Exhibit 99.1
Old Second Bancorp, Inc. | For Immediate Release | |
(Nasdaq: OSBC) | April 24, 2009 | |
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 net income of $1.0 million for the first quarter of 2009 as compared to $5.6 million for the first quarter of 2008. The Company reported $0.01 diluted earnings per share for the first quarter of 2009, as compared to $.42 diluted earnings per share for the first quarter of 2008. While the Company experienced improvements in its net interest margin and noninterest income in first quarter 2009, these gains were more than offset by the increases in the provision for loan losses and noninterest expenses. The Company recorded a $9.4 million provision for loan losses and net charge-offs totaled $4.4 million in the first quarter of 2009. The provision for loan losses was $900,000 and net charge-offs totaled $627,000 in the first quarter of 2008. Net income available to common stockholders was $183,000 for the first quarter of 2009, as compared to $5.6 million for the first quarter of 2008.
In announcing these results, the Company’s chairman and CEO, William Skoglund, stated, “Performance for the quarter was unfavorably impacted by a high level of provision for loan losses, a result of the underlying weaknesses in the economy. We are disappointed that the continuing economic problems in the country and in our market areas necessitate these actions, but the difficult economic times require such actions on the part of management. The Company continues with a strong capital position and management is confident that addressing credit issues proactively will position the Company to continue to meet the needs of its clients and communities as markets recover.”
In January 2009, the United States Department of the Treasury completed its investment of $73 million in Series B fixed rate cumulative perpetual preferred stock and warrants to purchase common stock of the Company as part of Treasury’s TARP Capital Purchase Program (“CPP”). The Company had a strong capital base prior to the receipt of the CPP investment monies and participation in the CPP further strengthened that position. At March 31, 2009, the Company’s regulatory total capital and Tier 1 capital to risk weighted assets capital ratios were 13.86% and 10.75% as compared to 10.76% and 7.66% at December 31, 2008. The same capital ratios at Old Second Bank were 11.69% and 10.43% at March 31, 2009 compared to 11.54% and 10.29% at December 31, 2008. All of the Bank’s capital ratios continue to be well in excess of the regulatory guidelines for classification as “well-capitalized,” which is the highest regulatory capital classification. Chairman Skoglund continued, “This year presents continuing challenges as both individuals and businesses experience the increasing burdens created by the economic environment. We responded to these times by making a solid contribution to the loan loss reserve and adding capital through the issuance of preferred securities to position us to further future growth and lending opportunities.” Chairman Skoglund closed by adding, “We are cognizant of the need to improve performance and asset quality, and we have reallocated resources to add to our credit remediation force, while simultaneously implementing a plan to reduce operating costs.”
Net interest income increased from $19.9 million in the first quarter of 2008 to $22.2 million in the first quarter of 2009. Average earning assets grew $147.8 million, or 5.6%, from March 31, 2008 to March 31, 2009. Average interest bearing liabilities increased $128.1 million, or 5.6%, during the same period. The net interest margin (tax equivalent basis), expressed as a percentage of average earning assets, increased from 3.18% in the first quarter of 2008 to 3.37% in the first quarter of 2009. The average tax-equivalent yield on earning assets decreased from 6.28%, in the first quarter of 2008 to 5.27%, or 101 basis points, in the first quarter of 2009. At the same time, however, the cost of funds on interest-bearing liabilities decreased from 3.64% to 2.25%, or 139 basis points. The interest income produced from the growth in average 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 $9.4 million provision for loan losses in the first quarter of 2009 as compared to a $900,000 provision in the first quarter of 2008. On a linked quarter basis, the Company recorded a $21.2 million provision for loan losses in the fourth quarter of 2009. An additional $3.0 million of allowance for loan losses was also assumed in the Heritage acquisition in the first quarter of 2008. Provisions for loan losses are made to provide for probable and estimable losses inherent in the loan portfolio. Nonperforming loans increased to $123.7 million at March 31, 2009, from $108.6 million at December 31, 2008, and $13.3 million at March 31, 2008. In the first quarter of 2009 and the fourth quarter of 2008, the Company recorded net loan charge-offs of $4.4 million and $4.1 million, respectively. In the first quarter of 2008, the Company had net charge-offs of $627,000. The distribution of the Company’s nonperforming loans at March 31, 2009 is included in the chart below:
|
| Nonaccrual |
| 90 Days |
| Restructured |
| Total Non |
| % Non |
| Specific |
| |||||
|
| Total (1) |
| Past Due |
| (Accruing) |
| Loans |
| Loans |
| Allocation |
| |||||
Real Estate - Construction |
| $ | 60,533 |
| $ | 4,931 |
| $ | — |
| $ | 65,464 |
| 52.9 | % | $ | 8,883 |
|
Real Estate - Residential, Investor |
| 31,370 |
| — |
| — |
| 31,370 |
| 25.4 | % | 1,387 |
| |||||
Real Estate - Residential, Owner Occupied |
| 7,887 |
| 259 |
| — |
| 8,146 |
| 6.6 | % | 312 |
| |||||
Real Estate - Residential, Revolving and Junior Liens |
| 1,092 |
| 566 |
| — |
| 1,658 |
| 1.3 | % | 274 |
| |||||
Real Estate - Commercial |
| 10,034 |
| 280 |
| 5,618 |
| 15,932 |
| 12.9 | % | 1,192 |
| |||||
Commercial and Industrial |
| 1,004 |
| 9 |
| — |
| 1,013 |
| 0.8 | % | 559 |
| |||||
Other |
| 118 |
| — |
| — |
| 118 |
| 0.1 | % | 30 |
| |||||
|
| $ | 112,038 |
| $ | 6,045 |
| $ | 5,618 |
| $ | 123,701 |
| 100.0 | % | $ | 12,637 |
|
(1) Nonaccrual loans included $11.2 million in restructured loans, $8.8 million in real estate construction, $1.9 million in commercial real estate, and $498,000 is in real estate - residential investor.
Within the real estate construction segment of the loan portfolio, $32.0 million of the non-accrual loans were to homebuilders for model homes, speculative home construction and lot inventory. Within the homebuilder subset of the construction category, the largest exposure to a single borrower was $8.5 million and $1.4 million of the estimated loss allocation was to that credit. While negotiations with the borrower and guarantors continue, sales in the project have stalled, support from the obligors has halted, and the Company is weighing available legal remedies. Management reviewed the remaining homebuilder loan population and recorded an estimated additional $3.7 million in allocation of provision to the remaining loans. An additional $9.1 million of the nonaccrual construction loan total and $4.9 million of the ninety day past due and still accruing construction loan total is secured by undeveloped land intended for residential construction. The $4.9 million loan is to a national real estate developer who management believed, as of March 31, 2009, had the ability to repay this debt. In addition, a recent appraisal indicated that the loan to value ratio was approximately 69%. The $9.1 million of nonaccrual loans secured by undeveloped land represented loans to two different borrowers in the amounts of $4.2 million and $4.9 million. The original collateral value for the $4.2 million loan was recently strengthened with the addition of supplemental collateral management believed would be adequate to address the loss exposure on this loan. The credit exposure on the $4.9 million loan had previously been reduced through a charge-off. The borrowers enumerated above comprised approximately $46.0 million, or 70.3%, of the non-performing construction loan total. The remaining $19.5 million in this category consisted primarily of commercial constructions loans and management estimated that a loss allocation of $3.8 million was adequate coverage on that grouping.
Within the residential investor segment, two borrower relationships comprised $22.2 million, or 70.6%, of the $31.4 million outstanding loans in this category. The larger of these two relationships represented $15.8 million, or 50.4% of this category and 12.8% of total non-performing loans. Management estimated a loss allocation amount of $818,000 on this larger credit, and estimated that there was no loss exposure on the
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second largest credit. The larger credit is collateralized by two apartment complexes and by over 70 residential units in Northern Illinois. The borrower entered Chapter 11 bankruptcy, and the bank has begun to receive cash flows from rents under a cash-collateral order. Management of the properties is in place, and occupancy levels remain high. The bank obtained new appraisals for the two apartment complexes and most of the other units. The borrower has not yet submitted a reorganization plan under the Chapter 11 bankruptcy agreement. The second credit in this category is secured by thirty single family residences located in the suburbs of Chicago. Management is seeking a restructuring agreement with this borrower, and is working with the borrower to improve cash flows from rents, which have been impaired by tenant defaults, but a mutually acceptable agreement is not certain. This credit was in non-accrual status as of March 31, 2009. Management reviewed the remaining population of nonperforming residential investor loans and estimated that a loss allocation of $569,000 was adequate for these loans.
Within the commercial real estate segment of nonperforming loans, $5.3 million, or 33.4%, of the nonperforming category was attributable to a retail strip mall located in the southwest suburbs, and were classified restructured loans that were still accruing interest. The bank has made short-term rate and payment concessions while the borrower has worked to improve occupancy. The property has a substantial level of performing tenants, but does not have sufficient occupancy to perform on the credit based upon the original terms. The bank structured an agreement to control the incoming rents and monitor the expenses incurred to control the interim payments to the loan. Management estimated that the loan was adequately collateralized based upon the recent appraised value, and also believes additional tenants will be procured during the forbearance period and, as such, management has not assigned a loss allocation to this credit.
A second $1.9 million restructured commercial real estate loan is secured by an office building in the western suburbs. This credit was restructured to provide temporary cash flow relief when a major tenant filed for bankruptcy and stopped paying rent. A replacement tenant was found, and the borrower had been complying with the modified terms. Management was recently informed that a second tenant has stopped paying rent and efforts have been underway to work with the borrower to determine an acceptable solution. The borrower had been making payments in excess of the amounts required under the modified terms and additionally has the added support of multiple guarantors. No loss allocation was assigned to this credit and management further estimated that the collateral value of the property was sufficient relative to the credit exposure.
The remaining nonperforming loans include a variety of property types and the largest loan was for $2.3 million and is secured by a retail/office building. This loan was on nonaccrual status and management has estimated a loss allocation amount of $290,000 based upon current appraised values. The Company has focused primarily upon lending to small industrial, office, warehouse, and retail types of commercial real estate, and only 1.7% of all non-construction commercial real estate loans were nonperforming at March 31, 2009.
The Company has forty-four owner-occupied residential mortgages that were past due greater than ninety days. All but two of those loans were on nonaccrual status, and most of those nonaccrual loans were also in process of foreclosure. A number of these loans have mortgage insurance and management has estimated a loss exposure of $586,000 on this category. The other category in the nonperforming table includes some small commercial and industrial, installment and other miscellaneous loans. Management has estimated a loss allocation of $559,000 and $30,000, respectively, for these loan categories.
A linked quarter comparison of loans that were classified as performing, but past due thirty to eighty-nine days and still accruing interest, shows that this category increased from $35.6 million at December 31, 2008, to $41.7 million at March 31, 2009. Of the March past due amount, $3.6 million, or 8.6%, was for various past due commercial land development and construction credits, $14.4 million, or 34.5%, were secured by one-to-four family real estate credits and $18.7 million, or 44.8%, were secured by nonfarm nonresidential properties with the balance of nonperformers attributable to various installment and one small farm loan credit.
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As of the March 31, 2009 loan portfolio total, the Company had 16.4% invested in real estate construction and development loans and 41.5% invested in commercial real estate, and the Company has generally limited its lending activity to locally known markets and construction lending is typically based upon cost versus appraisal values. Additionally, the Company does not have any material direct exposure to sub prime loan products as it has focused its real estate lending activities on providing traditional loan products to relationship borrowers in nearby markets versus nontraditional loan products or purchased loans originated by other lenders.
The ratio of the allowance for loan losses to nonperforming loans was 37.42% as of March 31, 2009, as compared to 37.99% at December 31, 2008 and 151.5% at March 31, 2008. While this ratio decreased as compared to 2008, management believed the allowance coverage was sufficient due to the estimated loss potential. Management determines the amount to provide 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. The latter item is also weighted more heavily upon recent experience. With the continued increase in the amount of nonperforming loans in 2008, and the prolonged deceleration in real estate building and development activity as compared to prior years, management increased the factors for residential, development and commercial real estate loans. Management also assigned a higher factor for the higher risk construction and development portfolio. As the slowdown in the development and construction sector was observed, combined with the Company’s concentration in these types of loans, management concluded that it represented increased risk that warranted higher provisioning. These environmental factors are evaluated on an ongoing basis and are included in the assessment of the adequacy of the allowance for loan losses. When measured as a percentage of loans outstanding, the allowance for loan losses increased to 2.06% at March 31, 2009 as compared to 1.82% at December 31, 2008, and 0.92% at March 31, 2008. In management’s judgment, an adequate allowance for estimated losses has been established; however, there can be no assurance that actual losses will not exceed the estimated amounts in the future.
Other real estate owned (“OREO”) increased $3.7 million from $15.2 million at December 31, 2008, to $19.0 million at March 31, 2009. Of this amount, $12.6 million was attributable to one project that was acquired in December in satisfaction of the outstanding debt. That project is comprised of residential townhomes, residential townhome lots, lots zoned for condominiums, and lots zoned for retail. Townhome development in that project totaled $1.2 million in the first quarter of 2009, which was offset by $1.1 million in townhome sales and other adjustments. Management based the estimated value of these assets upon recent appraisals as well as the actual sales data for the townhome portion. The remaining OREO consists of multiple properties of different types. This property group totaled $2.6 million at December 31, 2008 and increased by approximately $3.7 million to $6.3 million as of March 31, 2009. Activity in the quarter included $3.9 million in additions, and valuation reductions of $300,000, primarily on the residential lot inventory. The composition of the nondevelopment OREO properties at March 31, 2009 included $3.0 million in commercial real estate, $1.8 million in residential lots located in different local communities, and $1.5 million of value was ascribed to nine single-family residences.
Noninterest income was $9.2 million during the first quarter of 2009 and $8.9 million during the first quarter of 2008, an increase of $356,000, or 4.0%. Aggregate mortgage banking income, including net gain on sales of mortgage loans, secondary market fees, and servicing income, was $3.0 million, an increase of $652,000, or 27.4%, from the first quarter of 2008. The largest increase in income from mortgage operations was in net gain on sales, which resulted from increased volume as borrowers refinanced in the declining rate environment. The Company has done significant reengineering in its mortgage operations unit, and this process improvement is reflected both in its operating results as well as moving into the number one position in mortgage origination market share in both Kane and Kendall Counties. Service charge income increased $57,000, or 2.8%, in the first quarter of 2009. The primary sources of the increases were from commercial checking overdraft fees and the commercial checking service charge account categories. The latter item increased in part from the reduced commercial earnings credits that are realized in a lower interest rate environment.
4
Realized losses on securities totaled $77,000 in the first quarter of 2009, whereas there was $308,000 in net realized gains in the first quarter of 2008. The cash surrender value of bank owned life insurance (“BOLI”) decreased in the first quarter of 2009 and this category was $160,000, or 55.8%, lower than for the same period in 2008. This performance decline was due in part to the continued decrease in interest rates available as well as incremental losses recorded on some of the underlying insurance investments. Other noninterest income increased $460,000, or 41.9%, to $1.6 million in the first quarter of 2009 from $1.1 million in the first quarter of 2008. Some of the larger sources of increase in the other income category were credit card processing fees, automatic teller machine surcharge and interchange fees, and fees collected from interest rate swap transactions.
Noninterest expense was $21.3 million during the first quarter of 2009, an increase of $1.2 million, or 5.8%, from $20.2 million in the first quarter of 2008. Salaries and benefits expense was $10.9 million during the first quarter of 2009, a decrease of $738,000, or 6.3%, from $11.6 million in the first quarter of 2008. Personnel expenses decreased in large part as a result of the management cost saving strategies that were announced in March 2009. These initiatives include foregoing management bonuses and profit sharing contributions in addition to implementing a two percent reduction in the 401K match percentage. Management also made the decision to delay filling open positions and a layoff affecting forty employees was completed late in March 2009. While severance costs related to the reduction in force increased first quarter personnel expense by approximately $494,000, the decision to eliminate profit sharing and bonus more than offset that amount. Management estimates that an additional $6.5 million in savings will be realized from these initiatives over the remainder of this year. Management is also reviewing the profitability and client usage of various leasehold branches as part of the 2009 cost savings process, which would result in additional savings.
Occupancy expense increased $77,000, or 5.4%, from the first quarter of 2008 to the first quarter of 2009, primarily due to an increase in real estate taxes. Furniture and equipment expense decreased $46,000, or 2.6%, from the first quarter of 2008 to the first quarter of 2009, and this decrease was attributable to elimination of computer rental costs. Advertising expense in 2009 decreased by $60,000, or 16.1%, when compared to the same period in 2008, which included marketing costs related to the Heritage acquisition. The 2009 FDIC insurance costs increased $515,000, or 170.5%, as premium expenses increased industry wide. In addition to the general increase in insurance rates, Old Second Bank elected to participate in the FDIC’s Temporary Liquidity Guarantee Program, through which all non-interest bearing transaction accounts are fully guaranteed, as are NOW accounts earning less than 0.5% interest. Other expense increased $1.2 million, or 27.2%, primarily due to increases in legal, consulting and other OREO related expenditures. The latter category includes insurance and property taxes as well as periodic valuation adjustments. An income tax benefit of $316,000 was recorded in the first quarter of 2009 as compared to $2.2 million in expense in the first quarter of 2008 primarily due to the lower level of pretax earnings in 2009 combined with a relatively high level of tax-exempt income.
Total assets decreased $82.7 million, or 2.8%, from December 31, 2008 to close at $2.90 billion as of March 31, 2009. Loans decreased by $18.7 million as demand from qualified borrowers slowed, but the largest asset category decrease was a $46.0 million, or 11.3% decrease in securities available for sale. In addition to experiencing a high rate of securities being called in the declining rate environment, the Company also sold some of the lower yielding bonds and incurred a net realized securities loss of $77,000 in the first quarter of 2009. The largest changes by loan type included a $26.9 million, or 11.0% decrease in commercial and industrial loans, which was offset by growth of $9.4 million, or 1.3%, in residential real estate loans.
Goodwill is considered preliminary for up to one year from the acquisition date, and the Company decreased the goodwill attributable to the Heritage transaction by $1.5 million in the first quarter of 2009 along with an offsetting decrease to deferred taxes. Goodwill and other intangible assets are also reviewed for potential impairment on an annual basis, or more often if events or circumstances indicate that there may be impairment, in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” and SFAS No. 144,
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“Accounting for the Impairment or Disposal of Long-Lived Assets.” Goodwill is tested for impairment at the reporting unit level and an impairment loss is recorded to the extent that the carrying amount of goodwill exceeds its implied fair value. The Company employs general industry practices in evaluating the impairment of its goodwill and other intangible assets. The Company calculates the value of goodwill using a combination of the following valuation methods: dividend discount analysis under the income approach, which calculates the present value of all excess cash flows plus the present value of a terminal value, the price/earnings multiple under the market approach and the change in control premium to market price approach. Management performed its annual review of goodwill at September 30, 2008 and has updated that review each quarter as the stock prices in the financial services sector generally remained out of favor. Management also performed an annual review of the core deposit and other intangible assets as of February 2009. Based upon these reviews, management determined there was no impairment of goodwill or other intangible assets as of March 31, 2009. No assurance can be given that future impairment tests will not result in a charge to earnings. The goodwill and core deposit and other intangible assets related to Heritage were $55.4 million and $8.9 million at acquisition.
Total deposits increased $51.4 million, or 2.2%, during the first quarter of 2009, to close at $2.44 billion as of March 31, 2009. The category of deposits that grew the most in the first quarter of 2009 was certificates of deposits, which increased $74.0 million as customers moved to lock in rates in a declining interest rate environment. Money market deposit accounts decreased by $58.3 million, from $543.3 million to $485.0 million during the same period, but this decrease was offset somewhat by growth in savings deposits of $26.9 million, or 24.4%. As noted previously, the Company also participates in the expanded FDIC insurance coverage program that became available in November 2008 and is set to expire in December 2009. The average cost of interest bearing deposits decreased from 3.53% in the first quarter of 2008 to 2.23%, or 130 basis points, in the first quarter of 2009. Likewise, the average cost of interest bearing liabilities, decreased from 3.64% in the first quarter of 2009 to 2.25% in the first quarter of 2008, or 139 basis points.
The most significant borrowing in the first quarter of 2008 occurred in January when the Company entered into a $75.5 million credit facility with LaSalle Bank National Association (now Bank of America). Part of that new credit facility replaced a $30.0 million revolving line of credit facility 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 reduced the amount outstanding on the Bank of America senior line of credit by $22.7 million in the first quarter of 2009. Other major borrowing category changes from December 31, 2008 included a decrease of $158.4 million, or 93.5%, in other short-term borrowings, primarily Federal Home Loan Bank of Chicago (“FHLBC”) advances. In the stockholders’ equity category, the United States Department of the Treasury completed its investment of $73.0 million in Series B fixed rate cumulative perpetual preferred stock and warrants to purchase common stock of the Company as part of the CPP. The $4.6 million of fair value ascribed to the warrants is carried in additional paid-in capital.
Non-GAAP Presentations: Management has traditionally disclosed 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
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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 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 2008.
7
Financial Highlights
In thousands, except share data
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| (unaudited) |
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| |||||
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| Quarter Ended |
| Year Ended |
| |||||
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| March 31, |
| December 31, |
| |||||
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| 2009 |
| 2008 |
| 2008 |
| |||
Summary Income Statement: |
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|
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|
|
| |||
Net interest income |
| $ | 22,206 |
| $ | 19,940 |
| $ | 89,514 |
|
Provision for loan losses |
| 9,425 |
| 900 |
| 30,315 |
| |||
Non-interest income |
| 9,216 |
| 8,860 |
| 35,273 |
| |||
Non-interest expense |
| 21,329 |
| 20,161 |
| 80,325 |
| |||
Income taxes |
| (316 | ) | 2,175 |
| 2,323 |
| |||
Net income |
| 984 |
| 5,564 |
| 11,824 |
| |||
Net income available to common stockholders |
| 183 |
| 5,564 |
| 11,824 |
| |||
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Key Ratios (annualized): |
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Return on average assets |
| 0.13 | % | 0.79 | % | 0.40 | % | |||
Return to common shareholders on average assets |
| 0.02 | % | 0.79 | % | 0.40 | % | |||
Return on average equity |
| 1.56 | % | 12.46 | % | 6.03 | % | |||
Return on average common equity |
| 0.37 | % | 12.46 | % | 6.03 | % | |||
Net interest margin (non-GAAP tax equivalent)(1) |
| 3.37 | % | 3.18 | % | 3.45 | % | |||
Efficiency ratio (non-GAAP tax equivalent)(1) |
| 64.92 | % | 65.58 | % | 61.97 | % | |||
Tangible capital to assets |
| 7.05 | % | 4.47 | % | 4.33 | % | |||
Tangible common capital to assets |
| 4.64 | % | 4.47 | % | 4.33 | % | |||
Total capital to risk weighted assets |
| 13.86 | % | 10.36 | % | 10.76 | % | |||
Tier 1 capital to risk weighted assets |
| 10.75 | % | 7.65 | % | 7.66 | % | |||
Tier 1 capital to average assets |
| 8.87 | % | 6.64 | % | 6.50 | % | |||
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Per Share Data: |
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| |||
Basic earnings per share |
| $ | 0.01 |
| $ | 0.43 |
| $ | 0.87 |
|
Diluted earnings per share |
| $ | 0.01 |
| $ | 0.42 |
| $ | 0.86 |
|
Dividends declared per share |
| $ | 0.04 |
| $ | 0.15 |
| $ | 0.63 |
|
Common book value per share |
| $ | 14.22 |
| $ | 14.47 |
| $ | 14.04 |
|
Tangible common book value per share |
| $ | 9.51 |
| $ | 9.53 |
| $ | 9.18 |
|
Ending number of shares outstanding |
| 13,824,561 |
| 13,740,186 |
| 13,755,884 |
| |||
Average number of shares outstanding |
| 13,791,789 |
| 13,086,940 |
| 13,584,381 |
| |||
Diluted average shares outstanding |
| 13,857,941 |
| 13,233,259 |
| 13,689,214 |
| |||
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| |||
End of Period Balances: |
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| |||
Loans |
| $ | 2,252,424 |
| $ | 2,179,656 |
| $ | 2,271,114 |
|
Deposits |
| 2,438,490 |
| 2,419,610 |
| 2,387,128 |
| |||
Stockholders’ equity |
| 265,041 |
| 198,771 |
| 193,096 |
| |||
Total earning assets |
| 2,646,875 |
| 2,749,806 |
| 2,720,142 |
| |||
Total assets |
| 2,901,857 |
| 3,000,645 |
| 2,984,605 |
| |||
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|
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| |||
Average Balances: |
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|
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|
| |||
Loans |
| $ | 2,261,910 |
| $ | 2,048,417 |
| $ | 2,181,675 |
|
Deposits |
| 2,406,827 |
| 2,281,050 |
| 2,354,925 |
| |||
Stockholders’ equity |
| 255,533 |
| 179,599 |
| 196,110 |
| |||
(1) Tabular disclosures of the tax equivalent calculation including the net interest margin and efficiency ratio for the quarters ending March 31, 2009 and 2008, respectively, are presented on page 13.
8
Financial Highlights, continued
In thousands, except share data
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| (unaudited) |
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| Quarter Ended |
| Year Ended |
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| March 31, |
| December 31, |
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| 2009 |
| 2008 |
| 2008 |
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Asset Quality |
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|
|
|
|
|
|
|
| |||
Charge-offs |
| $ | 4,527 |
| $ | 707 |
| $ | 9,383 |
|
Recoveries |
| 119 |
| 80 |
| 465 |
| |||
Net charge-offs |
| $ | 4,408 |
| $ | 627 |
| $ | 8,918 |
|
Provision for loan losses |
| 9,425 |
| 900 |
| 30,315 |
| |||
Allowance for loan losses to loans |
| 2.06 | % | 0.92 | % | 1.82 | % | |||
|
|
|
|
|
|
|
| |||
Non-accrual loans (1) |
| $ | 112,038 |
| $ | 12,354 |
| $ | 106,511 |
|
Restructured loans |
| 5,618 |
| — |
| — |
| |||
Loans past due 90 days |
| 6,045 |
| 943 |
| 2,119 |
| |||
Non-performing loans |
| 123,701 |
| 13,297 |
| 108,630 |
| |||
Other real estate |
| 18,951 |
| — |
| 15,212 |
| |||
Non-performing assets |
| $ | 142,652 |
| $ | 13,297 |
| $ | 123,842 |
|
(1) Includes $11.2 million in non-accrual restructured loans
Major Classifications of Loans |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
| |||
Commercial and industrial |
| $ | 217,166 |
| $ | 240,007 |
| $ | 244,019 |
|
Real estate - commercial |
| 933,692 |
| 781,452 |
| 929,576 |
| |||
Real estate - construction |
| 370,523 |
| 441,113 |
| 373,704 |
| |||
Real estate - residential |
| 710,587 |
| 673,575 |
| 701,221 |
| |||
Installment |
| 18,426 |
| 37,298 |
| 19,116 |
| |||
Overdraft |
| 502 |
| 800 |
| 761 |
| |||
Lease financing receivables |
| 3,355 |
| 6,886 |
| 4,396 |
| |||
|
| 2,254,251 |
| 2,181,131 |
| 2,272,793 |
| |||
Unearned origination fees, net |
| (1,827 | ) | (1,475 | ) | (1,679 | ) | |||
|
| $ | 2,252,424 |
| $ | 2,179,656 |
| $ | 2,271,114 |
|
|
|
|
|
|
|
|
| |||
Major Classifications of Deposits |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
| |||
Non-interest bearing |
| $ | 321,182 |
| $ | 312,813 |
| $ | 318,092 |
|
Savings |
| 136,871 |
| 117,915 |
| 109,991 |
| |||
NOW accounts |
| 280,557 |
| 289,223 |
| 274,888 |
| |||
Money market accounts |
| 485,011 |
| 562,774 |
| 543,325 |
| |||
Certificates of deposits of less than $100,000 |
| 781,975 |
| 659,426 |
| 724,439 |
| |||
Certificates of deposits of $100,000 or more |
| 432,894 |
| 477,459 |
| 416,393 |
| |||
|
| $ | 2,438,490 |
| $ | 2,419,610 |
| $ | 2,387,128 |
|
9
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
|
| (unaudited) |
|
|
| ||
|
| March 31, |
| December 31, |
| ||
|
| 2009 |
| 2008 |
| ||
Assets |
|
|
|
|
| ||
Cash and due from banks |
| $ | 36,840 |
| $ | 66,099 |
|
Interest bearing deposits with financial institutions |
| 293 |
| 809 |
| ||
Federal funds sold |
| 3,764 |
| 5,497 |
| ||
Short-term securities available-for-sale |
| 2,176 |
| 809 |
| ||
Cash and cash equivalents |
| 43,073 |
| 73,214 |
| ||
Securities available-for-sale |
| 359,590 |
| 405,577 |
| ||
Federal Home Loan Bank and Federal Reserve Bank stock |
| 13,044 |
| 13,044 |
| ||
Loans held-for-sale |
| 15,584 |
| 23,292 |
| ||
Loans |
| 2,252,424 |
| 2,271,114 |
| ||
Less: allowance for loan losses |
| 46,288 |
| 41,271 |
| ||
Net loans |
| 2,206,136 |
| 2,229,843 |
| ||
Premises and equipment, net |
| 61,459 |
| 62,522 |
| ||
Other real estate owned |
| 18,951 |
| 15,212 |
| ||
Mortgage servicing rights, net |
| 1,325 |
| 1,374 |
| ||
Goodwill, net |
| 57,579 |
| 59,040 |
| ||
Core deposit and other intangible asset, net |
| 7,529 |
| 7,821 |
| ||
Bank-owned life insurance (BOLI) |
| 48,881 |
| 48,754 |
| ||
Accrued interest and other assets |
| 68,706 |
| 44,912 |
| ||
Total assets |
| $ | 2,901,857 |
| $ | 2,984,605 |
|
|
|
|
|
|
| ||
Liabilities |
|
|
|
|
| ||
Deposits: |
|
|
|
|
| ||
Non-interest bearing demand |
| $ | 321,182 |
| $ | 318,092 |
|
Interest bearing: |
|
|
|
|
| ||
Savings, NOW, and money market |
| 902,439 |
| 928,204 |
| ||
Time |
| 1,214,869 |
| 1,140,832 |
| ||
Total deposits |
| 2,438,490 |
| 2,387,128 |
| ||
Securities sold under repurchase agreements |
| 34,814 |
| 46,345 |
| ||
Federal funds purchased |
| 28,100 |
| 28,900 |
| ||
Other short-term borrowings |
| 10,973 |
| 169,383 |
| ||
Junior subordinated debentures |
| 58,378 |
| 58,378 |
| ||
Subordinated debt |
| 45,000 |
| 45,000 |
| ||
Notes payable and other borrowings |
| 500 |
| 23,184 |
| ||
Accrued interest and other liabilities |
| 20,561 |
| 33,191 |
| ||
Total liabilities |
| 2,636,816 |
| 2,791,509 |
| ||
|
|
|
|
|
| ||
Stockholders’ Equity |
|
|
|
|
| ||
Preferred stock |
| 68,448 |
| — |
| ||
Common stock |
| 18,373 |
| 18,304 |
| ||
Additional paid-in capital |
| 63,677 |
| 58,683 |
| ||
Retained earnings |
| 212,658 |
| 213,031 |
| ||
Accumulated other comprehensive loss |
| (3,316 | ) | (2,123 | ) | ||
Treasury stock |
| (94,799 | ) | (94,799 | ) | ||
Total stockholders’ equity |
| 265,041 |
| 193,096 |
| ||
Total liabilities and stockholders’ equity |
| $ | 2,901,857 |
| $ | 2,984,605 |
|
10
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(In thousands, except share data)
|
| (unaudited) |
|
|
| |||||
|
| Three Months Ended |
| Year to Date |
| |||||
|
| March 31, |
| December 31, |
| |||||
|
| 2009 |
| 2008 |
| 2008 |
| |||
Interest and Dividend Income |
|
|
|
|
|
|
| |||
Loans, including fees |
| $ | 30,114 |
| $ | 34,305 |
| $ | 135,335 |
|
Loans held-for-sale |
| 312 |
| 224 |
| 637 |
| |||
Securities: |
|
|
|
|
|
|
| |||
Taxable |
| 3,796 |
| 4,729 |
| 15,745 |
| |||
Tax-exempt |
| 1,431 |
| 1,484 |
| 5,937 |
| |||
Dividends from Federal Reserve Bank and Federal Home Loan Bank stock |
| 56 |
| 17 |
| 83 |
| |||
Federal funds sold |
| 2 |
| 29 |
| 146 |
| |||
Interest bearing deposits |
| 2 |
| 4 |
| 44 |
| |||
Total interest and dividend income |
| 35,713 |
| 40,792 |
| 157,927 |
| |||
Interest Expense |
|
|
|
|
|
|
| |||
Savings, NOW, and money market deposits |
| 1,846 |
| 4,810 |
| 14,513 |
| |||
Time deposits |
| 9,701 |
| 12,324 |
| 42,046 |
| |||
Securities sold under repurchase agreements |
| 98 |
| 336 |
| 837 |
| |||
Federal funds purchased |
| 42 |
| 970 |
| 1,372 |
| |||
Other short-term borrowings |
| 147 |
| 789 |
| 2,593 |
| |||
Junior subordinated debentures |
| 1,072 |
| 1,065 |
| 4,281 |
| |||
Subordinated debt |
| 490 |
| 315 |
| 1,831 |
| |||
Notes payable and other borrowings |
| 111 |
| 243 |
| 940 |
| |||
Total interest expense |
| 13,507 |
| 20,852 |
| 68,413 |
| |||
Net interest and dividend income |
| 22,206 |
| 19,940 |
| 89,514 |
| |||
Provision for loan losses |
| 9,425 |
| 900 |
| 30,315 |
| |||
Net interest and dividend income after provision for loan losses |
| 12,781 |
| 19,040 |
| 59,199 |
| |||
Non-interest Income |
|
|
|
|
|
|
| |||
Trust income |
| 1,889 |
| 2,182 |
| 8,061 |
| |||
Service charges on deposits |
| 2,112 |
| 2,055 |
| 9,318 |
| |||
Secondary mortgage fees |
| 409 |
| 283 |
| 890 |
| |||
Mortgage servicing income |
| 137 |
| 152 |
| 565 |
| |||
Net gain on sales of mortgage loans |
| 2,486 |
| 1,945 |
| 5,856 |
| |||
Securities (losses) gains, net |
| (77 | ) | 308 |
| 1,882 |
| |||
Increase in cash surrender value of bank-owned life insurance |
| 127 |
| 287 |
| 616 |
| |||
Debit card interchange income |
| 576 |
| 551 |
| 2,366 |
| |||
Other income |
| 1,557 |
| 1,097 |
| 5,719 |
| |||
Total non-interest income |
| 9,216 |
| 8,860 |
| 35,273 |
| |||
Non-interest Expense |
|
|
|
|
|
|
| |||
Salaries and employee benefits |
| 10,885 |
| 11,623 |
| 44,525 |
| |||
Occupancy expense, net |
| 1,515 |
| 1,438 |
| 6,003 |
| |||
Furniture and equipment expense |
| 1,740 |
| 1,786 |
| 6,850 |
| |||
FDIC insurance |
| 817 |
| 302 |
| 1,465 |
| |||
Amortization of core deposit and other intangible asset |
| 292 |
| 200 |
| 1,096 |
| |||
Advertising expense |
| 432 |
| 372 |
| 2,013 |
| |||
Other expense |
| 5,648 |
| 4,440 |
| 18,373 |
| |||
Total non-interest expense |
| 21,329 |
| 20,161 |
| 80,325 |
| |||
Income before income taxes |
| 668 |
| 7,739 |
| 14,147 |
| |||
(Benefit) provision for income taxes |
| (316 | ) | 2,175 |
| 2,323 |
| |||
Net income |
| 984 |
| 5,564 |
| 11,824 |
| |||
Preferred stock dividends |
| 801 |
| — |
| — |
| |||
Net income available to common stockholders |
| $ | 183 |
| $ | 5,564 |
| $ | 11,824 |
|
|
|
|
|
|
|
|
| |||
Basic earnings per share |
| $ | 0.01 |
| $ | 0.43 |
| $ | 0.87 |
|
Diluted earnings per share |
| 0.01 |
| 0.42 |
| 0.86 |
| |||
Dividends declared per share |
| 0.04 |
| 0.15 |
| 0.63 |
| |||
11
ANALYSIS OF AVERAGE BALANCES,
TAX EQUIVALENT INTEREST AND RATES
Three Months ended March 31, 2009 and 2008
(Dollar amounts in thousands- unaudited)
|
| 2009 |
| 2008 |
| ||||||||||||
|
| Average |
|
|
|
|
| Average |
|
|
|
|
| ||||
|
| Balance |
| Interest |
| Rate |
| Balance |
| Interest |
| Rate |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest bearing deposits |
| $ | 856 |
| $ | 2 |
| 0.93 | % | $ | 801 |
| $ | 4 |
| 1.98 | % |
Federal funds sold |
| 8,307 |
| 2 |
| 0.10 |
| 3,901 |
| 29 |
| 2.94 |
| ||||
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Taxable |
| 320,179 |
| 3,796 |
| 4.74 |
| 394,319 |
| 4,729 |
| 4.80 |
| ||||
Non-taxable (tax equivalent) |
| 146,503 |
| 2,202 |
| 6.01 |
| 154,101 |
| 2,283 |
| 5.93 |
| ||||
Total securities |
| 466,682 |
| 5,998 |
| 5.14 |
| 548,420 |
| 7,012 |
| 5.11 |
| ||||
Dividends from FRB and FHLB stock |
| 13,044 |
| 56 |
| 1.72 |
| 9,802 |
| 17 |
| 0.69 |
| ||||
Loans and loans held-for-sale |
| 2,286,003 |
| 30,482 |
| 5.33 |
| 2,064,136 |
| 34,574 |
| 6.63 |
| ||||
Total interest earning assets |
| 2,774,892 |
| 36,540 |
| 5.27 |
| 2,627,060 |
| 41,636 |
| 6.28 |
| ||||
Cash and due from banks |
| 45,406 |
| — |
| — |
| 47,940 |
| — |
| — |
| ||||
Allowance for loan losses |
| (43,298 | ) | — |
| — |
| (18,960 | ) | — |
| — |
| ||||
Other non-interest bearing assets |
| 234,430 |
| — |
| — |
| 170,562 |
| — |
| — |
| ||||
Total assets |
| $ | 3,011,430 |
|
|
|
|
| $ | 2,826,602 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
NOW accounts |
| $ | 274,651 |
| $ | 276 |
| 0.41 | % | $ | 255,415 |
| $ | 802 |
| 1.26 | % |
Money market accounts |
| 524,348 |
| 1,429 |
| 1.11 |
| 523,664 |
| 3,822 |
| 2.94 |
| ||||
Savings accounts |
| 120,045 |
| 141 |
| 0.48 |
| 102,952 |
| 186 |
| 0.73 |
| ||||
Time deposits |
| 1,181,042 |
| 9,701 |
| 3.31 |
| 1,071,852 |
| 12,324 |
| 4.62 |
| ||||
Total interest bearing deposits |
| 2,100,086 |
| 11,547 |
| 2.23 |
| 1,953,883 |
| 17,134 |
| 3.53 |
| ||||
Securities sold under repurchase agreements |
| 50,066 |
| 98 |
| 0.79 |
| 43,763 |
| 336 |
| 3.09 |
| ||||
Federal funds purchased |
| 34,183 |
| 42 |
| 0.49 |
| 110,435 |
| 970 |
| 3.47 |
| ||||
Other short-term borrowings |
| 123,064 |
| 147 |
| 0.48 |
| 86,266 |
| 789 |
| 3.62 |
| ||||
Junior subordinated debentures |
| 58,378 |
| 1,072 |
| 7.35 |
| 58,044 |
| 1,065 |
| 7.34 |
| ||||
Subordinated debt |
| 45,000 |
| 490 |
| 4.36 |
| 26,703 |
| 315 |
| 4.67 |
| ||||
Notes payable and other borrowings |
| 18,611 |
| 111 |
| 2.39 |
| 22,219 |
| 243 |
| 4.33 |
| ||||
Total interest bearing liabilities |
| 2,429,388 |
| 13,507 |
| 2.25 |
| 2,301,313 |
| 20,852 |
| 3.64 |
| ||||
Non-interest bearing deposits |
| 306,741 |
| — |
| — |
| 327,167 |
| — |
| — |
| ||||
Accrued interest and other liabilities |
| 19,768 |
| — |
| — |
| 18,523 |
| — |
| — |
| ||||
Stockholders’ equity |
| 255,533 |
| — |
| — |
| 179,599 |
| — |
| — |
| ||||
Total liabilities and stockholders’ equity |
| $ | 3,011,430 |
|
|
|
|
| $ | 2,826,602 |
|
|
|
|
| ||
Net interest income (tax equivalent) |
|
|
| $ | 23,033 |
|
|
|
|
| $ | 20,784 |
|
|
| ||
Net interest income (tax equivalent) to total earning assets |
|
|
|
|
| 3.37 | % |
|
|
|
| 3.18 | % | ||||
Interest bearing liabilities to earnings assets |
| 87.55 | % |
|
|
|
| 87.60 | % |
|
|
|
| ||||
Notes: | Non-accrual loans are included in the above stated average balances. |
| Tax equivalent basis is calculated using a marginal tax rate of 35%. |
12
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, |
| |||||
|
| 2009 |
| 2008 |
| 2008 |
| |||
Net Interest Margin |
|
|
|
|
|
|
| |||
Interest income (GAAP) |
| $ | 35,713 |
| $ | 40,792 |
| $ | 157,927 |
|
Taxable-equivalent adjustment: |
|
|
|
|
|
|
| |||
Loans |
| 56 |
| 45 |
| 215 |
| |||
Investments |
| 771 |
| 799 |
| 3,197 |
| |||
Interest income - FTE |
| 36,540 |
| 41,636 |
| 161,339 |
| |||
Interest expense (GAAP) |
| 13,507 |
| 20,852 |
| 68,413 |
| |||
Net interest income - FTE |
| $ | 23,033 |
| $ | 20,784 |
| $ | 92,926 |
|
Net interest income - (GAAP) |
| $ | 22,206 |
| $ | 19,940 |
| $ | 89,514 |
|
Average interest earning assets |
| $ | 2,774,892 |
| $ | 2,627,060 |
| $ | 2,692,648 |
|
Net interest margin (GAAP) |
| 3.25 | % | 3.05 | % | 3.32 | % | |||
Net interest margin - FTE |
| 3.37 | % | 3.18 | % | 3.45 | % | |||
|
|
|
|
|
|
|
| |||
Efficiency Ratio |
|
|
|
|
|
|
| |||
Non-interest expense |
| $ | 21,329 |
| $ | 20,161 |
| $ | 80,325 |
|
Less amortization of core deposit and other intangible asset |
| 292 |
| 200 |
| 1,096 |
| |||
Less loss on sale of OREO |
| 52 |
| — |
| 13 |
| |||
Less one time settlement to close office |
| — |
| 55 |
| 55 |
| |||
Less merger costs (adjusted in Q4) |
| — |
| 667 |
| 881 |
| |||
Adjusted Noninterest expense |
| 20,985 |
| 19,239 |
| 78,280 |
| |||
|
|
|
|
|
|
|
| |||
Net interest income (GAAP) |
| 22,206 |
| 19,940 |
| 89,514 |
| |||
Taxable-equivalent adjustment: |
|
|
|
|
|
|
| |||
Loans |
| 56 |
| 45 |
| 215 |
| |||
Investments |
| 771 |
| 799 |
| 3,197 |
| |||
Net interest income - FTE |
| 23,033 |
| 20,784 |
| 92,926 |
| |||
Non-interest income |
| 9,216 |
| 8,860 |
| 35,273 |
| |||
Less securities (losses) gains, net |
| (77 | ) | 308 |
| 1,882 |
| |||
Non-interest income net of securities (losses) gains, net plus net interest income - FTE |
| 32,326 |
| 29,336 |
| 126,317 |
| |||
Efficiency ratio |
| 64.92 | % | 65.58 | % | 61.97 | % | |||
13
