Old Second Bancorp(US:OSBC)2021-01-28 20:34Financial Data and Key Metrics Changes - Net income for Q4 2020 was $8 million, or $0.27 per diluted share, impacted by $1.3 million in MSR valuation mark-to-market losses despite strong mortgage banking performance [6] - Net interest income increased by $1.4 million from the previous quarter and $700,000 from Q4 2019, positively influenced by the forgiveness of $62.6 million in PPP loans [19][20] - The loan to deposit ratio was slightly over 80% at year-end, stable compared to the previous quarter and significantly improved from 90.8% a year ago [7] Business Line Data and Key Metrics Changes - Fee income declined from the previous quarter due to a seasonal slowdown in mortgage banking revenues and higher mark-to-market losses on MSRs [6][20] - Non-performing and classified assets saw slight increases, but overall asset quality trends remained stable [9] - Loans under modification accounted for approximately 1.4% of the loan book, with 86% of COVID-19 related deferrals returning to payment status or paid off by year-end 2020 [10] Market Data and Key Metrics Changes - Approximately $63 million of PPP loans were forgiven during the quarter, contributing to an increase in net interest margin [7] - The economic outlook remains cautious, with expectations of a prolonged recession and an unemployment rate around 7% through September 2021 [23] Company Strategy and Development Direction - The company is focused on maintaining expense discipline while cautiously deploying excess liquidity into short-dated assets [19][27] - Management is optimistic about potential M&A opportunities and is open to repurchasing stock, given the strong capital position [27][78] - The strategy includes enhancing Chicago distribution and maintaining a disciplined credit culture [80][102] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the underlying economy improving, while acknowledging potential risks from high unemployment and changing consumer demand [12][16] - The company is closely monitoring trends in retail and office commercial real estate, indicating a cautious but proactive approach to new lending relationships [16] - Overall, management remains encouraged by trends in several areas and confident in the strength of the balance sheet [29] Other Important Information - The company has minimal exposure to the hardest-hit industries and has seen marked improvements in credit trends [24][25] - The reserve level stands at 1.73% of total loans, with a focus on maintaining adequate reserves under various economic scenarios [11][12] Q&A Session Summary Question: Capital and Buyback Strategy - Inquiry about the potential for aggressive stock buybacks given high capital levels, with management indicating it is a consideration but with caution due to economic uncertainties [36][38] Question: Revenue Outlook - Discussion on net interest income growth excluding PPP loans, with management expressing confidence in offsetting PPP runoff with better yields from new loans [44][46] Question: Expense Growth and Hiring - Questions regarding expense growth expectations for 2021, with management anticipating a 3% to 4% increase primarily due to returning healthcare claims [55] Question: Loan Growth Drivers - Inquiry about loan growth drivers excluding PPP, with management highlighting successful closures in large relationships and sectors like healthcare [56] Question: M&A Activity - Questions about ongoing M&A conversations and the tone from potential partners, with management noting rational expectations from sellers in the current environment [77][78]