Byline Bancorp Nears $10B Threshold as Dividend Hikes Signal Confidence

Date of Call: Jan 23, 2026

Financials Results

• Revenue: $117M for Q4, up 12% YOY; $446M for full year, up 9.7% YOY
• EPS: $0.76 per diluted share for Q4; $2.89 per diluted share for full year

Guidance:

• Loan growth expected to continue in the mid-single digits for 2026.
• Net interest income for Q1 2026 expected in the range of $99-$100 million.
• Quarterly non-interest expense for 2026 expected to trend between $58-$60 million.
• Net charge-offs for 2026 expected to be in the 30-40 basis points range.
• Expect to cross the $10 billion asset threshold in 2026.

Business Commentary:

Strong Financial Performance and Dividend Increase:

• Byline Bancorp reported net income of $130.1 million for the full year 2025, with revenue of $446 million, up 9.7% year-over-year.
• The company announced a 20% increase in its quarterly dividend, reflecting strong financial performance and confidence in continued top-quartile results.

Loan and Deposit Growth:

• Total loans increased to $7.5 billion at year-end, with year-on-year loan growth of 8.9%, and deposits grew by 2.5%.
• Growth was driven by origination activity and consistent performance in commercial and leasing businesses.

Net Interest Income and Margin Expansion:

• Record high net interest income of $101 million was reported in Q4, with a net interest margin of 4.35%, up eight basis points linked quarter.
• This was driven by loan growth, lower rates paid on deposits, and lower interest expense.

Capital Strength and Share Repurchase:

• Capital ratios ended strong, with CET1 at 12.33% and TCE to TA ratio at 11.29%.
• The company repurchased approximately 346,000 shares and has a new authorization to buy back up to 5% of outstanding shares.

Credit Quality and Provisioning:

• Credit costs for the quarter were $9.7 million, with net charge-offs decreasing to $6.7 million, and the allowance for credit losses increased to 1.45% of total loans.
• This reflects disciplined credit management and quick action on potential issues.

Sentiment Analysis:

Overall Tone: Positive

• "We are delighted and proud to finish the year on a strong note and excited to announce a 20% increase in our quarterly dividend." "Overall, 2025 was a productive year in which we continued advancing our strategy to become the preeminent commercial bank in Chicago." "We are generating real operating leverage. Our competitive position is solid, and we’re able to capitalize on opportunities when they come. In short, we like where we’re positioned."

Q&A:

• Question from Nathan Race (Piper Sandler): Which areas or verticals are you most excited about to continue to scale up and where you’ve seen opportunities become more efficient?
  Response: Excited about the commercial payments team progress and the opportunity to become the largest local commercial bank in Chicago upon crossing the $10 billion asset threshold.

• Question from Nathan Race (Piper Sandler): Regarding the absence of the 8%-9% TCE target, how are you thinking about capital returns and the M&A environment?
  Response: Carrying more capital for flexibility to pursue M&A and return excess capital to shareholders via dividends and buybacks, with a sustainable and growing dividend over time.

• Question from Nathan Race (Piper Sandler): Can you shed light on reducing asset sensitivity and how that positions the margin going forward?
  Response: Goal is to add more floating-rate liabilities to sustain and grow net interest income, with the current margin providing ample competitive flexibility.

• Question from Damon DelMonte (KBW): What areas of your lending platform offer the best opportunities to drive mid-single-digit loan growth?
  Response: Primarily commercial banking categories, with real estate growth dependent on transaction activity.

• Question from Damon DelMonte (KBW): Is Q1 typically a seasonally low quarter for NII, and what is the outlook for net charge-offs?
  Response: NII is stable to growing throughout the year; net charge-offs expected in the 30-40 basis points range for 2026.

• Question from Brendan Nosal (Hovde Group): How do you think about the underlying pace of originations leading to mid-single-digit net growth?
  Response: Growth expected primarily from commercial banking categories, with quarterly nuance driven by payoffs timing.

• Question from Brendan Nosal (Hovde Group): Have you gained more comfort with the balance sheet response to rate changes to give a more bullish NII outlook?
  Response: Outperforming internal models due to improved deposit pricing, but caution remains as deposit cost reduction has limits and seasonality affects results.

• Question from Brendan Nosal (Hovde Group): Is the risk-adjusted return on the SBA business becoming less attractive given gain compression?
  Response: Still far from that point; compression is largely mix-driven, and material further compression would be needed to rethink attractiveness.

• Question from Terry McEvoy (Stephens): Can you provide color on the commercial payments team, including customer type and medium-term goals?
  Response: Onboarding payroll processors and fintech companies needing payment infrastructure; deliberate onboarding of 3-4 customers per year with a focus on compliance and processes.

• Question from Terry McEvoy (Stephens): Did the government shutdown impact the SBA business in Q4?
  Response: Impact was immaterial.

• Question from Brian Martin (Janney Montgomery Scott): What is a sustainable run rate for swap income and other fee income?
  Response: $16M is a good level, with expectations for growth from swaps, commercial payments, wealth management, and SBA gain on sale.

• Question from Brian Martin (Janney Montgomery Scott): What is a guidepost for average earning assets in Q1 given year-end balance sheet management?
  Response: Approximately $9.2B is a reasonable landing spot, with no constraint to stay below $10B going forward.

• Question from Brian Martin (Janney Montgomery Scott): Any material changes in credit quality from Q3 to Q4?
  Response: No material changes, just ebbs and flows, with quick downgrading if needed and plans for credit migration or exit.

Contradiction Point 1

Commercial Payments Business Timeline

Expectations for when the business will materially impact results have shifted, impacting strategic planning and investor outlook.

What are the commercial payment clients and the business's medium-term objectives? - Terry McEvoy (Stephens)

2025Q4: Initial clients are payroll processors... The goal is not a shotgun approach. - Alberto Paracchini(CEO)

Can you provide an overview of the commercial payments team's current status and future expectations? - Brian Martin (Janney Montgomery Scott)

2025Q3: The bank expects to start seeing the impact of this business in 2026 and beyond. - Alberto Paracchini(CEO)

Contradiction Point 2

Government Shutdown Impact on SBA Business

Characterization of the shutdown's effect moved from a clear, material timing issue to a minor, immaterial impact, affecting financial reporting clarity.

Did the government shutdown affect SBA operations in Q4? - Terry McEvoy (Stephens)

2025Q4: It had a slightly material impact, but it was immaterial to the overall revenue. - Alberto Paracchini(CEO)

How has the government shutdown impacted your SBA business so far, and is there an upcoming deadline that could materially affect your Q4 gains? - Adam Kroll (Piper Sandler)

2025Q3: The primary impact is a timing issue for gain-on-sale income... This results in earned interest income being carried on the balance sheet during the shutdown. - Alberto Paracchini(CEO)

Contradiction Point 3

M&A Strategy and Capital Allocation Priority

Shift in stated priority for using excess capital between M&A and shareholder returns, altering perceived capital management strategy.

How are you thinking about capital returns to shareholders and the M&A environment given the absence of the 8%-9% TCE target in recent presentations? - Nathan Race (Piper Sandler)

2025Q4: The company carries extra capital for flexibility to pursue M&A opportunities quickly. When they have excess capital with no immediate use, they return it to shareholders... The capital priorities are: 1) supporting business growth, 2) maintaining a sustainable and growing dividend, 3) having flexibility for M&A. - Alberto Paracchini(CEO)

Given the recent rise in industry M&A activity, how are you currently assessing M&A opportunities and allocating excess capital (e.g., buybacks)? - Nathan Race (Piper Sandler & Co., Research Division)

2025Q2: M&A chatter has existed... Conversations continue, but are transaction-dependent, with challenges for sellers... The company follows a capital hierarchy: 1) supporting organic/inorganic growth, 2) sustaining a dividend, 3) share repurchases. Current capital position offers flexibility, with all options on the table. - Alberto Paracchini(CEO)

Contradiction Point 4

Net Interest Margin (NII) Outlook and Stability

Contradiction on the expected trajectory and drivers of the net interest margin, affecting financial stability expectations.

How does reducing the balance sheet's asset sensitivity impact the margin in the context of potential Fed rate cuts? - Damon DelMonte (KBW)

2025Q4: The goal is to add more floating-rate liabilities... The margin was impacted by selling securities to stay below $10 billion in Q4, which they expect to buy back in Q1. ...they aim for stable NII growth. - Tom Bell(CFO) and Alberto Paracchini(CEO)

What is your ability to lower interest-bearing deposit costs, particularly CDs, given sub-4% yields last quarter and potential room for further reductions in the second half? - Terence McEvoy (Stephens Inc., Research Division)

2025Q2: There is some room to lower CD costs, but limited unless the Fed cuts rates. The bank benefits from a short-duration CD book... Deposit costs are expected to be flat to down slightly, assuming no Fed rate cuts. - Tom Bell(CFO) & Alberto Paracchini(CEO)

Contradiction Point 5

Net Interest Income (NII) Outlook and Impact of Rate Cuts

Inconsistent view on whether NII guidance incorporates expected Fed rate cuts, affecting financial forecasting reliability.

Does Q1 typically have a seasonally low NII that steadily increases throughout the year? - Damon DelMonte (KBW)

2025Q4: NII is generally stable to growing throughout the year, though Q1 has fewer days and lower loan fees... due to asset sensitivity, it takes about a quarter to catch up to rate cuts... - Tom Bell(CFO), Alberto Paracchini(CEO)

Does Q2 expense and NII guidance include First Security acquisition impact? - Nathan Race (Piper Sandler)

2025Q1: The Q2 guidance for net interest income ($87M-$89M) and expenses does not include the impact of the First Security acquisition. - Thomas J. Bell(CFO)