Q3 2026 Old Second Bancorp Inc Earnings Call

October 22, 2026

Operator: And we're ready to go.

Operator: Good morning, everyone. Thank you for joining us today for Old Second Bancorp Inc.'s Q3 2026 earnings call. On the call today are Mr. Jim Eccher, the company's Chairman, President, and Chief Executive Officer. Mr. Brad Adams, the company's Chief Operating Officer and Chief Financial Officer. And Mr. Darin Campbell, the company's Head of National Specialty Lending. 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 also ask you to refer to the company's SEC filings for a full discussion of the company's risk factors. The company does not undertake any duty to update such forward-looking statements.

Speaker #1: Good morning, everyone. Thank you for joining us today for Old Second Bancorp Inc Q3 2026 earnings call. On the call today, I'm Mr. James Eccher, the company's chairman, president, and chief executive officer.

Speaker #1: Mr. Brad Adams, the company's Chief Operating Officer and Chief Financial Officer, and Mr. Darren Campbell, the company's Head of National Specialty Lending. 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.

Speaker #1: These statements are not a guarantee of future performance, and results may differ materially from those projected. Management will also ask you to refer to the company's SEC filings for a full discussion of the company's risk factors.

Speaker #1: The company does not undertake any duty to update such forward-looking statements. On today's call, we will also be discussing certain non-GAAP financial measures. These non-GAAP measures are described and reconciled to their GAAP counterparts in the earnings release.

Operator: On today's call, we will also be discussing certain non-GAAP financial measures. These non-GAAP measures are described and reconciled to their GAAP counterparts in the 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 Eccher.

Speaker #1: 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 Eccher.

Jim Eccher: Okay. Good morning, and thank you for joining us. As customary, I have several prepared opening remarks to give you my overview of the quarter and then turn it over to Brad for additional details. I will then conclude with certain summary comments and thoughts about the future before we open it up to questions. From a GAAP perspective, net income was $28.9 million or $0.56 per diluted share in Q3. Return on assets was 1.69%. Q3 2026 return on average tangible common equity was 15.77%, and the efficiency ratio was 52.34%. Excluding all adjusting items, which for the quarter was limited to MSR valuation adjustments, net income for Q3 was $28.5 million or $0.55 per diluted share.

Speaker #2: Good morning, and thank you for joining us. As customary, I have several prepared opening remarks. I'll give you my overview of the quarter, and then turn it over to Brad for additional details.

Speaker #2: I will then conclude with certain summary comments and thoughts about the future before we open it up to questions. From a GAAP perspective, net income was 28.9 million, or 56 cents per diluted share in the third quarter.

Speaker #2: Return on assets was 1.69%. For the third quarter of 2026, return on average tangible common equity was 15.77%, and the efficiency ratio was 52.34%. Excluding all adjusting items—which for the quarter was limited to MSR valuation adjustments—net income for the third quarter was $28.5 million, or $0.55 per diluted share.

Jim Eccher: Third quarter 2026 earnings were impacted by $12.7 million of net loan charge-offs, which consisted of commercial and industrial loan net charge-offs, $9.2 million primarily related to one relationship we have discussed on prior calls. $6 million of that $9.2 million was previously reserved for. This credit is a warehousing and distribution business that has seen its cash flow position deteriorate over the last year. We feel this credit is now largely behind us. The remaining portion of the charge-off is related to the Powersport business which totaled $3.1 million, which is comparable to the prior quarter of Powersport charge-off level. Tangible book value per share decreased slightly to $14.75 as of 30 September from $14.77 as of 30 June. The tangible equity to tangible asset ratio decreased 19 basis points from last quarter from 11.19% to 11%.

Speaker #2: Third quarter 2026 earnings were impacted by 12.7 million of net loan charge-offs, which consisted of commercial and industrial loan net charge-offs of 9.2 million, primarily related to one relationship we have discussed on prior calls, 6 million of that 9.2 million was previously reserved for.

Speaker #2: This credit is a warehousing and distribution business that has seen its cash flow position deteriorate over the last year. We feel this credit is now largely behind us.

Speaker #2: The remaining portion of the charge-off is related to the power sport business, which totaled $3.1 million. This is comparable to the prior quarter's power sport charge-off level.

Speaker #2: Tangible book value per share decreased slightly to $14.75 as of September 30, from $14.77 as of June 30. And the tangible equity to tangible asset ratio decreased 19 basis points from last quarter, from 11.19% to 11%.

Jim Eccher: The modest declines in these metrics are primarily due to stock repurchases of approximately $39.5 million and a change in the value of the securities portfolio due to higher rates during the quarter. Our financials reflect an exceptionally strong net interest margin at 5.27% for the third quarter of 2026. That is a four basis point improvement from last quarter and 22 basis point increase over the prior year on a tax-equivalent basis. Pre-provision net revenues increased in the third quarter of 2026 from the prior quarter, primarily due to day count, slightly higher average loan balances, and lower average savings and time deposit balances. Total cost of deposits was 102 basis points for the third quarter, compared to 100 basis points for the prior linked quarter and 133 basis points for the third quarter of 2025.

Speaker #2: The modest declines in these metrics are primarily due to stock repurchases of approximately 39.5 million, and a change in the value of the securities portfolio due to higher rates during the quarter.

Speaker #2: Our financials reflect an exceptionally strong net interest margin at 5.27% for the third quarter 2026. That's a 4 basis point improvement from last quarter, and 22 basis point increase over the prior year on a tax-equivalent basis.

Speaker #2: Pre-provision net revenues increased in the third quarter 2026 from the prior quarter, primarily due to day count, slightly higher average loan balances, and lower average savings and time deposit balances.

Speaker #2: Total cost of deposits was 102 basis points for the third quarter, compared to 100 basis points for the prior linked quarter, and 133 basis points for the third quarter of 2025.

Jim Eccher: For the third quarter of 2026 compared to last quarter, tax-equivalent income on average earning assets increased and interest expense on average interest-bearing liabilities increased nominally. Loan-to-deposit ratio is now 98.3% at the end of the third quarter, compared to 96.4% last quarter and 91.4% as of 30 September 2025. Total loans declined nominally about $7.8 million during the third quarter. Tax-equivalent loan yields increased three basis points during the quarter compared to linked quarter, but reflected a one basis point decrease for the quarter year over year. The increase in yields in comparison to the prior quarter is driven by higher short-term rates and repricing of lower yielding loans. We expect this to continue in the near term. Turning to credit, asset quality trends improved significantly during the quarter, excluding the elevated charge-offs resulting from the single credit we just discussed.

Speaker #2: For the third quarter 2026, compared to last quarter, tax-equivalent income on average earning assets increased and interest expense on average interest-bearing liabilities increased nominally.

Speaker #2: Loan to deposit ratio is now 98.3% as of the end of the third quarter, compared to 96.4% last quarter, and 91.4% as of September 30, 2025.

Speaker #2: Total loans declined nominally about 7.8 million during the third quarter, tax-equivalent loan yields increased 3 basis points during the quarter, compared to the link quarter, but reflected a 1 basis point decrease for the quarter-year-over-year.

Speaker #2: The increase in yield, in comparison to the prior quarter, is driven by higher short-term rates and repricing of lower yielding loans. We expect this to continue in the near term.

Speaker #2: Turning to credit, asset quality trends improved significantly during the quarter, excluding the elevated charge-offs resulting from the single credit we just discussed. Classified loans decreased 57.8 million, and non-performing loans decreased 16.8 million.

Jim Eccher: Classified loans decreased to $57.8 million, and non-performing loans decreased $16.8 million. Criticized loans, an early indicator of stress, declined by $61.3 million or 38% during the quarter. As a percentage of loans, classified loans have not been this low since before COVID. Needless to say, we are extremely pleased with the credit trajectory and its implication for future quarters. The allowance for credit losses on loans was $64.2 million as of 30 September, or 1.23% of total loans, from $70.4 million at the end of the second quarter, which was 1.34% of loans. Unemployment and GDP forecast fees and 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 #2: Criticized loans and early indicators of stress declined by $61.3 million, or 38%, during the quarter. As a percentage of loans, classified loans have not been this low since before COVID.

Speaker #2: Needless to say, we are extremely pleased with the credit trajectory and its implication for future quarters. The allowance for credit losses on loans was $64.2 million as of September 30, or 1.23% of total loans, down from $70.4 million at the end of the second quarter, which was 1.34% of loans.

Speaker #2: 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.

Jim Eccher: Non-interest income declined $191,000 in Q3 2026 compared to the prior linked quarter and nominally from the prior year linked quarter. Wealth management continues to reflect strong performance and growth quarter over linked quarter and prior year linked quarters. Mortgage banking income increased $436,000 compared to the linked quarter and increased $762,000 compared to the like prior year period, primarily due to the changes in mortgage servicing rights mark-to-market valuations. MSR mark-to-market valuations increased $775,000 quarter over linked quarter and $1 million over the prior year period. Total non-interest expense for Q3 2026 increased $370,000 from the prior linked quarter, driven by higher regular salaries, higher officer incentive, and employee insurance costs within salaries and employee benefits, and an increase in occupancy, furniture, and equipment due to continued capital projects and growth in real estate taxes and office equipment costs.

Speaker #2: Non-interest income declined $191,000 in the third quarter of 2026, compared to the prior linked quarter, and nominally from the prior year linked quarter. Wealth management continues to reflect strong performance and growth quarter over linked quarter, and prior year linked quarters.

Speaker #2: Mortgage banking income increased 436,000, compared to the link quarter, and increased 762,000, compared to the like period like prior year period, primarily due to the changes in mortgage servicing rights marked to market valuations.

Speaker #2: MSR marked to market valuations increased $775,000 quarter over quarter, and $1,000,000 over the prior year period. Total non-interest expense for the third quarter of 2026 increased $370,000 from the prior quarter, driven by higher regular salaries, higher officer incentive, and employee insurance costs within salaries and employee benefits, and an increase in occupancy, furniture, and equipment due to continued capital projects and growth in real estate taxes and office equipment costs.

Jim Eccher: These increases were partially offset by a decrease in other expense from several one-off expenses in the prior quarter. Our efficiency ratio continues to be excellent, as the tax equivalent efficiency ratio adjusted to exclude core deposit intangibles, OREO costs, and the adjustments to net income, as noted earlier, was 52.06% for Q3, compared to 50.8% for Q2. Overall, the company continues to perform at an exceptionally high level. Operating leverage is strong. The margin is largely stable, and fee businesses are performing well. The improvement in key credit metrics, including reductions in classifies and criticized during Q3, will allow us to finish the year over the next quarter in a much better position to demonstrate the full earnings power of Old Second. I will now turn it over to Brad for more color.

Speaker #2: These increases were partially offset by a decrease in other expenses from several one-off expenses in the prior quarter. Our efficiency ratio continues to be excellent, as the tax-equivalent efficiency ratio—adjusted to exclude core deposit and tangible origination costs in the adjustments to net income, as noted earlier—was 52.06% for the third quarter, compared to 50.8% for the second quarter.

Speaker #2: Overall, the company continues to perform at an exceptionally high level, operating leverage is strong, the margin is largely stable, and fee businesses are performing well.

Speaker #2: The improvement in key credit metrics, including reductions in classifies and criticized during the third quarter, will allow us to finish the year over the next quarter in a much better position to demonstrate the full earnings power of old second.

Speaker #2: I'll now turn it over to Brad for more color.

Brad Adams: Thanks, Jim. Net interest income increased to $84 million relative to the last quarter at $83.3 million. It also increased $1.3 million from last year. Loan yields increased 3 basis points while securities yields declined 5 basis points in Q3. Total yield on earning assets increased 6 basis points over the linked quarter to 640 basis points. Cost of interest-bearing deposits increased modestly at 2 basis points, and total cost of interest-bearing liabilities increased 1 basis point to 174. The end result was a 4 basis point increase in the tax equivalent NIM to 527 versus 523 last quarter. Obviously, we believe this continues to be exceptional margin performance. Average loans increased $5.5 million, or only 0.1%, over linked quarter, and average deposits, however, decreased by $78 million or 1.4%. Deposit runoff is largely seasonal this quarter, with some residual runoff and high beta effectively wholesale deposit captions.

Speaker #3: Thanks, Jim. Net interest income increased 84 million, relative to the last quarter, at 83.3 million. They also increased 1.3 million from last year. Loan yields increased 3 basis points, while securities yields declined 5 basis points in the third quarter.

Speaker #3: Total yield on earning assets increased 6 basis points over the linked quarter to 640 basis points. Cost of interest-bearing deposits increased modestly by 2 basis points, and total cost of interest-bearing liabilities increased 1 basis point to 174 basis points.

Speaker #3: The end result was a 4 basis point increase in the tax-equivalent NIM to 527 versus 523 last quarter. Obviously, we believe this continues to be exceptional margin performance.

Speaker #3: Average loans increased 5.5 million, or only 0.1% over link quarter, and average deposits, however, decreased by 78 million, or 1.4%. Deposit runoff is largely seasonal this quarter, with some residual runoff and high beta effectively wholesale deposit captions.

Brad Adams: Loan origination activity in Q3 was much better than it appears and in line with budget, but was offset by significant paydown and payoff activity. Loan prepayments through the first three quarters have already reached full year 2025 levels. Certainly, the market environment, including ongoing interest rate volatility, and due to high energy prices and broad-based inflation, has resulted in outsized payoffs, it appears to us. Our lending teams are continuing to work very hard, and pipelines for Q4 are building, which should also bode well for Q1 2027 as well. From a stock repurchase perspective, we acquired 1.5 million shares during Q3, resulting in a reduction to equity and a growth in treasury stock to 39.2 million. Year to date repurchases total 3.4 million shares at an average price of $22.74. That is a $74.7 million reduction in equity.

Speaker #3: Loan origination activity in the third quarter was much better than it appears and in line with budget, but was offset by significant paydown and payoff activity.

Speaker #3: Loan prepayments through the first three quarters have already reached full year 2025 levels. Certainly, the market environment, including ongoing interest rate volatility and due to high energy prices and broad-based inflation, has resulted in outsized payoffs that it appears to us.

Speaker #3: Our lending teams are continuing to work very hard and pipelines for the fourth quarter are building, which should also bode well for the first quarter of 2027 as well.

Speaker #3: From a stock repurchase perspective, we acquired 1.5 million shares during the third quarter, resulting in a reduction to equity and a growth in treasury stock to 39.2 million.

Speaker #3: Year-to-date repurchases total 3.4 million shares at an average price of $2,274. That's a $74.7 million reduction in equity. This has a negative impact on the net interest margin, obviously, but a positive impact on earnings per share.

Brad Adams: This has a negative impact on the net interest margin, obviously, but a positive impact on earnings per share. We do expect to continue being active in the repurchase of shares given our extremely strong capital position and current and expected earnings trends. In addition, based on the strength of the balance sheet and resilient income statements trends, Old Second elected to increase the common dividend in Q4 2026 by 14% as we continue to deliver growth commensurate with the bank's performance. Overall margin trends still feel very good. Obviously, rates along the curve went up quite a bit with recent instability in the Middle East and previous expectations for rate cuts have reversed course into rate hikes. If those trends remain stable from here and high cost deposit attrition slows, I would expect to maintain exceptional margin performance.

Speaker #3: We do expect to continue being active in the repurchase of shares, given our extremely strong capital position and current and expected earnings trends. In addition, based on the strength of the balance sheet and resilient income statements trends, old second elected to increase the common dividend in the fourth quarter of 2026 by 14%, as we continue to deliver growth commensurate with the bank's performance.

Speaker #3: Overall, margin trends still feel very good. Obviously, rates along the curve went up quite a bit, with recent instability in the Middle East, and previous expectations for rate cuts have reversed course under rate hikes.

Speaker #3: If those trends remain stable from here and high-cost deposit attrition slows, I would expect to maintain exceptional margin performance. I do believe at this point, however, that we are likely to give back 5 basis points or so with our current loan growth expectations, and the rapid rise we have seen in deposit competition recently.

Brad Adams: I do believe at this point, however, that we are likely to give back 5 basis points or so with our current loan growth expectations and the rapid rise we have seen in deposit competition recently. Loan growth in Q4 2026 is being targeted in the low single-digit level. Expense growth will continue to be modest in the quarters ahead. That's it for my view, and I'll turn the call back over to Jim.

Speaker #3: Loan growth in the fourth quarter of '26 is being targeted in the low single-digit level, expense growth will continue to be modest in the quarters ahead.

Speaker #3: That's it from my view, and I'll turn the call back over to Jim.

Jim Eccher: Thanks, Brad. In closing, we feel despite the isolated charge-off was a pretty solid quarter for the company. We're optimistic due to the improvement in credit metrics this quarter, and the rest of the bank is performing ahead of our expectations. We remain positive about loan growth opportunities and the potential for more strategic growth opportunity as well. That concludes our prepared comments this morning. I will turn it over to the moderator and open it up for questions.

Speaker #2: Thanks, Brad. In closing, we feel despite the isolated charge off was pretty solid quarter for the company, we're optimistic due to the improvement in credit metrics this quarter, and the rest of the bank is performing ahead of our expectations.

Speaker #2: We remain positive about loan growth opportunities and the potential for more strategic growth opportunities as well. That concludes our prepared comments this morning, so I will turn it over to the moderator and open it up for questions.

Operator: Thank you. 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. A confirmation tone will indicate your line is in the question queue, and you may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question today is coming from Nathan Race with Piper Sandler. Your line is live.

Speaker #1: Thank you. 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.

Speaker #1: A confirmation tone will indicate your line is in the question queue. And you may press star 2 if you would like to remove your question from the queue.

Speaker #1: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions.

Speaker #1: Thank you. Our first question today is coming from Nathan Rice with Piper Sandler. Your line is live.

Nathan Race: Hey, guys. Good morning. Thanks for taking my questions.

Speaker #4: Hey, guys. Good morning. Thanks for taking the questions.

Jim Eccher: Morning, Nate.

Speaker #2: Morning, Nate.

Nathan Race: Jim, obviously, disappointing charge-off number. Obviously, you mentioned you had this previously allocated for, and we have been through several quarters with some credit noise. But just given the reductions in both non-performers and criticized loans in the quarter, can you just help us in terms of your degree of confidence that we are now in a position today where we can expect charge-offs to be consistently lower? I think we have talked about a range of maybe 35 to 40 basis points as kind of a

Speaker #4: Jim, obviously, you know, disappointing, you know, charge-off number. Obviously, you mentioned you had this, you know, previously allocated for. And, you know, we've been through, you know, several quarters with, you know, some credit noise.

Speaker #4: But just given, you know, the reductions in both non-performers and criticized loans in the quarter, can you just help us in terms of your degree of confidence that we're now in a position today where we can expect, you know, charge offs to be consistently lower?

Speaker #4: I think we've talked about a range of maybe 35 to 40 basis points is kind of a normalized range going forward. But can you just speak to kind of your degree of confidence that we can expect that to unfold going forward?

Jim Eccher: Yes

Nathan Race: normalized range going forward. But can you just speak to your degree of confidence that we can expect that to unfold going forward?

Jim Eccher: Sure, Nate. This obviously the one charge-off, this has been a lingering credit that we have been working out for the better part of a year. The company is under contract to be sold, albeit at a much lower price. So we feel we have got this now largely behind us. I think what we are most encouraged about, Nate, is the significant reductions in classifieds and even special mention. You have got to go back to October 2019, way before COVID, to have classifieds at this level. So we think we have turned the corner at an inflection point with a lot of this credit and understanding we are going to have a certain degree of Powersport charge-offs on it quarter over quarter. But we feel as good about the loan book today as we have in several years.

Speaker #2: Sure, Nate. Yeah. I mean, obviously, the one charge-off has been a lingering credit that we've been working out for the better part of a year.

Speaker #2: We've the company is under contract to be sold, albeit at a much lower price. So we feel we've got this now largely behind us.

Speaker #2: I think what we're most encouraged about, Nate, is a significant reductions in classifieds. And even special mention, we're you got to go back to October of 2019, way before COVID, to have classifieds at this level.

Speaker #2: So we think we've turned the corner at an inflection point with a lot of this credit. And understanding we are going to have a certain degree of power sport charge offs on a quarter-over-quarter, but we feel as good about the loan book today as we have, and several years.

Nathan Race: Okay, great. That is helpful. And Brad, a little surprised to hear your comments around giving back 5 basis points of margin in Q4, just given how low beta your deposit franchise has historically been. I appreciate deposit pricing competition is increasing these days. But just given how much repricing you have in assets tied to short-term rates, curious if you can just unpack some of that a bit, just in terms of what your beta expectations are for Q4. And again, if you could remind us what you have repricing on the left side of the balance sheet tied to the short-term rates.

Speaker #4: Okay. Great. That's helpful. And Brad, a little surprised to hear your comments around, you know, giving back 5 bips of margin. In the fourth quarter, just given how low beta your deposit franchise has historically been, you know, I appreciate deposit pricing competitions increasing these days, but, you know, just given how much repricing you have and assets tied to short-term rates, you know, curious if you can kind of just unpack some of that a bit, just in terms of what your beta expectations are.

Speaker #4: For the fourth quarter and, again, if you could remind us kind of what you have repricing, on the left side of the balance sheet, tied to the short-term rates.

Brad Adams: There is a couple things going on. What I would say from the expectation of giving back a few basis points, the drivers of it, one is how many shares we have repurchased. Obviously, we are giving up a fair amount of free funding in order to do that. That has a negative implication. The other thing is the loan-to-deposit ratio is pretty much nearing the ceiling at this point. For the first time in a while, we are participating at the marginal funding rate relative to our loan growth expectations. And I think that is probably the biggest driver in what I am talking about. There are, as you point out, things on the other side that are to the good. At any given time, 50% of our book is variable, and generally it reprices with a 30-day lag, and then we move relative to SOFR.

Speaker #3: So, there's a couple of things going on. What I would say from the expectation of giving back a few basis points, the drivers of it, one is how many shares we've repurchased.

Speaker #3: Obviously, we're giving up a fair amount of free funding in order to do that. That has a negative implication. The other thing is, the loan-to-deposit ratio is pretty much nearing the ceiling at this point.

Speaker #3: So for the first time in a while, we are participating at the marginal funding rate relative to our loan growth expectations. And I think that's probably the biggest driver in what I'm talking about.

Speaker #3: There are, as you point out, things on the other side that are to the good. You know, at any given time, 50% of our book is variable.

Speaker #3: And generally, it reprices with a 30-day lag, and then we move relative to SOFR. But SOFR is ahead of what the Fed's been doing.

Brad Adams: SOFR is ahead of what the Fed has been doing, and that rate has been high for a while. So we have been seeing that benefit for quite some time. That being said, we do have some. Jim was positively giddy the other day talking about this 3.5% commercial real estate loan that repriced in the sixes, and we are seeing some of that. And that is obviously a big benefit.

Speaker #3: And that rate's been high for a while. So we've been seeing that benefit for quite some time. That being said, we do have some Jim was positively giddy the other day, talking about this 3.5% commercial real estate loan that repriced in the '60s.

Speaker #3: And we are seeing some of that. And that's obviously a big benefit.

Jim Eccher: Yeah, Nate, I would say 45% of our loan book is going to reprice in the next three to four quarters, and 25% of our securities portfolio is going to reprice at the same time. So there will be some tailwind there.

Speaker #2: Yeah. I mean, I would say 45% of our loan book is going to reprice in the next 3 to 4 quarters. And 25% of our securities portfolio is going to reprice at the same time.

Speaker #2: So there will be some tailwind there.

Brad Adams: The net of all that is we are going to hang out pretty high at these levels, but guessing within plus or minus five basis points. Clearly, I have been pretty bad at it over the last year or so, but I have been bad on the right side of it. So maybe I am hedging a bit, maybe I am right. But I still think we are solidly above a 520 margin for the near and intermediate term.

Speaker #3: The net-net of all that is we're going to hang out pretty high at these levels, but, you know, guessing within plus or minus 5 basis points, clearly I've been pretty bad at it over the last year or so, but I've been bad on the right side of it.

Speaker #3: So maybe I'm hedging a bit, maybe I'm right. But I still think we're solidly above a 520 margin for the near and intermediate term.

Nathan Race: Okay, great. Can you guys just speak to the buyback appetite? Obviously, really stepped up on the buybacks in Q3 and over the course of this year. To what extent do you guys want to continue down the path at a similar clip to what we have seen recently? Within that context, curious how you want to balance buybacks with perhaps an acquisition at some point, perhaps sometime next year.

Speaker #4: Okay. Great. And then, can you guys just kind of speak to just the buyback appetite? Obviously, you know, really stepped up on the buybacks.

Speaker #4: You know, in Q3 and over the course of this year, you know, to what extent do you guys want to continue down the path at a similar clip to what we've seen recently?

Speaker #4: And within that context, curious, you know, how you want to balance buybacks with perhaps, you know, an acquisition at some point, perhaps sometime next year.

Jim Eccher: Have plenty of capital to do both, Nate. As you can see.

Speaker #3: Have plenty of capital to do both, Nate. I mean, as you can see, even this quarter, we didn't shrink capital and we bought back 3% of shares.

Nathan Race: Right

Nathan Race: Right.

Jim Eccher: Even this quarter, we didn't shrink capital, and we bought back 3% of shares. I think it's reasonable for investors to expect us to take out 5% of shares a year and still have the ability to execute on the type of M&A that we're looking for, which as we've talked about in the past, is relatively smaller than what we would've talked about a couple of years ago. It's kind of fill-in type stuff, from our perspective, is where the value would be at this point.

Speaker #3: I think it's reasonable for investors to expect us to take out 5% of shares a year and still have the ability to execute on the type of M&A that we're looking for, which, as we've talked about in the past, is relatively smaller than what we would have talked about a couple of years ago.

Speaker #3: It's kind of fill-in type stuff is, from our perspective, is where the value would be at this point.

Nathan Race: Okay, that's really helpful. I'll step back. Thanks, guys.

Speaker #4: Okay. That's really helpful. I'll step back. Thanks, guys.

Jim Eccher: Yep. Thanks, Nate.

Speaker #3: Yep.

Speaker #2: Thanks, mate.

Operator: Thank you. Our next question is coming from Mark Shutley with KBW. Your line is live.

Speaker #1: Thank you. Our next question is coming from Mark Shutley with KBW. Your line is live.

Mark Shutley: Hey, good morning.

Speaker #4: Hey, hey, good morning.

Jim Eccher: Good morning.

Speaker #2: Good morning.

Mark Shutley: Loans were roughly flat this quarter with higher prepayments, and I think you said the outlook is low single-digit growth from here. But I was just curious how the pipeline's looking and where you expect to see that growth in the coming quarters. Thanks.

Speaker #4: So, you know, loans were roughly flat this quarter with higher prepayments and I think you said the outlook is low single-digit growth from here.

Speaker #4: But I'll just curious sort of how the pipeline's looking and where you expect to see that growth in the coming quarters. Thanks.

Jim Eccher: Yeah, I think Brad pointed out in his comment that loan production was better than maybe what the results showed. It's probably one of our stronger quarters in the last six, seven quarters. I think what we saw was outsized prepayments 2X of what we would normally see in a quarter. Couple that with the fact that we've been actively trying to work down our syndications portfolio. As you know, we have had a significant syndication portfolio come over with West Suburban. We reduced that $53 million this quarter alone. So, had we not had that in the outsized payoffs, we would've had a really good quarter.

Speaker #2: Yeah, I think Brad pointed out in his comments, loan production was better than maybe what the results showed. I mean, it was probably one of our stronger quarters in the last six or seven quarters.

Speaker #2: I think what we saw was outsized prepayments 2X of what we would normally see in a quarter. Couple that with the fact that we've been actively trying to work down our syndications portfolio, as you know, we have had a significant syndication portfolio come over with West Suburban.

Speaker #2: We reduced that 53 million this quarter alone. So had we not had that and the outsized payoffs, we would have had a really good quarter.

Jim Eccher: As far as the pipeline is concerned, as of right now, it is looking like one of the more solid Q4s we've had in a long time, and we're optimistic we're going to get out of the gates pretty well in Q1 next year as well.

Speaker #2: As far as the pipeline, it is concerned, as of right now, it is looking like one of the more solid fourth quarters we've had in a long time and we're optimistic we're going to get out of the gates pretty well the first quarter of next year as well.

Mark Shutley: That's helpful. Appreciate it. That's it from me.

Speaker #4: That's helpful. Appreciate it. That's it from me.

Jim Eccher: Thank you.

Speaker #2: Thank you.

Operator: Thank you. Our next question is coming from Jeff Rulis with D.A. Davidson. Your line is live.

Speaker #1: Thank you. Our next question is coming from Jeff Roulis with DA Davidson, your line is live.

Jeff Rulis: Thanks. Good morning. Wanted to kind of maybe jump off of the loan demand and higher rates. I guess initially, you are seeing any pullback on the consumer or Powersport from a loan demand standpoint. Is that any impact that you are seeing out there?

Speaker #5: Thanks. Good morning. I wanted to kind of maybe jump off of the loan demand and higher rates. I guess, initially, are you seeing any pullback on the consumer power sports from a loan demand standpoint?

Speaker #5: Is that any impact that you're seeing out there?

Darin Campbell: Yep. This is Darin Campbell. No, we are not seeing any pullback at this point. Application volume for us this year is up a little bit over last year from the application process. I will say we have turned down more applications this year compared to last year just for consumers are stressed, so we are accounting for more debt that we are seeing on credit reports. So we have turned down, as I said, about 7%, but originations is very similar to the same time last year. Applications is up a little bit. So overall, strong. Our collector car business is actually up quite a bit this year as well, so we are seeing a lot of demand in that area as well. So overall, good.

Speaker #2: Yeah. Yeah. This is Darren Campbell. Yeah. No, we're not seeing any pullback at this point. Application volume for us this year is up a little bit over last year from an application process.

Speaker #2: I will say we've turned down more applications this year. Compared to last year, just for consumers are stressed. So we're accounting for more debt that's that we're seeing on credit reports.

Speaker #2: And so we've turned down, as I said, about 7%. But originations is very similar to the same time last year. Applications is up a little bit.

Speaker #2: So, overall, strong. Our collector car business has actually been up quite a bit this year as well. So we're seeing a lot of demand in that area.

Speaker #2: As well. So overall, good.

Jim Eccher: Yeah, Jeff, I think when you look at the commercial bank, our pipeline build right now is pretty broad-based. We are seeing it building in small business, middle market, C&I, healthcare, investment CRE, and even sponsored and investment leasing. So we are as pleased as we could be. Normally, Q4 is pretty soft, but the pipelines are really pretty good right now.

Speaker #3: Yeah. Jeff, I think when you look at the commercial bank, our pipeline build right now is pretty broad-based. We're seeing it building in small business, middle market, CNI, healthcare, investment, CRE, and even sponsored and investment leasing.

Speaker #3: So we're as pleased as we could be with and normally fourth quarter is pretty soft. But pipelines are really pretty good right now.

Jeff Rulis: Appreciate that. I guess the other side of that is, I think, Jim, you noted that nice to see the benefit of repricing in the book. The flip side of that is, any thoughts on repricing risk on the credit side as maybe higher rates, as customers face that? I guess any color on, are you helping with borrowers in terms of that repricing risk potentially?

Speaker #5: I appreciate that. And I guess the other side of that is, I think, Jim, you noted that, you know, nice to see the benefit of repricing in the book.

Speaker #5: You know, the flip side of that is any thoughts on kind of repricing risk on the credit side as maybe higher rates as customers face that?

Speaker #5: I guess any color on are you helping with borrowers in terms of that repricing risk potentially?

Jim Eccher: Yeah, keep in mind our loan book is very short duration, so a significant part of some of these credits have already been in a higher rate environment. We stress test constantly. We feel early-stage indicators are low and no concerns at this point. Darren, you want to add something on the consumer?

Speaker #2: Yeah. I mean, keep in mind our loan books, you know, is very short duration. So it's, you know, a significant part of some of these credits have already been in a higher rate environment.

Speaker #2: But, you know, we stress test constantly. We've, you know, we feel early stage indicators are low. And no concerns at this point. Darren, you want to add anything on the consumers?

Darin Campbell: Yeah, Brian, just one of the things that is worth mentioning on the call, we are very excited to announce that we signed a multiyear endorsed agreement with Ducati USA. So something we have been working on for quite some time to get to the finish line. That partnership was announced and launched last week. The dealer feedback that we have received from the dealer network has been tremendous. The application flow has already started to come in. That has been exciting. As we think about growth going forward, even in our Q4, this will give us a little boost for the Q4. If you think about for 2027, it will be a substantial boost for us in originations next year. Ducati is one of the best motorcycle brands in the market. We could not be more excited about this opportunity for us.

Speaker #3: Yeah. I think, yeah, Brian, just one of the things that's worth mentioning on the call, we're very excited to announce that we signed a multi-year endorsed agreement with Sakadi USA.

Speaker #3: So we something we've been working on for quite some time to get to the finish line. That partnership was announced and launched last week.

Speaker #3: The dealer feedback that we've received from the dealer network has been tremendous. The application flow has already started to come in. So that's been exciting.

Speaker #3: And as we think about growth going forward, even in our fourth quarter, this will give us a little boost for the fourth quarter. But if you think about for '27, it'll be a substantial boost for us in originations next year.

Speaker #3: And Dacati is one of the, you know, the best motorcycle brands that's in the market. So we could not be more excited about this opportunity for us.

Jeff Rulis: Okay. Sounds good on the production side, but again, Jim, the credit and the repricing on the credit front. Feel good about that given the short duration?

Speaker #5: Okay. Sounds good on the production side. But again, on Jim, the credit and the repricing on the credit front, feel good about that given the short duration.

Brad Adams: Yeah, this is Brad. I think what you have seen from us in terms of the spike in classified and criticized over the past three years has been that very thing.

Speaker #3: Yeah. This is Brad. I think what you've seen from us in terms of the spike in classified and criticized over the past three years has been that very thing.

Jeff Rulis: Got it.

Brad Adams: Yeah, I think it is pretty safe to say we are through that.

Speaker #3: But yeah, I think it's pretty safe to say we're through that.

Jeff Rulis: Okay. Fair enough. Thanks.

Speaker #5: Okay. Fair enough. Thanks.

Operator: Thank you. Our next question is coming from Ken Kohut with Raymond James. Your line is live.

Speaker #1: Thank you. Our next question is coming from Ken Kohut with Raymond James, your line is live.

Ken Kohut: Hey, good morning, guys. Thanks for taking my questions. I am filling in for Danny Tamayo. A lot of my questions have been asked and answered, but maybe just on deposits. You have been talking about optimizing your deposit base really since the Evergreen acquisition closed to more resemble the legacy Old Second deposit base. We saw another step-down in deposits this quarter, and you specifically called out the runoff of higher-cost funding acquired from Evergreen. I am just wondering how much work is left to do on that front, and should we expect to see further deposit runoff in the coming quarters?

Speaker #6: Hey, good morning, guys. Thanks for taking my questions. I'm filling in for Danny Tamayo. A lot of my questions have been asked and answered, but maybe just on deposits.

Speaker #6: You've been talking about optimizing your deposit base, really since the Evergreen acquisition closed, to more resemble the legacy Old Second deposit base. We saw another step down in deposits this quarter, and you specifically called out the runoff of higher-cost funding acquired from Evergreen.

Speaker #6: So I'm just wondering, how much work is left to do on that front? And should we expect to see further deposit runoff in the coming quarters?

Brad Adams: I think you will see deposit growth in Q4, and I think that most of the attrition post that acquisition is largely behind us. My expectation would be that deposits would grow from here. Some of that will come at a little bit more rate, and obviously we remain on the lookout to supplement our deposit base through M&A activity as well.

Speaker #3: I think you'll see deposit growth in the fourth quarter and I think that most of the attrition post that acquisition is largely behind us.

Speaker #3: My expectation would be that deposits would grow from here some of that will come in a little bit more rate. And obviously, we remain on the lookout to supplement our deposit base through M&A activity as well.

Ken Kohut: Great. Thanks, Brad.

Speaker #6: Great. Thanks, Ram.

Brad Adams: Yep.

Speaker #3: Yep.

Operator: Thank you. Our next question is coming from Brandon Rud with Stephens Inc. Your line is live.

Speaker #1: Thank you. Our next question is coming from Brandon Rudd with Stevens, Inc., your line is live.

Brandon Rud: Morning. Thanks for taking my questions.

Speaker #6: Good morning. Thanks for taking my questions. The first one may be kind of an adjacent question to a prior one, just on the reserve. It's come down for the past few quarters now.

Brad Adams: Brandon.

Brandon Rud: The first one may be kind of an adjacent question to a prior one. Just on the reserve, it has come down for the past few quarters now. Are there any remaining specific allocations within that, or is this 123 kind of the steady state you kind of anticipate going forward?

Speaker #6: Are there any remaining specific allocations within that, or is this 123 kind of the steady state? You kind of anticipate going forward?

Brad Adams: Well, there are certainly some reserve allocations built into the portfolio, but I think the drawdown in that reserve is largely reflective of the fact that our classified have come down significantly, right?

Speaker #2: Yeah. I mean, there's certainly some reserve allocations built into the portfolio, but I think the drawdown in that reserve is largely reflective of the fact that our classifieds have come down significantly, right?

Brandon Rud: Right.

Brad Adams: We will not run much lower from here just due to the fact we will continually have to replace Powersport charge-offs quarter over quarter. But I do not see a majority drawdown of reserves this fall.

Speaker #3: We won't run much lower from here, just due to the fact we'll continually have to replace powersport charge-offs quarter over quarter. But I don't see a majority drawdown from the reserve at this moment.

Brandon Rud: Okay, perfect. Thank you. Just one on expenses. It came in a touch higher than we had in our model. Is this like $51.5 million a good expectation for the near term, then growing 3% to 4% annually after that?

Speaker #6: Okay. Perfect. Thank you. And then just one on expenses. It came in a touch higher than we than we had in our model. Is this like 51 and a half million a good expectation for the near term and then growing, you know, three to four percent annually after that?

Brad Adams: Yep.

Speaker #2: Yep.

Brandon Rud: Yep. Okay, perfect. All right, thank you very much.

Speaker #6: Yep.

Speaker #3: I think so.

Speaker #6: Perfect. All right. Thank you very much.

Brad Adams: Thanks, Brandon.

Speaker #2: Thanks, Brad.

Operator: Thank you. As a reminder, ladies and gentlemen, if you do have a question, please press star one on your telephone keypad. Our next question is coming from Brian Martin with Brean Capital. Your line is live.

Speaker #1: Thank you. As a reminder, ladies and gentlemen, if you do have a question, please press star one on your telephone keypad. Our next question is coming from Brian Merton with Breen Capital, your line is live.

Brian Martin: Hey, good morning, guys.

Speaker #7: Hey. Good morning, guys.

Jim Eccher: Hey, Brian.

Speaker #3: Hey, Brian.

Jim Eccher: Hey, Brian.

Speaker #7: Hello, Brian. Hey, Brad. Maybe just one follow-up on the expense one. Just the resolution of some of these credits—they've gone through the last, you know, couple of quarters.

Brian Martin: Hey, Brad, maybe just one follow-up on the expense one. Just the resolution of some of these credits that you've gone through the last couple of quarters. Is that a tailwind to the expense line? I get your comments about the outlook, but is that part of the reason, I guess maybe we get a little improvement, or if there is any on the expense side?

Speaker #7: Is that a tailwind to the expense line? I mean, I get your comments about the outlook, but is that part of the reason, I guess, maybe we get a little improvement, if there is any, on the expense side?

Brad Adams: That is the big delta between the way you look at things and the way I look at things, Brian, is that there is always ins and outs and what have yous in every quarter. This quarter, for example, our third-party expense is elevated.

Speaker #3: So, I mean, that's the big delta between the way you look at things and the way I look at things, Brian. There's always ins and outs, and what have you, in every quarter.

Speaker #3: And this quarter, for example, our third-party expense is elevated. Next quarter, it'll be something else, but there's always stuff coming and going. I look at it much more granularly than it probably appears.

Brian Martin: Yeah.

Brad Adams: The next quarter, it will be something else. But there is always stuff coming and going, and I look at it much more granularly than probably it appears. My income statement has 42 captions for expenses, and yours has, like, four.

Speaker #3: Like, my income statement has like 42 captions for expenses and yours has like four. But there's always stuff moving around. I think that, in a world where inflation in any real sense is probably between 4% and 5%, being in that 3% to 4% range is a pretty good thing. Given, I mean, I don't know if you've noticed, your employer is probably cutting your healthcare benefits and increasing your costs, but our costs are projected in that caption to be up pretty close to 20% next year.

Brian Martin: Right.

Brad Adams: There is always stuff moving around. I think that in a world where inflation in any real sense is probably between 4% and 5%, being in that 3% to 4% range is a pretty good thing given. I do not know if you have noticed, your employer is probably cutting your healthcare benefits and increasing your costs, but our costs are projected in that caption to be up pretty close to 20% next year, which is shocking. There is a lot of things going on, and I actually feel like that 3% to 4% range is doing pretty damn good. I feel great about it.

Speaker #3: Which is shocking. So, there are a lot of things going on. And I actually feel like that three to four percent range is doing pretty damn good.

Speaker #3: And I feel great about it.

Brian Martin: Yeah, that is what I meant, Brad. I guess it seems like you are going to have other stuff. This gives you a little bit of a tailwind, or at least a little help to offset some of those other items.

Speaker #7: Yeah. That's what I meant, Brad. I guess it seems like you're going to have other stuff. This gives you a little bit of a tailwind or at least a little help to offset some of those other items.

Speaker #7: So just.

Brad Adams: It helps us deliver on that guidance I just gave, for sure.

Speaker #3: I mean, it helps us deliver on that guidance I just gave, for sure. I wouldn't expect—I think we're doing a lot of heavy lifting to be at that level, is the point I'd like to make.

Brian Martin: Yeah.

Brad Adams: I think we are doing a lot of heavy lifting to be at that level, is the point I would like to make.

Brian Martin: Gotcha. That is clear. Thank you, Brad. Then just on the opportunity set on, I know you talked about strategic opportunities, Jim, just the opportunity set in terms of what is out there. Are you seeing more opportunities today? Are there less out there today? Just kind of how is the environment on opportunities in the-

Speaker #7: Gotcha. That's clear. Thank you, Brad. And then just on the opportunity set—I know you talked about strategic opportunities, Jim. Just the opportunity set in terms of what's out there.

Speaker #7: Are you seeing more opportunities today? Are there fewer out there today? Just kind of, how's the environment on opportunities?

Brad Adams: Brian, you know Chicago as well as anybody. There has been a handful of transactions obviously announced and we continue to have conversations. I would not say it is more robust now than it was a year ago. They are active and ongoing. We are hopeful an opportunity arises next year.

Speaker #3: Yeah. I mean, Brian, you know Chicago as well as anybody. There's been a handful of transactions, obviously, announced and, you know, we continue to have conversations.

Speaker #3: I wouldn't say it's more robust now than it was a year ago. They're active and ongoing. We're hopeful you know, we're hopeful an opportunity arises next year.

Brian Martin: Yeah. Okay. The last two for me were just the new rates on loans. I guess what you are putting on the securities book, Brad, just we kind of reconcile to those numbers Jim gave in terms of what is repricing here. What are new rates on securities you are thinking about as it is kind of 5% and then on loans?

Speaker #7: Yeah, okay. And then the last two for me were just the new rates on loans and, I guess, what you're putting on the securities book, Brad.

Speaker #7: We just kind of reconciled the numbers that Jim gave in terms of what's repricing here. What are the new rates on securities you're thinking about?

Speaker #7: Is it kind of five percent-ish? And then, on loans?

Brad Adams: I am not adding the securities book at this point, given where we are in deposit competition. It would be largely static in terms of what you would see there. If there are flows coming out, it will be replaced at similar rates. So I would not expect any real movement in the securities book. In terms of loans, it is still in the kind of mid-6s type range would be my guess.

Speaker #3: I'm not adding the securities book at this point given where we are in deposit competition. It would be largely static in terms of what you'd see there.

Speaker #3: If there are flows coming out, we'll be replaced at similar rates. So I wouldn't expect any real movement in the securities book. In terms of loans, you know, it's still in the kind of mid-sixes type range would be my guess.

Brian Martin: Okay. Gotcha. The last one was just on the syndication book. I know you mentioned it has been running off, Jim, obviously. Just where it stands today, and I guess that runoff is just going to continue. It is just a steady decline in that book. Is that how to think about that? So it is not going to really impact the

Speaker #7: Okay. Gotcha. And then the last one was just on the syndication book. I know you mentioned it's been running off, Jim. Obviously, just where it stands today, and I guess that runoff is just going to continue.

Speaker #7: It's just a steady decline in that book. Is that how to think about that? So it's not going to really impact the.

Jim Eccher: Yeah. At our peak we were $550 million in syndications. We have reduced that by over 60% since the end of 2021.

Speaker #3: Yeah, I mean, you know, at our peak, we were $550 million in syndications. We reduced that by over 60% since the end of '21.

Brian Martin: Yeah.

Speaker #7: Yeah.

Jim Eccher: Roughly $285 million. Will it go to zero? No. It is just not going to be a material part of our balance sheet. We just view that business as transactional, non-franchise enhancing type business. But we will continue to do some of it. It is just not going to be a primary focus.

Speaker #3: Roughly 285 million. We'll go to zero now. It's just not going to be a material part of our balance sheet. We just view that business as transactional, non-franchise, enhancing type business.

Speaker #3: But we'll continue to do some of it; it's just not going to be a primary focus.

Brian Martin: Okay. The payoffs will just. I guess that is what I was getting at. The payoffs will not be a major factor in terms of as we go forward here, like maybe it has been as you have wound it down.

Speaker #7: Okay. And the payoffs will just—you know, I guess that's what I was getting at. The payoffs won't be a major factor as we go forward here.

Speaker #7: Like, maybe it has been as you've wanted it down.

Jim Eccher: Yeah. It will not be as much of a headwind as it has been. You are correct.

Speaker #3: Yeah, it won't be as much of a headwind as it has been. You're correct.

Brian Martin: Yeah. Okay. That is all I had, guys. Thanks for the calls or the questions.

Speaker #7: Yeah. Okay. That's all I had, guys. Thanks for the calls. Or the questions.

Jim Eccher: Yep.

Speaker #3: Yep. Thanks, Brian.

Brad Adams: Thanks, Brian.

Jim Eccher: Thanks, Brian.

Operator: Thank you. Ladies and gentlemen, if you do have any final questions or comments, please indicate so now by pressing star one on your telephone keypad. As we have no further questions on the lines at this time, I would like to turn the call back over to Mr. Jim Eccher for any closing remarks.

Speaker #1: Thank you. Ladies and gentlemen, if you do have any final questions or comments, please indicate so now by pressing star one on your telephone keypad.

Speaker #1: Okay. As we have no further questions on the lines at this time, I would like to turn the call back over to Mr. Jim Eccher for any closing remarks.

Jim Eccher: Okay. Thanks everyone for joining us this morning. We look forward to talking to you again next quarter. Goodbye.

Speaker #2: Okay. Thanks, everyone, for joining us this morning. We look forward to talking to you again next quarter. Goodbye.

Operator: Thank you. Ladies and gentlemen, this does conclude today's call. You may disconnect your lines at this time, and we thank you for your participation.

Speaker #1: Thank you. Ladies and gentlemen, this does conclude today's call. You may disconnect your lines at this time. And we thank you for your participation.