Add
OSBC to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| OSBC > SEC Filings for OSBC > Form 10-Q on 14-Nov-2012 | All Recent SEC Filings |
14-Nov-2012
Quarterly Report
Overview
The Company is a financial services company with its main headquarters located in Aurora, Illinois. The Company is the holding company of the Bank, a national banking organization headquartered in Aurora, Illinois and provides commercial and retail banking services, as well as a full complement of trust and wealth management services. The Company has offices located in Cook, Kane, Kendall, DeKalb, DuPage, LaSalle and Will counties in Illinois. The following management's discussion and analysis is presented to provide information concerning our financial condition as of September 30, 2012, as compared to December 31, 2011, and the results of operations for the three-month and nine-month periods ended September 30, 2012 and 2011. This discussion and analysis should be read in conjunction with our consolidated financial statements and the financial and statistical data appearing elsewhere in this report and our 2011 Form 10-K.
The ongoing weakness in the financial sector and economy, particularly as it relates to credit costs associated with real estate in the Company's market areas, continues to directly affect borrowers' ability to repay their loans. This has resulted in a continued elevated, but improving, level of nonperforming loans. Overall economic weakness is reflected in the Company's operating results, and management remains vigilant in analyzing the loan portfolio quality, making an appropriate loan loss provision and making decisions to charge-off loans. The Company recorded a $6.3 million provision for loan losses and a net loss of $1.6 million prior to preferred stock dividends and accretion in the first nine months of 2012. This compared to a $7.5 million provision for loan losses and a net loss of $3.5 million prior to preferred stock dividends and accretion for the same period in 2011.
Results of Operations
The net income for the third quarter of 2012 was $120,000, or $0.08 loss per diluted share, as compared with a $1.4 million net loss, or $0.18 loss per diluted share, in the third quarter of 2011. The net loss for the first nine months of 2012 was $1.6 million or $0.37 loss per diluted share, as compared to $3.5 million in net loss, or $0.49 of loss per diluted share in the first nine months of 2011. The Company recorded a $6.3 million provision for loan losses in the first nine months of 2012, while the Company did not include any additional provision in the third quarter of 2012. Net loan charge-offs totaled $18.0 million in the first nine months of 2012, which included $29,000 of net charge-offs in the third quarter. The provision for loan losses in the first nine months of 2011 was $7.5 million, which included an addition of $3.0 million in the third quarter of 2011. Net loan charge-offs totaled $24.0 million in the first nine months of 2011, which included $9.2 million of net charge-offs in the third quarter of 2011. The net loss available to common stockholders was $1.1 million for the third quarter of 2012 and a loss of $5.3 million for the first nine months of 2012, as compared to net loss available to common shareholders of $2.6 million and $7.0 million, respectively, for the same periods in 2011.
Net Interest Income
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 Bank's 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 to
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.
Net interest and dividend income decreased $1.3 million from $15.9 million in the third quarter of 2011 to $14.6 million in the third quarter of 2012. The decrease in average earning assets on a quarterly comparative basis was $48.7 million, or 2.8%, from September 30, 2011 to September 30, 2012 due in part to continued low demand from qualified borrowers as well as OREO migration activity in the quarter. Average interest bearing liabilities decreased $66.2 million, or 4.4%, during the same period. The net interest margin (tax-equivalent basis), expressed as a percentage of average earning assets, decreased from 3.63% in the third quarter of 2011 to 3.44% in the third quarter of 2012. The average tax-equivalent yield on earning assets decreased from 4.73% in the third quarter of 2011 to 4.24% in the third quarter of 2012, or 49 basis points. The 2012 third quarter 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 third quarter 2012 earning asset tax equivalent yield would have been 4.10% without this benefit whereas the third quarter of 2011 would have been 4.65%. The cost of interest-bearing liabilities also decreased from 1.35% to 1.02%, or 33 basis points, in the same period. Consistent with the year to date margin trend, the decreased overall average earning assets and the movement to lower yielding securities combined with the repricing of interest bearing assets and liabilities in a lower interest rate environment decreased interest income to a greater degree than it decreased interest expense.
Management, in order to evaluate and measure performance, uses certain non-GAAP performance measures and ratios. This includes tax-equivalent net interest income (including its individual components) and net interest margin (including its individual components) to total average interest-earning assets. Management believes that these measures and ratios provide users of the financial information with a more accurate view of the performance of the interest-earning assets and interest-bearing liabilities and of the Company's operating efficiency for comparison purposes. Other financial holding companies may define or calculate these measures and ratios differently. See the tables and notes below for supplemental data and the corresponding reconciliations to GAAP financial measures for the three and nine-month periods ended September 30, 2012 and 2011.
The following tables set forth certain information relating to the Company's average consolidated balance sheets and reflect the yield on average earning assets and cost of average liabilities for the periods indicated. Dividing the related interest by the average balance of assets or liabilities derives rates. Average balances are derived from daily balances. For purposes of discussion, net interest income and net interest income to total earning assets on the following tables have been adjusted to a non-GAAP tax equivalent ("TE") basis using a marginal rate of 35% to more appropriately compare returns on tax-exempt loans and securities to other earning assets.
ANALYSIS OF AVERAGE BALANCES,
TAX EQUIVALENT INTEREST AND RATES
Three Months ended September, 2012 and 2011
(Dollar amounts in thousands - unaudited)
2012 2011
Average Average
Balance Interest Rate Balance Interest Rate
Assets
Interest bearing
deposits $ 46,138 $ 29 0.25 % $ 91,178 $ 58 0.25 %
Securities:
Taxable 404,855 1,868 1.85 144,581 928 2.57
Non-taxable (tax
equivalent) 9,518 151 6.35 12,172 176 5.78
Total securities 414,373 2,019 1.95 156,753 1,104 2.82
Dividends from FRB and
FHLB stock 11,984 77 2.57 14,050 73 2.08
Loans and loans
held-for-sale 1 1,230,180 16,279 5.18 1,489,366 19,899 5.23
Total interest earning
assets 1,702,675 18,404 4.24 1,751,347 21,134 4.73
Cash and due from
banks 31,850 - - 32,264 - -
Allowance for loan
losses (40,823 ) - - (65,660 ) - -
Other noninterest
bearing assets 228,859 - - 241,963 - -
Total assets $ 1,922,561 $ 1,959,914
Liabilities and
Stockholders' Equity
NOW accounts $ 270,908 $ 65 0.10 % $ 259,505 $ 95 0.15 %
Money market accounts 321,762 137 0.17 285,712 164 0.23
Savings accounts 213,927 51 0.09 193,267 68 0.14
Time deposits 526,314 1,973 1.49 663,613 3,436 2.05
Interest bearing
deposits 1,332,911 2,226 0.66 1,402,097 3,763 1.06
Securities sold under
repurchase agreements 7,164 1 0.06 1,930 - -
Other short-term
borrowings 652 - - 2,865 - -
Junior subordinated
debentures 58,378 1,243 8.52 58,378 1,155 7.91
Subordinated debt 45,000 223 1.94 45,000 201 1.75
Notes payable and
other borrowings 500 5 3.91 500 4 3.13
Total interest bearing
liabilities 1,444,605 3,698 1.02 1,510,770 5,123 1.35
Noninterest bearing
deposits 380,226 - - 344,757 - -
Other liabilities 28,130 - - 23,738 - -
Stockholders' equity 69,600 - - 80,649 - -
Total liabilities and
stockholders' equity $ 1,922,561 $ 1,959,914
Net interest income
(tax equivalent) $ 14,706 $ 16,011
Net interest income
(tax equivalent)
to total earning
assets 3.44 % 3.63 %
Interest bearing
liabilities to earning
assets 84.84 % 86.26 %
|
1 Interest income from loans is shown on a tax equivalent basis as discussed below and includes fees of $498,000 and $448,000 for the third quarter of 2012 and 2011, respectively. Nonaccrual loans are included in the above stated average balances.
ANALYSIS OF AVERAGE BALANCES,
TAX EQUIVALENT INTEREST AND RATES
Nine Months ended September, 2012 and 2011
(Dollar amounts in thousands - unaudited)
2012 2011
Average Average
Balance Interest Rate Balance Interest Rate
Assets
Interest bearing
deposits $ 48,871 $ 89 0.24 % $ 105,618 $ 197 0.25 %
Federal funds sold - - - 713 1 0.18
Securities:
Taxable 365,549 5,222 1.90 134,596 2,691 2.67
Non-taxable (tax
equivalent) 10,417 467 5.98 13,364 590 5.89
Total securities 375,966 5,689 2.02 147,960 3,281 2.96
Dividends from FRB and
FHLB stock 12,562 228 2.42 13,934 216 2.07
Loans and loans
held-for-sale 1 1,293,533 51,741 5.26 1,575,039 62,024 5.19
Total interest earning
assets 1,730,932 57,747 4.39 1,843,264 65,719 4.70
Cash and due from
banks 27,528 - - 34,023 - -
Allowance for loan
losses (46,824 ) - - (73,201 ) - -
Other non-interest
bearing assets 236,281 - - 238,975 - -
Total assets $ 1,947,917 $ 2,043,061
Liabilities and
Stockholders' Equity
NOW accounts $ 275,712 $ 204 0.10 % $ 265,126 $ 347 0.17 %
Money market accounts 311,046 438 0.19 297,603 670 0.30
Savings accounts 211,331 165 0.10 191,256 258 0.18
Time deposits 565,183 6,920 1.64 724,219 11,220 2.07
Interest bearing
deposits 1,363,272 7,727 0.76 1,478,204 12,495 1.13
Securities sold under
repurchase agreements 4,502 2 0.06 1,911 - -
Other short-term
borrowings 4,635 4 0.11 2,900 - -
Junior subordinated
debentures 58,378 3,660 8.36 58,378 3,401 7.77
Subordinated debt 45,000 684 2.00 45,000 610 1.79
Notes payable and
other borrowings 500 13 3.42 500 12 3.16
Total interest bearing
liabilities 1,476,287 12,090 1.09 1,586,893 16,518 1.39
Non-interest bearing
deposits 373,975 - - 354,038 - -
Other liabilities 25,629 - - 21,651 - -
Stockholders' equity 72,026 - - 80,479 - -
Total liabilities and
stockholders' equity $ 1,947,917 $ 2,043,061
Net interest income
(tax equivalent) $ 45,657 $ 49,201
Net interest income
(tax equivalent)
to total earning
assets 3.52 % 3.57 %
Interest bearing
liabilities to earning
assets 85.29 % 86.09 %
|
1 Interest income from loans is shown on a tax equivalent basis as discussed below and includes fees of $1.4 million and $1.7 million for the first nine months of 2012 and 2011, respectively. Nonaccrual loans are included in the above stated average balances.
As indicated previously, net interest income and net interest income to earning assets have been adjusted to a non-GAAP TE basis using a marginal rate of 35% to more appropriately compare returns on tax-exempt loans and securities to other earning assets. The table below provides a reconciliation of each non-GAAP TE measure to the GAAP equivalent for the periods indicated:
Effect of Tax Equivalent Adjustment Effect of Tax Equivalent Adjustment
Three Months Ended Nine Months Ended
September 30, September 30,
2012 2011 2012 2011
Interest income (GAAP) $ 18,333 $ 21,045 $ 57,519 $ 65,451
Taxable equivalent adjustment - loans 18 27 64 61
Taxable equivalent adjustment -
securities 53 62 164 207
Interest income (TE) 18,404 21,134 57,747 65,719
Less: interest expense (GAAP) 3,698 5,123 12,090 16,518
Net interest income (TE) $ 14,706 $ 16,011 $ 45,657 $ 49,201
Net interest and income (GAAP) $ 14,635 $ 15,922 $ 45,429 $ 48,933
Average interest earning assets $ 1,702,675 $ 1,751,347 $ 1,730,932 $ 1,843,264
Net interest income to total interest
earning assets 3.42% 3.61% 3.51% 3.54%
Net interest income to total interest
earning assets (TE) 3.44% 3.63% 3.52% 3.56%
|
Provision for Loan Losses
In the first nine months of 2012, the Company recorded a $6.3 million provision for loan losses, which did not include any provision in the third quarter. In the first nine months of 2011, the provision for loan losses was $7.5 million, which included $3.0 million in the third quarter. Provisions for loan losses are made to provide for probable and estimable losses inherent in the loan portfolio. Nonperforming loans decreased to $105.8 million at September 30, 2012 from $138.9 million at December 31, 2011, and $139.3 million at September 30, 2011. Charge-offs, net of recoveries, totaled $18.0 million and $24.0 million in the first nine months of 2012 and 2011, respectively. Net charge-offs totaled $29,000 in the third quarter of 2012 and $9.2 million in the third quarter of 2011. The distribution of the Company's gross charge-off activity for the periods indicated is detailed in the first table below and the distribution of the Company's remaining nonperforming loans and related specific allocations at September 30, 2012 are included in the following tables.
Loan Charge-offs, Gross Three Months Ended Nine Months Ended
(in thousands) September 30, September 30,
2012 2011 2012 2011
Real estate-construction
Homebuilder $ 44 $ 1,391 $ 1,138 $ 3,045
Land - 75 20 3,089
Commercial speculative 816 449 2,781 937
All other 49 114 312 157
Total real estate-construction 909 2,029 4,251 7,228
Real estate-residential
Investor 250 1,662 3,341 2,748
Owner occupied 446 1,684 1,664 3,738
Revolving and junior liens 534 536 1,411 780
Total real estate-residential 1,230 3,882 6,416 7,266
Real estate-commercial, nonfarm
Owner general purpose 7 188 1,199 3,424
Owner special purpose 90 658 2,564 2,290
Non-owner general purpose 121 1,843 4,624 4,786
Non-owner special purpose - 809 124 1,671
Retail properties 137 1,177 4,183 3,581
Total real estate-commercial, nonfarm 355 4,675 12,694 15,752
Real estate-commercial, farm - - - -
Commercial 2 143 110 298
Other 186 169 463 433
$ 2,682 $ 10,898 $ 23,934 $ 30,977
|
The distribution of the Company's nonperforming loans as of September 30, 2012, is included in the chart below (in thousands):
Nonperforming loans
as of September 30, 2012
90 Days or
More Past Restructured Total Non %Non
Nonaccrual Due Loans performing Performing Specific
Total 1 (Accruing) (Accruing) Loans Loans Allocation
Real
estate-construction $ 13,662 $ 47 $ 2,326 $ 16,035 15.2% $ 1,408
Real
estate-residential:
Investor 12,838 169 - 13,007 12.3% 875
Owner occupied 9,368 100 5,408 14,876 14.1% 811
Revolving and junior
liens 3,245 - 61 3,306 3.1% 864
Real
estate-commercial,
nonfarm 50,662 1,256 3,724 55,642 52.6% 2,996
Real
estate-commercial,
farm 1,790 - - 1,790 1.7% 117
Commercial 1,157 - - 1,157 1.0% 514
$ 92,722 $ 1,572 $ 11,519 $ 105,813 100.0% $ 7,585
|
1 Nonaccrual loans included a total of $11.3 million in restructured loans. Component balances are $1.7 million in real estate construction, $5.6 million in real estate-commercial nonfarm, $1.3 million is in real estate - residential investor, $2.7 million is in real estate - owner occupied and $17,000 in Commercial.
Classified loans (under a definition closely reflecting our regulator's definition - substandard loans and TDR accruing) have decreased $122.2 million or 46.8% from a year ago and $99.3 million or 41.7% from December 31, 2011. Classified loans are summarized in the table below:
Classified Loans
9/30/2012 12/31/2011 9/30/2011
Commercial $ 1,748 $ 2,380 $ 8,762
Real estate - commercial 75,510 134,015 145,904
Real estate - construction 22,387 40,476 47,089
Real estate - residential 39,143 61,234 59,235
Consumer 5 13 15
$ 138,793 $ 238,118 $ 261,005
|
Commercial Real Estate
Commercial Real Estate Nonfarm ("CRE") remained the largest component of nonperforming loans at $55.6 million, or 52.6% of total nonperforming loans. The dollar volume of nonperforming CRE loans is down from $64.0 million at December 31, 2011 and $65.7 million at September 30, 2011. These decreases resulted from loans moving to OREO during these periods, loans paying off and loans upgraded as a result of improved performance. The class components of the CRE segment at September 30, 2012, were as follows (dollars in thousands):
90 Days or
More Past Restructured Total Non % Non
Nonaccrual Due Loans performing performing Specific
CRE Total (Accruing) (Accruing) Loans CRE Loans Allocation
Owner occupied general
purpose $ 5,901 $ - $ - $ 5,901 10.6% $ 337
Owner occupied special
purpose 12,889 - - 12,889 23.2% 896
Non-owner occupied
general purpose 19,664 1,256 3,724 24,644 44.3% 350
Non-owner occupied
special purpose 487 - - 487 0.9% -
Retail properties 11,721 - - 11,721 21.0% 1,413
$ 50,662 $ 1,256 $ 3,724 $ 55,642 100.0% $ 2,996
|
. . .
|
|