Byline Bancorp 3Q 2026 Earnings Conference Call - BYLINE BANCORP INC

Explicit Guidance:

• Revenue: Fourth Quarter 2026 non-interest income guidance set at $14–$15 million; non-interest income (including Net Interest Income) guidance for Q4 2026 is $103–$105 million.
• Expenses: Q4 2026 non-interest expense guidance raised to $62–$64 million, driven by year-end accruals, incentive compensation, benefit costs, and marketing spend.
• Efficiency Ratio: Full-year 2026 efficiency ratio expected to remain at or below 50%.
• Tax Rate: Annual effective tax rate for 2027 estimated at 25.5%.
• Loans: Q4 2026 loan balances expected to remain flat.
• Capital Returns: Continued opportunistic share repurchases and dividend increases contingent on capital availability and market conditions.

Business-Segment Outlook:

• Loan Growth: Full-year 2027 organic loan growth guidance maintained in the "mid-single-digit" range, adjusted for base and acquisition impact.
• Segment Drivers: Growth in 2027 expected to be broad-based across C&I (commercial banking), SBA (Small Business Administration), sponsor finance, and leasing, offsetting potential real estate transaction softness.
• Acquisition (Illinois State Bancorp): Expected to close in 2027; anticipated to strengthen deposit base, expand market presence in specific Chicago areas, and add new customer relationships.
• Leadership Transitions: Effective January 1, 2027, Rogan Potassi (Head of Commercial Banking) and Mark Fusinato (Chief Credit Officer) will retire; Scott Hawthorne will succeed as Chief Credit Officer. New executive leadership and role swaps are being implemented to build the bench for $10 billion+ operations.

Market and Competitive Outlook:

• Loan Book Composition: Fixed-rate loan runoff estimated at $350 million per quarter, repricing at approx. 5.15%; loan book is >50% floating rate (34% SOFR, 19% Prime).
• Line Utilization: Currently at 57% (down from 61%), with expectations for utilization to normalize over time, supporting future loan growth.
• Real Estate Environment: Anticipated headwinds in commercial real estate transaction volume and activity due to elevated long-term rates (treasury/backup rates) affecting cap rates and valuations in 2027.
• M&A Landscape: Pipeline for potential partners remains active with "constructive" chatter; company will pursue deals that fit the franchise and create shareholder value.

Macro / Industry Outlook:

• Interest Rates: Company is asset-sensitive and positioned to grow non-interest income in a rising rate environment.
• Rate Sensitivity: Deposit betas assumed to be 30–40% for interest-bearing deposits and 40–50% when including CDs; acknowledging uncertainty similar to the previous cycle where betas accelerated at certain thresholds.
• Balance Sheet Management: Actively managing balance sheet to stay under $10 billion through year-end 2026 to defer Durbin Amendment impact until the second half of 2028.
• Credit Costs: Net charge-offs expected to remain consistent with prior guidance at approximately 31 basis points annually.

Strategic Initiatives:

• Acquisition Integration: Full integration of Illinois State Bancorp customers and employees anticipated in 2027.
• Operational Scale: Preparation to operate above $10 billion in assets, with investments in technology and people to support the transition.
• Capital Allocation Priority: Organic growth (yield/earn-back) is the primary use of capital, followed by dividend increases, M&A, and finally share repurchases (buybacks) which are not conducted "at all costs" but are sensitive to yield and alternative uses of capital.
• Liquidity: Bond purchases currently conservative to manage the $10 billion threshold; expect to increase bond purchases in Q1 2027.

Risks and Headwinds to Outlook:

• Elevated Payoffs: Continued elevated loan payoff activity remains a volatility factor; origination activity is strong but payoffs may temporarily offset growth.
• Interest Rate Sensitivity: Rising rates could suppress CRE transaction volumes and broader commercial real estate activity in 2027.
• Deposit Cost Volatility: Uncertainty regarding deposit betas in a rising rate cycle; potential for accelerated deposit costs if market liquidity conditions change.
• Macroeconomic Variables: Geopolitics, oil prices, and inflation trends could reverse current expectations regarding real estate and origination activity.
• Regulatory: Durbin Amendment impact on interchange fees deferred until H2 2028 only if the $10 billion threshold is not crossed in 2026.

Management Tone on the Future:

• Confidence Level: Optimistic and confident in the pipeline and ability to compete, despite macro headwinds in real estate.
• Strategic Clarity: Management emphasizes a "habit" of revenue growth exceeding expense growth to drive operating leverage in 2027.
• Execution: Focus on "blocking and tackling" to capture market share and deposit growth; no immediate plan to aggressively exceed $10 billion in 2026.
• Talent: Strong confidence in the "next generation" leadership team prepared for the $10 billion scale.

Miscellaneous:

• Credit Specifics: Two non-accrual loans identified: one in the solar industry (expected resolution early 2027, well-reserved) and one C&I credit involving distressed consumer debt purchase (well-reserved).
• Investor Relations: Company participating in Hub Group Financial Services Conference (Orlando) and Piper Sandler Financial Services Conference (Miami) in November 2026.
• Dividend: Quarterly cash dividend increased by 16.7% to $0.14 per share effective this quarter.