OSBC - Earnings call transcript Q4 2018 | Old Second Bancorp, Inc.

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Operator

Good morning everyone and thank you for joining us today for Old Second Bancorp’s Fourth Quarter 2018 Earnings Conference Call.

On the call today is Jim Eccher, CEO and President and the Company's CFO, Brad Adams. I will start with a reminder that Old Second's comments today may contain forward-looking statements about the Company's business, strategies and prospects, which are based on management's existing expectations and the current economic environment. These statements are not a guarantee of future performance and results may differ materially from those projected. Management would ask you to refer to the Company's SEC filings for a full discussion of the Company's risk factors. will discussing we measures. non-GAAP call, today's also certain be financial On on at non-GAAP reconciled tab. earnings our available and are release, Company’s their is These described and in measures Investor under oldsecond.com the GAAP counterparts which our Relations website press

I to Eccher. it over turn will Now Jim

Jim Eccher

exceeded detail $X.XX have were Brad pre-tax. per net then this charges, rate share give comments fourth quarter. morning overview and you with to on Results more the very Strong were to businesses Good Earnings I impacted the of thank recent $XX for expected rate, New structure. softer mortgage remains turn fee-based regards to quarter. remarks Bank. of pricing of pipelines invest and the will than quarter significantly opening the year norms above and terms the the core up overall for with open the a negatively heading a questions. merger-related ability both for margin, momentum diluted momentum to for of credit expenses you periods. up an and good margin Absent increases in competition Results into normally prepared and notable and income and originations and it aggressive fourth is strong. remaining overall it continue by or and loan our future be strong Year. in be million my quarter approximately to to over credit very and earnings relative acceleration stable in $XXX,XXX and more growth us. last quarter interest in interest specifically, servicing XXXX future I expanding our overall for what wrap performance with with In of our performance. quarter sustained these joining solid million several loans I about from The continue $XXX,XXX by very market in impairment a very of total strong quarter we thoughts historical our the trends Net loan was will expectations increased before then was across the we summary positive company expense earning with outlook. growth control, $X.X some

the overall solid with ratio in decreased provided yield credit remain is run-off With an with to the expanding the in repricing a can mix modestly we remain growth at levels strong on funded portfolio very near-term the trends. by margin, portfolio. and on last are securities side, a position The quarter growth from deposits and quarter. selective Total nicely during albeit now we the tailwinds believe loan increased within by these loan-to-deposit of deposit XX% at and I the expect

areas give very The very tick results of and Overall, level it color controlled. Brad our did I’ll higher overall traded unchanged. in and remains quality you encouraged relative to we Asset well a comments. in quarter to modestly last remains remain over more our his positive about outlook turn prepared of to number classifieds

Brad Adams

to income Jim. loan due across interest Thank up increases variable the significantly in Net yields you, portfolios. was

remains XXX MSR fee grand in rates mortgage banking liability quarter, noticed a have so margin continuing. in the side Pricing similar due back-up specifically the very interest just competition on a sheet the purchase increased related core under albeit movement strong position. deposit well points with The difficult may trend. time basis reported to Core on related revenue to taxable environment, softer the margin. balance in pickup remains back-up also you had of accounting controlled in impairment mortgage a an equivalent quarter. a Some seven or by during recognized of The large the – BOLI income last exclusive was margin impact trends to of rates level the little the from

did funding trend this cost. some in quarter, last increases in result modest discussed As

We modestly significantly and rate to Overall the much betas reasonable market higher of savings within year. money our had of expectations in proximity the recent last rates our as continued checking cash-ins have moved the for response to pricing in median remaining goal with in they deposit hikes to markets. outperform

margin we doing the though, increase the this continue our positioned our outlook loan to We well level going to thing leaves customers very for to albeit pursue be both XX% core loan-to-deposit with higher to quarter. are base. continuing an quality this and The deposit forward. trends for with right us have pleased ample flexibility loan and for ratio At growth protect rates

Jim well. variable as As optimize that rate of the within at expense likely future positions of move is to seek going will and portfolio it asset Probably forward. mix mentioned, to expect we growth loan out earning fund portfolio securities

margin modestly Looking to be higher. forward, core biased trends continue

additional is However of than of the competitors. the not general in been market that for while remains a case of our relative is Second will relationships deposit true fund that be actually. assuming the degree has is XXXX. increases in the deposit modest periods. pressure limited It deposit That’s in exposure balance pricing to now rate isolated bulk a any Old - Fed pricing pressure more isolated expansion bulk extremely recent rate which larger our to the in during

trend Investments accounting by largely and on of to continuing last have unpredictable in XX%. about difficult purchase to statement controlled. further and however a comfortably efficiency in I call income from poor decreased runrate experienced growth on quarter. are lot decline rate got non-movers contribution quarterly as the trends going my QX. to to There statements income effective here. fee and in I to mortgage for that, seen continues showing well of in basis of OREO completely for due over future A have not a net the With a a Expenses The since tax during the regards was our seeing talk Overall, on largely also sale On us again based very Jim. to quarter management into a year you we now is forecasting was perform income had and rate time. us been ratio remain extremely in here. for the our wealth The business and margins. is some will below above per roughly benefit out improved very in Mortgage level very remain I penny back nice tax share as The turn the activity expectations budgeted the the the trust quarter, business side, the refinance a forward. up baked quarter XXXX. banking

Jim Eccher

thanks In about a was to there Okay, like quarter. the Brad. lot closing,

excellent first positioned. time. mid-to-high core an Credit opportunity the basis, where We basis teens pleased remains heading. controlled. organic are a the very encouraged well-controlled how strong on demonstrate company growth On Returns a We equity rate leverage we on and and with company about an in tangible strength with expenses. the the in and for closed long units remain for its across to time well are solid interest a are well is remains we the operating year business environment provides

further are our diversify opportunities We new talent in loan to and portfolio. continuing invest look to for

strength which the capital We of our are current levels at speed performance are rebuilding the recent given comfortable earnings, and we with capital.

concludes be that We those our thresholds coming optimistic are And for those our this the quarters. feel acquisition lookout we return opportunities realize on opportunities meet comments morning. continue the in and that and about can prepared

it open it we I’ll to So over turn to moderator can up the questions. and

Operator

Thank is Bruyette Woods. McGratty Instructions] [Operator from [Operator Please you. Our first ahead. & Instructions] go Great. question from Chris Keefe,

Chris McGratty

Hey, good morning.

Jim Eccher

Chris. morning, Good

Chris McGratty

that to – have been given the on message on maybe remix. appears Brad Jim, growth, or

This quarter was strong.

portfolio should kind about You being a in XXXX? quarter. XXX did inside How that? and net should assets is, Thanks. basis for be about growth you buy I we earning – mean, loan of How guess be pipeline like a higher. of my the will commented thinking

Jim Eccher

surprised happen pleasantly quarter. again target. in quarter and feel and the is of softer were about quarter had our achievable the Chris, lot that Fourth pipeline and in are XXXX quarter. closings we we But us. We a mid-single-digit did was Yes, that’s for building, traditionally a first growth

Chris McGratty

Okay.

to margin and a could view Brad, the yesterday of wondering, about one competition larger help am your that actually degree? also but deposits. little share like the spoke of competitors not with of It same I margin you you more. same moderating kind outlook terms number nearly the In seems us up, one, do of bit

Brad Adams

about the putting were was is. the funds XX at from say the dynamic December, funds’ late people June curve the short would in curve, between whereby market and there time being a both very basis I deposit period mid-December, and XX teaser points rates that anywhere until that about end our So, interesting were Fed rates Fed of based

movement of for moves So they the since very as backed of were expected itself change end of expectations in ahead off. was portion the quickly quarter looking pretty far that that Fed has rates. to capture and some At

genesis time XX deposits come XX think and on I to down. the within that’s probably pricings So comments those of the months deposit have timeframe

portion So relieved. are on rely probably those I that that think,

just strategy our deposit a within portfolio. largely the us, been trade has For war time

big not for us. a So delta it’s

there, six months maybe from with right my benefits I point first couple end to forward. and what I absent have better whatsoever well think trends. us on operating growth you the bleeding nothing to growth it and through the bit leverage year feel feels hike focus XX see think operating at and that as going weeks ten of income a some did, that’s in you’ll we than bias is a the happens of move the rate the the streams fee the that period got second. which little of duration better a and do December say, when into sheet the our balance roll quarter, quarter ago From basis have Loan to relative still what and a in

expansion guess, could isn’t I other basis the I’d rates, in happen. points if no obviously another we on us eight which probably absent changes to margin So, say in going got

wrong ever say, dummy So nobody can you are

Chris McGratty

I And in it. some deals. just M&A. sneak like on maybe one on general It Got optimism sounded can

the economy volatility out wanting all where Given that’s more occurred your the mark? partners markets, favor becomes talking the such a may to in more as yourself bit little buyers’ the before accelerate in that at to get to a of begun has are question potential work

Brad Adams

we into think the markets. a fourth you Chris. last the quarter a quarter But more At constructive Yes, I In downturn in the with quiet. very got right. third good year are and little our point, that’s things conversations, second are I think the

to to look that economic I and partners couple downturn. the conversations up the expect next a think feeling for pick of general next is quarters We potential over there before

the board around I think those having I think table. real are concerns are banks

Chris McGratty

Thank it. you. Got

Operator

Reevey Our next Kevin go Please question is ahead. from D.A. from Davidson.

Kevin Reevey

Good morning.

Jim Eccher

morning, Good Kevin.

Kevin Reevey

is question the mortgage around business. my So,

First year is, your this of long-term full continues part you of relative assuming scale quarter kind basis that about question that that year? plans? into to about continue then, the we rates a think And to that to Do of XXXX? to are business on intend right-size And rise, how that business, business should if think what we it how intend to soften, first up? going then, you should

Jim Eccher

So, let you some mortgage community the say business that, business a I seen size banking is rates mortgage most twice the bank. at I Second and have mortgage the me It movement I I a know metrics end worked. quarter have else you in have in well basically places the saw absolutely as of and first-off ever the managed. anywhere of as purely at profitable lot. Old ever What was have quarter and very perfect The within are worked of worked in all profitability is the of the good function extremely a our fourth

were ability in was of Now, dime is on doing. of the back-up XXXX. obviously mortgage – rates pipelines the should ten of banking for collapse The mortgage in what business terms to curve, to the our absent a good far perform five volumes. rate move the extremely speed excess business banking It in portion a year in in turn of further the well just treasury the

historically So, have business given would to here. mortgage could my and I if maintain short grow the that time I love includes profitability that we our done relatively banking metrics

can margins, in expense It’s growth those rather to are is, given that’s size to on and hard that However, remains even relative maintain where it the X% margins the we probably it uncertain. grow business we revenue. and as to is which relatively it stays I would if now world the difficult is such expect X%

was. but I your me XXXX, performance fourth what often the know say I I that banking bullish answer on you this, question? in relative am mortgage quarter know of trends those don’t So, Did that especially to our

Kevin Reevey

was looking talked is there? one Can quarter, exactly then, was an I the about is area lastly, focus. opportunities C&I an what that you of And side seeing main That on healthcare I are know for. area what you last talk – is about and CRE you

Brad Adams

Sure, good. was Kevin. very Last quarter it

We have in healthcare HELOC that Two-thirds purchase and $XX ramp and was split HELOC beginning million concentration of diversified are within and C&I C&I portfolio. in third CRE, a we growth reasonable about XXXX. leasing which that A pretty between in of evenly to in was a expect up a vertical bucket, was organic growth. outperform – that a that that to

are So, the the happy in we with pretty diversification portfolio.

Kevin Reevey

Thank Great. you.

Operator

Sandler Please Andrew Liesch from go ahead. is next Our from question O'Neill.

Andrew Liesch

morning, Good guys.

Jim Eccher

Andrew. morning, Good

Andrew Liesch

I year my bit. goes on to just good that questions, tail-off the presumably decline expenses can of seasonal on? know what’s but into here, total accruals other accruals bonus quite a and and most covered use little But number then bit first expenses the the quarter bounce as might for runrate around as expense You going a a

Brad Adams

have to FICO some some and degree some in specifically seasonal headwinds you’ll first So, of return the the benefits seasonal quarter.

trends you first think, quarter something I relatively that’s overall. see likely are to flat

be year if be terms for can leaking in an environment strong be think audible to will growth we the probably call as expenses, full environment the growth expect, X% X% some is if is think in XXXX, range I currently of flexibility towards poor. that we I all-in may the

business macro think would our trends business are overall I extremely overall, cautious. our bullish somewhat fundamentals I our that – is and classify outlook

nice that to the job fun sure barging and operating easy are is having make. it position are And our so, the we now be makes not right into head But long we are to that anything. decisions relatively in

Andrew Liesch

dislocation place of coming M&A that’s be least or some one Got hiring at or deal? activity you. given And that Chicago, additional then, plans the you any any just do taken in have well-known large might

Jim Eccher

talent, that. on We the upgrade to we are always will – lookout for say

Andrew Liesch

That Okay. Thanks. covers my questions.

Jim Eccher

Thank you, Andrew.

Operator

is next Martin Please from from go question FIG Your ahead. Brian Partners.

Brian Martin

guys. Hey

Jim Eccher

Hi, Brian.

Brian Martin

quarter. Hey, talked this still stronger even about little after just the maybe bit being you Jim, pipelines

of quarter Just kind you given where of seeing And kind what’s driving well wonder today? since is as strength typically Kind of you that a just quarter are pipeline that especially pipeline. softer as in that noted. first

Jim Eccher

were originations our pretty year XXXX. last Interestingly, similar to

XXXX, x and paydowns XXXX. what our were However with were in pay-offs two they

So, we I if get a paydowns we in and in pay-offs normalization XXXX which think will.

organic I think we can start to see more growth. reasonable

think So, I mid-single-digits still growth is healthy a rate.

lot brought a starting some last year seeing are they are We traction. gain talent we in activity Chicago some that new the to over and of in

Brian Martin

Okay.

still pay-offs this So it’s quarter, the the still strong on were side? higher

Jim Eccher

bit. the Well, first aided three quarters they through they and little a strong have were

Brian Martin

Yes.

Jim Eccher

full were year. They x they X were what

Brian Martin

Full year, okay. you. I got

where portfolio, kind the there? Okay, you loan fund or remix the fund see as loan then sizing you kind that are playing – and about the you you talk of about the out of growth the Brad, bond you as – just of you you what just seeing growth, talked on the how can

Brad Adams

I don’t changes. expect significant any

that it’s to if we think see I $XX per $XX bleed can deposit what possible to wanted you down isn’t growth of million a million be quarter.

Brian Martin

that On of Okay. side it.

about doing more do you that better feel I just guess, you purchases growth? any you do last you a XXXX, on the Okay. side, you a about bit loan know did And year – more feel in you thinking I the are organic it then, expect couple given little still portfolio on sounds loan guess –

Brad Adams

our relative portfolio the paydowns to being am what necessary. the are balance are contribution the said, is this purchases production sheet. like below year loan consumer I I’d capability on That the less that hopeful and

maintain So, in appetite reason that would a some our recent loan But a fill mix that’s need maintain purchases need consumer may portfolio, the we be a to If really to in less expect our for diversified does would sheet exposure, there. we consumer bit relatively past. to I XXXX. has balance

Jim Eccher

other and meaningful is are The some in that and relatively Brian, investments healthcare verticals. we’ve groups division our I group add, would made those leasing new thing

will those so see without the optimistic we the new. are are because some growth we portfolios of headwinds run-offs that in So areas

Brian Martin

one you progressed, and pause of the does basis think Okay. to just and things thinking just That’s it’s going points you I six quarter you for are and I of stable, are said first on about, how is hike from kind do I as mean, as rate the Fed Brad. back minute, the forecasting I kind see or more have I guess, then play out helpful in how today? pickup you it guess just dynamics eight if on you about early the was mean, you can December margin is the the goes talk with a I especially not year it margin more the get on guess,

Brad Adams

I margin in think early very for that, towards is you certainly looks are expansion positive. January thus right. The far and the bias quarter additional

mix factor that earning periods follow. I plays factor a plays in to loan think a asset growth and the

Brian Martin

I got you.

Okay. And guys as operating positive guess me, versus is look just as on operating still one XXXX? full at you then, XXXX, leverage, you I year just some last XXXX look the leverage you from see can expectation

Brad Adams

Absolutely.

Brian Martin

okay. Yes, Nice color Thanks. appreciate the guys. quarter. I

Brad Adams

much. very you Thank

Operator

ahead. Rupert, Our investor. Eric go Please is question private from next

Unidentified Analyst

Hi, Jim. good morning,

Just things. a couple of

of the risk appetite for there larger regard in with that? was anything originations, That of terms other think up. the the loan Is mentioned comment then there leasing. healthcare growth Is You classified mentioned And a equity, you about I a you in change to me. excluding anything side, there? it there in home some ticking is notable doing any are terms maybe on and credits,

Jim Eccher

Eric. Sure,

We million just that’s which couple on building office the We’ve that guarantor it. just First, that to largely to credits, I was the current, $X there. that classification our We’ve thought tenanted $X The of was reserve support it a had result take non-performing had in radar. continues a it two in small of tenants. lost classified uptick one It’s million classifieds, shy an we it type in of took four. to guess quarter. it take prudent was we of over to but got

that have was looks. quarter a that $XXX,XXX the but Still of foreclosure a we received credit process other of $XXX,XXX up was since or loan already. be we the pay-off optimistic able to on end that move have it The about in will –

granularity loan what as the put far looking the continue As size and about are to we on growth, be of disciplined to pretty we books.

not We doing or large deals syndications fairly diversified, granular, participation. more have really in really focused fairly club engaged It’s or core in our significant markets.

Unidentified Analyst

much. very Thanks Okay.

Jim Eccher

Thank you.

Operator

& next question go Bruyette is Keefe, from from ahead. Our Woods. Chris McGratty Please

Chris McGratty

Yes, for of for can accretion budget help year? kind the on Brad, thanks. you accretable this the outlook, what’s us income

Brad Adams

be would the be would should than this three $XXX,XXX – roughly next It about saw you quarters I less what quarter. say,

Chris McGratty

make please? you I tax And Okay. the on then, guess to going am rate

Jim Eccher

do Don’t from wants that. me. Nobody that hear to

Chris McGratty

No dice?

Jim Eccher

No dice.

Chris McGratty

very That’s Thanks right. much. All fine.

Operator

our from next is question Partners. And Please from go FIG Martin Brian ahead.

Brian Martin

ask I tax question, wasn’t going to Brad. the Hey.

are do a unclear discussions that the pickup I was you least slowdown I active today? it pretty that you said – on see guess, and at one in the you in think Jim, are or it on saying have discussions now. M&A, continuing you was seen is just what seeing sounds the say, quarter you you guess, was I assuming So, slowdown in or like, guess, is guess, and I follow-up – that second, I third would did

Brad Adams

obviously certainly valuation think everyone that market pullback think has seen created time seen. a reset has and and a I for – everybody we’ve has retrench market been I the to there the Yes,

I with we were in coupled but quarters. quarter, pick think to holidays, quite up things expect the the things coming that the pretty So, back in

Jim Eccher

in what expectations when times goes in in quickly are think their you and change I industry would XX direction. going that a valuations adjust movement valuations that, see to our the up, earnings other had when opposite something the and I ten been is from say true sellers very

Brian Martin

if size M&A, just kind a of think you And at of you that around or about deal side, me, at. what guys kind guess, is the or what of the guys you guess, can I when of, larger, I I fence a any look I deal guess, it? size it remind kind context on more optimal I – looking okay. you Yes, and the would on are mean, range, smaller that you there guys mean, put was when you is

Brad Adams

unlikely. large is from us Something

$X $XXX $XXX Something possible. million million to is billion to certainly

core on deposit is quality. focus Our

Brian Martin

Got you.

Okay, thanks, Brad.

Brad Adams

Yes.

Operator

the comments. Thank floor Great. you. closing and session. for answer back I question would concludes management to the turn This like any to

Jim Eccher

Okay. speaking and the Thank interest And forward again look us morning. quarter. next with Goodbye. company this you we your you for for to in joining

Operator

teleconference. today’s concludes This

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

Old Second Bancorp (OSBC) 24 Jan 192018 Q4 Earnings call transcript