Old Second Bancorp(US:OSBC)2022-04-29 23:18Financial Data and Key Metrics Changes - Net income for Q1 2022 was $12 million or $0.27 per diluted share, adjusted net income excluding acquisition costs was $16.1 million or $0.36 per share [6] - Return on assets was 1.05%, return on tangible common equity was 16.97%, and the efficiency ratio was 61.38% [6] - Net interest income increased by $12.6 million from the previous quarter and $17.7 million from the same quarter last year [18] Business Line Data and Key Metrics Changes - Loan growth within legacy Old Second totaled $82 million in Q1 2022, with strong early indications for Q2 [11] - Over $300 million in loan originations occurred in Q1 2022, with a two-year average of $500 million in annual originations [8][11] - Noninterest income increased by $1.5 million due to MSR market gains and other service charges [25] Market Data and Key Metrics Changes - Nonperforming loans decreased by $6.7 million compared to the prior quarter, with total classified loans down by $8.1 million to $66.6 million [13][14] - The allowance for credit losses totaled $44.3 million, consistent with the previous quarter [14] Company Strategy and Development Direction - The company aims to build back towards an 80%-plus loan-to-deposit ratio to drive returns on equity [16] - Focus on deploying liquidity to leverage the quality of the deposit base and make prudent investments in the securities portfolio [16] - The company is optimistic about loan growth opportunities and is actively recruiting to enhance its sales team [22][32] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding the economic environment, with expectations of improved credit metrics and loan growth [15][26] - The company is well-positioned to benefit from rising interest rates, which are expected to enhance profitability [31] - Management noted that the integration of West Suburban has been smooth, with no significant customer disruptions [7][32] Other Important Information - Total merger-related costs recorded in Q1 2022 were $5.6 million [15] - The company is experiencing wage inflation and challenges in hiring, but is managing expenses effectively [27] Q&A Session Summary Question: Balance sheet mix and liquidity management - Management indicated that they will be cautious with liquidity and not rush into significant investments [36][38] Question: Loan-to-deposit ratio target timeline - Management expects it to take over two years to reach an 80% loan-to-deposit ratio, barring significant macroeconomic changes [39] Question: Margin outlook with Fed rate increases - Management confirmed that each 25 basis point increase in Fed funds would benefit net interest income by $2 million to $3 million after tax [24][42] Question: Cost savings and reinvestment plans - Management stated that they expect to exceed cost-saving targets and will focus on branch rationalization [46][72] Question: Loan origination expectations for the year - Management is optimistic about reaching $800 million to $1 billion in loan originations by year-end [56] Question: Progress of the lending team and new hires - Management confirmed that the new lending team is producing well, particularly in commercial real estate and healthcare [65][68] Question: Tax rate expectations - Management indicated a tax rate expectation of around 25% moving forward [48]