OSBC - Earnings call transcript Q1 2021 | 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 First Quarter 2021 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 expectation 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 with measures tab. Investor the Relations GAAP counterparts is website oldsecond.com earnings the I Jim Eccher. over will call to now turn go Please ahead.

Jim Eccher

improve provision valuation then increases Good and over in $X.XX mortgage $X.X based margin details. growth the quarter the quarter in per quarter, common and questions. from the fees our were for the turn increase of share to it thank full demand loans PPP of past million on Yesterday, with million further an joining deferred on $XX several balance Earnings per to the $XX.X additional regards in impacted I compared we have interest those conclude quarter revenues of a mark-to-market from morning opening benefit the Old million million or share in to income tracker as remarks. recognition due to banking shareholders payoff. comments quarter-over-quarter our rates income a interest prior quarter loans SBA $XX of Net there's approximately we this upon quarter. quarter. to will in $X.XX by gain about from in strong dividend review in Brad well strong due as credit summary company's $X.XX In Fee gains to time everyone net to for increased losses resulted approximately loans, to to very profitability. I We were on believed for future mortgage net prepared was decrease the reversal to which from announced our first forgiven of I'll open mortgages MSR during by with you and stemming and the in of us. sheet, quality over give diluted some net from of my elevated an then market up it favourably $X thoughts new increase capital continued million sales for before for refinances. quarterly position. continuing cash asset last

Our in ratio XX, a Expense federal loan-to-deposit from additional is by in quarter to stimulus decrease ago. to insurance a to of continues our quarter loans, be which was salaries ratio decrease current non-interest deposit funds strong million XX.X% discipline a received costs expense at year well assessment benefit the first increase received to slight due as and XXXX, in the FDIC March quarter employee the a decline credits higher customers quarter a year prior significant like due XX.X% loan-to-deposit due $XX.X with noted in the as last to and XXXX. expense compared for

have million status paid related deferral the to a to stand off quarter lending prior the changes. we PPP Details the in either Loans $XXX.X the at of nearly portfolios. working understand quality are XXXX. the of of modification Of loans, with were original year, and or payment on trends release close from decreases remain and contact round returned strength and and of earnings last closely loan our under remarkably our approximately experienced these we point on assets situation. available at today on focused book originations staying Asset million confident classified every and the Non-performing XX% tables remain with in second a as and bulk or point COVID-XX loan X.X% continues team which March of each to the of stable be some borrowers our in at $XXX.X XX, this customers. our in are

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

the of trends, During for which the of allowance $X.X a quarter and more for the unfunded net million resulting commitments, reserves a million. decrease $X unemployment first losses losses on was projections $XXX,XXX was to based provision favourable on reversed additional line of loans credit utilization for due review year to credit of over recorded next

in the quarter. recovery first $XXX,XXX recorded also We

the as We cautiously albeit to significant reserved uncertainty. improve continue optimistic scenarios, we under overweight but high more adequately than with to given we scenarios Our case are outlook of underlying degree more economy uncertainties. the pessimistic continues is that believe base

Our are remains and Old of cautiously quarter and on the overall. this Second earnings consistent the necessary loans forgiveness positive reflect high to our PPP protocols liquidity protect short to customers, and a trends deploying during this pandemic. banking dated Profitability performance and pleased of trends to were Loan communities overall continues we and stable we to relatively assets. with level and steps the with extremely during our into fundamentals focused prior low were the employees, strong, quarters and be environment. rate were continuing results payoff with mortgage very due impact

majority the open remotely, employees work Old to remain bank. albeit safety that grateful of the proud and across policies our couldn't of are year. over communities customers, be to efforts evaluating to we with For but our The return Second is past precautions. locations the continues our our more staff serve currently our work of available

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

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

are will Our dislocations in but seeking for valuation overall real materialize though, estate significant some and office outlook we this and lending Retail relationships. be and undergone point, well hold there certainly believe we at Losses is year have believe and up will most. remains operating new point, portfolio sectors. cautious than this implications we diversified our these better at much companies will

result we level loan seasonal loans level Importantly quarter uptick seeing line PPP late. our decline demand position Loan to remain of as remain than transit from pipelines capital an strengthens. a Brad of signs at encouraged as and about the utilization we comments. liquidity And his provide last Overall, markets been. believe $XX.X XXXX tapid in are our have our and contraction we best, but but will in areas. quarter, should number growth to stronger total a regards improve million progresses a of are of The additional overall prepared economy and due in In forgiveness, from demand, our color payoffs. cautious, of ever specifically, the high in they first decreased

Brad Adams

quarter of to net lower impact Net year fee PPP acceleration million income ago year. you, quarter, was year. was March the PPP first yielding $XX decreased offset to the of $XXX,XXX income $XXX,XXX loan the net first compared almost impacted impact to the this was That excess the loan resulted forgiveness of junior increased was the due I relative interest Thank last Positive but in net variance on of sheet last but prior last Jim. Capital the subordinated to when by favorably in in the liquidity forgiven. and balance recorded interest last costs The debentures outstanding. increasing redemption to $XXX,XXX expansion than OSBC due of income still issuance the the further loan compared period. less year This expense PPP margin quarter, quarter Trust debit in fee

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

on fiscal the short-term, inflows The further being portion had duration end. to second of the cautious liquidity The of in excess impact and round liquidity will with extremely our on a continue substantial a while stimulus both towards deploy position credit. strategy the dramatic

the checks. economic mortgage this growth, factors anyway was the of our the that but core the back improving As quick, margin would If would our improve. with the loan outlook outlook not relatively reverse mitigated those margin and core improve of in we're in at quarter, growth MSRs commensurate revenues, I outflow on compared conditions exclusive deposit is what was demand The I'm saying surprised this a of and first due not expect quarter and income or has increased the increase point year margin in quickly, reported to trend of do loan gain bounce by reported either occur in that second conditions. short-term level last that round gains PPP a will expected performance currently improve. for Net the to returns on inflows not stimulus gains mark-to-market quarter assuming markets. million net our to extremely basis stable conditions income. followed our loans the an on to remain growth robust were fourth this and on based economic of XXXX, sales mortgage on and Mortgage mark-to-market gains $X.X in losses over compared quarter approximately million management $X.X MSRs or were to quarter. last activity and remains XX% wealth $XXX,XXX banking

I through our those of to and to compared are an in approximately about million improving a improvement us first lessened at I This due rate economic and credit estimate would decline Provision has from the net I'm terms We this of remained quarter Wealth fourth this last quarter is expect outlook the are severity that recessionary December the and environment pessimistic for have pleased number more from than that pipeline have point the most over modestly assumptions pandemic; unemployment assumes X.X% and approximate fourth the a probably of the first in to extremely in the of credit projection quarter our the stable year through last pretty with $X of to million losses of increased recorded expense year quarter coming last remaining was to no been full prolonged performed been reversal the in concerned remaining a quarter income for credit at loans. credits management recognize provision from of from The resolved metrics be X.XX% year. the $X quarters. the XXXX. of have with X% favorably. still. quarter and much life last the the the continued recorded first assumptions year.

customers Our margin. but quarters on be efforts and a of focused contracting coming our loan growth, modestly to will quality stable funding in expectation helping the the

robust $XX came issuance this million quite This outlook have the impact may tightened it told rating. Assuming spreads us, expected, risk than thought but recently for of liquidity it the the bit timing in in a and given a issuers community a of unreasonably and few some market. of inclusive The we is remains remain issued the there tight. sub-debt. it I'm for prudent lowest were significantly was bank spreads Kroll that competing ever coupon under sooner

the Our to as and of back repurchase and to common continue to first year they an we build March in and Since quality call approximately progresses. remaining opportunities. the expect capital and well We we With quarter quarter. will we will over for XXX,XXX have repurchased And positioned a we opportunities finish leave present from the current respond shares themselves. authorization. review repurchased Expenses at $X.XX. an and levels the under levels price expect levels authorization at turn liquidity to average pursue that shares relationships of don't Jim. less the of second during of we $XX.XX. both ample have outstanding have pursuit have as last than XXX,XXX efficiencies X% flexibility well-controlled remain these shares year, I'll average capital little the balance I capital continue to to We the strategic to believe and existing us the stock to to flexibility sheet M&A continue price

Jim Eccher

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

like base expense rates discipline. [ph] best the remain focus deposit on for long-low certainly we For Second, our environment extremely but Old profitable given not is a

underwriting will ourselves advantage taken as Today for well That have concludes capital prepared a comments credit We and improve. had morning. take strong. remained to remain our balance and position to the We sheet the necessary discipline slowdown we our our things still. liquidity and funding steps is recession. position believe has We this and

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

Operator

Thank you. And KBW. our from McGratty Please [Operator question Instructions] is proceed. with Chris first

Chris McGratty

Hi, good morning everybody.

Jim Eccher

Good Chris. morning,

Chris McGratty

with the point about Understanding income sheet Brad, quarter challenging net the growth the where levels, we your for maybe see all I we a just a are think one question really comments. the at liquidity, quarters? on a in margins margin first if from interest you future obviously balance but

Brad Adams

like believe Yes, to the growth we achieve on I are. downs to And be able what side. of in I expect year that end pay expect anything the the saw happen loan some we this don't still terms we'll meaningful pretty quarter again. towards of

Our from loan pretty if the been margin runoff have exclude this absent up the significantly. quarter, impact you would

So made comments we've the bottom from should potentially deploy of growth we terms the quarters couple here. over turning liquidity if more on then see last of especially and of margin, in the we

Chris McGratty

Okay.

bonds and QX, mix probably in but is that grow, maybe means as earning many maybe gets better the right? So buy assets that don't you don't

Brad Adams

quarter margin. would haven't next see stable We expect I well. see stable Yes. relatively expect would obviously I assets grow. advantage – to as an a to earning

Chris McGratty

in was the And of capital Okay. the opportunistic. then debt terms obviously

talked a to the the in of about about reauthorize those the, of some having guess, then would I there? couple And And know, us the you buyback, balance be hundred the thousand efficiencies it you've out? additional you taking expectation these beyond think remind what's thoughts a buybacks? what sheet, past higher I are can

Brad Adams

would for here. to got capital to we that the around, but grow here. requirement themselves expect meaningfully approval an both from may opportunities I A exists there, We've you growth, point to don't strategic any present fund comments enough

Chris McGratty

or just the perhaps And is debt, on imminent? on a cost more – Okay. is those something there higher quarter-to-quarter that

Brad Adams

No. No.

would at the that termination year, be and obviously end year. that higher next a very benefit cost the debt the of So would

Chris McGratty

Thank you. Okay.

Operator

Our next with Piper from Sandler. question Race is Nathan

Nathan Race

Hi Yes. guys, good morning.

Jim Eccher

Hey, Nathan.

Brad Adams

Nathan. morning, Good

Nathan Race

balance commercial there's of tend But on guys growth appreciate the I'd basis. demand over your I land [indiscernible] out just next of some Just loan two, this to expand of love what And it you the terms loan existing with the just take the some but or of a across share guys' hoping to little things kind segments the side clients, sluggish crimped in market you're your that as area. over Chicago year, bit some of like in seeing still kind of there's with to opportunities well outlook the the growth specialty payoffs to thoughts quarter then on hear ex-PPP as and look quarter sounds lately?

Jim Eccher

a both quarter that tough that every factors origination of side. much Yes. really the sector, There we First, a pretty along was not into certainly strong of originations quarter, an the weak had Nathan, we hoped. what obviously right? kind loan pretty a the on year, pipeline confluence extremely led but heading to were had quarter fourth depleted

clients pretty We is very liquidity had I any and I certainly Our are declined, and bucket. borrowers now. every doing in our of mentioned with flushed CapEx much right guess, many

HELOC also obviously We line contracted had family of and four several refinancing. portfolios with to utilization to unexpectedly and sold contraction clients due a lot properties one the

was soft well. So leasing as

uptick the economic that an year. group, second largely than, with low-to-mid that's recovery strong, group. I'd along in growth recover. XX by Things dependent I going I end today the activity love you our year to healthcare of better some the are like days to – in we'd we get than based is seeing be can markets. next the but to still And to seeing going tell on single think feel be are in loan of on our we leasing half We committee ago, digit activity. do did our

Nathan Race

you from and think the a of a to terms you of it all the the kind Any kind seems this kind by helpful well. down in down gradual what saw in yourselves somewhat of kind kind year quarter? internally be kind is of a ex-PPP That's guys the are of getting first as macro see level of we about bit Brad, little to end quarter metrics pre-pandemic of credit – just just just of maybe step perform is came of continuing And if just color. this here going environment thinking like back else ACL reserve thoughts trajectory first to equal, the it. or here Got that about here in

Brad Adams

year call probably end to think of too I it this it's soon or the it's not. whether

think will our two they progress been, think I things meaningful if so, bearish the have quarters, in next like be would quarters. which have over over next that scenarios the the over-weighting impact more two I next on of pretty certainly or days XXX a

that, level in that reserving i.e., levels space that I all brick of large clear, our some pandemic to it home, from proliferation and certainly be office to think at structural a do. think level current over And the evidence does in on But levels. and pre-pandemic near anywhere don't one-offs, Beyond any reserving now, level of of or blips that's there's today. economy. and months changes think should pre work that is just we're see that no than mortar, that, necessary that's what closer from the – to be we based retail, which down I XX without and I it's portfolios we by

Nathan Race

Got a expectations levels the growth? how decree similar just of securities next I we Can expect over just kind That's purchases here on excess we one margin it. be should ex-PPP, helpful. quarter saw we XQ in that to about degree other two? If remain earning thinking portfolio with of ask liquidity your elevated. the for of Or could or asset outlook the

Jim Eccher

you level probably expect saw the that half of growth I would this quarter.

Nathan Race

Thank color appreciate all guys. great. you. I Okay, the

Jim Eccher

you. Thank

Operator

is Our Raymond Instructions] from David James. next question with Long [Operator

David Long

Good morning, everyone.

Jim Eccher

David. Hey,

Brad Adams

Hey, David.

David Long

– in banks the and here to do gone receptive there, excess you a to here an all, it has guess appetite industry. of and acquirees like How it obviously are those do relates – now M&A, looks little if a I M&A, to some, other then dialogue the potential you your that And what's have your first will your activity with how deal capital, acceleration As maybe how of clear? with backdrop and economic are your secondly, conversations? looks there's

Jim Eccher

before is are agree Chicago. very capital Yes. David, I that would I interested us of we’re Obviously, robust. certainly – the appears at point, in I is line are fog that lifted this kind their will conversations credit guess bottom say levels the that our and here. you is M&A M&A now active, with pretty in

ready are we interested So, partner. and finding strategic in a very

Gary Collin

same the return holding our terms relative said, incremental company substantial the levels – just is have on remains invested cost liquidity the within of at being the That certainly capital appetite capital. flexibility the what to we sheet in the strong at with the the balance capital and and But equity bank.

a of of sigh doesn't very terms look they case. there think bit a I there sledding, at some thought the it's be to were that going is out little looking years banks. like smaller of of in two Everybody some and difficult relief

were it might time, were I people think feel the fence chance think be I right it's of was second a who before the like a thinking about people the amount it fair time. So if whether there's on they right

David Long

Sure. from capabilities, asset a And that perspective you or there would how size then you an minimum your a with size far is as comfortable as consider? are limit

Jim Eccher

sense around little is okay. makes $XXX don't really [indiscernible] it time below really it's this I not before, and bit the million, application we a starts process our getting think that of kind said worth and

above billion upper sure and but sure $X terms don't there. In cautious bounds, for see be of it's eminent very make right on deal, anything the I we anything would

David Long

guys. Got it. Thanks

Jim Eccher

David. Thanks,

Operator

Janney is Martin And from next question with our Scott. Montgomery Brian

Brian Martin

guys. morning good Hi,

Jim Eccher

Brian. morning, Good

Brian Martin

level level guess the or can could of kind year what that Brad, we or it's guess color of that the of kind if next kind the that quantify I couple of Hi, as – of could I going if understanding happen be. said, maybe reserve you guess in that on I that, year, happen to know you of it to some just the quantifying but about think the later don't overweighting kind year, in going what scenario pessimistic on you if later about be pre-pandemic, back getting guess maybe appreciate just Jim. impact I a out was do that that you impact quarters, I just thought I or for maybe that the but so it you or could. will or – kind the of just

Gary Collin

unemployment point think to can best released way I is maybe three to did. and we $XX mean, what scenario and XX% the points million basis that, I had I a XX we year the barest by in and $XXX,XXX with Commensurate came additional rate we XX%. that answer just runoff Brian, the net to you points we to loan XX by case [ph] an basis recovery. underweighted off

those probably barest if approach little that million scenarios reasonable $X put pieces would a to underweighting you all So person off. knocked a the together, bit million $X that probably more

Brian Martin

Got you.

just guide right. I'm your impact All get about it neutral just environment, like the not intent XQ mean, that loan at there, deploying mean, you mean, your of opposite but kind like depending outlook sure Okay. to on And I understanding cautious the of is kind the the look the will. where's I with margin the and in I excess NII, but some drag you're liquidity on your offset – it the I on back you that, as that, sounded guide beyond, what of mean, how that talk I you the was with margin sub-debt. to on on if sub-debt to sounds the guess, and of that the stable Brad reconciliation. just the

Gary Collin

pretty there's having your I year of cost right? there sub-debt run us remainder much loans for million, don't if the to going out, mean, is Well, So the about $X offset. the out then

liquidity about reported earning which I got basis the big is the than don't really points use of margin XX us. earning some I XX up if assets for our even of cash number we've XX% more that's margin position, mean, whopping think deploy more healthy a points. a a we anymore. Additionally, and basis by

of something no of on something excess exclusive we in the is being the about time like we're bucks. numbers the is thrown business, demand, of the discussion a as deployed, absolutely where surprising. that very have It another something participation and remarkable character the seen truly been, by right three said the career this demand. fiscal seen loan completely think out with but around And I economic can from the were. been is sudden, are But It economy. happens cash I government my is has with just aggregate the we've I wrong And months continue, all of long and the back XXX never of quite have little And wouldn't year. have as of we sheet. broader we that's Obviously like numbers that this balance loan economic stimulus growth million another hoarding loan get demand, like happens line small remarkable. of cash every wires through margin which would first

as other don't too than do of some Chicago I just of that think the here Certainly of sticky unemployment the some as that of that others, our some it's is a fast can of locally factors is with differ caution, national. is, based in just from regulatory of say, there's mandates terms to more I'll some rate pace impact that is government and performance I areas drive just quite micro and think the of economic participating lot has to of reopening some or pure but country.

Brian Martin

Got you.

you just still going appreciate quarter seeing are to deposit I inflows liquidity, into stabilize? second – guys kind the Have to the and here? Okay. the you that started of see color

Gary Collin

getting money in Now day. we're every still

Brian Martin

Okay.

could out – get on you there. what's of Is – guys in to ideal important a opportunities or So it's for maybe it on acquisition. you have still one going And M&A, of geographically, maybe the your prioritize, what more looking kind you kind if potential if some give a target see of your – an the happen. that? target thought in just just kind What out of little you I mean, are just last if

Gary Collin

the are is dollars level additional distribution something the to base The will a or the important expense organically. generation All really talked additive XX us to side. We for can ROA opportunities important in Chicago don't profitability very basis expense is allow asset us, of opportunities few allocate we about are saves hire past. that we've think point that that on things there better. the

we funding long-term, through game, would deposit and year cost But profitability in long-term going which offs that's the have rates ago. needed And a the don't over low need XX% and that for XX% not inflation don't change it's is either this or combination stay you adjust assets. on charge growth higher. we a capital business obviously the economic to on Once based new thereof side or degree some forever So paradigm. of they're the going some on

allocate can So the our that focus is dollars teams. hiring we extent the quality over can organically long-term we savings and towards its additional expense deposit franchises. And to

Brian Martin

you. Got

all appreciate Thanks. the Jim. color, I Okay. and Brad

Gary Collin

Yes. Thanks Brian.

Operator

reached the have of we gentlemen, question-and-answer and end session. Ladies the

to over I'd to remarks. Now back Eccher like turn Jim the for the call closing

Jim Eccher

with this we week. morning for and look Okay. speaking us you Bye-bye. everyone Thank joining again to next forward

Operator

And concludes conference. today's this

your and participation have disconnect time. for you your at a day. great You this Thank may lines

Old Second Bancorp (OSBC) 22 Apr 212021 Q1 Earnings call transcript