Adam Kroll

Adam Kroll from Piper Sandler asked for an update on Byline Bancorp's M&A strategy and capital management priorities, especially given increased activity in the Midwest and strong capital build. He also inquired about the estimated financial impact of crossing the $10 billion asset threshold (Durbin Amendment and FDIC costs) and the specific effects of the government shutdown on the SBA lending business, particularly gain on sale income.

Answer

Alberto Paracchini (President) stated that Byline is open to disciplined M&A opportunities in the market, consistent with past transactions that deliver shareholder value. He reiterated capital priorities: funding organic growth, opportunistic M&A, stable dividend, and a buyback safety valve. He estimated the Durbin and FDIC impact at $4.5 million-$5 million, effective in 2027. Regarding the SBA shutdown, he explained that while originations continue, loan sales are delayed, impacting gain on sale timing but allowing the bank to earn carry on the loans held on balance sheet.

Adam Kroll inquired about Byline Bancorp's updated M&A strategy, capital management priorities given strong capital build, the estimated financial impact of crossing the $10 billion asset threshold (Durbin Amendment and FDIC costs), and the operational impact of the government shutdown on the SBA lending business, specifically gain on sale timing.

Answer

President Alberto Paracchini reiterated the bank's openness to disciplined M&A opportunities, consistent with past transactions, and outlined capital priorities including organic growth, opportunistic M&A, a stable dividend, and a buyback authorization as a safety valve. He estimated the Durbin Amendment and FDIC effect to be $4.5 million to $5 million, impacting 2027. Regarding the SBA shutdown, he explained that while originations continue, loan sales and settlements are delayed, impacting Q4 gain on sale timing but allowing the bank to earn carry on held loans.

Adam Kroll inquired about Heritage Financial's spot cost of deposits and net interest margin (NIM) for September, opportunities to reduce non-maturity deposit rates, and the outlook for organic loan growth in 2026, including when loan payoffs might normalize.

Answer

Don Hinson, CFO, reported the spot rate on interest-bearing deposits at 1.87% and the September NIM at 3.66%. He noted opportunities to reduce rates on approximately $1 billion in exception-priced deposits, though new accounts might mitigate some benefits. Bryan McDonald, President and CEO, projected mid to high single-digit loan growth for 2026, expecting flat growth in Q4 2025 due to construction loan cycling and larger payoffs, with positive net advances anticipated as a tailwind next year.

Adam Kroll inquired about Heritage Financial's spot cost of deposits at September 30th and the net interest margin (NIM) for September, as well as opportunities to reduce non-maturity deposit rates and expectations for organic loan growth in 2026.

Answer

Don Hinson, Chief Financial Officer, reported the spot rate on interest-bearing deposits was 1.87% (compared to 1.89% for the quarter) and the NIM for September was 3.66% (compared to 3.64% for the quarter). He noted opportunities to reduce rates on approximately $1 billion in exception-priced deposits over time. Bryan McDonald, President and Chief Executive Officer, stated that Heritage Financial expects to return to mid-to-high single-digit organic loan growth in 2026, anticipating flat loan balances in Q4 2025 due to elevated payoffs.

Adam Kroll, on behalf of Matthew Clark at Piper Sandler Companies, asked about the primary opportunities for loan growth, the impact of tariff uncertainty on borrower sentiment, the spot deposit rate and NIM for June, and the timing of the quarter's securities trade.

Answer

President & CEO Bryan D. McDonald identified CRE as a key driver in Q2, with more balance expected ahead, and noted that tariff uncertainty has likely suppressed the loan pipeline by 5-10%. EVP & CFO Donald Hinson provided the June-end spot rate for interest-bearing deposits at 1.92%, the June NIM at 3.58%, and confirmed the securities repositioning occurred mostly in June.

Adam Kroll, on behalf of Piper Sandler, questioned whether the net interest margin could continue to increase if the Fed holds rates steady. He also requested details on cash flows from the bond portfolio, the repricing schedule for fixed-rate loans, and the outlook for mortgage banking trends in the current quarter.

Answer

EVP & CFO Gavin Mohr confirmed his confidence that the margin would continue to grind higher if rates remain stable, barring funding market disruptions. He specified that approximately $110 million in securities and $121 million in fixed-rate loans are set to reprice in the next twelve months. Regarding mortgage banking, Mr. Mohr explained that the gain-on-sale margin was lower than anticipated due to intense market competition, changes in GSE premiums, and a higher internal cost of origination.

Adam Kroll of Piper Sandler Companies questioned whether the net interest margin could continue to expand if the Fed holds rates steady. He also requested details on cash flows from the bond portfolio, fixed-rate loan repricing schedules, and visibility into mortgage banking trends for the upcoming quarter.

Answer

EVP & CFO Gavin Mohr expressed confidence that the margin would 'grind higher' if rates remain stable, supported by loan repricing. He specified that approximately $110 million in securities and $121 million in fixed-rate loans are forecasted to reprice in the next 12 months. Regarding mortgage banking, Mohr attributed the recent drop in the loan sale margin to intense market competition, a pullback in GSE premiums, and a higher internal cost of origination.

Adam Kroll of Piper Sandler Companies, on behalf of Nathan Race, asked if the net interest margin could continue to increase if the Fed remains on hold. He also requested details on cash flows from the bond book, fixed-rate loan repricing over the next year, and visibility on mortgage banking trends for the current quarter.

Answer

EVP & CFO Gavin Mohr confirmed his confidence that the margin would continue to 'grind higher' if rates stay flat, barring funding market disruptions. He specified that approximately $110 million in securities and $121 million in fixed-rate loans (with a 6.15% exit rate) are forecasted to reprice in the next 12 months. Regarding mortgage trends, Mohr explained that the gain on sale margin was lower than anticipated due to intense market competition, changes in GSE premiums, and a higher internal cost of origination.

Adam Kroll from Piper Sandler Companies asked if the net interest margin could continue to expand if the Fed holds rates steady. He also requested details on cash flows from the bond book, fixed-rate loan repricing, and visibility on mortgage banking trends for the upcoming quarter.

Answer

EVP & CFO Gavin Mohr confirmed his confidence that the margin would continue to grind higher if rates remain stable, barring funding disruptions. He noted approximately $110 million in securities and $121 million in fixed-rate loans are set to reprice in the next twelve months. Regarding mortgage banking, he explained that the lower gain-on-sale margin was driven by intense market competition, a pullback in GSE premiums, and an annual review of origination costs.

Adam Kroll from Piper Sandler asked about the volume of assets repricing in the next 12 months, the funding strategy for projected loan growth, and the current competitive landscape for deposit pricing.

Answer

EVP and CFO Gavin Mohr provided asset repricing data, stating that 46.9% of total assets reprice in the next 12 months, which includes securities runoff. He also noted the bank is targeting around 3% core deposit growth to help fund loans. Regarding competition, he acknowledged it remains strong with 'one-off specials' in the market, but the bank has been able to make some downward adjustments to its deposit rates.

Adam Kroll from Piper Sandler Companies inquired about the primary drivers of loan growth for the second half of the year, specifically if CRE would continue to lead, and asked for more color on competition and spread compression. He also asked about the M&A outlook after the First Minnetonka Citibank (FMCB) systems conversion.

Answer

Chief Banking Officer Nick Place stated that loan growth in the latter half of the year is expected across all typical verticals, not just CRE, with a notable focus on the expanding affordable housing space. He noted that competition from local players has increased and that the Old National acquisition of Bremer Bank is expected to create more opportunities. CEO & Chairman Jerry Baack addressed M&A, reiterating that while conversations are ongoing, the primary focus remains on organic growth.

Adam Kroll, on for Matthew Clark, asked for the remaining outstanding balance on the syndicated office loan that was charged off and the total size of the bank's syndicated loan portfolio. He also questioned management's comfort with the current allowance for credit losses and whether there were plans to hire additional C&I and SBA bankers in the near future.

Answer

CEO Bonita Lee stated that the remaining exposure on the specific syndicated loan is approximately $11 million. CBO Anthony Kim added that the entire syndicated portfolio is about $250 million, representing 4% of total loans. CFO Romolo Santarosa expressed comfort with the current reserve level of 1.06%, expecting it to grow in line with the loan portfolio. Regarding hiring, CEO Lee clarified that major recruitment was completed in the first half of the year and headcount is expected to hold steady.

Adam Kroll from Piper Sandler Companies asked for clarification on the full-year loan growth guidance of mid-single digits, given the strong 11% annualized growth in Q2. He also inquired about the outlook for deposit growth, the competitive landscape for deposit pricing, and the potential to reduce non-maturity deposit costs.

Answer

President & CEO Tyler Wilcox stated that while loan pipelines remain robust, the full-year guidance accounts for higher expected pay-downs in the second half of the year. CFO Katie Bailey added that deposit growth will be influenced by seasonal patterns in governmental deposits and continued focus on retail CD gathering. She described the deposit pricing competition as stable and confirmed that the bank is actively managing rates downward where possible, even without Fed action.

Adam Kroll asked for clarification on the mid-single-digit loan growth guidance for 2025, given the strong 11% annualized growth in Q2, and also inquired about the outlook for deposit growth, the competitive pricing landscape, and any opportunities to reduce non-maturity deposit costs.

Answer

Tyler Wilcox, President, CEO & Director, clarified that while loan pipelines remain strong, the full-year guidance reflects an expectation of higher loan pay-downs in the second half of the year. Kathryn Bailey, EVP & CFO, addressed funding, noting that seasonal outflows in governmental deposits would reverse in Q3. She described the deposit competition as stable and confirmed that the bank is actively managing deposit costs downward, even without action from the Federal Reserve.

Adam Kroll from Piper Sandler Companies asked about the drivers behind the strong Q2 loan growth and the decision to maintain the mid-single-digit full-year guidance. He also inquired about the outlook for deposit growth and pricing competition, and whether there were opportunities to reduce non-maturity deposit costs without Fed rate cuts.

Answer

President & CEO Tyler Wilcox clarified that while loan demand is robust, they anticipate slightly elevated paydowns in the second half of the year, justifying the 4-6% full-year growth guidance. CFO Katie Bailey added that deposit competition is stable and they expect seasonal growth in governmental deposits in Q3. She confirmed that the bank actively manages deposit pricing and has been reducing costs even without Fed action, a practice that will continue.

Adam Kroll from Piper Sandler Companies asked about the drivers behind the strong Q2 loan growth and why the full-year guidance remained at mid-single digits. He also inquired about the outlook for deposit growth, competition for deposit pricing, and the potential to reduce non-maturity deposit costs if the Fed remains on hold.

Answer

President & CEO Tyler Wilcox attributed the conservative full-year loan growth guidance of 4-6% to expectations of slightly elevated paydowns in the second half of the year, despite strong pipelines. CFO Kathryn Bailey added that deposit growth will see seasonal increases in Q3 from governmental deposits and that competition remains stable. She confirmed that the bank continues to actively manage and reduce deposit costs even without Fed rate cuts.

Adam Kroll asked for clarification on the strong Q2 loan growth relative to the maintained full-year guidance of mid-single digits. He also inquired about the outlook for deposit growth, competition for deposit pricing, and potential opportunities to reduce non-maturity deposit costs if the Fed remains on hold.

Answer

President and CEO Tyler Wilcox attributed the conservative guidance to expectations for slightly elevated loan pay-downs in the second half of the year, despite strong pipelines. CFO Kathryn Bailey added that deposit competition is stable and they anticipate seasonal growth in governmental deposits in Q3. Bailey confirmed that the bank is actively managing deposit costs and will continue to seek reduction opportunities, even without Federal Reserve rate cuts.

Adam Kroll, on behalf of Nathan Race at Piper Sandler, asked about potential expense levers if loan growth slows, whether fee income guidance includes a normalization in swap fees, and the outlook for the typical seasonal uptick in mortgage originations.

Answer

EVP and CFO Charles Christmas responded that the bank is managed for the long term and would not pull significant expense levers for a short-term slowdown, though provision expense would naturally decline. He confirmed the guidance assumes swap fee income will normalize from Q1's anomalously low level. President and CEO Raymond Reitsma noted that while mortgage activity typically increases seasonally, current uncertainty has muted this trend.