OSBC - Earnings call transcript Q1 2020 | Old Second Bancorp, Inc.

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Operator

Good morning, everyone and thank you for joining us for today's Old Second Bancorp, Inc's First Quarter 2020 Earnings Conference Call.

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

the I Mr. Jim is over Eccher. will call to the Sir, now floor turn yours.

Jim Eccher

prepared and morning thank joining Good all you. for today. us Thank you I have several

then turn additional you open opening overview Q&A. of future, will then will details. and for Brad give the my with comments it and it summary to remarks quarter over about some some and conclude I the up thoughts for we before

income Net of associated by with were or quarter negatively share diluted impacted assumptions, COVID-XX. changes by in $X in million economic provision per primarily losses the was a driven quarter. credit this $XXX,XXX first Earnings sizable $X.XX for

interest also on of on mark-to-market due expenses to and the value moment. in associated interest the rates the $XXX,XXX of margin deposit rates quarter We margin to of will the million the due losses quarter. and showed rates. LIBOR additional during a to rates servicing strength in during with recognized Brad provide color net contraction $X.X in accelerated TruPS redemption interest other the reductions mortgage movement relative muted and core of the The

in employees, a slowdown quarter, to protect with these steps did Absent seasonal communities. relatively taken customers were prior see rebound items, a and overall Second fundamentals though has we last from of banking trends and consistent quarter. and our stable number earnings mortgage Old results the

necessary locations albeit our remain available, customers, with For safety precautions. and our open

well we offering our defer ability appropriate. to vast payments directly for been those over impacted of with We are the a month work issue. continuing that has remotely without majority are The working as and staff have to been

and what couldn't customers more our has time. is difficult Second other proud a be supporting in employees the our in I to proud serve and of very communities of each to be Old our efforts proven

totaling clear We our have restaurant less of credits are exposures that million the estate most matured fortunate limited million. core zero us and lending industries. in or our at focused currently approximately in food both exposure Hotel portfolios, strengths impacted direct three energy $XX to those aircraft have significant franchises. is of many values commercial than across steered portfolio. percentage loan is Direct is to loan lending C&I $XX and fast a major low of real We

in short potential and spared unemployment We the and believe the realize these few implications the also for commercial demand. the consumer sectors falling we term, term to will but exists immediate rising impacted significantly be of be industries in from near difficulty

March contemplated percent, high-single in Our the in and a low-double-digit base over unemployment economic XXXX XXst forecast to in significant an portfolios. the rate and of life loan GDP at decrease both

out nightmares. In curve our only the in rate Fed commercial funds crisis. I think the are stress all and And positives we've a bankers inevitable gives yield a flat that came tests recession last two-week a time period, with real term of real low zero to we a testing. Industrywide good of went that one job near stress done to financial

less recall new bank ever I This territory. revenues model to circumstances. let than any in drop proposed these month. is in modeling doubt imagined, certain is off a I However, any alone don't XX% seeing in consultant industries

most. portfolio point, diversified at have some We much better some will our than do but and will hold well up believe losses we is

strong loan last increased originations with $XX.X capital million the quarter and few are Importantly, strong April, line growth total the do longer a for of believe saw that mitigated short line and out froze no The that we a significant level that of expect very of In Old lending In relevant. in far period been. ever ago months continued as drawdown economic our we disappear. are featured remain you expectations first Concurrent credit liquidity the quarter I have remainder Second first robust specifically, significant this, see with position not drawdowns they any at regards phase with refinancing. XXXX. a in time, activity did to the payoff by continuing a from outlook above fairly loan cash of mostly we means quarter. we activity. quickly shared see muted. We growth to not to a loan loans pipeline Thus

on period April as optimization. deferrals both near The we this outstanding. by have loan of and for back growth reduction which mortgages, the Thus in far has through term thus growth XXXX deposits services loans and these XXst, largest funded in or at the of mix together we commitments quarter sheet a $XX to April despite can contributors of has event Total residential the improved believe XXX loan ratio totaling approximately requests care balance X.X% on approximately the and child loan The for remained modestly with growth deposit bounced deposit portfolio the make half requests. XX%. our of strong up million modest principal churches, to at well, and basis level average in first for in I nicely far remain modest rates.

and of approximately protection approved Old million Second funded has the plan, terms In in paycheck $XX April.

another continue waiting in. requests $XX will processing believe to additional We and some come million have

on doing can what we We this committed are customers to front. our help to

attempt isolate we a for our of results and areas. has about in but impact cautious, We program on encouraged financial surprisingly this number Overall, statements report will our remain to participating the in investors. on

more Brad prepared it turn I'll his can over color give in And comments. who you to

Brad Adams

continue interest $XX associated million to with forward. securities. should and by income this financed has of of declined Absent relative income The benefit the up a with of term very income Approximately item, to Thank sizable mortgage costs on you, experienced Net retirement pay-off $XX trends from savings the exception relative preferred to $XXX,XXX due termination in quarter, of interest Jim. plus acceleration last a the savings going quarter of interest trust this on servicing based of million held the were LIBOR during write down well spread rates sale three-year soft interest $XXX,XXX X.XX%, quarter, TruPS. note substantial at well. a rights the the into X.X% to declines of banking last relative to an was gains, cost as

Reserve unfunded $X.X in end commitments. equity credit in net of range and and at quarter actions should million Federal with costs. The majority time modest of is in million be from commitments. full that reported losses across of loans funded for contraction allowance equivalent is the quarter due and impact and quarter in more January margin late with accelerated in the the the reprice. the exclusive issuance the March accounting The tax on resulted provided at A This previously for Board movements. an based of by adjustments in reduced adoption of both these deposit points deposits and high one-time of evident increase of X X. the taxable on pricing basis TruP implications deferred second last amortization We $X million of high the results to as beyond rate $X effect mature the reductions decreased CECL This purchase adjustment resulted to unfunded digit end

a high-single-digit The $X a This Notably, for the characterized us substantial rate. near first losses XX% change a economic change. unemployment economic under-employment over loans, remaining the rate and for double-digit an in life million by reflects additional it outlook in the credit is resulted a in outlook to unemployment quarter. XX% rate of

As hit credit overall. a minimal Old has industries, Jim exposure to the culture Second mentioned, very hardest and strong

XX% of quarter's in across This exposure been book, the at no relative origination. book to in increased the January by and provisions features subprime consumer-lending Xst on to relative which result XX. commercial excess December XX% has reserves X.X% by Reserves

overnight will dependent efforts rates quarters rates quarter sustainable. be customers, LIBOR growth short be completely contraction in further of contraction after XXXX. funding maximizing expect the will trends. expectation second find upon degree margin as between I the funding term that we trends current Our of LIBOR the The the with not modest and coming quality do core is loan on beginning spread swap it of in helping in currently of the level and margin

spread the leave levels the liquidity elevated, better extremely pursuit positioned and of us protecting our trends Capital versa. longer vice our we remains customers. The and have margin while quality and the will continue and well the remain franchise relationships flexibility ample

slowed management gain modestly banking the the compared a reflected Trust the and and mortgage in volumes fourth increase and and sale softened valuations fees significant quarter, income bit although banking during on to the card ugly. activity. retail trends quarter wealth first the for margins on a On in was MSR both quarter fee side,

are strain April. to offset card be remain depth the the to with the sales year Expenses clear. well the in in likely in Notably controlled continues the XXXX, factors as becomes modest some be additional year, by expense anticipated of seasonal the remainder activity in initiatives and remainder largely of softer even hires of economic

With back to call that, over I'll turn the Jim.

Jim Eccher

sheet added with Brad. ready challenges confident high are excited encouraged organization. operating a about Second talent Old for and Thanks, ahead. a very In the level of in closing, the the then we Not and is our basis, remain core at these balance we trends, quality to

We to and believe ourselves strong. disciplined a credit for position steps We funding recession. our have and underwriting capital well our remained and potential and slowdown position is has taken

footprint. been making liquidity to some point, we will advantage. be sure our improve capital optimistic team us timing balance need that The have And available on to the access Overall, and order has never is and we to focus for the opportunities in at remain take better. sheet the I that

this comments That morning. our concludes prepared

So for I questions. it open up it to over turn Jess will to

Operator

to Instructions] you. at Chris KBW. [Operator first We'll Thank go McGratty

Chris McGratty

want Let question the I kind just sure start to of margin. I numbers. me make on a with understand the

high redemption, runs add back the the you kind the the [Indiscernible]. or that charge TruPS X.XXs preferred from it the of margins through like looks in margins were mid-to-high If

the X each X That realm your somewhere relationship assuming basis the in trending we toward would I about was, pressure, the points of that cut the [Indiscernible] of comments X suggest more over prior last roughly holds? were several to think margins or less XX quarters, way quarter. out. the If itself if XX LIBOR Is to effectively basis of kind and take flushed to that right points got that range, [Indiscernible] next X.XX% dynamic

Brad Adams

that I completely, agree with Chris.

Chris McGratty

was speak X.XX%. margin, Could you in to, that we I should accretion of items on out? couple Okay, guess, the there a draw notable so quarter the

Brad Adams

accretable the more discussion under -- you get and that's coupon CECL. over normal a accretion that excess number we is It which is asset. outcomes, predictable what excess into largely volatility it of been this much the accretion less accretion? credit as accretion now The has actual saw a amount for to accretion The was $XXX,XXX. versus accretion quarter excess is define due what was removed is, I than is of the of

forward, expect remarkably expect going talking about it to So to largely I don't stable be be it much. and

Chris McGratty

revenue you, it growth the Okay. could all a is you I The quarter mean, investments backdrop of bit kind or question speak the was a think, given be that expense I Jim. to and seasonal. that we're higher, kind making may of may from Thanks. -- here? little for understandably, first you of little not pace facing,

Jim Eccher

in anything projects potentially But term. of software upgrades. about. the our We've in sizable brought pleased remainder. see some a new investments will in of talent. the half biggest was last the fourth Well, we're investments projecting as We've do any not lenders suspend capital we're not the as on obviously we probably Absent outside year quarter, new we near very which dozen couple that, -- far got

Chris McGratty

Okay.

there. a I if just comes the that that holds had so fair from Brad, is of this my quarter, from that $XX take kind seasonal assumption? And roughly that, you down guess, million number and Is

Brad Adams

expect a will before we to $XX toward any move before million quarterly trend we it I expense move $XX level initiatives. million level cut

Chris McGratty

it. Got

That's I all had. Okay. Thanks.

Jim Eccher

Chris. Thanks,

Operator

of to Piper Nathan Race We'll go Sandler. next

Nathan Race

of seeing what from taking to just efforts the of has for on are resulted in the terms what just Maybe your in your with perhaps book, you today? first, terms with things, outreach stressing customer commercial deferral guys guys, just Thanks side everything of requests base and loan clients going the how morning. are hear of curious you Hi, good loan questions. that are on guys kind

Jim Eccher

only. long continue far, had as for we've book to the the of or have as that shutdown surprisingly we test interest made portfolio thus Maybe expect loan the about that to request a Yes. basis. certainly stress X.X% on last, abatements We quarterly but accelerate

overall. book and feel it, the about of good So, lot a pretty we loan

the book of been our media doing they're services that were sector is church hearing worried about resilient. continue. lot very tithing a we of sectors, of surprisingly One loan exposure very We're has which X.X% social about the and on was

us. that, pretty retail to surprised feel into areas. feel now. and the of kind about hit today, particularly have far, we indirect that's we darn Absent portfolio Obviously, it. what these of But is So exposure so we're on good -- that exposure no hard deep diving direct we're we some focused

Nathan Race

rates hear. and low that It's XQ, appreciate late you over deposit commentary, hikes curious going curious but And deposit occurred several and margin, cuts you costs think great that the in the I of point expect Jim. in pretty some of I'm guys should just to ton course second Fed the more a do measures you the you what fact there. then expect of more a at just we quarter. in guys a then drop allude perhaps quarter. I cycle from kind the the beta terms cost of the magnitude to Brad, if relatively into cut the deposit to had back pronounced obviously [Indiscernible] in quarter first in that just so

Jim Eccher

toward that the XX X relatively promo of remainder off trend market I over toward trend the wear two non-time offering for basis matures cost Time the year, basis XXX% years, trend more points. money of probably they And of a we like points. XX namely time, promos will points our next period as basis should deposits will are deposits think XX that months as over toward the quickly.

Our of very low. very, all-in funding cost deposit be will

everyone are think I in understands rate a that environment. we zero

think I matters. safety and soundness

asset despite deposit especially will still I true rates and trade times on liability the is same position on think stress. anyone, of that franchise, matter, the for of a side. side the the our quality low Wouldn't in

Nathan Race

that Understood. there, market on or if then step management was the expecting guess there of XQ? the and recently that some you reflective curious, That's just we lastly seen that equity appreciate helpful, obviously is rate down line just and have item another guys run headwinds trust pressures I if wealth I'm XQ in fees. I but are largely valuation entering

Jim Eccher

of think, I how far from have market-sensitive the I that pressure No, revenues, fact markets a of the percentage back, level. the bounced given expect lot don't

Nathan Race

you appreciate taking I great. the for Okay, guys questions.

Operator

at go Long will We Instructions] David [Operator next to Raymond James.

David Long

protection bit quick on that have on Jumping where for? your have stand -- loans, been around the approval -- program running guys here payroll most loans talking do things little on you fees X%, that your your at you about guys the vicinity gotten of

Jim Eccher

Yes. ranging they're as X.X%, they X% that. right way think but risks It's in taken come we're the far think I to probably we've, right, and -- about is

David Long

your the this discount for the here plans in out you near hold guys back again opportunistic to forward got the are move Okay, and And then did buying then and were purchases What longer it. pretty as looking term with and off stock, well. then pretty on over good a term, here. stock you quarter, guided repurchase share

Jim Eccher

I actually know. don't

has so a on weighted based extremely over $X that There that, the which said. see position. That with claims little I'm executed million rate with specifically, in last quarter looks of March. just reserve now. XX unemployment the part we what implications. of That right price think It's being difficult. implies south quality economic I like. of I comfortable our profound an somewhere levels first extremely jobless capital am with credit we our scenario XX%. are I Right. average at am extremely our comfortable comfortable the a

my the of bank that the is line a of in of and also safety of know and I and relative believe the that very been to which the has strong been component perception soundness that of I opinion, the even. others the has stock out valuation

to and our we bank what for safety out see, there is the So our soundness we soundness given priority to what the and and relative of the customers is. serving the rule first wouldn't to and of it's difficult That safety me being that perception them. stock, be the said, repurchase

I you So fully thoughts can't that that front. are our on formed tell

David Long

I appreciate on sense. and a it your it. thought makes Got process great that, No, sense, makes

reserve scenario guidance as about we and June get that the XXth, would side, to -- what, on building So, thinking reserve what come June, what you're the here and how another cause to any what similar it quarter? we saw build March in

Jim Eccher

factor. our under-employment the build think reserve significant most of Everybody the part I is

that I've short assumption that some on believe be don't reserve an or double-digit that in case. a that coming think unemployment at a to low are the near double-digit phenomenon. they And elsewhere seen levels is surprisingly of it I rate. I based assuming duration anyway is

I the under-employment period something that stoppages has of of of level assumed specifically, think long we that entire the the portfolio. talk for time, for when you persistence, you large talk and loss loan so life revenue economy, about about have the low in a persistently

see as mean white at But could the jobless I million if today, $X if can service be which to phenomenon $X reserve. following modest Then believe we been a see will and I sit this continue further sector doesn't million collar largely doesn't. to that more claims reserves there in the to second has continue you additions and point, here quarter, it I tell we happen. what

has very to of we in the I have in seen in And that at drawdowns. think of of overall terms that change you very same things looking be economy. we delinquency, am line that better data tells change anybody terms are seen September little I have in been going that the little credit,

But their to people delusion up continue at that this if will to am requests relatively lose jobs. We extremely to modification point others. no that continue have under seen I light relative

David Long

Appreciate Thanks. it. it. Got

Operator

Janney to Martin Brian Montgomery. at We'll go next

Brian Martin

at you unemployment a to to to what if got reserve then based short have you've guys a tail reserve? in the level down went saying to higher greater you XX%, least off, moving the a that you How -- you much much build then maybe now. suggesting if XX% guess the data from out of of Brad, looked as could that percentage back if you're XX%, go Hey, I would of earlier and X% the necessitate maybe And model on term. kind necessitate how went if that

Brad Adams

assumed a XX% than are which is, of because over over a XX% a unemployment that the -- But an economy is of a The a That possible would believe frankly, and that teens time XX% we've we taken. extremely -- deal that period rate is of that. not that. The of I doing loan I already portfolio being sustained rate Quite simply the is persistent is have assumption said three great period not remotely do, short-term rate American being life unemployment -- a stronger that believe I spike bearish have years. much, sustained that that wouldn't the persistent. others sure low-XXs don't what or reserve a high I'm levels. do on underemployment is impact to time for isn't

Brian Martin

right. All

Okay. highly the be risk you today, -- in these kind at greatest but just if are portfolio do sectors of That's risk the to the portfolio. more And by impacted limited helpful. view to look COVID, the outlined guys where guys you you that the

Jim Eccher

the than is vastly last about diversifying feel we've you lending, there the as during book the being good part better in going it That mean, we construction looks last said, of recession, I darn with that's today retail we've to our risk the Brian, different it. of shutdown recession, anything anything pretty that, back good lot right decade always of still retail Absent loan portfolio and our now it's happens, Well, know did sponsors risk, the this -- longer the X% it. And book, commercial right. over behind got focus construction, the with pretty poses XX% A the it's last ongoing. roughly. spent

is. our where focus that's So main

Brian Martin

can or just, of that kind loan is guess big have disclosed to share? levels retail, Jim, coverage debt service the you that have you any I And kind of Or is guys exposure, values you how maybe and do that... -- some just Okay.

Jim Eccher

mean, a in we was there. Yes, before no there the Tenancy were strong, real of bets sponsorship, can you, good all review LTVs tell I hit, line, COVID were portfolio. I issues obviously Brian, did are XX sector the in, to but complete deferment now retail abatements to XXX off, do the time. reality during starting and some that days, next come is we're deferrals this we're watching and see bears over to tough loan prepared request And

the not So but quality we on. -- still it sector about the tenants, behind be feel good goes immune long -- we to retail the as of as still and will this the pretty sponsorship this

Brian Martin

Okay.

Brad Adams

I in actual those If release you don't that were look the make we omitted is provided think the there at up the that pie graphs balances charts.

of represents one is real $XXX commercial $XXX the a up balance million a and The balance estate, makes the which investor million. first second, of

MSA. very occupied a real looks Now, market. us in that's know that concentration owner of that number standpoint. very Chicago estate another and I looks That level of tell the our from from would like you bank that don't different this properties in is banks in I unique something

talk been XX% at about you and gas a of number trade essential that the are, grocery accommodation relative you substantial first look to A that portion is indicates There has of $XXX namely position in when substantial the industries, retail stores. of food a if you an million -- that number. stations. When graph look service X%, portion at

next in based my The days. have be terms these portfolio will XXX retail very charts that's it's estimation pie -- overall area, caught in a today something because resilient we for that in So on information least at of I labeled that wouldn't high I not. get the have the assuming up be and simply

pull-through do, a is we've financial seen economic change. why to that evident byproduct which of quite numbers to largely with broader has and wider forecast is on a My economic fact our to releases the the on are concern in want clear that terms reserving It our which swath this economy, I point. communications not CECL in up off strictly be of trends is is customers. what a and is meant delinquencies based or anything the that of

Brian Martin

plays Yes. whatever, was it the of that's benefit -- one give level, million the as guess, itself it as the far you helpful, said margin realize, Got I understand and or a just the if way last think just Brad. you you're through Is kind statement. your, kind just if I income can the me, out $X into you. of in you're worked margin anticipating if And timeline I that of if that $XX income number. PPP so X% quantify I program, That Brad, it's you that thinking a maybe as event, that And benefit about the guess use No, statement? million. a manifesting the you how you mean, about a X.X%, for just quantified,

Brad Adams

and That don't It's It's its the the somewhere $XX know. there some terms X%, mentioned, between through way what's does. working the how going million is still to that pie. is that program, in bucket. X% so fee funded Jim The -- to been terms number of is in million going X.X% average to be, in got of $XX I the upside another be expansion far. weighted we've in Based stuff as that's on of

substantial one. these through, assets in we spread funds will and fee very are a it and obviously the on sold work itself low the is a position -- Now, Fed

excess that funding. use will We

now To in margin may both than from participation But and and approved see results give provided is, duration here more spread. million access we significantly the that as these that. the fund in that's is poultry we the we'll $XX is income sit get interest the short I of independent facility that assets, to full my to out the intention extent order this are the today So a expense you specifically break program. Fed that

Brian Martin

type [Indiscernible]. that's just -- a guess fair you And of Okay. term mean I timing of most say, just Brad, in kind that are is credits today, XQ would event, it's sit is of I minimal if the you a a it, as benefit think that, amount XX-day these as to far given as

Brad Adams

say in of would I be the the benefit bulk will XQ. that

Brian Martin

In XQ.

Okay.

Brad Adams

Yes.

Operator

Mr. other for I'll this to questions any at time, closing holding additional comments. With Eccher conference back no the turn or

Jim Eccher

Okay, you us this again next for quarter. you everyone a we and speaking morning forward look thank to Have good with joining day.

Operator

now conclude for today’s Thank gentlemen we’ll call. and Ladies participation. you your

disconnect day. a your phone this And You great time. lines at may have

Old Second Bancorp (OSBC) 23 Apr 202020 Q1 Earnings call transcript