8-K: Old Second Bancorp Reports $21.3 Million Net Income for Q1 2024, Exceeding Previous Quarter

Old Second Bancorp announced a net income of $21.3 million, or $0.47 per diluted share, for the first quarter of 2024, marking an increase from the previous quarter.

Summary

• Old Second Bancorp reported a net income of $21.3 million, or $0.47 per diluted share, for the first quarter of 2024.
• This is an increase from the net income of $18.2 million, or $0.40 per diluted share, in the fourth quarter of 2023.
• However, it is a decrease compared to the net income of $23.6 million, or $0.52 per diluted share, in the first quarter of 2023.
• The increase in net income compared to the previous quarter was primarily due to a $4.5 million decrease in provision for credit losses and a $1.8 million increase in noninterest income.
• The decrease in net income compared to the same quarter last year was mainly due to a $4.3 million decrease in net interest income.
• Net interest and dividend income was $59.8 million for the first quarter of 2024, a decrease of 2.4% from the fourth quarter of 2023 and 6.7% from the first quarter of 2023.
• Noninterest income was $10.5 million for the first quarter of 2024, an increase of 20.3% compared to the fourth quarter of 2023 and 42.9% compared to the first quarter of 2023.
• Noninterest expense was $38.2 million for the first quarter of 2024, an increase of 3.3% compared to the fourth quarter of 2023 and 6.5% compared to the first quarter of 2023.
• The company's return on average assets (ROAA) was 1.51% and return on average tangible common equity (ROATCE) was 17.80% for the quarter.
• Nonperforming loans were 1.6% of total loans as of March 31, 2024, consistent with the previous quarter and the same quarter last year.
• Total loans decreased to $3.97 billion at March 31, 2024, a decrease of $73.5 million from December 31, 2023, and $33.9 million from March 31, 2023.
• Available-for-sale securities totaled $1.17 billion at March 31, 2024, a decrease from $1.19 billion at December 31, 2023, and $1.46 billion at March 31, 2023.
• The company declared a cash dividend of $0.05 per share of common stock, payable on May 6, 2024, to stockholders of record as of April 26, 2024.

Sentiment

Score: 7

Explanation: The sentiment is positive due to the increase in net income compared to the previous quarter, strong profitability metrics, and stable asset quality. However, there are some concerns about the decrease in net interest income and the increase in noninterest expenses compared to the same quarter last year.

Positives

• Net income increased by $3.1 million compared to the previous quarter.
• Noninterest income saw a significant increase of 20.3% compared to the previous quarter and 42.9% compared to the same quarter last year.
• The company's profitability metrics, ROAA and ROATCE, are strong at 1.51% and 17.80% respectively.
• The tangible book value per share has increased by 25% over the year ago quarter.
• The common equity Tier 1 ratio has improved to over 12% from under 10% a year ago.
• Asset quality remains stable with nonperforming loans at 1.6% of total loans.
• The company has declared a cash dividend of $0.05 per share.

Negatives

• Net income decreased by $2.3 million compared to the first quarter of 2023.
• Net interest and dividend income decreased by 2.4% compared to the fourth quarter of 2023 and 6.7% compared to the first quarter of 2023.
• Noninterest expense increased by 3.3% compared to the fourth quarter of 2023 and 6.5% compared to the first quarter of 2023.
• Total loans decreased by $73.5 million compared to the previous quarter and $33.9 million compared to the same quarter last year.
• Available-for-sale securities decreased by $24.0 million compared to the previous quarter and $286.3 million compared to the same quarter last year.
• The net interest margin decreased to 4.55% for the first quarter of 2024, compared to 4.59% for the fourth quarter of 2023, and 4.72% for the first quarter of 2023.

Risks

• The company faces risks related to changes in interest rates, which could affect deposit and funding costs, net income, and the market value of assets.
• Elevated inflation could pose challenges to clients and the business.
• Adverse economic conditions could impact loan growth and asset quality.
• The company is exposed to risks related to potential future acquisitions.
• The company is exposed to risks related to adverse conditions in the stock market, the public debt market and other capital markets.
• The company is exposed to risks related to events beyond their 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.

Future Outlook

Management is confident that the company can deliver another strong year in 2024, with flexibility to invest for growth and evaluate returning capital to stockholders.

Management Comments

• Chairman, President and Chief Executive Officer Jim Eccher said Old Second reported strong results in the first quarter with exceptional profitability and stable to improving trends.
• He noted that the net interest margin is proving to be quite resilient despite volatility in market interest rates.
• He also stated that asset quality continues to trend favorably with continuing positive migration and no surprises in the first quarter.
• He mentioned that the strength of the balance sheet today, combined with exceptional profitability, provides the flexibility to continue to invest for growth while evaluating the potential to return capital to stockholders in the near term.
• He expressed confidence that Old Second can deliver another strong year in 2024 for stockholders, communities and employees.

Industry Context

The results reflect the challenges and opportunities in the current banking environment, including interest rate volatility and the need to manage asset quality and funding costs effectively. The company's focus on core banking trends and balance sheet flexibility is consistent with strategies employed by other regional banks.

Comparison to Industry Standards

• Old Second's ROAA of 1.51% and ROATCE of 17.80% are strong compared to many regional banks, suggesting efficient use of assets and equity.
• The efficiency ratio of just over 53% is also competitive, indicating good cost management.
• The company's capital ratios, with a common equity Tier 1 ratio exceeding 12%, are above regulatory minimums and compare favorably to peers.
• The net interest margin of 4.58% is within the range of other regional banks, but the decrease from previous periods highlights the impact of rising interest rates on funding costs.
• Compared to companies like First Midwest Bancorp (FMBI) and Wintrust Financial Corporation (WTFC), Old Second's results show a similar trend of managing interest rate pressures and maintaining asset quality, though specific metrics may vary based on individual business models and geographic focus.

Stakeholder Impact

• Shareholders will benefit from the declared cash dividend and the potential for future capital returns.
• Employees may benefit from the company's continued growth and profitability.
• Customers will continue to receive banking services from a financially stable institution.
• The company's financial health supports its role in the communities it serves.

Next Steps

• The company will host a conference call on April 18, 2024, to discuss the financial results.
• Management will continue to invest for growth and evaluate the potential to return capital to stockholders.
• The company will continue to monitor and manage asset quality and interest rate risks.

Key Dates

Keywords

net income, financial results, banking, loans, deposits, interest income, noninterest income, asset quality, capital ratios, dividends