Q3 2025 Byline Bancorp Inc Earnings Call
Speaker #1: Statement and non-GAAP Financial Measures . Disclosures in the earnings release . As a reminder , for investors this quarter , we plan on attending the financial services Conference in Naples , Florida , and the Piper Sandler Financial Services Conference in Miami in November .
Speaker #1: With that, I would now like to turn the conference call over to Alberto Paracchini, President of Byline Bancorp Inc.
Speaker #2: 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 .
Speaker #2: Our chairman and CEO , Roberto Herencia , our CFO , Tom Bell , and our Chief Credit officer , Mark Fusinato . 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 .
Speaker #2: Before we get started , I'd like to pass the call over to our chairman , Roberto Herencia , for his remarks . Roberto .
Speaker #3: Oberto . Thank you , and good morning to all . Appreciate you spending some time with us here this morning . The quarter cap is a string of 12 consecutive quarters of very strong financial performance for byline and highlights .
Speaker #3: The consistency of our execution , the resiliency of our business model and the optionality and flexibility we strive to maintain in our operating model .
Speaker #3: 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 .
Speaker #3: Our SBA team went above and beyond in anticipating a government shutdown, allowing us to end the quarter strong and preparing us well for the end of the shutdown.
Speaker #3: Whenever that comes . Profitability metrics for the quarter were once again top quartile , as Alberto and Tom will review credit quality continues to be stable to improve in some segments , which , against the backdrop of macroeconomic uncertainty , I geopolitical tensions and more recently , the federal government shutdown has been surprising to the positive .
Speaker #3: We continue to be vigilant over dose risks. Capital flexibility is a major differentiator. Our capital ratios are strong and continue to build amid strong profitability and solid revenue growth.
Speaker #3: Our primary deployment options, which Alberto has covered clearly in the past, continue to be the same. Our stance on the $10 billion asset threshold and M&A remains unchanged.
Speaker #3: 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 on the things that truly matter , what our employees have tangibly achieved since we last spoke to you .
Speaker #3: We were recognized by the FDA in early August with the 2024 SBA seven , a 500 for and expert lender of the year awards for the second year in a row .
Speaker #3: The Chicago Sun-Times was named byline Bank, one of Chicago's Best Workplaces. We now rank as one of the top 25 workplaces in the city, and fifth among large companies.
Speaker #3: These results are based on our workplace policies, practices, and philosophy. In addition to employee survey results, we are measuring the employee experience.
Speaker #3: Byline was also named once again to the 2026 America's Best Workplaces by Best Companies Group. As a result of our high level of employee engagement, scores are on our annual survey.
Speaker #3: 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 .
Speaker #3: With that , I'm happy to turn over the call to Alberto .
Speaker #2: 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 .
Speaker #2: 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 .
Speaker #2: 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 .
Speaker #2: Our performance continues to reflect excellent profitability , with pre-tax income of $55 million pre-tax preparation , ROA of 2.25% , ROA of 1.5% , and ROTC of 15.1% , which remains comfortably above our cost of capital .
Speaker #2: Notwithstanding continued growth in our capital base, the margin expanded nine basis points from last 3:45, 27 percent, supported by an improved deposit mix and higher asset yields.
Speaker #2: Expenses remained 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.
Speaker #2: 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 .
Speaker #2: The assets 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 .
Speaker #2: Asset quality metrics all improved , with NPAs , NPLs and net charge offs . All declining compared to the prior quarter . The allowance remains strong at 1.42% of total loans .
Speaker #2: Turning to capital . Capital levels continued to grow and remain robust , with Cet1 surpassing 12% . Tangible book value per share grew nicely this quarter , up 5% .
Speaker #2: 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 260 basis point improvement in our credit spreads .
Speaker #2: With that said , we continue to build capital 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 .
Speaker #4: Thank you , Alberto , and good morning , everyone . Starting with our loans on slide five . Total loans increased $107 million , or 6% annualized , and was $7.5 billion at September 30th .
Speaker #4: As Alberto mentioned , origination activity was solid for the quarter , with $264 million in new loans , up 25% compared to a year ago .
Speaker #4: 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% .
Speaker #4: 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.
Speaker #4: Sorry, the impact is somewhat higher due to the government shutdown that goes into effect maybe in 2026. As a result, our government-guaranteed loan originations will remain on the balance sheet until the government is reopened.
Speaker #4: Turning to slide six . Pull 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 .
Speaker #4: This was offset by decreases in time deposits driven by lower brokered CDs and CDs shifting into money market accounts . We saw continued improvement in the mix , which drove deposit costs lower by 11 basis points to 2.16% .
Speaker #4: Turning to slide seven , 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 .
Speaker #4: This was offset by higher interest expense related to refinancing of the $75 million of debt this quarter , which contributed a seven basis point drag on net , the net interest margin grew to 4.27% , up nine basis points linked quarter and year over year .
Speaker #4: 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 .
Speaker #4: As a result, the mid-September rate cut is effective October 1st, with market expectations of two Fed cuts in the fourth quarter. We expect net interest income of $97 million to $99 million.
Speaker #4: I would note that earning asset growth and disciplined pricing has generated growing NII in this declining rate environment . Turning to slide eight .
Speaker #4: 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 .
Speaker #4: 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.
Speaker #4: 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 .
Speaker #4: Turning to slide nine . 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 non-interest expense , which includes $843,000 of remaining expense associated with the college debt .
Speaker #4: 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.
Speaker #4: We expect non-interest expense in the same range as Q3 results . Turning to slide ten . 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 five basis points from the prior quarter .
Speaker #4: 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.
Speaker #4: 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.
Speaker #4: 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% .
Speaker #4: 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 .
Speaker #4: If you exclude the debt that was called on October 1st , total capital is approximately 15.14% . With that , Alberto , back to you .
Speaker #2: Thank you, Tom. So, to wrap up on slide 12, we continue to execute well against our strategic priorities and are focused on building the preeminent commercial banking franchise in Chicago.
Speaker #2: Earlier this year , we announced the expansion of our commercial payments business and the hiring of an experienced team to lead that effort .
Speaker #2: 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 .
Speaker #2: Looking forward , we're focused on onboarding customers and scaling scaling the business . In 2026 . We're also getting closer to the $10 billion asset mark .
Speaker #2: 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.
Speaker #2: 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.
Speaker #2: 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.
Speaker #5: Thank you very much . Good . Now to open the lines for Q&A . If you'd like to ask a question , please signal now by pressing star followed by one on your telephone keypad .
Speaker #5: If you'd like to remove yourself from that line of questioning, you signal by pressing * followed by 2. As a reminder, to raise a question, press * followed by 1.
Speaker #5: Our first question comes from David Long from Raymond James . David , your line is now open .
Speaker #6: Good morning everyone .
Speaker #2: Morning , David .
Speaker #1: Good morning Dave .
Speaker #6: You know , let's talk about the margin here and net interest income . The bank screens as asset sensitive . You look at slide seven and it indicates each 25 basis point cut in a ramp scenario .
Speaker #6: Hits your NII by about 2.5 million . What are the assumptions that are built into that right now ?
Speaker #4: Hi , Dave . Good morning . It's Tom . I mean the the we have been beat beating the model assumptions . I think it's in part due to , you know , what the competition is offering us as far as rates resets on deposits .
Speaker #4: 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.
Speaker #4: And we continue to look at the competition and look at where we can adjust rates. I think that's what we've been really disciplined on.
Speaker #2: 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 that have been in the market for a long time , becoming certainly much more rational over the years , I think analytically we're getting , you know , a bit better in , in being able to segment customers and being able to basically drive improvements in , you know , cost related to , you know , accounts and different the different segments of our business , which has contributed to what Tom just said , which is essentially just outperforming our our model a bit .
Speaker #2: So I think that's you're seeing the effect of that .
Speaker #4: And I would also just add , you can look at the yields on the loans and , you know , given the rate declines you are seeing loan yields come down just from the resets based on the mix between fixed and floating .
Speaker #4: 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 .
Speaker #6: Got it . No , that's some very good color . And then in the quarter , the obvious , you know , obviously on the funding side , real nice change in the mix .
Speaker #6: You're funding your deposit costs in particular came down . Wiggle room . Do you have on the funding side . And deposit side to to still lower those costs , giving you an opportunity to , to continue to beat this model ?
Speaker #4: You know , again , I think we are asset sensitive and we do expect you know , I gave guidance on NII . We have obviously asset growth that's helped us nicely to but we have some room on the CD book .
Speaker #4: It continues to reprice lower . We've been very short on the CD book and I think , you know , there are certainly some rack rate , you know , deposits that we're not going to be able to reprice .
Speaker #4: So it's it's kind of a mix . Dave . I don't .
Speaker #6: Really thank you for taking my questions.
Speaker #4: Sorry .
Speaker #5: Thank you very much . Our next question comes from Adam Crow from Piper Sandler . Adam , your line is now open .
Speaker #3: Hey .
Speaker #7: Good morning . This is Adam Kroll on for Nathan Rice . And thanks for taking my questions .
Speaker #2: Yeah . Good morning . Adam .
Speaker #1: Hi, Adam. How are you?
Speaker #7: Yeah . So I guess given the recent pickup in M&A activity , especially in the Midwest and with your capital continuing to build a pretty strong cliffs , I'd be curious just to hear your updated thoughts on M&A and how you're thinking about managing capital levels .
Speaker #2: Yes . So I think , you know , Roberto touched on it at right at the beginning of the call , Adam and I think we're certainly open for M&A .
Speaker #2: So we're , you know , in terms of the the the usual discussion around how our conversations , I think we actively engage in conversations .
Speaker #2: So I think that remains consistent . So we're certainly open and actively looking at at opportunities that may present themselves in the in the marketplace here .
Speaker #2: So but that's going to be I think , consistent with the discipline around , you know , transactions that make sense for for us to do that .
Speaker #2: We think deliver value for , for shareholders . So with that caveat , I think , you know , we continue to to look at opportunities and , you know , are hopeful that that we'll be able to 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 .
Speaker #2: You know , we want to fund the growth of the bank . We want to have , you know , capital that we can use opportunistically for M&A .
Speaker #2: We want to , you know , have , you know , a stable , you know , and growing , you know , dividend that we can , you know , comfortably afford .
Speaker #2: And we have the safety valve, which is, you know, 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.
Speaker #7: 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 Durban .
Speaker #2: 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 Durban today , as as we would look at the impact , there would be somewhere between four and a half to $5 million on the and that includes the FDIC effect as well .
Speaker #2: And that would , you know , as you know , if we cross at any point in 2026 , the Durban impact doesn't really go into effect until July 1st of the following year .
Speaker #2: So that would be 2027 . Whereas the , you know , the effect of higher insurance costs comes after four consecutive quarters above $10 billion .
Speaker #7: Got it. I appreciate the color.
Speaker #2: Thank you for asking . Yeah . No . And thank you for asking the question because now we have that on the on the record .
Speaker #7: Yeah . No problem . If I could squeeze in one more just , you know , I appreciate the comments on byline anticipating and preparing for the government shutdown .
Speaker #7: 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 ?
Speaker #2: Very good question , and as you know , we have been in the SBA business for some time . So , you know , we've had to navigate through shutdowns before .
Speaker #2: So our team is very experienced in terms of being able to navigate through usually the short term , you know , impact of a shutdown .
Speaker #2: So, I think the first thing I would say is that, from an origination standpoint, we continue to be active in originating SBA loans.
Speaker #2: So that , you know , continue to market , continue to try to originate , you know , new business on things that are in the pipeline .
Speaker #2: What we do is we tend to in anticipation of a shutdown , we pull Pltp numbers so that we can continue to fund and close those loans .
Speaker #2: Given that we have the highest designation in the program as a as a 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 .
Speaker #2: 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 , then we are effectively holding those loans until , you know , the the , you know , government is back to work and we can then sell the loans in the secondary market .
Speaker #2: And that's typically a timing issue . So I would say in the short run , you know , unless we really get here into a protracted shutdown where we're here , let's say , you know , mid November or so and the government is still not back to work , that that may impact , you know , the timing of , you loans that we would otherwise would be selling in the fourth quarter .
Speaker #2: We may then , you know , sell probably in the in the first quarter . So that would be the short term impact .
Speaker #2: And you know , obviously that has a positive effect too , because we're essentially even though we can't sell them . So yes , you know , there might be a delay or a timing issue with gain on sale income .
Speaker #2: We actually earned the carry on the loan because we'll carry the loans on our balance sheet. So, but that's hopefully that answers your question.
Speaker #2: And I think that's the that's in short the the summary on that .
Speaker #7: Yeah, I really appreciate the color. And thanks for taking my questions.
Speaker #1: Thanks , Adam .
Speaker #5: Thank you very much . Our next question comes from Brian Martin from Janney Montgomery Scott . Brian , your line is now open .
Speaker #8: Hey good morning everyone . Congrats on the quarter .
Speaker #2: Thank you Brian .
Speaker #1: Thanks , Brian .
Speaker #8: See , Tom , you mentioned in your remarks , I think on the on the deposit mix change , it sounds as though maybe that may bounce back a little bit with the with the DDA , just in terms of how to think about kind of NII margin .
Speaker #8: Some of that was seasonal . The strong growth this quarter and the mix change or is that you think it's kind of sustainable where that mix is at today .
Speaker #4: Know that's correct . It's seasonality . There are outflows in DDA . You know , in .
Speaker #8: Later we should see a .
Speaker #4: Little .
Speaker #8: Yep . Gotcha . Okay . All right . And then can you just talk a little bit about you guys talked about the competitive landscape .
Speaker #8: I guess I heard from several other banks recently. The competition has gotten stronger on the deposit side and even on the loan side in the market. What you're seeing competitively is that it sounds like it's gotten a little bit easier from your commentary, but that's over time rather than just kind of recently.
Speaker #8: But just the competitive landscape , just a little commentary if you can , on loans and deposits .
Speaker #4: You know , it's it's still competitive . I , I would just again remind everyone , right . We we're still a relationship bank .
Speaker #4: 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.
Speaker #4: Funding that's going 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 .
Speaker #4: So it's still competitive . You know , I think you can see where the market is trading or , you know , offers are for new money , so to speak .
Speaker #4: But it's more about the relationship and the small business banking relationships than our commercial relationships.
Speaker #2: Brian , just just to add to one thing on the on the question , on the particularly on the asset side , I think , I think Tom is spot on in that , you know , it's always competitive .
Speaker #2: But look , I when you look at markets in general , you know , whether it's investment grade , whether it's high yield spreads are at all time tight levels .
Speaker #2: So it's it's not inconsistent to think that , you know , some of that would would spill into kind of the market and and yeah do we see some of that .
Speaker #2: Yes . Some businesses have gotten , you know , a little bit more competitive or there's more competition . People are willing to trade off a bit more in pricing in order to get , you know , high quality transactions .
Speaker #2: But it's always competitive . And , you know , it's you just have to manage your business accordingly .
Speaker #8: Gotcha . No , I appreciate that . Alberto . And maybe just one back to the the margin . Just one comment , Tom .
Speaker #8: I guess it sounds like , you know , obviously good expansion in the quarter , but it sounds like even with that expansion , you , you kind of went through the the benefit from you had the impact from the sub debt .
Speaker #8: And they're just trying to get a sense for maybe if you can talk or give a little thought on where the where the margin given the seasonality that comes back on those DDA and then the impact of that sub debt in the quarter , kind of where did the the margin kind of end the month or exit the quarter in September ?
Speaker #8: Just as a kind of starting point as we look forward.
Speaker #4: You know , Brian , I you know , our NII guidance is still right in the same range . It's a little bit lower , you know , on the low end , just because we are expecting two cuts here in the fourth quarter .
Speaker #4: 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 .
Speaker #4: I would say, you know, to be determined based on the Fed cuts.
Speaker #8: Okay . All right . Maybe just the last one . Yeah I hear you .
Speaker #4: A lot .
Speaker #8: Of pull . No that's okay .
Speaker #4: You know related . It's about a million and a half dollars related to the interest expense on the sub debt that goes away .
Speaker #4: So that benefits us . You know , we have earning asset growth that benefits us . So , you know , we we still think we're in the same range around on .
Speaker #4: Yeah .
Speaker #8: Yeah . Okay . I appreciate that , Tom . And then last one for me was can you guys just give a little commentary .
Speaker #8: Just talk a little bit about the the commercial payments team and kind of where that , you know , kind of what that business is and where it's , you know , what your expectations kind of high level are without just .
Speaker #8: So we can watch that going forward . And thank you for taking the questions .
Speaker #2: Sure . You bet . So I think earlier in the year , we we announced and there was there was some we actually got some picked up in , in press and that we had , we had hired a team , some experienced bankers , some of our bankers here had worked with these individuals before .
Speaker #2: So we had an opportunity to to really bring on board high quality , talented individuals . And , and we were fortunate to do that .
Speaker #2: But the the gist of that business is really a commercial payments business . So think about high . Trying to do business with businesses that are , you know , originate a lot of ACH transactions process payroll , for example .
Speaker #2: So you would have , payroll processors in that in that business as well as looking to be a sponsor bank for issuing and acquiring debit or prepaid cards so that in in summary , Brian , that's kind of the gist of the business .
Speaker #2: You know , I like to use the term commercial payments because it's it's really a more on the commercial banking side as opposed to this is not a retail product or this is not something that's targeted at consumers .
Speaker #2: It's really trying to , you know , do business with program sponsors that are high users of , you . Payment products . And so far , I think , as I said on the comments , you know , initially it's about building the infrastructure , having the proper controls , making sure that we have , you know , the the necessary hires to support the team , not just from a sales standpoint , but , you know , operationally and from a risk management standpoint .
Speaker #2: So that's been completed . We've been actively , you know , calling and , you know , trying to start building the business , the pipelines are , you know , growing .
Speaker #2: We have , you know , customers that we're in the process of onboarding . These are as as you could probably , you know , imagine these are not these are there's more to onboarding a high volume , you know , type , you know , commercial customer as opposed to to a , you know , a simple , you know , a simpler , you know , kind of loan on the basic relationship .
Speaker #2: So, the onboarding process is a little bit lengthier, but we feel good about where the team is. You know, the pipeline is building, and we'll start seeing the impact of that.
Speaker #2: You know , in 2026 . And beyond . So we're super excited about that segment of our business .
Speaker #8: Gotcha . And just just to clarify , those credits are typically are they smaller granular credits . Are they larger credits . What kind of the typical , you know , size range in those transactions .
Speaker #2: Yeah , 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 .
Speaker #2: Right .
Speaker #8: Gotcha . Okay . I appreciate that . Thanks , guys .
Speaker #1: Thanks , Brian .
Speaker #4: Thank you Brian .
Speaker #5: Thank you very much. As a reminder, if you'd like to raise a question on today's call, please signal now by pressing star followed by one on your telephone keypad.
Speaker #5: Our next question comes from Brandon Rudd from Stephens . Brandon , your line is now open .
Speaker #9: Hey . Hey , Brian . Most of my questions have been asked and answered already , but maybe just one modeling question here .
Speaker #9: Do you have the amount of fixed rate loans that are maturing over the next 12 months , and how those yields compare to your new origination yields ?
Speaker #4: Yes , for 2026 , it's roughly like $750 million . And I would say that , you know , again , depending on what happens with the forward curves , rates are at or slightly higher than where we are today .
Speaker #9: Okay . Got it . So there's still a there's still upside there to .
Speaker #4: Reset . Yes .
Speaker #9: Gotcha, okay. And maybe just one, because it was a topic early in the earnings season, I should ask: Can you remind us of your exposure and what clients fall into that bucket for you?
Speaker #2: Yeah it is . So a general comment . So Brandon , we have a roughly around $221 million that we would categorize in the call report as Nephi so that represents , you know , just under 3% of our total loan portfolio .
Speaker #2: The one thing I would tell you about that , that consists of commercial related transactions and business that we have done for , you know , for a long time .
Speaker #2: 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 , you know , private credit funds or financing structured asset backed , structured transactions , these are things like , you know , we finance , for instance , the acquisition of practices where a registered investment advisor acquires another small registered investment advisor .
Speaker #2: And we finance that , that practice . So there's a lot of granularity in that exposure . And , you know , it's it's not the I would say it's an exposure that's materially different than , for example , the the couple of cases that you guys saw this quarter related to Nephi lending by some other institutions .
Speaker #9: Got it . Okay . Thank you . And then I think your comment on expenses in the fourth quarter , similar to three Q so $59 million on a quarter basis is that is that also a good run rate to start off with for 2026 ?
Speaker #9: And then later on in inflation and growth there ?
Speaker #4: You know , 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 , you know , we reset for next year .
Speaker #4: So higher performance this year is warranting higher incentives . So we start over . And I would expect those expense numbers to be lower .
Speaker #9: Got it. Okay. Thank you for taking my questions.
Speaker #2: You bet .
Speaker #1: Thank you. Thanks, Brandon.
Speaker #5: Thank you very much . Our next question comes from excuse me , Matthew Rent from KB . Matthew , your line is now open .
Speaker #10: Hey everybody . Hope everybody's doing well today . Just a follow up to the expense question . I appreciate the guidance for next quarter .
Speaker #10: But in the prepared remarks you mentioned that you believe you can get the efficiency ratio lower . So I was wondering if there was any initiatives you were contemplating or if there's any new technologies you were investing in that could drive operational efficiency ?
Speaker #2: Yes . Good question . Matt , I think maybe the right way to think about it is this is something that we're constantly looking at .
Speaker #2: We're constantly looking for ways in which we can operate more efficiently . You know , as you have seen , if you look at the trend with our efficiency ratio , you know , it tends to bounce up .
Speaker #2: I think we've been in that kind of 49% to 52% range , which , you know , compared to others compared to peers , you know , I think we fare very well with it .
Speaker #2: What I would highlight with that is, you know, it's something that we always want to be focused on because it provides us with investment capital to reinvest back into the business.
Speaker #2: 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 , you know , try to drive that efficiency as low as we can .
Speaker #2: Or at least we can maintain it in a at the levels , kind of where it's at today . So that we can generate opportunities for reinvestment back into the business .
Speaker #10: Got it . Thank you . I appreciate the color . I'll step back .
Speaker #2: You bet .
Speaker #5: Thank you very much . Our next question comes from Leonora Buhain from group NRO . Your line is now open .
Speaker #11: Hi . Good morning . This is Aniran for Brendan from happy Group . Good morning . First question is just to do with capital .
Speaker #11: We noticed that the share repurchasing kind of went down this quarter. Any thoughts on creating a more active repurchase program? Again, how are you thinking of reinvesting capital?
Speaker #2: Yeah , I think consistent with the priorities that that we mentioned earlier in the call , it's I think capital priorities is , you know , be able to support the growth of the company , support organic growth , have capital , flexibility to pursue M&A consistent with , you know , transactions that , you know , like transactions we've done in the past , transactions that make sense , that meet our criteria .
Speaker #2: We certainly want to , you know , be able to execute on that and have the flexibility to do so . Maintain a growing you know , comfortable dividend over time .
Speaker #2: And and the last thing is really the safety valve , which is really , you know , 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 we would do that .
Speaker #11: Thank you . And then my follow up question is to do with new loan yields . So you guys originated during 60 million of origination originations this quarter .
Speaker #11: Can you speak to where new paper prices this quarter relate to the portfolio yield of 7.14%?
Speaker #4: Sure . This is Tom , I mean , again , depending on the asset class , you know , you you do have different yields .
Speaker #4: But I , I would still say that spreads are 250 over . Sofr to 300 over . And then obviously the SBA business is higher than that .
Speaker #11: Thank you . That's all my questions .
Speaker #2: Great . Thank you .
Speaker #1: Thank you .
Speaker #5: , thank you very much . As a reminder , if you would like to raise a question on today's call , please signal now by pressing star followed by one on your telephone keypad .
Speaker #5: Our next question is a follow up from David Long from Raymond James . David , your line is now open .
Speaker #6: Hey , guys , just wanted to follow up on credit . The two things one , the reserve level looks like reserves were released in the quarter .
Speaker #6: Was that more a function of loan mix portfolio performance or the economic outlook ?
Speaker #2: I think it was more around the resolution of loans with specific reserves . David . So we worked those assets out . You know , we took the charges against the specific reserves .
Speaker #2: And, you know, we don't have those reserves anymore.
Speaker #6: Got it . And then with the SBA shutdown , how is that going to impact your 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 .
Speaker #2: 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 .
Speaker #2: So if we're holding the full loan as opposed to the , you know , call it just the unguaranteed portion , only . We would have to be thinking about a more protracted shutdown .
Speaker #2: David , you know , we would still probably carry those loans as held for sale . But to answer the philosophical question as to how would we think if we were balance sheets , those loans , how would we think about setting reserves ?
Speaker #2: I think we would look through the guaranteed portion and look at the unguaranteed exposure, and then reserve accordingly.
Speaker #6: Okay . Awesome . Thanks , guys . Appreciate it .
Speaker #2: You bet .
Speaker #1: Thanks , Dave .
Speaker #5: Thank you very much . Our next question is a follow up from Brian Martin from Jamie Montgomery Scott . Brian , your line is now open .
Speaker #8: Yeah. Thanks, guys. Just one last one for me. It was on going back to the M&A for just one moment.
Speaker #8: It's given this a greater priority than the buyback. Can you just remind us, Alberto, just in terms of what you're looking for in a transaction?
Speaker #8: What's important about the M&A opportunities you're going to consider? Does it matter whether they are larger or smaller deals today, or would you think about doing multiple deals at once? I'm just trying to understand that dynamic.
Speaker #8: Thank you .
Speaker #2: Yeah I think the still very consistent with the the what we think is the , the opportunity set here in Chicago . So you know , broadly , Brian , I think institutions between let's say $400 million , you know , and and up to maybe , you know , a couple billion dollars , you know , obviously we've grown a bit so we can we have the ability to tackle something a little bit larger .
Speaker #2: Today than , let's say , what we did two years ago or three years ago . The geography still consistent . You know , the greater Chicago metropolitan area , that means , you know , does that mean strictly just the , the , the city limits of Chicago ?
Speaker #2: No . Greater Chicago , Chicago , the suburbs , you know , maybe going all the way up to Milwaukee , maybe going down , you know , a bit into , into Northwest Indiana .
Speaker #2: I think that's that those are markets consistent with that . You know , financially attractive , strategically attractive . And we pay as you as you know , we pay a lot of attention to the posits .
Speaker #2: If we think about the last three transactions that we've done , those were essentially transactions for us to acquire deposits , you know , and then , you know , redeploy those funds over time into the different lending businesses that we have .
Speaker #2: So it would it would have to be consistent , you know , with that , you know , but each opportunity is different .
Speaker #2: Each situation is different, and the good news is we've built a team, and we have a lot of experience with the team that's here.
Speaker #2: That's done transactions here as opposed to just general experience that that we may have from from just being , you know , in the business and , and having done M&A over the years .
Speaker #2: So we feel good about our team , our process , our playbook . And I think hopefully as you guys can have seen the results , you know , show that in our results , I should say .
Speaker #8: Yep. Thank you for that insight. I appreciate it.
Speaker #2: But .
Speaker #5: Thank you very much. We currently have no further questions, so I'd like to hand it back to Mr. Alberto Paracchini for any further remarks.
Speaker #2: Great . So thank you , Carly , and thank you all for joining the call today and for your interest in Buyline . 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 .
Speaker #2: Thank you .