OSBC - Earnings call transcript Q4 2017 | Old Second Bancorp, Inc.

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Operator

Greetings and welcome to Old Second Bancorp's Fourth Quarter 2017 Earnings Call. At this time, all participants are in a listen-only-mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] I would now like to turn the conference over to your host, James Eccher, President and CEO of Old Second Bancorp.

You may begin.

James Eccher

Okay. you. Thank and earnings joining call. everyone our today you quarter fourth thank morning us for for Good Adams. With Gary along Brad Collins, on Vice me the Chairman; with call our today is CFO, that I our statements, will are management's economic the on expectations based our environment. start customary which comments may contain with today forward-looking in current existing reminder These may those from differ not projected. guarantee future of a are materially statements performance results and our SEC the I filings a would refer ask of factors. you full company's to risk to discussion for website, Investor the our for tab, our to to access refer Please under Relations release. earnings opening have several turn and I for quarter. my you overview to over the prepared more then remarks, and I'll on the give quarter detail Brad of it to despite quarter. Results noise overall strong, very be continue some this per the quarter. We're reporting a net loss $X.XX share fourth diluted of or X.X in million were asset tax related allowance share, $X.X excluding Core per to diluted tax a on deferred earnings million $X.XX the reform legislation. valuation XX% last over On represent numbers the a a increase X% over a quarter basis, core last and increase fourth these quarter. year

year full balances fees close than lower, core built speak was related a of of accretable were by significantly business operations model. reduction due about year, to Yield the stronger stronger our associated activity XX%. loans. in growth the and increased quarter during little and half the up million very quarter origination was both to momentum to the level, share diluted regards year. for loan with the legislations purchase the the we with largely XX.X solid a in related yield last approximately and feel we approximately and earnings specifically, In Results on year the portfolio per the modestly was X.X% ROE loan and by it the expected, than to at and half quarter a is productive first to to for that fourth company. a of the All told, X% was state tax ROA federal the was XX%, For implications excluding

with third Our recent and million quarter this large pattern this of funding year. quarter. We of strong anticipate increasing asset fourth and Operating as have trend we to loan improving first core to the growth from quarter, remains generation traditionally quarters number and deposits a efficiency expect the with quarter. last quarters continued improved for and asset second next the continue we XX.X ratio trends Deposit in leverage fully very for positive XX.X% payoffs. core the softer

beyond reasonable well Loan growth good at of for loan Asset assets. results in number feel rating reported adjustment continue it portfolio. a quality any to A turn trend with positively, the about on Brad and in of OREO without changes this additional of model I'll remains continued the level remain the loan and declines the a We reduction encouraged quarter of color. changes loss in controlled over the very during We credit point. trends to non-performing along by the of quarter the provision strength during significant was based the factors. XXX,XXX areas

Brad Adams

origination the decreased portfolio portion stocked quarter in on margin of with Net quarter from taxable the from loan fee levels. during given by from equivalent pre-provision lower during due averaging variable income total essentially to a lower yield the The securities basis of revenue, basis Net was was softer the excluding the point X by on the modestly effective mitigated quarter, pickup last loan smaller yields timing gains, securities core the contribution portfolio. unchanged the Jim. a to fee effects was Thanks, income and growth of due modestly little interest a income last up quarter. impact and

liability numbers from most time competitors. of Given this the up of side impact quarter balance our competition very the pick number had deposit with well some on on in adjustment, the controlled it the little a remains during of sheet movement rate recent timing quarter. the Pricing

expect portfolio. to We this us, given of our factor in moderate for the maturities timing next quarter

rates savings our in hike our and captions proximity as the moved to pricing rising market of have level December rates. the will and within rate base higher response modestly have we success our important deposit is in goal benefit remaining of strength to median money with We The markets. customers reasonable in the to our with continuing

well well however very an very on expect basis. controlled. They We betas overall controlled remain to are

be at deposit level going to forward. We very performance trends was outlook margin pleased with this continue to unchanged XX%. ratio for loan The of and the

success this growth mentioned, Jim asset had As we quarter. in fully funding

the to in lower largely end due the discount in The on decline activity side, income was were remaining with yields stable than XXX,XXX million the slight accretable accretion on year portfolio. loans X.XX On compared prepay portfolio quarter. the at to expected a prior

little better could deposit depend of taxable quarter first the with and bulk the of than remix a purchase, make believe outlook market on I Looking this and There given margin challenges loan consumer the balance relative degree items first impact growth the and by beginning the which two complete A pricing to larger The modest this fixed will certainly that income expected We margin, in in true remains deposit our market. movements bit pricing forward, the in earning Core isolated supplement trends spreads expand are less pressure in XXXX. the the growth. assets. the additional here. Jim of deposit be rates. impact equivalent and exposure higher limited mention portfolio a I upon a need biased of our is trends to of deposit in are interest lack on relationships in We expansion seasonal quarter attractive with effect that currently gross to did that trends is should of further competitors. quarter. moderated loan detail little will - stronger

its margin from is approximately federal impact equivalent to taxable GAAP be securities. the to in simply, the the change. basis The for of that's the the lower Again, There will rate. this points in impact be estimated change quarter. impact and no margin municipal is effective X first just Reported tax tax first yields rate the on

is on expense, instead of loan anticipated the statement. located noninterest impact loan within The the going negatively that's will XXX,XXX expense, realignment item that's and second caption an quarterly income forward. origination Approximately salaries yield benefits

the of impact expenses by as and GAAP trends basis efficiency So about of from lower I no trend From beyond effect and lower rate, perspective, There is negatively either line improving XXX,XXX. tax margin by taxable from points the approximately a bias the positive impacting by remains basis This both the resulting for lower points. bottom by XX said, equivalent XXX,XXX legislation. loan effective yield X and items has ratio both adjustments. these beyond these margin the

a mentioned, quarter. here Jim really in previously, increase remain portfolio our DTA originations. management guess the of contributed over on are going with tax the changes offset to XX% of within above reporting bid makeup seasonally for quarter, the the On underway single that, was banking of swap the forward bond With both to by talk rate well the that quarter, like perform about weak Expenses to XXXX. in with budgeted receiving check. valuation first communicated and us. fee fee including $XXX,XXX our statutory relative income much declined experienced quarter, as the and would holding a areas, Best the continues of magnitude you impact on Effective be side, portfolio, though. to driven last for turn last in adjustment routine the implemented, price a valuation risk Jim. expectations Commercial income wealth Securities number the XX% Investments unexpectedly gains very we I current the current and effective the neighborhood an controlled, in a to high said in MSRs. compliance. on to management, impairment I'd trust expectations rate That during sale absent call Mortgage to management a margins gain rates decrease Illinois interest decline and the the income was federal back again. fully in assuming quarter on for not of above

James Eccher

for XXXX. time and bank the long controlled and softness business the quarter, basis, nonetheless to pleased seasonal On strong first closing, an Okay. with the are below remains The Thanks, a we quarter demonstrate is like now where the anticipate organic its growth, interest ratio was Brad. for operating improved we quarter time. In relates loan teens on for opportunity Old very very the in continued an well slowdown throughout Returns rate dramatically are equity although in across the it strengths heading. in as growth through a about first environment leverage on solid units encouraged basis efficiency provides company a with to core the solidly the and Second XX% expenses. and

getting we We are potential perhaps are sales hires. and traction most meeting encouraged by the with

prepared We in in We're our Bank. better providing acquisition our XXXX can announced subsidiary a comments customers. fashion, ensure committing morning. the Greater this position the Financial of look resources more city We forward smooth excited position today believe for the to Corp and competitive the risk things. team today the enhance extremely low in welcoming recently and are transition to side inherent them on additional Chicago. its while that and relatively our opportunities of concludes of to us recruitment in meaningfully franchise growth at are about to opportunities addition We Chicago our And a ample grow ABC a

over up to I now it So questions. turn it open to moderator will the for

Operator

McGratty Instructions] & Woods. first Bruyette Chris from question [Operator with Our Keefe, is

Chris McGratty

be close. that's on about, credit inclusive accretable margin also maybe the real and amount XXX discount talked is of Brad, in to the market interested where you realized that quick, just kind the of going of with that rate that post goes the starting margin run remaining through the you

of accretion XXX,XXX. think couple XXX,XXX, quarters, last I has right, been the

Brad Adams

Yes.

the which were in credit the accretable is is this these XXX not because inclusive credit mark, So purchased impaired. case of

grand that. then it I The the guess. getting. would quarters of XXX for little $XXX,XXX rate little neighborhood your expect for over And if will portion, So grand two credit a we bit the higher, over would The a to as and following run a XXX maybe just quarters similar number, accretion trickle quarter two believe. this around you get we in the on grand. information, is be a might next accrete the you prepayment was towards credit just best the my that I think then XXX accrete start be portion I

Chris McGratty

the balance of the sheet? about, modest then the because in bias plus so first XXX about that XXX comments And FTE to relative quarter, the reported the is that up you're gross talking

Brad Adams

reclass the a just then statement on for plus an the X XXX and loan on basis adjustment expense X from income rate the, to So points the and second, X benefit salaries points for hang basis additional basis for yield. tax points

So and basis XX higher lower just margin points your bias from then trends. core add

Chris McGratty

a XXX. reported roughly that's So And basis.

of offset on little Okay. of need on any so rate. the taxes, incur realization the the or it Is kind on XX partake that million, off flow kind And expense, the from off of there or we're growth that over to the expenses quarter's investments XXX modest were base? through kind taking this you big of what's then off and XX of then assumption is

Brad Adams

it's pretty this modest point. think I at

with still growth borne change for sales investments can can't by have enhance which the hires, of there's there. acquisition. opportunity be leverage the little think I of the really back an a relative bit namely We'll the costs rate, that

lot a on So in and inflationary about any expect acquisition. growth digits the thinking that absent pressures I rate growth lot of core don't low even what single terms certainly is, of of a

Chris McGratty

securities well. like sounded also the it so as books from mostly here And flat

James Eccher

better mean, especially then It's to that do we did trend, I flat. that, my deposit say If would to the for kind of we're now. that securities great, seeing. that yeah, came the issues than it But, thought right appetite I where that's Yeah. continues growth given bias feels be would be in. hard and my

Chris McGratty

that Is year on anything if you the last in bump? read of the or had kind a end into recoveries, bumped the one reserve, but maybe then could reserve conservatism I sneak just And reserve kind you geography that or the to of bit. Okay.

James Eccher

There's That expected. we I Chris, probably relative minor model to that trickle than and timing some to were to did payoffs we some going adjustments. have quarter. in little issues first some year-end the are XQ in we mean, a then had changes stronger growth thought coming some

three those really that's So factors.

Brad Adams

And were to positive, Classifieds the level flows all positive. were Chris, the movements within of were credit, down positive. even

indicators good. the and all on still So, look the portfolio positive very

Operator

Andrew O'Neill. Our next Liesch question with is Sandler from

Andrew Liesch

just thoughts your likelihood got you timing bit, up they and more this picked discussions more on one on deals you what - the them? Jim, having when of announced, discussions, about, curious a Just deal the year deals, are more curious potential how are on have any many

James Eccher

singular in on right integration, focus opportunities second now, I now, our the attracting dialog, but lot for preparing will Right is and quarters. quarter. more four There's additional continue very in probably based happen should constructive we Andrew, say, than we ever conversations Chicago of to active and we last the in with having immediate quarters, eight four productive talent, see so closing have to a - which have we're talent. the

Operator

question with D. A. Reevey next is from Our Kevin Davidson.

Kevin Reevey

loan into XXXX, should So, expense the think provision Jim, you as we given and in the fold about well? how the ABC bringing modeling growth also

James Eccher

run digit can XXXX. would a rate growth. We trends to Sure. that's our like we single XXXX, high in think We sustain like growth from

or a provision quarter month and a about XXX feels the XXX So, right.

at our about provisioning ABC let with we're I'll the I talk Brad point. regarding guess looking think Bank. that's how this at best

Brad Adams

in character So portion not. won't that of purchase Jim we've those is do the is certainly a maintaining a is back are in growth, impaired likely model. some on in that line you'll with ABC rolling provision Bank, that those What a for see given for portfolio, got believer a out challenges larger impaired, that we of that some and are have what's lost the with that credit am big some that provision be standalone basis, an type of on years obviously, that there there reserve see credit providing lending not we loans and portion will accreted have and we there. the overall of on of as And loan is significance the we I bring

we've quarters quite a that and recovery think happen net it's again now quarter. in for that position that will I been next possible two

challenges, difficulties that though, with fun we're hard there make to to but all right to day some the now. it's rainy something we trends is are come and good, about above the call with when there some that loan within growth there are a pessimistic portfolios remotely provisioning them, So seeing are there hard or sure and what here want certainly for it's get

Kevin Reevey

And you in thing. the about Can talk the then Jim, Chicago the a other environment banks transactional area that around we lot of competitive hires were in and the Chicago to about talk and the talked talent doing region? same I know for you

James Eccher

acquired certainly in [indiscernible] say locations it's a I an lot four relationships ABC XXXX. recruit driving further It quarter help C&I segment, of around Well 'XX. the talent is will only the ultracompetitive. fourth remains that in city, in acquisition additional the will that with us the our and we've new the having presence the talent with was of increased

us for upside. So, as and more looking our of that an story has becomes compelling, gives a those our for I more maybe little size smaller institution think a lot advantage

Brad Adams

right. is - a there's Chicago also an think I interesting market

then banks in a got of big are very not much middle. banks and ton they're very and a You've headquartered that here small you've got few the

Old the in think is I Second middle. certainly

that think that some of quite wouldn't I small. as institution the be be and can't valued larger fits an that as institutions size some the around by size supported our that maybe town of of lender in maybe

just what do that's So market advantage think take have niche trying that to. I we're Chicago And come I think of. there from in is a we benefit to there that conditions what

Kevin Reevey

last metric? goals job as you far an around core ratio, further XXXX excellent in improvement centered in you've improving. Do efficiency And question that have then my the any which is done as

Brad Adams

I to I faster will, I to don't quite go up. don't expenses will Revenues go that revenues continue that know believe But don't will - will down. know whether expenses or expenses. go revenues continue I than Yes. confident am

James Eccher

improve only Kevin. target, quarters going acquisition, and some is Obviously, and mid-XXs would improves. rate expands third to fee margin as noise in generation to be income with the great have but going run second a our our obviously We're the

that's optimistic we're to as where So heading.

Operator

with Our question is next Brian Instructions] [Operator FIG from Martin Partners.

Brian Martin

because Brad about, look you how just and mentioned purchasing you just of that what I or Hey, the - that? play loans, as out that the can that I first at know, may that to Jim, kind in guess you think seasonality don't you're thinking needs just how quarter you I talk about about may if, for some happen or think

James Eccher

million I already it million to be the spent $XX time magnitude variable. and some would thinking about $XX be of in they'd

Brian Martin

you interested I of And loans are - Brad? guess what if in type you

Brad Adams

Consumer.

Brian Martin

seasonality Okay. kicks balance year? the look then And the you of as just and can that growth quarter one-time thing at be organic the for in a the first

Brad Adams

a couple fixed what sheet concentrations where notably, most our things, Two spreads terms It's are. of capabilities in are. of overall within Yes. income where are we commercial of heavily function a balance biased the

we I lending The problem aren't sense. some think consumer lot develop stay want like variables. make longer to makes would that is, to sense. term, a sort of And them of there vertical that

thought kind processes the in about than it. that what's right the are the those So seasonality three go marketplace into now. of the is just of dynamics it That's

Brian Martin

are just fair? I are at to escalating. Is haven't added and of clear, These And least folks, people just discussions, hiring. these guess, you anyone as that yet, are the be Jim, you're the about talked looking you

James Eccher

quarter and in quarters. more I have say, we the bring on one to the hired can't we two Brian, next expect in first two four to

Brian Martin

your talk single And of current this least growth forecast? the guess, at of to inclusive I these hiring. that to for kind folks additive folks point, high digits, the is hope would folks I 'XX at Jim, about to hire, you're when you those be guess, guidance mid the

James Eccher

inclusive. a getting really period, No. I new ramp-up there's any start before Brian these would hires generally I be would mean, tractions. say, it

if better will. do X% can to targeting we're we is and think I and what X% we So, growth obviously

Brad Adams

It's was what Brian also with about we deal Chicago inclusive, balance acquired over sheet where modeled that on Greater talked time. of flat a deal

think normally, in go I whereas don't normally, that that of of far something to I that We be the the granularity like portfolio so consistently. can't And terms just would a run model off portfolio. downstream

So, of of have to inclusive we holding planned. the a that X% sales X% growth that plus flat hires core organic is

Brian Martin

this you quarter just just puts and kind fourth the Brad, in much going about margin margin on the was XXX increases, obviously much quarter? an impact the then I And rate of first upward just nothing and it on hike of rate will I about you margin, you on have? the the how in guess outlook Can quarter kind the maybe December gave on takes kind December that talk of bias. rate and an increase guidance was of said numbers. the bias that guess just thinking forward of at least X the you're the the the,

Brad Adams

numbers. am March, there December If just the in I the I solely lot the one of thinking that it. don't quarter would have a given of was first think X whole benefit, in timing of

the is instantaneously, and month the stuff reprices we one stuff lag. obviously, then LIBOR LIBOR the see, larger based on based prime but month a on stuff anniversary days So one component that a reprices

what and yields on up in they up pick loan on December February. around bit XX a basis points relative to XX just to be we our So, basis month in further full a should should saw January

on negotiated bit rate one-offs sheet. all that of and balance largely getting the the way savings sort into and deposit of we kind the side of swaps in are priced and market on rates are the a little We thing money raising that terms through

pricing caption have And pressure to spitting as and today. median sit almost the here lot So at this we don't every deposit at across feel point deposit a within of I now. we moved right distance all of

feel hard sit about it's pretty good there. not where So to we

Brian Martin

increase could basis for on mean December big type much the I basis just up if loans can mean, first for So funding, picture? pick you be, X X I points XX at of you least mid get the on quarter, - it in the not and rate be point

Brad Adams

you Well, bucks, Brian. big the get paid

Brian Martin

expect you throughout the a the incrementally if the margin. have beta - I the deposit any stayed I just increases be as that guess then guess, And to other year Brad, positive, still the would maybe biased, the but thought lower would benefit

Brad Adams

are betas Brian. to You tell do, me what going

game, base I think deposit the good name right. the that's and very, of the here - is very

are competitive it's So, terms to in enough our wouldn't market hard trade given be for months balance three of is. how to in going sheet anybody But forward the see what Chicago, the else's. dynamics I pricing

James Eccher

to other we we'll the it, to Obviously, thing, then at of get The Bank, aligned Old arena. try around cost get operate higher funding the is deposit work Brian have is, structure than to arms ABC retail betas how significantly Second. in their obviously we then more with our

for we time. there's improvement think opportunities So, over there

Brian Martin

would expect thinking you look a How run-off, on in? asset you you as about you're them like the I ABC, but look portfolio, And to just sheet guess on maybe just missed big picture bring the over, kind funding on and talk I thinking just side talked the that when bring of Can you securities or maybe it what about side. have them mix? look at on - things you how just one maybe folding as kind as just of I it, you're Brad, about when the whether you into make far for the it, balance you to with guess the changes that about

Brad Adams

in you order see in customers the balance a stable size over terms three that's process betas we're acquired Sure, trying portfolio bleeding sure would sales case, sure from margin core mix. magnitude the loan just as of trying sheet some two And by be dollar because a the Not deposit to anticipate funds in what while, yield under deposit make those is a of would and it's the sheet how thought a and on good down that basis volatile balance at in that year some closed. in of there. with The it much, small by to issues, we'll it that $XX the deal caveat flat XX the and where basically track down brokered securities rate funding, The that the sheet portfolio, is hold it's net would shrink be model. too move for and flows loyalty a that all so of the looking at points flat. to we it on out to a loan hires mess to what effect the I this would not of the that, point, originations But fits paying balance want the such sheet, of base to and funding, typical something the price anticipate and overall year they're movements illiquid. get independently replaced in to sheet track the would volatile because hypothetical test them with primarily from it with against and with over relatively million. priced, on about volatile this solid remix where funding make balance a it's we're relatively out do fantastic. that low move really fair eliminate encourage that do balance run is of order I A

Brian Martin

the XX% is it for And in the guys, you about somewhere you're you rate tax said today way effective range? the thinking

Brad Adams

in corporate I XX% XX%. Yeah. rate of XX% that everybody on July. the tax Illinois state And raised to remind to their that's,

Brian Martin

effective was reform the to quarter, guided the effective you was had quarter this higher but kind last of rate And the where tax you then quarter? adjusted said this rate for

Brad Adams

reforms, a excluding So of was little I it impact in the of the believe. over XX, neighborhood tax XX

Brian Martin

you're XX So how reform? from about benefit kind it XX, tax dropped from of XX the is to thinking

Brad Adams

XX and correct. The Yeah. Yeah. XX. That's

Operator

I back over conference session. management question-and-answer our concludes turn to like This remarks. the to closing for would

James Eccher

this again for day. us bye. Good Okay. to quarter. everyone Have Thanks, great to look a next joining forward you morning. We talking

Operator

concludes conference. This you. Thank today's

disconnect time participation. for your may this and your lines You at you thank

Old Second Bancorp (OSBC) 25 Jan 182017 Q4 Earnings call transcript