Byline Finally Says Yes to $10 Billion
A record quarter, a rate regime that flipped in the bank's favor, and a threshold debate that ends with a checkbook rather than a balance-sheet contortion
BY · Earnings Call · 2026-10-23
The $10 billion question, answered with a checkbook
For roughly two years the most interesting thing about Byline Bancorp was arithmetic: whether the Chicago commercial bank would let itself cross $10 billion in assets and swallow the Durbin amendment, or bend the balance sheet to duck under the line. This quarter the bank stopped hedging. Assets ended "just below $10 billion," and management paired that with a definitive agreement to acquire Illinois State Bancorp — a relationship-driven deal that management described as neither competitive nor auctioned, roughly four decades of franchise-building finding a home. “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.” — Alberto J. Paracchini, President and COO · 2026-10-23 Read that against Byline's own recent history and the significance sharpens. In April the message was that no artificial ceiling existed at all — the bank was simply "there" and would cross "at any point." By July the posture had reversed, with management openly contemplating holding the line through year-end to push Durbin out. October's resolution is the third position in three quarters, and it is the most consequential: Byline will pay the Durbin toll rather than manage the bank for a regulatory cliff.That July instinct is exactly what happened in the quarter — deposits up $168 million, or 8.5% annualized, roughly $80 million of broker deposits repaid, wholesale funding cut, and the loan-to-deposit ratio pulled down to 93.2% from 96.1%. The wholesale funding line is now a management lever rather than a funding crutch. And the cost of all this maneuvering is that net interest income growth gets pinned for a quarter or two — the fourth-quarter guide is $103–105 million against $103.7 million just delivered. Tucked into the same release was a quieter transition: the retirements of the head of commercial banking and the chief credit officer at year-end, with a deputy, Scott Hawthorne, elevated to CCO. It is the sort of item that reads as boilerplate until you notice that credit culture now sits higher in Byline's narrative than the credit-quality metrics that dominated last quarter's call.If we get to the beginning of December and you know, we have the ability not to be over $10 billion we would probably take you up on that, and we would just manage the balance sheet accordingly.
Asset sensitivity stops being a dirty word
A year ago, being asset-sensitive was a wound. On the October 2025 call the CFO was blunt about the direction of travel: “we are still asset sensitive, and we will have some slight decline in net interest income from that.” — Thomas J. Bell, Chief Financial Officer · 2025-10-24 This quarter the identical balance-sheet fact is the pitch. Net interest margin rose 5 basis points to 4.33%, and 10 basis points excluding purchase-accounting accretion — modest on the surface, but the quarter's rate move landed late, so almost none of it is in the number yet. “Given our asset sensitive position, we are well positioned to grow our net interest income in a rising rate environment.” — Thomas J. Bell, Chief Financial Officer · 2026-10-23 Byline is not pioneering here; it is riding a wave the whole tape is already voting on. Fed rate hike is the second-highest global keyword of the quarter, and the rising rate environment has become the single most common framing device across regional bank calls — deposit betas, rate hikes, and repricing are the shared vocabulary. What is company-specific is the granularity. Byline's float is roughly 57% of the book, split 34% SOFR, 19% prime, 4% other, with about $150 million of fixed-rate paper repricing each quarter off yields near 5.15% into new production around 7.25%. On the liability side, the guidance was refreshingly plain: “for interest bearing deposits and total deposits... 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%.” — Thomas J. Bell, Chief Financial Officer · 2026-10-23 Those deposit betas are the swing factor in any hike scenario, and management was honest that history is a range, not a promise — every cycle differs, and betas in this book are a mix rather than a number.The payoff problem Byline cannot shake
The recurring frustration is lending. Originations were genuinely strong at $362 million, up 55% linked quarter. And it did not matter, because payoffs ran to $396 million.That is the third consecutive quarter of mid-single-digit loan growth guidance delivered alongside a loan book that did not grow. Total loans fell about 1% to $7.5 billion, line utilization slipped to 57% from 61%, and fourth-quarter balances are guided flat. The recycled acquired portfolios that management flagged as the culprit in prior calls are still working through the book, and now the cautious language has migrated to real estate: a backup in intermediate and long Treasury yields is likely to lift cap rates, pressure valuations, and dampen 2027 transaction activity. The offset is that Byline's CRE concentration is at a low point, leaving room to grow into any thaw — and the C&I, sponsor, SBA and leasing engines are all expected to contribute. One credit note worth flagging: the 22 basis point rise in nonperforming loans came from exactly two relationships — a solar credit and a C&I borrower that purchases distressed consumer card debt — both long-standing customers and both reserved for. Criticized and classified loans fell to 3.1% from 3.9%, the third straight decline, and net charge-offs of 31 basis points sit comfortably inside the 30–40 basis point range management has repeated for a year.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.