Old Second Bancorp Q1 2025 Earnings Call Transcript

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April 24, 2025

There are 2 speakers on the call.

Operator

Good morning, everyone, and thank you for joining us today for Old Second Bancorp Incorporated's first quarter twenty twenty five earnings call. On the call today are Jim Ecker, the company's Chairman, President and CEO Brad Adams, the company's Chief Operating Officer and Chief Financial Officer and Gary Collins, the Vice Chairman of our Board. I will start with a reminder that Old Second's comments today will 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 ask you to refer to the company's SEC filings for a full discussion of the company's risk factors.

Operator

The company does not undertake any duty to update such forward looking statements. And on today's call, we will 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 on the homepage and under the Investor Relations tab. Now I would like to turn the call over to Mr. Jim Eckert.

Speaker 1

Good morning, everyone, and thank you for joining us. As customary, I have several prepared opening remarks. I'll give my overview of the quarter and then turn it over to Brad for some additional details. I will then conclude with certain summary comments and thoughts about the future before we open it up to questions. Net income was $19,800,000 or $0.43 per diluted share in the first quarter of twenty twenty five.

Speaker 1

ROA was 1.42%. First quarter twenty twenty five return on average tangible common equity was 14.7 percent, and the tax equivalent efficiency ratio was 55.48%. First quarter twenty twenty five earnings were significantly impacted by several items. Dollars 575,000 in MSR mark to market losses or about $0 per diluted share, 446,000 in merger related expenses or just shy of $01 per diluted share related to cost of the First Merchants five branch acquisition as well as costs related to pending merger with Bancorp Financial and Evergreen Bank Group. Also a $2,400,000 provision for credit losses in the absence of significant loan growth, which reduced after tax earnings by $04 per diluted share.

Speaker 1

However, despite all this, profitability of Old Second remains exceptionally strong and balance sheet strengthening continues with our tangible common tangible equity ratio increasing 30 basis points from last quarter from 10.04% to 10.34% in the first quarter of twenty twenty five. Tangible equity ratio increased by 130 basis points over the linked period one year ago. Common equity Tier one was 13.47 in the first quarter of twenty twenty five, increasing from 12.82% last quarter, and we feel very good both about profitability and our balance sheet positioning at this point. Our financials continue to reflect a very strong net interest margin even as market interest rates have declined. Pre provision net revenues remain stable and exceptionally strong.

Speaker 1

For the first quarter of twenty twenty five compared to the prior year of like period, tax equivalent income on average earning assets increased $221,000 or 0.3%, while interest expense on average interest bearing liabilities decreased $2,900,000 or 21.3%. The decrease in interest expense is primarily due to the deposits acquired related to the First Merchants branch purchase, which closed in December of 'twenty four, which resulted in the paydown of our higher rate other short term borrowings, which improved our margin significantly year over year. Net interest margin improved 30 basis points year over year on both the GAAP and tax equivalent basis and improved approximately 20 basis points compared to the prior linked quarter. First quarter of twenty twenty five reflected a decrease in total loans of $41,100,000 from the prior linked quarter, primarily due to net paydowns in commercial, commercial real estate owner occupied and multifamily portfolios during the quarter. Furthermore, we have purposely reduced our purchase participation portfolio, which declined 46,000,000 or more than 10% in the quarter.

Speaker 1

Since the West Suburban acquisition, our purchase participation portfolio has declined $376,000,000 or nearly 49% as we have intentionally repositioned our loan book. The historical trend at Old Second is for our banks to realize loan growth in the second and third quarters of the year due to seasonal construction and business activity. Currently, within loan committee remains relatively modest to prior periods, primarily due to many customers waiting to see how market volatility, including any market interest rate changes or changes due to the current global tariff uncertainties play out over the coming three to six months. Tax equivalent loan yields reflected a five basis point decrease during the first quarter of twenty twenty five compared to the linked quarter, but a four basis point increase year over year. Total cost of deposits was 82 basis points for the first quarter of twenty twenty five compared to 89 basis points for the prior linked quarter and 71 basis points for the first quarter of twenty twenty four.

Speaker 1

Net interest margin has improved due to the more favorable funding position we are now in even after considering the impact of market interest rate changes on the variable portions of both the loan and security portfolio. The loan to deposit ratio is in excellent shape at 81.2% as of 03/31/2025, compared to 83.5 last quarter and 86.1% as of 03/31/2024. I'll let Brad talk about this for a moment. This quarter reflected a positive change regarding our loan portfolio credit remediation efforts. Specifically, we recorded $4,400,000 of gross loan charge offs in the first quarter of twenty twenty five, dollars '3 point '4 million of which was one C and I loan that was downgraded two quarters ago.

Speaker 1

We have now addressed the entire balance of this credit as audited financials, collateral field audits and bankruptcy declarations resulted in a significant charge of this relationship, excluding balances collateralized by cash held at Old Second and the successful liquidation of equipment through an auction. This credit was discussed in the last few quarters and with fully addressing it this quarter, we should now be able to focus on any remediation or recovery efforts as the potential is there. Last quarter, we recorded $1,700,000,000 in OREO valuation expense on two properties, which were both sold in the first quarter of twenty twenty five. Our total OREO balances are now down or have declined 18,700,000 quarter over linked quarter, which contributed to a 27.2% reduction in nonperforming assets since year end twenty twenty four. Substandard and criticized loans decreased in the first quarter of twenty twenty five.

Speaker 1

Total criticized loans now totaled $116,700,000 and decreased 42% or $84,000,000 from one year ago. In the first quarter of twenty twenty four, criticized loans were $200,000,000 First quarter 20 20 5 balances represented decline in their lowest levels in three years since May of twenty twenty two. So we're very pleased with this performance. Classified and non accrual balances continue to improve significantly on both a year over year and linked quarter basis. Total classified assets declined by $52,200,000 or 37% year over year as of 03/31/2025.

Speaker 1

Special mention loans also continued to improve dramatically. These balances are now down 51% from a year ago. The allowance for credit losses on loans decreased $41,600,000 as of 03/31/2025, or 1.05 of total loans from $43,600,000 at year end, which is 1.1% of total loans. Unemployment and GDP forecast used in future loss rate assumptions remain fairly static from last quarter with no material changes in the unemployment assumptions on the upper end of the range based on recent debt projections. The impact of the global tariff volatility was considered within our modeling.

Speaker 1

The change in provision level quarter over linked quarter reflects the reduction in our allowance allocation on substandard loans, which largely relates to the 42% reduction in criticized assets year over year. Noninterest income continued to perform well with growth in the first quarter of twenty twenty five compared to the prior year linked quarter of $528,000 or 20.6% in wealth management fees and $304,000 or 12.6% in service charges on deposits. Mortgage banking income reflected a decrease in the first quarter of twenty twenty five compared to the prior linked quarter and prior year linked quarter, primarily due to the impact of mortgage servicing rights mark to market valuations. Excluding the impact of mortgage servicing rights mark to market, mortgage banking income was flat quarter over linked quarter and slightly more than the prior year linked period. Other income increased in the first quarter of twenty twenty five compared to the prior linked quarter and prior year's linked quarter, with the linked quarter variance primarily due to incentives received on two vendor contracts in 2025.

Speaker 1

Expense discipline continues to be strong with total non interest expense for the first quarter twenty twenty five at $183,000 more than the prior linked quarter. Our efficiency ratio continues to be excellent as the tax equivalent efficiency ratio adjusted to exclude core deposit intangible amortization, acquisition cost and OREO cost was 55.48% compared to 54.61% for the fourth quarter of twenty twenty four. As we look forward to the balance of the year, we're focused on doing more of the same, which is managing liquidity, managing capital and also building commercial loan origination capability for the long term. The goal is obviously to continue to create a more stable long term balance sheet, mix between more loans and less securities in order to maintain the returns on equity commensurate with our recent performance. With that, I'll turn it over to Brad for additional comments.

Speaker 1

Thank you, Jim. I'll be relatively brief this morning. There's a novel complexity here in my mind. Net interest income increased by $1,300,000 or 2.1% to 62,900,000.0 for the quarter ended relative to the prior quarter's total of 61,600,000.0 and increased 3,100,000.0 or 5.2% from the year ago quarter. Exceptionally pleased with the ability to grow net interest income from the levels that we saw over these comparable periods.

Speaker 1

Taxable equivalent security deals increased by 18 basis points during the quarter, although loan yields were about five basis points lower. The increase in security yields largely relates to some maturities and relattering effects that we started on early in the quarter. We talked about in the past. We've done an exceptionally good job on making sure that we've got a pretty significant large chunk of cash maturing on a regular basis as we can step into a different rate world. Overall, we're exceptionally well positioned.

Speaker 1

I'm pleased with what we've been able to accomplish there. The total yield on interest earning assets decreased by only two basis points over the linked quarter to five seventy, but that was more than offset by a 13 basis point decline in the cost of interest bearing deposits and a 35 basis point decrease in the cost of interest interest bearing liabilities in the aggregate. The end result was a 20 basis point increase in the taxable equivalent NIM to 4.88% for the quarter from 4.68 last quarter. Obviously, this is exceptional margin performance and surprised us a bit. The source of that surprise is largely allocated to deposit flows during the quarter.

Speaker 1

Deposit growth accelerated throughout the quarter, and it's been exceptionally strong. Obviously, you can see the power of the the ability to grow deposits in an environment such as this. As we sit here today, I'm exceptionally pleased with our liquidity position as we approach the potential closure of the Evergreen Bank Group transaction. This gives us a ton of flexibility. And, obviously, we feel very good about where we are.

Speaker 1

Overall period in total deposits increased by 84,000,000. I don't have any grand prognostications this quarter and always feel like a more balanced person in general, and I believe the curve accurately reflects the balance of risks in the greater economy. Relative to last quarter and and many times over the last few years, expectations have become much more realistic relative to the absolute economic conditions and federal deficit constraints. We have been on the sidelines as it relates to the securities portfolio here recently because we see outsized risk for spreads widening in the near term. As a result of the rate cuts to date and their impact on market indices margin trends for 2025 are expected to be stable to modestly down from here.

Speaker 1

Sustained success on the deposit front positions us exceptionally well to ramp profitability beyond our initial expectations as it relates to the pending merger with Evergreen. This is perhaps my largest area of optimism as the loan to deposit ratio was quite low at 81% and gives us some room on the absorption of those assets and doing better on the margin side than perhaps we initially expected. Old Second should continue to build capital as evidenced by the 130 basis point improvement in the TCE ratio over the past year, which means we have added an astonishing $1.75 of tangible book value over the last twelve months, particularly impressive when you consider the branch purchase, which is done with cash. Evergreen will absorb some of this capital cushion. However, second, we'll still have an exceptionally strong and flexible capital position.

Speaker 1

A buyback is in place and is on the table after the merger is finalized. Noninterest expense was materially on track with previous quarter, increasing only $183,000 primarily due to salary and employee benefit increases due to annual raises and the increased payroll tax associated with the front loader spike in the first part of the year. Noninterest expense is running higher year over year, increasing 6,300,000.0 compared to the quarter ended March 3124 due to, again, the higher salaries and benefits of expense, occupancy costs, core deposit intangibles and OREO related expenses. OREO related expenses were high in the first quarter. They were high in the fourth quarter, but they should come down back to normalized levels beginning in the second quarter.

Speaker 1

Much of the year over year increase is attributable to the five branches acquired in late twenty twenty four from First Merchants in addition to the OREO operating expense increase that we talked about. For 2025, employee benefit expenses are expected to be a bit of a drag as we talked about. Overall, we are hopeful we can keep expense growth in the 4% range consistent with our expectations shared last quarter. It's really all I have. With that, I'll turn it back over to Jim.

Speaker 1

Okay. Thanks, Brad. In closing, we feel this is a pretty solid quarter for the company. We're confident in our positioning and the opportunities ahead of us. We're pleased with the progress we made on the credit front and optimistic that future quarters will be very good.

Speaker 1

We're off to a strong start in 2025, and we're optimistic about the year ahead. That concludes our prepared comments this morning. So I'll turn it over to the operator, and we can open it up to some questions.

Operator

You, sir. Ladies and gentlemen, at this time, we'll be conducting a question and answer If you would like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue.

Speaker 1

Brad, maybe start on the margin. Heard your heard your outperformance comments. It's really incredible where the margin is. If the forward curve comes up to to to first and you get two for cuts this year, I mean, your message is, basically, we're gonna be flat even with the cuts. Is that kind of roughly flat to modest down from that four ninety to 48 level?

Speaker 1

Well, you know, I said I wasn't gonna do any grand prognostications, but I'll do it anyway. I don't think we're getting free rate cuts. Think the I think inflation's stickier. Not but more importantly, I think it's political at this point. I think that there's not going to be a ton of support for what is largely a tariff slash political environment in terms of that.

Speaker 1

It's awfully tough to cut rates in this scenario, particularly when with what happened last time when you talk about yields actually going up along the curve. I would say that whereas before, just because everybody else will be talking to free rate cuts, whereas before, I would have said seven basis points of margin decline. And with the contribution from Evergreen, I would probably say it's four with each rate cut from these levels. So it has been softened quite a bit. Some of that, obviously, is the deposit pickup as well and just the margin levers that we have with them coming on board.

Speaker 1

So overall, I'm I'm significantly more bullish on the margin than than I have been for probably over a year. Okay. And then the other piece of the NII is is what you're doing with the participation, pushing them out. What what's left to go on on noncore loans? Where do you think or do you think that the loan book is is bottomed or any kind of thoughts there?

Speaker 1

Yeah. It's a good question, Chris. I mean, we we still we've had that purchase participation book since since West Suburban. And keep in mind, that that represents that represents about 25% of our classifieds. So we've been trying to aggressively push out as much of that as possible.

Speaker 1

Becomes challenging, particularly on the syndication front when you don't have a voice at the table per se. But we've got another, I'd say, 200,000,000 that we're going to want to continue to try to exit over the next twenty four months. So we've made good progress. We've got some more looking to do there. But overall, we're pleased with how the focus repositioning.

Speaker 1

I think, Chris, one thing that we've done a particularly good job of is and, you know, we've talked about how big our efforts were to to get on the front part of credit. I feel like we've done what we said we were gonna do. I also think we've been aggressive and and perhaps being pessimistic in our worldview and and making sure that we're not holding credits that we could potentially get out of if things get worse. Our credit outlook today is significantly better than it's been in two years. That's for darn sure.

Speaker 1

Okay. Alright. Awesome. Thank you. Thanks, Chris.

Operator

Thank you. Our next question is coming from Terry McEvoy with Stephens. Your line is live.

Speaker 1

Hi. Good morning, guys. Hey, Terry. Hey, Terry.

Operator

Good morning.

Speaker 1

I mean, you you you worked through office, worked through health care. I guess my question is, are there any new segments emerging out that in CRE or C and I, just look Yeah. I think, you know, I think if if there's if there's one area that we're seeing a couple of credits come on to our radar, it's more in in C and I at this point. Nothing material. We had a couple of credits.

Speaker 1

One in manufacturing and one in solutions based drug wholesale company that missed projections that we've downgraded. We've proactively taken reserves against those. By and large, you're right. We're through office. We're working our way through health care.

Speaker 1

We feel pretty good about where we're at. But a lot of that C and I book is obviously seeing a pretty rapid increase in cost of capital. A little bit of stress on that book, but aside from those two credits, we're not seeing any new red flags. Thanks. And then as a follow-up, have you noticed any trends among your lower balance deposit customers, call it late in the quarter or here in April?

Speaker 1

And I'm thinking just balances or or card transactions overall. Card transactions are down significantly, but that's a trend that started almost a year ago. We have seen significant slowdown and a move down in average balances on the low end. It actually somewhat mitigated, and and some of that's probably tax related just with with refunds flowing in. But, you know, we're a very granular deposit base.

Speaker 1

I think everybody knows that by now. But we've seen kind of weakness in balance levels and transaction activity in that deposit base starting over a year ago. So I wouldn't say there's anything that's different here. I think that if I'm reading your question right, I I think largely what people should be looking for is that stress moving up the income stratification rather than starting at the bottom end because it started at the bottom end some time ago. Yep.

Speaker 1

And that's what I was asking. Thanks for taking my questions. Appreciate it. Thanks, Derek. Thanks, Derek.

Operator

Thank you. Our next question is coming from David Long with Raymond James. Your line is live.

Speaker 1

Good morning, everyone. We're only a few weeks removed from Liberation Day with the tariffs. But in your recent conversations with with you that you and your team has has been having with your commercial clients, what what is their sentiment like? And are you seeing deals getting pulled? Are you are you are you seeing pause?

Speaker 1

You know, just trying to get a sense on loan demand expectations. Yeah. So it's it's probably similar to what you hear from from other banks. We've had these conversations, and certainly, it ranged from the equipment leasing side that, you know, activity remains actually, you know, pretty decent, maybe down a little bit as far as new activity from a year ago to, you know, commercial real estate, particularly on on on the investment side where it's penciled down. We're not doing anything until we get some some clarity around tariffs and uncertainty.

Speaker 1

But by and large, it's it's wait and see. We we are not projecting a lot of growth in the second quarter. We're hopeful with some clarity, we see an uptick in loan demand in the second half of the year. Got it. Thanks for the color, Jim.

Speaker 1

And then as you look at the reserve level, reserves came down a bit in the quarter. You had nonperformers up. I think there's a risk of economic forecast currently. You know, where they are today, it sounds like you're you seem you sound pretty stable, but I think there's a sense that these are going to worsen. What was the what was the math you went through at quarter end in coming up with the reserve?

Speaker 1

So we've got a situation where criticized, classified, and nonperformers have been trending down significantly for the better part of two years. I don't think we're in the same boat as everybody else here. Our trend is not more negative at this point even with the uncertainty that's out there. We've been very aggressive in in addressing credits that we believe there is some potential weakness in. I would have been a much more pessimistic person.

Speaker 1

I was a much more pessimistic person a year ago than I am today. You can call us a leading indicator or whatever else or early in terms of this stress, but I I don't see a second wave right now. Certainly, broad macroeconomic weakness will result in losses for us, but I feel exceptionally good about where we are at this point.

Operator

Our next question is coming from Nathan Rintz with Piper Sandler.

Speaker 1

I think last quarter we were talking about maybe charge offs getting south of 20 basis points going forward. Obviously, you had some cleanup with the one C and I credit here in the first quarter, which is generally how you guys are thinking about the charge off trajectory both near term and then when you layer on Evergreen that has historically had a slightly higher loss history relative to peers just given their operations? Yes. Think you're right. We certainly, as it relates to one large C and I credit, when you have a credit that's in bankruptcy, you get unpredictable results, particularly as it relates to options, equipment options.

Speaker 1

We felt, given the strong quarter earnings, we decided to, you know, to take the final charge on that. And while we're hopeful that we we get some recovery on this, we we we elected to to put this one behind us. You heard our comments regarding the the client and and and substandard and criticized. So that those are the leading indicators that should hold well for for future credit deterioration. So while the charge offs are a little bit higher, we're we're optimistic that future quarters should be should hold up a lot better.

Speaker 1

You know, as it relates to to Evergreen, you know, you know, they they run losses anywhere between 11.5%. However, we got to keep in mind that contribution margins on that loan book are significantly higher. You have to look at those two factors gain in hand. So they continue to be exceptionally well reserved, and we're optimistic about adding that that vertical to our our lending team. So I I realized that our selling center is a little bit different maybe than most, but one data point that I had for people is is that our individual specific allocations for for individual credits on the commercial side right now is lower than it's ever been.

Speaker 1

The number of individual allocations hasn't been as low in three point five years. So in terms of problems, we believe we've dealt with them. Understood. That's helpful. Appreciate that.

Speaker 1

Brad, going back to your expense comments, I apologize if you touched on this at the half down late. But I think you mentioned you're hopeful to get back to 4% expense growth for this year, which would imply a decent step down close to $40,000,000 or so over the next few quarters. Is that kind of how you're thinking about it just with some of the noise in the first quarter? Yes.

Operator

Thank you. Our next question is coming from Jeff Rulis with DA Davidson. Your line is live.

Speaker 1

Thanks. Good morning. Checking on the growth front, I appreciate the comments on sort of pushing out some participations and and still to go, you know, starting from a kind of a net down on on loans. I guess, the full year, you you're try to back into expectations on growth for the full year. Sounds pretty guarded, but any detail on that side?

Speaker 1

Yes. I mean, at the time, we have position, which is going to get us some more growth. I would I would be thrilled with low single digit growth that would come second half of the year. Keep in mind that risk adjusted returns today are not overly attractive in several areas. We'll be very careful and prudent on what we're putting on the books.

Speaker 1

Obviously, the margin that we're carrying right now, we're not to just grow for the sake of growing. Having said that, we are optimistic that the second half is going to be much better than the first half. Listen, I think six months ago on this call, when I said that we had a realistic shot of growing net interest income linked quarter in the first part of this year, I could feel the eyes crossing on the other side of this line, not believing that number. So it's about basically, as Jim mentioned, risk adjusted returns. And and you know what?

Speaker 1

It's it's it's not always entirely about growth. It's about making money. And there are times in this business, given the cyclicality and the volatility that we've seen that it's not time to grow. I said last quarter that growth looks much more attractive and that we would consider loan purchases. I think that's still the case.

Speaker 1

I I think that I got very confused two weeks ago when we saw equity markets going down and and at the same time treasury yields going up. That's been a a very interesting couple weeks in terms of what interest rates are doing. I do see significant risk to spread widening at this point, as I mentioned a few minutes ago. And I think there will be attractive yields available. So it's something we will consider in order to generate growth on that front.

Speaker 1

And when you've got the balance sheet flexibility that we do, you've got a lot of optionality. So, you know, it's an interesting time. Uncertainty creates opportunities. And, most importantly, I'm exceptionally pleased with both where we are and how much money we're making at this point. Brad, leaning into that margin strength, think that's kind of the point of the discussion.

Speaker 1

Do you do you have a a March average for the net interest margin? I don't off the top of my head. It wasn't down from February. I can tell you that. So it it trended higher.

Speaker 1

And that's been a function, as alluded to earlier, of the strength in the deposit generation. I am very hopeful that continues. If it does, we have a ton of balance sheet flexibility over the next six months. It's a nice position to be in as a CFO, and and it makes me generally a happy person. And and I treat my kids better, and they tend to upset me less.

Speaker 1

So, you know, all smiles are out here. Fair enough. I guess the last question, Brad, you mentioned kind of looking at that buyback, but you kind of conditioned it with post deal close. You know, what precludes you from from being active in in the short run? Greg.

Speaker 1

You know? Sorry? Greg and precludes us from being active, I'm sure. Otherwise otherwise, I would be. Okay.

Speaker 1

And in the coming, you know, pre deal, I mean, you you locked out the entire time, or is there any windows Yeah. We're not, till till we close. Till we close. I would say that that we're optimistic that our timetable for that closure will will will come to fruition. I know it's the last one, but maybe one more.

Speaker 1

The tax rate, you've been kind of in that mid 24 range. Is that a good number to use ahead? Normally, like to go out to five or six basis points on that question, but yeah. Or decimal points rather, but I hell, I don't know. Yeah.

Speaker 1

Around here. Okay. Thank you. Alright. Thanks, Jeff.

Operator

Thank you. Once again, ladies and gentlemen, if you do have any questions or comments, please press star one on your telephone keypad. Our next question is coming from Brian Martin with Janney. Your line is live.

Speaker 1

Hey, Brian. Hey, guys. Congratulations on the quarter. Most of my stuff was asked. You know, just, Brad, I think one big picture question.

Speaker 1

I think you when you talked about the margin, I think, last quarter, you talked about the seven basis points. Maybe now it's four with with Evergreen. I mean, as far as I think you talked about where it could bottom if we you know, all the different scenarios. If we do see cuts, whether we don't see cuts. Just trying to understand.

Speaker 1

I mean, if you don't see cuts and that's more your scenario, kind of where do you think the margin may bottom, you know, now that we've, you know, stepped up much higher than we thought versus if we do get a do get a couple of cuts. I thought last quarter was kind in that $4.35, 4 40 range, albeit it would take a while, but just kind of big picture kind of, you know, how we should think about that. Yeah. I would say that the floor has been raised 10 basis points by by deposit flows. It's a different world for us with in combination with Evergreen, though, at least at our current size.

Speaker 1

We will be structurally more profitable absent any significant credit events on that front. I have you know, for for us, obviously, we're an exceptionally high performing company when rates are high. And you've heard us say in the past that that a high and flat yield curve is a panacea for us. I mean and that's where we are today. So investors shouldn't be surprised by strong margin performance and a high and flat yield curve because that's that's where we do best.

Speaker 1

As we talked about a couple months ago with the Evergreen announcement, we will do better in a lower rate environment, but it will still remain true that a high flat curve is is good for us. I don't see wearing my macro hat for a minute, I I don't see a lot of ways out of that given the balance of risk between growth and inflation at this point. We have seen a a stickiness to inflation that I I see no reason for that to stop or go away anytime soon, especially not with all this tariff nonsense. That ain't gonna help that. I also don't think the Fed's particularly accommodated to backing off the inflation fight when when a lot of it's self induced from the executive branch.

Speaker 1

So I don't see any reason to lurch into these changes, and I don't see any reason to be pessimistic about our margin performance in the near to to moderate term. Okay. And as far as where where it could be, The the bottoming would be just 10 basis points higher than you're thinking before for now until we Yeah. A little bit more. Yeah.

Speaker 1

Gotcha. And then maybe just one last one on on credit given, you know, the the big improvement we saw this quarter. I think you guys have been talking about that. But just and, Jim, you talked about the you know, what the criticizing classifieds are today, you know, much lower than they have been. And Brad just mentioned, you know, credit you know, the the direction from here in terms of credit quality, just the cadence of improvement in nonperformance?

Speaker 1

Is it is there anything big that's out there within there that's gonna be coming due, or it should be a steady as you work through these, see some decline down in the nonperformance? You know? Yeah. I mean, the goals that continue working even even lower, Brian, I mean, I I don't think we'll have the the magnitude of the of the decline and percentages that we had this quarter, but we're optimistic. We're we've very internally focused to to try to improve the balance sheet.

Speaker 1

And, yeah, we we think we can make incremental improvements throughout the rest of the year. Okay. Yeah. Just nothing big. I just wanna make sure there's nothing else that you would put in the hopper that could come out.

Speaker 1

So okay. Thanks for taking the question, and and and great quarter. Thanks, Brian. Thank you.

Operator

You. As we have no further questions on the line at this time, I would like to hand it back over to mister Ecker for closing remarks.

Speaker 1

Okay. Thanks, everyone, for joining us, and thanks for your interest in the company. We look forward to speaking with you next quarter. Bye.

Operator

Thank you. This concludes today's conference, and you may disconnect your lines at this time. And we thank you for your participation.

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Earnings Conference Call
Old Second Bancorp Q1 2025
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