Byline Bancorp Q1 2025 Earnings Report

Byline Bancorp EPS Results

• Actual EPS: $0.65
• Consensus EPS: $0.62
• Beat/Miss: Beat by +$0.03
• One Year Ago EPS: N/A

Byline Bancorp Revenue Results

• Actual Revenue: $103.08 million
• Expected Revenue: $100.82 million
• Beat/Miss: Beat by +$2.26 million
• YoY Revenue Growth: N/A

Byline Bancorp Announcement Details

• Quarter: Q1 2025
• Date: 4/24/2025
• Time: After Market Closes
• Conference Call Date: Friday, April 25, 2025
• Conference Call Time: 10:00AM ET

Byline Bancorp (NYSE:BY) operates as the bank holding company for Byline Bank that provides various banking products and services for small and medium sized businesses, commercial real estate and financial sponsors, and consumers in the United States. It offers various retail deposit products, including non-interest-bearing accounts, money market demand accounts, savings accounts, interest-bearing checking accounts, and time deposits; ATM and debit cards; and online, mobile, and text banking services, as well as commercial deposits. The company also provides term loans, revolving lines of credit, and construction financing services; senior secured financing solutions to private equity backed lower middle market companies; small business administration and united states department of agriculture loans; and treasury management products and services. In addition, it offers financing solutions for equipment vendors and their end users; syndication services; and investment, trust, and wealth management services that include fiduciary and executor services, financial planning solutions, investment advisory services, and private banking services for foundations and endowments, and high net worth individuals. The company was formerly known as Metropolitan Bank Group, Inc. and changed its name to Byline Bancorp, Inc. in 2015. Byline Bancorp, Inc. was founded in 1914 and is headquartered in Chicago, Illinois.

Byline Bancorp Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Good morning, and welcome to Byline Bancorp First Quarter twenty twenty five Earnings Call. My name is Carly, and I'll be coordinating the call today. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. Please note that this conference call is being recorded.

[Operator]

At this time, I would like to introduce Brooks Rennie, Head of Investor Relations at Byline Bancorp. Please go ahead.

[Brooks Rennie, Head-Investor Relations at Byline Bancorp]

Thank you, Carly. Good morning, everyone, and thank you for joining us today for the Byline Bancorp first quarter twenty twenty five 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.

[Brooks Rennie, Head-Investor Relations at Byline Bancorp]

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. 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 IR website at buylinebancorp.com.

[Brooks Rennie, Head-Investor Relations at Byline Bancorp]

And as always, please reference the front page of the disclaimer. As a reminder for investors, this quarter, we plan on attending the Stephens Bank Chicago Tour, Hovde Nandio Roadshow and the Raymond James Chicago Bank Conference. With that, I would now like to turn the conference call over to Alberto Paraccini, President of iLine Bancorp.

[Alberto Paracchini, President at Byline Bancorp]

Great. Thank you, Brooks. Good morning, everyone, and thank you for joining our first quarter earnings call. We appreciate all of you taking the time to join us this morning. As always, with me on the call today are our Chairman and CEO, Roberto Harencia Tom Bell, our Chief Financial Officer and Treasurer Mark Fusanato, our Chief Credit Officer and Brian Doran, our General Counsel.

[Alberto Paracchini, President at Byline Bancorp]

Before we get to the agenda, I want to pass the call on to Roberto to comment on a few items. Roberto?

[Roberto Herencia, Chairman and CEO at Byline Bancorp]

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 BioLine every day. This was yet another strong quarter for BioLine and a good start for the to the year. I wish I could say the same for the stock market, international trade and the relationship of our country and the relationship our country has with the rest of the world, in particular our neighbors and major trading partners. However, that turns out we are prepared to support our customers and come at it from a position of strength to wit, and Alberto and Tom will cover this in more detail.

[Roberto Herencia, Chairman and CEO at Byline Bancorp]

Very healthy capital ratios, steady and improving asset quality ratios with above average reserve coverage. Top quartile performance, again, in key metrics: NIM, efficiency, PPPP. Importantly, our credit ratings were upgraded this quarter by Kroll. Excluding merger related upgrades, we are the only bank in the past twelve months that has received an upgrade in our industry. And finally, BaiLang was once again named one of America's One Hundred best banks by Forbes, and Newsweek named BaiLang one of the best regional banks in the country.

[Roberto Herencia, Chairman and CEO at Byline Bancorp]

I've suggested this kind of performance, combined with our track record in M and 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.

[Roberto Herencia, Chairman and CEO at Byline Bancorp]

We will continue to explain our differentiated strategy patiently. And most importantly, we will continue to perform. I know you will ask, and Alberto will answer I'll pre answer. Nothing has changed with respect to the timing and the how and our approach to crossing £10,000,000,000 in assets. We remain comfortable and confident about it all.

[Roberto Herencia, Chairman and CEO at Byline Bancorp]

Also, nothing has changed with respect to our capital planning and priorities. It's there to support growth first and lastly for buybacks. Finally, we like Chicago a lot. It's our kind of market for our type of banking and the opportunity to become the premier commercial bank is palpable right here in our hometown. Despite strong indications that the second half of the year is likely to show slower growth in the economy, we remain enthused and optimistic about our ability to advance on becoming the preeminent commercial bank of Chicago.

[Roberto Herencia, Chairman and CEO at Byline Bancorp]

We have shown how disruption has advanced our agenda, and disruption at the macro level will enable us to do the same, albeit on a relative basis to our peers. I always like to include in my remarks one or two topics, which gives the audience a view into who we are, what we're thinking about, and how we feel and operate. People, as you know, continue to be the critical factor of our success, how we care for each other, how we show up and demonstrate empathy. This quarter, we rightsized 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. The right decision, yet it stings to see some people who have been with us for some time leave.

[Roberto Herencia, Chairman and CEO at Byline Bancorp]

We feel equally about loss of life related to our people, illness related to all people and their families, and we try to show up for them. In November, our CFO, Tom Bell, lost his mom during Thanksgiving unexpectedly. This quarter, Alberto's father passed away, the former Chairman and CEO of one of Puerto Rico's largest banks and the first Puerto Rican to ever serve on the Board of the Federal Reserve Bank of New York, a titan of banking in Puerto Rico. As you can see, that apple fell right in front of that tree. To Alberto, Tom, SBC colleagues, we express our solidarity and love.

[Roberto Herencia, Chairman and CEO at Byline Bancorp]

I'm happy to turn over the call to Alberto and the team.

[Alberto Paracchini, President at Byline Bancorp]

Excellent. Thank you, Roberto, and thank you for the kind words. In terms of the agenda for the morning, I'll start with the highlights for the quarter, followed by Tom, who'll walk you through the financials in detail, and then I'll come back to wrap up before we open the call up for questions. In summary, I'm pleased to report that Byline delivered another quarter of strong results characterized by steady earnings, consistent profitability, stable credit and solid growth. We'll dig into the details shortly.

[Alberto Paracchini, President at Byline Bancorp]

But before we do that, I'd like to make a few comments on the environment and our transaction with First Security. The operating environment we had during the first quarter is likely to be markedly different than the one we'll be in for the rest of the year. To give you some context, we're navigating through a period of heightened uncertainty and volatility across markets. The macro picture is showing mixed signals at the moment. While most of the recent but lagging hard data remains positive, softer measures as well as real time indicators point to a more cautionary stance by both consumers and businesses.

[Alberto Paracchini, President at Byline Bancorp]

Evolving trade policies dominate the headlines and have introduced additional complexity and uncertainty to the outlook for economic growth and inflation. In this environment, we remain focused on being a bank that serves clients through the cycle while maintaining disciplined risk management. So far, most of the feedback from clients we've talked to points to them taking a wait and see approach. That said, we're anticipating more caution on their part, particularly in terms of CapEx, new investments and acquisitions. This would allow for clarity on the implications of potential policy changes on the environment as well as their business.

[Alberto Paracchini, President at Byline Bancorp]

Despite these uncertainties, we believe our business model continues to demonstrate resilience. We have robust capital, solid liquidity, which enables us to support clients and navigate the uncertainty present in the environment. Regarding First Security, I'm happy to report the transaction closed effective April 1. 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, President at Byline Bancorp]

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 to today, we completed the transaction and integrated the bank in two zero seven days. I'd like to welcome any former customers, employees and stockholders of First Security who are on the call with us this morning as well as congratulate all employees who took part in another successful transaction. Turning to our results on Slide four.

[Alberto Paracchini, President at Byline Bancorp]

The company reported net income of $28,200,000 or $0.64 per diluted share. Adjusted for merger charges, profitability and return metrics remain excellent quarter on quarter with pretax preparation income of $47,300,000 and pretax preparation ROA of two zero nine basis points, marking the tenth consecutive quarter this metric has exceeded 200 basis points. ROA came in at 127 basis points and ROTCE was 13.1%, notwithstanding higher capital levels. Total revenue came in at 103,000,000 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 $88,200,000 which was flat for the quarter, but would have inched up if not for the difference in day count.

[Alberto Paracchini, President at Byline Bancorp]

We continue to see margin expansion, and Tom will go over in more detail shortly, with the NIM coming in at a four zero seven basis points, up six basis points from last quarter. In terms of the balance sheet, we had excellent growth in both loans and deposits, which were up 85.1% respectively on a linked quarter annualized basis. Demand for credit remained strong with originations coming in at $310,000,000 driven primarily by commercial banking and leasing. Payoffs moderated as expected to $237,000,000 and line utilization moved up to 60% from 59% last quarter. Deposit costs continued to decline during the quarter, driven by a 26 basis point drop in the cost of interest bearing deposits as well as a better deposit mix.

[Alberto Paracchini, President at Byline Bancorp]

Expenses remained well managed at £56,000,000 down approximately 2%, primarily due to lower compensation and marketing spend. Our adjusted efficiency ratio stood at 53% for the quarter and our adjusted non interest income to average assets ratio came in at two forty six basis points. Asset quality improved for the quarter with both net charge offs declining and non performing loans decreasing 14 basis points to 76 basis points as of quarter end. Credit costs came in at $9,200,000 for the quarter, consisting of $6,600,000 in charge offs as well as a net reserve build of $2,600,000 The reserve 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 1.43% of total loans.

[Alberto Paracchini, President at Byline Bancorp]

Lastly, capital levels continued to grow with TCE approaching 10% and CET1 approaching 12. With that, I'd like to turn the call over to Tom.

[Thomas J. Bell, Executive VP, Treasurer & CFO at Byline Bancorp]

Thank you, Alberto, and good morning, everyone. Starting on Slide five with our loan portfolio. Total loans increased $137,000,000 or 8% annualized and stood at $7,000,000,000 at March 31. We had strong origination activity for the quarter of $310,000,000 in new loans, up 17% compared to a year ago. Payoff activity decreased by $51,000,000 from Q4 and stood at $237,000,000 Line utilization inched up for the quarter to 60% with revolvers unchanged.

[Thomas J. Bell, Executive VP, Treasurer & CFO at Byline Bancorp]

Loan yields came in at 7.09%, down 12 basis points linked quarter and down 36 basis points year over year as a result of the 2024 Fed rate cuts. Our loan pipeline remains strong and we expect loan growth to continue in the mid single digits. Turning to slide six. Total deposits increased to $7,600,000,000 up 5.1% annualized from the prior quarter. During the quarter, we saw a deposit mix shift from time into money market accounts.

[Thomas J. Bell, Executive VP, Treasurer & CFO at Byline Bancorp]

Non interest bearing accounted for 23% of total deposits, a marginal decline from the last quarter. Overall deposit costs declined in the quarter by 18 basis points to 2.3%, driven by better mix and repricing of CDs. From an interest rate risk perspective, in anticipation of future Fed rate cuts, we are focused on improving the repricing of our liabilities as seen in our Q1 results. Turning to Slide seven. Net interest income was $88,200,000 for Q1, flat from the prior quarter and came in at the higher end of the Q1 guidance.

[Thomas J. Bell, Executive VP, Treasurer & CFO at Byline Bancorp]

Net interest income was impacted by two fewer days in the quarter, lower yields on earning assets and lower cash balances, offset by lower deposit costs and higher loan balances. The net interest margin grew to 4.07%, up six basis points linked quarter. The change in NIM was driven by 23 basis point decrease in the cost of interest bearing liabilities. Specifically, we saw lower deposit costs. We also fully paid off the balance of our senior term note ahead of schedule, which further contributed to the reduction in funding costs, offset by lower rates on earning assets.

[Thomas J. Bell, Executive VP, Treasurer & CFO at Byline Bancorp]

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 $87,000,000 to $89,000,000 for the second quarter. Turning to Slide eight. Non interest income totaled $14,900,000 in the first quarter, lower than last quarter as expected, primarily due to seasonality and lower gain on sale from the SBA business. Our gain on sale guidance remains unchanged at an average of $5,000,000 per quarter.

[Thomas J. Bell, Executive VP, Treasurer & CFO at Byline Bancorp]

Turning to Slide nine. Our noninterest expense stood at $56,400,000 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 noninterest expense guidance to trend between $55,000,000 and $57,000,000 Turning to Slide 10. Credit quality continues to improve.

[Thomas J. Bell, Executive VP, Treasurer & CFO at Byline Bancorp]

Net charge offs trended down by 14.7% this quarter to $6,600,000 compared to $7,800,000 in the previous quarter. The ACL at the end of Q1 was $100,400,000 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, NPLs stood at 63 basis points, down 13 basis points from the prior quarter. And NPAs to total assets stood at 62 basis points in Q1, down nine basis points quarter over quarter.

[Thomas J. Bell, Executive VP, Treasurer & CFO at Byline Bancorp]

Overall, credit quality trends are improving and we remain well reserved. Moving on to capital on Slide 11. We have growing and strong capital metrics. For the sixth consecutive quarter, we grew our tangible book value per share, which was up 4% linked quarter and up 14% compared to last year. CET1 is a strong 11.78%, up eight basis points linked quarter and up 119 basis points year over year.

[Thomas J. Bell, Executive VP, Treasurer & CFO at Byline Bancorp]

Additionally, the TCE to TA ratio stood at 9.95%, up 34 basis points from last quarter. And to note, our investment portfolio is 100% in AFS, which is roughly 16% of total assets. For the quarter, our dividend payout ratio was 16% of our earnings and combined with the share repurchases translated into an 18% payout ratio to stockholders. Lastly, during the quarter, we are very happy to report that Kroll Bond Rating Agency upgraded our debt rating one notch across the board, which highlights our financial strength. This rating upgrade reinforces our top quartile financial metrics, sound risk management practices and strong capitalization of the company.

[Thomas J. Bell, Executive VP, Treasurer & CFO at Byline Bancorp]

With that, Oberlo, back to you.

[Alberto Paracchini, President at Byline Bancorp]

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 twelve years as well as the aspirations we have to become the preeminent commercial bank in Chicago. At just under $10,000,000,000 in assets, we're the largest community bank in the market. Once we cross the $10,000,000,000 asset mark, we'll continue to be the largest local publicly traded commercial bank with assets between $10,000,000,000 and $65,000,000,000 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.

[Alberto Paracchini, President at Byline Bancorp]

To wrap up, we were pleased with our performance for the quarter, 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'd like to thank all of our team members for their hard work this quarter and the contributions they individually and collectively make to our organization. And with that, Carly, we can open the call up for questions.

[Operator]

Thank you very much. We'd now like to open the lines for Q and A. Our first question comes from Nathan Race of Piper Sandler. Nathan, your line is now open.

[Nathan Race, Managing Director & Senior Research Analyst at Piper Sandler Companies]

Hi, guys. Good morning. And first off, sorry to hear about the loss of your debt, Alberto. Maybe just to start off on kind of what you're seeing in terms of activity in loan committee these days. Obviously, lot of uncertainty that you guys alluded to.

[Nathan Race, Managing Director & Senior Research Analyst at Piper Sandler Companies]

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?

[Alberto Paracchini, President at Byline Bancorp]

Yes. 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 $310,000,000 You can see in the slide deck kind of the trend and how that compares with the previous five quarters.

[Alberto Paracchini, President at Byline Bancorp]

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.

[Alberto Paracchini, President at Byline Bancorp]

So we've been pretty active on that front, Nate. And so far, I think it's fair to say most clients are taking kind of like a wait and see approach. We don't have, maybe with some minor exceptions here or there. I think the consensus is we're going to wait until the dust settles. Some of the more sensitive clients that have been through this before, I would say, have taken steps to try to manage and mitigate any potential effects on tariffs.

[Alberto Paracchini, President at Byline Bancorp]

So that's kind of where things are from a sentiment standpoint. At least that's what we're hearing directly from clients. In terms of how that's 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 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 kind of mid single digit growth for loans over the course of the year.

[Nathan Race, Managing Director & Senior Research Analyst at Piper Sandler Companies]

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

[Alberto Paracchini, President at Byline Bancorp]

I think broadly speaking, and I think the commentary from others with respect to underwriting changes. And 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. I think there are also licenses granted more, I should say, liberally to non bank entities. So I think the commentary from, call it, bank owned SBA businesses, so to speak, inclusive of ours is, look, I think we welcome the tighter standards. Our underwriting standards never really changed.

[Alberto Paracchini, President at Byline Bancorp]

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 gonna be impacted by that. I think in the long run, that's probably gonna be beneficial to us and beneficial to other lenders in the market that, you know, remain more consistent in terms of their approach to the business and their underwriting standards. So I think, you know, too early to tell, mate. 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.

[Alberto Paracchini, President at Byline Bancorp]

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 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. 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.

[Nathan Race, Managing Director & Senior Research Analyst at Piper Sandler Companies]

Okay. Great. And then just one last one. You guys have been very transparent that you're prepared to cross 10,000,000,000 either organically or inorganically based on how you've invested over the years. So just curious, just with all the market disruptions and uncertainties of late, if that's hindered some acquisition opportunities or what you're seeing on the M and A landscape these days?

[Alberto Paracchini, President at Byline Bancorp]

I think conversations are still active. Think it's fair to say. And I think if you look at the number of transactions, although there was a very significant transaction that just got announced this week as well as some other smaller transactions. But I think certainly the market volatility probably slows things down to a degree. For us, we're primarily focused on really institutions that tend to be private as opposed to public.

[Alberto Paracchini, President at Byline Bancorp]

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 and A, which have nothing to do with market volatility, they have a lot to do with lack of succession planning and management, the Board getting up in age, the need for liquidity by existing shareholders. I think those things remain, and I think those are ultimately the drivers for a lot of people looking to partner.

[Alberto Paracchini, President at Byline Bancorp]

So I think we remain optimistic there. Okay,

[Nathan Race, Managing Director & Senior Research Analyst at Piper Sandler Companies]

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

[Thomas J. Bell, Executive VP, Treasurer & CFO at Byline Bancorp]

It does not include the acquisition.

[Nathan Race, Managing Director & Senior Research Analyst at Piper Sandler Companies]

Okay. Got it. I appreciate all the color. Congrats on a great quarter. Thanks, guys.

[Alberto Paracchini, President at Byline Bancorp]

Nate. Thank you, Nate.

[Operator]

You very much. Our next question comes from David Long of Raymond James. David, your line is now open.

[David Long, Analyst at Raymond James Financial]

Good morning, everyone. A quick question on the credit side of things. Good morning. There's a couple of things on the credit side of things. Criticized and classified ticked up in the quarter after coming down for what seemed like a few quarters.

[David Long, Analyst at Raymond James Financial]

Any common themes drive the increase?

[Mark Fucinato, Executive VP & Chief Credit Officer at Byline Bancorp]

Hi, David. It's Mark Fusenato. No themes. You know, you can have one transaction move the needle for that level of criticized. 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.

[Alberto Paracchini, President at Byline Bancorp]

Dave, if I could add just one some if if I could just add to what Mark said just from a to give you some perspective. So in December of twenty twenty three, 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, three sixty two million in December of twenty twenty four million So we're back up to three sixty nine million And as Mark said, I think I would focus on the trend line, knowing that there's some there's going to be some volatility you know, on any given quarter. But I think we're we like in terms of, kind of the trend and kind of the direction that we're seeing there.

[Alberto Paracchini, President at Byline Bancorp]

And, these are still pretty reasonable, you know, low reasonably low numbers. So so I just would like to to give you some additional color on that.

[David Long, Analyst at Raymond James Financial]

Got it. Thank you. On the reserve level, 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?

[Alberto Paracchini, President at Byline Bancorp]

Well, I think that's that's the case for everybody that is under the CECL standard. I I think, like like others, Dave, we use the Moody's forecast. We consider, you know, put I think it's fair to say we put primary weight on the on the base forecast, and then we adjust and incorporate different we assign different probabilities to the others, and we weigh those just to make sure that we are calibrating our reserve to what we see in the environment. So that's essentially our approach 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 CECL estimates for reserves.

[David Long, Analyst at Raymond James Financial]

Got it. Thank you for

[David Long, Analyst at Raymond James Financial]

the color, Alberto. Appreciate it.

[Operator]

Thank you very much. Our next question comes from Brendan Nozzle of Hovde Group. Brendan, your line is now open.

[Brendan Nosal, Director - Equity Research at Hovde Group]

Hope you're doing well. Just starting off here kind of at top level on just the pre provision earnings power of the bank. As you guys said, 10 straight quarters over 2% PPNR ROA. It feels like that's settling into a new baseline here. Could you maybe just kind of walk through the balance of risks around that 2% number?

[Brendan Nosal, Director - Equity Research at Hovde Group]

What could drive incremental upside in the return profile? And and I mean, the the near term pressure points are both internal to your business and external on macro factors? Thanks.

[Thomas J. Bell, Executive VP, Treasurer & CFO at Byline Bancorp]

Sure. This is Tom. Good morning. Yeah. I think a couple of things.

[Thomas J. Bell, Executive VP, Treasurer & CFO at Byline Bancorp]

We you know, in the quarter, we had an increase in the securities portfolio, and that was in part to kinda 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 slow to replace cash flows there. So that'll help keep the ROA pretax pre provision number above 2%. And then there's still repricing opportunities on the the deposit side for us here.

[Thomas J. Bell, Executive VP, Treasurer & CFO at Byline Bancorp]

So, things look pretty good. Spent expenses seem to be managed well. And then as we move forward here, obviously, next quarter, we'll we'll update everyone on the first security transaction related to marks, etcetera, and and forecast around expenses.

[Alberto Paracchini, President at Byline Bancorp]

Yep. Right. And then just to add one one one more thing to what to what Tom just said is, I mean, 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 to state to 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 try to find areas where we can continue to grow that noninterest income line. And so it's just managing those four components.

[Alberto Paracchini, President at Byline Bancorp]

Those are where the opportunities and the risks are. From that number, do we expect it to move over time? I think if we continue to manage our rate position along the lines of what Tom said in his remarks, then I think that a pretax preparation ROA, give it plus or minus five basis points, just give ourselves some room there, should be pretty achievable.

[Brendan Nosal, Director - Equity Research at Hovde Group]

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

[Alberto Paracchini, President at Byline Bancorp]

Yes, happy to. So our portfolio today is roughly around $700,000,000 in outstandings, about $868,000,000 in commitments. Just by way of background, we started that business in September of twenty fifteen. So September of this year will be ten years since we started that business from scratch, essentially ten years ago. I don't want to jinx ourselves here, but we've never incurred a loss in those ten years.

[Alberto Paracchini, President at Byline Bancorp]

And the portfolio has seen a fair amount of churn, as you would expect, in the sense that it's typically private equity firms that buy a platform, they grow that platform. And then over the course of a three or a four year period, they then put that platform for sale and basically start over again. So we have seen now probably we're on our using that time line, 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 statistic. So we do business today with about 62 portfolio companies account for the $700,000,000 in the portfolio today.

[Alberto Paracchini, President at Byline Bancorp]

Our approach to the business is we do senior only. We are targeting lower middle market companies. So the target market would be exactly the same type of business that we want to bank in our traditional commercial banking space. So EBITDA range between $2,000,000 to $8,000,000 and we are looking to go up to no more than 3x senior leverage. Effectively, that actually turns out to be if I look at our portfolio today, it's well inside of that.

[Alberto Paracchini, President at Byline Bancorp]

So we do like to find companies and sponsors that are not really looking to maximize leverage. In fact, they're going to be more conservative in leverage. We tend to look also for companies that are not really growing very fast. In other words, they 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.

[Alberto Paracchini, President at Byline Bancorp]

So that's, I guess, in a nutshell, and we're happy to share more color, and we'll think about ways in which we can perhaps share more color on the portfolio broadly. But that's our that's in a nutshell, that's the summary of our business.

[Brendan Nosal, Director - Equity Research at Hovde Group]

That's very helpful color. All right. Thank you for taking my questions. Much appreciated.

[Operator]

Thank you very much. Our next question comes from Damon DelMonte of KBW. Damon, your line is now open.

[Damon Delmonte, Managing Director at Keefe, Bruyette & Woods (KBW)]

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

[Damon Delmonte, Managing Director at Keefe, Bruyette & Woods (KBW)]

So just kind of how you're thinking about the rest of the year?

[Thomas J. Bell, Executive VP, Treasurer & CFO at Byline Bancorp]

Sure. Hi, Damon. We we said, basically, the average is 5,000,000 per quarter. And the premium has been, you know, is is close to 10% right now, and that should be in that nine and a half to 10% range.

[Damon Delmonte, Managing Director at Keefe, Bruyette & Woods (KBW)]

Okay. Great. Alright. That's helpful.

[Damon Delmonte, Managing Director at Keefe, Bruyette & Woods (KBW)]

Thank you. And then, you know, in the guidance for net interest income, I think you said it 87 to 89. Did you say that that included a number of rate cuts this year, or was were you just pointing out the sensitivity if there were rate cuts?

[Thomas J. Bell, Executive VP, Treasurer & CFO at Byline Bancorp]

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

[Damon Delmonte, Managing Director at Keefe, Bruyette & Woods (KBW)]

Got it. Okay. So that but that would

[Damon Delmonte, Managing Director at Keefe, Bruyette & Woods (KBW)]

just be a guideline for us if we were to incorporate

[Damon Delmonte, Managing Director at Keefe, Bruyette & Woods (KBW)]

that for

[Mark Fucinato, Executive VP & Chief Credit Officer at Byline Bancorp]

two cuts or Yep. Yep.

[Damon Delmonte, Managing Director at Keefe, Bruyette & Woods (KBW)]

Got it. Okay. And then just lastly, you know, the, you know, cash balances are down a little bit. Average security balances are up a little bit. How how should we think about the size of the securities portfolio going forward?

[Damon Delmonte, Managing Director at Keefe, Bruyette & Woods (KBW)]

Do you expect to continue to grow that, or should we kind hold that flat?

[Thomas J. Bell, Executive VP, Treasurer & CFO at Byline Bancorp]

You know, again, we're you know, we've integrated They had a portfolio as well. So I 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.

[Thomas J. Bell, Executive VP, Treasurer & CFO at Byline Bancorp]

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, Managing Director at Keefe, Bruyette & Woods (KBW)]

Great. Okay. That's all that I had. Thank you very much for taking my question.

[Thomas J. Bell, Executive VP, Treasurer & CFO at Byline Bancorp]

Great. Dan.

[Operator]

Thank you very much. Our next question comes from Tayo McEvoy of Stephens. Terry, your line is now open.

[Terry Mcevoy, Managing Director at Stephens Inc]

Thanks. First off, Roberto, thanks for the opening comments and the reminder that what we do is ingest ticker symbols and numbers every day. And then, Alberto, I'm sorry to hear about your loss. Maybe first question for Tom. Do you have any comments today on the first security marks impact to TBV and EPS accretion?

[Terry Mcevoy, Managing Director at Stephens Inc]

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.

[Thomas J. Bell, Executive VP, Treasurer & CFO at Byline Bancorp]

Terry, we we're, we're gonna 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, the original requirements around when we did announce the deal announcement.

[Terry Mcevoy, Managing Director at Stephens Inc]

Okay. I'll go back and double check that. I think that And then think that would be good.

[Thomas J. Bell, Executive VP, Treasurer & CFO at Byline Bancorp]

Sorry.

[Terry Mcevoy, Managing Director at Stephens Inc]

Okay. Thanks, Tom. No. No. Good.

[Terry Mcevoy, Managing Director at Stephens Inc]

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.

[Thomas J. Bell, Executive VP, Treasurer & CFO at Byline Bancorp]

Nothing at this point.

[Thomas J. Bell, Executive VP, Treasurer & CFO at Byline Bancorp]

Well, again, we're

[Thomas J. Bell, Executive VP, Treasurer & CFO at Byline Bancorp]

gonna provide all the guidance for security at at the next meeting.

[Terry Mcevoy, Managing Director at Stephens Inc]

Gotcha. Okay. Everything. Not not just the marks. Okay.

[Terry Mcevoy, Managing Director at Stephens Inc]

Thanks, Tom. And then, maybe just a one last question. When I look at the strategic priorities, it seems like one opportunity for a $10,000,000,000 bank would be fee income. And when I look at the income statement and include exclude the SBA business, it does seem like you're underfeed, 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.

[Alberto Paracchini, President at Byline Bancorp]

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, 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.

[Alberto Paracchini, President at Byline Bancorp]

So yes, to answer your question directly, the short answer is yes.

[Terry Mcevoy, Managing Director at Stephens Inc]

Okay.

[Terry Mcevoy, Managing Director at Stephens Inc]

Great. Thanks for taking my questions and have a nice weekend.

[Alberto Paracchini, President at Byline Bancorp]

Likewise, Terry. Appreciate it.

[Operator]

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

[Brian Martin, Director - Banks & Thrifts at Janney Montgomery Scott]

Hey, good morning, everyone.

[Alberto Paracchini, President at Byline Bancorp]

Hi, Brian. Hi, Brian. Good morning.

[Brian Martin, Director - Banks & Thrifts at Janney Montgomery Scott]

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

[Thomas J. Bell, Executive VP, Treasurer & CFO at Byline Bancorp]

Sure. So just as a reference, Brian, on page seven of the deck, we gave our interest rate risk sensitivity. I think you'll see from prior presentations that we continue to reduce our sensitivity. So we are still asset sensitive. That number, you know, for every 25 basis points decline continues to move lower, so that's a good thing for us.

[Thomas J. Bell, Executive VP, Treasurer & CFO at Byline Bancorp]

We've also been very disciplined, obviously, in the first one hundred basis point cut where you saw net interest income kind of stay flat during that cycle. So even though we expected to lose $9,000,000 over a full year, we haven't seen that to date. So I think that's really positive. But our models do have, obviously, with DDA not repricing and some other products, you know, at lower cost of funds levels, you're you're not gonna be able to move down one for for one through depending on the cycle here. I mean, we are we're we're we're expecting a hundred basis points per quarter, but for every 25 basis points on an annualized basis, you can see that NII is technically expected to be down $2,300,000.

[Thomas J. Bell, Executive VP, Treasurer & CFO at Byline Bancorp]

So depending on the timing of that, you know, we're we're always trying to be disciplined on pricing, but also we are trying to grow the deposit base to support our loan growth. So, you know, balance sheet needs can also dictate the net interest income. Got it. Don't if that answers your question fully. Yeah.

[Thomas J. Bell, Executive VP, Treasurer & CFO at Byline Bancorp]

It does. Yeah. Reproductive.

[Brian Martin, Director - Banks & Thrifts at Janney Montgomery Scott]

I appreciate it, Tom. And and just in terms of what's repricing, yeah, 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 to at least, you know, specifically on the funding side to go, to take advantage of sort of where the rates are today?

[Thomas J. Bell, Executive VP, Treasurer & CFO at Byline Bancorp]

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 and a gradual reduction in rates will be more beneficial to us than a shock if something were to be unexpected here. So, you know, again, we've been in a little bit more of a since the Fed has been on hold through the beginning of the year, you know, the the liability is kinda coming off for a net, you know, $4.30 range, if you will. So they can be reset at less than 4% on any specials and then you know, but a blended blended CD book continues to move down as as some front book business goes into back of book.

[Thomas J. Bell, Executive VP, Treasurer & CFO at Byline Bancorp]

And on the asset side, we're prime we're, you know, fifty fifty fixed versus floating. And, you know, as sulfur moves down, you can expect those commercial loans to reprice, and then, obviously, there's a lag in the SBA book that's prime based by a quarter. Yeah. Gotcha.

[Brian Martin, Director - Banks & Thrifts at Janney Montgomery Scott]

Okay. And then, thank you for that. And then just in terms of I know you're not giving much on, the transaction, but given that your comments were that the transaction, the integration is already complete now, should we think about from a standpoint of expenses that maybe at the first clean quarter from an expense standpoint would be third quarter given the conversion is done today or it was 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?

[Thomas J. Bell, Executive VP, Treasurer & CFO at Byline Bancorp]

That's realistic.

[Thomas J. Bell, Executive VP, Treasurer & CFO at Byline Bancorp]

That's realistic.

[Alberto Paracchini, President at Byline Bancorp]

That's very fair.

[Alberto Paracchini, President at Byline Bancorp]

Very fair. Yeah. And I and the quarter, Brian, we we think the quarter is gonna be pretty clean, and we'll we'll make sure that Yeah. We are we provide you good clarity on that in the during the second quarter. But, you know, absent, obviously, the the onetime charges related to the merger, which we will, you know, clearly disclose.

[Alberto Paracchini, President at Byline Bancorp]

I mean, the the nice thing about doing it April 1 is it's going to be a full quarter. So ex the merger charges, we think the quarter should be pretty clean, and then certainly, the third quarter will be fully clean.

[Brian Martin, Director - Banks & Thrifts at Janney Montgomery Scott]

Yeah. Okay. No. That's helpful. I understand the timing of wait.

[Brian Martin, Director - Banks & Thrifts at Janney Montgomery Scott]

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 all the perspective today from from everyone is helpful.

[Alberto Paracchini, President at Byline Bancorp]

Great. I appreciate it.

[Operator]

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

[Alberto Paracchini, President at Byline Bancorp]

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.

[Operator]

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

Participants

Executives

• Brooks Rennie, Head-Investor Relations
• Alberto Paracchini, President
• Roberto Herencia, Chairman and CEO
• Thomas J. Bell, Executive VP, Treasurer & CFO
• Mark Fucinato, Executive VP & Chief Credit Officer

Analysts

• Nathan Race, Managing Director & Senior Research Analyst at Piper Sandler Companies
• David Long, Analyst at Raymond James Financial
• Brendan Nosal, Director - Equity Research at Hovde Group
• Damon Delmonte, Managing Director at Keefe, Bruyette & Woods (KBW)
• Terry Mcevoy, Managing Director at Stephens Inc
• Brian Martin, Director - Banks & Thrifts at Janney Montgomery Scott