Old Second Bancorp(US:OSBC)2023-08-08 19:51Financial Performance - Net income for Q2 2023 was $25.6 million, or $0.56 per diluted share, compared to $12.2 million, or $0.27 per diluted share in Q2 2022, reflecting significant growth driven by loan portfolio expansion and higher yields [146]. - Income before taxes for Q2 2023 was $35.0 million, up from $16.7 million in Q2 2022, driven by a $26.5 million increase in interest and dividend income [155]. - For the six months ended June 30, 2023, income before taxes was $67.0 million, compared to $33.1 million for the same period in 2022, with a $53.3 million increase in interest and dividend income [157]. - Net income for Q2 2023 was $25.6 million, or $0.56 per diluted share, compared to $12.2 million, or $0.27 per diluted share, in Q2 2022 [155]. Loan Growth - Total loans grew by $145.9 million in Q2 2023 compared to December 31, 2022, and by $390.5 million compared to Q2 2022, indicating a strong demand for lending services [153]. - Average loans increased by $529.7 million for the six months ended June 30, 2023, compared to the same period in 2022, driven by growth in commercial and multi-family portfolios [168]. - Total loans increased to $4.02 billion as of June 30, 2023, up $145.9 million from December 31, 2022, and $390.5 million from June 30, 2022 [205]. - The growth in total loans was primarily driven by increases in commercial real estate – investor ($92.4 million), multifamily ($59.5 million), and leases ($37.5 million) while commercial real estate – owner occupied saw a reduction of $30.6 million [205]. Interest Income and Margin - Net interest and dividend income increased to $63.6 million in Q2 2023 from $45.3 million in Q2 2022, primarily due to loan growth and higher yields, despite increased funding costs [146]. - Net interest margin (GAAP) for Q2 2023 decreased to 4.61% from 4.72% in Q1 2023, but increased from 3.16% in Q2 2022 [165]. - Net interest income (GAAP) for the second quarter of 2023 was $63,580, compared to $64,086 in the first quarter of 2023 [174]. - The company reported a net interest margin (TE) of 4.64% for the second quarter of 2023, slightly down from 4.74% in the first quarter [174]. Noninterest Income and Expenses - Noninterest income decreased to $8.2 million in Q2 2023 from $9.2 million in Q2 2022, impacted by $1.5 million in security losses due to strategic sales [148]. - Noninterest expenses decreased by $2.4 million, or 6.5%, to $34.8 million in Q2 2023, primarily due to reduced acquisition-related costs from the previous year [153]. - Total noninterest income for Q2 2023 was $8,223,000, with significant contributions from card-related income and residential mortgage banking revenue [180]. - Noninterest expense decreased by $1,100,000, or 3.0%, in Q2 2023 compared to Q1 2023, and decreased by $2,400,000, or 6.5%, compared to Q2 2022 [190]. Asset Quality and Credit Losses - Nonperforming loans as a percentage of total loans rose to 1.5% as of June 30, 2023, compared to 0.9% at December 31, 2022, indicating a deterioration in asset quality [153]. - The provision for credit losses was $2.0 million in Q2 2023, reflecting an increase in the allowance for credit losses based on updated historical loss rates and loan growth [147]. - The allowance for credit losses increased to $55.3 million as of June 30, 2023, compared to $49.5 million at December 31, 2022 [210]. - Nonperforming loans rose to $61.2 million as of June 30, 2023, an increase of $28.3 million from December 31, 2022, and $19.1 million from June 30, 2022 [207]. Deposits and Liquidity - Total deposits were $4.72 billion at June 30, 2023, a decrease of $393.1 million from December 31, 2022, primarily due to seasonal decreases in municipal deposits [201]. - The company has an unused capacity of $17.4 million at the Federal Reserve Discount Window as of June 30, 2023, indicating liquidity availability [145]. - Cash on hand liquidity totaled $112.6 million as of June 30, 2023, a decrease of $2.6 million from December 31, 2022 [242]. - The outstanding balance of short-term borrowings from the Federal Home Loan Bank of Chicago (FHLBC) was $485.0 million as of June 30, 2023, compared to $90.0 million as of December 31, 2022 [230]. Capital and Equity - Total stockholders' equity increased to $514.0 million as of June 30, 2023, up $52.9 million from $461.1 million as of December 31, 2022, driven by net income of $49.2 million [236]. - The common equity tier 1 capital ratio improved to 10.29% as of June 30, 2023, compared to 9.67% as of December 31, 2022 [237]. - The total risk-based capital ratio was 13.16% as of June 30, 2023, up from 12.52% as of December 31, 2022 [237]. - The GAAP common equity to total assets ratio increased from 7.83% at December 31, 2022, to 8.73% at June 30, 2023 [240]. Economic Environment and Interest Rates - The Federal Reserve's federal funds rate reached 5.25% after a 0.25% hike in July 2023, with expectations of interest rate cuts in 2024 [251]. - The annual US inflation rate slowed to 3.0% as of June 30, 2023, down from a peak of 9.1% [258]. - High inflation poses downside risks that could increase expenses and impact profits [258]. - The company believes that the risk of high inflation has been contained with minimal impact on financial results [258].