Image source: The Motley Fool.

DATE

Friday, Oct. 23, 2026

CALL PARTICIPANTS

• Head of Investor Relations - Brooks O. Rennie
• President - Alberto J. Paracchini
• Executive Chairman and Chief Executive Officer - Roberto R. Herencia
• Executive Vice President and Chief Financial Officer - Thomas J. Bell
• Chief Credit Officer - Mark Fucinato

TAKEAWAYS

• Net Income -- $41.8 million, or $0.94 per diluted share, representing a 15% increase from a year ago.
• Total Revenue -- $121.0 million, driven by growth in both net interest income and noninterest income.
• Net Interest Margin (NIM) -- 4.33%, reflecting higher yields on cash and securities and lower borrowing costs, partially offset by higher deposit costs.
• Total Deposits -- $8.0 billion, growing 8.5% on an annualized basis linked quarter, which allowed for a reduction in wholesale funding.
• Total Loans and Leases -- $7.5 billion, declining roughly 1% linked quarter as elevated payoffs of $396 million offset $362 million in new originations.
• Efficiency Ratio -- 48.4%, improving by 260 basis points year over year despite a linked-quarter increase driven by incentive compensation.
• Net Interest Income (NII) -- $103.7 million, increasing 3% from the prior quarter due to higher income from investment securities and reduced wholesale funding costs.
• Noninterest Income -- $17.3 million, up 3% compared to the second quarter, primarily due to higher bank-owned life insurance income.
• Net Charge-offs -- $5.8 million, or 31 basis points of average loans and leases, which management noted was consistent with previous guidance.
• Non-performing Loans (NPLs) -- $85.1 million, or 1.14% of total loans, driven by one government-guaranteed and one commercial relationship moving to nonaccrual status.
• Common Equity Tier 1 (CET1) Capital Ratio -- 13.29%, up 37 basis points from the prior quarter.
• Share Repurchases -- 522,000 shares, totaling $20.2 million during the quarter.
• Quarterly Cash Dividend -- $0.14 per share, representing a 16.7% increase from the prior quarter.
• Provision for Credit Losses -- $6.7 million, reflecting net charge-offs and a small reserve build.
• Fourth Quarter NII Guidance -- $103 million to $105 million, reflecting management's intention to keep assets under the $10 billion threshold.
• Fourth Quarter Noninterest Income Guidance -- $14 million to $15 million, with gain on sale revenues expected at $5.5 million.
• Fourth Quarter Noninterest Expense Guidance -- $62 million to $64 million, reflecting higher incentive benefit costs and marketing spend.
• Loan-to-Deposit Ratio -- 93.2%, decreasing from 96.1% in the prior quarter.
• Allowance for Credit Losses (ACL) -- $113.0 million, or 1.51% of total loans, up 3 basis points from the prior quarter.
• Criticized and Classified Loans -- 3.1% of total loans, down from 3.9% in the prior quarter, marking three consecutive quarterly declines.

Need a quote from a Motley Fool analyst? Email [email protected]

RISKS

• Paracchini stated, "We probably underestimated a little bit how strong you know, the payoff activity was gonna be this quarter," noting that payoffs offset strong origination activity and contributed to a 1% decline in the loan portfolio.
• Paracchini warned that a rising rate environment and backup in treasury rates is "likely to have know, some impact you know, on projects and overall activity in real estate next year" due to potential effects on cap rates and valuations.
• Management noted that crossing the $10 billion asset threshold in 2027 will eventually trigger the impact of the Durbin Amendment on interchange revenue starting in the second half of 2028.

SUMMARY

Byline Bancorp, Inc. (BY +1.08%) reported record net income and revenue for the third quarter of 2026, supported by net interest margin expansion and core deposit growth. Management announced a definitive agreement to acquire Illinois State Bancorp, Inc., a strategic move intended to expand the company's Chicago market presence and core deposit base. The bank is currently managing its balance sheet to remain just below the $10 billion asset threshold through the end of 2026, with plans to cross that mark in 2027. This threshold management includes reducing wholesale funding and pausing certain security purchases. Financial results were characterized by improved asset quality ratios despite the migration of two specific loan relationships to nonaccrual status.

• The company expects the acquisition of Illinois State Bancorp to solidify its presence in specific Chicago neighborhoods and provide a stable source of core funding.
• Management is preparing for leadership transitions as Brogan Ptacin, head of commercial banking, and Mark Fucinato, chief credit officer, plan to retire at the end of 2026.
• President Paracchini stated, "We believe fundamentally that is really where the value of a financial institution lies," referring to the company's prioritize on growing its deposit base.
• The impact of the Durbin Amendment on interchange fees is expected to be delayed until the second half of 2028 by deferring the crossing of the $10 billion threshold until 2027.
• CFO Bell indicated that the fourth quarter expense increase is partially due to the timing of marketing campaigns that were deferred from the third quarter.
• Management noted that the company has significant capacity to grow its commercial real estate (CRE) portfolio as its concentration ratio is currently at a low point.
• A projected annual effective tax rate of 25.5% is estimated for 2027, following a lower 23.3% rate in the third quarter that was driven by renewable energy tax credits.

INDUSTRY GLOSSARY

• ACL (Allowance for Credit Losses): A reserve established by a bank to cover estimated uncollectible loans.
• CET1 (Common Equity Tier 1): A measure of a bank's core equity capital compared to its total risk-weighted assets.
• Durbin Amendment: A provision that limits the fees banks can charge retailers for debit card transactions, typically applying to institutions with $10 billion or more in assets.
• NIM (Net Interest Margin): The difference between the interest income generated by a bank and the amount of interest paid out to its lenders, relative to the amount of its interest-earning assets.
• ROTCE (Return on Average Tangible Common Equity): A financial ratio measuring the return on the physical capital of a company, excluding intangibles like goodwill.
• SBA (Small Business Administration) Loans: Loans partially guaranteed by the U.S. government to assist small businesses.
• TBVPS (Tangible Book Value Per Share): The value of a company's total assets minus its intangible assets and liabilities, divided by the number of outstanding shares.

Full Conference Call Transcript

Operator: We press the star followed by the number 1 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 0. Please note the conference call is being recorded. At this time, I would like to introduce Brooks O. Rennie, head of investor relations for Byline Bancorp, begin the conference call.

Brooks O. Rennie: Thank you, Ben. Good morning, everyone. 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 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 our SEC filings.

In addition, our remarks and slides may reference or contain certain non GAAP financial measures. 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 2 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 J. Paracchini, President of Byline Bancorp.

Alberto J. Paracchini: Good morning, everyone, and thank you for joining us to review our third quarter results. With me today are Chairman and CEO, Roberto R. Herencia our CFO, Tom Bell and our chief credit officer, Mark Fucinato. In terms of the agenda for today, I will kick us off with the highlights for the quarter, followed by Tom, who will walk you through the financials. I will 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 would like to pass the call over to Roberto for his comments. Roberto?

Roberto R. Herencia: Thank you, Roberto, 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 up decile among our peer group. We increased our dividend during the quarter and continue to repurchase shares opportunistically. We also announced the acquisition of Illinois State Bancorp. And with that, the analyst community gets the certainty they have been so eager to obtain as to when we will cross the 10 billion threshold. Before passing the callback to Roberto and the team, I would 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, Matthew Robertson, who passed away in September. Matthew was part of the Byline family for more than 7 years and led 1 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 Matthew is the impact he had on the people around him. Matthew 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 are building at Byline. Matthew, represented so much of what we value. Relationships, mentorship, teamwork, and genuinely caring about the people around you. We miss Matthew greatly. And our thoughts remain with his wife his children, and all of Matthew's family, friends, and colleagues. We are grateful for the time we had with Matthew, and for the lasting impact he made at byline and on so many of us personally.

More broadly, I am especially proud that Byline was recently named 1 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 staff 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 Ptacin, head of commercial banking and Mark Fucinato, 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 am 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 are delighted that Brogan and Mark will remain involved in advisory capacity for the foreseeable future with us. If we had an official Chicago Bankers Hall of Fame, these 2 individuals would be inducted without the wait period. As part of these planned transitions, 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 million threshold. We have known for some time that these transitions were approaching. And we have 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 BioLine's growth prospects and our progress towards becoming the premier commercial bank in Chicago. With that, Roberto, I will turn it back to you.

Alberto J. Paracchini: 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 return 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 and $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 pretax 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 $8 billion. 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 28. 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.

Non performing loans increased 22 basis points for the quarter driven by 2 relationships, 1 government guaranteed and 1 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 thousand shares, totaling $20.2 million. Importantly, we executed across all 4 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 will turn the call over to Tom, who will walk you through the financials.

Thomas J. Bell: 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 a $129 million or 55% linked quarter. However, payoff activity continue to 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 saving 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 3 basis points to 1.95% while the cost of interest bearing deposits increased 5 basis points to 2.54%. Turning to slide 7.

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 for year end, we expect net interest income to be in the $103 million to $105 million range for the fourth quarter. Turning to slide 8. Noninterest income totaled $17.3 million in Q3, an increase of 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 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 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 this 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 AOC 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 thousand 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 returning capital to stockholders, and pursue strategic opportunities.

With that, Roberto, back to you.

Alberto J. Paracchini: Thank you, Tom. So to wrap up, we are 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 are 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 are prepared to operate above $10 billion in assets and welcome Illinois State Bancorp's customers, employees and shareholders to Byline in 2027. We believe the combination will strengthen our deposit base, expand our market presence, and add new customers. 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 would like to recognize Mark Fucinato, 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 competitive advantage. I am fortunate to have worked with Mark and grateful for his friendship, and support over the last 7 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 would 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 3.5 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. With that, operator, we can open the call up for questions.

Operator: We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 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: There. Hey, guys. Good morning. Thanks for taking my questions, and congratulations on your upcoming retirement, Mark. You all wishing you all the best. Thanks. in your next chapter. Appreciate it. Wanted to start on just the strong core deposit growth in the quarter. Obviously, helps you kind of pay down some wholesale funding in the quarter. Just maybe curious, Roberto, if you can just unpack some of the drivers. Is it just some typical blocking 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: Yeah. Good question, Nate. Good morning. So, obviously, it is-- 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 roughly around $80 million in broker deposits. Net, it was really double digit growth. Joking, putting you know, trying to put a joke aside. But I wish we can continue to grow at that type of rate going forward. but in all reality, I think the growth was this quarter was just simply you know, blocking and tackling. As you know, we are more commercially focused. So as we bring in new banking relationships, they can be you know, lumpier coming in.

And I think that is that is the you know, that is the short answer to your question. it is 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, you know, noninterest bearing, obviously, you know, moved higher also, which would certainly help. So the mix remained attractive. But in terms of going forward, Nate, I. You know, listen. it is. As you know, we have always been very focused on the right-hand side of the balance sheet. We believe that fundamentally that is really where the value of a financial institution lies.

And, you know, we will continue to always be prioritizing you know, deposit growth going forward. And, again, you know, in terms of what is driving it, it is, 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: Yep. That helps. And maybe a question for Tom. I know you do not really guide a margin, but you know, if we do get a couple more Fed rate hikes as a forward curve implies, just any thoughts on betas between both loan and deposit costs As we move into, you know, 4Q into first part of next year.

Thomas J. Bell: Sure. Hi, Nate. Yeah. On the loan side, just hit that first. I mean, we continue to have cash flows and runoff in the-- I will call it, $300 million, $150 billion in, you know, fixed rate loans that would reprice. Obviously, the book is over 50%-- a little bit over 50% floating rate. So that should give you some guidance on the betas there. On the on the liability side, we have not seen much to date. Know, for interest bearing deposits and total deposits. But, you know, generally, probably in that 30 to 40% range is the beta. And if you include CDs, you know, I think about it more like 40% to 50%. Okay.

Nathan Race: Got it. And just 1 last 1 for me. Just I appreciate the guide on kind of flat loans for the fourth quarter, just given some of the sales headwinds. But as you look out to next year, and just given that we are 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 kind of the COVID era CRE loans paying off to some degree. Just. Is there anything that you see on the horizon, Roberto, that would cause you guys to not achieve kind of mid-single-digit growth in loans next year, notwithstanding the acquisition impact?

Alberto J. Paracchini: Really good question, Nate, and thanks for asking it. And I know you were the 1 that asked the same question last quarter and I think. Look, we probably underestimated a little bit how strong you know, the payoff activity was gonna be this quarter. Relative to what we told you in 2Q. That being said, there I mean, it is always hard to forecast that variable perfectly. Sometimes we get it right. Sometimes we do not. Certainly, this quarter was 1 of those. That being said, if you look at the origination activity, the origination activity remains you know, really good. You know, we are seeing plenty of opportunities, credit demand, you know, looks okay broadly in the market.

So I. We still. You know, 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 will be managing the balance sheet here over the last quarter of this year to make sure that we stay under $10 billion, you know, through 2026. We still feel good about that mid-single-digit range into 2027. That being said, we are in a rising rate environment.

You have heard, you know, me comment in the past about real estate transaction volume, you know, being lower the market being competitive, that is likely to be the case. In 2027. With higher rates, you know, also you have to factor in. it is not just you know, prime or SOFR. it is really the backup and treasury rates. Which will have an impact to some degree on cap rates and valuations, and that is likely gonna have an impact on transaction activity going next year. So with that caveat and all the other uncertainties that you well know and that are. That exist in the environment today.

I still think that for us, you know, that single-- mid-single-digit kind of growth rate in terms of loans is probably the right place. Okay. Great. I appreciate all the color. Thanks, guys. I will step back.

Operator: Your next call comes from the line of Brendan Nosal of Hovde Group.

Brendan Nosal: Hey. Good morning, everybody. Hope you are doing well. Hey, Brendan, Maybe just starting off here on kind of your recent M&A investment. I know it is 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 just kind of 1 or 2 things that you are most excited about for that transaction?

Alberto J. Paracchini: So it came to be through a meeting and getting to know the owners and the leadership of that institution, you know, earlier in the year. We certainly knew of them We knew who they were. We. I personally did not know them. You know, personally, 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 we are 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 have you know, conveyed and talked about in the past, we think we are a really good home for those types of situations, and this is just 1 example very similar to some of the transactions that we have 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, you know, had a meeting of the minds. We felt we were a good fit for each other, and we work on trying to get to an outcome that you know, certainly was good for both parties and we think we were able to do that. So that is in context know, the background on the transaction. In terms of what it adds, it adds-- you know, 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. it is a, you know, source of you know, core deposits and funding to the bank.

Yeah. that is that is super helpful.

Brendan Nosal: Second 1 for me, just kinda sticking on this theme. it is 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 and 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 in your markets depleted somewhat?

Alberto J. Paracchini: No. I think we are-- there are still opportunities there. Brendan. I think as the usual wording that people use to describe you know, kind of the M&A environment. I mean, I think there is active chatter I think, you know, for us, it is just sticking to our knitting, looking to do transactions that make sense that you know, are accretive to the franchise that you know, hopefully, you know, with partners that we like and that, you know, where they are you know, looking to partner and you know, put their institution with a partner that can, you know, provide them with just better capabilities and you know, a home for the business that they have built.

So I think you know, look. The chatter in the marketplace continues, and I think. I would say, I think the environment is constructive. Okay. Fantastic. Thanks for taking my questions.

Operator: Your next call comes from the line of Damon DelMonte of KBW.

Damon Del Monte: Hey. Good morning, guys. Hope everybody is doing well, and, thanks for taking my question. Just wanted to ask on the outlook for noninterest income, Tom. Could you just kinda help us connect the dots for the range that you gave of $14 million to $15 million off of this quarter? Guessing there is some. I think you called out a couple onetime items maybe this quarter that kinda would get us down to that lower level.

Thomas J. Bell: That. that is correct, Damon. The BOLI income was a onetime event, so that kind of brings us back to normal operating levels. Yeah. So that was, like, a couple million maybe? Little over a million dollars. Yes. Little over a million dollars.

Damon Del Monte: Okay. Alright. Great. And then on the expense side, the lift from this quarter, that just kind of like year end accruals? You know, anything else particularly driving that?

Thomas J. Bell: that is correct. Year end accruals and then of marketing campaigns that we maybe did not do in the third quarter that we anticipate in the fourth quarter, the timing of the those expenses. So the marketing expense can be a little bit higher in the fourth quarter. Got it.

Damon Del Monte: Okay. And then if I could. Yeah. Steve, my.

Thomas J. Bell: If I could have Oh, sure.

Alberto J. Paracchini: I was gonna 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 are seeing in terms of the fourth quarter is aligned with that in terms of the higher incentive compensation. Got it. It makes sense. Yep. Been a good year. And then just 1 more quick 1 on credit.

Damon Del Monte: You know, 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 Fucinato: Hi, Damon. Mark Fucinato. So, 1 of them was in the solar industry, and we expect that 1 to hopefully be resolved sometime early next year. We are well reserved against that 1. And the other 1 was a C and 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 have been tracking them for a long time, and we are we are properly reserved against both of those situations at the present time.

Damon Del Monte: Okay. Great. that is all that I had. Congrats again, Mark, and thanks for taking my questions.

Thomas J. Bell: Great. Thanks, Damon. Thank you, Damon.

Operator: Your next call comes from the line of Daniel Tamayo of Raymond James.

Daniel Tamayo: Yes. Thank you. Good morning, everybody. Morning, Maybe yeah. Maybe first, just curious kind of as we think about the crossing of the $10 billion and the actions that you are taking to stay below in 2026, Is there any kind of reversal of those actions in 2027 and in the beginning of the year? That would kind of create an increase in the balance sheet at normal growth kind of early on, maybe having to do with liquidity or something like that we should be thinking about as we model out next year?

Thomas J. Bell: I think so, Daniel. You know, we have been kinda conservative on any bond purchases right now just because we do not wanna go over So that is certainly an area where we are a little light on a percentage basis, and you would expect in the first quarter that would change. Okay. For that time.

Daniel Tamayo: And then you give a little bit of color around loan sales in the third quarter? I mean, looking at the line items, looks like it came from construction and maybe C and I, but just curious where you were selling and then just thoughts if that you know, it is. It was a onetime event or there is some potential for that to continue?

Thomas J. Bell: Sure. So the bulk of those sales are the government guaranteed loans. That we sell every quarter. That. that is something we disclosed in the loan side this time because there were some SAG assets that were sold and, you know, some other loans that other banks took a participation in, so to speak, So that. Those are small pieces in C and I, but most. The bulk of the sales are the SBA sales. Okay.

Daniel Tamayo: So is it. that is that is kind of regular way stuff, but it was just elevated in the quarter is the way to think about it?

Thomas J. Bell: Yeah. Yeah.

Alberto J. Paracchini: I think we highlight, Daniel, the. I think I would emphasize just the 1 that ultimately matters a lot is really the government guaranteed you know, kinda 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 and l. And how much were those?

Thomas J. Bell: Roberto? You remember? it is just the I am sorry. what is the question? The delta between the we sold, like, $70 million. $71 million of SBA loans residual is SAG assets and a couple loans we sold to participations. About $30 million. $30 million. I think that is Thank you for that. We these are not, like, asset sales where we are taking a significant loss or a gain that we are as part of a business structure, which is operating balance sheet. Okay.

Daniel Tamayo: And then and then lastly, if I am looking at this correctly, the purchase accounting accretion came down quite a bit in the quarter. You know, just curious if you are expecting a rebound in that in that level from a scheduled perspective the fourth quarter?

Thomas J. Bell: I mean, the it is less than $1 million a quarter. I would think it is we have given guidance in the past, and the are so small now. It at least excluding any future transactions, which we have not fully disclosed yet. So more to come on that, but it is a couple million dollars, you know, currently. For 2027. In total. Okay. So it is that we are we are still running off from these levels. There was nothing unusual third quarter in terms of Excel or, I guess, it would be the other way. EV. Yeah. No. No.

Alberto J. Paracchini: I think the I think the point that we tried to highlight, Dana, like if you just look at the margin accretion, obviously, the growth in the margin for the quarter was know, more significant than it was with accretion included. I think accretion was, like, roughly 5 basis points Ex accretion was, like, 10 basis points, which you know, for a quarter where, yes, rates, you know, increase, but that increase happened very much towards the latter part of the quarter. So that is still not baked in. So we still think to Tom's comments in his remarks, you know, it is a nice tailwind going into a fourth quarter and 2027. Understood.

Daniel Tamayo: Okay. Thanks for all the color, Alberto and Tom. Appreciate it.

Alberto J. Paracchini: You bet. Thank you, Dana.

Operator: Your next call comes from the line of Brandon Rudd with Stephens. Brendan? Your line is open. Please go ahead. Your next call comes from the line of Brian Martin with Brean Capital. Your line is open. Please go ahead.

Brian Martin: Good morning, guys. Hey, Brian. Good morning. Hey. Thanks for all the insight thus far. Just a couple for me. Just time on the just on the September. Like, 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 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 pretty good pretty good base?

Thomas J. Bell: Pretty consistent. Know, averages over quarters. Some of the payoffs that did happen happened in the middle part of September. So yeah, I would say, generally, yeah, the margins pretty much consistent on average versus period end. Okay. Thanks for that.

Brian Martin: And then just on your outlook, Roberto, 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 as in the coming quarters. Mean, does C and I make up for that potential slowdown in real estate? And then that is how we should think about where the growth is in the coming quarters more on the C and I side and maybe a little bit less real estate that kind of your outlook today?

Alberto J. Paracchini: That can overcome it? I mean, I yeah, I still think we. We are. Listen. We are we are it is not to say that we are, you know, deliberately trying to reduce our CRE book. We are not In fact, if you if you have tracked kind of our CRE concentration ratio today, we are probably at a at a pretty low point, which means we have ample capacity to grow that category. I am just cautioning against you know, 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 are gonna trend lower, properties were gonna come to market, transactions were gonna come to market, and activity overall in terms of financing that was gonna increase. I cannot point to anything now other than just you know, look. We have had a significant backup in long. Intermediate and longer term rates and that is likely to have know, some impact you know, 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, you know, variables in the environment that if they were to reverse, you know, so the geopolitics, you know, the rise in oil, inflation trending down, then you can you can obviously, you know, see a reversal of kind of that environment in terms of that having an impact then on the business. So I am just highlighting that, but to answer your question in terms of, you know, our business in general, you are gonna see. It. it is really more broader than just say C and I. You know, we expect that we will see growth coming from the different business lines that we have that constitute that.

So, you know, C and I, so that is our bread and butter commercial banking business. Sponsor business, you know, the SBA business, unless we get you know, an environment where we are seeing you know, significantly higher rates that are likely to impact that or originations in that business, I mean, I think activity there remains you know, solid. And then lastly, our leasing. They business there as well. So, you know, leasing this year has been probably a little slower than in the past. As you know, that is a that is a book that you know, tends to repay very quickly because it is it is just the nature of that business.

So know, that is an area also that, you know, 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 is a business that we anticipate also can grow next year. Okay. Thanks a bit, Roberto. And I sorry if I was not clear. I guess that was.

Your point is what I was suggesting is that if real estate does potentially slow a little bit, it sounds like you have got, you know, some pretty good runway in these other areas to kind of offset that if it does happen, and we will 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.

Brian Martin: Maybe just the last for me was the just, I mean, the efficiency ratio and the expense management has been great. Just kind of how you are thinking about operating leverage in 2027 versus 2026 and just how to think about that given, you know, certainly, the inflation and. Inflationary costs and whatnot and how to how to balance that with such a great level where it is at today.

Thomas J. Bell: That. that is a great question. I think we still, again, wanna focus on revenue growth over expense growth. So having operating leverage there. We are still working on the numbers Brian. So, you know, more to come on that. But generally speaking, we want revenue growth to exceed expense growth. Gotcha.

Brian Martin: Okay. Habit.

Alberto J. Paracchini: it is a it is a habit Brian, in terms of this is not something that it is, you know, that we focus on this quarter and then we do not talk about it or focus again. I mean, it is constant. So it is not we wanna continue to drive you know, the efficiency. You know, you have a revenue component. There that impacts it, but we wanna continue to drive that you know, cost to asset ratio down. So we are remain very focused on that. Some of that is just scale as we continue to grow the balance sheet. We wanna make sure that you know, we are that growth translates into, you know, better scale.

But it. it is a habit, and it is a it is a constant you know, source of focus for us. Gotcha. Okay. Well, you are doing a great job at it. So, we will stay tuned, and, thanks for taking Thanks, Brian.

Thomas J. Bell: Thanks, Brian.

Operator: Your next call comes from the line of Brandon Rudd with Stephens.

Brandon Rudd: Morning. Sorry about earlier. I am not sure what is happening there. Maybe if I could ask 2 questions. Just the first 1, just to clarify, Tom, the $350 million of fixed rate maturities, is that per quarter? And then what. How do those roll off yields compare to new origination rates?

Thomas J. Bell: Sure. Yes. that is for the quarter. That includes leasing, and the rate is call it, 5.15-ish. So we, you know, think about 7%. You know, 7 and a quarter for yields. Depending on the asset class. But Yeah. 200 points or so. Up. Uptake there. Okay.

Brandon Rudd: Perfect. Thank you. And then just 1 on the on the buyback with the deal. An announced earlier this month. Are you restricted from re. From repurchasing additional shares until that closes? Or are you still open for more buybacks here in the fourth quarter?

Thomas J. Bell: No. Okay. We are still here now. Got it. Okay.

Alberto J. Paracchini: Thanks for taking my questions. Thank you. Great.

Operator: Thank you, Brendan. Please press 1 to raise your hand. Your next call comes from the line of Kenneth James of Stephens Inc.

Kenneth James: Good morning, gentlemen. Thanks for taking my question. Yes. Kenneth, good morning. Yes. I just kinda wanted to circle back to kinda the balance sheet and kinda growth expectations. I mean, the main thing I trying to wrap my head around is the, degree of time that you have kind of been managing these elevated payoffs and also around the $10 billion number. I mean, how long does it take to kinda get back up to a normal growth range?

I mean, I guess I have a natural kinda inclination that once you get past the end of the year, that the balance sheet could kind of up behave like a coiled spring, kind of backing up to a mid single digit growth rate. And I am just wondering is that a fair assumption, or does that need to be tempered? Oh, let you answer that part first.

Thomas J. Bell: Sure. I think we think mid single digits is appropriate as we move forward, you know, x any M&A transaction that we are gonna close. So we have been operating in that level. Again, line utilization was down for the quarter. that is kind of not a normal thing that happened, 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 are operating. Okay.

Kenneth James: And then in terms 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 J. Bell: 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. You know? And there is certainly. You know, depending on the size of the trans know, the deposit base, there may be some exceptions given. But generally speaking, it is rack rate type pricing.

There are some index priced products like, for example, instead of doing broker CDs, we do brokered money markets so that we did that for balance management purposes, and so that is indexed to a fed funds rate or a SOFR rate. Okay. And then in terms of betas that we might see now versus last time, and, what is kind of assumed in your sensitivity modeling, I mean, are they similar? I mean, kind of the 40% to 50% total deposit beta number you mentioned I guess I kinda have an inclination that if we just get 3 hikes, 3 meetings that know, betas could be managed lower than the 500 basis points was last time?

Is that a is that a fair assumption or in line with your thinking the market would allow you to do that? Or is last time is a better assumption? We think if-- you know, more to come on that, we will have to see how they behave. But generally speaking, at least to date, they seem to be you know, reverting back to the normal, you know, quotes that we gave on betas. You know, as the Fed was moving in that cycle up, the last 100 basis points really hurt banks you know, all banks. And I think it was because of the-- obviously, the liquidity events that were going on at the time.

And we have been able to bring back our cost of funds from that level even though the Fed was, you know, on hold for some time here. Our margin expanded over the year. And, you know, I think we are planning on the 40 to 50 that we already disclosed, but we will we will certainly defend our deposit base and our customers. And we have to go higher, we will. But to date, we are not seeing it in the marketplace.

Alberto J. Paracchini: Yeah, Kenneth, every cycle is different. I wish we were perfect on this, but there is just a lot of uncertainty on call it, on that topic. History can help you, can certainly give you ranges in terms of you know, how depositors are gonna behave, but to Tom's point, you know, we can look back to the last cycle. And early on 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 know, how banks reacted to that.

The reality of this is even though we talk about uniformity and betas, people talk about deposit betas, the betas for interest bearing deposits. The reality is it is just a mix of betas. You know, we have certain pockets of portfolio that are more rate sensitive, and therefore, the betas are gonna be higher. They will react quicker. Then we have some other parts of the deposit book that are not gonna be that sensitive. And you know, are not gonna react very quickly to changes in rates.

So how all of that comes out, I think to Tom's point, that is our view today, but, obviously, that is subject to some degree of uncertainty because, you know, this hike, like all other hikes, tend to be a little bit different from the previous 1. Okay.

Kenneth James: Thank you very much for the color, gentlemen.

Alberto J. Paracchini: You bet. Thank you.

Operator: Your next call comes from the line of Brendan Nosal of Hovde Group.

Brendan Nosal: Hey, guys. Just wanna circle back to the cost conversation real quick. Get the guy for the fourth quarter. It sounds like some of those things could be transitory or pushed from the third quarter. And I am just asking because I am wondering if the full $62 million to $64 million in the fourth quarter carries through into early 2027 or if there is some kind of you know, transitory cost that could fall out of the run rate at the turn of the calendar?

Thomas J. Bell: Good question. You are right. it is this is, you know, December's 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. Perfect. Thank you. Mhmm.

Operator: Your next call comes from the line of Nathan Race of Piper Sandler.

Nathan Race: Yeah for taking my follow-up. Just going back to buybacks, you know, pretty, pretty strong activity there. I think it is maybe the second highest level of buybacks the quarter from what we have seen over the last handful of years. And, you know, that is with the stock trading kind of, you know, near kinda all time highs.

So know, just curious if there is anything to read into that and terms of just maybe how consistent, you know, buybacks to a pace and degree we saw this quarter can be kind of a more continuous component to your excess capital management strategy just given, you know, how strong your capital levels are and still probably provides flexibility for acquisitions to the extent they materialize going forward.

Alberto J. Paracchini: I think the 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 you know, supporting, you know, organic growth that is, you know, from a from a. Whether you measure it from a from a earn back perspective, or you measure it from kinda just a roughly a yield perspective? that is, you know, 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 is that is an example of something that, again, we did this quarter. Thirdly, in this quarter, we had the opportunity to do that is you know, 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 which is the buyback.

And when it comes to the buyback, it is you know, it is it is not necessarily buyback at all cost. We are not in a situation where like, you could think about some of the largest banks in the in the country where they have really no other use other than to buy back. We have you know, options in terms of what to do with the capital. So we are 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. Yeah. that is helpful. Thank you for that, Roberto.

Nathan Race: And this maybe 1 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 J. Bell: it is in the deck. it is in the deck, Nate.

Nathan Race: Okay. Give you the Sorry. I did not catch that. Alright.

Thomas J. Bell: SOFR is 34%. Prime is 19, and other is 4.

Nathan Race: Okay. Great.

Thomas J. Bell: it is on page 7 of the deck, Nate.

Nathan Race: Alright. Got it. Thanks, guys. Appreciate the color.

Thomas J. Bell: You are welcome. Absolutely. Thanks, Nate.

Operator: Thank you for your questions today. I will now turn the call back over to mister Alberto J. Paracchini for any closing remarks.

Alberto J. Paracchini: Great. Thank you, operator. So thank you for joining us morning. We appreciate your continued interest in Byline. I hope you all have a happy Halloween. Happy 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.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.