AURORA, Ill., Oct. 20, 2021 /PRNewswire/ -- Old Second Bancorp,
Inc. (the "Company," "Old Second," "we," "us," and "our") (NASDAQ:
OSBC), the parent company of Old Second National Bank (the "Bank"),
today announced financial results for the third quarter of
2021. Our net income was $8.4
million, or $0.29 per
diluted share, for the third quarter of 2021, compared to net
income of $8.8 million, or
$0.30 per diluted share, for the
second quarter of 2021, and net income of $10.3 million, or $0.34 per diluted share, for the third quarter of
2020. Net income for the third quarter of 2021 reflected a
$1.5 million pre-tax release of
provision for credit losses, compared to a $3.5 million pre-tax release in the second
quarter of 2021, and a $300,000
pre-tax provision expense in the third quarter of 2020.
Residential mortgage banking revenue totaled $2.7 million in the third quarter of 2021,
compared to $1.6 million in the
second quarter of 2021, and $6.1
million in the third quarter of 2020. Mortgage
servicing rights ("MSRs") experienced a mark to market loss of
$282,000 during the third quarter of
2021, compared to a $1.0 million loss
in the prior quarter and a $160,000
loss in the third quarter of 2020. Net gain on sales of
mortgage loans totaled $2.2 million
in the third quarter of 2021, compared to $1.9 million in the second quarter of 2021, and
$5.2 million in the third quarter of
2020, as mortgage origination and refinancing volumes declined in
the current year. Noninterest expense included $425,000 of merger-related expenses in the third
quarter of 2021 due to the pending merger with West Suburban
Bancorp, Inc. and its wholly-owned subsidiary bank, which is
anticipated to close in December
2021, subject to the satisfaction of customary closing
conditions, including receipt of required approval by the
stockholders of each company.
Operating Results
- Third quarter 2021 net income was $8.4
million, reflecting a decrease in earnings of $409,000 from the second quarter of 2021, and a
decrease of $1.9 million from the
third quarter of 2020.
- Net interest and dividend income was $22.6 million for the third quarter of 2021, an
increase of $664,000, or 3.0%, from
the second quarter of 2021, and an increase of $109,000, or 0.5%, from third quarter of
2020.
- Interest and dividend income for the third quarter of 2021 was
$24.8 million, an increase of
$596,000 from the second quarter of
2021, but a decrease of $256,000 from
the third quarter of 2020, primarily due to the reduction in market
interest rates over the past year. Interest and dividend income was
favorably impacted by a large prepayment penalty recorded on one
commercial credit in the third quarter of 2021, in addition to loan
fees earned on forgiven Paycheck Protection Program ("PPP") loans
during the second and third quarters of 2021. We originated 746 PPP
loans totaling $136.7 million in
2020, and as of September 30, 2021,
$2.4 million on seven PPP loans
originated during the first round of the PPP loan program remained
outstanding. During the first and second quarters of 2021, we
originated $62.3 million, or 574
loans, under the second round of the PPP loan program, of which
$32.3 million, or 253 loans, remain
outstanding as of September 30, 2021.
Net loan interest and fee income recorded in 2021 year to date on
all PPP loans totaled $2.7 million,
and approximately $1.3 million of net
PPP loan fees remain unearned as of September 30, 2021.
- Interest expense for both the second and third quarters of 2021
totaled $2.2 million, compared to
$2.5 million for the third quarter of
2020. The $365,000 decrease in
interest expense in the third quarter of 2021, compared to the
third quarter of 2020, was primarily due to the reduction in market
interest rates year over year, which impacted all interest bearing
deposit categories.
- We recorded a $1.5 million
release of provision expense in the third quarter of 2021, compared
to a $3.5 million release of
provision expense in the second quarter of 2021, and a $300,000 provision for credit losses in the third
quarter of 2020, as the projected impact of the COVID-19 pandemic
on future credit losses is currently anticipated to be less than
prior projections. Our allowance for credit losses ("ACL") on loans
in the third quarter of 2021 consisted of a release of the ACL on
loans of $1.5 million, as well as
$236,000 of net charge-offs recorded
during the quarter. In addition, the ACL for unfunded commitments
decreased by $47,000 in the third
quarter of 2021, due to an updated forecast of credit line
utilization rates.
- Noninterest income was $9.3
million for the third quarter of 2021, an increase of
$1.4 million, or 17.9%, compared to
$7.9 million for the second quarter
of 2021, but a decrease of $2.3
million, or 20.1%, compared to $11.7
million for the third quarter of 2020. The increase from the
linked quarter was primarily driven by a $1.1 million increase in residential mortgage
banking revenue, attributable to a $800,000 decrease in the mark to market loss on
MSRs and a $300,000 increase in net
gain on the sales of mortgage loans in the third quarter of 2021,
compared to the prior quarter. In addition, increases of
$146,000 in service charges on
deposits and $242,000 in securities
gains, net, were recorded in the third quarter of 2021 compared to
the linked quarter. The decrease in noninterest income in the third
quarter of 2021, compared to the third quarter of 2020, was
primarily due to a $3.4 million
decline in residential mortgage banking revenue, primarily due to a
$3.1 million decrease in net gain on
sales of mortgage loans, which was partially offset by an increase
in wealth management income of $483,000, and securities gains, net, of
$244,000 in the third quarter of
2021, compared to securities losses of $1,000 in the third quarter of 2020.
- Noninterest expense was $22.1
million for the third quarter of 2021, an increase of
$728,000, or 3.4%, compared to
$21.4 million for the second quarter
of 2021, and an increase of $1.9
million, or 9.2%, from $20.3
million for the third quarter of 2020. The increase from the
linked quarter was primarily attributable to an increase in legal
and professional services fees due to merger-related costs incurred
of $425,000 in the third quarter of
2021, as well as an increase in occupancy, furniture and equipment
expenses due to planned maintenance, and computer and data
processing expense. The increase in noninterest expense in the year
over year period was primarily due to salaries and employee
benefits expense, occupancy, furniture and equipment expense, legal
expense, card related expense and other expense.
- The provision for income taxes expense was $2.9 million for the third quarter of 2021,
compared to $3.2 million for the
second quarter of 2021, and $3.4
million for the third quarter of 2020. The decrease in tax
expense was due to lower pre-tax income for the third quarter of
2021, compared to both the linked quarter and the year over year
period, partially offset by an increase in non-deductible expenses,
primarily due to merger-related costs incurred in the third quarter
of 2021.
- On October 19, 2021, our Board of
Directors declared a cash dividend of $0.05 per share payable on November 8, 2021, to stockholders of record as of
October 29, 2021.
President and Chief Executive Officer Jim Eccher said, "An improving economy and
conservative positioning resulted in solid core earnings trends
relative to last quarter featuring increased spread income, a
stable margin and controlled expenses. Loan growth remains a
challenge in the face of low line utilization rates and tepid
overall demand with continuing elevated prepayments.
The end result was flat total loan volumes relative to last
quarter exclusive of PPP loan settlement activity. Deposit
inflows remain robust and resulted in a further increase in excess
liquidity as evidenced by a $23.9
million increase in average cash on the balance sheet during
the quarter. We continue to deploy a portion of the excess
liquidity on our balance sheet in short duration securities with
yields far below the aggregate portfolio yield. The
combination of these factors largely resulted in a two basis point
reported increase in our net interest margin over the linked
quarter. Our credit quality metrics and expectations have
continued to improve as the Chicago area seems to be moving towards a more
normalized environment and we recorded a $1.5 million reduction in the allowance for
credit losses this quarter. Looking forward, I am optimistic
on loan growth trends for the remainder of the year and continue to
believe reported margin trends will be dominated by changes in
liquidity levels on our balance sheet rather than any fundamental
change in our business. I believe Old Second remains
conservatively positioned to meet the challenges that may present
themselves, as our expenses remain well-controlled, our
business is well-diversified, customer activity is increasing and
our underwriting has remained disciplined and consistent. I
would like to thank our employees for their continued hard work in
delivering a solid quarter while focusing on exceptional customer
service as we move towards a more normal routine."
Eccher continued, "In late July, we announced an agreement to
acquire West Suburban Bancorp. The pro forma company will
have approximately $6.2 billion in
assets, $5.3 billion in deposits and
$3.4 billion in loans. We
believe the merger will significantly enhance our scale and
geographic reach within the Chicago metropolitan area and will offer the
potential to deliver exceptional value to the stockholders of both
organizations. We are working diligently to prepare for the
closing of the transaction, including operational planning, the
recent receipt of all required bank regulatory approvals and
continuing investments in the expansion of our sales teams across
several lending verticals. We believe the combined company
will feature a strong core deposit funding base with improved
profitability and enhanced strategic positioning, including the
scale to prioritize investments in technology and growth. We
are excited for the future and believe the combination will provide
us with a tremendous opportunity to build a better bank for our
stockholders, employees and the communities we serve."
COVID-19 Update
- Late in the first quarter of 2020, we began granting loan
payment deferrals to certain borrowers affected by the pandemic.
For the period of April 1, 2020
through September 30, 2021, our
clients had requested loan payment deferrals on 506 loans totaling
$237.8 million. As of September 30, 2021, 494 loans, representing
$229.0 million outstanding, or 96.3%
of the original loan balances deferred, have resumed payments or
paid off. Active payment deferrals remain on 12 loans, with
$8.8 million of balances
outstanding.
- We are participating in the Coronavirus Aid, Relief and
Economic Security Act ("CARES" Act). During 2021, we processed 574
loan applications for PPP loans, representing a total of
$62.3 million. As of September 30, 2021, we had $2.4 million of PPP loans outstanding that were
originated under the first round of the PPP loan program in 2020,
and $32.3 million of PPP loans
outstanding that were originated under the second round of the PPP
loan program in 2021. Early in the fourth quarter of 2020, we
started to submit applications for PPP loan forgiveness to the SBA,
and as of September 30, 2021,
$164.3 million on 1,060 loans have
been forgiven. We anticipate receiving the remaining funds for our
first round of PPP loan forgiveness from the SBA through the end of
2021, and will also continue the forgiveness process for our second
round of PPP loans during the remainder of 2021 and into early
2022.
Capital Ratios
|
Minimum
Capital
|
|
Well
Capitalized
|
|
|
|
|
|
|
|
|
|
|
Adequacy
with
|
|
Under
Prompt
|
|
|
|
|
|
|
|
|
|
|
Capital
Conservation
|
|
Corrective
Action
|
|
September 30,
|
|
June 30,
|
|
September 30,
|
|
Buffer, if
applicable1
|
|
Provisions2
|
|
2021
|
|
2021
|
|
2020
|
The
Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity tier 1
capital ratio
|
7.00
|
%
|
|
N/A
|
|
|
12.99
|
%
|
|
12.72
|
%
|
|
11.97
|
%
|
Total risk-based
capital ratio
|
10.50
|
%
|
|
N/A
|
|
|
17.80
|
%
|
|
17.60
|
%
|
|
14.33
|
%
|
Tier 1 risk-based
capital ratio
|
8.50
|
%
|
|
N/A
|
|
|
14.10
|
%
|
|
13.83
|
%
|
|
13.08
|
%
|
Tier 1 leverage
ratio
|
4.00
|
%
|
|
N/A
|
|
|
9.81
|
%
|
|
9.68
|
%
|
|
10.07
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity tier 1
capital ratio
|
7.00
|
%
|
|
6.50
|
%
|
|
15.65
|
%
|
|
15.23
|
%
|
|
14.24
|
%
|
Total risk-based
capital ratio
|
10.50
|
%
|
|
10.00
|
%
|
|
16.69
|
%
|
|
16.33
|
%
|
|
15.49
|
%
|
Tier 1 risk-based
capital ratio
|
8.50
|
%
|
|
8.00
|
%
|
|
15.65
|
%
|
|
15.23
|
%
|
|
14.24
|
%
|
Tier 1 leverage
ratio
|
4.00
|
%
|
|
5.00
|
%
|
|
10.83
|
%
|
|
10.63
|
%
|
|
10.90
|
%
|
|
1
Amounts are shown inclusive of a capital conservation buffer of
2.50%. Under the Federal Reserve's Small Bank Holding Company
Policy Statement, the Company is not currently subject to the
minimum capital adequacy and capital conservation buffer capital
requirements at the holding company level, unless otherwise advised
by the Federal Reserve (such capital requirements are applicable
only at the Bank level). Although the minimum regulatory capital
requirements are not applicable to the Company, we calculate these
ratios for our own planning and monitoring purposes.
|
2 The prompt corrective
action provisions are only applicable at the Bank
level.
|
The ratios shown above exceed levels required to be considered
"well capitalized."
Asset Quality & Earning Assets
- Nonperforming loans totaled $29.0
million at September 30, 2021,
compared to $23.1 million at
June 30, 2021, and $20.8 million at September
30, 2020. Credit metrics reflect two large credits which
totaled $7.4 million that moved to
nonaccrual status in the third quarter of 2021, and management is
carefully monitoring loans considered to be in a classified status.
Nonperforming loans, as a percent of total loans were 1.5% at
September 30, 2021, 1.2% at
June 30, 2021, and 1.0% at
September 30, 2020.
- OREO assets totaled $1.9 million
at both September 30, 2021 and
June 30, 2021, compared to
$2.7 million at September 30, 2020. In the third quarter of 2021,
we recorded one property sale of $37,000 net book value, one property transfer
into OREO of $69,000 net book value,
and a net write up of $2,000,
compared to write downs of $61,000 in
the second quarter of 2021 and $46,000 in the third quarter of 2020.
Nonperforming assets, as a percent of total loans plus OREO, were
1.7% at September 30, 2021, compared
to 1.3% at June 30, 2021, and 1.2% at
September 30, 2020.
- Total loans were $1.87 billion at
September 30, 2021, reflecting a
decrease of $35.4 million compared to
June 30, 2021, and a decrease of
$162.4 million compared to
September 30, 2020. Decreases in the
linked quarter and year over year periods were primarily due to
$164.3 million of PPP loan paydowns
in our commercial portfolio, net of PPP loan originations of
$62.3 million in 2021, as borrower
liquidity is at a high level due to federal stimulus programs and
there is a general lack of incentive for making capital
expenditures. Average loans (including loans held-for-sale) for the
third quarter of 2021 totaled $1.89
billion, reflecting a decrease of $41.3 million from the second quarter of 2021 and
a decrease of $159.3 million from the
third quarter of 2020.
- Available-for-sale securities totaled $715.2 million at September 30, 2021, compared to $579.9 million at June 30,
2021, and $448.4 million at
September 30, 2020. Total securities
available-for-sale increased a net $135.2
million from the linked quarter due to purchases of
$73.0 million of collateralized
mortgage-backed securities, $48.3
million of asset-backed securities, $39.4 million of collateralized debt obligations,
and $28.3 million of taxable
agencies, partially reduced by sales of $26.9 million of corporate bonds and paydowns on
various securities which totaled $23.8
million. The unrealized mark to market adjustment on
securities decreased by $3.3 million
since June 30, 2021, and decreased by
$494,000 in the year over year period
due to market interest rate fluctuations.
Non-GAAP Presentations
Management has disclosed in this earnings release certain
non-GAAP financial measures to evaluate and measure our
performance, including the presentation of net interest income and
net interest margin on a fully taxable equivalent basis, our
efficiency ratio calculations and core net interest margin on a
taxable equivalent basis. The net interest margin fully taxable
equivalent is calculated by dividing net interest income on a tax
equivalent basis by average earning assets for the
period.
We consider the use of select non-GAAP financial measures and
ratios to be useful for financial and operational decision making
and useful in evaluating period-to-period comparisons. We
believe that these non-GAAP financial measures provide meaningful
supplemental information regarding our performance by excluding
certain expenditures or assets that we believe are not indicative
of our primary business operating results or by presenting certain
metrics on a fully taxable equivalent basis. We believe these
measures provide investors with information regarding balance sheet
profitability, and we believe that management and investors benefit
from referring to these non-GAAP financial measures in assessing
our performance and when planning, forecasting, analyzing and
comparing past, present and future periods.
These non-GAAP financial measures should not be considered as a
substitute for GAAP financial measures, and we strongly encourage
investors to review the GAAP financial measures included in this
earnings release and not to place undue reliance upon any single
financial measure. In addition, because non-GAAP financial measures
are not standardized, it may not be possible to compare the
non-GAAP financial measures presented in this earnings release with
other companies' non-GAAP financial measures having the same or
similar names.
Additional Information About the Merger and Where to Find
It
This communication is being made in respect of the proposed
merger transaction between Old Second and West Suburban Bancorp,
Inc. ("West Suburban"). In connection with the proposed merger, on
October 1, 2021, Old Second filed
with the Securities and Exchange Commission ("SEC") a Registration
Statement on Form S-4 (Registration Statement No. 333-259964) that
includes the Joint Proxy Statement of Old Second and West Suburban
and a Prospectus of Old Second, as well as other relevant documents
regarding the proposed transaction. A definitive Joint Proxy
Statement/Prospectus will also be sent to Old Second stockholders
and West Suburban shareholders.
INVESTORS ARE URGED TO READ THE REGISTRATION STATEMENT AND THE
JOINT PROXY STATEMENT/PROSPECTUS REGARDING THE MERGER AND ANY OTHER
RELEVANT DOCUMENTS FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR
SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION.
This communication does not constitute an offer to sell or the
solicitation of an offer to buy any securities or a solicitation of
any vote or approval, nor shall there be any sale of securities in
any jurisdiction in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the
securities laws of such jurisdiction.
A free copy of the Joint Proxy Statement/Prospectus, as well as
other filings containing information about Old Second, may be
obtained at the SEC's Internet site (http://www.sec.gov). You can
also obtain these documents, free of charge, from Old Second by
accessing Old Second's investor relations website,
https://investors.oldsecond.com, under the heading "SEC Filings" or
by directing a request to Old Second Stockholder Relations Manager,
Shirley Cantrell, at Old Second
Bancorp, Inc., 37 S. River St., Aurora,
Illinois 60507, by calling 630-906-2303 or by sending an
e-mail to scantrell@oldsecond.com.
Participants in the Solicitation
Old Second and West Suburban and certain of their respective
directors and executive officers may be deemed to be participants
in the solicitation of proxies from Old Second's stockholders and
West Suburban's shareholders in connection with the proposed
merger. Information regarding Old Second's directors and executive
officers is contained in Old Second's definitive proxy statement on
Schedule 14A, dated April 16, 2021
and in certain of its Current Reports on Form 8-K, which are filed
with the SEC. Additional information regarding the interests of
those participants and other persons who may be deemed participants
in the transaction may be obtained by reading the Joint Proxy
Statement/Prospectus regarding the proposed merger. Free copies of
these documents may be obtained as described in the preceding
paragraph.
Cautionary Note Regarding Forward-Looking
Statements
This earnings release and statements by our management may
contain forward-looking statements within the Private Securities
Litigation Reform Act of 1995. Forward looking statements can
be identified by words such as "anticipate," "expect,"
"intend," "believe," "may," "likely," "will," "forecast,"
"project," "moving towards," "looking forward," "optimistic" or
other statements that indicate future periods. Examples of
forward-looking statements include, but are not limited to,
statements regarding the economic outlook, our expectations
regarding future loan growth, trends in our net interest margin,
the adequacy of our allowance, statements about our proposed merger
with West Suburban, including the timing of the closing of the
merger, and our belief that we are conservatively positioned, as
well as statements regarding asset quality trends and the
anticipated timing of our receipt of funds for PPP loan
forgiveness. Such forward-looking statements are subject to risks,
uncertainties, and other factors, which could cause actual results
to differ materially from future results expressed or implied by
such forward-looking statements. The following factors, among
others, could cause actual results to differ materially from the
anticipated results or other expectations expressed in the
forward-looking statements, (1) the strength of the United States economy in general and the
strength of the local economies in which we conduct our operations
may be different than expected, including, but not limited to, due
to the negative impacts and disruptions resulting from the COVID-19
pandemic on the economies and communities we serve, which has had
and may continue to have an adverse impact on our business,
operations and performance, and could continue to have a negative
impact on our credit portfolio, share price, borrowers, and on the
economy as a whole, both domestically and globally; (2) the rate of
delinquencies and amounts of charge-offs, the level of allowance
for credit loss, the rates of loan growth, or adverse changes in
asset quality in our loan portfolio, which may result in increased
credit risk-related losses and expenses; (3) changes in
legislation, regulation, policies, or administrative practices,
whether by judicial, governmental, or legislative action,
including, but not limited to, the Coronavirus Aid, Relief, and
Economic Security Act, or the "CARES Act"; (4) risks related to
future acquisitions, if any, including execution and integration
risks; (5) adverse conditions in the stock market, the public debt
market and other capital markets (including changes in interest
rate conditions) could have a negative impact on us; (6) changes in
interest rates, which may affect our net income, prepayment penalty
income, mortgage banking income, and other future cash flows, or
the market value of our assets, including our investment
securities; and (7) with respect to the proposed merger with West
Suburban: (a) the failure of either company to obtain stockholder
approval for the proposed merger, the satisfaction of conditions to
any regulatory approval, including the expiration of applicable
waiting periods, or the failure of either company to satisfy any of
the other closing conditions to the transaction on a timely basis
or at all; (b) the occurrence of any event, change or other
circumstances that could give rise to the right of one or both of
the parties to terminate the merger agreement; (c) the occurrence
of any event, change or other circumstances that causes the bank
regulatory agencies to revoke their approvals of the transaction or
otherwise impose conditions on such approvals that could adversely
affect the combined company or the benefits of the transaction; and
(d) the possibility that the anticipated benefits of the
transaction, including anticipated cost savings and strategic
gains, are not realized when expected or at all, including as a
result of the impact of, or problems arising from, the integration
of the two companies or as a result of the strength of the economy,
competitive factors in the areas where Old Second and West Suburban
do business, or as a result of other unexpected factors or
events. Additional risks and uncertainties are contained in
the "Risk Factors" and forward-looking statements disclosure in our
most recent Annual Report on Form 10-K, Quarterly Reports on Form
10-Q and in Amendment No.1 to the Form S-4 Registration Statement
filed with the SEC on October 19, 2021. The inclusion of this
forward-looking information should not be construed as a
representation by us or any person that future events, plans, or
expectations contemplated by us will be achieved. We undertake no
obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events,
or otherwise, except as required by law.
Conference Call
We will host a call on Thursday, October
21, 2021, at 11:00 a.m. Eastern Time
(10:00 a.m. Central Time) to discuss our third quarter
2021 financial results. Investors may listen to our call via
telephone by dialing 888-506-0062, using Entry Code 775932.
Investors should call into the dial-in number set forth above at
least 10 minutes prior to the scheduled start of the call.
A replay of the call will be available until 11:00 a.m.
Eastern Time (10:00 a.m. Central Time) on October 28, 2021, by dialing 877-481-4010, using
Conference ID: 43105.
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SOURCE Old Second National Bank