Byline Bancorp, Inc.BYNYSE
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Operator: Good morning, and welcome to the Byline Bancorp Third Quarter 2025 Earnings Call. My name is Carly, and I'll be the conference operator today. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. Please note this conference call is being recorded. At this time, I'd like to introduce Brooks Rennie, Head of Investor Relations at Byline Bancorp.
Brooks Rennie: Thank you, Carly. 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 the 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 Hubby 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.
Alberto Paracchini: 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, Thomas J. 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 Herencia: Alberto, thank you, and good morning to all. Appreciate you spending some time with us here this morning. The quarter capped a string of 12 consecutive quarters of very strong financial performance for Byline Bancorp 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 went above and beyond anticipating a government shutdown, allowing us to end the quarter strong and prepare us well for the end of the shutdown whenever that comes. Profitability metrics for the quarter were once again top quartile, as Alberto and Thomas will review. Credit quality continues to be stable to improve in some segments, which against the backdrop of macroeconomic uncertainty, heightened geopolitical tensions, and more recently, the federal government shutdown, has been surprising 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, commit strong profitability, and solid revenue growth. Our primary deployment options, Alberto has covered clearly in the past, continue to be the same. Our stance on the $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. On the things that truly matter, what our employees have tangibly achieved since we last spoke to you, we were recognized by the SBA in early August with the 2024 SBA 7(a), 504, and Export Lender of the Year Awards. For the second year in a row, the Chicago Sun-Times has named Byline Bank one of Chicago's best workplaces. We now rank as one of the top 25 workplaces in the city and sit 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 2026 America's Best Workplaces by Best Companies Group 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.
Alberto Paracchini: 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 Thomas, 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 pre-provision income of $55 million, pretax pre-provision ROA of 2.25%, ROA of 1.5%, and ROTCE of 1%, which remains comfortably above our cost of capital notwithstanding continued growth in our capital base. The margin expanded nine 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 remains stable from last quarter with originations coming in at $264 million, driven by our commercial banking and equipment leasing team. Moving to credit. Credit costs declined this quarter with a 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 remains strong at 1.42% of total loans. Turning to capital. Capital levels continue to grow and remain robust with CET1 surpassing 12%. Annual 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 reflects 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 Thomas, who will provide you with more detail on our results.
Thomas J. Bell: Thank you, Alberto, and good morning, everyone. Starting with our loans on Slide five. Total loans increased $107 million or 6% annualized and were $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 the higher government loan impact 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 six. Total deposits were $7.8 billion for the quarter, up slightly from the prior quarter. The uptick in deposits was due to non-interest-bearing accounts increasing $160 million or 9% linked quarter, which was driven by seasonality in deposits. 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%. 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. This was offset by higher interest expense related to refinancing of the $75 million of sub debt this quarter, which contributed a seven basis point drag on NIM. The net interest margin grew to 4.27%, up nine 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 two 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 have generated growing NII in this declining rate environment. Turning to Slide eight. Noninterest income totaled $15.9 million in the third quarter, up 9.5% from the last quarter, primarily due to a $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 nine. Our noninterest expense came in at $60.5 million, up 1.5% from the prior quarter. The increase reflects higher salary employee benefits, including a $2 million in higher incentive compensation accruals due to higher performance. A $1.5 million increase in noninterest expense, which includes $843,000 of remaining expense associated with the call sub debt. 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 $1.057 billion, representing 1.42% of total loans, down five basis points from the prior quarter. The decline was primarily due to individually assessed loan resolution 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 $1.2, 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.
Alberto Paracchini: Thank you, Thomas. 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. 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: Thank you very much. We'd now like to open the lines for the Q&A. Our first question comes from David Long from Raymond James. David, your line is now open.
David Long: Morning, everyone.
Alberto Paracchini: Good morning, Dave.
Thomas J. Bell: Good morning, Dave.
David Long: You know, let's talk about the margin here and net interest income. The bank screened as asset. You look at Slide seven, 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?
Thomas J. Bell: Hi, Dave. Good morning. It's Thomas. I mean, we have been beating the model assumption as I think it's in part due to what the competition is offering us as far as rates resets on deposits. 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.
Alberto Paracchini: Dave, to add to what Thomas 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, certainly much more rational over the years. I think analytically, we're getting a bit better in being able to segment customers, being able to basically drive improvements in cost related to accounts and the different segments of our business, which has contributed to what Thomas just said, which is essentially just outperforming our model a bit. So I think that's you're seeing the effect of that.
Thomas J. Bell: And I would also just add, you can look at the yields on loans. And given the rate declines, we are seeing loan yields come down just from the resets 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 refinancing that have been coming cash flowing out is we've improved nicely on including securities.
David Long: Got it. No, that's some very good color. And then the quarter, the obvious, obviously, the funding side, real nice change in the mix. Your funding, your deposit costs, in particular, came down. What wiggle room do you have on the funding side in the deposit side to still lower those costs, giving you an opportunity to continue to beat this model?
Thomas J. Bell: 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. It's kind of a mix, Dave.
David Long: Don't really. Thank you for taking my questions. Love this.
Thomas J. Bell: Sorry.
Operator: Thank you very much. Our next question comes from Adam Kroll from Piper Sandler. Adam, your line is now open.
Adam Kroll: Hi. Good morning. This is Adam Kroll on for Nathan Race, and thanks for taking my questions.
Alberto Paracchini: Yes. Good morning, Adam.
Thomas J. Bell: Hi, Adam. How are you?
Adam Kroll: Yeah. So I guess, given the recent pickup in M&A activity, especially in the Midwest and with your capital continuing to build up 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?
Alberto Paracchini: 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, you know, 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, you know, we continue to look at opportunities and, you know, 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, you know, a stable, you know, and growing, you know, dividend that we can, you know, 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.
Adam Kroll: 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.
Alberto Paracchini: I think I'm glad you asked the question because 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 will be somewhere between $4.5 million to $5 million, and that includes the FDIC effect as well. And that would, you know, 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 cost comes after four consecutive quarters above $10 billion.
Adam Kroll: Got it. I appreciate the color there. Thank you for asking.
Alberto Paracchini: Yes. No, and thank you for asking the question. Now we have that on the record.
Adam Kroll: 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. I was curious if you could just touch on how the government shutdown has impacted your SBA business so far. Is there an upcoming deadline where it will materially impact your gain on sale in the fourth quarter?
Alberto Paracchini: 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. We 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 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. 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 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 in a protracted shutdown where we're here, let's say, mid-November or so, and the government is still not back to work, that that may impact the timing of loans that we would otherwise be selling in the fourth quarter, we may then sell probably in the first quarter. So that would be the short-term impact. And, you know, obviously, that has a positive effect too because we're 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.
Adam Kroll: Yeah. I really appreciate the color, and thanks for taking my questions.
Alberto Paracchini: Thanks, Adam.
Operator: Thank you very much. Our next question comes from Brian Martin from Janney Montgomery Scott. Brian, your line is now open.
Brian Martin: Hey, good morning, everyone. Congrats on the quarter.
Alberto Paracchini: Thank you, Brian.
Thomas J. Bell: Thanks, Brian.
Brian Martin: See, Thomas, you mentioned in your remarks, I think, on the deposit mix change. So it sounds as though maybe that may bounce back a little bit with the DDA just in terms of how to think about, you know, NII margin of that was seasonal, the strong growth this quarter and the mix changes that think it's kind of sustainable where that mix is at today?
Thomas J. Bell: No. That's correct. It's seasonality. There were outflows that DDA in later in quarter.
Brian Martin: Yep. Gotcha. Okay. Alright. And then, you know, can you just talk a little bit about you guys talked about the competitive landscape. Have 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 like it's gotten a little bit easier from your commentary, but that's over time rather than just kinda recently. But just competitive landscape, just a little commentary if you can on loans and deposits.
Thomas J. Bell: You know, 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 CD book has allowed us to reprice given the expectations of more cuts to come here. So it's still competitive.
Alberto Paracchini: I think you can see where the market is trading or, you know, offers are for new money, to speak. But it's more about the relationship and the small business banking relationships than our commercial relationships.
Brian Martin: Brian, just to add to one thing on the question on the particularly on the asset side. I think Thomas is spot on, in that, you know, 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, do we see some of that? Yes. Some businesses have gotten 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 high-quality transactions. But it's always competitive. And it's you just have to manage your business accordingly.
Brian Martin: Gotcha. No. I appreciate that, Alberto. And maybe just one back for the margin, just one comment, Thomas. I guess it sounds like obviously good expense in the quarter, but it sounds like you even with that expansion, you kind of went through the benefit from you had the impact from the sub debt and they're just to get a sense for maybe, if you can talk or give a little thought on where the margin kind of ended the month or exited the quarter in September? This is kind of a starting point as we look forward.
Thomas J. Bell: You know, Brian, I, you know, our NII guidance is still right in the same range. It's a little bit lower on the low end just because we are expecting two 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. You know? To be determined based on the Fed cut.
Brian Martin: Okay. Alright. And maybe just the last one. Yeah. Sorry. I hear you.
Thomas J. Bell: Lot of pull. No. It's okay. You know, related. About a million and a half dollars related to the interest expense on the sub debt. That goes away. So that benefits us. You know, we have earning asset growth that benefits us. So, you know, we still think we're in the same range around the month on NIM.
Brian Martin: Yeah. Okay. I appreciate that, Thomas. 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, you know, kind of what that business is and where it's, you know, what your expectations kind of high level are without, just so we can watch that going forward. And thank you for taking the questions.
Alberto Paracchini: Sure. You bet. So I think earlier in the year, we announced and there was 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. So think about high trying to do business with businesses that originate a lot of ACH transactions, process payroll, for example. So you would have, you know, payroll process 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 really more on the commercial banking side as opposed to this is not a retail product or it's not something that's targeted at consumers. It's really trying to, you know, do business with program sponsors that are high users of, you know, payment products. And so far, I think, as I said on the comments, initially, it's about building the 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 we're in the process of onboarding. These are, as you could probably imagine, these are not, these are, there's more to onboarding high-volume type commercial customer as opposed to a, you know, a simple, you know, simpler, you know, kind of loan and deposit basic. So the onboarding process is a little bit lengthier. But we feel good where the team is, the pipeline is building, we'll start seeing the impact of that in 2026 and beyond. So we're super excited about that segment of our business.
Brian Martin: 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, you know, size range in those transactions?
Alberto Paracchini: Yeah. There's very little in credit, if any. It's really just a function more on the deposits side and on the treasury management side.
Brian Martin: Right. Gotcha. Okay. I appreciate that. Thanks, guys.
Alberto Paracchini: Brian. I'm glad to. Thank you, Brian.
Operator: Thank you very much. Our next question comes from Brandon Rudd from Stephens. Brandon, your line is now open.
Brandon Rudd: Hi. Hey, Brian. Most of my questions have been asked and answered already, but maybe just one modeling question here. Do you have the amount of fixed rate loans that are maturing over the next twelve months and how those yields compare to your new origination yields?
Thomas J. Bell: 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.
Brandon Rudd: Okay. Got it. So there's still a lot of items there. Reset.
Thomas J. Bell: Yes.
Brandon Rudd: Gotcha. Okay. And maybe just one because of the topic early in the earnings season, I should ask. Can you remind us of your NNDFI exposure and what clients fall into that bucket for you?
Alberto Paracchini: Yes. It is a general comment. So Brandon, we have roughly around $221 million that we would categorize in the call report as NDFI. 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, you know, 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 where 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 MDFI lending by some other institutions.
Brandon Rudd: Got it. Okay. Thank you. And then, Thomas, I think your comment on expenses in the fourth quarter is 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 later on in inflation and growth there?
Thomas J. Bell: You know, we're not really giving guidance on 26%, but I would 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 warranting higher incentives. We start over, and I would expect those expense numbers to be lower.
Brandon Rudd: Got it. Okay. Thanks for taking my questions.
Alberto Paracchini: You're back to you. Thanks, Brandon.
Operator: Thank you very much. Our next question comes from Rafi. Matthew Rent from KBW. Matthew, your line is now open.
Matthew Rent: Hey, everybody. 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 that 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 were investing in that could drive operational efficiency?
Alberto Paracchini: Yes. Good question, Matt. I think maybe the right way to think about it is, this is something that we're constantly looking at. We're constantly looking for ways in which we can operate more efficiently. As you see, if you look at the trend with our efficiency ratio, you know, it tends to bounce off. 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.
Matthew Rent: Got it. Thank you. I appreciate the color. I'll step back.
Operator: Thank you very much. Next question comes from Yunaro Bohane from Hope Group. Yannara, your line is now open.
Yunaro Bohane: Hi. Good morning. This is Anir on for Brendan from Hope Group. Good morning. Okay. First question is, just to do with capital. We noticed that the share repurchase thing kind of went down this quarter. Any thoughts on creating a more active repurchase program again and how you're thinking of reinvesting capital?
Alberto Paracchini: Yes. I think consistent with the priorities that we mentioned earlier on the call, Yunera, it's I think capital priorities is to 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, 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, you know, 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.
Yunaro Bohane: Perfect. Thank you. And then my follow-up question has to do with new loan yields. So you guys originated $260 million originations this quarter. Can you speak to where new paper price this quarter in relation to the portfolio yield of 7.14%?
Thomas J. Bell: Sure. This is Thomas. I mean, we again, depending on the asset class, you know, you do have different yields. But I would say that spreads are 250 over, sulfur to 300 over, and then obviously the SBA business is higher than that.
Yunaro Bohane: Thank you. That's all my questions.
Alberto Paracchini: Great. Thank you.
Operator: Thank you. Thank you very much. Our next question is from David Long from Raymond James. David, your line is now open.
David Long: Guys. Just wanted to follow-up on credit. Two things. One is the reserve level. Like reserves were released in the quarter. Was that more a function of loan mix portfolio performance, or the economic outlook?
Alberto Paracchini: I think it was more around the resolution of loans with specific reserves, David. So we work those assets out. You know, we took the charges against the specific reserves, and we don't have those reserves anymore.
David Long: Got it. And then with the SBA shutdown, how is that going to impact your reserving? I mean, if you're gonna hold on to these loans potentially a little bit longer, can you just talk through that process and how you think about that?
Alberto Paracchini: I mean, we would look, we would kind of, if we're holding, I think that 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, 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 sheeting those loans, how would we think about setting reserves? I think we would look through the guaranteed portion and look at the unguaranteed exposure and then reserve accordingly.
David Long: Okay. Awesome. Guys. Appreciate it.
Alberto Paracchini: You bet. Thanks, Dave.
Operator: Thank you very much. Next question is a follow-up from Brian Martin from Janney Montgomery Scott. Brian, your line is now open.
Brian Martin: Yes. Guys. Just one last one for me was on the going back to the M&A for just one moment. I was given that 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 gonna consider, and does it matter larger or smaller today? Would you think about doing multiple deals at once? Just trying to understand that dynamic. Thank you.
Alberto Paracchini: Yeah. I think the still very consistent with 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 have the ability to tackle something a little bit larger today than, let's say, what we did two years ago or three years ago. The geography is still consistent. The Greater Chicago Metropolitan Area, that means, does that mean strictly just the city limits of Chicago? No. Greater Chicago, the suburbs, maybe going all the way up to Milwaukee, maybe going down a bit into Northwest Indiana. I think that's, 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 three transactions that we've done, those were essentially transactions for us to acquire deposits, and then, you know, 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've 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.
Brian Martin: Yep. Alright. Thank you for the insight, Alberto. I appreciate it.
Alberto Paracchini: Right.
Operator: Thank you very much. We currently have no further questions, so I'd like to hand back to Mr. Paracchini for any further remarks.
Alberto Paracchini: Great. So thank you, Carly, 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, a Happy holiday season, and we look forward to speaking to you again in the New Year. Thank you.
Operator: As we conclude today's call, we'd like to thank everyone for joining. You may now disconnect your lines.