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Operator: 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 speaker’s remarks, there’ll be a question-and-answer period. [Operator Instructions] 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. Please go ahead.

Brooks Rennie: 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 measures to the comparable GAAP financial 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 earning — 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.

Alberto Paracchini: 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?

Roberto Herencia: 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 of 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, 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 [ph]. 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. We will continue to connect the dots. 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 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 on becoming the preeminent commercial bank in Chicago.

We have shown how disruption has advanced our agenda and disruption at the macro level will enable us to do the same, albeit on a relative basis to our 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 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. A great decision, yet it stings to see some people who have been with us for some time leave.

We feel equally about loss of life related to our people, illness related to our 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, as we see colleagues, we express our solidarity and love. I’m happy to turn over the call to Alberto and the team.

Alberto Paracchini: 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, 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 both clean results for the quarter, absence of minor merger-related charges. It also sets us up nicely to report a full quarter of results inclusive of the transaction in the second quarter.

More importantly, the systems conversion was successfully completed mid-month. Customers and employees have been migrated and on-boarded into our platform, and all key integration tasks have been completed. Start to finish, from announcement on September 30th last year to today, we completed the transaction and integrated the bank in 207 days. 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 4, 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, but 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, $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-ups, 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.

Tom Bell: 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-digit. 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 account. 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 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 23 basis points 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. 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 100 basis point decline in Fed funds for the remainder of 2025. This implies a slightly higher net interest income range, excluding for 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 was in salaries and benefits, largely comprised of lower incentives and equity-based compensation, lower advertising spend, offset by First Security merger-related expenses. We continue to remain disciplined on expense management and maintain our quarterly non-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 ACL at the end of Q1 was $100.4 million, up slightly from the end of the prior quarter.

NPLs to total loans decreased by 14 basis points to 76 basis points in Q1 and decreased 24 basis points from a year ago. Excluding government-guaranteed loans, 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 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, which highlights 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.

Alberto Paracchini: 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, 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. [Operator Instructions] Our first question comes from Nathan Race of Piper Sandler. Nathan, your line is now open.

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

Alberto Paracchini: Appreciate it. Thank you, Nate. Good morning.

Roberto Herencia: Good morning.

Nathan Race: 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?

Alberto Paracchini: Yeah. So I think here to for, Nate, obviously, the first quarter credit, demand for credit was good. Business development activity was very good. You see it in our gross origination numbers for the quarter. I mean, it’s $310 million. You can see in the slide deck kind of the trend and how that compares with the previous 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 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? 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 like 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 that have been through this before, I would say, have taken steps to try to manage and mitigate any potential effects on tariffs. So that’s kind of where things are from a sentiment standpoint. At least that’s what we’re hearing directly from clients. 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 and 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.

Nathan Race: 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: I think broadly speaking, and I think the commentary from others with respect to underwriting changes, I think what you’re referring to is in the previous administration, the agency was encouraging and put through certain changes to try to originate a higher volume of smaller loans. I think there were also licenses granted more, I should say, liberally to non-bank entities. So I think the commentary from, call it, bank-owned SBA businesses, so to speak, inclusive of ours is. Look, I think, we welcome the tighter standards. Our underwriting standards never really 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 too early to tell, Nate. We’ll see how the change in administration, the changes that the new administrator is putting in place, we’ll see how that impacts ultimately volume. But again, I would just reiterate, we’ve been in the business for a long time. We’ve been through multiple cycles in this space and I think the 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: 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, just — 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?

Alberto Paracchini: I think conversations are still active. I think it’s fair to say, and I think, if you look at the number of transactions, although there was a very significant transaction that just got announced this week, as well as some other smaller transactions. But I think certainly the market volatility probably slows things down to a degree. For us, we’re primarily focused on really institutions that tend to be private as opposed to public. So those conversations are ongoing. Sometimes the sellers in those situations like to think about their business as being completely immune from market forces. But we can talk about that separately. But I think the conversations are still ongoing. And look, the fundamental reasons for M&A, which have nothing to do with market volatility, they have a lot to do with lack of succession planning and management, the Board getting up in age, the need for liquidity by existing shareholders.

I think those things remain and I think those are ultimately the drivers for a lot of people looking to partner. So I think we remain optimistic there, Nate.

Nathan Race: 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?

Tom Bell: It does not include the acquisition.

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

Tom Bell: Thanks, Nate.

Roberto Herencia: Thanks, Nate.

Alberto Paracchini: Thank you, Nate.

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

David Long: Good morning, everyone. Just a quick question on the…

Alberto Paracchini: Good morning, David.

David Long: … credit side of things. Good morning. A couple of things on the credit side of things. Criticized and classifieds picked up in the quarter after coming down for what seemed like a few quarters. Any common themes drive the increase?

Mark Fucinato: Hi, David. It’s Mark Fucinato. No themes. 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: David, if I could add just to give you some…

David Long: Great. Yeah.

Alberto Paracchini: If I could add to what Mark said 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 some volatility — there’s going to be some volatility on any given quarter. But I think we are — we like in terms of kind of the trend and kind of the direction that we’re seeing there. And again, these are still pretty reasonably low numbers. So I just would like to give you some additional color on that.

David Long: 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 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: Well, I think that’s the case for everybody that is under the CECL standard. I think, like others, Dave, we use the Moody’s forecast. We consider put — I think it’s fair to say we put primary weight 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 most institutions that would be reflected in their CECL estimates for reserves.

David Long: Got it. Thank you for the color, Alberto. Appreciate it.

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

Brendan Nosal: 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.

Tom Bell: Sure. This is Tom. Good morning. I think a couple things. We — in the quarter we had an increase in the securities portfolio and that was in part to kind of help protect further 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 pre-tax pre-provision number above 2%. And then there’s still repricing opportunities on the deposit side for us here. So things look pretty good. Expenses seem to be managed well. And then as we move forward here, obviously next quarter we’ll update everyone on the First Security transaction related to marks, et cetera, and forecast around expenses.

Alberto Paracchini: Yeah. And then just to add one more thing to what Tom just said is, I mean, if you think about that number, just think about it in the context of net interest income and the margin, kind of non-interest income and expenses. And to state this in a very simple way, continue to manage expenses well. Continue to manage our margin. And continue to keep and try to find areas where we can continue to grow that non-interest income line. And so it’s just managing those four components. Those are where the opportunities and the risks are. 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 pre-tax pre-provision ROA, give it plus or minus 5 basis points. Just give ourselves some room there, should be pretty achievable.

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

Alberto Paracchini: Yeah. Happy to. So our portfolio today is roughly around $700 million in outstandings, about $868 million in commitments. Just by way of background, we started that business in September of 2015. So September of this year will be 10 years since we started that business from scratch, essentially 10 years ago. I don’t want to jinx ourselves here, but we’ve never incurred a loss in those 10 years. And the portfolio has seen a fair amount of churn, as you would expect in the sense that it’s typically private equity firms that buy a platform, they grow that platform and then over the course of a three-year 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 timeline, we’re probably on our third cycle of companies basically churning through that portfolio.

And our approach to the business — by the way, one additional statistic. So we do business today with about 62 portfolio companies account for the $700 million in the portfolio today. Our approach to a business is we do senior only. We are targeting lower middle-market companies. So a 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 million to $8 million and we are looking to go up to no more than 3 times senior leverage. Effectively, that actually turns out to be, if I look at our portfolio today, it’s well inside of that. So we do like to find companies and sponsors that are not really looking to maximize leverage. In fact, they’re going to be more conservative in leverage.

We tend to look also for companies that are not really growing very fast. In other words, they don’t — they’re not consuming a lot of either changes in networking capital or expected material CapEx into their business. We want that free cash flow to be used primarily to pay down debt. So 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 a — in a nutshell, that’s the summary of our business.

Brendan Nosal: That’s very helpful color.

Alberto Paracchini: All right.

Brendan Nosal: Thank you for taking my questions. Much appreciated.

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

Damon DelMonte: Hey. Good morning, guys. Thanks for taking my questions here. Tom, I may have missed this…

Alberto Paracchini: Good morning.

Damon DelMonte: … 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 could be a little bit slower. So just kind of how you’re thinking about the rest of the year?

Tom Bell: Sure. Hi, Damon. We said basically the average is $5 million per quarter, and the premium has been as close to 10% right now and that should be in that 9.5% to 10% range.

Damon DelMonte: 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 that included a number of rate cuts this year or were you just pointing out the sensitivity if there were a rate cut?

Tom Bell: No. I was only pointing out the quarterly, the Q2 numbers, and that, again, was out for security, and the market has a Fed expectation of a cut here in June. So it’s not a full impact for the quarter, just given the timing of the Fed’s movement.

Damon DelMonte: Got it. Okay. So, but that would just be a guideline for us if we were to incorporate…

Tom Bell: Guidelines for Q2.

Damon DelMonte: Yeah.

Tom Bell: Yeah.

Damon DelMonte: 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 that flat?

Alberto Paracchini: Again, we are — 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. 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: Great. Okay. That’s all that I had. Thank you very much for taking my question.

Alberto Paracchini: Great, Damon.

Roberto Herencia: Thanks, Damon.

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

Terry McEvoy: 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 impacted 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?

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

Terry McEvoy: Okay. I’ll go back and double check that.

Tom Bell: I think…

Terry McEvoy: And then I know…

Tom Bell: Sorry.

Terry McEvoy: Okay. Thanks, Tom.

Tom Bell: No. No. Go ahead.

Terry McEvoy: 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?

Tom Bell: Nothing at this point. Well, again, we’re going to provide all the guidance First Security at the next meeting.

Terry McEvoy: 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 like you’re under feed, so to speak, relative to peers. So Alberto, I didn’t know if you had kind of bigger picture thoughts on the longer term opportunity to build out your fee businesses, particularly wealth management?

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

Terry McEvoy: Okay. Great. Thanks for taking my questions and have a nice weekend.

Alberto Paracchini: Likewise, Terry.

Roberto Herencia: Thanks, Terry.

Alberto Paracchini: 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: Hey. Good morning, everyone.

Alberto Paracchini: Hi, Brian.

Roberto Herencia: Hi, Brian.

Brian Martin: 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, 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 do see potentially four cuts versus two cuts, just kind of what’s better for you guys or just the puts and takes there on just the difference between two and four.

Tom Bell: Sure. So just as a reference, Brian, on Page 7 of the deck, we gave our interest rate risk sensitivity. I think you’ll see from prior presentations that we continue to reduce our sensitivity. So we are still asset sensitive. That number for every 25 basis points decline continues to move lower. So that’s a good thing for us. We’ve also been very disciplined, obviously, in the first 100 basis point cut where you saw an interest income kind of stayed flat during that cycle. So even though we expected to lose $9 million over a full year, we haven’t seen that to-date. So I think that’s really positive. But our models do have, obviously, with 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 through depending on the cycle here.

I mean, we’re expecting 100 basis points per quarter, but for every 25 basis points on an annualized basis, 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 also we are trying to grow the deposit base to support our loan growth. So balance sheet needs can also dictate the net interest income.

Brian Martin: Got it. And in terms of what reprice…

Tom Bell: Fully.

Brian Martin: Yeah. It does…

Tom Bell: Yeah.

Brian Martin: 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 go take advantage of where the rates are today?

Tom Bell: I think we will — you’ll see some of this stuff in the Q, but again, the CD book continues to be short. It’s technically about four months in duration. So relatively quick and a gradual reduction in rates will be more beneficial to us than a shock if something were to be unexpected here. So again, we’ve been in a little bit more of a, since the Fed has been on hold through the beginning of the year, the liabilities kind of coming off are in that 4.30% range, if you will. So they can be reset at less than 4% on any specials. And then — but a blended CD book continues to move down as some front book business goes into back book. And on the asset side, we’re prime — we are 50-50 fixed versus floating and as SOFR moves down, you can expect those commercial loans to reprice. And then obviously there’s a lag in the SBA book that’s prime based by a quarter.

Brian Martin: 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, 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 conversions done today or it was done recently, completed recently, is that fair without giving specific numbers around where things end up, just the timing of when you start to see clean results?

Tom Bell: That’s realistic. That’s realistic.

Roberto Herencia: That’s very fair.

Tom Bell: Yeah. And I — and the quarter, Brian, we think the quarter is going to be pretty clean and we’ll make sure that…

Brian Martin: Okay.

Tom Bell: … we are — we provide you good clarity on that during the second quarter. But absent obviously the one-time charges related to the merger, which we will clearly disclose, I mean, the nice thing about doing it April 1st 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: Yeah. Okay. No. That’s helpful. I understand the timing of wait. Just want to make sure we’re thinking about it the right way with the conversion. So thank you for taking the questions and all the perspectives today from everyone is helpful.

Alberto Paracchini: Great. Appreciate it.

Roberto Herencia: Thanks, Brian.

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

Roberto Herencia: 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.