Q1 2024 Byline Bancorp Inc Earnings Call

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Operator: Good morning, and welcome to Byline Bancorp's first quarter 2024 earnings call. My name is Bailey, and I will be your conference operator today. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question, simply press the star followed by the number one on your telephone. If you would like to withdraw your question, please press star and two.

Daily: Good morning, and welcome to Byline Bancorp first quarter 2020 full earnings call. My name is daily and I will be your conference operator today.

Daily: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period.

Daily: You would like to ask a question Sidney.

Speaker Change: Followed by the number one on your telephone.

Speaker Change: I would like to withdraw your question, Please press star and chip.

Operator: If you are listening via a speakerphone, please lift your handset off prior to asking your question. If you require operator assistance, then please press star then zero. Please note the conference call is being recorded. At this time, I would like to introduce Brooks Rennie, Head of Investor Relations for Byline Bancorp, to begin. Please go ahead.

Speaker Change: We're listening via speaker phone please lift your handset.

Speaker Change: Asking your question.

Speaker Change: If you require operator assistance. Please press Star then zero.

Speaker Change: Please note the conference call is being recorded.

Speaker Change: At this time I would like to introduce Brooks Reni head of Investor Relations for Byline Bancorp to begin. Please go ahead.

Brooks O. Rennie: Thank you, Bailey. Good morning, everyone.

Brooks O. Rennie: Thank you Billy and good morning, everyone and welcome to Byline Bancorp's first quarter 2024 earnings conference call.

Brooks O. Rennie: And welcome to Byline Bancorp's first quarter 2024 earnings conference. In accordance with Regulation FD, this call is being recorded and is available via webcast on our investor relations website, along with the earnings release and the corresponding presentation. 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 described.

Of course with regulation FD. This call is being recorded and is available via webcast on our Investor Relations website, along with the earnings release and the corresponding presentation slides.

Brooks O. Rennie: 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.

Brooks O. Rennie: 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.

Brooks O. Rennie: The company's risk factors are disclosed and discussed in its SEC file. 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. Reconciliation of each non-GAAP financial measure to the comparable GAAP financial measures can be found in the appendix of the Earnings Release. For additional information about risks and uncertainties, please see the forward-looking statement in Non-GAAP Financial Measures Disclosures in the Earnings Release.

Brooks O. Rennie: The company's risk factors are disclosed and discussed in our 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 reconciliation of each non-GAAP.

Brooks O. Rennie: Measure to be to the comparable GAAP financial measures can be found within the appendix of the earnings release.

Brooks O. Rennie: For additional information about risks and uncertainties. Please see the forward looking statement and non-GAAP financial measures disclosures in the earnings release as a reminder for investors. This quarter. We plan on attending the Stevens Chicago Bank Conference and the Raymond James Chicago Bank Tour.

Brooks O. Rennie: As a reminder for investors, this quarter we plan on attending the Stevens Chicago Bank Conference and the Raymond James Chicago Bank Tour. With that said, I would now like to turn the conference call over to Alberto Paracchini, President of Byline Bancorp.

Brooks O. Rennie: With that I would now like to turn the conference call over to Alberto <unk> President of <unk> Bancorp.

Alberto J. Paracchini: Thank you, Brooks. Good morning, and welcome to Byline's first quarter earnings call. We appreciate all of you taking the time to join the call. With me this morning are Chairman Roberto Herencia, our CFO, Tom Bell, and our Chief Credit Officer, Mark Fucinato. In terms of the agenda for today, I'll start with highlights for the quarter, followed by Tom, who will walk you through the financials, and then I'll come back and wrap up with some comments before opening the call to questions.

Alberto: Thank you Brooks good morning, and welcome to <unk> first quarter earnings call. We appreciate all of you taking the time to join the call.

Alberto: With me. This morning are chairman Roberto her NCR, CFO Campbell, and our Chief Credit Officer, and Mark who scenario in terms of the agenda for today I'll start with highlights for the quarter, followed by Tom who will walk you through the financials, and then I'll come back and wrap up with some comments before opening the call up for questions.

Alberto J. Paracchini: As a reminder, you can find the deck on our website, and as always, please refer to the disclaimer at the front. Before we get started, I would like to pass the call on to Roberto for some comments. Thank you, Roberto.

Alberto: As a reminder, you can find the deck on our website and as always please refer to the disclaimer at the front before we get started I would like to pass the call onto Roberto for some comments Roberto.

Roberto R. Herencia: Thank you, Alberto. And good morning, everyone.

Roberto: Thank you Alberto and good morning, everyone.

Roberto R. Herencia: Before Alberto and the team go over the strong results for the first quarter and a solid start to 2024, I want to touch on a few items. Last week, Mike Scudder celebrated his retirement as Executive Chairman of Old National Bancorp, which was effective at the end of January. I want to acknowledge Mike for his combined 38 years of outstanding leadership and dedication to First Midwest and Old National and his contributions outside of the bank to the greater Chicago area.

Roberto: For Alberto and the team go over the strong results for the first quarter.

Roberto: A solid start to 2024 I want to touch on a few items.

Roberto: Last week, Mike Scudder celebrated his retirement as executive chairman of old National Bancorp.

Roberto: What's effective at the end of January.

Roberto: I want to acknowledge Mike for his combined 38 years of outstanding leadership and.

Roberto: Im dedication to first Midwest and old National.

Roberto: And his contributions outside of the bank to the greater Chicago area.

Roberto R. Herencia: I've had the pleasure of competing and collaborating with Mike over the years. And today, we're both trustees at DePaul University, Mike's alma mater and where he holds the board leadership position. Mike was always kind enough to call when he was working on his strategic plans for First Midwest to seek input and insight, and a neutral action from a competitor. Understated and not flashy, Mike is full of content.

Roberto: I've had the pleasure of competing and collaborating with Mike over the years.

Roberto: And today, we're both trustees at Depaul University, Mike's alma mater.

Roberto: He holds the board leadership position.

Roberto: Mike was always kind enough to call. When he was working on his strategic plans for <unk> for first Midwest.

Roberto: To seek input and insights and unusual action from a competitor.

Roberto: Understated and not slashing Mike is full of content.

Roberto R. Herencia: Conviction and Leadership. Best to Mike and his family, as a testament to our unwavering commitment to strategic excellence. Our team has once again delivered excellent results this quarter against our own internal measures, against our peer group, and against Analysts' expectations. We surpassed $9 billion in total assets, and stockholder equity climbed above $1 billion. In fact, we have been delivering strong results consistently over the last few years, no matter the economic challenge, improving key profitability metrics from the median of the peer group to the tough quartile. Inconsistency, a clearly improved performance, in both absolute and relative terms.

Roberto: Conviction.

Roberto: Leadership.

Roberto: First to Mike and his family.

Roberto: In a testament to our unwavering commitment to strategic excellence. Our team has once again delivered excellent results this quarter.

Roberto: Against our own internal measures.

Roberto: Against our peer group.

Roberto: And the analysts expectations.

Roberto: We surpassed $9 billion in total assets.

Roberto: Stockholders equity climbed above $1 billion.

Roberto: In fact, we have been delivering strong results consistently.

Roberto: Over the last few years.

Roberto: No matter the economic challenges.

Roberto: Improving key profitability metrics.

Roberto: From the median of the peer group to top quartile.

Roberto: This consistency.

Roberto: Clearly improved performance.

Roberto: In both absolute and relative terms.

Roberto R. Herencia: Full transparency in our growth strategy and a really good balance between the short-term rigor of the marketplace, your EPS number, and our long-term aspirations, to become the preeminent commercial bank in Chicago, should be reflected in our evaluation. But we know the mindset. Some of the folks take their narrative and just stay with it until.

Full transparency.

Roberto: <unk> strategy.

Roberto: And a really good balance between the short term rigor of the marketplace.

Roberto: Number.

Roberto: And our long term aspiration.

Roberto: To become the preeminent commercial bank in Chicago.

Roberto: Should be reflected in higher valuations.

Roberto: But we know the mindset.

Roberto: Some of the folks big Theyre narrative, and just stay with it until.

Roberto R. Herencia: They have no choice but to yield to performance. On our end, we will continue to educate and refine the messaging, addressing the foundations of our business segment and how it all comes together year after year, not only on a quarterly basis. We've built something special, with considerable runway and optionality. We want the same quality in our analysts and investor base, whom we consider partners. Because, as we have been saying, there will be significant opportunities in the Chicago market for investors willing to do the homework.

Roberto: They have no choice, but to yield performance.

Roberto: An hour and we will continue to educate and refine the messaging.

Roberto: Addressing the foundations of our business segments.

Roberto: And how it all comes together.

Roberto: After a year.

Roberto: Not only on a quarterly basis.

Roberto: We've built something special.

Roberto: With considerable runway and optionality.

Roberto: We want the same quality and our analysts and investor base.

Roberto: We consider partners.

Roberto: Because as we have been saying.

Roberto: There will be significant opportunities.

Roberto: In the Chicago marketplace.

Roberto: For investors willing to do the homework.

Roberto R. Herencia: We believe we offer a compelling property. With a proven track record of success, a clear runway ahead of us, and an unwavering dedication to creating long-term value, we invite you to join us on this journey to become the preeminent commercial bank in Chicago. With that, it's my pleasure to pass the call back to Alberto.

Roberto: We believe we offer a compelling proposition.

Roberto: With a proven track record of success clear runway ahead of us.

Roberto: And unwavering dedication to creating long term value.

Roberto: We invite you to join US on this journey to.

Roberto: To becoming the preeminent commercial bankers Chicago.

With that.

Roberto: It's my pleasure to pass the call back to Alberto.

Alberto J. Paracchini: Thank you, Roberto. And now, on to the results for the quarter on page three of the deck. Overall, we were very pleased with our performance for the first quarter. Byline had another strong quarter characterized by healthy loan and deposit growth, solid profitability, and stable asset quality. The results continue to highlight the strength of our diversified business model, the attractiveness of our franchise, and the disciplined execution of our strategy. For the quarter, Byline reported net income of $30.4 million and EPS of $0.70 per diluted share on revenue of $101 million.

Alberto: Thank you Ricardo and now moving on to the results for the quarter on page three of the deck.

Alberto: Overall, we were very pleased with our performance for the first quarter <unk> had another strong quarter characterized by healthy loan and deposit growth solid profitability and stable asset quality.

Alberto: The results continue to highlight the strength of our diversified business model the attractiveness of our franchise and the disciplined execution of our strategy.

Alberto: For the quarter <unk> reported net income of 34 million and EPS of <unk> 70 per diluted share on revenue of $101 million results are inclusive of approximately $1 million in charges related to the consolidation of two branches.

Alberto J. Paracchini: Results are inclusive of approximately $1 million in charges related to the consolidation of two brands. The looted EPS for the quarter was two pennies higher than last quarter and six cents or 9.4% higher on a year-on-year basis. Profitability and return metrics continue to remain strong across the board.

Alberto: <unk> EPS for the quarter with two pennies higher than last quarter, and six or nine 4% higher on a year on year basis profitability and return metrics continue to remain strong across the board ROA came in at 136 basis points, while our OTC remains solid at 15, 9% pretax.

Alberto J. Paracchini: ROA came in at 136 basis points while ROTC remained solid at 15.9%. Pre-tax preparation income was $47.2 million for the quarter, which translated into a strong pre-tax preparation ROA of $210,000. This was the sixth consecutive quarter where the company had pre-tax preparation ROA above 200 basis points.

Alberto: Preparation income was $47 2 million for the quarter, which translated into a strong pre tax preparation ROA of 210 basis points. This was the sixth consecutive quarter, where the company had pre tax preparation ROA above 200 basis points.

Alberto: As I just mentioned total revenue came in at $101 million, which was flat to the prior quarter, but up 11% on a year on year basis net interest income was $85 5 million down marginally from the fourth quarter and up slightly if adjusted for the day count difference between quarters noninterest income was up six.

Alberto J. Paracchini: As I just mentioned, total revenue came in at $101 million, which was flat through the prior quarter but up 11% on a year-on-year basis. Net interest income was $85.5 million, down marginally from the fourth quarter and up slightly if adjusted for the date count difference between quarters. Non-interest income was up 6.7% and drove the overall price. Moving on to the balance sheet, we experienced nice growth in both loans and the boss.

Alberto: 7% and drove the overall increase moving onto the balance sheet, we experienced nice growth in both loans and deposits loans increased by approximately $100 million or 6% annualized and stood at $6 8 billion as of quarter end, we continue to see good business development activity with the originations coming in.

Alberto J. Paracchini: Loans increased by approximately $100 million or 6% annualized and stood at $6.8 billion as of quarter end. We continue to see good business development activity with originations coming in at $264 million, driven by our commercial banking sponsor and leasing business. Total deposits grew by $173 million or 9.7% annualized and stood at $7.4 billion as of quarter end. The strong growth in deposits is reflective of growth in commercial relationships and our ability to capture our fair share of money in motion in the market.

Alberto: At $264 million, driven by our commercial banking sponsor and leasing businesses.

Alberto: Deposits grew by $173 million or nine 7% annualized and stood at $7 4 billion as of quarter end. The strong growth in deposits is reflective of growth in commercial relationships and our ability to capture our fair share of money in motion in the marketplace deposit composition.

Alberto J. Paracchini: Deposit composition remains relatively stable for the period, but we continue to see migration of deposits to higher-rate products, albeit at a slightly lower pace than last quarter. Deposit costs increased by 12 basis points, but given the rate environment, competition for deposits, and the attractiveness of higher-rate products, we continue to expect upward pressure on funding costs. The margin declined 8 basis points to 4%, driven by higher funding costs offsetting the increase in asset yield.

Alberto: <unk> relatively stable for the period, but we continue to see migration of deposits to higher rate products, albeit at a slightly lower pace than last quarter.

Alberto: <unk> costs increased by 12 basis points, but given the rate environment competition for deposits and the attractiveness of higher rate products. We continue to expect upward pressure on funding costs.

The margin declined eight basis points to 4% driven by higher funding costs offsetting the increase in asset yields Tom will provide more color on this shortly but the margin ex accretion and adjusted for the impact of a short term investment opportunity declined by only two basis points to three.

Alberto J. Paracchini: Tom will provide more color on this shortly, but the margin X accretion and adjusted for the impact of a short-term investment opportunity declined by only two basis points to 3.8%. Non-interest income came in at $15.5 million, up 6.7% from last quarter.

Alberto: 8%.

Alberto: Noninterest income came in at $15 5 million up six 7% from last quarter on an operating basis adjusting for the impact of fair value marks on our servicing asset our underlying noninterest income was up 3% quarter on quarter.

Thomas J. Bell: On an operating basis, adjusting for the impact of fair value marks on our servicing asset, our underlying non-interest income was up 3% quarter on quarter. Expenses remained well-managed at $53.8 million, and the cost-to-asset ratio was $240,000. This was two basis points lower than last quarter and 29 basis points lower on a year-on-year basis, highlighting the benefits of scale after the inland transaction. Credit costs came in at $6.6 million and were inclusive of net charges of $6.2 million or $37,000, with the resulting net reserve bill driven by loans.

Alberto: Expenses remain well managed at $53 8 million and the cost to asset ratio was 240 basis points. This was two basis points lower than last quarter, and 29 basis points lower on a year on year basis, highlighting the benefits to scale after the inland transaction.

Alberto: Credit cost came in at $6 6 million and were inclusive of net charge offs of $6 2 million or 37 basis points with the resulting net reserve build driven by loan growth asset quality remained stable for the quarter with npls, increasing just four basis points to 100 basis points.

Thomas J. Bell: Asset quality remains stable for the quarter, with NPLs increasing just four basis points to 100 basis points. Our ACL remained healthy at 1.51% of total loss. Capital levels remain strong with a CET ratio of 10.6%, a total capital ratio of 13.7%, and TCE of 8.8%, all as of quarter end, consistent with our targeted TCE range of 8 to 9. With that, I would like to turn over the call to Tom, who will provide you more detail on our results.

Alberto: Our ACL remained healthy at 111.51% of total loans.

Alberto: Capital levels remained strong with a CET ratio of 10, 6% total capital ratio of 13, 7% and TCE of eight 8% all as of quarter end consistent with our targeted TCE range of 8% to 9% with that.

Alberto: I would like to turn over the call to Tom who will provide you more detail on our results.

Tom: Thank you Alberto and good morning, everyone.

Thomas J. Bell: Thank you, Alberto. Good morning, everyone.

Thomas J. Bell: Starting with our loan and lease portfolio on slide four, total loans and leases increased by about $100 million, or 6% annualized, stood at $6.8 million on March 31st. We had strong origination activity for the quarter of $264 million, up 6% compared to a year ago. Payoff activity was slightly lower for the quarter, and utilization rates ticked up two basis points driven by draws on existing construction projects. Loans, excluding CRE, increased across all lending categories, with the strongest growth coming from our leasing and commercial banking. We expect loan growth in the mid-single digits in the coming quarter. Turning to slide 5.

Tom: Starting with our loan and lease portfolio on slide four.

Tom: Total loans and leases increased about $100 million or 6% annualized and stood at $6 8 billion at March 31, we had.

Tom: Strong origination activity for the quarter of $264 million up 6% compared to a year ago.

Tom: Payoff activity was slightly lower for the quarter and utilization rates ticked up two basis points driven by draws on existing construction projects.

Tom: Loans, excluding CRE increased across all lending categories with the strongest growth coming from our leasing and commercial banking teams.

Tom: We expect loan growth in the mid single digits in the coming quarters.

Tom: Turning to slide five.

Thomas J. Bell: We drove another quarter of solid deposit growth, notwithstanding seasonal outflows and a $44 million reduction in broker deposits. At quarter end, total deposits stood at $7.4 billion, up $173 million, or 10% annualized. The growth was due to increases in time deposits and interest-bearing checking accounts, and we experienced growth both in average and end-of-period balance. The mix continues to moderate, as expected, with a decelerating pace this quarter.

Tom: We drove another quarter of solid deposit growth, notwithstanding seasonal outflows and a $44 million reduction in broker deposits at quarter end total deposits stood at $7 4 billion.

Tom: Up $173 million or 10% annualized.

Tom: The growth was due to increases in time deposits and interest bearing checking accounts and we experienced growth both an average and end of period balances the.

Tom: The mix continues to moderate as expected with a decelerating pace linked quarter DD.

Thomas J. Bell: DDA's as a percentage of total deposits was 25% compared to 27% from the prior quarter. However, on a cycle-to-date basis, deposit betas grew at a slower pace, with total deposits at 47% and interest-bearing deposits at 6%. Turning to slide 6.

Tom: <unk> as a percentage of total deposits was 25% compared to 27% from the prior quarter.

Tom: On our cycle to date basis deposit betas grew at a slower pace with total deposits of 47% and interest bearing deposits at 63%.

Tom: Turning to slide six.

Thomas J. Bell: Net interest income was $85.5 million for Q1, down 1% from last quarter due to the day count and in line with guidance. Cumulatively, over the cycle, we have benefited from our asset sensitivity and earnings asset growth, with NII growing at a 21% CAGR over the past two years. Moving forward, we are focused on reducing acid sensitivity further, primarily from on-balance sheet activities that may be supplemented with balance sheet

Tom: Net interest income was $85 5 million for Q1 down 1% from last quarter due to day count and in line with guidance.

Tom: Cumulatively over the cycle, we have benefited from our asset sensitivity and earning asset growth with NII growing at a 21% CAGR over the past two years.

Tom: Moving forward, we are focused on reducing asset sensitivity further primarily from on balance sheet activities that may be supplemented with balance sheet hedges.

Tom: Our NIM declined by eight basis points to 4%.

Thomas J. Bell: Our NIM declined by 8 basis points to 4%. The margin was impacted by a short-term investment position we took on this quarter, whereby we invested $200 million and borrowed the funds from the bank term funding facility. This generates roughly $245,000 in net interest income per quarter, the trade-off being a six basis point reduction in the margin. Accretion on acquired loans declined 4 basis points to 20 basis points this quarter, and we expect it to continue to gradually decline in future quarters.

Tom: The margin was impacted by short term investment position, we put on this quarter, whereby we invested $200 million and borrow the funds from the bank term funding facility. This generates roughly $245000 in net interest income per quarter, the trade off being a six basis point reduction in the margin.

Tom: Accretion on acquired loans declined four basis points to 20 basis points this quarter and we expect it to continue to gradually decline in future quarters.

Thomas J. Bell: Earning Asset Yields Increase 5 Basis Points Driven by Higher Loan and Investment Yields, Market expectations for rate kits have materially changed since the start of the year. Based on the forward curves from mid-April, we estimate our net interest income for Q2 will be in the range of $83 to $85 million. As a reminder, our goal is to maintain and grow our net interest income over various interest rate cycles. Turning to slide 7.

Tom: Earning asset yields increased five basis points, driven by higher loan and investment yields.

Tom: Market expectations for rate kits have materially changed since the start of the year.

Tom: Just on the forward curves for mid April we estimate our net interest income for Q2 will be in the range of $83 million to $85 million.

Tom: As a reminder, our goal is to maintain and grow our net interest income over various interest rate cycles.

Tom: Turning to slide seven.

Thomas J. Bell: Non-interest income stood at $15.5 million in the first quarter, up 7% from the previous quarter, primarily driven by a $1 million increase in other non-interest income due to an increase in derivatives and gain on sale of leased equipment. The balance of government-guaranteed loans sold decreased by $17 million in the first quarter compared to Q4. The net average premium was 9.6%, higher than expected for Q1, primarily due to favorable market conditions and the mix of loans sold. Going forward, we expect gain on sale income to be at a level consistent with Q1 results. Turning to slide 8.

Tom: Noninterest income stood at $15 $5 million in the first quarter up 7% linked quarter, primarily driven by $1 million increase in other noninterest income due to an increase in derivatives and gain on sale of leased equipment.

Tom: The balance of government guaranteed loans sold decreased by $17 million in the first quarter compared to Q4.

Tom: The net average premium was nine 6% higher than expected for Q1, primarily due to favorable market conditions and mix of loans sold.

Tom: Going forward, we expect gain on sale income to be at a level consistent with Q1 results.

Tom: Turning to slide eight.

Thomas J. Bell: Our non-interest expense was well managed and came in at $53.8 million for the first quarter, flat from the prior quarter and in line with our Q1 guidance of $53 to $55 million. During the quarter, we announced that we were consolidating two branch locations, which will occur in the second quarter. Our managed expense of $53.8 million includes branch consolidation charges of $1.3 million, of which $1.1 million is not included in our adjusted results.

Tom: Our non interest expense was well managed and came in at $53 8 million for the first quarter flat from the prior quarter and in line with our Q1 guidance of $53 million to $55 million.

Tom: During the quarter, we announced that we were consolidating two branch locations, which will occur in the second quarter.

Tom: Non interest expense of $53 $8 million includes branch consolidation charges of $1 3 million.

Tom: Of which $1 $1 million is not included in our adjusted results.

Thomas J. Bell: Excluding the two branch closures, our core operating expenses were $52.5 million for the quarter. As a result of the closures, our expected annual cost savings is approximately $1.1 million beginning in the third quarter. Looking forward, we maintain our non-expense guidance of $53 to $55 million. As a side note, since the first quarter of 2022, revenue growth has outstripped non-expense growth by five percentage points per year. Turning to slide 9.

Tom: Excluding the two branch closures, our core operating expenses were $52 5 million for the quarter.

Tom: As a result of the closures are expected annual cost savings of approximately $1 $1 million beginning in the third quarter.

Tom: Looking forward, we maintain our noninterest expense guidance of $53 million to $55 million.

Tom: On a side note since the first quarter of 2022 revenue growth has outstripped noninterest expense growth by five percentage points per year.

Tom: Turning to slide nine.

Tom: The allowance for credit losses at the end of Q1 was $102 $4 million up 1% from the end of the prior quarter and.

Thomas J. Bell: The allowance for credit losses at the end of Q1 was $102.4 million, up 1% from the end of the prior quarter. In Q1, we recorded a $6.6 million provision for credit losses compared to $7.2 million in Q4. Net charge-offs were $6.2 million in the first quarter compared to $12.2 million in the previous quarter. This was a 49% decrease, link quarter, primarily due to lower charge-offs in CNI and CRE. NPLs to total loans and leases increased by 4 basis points to 1% in Q1.

Tom: In Q1, we recorded a $6 $6 million provision for credit losses, compared to $7 2 million in Q4.

Tom: Net charge offs were $6 2 million in the first quarter compared to $12 2 million in the previous quarter.

Tom: This was a 49% decrease linked quarter, primarily due to lower charge offs in C&I and CRE.

Tom: Npls to total loans and leases increased by four basis points to 1% in Q1.

Thomas J. Bell: If you look at the bottom left graph, you can see that NPLs were flat quarter over quarter when you exclude the government-guaranteed loan. NPAs to total assets decreased by one basis point to 73 basis points in Q1. And total delinquencies were $28.6 million on March 31st, down 21% from the previous quarter. Turning to slide 10.

Tom: If you look at the bottom left graph you can see that npls were flat quarter over quarter. When you exclude the government guaranteed loans.

Tom: NPA to total assets decreased by one basis point to 73 basis points in Q1.

Tom: And total delinquencies were $28 6 million on March 31 down 21% linked quarter.

Tom: Yeah.

Tom: Turning to slide 10.

Alberto J. Paracchini: We are very pleased with the progress we have made these past two quarters, lowering our loan-to-deposit ratio to 92.5%, or 85 basis points linked quarterly. This quarter, we also repaid, ahead of plan, $11.3 million of our holding company line of credit borrowing related to the Inland Transaction, which provides us with $15 million of additional liquidity and lowers our borrowing. Moving on to Capital on slide 11, our capital levels continue to grow during the quarter, with our CET1 ratio increasing to 10.6%.

Tom: We are very pleased with the progress we have made these past two quarters lowering our loan to deposit ratio to 92, 5% or 85 basis points linked quarter.

Tom: This quarter. We also repaid ahead of plan $11 $3 million of our holding company line of credit borrowings related to the inland transaction, which provides us with $15 million of additional liquidity it lowers our borrowing costs.

Tom: Moving on to capital on Slide 11.

Tom: Our capital levels continued to grow during the quarter with our CET, one ratio increasing to 10, 6%. Additionally.

Alberto J. Paracchini: Additionally, the TCE to TA ratio was 8.8%, and excluding the balance sheet trade, our TCE ratio would have been approximately 20 basis points higher. As a reminder, 99.9% of our securities are held and available for sale, and therefore, our HTM portfolio losses of $7,000 have no impact on our modified TCE ratio. Our liquidity and growing capital levels continue to provide us with a strong foundation, which positions us well to grow our business. With that, Alberto, back to you.

Tom: Additionally, the TCE to Ta ratio was eight 8% and excluding the balance sheet trade, our TCE ratio would've been approximately 20 basis points higher.

Tom: As a reminder, 99, 9% of our securities are held in available for sale and therefore, our HTM portfolio losses of $7000 has no impact to our modified TCE ratio.

Tom: Our liquidity and growing capital levels continue to provide us a strong foundation, which positions us well to grow our business with that Alberto back to you.

Alberto J. Paracchini: Thank you, Tom. As far as our near-term outlook is concerned, we are positive about our ability to continue to grow the business in the current environment. We continue to see good deal flow and opportunities to increase the business organically. Our pipelines remain healthy, and importantly, we're starting to see the impact that banking teams hired in prior periods have on our results. To that end, we added two additional bankers this past quarter and remain on the lookout for opportunities to further add talented bankers to our franchise.

Thank you Tom as far as our near term outlook is concerned we are positive about our ability to continue to grow the business in the current environment. We continue to see good deal flow and opportunities to increase the business organically our pipelines remain healthy and importantly, we're starting to see the impact that banking teams hired.

Tom: In prior periods have on our results.

Tom: To that end, we added two additional bankers this past quarter and remain on the lookout for opportunities to further add talented bankers to our franchise the.

Alberto J. Paracchini: The rate environment remains somewhat challenging for banks as we balance the dynamics of customer preferences, growth, profitability, and competition in the market. That said, given the opportunity set available as we see it, we find the trade-off of adding attractive business and long-term relationships at a marginally higher funding cost in the short run acceptable. Our long-term orientation, coupled with the necessary balance sheet and financial flexibility, positions us well to take advantage of opportunities and continue to increase the value of our franchise. Lastly, I'd like to congratulate and thank all our employees for supporting our customers and their contribution to our results this quarter. With that operator, let's open the call up for questions.

Tom: The rate environment remains somewhat challenging for banks as we balanced the dynamics of customer preferences growth profitability and competition in the marketplace.

Given the opportunity set available as we see it we find the tradeoff of adding attractive business on long term relationships at a marginally higher funding cost in the short run acceptable our long term orientation, coupled with the necessary balance sheet and financial flexibility positions us well to think.

Tom: Advantage of opportunities and continue to increase the value of our franchise.

Speaker Change: Lastly, I'd like to congratulate and thank all our employees for supporting our customers and their contribution to our results this quarter with that operator, let's open the call up for questions.

Speaker Change: Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to repeat that question. Please press star followed by again to ask a question. Please press star followed by one and to remind if you are using a speaker phone. Please remember to pick up your handset before asking your question I am pleased to ensure.

Operator: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again to ask another question, please press star followed by one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question and please do ensure that you are unmuted locally. Our first question today comes from David Long from Raymond James. Please go ahead; your line is now open.

Speaker Change: Sure that you understood locally.

Speaker Change: First question today comes from the line of David Long from Raymond James. Please go ahead. Your line is now open.

David Joseph Long: Thank you good morning, everyone.

David Joseph Long: Thank you. Good morning, everyone.

David Joseph Long: I wanted to dig in a little bit more on the deposit side, deposit competition. You know, here in Chicago, I've been seeing some rates on savings accounts back approaching the mid 5% level. Again, it looks like the competition picked up maybe a little bit with the pickup in race recently. You kind of hinted at it, but are you seeing more competition maybe than you did a few months ago? Has that changed? And from where is it coming from? Is it the larger regionals, the community banks? You know, where do you see most of that competition?

David Joseph Long: Hey, Good morning day, again, a little bit more I wanted to dig in a little bit more on the deposit side deposits.

Petition.

David Joseph Long: Here in Chicago, I have been seeing some rates on savings accounts back approaching the mid 5% level again, it looks like the competition picked up maybe a little bit with the <unk>.

David Joseph Long: Pickup in rates recently.

David Joseph Long: You kind of hinted at it but are you seeing more competition maybe than you did a few months ago has that changed and then where is it coming from is it the larger regionals the community banks.

Or where do you see most of that competition.

Alberto J. Paracchini: Sure. Hi Dave. Good morning.

Speaker Change: Sure Hi, Dave Good morning, Thanks for the question.

Alberto J. Paracchini: Thanks for the question. Generally speaking, you know, we've seen competition actually start to lower rates a little bit, so it's... We are getting some market share both from the large bank space and then some of the, you know, regionals, if you will. You know, the appetite, primarily just given the rate environment, is higher costs, right, both in CDs and money market accounts. Yes, it's still very competitive, but, you know, we're primarily getting stuff done in the 5% range or lower.

Generally speaking, we've seen actually competition start to lower rates a little bit so.

It's.

Speaker Change: We are getting some market share both from the large bank space and then some of the.

Speaker Change: Regionals, if you will.

Speaker Change: The appetite primarily just given the rate environment is high.

Speaker Change: Higher costs, right, Bolton Cds and money market accounts, and yes, it's still very competitive but.

Speaker Change: We're primarily getting stuff done in the 5% range or lower and I would also add that just.

Alberto J. Paracchini: And I would also add that, you know, given the rate shock that happened last year and some of the liquidity events, we're actually renewing CDs and other products at lower levels today than we did a year ago.

Speaker Change: Given the rate shocks that happened last year and some of the liquidity events that we're actually renewing Cds and other products at lower levels today than we did a year ago.

Speaker Change: Got it got it. Thank you for that color and then I wanted to shift gears on the lending side of the equation.

David Joseph Long: Got it, got it. Thank you for choosing that color.

David Joseph Long: And then I want to shift gears on the lending side of the equation. It sounds like you guys still have an appetite to lend. You're out in the marketplace bringing in some veteran bankers. What are you seeing in the marketplace with your competitors? Are you seeing lighter competition? Are you what are you, and what trends are you seeing on the spreads on your new underwriting?

Speaker Change: It sounds like you guys still have an appetite to lend youre out in the marketplace, bringing in some veteran bankers.

Speaker Change: What are you seeing in the marketplace with your competitors are you seeing.

Speaker Change: Lighter competition are you what are you and what trends are you seeing on the spreads on your new underwritings.

Speaker Change: I think.

Alberto J. Paracchini: I think, in general, I don't know that I necessarily say lighter competition, Dave. I think competition is always there, particularly in.., and call it core, you know, businesses like commercial banking, there's always competition, I would say we we are seeing and I don't think this is this is surprising, particularly from larger regionals and super regionals, I think You know, the risk weighted asset diets, I think we've seen some effect of that, but it, Line by line specifically, I don't know that there's anything you know that I would tell you the competitive dynamics have gotten easier.

Speaker Change: In general I don't I don't know that I necessarily say lighter competition, Dave I think competition is always there, particularly in.

Speaker Change: Call It core businesses like commercial banking there is always competition.

Speaker Change: I would say we are seeing and I don't think this is this is sort of pricing.

Speaker Change: Particularly from larger regionals and Super Regionals I think.

Speaker Change: The risk weighted asset diets I think we've seen some effect of that but it's <unk>.

Speaker Change: Line by line, specifically I don't know that Theres anything.

Speaker Change: But I would tell you that competitive dynamics have gotten easier we still have strong competitors that we compete against on.

Alberto J. Paracchini: We still have strong competitors that we compete against on a daily basis. But that being said, to your second part of the question about spreads, I think spreads have remained pretty stable, you know, from last quarter. And certainly, you know, I think in general, I think it's competitive, but not anything unusual that we're seeing today.

Speaker Change: On a daily basis.

Speaker Change: But that being said to your to your second part of the question about spreads I think spreads have remained pretty stable.

Speaker Change: From last quarter and certainly.

I think in general I think it's competitive but not now.

Speaker Change: Anything unusual that we're seeing today.

Speaker Change: Got it thank you Alberto and thanks, Tom.

David Joseph Long: Got it. Thank you, Alberto. And thanks, Tom, for the first part of the question.

Speaker Change: The first part of the question.

Speaker Change: Yes.

Speaker Change: Our next question today comes from the line of Terry Mcevoy from Stephens Inc. Please go ahead. Your line is now open.

Operator: Our next question today comes from the line of Terry McEvoy from Stevens Inc. Please go ahead; your line is now open.

Terence James McEvoy: Thanks. First off, Roberto, very nice comments on my work are much appreciated there.

Terence James McEvoy: Thanks first off Roberto <unk> very nice comments on nice much appreciated there.

Terence James McEvoy: Maybe start with a question for Tom.

Terence James McEvoy: Maybe start with a question for Tom, the net interest income outlook of 83 to $85 million. The low end of that is the variance there, really the cost of funds. And I guess on that topic, cost of funds was up 14 basis points quarter over quarter. It did slow. Would you expect that trend to continue, just given some of the comments on deposit competition?

Terence James McEvoy: Net interest income outlook of $83 million to $85 million.

Speaker Change: The low end of that versus the <unk>.

Terence James McEvoy: They're really the cost of funds and I guess on that topic cost of funds were up 14 basis points quarter over quarter. It did slow would you expect that trend to continue just given some of the comments on deposit competition.

Speaker Change: Yes, I think to your question that we are seeing the cost of funds pace continue to slow here.

Thomas J. Bell: Yes, I think. To your question, we are seeing the cost of funds pace continue to slow here. As I mentioned earlier, the renewal rates are coming in lower than the prior rates, so that is helping us. We're still getting some benefit on the asset repricing of just, you know, legacy loans repricing, but generally speaking, you know, given the loan growth and the demand for us to continue to kind of bring in more deposits.

Speaker Change: As I mentioned earlier that the renewal rates are coming in lower than the prior rates. So that's that that is helping us we're still getting some benefit on the.

Speaker Change: Earning asset repricing them.

Speaker Change: Legacy loans repricing, but generally speaking given the loan growth in the.

Speaker Change: The demand for us to continue to kind of bring in more deposits.

Thomas J. Bell: It's going to be more marginal cost of deposits, you know; we're obviously always going to go after our DDA with our clients, but incrementally, we're probably going to be doing money market and CDs to complement each other and then try to bring them into the back of the book later on.

Speaker Change: It's going to be more marginal cost of deposits.

Speaker Change: Obviously, you always can go after our DDA with our clients, but incrementally we're going to be probably doing money market and Cds.

Speaker Change: Cds to off to complement and then try to bring them into the back of the book later later on in the future.

Speaker Change: Thanks for that Tom and then as a follow up I think you said Mark was in the room are available.

Terence James McEvoy: Thanks for that, Tom. And then as a follow-up, I think you said Mark. Mark was in the room or available. I appreciate all the disclosures on office, maybe get comments on the industrial warehouse and and multifamily as well, just larger parts of the CRE portfolio, and you can discuss trends that you're seeing within those two segments.

Speaker Change: Great all the disclosures on office.

Speaker Change: Maybe give comments on the industrial warehouse and multifamily as well just larger parts of the CRE portfolio.

Speaker Change: If you could discuss trends that youre seeing within those two segments.

Mark: Hi, Terry we haven't seen any real issues with our industrial portfolio or warehouses.

Mark Fucinato: Hi Terry, We haven't seen any real issues with our industrial portfolio or warehouse, or Multifamily, for that matter. We're aware of what's going on in the market, and the key will be, again, if we have loans that are maturing at that stage. You know, LTVs and cash flows and rates; the usual equation would be what we'd be working with our customers. But we haven't had any issues with those particular asset classes at this point in time.

Terence James McEvoy: Our multifamily for that matter.

Terence James McEvoy: We're aware of what's going on in the market.

Terence James McEvoy: The key will be again, if we have loans that are maturing in that space.

Terence James McEvoy: Ltvs and cash flows at rates, usually equation will be working with our customers that we haven't had any issues in those particular asset classes at this point in time.

Speaker Change: It sounds encouraging I appreciate that thanks for taking my questions.

Terence James McEvoy: Sounds encouraging. I appreciate that. Thanks for taking my question.

Operator: The next question today comes from the line of Nathan Race from Piper Sandler. Please go ahead; your line is now open.

Speaker Change: You bet.

Speaker Change: Okay.

Speaker Change: The next question today comes from the line of Nathan race from Piper Sandler. Please go ahead. Your line is now open.

Nathan James Race: Yeah. Hi, guys. Good morning. Thanks for taking the questions.

Nathan James Race: Yes, hi, guys. Good morning, Thanks for taking the questions good morning Nathan.

Nathan James Race: Morning, Nate.

Nathan James Race: Question for Tom, just on the leverage trade that you guys executed in the quarter. Curious if you could just elaborate on the structure of that, how long you plan on keeping that on, and just how we should think about that going forward.

Nathan James Race: Question for Tom just on the leverage that you guys excuse me quarter curious if you could just elaborate on the structure of that how long do you plan on keeping that on.

Nathan James Race: Just how we should just thinking about that going forward.

Thomas J. Bell: I would make good. Thank you. Hi.

Speaker Change: I would make good thank you.

Thomas J. Bell: We are, you know, using that transaction we borrowed from the Fed and the term facility. So it's based primarily on borrowing costs versus what we can invest in. So we can pay the facility off at any time. It's a one-year transaction. So it will not stay on for more than a year, and it's all subject to our investment options, and currently, we're leaving the funds at the Fed. As long as the transaction has positive carry for us and creates NII, we'll keep the transaction.

Tom: We are using that transaction, we borrowed from the fed and the term facility. So it's based primarily on the borrowing cost versus what we can invest in so we can pay the facility off at any time, it's a one year transaction.

Tom: So it will not stay on for more than a year and it's all subject to our investment options and currently we are leaving the funds at the fed so.

Tom: As long as the transaction has a positive carry for us and creates NII will keep the transaction.

Alberto J. Paracchini: Nate, to add to what Thomas said, just think of that as really, we just, you know, obviously, we have a fair amount of flexibility in terms of our capital position. So I just looked at that as an opportunity to generate really some amount of net interest income really with essentially zero risk. And as Tom said, I think we'll continue to do that until it's profitable. It has a maturity, though, of one year. So that's really the end date. But for us, that was just about being opportunistic and generating some incremental net interest.

Need to add to what Tom just said.

Tom: Think of that as <unk>.

Speaker Change: Really we just.

Speaker Change: Obviously, we have a fair amount of flexibility in terms of our capital position. So we just.

Speaker Change: Looked at that as an opportunity to generate really some amount of net interest income really was essentially zero risk.

Speaker Change: And as Tom said I think we will continue to do that until it's profitable. It has a maturity, though one year. So that's really the end date, but for us that was just.

Speaker Change: Being opportunistic and generating some some incremental net interest income.

Nathan James Race: Got it. Very helpful.

Speaker Change: Got it.

Speaker Change: Very helpful.

Nathan James Race: And I assume that's factored in the continuation of those traits included in your guidance for NII and 2Q. Yep. Okay, great.

Speaker Change: I assume that's factored the continuation of that included in your.

Speaker Change: Guidance for NII.

Speaker Change: <unk> and <unk>.

Speaker Change: Yes.

Speaker Change: Okay great.

Nathan James Race: Changing gears a little bit, just think about SBA credit quality going forward. You know, obviously, there was a prominent SBA lender that had some issues that were announced last, yesterday, I believe, and I noticed that your SBA specific reserve came down a little bit quarter for quarter. So just curious what you're seeing across that portfolio today, and I understand you guys have de-risked that portfolio over the last several quarters, so just would love to hear an update in terms of what you're seeing in that portfolio that we can't necessarily glean from some of the disclosures.

Speaker Change: Here's a little bit.

Speaker Change: Thinking about SBA credit quality going forward, obviously, there was a prominent SBA lender.

Speaker Change: Some issues.

Speaker Change: That was announced last.

Speaker Change: Yesterday, I believe and I noticed that your SBU the reserve came down a little bit quarter over quarter. So just curious what youre seeing across the portfolio today.

Speaker Change: Understand you guys have.

Speaker Change: Derisk that portfolio over the last several quarters. So just would love to hear an update in terms of what youre seeing in that portfolio that we can't necessarily glean from some of the disclosures.

Alberto J. Paracchini: I, Nate, and I'm sure Mark will we'll jump in here as well. But I think about us. I think we've always looked at this business and been pretty consistent. And, understanding and knowing that this is, you know, a higher-risk segment of our portfolio. I think we added additional disclosure, and hopefully, it was helpful to give you all some perspective in terms of how that business has been, the exposure that we have to that business over time, and how it's come down. You know, in the, it's back in. If we think back at 2016, it's come down from around 14.6% of loans to around 6.3% today.

Speaker Change: Nate and I'm sure Mark will jump in here as well, but.

Speaker Change: I think to us I think.

We've always looked at this business and <unk> been pretty consistent.

Speaker Change: <unk>.

Speaker Change: Understanding and knowing that this is a higher risk segment.

Speaker Change: <unk> of our portfolio.

Speaker Change: I think we added additional disclosure hopefully it was helpful to give you.

Speaker Change: You all some perspective in terms of.

Speaker Change: How that business has been the exposure that we have to that business over time, how it's come down.

Speaker Change: In the Bakken.

Speaker Change: Back in if we think back at 2016.

Speaker Change: It's come down from around 14, 6% of loans to around six 3%.

Speaker Change: Today.

Alberto J. Paracchini: That being said, I think over the last, you know, really since COVID, we've really been communicating that, you know, this is a part of our portfolio that you always have concerns about because you're dealing with borrowers that are, you know, essentially either inexperienced or, you know, they're newer borrowers, they don't have the track record, et cetera. And I think our reserve relative to that comment has been consistent, you know, over time.

Speaker Change: That being said I think over the last really since Covid we've.

<unk> really been communicating that this is a part of our portfolio that you always have concerns about because youre dealing with with borrowers that.

Speaker Change: Our essentially either in experience or.

Speaker Change: Newer borrowers they don't have the track record et cetera, and I think our reserving relative to that comment has been consistent over time. So we.

Alberto J. Paracchini: So we feel good about kind of where we are at this point. I think the comments made by that other institution are comments that, hopefully, you can tell that we've been highlighting for some time and that, you know, yes, these are borrowers that coming out of COVID are likely going to experience some trouble, particularly given the fact that rates have gone up, you know, by 500 basis points. That being said, the trend in that portfolio has been pretty stable. You know, but we'll continue to monitor and manage the business accordingly. Mark.

Speaker Change: We feel good about.

Speaker Change: Kind of where we are at this point.

Speaker Change: Thank to the comments made by by that other institution I think those are the comments that I think hopefully you you can tell that we've been highlighting for some time and that yes. These are borrowers that coming out of Covid.

Speaker Change: Are likely going to experience some trouble, particularly given the fact that rates have gone up.

Speaker Change: 500 basis points that being said the trend in that portfolio has been pretty stable.

Speaker Change: But we'll continue to monitor and manage the business accordingly.

Mark Fucinato: Every, every couple of weeks, we literally sit down and go through, you know, the delinquencies, upcoming events for the customers, any trends in specific parts of the portfolio, what's going on in the workout credit. But again, as Alberto said, the biggest, I think, burden that they're facing is, I mean, a lot of these customers are paying interest rates three times what they were before rates started going up. And that's a heavy load for these smaller companies. They don't typically have the balance sheets typically to work through that, or the ability to put capital into a company.

Speaker Change: Mark.

Every every couple of weeks, we literally sit down and go through the delinquencies.

Speaker Change: Upcoming events for the customers.

Speaker Change: Any trends in specific parts of the portfolio.

Speaker Change: What's going on in the workout credits, but again, it's Alberto said the biggest I think.

Speaker Change: Burden that they are facing is I mean, a lot of these customers are paying into.

Speaker Change: Interest rates three times, what they were before rates started going up and Thats.

Speaker Change: So heavy load for the smaller companies they don't have the balance sheets typically though.

Speaker Change: To work through that with the ability to put capital into our company.

Mark Fucinato: So, it's a portfolio we monitor very carefully. But again, if you look back historically, it kind of comes with the territory that you're going to have some issues in that portfolio from time to time. And that's why we monitor it so closely at basically.

Speaker Change: <unk>.

Speaker Change: It's a portfolio.

Speaker Change: Palio, we monitor very carefully but again, if you look back historically.

It's kind of comes with the territory or most of that youre going to have some issues in that portfolio from time to time.

Speaker Change: Thats why we monitored so closely at basically every two weeks, we're looking at that book.

Mark Fucinato: Hopefully, that answers your question, that gives you some color now.

Speaker Change: Hopefully that gives you some color on that.

Nathan James Race: Yep, yep, indeed. And then, if I could just ask, lastly, just in terms of capital deployment priorities, you know, I imagine you guys will be north of your 9% TP target in pretty short order here. So just curious, in terms of what you're seeing from an acquisition opportunity perspective, and, you know, the M&A environment remains fairly difficult as it kind of stands today, how you're thinking about perhaps continuing with repurchases going forward.

Speaker Change: Yes, yes.

Speaker Change: And then if I could just ask lastly, just in terms of capital deployment priorities.

Speaker Change: As you guys will be north of your 9% TCE target.

Speaker Change: Pretty short order here. So just curious in terms of what Youre seeing from a acquisition opportunity perspective.

Speaker Change: The M&A environment remains fairly difficult.

Speaker Change: Stands today, how youre thinking about perhaps.

Speaker Change: Two.

Speaker Change: Repurchases going forward.

Speaker Change: Yes, I mean, it's something that.

Alberto J. Paracchini: Yeah, I mean, it's something that when you think about the hierarchy, Nate is first and foremost to continue to support growth and the core business. We're seeing some, some decent opportunities organically to grow the business. So, first and foremost, we want to have the flexibility to do that. Second, we want to pay a consistent dividend over time. Third would be, you know, M&A or other opportunities to grow inorganically.

Speaker Change: When you think about the hierarchy made his first and foremost is continuing to support the growth in the core business.

Speaker Change: We're seeing some.

Speaker Change: Some decent opportunities organically to grow the business. So first and foremost we want to we want to have the flexibility to do that.

Speaker Change: We.

Speaker Change: We want to pay a consistent dividend overtime third would be <unk>.

Speaker Change: Or.

Speaker Change: Other opportunities to grow Inorganically and then lastly, you have the valve off looking at share repurchases to your question regarding M&A.

Alberto J. Paracchini: And then lastly, you have the option of looking at share repurchases. You know, to your question regarding M&A, I think it's a pretty quiet environment. That said, I think we're always, you know, having conversations and looking at potential things that may surface. So I think we. In summary, I think that's the hierarchy. We just want to always have the flexibility to be able to take advantage of opportunities as they come.

Speaker Change: It's a pretty quiet environment that said I think we're always.

Speaker Change: Having conversations and looking at potential things that may surface. So.

Speaker Change: I think we in.

Speaker Change: In summary, I think thats the hierarchy, we just want to always have the flexibility to be able to take advantage of opportunities as they as they come.

Nathan James Race: OK, great; I appreciate all the color. Thank you guys. Nice quarter you got back.

Speaker Change: Okay great.

I appreciate all the color. Thank you guys nice quarter you bet.

Operator: The next question today comes from the line of Damon DelMonte from KBW. Please go ahead. Your line is now open. Good morning.

Speaker Change: Thanks Nate.

The next question today comes from the line of Damon Delmonte from <unk>. Please go ahead. Your line is now open.

Damon Paul DelMonte: Hey, good morning, guys have everybody's doing well today.

Damon Paul DelMonte: Hey, morning, guys. Hope everybody's doing well today. I'm just curious, do you guys have a projection for CRE maturities over the course of the next few quarters?

Damon Paul DelMonte: Just curious you guys have.

Damon Paul DelMonte: Arnie projection.

Damon Paul DelMonte: Do you guys have a projection for CRE maturities over the course of the next few quarters.

Speaker Change: Hi, Damon we haven't disclosed.

Alberto J. Paracchini: Damon, we haven't disclosed specifics, but I would say, generally speaking, I think if you look at our CRE, you know, office exposure is around $205 million. I would say probably, you know, 40% of that, or so, really is a 2024 event, and we're pretty much well ahead of where those loans and what those maturities are, and the rest are just, I would say, sprinkled out in 2025, 2026, and beyond without any real material concentration in any one year.

Damon: Specifically, but I would say generally speaking.

Speaker Change: I think if you look at our at our CRE office exposure is around $205 million.

Speaker Change: I would say probably.

Damon: 40% of that.

Damon: Or so.

Damon: Really is a 2024 event and were pretty much well ahead of kind of where were those loans and what those maturities are and the rest are just I would say spring called out in 2025, 2026 and beyond without any real.

Damon: Material concentration in any one year.

Speaker Change: Got it okay and is the.

Damon Paul DelMonte: Got it. Okay. And is that the kind of rate reset for those? Have you guys done any internal background work to kind of stress out the borrowers to see how they would react to the higher rates today and any kind of game plan to take appropriate action leading up to that?

Speaker Change: The rate reset for those.

Speaker Change: Have you guys done like internal background work to kind of stress out the borrowers to see how they would react to the higher rates today and kind of game plan to taken appropriate action leading up to that.

Alberto J. Paracchini: I think that's part and parcel to what Mark and his team and the business units do in monitoring the portfolio. So absolutely, Damon.

Speaker Change: I think thats part and parcel to what Mark and his team in the business units do and monitoring the portfolio so absolutely payment.

Speaker Change: Okay, great. Thank you and then just to circle back on the <unk>.

Damon Paul DelMonte: Great, thank you. And then just to circle back on the BTFP leverage that you put on, what was the total dollar amount of that? And during what period, what part of the quarter did it come on?

Speaker Change: Leverage that you put on.

Speaker Change: What was the total dollar amount of that.

Speaker Change: What part of the quarter didn't come on.

Speaker Change: $200 million in it.

Thomas J. Bell: and it came on in January.

Speaker Change: It came on in January.

Speaker Change: Okay. So we have a full full quarter impact here. This quarter then okay.

Damon Paul DelMonte: Okay, so we have a full full quarter impact here this quarter then. Okay. And then just lastly, you know, as we think about provisioning and kind of charge-offs, I mean, you guys still feel like net charge-offs will still be in that, you know, call it, 35 to 45 basis point range for the next few quarters, and provision should be supportive of that to maintain a relatively flat loan loss reserve, is that a fair way to think about that?

Speaker Change: And then just lastly, as we think about provisioning and.

Speaker Change: Kind of charge offs I mean, you guys still feel like net charge offs will still be in that call. It 35 to 45 basis point range for the next few quarters and provision should be.

Speaker Change: Be supportive of that to maintain a relatively flat loan loss reserve is that a fair way to think about that.

Speaker Change: That's a fair way I think obviously continuing on loan growth.

Thomas J. Bell: And I think, as we stated also, for the underlying business, I think we're comfortable with that statement. But, as you know, we have some PCD loans as we have opportunities to work those assets out. We will certainly highlight those. But you know, if we have those as marked assets, and if we have an opportunity to get out of them at exit prices, that makes sense, we will look to take advantage of that. So I just think that's just an additional caveat to your question. Got it.

Speaker Change: And in that regard also Damon and and I think as we stated also for the underlying business I think we're comfortable with that statement.

Speaker Change: But as you know we have some <unk> loans as we have opportunities to work those assets out.

Speaker Change: We will certainly highlight those but if we had those are marked assets and if we have an opportunity to to get out of them.

Speaker Change: <unk> prices that make sense, we will look to take advantage of that so I. Just that's just an additional caveat to your question.

Speaker Change: Got it okay. Thank you that's all that I had I appreciate it thanks.

Damon Paul DelMonte: Got it. Okay. Thank you. That's all that I had. I appreciate it. Thanks.

Speaker Change: As a reminder, if you would like to ask a question. Please press star followed by one on your telephone keypad.

Operator: As a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad. Our next question today comes from the line of Brian Martin from Janey Montgomery Scott. Please go ahead; your line is now open.

Speaker Change: Next question today comes from the line of Brian Martin from Janney Montgomery Scott. Please go ahead. Your line is now open.

Brian Joseph Martin: Hey, good morning, guys. Nice quarter. Morning, Brian. Hey, just maybe one. Just for maybe Tom, maybe just the big picture, you mentioned that you were maybe taking some steps to reduce the asset sensitivity. And I think, you know, you had previously talked about maybe a $3 million number for 25 basis point cuts. Just kind of wondering what you're planning to do with the potential to put some heads down or reduce the sensitivity or just kind of wondering if you could give us some thought of how you're thinking about that.

Brian Joseph Martin: Hey, good morning, guys nice quarter good morning.

Brian Joseph Martin: Brian.

Brian Joseph Martin: Hey, just maybe.

Brian Joseph Martin: One.

Brian Joseph Martin: Maybe for Tom maybe just big.

Brian Joseph Martin: <unk> you mentioned that you were.

Brian Joseph Martin: Maybe taking some steps to reduce the asset sensitivity and I think you had previous.

Brian Joseph Martin: You talked about maybe three.

Brian Joseph Martin: $3 million number for 25 basis point cut just kind of wondering.

Brian Joseph Martin: What you're planning to do on that.

Speaker Change: So to put some hedge there.

Speaker Change: Tiffany or just kind of if you can give us some thoughts how you're thinking about that.

Brian Joseph Martin: Yeah, sure, Brian. Thank you. I think a couple things. One, you have to recognize that rates in the middle of the curve are up about 100 basis points. So, you know, we obviously weren't going to do any hedges or in that lower rate environment. But now, I think it can make more sense.

Tiffany: Yeah sure Brian Thank you.

Tiffany: I think couple of things one you have to recognize that rates in the middle of the curve are up about 100 basis points. So.

Tiffany: We obviously weren't going to do any hedges or.

Tiffany: At lower rate environment, I think now it can make more sense.

Thomas J. Bell: You know, we'll still have to see how the data comes out and what the Fed does here. But we're, you know, we're asset sensitive. So we've benefited from the rate movement. And we just think that, you know, we're trying to get, you know, well, I don't know if we'll ever get to neutral, but we'd love to be, you know, at neutral at some point and just earn our spread and go home.

Tiffany: Still have to see how the data comes out and what the fed does here, but.

Tiffany: We're asset sensitive so we benefited from the rate up movement and we just think that we're trying to get.

Tiffany: I don't know that we'll ever get to neutral, but we'd love to be at neutral at some point and just earn our spread and go home but.

Thomas J. Bell: But you know, in the deck on page six, we kind of have our sensitivity to rates down. And we've been able to bring down the sensitivity just from organic things we're doing on the balance. And I think that's primarily our focus right now.

Tiffany: In the deck on page six we kind of have our sensitivity for rates down.

Tiffany: And we've been able to bring down the sensitivity just from organic things, we're doing on the balance sheet and I think that's primarily our focus right now.

Brian Joseph Martin: Okay, and specifically on the organic side, I guess, are there the actions you expect to maybe be able to reduce it by, you know, I guess, what specifically is anything you can talk about that you're planning to do that will lower that?

Tiffany: Okay.

Speaker Change: I guess, specifically on the organic side I guess the actions you expect to maybe be able to reduce it by I guess, what specifically is there anything you can talk about that you're planning to do that will lower that.

Thomas J. Bell: I mean, we brought it down about 1% from the last quarter. And so obviously, our leasing business is doing very well, that fixed-rate nature product we'd like to spread on that transaction for us. And that's, you know, a short-term cash flow transaction, three years, typically. So that's one area where, obviously, any, you know, fixed-rate loans that we do either in CRE or, you know, commercial will help us as well.

Speaker Change: And we brought it down about 1% from the last quarter and so obviously, our leasing business is doing very well that fixed rate nature product, we like the spread on that transaction for us and Thats a short term cash flow transaction three years typically.

Speaker Change: So that's one area, obviously any fixed rate loans that we do either in CRE or.

Speaker Change: Commercial.

Speaker Change: We will help us as well and then we obviously have a securities portfolio of cash flow is running off of that.

Thomas J. Bell: And then we obviously have the securities portfolio; the cash flow is running off of that. Securities investments are not a core business, but for liquidity reasons and also just given where spreads are, that looks more attractive today than it did, say, three months ago. So there's opportunities to at least for sure replace cash flows and potentially add to the position if needed.

Speaker Change: Securities investments is not a core business, but for liquidity reasons and also just given where spreads are that looks more attractive today than it did say three months ago. So there is opportunities to at least for sure replace cash flows and.

Speaker Change: Potentially add to the position if needed.

Alberto J. Paracchini: I think, Brian, to add to what Tom said there, I think, generally, it's really looking to take advantage to a degree of the fact that we can originate well-structured, rate-protected, fixed-rate loans. I think we would look to do that. And that's really the primary tool on the balance.

Speaker Change: I think Brian to add to what to what Tom said, there I think generally it's really looking to take advantage to a degree that we can that we can originate well structured.

Speaker Change: Right protected fixed rate loans, I think we would look to do that and Thats really the primary tool on the on the balance sheet side.

Brian Joseph Martin: Okay, and just curious, I mean the mix of what you're originating today in terms of variable versus fixed, what's the proportion? Is it more variable, and I guess is that worth it today, and you're shifting that?

Brian Joseph Martin: Okay, and just curious I mean.

Speaker Change: A mix of what you're originating today in terms of variable versus fixed what's the proportion is it more variable than I guess I guess.

Speaker Change: With that today and Youre shifting that.

Thomas J. Bell: Yeah, it was 70-30ish, kind of, and we're moving towards more 50-50.

Speaker Change: Yes.

Speaker Change: It was 70% 30 ish kind of and we're moving towards more 50 50.

Brian Joseph Martin: Gotcha. Okay. Perfect. Thanks for the call. And then maybe just one question for Mark on, I guess, from a credit perspective, any change in the quarter from a criticized perspective or kind of special mention credits? I know you talked about classified, but just any, doesn't sound like there's much movement there, but just wanted to confirm that.

Speaker Change: Got you Okay perfect. Thanks for the color and then maybe just one for Mark.

Speaker Change: Yes.

Mark: From a credit perspective any change in the quarter from from our criticize perspective, or even kind of a special mentioned credits I know you talked about classified but.

Mark: Any kind of like there was much movement, there, but just wanted to confirm that.

Mark: No there hasn't been a lot of movement.

Mark Fucinato: No, there hasn't been a lot of movement. In the stats, whether it's criticized, classified, et cetera, it's been pretty flat. Obviously, we're hoping to do better.

Mark: And the stats, whether it's criticized classified et cetera, it's been pretty flat.

Mark: Obviously, we're hoping to do better.

Brian Joseph Martin: Gotcha. Okay. And then maybe just one last one for Roberto, I guess, just, I think you've, I don't know if you've talked about this recently, but just with getting the $9 billion and closing in on $10 billion, just kind of how you're thinking about that in terms of, you know, if and when you do consider, I think last quarter, you talked a little bit about the M&A being, you know, more interested.

Speaker Change: Gotcha, Okay, and then maybe just one last one <unk> I guess, just I think I don't know if you.

Speaker Change: <unk> talked about this recently.

Speaker Change: With getting the $9 billion at closing and a $10 billion, just kind of how youre thinking about that in terms of.

Speaker Change: If and when you do consider I think last quarter, you talked a little bit about the M&A being more interested.

Speaker Change: Just wondering how you're thinking about that in terms of the $10 billion threshold.

Speaker Change: Is that a focus on potential targets you may be considering.

Alberto J. Paracchini: I don't know that we would say Brian, go ahead Roberto, no go ahead.

Speaker Change: I don't know.

Speaker Change: But we would say Bryan go ahead no go ahead.

Speaker Change: Yes.

Roberto R. Herencia: Yeah, so, and feel free to chime in. But the We, as you know, our strategy is organic focused, and, obviously, we'll take it. We'll take it, inorganic has always been part of the strategy, as long as it is within the parameters that we've described to you before. But we're going to cross that 10 billion threshold, right? Organically, I mean.

Bryan: Yes sure Phil.

Speaker Change: Feel free to chime in but.

Speaker Change: We.

Speaker Change: As you know our strategy is organic focused.

Speaker Change: Sure.

Speaker Change: Obviously, we will take it.

Speaker Change: Inorganic has always been part of the strategy.

Speaker Change: As long as it is within the parameters that we've described to you before.

Speaker Change: We're going to cross that $10 billion threshold rate.

Speaker Change: Organically I mean.

Roberto R. Herencia: You can see it happening right in 2025. I We're not going to change our M&A strategy because of the 10 billion threshold, and as we've shared with you previously, We're not a consumer-oriented bank. So, the impact of the interchange fee, while there is some impact, it's not what banks that have robust consumer businesses will be right about, it's going to be a smaller impact on us. So it's not the driver, right; we need to continue to execute on the organic opportunities that we have in front of us.

Speaker Change: You can see it happening right in 2025.

Speaker Change: We're not going to change our M&A strategy because of the $10 billion threshold.

Speaker Change: As we've shared with you previously.

Speaker Change: We're not a consumer oriented banks.

Speaker Change: <unk>.

Speaker Change: The impact from the interchange fee, while there is some impact it's not what.

Speaker Change: Banks that have.

Speaker Change: Robust consumer businesses.

Speaker Change: We'll be right its going to be a smaller impact on us.

Speaker Change: It's not the driver right, we need to continue to execute on the organic opportunities that we have in front of course, we're going to be smart about.

Roberto R. Herencia: Of course, we're going to be smart about that 10 billion line, but it's, it really does not consume our thinking. We're much more focused on executing on our plans. And if there are some opportunities on the inorganic front that help us cross that threshold in a way that is more efficient. Great, but if not... It is not, we're not, we're not worried about that, right? The opportunities will come when they are meant to come.

That $10 billion line, but.

Speaker Change: It's really does not consume are.

Speaker Change: Our thinking.

Speaker Change: We're much more focused on executing on our plans.

Speaker Change: There are some opportunities on the inorganic front.

Speaker Change: That helps us cross that threshold.

Speaker Change: In a way that is more efficient.

Speaker Change: Great, but if not.

Speaker Change: It is not we're not we're not worried about that right the opportunities will come when they come and the $10 billion threshold is.

Roberto R. Herencia: And the 10 billion threshold is just a demarcation point, and having had the experience of crossing that before with other institutions, right? We are focused on working internally and being prepared for the higher, you know, regulatory scrutiny that occurs after you've crossed that bill.

Speaker Change: Is just.

Speaker Change: A demarcation point.

Speaker Change: And having had the experience of crossing that before with other institutions.

Speaker Change: We are focused on working internally and being prepared.

Speaker Change: For the higher.

Regulatory scrutiny that occurs after you cross $10 billion.

Brian Joseph Martin: Got you. Well said. Thank you for taking it. Yeah, well said. Thank you, Roberto, and thanks for taking the questions, guys. I appreciate it.

Speaker Change: Got it.

Speaker Change: Thank you for taking as well.

Speaker Change: Well said, thank you Roberto and thanks for taking the questions guys I appreciate it.

Speaker Change: You bet.

Alberto J. Paracchini: Thank you for your questions today. I will now turn the call back over to Mr. Alberto Paracchini for any closing remarks.

Speaker Change: Thank you for your questions today, I will now turn the call back over to Mr. Alberto <unk> for any closing remarks.

Alberto J. Paracchini: Great, thank you operator, and we'd like to thank all of you for joining the call today. I think that wraps up the call for this morning. Thank you.

Alberto: Great. Thank you operator, and wed like to thank all of you for joining the call today, and I think that wraps up the <unk>.

Call for this morning, Thank you.

Operator: This concludes today's call. Thank you all for your participation. You may now disconnect.

Speaker Change: This concludes today's call. Thank you for your participation you may now disconnect.

Speaker Change: [music].

Speaker Change: Okay.