unaudited) | | | |
| | Three Months Ended | | Year ended | |
| | March 31, | | December 31, | |
| | 2008 | | 2007 | | 2007 | |
Interest and Dividend Income | | | | | | | |
Loans, including fees | | $ | 34,305 | | $ | 31,307 | | $ | 131,626 | |
Loans held for sale | | 224 | | 129 | | 666 | |
Securities: | | | | | | | |
Taxable | | 4,746 | | 3,895 | | 17,334 | |
Tax-exempt | | 1,484 | | 1,324 | | 5,747 | |
Federal funds sold | | 29 | | 58 | | 317 | |
Interest bearing deposits | | 4 | | 16 | | 51 | |
Total interest and dividend income | | 40,792 | | 36,729 | | 155,741 | |
Interest Expense | | | | | | | |
Savings, NOW, and money market deposits | | 4,810 | | 5,734 | | 24,491 | |
Time deposits | | 12,324 | | 11,840 | | 48,525 | |
Securities sold under repurchase agreements | | 336 | | 553 | | 2,391 | |
Federal funds purchased | | 970 | | 307 | | 3,115 | |
Other short-term borrowings | | 789 | | 936 | | 3,967 | |
Junior subordinated debentures | | 1,065 | | 617 | | 3,629 | |
Subordinated debt | | 315 | | — | | — | |
Notes payable and other borrowings | | 243 | | 263 | | 1,025 | |
Total interest expense | | 20,852 | | 20,250 | | 87,143 | |
Net interest and dividend income | | 19,940 | | 16,479 | | 68,598 | |
Provision for loan losses | | 900 | | — | | 1,188 | |
Net interest and dividend income after provision for loan losses | | 19,040 | | 16,479 | | 67,410 | |
Noninterest Income | | | | | | | |
Trust income | | 2,182 | | 2,176 | | 8,666 | |
Service charges on deposits | | 2,055 | | 2,050 | | 8,560 | |
Secondary mortgage fees | | 283 | | 122 | | 592 | |
Mortgage servicing income | | 152 | | 148 | | 623 | |
Net gain on sales of mortgage loans | | 1,945 | | 1,098 | | 4,391 | |
Securities gains, net | | 308 | | 482 | | 674 | |
Increase in cash surrender value of bank owned life insurance | | 287 | | 483 | | 2,020 | |
Debit card interchange income | | 551 | | 463 | | 2,011 | |
Other income | | 1,097 | | 952 | | 4,318 | |
Total noninterest income | | 8,860 | | 7,974 | | 31,855 | |
Noninterest Expense | | | | | | | |
Salaries and employee benefits | | 11,623 | | 9,912 | | 38,108 | |
Occupancy expense, net | | 1,438 | | 1,226 | | 5,380 | |
Furniture and equipment expense | | 1,786 | | 1,494 | | 6,415 | |
Amortization of core deposit and other intangible asset | | 200 | | — | | — | |
Advertising expense | | 372 | | 425 | | 1,567 | |
Other expense | | 4,742 | | 3,528 | | 15,003 | �� |
Total noninterest expense | | 20,161 | | 16,585 | | 66,473 | |
Income before income taxes | | 7,739 | | 7,868 | | 32,792 | |
Provision for income taxes | | 2,175 | | 2,120 | | 8,820 | |
Net income | | $ | 5,564 | | $ | 5,748 | | $ | 23,972 | |
| | | | | | | |
Basic earnings per share | | $ | 0.43 | | $ | 0.44 | | $ | 1.92 | |
Diluted earnings per share | | 0.42 | | 0.43 | | 1.89 | |
Dividends declared per share | | 0.15 | | 0.14 | | 0.59 | |
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ANALYSIS OF AVERAGE BALANCES,
TAX EQUIVALENT INTEREST AND RATES
Quarters ended March 31, 2008 and 2007
(Dollar amounts in thousands- unaudited)
| | 2008 | | 2007 | |
| | Average | | | | | | Average | | | | | |
| | Balance | | Interest | | Rate | | Balance | | Interest | | Rate | |
Assets | | | | | | | | | | | | | |
Interest bearing deposits | | $ | 801 | | $ | 4 | | 1.98 | % | $ | 1,427 | | $ | 16 | | 4.48 | % |
Federal funds sold | | 3,901 | | 29 | | 2.94 | | 4,488 | | 58 | | 5.17 | |
Securities: | | | | | | | | | | | | | |
Taxable | | 404,121 | | 4,746 | | 4.70 | | 340,990 | | 3,895 | | 4.57 | |
Non-taxable (tax equivalent) | | 154,101 | | 2,283 | | 5.93 | | 144,454 | | 2,037 | | 5.64 | |
Total securities | | 558,222 | | 7,029 | | 5.04 | | 485,444 | | 5,932 | | 4.89 | |
Loans and loans held for sale | | 2,064,136 | | 34,574 | | 6.63 | | 1,766,310 | | 31,493 | | 7.13 | |
Total interest earning assets | | 2,627,060 | | 41,636 | | 6.28 | | 2,257,669 | | 37,499 | | 6.64 | |
Cash and due from banks | | 47,940 | | — | | — | | 50,036 | | — | | — | |
Allowance for loan losses | | (18,960 | ) | — | | — | | (16,220 | ) | — | | — | |
Other noninterest-bearing assets | | 170,562 | | — | | — | | 124,827 | | — | | — | |
Total assets | | $ | 2,826,602 | | | | | | $ | 2,416,312 | | | | | |
| | | | | | | | | | | | | |
Liabilities and Stockholders’ Equity | | | | | | | | | | | | | |
NOW accounts | | $ | 255,415 | | $ | 802 | | 1.26 | % | $ | 245,485 | | $ | 1,008 | | 1.67 | % |
Money market accounts | | 523,664 | | 3,822 | | 2.94 | | 466,201 | | 4,511 | | 3.92 | |
Savings accounts | | 102,952 | | 186 | | 0.73 | | 105,041 | | 215 | | 0.83 | |
Time deposits | | 1,071,852 | | 12,324 | | 4.62 | | 979,553 | | 11,840 | | 4.90 | |
Total interest bearing deposits | | 1,953,883 | | 17,134 | | 3.53 | | 1,796,280 | | 17,574 | | 3.97 | |
Securities sold under repurchase agreements | | 43,763 | | 336 | | 3.09 | | 49,028 | | 553 | | 4.57 | |
Federal funds purchased | | 110,435 | | 970 | | 3.47 | | 22,588 | | 307 | | 5.44 | |
Other short-term borrowings | | 86,266 | | 789 | | 3.62 | | 70,096 | | 936 | | 5.34 | |
Junior subordinated debentures | | 58,044 | | 1,065 | | 7.34 | | 31,625 | | 617 | | 7.80 | |
Subordinated debt | | 26,703 | | 315 | | 4.67 | | — | | — | | — | |
Notes payable and other borrowings | | 22,219 | | 243 | | 4.33 | | 16,896 | | 263 | | 6.23 | |
Total interest bearing liabilities | | 2,301,313 | | 20,852 | | 3.64 | | 1,986,513 | | 20,250 | | 4.13 | |
Noninterest bearing deposits | | 327,167 | | — | | — | | 253,838 | | — | | — | |
Accrued interest and other liabilities | | 18,523 | | — | | — | | 15,427 | | — | | — | |
Stockholders’ equity | | 179,599 | | — | | — | | 160,534 | | — | | — | |
Total liabilities and stockholders’ equity | | $ | 2,826,602 | | | | | | $ | 2,416,312 | | | | | |
Net interest income (tax equivalent) | | | | $ | 20,784 | | | | | | $ | 17,249 | | | |
Net interest income (tax equivalent) to total earning assets | | | | | | 3.18 | % | | | | | 3.10 | % |
Interest bearing liabilities toearnings assets | | 87.60 | % | | | | | 87.99 | % | | | | |
Notes: | | Nonaccrual loans are included in the above stated average balances. |
| | Tax equivalent basis is calculated using a marginal tax rate of 35%. |
10
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 Ended | |
| | March 31, | | December 31, | |
| | 2008 | | 2007 | | 2007 | |
Net Interest Margin | | | | | | | |
Interest income (GAAP) | | $ | 40,792 | | $ | 36,729 | | $ | 155,741 | |
Taxable-equivalent adjustment: | | | | | | | |
Loans | | 45 | | 57 | | 194 | |
Investments | | 799 | | 713 | | 3,095 | |
Interest income - FTE | | 41,636 | | 37,499 | | 159,030 | |
Interest expense (GAAP) | | 20,852 | | 20,250 | | 87,143 | |
Net interest income - FTE | | $ | 20,784 | | $ | 17,249 | | $ | 71,887 | |
Net interest income - (GAAP) | | $ | 19,940 | | $ | 16,479 | | $ | 68,598 | |
Average interest earning assets | | $ | 2,627,060 | | $ | 2,257,669 | | $ | 2,355,624 | |
Net interest margin (GAAP) | | 3.05 | % | 2.96 | % | 2.91 | % |
Net interest margin - FTE | | 3.18 | % | 3.10 | % | 3.05 | % |
| | | | | | | |
Efficiency Ratio | | | | | | | |
Noninterest expense | | $ | 20,161 | | $ | 16,585 | | $ | 66,473 | |
Noninterest income | | 8,860 | | 7,974 | | 31,855 | |
Net interest income (GAAP) | | 19,940 | | 16,479 | | 68,598 | |
Taxable-equivalent adjustment: | | | | | | | |
Loans | | 45 | | 57 | | 194 | |
Investments | | 799 | | 713 | | 3,095 | |
Net interest income - FTE | | 20,784 | | 17,249 | | 71,887 | |
Noninterest income
plus net interest income - FTE | | 29,644 | | 25,223 | | 103,742 | |
Efficiency ratio | | 68.01 | % | 65.75 | % | 64.08 | % |
| | | | | | | |
Core Efficiency Ratio— adjusted for nonrecurring expense related to Heritage: | | | | | |
| | | | | | | |
Noninterest expense as reported | | $ | 20,161 | | $ | — | | $ | — | |
Less: | | | | | | | |
Acquisition costs, adjusted for 35% tax rate | | (434 | ) | — | | — | |
Core noninterest expense | | 19,727 | | — | | — | |
| | | | | | | |
Core efficiency ratio | | 66.55 | % | — | | — | |
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