EX-99.1 2 a13-10555_1ex99d1.htm EX-99.1

Exhibit 99.1

 

Old Second Bancorp, Inc.

For Immediate Release

(NASDAQ: OSBC)

April 24, 2013

 

 

Contact:

J. Douglas Cheatham

 

Chief Financial Officer

 

(630) 906-5484

 

 

 

Old Second Bancorp, Inc. Announces First Quarter Net Income of $5.5 million

 

Continues to maintain strong capital ratios, prudent asset quality management and expense control.

 

Successful loan workout program resolves several sizable problem assets.

 

Significant recoveries of charged off loans substantiate loan loss reserve release.

 

 

AURORA, IL, April 24, 2013 – Old Second Bancorp, Inc. (the “Company” or “Old Second”) (NASDAQ: OSBC), parent company of Old Second National Bank (the “Bank”), today announced results of operations for the first quarter of 2013.  The Company reported a net income of $5.5 million, compared to a net loss of $3.0 million in the first quarter of 2012.  The Company’s net income available to common shareholders of $4.2 million, or $0.30 per diluted share, for the quarter compared to a net loss available to common shareholders of $4.2 million, or $0.30 per diluted share, in the first quarter of 2012.

 

Bill Skoglund, Chairman and CEO said “First quarter results depict a once again profitable organization transitioning through an improving but still challenging marketplace.  Our businesses are working through difficult issues in an environment of historically low interest rates while facing intense competition from both smaller scale community banking entities as well as much larger financial entities.  We also continue to make great progress in putting legacy asset quality issues behind us.”

 

“Nonperforming loans (nonaccrual and other troubled relationships) dropped by 44.3% year over year and 15.5% since December 31, 2012.  Our continuing portfolio of other real estate owned properties has benefited from improving market conditions as property valuation decreases have somewhat moderated.  Our Bank and Company regulatory capital ratios remained strong with the Bank leverage ratio at 9.94% for March 31 under a very liquid balance sheet profile.  Our lending teams continue to make progress on stabilizing total loans and building pipelines in the quarter although loan volume is down since year-end 2012.  While it will take additional time to work through remaining past asset quality issues as the economic environment slowly improves, we have an organization wide commitment to realizing our core earnings potential for shareholders.”

 

The Company’s release of $2.5 million from its loan loss reserve for the first quarter of 2013 benefited earnings and compares to a $6.1 million provision in the first quarter of 2012.  The allowance for loan losses was 55.33% of nonperforming loans as of March 31, 2013, an increase from 46.73% as of December 31, 2012, and compared to 37.95% a year earlier.  Old Second further improved its overall asset quality by maintaining an elevated level of investment securities while improving overall portfolio duration under its investment program.

 

1



 

2013 Financial Highlights/Overview

 

Earnings

 

·                 First quarter net income before taxes of $5.5 million compared to a net loss before taxes of $3.0 million in the same quarter of 2012.

·                 First quarter net income available to common stockholders of $4.2 million compared to a net loss to common stockholders of $4.2 million in the same quarter of 2012.

·                 The tax-equivalent net interest margin was 3.18% during the first quarter of 2013 compared to 3.48% in the same quarter of 2012, and reflected an increase of 1 basis point compared to the fourth quarter of 2012.

·                 Noninterest income of $10.6 million was $132,000 higher for the quarter ended March 31, 2013, as compared to 2012, reflecting higher gains on securities sold and recapture of expense previously recorded on restricted stock awards.

·                 Noninterest expenses of $21.5 million were $925,000 or 4.1% lower in the quarter ended March 31, 2013 than in the same period in 2012, reflecting overall expense control and reduced expenses in most categories most notably in other real estate owned (“OREO”) expenses and legal fees.

 

Capital

 

 

 

March 31,

 

December 31,

 

Basis Point

 

 

2013

 

2012

 

Change

The Bank’s leverage capital ratio

 

9.94%

 

9.67%

 

0.27%

The Bank’s total capital ratio

 

15.56%

 

14.86%

 

0.70%

The Company’s leverage capital ratio

 

5.11%

 

4.85%

 

0.26%

The Company’s total capital ratio

 

14.13%

 

13.62%

 

0.51%

The Company’s tangible common equity to tangible assets

 

0.05%

 

(0.13)%

 

0.18%

 

Asset Quality & Earning Assets Review

 

·               Nonperforming loans declined $12.8 million (15.5%) during the first quarter of 2013 to $69.8 million as of March 31, 2013, from $82.6 million as of December 31, 2012.  Our March 31, 2013, lower level of nonperforming loans as measured at quarter-end was the lowest since September 30, 2008.  Nonperforming loans declined primarily because of successful negotiations by our staff with guarantors and movement to OREO, as well as loans being upgraded to accruing status.

 

·               Loans that were classified as performing but 30 to 89 days past due and still accruing interest decreased to $10.9 million at March 31, 2013, from $12.9 million at December 31, 2012, and increased from $7.4 million at March 31, 2012.

 

·              OREO declined from $72.4 million at December 31, 2012, to $65.7 million at March 31, 2013.  Property dispositions totaling $11.7 million were offset by new OREO and improvements to existing OREO of $7.0 million.  Valuation write-downs of properties held for sale reduced the reported total by $2.1 million with related expense recognized.

 

·              Securities available-for-sale decreased $4.1 million during 2013 to $575.7 million from $579.9 million at December 31, 2012.  At $220.7 million (38.3% of the portfolio) and $131.7 million (22.9% of total) asset-backed securities and collateralized mortgage-backed securities were the largest components of the portfolio as of March 31, 2013.  Asset-backed securities were heavily oriented to those backed by student loan debt under a guarantee from the U.S. Department of Education.

 

2



 

Net Interest Income

 

ANALYSIS OF AVERAGE BALANCES,

TAX EQUIVALENT INTEREST AND RATES

Three Months ended March 31, 2013, and 2012

(Dollar amounts in thousands - unaudited)

 

 

 

 

 

2013

 

 

 

 

 

2012

 

 

 

 

Average

 

 

 

 

 

Average

 

 

 

 

 

 

Balance

 

Interest

 

Rate

 

Balance

 

Interest

 

Rate

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing deposits

 

  $

68,995

 

  $

42

 

0.24%

 

  $

44,018

 

  $

25

 

0.22%

Securities:

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

548,231

 

2,298

 

1.68

 

326,886

 

1,498

 

1.83

Non-taxable (tax equivalent)

 

10,002

 

183

 

7.32

 

10,579

 

159

 

6.01

Total securities

 

558,233

 

2,481

 

1.78

 

337,465

 

1,657

 

1.96

Dividends from FRB and FHLB stock

 

11,202

 

76

 

2.71

 

13,325

 

74

 

2.22

Loans and loans held-for-sale 1

 

1,143,666

 

14,971

 

5.24

 

1,357,670

 

17,774

 

5.18

Total interest earning assets

 

1,782,096

 

17,570

 

3.94

 

1,752,478

 

19,530

 

4.41

Cash and due from banks

 

29,913

 

-

 

-

 

16,409

 

-

 

-

Allowance for loan losses

 

(38,994)

 

-

 

-

 

(51,362)

 

-

 

-

Other noninterest bearing assets

 

203,417

 

-

 

-

 

239,989

 

-

 

-

Total assets

 

  $

1,976,432

 

 

 

 

 

  $

1,957,514

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

NOW accounts

 

  $

291,051

 

  $

64

 

0.09%

 

  $

277,077

 

  $

72

 

0.10%

Money market accounts

 

329,377

 

123

 

0.15

 

300,762

 

166

 

0.22

Savings accounts

 

221,889

 

41

 

0.07

 

205,165

 

62

 

0.12

Time deposits

 

505,685

 

1,853

 

1.49

 

593,561

 

2,605

 

1.77

Interest bearing deposits

 

1,348,002

 

2,081

 

0.63

 

1,376,565

 

2,905

 

0.85

Securities sold under repurchase agreements

 

20,264

 

1

 

0.02

 

1,675

 

-

 

-

Other short-term borrowings

 

43,833

 

19

 

0.17

 

10,165

 

3

 

0.12

Junior subordinated debentures

 

58,378

 

1,287

 

8.82

 

58,378

 

1,197

 

8.20

Subordinated debt

 

45,000

 

196

 

1.74

 

45,000

 

237

 

2.08

Notes payable and other borrowings

 

500

 

4

 

3.20

 

500

 

4

 

3.16

Total interest bearing liabilities

 

1,515,977

 

3,588

 

0.95

 

1,492,283

 

4,346

 

1.17

Noninterest bearing deposits

 

353,476

 

-

 

-

 

367,760

 

-

 

-

Other liabilities

 

33,585

 

-

 

-

 

21,959

 

-

 

-

Stockholders’ equity

 

73,394

 

-

 

-

 

75,512

 

-

 

-

Total liabilities and stockholders’ equity

 

  $

1,976,432

 

 

 

 

 

  $

1,957,514

 

 

 

 

Net interest income (tax equivalent)

 

 

 

  $

13,982

 

 

 

 

 

  $

15,184

 

 

Net interest income (tax equivalent) to total earning assets

 

 

 

 

 

3.18%

 

 

 

 

 

3.48%

Interest bearing liabilities to earning assets

 

85.07%

 

 

 

 

 

85.15%

 

 

 

 

 

Interest income from loans is shown on a tax equivalent basis as discussed in the table on page 16 and includes fees of $671,000 and $417,000 for the first quarter of 2013 and 2012, respectively.  Nonaccrual loans are included in the above stated average balances.

 

Note: Tax equivalent basis is calculated using a marginal tax rate of 35%.

 

Net interest and dividend income decreased $1.2 million, from $15.1 million for the quarter ended March 31, 2012, to $13.9 million for the quarter ended March 31, 2013.  Average earning assets increased $29.6 million, or 1.7%, from $1.75 billion in the first quarter of 2012, to $1.78 billion in the first quarter of 2013 as a result of growth in investment securities, as management continued to emphasize asset quality and new loan originations continued to be limited.  Average loans, including loans held for sale, decreased $214.0 million from the first quarter of 2012 to the first quarter of 2013.

 

3



 

Asset Quality

 

Loan Charge-offs, net of recoveries

 

Three Months Ended

(in thousands)

 

March 31,

 

December 31,

 

March 31,

 

 

2013

 

2012

 

2012

Real estate-construction

 

 

 

 

 

 

Homebuilder

 

  $

3

 

  $

426

 

  $

632

Land

 

(1) 

 

14

 

(666) 

Commercial speculative

 

(767) 

 

180

 

284

All other

 

(1) 

 

51

 

(17) 

Total real estate-construction

 

(766) 

 

671

 

233

Real estate-residential

 

 

 

 

 

 

Investor

 

(149) 

 

987

 

1,160

Owner occupied

 

(19) 

 

342

 

670

Revolving and junior liens

 

349

 

530

 

296

Total real estate-residential

 

181

 

1,859

 

2,126

Real estate-commercial, nonfarm

 

 

 

 

 

 

Owner general purpose

 

(19) 

 

46

 

830

Owner special purpose

 

117

 

131

 

2,376

Non-owner general purpose

 

(317) 

 

(1,608) 

 

1,032

Non-owner special purpose

 

(824) 

 

-

 

(46) 

Retail properties

 

(1,173) 

 

367

 

3,899

Total real estate-commercial, nonfarm

 

(2,216) 

 

(1,064) 

 

8,091

Real estate-commercial, farm

 

-

 

-

 

-

Commercial

 

235

 

151

 

4

Other

 

29

 

43

 

17

 

 

  $

(2,537) 

 

  $

1,660

 

  $

10,471

 

Large recoveries in the real estate construction segment resulted from a settlement with a guarantor.  Large recoveries in the real estate commercial segment stemmed from settlements of large relationships for cash and in some instances collateral property going to OREO.  Charge off activity continued to be moderate and improved from last year.

 

(in thousands)

 

Nonperforming Loans as of

 

March 31, 2013
Dollar change From

 

 

March 31,

 

December 31,

 

March 31,

 

December 31,

 

March 31,

 

 

2013

 

2012

 

2012

 

2012

 

2012

Real estate-construction

 

  $

8,040

 

  $

9,877

 

  $

24,072

 

  $

(1,837) 

 

  $

(16,032) 

Real estate-residential:

 

 

 

 

 

 

 

 

 

 

Investor

 

8,524

 

9,910

 

15,855

 

(1,386) 

 

(7,331) 

Owner occupied

 

8,269

 

10,610

 

18,399

 

(2,341) 

 

(10,130) 

Revolving and junior liens

 

3,776

 

3,832

 

2,835

 

(56) 

 

941

Real estate-commercial, nonfarm

 

38,588

 

45,064

 

61,309

 

(6,476) 

 

(22,721) 

Real estate-commercial, farm

 

2,417

 

2,517

 

1,722

 

(100) 

 

695

Commercial

 

210

 

762

 

1,247

 

(552) 

 

(1,037) 

Other

 

-

 

23

 

-

 

(23) 

 

-

 

 

  $

69,824

 

  $

82,595

 

  $

125,439

 

  $

(12,771) 

 

  $

(55,615) 

 

Nonperforming loans consist of nonaccrual loans, nonperforming restructured accruing loans and loans 90 days or greater past due.  The largest decrease in the nonperforming loans since December 31, 2012 was in the real estate – commercial, nonfarm segment as upgrades and migration to OREO were greater than the migration of loans to nonaccrual.

 

4


 


 

(in thousands)

 

Classified loans as of

 

March 31, 2013
Dollar Change From

 

 

 

March 31,

 

December 31,

 

March 31,

 

December 31,

 

March 31,

 

 

 

2013

 

2012

 

2012

 

2012

 

2012

 

Real estate-construction

 

$

12,656

 

$

14,140

 

$

29,161

 

$

(1,484)

 

$

 (16,505)

 

Real estate-residential:

 

 

 

 

 

 

 

 

 

 

 

Investor

 

8,913

 

12,007

 

32,220

 

(3,094)

 

(23,307)

 

Owner occupied

 

10,463

 

12,946

 

16,764

 

(2,483)

 

(6,301)

 

Revolving and junior liens

 

5,722

 

5,694

 

4,374

 

28 

 

1,348 

 

Real estate-commercial, nonfarm

 

61,442

 

67,851

 

104,977

 

(6,409)

 

(43,535)

 

Real estate-commercial, farm

 

2,417

 

2,517

 

3,663

 

(100)

 

(1,246)

 

Commercial

 

747

 

1,063

 

1,705

 

(316)

 

(958)

 

Other

 

1

 

26

 

10

 

(25)

 

(9)

 

 

 

$

102,361

 

$

116,244

 

$

192,874

 

$

(13,883)

 

$

 (90,513)

 

 

Classified loans include nonaccrual, performing troubled debt restructurings and all other loans considered substandard.  All three components are down since December 31, 2012.  Classified assets includes both classified loans and OREO.  Management monitors a ratio of classified assets to the sum of Bank Tier 1 capital and the allowance for loan and lease loss reserve as another measure of overall change in loan related asset quality.  With the decline in both classified loans and OREO, this ratio improved to 71.2% at March 31, 2013 down from 82.9% at December 31, 2012 and 132.4% at March 31, 2012.

 

Allowance for Loan and Lease Losses

 

Below is a reconciliation for the activity for loan losses for the periods indicated (in thousands):

 

 

 

Three Months Ending

 

 

 

3/31/2013

 

12/31/2012

 

3/31/2012

 

 

 

 

 

 

 

 

 

Allowance at beginning of quarter

 

$

38,597

 

$

40,257

 

$

51,997

 

Charge-offs:

 

 

 

 

 

 

 

Commercial

 

254

 

234

 

10

 

Real estate - commercial

 

508

 

814

 

8,280

 

Real estate - construction

 

4

 

718

 

1,402

 

Real estate - residential

 

585

 

1,990

 

2,291

 

Consumer and other loans

 

172

 

175

 

139

 

Total charge-offs

 

1,523

 

3,931

 

12,122

 

Recoveries:

 

 

 

 

 

 

 

Commercial

 

19

 

83

 

6

 

Real estate - commercial

 

2,724

 

1,878

 

189

 

Real estate - construction

 

770

 

47

 

1,169

 

Real estate - residential

 

404

 

131

 

165

 

Consumer and other loans

 

143

 

132

 

122

 

Total recoveries

 

4,060

 

2,271

 

1,651

 

Net charge-offs

 

(2,537)

 

1,660

 

10,471

 

Provision for loan losses

 

(2,500)

 

-

 

6,084

 

Allowance at end of year

 

$

38,634

 

$

38,597

 

$

47,610

 

 

 

 

 

 

 

 

 

Average total loans (exclusive of loans held-for-sale)

 

$

1,138,579

 

$

1,263,172

 

$

1,900,604

 

Net charge-offs to average loans

 

-0.22%

 

0.13%

 

0.55%

 

Allowance at year end to average loans

 

3.39%

 

3.06%

 

2.50%

 

 

 

 

 

 

 

 

 

Ending balance: Individually evaluated for impairment

 

$

5,038

 

$

6,259

 

$

9,647

 

Ending balance: Collectively evaluated for impairment

 

$

33,596

 

$

32,338

 

$

37,963

 

 

The coverage ratio of the allowance for loan losses to nonperforming loans was 55.33% as of March 31, 2013, which reflects an increase from 46.73% as of December 31, 2012.  A decrease of $12.8 million, or 15.5%, in nonperforming loans in the three months along with reductions in both specific reserves and management general reserves drove the overall coverage ratio change.  Management updated the estimated

 

5



 

specific allocations in the first quarter after receiving more recent appraisals for detailed collateral valuations or information on cash flow trends related to the impaired credits.  The estimated general allocations increased by $1.3 million from December 31, 2012, as the loan balances subject to management factors decreased at March 31, 2013.  Management determined the estimated amount to provide in the allowance for loan losses based upon a number of considerations , including loan growth or contraction, the quality and composition of the loan portfolio and loan loss experience.  The latter item was also weighted more heavily based upon recent loss experience.  The construction and development (“C & D”) portfolio, which has accounted for significant losses in previous periods, has had diminished adverse migration and the remaining credits are exhibiting more stable credit characteristics.  Management believes that adequate reserves have been established for the inherent risk of loss in the C & D portfolio.

 

Management regularly reviews the performance of the higher risk pool within commercial real estate loans, and adjusts the population and the related loss factors taking into account adverse market trends including collateral valuation as well as its assessments of the credits in that pool.  Those assessments capture management’s estimate of the potential for adverse migration to an impaired status as well as its estimation of what the potential valuation impact from that migration would be if it were to occur.  The amount of assets subject to this pool factor decreased by 3.9% at March 31, 2013 as compared to December 31, 2012.  Also, compared to December 31, 2012, management increased the loss factor assigned to this pool by 6.5% based on risk characteristics of the remaining credits.  Management has also observed that many stresses in those credits were generally attributable to cyclical economic events that were showing some signs of stabilization.  Those signs included a reduction in loan migration to watch status, as well as a decrease in 30 to 89 day past due loans and some stabilization in values of certain properties.

 

The above changes in estimates were made by management to be consistent with observable trends within loan portfolio segments and in conjunction with market conditions and credit review administration activities.  Several environmental factors are also evaluated on an ongoing basis and are included in the assessment of the adequacy of the allowance for loan losses. Significant recoveries in the quarter caused management to conclude that a $2.5 million reserve release was justified.  When measured as a percentage of loans outstanding, the total allowance for loan losses decreased from 3.6% of total loans as of March 31, 2012, to 3.47% of total loans at March 31, 2013.  In management’s judgment, an adequate allowance for estimated losses has been established for inherent losses at March 31, 2013; however, there can be no assurance that actual losses will not exceed the estimated amounts in the future.

 

Other Real Estate Owned

 

OREO decreased $6.8 million from $72.4 million at December 31, 2012 to $65.7 million at March 31, 2013.  Disposition activity and valuation writedowns in the first quarter were counterbalanced by numerous but smaller dollar additions to OREO, leading to this overall decrease.  In the first quarter of 2013, management successfully converted collateral securing problem loans to properties ready for disposition, spent as needed on development improvements, transacted asset dispositions and recorded valuation adjustments as shown below in thousands.  As a result, holdings in all categories (vacant land suitable for farming, single family residences, lots suitable for development, multi-family and commercial property) were flat or decreased in the quarter.  Overall, a net gain on sale of $181,000 was realized in the first quarter.

 

6



 

(in thousands)

 

Three Months Ended

 

 

 

March 31,

 

 

 

2013

 

2012

 

Beginning balance

 

$

72,423

 

$

93,290

 

Property additions

 

6,985

 

15,918

 

Development improvements

 

50

 

318

 

Less:

 

 

 

 

 

Property disposals

 

11,661

 

5,346

 

Period valuation adjustments

 

2,134

 

2,500

 

Other real estate owned

 

$

65,663

 

$

101,680

 

 

The OREO valuation reserve decreased to $31.0 million, which is 32.1% of gross OREO at March 31, 2013.  The valuation reserve represented 19.1% and 30.3% of gross OREO at March 31, 2012 and December 31, 2012, respectively.  In management’s judgment, an adequate property valuation allowance has been established to present OREO at current estimates of fair value less costs to sell; however, there can be no assurance that additional losses will not be incurred on disposition or update to valuation in the future.

 

OREO Properties by Type

(in thousands)

 

 

 

March 31, 2013

 

December 31, 2012

 

March 31, 2012

 

 

 

Amount

 

% of Total

 

Amount

 

% of Total

 

Amount

 

% of Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Single family residence

 

$

9,854

 

15%

 

$

10,624

 

15%

 

$

12,533

 

12%

 

Lots (single family and commercial)

 

26,130

 

40%

 

26,473

 

37%

 

35,615

 

35%

 

Vacant land

 

4,610

 

7%

 

6,745

 

9%

 

8,812

 

9%

 

Multi-family

 

2,134

 

3%

 

4,372

 

6%

 

8,297

 

8%

 

Commercial property

 

22,935

 

35%

 

24,209

 

33%

 

36,423

 

36%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total OREO properties

 

$

65,663

 

100%

 

$

72,423

 

100%

 

$

101,680

 

100%

 

 

December 31, 2012 data reflects a $5.9 million reclassification of OREO participations from a liability to a contra OREO asset reduced to $2.6 million at March 31, 2013.  No adjustment has been made in March 31, 2012 data.

 

7



 

Net OREO Aging

(in thousands)

 

 

 

March 31, 2013

 

December 31, 2012

 

March 31, 2012

 

 

 

Amount

 

% of Total

 

Amount

 

% of Total

 

Amount

 

% of Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0-90 Days

 

$

3,929

 

6%

 

$

6,666

 

9%

 

$

14,980

 

15%

 

91-180 Days

 

3,666

 

5%

 

5,762

 

8%

 

9,658

 

9%

 

181 Days - 1 Year

 

5,661

 

9%

 

10,069

 

14%

 

26,864

 

26%

 

1 Year to 2 Years

 

27,067

 

41%

 

25,945

 

36%

 

38,391

 

38%

 

2 Years to 3 Years

 

17,101

 

26%

 

17,605

 

24%

 

7,083

 

7%

 

3 Years to 4 Years

 

4,392

 

7%

 

2,536

 

4%

 

4,704

 

5%

 

4 Years +

 

3,847

 

6%

 

3,840

 

5%

 

-

 

0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

65,663

 

100%

 

$

72,423

 

100%

 

$

101,680

 

100%

 

 

December 31, 2012 data reflects a $5.9 million reclassification of OREO participations from a liability to a contra OREO asset reduced to $2.6 million at March 31, 2013.  No adjustment has been made in the March 31, 2012 data.

 

As part of our OREO management process, we age or track the time that OREO is held for sale.  The table above shows that, in total, where 31% of our OREO at December 31, 2012, had been held for less than one year, that percentage dropped to 20% at March 31, 2013.  When properties are tracked as being held for one to three years, the percentage of total OREO in that age class rose to 67% at March 31, 2013, up from 60% at December 31, 2012.  While the totals held for more than three years were smaller than other aging categories, a similar trend was found in properties held in OREO for more than three years (13% as of March 31, 2013, up 4% and 8% from December 31, 2012 and March 31, 2012, respectively) with approximately $3.9 million held for over four years at March 31, 2013.

 

Noninterest Income

 

Noninterest Income Analysis

(in thousands)

 

 

 

Three Months Ended

 

March 31, 2013
Dollar Change From

 

 

 

March 31,

 

December 31,

 

March 31,

 

December 31,

 

March 31,

 

 

 

2013

 

2012

 

2012

 

2012

 

2012

 

Noninterest income

 

 

 

 

 

 

 

 

 

 

 

Trust income

 

$

1,491

 

$

1,438

 

$

1,651

 

$

53

 

$

(160)

 

Service charges on deposits

 

1,677

 

1,976

 

1,831

 

(299)

 

(154)

 

Residential mortgage revenue

 

2,450

 

3,605

 

3,130

 

(1,155)

 

(680)

 

Securities gains, net

 

1,453

 

269

 

101

 

1,184

 

1,352

 

Increase in cash surrender value of bank-owned life insurance

 

407

 

362

 

495

 

45

 

(88)

 

Debit card interchange income

 

792

 

886

 

760

 

(94)

 

32

 

Lease revenue from other real estate owned

 

408

 

567

 

1,179

 

(159)

 

(771)

 

Net gain on sales of other real estate owned

 

181

 

1,800

 

23

 

(1,619)

 

158

 

Other income

 

1,737

 

803

 

1,294

 

934

 

443

 

Total noninterest income

 

$

10,596

 

$

11,706

 

$

10,464

 

$

(1,110)

 

$

132

 

 

Active portfolio management and our efforts to shorten overall portfolio duration produced gains on securities sales in first quarter 2013 that are up sharply from prior periods.  The significant increase in other noninterest income from past periods reflects recapture of $611 thousand in expense previously recorded on restricted stock awards.  As a result of the U.S. Treasury auction of preferred stock in first quarter, stock previously granted to executives was recaptured by the Company by TARP regulations.

 

8



 

Noninterest Expense

 

Noninterest Expense Analysis

(in thousands)

 

 

 

Three Months Ended

 

March 31, 2013
Dollar Change From

 

 

 

March 31,

 

December 31,

 

March 31,

 

December 31,

 

March 31,

 

 

 

2013

 

2012

 

2012

 

2012

 

2012

 

Noninterest expense

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

$

9,032

 

$

8,154

 

$

9,049

 

$

878

 

$

(17)

 

Occupancy expense, net

 

1,279

 

1,157

 

1,235

 

122

 

44

 

Furniture and equipment expense

 

1,144

 

1,198

 

1,155

 

(54)

 

(11)

 

FDIC insurance

 

1,035

 

973

 

1,000

 

62

 

35

 

General bank insurance

 

849

 

846

 

846

 

3

 

3

 

Amortization of core deposit intangible assets

 

525

 

537

 

195

 

(12)

 

330

 

Advertising expense

 

166

 

327

 

318

 

(161)

 

(152)

 

Debit card interchange expense

 

344

 

365

 

342

 

(21)

 

2

 

Legal fees

 

323

 

961

 

685

 

(638)

 

(362)

 

OREO valuation expense

 

1,987

 

4,284

 

2,500

 

(2,297)

 

(513)

 

Other OREO expense

 

1,699

 

2,087

 

2,154

 

(388)

 

(455)

 

Other expense

 

3,144

 

3,210

 

2,973

 

(66)

 

171

 

Total noninterest expense

 

$

21,527

 

$

24,099

 

$

22,452

 

$

(2,572)

 

$

(925)

 

 

Salaries and benefits are up from fourth quarter 2012 on accrual of management bonus amounts under a Board approved incentive plan.  Amortization expense related to core deposit intangible assets increased as the value of those deposits has dropped in the current historically low interest rate environment.  Legal fees expenses dropped as management control of legal expense continued and expanded.  OREO valuation expenses decreased as property valuations declines, while still sizable, are more moderate than seen in the last fifteen months.

 

Additional Loan Detail (in thousands)

 

 

 

Major Classification of Loans as of

 

March 31, 2013

Dollar Change From

 

 

 

March 31,

 

December 31,

 

March 31,

 

December 31,

 

March 31,

 

 

 

2013

 

2012

 

2012

 

2012

 

2012

 

Commercial and industrial

 

$

84,332

 

$

86,941

 

$

103,203

 

$

(2,609)

 

$

(18,871)

 

Real estate - commercial

 

566,349

 

579,687

 

676,297

 

(13,338)

 

(109,948)

 

Real estate - construction

 

40,698

 

42,167

 

60,285

 

(1,469)

 

(19,587)

 

Real estate - residential

 

394,599

 

414,543

 

464,596

 

(19,944)

 

(69,997)

 

Installment

 

2,908

 

3,101

 

3,544

 

(193)

 

(636)

 

Overdraft

 

584

 

994

 

234

 

(410)

 

350 

 

Lease financing receivables

 

8,574

 

6,060

 

1,944

 

2,514 

 

6,630 

 

Other

 

15,022

 

16,451

 

12,211

 

(1,429)

 

2,811 

 

 

 

1,113,066

 

1,149,944

 

1,322,314

 

(36,878)

 

(209,248)

 

Net deferred loan costs and (fees)

 

236

 

106

 

34

 

130 

 

202 

 

 

 

$

1,113,302

 

$

1,150,050

 

$

1,322,348

 

$

(36,748)

 

$

(209,046)

 

 

The decrease in loans is primarily related to satisfactory resolution of classified credits and an overriding effort to develop relationship based loan clients.  Despite difficult economic conditions and an intensely competitive environment, loan pipelines continued to build with first quarter 2013 new business exceeding new business in first quarter 2012.  Several new Relationship Managers are expected to further develop this trend.

 

9



 

Additional Securities Detail

 

(in thousands)

 

Securities at Fair Value as of

 

March 31, 2013
Dollar Change From

 

 

 

March 31,

 

December 31,

 

March 31,

 

December 31,

 

March 31,

 

 

 

2013

 

2012

 

2012

 

2012

 

2012

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

$

1,502

 

$

1,507

 

$

1,519

 

$

(5)

 

$

(17)

 

U.S. government agencies

 

69,265

 

49,850

 

45,336

 

19,415

 

23,929

 

U.S. government agency mortgage-backed

 

76,352

 

128,738

 

154,678

 

(52,386)

 

(78,326)

 

States and political subdivisions

 

27,015

 

15,855

 

15,719

 

11,160

 

11,296

 

Corporate Bonds

 

38,579

 

36,886

 

37,160

 

1,693

 

1,419

 

Collateralized mortgage obligations

 

131,669

 

169,600

 

47,153

 

(37,931)

 

84,516

 

Asset-backed securities

 

220,737

 

167,493

 

48,104

 

53,244

 

172,633

 

Collateralized debt obligations

 

10,627

 

9,957

 

9,702

 

670

 

925

 

 

 

$

575,746

 

$

579,886

 

$

359,371

 

$

(4,140)

 

$

216,375

 

 

Deposits Detail

 

 

 

As Of

 

March 31, 2013
Dollar Change From

 

 

 

March 31,

 

December 31,

 

March 31,

 

December 31,

 

March 31,

 

(in thousands)

 

2013

 

2012

 

2012

 

2012

 

2012

 

Noninterest bearing

 

$

351,328

 

$

379,451

 

$

369,619

 

$

(28,123)

 

$

(18,291)

 

Savings

 

230,771

 

216,305

 

213,702

 

14,466

 

17,069

 

NOW accounts

 

303,385

 

286,860

 

287,650

 

16,525

 

15,735

 

Money market accounts

 

331,707

 

323,811

 

310,520

 

7,896

 

21,187

 

Certificates of deposits:

 

 

 

 

 

 

 

 

 

 

 

of less than $100,000

 

312,193

 

318,844

 

366,264

 

(6,651)

 

(54,071)

 

of $100,000 or more

 

188,872

 

191,948

 

216,115

 

(3,076)

 

(27,243)

 

 

 

$

1,718,256

 

$

1,717,219

 

$

1,763,870

 

$

1,037

 

$

(45,614)

 

 

Borrowings

 

One of the Company’s most significant borrowing relationships continued to be the $45.5 million credit facility with Bank of America.  That credit facility began in January 2008 and was originally composed of a $30.5 million senior debt facility and $500,000 in term debt, as well as $45.0 million of subordinated debt.  The subordinated debt and the term debt portion of the senior debt facility mature on March 31, 2018.  The interest rate on the senior debt facility resets quarterly and is based on, at the Company’s option, either the lender’s prime rate or three-month LIBOR plus 90 basis points.  The interest rate on the subordinated debt resets quarterly, and is equal to three-month LIBOR plus 150 basis points.  The Company had no principal outstanding balance on the senior line of credit when it matured, but did have $500,000 in principal outstanding in term debt and $45.0 million in principal outstanding in subordinated debt at the end of both December 31, 2012 and March 31, 2013.  The term debt is secured by all of the outstanding capital stock of the Bank.  The Company has made all required interest payments on the outstanding principal amounts on a timely basis. Pursuant to the Written Agreement with the FRB, the Company must receive the FRB’s approval prior to making any interest payments on the subordinated debt.

 

The credit facility agreement contains usual and customary provisions regarding acceleration of the senior debt upon the occurrence of an event of default by the Company under the senior debt agreement.  The senior debt agreement also contains certain customary representations and warranties and financial and negative covenants.  At March 31, 2013, the Company was out of compliance with one of the financial covenants contained within the credit agreement.  Previously, the Company had been out of compliance with

 

10



 

two of the financial covenants.  The agreement provides that upon an event of default as the result of the Company’s failure to comply with a financial covenant, relating to the senior debt, the lender may (i) terminate all commitments to extend further credit, (ii) increase the interest rate on the revolving line of the term debt  by 200 basis points, (iii) declare the senior debt immediately due and payable and (iv) exercise all of its rights and remedies at law, in equity and/or pursuant to any or all collateral documents, including foreclosing on the collateral.  The total outstanding principal amount of the senior debt is the $500,000 in term debt.  Because the subordinated debt is treated as Tier 2 capital for regulatory capital purposes, the senior debt agreement does not provide the lender with any rights of acceleration or other remedies with regard to the subordinated debt upon an event of default caused by the Company’s failure to comply with a financial covenant.

 

The Company increased its securities sold under repurchase agreements $2.9 million, or 16.4%, from December 31, 2012.  The Company’s other short-term borrowings decreased $100.0 million, from December 31, 2012 as a Federal Home Loan Bank of Chicago advance matured and was not replaced.

 

Capital

 

As of March 31, 2013, total stockholders’ equity was $75.9 million, which was an increase of $3.3 million, or 4.6%, from $72.6 million as of December 31, 2012.  This increase was primarily attributable to the net income from operations in the first quarter of 2013.  Additionally, Total Stockholders’ Equity was affected by the Company not accruing a dividend for part of the first quarter of 2013 on its Series B Perpetual Preferred Stock (the “Series B Stock”).  As of March 31, 2013, the Company’s regulatory ratios of total capital to risk weighted assets, Tier 1 capital to risk weighted assets and Tier 1 leverage increased to 14.13%, 7.35%, and 5.11%, respectively, compared to 13.62%, 6.81%, and 4.85%, respectively, at December 31, 2012.  The Company, on a consolidated basis, exceeded the minimum ratios to be deemed “adequately capitalized” under regulatory defined capital ratios at March 31, 2013.  The same capital ratios at the Bank were 15.56%, 14.29% and 9.94%, respectively, at March 31, 2013, compared to 14.86%, 13.59%, and 9.67%, at December 31, 2012.  The Bank’s ratios exceeded the heightened capital ratios agreed to in the consent order the Bank entered with the Office of the Comptroller of Currency (“OCC”) in the May 2011 Consent Order (“Consent Order”).

 

In July 2011, the Company also entered into a written agreement (the “Written Agreement”) with the Federal Reserve Bank of Chicago (the “Reserve Bank”) designed to maintain the financial soundness of the Company.  Key provisions of the Written Agreement include restrictions on the Company’s payment of dividends on its capital stock, restrictions on its taking of dividends or other payments from the Bank that reduce the Bank’s capital, restrictions on subordinated debenture and trust preferred security distributions, restrictions on incurring additional debt or repurchasing stock, capital planning provisions, requirements to submit cash flow projections to the Reserve Bank, requirements to comply with certain notice provisions pertaining to changes in directors or senior management, requirements to comply with regulatory restrictions on indemnification and severance payments, and requirements to submit certain reports to the Reserve Bank.  The Written Agreement also calls for the Company to serve as a source of strength for the Bank, including ensuring that the Bank complies with the Consent Order.

 

In addition to the above regulatory ratios, the Company’s non-GAAP tangible common equity to tangible assets and the Tier 1 common equity to risk weighted assets increased to 0.05% and 0.20%, respectively, at March 31, 2013, compared to (0.13)% and (0.12)%, respectively, at December 31, 2012.

 

As previously announced in the third quarter of 2010, the Company elected to defer regularly scheduled interest payments on $58.4 million of junior subordinated debentures related to the trust preferred securities issued by its two statutory trust subsidiaries, Old Second Capital Trust I and Old Second Capital Trust II (the “Trust Preferred Securities”).  Because of the deferral on the subordinated debentures, the trusts will defer regularly scheduled dividends on their trust preferred securities.  The total accumulated interest on the Trust Preferred Securities including compounded interest from July 1, 2010 on the deferred payments totaled $13.0 million at March 31, 2013.

 

11



 

During the fourth quarter 2012, the U.S. Treasury (“Treasury”) announced the continuation of individual auctions of the preferred stock that was issued through the Troubled Asset Relief Program and Capital Purchase Program (the “CPP”).  At this time, the Company was informed that the Series B Stock would be auctioned.    Auctions were held and transactions were settled in first quarter 2013 reflecting Treasury’s efforts to conclude the Troubled Asset Relief Program Capital Purchase Program.  The auctions were successful for Treasury as all of the Series B Stock held by Treasury was sold to third parties, including certain of our directors.  At December 31, 2012 Old Second Bancorp carried $71.9 million of Series B Stock in Total Stockholders Equity.  At March 31, 2013, the Company carried $72.1 million of Series B Stock, which reflected a reduced dividend accrual for the quarter, as discussed below.

 

As a result of the completed auctions, the Company’s Board elected to stop accruing the dividend on the Series B Stock.  Previously, the Company had declared and accrued the dividend on the Series B Stock quarterly throughout the deferral period.  Given the discount reflected in the results of the auction, the Board believes that the Company will likely be able to repurchase the Series B Stock in the future at a price less than the face amount of the Series B Stock plus accrued and unpaid dividends.  Therefore, under GAAP, the Company did not fully accrue the dividend on the Series B Stock in the first quarter and does not anticipate accruing for it through the second quarter.  The Company will continue to evaluate whether declaring dividends on the Series B Stock is appropriate in future periods.  Pursuant to the terms of the Series B Stock, the dividends paid on the Series B Stock will increase from 5% to 9% in 2014.

 

Non-GAAP Presentations: Management has traditionally disclosed certain non-GAAP ratios to evaluate and measure the Company’s performance, including a net interest margin calculation.  The net interest margin is calculated by dividing net interest income on a tax equivalent basis by average earning assets for the period.  Management believes this measure provides investors with information regarding balance sheet profitability.  Management also presents an efficiency ratio that is non-GAAP.  The efficiency ratio is calculated by dividing adjusted noninterest expense by the sum of net interest income on a tax equivalent basis and adjusted noninterest income.  Management believes this measure provides investors with information regarding the Company’s operating efficiency and how management evaluates performance internally.  Consistent with industry practice, management also disclosed the tangible common equity to tangible assets and the Tier 1 common equity to risk weighted assets in the discussion immediately above and in the following tables.  The tables provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.

 

Forward Looking Statements: This report may contain forward-looking statements.  Forward looking statements are identifiable by the inclusion of such qualifications as expects, intends, believes, may, likely or other indications that the particular statements are not based upon facts but are rather based upon the Company’s beliefs as of the date of this release.  Actual events and results may differ significantly from those described in such forward-looking statements, due to changes in the economy, interest rates or other factors.  Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events.  For additional information concerning the Company and its business, including other factors that could materially affect the Company’s financial results, please review our filings with the Securities and Exchange Commission.

 

12



 

Financial Highlights (unaudited)

 

 

 

 

 

 

 

 

 

 

In thousands, except share data

 

 

As of and for the

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Quarter Ended

 

 

 

March 31,

 

 

December 31,

 

 

 

2013

 

2012

 

 

 

2012

 

Summary Statements of Operations:

 

 

 

 

 

 

 

 

 

 

Net interest and dividend income

 

 

$

13,902

 

$

15,104

 

 

 

$

13,917

 

Provision for loan losses

 

 

(2,500

)

6,084

 

 

 

-

 

Noninterest income

 

 

10,596

 

10,464

 

 

 

11,706

 

Noninterest expense

 

 

21,527

 

22,452

 

 

 

24,099

 

Provision for income taxes

 

 

-

 

-

 

 

 

-

 

Net income (loss)

 

 

5,471

 

(2,968

)

 

 

1,524

 

Net income (loss) available to common stockholders

 

 

4,182

 

(4,191

)

 

 

253

 

Key Ratios (annualized):

 

 

 

 

 

 

 

 

 

 

Return on average assets

 

 

1.12%

 

(0.61%

)

 

 

0.31%

 

Return to common stockholders on average assets

 

 

0.86%

 

(0.86%

)

 

 

0.05%

 

Return on average equity

 

 

30.23%

 

(15.81%

)

 

 

8.45%

 

Return on average common equity

 

 

1218.41%

 

(372.68%

)

 

 

4026.00%

 

Net interest margin (non-GAAP tax equivalent)1

 

 

3.18%

 

3.48%

 

 

 

3.17%

 

Efficiency ratio (non-GAAP tax equivalent)1

 

 

75.51%

 

69.28%

 

 

 

72.76%

 

Tangible common equity to tangible assets2

 

 

0.05%

 

(0.25%

)

 

 

(0.13%

)

Tier 1 common equity to risk weighted assets2

 

 

0.20%

 

(0.28%

)

 

 

(0.12%

)

Company total capital to risk weighted assets 3

 

 

14.13%

 

11.79%

 

 

 

13.62%

 

Company tier 1 capital to risk weighted assets 3

 

 

7.35%

 

5.90%

 

 

 

6.81%

 

Company tier 1 capital to average assets

 

 

5.11%

 

4.68%

 

 

 

4.85%

 

Bank total capital to risk weighted assets 3

 

 

15.56%

 

12.88%

 

 

 

14.86%

 

Bank tier 1 capital to risk weighted assets 3

 

 

14.29%

 

11.61%

 

 

 

13.59%

 

Bank tier 1 capital to average assets

 

 

9.94%

 

9.22%

 

 

 

9.67%

 

Per Share Data:

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share

 

 

$0.30

 

($0.30

)

 

 

$0.02

 

Diluted earnings (loss) per share

 

 

$0.30

 

($0.30

)

 

 

$0.02

 

Dividends declared per share

 

 

$0.00

 

$0.00

 

 

 

$0.00

 

Common book value per share

 

 

$0.27

 

($0.04

)

 

 

$0.05

 

Tangible common book value per share

 

 

$0.07

 

($0.35

)

 

 

($0.18

)

Ending number of shares outstanding

 

 

13,882,910

 

14,084,328

 

 

 

14,084,328

 

Average number of shares outstanding

 

 

14,076,114

 

14,043,545

 

 

 

14,084,328

 

Diluted average shares outstanding

 

 

14,157,523

 

14,196,143

 

 

 

14,210,928

 

End of Period Balances:

 

 

 

 

 

 

 

 

 

 

Loans

 

 

$

1,113,302

 

$

1,322,348

 

 

 

$

1,150,050

 

Deposits

 

 

1,718,256

 

1,763,870

 

 

 

1,717,219

 

Stockholders’ equity

 

 

75,854

 

70,611

 

 

 

72,552

 

Total earning assets

 

 

1,770,546

 

1,741,869

 

 

 

1,834,995

 

Total assets

 

 

1,954,044

 

1,981,548

 

 

 

2,045,799

 

Average Balances:

 

 

 

 

 

 

 

 

 

 

Loans

 

 

$

1,138,579

 

$

1,349,443

 

 

 

$

1,193,808

 

Deposits

 

 

1,701,478

 

1,744,325

 

 

 

1,710,035

 

Stockholders’ equity

 

 

73,394

 

75,512

 

 

 

71,768

 

Total earning assets

 

 

1,782,096

 

1,752,478

 

 

 

1,754,473

 

Total assets

 

 

1,976,432

 

1,957,514

 

 

 

1,958,688

 

 

1 Tabular disclosures of the tax equivalent calculation including the net interest margin and efficiency ratio for the quarters ending March 31, 2013, and 2012, respectively, are presented on page 16.

 

2 The information necessary to reconcile GAAP measures and the ratios of Tier 1 capital, total capital, tangible common equity or Tier 1 common equity, as applicable, to average total assets, risk-weighted assets or tangible assets, as applicable, is presented on page 17.

 

3 The Company and the Bank are subject to regulatory capital requirements administered by federal banking agencies.  Those agencies define the basis for these calculations, including the prescribed methodology for the calculation of the amount of risk-weighted assets.

 

13



 

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands)

 

 

 

 

(unaudited)

 

 

 

(audited)

 

 

 

 

March 31,

 

 

 

December 31,

 

 

 

 

2013

 

 

 

2012

 

Assets

 

 

 

 

 

 

 

 

Cash and due from banks

 

 

$

17,202

 

 

 

$

44,221

 

Interest bearing deposits with financial institutions

 

 

63,915

 

 

 

84,286

 

Cash and cash equivalents

 

 

81,117

 

 

 

128,507

 

Securities available-for-sale

 

 

575,746

 

 

 

579,886

 

Federal Home Loan Bank and Federal Reserve Bank stock

 

 

11,202

 

 

 

11,202

 

Loans held-for-sale

 

 

6,381

 

 

 

9,571

 

Loans

 

 

1,113,302

 

 

 

1,150,050

 

Less: allowance for loan losses

 

 

38,634

 

 

 

38,597

 

Net loans

 

 

1,074,668

 

 

 

1,111,453

 

Premises and equipment, net

 

 

47,356

 

 

 

47,002

 

Other real estate owned, net

 

 

65,663

 

 

 

72,423

 

Mortgage servicing rights, net

 

 

4,469

 

 

 

4,116

 

Core deposit and other intangible asset, net

 

 

2,751

 

 

 

3,276

 

Bank-owned life insurance (BOLI)

 

 

54,610

 

 

 

54,203

 

Other assets

 

 

30,081

 

 

 

24,160

 

Total assets

 

 

$

1,954,044

 

 

 

$

2,045,799

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Noninterest bearing demand

 

 

$

351,328

 

 

 

$

379,451

 

Interest bearing:

 

 

 

 

 

 

 

 

Savings, NOW, and money market

 

 

865,863

 

 

 

826,976

 

Time

 

 

501,065

 

 

 

510,792

 

Total deposits

 

 

1,718,256

 

 

 

1,717,219

 

Securities sold under repurchase agreements

 

 

20,802

 

 

 

17,875

 

Other short-term borrowings

 

 

-

 

 

 

100,000

 

Junior subordinated debentures

 

 

58,378

 

 

 

58,378

 

Subordinated debt

 

 

45,000

 

 

 

45,000

 

Notes payable and other borrowings

 

 

500

 

 

 

500

 

Other liabilities

 

 

35,254

 

 

 

34,275

 

Total liabilities

 

 

1,878,190

 

 

 

1,973,247

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

Preferred stock

 

 

72,130

 

 

 

71,869

 

Common stock

 

 

18,780

 

 

 

18,729

 

Additional paid-in capital

 

 

66,109

 

 

 

66,189

 

Retained earnings

 

 

16,747

 

 

 

12,048

 

Accumulated other comprehensive loss

 

 

(2,202

)

 

 

(1,327

)

Treasury stock

 

 

(95,710

)

 

 

(94,956

)

Total stockholders’ equity

 

 

75,854

 

 

 

72,552

 

Total liabilities and stockholders’ equity

 

 

$

1,954,044

 

 

 

$

2,045,799

 

 

14



 

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Operations

(In thousands, except share data)

 

 

 

 

(unaudited)

 

 

 

 

Three Months Ended

 

 

 

 

March 31,

 

 

 

 

2013

 

 

 

2012

 

Interest and Dividend Income

 

 

 

 

 

 

 

 

Loans, including fees

 

 

$

14,914

 

 

 

$

17,666

 

Loans held-for-sale

 

 

41

 

 

 

84

 

Securities, taxable

 

 

2,298

 

 

 

1,498

 

Securities, tax exempt

 

 

119

 

 

 

103

 

Dividends from Federal Reserve Bank and Federal Home Loan Bank stock

 

 

76

 

 

 

74

 

Interest bearing deposits with financial institutions

 

 

42

 

 

 

25

 

Total interest and dividend income

 

 

17,490

 

 

 

19,450

 

Interest Expense

 

 

 

 

 

 

 

 

Savings, NOW, and money market deposits

 

 

228

 

 

 

300

 

Time deposits

 

 

1,853

 

 

 

2,605

 

Securities sold under repurchase agreements

 

 

1

 

 

 

-

 

Other short-term borrowings

 

 

19

 

 

 

3

 

Junior subordinated debentures

 

 

1,287

 

 

 

1,197

 

Subordinated debt

 

 

196

 

 

 

237

 

Notes payable and other borrowings

 

 

4

 

 

 

4

 

Total interest expense

 

 

3,588

 

 

 

4,346

 

Net interest and dividend income

 

 

13,902

 

 

 

15,104

 

Provision for loan losses

 

 

(2,500

)

 

 

6,084

 

Net interest and dividend income after provision for loan losses

 

 

16,402

 

 

 

9,020

 

Noninterest Income

 

 

 

 

 

 

 

 

Trust income

 

 

1,491

 

 

 

1,651

 

Service charges on deposits

 

 

1,677

 

 

 

1,831

 

Secondary mortgage fees

 

 

230

 

 

 

296

 

Mortgage servicing gain, net of changes in fair value

 

 

244

 

 

 

187

 

Net gain on sales of mortgage loans

 

 

1,976

 

 

 

2,647

 

Securities gains, net

 

 

1,453

 

 

 

101

 

Increase in cash surrender value of bank-owned life insurance

 

 

407

 

 

 

495

 

Debit card interchange income

 

 

792

 

 

 

760

 

Lease revenue from other real estate owned

 

 

408

 

 

 

1,179

 

Net gain on sales of other real estate owned

 

 

181

 

 

 

23

 

Other income

 

 

1,737

 

 

 

1,294

 

Total noninterest income

 

 

10,596

 

 

 

10,464

 

Noninterest Expense

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

9,032

 

 

 

9,049

 

Occupancy expense, net

 

 

1,279

 

 

 

1,235

 

Furniture and equipment expense

 

 

1,144

 

 

 

1,155

 

FDIC insurance

 

 

1,035

 

 

 

1,000

 

General bank insurance

 

 

849

 

 

 

846

 

Amortization of core deposit and other intangible asset

 

 

525

 

 

 

195

 

Advertising expense

 

 

166

 

 

 

318

 

Debit card interchange expense

 

 

344

 

 

 

342

 

Legal fees

 

 

323

 

 

 

685

 

Other real estate expense

 

 

3,686

 

 

 

4,654

 

Other expense

 

 

3,144

 

 

 

2,973

 

Total noninterest expense

 

 

21,527

 

 

 

22,452

 

Income (loss) before income taxes

 

 

5,471

 

 

 

(2,968

)

Provision for income taxes

 

 

-

 

 

 

-

 

Net income (loss)

 

 

5,471

 

 

 

(2,968

)

Preferred stock dividends and accretion of discount

 

 

1,289

 

 

 

1,223

 

Net income (loss) available to common stockholders

 

 

$

4,182

 

 

 

$

(4,191

)

 

 

 

 

 

 

 

 

 

Basic income (loss) per share

 

 

$

0.30

 

 

 

$

(0.30

)

Diluted income (loss) per share

 

 

0.30

 

 

 

(0.30

)

Dividends declared per share

 

 

-    

 

 

 

-    

 

 

15



 

The following tables provide a reconciliation of each non-GAAP measure to the most comparable GAAP equivalent.  (Dollar amounts in thousands- unaudited)

 

 

 

Three Months Ended

 

Quarter Ended

 

 

 

March 31,

 

December 31,

 

 

 

2013

 

2012

 

2012

 

Net Interest Margin

 

 

 

 

 

 

 

Interest income (GAAP)

 

  $

17,490

 

  $

19,450

 

  $

17,562

 

Taxable equivalent adjustment: