OLD SECOND BANCORP INC Q4 FY2024 earnings call

• Jim Eccher discussed net income impacted by credit loss provisions, OREO write-downs, and merger-related expenses, but profitability remains strong with a tangible equity ratio of 10.04%. Credit had mixed news with a $8.6 million C&I loan charge-off and $1.7 million OREO write-downs, but substandard and criticized loans decreased significantly. Noninterest income performed well, and expenses were affected by acquisition costs and incentive accruals. - Brad Adams noted net interest income increase, deposit flow seasonality, capital build, and expense trends, mentioning margin stability and M&A environment.

Net income in the fourth quarter of 2024 was $19.1 million or $0.42 per diluted share, with return on assets at 1.34% and return on average tangible common equity at 13.79%. The tax equivalent efficiency ratio was 54.61%. Total loans decreased by $9.7 million from the prior linked quarter end. Net interest income increased to $61.6 million for the quarter. Average deposits increased $114 million or 2.5%, and period end total deposits increased $303 million or 6.8% from the prior quarter.

• Margin trends expected to trend down slowly in 2025, targeting loan growth in mid-single-digits. - Focus on managing liquidity, building capital, and commercial loan origination capability. - Hopeful for overall operating expense in 2025 in the 4%-5% range.

• Credit risk with a $8.6 million C&I loan charge-off and potential further losses. - Impact of market volatility on loan growth and interest rate movements affecting funding costs.

Q: Jeff Rulis asked about margin and expense impact of rate cuts and future growth.

A: Brad Adams said margin expected to be slow to drift down, expense growth targeted at 4%-5% ex nonrecurring items.

Q: Nathan Race inquired about margin outlook and M&A.

A: Brad Adams said margin likely 462 in Q1, M&A discussions active with criteria including accretion and credit risk.

Q: David Long asked about expense and commercial banking focus.

A: Brad Adams clarified expense numbers ex nonrecurring, Jim Eccher mentioned focus on commercial banking capabilities and veteran bankers.

Q: Brandon Rud asked about C&I charge-off and OREO.

A: Jim Eccher said OREO properties expected to sell with no further expenses, C&I credit in legal process with industry not a meaningful concentration for Old Second.

Q: Chris McGratty asked about M&A color.

A: Jim Eccher said M&A criteria include accretion, credit risk bias, and defined size box; Brad Adams said M&A driven by cash and capital access.

Q: Brian Martin asked about M&A size and credit improvement.

A: Brad Adams said M&A size between $500 million and $4 billion, Jim Eccher discussed credit improvement with nonaccrual loans down and OREO properties for sale.

Q: Kevin Roth asked about origination geography.

A: Jim Eccher said focus on Chicago MSA with some nationwide verticals like sponsor finance and health care.

Q: Nathan Race asked about charge-off range.

A: Jim Eccher said charge-off range expected to be less than current year, Brad Adams said reserves don't have major spooks.