BY Q3 Deep Dive: Deposit Mix, SBA Lending, and Commercial Payments Expansion Drive Results

Regional banking company Byline Bancorp (NYSE:BY) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 13.6% year on year to $115.7 million. Its non-GAAP profit of $0.83 per share was 15.3% above analysts’ consensus estimates.

Is now the time to buy BY? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Byline Bancorp delivered third-quarter results that were well received by the market, reflecting strong revenue growth and profitability metrics that management attributed to a combination of improved deposit mix, solid loan originations, and stable credit quality. Chairman and CEO Roberto Herencia highlighted the resilience of Byline's business model and its ability to maintain consistent execution despite macroeconomic uncertainty and industry competition. The company's SBA lending team proactively managed risks associated with the federal government shutdown, while credit costs and nonperforming asset levels improved compared to the prior quarter. CFO Thomas J. Bell credited disciplined deposit pricing and a shift toward non-interest-bearing accounts for supporting net interest margin expansion, noting, “We saw continued improvement in the mix, which drove deposit costs lower by 11 basis points to 2.16%.”

Looking ahead, Byline Bancorp’s management identified several strategic initiatives and external factors expected to influence performance. President Alberto Paracchini emphasized the continued buildout of the commercial payments business, describing it as a key growth area for 2026 and beyond. The company anticipates crossing the $10 billion asset threshold in early next year, which will eventually introduce regulatory changes like the Durbin Amendment and higher insurance costs. Management also pointed to ongoing efforts to improve operational efficiency and remain open to disciplined M&A opportunities, while cautioning that government shutdowns could affect the timing of SBA loan sales. Bell noted that net interest income guidance accounts for anticipated Federal Reserve rate cuts, adding, “We are still asset sensitive, and we will have some slight decline in net interest income from that.”

Key Insights from Management’s Remarks

Management focused on the positive impact of loan growth, improved deposit mix, and ongoing efficiency initiatives, while discussing external challenges and the evolving competitive landscape.

• Loan and deposit growth: Byline’s commercial banking and equipment leasing teams drove loan originations, with total loans up 6% and deposits rising 1% linked quarter. Management highlighted the importance of relationship-based commercial accounts in supporting both margins and asset growth.
• Deposit mix and margin improvement: CFO Thomas J. Bell noted that greater use of non-interest-bearing accounts, coupled with seasonally favorable deposit flows, helped reduce funding costs and support net interest margin expansion. The company’s short-term approach to certificates of deposit (CDs) allowed for faster repricing in response to rate changes.
• SBA lending amid government shutdown: The SBA team anticipated and prepared for the federal government shutdown, which delayed the ability to sell loans on the secondary market. Management emphasized the short-term nature of this impact, stating that while gain-on-sale income may be deferred, the company continues to earn interest income on these loans while held on balance sheet.
• Capital flexibility and M&A posture: With capital ratios building and a recent refinancing of subordinated debt, Byline has flexibility to pursue organic growth, targeted acquisitions, or share buybacks. Paracchini reiterated that M&A remains a strategic option, but only for deals that meet strict financial and geographic criteria, primarily within the Greater Chicago area.
• Efficiency initiatives: Management remains focused on maintaining a strong efficiency ratio (currently at 51%) through disciplined expense management and ongoing investments in technology and personnel. Paracchini described operational efficiency as a source of reinvestment capital for the business, rather than a one-time program.

Drivers of Future Performance

Management expects asset growth, deposit mix, and the commercial payments initiative to drive results, while recognizing regulatory and interest rate headwinds.

• Commercial payments buildout: Byline is investing in its commercial payments platform, targeting businesses with high transaction volumes such as payroll processing and ACH (Automated Clearing House) origination. Management expects this initiative’s impact on revenue to become more visible in 2026, with new customer onboarding and infrastructure investments underway.
• Regulatory thresholds and Durbin impact: The company anticipates crossing the $10 billion asset mark in the next year, which will eventually subject it to the Durbin Amendment (limiting debit interchange fees) and higher regulatory costs. Management estimates a $4.5–$5 million annual impact from Durbin and associated insurance assessments beginning in 2027.
• Interest rate and macro pressures: Byline remains asset sensitive, meaning falling interest rates could pressure net interest income. Management’s guidance assumes two Federal Reserve rate cuts in the next quarter and continued competition for deposits, although its short-term CD strategy offers some flexibility for managing funding costs.

Catalysts in Upcoming Quarters

Looking ahead, our analyst team will monitor (1) the pace of commercial payments customer onboarding and product adoption, (2) the progression toward and effects of surpassing the $10 billion asset threshold, and (3) the resolution and operational impact of government shutdowns on SBA lending and loan sales. Ongoing efficiency improvements and the deposit mix’s contribution to margin sustainability will also be key indicators of execution.

Byline Bancorp currently trades at $28.15, up from $26.65 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free for active Edge members).

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