Old Second Reports 2013 Net Income of $82.1 million or $5.45 per share
2013 results aided by benefit of the reversal of valuation allowance against
deferred tax assets and the loan loss reserve release.
2013 net income was $7.4 million or $0.15 per common share, excluding the
income tax benefit resulting primarily from the reversal of a significant
portion of the deferred tax asset valuation allowance, loan loss reserve
release and loss on the sale of certain collateralized debt obligations (the
Resolution of the CDOs in the fourth quarter resulted in increased
stockholders equity of $1.2 million and contributed to $1.1 million net loss
to common stockholders in the quarter.
Loans increased $23.6 million at December 31, 2013, from September 30, 2013.
Tangible common book value per share was $5.29 at December 31, 2013, increased
from $4.86 at September 30, 2013.
AURORA, Ill., Jan. 22, 2014
AURORA, Ill., Jan. 22, 2014 /PRNewswire/ --Old Second Bancorp, Inc. (the
"Company" or "Old Second") (NASDAQ: OSBC), parent company of Old Second
National Bank (the "Bank"), today announced financial results for the fourth
quarter of 2013. The Company reported net income of $213,000 compared to net
income of $1.5 million in the fourth quarter of 2012.
The Company reported net income of $82.1 million for the year ended December
31, 2013, compared to a net loss of $72,000 in the year of 2012. The
Company's net income available to common stockholders of $76.8 million, or
$5.45 per diluted share, for the year ended December 31, 2013, compared to a
net loss available to common stockholders of $5.1 million, or $(0.36) per
diluted share, for the year ended December 31, 2012.
Excluding the benefits received in 2013 from the reversal of a significant
portion of the valuation allowance against deferred tax assets, the release of
reserves for loan losses and the loss on the sale of the CDOs discussed below,
the Company's 2013 net income was $7.4 million with a net income available to
common stockholders of $2.2 million or $0.15 per share.
Chairman Bill Skoglund said "While we have more work to do, we made good
progress in 2013 on our organizational goals. For example, our loan portfolio
grew in the fourth quarter while problem loans and other real estate owned
continued to decline. Year over year, OREO dropped sharply from $72.4 million
at the end of 2012 to $41.5 million at the end of 2013. Our profitability has
improved in a challenging and uneven economic environment and was helped by
reduced credit costs reflected in our loan loss reserve release, sharply lower
OREO expenses and efficient expense discipline. Capital ratios for Old Second
National Bank remain strong with total equity enhanced by the third quarter
reversal of substantially all of the valuation allowance against our deferred
tax assets. While loans were down in 2013 from 2012 and deposits essentially
flat, we're encouraged by our realization of new loan business and continuing
to serve loyal deposit customers who respond well to our community banking
The Company sold CDOs at a before tax loss of $4.1 million. The CDOs were
originally purchased by the Bank in late 2007 and mid-2008. Credit ratings
on these securities issued by prominent rating agencies were upgraded between
December 31, 2012, and September 30, 2013. The Company sold these securities
following the December, 2013 regulations implementing Section 619 of the Dodd
– Frank Wall Street Reform and Consumer Protection Act, commonly referred to
as the Volcker Rule. As originally released, the Volcker Rule required
banking entities to divest investments in these types of CDOs by July 2015.
These securities were carried at an unrealized loss of $6.1 million as of
September 30, 2013, and were sold in December, 2013 at a pre-tax loss of $4.1
million, contributing $1.2 million net of tax to tangible capital in the
fourth quarter of 2013.
Earnings as measured in accordance with generally accepted accounting
oFourth quarter loss before taxes of $32,000 compared to income before
taxes of $1.5 million in the fourth quarter of 2012. The decline was
primarily due to the loss incurred on the sale of the CDOs in December
oIn 2013, income before taxes declined from $2.9 million in the third
quarter to a loss of $32,000 in the fourth quarter. This decline
primarily resulted from the loss incurred on the sale of the CDOs and
reduced net interest income. These declines more than offset improved
quarter to quarter results in several noninterest expense categories,
notably a decrease in other real estate owned ("OREO") expenses down to
$2.9 million in the fourth quarter of 2013 from $3.5 million in the third
quarter of 2013.
oThe tax-equivalent net interest margin was 3.13% during the fourth quarter
of 2013 compared to 3.17% in the same quarter of 2012. The fourth quarter
of 2013 margin was a decrease of 12 basis points compared to the third
quarter of 2013.
oNoninterest income of $34.4 million was $8.5 million lower in the year
ended December 31, 2013, compared to 2012, again reflecting the loss on
the CDO sales but also reflecting reduced residential mortgage revenue,
service charges on deposits, and lease revenue from OREO.
oNoninterest expenses of $86.4 million were 10.0% lower in the year ended
December 31, 2013, compared to 2012, reflecting overall expense control
and reduced expenses in most categories. Notable reductions are found in
OREO expenses (including a year over year reduction of $8.1 million on
improved valuation adjustment expense), general bank insurance and
management of legal fees.
December 31, September December Quarter Year to
30, 31, Year
2013 2013 2012 Change Change
The Bank's leverage 10.97% 11.08% 9.67% -0.11% 1.30%
The Bank's total 18.04% 17.08% 14.86% 0.96% 3.18%
risk-based capital ratio
The Company's leverage 6.96% 7.11% 4.85% -0.15% 2.11%
The Company's total 15.88% 15.15% 13.62% 0.73% 2.26%
risk-based capital ratio
The Company's tangible
common equity to tangible 3.67% 3.33% (0.13)% 0.34% 3.80%
Asset Quality & Earning Assets
oNonperforming loans declined $42.8 million, or 51.8%, during 2013 to $39.8
million at December 31, 2013, from $82.6 million at December 31, 2012.
Nonperforming loans declined primarily because of successful negotiations
with guarantors and movement of selected credits to OREO, as well as loans
being upgraded to accruing status when the financial condition of
oOREO declined from $72.4 million at December 31, 2012, to $41.5 million at
December 31, 2013. OREO dispositions totaling $41.7 million in the year
ended December 31, 2013, were somewhat offset by new OREO and improvements
to existing OREO of $19.3 million. Valuation write-downs of properties
held for sale reduced the reported total by $8.4 million.
oSecurities available-for-sale decreased $207.7 million during 2013 to
$372.2 million from $579.9 million at December 31, 2012, primarily as a
result of the third quarter reclassification of $258.1 million in
securities to the held-to-maturity category. In all periods prior to the
third quarter of 2013, all securities were held as available-for-sale. At
$273.2 million (73.4% of the December 31, 2013, available-for-sale
portfolio), asset-backed securities were the largest component of the
available-for-sale portfolio. The Company's asset-backed securities were
heavily oriented to those backed by student loan debt guaranteed by the
U.S. Department of Education.
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. Management has also chosen to disclose net income excluding net
benefits from reversal of a significant portion of the deferred tax asset
valuation allowance, the release of loan loss reserves and the loss on CDO
sales because management believes this presentation allows investors to
evaluate our results without the impact of these special items. The tables
provide a reconciliation of each non-GAAP measure to the most comparable GAAP
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 or cause actual results to differ
substantially from those discussed or implied in forward looking statements
contained in this release, please review our filings with the Securities and
SOURCE Old Second Bancorp, Inc.
Contact: J. Douglas Cheatham, Chief Financial Officer, (630) 906-5484
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