OSBC - Earnings call transcript Q2 2019 | Old Second Bancorp, Inc.

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Operator

Good morning, everyone, and thank you for joining us today for Old Second Bancorp Inc.'s Second Quarter Earnings Conference Call.

On the call today is Jim Eccher, CEO and President; Gary Collins, Vice Chairman; 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 in 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 our oldsecond.com non-GAAP reconciled release, our on and are which site their available These described in to measures Relations the under Investor GAAP counterparts is Web tab. at earnings

turn will to over ahead, conference Please Mr. the Eccher. go I Now Jim sir.

Jim Eccher

over thank Brad quarter joining and everyone, us. we additional you give Good questions. and will for will with several turn overview have then and future it and open summary thoughts my morning, the to I details. I you comments up for before of for about then it remarks Gary prepared conclude opening the and

share gains and were pretax. be these impairment. approximately results the rate income strong. interest trends or Securities was roughly Net in interest overall negatively earnings overall. XXX,XXX favorable MSR quarter. items, of taken income MSR diluted of the million the Absent offset this fee-based Earnings were during revenues impacted net impact the impairment continue Our second quarter and by quarter to quite X.X per momentum $X.XX in

Returns The net of margin, a has expense bank. continue very sustained to on growth the ability in businesses control, fee-based across afforded high outlook. to interest level performance the our of stable future solid us by driven credit assets and and significantly the strong equity the be profitability invest

they in a team, banking reach. let Chicago, more for disruption the Second provide area I’ll seasoned about During commercial But the a to Gary leadership the in institutions minute. to and Chicago that the opportunity me amount and several speak quarter, we our markets financial little that welcomed serve let in our Old unique say expand a of bit additions

our We will in quarters ahead. and aggressive be to sales grow looking continue in upgrade capabilities commercial the both to

Activity picked by unchanged loans in have activity. are up seen quarter the time. pipelines we strong reasonably June and quite the originations regards of mitigated total to specifically, in quarter continued some from our level In were last at second levels payoff a with healthiest considerably

The aggressive, remains market competition in and structure. pricing for credit terms in of our both

by recent and an our to grow to expect we sales to upon portfolio capitalize the staff. provided expanding margin tailwinds additions loan increase the With lessening, efforts

third elevated payoffs unpredictable, can of payoffs. to impacts due which to fourth re-pricing impact picked quarters loan Absent growth mid-single and in for the we last the from times the up XXXX. and relative on digit optimistic lagged are Yields at loan achieve originations we nicely are portfolio some new quarter

on ratio can we re-pricing XX%, sheet growth loan offset mix were time modestly growth a factors deposits optimization. in remain levels down deposit in with deposits. the transaction and modest these at and some near increased modestly seasonal term improvement with in stable and by mix I to partially very Total trends. of Loan-to-deposit funded Growth decreases accounts believe balance

comfortable remain relative quality as and asset level loans The past We dues and well declined classified to of controlled. with relative OREO well. to very quarter both declined quarter last last remain trends. Nonperformers

a in over on our Brad has who Gary of very to to number I provide prepared Overall, we color color though, his new and it Prior turn results additional remain that encouraged the will some about hires. will in areas comments.

Gary Collins

Jim. you, Thank

and quarter, to teams. sales our significant the some During to made leadership we are pleased additions have

will Group Group a with First, commercial President he banking Commercial our Market years Director we Senior from over XX who Chicago-Loop as office. added Weinzelbaum business. named experience. work served Financial, leading President Louis Professional and MB and Louis Managing the of Previously, has Services has been

with Managing Market Chicago-Loop Director he in MB also to their and that has Director in Chicago. experience and National a banking Director location. XX Banking Group Healthcare commercial been PrivateBank. of Senior has Kohn Financial President Group he The as In previous Senior hired over the Alan be in Managing at Alan years addition, and Previously, we’ve will of as and Managing Chicago, named served located

Also has named developing and responsible the President healthcare MB Donald and Vice He joining growing relationships been the well. lending will space. was be healthcare most Clark. Senior housing group Alan as is in Financial Don recently senior with and for in

are our Louis leadership credibility and bring additions expansion extremely metropolitan to We and into additional Don experience our excited the Alan in and about believe these team and Chicago incredible area.

our in are resources and the the that growth sure make continue our accelerate momentum place will market. We to into

and Brad at answer happy it the about some to are to for call financial I now turn over leave additional will that for We any questions but these additions, review.

Brad Adams

income Net with zero from nicely benefits. last lagged and and better interest cost growth funding origination on Thank you, benefiting activity re-pricing from yields quarter Gary. loan increased loans

Fee rates despite interest in income large a difficult banking the specifically to the bounced mortgage during the back environment, nicely related impairment MSR further backup very quarter.

with reported time increased contribution a largely market sheet liability on points bit. stable from has shown of quarter recently and movement equivalent deposits Pricing accounting. from well The side of the basis balance taxable a in core pricing just purchase remains last signs the and by margin controlled X abating

going pursuit the quarters quality leaves us be and protecting expectation forward. positioned, The we while flexibility both will growth in focused the coming deposit of our with ample loan of a the stable on continue funding base. more core margin well core loan-to-deposit to efforts growth Our and have trends ratio

we earning deposit As of future mix seek through which fund Jim mixture the is growth to the likely a asset optimization, and some and come mentioned, it growth loan is of earning to deposit asset time optimize will side. likely on

results. any relatively remain A in the should portion is decrease Fed rate. expected QX trends the movement week Fed in funds already reflected next margin in core stable of modest the funds absent forward, Looking

but each is If the lowered, much of in changed, having and rates. important the basis decrease more for believe growth growth short-term us with for to the point significant our we in on margin we will X rate side. currently XX have would Loan I a front for X opportunity expect basis points outlook rates us between move become

income, pickup of built impairment a quarter in in banking margins gain and by significant activity. impacted fee level The a portfolio. mortgage The improvement with quarter the MSR previously rate-driven pipelines sale was the mentioned quickly the the on reflected in during significantly have refinance

Trust retail solid quarter back banking very trends and strong and in wealth had expenses. both and controlled, activity. did we were management advertising well though fees in some a remain increases card office and Expenses see

year, offset run investments us. seasonal will hires baked in continuing rate the of seen and sales future be remainder growth from for the are Additional into largely by you’ve largely trends factors

previously to the the tax a compared recorded prior was rate in for quarter I due related to bit quarter effective tax The current had RSU credits vesting higher to than expected QX.

I’d over call With turn like to back Jim. that, the to

Jim Eccher

excited to trends add these basis, talent Okay. Thanks, we to closing, the continue an operating In quality the strong and remains about organic about encouraged On future. are organization. to excited the Brad. possibilities we leverage with and are

the environment Returns core provides Old opportunity equity excellent its are basis an Second a on bank tangible to challenging for mid-teens demonstrate like interest in on a strengths. rate and the

mindful Our efforts the will to be the remaining focused on adding on quality bank front. credit relationships while

capital. at make have some we which capital are given speed the to front, the will we building decisions On

our and balance examination We to evaluating of M&A efficient that evaluation outlook. be alternatives be a with to will here continue careful

of out front. make in significant opportunities. the changes quickly more in valuations volatility Periods things the our evaluation We but disciplined difficult improve are of to remain opportunities on remain of the and bank footprint today, can that we’ll that those optimistic change M&A there and

That concludes our prepared comments morning. this

So over to turn I will it --

Operator

with Andrew for We’ll Thank open Liesch to you. go first Instructions]. The [Operator floor Sandler questions. is now O’Neill.

Andrew Liesch

Good morning, guys.

Jim Eccher

Andrew. Hi,

Andrew Liesch

production. Is Brad, side? you just that the mentioned that loan lagged some quarter rate remaining still from there quarter some of catching that come up this could or on is offset benefits yields in to be by some going this

Brad Adams

think been three-month absent one into Well, would there have I happened what’s LIBOR. and

reflected curves I think look days. they’ve month cut one of the at done, rate few those a what if in LIBOR strong a and expectation you have that largely three-month

So I that that’s by been think that this at point. swamped

Andrew Liesch

is months you the loan much and And to – how one of can then us remind tied just portfolio what LIBOR? three

Brad Adams

a or so. Roughly third

Andrew Liesch

It in maybe M&A pace were just ago? guys like remain but few Chicago if then you discussions versus comments can. maybe the to on Okay. Jim, the months trying the active, And they are how you a – just going on area sounds additional are

Jim Eccher

Yes.

have continue we a to expect But I front have as obviously with be last the or year year Valuations will turn the in good so. unfolds that challenging. and and quite quarter to we the continue lot off down come unfolds a very and of think certainly cooled things, there to hopeful things opportunities those accelerate Andrew, as us. discussions makes of around which we’re bit, have discussions partners,

Andrew Liesch

my covers Okay, questions. great. Thanks. That

Brad Adams

Andrew. Thanks,

Jim Eccher

Thanks, Andrew.

Operator

KBW. We’ll go next Chris to at McGratty

Kelly Motta

Chris for taking actually This for this morning. is on my Thanks Hi. questions. Kelly Motta

just to does include guidance can you NIM, book Andrew’s up your much clarification a question your NIM correct? on indexed not Fed provide Following the that And loan that stability, is of with Is on also cut. how LIBOR? the about

Brad Adams

Roughly metric in flow of the benefits, in some of a third that through with terms changes I pricing as immediate mentioned. lagged

day doesn’t the shifts. the curve it all on go So

a or something can So one like month three-month it be a on or that.

are we So movements tied but some there are it. to

the curve, it stability cut. does And I the reflect In caveat look rate with LIBOR that changes. of with expected reflects expectation of if would curve no you terms changes, at the the

of in actual said with happening, contraction. to ago be rate X X points we it as cut However, would the couple basis a minutes

Kelly Motta

you hires then Great. had. a the recent on maybe And question

in you to gave to commentary bankers. when trajectory in look you. continue was prepared the hires additional wondering expense that hires and I occurred mentioned You your quarter. you any commercial additional if Thank up pick these second the includes

Brad Adams

of have second the occurred the middle in hires quarter. do budget. They in the We additional

of positioning that and has compelling point Chicago lot Second story terms a very we in could trajectory. of this at think its hire Old I our a in people.

have M&A are, of your what paybacks overall think disciplined, bear, what we expertise add. to structure what they you no how that different looking than in I can approach at expense be terms

a the will bar, all bar opportunities us. it. we that level Second have high added we’ve and in the talent people raises it raise bring so If think Old of to think do to continue that we for I of to I far the

somebody if me, better than would tomorrow. as do we Jim Just found it

think that’s bank shareholders. to we a have to momentum time Old And a Second to Chicago the it’s and be you obligation have tell I good So I that does. the what,

very we’re I So think here. excited

Kelly Motta

you back. much. I’ll Great. Thank step so

Jim Eccher

you. Thank

Operator

Martin next to go Brian We’ll Instructions]. at [Operator Janney.

Brian Martin

guys. Hi,

Jim Eccher

Brian. Hi,

Brad Adams

Good morning.

Brian Martin

basis will? on X your just LIBOR-based be decline guess X two guess helpful? on I or you X indexed your those guidance deposits just side the just to to X make funding guess to the point portion if assume are that input basis I of would ability or there, loans, Brad, the given – point does what comment of some I kind to And changes the the

Brad Adams

that deposits of think – zero. indexed that are just generally I speaking, level So off, is first almost our

We are a sheet some pristine retail balance part. deposit to the We most have pricing. certainly ability for core funded lower

don’t to and loan growth to ton we’ve is core room bring continue that our should retail to there’s I Jim the flexibility stable. right a the compression of bulk deposits for our the potential to the the from relatively on of thing think the doing budget, of and and that us seen a change. to I go be has re-pricing to time do flow that. relative by deposits, away, on pricing which relative we’ll welcome committed just real but depositors, asset think the is is side sheet down spread the

Brian Martin

the in about the what referring when I there. were you guess And you remix. about you deposits you’re prepared the what the and and seeing maybe said deposits what there? time Okay. guess talked maybe I to you guess – just missed helpful. mentioned That’s on some But time of I remarks I kind something

Jim Eccher

deposits do transaction confident And we’re there Brian in our extent. loan seeing be we that to high-priced on deposits we’ll and so to accounts. growth core have point a That will and is which from does ABC the at growing of runoff if the that. able come we’ll to accelerate we’re expect, still couple quarters, focus for this next Yes, will some continue time solve But acquisition. in some point, and

Brian Martin

you. Got

there think just at we that that today on Jim, people M&A the potential hired, described And term? people understood. hire near and there guess should Is I there, the I guess you fair to how more is to the say given transactions? out opportunity to more that you guess today Okay, than there’s do I the about how is least environment, maybe –

Jim Eccher

on comment Gary let I’ll that.

Gary Collins

just Yes. Certainly, of been M&A the MB. This as late. the than with But Yes. the market. But quiet is Gary of MB, a recent Collins. more disruption has there’s in sale it’s market

to seem be commercial of Some to banks, lending willing larger talk. the the teams

So ongoing. we’ve conversations really been fortunate to decent flow have of a

Brad Adams

six to public just necessarily I hit last or think valuations significant that the expectations has companies where taken near-term private so a followed have the have within not company been months that. of stuff over been spoke volatility the stable. on on terms math former has meantime, of lift-outs That’s the opportunity latter what and the lift-outs is the Jim in valuations. In has the increased,

proposition value six relative has versus for pretty the the on So skewed M&A last months. been hiring

focused. So that’s where been we’ve

Brian Martin

Yes.

the you’re the maybe a guidance in guess few the trends for of you’re hearing where that today. – people I’m kind change to pretty is despite like a a what given much your Okay, or understood. conservative pipeline And seeing it hiring didn’t bit you than people more I year and sounds robust is there today? at really there

Jim Eccher

-- you’re flat loan growth digit is guess, through I Well, months mid-single to Brian, when six get essentially

Brian Martin

It’s double digit.

Jim Eccher

on do going right. in more others payoff certainly we third to have come is our talent that some quarter. But factor we see can And down grow road basis. the ability Yes, consistent the to easy, a to haven’t But been and that’s going some been the we expect, elevated XXXX, about real feeling that unpredictable other not good expect. pretty it’s able the be some we’re we into

Brian Martin

Thanks understood. right, guys. the All Okay. for questions, taking

Jim Eccher

Thank you.

Brad Adams

Thank you.

Operator

[Operator this or to conference management the at no I time. turn have questions I’ll back for holding additional closing any remarks. Instructions]. other

Jim Eccher

us forward next with Okay. we Thanks, speaking everyone, to this again and joining for morning, quarter. you look

Old Second Bancorp (OSBC) 27 Jul 192019 Q2 Earnings call transcript