Executive Summary / Key Takeaways

• Byline Bancorp, Inc. ($BY) is strategically consolidating its position as the preeminent commercial bank in the Greater Chicago Metropolitan Area, driven by a relationship-based commercial banking model and opportunistic, disciplined acquisitions.
• The company delivered robust financial performance in Q3 2025, with net income of $37 million and diluted EPS of $0.82, reflecting strong revenue growth, expanding net interest margin of 4.27%, and well-managed expenses.
• Capital levels are exceptionally strong, with CET1 surpassing 12% and tangible book value per share growing 12% year-on-year, providing significant flexibility for organic growth, strategic M&A, and shareholder returns.
• Byline is actively investing in its commercial payments and wealth management businesses, aiming to diversify revenue streams and enhance fee income, while also leveraging technology for operational efficiency in its government-guaranteed lending.
• The company anticipates crossing the $10 billion asset threshold organically in early 2026, with Durbin Amendment impacts not expected until 2027, positioning it for continued growth and scale benefits.

The Ascent of a Chicago Commercial Banking Leader

Byline Bancorp, Inc., established in 1914 and headquartered in Chicago, Illinois, has systematically built a full-service commercial banking franchise with a clear vision: to become the preeminent commercial bank in its home market. Operating through its subsidiary, Byline Bank, the company delivers a comprehensive suite of banking products and services tailored for small and medium-sized businesses, commercial real estate, financial sponsors, and consumers. This foundational strategy, rooted in relationship banking, has been consistently reinforced through a blend of organic growth and strategic acquisitions.

The company's journey has been marked by pivotal moments that have shaped its current competitive posture. Its C&I lending capabilities, for instance, were significantly enhanced following the acquisition of First Bank & Trust in Evanston in 2018, which integrated key leadership and expertise. Further demonstrating its disciplined approach to growth, the acquisition of Inland Bancorp Trust in July 2023 allowed Byline to strategically recycle cash flows from the acquired loan book into its own lending originations. Most recently, the acquisition of First Security Bancorp, Inc., which closed on April 1, 2025, added approximately $280 million in deposits and $153 million in loans, along with valuable commercial relationships, with the integration completed swiftly by the end of April. This history of strategic expansion underscores Byline's commitment to deepening its market penetration and enhancing its service offerings within the Greater Chicago Metropolitan Area.

Byline operates in a competitive landscape dominated by both larger regional players and smaller community banks. Direct competitors such as Wintrust Financial Corporation (WTFC), Huntington Bancshares Incorporated (HBAN), and Fifth Third Bancorp (FITB) vie for market share in the Midwest. While larger rivals like HBAN and FITB leverage scale and aggressive digital expansion, Byline distinguishes itself through its specialized lending expertise and deep regional ties. The company's focus on niche, relationship-based services, such as its Sponsor Finance portfolio and tailored commercial real estate solutions, allows it to compete effectively against broader-based offerings. Byline's management notes that the competitive environment in Chicago has become "much more rational over the years," enabling the company to drive improvements in deposit costs through disciplined pricing and enhanced analytical capabilities.

Technological Edge and Operational Efficiency

Byline Bancorp's strategic investments in technology are central to its operational efficiency and competitive differentiation. The company has focused on enhancing its core banking infrastructure, including significant upgrades to its online banking systems platform. These improvements aim to streamline customer experience and internal processes, supporting its relationship-based model.

A key technological initiative is the expansion of its commercial payments business, announced earlier in 2025. This involves building out new infrastructure and hiring an experienced team to manage high-volume commercial client transactions. This business focuses on services like ACH transactions, payroll processing, and acting as a sponsor bank for issuing and acquiring debit or prepaid cards. This strategic move is primarily deposit and treasury management-focused, with minimal credit exposure, and is expected to scale in 2026. The "so what" for investors is clear: this initiative aims to diversify and grow fee income, leveraging technology to capture a larger share of commercial client activity and enhance stickiness.

Furthermore, Byline has made substantial investments in its government-guaranteed lending business, particularly for SBA loans. These investments have enabled the company to achieve "much more efficient decision-making and portfolio management." This operational efficiency is critical in managing the inherent risks and complexities of this segment, especially given the proactive management of the SBA portfolio since late 2021 to address gradual deterioration post-COVID-19. The company's ability to "right-size" this business reflects a technological and operational maturity that allows for effective risk mitigation and sustained profitability. While specific quantifiable performance metrics for these technologies are not always publicly detailed, the strategic intent is to enhance efficiency, reduce operational costs, and improve customer service, thereby strengthening Byline's competitive moat and contributing to its financial performance.

Financial Performance and Capital Strength

Byline Bancorp's financial performance in Q3 2025 underscored its strategic effectiveness. The company reported net income of $37 million, or $0.82 per diluted share, representing year-on-year growth of 19%. Total revenue reached $116 million, up 13.6% from the prior year, reflecting solid execution. Net interest income (NII) was a significant driver, increasing by $12.4 million to $99.9 million in Q3 2025, a 14.2% rise year-on-year. This NII growth was primarily fueled by lower rates paid on interest-bearing deposits, particularly time deposits, and organic expansion of the loan and lease portfolio. The net interest margin (NIM) expanded by 9 basis points quarter-on-quarter to 4.27% in Q3 2025, and by 39 basis points year-on-year, demonstrating effective liability repricing and asset yield management.

Non-interest income also contributed positively, increasing by $1.48 million (10.3%) in Q3 2025, mainly due to higher net gains on sales of loans driven by increased volume. Wealth management and trust income saw robust growth, up 24.1% year-on-year to $1.37 million in Q3 2025, reflecting the company's investment in this area. Total non-interest expense increased to $60.5 million in Q3 2025, up 1.5% from the prior quarter, primarily due to higher incentive compensation accruals and increased health insurance costs, along with an $843,000 loss on the extinguishment of subordinated debt. Despite this, the efficiency ratio improved to 51% in Q3 2025 from 52.02% in Q3 2024, reflecting strong revenue growth.

The balance sheet continues to exhibit strength. Total assets grew by $315.8 million (3.3%) to $9.80 billion at September 30, 2025, primarily driven by a $533.9 million (7.7%) increase in loans and leases. The originated loan and lease portfolio expanded by $513.6 million, with notable growth in commercial and industrial (C&I) and commercial real estate (CRE) segments. Total deposits increased by $369.6 million (5%) to $7.83 billion, supported by the First Security acquisition and growth in money market accounts, partially offset by a decrease in time deposits. Non-interest-bearing deposits saw a significant increase of $176.8 million (10.1%) in Q3 2025.

Capital levels are robust, with the Common Equity Tier 1 (CET1) ratio surpassing 12% and the tangible common equity (TCE) ratio at 10.78% as of September 30, 2025. Tangible book value per share grew 5% linked quarter and 12% year-on-year. The company further strengthened its capital structure by refinancing $75 million in subordinated debt in Q3 2025, leveraging its upgraded credit rating to achieve a 266 basis point improvement in credit spreads. This strong capital base provides Byline with significant flexibility to pursue its strategic objectives.

Outlook, Guidance, and Risk Assessment

Byline Bancorp maintains an optimistic outlook for continued growth and profitability, grounded in its consistent strategy and market position. Management expects loan growth to continue in the mid-single-digit range for Q4 2025, supported by healthy pipelines in commercial banking and leasing. Net interest income for Q4 2025 is projected to be between $97 million and $99 million, assuming two Fed rate cuts in the fourth quarter. This guidance reflects the company's asset-sensitive balance sheet and disciplined deposit pricing strategies, which have historically allowed it to outperform model assumptions in declining rate environments. Noninterest expense for Q4 2025 is expected to remain in the same range as Q3 2025.

The company anticipates crossing the $10 billion asset threshold organically in the first quarter of 2026. This milestone will trigger new regulatory considerations, but the Durbin Amendment's impact on interchange fees, estimated at $4.5 million to $5 million annually (including FDIC effects), is not expected until July 1, 2027, as it applies after a lag. Higher insurance assessments would follow four consecutive quarters above $10 billion. Byline has been proactively preparing for this transition, investing in infrastructure and processes to meet and exceed regulatory expectations.

Despite the positive outlook, Byline acknowledges several risks. Macroeconomic uncertainty, evolving trade policies, and geopolitical tensions could impact demand for banking products and services, potentially impairing collateral values and increasing credit losses. The company's exposure to commercial real estate (CRE) in the Chicago metropolitan area and southern Wisconsin, while diversified, remains a focus. Credit quality, though stable to improving, is continuously monitored, with the allowance for credit losses (ACL) at 1.42% of total loans as of September 30, 2025. Non-performing loans (NPLs) decreased to 85 basis points in Q3 2025 from 92 basis points in Q2 2025, and non-performing assets (NPAs) also declined. The SBA government shutdown in Q3 2025 highlighted a timing risk for gain on sale income from government-guaranteed loans, as sales and settlements are delayed until the government reopens, though the company earns carry on these held loans.

Conclusion

Byline Bancorp is executing a compelling investment thesis centered on its disciplined growth within the attractive Chicago commercial banking market. Its history of strategic acquisitions, coupled with a robust commercial banking model and targeted investments in technology, positions it for continued market share expansion. The company's strong financial performance in Q3 2025, characterized by expanding margins, solid loan and deposit growth, and excellent capital ratios, underscores its operational effectiveness and resilience.

As Byline approaches the $10 billion asset mark, its proactive approach to regulatory preparedness and strategic initiatives in commercial payments and wealth management are expected to drive future revenue diversification and efficiency. While macroeconomic uncertainties and competitive pressures persist, Byline's focus on relationship banking, disciplined risk management, and a strong capital base provide a solid foundation. Investors should recognize Byline's consistent profitability, strategic clarity, and the potential for enhanced shareholder value as it solidifies its position as a leading commercial bank in Chicago.