Old Second Bancorp Q3 2025 Earnings Call Transcript

Quartr
Provided by Quartr
October 23, 2025

Key Takeaways

  • Positive Sentiment: Closed the Bancorp Financial/Evergreen acquisition on July 1; management recorded acquisition-related charges (including a $13.2M day‑two provision and $11.8M acquisition costs) but says excluding those adjustments Q3 EPS would be $0.53 and the expected earn‑back period for the deal is now much shorter than the originally estimated three years.
  • Positive Sentiment: Net interest margin strengthened to 5.05% (up 20 bps QoQ) with net interest income up ~29% QoQ and loan yields rising materially, driven largely by the higher‑yield powersports portfolio acquired with Evergreen.
  • Negative Sentiment: Asset quality softened modestly—classified assets rose by $38.4M, Q3 net charge‑offs were $5.1M (concentrated in powersports and trucking/transportation), and the allowance increased to $75M (1.43% of loans), though management notes much of the classified book is well collateralized.
  • Neutral Sentiment: Noninterest expense jumped due to acquisition and staffing costs, but adjusted efficiency remained strong at 52.1%; management targets roughly 4% core expense growth in 2026 excluding Evergreen effects and expects additional cost saves from integration.
  • Positive Sentiment: Capital and shareholder returns look healthy—CET1 at 12.44%, tangible book value per share $13.51, a 17% dividend increase to $0.07 was declared, and buybacks remain an option as capital builds.
AI Generated. May Contain Errors.
Earnings Conference Call
Old Second Bancorp Q3 2025
00:00 / 00:00

There are 10 speakers on the call.

Operator

Good morning, everyone, and thank you for joining us today for Old Second Bancorp Incorporated Third Quarter twenty twenty five Earnings Call. On the call today are Jim Ecker, the company's Chairman, President and CEO Brad Adams, the company's COO and CFO Darren Campbell, the company's Head of National Specialty Lending and Gary Collins, the Vice Chairman of our Board. I will start with a reminder that all 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 like would ask you to refer to the company's SEC filings for a full discussion of the company's risk factors.

Operator

The company does not undertake any duty to update such forward looking statements. 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 allsecond.com, on the homepage and under the Investor Relations tab. I will now turn the call over to Mr. Jim Ecker.

Operator

Sir, the floor is yours.

Speaker 1

Okay. Good morning, everyone. Thank you for joining us. I have several prepared opening remarks. I will give you my overview of the quarter and then turn it over to Brad for additional details.

Speaker 1

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 $9,900,000 or $0.18 per diluted share in the 2025. Return on assets was 0.56 percent. Third quarter twenty twenty five return on average tangible common equity was 6.16% and tax equivalent efficiency ratio was 64.46%. As expected, a lot of noise this quarter.

Speaker 1

Third quarter twenty twenty five earnings were significantly impacted by the July 1 completion of our acquisition of Bancorp Financial and its wholly owned bank subsidiary, Evergreen Bank Group. Adjusting items impacting net income for the third quarter twenty twenty five include the following: As it relates to the Evergreen acquisition, we had day two provision on non PCD loans of 13,200,000 pretax or $0.19 per diluted share. We also had acquisition related costs of $11,800,000 pretax or $0.17 per diluted share. We also had a $389,000 MSR mark to market losses pre tax or about $01 a share and $430,000 of BOLI death benefit proceeds recorded due to the death of retired executive, also $01 a share. Excluding all adjusting items, net income for the 2025 was $28,400,000 or $0.53 per diluted share.

Speaker 1

The quarter included favorable impacts of the Evergreen acquisition with a net interest margin as $1,300,000 of loan purchase accounting accretion was recorded partially offset by additional core deposit intangible amortization of $233,000 and time deposit fair value amortization of $227,000 Net purchase accounting accretion income will be a very small contributor on a go forward basis, especially relative to the size of the acquisition itself. The bulk of loan fair value adjustments were concentrated in the solar loan portfolio, which featured a very low contractual coupon. Market conditions warranted holding on to the solar book. On a core basis profitability of Olsecon improved and perhaps somewhat surprisingly tangible book value increased this quarter despite the impacts of the acquisition. The tangible equity ratio declined by only 42 basis points from last quarter from 10.83% to 10.41%, but remains 27 basis points higher than the like period one year ago.

Speaker 1

Common equity Tier one was 12.44% in the third quarter, decreasing from 13.77% last quarter, but a decline of only 42 basis points from one year ago. With the relatively tame level of capital dilution despite the usage of $49,000,000 of cash consideration, we now expect the earn back period associated with Evergreen to be significantly shortened from the three years estimated at announcement. Our financials continue to reflect exceptionally strong net interest margin at 5.05%. That is a 20 basis point improvement from last quarter and 41 basis points year over year on a tax equivalent basis. Pre provision net revenues increased from both loan growth and acquisition impacts.

Speaker 1

The total cost of deposits was 133 basis points for the third quarter compared to 84 basis points for the prior linked quarter and 92 basis points for the 2024. For the 2025 compared to last quarter, tax equivalent income on average earning assets increased $28,800,000 while interest expense on average interest bearing liabilities increased 10,300,000.0 The loan to deposit ratio was 91.4% as of 09/30/2025 compared to 83.3% last quarter and 89.4% as of September 30. I'll let Brad talk about this more in a moment. The third quarter twenty twenty five reflected an increase in total loans of $1,270,000,000 from last quarter, primarily due to $1,190,000,000 of loans acquired with Bancorp Financial. Tax equivalent loan yields reflected a 67 basis point increase during the 2025 compared

Speaker 2

to

Speaker 1

the linked quarter and a 47 basis point increase over the quarter year over year. The increase in yield is primarily a function of higher yielding consumer credits we recorded as part of the legacy Evergreen Power Sport portfolio. Asset quality softened modestly this quarter. Non performing loans increased only modestly, but classified assets increased $38,400,000 In general, our collateral position is very good on these downgraded credits. Provision levels relate to ratings changes primarily within the C and I portfolio as certain industries have softened, most notably transportation and warehousing.

Speaker 3

Our office and CRE portfolios remain largely the same in terms of ratings momentum. Importantly, as a percentage of total loans, NPLs classified and criticized loan levels are little changed.

Speaker 1

We recorded $5,100,000 of net loan charge offs in the third quarter with the majority stemming from the powersports portfolio and a couple of small losses related to collateral values in the struggling trucking and transportation industry. With regards to powersports, I would say that losses given default are running a little bit higher than we expected. However, loan yields are much higher than expected and the contribution margin is both above expectations and improving. Due to the nature of the powersports business, gross charge offs are anticipated to run at a higher rate than Old Second has historically experienced, especially in a higher interest rate environment like today. This is the nature of what is a very

Speaker 3

good

Speaker 1

business. The allowance for credit losses on loans increased to $75,000,000 as of 09/30/2025 or 1.43% of total loans from $43,000,000 at 06/30/2025, which was 1.08 of total loans. Dollars 30,700,000.0 of the increase is associated with day one and day two allowances recorded on the acquired loans. PCD loans recorded from Evergreen increased the ACL by $17,600,000 as of day one and the non PCD loan credit mark recorded to provision expense for day two increased ACL by $13,100,000 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. The impact of the global tariff volatility continues to be considered within our modeling.

Speaker 1

Provision levels quarter over linked quarter exclusive of day one and two purchase accounting impacts increased $6,500,000 reflecting the new consumer mix in our portfolio post acquisition and an increase in historical loss rates as our net charge offs to average loans increased to 39 basis points for the 2025 from eight basis points for the prior linked quarter. Non interest income continued to perform very well in the 2025 compared to the linked quarter and prior year linked quarter. Excluding $430,000 in debt benefits on BOLI realized during the 2025, Non interest income increased $2,100,000 compared to the prior year like quarter as wealth management fees increased $728,000 or 26.1% and service charges on deposits increased $274,000 or a little better than 10%. Mortgage banking income improved in the 2025 compared to both the prior linked quarter and prior year like quarter, primarily due to the volatility of mortgage servicing rights mark to market valuations. Excluding the impact of mortgage servicing rights mark to market adjustments, mortgage banking income increased nominally quarter over quarter and from the prior year like period.

Speaker 1

Other income increased $513,000 in the 2025 compared to the prior linked quarter and was nominally lower compared to the prior year linked quarter. Total non interest expense for the quarter was $19,700,000 more than the prior linked quarter, 11,800,000.0 of which is related to acquisition cost, including $8,400,000 of additional salary and benefits expense based on the addition of Evergreen employees. Our efficiency ratio continues to be excellent as the tax equivalent efficiency ratio adjusted to exclude core deposit intangible amortization, OREO cost and the adjustment to net income as noted earlier was 52.1% compared to 54.54% for the 2025. Our focus today is now on effective integration of Evergreen Bank and optimizing the balance sheet for its impacts. We did sell the bulk of the acquired securities portfolio just after legal close.

Speaker 1

Brad will talk about that. And we continue to reduce reliance on wholesale funding as we allow the legacy Evergreen brokered CDs to run off. I'll now turn it over to Brad for additional color.

Speaker 4

Thanks, Jim. I've got a lot less words than Jim, a lot less fancy ones too. I'll be relatively brief today. I know people have some questions here. Net interest income increased by $18,500,000 or 29% to $83,000,000 for the quarter ended September 30.

Speaker 4

It's relative to $64,000,000 last quarter. It's also up 37% from the year ago quarter. Tax equivalent loan yields increased by 67 basis points. Obviously, that's reflective of the change in the portfolio composition with addition of Evergreen. Securities yields were effectively flat in the third quarter compared to last quarter.

Speaker 4

Overall, total yield on interest earning assets increased 66 basis points. Cost of interest bearing deposits increased by 61 basis points, again reflecting the addition of Evergreen. And total interest bearing liabilities increased by 60 basis points. The end result of that was the 20 basis point increase in the NIM that Jim mentioned, and we're now at 5.05 for the quarter ended. That's up from 4.85 last quarter.

Speaker 4

Obviously, we feel like this continues to be exceptional margin performance. The NIM less at the last year is up 41 basis points. I think that's a trend that's a lot different than people may have expected from us given the decline in rates that we've seen so far. Average loans increased $1,260,000,000 or 32% over linked quarter. Average deposits increased $1,080,000,000 or 22%.

Speaker 4

In addition to that or underlying that, we had organic loan growth of $72,000,000 in the third quarter compared to balances at the prior end. I guess I should say here that Evergreen doesn't really look like the deal that I had spent the last two years preparing the balance sheet to absorb. It was far less dilutive to capital than the generic deal I had in my mind, but it will also be far more accretive when all is said and done. The net result of my wrongness is that we are both far better prepared for falling rates than I expected to be and far more profitable. This is the kind of wrongness that I can rally behind, by the way.

Speaker 4

As we sit here today, the balance sheet remains prepared to capitalize upon strategic opportunities that may arise. I would note that systems conversions related to Evergreen are complete as of two days ago. And at this point, it appears to be the best we have ever done. The net interest margin is above 5% and weirdly enough, I still feel really good about it. Capital will build quickly from here, but return on TCE is at very strong levels approaching 17%.

Speaker 4

Tangible book value per share is $13.51 and earnings have positive catalysts to push substantially above the $2 run rate of the last couple of quarters. This is all relative to a stock price that is sub-eighteen dollars I'll let others do that math. But it is top decile performance at this point for Old Second. Some had expressed concern that Old Second had failed to find growth opportunities in the last year or two. I believe we have found it the right way.

Speaker 4

This is a highly cyclical industry and growth opportunities don't always come in a straight line. But if you look back over the last seven years, our earnings per share are up 4x in terms of run rate. That's relative to a 3x growth in the bank over that same timeframe. I'm really proud of how we've managed that growth. Over the last five years, we have more than doubled not only the size of the bank, but also earnings per share.

Speaker 4

We also just announced a 17% increase in the common dividend. At this point, we are also well reserved for our new business mix and prepared for any economic environment. Non interest expense trends reflected Evergreen deal cost as expected. Operating costs increased $20,000,000 over the prior linked quarter and $8,000,000 excluding acquisition costs. Much of this increase is the result of the larger bank requiring more workforce facilities and operating expenses in general.

Speaker 4

Non interest expense is running higher year over year, again due to the same reasons. Also included is the five branches that we acquired in late twenty twenty four from First Merchants. Overall, we are hopeful that we can keep core expense growth in the 4% area into 2026, exclusive of the impacts of Evergreen. Much of that relates to increases in human benefits expense, particularly insurance, which we're running solidly into the high teens in terms of our expectations at this point. Cost saves related to Evergreen are still to come.

Speaker 4

We are extremely excited about how the conversion has gone and optimistic that we can achieve those ahead of schedule. I'm sure as I said, there are a lot of questions and as we got a lot going on this quarter, but I would like everyone to know that relative to my personal baseline anyway, I'm in a really good mood. With that, I'd like to turn the call back over to Jim.

Speaker 1

Thanks, Brad. In closing, we're very confident in our positioning, extremely excited with what Evergreen Bank transaction will add to our pro form a company. With the completion of our Evergreen acquisition, data conversion and the full onboarding of the Evergreen team, we're very optimistic about the remainder of 2025 as we welcome new team members and product offerings. The 17% increase we just announced with our quarterly dividend to $07 a share is reflective of our continued confidence in the performance of Old Second in the markets we serve. That concludes our prepared comments this morning.

Speaker 1

So I will turn it over to the moderator and we can open it up to questions.

Operator

Thank you. At this time, we will be conducting our question and answer Our first question is coming from Terry McEvoy with Stephens. I

Speaker 5

want to keep Brad happy here, so I won't use any fancy words. I guess within the press release, talk about kind of potential runoff of exception price deposits. Could you just maybe expand upon the amount when you kind of see that naturally rolling off? And is it the is it your view that those will be replaced with more legacy old second types of deposits?

Speaker 4

So I would say we've probably got a couple of $100,000,000 in what I would call pure market priced funding at this point. You can see that in its impact in overall pricing. It's a it'll be an ongoing battle. We had alluded prior to that that we would like to get back to old second type funding. That's obviously exceptionally difficult to do organically if not impossible.

Speaker 4

We are interested in acquiring additional deposits. Fortunately for us, we have the balance sheet and now both the operational capacity to do that. It doesn't have to be big to make a big difference. Obviously you can see the power of what Evergreen has added from an earning asset perspective. I have no problem with taking some of the liability sensitivity off the table that was added at the margin.

Speaker 4

It's about being the best bank you can be and it's not that difficult for us to get even better. So yes, we would look to replace that over time. I think it's probably a six to twelve to eighteen month type look to get that back to what we look like before.

Speaker 1

Terry, surprisingly, excluding the brokered and high yield money market runoff, we were very pleased to see that actual core deposit funding at Evergreen actually expanded in the first quarter, which was great to see.

Speaker 5

Okay. And then as a follow-up, thank you for Slide eight in that disclosure presentation. When you think about future originations in Power Sport, is the focus diversified across that Tier one through five? Or is there a bias towards maybe the one, two or three tier given kind of the risk profile there?

Speaker 6

Terry. This is Darren Campbell.

Speaker 4

Nice to

Speaker 7

meet you. Yes, I mean

Speaker 6

our focus is to originate in all those tiers. But historically, you know, we've been doing this for thirty years. We've been in the top two tiers, 75% or better. And we'll stick with that policy going forward. And if there's a change economically, we would even tighten up a little bit more at the lower end to drive more to the top end.

Speaker 6

But right now, we feel good about that mix.

Speaker 5

Maybe since on this topic, I'll squeeze in one last one. Those powersports fees that were somewhere in the release, what's a typical quarter look like or yearly run rate? Is there any seasonality there? And just kind of help me understand the nature of those fees. Yes,

Speaker 6

about fees? The fees in that powersport business could be payment fees, there could be a late fee, and that's consistent throughout all four quarters. Fee income would be consistent. Originations, it happens in the second and the third quarter, your biggest origination month, with a little bit of runoff in the first and the fourth quarter, but fee would be consistent across every quarter.

Speaker 5

Great. Thanks for taking my questions.

Speaker 1

Thanks, Terry. Thanks, Thank

Operator

you. Next question is coming from Nathan Race with Piper Sandler.

Speaker 4

Sorry

Speaker 3

about that, guys. We're coming through okay?

Speaker 1

Yes.

Speaker 3

Brad, appreciate the commentary around 4% legacy, old second growth expectations going forward. Just curious if you can kind of frame up kind of where you see the run rate over the next quarter or two as you get some of cost saves from the acquisition and just in light of that legacy growth expectation.

Speaker 4

So I think it's basically my hope is that it's basically a wash between those two because I'm just really about making your life as easy as possible, Nate. I know you got a lot going on with new family members being added and whatnot, so I want to make sure that you've got time at home to wake up at two in the morning with a baby.

Speaker 3

Okay. I really So it sounds like it's pretty stable from kind of the core run rate right around 52,000,000 in the third quarter?

Speaker 4

I I I I believe that will be pretty darn close. Yeah.

Speaker 3

Okay. Yeah. Then a bunch of moving pieces on the margin. You obviously exceeded kind of what you were thinking last quarter. Curious if you can kind of just frame up overall kind of margin expectations just in light of what you brought out with the higher yielding book at Evergreen.

Speaker 3

And then also how you see yourself positioned from a margin contraction perspective these days with additional Fed cuts on Verizon?

Speaker 4

So that's tough. Right? Because it's not only at the absolute level of rates, it's actually the the speed of them and and and what happens in terms of the overnight index swap rates. It it it's complicated. And you can be really wrong in terms of what you're saying with with the Fed fund rate not even changing.

Speaker 4

I would say this. I would say that two years ago, the bottom margin in the 0% rate world for Old Second probably looked like something around three eighty. I do not believe that there's any scenario where we can go back to a 0% rate world, and and we can get into a very nerdy macro discussion about why that is and but I'd rather not. But I would feel like the bottom margin for old second at at at Fed funds rate around 3% does not go below four fifty by any stretch of the imagination and may not even threaten it. It's it's a different ballgame now.

Speaker 4

I am very optimistic about how much money we can make even as short rates fall.

Speaker 1

Yeah, Nate. I think what we're really encouraged about with Evergreen, even in a rapidly declining interest rate environment, coupons of the power port powersport portfolio will still remain relatively robust where we maybe print new business in the in the 9.5%. Even even when rates were zero, Darren was able to still achieve an 8% coupon. So we think that's really going to help us in a down rate scenario.

Speaker 3

Okay, great. And then just thinking about the charge off trajectory from here, appreciate bulk of the charge offs were tied to the solar book and just the components around the powersports vertical. I think last quarter, Brad, we were talking around 30 basis points of charge offs on a combined basis. Any thoughts on just kind of the go forward outlook? It doesn't seem like there's much loss content expected with a couple of the legacy old second loans that moved to non performing in the quarter, but we just appreciate any updated thoughts there.

Speaker 4

The movement into non performers was almost entirely administrative. No real trend there to speak of. The movement in terms of of classified, I would say that the substantial majority, so call it two thirds, is exceptionally well collateral protected even if things are poor. I would say that there is some level of risk on 10,000,000 to $15,000,000 of it, but I'm exceptionally optimistic that things will go the right way on that and may very well soon. Just in the last three weeks, non performers are down pretty significantly from what's in this print even.

Speaker 4

So I am not overly concerned about credit. As it relates to Power Sports, losses this quarter are a little higher than we had modeled, but as Jim mentioned, yields are much higher. I'm not overly concerned whether losses are 150, 120 or 175 given the net contribution margin of this business. I also understand that consumer recessions, which I do believe we were in we are in or right on the doorstep of, tend to be very shallow and very short. So I don't really care.

Speaker 4

The business is that good. So does 30 basis points feel right for both a near intermediate and long term loss rate for Old Second? Probably. Yeah. Okay.

Speaker 4

Great. Not bad.

Speaker 3

Not fancy. I appreciate that. Thanks for all the color, guys.

Speaker 1

Yep. Thanks, mate.

Operator

Our next question is coming from David Long with Raymond James.

Speaker 8

You Brad, you had mentioned expense growth in 2026 briefly, and I think you mentioned 4%. Was that inclusive of Evergreen, in those numbers? I didn't catch that.

Speaker 4

No. It was not. That's ex

Speaker 8

that's before the Evergreen impact, you're saying?

Speaker 4

Yeah. And Evergreen impact will be no impact with with cost saves offsetting certainly the inflationary impact. I don't think you're gonna see a lot of trend in expenses for us, to be honest, with significant inflation that's present in employee benefits expense largely being absorbed by cost save realization.

Speaker 8

Got it. Okay. Then on the growth side, can you talk maybe about what you're seeing in your just core commercial loan pipeline and what your hiring prospects are? And if there is an appetite to still bring in some incremental lenders there?

Speaker 1

Yes. Obviously, a really good quarter this quarter, Dave. Think it was our best quarter in two point five years as far as organic growth. Pipelines are still pretty robust, probably at a two year high. So normally the fourth quarter is a lighter quarter for us, but we're unless we see an unusual pay down or payoffs, I think we've guided to a low single digit growth rate in 25%.

Speaker 1

I think that's still achievable. You know, as as far as looking for additional talent, that that is something we always budget for and something we are always open to, particularly in in in the C and I world. But we have the, you know, we have the team in house to be a pretty consistent low to mid single digit grower in a normal environment.

Speaker 8

Got it. And then specifically to the sponsor finance team, what does the pipeline look like there? And is there still capacity to add people?

Speaker 1

Yes. That group obviously has been very high performing. The first half of the year was very soft in that industry. I think you had a lot of sponsors on the sidelines waiting for some certainty around the economy and tariffs. Starting in the beginning of third quarter, we saw pretty significant growth.

Speaker 1

We expect the fourth quarter to be very meaningful. This is a group that's consistently generated between 150,000,000 and $200,000,000 in originations a year. It might be a little softer this year, but will have a very big second half of 25,000,000

Speaker 8

Our

Operator

next question is coming from Jeff Rulis with D. A. Davidson. You

Speaker 7

guys touched on the credit to a degree. I wanted to ask about the acquired problem loans there. Is there any kind of low hanging fruit or credits that have a quick resolution in place? Just trying to think about the balances of what was brought on. And do you think under your purview that maybe you could see a portion of that move along pretty quickly?

Speaker 1

Yes. Good question, Jeff. I mean, actually timing didn't really work for us this quarter. We had about $10,000,000 in resolved remediation right after the quarter. We were hoping obviously to get that in.

Speaker 1

And the third quarter is going to provide a pretty nice tailwind for us in the fourth quarter. A couple of the acquired loans were actually shared participations that we had with Evergreen, so it just added to our existing classified list. Most of the additions to the classified are really companies that have been burdened in the trucking and transportation logistics industry that are just having the general slowdown due to macroeconomic factors. Cash flow is a little tight, but as Brad alluded to, our collateral position in most of these is exceptionally well and a lot of them backed by SBA five zero four deals. So we'll continue to have resolution on some of these into the fourth quarter, but we still feel very good about credit.

Speaker 7

Great. And then maybe one other one, last one just on obviously focused on integrating and getting this deal done. But your thoughts on any additional M and A that I think Brad sort of alluded to certainly would look at deposit heavy or something focused in that arena. But if you could just sort of give us an update of where you're at on on potential acquisitions, if if any.

Speaker 4

So this is one of those questions where I wish the people who work here couldn't hear what I'm about to say because I just watch people sleep on couches all weekend, and and I really don't wanna scare them. But from a balance sheet perspective, we're ready. It's nice to have this integration done so quickly after the close. It's certainly nice not to have had what appears to be no significant customer disruption. A couple of one offs here and there, but all in all we've done a pretty darn good job.

Speaker 4

So I don't want to scare anybody who works here. They've done an exceptionally good job and worked really hard to do that. But from a finance perspective, we look really good right now.

Speaker 7

And Brad, the aim would be if you are ready, again, would you kind of lean into the deposit would be a focus in market? What It would you

Speaker 1

always is.

Speaker 4

Evergreen was the unusual one here. It's not very often that you get a chance as a community bank to acquire an asset generation business that is attractive. So obviously that's exceptionally exciting to us. But in general, our M and A strategy is entirely focused around the liability side of the balance sheet and we are usually an organic grower from asset generation standpoint.

Speaker 7

Okay. Appreciate it.

Operator

Thank you. Our next question is coming from David Conrad with KBW. Your line is live.

Speaker 8

Brad, I thought maybe another follow-up question on

Speaker 9

the NIM. You guys are helpful on the asset side. But wondering, with Evergreen deal, you actually now have a little

Speaker 1

bit of room. So I

Speaker 9

was just wondering your thoughts on the deposit beta now versus you guys and other cycles over the next few quarters what you can get on a deposit beta.

Speaker 4

We're going to see some CD runoff over the next few quarters. We're going to see overnight borrowing rates tick up. So in terms of our liability sensitivity, it will increase, which obviously helps with sensitivity to forward rate cuts. You'll see the loan to deposit ratio probably continue to tick up over the next few quarters until we get a chance to to remix the funding a little bit. So that will help with margin sensitivity in in the expected current interest rate environment.

Speaker 4

I have no issue with the loan deposit ratio moving slightly higher ahead of any strategic opportunities that may present themselves. I am very happy with where we sit from a rate positioning standpoint now.

Speaker 8

Okay, great. And then switching gears a little bit, just want to talk a

Speaker 9

little bit about wealth management. I thought it was a really strong quarter. I don't know if Evergreen really helped that much into the quarter, but good sequential quarterly growth there and just wanted outlook in the wealth management business.

Speaker 1

Yes, exceptionally strong quarter in wealth at north of 25% increase in fees. The team has done a great job of bringing in new assets under management. Generally, this is a pretty slow growth business. I mean, normally we're pretty happy with 3% to 4% growth in revenue, but we made a couple of key hires over the last couple of years and new assets under management have gone up exponentially. Obviously, the market has also helped drive additional income as well, but we like that business.

Speaker 1

We'd like to continue to grow it.

Speaker 8

Okay, great. Thank you.

Speaker 4

Thank you.

Operator

Our next question is coming from Brian Martin with Janney.

Speaker 2

Jim, can you just talk a little bit about or just give a little thought on just the loan growth outlook just in terms of what you think is sustainable? I you know, I guess I know you talked about maybe some of the seasonality where it's at, but just, you know, now that you kinda have the the acquisition in hand, you know, how should we think about that, you know, over the next, you know, twelve months or so in terms of what you think is sustainable longer term?

Speaker 1

Yes. Normally, would tell you the fourth and first quarter are going to be pretty soft. I can't tell you what the first quarter of next year is going to look like. But based on our third quarter pipelines, we feel pretty good that the fourth quarter is going to net some meaningful growth. We're seeing pretty good pipelines and sponsored good pipelines and investment commercial real estate and some C and I growth.

Speaker 1

Our leasing group continues to be very consistent. We've got some opportunities in healthcare. So I still feel really good about low to mid single digit growth heading into 2026.

Speaker 2

Got you. Okay. And just jumping back, I think outside of the M and A with the capital, just the buyback, what your thoughts are there on I know you talked a little bit about your opportunities or Brad did on M and A, but just in terms of how you're thinking about the buyback, any thoughts there?

Speaker 4

It is open and on the table.

Speaker 2

Okay. Would you would you I mean, given the valuation, is is that more of a priority than than M and A at this point? Or

Speaker 4

It depends on on what the M and A looks like. I can tell you that very few deals are as priced as well as our stock right now in my mind.

Speaker 2

Yeah. Okay. And then just on the I know you talked about the charge off charge off outlook or just, you know, how we should think about that. Just in terms of where the reserves are today, would you expect to just kinda maintain, you know, absent some change in economics, macroeconomic outlook, that reserve level around the one forty ish level, is that something you would expect to maintain, or do we should we see that move down a bit or up?

Speaker 1

Yes. Brian, I I think what you what you need to understand with with as it relates to powersport, once once a loan is under twenty days, it's a it's a full charge.

Speaker 4

And then

Speaker 1

we obviously move to recovery. We will be carrying a higher reserve in this 140 range is probably where we'll tend to manage it to. So yes, you'll see a higher reserve going forward.

Speaker 4

I mean, can come down over time as loss rates actually, think it will come down over time because I think the loss rates are high right now, being at least on the doorstep of a consumer recession. It also helps if we've got lost history of our own experience going forward, and we can refine it going forward. But make no mistake, I believe we are very well reserved at this point.

Speaker 2

Yeah. Got you. And Brad, just I know, I guess, on the margin, just kind of there's lot of moving parts here with you know, I guess. But in terms of, you know, the biggest drivers of of the margin at this point, and it sounds as if we we do get a couple rate cuts, the margin may not even go lower. So I said, just trying to understand the biggest, you know, drivers.

Speaker 2

I know you can be really right or really wrong, but just in terms of the biggest impact on the on the margin here as we think about directionally, which where it's gonna go, you know, what should we be watching there?

Speaker 4

SOFR. I mean, it's always about SOFR. Obviously, it didn't go down even though SOFR took a nosedive with the change in terms of expected rate cuts over the six month horizon. So that's pretty darn powerful. I would say that actual realized rate cuts will have a negative impact.

Speaker 4

I had spoken in the past that each kind of 25 basis point felt like at one point it was seven and and and I started to realize how wrong I was and that kind of became four to five and and I guess that's still kind of what it feels like. May be less. It's a it's a bit of a different game now. But, you know, I as I said, you can look wrong if if after we hang up this phone, all of a sudden, Sofer takes a 20 basis point dive, and and I look like an idiot, and it's not really my fault. So it's a it's a difficult game.

Speaker 2

Okay. But but you it sounds as though you would not expect a lot of movement, you know, in the margin just in general.

Speaker 4

I don't. I I don't. I I you know, you put me on the spot right now to take a guess. I'm I'm guessing flat.

Speaker 2

Yeah. That that's what it sounds like. It didn't sound like there's I'm not asking up or down, just more more more or less not a lot of movement one way or the other, you know, right now. So I appreciate the taking a stand Yeah. And I I

Speaker 4

don't know about you, Brian, but I haven't seen a lot of 5% margins in my twenty five years doing this. So

Speaker 2

Nope. You guys are in a great spot. So, man, it was a great spot before before the deal. It's even better now. So I I I appreciate that.

Speaker 2

And, Brad, maybe just one last one for me. On the profitability, I mean, given it sounds as though everything is better than when we look you know, when you looked at it before the deal got done. And if a couple quarters ago, you were we were thinking that the profitability for Olteccan could be in the one fifty ROA type of level as you go into next year. It feels like that could be higher today given the performance and, you know, you know, what the deal has done thus far better than expected. Is that is that fair in terms of, you know, kind of what you're thinking then versus now, you know, the the performance you're seeing?

Speaker 4

Yeah. I I wouldn't I wouldn't wanna engage in a fist fight if you tried to convince me of that. That is that is certainly the case.

Speaker 2

Yeah. Okay. I appreciate all the color, guys. Thanks.

Speaker 4

Alright. Thanks, Brian.

Operator

Thank you. As we have no further questions on the lines at this time, I would like to turn the call back over to Mr. Jim Ecker for any closing remarks.

Speaker 1

Okay. Thanks everyone for joining us this morning. Appreciate your support and interest in the company. We look forward to speaking with 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.

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