AURORA, IL / ACCESSWIRE / July 19, 2023 / 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 second quarter of 2023. Our net income was $25.6 million, or $0.56 per diluted share, for the second quarter of 2023, compared to net income of $23.6 million, or $0.52 per diluted share, for the first quarter of 2023, and net income of $12.2 million, or $0.27 per diluted share, for the second quarter of 2022. Adjusted net income, a non-GAAP financial measure that excludes net pre-tax losses totaling $29,000 from branch sales, was also $25.6 million, or $0.56 per diluted share, for the second quarter of 2023, compared to $23.4 million, or $0.52 per diluted share, for the first quarter of 2023, and $13.8 million, or $0.31 per diluted share, for the second quarter of 2022. See the discussion entitled "Non-GAAP Presentations" below and the tables beginning on page 16 that provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

Net income increased $2.0 million in the second quarter of 2023 compared to the first quarter of 2023. The increase was primarily due to the increase in interest and dividend income of $3.7 million, the decrease of $1.5 million in provision for credit losses, and a decrease in noninterest expense of $1.1 million in the second quarter of 2023, which were partially offset by a $4.2 million increase in interest expense. Net income increased $13.3 million in the second quarter of 2023 compared to the second quarter of 2022, primarily due to an increase in net interest income year over year due to rising market interest rates. The second quarter of 2023 was impacted by the recognition of $362,000 of deferred issuance costs related to the early payoff of approximately $45.0 million in senior debt on June 30, 2023, and a pre-tax net loss on the sale of securities of $1.5 million, compared to pre-tax net losses on the sale of securities of $1.7 million in the first quarter of 2023, and pre-tax net losses on the sale of securities of $33,000 in the second quarter of 2022.

Operating Results

Second quarter 2023 net income was $25.6 million, reflecting a $2.0 million increase from the first quarter 2023, and an increase of $13.3 million from the second quarter of 2022. Adjusted net income, a non-GAAP financial measure that excludes acquisition-related costs, net of gains on branch sales, was $25.6 million for the second quarter of 2023, an increase of $2.2 million from adjusted net income for the first quarter of 2023, and an increase of $11.8 million from adjusted net income for the second quarter of 2022.
Net interest and dividend income was $63.6 million for the second quarter of 2023, reflecting a decrease of $506,000 from the first quarter of 2023, and an increase of $18.3 million, or 40.5%, from the second quarter of 2022.
We recorded a net provision for credit losses of $2.0 million in the second quarter of 2023, compared to a net provision for credit losses of $3.5 million in the first quarter of 2023, and a net provision for credit losses of $550,000 in the second quarter of 2022.
Noninterest income was $8.2 million for the second quarter of 2023, an increase of $873,000, or 11.9%, compared to $7.4 million for the first quarter of 2023, and a decrease of $988,000, or 10.7%, compared to $9.2 million for the second quarter of 2022.
Noninterest expense was $34.8 million for the second quarter of 2023, a decrease of $1.1 million, or 3.0% compared to $35.9 million for the first quarter of 2023, and a decrease of $2.4 million, or 6.5%, compared to $37.2 million for the second quarter of 2022.
We had a provision for income tax of $9.4 million for the second quarter of 2023, compared to a provision for income tax of $8.4 million for the first quarter of 2023 and a provision of $4.4 million for the second quarter of 2022.
On July 18, 2023, our Board of Directors declared a cash dividend of $0.05 per share payable on August 7, 2023, to stockholders of record as of July 28, 2023.

Financial Highlights

	Quarters Ended
(Dollars in thousands)	June 30, 2023			March 31, 2023			June 30, 2022
Balance sheet summary
Total assets	$	5,883,942		$	5,920,283		$	6,005,543
Total securities available-for-sale		1,335,622			1,455,068			1,734,416
Total loans		4,015,525			4,003,354			3,625,070
Total deposits		4,717,582			4,897,220			5,342,855
Total liabilities		5,369,987			5,423,413			5,556,639
Total equity		513,955			496,870			448,904

Total tangible assets	$	5,785,028		$	5,820,751		$	5,904,231
Total tangible equity		415,041			397,338			347,592

Income statement summary
Net interest income	$	63,580		$	64,086		$	45,264
Provision for credit losses		2,000			3,501			550
Noninterest income		8,223			7,350			9,211
Noninterest expense		34,830			35,922			37,249
Net income		25,562			23,607			12,247
Effective tax rate		26.91	%		26.26	%		26.56	%

Profitability ratios
Return on average assets (ROAA)		1.73	%		1.62	%		0.80	%
Return on average equity (ROAE)		20.04			19.86			10.66
Net interest margin (tax-equivalent)		4.64			4.74			3.18
Efficiency ratio		46.84			47.52			67.07
Return on average tangible common equity (ROATCE)		25.30			25.54			14.21
Tangible common equity to tangible assets (TCE/TA)		7.17			6.83			5.89

Per share data
Diluted earnings per share	$	0.56		$	0.52		$	0.27
Tangible book value per share		9.29			8.90			7.80

Company capital ratios¹
Common equity tier 1 capital ratio		10.29	%		9.91	%		9.35	%
Tier 1 risk-based capital ratio		10.80			10.43			9.91
Total risk-based capital ratio		13.16			12.79			12.27
Tier 1 leverage ratio		8.96			8.56			7.24

Bank capital ratios ^{1, 2}
Common equity tier 1 capital ratio		11.70	%		11.98	%		12.24	%
Tier 1 risk-based capital ratio		11.70			11.98			12.24
Total risk-based capital ratio		12.83			13.10			13.25
Tier 1 leverage ratio		9.70			9.83			8.94

¹Both 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.

²The 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.

President and Chief Executive Officer Jim Eccher said "Old Second reported strong results in the second quarter as we earned $25.6 million in net income, ROAA of 1.73% and ROATCE of 25.30%. Adjusting for merger related items, our earnings per share increased by 81% over the second quarter 2022. Our performance over the last year has been driven by the strength of the core deposit franchise we have built here at Old Second. Stable funding costs combined with quality loan growth have resulted in 146 basis points of expansion in our tax equivalent net interest margin over the same quarter last year. The efficiency ratio in the second quarter of 2023 was 46.8% on a GAAP basis and reflects strong balance sheet management, expense discipline in an inflationary environment and successful investments in lending teams and sales people over the last eighteen months.

"We are exceptionally pleased with our financial performance thus far in 2023 but we remain focused on the little things, such as receiving fair risk adjusted returns on our investments in a time of increasing funding costs while constantly assessing risks both within the loan portfolio and in the broader economy. To that end, we are continuing to build capital quickly and remain focused on optimizing the earning asset mix and reducing our overall sensitivity to interest rates in a prudent manner. Balance sheet growth over the remainder of the year is expected to be minimal and deposit funding costs are expected to increase modestly as we respond to competition in our markets. Any additional interest rate increases would benefit Old Second but not to the degree of prior increases. Tangible book value per share is compounding nicely and we are nearing targeted capital levels less than two years after a significant acquisition and following a period of significant volatility in interest rates. We look to finish the second half of the year on a strong note and effectively position Old Second for the years ahead."

Asset Quality & Earning Assets

Nonperforming loans, comprised of nonaccrual loans plus loans past due 90 days or more and still accruing, and, prior to January 1, 2023, performing troubled debt restructurings, totaled $61.2 million at June 30, 2023, $64.5 million at March 31, 2023, and $42.1 million at June 30, 2022. Nonperforming loans, as a percent of total loans, were 1.5% at June 30, 2023, 1.6% at March 31, 2023, and 1.2% at June 30, 2022. The decrease in the second quarter of 2023 is driven by the upgrade of a few credits during the quarter, due to improved borrower financial performance and debt service coverage enhancements.
Total loans were $4.02 billion at June 30, 2023, reflecting an increase of $12.2 million compared to March 31, 2023, and an increase of $390.5 million compared to June 30, 2022. The increase year over year was largely driven by the growth in commercial, leases, commercial real estate-investor, and multifamily portfolios. Average loans (including loans held-for-sale) for the second quarter of 2023 totaled $4.04 billion, reflecting an increase of $107.7 million from the first quarter of 2023 and an increase of $531.3 million from the second quarter of 2022.
Available-for-sale securities totaled $1.34 billion at June 30, 2023, compared to $1.46 billion at March 31, 2023, and $1.73 billion at June 30, 2022. The unrealized mark to market loss on securities totaled $112.4 million as of June 30, 2023, compared to $105.6 million as of March 31, 2023, and $89.8 million as of June 30, 2022, due to market interest rate fluctuations as well as changes year over year in the composition of the securities portfolio. During the quarter ended June 30, 2023, securities sales of $74.0 million resulted in net realized losses of $1.5 million, compared to sales of $66.2 million during the quarter ended March 31, 2023, which resulted in net realized losses of $1.7 million, and one security sold for the quarter ended June 30, 2022 that resulted in a loss of $33,000. We may continue to 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 6.

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 16 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," "continue," "trend," "momentum," "nearing" 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 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 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; (8) any increases in FDIC assessment which has increased, and may continue to increase, our cost of doing business; and (9) 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. 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, July 20, 2023, at 11:00 a.m. Eastern Time (10:00 a.m. Central Time) to discuss our second quarter 2023 financial results. Investors may listen to our call via telephone by dialing 888-506-0062, using Entry Code 444016. 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 July 27, 2023, by dialing 877-481-4010, using Conference ID: 48609.

SOURCE: Old Second Bancorp Inc.

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Old Second Bancorp, Inc. Reports Second Quarter 2023 Net Income of $25.6 Million, or $0.56 per Diluted Share