Byline Bancorp Q3 Earnings Call Highlights

Key Points

• Record results: Third-quarter net income rose 4% sequentially to $41.8 million, while revenue reached a record $121 million. Net interest margin expanded 5 basis points to 4.33%, supported by lower funding costs and higher asset yields.
• Deposits grew despite weaker loan balances: Deposits increased 2.1% sequentially to $8 billion, allowing Byline to reduce wholesale funding and lower its loan-to-deposit ratio. Loans declined 1% to $7.5 billion as elevated payoffs exceeded new originations.
• Expansion and shareholder returns: Byline raised its quarterly dividend 16.7% to $0.14 per share and repurchased $20.2 million of stock. It also agreed to acquire Illinois State Bancorp, a deal expected to expand its Chicago-area presence and push assets above $10 billion in 2027.

Byline Bancorp NYSE: BY reported record third-quarter net income and revenue, expanded its net interest margin and increased deposits, while also announcing an agreement to acquire Illinois State Bancorp and raising its quarterly dividend.

Net income for the third quarter was $41.8 million, or $0.94 per diluted share, compared with $40.2 million, or $0.90 per share, in the prior quarter. Earnings per share increased 4% sequentially and about 15% from a year earlier, President Alberto Paracchini said on the company’s earnings call.

Revenue reached a record $121 million, up 3% from the second quarter, as both net interest income and non-interest income increased. The company reported a 1.67% return on assets, a return on tangible common equity of just under 15%, and a pre-tax, pre-provision return on assets of 2.45%.

Margin expansion and deposit growth

Net interest income rose 3% from the prior quarter to a record $103.7 million. Net interest margin increased 5 basis points to 4.33%, aided by higher yields on cash and investment securities, lower wholesale funding costs and an additional day in the quarter. Higher deposit costs partly offset those benefits.

Excluding accretion, net interest margin increased 10 basis points sequentially. Chief Financial Officer Tom Bell said the company’s asset-sensitive position should support net interest income in a rising-rate environment.

For the fourth quarter, however, Byline expects net interest income of $103 million to $105 million as it manages its balance sheet to remain below $10 billion in assets through year-end.

Total deposits increased $168 million, or 2.1% sequentially and 8.5% on an annualized basis, to $8 billion. Growth was led by interest checking accounts and demand deposit accounts, partly offset by lower money market and savings balances. Deposit growth enabled the company to reduce wholesale funding, bringing its loan-to-deposit ratio down to 93.2% from 96.1% in the second quarter.

Paracchini said the deposit gains reflected the company’s commercial banking focus and addition of customer relationships. He noted that Byline also repaid roughly $80 million of brokered deposits during the quarter.

Loans decline amid elevated payoffs

Total loans and leases declined about 1% from the second quarter to $7.5 billion. New loan originations rose 55% sequentially to $362 million, but elevated payoff activity of $396 million more than offset production. Line utilization declined to 57% from 61%, reflecting repayment activity and $112 million of new line commitments.

Management expects loan balances to be approximately flat in the fourth quarter as new business production and payoffs largely offset one another. Looking into 2027, Paracchini said the company still expects mid-single-digit loan growth, excluding the impact of acquisitions, though he cited uncertainty around rates, commercial real estate transaction activity and broader market conditions.

Bell said approximately half of the loan portfolio is floating rate, including 34% tied to SOFR and 19% tied to prime. He also said the company has roughly $300 million to $350 million in fixed-rate loan maturities and runoff per quarter, including leasing, with a yield of about 5.15%, compared with new origination yields in the 7% to 7.25% range depending on asset class.

Credit trends and expense outlook

Credit costs totaled $6.7 million in the third quarter, including $5.8 million of net charge-offs, or 31 basis points annualized, and a modest reserve build. The allowance for credit losses increased 3 basis points to 1.51% of total loans.

Nonperforming loans increased 22 basis points during the quarter, driven by two relationships that were moved to nonaccrual status. Chief Credit Officer Mark Fucinato said one was a solar-industry relationship that the company expects could be resolved early next year, while the other involved a commercial-and-industrial borrower that purchases distressed consumer credit-card debt. He said Byline was appropriately reserved against both credits.

Criticized and classified loans declined for a third consecutive quarter, falling to 3.1% of total loans from 3.9% in the prior quarter.

Non-interest income rose 3% to $17.3 million, led by higher bank-owned life insurance income, swap income and wealth management income. Bell said the BOLI contribution included a one-time item of slightly more than $1 million. The company maintained its fourth-quarter outlook for total non-interest income of $14 million to $15 million, including $5.5 million of gain-on-sale revenue.

Non-interest expense increased 6% sequentially to $59.8 million, primarily due to higher incentive compensation, partly offset by lower marketing costs. Byline projected fourth-quarter expenses of $62 million to $64 million, reflecting incentive compensation, benefits and marketing spending. Management said it expects expenses to decline from the fourth-quarter level in the first quarter of 2027, though it did not provide formal guidance.

Capital returns, acquisition and leadership changes

Byline repurchased about 522,000 common shares for $20.2 million during the quarter and raised its quarterly cash dividend 16.7% to $0.14 per share. Its common equity Tier 1 capital ratio increased 37 basis points to 13.29%, while its tangible common equity ratio was 11.12% at Sept. 30.

The company also announced a definitive agreement to acquire Illinois State Bancorp. Paracchini said the deal was relationship-driven and would expand Byline’s presence in parts of Chicago where it does not currently operate, while adding customer relationships and core deposits. Management expects the transaction to help the company exceed $10 billion in assets in 2027.

Byline said it intends to remain below the $10 billion threshold through the end of 2026, which it said would defer the impact of the Durbin amendment until the second half of 2028. Bell said the company has limited bond purchases while managing that threshold and could increase securities purchases in the first quarter of 2027.

Chairman and Chief Executive Officer Roberto Herencia also discussed planned leadership transitions effective Jan. 1, 2027. Head of Commercial Banking Brogan Ptacin and Fucinato will retire at the end of 2026 and remain in advisory roles. Scott Hawthorne, currently deputy chief credit officer, will succeed Fucinato as chief credit officer.

About Byline Bancorp (NYSE:BY)

Byline Bancorp, Inc is the bank holding company for Byline Bank, a full-service commercial bank headquartered in Chicago, Illinois. The company focuses on serving small and mid-sized businesses, entrepreneurs, commercial real estate investors and consumers through a relationship-based banking model.

Byline Bank offers commercial and industrial lending, commercial real estate financing, small business and SBA loans, business checking and savings accounts, treasury management, and other cash-management services.

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