Earnings call transcript Q3 2021

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ConferenceCall Participants

David Long - Raymond James

Nathan Race - Piper Sandler

Chris McGratty - KBW

Brian Martin - Janney Montgomery Scott

Operator

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

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

may that start strategies, the business, statements the you from which management's Second's a current of SEC will on prospects, to statements reminder are based expectations I and materially comments Management performance, the a with and today existing guarantee contain are company's for economic forward-looking risk about These discussion Old company's in differ future the those not to would full ask a may results projected. company's refer filings of factors. environment.

GAAP we non-GAAP Relations earnings release, counterparts financial will call, our discussing be which measures. is today's available measures certain at Investor and These described the on oldsecond.com under non-GAAP their in On are website tab. our also to reconciled

Now I will turn Eccher. it Jim to over

Jim Eccher

joining opening the will I thank it additional and today. comments open have then us details. morning then I and questions. the quarter my for prepared several to give some about before it will future turn you Brad Good and summary with up over we for I and review for conclude remarks thoughts of

in $X.X $X.XX was million Net income quarter. per the diluted or share third

Our provision next the year. $X.X by for quarter more earnings a unemployment this projections over were million credit to reversal, favorably impacted favorable losses due

to $XXX,XXX $XXX,XXX. costs However, MSR in negatively incurred of totaling third mark-to-market due interest decreases the quarter were rates earnings impacted the merger in by market loss and related valuation

during third second XX. the from million Approximately September by this been PPP PPP million loans have core of loans quarter. all quarter, now $XX.X of of outstanding Only were approximately round both to originated essentially the sheet, XX.X forgiven. SBA as unchanged basis In forgiven and regards PPP the XX% loans first remain a the excluding balance loans on

that am year, our end is us pandemic a we growth by of Loan began. pipeline for strongest I the far has a quarter bit but since disappointment the encouraged this certainly been seen at have

seeing although line builds remains equipment are health significant activity and somewhat and soft. leasing CRE We utilization and pipeline care CNI

have started a with third was that leasing and added the quarter senior We October. officer CRE new us in a team in

Exclusive and the I'm see solid to continues strong long pipeline, quarter optimistic equipment data in to factors a quarter. this quarter and furniture and the discipline the compared the as PPP related over X.X% costs these quarter, occupancy, Expense of current occurred net with last Given XXX,XXX of strong can quarter in computer processing due of noted growth costs. expense prior a prior to slight expenses we as for growth the the merger well non-interest and cost increased non-interest increase year. in of be

prior to to quarter million the increased status. Non-performing compared non-accrual two X.X added loans loans by with

However, although past X.X% declined was compared uptick declined to quarter. dues total an assets linked and there classified in the non-performers

today these and stands book borrowers in and working understand strength available modification X.X% confident are our we the our Details with situation. portfolios. are Loans earnings loan remain We to under the of approximately release on tables at of the every changes. in closely loan each

September or original or paid COVID-XX some status past as payment million XX. XX% on at point the to were more of returned in XXX deferral which either Of related year, XXX.X the of million off loans of than

X.X deferral on are XX and million As status. currently recent balances quarter loans the totaling most end,

loans. X.XX% the currently the composition stands also Old additional of detail disclosures earnings loan Concurrent give reserve filed will modification the with our that breakdowns release, and total of loans, current portfolio of reserve on loan at PPP levels. portfolio investors Exclusive Second

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

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

to his in more over it color turn I'll comments. Brad for prepared now

Brad Adams

Thank you, Jim.

trends increased point stabilized mitigating Net slightly less increases we The in points quarter continue rate avoid basis rate and the reinvestment portfolio the growth than quarter. ago XXX,XXX to relative last interest continuing duration with in the purchases XXX,XXX XXX income liquidity. from year as to cycle. was securities on this portfolio Margin at

Continued dramatically. to If we will lower excess currently trends expect, remain income entirety of should our liquidity substantial strategy continue margin the for improves, that deploy excess and liquidity have net outlook persist, assets. continue short-term. margin the invest improve growth in strong the duration a our significantly. as cautious benefit short The If portion liquidity improve If in trends flow excess the yielding which will artificially liquidity persisted would will quarter. of depressed loan deposit to inflows interest we reverses, but to margin

conditions margin to not demand I add be I I followed excess remain loan economic mentioned and quickly to I once stimulus this to it point. continue resulted to that of at economic with improve. don't a loan reported continue flows, level duration appears If outlook that pace Jim conditions, would note is important to surprised significant so our improve our changing. believe growth, expect returns that commensurate that growth lessons, prudent has to will think be primarily it's from the liquidity that which retail absorbed

will do total growth that flows artificially loan to patient. trends income which meaningfully remain of leave which that the lessen currently growth. margin short, is improve continue we depressed. expect to in to interest and discussion not The liquidity net expect result we sum currently should In and cautious We

were XXX,XXX of in a MSR the remained and strong recorded also of current an with recorded. quarter million quarter last quarter, Non-interest valuation both the net increase were gain Wealth of mortgage income and on with third quarter. sale quarter-over-quarter in net in the income quarter. X.X prior XXX,XXX increased minimal reduction XXX,XXX Securities management and second on from loans last in those gains

loans. through to from XXXX remaining approximately for Provision third was unemployment of recorded reversal a X.XX remaining X.XX in million of X.X an X.X over to last decline net and XX, at the the is compared credit outlook quarter. of last assumes us previous the the economic X.XX X.X for life estimate to quarter improvement the losses The with million the rate This projection from September quarter. continued

that of with pessimistic with to most now. pleased number of than point direction be number And continue this a probably credit the favorably. classified would and of performed, concerned I’m for that more be quarters. to are the resolved expect the have assets. I in still Credit in at the improving I'm then been our severity as pleased about quarters our lessened assumptions coming extremely recognize these have I to metrics stable credits remained it assumptions

the unreasonably helping remains this the growth at Our controlled coming with we loan robust improving a customers tight. assuming funding to of point. and spreads and quality liquidity our in efforts remain expectation risk focused are margin stable Expenses on well quarters

to the for efficiencies continue We will as year progresses. review

Jim. like With that I'd over turn back to to the call

Jim Eccher

Brad. Thanks,

for confident discipline. our certainly profitable our in optimistic for challenges we are low focus balance the on increasingly but given second, ready ahead. year of rates like the we best expense deposit remainder the closing, the are and environment about base not sheet In Prolonged is old extremely

so. remain to expect We

have our believe capital and Today liquidity we credit We remained to and underwriting in disciplined and our has balance as take improve. advantage the funding sheet is things strong. position

We team planning are transition substantial to effort are for ensure a on suburban and the extremely progress to people bring additional to active in our west customers making the employees. and sales smooth

Old are We opportunities exist at that XXXX about in the Second beyond. excited and

this comments prepared morning. our concludes That

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

Operator

Thank the [Operator is first you. today open and David Instructions] questions. Long is question from Ladies Raymond floor at coming Our James. gentlemen, now for

live. is line Your

David Long

I know what's suburban transaction.

and the And Maybe any preparing the got integration you've conversion you've up that this may happen? then think then approvals. to close? one follow integration. as hear case. made when the branch in also, expected that's to just for system still about I that to And a early Is December progress proper

Jim Eccher

David, hand. just have in for basically we're which November. sides, end need both regulatory on meetings all Anticipating We So targeting December of approvals shareholder close. to we early have the a in

we are knee system mid and So and yes, through to plans April integration late targeting conversions. deep for working

David Long

Got it.

talking the earning assets you securities in your the yields of cash or you're willing and this side? duration you've yielding on XX% in of point that got using been you've are at or what some yield duration some putting about, short add Brad, to And Okay.

Brad Adams

variable primarily and basically. some two a year months under targeting loan in guaranteed government been last paper, student been CLOs the we've a in six CMOS rated have the That little duration, purchases concentrated AAA

David Long

Got it.

Okay. take extend And get to what it that duration? would you to

Brad Adams

Higher rates.

David Long

Easy got here you've debt funding And the some on becomes the senior you I any think you liability finally, soon. enough. non-core balance that of sheet, shore side can then, up, that callable think

make side it there's is if curious Just now. more the any opportunities liability to even than efficient

Brad Adams

range but is, in we'll and will evaluate issue will $XX the quarter definitive be is The nothing the the some term variable of year. likely end senior million at replacing of point. -- the The are be the year opportunities. it that substantial in in the for is improvement cost goes a that. next It's that variable potential first There this of debt rate at the

got of us. the look we've perspective, the statement the I We'll reasonable. there you and from as that think believe we've opportunities the projections capital appear there's them continue change with still in especially, at out laid a lot can coming do to management fundamental proxy for sheet balance things

Operator

Thank you.

is Sandler. question next Nathan Piper Our Race at today coming from

is line live. Your

Nathan Race

ex-PPP have that recently lines. to those outlook hires Appreciate the fourth in you along quarter, the growth, guys some and for constructive loan of the congrats had

across But look XXXX working range law out are the percent Just continue just the you of organic kind area, expectations look of of have obviously, of is curious at now you in in against growth numbers kind kind growth. in to what you in the as you place team terms of XXXX. good with loan terms large to of when a opportunity Chicagoland of the to of hire

Brad Adams

payments, we're that a trend a the we year, we we've capability, may the salespeople. on been have terms last lot that conversations reasons be the able of well origination getting that several increasingly level end which doesn't hiring of by a to our in right pre is exciting thing think and and that excited talent the Obviously, us. have investing months. we're of over But come have in terms we of for cheaply, to I lot in next and of double front what very optimistic very we loan the expect now that

we're standpoint So what getting from while an staying in still increasingly our we're asset optimistic on generation of capable box. doing credit

Jim Eccher

frustrating I about and while in level add, was active fundings the utilization were been And from was really at paydowns little quarter down third year. is basically line what's production, it are XX they last a would is running where just flat our relatively new X%.

those in the line utilization, returned effect of the we then next a So pipelines year should building rate run a kind the strong normalized and year. of coupled factors to very with have and and increase see more talent any that if are meet both of

Nathan Race

the just expectation you year, as have that terms for growth, double you in of of count Okay, then dates fourth great. obviously, providing acquisition kind in CECL next quarter the the closes. to And

kind we of that of about, today, of XXXX, trajectory provisioning thinking in So as should excess costs in how just terms and the credit about well. think exists reserves

Brad Adams

of reasonable. think appear proxy those merger the any yet, considerations fully though, done in aren't I estimates which our detailed statement as calculations independent

a I our I that, probably others just conservative of said, that would think expect estimates I standalone to continue are basis economic as trend segments terms would activity. reserve all down. on than core what maybe for more we're in And

improvement. a I some So while provisioning, would be hopeful be year it growth continuing that level by do there scale loan pretty expect achieve muted if which next for, will we economic to of are on we

Operator

coming Instructions] [Operator at question next you. today from KBW. Chris Our is Thank McGratty

Your live. is line

Chris McGratty

and NII, just of size before quarter start that cite of you couple on the in question. main prepay PPP also level a items you to the release? that the income Can quantify of want the I housekeeping in

Brad Adams

or stuff calling the last probably especially a so. here was kind And best months lately prepay large the of word frequently, over it that So wasn't choice happens quite the nine $XXX,XXX.

In only in about – terms portfolio it got like looks we've the of PPP left, income, million XX

Jim Eccher

It it or was Brad, wasn't much. XX,XXX XXX,XXX, that

Brad Adams

wasn't It significant.

Chris McGratty

Okay.

of do and And kind from NII about just so together. the we think securities put the How caution loan organic trajectory basis? you here of growth an the on

Brad Adams

expect these quarter, last said grow we quarter and periods. As this NII linked would in quarter saw levels all and from to we we

Chris McGratty

could two that of color closes great more then, if then the about the nonaccrual you bit deal like resuming that little talked about the And you on I thinking questions, Okay. are -- a once valuation and be given those and would the buyback? how

Jim Eccher

Sure.

as major tenant watch time not they last single a had it uptick a with big and property. long quarters new of ago, a a list really it is on We've are credits. our a As the negotiating far last an One classified allocation actively was large, on another put so us lease surprise tenant. and tenant box by couple year retailer a two actually for non-accrual

see we there. any don't further charges So

operator hit pandemic. that The couple hard other the one is crane million dollar by was extremely a of

and overall any that about quarter. for down see on we're X% secured don't Absent well very classifieds losses. are that further the We

Chris McGratty

any then on buyback thoughts And there? the Okay.

Brad Adams

No would buyback theoretical these an good to say that just valuations of use standpoint, a kind extremely be view would I from imminent plans, of at capital. I

Operator

Thank you.

question next Montgomery Janney Brian coming today Our is Scott. Martin at from

is line live. Your

Brian Martin

of, that, Jim? potentially I the Can of assume market, color kind how hiring, I of just with And or given hiring you've talent done, doubling of your in Brad's here? kind little that about, have? questions progressing? kind up just that updates of Is you some you're what pick of what give mean And to guess those bit more baked to just the capability the a on couple just you that disruption comment just that's of in going outlook, the on just you does so kind and

Jim Eccher

Sure, Brian. Yes.

optimistic of produce, that's a north a the fourth executive over quarter, commercial then business going dialogue And the of in that successful a very team constructive been in of the to with leasing So XX weeks the quarters. we a is added couple be even that yet new years joined additional us and team them number real couple in estate the ago, of ground we optimistic that hit earlier Chicago a senior quarter. in market, running have next will number of very continue to lenders landing we the

So we real feel good about that.

Brian Martin

the currently -- the I we about conjunction rate, Jim, you you hires expense mean, I that the far got with as thoughts run some on Brad, folks Okay. as And about how just optimistic outlook? in the kind just are maybe, of are think in I do hiring mean, just with additional guess how here?

Jim Eccher

it's these But Yes. are us Good folks to going investment. a the certainly, question. also -- going I with mean, along too. retirements have departure an cost few seen we be to recently

rate to quarters as coming overhead. that probably equal. further probably now, So will on an investments see up We we're certainly look over the our run of pick net-net

Brian Martin

you. Got

Brad Adams

significant inflation going the there's in all workforce, we're wage to on what's in significant that across no the some out think is maintain in I wage of quest terms marketplace. the under fairly franchise, pressure there secret Chicago

cost are the it a benefit that see side, find on done don't we investments as in in number we'll successful XXXX. we we'll last Chicago effort best the where made years that we be to the where level inflation be in do we're to of that lock costs salary is there that were and with XXXX. that our seeing But We've we've that down levels some the the we can. IT So increases of as commensurate efficiencies our can, of there won't in marketplace. as holding two But down and expect would I to know overall efficiencies

in it certainly on easy in to a it's it. So we got as was handle not going as But 'XX. XXXX be good

Brian Martin

origination kind Got Brad That people your And hired. sense. I guess doubling you about the just kind of just comment the of makes capability, off you. that's of driven got already

-- expecting you're So

Brad Adams

No. That is not case. the

We stages expect and what the in is order kind the the looking short at have is, look just to yet. at that as we would and for looking that in we're tell various there made evaluated of of on M&A relatively at. terms what transaction pay I earn not every are themselves is back anybody we an that But people we'd getting based you sales not hire is of expansion don't

So double will to next months we I the over ability it's that capability. six our nine loan think that to have the possible that quite achieved origination

Brian Martin

Got you.

of to front, of about that's kind Okay, on just And liquidity securities on on combined what I front? the combination on West the just are your kind you sheet Suburban balance then, helpful. as you last are look your asset that, for the that doing guess, you one levels? mix what -- me as of with coming just with the how thinking you're

Brad Adams

that versus time of I do reason no you all. plainly information to on that's spoken what a is a into in believe just the at proxy is pretty statement to quite do and forma see idea discussions excess balance substantial that there like. with going the I liquidity point on the good that portfolio pro in it. sheet run also would return in terms the plowing, liquidity. past. securities I'd we risks I've excess some have looks this is to that at are about we that that point don't in detailed, the I say a

did or me. doesn't overall We've year they of consistent got would because will is years XX sort are. then those something that. stupid restructuring We you and be got inflation. rather it one to and plowed two that get I growth announce to wait the portfolio some where there, to into we mortgages there if I like tell you, takes bother have economy And patient. out rates things of Neither one great of with a also in staying deal

Operator

Thank you.

you comments finish Mr. closing at any queue in We like have do no questions you'd Eccher, further have with? time. this the to

Jim Eccher

Okay. Thanks, Kate.

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

Operator

and conclude this today's does Thank ladies gentlemen, event. you,

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

Jim Eccher	Chief Executive Officer
Brad Adams	Chief Financial Officer

Old Second Bancorp (OSBC) 21 Oct 212021 Q3 Earnings call transcript