Byline Bancorp, Inc. Aktie

Good morning, and welcome to Byline Bancorp First Quarter 2026 Earnings Call. My name is Tiffany, and I will be your conference operator today. [Operator Instructions] Please note, the conference call is being recorded. At this time, I would like to introduce Brooks Rennie, Head of Investor Relations for Byline Bancorp to begin the conference call.

Thank you, Tiffany. Good morning, everyone, and thank you for joining us today for the Byline Bancorp First Quarter 2026 Earnings Call. In accordance with Regulation FD, this call is being recorded and is available via webcast on our Investor Relations website along with our earnings release and the corresponding presentation slides. As part of today's call, management may make certain statements that constitute projections, beliefs or other forward-looking statements regarding future events of the future financial performance of the company. We caution that such statements are subject to certain risks, uncertainties and other factors that could cause actual results to differ materially from those discussed.

The company's risk factors are disclosed and discussed in its SEC filings. In addition, our remarks and slides may reference and contain certain non-GAAP financial measures, which are intended to supplement, but not substitute for the most directly comparable GAAP measures.

Reconciliation of each non-GAAP financial measure to the comparable GAAP financial measure can be found within the appendix of the earnings release. For additional information about risks and uncertainties, please see the forward-looking statement and non-GAAP financial measure disclosures in the earnings release.

As a reminder for investors, during the quarter, we plan to participate in 2 upcoming conferences here in Chicago. The Stephen Chicago Bank tour on May 14 and the Raymond James Chicago Bank Symposium on May 28. With that, I'll now turn the call over to Alberto Paracchini, President of Byline Bancorp.

Great. Thank you, Brooks. Good morning, and welcome to Byline's first quarter earnings call. We appreciate all of you taking the time to join the call this morning. With me today are Chairman and CEO, Roberto Herencia, our CFO, Tom Bell; and our Chief Credit Officer, Mark Fucinato. Before we get started, I'd like to pass the call over to Roberto for his comments. Roberto?

Thank you, Alberto, and good morning to all. As Alberto said, we do appreciate you joining us today and taking the time to engage with Byline. markets in general continue to offer plenty of distractions and at times entertainment. Shifting interest rate expectations, inconsistent economic signals, policy uncertainty and heightened geopolitical tensions with the Iran war at the center of it and its brother implications.

These add another layer of complexity for businesses and investors alike. We have learned over time that durable results do not come from reacting to every headline. They come from being anchored to purpose, disciplined execution and long-term thinking. So we remain focused on driving value for our holders as we work and make progress I may add toward becoming the preeminent commercial bank in Chicago.

We started the year with another strong quarter. ROA, PTPP, NIM and efficiency remain among the best-in-class tangible book value growth of 14% year-over-year are also knocking on the door of best-in-class. Our balance sheet remains strong and positioned to support customers through the cycle. I want to recognize what matters deeply to us, our people. Byline Bank was recently honored as a U.S. best-in-class employer in Gallagher's 2025 U.S. benefits strategy and benchmarking survey.

We were also named to Newsweek's America's greatest midsized workplaces for women, highlighting our dedication to practices grounded in transparency, professional development, and flexibility, empowering women to build careers that grow with their lives. These awards reflect effective steel strategies with measurable outcomes, including employee well-being and engagement. They reinforce our people-first approach and strengthens our ability to attract, retain and develop top talent in a very competitive environment.

I would like to point out that our SBA platform continues to perform well for the 16th consecutive year. Our team ranked as the #1 SBA 7(a) lender in Illinois, according to the most recently published fiscal year rankings.

This kind of consistency does not happen by accident. It reflects decades of experience, disciplined execution and the dedication of an outstanding team. I would also like to recognize 2 individuals who have been familiar voices to many of us for a long time. This marks the end of an era as Terry McEvoy of Stephens and David Long of Raymond James step into new chapters in their careers.

Collectively, as sell-side analysts, they've covered more than 200 earnings seasons. And more importantly, they brought professionalism consistency and thoughtful engagement to their work. We are grateful for the time they spend covering Byline and for the relationships built over many years. On behalf of the Board and the entire management team, we wish both Terry and David continued success in their new roles.

To close, I remain very optimistic about Byline. We are operating with clarity of purpose supported by strong fundamentals, an engaged workforce and a resilient business model. We are very focused on compounding returns the right way through prudent growth, disciplined risk management and an unwavering commitment to our people and customers. With that, Alberto, back to you.

Thank you, Roberto. As is our normal practice, I'll start with the highlights for the quarter, followed by Tom, who will take you through the financials and then I'll come back to wrap up before we open the call up for questions. As always, you can find the deck we're using this morning on the IR section of our website, and please refer to the disclaimer at the front. .

Turning to Slide 4 on the deck. Overall, I'm pleased to report that we had a solid start to the year and delivered another excellent quarter. Earnings momentum continued along with strong profitability, disciplined expense management and stable credit quality despite an evolving macro and geopolitical backdrop.

For the quarter, we reported net income of $37.6 million and EPS of $0.83 per diluted share, representing growth of 8.9% and 9.2%, respectively. Profitability was strong with ROA of 156 basis points and ROTCE of 13.7%. Pretax preparation income totaled $55.2 million, resulting in a pretax provision margin of 229 basis points, which marks the 14th consecutive quarter in which this metric exceeded 2%, reflecting the durability and consistency of our operating results.

Total revenues were $112.4 million for the quarter. Net interest income remained solid at just under $100 million, while noninterest income was lower at $12.5 million, largely due to lower fair value marks for the quarter. The margin remained stable at 4.33%, notwithstanding a lower day count and lower yields. This was offset by a drop in deposit costs driven by a better mix coupled with pricing discipline, which Tom will cover in more detail shortly.

From a balance sheet standpoint, total deposits increased 8.2% annualized to $7.8 billion, reflecting growth across both core as well as time deposits. Loan balances were modestly lower linked quarter as payoffs more than offset solid origination activity of $241 million. Expenses remain well managed at $57 million, down 5.3% from the prior quarter, with our efficiency ratio improving to 49.8% for the first quarter, one of the lowest levels we've reported since becoming a public company. Asset quality remained stable. Credit costs were $5.5 million for the quarter and consisted of $6 million in net charge-offs and a small reserve release of $0.5 million.

Both NPLs and criticized loans showed declines and the ACL increased 1 basis point to 1.46% of total loans. Moving on to capital. Our capital levels continue to grow and balance sheet strength is evident with a TCE at 11.1% and CET1 over 12.5%. We exercised some of that capital flexibility this quarter and returned 40% of net income back to shareholders by repurchasing approximately 318,000 shares of stock at an average price of $30.84, in addition to our quarterly dividend of $0.12 per share.

With that, I'll turn the call over to Tom, who will walk you through our results.

Thank you, Alberto, and good morning, everyone. Starting with our loans on Slide 5. Total loans stood at $7.5 billion, down slightly from the prior quarter. The decline in balances was primarily driven by $72 million in runoff related to loan participations and acquired loans.

Origination activity was solid with $241 million in new loans, while payoffs remain elevated at $320 million. Loan commitments increased and line utilization declined slightly to 59.2%. Loan yields came in at 6.84%, down 11 basis points linked quarter as a result of the December Fed rate cut. Pipelines remain strong, and we expect full year loan growth in the mid-single digits.

Turning to Slide 6. Total deposits were $7.8 million for the quarter, up $154 million or 8.2% annualized from the prior quarter. The growth was due to increases in interest-bearing checking and time deposits. We saw a 6 basis point improvement in deposit costs, driven by lower money market rates, which brought over overall deposit costs down to 1.91%.

Turning to Slide 7. Net interest income was $99.9 million in Q1, down 1% from the prior quarter and up 13% year-over-year. Net interest income was impacted by 2 fewer days in the quarter lower yields on earning assets and higher borrowing costs as a result of a balance sheet hedge that matured in March. This was partially offset by lower rates paid on deposits.

The net interest margin was stable at 4.33%, declining modestly by 2 basis points from the last quarter, with 50% of the decline coming from lower accretion while expanding 26 basis points year-over-year. Our outlook for net interest income is based on the forward curve, which currently assumes no rate cuts or hikes in 2026.

Given the rate outlook and our balance sheet position, this implies a net interest income range of $99 million to $101 million in the second quarter. We expect net interest income to grow driven by overall balance sheet growth and disciplined deposit pricing in the event short-term rates move lower.

Turning to Slide 8. Noninterest income totaled $12.5 million in Q1, which was down approximately $3.2 million linked quarter. The decline on a quarter-over-quarter basis was driven by an additional negative fair value mark on loan servicing assets of $755,000 and a $1.3 million decline in fair value of equity securities.

Excluding these fair value adjustments, fee income remained stable. We expect gain on sale to average $5.5 million per quarter and our noninterest income to be in the $14 million to $15 million range for the second quarter. Turning to Slide 9. Expenses came in at $57 million, down 5.3% from the prior quarter.

This was driven by salary and benefits from lower incentives, legal costs and advertising spend. partially offset by higher data processing expenses. Our efficiency ratio improved 54 basis points to 49.78%, with noninterest expense to average asset ratio 2.37%, down 10 basis points.

Looking forward, our noninterest expense full year guidance remains unchanged at $58 million to $60 million per quarter. Turning to Slide 10. Credit costs declined for the quarter with the provision coming in at $5.5 million. NPLs decreased $4 million or 5.6% linked quarter to $67 million, while NPAs to total assets improved to 71 basis points from 77 basis points in Q4.

The improvement was driven by resolution activity during the quarter. The ACL remained flat at 1.46% of total loans. Moving on to capital on Slide 11. Capital levels continue to grow and remain robust with CET1 at 12.5%, 22 basis points linked quarter and up 77 basis points year-over-year. Total capital came in at 15.5%, up 69 basis points year-over-year.

In addition, tangible book value per share grew to $23.79, increasing [ 1.5% ] on a linked quarter basis and 14% year-over-year. And last month, roll bond rating as we affirmed our BBB+ credit rating and outlook. In closing, another great quarter across the board and a solid start to the year.

With that, Alberto back to you.

Thank you, Tom. So to wrap up, we were pleased with our results and performance for the quarter, notwithstanding the level of uncertainty in the environment, we're optimistic in our ability to execute our strategy continue to grow the business and deliver value to shareholders.

In terms of the outlook, pipelines remains at solid levels across our businesses, and we remain well positioned to take advantage of opportunities in the marketplace. With that, operator, we can open the call up for questions.

[Operator Instructions]

Your first question comes from the line of Nathan Race with Piper Sandler.

Hope you're all doing well. Alberto, I was hoping you could just shed some more color just on the production levels in the quarter in terms of how much of the year-over-year decline may just been due to some of the macro factors at play these days versus seasonality. I know you mentioned the pipeline sold going to the rest of the year, but I was just hoping you could shed some light on that in the what in terms of payoffs as well.

Yes, of course. Not a lot of -- so on your second point there. So not -- we didn't really see -- we had pretty good origination level. So the level of business activity was pretty good in commercial banking, our leasing business. Real estate was nothing unexpected on that end. A lot of the payoff activity or a portion of the payoff activity that we saw this quarter was just simply recycle us essentially recycling loan participations and loans that we had acquired coming from some acquisitions.

That's really what drove it. if you actually strip out the impact of those, which is -- I mean, it's perfectly aligned with what we want to do ultimately with those books. If you strip that out, I think loan growth would have been somewhere in the 4% kind of level for the quarter. So nothing unusual other than just planned runoff coming from books that we've acquired over the years.

Got it. That's really helpful. Maybe a question for Tom. I know you don't give margin guidance specifically, but just trying to understand the trajectory of loan yields over the balance of this year just in terms of the context of kind of what the roll-off yield looks like and kind of what you're seeing in terms of blended rates on loan per these days.

Roll-offs are, call it, $300 million-ish like a $450 million kind of coupon, so new production is typically around 675, 680 kind of coupons.

Okay. So imagine, again, without giving margin guidance that you're thinking the margin could kind of there just given maybe more rational deposit pricing competition these days and just given what you just described in terms of the roll-off .

I mean, certainly, on the loan side, spreads will -- are maintaining well. I think as you'll see in the balance sheet, right, we grew the securities portfolio this year. That's a tighter spread transaction. So when you start to include that in, you could have a small tweak to the margin overall. But again, NII guidance growing over the year here.

Got you. And maybe one last one, Alberto, or Roberto. Just curious what you guys are seeing in terms of M&A conversations and activity levels these days. Obviously, you have a little bit of a headwind to earnings next year with the [ Durbin ] impact, which I know is not particularly big for you guys, but just curious if you're feeling more optimistic on M&A announcement over the balance of this year. .

We're always optimistic in terms of just the level of conversations. I would tell you maybe right now, and I don't think this is inconsistent with what others have said in their earnings call. I mean, certainly, the uncertainty in the environment given the macro and geopolitical issues maybe causing some sellers to pause.

That being said, I think the underlying level of conversations continues to be, I think, from my view, pretty healthy.

Okay. Great. I appreciate all the color. I hope guys have a good weekend.

Your next question comes from the line of Brendan Nosal with Hovde Group.

Hope you're doing well. Maybe starting off here on capital. I think if my math is correct, you've nearly tapped out the current buyback plan. Is there a willingness to re-upping that and remaining in the market? Just given how much capital you have today and how much you'll continue to generate.

Yes. Brendan, we're not -- we've only done about 300,000 shares. So we have to over a $2 billion program. So we have plenty of room to continue to repurchase shares. .

Great. And apologies for that after a long earnings week. Maybe pivoting to kind of funding here. A really nice quarter for deposit growth both overall and core funding. Just kind of curious why you opted to grow CDs as much as you did, given the lack of loan growth and then tie that into the competitive landscape in Chicago for core funding?

I mean, we're first focused on full relationship customers. But we -- our CD book has grown over the years, and we're still trying to maintain a certain level of CDs. As you know, loan-to-deposit ratio was higher at the end of the year because of as an example on maybe some more institutional deposits. But generally speaking, we think we have a good deposit base.

The CD book is good. The back book is performing well. As you can see that the CD yields are coming down kind of quarter-over-quarter. But given the Fed on hold, that's probably going to slow down here.

But you still need to fund the bank, and we like the diversification that we get from it with the opportunity to potentially cross-sell those CD customers and other products.

Your next question comes from the line of Damon DelMonte with KBW.

Hope you're all doing well. First one, just kind of regarding loan growth and the pipeline that you referenced. Could you just give a little color on kind of what is -- what's that comprised of? And what segments are building that pipeline for you?

So all segments, Damon, but I would say like we have touched on in prior calls, probably the delta there, the one that's more rate sensitive is probably going to be real estate I would think rates have backed up, and I'm not talking about short-term rates, but the back up in 5 years, the backup and the 10-year real estate is much more sensitive to those.

So I suspect if we see a decline in that later on in the year, potentially, that's going to probably positively impact volumes still within the range that we provide, which is that mid-single-digit target. That's the one that I would say has the highest probably the highest chance of having some volatility around rates.

As far as the other category, which are really just commercial banking and our leasing business in general, pipelines are solid, and we really here to for, we really haven't seen an impact where people are saying, you know what, given the uncertainty in the environment, we are going to take a breather here and postpone something that we're planning to do for a few months just to see how the environment settles down.

I mean, activity has been good. We've seen, for example, to give you some color companies are actively being marketed and sold in our sponsor business as well as we're hearing some of that also in our commercial banking book, which is a positive sign from a transaction activity standpoint. And borrower activity continues to be good. So demand for credit remains solid in those segment Damon.

That's great. Great color. Tom, you mentioned about the securities portfolio increasing in size, and you can see the average balances were up quarter-over-quarter. How do we think about that for the remainder of the year? Do you expect to add to that? Or do you think that might start to trail down a little bit?

I think stable, Damian, we'll probably reinvest cash flows. I mean, we could go up a little bit just depending on market opportunities. But assuming loan growth will deliver, which we expect, there's probably no need to grow the portfolio meaningfully.

I think big picture, Damon, the way we think about securities at least from a big picture standpoint, we're always going to be trying to grow deposits irrespective of what the environment is we are always going to be looking to try to grow deposits over time through the cycle.

We just don't think we are good enough to be able to as some of our colleagues in the industry say, turn us big it on, turn is bigger off. So we're constantly trying to grow deposits to the degree that deposits start outpacing our ability to grow loans, then by definition, you would see that growth probably end up in the securities portfolio. So just big picture, that's kind of how we think about it.

Great sense.

Your next question comes from the line of Brandon Rud with Stephens, Inc. Please go ahead.

If I could follow up on an earlier question about the deposit costs. Can you maybe talk about the trajectory through the quarter relative to the $191 million reported? And when you think about a starting point as we enter the second quarter, would you anticipate that number kind of trending down a few more basis points.

Pretty consistent. The average over the quarter versus period end pretty much unchanged. March was exactly on top of where the cost of funds was for the quarter. So not a meaningful change. I think the -- again, just maybe touching back on the prior question, the CD book is very short.

It's 4 months, 5 months at length. So a lot of opportunity to reprice, but most of the book is repriced given that made its last cut, so to speak, in December.

Okay. And maybe just a higher-level question. I think back in January, the plan was to not manage below $10 billion this year. I guess, is that still the plan? And can you remind me what the [ Durbin ] impact would be in, I guess, '27?

Sure. Yes, Brandon, we are not trying to manage the balance sheet artificially stay under $10 billion. It just so happens that we're at $9.9 billion at the end of this quarter, but it could very well be -- it could have very well have been that we would have been over $10 billion. So we're kind of -- as we think about it, we're kind of there, and we expect to be crossing that barrier here at any point. And as part, maybe you want to take the Durbin impact for '27?

Sure. Yes, as we mentioned, we don't have the same kind of entertain costs some of the other banks do. And I think we kind of quoted like about 4 basis points to ROA is a decline, just given that it takes effect again in 2027. July 1st.

So it'd be July 1 of '27. And I think we had said publicly, we had said $3.5 million to $4 million in terms of the Durbin impact, Brandon. So obviously, that's an annualized number. So in July of 2027, all else being constant, we would see the impact of half of that in the second half of the year.

[Operator Instructions] Your next question comes from the line of Brian Martin with Brean Capital.

Just wondering if you -- Tom, your last question, maybe I didn't hear your response or just on the call, I was just going to ask you on the cost of deposits, given the backdrop, like you said, the Fed the major last rate cut, it's pretty stable from here. I mean there's not much opportunity, like you said, on the CD side, given the book short. So just you would think relatively stable, give or take, as you think about going forward? Just wondering how the competitive pressures are. loan growth outlook looks pretty bright. So just trying to understand the competition.

Yes. I would say relatively flat, maybe down a little bit. Again, mix helps us. We're always focused on relationship banking and commercial banking. So those are typically lower cost deposits, and that will help us. On the competitive front, on the consumer side, yes, it's the typical competition we see as far as rates, I don't think anything is crazy at this point.

But we just want to keep our market share in that category. And so I would say nothing is going higher, at least at this point. And we just the book is almost fully repriced. So there's not a lot of lift for lower costs as we move forward other than mix.

Got you. Okay. That's helpful. And just the commercial payments business. I guess your confidence in just continuing to grow deposits, is that giving you some tailwind there on that opportunity?

Yes. I mean I think that's more of a year goes on, we'll see more benefit from that. And obviously, the fee income that comes with that as well. And it takes a while to onboard the customers. So we'll start seeing that more here in the second half of the year. .

Got you. Okay. And then maybe just the last one, just some of the noise in the quarter in terms of the fee income. Can you just give some thoughts on kind of a baseline or how to think about -- you've given some color on the SBA business. Just kind of the some of the noise in the quarter, if you can just talk a little bit about how to think about the jumping off point, if you will, going into 2Q?

Yes. We still gave guidance of $14 million to $15 million, Brian, I don't know if you heard that.

Sorry. Okay.

But no, no, no. But for the quarter, we had lower swap fee income from our back-to-back program, and we expect that to pick up here. And then we had a small lower valuation on the sale of some lease assets, which was a one-off. So I would expect that's why I've given guidance of the $14 million to $15 million. But those were the 2 drivers other than the fair value adjustments. .

Yes. Okay. That's all I had, guys. I appreciate you taking the color. And congrats on the quarter.

Thank you for your questions today. I will now turn the call back over to Mr. Alberto Paracchini, for any closing remarks.

Great. Thank you, Tiffany. So in closing, I'd like to congratulate and thank all our employees on another solid quarter. Our level of performance would not be possible without their dedication, their effort and the commitment to customers, it really -- we couldn't do it without them. So thank you all. .

And to everyone on the call, thank you for joining us today. We appreciate your continued interest in Byline, and we look forward to talking to you again next quarter. Thank you.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.

Good morning all and welcome to the Byline Bancorp 4Q 2025 Earnings Call. My name is Carlin, and I'll be coordinating the call today. [Operator Instructions] Please note that this conference call is being recorded.

At this time, I'd like to introduce Brooks Rey, Head of Investor Relations of Byline Bancorp. Please go ahead.

Thank you, Carlin. Good morning, everyone, and thank you for joining us today for the Byline Bancorp Fourth Quarter and Full Year 2025 Earnings Call. In accordance with Regulation FD, this call is being recorded and is available via webcast on our Investor Relations website along with our earnings release and the corresponding presentation slides. As part of today's call, management may make certain statements that constitute projections, beliefs or other forward-looking statements regarding future events or their future financial performance of the company. We caution that such statements are subject to certain risks, uncertainties and other factors that could cause actual results to differ materially from those discussed.

The company's risk factors are disclosed and discussed in its SEC filings. In addition, our remarks and slides may reference or contain certain non-GAAP financial measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures. Reconciliation of each non-GAAP financial measure to the comparable GAAP financial measure can be found within the appendix of the earnings release. For additional information about risks and uncertainties, please see the forward-looking statement and non-GAAP financial measures disclosure in the earnings release. As a reminder for investors, this quarter, we plan on attending the KBW Winter Financial Services Conference in Boca on Florida.

With that, I would now like to turn the conference call over to Alberto Paracchini, President of Byline Bancorp.

Thank you, Brooks. Good morning, everyone, and happy new year to all of you. We appreciate you joining the call this morning to review our fourth quarter and full year 2025 results. With me today are Chairman and CEO, Roberto Herencia; our CFO, Tom Bell; and our Chief Credit Officer, Mark Fucinato. Before we get started, I'd like to pass the call over to our Chairman, Roberto Herencia for his remarks. Roberto?

Thank you, Alberto, and a happy new year to all. we extend our best wishes for a successful and healthy year ahead. We are delighted and proud to finish the year on a strong note and excited to announce a 20% increase in our quarterly dividend. No doubt a reflection of our strong financial performance and confidence in our ability to continue to deliver top quartile results in key profitability metrics as Alberto and the team will cover shortly. What our Board and team have accomplished over the last few years is remarkable and provides a great platform for the future.

Our North Star, the preeminent local commercial bank. The Chicago banking market, including verticals we run out of Chicago, offers significant opportunities for growth and development. with Byline well positioned to lead. Every day, it feels we're reminded that we live in an era of radical uncertainty where rules-based order is fading. And of course, we care about the impact on outcomes on our customers. The majority of which live in a world that is very distant from billionares, Davos and geopolitics. In this environment, we, as the local community and commercial bank become even more relevant to our customers and the people who work with us. As you know, we believe in people first banking where engaged employees delight our customers, enabling Byline to produce top quartile returns for our shareholders.

In December, we were named to America's Best Workplaces for 2026 overall. We wrapped up the year with continued low turnover and an engaged workforce of just over 1,000 employees work together to deliver value for our customers and community. And that seems firing to me and the rest of the Byline team. We have at Byline identified our common purpose, becoming the preeminent local bank. We strive to execute consistently with that at all levels all the time. And that defines our future. So others don't have to do it for us. The position of the franchise is enviable. That's the largest local community bank, the second largest local commercial bank and the largest, most stable platform for quality lenders to bring their books and grow their businesses. We have the balance sheet plus a strategically stable ownership group with all the tools and structure in place that a lender needs to just focus on serving clients and finding new ones.

This gives us an edge over what most banks dream of and the #1 that you show most banks try to solve with deals, organic growth. We are driving everything toward compounding returns and that means reliable, sustainable, prudent growth over the long run. And you can see that in all our actions with capital and recruiting and in our track record for achieving up to year financial results.

To summarize why we are excited. First, the people we have in place from those that have been here for over 40 years, to those who joined us over the last 5 years as a result of merger activity in the market. Second, the results out of that execution have been exclusive 130 million reasons in the last year to back up this excitement. Third, the quality and simplicity of our strategic plans have kept us focused. We don't strive to be everything to everyone. We are a commercial bank, striving for preeminence in that segment. Fourth, our position in the marketplace, as I've described, and finally, our unique shareholder base and their representation in our boardroom. This is an incredibly optimistic time for Byline, company populated by exceptionally kind competent people who care about what we do and how we do our work. Deferring shape and separate is what we plan to do. I truly believe that among the thousands of community banks, we are unique in our approach and prospects.

And with that, I'm happy to return the call to Alberto.

Great. Thank you, Roberto. This morning, I'll walk you through the highlights for the full year as well as the quarter. Tom will follow the detail -- with the details on the financials, and I'll come back and wrap up before we open it up for questions. As always, you can find the deck for this morning's call on the IR section of our website. Please refer to the disclaimer at the front.

So turning to our full year results on Slide 4. Byline delivered strong results for both the fourth quarter and full year of 2025. Before I get into the numbers, I want to thank our team the results we're sharing today are a direct reflection of their dedication to customers and the effort they put in throughout the course of the year. A year ago, I said we had excellent momentum and felt confident in our ability to profitably grow the business and deliver value for shareholders. I'm pleased to report we did exactly that. The operating environment evolved differently than we anticipated. Interest rates remained elevated longer-than-expected macroeconomic uncertainty increase and regulatory and policy changes came faster than in the past. Against that backdrop, we stayed focused on what matters, serving customers, executing our strategy and achieving several important milestones.

First, we closed our transaction with first security, converted systems and completed the integration all within a single quarter. Second, we upgraded important customer-facing technology platforms and third, we continued our preparation to cross the $10 billion asset threshold in 2026. We also grew relationships, sustained profitability, build capital returned $42 million back to stockholders and grew tangible book value per share by approximately 17%. Overall, 2025 was a productive year in which we continued advancing our strategy to become the preeminent commercial bank in Chicago.

For the year, net income was $130.1 million or $2.89 per diluted share on revenue of $446 million, up 9.7% year-on-year. Profitability was strong with pretax preparation ROA of 219 basis points ROA of 136 basis points and ROTCE of 13.5%. Year-on-year loan growth came in at 8.9% and deposits grew 2.5%. Capital ratios increased throughout the year and ended strong with TCE at 11.3%, demonstrating strength and financial stability. Lastly, we maintained positive operating leverage, notwithstanding the rate environment towards the end of the year and our continued investment in the business.

Turning to the fourth quarter on Slide 5. Results for the fourth quarter were also strong. Net income was $34.5 million or $0.76 per diluted share on revenue of $117 million. Profitability and returns remain solid. Pretax preparation income was $56.6 million, pretax preparation ROA was 232 basis points. ROA was 141 basis points. And again, ROTCE notwithstanding a higher capital base was 13%. Revenue was up 1.1% from the prior quarter and 12% year-on-year, driven by higher net interest income.

From a balance sheet standpoint, loans grew 3% linked quarter, deposits declined to $7.65 billion due largely to balance sheet management at the end of the year. Origination activity was consistent with prior quarters at $323 million, with growth coming primarily from our commercial and leasing businesses. On the liability side, noninterest-bearing deposits were essentially flat at 24% of total deposits, and deposit costs came down 19 basis points to below 2% for the quarter. Tom will provide you with additional detail on the base cost of margin as well as our rate outlook. Expenses remained well managed and came in at $60.4 million. Our efficiency ratio was 50.3% and our cost-to-asset ratio was 2.47% as of quarter end. Asset quality remained stable. Credit costs for the quarter were $9.7 million, driven by net charge-offs of $6.7 million, down on a quarter-over-quarter basis and a reserve build of $3 million.

Our allowance now stands at 1.45% of total loans, up 3 basis points from last quarter and NPLs increased to 95 basis points.

Turning to capital. Our capital levels remain strong across the board, and that strength gives us real flexibility in how we allocate resources. We put that flexibility to work this quarter by repurchasing approximately 346,000 shares. Looking ahead, our Board authorized a new repurchase program that allows us to buy back up to 5% of outstanding shares. And the Board also approved a 20% increase in our quarterly dividend, which will be paid this quarter.

I'll now turn it over to Tom to walk you through the financials in more detail.

Thank you, Alberto, and good morning, everyone. Starting with our loans on Slide 6. Total loans increased $3.3 million annually and stood at $7.5 billion at year-end. Origination activity was solid, which was up 22% compared to the prior quarter. Payoff activity increased $156 million from Q3 and stood at $361 million. And line utilization ends up to 60% for the quarter. Our loan pipelines remain strong, and we expect loan growth to continue in the mid-single digits to 2026.

Turning to Slide 7. Total deposits were $7.6 billion for the quarter, down 2.3% from the prior quarter primarily due to managing the balance sheet to stay below the $10 billion year-end and Q4 seasonality outflows. We saw a nice decline in deposit costs for the quarter and continue to see the benefit from disciplined deposit pricing which drove deposit costs lower by 19 basis points.

Turning to Slide 8. We had record high net interest income of $101 million in Q4, up 1.4% from the prior quarter, primarily due to loan growth, lower rates paid on deposits and lower interest expense related to the sub debt payoff, partially offset by lower yields on loans and securities. This was the third consecutive quarter of NII growth and reflects a 10.7% increase for the full year. The net interest margin grew to 4.35%, up 8 basis points linked quarter and on a year-over-year basis, NIM expanded 25 basis points. The improvement in the margin was driven by a decrease in the cost of interest-bearing liabilities, which declined by 29 basis points. Our outlook for net interest income is based on the forward curve, which currently assumes 50 basis point decline in the Fed funds rate for 2026. This implies a net interest income range of $99 million to $100 million for the first quarter. We continue to remain focused on growing and sustaining our net interest income by growing the balance sheet and reducing our asset sensitivity.

Turning to Slide 9. Noninterest income was $15.7 million, essentially flat from the prior quarter. Gain on sale of loans was $5.4 million, down $1.6 million linked quarter, reflecting lower premiums and mix of loans sold. Swap income was up nicely for the quarter as we continue to focus on growing other fee income categories. Our gain on sale forecast for 2026 is on average, $5.5 million per quarter. with lower Q1 expectations due to typical seasonality.

Turning to Slide 10. Expenses came in at $60 million, essentially flat from the prior quarter. The modest decrease reflected lower low-related and data processing expenses, partially offset by higher incentive compensation. For 2026, we expect our quarterly noninterest expense to trend between $58 million and $60 million.

Turning to Slide 11. Our allowance for credit losses increased 3% to $109 million, representing 1.45% of total loans, up 3 basis points from the prior quarter. We recorded $9.7 million in provision for credit losses in Q4 compared to $5.3 million in Q3. Net charge-offs decreased $6.7 million compared to $7.1 million in the previous quarter. NPAs to total assets increased to 77 basis points in Q4 from 69 basis points in Q3. The increase was partially driven by a lower balance sheet at year at.

Moving on to capital on Slide 12. This quarter capped a year of meaningful progress in growing our capital position. For the quarter, CET1 came in at a strong 12.33%, up 18 basis points linked quarter and up 63 basis points year-over-year. Additionally, the TCE to TA ratio stood at 11.29%, up 168 basis points from last quarter.

In closing, we remain focused on long-term stockholder value by growing tangible book value per share, EPS and increasing our return on tangible common equity. With that, Alberto, back to you.

Thank you, Tom. Before we open the call for questions, let me touch on our priorities heading into 2026. First, we remain on track and expect to cross the $10 billion asset threshold this year, and we're well prepared for that milestone. We're monitoring the regulatory environment closely, particularly potential changes to asset thresholds, but we're not slowing down in anticipation of what might happen. We will continue to move forward. Second, our focus remains on organic growth. Last April, we launched a commercial payments business and the progress so far has been excellent. We've onboarded 6 customers and have several more in the pipeline for this year. We've also added approximately $70 million in liability balances and have seen a corresponding increase in ACH volumes, both transactions as well as dollars.

We entered 2026 with good pipelines and remain well positioned to continue gaining share across all our commercial businesses. Third, credit discipline remains a priority. The way we maintain that discipline is by staying close to our portfolio, monitoring it and identifying and addressing issues quickly as they emerge. As we move into 2026, we're excited about where we stand. We've built a strong team. We're generating real operating leverage. Our competitive position is solid and we're able to capitalize on opportunities when they come. In short, we like where we're positioned.

Before we turn to questions, I want to thank our employees for everything they do for our company and our customers on a daily basis.

And with that, Carl, we can open the call up for questions.

[Operator Instructions] Our first question is from Nathan Race from Piper Sandler.

Maybe just to zoom out for a second, Alberto. You guys posted a really strong year in 2025. pretax preprovision income was up 13% year-over-year. So just curious, as you look at the company broadly, which areas or which verticals are you most excited about to just continue to scale up and where you see opportunities to become more efficient, whether it's in the technology front where you guys have been proactively investing in any other areas?

Yes. Thanks for the question, Nate. So I touched on it a little bit in the remarks there. So certainly, we continue to be excited with our commercial payments team. It's a team that we launched last April. We're being very deliberate in how we approach that market. But we have a great team. We've added people there and we're starting to see the benefit of not only having a pipeline but onboarding customers growing deposits, growing transaction volumes and correspondingly ultimately fees that come along with that. So we're -- we're certainly excited about that, but we're also excited given our position in Chicago and the current competitive dynamics about our ability to continue to gain share in the commercial banking space here. As you know, we are today the largest community bank in the market. Tomorrow, when we go over $10 billion, we will be between $10 billion and probably $70 billion or $75 billion, we will be the largest local commercial bank in the market. So we like where we are, and we like the opportunities that we have across really all of our businesses, Nate.

Got it. That's really helpful color. Changing gears to capital. You guys have continued to build at pretty strong clips, just given the profitability profile. And I noticed in the last couple earnings decks, the 8% to 9% TCE target has been absent. So curious if there's anything to read into that just in terms of how you think about capital returns to shareholders and what that implies in terms of the M&A environment these days. Or if you're just looking to maybe operate with higher capital levels going forward versus the previous targets?

Yes. I think from if you think about it in terms of -- we always talk a bit about always wanting to have some degree of flexibility that comes with it. So we do carry a bit more capital to allow for that. I think our experience has been that, that has served us well. It has allowed us to move very, very quickly and really without any hesitation or delay when opportunities come up in the market, and we like that. That being said, I think this past quarter, I think you also saw the comments related to the increase in dividends to the degree that we have excess capital, we will -- and we have no immediate use for it. We will find ways to return that capital back to shareholders. As you know, this past quarter, we were active, we were repurchasing shares. We thought we repurchased shares at attractive prices and also over time, and I think you've heard the comments, we want to have a sustainable and growing dividend over time.

And I think our Board took action in that regard with the dividend increase that we just announced. So hopefully, that's indications of the capital priorities. We obviously want to have capital to take advantage of to grow the balance sheet, grow organically, support the growth of the business; two, have a sustainable dividend; three, have enough flexibility to pursue M&A when and if those opportunities surface. And then lastly, we have the buyback program in place. As you know, we also announced an authorization to buy back up to 5% of shares outstanding. So we think the combination of that gives us enough flexibility to do what we need to do in terms of growing the business, but also at the same time, return capital back to shareholders if we have no use for that capital.

Okay. That's very helpful. If I could just sneak 1 more in for Tom. I think you mentioned in your comments that you're looking to reduce the asset sensitivity of the balance sheet going forward. Just curious if you could shed some more light on that and kind of how you think that positions the margin going forward in light of potentially additional Fed cuts this year?

Sure, Nate. The margin has been growing. We're happy with that. We like the idea that NII is growing. We continue to kind of try to -- we are issuing some CDs, but also we have some flexibility to do some more interest-bearing accounts. So just because of the mix of our bank, we really want to have some more floating rate liabilities. And I think we're set up well for that. It will take time to get there. But again, the disciplined pricing we've had going on over the last year here related to deposits has really helped to kind of lift the margin. And the goal is to kind of try and keep it stable. But again, year-end was -- we had a lot of activity in the fourth quarter, and we had some securities that we sold just to keep the bank under $10 billion. That was a really important effort for us. And so we'll -- it's likely we'll be buying those securities back here in the first quarter. So obviously, those transactions are a little bit tighter margin trades. We just think about -- that's why we focus on NII. So stable I would say, on growing net interest income.

Yes. And it also to add to what Tom said, Nate. It also -- again, just the common theme today seems to be flexibility. But with our margin, it gives us ample flexibility from a competitive standpoint. I mean we're not in a situation like other institutions are where they're trying to get their margin back up to a level that they need to get it to from a base profitability standpoint. I think with our margin today, it certainly gives us a lot of flexibility competitively that we can use when appropriate.

Our next question comes from Damon DelMonte from KBW.

Everyone you're all doing well today. Just looking color on the great looking for a little color on the loan growth outlook. I know you mentioned mid-single-digit growth, but -- can you just kind of remind us what areas of your lending platform offer the best opportunities kind of across which segments can drive that?

Really, I mean, commercial, I would still say that, Damon. Real estate I think it's going to be a function of transaction activity. It's not to say that there are not transactions happening, but certainly since rates started going up in 2022. I think transaction activity relative to what it was before has been somewhat muted. With rates coming down, is that going to change? Are we going to see some of that. Obviously, if that picks up, then probably what we would tell you at some point is that we've probably moved the move that guidance up. But at this point, I think that kind of mid-single-digit range is solid..

Got it. Okay. And then, Tom, with regards to your commentary on NII for next quarter, is typically first quarter like a seasonally low quarter for you guys and then you'll see like a steady build as we go through the rest of the year. Or do you think that there's not really in the first quarter.

Damon, you're right. Obviously, there's fewer days in the quarter. So that's 1 drag -- loan fees, et cetera, that go to the margin here a little bit lower during that -- during the first quarter. But generally speaking, again, stable to growing throughout the year.

Got it. Okay.

Yes. I would also to add to that, Damon. I think always we've gotten some rate cuts here towards the end of the year last year, naturally we're asset sensitive. So notwithstanding the fact that our margin expanded, but just putting that aside for a second. If we're asset sensitive, we see rate cuts there's a transition period, right? We have to catch up probably on a gradual kind of declining rate scenario. We have to catch up. It usually takes us about a quarter to catch up and be able to kind of reprice and reset. So just keep that in mind as you think about the rate environment going forward.

Damon, one more thing, Damon, just to point out is, remember, with the Fed cuts in the fourth quarter, the SBA loans reset January 1. So when you see guidance a little bit lower than what we actually reported for the fourth quarter, some of that is driven by the fact that we have loans resetting here January 1.

Got it. Okay. Great. And then with regards to credit and kind of your outlook for net charge-offs for the upcoming year as you kind of think about provisioning. I think last year, you had around close to 40 basis points of net charge-offs, which was down a little bit from '24. Based on what you're seeing in your portfolio, do you feel like you're kind of going to be in that near 40 basis point range again?

I think in the -- I think, Damon, our guidance has been pretty consistent on that like 30 to 40 basis points, somewhere in there. It might be towards the high end of that range. It might be towards the low end of that range, but somewhere in that kind of 30 to 40 basis points range at this point.

[Operator Instructions] Our next question comes from Brendan Nosal from Host Group.

Everybody. Hope you're all doing well. Likewise, good to hear from you. Yes. Maybe just to start off here on kind of the underlying pieces of the loan growth outlook. Just thinking between origination activity and payoffs. I think originations dropped 17% for this year to $1.3 billion or so like how do you think about the underlying pace of originations that are getting you to that mid-single-digit net growth outlook for 2026?

I think I would point you to that page in the deck that shows the kind of the trend of originations and payoffs. It's slide -- it's Page 6 of the deck where we talk about portfolio trends. I know throughout the year, we get questions sometimes in terms of, well, your loan growth is exceeding kind of the target -- and probably the answer that you hear us give is we have a pretty good handle in terms of what we're seeing from an origination standpoint. We think we know the activity that's going to pay off. But obviously, that's that at times, the timing of it, and it also can be a little bit harder to predict. And I think the past quarter -- the fourth quarter, certainly, you saw payoffs catch up a bit. So I would point you to that chart and kind of that mid-single-digit range in the categories that I highlighted, which is primarily our kind of commercial banking categories is really where we're going to expect to see growth and just.

The new ones quarter-on-quarter is going to be really that payoff number and our ability to actually be as accurate as we can be with that. So hopefully, that answers your question.

Yes, yes. That's helpful. Switching gears here to net interest income, but a bit more of a conceptual question. Like you folks have been outperforming your quarterly NII guide pretty consistently for the past I would say, 2 years or so, despite the short-term part of the curve coming down and your asset sensitivity. Is there a point at which you just gain a little more comfort with how your balance sheet is responding to this environment? Do you get a little more bullish with the NII outlook that you're giving.

That's a good question. I mean I think Alberto touched on it with the loan payoffs. I mean I think loan payoffs were probably lower overall for the year than expected. So we benefited from some NII related to that. We continue to hear that payoffs will probably be a little bit higher. So I think that's where we probably provide some caution -- but generally speaking, I think we've done a really good job on deposit pricing. We still are growing, so we need to grow more deposits. I mean we just had some, call the fourth quarter noise because of the $10 billion, but we continue to focus on deposit growing core deposits first and foremost, and then sprinkle and then some other deposits to help support the balance sheet.

But look, we're continuing to grow NII. I think it's grown meaningfully. I think we've done well on the rates down scenarios that have happened that we've been able to have stable and growing NII. I think at some point, you run out of room there to continue to drop deposit costs in a meaningful way. And I think you still have to be mindful of the competition and the other banks that are growing. So I think our numbers are really strong still. And I think we're really proud of the results we've had. But it really is a function of loan growth and low-cost deposits, and we have seasonality that happens and a lot of our deposits that we saw leave in the fourth quarter, we've already seen a recovery on some of that. So we will benefit from that. as well. And I think then, furthermore, we'll just see how the payment scheme does and then the benefits we get from that will probably give us a chance to say guidance could be better.

Yes, I would -- those are a couple of thoughts. Just to add just another -- a bit more on the deposit pricing thing. We've been outperforming our own internal models as it pertains to it. So you're probably a question that you have in your mind is, well, what are you guys doing? Why is that? And I think I touched on that a quarter or a couple of quarters ago that look, I think analytically, we're getting a little bit better and being able to segment our portfolio more granularly and therefore, be able to make more precise pricing decisions and different pockets or segments of the portfolio. So I think we're getting better at that operationally, and that's resulted in some of the, call it, the -- even against internally what we expect some of the outperformance.

But -- so there's some of that, that you're seeing come into play, and I think you saw it in terms of how quickly we've been able to reprice liabilities here with -- in the fourth quarter with a changing environment. But that said, ultimately, we will exhaust that. And that has -- ultimately will have limits, meaning it will catch up, but that's just something to keep in mind in that we've -- it hasn't been just -- how confident are you to provide higher guidance? It's been -- we've actually been kind of performing better than what we thought internally we could do. And that's been obviously a positive overall. So just keep that in the back of your mind.

Yes. That's super helpful. I'm going to sneak 1 more in here. Just on the SBA business. I mean, the gains on sale have been compressing for a couple of years now. Is there a point at which like the risk-adjusted return that you're getting for the overall business, including lending plus gains isn't up to where you want it to be? And like how far are we from that point today?

I still think, Brendan, we're pretty far from that. And I would also point you when you look at the compression and the gain on sale margin, a lot of that has to do with the mix I mean, as you can see on the chart on Page 9, where any time that you have a higher proportion of loans that are longer tenor loans, so like 25-year term versus 10%. That mix between 10 and 25 drives that. And certainly, to a degree that you have other types of government guaranteed loans like a USDA loan here or there, that also impacts the gain on sale margin. But to answer your question on the big picture side of it, I think you would have to see materially materially much more compression for it to get to a point where you start to rethink whether on a risk-adjusted basis, this is still attractive.

[Operator Instructions] Our next question comes from Tara McEvoy from Stephens.

Maybe just circling back to the commercial payments team. Are these clients or customers, are they fintech companies? And if so, could you talk about the due diligence you're doing there? Are they more traditional payments to your commercial customers? And Alberto, what maybe some medium-term goals and objectives that we can kind of track over the next couple of years to track the progress?

Yes. Good question, Terry. So I think on that commercial payments business, I would say so far, think of like -- so I'll give you an example. So payroll processing companies. So not necessarily kind of like a small commercial customer, but a payroll processor that provides payroll services and as part of those services is the ability to originate and process payroll payments for their client base. And we would be, for example, the banking institution behind that, providing the infrastructure to allow that to happen. So that's an example. I would tell you some of the clients that we've onboarded have been in that particular vertical. But we also want to look for opportunities beyond that in terms of -- you mentioned fintech companies that would need to have a payment element to their business.

In other words, it could be something along the lines of embedded finance or a company that's trying to embed payments into their product offering to their end clients. So that's certainly something that we could entertain. We could entertain that with just traditional access to the payment rails, but also we could do it through access to supporting their issuing of cards or their acquiring of card transactions. So that's just a flavor of the capabilities of the team that we have and the business that they're going after. And as far as metrics going forward, I think we'll keep you up to date. Certainly, we're off to a good start. I would tell you it's been deliberate. We hired that team -- we launched the business in April of last year. The team came on board fully a year earlier. So this has not been a quick build. It's let's make sure that we have processes, procedures, policies and the infrastructure to properly be in the business and support the clients that we want to do business with.

The last thing I would say is also think about it as not really a shotgun approach. We're not trying to onboard 10 or 15 customers a year. We're trying to onboard 3 or 4 and the onboarding process for the reasons that you are thinking of is 6 to 9 months. And that's just to make sure that from a compliance process, procedures, policies, we are comfortable supporting the banking needs of those customers. So hopefully, that gives you some color on that business.

Yes. That's great. And then maybe just 1 quick last one. Did the government shutdown impact the SBA business in Q4, and it didn't look like it from a revenue standpoint? And did anything get pushed out into the first quarter? I know Tom said Q1 is going to be down a bit, but was just wondering there.

It always has a little bit of an impact, Terry, but I think we would just tell you it was -- it's immaterial.

Our next question comes from Brian Martin from JaninGomeryScop.

Say, just 1 on -- I think I'm not sure who mentioned it, but maybe when Hoover was talking about the swap income, just talked about maybe a bit more focus on fee income this year. You've already touched on the SBA. I guess just kind of wondering the run rate we're at today, around $16 million and kind of is that a good sustainable level and then it grows from there given kind of focus there and maybe where the focus is to maybe improve that run rate as you look into '26?

I think it's a good level. We want to see that absolute number go up. The answer is yes. I think a couple of areas. Tom mentioned swaps and derivatives and things of that sort. So we want to continue to do as much as we can there. Obviously, that's a bit of a rate-sensitive dynamic, but we certainly want to continue to offer those products and services and take advantage of situations where we can do that.

Second would be I touched on the commercial payments business, while the side effect of that is fee income, treasury management fees and the like. So certainly, that's 1 area that we want to see grow. Our wealth management business, which is a small part of our business today, but we grew nicely this year. We're getting closer and closer to be able to eclipse the $1 billion in assets under management, which is a milestone given the size of that business today. So hopefully, over time, that business gets to contribute a bit more. And then you obviously have the gain on sale business from our SBA government-guaranteed lending business.

Got you. Okay. That's helpful. And I guess maybe 1 for Tom. Just given some of the noise, I think you talked about Tom at year-end with kind of managing the balance sheet to the $10 billion level. Can you help us just maybe a guidepost on the average earning assets in 1Q, just given end of period, fourth quarter was a bit lower than the average for the quarter, but knowing your commentary about kind of buying back some here in the first quarter, kind of a landing spot or just kind of a range and I think about the earning asset base for 1Q?

I think kind of in that $150 million to $200 million Brian. I mean we had -- in the fourth quarter, we had a number of payoffs. The payoffs kind of came early in the quarter and the loan growth came towards the end of the quarter. So I think that plus the fact that we had about $100 million of securities that we had cleaned up for the portfolio a little bit. So I would call it $150 million to $200 million and more earning assets, but still below $10 billion in total assets for the first quarter

Yes. So the average in the fourth quarter was 9.2, but the period end was closer to, call it, 9 maybe. So maybe it's a $9.2 billion level as kind of a a decent way to think about 1Q as a landing spot broadly.

I think so -- that sounds right.

I appreciate that.

No, I was going to say, Brian, just I commented on it, and Tom commented on it as well. And just to be clear, towards the end of the year, we just wanted to make sure, and we had levers to pull. We just wanted to simply make sure that we were not going to be over $10 billion. So that is the comments related to really balance sheet management were really attributed to that. We just wanted to make sure that as of that snapshot of 12/31 we were not going to be over $10 billion. So we achieved that. We don't have that constraint going forward. So to Tom's point, I think you will not really see any type of management activity to try to keep us below a certain level in terms of assets.

Yes. No, I appreciate that, Alberto. That's kind of what I figured. I just want to make sure I had the right starting point given all the noise in there that, like you said, was just the management function. So thank you for that commentary. Maybe just 1 just on the credit quality front, any changes in the -- any material changes, I'm assuming no in the criticized or classified levels from third to fourth quarter when we see the filings come out?

No material changes just as on flows. We're going to be -- I mean, you certainly know us, we're going to be quick to -- if we see something, we're going to be very, very quick to downgrade, even if it means to downgrade something to criticize. And we certainly have a view anytime we do that. We have a plan. Where is the credit? Where is the trajectory of the credit, like we had it in a short period of time. Is this temporary? Do we expect this to be ultimately to correct itself? Are they -- is the borrower taking the right corrective actions in which case, you will see us -- we'll see that credit migrate back. If not -- if we don't have confidence in that, then we look to move the credit quickly out of the bank. So -- but no, I would tell you, it's just ebbs and flows.

Okay. Okay. And the last 1 for me is just -- I know Tom has talked about the NII dollars. But just in terms of the margin percentage, I guess, would it make sense that there's -- given the outlook for rates this year with maybe potentially 2 costs out there, but really less noise than last year from a rate perspective that maybe the core margin, when you think about an accretion there's a little bit more stability in that margin this year. I'm not sure what's baked into the guidance in terms of NII, but just thinking about it intuitively that we don't see much rate movement, maybe that core margins a bit more stable or steady as you move throughout the year? Or is that not...

It's going to be stable Brian, I hate to talk about margins. But it's going to be stale. I mean it has grown. I don't know that you can expect it to continue to grow -- but I think we'll take the margin we have. And if we can maintain it throughout the year, I think we'd be pretty satisfied with that.

Yes.

I apologize for asking the question, Tom. I know I didn't bias question with the rate environment. So I appreciate the color. And I thank you for the questions and congrats on a great year.

Yes. Thank you, Brian. We appreciate it.

Thank you very much. We currently have no further questions. So I'd just like to hand back to Alberto to Paracchini for any further remarks.

Great, Carli. So to everyone on the call, thank you for joining us today. We appreciate your interest in Byline, and we look forward to talking to you again next quarter. Thank you very much.

As we conclude today's call, we'd like to thank everyone for joining. You may now disconnect your lines.

Good morning, and welcome to the Byline Bancorp Third Quarter 2025 Earnings Call. My name is Carlin. I'll be the conference operator today. [Operator Instructions]

Please note that this conference call is being recorded. At this time, I'd like to introduce Brooks Rennie, Head of jInvestor Relations of Byline Bancorp. .

Thank you, Karli. Good morning, everyone, and thank you for joining us today for the Byline Bancorp Third Quarter 2025 Earnings Call. In accordance with Regulation FD, this call is being recorded and is available via webcast on our Investor Relations website, along with our earnings release and the corresponding presentation slides. .

As part of today's call, management may make certain statements that constitute projections, beliefs or other forward-looking statements regarding future events or the future financial performance of the company. We caution that such statements are subject to certain risks, uncertainties and other factors that could cause actual results to differ materially from those discussed.

The company's risk factors are disclosed and discussed in its SEC filings. In addition, our remarks and slides may reference or contain certain non-GAAP financial measures, which are intended to supplement, but not substitute for the most directly comparable GAAP measures.

Reconciliation each non-GAAP financial measures to the comparable GAAP financial measure can be found within the appendix of the earnings release. For additional information about risks and uncertainties, please see the forward-looking statement and non-GAAP financial measure disclosures in the earnings release. As a reminder for investors, this quarter, we plan on

attending the Hub Financial Services Conference in Naples Florida and the Piper Sandler Financial Services Conference in Miami in November. With that, I would now like to turn the conference call over to Alberto Paracchini, President of Byline Bancorp .

Thank you, Brooks, and good morning, everyone, and thank you for joining the call this morning to go over our third quarter results. With me today are Chairman and CEO, Roberto Herencia, our CFO, Tom Bell; and our Chief Credit Officer, Mark Fucinato. .

This quarter, we streamlined the format to focus on key highlights for the quarter and our financial results so we can move quickly to Q&A and allow ample time for discussion. Before we get started, I'd like to pass the call over to our Chairman, Roberto Herencia for his remarks. Roberto? .

Alberto, thank you to all. I appreciate you spending some time with us here this morning. The quarter capped a string of 12 consecutive quarters of very strong financial performance and highlights the consistency of our execution, the resiliency of our business model and the optionality and flexibility we strive to maintain in our operating model. The team continues to run a very good bank. And for that, we have to thank our team members and employees, results reflect each and every one of their contributions, which we value dearly. This quarter, our SBA team on above and beyond anticipating government shutdown and allowing us to end the quarter strong and prepare as well for the end of the shutdown whenever that comes. .

Profitability metrics for the quarter were once again to quartile Alberto and Tom will review. Credit quality continues to be stable to improve in some segments, which against the backdrop of macro uncertainty, heightened geopolitical tensions, and more recently, the federal government shutdown has been repricing to the positive. We continue to be vigilant over those risks.

Capital flexibility is a major differentiator. Our capital ratios are strong and continue to build amid strong profitability and solid revenue growth. Our primary deployment options, which Alberto has covered clearly in the past continue to be the same. Our $10 billion asset threshold and M&A remain unchanged. We are open to disciplined deals that make sense, like the ones you have seen in the past, we have the capital to be opportunistic and believe we can deliver strong financial results on our own without the need to force a deal. And the things that truly matter that our employees have tangibly achieved since we last spoke to you.

We were recognized by the SBA in early August with the 2024 SBA 7a 504, and Expert Lender of the Year. For the second year in a row, the Chicago Sound times as named by line Bank, 1 of Chicago's best workplaces. We now ranked as 1 of the top 25 workplaces in the city and among large companies. These results are based on our workplace policies, practices, philosophy, in addition to employee survey results, measuring the employee experience.

Byline was also named once again to the 2026 America's Best Workplaces as a result of our high level of employee engagement scores on our annual survey. We continue to be very focused on employee engagement, development and attracting the best talent. We continue to experience as a result, low levels of employee turnover. With that, I'm happy to turn over the call to Alberto.

Great. And thank you, Roberto. In terms of the agenda for today, I'll kick us off with the highlights for the quarter, followed by Tom, who will cover the financials in more detail. I'll then return with closing comments before we open the call up for questions. So with that, let's turn to our results. .

For the quarter, we delivered net income of $37 million or $0.82 per diluted share on revenue of $116 million, a strong performance driven by solid execution. Revenue and EPS grew both quarter-on-quarter and 13.6% and 19%, respectively, on a year-on-year basis. Our performance continues to reflect excellent profitability with pretax preparation income of $55 million, pretax preparation ROA of 2.5% and ROA of 1.5% and ROTCE of 15.1%, which remains comfortably above our cost of capital, notwithstanding continued growth in our capital base.

The margin expanded 9 basis points from last quarter to 4.27%, supported by an improved deposit mix and higher asset yields. Expenses remain well managed. And while our efficiency ratio is strong at 51%, we continue to actively look for ways to become more efficient and invest in the business at the same time.

Moving on to the balance sheet. Loans grew 6% linked quarter and 11% on a year-to-date basis ending at $7.5 billion. Deposits totaled $7.8 billion at quarter end and were up 1% linked quarter and 7% on a year-to-date basis. Demand for credit remained stable from last quarter with originations coming in at $264 million, driven by our commercial banking and equipment leasing teams.

Moving to credit. Credit costs declined this quarter with the provision coming in at $5.3 million, a decrease of $6.6 million compared to last quarter. Asset quality metrics all improved with NPAs, NPLs and net charge-offs all declining compared to the prior quarter. The allowance remained strong at 1.42% of total loans.

Turning to capital. Capital levels continue to grow and remain robust with CET1 surpassing 12%. Tangible book value per share grew nicely this quarter, up 5% linked quarter and 12% year-on-year. This quarter, we also refinanced $75 million in subordinated debt. We leveraged the upgrade to our credit rating earlier this year with strong market demand to issue debt at an attractive level that reflected a 266 basis point improvement in our credit spreads.

With that said, we continue to build capital to support balance sheet growth, future M&A opportunities and increased capital flexibility. With that, I'd like to turn over the call to Tom, who will provide you with more detail on our results.

Thank you, Alberto, and good morning, everyone. Starting with our loans on Slide 5. Total loans increased $107 million or 6% annualized and was $7.5 billion at September 30. As Alberto mentioned, origination activity was solid for the quarter, with $264 million in new loans, up 25% compared to a year ago.

Payoff activity decreased $41 million from Q2 and stood at $205 million. Loan commitments grew and draw activity added to the loan growth for the quarter, even as line utilization remained relatively flat at 59%. As we look ahead for Q4, we expect loan growth to continue in the mid-single digits. I would like to note that our loan growth could be impacted somewhat by higher government loans, sorry, impact is somewhat higher by the government shutdown that goes into effect maybe in 2026. As a result, our government guaranteed loan originations will remain on balance sheet until the government is reopened.

Turning to Slide 6. I Total deposits were $7.8 billion for the quarter, up slightly from the prior quarter. The uptick in deposits was due to noninterest-bearing accounts increasing $160 million or 9% linked quarter which was driven by seasonality in deposits. This was offset by a decrease in time deposits, driven by lower brokered CDs and CD shifting into money market accounts.

We saw a continued improvement in the mix which drove deposit costs lower by 11 basis points to 2.16%. Turning to Slide 7. We had record net interest income of $99.9 million in Q3 up 4.1% from the prior quarter, primarily due to organic loan growth and lower rates paid on deposits. This was offset by higher interest expense related to refinancing of the $75 million of sub debt this quarter which contributed a 7 basis point drag on NIM.

The net interest margin grew to 4.27%, up 9 basis points linked quarter and year-over-year NIM expanded 39 basis points. Specifically, we saw lower interest expense on deposits and higher rates on earning assets. As a reminder, our SBA loans reset on a quarterly lag. As a result, the mid-September rate cut is effective October 1. With the market expectations of 2 Fed cuts in the fourth quarter, we expect net interest income of $97 million to $99 million.

I would note that earning asset growth and disciplined pricing has generated a growing NII in this declining rate environment. Turning to Slide 8. Noninterest income totaled $15.9 million in the third quarter, up 9.5% from the last quarter, primarily due to $7 million gain in sale on loans sold, driven by higher volumes, the SBA loan pipeline is solid. However, due to the government shutdown, we are currently unable to sell and settle loans in the secondary market. Timing will determine the impact of our gain on sale income for Q4. As a result, we will not be providing gain on sale guidance for the fourth quarter.

Turning to Slide 9. Our noninterest expense came in at $60.5 million, up 1.5% from the prior quarter. The increase reflects higher salary and employee benefits, including a $2 million in higher incentive compensation accruals due to higher performance and a $1.5 million increase in noninterest expense, which includes $843,000 of remaining expense associated with the call subdebt. These were partially offset by merger-related and secondary public offering expenses recorded in the second quarter.

Our efficiency ratio stood at 51% compared to 52.6% in the second quarter, an improvement of 161 basis points. For Q4, we expect noninterest expense in the same range as Q3 results. Turning to Slide 10. In the third quarter, we saw credit metrics improve. Our allowance for credit losses decreased slightly to $105.7 million, representing 1.42% of total loans down 5 basis points from the prior quarter.

The decline was primarily due to individual loan resolutions in the quarter, offset by loan growth and higher adjustments to economic factors. We recorded a $5.3 million provision for credit losses in Q3 compared to $11.9 million in Q2. Net charge-offs decreased to $7.1 million compared to $7.7 million in the previous quarter. NPLs to total loans and leases decreased to 85 basis points in Q3 from 92 basis points in Q2. NPAs to total assets decreased to 69 basis points in Q3 from 75 basis points in Q2.

Moving on to capital on Slide 11. This quarter, our capital increased further with CET1 at 12.15% and tangible common equity ratio was 10.78%. We increased our tangible book value per share by $1.02 up 5% linked quarter and up 12% compared to last year. For the quarter, our total capital was 15.81%, which grew meaningfully due to the sub debt issuance. If you exclude the sub debt that was called on October 1. Total capital is approximately 15.14%. With that, Alberto, back to you.

Thank you, Tom. So to wrap up on Slide 12. We continue to execute well against our strategic priorities and our focus on building the preeminent commercial banking franchise in Chicago. .

Earlier this year, we announced the expansion of our commercial payments business and the hiring of an experienced team to lead that effort. We've been focused on putting the infrastructure in place, establishing the requisite controls and I'm happy to report that our pipelines are starting to build.

Looking forward, we're focused on onboarding customers and scaling the business in 2026. We're also getting closer to the $10 billion asset mark. We anticipate crossing the threshold during the first quarter of next year, which means we will not see the effect of Durbin and higher insurance assessments until 2027.

Looking ahead for the rest of this year, our pipeline remains healthy, and we're optimistic about our ability to continue to execute for customers and deliver results for our shareholders. I'd like to thank all of our employees for supporting our customers and for their contributions to our results this quarter. With that, operator, we can open the call up for questions.

[Operator Instructions]

Our first question comes from David Long from Raymond James.

Lets talk about the margin here and net interest income. The bank screened as asset sensitive. If you look at Slide 7, and it indicates each 25 basis point cut in a ramp scenario hits your NII by about $2.5 million. What are the assumptions that are built into that right now? .

Dave, it's Tom. I mean we have beating the model assumption I think it's in part due to what the competition is offering us as far as rate resets on deposits. And I think, again, we talked a little bit about in the past, some of the premiums that were maybe paid during the liquidity events of years past, and we continue to look at the competition and look at where we can adjust rates, and I think that's what we've been really disciplined on.

Dave, to add to what Tom just said, I think also analytically we're better, and we have gotten better. So in addition to just the competitive environment in Chicago overall improving over the years and becoming -- for those of us that have been in the market for a long time, becoming certainly much more rational over the years, I think analytically, we're getting a bit better in being able to segment customers and being able to basically drive improvement and cost related to accounts and the different segments of our business, which has contributed to what Tom just said, which is essentially just outperforming our model a bit. So I think that's you're seeing the effect of that.

And I would also just add, you can look at the yields on loans and given the rate declines, you are seeing loan yields come down just from the reset based on the mix between fixed and floating, we have benefited a little bit more too because rates have been higher. So any of the fixed rate refinancings that have been coming cash flowing out, we've improved nicely on, including securities. .

Got it. No, that's some very good color. And then in the quarter, the obvious -- I would say, on the fund side, real nice change in the mix, your funding, your deposit costs, in particular, came down, wiggle room do you have on the funding side and the deposit side to still lower those costs, giving you an opportunity to continue to beat this model. .

Again, I think we are asset sensitive, and we do expect -- I gave guidance on NII. We have obviously asset growth that's helped us nicely too, but we have some room on the CD book. It continues to reprice lower. We've been very short on the CD book. And I think there are certainly some rack rate deposits that we're not going to be able to reprice. So it's kind of a mix, Dave. .

Our next question comes from Adam Kroll from Piper Sandler.

This is Adam Kroll on for Nathan Race. Yes. So I guess, given the recent pickup in M&A activity, especially in the Midwest and with your capital continue to build a pretty strong clips. I'd be curious just to hear your updated thoughts on M&A and how you're thinking about managing capital levels.

Yes. So I think Roberto touched on it right at the beginning of the call, Adam. And I think we're certainly open for M&A. So we're -- in terms of the usual discussion around how our conversations, I think we actively engage in conversations. So I think that remains consistent. So we're certainly open and actively looking at opportunities that may present themselves in the marketplace here, but that's going to be I think, consistent with the discipline around transactions that make sense for us to do that we think deliver value for shareholders.

So with that caveat, I think we continue to look at opportunities and are hopeful that we'll be able to continue to find situations that make sense as we have done in the past. As far as capital priorities, I think those also remain consistent. We want to fund the growth of the bank. We want to have capital that we can use opportunistically for M&A. We want to have a stable and growing dividend that we can comfortably afford and we have the safety valve, which is, we have a buyback authorization in place. And when we have opportunities to acquire our stock at attractive levels, we have the flexibility to do that.

Got it. And then I appreciate the comments about crossing $10 billion organically next year. But I was just curious if you could size up the estimated impact from Durbin?

I think -- I'm glad you asked the question because we get -- we have not been asked that question directly on the call. So I think for Durbin today, as we would look at the impact, it would be somewhere between $4.5 million to $5 million on the -- and that includes the FDIC effect as well. And that would -- as you know, if we cross at any point in 2026, the Durbin impact doesn't really go into effect until July 1 of the following year. So that would be 2027 whereas the effect of higher insurance costs comes after 4 consecutive quarters above $10 billion. .

Got it.

Yes. No, and thank you for asking the question because now we have that on the record. .

Yes, no problem. If I could squeeze in 1 more. Just I appreciate the comments on Byline anticipating and preparing for the government shutdown. But I was curious if you could just touch on how the government shutdown has impacted your SBA business so far. And is there an upcoming deadline where it will materially impact your gain on sale in the fourth quarter?

Very good question. And as you know, we have been in the SBA business for some time. So we've had to navigate through shutdowns before. So our team is very experienced in terms of being able to navigate through usually the short-term impact of a shutdown. So I think the first thing I would say is from an origination standpoint, we continue to be active in originating SBA loans. So that continue to market, continue to try to originate new business on things that are in the pipeline, what we do is we tend to -- in anticipation of a shutdown, we pull PLP numbers so that we can continue to fund and close those loans, given that we have the highest designation in the program as -- under the preferred lender program. .

The thing that potentially gets impacted, and it typically is a timing issue is during a shutdown, we cannot sell and settle loans, so to the degree that we have loans that are available for sale and ready to be sold and the shutdown is still in effect and we are effectively holding those loans until the government is back to work and we can then sell the loans in the secondary market. And that's typically a timing issue. So I would say in the short run, unless we really get here into a protracted shutdown where we're here, let's say, mid-November or so, and the government is still not back to work, that may impact the timing of loans that we would otherwise would be selling in the fourth quarter, we may then sell probably in the first quarter. So that would be the short-term impact. And obviously, that has a positive effect, too, because where essentially, even though we can't sell them. So yes, there might be a delay or a timing issue with gain on sale income, we actually earn the carry on the loan because we'll carry the loans on our balance sheet -- so -- but that's -- hopefully, that answers your question, and I think that's in short the summary on that.

our next question comes from Brian Martin from Janney Montgomery Scott.

Congrats on the quarter. So, Tom, you mentioned in your remarks, I think on the deposit mix change. It sounds as though maybe that may bounce back a little bit with the DDA, just in terms of how to think about kind of NII margin. Some of that was seasonal, the strong growth this quarter and the mix change? Or is that -- do you think it's kind of sustainable where that mix is at today?

No, that's correct. It's seasonality, there were outflows in DDA.

All right. And then can you just talk a little bit about -- you guys talked about the competitive landscape. I guess heard from several other banks recently, just the competition has gotten stronger on the deposit side and even on the loan side in the market, what you're seeing competitively? Is it sounds like it's gotten a little bit easier from your commentary, but that's over time rather than just kind of recently. But just the competitive landscape, just a little commentary, if you can, on loans and deposits. .

It's still competitive. I would just, again, remind everyone, right? We're still a relationship bank. We bring in core deposits with our commercial accounts and that helps support our margin and our spreads. So it's not all at the margin funding that's going on here. So that -- we're benefiting from that. And then I think just being short on the CD book has allowed us to reprice just given the expectations of more cuts to come here. .

So it's still competitive. I think you can see where the market is trading or offers are for new money, so to speak, but it's more about the relationship and the small business banking relationships and our commercial relationships.

Brian, just to add to 1 thing on the question on -- particularly on the asset side. I think Tom is spot on in that it's always competitive. But look, when you look at markets in general, whether it's investment grade, whether it's high yield, spreads are at all-time tight levels. So it's not inconsistent to think that some of that would spill into kind of the market. And from -- and yes, we see some of that, yes. Some businesses have gotten a little bit more competitive. There's more competition. People are willing to trade off a bit more in pricing in order to get high-quality transactions. But it's always competitive, and it's -- you just have to manage your business accordingly. .

Got you. No, I appreciate that, Alberto. And maybe just 1 back to the margin. Just 1 comment, Tom. I guess it sounds like obviously, a good expansion in the quarter, but it sounds like even with that expansion, you kind of went through the benefit from -- you had the impact on the sub debt and they're just trying to get a sense for maybe if you can talk -- give a little thought on where the margin, given the seasonality that comes back on the DDA and then the impact of that sub debt in the quarter, kind of where did the margin kind of end the month or exit the quarter in September. This is kind of a starting point as we look forward. .

Brian, our NII guidance is still right in the same range. It's a little bit lower on the low end, just we are expecting 2 cuts here in the fourth quarter. So we are still asset sensitive, and we will have some slight decline in net interest income from that. So the margin would go down a little bit, I would say, to be determined based on the Fed cuts. .

Okay. All right. And maybe just the last one . .

It's about $1.5 million related to the interest expense on the sub debt that goes away. So that benefits us. We have earning asset growth that benefits us. So we still think we're in the same range .

Yes. Okay. I appreciate that, Tom. And then last one for me was, can you guys just give a little commentary just talk a little bit about the commercial payments team and kind of where that -- kind of what that business is and where it's -- what your expectations kind of high level are without just so we can watch that going forward. .

Sure. You bet. So I think earlier in the year, we announced and there are some -- we actually got some picked up in press in that we had hired a team, some experienced bankers, some of our bankers here had worked with these individuals before so we had an opportunity to really bring on board high-quality talented individuals, and we were fortunate to do that. But the gist of that business is really a commercial payments business. So think about high trying to do business with businesses that are -- originate a lot of ACH transactions, process payroll, for example, so you would have payroll processors in that business as well as looking to be a sponsor bank for issuing and acquiring debit or prepaid cards.

So that -- in summary, Brian, that's kind of the gist of the business. I like to use the term commercial payments because it's -- it's really more on the commercial banking side as opposed to -- this is not a retail product. There's not something that's targeted at consumers is really trying to do business with program sponsors that are high users of payment products. And so far, I think, as I said in the comments, initially, it's about building the infrastructure, having the proper controls, making sure that we have the necessary hires to support the team, not just from a sales standpoint, but operationally and from a risk management standpoint.

So that's been completed. We've been actively calling and trying to start building the business. The pipelines are growing. We have customers that were in the process of onboarding. These are, as you could probably imagine, these are not -- these are -- there's more to onboarding a high-volume type commercial customer as opposed to a simple -- a simpler kind of loan and deposit basic relationship. So the onboarding process a little bit lengthier. But we feel good where the team is, the pipeline is building, and we'll start seeing the impact of that in 2026 and beyond. So we're super excited about that segment of our business. .

Got you. And just to clarify, those credits are typically -- are they smaller granular credits are they larger credits? What's kind of the typical size range in those transactions. .

Yes, there's very little in credit, if any. It's really just a function more on the deposit side and on the treasury management side. .

[Operator Instructions]

Our next question comes from Brian Stephens. .

Most of my questions have been asked and answered already, but maybe just 1 modeling question here. Do you have the amount of fixed rate loans that are maturing over the next 12 months? And how do those yields compare to your new origination yields? .

Yes. For 2026 it's roughly like $750 million. And I would say that, again, depending on what happens with the forward curve rates are at or slightly higher than where we are today. .

Okay. Got it.

So there's still -- there's still a lot of that

And maybe just 1 because it was a topic earlier in the earnings season, I should ask. Can you remind us of your NDF exposure and what clients fall into that bucket for you? .

Yes. It is -- so a general comment. So Brandon, we have roughly around $221 million that we would categorize in the call report as, so that represents just under 3% of our total loan portfolio. The one thing I would tell you about that, that consists of commercial-related transactions and business that we have done for a long time. So we are not -- that doesn't include anything.

We haven't started anything, for example, to have a business that's focused on financing private credit funds or financing structured asset-backed structured transactions. These are things like we finance, for instance, the acquisition of practices were a registered investment adviser acquires another small registered investment adviser, and we finance that practice.

So there's a lot of granularity in that exposure and it's not the -- I would say it's an exposure that's materially different than, for example, the couple of cases that you guys saw this quarter related to NDFI lending by some other institutions. .

Got it. Okay. And then Tom, I think your comment on expenses in the fourth quarter similar to 3Q, so 59-ish million on a core basis. Is that also a good run rate to start off with for 2026 and then layer on inflation and growth there? .

We're not really giving guidance on '26, but I would just say that there's incentive comp that's built in this year that, in theory, we reset for next year. So higher performance this year is warrantying higher incentives. So we start over, and I would expect those expense numbers to be lower. .

Our next question comes from Matthew Rent from KBW.

I hope everybody is doing well today. Just a follow-up to the expense question. I appreciate the guidance for next quarter. In the prepared remarks, you mentioned you believe you can get the efficiency ratio lower. So I was wondering if there's any initiatives you were contemplating or if there's any new technologies you're investing and that could drive operational efficiency.

Yes. Good question, Matt. I think maybe the right way to think about it is we -- this is something that we're constantly looking at. We're constantly looking for ways in which we can operate more efficiently. As you have -- if you look at the trend with our efficiency ratio, it tends to bounce up. I think we've been in that kind of 49% to 52% range, which compared to others compared to peers, I think we fare very well with it. What I would highlight with that is it's something that we always want to be focused on because it provides us with investment capital to reinvest back into the business. So I wouldn't view it as just we have a program that we're doing and we're trying to execute against that program. .

We're constantly looking for ways in which we can try to drive that efficiency as low as we can or at least we can maintain it at the levels kind of where it's at today so that we can generate opportunities for reinvestment back into the business.

Next question comes from .

This is First question is just to do with capital. We noticed that the share repurchasing kind of went down this quarter. Any thoughts on creating a more active repurchase program again and how you're thinking of reinvesting capital. .

Yes, I think consistent with the priorities that we mentioned earlier on the call, it's -- I think capital priorities is be able to support the growth of the company to support organic growth. have capital flexibility to pursue M&A consistent with transactions that like transactions we've done in the past, transactions that make sense, that meet our criteria. We certainly want to be able to execute on that and have the flexibility to do so. Maintain a growing comfortable dividend over time. And the last thing is really the safety valve, which is really if we find ourselves having excess capital and we have opportunities to acquire the stock at what we think are attractive levels for shareholders, then we would do that.

And then my follow-up question is to do with new loan yields. So you guys originated $260 million of originations this quarter. Can you speak to where new paper price this quarter in relation to the portfolio yield of 7.14%. .

Sure. This is Tom. I mean, again, depending on the asset class, you do have different yields. But I would still say that spreads are 250 over SOFR to 300 over. And then obviously, the SBA business is higher than that. .

[Operator Instructions]

Next question is a follow-up from David Long from Raymond James. .

I just want to follow up on credit. The 2 things. One is the reserve level looks like reserves were released in the quarter. Was that more a function of loan mix, portfolio performance or the economic outlook? .

I think it was more around the resolution of loans with specific reserves, David. So we work those assets out, we took the charges against the specific reserves, and we don't have those reserves anymore. .

Got it. And then with the SBA shutdown, how is that going to impact your reserving? I mean if you're going to hold on to these loans potentially a little bit longer, maybe just talk through that process and how you think about that. .

I mean we would look -- we would kind of -- if we're holding -- I think it's a good question. So thank you for asking. So if we're holding the full loan as opposed to the, call it, just the unguaranteed portion only, we would have to be thinking about more protracted shutdown, David, we would still probably carry those loans as held for sale. But to answer the philosophical question as to how we think -- if we were balance sheeting those loans, how we think about setting reserves, I think we would look through the guaranteed portion and look at the unguaranteed exposure and then reserve accordingly. .

Next question is a follow-up from Brian Martin from Janney Montgomery Scott.

One last 1 for me was on the -- going back to the M&A for just 1 moment. Just given the greater priority than the buyback can you just remind us, Alberto, just in terms of what you're looking for in a transaction, what's important on the M&A opportunities you're going to consider and does it matter larger or smaller today? Or would you think about doing multiple deals at once? Just trying to understand that dynamic .

Yes. I think the still very consistent with the what we think is the opportunity set here in Chicago. So broadly, Brian, I think institutions between let's say, $400 million and up to maybe a couple of billion dollars. Obviously, we've grown a bit. So we can have the ability to tackle something a little bit larger today than, let's say, what we did 2 years ago or 3 years ago. The geography is still consistent. The greater Chicago metropolitan area that does that mean strictly just the city limits of Chicago no greater Chicago, Chicago the suburbs, maybe going all the way up to Milwaukee, maybe going down a bit into Northwest Indiana.

I think that's that those are markets consistent with that. Financially attractive, strategically attractive and we pay, as you know, we pay a lot of attention to deposits if we think about the last 3 transactions that we've done, those were essentially transactions for us to acquire deposits and then redeploy those funds over time into the different lending businesses that we have.

So it would have to be consistent with that. But each opportunity is different. Each situation is different. And the good news is we built a team, and we have a lot of experience with the team that's here that's done transactions here as opposed to just general experience that we may have from just being in the business and having done M&A over the years. So we feel good about our team, our process, our playbook. And I think, hopefully, as you guys can have seen the results show that in our results, I should say. .

We currently have no further questions. So I'd just like to hand back to Mr. Paracchini for any further remarks. .

Great. So thank you, Karli, and thank you all for joining the call today and for your interest in Byline. We want to wish you a happy Halloween. A happy Thanksgiving holiday, happy holiday season, and we look forward to speaking to you again in the new year. Thank you. .

We conclude today's call, we'd like to thank everyone for joining. You may disconnect your lines.

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" Piper Sandler & Co., Research Division

" Keefe, Bruyette, & Woods, Inc., Research Division

" Hovde Group, LLC, Research Division

" Stephens Inc., Research Division

" Janney Montgomery Scott LLC, Research Division

Good morning, and welcome to Byline Bancorp's Second Quarter 2025 Earnings Call. My name is Carly, and I'll be the conference operator today. [Operator Instructions]

Please note this conference call is being recorded. At this time, I would like to introduce Brooks Rennie, Head of Investor Relations for Byline Bancorp to begin the conference call.

Thank you, Carly. Good morning, everyone, and thank you for joining us today for the Byline Bancorp Second Quarter 2025 Earnings Call. In accordance with Regulation FD, this call is being recorded and is available via webcast on our Investor Relations website, along with our earnings release and the corresponding presentation slides.

As part of today's call, management may make certain statements that constitute projections, beliefs or other forward-looking statements regarding future events or the future financial performance of the company. We caution that such statements are subject to certain risks, uncertainties and other factors that could cause actual results to differ materially from those discussed. The company's risk factors are disclosed and discussed in its SEC filings.

In addition, our remarks and slides may reference or contain certain non-GAAP financial measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures. Reconciliation of each non-GAAP financial measure to the comparable GAAP financial measure can be found within the appendix of the earnings release.

For additional information about risks and uncertainties, please see the forward-looking statement and non-GAAP financial measures disclosures in the earnings release.

As a reminder for investors, this quarter, we plan on attending the Raymond James Bank Conference here in Chicago and the Stephens Bank Forum in Little Rock in September.

With that, I would now like to turn the conference call over to Alberto Paracchini, President of Byline Bancorp.

Thank you, Brooks. Good morning, everyone, and thank you for joining the call this morning to go over our second quarter results. As always, with me on the call today are our Chairman and CEO, Roberto Herencia; Tom Bell, our CFO and Treasurer; Mark Fucinato, our Chief Credit Officer; and Brian Doran, our General Counsel.

Before we get to the agenda, I would like to pass on the call to Roberto for some comments. Roberto?

Thank you, Alberto, and good morning to all. I'm really very pleased with the results of this quarter. This is yet another very strong performance, including several metrics among the top quartile of our peer group and even stronger when reported numbers are adjusted to reflect core operating ratios. We continue to operate comfortably within the risk limits and criteria we've established. Our focus continues to be, becoming the preeminent commercial bank in Chicago.

Nothing beats clarity of communication internally with our employees and Board, and externally with our customers and the analyst, investor and regulatory community. As such, we continue to execute well on strategic plans we have shared at large, and we do so in a patient and honest approach to risk as we see some of our peers bet on mergers with out-of-state banks and expand into multiple noncontiguous states searching for what seems to be the shiny object today sites. This combination of communication and execution have allowed us to produce consistently strong results over the last few years.

It also has earned us a number of awards, which are meaningful to us and our deliberate approach to being home to the best banking talent in town. The most recent awards, for the month of June and July, we were proud to receive where 2025 Chicago Sun-Times Best Workplaces, U.S. News & World Report ’s 2025 Best Companies to Work For. That was in 3 categories: Best Companies in the Midwest, Best in Finance and Insurance, and Best Companies in the U.S. overall; and Forbes America's Best in State Banks.

These awards are based primarily on engagement survey data of our employees in addition to the array of employee programs we offer such as learning and career development, employee benefits and compensation. They reflect well on what we offer our people, work-life balance and flexibility, job and company stability, physical and psychological comfort and sense of belonging and esteem.

Our success and performance are anchored by the engagement of our people. We're proud of what they do and how they do it. Our people and leadership teams have done a terrific job. We can't highlight this aspect of our business enough.

With that, I'm happy to pass on the call to Alberto and the team.

Great. Thank you, Roberto. In terms of the agenda for this morning, I'll start with the highlights for the quarter. Tom will walk you through the financials, and then I'll come back and wrap up before we open the call up for questions.

In general, we are pleased with our results for the second quarter. Our financial performance remains strong, and we executed well on several strategic priorities.

Early in the quarter, we successfully closed the transaction with First Security, completed the system conversion and wrapped up the integration by the end of April. The transaction added approximately $280 million in deposits and $153 million in loans, along with several important commercial relationships.

I'd like to take the opportunity to welcome all former First Security customers, employees and stockholders participating on the call this morning. And I also want to give a huge shout out to all employees who took part in the conversion and integration efforts, as well as those who played a significant role on a systems upgrade to our online banking systems platform that was also completed in the second quarter.

Lastly, the end of the quarter marked Byline's 12th anniversary and eighth year as a public company. I would like to take a moment to recognize and thank everyone that's been a part of our story over those years for their contributions.

Turning to our results on Slide 4 of the deck. We reported net income of $30 million or $0.66 per diluted share on revenue of $110 million. These results include the impact of merger charges taken in connection with First Security and expenses related to a secondary offering of securities completed during the quarter.

Excluding those, net income came in at $33.8 million or $0.75 per diluted share. Profitability and return metrics were again strong with pretax pre-provision income of $51 million, pretax pre-provision ROA of 212 basis points, which marks the 11th consecutive quarter this metric has exceeded 200 basis points. ROA came in at a healthy 1.25% or 1.41% on an adjusted basis. And ROTCE comfortably exceeded our cost of capital coming in at just under 13% or 14.4% on an adjusted basis, notwithstanding our growing capital base.

Total revenue came in at $110.5 million, which was up $7.4 million for the quarter and 11% year-on-year. Revenue growth was driven by a 9% increase in net interest income stemming from higher balances. The margin expanded by 11 basis points to 4.18%, reflecting a better mix of both deposits and earning assets when compared to the prior quarter.

Noninterest income declined marginally due to a negative fair value mark on our servicing asset, notwithstanding higher gain on sale revenue and other fees. Expenses came in around $60 million, inclusive of charges. If we exclude those, expenses remain well managed at $54.7 million, marking a 2% decrease from the prior quarter. Adjusted for merger and offering expenses, our efficiency ratio was excellent at 48.2% for the quarter, and our cost-to-asset ratio came in at 228 basis points, which was down 18 basis points from the prior quarter and 6 basis points year-on-year.

Moving on to the balance sheet. We saw continued growth in both loans and deposits, which ended the quarter at $7.4 billion and $7.8 billion, respectively. Excluding the impact of First Security, loans grew by $155 million or 9% and deposits, excluding brokered, grew 6.4% quarter-on-quarter. Business development activity picked up from last quarter with originations coming in at $359 million, driven again by our commercial banking and leasing businesses. Offsetting this, we saw slightly higher payoff activity during the quarter.

Moving to credit. Credit costs came in at $11.9 million and consisted of $7.7 million in net charge-offs and a net reserve build of $4.2 million. Net charge-offs came in at 43 basis points or 28 basis points if we exclude PCB-related charge-offs. NPLs saw a 16 basis point uptick from last quarter, driven largely by lower resolution activity towards the end of the quarter.

The ACL remains strong at 1.47% of loans at the end of the quarter. The net reserve build was attributed to growth in the portfolio, the impact of First Security and net credit migration within the portfolio.

Turning to capital. Capital levels continue to grow and remain robust with TCE surpassing 10% and CET1 ending the quarter at just under 12%. Having strong capital levels provides us with flexibility, the flexibility needed to take advantage of opportunities when they present themselves.

This quarter, we had the opportunity to repurchase a large block of shares in a single transaction at what we considered attractive pricing. We capitalized on the opportunity and repurchased 418,000 shares, thereby returning approximately $10 million back to shareholders in addition to our regular quarterly dividend.

With that, I'd like to turn over the call to Tom, who will provide you with more detail on our results.

Thank you, Alberto, and good morning, everyone.

Our performance this quarter reflects strong financial results, driven by higher net interest income, healthy growth in both loans and deposits and disciplined expense management. These results underscore the resilience of our operating model, notwithstanding the uncertainty present in the economic environment. Starting with loans on Slide 5.

Total loans increased to $307 million or 17.5% annualized and stood at $7.4 billion at June 30, inclusive of the $153 million of loans added from the First Security transaction. Origination activity was strong for the quarter with $359 million in new loans, up 16% quarter-over-quarter and up 20% compared to a year ago. Payoff activity increased by $9 million from Q1 and stood at $245 million. Line utilization declined by 1% to 59%. Loan yields came in at 7.12%, up 3 basis points linked quarter, and our loan pipelines remain strong. For the second half of the year, we expect loan growth to be in the upper end of our mid-single-digit range.

Turning to Slide 6. Total deposits increased to $7.8 billion, up 13.7% annualized from the prior quarter, inclusive of the $279 million of deposits from First Security. The increase was due to money market and noninterest-bearing demand accounts and net of $130 million reduction in broker deposits. The improved mix drove deposit costs lower by 3 basis points to 2.27%.

Turning to Slide 7. We had a record high net interest income of $96 million in Q2, up 9% from the prior quarter, primarily due to the First Security transaction, organic loan growth and higher yields on securities offset by interest expense mainly due to growth in deposits.

The net interest margin grew to 4.18%, up 11 basis points linked quarter and on a year-over-year basis, NIM expanded 20 basis points. Specifically, we saw higher rates on earning assets and lower interest-bearing liability costs. Assuming the Fed is on hold for Q3, our net interest income outlook is projected to range from $95 million to $97 million. More importantly, our asset-sensitive balance sheet has generated growing NII over the past 5 quarters despite the rate cuts in 2024. This performance reflects disciplined balance sheet management, and we remain focused on sustaining this momentum going forward.

Turning to Slide 8. Noninterest income totaled $14.5 million in the second quarter, slightly lower than the prior quarter, primarily due to a $2.1 million negative fair value mark on the servicing asset and the change in fair value of equity securities. Our gain on sale guidance remains unchanged at an average $5 million per quarter.

Turning to Slide 9. Our noninterest expense came in at $59.6 million for the second quarter, up $3.2 million from the prior quarter, primarily due to the impact of the First Security transaction. The uptick in expenses was mainly due to merger-related charges, which includes higher salaries, employee benefits, increased professional fees and conversion costs.

On an adjusted basis, our noninterest expense stood at $54.7 million, which is in the lower end of our Q2 guidance range. All projected cost targets related to the First Security transaction are on track. We continue to remain disciplined on expense management and expect our Q3 noninterest expense guidance to trend between $56 million and $58 million.

Turning to Slide 10. In the second quarter, our allowance for credit losses increased to $107.7 million, representing 1.47% of total loans, up 4 basis points from the prior quarter. This includes a day 1 $3.2 million increase to the ACL for the First Security transaction. We recorded $11.9 million provision for credit losses in Q2 compared to $9.2 million in Q1.

The increase reflects adjustments for macroeconomic conditions, portfolio activity, including loan growth and the $864,000 double count related to the first security. Net charge-offs increased to $7.7 million compared to $6.6 million in the previous quarter. And excluding PCD, net charge-offs were $4.9 million, which represents 28 basis points. NPLs to total loans and leases increased to 92 basis points in Q2 from 76 basis points in Q1.

Moving on to capital on Slide 11. We had another solid quarter with strong performance metrics, resulting in an excellent first half of the year. More importantly, we continue to demonstrate our ability to execute against our strategic priorities.

For the seventh consecutive quarter, we grew our tangible book value per share, which was up 3% linked quarter and up 14% compared to last year. CET1 came in at a strong 11.85%, up 7 basis points linked quarter and up 101 basis points year-over-year. Additionally, the TCE to TA ratio stood at 10.39%, up 44 basis points from last quarter. For the quarter, we repurchased approximately 544,000 shares, and our dividend payout ratio was 15% of earnings.

With that, Alberto, back to you.

Thank you, Tom. Moving on to Slide 12. As you can see on the slide, our strategy remains consistent and effective. We're pleased with our financial performance and execution in the first half of the year, which reflects the momentum of our different initiatives as well as disciplined execution. Looking ahead, our pipelines remain healthy, and we continue to be well positioned to seize opportunities and continue to create long-term value for shareholders.

So, to wrap up, I want to take a moment to thank all our employees for all they do and for stepping up to the plate on a daily basis to support our customers and our business. And with that, operator, we can open the call up for questions.

[Operator Instructions]

Our first question comes from Nathan Race from Piper Sandler.

Was hoping to dig a little deeper into some of the loan growth commentary. It sounds like your pipelines are pretty strong and healthy heading into the back half of this year. And just in context of some of the earlier comments around just ongoing opportunities to take share. Just curious how much of the encouraging loan growth prospects you're seeing are a function of just continued share gains versus maybe just improved client sentiment now that we have some of the macro uncertainty from earlier this year somewhat behind us.

Good question, Nate. And it's hard to really break it down in terms of specifically what do we, where should we attribute that kind of healthy pipeline, kind of the growth that we've seen. I think what we would say is, notwithstanding the uncertainty in the environment and the fact that I think in general, when you talk to clients, they were mindful and cautious given all the talk around tariffs and ultimately, where tariffs would settle? Was it posturing to try to negotiate better trade deals? Or was this something that was really going to be impactful to their operations.

Notwithstanding all of that, customer activity has remained generally pretty healthy throughout. So we continue to see customers borrowing because they were expanding capacity. They wanted to buy equipment. They wanted to acquire companies and all of that. So it really, it wasn't something where we saw a pause and now we're seeing a resumption in pause. And then by the same token, we're also growing clients. So I think, I wish I could tell you, give you a more precise answer, but I think it's just a combination of both, Nate, in short.

Okay. That's really helpful. We've obviously seen M&A activity increase across the industry lately. And I know you guys are continuing to build capital at a pretty strong clip just given the profitability profile. So I would just be curious to maybe get some updated thoughts on kind of the M&A opportunities that may exist today and kind of how you're thinking about managing excess capital in the meantime between buybacks and so forth.

Yes. So first on M&A, I think, I mean, I think the, call it, the conversations and the chatter around M&A has been, I think, has been there over the course of the year. I think it was probably incredibly optimistic at the start of the year. And I think those expectations, along with the noise and the discussion in the environment surrounding tariffs and the likely impact of that tended to dampen those expectations a bit.

But I think as we get, continue to get more clarity around really what the trade policies of the administration are going to be and you start to see some of these trade deals get announced. And I think the market is starting to price in the likely impact of that. And I think it's probably more positive than what the market originally anticipated at the, when Liberation Day first came out.

So I think on M&A, look, conversations continue. I think there's certainly interest. I think it's transaction dependent. There are still some of the challenges for some potential sellers surrounding the mark-to-market on fixed rate portfolios, whether it be securities or loans, the impact that has on capital. So those challenges still are there and still exist.

As far as our kind of capital priorities, I think, Nate, we have a standard hierarchy that we use when it comes to capital. So first, we deploy capital to support organic and inorganic growth when the opportunities present themselves. Second, we want to support a sustainable dividend. And third, we repurchase shares. I would tend to agree with you that at the moment, we have a lot of capital flexibility. So I think everything is on the table, which is really a great position to be in at the moment.

Got it. That's really helpful color. And then maybe just one last one on credit, maybe for Mark. Just curious if you could shed any more light or color on the increase in nonaccrual loans and it looked like classified and criticized loans also increased in the quarter. So I wasn't sure if any of the provision in the quarter was tied to some specific impairments and maybe just some general thoughts in terms of what you're seeing in terms of some of the credit migration that occurred in 2Q.

Sure, Nate. Thanks. It was very granular. The things that we saw in the second quarter were not centered on a single line of business. Some event-driven decisions were made on certain credits. And as you know, 1 or 2 of our deals of any size can move our ratios. But I believe that we're still within our historical ranges that we've seen in terms of our metrics with credit over the last several years. I'd love it to get even stronger. We're working on that.

But we're really good at identifying problems and making real-time decisions on ratings in terms of strategies for our workout credits, and I expect that to continue. We're going to be very straightforward on trying to resolve things. Business resolutions are always the best. But sometimes we can't get a business resolution, so we have to change directions on a particular credit. But overall, I'm still confident we're in a good place, and we're doing the right things and making the right decisions regardless of what line of business the portfolio is we're talking about.

Next question comes from Damon DelMonte from KBW.

Just curious, given the increased optimism with the loan growth here in the back half of the year, just wondering how we should kind of think about the securities portfolio. I know you guys have been adding to that in recent quarters. Do you feel that, that level of growth will kind of slow down as you look to kind of remix the earning assets? Or do you think that given continued deposit growth, you could kind of store some of the liquidity in securities?

Damon, it's Tom. I think the only, weren't a lot of purchases for the first half of the year in securities other than the first; pardon the first security transaction where we acquired their assets there. We're likely just given the balance sheet to probably let just run off cash flows run off and go into funding loan growth at this point. There's a lot of activity on the balance sheet this quarter, as you saw between the home loan bank borrowings being reduced, broker deposits being reduced and kind of the cash. But we're still mindful of the $10 billion number for this year. And given our loan growth, we want to just focus on customers at this point. So not likely to grow the securities portfolio through the rest of the year.

Got it. Great. And then on the deposit front, I noticed that the cost of money market was up, I think, 9 basis points this quarter. Is that a reflection of the First Security transaction and maybe blending in that they have higher cost of deposits? Or is that indicative of what you're seeing across your footprint from a competition standpoint?

No, it was related to First Security transaction. Pricing has been pretty much unchanged as it relates to competition at this point. So no added increases in money market costs because we are losing deposits or anything like that.

Our next question comes from Brendan Nosal from Hovde Group.

Just to start off here just on the cost outlook for the third quarter. Can you maybe just unpack that a little bit and speak to some of the drivers of the increase from this quarter's run rate?

Sure. I mean most of it was related to the First Security acquisition that took place. So when you exclude those onetime items, we're kind of back to our standard levels. The guidance for the next quarter is maybe a little bit higher than last quarter, but we have marketing costs and other things that kind of happen in the second half of the year. So we want to just be mindful of that. But generally, on track with where we're trending right now.

Okay. Perfect. Maybe one more for me, just a little bigger picture. There was clearly a step function up in earnings power and PPNR this quarter, I think up like 20% sequentially or so. Just kind of curious, as you look at that, like how sustainable do you think this quarter's earnings power is? I think if I work through the guide, it looks like next quarter is probably something similar. But just given that step-up, I would love to hear your thoughts on how durable that is.

I think big picture, Brendan, look, there's, we obviously had the impact of First Security. So we had the assets, the liabilities that came with that transaction. And then putting aside the charges for the quarter related to the merger, really the impact of the cost saves and basically the rationale for doing the transaction. I think what you're seeing in the earnings is the impact of that. So to answer, I think you bring up a good point. And yes, the earnings power has increased as a result of being able to execute on that in addition to continuing to grow the, call it, the core business that is outside of that transaction.

[Operator Instructions] Our next question comes from Terry McEvoy of Stephens.

A question for Alberto. I don't know if it's your top priority, but it's top left on Page 12 is the staying ahead of regulatory expectations. Could you just maybe talk about how crossing $10 billion may change given some of the discussions in Washington, how you're prepared for that? And any other regulatory topics that are, that you're focused on today?

Really good question, Terry. And I think what we would say is we have a long-term view of things. And I think it's fair to say that just in the environment, certainly, the pendulum has swung away from the direction where it was, let's say, under the previous administration. But we take a long-term view. So we recognize that potentially the pendulum can also swing back in the other direction. So we try to stay centered on kind of the, we try to stay even keel when it comes to that. And certainly, there are higher expectations as an institution continues to grow. I think that first threshold of $10 billion is one. And we want to continue, we continue to plan and prepare to make sure that we are well ahead of those expectations when and if we cross that threshold.

Appreciate that. And maybe a question for Tom, a follow-up on Damon's question, just maybe a little more clarity. What's your ability from here to lower interest-bearing deposit costs, particularly CDs. It looks like yields were kind of sub-4% last quarter. Is there more room to go in the second half of the year?

There is some room, Terry, but not as much unless the Fed were to cut rates. So I think we're kind of at the end of the repricing from the higher rate environment here. We had a very short duration CD book. I think we continue to stay short with anticipation that at some point, maybe the Fed will cut rates. But to date, they haven't. And so I think we benefited from that.

Again, mindful of, first and foremost, customer relationships, bringing in DDA with the lending relationship and the treasury management fees, et cetera. So that's our first and foremost thing. But obviously, we're going to have to sprinkle in some CDs. And right now, customer deposits, whether they're CDs or money markets are cheaper than the wholesale market. So I think we see that as an opportunity to add CDs in the coming quarters here.

Yes. And I think, Terry, if I could add to what Tom said, I think there's the general repricing that comes with changes in interest rates and rates headed lower, you have certificates that are at higher rates. Those are repricing effectively at lower rates. So there is that impact. And then there's the ongoing work that is continuing to segment our portfolio, continue to understand customer behavior better to find opportunities so that we can strategically price deposit better. And that's ongoing. So that's not, I wouldn't tell you that, that one is that we're done with that one. We, and that one is one that will continue both on the consumer side as well as on the commercial side.

Our next question comes from Brian Martin of Janney Montgomery.

So just one, Tom, on the, just back to the expenses for a minute. The cost savings from the First Security transaction given the integration, I guess, is how much of that is in the numbers currently?

I mean it's already baked in. We've had pretty much the full quarter, so maybe a few things that trickle into this quarter. But generally speaking, all the cost saves are in.

Okay. I just want to make sure just trying to understand that, like you said, that increase going from where we're at today, the core basis up to that 56% to 58% just seemed higher on the higher side, given if there were more cost savings and the additional marketing and other expenses you talked about. So okay. Just.

Brian, it is a little higher, as I said, in my comments, primarily due to additional marketing spend that usually happens in the second half of the year, but it's not really related to the First Security transaction.

Got you. That's what I just want to clarify. And kind of the targeted kind of, let's say, the expense, the efficiency level where it's at today and the cost to assets ratio down a fair amount, I guess, those would be expected to trend a bit higher from where they are? Do you think they're kind of sustainable where we are at current levels given the leverage you get from the transaction?

I think as you well know, Brian, so we look at both, because on the efficiency side, that number is also impacted by revenues. We have the gain on sale component on our revenues that can move up or down, and we have also the fair value mark on the servicing assets. So that can make that number move up and down a bit.

On the NIE to average asset, that cost to asset ratio, I think I pay attention to that one a lot simply because it's a pure measure of expenses. And as you continue to grow the asset base, I think we would continue to want to see that number continue to tick down. We've made a ton of progress over the years on that metric. And that one, we want to continue to drive that number down, obviously, as we continue to grow.

Got you. Okay. That's helpful. And just maybe the last 2 for me. Just you talked about, Alberto, the capital flexibility, I guess, and certainly understand the commentary about the M&A. But in terms of the buyback, I mean, given where the valuation is at today, I mean, do you anticipate continuing to be active at current prices on the buyback?

So I won't comment on that directly, but I would point you to the transaction that we did this quarter where we had an opportunity to act on a nice block of shares at what we thought was a very attractive price, and we took advantage of it. So we're going to continue to be opportunistic in that regard; and continue to kind of follow the capital usage utilization hierarchy that I touched on a bit earlier.

Yes. And I guess my question, just to be clear, I was just thinking, is it more a matter of do you kind of continue to build capital for the organic growth and/or potential M&A rather than be overly aggressive on the buyback was kind of the vein I was looking at, but I appreciate the color there.

And then maybe just the last one for me was on the, for Tom, on the margin. Just Tom, can you just remind us the cash flows on the bond portfolio and then the fixed rate loans coming due? And then just if you, I think you commented a little bit earlier, but just on the cost of deposits, I guess, I know you talked about the CD rates. If the Fed doesn't move, it kind of feels like the cost of deposits are kind of flatlined here. They're kind of stable in the near term. Is that a fair read on how things are trending there?

Yes. Let me, so on the portfolio, there's roughly $207 million of cash flows over the next 12 months. And as I said, we're probably not going to reinvest those at this point. And your next, your other question was related to the margin and deposit costs?

Yes, just deposit costs and fixed rate loans repricing.

Okay. Yes, we certainly have fixed rate loans repricing. I'll get you the specific number here in a second, but it's a little over $200 million annually. As it relates to the deposit costs, as Alberto just kind of alluded to, we're still very disciplined on our deposit pricing, and we're continuing to find opportunities to tweak things in certain sectors. So I think that you would expect deposit costs to be kind of flat to down a little bit, generally speaking.

We currently have no further questions. So, I'd like to hand back to Alberto Paracchini for any closing remarks.

Great. Thank you, Carly, and thank you to everyone for joining the call today and for your interest in Byline, and we look forward to speaking to you again in October. Thank you.

As we conclude today's call, we'd like to thank everyone for joining. You may now disconnect your lines.