Earnings Call Transcript
OLD SECOND BANCORP INC (OSBC)
Earnings Call Transcript - OSBC Q2 2024
Operator, Operator
Good morning, everyone, and thank you for joining us today for Old Second Bancorp, Inc. Second Quarter 2024 Earnings Call. On the call today are Jim Eccher, 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 Eccher.
Jim Eccher, CEO
Good morning, everyone, and thank you for joining us. I have several prepared opening remarks and will give my overview of the quarter and then turn it over to Brad for additional details. I would like to 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 2024 return on average tangible 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-provision net revenues remained 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 accepting 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. In the second quarter of 2023, we retired $45 million of senior debt. These actions reduced interest expense on borrowings offsetting some of the growth in interest expense stemming from higher rates offered on deposits. The second quarter 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. Comparably, loan growth in the second quarter of 2023 was $12.2 million and a net decrease of loans of $73.5 million in the first quarter of 2024. The historical trends for our bank indicate loan growth in the second and third quarters of the year due to seasonal demand and business activities. 2023 was an anomaly as 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 in 18 months and up three times from December 31, 2023, 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 linked quarter and a 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 remained relatively stable in the year-over-year period due to the impact of rising rates on both the variable portion of the loan and securities portfolio as well as the deposit base and our short-term borrowing costs. The loan-to-deposit ratio was 88% as of June 30, 2024, compared to 86% last quarter and 85% as of June 30th 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 modern actions taken on substandard credits, continued 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 2021 to a peak of nearly $300 million or 7% of loans in the first quarter of 2023. At the end of the second quarter 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 at a number of nonperformers 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 the primary determinant cash flow for a given property. 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, in 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 disappointed and did not offer seven- or ten-year maturities of commercial real estate assets a few years ago. The allowance for credit losses on loans decreased to $42.3 million as of June 30, 2024, or 1.1% of total loans from $44.1 million at March 31, 2024, which was also 1.1% of total loans. Unemployment and GDP forecasts used in future loss rate assumptions remained fairly static from last quarter. The change in provision level quarter-over-linked quarter reflects the reduction in our allowance allocations on substandard loans, which largely relates to the 29% reduction in criticized assets since June 30, 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. Noninterest income continued to perform well with growth noted quarter-over-linked quarter, and wealth management fees, card-related income and mortgage banking income, excluding the impact of mortgage servicing rights mark-to-market. The death benefit of $893,000 was realized on one BOLI contract in the second quarter of 2024, with no life benefit in the linked quarter or prior year linked period. Expense discipline continues to be strong with the second quarter of 2024 total noninterest expense of $364,000 less than the prior linked quarter, primarily due to reductions in salaries and employee benefits and a gain on the sale of an OREO 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.
Brad Adams, CFO
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 NIM to 4.63 compared to 4.58 last quarter. We believe this continues to be exceptional margin performance and surpassed our expectations modestly. Deposit flows this quarter continued to display signs of seasonality and overall stabilization from what we saw last year. Average deposits decreased $4.3 million linked 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 of 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 and 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 eliminate 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 of the deeply inverted yield curve, ensures poor spreads in our industry, so we are 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. The point is that we are being careful. And 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 Second should continue to build capital as evidenced by the 35 basis point improvement in the TCE ratio over the linked quarter, which means we have added an astonishing 222 basis points 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. Noninterest expense decreased $364,000 from the previous quarter, primarily due to a reduction in salaries and benefits due to a timing of officer incentive accruals 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 if conditions warrant. With that, I'd like to turn the call back over to Jim.
Jim Eccher, CEO
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 I'll open it up for questions.
Operator, Operator
And we do have our first question here. Jeff Rulis from D.A. Davidson.
Jeff Rulis, Analyst
Thanks, good morning. Brad, I'll stay off the capital question. But maybe on the credit side, just possibly an update on the credits we talked about either the Chicago office or California Healthcare, just to try to get an update on timing and status, if we could.
Jim Eccher, CEO
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 have been on the horizon here for several quarters. One was the Chicago office building that we took a final charge off of $4 million. And then the other was a note sale that we were able to execute on that required about $1.5 million additional charge. So we feel good about resolving those two. I think what investors should know is that we've made significant headway reducing nonaccrual 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 that we'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.
Jeff Rulis, Analyst
And Jim, just on your tone, it sounded as if the 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?
Jim Eccher, CEO
Yes, that's correct. I feel momentum is still very strong in credit remediation, but I don't see chunkier charges in the coming quarters anyway.
Jeff Rulis, Analyst
I wanted to get your insight on the pipeline pickup trends. Is that primarily due to your in-house efforts, or do you think it's mostly a market improvement, or perhaps a combination of both? Additionally, could you provide guidance on what the second half looks like? Are you anticipating low or mid-single-digit growth in that period?
Jim Eccher, CEO
Yes. 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 we got to get them across the finish line here, but I would expect hopefully low to mid-single-digit growth for Q3 and Q4 this year.
Operator, Operator
We now hear from Chris McGratty with KBW. I'm sorry, we have Terry McEvoy with Stephens.
Terence McEvoy, Analyst
Hi, good morning, everyone.
Brad Adams, CFO
Morning, Terry.
Terence McEvoy, Analyst
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 it would be curious with your outlook for the second half of the year.
Brad Adams, CFO
Relatively flat. I thought I mentioned $23 million last quarter, but it might be around $400,000 above that figure. The second half of the year always revolves around how your annual performance aligns with the budget and how that impacts incentive accruals. You could be off by $500,000 in any given quarter and still be quite accurate. It's somewhat of a close call. However, I don't see any improvement in labor market conditions. We've been successful in hiring the people we wanted, and I don't anticipate any real surprises at this time. I believe we are currently in a stable position. I want to express that I am generally very pleased with the expense trends over the past year and even the last three years. It's no secret that this has been a period of significant inflation, and I feel we've managed to control costs effectively.
Terence McEvoy, Analyst
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?
Brad Adams, CFO
Yes. 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 are 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 ten-year maturities, which Jim alluded to 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. I believe we always will be. There's nothing coming at us that is either unexpected or outsized in terms of maturities.
Terence McEvoy, Analyst
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 have to kind of take the bait on your statement there.
Brad Adams, CFO
Yes. Our strategy has been to build capital for several reasons. Currently, capital earns a good return, and the cost of funding in the market is 5.4%. This means that even without using it now, the return on equity is quite positive, providing a margin of safety. This margin is based both on economic factors, as discussions of a potential recession abound, and on our industry's current challenges with low returns that may prompt some to give up. We have the flexibility to include cash in deals to balance our growth strategy. While I can't predict whether a deal will come our way, I assure you that we will be very disciplined regarding pricing if an opportunity arises. If nothing materializes, we will return the capital.
Terence McEvoy, Analyst
Understood, thank you for taking my questions.
Brad Adams, CFO
Yes, sir, thank you.
Operator, Operator
We now have Christopher McGratty for KBW.
Brad Adams, CFO
Chris, are you having trouble?
Christopher McGratty, Analyst
The optimization, can you hear me now, Brad?
Brad Adams, CFO
Yes, I can.
Christopher McGratty, Analyst
The optimization of the balance sheet was mentioned a couple of 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.
Brad Adams, CFO
We have seen a significant reduction in our bond portfolio. Throughout most of this quarter, the yield curve structure allowed us to extend our investments offshore, which provided an increase in yield. I would like to see a steepening of the curve. I believe that steepening is on the horizon, but I’m uncertain if it's due to a potential recession causing short rates to decrease or if it's because market sentiment is improving, leading to an increase in long rates. A steepening would certainly be preferable. If that happens, we would intend to actively remove discrepancies by selling variable securities and shrinking our bond portfolio to about 15% from 20% in terms of size. That would be ideal. I want to remind investors that we are who we are. Many more knowledgeable individuals have attempted to predict interest rates and a large number ended up unsuccessful. Trying to bet on interest rates is a fool's errand. We will always be sensitive to rate changes and will fare better when rates are high because our deposit base is strong. Anyone expecting us to gamble that away would be mistaken. We perform better when rates are elevated, which is no secret. We are currently doing quite well. If short rates decrease, we might experience a bit more loss. However, we will use our capital judiciously and generate good returns regardless of the economic environment.
Christopher McGratty, Analyst
Thanks for that. Maybe just a follow-up, kind of combining the expense and the NII commentary, the efficiency ratio, Brad or Jim, if we get the forward curve, we get 100 basis points because obviously, margins will go down. You're obviously going to probably be a little bit more careful on cost. But like where is the efficiency ratio settling if the futures markets right with 100 of cuts?
Brad Adams, CFO
So low 50s and high rates, mid- to high 50s in very low rates. I don't see us going back above 60, given our size and scale that we have now. But I also don't think we're ever going back to zero given all the things that resulted from that. And I think it would take an absolute fool 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 above 4% margin shot as we are structured today.
Christopher McGratty, Analyst
So mid- to upper 50s with the forward curve.
Jim Eccher, CEO
Yes. The big difference today versus where we were last time we were in a potential scenario where rates were going to be cut with our balance sheet just wasn't optimized, right? We were sitting at low to mid-60s on our loan-to-deposit ratio. So we've got a much stronger pretax pre-provision earnings power now.
Nathan Race, Analyst
Yes, hi guys, good morning. Thanks for taking the question. Thanks for having us. In terms of funding loan growth in Q3 and Q4, 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 Q3?
Brad Adams, CFO
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 strong, which we believe is trending in that direction, then at least half of it will 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.
Nathan Race, Analyst
Okay. Great. And then, Brad, can you just remind us the impact on the margin with each 25 basis point cut from the third?
Brad Adams, CFO
A five to seven basis point decline and then earlier one.
Nathan Race, Analyst
And 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?
Brad Adams, CFO
About 50%. We're about 50-50, but the fixed portion of the balance sheet generally has an effective duration of a little over three. So rates down will hit us without a lot of weight; there is no question about that. But also, you get a pickup and the benefit of the free funding, and deposit costs will come down. And that's when you start looking at growth as well.
Nathan Race, Analyst
Got it, that's helpful. Just one last question. It sounds like there may be some additional cleanup regarding charge-offs in the third quarter. I assume those are mostly already allocated. In terms of where you want to see the reserve settle after the third quarter, do you have any thoughts on what that level should be relative to total loans?
Jim Eccher, CEO
Yes. I think the reserve at these levels as a percentage of total loans is 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 to where we're at now is appropriate.
Nathan Race, Analyst
Okay, great. I appreciate all the color. Thanks, guys.
Jim Eccher, CEO
Thanks, Nate.
Brad Adams, CFO
Thank you.
David Long, Analyst
Good morning, everyone. Brad, I wanted to ask you about the deposit pricing. Obviously, you guys have a great core deposit base, total deposit costs among 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 costs for Old Second changing?
Brad Adams, CFO
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. And with a curve that is at zero across any level of duration. So time deposits became simply not a thing. What we're seeing now is that, that mix shift is 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 in 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 million 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 in 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.
David Long, Analyst
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 Card officers that C&I needs to be more closely watched and regulators need to look more at C&I. How is the performance of your C&I book? And are there any segments there that you're a little bit more concerned about?
Jim Eccher, CEO
Yes. I think so far, our C&I portfolio is holding up very well. We've got about, I think, a little over one-third of our portfolio 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 of credits that we're keeping an eye on. But by and large, a lot of our C&I clients that still have a relatively low leverage balance sheet are producing pretty good top line results. But we are obviously watchful with the very significant variable portion of that portfolio in C&I. We're seeing a little bit of stress. But right now, it's behaving very well.
David Long, Analyst
Got it, thanks for taking my questions, guys.
Jim Eccher, CEO
Thanks, Dave.
Operator, Operator
We now have Brian Martin with Janney Montgomery Scott.
Brian Martin, Analyst
Hi, good morning, guys.
Brad Adams, CFO
Hi Brian.
Brian Martin, Analyst
Hi. Good morning, Brad. Most of my questions are answered but Brad, just on the securities portfolio, just for clarity, how much of that is coming off in the second half of the year. And the percentage of that is variable rate, just on the securities book? I think it was about 20% last quarter. It sounds like it dropped a bit this quarter.
Brad Adams, CFO
Yes, not much. I mean, yes, the type of volatility that we've seen has been not much to dropping that is beside the 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 and feel very good.
Brian Martin, Analyst
Yes. And that comes off at what, Brad? I mean, is it a pretty low rate that $100 million?
Brad Adams, CFO
Yes. I mean it's certainly lower than the blended overall securities portfolio, which I think is like $320 million or something like that. So it's significantly lower than that.
Brian Martin, Analyst
Got it. 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 less costly. But in terms of any lumpy resolutions you expect during the back half of the year? I mean, do you expect another meaningful decline in the nonperformers or the classified or criticized here as you kind of sit in the back half of the year? Is it more of a slower decline now given some of the heavy lifting you've done?
Jim Eccher, CEO
Yes. I mean I don't know if we'll get a 23% reduction in nonaccruals next quarter, but we are already realizing some remediation on a number of fronts. Momentum is good. What’s encouraging is there's been very little migration into nonaccrual this quarter. We only saw $1 million and we saw, obviously, $22 million reduction. So when you have a slowdown in migration, that allows you to really work some credits out and we expect that momentum to continue in the next quarter.
Brian Martin, Analyst
Got it. Thanks, Jim. Brad, I want to make sure I address both of your questions about capital. You asked about the buyback, and you mentioned that if we take that route, the pricing would need to make sense. Given the recent market rally, especially with some banks, has your outlook changed regarding the profitability of the buyback and what pricing would make it more appealing?
Brad Adams, CFO
No, I started discussing the buyback about a year ago, and I think our stock is around 25% or 30% up. I'm not exactly sure of the percentage, but it seems like it's increasing by about 20% each month. The tangible book value has risen by 26%, and on a relative basis, it appears consistent. I could have felt quite pleased when we repurchased a large amount of stock at around 12.50, but in reality, it’s all relative, and not much has fundamentally changed.
Brian Martin, Analyst
Got it. Okay, that's all I had, guys. Thank you.
Brad Adams, CFO
All right. Thanks, Brian.
Operator, Operator
We have reached the end of the question-and-answer session, and I will now turn the call back over to Jim Eccher for closing remarks.
Jim Eccher, CEO
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.
Operator, Operator
This does conclude today's conference, and you may disconnect your lines at this time. Thank you for your participation.