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Chain reaction: Byline Bank deal could kick off next merger wave in Chicago

The area’s small, midsize and family-owned companies — and there are a bunch of them around here — are the primary lending targets of a newly created local banking power that’s determined to give its larger rivals a run for the money.

This week, Byline Bancorp agreed to acquire First Evanston Bancorp for about $169 million in cash and stock. The purchase is expected to close early next year pending regulatory approvals.

Once the deal is completed, the combined organization will have about $4.4 billion in assets and 66 local branches — a respectable financial and physical presence but one that will still lag the size and scope of regional and national banks operating throughout this area.

Nonetheless, expect a bulked-up Byline — which nearly doubles its number of experienced commercial bankers to 50 with the First Evanston purchase — to rattle the marketplace and strongly vie with much bigger banks for companies seeking loans and other financial services.

It’s also likely that Byline’s acquisition will ignite a chain reaction of other bank buyouts. The Chicago area has about 30 lenders with $300 million to $1 billion in assets, and many of them are ripe for a merger or acquisition.

“Do I think there will be further consolidation? I do,” said Byline CEO Alberto Paracchini in an interview with me, where he added many of these 30 banking groups are backed by private equity investors who are looking for “exits.”

Don’t be surprised if Byline keeps buying banks. Yet because it’s a publicly traded company that reports to shareholders, you can’t rule out Byline being acquired, should the right offer arise.

A more immediate priority, however, is Byline’s plan to expand deeper into local lending by focusing primarily on companies with revenues between $5 million and $70 million.

There are hundreds of such firms in this region and many are established, family-owned or privately held industrial players specializing in distribution, transportation, manufacturing, wholesaling or warehousing.

The bulk of First Evanston’s estimated $892 million loan portfolio is made up of these low-profile “bread and butter” businesses. That’s been the banking group’s focus since it was started nearly 20 years ago.

By staying away from riskier credits like commercial real estate loans — which in First Evanston’s early years was a hot lending play — the company sidestepped 2008’s economic crash. Unlike many other lenders, it didn’t have to tap the country’s taxpayer-backed bailout.

“We sailed through the financial crisis,” asserts Robert Yohanan, a co-founder and CEO of First Evanston, which later touted not taking government funds in the banking group’s advertising. Yohanan will be on Byline’s board of directors.

In addition to First Evanston’s commercial lending prowess, Byline is acquiring 10 new branches mostly along the North Shore, parts of Lake County and western DuPage County.

In doing so, Byline expands its own geographical reach and adds greater capacity to build its retail customer base and lending portfolio, which is around $2 billion.

With post-acquisition assets of $4.4 billion, Byline will be able to hunt for larger clients — exceeding its current average loan size of a couple million dollars. It will also pursue a diversified client mix that includes more commercial and industrial accounts, selected commercial real estate credits and small business loans, Paracchini said.

First Evanston also offers a feature that Byline doesn’t: trust and wealth management services, which can be cross-sold to the new Byline’s business loan clients. The Evanston-based bank, which will be called Byline after the buyout is sanctioned, also works with many nonprofits.

Undoubtedly, the First Evanston acquisition signals a new era for Byline.

In recent years, the Chicago-based banking group’s focus had been on working out millions of dollars in bad loans racked up by its predecessor the Metropolitan Bank Group.

In mid-2013, that banking company was recapitalized and new management took over. A name change occurred in 2015 and, earlier this year, Byline floated an initial public stock offering.

“We see opportunities ahead and ample room for growth,” Paracchini said.

Of course, rival lenders aren’t going to cede the way for a re-energized Byline.

By stepping up in class, it will be competing more directly with downtown giants including JP Morgan Chase, BMO Harris, Bank of America, Northern Trust and Canada-based CIBC, which recently acquired locally based PrivateBank for $4.8 billion.

Byline will also tangle with the homegrown MB Financial, First Midwest Bank, Wintrust Financial and a slew of community banks.

Ultimately, this stepped-up banking competition should be good for business owners and operators. It is likely to result in more competitive loan rates or terms — providing these borrowers the funding needed for expansion and growth.

It’s also a safe bet that Byline’s competitors will soon get into the acquisition game and go after those local banking groups itching to make a deal.

[email protected]

Twitter @ReedTribBiz

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