Old Second Bancorp Inc. (OSBC, Financial) filed Quarterly Report for the period ended 2012-09-30.
Old Second Bancorp Inc. has a market cap of $19 million; its shares were traded at around $1.35 with and P/S ratio of 0.2.
21.7% of total assets up from 15.8% at the end of 2011 and 9.7% at September 30, 2011. At the same time, management reduced deposits that had previously provided funding for those assets by emphasizing relationship banking rather than single service customers. As a result, average interest bearing liabilities decreased $110.6 million, or 7.0%, from the first nine months of 2011 to the first nine months of 2012. The net interest margin (tax-equivalent basis), expressed as a percentage of average earning assets, decreased slightly from 3.57% in the first nine months of 2011 to 3.52% in the first nine months of 2012. The average tax-equivalent yield on earning assets decreased from 4.70% in the first nine months of 2011 to 4.39%, or 31 basis points in the first nine months of 2012. The 2012 first nine months of earning asset tax equivalent yield received benefit from collection of previously reversed or unrecognized interest on loans that returned to performing status during the period. The first nine months of 2012 earning asset tax equivalent yield would have been 4.27% without this benefit whereas the first nine months of 2011 would have been 4.63%. During the same period, the cost of funds on interest bearing liabilities decreased from 1.39% to 1.09%, or 30 basis points, helping to offset the decrease in yield. The decrease in average earning assets and movement to lower yielding securities with reduction in higher yielding loan volumes in 2012 were the main causes of decreased interest income.
program and were classified as restructured at September 30, 2012. The typical concessions granted in these cases were small and temporary rate reductions and a reduced monthly payment with the expectation that these borrowers will resume normal performance on their obligations when their earnings situation improves. The usual profile of these borrowers includes a decrease in household income resulting from a change or loss of employment. The remaining nonperforming loans in the 1-4 family residential category are in nonaccrual status and most cases are in various stages of foreclosure. Management believes that deterioration in the segment relates primarily to the high rate of unemployment in our market areas offset by some reductions from loans moved to OREO or upgraded as borrowers regain employment. In addition, a significant portion of these nonperforming loans were supported by private mortgage insurance, and, at September 30, 2012, management estimated that a specific allocation of $811,000 was adequate loss coverage following the $446,000 of charge-offs that occurred during the quarter and allowing for problems in collecting on private mortgage insurance. At September 30, 2012, there were loans of $100,000 that were greater than 90 days past due and were still accruing interest in this portfolio segment. Additionally, at September 30, 2012, loans 30 to 89 days past due and still accruing totaled $449,000 which was an improvement from $4.0 million at December 31, 2011, and from $1.1 million at September 30, 2011.
Noninterest income increased $1.8 million, or 21.6%, to $10.3 million during the third quarter of 2012 compared to $8.5 million during the same period in 2011. For the first nine months of 2012, noninterest income increased by $4.4 million, or 16.2%, to $31.2 million compared to $26.8 million for the same period in 2011. Trust income decreased by $168,000, or 10.1%, and by $553,000, or 10.7%, for the third quarter and first nine months of 2012, respectively. The Companys reduction in trust revenues, for both the quarter and nine month year over year periods, was largely caused by three key client departures and lower levels of new business development. Service charge income from deposit accounts decreased for both the quarter and first nine months of 2012, primarily due to decreases in volume of overdraft fees and commercial checking service charges. Total mortgage banking income in the third quarter of 2012, including net gain on sales of mortgage loans, secondary market fees, and servicing income, was $2.7 million, an increase of $1.4 million from the third quarter of 2011. Mortgage banking income for the first nine months of the year also increased by $3.9 million, or 93.9%, from the 2011 level, reflecting continued strong demand for mortgage loans through the first nine months of 2012 as interest rates remained at historically low levels.
Realized gains on securities totaled $513,000 in the third quarter and $1.3 million in the first nine months of 2012 as the securities portfolio was revised to reduce levels of mortgage backed securities with inherent prepayment risk. Sales of asset-backed securities backed by student loans substantively guaranteed by the U. S. Department of Education were also conducted in the third quarter to reduce concentration level. Gains in 2012 compared to losses of $63,000 in the third quarter of 2011 and gains of $588,000 in the first nine months of 2011. Bank owned life insurance (BOLI) income increased $192,000, or 82.4% and $116,000, or 10.3% in the third quarter and first nine months of 2012, respectively, over the same periods in 2011. Debit card interchange income increased for both the third quarter and first nine months of 2012 as the volume of consumer card activity continued to increase when compared to 2011. Lease revenue received from OREO properties, which partially offsets OREO expenses included in noninterest expense, decreased $220,000 in the third quarter of this year when compared to 2011 third quarter but increased $393,000 in the first nine months of 2012 compared to the same period in 2011. Net gains on disposition of OREO properties decreased by $277,000, to $20,000 in the third quarter of 2012, and by $535,000, to $398,000 in the first nine months of 2012 as property sales slowed in a still stressed market and price realized upon sale in that market closely approximated our fair value carrying cost. Other noninterest income increased $455,000, or 40.0%, for the third quarter and by $213,000, or 5.3%, for the first nine months of 2012 largely due to sale of a lightly used bank premises property in the third quarter.
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Old Second Bancorp Inc. has a market cap of $19 million; its shares were traded at around $1.35 with and P/S ratio of 0.2.
Highlight of Business Operations:
Net interest and dividend income decreased $3.5 million, from $48.9 million in the first nine months of 2011, to $45.4 million in the first nine months of 2012. Average earning assets decreased $112.3 million, or 6.1%, to $1.73 billion from the first nine months of 2011 to the first nine months of 2012, as management continued to emphasize asset quality and funded new loan originations continued to be limited. The $281.5 million decrease in year to date average loans and loans held-for-sale was primarily due to the ongoing lower funded demand from qualified borrowers in the Banks market area, charge-off activity, and movement of loan assets to OREO as well as maturities and payments on performing loans. To utilize available liquid funds, management continued to increase securities available-for-sale in the first nine months of 2012 to21.7% of total assets up from 15.8% at the end of 2011 and 9.7% at September 30, 2011. At the same time, management reduced deposits that had previously provided funding for those assets by emphasizing relationship banking rather than single service customers. As a result, average interest bearing liabilities decreased $110.6 million, or 7.0%, from the first nine months of 2011 to the first nine months of 2012. The net interest margin (tax-equivalent basis), expressed as a percentage of average earning assets, decreased slightly from 3.57% in the first nine months of 2011 to 3.52% in the first nine months of 2012. The average tax-equivalent yield on earning assets decreased from 4.70% in the first nine months of 2011 to 4.39%, or 31 basis points in the first nine months of 2012. The 2012 first nine months of earning asset tax equivalent yield received benefit from collection of previously reversed or unrecognized interest on loans that returned to performing status during the period. The first nine months of 2012 earning asset tax equivalent yield would have been 4.27% without this benefit whereas the first nine months of 2011 would have been 4.63%. During the same period, the cost of funds on interest bearing liabilities decreased from 1.39% to 1.09%, or 30 basis points, helping to offset the decrease in yield. The decrease in average earning assets and movement to lower yielding securities with reduction in higher yielding loan volumes in 2012 were the main causes of decreased interest income.
program and were classified as restructured at September 30, 2012. The typical concessions granted in these cases were small and temporary rate reductions and a reduced monthly payment with the expectation that these borrowers will resume normal performance on their obligations when their earnings situation improves. The usual profile of these borrowers includes a decrease in household income resulting from a change or loss of employment. The remaining nonperforming loans in the 1-4 family residential category are in nonaccrual status and most cases are in various stages of foreclosure. Management believes that deterioration in the segment relates primarily to the high rate of unemployment in our market areas offset by some reductions from loans moved to OREO or upgraded as borrowers regain employment. In addition, a significant portion of these nonperforming loans were supported by private mortgage insurance, and, at September 30, 2012, management estimated that a specific allocation of $811,000 was adequate loss coverage following the $446,000 of charge-offs that occurred during the quarter and allowing for problems in collecting on private mortgage insurance. At September 30, 2012, there were loans of $100,000 that were greater than 90 days past due and were still accruing interest in this portfolio segment. Additionally, at September 30, 2012, loans 30 to 89 days past due and still accruing totaled $449,000 which was an improvement from $4.0 million at December 31, 2011, and from $1.1 million at September 30, 2011.
Noninterest income increased $1.8 million, or 21.6%, to $10.3 million during the third quarter of 2012 compared to $8.5 million during the same period in 2011. For the first nine months of 2012, noninterest income increased by $4.4 million, or 16.2%, to $31.2 million compared to $26.8 million for the same period in 2011. Trust income decreased by $168,000, or 10.1%, and by $553,000, or 10.7%, for the third quarter and first nine months of 2012, respectively. The Companys reduction in trust revenues, for both the quarter and nine month year over year periods, was largely caused by three key client departures and lower levels of new business development. Service charge income from deposit accounts decreased for both the quarter and first nine months of 2012, primarily due to decreases in volume of overdraft fees and commercial checking service charges. Total mortgage banking income in the third quarter of 2012, including net gain on sales of mortgage loans, secondary market fees, and servicing income, was $2.7 million, an increase of $1.4 million from the third quarter of 2011. Mortgage banking income for the first nine months of the year also increased by $3.9 million, or 93.9%, from the 2011 level, reflecting continued strong demand for mortgage loans through the first nine months of 2012 as interest rates remained at historically low levels.
Realized gains on securities totaled $513,000 in the third quarter and $1.3 million in the first nine months of 2012 as the securities portfolio was revised to reduce levels of mortgage backed securities with inherent prepayment risk. Sales of asset-backed securities backed by student loans substantively guaranteed by the U. S. Department of Education were also conducted in the third quarter to reduce concentration level. Gains in 2012 compared to losses of $63,000 in the third quarter of 2011 and gains of $588,000 in the first nine months of 2011. Bank owned life insurance (BOLI) income increased $192,000, or 82.4% and $116,000, or 10.3% in the third quarter and first nine months of 2012, respectively, over the same periods in 2011. Debit card interchange income increased for both the third quarter and first nine months of 2012 as the volume of consumer card activity continued to increase when compared to 2011. Lease revenue received from OREO properties, which partially offsets OREO expenses included in noninterest expense, decreased $220,000 in the third quarter of this year when compared to 2011 third quarter but increased $393,000 in the first nine months of 2012 compared to the same period in 2011. Net gains on disposition of OREO properties decreased by $277,000, to $20,000 in the third quarter of 2012, and by $535,000, to $398,000 in the first nine months of 2012 as property sales slowed in a still stressed market and price realized upon sale in that market closely approximated our fair value carrying cost. Other noninterest income increased $455,000, or 40.0%, for the third quarter and by $213,000, or 5.3%, for the first nine months of 2012 largely due to sale of a lightly used bank premises property in the third quarter.
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