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Old Second Bancorp, Inc. Announces First Quarter 2012 Results

Old Second further improved its overall asset quality by adding more than $50 million in available for sale securities under its managed investment program. As the Company’s business plan continues to evolve back to a growth strategy, the structure of its profit centers evolves to meet changing goals. This month, the Commercial Bank will move to a regional approach to better serve customers and to expand development opportunities, with Commercial lenders partnering with their Retail colleagues on Business Banking relationships.

2012 Financial Highlights/Overview

Earnings

  • First quarter net loss before taxes of $3.0 million compared to a net loss before taxes of $3.1 million in the same quarter of 2011.
  • First quarter net loss to common stockholders of $4.2 million compared to a net loss to common stockholders of $4.3 million in the same quarter of 2011.
  • The tax-equivalent net interest margin was 3.48% during the first quarter of 2012 compared to 3.50% in the same quarter of 2011, and reflected an increase of 4 basis points compared to the fourth quarter of 2011.
  • Noninterest income of $10.5 million was $1.5 million higher for the quarter ended March 31, 2012, as compared to 2011 reflecting higher mortgage sale and OREO lease revenues.
  • Noninterest expenses of $22.5 million were $2.1 million or 8.7% lower in the quarter ended March 31, 2012 than in the same period in 2011 reflecting reduced expenses in most categories most notably FDIC insurance reflecting assessment changes..

Capital

  • Bank leverage capital ratio decreased to 9.22% from 9.34% at December 31, 2011.
  • Bank total capital ratio decreased to 12.88% from 12.97% at December 31, 2011.
  • Company leverage ratio decreased to 4.68% from 4.98% at December 31, 2011.
  • Company total capital ratio decreased to 11.79% from 12.38% at December 31, 2011.
  • Company tangible common equity to tangible assets decreased from (0.08)% in the fourth quarter of 2011 to (0.25)% in the first quarter of 2012 and declined from 0.22% at March 31, 2011.

Asset Quality/Balance Sheet Overview

  • Nonperforming loans declined $13.5 million (9.7%) during the first quarter of 2012 to $125.4 million as of March 31, 2012, from $138.9 million as of December 31, 2011.
  • The provision for loan loss expense increased to $6.1 million for the first quarter ended March 31, 2012, compared to $4.0 million in the same period in 2011 and $1.4 million in the fourth quarter of 2011.
  • Loans that were classified as performing but 30 to 89 days past due and still accruing interest decreased to $7.4 million at March 31, 2012, from $12.1 million at December 31, 2011 and $12.2 million at March 31, 2011.
  • Securities available-for-sale increased $51.8 million during 2012 to $359.4 million from $307.6 million at December 31, 2011 with no significant impact on the current liquidity profile and under limits specified in our Investment Policy. At $154.7 million or 43.0% of the total portfolio, U. S. Government agency mortgage backed securities are the largest component of the total portfolio.

Non-GAAP Presentations: Management has traditionally disclosed certain non-GAAP ratios to evaluate and measure the Company’s performance, including a net interest margin calculation. The net interest margin is calculated by dividing net interest income on a tax equivalent basis by average earning assets for the period. Management believes this measure provides investors with information regarding balance sheet profitability. Management also presents an efficiency ratio that is non-GAAP. The efficiency ratio is calculated by dividing adjusted noninterest expense by the sum of net interest income on a tax equivalent basis and adjusted noninterest income. Management believes this measure provides investors with information regarding the Company’s operating efficiency and how management evaluates performance internally. Consistent with industry practice, management also disclosed the tangible common equity to tangible assets and the Tier 1 common equity to risk weighted assets in the discussion immediately above and in the following tables. The tables provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

Forward Looking Statements: This report may contain forward-looking statements. Forward looking statements are identifiable by the inclusion of such qualifications as expects, intends, believes, may, likely or other indications that the particular statements are not based upon facts but are rather based upon the Company’s beliefs as of the date of this release. Actual events and results may differ significantly from those described in such forward-looking statements, due to changes in the economy, interest rates or other factors. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events. For additional information concerning the Company and its business, including other factors that could materially affect the Company’s financial results, please review our filings with the Securities and Exchange Commission.

     
 
Financial Highlights (unaudited)
In thousands, except share data As of and for the
Three Months Ended Year to Date
March 31, December 31,
2012 2011 2011
Summary Statements of Operations:
Net interest and dividend income $ 15,104 $ 16,537 $ 63,950
Provision for loan losses 6,084 4,000 8,887
Noninterest income 10,464 8,941 36,008
Noninterest expense 22,452 24,598 97,569
Provision for income taxes - - -
Net loss (2,968 ) (3,120 ) (6,498 )
Net loss available to common stockholders (4,191 ) (4,279 ) (11,228 )
 
Key Ratios (annualized):
Return on average assets (0.61 %) (0.60 %) (0.32 %)
Return to common stockholders on average assets (0.86 %) (0.82 %) (0.56 %)
Return on average equity (15.81 %) (15.52 %) (8.15 %)
Return on average common equity (372.68 %) (150.82 %) (120.30 %)
Net interest margin (non-GAAP tax equivalent) 1 3.48 % 3.50 % 3.54 %
Efficiency ratio (non-GAAP tax equivalent) 1 69.28 % 75.63 % 73.57 %
Tangible common equity to tangible assets 2 (0.25 %) 0.22 % (0.08 %)
Tier 1 common equity to risk weighted assets 2 (0.28 %) 0.31 % (0.05 %)
Company total capital to risk weighted assets 3 11.79 % 11.65 % 12.38 %
Company tier 1 capital to risk weighted assets 3 5.90 % 6.04 % 6.21 %
Company tier 1 capital to average assets 4.68 % 4.88 % 4.98 %
Bank total capital to risk weighted assets 3 12.88 % 11.97 % 12.97 %
Bank tier 1 capital to risk weighted assets 3 11.61 % 10.68 % 11.70 %
Bank tier 1 capital to average assets 9.22 % 8.64 % 9.34 %
 
Per Share Data:
Basic loss per share ($0.30 ) ($0.30 ) ($0.79 )
Diluted loss per share ($0.30 ) ($0.30 ) ($0.79 )
Dividends declared per share $ 0.00 $ 0.00 $ 0.00
Common book value per share ($0.04 ) $ 0.71 $ 0.22
Tangible common book value per share ($0.35 ) $ 0.34 ($0.11 )
Ending number of shares outstanding 14,084,328 14,034,991 14,034,991
Average number of shares outstanding 14,043,545 13,973,870 14,019,920
Diluted average shares outstanding 14,196,143 14,213,701 14,220,822
 
End of Period Balances:
Loans $ 1,322,348 $ 1,601,761 $ 1,368,985
Deposits 1,763,870 1,902,349 1,740,781
Stockholders' equity 70,611 80,186 74,002
Total earning assets 1,741,869 1,899,769 1,751,662
Total assets 1,981,548 2,115,406 1,941,418
 
Average Balances:
Loans $ 1,349,443 $ 1,651,952 $ 1,527,311
Deposits 1,744,325 1,912,603 1,806,924
Stockholders' equity 75,512 81,544 79,725
Total earning assets 1,752,478 1,927,944 1,817,586
Total assets 1,957,514 2,122,275 2,015,464
 

1 Tabular disclosures of the tax equivalent calculation including the net interest margin and efficiency ratio for the quarters ending March 31, 2012, and 2011, respectively, are presented below

2 The information to reconcile GAAP measures and the ratios of Tier 1 capital, total capital, tangible common equity or Tier 1 common equity, as applicable, to average total assets, risk-weighted assets or tangible assets, as applicable, are presented below

3 The Company and the Bank are subject to regulatory capital requirements administered by federal banking agencies. Those agencies define the basis for these calculations including the prescribed methodology for the calculation of the amount of risk-weighted assets.

     
 
Financial Highlights, continued (unaudited)
In thousands, except share data
 
Three Months Ended Year Ended
March 31, December 31,
2012 2011 2011
 
Asset Quality
Charge-offs $ 12,122 $ 9,087 $ 41,169
Recoveries   1,651     1,907     7,971  
Net charge-offs $ 10,471   $ 7,180   $ 33,198  
Provision for loan losses 6,084 4,000 8,887
Allowance for loan losses to loans 3.60 % 4.57 % 3.80 %
 
Nonaccrual loans 1 $ 111,321 $ 178,757 $ 126,786
Restructured loans 12,407 13,909 11,839
Loans past due 90 days   1,711     342     318  
Nonperforming loans 125,439 193,008 138,943
Other real estate 101,680 85,570 93,290
Receivable from swap terminations   -     722     -  
Nonperforming assets $ 227,119   $ 279,300   $ 232,233  
 
1 Includes $9.9 million and $28.4 million in nonaccrual restructured loans at March 31, 2012,

and 2011, respectively.

 
Major Classifications of Loans
Commercial and industrial $ 103,203 $ 139,344 $ 98,099
Real estate - commercial 676,297 794,251 704,492
Real estate - construction 60,285 104,630 71,436
Real estate - residential 464,596 531,311 477,200
Installment 3,544 4,753 3,789
Overdraft 234 372 457
Lease financing receivables 1,944 2,397 2,087
Other   12,211     25,250     11,498  
1,322,314 1,602,308 1,369,058
Unearned origination fees, net   34     (547 )   (73 )
$ 1,322,348   $ 1,601,761   $ 1,368,985  
 
 
Major Classifications of Deposits
Noninterest bearing $ 369,619 $ 371,940 $ 361,963
Savings 213,702 193,141 196,870
NOW accounts 287,650 266,103 275,957
Money market accounts 310,520 303,295 288,508
Certificates of deposits of less than $250,000 544,699 716,894 577,212
Certificates of deposits of $250,000 or more   37,680     50,976     40,271  
$ 1,763,870   $ 1,902,349   $ 1,740,781  
 
 
 
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
   
(unaudited) (audited)
March 31, December 31,
2012 2011
Assets
Cash and due from banks $ 35,455 $ 2,692
Interest bearing deposits with financial institutions   41,162     48,257  
Cash and cash equivalents 76,617 50,949
Securities available-for-sale 359,371 307,564
Federal Home Loan Bank and Federal Reserve Bank stock 12,583 14,050
Loans held-for-sale 6,405 12,806
Loans 1,322,348 1,368,985
Less: allowance for loan losses   47,610     51,997  
Net loans 1,274,738 1,316,988
Premises and equipment, net 49,830 50,477
Other real estate owned, net 101,680 93,290
Mortgage servicing rights, net 3,806 3,487
Core deposit and other intangible asset, net 4,483 4,678
Bank-owned life insurance (BOLI) 53,090 52,595
Other assets   38,945     34,534  
Total assets $ 1,981,548   $ 1,941,418  
 
Liabilities
Deposits:
Noninterest bearing demand $ 369,619 $ 361,963
Interest bearing:
Savings, NOW, and money market 811,872 761,335
Time   582,379     617,483  

Total deposits

1,763,870 1,740,781
Securities sold under repurchase agreements 1,804 901
Other short-term borrowings 15,000 -
Junior subordinated debentures 58,378 58,378
Subordinated debt 45,000 45,000
Notes payable and other borrowings 500 500
Other liabilities   26,385     21,856  
Total liabilities 1,910,937 1,867,416
 
Stockholders' Equity
Preferred stock 71,108 70,863
Common stock 18,729 18,628
Additional paid-in capital 65,985 65,999
Retained earnings 12,916 17,107
Accumulated other comprehensive loss (3,171 ) (3,702 )
Treasury stock   (94,956 )   (94,893 )
Total stockholders' equity   70,611     74,002  
Total liabilities and stockholders' equity $ 1,981,548   $ 1,941,418  
 
 
 
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except share data)
   
(unaudited)
Three Months Ended
March 31,
2012 2011
Interest and Dividend Income
Loans, including fees $ 17,666 $ 21,216
Loans held-for-sale 84 51
Securities, taxable 1,498 878
Securities, tax exempt 103 142
Dividends from Federal Reserve Bank and Federal Home Loan Bank stock 74 69
Interest bearing deposits with financial institutions   25     70  
Total interest and dividend income 19,450 22,426
Interest Expense
Savings, NOW, and money market deposits 300 576
Time deposits 2,605 3,993
Other short-term borrowings 3 -
Junior subordinated debentures 1,197 1,113
Subordinated debt 237 203
Notes payable and other borrowings   4     4  
Total interest expense   4,346     5,889  
Net interest and dividend income 15,104 16,537
Provision for loan losses   6,084     4,000  
Net interest and dividend income after provision for loan losses 9,020 12,537
Noninterest Income
Trust income 1,651 1,784
Service charges on deposits 1,831 1,817
Secondary mortgage fees 296 227
Mortgage servicing gain, net of changes in fair value 187 370
Net gain on sales of mortgage loans 2,647 1,236
Securities gains, net 101 139
Increase in cash surrender value of bank-owned life insurance 495 463
Debit card interchange income 760 700
Lease revenue from other real estate owned 1,179 520
Net gain on sales of other real estate owned 23 234
Litigation related income 116 -
Other income   1,178     1,451  
Total noninterest income 10,464 8,941
Noninterest Expense
Salaries and employee benefits 9,049 8,929
Occupancy expense, net 1,235 1,345
Furniture and equipment expense 1,155 1,460
FDIC insurance 1,000 1,739
General bank insurance 846 825
Amortization of core deposit and other intangible asset 195 229
Advertising expense 318 233
Debit card interchange expense 342 373
Legal fees 685 943
Other real estate expense 4,654 5,314
Other expense   2,973     3,208  
Total noninterest expense   22,452     24,598  
Loss before income taxes (2,968 ) (3,120 )
Provision for income taxes   -     -  
Net loss (2,968 ) (3,120 )
Preferred stock dividends and accretion   1,223     1,159  
Net loss available to common stockholders $ (4,191 ) $ (4,279 )
 
Basic loss per share $ (0.30 ) $ (0.30 )
Diluted loss per share (0.30 ) (0.30 )
Dividends declared per share - -
 
 
 
ANALYSIS OF AVERAGE BALANCES,
TAX EQUIVALENT INTEREST AND RATES
Three Months ended March 31, 2012, and 2011
(Dollar amounts in thousands - unaudited)
           
2012 2011
Average Average
Balance Interest Rate Balance Interest Rate
Assets
Interest bearing deposits $ 44,018 $ 25 0.22 % $ 113,100 $ 70 0.25 %
Federal funds sold - - - 1,465 - -
Securities:
Taxable 326,886 1,498 1.83 128,174 878 2.74
Non-taxable (tax equivalent)   10,579     159 6.01   14,976     219 5.85
Total securities 337,465 1,657 1.96 143,150 1,097 3.07
Dividends from FRB and FHLB stock 13,325 74 2.22 13,698 69 2.01
Loans and loans held-for-sale 1   1,357,670     17,774 5.18   1,656,531     21,280 5.14
Total interest earning assets 1,752,478 19,530 4.41 1,927,944 22,516 4.67
Cash and due from banks 16,409 - - 34,882 - -
Allowance for loan losses (51,362 ) - - (78,812 ) - -
Other noninterest bearing assets   239,989     - -   238,261     - -
Total assets $ 1,957,514   $ 2,122,275  
 
Liabilities and Stockholders' Equity
NOW accounts $ 277,077 $ 72 0.10 % $ 272,092 $ 139 0.21 %
Money market accounts 300,762 166 0.22 303,604 319 0.43
Savings accounts 205,165 62 0.12 184,861 118 0.26
Time deposits   593,561     2,605 1.77   785,937     3,993 2.06
Interest bearing deposits 1,376,565 2,905 0.85 1,546,494 4,569 1.20
Securities sold under repurchase agreements 1,675 - - 1,754 - -
Other short-term borrowings 10,165 3 0.12 3,036 - -
Junior subordinated debentures 58,378 1,197 8.20 58,378 1,113 7.63
Subordinated debt 45,000 237 2.08 45,000 203 1.80
Notes payable and other borrowings   500     4 3.16   500     4 3.20
Total interest bearing liabilities 1,492,283 4,346 1.17 1,655,162 5,889 1.44
Noninterest bearing deposits 367,760 - - 366,109 - -
Other liabilities 21,959 - - 19,460 - -
Stockholders' equity   75,512     - -   81,544     - -
Total liabilities and stockholders' equity $ 1,957,514   $ 2,122,275  
Net interest income (tax equivalent) $ 15,184 $ 16,627
Net interest income (tax equivalent)
to total earning assets 3.48 % 3.50 %
Interest bearing liabilities to earning assets   85.15 %   85.85 %
 
1.   Interest income from loans is shown on a tax equivalent basis as discussed in the table on page 18 and includes fees of $417,000 and $525,000 for the first quarter of 2012 and 2011, respectively. Nonaccrual loans are included in the above stated average balances.
 
Note: Tax equivalent basis is calculated using a marginal tax rate of 35%.
 
 

The following tables provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent. (Dollar amounts in thousands- unaudited)

  Three Months Ended   Year to Date
March 31, December 31,
2012   2011 2011
Net Interest Margin

 

 

 

Interest income (GAAP) $ 19,450 $ 22,426 $ 85,423
Taxable equivalent adjustment:
Loans 24 13 87
Securities   56     77     262  

Interest income (TE)

19,530 22,516 85,772
Interest expense (GAAP)   4,346     5,889     21,473  
Net interest income (TE) $ 15,184   $ 16,627   $ 64,299  
Net interest income (GAAP) $ 15,104   $ 16,537   $ 63,950  
Average interest earning assets $ 1,752,478 $ 1,927,944 $ 1,817,586
Net interest margin (GAAP) 3.46 % 3.48 % 3.52 %
Net interest margin (TE) 3.48 % 3.50 % 3.54 %
 
 
Efficiency Ratio
Noninterest expense $ 22,452 $ 24,598 $ 97,569
Less amortization of core deposit and
other intangible asset 195 229 847
Less other real estate expense   4,654     5,314     24,356  
Adjusted noninterest expense 17,603 19,055 72,366
Net interest income (GAAP) 15,104 16,537 63,950
Taxable-equivalent adjustment:
Loans 24 13 87
Securities   56     77     262  
Net interest income (TE) 15,184 16,627 64,299
Noninterest income 10,464 8,941 36,008
Less litigation related income 116 - -
Less securities gain , net 101 139 631
Less gain on sale of OREO   23     234     1,311  
Adjusted noninterest income, plus

net interest income (TE)

25,408 25,195 98,365
Efficiency ratio 69.28 % 75.63 % 73.57 %
 
 
 
  (unaudited)   (unaudited)
As of March 31, December 31,
2012   2011 2011
(dollars in thousands)
Tier 1 capital
Total stockholders' equity $ 70,611 $ 80,186 $ 74,002
Tier 1 adjustments:
Trust preferred securities 24,594 27,743 25,901
Cumulative other comprehensive loss 3,171 3,042 3,702
Disallowed intangible assets (4,483 ) (5,296 ) (4,678 )
Disallowed deferred tax assets (2,220 ) (2,129 ) (2,592 )
Other   (381 )   (433 )   (349 )
Tier 1 capital $ 91,292   $ 103,113   $ 95,986  
 
Total capital
Tier 1 capital $ 91,292 $ 103,113 $ 95,986
Tier 2 additions:
Allowable portion of allowance for loan losses 19,705 21,992 19,736

Additional trust preferred securities disallowed for tier 1 capital

32,031 28,883 30,724
Subordinated debt 45,000 45,000 45,000
Tier 2 additions subtotal 96,736 95,875 95,460
Allowable Tier 2 91,292 95,875 95,460
Other Tier 2 capital components   (7 )   (7 )   (7 )
Total capital $ 182,577   $ 198,981   $ 191,439  
 
Tangible common equity
Total stockholders' equity $ 70,611 $ 80,186 $ 74,002
Less: Preferred equity 71,108 70,151 70,863
Intangible assets   4,483     5,296     4,678  
Tangible common equity $ (4,980 ) $ 4,739   $ (1,539 )
 
Tier 1 common equity
Tangible common equity $ (4,980 ) $ 4,739 $ (1,539 )
Tier 1 adjustments:
Cumulative other comprehensive loss 3,171 3,042 3,702
Other   (2,601 )   (2,562 )   (2,941 )
Tier 1 common equity $ (4,410 ) $ 5,219   $ (778 )
 
Tangible assets
Total assets $ 1,981,548 $ 2,115,406 $ 1,941,418
Less:
Intangible assets   4,483     5,296     4,678  
Tangible assets $ 1,977,065   $ 2,110,110   $ 1,936,740  
 
Total risk-weighted assets
On balance sheet $ 1,514,322 $ 1,659,385 $ 1,511,815
Off balance sheet   34,138     48,806     34,824  
Total risk-weighted assets $ 1,548,460   $ 1,708,191   $ 1,546,639  
 
Average assets
Total average assets for leverage $ 1,950,430 $ 2,114,417 $ 1,925,953




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