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.

Thank you, Jake. Good morning, everyone and thank you for joining us today for the Byline Bancorp first quarter 2019 earnings call. We'll be using a slide presentation as part of the discussion this morning. Please visit the Events and Presentations page of Byline 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 involves 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 also 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. With that, I'd like to turn the call over to Alberto Paracchini, President and CEO.

Thank you, Allyson. Good morning and welcome to our first quarter earnings call. I appreciate all of you joining us this morning. With me are Lindsay Corby, our CFO; and Tim Hadro; our Chief Credit Officer. As this is our practice, I'll start by discussing our performance and key highlights for the quarter before passing the call over to Lindsay who will go over our financial results in more detail. After that I'll come back and give closing remarks before opening the call for questions. I want to remind you that, you can follow our comments this morning with the help of a presentation that you can find on the Investor Relations section of our website. Starting on Slide 3 of that deck. Overall, we had a good quarter characterized by solid loan growth, continued improvement in our operating performance, stable credit quality and consistent with the seasonality we normally experience at the beginning of the year. This quarter we also completed an important system conversion and navigated through some bumps in the operating environment. All in all, we're very pleased with our results. Earnings came in at $12.6 million or $0.34 per diluted share which included conversion and merger related charges as well as a write-down on a property that we held for sale. Excluding these items amounting to $0.04 per share, adjusted earnings were $0.38 per diluted share. With respect to returns, adjusted ROAA came in at 114 basis points which was a bit lower in a linked quarter basis reflecting lower revenue but up 40 basis points from the year ago period, which reflects the progress we've made in growing the earnings power of the Company. Adjusted ROTCE came in at 12.45% reflective of higher capital level and materially higher than the year ago level of 6.96%.…

Thanks, Alberto. Good morning, everyone. I will start on Slide 4, with a review of our loan and lease portfolio. Our total loans and leases held for investments were $3.6 billion at March 31st, a net increase of $65.9 million from the end of the prior quarter. Our originated loan portfolio increased approximately $250 million net, this increase was offset by a decline of approximately $184 million in our acquired portfolio. Payoffs were less of a headwind in this quarter as we had $82 million in payoffs down from $111 million in the prior quarter. Moving onto deposit. On Slide 5, our total deposits increased $59 million to $3.8 billion at March 31st. We are seeing some migration of deposits from low cost, interest-bearing categories into CDs as well as bringing new customers into the Bank which drove the growth we saw in the time deposits this quarter. Elements of seasonality such as property tax and other commercial fluctuation had an impact on deposit flows in the first quarter. Despite, the lower non-interest bearing balances at the end of the quarter, average non-interest bearing balances remained stable during the quarter. As we expect deposit flows to balance out over the coming quarters as the impact of seasonality dissipates. So far in April we are seeing the seasonal flows move in a more favorable direction as some of our commercial customers have started to rebuild their non-interest bearing deposit balances. Due to the growth in time deposits that we saw, our cost of interest-bearing deposits increased 18 basis points compared to the prior quarter. We remain focused on growing our core deposit franchise despite the headwinds from the competitive landscape in Chicago. Moving to Slide 6, I'll discuss our net interest income and margin. Our net interest income was lowered by…

Thank you, Lindsay. In closing, we remain optimistic about our outlook for the remainder of 2019, we have an excellent franchise, a strong balance sheet, a great team of employees and a unique position in the marketplace. We continue to see opportunities to add customers as well as talent to the organization and continue to evaluate M&A opportunities. I would like to thank our employees for all their hard work during the system conversion and for serving clients on a daily basis. We also look forward to welcoming our new colleagues from Community Bank of Oak Park River Forest to Byline. That concludes our remarks and Operator, we can now open the call for questions.

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

Alberto you mentioned in your prepared remarks you said the word, bumps and it was right after you were talking about the conversion and before you were just talking about the operating market. So were you mentioning something with the conversion and some bumps or were you just talking about kind of the market itself?

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

Thanks for clearing that up. And then maybe just a question on the cost of funds, 87 basis points in the first quarter. I'm not sure if you've done any historical work on when you would expect deposit costs to kind of peek out from here, assuming the Fed has done raising rates in any kind of anticipated level that would occur?

In terms of leveling out, we do think that it will see one more quarter really of an additional increase albeit less than what we saw this quarter. And then from there we do think it'll begin leveling out. Assuming the interest rate environment stays where it's at right now.

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

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

Sure. So the core NIM, Nate if you look at our slide deck on Page 6, you see that we've kind of hovered between call the 4.14% and 3.97% somewhere in between there. When it spikes up to the 4.14% range what you saw was that there were some one-time recovery then there that caused to spike slightly higher. So when you take those out, it's hovering right around that 4% range and we think that that's going to be pretty consistent going forward. With the loan yield - the loan yields we do believe that we'll see slight expansion depending on the mix of loans that we put on the balance sheet here going forward. But we do see that we'll have a similar slight expansion going forward based upon the mix.

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

If the market remains healthy, premium levels remain attractive. I think the - as we've stated before, Nate sometimes on a quarter-over-quarter basis depending on the mix of loans that we sell that quarter, particularly between call it, SBA loans and USDA loans that can add a little bit of volatility to the margin as you know, on USDA loans we don't share the premium above a certain level like we do on SBA loans. So that has an impact but all in all as far as the market and kind of bidding activity in terms of where loans are trading, market remains pretty good.

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

It will be the - I would say in the first half of the second quarter, Nate. So it'll be in the kind of the end of April kind of mid-May timeframe.

And then just remind us when you guys plan to convert the system and imagine by 4Q you should have a pretty clean operating expense run rate, Lindsay?

Yes, - really the cleanest period honestly, Nate it's going to be that first quarter of 2020 once everything flush through. So plan - we're planning on the conversion right now right at the end of the third quarter beginning or fourth.

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

Alberto, I want to maybe just start the Fifth Third NDA file deals closed. You mentioned that you're still on the lookout for some new talent and then stuff of that nature. Can you maybe just give us a kind of an updated view - high level viewpoint of the status of the Chicago market and whether you're seeing any increased opportunities as a result of local disruption?

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

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

Yes, it's been nice to see - if you look at ROTCE, it's actually been building up quite nicely at which as you point out creates good flexibility. Right now we kind of like having that flexibility in terms of what we're seeing both from the organic front, it gives us flexibility to add people, add teams as you well know when you do that, that's not immediately evident because it takes a while for people to get settle, it takes a while for pipelines to be built. Usually there is a non-solicitation in place that you have to let it expire. But it just certainly gives us flexibility to pursue those opportunities. So, right now I think our perspective there in addition to potentially looking at some M&A down the road. We like having that flexibility there. But that being said, obviously it's - it gives us adjust flexibility organically and from an M&A standpoint but also to look at potentially doing something on the capital front down the road.

And then lastly sorry if I missed it. But Lindsay on the expenses - in the slide deck in your remarks I think you mentioned that some of the higher salaries in Q1 seasonal payroll stuff was all incorporated in that $40.7 million run rate. Does sound like though maybe there was a little hiring activity recently. Can you maybe give us a little bit more specific commentary about where you kind of expect expenses to trend and also more broadly speaking just where you guys kind of see yourselves at in terms of rightsizing the expense base of the overall institution?

So in terms of the salaries and benefits you're spot on there was some seasonality there in regard to that, the hirings are coming on, but you'll start seeing those here in the subsequent quarters. In terms of the go forward run rate. Q2 is going to still be a little noisy, you'll have Oak Park River Forest Bankshares closing, you will also have just some trailing items from the core systems conversion as well. So Q2, I expect to see pretty similar and then going from there forward should be a little bit cleaner other than the integration of the Community Bank of Oak Park River Forest team. So I think in terms of the long-term if you go forward, I'm hesitant to give an exact range but I'll throw one out there here and knowing that it could change because we haven't closed yet with marks and things like that but in terms of where we're looking at it's going to be somewhere between kind of $42 million to $44 million we think going forward 2020 and beyond.

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

Focus on some of the loan growth here just looking at the Page 8 of the press release, the commercial real estate originated up about $85 million in the quarter I mean that's some pretty impressive growth there. Just kind of curious of where that's coming from. Is it market share gains. Is it new economic activity going on? And then I also saw that C&I is up I figured that's probably from the First Evanston lending team but just kind of curious what's driving this CRE growth?

Yes, I think a little bit of all of the variables that you mentioned there, Andrew. The other thing is, as we commented and I don't know if you're looking at net or gross but assuming that you're looking at net, we were a little bit surprised at payoffs this quarter they came in lower - obviously lower than last quarter we were expecting pay-ups to be a bit higher, so certainly that helped. So I think it's a combination of all of the above and then on the commercial front, you're spot on is, just our lending team on the commercial banking side continues to do well and you have certainly SBC continues to see good opportunities to grow the business. Another thing on the commercial real estate side, it's not just call it, CRE you have an owner occupied component there as well which is I would view that more as commercial in nature as opposed to true commercial real estate lending.

Certainly, okay.

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

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

So, essentially what you saw is that we really touched nothing here in this quarter and then it'll basically hover back out once we get through it here at about that $450,000 to $500,000 range depending on all the various factors of the FDIC just to calculate that.

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

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

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

But you had mentioned $230 million last quarter here?

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

Still hovering around that level, Ebi and I would say business is usually in that business activity tends to be pretty muted in the first quarter actually just take set back, Ebi, the book stood at $224 million as of the end of the quarter. So just right around where it was the previous quarter. Activity as I was saying tends to be more muted in the first quarter, you typically have people looking at their portfolios and figuring out what they're going to - what they want to do with portfolio companies and then looking at additional opportunities. So we anticipate that. We're seeing good business activity there, good - a lot of conversations and as you know that's a - it's a business where you have to plod through a lot of transactions in our space we're seeing - we're getting good at PATs and opting to swing at the opportune time.

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

Yes. Correct and I think we remain pretty steady in terms of the target opportunities there, Ebi. And what we've commented on previously it's, there's about 35, 36 institutions in the Chicago - Greater Chicago MSA, that are hovering somewhere between $300 million to about $1 billion, $1.5 billion. And that's kind of the sweet spot for us. And as you pointed out, that would be essentially all local Greater - kind of the Greater Chicago MSA.

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

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

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

I just want to make sure looking at the numbers. And then maybe just one for Lindsay, just on kind of the big picture on the fee income kind of outlook. If you look at the couple of items that went through the quarter, the valuation adjustment on the MSR and then that the fair value of the equity securities just kind of thinking of broadly about the run rate in fees is, I guess what - how would you think I guess best to look at it outside of the Oak Park deal going forward? Just kind of at the core level this quarter.

So outside of the Oak Park deal, we always do see that dip from a seasonality standpoint on some of the fee income there, Brian so that was to be expected in terms of the servicing assets. We didn't take less of an impairment this quarter than we have in prior two quarters. So that was good news and we do see that's stabilizing. So - where that ultimately ends is, it is factored by multiple inputs then depending on what happens here in the interest rate environment but assuming all things equal we think that's going to stabilize and you'll see pretty consistent performance to what you saw this quarter. And I think in terms of our outlook here going forward, I think that there is that typical dip on non-interest income for the first quarter and slowly rising throughout the year.

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

No, we will continue I mean we would expect that payoffs would be higher than what we saw this quarter. Again these are - we were surprised in the sense that in some cases these were known payoffs that we were expecting that for one reason or another just got forced out. So we anticipate that's - that we will see those - perhaps in the second quarter or perhaps later but we're not changing our view there. I mean I think activity remains robust and that's a headwind that I think it's impacting us then and others in the marketplace.

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

So the one thing that I will tell you with accretion as it's not perfect and whatever I tell you it will ebb and flow depending on the performance of the portfolio. So, you're right it is slowing, Brian we did see that this quarter at $1.2 million and again this is all the legacy acquisitions that we've done here in the past. And so our view here going forward from a scheduling standpoint, and again, I give you this with a little bit of hesitation here, Brian because I - if there is a recovery or other things like that it can move but the scheduled accretion is somewhere between 400 to 7,000 per quarter so I'd say going forward that's expected but it can ebb and flow we - that does not include Community Bank of Oak Park River Forest. So we're finalizing here going into the closing and we'll have marks and more updates here in the next quarter for you on that.

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

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

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