Release Date: July 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Old Second Bancorp Inc (OSBC, Financial) reported a net income of $21.9 million or $0.48 per diluted share for the second quarter of 2024, with a return on assets of 1.57%.
- The company's tangible equity ratio increased by 35 basis points to 9.39%, indicating a strengthening balance sheet.
- Common equity Tier 1 capital increased to 12.41%, reflecting strong capital positioning.
- Net interest margin improved slightly to 4.63% for the second quarter, driven by higher rates on variable securities and loans.
- Asset quality metrics improved with a reduction in substandard and criticized loans, down to $187.4 million, more than 40% below peak levels.
Negative Points
- Earnings were negatively impacted by a $3.8 million provision for credit losses, reducing after-tax earnings by $0.06 per diluted share.
- Interest expense on average interest-bearing liabilities increased by $3.2 million or 31.3%, driven by higher rates and deposit pricing.
- Net charge-offs increased to $5.8 million in the second quarter, up from $3.7 million in the first quarter of 2024.
- Total loans only increased by $7.2 million from the prior-linked quarter, indicating modest loan growth.
- Deposit flows showed signs of seasonality and stabilization, with average deposits decreasing by $4.3 million linked quarter.
Q & A Highlights
Q: Can you provide an update on the credits related to the Chicago office and California healthcare sectors?
A: Bradley Adams, Executive Managing Director, explained that the company took significant charge-offs this quarter, including a $4 million charge-off for a Chicago office building and a $1.5 million charge related to a note sale. The office exposure is now $23 million, with reserves over 5%. The healthcare sector is showing improvement in occupancy and performance.
Q: What is the outlook for net charge-offs in the coming quarters?
A: James Eccher, CEO, stated that while credit remediation momentum is strong, they do not anticipate significant charge-offs in the upcoming quarters.
Q: Could you discuss the pipeline pickup trends and expectations for loan growth in the second half of the year?
A: James Eccher noted that the company has been disciplined in the first half of the year due to unsatisfactory risk-adjusted spreads. However, they are now seeing more opportunities and expect low to mid-single-digit loan growth in the third and fourth quarters.
Q: What is the expense outlook for the second half of the year?
A: Bradley Adams indicated that expenses are expected to remain relatively flat, with personnel expenses around $23 million. He emphasized the company's strong expense management despite inflationary pressures.
Q: How is the performance of the C&I (Commercial and Industrial) loan portfolio?
A: James Eccher reported that the C&I portfolio is performing well, with low leverage and good top-line results from clients. While there is some stress, the portfolio is generally behaving well.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
