Old Second Bancorp, Inc. (NASDAQ:OSBC) Q2 2023 Earnings Call Transcript

Jim Eccher: Yes. So we had $12 million in growth, Brian, in the quarter. Payoffs and paydowns were 2x what they were in the first quarter. I think we had over $120 million of paydowns and payoffs. But from here on out, we’re just not expecting a lot of loan demand, as Brad mentioned, with cost of capital over 8 and probably going higher here next week, we’re certainly seeing a lot of our commercial clients just pull back. We’re still seeing pretty good deal activity in sponsored finance and our leasing verticals, but everything else is really slowing down.

Brian Martin: Okay. And do you expect the payoffs to slow? I guess — I hear your comments about production. But just as far as the payoffs, if they were 2x…

Jim Eccher: Payoffs are hard to predict, Brian. I mean, normally in a rising rate environment, you would expect lower payoffs, right? But we had accelerated payoffs last quarter due to several large property sales. I would expect third quarter paydowns to moderate off second quarter levels.

Brian Martin: Got you. Okay. And as far as the potential improvement, I mean, do you expect the improvement in the nonperforming to be material over the next couple of quarters? I don’t know. Certainly, the timing, it sounds like there’s some already occurring…

Brad Adams: We wouldn’t mention it if we didn’t. Yes. I think if people consider the move-up last quarter material, it won’t be that fast. I think it will matter to people, yes.

Brian Martin: Yes. Okay. And that’s — okay, second half of the year. And Brad, your comment, Brad, just on the margin, just your comments include that securities reducing the sensitivity incorporates in also the senior debt payoff too, which would give you a benefit. I think you said it was 3 basis points.

Brad Adams: Yes. And that 3 basis-point improvement obviously assumes that it’s — the $45 million is replaced dollar for dollar at Fed fund’s overnight rate. So to the extent that we’re able to do better than that on replacement funding, which I’m hopeful we are, it could be even more substantial than that.

Brian Martin: Yes. Okay. But your flat guidance includes that benefit with some give-up on the other stuff. So, okay.

Brad Adams: Yes.

Operator: Thank you. We have reached the end of our question-and-answer session. So I will now turn back over to Mr. Eccher for any closing remarks.

Jim Eccher: Okay. Thank you everyone for joining us this morning, and we look forward to speaking with you again next quarter. Goodbye.

Operator: Thank you. This concludes today’s conference, and you may disconnect your lines at this time, and we thank you for your participation.