AURORA, IL / ACCESSWIRE / October 16, 2024 / 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 2024. Our net income was $23.0 million, or $0.50 per diluted share, for the third quarter of 2024, compared to net income of $21.9 million, or $0.48 per diluted share, for the second quarter of 2024, and net income of $24.3 million, or $0.54 per diluted share, for the third quarter of 2023. Adjusted net income, a non-GAAP financial measure that excludes certain nonrecurring items, as applicable, was $23.3 million, or $0.51 per diluted share, for the third quarter of 2024, compared to $21.0 million, or $0.46 per diluted share, for the second quarter of 2024, and $24.8 million, or $0.55 per share, for the third quarter of 2023. Adjusting items impacting the third quarter of 2024 included $471,000 of transaction-related expenses due to the pending purchase of five branches from First Merchants Bank ("FRME"), which is expected to close near year-end 2024. The adjusting item impacting the second quarter of 2024 was an $893,000 death benefit related to BOLI; the adjusting item impacting the third quarter of 2023 results included $629,000 of deconversion and liquidation costs from the 2022 sale of our Visa credit card portfolio. See the discussion entitled "Non-GAAP Presentations" below and in the tables in the full earnings release found at www.oldsecond.com, under the investor relations tab, that provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.
Net income increased $1.1 million in the third quarter of 2024 compared to the second quarter of 2024. The increase was primarily due to a $1.8 million decrease in provision for credit losses. Credit quality stabilized this quarter and we recorded net recoveries of $155,000, compared to net charge-offs of $5.8 million in the second quarter of 2024, and $6.6 million in the prior year like quarter. In addition, net interest and dividend income increased $888,000 in the third quarter of 2024, compared to the prior linked quarter, and a $399,000 decrease in provision for income taxes was recorded, partially offset by a $546,000 decrease in noninterest income and a $1.4 million increase in noninterest expense. Net income decreased $1.4 million in the third quarter of 2024 compared to the third quarter of 2023, primarily due to a decrease in net interest income of $2.5 million year over year driven by a $4.3 million increase to interest expense as a result of higher interest rates offered on deposits, partially offset by a $1.8 million increase in interest and dividend income.
Operating Results
Third quarter 2024 net income was $23.0 million, reflecting a $1.1 million increase from the second quarter of 2024, and a decrease of $1.4 million from the third quarter of 2023. Adjusted net income, as defined above, was $23.3 million for the third quarter of 2024, an increase of $2.3 million from adjusted net income for the second quarter of 2024, and a decrease of $1.5 million from adjusted net income for the third quarter of 2023.
Net interest and dividend income was $60.6 million for the third quarter of 2024, reflecting an increase of $888,000, or 1.5%, from the second quarter of 2024, and a decrease of $2.5 million, or 3.9%, from the third quarter of 2023.
We recorded a net provision for credit losses of $2.0 million in the third quarter of 2024 compared to a net provision for credit losses of $3.8 million in the second quarter of 2024, and a net provision for credit losses of $3.0 million in the third quarter of 2023.
Noninterest income was $10.6 million for the third quarter of 2024, a decrease of $546,000, or 4.9%, compared to $11.1 million for the second quarter of 2024, and an increase of $704,000, or 7.1%, compared to $9.9 million for the third quarter of 2023. A $12,000 adjustment to the death benefit on a BOLI contract was recorded in the third quarter of 2024; the majority of these proceeds were received in the second quarter of 2024. Also, a $1,000 loss on the call of a security was recorded in the third quarter of 2024, compared to $924,000 of securities losses, net, recorded in the third quarter of 2023.
Noninterest expense was $39.3 million for the third quarter of 2024, an increase of $1.4 million, or 3.8%, compared to $37.9 million for the second quarter of 2024, and an increase of $1.9 million, or 5.0%, compared to $37.4 million for the third quarter of 2023.
We had a provision for income tax of $6.9 million for the third quarter of 2024, compared to a provision for income tax of $7.3 million for the second quarter of 2024 and a provision of $8.1 million for the third quarter of 2023. The effective tax rate for each of the periods presented was 23.1%, 25.0%, and 25.1%, respectively. The reduction in the effective tax rate in the third quarter of 2024 reflects the new state ruling regarding tax rate apportionment factors related to income generated from securities or loans originated in other states.
On October 15, 2024, our Board of Directors declared a cash dividend of $0.06 per share of common stock, payable on November 4, 2024, to stockholders of record as of October 25, 2024.
Financial Highlights
| Quarters Ended |
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(Dollars in thousands) |
| September 30, |
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| June 30, |
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| September 30, |
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| 2024 |
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| 2024 |
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| 2023 |
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Balance sheet summary |
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Total assets |
| $ | 5,671,760 |
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| $ | 5,662,700 |
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| $ | 5,758,156 |
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Total securities available-for-sale |
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| 1,190,854 |
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| 1,173,661 |
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| 1,229,618 |
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Total loans |
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| 3,991,078 |
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| 3,976,595 |
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| 4,029,543 |
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Total deposits |
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| 4,465,424 |
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| 4,521,728 |
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| 4,614,320 |
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Total liabilities |
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| 5,010,370 |
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| 5,043,365 |
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| 5,225,598 |
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Total equity |
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| 661,390 |
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| 619,335 |
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| 532,558 |
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Total tangible assets |
| $ | 5,575,789 |
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| $ | 5,566,159 |
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| $ | 5,659,858 |
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Total tangible equity |
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| 565,419 |
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| 522,794 |
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| 434,260 |
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Income statement summary |
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Net interest income |
| $ | 60,578 |
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| $ | 59,690 |
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| $ | 63,030 |
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Provision for credit losses |
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| 2,000 |
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| 3,750 |
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| 3,000 |
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Noninterest income |
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| 10,581 |
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| 11,127 |
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| 9,877 |
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Noninterest expense |
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| 39,308 |
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| 37,877 |
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| 37,423 |
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Net income |
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| 22,951 |
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| 21,891 |
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| 24,335 |
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Effective tax rate |
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| 23.11 | % |
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| 25.01 | % |
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| 25.09 | % |
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Profitability ratios |
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Return on average assets (ROAA) |
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| 1.63 | % |
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| 1.57 | % |
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| 1.67 | % |
Return on average equity (ROAE) |
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| 14.29 |
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| 14.55 |
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| 18.21 |
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Net interest margin (tax-equivalent) |
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| 4.64 |
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| 4.63 |
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| 4.66 |
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Efficiency ratio |
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| 53.38 |
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| 53.29 |
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| 50.08 |
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Return on average tangible common equity (ROATCE) 1 |
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| 17.14 |
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| 17.66 |
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| 22.80 |
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Tangible common equity to tangible assets (TCE/TA) |
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| 10.14 |
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| 9.39 |
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| 7.67 |
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Per share data |
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Diluted earnings per share |
| $ | 0.50 |
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| $ | 0.48 |
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| $ | 0.54 |
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Tangible book value per share |
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| 12.61 |
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| 11.66 |
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| 9.72 |
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Company capital ratios 2 |
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Common equity tier 1 capital ratio |
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| 12.86 | % |
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| 12.41 | % |
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| 11.00 | % |
Tier 1 risk-based capital ratio |
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| 13.39 |
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| 12.94 |
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| 11.52 |
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Total risk-based capital ratio |
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| 15.62 |
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| 15.12 |
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| 13.84 |
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Tier 1 leverage ratio |
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| 11.38 |
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| 10.96 |
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| 9.62 |
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Bank capital ratios 2, 3 |
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Common equity tier 1 capital ratio |
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| 13.49 | % |
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| 13.50 | % |
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| 12.49 | % |
Tier 1 risk-based capital ratio |
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| 13.49 |
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| 13.50 |
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| 12.49 |
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Total risk-based capital ratio |
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| 14.45 |
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| 14.42 |
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| 13.57 |
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Tier 1 leverage ratio |
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| 11.46 |
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| 11.43 |
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| 10.43 |
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1 See the discussion entitled "Non-GAAP Presentations" below and the table on page 18 that provides a reconciliation of this non-GAAP financial measure to the most comparable GAAP equivalent.
2 Both the Company and the Bank ratios are inclusive of a capital conservation buffer of 2.50%, and both are subject to the minimum capital adequacy guidelines of 7.00%, 8.50%, 10.50%, and 4.00% for the Common equity tier 1, Tier 1 risk-based, Total risk-based and Tier 1 leverage ratios, respectively.
3 The prompt corrective action provisions are applicable only at the Bank level, and are 6.50%, 8.00%, 10.00%, and 5.00% for the Common equity tier 1, Tier 1 risk-based, Total risk-based and Tier 1 leverage ratios, respectively.
Chairman, President and Chief Executive Officer Jim Eccher said "Old Second reported strong results in the third quarter of 2024 with exceptional profitability and positive trends in a number of verticals. Tangible book value per share increased by more than thirty percent on both a year over year and linked quarter annualized basis. Problem loan levels are continuing to trend in the right direction and we remain pleased with the progress thus far in resolving a number of loans identified in prior periods despite ongoing stress in a number of real estate focused lending verticals. On an overall basis, Old Second continues to perform exceptionally well with peer-leading performance in our net interest margin and profitability. Third quarter return on average assets and return on average tangible common equity were 1.63% and 17.14%, respectively, the net interest margin was stable at 4.64% and the efficiency ratio is a very healthy 53.38%. This strong bottom-line performance and a well-positioned balance sheet drove an increase in the tangible common equity capital ratio to 10.14% from 9.39% last quarter. In light of the strength of the balance sheet and resilient income statement trends, Old Second elected in the fourth quarter of 2024 to increase the common dividend by 20%, and we will strive to continue to regularly deliver dividend growth commensurate with the strength and growth of the bank. In summary, we are proud of the sustainability of our performance this year and believe we are well positioned to capitalize on growth opportunities that may come our way in the near future."
Asset Quality & Earning Assets
Nonperforming loans, comprised of nonaccrual loans plus loans past due 90 days or more and still accruing, totaled $52.3 million at September 30, 2024, $46.9 million at June 30, 2024, and $63.3 million at September 30, 2023. Nonperforming loans, as a percent of total loans, were 1.3% at September 30, 2024, 1.2% at June 30, 2024, and 1.6% at September 30, 2023. The increase in the third quarter of 2024 is driven by inflows of $18.7 million, $13.8 million of which was from one commercial relationship. These inflows were partially offset by $13.3 million of outflows. Nonaccrual loans had $8.5 million of outflows, which consists of $6.2 million paid off, $1.3 million transferred to OREO, $912,000 of partial principal reductions from payments, and $99,000 was charged-off. Outflows for loans past due 90 days or more and still accruing were $4.8 million, due to a loan which paid off.
Total loans were $3.99 billion at September 30, 2024, reflecting an increase of $14.5 million compared to June 30, 2024, and a decrease of $38.5 million compared to September 30, 2023. The decrease year over year was largely driven by the declines in commercial, commercial real estate-investor and residential real estate-owner occupied portfolios. Average loans (including loans held-for-sale) for the third quarter of 2024 totaled $3.97 billion, reflecting an increase of $8.2 million from the second quarter of 2024 and a decrease of $44.1 million from the third quarter of 2023.
Available-for-sale securities totaled $1.19 billion at September 30, 2024, compared to $1.17 billion at June 30, 2024 and $1.23 billion at September 30, 2023. The unrealized mark to market loss on securities totaled $56.2 million as of September 30, 2024, compared to $82.6 million as of June 30, 2024, and $120.5 million as of September 30, 2023, due to market interest rate fluctuations as well as changes year over year in the composition of the securities portfolio. During the quarter ended September 30, 2024, we had security purchases of $22.7 million, and security calls and paydowns of $31.3 million, compared to security purchases of $142.2 million, security maturities of $95.0 million, and paydowns of $44.0 million during the quarter ended June 30, 2024. During the quarter ended September 30, 2023, we had no security purchases, $30.5 million of security paydowns, calls and maturities, and security sales of $65.6 million, which resulted in net realized losses of $924,000. We may continue to buy and sell strategically identified securities as opportunities arise.
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 adjusted net income, net interest income and net interest margin on a fully taxable equivalent basis, and our efficiency ratio calculations 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. Consistent with industry practice, management has disclosed the efficiency ratio including and excluding certain items, which is discussed in the noninterest expense presentation on page 7 of the full earnings release found at www.oldsecond.com, under the investor relations tab.
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. The tables beginning on page 17 in the full earnings release, as found at www.oldsecond.com, under the investor relations tab, provide a reconciliation of each non-GAAP financial measure to the most comparable GAAP equivalent.
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 "should," "anticipate," "expect," "estimate," "intend," "believe," "may," "likely," "will," "forecast," "project," "looking forward," "optimistic," "hopeful," "potential," "progress," "prospect," "remain," "deliver," "continue," "trend," "momentum," "remainder," "beyond," "and "near" or other statements that indicate future periods. Examples of forward-looking statements include, but are not limited to, statements regarding the economic outlook, loan growth, deposit trends and funding, asset-quality trends, balance sheet growth, and building capital. 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; (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; (4) risks related to pending or 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 has and may continue to affect our deposit and funding costs, net income, prepayment penalty income, mortgage banking income, and other future cash flows, or the market value of our assets, including our investment securities; (7) elevated inflation which causes adverse risk to the overall economy, and could indirectly pose challenges to our clients and to our business; and (8) the adverse effects of events beyond our control that may have a destabilizing effect on financial markets and the economy, such as epidemics and pandemics, war or terrorist activities, essential utility outages, deterioration in the global economy, instability in the credit markets, disruptions in our customers' supply chains or disruption in transportation, and disruptions caused from widespread cybersecurity incidents. 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, and Quarterly Reports on Form 10-Q. 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 17, 2024, at 10:00 a.m. Eastern Time (9:00 a.m. Central Time) to discuss our third quarter 2024 financial results. Investors may listen to our call via telephone by dialing 888-506-0062, using Entry Code: 232873. 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 10:00 a.m. Eastern Time (9:00 a.m. Central Time) on October 24, 2024, by dialing 877-481-4010, using Conference ID: 51325.
Contact:
Bradley S. Adams
Chief Financial Officer
(630) 906-5484
SOURCE: Old Second Bancorp Inc.