Good morning, and thank you for joining us today. I have several prepared opening remarks and will give you my overview of the quarter and then turn it over to Brad for more detail on our first quarter performance.

I will then conclude with some summary comments and thoughts about the future before we open it up for questions.

Our results overall continue to be very strong despite some noise this quarter. Net income was $9.5 million for $0.31 per diluted share in the quarter.

Core earnings were $0.27 per diluted share, excluding that $1 million BOLI death benefit, $722,000 in provision relief associated with insurance proceeds and a previously charged-off loan and $246,000 of merger-related expenses.

On a core basis, these numbers represent a 68.8% increase over the first quarter last year and 17.4% increase over last quarter.

In addition, about $417,000 was recorded in valuation recapture and MSRs associated with movements in interest rates.

Overall, results are off to a very strong start in 2018, with an expanding core margin, solid expense control, sustained performance across our fee-based businesses and significant improvement to our credit profile.

On April 28, subsequent to the end of the quarter, we welcome the customers and employees of ABC Bank into Old Second with the closure of our acquisition of Greater Chicago Financial Corp. It expands our presence in the city of Chicago and offers an experienced team and tremendous growth opportunities for the future.

We continue to feel comfortable that we will meet or exceed the financial targets we set for this transaction. In regards to the first quarter, specifically, loan growth was in line with seasonal expectations for us but perhaps a little softer than some may have expected.

Payoffs we had expected in late fourth quarter last year spilled over into the first quarter. And we were fortunate to reach resolution on 3 sizable distressed credits that further impacted balances.

Our recent pattern of strong asset generation in the second and third quarters is expected to continue this year, with our overall outlook remaining unchanged on a full year basis as we continue to expect mid-single-digit growth for the year.

Yields on the portfolio increased nicely during the quarter, with recent increases in LIBOR lending rates.

Deposit trends continue to improve this quarter, with core deposits increasing by $40.6 million from last quarter, reducing the loan-to-deposit ratio to 81%. Asset quality continues to strengthen, with classified loans declining 25% in the quarter due to the aforementioned dispositions.

In addition, we had further reductions in the OREO portfolio. Nonperforming assets are now down to 1.23% of total loans plus OREO.

The allowance for loan and lease losses increased during the quarter on the strength of credit recoveries despite the lack of loan growth. In general, loan rating changes continue to trend positively along with continued declines in the level of NPAs, which are now nearing prerecessionary levels.

We continue to feel good about credit trends at this point. Overall, we remain very encouraged about our results in a number of areas, and Brad will give you more color in his prepared comments.

Thank you, Jim. Net total revenue preprovision and excluding the impacts of securities gains and noncore items showed modest growth from last quarter, overcoming typical season headwinds -- seasonal headwinds fourth quarter to first.

Net interest income was up due to increases in loan yields across variable-rate loan portfolios. Fee income was a little softer on a core basis due to seasonal deposit trends, relatively slow loan-related fees and a more difficult mortgage banking environment.

the change in the federal tax rate and its impact on effective yields from municipal securities had a negative impact of 10 basis points relative to the fourth quarter; approximately $450,000 of quarterly noninterest loan origination expense within the salaries and benefits caption in the fourth quarter last year instead negatively impacted the loan yield in the first quarter of 2018, 7 basis points of additional headwind. So obviously, it was a very strong quarter for margin and loan yields more specifically.

Movements in LIBOR-based lending rates exceeded yields based on the federal fund rate movements during the quarter. This had a pronounced benefit for the first quarter of 2018 but will probably partially mitigate the impacts of future movements by the FOMC.

Pricing movement on the liability side of the balance sheet remains well controlled, with some pick up in time deposit competition during the quarter. We've seen a number of competitors, potentially looking to increase long-dated CDs in replacement of borrowings at this point, and some have gotten very aggressive.

We do have some maturities in the time deposit portfolio to deal with in the coming months, and it should result in modest increases in those funding costs.

We have new rates modestly higher in checking, money market and saving captions in response to recent rate hikes, with the goal of remaining within reasonable proximity to medium pricing in our markets.

We have yet to see anyone else move in these deposit captions, however. Overall, deposit betas have significantly outperformed our expectations over the last 12 months and over the last 3 months.

We continue to be very pleased with the level of deposit growth and the outlook for loan and margin trends going forward. The loan-to-deposit ratio, as Jim mentioned, improved to 81%.

At this level, we have substantial flexibility both to continue to pursue the quality loan growth and to reengineer the balance sheet acquired from ABC to more closely align with our philosophy.

Looking forward, Jim mentioned the seasonal challenges on loan growth, though I believe the impact of the effect on growth should be moderated by stronger deposit trends and less of a need to remix earning assets.

Core margin trends continue to be biased higher. However, the degree of that expansion will be mitigated by the addition of the ABC balance sheet.

It remains true that the bulk of deposit pricing pressure is isolated in larger balanced-deposit relationships. Our exposure in this caption is limited relative to competitors.

In the coming quarters, we will expect to bring back some larger deposit relationships that Old Second had previously moved off of our balance sheet due to excess liquidity recovering from the recession.

These are our customers that we have always and will continue to serve. The return of these balances are relatively more expensive than our existing all-in deposit cost of funds.

However, they remain accretive to the margin overall relative to borrowing rates. They also provide substantially more funding to allow us to continue to pursue strategic loan growth opportunities in teams.

On the fee income side, wealth management and trust income continues to perform above-budgeted expectations. Mortgage banking experienced a decline in gain on sale margins during the quarter that was offset by an increase of interest-rate driven valuation adjustments on MSRs.

Commercial swap fee income activity remained relatively low, commensurate with origination activity during the quarter.

Securities gains declined relative to last quarter, which is offset by a substantial increase in BOLI-related revenues, as Jim mentioned.

Expenses remain very well controlled. Not much really to talk about here, with typical first quarter increases in payroll-related tax increases.

Our strong results afforded us the opportunity to increase the 401(k) match for our employees this quarter and offer salary increases at a rate above observed inflation for the first time in a long time.

Investments for future growth are largely baked into the run rate trends that you've been seeing from us. The effective tax rate for the current quarter, absent the impact of the BOLI benefit, was lower than we had previously expected.

Best guess going forward with the changes in statutory rates fully implemented and assuming the current makeup of the bond portfolio, which may change, we had considered a reduction of municipal securities, but we don't have a ton of duration on the balance sheet. And obviously, we have demonstrated a pretty significant amount of asset sensitivity at this point.

Probably, in the range of 24% to 25% effective for the remainder of 2018.

With that, I'll turn the call back over to Jim.

Okay. Thanks, Brad.

In closing, we're very encouraged about the quarter. We're pleased with where the company is heading.

On an organic basis, operating leverage remains very strong, with solid growth across business units and well-controlled expenses. Returns on tangible equity are expected to be in the mid-teens on a core basis, and the interest rate environment provides an opportunity for a bank like Old Second to demonstrate its strengths for the first time in a long time.

We remain well positioned for higher rates. Credit remains well controlled, and we expect it to continue to improve.

We continue to invest in new talent and look for opportunities to further diversify our loan portfolio. We are comfortable with current capital levels, given the strength of our recent earnings performance and the speed at which we can return to an 8% tangible common equity level.

Okay. That concludes our prepared comments this morning.

So I will turn it over to the moderator and open it up to questions.

So first question is just wanted to get a sense as to what your lending pipeline looks like going into the second quarter and how does that compare to the comparable prior quarter?

Yes, Kevin, we've communicated last quarter that we were, in fact, expecting a softer quarter in 1Q. Second quarter, it is definitely looking more encouraging.

We are looking at pipelines similar to where we were a year ago, obviously a lot stronger than we were last quarter, maybe slightly below where we were a year ago, but deal flows improving, activities picking up.

And then on the line utilization front, are you seeing higher line utilization? And well -- was it pretty flat?

No. We are seeing line utilization increase.

We're in the upper 60% range right now.

And that upper 60%, that's for both commercial and commercial real estate?

Correct. Which represents our -- probably at one of the higher levels we've seen in the last several quarters.

Excellent. And then my last question is, CRE was down a lot.

How much was that related to payoffs? Or was that all driven by payoffs?

And are you seeing a softening in the payoffs in CRE going forward?

No. We had 3 significant payoffs that we thought were going to take hold really late in the fourth quarter that spilled over into the first quarter.

We also had over $7 million in nonperforming or nonaccrual CRE loans that, obviously, we were very happy with the dispositions, but those were all CRE, and those all also paid off in the first quarter. So those 2 things really contributed to further declines in CRE balances.

Brad, maybe start with you on the comments in the balance sheet. Looking for a little bit of help with the pro forma size of your earning asset base, given your comments.

Interested in what you might be thinking about on the investment side. How should that portfolio size be thought of in the next couple of quarters?

And then -- maybe we'll start there?

So you will not see the addition of the securities portfolio from ABC transition over to Old Second when we report earnings on the second quarter. We will sell that portfolio.

It is much more granular micro issuances relative to what we typically do, not a lot of liquidity in the issues. We will move that out, and the mark on that will be taken as a component of the opening balance sheet.

The overall securities level for us will be relatively steady, as it's been for the last several quarters. That's just a function of where we'd invest incremental dollars.

I would say that deposit growth has surprised me in its strength in the first quarter. And I don't see really anything to make me pessimistic that flows can't continue.

We're in a really good spot there. And that obviously gives a lot of flexibility.

We are acquiring a pretty significant broker deposit base, considering we have virtually none. And we will move that out as well.

There is no reason for us to carry those funds. I think that we obviously took on a fair amount of leverage in order of paying cash for this transaction.

So we're moving back customer relationships. Given where we are in the rate hike cycle, I think that the betas are more favorable going forward on those deposits than they have been over the last 12 months, which is why we've kind of maintained them off.

But we'll bring them back. And Jim has been very successful attracting some people that are the types of lenders that Old Second hasn't really had a chance at in some time.

I think that the type of loans that we're putting on at the margin are pretty exciting in terms of kind of new types of assets for us, new verticals, much more sophisticated, better return on risk-adjusted capital. That's all great news.

That being said, I don't see a lot of reason to balloon a balance sheet in terms of growth when we've got the kind of margin expansion that we do on a core basis. I think the mid-single-digit loan growth level still feels pretty good.

And what that does for earnings is obviously significantly above that level for us. And then you add on to that the upside relative to the accretion to the deal that was just closed and the potential for further deals, and I think that we can deliver a level of growth that is far outside the level of risk that we're taking on, Chris.

Yes. So some more profitable growth, a little bit smaller balance sheet.

How does that equate to a margin next quarter? I mean, this quarter you had the benefit 8, 9 basis points from the onetimer.

Then on a core basis excluding the accretion of -- is the 3 -- it sounds like the mid-360s is moving decently higher over the balance of the year?

I believe, it will, yes. The ABC with the elimination of the securities portfolio and the broker deposits it's going to fit in pretty nicely to our core margin.

The question is it's going to be where the mark shake out and what that does. Obviously, the marks are going to shrink the earning assets base without affecting the income that's rolling in off those.

I think one area I don't have a full handle on yet is what the interest rate mark portfolio will be on that loan. Obviously, we built a rather sophisticated model.

But you never know until you get through all the detail. It is a relatively high-yielding loan portfolio.

And we are wiping out the lowest-earning asset yields on that balance sheet as well. I'm certainly not bearish.

No, I'll agree, Chris. The yields on the ABC portfolio were higher than the Old Second portfolio.

And to Brad's point, their cost of funds are slightly higher. So we think we can obviously clean up the funding side and enjoy the higher yields on the loan side.

Okay. And then in terms of just the kind of -- I don't know if its pro forma efficiency ratio or expense levels, Brad, how should we thinking about the timing of the cost saving coming in and where that efficiency -- where you see that efficiency ratio ducking down to in the next few quarters?

So we're at a late April close. And obviously, we'll have the -- a substantial amount of nonrecurring expenses in the second quarter.

Exclusive of the impact that, we should see about, oh, 20% of the cost saves for 2 months of the quarter. I think that the remainder will flow in over the next 4 months.

I think that by the time we hit January we should have them all baked. That still feels pretty good to me.

It's going to be a nice transaction relative to the risk that was taken on for it.

Just following up here on Chris' question. So it sounds like the average balance sheet probably just going to rise from the loans added in the ABC deal and not much else, is that correct?

Yes. I mean, and just the ancillary stuff.

Certainly the facilities and equipment and stuff like that, but yes.

Right. Okay.

And then -- I think you mentioned a few times now looking at additional hiring, maybe some folks that wouldn't have been available to you a couple of years ago. Just kind of trying to get a sense here like what sort of lending do they do?

What would you like to add? Are there any niches of business lines that you're not currently offering that you'd like to expand into?

Andrew, I guess that first, I -- we did not add any new talent in the first quarter. But we certainly did in the fourth quarter last year.

Generally, it takes a couple of quarters for new talent to gain traction. We're starting to see that traction in the pipeline.

It's a pretty good mix of new business we're seeing. Last quarter, over 60% of our originations were in C&I, with the balance in CRE and construction.

We are gaining more traction in health care verticals that we're investing in, along with some -- leasing verticals. So we're pleased with where the mix is heading.

And we're generally bullish about the second quarter.

Great. And then just -- T/C is down a little bit from -- or will be down a little bit from the acquisition.

You sound pretty comfortable with your capital levels. What's the appetite for more acquisitions?

And when would you be hopefully to announce something?

Andrew, our first-order business is obviously to grow organically. We'll continue to have constructive dialogue with new lending teams.

And certainly on the M&A front, we would like to be active. We're still a ways away from integrating ABC on an IT front, but M&A is part of our strategic growth plan.

So we will continue to actively look for those opportunities.

Can you guys just comment a little bit on those dispositions, Jim, in the quarter? I mean how significant were those?

I'm just trying to kind of look at the dispositions versus production this quarter. It sounds like production was still decent but just overshadowed by what you guys kind of talked about last quarter with some -- with clean up.

I mean, how was production in the quarter relative to those dispositions?

Well, disposition wise we cleaned up probably 3 of our top 5 nonaccrual loans. So it was material, including our largest one, so over $7 million in nonaccrual loans were paid off.

We obviously had some gains on OREO as well. We've moved out several OREO properties.

OREO portfolio declined nicely. So originations were softer.

We expected that. But overall, production in the first quarter of '18 was better than the first -- than the production the first quarter of '17.

We just had -- we had some headwinds with the loan payoffs and then the disposition of nonaccruals.

Okay. I got you.

And you talked about the hires, Jim. I mean, the -- just remind me.

I mean, how many people did you guys add in 4Q and just kind of your outlook for additional hires as you look to this year? And the hires last year, if you -- when you kind of talk about them, were they in the suburbs?

Were they in the city? I mean -- and sounds like maybe were they more linked to this health care vertical, I guess, you kind of talked a little bit about?

Or it's separate from that?

Yes. The hires came late third quarter and then into the fourth.

So there were 3 of them. And they were spread out amongst the city and the suburbs, focused mostly on C&I, health care and some community banking but predominantly C&I and health care.

Okay. All right.

And then the prospects for, I mean, I guess additional hires this year. I guess you're optimistic that there's more based on where the pipeline is at today with the discussions?

Yes. We continue to have active dialogue with a number of candidates.

We obviously would like to build out our Chicago office along with the ABC acquisition. We certainly have capacity to add new talent and would look forward to doing that.

Okay. Perfect.

And then maybe just one for Brad. Just -- Brad, the margin this quarter, just so I kind of reconcile the right number.

I mean, when you strip out kind of the nonrecurring stuff, what was the core margin as you guys looked at it today? And just sounds like if maybe I misinterpreting or that's right, that number goes maybe -- there's a little bit of a headwind with regard to the transaction next quarter.

But there's more ups. It still goes higher even with that headwind based on kind of the dynamics you outlined in your prepared remarks.

Is that right? And then maybe just kind of help me get to the base that you guys look at as a core level this quarter?

I think I've done a good enough job confusing people in terms of what margin trends are just relative to the size of the adjustment from fourth quarter. So what I'm trying to do is just restrict people to what our reported margin is this quarter.

So you can see where it is on a taxable equivalent basis. And that's the number I always refer to.

I would tell you that our bias is higher. There is a mitigating factor there.

I think that it's apparent to everyone that LIBOR moved ahead of Fed funds in terms of the rate of increase. So that benefited us considerably.

There is no question. If I had told you that the margin was going to go up on -- again, on a relatively core basis, running the risk of confusing people again, by 17 basis points fourth quarter to first, Jim, probably would have kicked me underneath this table really hard.

And that is a function both of, again, deposit betas that are excellent and also the movement in LIBOR rates during the quarter.

Okay. Maybe just one other things.

As far as the -- the amount of variable rate loans versus rate-sensitive deposits, it sounds like -- I mean, can you just give a little color on that, where that's at today? And it sounds like these deposits, you bring back these old relationships are, I guess, are less sensitive, is that to...

No. They're higher sensitivity because they're larger balance relationships.

Old Second had -- you look back even more than 12 months ago and Old Second had so much excess liquidity that it was mind-boggling. And what was done is that a lot of those relationships were moved to other providers.

Simple as that. Still our customers, just off our balance sheet.

We will bring those back. Where we are in this rate hike cycle, this tightening cycle, the deposit betas on these type of accounts are less than they would have been, say, 6 months ago.

But given kind of our growth profile, our trajectory, our momentum, that funding will be needed sooner than later. It's hard to -- I'm still relatively new here.

But it's hard to understate how good it feels to be at a low 80s loan-to-deposit ratio in an environment like this and especially with the betas that have been demonstrated here. It's very comfortable.

And it's a great spot to be in. And we've got the ability to continue to upgrade talent across numerous captions that can take advantage of that.

Our degree of execution will determine our ultimate level of success. But it's not on fund.

I don't know if that helps at all.

Okay. Thank you, everyone, for joining us this morning.

We appreciate your interest in the company, and we look forward to seeing -- speaking to you again next quarter. Goodbye.