AURORA, IL / ACCESSWIRE / April 21, 2021 / Old Second Bancorp, Inc. (the "Company," "we," "us," and "our") (NASDAQ:OSBC), the parent company of Old Second National Bank (the "Bank"), today announced financial results for the first quarter of 2021. Our net income was $11.9 million, or $0.40 per diluted share, for the first quarter of 2021, compared to net income of $8.0 million, or $0.27 per diluted share, for the fourth quarter of 2020, and net income of $275,000, or $0.01 per diluted share, for the first quarter of 2020. Net income for the first quarter of 2021 reflects a reversal of provision for credit losses of $3.0 million pre-tax, compared to no provision expense recorded in the fourth quarter of 2020, and an $8.0 million pre-tax provision recorded in the first quarter of 2020. Mortgage banking income totaled $5.7 million in the first quarter of 2021, which reflected a $2.7 million increase from the fourth quarter of 2020, and a $4.9 million increase from the first quarter of 2020, primarily due to mark to market gains on mortgage servicing rights ("MSRs") of $1.1 million in the first quarter of 2021, compared to mark to market losses of $1.3 million and $2.1 million in the fourth quarter of 2020 and the first quarter of 2020, respectively.
On April 20, 2021, our board of directors approved a 400% increase to the quarterly dividend, from $0.01 per common share to $0.05 per common share, to be paid to stockholders of record on April 30, 2021, payable May 10, 2021.
Operating Results:
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First quarter 2021 net income was $11.9 million, reflecting an increase in earnings of $3.8 million from the fourth quarter of 2020, and an increase of $11.6 million from the first quarter of 2020.
- Net interest and dividend income was $23.5 million for the first quarter of 2021, a decrease of $334,000, or 1.4%, from the fourth quarter of 2020, but an increase of $885,000, or 3.9%, from first quarter of 2020.
- Interest and dividend income for the first quarter of 2021 was $25.4 million, or $615,000 less than the fourth quarter of 2020 and $2.1 million less than the first quarter of 2020, primarily due to a decrease in market interest rates over the past year. Interest and dividend income was favorably impacted by loan fees earned on forgiven Paycheck Protection Program ("PPP") loans during the first quarter of 2021. We originated 746 PPP loans totaling $136.7 million in 2020, and as of March 31, 2021, $46.3 million on 134 PPP loans originated during the first round of the PPP loan program remained outstanding. During the first quarter of 2021, we originated $58.3 million, or 481 loans, under the second round of the PPP loan program. Net loan interest and fee income recorded in 2021 year to date on all PPP loans totaled $741,000, and approximately $2.3 million of net PPP loan fees remain unearned as of March 31, 2021.
- Interest expense for the first quarter of 2021 totaled $1.8 million, compared to $2.1 million for the fourth quarter of 2020, and $4.8 million for the first quarter of 2020. The reduction in interest expense was primarily due to a decrease in market interest rates in the year over year period. In addition, in March 2020 we redeemed our 7.8% cumulative trust preferred securities issued by Old Second Capital Trust I and related debentures, which totaled $32.6 million. Upon redemption, we recognized the remaining unamortized debt issuance costs of $635,000, which increased first quarter 2020 interest expense.
- We recorded a $3.0 million reversal of provision for credit losses in the first quarter of 2021, compared to no provision for credit losses in the fourth quarter of 2020, and an $8.0 million provision for credit losses in the first quarter of 2020, due both to our adoption of the current expected credit losses accounting standard ("CECL") on January 1, 2020, and the potential impact of the COVID-19 pandemic. Allowance for credit losses ("ACL") on loans activity in the first quarter of 2021 consisted of a reversal in the ACL on loans of $3.5 million, as well as $582,000 of net recoveries recorded during the quarter. In addition, the allowance for unfunded commitments increased by $470,000 in the first quarter of 2021, due to an updated forecast of credit line utilization rates.
- Noninterest income was $11.3 million for the first quarter of 2021, an increase of $2.5 million, or 28.6%, compared to $8.8 million for the fourth quarter of 2020, and an increase of $5.0 million, or 78.7%, compared to $6.3 million for the first quarter of 2020. The increase from the linked quarter was primarily driven by $2.7 million of growth in residential mortgage banking revenue, attributable to a $2.4 million increase in the mark to market adjustment on MSRs and a $325,000 increase in net gains on sales of mortgage loans in the first quarter of 2021, compared to the prior quarter. In addition, wealth management income increased $444,000 in the current quarter over the linked quarter. The increase in noninterest income in the first quarter of 2021, compared to the first quarter of 2020, was primarily due to $4.9 million of growth in residential mortgage banking revenue, attributable to a $3.2 million increase in the mark to market adjustment on MSRs and a $1.5 million increase in net gains on sales of mortgage loans in the first quarter of 2021, compared to the prior year like quarter.
- Noninterest expense was $21.7 million for the first quarter of 2021, an increase of $485,000, or 2.3%, compared to $21.3 million for the fourth quarter of 2020, and an increase of $736,000, or 3.5%, from $21.0 million for the first quarter of 2020. The increase compared to the linked quarter was primarily attributable to an increase in salaries and employee benefits expense stemming from additional officer incentive compensation expenses paid out in early 2021, and the related increase in payroll taxes and 401K company match expense. In addition, growth in occupancy, furniture and equipment costs occurred due to an increase in snow removal costs and building maintenance due to weather conditions in February 2021. The increase in noninterest expense in the year over year period was primarily due to salaries and employee benefits expense, occupancy, furniture and equipment expenses and FDIC insurance costs.
- The provision for income taxes expense was $4.2 million for the first quarter of 2021, compared to $3.4 million for the fourth quarter of 2020, and a $281,000 tax benefit for the first quarter of 2020. The increase in tax expense for the linked quarter and year over year period was primarily due to higher pretax income in the first quarter of 2021.
- On April 6, 2021, we sold and issued $60.0 million in aggregate principal amount of our 3.50% Fixed-to-Floating Rate Subordinated Notes due April 15, 2031 (the "Notes"). The Notes were offered and sold to eligible purchasers in a private offering in reliance on the exemption from the registration requirements of Section 4(a)(2) of the Securities Act of 1933, as amended and the provisions of Regulation D promulgated thereunder. The Company intends to use the net proceeds from the offering for general corporate purposes, which may include, without limitation, the redemption of existing senior debt, common stock repurchases and strategic acquisitions. The Notes will bear interest at a fixed annual rate of 3.50%, from and including the date of issuance to but excluding April 15, 2026, payable semi-annually in arrears. From and including April 15, 2026 to, but excluding the maturity date or early redemption date, the interest rate will reset quarterly to an interest rate per annum equal to Three-Month Term SOFR (as defined in the Note) plus 273 basis points, payable quarterly in arrears.
President and Chief Executive Officer Jim Eccher said "First quarter results in 2021 were very positive as we continued the momentum from 2020. As we continue to navigate the challenges of the pandemic, we posted solid financial results, delivered strong operating leverage, grew deposits and continued to build our capital position. Credit trends continued to improve and we accordingly reduced our loan loss reserves as the vast majority of our clients have weathered the pandemic and have returned to original payment terms. While we do expect the possibility of losses, the severity levels predicted in our model have materially improved. I believe Old Second remains conservatively positioned to meet the challenges of the coming year, as our expenses remain well-controlled, our business is well diversified and underwriting has remained disciplined and consistent. I would like to thank our employees for their continued hard work in delivering a solid quarter while delivering exceptional customer service during these challenging times."
Eccher continued, "We are happy to announce that on April 20, 2021, the Board of Directors declared a quarterly dividend of $0.05 per share of common stock to stockholders of record on April 30, 2021, payable May 10, 2021. We are very pleased to provide our stockholders with this 400% increase in their quarterly dividend, compared to the previous quarter. We believe this increase reflects our strong financial results and regulatory capital positions for the quarter, the strength of our balance sheet and our belief that asset quality trends are continuing to improve. In addition, during the first quarter of 2021, we repurchased 455,134 shares, or 1.6% of shares outstanding, at a weighted average price of $12.31 per share pursuant to our stock repurchase program."
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 April 1, 2020 through March 31, 2021, our clients had requested loan payment deferrals on 504 loans totaling $237.7 million. As of March 31, 2021, 464 loans, representing $218.4 million outstanding, or 91.9% of the original loan balances deferred, have resumed payments or paid off. Active payment deferrals remain on 40 loans, with $19.2 million of balances outstanding.
- We are participating in the Coronavirus Aid, Relief and Economic Security Act ("CARES" Act). During 2021, we processed 481 loan applications for PPP loans, representing a total of $58.3 million. As of March 31, 2021, we had $46.3 million of PPP loans outstanding that were originated under the first round of the PPP loan program, and $58.3 million of PPP loans outstanding that were originated under the second round of the PPP loan program. Early in the fourth quarter of 2020, we started to submit applications for PPP loan forgiveness to the SBA, and as of March 31, 2021, $90.8 million on 620 loans have been forgiven. We anticipate receiving funds for our first round of PPP loan forgiveness from the SBA through the second quarter of 2021, and will start the forgiveness process for our second round of PPP loans later in 2021.
Capital Ratios
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Minimum Capital | Well Capitalized | |||||||||||||
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Adequacy with | Under Prompt | |||||||||||||
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Capital Conservation | Corrective Action | March 31, | December 31, | March 31, | ||||||||||
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Buffer, if applicable1 | Provisions2 | 2021 | 2020 | 2020 | ||||||||||
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The Company
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Common equity tier 1 capital ratio
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7.00% | N/A | 12.45% | 11.94% | 10.85% | ||||||||||
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Total risk-based capital ratio
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10.50% | N/A | 14.76% | 14.26% | 13.09% | ||||||||||
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Tier 1 risk-based capital ratio
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8.50% | N/A | 13.55% | 13.01% | 11.93% | ||||||||||
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Tier 1 leverage ratio
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4.00% | N/A | 10.02% | 10.21% | 10.57% | ||||||||||
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The Bank
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Common equity tier 1 capital ratio
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7.00% | 6.50% | 14.62% | 13.75% | 12.89% | ||||||||||
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Total risk-based capital ratio
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10.50% | 10.00% | 15.83% | 15.00% | 14.07% | ||||||||||
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Tier 1 risk-based capital ratio
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8.50% | 8.00% | 14.62% | 13.75% | 12.89% | ||||||||||
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Tier 1 leverage ratio
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4.00% | 5.00% | 10.78% | 10.74% | 11.36% | ||||||||||
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 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 $21.2 million at March 31, 2021, compared to $23.0 million at December 31, 2020, and $21.8 million at March 31, 2020. Credit metrics continue to be relatively stable regarding nonperforming loan levels, and management is carefully monitoring loans considered to be in a classified status. Nonperforming loans, as a percent of total loans were 1.1% at each of March 31, 2021, December 31, 2020, and March 31, 2020.
- OREO assets totaled $2.2 million at March 31, 2021, compared to $2.5 million at December 31, 2020, and $5.0 million at March 31, 2020. We recorded one property sale of $305,000 net book value in the first quarter of 2021, and write-downs of $6,000, compared to write downs of $93,000 in the fourth quarter of 2020, and $158,000 in the first quarter of 2020. Nonperforming assets, as a percent of total loans plus OREO, were 1.2% at March 31, 2021, 1.3% at December 31, 2020, and 1.4% at March 31, 2020.
- Total loans were $2.00 billion at March 31, 2021, reflecting a decrease of $75.2 million compared to December 31, 2020, and an increase of $2.4 million compared to March 31, 2020. An increase in our commercial portfolio stemming from PPP loan originations of $58.3 million in the first quarter of 2021 was more than offset by paydowns and payoffs, as borrower liquidity is at a high level due to federal stimulus programs and a general lack of incentive for capital expenditures. Average loans (including loans held-for-sale) for the first quarter of 2021 totaled $2.01 billion, reflecting a decrease of $18.0 million from the fourth quarter of 2020 but an increase of $69.4 million from the first quarter of 2020.
- Available-for-sale securities totaled $593.3 million at March 31, 2021, compared to $496.2 million at December 31, 2020, and $449.7 million at March 31, 2020. Total securities available-for-sale increased a net $97.1 million from the linked quarter due to a purchase of $55.2 million of mortgage backed securities, $34.8 million of corporate bonds, and $19.8 million of collateralized mortgage obligations, partially offset by $7.3 million of calls and paydowns. The unrealized mark to market adjustment on securities decreased by $4.8 million since December 31, 2020, but increased by $16.3 million in the year over year period due to the 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. 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. Our core net interest margin on a taxable equivalent basis excludes the impact of our PPP loans.
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.
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" or other statements that indicate future periods. Examples of forward-looking statements include, but are not limited to, statements regarding the economic outlook, the adequacy of our allowance and our belief that we are conservatively positioned to meet the challenges of the coming year, 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 global coronavirus, ("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) 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; and (5) 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. 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 an earnings call on Thursday, April 22, 2021, at 11:00 a.m. Eastern Time (10:00 a.m. Central Time). Investors may listen to our earnings call via telephone by dialing 877-407-9124. 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 earnings call will be available until 11:00 a.m. Eastern Time (10:00 a.m. Central Time) on April 29, 2021, by dialing 877-4
SOURCE: Old Second Bancorp Inc.
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