Byline Bancorp, Inc.

Good morning all and welcome to the Byline Bancorp 4Q 2025 earnings call. My name is Carly and I'll be coordinating the call today. All learning has been placed on mute without any background noise and after the speaker's remarks there will be a question and answer period. If you'd like to register a question during the call you can do so by pressing star followed by one on your telephone keypad and to remove the separate line of questioning will be star followed by two. If you require assistance from a support operator please press star and zero. Please note that this conference call is being recorded. At this time, I'd like to introduce Brooks Rennie, Head of Investor Relations at Byline Bancorp. Please go ahead.

Thank you, Carly. Good morning, everyone, and thank you for joining us today for the Byline Bancorp fourth quarter and full year 2025 earnings call. In accordance with Regulation FD, this call is being recorded and is available via webcast on our investor relations website, along with our earnings release and the corresponding presentation slides. As part of today's call, management may make certain statements that constitute projections, beliefs, or other forward-looking statements regarding future events or the future financial performance of the company. We caution that such statements are subject to certain risks, uncertainties, and other factors that could cause actual results to differ materially from those discussed. The company's risk factors are disclosed and discussed in its SEC filing. In addition, our remarks and slides may reference or contain certain non-GAAP financial measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures. Reconciliation of each non-GAAP financial measure to the comparable GAAP financial measure can be found within the appendix of the earnings release. For additional information about risks and uncertainties, please see the forward-looking statement in non-GAAP financial measures disclosure in the earnings release. As a reminder for investors, this quarter we plan on attending the KBW Winter Financial Services Conference in Boca Raton, Florida. With that, I would now like to turn the conference call over to Alberto Parchini, President of Byline Bancorp.

Thank you, Brooks. Good morning, everyone, and Happy New Year to all of you. We appreciate you joining the call this morning to review our fourth quarter and full year 2025 results. With me today are Chairman and CEO, Roberto Horencia, our CFO, Tom Bell, and our Chief Credit Officer, Mark Fusinato. Before we get started, I'd like to pass the call over to our Chairman, Roberto Horencia, for his remarks. Roberto.

Thank you, Alberto, and a Happy New Year to all. We extend our best wishes for a successful and healthy year ahead. we are delighted and proud to finish the year on a strong note and excited to announce a 20 increase in our quarterly dividend no doubt a reflection of our strong financial performance and confidence in our ability to continue to deliver top quartile results in key profitability metrics as alberto and the team will cover shortly What our board and team have accomplished over the last few years is remarkable and provides a great platform for the future. Our North Star, the preeminent local commercial bank. The Chicago banking market, including verticals we run out of Chicago, offers significant opportunities for growth and development with Byland well positioned to lead. Every day it feels we're reminded that we live in an era of radical uncertainty, where rules-based order is fading, and of course, we care about the impact and outcomes on our customers, the majority of which live in a world that is very distant from billionaires, Davos, and geopolitics. In this environment, we, as a local community and commercial bank, become even more relevant to our customers and the people who work with us. As you know, We believe in people-first banking, where engaged employees delight our customers, enabling Violent to produce top quartile returns for our shareholders. In December, we were named to America's best workplaces for 2026 overall. We wrapped up the year with continued low turnover and an engaged workforce of just over 1,000 employees who worked together to deliver value for our customers and community. And that's inspiring to me and the rest of the Byline team. We have at Byline identified our common purpose, becoming the preeminent local bank. We strive to execute consistently with that at all levels, all the time. And that defines our future. So others don't have to do it for us. The position of the franchise is enviable as the largest local community bank, the second largest local commercial bank, and the largest, most stable platform for quality lenders to bring their books and grow their businesses. We have the balance sheet plus a strategically stable ownership group with all the tools and structure in place that a lender needs to just focus on serving clients and finding new ones. This gives us an edge over what most banks dream of and the number one issue most banks try to solve with deals, organic growth. We are driving everything toward compounding returns, and that means reliable, sustainable, prudent growth over the long run. And you can see that in all our actions with capital and recruiting and in our track record for achieving top tier financial results. To summarize why we are excited. First, the people we have in place from those that have been here for over 40 years to those who joined us over the last five years as a result of merger activity in the market. Second, the results out of that execution have been exquisite. 130 million reasons in the last year to back up this excitement. Third, The quality and simplicity of our strategic plans have kept us focused. We don't strive to be everything to everyone. We are a commercial bank striving for preeminence in that segment. Fourth, our position in the marketplace, as I've described. And finally, our unique shareholder base and their representation in our boardroom. This is an incredibly optimistic time for Byline. Company populated by exceptionally kind, competent people who care about what we do and how we do our work. Deferring shape and separate is what we plan to do. I truly believe that among the thousands of community banks, we are unique in our approach and prospects. And with that, I'm happy to return the call to Alberta.

Great. Thank you, Roberto. This morning, I'll walk you through the highlights for the full year as well as the quarter. Tom will follow with the details on the financials, and I'll come back and wrap up before we open it up for questions. As always, you can find the deck for this morning's call on the IR section of our website. Please refer to the disclaimer at the front. So turning to our full year results on slide four, Byline delivered strong results for both the fourth quarter and full year of 2025. TAB, Mark McIntyre:" Before I get into the numbers, I want to thank our team, the results we're sharing today are a direct reflection of their dedication to customers and the effort that put in. TAB, Mark McIntyre:" Throughout the course of the year, a year ago, I said we had excellent momentum and felt confident in our ability to profitably grow the business and deliver value for shareholders i'm pleased to report, we did exactly that. The operating environment evolved differently than we anticipated. Interest rates remained elevated longer than expected, macroeconomic uncertainty increased, and regulatory and policy changes came faster than in the past. Against that backdrop, we stayed focused on what matters, serving customers, executing our strategy, and achieving several important milestones. First, we closed Our transaction with First Security converted systems and completed the integration all within a single quarter. Second, we upgraded important customer facing technology platforms. And third, we continued our preparation to cross the $10 billion asset threshold in 2026. We also grew relationships, sustained profitability, built capital, returned $42 million back to stockholders, and grew tangible book value per share by approximately 17%. Overall, 2025 was a productive year in which we continued advancing our strategy to become the preeminent commercial bank in Chicago. For the year, net income was $130.1 million, or $2.89 per diluted share, on revenue of $446 million, up 9.7% year on year. Profitability was strong with pre-tax preparation ROA of 219 basis points, ROA of 136 basis points, and ROTC of 13.5%. Year-on-year loan growth came in at 8.9%, and deposits grew 2.5%. Capital ratios increased throughout the year and ended strong with TCE at 11.3%, demonstrating strength and financial stability. Lastly, we maintain positive operating leverage, notwithstanding the rate environment towards the end of the year and our continued investment in the business. Turning to the fourth quarter on slide five, results for the fourth quarter were also strong. Net income was thirty four and a half million or seventy six cents per diluted share on revenue of one hundred and seventeen million. Joe Mahon, profitability and returns remain solid pre tax preparation income was 56.6 million pre tax preparation our way was 232 basis points our way was. Joe Mahon, 141 basis points and again our OTC notwithstanding a higher capital base was 13% revenue was up 1.1% from the prior quarter and 12% year on year driven by higher net interest income. From a balance sheet standpoint, loans grew 3% length quarter, deposits declined to 7.65 billion due largely to balance sheet management at the end of the year. Origination activity was consistent with prior quarters at 323 million with growth coming primarily from our commercial and leasing businesses. On the liability side, non-interest bearing deposits were essentially flat at 24% of total deposits And the faucet cost came down 19 basis points to below 2% for the quarter. Tom will provide you with additional detail on the faucet cost, the margin, as well as our rate outlook. Expenses remain well managed and came in at $60.4 million. Our efficiency ratio was 50.3%, and our cost-to-asset ratio was 2.47% as of quarter end. Joseph Baeta, M.D.: : Asset quality remains stable credit costs for the quarter were 9.7 million driven by net charges of 6.7 million down on a quarter of a quarter basis and a reserve build of $3 million our allowance now stands at. Joseph Baeta, M.D.: : 1.45% of total loans up three basis points from last quarter and npls increased to 95 basis points. Joseph Baeta, LGO Admissions, Turning to capital our capital levels remain strong across the board and that strength gives us real flexibility in how we allocate resources. Joseph Baeta, LGO Admissions, We put that flexibility to work this quarter by repurchasing approximately 346,000 shares looking ahead, our board authorized a new repurchase program that allows us to buy back up to 5% of outstanding shares. And the Board also approved the 20% increase in our quarterly dividend, which will be paid this quarter. I'll now turn it over to Tom to walk you through the financials in more detail.

Thank you, Alberto, and good morning, everyone. Starting with our loans on slide six. Total loans increased $3.3 million annually and stood at $7.5 billion at year end. Origination activity was solid. which was up 22% compared to the prior quarter. Payoff activity increased $156 million from Q3 and stood at $361 million, and line utilization increased up to 60% for the quarter. Our loan pipelines remain strong, and we expect loan growth to continue in the mid-single digits for 2026. Turning to slide seven. Total deposits were $7.6 billion for the quarter, down 2.3% from the prior quarter, primarily due to managing the balance sheet to stay below the $10 billion year-end and Q4 seasonality outflows. We saw a nice decline in deposit costs for the quarter and continue to see the benefit from disciplined deposit pricing, which drove deposit costs lower by 19 basis points. Turning the slide, please. We had record high net interest income of $101 million in Q4, up 1.4% from the prior quarter, primarily due to loan growth, lower rates paid on deposits, and lower interest expense related to the sub-debt payoff, partially offset by lower yields on loans and securities. This was the third consecutive quarter of NII growth and reflects a 10.7% increase for the full year. The net interest margin grew to 4.35%, up 8 basis points linked quarter, and on a year-over-year basis, NIM expanded 25 basis points. The improvement in the margin was driven by a decrease in the cost of interest-bearing liabilities, which declined by 29 basis points. Our outlook for net interest income is based on the forward curve, which currently assumes 50 basis point decline in the Fed funds rate for 2026. This implies a net interest income range of $99 to $100 million for the first quarter. We continue to remain focused on growing and sustaining our net interest income by growing the balance sheet and reducing our asset sensitivity. Turning to slide 9. Net interest income was $15.7 million, essentially flat from the prior quarter. Gain on sale of loans was $5.4 million, down $1.6 million linked quarter, reflecting lower premiums and mix of loans sold. Swap income was up nicely for the quarter as we continue to focus on growing other fee income categories. Our gain on sale forecast for 2026 is on average $5.5 million per quarter, with lower Q1 expectations due to typical seasonality. Turning to slide 10, expenses came in at $60 million, essentially flat from the prior quarter. The modest decrease reflected lower loan related and data processing expenses, partially offset by higher incentive compensation. For 2026, we expect our quarterly managed expense to trend between $58 and $60 million. Turning to slide 11, our allowance for credit losses increased 3% to $109 million, representing 1.45% of total loans, up three basis points from the prior quarter. We recorded $9.7 million in provision for credit losses in Q4 compared to $5.3 million in Q3. Net charge-offs decreased $6.7 million compared to $7.1 million in the previous quarter. NPAs to total assets increased to 77 basis points in Q4 from 69 basis points in Q3. The increase was partially driven by a lower balance sheet at year end. Moving on to capital on slide 12. This quarter capped a year of meaningful progress in growing our capital position. For the quarter, CET1 came in at a strong 12.33%, up 18 basis points length quarter, and up 63 basis points year over year. Additionally, the TCE to TA ratio stood at 11.29%, up 168 basis points from last quarter. In closing, We remain focused on long-term stockholder value by growing tangible book value per share, EPS, and increasing our return on tangible common equity. With that, Alberto, back to you.

Thank you, Tom. Before we open the call for questions, let me touch on our priorities heading into 2026. First, we remain on track and expect to cross the $10 billion asset threshold this year, and we're well prepared for that milestone. We're monitoring the regulatory environment closely, particularly potential changes to asset thresholds, but we're not slowing down in anticipation of what might happen. We will continue to move forward. Second, our focus remains on organic growth. Last April, we launched a commercial payments business. And the progress so far has been excellent. We've onboarded six customers and have several more in the pipeline for this year. We've also added approximately $70 million in liability balances and have seen a corresponding increase in ACH volumes, both transactions as well as dollars. We enter 2026 with good pipelines and remain well positioned to continue gaining share across all our commercial businesses. Third, credit discipline remains a priority. The way we maintain that discipline is by staying close to our portfolio, monitoring it, and identifying and addressing issues quickly as they emerge. As we move into 2026, we're excited about where we stand. We've built a strong team. We're 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. Before we turn to questions, I want to thank our employees for everything they do for our company and our customers on a daily basis. And with that, Carly, we can open the call up for questions.

Thank you very much. We'd now like to open the lines for the Q&A. If you'd like to raise a question, please signal now by pressing star followed by 1 on your telephone keypad. And if you'd like to remove yourself line of questioning, star followed by 2. As a reminder to raise a question, we start followed by one. Our first question is from Nathan Race from Piper Salmon. Your line is now open.

Hey, guys. Hey, Nate. Good morning. Good morning. Maybe just to zoom out for a second, Alberto, you know, you guys posted a really strong year in 2025. You know, pre-tax, pre-provision income was up 13% year over year. So just curious, as you look at the company broadly, which areas or which verticals are you most excited about to just continue to scale up and where you've seen opportunities become more efficient whether it's in the technology front where you guys have been proactively investing or in any other areas yeah thanks for the question nate so uh i touched on it a little bit in the in the remarks there so certainly we we continue to be excited with um

You know our commercial payments team, you know it's a team that we launched last April. we're being very deliberate and how we approach that market, but we have a great team we've added people there. And we're starting to to see the benefit of you know not only you know, having a pipeline but onboarding customers. you know, growing deposits, growing transaction volumes, and correspondingly, ultimately, fees that come along with that. So we're certainly excited about that. But we're also excited, given our position in Chicago and the current competitive dynamics, about our ability to continue to gain share in the commercial banking space here. As you know, we are today the largest community bank in the market. Tom Frantz, Tomorrow, when we go over $10 billion, we will be between 10 billion and probably 70 or $75 billion, we will be the largest local commercial bank in the market, so we like where we are and we like the opportunities that we have across really all of our businesses nate.

Kyle Bruursema, M.D.: : got it that's really helpful color thanks for that changing gears to capital, you know you guys are continuing to build. Kyle Bruursema, M.D.: : A pretty strong clips just given the profitability profile and I noticed in the last couple. Kyle Bruursema, M.D.: : Earnings decks you know the eight to 9% tc target has been absent, so you know curious if there's anything to read into that just in terms of higher thing about. Kyle Bruursema, M.D.: : Capital returns to shareholders and what that implies in terms of the m&a environment, these days. Or if you're just looking to maybe operate with higher capital levels going forward versus the previous targets?

Yeah, I think from, you know, if you think about it in terms of we always talk a bit about, you know, always wanting to have some degree of flexibility. So that comes with it, you know, so we do carry a bit more capital to allow for that. I think our experience has been that That has served us well. It has allowed us to move very, very quickly and really without any hesitation or delay when opportunities come up in the market. And we like that. That being said, I think this past quarter, I think you also saw the comments related to the increase in dividends. Joseph Baeta, Supt of Schools, You know, to the degree that we have access capital, we will read and we have no immediate use for it, we will find ways to return that capital back to shareholders, as you know. Joseph Baeta, Supt of Schools, This past quarter, we were active we were repurchasing shares we thought we repurchase chair shares that attractive prices and also over time, and I think you've heard the comments, you know we want to have a sustainable. TAB, you know and growing dividend over time, and I think our board, you know took action in that regards with the dividend increase that that we just announced so hopefully that's indications of. TAB, You know the capital priorities, we obviously want to have capital take advantage of to grow the balance sheet grow organically support the growth of the business. Two, have a sustainable dividend. Three, have enough flexibility to pursue M&A when and if those opportunities surface. And then lastly, we have the buyback program in place. As you know, we also announced an authorization to buy back up to 5% of shares outstanding. So we think the combination of that gives us enough flexibility to do what we need to do in terms of growing the business, but also at the same time, return capital back to shareholders if we have no use for that capital.

Okay. That's very helpful. If I could just sneak one more in for Tom. I think you mentioned your comments that you're looking to reduce the asset sensitivity of the balance sheet going forward. Just curious if you could shed some more light on that and kind of how you think that positions the margin going forward in light of potentially additional Fed cuts this year.

Sure. Thanks, Nate. You know, the margin has been growing. We're happy with that. We like the idea that NII is growing. We continue to, you know, kind of try to, you know, we are issuing some CDs, but also we have some flexibility to do some more interest bearing accounts. So we just, because of the mix of our bank, we really want to have some more floating rate liabilities. And I think we're, Michael Prast- were set up well for that it will take time to get there, but again, the discipline pricing we've had. Michael Prast- going on over the last year here, you know related to deposits has really helped to kind of lift the margin, and you know, the goal is to kind of try and keep it stable, but again, you know year end was. Michael Prast- You know, we had a lot of activity in the fourth quarter, and we had some securities that you know we sold just to keep the you know the bank under $10 billion that was a really important done, you know. effort for us and so you know we'll it's likely we'll be buying those securities back here in the in the first quarter so obviously those transactions are a little bit tighter margin trades let's just think about that's why we focus on nii so stable i would say when growing that interest income yeah and it also to add to what tom said nate it also uh again just the the common theme today seems to be flexibility but

You know, with our margin, it gives us ample flexibility from a competitive standpoint. I mean, we're not in a situation like other institutions are where they're trying to get their margin back up to a level that they need to get it to, you know, from a base profitability standpoint. I think with our margin today, it certainly gives us a lot of flexibility competitively that we can use when appropriate.

James Meeker- yeah makes sense, I appreciate all the color guys, thank you.

James Meeker- Thank you very much next question comes from Damon Del Monte from KBW. Damon Del Monte from KBW.

Damon Del Monte from KBW. Damon Del Monte from KBW. Damon Del Monte from KBW. Damon Del Monte from KBW. Damon Del Monte from KBW. Damon Del Monte from KBW. Damon Del Monte from KBW. Damon Del Monte from KBW. TAB, You know, can you just kind of remind us what areas of your lending platform offer the best best opportunities kind of across which which segments can drive that.

TAB, Really, I mean commercial I would still say that Damon. TAB, Real Estate I think it's going to be a function of you know transaction activity. TAB, You know it's it's not to say that. that there are not transactions happening, but certainly since rates started going up in 2022, I think transaction activity relative to what it was before has been somewhat muted. With rates coming down, is that going to change? Are we going to see some of that? Obviously, if that picks up, then probably what we would tell you at some point is that we'll probably move the T. move that guidance off but at this point, I think that that kind of mid single digit range is is solid.

T. got it okay um and then Tom with regards to the your commentary on the. T. And I for next quarter is typically first quarter like a seasonally low quarter for you guys and then you'll see like a steady build as we go through the rest of the year, or do you think that. T. You know there's not really.

T. Yes, how do you in the first quarter. Jaymon, you're right. Obviously, there's fewer days in the quarter, so that's one drag. Loan fees, et cetera, that go through the margin are a little bit lower during the first quarter. But generally speaking, again, stable to grow in throughout the year. Got it. OK.

Yeah. Also, to add to that, Jaymon, I think always You know, we've gotten some rate cuts here, you know, towards the end of the year, last year. Naturally, we're asset sensitive, so not withstanding the fact that our margin expanded, but just putting that aside for a second. You know, if we're asset sensitive, we see rate cuts, you know, there's a transition period, right? We have to catch up, you know, probably, you know, on a gradual, Damon Jones- kind of declining rate scenario, we have to catch up, you know, it usually takes us about a quarter to catch up and be able to kind of reprice and reset so just keep that keep that in mind, as you think about the rate environment going forward.

Gregory Fortescue- And. Gregory Fortescue- Damon one more thing one more thing Damon just to point out is remember with the fed cuts in the fourth quarter, the SBA loans reset January one so. When you see guidance a little bit lower than what we actually reported for the fourth quarter, some of that is driven by the fact that we have loans resetting here January 1st. Got it.

OK, great. And then with regards to credit and kind of your outlook for net charge offs for the upcoming year and as you kind of think about provisioning. Dan Mansoor- You know, I think, last year, you had around close to 40 basis points of net charge offs, which was down a little bit from 24 you know, based on what you're seeing in your portfolio, do you feel like you're kind of going to be in that that near 40 basis point range again.

Dan Mansoor- I think in the in the I think Damon our guidance has been pretty consistent on that like 30 to 40 basis points somewhere in there. Dan Mansoor- You know, it might be. you know, towards the high end of that range. It might be towards the low end of that range, but somewhere in that kind of 30 to 40 basis points range at this point.

Got it. Okay. Great. That's all that I have for now. Thanks so much for taking my questions.

You bet.

Thank you very much. As a reminder to raise a question, I'll follow by one on your telephone keypad. Our next question comes from Brennan Mosel from Hove Group. Brennan, your line's now open.

Hey, good morning, everybody. Hope you're all doing well.

Likewise. Good to hear from you.

Yeah, maybe just to start off here on kind of the underlying pieces of the loan growth outlook, just thinking between origination activity and payoffs, I think origination dropped 17% for this year to $1.3 billion or so. So how do you think about the underlying case of originations that are getting you to that mid-single-digit net growth outlook for 2026?

I think I would point you to that. page in the DAC that shows the kind of the trend of originations and payoffs. You know, it's slide, you know, it's page six of the DAC where it talks about portfolio trends. You know, and I know throughout the year we get questions sometimes in terms of, well, your loan growth is exceeding, you know, kind of the targets, you know, and probably the answer that you hear us give is, We have a pretty good handle in terms of what we're seeing from an origination standpoint. We think we know the activity that's going to pay off, but obviously that's that at times, the timing of it, and it also can be a little bit harder to predict. And I think the past quarter, you know, fourth quarter, certainly you saw, you know, payoffs catch up a bit. So I would point you to that chart and, you know, kind of, That mid single digit range and the categories that I highlighted, which is primarily our kind of commercial banking categories, is really where we're going to expect to see growth. And just the nuance quarter on quarter is going to be really that payoff number and our ability to actually be as accurate as we can be with that. So hopefully that answers your question.

Yeah, that's helpful. Switching gears here to net interest income, a bit more of a conceptual question. You folks have been outperforming your quarterly NII guide pretty consistently for the past, I would say, two years or so, despite the short-term part of the curve coming down and your asset sensitivity. Is there a point at which you just gain a little more comfort with how your balance sheet is responding to this environment to get a little more bullish with the NII outlooks that you're giving?

That's a good question. I mean, I think Alberto touched on it with the loan payoffs. I mean, you know, I think loan payoffs were probably lower overall for the year than expected. So, you know, we benefited from some NIIs related to that. You know, we continue to hear that payoffs will probably be a little bit higher. So I think that's where we probably provide some caution. But generally speaking, I think we've done a really good job on deposit pricing. We still are growing, so we need to grow more deposits. I mean, we just had some, you know, call the fourth quarter noise because of the $10 billion, but we continue to focus on deposit, you know, growing core deposits first and foremost, and then sprinkling in some other deposits to help support the balance sheet. But look, we're continuing to grow, and I think it's grown meaningfully. I think we've done well on the rates down scenarios that have happened that we've been able to Michael Prast- don't have stable and growing and I think you know at some point you run out of room there to continue to. Michael Prast- drop deposit costs in a meaningful way, and I think you still have to be mindful of the competition and the other banks that are growing so. Michael Prast- I think I think our numbers are still really strong still and I think you know we were really proud of the results we've had but. It really is a function of loan growth and low-cost deposits. And we have seasonality that happens. And, you know, a lot of our deposits that we saw leave in the fourth quarter, we've already seen a recovery on some of that. So, you know, we will benefit from that as well. And I think then furthermore, we'll just, you know, see how the payment scheme does. And then the benefits we get from that will, you know, probably give us, you know, a chance to say guidance could be better.

Yeah, I would add.

Those are a couple thoughts.

Just to add just another, you know, a bit more on the deposit pricing thing. You know, we've been outperforming our own internal, you know, models as it pertains to it. So you're, you know, probably a question that you have in your mind is, well, What are you guys doing? Why is that? And I think I touched on that a quarter or a couple of quarters ago that, look, I think analytically we're getting a little bit better in being able to segment our portfolio more granularly and therefore be able to make more precise pricing decisions in different pockets or segments of the portfolio. i think we're getting you know better at that operationally and that's resulted in some of the call it the even against internal you know internally what we expect uh some of the outperformance but uh so there's some of that that you're seeing you know come into play and and i think you you saw it um in terms of how quickly we've been able to reprise liabilities um here with, you know, in the fourth quarter, you know, with the changing environment. But that said, you know, ultimately we will exhaust that. And that has ultimately will have limits, meaning it'll catch up. But that's just something to keep in mind and that, you know, we've, it hasn't been just, you know, how confident are you to provide higher guidance? It's been, you know, we've actually been kind of in turn, performing better than what we thought internally we could do. And that's been that's been obviously a positive overall. So just keep that keep that in the back of your mind.

Yeah, no, that's, that's super helpful. I'm going to see one more here, just on the SBA business. I mean, the gains on sale have been compressing for a couple of years now. Is there a point at which like the risk adjusted return that you're getting for the overall business, including, you know, lending plus gains just isn't up to where you want it to be? And like, how far are we from from that point to that?

I still think, Brendan, we're pretty far from that. And I would also point you, when you look at the compression in the gain on sale margin, a lot of that has to do with the mix. I mean, as you can see on the chart on page nine, where anytime that you have a higher proportion of loans that are longer tenor loans, so like 25-year term versus 10, that mix between 10 and 25 drives that. And certainly to the degree that you have other types of government guaranteed loans, like a USDA loan here or there, that also impacts the gain on sale margin. But to answer your question on the big picture side of it, I think you would have to see materially much more compression for it to get to a point where you start to to rethink whether on a risk-adjusted basis this is still attractive.

Okay. That's helpful, Roberto. All right. Well, congrats on the quarter, and thanks for taking my questions.

You bet.

Thank you very much. As a reminder, to raise a question, we'll be staffed followed by one on your telephone keypad. Our next question comes from Terry McEvoy from Stevens. Terry, your line is now open.

Hi. Thanks. Good morning, everyone. Um, maybe just circling back to the commercial payments team, um, are these clients or customers, are they FinTech companies? And if so, could you talk about the due diligence you're doing there? Are they more traditional payments to your commercial customers? And, uh, Alberto, what may be some median term goals and objectives that we can kind of track over the next couple of years to track the progress?

yeah i yeah good question good morning terry um so i i think on that commercial payments business i i would say so far um think of like you know so i'll give you an example so payroll processing companies so not necessarily kind of like a small commercial customer but um you know a payroll processor that that provides payroll services and as part of those services is the ability to originate Um, you know, and process, uh, payroll payments for their, their client base. And we would be, for example, the, the banking institution behind that providing the infrastructure to allow that to happen. So that's an example. Um, I would tell you some of the, uh, clients that we've onboarded have been in that particular vertical. Um, but we also want to look for opportunities beyond that, you know, in terms of, um, you mentioned FinTech companies that would need to have a payment element to their business. Um, in other words, it could be, uh, something along the lines of, you know, embedded finance or a company that's, you know, trying to embed, um, payments, you know, into their product offering to their end clients. So that's certainly something that we could entertain. We could entertain that with just traditional access to the payment rails, but also we could do it through access to, you know, supporting their issuing of cards or their acquiring of card transactions. So that's just a flavor of the capabilities, you know, of the team that we have and the business that they're they're going after. And as far as metrics going forward, I think we'll keep you up to date. Certainly we're off to a good start. I would tell you it's been deliberate. We hired that team. You know, we launched the business in April of last year. The team came on board fully a year earlier. So this has not been a quick Jose Cisneros- You know, build it let's make sure that we have processes procedures policies. Jose Cisneros- And the infrastructure to properly be in the business. Jose Cisneros- And and support you know the clients that that we want to do business with the last thing I would say is also think about it as not really a shotgun approach we're not trying to onboard. you know, 10 or 15 customers a year, we're trying to onboard three or four. Uh, and the onboarding process for the reasons that, that you are thinking of is six to nine months. And that's just to make sure that from, uh, you know, compliance process procedures, policies, um, you know, we are comfortable supporting, uh, the banking needs of those customers. So hopefully that gives you some color on that business.

Yeah, that's great. Thank you. And then maybe just one quick last one. Did the government shutdown impact the SBA business in Q4? And it didn't look like it from a revenue standpoint. And did anything get pushed out into the first quarter? I know Tom said Q1 is going to be down a bit, but we're just wondering there.

It always has a little bit of an impact, Terry, but I think we would just tell you it's immaterial.

Okay, perfect. Thanks for taking my questions. Have a great weekend.

You bet. Likewise.

Thank you very much. Our next question comes from Brian Martin from Jenny Montgomery Scott. Brian, your line's now open.

Hey, good morning, guys.

Good morning, Brian.

Paul Minehart, Say just one on yeah I think i'm not sure who mentioned it, but maybe when whoever was talking about the swap income just talked about maybe a bit more focused on. Paul Minehart, fee income this year you've already touched on the SBA like it's just kind of wondering, you know the the run rate we're at today around 16 million and. Paul Minehart, It kind of is that a good sustainable level and then it grows from there, given kind of focus there and maybe where the focus is to maybe improve that run rate as you look into 26.

Jose Cisneros- I think it's a good level, you know we want to see that that absolute number you know go up the answer is yes, I think a couple of areas, you know Tom mentioned. Jose Cisneros- swaps and derivatives and things of that sort, you know, so we want to, we want to continue to to do as much as we can there obviously that's a bit of a rate sensitive dynamic but. Jose Cisneros- But we certainly want to continue to to offer you know those products and services and take advantage of of situations where we can do that second would be. Jose Cisneros- You know I touched on the commercial payments business well the side effect of that is fee income Treasury management fees and the like so certainly that's that's one area that we want to see grow our. Joseph Baeta, LGO Admissions, Wealth Management business, which is a small part of our you know business today, but you know we grew nicely this year we're. Joseph Baeta, LGO Admissions, You know, getting closer and closer to be able to eclipse the billion dollars in assets under management, which is a milestone given the size of that business today. Joseph Baeta, LGO Admissions, So hopefully over time that business gets to contribute a bit more and then you obviously have the. The gain on sale business from our, from our SBA, you know, government guaranteed lending business.

Gotcha. Okay. That's helpful. And, um, you know, I guess maybe one, um, maybe one for Tom, just given the, some of the noise, I think you talked about Tom at year end with kind of managing the balance sheet to the $10 billion level. Can you help us with maybe a guidepost on the average earning assets in, in one queue, just given, you know, end of period, fourth quarter was a bit lower than the average for the quarter, but knowing your commentary about, you know, kind of buying back, uh, some here in the first quarter, kind of a landing spot or just kind of a, a range.

And I think about the earning asset base for one Q. I think, I think kind of in that one 50 to 200 million, Brian, I mean, we had a, you know, in the, in the fourth quarter, we had a number of payoffs. The payoff kind of came early in the quarter. And the loan growth came towards the end of the quarter. So, you know, I think that plus the fact that we had about a hundred million in securities, you know, that we had cleaned up with a portfolio a little bit. So I would call it 150 to 200 million and more earning assets, but still below 10 billion, you know, in total assets for the first quarter.

Yeah. So the, Average in the fourth quarter was 9.2, but the period end was closer to, you know, call it 9 maybe. So maybe it's a $9.2 billion level is kind of a decent way to think about 1Q as a landing spot, you know, broadly.

I think so. That sounds about right.

Okay.

I appreciate it. Yeah. Okay.

I appreciate that. And just, no, I was going to say, Brian, just, you know, I commented on it and Tom commented on it as well. And just to be clear, you know, towards the end of the year, we just wanted to make sure, and we had, you know, levers to pull. We just wanted to simply make sure that we were not going to be over $10 billion. So that is the comments related to really balance sheet management and were really attributed to that. We just wanted to make sure that as of that snapshot of 1231, we were not going to be over $10 billion. So we achieved that. We don't have that constraint going forward. So to Tom's point, I think you will not really see any type of management activity to try to keep us below a certain level in terms of assets.

Dave Kuntz, yeah no I appreciate that i'll borrow that's kind of what I figured I just want to make sure I had the right starting point, given all the noise in there that you know, like you said, was just the management function, so thank you for that that commentary. Dave Kuntz, Maybe just one or two others here just on the on the credit quality front any changes in the any material changes i'm assuming knowing the criticized or classified levels from third to fourth quarter, when we see the filings come out.

TAB, Mark McIntyre, Now material changes just absent flows, you know we're going to be, I mean you certainly you know know us we're going to be. TAB, Mark McIntyre, You know, quick to you know if we see something we're going to be very, very quick to downgrade even if it means to. Jose Cisneros- To downgrade something to criticize and we certainly have have a view anytime we do that we have a plan, where is the credit where's the trajectory of the credit likely had it in. Jose Cisneros- You know, a short period of time is this temporary do we expect this to be. Jose Cisneros- Ultimately, to correct itself are they is the borrower taking the right corrective actions, in which case you will see us, you know we'll see that credit migrate back. TAB, If not, if we don't have confidence in that, then you know we look to to move the credit quickly. TAB, Out of the out of the bank so but no, I would tell you it's just absent flows.

TAB, Okay Okay, and the last one for me was just I know I know Tom talked about the NII dollars, but just in terms of the margin percentage, I guess, would it make sense that there's given the outlook for rates this year, you know with. you know, maybe potentially two cuts out there, but really less noise than last year from a rate perspective that maybe the core margin, when you think about an XC accretion, there's a little bit more stability in that margin this year. You know, I'm not sure what's baked into the guidance in terms of NII, but just thinking about it intuitively that we don't see much rate movement, you know, maybe that core margin is a bit more stable or steady, you know, as we move throughout the year, or is that not, you know?

Yes, it's going to be stable. Brian, you know, I hate to talk about margin, but it's going to be stable. I mean, it has grown. I don't know that you can expect it to continue to grow, but I think we'll take the margin we have. And if we can maintain it throughout the year, I think we'd be pretty satisfied with that.

Yep. I apologize for asking the question, Tom. I know it's just a bigger picture question with the right environment. So I appreciate the color. And I thank you for the questions and congrats on a great year.

Yeah, thank you, Brian. We appreciate it.

Thanks, Brian.

Happy New Year.

Thank you very much. We currently have no further questions, so I'd like to hand back to Alberto Paraschini for any further remarks.

Great, Carly. So to everyone on the call, thank you for joining us today. We appreciate your interest in Byline, and we look forward to talking to you again next quarter. Thank you very much.

As we conclude today's call, we'd like to thank everyone for joining. You may now disconnect your lines.