Byline Bancorp (NYSE:BY) reported third-quarter financial results on Friday. The transcript from the company’s third-quarter earnings call has been provided below.
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View the webcast at https://events.q4inc.com/attendee/511124815
Summary
Byline Bancorp reported strong third-quarter financial results with record net income of $41.8 million and revenue of $121 million, driven by growth in net interest income and noninterest income.
The company announced a definitive agreement to acquire Illinois State Bancorp, which will help it cross the $10 billion asset threshold in 2027.
Key financial metrics included a net interest margin of 4.33%, a return on average assets (ROA) of 1.67%, and a return on tangible common equity (ROTCE) of just under 15%.
Deposit growth was strong, increasing by 8.5% annualized, allowing the company to reduce wholesale funding and improve the loan-to-deposit ratio to 93.2%.
The company’s credit quality remained stable, with a slight increase in nonperforming loans but a decline in criticized and classified loans.
Byline Bancorp increased its quarterly cash dividend by 16.7% and repurchased approximately 522,000 shares, highlighting its strong capital position and commitment to returning capital to shareholders.
The company plans to manage its balance sheet to remain below $10 billion through year-end to defer Durbin Amendment impacts, with expectations to cross the threshold in 2027.
Leadership transitions are planned, with retirements and new appointments announced to strengthen the company’s executive team as it prepares for future growth.
Future guidance suggests stable loan balances in Q4, with mid-single-digit loan growth expected in 2027 amid ongoing economic uncertainties.
Full Transcript
Ben (Operator)
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. If you 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 and 2. 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 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.
Brooks Rennie (Head of Investor Relations)
Thank you, Ben. Good morning everyone, and thank you for joining us today for the Byline Bancorp third quarter 2026 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, we plan to participate in two investor conferences during the quarter, the Hovde Group Financial Services Conference in Orlando and the Piper Sandler Financial Services Conference in Miami, both in November. With that, I will now turn the conference call over to Alberto Paracchini, President of Byline Bancorp.
Alberto J. Paracchini (Member Board of Directors)
Thank you, Brooks. Good morning everyone and thank you for joining us to review our third quarter results. With me today are our Chairman and CEO Roberto Herencia, our CFO Tom Bell and our Chief 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 will walk you through the financials. I’ll come back before wrapping up the call for questions. As always, you can find the deck for this morning on the IR section of our website and 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. Roberto.
Roberto Herencia (Chairman and Chief Executive Officer)
Thank you Alberto and good morning to all. Thank you for spending a few minutes with us this morning. Another excellent quarter with notable positive developments. Financial results were solid and consistent. Quite a few records achieved this quarter. Key metrics were once again top quartile or top decile among our peer group. We increased our dividend during the quarter and continued to repurchase shares opportunistically. We also announced the acquisition of Illinois State Bancorp and with that, the analyst community gets the certainty they’ve been so eager to obtain as to when we will cross the 10 billion threshold.
Before passing the call back to Alberto and the team, I’d like to talk about these details. I want to spend a few minutes, as I usually do, talking about our people and leadership, which is of course what makes these results possible. Sadly, I first want to take a moment to remember our colleague Matt Robertson, who passed away in September. Matt was part of the Byline family for more than seven years and led one of our commercial real estate teams.
He was an accomplished banker and a respected leader in the Chicago commercial real estate community. What stands out the most about Matt is the impact he had on the people around him. Matt was a mentor to many of our younger bankers and credit professionals. He was known for his positive attitude, his commitment to his colleagues and customers, and the energy he brought to Byline every day. I talk often about the importance of our people and the culture we’re building.
At Byline, Matt represented so much of what we value: relationships, mentorship, teamwork and genuinely caring about the people around you. We miss Matt greatly and our thoughts remain with his wife, his children and all of Matt’s family, friends and colleagues. We are grateful for the time we had with Matt and for the lasting impact he made at Byline and on so many of us personally. More broadly, I’m especially proud that Byline was recently named one of American Banker’s 2026 Best Banks to Work For. This recognition is particularly meaningful because employee feedback is a central part of this evaluation. We work hard to build a culture where people feel connected to the organization, have opportunities to develop and build meaningful careers, and understand the important role they play in our success. We remain focused on developing our people, creating opportunities from within, and making sure we have the leadership depth necessary for 10 billion and beyond.
And we actually do. This leads directly to the leadership transitions and organizational changes we announced earlier this month. Effective January 1, 2027, Brogan, Head of Commercial Banking, and Mark Fusinato, Chief Credit Officer, will retire at the end of this year after a combined 25 years of service to Byline. Brogan has been instrumental in building our commercial banking franchise and strengthening our position in the Chicago market, while Mark has played an equally important role in strengthening our credit infrastructure and building the disciplined credit culture that is fundamental to how we operate.
Both have also invested considerable time in developing the people around them—a condition to their retirement. I’m being playful with that last comment, of course, just a bit. We are incredibly grateful for their leadership and the lasting positive impact they have had here at Byline. We’re delighted that Brogan and Mark will remain involved in advisory capacities for the foreseeable future with us. If we had an official Chicago Bankers Hall of Fame, these two individuals would be inducted without a wait period.
As part of these planned transitions, we shared in an 8-K earlier this month the names of the named executive officers that will lead the reorganized commercial bank and credit functions. There are also many other promotions that cascade from these changes beyond the NEOs, including expanded responsibilities and even a swap or exchange of roles into C-suite leaders. As part of our commitment to developing leadership, singling out all of them would not be appropriate in an earnings call.
The overarching message, however, is that these moves are intentional, giving talented leaders opportunities to lead different parts of the organization, building broader experience and strengthening our executive bench as we cross the 10 billion threshold. We have known for some time that these transitions were approaching and we’ve been deliberate in preparing for them. To me, that is what good succession planning looks like. We are confident in the team we have in place and excited about what this next generation of leadership will bring to Byline.
I am proud of the organization we are building together. These changes demonstrate the depth of leadership we have developed across the company and reinforce something I have said many times: our people, our culture are fundamental to our success. This team, our people in general, anchors the optimism and excitement I feel about Byline’s growth prospects and our progress towards becoming the premier commercial bank in Chicago. With that, Alberto, I’ll turn it back to you.
Alberto J. Paracchini (Member Board of Directors)
Great. Thank you, Roberto. Moving on to Slide 4 on the deck, the third quarter combined strong financial results with several important milestones. We delivered record net income and revenue, expanded our net interest margin and grew deposits while maintaining strong capital levels. We also announced definitive agreement to acquire Illinois State Bancorp and returned capital to shareholders through a higher dividend as well as share repurchases. All in all, a very productive quarter for Byline.
Net income came in at 41.8 million, or $0.94 per diluted share, up from 40.2 million, $0.90 last quarter. EPS was up 4% linked quarter and up approximately 15% from a year ago. Revenue reached a record 121 million, up 3% from the second quarter with growth in both net interest income and noninterest income. These results translated into an ROA of 167 basis points, ROTCE of just under 15% and pre-tax pre-provision ROA of 245 basis points. Expenses totaled 59.8 million and our efficiency ratio was 48.4%.
While the ratio increased from the second quarter, it improved by 260 basis points on a year-on-year basis. Turning to the balance sheet, deposits grew 168 million or 8.5% annualized to 1. Our loan-to-deposit ratio declined to 93.2% from 96.1% last quarter and we used excess cash to reduce wholesale funding and manage the size of the balance sheet. Loans and leases declined roughly 1% to 7.5 billion as elevated payoffs more than offset strong origination activity. We ended the quarter with assets just below 10 billion and have flexibility to manage the balance sheet through year end.
We expect to cross the $10 billion threshold in 2027, which would defer the impact of Durbin until the second half of 2028. Moving to asset quality, credit costs for the quarter were 6.7 million, reflecting net charge-offs of 5.8 million and a small reserve build. Net charge-offs came in at 31 basis points, consistent with prior guidance. Nonperforming loans increased 22 basis points for the quarter, driven by two relationships, one government guaranteed and one commercial, that moved to nonaccrual status. During the quarter, our allowance increased 3 basis points to just over 1.5% of total loans.
Criticized and classified loans declined to 3.1% from 3.9% last quarter, marking the third consecutive quarterly decline. Capital levels continue to remain strong. During the quarter we repurchased approximately 522,000 shares totaling 20.2 million. Importantly, we executed across all four of our capital priorities during the quarter—supporting organic growth, increasing our dividend, deploying capital towards M&A, and returning capital through share repurchases. With that, I’ll turn the call over to Tom who will walk you through the financials.
Thomas Bell (EVP, Chief Financial Officer and Treasurer)
Thank you, Alberto, and good morning, everyone. Starting with our loans on Slide 5, total loans ended the quarter at $7.5 billion, down 1% from the second quarter. Origination activity was strong with $362 million in new loans, up $129 million, or 55% linked quarter. However, payoff activity continued and remained elevated at $396 million, up 17% linked quarter. Line utilization decreased to 57% from 61% last quarter, reflecting higher net repayment activity and the impact of $112 million of new line commitments added during the quarter.
Looking ahead, we currently expect fourth quarter loan balances to remain flat as payoff activity and new business production are expected to largely offset. Turning to Slide 6, total deposits were $8 billion for the quarter, up 2.1%, or 8.5% annualized, linked quarter. From a mix perspective, growth was driven by interest checking balances and DDAs, partially offset by lower money market and savings balances. The solid deposit growth for the quarter allowed us to reduce our reliance on wholesale funding and improve our loan-to-deposit ratio to 93.2% from 96.1%. Deposit costs increased modestly for the quarter, up three basis points to 1.95%, while the cost of interest-bearing deposits increased five basis points to 2.54%.
Turning to Slide 7, we had record high net interest income of $103.7 million, up 3% from the prior quarter, primarily due to higher income from investment securities, reduced wholesale funding costs, and the additional day in the quarter. This was partially offset by higher deposit costs. The net interest margin increased 5 basis points to 4.33%. The improvement reflected higher yields on cash and securities and lower borrowing costs, partially offset by higher deposit costs.
Excluding accretion, the NIM increased 10 basis points linked quarter. Given our asset-sensitive position, we are well positioned to grow our net interest income in a rising rate environment. That said, given the rate outlook and the management of the balance sheet to stay under $10 billion per year-end, we expect net interest income to be in the $103 to $105 million range for the fourth quarter. Turning to Slide 8, noninterest income totaled $17.3 million in Q3 and increased 3% compared to the second quarter. The increase was primarily driven by higher BOLI income. We also had higher swap income and wealth management income, partially offset by lower servicing asset valuation. Our guidance for Q4 remains unchanged, with gain-on-sale revenues at $5.5 million, with total noninterest income to be in the $14 million to $15 million range.
Turning to Slide 9, expenses came in at $59.8 million, up 6% from the prior quarter, primarily due to higher incentive compensation, partially offset by lower marketing expenses. Noninterest expense to average assets continued to move lower at 2.39%, an improvement of 8 basis points year over year. Looking ahead to Q4, our noninterest expense guidance will be higher at $62 million to $64 million, which reflects higher incentive compensation, benefit costs, and marketing spend.
Notwithstanding the higher expense guidance for the fourth quarter, we still believe that our full-year efficiency ratio will be at or below 50%. Before moving to credit, I want to briefly touch on taxes. During the third quarter, we purchased tax credits, which reduced our effective tax rate to 23.3% from 25.7% last quarter. Looking ahead to 2027, we currently estimate our annual effective tax rate to be in the 25.5% range. Turning to Slide 10, net charge-offs were $5.8 million, or 31 basis points annualized, compared to $4.4 million, or 24 basis points, last quarter. Criticized and classified loans declined to 3.1% of total loans from 3.9% last quarter, and our allowance for credit losses was $113 million, or 1.51% of total loans, up 3 basis points from last quarter, driven by an increase in the individually assessed category.
Moving on to capital on Slide 11, capital ratios increased during the quarter and remain well above regulatory requirements. CET1 increased 37 basis points to 13.29%. Our TCE ratio was 11.12% at September 30, down 24 basis points linked quarter due to higher AOCI and the impact of share repurchases, but up 34 basis points year over year. As a result of our strong capital position, we continue to return capital to stockholders. During the quarter, we repurchased roughly 522,000 shares of common stock and increased our quarterly cash dividend by 16.7% to $0.14 per share.
Our capital position is a source of strength and continues to provide flexibility to fund organic growth, return capital to stockholders, and pursue strategic opportunities. With that, Alberto, back to you.
Alberto J. Paracchini (Member Board of Directors)
Thank you, Tom. So to wrap up, we’re pleased with this quarter’s results and remain focused on executing our strategy. Our priorities are straightforward: grow customer relationships, deliver profitable growth, and invest in the business while preserving a strong balance sheet. We do all of that while maintaining credit discipline, close portfolio monitoring, and balancing risk with reward. Looking ahead to the fourth quarter, our pipelines remain healthy, and we’re confident in our ability to serve customers and compete effectively in the market. Our capital position gives us flexibility to support growth, invest back into the business, and return capital to shareholders. Looking ahead, we’re prepared to operate above $10 billion in assets and welcome Illinois State Bank customers, employees, and shareholders to Byline in 2027. We believe the combination will strengthen our deposit base, expand our market presence, and add new customer relationships.
We remain optimistic about the opportunities ahead and focused on delivering long-term value to our shareholders. Before we open the call for questions, I’d like to recognize Mark Fusinato, who is here today participating in his 25th and final quarterly earnings call before retiring. Mark joined Byline in 2019 and has served as Chief Credit Officer since 2020. During his tenure, Mark has made significant contributions to our company. Our processes and practices are stronger, our credit culture has matured, and the relationship between our lines of business and credit has become a competitive advantage.
I am fortunate to work with Mark and grateful for his friendship and support over the last seven years. On behalf of Byline, our board, and all of us here, thank you for your contribution and years of service. We wish you well in retirement. I’d also like to take a moment to introduce Scott Hawthorne, who will succeed Mark as Chief Credit Officer at the beginning of 2027. Scott joined Byline three and a half years ago and is currently Deputy Chief Credit Officer. He brings more than 20 years of banking and credit experience, having worked prior to Byline at MB Financial and Fifth Third. Finally, thank you to all of our employees for their commitment to customers and their contributions to another strong quarter.
And with that, operator, we can open the call up for questions.
Ben (Operator)
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 are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first call from the line of Nathan Race with Piper Sandler.
Nathan Race (Analyst)
Hey guys, good morning. Thanks for taking the questions, and congratulations on your upcoming retirement, Mark. Wishing you all the best in your next chapter.
Mark Fusinato (Chief Credit Officer)
Appreciate it.
Nathan Race (Analyst)
Wanted to start on just the strong core deposit growth in the quarter. Obviously it helped you kind of pay down some wholesale funding in the quarter, and just maybe curious, Alberto, if you can just unpack some of the drivers. Is it just some typical blocking and tackling, pulling market share? And to what extent do you have kind of visibility into kind of additional core deposit gathering at this clip, just to maybe continue to work down some wholesale funding sources and drive and support the NIM?
Alberto J. Paracchini (Member Board of Directors)
Yeah, good question, Nate, and good morning. So obviously, when you annualize the growth this quarter, it looks super solid at 8.5%. The growth was actually a bit higher because we also repaid, Tom, roughly around $80 million in brokered deposits. So net, it was really double-digit growth. Joking, trying to put a joke aside, but I wish we could continue to grow at that type of rate going forward. But in all reality, I think the growth this quarter was just simply blocking and tackling.
As you know, we are more commercially focused. So as we bring in new banking relationships, they can be lumpier coming in. And I think that’s the short answer to your question. It’s just we added, we continue to add banking relationships. We had a good quarter of that. If you look at the changes in the balances, it was driven by interest checking. Noninterest-bearing obviously moved higher also, which certainly helped. So the mix remained attractive.
But in terms of going forward, Nate, listen, as you know, we’ve always been very focused on the right-hand side of the balance sheet. We believe that fundamentally that’s really where the value of a financial institution lies, and we’ll continue to always be prioritizing, you know, deposit growth going forward. And again, in terms of what’s driving it, it’s again just the focus on the strategy, customer by customer, the segments, and certainly the commercial banking orientation.
So hopefully I gave you some color there. Hopefully that answers your question.
Nathan Race (Analyst)
Yep, that helps. And maybe a question for Tom. I know you don’t really guide a margin, but if we do get a couple more Fed rate hikes as the forward curve implies, just any thoughts on betas between both loans and deposit costs as we move into 4Q and into the first part of next year?
Thomas Bell (EVP, Chief Financial Officer and Treasurer)
Sure. I mean, on the loan side, just to hit that first, we continue to have cash flows and runoff in the, I’ll call it, $350 million in fixed-rate loans that would reprice. Obviously, the book is a little bit over 50% floating rate, so that should give you some guidance on the betas there. On the liability side, we haven’t seen much to date for interest-bearing deposits and total deposits, but generally probably in that 30% to 40% range is the beta, and if you include CDs, think about it more like 40% to 50%.
Nathan Race (Analyst)
Okay, got it. And just one last one for me. I appreciate the guide on kind of flat loans for the fourth quarter, just given some of the payoff headwinds. But as you look out to next year, and just given that we’re perhaps kind of in the latter innings of some of the recycling of acquired loans that we discussed last quarter and maybe also the latter innings of some of the COVID-era CRE loans paying off to some degree, just is there anything that you see on the horizon, Alberto, that would cause you guys to not achieve kind of mid-single-digit growth in loans next year, notwithstanding the acquisition impact?
Roberto Herencia (Chairman and Chief Executive Officer)
Really good question, Nate, and thanks for asking it. And I know you were the one that asked the same question last quarter and I think, look, we probably underestimated a little bit how strong the payoff activity was going to be this quarter relative to what we told you in 2Q. That being said, it’s always hard to forecast that variable perfectly. Sometimes we get it right, sometimes we don’t. Certainly this quarter was one of those. That being said, if you look at the origination activity, the origination activity remains really good. We’re seeing plenty of opportunities. Credit demand looks okay broadly in the market. So we still, when we look at that and when you normalize a bit for the elevated payoff activity heading into next year, I think that kind of mid‑single‑digit range, obviously adjusting the base to reality and also to the reality that we’ll be managing the balance sheet here over the last quarter this year to make sure that we stay under 10 billion through 2026.
We still feel good about that mid‑single‑digit range into 2027. That being said, we’re in a rising rate environment. You’ve heard me comment in the past about real estate transaction volume being lower, the market being competitive. That’s likely to be the case in 2027 with higher rates. Also you have to factor in it’s not just Prime or SOFR, it’s really the backup in Treasury rates which will have an impact to some degree on cap rates and valuations and that’s likely going to have an impact on transaction activity going into next year.
So with that caveat and all the other uncertainties that you well know that exist in the environment today, I still think that for us, that mid‑single‑digit kind of growth rate in terms of loans is probably the right place.
Nathan Race (Analyst)
Okay, great. I appreciate all the color. Thanks, guys. I’ll step back.
Ben (Operator)
Your next call comes from the line of Brendan Nosal of Hovde Group.
Brendan Nosal (Analyst)
Hey, good morning, everybody. Hope you’re doing well.
Roberto Herencia (Chairman and Chief Executive Officer)
Hey, Brendan,
Brendan Nosal (Analyst)
Maybe just starting off here on kind of your recent M&A announcement. I know it’s a little stale at this point, but could you just give us a little bit of background on how the Illinois State deal came to be and just kind of, you know, one or two things that you’re most excited about for that transaction.
Roberto Herencia (Chairman and Chief Executive Officer)
So it came to be through a meeting and getting to know the owners and the leadership of that institution earlier in the year. We certainly knew of them, we knew who they were. I personally didn’t know them, but we had been tracking that institution for some time and we had the opportunity to meet and it was a situation where you had the leadership team there had built that organization over roughly a 40‑year period and were looking to find a good home for the franchise, the customers, the employees, the relationships that they had built over that period of time.
And Brendan, as we conveyed and talked about in the past, we think we are a really good home for those types of situations, and this is just one example, very similar to some of the transactions that we’ve done here in the past. So that was the gist of it. I can tell you that it was relationship‑driven. This was not a competitive situation. We had a meeting of the minds. We felt we were a good fit for each other and we worked on trying to get to an outcome that certainly was good for both parties, and we think we were able to do that. So that’s, in context, the background on the transaction.
In terms of what it adds, it solidifies our market presence in certain parts of the city where we are just not there. It adds customer relationships and, as always, it’s a source of core deposits and funding to the bank.
Brendan Nosal (Analyst)
Yeah, that’s super helpful. Second one for me, just kind of sticking on this theme. It’s just been a really active period for M&A kind of in and around the state of Illinois over the past couple of months. You obviously got kind of your bite at that with the deal that we just discussed. But as you look at the M&A landscape, are there still potential partners that you think could come to market in the near to medium term, or has the pipeline for potential partners kind of in your markets depleted somewhat?
Roberto Herencia (Chairman and Chief Executive Officer)
No, I think we’re still—there’s still opportunities there, Brendan. I think, you know, as the usual wording that people use to describe kind of the M&A environment, I mean I think there’s active chatter. I think for us it’s just sticking to our knitting, looking to do transactions that make sense, that are accretive to the franchise, hopefully with partners that we like and where they’re looking to partner and put their institution with a partner that can provide them with just better capabilities and a home for the business that they’ve built.
So I think, look, the chatter in the marketplace continues and I would say I think the environment is constructive.
Brendan Nosal (Analyst)
Fantastic. Thanks for taking my questions.
Ben (Operator)
Your next call comes from the line of Damon Del Monte of KBW.
Damon Del Monte (Analyst)
Hey, good morning, guys. Hope everybody’s doing well and thanks for taking my question. Just wanted to ask on the outlook for noninterest income. Tom, could you help us connect the dots for the range that you gave of a 14 to 15 off of this quarter? Guessing there are some—I think you called out a couple one‑time items maybe this quarter that kind of would get us down to that lower level. Yeah. So that was like a couple million. Okay. All right, great.
And then on the expense side, the lift from this quarter, is that just kind of like year‑end accruals, and anything else particularly driving that?
Thomas Bell (EVP, Chief Financial Officer and Treasurer)
That’s correct, Damon. The BOLI income was a one‑time event, so that kind of brings us back to normal operating levels. Maybe a little over a million dollars. Yes, a little over a million dollars. That’s correct—year‑end accruals, and then some of the marketing campaigns that we maybe didn’t do in the third quarter that we anticipate in the fourth quarter, the timing of those expenses. So the marketing expense could be a little bit higher in the fourth quarter.
Damon Del Monte (Analyst)
Got it. Okay. And then if I could, if I could have—
Roberto Herencia (Chairman and Chief Executive Officer)
Oh sure. I was going to add maybe to what Tom said. I think when you look at our performance, obviously performance this year has been super solid. So what you’re seeing in terms of the fourth quarter is aligned with that in terms of the higher incentive compensation.
Damon Del Monte (Analyst)
Got it. It makes sense. Yep. Done a good year. And then just one more quick one on credit. I think you called out a couple loans that drove the NPA increase this quarter. Any color on those—maybe size or industry or anything like that?
Mark Fusinato (Chief Credit Officer)
Hi, Damon. Mark Fusinato. So one of them was in the solar industry and we expect that one to hopefully be resolved sometime early next year. We’re well reserved against that one. And the other one was a C&I credit that involved a company that does purchase of distressed credit card consumer debt. And these are both long‑term customers at the bank. So these things occur once in a while. We’ve been tracking them for a long time and we’re properly reserved against both of those situations at the present time.
Damon Del Monte (Analyst)
Okay, great. That’s all that I had. Congrats again, Mark, and thanks for taking my question.
Roberto Herencia (Chairman and Chief Executive Officer)
Great, thanks, Damon.
Damon Del Monte (Analyst)
Thank you.
Ben (Operator)
Your next call comes from the line of Daniel Tamayo of Raymond James.
Daniel Tamayo (Analyst)
Yeah, thank you. Good morning, everybody. Maybe first, just curious, as we think about the crossing of the 10 billion and the actions that you’re taking to stay below in 2026, is there any kind of reversal of those actions in ’27 in the beginning of the year that would create an increase in the balance sheet—abnormal growth early on—maybe having to do with liquidity or something like that that we should be thinking about as we model out next year?
Thomas Bell (EVP, Chief Financial Officer and Treasurer)
I think so, Danny. You know, we’ve been kind of conservative on any bond purchases right now just because we don’t want to go over. So that’s certainly an area where we’re a little light on a percentage basis, and you would expect in the first quarter that that would change.
Daniel Tamayo (Analyst)
Okay, thanks for that, Tom. And then can you give a little bit of color around the loan sales in the third quarter? I mean, just looking at the line items, it looks like it came from construction and maybe C&I. But just curious where you were selling, and then thoughts if that was a one‑time event or there’s some potential for that to continue.
Thomas Bell (EVP, Chief Financial Officer and Treasurer)
Sure. So the bulk of those sales are the government‑guaranteed loans that we sell every quarter. That’s something we disclosed in the loan side this time because there were some SAG assets that were sold and some other loans that other banks took a participation in, so to speak. So those are small pieces of C&I, but the bulk of the sales are the SBA sales.
Daniel Tamayo (Analyst)
Okay. So that’s kind of regular‑way stuff, but it was just elevated in the quarter is the way to think about it.
Roberto Herencia (Chairman and Chief Executive Officer)
Yeah, yeah. I think we highlight, Danny—I think I would emphasize—just the one that ultimately matters a lot is really the government‑guaranteed, kind of recurring government‑guaranteed loan sales. You can think of the other ones as really not having very material economic impact in terms of the P&L.
Thomas Bell (EVP, Chief Financial Officer and Treasurer)
And how much were those, Alberto,
Alberto J. Paracchini (Member Board of Directors)
I’m sorry, what’s the question?
Thomas Bell (EVP, Chief Financial Officer and Treasurer)
The delta between the—
Alberto J. Paracchini (Member Board of Directors)
Well, we sold like 70 million, 71 million dollars of SBA loans; residual is SAG assets and a couple loans we sold to participations.
Thomas Bell (EVP, Chief Financial Officer and Treasurer)
It’s about 30 million.
Alberto J. Paracchini (Member Board of Directors)
Thirty million, but I think that’s—
Daniel Tamayo (Analyst)
Thank you.
Thomas Bell (EVP, Chief Financial Officer and Treasurer)
These are not asset sales where we’re taking a significant loss or a gain. They’re part of the business structure. It’s just operating balance sheet.
Daniel Tamayo (Analyst)
Okay. And then lastly, if I’m looking at this correctly, the purchase accounting accretion came down quite a bit in the quarter. Just curious if you’re expecting a rebound in that level from a scheduled perspective in the fourth quarter.
Thomas Bell (EVP, Chief Financial Officer and Treasurer)
I mean, it’s less than a million dollars a quarter. I would think—We’ve given guidance in the past and the numbers are so small now, at least excluding any future transactions which we haven’t really disclosed yet. So more to come on that. But it’s a couple million dollars currently for ’27 in total.
Daniel Tamayo (Analyst)
Okay. So it’s that we’re still running off in these levels. There was nothing unusual in third quarter in terms of—
Thomas Bell (EVP, Chief Financial Officer and Treasurer)
I guess it would be the other way.
Alberto J. Paracchini (Member Board of Directors)
No, I think the point that we tried to highlight, Danny, is if you just look at the margin ex‑accretion, obviously the growth in the margin for the quarter was more significant than it was with accretion included. I think accretion was roughly 5 basis points; ex‑accretion was like 10 basis points, which for a quarter where, yes, rates increased, but that increase happened very much towards the latter part of the quarter, so that’s still not baked in.
So we still think, to Tom’s comments in his remarks, it’s a nice tailwind going into the fourth quarter and 2027.
Daniel Tamayo (Analyst)
Understood. Okay. Well, thanks for all the color, Alberto and Tom. Appreciate it.
Thomas Bell (EVP, Chief Financial Officer and Treasurer)
Thank you, Danny.
Ben (Operator)
Your next call comes from the line of Brandon Rudd with Stephens.
Roberto Herencia (Chairman and Chief Executive Officer)
Brandon, hi.
Thomas Bell (EVP, Chief Financial Officer and Treasurer)
Morning, Brandon.
Ben (Operator)
Your next call comes from the line of Brian Martin with Brean Capital. Your line is open. Please go ahead.
Brian Martin (Analyst)
Hey, good morning, guys.
Roberto Herencia (Chairman and Chief Executive Officer)
Hey, Brian.
Brian Martin (Analyst)
Hey, thanks for all the insight thus far. Just a couple for me. Just on the September, do you have a sense for this? Is there a big difference in the September margin exit versus what it was for the quarter? Just trying to gain some perspective on the timing of those wholesale payoffs in the quarter. If it had an impact or is it pretty—the average for the quarter is a…
Thomas Bell (EVP, Chief Financial Officer and Treasurer)
Pretty good base, pretty consistent averages over the quarter. Some of the payoffs that did happen happened in the middle part of September. So I would say generally, yeah, the margin’s pretty much consistent on average versus period end.
Brian Martin (Analyst)
Okay, thanks for that. And then just on your outlook, Alberto, you suggested, you know, as you have in the past on the real estate, you know, if we are in a little bit of a rising rate environment, that may tail off a bit. But your guide or, you know, comfort level still seems to be in that mid single digit outlook in the coming quarters. The C&I make up for that potential slowdown in real estate? And that’s how we should think about, you know, where the growth is in the coming quarters, more on the C&I side and maybe a little bit less real estate.
That kind of your outlook today, that can overcome it.
Alberto J. Paracchini (Member Board of Directors)
I mean, yeah, I still think we were—listen, it’s not to say that we are deliberately trying to reduce our CRE book. We are not. In fact, if you’ve tracked our CRE concentration ratio today, we’re probably at a pretty low point, which means we have ample capacity to grow that category. I’m just cautioning against an environment. If you think about the beginning of this year and what market expectations were in terms of rates, it was for lower rates.
I think a lot of people on the commercial real estate space were anticipating, given the fact that rates were going to trend lower, properties were going to come to market, transactions were going to come to market, and activity overall in terms of financing—that was going to increase. I can’t point to anything now other than just, you know, look, we’ve had a significant backup in intermediate and longer-term rates and that’s likely to have, you know, some impact on projects and overall activity in real estate next year. That being said, as you well know, the environment can change very quickly. There are variables in the environment that if they were to reverse—so the geopolitics, the rise in oil, inflation trending down—then you can obviously see a reversal of that environment in terms of that having an impact then on the business.
So I’m just highlighting that. But to answer your question in terms of our business in general, you are going to see it’s really more broader than just, say, C&I. We expect that we’ll see growth coming from the different business lines that we have that constitute that. So C&I—that’s our bread and butter commercial banking business—our sponsor business, you know, the SBA business. Unless we get into, you know, an environment where we’re seeing, you know, significantly higher rates that are likely to impact originations in that business.
I mean, I think activity there remains, you know, solid. And then, lastly, our leasing business there as well. So, you know, leasing this year has been probably a little slower than in the past. As you know, that’s a book that, you know, tends to repay very quickly because it’s just the nature of that business. So, you know, that’s an area also that we anticipate that going into next year capital spending continues to remain solid. Demand for, you know, essential use equipment of the type that we finance, you know, continues to be, you know, good.
So that’s a business that we anticipate also can grow next year.
Brian Martin (Analyst)
Okay, thanks for that, Alberto. And sorry if I wasn’t clear. I guess that was your point. What I was suggesting is that if real estate does potentially slow a little bit, it sounds like you’ve got, you know, some pretty good runway in these other areas to kind of offset that if it does happen. And we’ll see if it does. But thanks for the clarification on that and the bit of color on the other segments that can help out on that. Maybe just the last for me was the—just, I mean, the efficiency ratio and expense management has been great. Just kind of wondering how you’re thinking about operating leverage in 27 versus 26 and just how to think about that given, you know, certainly the inflation and inflationary costs and whatnot and how to balance that with such a great level where it’s at today.
Thomas Bell (EVP, Chief Financial Officer and Treasurer)
That’s a great question. I think we still, again, want to focus on revenue growth over expense growth—so having operating leverage there. We’re still working on the numbers, Brian, so more to come on that. But generally speaking, we want revenue growth to exceed expense growth.
Alberto J. Paracchini (Member Board of Directors)
It’s a habit. It’s a habit, Brian. This is not something that, you know, that we focus on this quarter and then we don’t talk about it or focus again. I mean, it’s constant, so it’s not—we want to continue to drive, you know, the efficiency. You know, you have a revenue component there that impacts it. But we want to continue to drive that, you know, cost-to-asset ratio down. So we remain very focused on that. Some of that is just scale. As we continue to grow the balance sheet, we want to make sure that, you know, that growth translates into, you know, better scale.
But it’s a habit and it’s a constant, you know, source of focus for us.
Brian Martin (Analyst)
Gotcha. Okay, well, you’re doing a great job at it, so we’ll stay tuned and thanks for taking.
Thomas Bell (EVP, Chief Financial Officer and Treasurer)
Thanks, Brian.
Alberto J. Paracchini (Member Board of Directors)
Thanks, Brian.
Ben (Operator)
Your next call comes from the line of Brandon Rudd with Stephens.
Brandon Rudd (Analyst at Stephens)
Morning. Sorry about earlier; I’m not sure what’s happening there. I can ask two questions. Just the first one, just to clarify, Tom, the $350 million of fixed rate maturities, is that per quarter? And then how do those roll-off yields compare to new origination rates?
Thomas Bell (EVP, Chief Financial Officer and Treasurer)
Sure. Yes, that’s for the corporation quarter. That includes leasing, and the rate is, call it 5.15-ish. So we, you know, think about 7%, you know, seven and a quarter for yields, depending on the asset.
Brandon Rudd (Analyst at Stephens)
200 basis points or so uptick there. Okay, perfect. Thank you. And then just one on the buyback: with the deal announced earlier this month, are you restricted from repurchasing additional shares until that closes, or are you still open for more buybacks here in the fourth quarter? Okay, got it. Okay. Thank you for taking my questions.
Thomas Bell (EVP, Chief Financial Officer and Treasurer)
Thank you.
Brooks Rennie (Head of Investor Relations)
Thank you, Brandon.
Ben (Operator)
If you would like to ask a question, please press Star one to raise your hand. Your next call comes from the line of Kenneth James of StoneX Group.
Kenneth James (Analyst)
Good morning, gentlemen. Thank you for taking my question.
Alberto J. Paracchini (Member Board of Directors)
Yeah, Kenneth, good morning.
Kenneth James (Analyst)
Yes, I just kind of wanted to circle back to the balance sheet and growth expectations. I mean, the main thing I’m trying to wrap my head around is the degree of time that you’ve kind of been managing these elevated payoffs, and also around the $10 billion number. I mean, how long does it take to kind of get back up to a normal growth range? I mean, I guess I have a natural kind of inclination that once you get past the end of the year that the balance sheet could kind of behave like a coiled spring, you know, kind of back up to a mid single digit growth rate.
And I’m just wondering, you know, is that a fair assumption or does that need to be tempered? I’ll let you answer that part first.
Thomas Bell (EVP, Chief Financial Officer and Treasurer)
Sure. I think we think mid single digits is appropriate as we move forward, you know, ex any M&A transaction that we’re going to close. So we’ve been operating in that level. Again, line utilization was down for the quarter. That’s kind of not a normal thing that happens, so we expect that over time to move up and that would certainly give us positive loan growth if we would have had line utilization unchanged quarter over quarter. So I think, generally speaking, mid single digits is kind of where we’re operating.
Kenneth James (Analyst)
Okay. And then on the deposit side and kind of the, you know, rising rate environment, how do you guys manage your deposit cost in terms of how much of the deposit base is centrally managed on a rate sheet versus linked to an index and automated versus negotiated individually? Just generally speaking.
Thomas Bell (EVP, Chief Financial Officer and Treasurer)
We have pricing committee meetings that meet weekly, and we review the competition, we look at our balance sheet needs, and we set rates based on that. We have standard rack rates and we offer, you know, promotional rates from time to time in the marketplace. And there’s certainly, you know, depending on the size of the deposit base, there may be some exceptions given. But generally speaking, it’s rack-rate type pricing. There are some index-priced products. Like, for example, instead of doing brokered CDs, we do brokered money markets. We did that for balance sheet management purposes, and so that’s indexed to a fed funds rate or a SOFR rate.
Kenneth James (Analyst)
Okay. And then in terms of betas that we might see now versus last time and what’s kind of assumed in your sensitivity modeling—are they similar? I mean, kind of the 40–50% total deposit beta number you mentioned? I guess I kind of have an inclination that if we just get three hikes at three meetings that, you know, betas could be managed lower than—500 basis points was last time. Is that a fair assumption or in line with your thinking the market would allow you to do that, or is last time a better assumption?
Thomas Bell (EVP, Chief Financial Officer and Treasurer)
We think—more to come on that, we’ll have to see how they behave. But generally speaking, at least to date they seem to be, you know, reverting back to the normal quotes that we gave on betas. As the Fed was moving in that cycle up, the last hundred basis points really hurt banks, you know, all banks, and I think it was because of the, you know, obviously the liquidity events that were going on at the time. We’ve been able to bring back our cost of funds from that level.
Even though the Fed was on hold for some time here, our margin expanded over the year, and I think we’re planning on the 40 to 50 that we already disclosed. But we’ll certainly defend our deposit base and our customers, and if we have to go higher, we will. But to date we aren’t seeing it in the marketplace.
Alberto J. Paracchini (Member Board of Directors)
Yeah, Ken, every cycle is different. I wish we were perfect on this, but there’s just a lot of uncertainty, call it on that topic. History can help; it can certainly give you ranges in terms of how depositors are going to behave. But to Tom’s point, we can look back to the last cycle, and early on in that hike cycle betas were barely moving, and then all of a sudden we got to a certain threshold and, you know, customers woke up, people became much more sensitive, and you saw, you know, how banks reacted to that.
The reality of this is, you know, even though we talk about uniformity in betas—people talk about deposit betas, the betas for interest-bearing deposits—the reality is it’s just a mix of betas. You know, we have certain pockets of a portfolio that are more rate sensitive and therefore the betas are going to be higher; they’ll react quicker. Then we have some other parts of the deposit book that are not going to be that sensitive and are not going to react very quickly to changes in rates.
So how all of that comes out, I think to Tom’s point, that’s our view today. But obviously that’s subject to some degree of uncertainty because, you know, this hike, like all other hikes, tends to be a little bit different from the previous one.
Kenneth James (Analyst)
Okay, thank you very much for the call, gentlemen.
Thomas Bell (EVP, Chief Financial Officer and Treasurer)
You bet. Thank you.
Ben (Operator)
Your next call comes from the line of Brendan Nosal of Hovde Group.
Thomas Bell (EVP, Chief Financial Officer and Treasurer)
Good question. You’re right. This is December’s, you know, the fourth quarter estimate. We expect the cost to come down in the first quarter. Not really ready to give guidance there yet, but the incentive comp is driving the higher expense base for Q4 guidance.
Ben (Operator)
Your next call comes from the line of Nathan Race of Piper Sandler.
Nathan Race (Analyst)
Yeah, thanks for taking a follow up. Just going back to buybacks, you know, pretty, pretty strong activity there. I think it’s maybe the second highest level buybacks in a quarter from what we’ve seen over the last handful of years. And you know, that’s with the stock trading kind of, you know, near kind of all-time highs. So, you know, just curious if there’s anything to read into that in terms of just maybe how consistent, you know, buybacks to a pace of the degree we saw this quarter can be kind of a more continuous component to your excess capital management strategy, just given how strong your capital levels are and which still probably provides flexibility for acquisitions to the extent they materialize going forward.
Alberto J. Paracchini (Member Board of Directors)
I think, Nate, if you think just I would put it in the context of, you know, kind of the capital priorities that we lay out in terms of supporting organic growth. That’s from whether you measure it from an earn-back perspective or you measure it from kind of just roughly a yield perspective, that’s probably the top use of capital. So first and foremost supporting that. Second, you know, over time and this past quarter, you know, you saw us do that in terms of having, you know, be able to do, you know, consistently over time, you know, dividend increases that are, you know, call it very sustainable. So, but that’s an example of something that again, we did this quarter. Thirdly, in this quarter we had the opportunity to do that is having enough capital and putting that capital to work in M&A transactions.
And then you have the safety valve at the end, which is the buyback. And when it comes to the buyback, it’s not necessarily buy back at all costs. We’re not in a situation where you can think about some of the largest banks in the country where they have really no other use than to buy back. We have options in terms of what to do with the capital. So we’re going to be sensitive to what that buyback yield is, what the earn-back is on a buyback relative to the other uses that we potentially have.
So hopefully that frames it and gives you a sense.
Nathan Race (Analyst)
Yeah, that’s helpful. Thank you for that, Alberto. And just maybe one more for Tom. You mentioned, you know, 50% of the loan book is floating. Do you have the mix between prime and SOFR there?
Thomas Bell (EVP, Chief Financial Officer and Treasurer)
It’s in the deck. It’s in the deck, Nate.
Nathan Race (Analyst)
Okay, sorry, I didn’t catch that.
Thomas Bell (EVP, Chief Financial Officer and Treasurer)
All right, SOFR is 34%, prime is 19, and other is 4.
Nathan Race (Analyst)
Okay, great.
Thomas Bell (EVP, Chief Financial Officer and Treasurer)
It’s on page seven of the deck, Nate.
Nathan Race (Analyst)
All right, got it. Thanks, guys. Appreciate the color.
Thomas Bell (EVP, Chief Financial Officer and Treasurer)
You’re welcome.
Alberto J. Paracchini (Member Board of Directors)
Absolutely.
Ben (Operator)
Thank you for your questions today. I will now turn the call back over to Mr. Alberto Paracchini for any closing remarks.
Alberto J. Paracchini (Member Board of Directors)
Great. Thank you, operator. So thank you for joining us this morning. We appreciate your continued interest in Byline Bancorp. I hope you all have a happy Halloween, happy Thanksgiving, and a happy start to the holiday season. And we look forward to talking to you again in the new year. With that, that concludes the call. Thank you.
Ben (Operator)
This concludes today’s call. Thank you for attending. You may now disconnect.
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