Old Second Bancorp, Inc. (OSBC) Q1 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a mixed picture. Financial performance shows positive aspects like increased net income and reduced non-performing assets, but there are concerns about expenses and interest rate risks. The Q&A session reveals cautious management sentiment and unclear guidance on growth and margins. While the buyback program could be positive, the overall sentiment is tempered by economic uncertainties and potential margin declines. Given these factors, a neutral stock price movement is likely, with no clear catalyst for significant upward or downward movement.
Key Financial Performance
Net Income $19.8 million, up from the previous year, impacted by $575,000 MSR mark-to-market losses and $446,000 in merger-related expenses.
Return on Average Tangible Common Equity 14.70%, increased from the previous year.
Tax Equivalent Efficiency Ratio 55.48%, compared to 54.61% for the fourth quarter of 2024.
Net Interest Income $62.9 million, up $3.1 million or 5.2% from the year ago quarter.
Net Interest Margin 4.88%, increased by 20 basis points from the previous quarter.
Total Deposits Increased by $84 million during the quarter.
Loan-to-Deposit Ratio 81.2%, down from 83.5% last quarter and 86.1% a year ago.
Total Loans Decreased by $41.1 million from the prior linked quarter.
Criticized Loans $116.7 million, decreased 42% or $84 million from one year ago.
Nonperforming Assets Reduced by 27.2% since year-end 2024.
Allowance for Credit Losses on Loans Decreased to $41.6 million or 1.05% of total loans from $43.6 million at year-end.
Noninterest Expense $183,000 more than the prior linked quarter, running higher year-over-year by $6.3 million.
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Operating Highlights
Merger with Evergreen Bank Group: Old Second Bancorp is in the process of finalizing a merger with Evergreen Bank Group, which is expected to enhance their capital position and profitability.
Net Interest Margin Improvement: Net interest margin improved by 20 basis points to 4.88% for the quarter, attributed to a decline in the cost of interest-bearing liabilities.
Reduction in Nonperforming Assets: Total OREO balances declined by $18.7 million quarter-over-quarter, contributing to a 27.2% reduction in nonperforming assets since year-end 2024.
Decrease in Criticized Loans: Total criticized loans decreased by 42% year-over-year, now totaling $116.7 million, marking the lowest levels in three years.
Loan Portfolio Repositioning: Old Second has intentionally reduced its purchase participation portfolio by $46 million or over 10% in the quarter, focusing on strengthening its loan book.
Focus on Commercial Loan Origination: The company aims to build commercial loan origination capabilities for long-term stability and profitability.
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Risk or Challenges
Market Volatility: Customers are waiting to see how market volatility, including market interest rate changes and global tariff uncertainties, will play out over the next three to six months, which is impacting loan committee activity.
Credit Losses: A $2.4 million provision for credit losses was recorded due to the absence of significant loan growth, reducing after-tax earnings by $0.04 per diluted share.
Merger-Related Expenses: $446,000 in merger-related expenses were incurred related to the First Merchants acquisition and the pending merger with Bancorp Financial and Evergreen Bank Group.
Loan Portfolio Decline: Total loans decreased by $41.1 million from the prior linked quarter, primarily due to net paydowns in commercial real estate and multifamily portfolios.
Economic Conditions: Expectations regarding economic conditions and federal deficit constraints have become more realistic, indicating potential risks in the broader economic environment.
Employee Benefit Expenses: Employee benefit expenses are expected to be a drag on overall expenses for 2025, contributing to a year-over-year increase in noninterest expenses.
OREO-Related Expenses: OREO-related expenses were high in the first quarter and are expected to normalize in the second quarter, but they have contributed to increased noninterest expenses.
Interest Rate Risks: There are outsized risks for spreads widening in the near term due to rate cuts and their impact on market indices, which could affect margin trends.
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Guidance & Outlook
Loan Portfolio Management: Old Second is focused on managing liquidity and capital while building commercial loan origination capabilities for long-term stability.
Merger Strategy: The company is optimistic about the pending merger with Evergreen Bank Group, which is expected to enhance profitability and provide flexibility.
Credit Quality Improvement: Significant reductions in criticized loans and nonperforming assets indicate a positive trend in credit quality.
Deposit Growth: The company has experienced strong deposit growth, which is expected to support future profitability.
Net Interest Margin Outlook: Margins are expected to be stable to modestly down for 2025 due to market conditions.
Expense Growth Projection: Noninterest expense growth is expected to be kept in the 4% range for 2025.
Capital Position: Old Second anticipates continued capital building, with a strong capital position post-merger.
Loan-to-Deposit Ratio: The loan-to-deposit ratio is currently at 81.2%, providing room for asset absorption post-merger.
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Shareholder Return Plan
Share Buyback Program: The buyback is in place and is on the table after the merger is finalized.
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Key Q&A
Q:Brad, maybe start on the margin. If the forward curve comes to fruition, you get two to three cuts this year. Is that kind of roughly flat to modest down from that 4.90% to 4.8% level?
A:I don't think we're getting three rate cuts. I think inflation is stickier. I would say that whereas before, I would have said 7 basis points of margin decline, I would probably say it's four with each rate cut from these levels.
Q:What are you doing with the participations, pushing them out? Where do you think the loan book has bottomed?
A:We've been trying to aggressively push out as much of that as possible. We've got another $200 million that we're going to want to continue to try to exit over the next 24 months.
Q:Are there any new segments emerging out in CRE or C&I?
A:If there's one area that we're seeing a couple of credits come on to our radar, it's more in C&I at this point.
Q:Have you noticed any trends among your lower balance deposit customers?
A:Card transactions are down significantly, but that's a trend that started almost a year ago. We've seen kind of weakness in balance levels in transaction activity in that deposit base starting over a year ago.
Q:What is the sentiment like among your commercial clients? Are you seeing deals getting pulled?
A:It's probably similar to what you're hearing from other banks. By and large, it's wait and see. We are not projecting a lot of growth in the second quarter.
Q:What was the math you went through at quarter end in coming up with the reserve?
A:Criticized classified and nonperformers have been trending down significantly for the better part of two years. I feel exceptionally good about where we are at this point.
Q:How are you thinking about the charge-off trajectory?
A:While the charge-offs were a little bit higher, we're optimistic that future quarters should hold up a lot better.
Q:What are your expectations on growth for the full-year?
A:I would be thrilled with low-single digit growth that would come second half of the year.
Q:Do you have a March average for the net interest margin?
A:I don't off the top of my head. It wasn't down from February, I can tell you that.
Q:What precludes you from being active in the short run regarding buybacks?
A:Reg M precludes us from being active in the short term.
Q:Is the mid-24 range tax rate a good number to use ahead?
A:Yes, around here.
Q:Is there any room directionally from here in terms of credit quality?
A:The goal is to continue to work these even lower, right? We think we can make incremental improvements throughout the rest of the year.
Q:Review of Unclear Management Responses
A:Management appeared to avoid giving a direct answer regarding the March average for the net interest margin, stating they did not have the figure off the top of their head. Additionally, there was a lack of clarity in the response about the growth expectations for the full-year, as management expressed a guarded outlook.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Adams Chief
Bancorp Financial
Bank Group
Bradley
Chief Financial
Chief Officer
Evergreen Bank
Financial Officer
Merchants branch
Noninterest
OREO balance
Officer Chief
Officer Vice
Old capital
acquisition
banking income
branch purchase
core deposit
effort
loan balance
loan yield
merger
mortgage servicing
participation portfolio
point decrease
portfolio loan
purchase participation
rate change
reduction asset
remediation
right market
salary
security yield
servicing right
tariff
OSBC Transcript
Old Second Bancorp, Inc. (OSBC) Q4 2025 Earnings Call Transcript
Positive1-22
The earnings call indicates strong financial performance with positive catalysts like the Evergreen acquisition, dividend growth, and cost savings. Despite slight concerns over increased charge-offs in the Powersports segment and unclear guidance on margins, the company's robust loan and deposit growth, capital management plans, and reduced noninterest expenses provide a positive outlook. The management's confidence in future performance, as reflected in dividend hikes and share repurchase plans, further supports a positive sentiment.
Old Second Bancorp, Inc. (OSBC) Q3 2025 Earnings Call Transcript
Positive10-23
The earnings call summary and Q&A reveal a stable financial position, effective cost management, and robust growth expectations. The integration of Evergreen Bank is expected to enhance profitability, and the company maintains a strong capital position. While there are concerns about expense growth and margin stability, the overall outlook is optimistic, with potential for increased profitability and growth. The lack of clear guidance on some issues is a minor negative, but the positive aspects outweigh this, suggesting a positive stock price movement in the short term.
Old Second Bancorp, Inc. (OSBC) Q2 2025 Earnings Call Transcript
Positive7-24
The earnings call presents a generally positive outlook with strong financial performance, optimistic guidance, and a successful merger with Evergreen Bank Group. Despite some concerns about noninterest expenses and management's vague responses in the Q&A, the overall sentiment is boosted by record loan growth, strong deposit growth, and effective merger integration. The positive response to the Evergreen deal, alongside favorable asset mix and margin contributions, suggests a positive stock price movement in the short term.
Old Second Bancorp, Inc. (OSBC) Q1 2025 Earnings Call Transcript
Unknown4-24
The earnings call presents a mixed picture. Financial performance shows positive aspects like increased net income and reduced non-performing assets, but there are concerns about expenses and interest rate risks. The Q&A session reveals cautious management sentiment and unclear guidance on growth and margins. While the buyback program could be positive, the overall sentiment is tempered by economic uncertainties and potential margin declines. Given these factors, a neutral stock price movement is likely, with no clear catalyst for significant upward or downward movement.
OSBC Report
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