Byline Bancorp, Inc. (BY) Q1 2026 Earnings Call Transcript

Good morning, and welcome to Byline Bancorp First Quarter 2026 Earnings Call. My name is Tiffany, 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 1 on your telephone. If you would like to withdraw your question, simply press star 1 again. 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 Reney, head of investor relations for Byline Bancorp to begin the conference call.

Thank you, Tiffany. Good morning, everyone, and thank you for joining us today for the Byline Bancorp First 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, 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 marks and slides may reference and 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 measure disclosures in the earnings release. As a reminder for investors, during the quarter, we plan to participate in two upcoming conferences here in Chicago, the Stevens Chicago Bank Tour on May 14th and the Raymond James Chicago Bank Symposium on May 28th. With that, I'll now turn the call over to Alberto Parchini, President of Byline Bancorp.

Great. Thank you, Brooks. Good morning and welcome to Byline's first quarter earnings call. We appreciate all of you taking the time to join the call this morning with me today our chairman and ceo roberto herencia our cfo tom bell and our chief credit officer mark lucinato before we get started i'd like to pass the call over to roberto for his comments roberto thank you alberto and good morning to all as alberto said we we do appreciate you joining us today and taking the time to engage with pylon Markets, in general, continue to offer plenty of distractions and, at times, entertainment.

Shifting interest rate expectations, inconsistent economic signals, policy uncertainty, and heightened geopolitical tensions, with the Iran war at the center of it and its broader implications. These add another layer of complexity for businesses and investors alike. we have learned over time that durable results do not come from reacting to every headline. They come from being anchored to purpose, discipline execution, and long-term thinking. So we remain focused on driving value for our stockholders as we work and make progress, I may add, toward becoming the preeminent commercial bank in Chicago. We started the year with another strong quarter, ROA, PTPP, NIM, and efficiency remain among the best-in-class. Tangible book value growth of 14% year-over-year are also knocking on the door of best-in-class. Our balance sheet remains strong and positioned to support customers through the cycle. I want to recognize what matters deeply to us, our people. Byland Bank was recently honored as a U.S. best-in-class employer in Gallagher's 2025 U.S. Benefits Strategy and Benchmarking Survey. We were also named to Newsweek's America's Greatest Midsize Workplaces for Women, highlighting our dedication to practices grounded in transparency, professional development, and flexibility, empowering women to build careers that grow with their lives. These awards reflect effective people strategies with measurable outcomes, including employee well-being and engagement. They reinforce our people-first approach and strengthens our ability to attract, retain, and develop top talent in a very competitive environment. I would like to point out that our SBA platform continues to perform well. For the 16th consecutive year, our team ranked as the number one SBA 7A lender in Illinois, according to the most recently published fiscal year rankings. This kind of consistency does not happen by accident. It reflects decades of experience, discipline, execution, and the dedication of an outstanding team. I would also like to recognize two individuals who have been familiar voices to many of us for a long time. This marks the end of an era as Terry McEvoy of Stevens and David Long of Raymond James step into new chapters in their careers. Collectively, as Southside analysts, they've covered more than 200 earning seasons, and And more importantly, they brought professionalism, consistency, and thoughtful engagement to their work. We are grateful for the time they spent covering Byline and for the relationships built over many years. On behalf of the board and the entire management team, we wish both Terry and David continued success in their new roles. To close, I remain very optimistic about Byline. We are operating with clarity of purpose, supported by strong fundamentals and engaged workforce and a resilient business model. We are very focused on compounding returns the right way through prudent growth, disciplined risk management, and an unwavering commitment to our people and customers. With that, Alberto, back to you.

Great. Thank you, Roberto. As is our normal practice, I'll start with the highlights for the quarter, followed by Tom, We'll take you through the financials, and then I'll come back to wrap up before we open the call up for questions. As always, you can find the deck we're using this morning on the IR section of our website, and please refer to the disclaimer at the front. Turning to slide four on the deck, overall, I'm pleased to report that we had a solid start to the year and delivered another excellent quarter. Earnings momentum continued along with strong profitability, discipline expense management and stable credit quality despite an evolving macro and geopolitical backdrop for the quarter we reported net income of 37.6 million and eps of 83 cents per diluted share representing growth of 8.9 percent and 9.2 percent respectively profitability was strong with ROA of 156 basis points and ROTC of 13.77 percent. Pre-tax preparation income totaled 55.2 million resulting in a pre-tax preparation margin of 229 basis points which marks the 14th consecutive quarter in which this metric exceeded two percent reflecting the durability and consistency of our operating results. Total revenues were $112.4 million for the quarter. Net interest income remained solid at just under $100 million, while non-interest income was lower at $12.5 million, largely due to lower fair value marks for the quarter. The margin remained stable at 4.33%, notwithstanding a lower day count and lower yields. This was offset by a drop in deposit costs driven by a better mix, coupled with pricing discipline, which Tom will cover in more detail shortly. From a balance sheet standpoint, total deposits increased 8.2% annualized to $7.8 billion, reflecting growth across both core as well as time deposits. Loan balances were modestly lower link quarter as payoffs more than offset solid origination activity of $241 million. Expenses remain well-managed at $57 million, down 5.3% from the prior quarter, with our efficiency ratio improving to 49.8% for the first quarter, one of the lowest levels we've reported since becoming a public company. Asset quality remains stable. Credit costs were $5.5 million for the quarter and consisted of $6 million in net charges and a small reserve release of half a million dollars. Both NPLs and criticized loans showed declines, and the ACL increased one basis point to 1.46% of total loans. Moving on to capital, our capital levels continue to grow, and balance sheet strength is evident, with a TCE at 11.1% and CET1 over 12.5%. We exercised some of that capital flexibility this quarter and returned 40% of net income back to shareholders by repurchasing approximately 318,000 shares of stock at an average price of $30.84, in addition to our quarterly dividend of $0.12 per share. With that, I'll turn the call over to Tom, who will walk you through our results.

Thank you, Alberto, and good morning, everyone. starting with our loans on slide 5. Total loans stood at $7.5 billion, down slightly from the prior quarter. The decline in balances was primarily driven by $72 million in runoff related to loan participations and acquired loans. Origination activity was solid with $241 million in new loans, while payoffs remained elevated at $300 million. Loan commitments increased and line utilization declined slightly to 59.2%. Loan yields came in at 6.84%, down 11 basis points link quarter as a result of the December pipeline. Pipelines remain strong and we expect full year loan growth in the mid-singles. Turning to slide six, total deposits were $7.8 billion for the quarter, up $154 million or 8.2% annualized from the price. The growth was due to increases in interest-faring checking and time deposits. We saw a six basis point improvement in deposit costs driven by lower money market rates, which brought overall deposit costs down to 1.91%. Turning to slide 7, net interest income was $99.9 million in Q1, down 1% from the prior quarter, and up 13% year-over-year. Net interest income was impacted by two fewer days in the quarter, lower yields on earning assets, and higher borrowing costs as a result of a balance sheet hedge that matured in March. This was partially offset by lower rates paid on deposit. The net interest margin was stable at 4.33%, declining modestly by two basis points from the last quarter, with 50% of the decline coming from lower accretion, while expanding 26 basis points. Our outlook for net interest income is based on the forward curve, which currently assumes no rate cuts or hikes in 2026. Given the rate outlook and our balance sheet position, this implies a net interest income range of $99 to $101 million in the sector. We expect net interest income to grow driven by overall balance sheet growth and disciplined deposit pricing in the event short-term rates move low. Turning to slide 8. Net interest income totaled $12.5 million in Q1, which was down approximately $3.2 million link quarter. The decline on a quarter-over-quarter basis was driven by an additional negative fair value mark on loan servicing assets of $755,000 and a $1.3 million decline in fair value of equity securities. Excluding these fair value adjustments, fee income remains stable. We expect gain on sale to average $5.5 million per quarter and our non-interest income to be in the $14 to $15 million range for the sector. Turning to slide 9, expenses came in at $57 million, down 5.3% from the prior quarter. This was driven by salary and benefits from lower incentives, legal costs, and advertising spend, partially offset by higher data processing. Our efficiency ratio improved 54 basis points to 49.78%, with non-interest expense to average asset ratio at 2.37% down 10 basis points. Looking forward, our non-interest expense full year guidance remains unchanged at 58 to 60 million dollars per quarter. During slide 10, credit costs declined for the quarter with the provision coming in at 5.5 million dollars. NPLs decreased 4 million dollars or 5.6 percent link quarter to $67 million, while MPAs to total assets improved to 71 basis points from 77 basis points in Q4. The improvement was driven by resolution activity during the quarter. The ACL remained flat at 1.46%. Moving on to capital on slide 11. Capital levels continue to grow and remain robust with CET1 at 12.5%, 22 basis points link quarter and up 77 basis points. total capital came in at 15.5%, up 69 basis points year-over-year. In addition, tangible book value per share grew to $23.79, increasing 1.5% on a lean quarter basis and 14% year-over-year. And last month's Crowell bond rating agency affirmed our BBB plus credit rating and outlook. In closing, another great quarter across the board and a solid start to the year with that overall back to you.

Thank you, Tom. So to wrap up, we were pleased with our results and performance for the quarter, notwithstanding the level of uncertainty in the environment. We're optimistic in our ability to execute our strategy, continue to grow the business and deliver value to shareholders. in terms of the outlook pipelines remains at solid levels across our businesses and we remain well positioned to take advantage of opportunities in the marketplace with that operator we can open the call off request at this time if you would like to ask a question press star then the number one on your telephone keypad to withdraw your question simply press star one again We will pause for just a moment to compile the Q&A roster.

Your first question comes from the line of Nathan Race with Piper Sandler. Please go ahead.

Hope you're all doing well. Alberto, I was hoping you could just shed some more color just on the production levels in the quarter, you know, in terms of how much of the year-over-year decline may have just been due to some of the macro factors at play these days versus seasonality. I know you mentioned the pipeline solid going into the rest of the year, but was just hoping you could shed some light on that component in the calendar and what you see in terms of payoffs as well.

Yeah, of course. Not a lot of, so on your second point there, so not, we didn't really see, we had pretty good origination level. So the level of business activity was pretty good in commercial banking or leasing business. real estate was nothing unexpected on that end. A lot of the pay-off activity or a portion of the pay-off activity that we saw this quarter was just simply us essentially recycling loan participations and loans that we had acquired coming from some acquisitions. That's really what drove it. If you actually strip out the impact of those, which is, I mean, it's perfectly aligned with what we want to do ultimately with those books. If you strip that out, I think loan growth would have been somewhere in the, you know, 4%, you know, kind of level for the quarter. So nothing unusual other than just planned runoff coming from, you know, from books that we've acquired over the years.

Got it. That's really helpful. Maybe a question for Tom. I know you don't give margin guidance specifically, but just trying to understand the trajectory of loan yields over the balance of this year, just in terms of the context of kind of what the roll-off yield looks like and kind of what you're seeing in terms of blended rates on loan production these days.

Hi, Nate. Yeah. Roll-offs are, you know, call it $300 million-ish, like a $450 kind of coupon. So new production, you know, is typically around $675, $680 kind of.

So imagine, again, without giving margin guys, that you're thinking the margin could kind of be in there, just given maybe more rational deposit pricing competition these days and just given what you just described in terms of the roll-off.

I mean, certainly on the loan side, spreads will, you know, are maintaining well. I think, you know, as you'll see, the balance sheet rightly grew. The security could have a small tweak to the margin overall. But, again, NII guidance.

Gotcha. And maybe one last one. Alberto or Roberto, just curious what you guys are seeing in terms of M&A conversations and activity levels these days. You know, obviously you have a little bit of a headwind to earnings next year with the Durbin impact, which I know is not particularly big for you guys. But, you know, just curious if you're feeling more optimistic on, you know, an M&A announcement over the balance of this year.

You know, we're always optimistic in terms of just the level of conversations. I would tell you maybe right now, and I don't think this is inconsistent with what others have said in their earnings calls. I mean, certainly the certainty in the environment given the macro and geopolitical issues may be causing some sellers to, you know, pause. That being said, I think the underlying level of conversations continues to be, you know, I think, from my view, pretty healthy.

Okay, great. I appreciate all the color. Hope you guys have a good weekend.

Likewise. your next question comes from the line of brendan novel with hubby group please go ahead hey good morning everybody hope you're doing well morning breman um maybe starting off here on on capital um i think if my math is correct you've nearly tapped out the the current buyback plan um is there a willingness to re-upping that uh and remaining in the market just given how much capital you have today and how much you'll continue to generate?

Yeah, Brendan, we've only done about 300,000 shares, so we have over a $2 billion program. So we have plenty of room to continue to repurchase shares.

I apologize for that after a long earnings week. Maybe pivoting to kind of funding here. Really nice quarter for deposit growth, both overall and core funding. I'm just kind of curious why you ought to grow CDs as much as you did, given the lack of loan growth, and then tie that into the competitive landscape in Chicago for core funding.

I mean, we're first focused on, you know, full relationship customers, but, you know, our CD book has grown over the years, and we're still trying to maintain a certain level of CDs. As you know, loan-to-deposit ratio is higher at the end of the year because of $10 billion as an example on maybe some more institutional deposits. But generally speaking, you know, we think we have a good deposit base. The CD book is good. The backup book is performing well. As you can see, the CD yields are coming down, you know, kind of quarter over quarter.

But, you know, given the Fed on hold, that's probably going to slow down here. but we still need to fund the bank and we like the diversification that we get from it with the opportunity to potentially cross okay thanks tom appreciate you taking the questions your next question comes from the line of damon del monte with kbw please go ahead hey good morning guys hope you're all doing well and um thanks for taking my questions um first one just kind of regarding loan growth in the in the pipeline that you referenced um could you just give a little color on kind of what is like what's that comprised of and you know which what uh what segments are

building that pipeline for you so all segments damon but i would say um like we have you know touched on in in prior calls probably the the the delta there that the one that's more um rate sensitive is probably going to be real estate. I would think, you know, rates have backed up, and I'm not talking about short-term rates, but, you know, the backup in five years, the backup in the 10-year, you know, real estate is much more sensitive to those. So I suspect if we see a decline in that later on in the year, potentially, that's going to probably positively impact volume, still within the range that we provide, which is that, you know, mid-single-digit, you know, target. That's the one that I would say has the highest, probably the highest chance of having some volatility around rates. As far as the other categories, which are really just commercial banking and our leasing business in general, So pipelines are solid, and we really, heretofore, we really haven't seen an impact where people are saying, you know what, given the uncertainty in the environment, we are going to, you know, take a breather here and postpone something that we're planning to do for a few months just to see how the environment, you know, settles down. I mean, activity has been good. We've seen, for example, to give you some color, you know, companies are actively being marketed, you know, and sold in our sponsor business, as well as, you know, we're hearing some of that also in our commercial banking book, which is a positive sign from a, you know, transaction activity standpoint. and borrower activity continues to be good. So demand for credit remains, you know, solid in those segments.

That's great. Great color. Thank you. Tom, you mentioned about the securities portfolio increasing in size and you can see the average balances were up quarter over quarter. How do we think about that for the remainder of the year? Do you expect to add to that or do you think that might start to trail down a little bit?

I think stable, Damon, we'll probably reinvest cash flows. I mean, we could go up a little bit, you know, just depending on market opportunities. But, you know, assuming loan growth will deliver, which we expect, there's probably no need to grow the portfolio meaningfully.

I think big picture, Damon, the way we think about securities, you know, at least from a big picture standpoint, we're always going to be trying to grow the bosses. irrespective of what the environment is we are always going to be looking to to try to grow deposits you know over time through the cycle we we just don't think we are good enough to be able to as as some of our colleagues in the industry say turn a spigot on turn a spigot off so we're constantly trying to grow deposits to the degree that deposits start outpacing you know our our ability to grow loans, then by definition, you would see that growth probably end up in the securities portfolio. So, just big picture, that's kind of how we think about it.

Great. That makes sense. Okay. Thank you very much. That's all that I had.

Your next question comes from the line of Brendan Rudd with Stevens, Inc. Please go ahead.

Morning. Thanks for taking my questions. um if i could follow up on an earlier question about the about the deposit costs um can you maybe talk about their trajectory through the quarter relative to the 191 reported and when you think about when you think about a starting point um as we enter the second quarter um would you anticipate that number kind of trending down to a few more basis points pretty consistent you know, the average over the quarter versus period on pretty much unchanged.

March was exactly on top of where the cost of funds was for the quarter. So not a meaningful change. I think the, again, just maybe touching back on the prior question, the CD book is very short. It's four months, five months at length. So a lot of opportunity to reprice, but most of the book is repriced, given that we've had, you know, made its last cut, so to speak.

And maybe just a higher-level question. I think back in January, the plan was to not manage below $10 billion this year. I guess, is that still the plan? And can you remind me what the Durban impact would be in, I guess, 27?

Sure. Yeah, Brandon, we are not trying to manage. you know the balance sheet to say to artificially stay under 10 billion dollars it just so happens that we're at 9.9 billion at the end of this quarter but it could very well be it could have very well you know have been that we would have been over 10 billion so we're we're kind of as we think about it we're kind of there and we expect to be uh you know crossing that that barrier here at at any point and as far maybe you want to take the the durbin impact for 27 sure um yeah as we've mentioned we don't have the same kind of interchange costs some of the other banks do and i think we kind of quoted like about four basis points it takes effect again in july 1st so it'd be july 1st of 27 and i think we had said publicly we had said three and a half to four million bucks in terms of the Durban impact Brandon so obviously that's an annualized number so in July of 2027 all else being constant we would see the impact of half of that in the second half of the year got it sounds good thank you very much for taking my questions and have a nice weekend super thank

you again if you would like to ask a question press star one on your telephone t-pad Your next question comes from the line of Brian Martin with Breen Capital. Please go ahead.

Hey, good morning, guys.

Hey, Brian.

Hey, just wonder if you – Tom, your last question, maybe I didn't hear your response. I was just going to ask you, on the cost of deposits, given the backdrop, like you said, the Fed's a major last rate cut, it's pretty stable from here. I mean, there's not much opportunity, like you said, on the CD side, given the book short. So just you would think relatively stable, give or take? as you think about going forward? Just wondering how the competitive pressures are and if you're seeing, you know, the loan growth outlook looks pretty bright. So just try and understand the competition.

Yeah, I would say relatively flat, you know, maybe down a little bit. Again, mix helps us. We're always focused on relationship banking and commercial banking. So those are typically lower cost deposits and that will help us. On the competitive front, on the consumer side, yeah it's it's the typical competition we see as far as rates i don't think anything's crazy at this point but you know we uh we just want to keep our market share in that that category and so i i would say um nothing nothing's going uh higher at least at this point and you know we just the book is almost fully repriced so there's not a lot of lift um gotcha okay that's helpful And just the commercial payments business, I guess your confidence in just continuing to grow deposits, is that giving you some tailwind there on that opportunity? Yeah, I mean, I think that's, you know, more of as the year goes on, we'll see more benefit from that and obviously the fee income that comes with that as well. And it takes a while to onboard the customers, so we'll start seeing that more here in the second half of the year.

Gotcha. And then maybe just the last one, just some of the noise in the quarter in terms of the fee income. Can you just give some thoughts on, you know, kind of a baseline or how to think about, you know, you've given some color on the SBA business, just kind of the, some of the noise in the quarter, if you can just talk a little bit about, you know, how to think about the jumping off point, if you will, going into 2Q.

Yeah. We still gave guidance of $14 to $15 million, Brian. I don't know if you heard that. but yeah sorry okay that's okay but but no no no uh but for the quarter we had lower swap uh fee income from our back-to-back program um and we expect that to pick up here um and then we had a small uh lower valuation on the sale of some lease assets which is a was a one-off so i i would expect you know that's why i've given guidance of the 14 to 15 million dollars but those were the two drivers other than the fair value adjustments yeah okay that's uh that's all i had guys i appreciate you taking the color and congrats on the quarter great thank you brian thank you for your questions today i will now turn the call back over to mr alberto

pericini free any closing remarks great great thank you tiffany so in closing i'd like to congratulate and thank all our employees on another solid quarter. Our level of performance would not be possible without their dedication, their effort, and the commitment to customers. It really, you know, we couldn't do it without them. So thank you all. And to everyone on the call, thank you for joining us today. We appreciate your continued interest and byline, and we look forward to talking to you again next quarter. Thank you.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.