Q2 2024 Byline Bancorp Inc Earnings Call

Good morning, and welcome to the Byline Bancorp Second Quarter 2024 earnings call. My name is Makai, and I will be your conference operator today.

Operator: And I will be your conference operator today. All lines have been placed on mute to prevent any background noise during the speaker's remarks.

Operator: There will be a question and answer period. If you would like to ask a question, simply press the star followed by the number 1 on your telephone. If you would like to withdraw your question, press star and 2. If you are listening via speakerphone, please lift your headset prior to asking your question. If you require operator assistance, please press star then 0. Please note the conference call is being recorded. At this time, I would like to introduce Mr. Brooks Rennie, Head of Investor Relations for Byline Bancorp, to begin the conference call.

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 1 on your telephone. If you would like to withdraw your question, press star and 2.

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

Brooks O. Rennie: Thank you, Makai. Good morning, everyone. And welcome to Byline Bancorp's second quarter 2024 earnings conference 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. 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: Thank you, Makai. Good morning, everyone, and welcome to Byline Bancorp's second quarter 2024 earnings conference call.

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. 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. Reconciliation of each non-gap financial measure to the comparable gap financial measure can be found within the appendix of the earnings release.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: The company's risk factors are disclosed and discussed in SEC filings.

Speaker Change: 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.

Speaker Change: Reconciliation of each non-GAAP financial measure to the comparable GAAP financial measure 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 Raymond James Bank Conference and the Stevens Bank Forum. With that, I would now like to turn the conference call over to Alberto Paracchini, President of Byline Bancorp. Thank you, Brooks.

Speaker Change: For additional information about risks and uncertainties, please see the forward-looking statement and non-GAAP financial measures disclosures in the earnings release.

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

Alberto J. Paracchini: Thank you, Brooks. Good morning, everyone, and thanks for joining the call today. With me on the call is our Chairman and CEO, Roberto Herencia, our CFO, Tom Bell, and our Chief Credit Officer, Mark Fucinato. Regarding the agenda, I'll start by giving you the highlights for the quarter, followed by Tom, who will cover the financial results. I'll then come back with closing comments before we open the call for questions. 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 want to pass the call on to Roberto for some comments. Roberto. Thank you all.

Alberto J. Paracchini: Thank you, Brooks. Good morning, everyone, and thanks for joining the call today. With me on the call is our Chairman and CEO , Roberto Herencia, our CFO , Tom Bell, and our Chief Credit Officer, Mark Fucinato.

Alberto J. Paracchini: Regarding the agenda, I'll start by giving you the highlights for the quarter, followed by Tom, who will cover the financial results. I'll then come back with closing comments before we open the call 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 want to pass the call on to Roberto for some comments. Roberto.

Roberto R. Herencia: Thank you, Alberto, and good morning to all. Our performance this quarter, which Alberto and Tom will cover shortly, was once again solid across the board. Strong Profitability Matrix, several of which continue to rank top quartile among our peer group. We are proud to continue to deliver strong results as we position Byline to cross over the $10 billion threshold and become the go-to commercial bank in Chicago. Almost two weeks ago, we all witnessed another assassination attempt in our history. This was a deeply disturbing event and tragedy.

Roberto: Thank you, Alberto, and good morning to all.

Roberto: Our performance this quarter, which Alberto and Tom will cover shortly, was once again solid across the board with strong profitability metrics.

Speaker Change: several of which continue to rank top quartile among our peer group. We are proud to continue to deliver strong results as we position Byline to cross over the $10 billion threshold and the go-to commercial bank in Chicago.

Speaker Change: Almost two weeks ago we all witnessed another assassination attempt in our history. This was a deeply disturbing event and tragedy.

Roberto R. Herencia: No matter how you feel about politics, clearly, we have a problem with discourse, and we can only hope progress is made quickly towards unity in our country. I mentioned this because we all want a peaceful and safe convention in our city. That's my goal, just as it was in our sister city of Milwaukee a little over a week ago.

Speaker Change: No matter how you feel about politics.

Speaker Change: Clearly, we have a problem with discourse, and we can only hope progress is made quickly towards unity in our country.

Speaker Change: I mention this because we all want a peaceful and safe convention in our city next month.

Speaker Change: Just as it was in our sister city of Milwaukee a little over a week ago.

Roberto R. Herencia: Talking about unity and community, our organization continues to succeed in attracting and retaining top talent, with our latest recognition as a 2024-2025 U.S. News & World Report Best Company to Work For in the Midwest. This honor, along with last year's Forbes America's Best Small Employers, is a testament to our focus on meaningful employee programs and Creating a Best-in-Class Employee Culture. Awards like these are a result of us seeking and implementing employee feedback.

Speaker Change: Talking about unity and community. Our organization continues to succeed in attracting and retaining top talent.

Speaker Change: with our latest recognition as a 2024-2025 U.S. News & World Report Best Company to Work for in the Midwest.

Speaker Change: This honor, along with last year's Forbes America's Best Small Employers, are a testament to our focus on meaningful employee programs.

Speaker Change: and creating a best-in-class employee culture.

Speaker Change: Awards like these are a result of us seeking and implementing employee feedback.

Roberto R. Herencia: Congratulations to all our employees on these accomplishments. Just to reiterate our path and expectation, we believe the Chicago banking market will continue to be disrupted by events ranging from lower interest rates in the horizon, smaller banks getting weaker, mergers between larger banks with headquarters and decision making moving outside the state, as well as management changes and turnover.

Speaker Change: Congratulations to all our employees on this accomplishment.

Speaker Change: Just to reiterate our path and expectations.

Speaker Change: We believe the Chicago banking market will continue to be disrupted.

Speaker Change: by events ranging from

Speaker Change: Lower interest rates in the horizon.

Speaker Change: Smaller banks getting weaker.

Speaker Change: Mergers between larger banks with headquarters and decision-making moving outside state.

Roberto R. Herencia: That disruption fuels our organic growth, and our strategy, being home to the best commercial banking talent, continues to shine under those conditions. This is easier said than done, but when done well, from having the right credit and risk processes using the right technology, focus on key people practices, and nurturing a team that can finish each other's sentences. This strategy is unique, differentiated, and hard to replicate. We are optimistic about the future and the value our franchise can deliver to our shareholders. Of course,

Speaker Change: as well as management changes and turnover.

Speaker Change: That disruption fuels our organic growth.

Speaker Change: and our strategy, being home to the best commercial banking talent.

Speaker Change: continues to shine under those conditions.

Speaker Change: This is easier said than done.

Speaker Change: When done well, from having the right credit and risk processes, using the right technology.

Speaker Change: focus on key people practices.

Speaker Change: and Nurturing a Team That Can Finish Each Other's Sentences.

Speaker Change: The strategy is unique, differentiated, and hard to replicate.

Speaker Change: We are optimistic about the future and the value our franchise can deliver to our shareholders. Of course,

Alberto J. Paracchini: It is never a straight line, but we like the trajectory. We like the path we're on, and feel confident we can continue to build out the preeminent commercial banking in Chicago.

Speaker Change: It is never a straight line, but we like the trajectory, we like the path we're on.

Speaker Change: and feel confident we can continue to build out the preeminent commercial banking of Chicago.

Speaker Change: With that, back to you, Alberto.

Alberto J. Paracchini: I'll start by noting that overall, we were pleased with our results and the progress we've made in executing our strategy. We continue to deliver strong operating results and profitability while growing the franchise, building tangible book value per share, and increasing capital flexibility. This past quarter marked the 11th anniversary of the recapitalization of a privately held bank here in Chicago at $2.4 billion, and seven years since our initial public offering when our assets totaled $3.3 billion.

Alberto: Great. Thank you, Roberto.

Alberto: I'll start by noting that overall we were pleased with our results and the progress we've made in executing our strategy. We continue to deliver strong operating results and profitability while growing the franchise, building tangible book value per share, and increasing capital flexibility.

Speaker Change: This past quarter marked the 11th anniversary since the recapitalization of a privately held bank here in Chicago at $2.4 billion, and seven years since our initial public offering when our assets totaled $3.3 billion.

Alberto J. Paracchini: As we now approach the $10 billion asset mark, with our story and results becoming clearer, we believe the long-term value and strength of our franchise will be consistently apparent. Let's move on to page three and jump into the highlights.

Speaker Change: As we now approach the $10 billion asset mark, with our story and results becoming clearer, we believe the long-term value and strength of our franchise will be consistently apparent. Let's move on to page 3 and jump into the highlights.

Thomas J. Bell: For the quarter, we reported net income of $29.7 million, or $0.68 per diluted share, on revenue of approximately $100 million, which was up 10% year-on-year. Pre-tax preparation net income was again strong at $46.2 million, and pre-tax preparation ROA remained above 200 basis points for the seventh consecutive quarter. Return on assets remained solid at 131 basis points, and ROTC of 15.27% was comfortably above our equity cost of capital. Expenses remain well-managed at approximately $53 million, despite higher inflation and continued cost pressure.

Speaker Change: For the quarter, we reported net income of $29.7 million or $0.68 per diluted share on revenue of approximately $100 million.

Speaker Change: which was up 10% year-on-year. Pre-tax preparation net income was again strong at 46.2 million and pre-tax preparation ROA remained above 200 basis points for the seventh consecutive quarter.

Speaker Change: Return on assets remained solid at 131 basis points and ROTC of 15.27% was comfortably above our equity cost of capital.

Speaker Change: Expenses remain well managed at approximately $53 million despite higher inflation and continued cost pressures.

Thomas J. Bell: The efficiency ratio inched up slightly to 52% for the quarter, but our cost-to-asset ratio, a better measure of expense discipline, came in at 230 basis points, reflecting a 33 basis point decline from the year-ago period. Turning to the balance sheet, we experienced good loan growth of $103 million, or 6.1% annualized, coming from our commercial and leasing loan book. The faucets stood at $7.3 billion and were essentially flat

Speaker Change: The efficiency ratio inched up slightly to 52% for the quarter, but our cost-to-asset ratio, a better measure of expense discipline, came in at 230 basis points, reflecting a 33 basis point decline from the year-ago period.

Speaker Change: Turning to the balance sheet, we experience good loan growth of $103 million or 6.1% annualized coming from our commercial and leasing loan books.

Thomas J. Bell: The mix continued to moderate, with DDAs declining by only 1% to 24% of total deposits. The margin declined slightly to 3.98% from 4% in the previous quarter. That said, earnings asset growth more than offset the two basis points decline and drove net interest income to $86.5 million, up $1 million quarter-on-quarter. Fee income excluding a $2.5 million fair value mark on our servicing asset remained stable along with gain on sale income, which was up 9% to $6 million in line with our target.

Speaker Change: Deposits stood at $7.3 billion and were essentially flat quarter-on-quarter. The mix continued to moderate with DDAs declining by only 1% to 24% of total deposits.

Speaker Change: The margin declined slightly to 3.98% from 4% in the previous quarter. That said, earning asset growth more than offset the two basis points decline and drove net interest income to $86.5 million, up $1 million quarter-on-quarter.

Speaker Change: Fee income excluding a $2.5 million per value mark on our servicing asset remained stable along with gain on sale income, which was up 9% to $6 million in line with our target.

Thomas J. Bell: Last quarter, we commented that we were focused on actively resolving non-performing loans, and we had a productive quarter in that regard, with NPLs declining seven basis points to 93 basis points as of quarter end. We saw good resolution activity throughout the quarter on both acquired loans and other loans with specific reserves attached, which led to charge-ups of 56 basis points for the quarter. Other credit trains remained stable, with delinquencies back to more normalized levels and criticized loans declining $16 million from the previous quarter.

Speaker Change: Last quarter we commented that we were focused on actively resolving non-performing credits and we had a productive quarter in that regard, with NPLs declining 7 basis points to 93 basis points as of quarter end.

Speaker Change: We saw good resolution activity throughout the quarter on both acquired loans and other loans with specific reserves attached.

Speaker Change: which led to charge-ups of 56 basis points for the quarter. Other credit trains remained stable with delinquencies back to more normalized levels and criticized loans declining $16 million from the previous quarter.

Thomas J. Bell: Provision expense was $6 million, and the allowance remained healthy at 1.45% of total loan. Capital ratios all increased during the quarter, with CET1 and total capital approaching 11% and 14%, respectively. TCE came in at 8.82% and is at the upper end of our targeted range of between 8 to 9%. Lastly, we consolidated two branches, bringing our total branch count to 46 and pushing average deposits per branch to about $160 million as of quarter end. With that, I'd like to turn over the call to Tom, who will provide you with more detail on our results.

Speaker Change: Provision expense was $6 million and the allowance remained healthy at 1.45% of total loans.

Speaker Change: Capital ratios will increase during the quarter with CET1 and total capital approaching 11% and 14% respectively.

Speaker Change: TCE came in at 8.82% and is at the upper end of our targeted range of between 8 to 9%.

Speaker Change: Lastly, we consolidated two branches, bringing our total branch count to 46, and portioning average deposits per branch to about $160 million as of quarter end.

Speaker Change: With that, I'd like to turn over the call to Tom who will provide you more detail on our results.

Thomas J. Bell: Thank you, Alberto, and good morning, everyone. Starting with our loan portfolio on slide 4, we had strong origination activity for the quarter of $300 million, up 14% compared to last quarter. Combined with higher utilization rates and offset by more neutralized payoff activity, our loan portfolio increased $103 million or 6% annualized to $6.9 billion. Business development activity remained healthy, driven by our commercial and leasing. When looking at our loan portfolio over the past year, our CRE concentration to total loans declined by 2 percentage points from 35% to 33%, and our regulatory commercial real estate ratio remains at a comfortable 171%. As we head into the second half of the year, we expect loan growth to continue in the mid-single digits. Turning to slide 5.

Tom: Thank you, Alberto, and good morning everyone. Starting with our loan portfolio on slide 4, we had strong origination activity for the quarter of $300 million, up 14% compared to last quarter.

Tom: Combined with higher utilization rates and offset by more neutralized payoff activity, our loan portfolio increased $103 million or 6% annualized to $6.9 billion.

Tom: Business development activity remained healthy, driven by our commercial and leasing teams.

Tom: When looking at our loan portfolio over the past year,

Tom: Our CRE concentration to total loans declined by 2 percentage points from 35% to 33% and our regulatory commercial real estate ratio remains at a comfortable 171%.

Tom: As we head into the second half of the year, we expect loan growth to continue in the mid-single digit.

Thomas J. Bell: Total deposits stood at $7.3 billion, flat from the first quarter, driven by second quarter seasonal outflows and a slight decline in broker deposits. We have already seen most of those outflows come back here in the third quarter. The mix moderated, as expected, at a decelerating pace, link quarter.

Tom: Turning to slide 5.

Tom: Total deposits stood at $7.3 billion, flat from the first quarter, driven by second quarter seasonal outflows and a slight decline in broker deposits.

Tom: We have already seen most of those outflows come back here in the third quarter.

Tom: The mix moderated as expected at a decelerating pace link quarter.

Thomas J. Bell: On a cycle-to-date basis, deposit betas grew at a slower pace, with total deposits at 49% and interest-bearing deposits at 64%. We continue to believe that the tradeoff of funding high-quality relationships at a marginally higher cost remains an attractive long-term strategy in contributing to our net interest income expansion for the quarter, as shown on slide 6. Net interest income was $86.5 million for Q2, up 1% from the prior quarter, primarily due to growth in the loan portfolio, offsetting higher interest expense on deposits. The NIM remains stable at 3.98%.

Tom: On a cycle-to-date basis, deposit betas grew at a slower pace.

Tom: With total deposits at 49% and interest bearing deposits at 64%.

Tom: We continue to believe that the trade-off of funding high-quality relationships at a marginally higher cost remains an attractive long-term strategy in contributing to our net-interest income expansion for the quarter.

Tom: during the slide six.

Tom: Non-interest income was $86.5 million for Q2, up 1% from the prior quarter, primarily due to growth in the loan portfolio, offsetting higher interest expense on deposits.

Thomas J. Bell: More importantly, if we exclude loan accretion income of 17 basis points, our core NIM expanded by one basis point in the link quarter. Further, if we exclude the term facility trade, our NIM would have been higher by an additional eight basis points. Earning Asset Yields Increased 4 Basis Points Driven by Higher Loan and Investment Assuming no rate cuts in Q3, we estimate our net interest income for the quarter in the $85 to $87 million range. If the Fed were to cut rates, the impact of NAI is illustrated on slide 6.

Tom: The NIM remains stable at 3.98%. More importantly, if we exclude loan accretion income of 17 basis points, our core NIM expanded one basis point linked quarter.

Tom: Further, if we exclude the term facility trade, our NIM would have been higher by an additional 8 basis points.

Tom: Earning Asset Yields increased four basis points driven by higher loan and investment yields.

Tom: Assuming no rate cuts in Q3, we estimate our net interest income for the quarter in the $85 to $87 million range. If the Fed were to cut rates, the impact of NAI is illustrated on slide 6.

Thomas J. Bell: For every 25 basis point rate cut, the quarterly impact is roughly $700,000, or $2.7 million. Turning to slide 7, non-interest income totaled $12.8 million in the second quarter, which is down approximately $2.6 million on the link order, primarily driven by a $2.5 million negative fair value mark on the loan servicing asset due to higher prepayments and a fair value adjustment of $390,000 on equity security. This was partially offset by an increase of $503,000 in net gain on sale of loans due to a higher premium. The Volume of Unguaranteed Lone Souls was flat compared to Q1.

Tom: For every 25 basis point rate cut, the quarterly impact is roughly $700,000, or $2.7 million annually.

Tom: Turning to slide 7.

Tom: Non-interest income totaled $12.8 million in the second quarter, which is down approximately $2.6 million lean quarter, primarily driven by a $2.5 million negative fair value mark.

Tom: On the loan servicing asset due to higher prepayments and a fair value adjustment of $390,000 on equity securities.

Tom: This was partially offset by an increase of $503,000 in net gain on sale of loans due to higher premiums.

Tom: The volume of unguaranteed loans sold was flat compared to Q1.

Thomas J. Bell: But the net average premium was 10.1% for Q2, higher than the first quarter, primarily due to mixed loan sales. We are forecasting gain on sale income of $5-$6 million range for Q3. Turning the slide 8.

Tom: But the net average premium was 10.1% for Q2, higher than the first quarter, primarily due to mixed loans sold.

Tom: We are forecasting gain on sale income of 5 to 6 million dollar range for Q3.

Thomas J. Bell: Our non-interest expense remained well managed and came in at $53.2 million for the second quarter, down 1% from the prior quarter and in line with Q2 guidance. The decrease is mainly due to branch consolidation charges taken in Q1 and lower occupancy expenses. Offset by a $1 million increase in professional services. We continue to remain disciplined on expense management and maintain our non-expense guidance of $53 million to $55 million. Turning to slide 9, for your reference.

Tom: Turning to slide 8.

Tom: Our non-interest expense remained well managed and came in at $53.2 million for the second quarter, down 1% from the prior quarter, and in line with Q2 guidance.

Tom: The decrease is mainly due to branch consolidation charges taken in Q1 and lower occupancy expense.

Tom: Offset by $1 million increase in professional services.

Tom: We continue to remain disciplined on expense management and maintain our non-interest expense guidance of $53 million to $55 million.

Thomas J. Bell: We added additional disclosures on the asset quality slide, where we break out government guaranteed and purchase credit deteriorated PCE. Provision expenses for the quarter came in at $6 million, down from $6.6 million in Q1, primarily driven by a lower level of unfunded commitments. The allowance for credit losses at the end of Q2 was $99.7 million, down 3% from the end of the prior quarter.

Tom: Turning to slide 9, for your reference, we added additional disclosures on the asset quality slide, where we break out government-guaranteed and purchase credit deteriorated PCD.

Tom: Provision expenses for the quarter came in at $6 million, down from $6.6 million in Q1, primarily driven by a lower level of unfunded commitments.

Tom: The allowance for credit losses at the end of Q2 was $99.7 million, down 3% from the end of the prior quarter.

Thomas J. Bell: Net charge-offs ticked up this quarter to $9.5 million, compared to $6.2 million in the previous quarter. The increase is a result of one acquired C&I loan relationship of $4 million that is included in our originated portfolio. NPLs to total loans decreased by 7 basis points to 93 basis points in Q2. If you look at the bottom left graph, you can see that excluding the government-guaranteed loans, NPLs were 83 basis points, and MPAs to total assets decreased by 6 basis points to 67 basis points. Turning to slide 10.

Tom: Net charge-offs ticked up this quarter to $9.5 million, compared to $6.2 million in the previous quarter.

Tom: The increase is a result of one acquired C&I loan relationship of $4 million that is included in our originated portfolio.

Tom: NPLs to total loans decreased by 7 basis points to 93 basis points in Q2. If you look at the bottom left graph, you can see excluding the government-guaranteed loans, NPLs were 83 basis points.

Tom: And MPAs to total assets decreased by 6 basis points to 67 basis points in Q2.

Thomas J. Bell: For the quarter, the loan-to-deposit ratio ticked up due to loan growth and seasonal deposit outflows. We continue to focus on growing new deposit relationships, targeting a loan-to-deposit ratio below 90% over time. Our liquidity and capital levels remain ample and continue to provide a strong foundation that positions us well as we enter the back half of 2020. Moving on to Capital on slide 11.

Tom: Turning to slide 10.

Tom: For the quarter, the loan-to-deposit ratio ticked up due to loan growth and seasonal deposit outflows.

Tom: We continue to focus on growing new deposit relationships, targeting a loan-to-deposit ratio below 90% over time.

Tom: Our liquidity and capital levels remain ample and continue to provide a strong foundation which positions us well as we enter the back half of 2024.

Thomas J. Bell: Capital levels remain strong and are already above pre-inland transaction levels. Our CET1 ratio increased 25 basis points from the prior quarter to 10.84%, nearing our 11% target. Our total capital increased by 20 basis points linked quarter to $13.86 billion. Additionally, the TCE to TA ratio stood at 8.82%, up 6 basis points linked quarter, and excluding the term facility trade, our TCE ratio is approximately 19 basis points higher. Our tangible book value per share increased 3% this quarter to $18.84 and is 8.1% higher than last year. We had another solid quarter with strong performance metrics, resulting in an excellent first half of the year. More importantly, we continue to demonstrate our ability to act on our strategic priorities. With that, Alberto...

Tom: Moving on to Capital on slide 11.

Tom: Capital levels remain strong and are already above pre-inland transaction levels. Our CET1 ratio increased 25 basis points from the prior quarter to 10.84%, nearing our 11% target.

Tom: Our total capital increased by 20 basis point link quarter to 13.86%.

Tom: Additionally, the TCE to TA ratio stood at 8.82%, up 6 basis points, link quarter, and excluding the term facility trade, our TCE ratio is approximately 19 basis points higher.

Tom: Our tangible book value per share increased 3% linked quarter to $18.84 and is 8.1% higher than last year.

Alberto J. Paracchini: Great. Thank you, Tom.

Tom: We had another solid quarter with strong performance metrics, resulting in an excellent first half of the year.

Tom: More importantly, we continue to demonstrate our ability to exercise against our strategic priorities.

Alberto J. Paracchini: Great, thank you, Tom. While we are pleased with the results for the quarter, we continue to capitalize on opportunities to grow the business. To that end, we made important additions to our wealth business, including a new head of wealth, chief investment officer, chief fiduciary officer, and a senior client advisor. We also strengthened our marketing team with several key hires. We've worked hard to build a platform capable of attracting high-quality talent and remain on the lookout to continue to selectively add talent to the organization.

Tom: With that, Alberto, back to you.

Alberto: Great. Thank you, Tom. While we are pleased with the results for the quarter, we continue to capitalize on opportunities to grow the business.

Alberto: To that end, we made important additions to our wealth business, including a new head of wealth, chief investment officer, chief fiduciary officer, and a senior client advisor. We also strengthened our marketing team with several key hires.

Alberto: We've worked hard to build a platform capable of attracting high-quality talent and remain on the lookout to continue to selectively add talent to the organization. As far as the outlook is concerned, we continue to see good deal flow and pipelines remain overall healthy.

Alberto J. Paracchini: As far as the outlook is concerned, we continue to see good deal flow on pipelines remain overall healthy. As I mentioned last quarter, we continue to find the trade-off of adding attractive business and long-term relationships at marginally higher funding costs in the short-run and acceptable in the long-term. We remain well positioned to take advantage of opportunities in front of us and dedicated to delivering on our promises of providing attractive, long-term, intrinsic growth to our stockholders and value to all our stakeholders. Lastly, none of this would be possible without the strong efforts and dedication of our entire byline team. With that, Operator, I'll turn back to you to take questions.

Alberto: As I mentioned last quarter, we continue to find the trade-off of adding attractive business and long-term relationships at marginally higher funding costs in the short run an acceptable one.

Alberto: We remain well-positioned to take advantage of opportunities in front of us and dedicated to delivering on our promises of providing attractive, long-term, intrinsic growth to our stockholders and value to all our stakeholders.

Alberto: Lastly, none of this would be possible without the strong efforts and dedication of our entire Byline team.

Speaker Change: And with that, Operator, I'll turn back to you to take questions.

Operator: Thank you. We will now begin the question and answer session. As a reminder, if you would like to ask a question, simply press the star followed by 1 on your telephone keypad. If you would like to withdraw your question, press star and 2. If you are listening via speakerphone, please lift your headset prior to asking your question. The first question is from the lawn of Nathan Race of Piper Sandler. You may proceed.

Speaker Change: Thank you. We will now begin the question and answer session. As a reminder, if you would like to ask a question, simply press the star followed by 1 on your telephone keypad. If you would like to withdraw your question, press star and 2. If you are listening via speakerphone, please lift your headset prior to asking your question.

Speaker Change: The first question is from Alon of Nathan Race of Piper Sandler. You may proceed.

Nathan James Race: Yeah. Hi, everyone. Good morning.

Nathan James Race: Yeah, hi everyone. Good morning.

Nathan James Race: It was great to see, from a credit perspective, some improvement in the office and commercial portfolio. You know, I'm just curious kind of what you guys can share that we maybe can't clean from some of the disclosures on the slide, and also just curious to hear your thoughts more broadly on what you're seeing in the Chicagoland office, commercial real estate arena and maybe any residual impact.

Speaker Change: You know, it was great to see from a credit perspective, some improvement in the office.

Speaker Change: Commercial Portfolio. You know, I'm just curious kind of what you guys can share that we maybe can't glean from some of the disclosures on the slides.

Speaker Change: 15 in the deck and also just curious to hear your thoughts more broadly on what you're seeing in the Chicagoland office

Speaker Change: commercial

Speaker Change: Real Estate Arena and maybe any residual impacts.

Nathan James Race: So I guess to point out. Start with your first question or the first part of your question, Nate. You're talking about slide 16 on the back. Yeah. Any particular, anything in particular you want us to cover?

Speaker Change: So, I guess to point on...

Speaker Change: To start with your first question, or the first part of your question Nate, you're talking about slide 16 on the back.

Speaker Change: Yeah.

Nate: Any particular, anything in particular you want us to cover?

Nathan James Race: No, I was just curious if you could share any other thoughts on kind of what you're seeing across your portfolio that maybe we can't glean from the disclosures provided.

Nate: No, I was just curious if you could share any other thoughts on kind of what you're seeing across your portfolio that maybe we can't glean from the disclosures provided.

Alberto J. Paracchini: Sure. So on the office side, I can, I think we can share, you know, so let's talk about the kind of upcoming maturities for the next several quarters. We feel pretty good about where we are in terms of, you know, what the pipeline of maturities looks like, both in terms of, you know, assets that we've already identified, have already classified, and have already specific reserves against, to hopefully be able to move, you know, out of the company here in the next several quarters.

Speaker Change: Sure. So on the office side, I can, I think we can share, you know, so let's talk about kind of upcoming maturities for the next several quarters, we feel pretty good about where we are, in terms of, you know, what the pipeline of maturities looks like.

Nate: both in terms of assets that we've already identified, have already classified, have already specific reserves against.

Nate: to hopefully be able to move out of the company here over the next several quarters. And then on the rest of it, we feel very good about

Alberto J. Paracchini: And then on the rest of it, we feel very good about where those assets are, in terms of renewals and extensions. So we feel pretty good with what we have coming over the next several quarters, probably into 25, the early part of 25 at this point. So that's hopefully that's some additional color on that.

Nate: where those assets are in terms of, you know, renewals and extension. So we feel pretty good with what we have coming over the next several quarters, probably into 25, the early part of 25 at this point.

Alberto J. Paracchini: And then, and Mark will certainly chime in, you know, as far as the office market is concerned, it's, it's really a tale of a confluence of factors. You know, obviously, if you're talking about dated Class B office properties in the Central Business District, those are going to be very challenging. And I think you're seeing that play out not only here in Chicago but throughout other large metropolitan areas.

Nate: So that's hopefully that's some additional color.

Nate: you know, on that, and then and Mark will will certainly chime in, you know, as far as the office market, it's, it's really a tale of

Mark: of, you know, confluence of factors, you know, obviously, if you're talking about dated class B

Mark: Office Properties in the Central Business District.

Mark: Those are going to be very challenging. And I think you're seeing from different news sources, different CRE

Mark: data sources and publications, I think you're seeing that play out not only here in Chicago, but throughout throughout other large metropolitan areas. Fortunately, we don't have

Alberto J. Paracchini: Fortunately, we don't have We're not, we're not a lender in that space. So we're, we're, you know, pretty well positioned in terms of that dynamic. And I would also point out that I don't think that dynamic is rate-driven; I think that's just the obsolescence of that stock of buildings, and that's something that's been in a gradual decline for some time, dating back before COVID.

Mark: We're not we're not a lender and in that space. So we're, we're, you know, pretty, pretty well positioned in terms of that dynamic. And I would also point out, I don't think that dynamic is rate driven. I think that's just

Mark: obsolescence of that stock of buildings. And that's something that's been in a gradual decline for some time dating back before.

Alberto J. Paracchini: I think suburban is faring better. I think the work from home dynamic tends to impact that a bit more than your typical kind of central business district, you know, property. And then I would say a new class of urban buildings in newer emerging urban areas. I think those buildings, you know, typically are newer. They have much more in terms of amenities. And those are, you know, emerging pockets, you know, within the city. In this case, here in Chicago, I would point you to the West Loop. And I think you've seen office properties in that market, with some exceptions, be pretty resilient.

Mark: COVID. I think suburban is faring better. I think the work from home dynamic tends to impact that a bit more than your typical kind of central business district, you know, property.

Mark: And then I would say a new class of urban buildings and or in newer emerging urban areas, I think those buildings, you know, typically are newer, they have much more in terms of amenities.

Mark: And those are, you know, emerging, you know, pockets, you know, within the city. In this case, here in Chicago, I would point you to certainly the West Loop. And I think you've seen office properties in that market, with some exceptions, be pretty resilient.

Mark Fucinato: So, Nate, and Mark, I don't know if you want to add additional color to that.

Mark Fucinato: And Nate, I think we're still in the middle of that movie on Office, probably across the country, maybe across the globe. But at the same time, we are seeing some positive signs again selectively depending on the situation. We had two problem loans that we were fortunate to resolve because somebody wanted to buy them and convert them to, you know, multifamily type apartment situations in metro areas. So there's interest in the space, I think. We're not looking to do new office building loans, obviously, on our end.

Mark: So Nate, Mark, I don't know if you want to add additional color to that.

Mark: And Nate, I think we're still in the middle of that movie on Office, probably across the country, maybe across the globe.

Speaker Change: But at the same time, we are seeing some positive signs, again, selectively, depending on the situation. We had two problem loans.

Speaker Change: That really we were fortunate to resolve because somebody wanted to buy them and convert them to, you know, multi-family type apartment situations in metro areas.

Speaker Change: So, there's interest in the space, I think. We're not looking to do new office building loans, obviously, on our end.

Alberto J. Paracchini: There are some opportunities, and there is capital available to resolve some of the problems that are out there. But I still think I said that the movie was still half over in terms of what's going to happen, especially regarding appraisal. Because the appraisal values now that are coming in, you're starting to see the impact of what's taken place over the last year and a half or something.

Speaker Change: There is some opportunities and there is capital available to resolve some of the problems that's out there.

Speaker Change: But I still think I said that the movie is still half over in terms of what's going to happen Especially regarding appraisals because the appraisal values now that are coming in you're starting to see the impact Of what's taking place over the last year and a half or so

Alberto J. Paracchini: And Nate, to add to what Mark said there, because I think this is an important distinction, we tend to be very focused, you know, from an underwriting standpoint in terms of debt yields, and we tend to be very focused in terms of looking at the reality of properties well ahead of price. So we're thinking about current rent rolls. We're thinking about changing cap rates. We're thinking about the debt yield on properties, in anticipation of eventually starting to see, you know, when appraisals are done, declines in value.

Nate: And Nate, to add to what Mark said there, because I think this is an important distinction, we tend to be very focused, you know, from an underwriting standpoint in terms of debt yields, and we tend to be very focused in terms of looking at the reality of properties well ahead of appraisals.

Nate: So we're thinking about current rent rolls. We're thinking about changing cap rates. We're thinking about the debt yield on properties

Nate: in anticipation of eventually starting to see

Alberto J. Paracchini: So I guess what I'm trying to say here is we're not waiting for an appraisal to ultimately reflect that valuations of, you know, properties are reacting to higher rates and reacting to current market conditions. So that's not a surprise, you know, for us.

Nate: you know, when appraisals are done, you know, declines in value. So I guess what I'm trying to say here is, we're not waiting for an appraisal to ultimately reflect that valuations of, you know, properties.

Nate: are reacting to higher rates and reacting to current market conditions. So that's not a surprise, you know, for us.

Nathan James Race: Got it. Makes sense. Very helpful caller.

Nate: Got it. Makes sense. Very helpful caller.

Nathan James Race: Changing gears. I appreciate Tom's comments around the NII impact from each 25 creases point cut by the Fed. And, you know, just curious, a couple questions.

Speaker Change: Changing gears, I appreciate Tom's comments around the NII impacts from each 25

Nathan James Race: One, is that under a static analysis? And two, to what extent or what amount of deposits do you guys feel that can reprice kind of one for one following each cut? I know it's going to depend on competitive factors, isn't it? Sure.

Speaker Change: Crisis point cut by the Fed. And, you know, just curious, a couple questions. One, is that under a static analysis? And two, to what extent or what amount of deposits do you guys feel that can reprice kind of one for one following each cut?

Thomas J. Bell: Sure, firstly, it is static, and we did have a ramp scenario as well that you can look at. I'm on the slide.

Speaker Change: I know it's going to depend on competitive factors, isn't it? Sure. First, it is static, and we did have a ramp scenario as well that you can look at.

Thomas J. Bell: As it relates to repricing, There is a significant amount of liabilities that will reprice our CD book in roughly five months, five and a half months. So we have, I mean, there is technically a little lag on that, but if the Fed does move in September. You know, that's two months kind of down the road for us, so we're going to have a number of opportunities to reprice quickly, but there will be some lag.

Speaker Change: I'm on the slide.

Speaker Change: As it relates to repricing,

Speaker Change: There is a significant amount of liabilities that will reprice. Our CD book is roughly five months, five and a half months, so we have, I mean, there is technically a little lag on that, but if the Fed does move in September ...

Speaker Change: You know, that's two months kind of down the road for us, so that, you know, we're going to have a number of opportunities to reprice quickly, but there will be some lag on the CD book.

Thomas J. Bell: Yeah, and just speaking of that portfolio, Tom, can you just help us in terms of the amount of CDs you've matured over the next few quarters, what rate that's coming off at, and kind of what your kind of theoretical replacement cost is today?

Speaker Change: Yeah, just speaking of that portfolio, Tom, can you just help us in terms of the amount of CDs you've matured over the next few quarters, what rate that's coming off at, and kind of what your kind of theoretical replacement cost is today?

Thomas J. Bell: The average maturity for the rest of the year is about 470. And, you know, we're issuing at that average level right now. So if rates were to cut, then you'd see a 25 or 50 basis point flow depending on what the Fed does.

Tom: The average maturity for the rest of the year is about 470.

Speaker Change: And, you know, we're issuing in that average level right now. So if rates were to cut, then you'd see 25 or 50 basis points lower, depending on what the Fed does.

Nathan James Race: Okay, great. And if I could just ask one more on the M&A front. We heard from another Chicagoland institution last week that there's been some increase in chatter lately. So just curious to get your guys' updated perspectives on kind of what you're seeing and hearing and kind of the opportunity set just given, you know, just given where the total assets stand today, just under $10 billion.

Speaker Change: Okay, great. And if I could just ask one more on the M&A front. We heard from another Chicagoland institution last week that there's been some increase in in chatter lately. So just curious to get your guys's updated perspectives on kind of what you're seeing and hearing and kind of the opportunity set just given, you know, as

Speaker Change: Just give them where the total assets stand today, just under $10 billion.

Alberto J. Paracchini: In that regard, Nate, I think from our standpoint, I think things have been pretty steady. There's always been... kind of, for lack of a better word, kind of like that underlying chatter going on. I think we suspect, given the backup, the rally in rates that we've seen over the last month or so, that's obviously going to impact, you know, kind of the headwinds a bit that have been there since the Fed started raising rates and, you know, AOCI challenges that have been, for some institutions, kind of like an impediment to M&A. And certainly, when you're talking about the under $100 billion, under So our sense is that, you know, market activity will likely pick up from where it's been here more recently. So hopefully, that gives you some color on that. Yep, that helps.

Speaker Change: I think, I think in that regard, Nate, I think from our standpoint, I think things have been pretty steady. There's always been.

Nathan James Race: Yep, that helps. I appreciate all the

Speaker Change: kind of what, for lack of a better word, kind of like that underlying chatter going on.

Speaker Change: I think we suspect, given the back of the rally and in rates that we've seen over the last month or so, that's obviously going to impact, you know, kind of the headwinds a bit.

Speaker Change: that have been there since the Fed started raising rates and, and, you know, AOCI challenges that have been for some institutions kind of like an impediment to

Speaker Change: to M&A. And certainly when you're talking about the

Speaker Change: The under $100 billion, under kind of $75 billion market, which, you know, we are well under that.

Speaker Change: I mean, you don't have a lot of the same regulatory headwinds that that you do, you know, or that are expected kind of in that in the higher asset range. So

Speaker Change: Our sense is, is probably, you know, market activity will likely pick up from where it's been here more recently. So hopefully that gives you some color on that name.

Speaker Change: Yep, that helps. I appreciate all the color. Thanks, guys. Thank you.

Speaker Change: Thank you. Our next question is from Brendan Nozzle with Holt Group. You may proceed.

Operator: Thank you. Our next question is from Brendan Nozzle with Holt Group. Please proceed.

Brendan Nozzle: Hey, good morning, folks. I hope you're doing well.

Brendan Nozzle: Hey Brennan, hi Brennan.

Brendan Nozzle: Good morning, folks. Hope you're doing well.

Brendan Nozzle: I just want to start off on the margin here, you know; it's nice to see the firming up of trends on both the core and reported basis. I guess as we look ahead, given that funding cost metrics were only up by single-digit basis points this quarter and the overall pace of upward funding cost drift is slowing, I'd be curious to hear your thoughts on how you think the margin trends will evolve over the next few quarters.

Speaker Change: Hey Brendan. Hi Brendan.

Speaker Change: I just want to start off on the margin here, you know, nice to see the firming up of trends on both the core and reported basis.

Speaker Change: I guess as we look ahead, given that funding cost metrics were only up by like single-digit basis points this quarter and the overall pace of upward funding cost drift is slowing, just curious to hear your thoughts on how you think the margin trends to the next few quarters.

Thomas J. Bell: Yeah, Brendan, we normally give guidance on NII. And I think you see guidance kind of in a similar range that we, you know, slightly higher than last quarter. You know, on the liability side, our costs have pretty much peaked unless there's any additional mixed change happening. But I think you're going to see, we typically have some home loan bank borrowings at the end of the quarter, which elevates the cash. But other than that, margins should be relatively stable through this process. Accretion will be declining, so offsetting decrement is just other net interest income from the balance sheet.

Speaker Change: Yeah, Brendan, we normally give guidance on NII, and I think you see guidance kind of in the similar range that we, you know, slightly higher than last quarter. You know, on the liability side, you know, our costs have pretty much peaked unless there's any additional mixed change happening.

Speaker Change: I think you're going to see, you know, we typically have some home loan bank borrowings at the end of the quarter, which elevates the cash, but other than that, margins should be relatively stable, you know, through this processor.

Speaker Change: You know accretion will be declining so offsetting decretion is just other net interest income from the balance sheet

Alberto J. Paracchini: Yeah, Brendan, if I could add just a touch more to what Tom just said, I think, importantly, as Tom mentioned, if you look at kind of the margin execution. And we take a look at kind of what happened this quarter. It gives us confidence that you know, look, there's flags, there's repricing that's happening, obviously, between, you know, earning assets and rate-bearing liabilities. That said, you could see what happened this quarter with earning asset growth easily kind of offsetting, you know, in the gap margin, just basically two basis points. We feel pretty confident in terms of going forward, you know, that that call it, you know, noise We feel pretty good about, you know, being able to offset that asset growth worth earning asset growth, you know, thereby pushing that interest income higher. And the other thing I want to say.

Speaker Change: Yeah, Brendan, if I could add just a touch more to what Tom just said. I think, importantly, like Tom mentioned, if you look at

Speaker Change: kind of the margin execution. And you take a look at kind of what happened this quarter, it gives us confidence that

Speaker Change: Look, there's lags, there's repricing that's happening, obviously between earning assets and rate bearing liabilities, that's sad.

Speaker Change: You saw what happened this quarter with earning asset growth, you know, easily kind of offsetting.

Speaker Change: in the gap margin, just basically two basis points. We feel pretty confident in terms of going forward, you know, that that call it, you know, noise around the margin, X accretion plus or minus a couple of basis points up or down.

Speaker Change: We feel pretty good about, you know, being able to offset that worth-earning asset growth, you know, thereby pushing the, pushing that interest income higher.

Thomas J. Bell: And the other thing I would just remind you of, right, the term facility trade is impacting the margin by eight basis points. That transaction, depending on what the Fed does, could go away sooner, so you'll see the margin increase, but maybe not net interest income. Part of why I don't like to give NIM guidance is there are factors that, you know, can. You can have lower net interest income and yet have a margin expand, and I think, generally speaking, we'd like to have higher net interest. And that transaction, for a reminder, is a January end date, no matter what.

Speaker Change: And the other thing I would just remind you of, right, the term facility trade is impacting the margin by eight basis points. That transaction, depending on what the Fed does, could go away sooner, so you'll see actually the margin increase, but maybe not net interest income.

Speaker Change: Part of why I don't like to give NIMH guidance is there are factors that, you know, can...

Speaker Change: You know you can have lower net interest income and yet have a margin expand and I think generally speaking you'd like to have higher net interest income.

Speaker Change: And that transaction, for a reminder, is a January end date, no matter what.

Brendan Nozzle: Yeah, that's helpful, Collar. And thank you for the reminder on the BTFP drag on the margin currently.

Speaker Change: Yeah, that's helpful, Collar. And thank you for the reminder on the BTFP drag on the margin currently. Maybe one more from the moving off to credit quality here. I appreciated the commentary that charge-offs this quarter were tied to intentional cleanup that you guys did. Just kind of curious, you know, how much more cleanup do you think you might have to pursue in the next few quarters and then any line of sight to what you think charge-offs might end up being as a result and related provisioning needs?

Brendan Nozzle: Maybe one more from the moving off to credit quality here. I appreciated the commentary that charge-offs this quarter were tied to the intentional cleanup that you guys did. Just kind of curious, you know, how much more cleanup do you think you might have to pursue in the next few quarters and then any line of sight to what you think charge-offs might end up being as a result and related provisioning needs. Thanks. Yeah, so

Alberto J. Paracchini: Yeah, so if you go back, and I think Tom touched on this in his remarks, I think he made the comment that we are back, our capital levels are back, to where we were prior to, you know, the acquisition of Inland last year. And I would say on the credit front, that's exactly what we want to drive to, Brendan.

Speaker Change: Thanks.

Speaker Change: Yeah, so if you go back, and I think Tom touched on this on his remarks, I think he made the comment that we are back, our capital levels are back.

Speaker Change: To where we were

Speaker Change: prior to, you know, the acquisition of Inland last year. And I would say, on the credit front, that's exactly what we want to drive to, Brendan. So if I look, for instance, at kind of where we were from a, you know, pick a number, but from a criticized, you know, loan standpoint, let's say in the

Alberto J. Paracchini: So if I look, for instance, at kind of where we were from a, you know, pick a number, but from a criticized, you know, loan standpoint, let's say in the three three hundred and five basis point range today, we're closer to three seventy four. So as we increase, as that number increases after we acquired a loan book, we rerated that portfolio. That number, you know, probably peaked in March.

Speaker Change: In the 305 basis point range, today we're closer to 374. So as we increase, as that number increase after we acquired a loan book, we re-rated that portfolio.

Alberto J. Paracchini: That was four hundred and four basis points. So we're down. And I made a comment to that point in my remarks that, you know, criticized we're down about sixteen million dollars. So that's a decline of about 30 basis points in that ratio. So we want to get to what we're trying to do, similar to what Tom said about capital. That's what we're trying to drive on the loan portfolio. So the comments are on charge for this quarter, just to give you guys some color.

Speaker Change: That number, you know, probably peaked in March. That was 404 basis points, so we're down.

Speaker Change: So we want to get to what we're trying to do, similar to what Tom said on capital.

Tom: That's what we're trying to drive to on the loan portfolio.

Speaker Change: The, you know, comments are on charge of this quarter, you know, just to give you guys some color. So yeah, the gap figure that we printed was 56 basis points.

Alberto J. Paracchini: So yeah, the gap figure that we printed was 56 basis points. If you take out that acquisition-related loan, the number would have been closer to 32 basis points, which is a more normalized number, which is kind of what we would expect.

Speaker Change: If you take out that acquisition-related loan, the number would have been closer to 32 basis points, which is a more normalized number, which is kind of what we would expect. So, I think, to answer the second part of your question,

Alberto J. Paracchini: So I think to answer the second part of your question. We want to get down to back to the levels where we were as we kind of reposition that portfolio and redeploy those loans as they become cash into loans being originated by us. So that's kind of what we're driving towards. We'll continue to provide commentary and color on that going forward. But we really, you know, similar to what the capital point Tom made, we want to do the same thing, you know, on the credit side, you know, side on that on the portfolio.

Speaker Change: We want to get down to back to the levels where we were as we kind of reposition that portfolio and redeploy those loans as they become cash into loans being originated by us. So that's kind of what we're driving.

Speaker Change: towards, you know, we'll continue to provide commentary.

Speaker Change: and color on that going forward, but we really, you know, similar to what the capital point Tom made, we want to do the same thing, you know, on the credit side, you know, side on that on the on the portfolio.

Brendan Nozzle: Yeah, yeah. Okay. That's very helpful, Culler. Thank you for taking the question.

Speaker Change: Yeah, yeah, okay. That's very helpful, Culler. Thank you for taking the questions.

Operator: Thank you. The next question is from Damon DelMonte of KBW.

Speaker Change: Thank you.

Speaker Change: Thank you. The next question is from Damon DelMonte of KBW. You may proceed.

Damon Paul DelMonte: Hey, good morning, everyone. I hope you're all doing well today. Thank you.

Damon Paul DelMonte: Question on the securities portfolio: it seems like balances were up this quarter on an average basis. Just kind of wondering what the thoughts are going forward. Would you expect to continue to put excess liquidity into securities? Or would you use cash flows to fund loan growth?

Damon Paul DelMonte: Hey, good morning, everyone. I hope you're all doing well today.

Damon Paul DelMonte: Great, thank you. Question on the securities portfolio, it looks like balances were up this quarter on an average basis. Just kind of wondering what the thoughts are going forward. Would you expect to continue to put excess liquidity into securities or would you use cash flows to fund loan growth?

Thomas J. Bell: Hi Damon, Tom. You know, right now, the portfolio is relatively stable. I think it's growing a little bit here. Just again, just given our sensitivity, we'd like to do probably some reduction of sensitivity as we move forward here, but certainly opportunistically, but also just managing, and definitely replacing cash flows. You know, I would point out that if you look at the period-end balances on cash, that was certainly higher. But if you look more at the average for the quarter, you know, the balances were much lower from a cash standpoint. So sometimes we just stay in cash given the investment rate versus, you know, securities which are certainly at lower levels given the inverted yield curve. But no real change in strategy at this point.

Damon Paul DelMonte: Hi, Damon, Tom. You know, right now the portfolio is relatively stable. I think it's growing a little bit here. Just again, just given our sensitivity, we'd like to do probably some reduction of sensitivity as we move forward here. But certainly, opportunistically, but also just managing, definitely replacing cash flows.

Speaker Change: You know, I would point out, you know, if you look at period end balances on cash, that was certainly higher, but if you look more at the average for the

Damon Paul DelMonte: Got it. All right.

Speaker Change: The quarter, you know, the balances were much lower from a cash standpoint. So sometimes we just stay in cash given the investment rate versus, you know, securities which are certainly at lower levels given the inverted curve.

Speaker Change: But no real change in strategy at this point from a security standpoint.

Damon Paul DelMonte: And then, you know, as far as loan growth goes, I think you guys said mid single-digit growth here in the back half of the year. Do you expect that to be driven more by the CNI leasing side of the lending platform? Or do you feel like there's growing demand for commercial real estate?

Speaker Change: Okay.

Speaker Change: Got it. All right. And then, you know, as far as the loan growth goes, I think you guys said mid-single-digit growth here in the back half of the year. Do you expect that to be driven more by the C&I leasing side of the lending platform, or do you feel like there's growing demand in commercial real estate?

Alberto J. Paracchini: We're seeing, yeah, I think, broadly speaking, Damon, commercial, broadly speaking, not necessarily just CNI, you know, and maybe some of the smaller, you know, segments of the commercial business, for example, like business banking and some of the other, you know, smaller lines. I, So, so yes, I think broadly speaking, commercial, and certainly leasing as well.

Speaker Change: I mean, we're seeing, yeah, I think, broadly speaking, Damon, commercial, broadly speaking, not necessarily just...

Damon: CNI, you know, and maybe some of the smaller, you know, segments of the commercial business, for example, like business banking and some of the other, you know, smaller lines, I

Speaker Change: So, so yes, I think broadly speaking, commercial, certainly leasing as well. As far as CRE, you know, we are seeing, we are seeing transactions, you know, there are transactions.

Alberto J. Paracchini: As far as CRE, you know, we are seeing transactions, you know, there are transactions getting done in the market. You know, so it's not like we are not seeing flow there; we are doing, you know, real estate transactions as we speak. I think your point is, obviously, if rates were to decline here in the coming months, I think what you're going to see more broadly is transaction activity is likely to pick up, which is then going to lead to more, you know, financing activity on the CRE side.

Speaker Change: getting done in the market. You know, so it's not like we are not seeing flow there. We are doing, you know, real estate transactions as we speak.

Speaker Change: I think to your point is...

Speaker Change: Obviously, if rates were to decline here in the coming months, I think what you're going to see more broadly is transaction activity is likely to pick up, which is then going to lead to more, you know, financing activity on the CRE side. And I think for...

Alberto J. Paracchini: And I think for well-understood reasons. You know, I think that's kind of what the CRE market is waiting for. It's waiting for, you know, a bit of rate relief, and that is likely to spur more activity broadly in the market. So we participate in that. So I think you can draw, you know, that straight conclusion from that.

Damon Paul DelMonte: Got it. Okay.

Speaker Change: For, I think, well-understood reasons, you know, I think that's kind of what the CRE market is waiting for, is waiting for, you know, a bit of rate relief, and that is likely to spur more activity broadly in the market. So we participate in that, so I think you can...

Speaker Change: you can draw, you know, that straight conclusion from from that comment.

Damon Paul DelMonte: And then we kind of touched on this before, but, you know, from a capital management standpoint, you noted that your TC ratio is kind of on the higher end of your range, your target range. So any updated thoughts on capital management, whether it be through buybacks or dividends, or just, you know, focusing on funding organic growth or, you know, potentially M&A to get you over the $10 billion level? Sure.

Speaker Change: Got it. Okay. And then.

Speaker Change: This was kind of touched on, I think, before, but from a capital management standpoint, you noted that your TCE ratio is kind of the higher end of your range, your target range. So any updated thoughts on capital management, whether it be through buybacks or dividends or

Speaker Change: You know, focusing on funding organic growth or, you know, potentially M&A to get you over the $10 billion level.

Alberto J. Paracchini: Sure. So, first and foremost, continue to fund the balance sheet, and continue to focus on, you know, organic growth of the company. You heard our comments also in terms of the kind of both Tom and my comments were related to both regulatory capital as well as TCE, and we are certainly at the upper end.

Speaker Change: Sure, so first and foremost, continue to fund the balance sheet, continue to focus on organic growth of the company.

Speaker Change: You heard our comments also in terms of kind of both Tom and my comments related to both regulatory capital as well as

Alberto J. Paracchini: So I think in terms of priorities outside of organic growth, you know, to the degree that there are M&A opportunities, like we've seen throughout our history, certainly, that's something that we want to have the flexibility to participate in. And then, secondly, and thirdly, you know, we certainly will look at the dividend, and certainly buybacks. We have a program in place. So we'll, we'll return capital, you know.

Speaker Change: And we are certainly at the upper end. So I think in terms of priorities outside of

Speaker Change: organic growth, you know, to the degree that that there are M&A opportunities like we've seen, you know, throughout our history. Certainly, that's something that

Speaker Change: that we want to have the flexibility to participate in. And then secondly and thirdly, you know, we you know that certainly we will look at the dividend and certainly buybacks. We have a program in place. So we'll we'll return capital, you know.

Damon Paul DelMonte: Got it. Okay, great. I think that's all that I had. Yeah, thank you very much. I appreciate it. You bet.

Speaker Change: Accordingly.

Speaker Change: Got it. Okay, great.

Damon Paul DelMonte: You bet. Thank you, Damon.

Speaker Change: I think that's all that I had. Yeah, thank you very much. Appreciate it.

Operator: Thank you. The next question is from Long, Apteri, McEvoy, and Stevens. You may proceed.

Speaker Change: You bet. Thank you, Damon.

Speaker Change: Thank you. The next question is from Lon Oteri, McEvoy with Stevens. You may proceed.

Terence James McEvoy: Hi, good morning, everybody. Maybe Tom, just some clarification on your opening comments. You talked about deposit flows coming back on the balance sheet in Q3 so far this quarter. Was that non-interest bearing funds? And if not, where do you see or do you see those balances bottoming in the back half of this year?

Lon Oteri: Hi, good morning, everybody. Maybe Tom, just some clarity around your opening comments. You talked about deposit flows

Speaker Change: Coming back on the balance sheet in Q3, so far this quarter, was that non-interest bearing funds? And if not, where do you see or do you see those balances bottoming in the back half of this year?

Thomas J. Bell: Hi Terry, really, what we saw is our typical, you know, commercial clients that, you know, have tax payments and consumer clients. And so there is some DDA in there. We don't again, we're not giving the guidance on DDA. We think we're in the range of, you know, it's stabilized in that 24 to 25%. So most of it's interest-bearing accounts, and we've seen a significant amount of the outflows that happened in Q2 are already back here in July, so that was the comment around that. Hope that answers your question.

Speaker Change: Hi Terry. Really what we saw is our typical, you know, commercial clients that, you know, have tax payments and consumer clients.

Speaker Change: And so there is some DDA in there. We don't, again, we're not giving real, the guidance on DDA is kind of, we think we're in the range of, you know, it's stabilized in that 24 to 25%, so.

Speaker Change: Most of it is interest-bearing accounts, and we've seen a significant amount of the outflows that happened in Q2 are already back here in July . So that was the comment around that. So I hope that answers your question.

Terence James McEvoy: Yeah, thanks. And One other small one, I was just looking at the average balance; the increase in interest checking in terms of just rate and yield was up quarter over quarter, and balances were up quarter over quarter, and it caught my eye. So I wanted to ask the question, why the increase in both rates and balances?

Speaker Change: Yeah, thanks. And one other small one. I was just looking at the average balance, the increase in interest checking in terms of just rate and yield was up quarter over quarter and balances were up quarter over quarter and it caught my eye. So I wanted to ask the question, why the increase in both rates and balances?

Thomas J. Bell: Good question. We had a number of commercial clients that wanted to earn a higher rate than zero on their deposits. And so that's why you see kind of a mixed shift part due to DDA into interest-bearing and the rate that was paid on that as well, you know, higher than zero.

Speaker Change: Good question. We had a number of commercial clients that have, you know, wanted to earn a higher rate than zero on their deposits and so...

Speaker Change: That's why you see kind of a mix shift part due to DDA into interest bearing and and the rate that was paid on that is

Terence James McEvoy: Perfect. Okay, all my other questions have been asked and answered. Have a nice weekend, everybody. Thanks.

Speaker Change: You know, higher than zero.

Terence James McEvoy: Thanks, Jerry. Thank you. The next question from

Speaker Change: Perfect. Okay, all my other questions have been asked and answered. Have a nice weekend, everybody. Thanks, Jerry.

Operator: Thank you. The next question is from Alon of David Long with Raymond James. You may proceed.

Speaker Change: Thank you. The next question is from Alon of David Long with Raymond James. You may proceed.

Speaker Change: Good morning, everyone.

David Joseph Long: Um, you guys are talking pretty positively about your commercial pipelines right now, and that's not the same that I'm hearing from a lot of other banks here in Chicago. And I'm curious as to whether some of the opportunities that you're getting on the commercial side are coming both from CNI and CRE, coming from potentially competitors pulling back. And maybe just overall, what does the competitive landscape look like? Who are you seeing on deals? And how has that changed over the last several months? Yeah, so

David Joseph Long: Hey David. Morning Dave.

Speaker Change: You know, you guys are talking pretty positively about your commercial pipelines right now. And that's not the same that I'm hearing from a lot of other banks here in Chicago. And I'm curious as to if you think.

Speaker Change: Some of the opportunities that you're getting on the commercial side is coming both on CNI and CRE coming from Potentially competitors pulling back and and maybe just overall. What is the competitive landscape look like? Who who are you seeing on deals and and how has that changed over the last several months?

Alberto J. Paracchini: Yeah, so to take the second part of your question first, I mean, we see the same primary competitors that we see in the market daily. We see those players actively trying to compete and win for business. So the dynamics there have not changed. I think, and this kind of just piggybacking on what Roberto said at the start of the call, I think in some cases, particularly as you're talking about institutions that have come into the market, have acquired other institutions, where maybe the strategy is different, where maybe they want to focus more on the market and kind of tilt their commercial book to certainly much larger companies.

Speaker Change: Yeah, so to take the...

Speaker Change: The second part of your question first, I mean, we see the same primary competitors that we see in the market daily. We, we see those players actively trying to compete and win for business. So the

Speaker Change: The dynamics there have not changed.

Speaker Change: I think, and this kind of just piggybacking on what Roberto said at the start of the call, I think in some cases, particularly as you're talking about institutions that have come into the market, have acquired other institutions,

Speaker Change: Where maybe the strategy is different, where maybe they want to focus more up in market and kind of tilt their commercial book to certainly a much larger companies.

Alberto J. Paracchini: And they start to de-emphasize, call it the type of business that's core to ours, to more traditional kinds of Chicago, mid-market companies that are privately held, you know, and and and operate in the general market here.

Speaker Change: And they start to de-emphasize, you know, your call it the type of business that's core to ours, you know, just more traditional kind of Chicago, you know, mid market companies that are privately held.

Alberto J. Paracchini: So that, I think, has something to do with it. I still think you also have some remnants of people trying to, particularly the larger regionals and super regionals, particularly those that are approaching or at about about 100 billion plus where they're starting to think, or they're still thinking about FASL-3 implications, and they're managing, carefully managing their risk-weighted asset levels. I think there's something to that as well. And then lastly, Dave, and I think, and this is just our opinion on this.

Speaker Change: and operate in the general market here.

Speaker Change: That, I think, has something to do with it. I still think you also have some remnants of people trying to, particularly the larger regionals and super regionals, particularly those that are approaching or at about $100 billion plus.

Speaker Change: where they're starting to think or they're still thinking about FASL-3 implications and they're managing.

Speaker Change: Carefully Managing Their Risk-Weighted Asset Levels.

Speaker Change: There's something to that as well. And then lastly, Dave, and I think it and this is just our opinion on this. As you know, we have added talent over the past several years. And again, pointing or piggybacking to what Roberto stated,

Alberto J. Paracchini: As you know, we have added talent over the past several years. And again, pointing or piggybacking to what Roberto stated, in times of market disruptions, you know, we certainly benefit from that we benefit in terms of the ability to to, you know, when client, But also really importantly, the ability to attract talent that is looking for a platform where they can see the results of their contributions and the results of the organization and, and, you know, in a way that, that it also gives them the ability to serve their clients very differently than a, than a larger institution would.

Speaker Change: In times of market disruptions, you know, we certainly benefit from that. We benefit in terms of the ability to, you know, win clients.

Speaker Change: But also, really importantly, the ability to attract talent that is looking for a platform where they can see the results of their contributions and the results of the organization in a way that it also gives them the ability to serve their clients very differently than a larger institution would.

Alberto J. Paracchini: So I think that also comes into play. A lot of the hires that we've made, you know, as recently as a year ago are definitely starting to bear fruit. We're seeing, you know, good business, you know, good client activity for those bankers as the period of time that passes from when we hire them to the non solicitation periods expiring and so forth.

Speaker Change: So I think that also comes into play. A lot of the hires that we've made, you know, as recently as a year ago are definitely starting to bear fruit. We're seeing, you know, good business, you know, good client activity for those bankers as

Alberto J. Paracchini: So, I think that's contributing to that as well. But again, to reiterate the first point in terms of the competitive banks that we compete with frequently. We continue to see them, and they are as competitive as they always, you know, have been. So, no, no change in that regard.

Speaker Change: The period of time that passes from when we hire them to non solicitation periods expiring and so forth. So So I think that's contributing to that as well. But

Speaker Change: Again, to reiterate the first point, in terms of the competitive, you know, banks that we compete with against.

Speaker Change: frequently. We continue to see them and they are as competitive as as they always, you know, have been. So no, no change in that regard.

Alberto J. Paracchini: Excellent. I appreciate the added color there, Alberto.

Speaker Change: Excellent. I appreciate the added color there, Alberto.

Speaker Change: That's all I have.

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

Stu: Thanks, Dave.

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

Alberto J. Paracchini: Okay, great. Thank you, operator. And thank you all for joining the call this morning and for your interest in Byline. We look forward to speaking to you again at the end of next quarter. Thank you, and have a great weekend.

Alberto J. Paracchini: Okay, great. Thank you, operator, and thank you all for joining the call this morning and your interest in Byline. We look forward to speaking to you again at the end of next quarter. Thank you and have a great weekend.

Operator: Thank you. This concludes today's call. I would now like to disconnect today's line. You may disconnect.

Speaker Change: Thank you, this concludes today's call.

Speaker Change: I would now like to disconnect today's line. You may disconnect.

Speaker Change: www.bylinebancorp.com