Q2 2025 Byline Bancorp Inc Earnings Call

July 25, 2025

Operator: Good morning, and welcome to Byline Bancorp, Inc.'s Q2 2025 earnings call. My name is Carly, and I'll be the conference operator today. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer period. If you would like to ask a question, simply press star followed by 1 on your telephone keypad. If you'd like to withdraw your question, hit star and 2. If you're listening via speakerphone, please lift your headset prior to asking your question. If you require operator assistance, please press star then 0. Please note this conference call is being recorded. At this time, I would like to introduce Brooks O. Rennie, Head of Investor Relations for Byline Bancorp, Inc., to begin the conference call.

Good morning and welcome to ban Bank Corps. Second quarter 2025 earnings call. My name is klen. I'll be the conference operator today.

All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer period. If you would like to ask a question since you press star, followed by the number 1 on your telephone keypad. If you'd like to withdraw your question, it's starting to if you're listening via speakerphone.

Please lift your headset prior to asking your question. If you require operator assistance, please press star, then zero.

Please make this conference call with being recorded at this time. I would like to introduce Brooks renie head of investor relations for land bank Corps to begin the conference call.

Brooks O. Rennie: Thank you, Carly. Good morning, everyone, and thank you for joining us today for the Byline Bancorp, Inc. Q2 2025 Earnings Call. In accordance with Regulation FD, this call is being recorded and is available via webcast on our investor relations website, along with our earnings release and the corresponding presentation slides. As part of today's call, management may make certain statements that constitute projections, beliefs, or other forward-looking statements regarding future events or the future financial performance of the company. We caution that such statements are subject to certain risks, uncertainties, and other factors that could cause actual results to differ materially from those discussed. The company's risk factors are disclosed and discussed in its SEC filings. In addition, our remarks and slides may reference or contain certain non-GAAP financial measures, which are intended to supplement, but not substitute for, the most directly comparable GAAP measures.

Speaker Change: Thank you, Carly.

Speaker Change: Good morning everyone and thank you for joining us today for the byline Bank Corp. Second quarter 2025 earnings call

Speaker Change: in accordance with regulation FD, this call is being recorded and available via webcast on our investor relations website along with our earnings release and the corresponding presentations files

As part of today's call management may make certain statements that constitute projections beliefs or other affordable looking statements regarding future events or the future financial performance of the company.

Speaker Change: we caution that such statements are subject to certain risks, uncertainties and other factors that could cause actual results to differ materially from those discussed,

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

Brooks O. Rennie: Reconciliation of each non-GAAP financial measure to the comparable GAAP financial measure 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 disclosures in the earnings release. As a reminder for investors, this quarter we plan on attending the Raymond James Bank Conference here in Chicago and the Stephens Bank Forum in Little Rock in September. With that, I would now like to turn the conference call over to Alberto J. Paracchini, President of Byline Bancorp Inc.

Speaker Change: In addition our remarks and slides May reference or contain certain non-gaap Financial measures which are intended to supplement, but not substitute for the most directly comparable, gaap measures.

Speaker Change: Reconciliation of each, non-gaap Financial measure to the comparable. Gaap Financial measure can be found within the appendix of the earnings release.

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

Speaker Change: As a reminder for investors this quarter, we plan on attending the Raymond James Bank conference here in Chicago and the Stevens Bank Forum in Little Rock in September.

Alberto J. Paracchini: Thank you, Brooks. Good morning, everyone, and thank you for joining the call this morning to go over our Q2 results. As always, with me on the call today, our Chairman and CEO, Roberto Herencia, Tom Bell, our CFO and Treasurer, Mark Fucinato, our Chief Credit Officer, and Brian Doran, our General Counsel. Before we get to the agenda, I would like to pass on the call to Roberto for some comments. Roberto.

Speaker Change: With that I would now like to turn the conference call over to Alberto Parini President of Finance.

Thank you, Brooks. Good morning, everyone and thank you for joining the call this morning, to go over our second quarter results. As always with me on the call today, are chairman and CEO Roberto herencia, Tom Bell, our CFO and Treasurer Mark, Lucado our chief credit officer and Brian Duran. Our general counsel before we get to the agenda, I would like to pass on the call to Roberto for some comments Roberto.

Roberto R. Herencia: Thank you, Alberto. Good morning to all. I'm really very pleased with the results of this quarter. This is yet another very strong performance, including several metrics among the top quartile of our peer group, and even stronger when reported numbers are adjusted to reflect core operating ratios. We continue to operate comfortably within the risk limits and criteria we've established. Our focus continues to be becoming the preeminent commercial bank in Chicago. Nothing beats clarity of communication internally with our employees and board and externally with our customers and the analyst, investor, and regulatory community. As such, we continue to execute well on strategic plans we have shared at large, and we do so in a patient and honest approach to risk.

Roberto: Thank you, Alberto and good morning to all. I'm really very pleased with the results of this quarter. This is yet another very strong performance including several metrics

Roberto: among the top quartile of our peer group and even stronger when reported numbers are adjusted to reflect or operating ratios.

We continue to operate comfortably within the risk limits and criteria. We've established

Roberto: Our Focus continues to be.

Roberto: Becoming the preeminent Commercial Bank in Chicago.

Roberto: Nothing beats Clarity of communication.

Roberto: Internally with our employees and board and externally with our customers.

Roberto: And the analyst investor and Regulatory community.

Roberto: as such we continue to execute well,

Roberto R. Herencia: As we see some of our peers bet on mergers with out-of-state banks and expand into multiple non-contiguous states, searching for what seems to be the shiny object today, size. This combination of communication and execution have allowed us to produce consistently strong results over the last few years. It also has earned us a number of awards which are meaningful to us and our deliberate approach to being home to the best banking talent in town. The most recent awards for the month of June and July we were proud to receive were the 2025 Chicago Sun-Times Best Workplaces, U.S. News & World Report 2025 Best Companies to Work For. That was in three categories: best companies in the Midwest, best in finance and insurance, and best companies in the US overall. Forbes America's Best in State Banks.

Roberto: On strategic plans we have shared a large and we do. So in a patient and honest approach to risk,

Roberto: as we see some of our peers Pat on mergers with out of State Banks and expand into multiple non-contiguous states.

Roberto: Searching for what seems to be the, the shiny object today size.

Roberto: This combination of communication and execution have allowed us to produce, consistently strong results.

Roberto: Over the last few years.

It has, it also has earned us a number of awards.

Roberto: Which are meaningful to us and our delivered approach to being home to the best bank in town in town.

The most recent Awards.

Roberto: Product to receive.

Roberto: Where 2025 Chicago, sometimes best workplaces.

US News and World Report 2025 best companies to work for.

Roberto: That was in 3 categories. Best companies in the midwest best in finance and insurance.

And best companies in the US overall.

Roberto R. Herencia: These awards are based primarily on engagement survey data of our employees, in addition to the array of employee programs we offer, such as learning and career development, employee benefits, and compensation. They reflect well on what we offer our people: Work-life balance and flexibility, job and company stability, physical and psychological comfort, and sense of belonging and esteem. Our success and performance are anchored by the engagement of our people. We're proud of what they do and how they do it. Our people and leadership teams have done a terrific job. We can't highlight this aspect of our business enough.

Roberto: And Forbes America's Best in State Banks.

Roberto: These awards are based primarily on engagement survey data of our employees. In addition to the array of employee programs, we offer such as learning and career development.

Roberto: Employee benefits and compensation.

Roberto: They reflect well on what we offer, our people.

Roberto: Work life, balance and flexibility.

Roberto: Job and Company stability.

Roberto: Physical and psychological comfort, and sense of belonging and steam.

Roberto: Our success and performance are anchored by the engagement of our people.

Roberto: We're proud of what they do and how they do it.

Roberto: Our people and Leadership teams have done a terrific job.

Thomas J. Bell III: With that, I'm happy to pass on the call to Alberto and the team.

Roberto: We can't highlight this aspect of our business enough.

Alberto Parini: With that, I'm happy to pass on the call to Alberto and the team.

Alberto J. Paracchini: Great. Thank you, Roberto. In terms of the agenda for this morning, I'll start with the highlights for the Q2. Tom will walk you through the financials, and then I'll come back and wrap up before we open the call up for questions. In general, we are pleased with our results for the Q2. Our financial performance remains strong, and we executed well on several strategic priorities. Early in the Q2, we successfully closed the transaction with First Security, completed the systems conversion, and wrapped up the integration by the end of April. The transaction added approximately $280 million in deposits and $153 million in loans, along with several important commercial relationships. I'd like to take the opportunity to welcome all former First Security customers, employees, and stockholders participating on the call this morning.

Speaker Change: Right. Thank you Roberto. In terms of the agenda for this morning, I'll start with the highlights for the quarter. Tom will walk you through the financials and then I'll come back and wrap up before we open the call up for questions.

Alberto J. Paracchini: I also want to give a huge shout-out to all employees who took part in the conversion and integration efforts, as well as those who played a significant role on a systems upgrade to our online banking systems platform that was also completed in Q2. Lastly, the end of the quarter marked Byline's 12th anniversary and 8th year as a public company. I would like to take a moment to recognize and thank everyone that's been a part of our story over those years for their contributions. Turning to our results on slide 4 of the deck. We reported net income of $30 million or $0.66 per diluted share on revenue of $110 million. These results include the impact of merger charges taken in connection with First Security and expenses related to a secondary offering of securities completed during Q2.

Speaker Change: In general, we are pleased with our results for the second quarter, our financial performance remains strong, and we execute it. Well on several strategic priorities, early in the quarter, we successfully closed the transaction with First Security, completed the systems conversion and wrapped up the integration. By the end of April, the transaction added approximately 280 million in the profits and 153 million in loans. Along with several important commercial relationships. I'd like to take the opportunity to Welcome All former First Security, customers employees and stockholders participating in the call this morning. And I also want to give a huge shout out to all employees who took part in the conversion and integration efforts, as well, as those who played a significant role on an systems, upgrade to our

Speaker Change: Online banking systems platform that was also completed in the second quarter.

Speaker Change: Lastly the end of the quarter marked by lines, 12th anniversary and eighth year as a public company, I would like to take a moment to recognize and thank everyone that's been a part of our story over those years for their contributions.

Alberto J. Paracchini: Excluding those, net income came in at $33.8 million or $0.75 per diluted share. Profitability and return metrics were again strong with Pre-tax pre-provision income of $51 million, Pre-tax pre-provision ROA of 212 basis points, which marks the 11th consecutive quarter this metric has exceeded 200 basis points. ROA came in at a healthy 1.25% or 1.41% on an adjusted basis. ROTCE comfortably exceeded our cost of capital coming in at just under 13% or 14.4% on an adjusted basis, notwithstanding our growing capital base. Total revenue came in at $110.5 million, which was up $7.4 million for the quarter and 11% year-over-year.

Speaker Change: Turning to our results on slide 4 of the deck. We reported net income of 30 million or 66 cents per diluted share on revenue of 110 million. These results include the impact of merger charges taken in connection with First Security, and expenses related to a secondary offering of Securities completed during the quarter, excluding those net income came in at 33.8 million or 75 cents per diluted. Share profitability and return metrics were again strong with free tax preparation, income of 51 million. Free tax, pre pre pre tax preparation Roa of 212 basis points, which marks the 11th consecutive quarter this metric has exceeded 200 basis points.

Speaker Change: Roa came in at a healthy 1.25% or 1.41% on an adjusted basis and the ROTC comfortably, exceeded our cost of capital coming in at just under 13% or 14.4% on an adjusted basis. Now withstanding, our growing Capital base.

Alberto J. Paracchini: Revenue growth was driven by a 9% increase in net interest income stemming from higher balances. The margin expanded by 11 basis points to 4.18%, reflecting a better mix of both deposits and earning assets when compared to the prior quarter. Non-interest income declined marginally due to a negative fair value mark on our servicing asset, notwithstanding higher gain on sale revenue and other fees. Expenses came in around $60 million, inclusive of charges. If we exclude those, expenses remain well managed at $54.7 million, marking a 2% decrease from the prior quarter.

Speaker Change: Total revenue came in at 110.500% year on year. Revenue growth was driven by a 9% increase in net interest income. Stemming from higher balances,

Speaker Change: the margin expanded by 11 basis points to 4.18% reflecting a better mix of both deposits and earning assets when compared to the prior quarter.

Speaker Change: Non-interest income decline marginally, due to a negative fair value, mark on our servicing asset notwithstanding higher, gain on sale revenue and other fees.

Speaker Change: Expenses came in around 60 million inclusive of charges.

Alberto J. Paracchini: Adjusted for merger and offering expenses, our efficiency ratio was excellent at 48.2% for the quarter, our cost to asset ratio came in at 228 basis points, which was down 18 basis points from the prior quarter and 6 basis points year-over-year. Moving on to the balance sheet, we saw continued growth in both loans and deposits, which ended the quarter at $7.4 billion and $7.8 billion, respectively. Excluding the impact of First Security, loans grew by $155 million or 9%, deposits, excluding brokered, grew 6.4% quarter-over-quarter. Business development activity picked up from last quarter, with originations coming in at $359 million, driven again by our commercial banking and leasing businesses. Offsetting this, we saw slightly higher payoff activity during the quarter.

Speaker Change: If we exclude exclude those expenses remain well-managed that 54.7 million marking a 2% decrease from the prior quarter.

Work water and 6 6 basis points year on year.

Alberto J. Paracchini: Moving to credit. Credit costs came in at $11.9 million and consisted of $7.7 million in net charge-offs and a net reserve build of $4.2 million. Net charge-offs came in at 43 basis points or 28 basis points if we exclude PCD-related charge-offs. NPL saw a 16 basis point uptick from last quarter, driven largely by lower resolution activity towards the end of the quarter. The ACL remained strong at 1.47% of loans at the end of the quarter. The net reserve build was attributed to growth in the portfolio, the impact of First Security, and net credit migration within the portfolio. Turning to capital. Capital levels continued to grow and remain robust, with TCE surpassing 10% and CET1 ending the quarter at just under 12%.

Speaker Change: Moving on to the balance sheet, we saw continued growth in both loans and the bosses which ended the quarter at 7.4 and 7.8 billion respectively. Excluding the impact of first security loans, grew by 155 million or 9% and deposits. Excluding brokered grew 6.4%. Quarter on quarter Business Development, activity picked up from last quarter, with originations coming in at 359 million driven Again by our Commercial Banking and leasing businesses. Offsetting this, we saw a slightly higher payoff activity during the quarter moving to credit credit costs came in and 11.9 million and consisted of 7.7 million in net, charge jobs and a net Reserve. Bill of 4.2 million

That charges came in at 43 basis, points or 28 basis points. If we exclude PCD related jobs,

Speaker Change: Npl. So on 16 basis. Point basis point uptick from last quarter driven largely by lower resolution activity towards the end of the quarter.

Alberto J. Paracchini: Having strong capital levels provides us with flexibility, the flexibility needed to take advantage of opportunities when they present themselves. This quarter, we had the opportunity to repurchase a large block of shares in a single transaction at what we considered attractive pricing. We capitalized on the opportunity and repurchased 418,000 shares, thereby returning approximately $10 million back to shareholders in addition to our regular quarterly dividend. With that, I'd like to turn over the call to Tom, who will provide you with more detail on our results.

Speaker Change: The ACL remains strong at 1.47% of loans. At the end of the quarter, the net Reserve, bill was attributed to growth in the portfolio. The impact of for security and net credit migration within the portfolio turning to capital capital levels continued to grow and remain robust with tce surpassing 10%, and C1 ending the quarter at just under 12%, having strong Capital levels provides us with flexibility. The flexibility needed to take advantage of opportunities. When they present themselves this quarter, we had the opportunity to repurchase a large block of shares in a single transaction. At what we considered attractive pricing, we capitalized on the opportunity and repurchased 418,000 shares. Thereby returning approximately 10 million dollars back to shareholders in addition to our regular quarterly dividends.

Thomas J. Bell III: Thank you, Alberto. Good morning, everyone. Our performance this quarter reflects strong financial results driven by higher net interest income, healthy growth in both loans and deposits, and disciplined expense management. These results underscore the resilience of our operating model, notwithstanding the uncertainty present in the economic environment. Starting with loans on slide 5. Total loans increased to $307 million, sorry, $307 million or 17.5% annualized and stood at $7.4 billion at 30 June, inclusive of the $153 million in loans added from the First Security transaction. Origination activity was strong for the quarter, with $359 million in new loans, up 16% quarter-over-quarter and up 20% compared to a year ago.

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

Tom: Thank you, Alberto and good morning everyone.

Tom: Our performance. This quarter reflects strong financial results driven by higher net interest income Healthy Growth in both loans, and deposits and disciplined expense management.

Tom: These results underscore the resilience of our operating model, notwithstanding the uncertainty present in the economic environment.

Tom: Starting with loans on slide 5.

Tom: Total loans increased to 307 million, sorry, 307 million, or 17, and a half percent annualized and stood at, 7.4 billion dollars at June 30th inclusive of the 153 million in loans, added from the First Security transaction.

Thomas J. Bell III: Payoff activity increased by $90 million from Q1 and stood at $245 million. Line utilization declined by 1% to 59%. Loan yields came in at 7.12%, up 3 basis points linked-quarter. Our loan pipelines remain strong. For the second half of the year, we expect loan growth to be in the upper end of our mid-single-digit range. Turning to slide 6. Total deposits increased to $7.8 billion, up 13.7% annualized from the prior quarter, inclusive of the $279 million of deposits from First Security. The increase was due to money market and non-interest-bearing demand accounts and net of a $130 million reduction in broker deposits. The improved mix drove deposit costs lower by 3 basis points to 2.27%.

Tom: Origination activity was strong for the quarter, with 359 million, in new loans up 16% quarter over quarter and up 20% compared to a year ago.

Tom: payoff activity increased by 9 million from q1 and stood at 245 million,

Tom: The line utilization declined by 1% to 59%.

Tom: Loan yields came in at 7.12% Up, 3 basis points, lean quarter.

Tom: And our loan pipelines. Remain strong for the second half of the year, we expect loan growth to be in the upper end of our mid single digit range.

Tom: Turning the slide 6 total deposits increased to 7.8 billion up 13.7%, annualized from the prior quarter inclusive of the 279 million of the deposits from First Security.

Thomas J. Bell III: Turning to slide 7. We had a record high net interest income of $96 million in Q2, up 9% from the prior quarter, primarily due to the First Security transaction, organic loan growth, and higher yields on securities offset by interest expense, mainly due to growth in deposits. The net interest margin grew to 4.18%, up 11 basis points linked quarter, and on a year-over-year basis, NIM expanded 20 basis points. Specifically, we saw higher rates on earning assets and lower interest-bearing liability costs. Assuming the Fed is on hold for Q3, our net interest income outlook is projected to range from $95 to $97 million. More importantly, our asset-sensitive balance sheet has generated growing NII over the past 5 quarters, despite the rate cuts in 2024.

Tom: The increase was due to money market and non-interest bearing, demand accounts and net of 130 million reduction in broker deposits, the improved mix drove deposit costs lower by 3 basis points to 2.27%.

Tom: Turning to slide 7. We had a record high, net interest, income of 96 million in Q2 up, 9%, from the prior quarter, primarily due to the First Security transaction, organic loan growth and higher yields on Securities offset by interest expense. Mainly due to growth in deposits.

Tom: The net interest margin grew to 4.18% up. 11 basis points, link quarter, and on a year-over-year basis, then expanded 20 basis points,

Tom: Specifically, we saw higher rates on earning assets and lower interest bearing liability costs.

Tom: Assuming the FED is on hold, for 23, our net interest income Outlook is projected to range from 95 to 97 million.

Thomas J. Bell III: This performance reflects disciplined balance sheet management, and we remain focused on sustaining this momentum going forward. Turning to slide 8. Non-interest income totaled $14.5 million in the Q2, slightly lower than the Q1, primarily due to a $2.1 million negative fair value mark on the servicing asset and the change in fair value of equity securities. Our gain on sale guidance remains unchanged at an average $5 million per quarter. Turning to slide 9. Our non-interest expense came in at $59.6 million for the Q2, up $3.2 million from the Q1, primarily due to the impact of the First Security transaction. The uptick in expenses was mainly due to merger-related charges, which includes higher salaries, employee benefits, increased professional fees, and conversion costs.

Tom: more importantly, our asset sensitive balance sheet has generated growing knee over the past, 5 quarters, despite the rate Cuts in 2024

Balance sheet management and we remain focused on sustaining this momentum going forward.

Tom: Turning to slide 8.

Tom: Non-interest income total, 14.5 million in the second quarter, slightly lower than the prior quarter. Primarily due to a 2.1 million negative Bill value marked on the servicing asset and the change in fair value of equity securities.

Tom: Our gain on seal guidance remains unchanged at an average 5 million per quarter.

Tom: Turning to slide 9.

Tom: Our non-existent expense came in at 59.66% from the prior quarter, primarily due to the impact of the First Security transaction.

Thomas J. Bell III: On an adjusted basis, our non-interest expense stood at $54.7 million, which is in the lower end of our Q2 guidance range. All projected cost targets related to the First Security transaction are on track. We continue to remain disciplined on expense management and expect our Q3 non-interest expense guidance to trend between $56 and $58 million. Turning to slide 10. In the Q2, our allowance for credit losses increased to $107.7 million, representing 1.47% of total loans, up 4 basis points from the prior quarter. This includes a day one, $3.2 million increase to the ACL for the First Security transaction. We recorded $11.9 million provision for credit losses in Q2 compared to $9.2 million in Q1.

Tom: The uptick in expenses was mainly due to merger related charges, which includes higher salaries. Employee benefits, increased professional fees and conversion costs.

On an adjusted basis. Our non-interest expense, stood at 54.7 million.

Tom: Which is in the lower end of our Q2 guidance range.

Tom: All projected cost targets related to the First Security transaction are on track. We continue to remain disciplined on expense management and expect our Q3 non-existence. Guidance to Trend between 56 and 58 million.

Speaker Change: Turning the slide 10.

Speaker Change: In the second quarter, our allowance for credit losses, increased to 107.7 million representing 1.47% of total loans up 4 basis points from the prior quarter, this includes a day 1, 3.2 million dollar increase to the ACL for the First Security transaction.

Thomas J. Bell III: The increase reflects adjustments for macroeconomic conditions, portfolio activity, including loan growth and the $864,000 double count related to First Security. Net charge-offs increased to $7.7 million compared to $6.6 million in the previous quarter. Excluding PCD, net charge-offs were $4.9 million, which represents 28 basis points. NPLs to total loans and leases increased to 92 basis points in Q2 from 76 basis points in Q1. Moving on to capital on slide 11. We had another solid quarter with strong performance metrics, resulting in an excellent first half of the year. More importantly, we continue to demonstrate our ability to execute against our strategic priorities. For the seventh consecutive quarter, we grew our tangible book value per share, which was up 3% linked quarter and up 14% compared to last year.

We recorded 11.9 million provision for credit losses, in Q2 compared to 9.2 million in q1.

Speaker Change: The increase reflects adjustments for macroeconomic conditions, portfolio activity, including loan growth and the 864,000 double account related to the First Security.

Speaker Change: Net charge offs increased to 7.7 million compared to 6.6 million in the previous quarter and excluding PCD net charge offs for 4.9 million which represents 28 basis points.

Speaker Change: Npls to Total loans and leases has increased to 92 basis points in Q2 from 76 basis points in q1.

Speaker Change: Moving on to Capital on slide 11.

Speaker Change: We had another solid quarter with strong performance, metrics resulting, in an excellent first half of the year. More importantly, we continue to demonstrate our ability to execute against our strategic priorities.

Thomas J. Bell III: CET1 came in at a strong 11.85%, up 7 basis points linked quarter and up 101 basis points year-over-year. Additionally, the TCE to TA ratio stood at 10.39%, up 44 basis points from last quarter. For the quarter, we repurchased approximately 544,000 shares, and our dividend payout ratio was 15% of earnings. With that, Alberto, back to you.

Speaker Change: For the seventh consecutive quarter. We grew our tangible book, value per share, which was up, 3%. Link quarter and up 14% compared to last year.

Speaker Change: C1 came in at a strong, 11.85% up, 7 basis points, link quarter and up 101 basis, points year-over-year.

Speaker Change: To TA ratio stood at 10.39% up, 44, basis, points from last quarter.

Speaker Change: For the quarter, we were purchasing 544,000 shares.

Alberto J. Paracchini: Thank you, Tom. Moving on to slide 12. As you can see on the slide, our strategy remains consistent and effective. We're pleased with our financial performance and execution in the first half of the year, which reflects the momentum of our different initiatives as well as disciplined execution. Looking ahead, our pipelines remain healthy, and we continue to be well-positioned to seize opportunities and continue to create long-term value for shareholders. To wrap up, I want to take a moment to thank all our employees for all they do and for stepping up to the plate on a daily basis to support our customers and our business. With that, operator, we can open the call up for questions.

Speaker Change: And our dividend payout ratio was 15% of earnings with that, Alberto back to you.

Alberto Parini: Thank you, Tom. Moving on to slide 12 as you can see on the slide, our strategy remains consistent and effective.

Alberto Parini: We're pleased with our financial performance and execution in the first half of the year which reflects the momentum of our different initiatives. As well as discipline. Execution looking ahead, our pipelines remain healthy and we continue to be well positioned to seize opportunities and continue to create long-term value for shareholders.

Operator: Thank you very much. We'd now like to open lines for Q&A. If you'd like to ask a question, please signal by pressing star followed by 1 on your telephone keypad now. To remove yourself from line of questioning will be star followed by 2. As a reminder to raise a question will be star followed by 1. Our first question comes from Nathan Race from Piper Sandler. Nathan, your line is now open.

Alberto Parini: So to wrap up, I want to thank a moment to thank all our employees, for all they do. And for stepping up to the plate, on a daily basis to support our customers and our business. And with that operator, we can open the call up for questions.

Alberto Parini: Thank you very much. We need to open the lines for Q&A. If you'd like to ask this question, please signal referencing staff, followed by 1, I'm going to telephone keypad. Now, to remove your second line of questioning will be start followed by 2 as a reminder, to raise a question would be star followed by 1?

Nathan Race: Hey, guys. Good morning. Thanks for taking the questions.

Speaker Change: Our first question comes from Nathan race from badler, Nathan, your line is now open.

Alberto J. Paracchini: Good morning, Nate.

Nathan Race: I'm hoping to dig a little deeper into some of the loan growth commentary. You know, it sounds like your pipelines are pretty strong and healthy heading into the back half of this year. Just in context of, you know, some of the earlier comments around just ongoing opportunities to take share, you know, just curious, you know, how much of the encouraging loan growth prospects you're seeing are a function of just continued share gains versus maybe just improved client sentiment now that we got some of the macro uncertainty from earlier this year somewhat behind us.

Nathan: Hey guys, good morning. Thanks for taking the questions.

Nathan: Just hoping to dig a little deeper into some of the loan growth commentary. You know, it sounds like your pipelines are pretty strong and healthy head into the back half of this year. Um, and just in context of, you know, some of the earlier comments around just ongoing opportunities to take share, you know, just curious. You know how much of the encouraging loan growth. Um,

Nathan: a prospects you're seeing in our function of just continue chair games. Uh, versus maybe just improved client sentiment. Now, that we got some of the, uh, macro uncertainty from earlier this year somewhat behind us.

Alberto J. Paracchini: Good question, Nate. It's hard to really break it down in terms of, you know, specifically, you know, where should we attribute that, you know, kind of healthy pipeline, kind of the growth that we've seen. I think what we would say is, notwithstanding the uncertainty in the environment and the fact that I think in general, when you talk to clients, they were mindful and cautious given all the talk around tariffs and ultimately were tariffs would settle. Was it posturing to try to negotiate better trade deals or was this something that was really going to be impactful to their operations? Notwithstanding all of that, customer activity has remained generally pretty healthy throughout.

Nathan: It's hard to really.

Break it down in terms of, you know, specifically you know, what do we work? Where should we attribute that?

Nathan: You know, kind of healthy pipeline, kind of the the growth that we've seen. I think what we would say is

Alberto J. Paracchini: We continue to see customers borrowing because they were expanding capacity, they wanted to buy equipment, they wanted to, you know, acquire companies and all of that. It wasn't something where we saw a pause and now we're seeing a resumption in pause. By the same token, we're also growing clients. I wish I could tell you or give you a more precise answer, but I think it's just a combination of both, Nate, in short.

Nathan: Notwithstanding the uncertainty, and, and the environment. And the fact that I think in general, when you talk to clients, they were Mindful and cautious given all the talk around tariffs and ultimately were were tariffs would settle, was it was it posturing to try to negotiate better trade deals or or was this something that was really going to be impactful um, to their operations? Uh, no, it was standing all of that. Customer activity has remained generally, pretty healthy throughout.

Nathan Race: Okay. That's really helpful. We've obviously seen, you know, M&A activity increase across the industry lately, and I know you guys are continuing to build capital at pretty strong clips just given the profitability profile. I'd just be curious to maybe get some updated thoughts on kind of the M&A opportunities that may exist today and kind of how you're thinking about, you know, managing excess capital in the meantime between buybacks and so forth.

So we continue to see customers, um, borrowing, because they were expanding capacity. They wanted to buy equipment, they wanted to, uh, you know, acquire companies and all that. So it it really, it wasn't something where we saw a pause and now we're seeing a resumption and thoughts and then by the same token. Um, we're also growing clients. Um, so I I think I wish I could tell you or give you a more precise answer but I think it's just a combination of both made in short.

Speaker Change: Okay. Uh, it's really helpful. Um, you've obviously seen you know, m&a activity increase across the, uh, industry lately. And I know you guys, um, are continuing to build Capital at pretty strong Clips just give them the profitability profile. So it would just be curious to maybe get some updated thoughts on Kennedy m&a opportunities, um, that may exist today and kind of how you're thinking about, you know, managing excess Capital um in the meantime between BuyBacks and so forth.

Alberto J. Paracchini: Yeah. First on M&A, I think, I mean, I think there's call it the conversations and the chatter around M&A has been, I think, has been there over the course of the year. I think it was probably incredibly optimistic at the start of the year, and I think those expectations, along with the noise and the discussion in the environment surrounding tariffs and the likely impact of that tended to dampen those expectations a bit.

Speaker Change: yeah, so first on m&a, I think um I I mean I think there's the the

Speaker Change: call it the the conversations and the chatter around m&a has been I think

Speaker Change: Has been.

There. Uh, over the course of the year. Uh, I think it was probably incredibly optimistic at the start of the year and I think those expectations along with

Alberto J. Paracchini: I think as we continue to get more clarity around really what, you know, the trade policies of the administration are going to be, you start to see some of these trade deals get announced, and I think your the market is starting to price in the likely impact of that. I think it's probably more positive than what the market, you know, originally anticipated at the, you know, when LIBOR transition first came out. I think on M&A, look, conversations continue. I think there's, you know, certainly interest. I think it's transaction dependent.

Speaker Change: The the noise and the the discussion and the environments around link tariffs and the likely impact of that tended to dampen those expectations a bit. Uh but I think um I I think as we get continue to get more clarity around really what you know the the trade policies of the administration are going to be and you start to see some of these trade uh

Speaker Change: Deals, get announced and and I think you're, you're, the market is, is starting to, to price in the, the likely impact of that. And I think it's probably more positive than what the market. You know. Originally anticipated at the, you know, when when Liberation Day first, uh, first came out. Um, so I I think on m&a, low conversations continue, I think there's, um, you know, certainly interest.

Alberto J. Paracchini: There are still some of the challenges for some potential sellers surrounding, you know, the mark-to-market on fixed rate portfolios, whether it be securities or loans, the impact that has on capital. Those challenges still are there and still exist. As far as our kind of capital priorities, I think, Nate, we have a standard hierarchy that we use when it comes to capital. First, we deploy capital to support organic and, you know, inorganic growth when the opportunities present themselves. Second, we want to support a sustainable dividend. Third, we repurchase shares. I would tend to agree with you that at the moment, we have a lot of capital flexibility. I think everything is on the table, which is really a great position to be in at the moment.

Speaker Change: I, I think it's, uh, transaction dependent, uh, the

Speaker Change: There are still some of the challenges for some potential sellers surrounding, uh, you know, the Market to Market on fixed rate, portfolios. Whether it be Securities or loans, the impact that has on Capital, so those challenges still are there and still exist.

Speaker Change: Um,

Speaker Change: As far as.

Speaker Change: Our kind of capital priorities. I think Nate we have a standard hierarchy that we use when it comes to uh, Capital so

Speaker Change: First we deploy Capital to support organic and you know, inorganic growth when the opportunities present themselves second, we want to support a sustainable dividend and third we repurchase shares.

Speaker Change: Uh, I would tend to agree with you that at the moment, we have a lot of capital flexibility.

So, I think everything is on the table, which is really a, a great position to be in, um, at the moment.

Nathan Race: Got it. That's a really helpful, color. Then maybe just one last one on credit, maybe for Mark. You know, just curious if you could shed any more lighter color on the increase in nonaccrual loans, and it looked like classified and criticized loans also increased in the quarter. I wasn't sure Any of the provision in the quarter was tied to some specific impairments and maybe just some general thoughts in terms of what you're seeing in terms of some of the, credit migration that occurred in Q2.

Speaker Change: Got it this uh really helpful uh color and then maybe just 1 last 1 on credit maybe from March, you know, just curious if you could shed any more lighter color, um, the increase in not across and it looked like classified and criticized, loans also increase in the quarter. So it wasn't sure if any of the provision in the quarter was tied to some specific impairments and maybe just some general thoughts in terms of what you're seeing in terms of some of the, uh, credit migration that occurred in 2q.

Thomas J. Bell III: Sure, Nate. Thanks. You know, it was very granular. The things that we saw in Q2 were not centered on a single line of business. Some event-driven decisions were made on certain credits. As you know, you know, one or two of our deals of any size can move our ratios. I believe that we're still within our historical ranges that we've seen in terms of our metrics with credit, over the last several years. I'd love it to get even stronger. We're working on that. You know, we're really good at identifying problems and making real-time decisions on ratings in terms of strategies for our workout credits, and I expect that to continue. We're going to be very straightforward on trying to resolve things.

You know, it was very granular. Um,

The things that we saw in the second quarter were not.

Centered on a single line of business. Um, some event driven decisions were made on certain credits.

Speaker Change: and as you know, you know, 1 or 2 of our deals of any size can move, our ratios

Speaker Change: But I believe that we're still within our historical ranges that we've seen in terms of our, our metrics with credit, uh, over the last several years.

Speaker Change: I'd love it to get even stronger. Um working on that

Speaker Change: But you know, we're we're really good at identifying problems and making real-time decisions on ratings in terms of strategies for our work, our credits.

Thomas J. Bell III: Business resolutions are always the best. Sometimes, you know, we can't get a business resolution, so we have to change directions on a particular credit. Overall, I'm still confident we're in a good place and we're doing the right things and making the right decisions, regardless of what line of business the portfolio is we're talking about.

Speaker Change: And I expect that to continue, we're going to be very straightforward on trying to resolve things. Business resolutions are always the best

But sometimes, you know, we can't get a business resolution, so we have to change directions on a particular credit.

Speaker Change: but overall, I'm still

Speaker Change: Confident, we're in a good place, and we're doing the right things and making the right decisions.

Speaker Change: Uh, regardless of what line of business. Uh, the portfolio is we're talking about

Nathan Race: Okay, great. I appreciate all the color. Thanks, guys.

Thomas J. Bell III: Thank you, Brad.

Okay, great. I appreciate all the color. Thanks, guys.

Alberto J. Paracchini: Thanks, Nate.

Operator: Thank you very much. Next question comes from Damon Del Monte from KBW. Damon, your line is now open.

Speaker Change: You bet, thanks.

Speaker Change: Thank you very much. Uh, next question comes from. Damon De Monte from KBW. Damon your line is now open.

Damon Del Monte: Hey, good morning, guys. Thanks for taking my question.

Damon DelMonte: Hey, good morning, guys. Thanks for taking my question.

Thomas J. Bell III: Sure.

Damon Del Monte: Given the, you know, the increased optimism with the loan growth here in the back half of the year, I'm just wondering how we should kind of think about the securities portfolio. I know you guys have been adding to that in recent quarters. Do you feel that that level of growth will kind of slow down as you look to kind of remix the earning assets? Or do you think that, you know, given continued deposit growth, you could kind of store some of the liquidity in securities?

Damon DelMonte: Given the, you know, the increased optimism with the loan growth here in the back half of the year, I'm just wondering how we should kind of think about the securities portfolio. I know you guys have been adding to that in recent quarters. Do you feel that that level of growth will kind of slow down as you look to kind of remix the earning assets? Or do you think that, you know, given continued deposit growth, you could kind of store some of the liquidity in securities?

Speaker Change: Hey, uh, good morning guys. Um, thanks for taking my questions. Um, just curious, even the, you know, the increased optimism with the long growth here, in the back half of the year. I just wondering how we should kind of think about the Securities portfolio. I know you guys have been adding to that and recent quarters, um, you feel that, um, that, that, that that level of growth will will kind of slow down. As you look to kind of remix your any assets. Or do you think that, you know, giving continued deposit growth? You could kind of store some of the liquidity and security

Thomas J. Bell III: Hi, Damon. It's Tom.

Damon Del Monte: Hey, Tom.

Damon DelMonte: Hey, Tom.

Thomas J. Bell III: The only we've done a lot of purchases, you know, for the first half of the year in securities other than the first, pardon the pun, First Security transaction where we, you know, acquired their assets there. We're likely just given the balance sheet to probably let just run off, cash flows run off and go into funding loan growth at this point. You know, there's a lot of activity on the balance sheet this quarter, as you saw, you know, between the Federal Home Loan Bank borrowing being reduced, broker deposits being reduced and kind of the cash. We're still mindful of the $10 billion number for this year. You know, given our loan growth, you know, we want to just focus on customers at this point. Not likely to grow the security portfolio.

Speaker Change: Hi Damon. It's Tom. Um,

Tom: I think the only weren't a lot of purchases, you know, for the first half of the year in Securities other than the first part of the pond First Security transaction where we you know, acquired their their assets. Their um, we're likely just given the balance sheet to probably let just run off cash flows, run off and go into funding loan growth at this point,

Damon Del Monte: Got it.

Damon DelMonte: Got it.

Thomas J. Bell III: Through the rest of the year.

Damon Del Monte: Got it. Great. On the deposit front, I noticed that the cost of money market was up, I think, 9 basis points this quarter. Is that a reflection of the First Security transaction and maybe blending in that they have higher cost of deposits? Or is that indicative of what you are seeing across your footprint from a competition standpoint?

Damon DelMonte: Got it. Great. On the deposit front, I noticed that the cost of money market was up, I think, 9 basis points this quarter. Is that a reflection of the First Security transaction and maybe blending in that they have higher cost of deposits? Or is that indicative of what you are seeing across your footprint from a competition standpoint?

Tom: Um, you know, we're there's a lot of activity on the balance sheet this quarter. As you saw you know between the Home Loan Bank borrowing being reduced broker deposits, being reduced and kind of the cash but we're still mindful of the the 10 billion number for this year and you know, giving our loan growth, you know we want to just focus on customers at this point. So not likely to grow the security portfolio for the rest of the year.

Thomas J. Bell III: No, it was related to First Security and, you know, transaction. Pricing has been pretty much unchanged as it relates to competition at this point. No, no added increases in money market cost because we are losing deposits or anything like that.

Speaker Change: Got it. Great. And then on the deposit front, um, I noticed that the, uh, cost of money market, um, was up. I think 9 basis points this quarter is that a reflection of the, the First Security transaction and and maybe blending in the there, they have higher cost of deposits. Or is that indicative of what you're seeing um across your footprint from a competition standpoint?

Speaker Change: No, it was related for security and you know transaction. Um

Speaker Change: Pricing has been.

Pretty much unchanged as it relates to competition at this point.

Speaker Change: So no no added increases in Money Market costs because we are losing deposits or anything like that.

Damon Del Monte: Got it. Great. Okay, thanks. Appreciate the color. That's all that I had. Thank you.

Damon DelMonte: Got it. Great. Okay, thanks. Appreciate the color. That's all that I had. Thank you.

Thomas J. Bell III: Thank you.

Alberto J. Paracchini: Thanks, Damon.

Got it. Great. Uh okay thanks appreciate that caller. That's all that I had. Thank you.

Operator: Thank you very much. Our next question comes from Brendan Nosal from Hovde Group. Brendan, your line is now open.

Speaker Change: Thanks Amman.

Brendan Nosal: Hey, good morning, everybody. Hope you're doing well. Just to start off here on, just on the cost outlook for the Q3. Can you maybe just unpack that a little bit and speak to some of the drivers of the increase from this quarter's run rate?

Speaker Change: Thank you very much. Our next question comes from Brandon Nazar from Hood group. Brandon, your line is not open.

Yeah, good morning everybody.

Speaker Change: Hope you're doing well.

Speaker Change: Um just to start off here. Um okay um just on the the cost outlook for the the third quarter. Um can you just unpack that a little bit and speak to some of the drivers of the increase from this quarter's run rate?

Thomas J. Bell III: Sure. I mean, most of it was related to the First Security acquisition, that took place. When you exclude those one-time items, we're kind of back to our standard level. The guidance for the next quarter is maybe a little bit higher than last quarter, but, you know, we have marketing costs and other things that kind of happen in the second half of the year, so we want to just be mindful of that. Generally, on track with where we're trending right now.

Speaker Change: Sure. I mean, most of it was related to the First Security acquisition. Um, it took place. So when you exclude, those 1 time, items were kind of back to our standard levels. Um

Speaker Change: The guidance for the next quarter is maybe a little bit higher than last quarter but you know, we have marketing costs and other things that kind of happen in the second half of the year. So we want to just be mindful of that.

Brendan Nosal: Perfect. Maybe one more for me, just a little bigger picture. There was clearly a step function up in earnings power and PPNR this quarter, I think up like 20% sequentially or so. Just kind of curious, you know, as you look at that, like how sustainable do you think, you know, this quarter's earnings power is? I think if I work through the guide, it looks like next quarter is probably something similar. Just given that step up, would love to hear your thoughts on how durable that is.

Speaker Change: But generally on track with where we're, we're trending right now.

Alberto J. Paracchini: I think big picture, Brendan, look, there's, we obviously had the impact of First Security, so we had the assets, the liabilities that came with that transaction. Then, you know, putting aside the charges for the quarter related to the merger, really the impact of, you know, the cost saves and basically the rationale for doing the transaction. I think what you're seeing in the earnings is the impact of that. To answer, I think you bring up a good point. Yes, the earnings power, you know, has increased as a result of being able to execute on that in addition to continuing to grow the, call it the core business that is outside of that transaction.

Died. It looks like next quarter is probably something similar but just given that step up would love to hear your thoughts on on how durable that is.

Speaker Change: I I think I I think big picture, uh,

Speaker Change: Nah, uh Brendan. Um I I look there's we obviously had uh the impact of First Security. So we had the assets, the liabilities that came with that transaction. And then, you know, putting aside the the charges for the quarter related to the merger, really. The the impact of, you know, the cost saves and and basically the the the rationale for doing the transaction. I think, what you're seeing in the earnings is the impact of that.

so, uh,

Speaker Change: once there, I think you bring up a, a good point. And yes, the earnings power, you know, has increased as a result of being able to execute on that. In addition to continuing to to grow the the call it, the core business that that is outside of of that transaction.

Thomas J. Bell III: Okay. All right. That's helpful. Well, congrats on the quarter, and thank you for taking the questions.

Brendan Nosal: Okay. All right. That's helpful. Well, congrats on the quarter, and thank you for taking the questions.

Speaker Change: Okay, all right.

Alberto J. Paracchini: You bet. Thank you.

That's helpful. Uh, well, congrats on the quarter and thank you for taking the questions.

Operator: Thank you very much. As a reminder, to raise a question will be star followed by 1 on your telephone keypad. To remove yourself from line of questioning will be star followed by 2. As a reminder, to raise a question is star followed by 1. Our next question comes from Terry McEvoy of Stephens. Terry, your line is now open.

Speaker Change: Are you bad? Thank you.

Speaker Change: Thank you very much. As a reminder to raise a question. We'll be star followed by 1 on your telephone keypad, to remove yourself from the line of questioning will be staff followed by 2 as a reminder, to raise a question if star followed by 1.

Terry McEvoy: Thanks. Happy Friday, everybody.

Speaker Change: Our next question comes from Terry mckelvie of Stevens, Perry, your line is now open.

Alberto J. Paracchini: Hi, Terry.

Thanks. Happy Friday everybody.

Thomas J. Bell III: Terry.

Terry McEvoy: A question for Alberto. I don't know if it's your top priority, but it's top left on page 12 is staying ahead of regulatory expectations. Could you just maybe talk about how crossing $10 billion may change given some of the discussions in Washington, how you're prepared for that, and any other regulatory topics that you're focused on today?

Speaker Change: Question for um Alberto um I don't know if it's your top priority but it's top left on page. 12 is the staying ahead of regulatory expectations. Um, could you just maybe talk about how Crossing 10 billion dollars may change given? Uh, some of the discussions in Washington, how you're prepared for that and any other regulatory topics that are um that that you're focused on today.

Alberto J. Paracchini: Really good question, Terry. I think what we would say is we have a long-term view of things. I think it's fair to say that, just in the environment, you know, certainly the pendulum has swung away from the direction where it was, let's say, under the previous administration. We take a long-term view. You know, we recognize that potentially the pendulum can also swing back in the other direction. We try to stay centered on, you know, kind of a, we try to stay even keel when it comes to that. Certainly, there are higher expectations as an institution continues to grow.

Speaker Change: Really good question. Uh, Terry. And I think what, what we would say is

we have a long-term uh view of things and uh I I think it's fair to say that um

Just in in the environment, you know, certainly the, the pendulum has swung, um, away from the direction where it was let's say under the previous administration.

Um, but we turn we take a long-term view. So uh, you know, we we recognize that.

Speaker Change: Uh, potentially the pendulum can also swing back in the other direction, so we try to stay centered on.

Alberto J. Paracchini: I think that first threshold of $10 billion is one. We continue to plan and prepare to make sure that we are well ahead of those expectations when and if we cross that threshold.

Speaker Change: On, you know, kind of the we try to stay even teal when it comes to that and certainly there are higher expectations as an institution continues to grow. I think that first threshold of 10 billion dollars is 1, and we want to continue, we continue to plan and prepare, um, to make sure that we are well ahead of those expectations when. And if we, we cross that threshold,

Terry McEvoy: appreciate that. Thanks. Maybe a question for Tom. A follow-up on Damon's question, just maybe a little more clarity is what's your ability from here to lower interest-bearing deposit costs, particularly CDs? It looks like yields were kind of sub 4% last quarter. Is there more room to go in the second half of the year?

Thomas J. Bell III: There is some room, Terry, you know, not as much, you know, unless the Federal Reserve were to cut rates. You know, I think we're kind of at the end of the repricing from the higher rate environment here. You know, we had a very short duration CD book. I think we continue to stay short with anticipation that at some point maybe the Federal Reserve will cut rates. To date, they haven't. I think we've benefited from that. Again, mindful of, first and foremost, customer relationships, bringing in DDA with the, you know, with the lending relationship and the treasury management fees, et cetera. That's our first and foremost thing. You know, obviously, we're going to have to sprinkle in some CDs. Right now, customer deposits, whether they're CDs or money markets, are cheaper than the wholesale markets.

Speaker Change: Appreciate that. Thanks. And, um, maybe a question for Tom, a follow up on, on Damon's question. Just maybe a little more clarity. Is what? What's your ability from here to lower interest? Bearing deposit costs, particularly CDs. It looks like yields were kind of sub 4%. Last quarter is there more room to go in the second half of the year.

Tom: There is some room, uh, Terry but, you know, not as much and you know, unless the FED were to cut rates. So,

No, I think I think we're kind of at the end of the repricing from the higher rate environment here. You know, we had a very short duration CD book. I think we continue to stay short with anticipation that at some point, maybe the FED will cut rates.

Tom: Um, but to date they haven't and so I think we benefited from that.

Thomas J. Bell III: I think we see that as an opportunity to add CDs in the coming quarters here.

Tom: Again, mindful of first and foremost customer relationships bringing in DDA with the, you know, with the lending relationship and the transfer management, fees Etc. So that's our first and foremost thing. But, you know, obviously, we're going to have to sprinkle in some CDs. And, and right now customers deposits, whether they're CDs or money markets, are cheaper than the wholesale market. So I think we, we see that as an opportunity to

Alberto J. Paracchini: Yeah. I think, Terry, if I could add to what Tom said. I think there's the general repricing that comes with changes in interest rates. Rates headed lower, you have certificates that are at higher rates. Those are repricing effectively at lower rates. There is that impact. Then there's the ongoing work that is, you know, continuing to segment our portfolio, continue to understand customer behavior better, to find opportunities so that we can strategically price deposits better. That's ongoing. That's not. I wouldn't tell you that one is that we're done with that one. That one is one that will continue both on the consumer side as well as on the commercial side.

Tom: Add CDs and in the coming Quarters here.

Speaker Change: Yeah. And I I I think Terry, if I could add to what Tom said, I think there's the, there's the general.

Repricing that comes with changes and interest rates and rates had it lower. You have certificates that are at higher rates. Those are re-pricing, uh, effectively as at at lower rate. So there's that impact, and then there's the ongoing work that is, you know, continuing to

Speaker Change: Document our portfolio continue to understand customer Behavior better to find Opportunities so that we can strategically price deposit better and that's ongoing. So that's not

Speaker Change: I, I wouldn't tell you that that 1 is

Speaker Change: Is that we're done without 1. We and that 1 is is 1 that will continue both on the on the consumer side as well as on the commercial side.

Terry McEvoy: Great. Thank you both, and have a nice weekend.

Alberto J. Paracchini: You bet. You as well.

Speaker Change: Great, thank you both and and have a nice weekend.

Thomas J. Bell III: Thanks, Terry.

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

Brian Martin: Hey, good morning, guys.

You very much. Our next question comes from Brian Martin if Jaime Montgomery, Brian, your line is now open.

Alberto J. Paracchini: Morning, Brian.

Hey, good morning, guys.

Thomas J. Bell III: Morning, Brian.

Brian Martin: Just one, Tom, just back to the expenses for a minute. The cost savings from the First Security transaction, given the integration, I guess, is how much of that is in the numbers currently?

Speaker Change: say just 1 Tom, I'm

Speaker Change: An expensive for a minute. The the cost savings from the First Security transaction. Given the integration, I guess is how much of that is in the numbers currently?

Thomas J. Bell III: I mean, it's already baked in. We've had pretty much the full quarter.

Brian Martin: Right.

I mean, it's it's already baked in, we've had pretty much the full quarter.

Thomas J. Bell III: Priced in.

Brian Martin: we've-

Thomas J. Bell III: Maybe a few things that, you know, trickle into this quarter. Generally speaking, all the cost saves are in.

Brian Martin: Okay. I just want to make sure. Just trying to understand that, like you said, that increase going from where we're at today, the core base, is up to that 56 to 58 just seemed higher, on the higher side, given if there were more cost savings and the additional marketing and other expenses you talked about. Okay. Just one.

Speaker Change: Uh, right, so so so maybe a few things that, you know, trickle into this quarter. But generally speaking, all the cost savings are in

Thomas J. Bell III: It is a little higher, Brian, it is a little higher, as I said, in my comments, primarily due to, you know, additional marketing spend that usually happens in the second half of the year. It's not really related to the First Security transaction.

Brian Martin: Gotcha. That's what I just want to clarify. Kind of the targeted kind of, let's say, the expense, you know, the efficiency level we're at today and the cost to assets ratio at, you know, down a fair amount, I guess. Those would be expected to trend a bit higher from where they are. Do you think they're kind of sustainable where we are at current levels, given the leverage you get from the transaction?

Speaker Change: Okay, I just want to make sure I'm just trying to understand that, like you said that increase going from where we're at today. The core base is up to that 56 to 58. Just seemed higher on the higher side given if there were more cost savings and some of the additional Marketing in other expenses, you talked about. So um, okay, um, just 1 higher, Brian, Brian. Brian. It is a little higher as I said. Um, my comments primarily due to, you know, additional marketing. Spend that usually happens in the second half of the year. Um, but it's not really related to the First Security transaction

Speaker Change: Gotcha. That's I just want to clarify and and kind of the, the targeted kind of, let's say the expense, you know, the the efficiency level, where it's at today and the, uh,

Speaker Change: Cost to assets ratio at, you know, down, down, down a fair amount, I guess.

Alberto J. Paracchini: I think, as you well know, Brian, we look at both because on the efficiency side, that number is also impacted by revenues. We have to gain on sales component on our revenues that can move up or down. We have also the fair value mark on the servicing assets. That can make that number, you know, move up and down a bit. On the NIE to average asset, that cost to asset ratio, I think I pay attention to that one a lot simply because it's a pure measure of expenses. As you continue to grow the asset base, I think we would continue to wanna see that number continue to tick down. We've made a ton of progress over the years on that metric.

Speaker Change: Those would be expected to Trend a bit higher from where they are. Do you think they're kind of sustainable where we are at current levels, given the leverage, you get from, from the transaction?

I think uh as you well know. Uh Brian. So we look at both because uh on the efficiency side, that number is also impacted by revenues. We have to gain on sale component on our revenues that can move up or down and we have also the the fur value mark on the

Alberto J. Paracchini: That one, we wanna continue to drive that number down obviously as we continue to grow.

Brian Martin: Gotcha. Okay, that's helpful. Just maybe the last two for me, just, you talked about, Alberto, the capital flexibility. I guess, certainly understand the commentary about the M&A. In terms of the buyback, I mean, given where the valuation's at today, I mean, do you anticipate continuing to be active at current prices on the buyback?

Speaker Change: Servicing assets. So that that can make that number, you know, uh, move up and down a bit. Um, on the nie to average asset that cost to, to asset ratio. I I think I pay attention to that 1 a lot, simply because it's, it's a pure measure of expenses. And as you continue to grow the asset base, I think we would continue want to see that number continue to take down. Uh, We've made a ton of progress over the years on that, uh, metric. And that that 1, we want to continue to drive that number down. Obviously as as we continue to grow,

Speaker Change: Gotcha. Okay that's helpful. And just maybe the last 2 for me just

Speaker Change: You talked about Alberto the the uh capital of flexibility, I guess.

Alberto J. Paracchini: I won't comment on that directly, but I would point you to the transaction that we did this quarter.

Speaker Change: In in certainly understand the commentary about dma. Um but in terms of the buyback I mean given where the the valuations at today, I mean do you do you anticipate continuing to be active at current prices on the buyback?

Alberto J. Paracchini: I won't comment on that directly, but I would point you to the transaction that we did this quarter.

Brian Martin: Sure

Alberto J. Paracchini: ... where we had an opportunity to act on, you know, a nice block of shares at what we thought was a very attractive price, and we took advantage of it. We're gonna continue to be opportunistic in that regard and, you know, continue to kind of follow the capital usage utilization hierarchy that I touched on, a bit earlier.

Brian Martin: Sure

Speaker Change: So, I won't comment on that directly but um, I would point you to the transaction that we did this quarter, where we had an opportunity to act on, um, on, you know, a nice block of shares at what we thought was a very attractive price and we took advantage of it. So we're going to continue to be opportunistic in that regard and you know, continue to kind of Follow the

Brian Martin: Yeah. I guess my question, just to be clear, I was just thinking, is it more a matter of do you kind of continue to build capital for, you know, the organic growth and/or potential M&A rather than, you know, be overly aggressive on the buyback was kind of the vein I was looking at? I appreciate the color there. Maybe just the last one for me was on the, for Tom, on the margin. Just Tom, can you just remind us the cash flows on the bond portfolio and then the fixed rate loans coming due? Just I think you commented a little bit earlier, but just on the cost of deposits, I guess. I know you talked about the CD rates.

The capital usage utilization, hierarchy, that that I touched on um a bit earlier.

Speaker Change: Yeah. And I guess my question just to be clear. I was just thinking is it more a matter of do you kind of continue to build capital for you know the organic growth and or potential m&a rather than you know be overly aggressive on on the buyback was kind of the vein I was looking at but I appreciate the the caller there and then maybe just the last 1 for me was on the for Tom, on the, on the margin just time can you just remind us the

Speaker Change: the cash flows on the bond portfolio and then the fixed rate loans coming due and then just if you I think you commented a little bit earlier but just on the cost of deposits I guess.

Brian Martin: If the Fed doesn't move, it kind of feels like the cost of deposits are kind of flatlined here. They're kind of stable in the near term. Is that a fair read on how things are trending there?

I know you talked about the CD race If the Fed doesn't move it kind of feels like the cost of deposits are kind of

Speaker Change: They're kind of stable in in in, in the near term. Is that a fair read on?

How things are trending there?

Thomas J. Bell III: Yeah. Let me... On the portfolio, there's roughly $207 million of cash flows over the next, you know, 12 months. As I said, we're probably not gonna reinvest those at this point. Your other question was related to the margin and deposit costs?

Speaker Change: Yeah, let me sew on the portfolio. There's roughly 207 million of cash flows over the next you know, 12 months.

Speaker Change: Um and as I said, we're probably not going to reinvest those at this point.

Brian Martin: Yeah, just deposit costs.

Thomas J. Bell III: Right.

Brian Martin: The fixed rate loans repricing.

Speaker Change: And your next, your other question was related to the margin and deposit costs.

Yeah, just deposit cost of the fixed rate. Loans repricing.

Thomas J. Bell III: Okay. Yeah. We certainly have fixed rate loans repricing. I'll get you the specific number here in a second, but it's, you know, it's a little over $200 million annually. You know, as it relates to deposit costs, as Alberto just kind of alluded to, we are, you know, we're still very disciplined on our deposit pricing, we're continuing to find opportunities to tweak things, you know, in certain sectors. I think that you would expect deposit costs to be kind of flat to down a little bit, generally speaking.

Yeah, and we certainly have 6 Straight loans repricing.

Speaker Change: To the specific.

Speaker Change: Number here in a second but it's, you know, it's a little over 200 million.

Speaker Change: Annually.

Speaker Change: Um you know as it relates to the deposit cost is Alberto, just kind of alluded to we are you know we're still very disciplined on our deposit pricing and we're continuing to find Opportunities to tweak things. Um,

Brian Martin: Okay. Yep. Perfect. Okay. All right. Thank you for taking the questions then.

Speaker Change: You know in certain sectors. So I think that you would expect deposit costs to be kind of flat to down a little bit generally speaking. Okay.

Yep.

Speaker Change: Perfect. Okay.

Speaker Change: All right. Thank you for taking the questions then.

Thomas J. Bell III: Thanks, Brian.

Alberto J. Paracchini: Thanks.

Operator: Thank you very much. We currently have no further questions. I'd like to hand back to Alberto J. Paracchini for any closing remarks.

Thanks Brian, Brian.

Alberto J. Paracchini: Great. Thank you, Carly, and thank you to everyone for joining the call today and for your interest in Byline. We look forward to speaking to you again in October. Thank you.

Alberto Parini: Thank you very much. We currently have no further questions so I'd like to hand back to Alberta priority for any closing remarks.

Great. Thank you, Carly. And thank you to everyone for joining the call today, and for your interest in buy line and we look forward to speaking to you again in October.

Alberto Parini: Thank you.

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

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

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