Old Second Bancorp, Inc.

Good morning, everyone, and thank you for joining us today for Old Second Bank Corp. Incorporated's second quarter 2024 earnings call. On the call today are Jim Ecker, the company's chairman, president, and CEO, Brad Adams, the company's COO and CFO, and Gary Collins, the vice chairman of our board. I will start with a reminder that Old 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 ask you to refer to the company's SEC filings for a full discussion of the company's risk factors. The company does not undertake any duty to update such forward-looking statements. On today's call, we will also 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 oldsecond.com, on the homepage, and under the Investor Relations tab. Now I will turn it over to Jim Ecker.

Okay, good morning, everyone, and thank you for joining us. I have several prepared opening remarks. I'll give my overview of the quarter and then turn it over to Brad for additional details. I will then conclude with certain summary comments and thoughts about the future before we open it up for questions. Net income was $21.9 million, or $0.48 per diluted share, in the second quarter of 2024. The return on assets was 1.57%. Second quarter of 2024, return on average changeable common equity was 17.66%, and the tax equivalent efficiency ratio was 53.29%. Second quarter 2024 earnings were negatively impacted by $3.8 million of provision for credit losses in the absence of significant loan growth, which reduced the after-tax earnings by $0.06 per diluted share. However, despite this, profitability old second remains exceptionally strong, and balance sheet strengthening continues with our tangible equity ratio increasing by 35 basis points linked quarter to 9.39%. Common equity Tier 1 increased to 12.41% in the second quarter of 2024, and we feel very good about profitability and our balance sheet positioning at this point. Our financials continue to be positively impacted by higher market interest rates. Pre-provisioned net revenues remain stable and exceptionally strong. For the second quarter of 2024, compared to the prior year-like period, income on average earning assets decreased 663,000 or 0.9%, while interest expense on average interest-bearing liabilities increased 3.2 million or 31.3%. The increase in interest expense is rate-driven and primarily due to remixing and exception pricing on certain commercial deposits. Our average other short-term borrowings and other borrowings were significantly less in the second quarter of 2024 compared to the prior linked quarter and year-over-year quarter as our daily funding needs were reduced. And in the second quarter of 2023, we retired $45 million of senior debt. These actions reduced interest expense on borrowing, offsetting some of the growth in interest expense stemming from higher rates offered on deposits. The second quarter of 2024 reflected an increase in total loans of $7.2 million from the prior linked quarter primarily due to growth in commercial, lease, and construction portfolios, net of payoffs on a few large credits during the quarter. Comparatively, loan growth in the second quarter of 2023 was $12.2 million and a net decrease in loans of $73.5 million in the first quarter of 2024. The historical trend for our bank is loan growth in the second and third quarters of the year due to seasonal demand and business activities. 2023 was an anomaly as the savvy commercial customers realized interest rates were about to increase and sought funding prior to those market rate increases in late first quarter 2023. By the second quarter of 2023, loan growth had tempered due to market rate increases in the late first quarter and second quarter of 2023. Currently, activity within our loan committee has picked up as pipelines are at their highest level at 18 months and up 3x from 12-31-23, providing optimism for loan growth in the second half of the year. Net interest margin increased slightly this quarter, driven by continuing higher rates on variable securities and loans, partially offset by higher funding costs. Loan yields reflected a five-basis point increase during the second quarter of 2024 compared to the link quarter, and 21 basis point increase year over year. Funding costs increased due to increases in both rates and growth in time deposit balances. The tax equivalent net interest margin was 4.63% for the second quarter compared to 4.58% for the first quarter of 2024 and 4.64% in the second quarter of 2023. The margins remain relatively stable in the year over year period due to the impact of rising rates on both the variable portions of the loan and securities portfolio, as well as the deposit base and our short-term borrowing costs. The loan-to-deposit ratio is 88% as of June 30, 2024, compared to 86% last quarter and 85% as of June 30 of last year. As we have said, our focus continues to be balance sheet optimization. I'll let Brad talk about this in a moment. The second quarter of 2024 saw improving asset quality metrics and moderate actions taken on substantive credits, continuing remediation trends noted primarily since late last year. Our belief remains that the fourth quarter of 2023 represented an inflection point in our credit trends. Old Second began substantially downgrading large amounts of commercial real estate loans, including office and healthcare, at the end of 2021, and accelerating through 2022. Substandard and criticized loans went from approximately 60 million or a little more than 1% of loans in the third quarter of 21 to a peak of nearly 300 million or 7% of loans in the first quarter of 2023. At the end of the second quarter of 2024, substandard and criticized loans are down to 187.4 million, which is approximately 15.9 million less than year-end 2023, and more than 40% below peak levels. The expectation remains for further improvement throughout the rest of the year. Encouragingly, our special mention loans decreased more than 55% from one year ago and are at their lowest levels in over two years. We continue to expect realization of a relatively less costly resolution on a number of non-performers in the near future, and remain hopeful we can recover some of the losses realized in the second half of 2023. Commercial real estate valuations are heavily dependent upon the market level of interest rates as a primary determinant of cash flow for a given property. A movement in rates such as we have seen is substantial enough to significantly impair the equity positions in a large percentage of commercial real estate credits. Additionally, the residual stress brought upon by the pandemic and commercial real estate office and healthcare has not abated. We believe we have been proactive and realistic in addressing commercial real estate loans facing deterioration from higher interest rates, declining appraisal values, and cash flow pressures. As we discussed last quarter on the call and consistent with our expectations, we recorded net charge-offs of 5.8 million in the second quarter compared to 3.7 million in the first quarter of 2024. One specific current period charge off of $4.1 million on a previously allocated loan. One final charge off of $1.5 million related to a note sale and charge offs related to a transfer to OREO of $550,000 were partially offset by approximately $217,000 of net recoveries during the second quarter of 2024. The good news is that criticized and classified loans continue to decline. and the remainder of the portfolio remains well-behaved. Continued stress testing has not raised any new red flags for us, and the bulk of our loan portfolio has transitioned and is seasoning into this higher-rate environment. We have said this before, but it's worth repeating, that being short duration on the asset side has probably put us at the vanguard in terms of commercial real estate stress. We remain disciplined and did not offer seven- or ten-year maturities on commercial real estate assets a few years ago. The allowance for credit losses on loans decreased 42.3 million, decreased to 42.3 million as of June 30th, 2024, or 1.1% of total loans from 44.1 million at March 31st of 2024, which was also 1.1% of total loans. Unemployment and GDP forecast used in future loss rate assumptions remain fairly static from last quarter. The change in provision level quarter over link quarter reflects the reduction in our allowance allocations on substandard loans, which largely relates to the 29% reduction in criticized assets since June 30th, 2023. I think investors should know that with our continuing level of strong profitability, we will be aggressive in addressing weak credits and that we remain confident in the strength of our portfolios. Non-interest income continued to perform well with growth noted quarter over late quarter in wealth management fees, card-related income, and mortgage banking income, excluding the impact of mortgage servicing rights mark to market. A death benefit of $893,000 was realized on one bully contract in the second quarter of 2024 with no like benefit in the prior late quarter or prior year like period. Expense discipline continues to be strong, with the second quarter of 2024 total non-interest expense at $364,000 less than the prior link quarter, primarily due to reductions in salaries and employee benefits and a gain on the sale of an Oriole property. Our efficiency ratio continues to be excellent. As we look forward, we are continuing on doing more of the same, which is managing liquidity, building capital, and also building commercial loan origination capability for the long term. The goal is to continue to build towards a more stable long-term balance sheet mix featuring more loans and less securities in order to maintain the returns on equity commensurate with our recent performance. I'll now turn it over to Brad for additional color.

Thank you, Jim. Net interest income decreased by $93,000 or 0.2% to $59.7 million for the quarter ended June 30th. relative to the prior quarter of $59.8 million, down $3.9 million or 6.1% from the year-ago-like quarter. Securities yields increased 16 basis points due to the variable portion of the portfolios, and loan yields were five basis points higher in the second quarter compared to the first quarter of 2024. Total yield on interest-earning assets increased six basis points, linked quarter to 567 basis points, This was partially offset by a 15 basis point increase in the cost of interest bearing deposits and a two basis point increase to interest bearing liabilities in aggregate. The end result was a five basis point increase in the tax equivalent NEM to 463 compared to 458 last quarter. We believe this continues to be exceptional margin performance and surpassed our expectations modestly. Deposit flows this quarter continue to display signs of seasonality. and overall stabilization from what we saw last year. Average deposits decreased $4.3 million link quarter and period end total deposits decreased $86.5 million from the prior quarter. Deposit pricing in our markets remains exceptionally aggressive relative to the Treasury curve and is still largely pricing off overnight borrowing level costs. Public funds provided a bit of a headwind this quarter as fixed income markets offer an attractive alternative. On an overall basis, we are continuing to add duration, albeit at a more modest pace than I would like. In totality, marginal spreads remain unattractive at this point. An old second does not feel the pressure to swell in order to overcome expected margin pressures. Marginal returns on allocated equity remain poor for outsized growth, and flat NII performance for the year is more difficult in the absence of loan growth. But we have made progress in extending duration, and the outlook for loan growth is improving. My position remains that markets continue to believe inflationary trends are far easier to kill than they actually are in real life. Rate cuts right around the corner. is not a realistic expectation without significant declines in real demand and consumption. Regardless, the deeply inverted yield curve ensures poor spreads in our industry, so we're continuing to focus on compounding book value and maximizing returns. For us, that means being careful with expenses and pricing risk appropriately. Credit-protected securities have been a better avenue at times this year. point is that we are being careful. As a result, margin trends for the remainder of the year are expected to be relatively flat, maybe slightly down. If I'm wrong and a couple of rate cuts actually occur, we would lose a few basis points. Absolute NII growth from second quarter levels will be a function of our ability to find some loan growth. The loan to deposit ratio remains low at 87.9%, and our ability to source liquidity from the securities portfolio remains Old seconds should continue to build capital as evidenced by the 35 basis point improvement in the TCE ratio over the link quarter, which means we have added an astonishing 222 basis points of TCE and $2.37 of tangible book value per share over the last 12 months. I expect at least two people will ask in a few moments what we are going to do with all this capital. It's a fair question. Sometimes I'm wrong, but I always try to be safe when that occurs. Building capital today earns a nice return relative to the recent past, and I continue to have conviction in the belief that an opportunity to invest that excess capital is coming. M&A looks like it's starting to get interesting. If that does not come to fruition, we will return capital. A buyback is in place and is on the table. Dividend levels will be considered as well. Non-interest expense decreased $364,000 from the previous quarter, primarily due to reduction in salaries and benefits, due to a timing of officer incentive and rules and related payroll taxes paid in the first quarter, as well as a small decrease in occupancy costs, primarily due to seasonal maintenance, and a small gain recorded on an Oreo sale. As noted last quarter, quarterly wages and benefits are closer to $23 million run rate going forward in the near term. Given the revenue performance, employee investment costs have been running high for a while now, but we will maintain the ability to dial back as conditions warrant. With that, I'd like to turn the call back over to Jim.

Okay, thanks, Brad. In closing, we are confident in our balance sheet and the opportunities that are ahead. Our focus remains on assessing and monitoring risks within the loan portfolio and optimizing the earning asset mix in order to reduce our overall sensitivity to interest rates. Net interest margin trends are stable, and income statement efficiency remains at record levels. The expectation for continuing efficiency gives me confidence we are well positioned to deliver a solid year. That concludes our prepared comments this morning, so I'll turn it over to the moderator, and it'll open it up for questions.

At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that you're in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. And we do have our first questioner, Jeff Rulis from DA Davidson.

Thanks. Good morning. Brad, I'll stay off the capital questions, but maybe on the credit side, just possibly an update on the credits we talked about, either the Chicago office or California health care, just to try to get an update on timing and status, if we could.

Sure. Sure. Well, I think that the big story this quarter, we had two major charge-offs, and really that was the extent of The pain we took this quarter, they were both credits that had been on the horizon here for several quarters. One was a Chicago office building that we took a final charge of a $4 million, and then the other was a note sale that we were able to execute on that required about a $1.5 million additional charge. So we feel good about resolving those two. I think I think what investors should know is we've made significant headway reducing non-approval loans this quarter with more than a dozen credits that we resolved. As far as office, obviously still a very important part of the portfolio they're watching over. We only have $23 million now in office exposure, $9 million in Chicago, and $14 million in the suburbs. We've got a reserve against the entire portfolio north of 5%, so we feel like we've got our arms around that pretty well. Healthcare has been a slower remediation process, but we've seen no new red flags pop up in that portfolio and actually starting to see some improvement in occupancy and performance.

And Jim, just on your tone, it sounded as if kind of the net charge-off outlook, barring surprises, seems like the second half is chunkier than the back half. And the expectation, just to confirm, is that you'd expect losses to be more modest ahead.

Yeah, that's correct. I feel momentum is still very strong in credit remediation, but I don't see – I don't see chunkier charges in the coming quarters anyway.

Okay. Maybe hop into the pipeline pickup trend. Wanted to kind of get your sense of, is that more something you're doing in-house? Do you feel like it's just the market picking up or maybe a combo of both? And then that second part of that question is, could you frame up what the second half looks like? Is that kind of low or mid single digit growth on net?

Yeah, I mean, we've been pretty disciplined, Jeff. I would say the first half of this year, we were not seeing the risk-adjusted spreads that we would have liked to have seen. So we were really on the sidelines. We've seen more opportunities. And what I'm encouraged about now is that the pipelines are broad-based along many of our verticals. And, you know, we've got to get them across the finish line here, but I would expect, you know, hopefully low to mid-single-digit growth for 3Q and 4Q this year.

Okay. Appreciate it. I'll step back. Thanks.

We now hear from Chris McGrady with KDW.

I'm sorry. We have Terry McEvoy with Stevens.

Hi. Good morning, everyone. Maybe if I could just ask a question on the expense outlook for the second half of this year, the personnel and expenses overall came in a bit above what was discussed on the last call. And we'd be curious with your outlook for the second half of the year.

Relatively flat. I thought I said 23 million last quarter. But so maybe you have 400 grand above that level. Second half of the year is always about how your overall year performance is tracking relative to budget and how that works with incentive accruals. So you can be wrong by $500,000 in any given quarter and still be pretty darn close. It's kind of a horseshoes and hand grenades kind of thing. But I don't see anything. Labor market conditions have improved. We've been able to hire who we wanted. I don't see any real surprises coming at us at this point. So I think we are where we are. I'll say I'm broadly very happy with what expense trends have done over the last year and also over the last three years. It's no secret this is a wildly, it's been a wildly inflationary time, and I feel like we've done a really good job keeping a lid on things.

And then there seems to be fears that when CRE loans mature, that's when the losses materialize. That wasn't obviously what happened last quarter. So when I look at the $25 million of maturities in Q3 and was it $40 million of Q4, are those loans built into the reserve today? And ultimately, how are you thinking about potential loss content there?

Yeah, we've been cynical, depressed people on upcoming maturities for the better part of two years now. That's a function of why we were downgrading credits two years ago and felt like we were alone in doing so. There is no surprises coming. We have looked at maturities that are less than 24 months out. for a while now. And we've been very cynical, depressing people that you wouldn't want to talk to at cocktail parties. I think that the kind of bowling ball through a garden hose has been the preponderance of our industry to offer seven and 10 year maturities, which Jim alluded to, you know, back in 2020 and 2021. That's not a game that we played in. So we're a short-duration asset shop, always have been, believe we always will be. There's nothing coming at us that is either unexpected or outsized in terms of maturities.

I appreciate that. And then maybe one last one, Brad. I think you said M&A is starting to get interesting, might have been the quote there. So I don't mean to ask a capital question, but I have to kind of take the bait on your statement there.

Yeah. Our statements have been, our strategy has been to build capital. I think that there's several reasons to do that. The first of which is that at this point, greater than any point over the last 10 years, is that capital earns a nice return. The cost of funding is now 5.4% in the market. So a levered return on equity is pretty darn good, even if you're not using it at this point. So it allows you to have a margin of safety. That margin of safety is also, you know, is both economic-based, is a recession around the corner. That's something people like to talk about. But it's also, if times are difficult in our industry, which they have been with very low returns, Some people might begin to throw in the towel. We have capital flexibility to include cash in a deal so you can balance accretion. I don't know whether a deal is going to happen for us, and I realize that's the question. But I can tell you that if we do get an opportunity, we will be exceptionally disciplined on price. That hasn't changed. If we don't get an opportunity, as I said, we will return the capital.

Understood. Thank you for taking my questions. Yes, sir. Thank you.

We now have Chris McGrady with KBW.

Chris, are you having .

Can you hear me now, Brad?

Yes, I can.

All right, cool. The optimization of the balance sheet was mentioned a couple times in prepared remarks by you and Jim. What's left to do? Obviously, hedging is probably hard in this environment because of the curve, but what's left to do? What's coming off the bond portfolio every month? Just help us a little bit on that.

We've had a lot come off the bond portfolio. The structure of the yield curve for the bulk of this quarter meant that we simply laddered it back out short. which did offer a pickup in yield. What I'd like to see is a steepening. I don't know. I think a steepening is coming. I don't know whether it's recession-driven with a short end falling or if it's things people become less pessimistic and the long end picks up. If we can get a steepening, obviously the latter would be better. If we can get that, then what we would do is take off admiration aggressively by selling variable securities and reduce the overall size of the bond portfolio with loan growth to more like a 15% level from a 20% level. That would be the ideal scenario. I would remind investors that we are what we are and smarter people than us have tried to bet on interest rates. And a large percentage of them wind up with a 10 cup in their hand on street corners. Betting on interest rates is a fool's errand. We will always be inherently sensitive and better off if rates are higher because of being a very good deposit base. And anybody that wants us to bet that away would be making a mistake. So we do better when rates are high. That's no secret. And we are doing quite well. If short rates fall, we will do slightly worse. But we will invest capital wisely, and we will earn nice returns in any environment.

Thanks for that. Maybe just a follow-up, kind of combining the expense and the NII commentary. The efficiency ratio, Brad, or Jim, like, if we get the forward curve, we get a cut a hundred, a hundred basis points of cuts that you obviously margins will go down. You're obviously going to probably be a little bit more careful on cost, but like where's the efficiency ratio settling if, if the, if the futures market's right with a hundred of cuts.

So low fifties and higher rates, mid to high fifties and, and, and very low rates. Um, I don't see us going back above 60, um, given our size and scale that we have now. Um, But I also don't think we're ever going back to zero, given all the things that resulted from that. I think it would take an absolute idiot to think that was a good idea at this point. So in a world where rates aren't zero, deposits are worth fundamentally more than most investors have a memory of. So I think that as long as short rates don't cross 200 basis points at any time soon, we are a above 4% margin shot as we are structured today.

So mid to upper 50s with the forward curve.

The big difference today versus where we were last time, we were in a potential scenario where rates were going to be cut because our balance sheet just wasn't as optimized. We were sitting low to mid-60s on our loan-to-deposit ratio. So we've got much stronger pre-tax, pre-provision earnings power now.

Perfect. Thank you. Yes, sir. Our next questioner is Nathan Race with Piper Sandler.

Yeah. Hi, guys. Good morning. Thanks for the question. In terms of funding loan growth in 3Q and 4Q, is that mostly going to be sourced from securities portfolio runoff? And does that imply maybe the margin can expand a little bit more here in 3Q?

I would like to say flat on the margin. It wasn't my expectation that it would go up this quarter. Yes, I would say that if loan growth is... which we believe is trending in that direction, that at least half of it would come out of the bond portfolio, and you may see overnight borrowings tick up a bit, or you may see deposit growth. We had deposit growth last quarter. We had some lumpiness happen this quarter. I don't see any reason why deposits can't grow.

Okay, great. And then, Brad, can you just remind us the impact on the margin with each 25 cut from the Fed?

Oh, five to seven basis point decline in the early one.

Can you just remind us in terms of the floating rate assets that you have on the balance sheet, both in loans and securities, coming out of the quarter?

About 50%. We're about 50-50, but the fixed portion of the balance sheet generally has an effective duration a little over three. So, you know, rates down will hit us without a lot of weight. There is no question about that. But also, you get a pickup in the benefit of the free funding, and deposit costs will come down. So, and that's when you start looking at growth as well. Mm-hmm.

Got it. That's helpful. Just one last one. It sounds like charge-offs may... There may be some additional cleanup here in the third quarter, and I imagine those are already largely allocated for, but just in terms of kind of where you guys want to see the reserve settle out coming out of the third quarter, any thoughts on what that level should be relative to total loans?

Yeah, I think the reserve... At these levels, as a percentage of total loans, it's probably an appropriate level for us. But to answer your earlier question, I don't see the magnitude of charge-offs in the second half of this year based on the remediation progress we're making on a number of loans and have already realized some progress this quarter. So I think a reserve level in close proximity where we're at now is appropriate.

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

Thanks, Nate. We now hear from David Long with Raymond James.

Good morning, everyone. Hey, Dave. Brad, I wanted to ask you about the deposit pricing. Obviously, you guys have a great core deposit base, total deposit costs amongst the lowest of your peer group. In your marketplace where I reside, I'm still getting some pretty nice offers, 5% plus on savings accounts. How much do you see the deposit, if we stay higher for longer for the back half of the year, how much higher do you see that total deposit cost for old second changing?

So I think what's largely going on here is that a bank such as ourselves, which is a good retail deposit bank, A natural mix of the deposits is probably like 25% time deposits. We got down around 10 or 12 because time deposits became a bad deal for consumers. And that's what happens with a curve that is at zero across any level of duration. So time deposits became just simply not a thing. And what we're seeing now is that mix shift going back and there is a transition and we'll probably start trending towards a 20% time deposit mix. I don't see any reason why it shouldn't be that. And that's going to be the primary determinant of pickup and deposit costs for us. Now, there is a percentage of the deposit base that is a lot of money. For us, that's much lower than everybody else. We have very few accounts that have more than $10 or $15 million in them. You can count them on fingers and toes. So for that customer, for our industry, fixed income markets are simply a better deal. And fighting with fixed income markets for that money results in the big pickups and deposit costs that you've seen in our industry. And that's simply not a game that we're in to win. That's not what banks should be doing. Sophisticated large public funds and commercial customers should have a diversified liquidity portfolio. It's simply true that banks are having to fight with fixed income markets for funding because they got duration wildly wrong when rates were low and going higher. And that's what happens when you're stuck. We are simply not stuck.

Got it. Thank you for that color. And then on the credit side of things, a lot of talk about commercial, particularly the office space. Hearing more from chief credit officers that CNI needs to be more closely watched and regulators need to look more at CNI. How is the performance of your CNI book? And are there any segments there that you're a little bit more concerned about?

Yeah, I mean, so far, Dave, our C&I portfolio is holding up very well. We've got about, I think, a little over a third of our portfolios now in C&I, which we're pleased about. Only about less than $20 million is classified in that book. We have seen a couple credits that we're keeping an eye on, but by and large, a lot of our C&I clients still have a relatively low-leverage balance sheet and producing pretty good top-line results. But we are obviously watchful with the significantly variable portion of that portfolio as NC and I. We're seeing a little bit of stress, but right now it's behaving very well.

Got it. Thanks for taking my questions, guys.

Thanks, Dave. A reminder before our next participants that if you have a question you would like to pose, to please press star 1 on your keypad, star 1. We now have Brian Martin with Jannie Montgomery Scott.

Hey, good morning, guys.

Hey, Brian. Hey, good morning, Brad.

Hey, most of my questions are answered, but just, Brad, just on the securities portfolio, just for clarity, how much of that is coming off in the second half of the of the year, and the percentage of that, the variable rate, just on the securities book, I think it was about 20% last quarter. It sounds like it dropped a bit this quarter.

Yeah, not much. I mean, you have the type of volatility that we've seen has been not much to dropping, that is. The type of volatility that we've seen means that there are times when variable securities are quite simply a better deal And they were for the bulk of the second quarter. So you take the best value for your money. In terms of coming off the bond portfolio, I would expect no less than $100 million over the remainder of the year. So it feels fine to support loan growth for the bulk of it. I said at least half a few minutes ago. All the flexibility we need. Feel very good.

Yeah. And that comes off at what, Brad? I mean, is it pretty low rate, that $100 million?

Yeah. Yeah. I mean, it's certainly lower than the blended overall securities portfolio yield, which I think is like $320 or something like that. So it's significantly lower than that. Okay.

Gotcha. Okay. And then just on the credit front, just the progress you made this quarter and kind of some of the commentary, I guess. The resolutions at this point seem to be, you know, less costly. But in terms of any lumpy resolutions you expect here in the back half of the year, I mean, do you expect another meaningful decline in the non-performers or, you know, the classifieds or criticized here as you kind of get to the back half of the year? Or is it more of a slower decline now given some of the, you know, the heavy lifting you've done?

Yeah, I mean, I don't know if we'll get it. you know, 23% reduction in non-accruals next quarter, but we are already realizing some remediation on a number of fronts. Momentum is good. You know, what's encouraging is there's a very little migration into non-accrual this quarter. We only saw a million dollars and saw, obviously, you know, 22 million reductions. So, When you have a slowdown in migration, that allows you to really work on working some credits out, and we expect that momentum to continue in the next quarter. Gotcha.

Okay, thanks, Jim. And then, Brad, not to disappoint you on at least getting two questions on capital. Thank you. You had one. The second one on the buyback, and I know you talked about if you go that route or it's a possibility that pricing – of where it was making sense but given the rally in the market here at least some of the banks um can you i guess as your if you go that route is your outlook changed on how how you would think about you know the the profitability of that and what pricing it would look more attractive no i i i started flirting with the buyback talk about a year ago yep and

I think our stock's up 25%, 30% or something like that. I don't know what it is. It's probably about like that. I think it's up 20% a month. Tangible book value is up 26%. On a relative basis, it's the same. Certainly, I could have acted all smug that we bought back a big slug of stock at $1,250 or something, but ultimately, it's a relative gain, and nothing's really changed. Gotcha.

Okay. That's all I had, guys. Thank you.

All right.

Thanks, Brian. We have reached the end of the question and answer session, and I will now turn the call back over to James Ecker for closing remarks.

Okay. Thanks, everyone, for your interest in our company, and we look forward to speaking with you again next quarter. Goodbye and have a great day.

This does conclude today's conference, and you may disconnect your lines at this time. Thank you for your participation.