Byline Bancorp - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered solid core performance: adjusted EPS of $0.75 vs reported diluted EPS of $0.66, total revenue of $110.5M, record net interest income of $96.0M, and NIM expansion to 4.18%.
• Versus S&P Global consensus, adjusted EPS materially beat (consensus ~$0.67; adjusted actual $0.75), while total revenue of $110.5M exceeded revenue consensus of ~$107.0M; GAAP EPS was roughly in line with consensus at $0.66*.
• Cost discipline improved: adjusted efficiency ratio fell to 48.20% (from 53.04% in Q1), even with merger and offering costs; PTPP ROAA remained above 2% for the 11th consecutive quarter.
• Key catalysts: NII guidance of $95–$97M for Q3, margin tailwinds from deposit mix and lower borrowings, and opportunistic buybacks (543,599 shares repurchased this quarter; 418,235 tied to the secondary offering).

What Went Well and What Went Wrong

What Went Well

• Net interest income reached a record $96.0M (+8.8% QoQ), with NIM up 11 bps to 4.18% on better earning asset yields and lower borrowing costs.
• Adjusted operating efficiency improved markedly to 48.20% (vs 53.04% in Q1), and TBV/share rose 3.1% QoQ to $21.56.
• Management completed integration of First Security, adding ~$279M deposits and ~$153M loans; CEO highlighted “momentum and strength” and focus on becoming the “preeminent commercial bank in Chicago”.

What Went Wrong

• Credit costs rose: provision increased to $11.9M (from $9.2M), net charge-offs rose to $7.7M (0.43% annualized), and NPLs increased to 0.92% of loans, driven by granular, event‑driven credits.
• Non‑interest income declined 2.6% QoQ to $14.5M on a larger negative FV mark to the loan servicing asset and lower equity securities gains.
• Non‑interest expense increased 5.6% QoQ to $59.6M due to merger-related costs and professional fees; money market costs rose 9 bps linked-quarter tied to First Security blending.

Transcript

Speaker 5

Good morning and welcome to Byline Bancorp's second quarter 2025 earnings call. My name is Kylie, and I'll be the conference operator today. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer period. If you would like to ask a question, simply press STAR, followed by the number one on your telephone keypad. If you'd like to withdraw your question, it's STAR and two. If you're listening via speakerphone, please lift your headset prior to asking your question. If you require operator assistance, please press STAR, then zero. 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.

Speaker 8

Thank you, Kylie. 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 Siemens 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.

Speaker 1

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?

Speaker 3

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 expanding to multiple non-contiguous states, searching for what seems to be the shiny object today's size. This combination of communication and execution has 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 were the 2025 Chicago Sun-Times Best Workplaces, U.S. News & World Report 2025 Best Companies to Work for. That was in three 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 a 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.

Speaker 1

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 systems 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.

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 in 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 Bancorp'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 or up at deck, we reported a net income of $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 pre-tax pre-provision income of $51 million, pre-tax 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. ROTC 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.

Non-interest 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 PCD-related charge-offs. NPL saw a 16 basis point uptick from last quarter, driven largely by lower resolution activity towards the end of the quarter. The allowance for credit losses remained 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 tangible common equity surpassing 10% and CET1 ending the quarter at just under 12%. Having strong capital levels provides us with 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.

Speaker 6

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 five, total loans increased to $307 million, or 17.5% annualized, and stood at $7.4 billion at June 30, inclusive of the $153 million in 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 three basis points linked quarter, and our loan pipelines remained 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 six, 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 non-interest-bearing demand accounts and a net of $130 million reduction in brokered deposits. The improved mix drove deposit costs lower by three basis points to 2.27%. Turning to slide seven, 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 to $97 million. More importantly, our asset-sensitive balance sheet has generated growing NII over the past five 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 eight, non-interest 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 of $5 million per quarter. Turning to slide nine, our non-interest 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 non-interest 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 non-interest expense guidance to trend between $56 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 four basis points from the prior quarter. This includes a day-one $3.2 million increase to the allowance for credit losses for the First Security transaction. We recorded an $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. Non-performing loans 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 seven basis points linked quarter and up 101 basis points year over year. Additionally, the tangible common equity to tangible assets 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.

Speaker 1

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. 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. With that, operator, we can open the call up for questions.

Speaker 5

Thank you very much. We'd now like to open the lines to Q&A. If you'd like to ask your question, please signal by pressing STAR followed by one on your telephone keypad now. To remove yourself from the line of questioning, use STAR followed by two. As a reminder, to raise a question, use STAR followed by one. Our first question comes from Nathan Race from Piper Sandler. Nathan, your line is now open.

Good morning. Thanks for taking the questions.

Speaker 1

Morning, everybody.

I 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. In context of some of the earlier comments around ongoing opportunities to take share, I am curious how much of the encouraging loan growth prospects you are seeing are a function of 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. It's hard to really break it down in terms of, you know, specifically, you know, what are we, where should we attribute that, you know, 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 were tariffs what 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. We continued to see customers borrowing because they were expanding capacity. They wanted to buy equipment. They wanted to, you know, acquire companies and all of that.

It really, it wasn't something where we saw a pause and now we're seeing a resumption and pause. By the same token, we're also growing clients. I think I wish I could tell you or give you a more precise answer, but I think it's just a combination of both, Nate, in short.

That's really helpful. We've obviously seen M&A activity increase across the industry lately. I know you guys are continuing to build capital at pretty strong clips just given the profitability profile. We'd 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.

Yeah. On M&A, I think there's the, call it the conversations and the chatter around M&A has been there over the course of the year. It was probably incredibly optimistic at the start of the year. 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. As we 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, the market is starting to price in the likely impact of that. I think it's probably more positive than what the market originally anticipated when Liberation Day first came out. On M&A, conversations continue. There's certainly interest. 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, and the impact that has on capital. Those challenges still are there and still exist. As far as our kind of capital priorities, Nate, we have a standard hierarchy that we use when it comes to capital. First, we deploy capital to support organic and inorganic growth when the opportunities present themselves. Second, we want to support a sustainable dividend. Third, we repurchase shares. I would tend to agree with you that at the moment, we have a lot of capital flexibility. Everything is on the table, which is really a great position to be in at the moment.

Got it. That's a really helpful color. 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 non-accrual loans. It looked like classified and criticized loans also increased in the quarter. 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 Q2.

Speaker 4

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. As you know, one or two of our deals of any size can move our ratios. 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, working on that. We're really good at identifying problems and making real-time decisions on ratings in terms of strategies for our workout credits. I expect that to continue. We're going to be very straightforward on trying to resolve things. Business resolutions are always the best. Sometimes we can't get a business resolution, so we have to change directions on a particular credit.

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.

Okay. Great. I appreciate all the color. Thanks, guys.

Speaker 1

Thank you. Thank you very much.

Speaker 5

Thank you very much. Next question comes from Damon Del Monte from Keefe, Bruyette & Woods. Damon, your line is now open.

Speaker 8

Good morning, guys. Thanks for taking my question. I'm just curious, given the increased optimism with the loan growth here in the back half of the year, I'm 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 level of growth will kind of slow down as you look to remix the earning assets? Do you think that, given continued deposit growth, you could kind of store some of the liquidity in securities?

Speaker 6

Hi, Damon. It's Tom. I think the only, we're in a lot of purchases for the first half of the year in securities other than the first, pardon the pun, 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 borrowing being reduced, brokered deposits being reduced, and kind of the cash. We're still mindful of the $10 billion number for this year. Given our loan growth, we want to just focus on customers at this point. Not likely to grow the security portfolio for the rest of the year.

Speaker 8

Got it. Great. 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 deposit, or is that indicative of what you're seeing across your footprint from a competition standpoint?

Speaker 6

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

Speaker 8

Got it. Great. Okay. Thanks. Appreciate the color. That's all that I had. Thank you.

Speaker 6

Thanks.

Thanks, Damon.

Speaker 5

Thank you very much. Our next question comes from Brendan Nosal from Hovde Group. Brendan, your line is now open.

Yeah, good morning, everybody. Hope you're doing well.

Speaker 8

Morning. Morning, Brad.

Just to start off here, 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?

Speaker 6

Sure. I mean, most of it was related to the First Security acquisition that took place. When you exclude those one-time 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 you know 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. Generally, on track with where we're trending right now.

Okay. Perfect. Maybe one more from 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, you know, as you look at that, like how sustainable do you think, you know, this quarter's earnings power is? I think if I worked with a guide, it looks like next quarter is probably something similar. Just given that step up, I'd love to hear your thoughts on how durable that is.

Speaker 1

I think big picture, Brendan, look, we obviously had the impact of First Security. We had the assets and the liabilities that came with that transaction. 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. To answer, I think you bring up a good point. 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.

Okay. All right. That's helpful. Congratulations on the quarter, and thank you for taking the questions.

You bet. Thank you.

Speaker 5

Thank you very much. As a reminder, to raise a question, use STAR followed by one on your telephone keypad. To remove yourself from the line of questioning, use STAR followed by two. As a reminder, to raise a question is STAR followed by one. Our next question comes from Terence McEvoy of Stephens Inc. Terence, your line is now open.

Thanks. Happy Friday, everybody.

Thank you, Terry.

Terry, 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 you're focused on today?

Speaker 1

Really good question, Terry. I think what we would say is we have a long-term view of things. 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 administrations. We take a long-term view. We recognize that potentially the pendulum can also swing back in the other direction. We try to stay centered on, you know, kind of the we try to stay even keel when it comes to that. Certainly, there are higher expectations as an institution continues to grow. I think that first threshold of $10 billion is one. 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. Thanks. Maybe a question for Tom, a follow-up on Damon's question, just maybe a little more clarity is 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?

Speaker 6

There is some room, Terry, but you know, not as much, you know, unless the Fed were to cut rates. 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. To date, they haven't. I think we've benefited from that. Again, mindful of first and foremost customer relationships, bringing in DDA with the lending relationship and the treasury management fees, etc. That's our first and foremost thing. Obviously, we're going to have to sprinkle in some CDs. Right now, customer deposits, whether they're CDs or money markets, are cheaper than the wholesale market. I think we see that as an opportunity to add CDs in the coming quarters here.

Speaker 1

Yeah. 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. Rates headed lower, you have certificates that are at higher rates. Those are repricing effectively at lower rates. There's that impact. 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 deposits better. That's ongoing. I wouldn't tell you that we're done with that one. That one is one that will continue both on the consumer side as well as on the commercial side.

Great. Thank you both, and have a nice weekend.

You bet. You as well.

Speaker 6

Thanks, Terry.

Speaker 5

Thank you very much. Our next question comes from Brian Martin of Janney Montgomery Scott. Brian, your line is now open.

Speaker 7

Hey, good morning, guys.

Speaker 1

Morning, Brian.

Just one, Tom, on the expected 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?

Speaker 6

I mean, it's already baked in. We've had pretty much the full quarter.

Right. So.

Maybe a few things that, you know, 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%. It just seemed higher on the higher side given if there were more cost savings and kind of the additional marketing and other expenses you talked about. Okay.

It is a little higher, 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. It's not really related to the First Security transaction.

Gotcha. That's what I just wanted to clarify. The targeted, let's say, the expense, you know, the efficiency level where it's at today and the cost-to-assets ratio, you know, 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?

Speaker 1

I think, as you well know, Brian, 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. 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. 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.

Gotcha. Okay. That's helpful. Maybe the last two for me. You talked about, Alberto, the capital flexibility, I guess, and certainly understand the commentary about the M&A. In terms of the buyback, given where the valuation is at today, do you anticipate this continuing to be active at current prices on the buyback?

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. 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.

Yeah. 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, you know, the organic growth and/or potential M&A rather than, you know, be overly aggressive on the buyback? That was kind of the vein I was looking at. I appreciate the color there. Maybe just the last one for me was for Tom on the margin. Tom, can you just remind us the cash flows on the bond portfolio and then the fixed-rate loans coming due? 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?

Speaker 6

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

Yeah, just deposit costs and the fixed-rate loans repricing.

Okay. 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 are still very disciplined on our deposit pricing, and we're continuing to find opportunities to tweak things in certain sectors. I think that you would expect deposit costs to be kind of flat to down a little bit, generally speaking.

Okay. Perfect. All right. Thank you for taking the questions then.

Thanks, Brian.

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

Speaker 1

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

Speaker 5

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