Exhibit 99.1
Old Second Bancorp, Inc. | For Immediate Release | |
(Nasdaq: OSBC) | April 26, 2010 | |
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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 First Quarter Results
AURORA, Illinois — Old Second Bancorp, Inc. (Nasdaq: OSBC) today announced a loss of $.69 per diluted share for the first quarter of 2010, on $8.6 million of net loss. This compares to net income of $.01 per diluted share, on $984,000 of net income, for the same quarter in the prior year. The decrease in earning assets and mortgage banking income combined with increases in both the provision for loan losses and other real estate expenses more than offset reductions to interest expense, salaries and employment related expenses. The Company recorded a $19.2 million provision for loan losses and net charge-offs totaled $16.9 million in the first quarter of 2010. This compares to a provision for loan losses of $9.4 million and net charge-offs totaling $4.4 million in the first quarter of 2009. The net loss available to common stockholders was $9.7 million for the first quarter of 2010 after preferred stock dividends and accretion of $1.1 million. This compared to net income available to common stockholders of $183,000 for the first quarter of 2009 after preferred stock dividends and accretion of $801,000.
In announcing these results, the Company’s Chairman and CEO, William Skoglund, stated, “The ongoing weakness in the financial system and economy, particularly as it relates to the credit and real estate markets continues to directly affect borrowers’ ability to repay their loans as well as the general level of property valuations. This economic weakness is reflected in our results, and management remains vigilant in analyzing the portfolio quality when determining loan loss provision estimates and making decisions to charge-off loans. At the same time we continue to aggressively implement strategies that are targeted to improve asset quality in this difficult economic environment. We are also seeing some positive economic signs such as increases in nonfarm payrolls and we are positioning the Company to return to profitability as market conditions improve.”
Chairman Bill Skoglund added, “As always, our management has been focused on our capital planning process and we continue to assess capital alternatives to help ensure that we can sustain our capital strength and best situate the Company to pursue lending and market opportunities that may become available with an economic recovery. In connection with this process, at our annual meeting we asked our stockholders to approve an increase in the number of authorized shares of common stock from 20 million to 40 million shares. We are pleased that our stockholders overwhelmingly approved the increase in shares and we are appreciative of their ongoing support.”
In the first quarter, the Company injected $21.5 million of capital into Old Second National Bank as part of its capital management plan. At March 31, 2010, the Company’s regulatory total capital to risk weighted assets, Tier 1 capital to risk weighted assets and Tier 1 leverage ratios were 12.93%, 9.47%, and 7.88%, respectively, as compared to 13.26%, 9.96%, and 8.48%, respectively, at December 31, 2009. The same capital ratios at the Bank increased to 12.12%, 10.85%, and 9.14%, respectively, at March 31, 2010 as compared to 11.57%, 10.30%, and 8.89%, respectively, at December 31, 2009. As of March 31, 2010, the Bank exceeded the general minimum regulatory requirements to be considered “well capitalized” when those ratios are calculated on a consistent basis with the ratios disclosed in the most recent filings with the regulatory agencies. In connection with the current economic environment and the Bank’s level of nonperforming assets, which are higher than its historical averages, management instituted a capital plan to maintain the Bank’s Tier 1 capital to average assets at or above 8.75% and its total capital to risk weighted assets at or above 11.25%. Both the Company and Old Second National Bank exceeded those plan thresholds as of March 31, 2010.
Net interest income decreased $1.2 million, from $22.2 million in the first quarter of 2009 to $21.0 million in the first quarter of 2010. Average earning assets decreased $478.5 million, or 17.2%, from March 31, 2009 to March 31, 2010. Average interest bearing liabilities decreased $423.2 million, or 17.4%, during the same
period. Management continued to focus upon asset quality and loan growth continued to be limited in 2010. The $239.3 million decrease in average loans was primarily due to the combined effect of a general decrease in demand from qualified borrowers in the Bank’s market area as well as loan charge-off activity. Management significantly reduced both borrowings and securities available for sale throughout 2009, and additional reductions were made to the tax-exempt available for sale securities portfolio in the first quarter of 2010. At the same time, management significantly reduced both borrowings and deposits that had previously provided funding for those assets. The decrease in average interest bearing deposits was largely due to management’s pricing initiatives introduced in 2009 that rewarded relationship banking and discouraged customers seeking a single transaction. The Bank emphasized this approach when repricing, retaining and attracting deposit relationships where there would be no other depositor product or service utilized. The net interest margin (tax equivalent basis), expressed as a percentage of average earning assets, increased from 3.37% in the first quarter of 2009 to 3.78% in the first quarter of 2010. The average tax-equivalent yield on earning assets decreased from 5.27%, in the first quarter of 2009 to 5.09%, in the first quarter, of 2010 or 18 basis points. At the same time, however, the cost of funds on interest-bearing liabilities decreased from 2.25% to 1.57%, or 68 basis points. In the first quarter of 2010 the decrease in the level of average earning assets contributed to decreased interest income as did the higher level of nonaccrual loans. At the same time, the general decrease in interest rates lowered interest expense to a greater degree than it reduced interest income and provided an offsetting effect to the balance sheet deleveraging strategy.
The Company recorded a $19.2 million provision for loan losses in the first quarter of 2010 as compared to a $9.4 million provision in the first quarter of 2009 and a $30.1 million provision for loan losses in the fourth quarter of 2009. Provisions for loan losses are made to provide for probable and estimable losses inherent in the loan portfolio. Nonperforming loans increased slightly to $192.7 million at March 31, 2010, from $189.7 million at December 31, 2009, and rose from $123.7 million at March 31, 2009. In the first quarter of 2010 and the fourth quarter of 2009, the Company recorded net loan charge-offs of $16.9 million and $23.6 million, respectively. In the first quarter of 2009, the Company had net charge-offs of $4.4 million. The distribution of the Company’s nonperforming loans at March 31, 2010 is included in the chart below.
Chairman Bill Skoglund noted, “The value of real estate in our market area continued to show declines and the bulk of the first quarter charge-offs related to our construction and development portfolio. This brought our total exposure to that sector down to $219.4 million from a high of $370.5 million just one year ago. Management also identified $3.5 million of commercial real estate loans that were uncollectible and we charged off those amounts while also increasing our general loss estimates related to certain segments of the construction and development and commercial real estate portfolios.” The distribution of the Company’s gross charge-off activity for the periods indicated is detailed in the first table below and the level of nonperforming loans and related specific allocations at March 31, 2010 are included in the table immediately following (in thousands):
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| Three Months Ended |
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| March 31, |
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Loan Charge-offs, Gross |
| 2010 |
| 2009 |
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Real Estate-Construction |
| $ | 11,534 |
| $ | 3,727 |
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Real Estate-Residential: |
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Investor |
| 614 |
| 54 |
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Owner Occupied |
| 1,318 |
| 78 |
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Revolving and Junior Liens |
| 336 |
| 161 |
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Real Estate-Commercial, Nonfarm |
| 3,536 |
| 359 |
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Real Estate-Commercial, Farm |
| — |
| — |
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Commercial and Industrial |
| 1,231 |
| 46 |
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Other |
| 97 |
| 102 |
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| $ | 18,666 |
| $ | 4,527 |
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| 90 days |
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| or More |
| Restructured |
| Total Non- |
| % Non- |
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Nonperforming loans |
| Nonaccrual |
| Past Due |
| Loans |
| performing |
| performing |
| Specific |
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as of March 31, 2010 |
| Total(1) |
| and Accruing |
| (Accruing) |
| Loans |
| Loans |
| Allocation |
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Real Estate - Construction |
| $ | 85,433 |
| $ | — |
| $ | 2,250 |
| $ | 87,683 |
| 45.5 | % | $ | 2,303 |
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Real Estate - Residential: |
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Investor |
| 24,499 |
| 90 |
| 317 |
| 24,906 |
| 12.9 | % | 4,617 |
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Owner Occupied |
| 15,615 |
| — |
| 11,774 |
| 27,389 |
| 14.2 | % | 482 |
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Revolving and Junior Liens |
| 1,103 |
| — |
| — |
| 1,103 |
| 0.6 | % | 103 |
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Real Estate - Commercial, Nonfarm |
| 46,725 |
| 891 |
| 398 |
| 48,014 |
| 24.9 | % | 3,165 |
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Real Estate - Commercial, Farm |
| 1,286 |
| — |
| — |
| 1,286 |
| 0.7 | % | — |
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Commercial and Industrial |
| 2,041 |
| — |
| — |
| 2,041 |
| 1.1 | % | 1,159 |
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Other |
| 317 |
| — |
| — |
| 317 |
| 0.1 | % | — |
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| $ | 177,019 |
| $ | 981 |
| $ | 14,739 |
| $ | 192,739 |
| 100.0 | % | $ | 11,829 |
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(1) Nonaccrual loans included $28.2 million in restructured loans, $11.0 million in real estate construction, $7.3 million in commercial real estate, $6.0 million is in real estate - residential investor, $3.7 million is in real estate - owner occupied and 155,000 in Commercial and Industrial.
The largest component of nonperforming loans continued to be in the real estate construction sector, at $87.7 million, or 45.5% of total nonperforming loans. This was a decrease of $7.1 million on a linked quarter basis. Management charged off $11.5 million in the first quarter of 2010 and estimated that a loss allocation of $2.3 million was adequate coverage for this category. The migration into nonperforming loans occurred primarily from three credits that had been previously rated by management as substandard. The first of these loan relationships totaled $4.9 million and is secured by land that was slated for residential development. This loan had an estimated specific allocation of $1.1 million based upon management’s review of a recent appraisal. Management is in the process of negotiating with the borrower to determine whether payments on the loans will resume. If these negotiations are not successful, management intends to pursue available remedies including a possible foreclosure action. The second addition was a $3.7 million credit that had an estimated specific allocation of $397,000 based upon management’s review of a recent appraisal of a combination strip mall/office building. The Company is in the process of working with the borrower to negotiate a possible restructuring and/or forbearance arrangement. The third addition to this category was a $2.6 million credit that had a $1.3 million charge-off in March 2010. As a result of that action and a review of a recent appraisal of the retail zoned lots, management estimated that no specific allocation was required. The credit matured in March 2010 and the borrower is exploring current sales opportunities and may be granted a forbearance agreement if management believes such an action would likely result in a near term resolution.
Also included in the nonperforming loan total for construction loans was a $2.3 million restructured loan that was given that designation in the fourth quarter of 2009 because the buyer was a fractional borrower in a preexisting larger nonperforming credit. That loan was granted based upon a 75% advance rate on a recent appraisal and has a separate two-year cash interest reserve on deposit with the Bank.
The majority of the Bank’s construction loans are located in suburban Chicago markets and the current economic conditions continue to exhibit lower property valuations and some additional borrower defaults. As of March 31, 2010, approximately 50.7% of the remaining homebuilder loans, 44.1% of the loans secured by land, and 16.8% of the commercial construction projects were in nonaccrual status. Management continues to update and review appraisals for the underlying collateral related to these loans, and allowance estimates are regularly updated to reflect the estimated credit exposure. The subcomponent detail for the real estate construction segment at March 31, 2010 (in thousands), is set forth in the table below:
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| 90 Days |
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| Nonaccrual |
| or More |
| Restructured |
| Total Non- |
| % Non- |
| Specific |
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Real Estate - Construction |
| Total |
| and Accruing |
| (Accruing) |
| Loans |
| Loans |
| Allocation |
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Homebuilder |
| $ | 38,364 |
| $ | — |
| $ | 2,250 |
| $ | 40,614 |
| 46.3 | % | $ | 790 |
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Commercial |
| 10,916 |
| — |
| — |
| 10,916 |
| 12.4 | % | 41 |
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Land |
| 25,762 |
| — |
| — |
| 25,762 |
| 29.4 | % | 1,069 |
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Other |
| 10,391 |
| — |
| — |
| 10,391 |
| 11.9 | % | 403 |
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| $ | 85,433 |
| $ | — |
| $ | 2,250 |
| $ | 87,683 |
| 100 | % | $ | 2,303 |
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The Company’s second largest category of nonperforming loans was commercial real estate and represented $48.0 million, or 24.9%, of the nonperforming loan portfolio. This category increased $7.6 million from the December 31, 2009 level following $3.5 million in charge-off activity. The largest addition to this category was a $7.7 million credit, and management estimated that a specific allocation of $1.7 million was sufficient loss coverage based upon a review of a current appraisal and a strong guarantor position. The credit is secured by an owner-occupied commercial building and the owner’s current operations were not generating sufficient cash flow to support this loan. Various workout options are being considered and include a possible injection of new capital that would reduce the debt and/or the possibility of a sale of the enterprise. The second addition in this category was a credit relationship that totaled $4.1 million. The same $3.7 million borrower detailed in the construction category above also guarantees this commercial real estate loan. This credit is also secured by a strip mall that is partially occupied, but has a shortfall in the cash flow required to service this debt. Management estimated that no specific loss allocation was required based upon a review of a recent appraisal. Of the total nonperforming commercial real estate loans, $15.1 million, or 31.5%, are retail properties (primarily strip malls), $22.0 million, or 45.8%, are owner occupied properties, and $10.9 million, or 22.7%, are non-owner occupied properties that are not retail in nature. Management continues to administer a variety of workout strategies with these borrowers as the available remedies are evaluated. Management estimated that a specific loss allocation of $1.4 million was adequate coverage on the non-owner occupied and owner-occupied/special purpose categories following charge-off activity of $1.0 million in the first quarter of 2010.
Nonperforming residential investor loans consist of multi-family and one to four family properties that totaled $24.9 million and accounted for 12.9% of the nonperforming loans total, which was a decrease of $1.5 million on a linked-quarter basis. Relatively little change occurred in this segment in the first quarter of 2010, and two relationships continue to account for the majority of this category. The first relationship totaled $10.7 million and this credit relates to a property whose original occupancy plan was not successful. The borrower implemented an alternate multi-family strategy to achieve full occupancy, but the transition resulted in a lower lease rate and the borrower supplemented the cash flow shortfall until the fourth quarter of 2009. As a result, the credit was renegotiated into two notes, which included a $6.9 million loan that is supported by the underlying cash flows and a second $3.8 million note with a full specific loss allocation. The second relationship totaled $5.0 million and is secured by a group of one to four family residential investment properties that have a high occupancy rate, but the income has not been sufficient to fully support the credit. Management is in the process of renegotiating this credit and estimated that a specific allocation of $169,000 was adequate coverage after reviewing valuation information on the various properties collateralizing this loan.
Excluding the above two relationships, other residential investment loans totaling $9.2 million were nonperforming and were comprised of several different borrower relationships, the largest of which was $1.1 million. Management charged off $614,000 related to this segment in the first quarter of 2010 and following that action, estimated that a total specific allocation of $647,000 would be sufficient loss coverage.
Nonperforming one to four family residential mortgages to consumers totaled $27.4 million and accounted for 14.2% of the nonperforming loan total. Of this amount, $15.6 million of these residential mortgages were on nonaccrual and are in various stages of foreclosure. Approximately $11.8 million were accruing interest,
but were designated as restructured loans. On a linked quarter basis, the nonaccrual and restructured categories increased $2.3 million, and $1.7 million, respectively, with most of the nonaccrual mortgages in various stages of foreclosure at March 31, 2010. Restructured loans include credits where the borrower’s income source has been impaired and the Company has made a concession to temporarily reduce payments and/or interest rates. The Bank did not offer subprime mortgage products to its customers and management believes that the deterioration in this segment relates primarily to the high rate of unemployment in our market areas, particularly in the construction related fields. A significant portion of these nonperforming loans were supported by private mortgage insurance, and as of March 31, 2010, management estimated that a specific allocation of $482,000 was adequate loss coverage following the $1.3 million in charge-offs that occurred during the quarter.
Remaining nonperforming credits include $2.0 million in commercial and industrial loans, $1.6 million in farmland and agricultural loans, and $1.1 million in consumer home equity and second mortgage loans.
A linked quarter comparison of loans that were classified as performing, but past due 30 to 89 days and still accruing interest, shows that this category increased from $39.1 million at December 31, 2009 to $44.0 million, an increase of $4.9 million. The increase was primarily driven by one large commercial real estate loan. That $8.8 million credit is secured by an owner occupied property that was thirty days past due as of March 31, 2010. At the end of the quarter, that property was under contract for sale at an amount that would pay off the Bank in full if the sale culminates as planned. Excluding that credit, loans past due thirty to eighty nine days and still accruing total $35.2 million, and were comprised of $15.7 million in commercial real estate loans, $9.8 million in one to four family residential mortgages to consumers, $6.3 million in one to four family and multi-family investor mortgages, $2.1 million in construction loans, and $1.5 million in other types of credit, mainly commercial and industrial, and home equity/second mortgage loans.
Troubled Debt Restructurings (“TDR”) represented an increasing portion of the nonperforming loan portfolio in 2009 and consisted of loans still accruing interest totaling $14.7 million, and nonaccrual loans totaling $28.2 million as of March 31, 2010. The accruing TDR loans included fifty-six residential mortgage loans totaling $10.7 million, which were modified to allow for impairment of borrowers’ income. These changes in circumstances included job loss or subsequent under-employment that were believed to be temporary at the time of restructuring. Management’s general arrangement in these cases was to allow these borrowers a reduced interest rate and to make payments on an interest only basis for an agreed upon period. Because management did not experience significant TDR volume until the latter half of 2009, the overall success of this approach has not yet been determined.
Nonaccrual TDR loans consist of $5.4 million in loans to homebuilders, $5.6 million in other types of construction loans, $7.3 million in commercial real estate loans, $3.7 million in one to four family consumer mortgages, $6.0 million in residential investor mortgages, and $155,000 in other credit. The Company is generally in forbearance or has debt modification agreements on the income producing credits in this category, which is generally the commercial real estate and residential investor segments. The restructuring agreements for the construction loans are generally arrangements that granted short, no interest forbearance periods to the borrowers so that they could seek buyers. The one to four family residential cases are predominantly situations where management initially worked with the borrowers to avoid foreclosure action, but the borrowers failed to perform.
The ratio of the allowance for loan losses to nonperforming loans was 34.67% as of March 31, 2010, a slight increase from 34.02% at December 31, 2009. Management determined the amount to provide in the allowance for loan losses based upon a number of factors, including loan growth or contraction, the quality, and composition of the loan portfolio and loan loss experience. The latter item was also weighted more heavily based upon recent increased loss experience. Management created a higher risk construction and development pool for developers and estimated a higher qualitative loss factor at the end of 2008. This segmentation was designed to better estimate the credit valuation risk in this segment. Management also created a higher risk pool within commercial real estate loans and assigned a higher qualitative risk factor for those segments of that portfolio in the second quarter of 2009. Management regularly reviews the
performance of these pools and adjusts the population and the related loss factors taking into account adverse market trends in collateral valuation. Management increased the loss factors assigned to the pooled construction and development portfolio as well as the pooled commercial real estate portfolio during the first quarter of 2010. In the former case, this reflects management’s recognition of ongoing devaluation trends that continue to affect the underlying property values securing these construction loans. In the latter case, the increase in factors reflects a combination of devaluation trends in the underlying collateral as well as cash flow stress being experienced by borrowers due largely to adverse changes in economic factors. With respect to the pool of construction and developer credits, the quantity of pooled assets decreased in the first quarter. With respect to the commercial real estate pool, the factor increased in the first quarter of 2010 and the number of pooled credits subject to that factor also increased in volume. The above changes in estimates were made by management to be consistent with observable trends within both the loan portfolio segments and in conjunction with 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 total allowance for loan losses increased to 3.41% of total loans at March 31, 2010, from 3.13% at December 31, 2009. 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 $9.7 million from $40.2 million at December 31, 2009, to $49.9 million at March 31, 2010. In the first quarter of 2010, management successfully converted collateral securing problem loans to properties ready for disposition in the net amount of $18.8 million. Additions were offset by $5.3 million in dispositions that generated net gains on sale of $151,000 and there was an additional $3.9 million in net valuation adjustments in the first quarter. At the same time, the Bank added 37 properties to OREO, which brought the total holdings to 181 properties as of March 31, 2010. These OREO properties consisted of different types, including 116 single-family residences with an estimated realizable market value of $12.3 million, 15 non-farm, nonresidential properties with an estimated realizable market value of $14.5 million, a number of lots zoned for residential construction with an estimated realizable market value of $16.5 million, and eight parcels of vacant acreage suitable for either farming or development with an estimated realizable market value of $6.6 million. Details related to the activity in the OREO portfolio for the periods presented is itemized in the following table:
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| Three Months Ended |
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| March 31, |
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Other real estate owned |
| 2010 |
| 2009 |
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Beginning balance |
| $ | 40,200 |
| $ | 15,212 |
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Property additions |
| 18,838 |
| 3,673 |
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Development improvements |
| 10 |
| 1,173 |
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Less: |
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Property Disposals |
| 5,285 |
| 817 |
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Period valuation adjustments |
| 3,908 |
| 290 |
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Other real estate owned |
| $ | 49,855 |
| $ | 18,951 |
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Noninterest income decreased $897,000, or 9.8%, to $8.3 million during the first quarter of 2010 as compared to $9.2 million during the same period in 2009. Trust income decreased by $232,000, or 12.3%, in the first quarter of 2010 primarily due to a decrease in estate settlement activity. Service charge income also decreased by $94,000, or 4.5%, in the first quarter of 2010 as consumer bounce protection fees usage declined and continuing overdraft and commercial checking overdrafts also decreased. Even though commercial checking fee revenue increased in 2010, that increase was not enough to offset the declining trends in overdraft related fee income. First quarter 2010 mortgage banking income, including net gain on sales of mortgage loans, secondary market fees, and servicing income, totaled $1.5 million, which was a decrease of $1.5 million, or 49.1%, from the first quarter of 2009. The bank sells a majority of its residential mortgage loan originations to third parties. The volume of mortgage activity decreased in the first quarter of
this year as investor requirements related to borrower underwriting increased and new regulatory requirements generally elongated the time to culminate the mortgage loan closing process.
Realized losses on securities totaled $2,000 in the first quarter of 2010 as compared to $77,000 in realized losses from sold securities in the same period last year. Bank owned life insurance (“BOLI”) income increased by $302,000 to $429,000 in the first quarter of 2010 as compared to $127,000 for the first quarter of 2009 as investment rates of return stabilized. The net gains on interest rate swap activity with customers included fee income of $24,000 and credit risk valuation recovery of $166,000 on the estimated aggregate swap position exposure at March 31, 2010. The lease revenue received from OREO properties increased $509,000, to $518,000, in the first quarter of 2010 as compared to $9,000 in the first quarter of 2009, as the number of properties that generated rental income increased substantially. There was also a net gain on disposition of OREO in 2010 of $151,000, which compared to a net loss of $52,000 in the first quarter of 2009. Other non-interest income declined slightly, by $58,000 in the first quarter of 2010 as compared to 2009, and this decrease was primarily due to declines in automatic teller machine surcharge and interchange fees combined with a reduction in commercial letter of credit fees.
Non-interest expense was $24.7 million during the first quarter of 2010, an increase of $3.5 million from $21.3 million in the first quarter of 2009. The comparative reduction in salaries and benefits expense was significant in the first quarter of 2010 and this decrease was primarily driven by a reduction in salary expense. Management completed a strategic reduction in force late in the first quarter of 2009 and the number of full time equivalent employees was 548 for the first quarter of 2010 as compared to 609 at the same time last year.
Occupancy expense was substantially unchanged on a quarterly comparative basis whereas furniture and fixtures decreased $101,000, or 5.8% in 2010 primarily due to decreased depreciation expense. The Company closed four branches in the second half of 2009 where there was an overlap in service and three additional such closings were completed in 2010. As a result, management expects to continue to realize lower costs in both the occupancy and furniture and fixtures categories in 2010. Federal Deposit Insurance Corporation (“FDIC”) costs increased $611,000, or 74.8%, in the first quarter of 2010. These premium expenses are risk adjusted and generally increased industry wide in the second quarter of 2009, and it is possible that there will be additional increases in 2010. In addition to the increase in insurance rates, management elected to participate in the FDIC’s Transaction Account Guarantee Program (“TAG”), 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. That additional insurance program was recently extended through December 2010, and the Bank will remain a participant through that time, although the rate ceiling on eligible NOW accounts will decrease to .25% on July 1, 2010. First quarter 2010 advertising expense decreased by $176,000, or 40.7%, when compared to the same period in 2009, primarily due to decreased sponsorship, specialty, and the number of special advertising campaigns.
Other noninterest expense also decreased by $798,000, or 18.1%, to $3.6 million in the first quarter of 2010 as compared to $4.4 million in the prior year. The largest other expense category decrease resulted from the January 1, 2010 change to the fair market value measurement method of accounting for mortgage servicing rights from the amortization method. That change decreased this category by $250,000 on a quarterly comparative basis. Other noninterest expense line item decreases included a number of areas such as telecommunication costs, investor administration fees, audit fees, loan expense, ATM operating expense, tax servicing fees, club dues, and transportation.
An income tax benefit of $6.2 million was recorded in the first quarter of 2010 as compared to a $316,000 benefit in the same period of 2009. The Company’s taxable book loss significantly increased compared to the same period in 2009, primarily due to the results of our operations. 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. The Company’s effective tax rate for the quarter ending March 31, 2010 was 41.9% as compared to 47.3% for the same period in 2009. The income tax benefit for both years resulted, in large part, from the higher levels of loan loss provision and other real estate related expenditures.
Total assets decreased $99.0 million, or 3.8%, from December 31, 2009 to close at $2.5 billion as of March 31, 2010. Loans decreased by $104.7 million, or 5.1%, as demand from qualified borrowers continued to decline and collateral that previously secured loans moved to OREO, which increased $9.7 million, or 24.0% in the first quarter of 2010. Short and long-term securities that were available-for-sale decreased by $16.9 million and $18.8 million, respectively, in the first quarter of 2010. At the same time, however, interest bearing balances with financial institutions increased by $39.5 million as management increased its liquidity position at the Bank in keeping with current regulatory guidance. The largest changes by loan type included decreases in commercial real estate, real estate construction and residential real estate loans of $21.7 million, $54.4 million and $16.0 million, or 2.3%, 19.9% and 2.5%, respectively.
Management performed an annual review of the core deposit and other intangible assets in the first quarter of 2010. Based upon that review and ongoing monitoring, management determined there was no impairment of other intangible assets as of March 31, 2010. 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 the Heritage Bank acquisition in February 2008 and were $8.9 million at acquisition as compared to $6.4 million as of March 31, 2010.
Total deposits decreased $41.8 million, or 1.9%, during the quarter ended March 31, 2010, to close at $2.16 billion as of March 31, 2010. The category of deposits that declined the most in 2010 was certificates of deposit, which decreased $37.4 million, or 4.1%, 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. Consistent with management’s intent to reduce brokered certificate of deposits, the Bank eliminated $10.4 million in maturing brokered deposits in February 2010. This reduction limited brokered deposits to the CDARS program. NOW deposit accounts decreased by $24.8 million, from $422.8 million to $398.0 million during the quarter. These decreases were offset by growth in demand deposits of $7.9 million, or 2.6%, and savings deposits growth of $12.3 million, or 6.9%. As noted previously, the Company also participates in the expanded FDIC TAG insurance coverage program that became available in November 2008 and is currently set to expire at December 31, 2010. The FDIC has a right to extend that program through December 31, 2011, and the Bank would be obligated to continue to participate should that extension occur as no opt out period was offered under the extended program rules. The average cost of interest bearing deposits decreased from 2.23% in the first quarter of 2009 to 1.4%, or 83 basis points, in the first quarter of 2010. Likewise, the average cost of interest bearing liabilities decreased from 2.25% in the first quarter of 2009 to 1.57% in the first quarter of 2010, or 68 basis points.
One of the Company’s most significant borrowing relationships continued to be the $45.5 million credit facility with LaSalle Bank National Association (now Bank of America). That credit facility began in January 2008 and was originally comprised of a $30.5 million senior debt facility, which included a $30.0 million revolving line that matured on March 31, 2010, and $500,000 in term debt as well as $45.0 million of subordinated debt. The subordinated debt and the term debt portion of the senior debt facility mature on March 31, 2018. The interest rate on the senior debt facility resets quarterly, and is based on, at the Company’s option, either the Lender’s prime rate or three-month LIBOR plus 90 basis points. The interest rate on the subordinated debt resets quarterly, and is equal to three-month LIBOR plus 150 basis points. The proceeds of the $45.0 million of subordinated debt were used to finance the 2008 acquisition of Heritage, including transaction costs. The Company had no principal outstanding balance on the Bank of America senior line of credit when it matured, but did have $500,000 in principal outstanding in term debt and $45.0 million in principal outstanding in subordinated debt at both December 31, 2009 and March 31, 2010. The term debt is secured by all of the outstanding capital stock of the Bank. The Company has made all required interest payments on the outstanding principal amounts on a timely basis.
The 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 March 31, 2010, the Company continued to be out of compliance with two of the financial
covenants contained within the credit agreement. The agreement provides that upon an event of default as the result of the Company’s failure to comply with a financial covenant, the lender may (i) terminate all commitments to extend further credit, (ii) increase the interest rate on the revolving line of the term debt (together the “Senior Debt”) by 200 basis points, (iii) declare the Senior Debt immediately due and payable and (iv) exercise all of its rights and remedies at law, in equity and/or pursuant to any or all collateral documents, including foreclosing on the collateral. The total outstanding principal amount of the Senior Debt is the $500,000 in term debt. Because the Subordinated Debt is treated as Tier 2 capital for regulatory capital purposes, the Agreement does not provide the lender with any rights of acceleration or other remedies with regard to the Subordinated Debt upon an event of default caused by the Company’s failure to comply with a financial covenant. In November 2009, the lender provided notice to the Company that it was invoking the default rate, thereby increasing the rate on the term debt by 200 basis points retroactive to July 30, 2009. This action by the lender resulted in nominal additional interest expense as it only applies to the $500,000 of outstanding term debt.
Other major borrowing category changes from December 31, 2009 included a decrease of $50.6 million, or 92.0%, in other short-term borrowings, primarily Federal Home Loan Bank of Chicago (“FHLBC”) advances.
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 noninterest expense by the sum of net interest income on a tax equivalent basis and adjusted noninterest income. Management believes this measure provides investors with information regarding the Company’s operating efficiency and how management evaluates performance internally. The tables provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.
Forward Looking Statements: This report may contain forward-looking statements. Forward looking statements are identifiable by the inclusion of such qualifications as expects, intends, believes, may, likely or other indications that the particular statements are not based upon facts but are rather based upon the Company’s beliefs as of the date of this release. Actual events and results may differ significantly from those described in such forward-looking statements, due to changes in the economy, interest rates or other factors. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events. For additional information concerning the Company and its business, including 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 2009.
Financial Highlights (unaudited)
In thousands, except share data
|
| (unaudited) |
|
|
| |||||
|
| Quarter Ended |
| Year to Date |
| |||||
|
| March 31, |
| December 31, |
| |||||
|
| 2010 |
| 2009 |
| 2009 |
| |||
Summary Statements of Operations: |
|
|
|
|
|
|
| |||
Net interest and dividend income |
| $ | 20,981 |
| $ | 22,206 |
| $ | 87,137 |
|
Provision for loan losses |
| 19,220 |
| 9,425 |
| 96,715 |
| |||
Non-interest income |
| 8,267 |
| 9,164 |
| 43,047 |
| |||
Non-interest expense |
| 24,749 |
| 21,277 |
| 144,630 |
| |||
(Benefit) provision for income taxes |
| (6,167 | ) | (316 | ) | (45,573 | ) | |||
Net (loss) income |
| (8,554 | ) | 984 |
| (65,588 | ) | |||
Net (loss) income available to common stockholders |
| (9,682 | ) | 183 |
| (69,869 | ) | |||
|
|
|
|
|
|
|
| |||
Key Ratios (annualized): |
|
|
|
|
|
|
| |||
Return on average assets |
| -1.37 | % | 0.13 | % | -2.33 | % | |||
Return to common stockholders on average assets |
| -1.55 | % | 0.02 | % | -2.48 | % | |||
Return on average equity |
| -17.54 | % | 1.56 | % | -27.92 | % | |||
Return on average common equity |
| -30.51 | % | 0.37 | % | -41.32 | % | |||
Net interest margin (non-GAAP tax equivalent)(1) |
| 3.78 | % | 3.37 | % | 3.47 | % | |||
Efficiency ratio (non-GAAP tax equivalent)(1) |
| 61.07 | % | 62.31 | % | 59.84 | % | |||
Tangible capital to assets |
| 7.28 | % | 7.05 | % | 7.36 | % | |||
Tangible common capital to assets |
| 4.50 | % | 4.64 | % | 4.69 | % | |||
Total capital to risk weighted assets (2) |
| 12.93 | % | 13.76 | % | 13.26 | % | |||
Tier 1 capital to risk weighted assets (2) |
| 9.47 | % | 10.67 | % | 9.96 | % | |||
Tier 1 capital to average assets |
| 7.88 | % | 8.87 | % | 8.48 | % | |||
|
|
|
|
|
|
|
| |||
Per Share Data: |
|
|
|
|
|
|
| |||
Basic (loss) earnings per share |
| $ | -0.69 |
| $ | 0.01 |
| $ | -5.04 |
|
Diluted (loss) earnings per share |
| $ | -0.69 |
| $ | 0.01 |
| $ | -5.04 |
|
Dividends declared per share |
| $ | 0.01 |
| $ | 0.04 |
| $ | 0.10 |
|
Common book value per share |
| $ | 8.50 |
| $ | 14.22 |
| $ | 9.27 |
|
Tangible common book value per share |
| $ | 8.04 |
| $ | 9.51 |
| $ | 8.79 |
|
Ending number of shares outstanding |
| 13,939,833 |
| 13,824,561 |
| 13,823,917 |
| |||
Average number of shares outstanding |
| 13,916,650 |
| 13,791,789 |
| 13,815,965 |
| |||
Diluted average shares outstanding |
| 14,197,223 |
| 13,857,941 |
| 13,912,916 |
| |||
|
|
|
|
|
|
|
| |||
End of Period Balances: |
|
|
|
|
|
|
| |||
Loans |
| $ | 1,958,101 |
| $ | 2,252,424 |
| $ | 2,062,826 |
|
Deposits |
| 2,164,462 |
| 2,438,490 |
| 2,206,277 |
| |||
Stockholders’ equity |
| 187,740 |
| 265,041 |
| 197,208 |
| |||
Total earning assets |
| 2,255,699 |
| 2,646,875 |
| 2,359,740 |
| |||
Total assets |
| 2,497,685 |
| 2,901,857 |
| 2,596,657 |
| |||
|
|
|
|
|
|
|
| |||
Average Balances: |
|
|
|
|
|
|
| |||
Loans |
| $ | 2,022,575 |
| $ | 2,261,910 |
| $ | 2,206,189 |
|
Deposits |
| 2,180,959 |
| 2,406,827 |
| 2,360,836 |
| |||
Stockholders’ equity |
| 197,829 |
| 255,533 |
| 234,905 |
| |||
Total earning assets |
| 2,296,368 |
| 2,774,892 |
| 2,599,387 |
| |||
Total assets |
| 2,529,942 |
| 3,011,430 |
| 2,813,221 |
| |||
(1) Tabular disclosures of the tax equivalent calculation including the net interest margin and efficiency ratio for the quarters ending March 31, 2010 and 2009, respectively, are presented on page 15.
(2) The Company and the Bank are subject to regulatory capital requirements administered by federal banking agencies. Those agencies define the basis for these calculations including the prescribed methodology for the calculation of the amount of risk-weighted assets.
Financial Highlights, continued (unaudited)
In thousands, except share data
|
| (unaudited) |
|
|
| |||||
|
| Quarter Ended |
| Year Ended |
| |||||
|
| March 31, |
| December 31, |
| |||||
|
| 2010 |
| 2009 |
| 2009 |
| |||
|
|
|
|
|
|
|
| |||
Asset Quality |
|
|
|
|
|
|
| |||
Charge-offs |
| $ | 18,666 |
| $ | 4,527 |
| $ | 74,978 |
|
Recoveries |
| 1,719 |
| 119 |
| 1,532 |
| |||
Net charge-offs |
| $ | 16,947 |
| $ | 4,408 |
| $ | 73,446 |
|
Provision for loan losses |
| 19,220 |
| 9,425 |
| 96,715 |
| |||
Allowance for loan losses to loans |
| 3.41 | % | 2.06 | % | 3.13 | % | |||
|
|
|
|
|
|
|
| |||
Non-accrual loans(1) |
| $ | 177,019 |
| $ | 112,038 |
| $ | 174,978 |
|
Restructured loans |
| 14,739 |
| 5,618 |
| 14,171 |
| |||
Loans past due 90 days |
| 981 |
| 6,045 |
| 561 |
| |||
Non-performing loans |
| 192,739 |
| 123,701 |
| 189,710 |
| |||
Other real estate |
| 49,855 |
| 18,951 |
| 40,200 |
| |||
Receivable from foreclosed loan participation |
| 20 |
| — |
| 1,505 |
| |||
Non-performing assets |
| $ | 242,614 |
| $ | 142,652 |
| $ | 231,415 |
|
|
|
|
|
|
|
|
| |||
| ||||||||||
(1) Includes $28.2 million in non-accrual restructured loans |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
| |||
Major Classifications of Loans |
|
|
|
|
|
|
| |||
Commercial and industrial |
| $ | 197,420 |
| $ | 217,166 |
| $ | 207,170 |
|
Real estate - commercial |
| 903,289 |
| 933,692 |
| 925,013 |
| |||
Real estate - construction |
| 219,364 |
| 370,523 |
| 273,719 |
| |||
Real estate - residential |
| 627,936 |
| 710,587 |
| 643,936 |
| |||
Installment |
| 6,980 |
| 18,426 |
| 9,834 |
| |||
Overdraft |
| 602 |
| 502 |
| 830 |
| |||
Lease financing receivables |
| 3,631 |
| 3,355 |
| 3,703 |
| |||
|
| 1,959,222 |
| 2,254,251 |
| 2,064,205 |
| |||
Unearned origination fees, net |
| (1,121 | ) | (1,827 | ) | (1,379 | ) | |||
|
| $ | 1,958,101 |
| $ | 2,252,424 |
| $ | 2,062,826 |
|
|
|
|
|
|
|
|
| |||
Major Classifications of Deposits |
|
|
|
|
|
|
| |||
Non-interest bearing |
| $ | 316,240 |
| $ | 321,182 |
| $ | 308,304 |
|
Savings |
| 190,599 |
| 136,871 |
| 178,257 |
| |||
NOW accounts |
| 398,011 |
| 280,557 |
| 422,778 |
| |||
Money market accounts |
| 392,615 |
| 485,011 |
| 392,516 |
| |||
Certificates of deposits of less than $100,000 |
| 529,117 |
| 781,975 |
| 551,106 |
| |||
Certificates of deposits of $100,000 or more |
| 337,880 |
| 432,894 |
| 353,316 |
| |||
|
| $ | 2,164,462 |
| $ | 2,438,490 |
| $ | 2,206,277 |
|
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
|
| (unaudited) |
|
|
| ||
|
| March 31, |
| December 31, |
| ||
|
| 2010 |
| 2009 |
| ||
Assets |
|
|
|
|
| ||
Cash and due from banks |
| $ | 32,626 |
| $ | 36,842 |
|
Interest bearing deposits with financial institutions |
| 63,977 |
| 24,500 |
| ||
Federal funds sold |
| 1,077 |
| 1,543 |
| ||
Short-term securities available-for-sale |
| — |
| 16,911 |
| ||
Cash and cash equivalents |
| 97,680 |
| 79,796 |
| ||
Securities available-for-sale |
| 210,542 |
| 229,330 |
| ||
Federal Home Loan Bank and Federal Reserve Bank stock |
| 13,044 |
| 13,044 |
| ||
Loans held-for-sale |
| 8,958 |
| 11,586 |
| ||
Loans |
| 1,958,101 |
| 2,062,826 |
| ||
Less: allowance for loan losses |
| 66,813 |
| 64,540 |
| ||
Net loans |
| 1,891,288 |
| 1,998,286 |
| ||
Premises and equipment, net |
| 57,294 |
| 58,406 |
| ||
Other real estate owned |
| 49,855 |
| 40,200 |
| ||
Mortgage servicing rights, net |
| 2,821 |
| 2,450 |
| ||
Goodwill, net |
| — |
| — |
| ||
Core deposit and other intangible asset, net |
| 6,372 |
| 6,654 |
| ||
Bank-owned life insurance (BOLI) |
| 50,614 |
| 50,185 |
| ||
Accrued interest and other assets |
| 109,217 |
| 106,720 |
| ||
Total assets |
| $ | 2,497,685 |
| $ | 2,596,657 |
|
|
|
|
|
|
| ||
Liabilities |
|
|
|
|
| ||
Deposits: |
|
|
|
|
| ||
Non-interest bearing demand |
| $ | 316,240 |
| $ | 308,304 |
|
Interest bearing: |
|
|
|
|
| ||
Savings, NOW, and money market |
| 981,225 |
| 993,551 |
| ||
Time |
| 866,997 |
| 904,422 |
| ||
Total deposits |
| 2,164,462 |
| 2,206,277 |
| ||
Securities sold under repurchase agreements |
| 21,319 |
| 18,374 |
| ||
Federal funds purchased |
| — |
| — |
| ||
Other short-term borrowings |
| 4,390 |
| 54,998 |
| ||
Junior subordinated debentures |
| 58,378 |
| 58,378 |
| ||
Subordinated debt |
| 45,000 |
| 45,000 |
| ||
Notes payable and other borrowings |
| 500 |
| 500 |
| ||
Accrued interest and other liabilities |
| 15,896 |
| 15,922 |
| ||
Total liabilities |
| 2,309,945 |
| 2,399,449 |
| ||
|
|
|
|
|
| ||
Stockholders’ Equity |
|
|
|
|
| ||
Preferred stock |
| 69,254 |
| 69,039 |
| ||
Common stock |
| 18,495 |
| 18,373 |
| ||
Additional paid-in capital |
| 64,315 |
| 64,431 |
| ||
Retained earnings |
| 132,436 |
| 141,774 |
| ||
Accumulated other comprehensive loss |
| (1,916 | ) | (1,605 | ) | ||
Treasury stock |
| (94,844 | ) | (94,804 | ) | ||
Total stockholders’ equity |
| 187,740 |
| 197,208 |
| ||
Total liabilities and stockholders’ equity |
| $ | 2,497,685 |
| $ | 2,596,657 |
|
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except share data)
|
| (unaudited) |
|
|
| |||||
|
| Three Months Ended |
| Year to Date |
| |||||
|
| March 31, |
| December 31, |
| |||||
|
| 2010 |
| 2009 |
| 2009 |
| |||
Interest and Dividend Income |
|
|
|
|
|
|
| |||
Loans, including fees |
| $ | 26,632 |
| $ | 30,114 |
| $ | 117,666 |
|
Loans held-for-sale |
| 72 |
| 312 |
| 947 |
| |||
Securities, taxable |
| 1,238 |
| 3,796 |
| 8,526 |
| |||
Securities, tax exempt |
| 745 |
| 1,431 |
| 5,230 |
| |||
Dividends from Federal Reserve Bank and Federal Home Loan Bank stock |
| 56 |
| 56 |
| 225 |
| |||
Federal funds sold |
| — |
| 2 |
| 17 |
| |||
Interest bearing deposits |
| 16 |
| 2 |
| 39 |
| |||
Total interest and dividend income |
| 28,759 |
| 35,713 |
| 132,650 |
| |||
Interest Expense |
|
|
|
|
|
|
| |||
Savings, NOW, and money market deposits |
| 1,385 |
| 1,846 |
| 6,459 |
| |||
Time deposits |
| 5,097 |
| 9,701 |
| 32,886 |
| |||
Securities sold under repurchase agreements |
| 10 |
| 98 |
| 140 |
| |||
Federal funds purchased |
| — |
| 42 |
| 78 |
| |||
Other short-term borrowings |
| 18 |
| 147 |
| 296 |
| |||
Junior subordinated debentures |
| 1,072 |
| 1,072 |
| 4,287 |
| |||
Subordinated debt |
| 195 |
| 490 |
| 1,245 |
| |||
Notes payable and other borrowings |
| 1 |
| 111 |
| 122 |
| |||
Total interest expense |
| 7,778 |
| 13,507 |
| 45,513 |
| |||
Net interest and dividend income |
| 20,981 |
| 22,206 |
| 87,137 |
| |||
Provision for loan losses |
| 19,220 |
| 9,425 |
| 96,715 |
| |||
Net interest and dividend income (expense) after provision for loan losses |
| 1,761 |
| 12,781 |
| (9,578 | ) | |||
Noninterest Income |
|
|
|
|
|
|
| |||
Trust income |
| 1,657 |
| 1,889 |
| 7,743 |
| |||
Service charges on deposits |
| 2,018 |
| 2,112 |
| 8,779 |
| |||
Secondary mortgage fees |
| 223 |
| 409 |
| 1,431 |
| |||
Mortgage servicing income |
| 163 |
| 137 |
| 535 |
| |||
Net gain on sales of mortgage loans |
| 1,157 |
| 2,486 |
| 9,824 |
| |||
Securities (losses) gains, net |
| (2 | ) | (77 | ) | 3,754 |
| |||
Increase in cash surrender value of bank-owned life insurance |
| 429 |
| 127 |
| 1,431 |
| |||
Debit card interchange income |
| 663 |
| 576 |
| 2,522 |
| |||
Net interest rate swap gains and fees |
| 190 |
| 390 |
| 1,058 |
| |||
Lease revenue from other real estate owned |
| 518 |
| 9 |
| 393 |
| |||
Net gain (loss) on sales of other real estate owned |
| 151 |
| (52 | ) | 893 |
| |||
Other income |
| 1,100 |
| 1,158 |
| 4,684 |
| |||
Total non-interest income |
| 8,267 |
| 9,164 |
| 43,047 |
| |||
Noninterest Expense |
|
|
|
|
|
|
| |||
Salaries and employee benefits |
| 9,025 |
| 10,885 |
| 39,577 |
| |||
Occupancy expense, net |
| 1,525 |
| 1,515 |
| 6,068 |
| |||
Furniture and equipment expense |
| 1,639 |
| 1,740 |
| 6,929 |
| |||
FDIC insurance |
| 1,428 |
| 817 |
| 5,387 |
| |||
Amortization of core deposit and other intangible asset |
| 282 |
| 292 |
| 1,167 |
| |||
Advertising expense |
| 256 |
| 432 |
| 1,256 |
| |||
Impairment of goodwill |
| — |
| — |
| 57,579 |
| |||
Legal fees |
| 559 |
| 347 |
| 1,676 |
| |||
Other real estate expense |
| 6,428 |
| 844 |
| 8,835 |
| |||
Other expense |
| 3,607 |
| 4,405 |
| 16,156 |
| |||
Total non-interest expense |
| 24,749 |
| 21,277 |
| 144,630 |
| |||
(Loss) income before income taxes |
| (14,721 | ) | 668 |
| (111,161 | ) | |||
(Benefit) for income taxes |
| (6,167 | ) | (316 | ) | (45,573 | ) | |||
Net (loss) income |
| $ | (8,554 | ) | $ | 984 |
| $ | (65,588 | ) |
Preferred stock dividends and accretion |
| 1,128 |
| 801 |
| 4,281 |
| |||
Net (loss) income available to common stockholders |
| $ | (9,682 | ) | $ | 183 |
| $ | (69,869 | ) |
|
|
|
|
|
|
|
| |||
Basic (loss) earnings per share |
| $ | (0.69 | ) | $ | 0.01 |
| $ | (5.04 | ) |
Diluted (loss) earnings per share |
| (0.69 | ) | 0.01 |
| (5.04 | ) | |||
Dividends declared per share |
| 0.01 |
| 0.04 |
| 0.10 |
| |||
ANALYSIS OF AVERAGE BALANCES,
TAX EQUIVALENT INTEREST AND RATES
Three Months ended March 31, 2010 and 2009
(Dollar amounts in thousands- unaudited)
|
| 2010 |
| 2009 |
| ||||||||||||
|
| Average |
|
|
|
|
| Average |
|
|
|
|
| ||||
|
| Balance |
| Interest |
| Rate |
| Balance |
| Interest |
| Rate |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest bearing deposits |
| $ | 30,551 |
| $ | 16 |
| 0.21 | % | $ | 856 |
| $ | 2 |
| 0.93 | % |
Federal funds sold |
| 1,440 |
| — |
| — |
| 8,307 |
| 2 |
| 0.10 |
| ||||
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Taxable |
| 147,768 |
| 1,238 |
| 3.35 |
| 320,179 |
| 3,796 |
| 4.74 |
| ||||
Non-taxable (tax equivalent) |
| 75,246 |
| 1,146 |
| 6.09 |
| 146,503 |
| 2,202 |
| 6.01 |
| ||||
Total securities |
| 223,014 |
| 2,384 |
| 4.28 |
| 466,682 |
| 5,998 |
| 5.14 |
| ||||
Dividends from FRB and FHLB stock |
| 13,044 |
| 56 |
| 1.72 |
| 13,044 |
| 56 |
| 1.72 |
| ||||
Loans and loans held-for-sale |
| 2,028,319 |
| 26,744 |
| 5.27 |
| 2,286,003 |
| 30,482 |
| 5.33 |
| ||||
Total interest earning assets |
| 2,296,368 |
| 29,200 |
| 5.09 |
| 2,774,892 |
| 36,540 |
| 5.27 |
| ||||
Cash and due from banks |
| 36,868 |
| — |
| — |
| 45,406 |
| — |
| — |
| ||||
Allowance for loan losses |
| (67,504 | ) | — |
| — |
| (43,298 | ) | — |
| — |
| ||||
Other non-interest bearing assets |
| 264,210 |
| — |
| — |
| 234,430 |
| — |
| — |
| ||||
Total assets |
| $ | 2,529,942 |
|
|
|
|
| $ | 3,011,430 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
NOW accounts |
| $ | 410,086 |
| $ | 346 |
| 0.34 | % | $ | 274,651 |
| $ | 276 |
| 0.41 | % |
Money market accounts |
| 392,821 |
| 816 |
| 0.84 |
| 524,348 |
| 1,429 |
| 1.11 |
| ||||
Savings accounts |
| 183,331 |
| 223 |
| 0.49 |
| 120,045 |
| 141 |
| 0.48 |
| ||||
Time deposits |
| 885,795 |
| 5,097 |
| 2.33 |
| 1,181,042 |
| 9,701 |
| 3.33 |
| ||||
Total interest bearing deposits |
| 1,872,033 |
| 6,482 |
| 1.40 |
| 2,100,086 |
| 11,547 |
| 2.23 |
| ||||
Securities sold under repurchase agreements |
| 19,736 |
| 10 |
| 0.21 |
| 50,066 |
| 98 |
| 0.79 |
| ||||
Federal funds purchased |
| — |
| — |
| — |
| 34,183 |
| 42 |
| 0.49 |
| ||||
Other short-term borrowings |
| 10,509 |
| 18 |
| 0.69 |
| 123,064 |
| 147 |
| 0.48 |
| ||||
Junior subordinated debentures |
| 58,378 |
| 1,072 |
| 7.35 |
| 58,378 |
| 1,072 |
| 7.35 |
| ||||
Subordinated debt |
| 45,000 |
| 195 |
| 1.73 |
| 45,000 |
| 490 |
| 4.36 |
| ||||
Notes payable and other borrowings |
| 500 |
| 1 |
| 0.80 |
| 18,611 |
| 111 |
| 2.39 |
| ||||
Total interest bearing liabilities |
| 2,006,156 |
| 7,778 |
| 1.57 |
| 2,429,388 |
| 13,507 |
| 2.25 |
| ||||
Non-interest bearing deposits |
| 308,926 |
| — |
| — |
| 306,741 |
| — |
| — |
| ||||
Accrued interest and other liabilities |
| 17,031 |
| — |
| — |
| 19,768 |
| — |
| — |
| ||||
Stockholders’ equity |
| 197,829 |
| — |
| — |
| 255,533 |
| — |
| — |
| ||||
Total liabilities and stockholders’ equity |
| $ | 2,529,942 |
|
|
|
|
| $ | 3,011,430 |
|
|
|
|
| ||
Net interest income (tax equivalent) |
|
|
| $ | 21,422 |
|
|
|
|
| $ | 23,033 |
|
|
| ||
Net interest income (tax equivalent) to total earning assets |
|
|
|
|
| 3.78 | % |
|
|
|
| 3.37 | % | ||||
Interest bearing liabilities to earnings assets |
| 87.36 | % |
|
|
|
| 87.55 | % |
|
|
|
| ||||
Notes: Nonaccrual loans are included in the above stated average balances.
Tax equivalent basis is calculated using a marginal tax rate of 35%.
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 |
| |||||
|
| March 31, |
| December 31, |
| |||||
|
| 2010 |
| 2009 |
| 2009 |
| |||
Net Interest Margin |
|
|
|
|
|
|
| |||
Interest income (GAAP) |
| $ | 28,759 |
| $ | 35,713 |
| $ | 132,650 |
|
Taxable-equivalent adjustment: |
|
|
|
|
|
|
| |||
Loans |
| 40 |
| 56 |
| 205 |
| |||
Securities |
| 401 |
| 771 |
| 2,816 |
| |||
Interest income - FTE |
| 29,200 |
| 36,540 |
| 135,671 |
| |||
Interest expense (GAAP) |
| 7,778 |
| 13,507 |
| 45,513 |
| |||
Net interest income - FTE |
| $ | 21,422 |
| $ | 23,033 |
| $ | 90,158 |
|
Net interest income (GAAP) |
| $ | 20,981 |
| $ | 22,206 |
| $ | 87,137 |
|
Average interest earning assets |
| $ | 2,296,368 |
| $ | 2,774,892 |
| $ | 2,599,387 |
|
Net interest margin (GAAP) |
| 3.71 | % | 3.25 | % | 3.35 | % | |||
Net interest margin - FTE |
| 3.78 | % | 3.37 | % | 3.47 | % | |||
|
|
|
|
|
|
|
| |||
Efficiency Ratio |
|
|
|
|
|
|
| |||
Non-interest expense |
| $ | 24,749 |
| $ | 21,277 |
| $ | 144,630 |
|
Less amortization of core deposit and other intangible asset |
| 282 |
| 292 |
| 1,167 |
| |||
Less other real estate expense |
| 6,428 |
| 844 |
| 8,835 |
| |||
Less impairment of goodwill |
| — |
| — |
| 57,579 |
| |||
Less one time settlement to close office |
| — |
| — |
| 125 |
| |||
Less merger costs |
| — |
| — |
| — |
| |||
Adjusted non-interest expense |
| 18,039 |
| 20,141 |
| 76,924 |
| |||
Net interest income (GAAP) |
| 20,981 |
| 22,206 |
| 87,137 |
| |||
Taxable-equivalent adjustment: |
|
|
|
|
|
|
| |||
Loans |
| 40 |
| 56 |
| 205 |
| |||
Securities |
| 401 |
| 771 |
| 2,816 |
| |||
Net interest income - FTE |
| 21,422 |
| 23,033 |
| 90,158 |
| |||
Non-interest income |
| 8,267 |
| 9,164 |
| 43,047 |
| |||
Less securities gains, net |
| (2 | ) | (77 | ) | 3,754 |
| |||
Less gain (loss) on sale of OREO |
| 151 |
| (52 | ) | 893 |
| |||
Adjusted non-interest income, plus net interest income - FTE |
| 29,540 |
| 32,326 |
| 128,558 |
| |||
Efficiency ratio |
| 61.07 | % | 62.31 | % | 59.84 | % | |||