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Byline Bancorp (BY)

Participants
Allyson Pooley Financial Profiles
Alberto Paracchini President and CEO
Lindsay Corby CFO
Tim Hadro Chief Credit Officer
Terry McEvoy Stephens
Nathan Race Piper Jaffray
Michael Perito KBW
Andrew Liesch Sandler O'Neill
Ebrahim Poonawala Bank of America Merrill Lynch
Brian Martin FIG Partners
Call transcript
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Operator

Good morning and welcome to the First Quarter 2019 Byline Bancorp Incorporated Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would like to now turn the conference over to Allyson Pooley of Financial Profiles. Please go ahead.

Allyson Pooley

Thank you, Jake. thank first joining quarter and the today everyone Bancorp Byline XXXX morning, you us for for Good earnings call. a using discussion be slide part as We'll of this morning. presentation the Byline Events Presentations to the presentation. website visit Please the page of for Investor and access Relations

different we financial future Company's remind are on that condition and any or Bancorp involves call which like of disclaims by this to the materially uncertainties. to expressed to with risks be factors could results to forward-looking Byline statements respect and I'd during cause on Various any website made but available that, future to intended These financial begin, such from update Company discussed implied results the conference Before website. are forward-looking the call. you comparable GAAP SEC contains The measures. statements. and obligation Company's Alberto performance to non-GAAP press President actual the which also measures. as today turn the the to GAAP in directly reconciliation discussed factors With Management and supplement as that Paracchini, be measures non-GAAP refer most the statements the like call The well forward-looking over contains of to available CEO. any the to the to quantitative I'd are not for substitute may filings other information release

Alberto Paracchini

I earnings and With you, all welcome me Thank quarter CFO; Chief Corby, our you call. Lindsay our our Tim Credit appreciate and joining Allyson. Good this are morning of first Hadro; us Officer. morning. to

over you Lindsay our on key highlights this before remind opening start you by passing who I'll will follow our remarks for in good normally I had our back a call closing continued for our on the detail. and the we of that, financial can give our that more of results and the solid questions. of before we our growth, over by comments presentation operating Investor Relations is characterized After that X help of I'll and performance at find stable this practice, a the website. Starting quarter you the with As seasonality year. the to go in the section consistent want quarter performance, Overall, beginning experience credit to come quality can Slide the call discussing with improvement loan morning deck. that

in in or This included also quarter an pleased the environment. write-down as we $X.XX as navigated million important we a merger in we're conversion that with related for property sale. All on a at diluted bumps $XX.X through per held share system well came charges Earnings completed results. and all, and very which some operating our conversion

capital higher level basis Adjusted to to ROAA of earnings amounting diluted points reflects in and points quarter a made in the period, were XXX the adjusted the Company. basis linked the reflecting $X.XX basis was we've which share, $X.XX at higher per With of ago year returns, items revenue in these per adjusted growing XX Excluding respect materially than came but bit at level up share. XX.XX% which the earnings a power came X.XX%. progress ago in ROTCE from lower year of reflective lower

deposit our $XX.X good primarily the from demonstrate contributions remain with with for yields quarter development grew and customer solid banking Business muted activity costs. strong deposit X.X% market. under said, Net interest This This a is higher accretion front, deposits was $XX we small grow the million business. coming at competition somewhat income strong for net On the to preference units. in deposits level these increasing in credit healthy borrowers on expectations. see in reflects competition lower our portfolio. efficiency, consistent growth number our excluding reflective both progress both revenue a Demand came X.XX% stable offs we for for loan to loans with our by loans quarter front, were coming and fees offset and originations in continue expense areas. expectations. time to million with million, and by positive while higher based continue in intense. strong of X%, the to reported and respect by and of our higher average coming just With That basis of for below balances certainty $XXX.X the margin business accrual of to remains commercial a opportunities and pay capital levels remains solid our with On the or at at during

expense accurate picture overall of the our levels prior year the by remain quarter Our points with to operating from more flat which percentage improved adjusted the period X relatively efficiency ratio we've paints ago and a leverage. made improvements

a offs Strategically achieved while with charge our increase net expectations. and stable from NPLs, provision we slight unchanged Asset relatively prior was expense and key quality milestones. line the in our the our with quarter were several quarter in in

I benefits First, we're platform. of project. to colleagues all was undertaking significant into complete the realize our new well to core we a the our of for successfully hard all This work our put and this system want conversion and they thank positioned

Park add with Oak of to Oak Park continue of to low close this shareholders of to organization. welcoming both forward cost acquisition from Forest Bankshares. look River to and important an River Oak with We the And approved about our customers our colleagues remain Park The group a I'll over new quarter. Community combination River to Bank Forest will and which We talented excited we which of forward transaction call us employees of the Second, benefits expect provide pass the this of the to position Byline. we and Lindsay. the Bankshares move enhance with deposits Chicago recently market Forest source that, attract

Lindsay Corby

start Slide will our and on I X, with everyone. lease of review morning, Good Alberto. a Thanks, portfolio. loan

at for net held of billion leases of million a increase $X.X the and March the quarter. loans were from prior $XX.X XXst, end investments total Our

approximately was by of million acquired as a quarter $XXX this million headwind offset decline originated prior had were down Our in a in less this Payoffs increased net, $XX portfolio of quarter. $XXX portfolio. we the in loan payoffs million from approximately million increase our in $XXX

Moving onto at deposit. On Slide X, $X.X XXst. billion deposits March our total $XX to million increased

the bearing new We the Elements impact the non-interest are cost, which saw deposits fluctuation as from the well we property and migration at of deposits as the time commercial CDs into growth Bank on first lower in end flows average of as this low balances balances the quarter. seeing remained other categories the non-interest some customers quarter. an of stable drove had bearing interest-bearing the such in quarter, deposit seasonality into quarter. tax Despite, during bringing

deposit As to dissipates. out seasonality expect we over balance the flows of quarters impact coming the as

our we prior saw, our cost franchise of April are bearing deposits quarter. a favorable in flows landscape growing seasonal in of in more their in growth headwinds we deposit that to despite started direction some to Chicago. points the the competitive balances. focused deposits interest-bearing the on from the the have remain basis far deposit our move seeing commercial customers Due non-interest time increased We rebuild core So as XX to compared

net Slide to margin. discuss interest our I'll income and X, Moving

net for decreased excluded, the margin. recovery was to basis primarily and approximately The points increase from approximately this yield average to costs. in of days in Our loans $X.X offset of X income points quarter, in X.XX%. would net in decrease margin loans loan basis interest cost basis X.XX% yields points points by the previous and net quarter fewer in accretion resulting the a basis income leases of the due the XX CD included points interest X in the accounted from on When and excluding income XX million decreased approximately accretion basis income million. basis X.XX% comp declined that $X.X the leases decline XX quarter. points higher prior while X.XX%, decrease. of on was to also deposits The previous fees assets quarter our by for from decline of our increased net our Accretion decrease, X earning income The impact accretion and lower the accounted contributing points lowered by interest increase a declined basis is X.XX% deposit reported to XX decrease

lower Excluding level and of the and loan the impact recognized, yield leases recoveries quarter. on loans fees the the of lower expanded during slightly

on XXX, revenue income Slide adopted beginning with I non-interest customers contracts to retrospective a at and from Turning modified of ASC that applied to year, note the the approach. a X. we want

reclassified result, card we ATM to current and certain expense income both As non-interest non-interest expenses from debit prior periods. for a

loans was our quarter, net $X.X the reflect revenue from ratios our quarter. of $X.X the the been due gains this in as All drive higher of are to quarters. loans degree not to that of over environment increased value sold. we servicing sales. first government the by non-interest decrease volume In The of rate to impacted loan our in that although mix lower recognition to have the primarily to the income a fees the prior the asset, This a previous This sold on adoption was result average million premiums standard. as a guaranteed same well of decreased adjusted of decline million the reducing experienced continues due interest have prepayment two the

our million fair assets. value recorded with to we quarter. of servicing - the non-interest other quarter, first of Most prior major were the income $X.X adjustments During non reevaluation a stable relatively items reflect

look Moving at our to expense. X, Slide let's non-interest

$XXX,XXX non-interest for first these essentially of sale. expenses include well as total asset Our the an as in quarter. to expense impairment expenses Adjusting system an related related our million amount $X.X modest a on conversion charge was and from for prior unchanged quarter, each merger held core the items quarter of

the by and related fees, regulatory loan expenses this in in seasonal higher assessments. of a lease was saw we impact a offset payroll lower decrease taxes, decrease and While professional

system run acquisition. First have begin we elimination expect to of the Now the full rate from costs conversion, the systems we efficiencies, that of the duplicate Evanston including seeing completed

offset quarter. the related Oak additional However, Bankshares this by will Forest expenses the River to be during Park second

second expect be to expense of of continue XXXX core reflective the rate. more to the ongoing run We half

to we'll a at take look Slide X, Turning asset quality.

balances loans prior increased basis our million $X.X increased end the at guaranteed of primarily prior non-performing to end the assets and non-performing to leases. non-performing the basis points quarter. inflow The into XX points the from total $X.X quarter, at to due Our government from million of assets assets XX and of

they continue approximately points basis guaranteed from declined Despite good problem of XX to as are quarter they each resolving government XXX of a once non-performing status. our assets, total by year to points are same a year. have the percentage were level basis ago. a And as at driven business, last job into NPAs total largely moved We NPAs loans do inflows they

guaranteed points government our ago. XX up end Excluding total from prior year quarter, but basis points were a to basis loans XX XX NPLs, the at non-performing down points the loans of basis from

charge-offs net the loans. in the of prior million related expense XX quarter, unguaranteed basis loans points to coverage average reflecting the and first were quarter. $X.X SBA portion and of quarter were as was leases Charge-offs prior charge-off strong the quarter. same or $X for relatively the primarily from Our for the Provision million, unchanged

The first originated acquired loans. of quarter for for leases, allocations included and $X.X $XXX,XXX $X loans and for non-impaired loans acquired-impaired million provision million

allowance and the basis NPLs total of leases points Our XXX government the quarter quarter, guaranteed our losses points. provision and our portion loan for the to for XX basis basis end the prior excluding loans lease at of was and XX increased coverage from of points first

At to adjustments, a plus to With allowance and accounting lease to call acquisition represented the acquisition metric, addition back of allowance total the the we a traditional basis adjustments XXX I allowance loan impacting analyzed XXst, our pass percentage the In would portfolio. accounting for conjunction loans March losses in lease our and that, of the loan points acquired with and leases. like as Alberto. also

Alberto Paracchini

the an sheet, Thank marketplace. franchise, balance about a employees we In team of position you, for unique a strong outlook optimistic and great a closing, XXXX, our excellent Lindsay. have in of remain we the remainder

customers to system our M&A I evaluate well for during continue the to and as clients employees see to opportunities to the organization on continue as We daily add like serving to basis. for talent would hard and conversion their all a opportunities. thank work

questions. concludes Community Oak the That to Operator, we Bank colleagues River also for to can new Park from welcoming and now Byline. forward look We Forest of our remarks open call our

Operator

ahead. Instructions] Terry with [Operator comes McEvoy go The first from Please question Stephens.

Terry McEvoy

market. were it conversion just Alberto you about operating after talking were bumps prepared you in said remarks the the mentioned your you word, talking was and before right and about you the

something itself? mentioning of you with or were you were talking just the conversion market So kind and bumps some the about

Alberto Paracchini

that Obviously a just you the there you In government first is, thing shutdown. mean, in a was I I heightens know, go those something we that stuff conversion your - happened was - through quarter. other the the and mentioning and always lot of general, we that's focus as had

was operating the So generally just environment I talking the during quarter. just the about -

Terry McEvoy

clearing out occur? for first any of then of And rates from XX I'm deposit done up. done on work has quarter. you've the a funds, not costs Thanks that Fed the in just assuming the kind to points cost here, maybe would that sure on when anticipated in you kind question of peek expect would basis any historical if level raising

Lindsay Corby

of we additional from really of we see what there we In that saw think leveling then it'll And less quarter begin more this leveling do will out, think do albeit increase out. than terms quarter. it an one

rate environment it's right at stays interest now. the where Assuming

Operator

The Please with next Race Piper ahead. Nathan go comes question from Jaffray.

Nathan Race

of the of maybe Lindsay, here. loan first that loan yields fourth and in about should trajectory risen NIM quarter, in Wanted yields saw kind and kind to of then quarter outlook forward? curious start maybe the on going with here down back the about core we just how core from that the the curious we came thinking NIM core core just think the

Lindsay Corby

Sure.

somewhere one-time X, to deck see and between spikes range hovered Nate there to up X.XX% So some that caused what NIM, were the kind the was it then there call that that you between at When core there. recovery on if we've saw our slightly look slide the X.XX% of X.XX% Page you spike you in higher.

take range out, to that that's you think that pretty when going consistent right we and going X% those So it's hovering forward. around be

put - expansion of we'll the that based With here yields balance see slight the loans on loan we'll mix mix. do a slight have do loan see we we forward going forward. going expansion on believe the the yield depending we sheet similar that the that upon But

Nathan Race

gain terms just down if I like just kind on SBA then curious going secondary on fairly And sale at this year-over-year you and premiums of could were guys stable there then looks sequentially, what to ask are point? in just of forward so it more SBA seeing

Alberto Paracchini

If premium remain the remains healthy, market levels attractive.

the call on loans quarter, that sometimes the of I on we a think a add basis the loans we it, little before, - volatility loans level SBA stated that and above you quarter-over-quarter as of USDA that the on a Nate we've mix loans margin like as to on bit sell depending USDA can SBA know, particularly between we premium do loans. don't certain share

but pretty terms and all as of trading, of that loans market So in where the impact in kind remains has an market far as bidding good. activity are all

Nathan Race

quarter? the the OPRF just close ask timing that precise perhaps thoughts the And more close just the could timing I second to when on in maybe expect you if one on of of of any

Alberto Paracchini

the first of the I be would will half quarter, second Nate. the - It in say

in end of April of timeframe. the So mid-May kind the kind of it'll be

Nathan Race

And just operating pretty you by plan when guys the us expense system rate, have XQ imagine Lindsay? then you and convert remind a run should clean to

Lindsay Corby

the - going honestly, to once that first cleanest through. Yes, period it's really quarter everything be flush of Nate XXXX

we're end - now or on fourth. third the right the quarter right plan at So beginning of conversion planning the

Operator

with Perito Michael comes next KBW. ahead. The from question Please go

Michael Perito

NDA Alberto, file maybe deals the closed. I to just Fifth want start Third

updated and a of increased status the of high You disruption? level whether you result the Chicago view new mentioned viewpoint seeing you're of any nature. kind some that lookout of you're us then local the still a just opportunities of market as and maybe give - talent on for that Can stuff an

Alberto Paracchini

pointed and that Mike transaction you closed. as are, out We

both We have as on front as organization. the done other some well lending of the hires in areas

it's would call and as And to So we say talent in in I good from other of have creating so able some we been are customer side that the that well. the there's announcements customer also on advantage are particular continue you not front the marketplace transaction to a sampling. are take market and some just it, There the opportunities see than on been opportunities. disruption the mentioned, also the more

Michael Perito

and that to a stand in But not think your is has creating the the to mean, guys of of about there. And capital be Chicago be three double-digits. from where talk kind moving point just somewhat about acquired. capital And updated at in terms in you lot obviously capital opportunities today we plan small retained growth Byline trend where given could standpoint. on other out quarters probably as ratio? at where And row seems earnings or good I four quarter. maybe still of a still opportunities it a almost capital those quarters recent banks But you're here and can you're your there's bigger it's the head you of was building a forward

Alberto Paracchini

been as if terms been it's as those place But that of nice for evident a because good see while it do people Right expire. takes ROTCE, a to out gives pipelines to flexibility you let not pursue to it front, quite actually get a building people, know it opportunities. Yes, to settle, teams flexibility. certainly us you nicely is from just you to it's you add have that's flexibility you that, what built. which non-solicitation us well point while it we flexibility of having up be the for that Usually look at at immediately when in takes to like - there kind in seeing we're organic creates add gives both now it

perspective - and organically gives our flexibility that us there. to at down there some doing road. But We think M&A I the road. said, obviously adjust flexibility the M&A front that in potentially from also the at it an having being capital So, something but standpoint it's potentially on addition look looking right like down now to

Michael Perito

missed sorry think QX Lindsay maybe lastly I But just in incorporated seasonal of mentioned payroll expenses the if $XX.X it. there salaries slide sound the that kind specific of some little million base that also rate. expense - the you give Can remarks recently. like terms then was where of in Does institution? And you at you kind more rightsizing little you I in expect trend maybe broadly a on though run guys deck in the the bit was your all hiring overall to and in higher stuff expenses a yourselves us commentary speaking about where of activity of see more

Lindsay Corby

So in in regard on in terms here on, there but are and quarters. some of benefits the spot to hirings there start was the that, seeing the subsequent salaries seasonality those you're coming you'll

the also terms QX as conversion systems a to Forest some still little River forward of is Park run will In have closing, go rate. core have well. you'll items the from trailing Bankshares going you just Oak be noisy,

pretty be other team. Forest So Oak little going integration I and Park the a forward similar QX, cleaner expect from of than Bank bit River should to see then Community of the there

change think to beyond. forward but of $XX where at closed yet So $XX to with I'll in in like terms marks throw it's I could you XXXX but here knowing there out going things think hesitant of that and the it exact forward, I'm because range we to we're million if kind and going haven't be go we an give looking of between somewhere and one million long-term terms that

Operator

ahead. The Please next from go question with Liesch Sandler comes Andrew O'Neill.

Andrew Liesch

mean release, there. million Focus commercial the looking the impressive the at about Page up loan originated $XX here on I the X estate some growth some quarter of real that's pretty press in of just growth the

growth? coming just kind also is economic share of the going it but curious curious it I of new on? I First up Is team from then probably gains. And market from. Evanston C&I saw that that's driving what's Just where activity that's this of Is CRE figured lending kind

Alberto Paracchini

of you that a variables Yes, Andrew. of bit little I the all mentioned think there,

at don't net, bit came and lower The that little I at so be if looking looking we to higher, this that you're in we obviously quarter a a lower gross at we certainly assuming - commented payoffs pay-ups other thing were or as than they net quarter but is, know surprised helped. last bit were you're expecting

team then combination on So well the our banking continues on on side I the SBC all commercial business. and good to to commercial of the spot think a certainly it's see opportunities of continues grow and is, you're you front, above to just do have lending the

commercial more lending. it, the as that as just component real it's have commercial commercial would on opposed occupied is there you well nature CRE thing owner as I in not an which estate view side, Another estate to true real call

Andrew Liesch

okay. Certainly,

Tim Hadro

in bit I have doing business. would last we our that source a in financing add now and in terms industrial thing of warehouse the in originations, real past, terms of one type more than product are we estate just the distribution a significant we couple little quarters, commercial had of new pivoted been has

Andrew Liesch

do the handy we have FDIC what then amount And quarter credit this the of was?

Lindsay Corby

really touched to all you it'll FDIC basically we what depending saw is then here out that about that the we essentially nothing at that. through once back to get calculate hover various in the range $XXX,XXX this on just $XXX,XXX of it factors quarter and here So,

Operator

ahead. of Merrill comes America with go The Bank Ebrahim next Lynch. Please from Poonawala question

Ebrahim Poonawala

prospects quick release that see going in if What that. disclosed end you've question for was balance So the just quarter book I not color a around one, at just sure forward? like sponsor I'm the the growth of think the and didn't book

Lindsay Corby

We didn't there. in that include have... We'll

Ebrahim Poonawala

quarter million you mentioned had But last $XXX here?

Lindsay Corby

I lot Yes. some but mean, And of... consistent. whole has there pay a been it's not downs pretty

Alberto Paracchini

end in muted level, of as the Ebi, Ebi just around the first I activity quarter. $XXX back, hovering Still business take to would that in set be book of stood and tends the business actually the at quarter is say that pretty usually million

looking first their the what what - figuring saying in right I to looking out do and was portfolio Activity they're then they quarter, around want people going you previous typically with was where to just it quarter. have opportunities. portfolios the companies as at muted tends at to and additional So more be

there, a lot swing conversations at space our - seeing opting to So have seeing time. the we you we're to opportune in through anticipate - activity getting good a you of know business and it's that. we're lot plod that's of at business - We're a as good a good where PATs transactions and

Ebrahim Poonawala

And just share transaction I'm I updated us the close both think foreign the could other disruption your the terms target the market coming of end separately personnel thoughts about of this think on there? to changes some the consolidate some deals of you including love mentioned assuming pipeline opportunities would M&A, markets, and at But M&A of the in acquire? remind just you trying market of lenders some I the and it's from banks get I if like think. would you market but share all kind you to size potential in to the one, that of once

Alberto Paracchini

we've target opportunities what billion, I of XX the billion. Yes. local terms Chicago would Greater for there's that's Chicago steady Greater essentially the you somewhere kind remain Ebi. MSA. be of we Chicago pointed And of about between kind million $X And are institutions XX, out, on $XXX previously there, - pretty the that And that sweet to us. MSA, hovering as all Greater and spot in Correct commented the about in - think it's, $X.X

Operator

next The ahead. Instructions] comes from go FIG question Partners. Brian [Operator with Martin Please

Brian Martin

or much quarter? that see it impact government it guys in what we the at on was as was the this there given impacted - of you business was talk, SBA just looked with Alberto, that the numbers an not can you shutdown

Alberto Paracchini

of to really being to our there really. - had end our much. is Not able able day business potential that do the things And, to team the it it anticipate but we at those of - up - were ended was during of It one I impact so really that not had period. didn't - kind in what it all, that well all the

Brian Martin

the I just the one to of of kind make income for Lindsay, numbers. want And kind just outlook. then the at sure on maybe big picture on just fee looking

guess run would quarter, guess level went of kind at If fees and of deal the just I how you couple look value going fair think Park look at quarter. rate at you MSR in the securities best outside of Just the it of of I items then on the forward? core adjustment thinking that the the to the what the - the Oak this is, that of through kind equity broadly about valuation

Lindsay Corby

outside So servicing assets. Park less that deal, the the prior than in this Oak seasonality of income we be of terms of have always that didn't so we the standpoint two to an on a in dip was do Brian see there, some from expected fee take of We impairment quarter quarters.

news So stabilizing. that see good do was that's and we

think first this non-interest think year. going you think on the our typical that's environment dip rising you'll to I forward, the it is, performance I factored all income equal So but there that happens things saw going ultimately slowly ends of - throughout rate that interest in is quarter then where and consistent and stabilize to multiple we that by is inputs depending And see what here on the terms pretty what quarter. assuming here in outlook for

Brian Martin

is you're the seeing on guess payoffs just about too this as guess loan any the the trends it things was year the thing and maybe quarter far going being then sounds payoffs? just it's bit of or other the around think you that's surprise wild I - two the And like I - is a a - a - that it was the unknown of balance forward the on way slowing but payoffs card as

Alberto Paracchini

the we forced just got that higher than - for what reason would we these are these we we payoffs that were expecting would we will some be quarter. payoffs cases I mean saw in Again another known that No, sense that were expect were continue surprised or this one in out.

then we anticipate that those think a see others and remains think we - or and will I view mean us our - perhaps it's the second I but that robust quarter that's later I activity in So impacting the marketplace. perhaps there. that's not headwind in changing we're

Brian Martin

And lower trend kind talked know was though that offer of all kind don't it margin what and else was thoughts on can if about and kind equal you whatever to flows the anything from of what's the what of the we is of seems core through just but broadly - on Evanston versus guys accelerated the I versus you me think maybe more legacy about last the you schedule definitely Lindsay, the think about the just how it accretion have was scheduled just, helpful. kind how that just but would one or accelerated all be how what's

Lindsay Corby

So tell one performance with the whatever thing depending you portfolio. tell it's I will ebb and you of flow will the I it on perfect as not and the accretion that

So, the it that slowing, this $X.X here did you're and is at Brian right all the in quarter done million past. again that legacy this see we is acquisitions we've

so that is give other going I a our here, a if like of I it it include you Bank quarter or scheduled Community River the going from - view because XXX little this so recovery expected that somewhere I'd to Forest. of And that's there does Brian here but flow say Oak move accretion between ebb and Park is but we - again, scheduling a hesitation standpoint, things and can forward can X,XXX with bit forward per not

here you and quarter here more the into and that. we're going closing we'll on next updates the have finalizing in So for marks

Operator

like would I remarks. turn answer-session. over for conference question-and any to our closing to concludes back the management This

Alberto Paracchini

you. in for Byline. you forward joining Jake. and with again for Great. quarter. look interest you, to next today We speaking you us Thank Thank all Thank your

Operator

for conference presentation. attending has you Thank The today's now concluded.

You may now disconnect.