Old Second Bancorp(OSBC) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net income for Q3 2025 was $9.9 million or $0.18 per diluted share, with a return on assets of 0.56% and a return on average tangible common equity of 6.16% [4] - Adjusted net income, excluding acquisition-related costs, was $28.4 million or $0.53 per diluted share [5] - The tangible equity ratio declined by 42 basis points to 10.41%, but remains 27 basis points higher year-over-year [7] - Net interest margin improved to 5.05%, a 20 basis point increase from the previous quarter and 41 basis points year-over-year [8][18] Business Line Data and Key Metrics Changes - Total loans increased by $1.27 billion, primarily due to the acquisition of Bancorp Financial [9] - Tax equivalent loan yields increased by 67 basis points compared to the previous quarter, driven by higher yielding consumer credits from the Evergreen PowerSport portfolio [9] - Non-interest income increased by $2.1 million year-over-year, with wealth management fees rising by 26.1% [13] Market Data and Key Metrics Changes - The total cost of deposits was 1.33%, up from 0.84% in the previous quarter [8] - The loan-to-deposit ratio increased to 91.4% as of September 30, 2025, compared to 83.3% last quarter [9] Company Strategy and Development Direction - The company is focused on the effective integration of Evergreen Bank Group and optimizing the balance sheet [15] - A 17% increase in the common dividend reflects confidence in the company's performance [25] - The company is open to acquiring additional deposits to replace higher-cost funding sources [27] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the remainder of 2025 following the Evergreen acquisition and noted strong pipelines in various sectors [25][86] - The company anticipates maintaining a higher reserve level due to the nature of the PowerSport portfolio, with expectations of charge-offs stabilizing around 30 basis points [90][91] Other Important Information - Non-interest expense increased by $19.7 million compared to the previous quarter, largely due to acquisition costs [15] - The company has completed systems conversions related to the Evergreen acquisition [19] Q&A Session Summary Question: Can you expand on the potential runoff of exception price deposits? - The company has a couple hundred million dollars in market-priced funding and aims to return to more traditional deposit types over the next 6 to 18 months [27][28] Question: What is the focus on future originations in PowerSport? - The focus remains on originating in all tiers, with a historical emphasis on the top two tiers [30][31] Question: What is the outlook for loan growth? - The company expects low to mid-single-digit growth heading into 2026, with strong pipelines in various sectors [86] Question: What are the expectations for charge-offs moving forward? - Charge-offs are expected to stabilize around 30 basis points, with management optimistic about credit quality [55][90] Question: What is the company's stance on potential M&A? - The company is ready for additional acquisitions, particularly focused on deposit-heavy opportunities [72]