Old Second Bancorp Inc. (NASDAQ:OSBC) Q2 2020 Earnings Conference Call - Final Transcript

Jul 23, 2020 • 11:00 am ET


Old Second Bancorp Inc. (NASDAQ:OSBC) Q2 2020 Earnings Conference Call - Final Transcript


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Good morning, everyone, and thank you for joining us today for Old Second Bancorp Incorporated's second quarter 2020 earnings call. On the call today is Jim Eccher, the Company's CEO; Gary Collins, the Vice Chairman of our Board; 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 in the current economic environment. These statements are not a guarantee of future performance, and results may differ materially from those projected. Management would like you to 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 it over to Jim Eccher. Sir, the floor is yours.

James L. Eccher

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 additional detail. I will then conclude with some summary comments and thoughts about the future before we open it up for questions.

Net income was $9.2 million or $0.31 per diluted share in the second quarter. Earnings this quarter were positively impacted by growth in mortgage banking income, specifically net gains on sale of mortgage loans, which was partially offset by a sizable provision for credit losses of $2.1 million, associated with changes in economic assumptions, primarily driven by COVID-19.

Net interest income was essentially unchanged from last quarter, despite shrinkage in the core loan book on the strength of a full quarter's reduction in funding costs. The impact of $134 million in PPP loans and a massive increase in core deposits without corresponding earning asset growth resulted in a sizeable reduction in our reported taxable equivalent margin of 29 basis points. This was higher than our expectations because we had not anticipated the magnitude of the increased liquidity, taking our loan to deposit ratio from 89% to 84%.

Expense discipline was strong with deferral of expenses related to the origination of PPP loans, reduced hours of operations and lower overall volumes. Asset quality trends at this point remain remarkably stable. And the bulk of our lending team is focused on monitoring and staying in close contact with our customers. Nonperforming and classified assets increased somewhat modestly, and we remain confident in the strength of our loan portfolios. Details are available in the earnings release tables on these changes. Loans under modifications stand at approximately 9% of the loan book today. And we are working closely with our borrowers to understand each and every situation. Early indications are that approximately 60% of these loans will not require an extension of the original modification.

Concurrent with our earnings release, Old Second