Operator: Good morning, and welcome to Byline Bancorp Second Quarter 26 Earnings Call. My name is Ben, and I will be your conference operator 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. If you would like to ask a question, simply press the star followed by the number 1 on your telephone. If you would like to withdraw your question, press *1 again. If you are listening via speakerphone, please lift your handset prior to asking your question. If you require operator assistance, please press * then 0. Please note the conference call is being recorded. At this time, I would like to introduce Brooks O. Rennie, head of investor relations for Byline Bancorp to begin the conference call.
Brooks O. Rennie: Thank you, Ben. Good morning, everyone, and thank you for joining us today for the Byline Bancorp Second Quarter 26 Earnings Call. In accordance with the 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 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 financial measure can be found within the appendix of the earnings release. For additional information about risks and uncertainties, please see the forward looking statements and non GAAP financial measure disclosures in the earnings release. As a reminder for investors, during the quarter, we plan to participate in 2 upcoming conferences. The Raymond James Bank Conference here in Chicago on September 9 and the Stephens Bank Forum in Whittle Rock in September. With that, I will now turn the conference call over to Alberto J. Paracchini, President of Byline Bancorp.
Alberto J. Paracchini: Great, Brooks, and good morning, everyone, and thank you for joining us to go over our second quarter results. With me today as usual, is our Chairman and CEO, Roberto R. Herencia our CFO, Tom Bell and our Chief Credit Officer, Mark Fucinato. Terms of the agenda for today, I will kick us off with the highlights for the quarter, followed by Tom, who will take you through our financial results. I will come back to wrap up before we open the call up for questions. As always, you can find the deck for this morning on the IR section of our website, so please refer to the disclaimer at the front. Before we get started, I would like to pass the call over to Roberto for his comments. Roberto?
Roberto R. Herencia: Thank you, Roberto, and good morning to all the appreciate you joining us today and taking the time to engage with BioN And please excuse my voice, which has not been a friend in the last few days. Our second quarter results were excellent. Record net income. The consistency of our execution continues to shine We are very proud of the work our people do. And we thank them for another strong quarter. We are also grateful to our board of directors. for their engagement, support, and quality of advice. When we started the creation of Byline, Roberto and I were intent on having a board of directors that could really serve us well, a board of directors with different experiences, a board of directors that could make us better. And I believe that we have achieved that from day 1. Our objective remains clear. To become the preeminent commercial bank in Chicago. This is not about being the biggest bank or pursuing scale. for scale's sake. Success for Byline is defined by the quality of our customer relationships, the strength of our credit discipline, the talent of our people, and our relevance to middle market businesses, throughout the markets we serve and, of course, what we do for our shareholders. We have built a relationship driven commercial bank grounded in the principles that have long defined successful commercial banking organizations. First and foremost, exceptional talent disciplined underwriting, local decision making, a commitment to serving customers over the long-term. We believe those fundamentals remain enduring competitive advantages. I have been hearing the scale argument for a long time. That you do not buy bearings they will be more expensive. You do not buy banks, you will not be able to compete. If you do not buy banks, there will not be enough banks left And here we are 45 years later, and it is still the same argument. Scale matters. But only to the extent that it allows us to serve customers well. Attract talent, and invest in capabilities. I think scale matters. To a lot of banks that are not clear on their purpose and their objectives. We believe we have a significant opportunity in front of us and Byland will likely be a much larger organization in the next 3 to 5 years. That growth will come first and foremost organically. And it will be disciplined. It will come from deepening customer relationships. Growing deposits, maintaining strong underwriting standards, attracting quality bankers as we have done and, of course, selectively pursuing strategic opportunities that are within the metrics that we have discussed with the investment community. The area that continues to differentiate Byline is our people. During the quarter, Byline was recognized as 1 of the 26 best workplaces in Illinois. Making the 3rd consecutive year We have received that distinction. Recognition especially meaningful because it is based largely on employee feedback. And reflects the culture we continue to build across the organization. We have long believed that engaged employees create better outcomes and recognitions like this reinforce the strength of that philosophy. I would also like to recognize our SBC team Byline was recently named the 25 Illinois SBA 7 a lender of the year. Marking the 17th consecutive year we have received that recognition. We were also recognized as a 25 Illinois SBA export lender of the year. Consistency like that does not happen by accident. It reflects the expertise of our SBA professionals the strength of the customer relationships and our long standing commitment to helping small businesses access capital. We are delighted with our performance throughout the first half of 26, More importantly, we think we are very well positioned for the second half of the year We have a strong capital base. Tom will talk to our total talk to you more about that. And we have a talented and engaged workforce. And a strategy that remains focused on long term value creation. With that, Roberto, I will turn it back to you.
Alberto J. Paracchini: Great. Thank you, Roberto. And picking up on the theme of execution, this quarter, we felt a good example of what disciplined execution looks like in practice. We grew profitability. We continue to manage risk carefully. and more importantly, we continue to deliver value to our shareholders. Record net income and excellent profitability really stood out this quarter, so let's start with that. We delivered net income of $40.2 million or 90 cents per diluted share, up from $37.6 million and 83 cents last quarter. Excluding significant items, adjusted EPS was 91 cents per share, up 10% linked-quarter and 21% year-on-year. For the quarter, return on average assets was 1.63%, up 7 basis points linked quarter return on tangible common equity was just under 14.5%. Up 70 basis points. Pretax preparation ROA came in at 249 basis points, up 20 basis points, which marked our 15th consecutive quarter above 2%. Noninterest expenses remain well managed declined this quarter while revenue grew. Our efficiency ratio improved 85 basis points to just under 47%, our 4th consecutive quarter of improvement and our best since becoming a public company in 2017. Put another way, generated positive operating leverage revenue of $118 million was up 4.7% against expenses that actually moved lower. And that combination drove the improvement in returns. Tom will walk you through the details of all of that in a moment. Before I finish with the rest of the highlights, I want to spend a moment on the operating environment we find ourselves in today. Since it provides a backdrop to a lot of what you will hear. We came into the year expecting rates to come down and once again, that has not played out the way we or the market expected. Strength in the labor market combined with firmer inflation points to a higher for long rate environment for the balance of 2026. Against that backdrop, demand for credit remains solid particularly in our C and I book, So we are seeing price competition pick up, particularly in commercial real estate. On the liability side, competition for the faucets remains elevated. And it is largely a function of banks competing to fund loan growth with deposits. We think this environment rewards discipline over volume, and that theme runs through the rest of what I will cover. From a balance sheet standpoint, trends remain stable. With total assets ending at $9.9 billion deposits increased 3.5% to $7.9 billion reflecting growth in interest bearing deposits. While loans grew 4.2% to $7.6 billion. Net interest income was $101 million consistent with previous guidance even as our margin moved marginally lower. I will spend a second on the margin since it is a natural area of focus, Given what I just described on rates and competition. Our margin declined slightly for the quarter largely due to mix changes, but remained stable and healthy at 4.28%. That said, we managed the business to grow net interest income in dollars, since it is what drives profitability. and returns, not to a specific margin level. When we see opportunities to add high quality relationship oriented business that is accretive to earnings. Even at a somewhat lower spread, we are going to take it. Tom will cover the specifics on the margin drivers shortly. On the asset quality front, credit cost for the quarter were $7.2 million driven by net charge-offs of $4.4 million and a reserve build of $2.8 million Our allowance now stands at just under 1.5% of total loans, up 2 basis points from last quarter. NPL stood at 92 basis points, essentially flat on a year-on-year basis. Our capital levels remain well above regulatory requirements across the board, providing us with significant flexibility. TCE increased to just under 11.5%, CET1 increased to 13.0%. And our tangible book value per share increased 14% year-on-year to $24.48. During the quarter, we repurchased approximately 275 thousand shares, totaling $9.1 million leveraging our capital flexibility. Between dividends and share repurchases, our total payout ratio to shareholders for the quarter was 36%. In addition, yesterday, we announced that our board approved the 16.7% increase in our quarterly dividend to 14 cents per share. Which will be paid in the current quarter. This is reflective of the strength of our capital position as well as the earnings profile of the company. I wanna take a minute to talk about how we think about capital allocation more broadly. We look at things like share repurchases the same way we look at any other use of capital. Against the returns we could otherwise generate by deploying it to support loan growth, invest it back into the business, or opportunistic into M&A. Our approach is to keep building capital and return it in a disciplined, thoughtful way, which gives us flexibility to play offense as opportunities arise. With that, I will turn the call over to Tom who will walk you through the financial.
Thomas J. Bell: Thank you, Roberto, and good morning, everyone. Starting with our loans on Slide 5. Total loans increased 4.2% annualized and ended at $7.6 billion for the quarter. Origination activity was solid at $234 million in new loans while payoffs were elevated at $339 million. We are seeing higher payoff activity rather than a pullback in originations as we recycle acquisition loans into new customer relationships. Loan commitments grew slightly during the quarter. While draw activity on existing lines supported loan growth. Line utilization increased to 60% from 59% linked quarter. Our origination activity remains healthy, as we head into the second half of the year. Assuming payoff activity normalizes in the back half of the year. We expect full year loan growth in the mid single digits. Turning to Slide 6. Total deposits were $7.9 billion for the quarter, up 3.5% annualized from the prior period. From a mix perspective, growth was driven by interest checking balances, which was partially offset by lower money market balances. Our loan to deposit ratio ended the quarter at 96%, up 16 basis points from the prior quarter. We remain disciplined on pricing and continue to prioritize relationship deposits over more rate sensitive funding. Turning to Slide 7. Net interest income was $101 million in Q2, up from the prior quarter and within our $99 million to $100 million range we provided last quarter. The increase was driven primarily by favorable day count partially offset by higher funding costs. The net interest margin remained healthy at 4.28%, declining 5 basis points from last quarter. The decrease was primarily driven by higher funding costs related to a maturing balance sheet hedge and changes in earning asset mix. We remain focused on growing net interest income which we did this quarter. Given the rate outlook and our balance sheet forecast, we expect net interest income range of $100 million to $102 million for the third quarter. Turning to Slide 8. Noninterest income totaled $17 million in Q2, an increase of $4.3 million or 35% compared to first quarter. The increase was primarily driven by favorable fair market value marks higher gain on sale revenue, and stronger swap fee income. Gain on sale revenue totaled $6.1 million compared to $5.5 million in the prior quarter. Additionally, Wealth Management surpassed the $1 billion in assets under administration. We expect gain on sale revenues to average $5.5 million per quarter and our non interest income to be in the $14 million to $15 million range for the third quarter. Turning to Slide 9. Expenses came in at $56.5 million down 1.2% from the prior quarter. The decrease was primarily driven by lower salary and employee benefits lower occupancy expense, and lower OREO related costs. We continue to focus on operating efficiencies and expense discipline. And as a result, our adjusted efficiency ratio was 46.5%. Compared to 49.8% last quarter. And our noninterest expense to average assets improved 8 basis points to 2.29%. Looking forward, our noninterest expense full year guidance remains unchanged at $59 million to $60 million per quarter. Turning to Slide 10. Credit quality trends remain favorable again this quarter. Net charge offs were $4.4 million or 24 basis points down from the 32 basis points last quarter. Criticized loans declined to 3.9% of total loans down from 4.5 percent on a linked quarter and year over year basis. Nonperforming loans were $69.1 million or 92 basis points of total loans. Up marginally linked quarter and flat year over year. Our allowance for credit losses was $112 million or 1.48% of total loans up 2 basis points from last quarter, driven primarily by an increase in the individually assessed category. Overall, credit trends remain consistent with our expectations. Moving on to capital on Slide 11. Capital levels grew across the board during the quarter. Tangible common equity increased to 11.4% and CET1 increased to 12.9%. Our capital position remains a competitive advantage. Providing flexibility to support growth, return capital to stockholders, or pursue strategic opportunities. With that, Roberto, back to you.
Alberto J. Paracchini: Thank you, Tom. So to wrap up, let me give you a few thoughts on how we are thinking about the rest of the year. First, on the quarter's results, that is reflective of work that is been underway for several quarters now. Excuse me. And we see room to keep building on it. Through the same focus on disciplined execution. Second, given the environment, solid but selective credit demand, sharper loan and deposit competition, that is not going away. We intend to stay disciplined rather than chase volume or spread. That does not compensate us properly for the risk. Third, credit quality remains a priority The trends this quarter support that our underwriting and portfolio monitoring are working as intended But that said, we need to stay vigilant given the evolving macro environment. Fourth, we continue to prepare for crossing the $10 billion asset threshold, and that preparation informs how we think about growth, expenses and capital. In the meantime, looking ahead, we enter the second half of 26 with solid momentum. Our pipeline remains healthy, and we believe we are well positioned to capitalize on opportunities and continue to create value for our shareholders. And with that, Ben, let's open the call up for questions.
Operator: We will now begin the question and answer session. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the q and a roster. Your first call comes from the line of Nathan Race with Piper Sandler. Nathan, your line is open. Please go ahead.
Nathan Race: Hey, guys. Good morning. Thanks for taking the questions.
Alberto J. Paracchini: it is about morning, Nate.
Nathan Race: Roberto, I appreciate your commentary around just the healthy pipeline. And I think Tom alluded to a mid single digit growth expectation for this year. But, you know, with loans up call it 1% annualized through the first half of the year, you know, that would imply kind of a ramp to the high single digit range. For the back half of the year. So I am just wondering if you could shed some light on the visibility you have into payoffs in the back half of the year and how you expect production to trend as well? You hit the nail on the head on that, Nate.
Alberto J. Paracchini: The area that is that is usually the most uncertain 1 is related to timing of payoffs. As you know, our guidance on in terms of loan growth you know, has been consistently in that kind of mid to single digit range. And, you know, in the past, I know you guys sometimes have given us a hard time because we have we have exceeded that. And yet, we stuck with continuing to give guidance in that kind of single mid single digit range. And I think what you are seeing here is actually the, you know, the that you know, effectively being flipped. If you look at our level of origination those have, you know, continued to be pretty consistent. You know, I know if you look at the comparisons on the on the page, you know, yeah, year over year is down. But if you look at it more on or the recent you know, 3 or 4 quarters, it is been pretty consistent in terms of the activity level as far as new business is concerned. And we continue to feel confident around that, what we are probably less confident is the other part, which is the payoffs. That being said, I think part of that I point to what Tom said, which you have also heard us talk about in the past where when we have done acquisitions, our approach has been really acquiring deposits, for the purpose of recycling you know, those assets over a period of time so that we can redeploy that liquidity into our lending business. And I think what we have seen over the past couple of quarters particularly with some of the acquisitions that we have done over the last couple of years, has been that recycling, and I think that has a lot to do with the elevated payoff activity. We think we are past the bulk of it Nate. That being said, that is the variable that is always, you know, more challenging to forecast for obvious reasons. But when we think about, like, the underlying originations and that kind of underlying call it, rate of growth in that mid single digit range. We feel pretty confident about that. That being said, that volatility of payoffs as we have seen the last couple of quarters you know, is what is gonna ultimately impact you know, the numbers that you are looking at, which is ending balances and calculating growth rates. Over that. So just be mindful that, you know, volatility of payoff activity may impact that. When we think about the way we run the business is we think about it in the standpoint of we wanna see that kind of mid single digit range, and that allows us as you also probably saw from the numbers and from covering us for some time now, we are we are really looking to drive that and fund it with core deposits. So, you know, those 2 really cannot deviate too much from 1 another. So, hopefully, that gives you color and gives you an answer to your question. Probably a more full answer to the question that what you were hoping for, but, hopefully, that is that provides enough color on that.
Nathan Race: It does, and very appreciate all that particular commentary around the acquired portfolios. Not to give you guys a hard time to your earlier point, but on expenses, you know, the guide for the back half of the year, that implies a decent step up from the first half. So just curious kind of where you are seeing those upward expense pressures. Is it tied to some additional hires you are anticipating in the back half of the year? Any other color you can shed just in terms of kind of the increased expense outlook for the back half?
Thomas J. Bell: Hi, Nate. Yeah. it is employee expenses, health care costs, those types of benefits. They are probably gonna be likely higher in the second half of the year. We normally have some higher commissions as well. Just due to product production for the year. So it is kind of compensation related.
Nathan Race: Okay. Understood.
Thomas J. Bell: Why we are giving the higher guidance. I think if you look at by the way, if you look at last year, I think you kinda see some of the same trends. From last year. Yep. For sure.
Nathan Race: And then just Hey, Nathan.
Alberto J. Paracchini: You were on point, and just to give you some additional color on that, you brought up additional hires and so forth. We are actually seeing good there is there is call it, opportunities in the market to do that. And we are always looking for attractive talent. We do not have anything to announce. But if we were to you know, bring on a team of people or be doing you know, hiring, you know, additional bankers where we see an opportunity out outside of, call it, normal course of business. Then we would separate that and we would tell you that, you know, listen. Our expenses are higher this quarter because you know, we added a team or we added a couple of teams, but you know, the market, there seems to be enough flux in the market at the moment that maybe some opportunities will present themselves to be able to add you know, high quality talent. Gotcha. And that sounds like it is kind of embedded in the guide in terms of those opportunities. Yes. Okay. Great. And then if I could just ask lastly, to your earlier comments, Roberto, around just how you are managing excess capital.
Nathan Race: You guys, of course, have the high quality problem with you know, how quickly you are building capital just given the profitability profile. You know? But eventually, you know, it is gonna kinda depress or kinda bring down your returns on tangible common. So, you know, within that light, you know, curious what you are seeing on the M&A front these days and if you could also just remind us how you think about kind of the appetite for buybacks around earn back periods and so forth?
Alberto J. Paracchini: Yes. I think you hit the nail on the head. I think putting aside just call it growth and risk weighted assets, balance sheet growth, And obviously, you saw the increase in the dividend that Board approved, which is obviously a return of capital back to shareholders as well. I think you are left then with M&A opportunities in the market, and I think the environment is active. Obviously, you saw somewhat of a market acquisition here, obviously, more Indiana than Chicago being announced the other day. And I think it is it is fair to say that conversations are not that they are never you know, completely inactive, but I think it is fair to say that there is there is plenty of chatter. You have seen certainly more M&A broadly speaking, in the kind of the under $10 billion range than you have seen in terms of much larger transactions. And I think that trend is likely to continue. But I would describe the call it the general chatter around M and A as constructive. But going back to your to your you know, capital deployment question, absent, you know, M&A opportunities that we execute on then, you know, given the fact that we have kinda run through the priorities, we would be looking to the buyback program to return capital back to shareholders. Okay. that is really helpful.
Nathan Race: I appreciate all the color, and hope you feel better Roberto.
Roberto R. Herencia: Thank you, Nate.
Operator: Your next call comes from the line of Brendan Nosal with Hub T Group. Brendan, your line is open. Please go ahead.
Brendan Nosal: Hey. Good morning, everybody. Hope you are doing well.
Roberto R. Herencia: Morning, Brendan.
Brendan Nosal: Maybe starting off here on asset quality. Lot of nice trends for the quarter compared to sequential year over year. You kind of name it. If I look at Slide 10, I see some really nice cleanup in kind of criticized asset rating. Can you just offer a little bit of color on, you know, what you worked out this quarter? How you managed to avoid meaningful lost content? And then just any broader commentary on kind of your overall observations on the health of your commercial borrowing base?
Alberto J. Paracchini: I will let Mark take this question, but the just a general comment, particularly when you are looking at criticized and classified, Our approach always is gonna be we are gonna be quick to downgrade So in other words, we would much rather on the side of downgrading very, very quickly and then waiting for plans or improvements to occur, and then we later you know, if that is the resolution, then we will go back and upgrade the credit and go from there. So just be mindful that our bias is always, you know, anytime that we have you know, we see a weakness, I will call it even a general weakness or a well defined weakness in a credit, we are gonna be probably early to downgrade as opposed to, you know, waiting and seeing what develops before making that decision. Just keep that in mind. But I will pass I will pass the call over to Mark.
Mark Fucinato: Thanks, Roberto. Brendan, the reduction in cruise size classified was driven by a few deals that were they were large in size, but they had been performing much better. And the trends we saw with the operating companies were over an extended period, so we feel comfortable increasing the risk rating to more of a past credit. That was 1 factor. And then we had a large resolution from 1 of our workout situations where an operating company had a large mortgage exposure also. And they were able to sell that asset and pay off our exposure completely. And that was a nonperforming loan. That we had reserved against, so we got a bit of a recovery also on a previous charge off. So those are the 3 main factors in driving the numbers down. And as you know, with our portfolio, we tend to have idiosyncratic situations that come up. We do not see a trend in any of the asset classes for our line of business. But those 3 specific ones were the reason that we saw the big improvement quarter over quarter.
Brendan Nosal: Okay. that is helpful color. I appreciate it. Maybe just to circle back to the top of conversation earlier in the call on deposit competition. Can you just unpack the environment a little bit more? On kind of what sort of institution you are seeing push the envelope on pricing And then just how it is evolved over the course of the year and kind of what the temperature is today on funding competition versus over the prior 6 months?
Alberto J. Paracchini: I think I will start and then jump, I am sure, will jump in as well. But think it is interesting that we are having this discussion today because there was an article in the Wall Street Journal this morning talking about larger institutions kind of coming back into the commercial real estate market. And I think specific to that particular book or that particular business, that is exactly what we are seeing, and that is consistent with what we have kind of noticed and have noticed in the market going back a couple of quarters. I think that is largely due to clarity around Basel III. If you recall, probably 18 months ago, 24 months ago, we were having exactly the opposite. Conversation, you know, risk weighted asset diets and the larger banks were a bit more had a bit more lack of clarity in terms of where Basel III was gonna end up. They were looking at potentially increases in capital. Now they are kind of looking at a at an environment that is gonna be flat to potentially declining. And I think they had let those books, you know, either, you know, stay relatively stable, if not declining because of office exposure. And I think what we have seen particularly in asset classes like multifamily, like industrial is those larger institutions have been coming back to market. there is more that they are trying to put to work. Transaction activity in the market in general I would say is, relative to before the rate hikes is still lower. So there is less deals, more capital, and then you have a compression in pricing, which is kinda what we are seeing in that in that particular book. As far as the rest of the business, C and I is always competitive. And rightly so. You are looking at, hopefully, having long term relationships that you are trying to fund with deposits and, you know, there is an acquisition cost of those relationships upfront, and that is reflected in pricing. But I think in general is what you are seeing, you know, 1, you know, what we just covered on the asset side and then just banks looking to fund that loan growth with deposits. And Tom can add more to that.
Thomas J. Bell: Yeah. I would I would say on the commercial side, it is business as usual. Not extremely-- on deposit, the relationship is competitive, but it is not exception pricing going on the deposit side. So the core deposit we get from that are very stable and very low cost. On the margin, if you are trying to increment, you know, increase your deposit base and you are using the consumer network to do that, 2 things I would say. 1 is the expectations of the Fed going from, you know, cutting rates, earlier in the year to now potentially raising rates later this year. You are seeing more extension of know, CDs, if you will. Our book has been very short just because of the expectations of a cut that we thought was gonna happen. that is certainly reverse course. So it is not like we are gonna have a lot more repricing on lower levels, so it just comes down to the short curve, meaning overnight to 1 year is steeper that you are gonna pay incrementally more in rate, but spreads have not really materially changed think it is still competitive as Roberto alluded to, but not it is still rational relative to where it is been in the past.
Brendan Nosal: Okay. Alright. Well, thank you all for offering your thoughts. Appreciate it.
Roberto R. Herencia: Thank you.
Operator: Your next call comes from the line of Brian Martin with Brean Capital. Brian, your line is open. Please go ahead.
Brian Martin: Good morning, everyone.
Roberto R. Herencia: Good morning, Brian.
Brian Martin: See maybe can you just touch on with the credit quality quarter? Just kind of a bigger picture question, and that is the SBA book has gotten smaller just as other businesses have kind of outgrown them, we think about the big picture and charge-off trends, you know, kind of going into the future, know this quarter had some recoveries and what you just talked about. But just should we think about the charge off rate maybe being a little bit lower than it has been historically? Just is that you know, dynamic continues to play out and you are growing organic piece of the business maybe a little bit faster than the commercial side rather than the SBA side given kinda commentary today. Sounds like it continues to keep similar pace in terms of what it is delivering. But is that is that a accurate way to frame it as we look in the kind of the out years?
Alberto J. Paracchini: I think it is Brian, I think that is a that is an acute observation, and I think what you are saying is accurate. I think also what I would say is in the short run, we are we are still in that kind of you know, if you are asking us what is your view, what how should we think about charge offs, I think in the in the short run, we are still in that category of 30 to 40 basis points. I think what you have seen the last couple of quarters is that we are being certainly, you know, going towards the lower end of that range. I think as Mark alluded to, we had some nice recoveries. You know, this particular quarter. So we went lower than the range. But I would say still in the short run, that 30 to 40 basis points is still a good you know, range. That being said, in the long run, I think what you are saying is correct. Meaning, as the balance sheet continues to grow, and as proportionately that business and that portfolio continues to be proportionately a smaller part of the portfolio and the balance sheet in general, yes, I think that those charge off levels are probably gonna end up migrating a bit lower.
Brian Martin: Okay. No. that is helpful, Brian. that is it seems like where it is going. So that just well, little color there is helpful. And just in terms of the, I guess, the NII or NIM outlook, I do not know if you can give any thoughts. I mean, your comments about being disciplined on pricing in terms of you know, the bulk loans and deposits and the competition in the market. Kinda feels like you know, maybe the focus on maintaining the margin kind of where it is at here and maybe that would be the outlook. So without maybe just general comments, if you can provide it on the margin. But maybe a bigger picture question is it to think about it in terms of the NII growth, which is what you guys usually offer a bit more on, if maybe a mid-single-digit growth in NII is how we should be thinking about the balance sheet and, you know, I guess the debt NII number going forward, maybe into know, next year is that is the best way to think about it as you manage the business here for the environment?
Thomas J. Bell: Hi, Brian. Good morning. Yeah. NII, I think we gave guidance for the quarter. I mean, pretty consistent. You know, as we talked about, payoffs are the wildcard, so to speak. That if they are slower, certainly, earnings could be higher. You know, as far as know, again, deposit wise, I think we are we are doing well on the margins. The deposit costs are not bad relative to the spreads we are getting. Certainly, there is repricing going on the asset side. that is gonna help us. But I think, you know, the cost of funds side is probably flat you know, moving forward here. We did have a balance sheet hedge that was material in a maturity size and impacted the margin a couple basis points. So that is kind of out of the way right now. And I think as we continue to grow relationships and get our fair share of business, you know, the margins should be stable, you know, in the coming quarters.
Alberto J. Paracchini: Yeah, Brian. And just to add, just an additional you know, some more perspective on that. I think Tom answered it in terms of kind of net interest income really being the kinda how we manage the business as opposed to thinking margin always first and therefore, you are you kinda you know, net interest income as a result of that being said, you know, as we said earlier, we kinda look to net interest income because that is ultimately what drives profitability. it is obviously what drives returns. We do not manage specifically to margin call it, target, so to speak. But you know, when we think about growth, it is I kinda think of it as a and Roberto even touched on it on his remarks at the beginning. You know, Discipline is a good thing. You know, in certain cases, we are gonna look at taking a lower spread, which say it may impact the market, the margin negatively, to do business that we think in the long run is gonna make sense for the institution to do because it will build franchise value, and it will generate, you know, long term returns, which at the end of the day is what we are trying to achieve. So we may have situations where you may see, okay. there is margin pressure. We are adding to the business. But we will be selective on those, you know, and they will be times when maybe that is emphasized more because of opportunities in the market. As opposed to times where we do not see those opportunities, in which case, maybe we do not grow as fast or you see the margin expand. But that is a high class problem. And as you saw this quarter, what happens then is, you know, if we are not supporting growth, know, then we are building capital. So then the decision that we have to make is how do we return that capital back to shareholders, and you saw us do that. This quarter as an example. So it is it is a it is a balance that we are playing. Right? it is balanced you know, long term growth and balancing that against the short term opportunity that we see. In the in the data they you know, aspect of the business.
Thomas J. Bell: And I would just say in 1 Brian. 1 last thing just to remember. You talked about the SBA business. Right? it is becoming a smaller piece of the overall organization. Over a longer period of time, that will continue and, obviously, that is a higher risk, higher return business. So that would have an impact on the margin in a longer term way, not necessarily next quarter following year, but just gradually would expect both higher yielding assets to be a smaller piece of the overall earning assets.
Brian Martin: Gotcha. No. I appreciate it. And you are you would mentioned asset repricing, Tom? Is there something that you I guess deposits may be being stable ish, but remind me what assets just the asset repricing looks like here. Next couple quarters.
Thomas J. Bell: there is about roughly $300 million of loans and leases that are repricing in the next quarter. And, you know, call it 52 to $2.75 in the fourth quarter. And those are those are yields that are kind of in that $6.30 range. So on average, we are probably slightly higher than that as new production comes in on a blended basis.
Brian Martin: Gotcha. Okay. that is helpful. And I think the comments about the NII, the way to think about it in terms of just that mid single growth seems like what you guys are suggesting. So okay. And then maybe just the last 1 for me was on the you spent some time talking about the M&A environment and just kinda the capital flexibility and how you think about those returns. Just remind us if you are successful in finding something on the M&A side that fits your wheelhouse, you know, the discipline that you have on you know, the you know, the cost for that for any type of transaction. Can you just run through the parameters on what your discipline is on the on the M&A front? How you are thinking about when we see a deal, if there is 1 for you guys, what those parameters are, what your guideposts are there?
Alberto J. Paracchini: I mean, generally speaking and it is gonna be obviously, Brian, it is gonna be dependent on the quality of the franchise, but I think what we have stated in the past is, you know, we are looking for an earn back that is inside of 3 years We are looking for reasonable annual book value dilution relative to the earnings accretion that the institution would add to the company. And, obviously, you have to adjust that for size, obviously, as smaller acquisition you know, now at the size of the company, you know, in terms of accretion is gonna be by size. But that is generally that the parameters that we manage to. Gotcha.
Brian Martin: Okay. Thank you for all the insights in the call today. Appreciate it.
Roberto R. Herencia: Thanks, Brian. it is Brian.
Operator: Your next call comes from the line of Daniel Tamayo with Raymond James. Daniel, your line is open. Please go ahead.
Analyst: Thank you. Good morning, everyone. Morning, Yeah.
Alberto J. Paracchini: Just I guess most of my questions have been asked at this point, but just on the balance sheet and the crossing $10 billion which you mentioned, looks like you are almost there. Just thoughts on timing if that if you think that is still gonna happen in the back half of this year, if that might be able to be pushed to 2027? it is a good question, Daniel. We are we are not running the business today. With really any constraint on that. So and we will continue to do that. You know, I would say this quarter, and probably the months of October and November, If we get to the beginning of December and you know, we have the ability not to be over $10 billion we would probably take you up on that, and we would just manage the balance sheet accordingly. But outside of a situation like that, that would really push the impact of Durbin out to kind of mid 28. You know, there is really no we are not doing anything out of normal course in terms of managing the balance sheet. Okay. I appreciate that, Roberto.
Analyst: And then maybe not to beat a dead horse on the margin here, but different side of it. The purchase accounting accretion, obviously, volatile, but was kind of a little bit higher this quarter than it was last quarter. Just Tom, if you have any thoughts on where you think that might run and another way to kinda back into the core going forward. Would be helpful.
Thomas J. Bell: Yeah. We took the slide out because it is becoming nonmaterial. it is about a million dollars. A quarter right now. In accretion ex expectations. Obviously, if some loans pay off faster, you know, we might get some recoveries, etcetera. But gonna be it is less and less material for and you can refer to last quarter's deck for it. Know, the guidance of the future quarters. Okay. It will be under a million dollars coming up. Okay. Thanks, Tom. And maybe just a last 1 again on the margin, but it seems like maybe the environment in the second quarter was 1 where deposit costs started to rise in anticipation of a hike and banks were more willing to pay up for that thinking maybe are gonna get a hike with your balance sheet sensitivity a little bit on the on the asset side. You know, is it fair to think maybe if we do get that hike, that the environment might normalize a little bit and deposit costs may not rise as fast as loan yields and you get a little bit more benefit from a hike than what your stated sensitivity is. And I guess the flip side to that is if we do not get a hike, you know, maybe the competition outweighs what how you are thinking and the margin could decline. Is that is that fair? Or you guys just kinda managing for I am giving you an out here. Are you just managing for the current environment and what that is a good question. I think a couple things to think about is, 1, the market is already pricing in a tightening. So if that were to raise rates, we are gonna benefit from that. And we are already paying, in other words, for the tightening in the deposit side if somebody's going out and doing a 1 year CD, for example, because it is already expecting a 25 basis point increase. So we would benefit from that because all the assets would reprice higher. With the exception of the fixed rate loans that maturing or repricing. So, yeah, we would definitely benefit more, and I think we showed we tried to show kind of the sensitivity on the deck on page 7. But we benefit you know, roughly for 25 basis points, 2.1 million in rates up. Versus, you know, rates down of 1.6 million. So Yeah.
Alberto J. Paracchini: And that is and that sensitivity assumes. Sorry.
Operator: Go ahead.
Thomas J. Bell: Yep.
Alberto J. Paracchini: No.
Thomas J. Bell: I was again, the deposit side is already starting to price it in at least at in the CD book. it is not in the money markets and now in savings. So I think we are we benefit.
Analyst: Okay. Well, I appreciate the color. Thanks, guys.
Roberto R. Herencia: Thanks. Thank you.
Operator: Your next call comes from the line of Brandon Rud with Stephens Inc. Brendan, your line is open. Please go ahead.
Brandon Rudd: Good morning. For taking my questions.
Roberto R. Herencia: Hi, Brendan.
Alberto J. Paracchini: Hi, Brendan. Good morning.
Brandon Rudd: May maybe just 1. Most of it answered, but the success on the interest checking accounts both on a period and an average basis, is there was there a specific initiative that helped drive that, or is that just run-of-the-mill business there? Can you kinda flesh out that increase on both, I guess, the sequential and year over year basis.
Thomas J. Bell: It was more a commercial account that was just converting or consolidating from money market. They maybe have both categories, and they had moved to interest bearing just for various reasons. Nothing like, that I would point to drove the increase other than just consolidation of accounts within the within the organization.
Brandon Rudd: Okay. Okay.
Alberto J. Paracchini: So then Actually, I got a money mark a little bit. that is actually a really good question. Brendan, because that is that is usually a not necessarily immediately, but that is usually a marker for, you know, when you see particularly corporate or companies doing that, it points to the fact that they are seeing or likely to see uses for that capital, and they do not wanna have the restrictions that they have in a money market account relative to an interest bearing checking account. In interesting.
Brandon Rudd: Okay. Thank you for that. That was that was my question. Thanks.
Operator: Please press 1 to raise your hand. Your next call comes from the line of Damon DelMonte with KBW. Damon, your line is open. Please go ahead.
Damon Del Monte: Hey. Good morning, guys. Hope everybody's doing well today. Just a couple of quick ones as most have been most have been asked and answered. But, probably for you, you know, the secure average securities, increased again this quarter. Just kinda curious your thoughts on that going forward. Will, you know, future dollars be allocated to the portfolio? Or do you expect to use, you know, excess liquidity to be deployed into loan?
Thomas J. Bell: Ideally, it is loans, Damon. Probably flat on the securities at this point. And, clearly, given where we are close to $10 billion I think we are looking to grow the portfolio at this point. Got it. Okay. Great.
Damon Del Monte: And then do not think this was asked already, but, regarding, like, the provision outlook and kind of balance that with the with the reserve level, You know, I think Roberto, I think you said net charge offs should still probably be in that 30 to 45 basis point range or something. In the near term. But know, as we think about the back half of this year and going into 2027, can we expect the reserve level to kinda drift a little bit lower as its credit quality continues to strengthen?
Alberto J. Paracchini: I mean, it may. It may Damon. But as you as you well know is it is it is gonna be completely dependent on how actuals come in relative to the outlook. What I mean by that is you see a pick, you know, more loan growth, you know, the loan portfolio growth, We are obviously on a probation for that. I think that what you what you quoted me on in terms of kind of the short run kinda charge off you know, expectation in the 30 to 40 basis point range that is that remains consistent. So just you know, when you think about that math, just know that the variable that is harder to predict is that loan growth, you know, that end of period kind of balance and the dynamics that plays into know, provisioning relative to relative to where charge offs are coming in. So hopefully, that gives you some color on that.
Damon Del Monte: Yep. Yep. No. That makes sense. Thank you. And then I guess lastly, the tax rate going forward, Tom, is something in the 20 know, 25% range reasonable?
Thomas J. Bell: 25 and a half? 5.5. Seems reasonable. Okay.
Damon Del Monte: Great. that is all that I had. Thanks a lot for taking my questions today.
Thomas J. Bell: You bet, Damon.
Operator: Your next call comes from the line of Brendan Nosal with Hovde Group. Brendan? Your line is open. Please go ahead.
Brendan Nosal: Hey. Just to circle back, on the fee income outlook, I think Tom, you said a range of 14 million to $15 million for the third quarter. Totally get that the gain on sale is going to trend back to that 5.5 number on average. What are the other drivers of kind of getting into that lower range for next quarter just as we work through the various line items Again, remember, fair market value of securities was higher this quarter, and the servicing asset impairment write down was lower.
Thomas J. Bell: So we have been trending in that 14 to million dollar range over the last you know, 6 to 8 quarters. So I think that is a good guide for us right now. We are still trying to grow our noninterest income. As we alluded to, wealth management continues to improve. We have our back-to-back our customer swap business is helping us out, and you know, we continue to try and collect fees where we can. Okay. Thanks, Don.
Operator: Okay. Thank you for your questions today. I will now turn the call back over to mister Alberto J. Paracchini for any closing remarks.
Alberto J. Paracchini: Great, Ben. Thank you. Before I wrap up, I would like to recognize an important milestone for us here at Byline. The end of the quarter marked our 13th anniversary as byline and for a lot of people on the call, it was our 9th year as a public company. So thank you to all of you investors that have been investors with us over that ninth across that 9-year period and certainly to all of the analysts on the call and their firms for covering us as public company. We very much appreciate that. And please know that we want to also thank everyone who has been part of our journey and contributed to our success. Along the way. So with that, to everyone on the call, thank you for joining us today. We appreciate your continued interest in Byline, and look forward to talking to you again next quarter.
Operator: This concludes today's call. Thank you for attending, You may now disconnect.
