Byline Bancorp, Inc. (BY) is a bank holding company that operates through its subsidiary, Byline Bank, a full-service commercial bank headquartered in Chicago, Illinois. The company has established itself as a leading player in the Chicagoland banking market, serving small and medium-sized businesses, commercial real estate and financial sponsors, as well as consumer customers in the region.
Business Overview and History
Byline Bancorp's history dates back to 2013 when the company was formed through a recapitalization of a small community bank in Chicago. The recapitalization was led by a group of experienced bankers and investors, providing the capital and resources needed to grow the business. This marked a major milestone for the company and set the stage for its future growth and expansion.
In the years following the recapitalization, Byline Bancorp pursued an aggressive strategy of organic growth and strategic acquisitions to expand its commercial banking footprint in the Chicago metropolitan area. The company made several key acquisitions, including the purchase of First Evanston Bancorp in 2017 and the acquisition of Inland Bancorp in 2023. These transactions allowed Byline to add new branches, expand its customer base, and boost its commercial lending capabilities.
One of the key challenges Byline Bancorp faced in its early years was the lingering effects of the financial crisis. Like many banks, Byline had to navigate a difficult credit environment and rebuild its loan portfolio. The company invested heavily in risk management practices and worked diligently to improve asset quality. Over time, these efforts paid off, and Byline was able to return to profitability and sustainable growth.
Another challenge the company has faced is the highly competitive nature of the Chicago banking market. Byline competes against much larger regional and national banks, as well as other community banks, for commercial customers. To differentiate itself, Byline has focused on providing exceptional customer service, developing deep relationships with small and medium-sized businesses, and leveraging its expertise in specialty lending areas like government-guaranteed loans.
Despite these challenges, Byline Bancorp has grown to become one of the largest publicly traded commercial banks headquartered in the Chicago area. As of 2023, the company had over $8.8 billion in assets and operated 45 branch locations across the region. Byline's success is a testament to the vision and execution of its management team, as well as the hard work and dedication of its employees.
Byline Bancorp's focus on commercial banking has been a key driver of its success. The company's lending portfolio is primarily composed of commercial real estate (34.4% of total loans as of September 30, 2024), commercial and industrial (37.7%), and lease financing receivables (10.3%). This diversified mix of loan products has enabled Byline to navigate various economic cycles and maintain a relatively stable credit profile.
Product Segments and Services
Byline Bancorp's primary business activities revolve around lending and leasing, deposit-taking, and fee-based services. The company offers a comprehensive range of commercial and consumer loan and lease products, including:
1. Commercial real estate loans 2. Residential real estate loans 3. Construction and land development loans 4. Commercial and industrial loans 5. Installment and other loans 6. Lease financing receivables
As of September 30, 2024, Byline's total loans and leases amounted to $6.88 billion, representing a 2.9% increase from December 31, 2023. The commercial real estate loan portfolio was the largest segment, totaling $2.36 billion and accounting for 34.4% of total loans and leases. Commercial and industrial loans made up 37.7% of the portfolio at $2.59 billion, while residential real estate loans and lease financing receivables each accounted for 10.3% at $710.37 million and $711.38 million, respectively.
On the deposit side, Byline Bancorp offers a variety of products, including non-interest-bearing demand deposits, interest-bearing checking accounts, money market accounts, savings accounts, and time deposits. Total deposits reached $7.50 billion as of September 30, 2024, marking a 4.5% increase from the prior year-end. Non-interest-bearing deposits constituted 23.1% of total deposits.
In addition to its core lending and deposit-taking activities, Byline Bancorp generates non-interest income through various fee-based services. These include fees and service charges on deposits, loan servicing revenue, wealth management and trust income, ATM and interchange fees, and net gains on sales of loans. For the nine months ended September 30, 2024, non-interest income totaled $42.70 million, representing a 2.1% year-over-year increase.
Financial Performance and Ratios
Byline Bancorp has consistently delivered strong financial performance, as evidenced by its solid profitability metrics. For the nine months ended September 30, 2024, the company reported net income of $90.4 million, or $2.07 per diluted share, compared to $78.3 million, or $1.98 per diluted share, for the same period in 2023.
The company's return on average assets (ROA) and return on average tangible common equity (ROTCE) for the nine months ended September 30, 2024 were 1.32% and 15.19%, respectively, reflecting its ability to generate attractive returns for shareholders.
Byline Bancorp's balance sheet remains well-capitalized, with a Common Equity Tier 1 (CET1) ratio of 11.35% and a total capital ratio of 14.41% as of September 30, 2024. The company's tangible common equity (TCE) ratio stood at 9.72%, comfortably above its targeted operating range of 8% to 9%.
For the most recent fiscal year (2023), Byline Bancorp reported: - Revenue: $383.62 million - Net Income: $107.88 million - Operating Cash Flow: $166.07 million - Free Cash Flow: $162.21 million
For the most recent quarter (Q3 2024), the company reported: - Revenue: $101.84 million - Net Income: $30.33 million - Operating Cash Flow: -$146.57 million - Free Cash Flow: -$145.32 million - Year-over-Year Revenue Growth: -2.9%
The decrease in revenue for Q3 2024 was primarily due to a decline in net interest income as a result of higher deposit costs, partially offset by growth in non-interest income.
Liquidity
In terms of liquidity, Byline Bancorp maintained a strong cash position, with cash and cash equivalents of $452.6 million as of September 30, 2024. This provides the company with ample flexibility to fund future growth initiatives and withstand potential economic headwinds.
Additional liquidity metrics include: - Debt/Equity Ratio: 0.13 - Available Credit Line: Byline Bank has a $780.98 million discount window line of credit with the Federal Reserve Bank of Chicago and a $127.50 million uncommitted federal funds line available. - Current Ratio: 0.30 - Quick Ratio: 0.30
Quarterly Performance and Guidance
For the third quarter of 2024, Byline Bancorp reported net income of $30.3 million, or $0.69 per diluted share, compared to $28.2 million, or $0.65 per diluted share, in the same period of 2023. The company's revenue for the quarter was $101.8 million, down from $104.8 million in the prior-year quarter.
Byline Bancorp's net interest margin (NIM) for the third quarter of 2024 was 3.88%, a decrease of 10 basis points from the previous quarter, primarily due to higher cash balances and lower loan accretion income. However, the company's focus on net interest income growth, rather than just NIM expansion, has enabled it to maintain a strong financial performance.
The company's profitability metrics remained strong in Q3 2024, with an ROA of 129 basis points and a return on tangible common equity of 14.5%. Byline Bancorp's pre-tax, pre-provision income set a new record for the company at $47.5 million, resulting in a pre-tax, pre-provision ROA of 202 basis points, marking the 8th consecutive quarter of that metric exceeding 200 basis points. The efficiency ratio stood at 52%, remaining stable on a quarter-over-quarter basis.
For the fourth quarter of 2024, Byline Bancorp expects: - Net interest income to be in the range of $85 million to $87 million - Gain on sale income from government-guaranteed loans to be between $5 million and $6 million - Non-interest expense to be between $55 million and $57 million
Looking ahead to 2025, the company anticipates non-interest expense to range between $54 million and $57 million. Byline Bancorp also expects loan growth for the remainder of 2024 to be in the mid-single-digit range.
Geographic Markets
Byline Bancorp operates primarily in the Chicago metropolitan area and southern Wisconsin. The company does not have significant geographic diversification outside of this region.
Risks and Challenges
While Byline Bancorp has demonstrated resilience and consistent performance, the company faces several risks and challenges that investors should be aware of:
1. Interest Rate Risk: As a commercial bank, Byline Bancorp is exposed to interest rate risk, which could impact its net interest margin and net interest income. The company's ability to effectively manage its asset-liability composition and hedge interest rate exposure will be crucial in navigating changing market conditions.
2. Credit Risk: Byline Bancorp's lending portfolio, particularly its commercial real estate and commercial and industrial loans, exposes the company to credit risk. The company's ability to maintain asset quality and effectively manage its allowance for credit losses will be critical in preserving its financial strength.
3. Regulatory Compliance: As a bank holding company, Byline Bancorp is subject to extensive regulatory oversight and requirements, which could result in increased compliance costs and operational challenges.
4. Competitive Landscape: The Chicagoland banking market is highly competitive, with Byline Bancorp facing competition from larger regional and national banks, as well as smaller community banks. The company's ability to attract and retain talented bankers, and to differentiate its service offerings, will be essential in maintaining its market position.
5. Inorganic Growth Execution: Byline Bancorp's strategic growth plan includes acquisitions, which carry integration risks and the potential for unforeseen challenges. The company's ability to successfully execute and integrate acquisitions will be crucial in achieving its long-term objectives.
Despite these risks, Byline Bancorp's strong track record, experienced management team, and disciplined approach to growth and risk management position the company well to navigate the challenges ahead and continue delivering value to its shareholders.
Conclusion
Byline Bancorp has established itself as a resilient and well-positioned commercial banking franchise in the Chicagoland market. The company's focus on organic growth, complemented by strategic acquisitions, has enabled it to build a diversified loan portfolio and maintain a relatively stable credit profile.
Byline Bancorp's consistent financial performance, strong capitalization, and ample liquidity provide a solid foundation for future growth. As the company navigates the evolving interest rate environment and competitive landscape, its experienced management team, disciplined approach, and commitment to serving the needs of its commercial and consumer customers position it well to continue delivering value to shareholders over the long term.