Q1 2025 Old Second Bancorp Inc Earnings Call
Yeah.
Speaker Change: Good morning, everyone and thank you for joining us today for old second Bancorp Incorporated's first quarter 2025 earnings call.
Operator: Good morning, everyone. And thank you for joining us today for Old Second Bancorp Incorporated's first quarter 2025 earnings call. On the call today are Jim Eccher, 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.
Brad Adams: On the call today are Jim <unk>, the company's chairman, President and CEO, Brad Adams, the company's Chief operating Officer, and Chief Financial Officer, and Gary Collins, Vice Chairman of our board.
Speaker Change: I'll just 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 and the current economic environment.
Operator: 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 risks. The company does not undertake any duty to update such forward-looking statements.
Speaker Change: These statements are not a guarantee of future performance and results may differ materially from those projected.
Speaker Change: Management would ask you to refer to the company's SEC filings for a full discussion of the Companys risk factors.
Speaker Change: The company does not undertake any duty to update such forward looking statements.
Operator: 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.
Speaker Change: On today's call, we will be discussing certain non-GAAP financial measures.
Speaker Change: These non-GAAP measures are described are reconciled to their GAAP counterparts in our earnings release, which is available on our website at all secondly, dotcom.
Speaker Change: On the homepage under the Investor Relations tab.
James Eccher: Now I would like to turn the call over to Mr. Jim Adams. Good morning, everyone. Thank you for joining us. As customary, I have several prepared opening remarks. We'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 $19.8 million, or $0.43 per diluted share, in the first quarter of 2025. ROA was 1.42%. First quarter 2025 return on average tangible common equity is 14.70%. And the tax equivalent efficiency ratio was 55.48%.
Jim: Now I would like to turn the call over to Mr. Jim.
Jim: Good morning, everyone and thank you for joining us as customary I have several prepared opening remarks will give my overview of the quarter and then turn it over to Brad for.
Jim: Some additional details I will then conclude with certain summary comments and thoughts about the future before we open it up to questions.
Jim: Net income was $19 8 million or 43 cents per diluted share in the first quarter of 2025.
Jim: In a way it was 142%.
Jim: First quarter, 2025% return on average tangible common equity was $14 seven zero percent.
Jim: And the tax equivalent efficiency ratio was $55 four 8%.
James Eccher: First quarter 2025 earnings were significantly impacted by several items. 575,000 MSR mark-to-market losses, or about a penny per diluted share. $446,000 in merger-related expenses, or just shy of $0.01 per diluted share. related to costs of the First Merchant's five-branch acquisition, as well as costs related to the pending merger with Bancorp Financial and Evergreen Bank Group. Also a $2.4 million provision for credit losses in the absence of significant loan growth, which reduced after-tax earnings by four cents per diluted share. However, despite all this, profitability at Old Second remains exceptionally strong, and balance sheet strengthening continues, with our Tangible Equity Ratio increasing 30 basis points from last quarter, from 10.04% to 10.34% in the first quarter of 2025.
Jim: First quarter 2025 earnings were significantly impacted by several items.
Jim: 575000 in MSR, mark to market losses, or about a penny per diluted share.
Jim: 446000 in merger related expenses were just shy of one cent per diluted share.
Jim: Related to cost of the first merchants five branch acquisition as well as costs related to the pending merger with Bancorp financial and Evergreen Bank group.
Jim: Also a $2 $4 million provision for credit losses in the absence of significant loan growth, which reduced after tax earnings by <unk> <unk> per diluted share.
Jim: However, despite all this profitability old sector remains exceptionally strong and balance sheet strengthening continues with our tangible common tangible equity ratio, increasing 30 basis points from last quarter from 10.0 of 4% to 10, 34% in the first quarter of 2025.
James Eccher: Tangible Equity Ratio increased by 130 basis points over the like period one year ago. Common Equity Tier 1 was 13.47% in the first quarter of 2025, 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-provisioned net revenues remain stable and exceptionally strong. For the first quarter of 2025 compared to the prior year-like period, tax equivalent income on average earning assets increased $221,000, or 0.3%, while interest expense on average interest bearing liabilities decreased $2.9 million, or 21.3%.
Jim: Tangible equity ratio increased by 130 basis points over the linked period, one year ago.
Jim: Common equity tier one was 13.47% in the first quarter of 2025, increasing from $12 eight 2% last quarter and we feel very good both about profitability.
Jim: Our balance sheet positioning at this point.
Jim: Our financials continue to reflect a very strong net interest margin even as market interest rates have declined.
Jim: Provision net revenues remained stable and exceptionally strong.
Jim: For the first quarter of 2025 compared to the prior year like period tax equivalent income on average, earning assets increased 221000, or <unk>, 3%, while interest expense on average interest bearing liabilities decreased $2 9 million or 21, 3%.
James Eccher: The decrease in interest expense is primarily due to the deposits acquired related to the first merchant's branch purchase, which closed in December of 24, which resulted in the pay down of our higher rate, other short-term borrowings, which improved our margins 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 link quarter. First quarter of 2025 reflected a decrease in total loans of $41.1 million from the prior late quarter. primarily due to net paydowns in commercial real estate owner-occupied and multifamily portfolios during the quarter.
Jim: 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 pay down of or higher rate other short term borrowings, which improved their margins significantly year over year net.
Jim: Net interest margin improved 30 basis points year over year on both a GAAP and tax equivalent basis, and improved approximately 20 basis points compared to the prior linked quarter.
Jim: First quarter of 2025 reflected a decrease in total loss of 41 1 million from the prior linked quarter.
Jim: Primarily due to net pay downs in commercial commercial real estate owner occupied and multifamily portfolios during the quarter.
Jim: Furthermore, we have purposely reduced our purchase participation portfolio, which declined 46 million or more than 10% in the quarter.
James Eccher: Furthermore, we have purposely reduced our purchase participation portfolio, which declined $46 million or more than 10% in the quarter. Since the West Suburban acquisition, our purchase participation portfolio has declined $376 million, or nearly 49% as we have intentionally repositioned our loan book. The historical trend at Old Second is for our bank to realize some loan growth in the second and third quarters of the year due to seasonal construction and business activities. Currently, activity 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.
Jim: Since the west suburban acquisition or purchase participation portfolio has declined $376 million or nearly 49% as we have intentionally reposition our loan book.
Jim: The historical trend at old second is for a bank to realize some loan growth in the second and third quarters of the year due to seasonal construction and business activities.
Jim: Currently activity 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.
Jim: Tax equivalent loan yields reflected a five basis point decrease during the first quarter of 2025 compared to the linked quarter, but a four basis point increase year over year.
James Eccher: Tax equivalent loan yields reflected a five basis point decrease during the first quarter of 2025. compared to the late quarter, but a four basis point increase year over year. Total cost of deposits was 82 basis points for the first quarter of 2025 compared to 89 basis points for the prior late quarter and 71 basis points for the first quarter of 2024. 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 securities portfolio.
Jim: Total cost of deposits was 82 basis points for the first quarter of 2025 compared to 89 basis points for the prior linked quarter and 71 basis points for the first quarter of 2024.
Jim: Net interest margin has improved due to the more favorable funding position, we are now and even after considering the impact of market interest rate changes on the variable portions of both the loan and securities portfolio.
James Eccher: Loan-to-deposit ratio is in excellent shape at 81.2% as of March 31st, 2025, compared to 83.5% last quarter and 86.1% as of March 31st of 2024.
Speaker Change: The loan to deposit ratio is in excellent shape at 81, 2% as of March 31, 2025, compared to 83, 5% last quarter and 86, 1% as of March 31, 2024, I'll, let Brad talk about this more in a moment.
James Eccher: I'll let Brad talk about this more in a moment. This quarter reflected a positive change regarding our loan portfolio credit remediation efforts, specifically... We recorded 4.4 million of gross loan charge-offs in the first quarter of 2025. 3.4 of which was one C&I loan that was downgraded two quarters ago. 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 the last few quarters.
Speaker Change: This quarter reflected a positive change regarding our loan portfolio credit remediation efforts specifically.
Speaker Change: We recorded $4 4 million of gross loan charge offs in the first quarter of 2025 three.
Speaker Change: $3 four of which was one of them one C&I loan that was downgraded two quarters ago.
Speaker Change: We have now addressed the entire balance of this credit is audited financials collateral field audits and bankruptcy declarations resulted in a significant charge of this relationship excluding balances collateralized by cash held at all second and the successful liquidation of equipment through an auction.
Speaker Change: This credit was discussed the last few quarters.
James Eccher: And with fully addressing it this quarter, we should now be able to focus on any remediation or recovery efforts if the potential is there. Last quarter, we recorded $1.7 million in OREO valuation expense on two properties, which were both sold in the first quarter of 2025. Our total Oriel balances are now down, or have declined $18.7 million quarter-over-winter, which contributed to a 27.2% reduction in non-performing assets.
Speaker Change: And with fully addressing at this quarter, we should now be able to focus on any remediation and recovery efforts have the potential there.
Speaker Change: Last quarter, we recorded $1 7 billion in Oreo valuation expense of two properties, which were both sold in the first quarter of 2025.
Speaker Change: Our total Oreo balances are now down or have declined $18 7 million quarter over linked quarter, which contributed to a 27, 2% reduction in nonperforming assets.
Speaker Change: Year end 2024.
James Eccher: year end 2024. Substandard and criticized loans decreased in the first quarter of 2025. Total criticized loans now total $116.7 million and decreased 42%, or $84 million from one year ago. In the first quarter of 2024, criticized loans were $200 million. First quarter 2025 balances represented a decline in their lowest levels in three years since May of 2022. So we're very pleased with this performance. Classified and non-accrual balances continue to improve significantly on both the year-over-year and link-quarter basis. Total classified assets declined by 52 million, or 37% year over year, as of March 31, 2025. Special mention loans also continue to improve dramatically.
Speaker Change: Substandard criticized loans decreased in the first quarter of 2025 total criticized loans now total $116 7 million and decreased 42% or $84 million from one year ago in the first quarter of 2020 for criticized loans were $200 million.
Speaker Change: First quarter 2020, fives balances represented a decline in their lowest levels in three years since may of 2022. So we're very pleased with this performance.
Speaker Change: Classified and non accrual balances continued to improve significantly on both a year over year and linked quarter basis.
Speaker Change: Total classified assets declined by 52 2 million or 37% year over year as of March 31, 2025.
Speaker Change: Special mention loans also continued to improve dramatically. These balances are now down 51% from a year ago.
James Eccher: These balances are now down 51% from a year ago. The allowance for credit losses on loans decreased $41.6 million. As of March 31st, 2025, we're 1.05% of total loans. from $43.6 million at year-end, which is 1.1% of total... Unemployment and GDP forecasts 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 Fed projections. The impact of the global tariff volatility was considered within our model. The change in provision level quarter over late quarter reflects a reduction in our loans allocations on substandard loans, which largely relates to the 42% reduction in criticized assets year over year.
Speaker Change: The allowance for credit losses on loans decreased $41 6 million.
Speaker Change: As of March 31, 2025, or 1.05% of total loans.
Speaker Change: From $43 6 million at year end, which was one 1% of total loans.
Speaker Change: 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 fed projections.
Speaker Change: The impact of the global tariff volatility was considered within our modeling.
Speaker Change: The change in provision level quarter over linked quarter reflects the reduction in our allowance allocations on substandard loans, which largely largely relates to the 42% reduction in criticized assets year over year.
Speaker Change: Noninterest income continued to perform well with growth in the first quarter of 2025 compared to the prior year quarter of 528000 or 26%.
James Eccher: Non-interest income continue to perform well with growth in the first quarter of 2025 compared to the prior year like 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 2025 compared to the prior link quarter and prior year-like quarter, primarily due to the impact of mortgage servicing rights mark-to-mark evaluation. Excluding the impact of mortgage servicing rights, market-to-market, mortgage banking income was flat quarter over late quarter. slightly more than the prior year-like period. Other income increased in the first quarter of 2025 compared to the prior link quarter and prior year's link quarter.
Speaker Change: In wealth management fees, and 304000, or 12, 6% and service charges on deposits.
Speaker Change: Mortgage banking income reflected a decrease in the first quarter 2025 compared to the prior linked quarter and prior year linked quarter, primarily due to the impact of mortgage servicing rights mark to market valuations.
Speaker Change: Excluding 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 period.
Speaker Change: Other income increased in the first quarter of 2025 compared to the prior linked quarter and prior years linked linked quarter.
James Eccher: with the one quarter variance primarily due to incentives received on two vendor contracts in 2025. Expense discipline continues to be strong, with total non-interest expense for the first quarter of 2025 at $183,000 more.
Speaker Change: With the linked quarter variance, primarily due to incentives received on two vendor contracts in 2025.
Speaker Change: Expense discipline continues to be strong with total noninterest expense for the first quarter 2025 to 183000 more.
James Eccher: and the Prior Link Corp. Our efficiency ratio continues to be excellent. As the tax equivalent efficiency ratio adjusted to exclude core deposit and tangible amortization, acquisition costs and ordeal costs was 55.48% compared to 54.61% for the fourth quarter of 2024. 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, mixed featuring more loans and less securities, in order to maintain the returns on equity commensurate with our recent performance.
Speaker Change: In the prior linked quarter, our efficiency ratio continues to be excellent.
Speaker Change: The tax equivalent efficiency ratio adjusted to exclude exclude core deposit intangible amortization acquisition cost and ordeal cost was 50, 548% compared to $54, 61% for the fourth quarter of 2024.
Speaker Change: 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.
Speaker Change: The goal is obviously to continue to create a more stable long term balance sheet mix.
Speaker Change: Mix, featuring more loans and less securities in order to maintain our returns on equity commensurate with our recent performance.
Bradley Adams: With that, I'll turn it over to Brad for additional comments. Thank you, Jim. I'll be relatively brief this morning. There's not a whole lot of complexity here in my mind. Net interest income increased by $1.3 million, or 2.1%, to $62.9 million for the quarter ended, relative to the prior quarter's total of $61.6 million. and increased $3.1 million 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. Taxable Equivalent Securities Yields 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 re-laddering effects that we started on early in the quarter.
Speaker Change: With that I'll turn it over to Brad for additional Carlos. Thank you Jim I'll be relatively brief this morning, there's there's not a whole lot of complexity here in my mind.
Brad Adams: Net interest income increased by $1 $3 million or two 1% to $62 9 million for the quarter ended relative to the prior quarter totaled $61 6 million and.
Speaker Change: <unk> increased $3 1 million or five 2% from the year ago quarter.
Speaker Change: Exceptionally pleased with the ability to grow net interest income from the levels that we saw were these comparable periods.
Speaker Change: <unk> equivalent securities yields increased by 18 basis points during the quarter.
Speaker Change: Although loan yields were about five basis points lower.
Speaker Change: The increase in securities yields largely relates to some maturities in relapsed <unk> effects that we started early in the quarter and we talked about in the past we've done an exceptionally good job, making sure that we've got pretty significant large chunks of cash maturing.
Bradley Adams: We talked about in the past, we've done an exceptionally good job on making sure that we've got pretty significant large chunks of cash maturing on a regular basis as we can step into a different rate world. Overall, we're exceptionally well-positioned. 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 link quarter to 570. 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 bearing liabilities in the aggregate.
Speaker Change: On a regular basis as we can step into a different rate world overall, we're exceptionally well positioned I'm pleased with what we've been able to accomplish there.
Speaker Change: The total yield on interest, earning assets decreased by only two basis points over linked quarter to $5 70.
Speaker Change: 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 bearing liabilities in the aggregate.
Bradley Adams: The end result was a 20 basis point increase in the taxable equivalent NEM 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 was largely allocated to deposit flows during the quarter. Deposit growth accelerated throughout the quarter and has 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.
Speaker Change: The end result was a 20 basis point increase in the taxable equivalent NIM to 488 for the quarter from 46 eight last quarter.
Speaker Change: Obviously this is an exceptional margin performance and surprised us a bit.
Speaker Change: So that surprise was largely.
Speaker Change: Allocated the deposit flows during the quarter.
Speaker Change: Deposit growth accelerated throughout the quarter and has been exceptionally strong.
Speaker Change: Obviously, you can see the power of the of the.
Speaker Change: The ability to grow deposits in an environment such as this.
Speaker Change: As we sit here today I am exceptionally pleased with our liquidity position as we approach.
Speaker Change: The potential closure of the Evergreen Bank group transaction. This gives us a ton of flexibility.
Bradley Adams: This gives us a ton of flexibility. and obviously feel very good about where we are. Overall period end total of positive increase by 84 million.
Speaker Change:
Speaker Change: And then obviously feel very good about where we are overall period end total deposits increased by $84 million.
I don't have any grand prognostications, this quarter and I always feel like a more balanced person in general when I believe the curve accurately reflects the balance of risks and the greater economy.
Bradley Adams: I don't have any grand prognostications this quarter, and I always feel like a more balanced person in general when I believe the curve accurately reflects the balance of risks in the greater economy. Relative to the last quarter and many times over the last two years, expectations have become much more realistic relative to 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 Change: Relative to last quarter and in many times over the last two years expectations have become much more realistic relative to absolute economic conditions and federal devastate constraints.
Speaker Change: We have been on the sidelines as it relates to the securities portfolio here recently, because we see outsize risk for spread widening in the near term.
Speaker Change: As a result of the rate cuts to date and their impact on market indices margin trends for 2025.
Speaker Change: I expect it to be stable to modestly down from here. So it fits 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.
Bradley Adams: 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 percent 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 12 months.
Speaker Change: This is perhaps my largest area of optimism.
Speaker Change: The loan to deposit ratio is quite low 81% and gives us some room on the absorption of those assets and doing better on the margin side than perhaps we initially expected.
Speaker Change: Old second should continue to build capital as evidenced by the 130 basis point improvement in the TCE ratio over the past year.
Speaker Change: Which means we have added an astonishing $1 75 of tangible book value over the last 12 months.
Bradley Adams: particularly impressive when you consider the branch purchase which was done with cash. Evergreen will absorb some of this capital cushion, however, Old Second will still have an exceptionally strong and flexible capital position.
Speaker Change: Particularly impressive when you consider the branch purchase which is done with cash.
Speaker Change: Evergreen will absorb some of this capital cushion. However old second we will still have an exceptionally strong and flexible capital position a.
Speaker Change: The buyback is in place it is on the table after the merger is finalized.
Bradley Adams: A buyback is in place and is on the table after the merger is finalized. Non-expense was materially on track with the previous quarter, increasing only $183,000, primarily due to salaries and employee benefit increases due to annual raises. and the increased payroll tax associated with the front load of FICA in the first part of the year. Non-interest expense is running higher year over year, increasing $6.3 million compared to the quarter ended March 31, 2024. due, again, to higher salary and benefit 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 Change: Noninterest expense was materially on track with previous quarter, increasing only 183000, primarily due to salaries and employee benefit increases due to the annual rate is in.
Speaker Change: And the increased payroll taxes associated with the Frontloaded spike in the first part of the year.
Speaker Change: Noninterest expense is running higher year over year, increasing $6 3 million compared to the quarter ended March 31 24.
Speaker Change: Again as to higher salaries and benefit expense occupancy cost core deposit intangibles and Oreo related expenses.
Speaker Change: Oreo related expenses were higher 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 Change: Much of the year over year increase is attributable to the five branches acquired in late 'twenty four from first merchants. In addition to the Oreo operating at operating expense increase that we talked about.
Bradley Adams: Much of the year-over-year increase is attributable to the five branches acquired in late 2004 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.
Speaker Change: For 2025 employee benefit expenses are expected to be a bit of a drag as we talked about overall, we're hopeful we can keep expense growth in the 4% range consistent with our expectations shared last quarter.
Bradley Adams: That's really all I have with that.
Speaker Change: That's really all I have with that ill turn it back over to Jim.
James Eccher: I'll turn it back over to Jim. 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.
Jim: Okay. Thanks, Brad.
Speaker Change: Clothing, 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 a credit front.
Jim: And optimistic that future quarters will be very good.
James Eccher: We're off to a strong start in 2025, and we're optimistic about the year ahead.
Jim: We're off to a strong start in 2002 2025, and we're optimistic about the year ahead.
Jim: 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: 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. Thank you sir.
Jim: Thank you Sir.
Operator: Ladies and gentlemen, at this time we will be conducting our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star 2. One moment, please, while we poll for questions.
Speaker Change: And gentlemen at this time, we'll be conducting a question and answer session.
Speaker Change: If you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Confirmation tone will indicate your line is in the question queue you.
Speaker Change: You May press star two if he would like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment, please while we poll for questions.
Speaker Change: Thank you.
Operator: Thank you.
Christopher McGratty: Our first question is coming from Chris McGratty with KBW. Your line is. All right. Good morning, guys. Hey Greg, good morning Chris.
Speaker Change: Our first question is coming from Chris Mcgratty with <unk> your line of sight.
Speaker Change: Alright, good morning, guys.
Speaker Change: Good morning, Chris.
Speaker Change: Bryan maybe start on the margin.
Christopher McGratty: Um, Brad, maybe start on the margin. Uh, heard your, heard your on-performance comments, it's really incredible where the margin is. If the forward curve comes up to fruition, you get two to three cuts this year, I mean, your message is... Basically, we're going to be flat, even with the cuts. Is that kind of roughly flat to modest down from that 490 to 48 level? Voila!
Speaker Change: I heard your heard your outperformance comments, it's really incredible we're at margin is.
Speaker Change: Yes.
Speaker Change: It's a forward curve comes up.
Speaker Change: For us when you get two cuts this year I mean your messages.
Speaker Change: Basically we're going to be flat.
Speaker Change: Even with the cuts.
Speaker Change: Is that kind of roughly flat to modest down from that 490 848 level.
Speaker Change: Well yeah.
Bradley Adams: I said I wasn't going to do any grand prognostications, I think. inflation stickier or 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. It's awfully tough to cut rates in this scenario, particularly with what happened last time when you talk about yield is actually going up. along the curve. I would say that whereas before. because everybody else will be talking to free rate cuts whereas before I would have said seven basis points of margin decline.
Speaker Change: I said I wasn't going to do any grand Prognostications I'll do it anyway I just don't think we're getting three rate cuts I think.
Speaker Change:
Speaker Change: I think <unk>.
Speaker Change: Inflation stickier, but more importantly, I think it's political at this point.
Speaker Change: And I think that theres, not going to be a ton of support for.
Speaker Change: What is largely a tariff slash political environment in terms of that.
Speaker Change: <unk>.
Speaker Change: Its awfully tough to cut rates in this scenario, particularly with what happened last time when you talk about.
Speaker Change: Yields actually going up.
Speaker Change: Along the curve.
Speaker Change: I would say that whereas before.
Speaker Change: Just because everybody else will be talking to three rate cuts, whereas before I would've said seven basis points of margin decline.
Bradley Adams: 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. So overall, I'm significantly more bullish on the margin than I have been for probably over a year. Okay.
Speaker Change: And with the contribution from Evergreen I would probably say, it's four with each rate cut.
Speaker Change: From these levels. So it has been softened quite a bit.
Speaker Change: Some of that obviously is the deposit pickup as well and just the margin levers that we have with them coming on board. So overall I'm I'm significantly more bullish on the margin and then I have been for probably over a year.
Speaker Change: Okay.
Christopher McGratty: And then the other piece of the NII is what you're doing with the participations, pushing them out. What's left to go on non-core loans?
Speaker Change: Then the other piece of the NII is what youre doing with the participations pushing on out.
Speaker Change: What's left to go on non core loans, where do you think.
Bradley Adams: Where do you think, or do you think that the loan book is bottomed, or any kind of thought there? Yeah, that's a good question, Chris. I mean, we're still, we've had that purchase participation book since West Suburban. And keep in mind, that represents about 25% of our classifieds. So we've been trying to aggressively push out as much of that as possible. becomes challenging, particularly on the syndication front, when you don't have a voice at the table, per se. But, you know, we've got another, I'd say, $200 million that we're going to want to continue to try to exist over the next 24 months.
Speaker Change: Or do you think that the loan book has bottomed or any kind of thought there.
Chris Mcgratty: Good question, Chris I mean, we're still we've had that purchase participations books since since west suburban.
Chris Mcgratty: Keep in mind that that represented it represents about 25% of our classifieds. So we've been trying to aggressively push out as much of that as possible.
Chris Mcgratty: Becomes challenging, particularly on the syndication front when you don't have a voice at the table per se, but.
Speaker Change: Yes, we've got.
Speaker Change: Another I'd say $200 million, we're going to want to continue to try to exist over the next 24 months.
Speaker Change: So we've made good progress we've got some some were looking to do there but.
Bradley Adams: So we've made good progress. We've got some more lifting to do there. Overall, we're pleased with how the book is repositioned. I think that, 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 get on the front part of credit. I feel like we've done what we said we were going to do. I also think we've been aggressive and perhaps being pessimistic in our worldview and making sure that we're not holding credits that we could potentially get out of if things get worse.
Speaker Change: Overall, we're pleased with without book is repositioning.
Speaker Change: I think that.
Chris Mcgratty: Chris One thing that we've done a particularly good job of is.
Chris Mcgratty: We've talked about how big our efforts word to get on the front part of credit I feel like we've done what we said we were going to do I also think we've been aggressive in perhaps being pessimistic in our worldview and making sure that we're not holding credits that we could potentially get out of if things get worse.
Chris Mcgratty: Our credit outlook today is significantly better than its been in two years, that's for darn sure.
Christopher McGratty: Our credit outlook today is significantly better than it's been in two years, that's for darn sure. All right. Awesome.
Chris Mcgratty: Alright, alright awesome. Thank you.
Operator: Thank you.
Chris Mcgratty: Thanks, Chris.
Chris Mcgratty: Thank you.
Terence McEvoy: Our next question is coming from Terry McEvoy with Stevens. Your line is. Hi, good morning, guys. Hey, Terry. Good morning. I mean, you've worked through office, worked through health care.
Speaker Change: Our next question is coming from Terry Mcevoy with Stephens. Your line is nice.
Terry: Hi, Good morning, guys, Hey, Terry.
Terry: I mean, you've you've worked through office worked through health care. I guess my question is are there any new segments emerging out there.
Bradley Adams: I guess my question is, are there any new segments emerging out that in CRE or CNI just look like? Yeah, I you know, I think if there's if there's one area that we're seeing a couple of credits come onto our radar. It's more in C&I at this point, nothing material. We had a couple of credits. and a solutions-based drug wholesale company that... misprojections that we've downgraded. We've already proactively taken reserves against those. By and large, you're right, we're through office, we're working our way through healthcare, we feel pretty good about where we're at, but a lot of that C&I book has obviously seen a pretty rapid increase in cost of capital, so a little bit of stress on that book, but aside from those two credits, we're not seeing any new red flags.
Terry: In CRE or C&I I'm just look.
Terry: Yeah.
Terry: If if there's if there's one area, we're seeing a couple of credits.
Terry: Come on or radar, it's more in C&I at this point.
Terry: Nothing material, we had a couple of credits.
Terry: <unk>.
Terry: One in manufacturing and one in <unk>.
Terry: Solutions based drug wholesale company that missed.
Terry: Ms projections that we've downgraded we've proactively taken reserves against those.
Terry: <unk>.
Terry: By and large you're right we were through office, we're working our way through health care, we feel pretty good about where we're at but.
Terry: You know a lot of that C&I book is.
Terry: <unk>, obviously seen a pretty rapid increase in cost of capital. So some little bit of stress in that book, but aside from those two credits, we're not seeing any new red flags.
Terry: Thanks, and then as a follow up have you noticed any trends among your lower balanced deposit customers call. It late in the quarter or here in April and I'm thinking just balances or card transactions overall.
Terence McEvoy: Thanks.
Bradley Adams: 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? And I'm thinking just balances 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 some of that's probably tax-related, just with refunds flowing in. But... You know, we're a very granular deposit base. I think everybody knows that by now, but we've seen kind of weakness and balance levels in transaction activity in that deposit base starting over a year ago.
Terry: Card transactions are down significantly, but thats a trend that started almost a year ago.
Terry: We have seen significant slowdown in a move down in average balances on the low end.
Terry: It actually somewhat mitigated and some of that's probably tax related.
Terry: Just with refunds falling in.
Terry: But.
Terry: We're a very granular deposit base I think everybody knows that by now.
Terry: 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.
Bradley Adams: So I wouldn't say there's anything that's different here. I think that. If I'm reading your question right, 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. Yeah, and that's what I was asking.
Terry: I think that.
Terry: If I'm reading your question right 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 and some time ago.
Terry: Yes.
Terry: Yeah, and that's why I was asking.
Terence McEvoy: Thanks for taking my questions. Appreciate it. Thanks, Thank you.
unknown: Thanks for taking my questions I appreciate it thanks Terry.
Terry: Thank you.
David Long: Our next question is coming from David Long with Raymond James. Your line is live. Good morning, everyone.
David Long: Next question is coming from David long with Raymond James Your line is life.
David Long: Good morning, everyone.
James Eccher: We're only we're only a few weeks removed from Liberation Day with the tariffs. But, you know, in your recent conversations with with you that you and your team has been having with your commercial clients, what is their sentiment like? And, and are you seeing deals getting pulled? Are you are you are you seeing pause? You know, just trying to get a sense on loan demand expectations?
David Long: We're only we're only a few weeks removed from liberation day with the tariffs but.
David Long: In your recent conversations with.
Speaker Change: With you that you and your team is has been having with your commercial clients. What is their sentiment and are you seeing deals getting pulled the are you are you are you seeing pause.
David Long: L J.
David Long: Just trying to get a sense on loan demand expectations.
James Eccher: Yeah, it's probably similar to what you're hearing from from other banks. We've had these conversations internally, it's 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 commercial real estate, particularly on the investment side where it's pencils down, we're not doing anything until projecting a lot of growth in the second quarter, we're hopeful. and Clarity Ustina. in Law and Demand in the second half.
Speaker Change: Yes sure.
David Long: Probably similar to what you're hearing from.
David Long: From other banks.
David Long: We've had these conversations internally it's ranged from.
David Long: Okay equipment leasing side.
David Long: Activity remains actually.
David Long: Pretty decent may be down a little bit as far as new activity from a year ago.
David Long: Commercial real estate, particularly in.
David Long: Vessel side words, pencils down and we're not doing anything until we get some.
David Long: Some clarity around tariffs and uncertainty.
David Long: Yeah.
David Long: But by and large it's Wade.
David Long: Wait and see we are not.
David Long: Projecting a lot of growth in the second quarter, we're hopeful.
David Long: With some clarity we see an uptick.
David Long: And a lot of demand in the second half.
David Long: Yeah.
Speaker Change: Got it thanks for the color Jim and then as it as you look at the reserve level reserves came down a bit in the quarter you had non performers up I think there's a risk of economics forecast currently where they are today. It sounds like you're you see you sound pretty stable, but I think there.
David Long: Got it. Thanks for the color, Jim.
David Long: And then, as you look at the reserve level, reserves came down a bit in the quarter. You had non-performers up. I think there's a risk of economic forecast currently. You know, where they are today, it sounds like you're using some pretty stable, but I think there's a sense that these are going to worsen.
David Long: There's a sense that these are going to worsen.
David Long: What was the what was the math you went through at quarter end and coming up with the reserve.
James Eccher: What was the map you went through at quarter end in coming up with the reserves? So we've got a situation where criticized, classified, and non-performers 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 addressing credits that we believe there is some potential weakness in. I would have been a much more pessimistic person, I was a much more pessimistic person a year ago than I am today.
David Long: So we've got a situation where criticized classified and non performers have been trending down significantly for the better part of two years.
David Long: I don't think we are in the same boat as everybody else here, our trend is not or negative at this point, even with the uncertainty that's out there.
David Long: We've been very aggressive in addressing credits that we believe there is some potential weakness.
David Long: I would have been a much more pessimistic person I wasn't much more pessimistic versus a year ago than I am today.
David Long: You can call it a leading indicator or whatever else are early in terms of this stress.
James Eccher: You can call us a leading indicator or whatever else, or early, in terms of this stress, but 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.
David Long: But I don't see a second wave right now.
David Long: Certainly broad macroeconomic weakness will result in losses for us but.
David Long: I feel exceptionally good about where we are at this point.
Speaker Change: Great. Thanks, Brad I appreciate the color.
David Long: Great. Thanks, Brian. Appreciate the call.
Brad Adams: Thanks, Bob.
Brad Adams: Thank you.
Operator: Thank you.
Speaker Change: Our next question is coming from Nathan race with Piper Sandler Your line is live.
Nathan Race: Our next question is coming from Nathan Race with Piper Sandler. Your line is live. Morning guys, thanks for taking the questions. I think last quarter we were talking about maybe charge-off skin south of 20 basis points going forward.
Nathan Race: Good morning, guys. Thanks for taking my questions.
Brad Adams: Okay.
Brad Adams: I think last quarter, we were talking about maybe charge offs can south of 20 basis points going forward. Obviously, you had some cleanup with the one C&I credit here in the first quarter, which is generally how are you guys thinking about the charge off trajectory both near term and then when you layer on evergreen that has historically had a higher loss history relative.
Bradley Adams: Obviously, we had some cleanup with the one C&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're later on evergreen that has historically had a slightly higher loss history relative to peers just given their operations. Yeah, I think you're right. We, we certainly as it related to one large C&I credit. You have a credit that's in bankruptcy, you get unpredictable results, particularly as it relates to options. Equipment Options, and we felt, given the You know, to take the final charge on that, and while we're hopeful that we get some recovery on this, we elected to put this one behind us.
Brad Adams: It appears just given their operations.
Brad Adams: Yeah, I think youre right.
Brad Adams: Certainly.
Brad Adams: As it relates to the one large C&I credit.
Brad Adams: Creditors in bankruptcy, you get unpredictable results, particularly as it relates to auto.
Brad Adams: Equipment options.
Brad Adams: We felt.
Brad Adams: Given the.
Brad Adams: The strong quarter earnings we decided.
Brad Adams: The table on that.
Brad Adams: While we hold although we get some recovery on those we elected to put this one behind us.
Brad Adams: You heard our comments regarding the declines.
Bradley Adams: You heard our comments regarding the client.
Brad Adams: Substandard criticized so that.
Bradley Adams: https://www.youtube.com or the link in the video description. for future credit deterioration. While the charge-offs are a little bit higher, we're optimistic that future quarters should hold up a lot better. You know, as it relates to Evergreen, you know, historically, you know, they've run losses anywhere between one and one and a half percent. However, we've got to keep in mind that contribution margins on that loan book are significantly higher and you have to look at those two factors hand-in-hand. They continue to be exceptionally well-reserved, and we're optimistic about adding that vertical to our...
Brad Adams: Indicators.
Brad Adams: Should bode well for sure.
Brad Adams: For future credit deterioration so well.
Brad Adams: While the charge offs were a little bit higher were optimistic that future quarters should be should hold a whole lot better.
Brad Adams: As it relates to evergreen.
Brad Adams: Historically, you know that.
Brad Adams: They've run losses anywhere between one and one 5%.
Brad Adams: However, we got to keep in mind that contribution margins on that loan book are significantly higher do you have to look at those those two factors.
Brad Adams: So.
Brad Adams: They continue to be exceptionally well reserved.
Brad Adams: And while we're optimistic about adding that.
Brad Adams: To our team.
Brad Adams: So I realize that our tone and tenor is a little bit different maybe than most the one data point that I would add for people is that our individual specific allocations for individual credits on the commercial side right now is lower than it's ever been the number of individual allocations.
Bradley Adams: So I realize that our tone and tenor is a little bit different maybe than most, but one data point that I add for people is that our individual specific allocations for individual credits on the commercial side right now is lower than it's ever been. The number of individual allocations hasn't been this low in three and a half years. So in terms of problems, we believe we've dealt with them. Understood. That's helpful. Appreciate that.
Brad Adams: It hasn't been this low in three and a half years.
Brad Adams: Sure.
Brad Adams: So in terms of problems, we believe we've dealt with them.
Speaker Change: Understood. That's helpful. I appreciate that Brad just going back to your expense comments I apologize if you touched on this as I hopped on late but I think you mentioned you know youre hopeful to get back to 4% expense growth.
Nathan Race: And Brad, just going back to your expense comments, and I apologize if you touched on this as I hopped down late, but I think you mentioned, you know, you're hopeful to get back to 4% expense growth for this year, which would imply, you know, a decent step down, you know, closer to $40 million 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. Okay, great. I believe that's all I had. Thanks guys. Cool. Thank you.
Speaker Change: For this year, which would imply a decent step down closer to $40 million or so over the next few quarters is that kind of how youre thinking about it just with some of the noise in the first quarter.
Speaker Change: Yes.
Speaker Change: Okay great.
Speaker Change:
Speaker Change: Yes.
Speaker Change: I believe thats all I had thanks guys. Thank.
Craig: Thank you thanks Craig.
Speaker Change: Thank you our next.
Jeff Rulis: Our next question is coming from Jeff Rulis with DA Davidson. Your line is Thanks, good morning. Just to check in on the growth front, I appreciate the comments on sort of pushing out some participations and still to go, you know, starting from a kind of a Net down on loans, I guess, for the full year of, you know, Jim trying to back into expectations on growth for the for the full year sounds pretty guarded, but I would be thrilled with low single-digit growth that would come second half of the year, but keep in mind that risk-adjusted returns today are not overly attractive.
Speaker Change: Next question is coming from Jeff <unk> with D. A Davidson your line is nice.
Jeff: Thanks, Good morning.
Jeff: Just to check in on the growth front.
Jeff: Appreciate the comments on kind of pushing out some participations and still to go.
Jeff: Starting from of.
Jeff: Got it.
Jeff: Net down on on loans I guess for the full year.
Speaker Change: Jim I'm trying to.
Speaker Change: Back into expectations on growth for the for the full year, it sounds pretty guarded but.
Speaker Change: Any detail on that side.
Speaker Change: Obviously, the acquisition, which is going to give us some loan growth.
Speaker Change: I would.
Speaker Change: That would be thrilled with low single digit growth that would come second half of the year, but keep in mind that the risk adjusted returns today are not overly attractive.
Bradley Adams: several areas. We'll be very careful. What we're putting on the books, obviously, with the margin that we're... carry right now, we're not going to just grow for the sake of growing, so having said that, we are optimistic that the second half is going to be much better. Listen, I think six months ago on this call, when I said that we had a realistic shot of growing net interest income in the first quarter of this year, I could feel the eyes crossing on the other side of this line not believing that number. It's about basically, as Jim mentioned, risk-adjusted returns.
Speaker Change: In several areas, we'll be very careful prudent.
Speaker Change: What we're putting out of the box, obviously with a margin.
Speaker Change: Carrying right now we're not going to we're not going to just grow for the sake of growing so.
Speaker Change: Having said that we are optimistic that the second half so it'd be much better than the first half.
Speaker Change: Listen I mean, six months ago on this call when I said that we had a realistic shot of growing net interest income linked quarter and the first part of this year I can feel the ice crossing on the other side of this line not believing that number so.
Speaker Change: It's about basically as Jim mentioned risk adjusted returns and.
Bradley Adams: And you know what? 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. I think that I got very confused two weeks ago when we saw equity markets going down and at the same time treasury yields going up. That's been a very interesting couple weeks in terms of what interest rates are doing.
Speaker Change: What is it.
Speaker Change: 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 a loan purchases.
Speaker Change: I think thats still the case I think that I got very confused.
Speaker Change: Two weeks ago, when we saw equity markets going down and at the same time treasury yields going up.
Speaker Change: That's been a very interesting couple of weeks in terms of what interest rates are doing.
Bradley Adams: I do see significant risk to spread widening at this point, as I mentioned a few minutes ago. I think there will be attractive yields available. It's something we will consider in order to generate growth on that front. When you've got the balance sheet flexibility that we You've got a lot of optionality. So, you know, it's an interesting time. Uncertainty creates opportunities. Most importantly, I'm exceptionally pleased with both where we are and how much money we're Brad, leaning into that margin strength, I think that's kind of the point of the discussion. Do you have a March average for the net interest margin?
Speaker Change: You see significant.
Speaker Change: 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 and when you got the balance sheet flexibility that we do.
Speaker Change: You've got a lot of Optionality.
Speaker Change: So.
Speaker Change: It's an interesting time.
Speaker Change: Uncertainty creates opportunities.
Speaker Change: And.
Speaker Change: Most importantly, I'm exceptionally pleased with both where we are and how much money, we're making at this point.
Speaker Change: Brad leaning into that margin strength I think thats it.
Speaker Change: The quantity the discussion do you have a march.
Speaker Change: Average for the net interest margin.
Bradley Adams: I don't off the top of my head. It wasn't down from February, I can tell you that. So it trended higher. And that's been a function, as I 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 it makes me generally a happy person, and I treat my kids better, and they tend to upset me less, so, you know. All smiles are out here.
Speaker Change: I don't know off the top of my head it wasn't down from February.
Speaker Change: Of that.
Speaker Change: So it trended higher.
Speaker Change: And that's been a function as I as I alluded to earlier the strength in the deposit generation.
Speaker Change: I am very hopeful that continues if it does we.
Speaker Change: We have a ton of balance sheet flexibility over the next six months.
Speaker Change: It's a nice position to be in as the CFO.
Speaker Change: And it makes me generally a happy person and I treat my kids better and they tend to have certainly less so.
Speaker Change: Now.
Speaker Change: All smiles around here.
Speaker Change: Fair enough I guess the.
Bradley Adams: Fair enough. I guess the last question, Brad, you mentioned, you know, kind of looking at that buyback, but you kind of conditioned it with, you know, post-deal close, you know, what precludes you from being active in the short run, given, you know, Reg M precludes us from being active in the short term, otherwise I would be. Okay, and in the coming, you know, pre-deal, I mean, you locked out the entire time, or is there any windows? Yeah, we're not, you know, until we close. Until we close, I would say that, that, uh... We're optimistic that our timetable for that closure will come to fruition.
Speaker Change: Last question, Brad you mentioned.
Speaker Change: Kind of looking at that buyback, but can you kind of a condition it with post deal close.
Speaker Change: What precludes you from from being active in the short run.
Speaker Change: Given right.
Speaker Change: [laughter] sorry.
Speaker Change: Reg Reg and precludes us from being active onshore otherwise otherwise that would be.
Speaker Change: Okay, and then the coming.
Speaker Change: Pre deal I mean, you you locked out the entire time or is there any window, yes, but we're not there yet.
Speaker Change: Totally close till we close I.
Speaker Change: I would say that that.
Speaker Change: We're optimistic that our timetable for that closure.
Speaker Change: It will come to fruition.
Nathan Race: I know I said last one, but maybe one more. The tax rate, you've been kind of in that mid-24 range. Is that a good number to use ahead?
Speaker Change: I know I said last one, but maybe one more the tax rate you've been kind of in that mid 24 range is that a good number to use.
Bradley Adams: I, you know, normally I 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, around here. Okay, thank you. Thank you.
Speaker Change: Normally I'd like to go out to five or six basis points on that question, but yeah.
Speaker Change: Decimal points for either of us.
Speaker Change: Hell I don't know.
Speaker Change: Around here.
Speaker Change: Okay. Thank you.
Speaker Change: Alright, Jeff.
Speaker Change: Thank you once again, ladies and gentlemen, if you do have any questions or comments. Please press star one on your telephone keypad.
Operator: Once again, ladies and gentlemen, if you do have any questions or comments, please press star one on your telephone keypad.
Brian Martin: Our next question is coming from Brian Martin with Jani, your line is live. Hey, Brian. Hey, guys.
Speaker Change: Our next question is coming from Brian Martin with Janney Your line is life.
Speaker Change: Ryan.
Brian Martin: Hey, guys congratulations on the quarter.
Brian Martin: Congratulations on the quarter. Most of my stuff was asked. You know, just, Brad, I think one big picture question, I think when you talked about the margin I think last quarter, you talked about the seven basis points, maybe now it's four with Evergreen. I mean, as far as... I think you talked about where it could bottom, all the different scenarios, if we do see cuts, whether we don't see cuts. Just trying to understand. I mean, if we don't see cuts and that's more your scenario, where do you think the margin may bottom now that we've stepped up much higher than we thought versus if we do get a couple cuts?
Speaker Change: Most of my stuff was asked.
Speaker Change: Brad I think one big picture question I think when you talked about the margin I think last quarter, you talked about the seven basis points, maybe now its four with with Evergreen you mean as far as.
Speaker Change: I think he talked about where it could bottom, Italy, you know all the different scenarios. If we do see cuts whether we don't think it's just trying to understand I mean, we don't think cuts and that's more of a scenario.
Speaker Change: What do you think that margin may bottom now.
Speaker Change: Stepped up much higher than we thought versus if we do get a maybe get a couple of cuts I thought last quarter was kind of in that $435 40 range, all albeit that it would take a while but just kind of big picture kind of how we should think about that.
Bradley Adams: I thought last quarter was kind of in that $4.35, $4.40 range, albeit that it would take a while, but just kind of big picture, kind of how we should think about that. Yeah, I would say that the floor has been raised 10 basis points by deposit flows. It's a different world for us in combination with Evergreen, though, at least at our current size. We will be structurally more profitable, absent any significant credit events on that front. I have... You know, for us, obviously, we're an exceptionally high performing company when rates are high. And you've heard us say in the past that the high and flat.
Speaker Change: Yeah, I would say that the floor has been raised 10 basis points by my deposit flows it's a different world for us in combination with evergreen now at least at our current size.
Speaker Change: We will be structurally more profitable.
Speaker Change: Absent any significant credit event on that front.
Speaker Change: I have.
Speaker Change: Yeah.
Speaker Change: Obviously, we're an exceptionally high performing company when rates are high and you've heard us say in the past that the.
Speaker Change: Our high end <unk>.
Speaker Change: Flat.
Bradley Adams: 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 where we do best. 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 good for us.
Speaker Change: Yield curve as a panacea for us I mean, and Thats, where we are today.
So investors shouldn't be surprised by strong margin performance in our high end flat yield curve.
Speaker Change: Because that's where we do best.
Speaker Change: As we talked about a couple of 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 good for us.
Bradley Adams: I don't see Wearing my macro hat for a minute. 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 stickiness to inflation that I see no reason for that to stop or go away anytime soon, especially not with all this tariff nonsense. That ain't going to help that. I also don't think the Fed's particularly accommodative to backing off the inflation fight when a lot of it's self-induced from the executive branch. So I don't see any reason to lurch into needed changes, and I don't see any reason to be pessimistic about our margin performance in near to moderate terms. Okay, and as far as where you would, if the bottoming would be just 10 basis points higher than you were thinking before for now, until we do a little bit more?
Speaker Change: I don't see.
Speaker Change: I'm wearing my macro hat for a minute.
Speaker Change: See a lot of ways out of that given the balance of risk between growth.
Speaker Change: And inflation at this point.
Speaker Change: We have seen a stickiness to inflation that I see no reason for that to stop.
Speaker Change: Or go away anytime soon, especially not with all this tariff nonsense that aren't going to help that.
Speaker Change: I also don't think the fed's, particularly accommodated.
Speaker Change: To backing off the inflation fight when when a lot of itself induced from the executive branch. So I don't see any reason to lurch into needed changes and I don't see any reason to be pessimistic about our margin performance in the near term to moderate term.
Speaker Change: Okay, and as far as where we're at.
Speaker Change: The bottom it would be just 10 basis points higher than you were thinking before for now until we get a little bit more.
Brian Martin: Yeah. Gotcha.
Speaker Change: Got you and then maybe just one last one on credit given the big improvement. We saw this quarter I think you guys have been talking about that.
James Eccher: And then maybe just one last one on credit given, you know, 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, where the criticizing classifieds are today. much lower than they have been. And Brad just mentioned, you know, credit, you know, on the individual credits, but is there any room, you know, the direction from here in terms of credit quality, just the cadence of improvement in non-performing, is it, is there anything big that's out there within there that's gonna be coming due or it just should be a study as you work through these, see some decline down in the non-performing, just, you know, how does that play out?
Speaker Change: And Jim you talked about.
Speaker Change: Criticized and classifieds are today.
Brad Adams: Much slower than they have been in Brad just mentioned credit.
Speaker Change: Individual credits, but is there any room.
Speaker Change: Directionally from here in terms of credit quality, just the cadence of improvement in nonperforming because it is there anything big that's out there within there that's going to be coming due or it should be a steady.
Speaker Change: As you work through these system declined down into nonperforming.
Speaker Change: Yeah.
James Eccher: Yeah, I mean, the goals that continue to work is even lower, Brian. I mean, I don't think we'll have the magnitude of the. and the clients and percentages that we had this quarter. We're optimistic, we've been very internally focused to try to improve the balance sheet. Yeah, we think we can make incremental improvements throughout the rest of the year. Okay, yeah, just nothing big. I just want to make sure there's nothing else that was in the hopper that could come out.
Speaker Change: Worthy.
Speaker Change: Lower Brian I mean, I don't think we'll have the magnitude of the <unk>.
Speaker Change: Clients in percentages that we had this quarter, but.
Speaker Change: Sure.
Speaker Change: We're optimistic.
Speaker Change: Been very internally focused.
Speaker Change: Try to improve the balance sheet.
Speaker Change: We think we can make incremental improvements throughout the rest of the year.
Okay, Yeah, just nothing big I, just want to make sure Theres nothing LCD was it puts it in the hopper that could come off so okay. Thanks for taking the question guys and great quarter.
Brian Martin: So, okay. Thanks for taking the questions, guys, and great quarter. Thank you.
Brian Martin: Thanks, Brian.
Speaker Change: Thank you.
James Eccher: As we have no further questions on the lines at this time, I would like to hand it back over to Mr. Eccher for a closing remark. Okay, thanks everyone for joining us and thanks for your interest in the company. We look forward to speaking with you next quarter.
Speaker Change: As we have no further questions on the lines at this time I would like to hand, it back over to Mr. Ankur for closing remarks.
Ankur: Thanks to everyone for joining us and thanks for your interest in the company.
Speaker Change: Look forward to speaking with you next quarter.
Operator: Bye. Thank you.
Ankur: But.
Ankur: Thank you. This concludes today's conference and you may disconnect. Your lines at this time and we thank you for your participation.
Operator: This concludes today's conference and you may disconnect your lines at this time and we thank you for your participation.