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Edited Transcript of BY.N earnings conference call or presentation 26-Jul-19 2:00pm GMT

Q2 2019 Byline Bancorp Inc Earnings Call

CHICAGO Aug 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Byline Bancorp Inc earnings conference call or presentation Friday, July 26, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alberto J. Paracchini

Byline Bancorp, Inc. - President, CEO & Director

* Lindsay Y. Corby

Byline Bancorp, Inc. - Executive VP & CFO

* Timothy C. Hadro

Byline Bancorp, Inc. - Advisor

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Conference Call Participants

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* Andrew Brian Liesch

Sandler O'Neill + Partners, L.P., Research Division - MD

* Brian Joseph Martin

FIG Partners, LLC, Research Division - Former VP & Research Analyst

* Brian Joseph Martin

Janney Montgomery Scott LLC, Research Division - Director of Banks and Thrifts

* Michael Perito

Keefe, Bruyette, & Woods, Inc., Research Division - Analyst

* Nathan James Race

Piper Jaffray Companies, Research Division - VP & Senior Research Analyst

* Terence James McEvoy

Stephens Inc., Research Division - MD and Research Analyst

* Tony Rossi

Financial Profiles, Inc. - SVP

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Presentation

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Operator [1]

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Good morning, and welcome to the Byline Bancorp Inc. Second Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Tony Rossi, from Financial Profiles. Please, go ahead.

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Tony Rossi, Financial Profiles, Inc. - SVP [2]

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Thank you, Brandon. Good morning, everyone, and thank you for joining us today for the Byline Bancorp Second Quarter 2019 Earnings Call. We will be using a slide presentation as part of our discussion this morning. Please visit the Events and Presentations page of Byline's Investor Relations website for access to the presentation.

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

And with that, I'd like to turn the call over to Alberto Paracchini, President and CEO. Alberto?

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Alberto J. Paracchini, Byline Bancorp, Inc. - President, CEO & Director [3]

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Thank you, Tony. Good morning, and welcome to our second quarter earnings call. I appreciate all of you joining us this morning. As usual, with me are Lindsay Corby, our CFO; and Tim Hadro, our Chief Credit Officer.

I'll start the call this morning with an overview of our performance and give you key highlights for the quarter before passing the call over to Lindsay, who will go over the financial results in more detail. I will come back with closing remarks before opening the call up for questions. As a reminder, you can follow our comments this morning with the help of a deck that you can find in the Investor Relations section of our website.

Moving on to Slide 3 on that deck. We delivered another good quarter driven by positive trends in a number of key areas. We had solid loan growth, saw the margin expand nicely from the first quarter, had a strong quarter of noninterest income and continued to see improvement in our efficiency ratio. We also completed our acquisition of Oak Park River Forest Bankshares and have begun to see the initial benefits of that transaction. Earnings came in at $13.2 million or $0.34 per diluted share, which included conversion and merger related expenses. Excluding these items, amounting to $0.07 per share, adjusted earnings were $0.41 per diluted share. Our returns continue to improve. On an adjusted basis, ROA was 121 basis points, up from 110 basis points in the year-ago period. ROATCE came in at 13.44%, up from slightly higher than 11% last year. And our pretax preparation ROA was 215 basis points, up 14 basis points from the year-ago period. Overall, revenue increased 10.6% for the first quarter with good balance between spread and fee income categories. Our net interest income increased 8.7% from the prior quarter, reflecting the impact of both the acquisition and organic growth. Our net interest margin expanded by 14 basis points, excluding accretion income reflecting higher yields on loans and securities offset by deposit costs that moderated from the prior quarter. From a business perspective, loans were up 8.29% for the quarter and 15.3% on a year-over-year basis. We saw good growth in the C&I category offset by higher payoff activity in CRE. The market remains competitive in both C&I and CRE. Notwithstanding, we continue to see good opportunities to acquire customers and talent. I will provide additional commentary on this point during the closing remarks.

On the deposit front, our total deposits increased $251.7 million and stood at just under $4.1 billion at the end of the quarter. Deposit costs moderated from the prior quarter increasing by 5 basis points compared to 12 basis points in the first quarter. With respect to our efficiency, we continued to demonstrate solid progress as reflected by both an improving efficiency ratio and the level of noninterest expense to average assets, adjusted for acquisition and merger related expenses. Our overall expense levels increased from the prior quarter due primarily to the addition of Oak Park River Forest, but this increase was more than offset by our growth in revenue.

On an adjusted basis, our efficiency ratio improved to 56% in the second quarter, down from just under 60% in the previous quarter. And more meaningfully, we had a 7 percentage point reduction from the same period last year. Looking at asset quality, our NPLs increased by 10 basis points for the quarter, largely stemming from our government-guaranteed business as we experience higher inflows and lower resolution activity for the quarter. Net charge-offs remained stable at 25 basis points, and our allowance for loan and lease losses increased by 5 basis points from the previous quarter.

With that, I'd like to pass the call over to Lindsay.

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Lindsay Y. Corby, Byline Bancorp, Inc. - Executive VP & CFO [4]

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Thanks, Alberto. I will start on Slide 4 with the review of our loan and lease portfolio. Our total loans and leases were $3.9 billion at June 30, a net increase of $296 million or 8.3% from the prior quarter. The increase in total loans and leases was primarily due to the acquisition.

Our originated loan portfolio increased approximately $97 million net. Most of the growth came in our C&I and government-guaranteed portfolio, which was up $92 million in the quarter. Our acquired portfolio increased $198.8 million as a result of the acquisition and offset by expected payoffs and pay downs of this category.

Overall, we saw higher payoffs this quarter at $136 million versus $82 million in the prior quarter.

Moving to deposits. On Slide 5, our total deposits increased $252 million to $4.1 billion at June 30 primarily due to the impact of the acquisition. We look to average deposit balances as period end balances typically fluctuate. Excluding the deposits assumed in the acquisition, average deposits grew by $97.6 million or 10.4% annualized growth. And average noninterest-bearing DDA growth was $16.8 million or 5.7% for the quarter. The organic growth in average deposits and the core deposits added from the acquisition helped to offset the increase in deposit costs for the quarter. Our total deposit costs increased 5 basis points, which is down from the 12 basis point increase we saw last quarter.

Similarly, in our cost of interest-bearing deposits, we saw an increase of 7 basis points this quarter, down from 18 basis points in the prior quarter.

Moving to Slide 6. Net interest income and margin. Our net interest income increased $4.4 million, this was the result of the partial quarter impact of the acquisition as well as the organic growth in our loan and lease portfolio. Our net interest margin increased 8 basis points to 4.51% in the second quarter, despite a smaller contribution from accretion income. Accretion income contributed 40 basis points to the margin in the second quarter, down from 46 basis points last quarter. Excluding accretion income, our net interest margin increased 14 basis points to 4.11%. The increase was primarily due to the impact of higher yielding loans added from Oak Park River Forest as well as strong growth in our portfolio of government-guaranteed loans, which also carry higher yields.

The yields on loans and leases excluding accretion income increased to 5.77% from 5.59% in the previous quarter. The improvement in average loans and lease yields more than offset the increase in our deposits this quarter.

Turning to noninterest income on Slide 7. In the second quarter, our noninterest income increased by $2.2 million or 18.3% from the prior quarter, which included approximately $1 million in gains on security sales as a result of some repositioning we did in the investment portfolio. The remainder of the increase was primarily due to a $1.2 million increase in our net gain in government-guaranteed loan sales. We sold $75.2 million of government-guaranteed loans during the second quarter compared with $66.2 million of loans in the prior quarter. We had a higher percentage of USDA loans within our overall mix of loans sold than last quarter. This resulted in a more favorable mix that positively impacted our average premium. Due to the higher prepayment fees, we recorded an additional $1.2 million fair value adjustment of our servicing assets, which had approximately the same impact on our noninterest income last quarter.

Moving to Slide 8. Let's look at our noninterest expense. Our second quarter expenses included $3.2 million in merger related expense and $394,000 in core system conversion expense.

Adjusting for these items in both periods as well as the impairment charge on an asset held for sale last quarter, our noninterest expense increased $1.7 million from the prior quarter. The primary driver of these increases was the addition of personnel from Oak Park River Forest, this was partially offset by lower payroll taxes. Our regulatory assessment expense also returned to a more normalized level, following the credit we recognized in the first quarter. With a full quarter of recognizing the expense savings from our system conversions, we are beginning to see more projected synergies for the First Evanston acquisition being realized. Our priority over the second half of the year is integrating Oak Park River Forest, which should put us in a good position to realize the remainder of the efficiencies by 2020. We remain on track with our expectations of cost savings.

Turning to Slide 9. We'll take a look at asset quality. Our nonperforming assets increased to 83 basis points of total assets from 70 basis points at the end of the prior quarter. Due to higher nonperforming loans and leases and the addition of OREO properties largely coming from both our government-guaranteed lending business and the acquisition of Oak Park River Forest.

Our nonperforming assets included $4.7 million of government-guaranteed loan balances and $1.5 million of government-guaranteed OREO balances as of June 30. The new inflow into nonperforming loans and leases was largely comprised of loans from the government-guaranteed business. Excluding government-guaranteed NPLs, our nonperforming loans to total loans ratio was 82 basis points, up from 71 basis points at the end of the prior quarter. Our net charge-offs were $2.4 million or 25 basis points of average loans and leases for the quarter, approximately the same level as in the prior quarter. During the quarter, our provision expense was $6.4 million, which covered charge-offs and resulted in an increase in our allowance for loan loss. The increase was primarily driven by 3 factors. First, we provisioned for specific impairments in the unguaranteed portion of the government-guaranteed portfolio. Second, we increased our general reserves due to growth. And third, we were seeing higher migration of acquired nonimpaired loans as a result of renewals, which results in moving them into the originated loan portfolio and accounting for them in our general reserve. Specifically, the second quarter provision included allocations of $3.3 million for originated loans and leases, $2.5 million for acquired nonimpaired loans, and $525,000 for acquired impaired loans.

Our provision for the second quarter increased our allowance for loan and lease losses to 81 basis points of total loans and leases from 76 basis points at the end of the prior quarter. And our coverage of NPLs, excluding the government-guaranteed portion was 98%. In addition to the traditional allowances of percentage of loan and lease metrics, we also analyzed the allowance in conjunction with the acquisition accounting adjustments impacting our acquired portfolio. At June 30, the acquisition accounting adjustment plus our allowance for loan and lease losses represented 175 basis points of total loans and leases.

With that, I would like to pass the call back to Alberto.

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Alberto J. Paracchini, Byline Bancorp, Inc. - President, CEO & Director [5]

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Thank you, Lindsay. In closing, I'd like to provide you with additional comments on the market environment, our positioning and some of the previously announced leadership changes.

As far as the environment is concerned, we continue to see good opportunities to acquire new customers and selectively add quality employees to the company. We have recently added employees in both revenue and non-revenue generating areas. We believe we have an attractive platform for both customers and employees who value doing business with a local institution that is nimble but with the size and capital strength needed to compete in the marketplace. With respect to the recently announced leadership changes, one of our goals as a company is to have the talent in place that allow for smooth transitions to take place when we have executive departures. We had one instance occur during the second quarter, with Bruce Lammers announcing his retirement. This week, we also announced that Tim would be retiring and stepping down from his position as Chief Credit Officer at the end of the month. In both cases, we've had talent in place, thereby allowing for continuity in both areas. Tom Abraham, took over leadership of our government-guaranteed lending business, Tom has been with the predecessor company since 2006 and has over 30 years of industry experience. With Tom's leadership, we're confident in the direction of our business, which, for the first half of the year, was ranked as the 5th largest SBA lender nationally and #1 in both Illinois and Wisconsin. Tim will be succeeded as Chief Credit Officer by Owen Beacom effective on July 31. Owen joined us as part of the First Evanston acquisition, where he served as their Chief Lending Officer. He has more than 35 years of experience working in the Chicago banking industry and has a strong understanding of our markets and customer base. Since joining Byline, Owen has served as Deputy Chief Credit Officer and has worked closely with Tim in anticipation of his eventual retirement. He's well prepared to lead our credit administration functions as we continue to grow over the coming years.

I want to take a moment to thank Tim for his leadership and service to the company. Tim has been with us since day one and before, and it's been a privilege to have had the opportunity to work with him over the past 6 years.

With that, operator, I'd like to open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Nathan Race with Piper Jaffray.

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Nathan James Race, Piper Jaffray Companies, Research Division - VP & Senior Research Analyst [2]

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Maybe just start on kind of the loan growth outlook from here. It looks like payoffs were obviously higher in the quarter. Production stepped up noticeably. So just curious maybe what you're seeing from a payoff perspective thus far in 3Q and if that kind of strong production that we saw here in 2Q was also looking like it'll manifest itself in terms of mid-to high single-digit loan growth continuing.

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Alberto J. Paracchini, Byline Bancorp, Inc. - President, CEO & Director [3]

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Yes. I would say, Nate, still in the same range, mid-to high single-digit, what could temper it from, call it, the high single-digit range to the mid-single-digit range would be payoffs and that is a bit of a wildcard as you well know. We saw higher payoffs this quarter, particularly coming from the CRE side of the business, and we don't see the factors there really changing at this point. So I would say, still the mid-to high single-digits. And to the degree that that's tempered a bit, I would say, it would be really stemming from payoffs in -- particularly coming from the CRE book.

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Nathan James Race, Piper Jaffray Companies, Research Division - VP & Senior Research Analyst [4]

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Got you. And then perhaps just in terms of loan pricing, curious may be where you're putting new loans on the portfolio today. Obviously, the increase in SBA production helped loan yields increase on a core basis. And so I'm just curious to know, with the July fed rate cut, how we should think about the core loan yields trajectory into 3Q, and then just overall thoughts on maybe how the core NIM is going to inflect as well.

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Lindsay Y. Corby, Byline Bancorp, Inc. - Executive VP & CFO [5]

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Sure. So you did see some nice expansion there in the NIM. And that was obviously driven primarily from the fact that the loans were coming on at slightly higher rates for 2 factors, Nate. One was the acquisition of Oak Park, their yields are higher than ours. And also, the yields stemming from the government-guaranteed portfolio, those also tend to be higher. So it was the mix really this quarter that tended to drive that increase in the yield. We do think, here with the rate environment, that you will see some pressure there going forward on our floating rate assets. So in terms of the long-term outlook with the NIM, I would say, it's going to -- it's going to compress here a little bit in the second quarter just given the rate environment and the falling rates. So depending on what happens next week, we'll see what the outlook is and what the remainder of the quarter looks like, but we do think that we'll hover right around that 4% range, Nate, as we have in the past, give or take.

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Nathan James Race, Piper Jaffray Companies, Research Division - VP & Senior Research Analyst [6]

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Okay, that's very helpful. I appreciate that, Lindsay. And then if I could just ask one more on credit. It seems like part of the provision increase this quarter was tied to some of the non-government-guaranteed loan nonaccruals increasing [the course]. So just curious maybe what you're seeing from an asset quality perspective within the SBA portfolio and perhaps just broadly.

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Alberto J. Paracchini, Byline Bancorp, Inc. - President, CEO & Director [7]

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Yes. I think, in general, 2 things from the SBA portfolio. That's, as you well know, it's a portfolio. It's a higher risk business. In general, we're lending to companies that are going the route of a government-guaranteed loan because of the fact that they don't qualify for conventional financing. So that's a business that typically will carry higher nonperforming loans as just a standard part of the business. What we saw this quarter was 2 things. I mean inflows were probably a bit higher in that business. Nothing that I would say would be coming from any particular segment or any particular type. There was good granularity. I mean these are not very large loans as a whole. And then, coupled with the fact that we did see lower resolution activity for the quarter. So net-net, we saw an increase. An area of focus for us really is on the resolution side and making sure that -- sometimes timing is your enemy, and there you don't control timing all the time. But certainly making sure that we continue to manage the resolution process effectively and to essentially moderate the growth in NPLs.

As far as the rest of the portfolio, generally, we didn't see anything -- hardly anything in terms of inflows into NPLs. And overall, I would say credit quality in the book as a whole remains solid. So I guess, I don't know, Tim, if you have anything else that you want to add.

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Timothy C. Hadro, Byline Bancorp, Inc. - Advisor [8]

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No, I'd just -- I would only reinforce the level of NPLs is a function of the inflows and outflows. And it's the outflows -- the inflows have been pretty much, as you said, a little higher than we anticipated but not that much. The outflows, which is, to a certain degree, controllable, have been disappointing in the last couple quarters. And I think it's an opportunity to improve, and we can focus on that going forward.

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Nathan James Race, Piper Jaffray Companies, Research Division - VP & Senior Research Analyst [9]

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Okay great. I appreciate the color. And congratulations on your retirement, Tim.

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Timothy C. Hadro, Byline Bancorp, Inc. - Advisor [10]

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Thank you.

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Operator [11]

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Our next question comes from Terry McEvoy with Stephens.

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Terence James McEvoy, Stephens Inc., Research Division - MD and Research Analyst [12]

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Alberto, you mentioned some hiring -- some recent hires that will contribute to future revenue. I'm wondering if you'd be a little more specific in terms of what areas within the bank you have made some additions.

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Alberto J. Paracchini, Byline Bancorp, Inc. - President, CEO & Director [13]

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Sure. So Terry, I would say, on the revenue generation side, we've added bankers in C&I, we've added a couple of bankers in CRE, and we probably still have some incremental hires that we'll be looking to make here this quarter. In addition, to those revenue-generating areas, we've added talent in other areas of the company. So for example, we have a new General Counsel that joined us recently. He came from the former MB Financial. And we've added folks in different functions of the organization such as compliance and other parts of the bank. But on the -- to your specific question on the revenue-generating front, we've been selective, but we've had good success in adding really high quality individuals to the organization that we think will have -- will make good contributions going forward.

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Terence James McEvoy, Stephens Inc., Research Division - MD and Research Analyst [14]

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And then, Lindsay, just a follow-up for you on Nate's question. I was hoping you'd be a little bit more specific on the margin, I know you said around 4%, but it's kind of 4.10% ex accretion this quarter. So maybe, I guess, my question is, if we get a rate cut of 25 basis points, what would be, on a core basis, your thoughts around the margin impact?

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Lindsay Y. Corby, Byline Bancorp, Inc. - Executive VP & CFO [15]

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Sure. So in terms of a 25 basis point decrease, we look at it that it'll be less than $1 million in terms of our static net interest income. But I think, that will be offset Terry, by volume. So I don't see necessarily that our net interest income in terms of the aggregate dollars to be going down because of that. In terms of the actual NIM percentage, yes, it'll come down a little bit, but again, it's going to depend on deposit pricing and competitive dynamics here in the market and what we can do responding to that. We want to make sure we're doing right by our customers and offering appropriate rates.

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Operator [16]

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Our next question comes from Michael Perito with KBW.

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Michael Perito, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [17]

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Tim, good luck in your retirement as well. I wanted to start on expenses. I think, last quarter, Lindsay, you said $42 million to $44 million was a decent run rate in the back half of the year and maybe moving into 2020 as well. And I guess with the second quarter under your belt now and the deal closed in early July, is that -- does that number still hold? Do you have a better sense of where in that range you might fall? And any other color you're willing to offer on the expense outlook would be helpful.

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Lindsay Y. Corby, Byline Bancorp, Inc. - Executive VP & CFO [18]

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Sure. So I think that range really still holds, Mike. We've obviously done some hiring, and we're continuing to do some hiring. So I'd say, there is a chance that it would be on the higher end, in my view, depending on how successful we are in that adventure -- in the ventures that Alberto was talking about in terms of hiring new lenders.

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Alberto J. Paracchini, Byline Bancorp, Inc. - President, CEO & Director [19]

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Yes Mike, and I would say, tackling that on, I mean these are -- to the degree that we continue to see good opportunities to add quality bankers, we will do that. So to Lindsay's point, if that costs us, we're certainly very willing to make those investments because we're pretty confident in the fact that they will more than pay off for themselves in the future.

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Michael Perito, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [20]

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Got it. Helpful. And then, Alberto, any -- we talked about the SBA business on the credit side. But just on kind of the production side, what do the pipelines look like there moving forward?

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Alberto J. Paracchini, Byline Bancorp, Inc. - President, CEO & Director [21]

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Pipelines remains pretty solid on the SBA side. I think the only commentary is we're probably caring it's -- we're probably carrying a pipeline that's, today, probably slightly smaller than what we've carried in the past. I don't view that as an indication of business activity but rather a function of I think we've gotten more efficient in, call it, closing loans, and our processes have continued to improve. So therefore, we can, call it, carry less pending inventories, so to speak, in order to generate more production out of that unit. But as far as how does that translate? How does that comment translate into future business? I think we feel pretty good about where we are with respect to that business, the level of originations and the level of anticipated fundings here for the rest of the year.

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Michael Perito, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [22]

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Helpful. And then just lastly, also Alberto, I was looking for a comment on your M&A outlook and appetite for further deals?

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Alberto J. Paracchini, Byline Bancorp, Inc. - President, CEO & Director [23]

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Yes. I mean, I think, activity probably in terms of the typical conversations and the typical chatter that takes place, I think has been probably similar to what it was last quarter. I think, price expectations, there's probably still some gap, I know you've seen some transactions here being announced locally here in Chicago in the last day or so, in the last couple of days, which maybe is an indication that price expectations between sellers and where buyers can effectively be willing to transact, maybe those are coming down a bit. But I think it's -- the level of conversations has remained at a level that I would say has been very comparable to the last quarter, last couple of quarters.

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Operator [24]

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(Operator Instructions) Our next question comes from Andrew Liesch with Sandler O'Neill.

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Andrew Brian Liesch, Sandler O'Neill + Partners, L.P., Research Division - MD [25]

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Sorry to keep going back to the margin here. But I'm just kind of curious what deposit pricing dynamics you've seen in Chicago. I know that you guys have had your campaigns that you've been running in -- if there's any sort of relief in the Chicago area and what that could mean for you guys to lower rates yet still bring in good deposit growth.

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Lindsay Y. Corby, Byline Bancorp, Inc. - Executive VP & CFO [26]

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Yes. We've seen it to remain competitive here in the market. I would say, we've seen some relief on the CD side, Andrew, and that's really where the relief has been coming from, if at all. So it's a very competitive and dynamic marketplace, and we'll see what happens with rates here. But we tend to keep our duration low so that we can take advantage of repricing. So depending on what happens next week and what the outlook is, we do think that there's some opportunity there for some relief from a cost of deposit standpoint.

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Alberto J. Paracchini, Byline Bancorp, Inc. - President, CEO & Director [27]

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Yes. Andrew, I would add -- I would say, I think it was you who asked the question last quarter, and I think our answer to that question at that time was let's see what happens. I think rates -- the market has anticipated rates coming down, we'll see what happens with the Fed here shortly. But I think there's been -- the environment remains competitive, but I think the intensity of that competition has eased somewhat. I don't want to say that it's -- we're back to levels where there's -- competition is muted or anything like that. But I think the intensity of that competitive environment has eased somewhat as people are reacting in anticipation and in reaction to the fact that overall rates are lower and there is an expectation that the Fed is going to do something. And I think we've seen some of that, I thought we managed well our position this quarter with the portfolio. And I think we took advantage of some flexibility that we received with the closing of [Veterans Action]. And we anticipated well in terms of where to price deposits and where to ease up while still managing pretty good average balance growth for the quarter. So I think, let's see where rates go from here, let's see what the rate does -- what the Fed does, I think some folks pay attention to that as a barometer. And to the degree that, that has an impact in terms of how they view pricing, then I think the market overall will react.

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Andrew Brian Liesch, Sandler O'Neill + Partners, L.P., Research Division - MD [28]

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Got you. That's really helpful commentary. You guys have covered all my other questions. Tim, congrats on the retirement, and I think it's probably a good thing that we haven't had to ask you too many questions over the years. So, thank you.

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Timothy C. Hadro, Byline Bancorp, Inc. - Advisor [29]

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That's my definition of a successful earnings call is when I do not have to speak.

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Andrew Brian Liesch, Sandler O'Neill + Partners, L.P., Research Division - MD [30]

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Right. Right. Well, congratulations.

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Timothy C. Hadro, Byline Bancorp, Inc. - Advisor [31]

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Thank you. It's better -- I prefer congratulations than good luck because that makes me nervous about retiring.

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Operator [32]

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Our next question comes from Brian Martin with Janney.

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Brian Joseph Martin, FIG Partners, LLC, Research Division - Former VP & Research Analyst [33]

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Just a couple follow-ups. Lindsay or Alberto, just the -- remind me the percentage of your variable rate loans. Or percentage of loans that are variable rate are kind of tied to LIBOR today, any just ballpark where that's at?

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Lindsay Y. Corby, Byline Bancorp, Inc. - Executive VP & CFO [34]

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Sure. So in terms of LIBOR of the total portfolio, it's around 1/4 of the portfolio that's tied to LIBOR. And then in terms of our variable rate for -- it's about -- a little over half, it's about 54%.

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Brian Joseph Martin, FIG Partners, LLC, Research Division - Former VP & Research Analyst [35]

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54%. Okay. And then just on the funding side. I guess as you see the impact of if the Fed does cut, I mean how -- I guess, to the earlier question on funding, I guess are there certain deposits that are indexed? Or it's just all going to be active management on your part and trying to offset the impact of a rate cut?

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Lindsay Y. Corby, Byline Bancorp, Inc. - Executive VP & CFO [36]

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No. It's primarily active management, Brian.

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Brian Joseph Martin, FIG Partners, LLC, Research Division - Former VP & Research Analyst [37]

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Okay. All right. And then I guess have you -- I guess, I -- I guess, well, let me just go on to the next one. I guess are you seeing -- just to your point on M&A, I guess, are you guys seeing more opportunity today given the disruption in the market for kind of lift outs in hiring? Is it as you're kind of suggesting here? Or is it more -- are you seeing more from a whole bank type of transaction when you look at the landscape today?

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Alberto J. Paracchini, Byline Bancorp, Inc. - President, CEO & Director [38]

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I think we're pursuing -- I would tell you, I think our strategy has not changed. I think the answer to that would be both. Obviously, with -- what has changed is the environment in terms of the opportunity to hire good people has certainly -- that part of the equation we've seen, because of some of the recent disruptions in the marketplace, it's opened up opportunities to really add on really talented individuals, and we've taken advantage of that. But overall, the overarching strategy remains the same. I think, when you look at, from an M&A perspective, the number of targets, I think there's kind of 43 institutions that are within that kind of target segment of $300 million to roughly about $3 billion here in Chicago, and then at the higher end there's really not that many. So that skews the number towards kind of -- the numbers down a bit from the higher end. But that's been our kind of target segment since inception, and I think the opportunities are and will be there in the future.

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Brian Joseph Martin, FIG Partners, LLC, Research Division - Former VP & Research Analyst [39]

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Okay. Perfect. And last 2, just with Oak Park done now, I guess the assumption is that you guys are -- would be ready or kind of open for business on M&A if there were opportunities. That's fair to think about it?

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Alberto J. Paracchini, Byline Bancorp, Inc. - President, CEO & Director [40]

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Yes. I think that's fair.

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Brian Joseph Martin, FIG Partners, LLC, Research Division - Former VP & Research Analyst [41]

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Okay. And then just Lindsay, if you'd hazard any commentary on the purchase accounting? If you could offer anything there that'd be helpful, and that's it for me.

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Lindsay Y. Corby, Byline Bancorp, Inc. - Executive VP & CFO [42]

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In terms of the purchase accounting for Oak Park?

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Brian Joseph Martin, FIG Partners, LLC, Research Division - Former VP & Research Analyst [43]

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No, just in general. Just in aggregate, kind of the outlook.

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Lindsay Y. Corby, Byline Bancorp, Inc. - Executive VP & CFO [44]

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Yes, outlook. So I think our outlook really hasn't changed too much. We added additional accretion, obviously, from Community Bank of Oak Park, I think that's you're hinting at, right, Brian?

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Brian Joseph Martin, FIG Partners, LLC, Research Division - Former VP & Research Analyst [45]

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Yes, just kind of -- I guess it should trend lower from here given the impact we saw...

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Lindsay Y. Corby, Byline Bancorp, Inc. - Executive VP & CFO [46]

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Correct. It'll continue to stair-step down. The range I gave you, I think is fair. It'll be a little higher here in the beginning. Typically, when you add a transaction on, the accretion runs off faster in the beginning, Brian, so -- and then it slows down from there.

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Operator [47]

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I'm showing no further questions. I would like to turn the conference back over to management for any closing remarks.

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Alberto J. Paracchini, Byline Bancorp, Inc. - President, CEO & Director [48]

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Thank you, operator. I just want to take a moment, again, to thank Tim for his years of service. It's really been a privilege to know and to have worked with Tim over all these years, and we look forward to continuing to have Tim involved as an adviser now as opposed to the Chief Credit Officer. But our relationship will certainly continue. So I just want to acknowledge that and thank Tim once again. And with that, I want to thank you for dialing in this morning and participating on the call. And thank you for your interest in Byline, and we will talk to you again next quarter. And with that, operator, I'll pass the call over back to you.

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Operator [49]

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