Byline Bancorp, Inc. (BY) Earnings Call Transcript

Thank you. Ben Williams, Beline Bancorp, 2Q2026 Earnings Call Good morning and welcome to Beline Bancorp's second quarter 2026 earnings call. My name is Ben and I will be your conference operator today. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. would like to ask a question, simply press the star followed by the number one on your telephone. If you would like to withdraw your question, press star one again. If you are listening via speakerphone, please lift your handset prior to asking your question. If you require operator assistance, please press star then zero. Please note the conference recorded. At this time, I would like to introduce Brooks Rennie, the head of investor relations for Byline Bancorp to begin the conference call.

Thank you, Ben. Good morning, everyone. And thank you for joining us today for the Byline Bancorp second quarter 2026 earnings call. In accordance with the 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 of the 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 the earnings release. For additional information about risks and uncertainties, please see the forward-looking statement and non-GAAP financial measure disclosures in the earnings release. As a reminder for investors, during the quarter, we plan to participate in two upcoming conferences, the Raymond James Bank Conference here in Chicago on September 9th and the Stevens Bank Forum in Little Rock in September.

With that, I will now turn the conference call over to Alberto Parchini, President of Byline Bank Corp. Great, Brooks, and good morning, everyone, and thank you for joining us to go over our second quarter results. With me today, as usual, is our Chairman and CEO, Roberto Arancia, our CFO, Tom Bell, and our Chief Coordinator. credit officer Mark Fusinato. In terms of the agenda for today, I'll kick us off with the highlights for the quarter, followed by Tom who'll take you through our financial results. I'll come back to wrap up before we open the call for questions. As always, you can find the deck for this morning on the IR section of our website, so please refer to the disclaimer at the front. Before we get started, I'd like to pass the call over to Roberto for his comments.

Thank you, Alberto, and good morning to all. We appreciate you joining us today and taking the time to engage with Piling. and please excuse my voice, which hasn't been a friend in the last few days. our second quarter results were excellent, record net income. The consistency of our execution continues to shine. We are very proud of the work our people do, and we thank them for another strong quarter. We are also grateful to our board of directors for their engagement, support, and quality of advice. when we started the creation of Byline, Alberto and I were intent on having a board of directors that could really serve us well. the board of directors with different experiences, the board of directors that could make us better. And I believe that we have achieved that from day one. Our objective remains clear. become the preeminent commercial bank in Chicago. This is not about being the biggest bank or pursuing scale for scale's sake. Success for Bioling is defined by the quality of our customer relationships, the the strength of our credit discipline, the talent of our people, and our relevance to middle market businesses throughout the markets we serve. And of course, of course, what we do for our shareholders. We have built a relationship driven commercial bank grounded in the principles that have long defined successful commercial banking organizations. First and foremost, exceptional talent, discipline underwriting, local decision-making, and a commitment to serving customers over the long-term. We believe those fundamentals remain enduring competitive advantages. I've been hearing the scale argument for a long time. that if you don't buy banks, they'll be more expensive. If you don't buy banks, you won't be able to compete. If you don't buy banks, there will not be enough banks left. And here we are 45 years later and it's still the same argument. Scale matters, but only to the extent that it allows us to serve customers well, attract talent, and invest in capabilities. I think scale matters to a lot of banks that are not clear on their purpose and their objectives. We believe we have a significant opportunity in front of us, and BioLand will likely be a much larger organization in the next three to five years. But that growth will come first and foremost organically, and it will be disciplined. It will come from deepening customer relationships. growing deposits, maintaining strong underwriting standards, attracting quality bankers as we have done. and of course selectively pursuing strategic opportunities that are within the metrics that we have discussed with the investment community The area that continues to differentiate byland is our people. Byland was recognized as one of the 2026 best workplaces in Illinois. in the third consecutive year, we have received that distinction. The recognition is especially meaningful because it is based largely on employee feedback. and reflects the culture we continue to build across the organization. We have long believed that engaged employees create better outcomes. and record missions like this reinforce the strength of that philosophy. I would also like to recognize our SDC team. Byron was recently named the 2025 Illinois SBA 7A Lender of the Year. in the 17th consecutive year, we have received that recognition. We were also recognized as the 2025 Illinois SBA expert lender of the year. Consistency like that doesn't happen by accident. It reflects the expertise of our SBA professionals, the strength of the customer relationships, long-standing commitment to helping small businesses access capital. We are delighted with our performance throughout the first half of 2026. More importantly, we think we're very well positioned for the second half of the year. We have a strong capital base in Alberta. We'll talk to you more about that. And we have a talented and engaged workforce and a strategy that remains focused on long-term value creation.

With that, Alberto, I'll turn it back to you. Great. Thank you, Roberto. And picking up on the theme of execution, this quarter we felt was a good example of what discipline execution looks like in practice. We grew profitability, we continue to manage risk carefully, and more importantly, we continue to deliver value to our shareholders. Record net income and excellent profitability really stood out this quarter, so let's start with that. We delivered net income of $40.2 million or $0.90 per diluted share, up from $37.6 million and $0.83 last quarter. Excluding significant items, adjusted EPS was $0.91 per share, up 10% link quarter and 21% year-on-year. For the quarter, return on average assets was 1.63%, up seven basis points, link quarter, and return on annual common equity was just under 14.5%, up 70 basis points. Pre-tax preparation, ROA, came in at 249 basis points, up 20 basis points, which marked our 15th consecutive quarter above 2%. Non-interest expenses remain well managed and declined this quarter while revenue grew. Our efficiency ratio improved 285 basis points to just under 47%. Our fourth consecutive of improvement and our best since becoming a public company in 2017. Put another way, we generated positive operating leverage. Revenue of $118 million was up 4.7% against expenses that actually moved lower. And that combination drove through improvement in returns. Tom will walk you through the details of all of that in a moment. Before I finish with the rest of the highlights, I want to spend a moment on the operating environment we find ourselves in today, since it provides a backdrop to a lot of what you'll hear. We came into the year expecting rates to come down, and once again that hasn't played out the way we or the market expected. Strength in the low labor market combined with firmer inflation points to a higher for longer rate environment for the balance of 2026. Against that backdrop, demand for credit remains solid, particularly in our CNI book, though we are seeing price competition pick up, particularly in commercial real estate. On the liability side, competition for the faucets remains elevated, and it's largely a function of banks competing to fund loan growth with the faucets. We think this environment rewards discipline over volume, and that theme runs through the rest of what I'll cover. From a balance sheet standpoint, trends remain stable. With total assets ending at 9.9 billion, deposits increased 3.5% to 7.9 billion, reflecting growth and interest bearing deposits, while loans grew 4.2% to $7.6 billion. Net interest income was 101 million, consistent with previous guidance, our margin move marginally lower. I'll spend a second on the margin since it's a natural rate of area of focus given what I just described on rates and competition. Our margin declined slightly for the quarter largely due to mixed changes but remained stable and healthy at 4.28%. That said, we manage the business to grow net interest income in dollars since it's what drives profitability and returns, not to a specific margin level. When we see opportunities to add high-quality, relationship-oriented business that's accretive to earnings, even at a somewhat lower spread, we are going to take it. Tom will cover the specifics on the margin drivers shortly. On the asset quality front, credit costs for the quarter were $7.2 million, driven by net charge-offs of $4.4 million and a reserve bill of $2.8 million. Our allowance now stands at just under 1.5% of total loans, up two basis points from last quarter. stood at 92 basis points, essentially flat on a year-on-year basis. Our capital levels remain well above regulatory requirements across the board, providing us with significant flexibility. TCE increased to just under 11.5%, CET1 increased to 13%, and our tangible book value per share increased 14%. year-on-year to $24.48. During the quarter, we repurchased approximately 275,000 shares, totaling $9.1 million, leveraging our capital flexibility. Between dividends and share repurchases, our total payout ratio to shareholders for the quarter was 36%. In addition, yesterday we announced that our board approved a 16.7% increase in our quarterly dividend to 14 cents per share, which will be paid in the current quarter. This is reflective of the strength of our capital position, as well as the earnings profile of the company. I want to take a minute to to talk about how we think about capital allocation more broadly. We look at things like share repurchases the same way we look at any other use of capital against the returns we could otherwise generate by deploying it to support loan growth, invest it back into the business, or opportunistically into M&A. Our approach is to keep building capital and return it in a disciplined, thoughtful way, which gives us flexibility to play offense as opportunities arise. With that, I'll turn the call over to Tom, who will walk you through the financials.

Thank you, Alberto and good morning everyone. Starting with our loans on slide five, total loans increased 4.2% annualized and ended at $7.6 billion for the quarter. Origination activity was solid with $234 million in new loans while payoffs were elevated at $339 million. We are seeing higher payoff activity rather than a pullback in originations as we recycle acquisition loans into new customer relationships. Loan commitments grew slightly during the quarter, while draw activity on existing lines supported loan growth. Line utilization increased to 60% from 59% link quarter. our origination activity remains healthy as we head into the second half of the year. Assuming payoff activity normalizes in the back half of the year, we expect full year loan growth in the mid single digits. Turning to slide six. Total deposits were $7.9 billion for the quarter, up 3.5% annualized from the prior period. From a mixed perspective, growth was driven by interest checking balances that was partially offset by lower money market balances. Our loan to deposit ratio ended the quarter at 96%, up 16 basis points from the prior quarter. We remain disciplined on pricing and continue to prioritize relationship deposits over more rate-sensitive funding. Turning to slide seven. Net interest income was $101 million in Q2, up modestly from the prior quarter, and within our 99 to $100 million range we provided last quarter. The increase was driven primarily by favorable day count, partially offset by higher funding The net interest margin remained healthy at 428, declining five basis points from last quarter. The decrease was primarily driven by higher funding costs related to a maturing balance sheet hedge and changes in earning asset mix. We remain focused on growing net interest income, which we did this quarter. Given the rate outlook and our balance sheet forecast, we expect net interest income range of $100 to $102 million for the third quarter. Turning to slide 8, managed income totaled $17 million in Q2, an increase of $4.3 million, or 35% compared to the first quarter. The increase was primarily driven by favorable fair market marks, higher gain on sale revenue, and stronger swap fee income. Gain on sale revenue totaled $6.1 million compared to $5.5 million in the prior quarter. Additionally, wealth management surpassed the $1 billion in assets under administration. We expect gain on sale revenues to average $5.5 million per quarter and our non-interest income to be in the $14 to $15 million range for the third quarter. TURNING TO SLIDE NINE, EXPENSES CAME IN AT $56.5 MILLION, DOWN 1.2% FROM THE PRIOR QUARTER. The decrease was primarily driven by lower salary and employee benefits, lower occupancy expense and lower OREO related costs. We continue to focus on operating efficiencies and expense discipline, and as a result, our adjusted efficiency ratio was 46.5% compared to 49.8% last quarter. And our non-interest expense to average assets improved 8 basis points to 2.29%. Looking forward, our non-successful year guidance remains unchanged at $59 to $60 million per quarter. Turning to slide 10. Credit quality trends remain favorable again this quarter. Net charge offs for $4.4 million or 24 basis points down from the 32 basis points last quarter. Indicized loans declined to 3.9% of total loans, down from 4.5% on a linked quarter and year-over-year basis. Non-performing loans were $69.1 million, or 92 basis points of total loans, of marginally linked quarter and flat year over year. Our allowance for credit losses was $112 million, or 1.48% of total loans, up two basis points from last quarter, driven primarily by an increase in the individually assessed category. Overall credit trends remain consistent with our expectations. Moving on to capital on slide 11. Capital levels grew across the board during the quarter. Tangible common equity increased to 11.4% and CET1 increased to 12.9%. Our capital position remains a competitive advantage, providing flexibility to support growth, return capital to stockholders, or pursue strategic opportunities. With that, I'll roll back to you.

Thank you, Tom. So to wrap up. Let me give you a few thoughts on how we're thinking about the rest of the year. First on the quarters results that's reflective of work that's been underway for several quarters now. Excuse me and we see room to keep building on it through the same focus on discipline execution. Second, given the environment. Solid but selective credit demand, sharper loan and deposit competition that isn't going away. We intend to stay disciplined rather than chase volume or spread that doesn't compensate us properly for the risk. Third, credit quality remains a priority. The trends this quarter support that are and portfolio monitoring are working as intended. But that said, we need to stay vigilant, given the evolving macro environment. Fourth, we continue to prepare for crossing the $10 billion asset threshold, and that preparation informs how we think about growth, expenses, and capital in the meantime. Looking ahead, we enter the second half of 2026 with solid momentum. Our pipeline remains healthy and we believe we're well positioned to capitalize on opportunities and continue to create value for our shareholders. And with that, Ben, let's open the call up for questions.

We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. we ask that you pick up your handset when asking a question to allow for optimum sound quality. If you were muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first call comes from the line of Nathan Race with Piper Sandler. Nathan, your line is open. Please go ahead.

Hey guys, good morning. Thanks for taking the questions. Alberto, I appreciate your commentary around just the healthy pipeline. And I think Tom alluded to a mid-single-digit growth expectation for this year. But, you know, with loans up, call it, you know, 1% annualized through the first half of the year, you know, that would imply kind of a ramp to the high single-digit range for the back half of the year. So I'm just wondering if you could shed some light on that. the visibility you have into payoffs in the back half of the year and how you expect production to trend as well.

You hit the nail on the head on that, Nate. The area that is usually the most uncertain one is related to timing of payoffs. As you know, our guidance on in terms of loan growth, you know, has been consistently in that kind of mid to single digit range. And, you know, in the past, I know you guys sometimes have given us a hard time because we've exceeded that. that we stuck with digit range. And I think what you're seeing here is essentially the, you know, that, you know, effectively being flipped. If you look at our level of originations, those have, you know, continued to be pretty consistent. You know, I know if you look at the comparisons on the on the page, you know, yes, year over year is down, but if you look at it more on or the recent, you know, three or four quarters has been pretty consistent in terms of the activity level. As far as new business is concerned, and we continue to feel confident around that. probably less confident is the other part, which is the payoffs. That being said, I think part of that I point to what Tom said, which you've also heard us talk about in the past, where when we've done acquisitions, Our approach has been really acquiring deposits for the purpose of recycling, you know, know those assets over a period of time so that we can redeploy that liquidity into our lending businesses I think what we've seen over the past couple of quarters particularly with some of the acquisitions that we've done over the last couple of years has been that recycling and I think that has a lot to do with the elevated payoff activity we think we're past the bulk the bulk of it, Nate. That being said, that's the variable that that is always, you know, more challenging to. to forecast for obvious reasons. But when we think about the underlying originations and that kind of underlying, call it, rate of growth, in that mid single digit range. We feel pretty confident about that. That being said, that volatility of payoffs, as we've seen the last couple of quarters, you know, is what is going to ultimately impact, you know, the numbers that you're looking at, which is ending balances and calculating growth rates over that. So just be mindful that that, you know, volatility of, of, of Pay off activities may impact that, but when we think about the way we run the business is we think about it in the standpoint of we want to see. That kind of made single digit range and that allows us as you also probably saw from the numbers and from covering us for some time. we're really looking to drive that and fund it with core deposits. So those two really can't deviate too much from one another. So hopefully that gives you color and gives you an answer to your question. Probably a more full answer to the question that what you were hoping for,.

that provides enough color on that. It does and very appreciate all that, particularly commentary around the acquired portfolios. Not to give you guys a hard time to earlier point, You know the guy for the back half of the year. You know that implies a decent step up from the first half, kind of where you're seeing those upward expense pressures as a tie to some additional hires you're anticipating the back half of the year or any other color you can shed just in terms of kind of the.

increased expense outlook for the back half? Hi, Nate. Yes, it's employee expenses, healthcare costs, those types of benefits are probably going to be likely higher in the second half of the year. We normally have some higher commissions as well just due to production through the year. So it's kind of compensation related. And that's why we're giving the higher guidance. I think if you look at, by the way, if you look at last year, I think you kind of see.

last year. Yep, for sure. And then just hey, then you were on a point and just to give you some some additional color on that you brought up additional hires and so forth. We're actually seeing good. There's there's call it opportunities in the market to do that and where we're seeing good opportunities in the always looking for attractive talent we don't have anything to to announce but if we were to you know bring on a team of people or or be doing you know hiring additional bankers where we see an opportunity outside of call it normal course of business. then we would separate that and we would tell you that, you know, listen, our expenses are higher this quarter because, you know, we added a team or we added a couple of teams, but, you know, the market, there seems to be enough, flux in the market at the moment that maybe some opportunities will present themselves to be able to add high-quality talent.

Got you. And that sounds like it's kind of embedded in the guide in terms of those opportunities. Yes. Okay, great. And then if I could just ask lastly to your earlier comments, Alberto, around just how you're managing excess capital. You guys, of course, have the high-quality problem with how quickly you're building capital just given the profitability profile. But eventually, it's going to kind of depress or kind of bring down your capital. returns on tangible common. So, you know, within that light, you know, curious kind of what you're seeing on the M&A front these days. And if you could also just remind us how you think about kind of the appetite for buybacks around earn back periods and so forth.

Yes, I think you hit the nail on the head. I I think you know, putting aside. just call it growth and risk weighted assets, balance sheet growth. And obviously you saw the increase in the dividend that the board approved, which is obviously a return of capital back to shareholders as well. I think you're left then with, you M&A opportunities in the market, and I think the environment is is active. Obviously you saw a. somewhat of a market acquisition here, obviously more Indiana than Chicago being announced the other day. And I think it's fair to say that conversations are, not that they're never completely inactive, but I think it's fair to say that there's there's plenty of chatter. You've seen certainly more M&A. Broadly speaking, in the kind of the under $10 billion range that you have seen in terms of much larger transactions AND I THINK THAT TREND IS LIKELY TO CONTINUE. BUT I WOULD DESCRIBE THE GENERAL CHATTER AROUND M&A AS CONSTRUCTIVE. BUT GOING BACK TO YOUR, YOU KNOW, capital deployment question. Absent M&A opportunities that we execute on, then given the fact that we've kind of run through the priorities, we would be looking to the buyback program to return capital back to shareholders.

Okay, that's really helpful. I appreciate all the color and hope you feel better.

Thank you, Nate. Your next call comes from the line of Brendan Nozzle with Hub T Group. Brendan, your line is open. Please go ahead. Hey, good morning, everybody. Hope you're doing well.

Maybe starting off here on asset quality, lot of nice trends for the quarter compared to, you know, sequential year over year, you kind of name it. If I look at slide 10, I see some really nice cleanup in kind of criticized asset reading. Can you just offer a little bit of color on, you know, what you worked out this quarter, how you manage to avoid meaningful loss content, and then just any broader commentary on kind of your overall observations on the health of your commercial borrowing base.

I'll let Mark take this question, but just a general comment, particularly when you're looking at criticize and classified. Our approach always is going to be we're going to be quick to downgrade. So. In other words, we would much rather err on the side of downgrading something very, very quickly and then waiting for plans or improvements to occur. And then we later, you know, if that's the resolution, then we'll go back and upgrade the credit and go from there. Just be mindful that our bias is always, anytime that we have, we see a weakness, I'll call it even a general weakness or a well-defined weakness in a credit, we're going to be probably early to downgrade as opposed to waiting and seeing what develops before much. making that decision. Just keep that in mind, but I'll pass the call over to Mark.

Thanks, Alberto. So, Brendan, the reduction, as classified, was driven by a a few deals that were large in size, but they had been performing much better in the trends we saw with the operating companies. We're over an extended period, so we felt comfortable increasing the risk rating to more of a past credit. That was one factor. And then we had a large resolution from one of our workout situations where an operating company had a large mortgage exposure also, and they were able to sell that asset and pay off our exposure completely. And that was a non-performing loan. that we had reserved against, so we got a bit of a recovery also on a previous charge-off. Those are the three main factors in driving the numbers down. As you know, with our portfolio, we tend to have idiosyncratic situations that come up. We don't see a trend in any of the asset classes for our line of business. but those three specific ones were the reason that we saw the big improvement quarter over quarter. Okay. That's a helpful color. I appreciate it.

maybe just to circle back to the topic of conversation earlier in the call on deposit competition. Can you just unpack the environment a little bit more on kind of what sort of institution you're seeing push the envelope on pricing and then just how it's evolved over the course of the year and kind of what the temperature is today on funding competition.

versus over the prior six months? I think I'll start and then jump. I'm sure we'll jump in as well, but I think you know it's interesting that we're having this discussion today because there was an article in the Wall Street Journal this morning talking about law enforcement larger institutions kind of coming back into the commercial real estate market. And I think specific to that particular book or that particular business, that's exactly what we're seeing and consistent with what we have kind of noticed and have noticed in the market going back a couple of quarters. I think that's largely due to clarity around Basel III, if you recall, probably 18 months ago, 24 months ago, we were having exactly the opposite conversation, you know, risk weighted asset diets and the larger banks were a bit more, had a bit more lack of clarity in terms of where Basel III was going to end up. INCREASES IN CAPITAL NOW THEY'RE KIND OF LOOKING AT A AT AN ENVIRONMENT THAT'S GOING TO BE FLAT TO POTENTIALLY DECLINING. AND I THINK THEY HAD LET THOSE BOOKS YOU KNOW EITHER YOU KNOW STAY RELATIVELY STABLE IF NOT DECLINING BECAUSE OF OFFICE EXPOSURE. AND I THINK WHAT WE HAVE SEEN PARTICULARLY YOU in asset classes like multifamily, like industrial, is those larger institutions have been coming back to market. There's more capital that they're trying to put to work. Transaction activity in the market in general, I would say relative to before the rate hikes, is still lower. Right. So there's less deals, more capital, and then you have a compression in pricing, which is kind of what we're seeing in that particular book. As far as the rest of the business, CNI is always competitive, and rightly so. You're looking at hopefully having long-term relationships that you're trying to build. trying to fund with. With with deposits and you know, there's an acquisition cost of those relationships up front, and that's reflected in pricing. But I think in general is what what you're seeing, you know, One, what we just covered on the asset side, and then just banks looking to fund that loan growth with deposits. And Tom can add more to that.

Yes, I would. I would say on the commercial side it's business as usual, not extremely the deposit. The relationship is competitive, but it's not exception pricing going on on the deposit side, so the core deposits we get from that are very stable and very low cost. On the margin, if you're trying to increment, you know, increase your deposit base and you're using the consumer network to do that, that. Two things I would say. One is the expectations of the Fed going from cutting rates earlier in the year to now potentially raising rates later this year. You're seeing more extension of, you know, CDs if you will. Our book has been very short just because of the expectations of a cut that we thought was going to happen. That's certainly reverse course, so it's not like we're going to have a lot more repricing on lower levels, so it just comes down to the short curve meaning overnight to one year is steeper that you're going to pay incrementally more in rate but spreads haven't really materially changed i think it's still competitive as alberto alluded to but not it's still rational relative to where it's been in the past.

Okay. All right. Well, thank you all for offering your thoughts. I appreciate it.

Thank you. Your next call comes from the line of Brian Martin with Breen Capital. Brian, your line is open. Please go ahead.

Good morning, everyone. Ryan. See you. Maybe can you just touch on with the credit quality this quarter, just kind of a bigger picture question, and that is, as the SBA book has gotten smaller, just as other businesses have kind of outgrown them, when we think about the big picture on charge-off trends, you know, kind of going into the future, I know this quarter had some recoveries and what you just talked about, but just should we think about the charge-off rate maybe being a little bit lower than it has been historically? Just is that dynamic continues to play out and you're growing your organic piece of the business maybe a little bit faster than the commercial side rather than the SBA side, given kind of commentary today, something that continues to keep similar pace in terms of what it's delivering, but is that an accurate way to frame it?.

as we look in the out years? I think it's a, Brian, I think that's a, that's an acute observation and, and, I think what you're saying is accurate. I think also what I would say is in the short run, we're still in that kind of, you know, if you're asking us what's your view, how should we think about charge-offs, I think in the short run, we're still in that category of 30 to 40 basis points. I think what you have seen the last couple of quarters is that we're being certainly, you know, going towards the lower end of that range. I think as Mark alluded to, we had some nice recoveries, um, This particular quarter, so we went lower than the range, but I would say still in the short run that 30 to 40 basis points is still a good range. That being said, in the long run, I think what you're saying is correct, meaning as the balance sheet continues to grow and as proportionately that business and that portfolio continues to be proportionately a smaller part. of the portfolio and the balance sheet in general, yes, I think that those charge-up levels are probably going to end up migrating a bit lower.

Okay, no, that's helpful, Berto. That seems like where it's going. So that just a little color there is helpful. And just in terms of, I guess, the NII or NIM outlook, I don't know if you can give any thoughts, I mean, your comments about being disciplined on pricing in terms of, both loans and deposits and the competition in the market. Kind of feels like, you know, maybe the focus on maintaining the margin kind of worth that here and maybe that would be the outlook. Without maybe just general comments, if you can provide it on the margin, but maybe a bigger picture question is, is it better to think about it in terms of the NII growth, which is what you guys usually offer a bit more on if maybe a mid-single-digit growth in NII is how we should be thinking about the balance sheet and that NII number going forward, maybe into next year, that's the best way to think about it, as you manage the business here for the environment?.

Hi Brian, good morning. Yes, NII I think we gave guidance for the quarter. I mean pretty consistent. You know, as we talked about, payoffs are the wild card, so to speak, that If they are slower, certainly earnings could be higher. You know, as far as you know, again deposit wise, I think we're we're doing well on the margin. The deposit costs aren't bad relative to the spreads we're getting. Certainly there's repricing going on on the asset side. that's going to help us but i think you know the cost of fun side is probably flat you know moving forward here, we did have a balance sheet hedge that was material in a maturity size and impacted the margin a couple basis points, so that's kind of out of the way right now. And I think as we continue to grow relationships and get our fair share of business. You know, the margins should be stable in the coming quarters. Yes, Brian, and just to add,.

just an additional, you know, some more perspective on that. I think Tom answered it well in terms of kind of net interest income really being the, you kind of how we manage the business as opposed to thinking margin always first and therefore you kind of, you know, net interest income as a result of that. That being said, you know, as we said earlier, we kind of look to net interest income because that's ultimately what drives profitability. It's obviously what drives profitability. We don't manage specifically to a margin. Call it target, so to speak. But, you know, when we think about growth, it's, I kind of think of it as a, you know, and Roberto even touched on it on his remarks at the beginning, you know, discipline is a good thing. In certain cases, we're going to look at taking a lower spread, which say it may impact the market, the margin negatively to do business that we think in the long run is going to make sense for the institution to do because it will build franchise value and it will generate generate long-term returns, which at the end of the day is what we're trying to achieve. So we may have situations where you may see, okay, there's margin pressure, we're adding to the business. but we'll be selective on those, you know, and there'll be times when maybe that's emphasized more because of opportunities in the market, as opposed to times where we don't see those opportunities, in which case, Maybe we don't grow as fast or you see the margin expand, but that's a high class problem. And as you saw this quarter, what happens then is, if we're not supporting growth, then we're building capital. So then the decision that we have to make is how do we return that capital back to shareholders? And you saw us do that. this quarter is an example. So it's a balance that we're playing, right? It's balanced between long-term growth and balancing that against the short-term opportunities that we see in the future.

in the in the day to day, you know, aspect of the business. And I would just add one point. Sorry, Brian, one last thing just to remember. You talked about the SBA business, right? It's becoming a smaller piece of the overall organization over a longer period of time that will continue. And obviously that's a higher risk, higher return business. So that would have an impact on the margin in a longer term way. not necessarily next quarter or the following year, but just gradually you would expect those higher-yielding assets to be a smaller piece of the overall earning assets.