Byline Bancorp, Inc.

After the speaker's remarks, there will be a question and answer period. If you'd like to ask a question, please press star followed by one on your telephone keypad. If you'd like to remove yourself online, the questioning will be star followed by two. If you're listening via speakerphone, please lift your handset prior to asking a question. If you require operator assistance, please press star and then zero. Please note that this conference call is being recorded. At this time, I would like to introduce Brooks Rennie, Head of Investor Relations at Byline Bank. Please go ahead. Brooks Rennie, Head of Investor Relations at Byline Bank.

Thank you, Carly. Good morning, everyone, and thank you for joining us today for the Byline Bancorp first quarter 2025 earnings call. In accordance with Regulation FD, this call is being recorded and is available via webcast on our Investor Relations website, along with our earnings release and the corresponding presentation slides. As part of today's call, management may make certain statements that constitute projections, beliefs, or other forward-looking statements regarding future events or the future financial performance of the company. We caution that such statements are subject to certain risks, uncertainties, and other factors that could cause actual results to differ materially from those discussed. The company's risk factors are disclosed and discussed in its SEC filings. In addition, our remarks and slides may reference or contain certain non-GAAP financial measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures. Craig Vaughn, Reconciliation of each non gap financial measures to the comparable gap financial measures can be found within the appendix of the earnings release. Craig Vaughn, For additional information about risks uncertainties, please see the forward looking statement and non gap financial measures disclose in our earnings release. Craig Vaughn, You can find the first quarter earnings deck on our earning on our website at by line bank or.com and, as always, please reference to the front page of the disclaimer. As a reminder for investors, this quarter we plan on attending the Stevens Bank Chicago Tour, Hovey Nandio Roadshow, and the Raymond James Chicago Bank Conference. With that, I would now like to turn the conference call over to Alberto Parachini, President of Island Bancorp.

Great. Thank you, Brooks. Good morning, everyone, and thank you for joining our first quarter earnings call. We appreciate all of you taking the time to join us this morning. As always, with me on the call today are our Chairman and CEO, Roberto Gerencia, Tom Bell, our Chief Financial Officer and Treasurer, Mark Fusinato, our Chief Credit Officer, and Brian Duran, our General Counsel. Before we get to the agenda, I want to pass the call on to Roberto to comment on a few items. Roberto?

Albert, thank you. And good morning to all. I'd like to start by thanking all of my colleagues and teammates for their efforts this quarter and everything they do for our customers and filing every day. This was yet another strong quarter for violin and a good start for the to the year. I wish I could say the same for the stock market. international trade and the relationship our country has with the rest of the world, in particular our neighbors and major trading partners. However, that turns out we are prepared to support our customers and come at it from a position of strength to wit, and Alberto and Tom will cover this in more detail. Very healthy capital ratios, steady and improving asset quality ratios with above average reserve coverage. Top quartile performance, again, in key metrics, NIM, efficiency, PPPP. Importantly, our credit ratings were upgraded this quarter by crawl, excluding merger-related upgrades. We are the only bank in the past 12 months that has received an upgrade in our industry. And finally, Byland was once again named one of America's 100 Best Banks by Forbes, and Newsweek named Byline one of the best regional banks in the country. I've suggested this kind of performance, combined with our track record in M&A and taking advantage of market disruptions, deserves a higher valuation. Deeply discounted was the headline I saw from one of our analysts on another name. Deeply underestimated is how I feel at times, but I will admit we've made some progress on that front. We will continue to educate. We will continue to connect the dots. We will continue to explain our differentiated strategy patiently. And most importantly, we will continue to perform. I know you will ask, and Alberto will answer, I'll pre-answer, nothing has changed with respect to the timing and the how in our approach to crossing 10 billion in assets. We remain comfortable and confident about it all. also nothing has changed with respect to our capital planning and priorities it's there to support growth first and lastly for buybacks finally we like chicago a lot it's our kind of market for our type of banking and the opportunity to become the premier commercial bank is palpable right here in our hometown despite strong indications that the second half of the year is likely to show slower growth in the economy, we remain enthused and optimistic about our ability to advance on becoming the preeminent commercial bank of Chicago. We have shown how disruption has advanced our agenda, and disruption at the macro level will enable us to do the same, albeit on a relative basis to our peers. I always like to include in my remarks one or two topics which gives the audience a view into who we are, what we're thinking about, and how we feel and operate. People, as you know, continue to be the critical factor of our success, how we care for each other, how we show up and demonstrate empathy. This quarter, we right-sized the government-guaranteed business, given the large investments we have made, which have enabled us to become much more efficient in decision-making and portfolio management. Right decision, yet it stings to see some people who have been with us for some time leave. We feel equally about loss of life related to our people, illness related to all people and their families, and we tried to show up for them. In November, our CFO, Tom Bell, lost his mom during Thanksgiving unexpectedly. This quarter, Alberto's father passed away. The former chairman and CEO of one of Puerto Rico's largest banks, and the first Puerto Rican to ever serve on the board of the Federal Reserve Bank of New York, a titan of banking in Puerto Rico. As you can see, that apple fell right in front of that tree. To Alberto, Tom, SBC colleagues, we express our solidarity and love. I'm happy to turn over the call to Alberto and the team.

Excellent. Thank you, Roberto, and thank you for the kind words. In terms of the agenda for the morning, I'll start with the highlights for the quarter, followed by Tom, who will walk you through the financials in detail, and then I'll come back to wrap up before we open the call up for questions. In summary, I'm pleased to report that Byline delivered another quarter of strong results characterized by steady earnings, consistent profitability, stable credit, and solid growth. We'll dig into the details shortly, but before we do that, I'd like to make a few comments on the environment and our transaction with First Security. The operating environment we had during the first quarter is likely to be markedly different than the one we'll be in for the rest of the year. To give you some context, we're navigating through a period of heightened uncertainty and volatility across markets. The macro picture is showing mixed signals at the moment, while most of the recent but lagging hard data remains positive, softer measures as well as real-time indicators point to a more cautionary stance by both consumers and businesses. Evolving trade policies dominate the headlines and have introduced additional complexity and uncertainty to the outlook for economic growth and inflation. In this environment, we remain focused on being a bank that serves clients through the cycle while maintaining disciplined risk management. So far, most of the feedback from clients we've talked to points to them taking a wait and see approach. That said, we're anticipating more caution on their part, particularly in terms of CapEx, new investments, and acquisitions. This would allow for clarity on the implications of potential policy changes on the environment as well as their business. Despite these uncertainties, we believe our business model continues to demonstrate resilience. We have robust capital, solid liquidity, which enables us to support clients and navigate the uncertainty present in the environment. Regarding first security, I'm happy to report the transaction closed effective April 1st. This provides us with both clean results for the quarter, absence of minor merger-related charges. It also sets us up nicely to report a full quarter of results inclusive of the transaction in the second quarter. More importantly, the systems conversion was successfully completed mid-month. Customers and employees have been migrated and onboarded into our platform, and all key integration tasks have been completed. Start to finish, From announcement on September 30th last year to today, we completed the transaction and integrated the bank in 207 days. I'd like to welcome any former customers, employees, and stockholders of First Security who are on the call with us this morning, as well as congratulate all employees who took part in another successful transaction. Turning to our results on slide four. The company reported net income of $28.2 million or $0.64 per diluted share. Adjusted for merger charges, profitability and return metrics remain excellent quarter-on-quarter with pre-tax preparation income of $47.3 million and pre-tax preparation ROA of 209 basis points, marking the 10th consecutive quarter this metric has exceeded 200 basis points. ROA came in at 127 basis points, and ROTC was 13.1%, notwithstanding higher capital levels. Total revenue came in at 103 million, down marginally from the prior quarter, but up 2% year on year, notwithstanding the lower rate environment. Net interest income drove that and came in at 88.2 million, which was flat for the quarter, but would have inched up if not for the difference in day count. We continue to see margin expansion, and Tom will go over in more detail shortly, with the NIM coming in at a 407 basis points, up six basis points from last quarter. In terms of the balance sheet, we had excellent growth in both loans and deposits, which were up 8% and 5.1% respectively on a linked quarter annualized basis. Demand for credit remained strong with originations coming in at $310 million during primarily by commercial banking and leasing. Payoffs moderated as expected to $237 million and line utilization moved up to 60% from 59% last quarter. Deposit costs continued to decline during the quarter driven by a 26 basis point drop in the cost of interest bearing deposits as well as a better deposit mix. Expenses remain well managed, $56 million, down approximately 2%, primarily due to lower compensation and marketing spend. Our adjusted efficiency ratio stood at 53% for the quarter, and our adjusted non-interest income to average assets ratio came in at 246 basis points. Asset quality improved for the quarter with both net charges declining and non-performing loans decreasing 14 basis points to 76 basis points as of quarter end. Credit costs came in at $9.2 million for the quarter, consisting of $6.6 million in charge of, as well as a net reserve bill of $2.6 million. The reserve bill was attributed to changes in loss rates for certain exposure categories, as well as growth in the portfolio. The allowance remains strong and essentially flat to last quarter at 1.43% of total loans. Lastly, capital levels continue to grow with TCE approaching 10% and CEG1 approaching 12%. With that, I'd like to turn the call over to Tom.

Thank you, Alberto, and good morning, everyone. Starting on slide five with our loan portfolio. Total loans increased $137 million or 8% annualized and stood at $7 billion at March 31st. We had strong origination activity for the quarter of $310 million in new loans, up 17% compared to a year ago. Pay off activity decreased by $51 million from Q4 and stood at $237 million. Line utilization inched up for the quarter to 60%, with revolvers unchanged. Loan yields came in at 7.09%, down 12 basis points lean quarter, and down 36 basis points year over year, as a result of the 2024 Fed rate cuts. Our loan pipeline remains strong, and we expect loan growth to continue in the mid-single digits. Turning to slide six. Total deposits increased to $7.6 billion, up 5.1% annualized from the prior quarter. During the quarter, we saw a deposit mix shift from time into money market accounts. Non-interest bearing accounted for 23% of total deposits, a marginal decline from the last quarter. Overall deposit costs declined in the quarter by 18 basis points to 2.3%, driven by better mix and repricing of CDs. From an interest rate risk perspective, in anticipation of future Fed rate cuts, we are focused on improving the repricing of our liabilities as seen in our Q1 results. Turning to slide seven. Net interest income was $88.2 million for Q1, flat from the prior quarter and came in at the higher end of the Q1 guidance. Net interest income was impacted by two fewer days in the quarter lower yields on earning assets, and lower cash balances, offset by lower deposit costs and higher loan balances. The net interest margin grew to 4.07%, up six basis points linked quarter. The change in NIM was driven by 23 basis points decrease in the cost of interest-bearing liabilities. Specifically, we saw lower deposit costs. We also fully paid off the balance of our senior term note ahead of schedule which further contributed to the reduction in funding costs, offset by lower rates on earning assets. Depending on the pace of the future VED rate cuts, our outlook for net interest income is based on the forward curve that currently assumes 100 basis point decline in VED funds for the remainder of 2025. This implies a slightly higher net interest income range, excluding first security of $87 to $89 million for the second quarter. Turning to slide eight, non-interest income totaled $14.9 million in the first quarter, lower than last quarter as expected, primarily due to seasonality and lower gain on sale from the SBA business. Our gain on sale guidance remains unchanged at an average of $5 million per quarter. Turning to slide nine, our non-interest expense stood at $56.4 million, down 1.7% from the prior quarter. The primary drivers of the expense decrease was in salaries and benefits largely comprised of lower incentives and equity-based compensation, lower advertising spend, offset by first security merger-related expenses. We continue to remain disciplined on expense management and maintain our quarterly non-expense guidance to trend between $55 and $57 million. Turning to slide 10, credit quality continues to improve. Net charge-offs trended down by 14.7% this quarter to $6.6 million compared to $7.8 million in the previous quarter. The ACL at the end of Q1 was $100.4 million, up slightly from the end of the prior quarter. NPLs to total loans decreased by 14 basis points to 76 basis points in Q1 and decreased 24 basis points from a year ago. Excluding government-guaranteed loans, NPL stood at 63 basis points, down 13 basis points from the prior quarter. And NPAs to total assets stood at 62 basis points in Q1, down 9 basis points quarter over quarter. Overall, credit quality trends are improving and we remain well-reserved. Moving on to capital on slide 11. We have growing and strong capital metrics. For the sixth consecutive quarter, we grew our tangible book value per share, which was up 4% linked quarter and up 14% compared to last year. CET1 is a strong 11.78% up eight basis points linked quarter and up 119 basis points year over year. Additionally, the TCE to TA ratio stood at 9.95%, up 34 basis points from last quarter, And to note, our investment portfolio is 100% in AFS, which is roughly 16% of total assets. For the quarter, our dividend payout ratio was 16% of our earnings, and combined with the share repurchases, translated into an 18% payout ratio to stockholders. Lastly, during the quarter, we are very happy to report that Kroll Bond Rating Agency upgraded our debt rating one notch across the board, which highlights our financial strength. This rating upgrade reinforces our top quartile financial metrics, sound risk management practices, and strong capitalization of the company. With that, Alberto, back to you.

Thanks, Tom. This quarter, we added a slide to the front of the deck to highlight the banking franchise we've built over the past 12 years, as well as the aspirations we have to become the preeminent commercial bank in Chicago. At just under $10 billion in assets, we're the largest community bank in the market. Once we cross the $10 billion asset mark, we'll continue to be the largest local publicly traded commercial bank with assets between $10 billion and $65 billion in the greater Chicago metropolitan area. Our market share remains modest, which implies solid opportunities for growth, provided we continue to execute well on our strategy. To wrap up, we were pleased with our performance for the quarter. Notwithstanding the uncertainty present in the environment, we remained optimistic given our capabilities as well as our market position to continue to prudently grow the franchise and deliver value to our stockholders. I'd like to thank all of our team members for their hard work this quarter and the contributions they individually and collectively make to our organization. And with that, Carly, we can open the call up for questions.

Thank you very much. We now have to open the lines for Q&A. If you'd like to ask a question, please press star followed by 1 on your telephone keypad. To remove yourself without questioning will be star followed by 2. Our first question comes from Nathan Reese of Piper Sandler. Nathan, your line is now open.

Hi, guys. Good morning. And first off, sorry to hear about the loss of your Ted Alberto. Keep his condolences.

Appreciate it. Thank you, Nick. Good morning.

Maybe just to start off on kind of what you're seeing in terms of activity in the loan committee these days, obviously a lot of uncertainty that you guys alluded to and TAB, Mark McIntyre, Just curious to what extent you're seeing that come through and load volumes more recently and just generally how you think about organic growth of the balance of this year.

TAB, Mark McIntyre, yeah so so I think here to for nate obviously the first quarter credit demand for credit was good business development activity was very good. You see it in our gross origination numbers for the quarter. I mean, it's $310 million. You can see in the slide deck kind of the trend and how that compares with the previous five quarters. So it was very good. Pipelines remain healthy. We've been in pretty active contact with our commercial customer base just to get in front of them and really be on top of how they're thinking potentially about the impact of higher tariffs on their business is it is it an issue about higher input costs is it a function of how much of that will they be able to manage uh either by shifting their supply chains how much disruption if that is that going to cost to their business the impact on revenue impact on margins How much liquidity do they have? So we've been pretty active on that front, Nate. And so far, I think it's fair to say most clients are taking kind of like a wait and see approach. We don't have maybe with some minor exceptions here or there. I think that the consensus is we're going to wait until the dust settles. Some of the more sensitive clients that have been through this before, I would say have taken steps to try to manage and mitigate any potential effects on tariffs. So that's kind of where things are from a sentiment standpoint, at least that's what we're hearing directly from clients. In terms of how that's gonna impact the outlook. I think at this point, Nate, based on what we see, based on the pipelines we see, based on the activity that we saw most recently this quarter, to your point, the activity that we continue to see and committee, I think the guidance that Tom gave still stands in terms of that kind of mid-single-digit growth for loans over the course of the year.

Okay, that's very helpful. Changing gears, you know, the SBA complexes had a lot of headlines recently in terms of some of the changes that's impacting underwriting. And so just curious how you think about some of those ramifications related to future deal flow and just any other complications that could arise going forward, both near and longer term for that unit for you guys.

I think broadly speaking, and I think the commentary from others with respect to underwriting changes, I think what you're referring to is in the previous administration, the agency was encouraging and put through certain changes to try to originate a higher volume of smaller loans. I think there are also licenses granted more, I should say, liberally to non-bank entities. So I think the commentary from, call it, bank-owned SBA businesses, so to speak, inclusive of ours is, look, I think we welcome the tighter standards. Our underwriting standards never really change. So I can't tell you that we loosened underwriting or we loosened policy. I think our standards remain consistent to the degree that in the market, there are others that are going to be impacted by that. I think in the long run, that's probably going to be beneficial to us and beneficial to other lenders in the market that, you know, remain more consistent in terms of their approach to the business and their underwriting standards. So I think, you know, too early to tell, Nate. We'll see how that, you know, the change in administration, the changes that the new administrator is putting in place, we'll see how that impacts ultimately volume. Patrick Baur, But I again I would just reiterate we've been in the business for a long time we've been through multiple cycles in this space, and I think the. Patrick Baur, The fact that the Agency, the idea that what the new administration seems to want to do is bring the Agency. TAB, Mark McIntyre, More in balance, to make sure that that it is not dependent on appropriate appropriations to fund itself, but rather that the Agency is able to continue to show that it can fund itself. TAB, Mark McIntyre, is long term probably a good a good thing so too early to tell on the on the direct impact at this point nate but we're remain you know optimistic about the outlook in the long run here.

Okay, great. And then just one last one. You guys have been very transparent that you're prepared to cross $10 billion, either organically or inorganically, based on how you've invested over the years. So just curious, you know, just with all the market disruptions and uncertainties of late, if that's hindered, you know, some acquisition opportunities or what you're seeing on the M&A landscape these days.

I think conversations are still active. I think... It's fair to say, and I think if you look at the number of transactions, although there was a very significant transaction that just got announced this week, as well as some other smaller transactions, but I think certainly the market volatility probably slows things down to a degree. For us, we're primarily focused on really institutions that tend to be private as opposed to public. So those conversations are ongoing. Sometimes the sellers in those situations like to think about their business as being completely immune from market forces, but we can talk about that separately. But I think the conversations are still ongoing. And look, the fundamental reasons for M&A, which have nothing to do with market volatility. They have a lot to do with lack of succession planning and management, the board getting up in age, the need for liquidity by existing shareholders. I think those things remain, and I think those are ultimately the drivers for a lot of people looking to partner. So I think we remain optimistic there. Thanks.

Okay, great. And if I could just sneak one last clarifying question for Tom. The expense and NII guidance that you provided for the second quarter, I assume that includes the impact from the acquisition?

It does not include the acquisition.

Okay, got it. I appreciate it, caller. You guys had a great quarter. Thanks, guys.

Thanks, Nate. Thank you, Nate. Thank you very much. Our next question comes from David Long of Raymond James. David, your line is now open.

Good morning, everyone. Just a quick question on the credit side of things. Good morning. There's a couple of things on the credit side of things. Criticized and classified kicked up in the quarter after coming down for what seemed like a few quarters. Any common themes drive the increase?

Mark Fusinato, Hi, David. It's Mark Fusinato. No themes. You can have one transaction move the needle for that level of criticize. But we have not seen a theme in terms of the industry or any of our portfolios in the criticize and classified numbers at this point in time.

David, if I could add to what Mark said just from a Rob Leibowitz, To give you some perspective, so in December of 2023 are criticized level was at 3.92%. Rob Leibowitz, And over the course of 2024 you saw consistent decline, we ended the year at I think 362 and December of 24 so we're back off to 369 and as mark said, I think. I would focus on the trend line, knowing that there's going to be some volatility, you know, on any given quarter. But I think we like in terms of kind of the trend and kind of the direction that we're seeing there. And again, these are still pretty reasonable, you know, reasonably low numbers. So I just would like to give you some additional color on that.

James Rattling Leafs- got it Thank you i'm on the reserve level in you know, I think it was proven to build the reserves in the quarter, but can you talk a little bit more specifically about. James Rattling Leafs- Maybe what's what are the economic forecast is built into your current reserve level and is there still risk that we can see reserves have to build just because of the math based on potential deterioration and economic forecast.

Well, I think that's the case for everybody that is under the CECL standard. I think like others, Dave, we use the Moody's forecast. We consider, I think it's fair to say we put primary weight on the base forecast, and then we adjust and incorporate Patrick O' different, you know, we assign different probabilities to the others and we weigh those just to make sure that we are calibrating our reserve to what we see in the environment. So that's essentially our approach, you know, to answer the second part of your question. I think it's path dependent, right? If the outlook for the economy were to deteriorate and we were to see a deteriorating picture, I think it's fair to say that for, you know, most institutions, you know, that would be reflected in their CISO estimates for reserves.

Got it. Thank you for the call, Alberto. Appreciate it.

Thank you very much. Our next question comes from Brendan Nozzle of Hoved with Guru. Brendan, your line is now open.

I'll be doing well. Just starting off here kind of at a top level on just the pre-provisioned earnings power of the bank. As you guys said, 10 straight quarters over 2% PPNR ROA. It feels like that's settling into a new baseline here. Could you maybe just kind of walk through the balance of risks around that 2% number? What could drive incremental upside in the return profile and where the near-term pressure points are both internal to your business and external on macro factors?

Sure. This is Tom. Good morning. I think a couple things. You know, in the quarter we had an increase in the securities portfolio, and that was in part to kind of help protect for the rates down scenario that is expected here. Cash flows coming off of the portfolio don't need to be reinvested, given kind of some of the spreads that are coming in now. We're probably, you know, slow to replace cash flows there, so that'll help keep the ROA pre-tax pre-provision number above 2%. And then there's still repricing opportunities on the deposit side for us here. So things look pretty good. Expenses seem to be managed well. And then as we move forward here, obviously next quarter we'll update everyone on the first security transaction related to marks, et cetera, and forecasts around expenses.

Yeah, Brendan, just to add one point. One one more thing to what to what Tom just said is, I mean, if you think about that number, just think about it in the context of net interest income and the margin kind of non interest income. You know an expenses and to to state to state this in a very simple way. Continue to manage expenses. You know, well continue to manage our margin. and uh continue to keep and and try to find areas where we can continue to grow that non-interest income line and you know so it's just managing those four components those are where the opportunities and the risks are you know from that number you know do we expect it to move over time i think if we if we continue to manage our rate position you know along the the lines of what Tom said in his remarks, then I think, you know, that, you know, a pre-tax preparation ROA, you know, give it plus or minus five basis points, just give ourselves some room there, you know, should be pretty, you know, achievable.

Okay. All right. Thank you for the thoughts there. Maybe switching gears here, I think some of us have been getting a fair bit of investor questions on banks with sponsored finance exposure recently, just kind of given, you know, macro headwinds that are mounting. So just hoping you can take the opportunity to walk us through your own sponsored finance portfolio, you know, what your approach is to the business and what you've been seeing in that portfolio recently.

Yeah, happy to. So our portfolio today is roughly around $700 million in outstanding. It's about $868 million in commitments. Just by way of background, we started that business in September of 2015. So September of this year will be 10 years since we started that business from scratch, essentially 10 years ago. I don't want to jinx ourselves here, but we've never incurred a loss in those 10 years. And the portfolio has seen a fair amount of churn as you would expect in the sense that it's typically private equity firms that buy a platform, they grow that platform. And then over the course of a three or a four year period, they then put that platform for sale. And and basically start start over again, so we have seen now probably we're on our. Using that timeline we're probably on our third cycle of you know companies basically churning through that portfolio. And our approach to the business, by the way, one additional statistics, so we do business today with about 62 portfolio companies. account for the $700 million in the portfolio today. Our approach to a business is we do senior only. We are targeting lower middle market companies. So the target market would be exactly the same type of business that we want to bank in our traditional commercial banking space. So EBITDA range between $2 to $8 million. And we are looking to go up to no more than three times senior leverage. Effectively, that actually turns out to be, if I look at our portfolio today, it's well inside of that. So we do like to find companies and sponsors that are not really looking to maximize leverage. In fact, they're going to be more conservative in leverage. We tend to look also for companies that are not really growing very fast. In other words, they're not consuming a lot of either changes in networking capital or expected material capex into their business. We want that free cash flow to be used primarily to pay down debt. So that's, I guess, in a nutshell, and we're happy to... You know, to share more color you know and we'll think about ways in which we can perhaps you know share more color on the portfolio broadly, but that's our that's a in a nutshell that's a summary of our business.

That's very helpful color. Alright, thank you for taking my questions much appreciated.

Thank you very much. As a reminder, if you would like to raise a question, please press star followed by one on your telephone keypad now. As for me, your self-reliant questioning would be star followed by two. As a reminder, to raise a question would be star followed by one. Our next question comes from Damon Del Monte of KBW. Damon, your line is now open.

Hey, good morning, guys. Thanks for taking my questions here. Tom, I may have missed this in your prepared remarks, but good morning. I may have missed this in the prepared remarks, Tom, but could you just provide an update on your thoughts on SBA gain on sales going forward? I know our first quarter can be a little bit slower. So just kind of how you're thinking about the rest of the year.

Sure. Hi, Damon. Um, we, we said basically the average is 5 million per quarter and the premium has been, you know, as close to 10% right now. And that should be in that nine and a half to 10% range.

Okay, great. All right. That's helpful. Thank you. Um, and then, um, You know, in the guidance for net interest income, I think it says 87 to 89. Did you say that that included a number of rate cuts this year? Or were you just pointing out the sensitivity if there were rate cuts?

No, I was only pointing out the quarterly, the Q2 numbers. And that, again, was out for security. And the market has a Fed expectation of a cut here in June. So, you know, it's not a full impact for the quarter just given that. the timing of the Fed moving.

Got it. Okay. So, but that would just be a guideline for us if we were to incorporate two cuts. Yeah. Got it. Okay. And then just lastly, you know, the, you know, cash balances are down a little bit. Average security balances are up a little bit. How should we think about the size of the securities portfolio going forward? Do you expect to continue to grow that or should we kind of hold that flat?

you know again we're you know we've integrated for security they had a portfolio as well so i don't see us really growing the portfolio at this point we have really good loan growth there's no reason to buy uh additional securities unless there's a liquidity reason and i think we're in a really strong liquidity position so i would say flat to possibly down over the next remainder of the year great um okay that's all that i had thank you very much for taking my question great

Thank you very much. Our next question comes from Terry McEvoy of Stevens. Terry, your line is not open.

Thanks. First off, Roberto, thanks for the opening comments and the reminder that what we do isn't just ticker symbols and numbers every day. And then, Alberto, I'm sorry to hear about your loss. Maybe first question for Tom. Do you have any comments today on the first security marks impacted TBV and EPS accretion? I didn't have a chance this morning to look at the presentation again, but the 10-year is up about 50 basis points since that announcement.

Jerry, we're going to give that information out at the next earnings call. We don't have anything for you at this point other than we can guide you to the original requirements around when we did announce the deal announcement.

Okay. I'll go back and double-check that.

I think that would be good.

Sorry. Okay, thanks, Tom. No, no, good. And then I know Nate wanted to ask the question, but any sense for quarterly expenses, including kind of first security? I know you provided the standalone number.

Nothing at this point. Well, again, we're going to provide all the guidance for security at the next meeting.

Got you. Okay. Everything. Not just the marks. Okay. Thanks, Tom. And then maybe just one last question. When I look at the strategic priorities, it seems like one opportunity for a $10 billion bank would be fee income. And when I look at the income statement and exclude the SBA business, it does seem like you're under feed, so to speak, relative to peer. So Alberto, I didn't know if you had kind of bigger picture thoughts on the longer term opportunity to build out your fee businesses, particularly wealth management?

Yeah, really good observation, Terry. And the answer is yes, that's an area of focus for us. If you look at our size today, the size of our wealth business relative to the size of the bank, particularly when you think about the type of customers that we have on the commercial side of the bank. We think there's an opportunity there. We've hired some terrific people that are running that business for us today. And it's something that we definitely want to see that component of our business become a larger share of it over time. So yes, to answer your question directly, the short answer is yes.

Okay, great. Thanks for taking my questions, and have a nice weekend.

Likewise, Terry. Appreciate it.

Thank you very much. Our next question comes from Brian Martin of Journey Montgomery School. Brian, your line is now open.

Hey, good morning, everyone.

Hi, Brian. Hi, Brian.

Good morning. Tad Piper- Say time, can you just give I think you talked about just kind of opportunities on the on the deposit side in terms of repricing and then even on the. Tad Piper- asset side, but can you just talk about how the repricing on both sides here the next several quarters, just as it relates to. Tad Piper- The nii guide or just kind of nii outlook, if you will, just kind of know takes there and then just remind us, you know I think you talked about the forward curve, but just in terms of. if we do see potentially four cuts versus two cuts, just kind of what's better for you guys, or just the puts and takes there on just the difference between two and four.

Sure. So just as a reference, Brian, on page seven of the deck, we gave our interest rate risk sensitivity. I think you'll see from prior presentations that we continue to reduce our sensitivity. So we are still asset sensitive. That number, you know, for every 25 basis points decline continues to move lower. So that's a good thing for us. We've also been very disciplined, obviously, in the first 100 basis point cut where you saw net interest income kind of stayed flat during that cycle. So even though we expected to lose $9 million over a full year, we haven't seen that to date, so I think that's really positive. But our models do have, obviously with DDA not repricing and some other products at lower cost of funds levels, you're not going to be able to move down one for one through, depending on the cycle here. I mean, we're expecting 100 basis points per quarter, but for every 25 basis points on an annualized basis, you can see that NII is technically expected to be down $2.3 million. depending on the timing of that. You know, we're always trying to be disciplined on pricing, but also we are trying to grow the deposit base to support our loan growth. So, you know, balance sheet needs can also dictate the net interest income.

I don't know if that answers your question. Yeah, it does. No, that's helpful. I appreciate it, Tom. And just in terms of what's repricing, I think you talked about opportunities on the funding side. I guess you didn't mention the asset side, but just what's repricing, what are the opportunities to at least specifically on the funding side to take advantage of where the rates are today?

I think you'll see some of this stuff in the queue, but again, the CD book continues to be short. It's technically about four months in duration. relatively quick and a gradual reduction in rates will be more beneficial to us than a shock if something were to be unexpected here. So, you know, again, we've been in a little bit more of a, since the Fed has been on hold through the beginning of the year, you know, the liabilities kind of coming off are in that, you know, 430 range, if you will. So they can be reset at less than 4% on any specials and then But a blended CD book continues to move down as some front book business goes into back book. And on the asset side, we're 50-50 fixed versus floating. And as SOFR moves down, you can expect those commercial loans to reprice. And then obviously there's a lag in the SBA book that's prime based by a quarter. Yeah.

Got you. Okay. And then thank you for that. And then just in terms of, I know you're not giving much on the transaction, but given that your comments were that the transaction, the integration's already complete now, should we think about from a standpoint of expenses that maybe at the first clean quarter from an expense standpoint would be third quarter given the conversion's done today or it was completed recently? Justin Fields- fair without giving specific numbers around where things end up just the time that when you start to see clean results that's realistic.

Justin Fields- that's really very fair yeah and I and the quarter Brian we think the quarter is going to be pretty clean and will. Justin Fields- will make sure that we are we provide you good clarity on that and the during the second quarter, but you know absent obviously the. TAB, Mark McIntyre, The one time charges related to the merger which we will you know clearly disclose I mean that the nice thing about doing it April 1 is it's going to be a full quarter so X the merger charges, we think the quarter should be pretty clean and then certainly the the third quarter will be fully clean.

TAB, Mark McIntyre, yeah okay. TAB, Mark McIntyre, No that's how find the same time and the weight just want to make sure we're thinking about the right way with the conversion so. Thank you for taking the questions and all the perspectives today from everyone. It was helpful.

Great. I appreciate it.

Thank you very much. We currently have no further questions, so I'd like to hand back to Mr. Herencia for any closing remarks.

No, we got it, Carly. So thank you, Carly. Thank you everyone for joining the call today and for your interest in byline. And we look forward to speaking to you again in July.

As we conclude today's call, we'd like to thank everyone for joining. You may now disconnect your lines.