Nathan Race: I’m sorry. So BOLI should stay around the 3Q level. Is that what you’re suggesting, Brad?
Bradley Adams: Yes. That’s correct. I apologize for failing to answer that earlier.
Nathan Race: No problem. And then just any thoughts on kind of overall expenses. I know it’s early in the process and thinking about 2024 expenses, but any high-level thoughts on your…
Bradley Adams: Right now, I’m open for 3% to 4%, right? We still have to make sure that our employees are treated well, given how much more expensive a gallon of milk and a pound of bacon is. And we want people to be happy to work here. So we do have some inflationary headwinds that we do have to be mindful of. But what we did do as our margin was rocketing higher as any deferred maintenance and buying a whole bunch of new computers and repaving parking lots and all that stuff. We’ve got that in our rearview mirror. So we don’t have a lot of CapEx ahead of us.
Nathan Race: And is that 3% to 4% outlook, did that contemplate any opportunities to hire on the RM side of things to make sure there’s been opportunities – materialize on that front these days.
Bradley Adams: Yes, we’re always looking to get better.
Nathan Race: Okay, great. I appreciate all the color.
Operator: Thank you. Our next question is coming from David Long with Raymond James. Your line is live.
David Long: Good morning, guys.
James Eccher: Good morning, Dave.
David Long: On the loan growth expectations, obviously, benign here, but just want to see if you can break it down between how much is based on Old Second’s appetite versus demand in the marketplace?
James Eccher: Well, first, David, I would say overall loan demand is pretty muted right now. We’re seeing a lot of borrowers just pull back on CapEx and kind of expansion. We’re still seeing a decent amount of deal flow in our sponsored finance group and some of our leasing verticals. Beyond that, C&I and commercial real estate is largely dormant. We’re still looking at opportunities, but the risk-adjusted returns on what we’re seeing today just don’t make a lot of sense when you look at really where we have to fund it at the margin. So we’ll be very selective. I think with what we have in our pipeline will probably keep up with the runoff and paydowns, but low single-digit growth is probably what we’re looking at over the near and long term.
David Long: Got it. Okay. And then a follow-up question. When you look at the securities portfolio, obviously, running off, and you guys have – I’ve said it before, you have done one of the best jobs in managing that portfolio through the pandemic. But when you look at using that as a liquidity base, how low is a percentage of earning assets do you see that getting at this point?
Bradley Adams: It can go from – I think it’s what it’s like 20 right now, can go to 15, yes.
David Long: Yes, got it. Okay, that’s all I had. Thanks, guys. Appreciate it.
James Eccher: Thank you, Dave.
Operator: Thank you. [Operator Instructions] Our next question is coming from Brian Martin with Janney. Your line is live.
Brian Martin: Hey guys, good morning.
James Eccher: Hey, Brian.
Bradley Adams: Good morning, Brian.
Brian Martin: Hey, Brad, just you talked last quarter, I think, maybe before that, if we did see – going to their comment about the pessimism on people’s outlook, I mean, I guess, as far as the margin goes, I think you talked about if rates went lower, the margin could kind of bottom in that 4 to 4.25 range. I mean I guess, if we don’t see – if we are higher for longer, we don’t see these cuts. I mean is that margin bottom kind of occurring here in the next quarter, and it’s in the – you kind of hold the 450 type of level. Is that kind of more realistic than if we don’t see the rate cuts?
Bradley Adams: Yes. We don’t see any rate cuts. We’ll – we are a 450-plus margin bank. If there are no rate cuts from here. If there are 100 basis points in rate cuts, you’d probably see us at that 4 to 4.25. If there’s 200 basis points in rate cuts, you probably see is the 3.75 to 4. There’s – I’ve tried to give – the candor is that when you look like Old Second, which is a retail quality deposit base, you’re inherently volatile to interest rates. And I’m not smart enough to try and hedge that. I don’t think you can anyway. So I’m perfectly willing to accept that we make a lot of money when rates aren’t 0, and we make less money when rates are 0. But I don’t think we’re going back to 0 anytime soon.
I think it’s been an absolute disaster of a strategy with all kinds of ills. But even if they are 0, we’re still a 1% ROA bank. So do the right thing, protect against tails, except when you – be willing to accept when you make a lot of money and be willing to make – accept when you make just a normal amount of money, and that’s what we do.
Brian Martin: Yes. Okay. I appreciate that. And then just going back to those credits, the new ones that came on board this quarter, the 3 that were classified, it sounded like the loss content just in general, is pretty low for all 3 of those. Is that kind of what the message is with…
James Eccher: That’s how we see now, Brian, we’ve refreshed appraisals. We’ve got workout strategies in place. Right now, we just don’t see any major losses given the fault here. And then I didn’t say it on the prior list of questions, but all of these new classified are still paying, and they still have sponsors behind it that are supporting the credits, but we just felt the overall cash flow was weak enough and necessitated downgrade.
