8-K: Old Second Bancorp Reports $19.1 Million Net Income for Q4 2024, Cites Strong Profitability

Old Second Bancorp announced a net income of $19.1 million, or $0.42 per diluted share, for the fourth quarter of 2024, marking an increase compared to the same period last year.

Summary

• Old Second Bancorp reported a net income of $19.1 million, or $0.42 per diluted share, for Q4 2024.
• This compares to a net income of $23.0 million, or $0.50 per diluted share, for Q3 2024, and $18.2 million, or $0.40 per diluted share, for Q4 2023.
• Adjusted net income was $20.3 million, or $0.44 per diluted share, for Q4 2024, compared to $23.3 million, or $0.51 per diluted share, for Q3 2024, and $19.1 million, or $0.42 per diluted share, for Q4 2023.
• The Q4 2024 results include a $1.5 million impact from transaction-related expenses due to the purchase of five branches from First Merchants Bank.
• Net interest and dividend income was $61.6 million for Q4 2024, up $1.0 million from Q3 2024 and $349,000 from Q4 2023.
• The company recorded a net provision for credit losses of $3.5 million in Q4 2024, compared to $2.0 million in Q3 2024 and $8.0 million in Q4 2023.
• Noninterest income was $11.6 million for Q4 2024, an increase of $1.0 million from Q3 2024 and $2.9 million from Q4 2023.
• Noninterest expense was $44.3 million for Q4 2024, up $5.0 million from Q3 2024 and $7.3 million from Q4 2023.
• Total loans were $3.98 billion at the end of December 2024, a decrease of $9.7 million from September 2024 and $61.6 million from December 2023.
• Nonperforming loans decreased to 0.8% of total loans at the end of December 2024, compared to 1.3% in September 2024 and 1.7% in December 2023.
• Total deposits were $4.77 billion at the end of December 2024, an increase of $303.3 million from September 2024, primarily due to the acquisition of five branches from FRME.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive due to the increase in net income compared to the previous year, the decrease in nonperforming loans, and the increase in deposits. However, the decrease in net income compared to the previous quarter and the increase in noninterest expense temper the overall sentiment.

Positives

• Net interest and dividend income increased to $61.6 million for Q4 2024.
• Noninterest income rose to $11.6 million in Q4 2024.
• Nonperforming loans decreased to 0.8% of total loans.
• Total deposits increased to $4.77 billion, driven by the acquisition of five FRME branches.
• Tangible book value per share increased by more than fifteen percent year over year.
• Classified and criticized loans are at their lowest levels since June 2022.
• The company's common equity tier 1 capital ratio increased to 12.82% from 11.37% year over year.

Negatives

• Net income decreased $3.8 million in Q4 2024 compared to Q3 2024.
• Noninterest expense increased $5.0 million in Q4 2024 compared to Q3 2024, and $7.3 million compared to Q4 2023.
• Total loans decreased by $9.7 million at December 31, 2024, compared to September 30, 2024, and decreased $61.6 million for the year over year period.
• The efficiency ratio increased to 57.12% for Q4 2024, compared to 53.38% for Q3 2024, and 50.82% for Q4 2023.

Risks

• The strength of the United States economy in general and the strength of the local economies in which Old Second Bancorp conducts its operations may be different than expected.
• 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 the loan portfolio, may result in increased credit risk-related losses and expenses.
• Changes in legislation, regulation, policies, or administrative practices, whether by judicial, governmental, or legislative action, could adversely affect the company.
• 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 the company.
• Changes in interest rates may affect deposit and funding costs, net income, prepayment penalty income, mortgage banking income, and other future cash flows, or the market value of assets, including investment securities.
• Elevated inflation causes adverse risk to the overall economy, and could indirectly pose challenges to clients and to the business.
• Events beyond the company's control 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 customers' supply chains or transportation, and disruptions caused from widespread cybersecurity incidents.

Future Outlook

Management believes they are well-positioned to capitalize on growth opportunities in the near future, citing the sustainability of their performance and a well-positioned balance sheet.

Management Comments

• Chairman, President and Chief Executive Officer Jim Eccher said Old Second reported strong results in the fourth quarter of 2024 with exceptional profitability and positive trends in a number of verticals.
• We believe we are being proactive in addressing commercial loans facing deterioration from higher interest rates, declining appraisal values and cash flow pressures.
• Exceptional profitability has afforded Old Second the opportunity to aggressively address problem acquired credits and position us to deliver improved performance in 2025.
• In summary, we are proud of the sustainability of our performance this year and believe we are well positioned to capitalize on growth opportunities that we believe will come our way in the near future.

Industry Context

The acquisition of branches from First Merchants Bank reflects a trend of consolidation in the banking industry, as institutions seek to expand their market presence and customer base.

Comparison to Industry Standards

• Old Second's return on average assets (ROAA) of 1.34% is comparable to regional banks with similar asset sizes.
• The efficiency ratio of 57.12% indicates room for improvement compared to top-performing banks with efficiency ratios below 50%.
• The tangible common equity to tangible assets (TCE/TA) ratio of 10.04% is a healthy capital position, exceeding regulatory requirements.

Stakeholder Impact

• Shareholders will receive a cash dividend of $0.06 per share.
• Employees may benefit from the company's growth and expansion through the acquisition of new branches.
• Customers of the acquired branches will transition to Old Second National Bank.
• The company's financial performance impacts its relationships with suppliers and creditors.

Next Steps

• The company will host a conference call on January 23, 2025, to discuss the Q4 2024 financial results.

Key Dates