Release Date: October 17, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Old Second Bancorp Inc (OSBC, Financial) reported a strong net income of $23 million or $0.50 per diluted share for the third quarter of 2024.
- The company announced a 20% increase in the common dividend, reflecting strong profitability and a well-capitalized balance sheet.
- The tangible equity ratio increased by 75 basis points to 10.14%, indicating a strengthening balance sheet.
- Asset quality metrics improved with a significant reduction in substandard and criticized loans, down more than 40% from peak levels.
- Net interest margin remained stable at 4.64%, supported by higher rates on variable securities and loans.
Negative Points
- Earnings were negatively impacted by a $2 million provision for credit losses, reducing after-tax earnings by $0.03 per diluted share.
- Interest expense on average interest-bearing liabilities increased by $4.3 million or 38.4%, driven by market pricing on commercial deposits.
- Loan growth was modest, with a $14.5 million increase primarily due to commercial lease and construction portfolios, reflecting cautious customer behavior.
- Non-interest expense increased by $1.4 million from the previous quarter, partly due to acquisition-related costs and incentive accruals.
- The company faces challenges in maintaining loan growth due to market volatility and uncertain economic conditions, impacting future provisioning and reserve trajectory.
Q & A Highlights
Q: Can you discuss the current loan pipelines and expectations for organic loan growth in the coming quarters?
A: James Eccher, Chairman, President, CEO, and COO, noted that while pipelines are softer heading into the last quarter, they are better than a year ago. Traditionally, the fourth quarter is softer, but they are confident in achieving mid-single-digit organic loan growth in 2025.
Q: What are your expectations for expense growth in 2025, particularly regarding technology and digital spending?
A: Bradley Adams, EVP, CFO, and COO, stated that the primary driver for expense growth will be salary and benefits, expected to be in the 3% to 5% range. Most technology and infrastructure spending has already been done, so future expense growth will be modest outside of employee benefits.
Q: How do you view the impact of potential rate cuts on your net interest margin (NIM)?
A: Bradley Adams mentioned that the expected impact is around 7 basis points per 25 basis point rate cut. However, they believe they can maintain a NIM above 4% if the terminal Fed funds rate is around 3%, given their balance sheet structure.
Q: Can you provide details on the $14 million loan that moved to non-performing status and the classified loans?
A: James Eccher explained that the non-performing loan is a commercial C&I credit that deteriorated late in the quarter. They are in the early stages of remediation. The classified loans saw some inflow but more outflow, with significant reductions in substandard loans.
Q: What is your outlook on the provision and reserve trajectory going forward?
A: James Eccher indicated that they expect future provisioning to be around $2 million per quarter, maintaining the allowance for credit losses at a comfortable level above 1%.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
