Exhibit 99.1
Old Second Bancorp, Inc. | For Immediate Release | |
(Nasdaq: OSBC) | July 23, 2009 | |
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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 Results
AURORA, Illinois — Old Second Bancorp, Inc. (Nasdaq: OSBC) today announced a loss of $4.29 per diluted share for the second quarter of 2009 on $58.4 million of net loss. This compares to earnings per diluted share of $.53, on $7.3 million of net income for the same quarter in the prior year. The loss per diluted share in the first half of 2009 was $4.28, on $57.4 million in net loss, as compared to $.95 of earnings per diluted share, on $12.9 million in net income in the first half of 2008. The Company recognized a pre-tax goodwill impairment charge of $57.6 million in the second quarter of 2009 as detailed below. This charge was partially offset by a related tax benefit of $22.0 million. The Company also recorded a $56.9 million provision for loan losses in the first half of 2009, which included an addition of $47.5 million in the second quarter. Net loan charge-offs totaled $23.6 million in the first half of 2009, which included $19.2 million of net charge-offs in the second quarter. The provision for loan losses in the first half of 2008 was $2.8 million, which included an addition of $1.9 million in the second quarter of 2008. Net loan charge-offs totaled $1.1 million in the first half of 2008, which included $464,000 of net charge-offs in the second quarter of 2008. The net loss available to common stockholders was $59.7 million and $59.5 million, respectively, for the second quarter and first half of 2009, as compared to net income available to common shareholders of $7.3 million and $12.9 million, respectively, for the same periods in 2008.
In announcing these results, the Company’s Chairman and CEO, William Skoglund, stated, “The financial system in the United States, including our credit markets and markets for real estate and related assets, have been in a state of unprecedented disorder since early 2008. These nationwide disruptions have resulted in extraordinary declines in the values of real estate and associated asset types, including the availability of ready markets, and have impacted the ability of many borrowers to continue to pay on their obligations.” Chairman Bill Skoglund added, “Because of these ongoing economic conditions in the second quarter, we greatly increased our provision for loan losses, and experienced an increase in both loans charged off and nonperforming assets, and our net income has declined considerably as a result. These factors, coupled with the decrease in the market capitalization of our common stock, have resulted in the impairment of goodwill, which caused us to record a noncash charge to earnings of $57.6 million, but that accounting charge was offset by a substantial tax benefit of $22.0 million.”
Goodwill arises from business acquisitions and represents the value attributable to unidentifiable intangible elements in the business acquired. Of the $57.6 million second quarter 2009 noncash charge, $55.4 million originated from the February 8, 2008 acquisition of HeritageBanc, Inc. and Heritage Bank. Management regularly reviews the operating environment and strategic direction of Old Second National Bank (“the Bank”) in accordance with accounting guidance, to assess if the fair value of that reporting unit exceeds its carrying amount. With the decline in the market price per share and earnings, and the increase in nonperforming assets, particularly loans, and the related increase in charge-offs, the second quarter 2009 analysis and valuation process resulted in management’s determination that goodwill was impaired. The portion of the goodwill intangible asset charge that was attributable to Heritage is tax deductible and has an associated $22.0 million tax benefit. Although not anticipated, there can be no guarantee that a valuation allowance against the resultant deferred tax asset will not be necessary in future periods. Given the noncash nature of a goodwill impairment charge, this noninterest expense item had no adverse affect upon the Company’s liquidity position.
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At June 30, 2009, the Company’s regulatory total capital and Tier 1 capital to risk weighted assets ratios were 13.15% and 9.94% as compared to 10.76% and 7.66% at December 31, 2008. The same capital ratios at the Bank were 11.54% and 10.27% at June 30, 2009 compared to 11.54% and 10.29% at December 31, 2008. All of the Bank’s capital ratios continue to be in excess of the regulatory guidelines for classification as “well-capitalized,” which is the highest regulatory capital classification.
Net interest income increased $1.4 million, from $42.5 million in the first half of 2008, to $43.9 million in the first half of 2009. Average earning assets increased slightly, by $25.4 million, or .95%, from June 30, 2008 to June 30, 2009, as management continued to place increasing emphasis upon asset quality and loan growth from qualified borrowers was limited. Average interest bearing liabilities decreased $23.3 million, or .98%, during the same period. The decrease in average interest bearing liabilities was influenced by these same factors. The net interest margin (tax equivalent basis), expressed as a percentage of average earning assets, increased from 3.32% in the first half of 2008 to 3.39% in the first half of 2009. The average tax-equivalent yield on earning assets decreased from 6.12% in the first half of 2008 to 5.24%, or 88 basis points, in the first half of 2009. At the same time, however, the cost of funds on interest bearing liabilities decreased from 3.27% to 2.20%, or 107 basis points, and the general decrease in interest rates lowered interest expense to a greater degree than it reduced interest income.
Net interest income decreased $854,000 from $22.5 million in the second quarter of 2008 to $21.7 million in the second quarter of 2009. The decrease in average earning assets on a quarterly comparative basis was $96.3 million, or 3.5%, from June 30, 2008 to June 30, 2009 due in part to the lack of demand from qualified borrowers. Average interest bearing liabilities decreased $173.8 million, or 7.1%, during the same period. The net interest margin (tax-equivalent basis), expressed as a percentage of average earning assets, decreased from 3.44% in the second quarter of 2008 to 3.42% in the second quarter of 2009. The average tax-equivalent yield on earning assets decreased from 5.96% in the second quarter of 2008 to 5.20% in the second quarter of 2009, or 76 basis points. The cost of interest-bearing liabilities also decreased from 2.92% to 2.15%, or 77 basis points in the same period, but the continued higher level of nonaccrual loans combined with the repricing of interest bearing assets and liabilities in a lower interest rate environment decreased interest income to a greater degree than it decreased interest expense.
In the first half of 2009, the Company recorded a $56.9 million provision for loan losses, which included an addition of $47.5 million in the second quarter. In the first half of 2008, the provision for loan losses was $2.8 million, which included an addition of $1.9 million in the second quarter. An additional $3.0 million of allowance for loan losses was also assumed in the Heritage acquisition in the first quarter of 2008. Nonperforming loans increased to $178.6 million at June 30, 2009 from $108.6 million at December 31, 2008, and $30.7 million at June 30, 2008. Charge-offs, net of recoveries, totaled $23.6 million and $1.1 million in the first six months of 2009 and 2008, respectively. Net charge-offs totaled $19.2 million in the second quarter of 2009 and $464,000 in the second quarter of 2008. Provisions for loan losses are made to provide for probable and estimable losses inherent in the loan portfolio. The distribution of the Company’s nonperforming loans at June 30, 2009 is included in the chart below (in thousands):
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| 90 Days |
| Restructured |
| Total Non |
| % Non |
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| Nonaccrual |
| or More |
| Loans |
| performing |
| Performing |
| Specific |
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| Total (1) |
| Past Due |
| (Accruing) |
| Loans |
| Loans |
| Allocation |
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Real Estate - Construction |
| $ | 94,898 |
| $ | — |
| $ | — |
| $ | 94,898 |
| 53.1 | % | $ | 11,603 |
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Real Estate - Residential: |
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Investor |
| 28,315 |
| 400 |
| — |
| 28,715 |
| 16.1 | % | 2,134 |
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Owner Occupied |
| 14,983 |
| 430 |
| 2,871 |
| 18,284 |
| 10.2 | % | 652 |
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Revolving and Junior Liens |
| 1,233 |
| — |
| — |
| 1,233 |
| 0.7 | % | 149 |
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Real Estate - Commercial, Nonfarm |
| 22,814 |
| 8,846 |
| 298 |
| 31,958 |
| 17.9 | % | 2,041 |
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Real Estate - Commercial, Farm |
| 638 |
| 1,392 |
| — |
| 2,030 |
| 1.1 | % | 218 |
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Commercial and Industrial |
| 721 |
| 222 |
| — |
| 943 |
| 0.5 | % | 390 |
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Other |
| 530 |
| — |
| — |
| 530 |
| 0.3 | % | 376 |
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| $ | 164,132 |
| $ | 11,290 |
| $ | 3,169 |
| $ | 178,591 |
| 100.0 | % | $ | 17,563 |
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(1) Nonaccrual loans included $21.8 million in restructured loans, of which $8.7 million is in real estate construction, $5.5 million in
commercial real estate, $5.6 million is in real estate - residential investor and $2.0 million is in real estate - owner occupied.
On a linked quarter basis, the largest increase in nonperforming loans was in the real estate construction segment of the loan portfolio. This segment increased $29.4 million, or 45.0%, despite second quarter charge-offs totaling $15.7 million and year to date charge offs totaling $19.2 million. This increase was primarily attributable to the continued weakening of economic conditions within that sector, which also hampers the individual borrower’s ability to service its debt from the sale of completed units. In addition to the general lack of readily available markets for real estate, the problems in this sector are compounded by the continued decline in valuations of the related real estate assets. The subcomponent detail for the real estate construction segment is as below at June 30, 2009 (in thousands):
Real Estate - Construction
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| 90 Days |
| Restructured |
| Total Non |
| % Non |
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| Nonaccrual |
| or More |
| Loans |
| performing |
| Performing |
| Specific |
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| Total |
| Past Due |
| (Accruing) |
| Loans |
| Loans |
| Allocation |
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Homebuilder |
| $ | 55,853 |
| $ | — |
| $ | — |
| $ | 55,853 |
| 58.9 | % | $ | 8,695 |
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Commercial |
| 14,930 |
| — |
| — |
| 14,930 |
| 15.7 | % | 328 |
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Land |
| 18,863 |
| — |
| — |
| 18,863 |
| 19.9 | % | 1,185 |
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Other |
| 5,252 |
| — |
| — |
| 5,252 |
| 5.5 | % | 1,395 |
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| $ | 94,898 |
| $ | — |
| $ | — |
| $ | 94,898 |
| 100 | % | $ | 11,603 |
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Commercial real estate was the Company’s second largest category representing 17.9% of the nonperforming loan portfolio, and 39.6% of this amount consists of strip mall or other retail properties where cash flows are insufficient to support the debt. Management has been in the process of administering a variety of workout strategies with the borrowers and such remedies could include a restructure option to allow more time to obtain additional tenants for a specific property or liquidation of the borrower. Management estimated that a loss allocation of $1.4 million was adequate coverage on that category. The remaining nonperforming commercial real estate loans include a variety of owner occupied and non-owner occupied properties. Management estimated that a loss allocation of $619,000 was sufficient after charging off $288,000 in the second quarter of 2009.
Approximately 27.7% of the nonperforming commercial real estate category was past due ninety days or more and still accruing. As of the end of the quarter, management was in various stages of collection on these credits, and believed them to be sufficiently secured in terms of current collateral valuation and/or guarantor support. Negotiations were in process to bring those loans current via a variety of means, ranging from the borrower selling a property, to a possible refinance, to modified terms that would not meet the threshold for a troubled debt restructuring. Management believed it is likely these loans can be brought current and returned to performing status, but that outcome is not certain.
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Nonperforming residential investor loans consist of multi-family and one to four family properties that totaled $28.7 million and accounted for 16.1% of the nonperforming loan total. Approximately 13.5% of the Company’s single-family investor loans and 6.8% of the multi-family investor loans were nonperforming as of June 30, 2009. A significant portion of these totals was attributable to a single borrower relationship totaling $14.7 million and was comprised of approximately $8.3 million in multi-family investment properties and $6.3 million in one to four family investment properties. This relationship accounted for 51.1% of the total residential investor nonperforming loan total. Management charged off $867,000 related to that borrower during the second quarter of 2009 and estimated that no additional specific allocations were needed as of June 30, 2009 based upon a review of recent appraisals.
A second single relationship accounted for $6.4 million, or 22.4%, of the nonperforming loans in the residential investor category. In the aggregate, these credits are secured by forty single-family homes. These homes are substantially rented with few vacancies, but the cash flow has been insufficient to fully support the contractual repayment terms. Management has entered into a forbearance agreement with this borrower and this credit was categorized as a troubled debt restructuring within the nonaccrual portfolio. Under the terms of the forbearance agreement, a cash collateral arrangement has been established whereby all rental receipts are collected by the Company, and the net cash flow after expenses is retained and applied to the loan on a monthly basis. This net cash flow has been sufficient to provide for principal reductions. As a result of the cash flow analysis, management has estimated that a specific allocation of $1.6 million was sufficient coverage on this loan relationship.
Other residential investment loans totaling $7.6 million were comprised of several different borrower relationships. The Bank has deployed a variety of work out methods for these credits and management has estimated a specific allocation of $496,000 would be sufficient to cover the estimated loss on this portfolio segment. The $400,000 residential investor loan in the table above was past due more than ninety days and still accruing interest does cash flow for repayment purposes and management expects that loan will be brought current.
Residential loans to individuals totaling $18.3 million comprise 10.2% of the nonperforming loans total at June 30, 2009, which was approximately 7.6% of the Company’s total owner occupied residential portfolio. $2.9 million of this total was considered to be restructured. This grouping was comprised of credits in forbearance/foreclosure avoidance programs where the borrower’s income source has been impaired and the Company has made a concession to temporarily reduce payments and/or interest rates. Approximately $15.0 million of the residential portfolio was in nonaccrual status and most of these loans were in various stages of foreclosure. Approximately $430,000 of the residential category was past due more than ninety days and still accruing interest. Management has estimated that a specific allocation of $652,000 will be sufficient to cover the estimated loss on this residential portfolio.
Farmland loans totaling $2.0 million comprise 1.1% of the nonperforming loans at June 30, 2009, and approximately 3.8% of this aggregate loan portfolio category was nonperforming. The ninety days past due and still accruing interest category consisted of a single family farm relationship. While the cash flows from the farm operation are insufficient to support the current debt structure, there is ample collateral support and management is in the process of negotiating a debt modification plan that includes a voluntary liquidation.
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, but decreased to $27.2 million at June 30, 2009. Of the June 30, 2009 past due amount, $2.9 million, or 11.0%, were for various past due commercial land development and construction credits, $3.8 million, or 14.0%, were secured by one to four family real estate credits, $2.2 million, or 7.9%, were secured by multi-family properties, $15.3 million, or 56.2%, were secured by nonfarm nonresidential properties and $2.1 million, or 7.5%, were commercial and industrial credits with the balance of nonperformers attributable to various installment and three small farm loan credits. Of the $15.3 million
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that was secured by nonfarm nonresidential properties, one loan to a single borrower of approximately $10.0 million was brought current subsequent to the quarter end.
As of the June 30, 2009 loan portfolio total, the Company had 15.4% invested in real estate construction and development loans and 43.0% 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. Subsequent valuations were substantially based upon updated appraisals. 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 41.74% as of June 30, 2009, as compared to 37.99% at December 31, 2008 and 70.21% at June 30, 2008. While this ratio decreased as compared to June 30, 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. Management assigned a higher factor for the higher risk construction and development portfolio in the first quarter of 2009 and increased that factor again in the second quarter. Management also assigned a higher risk factor for segments of the commercial real estate portfolio in the second quarter of 2009. These changes in estimates were made by management to be directionally consistent with observable trends within both the loan portfolio segments and in conjunction with continued deteriorating market conditions. 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 3.37% at June 30, 2009 as compared to 1.82% at December 31, 2008, and 0.97% at June 30, 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 $378,000 from $15.2 million at December 31, 2008, to $15.6 million at June 30, 2009. Of this amount, $9.7 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 $1.9 million in the first half of 2009, which was offset by $1.7 million in townhome sales and other adjustments. Management based the original estimated value of the project upon appraisals as well as the actual sales data for the townhome portion. In the second quarter of 2009, management reviewed and lowered the estimated valuations by $3.0 million as it related to the lots zoned for condominium and retail development. The remaining OREO consisted of multiple properties of different types. This property group totaled $2.6 million at December 31, 2008 and increased by approximately $3.2 million to $5.8 million as of June 30, 2009. Activity in the first half of the year included additions of $5.8 million, which was offset by disposals of $2.2 million, and valuation reductions of $390,000, the majority of which was on the combined estimated value of residential real estate including construction lot inventory. The composition of the OREO properties not related to the mixed use development project at June 30, 2009 included $1.9 million in commercial real estate, $2.0 million in residential lots located in different local communities, and $1.9 million of value was ascribed to thirteen single-family residences.
Noninterest income was $10.0 million during the second quarter of 2009 and $10.1 million during the second quarter of 2008, a decrease of $123,000, or 1.2%. For the first half of 2009, however, aggregate noninterest income increased by $233,000, or 1.2%, to $19.2 million as compared to $19.0 million for the same period in 2008. Trust income decreased $344,000, or 15.7%, and $637,000, or 14.6%, for the second quarter and first half of 2009, respectively, primarily due to decreases in the volume of assets under management as asset values have continued to decrease. Total mortgage banking income in the second quarter of 2009, including net gain on sales of mortgage loans, secondary market fees, and servicing income, was $3.3 million, and increased $1.2 million, or 54.6%, from the second quarter of 2008. The largest increase in income from
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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 in early 2009. Those same factors also allowed mortgage-banking operations to increase income $1.8 million, or 40.3%, from $4.5 million in the first half of 2008 to $6.3 million for the same period in 2009. Service charge income decreased $140,000, or 6.1%, in the second quarter of 2009, and $83,000, or 1.9%, for the year to date period. The primary source of the decreases for both periods was a decline in overdraft charges.
Realized gains on securities totaled $1.4 million in the second quarter of 2009 and $1.3 million for the year as compared to $1.1 million in the second quarter of 2008 and $1.4 million for that year. Bank owned life insurance (“BOLI”) income reversed the trend of decreasing return in the second quarter of 2009 and was $14,000, or 4.2%, higher than the same period in 2008, as the rates of return began to stabilize on the underlying insurance investments. For the first half of 2009, however, BOLI income decreased $146,000, or 23.5%, from the same period in 2008. The net loss on interest rate swap activity with customers included fee income of $580,000 and $970,000 for the second quarter and first six months of 2009, respectively, but was offset by a credit risk valuation expense of $1.5 million on the estimated aggregate swap position exposure at June 30, 2009. Other noninterest income decreased $51,000, or 4.0%, in the second quarter of 2009, but was increased by $19,000 for the year to date period. Even though automatic teller machine surcharge and interchange fees increased for both periods, decreases in fee income from brokerage activities more than outpaced that growth in the second quarter of 2009.
Noninterest expense was $80.5 million during the second quarter of 2009, an increase of $60.4 million, from $20.1 million in the second quarter of 2008. Excluding the nonrecurring goodwill impairment charge of $57.6 million, and the net OREO valuation adjustment of $2.9 million that was substantially on one multiuse project, noninterest expense decreased by $80,000, or .4%. Excluding those same exceptions, noninterest expense was $41.1 million during the first half of 2009, an increase of $817,000, or 2.0%, from $40.2 million in the second half of 2008. The reductions in salaries and benefits expense were significant for both the year to date and quarterly comparative periods. This expense decreased by $1.9 million, or 16.4%, when comparing the second quarter of 2009 to the same period in 2008. As previously announced, management made the decision to delay filling open positions and completed a reduction of force late in March 2009. On a linked quarter basis, management estimates this reduced operating expenses by approximately $2.1 million in the second quarter of 2009. That initiative, combined with the first quarter elimination of management bonuses and profit sharing contributions, substantially resulted in the $2.6 million, or 11.4%, decrease in employee related expenses when comparing the first six months of 2009 to the same period in 2008.
Occupancy expense increased $86,000, or 5.5%, from the second quarter of 2008 to the second quarter of 2009. Occupancy expense increased $163,000, or 5.4%, from the first half of 2008 to the first half of 2009. The increases for both of the above periods were largely due to a second quarter 2009 charge of $125,000 that was recorded for the combined cost of early leasehold termination charges and related acceleration of the leasehold improvement costs for the three branches that are being closed in the third quarter. Excluding those costs, the largest category increase in occupancy expense for both the quarter and year to date periods was for real estate taxes. Management is actively reviewing county assessments as part of the overall cost control strategy. On a quarterly and year to date comparative basis, furniture and equipment expense increased $157,000, or 9.9%, and $111,000, or 3.3%, largely due to increased depreciation costs.
On a quarterly and year to date comparative basis, the Federal Deposit Insurance Corporation (“FDIC”) costs increased $2.1 million, or 681.0%, and $2.6 million, or 429.1%, respectively. These premium expenses increased industry wide and, in the second quarter of 2009, the FDIC levied an additional special assessment of $1.3 million. In addition to that assessment and a general increase in insurance rates, we 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, and that election also caused an increase in the assessment. Second quarter 2009 advertising expense decreased by
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$394,000, or 62.0%, when compared to the same period in 2008, primarily due to decreased print advertising and direct mail costs. Similarly, advertising expense in the first half of 2009 decreased $334,000, or 33.1%, as compared to the first half of 2008.
OREO expense increased $3.0 million in the second quarter and $3.9 million in the first half of 2009 as compared to the same periods in 2008. The increase for both the quarterly and year to date periods was primarily due to the previously discussed valuation expense. Excluding that charge, the largest expenses incurred in administering OREO were property taxes and insurance. Other expense decreased $204,000, or 4.9%, from $4.1 million in the second quarter of 2008 to $3.9 million in the same period of 2009. This decrease resulted primarily from reductions in mortgage servicing rights impairment recognition, net of amortization charges related to those rights, and decreased sales incentive program costs. Other expense increased $113,000, or 1.3%, from $8.6 million in the second quarter of 2008 to $8.7 million in the same period of 2009. This increase was primarily due to increased legal and consulting fees.
An income tax benefit of $37.9 million was recorded in the second quarter of 2009 as compared to $3.3 million in expense in the same period of 2008. Likewise, an income tax benefit of $38.2 million was recorded in the first half of 2009 as compared to $5.5 million in expense in the same period of 2008. During the three and six month periods ended June 30, 2009, our taxable income significantly decreased compared to the same periods in 2008, primarily due to the results of our operations during the three and six-month periods ended June 30, 2009.
Total assets decreased $264.4 million, or 8.9%, from December 31, 2008 to close at $2.72 billion as of June 30, 2009. Loans decreased by $58.1 million as demand from qualified borrowers continued to lessen, but the largest asset category decrease was a $159.3 million, or 39.3% decrease in securities that were available-for-sale. In addition to experiencing a high rate of securities being called due to the declining rates experienced in the first quarter, the Company also sold bonds and recognized a net realized securities gain of $1.3 million in the first half of 2009. The largest changes by loan type includes decreases in commercial and industrial, real estate construction and residential real estate loans of $32.2 million, $32.4 million and $16.7 million or 13.2%, 8.7% and 2.4%, respectively. These decreases were somewhat offset by growth of $23.0 million, or 2.5%, in real estate commercial loans.
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, “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. The continued decline in enterprise value including a reduction in earnings, and the increase in nonperforming assets, particularly loans and the related increase in charge-offs, the second quarter 2009 analysis and valuation process resulted in a determination by management that goodwill was impaired. In addition to the valuation adjustment of $1.4 million that was made in the first quarter, a noncash impairment charge of $57.6 million was recorded in the second quarter of 2009. As disclosed above, the portion of the goodwill intangible asset charge that was attributable to Heritage was tax deductible and had an associated $22.0 million tax benefit, and although not anticipated, there can be no guarantee that a tax valuation allowance will not be necessary in future periods.
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 other intangible assets as of June 30, 2009. No assurance can be given that future impairment tests will not result in a charge to earnings. The core deposit and other intangible assets related to Heritage were $8.9 million at acquisition.
7
Total deposits decreased $37.9 million, or 1.6%, during the first half of 2009, to close at $2.35 billion as of June 30, 2009. The category of deposits that declined the most in the first half of 2009 was certificates of deposit, which decreased $45.4 million primarily due to a change in pricing strategy that required customers to have a core deposit relationship with the Bank to receive a higher rate on a certificate of deposit. Money market deposit accounts decreased by $148.3 million, from $543.3 million to $395.0 million during the same period. These decreases were offset by growth in NOW deposits of $107.6 million or 39.1% and savings deposits growth of $50.7 million, or 46.1%. 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 2.84% in the second quarter of 2008 to 2.06%, or 78 basis points, in the second quarter of 2009. Likewise, the average cost of interest bearing liabilities decreased from 2.92% in the second quarter of 2009 to 2.15% in the second quarter of 2008, or 77 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, which included the $30.0 million revolving line described above, and $500,000 in term debt as well as $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 half of 2009. The preceding credit facility agreement contains usual and customary provisions regarding acceleration of the senior debt upon the occurrence of an event of default by the Company under the agreement, as described therein. The agreement also contains certain customary representations and warranties and financial and negative covenants. At June 30, 2009, the Company did not comply with two of the financial covenants contained within that credit agreement and the Company is in discussion with Bank of America on this issue. The Company did not comply with the same two covenants at March 31, 2009 and the lender subsequently granted the Company a waiver, which required payment of a waiver fee as well as reimbursement of costs and expenses related to granting the waiver. Other major borrowing category changes from December 31, 2008 included a decrease of $158.2 million, or 93.4%, 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 Capital Purchase Program. The $4.8 million of fair value that was 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 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
8
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.
9
Financial Highlights (unaudited)
In thousands, except share data
|
| Three Months Ended |
| Year to Date |
| ||||||||
|
| June 30, |
| June 30, |
| ||||||||
|
| 2009 |
| 2008 |
| 2009 |
| 2008 |
| ||||
Summary Income Statement: |
|
|
|
|
|
|
|
|
| ||||
Net interest income |
| $ | 21,674 |
| $ | 22,528 |
| $ | 43,880 |
| $ | 42,468 |
|
Provision for loan losses |
| 47,500 |
| 1,900 |
| 56,925 |
| 2,800 |
| ||||
Non-interest income |
| 9,980 |
| 10,103 |
| 19,196 |
| 18,963 |
| ||||
Non-interest expense |
| 80,508 |
| 20,091 |
| 101,837 |
| 40,252 |
| ||||
Income taxes |
| (37,928 | ) | 3,318 |
| (38,244 | ) | 5,493 |
| ||||
Net (loss) income |
| (58,426 | ) | 7,322 |
| (57,442 | ) | 12,886 |
| ||||
Net (loss) income available to common stockholders |
| (59,661 | ) | 7,322 |
| (59,478 | ) | 12,886 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Key Ratios (annualized): |
|
|
|
|
|
|
|
|
| ||||
Return on average assets |
| (8.17 | )% | 0.99 | % | (3.94 | )% | 0.89 | % | ||||
Return to common shareholders on average assets |
| (8.35 | )% | 0.99 | % | (4.08 | )% | 0.89 | % | ||||
Return on average equity |
| (88.75 | )% | 14.60 | % | (44.58 | )% | 13.59 | % | ||||
Return on average common equity |
| (122.37 | )% | 14.60 | % | (60.85 | )% | 13.59 | % | ||||
Net interest margin (non-GAAP tax equivalent)(1) |
| 3.42 | % | 3.44 | % | 3.39 | % | 3.32 | % | ||||
Efficiency ratio (non-GAAP tax equivalent)(1) |
| 73.55 | % | 60.28 | % | 69.15 | % | 62.80 | % | ||||
Tangible capital to assets |
| 7.37 | % | 4.59 | % | 7.37 | % | 4.59 | % | ||||
Tangible common capital to assets |
| 4.84 | % | 4.59 | % | 4.84 | % | 4.59 | % | ||||
Total capital to risk weighted assets |
| 13.15 | % | 10.54 | % | 13.15 | % | 10.54 | % | ||||
Tier 1 capital to risk weighted assets |
| 9.94 | % | 7.80 | % | 9.94 | % | 7.80 | % | ||||
Tier 1 capital to average assets |
| 8.17 | % | 6.52 | % | 8.17 | % | 6.52 | % | ||||
|
|
|
|
|
|
|
|
|
| ||||
Per Share Data: |
|
|
|
|
|
|
|
|
| ||||
Basic (loss) earnings per share |
| $(4.29 | ) | $0.53 |
| $(4.29 | ) | $0.96 |
| ||||
Diluted (loss) earnings per share |
| $(4.29 | ) | $0.53 |
| $(4.28 | ) | $0.95 |
| ||||
Dividends declared per share |
| $0.04 |
| $0.16 |
| $0.08 |
| $0.31 |
| ||||
Common book value per share |
| $10.03 |
| $14.56 |
| $10.03 |
| $14.56 |
| ||||
Tangible common book value per share |
| $9.51 |
| $9.65 |
| $9.51 |
| $9.65 |
| ||||
Ending number of shares outstanding |
| 13,824,561 |
| 13,745,686 |
| 13,824,561 |
| 13,745,686 |
| ||||
Average number of shares outstanding |
| 13,824,561 |
| 13,742,576 |
| 13,808,266 |
| 13,414,758 |
| ||||
Diluted average shares outstanding |
| 13,907,725 |
| 13,856,956 |
| 13,884,727 |
| 13,543,834 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
End of Period Balances: |
|
|
|
|
|
|
|
|
| ||||
Loans |
| $ | 2,212,977 |
| $ | 2,215,927 |
| $ | 2,212,977 |
| $ | 2,215,927 |
|
Deposits |
| 2,349,277 |
| 2,418,854 |
| 2,349,277 |
| 2,418,854 |
| ||||
Stockholders’ equity |
| 207,261 |
| 200,125 |
| 207,261 |
| 200,125 |
| ||||
Total earning assets |
| 2,539,201 |
| 2,699,341 |
| 2,539,201 |
| 2,699,341 |
| ||||
Total assets |
| 2,720,237 |
| 2,955,967 |
| 2,720,237 |
| 2,955,967 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Average Balances: |
|
|
|
|
|
|
|
|
| ||||
Loans |
| $ | 2,245,779 |
| $ | 2,185,482 |
| $ | 2,253,800 |
| $ | 2,116,949 |
|
Deposits |
| 2,388,738 |
| 2,425,125 |
| 2,397,732 |
| 2,353,087 |
| ||||
Stockholders’ equity |
| 264,055 |
| 201,763 |
| 259,817 |
| 190,682 |
| ||||
Total earning assets |
| 2,635,707 |
| 2,732,018 |
| 2,704,915 |
| 2,679,539 |
| ||||
Total assets |
| 2,866,806 |
| 2,966,622 |
| 2,938,718 |
| 2,896,612 |
| ||||
(1) Tabular disclosures of the tax equivalent calculation including the net interest margin and efficiency ratio for the quarters ending June 30, 2009 and 2008, respectively, are presented on page 16.
10
Financial Highlights, continued (unaudited)
In thousands, except share data
|
| Three Months Ended |
| Year to Date |
| ||||||||
|
| June 30, |
| June 30, |
| ||||||||
|
| 2009 |
| 2008 |
| 2009 |
| 2008 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Asset Quality |
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Charge-offs |
| $ | 19,353 |
| $ | 560 |
| $ | 23,880 |
| $ | 1,267 |
|
Recoveries |
| 116 |
| 96 |
| 235 |
| 176 |
| ||||
Net charge-offs |
| $ | 19,237 |
| $ | 464 |
| $ | 23,645 |
| $ | 1,091 |
|
Provision for loan losses |
| $ | 47,500 |
| $ | 1,900 |
| $ | 56,925 |
| $ | 2,800 |
|
Allowance for loan losses to loans |
| 3.37 | % | 0.97 | % | 3.37 | % | 0.97 | % | ||||
|
| June 30, |
| December 31, |
|
|
| |||||
|
| 2009 |
| 2008 |
| 2008 |
|
|
| |||
|
|
|
|
|
|
|
|
|
| |||
Non-accrual loans(1) |
| $ | 164,132 | (1) | $ | 30,158 |
| $ | 106,511 |
|
|
|
Restructured loans |
| 3,169 |
| — |
| — |
|
|
| |||
Loans past due 90 days |
| 11,290 |
| 583 |
| 2,119 |
|
|
| |||
Nonperforming loans |
| 178,591 |
| 30,741 |
| 108,630 |
|
|
| |||
Other real estate |
| 15,590 |
| 608 |
| 15,212 |
|
|
| |||
Non-performing assets |
| $ | 194,181 |
| $ | 31,349 |
| $ | 123,842 |
|
|
|
(1) Includes $21.8 million in non-accrual restructered loans in June 2009.
Major Classifications of Loans |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
| |||
Commercial and industrial |
| $ | 211,773 |
| $ | 256,765 |
| $ | 244,019 |
|
|
|
Real estate - commercial |
| 952,561 |
| 812,803 |
| 929,576 |
|
|
| |||
Real estate - construction |
| 341,350 |
| 414,338 |
| 373,704 |
|
|
| |||
Real estate - residential |
| 684,495 |
| 687,912 |
| 701,221 |
|
|
| |||
Installment |
| 16,502 |
| 37,688 |
| 19,116 |
|
|
| |||
Overdraft |
| 3,104 |
| 1,603 |
| 761 |
|
|
| |||
Lease financing receivables |
| 4,823 |
| 6,274 |
| 4,396 |
|
|
| |||
|
| 2,214,608 |
| 2,217,383 |
| 2,272,793 |
|
|
| |||
Unearned origination fees, net |
| (1,631 | ) | (1,456 | ) | (1,679 | ) |
|
| |||
|
| $ | 2,212,977 |
| $ | 2,215,927 |
| $ | 2,271,114 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Major Classifications of Deposits |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
| |||
Non-interest bearing |
| $ | 315,599 |
| $ | 316,559 |
| $ | 318,092 |
|
|
|
Savings |
| 160,697 |
| 116,115 |
| 109,991 |
|
|
| |||
NOW accounts |
| 382,473 |
| 317,692 |
| 274,888 |
|
|
| |||
Money market accounts |
| 395,045 |
| 581,350 |
| 543,325 |
|
|
| |||
Certificates of deposit of less than $100,000 |
| 644,208 |
| 649,851 |
| 696,240 |
|
|
| |||
Certificates of deposit of $100,000 or more |
| 451,255 |
| 437,287 |
| 444,592 |
|
|
| |||
|
| $ | 2,349,277 |
| $ | 2,418,854 |
| $ | 2,387,128 |
|
|
|
11
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
|
| (unaudited) |
|
|
| ||
|
| June 30, |
| December 31, |
| ||
|
| 2009 |
| 2008 |
| ||
Assets |
|
|
|
|
| ||
Cash and due from banks |
| $ | 43,198 |
| $ | 66,099 |
|
Interest bearing deposits with financial institutions |
| 3,241 |
| 809 |
| ||
Federal funds sold |
| 37,284 |
| 5,497 |
| ||
Short-term securities available-for-sale |
| 3,176 |
| 809 |
| ||
Cash and cash equivalents |
| 86,899 |
| 73,214 |
| ||
Securities available-for-sale |
| 246,318 |
| 405,577 |
| ||
Federal Home Loan Bank and Federal Reserve Bank stock |
| 13,044 |
| 13,044 |
| ||
Loans held-for-sale |
| 23,161 |
| 23,292 |
| ||
Loans |
| 2,212,977 |
| 2,271,114 |
| ||
Less: allowance for loan losses |
| 74,551 |
| 41,271 |
| ||
Net loans |
| 2,138,426 |
| 2,229,843 |
| ||
Premises and equipment, net |
| 60,557 |
| 62,522 |
| ||
Other real estate owned |
| 15,590 |
| 15,212 |
| ||
Mortgage servicing rights, net |
| 1,725 |
| 1,374 |
| ||
Goodwill, net |
| — |
| 59,040 |
| ||
Core deposit and other intangible asset, net |
| 7,238 |
| 7,821 |
| ||
Bank-owned life insurance (BOLI) |
| 49,228 |
| 48,754 |
| ||
Accrued interest and other assets |
| 78,051 |
| 44,912 |
| ||
Total assets |
| $ | 2,720,237 |
| $ | 2,984,605 |
|
|
|
|
|
|
| ||
Liabilities |
|
|
|
|
| ||
Deposits: |
|
|
|
|
| ||
Non-interest bearing demand |
| $ | 315,599 |
| $ | 318,092 |
|
Interest bearing: |
|
|
|
|
| ||
Savings, NOW, and money market |
| 938,215 |
| 928,204 |
| ||
Time |
| 1,095,463 |
| 1,140,832 |
| ||
Total deposits |
| 2,349,277 |
| 2,387,128 |
| ||
Securities sold under repurchase agreements |
| 26,801 |
| 46,345 |
| ||
Federal funds purchased |
| — |
| 28,900 |
| ||
Other short-term borrowings |
| 11,175 |
| 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 |
| 21,845 |
| 33,191 |
| ||
Total liabilities |
| 2,512,976 |
| 2,791,509 |
| ||
|
|
|
|
|
| ||
Stockholders’ Equity |
|
|
|
|
| ||
Preferred stock |
| 68,619 |
| — |
| ||
Common stock |
| 18,373 |
| 18,304 |
| ||
Additional paid-in capital |
| 63,956 |
| 58,683 |
| ||
Retained earnings |
| 152,442 |
| 213,031 |
| ||
Accumulated other comprehensive loss |
| (1,330 | ) | (2,123 | ) | ||
Treasury stock |
| (94,799 | ) | (94,799 | ) | ||
Total stockholders’ equity |
| 207,261 |
| 193,096 |
| ||
Total liabilities and stockholders’ equity |
| $ | 2,720,237 |
| $ | 2,984,605 |
|
12
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(In thousands, except share data)
|
| (unaudited) |
| (unaudited) |
| ||||||||
|
| Three Months Ended |
| Year to Date |
| ||||||||
|
| June 30, |
| June 30, |
| ||||||||
|
| 2009 |
| 2008 |
| 2009 |
| 2008 |
| ||||
Interest and Dividend Income |
|
|
|
|
|
|
|
|
| ||||
Loans, including fees |
| $ | 29,834 |
| $ | 34,257 |
| $ | 59,948 |
| $ | 68,562 |
|
Loans held-for-sale |
| 305 |
| 184 |
| 617 |
| 408 |
| ||||
Securities, taxable |
| 2,173 |
| 4,197 |
| 5,969 |
| 8,926 |
| ||||
Securities, tax exempt |
| 1,416 |
| 1,513 |
| 2,847 |
| 2,997 |
| ||||
Dividends from Federal Reserve Bank and Federal Home Loan Bank stock |
| 57 |
| 17 |
| 113 |
| 34 |
| ||||
Federal funds sold |
| 1 |
| 55 |
| 3 |
| 84 |
| ||||
Interest bearing deposits |
| 2 |
| 7 |
| 4 |
| 11 |
| ||||
Total interest and dividend income |
| 33,788 |
| 40,230 |
| 69,501 |
| 81,022 |
| ||||
Interest Expense |
|
|
|
|
|
|
|
|
| ||||
Savings, NOW, and money market deposits |
| 1,546 |
| 3,504 |
| 3,392 |
| 8,314 |
| ||||
Time deposits |
| 9,062 |
| 11,431 |
| 18,763 |
| 23,755 |
| ||||
Securities sold under repurchase agreements |
| 17 |
| 202 |
| 115 |
| 538 |
| ||||
Federal funds purchased |
| 31 |
| 193 |
| 73 |
| 1,163 |
| ||||
Other short-term borrowings |
| 74 |
| 612 |
| 221 |
| 1,401 |
| ||||
Junior subordinated debentures |
| 1,072 |
| 1,072 |
| 2,144 |
| 2,137 |
| ||||
Subordinated debt |
| 309 |
| 477 |
| 799 |
| 792 |
| ||||
Notes payable and other borrowings |
| 3 |
| 211 |
| 114 |
| 454 |
| ||||
Total interest expense |
| 12,114 |
| 17,702 |
| 25,621 |
| 38,554 |
| ||||
Net interest and dividend income |
| 21,674 |
| 22,528 |
| 43,880 |
| 42,468 |
| ||||
Provision for loan losses |
| 47,500 |
| 1,900 |
| 56,925 |
| 2,800 |
| ||||
Net interest and dividend (expense) income after provision for loan losses |
| (25,826 | ) | 20,628 |
| (13,045 | ) | 39,668 |
| ||||
Non-interest Income |
|
|
|
|
|
|
|
|
| ||||
Trust income |
| 1,846 |
| 2,190 |
| 3,735 |
| 4,372 |
| ||||
Service charges on deposits |
| 2,173 |
| 2,313 |
| 4,285 |
| 4,368 |
| ||||
Secondary mortgage fees |
| 469 |
| 232 |
| 878 |
| 515 |
| ||||
Mortgage servicing income |
| 134 |
| 143 |
| 271 |
| 295 |
| ||||
Net gain on sales of mortgage loans |
| 2,710 |
| 1,768 |
| 5,196 |
| 3,713 |
| ||||
Securities gains, net |
| 1,391 |
| 1,075 |
| 1,314 |
| 1,383 |
| ||||
Increase in cash surrender value of bank owned life insurance |
| 347 |
| 333 |
| 474 |
| 620 |
| ||||
Debit card interchange income |
| 635 |
| 618 |
| 1,211 |
| 1,169 |
| ||||
Net interest rate swap (losses) gains |
| (957 | ) | 148 |
| (567 | ) | 148 |
| ||||
Other income |
| 1,232 |
| 1,283 |
| 2,399 |
| 2,380 |
| ||||
Total non-interest income |
| 9,980 |
| 10,103 |
| 19,196 |
| 18,963 |
| ||||
Non-interest Expense |
|
|
|
|
|
|
|
|
| ||||
Salaries and employee benefits |
| 9,676 |
| 11,572 |
| 20,561 |
| 23,195 |
| ||||
Occupancy expense, net |
| 1,645 |
| 1,559 |
| 3,160 |
| 2,997 |
| ||||
Furniture and equipment expense |
| 1,742 |
| 1,585 |
| 3,482 |
| 3,371 |
| ||||
FDIC insurance |
| 2,421 |
| 310 |
| 3,238 |
| 612 |
| ||||
Amortization of core deposit and other intangible asset |
| 291 |
| 296 |
| 583 |
| 496 |
| ||||
Advertising expense |
| 242 |
| 636 |
| 674 |
| 1,008 |
| ||||
Impairment of goodwill |
| 57,579 |
| — |
| 57,579 |
| — |
| ||||
Other real estate expense |
| 2,983 |
| — |
| 3,879 |
| 5 |
| ||||
Other expense |
| 3,929 |
| 4,133 |
| 8,681 |
| 8,568 |
| ||||
Total non-interest expense |
| 80,508 |
| 20,091 |
| 101,837 |
| 40,252 |
| ||||
(Loss) income before income taxes |
| (96,354 | ) | 10,640 |
| (95,686 | ) | 18,379 |
| ||||
(Benefit) provision for income taxes |
| (37,928 | ) | 3,318 |
| (38,244 | ) | 5,493 |
| ||||
Net (loss) income |
| $ | (58,426 | ) | $ | 7,322 |
| $ | (57,442 | ) | $ | 12,886 |
|
Preferred stock dividends and accretion |
|
| 1,235 |
| — |
|
| 2,036 |
| — |
| ||
Net (loss) income available to common stockholders |
| $ | (59,661 | ) | $ | 7,322 |
| $ | (59,478 | ) | $ | 12,886 |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic (loss) earnings per share |
| $ | (4.29 | ) | $ | 0.53 |
| $ | (4.29 | ) | $ | 0.96 |
|
Diluted (loss) earnings per share |
| (4.29 | ) | 0.53 |
| (4.28 | ) | 0.95 |
| ||||
Dividends declared per share |
| 0.04 |
| 0.16 |
| 0.08 |
| 0.31 |
| ||||
13
ANALYSIS OF AVERAGE BALANCES,
TAX EQUIVALENT INTEREST AND RATES
Three Months ended June 30, 2009 and 2008
(Dollar amounts in thousands - unaudited)
|
| 2009 |
| 2008 |
| ||||||||||||
|
| Average |
|
|
|
|
| Average |
|
|
|
|
| ||||
|
| Balance |
| Interest |
| Rate |
| Balance |
| Interest |
| Rate |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest bearing deposits |
| $ | 2,823 |
| $ | 2 |
| 0.28 | % | $ | 1,218 |
| $ | 7 |
| 2.27 | % |
Federal funds sold |
| 4,700 |
| 1 |
| 0.08 |
| 11,362 |
| 55 |
| 1.92 |
| ||||
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Taxable |
| 198,595 |
| 2,173 |
| 4.38 |
| 355,072 |
| 4,197 |
| 4.73 |
| ||||
Non-taxable (tax equivalent) |
| 145,612 |
| 2,178 |
| 5.98 |
| 155,918 |
| 2,328 |
| 5.97 |
| ||||
Total securities |
| 344,207 |
| 4,351 |
| 5.06 |
| 510,990 |
| 6,525 |
| 5.11 |
| ||||
Dividends from FRB and FHLB stock |
| 13,044 |
| 57 |
| 1.75 |
| 10,416 |
| 17 |
| 0.65 |
| ||||
Loans and loans held-for-sale |
| 2,270,933 |
| 30,194 |
| 5.26 |
| 2,198,032 |
| 34,492 |
| 6.21 |
| ||||
Total interest earning assets |
| 2,635,707 |
| 34,605 |
| 5.20 |
| 2,732,018 |
| 41,096 |
| 5.96 |
| ||||
Cash and due from banks |
| 41,936 |
| — |
| — |
| 50,625 |
| — |
| — |
| ||||
Allowance for loan losses |
| (49,766 | ) | — |
| — |
| (20,641 | ) | — |
| — |
| ||||
Other non-interest bearing assets |
| 238,929 |
| — |
| — |
| 204,620 |
| — |
| — |
| ||||
Total assets |
| $ | 2,866,806 |
|
|
|
|
| $ | 2,966,622 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
NOW accounts |
| $ | 336,467 |
| $ | 304 |
| 0.36 | % | $ | 299,556 |
| $ | 655 |
| 0.88 | % |
Money market accounts |
| 429,582 |
| 1,028 |
| 0.96 |
| 560,212 |
| 2,693 |
| 1.93 |
| ||||
Savings accounts |
| 150,648 |
| 214 |
| 0.57 |
| 118,547 |
| 156 |
| 0.53 |
| ||||
Time deposits |
| 1,152,368 |
| 9,062 |
| 3.15 |
| 1,137,788 |
| 11,431 |
| 4.04 |
| ||||
Total interest bearing deposits |
| 2,069,065 |
| 10,608 |
| 2.06 |
| 2,116,103 |
| 14,935 |
| 2.84 |
| ||||
Securities sold under repurchase agreements |
| 26,728 |
| 17 |
| 0.26 |
| 47,818 |
| 202 |
| 1.70 |
| ||||
Federal funds purchased |
| 26,157 |
| 31 |
| 0.47 |
| 32,711 |
| 193 |
| 2.33 |
| ||||
Other short-term borrowings |
| 37,390 |
| 74 |
| 0.78 |
| 112,289 |
| 612 |
| 2.16 |
| ||||
Junior subordinated debentures |
| 58,378 |
| 1,072 |
| 7.35 |
| 58,378 |
| 1,072 |
| 7.35 |
| ||||
Subordinated debt |
| 45,000 |
| 309 |
| 2.72 |
| 45,000 |
| 477 |
| 4.19 |
| ||||
Notes payable and other borrowings |
| 500 |
| 3 |
| 2.37 |
| 24,723 |
| 211 |
| 3.38 |
| ||||
Total interest bearing liabilities |
| 2,263,218 |
| 12,114 |
| 2.15 |
| 2,437,022 |
| 17,702 |
| 2.92 |
| ||||
Non-interest bearing deposits |
| 319,673 |
| — |
| — |
| 309,022 |
| — |
| — |
| ||||
Accrued interest and other liabilities |
| 19,860 |
| — |
| — |
| 18,815 |
| — |
| — |
| ||||
Stockholders’ equity |
| 264,055 |
| — |
| — |
| 201,763 |
| — |
| — |
| ||||
Total liabilities and stockholders’ equity |
| $ | 2,866,806 |
|
|
|
|
| $ | 2,966,622 |
|
|
|
|
| ||
Net interest income (tax equivalent) |
|
|
| $ | 22,491 |
|
|
|
|
| $ | 23,394 |
|
|
| ||
Net interest income (tax equivalent) to total earning assets |
|
|
|
|
| 3.42 | % |
|
|
|
| 3.44 | % | ||||
Interest bearing liabilities to earnings assets |
| 85.87 | % |
|
|
|
| 89.20 | % |
|
|
|
| ||||
Notes: Nonaccrual loans are included in the above stated average balances.
Tax equivalent basis is calculated using a marginal tax rate of 35%.
14
ANALYSIS OF AVERAGE BALANCES,
TAX EQUIVALENT INTEREST AND RATES
Six Months ended June 30, 2009 and 2008
(Dollar amounts in thousands- unaudited)
|
| 2009 |
| 2008 |
| ||||||||||||
|
| Average |
|
|
|
|
| Average |
|
|
|
|
| ||||
|
| Balance |
| Interest |
| Rate |
| Balance |
| Interest |
| Rate |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest bearing deposits |
| $ | 1,845 |
| $ | 4 |
| 0.43 | % | $ | 1,010 |
| $ | 11 |
| 2.15 | % |
Federal funds sold |
| 6,494 |
| 3 |
| 0.09 |
| 7,631 |
| 84 |
| 2.18 |
| ||||
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Taxable |
| 259,051 |
| 5,969 |
| 4.61 |
| 374,695 |
| 8,926 |
| 4.76 |
| ||||
Non-taxable (tax equivalent) |
| 146,055 |
| 4,380 |
| 6.00 |
| 155,010 |
| 4,611 |
| 5.95 |
| ||||
Total securities |
| 405,106 |
| 10,349 |
| 5.11 |
| 529,705 |
| 13,537 |
| 5.11 |
| ||||
Dividends from FRB and FHLB stock |
| 13,044 |
| 113 |
| 1.73 |
| 10,109 |
| 34 |
| 0.67 |
| ||||
Loans and loans held-for-sale |
| 2,278,426 |
| 60,676 |
| 5.30 |
| 2,131,084 |
| 69,066 |
| 6.41 |
| ||||
Total interest earning assets |
| 2,704,915 |
| 71,145 |
| 5.24 |
| 2,679,539 |
| 82,732 |
| 6.12 |
| ||||
Cash and due from banks |
| 43,661 |
| — |
| — |
| 49,282 |
| — |
| — |
| ||||
Allowance for loan losses |
| (46,550 | ) | — |
| — |
| (19,801 | ) | — |
| — |
| ||||
Other non-interest bearing assets |
| 236,692 |
| — |
| — |
| 187,592 |
| — |
| — |
| ||||
Total assets |
| $ | 2,938,718 |
|
|
|
|
| $ | 2,896,612 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
NOW accounts |
| $ | 305,730 |
| $ | 580 |
| 0.38 | % | $ | 277,485 |
| $ | 1,457 |
| 1.06 | % |
Money market accounts |
| 476,703 |
| 2,457 |
| 1.04 |
| 541,938 |
| 6,515 |
| 2.42 |
| ||||
Savings accounts |
| 135,431 |
| 355 |
| 0.53 |
| 110,750 |
| 342 |
| 0.62 |
| ||||
Time deposits |
| 1,166,626 |
| 18,763 |
| 3.24 |
| 1,104,820 |
| 23,755 |
| 4.32 |
| ||||
Total interest bearing deposits |
| 2,084,490 |
| 22,155 |
| 2.14 |
| 2,034,993 |
| 32,069 |
| 3.17 |
| ||||
Securities sold under repurchase agreements |
| 38,333 |
| 115 |
| 0.60 |
| 45,790 |
| 538 |
| 2.36 |
| ||||
Federal funds purchased |
| 30,148 |
| 73 |
| 0.48 |
| 71,573 |
| 1,163 |
| 3.21 |
| ||||
Other short-term borrowings |
| 79,990 |
| 221 |
| 0.55 |
| 99,277 |
| 1,401 |
| 2.79 |
| ||||
Junior subordinated debentures |
| 58,378 |
| 2,144 |
| 7.35 |
| 58,211 |
| 2,137 |
| 7.34 |
| ||||
Subordinated debt |
| 45,000 |
| 799 |
| 3.53 |
| 35,852 |
| 792 |
| 4.37 |
| ||||
Notes payable and other borrowings |
| 9,506 |
| 114 |
| 2.39 |
| 23,471 |
| 454 |
| 3.83 |
| ||||
Total interest bearing liabilities |
| 2,345,845 |
| 25,621 |
| 2.20 |
| 2,369,167 |
| 38,554 |
| 3.27 |
| ||||
Non-interest bearing deposits |
| 313,242 |
| — |
| — |
| 318,094 |
| — |
| — |
| ||||
Accrued interest and other liabilities |
| 19,814 |
| — |
| — |
| 18,669 |
| — |
| — |
| ||||
Stockholders’ equity |
| 259,817 |
| — |
| — |
| 190,682 |
| — |
| — |
| ||||
Total liabilities and stockholders’ equity |
| $ | 2,938,718 |
|
|
|
|
| $ | 2,896,612 |
|
|
|
|
| ||
Net interest income (tax equivalent) |
|
|
| $ | 45,524 |
|
|
|
|
| $ | 44,178 |
|
|
| ||
Net interest income (tax equivalent) to total earning assets |
|
|
|
|
| 3.39 | % |
|
|
|
| 3.32 | % | ||||
Interest bearing liabilities to earnings assets |
| 86.73 | % |
|
|
|
| 88.42 | % |
|
|
|
| ||||
Notes: Nonaccrual loans are included in the above stated average balances.
15
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, |
| ||||||||
|
| 2009 |
| 2008 |
| 2009 |
| 2008 |
| ||||
Net Interest Margin |
|
|
|
|
|
|
|
|
| ||||
Interest income (GAAP) |
| $ | 33,788 |
| $ | 40,230 |
| $ | 69,501 |
| $ | 81,022 |
|
Taxable-equivalent adjustment: |
|
|
|
|
|
|
|
|
| ||||
Loans |
| 55 |
| 51 |
| 111 |
| 96 |
| ||||
Investments |
| 762 |
| 815 |
| 1,533 |
| 1,614 |
| ||||
Interest income - FTE |
| 34,605 |
| 41,096 |
| 71,145 |
| 82,732 |
| ||||
Interest expense (GAAP) |
| 12,114 |
| 17,702 |
| 25,621 |
| 38,554 |
| ||||
Net interest income - FTE |
| $ | 22,491 |
| $ | 23,394 |
| $ | 45,524 |
| $ | 44,178 |
|
Net interest income - (GAAP) |
| $ | 21,674 |
| $ | 22,528 |
| $ | 43,880 |
| $ | 42,468 |
|
Average interest earning assets |
| $ | 2,635,707 |
| $ | 2,732,018 |
| $ | 2,704,915 |
| $ | 2,679,539 |
|
Net interest margin (GAAP) |
| 3.30 | % | 3.32 | % | 3.27 | % | 3.19 | % | ||||
Net interest margin - FTE |
| 3.42 | % | 3.44 | % | 3.39 | % | 3.32 | % | ||||
|
|
|
|
|
|
|
|
|
| ||||
Efficiency Ratio |
|
|
|
|
|
|
|
|
| ||||
Non-interest expense |
| $ | 80,508 |
| $ | 20,091 |
| $ | 101,837 |
| $ | 40,252 |
|
|
|
|
|
|
|
|
|
|
| ||||
Less amortization of core deposit and other intangible asset |
| 291 |
| 296 |
| 583 |
| 496 |
| ||||
Less impairment of goodwill |
| 57,579 |
| — |
| 57,579 |
| — |
| ||||
Less loss on sale of OREO |
| (345 | ) | — |
| (293 | ) | — |
| ||||
Less one time settlement to close office |
| 125 |
| — |
| 125 |
| 55 |
| ||||
Less merger costs |
| — |
| 250 |
| — |
| 917 |
| ||||
Adjusted Non-interest expense |
| 22,858 |
| 19,545 |
| 43,843 |
| 38,784 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net interest income (GAAP) |
| 21,674 |
| 22,528 |
| 43,880 |
| 42,468 |
| ||||
Taxable-equivalent adjustment: |
|
|
|
|
|
|
|
|
| ||||
Loans |
| 55 |
| 51 |
| 111 |
| 96 |
| ||||
Investments |
| 762 |
| 815 |
| 1,533 |
| 1,614 |
| ||||
Net interest income - FTE |
| 22,491 |
| 23,394 |
| 45,524 |
| 44,178 |
| ||||
Non-interest income |
| 9,980 |
| 10,103 |
| 19,196 |
| 18,963 |
| ||||
Less securities gains, net |
| 1,391 |
| 1,075 |
| 1,314 |
| 1,383 |
| ||||
Non-interest income net of securities gains, net, plus net interest income - FTE |
| 31,080 |
| 32,422 |
| 63,406 |
| 61,758 |
| ||||
Efficiency ratio |
| 73.55 | % | 60.28 | % | 69.15 | % | 62.80 | % | ||||
16