Byline Bancorp, Inc. Q1 FY2025 Earnings Call

Good morning. And welcome to Byline Bancorp First Quarter 2025 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’ll be a question-and-answer period. Please note that this conference call is being recorded. At this time, I would like to introduce Brooks Rennie, Head of Investor Relations at Byline Bancorp.

Thank you, Carly. Good morning, everyone, and thank you for joining us today for the Byline Bancorp first quarter 2025 earnings call. In accordance with Regulation FD, this call is being recorded and is available via webcast on our Investor Relations website, along with our earnings release and the corresponding presentation 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. Reconciliation of each non-GAAP financial measure to the comparable GAAP measures can be found within the appendix of the earnings release. For additional information about risks, 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 and our earnings release on our IR website at bylinebancorp.com, 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 of the Non-Deal Roadshow in the Raymond James Chicago Bank Conference. With that, I would now like to turn the conference call over to Alberto Paracchini, President of 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 Herencia; Tom Bell, our Chief Financial Officer and Treasurer; Mark Fucinato, our Chief Credit Officer; and Brian Doran, our General Counsel. Before we get to the agenda, I want to pass the call on to Roberto to comment on a few items. Roberto?

Alberto, thank you, and good morning to all. I’d like to start by thanking all of my colleagues and teammates for their efforts this quarter and everything they do for our customers and Byline every day. This was yet another strong quarter for Byline and a good start to the year. I wish I could say the same for the stock market, international trade, and the relationship our country has with the rest of the world. In particular, our neighbors and major trading partners. However, the truth is, 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, we have very healthy capital ratios and steady and improving asset quality ratios with above-average reserve coverage. We are again in the top quartile performance in key metrics such as NIM and efficiency. Importantly, our credit ratings were upgraded this quarter by Kroll, excluding merger-related upgrades. We are the only bank in the past 12 months that has received an upgrade in our industry. And finally, Byline was once again named one of America’s 100 Best Banks by Forbes, and Newsweek named Byline one of the Best Regional Banks in the country. I’ve suggested this kind of performance, combined with our track record in M&A and taking advantage of market disruptions, deserves a higher valuation. Deeply discounted was the headline I saw from one of our analysts on another name. Deeply underestimated is how I feel at times, but I will admit we’ve made some progress on that front. We will continue to educate, connect the dots, and explain our differentiated strategy patiently. Most importantly, we will continue to perform. I know you will ask, and Alberto will answer, but I'll pre-answer. Nothing has changed regarding the timing and how we approach crossing $10 billion in assets. We remain comfortable and confident about it all. 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 toward becoming the preeminent commercial bank in Chicago. We have shown how disruption has advanced our agenda, and disruption at the macro level will enable us to do the same, albeit on a relative basis to our peers. I always like to include in my remarks one or two topics that give the audience a view into who we are, what we’re thinking about, and how we feel and operate. People, as you know, continue to be the critical factor of our success, how we care for each other, how we show up and demonstrate empathy. This quarter, we right-sized 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. It’s a great decision, yet it stings to see some people who have been with us for some time leave. We feel equally about the loss of life related to our people, illness related to our people, and their families, and we try to show up for them. In November, our CFO, Tom Bell, lost his mom unexpectedly during Thanksgiving. 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 and Tom, as we see colleagues, we express our solidarity and love. I’m happy to turn over the call to Alberto and the team.

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, 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. 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. Despite these uncertainties, we believe our business model continues to demonstrate resilience. We have robust capital and 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 1st. This provides us with clean results for the quarter, absence of minor merger-related charges. It also sets us up nicely to report a full quarter of results inclusive of the transaction in the second quarter. 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 the announcement on September 30th last year to today, we completed the transaction and integrated the bank in 207 days. I’d like to welcome any former customers, employees, and stockholders of First Security who are on the call with us this morning, as well as congratulate all employees who took part in another successful transaction. Turning to our results, the company reported net income of $28.2 million or $0.64 per diluted share. Adjusted for merger charges, profitability and return metrics remain excellent quarter-on-quarter with pre-tax pre-provision income of $47.3 million and pre-tax pre-provision ROA of 209 basis points, marking the 10th 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 million, down marginally from the prior quarter but up 2% year-on-year, notwithstanding the lower rate environment. Net interest income drove that and came in at $88.2 million, which was flat for the quarter. However, it would have inched up if not for the difference in date count. We continue to see margin expansion, and Tom will go over in more detail shortly, with the NIM coming in at 407 basis points, up 6 basis points from last quarter. In terms of the balance sheet, we had excellent growth in both loans and deposits, which were up 8% and 5.1%, respectively on a linked-quarter annualized basis. Demand for credit remained strong, with originations coming in at $310 million, driven primarily by commercial banking and leasing. Payoffs moderated, as expected, to $237 million, and line utilization moved up to 60% from 59% last quarter. Deposit costs continued to decline during the quarter, driven by a 26-basis-point drop in the cost of interest-bearing deposits, as well as a better deposit mix. Expenses remain well-managed at $56 million, down approximately 2%, primarily due to lower compensation and marketing spend. Our adjusted efficiency ratio stood at 53% for the quarter, and our adjusted non-interest income to average assets ratio came in at 246 basis points. Asset quality improved for the quarter, with both net charges declining and non-performing loans decreasing 14 basis points to 76 basis points as of quarter-end. Credit costs came in at $9.2 million for the quarter, consisting of $6.6 million in charge-offs, as well as a net reserve build of $2.6 million. 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. 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.

Thank you, Alberto, and good morning, everyone. Starting on Slide 5 with our loan portfolio, total loans increased to $137 million, or 8% annualized, and stood at $7 billion at March 31st. We had strong origination activity for the quarter of $310 million in new loans, up 17% compared to a year ago. Payoff activity decreased by $51 million from Q4 and stood at $237 million. Line utilization inched up for the quarter to 60%, with revolvers unchanged. Loan yields came in at 7.09%, down 12 basis points linked-quarter and down 36 basis points year-over-year as a result of the 2024 Fed rate cuts. Our loan pipeline remained strong, and we expect loan growth to continue in the mid-single digits. Turning to Slide 6, total deposits increased to $7.6 billion, up 5.1% annualized from the prior quarter. During the quarter, we saw a deposit mix shift from time into money market accounts. Non-interest bearing accounts accounted for 23% of total deposits, a marginal decline from 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 7, net interest income was $88.2 million for Q1, flat from the prior quarter and came in at the higher end of the Q1 guidance. Net interest income was impacted by two fewer days in the quarter, lower yield 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 6 basis points linked-quarter. The change in NIM was driven by a 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 notes ahead of schedule, which further contributed to the reduction in funding costs, offset by lower rates on earning assets. Depending on the pace of the future Fed rate cuts, our outlook for net interest income is based on the forward curve, which 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 million to $89 million for the second quarter. Turning to Slide 8, non-interest income totaled $14.9 million in the first quarter, lower than last quarter as expected, primarily due to seasonality and lower gain on sale from the SBA business. Our gain on sale guidance remains unchanged at an average of $5 million per quarter. Turning to Slide 9, our non-interest expense stood at $56.4 million, down 1.7% from the prior quarter. The primary drivers of the expense decrease were in salaries and benefits, largely comprised of lower incentives and equity-based compensation, and lower advertising spend, offset by First Security merger-related expenses. We continue to remain disciplined on expense management and maintain our quarterly non-interest expense guidance to trend between $55 million and $57 million. Turning to Slide 10, credit quality continues to improve. Net charge-offs trended down by 14.7% this quarter to $6.6 million, compared to $7.8 million in the previous quarter. The allowance for credit losses at the end of Q1 was $100.4 million, up slightly from the end of the prior quarter. Non-performing loans 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, non-performing loans stood at 63 basis points, down 13 basis points from the prior quarter. Non-performing assets to total assets stood at 62 basis points in Q1, down 9 basis points quarter-over-quarter. 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 8 basis points linked-quarter and up 119 basis points year-over-year. Additionally, the TCE/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, highlighting our financial strength. This rating upgrade reinforces our top quartile financial metrics, sound risk management practices, and strong capitalization of the company. With that, Alberto, back to you.

Thanks, Tom. This quarter, we added a slide to the front of the deck to highlight the banking franchise we’ve built over the past 12 years, as well as the aspirations we have to become the preeminent commercial bank in Chicago. At just under $10 billion in assets, we’re the largest community bank in the market. Once we cross the $10 billion asset mark, we’ll continue to be the largest local publicly traded commercial bank with assets between $10 billion and $65 billion in the Greater Chicago Metropolitan Area. Our market share remains modest, which implies solid opportunities for growth, provided we continue to execute well on our strategy. 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 and market position, to continue to prudently grow the franchise and deliver value to our stockholders. I’d like to thank all our team members for their hard work this quarter and the contributions they make to our organization. With that, Carly, we can open the call up for questions.

Thank you very much. Our first question comes from Nathan Race of Piper Sandler. Nathan, your line is now open.

Hi, guys. Good morning. And first off, sorry to hear about the loss of your head, Alberto. Keep my condolences.

Appreciate it. Thank you, Nate. Good morning.

Good morning.

Maybe just to start off on kind of what you’re seeing in terms of activity and loan committee these days. Obviously, a lot of uncertainty that you guys alluded to. And I’m just curious to what extent you’re seeing that come through in loan volumes more recently, and just generally how you’re thinking about organic growth over the balance of this year?

Yeah. So I think here to for, Nate, obviously, in the first quarter, demand for credit was good. Business development activity was very good. You see it in our gross origination numbers for the quarter. I mean, it’s $310 million. You can see in the slide deck kind of the trend and how that compares with the previous five quarters. 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 keep tabs on how they’re potentially thinking 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 they will manage either by shifting their supply chains? How much disruption is that going to cost to their business? The impact on revenue, impact on margins, how much liquidity do they have? 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 a wait-and-see approach. We don’t have maybe with some minor exceptions here or there. I think that the consensus is we’re going to wait until the dust settles. Some of the more sensitive clients who have been through this before, I would say, have taken steps to manage and mitigate any potential effects on tariffs. So that’s kind of where things are from a sentiment standpoint. At least that’s what we’re hearing directly from clients. In terms of how that’s going to impact the outlook, I think, at this point, Nate, based on what we see, based on the pipelines we see, and based on the activity that we saw most recently this quarter, to your point, the active committee, I think the guidance that Tom gave still stands in terms of kind of mid-single-digit growth for loans over the course of the year.

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 are 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?

I think broadly speaking, and I think the commentary from others regarding underwriting changes, I think what you’re referring to is in the previous administration, where the agency was encouraging and put through certain changes to originate a higher volume of smaller loans. I think there were also licenses granted more liberally to non-bank entities. So I think the commentary from, call it, bank-owned SBA businesses, inclusive of ours, is welcome the tighter standards. Our underwriting standards never really changed. So I can’t tell you that we loosened underwriting or we loosened policy. I think our standards remain consistent to the degree that in the market, there are others that are going to be impacted by that. I think in the long run, that’s probably going to be beneficial to us and beneficial to other lenders in the market that remain more consistent in terms of their approach to the business and their underwriting standards. So I think it's too early to tell. We’ll see how the change in administration and the new administrator's changes impact volume. But again, I would reiterate that we’ve been in the business for a long time and we’ve seen multiple cycles in this space. I think the idea that what the new administration seems to want to do is bring the agency more in balance to ensure it is not dependent on appropriations to fund itself but rather that it can 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, but we remain optimistic about the long-term outlook here.

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

I think conversations are still active. I think it’s fair to say, and if you look at the number of transactions, although there was a very significant transaction 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 institutions that tend to be private rather than public. So those conversations are ongoing. Sometimes the sellers in those situations like to think about their business as entirely immune from market forces. But we can discuss that separately. Conversations are still ongoing. And look, the fundamental reasons for M&A, which have nothing to do with market volatility, relate to a lack of succession planning and management, boards getting older, and the need for liquidity by existing shareholders. I think those things remain and are ultimately the drivers for many people looking to partner. So I think we remain optimistic about that.

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

It does not include the acquisition.

Okay. Got it. I appreciate all the color. You guys had a great quarter. Thanks, guys.

Thanks, Nate.

Thanks, Nate.

Thank you, Nate.

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

Good morning, everyone. Just a quick question on the credit side of things. Good morning. A couple of things on the credit side of things. Criticized and classified picked up in the quarter after coming down for what seemed like a few quarters. Any common themes drive the increase?

Hi, David. It’s Mark Fucinato. No themes. You can have one transaction move the needle for that level of criticized. But we have not seen a theme in terms of the industry or any of our portfolios regarding the criticized and classified numbers at this point in time.

David, if I could add just to give you some perspective. So in December of 2023, our criticized level was at 3.92%, and over the course of 2024, you saw a consistent decline. We ended the year at, I think, 3.62% in December of 2024. So we’re back up to 3.69%. And as Mark said, I think I would focus on the trend line, knowing that there’s going to be some volatility in any given quarter. But I think we are in a good direction and the trend we’re observing is favorable. Again, these are still reasonably low numbers. So I wanted to give you additional color on that.

Got it. Thank you. On the reserve level, I think it was prudent to build the reserves in the quarter. But can you talk a little bit more specifically about what’s being forecasted in your current reserve level? And is there still risk that we could see reserves need to be added just because of potential deterioration in the economic forecast?

Well, I think that’s the case for everybody operating under the CECL standard. I think, like others, Dave, we use the Moody’s forecast. We put primary weight on the base forecast and adjust, incorporating different probabilities to others, ensuring we calibrate our reserve to what we see in the environment. To answer the second part of your question, it is path dependent. If the economic outlook were to deteriorate, I believe it’s fair to say that institutions would reflect that in their CECL estimates for reserves.

Got it. Thank you for the color, Alberto. Appreciate it.

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

I hope some of you are doing well. I’m just starting off here kind of at a top level on just the pre-provisioned 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 just kind of walk through the balance of risks around that 2% number? What could drive incremental upside in the return profile and where the near-term pressure points are both internal to your business and external on macro vectors? Thanks.

Sure. This is Tom. Good morning. A couple of things: in the quarter, we had an increase in the securities portfolio and that was in part to protect against further rate decreases that are expected. Cash flows coming off of the portfolio don’t need to be reinvested given 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 pre-tax and pre-provision number above 2%. And then there are still repricing opportunities on the deposit side for us here. So things look pretty good. Expenses are managed well. And as we move forward, next quarter we’ll update everyone on the First Security transaction related to marks, etc., and forecast around expenses.

Yeah. And to add one more point to what Tom just said: if you think about that number, consider it in the context of net interest income and margin, non-interest income, and expenses. To simplify: continue to manage expenses well, manage our margin, and continue to find areas where we can grow that non-interest income line. Those four components hold the opportunities and risks surrounding that number. Do we expect it to move over time? I think as we manage our rate position along the lines of what Tom mentioned, a pre-tax pre-provision ROA, give it plus or minus 5 basis points, should be quite achievable.

Okay. All right. Thank you for the thoughts there. Switching gears, I think some of us have been receiving a fair bit of investor questions on banks with sponsor finance exposure recently, just given the mounting macro headwinds. Could you walk us through your sponsor finance portfolio, your approach to the business, and what you’ve been seeing in that portfolio recently?

Sure. Our portfolio today is roughly around $700 million in outstandings, about $868 million in commitments. Just as a background, we started that business in September of 2015. So this September will mark 10 years since we started that business from scratch. I don’t want to jinx ourselves here, but we’ve never incurred a loss in those 10 years. 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, grow it, and then over a three- to four-year period, they put that platform for sale and essentially start over again. We have seen probably our third cycle of companies churning through that portfolio now. Our approach is senior only. We are targeting lower middle-market companies. So a target market would be the same type of business that we want to bank in our traditional commercial space—EBITDA range between $2 million to $8 million, and we look to go up to no more than three times senior leverage. That turns out to be well inside of our portfolio standards. We look for companies and sponsors that are not looking to maximize their leverage, instead opting for a more conservative approach. We tend to seek companies that aren’t growing very quickly, meaning they don’t require significant working capital changes or large CapEx investments. We want free cash flow to primarily pay down debt. That summarizes our business, but we’re happy to share more color and will think about ways to offer additional insights on the portfolio broadly.

That’s very helpful color. Thank you for taking my questions.

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

Hey. Good morning, guys. Thanks for taking my questions here. Tom, I may have missed this in your prepared remarks, but could you just provide an update on your thoughts on SBA gain on sales going forward? I know our first quarter could be a little slower, so just kind of how you’re thinking about the rest of the year?

Sure. Hi, Damon. We stated that the average is $5 million per quarter and that the premium has been as close to 10% right now, expected to be in the 9.5% to 10% range.

Okay. Great. All right. That’s helpful. Thank you. And then in the guidance for net interest income, I think it says $87 million to $89 million. Did you say that included a number of rate cuts this year or were you just pointing out the sensitivity if there were a rate cut?

No. I was only pointing out the quarterly Q2 numbers, excluding for security. The market has a Fed expectation of a cut here in June.

Got it. Okay. So that would just be a guideline for us if we were to incorporate...

Guidelines for Q2.

Yeah. Got it. Okay. And then just lastly, the cash balances are down a little bit. Average security balances are up a little bit. How should we think about the size of the securities portfolio going forward? Do you expect to continue to grow that or should we hold it flat?

We’ve integrated First Security. They had a portfolio as well, so I don’t see us really growing the portfolio at this point. We have really good loan growth; there’s no reason to buy additional securities unless there’s a liquidity reason. We’re in a really strong liquidity position. So I would say flat to possibly down for the remainder of the year.

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

Great, Damon.

Thanks, Damon.

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

Thanks. First off, Roberto, thanks for the opening comments and the reminder that what we do isn’t just ticker symbols and numbers every day. 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 impacting TBV and EPS accretion? I didn’t have a chance this morning to look at the presentation again, but the 10-year is up about 50 basis points since that announcement?

Terry, we’re going to give that information out at the next earnings call. We don’t have anything for you at this point other than we can guide you to the original requirements around the deal announcement.

I think…

And then I know Nate wanted to ask the question, but any sense for quarterly expenses including kind of First Security? I know you provided the standalone number?

Nothing at this point; we’re going to provide all the guidance around First Security at the next meeting.

Gotcha. Okay. Everything, not just the marks. Okay. Thanks, Tom. And then maybe just one last question. When I look at the strategic priorities, it seems like one opportunity for a $10 billion bank would be fee income. And when I look at the income statement and include—exclude the SBA business, it does seem you’re under-fee, so to speak, relative to peers. Alberto, I didn’t know if you had bigger picture thoughts on the longer-term opportunity to build out your fee businesses, particularly wealth management?

Yeah. Really good observation, Terry. And the answer is yes, that’s an area of focus for us. We have—if you look at our size today, the size of our wealth business relative to the size of the bank, particularly when you consider the type of customers we have on the commercial side of the bank, we think there are opportunities there. We’ve hired some terrific people that are running that business for us today, and it’s something we definitely want to see that component of our business become a larger share of it over time. So yes, to answer your question directly, the short answer is yes.

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

Likewise, Terry.

Thanks, Terry.

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

Hey. Good morning, everyone.

Hi, Brian.

Hi, Brian.

Good morning. Hey, 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 for the next several quarters, just as it relates to the NII guide or just kind of the NII outlook, if you will, just to kind of know the puts and takes there? And then just remind us, I think you talked about the forward curve, but just in terms of if we see potentially four cuts versus two cuts, just kind of what’s better for you guys or just the puts and takes there on just the difference between two and four.

Sure. Just as a reference, Brian, on Page 7 of the deck, we gave our interest rate risk sensitivity. I think you’ll see from prior presentations that we continue to reduce our sensitivity. We are still asset sensitive. That number for every 25 basis points declines continues to move lower. So that’s a good thing for us. We’ve also been very disciplined, obviously, in the first 100 basis point cut where you saw interest income stay flat during that cycle. Even though we expected to lose $9 million over a full year, we haven’t seen that to date. So that’s positive. But our models do have, with DDA not repricing and some other products at lower cost of funds levels, you’re not going to be able to move down one-for-one depending on the cycle. We are expecting 100 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 $2.3 million. So depending on the timing of that, we’re always trying to be disciplined on pricing, but we also are trying to grow the deposit base to support our loan growth. So balance sheet needs can dictate net interest income.

Got it. And in terms of what repricing…

Fully.

Yeah. It does…

Yeah.

No. That’s helpful. I appreciate it, Tom. And just in terms of what’s repricing, I think you talked about opportunities on the funding side. And even, I guess, you didn’t mention the asset side, but just what’s repricing? What are the opportunities to at least specifically on the funding side to take advantage of where the rates are today?

I think you’ll see some of this reflected in the Q, but again, the CD book continues to be short. It’s technically about four months in duration. So a gradual reduction in rates will be more beneficial to us than a shock if something were to be unexpected here. We’ve been in a little bit more of a stable environment since the Fed has been on hold through the beginning of the year. The liabilities coming off are in that 4.30% range, so they can be reset under 4% on any specials. A blended CD book continues to move down as some front book business goes into back book. On the asset side, we’re approximately 50-50 fixed versus floating, and as SOFR moves down, you can expect those commercial loans to reprice. There’s also a lag in the SBA book that’s prime-based by a quarter.

Yeah. Gotcha. 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's integration is already complete now, should we consider from a standpoint of expenses that maybe at the first clean quarter from an expense standpoint would be the third quarter, given the conversions done today or was done recently, completed recently?

That’s realistic. That’s realistic.

That’s very fair.

And I—during the quarter, Brian, we think the quarter’s going to be pretty clean, and we’ll ensure we provide good clarity on that during the second quarter. Absent the one-time charges related to the merger, which we will clearly disclose, the nice thing about completing the integration on April 1st is that it will be a full quarter. So excluding the merger charges, we think the quarter should be pretty clean, and certainly the third quarter will be fully clean.

Yeah. Okay. No. That’s helpful. I understand the timing. Just want to ensure we’re considering it the correct way with the conversion. So thank you for taking the questions and all the perspectives today from everyone has been helpful.

Great. Appreciate it.

Thanks, Brian.

Thank you very much. We currently have no further questions, so I’d like to hand back to Mr. Herencia for any closing remarks.

No. We got it, Carly. So thank you, Carly. And thank you, everyone, for joining the call today and for your interest in Byline. We look forward to speaking to you again in July.

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