Q1 2025 Byline Bancorp Inc Earnings Call
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Operator: Good morning and welcome to Byline Bancorp's first call to the 2025 earnings call.
Good morning, and welcome to Byline Bancorp first quarter 2025 earnings call. My name is Colleen I'll be coordinating the call today.
Operator: My name is Carly and I'll be coordinating the call today. All lines have been placed on mute to prevent any background noise.
All lines have been placed on mute to prevent any background noise.
Operator: After the speaker's remarks, there will be a question and answer period. If you'd like to ask a question, please press star followed by one on your telephone keypad. If you'd like to remove yourself from the line of questioning, it will be star followed by two. If you're listening via speakerphone, please lift your handset prior to asking a question. If you require operator assistance, please press star and then zero.
After the Speakers' remarks, there'll be a question on superior if you'd like to ask a question. Please press star followed by one set of them keep it maybe.
Speaker Change: Maybe a separate line of questioning could be stopped slipped by two.
Speaker Change: By a speaker phone please lift your handset prior so asking a question if you call a price for assistance. Please press star and then zero.
Operator: Please note that this conference call is being recorded.
Speaker Change: Please note that this conference call is being recorded.
Brooks Rennie: At this time, I would like to introduce Brooks Rennie, Head of Investigations at Byline Bancorp. Please go ahead.
Brooks: At this time I would like to introduce Brooks for any head of Investor Relations at Byline Bancorp. Please go ahead.
Brooks Rennie: Thank you, Carly.
Brooks: Thank you Kelly good morning, everyone and thank you for joining us today for the byline Bancorp first quarter 2025 earnings call.
Brooks Rennie: Good morning, everyone. And thank you for joining us today for the Byline Bancorp first quarter 2025 earnings call. In accordance with Regulation FD, this call is being recorded and is available via webcast on our Investor Relations website, along with our earnings release and the corresponding presentation. 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. 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 byline.
Brooks: With regulation FD. This call is being recorded and is available is available via webcast on our Investor Relations website, along with our earnings release and a corresponding presentation slides.
Brooks: 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: 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: The company's risk factors are disclosed and discussed its SEC filings.
Brooks Rennie: 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 measures to the comparable GAAP financial measures can be found within the appendix of the earnings release. For additional information about risks and uncertainties, please see the forward-looking statement and non-GAAP financial measures disclosed in our earnings release. You can find the first quarter earnings deck on our IR website at bylinebancorp.com. And as always, please reference the front page of the display.
Brooks: In addition, our.
Brooks: Our remarks, and slides may reference or contain certain non-GAAP financial.
Brooks: <unk> financial measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures.
Brooks: A reconciliation of each non-GAAP financial measures to the comparable GAAP financial measures can be found within the appendix of the earnings release for additional information about risks and uncertainties. Please see the forward looking statements and non-GAAP financial measures disclosed in our earnings release.
Brooks: You can find the first quarter earnings deck on our earnings on our IR website at <unk> Bancorp Dot com and as always please reference.
Brooks: The front page of the disclaimer.
Brooks Rennie: As a reminder for investors, this quarter we plan on attending the Stevens Bank Chicago Tour, Javier Nandio Roadshow, and the Raymond James Chicago Bank Conference.
Brooks: As a reminder for investors this quarter, we plan on attending the Stephens Bank Chicago Tour.
Speaker Change: Non deal Road show and the Raymond James Chicago Bank Conference with that I would now like to turn the conference call over to Alberto Parachini President of violent Bancorp.
Alberto Paracchini: With that, I would now like to turn the conference call over to Alberto Paracchini, President of Byline Bank. Great. Thank you, Brooks. Good morning, everyone, and thank you for joining our first quarter earnings call. We appreciate all of you taking the time to join us this morning.
Alberto Parachini: Great. Thank you Brooks good morning, everyone and thank you for joining our first quarter earnings call. We appreciate all of you taking the time to join US. This morning as always with me on the call today are our chairman and CEO Roberto her NCS, Tom <unk>, our Chief Financial Officer, and Treasurer, Mark <unk>, our Chief Credit Officer.
Alberto Paracchini: As always, with me on the call today are our Chairman and CEO, Roberto Herencia, Tom Bell, our Chief Financial Officer and Treasurer, Mark Fucinato, our Chief Credit Officer, and Brian Duran, our General Counsel.
Speaker Change: And Brian Doran, our general counsel before we get to the agenda I want to pass the call onto Roberto to comment on a few items Ricardo.
Alberto Paracchini: Before we get to the agenda, I want to pass the call on to Roberto to comment on a few items. Roberto? Alberto, thank you and good morning to all. I'd like to start by thanking all of my colleagues and teammates for their efforts this quarter and everything they do for our customers and Byline. every day. This was yet another strong quarter for Byline and a good start to the year.
Speaker Change: Alberto Thank you and good morning to all I'd like to start by saying.
Speaker Change: All of my colleagues in teammates for their efforts this quarter and everything they do for.
Speaker Change: Our customers in filing.
Speaker Change: Every day.
Speaker Change: This was yet another strong quarter for <unk> and a good start to the year.
Roberto Herencia: I wish I could say the same for the stock market. International Trade and the relationship our country has with the rest of the world, in particular our neighbors. major trading partners.
Speaker Change: Wish I could say the same for the stock market.
Speaker Change: International trade and the relationship of our country and the relationship our country has with the rest of the world particular, our neighbors in.
Speaker Change: A major trading partners.
Roberto Herencia: However, that turns out we are prepared to support our customers and come at it from a position of strength to wit, and Alberto and Tom will cover this in more detail. Very healthy capital ratios, steady and improving asset quality ratios with above average reserve coverage. Top quartile performance, again, in key metrics, NIM, efficiency, PPP. Importantly, our credit ratings were upgraded this quarter by Kroll.
Speaker Change: However.
Speaker Change: That turns out we are prepared to support our customers.
Speaker Change: Commented from a position of strength through with kind of Alberto and Tom will cover this in more detail.
Speaker Change: Very healthy capital ratios steady and improving asset quality ratios with above average reserve coverage.
Speaker Change: Top quartile performance again in key metrics NIM efficiency PTP.
Speaker Change: Importantly, our credit ratings were upgraded this quarter by Kroll, excluding merger related upgrades.
Roberto Herencia: Including merger-related operations. We are the only bank in the past 12 months that has received an upgrade in our industry. And finally, Byline was once again named one of America's 100 best banks by Forbes, and Newsweek named Byline one of the best regional banks in the country.
Speaker Change: We are the only bank in the past 12 months that has received an upgrade in our industry.
Speaker Change: And finally <unk> was once again named one of America's 100, best banks by Forbes and Newsweek named <unk>, one of the best regional banks in the country.
Roberto Herencia: I've suggested this kind of performance combined with our track record in M&A and taking advantage of market disruptions deserves a higher valuation. deeply discounted was the headline I saw from one of our analysts on another name. Deeply underestimated is how I feel at times, but I will admit we've made some progress on that front. We will continue to educate, we will continue to connect the dots. We will continue to explain our differentiated strategy patiently. And most importantly, importantly, we will continue to perform.
Speaker Change: I've suggested this kind of performance combined with our track record.
Speaker Change: M&A and taken advantage of market disruptions to serves at higher valuation.
Speaker Change: Deeply discounted was the headline I saw from one of our analysts on another name.
Speaker Change: Deeply underestimate is how I feel at times, but I will admit we've made some progress on that front.
Speaker Change: We will continue to educate we will continue to connect the dots. We will continue to explain our differentiated strategy patiently.
Speaker Change: And most importantly, importantly, we will continue to perform.
Roberto Herencia: I know you will ask, and Alberto will answer, I'll pre-answer, nothing has changed with respect to the timing and the how in our approach to crossing $10 billion in assets. We remain comfortable and confident about it all.
Speaker Change: I know you will ask Alberto will answer I'll preempt Sir.
Speaker Change: Nothing has changed with respect to the timing of the how and our approach to crossing $10 billion in assets.
Speaker Change: We remain comfortable and confident about at all.
Roberto Herencia: Also, nothing has changed with respect to our capital planning and priorities is there to support growth first.
Speaker Change: Also nothing has changed with respect to our capital planning on priorities is there to support growth first.
Roberto Herencia: And lastly, for Byline. Finally, we like Chicago a lot. It's our kind of market for our type of bank. and the opportunity to become the premier commercial bank is palpable right here in our hometown.
Speaker Change: And then lastly for buybacks.
Speaker Change: Finally, we like Chicago a lot.
Speaker Change: Our kind of market for our type of banking.
Speaker Change: And the opportunity to become the Premier commercial bank is possible right here in our hometown.
Roberto Herencia: Despite strong indications that the second half of the year is likely to show slower growth in the economy, we remain enthused and optimistic about our ability to advance. on becoming the preeminent commercial bank in Chicago. We have shown how disruption has advanced our agenda, and disruption at the macro level will enable us to do the same, albeit on a relative basis to our goal.
Speaker Change: Despite strong indications that the second half of the year is likely to show slower growth in the economy, we remain enthused and optimistic about our ability to advance.
Speaker Change: On becoming the preeminent commercial bank of Chicago.
Speaker Change: We have shown how disruption has advanced our agenda.
Speaker Change: And disruption at the micro level will enable us to do the same.
Speaker Change: On a relative basis to our peers.
Roberto Herencia: I always like to include in my remarks one or two topics which gives the audience a view into who we are, what we're thinking about, and how we feel and operate. People, as you know, continue to be the critical factor of our success, how we care for each other, how we show up and demonstrate empathy. This quarter, we right size the government guaranteed business given the large investments we have made. which have enabled us to become much more efficient in decision making and portfolio management.
Speaker Change: I always like to include in my remarks, one or two topics, which gives the audience a view into who we are what we're thinking about.
Speaker Change: And how we feel and operate.
Speaker Change: People.
Speaker Change: As you know continues to be a critical factor of our success, how we care for each other how we show up and demonstrate empathy.
Speaker Change: This quarter, we rightsize the government guaranteed business given the large investments we have made.
Speaker Change: Which have enabled us to become much more efficient in decision, making on portfolio management.
Roberto Herencia: right decision yet it stings to see some people who have been with us for some time leave. We feel equally. about loss of life related to our people, illness related to all people and their families. And we tried to show up.
Speaker Change: Decision, yet instincts to see some people who have been with us for some time to leave.
Speaker Change: We feel equally.
Speaker Change: About loss of life related to our people illness related to our people and their families and.
Speaker Change: And we tried to show up for them.
Roberto Herencia: In November, our CFO, Tom Bell, lost his mom during Thanksgiving, unexpectedly.
Speaker Change: In November our CFO, Tom about losses during Thanksgiving unexpectedly.
Roberto Herencia: This quarter, Alberto's father passed away. former chairman and CEO of one of Puerto Rico's largest banks and the first Puerto Rican to ever serve on the board of the Federal Reserve Bank of New York, a titan of banking in Puerto Rico. As you can see, that apple... fell right in front of that tree.
Speaker Change: This quarter Alberto's father passed away.
Speaker Change: The former chairman and CEO of one of Puerto Rico's largest banks.
Speaker Change: And the first Puerto Rican through ever serve on the board of a Federal Reserve Bank of New York.
Speaker Change: Titan of banking in Puerto Rico.
Speaker Change: As you can see that Apple.
Speaker Change: Felt right in front of that tree.
Roberto Herencia: to Alberto, Tom. as we see, colleagues. we express our solidarity and love.
Speaker Change: Two Alberto Tom.
Speaker Change: As we see colleagues.
Speaker Change: We express our solidarity and love.
Alberto Paracchini: I'm happy to turn over the call to Alberto and the team. Excellent. Thank you, Roberto. And thank you for the kind words.
Alberto Parachini: I am happy to turn over the call to Alberto entity.
Alberto Parachini: Excellent. Thank you Roberto and thank you for the kind words.
Alberto Paracchini: In terms of the agenda for the morning, I'll start with the highlights for the quarter, followed by Tom will walk you through the financials in detail. And then I'll come back to wrap up before we open the call up for questions. In summary, I'm pleased to report that Byline delivered another quarter of strong results characterized by steady earnings, consistent profitability, stable credit, and solid growth.
Alberto Parachini: In terms of the agenda for the morning, I'll start with the highlights for the quarter, followed by Tom who will walk you through the financials in detail and then I'll come back to wrap up before we open the call up for questions.
Alberto Parachini: Summary, I am pleased to report that <unk> delivered another quarter of strong results characterized by steady earnings consistent profitability stable credit and solid growth.
Alberto Paracchini: We'll dig into the details shortly, but before we do that, I'd like to make a few comments on the environment and our transaction with Purse Security. The operating environment we had during the first quarter is likely to be markedly different than the one we'll be in for the rest of the year. To give you some context, we're navigating through a period of heightened uncertainty and volatility across markets. The macro picture is showing mixed signals at the moment, while most of the recent but lagging hard data remains positive. Softer measures, as well as real-time indicators, point to a more cautionary stance by both consumers and businesses.
Alberto Parachini: We'll dig into the detail shortly but before we do that I'd like to make a few comments on the environment and our transaction with <unk> Securities.
Alberto Parachini: The operating environment, we had during the first quarter is likely to be markedly different than.
Alberto Parachini: The one will be in for the rest of the year to.
Alberto Parachini: To give you some context, we're navigating through a period of heightened uncertainty and volatility across markets. The macro picture is showing mixed signals at the moment, while most of the recent but lagging hard data remains positive softer measures as well as real time indicators point to a more cautionary stance.
Alberto Parachini: By both consumers and businesses.
Alberto Paracchini: Evolving trade policies dominate the headlines and have introduced additional complexity and uncertainty to the outlook for economic growth and investment.
Alberto Parachini: Evolving trade policies dominate the headlines.
And have introduced additional complexity and uncertainty to the outlook for economic growth and inflation.
Alberto Paracchini: In this environment, we remain focused on being a bank that serves clients through the cycle while maintaining disciplined risk management. So far, most of the feedback from clients we've talked to points to them taking a wait-and-see approach. That said, we're anticipating more caution on their part, particularly in terms of CapEx, new investments, and acquisitions. This would allow for clarity on the implications of potential policy changes on the environment as well as their Despite these uncertainties, we believe our business model continues to demonstrate resilience.
Alberto Parachini: In this environment, we remain focused on being a bank that serves clients through the cycle, while maintaining disciplined risk management. So far most of the feedback from clients, we've talked to points to them, taking a wait and see approach that said, we're anticipating more caution under part.
Alberto Parachini: Particularly in terms of Capex, new investment and acquisitions.
Alberto Parachini: This would allow for clarity on the implications of potential policy changes on the environment as well as their business.
Alberto Parachini: Despite these uncertainties, we believe our business model continues to demonstrate resilience, we have robust capital solid liquidity, which enables us to support clients and navigate the uncertainty present in the environment.
Alberto Paracchini: We have robust capital, solid liquidity, which enables us to support clients and navigate the uncertainty present in the environment.
Alberto Paracchini: Regarding First Security, I'm happy to report the transaction closed effective April 1st. This provides us with both clean results for the quarter, absence of minor merger-related charges. It also sets us up nicely to report a full quarter of results inclusive of the transaction in the second quarter.
Alberto Parachini: Regarding first security I am happy to report the transaction closed effective April one.
Alberto Parachini: This provides us with both clean results for the quarter absent some minor merger related charges. It also sets us up nicely to report a full quarter of results inclusive of the transaction in the second quarter.
Alberto Paracchini: More importantly, the systems conversion was successfully completed mid-month. Customers and employees have been migrated and onboarded into our platform, and all key integration tasks have been completed. Start to finish, from announcement on September 30th last year to today, we completed the transaction and integrated the bank in 207 days.
Alberto Parachini: More importantly, the systems conversion was successfully completed mid month customers and employees have been migrated and onboard it into our platform and all key integration tasks have been completed.
Alberto Parachini: Start to finish from announcement on September 30th last year through today, we completed the transaction and integrated the bank.
Alberto Parachini: 207 days I'd like to welcome any former customers employees and stockholders of first security who are on the call with US. This morning, as well as congratulate all employees, who took part in another successful transaction.
Alberto Paracchini: I'd like to welcome any former customers, employees, and stockholders of First Security who are on the call with us this morning, as well as congratulate all employees who took part in another successful transaction.
Alberto Paracchini: Turning to our results on slide four. The company reported net income of $28.2 million or $0.64 per diluted share. Adjusted for merger charges, profitability and return metrics remain excellent quarter on quarter with pre-tax preparation income of $47.3 million and pre-tax preparation ROA of 209 basis. Marking the 10th consecutive quarter, this metric has exceeded 200 bases. ROA came in at 127 basis points and ROTC was 13.1%, notwithstanding higher capital levels. Total revenue came in at $103 million, down marginally from the prior quarter, but up 2% year-on-year, notwithstanding the lower rate environment. Net interest income drove that and came in at $88.2 million, which was flat for the quarter, but would have inched up if not for the difference in date count.
Alberto Parachini: Turning to our results on slide four.
Alberto Parachini: The company reported net income of $28 2 million or <unk> 64 per diluted share adjusted for merger charges profitability and return metrics remained excellent quarter on quarter with pretax pre provision income of $47 3 million and pretax preparation ROA of 209 basis.
Alberto Parachini: Points, marking the 10th consecutive quarter. This metric has exceeded 200 basis points ROA came in at 127 basis points and our OTC was 13, 1% notwithstanding higher capital levels total revenue came in at 103.
Alberto Parachini: Down marginally from the prior quarter, but up 2% year on year, notwithstanding the lower rate environment.
Alberto Parachini: Net interest income drove that and came in at $88 2 million, which was flat for the quarter, but would have inched up if not for the difference in day count.
Alberto Paracchini: We continue to see margin expansion and Tom will go over in more detail shortly with the NIM coming in at 407 basis points, up six basis points from last quarter.
Alberto Parachini: We continue to see margin expansion and Tom will go over in more detail shortly with the NIM coming in at 407 basis points up six basis points from last quarter in.
Alberto Paracchini: In terms of the balance sheet, we had excellent growth in both loans and deposits, which were up 8% and 5.1% respectively on a linked quarter annualized basis. Demand for credit remains strong, with originations coming in at $310 million, driven primarily by commercial banking and leasing. Payoffs moderated as expected to $237 million and line utilization moved up to 60% from 59% last quarter. Deposit costs continued to decline during the quarter, driven by a 26 basis point drop in the cost of interest-bearing deposits, as well as a battered deposit. Expenses remain well-managed, $56 million, down approximately 2%, primarily due to lower compensation and marketing spend.
Alberto Parachini: In terms of the balance sheet, we had excellent growth in both loans and deposits, which were up 8% and five 1% respectively on a linked quarter annualized basis.
Alberto Parachini: <unk> for credit remains strong with originations coming in at $310 million, driven primarily by commercial banking and leasing.
Alberto Parachini: Payoffs moderated as expected to $237 million and line utilization moved up to 60% from 59% last quarter.
Alberto Parachini: Deposit cost continued to decline during the quarter driven by a 26 basis point drop in the cost of interest bearing deposits as well as a better deposit mix.
Alberto Parachini: Expenses remain well managed $56 million down approximately 2%, primarily due to lower compensation and marketing spend our adjusted efficiency ratio stood at 53% for the quarter and our adjusted noninterest income to average assets ratio.
Alberto Paracchini: Our adjusted efficiency ratio stood at 53% for the quarter, and our adjusted non-interest income to average assets ratio came in at 246%.
Alberto Parachini: It came in at 246 basis points asset quality improved for the quarter with both net charge offs declining and nonperforming loans decreasing 14 basis points to 76 basis points as of quarter end credit costs came in at $9 2 million for the quarter consist.
Alberto Paracchini: Asset quality improved for the quarter with both net charges declining and non-performing loans decreasing 14 basis points to 76 basis points as of quarter end. Credit costs came in at $9.2 million for the quarter, consisting of $6.6 million in charge-ups, as well as a net reserve bill of $2.6 million. The reserve bill was attributed to changes in loss rates for certain exposure categories, as well as growth in the portfolio. The allowance remained strong and essentially flat to last quarter at 1.43% of total loans. Lastly, capital levels continued to grow with TCE approaching 10% and CED 1.
Alberto Parachini: <unk> of $6 6 million in charge offs as well as a net reserve build of $2 6 million.
Alberto Parachini: <unk> build was attributed to changes in loss rates for certain exposure categories as well as growth in the portfolio. The allowance remained strong and essentially flat to last quarter at 143% of total loans Lastly capital levels continued to grow with TCE approaching 10%.
Alberto Parachini: And CET one.
Alberto Paracchini: approaching 12%.
Tom Bell: With that, I'd like to turn the call over.
Tom: Broaching, 12% with that I'd like to turn the call over to Tom.
Tom Bell: Thank you, Alberto, and good morning, everyone. starting on slide five with our loan portfolio. Total loans increased to $137 million, or 8% annualized, and stood at $7 billion at March 31st. We had strong origination activity for the quarter of $310 million in new loans, up 17% compared to a year ago. Payoff activity decreased by $51 million from Q4 and stood at $237 million. line utilization inched up for the quarter to 60% with revolvers unchanged. Loan yields came in at 7.09%, down 12 basis points swing quarter, and down 36 basis points year over year as a result of the 2024 Fed rate cut.
Tom: Thank you Alberto and good morning, everyone.
Tom: Starting on slide five with our loan portfolio.
Tom: Total loans increased $137 million or 8% annualized and stood at $7 billion at March 31.
Tom: We had strong origination activity for the quarter of $310 million in new loans up 17% compared to a year ago.
Tom: Payoff activity decreased by $51 million from Q4 end stood at $237 million.
Tom: Line utilization inched up for the quarter to 60% with revolvers unchanged.
Tom: Loan yields came in at seven 9% down 12 basis points linked quarter and down 36 basis points year over year as a result of the 2024 fed rate cuts.
Tom Bell: Our loan pipeline remains strong, and we expect loan growth to continue in the mid-single digit. turning slide 6. Total deposits increased to $7.6 billion, up 5.1% annualized from the prior quarter. During the quarter, we saw a deposit mix shift from time into money market economy. Non-interest bearing accounted for 23% of total deposits, a marginal decline from the last quarter. Overall deposit costs declined in the quarter by 18 basis points to 2.3%, driven by a better mix and repricing of...
Tom: Our loan pipeline remains strong and we expect loan growth to continue in the mid single digits.
Tom: Turning to slide six.
Tom: Total deposits increased to $7 6 billion up five 1% annualized from the prior quarter.
Tom: During the quarter, we saw a deposit mix shift from time into money market accounts.
Tom: Noninterest bearing accounted for 23% of total deposits.
Tom: Margin will decline from the last quarter.
Tom: Overall deposit cost decline in the quarter by 18 basis points to two 3% driven by better mix and repricing of Cds.
Tom Bell: From an interest rate risk perspective, in anticipation of future Fed rate cuts, we are focused on improving the repricing of our liabilities as seen in our Q1 results. Turning to slide 7. Net interest income was $88.2 million for Q1, flat from the prior quarter and came in at the higher end of the Q1 guidance. Net interest income was impacted by two fewer days in the quarter, lower yields on earning assets, and lower cash balance. offset by lower deposit costs and higher loan balance. The net interest margin grew to 4.07% up six basis points linked quarters.
Tom: From an interest rate risk perspective in anticipation of future fed rate cuts, we are focused on improving the repricing of our liabilities as seen in our Q1 results.
Tom: Turning to slide seven.
Tom: Net interest income was $88 2 million for Q1.
Tom: <unk> from the prior quarter and came in at the higher end of the Q1 guidance net interest income was impacted by two fewer days in the quarter lower yields on earning assets and lower cash balances.
Tom: Offset by lower deposit costs and higher loan balances.
Tom: The net interest margin grew to four 7% up six basis points linked quarter.
Tom Bell: The change in NIM was driven by 23 basis point decrease in the cost of interest bearing liability. Specifically, we saw lower deposit costs. We also fully paid off the balance of our senior term note ahead of schedule, which further contributed to the reduction in funding costs, offset by lower rates on earning ads.
Tom: The change in NIM was driven by 23 basis point decrease in the cost of interest bearing liabilities.
Tom: Specifically, we saw lower deposit costs.
Tom: We also fully paid off the balance of our senior term note ahead of schedule, which further contributed to the reduction in funding costs offset by lower rates on earning assets.
Tom Bell: Depending on the pace of the future Fed rate cuts, our outlook for net interest income is based on the forward curve that currently assumes a 100 basis point decline in Fed funds for the remainder of 2025. This implies a slightly higher net interest income range, excluding first security, of $87 to $89 million for the second quarter. Turning to slide 8. Non-interested income totaled $14.9 million in the first quarter, lower than the last quarter as expected, primarily due to seasonality and lower gain on sale from the SBA budget. Our gain on seal guidance remains unchanged at an average of $5 million per quarter.
Tom: Depending on the pace of the future fed rate cuts.
Tom: Our outlook for net interest income is based on the forward curve that currently assumes a 100 basis point decline in fed funds for the remainder of 2025.
Tom: This implies a slightly higher net interest income range, excluding for security of $87 million to $89 million for the second quarter.
Tom: Turning to slide eight.
Tom: Noninterest income totaled $14 9 million in the first quarter lower than last quarter as expected, primarily due to seasonality and lower gain on sale from the SBA business or.
Tom: Our gain on sale guidance remains unchanged at an average of $5 million per quarter.
Tom Bell: Turning to slide 9. Our non-issue expense stood at $56.4 million, down 1.7% from the prior quarter. The primary drivers of the expense decrease was in salaries and benefits largely comprised of lower incentives and equity-based compensation, lower advertising spend, offset by first security merger-related expenses. We continue to remain disciplined on expense management and maintain our quarterly non-expense guidance to trend between $55 and $57 million.
Tom: Turning to slide nine.
Tom: Our non interest expense stood at $56 4 million down one 7% from the prior quarter.
Tom: Primary drivers of the expense decrease.
Tom: Was in salaries and benefits largely comprised of lower incentive and equity based compensation lower advertising spend offset by first security merger related expenses.
Tom: We continue to remain disciplined on expense management and maintain our quarterly non interest expense guidance to trend between 55 and $57 million.
Mark Fucinato: Turning to slide 10. credit quality continues to improve. Net charge-offs trended down by 14.7% this quarter to $6.6 million, compared to $7.8 million in the previous quarter. The ACL at the end of Q1 was $100.4 million, up slightly from the end of the prior quarter. NPLs to total loans decreased by 14 basis points to 76 basis points in Q1. and decreased 24 basis points from a year ago. Excluding government-guaranteed loans, NPL stood at 63 basis points, down 13 basis points from the prior quarter. And MPAs, the total assets, stood at 62 basis points in Q1, down nine basis points quarter over quarter.
Tom: Turning to slide 10.
Tom: Credit quality continues to improve.
Tom: Net charge offs trended down by 14, 7% this quarter to $6 6 million.
Tom: Compared to $7 8 million in the previous quarter.
Tom: The ACL at the end of Q1 was $104 million up slightly from the end of the prior quarter.
Tom: Npls to total loans decreased by 14 basis points to 76 basis points in Q1 and.
And decreased 24 basis points from a year ago.
Tom: Excluding government guaranteed loans Npls stood at 63 basis points down 13 basis points from the prior quarter.
Tom: And NPA to total assets stood at 62 basis points in Q1 down nine basis points quarter over quarter.
Mark Fucinato: Overall, credit quality trends are improving and we remain well-reserved.
Tom: Overall credit quality trends are improving and we remain well reserved.
Tom Bell: Moving on to Capital on slide 11. We have growing and strong capital. For the sixth consecutive quarter, we grew our tangible book value per share, which was up 4% lean quarter and up 14% compared to last year. CET1 is a strong 11.78%, up 8 basis points link quarter, and up 119 basis points year-over-year. Additionally, the TCE to TA ratio stood at 9.95%, up 34 basis points from last quarter. And to note, our investment portfolio is 100% in AFS, which is roughly 16% of total assets. For the quarter, our dividend payout ratio was 16% of our earnings and combined with the share repurchases translated into an 18% payout ratio to stock.
Moving on to capital on Slide 11.
Tom: We are growing and strong capital metrics.
Tom: For the sixth consecutive quarter, we grew our tangible book value per share, which was up 4% linked quarter and up 14% compared to last year.
Tom: CET one is a strong 11, seven 8% up eight basis points linked quarter and up 119 basis points year over year.
Tom: Additionally, the TCE to Ta ratio stood at 995% up 34 basis points from last quarter and to note our investment portfolio was 100%.
Tom: S, which is roughly 16% of total assets.
Tom: For the quarter, our dividend payout ratio was 16% of our earnings and combined with the share repurchases translated into an 18% payout ratio to stockholders.
Tom Bell: Lastly, during the quarter, we are very happy to report that Kroll Bond Rating Agency upgraded our debt rating one notch across the board, which highlights our financial strength. This rating upgrade reinforces our top quartile financial metrics, sound risk management practices, and strong capitalization of the company.
Tom: Lastly, during the quarter, we are very happy to report that Kroll Bond rating agency upgraded our debt rating, one notch across the board, which highlights our financial strength.
Tom: This rating upgrade reinforces our top quartile financial metrics sound risk management practices and strong capitalization of the company with that overload back to you.
Alberto Paracchini: With that, Alberto Baccarin. Thanks, Tom. This quarter, we added a slide to the front of the deck to highlight the banking franchise we've built over the past 12 years, as well as the aspirations we have to become the preeminent commercial bank in Chicago. At just under $10 billion in assets, we're the largest community bank in the market. Once we cross the $10 billion asset mark, we'll continue to be the largest local publicly traded commercial bank with assets between $10 billion and $65 billion in the greater Chicago metropolitan area. Our market share remains modest, which implies solid opportunities for growth, provided we continue to execute well on our strategy.
Speaker Change: Thanks, Tom.
Speaker Change: This quarter, we added a slide to the front of the DAC to highlight the banking franchise, we felt over the past 12 years as well as the aspirations we have to become the preeminent commercial bank in Chicago.
Speaker Change: Just under $10 billion in assets, where the largest community bank in the market.
Speaker Change: Once we cross the $10 billion asset Mark will continue to be the largest local publically traded commercial banks with assets between $10 billion $65 billion in the greater Chicago Metropolitan area or.
Our market share remains modest which implies solid opportunities for growth provided we continue to execute well on our strategy.
Alberto Paracchini: To wrap up, we were pleased with our performance for the quarter, notwithstanding the uncertainty present in the environment. We remained optimistic, given our capabilities as well as our market position, to continue to prudently grow the franchise and deliver value to our stockholders.
Speaker Change: To wrap up we were pleased with our performance for the quarter.
Speaker Change: Notwithstanding the uncertainty present in the environment, we remain optimistic given our capabilities as well as our market position to continue to prudently grow the franchise and deliver value to our stockholders I would like to thank all of our team members for their hard work this quarter and the contributions they individually.
Alberto Paracchini: I'd like to thank all of our team members for their hard work this quarter and the contributions they individually and collectively make to our organization.
Speaker Change: <unk> and collectively make through our organization and with that currently we can open the call up for questions.
Operator: And with that, Carly, we can open the call up for questions. Thank you very much.
Speaker Change: Thank you very much we're not open the lines for Q&A.
Operator: We're now to open the lines for Q&A. If you'd like to ask a question, please press star followed by 1 on your telephone keypad. To remove yourself from the line of questioning, it will be star followed by 2.
Speaker Change: To ask a question. Please press star flip one telephone keypad to remove yourself from the questioning.
Speaker Change: Phillip I too.
Nathan Race: Our first question comes from Nathan Race of Piper Sandler. Nathan, your line is now open. Hi, guys. Good morning.
Speaker Change: Our first question comes from Nathan race with Piper Sandler Nathan Your line is now open.
Nathan Race: Hi, guys. Good morning, and first of all are starting to hear about the loss of your.
Nathan Race: And first off, sorry to hear about the loss of your and Elberto. Appreciate it. Thank you, Nick. Good morning.
Speaker Change: And over time.
Speaker Change: <unk>.
Speaker Change: Okay.
Speaker Change: I appreciate it. Thank you Nick good morning, good morning.
Alberto Paracchini: Maybe just to start off on kind of what you're seeing in terms of activity in the Loan Committee these days, obviously a lot of uncertainty that you guys alluded to, and just curious to what extent you're seeing that come through in loan volumes more recently, and just generally how you're thinking about organic growth over the balance of this year. Yeah, so I think heretofore, Nate, obviously the first quarter credit, demand for credit was good, business development activity was very good. You see it in our gross origination numbers for the quarter. I mean, it's 310 million, you can see in the slide deck kind of the trend and how that compares with the previous you know, five quarters.
Speaker Change: Maybe just to start off with kind of what youre seeing in terms of activity loan Committee. These days, obviously a lot of uncertainty that you guys alluded to just curious to what extent, you're seeing that come through loan volumes more recently and just generally how you're thinking about organic growth over the balance of this year.
Speaker Change: Yes so.
Speaker Change: So I think here too for Nate.
Speaker Change: We see the first quarter.
Speaker Change: Credit demand for credit was good business development activity was very good.
Speaker Change: You see it in our in our gross origination numbers for the quarter. I mean is $310 million you can see in the slide deck kind of the trend and how that compares with the previous.
Speaker Change: Five quarters. So it was very good pipelines remain healthy.
Alberto Paracchini: So it was very good. Pipelines remain healthy. We've been in pretty active contact with our commercial customer base. just to get in front of them and really be on top of how they're thinking potentially about the impact of higher tariffs on their business, is it an issue about higher input costs, is it a function of how much of that will they be able to manage either by shifting their supply chains, how much disruption is that going to cost to their business, impact on revenue, impact on margins, how much liquidity do they have, so we've been pretty active on that front, Nate.
Speaker Change: We've been in pretty active contact with our commercial customer base.
Speaker Change: To get in front of them and really be on top of how they are thinking potentially about the impact of higher tariffs under business as it is it an issue about higher input costs.
Speaker Change: A function of how much of that will they be able to manage either by shifting their supply chains.
Speaker Change: Much disruption at that is that going to cost of their business the impact on revenue impact on margins, how much liquidity, where they have so we've been pretty active on on that front Nate and.
Alberto Paracchini: So far, I think it's fair to say most clients are taking kind of like a wait-and-see approach. We don't have, maybe with some minor exceptions here or there, you know, I think that the consensus is, you know, we're going to wait until the dust settles. Some of the more sensitive clients that have been through this before, I would say, have taken steps to try to manage and mitigate any potential effects on tariffs. So that's kind of where things are, from a sentiment standpoint, at least that's what we're hearing directly from clients.
Speaker Change: So far I think it's fair to say most clients are taking kind of like a wait and see approach.
Speaker Change: We don't have maybe with some minor exceptions here or there.
I think the consensus is.
Speaker Change: We're going to wait until the dust settles.
Speaker Change: Some of the more sensitive clients that have been through this before.
Speaker Change: I would say have taken.
Speaker Change: Steps to try to manage and mitigate any potential effects on tariffs. So.
Speaker Change: No.
Speaker Change: That's kind of where where things are from a sentiment standpoint at least that's what we're hearing directly from clients.
Alberto Paracchini: In terms of how that's going to impact the outlook, I think at this point, Nate, based on what we see, based on the pipelines we see, based on the activity that we saw most recently this quarter, to your point, the activity that we continue to see in committee, I think the guidance that Tom gave still stands in terms of that mid-single-digit growth for loans over the course of the year. Okay, that's very helpful.
Speaker Change: In terms of how that's going to impact the outlook I think at this point Nate we based on what we see based on the pipelines, we see based on the activity.
Speaker Change: That we saw most recently this quarter to your point the activity that we continue to see in committee.
Speaker Change: I think the guidance that Tom gave still stands in terms of that kind of mid <unk>.
Speaker Change: Mid single mid single digit growth for loans over the course of the year.
Speaker Change: Okay, that's very helpful.
Alberto Paracchini: Changing gears, you know, the SBA complexes had a lot of headlines recently in terms of some of the changes that's impacting underwriting. And so just curious how you think about some of those ramifications related future deal flow and just any other complications that could arise going forward, both near and longer term for that unit for you guys. I think, broadly speaking, and I think the commentary from others with respect to, you know, underwriting changes, I think what you're referring to is, in the previous administration, there had, the agency was encouraging and put through certain changes to try to originate a higher volume of smaller loans.
Speaker Change: Changing gears.
Speaker Change: SBA complex.
Speaker Change: <unk> had a lot of headlines recently in terms of some of the changes thats impacting underwriting and so just curious how you think about some of those ramifications.
Speaker Change: The future deal flow and just any other.
Speaker Change: Complications that could arise going forward, both near and longer term.
For you guys.
Speaker Change: I think broadly speaking and I think the commentary from from others with respect to.
Speaker Change: Underwriting changes and I think what youre, referring to is <unk>.
Speaker Change: In the previous administration, there had the agency was encouraging.
Speaker Change: Put through certain changes to try to.
Speaker Change: Originate a higher volume of smaller loans I think there are also.
Alberto Paracchini: I think there were also... licenses granted more, I should say, liberally to non-bank entities. So, I think the commentary from, call it, bank-owned SBA businesses, so to speak, inclusive of ours is, look, I think we welcome the tighter standards. Our underwriting standards never really change, so I can't tell you that we loosened underwriting or we loosened policy. I think our Standards remain consistent to the degree that in the market there are others that Are going to be impacted by that. I think in the long run. That's probably going to be beneficial to us and beneficial to other Lenders in the market that you know remain more consistent in terms of their approach to the business and their underwriting standards.
Speaker Change: Licenses granted.
Speaker Change: More I should say liberally to non bank entities.
So I think the commentary.
Speaker Change: Call It bank owned.
Speaker Change: SBA businesses, so to speak inclusive of ours is.
Speaker Change: Look I think we welcome the tighter standards.
Speaker Change: Our underwriting standards never really changed so I can't tell you that we've loosen.
Speaker Change: Underwriting or we loosened policy I think our.
Speaker Change: Standards remain consistent to the degree that in the market there are others that.
Speaker Change: Are going to be impacted by that I think in the long run thats, probably going to be beneficial to us and beneficial to other.
Speaker Change: Lenders in the market that you know.
Speaker Change: Remain more consistent in terms of their approach to the business and our underwriting standards. So I think.
Alberto Paracchini: So I think, you know, too early to tell, Nate. We'll see how that, you know, the change in administration, the changes that the new administrator is putting in place, we'll see how that impacts ultimately volume. But again, I would just reiterate, we've been in the business for a long time. We've been through multiple cycles in this space. And I think the The fact that the agency, the idea that what the new administration seems to want to do is bring the agency more in balance to make sure that it is not dependent on appropriations to fund itself, but rather that the agency is able to continue to show that it can fund itself is long-term probably a good thing.
Speaker Change: Too early to tell made we'll see how that change.
Speaker Change: Change in administration that changes that the new administrator is putting in place we will see how that impacts ultimately volume.
Speaker Change: But.
Speaker Change: Again.
Speaker Change: Just to reiterate we've been in the business for a long time, we've been through multiple cycles in this space.
Speaker Change: And I think the.
Speaker Change: The fact that the agency.
Speaker Change: The idea that what.
Speaker Change: What the new administration seems to want to do is bring the agency more in balance to make sure that that it is not dependent on stroke.
Speaker Change: Appropriations to fund itself, but rather that the agency is able to continue to show that it can fund itself.
Speaker Change: As long term probably a good a good thing so too early to tell on the on the direct impact at this point made but were.
Alberto Paracchini: So, too early to tell on the direct impact at this point, Nate, but we remain optimistic about the outlook in the long run here.
Speaker Change: We remain optimistic about the outlook in the long run here.
Alberto Paracchini: Okay, great. And then just one last one. You guys have been very transparent that you're prepared to cross $10 billion, either organically or inorganically, based on how you've invested over the years. So just curious, you know, just with all the market disruptions and uncertainties of late, if that's hindered, you know, some acquisition opportunities or what you're seeing on the M&A landscape these days. I think conversations are still active. I think it's fair to say, and I think if you look at the number of transactions, although there was a very significant transaction that just got announced this week, as well as some other smaller transactions.
Speaker Change: Okay great.
Speaker Change: And then just one last one you guys have been very transparent that youre prepared to cross $10 billion.
Speaker Change: Either organically or Inorganically based on how you've invested over the years.
Speaker Change: So just curious you just with all the market disruptions and uncertainties.
Speaker Change: And there are some acquisition opportunities or what youre seeing on the M&A landscape. These days.
Speaker Change: I think conversations are still active I think it's fair to say and I think if you look at the number of transactions. Although there was a very significant transaction just got announced this week.
Speaker Change: As well as some other smaller transactions.
Alberto Paracchini: But I think certainly the market volatility probably slows things down to a degree. For us, we're primarily focused on really institutions that tend to be private as opposed to public. So those conversations are ongoing. Sometimes the sellers in those situations like to think about their business as being completely immune from market forces. But we can talk about that separately. But I think the conversations are still ongoing. And look, the fundamental reasons for M&A, which have nothing to do with market volatility. They have a lot to do with lack of succession planning and management, the board getting up in age, the need for liquidity by existing shareholders.
Speaker Change: But I think certainly the market volatility probably slows things down to a degree.
Speaker Change: <unk>.
Speaker Change: For us we're primarily focused on on really institutions that tend to be private as opposed to public. So those conversations are ongoing sometimes the sellers in those situations.
Speaker Change: Like to think about their business as being completely immune from market forces, but we can we can talk about that separately, but.
Speaker Change: But I think the conversations are still ongoing and look the fundamental reasons for M&A, which.
Have nothing to do with market volatility they have a lot to do with.
Speaker Change: Lack of succession planning and management the board getting up in age.
Speaker Change: The need for liquidity by existing shareholders I think those things remain and I think those are ultimately the drivers for for a lot of people looking to to partner. So I think we remain optimistic there.
Alberto Paracchini: I think those things remain. And I think those are ultimately the drivers for a lot of people. to partner. So I, I think we remain optimistic there.
Speaker Change: Okay.
Damon Delmonte: Okay, great. And if I could just sneak one last clarifying question for Tom. The expense and NII guidance that you provided for the second quarter, I assume that includes the impact from of the Acquisition. It does not include the acquisition. Got it. I appreciate all the color.
Speaker Change: Okay, Great and then if I could just sneak one last clarifying question for Tom.
Speaker Change: Expense guidance that you provided for the second quarter I assume that includes <unk>.
Speaker Change: From.
Speaker Change: Hey acquisition.
Speaker Change: It does not include the acquisition.
Speaker Change: Okay got it I appreciate all the color congrats on a great quarter. Thanks, guys.
Nathan Race: You guys have a great quarter. Thanks, guys. Thank you, Nate. Thank you very much.
Speaker Change: Thanks Neely.
Speaker Change: Thank you very much.
David Long: Our next question comes from David Long of Raymond James. David, your line is now open. Good morning, everyone.
Speaker Change: Our next question comes from David Long of Raymond James David Your line is now open.
Speaker Change: Good morning, everyone.
David Long: Just a quick question on the credit side of things. Good morning. A couple of things on the credit side of things. Criticized and classified kicked up in the quarter after coming down for what seemed like a few quarters. Any common themes drive the increase?
Speaker Change: Just a quick question credit side of things.
Speaker Change: There's a couple of things on the credit side of things criticized and classifieds ticked up in the quarter after coming down for what seemed like a few quarters.
Speaker Change: Any common themes drive the increase.
Mark Fucinato: Hi, David. It's Mark Fucinato.
Speaker Change: Hi, David It's Mark <unk> no.
Mark Fucinato: No themes. You know, you can have one transaction move the needle for that level of criticizing. So, but we have not seen a theme in terms of the industry or any of our portfolios in the criticized and classified numbers at this point in time.
Speaker Change: No themes.
Speaker Change: You can have one transaction move the needle for that level of criticized.
Speaker Change: So.
Speaker Change: We have not seen a theme in terms of the industry or any of our portfolios in the criticized and classified.
Speaker Change: Numbers at this point in time.
Tom Bell: Dave, if I could add, if I could just add to what Mark said, just from to give you some perspective. So in December of 2023, our criticized level was at 3.92%. And over the course of 2024, you saw a consistent decline. We ended the year at, I think, 362 in December of 24. So we're back up to 369. And as Mark said, I think, I would focus on the trend line, knowing that there's going to be some volatility, you know, on any given quarter. But I think we like in terms of kind of the trend and kind of the direction that we're seeing there.
David Long: David if I could add.
Speaker Change: If I could just add to what Mark said just from a to give you. Some perspective. So in December of 2023, our criticized level was at 392%.
Speaker Change: And over the course of 2024, you saw consistent decline we ended the year at I think $3 62 in December of 24, So we're back up to $3 69, and as Mark said I think I will.
Speaker Change: Would focus on the trend line.
Speaker Change: Knowing that there is some vault because they're going to be some volatility on any given quarter, but I think we like in terms of.
Speaker Change: Kind of a trend and kind of the direction that we're seeing there and again these are still.
Tom Bell: And again, these are still pretty reasonable, you know, low, reasonably low numbers.
Speaker Change: Any reasonable.
Speaker Change: Reasonably low numbers so.
David Long: So So I just would like to give you some additional color on that. Got it. Thank you.
Speaker Change: So I just would like to give you some additional color on that.
Speaker Change: Got it thank you.
Tom Bell: On the reserve level, you know, I think it was prudent to build the reserves in the quarter, but can you talk a little bit more specifically about maybe what's, what are the economic forecasts built into your current reserve level? And is there still risk that we can see reserves have to be built just because of the math based on potential deterioration in economic forecast? Well, I think that's, that's the case for everybody that is under the CECL standard. I think, like, like others, Dave, we use the Moody's forecast, we consider You know, but I think it's fair to say we put primary weight on the on the base forecast and then we adjust and incorporate.
Speaker Change: On the reserve level.
Speaker Change: <unk>.
Speaker Change: It was prudent to build the reserves in the quarter, but can you talk a little bit more specifically about maybe what's what are the economic forecast is built into your current reserve level and is there still risk that we can see reserves have to be built just because of the map based on.
Speaker Change: Potential deterioration in economic forecast.
Speaker Change: Well I think that that's the case for everybody that is under the seasonal standard.
Dave: I think like like others, Dave we use the Moody's forecast we consider.
Dave: But I think it's fair to say, we put primary weight on the on the base forecast and then we adjust and incorporate.
Tom Bell: different, you know, we assign different probabilities to the others, and we weigh those just to make sure that we are calibrating our, our reserve to what we see in the environment. So that's essentially our our approach, you know, to, to answer the second part of your question. I think it's path dependent, right? If the outlook for the economy were to deteriorate, and we were to see deteriorating, a deteriorating picture, I think it's fair to say that for, you know, most institutions, you know, that would be reflected in their CSO estimates for reserve. Got it.
Dave: Different.
Dave: Signed different probabilities to the others and we weigh those just to make sure that we are calibrating our reserve to what we see in the environment. So that's essentially our approach to <unk>.
Dave: Second part of your question.
Dave: I think its path dependent right if the outlook for the economy were to deteriorate and we were to see deteriorating at deteriorating picture I think it's fair to say that for most institutions that would be reflected in their seasonal estimates for.
Dave: Our reserves.
David Long: Thank you for the call, Alberto. Appreciate it. Thank you very much.
Got it thank you for the color Alberto I appreciate it.
Dave: Thank you very much.
Brendan Nosal: Our next question comes from Brendan Nosal of Hoved of Group.
Speaker Change: Our next question comes from Brendan Nosal of.
Kurt: This is Kurt.
Brendan Nosal: Brendan, your line is now open. I hope you're doing well. Just starting off here, kind of at a top level on just the pre-provisioned earnings power of the bank. You know, as you guys said, 10 straight quarters, over 2% PPNR ROA. You know, it feels like that's settling into a new baseline here. Could you maybe just kind of walk through the balance of risks around that 2% number? You know, what could drive incremental upside in the return profile and where the near-term pressure points are, both internal to your business and external on macro factors?
Speaker Change: Your line is now open.
Speaker Change: Hope you're doing well.
Speaker Change: Just starting off here.
Speaker Change: At a top level on just the pre provision pre provision earnings power of the bank as you guys said 10 straight quarters over 2% <unk>. It feels like just settling into a new baseline here could you maybe just kind of walk through the balance of risks around that 2% number.
Speaker Change: What could drive incremental upside in a return profile in anywhere.
Speaker Change: The near term pressure points are both internal to your business and external and macro factors.
Tom Bell: Sure.
Tom Bell: This is Tom. Good morning. I think a couple things. We, you know, in the quarter we had an increase in the securities portfolio, and that was in part to kind of help protect for the rates down scenario that is expected here. Cash flows coming off of the portfolio don't need to be reinvested, given kind of some of the spreads that are coming in now. We're probably, you know, slow to replace cash flows there, so that'll help keep the ROA, pre-tax, pre-provision number above 2%. And then there's still repricing opportunities on the deposit side for us here, so things look pretty good.
Speaker Change: Sure.
As Tom Good morning.
Speaker Change: Yes, I think couple of things.
Speaker Change: The quarter, we had an increase in the securities portfolio and that was in part to kind of help protect for the rates down scenario.
Speaker Change: That is expected here.
Speaker Change: <unk> is coming off of the portfolio don't need to be reinvested given kind of some of the spreads that are coming in now.
Speaker Change: Slow to replace cash flows there so that will help keep the ROA pretax pre provision number above 2% and then theres still repricing opportunities on the deposit side for us here. So.
Speaker Change: Things look pretty good spec expenses seem to be managed well and then as we move forward here, obviously next quarter, we will we'll update.
Alberto Paracchini: Expenses seem to be managed well, and then as we move forward here, obviously next quarter we'll update everyone on the first security transaction related to marks, et cetera, and forecasts around it. Yeah, Brendan, just to add one more thing to what Tom just said is, I mean, if you think about that number, just think about it in the context of net interest income and the margin, kind of non-interest income, you know, and expenses. And to state this in a very simple way, continue to manage expenses, you know, well, continue to manage our margin. and continue to keep and and try to find areas where we can continue to grow that non-interest income line.
Speaker Change: Everyone on for security transaction related to marks et cetera, and forecasts around expenses.
Brendan: Yes Brendan.
Speaker Change: Slide one.
Speaker Change: One more thing to what to what Tom just said is I mean, if you think about that number just think about it in the context of net interest income and the margin kind of non interest income.
Speaker Change: Income.
Speaker Change: And expenses and state.
Speaker Change: State this in a very simple way.
Speaker Change: Continue to manage expenses.
Speaker Change: Wow.
Speaker Change: Continue to manage our margin.
Speaker Change: <unk>.
Speaker Change: Continue to keep and try to find areas, where we can continue to grow that non interest income line and so it's just managing those four components those are where the opportunities and the risks are.
Alberto Paracchini: And, you know, so it's just managing those four components. Those are where the opportunities and the risks are, you know, from that number, you know, do we expect it to move over time? I think if we if we continue to manage our rate position, you know, along the lines of what? Tom said in his remarks, then I think that a pre-tax preparation ROA, give it plus or minus five basis points, just give ourselves some room there, should be pretty achievable.
Speaker Change: That number do we expect that to move over time I think if we if we continue to manage our rate position.
Speaker Change: Along the lines of what.
Speaker Change: Tom said in his remarks, then I think.
Speaker Change: That.
Speaker Change: Our pretax pre provision ROA.
Speaker Change: Give it plus or minus five basis points, just give us give ourselves some room there.
Speaker Change: Should be pretty achievable.
Brendan Nosal: Okay, all right. Thank you for the thoughts there.
Speaker Change: Alright, Thank you for your thoughts there.
Alberto Paracchini: Maybe switching gears here. I think some of us have been getting a fair bit of investor questions on banks with sponsor finance exposure recently, just kind of given, you know, macro headwinds that are surmounting. So just hoping you can take the opportunity to walk us through your own sponsor finance portfolio, you know, what your approaches to the business and what you've been seeing in that portfolio Thanks, everyone.
Speaker Change: Maybe switching gears here.
Speaker Change: I think some of us have been getting a fair bit of investor questions on banks with sponsored finance exposure recently, just kind of given.
Speaker Change: Macro headwinds that are mounting.
Speaker Change: You can take the opportunity to walk us through your own sponsor finance portfolio. What your approach is in the business and what you've been seeing in that portfolio recently.
Alberto Paracchini: Thanks, everyone. Yeah, happy to. So our portfolio today is roughly around $700 million in outstanding about $868 million in commitments. Just by way of background, we started that business in September of 2015. So September of this year will be 10 years since we started that business from scratch, essentially 10 years ago. I don't want to jinx ourselves here, but we've never incurred a loss in those 10 years, and the portfolio has seen a fair amount of churn, as you would expect, in the sense that it's typically – – – – – private equity firms that buy a platform, they grow that platform.
Speaker Change: Yes happy to.
Speaker Change: So our portfolio today is roughly around $700 million in outstandings about $868 million in commitments just by way of background. We started that business in September of 'twenty 15. So September of this year will be 10 years since we started that.
Speaker Change: Business from scratch.
Speaker Change: Essentially 10 years ago.
Speaker Change: I don't want to Jinx ourselves here, but we've never incurred a loss in those 10 years.
Speaker Change: And the portfolio has seen a fair amount of churn as you would expect in the sense that it's typically.
Speaker Change: Private equity firms that by a platform that grow that platform and then over the course of a three or a four year period. They then put that platform for sale.
Alberto Paracchini: And then over the course of a three or four year period, they then put that platform for sale, and and basically start start over again. So we have seen now probably we're on our Using that timeline, we're probably on our third cycle of, you know, companies basically churning through that portfolio. And our approach to the business, by the way, one additional statistic, so we do business today with about 62 portfolio companies account for the $700 million in the portfolio today. Our approach to the business is we do senior only, we are targeting lower middle market companies.
Speaker Change: And basically start start over again, so we have seen now probably were on our.
Speaker Change: Using that timeline, we're probably on our third cycle of companies basically churning through that portfolio and our approach to the business by the way one additional statistics. So we do business today with about 62 portfolio companies account for the $700 million.
Speaker Change: And the portfolio today.
Speaker Change: Our approach to the business as we do senior only we are targeting lower middle market company. So a target market would be exactly the same type of business that we want to bank in our traditional commercial banking space.
Alberto Paracchini: So the target market would be exactly the same type of business that we want to bank in our traditional commercial banking space. So EBITDA range between $2 to $8 million, and we are looking to go up to no more than three times senior leverage. Effectively, that actually turns out to be, if I look at our portfolio today, it's well inside of that. So we do like to find companies and sponsors that are not really looking to maximize leverage. In fact, they're going to be more conservative in leverage. We tend to look also for companies that are not really growing very fast.
Speaker Change: So EBITDA range between $2 million to $8 million and we are looking to go up to no more than three times senior leverage effectively that actually turns out to be if I look at our portfolio today, it's well inside of that so we do like two five.
Speaker Change: <unk> companies on sponsors that are not really looking to maximize leverage in fact, theyre going to be more conservative and leverage we tend to look also for companies that are not really growing very fast in other words, they don't they're not consuming a lot of either.
Alberto Paracchini: In other words, they don't, they're not consuming a lot of either changes in networking capital or expected, you know, material capex into their business, we want that free cash flow to be used primarily to pay down debt.
Speaker Change: <unk> in networking capital or expected material capex into their business, we want that free cash flow to be used primarily to pay down debt. So thats I guess in a nutshell, we're happy too.
Alberto Paracchini: So that's, I guess, in a nutshell, and we're happy to you know, to share more color, you know, and we'll think about ways in which we can perhaps, you know, share more color on the portfolio broadly. But that's our that's a in a nutshell, that's the summary of our That's very helpful color.
Speaker Change: To share more color.
Speaker Change: We will think about ways in which we can perhaps.
Speaker Change: Share more color on the portfolio broadly, but that's our that's in a nutshell thats a summary of our business.
Speaker Change: That's very helpful color alright.
Alberto Paracchini: All right.
Operator: Thank you for taking my questions. Much appreciated. Thank you very much. As a reminder, if you would like to raise a question, please press star followed by one on your telephone keypad now. As a reminder to raise a question will be star followed by one.
Speaker Change: Alright, Thank you for taking my questions much appreciated.
Speaker Change: Thank you very much.
Speaker Change: Wonder if you would like to raise a question. Please press star followed by one key pipe now.
Speaker Change: I was familiar with Susquehanna questioning could be stuff with my two as a reminder, this phrase the question won't be stuff slipped by one.
Damon Delmonte: Our next question comes from Damon DelMonte of KBW. Damon, your line is now open. Hey, good morning, guys. Thanks for taking my questions here. Tom, I may have missed your prepared remarks, but good morning.
Damon Delmonte: Next question comes from Damon Delmonte <unk>.
Speaker Change: <unk> David your line is not wasted.
Damon Delmonte: Hey, good morning, guys. Thanks for taking my questions here.
Speaker Change: Tom I may have missed in your prepared remarks, but good morning.
Damon Delmonte: I may have missed this in the prepared remarks, Tom, but could you just provide an update on your thoughts on SBA gain on sales going forward? I know our first quarter could be a little bit slower. So just kind of higher thinking about the rest of the year. Sure. Hi, Damon. We said basically the average is $5 million per quarter. And the premium has been as close to 10% right now, and that should be in that 9 1⁄2% to 10%. Okay, great. All right, that's helpful. Thank you.
Damon Delmonte: I mean is this in the prepared remarks, but could you just.
Damon Delmonte: To provide an update on your thoughts on SBA gain on sales going forward I know who you.
Damon Delmonte: Our first quarter can be a bit slower so just kind of how youre thinking about the rest of the year.
Damon Delmonte: Sure Hi, Damon.
Damon Delmonte: We said basically the average is $5 million per quarter.
Damon Delmonte: And the premium has been.
Damon Delmonte: Close to 10% right now and that should be in that 9% 10% range.
Speaker Change: Okay, Great Alright thats helpful. Thank you.
Damon Delmonte: And then, you know, in the guidance for net interest income, I think it says 87 to 89. Did you say that that included a number of rate cuts this year? Or were you just pointing out the sensitivity if there were rate cuts? No I was only pointing out the quarterly Q2 numbers and that again was out for security and the market has a Fed expectation of a cut here in June so it's not a full impact for the quarter just given. of the timing of the Fed. Okay, so, but that would just be a guideline for us if we were to incorporate two cuts or, yeah.
Damon Delmonte: And then.
Damon Delmonte: And the guidance for net interest income I think it is 87 to 89 did you say that that included a number of rate cuts. This year or will you just pointing out the sensitivity if there were a rate cut.
Damon Delmonte: No I was only pointing out the quarterly.
Damon Delmonte: Our Q2 numbers and that again was allowed for security and the market has the fed expectation of cut here in June so it's not a full impact for the quarter just given.
Damon Delmonte: The timing of the fed movement.
Damon Delmonte: Got it okay. So that that would just be a guideline for us. If we were to include <unk> for Q catheter.
Damon Delmonte: Yes.
Damon Delmonte: Got it. Okay.
Tom Bell: And then just lastly, you know, the, you know, cash balances are down a little bit, average security balances are up a little bit. How should we think about the size of the securities portfolio going forward? Do you expect to continue to grow that? Or should we kind of hold that flat? You know, again, we're, you know, we've integrated for security. They had a portfolio as well. So I don't see us really growing the portfolio at this point. We have really good loan growth. There's no reason to buy additional securities unless there's a liquidity reason, and I think we're in a really strong liquidity position, so I would say flat to possibly down over the next remainder of the year.
Damon Delmonte: Got it okay.
Damon Delmonte: And then just lastly.
Damon Delmonte: Cash balances are down a little bit average security balances are up a little bit.
Damon Delmonte: How should we think about the size of the securities portfolio going forward.
Damon Delmonte: You expect to continue to grow that or should we kind of hold that flat.
Damon Delmonte: Again, we're we've integrated for security they had a portfolio as well so I don't see us really growing the portfolio at this point, we have really good loan growth.
Damon Delmonte: No reason to buy additional securities unless there is a liquidity reason and I think we're in a really strong liquidity position. So I would say flat to possibly down over the next.
Damon Delmonte: Major of the year.
Tom Bell: Great.
Damon Delmonte: Okay, that's all that I had. Thank you very much for taking my question. Great. Thank you. Thank you very much.
Damon Delmonte: Great. Okay. That's all I had thank you very much for taking my questions.
Damon Delmonte: Great.
Damon Delmonte: <unk>.
Damon Delmonte: Thank you very much.
Terry Mcevoy: Our next question comes from Terry McEvoy of Stevens.
Damon Delmonte: Our next question comes from Tim Mchugh.
Terry Mcevoy: Terry, your line is now open. Thanks. First off, Roberto, thanks for the opening comments and the reminder that what we do isn't just ticker symbols and numbers every day.
Speaker Change: Devens Terry your line is not open.
Speaker Change: Thanks first off Roberto Thanks for the opening comments and.
Speaker Change: The reminder of what we do isn't just ticker symbols and numbers every day and then over to I'm, sorry to hear about your loss.
Tom Bell: And then Alberto, I'm sorry to hear about your loss. Maybe first question for Tom, do you have any comments today on the first security marks, impact to TBV and EPS accretion? I didn't have a chance this morning to look at the presentation again, but the tenure is up about 50 basis points since that announcement. Terry, we're going to give that information out at the next earnings call. We don't have anything for you at this point, other than we can guide you to the original requirements around when we did announce the deal. Okay, I'll go back and double check that.
Speaker Change: Maybe first question for Tom do you have any comments today on the first security marks impacted TBD and EPS accretion I didn't have a chance. This morning to look at the presentation again, but the tenure is up about 50 basis points since that announcement.
Speaker Change: Terry.
Speaker Change: We're going to give that information out at the next earnings call.
Speaker Change: We don't have anything for you at this point other than we can guide you to the.
Speaker Change: The original.
Speaker Change: Requirements around when we did announce the deal announcement.
Speaker Change: Okay ill go back and double check that.
Speaker Change: And then.
Tom Bell: Sorry. Okay, thanks, Tom. No, good. And then I know Nate wanted to ask the question, but any sense for quarterly expenses, including kind of first first security, I know you provided the standalone number. Nothing at this time. Well, again, we're going to provide all the guidance for security at the next Gotcha. Okay. Everything. Not just the marks. Okay. Thanks, Tom.
Tom: Sorry, Okay. Thanks, Tom No no good.
Tom: And then I know Nate I wanted to ask the question, but any.
Tom: Since for a quarterly expenses, including kind of first for security I know you provided the Standalone number.
Tom: Nothing at this point.
Tom: Well again, we're going to provide all the guidance and for security at the next meeting.
Tom: Got you, Okay everything not just the markets. Okay. Thanks, Tom and then.
Alberto Paracchini: And then maybe just one last question. When I look at the strategic priorities, it seems like one opportunity for a $10 billion bank would be fee income. And when I look at the income statement and exclude the SBA business, it does seem like you're under-feed, so to speak, relative to peers. So, Alberto, I didn't know if you had kind of bigger picture thoughts on the longer-term opportunity to build out your fee businesses, particularly wealth management. Yeah, really good observation, Terry. And the answer is yes, that's an area of focus for us. We have, if you look at our size today, the size of our wealth business relative to the size of the bank.
Tom: Maybe just.
Tom: One last question when I look at the strategic priorities it.
Tom: It seems like one opportunity for a $10 billion.
Tom: <unk> would be fee income and when I look at the income statement and include exclude the SBA business. It does seem like you're under feed so to speak relative to appear so Alberto I didn't know if you had kind of bigger picture thoughts on the longer term opportunity to build out.
Tom: <unk> business is particularly wealth management.
Yes.
Tom: Really good observation Terry and the answer is yes, that's an area of focus for US we have if you look at our size today.
Tom: The size of our wealth business relative to the size of the bank.
Alberto Paracchini: particularly when you think about the type of customers that we have on the commercial side of the bank. We think there's an opportunity there. We've hired some terrific people that are running that business for us today. And it's something that we definitely want to see that component of our business become. a larger share of it over time. So, yes, to answer your question directly, the short answer is yes. Great. Thanks for taking my questions and have a nice weekend. Likewise, Terry. Appreciate it. Thank you very much.
Tom: Particularly when you think about the type of customers that we have on the commercial side of the bank. We think there is an opportunity there.
Tom: We've hired some terrific people that are running that business for us today.
Tom: It's something that we definitely want to see that component.
Tom: Our business become.
Tom: A larger share of it overtime so yes.
Tom: Answer your question directly the short answer is yes.
Tom: Okay, great. Thanks for taking my questions and have a nice weekend.
Speaker Change: Likewise, Barry I appreciate it.
Thank you very much. Our next question comes from Brian Martin with Janney Montgomery Scott.
Brian Martin: Our next question comes from Brian Martin of Johnny Montgomery School. Brian, your line is now open. Hey, good morning, everyone. Hi, Brian. Morning.
Speaker Change: Brian Your line is now open.
Brian Martin: Hey, good morning, everyone.
Speaker Change: Hi, Brian Hi, Brian.
Brian Martin: Say, Tom, can you just give, I think you talked about just kind of opportunities on the on the deposit side in terms of repricing and then even on the asset side, but can you just talk about how the repricing on both sides here of the next several quarters just as it relates to the NII guide or just kind of the NII outlook, if you will, just to kind of know the tips and takes there and then just remind us, you know, I think you talked about the forward curve, but just in terms of if we do see potentially four cuts versus two cuts, just kind of what's better for you guys or just the puts and takes there on just the difference between two and four.
Brian Martin: Okay.
Brian Martin: Hey, Tom can you just I think he talked about his kind of opportunities on the deposit side in terms of re pricing and then even on the asset side, but can you just talk about kind of the repricing on both sides here over the next several quarters just as it relates to that.
Brian Martin: NII guide or just kind of NII outlook. If you will just to kind of know.
Brian Martin: And then just remind us.
Brian Martin: I think you've talked about the forward curve, but just in terms of if we do see potentially pork cuts versus two cuts just kind of what's better for you guys or.
Brian Martin: The puts and takes there difference between two and four.
Tom Bell: Sure. So just as a reference, Brian, on page 7 of the deck, we gave our interest rate risk sensitivity. I think you'll see from prior. presentations that we continue to reduce our sensitivity, so we are still asset sensitive. That number for every 25 basis points decline continues to move lower, so that's a good thing for us. We've also been very disciplined, obviously, in the first 100 basis point cut where you saw net interest income kind of stayed flat during that cycle, so even though we expected to lose $9 million over a full year, we haven't seen that to date, so I think that's really positive.
Brian Martin: Sure.
Brian Martin: So just as a reference Brian on page seven of the deck, we gave our interest rate risk sensitivity I think youll see from prior.
Brian Martin: Presentations that we continue to reduce our sensitivity. So we are still asset sensitive.
Brian Martin: That number for every 25 basis points decline continues to move lower so thats a good thing for us.
Brian Martin: We've also been very disciplined obviously in the first 100 basis point cut where you saw net interest income kind of stayed flat during that cycle. So even though we expected to lose $9 million over a full year, we haven't seen that to date. So I think that's really positive, but our models do have obviously with EDA not repricing and some other products.
Tom Bell: What our models do have, obviously, with EDA not repricing and some other products at lower cost of funds levels, you're not going to be able to move down one for one through, depending on the cycle here. I mean, we're expecting 100 basis points per quarter, but for every 25 basis points on an annualized basis, we're going to lose $9 million. you can see that NII is technically expected to be down $2.3 million. So depending on the timing of that. You know, we're always trying to be disciplined on pricing, but also we are trying to grow the deposit base to support our loan growth.
Brian Martin: Lower cost of funds levels, youre, not going to be able to move down one four at for one through depending on the cycle here. I mean, we are expecting 100 basis points per quarter, but for every 25 basis points on an annualized basis.
Brian Martin: You can see the NII is technically expected to be down to $3 million so depend.
Brian Martin: Depending on the timing of that.
Brian Martin: We're always trying to be disciplined on pricing, but also that we are trying to grow the deposit base to support our loan growth. So.
Tom Bell: balance sheet needs can also dictate the net... I don't know if that answers your question. Yeah, it does. Yeah, repricing. No, that's helpful. I appreciate it, Tom.
Brian Martin: Balance sheet needs can also dictate.
Brian Martin: The net interest income.
Speaker Change: Got it.
Brian Martin: Yes, it does yes.
Brian Martin: The help I appreciate it.
Tom Bell: And just in terms of what's repricing, I think you talked about opportunities on the funding side, and even, I guess, you didn't mention the asset side, but just what's repricing, you know, what are the opportunities here, at least, you know, specifically on the funding side to go... © The Bulletproof Executive 2013 You know, I think we'll, you'll see some of this stuff in the queue, but, you know, again, the CD book continues to be short. It's technically about four months in duration, so relatively quick and a gradual reduction in rates will be more beneficial to us than a shock if something were to be unexpected here.
Speaker Change: In terms of what's repricing I think you've talked about opportunities on the funding side and even I guess.
Brian Martin: In the acetyl business plus re pricing.
Brian Martin: Are the opportunities.
Brian Martin: Okay on the funding side to go.
Brian Martin: Take advantage of where the rates are today.
I think.
Brian Martin: Youll see some of this stuff in the queue, but again the CD book continues to be short.
Brian Martin: Technically about four months in duration so.
Brian Martin: Relatively quick and a gradual reduction in rates will be more beneficial to us than a shock if something were to be unexpected here. So.
Tom Bell: So, you know, again, we've been in a little bit more of a, since the Fed has been on hold through the beginning of the year. You know, the liabilities kind of coming off are in that, you know, 430 range, if you will. So they can be reset at less than 4% on any specials and then... You know, but a blended CD book continues to move down as some front book business goes into back. And on the asset side, we're 50-50 fixed versus floating, and as SOFR moves down, you can expect those commercial loans to reprice, and then obviously there's a lag in the SBA book that's primed.
Brian Martin: Again, we've been in a little bit more of a since the fed has been on hold through the beginning of the year.
Brian Martin: The liabilities kind of coming off for a net $4 30 range. If you will so they can be reset at less than 4% on any specials and then.
Brian Martin: But a blended blended CD book continues to move down as some front book business goes been tobacco book.
Brian Martin: And on the asset side, we're probably 50.
Brian Martin: 50, 50 fixed versus floating.
Brian Martin: And as sulfur moves down you can expect those commercial loans to reprice and then obviously, there's a lag in the SBA book that is prime based.
Tom Bell: by a quarter. Gotcha. Okay. And then, thank you for that.
Brian Martin: By a quarter.
Brian Martin: Got it Okay and then.
Tom Bell: And then, just in terms of, I know you're not giving much on the transaction, but given that your comments were that the transaction, the integration is already complete now. should we think about from a standpoint of https://www.youtube.com.uk today or it was done recently, completed recently, is that fair without giving specific numbers around where things end up, just the timing of when you start to see clean results? That's realistic. That's very fair. And the quarter, Brian, we think the quarter is going to be pretty clean, and we'll will make sure that we provide you good clarity on that during the second quarter, but absent obviously the one-time charges related to the merger, which we will clearly disclose, the nice thing about doing it April 1st is it's going to be a full quarter.
Brian Martin: For that and then just in terms of I know you.
Brian Martin: Keeping much on the transaction, but given that your comments were that the transaction the integration already complete now.
Brian Martin: Should we think about.
Brian Martin: The standpoint of.
Brian Martin: Expenses that maybe at the first clean quarter from an expense standpoint.
Brian Martin: Third quarter, given the conversion is done.
Brian Martin: Today, we've done recent completed recently.
Brian Martin: Without giving specific numbers around where things and thats just the timing of when you start to see clean results that's realistic.
Brian Martin: That's very fair.
Speaker Change: And in the quarter, Brian we think the quarter is going to be pretty clean and well.
Speaker Change: We'll make sure that we are we provide you good clarity on that in the during the second quarter, but absent obviously the.
Speaker Change: The onetime charges related to the merger, which we will clearly disclose I mean, the nice thing about doing at April one is it's going to be a full quarter. So.
Brian Martin: So X the merger charges, we think the quarter should be pretty clean, and then certainly the third quarter will be fully. Yeah, okay. No, that's helpful. I understand the timing of the wait. I just want to make sure we're thinking about it the right way with the conversion. So thank you for taking the questions and all the perspectives today from everyone was helpful. Great, I appreciate it. Thank you very much.
Speaker Change: The merger charges, we think the quarter should be pretty clean and then certainly the third quarter will be fully clean.
Speaker Change: Yes, okay.
Speaker Change: Now if I understand the timing away I, just want to make sure im thinking about it the right way with the conversion. So thank you for taking the questions and all the other perspective today perfect from everyone is helpful.
Speaker Change: Great I appreciate it.
Speaker Change: Thank you very much. We currently have no further questions. So I'd like to hand back to Mr.
Roberto Herencia: We currently have no further questions, so I'd like to hand back to Mr. Herencia for any closing remarks.
Speaker Change: Currency for any closing remarks.
Operator: No, we got it, Carly. So thank you, Carly. And thank you, everyone for joining the call today and for your interest in Byline. And we look forward to speaking to you again in July.
Speaker Change: No we got it currently so thank you currently and thank you everyone for joining the call today and for your interest in <unk> and we look forward to speaking you again.
Speaker Change: In July.
As we conclude today's call, we'd like to thank everyone for joining, you may now disconnect your line.
Speaker Change: As we conclude today's call we'd like to thank everyone for joining you may now disconnect your lines.
Speaker Change: [music].