OSBC - Earnings call transcript Q2 2021 | Old Second Bancorp, Inc.

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Operator

Good morning, everyone, and thank you for joining us today for Old Second Bancorp's Second Quarter 2021 Earnings Call.

On the call today is Jim Eccher, the company's CEO; Gary Collins, the Vice Chairman of our Board; 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

it Now Eccher. to I over Jim will turn

Jim Eccher

with income opening the we Brad and share for open favorable conclude quarter future unemployment it losses was thoughts Earnings impacted up will $X.X turn over to the second reversal prepared and additional and over morning, we'll details. the give then projections I $X.X have joining or for then this diluted summary credit Good and year. questions. of per us. my a for to were for favorably about Net I thank before by several you due $X.XX comments more quarter. next remarks, some overview of it quarter million in million the provision

impacted mark-to-market rates by quarter. over However, interest earnings MSR the market $X were loss million to in valuation negatively past decreases due of

first second slowed, compared origination mortgage of have gain the refinancing million markets on a of quarter loans in addition, mortgage in of In sale reduction the and of to XXXX. resulting $X.X net quarter

balance loan have forgiven. over XX% second quarter XXXX. date, June remain our of PPP the forgiven at approximately from PP management outstanding team XX, were second loans both $XXX,XXX the continues In $XX the the XXXX high round Our loans of wealth solid -- first now and during million and PPP by to a of sheet, income million quarter. with to loans $XX.X To regards been growth perform in fee PPP level of over SBA prior the as

and quarter This due loan-to-deposit a ratio PPP significant of ratio is the net prior decrease growth from million decrease million, to bit a quarter decline loan-to-deposit identical June of last end. the exclusive is $XX we steady of loans, of year ago. in a $XX.X total and by over nearly XX.X% million Our $XX.X a XX, Origination from deposit at us. XX% for Payoffs this certainly are has what this $XX all relatively was of million payoffs disappointment activity a XX June but to through overwhelmed year experienced last year. The loan growth in early quarter. is a remained

a nearly seen million in in we Additionally, so loan -- an purchase little $XX of book, our have significantly be on this is a around in to would This To decline I we not coming have color provide quarters. participations about headwind big our million an area participations less that's only a $XXX year-to-date. part simply expect this, books. purchase additional

of don't trend our off On note, and leasing, down more that CRE. healthcare entire positive are pipelines participation or a purchase We see XX% almost paid both So simply nicely year-to-date. paid building continuing. equipment in

have second a starting with additional in in quarter. an We proven. especially also that's lender C&I hired quarter and us seasoned the third new the We've team CRE

looks our Additionally, very new for promising. lenders pipeline

growth loan prior noted occupancy, and quarter net PPP salaries for expense noninterest Expense second to a equipment in of with employee year. factors, half of current and this strong costs. optimistic and to see decrease continues of due slight benefit I'm in these be can compared a the activity reduction furniture the to Given we the discipline quarter costs

over closely we tables we under the changes. of the on the June and point earnings trends which deferral, today, and were XX% million some quality loans on with returned at a point have every each original in or either book are to payment of borrowers at at as the stand loan status release Loans $XXX.X or off strength COVID-XX-related paid are Details stable, in Asset year, of our remain available approximately remain situation. these the portfolios. XX. this understand modifications our Of and X.X% million confident working in to $XXX.X of past

Second end, million breakdowns loan reserve We're also most stands currently on X.XX% very are in give wind composition As Old of remaining XX portfolio of recent on only filed continue and Exclusive levels. of how current the deferral. portfolio, $X.X down. will with reserve currently PPP, totaling our detail quarter balances total loans loans. pleased deferrals our Concurrent the earnings of that disclosures investors additional at release, loan modification the to with

million During the commitments the second of for $X.X unfunded allowance, and on $X.X reversed was a utilization losses quarter were second decrease quarter, line on loans reversed, million credit charge-offs in based trends in review the unfunded resulting to including $XX,XXX for was net reserves provision recorded million. of commitments, of net of $X.X a

base albeit outlook improve, to prepared optimistic adequately color a Our under cautiously the believe scenarios, is significant economy additional case that pessimistic overweight modestly continue but Brad as of than scenarios with continues to reserved his we more in high remarks. given uncertainty. degree We provide are more underlying will uncertainties.

Brad Adams

$XXX rate interest decline reported from margin points add margin. Jim, by and a amount. lack basis in core Thank the of dramatic was last the earning contribution had in cash neither contraction the of further the reinvestment point XX addressed XX basis resulted the or margin X loan The points; the with million the declined for early in than the to quarter, the less a we in $XXX,XXX on XX of expected quarter as relate more issuance by color decline of quarter. be reported contraction towards million XX increase points big were interest latter XX end the points more and the some at about sub-debt loans, portfolio a the income little contraction period-end the XX the growth. Fed, as bond a the some follows: declining morning, reported were within the average resulted in second loan decline of were Net The a basis points and from than previous portfolio. to I'll balances growth. basis from average forecast basis from The in quarter. was guidance; good so us everybody. X year-ago balance additional expected The quarter. but our resulted questions Jim of the by from X these relative factors you, $X.X offset margin to income the basis sales of latter, points average around Obviously, decreased basis on large that resulted down

strategy as benefit, net which If excess will duration round quarter. retail deposit growth during excess the improve and credit. which preponderance cautious I'm margin on inflows our both interest to excess that artificially expect, improves, dramatic given we not we substantial our invest quarter, outlook strong assets. depressed of margin excess fiscal in continue liquidity trends lower-yielding we deposit and deploy reverse expect, the the assuming a currently significantly. persists, short-duration, the have persistent entirety our but would will The deposit for had to If a on of of portion point at loan position the stimulus in margin short the significantly. flow with income trends to currently latest being continue remain base. continue substantial granularity liquidity the liquidity will will The quickly. impact inflows the liquidity of of If term We reverses, liquidity our the improve extremely this and while inflows should

once I quickly I think it's pace the important expect absorbed lessens. resulted liquidity stimulus to our flows, retail has will excess be which note that primarily from of

improve conditions total demand liquidity. but future. surprised with of expect So from again the has If I loan in not currently loan loan flows to will here that economic it's backup returns that expect meaningfully discussion level prudent I currently remain margin don't result followed to lessen. believe growth. economic trends reported a the significant not NII we in not our the outlook and little with growth that a would add to that growth We to very narrow The growth, trend expect is do consistent that conditions, bit which I duration liquidity adding is duration. commensurate recent near improve, sum rates to in The improve.

patient We and on will that front. cautious remain

historical the assumes metrics the more probably improvement last X.X% at pessimistic declined signs have markets, income resolved of of would quarter net and modestly to pleased estimate to concerned in activity increase levels in the X.XX% the decline to a credit from management attributable severity this through income expect quarters. actually reversal from gains reduced mortgage last at you compared Mortgage a we from X.X% unemployment third the approximate was the $X.X in end quarter our it the remaining of a and quarter. activity on picking been the partially to continued noninterest recognize mortgage losses MSRs, quarter. Provision recessionary extremely and which environment gave last a card-related up. stemming credit improved, margins second and has with point former have remains life $XXX,XXX I'm or refinance $X.X are will the than the approximately movements, pandemic. performed outlook remaining side, and I rate Credit through coming to on be the in million I mark-to-market in of our in economic in over most a of an stable the backup about $XXX,XXX been sales decrease favorably. a the recorded that environment by The activity the the for above that to show decrease $X On income these how boost in projection impact us $X.X rate expect we lessened as to assumptions some is and rates recessionary quarter. loans, reversal to number second fee in and of year assumptions credits Mortgage were increase decrease with in wealth X.XX% refinance of the million I million offset a for million remained spending loans have with quarter. in that

in be a efforts helping the quarters funding expectation of on more Our quality margin. focused our with will growth the customers loan stable coming

Assuming liquidity the unreasonably remain remains spreads and robust tight. risk

future. opportunities capital well substantially to has the and warranted. flexibility price to XXX,XXX last pursue liquidity the value buyback to per ample year, quality continue share of remain approximately Tangible $XX.XX. to the evaluate shares authorization. with we per an would and average share book M&A extremely if average Our price March of levels be leave existing at Obviously, outstanding quarter will is us an after of positioned attractive as X% during this repurchased that and we excess repurchased in to share near completed $XX.XX shareholders rates continue capital quarter's results. have at Since currently shares relationships, second $XX.XX the We low, us, return of to and pursue

extreme Additionally, and for progresses. rates the period remain we to well exercise to we'll as low cuts if controlled, to time, at that, like prolonged for year expense look the and discipline, call necessary. efficiencies of turn Jim. though, Overall, a continue I'd back expenses remain as With will we review will over

Jim Eccher

year, base are Okay. closing, profitable balance expense we like optimistic the focus for we the given our but ahead. ready Second, environment our confident extremely in and remain Thanks, best not discipline. sheet a In about the rates deposit is increasingly on the challenges Prolonged low certainly Brad. Old rest for of

and position disciplined, the this take sheet liquidity our remain remained so. things capital concludes believe have to strong. credit and we advantage funding We and morning. We will That improve. balance our has is and comments as our Today, prepared underwriting

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

Operator

of your comes line first the Our proceed Thank Please with Instructions] you. with question Chris [Operator KBW. from McGratty question.

ChrisMcGratty

growth. Brad, growth I comments. with heard make you loan guidance and on to start the on I want NII the maybe sure

of the think I Jimmy runoff PPP. said exceeds

year? is suggesting loan to grow? you are loans that Or back reported growth half So of in the core guiding the

BradAdams

So I PPP that be believe the should relatively light. runoff quarter next

growth expect next actually loan bottom quarter. would show So we line that I

ChrisMcGratty

trough with message try it you're net if Okay. the a and to we then income, leave grow? a for I you Or this us trough kind NII, trying is off solve interest this more pressure quarter's of grow? little And to bit and is before is

BradAdams

grow we here. believe I from

ChrisMcGratty

capital And just on then Okay. the comments.

about stock You XX% in a the over and quarter, shares lower. your is little bought XXX,XXX

I Or about mean, you in stock, pace? what can the quarter? up can step a liquidity, you Given is do this your

BradAdams

in remain the we we day misspeak trends kind if shares volume we active So given be that of last assuming seen sorry. -- X.X to have that the market quarter, the to were X could get months X a Big upwards or same -- potentially of over there. million so, a

ChrisMcGratty

little more. So a Okay. bit do [Indiscernible] you could

Okay.

perhaps I've morning that Is but heard opportunities. of holding loan being to a last to talk just comment this that going competitive on of get rate, little because your on growth peers a lack of need the on a more there's about something a loan some get couple rate Just growth, pricing. how the picky -- bit structure? is just you're less the

JimEccher

mean, Chris. and Opportunities on it hold pricing. Yes. we out certainly tried aggressively That's the certainly way, line bid, to I is there. one are competitive have

So we relationship. for pencil our certainly needed will sharpen right pricing as on the

Operator

you. Thank

Nathan Our Please next proceed question. with Race question Sandler. of with comes from the Piper line your

NathanRace

and much appreciate continued framing XQ the about this kind the on pricing levels additional around On half terms excess XQ? are up some back on core ex margin just your kind points Hopefully, to in don't from Brad, How just elevated. saw increase of the liquidity year, comments the think we pressure likely level of now. of from PPP X here loan remain we XX pressure in I the level comments, the outlook here in that in of the they basis margin should

BradAdams

up cash just balance right? Fed, have be The the do at another much I had that idea the challenge how is on no sheet. $XXX in million we we'd

call, is off how reported thing the obviously, it's tough to missed margin that. relative the to the of just scale So badly charts a -- I is because

feel like, more I confident going you time tell loan we any has think a reported see growth that far it around as that does the I But X about think, building it about tell been I I the is slow some some certainly relative in the better good to talking at the reopening frustrating it's Jim competitive. So signs that there said, looked at this about is is I been ever the better It's other in are to we team, little what Chicago do. we've the areas how long That the country. of But momentum margin felt. pace feel yesterday, were market of months. are. and to last in difficult well demand you what show about last. to reopened loan and is I team than can where has this we've

ago. that we a didn't simply X level have talent have years We of

JimEccher

along year, the we loan when we at ago, Nate, where Yes. is in healthy half a that far they're commercial with our to we off a line first also But first massive too balance look rate not and sheets just seeing new that we're half, year were of when maybe through debt. originations a and clients lower. down utilization using payoffs of experienced the than the more liquidity slightly low, you pay with that couple extremely X-year paydowns

that seeing now. in we're near right of an optimistic loan are we that So we inflection we're committee, we're we're level paydowns. activity loan or the in not certainly seeing growth expecting committee, that optimistic pipeline a loan given in And at

BradAdams

that and below that as think ago of probably that favorite also to we're would place we mindset X a terms X given uncertainty to median in our until very were relationships up the maybe think terms I the bank, different the kind see the relationships in environment, I now. on in content economic leave the recently, have in of of months well

NathanRace

of the years have the great folks recently. the mostly you are Is it. teams existing thinking to last in going expectation, with to from forward going that credit larger Chicago going growth the banks? more as color. that increasing? Got the the And that lot of couple versus coupled by is in guys is added coming about that added gains That's a over disruption that be see you share of just So well M&A-related guys driven of and some you've the wake demand client

JimEccher

here to that's we're in life, Yes. record known I is count a what have about, a joining to proven are that excited quarter mean, think to they us going be us from I CRE with on. team new track the lenders seasoned really that performers, we're able the that prior third Nate,

with we conversations lender So with gain hired here. that, that we're with along some C&I additional potential are share now, the a substantive coupled optimistic about new team we getting having

BradAdams

optimistic terms If or months, X we our hire down next at probably confident to expenses the weren't have over at would in of least ability point. this we been guiding

NathanRace

and total the pretty Understood. raised a this risk-based a back capital noticeably to the guys discussion. there, feeling about And going are of the capital are maybe up Obviously, just prospects Obviously, guys a it's competitive over with some. on disadvantaged lastly, year? sub-debt the in little out you you quarter. How half of relative acquisition just environment back shored currency to bit

So kind just level any updated optimism on thoughts along M&A? of

BradAdams

with M&A's difficult that's our something end callable valuation, gets obviously, the We a possible done. mean, but senior I it's issuance of have do year. at the debt

So would be probably nothing a materializes. if wash that

Operator

Please comes next Raymond question. line proceed with Our the Long from of James. David your question with

DavidLong

in the pipeline pick rates. You talked volume a in more bit Can Are a bit expectations mortgage to is little for pullback little color? Are pipeline? your you seeing third here the provide this the quarter? an up about in you and increase

GaryCollins

-- actually point -- again. the last David, troughed nicely hit wall couple it's we've up kind we quite but it's there Collins. Gary weeks a Yes, it's of been last in of the actually picking month,

of One looking in for definitely obviously purchase Things the up. available the are challenges is volumes market limited supply of a sale.

DavidLong

about prepandemic the you day on CECL talked X.XX% And your Okay. credit was level. then recall X side, about I

portfolio the has level, risk assume that back yet. economic eventually not prepandemic? enough that we profile to? think had we get level of should the similar a that we Is right backdrop adjust X You're loan to your to Or getting changed there day you of

BradAdams

that is also I portfolio but our right the profile of risk our down. loan think I think is level,

number in hair concerned We that levels. of on risk. don't below is know awful being of lost things. of I trend terms still of have down an There's level. terms higher credits But provision a would that been that being the lot feel have said, in comfortable do that I I we about being But think

I be still the overweight continue that if that's case scenarios, things on continue the bearish same trajectory to and going been. are to have they We think don't

Operator

of Montgomery. from Janney Thank next you. question with proceed Brian Instructions] line question. with Our Martin [Operator the comes your Please

BrianMartin

to there. question, guess, I the third at But the just can mean, And a C&I that, you little guess, hires. opportunities then and for on just it -- also I lender, kind rather brought sounds on does next and likely? to pipeline you I it minute you team aspect with about new you X more the like going of lender, about I think that months Hey, M&A? quarter. you C&I Jim, as that XX ran hiring the than a they're the kind it's the that the have guys currency can on just mean, a seem through CRE pipeline M&A still just bit But a where in that Does strong. sounds you the and of way seem ago doing that? where comment talked beyond like it's today you grow

JimEccher

loan today showing we couple of Brian. surprised leasing a days XX significantly with guess, healthcare ago. CRE I answer is did activity building. and We're teams Certainly, are to than pipelines legacy our ways Yes. higher how that, equipment pleasantly

us some far as known we -- to hired, lender the they've been teams with new hired, the the that time. we new along quite for As team

know potential well. that another with along we that we're to performers, talking team proven they're very So

organic that. find of definitely business So I right -- some to kind then we'll growth. side, half Brad on partner. here low we the M&A see to can think back certainly the if for alluded single-digit We're think And loan open low year, the of we

BrianMartin

this your on. Okay. any point? movement are in obviously, point I just just all was teams in utilization levels. the earlier at you from expecting at guide, that the this It utilization And question then And rebound goes, kind as low market share as far guess at brought of like the you've still

BradAdams

saw no movement We in utilization rates. almost

utilization down during line $XX was about quarter. commercial the Our million

that, assumes along flatline guidance to move doesn't Our level. and very that continues a low

BrianMartin

Yes.

Okay.

economy, get component. strengthening if So start see there's some some we you the to pickup of and in that upside

guess the this So -- maybe, at plans Brad, buyback is it the point? completed the the at point. And on are what sounds on just okay. authorization buyback, then this I like

BradAdams

go evaluate as the to that steps We'll through need a we possibility.

BrianMartin

too far Brad, gets of as Okay. on a okay. the PPP, picture assume, the you're fair remaining unknowns give $X half that That's I collected of that And or you're little piece big it couple at that of that there's many the some how it? as Is table. of what then the PPP the goes, of bulk think I on quarters? second unknown And -- that year? still guess, that, then to Or thinking least bit over million kind in around fence about the the is put in thinking too that to -- next just

BradAdams

Yes.

be certainly, think that of will the gone. next bulk X the over months, I

BrianMartin

All go just through quarter I'll and just can is And I in just level what call, towards level, margin the the else It loan X. the just And Okay. over that Brad, I your guide there? liquidity next high but listen right. I guess the high get the that, I guess, comments, I or you was run stays on to growth? can back the just there what you back something was? guess, missed then some

BradAdams

we is big regardless will margin the what happens loan and growth, will driver If liquidity of up, loan get at the growth. at here The stays how cash where better. liquidity If it's the we've down Fed. be much got goes margin with be

see is out know just I today's return restructuring me don't growth tomorrow's plowing a securities of is this that -- portfolio terms I think point, it securities our to like at feels in what should duration. that investors charge.

we've X.X made, hanging to are a earning flow basis effective of purchases a XX around duration kind We X.X that points. with whopping the

stragglers purely off, as a retail to as The much a down function Margin down tough shop. and continue the funds of to flows just appetite eke terms can where you we'll and given into gain margin deposit rate move So of deposits cash right retail your of we into is miss is flows is predict time how now, badly right any come on cost will bank. payoff well. in But see now. our how that's

BrianMartin

Right.

Okay. And flows, retail stimulus then I the stabilize? started see you have them the obviously… is if know to mean, I

BradAdams

No, child they through credit flows. the accelerated the with quarter tax

BrianMartin

here, two of Okay. And first even the or into -- the still building third part quarter

BradAdams

had lot We a lot of of debt, Brian. debt. a We had

BrianMartin

Yeah.

Okay.

Operator

next with a Please Our is question. question your follow-up Chris with KBW. proceed from McGratty

ChrisMcGratty

the Just right, want The that what to is debt got $XX about? you're X.XX%. you're instrument make Is at sure talking comment I about Brad. million the talking

BradAdams

That's correct.

ChrisMcGratty

prevent happening that And would automatically? is Or I of… guess that what of just just kind kind from

BradAdams

call Well, actually have to we it.

that -- automatically, this our happen but doesn't is We at can't it expectation So point.

ChrisMcGratty

there's flushed? But no because there's now no -- so in -- guess no Right. I there's it capital need right you're for the

BradAdams

moment, sure. Not at for this

Operator

management closing would time, this I are further turn like the for back at gentlemen, to no to and comments. Ladies floor questions. there

Jim Eccher

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

Operator

you. gentlemen, Thank this concludes today's teleconference. and Ladies

Thank lines your your disconnect for may You this at time. participation. you

Jim Eccher	Chief Executive Officer
Brad Adams	Chief Financial Officer
Gary Collins	Vice Chairman
Chris McGratty	KBW
Nathan Race	Piper Sandler
David Long	Raymond James
Brian Martin	Janney Montgomery Scott

Old Second Bancorp (OSBC) 22 Jul 212021 Q2 Earnings call transcript