OSBC - Earnings call transcript Q2 2020 | Old Second Bancorp, Inc.

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Operator

Good morning, everyone, and thank you for joining us today for Old Second Bancorp, Incorporated Second Quarter 2020 Earnings 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 like 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

turn Now, Jim Eccher. yours. over Sir, I it to floor the will is now

Jim Eccher

essentially additional impacted quarter, resulted for net core deposit was asset of partially to was of origination Good margin in and in strength per operations my you second open related will the credit economic unchanged all massive assumptions, magnitude earning share and with today. $X.X of I taking which volumes. our reported increased Net basis discipline Earnings and to the Net we turn questions. in expectations quarter, gains mortgage interest sizeable was have income or over not driven $X.X mortgage joining hours PPP loans, loans, COVID-XX. and equivalent sizable impact in by details. the on loans of it our ratio corresponding changes of anticipated expenses costs. then morning, in because income for in conclude up diluted deferral XX%. of XX% taxable liquidity, losses it $X.XX core about points. associated a and reduced strong summary thank Expense than banking without growth income, several then growth our overall I of the the Brad give on and overview us for from by lower the comments was a million, This to of increase last PPP XX in by we loan were to higher was you The the sale of had reduction specifically in with shrinkage loan for a provision despite prepared funding remarks will full million from positively of deposits, offset quarter. reduction the book in quarter's opening in $XXX before this million primarily future, quarter with some thoughts

of of the PPP portfolio, Exclusive X.XX% Second and reserve total low reserve with also of and commitments the portfolio prior Overall loan taken steps protect results and rate breakdowns with has earnings Old a at Second loan changes. strength customers our and remarkably close stable. in And somewhat focused classified are Asset at available a communities. on increased loans, point performance. give impact were additional we our stands employees, mortgage relatively X% these lending we book of stand and with if every Concurrent positive on of the of closely each consistent with indications trends in today. of this of approximately unfunded team We're this trends Early investors and portfolios. assets detail will loan release, our an quality earnings our borrowers with of remain bulk the our modification. fundamentals a reserve and number to of modification additional loan on require not Loans modifications the detail current filed Details has X.XX% for loans remain release under original monitoring at approximately environment. considered. extension Nonperforming composition customers. XX% understand also the to tables modestly, of situation. in these that and earnings currently levels. stable loans, staying contact the quarters, the And confident and the is on our are reflecting proud Old is banking to are working our extremely

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

that defer vast appropriate. cases. We offering with been impacted, over and are our communities staff has issue. waived months we ability efforts proud is the in majority directly as remotely of Old well couldn't of are many those Fees payments The been without last over the to more have have I the serve to and three our continuing to work months. also of employees Second few for working proud be our been

We strengths clear of lending has us of that steered industries. the most our are core many fortunate impacted

realize have impacted aircraft our in loan we the for in to potential many exposures We consumer industries of the implications and short limited reminder, our restaurant portfolio. rising intermediate-term or a and unemployment, commercial the demand. similar lending on zero to extremely As falling energy is scarce portfolio. from Hotel exists other is direct and significantly lending be

Our for of XX, the both percent, portfolio. base an contemplated a life loan decrease over and XXXX, GDP, a remainder economic significant the low forecast in June in elevated rate and remain unemployment highly the double digit at of

last bearish in most adjusted And notably quarter. were quarter. assumptions than downward again second Our more the we're

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

as Importantly, $XXX.X have increased loan In ever million quarter last total and to originations. been. of as we our from believe regards capital the million $XX.X second specifically, to loans liquidity strong position are quarter they PPP

that any we refinancing. muted. of to be pipeline that disappear. quickly above activity period for activity. services, strong million The requests in The very to estate a of pay are see Thus saw principle. credit relatively line and off growth a significant drawdowns approximately level half the to We robust mortgages, through line have second originations, contributors relevant. at loan up far that not we of July approximately we should facing continue expect a Second economic means froze XXXX. cash with We loan in thus to mostly short January of the real and we loan of loan see residential in balance outlook out longer make these lease mitigated totaling XXXX which together quarter, shared do demand commercial the childcare in $XXX on far of by growth lending been the processed did our portfolio time, loans, drawdowns In significant continuing In featured requests. deferrals churches, Concurrent for XX, addition largest Old not expectations XXX no this, have

In of the to loans turn our surprisingly terms a of about Overall, Second Paycheck million it the but of quarter in Old in over And, XXXX. cautious, Protection approximately to funded in encouraged color. provide I'll $XXX results number areas. Plan, additional second Brad we remain has

Brad Adams

portfolio a of acceleration income this million last termination Thank soft quarter during the to by during XXX% from exception that to loan based taxable first very relative over reported Mortgage should We $X.X the from costs $XX,XXX or core income of you, interest XXXX, balance the increased last on liquidity more rights the quarter and the considering due of the write quarter a margin Fee popping. well, unprecedented with of benefit Servicing has equivalent second as interest the quarter, declines of $XX down yield income the lower interest savings XX short trust on basis nothing the PPP associated in to item, spread of increased preferred relative mortgage this $XXX,XXX trends very quarter, the has banking rates forward. securities. continue eye majority sheet. going quarter. on in impact points decreased contraction by Net of more growth prior on with of and and growth as with modest of experienced quarter quarter, trust than last well. loans, the been were interest to million, down retirement included Jim. an was up Deposit held strong of activity. the Absent banking contraction

swap evaporated between quickly during the and LIBOR elevated As quarter. the rates overnight expected, spread second

about the based had deposit of Recall an a our second earnings was fed on think these quarter. impacts experienced in and that March, call. full of board quarter I movements the across in the hour pricing of reduced actions we late

X% an recessionary losses remainder following the loans. totaled of quarter, digit overall reverse outlook the of to bounce year. of quick in increase conditions the first the approximate expect remaining the and year. above at an dramatically. would the June next million loan assumes would anyway, economic We $X in a outlook $X.X relatively XXXX. the through outflow year, this back forward. If assuming not of margin loan a high-single unemployment It outlook improve The improve this not for XX The economic provision above If second for environment, inflows conditions the with either allowance the in remaining do or life and reflects million going over margin unemployment of I'm more our quarter through modest our expect quickly. is will point contraction that deposit improve margin growth these occur returns, rate the much us rate dramatically. I prolonged XX%

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

XX% compared increased have year very Our dramatically well-seasoned. excess is this exposure consumer relatively book last peers, modest to across actually, commercial and Reserves to year. relative the lending extremely in modest of

and coming our funding and expectation Our in loan remains spreads as assuming trends, be maximizing said the risk efforts of contraction quarters the unreasonably helping with core remain liquidity modest customers, margin will in robust, tight. funding quality on growth I focused

quality and continue we and pursue protecting capital flexibility us Our leave relationships well-positioned, liquidity levels franchise. and have the ample to

bounce mortgage modest during we I'm sure side, to significant banking dramatically to expense will trends some will with remain margins increase Trust on trends as policy the and and of mortgage the continue depth pursue in not retail yet. standard the likely extremely in we to initiatives income reflected of sale wealth undertaken the year, the and near-term. banking fee management well-controlled in here banking Expenses quarter. the return a becomes a clear. rationalization On the volumes remainder stream strong expect I economic fee bit when slowed the gain during and quite back remain quarter.

V-shape what broadly, both investors expect by resembling should to trend and no I and in we away anything assuming are continue is recovery this intermediate-term. near a think take means the that

quality to are continue the expand for the franchise that, turn and over we Jim. to opportunities relationships I'll will We on lookout call when the With to appropriate. pursue back

Jim Eccher

with sheet and in challenges closing, Thanks, for these Okay. we our Brad. balance encouraged confident ahead. trends, ready remain the In

believe Brad's disciplined, and ourselves our that We has and remain in better. do capital has point advantage. is have this balance optimistic improve sheet capital to we That the timing, opportunities comments available to have need our to take sure us liquidity morning. that order for on prepared and and concludes footprint. to been that We credit at our The focus underwriting access will be recession. slowdown remained for never making Overall, to some we and our funding the steps strong. I position position is taken And point, and team the a well

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

Operator

Thank for you. Ladies take and Nathan open Instructions] Sandler. with ahead, Race gentlemen first go questions. the [Operator now Piper sir. Please question is floor from our We'll

Nathan Race

Yes. Hi, guys. morning. Good

Brad Adams

morning, Good Nathan.

Nathan Race

Brad, the kind of you you could of you to expense looking elaborate this the I was start comments. on point? of perhaps just are on hoping your just potential maybe structure year. at guys I It are magnitude this wondering, guys sounds at opportunities cost contemplating like some that back-half to refine cost in was the

Brad Adams

it's too tell. early think I to

that the be had we contemplated that will on spends consistent provided have of large we largely of hold. some I the kind with were that think -- that infrastructure guidance and

And sent our shop again this by it as report, We pandemic. pretty ratios absolutely usually very home evidenced sure are nobody is the to during run reporting quarter. lean the we that as doing make that is are profitability we best and a

values some $XX be don't asset to are run to on at on million in to investment way that that certainly We cautious that less clarity for near-term I going things any can rare where about is those going us We're scenarios appropriate. one rate, an for point. than the them The the key be. think be organically is grow going opportunities is to there's around evaluating I have you opportunity. being think think yet. But to where of expense acquire extremely operating

Nathan Race

I bit of to about build quarter. thinking the this that just Yes. a gears provision classified largely inputs. you keep from trajectory imagine quarter That's incurred helpful. appreciate a And the and that function little the came just loans qualitative was changing down here. guys reserve I in

this to increase as So, out, of continue expect mean, level and I in that supporting should here quarter? you not third build I'm today, we sit point? really to in seeing second the quarter guys reserves the that just saw here sorry, of the kind perspective internal we kind look what the as quarter, the from into an Or of third by at type you're we is

Brad Adams

a down of I on of a of would that XX% economic a if somewhere in speaking, And answer have rebound the still my the we're I of in consumer largely And indicators that to strong to I going unprecedented had strong you. tell availability that to be to Broadly saw spending, is stimulus. of running suspicion factor know think credit response implications. We government going I number is levels broadly neighborhood don't profound don't that is the the the is know going be. what economy. what I in

in very of quite things low. All are be. is determining going what fundamental to simply is of these path The the things visibility

we know this taper quarter will don't next that to possible in it's And the what's on happen I think that that to going front. begin it's I think I we'll continue possible reserve two. consistent to off. builds see with

So, wouldn't to astray. want anybody lead I

Nathan Race

last Fair the margin impact expect loans here. going deck to and guess on the near-term. the liquidity from me from then like PPP forth. levels doesn't it core you the for guys come I so down enough. disclosures Understandable. that forward around out just But sound appreciate one I stripping in and And excess the

any third on in of kind core of the thoughts trajectory at the point? this Just NIM quarter

Brad Adams

Well, I to what savings have I desire nothing, customer a time did about basis that basis our major points the a to have going see reflects is basis exclusive earning and only within what opinion width do That points, a a suspicion our know deposit base to from simply worth would XX%, to expectations. not on do deposits rate fair points. a is because in the just not are to loan $XXX the or how and XX% cash going on Exclusive expect I way deposit don't consistent was know forecast. I down related based in in on impact that PPP, we been have million XX my few happen. is is of cushion. that don't my margin which know XX last that of went amount any what's to with is long My this the to that back strong of added PPP, change for low growth lasts. ratio we to it margins. core

it it if and transient. point, is driver So significant of than at some profitability growth, a earnings is more

understanding and But lenders remarkably than getting think and close to last and bearish that situation, the be remaining We right amount at we're Jim -- in quarter. some deposit having playing I conversations there defense. than franchise. effort something back that is more to yet. I our in be terms put becomes of doing on worse very other to again. get that think have would And good don't of a something point I I the our look customers forward based their was and And time and close day talk it financial every have to when difficult

Nathan Race

Got a that other congrats all color Thanks, guys. nice the quarter. very it. on and helpful. and appreciate I That's

Brad Adams

Thanks.

Operator

comes question from sir. KBW. Please go next ahead, with Our McGratty Chris

Chris McGratty

question. come Good the guys. a to still be to the think near-term balance is, We not different. care the downward. a the right? core about Brad, like, in ask biased margins back morning, some I NII NII. do excluding ballooning I'll ways, and about to ton PPP? Understanding percentage, want going sounds It just loans sheet growth little loan margin we will core How of is of

color be would NII? it feel bias great? on Just like in would downward that we're any So, still

Brad Adams

to not growth towel in throw ton don't but I on the in either. Yes. see a think XXXX growth, prepared loan of I'm we'll

out struggle. others there, are opportunities will there that that I believe because think I

that to last given is why I at not little in that which the XX sense growing for have now we're capital how continue doesn't built. and year, in makes And make hard work of the been most here. the now sense. we nature. visibility We addition into contrary nature, spent last this, we've much bulk We capital the think of tough for least largely chasing pruning raising borderline that in Earnings did were last months. to relationships year us, is

or assets, expected run economic low it's dramatic scale. and ballooning the common of near and this conditions an report, sheet absent, I would can very we wrong, level earning have XX% strength, non-earning of the this quarter, turn like that of being balance chance tangible return I cash. You namely certainly down we especially on wouldn't think level But possible overall that of maintain certainly this profitability a with

Chris McGratty

thanks. Okay,

have through couple amount loans on of of of the are PPP a The and come the going do might of for In that your timing, purposes? terms fees details modeling average of thoughts what just then you PPP, be? then balance to

Brad Adams

So, I to in think forgiveness quarter. we'll see the fourth begin

somewhat around in if That should realized. half maybe to higher. $X.X quarter XX%, deferrals fourth year, been around Our it the I by quarter first that is see, will gain in say and expense muted million. be guess, I somewhere the next of have remainder forgiven, of would the But had and you

originations, Our remind were would only whatsoever. to I PPP people a of any existing loan loans and couple entirely customers size with

night, category, granular, disclosures myself I you You team exposures this that the accurate. we've group, in to remotely confident our very five current sit us over that's entirely work economic It's lending has that made done conditions. where relative not that last in the we every very I that granular across with very put the months, is but average can of work provided can that below the loan And small, loan half see dollars, solid a very we portfolio very tell credit a lending in last million portfolio.

Jim Eccher

the the about page of you to last $XXX,XXX. if average Chris, tickets look deck, at second the Yes.

point XXX small done to ticket. very of we've Brad's but these So, there, loans,

Chris McGratty

I'll back. last question Okay. step and Maybe

been environment cautious obviously banks in quarter. have some guys would on this But How in I very you minority a small time. bought which about think using quarter, stock pretty forward? continuing is, of You going for buybacks we the the say do

Brad Adams

it think opportunistic. will I be

Operator

ahead, We'll Faries, our question instructions] Investor. go from sir. next take Please Stan [Operator Private

Unidentified Analyst

gentlemen. morning, Good

Brad Adams

Stan. morning, Good

Unidentified Analyst

and I wanted past have really I you all Old did don't Second. a to to a I and at want hi comment. colleagues to my say question. out throw friends

reason almost I think is that the there's bank that XXX old. years a

to say in wanted think and officers you might I to I And now. the be been the like the great seems kudos directors I job. a on what And hope just clear when are quarter I adversity demonstrated it's better management that rise the I that a doing bank since occasion. past think that's hits retired. little guys that great and a It coincidence. just that's doing it's

Jim Eccher

Obviously, big this Stan. Thanks, building foundation. of part you a were

have some too. credit we So, to give this for you

So, words. thank the for you kind

Unidentified Analyst

appreciate Yes. me you portfolio. all I the wish I best. in stock And it. keep making my money

Jim Eccher

We'll do.

Operator

Janney with Please sir. We'll our go ahead, Montgomery. question Martin next take Brian

Brian Martin

Hey, guys, good morning.

Jim Eccher

Brian. morning, Good

Brian Martin

just deferrals, low-single of they get go normal, one when down of Hey, to said the be kind digit to roll you back I you level through? out so kind is you a look Jim, deferrals so of guess, we question. the two expect was far, to I of when think XX% total quarter it what of kind

Jim Eccher

we lot we've having think on of early could based clients. potentially with That's be those conversations better. that numbers been a And our

Brian Martin

seeing guess at sounds like any you the on And deferrals it not request Okay. all are for deferrals, -- you're I correct? much I second if seeing you're guess, seeing today. second

Jim Eccher

have these will some Certainly hit wave, them, again, expect But, with But industries. to second a exposure lot book harder the those we No. in retail have hit of a -- other Brian. certainly of part don't sectors. certainly retail hard of we

actually with with immune the from but clients, number won't to we're We've normal of be we're yet modifications, Brian a taken doing deferrals. we second had pleased make clients. But have conversations that having continue So very payments.

numbers expect next quarter. So, we these to do improve

Brian Martin

Yes.

to create talked kind the sense? Okay. opportunities being opposed All sounds Can muted having you of about you And I surrounding Or M&A be we're where helpful. about thinking and M&A? pandemic. you to think as early the guys just here. the growing give obviously or it's other lift-outs realized right. go would of opportunities growth also thinking though But talked guess, forward? I That's just you deeper any I you're more organically. just as would pretty uncertainty But there's just buy that these as it is I loan it it mean, more

Jim Eccher

starting very mean, we're is Well, to wouldn't growth weekly that on activity robust more committees a basis. And, this -- obviously internally. I are I say at But point. something obviously loan organic are are on see focused we

are But, We talent certainly certainly to a liquidity lift-outs to able probably for little let early After are improve to going then that, this M&A, whenever quarters. of be the at we coming our a speak those opportunities to we're to look And some And bit I'll fair the to in us. Brad little game we redeploy continue look we'll probably early. for can. footprint. want bit but in confident cycle.

Brad Adams

I think M&A a right of great would due deal diligence now. require

Brian Martin

Right.

as the it was sounds more though It on plate that. Okay. than

the fee So, okay. just guys. just on And It's for last quarter. one this then income me maybe

Some that eliminating How those charge deposit quarter talked on the kind two? some of trend you and next income here you near-term just charges. fees that? any related are or in service customer do visibility of about the that Or service think of

Brad Adams

over the the side. normal retail to on return slowly they'll next months six think I

Brian Martin

Okay.

the service On charge income.

Okay.

looks couple So the it bit of normal a little next year, than next more quarters. kind

Brad Adams

Yes. so. think I

Brian Martin

Okay.

I that's I all had. think

So thanks, guys.

Brad Adams

Alright. Thank Brian. you,

Jim Eccher

Thanks, Brian.

Operator

[Operator Instructions].

Grubelich next from Investor. go comes Private with Our question Please Eric ahead, sir.

Unidentified Analyst

modification? payment had at question good modification. with guess a on morning. How those you you show When $XXX the a are versus much just of about million Hi, you of chart I your balance outstanding. actually loans some on other kind have that, on payment interest-only just of I look

Jim Eccher

About are days XX% the interest-only, of and over Its The payment full XX in those, a two-thirds for XXX. of or them are XXX less, Eric. deferral. morning, or on Eric, majority remainders over are Jim. Good third vast

Unidentified Analyst

you what I -- Yes, that saw those in had. of of the detail

in I just on you IO. So, I saw that third okay. No, had a am there, sorry,

from anyway, good anyway to But hear it. missed it you. I Okay.

thanks lot. a Okay,

Jim Eccher

Thanks, Eric.

Operator

the no back appears at it this to time, further floor Eccher. Mr. questions have turn And like you Instructions]. I’d to we [Operator

Jim Eccher

Good you, this you look we forward Okay. again next Thank for to us joining quarter. bye. morning. And everyone speaking with

Operator

Ladies and you. this Thank your for you We does today’s thank conclude teleconference. gentlemen, participation.

disconnect a have lines and at great your may this You day. time,

Old Second Bancorp (OSBC) 23 Jul 202020 Q2 Earnings call transcript