Old Second Bancorp Inc. (NASDAQ:OSBC) Q4 2019 Earnings Conference Call - Final Transcript

Jan 23, 2020 • 11:00 am ET


Old Second Bancorp Inc. (NASDAQ:OSBC) Q4 2019 Earnings Conference Call - Final Transcript


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Good morning, everyone, and thank you for joining us for today's Old Second Bancorp, Inc.'s Fourth Quarter 2019 Earnings Call. On the call today is Jim Eccher, CEO; Gary Collins, Vice Chairman; and the Company's CFO, Brad Adams. I will start with a reminder that Old Second's comments today may contain forward-looking statements about the Company's business, strategies and prospects, which are based on management's existing expectations and the current economic environment.

These statements are not a guarantee of future performance, and results may differ materially from those projected. Management would ask you prefer -- I'm sorry, refer to the Company's SEC filings for a full discussion of the Company's risk factors. On today's call, we will also be discussing certain non-GAAP financial measures. These non-GAAP measures are described and reconciled to their GAAP counterparts in our earnings release, which is available on our website at oldsecond.com under the Investor Relations tab.

Now, I will turn the call over to Jim Eccher. Please go ahead sir.

James L. Eccher

Thank you. Good morning and thank you for joining us today. I have several prepared opening remarks and will give you my overview of the quarter and then turn it over to Brad for more additional details. I will then conclude with some summary thoughts and open it up to -- open up for questions after that.

Net income for the quarter was $9.5 million or $0.31 per diluted share in the fourth quarter. Our earnings this quarter were negatively impacted by compression in the net interest margin, that totaled 28 basis points from third quarter levels. The core net interest margin contracted a somewhat more modest 15 basis points, excluding the impacts of purchase accounting income and acquired loans recorded in the third quarter.

This is a bit more than we were expecting, although still within the range we provided of 3 basis points to 5 basis points for each Federal Reserve reduction in the overnight rate. Brad will provide some additional color on the margin in his prepared comments. Earning trends were positively impacted by a BOLI death benefit of $872,000 during the quarter.

Absent these items, earnings trends were relatively stable and consistent with last quarter, but we did see mortgage banking results soften from a seasonal slowdown in the quarter. Returns on assets and equity continue to be very strong, driven by a still healthy net interest margin, solid expense control, sustained performance across our fee-based businesses and a stable credit outlook. High level of profitability has afforded us the ability to invest significantly in the future growth of the bank.

In regards to the quarter specifically, total loans increased by $31 million from last quarter with a strong level of originations mitigated by continuing payoff activity.

Loan payoff activity accelerated every quarter in 2019, and we're hopeful the pace of pay-offs will moderate in 2020. We continue to be surprised by the level of payoff activity, however, loan pipelines remain healthy. The competition for credit in our market still remains