Old Second ((OSBC)) has held its Q1 earnings call. Read on for the main highlights of the call.
The recent earnings call for Old Second Bancorp, Inc. revealed a generally positive sentiment, with the company showcasing strong financial performance. The call highlighted significant profitability metrics, improvements in interest expenses, and a reduction in criticized loans. However, challenges such as provisions for credit losses and a decrease in loan portfolios were also noted. Overall, the positive aspects slightly outweighed the negative ones, painting an optimistic picture for the company’s financial health.
Strong Profitability Metrics
Net income for Old Second Bancorp, Inc. was reported at $19.8 million, or $0.43 per diluted share, for the first quarter of 2025. The company achieved a return on average tangible common equity of 14.70% and a return on assets of 1.42%, indicating robust profitability.
Improved Interest Expense
The company saw a significant decrease in interest expense on average interest-bearing liabilities, which fell by $2.9 million or 21.3%. This improvement was primarily due to strategic deposit acquisitions and the repayment of higher-rate borrowings.
Loan-to-Deposit Ratio Improvement
Old Second Bancorp, Inc. reported an improved loan-to-deposit ratio of 81.2%, down from 83.5% last quarter and 86.1% a year ago. This improvement reflects the company’s effective management of its deposit base relative to its loan portfolio.
Reduction in Criticized Loans
The company achieved a substantial reduction in criticized loans, which decreased by 42% or $84 million year-over-year. This marks the lowest level of criticized loans in three years, showcasing effective risk management.
Noninterest Income Growth
Noninterest income experienced growth, with wealth management fees increasing by 20.6% and service charges on deposits rising by 12.6% compared to the prior year. This growth highlights the company’s successful diversification of income streams.
Exceptional Net Interest Margin
The net interest margin improved by 30 basis points year-over-year and by 20 basis points compared to the prior linked quarter, reflecting enhanced profitability from interest-earning activities.
Provision for Credit Losses
A provision for credit losses amounting to $2.4 million was recorded, impacting after-tax earnings by $0.04 per diluted share. This provision was made despite the absence of significant loan growth, indicating cautious credit risk management.
Loan Portfolio Decrease
The total loan portfolio decreased by $41.1 million from the prior linked quarter, driven by net paydowns in commercial real estate and multifamily portfolios. This decrease highlights a cautious approach to loan origination amidst market uncertainties.
Gross Loan Charge-Offs
Old Second Bancorp, Inc. recorded $4.4 million in gross loan charge-offs during the first quarter, including a significant $3.4 million charge-off on one commercial and industrial loan. This reflects ongoing challenges in managing credit risk.
Mortgage Banking Income Decrease
The company experienced a decrease in mortgage banking income, primarily due to mark-to-market valuations of mortgage servicing rights. This decrease underscores the volatility in the mortgage banking sector.
Forward-Looking Guidance
Looking ahead, Old Second Bancorp, Inc. provided forward-looking guidance emphasizing a focus on liquidity, capital management, and commercial loan origination to sustain profitability. Despite a $41.1 million decrease in total loans, the company highlighted strong deposit growth of $84 million, contributing to a favorable loan-to-deposit ratio of 81.2%. Management also discussed potential macroeconomic impacts, underscoring their strategic focus on maintaining financial stability.
In conclusion, Old Second Bancorp, Inc.’s earnings call presented a generally positive outlook, with strong profitability metrics and effective risk management strategies. While challenges such as credit loss provisions and loan portfolio decreases were noted, the company’s focus on liquidity and capital management positions it well for future growth. The earnings call reflects a balanced approach to navigating current market conditions, with an emphasis on sustaining profitability and financial health.