Old Second Bancorp(US:OSBC)2020-10-22 19:17Financial Data and Key Metrics Changes - Net income for Q3 2020 was $10.3 million, or $0.34 per diluted share, positively impacted by higher volumes of mortgage banking activity and net gains on the sale of mortgage loans [6] - Net interest income declined slightly due to reductions in interest rates on variable rate loans, with a reported taxable equivalent margin reduction of 31 basis points [6][16] - The loan to deposit ratio decreased from 84% to 82% due to increased liquidity [6] Business Line Data and Key Metrics Changes - Mortgage banking income increased by $950,000 primarily due to net gains on the sale of mortgage loans [18] - Loans under modification stand at approximately 2.4% of the loan book, with 76% of COVID-19 related deferrals returning to payment status [8][9] - Total loans decreased by $22 million from the previous quarter due to continuing payoff activity and softer origination volume [13] Market Data and Key Metrics Changes - The company has minimal exposure to the hardest-hit industries, with zero direct energy or aircraft exposure and limited hotel and restaurant lending [11] - The overall economic forecast remains cautious, projecting significant economic stress and elevated unemployment rates [12] Company Strategy and Development Direction - The company is focused on protecting employees and customers while seeking new lending relationships [10][12] - Management is optimistic about future opportunities to improve the franchise, emphasizing the importance of timing and liquidity [24] Management's Comments on Operating Environment and Future Outlook - Management remains cautious but encouraged by current trends, confident in the balance sheet, and believes the portfolio is well diversified [12][23] - The company expects to face losses but believes its capital and liquidity position is strong enough to withstand economic challenges [12][20] Other Important Information - The company announced two new additions to its Board of Directors, enhancing its governance and strategic direction [25] - The provision for loan loss totaled $300,000 in Q3, reflecting a cautious approach to potential future losses [19] Q&A Session Summary Question: Loan growth outlook and unfunded commitment ACL - Management sees a pipeline starting to build again and expects to stabilize the portfolio with potential growth in Q4 [27] Question: Core NIM outlook and compression expectations - Management indicated that core NIM is expected to experience some compression due to elevated excess liquidity [29][31] Question: Credit performance and classified loans - A modest uptick in classified loans was noted, with proactive measures in place to manage credit quality [32] Question: Expected losses and risk areas - The leasing portfolio, particularly in the motor coach industry, is identified as having the highest risk for potential losses [36] Question: Reserve assumptions and stimulus package - Management does not currently have expectations built into reserves for a stimulus package [40] Question: Expense management and efficiency - The company has maintained a sub-60% efficiency ratio and plans to continue managing expenses tightly [44] Question: Capital return and buyback expectations - Management indicated a willingness to continue returning capital through buybacks if visibility improves [45] Question: Updates on retail and office portfolios - The retail portfolio shows some concern in smaller retail strips, while the office portfolio remains stable with no loans on deferral [59][61]