Old Second Bancorp Inc. (OSBC)
Q1 2013 Earnings Call
April 25, 2013 11:00 AM ET
Douglas Cheatham – EVP and CFO
Bill Skoglund – President, CEO and Chairman
Jim Eccher – EVP and COO; President & CEO, Old Second Bank
Joe Marchese – EVP and Chief Credit Officer
Brian Condrad – Private Investor
Brett Ladendorf – New Salem
Brian Martin – FIG Partners
Jim Koran – New Salem
Robert Krauss – Private Investor
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If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad.
As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Doug Cheatham, Executive Vice President, and Chief Financial Officer. Thank you. Sir, you may begin.
Thank you. Good morning everyone and thank you for joining us. I will start with a reminder that our comments today may contain forward-looking statements which are based on management’s existing expectations in the current economic environment.
These statements are not a guarantee of future performance, and results may differ materially from those projected.
I ask you to refer to our SEC filings for a full discussion of the company’s risk factors.
Now, with me this morning are Bill Skoglund, President, Chairman and CEO of Old Second Bancorp, President and CEO of Old Second Bank, and Chief Operating Officer of Old Second Bancorp, Jim Eccher, and Executive Vice President and Chief Credit Officer Joe Marchese.
And now, I will turn it over to Bill to get things started.
Okay, Doug. Thank you for your interest in our stock and the bank and for joining us this morning. This year, we started with four main goals; one was to continue to reduce problem loans and assets, second achieve consistent profitability of the bank and the Bancorp, and three, maintaining growth capital, and then new in 2013, start growing loans and deposits. And I’m pleased to report that we’re off to a good start on all these goals.
First on the classified asset reduction, this is the ninth consecutive quarter we got a reduction in classified assets and overall classified assets went down another 20 million this quarter.
The end of the quarter was 65 million in non-accrual loans which is down 13 million from the year end, and down 72% from the peak in June of 2013 which we had 230 million in classified in the non-accrual loan.
In OREO, we ended the quarter with 66 million which is down 6.8 million from the year end. Our ratio that our regulators follow closely is our total classified assets to tier one capital plus the allowance for loans.
This ratio at the end of the quarter was 71.66% and then down from the peak of 180% in December of 2010. In addition to reducing classified assets, we’re able to show loan recoveries this quarter of $4 million and new charge off of only 1.5 million for a net recovery of $2.5 million.
As a result, we were able to take the $2.5 million out of the reserve and add this to earnings and our reserve level is basically the same as it was at the end of the year.
Regarding earnings, this quarter, we’re happy to report earnings of both the Bancorp and the bank at the Bancorp, we earned 5.5 million in net income and at the bank, 6.5 million.
And on the capital side, from a regulatory standpoint of the bank, we have a leverage ratio of 9.94% in total capital, 15.56% both well above the regulatory requirements of eight in three-quarter and 11 in the quarter.
At the Bancorp, we need all regulatory ratios and do now show a small positive tangible capital ratio. And we understand the need to continue to improve this tangible equity ratio and we’ll continue to evaluate ways to address is as we heal ourselves.
Before – start growing loans and deposits, part of this growing loans may take some time to achieve, but we’re making good progress in getting there.
Loans were down 37 million from year end, but most of this was coming from pay downs and our problem in watch loans and I am however encouraged by our ability to add new lenders and our building, our pipelines, rather well.
Deposits are mainly all core and are up slightly from year end, and we continue to maintain our number one market share in Kane and Kendo [ph] counties. Meanwhile, until loans do start to grow again, we continue to build liquidity and our security portfolio is now at 576 million.
And although we still have more to do, I’m gratified that we start seeing all of our hard work beginning to show good results. And we’re optimistic that this will continue in 2013.
Also by continuing to improve in these four areas, we continue to strengthen the bank which if these trends continue, could eventually lead to the removal of the consent order and recovery of our deferred tax assets which is $76 million.
In addition in the quarter, the treasury did auction off their TARP investment in the bank and although this auction went for a lower amount than I would have predicted.