Old Second Bancorp (NASDAQ:OSBC) Incorporated (NASDAQ:OSBC) reported a net income of $24.3 million, or $0.54 per diluted share, in Q3 2023, with an adjusted net income of $24.8 million, or $0.55 per diluted share. The company emphasized its focus on balance sheet optimization and expense discipline, with a loan-to-deposit ratio of 87% and a slight expansion in the net interest margin due to increased loan yields. According to InvestingPro data, the company's market cap stands at 611.6M USD, with a P/E ratio of 6.28, indicating a low earnings multiple, a point of interest noted in InvestingPro Tips.
Key takeaways from the call:
- Old Second Bancorp recorded a $14 million loan growth in the third quarter.
- The company experienced $924,000 in pretax securities losses and $629,000 in net deconversion and liquidation costs.
- Noninterest income increased by $1 million, excluding losses on security sales.
- Noninterest expense increased by $2.6 million, primarily due to higher salaries and employee benefits, and expenses related to liquidation and deconversion fees from the Visa (NYSE:V) credit card portfolio.
- The bank indicated that it has approximately $700 million in undrawn borrowing capacity and an additional $420 million in unpledged securities and short liquidity.
- Provision for credit losses of $3 million was recorded during the quarter, primarily due to credit losses on loans.
- The company anticipates a 3-4% increase in expenses due to inflationary headwinds.
InvestingPro data also shows that the company's revenue growth for the last twelve months (LTM2023.Q3) was 40.89%, although InvestingPro Tips suggest that this growth has been slowing down recently.
During the earnings call, Bradley Adams, a company executive, highlighted the company's focus on optimization, expense control, and credit. He mentioned that the company could comfortably increase the loan-to-deposit ratio to 90-95%, and that the focus is not on growth but on efficiency. Adams also discussed the company's expectation of a slight increase in margins if there is another rate hike.
In addition, Old Second Bancorp executives discussed the Bank-Owned Life Insurance (BOLI) portfolio, which has been restructured but is still underperforming. They expect the BOLI to remain at the same level as the third quarter. The company also stated that it is selective in its lending due to low overall loan demand and anticipates low single-digit growth in the near and long term.
The company expressed its willingness to add talent during weak demand periods, particularly in relationship management. They also mentioned their strategy for dealing with interest rates, acknowledging that their profitability is impacted when rates are at zero, but do not anticipate rates returning to zero anytime soon. The call concluded with the company expressing confidence in its balance sheet and its ability to adapt to a higher rate environment.
InvestingPro Tips further suggest that OSBC yields high return on invested capital and strong earnings should allow management to continue dividend payments. Two analysts have revised their earnings upwards for the upcoming period, indicating a positive outlook for the company. More detailed insights can be found on the InvestingPro platform.
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