OSBC - Earnings call transcript Q4 2020 | Old Second Bancorp, Inc.

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good morning, everyone, and thank you for joining us today for Old Second Bancorp, Inc. Fourth 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. to discussion the factors. for you for SEC ask full a the would refer company’s to filings Management company’s risk

Eccher. the to on measures tab. turn will go measures. we in Investor our Please with call Relations certain which counterparts Mr. at On financial is the oldsecond.com, release, non-GAAP the available their be GAAP now These website described conference I are discussing financial Jim would earnings over and our reconciled ahead. non-GAAP today, under

Jim Eccher

strength banking loans quarter loans net by increase deferred results mortgage losses relative SBA in the based pay Good on forgiven thank have open for my during impacted moderation on us several for through upon PPP thoughts was fees up of then which the and and recent were future $X.X banking to mortgage net joining due about to fourth questions. the in prepared per share MSRs the we last at will negatively with give the I over our million MSR rates. then an $X those mark off. of conclude continuing resulted interest of income Earnings mortgage and quarter market overall. morning some full from in interest in before the will Brad were by some in $XX income margin you million quarter. the declined record quarter diluted and losses the over originated recognition $X.XX prior despite details. comments today. or and Approximately seasonable quarter for turn mark-to-market to it opening I reductions remarks million to valuation overview the in revenues Fee additional aforementioned Net quarter and in in it movements summary

the from noted XX.X% ratio to with end last discipline Expense and quarter of a due year to compared in increase continues quarter deposit FDIC the slight relatively expense the in costs fourth fraction year expense over and quarter be is received quarter and prior for to increase a insurance to credits non-interest XXXX. loan current with to stable significant the ago. Our salaries benefit assessment a employee strong XX% at higher the year like

situation. today on every Loans deferral, understand XXXX. a approximately $XXX.X borrowers with of each changes. as or remarkably slight Asset quality million we X.X% point we on or and are be off tables original are which trends our remain loan COVID-XX $XXX.X million closely the focused strength the and and continues PPP the in and of confident with contact the second portfolios. performing of at staying team increases round if this our in these of loans, to only and status our modification remain available yearend lending payment of paid earnings customers. bulk stable to origination either release Non- assets return standard under in experience the the our and book close classified Details loan were to working Of XX% related of

reserve portfolio, totaling investors also Second will stands levels. the As are filed that status. loans a PPP balances the at loan reserve earnings disclosures $XX.X of of modification yearend total loans, Concurrent current release detail breakdowns with XX currently Exclusive in million give of our Old currently of composition on X.XX% portfolio deferral loans. and additional and

the credit loans. in quarter fourth allowance reserves commitments million of our reclassified on unfunded the was losses for $X During for

low prior with mortgage trends earnings degree scenarios Overall the during and are environment. overweight strong deploying We assets. under the growth quarter rate in strong payoff the loans Our the PPP we Loan more were of short-dated given and that of steps uncertainty. continued pandemic. we believe cautious and during to with of cautiously and and very protocols consistent liquidity continuing than was outlook customers but into continue fundamentals Second scenarios uncertainties trends will performance. to to banking reserved the case with Profitability protect forgiveness pleased extremely are of to given pessimistic adequately economy optimistic relatively quarters remains necessary exclusive are remain focused impact continues the be positive and have on this communities results underlying to reflect Old employees, the level high this these base and more our improve. we that stable of

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

that and of retail to ability excluding the continues of We are without of XXXX. in and more remotely those with work Old to work efforts directly impacted couldn't employees the be appropriate. payments proud majority serve as The staff to our defer issues. grateful have been is to Second communities we our continuing we're offering our vast

realized us We the are industries. for fading potential commercial and in demand. lending clear for industries of the impacted most many and from short still core significantly We term impacted of unemployment consumer intermediate that many high potential the steered fortunate the strengths be the the to implications exists of our and

in We operating commercial are both closely office retail monitoring customers in real footprint. estate trends for and both our our and

we most. this will some portfolios do are than our losses But seeking Our believe point better lending diversified overall up at point. We hold at are believe new we outlook much have we remains well will cautious relationships. though and

in from significant line the by economy believe path forgiven. over growth not in We as and strong provide see regards liquidity will progression second our in spite in million to overall as Thus did of a though the encouraged surprisingly specifically position line Importantly Brad in loans the drawdowns to a more turn continued quarter impact improve Overall, number have and it pandemic far In year to quarter. remain are million estimation. the fourth areas muted. remain ago we the cautious fourth had they of results loans I last X.X Loan XX.X PPP to but the that It'll color. XXXX credit to drawdowns. capital and XXXX been. increased should total could of trends we our of from quarter

Brad Adams

sheet $XX.X Jim. expansion to Net the last relative income Thank quarter quarter. of morning you, impact The was loan to everybody. the impacted fourth income by fourth offset, the liquidity million recorded $X.X lower increased yielding and loans net and on million of still due XXXX. the the favorably quarter of in fee net the PPP outstanding. relative fee forgiving balance of margin interest Good to XXX,XXX loan further the This excess income

strong liquidity the of excess quarter. for the deposit We continue and substantial to entirety have inflows

some We the deploy million during have to $XX liquidity that cautiously including of securities begun excess approximately of purchase quarter. the of

strategy credit. a to continue portion We other of duration in liquidity short-term we while both will made investments. excess short the also on The and remain the deploy duration cautious

XXXX improve term. performance substantially. stable the conditions improve outlook the and reverse this to respect. margin compared in seasonal strong quarter improve would in quarter outlook XXXX. a remained inflows Overall quarter margin but of to last quarter as back was expect not the XXXX compared do the Net relatively loans factors conditions originations Fee fourth of would liquidity as outflow mark Service due or currently this is I MSRs. well that mortgage the quarter were quarter. in on the of occur slowdown the at XXXX. the assuming our margin of the relatively to the quarter higher deposits still quickly. deposit very on those market loan gains over growth PPP I returns sale still Our the XX% short from in substantially. to in then still trends gains approximately fourth either this not higher than fourth on income were fourth If quick quarter declined XXX% less slightly am the charges economic mortgage If bounce to of loss will exclusive net point anyway our last

us recorded in bully addition was in $XXX,XXX thankfully benefit was received of unemployment the environment which prolonged recorded earlier September and economic approximately through the approximately year X% this loan assumes fourth in slight losses year. to of provision the $XX.X outlook quarter an this remaining at XXXX recessionary this million for life provision over In quarter. quarter elevated expense repeated No not remaining debt in approximate of the the a for of following a the with was rate XX of The improvement loans.

year Second lot Reserves this of ridiculously the exclusive minimal our overall has year. and We're any Jim very non-accruals We exposure remains of mentioned looking of credit COVID are has and to we not lending consumer trends to extremely certainly As Still credits something a this modest. in that and at everything strong that across down book markedly a a classifieds interesting industries spent Old our obviously and couple it's expected. culture obviously to and things hardest exposure of just there weakening improved credit due a not basically up us XX% great at time shut deal hit excess all. are relatively overall. seeing the and commercial including

for and point this what at trends both surprised. more XXXX with the how look we credit think performed in has like I be are couldn't also XXXX we extremely pleased

I but duration currently Our quality on short tight. our on and to and remain we can, loan assumes risk modest coming robust in credit funding be unreasonably contraction focused help the where expect a efforts open cautious we stable for maybe in remains and customers, are liquidity growth the quarters credit that business. will continuing remaining spreads margin extremely

at obviously this Our capital are high and liquidity extremely levels point.

We're continue themselves. in they We to stock. us for on one-off M&A Expenses basically for in and fourth lookout higher as modestly the quarter some due items. be repurchasing the the to interested opportunities present

for initiatives from call controlled likelihood the year see the With continuing back second expect of to the like to goes some over up. economic I'd the relatively in relatively to that an XXXX remain expense of we remain things of difficult Jim. half We if turn remainder environment to well and the

Jim Eccher

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

ourselves taken slowdown We well have the recession. a to steps position for in

That our mentioned disciplined continues Brad is The funding opportunities our to to our morning. underwriting credit that remain the comments making have available sheet, has that to advantage. improve position we franchise. concludes that our in prepared optimistic focus be capital believe We and this need will remained and we capital to strong. order take and timing we sure access As and be balance on liquidity

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

Operator

gentlemen McGratty questions. Keefe, Our from and coming Please ahead. open of Ladies you. Chris Thank is floor for Bruyette first is go question the now [Operator Woods. and Instructions]

Chris McGratty

morning. Hey, good

Brad Adams

Hey Chris.

Jim Eccher

Good Chris. morning

Chris McGratty

levels capital start at play tangible with you're really stock but your appreciate buyback Hey want given capital. where on looking I your aggressive isn't Brad, with to get just are? growth inorganic the for to the

Brad Adams

for about. argument made powerful something we'd can A be certainly be shy It's that. not

Chris McGratty

in of direction, terms levels you an I would where accelerated And that of are? buyback mean given the kind entertain

Brad Adams

that expenses six mean It's we've over execution. certain certainly It's the it. or so. I complicated associated with more looked Yes with last something at comes that months

can of it. you that at web there's last uncertainty think there over open still that'll and I given you and number up let Chris point things the a out of week you see a lot any bother a if browser

So risk, the there That of ton space that downtown problems that appetite credit, say potential much seeing a nature our said we have as and are unlikely that lurch quantifiable it we'll on obviously in obvious the will changing as like. that lasting in us being looks but built in are strength structural for earnings now stressing the retail that right will impact mortar what those player their in in it's COVID of well a the economy and terms as about. things we're few things anything the former the trends I don't see everyone. brick concerned longer and huge terms exists somewhat some of stream We're given implications of office capital we've so the will so obvious not that latter includes and are just at underlying we the but would that how have

there an times point I this with at but in to the anything overarching attractive do remains don't to that I desire buyback I this thing most capital. like say with lurch So out feel at see confidence do anyway.

Chris McGratty

Thanks the for Great. color.

liquidity. of predict interest because terms – tough income pretty with think in net we obviously revenue should Just to the margin is about How outlook

Brad Adams

I Chris are there. still there? you guess Chris we lost

Chris McGratty

am I Yes. still I Am here. there?

Operator

you. Management hear sorry to at sir I us can time? technical Yes issues. hear having can I'm be seem you they team some this

Brad Adams

Well, it technical appears might that have we some difficulties.

now. line able not coming hear are that's We right to through anything the

Operator

on back gentlemen inconvenience. stand please presenters gentlemen by that on we our and management bring Ladies and you line. in Mr. are today. we queue. back one Chris team Ladies back we apologize the you just the please get moment the for while McGratty for with will

Chris McGratty

for excluding on we to the income PPP net stability if borrowings what of the are think [indiscernible] light income, right. all Thanks for do How any those at wondering should about? buyback on the understanding on All color thanks. or interest the in of have the I'm talked on difficulties sheet. Great. the some about liquidity. growth wanted Brad. you've and outlook the color on that interest You I balance and net I just margin switch given table

Brad Adams

the should are basically as better of runoff than we loans pretty can what the feel yield remainder giving with and be PPP is that offset that I good forgiven. PPP one-to-one PPP the a obviously So of watch the significantly our loans us

continue duration, low balance speak very of the liquidity risk callable in sheet deploy that will the is the the We of ways end debt short some of in year. on at credit addition to excess you the very

benefit interest of grow income spreads. assuming the that a basically the basis is it issuance will won't discussion market given at of the separate liquidity I the do we'll point impact provide year. provide level that that this What So sizeable we're us the quite but nicely same a position margin the holding Overall and next pays cash this this XX points. the almost year and believe benefit same substantial year remains that net any

is line the front So margin in on function XXXX base. really produced. just have will a reported so of pretty I revenue interest should growth with income what a that. we that's typically good growth Net be year the expect

Chris McGratty

on left fees? what's the the Brad PPP like

Brad Adams

I remaining. $XXX,XXX - think we've got about in $XXX,XXX

Chris McGratty

thanks Okay. for the Great color.

Brad Adams

our of forgiven PPP XX% already. been Almost have

able be that. lot to So we'll a of redeploy

Chris McGratty

Great. Thanks.

Operator

you. Thank

Piper is Sandler. question ahead. of go from Please coming next Our Bob Shone

Bob Shone

guys Good morning. [indiscernible], how you doing? are

Jim Eccher

Good.

Brad Adams

Bob how you? are

Bob Shone

get and Good. run but quarterly the know see increase I just wanted we we that maybe compensation think we to we usually the should how on expenses that start XQ maybe about overall expense XXXX maybe Chicago managers the additional of the seen and to in dislocation an relationship hire any for we've given rate on willingness update growth addition kind in and market? then

Jim Eccher

quarter people part in again part of the from expense actually we that big going year. the had underlying trend to aside a we've the So the we one-timers of that some some the seen discussed start in last of doctor fourth the

were up rather So sizably. claims benefits within basically employee

year is think that subsides. just significant expense substantial the portion house. we in people the would half in I expense growth be to a of were growth just doctor not Employee going say this amount actually down leaving based that expect fear level people again going XXXX by the that's benefits overall. of to will the on just a rather probably I be terms

in same is somewhere % $XX mortgage it now that don't I you million OpEx dynamics. total think around which X% but push to per you activity occur range quarter actually to somewhere right mortgage banking of maybe the in the $XX give X the that's to believe to is of and idea $XX underlying million million closer activity going assuming just stayed as that to will an I banking exclusive

Bob Shone

maybe loan great and you drivers color this about quarter how growth, maybe the trended and since maybe That's to then we have then turning the PPP talk excluding quarter? saw some loan last of growth of can pipelines

Jim Eccher

pleased a quarter. There that were large to were able we very fourth obviously successfully Sure we close. Bob of with relationships handful was the

quarter. and multi-family healthcare expansion we an spilled had the third services professional extremely leasing. to going we successful had of and kind Some expansion the them of over in close quarter year on fourth continued were further had We thought in

with we're for fourth quarter pleased unusual the So but very it.

as the expect the this in adding some on year next headcount about becomes and we talent-based. have year. I overall capacity one think about you’d at Looking asked retirements to adding without that our certainly point open-minded take team do if another few to really the We're available a to we

Bob Shone

remarks that pessimistic could on what's then that weight pessimistic the in. more and about one a In more reserve these less of having Say if more weight a scenarios. for level scenarios thanks the maybe little and I reserve you your under situation? on Okay, is sneak company there kind talked normalized prepared

Jim Eccher

question lot to be to if lower purely scenarios the now about were we today. and with I it. probably equal would [Moody’s] a That's of the variables would that of our case base out are reserve XX% right say weight that the fed

Bob Shone

back. step Great. Awesome. I'll

Brad Adams

you. Thank

Operator

you. Thank

Our Evan next from Janney question go Please Lisle coming Montgomery of is Scott. ahead.

Evan Lisle

yes Evan Brian morning. on Good it's for morning. guys, Hey Martin this I'm

Jim Eccher

morning. Good

Evan Lisle

Yes.

get curve I peak going So a color just that Would some macroeconomic going just at your the color they're classified just know guys slightly don't that forward? I start a XQ first and you those levels. I with in better outlooks you anticipation anticipate levels I'm think some and know maybe to size with on on with

Jim Eccher

Sure. I look step guess down and at you your year-over-year classified were X.X%. about if assets back

the we they come long macroeconomic some anticipate pleased see holding quarters off within that things our obviously in expect the in borrowers in the with We and deferral to we're stabilizing next Credits improve overall quarter. improvement nicely. are If to deferrals progression. in the of next factors we're do from expect hearing already meaningful improvement So continued portfolio.

Evan Lisle

you like some was you I call color would that if on areas and be perfect, Okay areas COVID just yes said that get helpful. point have those stressed give and to quarter on just guys on curious you but direct an the know on exposure just kind I don't last you update industries

Jim Eccher

deferral really have show one activity Yes. continue all I CRE. some in deferral remarkable but will investor, which improve to we now and investor retail the multi-family stressed office in the areas next CRE are signs only quarter. and our deferral CRE most one that is Surprisingly retail mean some

Evan Lisle

and and you Okay. production payoff I looking Perfect color given guys versus and pipeline kind next at forward? thoughts your that on a I loan are was on then loan have think you how curious just that of moving just

Jim Eccher

quarter loan was in we did challenging very the growth. Well, quarter. what always for quarter lot later first the quarter. Obviously a that pleased booked in with is A fourth of

quarter. some some we benefit opportunities. as realized We're first into head I the So nice seeing

healthcare more Our good pipelines along We our and various be building. got momentum with verticals. pleased we've are couldn't team

XXXX. So loan be will better growth I think XXXX in than

Evan Lisle

one last Okay. for Perfect. housekeeping. me just then And

stepping core headed your core Looking comfortable a into Are that at XQ ‘XX? are level at unto good you fees, ‘XX? just you looking in with at that off is looking that in or fees how going

Brad Adams

I think there. on entirely that core and dependent is fees of place what mortgage upon assumptions kind happens what you

guess pretty are We loan that do the we things much caption comes run balance start other fees origination on mortgage commercial should The loan activity at well in is rate. but we a other your get mine. good as use if growing nice reasonably to as can there some within growth

Evan Lisle

that's perfect the for Well, and color appreciate Okay. me. all

great So quarter guys.

Jim Eccher

Thanks Evan.

Operator

next [Operator Please question coming ahead. James. from Raymond Instructions] is go David of Our Long

David Long

morning everyone. Good

Jim Eccher

David. Hey

Brad Adams

David. morning Good

David Long

you light, I announced had last opportunities M&A expected week. of always it but even looking M&A picking really up a activity kind rather there. volume deal to we in here be here Chicago and know mentioned we But is are seems like

from partners two one on what today curious pricing actively having Just expectations your and has changed? if their potential the and how is conversations tone

Jim Eccher

year. for been having the We this case bulk that of has conversations. But the are

so stay everybody's to we’re close what know you trying people Just through. to going

seven least space of albeit are. depressed together. of become community at There's being or valuations right I little months when very valuations now where in see universally the we in everybody's terms think bank in expectations so dispersion that closer six

they I'm rational get years. environment. think in if that's think than that can are two optimistic been So I case I have in the today probably this deals sellers more and done

David Long

it. Got

discussions is that everyone Okay deposits bank and that it the core to with? liquidity you're having you'd then these feel as like be has to for you're but partner it key item today. getting I looking what used good a in Is

point. to at what looking this just accomplished curious you're So a with doing most transaction

Brad Adams

be the is enhanced couple Chicago the level base a Chicago would as case. M&A this it doesn't given return not to it's good that's of a point but profitability but of make I capital the be think good investors, I but our of supplementing to have charts wouldn't still there profitability prudent to bonus make always Base if to that required. between factor presence work be level work lenders a at level that think about gives the comes shy It off distribution think I M&A a something lever with of we're math to having. of that

have more So today a ago. would maybe year so we even than

a be think I attractive. can lever simple

David Long

Brad. Thanks it. color. Appreciate the Got

Operator

Thank you.

coming next Our Konrad of Davidson. David from go question Please is D.A. ahead.

David Konrad

hear Hey me? you good Can morning.

Jim Eccher

Good morning.

David Konrad

housekeeping on Couple the PPP. of is questions. One

would Just fees the that quarter. this forgiveness of through dollar wondered What on have NII? amount been came the

Jim Eccher

get we think that right. will I Yes

I think X.X it's about million.

David Konrad

Yes.

Okay.

and or So that with XXX half first the drop next the and of year to in will remaining so then outstanding.

Jim Eccher

That's correct.

David Konrad

picture. obviously more then liquidity in in but and and a of despite asset-backed a of A are securities little market. and Okay, putting something guys looks doing unique compressed mortgage-backed go spreads lot the you are bit it convexity broader your the peers rest

what shorter there then versus wondering what maybe MBS of yield kind just of the and versus doing securities yield duration. of kind there So the the the trade-off type are you and

Jim Eccher

was that put student was variable into in loan was a around we largely we've thing the only done chatter $XX So and entirety its done this that rate forgiveness. million the before about point done at that or products [sell]

XX% guarantee opportunity for basically spread tightening government assets some both it there variable on So talked well. short was the fit those the doing, in political duration on then about based we chatter. also so are that relatively what where and a does we based factor dislocation as there's an that the And and broadly on implicit on based

callable within only is staying assets. thing likely least then looking effectively credit. be some similar done other relatively we've that for The short call issues supportive trends strong on we're also and to at So very variable also are based

is playing. So basically duration with basically a short where we've better been guarantee effective

David Konrad

you. Thank Great.

Operator

Thank you.

[indiscernible] ahead. Eric go a private from investor. coming is Please question next Our

Unidentified Analyst

activity may the compared Good the at Yes. did doing your might be but missed in you the of what first have PPP this beginning potential mention the round? round morning. and you to loans Jim, second Hi. I there

Jim Eccher

we round us have program we the at I probably is XX% XX% lower. would to loans after in Right of now where the loan Yes, significantly in relative say the the are to of couple the pipeline we weeks first for volume first in round. Eric, the started now today were first

So the we to it doesn't the anywhere first close in going certainly look we're had like have round. to activity

Unidentified Analyst

margin is the So not as it impact in on that going to be as was meaningful past.

Jim Eccher

I’d, guess somewhere between would If XX%]. and be I to that had [XX%

Unidentified Analyst

Okay.

Jim Eccher

Is so far.

Unidentified Analyst

question. just Yes. then I And had unrelated

the I think the question my it the guess Brad he and had physical is location is important risk institution, relationship David in has you a it of think and likely really word a use taking managers mentioned lift you Chicago rather you buying don't a the if I hard question people Long want is distribution than and in Is whole I or lenders, the what's bodies; to M&A out it the try the need especially distribution? or from how for about liquidity. is it and you

Jim Eccher

had And cares going branches year XX announces they build about is to matters that a time it XX rises they're grew pandemic and assumes running for every and that in tends brick hi bulk interest no is branch anymore. to nobody is come We world walking more change the going interest where want to depositors and this the of about subsides still it upwards and return don't conversation time rates. normalcy the coincide and once with physical mortar everybody errands movement branches. to it The don't quickly. rates to to saying both. Every away and specifically think to of X the and level The up things how teller distribution situation world and that It's people into of years Susie reality of presence out some if of naive. falls

also way is So the question direction XX reality The lurch blowing. is similar for point matter not some to buyback at bulk this the the either next it's wind the one given distribution years the probably baby to later. in is which boomers but of degree at not was absolutely ago depositors the years it is at are or answered XX I we least any that stock going To physical to tend is obsolete level. not still fact

that that place and a it on value we fundamental based will So There is on assumption. still that. evaluate on value we still

Unidentified Analyst

much. Okay, great. Thanks very

Jim Eccher

Thanks Eric.

Operator

Thank to you. turn the closing like over management I'd time. back At floor comments. to this for

Jim Eccher

Okay. That to quarter. us Thank and for forward to concludes next for our you presentation today. again joining we you talking look

Old Second Bancorp (OSBC) 28 Jan 212020 Q4 Earnings call transcript