Byline Bancorp, Inc. Credit Ratings Upgraded by KBRA
Byline Bancorp, Inc. (NYSE: BY), a prominent financial services company headquartered in Chicago, Illinois, has announced a significant boost to its credit profile. Kroll Bond Rating Agency, LLC (KBRA), a leading independent credit rating agency, has upgraded multiple credit ratings for both Byline Bancorp, Inc. (“Byline” or “the Company”) and its principal subsidiary, Byline Bank. These upgrades underscore the company’s robust financial performance, sound strategic direction, and its resilience amid varying economic cycles.
Credit Rating Upgrades Overview
According to the announcement, KBRA has upgraded Byline Bancorp, Inc.’s senior unsecured debt rating to BBB+ from the previous rating of BBB, reflecting a higher level of confidence in the company’s ability to meet its financial commitments. Additionally, KBRA has elevated the subordinated debt rating to BBB, up from BBB-, marking an important recognition of the company’s improved risk profile. The short-term debt rating has also been upgraded, moving from K3 to K2, signaling enhanced short-term liquidity and financial stability.
Similarly, Byline Bank, the company’s banking subsidiary, has seen its credit ratings raised. KBRA upgraded the bank’s deposit and senior unsecured debt ratings to A- from BBB+, illustrating an increased assurance in the bank’s deposit stability and ability to service senior unsecured obligations. Moreover, the subordinated debt rating of Byline Bank has been upgraded to BBB+ from BBB, further highlighting the institution’s strengthened financial position. The bank’s short-term deposit and debt ratings have been affirmed at K2, maintaining a solid outlook for its near-term liquidity position.
In tandem with the ratings upgrades, KBRA has revised the outlook for all of Byline’s long-term ratings to Stable, transitioning from the previous Positive outlook. This reflects KBRA’s assessment that the company is well-positioned to maintain its improved credit profile over the medium term, supported by its ongoing strong financial and operational performance.
KBRA’s Analysis: Resilient Earnings and Strategic Execution
In its detailed report, KBRA attributed these favorable rating actions to Byline’s demonstrated resilience and strong earnings capacity, particularly within varied interest rate environments. KBRA’s evaluation highlighted that Byline has consistently maintained top quartile profitability when compared to other institutions within the KBRA-rated universe. This robust performance is notable during the current economic cycle, characterized by elevated interest rates, where many financial institutions have faced challenges.
One of the key contributors to Byline’s positive earnings trajectory is its asset-sensitive balance sheet, which has allowed the company to capitalize on higher interest rates. However, KBRA’s analysis emphasized that Byline’s strength is not solely dependent on favorable rate conditions. Instead, it highlighted the bank’s countercyclical business model, particularly pointing to its specialized government lending division as a differentiating factor. This team plays a vital role in sustaining revenue streams even in declining rate environments.
Specifically, the government lending team generates significant revenue through gain-on-sale activity, a feature that was notably evident in 2021 when interest rates were lower. This division’s ability to thrive during periods of monetary easing provides Byline with an important hedge against interest rate volatility, ensuring earnings durability across different market cycles.
Further reinforcing Byline’s financial stability is its management team’s proactive approach to interest rate risk management. KBRA noted that the company has taken deliberate measures to adjust its balance sheet toward a more neutral interest rate risk (IRR) position. This strategic shift helps buffer Byline from potential negative impacts stemming from future Federal Reserve rate cuts, ensuring that its earnings remain consistent and less susceptible to rate-driven shocks.
Strong Management and Proven Track Record
In addition to financial metrics, KBRA’s decision to upgrade Byline’s ratings was influenced by the company’s strong leadership and demonstrated ability to execute on strategic initiatives. The agency highlighted Byline’s successful track record in integrating acquisitions and fostering organic growth as a key credit strength. Over the years, the company has expanded its footprint and market share through thoughtful mergers and acquisitions (M&A) while maintaining operational efficiency and customer service excellence.
The management team and board of directors at Byline were also recognized for their competence and stability. An important factor cited by KBRA is the notable insider ownership of approximately 30%, which the agency views positively. Insider ownership often aligns the interests of management and shareholders, encouraging long-term strategic decision-making and risk-conscious business practices. This alignment further enhances the confidence of external stakeholders, including investors, depositors, and counterparties.
Preparation for Crossing the $10 Billion Threshold
Another element that contributed to the rating upgrades is Byline’s preparedness for surpassing the regulatory asset threshold of $10 billion. Crossing this mark subjects banking institutions to increased regulatory scrutiny, including enhanced compliance, capital, and risk management requirements.
KBRA acknowledged the company’s foresight in making significant investments in infrastructure, risk management systems, and talent acquisition well ahead of reaching this milestone. These proactive steps position to navigate the more complex regulatory environment efficiently, minimizing operational disruptions while maintaining a competitive edge.
