Old Second Bancorp, Inc. Q2 FY2025 earnings call

• Jim Eccher noted net income was $21.8 million, with second quarter earnings impacted by MSR mark-to-market losses and merger-related expenses, but profitability remained strong. Tangible equity ratio increased, and book value continued to compound. Net interest margin improved, loan growth was driven by construction and lease portfolios, and asset quality was stable. Noninterest income performed well, and expense discipline was strong. Focus on integrating Evergreen Bank, with sold bulk of acquired securities portfolio and reduced reliance on wholesale funding.
• Brad Adams discussed net interest income increase, average deposits up, strong capital position with repurchased shares, noninterest expense trends, and positive bias on Evergreen's performance relative to initial projections.

Net income for the second quarter was $21.8 million or $0.48 per diluted share. Return on assets was 1.53%, return on average tangible common equity was 15.29%, and the tax equivalent efficiency ratio was 54.54%. Net interest income increased $1.3 million or 2.1% to $64 million compared to the prior quarter. The loan-to-deposit ratio was 83.3% as of June 30. Noninterest income showed growth in wealth management fees (up 11.7%) and service charges on deposits (up 11.2%).

• Expect Evergreen Bank conversion to be early to mid fourth quarter. Cost saves are on target, and earnings expectations are slightly higher. For the third quarter, margin is expected to be flat plus or minus 10 basis points. Believes return on assets (ROA) will be above 1.50%.

• Global tariff volatility impact on modeling. Potential impact of rate changes on margin. Integration risks with acquisitions, including fair value adjustments and challenges in selling certain assets.

Q: Jeff Rulis asked about the timing of Evergreen conversion, loan to deposit balance, and CRE classified assets.

A: Bradley Adams said conversion expected early to mid fourth quarter, loan to deposit balance for Evergreen was just north of 90%. James Eccher discussed the large health care CRE in Oregon, noting good collateral position and improving cash flow.

Q: David Long asked about commercial client sentiment and Evergreen deal bias.

A: James Eccher said commercial clients are weathering tariff uncertainty, with muted CapEx appetite but some growth in leasing and CRE. Bradley Adams said Evergreen is performing ahead of assumptions, with profit level better than expected.

Q: Nathan Race asked about charge-off outlook and margin response to Fed cuts.

A: James Eccher said charge-offs were solid, with powersports lending loss rates to be considered with contribution margin. Bradley Adams said margin response to Fed cuts is less sensitive than expected, with margin likely stable or higher.

Q: David Konrad asked about Evergreen's cost of funds and deposit growth.

A: Bradley Adams said Evergreen's cost of funds was in the 4% range, expecting reliance on market rate funds to decrease by $100-200 million by end of next quarter.

Q: Terry McEvoy asked about buyback and ROA.

A: Bradley Adams said buyback is open to, and he believes ROA will be above 1.50%.

Q: Brian Martin asked about margin outlook and ROA.

A: Bradley Adams said margin is stable and durable, with a long-term margin floor likely around 4.25%, and ROA expected to be above 1.50%.