Good morning, and thank you for joining us. As customary, I have several prepared opening remarks, give my overview of the quarter, 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 to Q&A. From a GAAP perspective, net income was $28.2 million, or 54 cents per diluted share in the second quarter, and return on assets was 1.65%.

Second quarter 2026 return on average tangible common equity was 15.58%, and the tax-equivalent efficiency ratio was 51.72%. Excluding all adjusting items, which include MSR valuation adjustments and the costs related to the 2025 acquisition of Bancorp Financial and its wholly owned subsidiary, Evergreen Bank Group, net income for the quarter was $28.7 million, or 55 cents per diluted share.

Second quarter earnings were impacted by $9.2 million of net loan charge-offs, which primarily included two credits that we discussed at length on last quarter's earnings call: a commercial and industrial charge-off of $3 million in the warehousing and distribution business that has seen its cash flow position erode over the last year; a commercial real estate investor charge-off of $2.8 million that was an office property located in a western suburb of Chicago. This was an acquired credit.

It was restructured into an A/B note in 2023 due to challenges facing the office market. At the time of the restructure, the B-note was fully secured by the value of the underlying collateral, but has recently experienced a decline in value.

Based on an updated valuation, the B-note's collectibility is now in doubt and was charged off. The B-note was previously fully allocated for in prior quarters, and a portion of the note was accounted for in purchase accounting adjustments as a result of the acquisition of Evergreen Bank Group.

The property continues to produce cash flow adequately to support the A-note at this time. Net charge-offs related to the power sports business totaled $2.8 million, which is a $1.1 million reduction from the prior quarter, as seasonality related to this loan portfolio usually results in higher usage of ATVs and UTVs that are collateral for these loans during the spring and summer months.

I would note that the contribution margin in this business has continued to trend higher and remains robust. Tangible book value per share increased to $14.77 at the end of the quarter from $14.35 at last quarter.

The tangible equity ratio increased 12 basis points from last quarter from 11.07% to 11.19%, and is 36 basis points higher than the like period one year ago. Common equity Tier 1 was 13.28% in the second quarter of 2026, increasing from 13.13% last quarter, but decreased 49 basis points from one year ago.

This decline is primarily due to stock repurchases of approximately $40.2 million during 2026. Our financials reflect an exceptionally strong net interest margin of 5.23% for the second quarter.

That's a 9 basis point improvement from last quarter and 38 basis point increase over the prior year like quarter on a tax-equivalent basis. Pre-provision net revenues increased in the second quarter from the prior quarter primarily due to day count, higher average balances, and lower average time deposit balances.

Total cost of deposits was 100 basis points for the second quarter, compared to 105 basis points for the prior linked quarter and 84 basis points for the second quarter of 2025. For the second quarter 2026 compared to last quarter, tax-equivalent income on average earning assets increased $2.8 million, while interest expense on average bearing liabilities increased $658,000.

Loan-to-deposit ratio stands at 96.4% as of June 30th compared to 93.2% last quarter and 83.3% as of June 30th, 2025. Total loans increased $60.6 million during the second quarter, partially reversing seasonal declines in the previous quarter.

Tax-equivalent loan yields increased 12 basis points during the second quarter of 2026 compared to the linked quarter, and reflected a 63 basis point increase for the quarter year-over-year. The increase in yield in comparison to the prior quarter is driven by higher short-term rates and repricing of lower-yielding loans that were originated in 2021 and 2022.

Turning to credit, asset quality trends improved during the quarter despite the elevated charge-offs. Nonperforming loans decreased $19 million, and classified assets declined $16.5 million.

In general, our collateral position remains stable on classified assets. We recorded $9.2 million of net charge-offs in the second quarter, with the majority stemming from the power sports portfolio and one relationship each in commercial real estate investor and commercial.

Overall, we're pleased with the credit trends as NPAs declined 25% in the quarter. The allowance for credit losses on loans was $70.4 million as of June 30th, or 1.34% of loans, from $72.1 million at March 31st, 2026, which was 1.39% of loans.

Unemployment and GDP forecasts used in the future loss rate assumptions remained 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 global tariff volatility and the war in Iran continues to be considered within our modeling.

Provision levels quarter over linked quarter decreased by $2.5 million to $7.5 million, and were partially driven by significant movements in delinquencies when compared to the forecast period resulting in a negative qualitative adjustments. Additionally, some larger charge-offs taken during the quarter had been provided for or allocated for in prior quarters.

Broadly, we are encouraged at the positive credit trends with the reduction in nonperforming assets and classified assets quarter over linked quarter. The office portfolio continues to be under pressure broadly, with valuations coming in at steep discounts to prior levels and rents declining broadly.

The good news is we don't have anything classified in that vertical, and very much of it, on a relative basis, only represents about 3% of the portfolio. Noninterest income increased $631,000, or 5%, in the quarter compared to the prior linked quarter, and a $2.4 million increase, or 21.7%, from the prior year like quarter.

Wealth Management had a strong quarter. Income was up there $245,000 quarter over linked quarter, and increased $525,000 compared to the prior year linked quarter.

Mortgage banking income increased $97,000 compared to the linked quarter, and increased $543,000 compared to the like period a year ago, primarily due to the changes in mortgage servicing rights mark-to-market valuations. MSR valuation was flat quarter over linked quarter.

However, excluding the impact of mortgage servicing rights mark-to-market adjustments, mortgage banking income increased $164,000 over the prior year like period. Other income declined $176,000 in the second quarter compared to the prior linked quarter, and increased $551,000 compared to the prior year like quarter, driven largely by power sport loan service fees and dealer chargebacks and lease syndication fees.

Total noninterest expense for the second quarter increased $1 million from the prior linked quarter, driven by higher officer incentive and employee insurance costs within salaries and employee benefits, elevated OREO expenses as the first quarter of 2026 realized net gains on property sales, as well as gap insurance refunds related to legacy Evergreen activity within other expense. All together, our efficiency ratio continues to be excellent, as the tax-equivalent efficiency ratio adjusted to exclude core deposit intangible amortization, OREO costs, and the adjustments to net income as noted earlier, was 50.8% for the second quarter compared to 51.7% for the first quarter.

Overall, the bank continues to perform at an exceptionally high level. Operating leverage is strong.

The margin is stable, and fee income businesses are performing well. We're doing a nice job of adding additional talent throughout the organization.

Credit is on an improving trend, and I'm hopeful that we will soon be able to demonstrate the full earnings power of Old Second. I'll now turn it over to Brad for additional color.

Thanks, Jim. I'll be brief.

There's not a lot controversial from my corner of the world, or confusing for that matter. Net interest income increased to $83.3 million for the quarter relative to last quarter's $81.1 million, and increased by $19 million, or almost 30%, from the year-ago like quarter.

The interesting thing about this quarter is tax-equivalent loan yields increased by 12 basis points and securities yields increased by 6 basis points. That is the fundamental driver of what I guess I would call a margin surprise, increase of 9 basis points relative to our expectations of giving back a few.

That largely stemmed from interest rate increases along the curve, particularly in SOFR and overnight index swap rates that began after kind of instability in the Middle East kicked up and price of oil went up and all that, none of which could have been expected. Worked out well, I guess.

Obviously, margins ridiculously good at this point. 5.23% relative to 5.14% last quarter, 38 basis points up year-over-year.

We did have some loan growth this quarter on an average basis. It was only $14 million.

Obviously, Jim went through the period end. Deposit runoff was a little higher than expected.

Deposit funding costs came down, which I did not expect. I would say that both loan and deposit market competition is very robust right now.

We are seeing that both in terms of pricing and structure on the loan side, and we are seeing deposit competition pretty significantly above the Fed funds curve and the Treasury curve at this point. Things are pretty aggressive out there.

Loan origination activity in the second quarter reflected a seasonal increase of $60 million, and the pipeline remains strong. Certainly, market environment, including pricing challenges due to tariffs and the uncertainty with the war in Iran, results in some reluctance on borrowers to invest in capital projects.

We're still kind of in a wait-and-see mode on that front. Overall, still feel pretty good about loan growth on a full-year basis.

Don't see much of a reason to step down what we talked about before, maybe a little bit more of a bias toward the low single-digit level. From a stock repurchase perspective, we acquired 732,000 shares during the second quarter at an average price of $21.08.

That results, obviously, in a reduction to equity and growth in the treasury stock of $15.4 million. This enhanced EPS in the quarter by about a penny.

Year-to-date repurchases under the stock repurchase program totaled 1.9 million shares at an average price of $20.31. We had exhausted the previously approved stock repurchase program, which was 5% at the time pre-Evergreen, and the board of directors have approved a new plan to repurchase approximately 2.5 million shares through June 30th, 2027.

I would expect that we will continue to be active and aggressive in the repurchase of shares, given our extremely strong capital position that far outstretches our projected capital needs over the next 12 to 24 months. Margin trends still feel very good and very stable in the near term.

If you pinned me down and hit me with a rock, I would say we probably give back a few basis points, but my track record is starting to look pretty poor on that prognostication. I realize I've been saying that for the last few quarters and it hasn't happened.

Obviously, rates along the curve went up quite a bit, as I said. If those trends remain stable here and high-cost deposit attrition slows, I would expect that few basis points of contraction to occur, but it may not.

Loan growth for 2026, still target low to mid-single digits, as I said. Expense growth will continue to be modest in the quarters ahead.

That's it from my end. I'll turn the call back over to Jim.

Thanks, Brad. In closing, we are cautiously optimistic due to the improvements in credit metrics this quarter.

I think we're particularly encouraged by a 30% reduction in our special mention loans, and the rest of the bank is performing far ahead of our expectations. We remain optimistic about loan growth, as Brad mentioned, and the potential for more strategic growth opportunities as well.

That concludes our prepared comments this morning, I'll turn it over to the moderator, and we can open it up to Q&A.

Hey, guys. Good morning.

Thanks for taking the questions. Good

morning, Nate.

Obviously, some nice cleanup in terms of classified loans and nonperformers in the quarter, and sounds like you guys largely mopped up some of the lingering credits on that office commercial real estate loan and then also that C&I loan in the quarter. Just curious, as you look out over the next several quarters, what do you think is kind of a better kind of projection in terms of where charge-offs can shake out for Old Second, with hopefully kind of more benign nonperformer inflows and so forth in the future?

Nate, I think the big takeaway for us this quarter is not only the meaningful reduction in criticized and classified NPAs, but to have a 30% reduction in special mention, which is generally a leading indicator for future problems, I think gives us some optimism. Power sports also had a nice reduction in charge-offs.

We're obviously going to see a little more charge-off in that vertical, maybe Darin can speak to this later, but we're certainly seeing a normalization in the seasonal trends in charge-offs. Having said that, we're still working through a couple of credits, but we haven't seen anything new really pop up in the last couple quarters that had not been previously identified.

I think we're really close to having a very clean quarter on the credit front, I think which will really drive exceptional performance.

That's helpful. Thanks, Jim.

Then maybe, Brad, just thoughts on how the margin could trend in the back half of the year? I know it's going to be dependent on market rates, similar to what we saw in terms of the impact in the second quarter, but just any thoughts in terms of what you're seeing in terms of kind of weighted average rates on loan production these days, and just any thoughts on kind of where deposits and overall cost trend?

Start with a caveat that there's 52 ways that I can be wrong if something changes in the next week or something like that. The magnitude of the wrongness will be relatively subdued, though.

If I had to guess, I would say that we would be at kind of a 5.18% range in the third quarter, and maybe 5.15% in the fourth. That's my best guess.

I fully recognize my track record's crap. I think I said that the margin was going down before it crossed 5.

At least I'm wrong on the right side of it, which is somewhat comforting. Best guess, 100 ways I could be wrong.

Underpinning that, is it essentially, Brad, that loan yields can only go down from here, and then deposit costs are likely going higher as well, albeit from a very, very low base? Yeah.

The things that are really driving it for us is the speed of attrition of what effectively mimics wholesale on the deposit side, our ability to backfill that growth with different types of deposits. Loan yields feel relatively stable.

We've been essentially the same rate environment except for the last 3 months for almost 18 months, 24 months now on the asset side. Obviously, we talked about this in the past, year one of kind of rates moving back lower is pretty great within the power sports business.

Year two is a little bit not as good, and year three is worse. The tailwind of margin expansion from power sports, we're certainly in the very late innings of that.

I've been remiss in pointing out at this point that another ridiculously strong increase in the contribution margin from power sports this quarter. The business continues to be exceptional.

I think the biggest delta on margin and being able to nail it down right now is the speed of attrition on effectively wholesale deposits and our success in backfilling. It's a liability world these days.

I think you're seeing that from other banks. I've always believed it was a liability world just broadly, but more so today than ever.

Understood. Then maybe one last one just on capital management.

Curious, can we expect the pace of buybacks to step up relative to the second quarter? Looks like they came down a little bit versus 1Q.

Then just within kind of the capital management context, curious kind of what the appetite and kind of prospects are on the acquisition front these days?

Latter question first. Well-priced M&A that adds something to our franchise value is something we're always interested in.

I believe the market is still favorable for that. As it relates to stock buyback activity, we have been buying as much as we can't.

I expect that to continue. Obviously, we're still growing capital, even buying back as much shares, but I think it's reasonable to expect that we will fully execute this authorization as well over the next 12 months.

Great. I appreciate the color.

Thanks, guys. Yep.

Thanks, Nate.

morning.

Morning, Brandon. ):

I guess my first one to follow up on one of your earlier answers there, Brad, the backfilling the higher-rate attrition on the deposit side with core deposits, what rate is kind of needed now to generate that core deposit growth, or maybe said another way, what's the blended in-spring deposit rate for that new growth?

I'm not sure I get the gist of the question. To maintain the margin, the reality is that if we ran out $200 million of effectively wholesale funding right now, it would be margin-accretive to replace it with wholesale funding.

That is the nature of the deposit competition that exists marginally right now. I get what you're asking: at what rate can we generate deposit growth?

I'm not sure it really matters. It's just a question of how much wholesale funding are you willing to stomach.

The reality is when you look like us, which is largely retail core deposit-funded, all we're really giving up by adding wholesale funding is more asset sensitivity, which doesn't hurt. It's a trade I'm willing to make.

That's why what you're hearing from me is relatively bullish, because there's these levers that are out there. In addition, we can pay off the remainder of sub-debt that exists out there, too.

There are various levers that you can pull, the net-net of which is that margin feels pretty stable. I'm contemplating therapy to not say, "Hey, the margin can go up from here."

I don't really want to say that anymore. It's a lot of gives and takes and what-have-yous, I guess.

):

Okay. Got it.

Thank you for that. Then just on the expense side, the efficiency ratio is in the low 50s.

As a percent of assets, expenses are mid to high 90s. Is there anything in the near term, any investments coming down the pipeline that may change either of those metrics?

Not materially, no. The reality is that there's no deferred maintenance here.

We have capital projects underway across the board to make us an even better bank, and we don't shy away from them. That's the challenge of growing a bank.

Those things are continuing. They are in the run rate, and they are in the future prognostications.

):

Perfect. Thank you.

Maybe just one last one. Thanks for the comments on the commercial real estate charge-offs.

On the C&I loan, is that still on-balance sheet, or is that now off-balance sheet, or maybe can you just kind of walk through that a bit more?

No, it's still on-balance sheet, Brandon. The company's in the process of transacting, and we're just working through and being conservative with taking additional charges as to where we believe a sales price will eventually happen.

I expect that credit to be fully resolved within the next quarter. ):

Okay. Thank you very much.

Thank you.

Thanks. Good morning.

Just a couple follow-ups on maybe the margin, Brad. Just wanted to kind of confirm that any sort of recovered interest on maybe some problem loan resolution that may have added to the or, I guess, any one-timers in that 5.23%?

Then, if you could, what do you have the June monthly average for margin?

I don't have it in front of me, but no, I'm not aware of any one-timers that positively impacted the margin. It was largely stable throughout the quarter.

It started going up. It was going up when we were on this call last quarter.

I just didn't believe it can continue.

I think largely, as Brad pointed out, there were three levers that drove it: we had some repricing of some 2021, 2022 vintage commercial real estate loans that came up for maturity; we had some high-yield deposit costs price lower out; and then we had some securities also rolling off that were reinvested at higher yields.

Got it. Then maybe just on the fee income front, your thoughts on I guess we'd expect maybe Boley to normalize, but that Wealth Management number pretty encouraging.

If you could just kind of touch on overall fee income levels in the second half, if you think?

We've been a low single-digit grower in fee income. Our wealth group continues to be successful in bringing in new assets under management.

They've obviously benefited from an equity market uptick. We fully expect to drive, I would think, low single-digit growth.

If we see any pickup in the mortgage bank, we could get to mid-single digits.

Okay. Maybe the last one just to confirm, the Evergreen kind of merger costs, as well as cost savings, that's pretty much we've seen the end of it, just wanted to kind of housekeeping?

I believe so, yes.

We had one branch we just shuttered last month, we'll have a little bit of a pickup on a go-forward basis there, but yeah, we're largely through that.

Got it. Thank you.

good morning, guys. Thanks for taking my questions.

Brad, I appreciate the commentary on share repurchases, and sounds like you're going to be continuing that going forward. I'm just wondering how sensitive you guys are to the share price and valuation, and at what point do share repurchases not make sense from your perspective?

I'm not sensitive to it. The reality is that we have more capital than we would otherwise need, certainly absent M&A opportunities, and we have more capital than any M&A opportunity that we would have an appetite for.

The reality is that buying back fully this authorization would still not result in capital levels going down. It's just a question of it's a lever to return capital to shareholders such that we don't grow it as fast, and it really is that simple.

It's a tax-efficient return of capital to shareholders. Although I don't like that 1% tax one tiny bit.

I'd feel remiss if I don't throw an editorial in there. Whatever.

Yep, understood. Thanks.

Then, apologies if I missed this, but going to the loan growth, it looked great in the quarter, and what stood out to me was the commercial growth. Can you just provide maybe a little bit more detail there, just given the impressive growth and also considering the competitive backdrop that you had talked about?

As Brad mentioned, it remains exceptionally competitive. Last quarter, first quarter, we had we saw some some pull back, which we normally do in the first quarter.

Growth this quarter really came from really three or four buckets: our our middle market C&I group, a commercial real estate group, sponsored finance, and then power sports had had some had some growth this quarter when we when we thought maybe would be relatively flat. Power Darin can speak to that, but second quarter and third quarter generally pretty good in that business, and we're we're optimistic that we we may see some growth in the third quarter as well.

Those are the drivers. The competition remains remains fierce.

There's no question about it, but we're encouraged by our pipelines today.

Great. Thanks for taking my questions.

Thank you.

Hey, good morning, guys.

Hey, Brian.

Brian. Morning.

Hey,

just on the credit front, Jim, I guess that seems like there's some nice improvement potentially coming. I know you've got a couple credits you talked about still working through, but just can you just kind of give some thought on how you think credit plays out?

Over the next couple quarters, what would you expect in terms of some meaningful resolutions? Just a handful of things coming back, or just in general, given what you see today?

We printed what, 70 basis points in charge-offs this quarter, and I'd like to say we're going to get back into that 35 to 45 basis points, we're going to run a little bit higher with power sports, right? We saw a nice reduction, second quarter over first.

We're working through a couple more credits, but we're optimistic we're going to see improvement again next quarter, not only in charge-off levels, but in overall migration, and we hope to see further reductions in classifieds and NPAs.

Okay. Is there anything I guess, in terms of how much of a reduction in NPAs we could see in the coming quarters, are there a couple meaningful things you're working on, is it just kind of some granular stuff, or just bigger picture how to think about it?

We're only not even halfway through the quarter, but we've already had a couple small wins early in the quarter, there's a couple larger ones we're optimistic that we can hopefully get resolved. We certainly aren't seeing anything new that has popped up in the last couple quarters.

We're encouraged. As I mentioned in our prepared comments, the fact that special mention was down 30%, it's usually a pretty good leading indicator as to future migration trends.

Yep. Do you have that number, Jim, what the special mentions were?

Would you say 30% from the previous quarter, is just what's the barometer there?

They were down $12.5 million in the quarter, from about $40 million to $27 million.

Perfect. All right.

Then just one or two last ones for me. Brad, you talked about just kind of the M&A, which you've talked about in the past, but in terms of size, is there something, are you guys in preference-wise, if you found an opportunity that's smaller or bigger, if you kind of comment just kind of how you're thinking about that with the approval times and whatnot, but it seems like it has been smaller, but maybe that's not the case.

I'd say the bias is toward smaller right now, but I don't really rule anything out. It's just that at the end of the day, the question is does doing a transaction make the franchise more valuable?

And

99 times out of 100, that's a deposit-based question. Obviously, not always, because we've done an asset generator deal.

There's no interest in betting the farm at this point. What we have here is pretty special.

It's what shows up in the profitability numbers. It's not easy to find a transaction that makes you a better bank, but they're out there with some work on the front end and the back end.

I am optimistic we can get something done in relatively short order.

Gotcha. Then just lastly, you talked about that contribution margin, I guess what your outlook for that contribution margin?

I think it's was up again this quarter.

I'll let Darin answer that one.

Yeah.

It's Brian, right? Hey, Brian.

Yep.

Yep, hey, yeah. Contribution margin for for the National Specialty Lending, as Jim and Brad both mentioned, is at a historical high for us.

I expect that to continue through this year, with some reduction coming next year, coming down a little bit next year, as some we change rates a little bit lower in the middle of this year. You'll start seeing, as the portfolio turns over, a little bit more of that impact into '27 than you would this year, but nothing material, but you will see it come down a little bit in '27.

Gotcha.

Okay.

Brian, I think what's important to understand in that portfolio, APR on that's right now over 10%, and the loss rate came down from a little over 2% to 1.80%. You can see the contribution margin well over 8.5% in that business, which is extraordinary.

No, it's great. I think that answers most of it.

The only other thing I could ask you, Brad, that I don't know that you've commented on, or maybe it's just not something you'd want to at this point, but just in terms of the stability in the margin near term, if we think about going into next year, what's kind of the puts and takes on directionally where you would expect the margin to be, whether not quantifying a number, but just kind of directionally how you think about it as you go into next year?

I think we've won this war 47 times now, I'd say if that becomes 57 times, then maybe interest rates would go down along the curve, and inflation would dampen, and then you would probably give back a little bit margin. Normally, I talk about this stuff over a beer, but I fundamentally believe that the world is shedding the idea that rates are somehow anchored to zero interest rate policy.

I believe those days are done. As long as that is the case and I'm correct about that, then fundamentally this is a very high-margin financial institution just based on the quality of the funding.

I am very bullish, a very elevated margin for a very long time, I guess is the way I'd put that.

Okay. That's helpful.

I appreciate taking the questions, guys.

Yep.

Thanks, Brian.

Thanks everyone for joining us this morning, and we look forward to talking to you again in the third quarter. Goodbye.