Old Second Bancorp, Inc. Announces Improved First Quarter 2011 Results

Old Second Bancorp, Inc. (the “Company” or “Old Second”) (Nasdaq: OSBC), parent company of Old Second National Bank (the “Bank”), today announced results of operations for the first quarter of 2011. The Company recorded a net loss of $3.1 million compared to a net loss of $8.6 million in the first quarter of 2010. The Company’s pretax net loss of $3.1 million for the first quarter of 2011 compared to $14.7 million for the first quarter of 2010. The Company’s net loss available to common shareholders of $4.3 million, or $0.30 per share, for the first quarter of 2011, compared to a net loss available to common shareholders of $9.7 million, or $0.69 per share, in the first quarter of 2010.

The Company’s $4.0 million provision for loan losses for the first quarter of 2011 compared favorably to the $19.2 million provision in the first quarter of 2010 and to the $14.0 million provision in the fourth quarter of 2010. The first quarter 2011 provision increased the allowance coverage to 4.57% of loans, up from 3.41% at March 31, 2010 and 4.51% at December 31, 2010.

In announcing these results, the Company’s Chairman and CEO, William Skoglund said, “We are very encouraged by our continued progress in addressing asset quality during the first quarter. Nonperforming loans were down $35.9 million, or 15.7%, compared to year-end 2010. While we are not yet performing at desired levels, we believe this is a significant step in the right direction.”

“Since this credit cycle began, we have tried to be as transparent as possible with the information at our disposal. We value our relationships with all of our stakeholders: customers, employees, investors and regulators. Our employees have been working diligently to move us toward a recovery and we believe that the results are beginning to show.”

“Regulatory capital levels continue to improve at Old Second National Bank. At the end of the first quarter of 2011, total capital was 11.97%, up 24 basis points from December 31, 2010, and up 124 basis points from June 30, 2010. The leverage ratio was 8.64%, up 54 basis points from December 31, 2010, and 88 basis points from June 30, 2010. As previously disclosed, the bank was not in full compliance with the heightened capital ratios that it had agreed to maintain with the Office of the Controller of the Currency (OCC). Specifically the bank was slightly below the mandated leverage ratio of 8.75% although the bank’s total capital requirement exceeded the agreed to ratio of 11.25%.”

“Our strong and profitable wealth management and mortgage origination units and our valuable retail branch network comprise the core of our franchise. We are positioning the Company so that we can raise additional capital to build on that core when the appropriate time and opportunity presents itself,” he concluded.

First Quarter 2011 Highlight

Core Earnings
  • Core earnings were $5.4 million in the first quarter of 2011. (Core earnings exclude taxes, provisions for loan losses, and income and expenses associated with other real estate owned.)
  • The tax-equivalent net interest margin was 3.42% in the first quarter of 2011.
  • Noninterest income of $9.3 million, $1.0 million higher than in the first quarter of 2010.
  • Noninterest expenses of $24.6 million, $151,000 lower in the first quarter of 2011 than in the first quarter of 2010.

Core Deposit Growth
  • Noninterest bearing demand deposits increased $41.1 million, or 12.4%, to $371.9 million at March 31, 2011, compared to December 31, 2010.

Asset Quality
  • Nonperforming loans declined $35.9 million during the first quarter of 2011, to $193.0 million as of March 31, 2011 from $228.9 million as of December 31, 2010.
  • The provision for loan loss expense decreased to $4.0 million for the first quarter of 2011, compared to $19.2 million in the same period in 2010 and $14.0 million in the fourth quarter of 2010.
  • The first quarter 2011 provision increased the allowance coverage to 4.57% of loans, which was an increase from both 3.41% at March 31, 2010 and 4.51% at December 31, 2010.
  • Loans that were classified as performing but 30 to 89 days past due and still accruing interest decreased to $12.2 million at March 31, 2011 from $13.9 million at December 31, 2010 and $44.0 million at March 31, 2010.

Information from this press release is taken from the Company’s quarterly earnings report for the period ended March 31, 2011 filed with the Securities and Exchange Commission on April 27, 2011.

The Company will host an earnings call on Thursday, April 28, 2011 at 11:00 a.m. Eastern Time (10:00 a.m. Central Time). Investors may listen to the Company’s earnings call via telephone by dialing 877-407-9205. Investors should call in to this dial-in number at least 10 minutes prior to the scheduled start of the call.

A replay of the earnings call will be available until 12:00 p.m. Eastern Time (11:00 a.m. Central Time) on May 12, 2011, by dialing 877-660-6853, using Account Number 286, and Conference ID 371090.
Financial Highlights (unaudited)
In thousands, except share data
  Three Months Ended   Year to Date
March 31, December 31,
2011   2010 2010
Summary Statements of Operations:
Net interest and dividend income $ 16,190 $ 20,981 $ 78,613
Provision for loan losses 4,000 19,220 89,668
Noninterest income 9,288 8,267 44,910
Noninterest expense 24,598 24,749 100,636
Expense (benefit) for income taxes - (6,167 ) 41,868
Net loss (3,120 ) (8,554 ) (108,649 )
Net loss available to common stockholders (4,279 ) (9,682 ) (113,187 )
 
Key Ratios (annualized):
Return on average assets (0.60 %) (1.37 %) (4.48 %)
Return to common stockholders on average assets (0.82 %) (1.55 %) (4.66 %)
Return on average equity (15.52 %) (17.54 %) (61.79 %)
Return on average common equity (150.82 %) (30.51 %) (106.41 %)
Net interest margin (non-GAAP tax equivalent)1 3.42 % 3.78 % 3.64 %
Efficiency ratio (non-GAAP tax equivalent)1 75.63 % 61.07 % 62.15 %
Tangible common equity to tangible assets2 0.22 % 4.50 % 0.40 %
Tier 1 common equity to risk weighted assets2 0.31 % 3.37 % 0.52 %
Total capital to risk weighted assets 3 11.65 % 12.93 % 11.46 %
Tier 1 capital to risk weighted assets 3 6.04 % 9.47 % 6.09 %
Tier 1 capital to average assets 4.88 % 7.88 % 4.74 %
 
Per Share Data:
Basic loss per share ($0.30 ) ($0.69 ) ($8.03 )
Diluted loss per share ($0.30 ) ($0.69 ) ($8.03 )
Dividends declared per share $ 0.00 $ 0.01 $ 0.02
Common book value per share $ 0.71 $ 8.50 $ 1.01
Tangible common book value per share $ 0.34 $ 8.04 $ 0.61
Ending number of shares outstanding 14,034,991 13,939,833 13,911,475
Average number of shares outstanding 13,973,870 13,916,650 13,918,309
Diluted average shares outstanding 14,213,701 14,197,223 14,104,228
 
End of Period Balances:
Loans $ 1,601,761 $ 1,958,101 $ 1,690,129
Deposits 1,902,349 2,164,462 1,908,528
Stockholders' equity 80,186 187,740 83,958
Total earning assets 1,899,769 2,225,649 1,933,296
Total assets 2,115,406 2,497,685 2,123,921
 
Average Balances:
Loans $ 1,651,952 $ 2,022,575 $ 1,900,604
Deposits 1,912,603 2,180,959 2,107,883
Stockholders' equity 81,544 197,829 175,850
Total earning assets 1,927,944 2,296,368 2,189,354
Total assets 2,122,275 2,529,942 2,426,356

1 Tabular disclosures of the tax equivalent calculation including the net interest margin and efficiency ratio for the quarters ending March 31, 2011 and 2010, respectively, are presented on page 19.

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 on page 20.

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,
2011 2010 2010
 
Asset Quality
Charge-offs $ 9,087 $ 18,666 $ 85,009
Recoveries   1,907     1,719     7,109  
Net charge-offs $ 7,180   $ 16,947   $ 77,900  
Provision for loan losses 4,000 19,220 89,668
Allowance for loan losses to loans 4.57 % 3.41 % 4.51 %
 
Nonaccrual loans1 $ 178,757 $ 177,019 $ 212,225
Restructured loans 13,909 14,739 15,637
Loans past due 90 days   342     981     1,013  
Nonperforming loans 193,008 192,739 228,875
Other real estate 85,570 49,855 75,613
Receivable from foreclosed loan participation - 20 -
Receivable from swap terminations   722     -     3,520  
Nonperforming assets $ 279,300   $ 242,614   $ 308,008  
 
1 Includes $28.4 million and $28.2 million in non-accrual restructured loans at March 31, 2011

and 2010, respectively.
 
Major Classifications of Loans
 
Commercial and industrial $ 164,594 $ 197,420 $ 173,884
Real estate - commercial 794,249 903,289 821,101
Real estate - construction 104,633 219,364 129,601
Real estate - residential 531,311 627,936 557,635
Installment 4,752 6,980 5,104
Overdraft 372 602 739
Lease financing receivables   2,397     3,631     2,774  
1,602,308 1,959,222 1,690,838
Unearned origination fees, net   (547 )   (1,121 )   (709 )
$ 1,601,761   $ 1,958,101   $ 1,690,129  
 
 
Major Classifications of Deposits
 
Noninterest bearing $ 371,940 $ 316,240 $ 330,846
Savings 193,141 190,599 180,127
NOW accounts 266,103 398,011 304,287
Money market accounts 303,295 392,615 297,702
Certificates of deposits of less than $100,000 475,209 529,117 491,234
Certificates of deposits of $100,000 or more   292,661     337,880     304,332  
$ 1,902,349   $ 2,164,462   $ 1,908,528  
 
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
   
(unaudited)
March 31, December 31,
2011 2010
Assets
Cash and due from banks $ 35,905 $ 28,584
Interest bearing deposits with financial institutions 137,556 69,492
Federal funds sold 988 682
Cash and cash equivalents 174,449 98,758
Securities available-for-sale 142,225 148,647
Federal Home Loan Bank and Federal Reserve Bank stock 14,050 13,691
Loans held-for-sale 3,189 10,655
Loans 1,601,761 1,690,129
Less: allowance for loan losses   73,128     76,308  
Net loans 1,528,633 1,613,821
Premises and equipment, net 53,650 54,640
Other real estate owned, net 85,570 75,613
Mortgage servicing rights, net 4,330 3,897
Core deposit and other intangible asset, net 5,296 5,525
Bank-owned life insurance (BOLI) 51,429 50,966
Other assets   52,585     47,708  
Total assets $ 2,115,406   $ 2,123,921  
 
Liabilities
Deposits:
Noninterest bearing demand $ 371,940 $ 330,846
Interest bearing:
Savings, NOW, and money market 762,539 782,116
Time   767,870     795,566  
Total deposits 1,902,349 1,908,528
Securities sold under repurchase agreements 1,878 2,018
Other short-term borrowings 4,579 4,141
Junior subordinated debentures 58,378 58,378
Subordinated debt 45,000 45,000
Notes payable and other borrowings 500 500
Other liabilities   22,536     21,398  
Total liabilities 2,035,220 2,039,963
 
Stockholders' Equity
Preferred stock 70,151 69,921
Common stock 18,628 18,467
Additional paid-in capital 65,286 65,209
Retained earnings 24,056 28,335
Accumulated other comprehensive loss (3,042 ) (3,130 )
Treasury stock   (94,893 )   (94,844 )
Total stockholders' equity   80,186     83,958  
Total liabilities and stockholders' equity $ 2,115,406   $ 2,123,921  
 
Old Second Bancorp, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except share data)
   
(unaudited)
Three Months Ended
March 31,
2011 2010
Interest and Dividend Income
Loans, including fees $ 20,869 $ 26,632
Loans held-for-sale 51 72
Securities, taxable 878 1,238
Securities, tax exempt 142 745
Dividends from Federal Reserve Bank and Federal Home Loan Bank stock 69 56
Interest bearing deposits with financial institutions   70     16  
Total interest and dividend income 22,079 28,759
Interest Expense
Savings, NOW, and money market deposits 576 1,385
Time deposits 3,993 5,097
Securities sold under repurchase agreements - 10
Other short-term borrowings - 18
Junior subordinated debentures 1,113 1,072
Subordinated debt 203 195
Notes payable and other borrowings   4     1  
Total interest expense   5,889     7,778  
Net interest and dividend income 16,190 20,981
Provision for loan losses   4,000     19,220  
Net interest and dividend expense after provision for loan losses 12,190 1,761
Noninterest Income
Trust income 1,784 1,657
Service charges on deposits 1,817 2,018
Secondary mortgage fees 227 223
Mortgage servicing income 370 163
Net gain on sales of mortgage loans 1,236 1,157
Securities gains(loss), net 139 (2 )
Increase in cash surrender value of bank-owned life insurance 463 429
Debit card interchange income 700 663
Lease revenue from other real estate owned 520 518
Net gain on sales of other real estate owned 234 151
Other income   1,798     1,290  
Total noninterest income 9,288 8,267
Noninterest Expense
Salaries and employee benefits 8,929 9,025
Occupancy expense, net 1,345 1,525
Furniture and equipment expense 1,460 1,639
FDIC insurance 1,739 1,428
General bank insurance 825 140
Amortization of core deposit and other intangible asset 229 282
Advertising expense 233 256
Debit card interchange expense 373 310
Legal fees 943 559
Other real estate expense 5,314 6,428
Other expense   3,208     3,157  
Total noninterest expense   24,598     24,749  
Loss before income taxes (3,120 ) (14,721 )
Benefit for income taxes   -     (6,167 )
Net loss $ (3,120 ) $ (8,554 )
Preferred stock dividends and accretion   1,159     1,128  
Net loss available to common stockholders $ (4,279 ) $ (9,682 )
 
Basic loss per share $ (0.30 ) $ (0.69 )
Diluted loss per share (0.30 ) (0.69 )
Dividends declared per share - 0.01
 
ANALYSIS OF AVERAGE BALANCES,
TAX EQUIVALENT INTEREST AND RATES
Three Months ended March 31, 2011 and 2010
(Dollar amounts in thousands - unaudited)
           
2011 2010
Average Average
Balance Interest Rate Balance Interest Rate
Assets
Interest bearing deposits $ 113,100 $ 70 0.25 % $ 30,551 $ 16 0.21 %
Federal funds sold 1,465 - - 1,440 - -
Securities:
Taxable 128,174 878 2.74 147,768 1,238 3.35
Non-taxable (tax equivalent)   14,976     219 5.85   75,246     1,146 6.09
Total securities 143,150 1,097 3.07 223,014 2,384 4.28
Dividends from FRB and FHLB stock 13,698 69 2.01 13,044 56 1.72
Loans and loans held-for-sale 1   1,656,531     20,933 5.05   2,028,319     26,744 5.27
Total interest earning assets 1,927,944 22,169 4.60 2,296,368 29,200 5.09
Cash and due from banks 34,882 - - 36,868 - -
Allowance for loan losses (78,812 ) - - (67,504 ) - -
Other noninterest bearing assets   238,261     - -   264,210     - -
Total assets $ 2,122,275   $ 2,529,942  
 
Liabilities and Stockholders' Equity
NOW accounts $ 272,092 $ 139 0.21 % $ 410,086 $ 346 0.34 %
Money market accounts 303,604 319 0.43 392,821 816 0.84
Savings accounts 184,861 118 0.26 183,331 223 0.49
Time deposits   785,937     3,993 2.06   885,795     5,097 2.33
Interest bearing deposits 1,546,494 4,569 1.20 1,872,033 6,482 1.40
Securities sold under repurchase agreements 1,754 - - 19,736 10 0.21
Other short-term borrowings 3,036 - - 10,509 18 0.69
Junior subordinated debentures 58,378 1,113 7.63 58,378 1,072 7.35
Subordinated debt 45,000 203 1.80 45,000 195 1.73
Notes payable and other borrowings   500     4 3.20   500     1 0.80
Total interest bearing liabilities 1,655,162 5,889 1.44 2,006,156 7,778 1.57
Noninterest bearing deposits 366,109 - - 308,926 - -
Other liabilities 19,460 - - 17,031 - -
Stockholders' equity   81,544     - -   197,829     - -
Total liabilities and stockholders' equity $ 2,122,275   $ 2,529,942  
Net interest income (tax equivalent) $ 16,280 $ 21,422
Net interest income (tax equivalent)
to total earning assets 3.42 % 3.78 %
Interest bearing liabilities to earning assets   85.85 %   87.36 %

1. Interest income from loans is shown on a tax equivalent basis as discussed in the next table and includes fees of $525,000 and $683,000 for the first quarter of 2011 and 2010, 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,
2011   2010 2010
Net Interest Margin
Interest income (GAAP) $ 22,079 $ 28,759 $ 106,681
Taxable equivalent adjustment:
Loans 13 40 81
Securities   77     401     966  
Interest income (TE) 22,169 29,200 107,728
Interest expense (GAAP)   5,889     7,778     28,068  
Net interest income (TE) $ 16,280   $ 21,422   $ 79,660  
Net interest income (GAAP) $ 16,190   $ 20,981   $ 78,613  
Average interest earning assets $ 1,927,944 $ 2,296,368 $ 2,189,354
Net interest margin (GAAP) 3.41 % 3.71 % 3.59 %
Net interest margin (TE) 3.42 % 3.78 % 3.64 %
 
 
Efficiency Ratio
Noninterest expense $ 24,598 $ 24,749 $ 100,636
Less amortization of core deposit and
other intangible asset 229 282 1,129
Less other real estate expense   5,314     6,428     26,401  
Adjusted noninterest expense 19,055 18,039 73,106
Net interest income (GAAP) 16,190 20,981 78,613
Taxable-equivalent adjustment:
Loans 13 40 81
Securities   77     401     966  
Net interest income (TE) 16,280 21,422 79,660
Noninterest income 9,288 8,267 44,910
Less death benefit related to
bank-owned life insurance - - 943
Less litigation settlement income - - 2,656
Less securities gain (loss), net 139 (2 ) 2,727
Less gain on sale of OREO   234     151     614  
Adjusted noninterest income, plus
net interest income (TE) 25,195 29,540 117,630
Efficiency ratio 75.63 % 61.07 % 62.15 %
   
(unaudited) (unaudited)
As of March 31, December 31,
2011 2010 2010
(dollars in thousands)
Tier 1 capital
Total stockholders' equity $ 80,186 $ 187,740 $ 83,958
Tier 1 adjustments:
Trust preferred securities 27,743 56,625 29,029
Cumulative other comprehensive loss 3,042 1,916 3,130
Disallowed intangible assets (5,296 ) (6,372 ) (5,525 )
Disallowed deferred tax assets (2,129 ) (44,221 ) (2,064 )
Other   (433 )   (282 )   (390 )
Tier 1 capital $ 103,113   $ 195,406   $ 108,138  
 
Total regulatory capital
Tier 1 capital $ 103,113 $ 195,406 $ 108,138
Tier 2 additions:
Allowable portion of allowance for loan losses 21,992 26,292 22,875

Additional trust preferred securities disallowed for tier 1 capital
28,883 - 27,596
Subordinated debt 45,000 45,000 45,000
Other Tier 2 capital components   (7 )   (8 )   (7 )
Total regulatory capital $ 198,981   $ 266,690   $ 203,602  
 
Tangible common equity
Total stockholders' equity $ 80,186 $ 187,740 $ 83,958
Less: Preferred equity 70,151 69,254 69,921
Intangible assets   5,296     6,372     5,525  
Tangible common equity $ 4,739   $ 112,114   $ 8,512  
 
Tier 1 common equity
Tangible common equity $ 4,739 $ 112,114 $ 8,512
Tier 1 adjustments:
Cumulative other comprehensive loss 3,042 1,916 3,130
Other   (2,562 )   (44,503 )   (2,454 )
Tier 1 common equity $ 5,219   $ 69,527   $ 9,188  
 
Tangible assets
Total assets $ 2,115,406 $ 2,497,685 $ 2,123,921
Less:
Intangible assets   5,296     6,372     5,525  
Tangible assets $ 2,110,110   $ 2,491,313   $ 2,118,396  
 
Total risk-weighted assets
On balance sheet $ 1,659,385 $ 1,995,403 $ 1,723,519
Off balance sheet   48,806     67,424     53,051  
Total risk-weighted assets $ 1,708,191   $ 2,062,827   $ 1,776,570  
 
Average assets
Total quarterly average assets $ 2,114,417 $ 2,479,067 $ 2,281,579

Copyright Business Wire 2010

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