Old Second Bancorp, Inc.

Good morning, everyone, and thank you for joining us today for Old Second Bancorp, Inc.' 's first quarter 2026 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 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 under the Investor Relations tab. Now I will turn it over to Jim Ecker.

Hey, good morning, and thank you for joining us. I have several prepared opening remarks. give you my overview of the quarter and then turn it over to Brad for additional color. I will then conclude with certain summary comments and thoughts about the future before we open it up to Q&A. From a GAAP perspective, net income was $25.6 million, or $0.48 per diluted share in the first quarter, and return on assets was 1.51%. First quarter, 2026, return on average tangible common equity is 14.2%. and the tax equivalent efficiency ratio was 52.4%. Excluding all adjustments, which include MSR evaluation adjustments and costs related to the 2025 acquisition of Bancorp Financial and its wholly owned subsidiary, Evergreen Bank Group, net income for the first quarter was $26 million, or $0.49 for diluted share. First quarter 2026 earnings were impacted by $9.8 million of net loan charge-offs, which primarily included a commercial real estate investor charge off of $3.9 million that was an office property located in downtown Chicago. The property experienced some vacancy and an updated valuation that was approximately 50% lower than prior estimates. The property does now cash flow adequately at the new carrying value after a restructuring. A commercial and industrial charge-off of $1.3 million in the warehousing and distribution space that has seen its cash flow position deteriorate over the last year. And lastly, net charge-offs related to the power sport business totaled $3.9 million, a relatively higher than normal level due to some seasonality and continuing consumer lending softness consistent with what's being seen in the broader economy. Tangible book value per share increased to $14.35 as of March 31st, 2026, from 1412 as of December 31, 2025. The tangible equity ratio increased five basis points from last quarter, from 11.02% to 11.07%, and is 73 basis points higher than the like period one year ago. Common equity tier one was 13.13%, in the first quarter, increasing from 12.99% last quarter, but decreased 34 basis points from a year ago. Our financial performance continued to reflect an exceptionally strong net interest margin at 5.14% for the first quarter. That's a five basis point improvement from last quarter and 26 basis point increase over the prior like quarter on a tax equivalent basis. Pre-provision net revenues decreased in the first quarter from the prior quarter primarily due to day count, lower loan balances, and a decline in rates overall. Cost of deposits was 105 basis points for the first quarter compared to 115 basis points for the prior link quarter and 83 basis points for the first quarter of 2025. For the first quarter of 2026 compared to last quarter, tax equivalent income on average earning assets decreased $4 million, while interest expense on average interest-bearing liabilities decreased $2.1 million. The loan-to-deposit ratio is 93.2% as of March 31, 2026, compared to about 94% last quarter and 81.2% as of March 31, 2025. The first quarter of 2026 experienced a decrease in total loans of 66.9 million from last quarter. Tax equivalent loan yields declined five basis points during the first quarter of 2026 compared to the link quarter, but reflected a 48 basis point increase from the quarter year over year. The decrease in yield in comparison to the prior quarter is primarily a function of Fed rate cuts working through the portfolio. Asset quality trends softened during the quarter. Non-performing loans increased 22.7 million, but classified assets declined by 2.8 million. In general, our collateral position is very good on quarter one downgraded credits. We recorded 9.8 million in net loan charge-offs in the first quarter, with the majority stemming from the PowerSports portfolio and one relationship each in commercial real estate investor and commercial. The allowance for credit losses on loans was $72.1 million as of March 31st, or 1.39% of total loans, from $72.3 million at year-end, which was 1.38% of total loans. Unemployment and GDP forecast use and 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 data projections. The impact of the global tariff volatility in the war in Iran continues to be considered within our modeling. Provision levels quarter over link quarter increased by $6.5 million to $9.5 million and were largely driven by the PowerSports portfolio net loan charge-offs as well as the two larger credits that we mentioned earlier. Non-interest income reflected a $476,000 increase in the first quarter compared to the prior link quarter and $2.4 million increase from the prior year light quarter. Mortgage banking income increased $225,000 compared to the link quarter. It increased $574,000 compared to the light prior year period, primarily due to volatility of mortgage servicing rates, mark-to-market valuations. Excluding the impact of mortgage servicing rates, mark-to-market adjustments, mortgage banking income decreased $51,000 over the prior link quarter but increased $156,000 from the prior year like period. Other income increased $358,000 in the first quarter compared to the prior linked quarter at $714,000 compared to the prior year-like quarter, driven largely by PowerSport loan service fees and dealer chargebacks. Total non-interest expense for the first quarter of 2026 declined $2.7 million from the prior linked quarter as the first quarter experienced $349,000 in acquisition costs compared to $2.3 million in the fourth quarter last year. Our efficiency ratio continues to be excellent as the tax equivalent efficiency ratio adjusted to exclude core deposit intangible, amortization, or real cost, and the adjustments to net income as noted earlier was 51.7% for the first quarter compared to 51.28% for the fourth quarter of 2025. On the credit front, we're obviously are disappointed in the level of charge-offs in the quarter, but otherwise, trends at Old Second remain excellent. Commercial real estate office continues to be under pressure broadly, with valuations coming in at steep discounts to prior levels and rents declining broadly. The good news is that we don't have very much of it on a relative basis and don't see circumstances in other credits similar to this credit that decline in value this quarter. I would say that the last office credit we were generally worried about is a participation loan that came with us via acquisition in 2021 that we unfortunately acquired an additional piece with the evergreen transaction. I would like to call your attention to page six of our loan portfolio disclosures. For more color on our office portfolio. With respect to the aforementioned CNI relationship, we are working through that one and there's underlying and value in that business. More broadly, our focus continues to be on the optimization of the balance sheet to perform and withstand the variability of current and future interest rates, as well as diligent oversight of commercial credits and assessment of potential collateral shortfalls. We continue to reduce reliance on wholesale funding as we allow the legacy Evergreen Bank brokered CDs to run off and reprice higher-cost deposits in the falling interest rate environment. With that, I'll turn it over to Brad for more color.

Thank you, Jim. As Jim mentioned, revenue trends were generally excellent with only a modest decline in net interest income relative to last quarter. That's pretty unusual. Relative to the prior year quarter, net interest income increased by 18 million or 29%. Tax equivalent loan yields decreased by only five basis points, but securities yields increased four basis points in the first quarter. relative to last quarter. Overall total yield on interest earning assets declined three basis points, and the cost of interest-bearing deposits decreased 15 basis points. Total interest-bearing liabilities decreased by 12 basis points. The end result was a five basis point increase in the tax equivalent to 5.14 relative to 5.09 last quarter. Obviously, we believe this continues to be exceptional margin performance. Tax equivalent then for the first quarter of 2026 increased 26 basis points compared to 488 last year. Average loans decreased by 70 million, or 1.3%, quarter over link quarter, and average deposits decreased by 162 million. Deposit runoff is largely concentrated in high beta, effectively wholesale deposit captions as planned. Loan origination activity in the first quarter was seasonally slower, but the pipeline remained strong. Certainly, the market environment, including ongoing pricing challenges due to tariffs and the uncertainty with war results in reluctance on borrowers and to invest in capital projects. Our lending teams are working with their customers to ensure we can meet their needs and offer loans at a good price when the demand is there. From a stock repurchase perspective, we acquired 1.2 million shares at an average price of $19.63 million. resulting in a reduction in equity and a growth in Treasury stock of $23.1 million for the first quarter of 2026. That enhanced EPS by about one cent for the quarter. We're a little more than halfway through the existing buyback authorization. We expect to continue to remain active. Obviously, capital still managed to grow in the quarter despite the size of this capital return, and that's due to the exceptional earnings power that's inherent in this balance sheet right now. It's pretty remarkable that we can have a couple stumbles in credit and still produce this level of earnings with an ROTCE still in the mid-teens. Margin trends still feel very good and stable in the near term. I do think later in the year we'll start to trend back towards 5%. Loan growth for the remainder of the year is still being targeted in the mid-single-digit level. Expense growth will continue to be modest in the quarters ahead, as you can see. As I mentioned, stock buyback will continue to be an attractive alternative for us as our capital continues to grow. That's it from my end, so with that, I'll turn the call back over to Jim.