On January 24, 2024, Old Second Bancorp Inc (OSBC, Financial) released its 8-K filing, reporting a decrease in net income for the fourth quarter of 2023. The bank holding company, which offers a range of consumer and commercial banking products, faced challenges due to rising market interest rates, leading to increased provisions for credit losses and interest expenses.
Financial Performance Analysis
OSBC's net income for the fourth quarter of 2023 was $18.2 million, or $0.40 per diluted share, a decrease from the $24.3 million, or $0.54 per diluted share, reported in the previous quarter. When compared to the same quarter in the previous year, net income also saw a decline from $23.6 million, or $0.52 per diluted share. Adjusted net income, which excludes nonrecurring items, was $19.1 million, or $0.42 per diluted share, for the fourth quarter of 2023.
The bank's net interest income decreased to $61.2 million in the fourth quarter of 2023 from $63.0 million in the third quarter and $64.1 million in the fourth quarter of 2022. This decline was primarily due to an increase in provision for credit losses of $6.5 million and a decrease in net interest income of $2.9 million year over year, attributable to rising market interest rates.
Noninterest income decreased by $1.1 million, or 11.6%, in the fourth quarter of 2023 compared to the third quarter, and by $217,000, or 2.4%, compared to the fourth quarter of 2022. Noninterest expense decreased by $397,000, or 1.1%, compared to the third quarter of 2023, and by $2.7 million, or 6.7%, compared to the fourth quarter of 2022, reflecting improved efficiency.
Asset Quality and Capital Strength
OSBC's total assets decreased slightly to $5.72 billion as of December 31, 2023, from $5.76 billion as of September 30, 2023. The bank's capital ratios remained strong, with a common equity tier 1 capital ratio of 11.37% as of December 31, 2023.
Chairman, President, and CEO Jim Eccher commented on the results:
"Profitability at Old Second remains exceptionally strong and balance sheet strengthening continues with our tangible common equity to tangible assets ratio increasing by 86 basis points linked quarter to 8.53%. We believe we are being proactive in addressing commercial real estate loans facing deterioration from higher interest rates, declining appraisal values, and cash flow pressures. Importantly, the total of substandard and criticized loans are now at their lowest levels since June 2022 as we have seen previously identified loans work toward resolution and the pace of downgrades has improved dramatically."
Eccher also expressed optimism for 2024, citing the bank's balance sheet flexibility and record efficiency despite a cautious economic view.
Looking Forward
OSBC's management remains focused on assessing and monitoring risks within the loan portfolio and optimizing the earning asset mix to reduce overall sensitivity to interest rates. With stable net interest margin trends and continued efficiency, the bank is positioned to navigate the challenges of the current interest rate environment.
Investors interested in further details can access the full earnings report and join the conference call scheduled for January 25, 2024, to discuss the fourth quarter 2023 financial results.
Explore the complete 8-K earnings release (here) from Old Second Bancorp Inc for further details.
