BYLINE BANCORP, INC. (BY)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion and analysis of Byline Bancorp, Inc.’s financial condition and results of operations and should be read in conjunction with our Unaudited Interim Condensed Consolidated Financial Statements and notes thereto included elsewhere in this report. The words "the Company," "we," "Byline," "management," "our" and "us" refer to Byline Bancorp, Inc. and its consolidated subsidiaries, unless we indicate otherwise. In addition to historical information, this discussion contains forward looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences are discussed in the sections entitled "Special Note Regarding Forward Looking Statements" and "Risk Factors". Byline assumes no obligation to update any of these forward looking statements.

Forward-Looking Statements

Statements contained in this report and in other documents we file with or furnish to the Securities and Exchange Commission ("SEC") that are not historical facts may constitute "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Any statements about our expectations, beliefs, plans, strategies, predictions, forecasts, objectives or assumptions of future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as "anticipates," "believes," "expects," "can," "could," "may," "predicts," "potential," "opportunity," "should," "will," "estimate," "plans," "projects," "continuing," "ongoing," "expects," "seeks," "intends" and similar words or phrases. Accordingly, these statements involve estimates, known and unknown risks, assumptions and uncertainties that could cause actual strategies, actions or results to differ materially from those expressed in such statements, and are not guarantees of future results or other events or performance. Because forward-looking statements are necessarily only estimates of future strategies, actions or results, based on management’s current expectations, assumptions and estimates on the date hereof, there can be no assurance that actual strategies, actions or results will not differ materially from expectations and readers are cautioned not to place undue reliance on such statements.

Our ability to predict results or the actual effects of future plans, strategies or events is inherently uncertain. Factors which could cause actual results or conditions to differ materially from those reflected in forward-looking statements include:

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uncertainty regarding domestic, foreign, and geopolitical developments and the United States and global economic outlook that may impact market conditions or affect demand for certain banking products and services, and the impact on our customers, which could impair the ability of our borrowers to repay outstanding loans and leases, impair collateral values and further increase our allowance for credit losses - loans and leases, as well as result in possible asset impairment charges;

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unforeseen credit quality problems or changing economic conditions that could result in charge-offs greater than we have anticipated in our allowance for credit losses - loans and leases or changes in the value of our investments;

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commercial real estate market conditions in the Chicago metropolitan area and southern Wisconsin;

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deterioration in the financial condition of our borrowers resulting in significant increases in our loan and lease losses and provisions for those losses and other related adverse impacts to our results of operations and financial condition;

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fair value estimates of certain of our assets and liabilities, which could change in value significantly from period to period;

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competitive pressures in the financial services industry in our market areas relating to both pricing and loan and lease structures, which may impact our growth rate;

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demand for loan products and deposit flows;

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unanticipated developments in pending or prospective loan and/or lease transactions or greater-than-expected paydowns or payoffs of existing loans and leases;

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inaccurate information and assumptions in our analytical and forecasting models used to manage our balance sheet;

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unanticipated changes in monetary policies of the Federal Reserve or significant adjustments in the pace of, or market expectations for, future interest rate changes;

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availability of sufficient and cost-effective sources of liquidity, funding, and capital as and when needed;

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our ability to attract, retain or the loss of key personnel or an inability to recruit appropriate talent cost-effectively;

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adverse effects on our information technology systems resulting from failures, human error or cyberattack, including the potential impact of disruptions or security breaches at our third-party service providers, any of which could result in an information or security breach, the disclosure or misuse of confidential or proprietary information, significant legal and financial losses and reputational harm;

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greater-than-anticipated costs to support the growth of our business, including investments in new lines of business, products and services, or technology, process improvements or other infrastructure enhancements, or greater-than-anticipated compliance or regulatory costs and burdens;

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the impact of possible future acquisitions, if any, including the costs and burdens of integration efforts;

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the ability of the Company to receive dividends from Byline Bank;

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legislative or regulatory changes, particularly potential changes in regulation. supervision, examination and enforcement priorities of the federal banking agencies in regard to financial services companies and/or the products and services offered by financial services companies;

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changes in Small Business Administration ("SBA") and U.S. Department of Agriculture ("USDA") U.S. government guaranteed lending rules, regulations, loan products and funding limits, including specifically the SBA Section 7(a) program, as well as changes in SBA or USDA standard operating procedures or changes to the status of Byline Bank as an SBA Preferred Lender;

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changes in accounting principles, policies and guidelines applicable to bank holding companies and banking generally;

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the impact of a possible change in the federal or state income tax rates on our deferred tax assets and provision for income tax expense;

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our ability to implement our growth strategy, including via acquisitions;

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the possibility that any of the anticipated benefits of acquisitions will not be realized or will not be realized within the expected time period;

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the risk that the integration of acquisition operations will be materially delayed or will be more costly or difficult than expected;

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the effect of mergers on customer relationships and operating results; and

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other risks detailed from time to time in filings we make with the SEC.

These risks and uncertainties should be considered in evaluating any forward-looking statements, and undue reliance should not be placed on such statements. Forward looking statements speak only as of the date they are made. You should also consider the risks, assumptions and uncertainties set forth in the "Risk Factors" section in our Annual Report on Form 10-K for the year ended December 31, 2025 that was filed with the SEC on February 27, 2026, as well as those set forth in the reports we file with the SEC. We assume no obligation to update any of these statements in light of new information, future events or otherwise unless required under the federal securities laws.

Overview

Our Business

We are a bank holding company headquartered in Chicago, Illinois, and conduct all our business activities through our subsidiary, Byline Bank, a full service commercial bank, and Byline Bank’s subsidiaries. Through Byline Bank, we offer a broad range of banking products and services to small and medium sized businesses, commercial real estate and financial sponsors and to consumers who generally live or work near our branches. We also offer online account opening to consumer and business customers through our website and provide trust and wealth management services to our customers. In addition to our traditional commercial banking business, we provide small ticket equipment leasing solutions through Byline Financial Group, a wholly-owned subsidiary of Byline Bank, headquartered in Bannockburn, Illinois, with sales offices in Illinois, and sales representatives in Illinois and California. We participate in U.S. government guaranteed lending programs and originate U.S. government guaranteed loans. Byline Bank is a leading originator of SBA loans and was the most active 7(a) lender in Illinois for the quarter ended March 31, 2026.

Our results of operations depend substantially on net interest income, which is the difference between interest income on interest-earning assets, consisting primarily of interest income on loans and lease receivables, including accretion income on loans, investment securities and other short-term investments, and interest expense on interest-bearing liabilities, consisting primarily of deposits and borrowings. Our results of operations are also dependent upon our generation of non-interest income, consisting primarily of income from fees and service charges on deposits, loan servicing revenue, wealth management and trust income, ATM and interchange fees, and net gains on sales of investment securities and loans. Other factors contributing to our results of operations include our provision for credit losses, provision for income taxes, and non-interest expenses, such as salaries and employee benefits, occupancy and equipment expenses, and other miscellaneous operating costs.

We reported consolidated net income of $37.6 million, or $0.84 per basic and $0.83 per diluted common share, for the three months ended March 31, 2026, compared to net income of $28.2 million, or $0.65 per basic and $0.64 per diluted common share, for the three months ended March 31, 2025, an increase of $9.3 million. The increase in net income was attributable to a $11.6 million increase in net interest income and $3.6 million decrease in the provision for credit losses, partially offset by a $2.3 million decrease to non-interest income.

Dividends declared and paid on common shares were $5.4 million and $4.4 million for the three months ended March 31, 2026 and 2025, respectively.

Our results of operations for the three months ended March 31, 2026 and 2025 yielded an annualized return on average assets of 1.56% and 1.25%, and an annualized return on average stockholders’ equity of 11.43% and 10.32%, respectively.

As of March 31, 2026, we had consolidated total assets of $9.9 billion, total gross loans and leases outstanding of $7.5 billion, total deposits of $7.8 billion, and total stockholders’ equity of $1.3 billion.

First Security Bancorp, Inc. Acquisition

On April 1, 2025, we completed our acquisition of First Security Bancorp, Inc. ("First Security") under the terms of a definitive merger agreement. Refer to Note 3—Acquisition of a Business for additional information.

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Critical Accounting Policies and Significant Estimates

Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America ("GAAP") and to general practices within the banking industry. To prepare financial statements and interim financial statements in conformity with GAAP, management makes estimates, assumptions and judgments based on available information. These estimates, assumptions and judgments affect the amounts reported in the financial statements and accompanying notes, which ar

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following is a discussion and analysis of our financial condition and results of operations and should be read in conjunction with our financial statements and notes thereto included in Part II, Item 8 of this report. In addition to historical information, this discussion contains forward‑looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences are discussed in the sections entitled "Special Note Regarding Forward‑Looking Statements" and "Risk Factors". Byline assumes no obligation to update any of these forward‑looking statements.

Management’s discussion focuses on 2025 results compared to 2024. For a discussion of 2024 results compared to 2023, refer to Part I, Item 7 of our 2024 Annual Report filed on Form 10-K, which was filed with the SEC on February 28, 2025.

Executive Summary

Our results of operations depend substantially on net interest income, which is the difference between interest income on interest-earning assets, consisting primarily of interest income on loans and lease receivables, including accretion income on loans, investment securities and other short-term investments, and interest expense on interest-bearing liabilities, consisting primarily of deposits and borrowings. Our results of operations are also dependent upon our generation of non-interest income, consisting primarily of income from fees and service charges on deposits, loan servicing revenue, wealth management and trust income, ATM and interchange fees, and net gains on sales of investment securities and loans. Other factors contributing to our results of operations include our provisions for credit losses, provision for income taxes, and non-interest expenses, such as salaries and employee benefits, occupancy and equipment expenses, data processing expenses, and other miscellaneous operating costs.

The Company's financial condition, operating results, and liquidity during 2025 were impacted by record revenues driven by growth in the loan and lease portfolio and lower rates paid on deposits, our acquisition of First Security, and actions taken to continue to strengthen the balance sheet.

We reported consolidated net income of $130.1 million for the year ended December 31, 2025, compared to net income of $120.8 million for the year ended December 31, 2024, an increase of $9.3 million, or 7.7%. The increase in net income was attributable to a $37.3 million increase in net interest income, and a $2.1 million increase in non-interest income, offset by a $18.1 million increase in non-interest expense, a $9.1 million increase in provision for credit losses, and a $2.9 million increase in provision for income taxes. For the years ended December 31, 2025 and 2024, our earnings per basic share were $2.90 and $2.78, and per diluted share were $2.89 and $2.75, respectively. Our results of operations for the years ended December 31, 2025 and 2024, produced an annual return on average assets of 1.36% and 1.31% and a return on average stockholders’ equity of 10.86% and 11.61%, respectively.

Total assets were $9.7 billion as of December 31, 2025, an increase of $156.1 million or 1.6%, compared to $9.5 billion as of December 31, 2024. Total deposits were $7.6 billion as of December 31, 2025, an increase $188.8 million or 2.5%, from $7.5 billion as of December 31, 2024. Total borrowings and other liabilities were $737.3 million at December 31, 2025, a decrease of $209.1 million or 22.1%, from $946.4 million as of December 31, 2024. Total stockholders' equity as of December 31, 2025 was $1.3 billion, an increase of $176.4 million or 16.2%, compared to $1.1 billion as of December 31, 2024. Dividends declared on common shares were $18.2 million and $15.9 million for the years ended December 31, 2025 and 2024, respectively. Dividends paid on common shares were $18.2 million and $15.8 million for the years ended December 31, 2025 and 2024, respectively.

Critical accounting policies and estimates

Our accounting and reporting policies conform to GAAP and to general practices within the banking industry. To prepare financial statements and interim financial statements in conformity with GAAP, management makes estimates, assumptions and judgments based on available information. These estimates, assumptions and judgments affect the amounts reported in the financial statements and accompanying notes, and are based on information available as of the date of the financial statements. As this information changes, actual results could differ from the estimates, assumptions and judgments reflected in the financial statements. In particular, management has identified several accounting policies that, due to the estimates, assumptions and judgments inherent in those policies, are critical in understanding our financial statements.

These critical accounting policies and estimates include (i) determination of the allowance for credit losses, (ii) the valuation of intangible assets such as goodwill, and assessment of impairment, (iii) fair value estimates, and (iv) the determination and assessment of impairment for other intangible assets.

The following is a discussion of the critical accounting policies and significant estimates that require us to make complex and subjective judgments. Additional information about these policies can be found in Note 1 of our audited consolidated financial statements contained in Part II, Item 8 of this report.

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Allowance for credit losses

The allowance for credit losses ("ACL") represents management’s estimate of current expected credit losses over the life of a financial asset carried at amortized cost at an appropriate level based upon management’s evaluation of the adequacy of collectively and individually evaluated loss reserves.

The ACL is maintained at a level that management believes is appropriate to provide for current expected credit losses as of the dates of the Consolidated Statements of Financial Condition, and we have established methodologies for the determination of its adequacy. The methodologies are set forth in a formal policy and take into consideration relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. We increase our ACL by recording provisions for current expected credit losses against our income and decrease by charge‑offs, net of recoveries.

The evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. While management uses available information to recognize losses on loans and leases, changes in economic or other conditions may necessitate revision of the estimate in future periods.

For each portfolio, management estimates expected credit losses over the life of each loan and lease utilizing lifetime or cumulative loss rate methodology. The lifetime loss rates are estimated by analyzing a combination of internal and external data related to historical performance of each loan and lease pool over a complete economic cycle. Loss rates are based on historical averages for each loan and lease pool, adjusted to reflect the impact of a forward-looking forecast of certain macroeconomic variables, primarily unemployment rates, which management considers to be both reasonable and supportable. Various economic scenarios are considered and weighted to arrive at the forecast that most reflects management’s expectation of future conditions. After a one-year forecast period, a one-year reversion period adjusts loss experience to the historical average on a straight-line basis.

Management also considers qualitative risk factor adjustments that are intended to capture internal and external trends not reflected in historical loss history. Each risk factor is assigned an allowance level based on management’s judgment as to the expected impact of each risk factor on each loan and lease portfolio and is monitored quarterly. All loans and leases of $500,000 or greater with an internal risk rating of substandard or below, or on nonaccrual status, are individually evaluated for impairment on a quarterly basis.

The Company also maintains an allowance for credit losses on off-balance sheet credit exposures for unfunded loan commitments. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life based on management’s consideration of past events, current conditions, and reasonable and supportable economic forecasts. Management tracks the level and trends in unused commitments and takes into consideration the same factors as those considered for purposes of the allowance for credit losses on outstanding loans.

Goodwill

For acquisitions, we are required to record the assets acquired, including identified intangible assets, and the liabilities assumed at their fair value. These determinations often involve estimates based on third party valuations, such as appraisals or other valuations based on discounted cash flow analyses or other valuation techniques that may consider estimates such as attrition, growth rates, or other relevant assumptions. Goodwill is not amortized but is evaluated for impairment on an annual basis or more frequently should events warrant. We have selected November 30 as the date to perform the annual goodwill impairment test.

Impairment testing is performed using either a qualitative or quantitative approach at the reporting unit level. Our goodwill is allocated to Byline Bank, which is our only applicable reporting unit for the purposes of testing goodwill for impairment. We first apply a qualitative approach in which we consider if any recent events or circumstances indicate it is more likely than not that the fair value of the reporting unit is less than its carrying amount. These events and circumstances include our performance, the condition of the related industry in which Byline Bank operates and general economic environment. If we determine it is more likely than not that impairment exists, we will consider the quantitative approach. Using a quantitative approach, we compare the reporting unit’s fair value to its carrying value. If the carrying value of the reporting unit is determined to be higher than its fair value, we would measure and recognize an impairment loss. An impairment loss would not exceed the total amount of goodwill allocated to the reporting unit.

Other intangible assets

Other intangible assets primarily consist of core deposit intangible assets and customer relationship intangible. In valuing intangible assets, we consider variables such as servicing costs, attrition rates and market discount rates. Intangible assets are reviewed annually, or more frequently when events or changes in circumstances occur that indicate that their carrying values may not be recoverable. If the recoverable amount of the intangible asset is determined to be less than its carrying value, we would then measure the amount of impairment based on an estimate of the fair value at that time. We also evaluate whether the events or circumstances have occurred that warrant a revision to the remaining useful lives of intangible assets. In cases where a revision is deemed appropriate, the remaining carrying amounts of the intangible assets are amortized over the revised remaining useful life. Core deposit intangibles are currently amortized over an approximate ten-year period and customer intangibles are amortized over a twelve-year period.

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Fair value of financial instruments

A portion of the Company’s assets and liabilities are carried at fair value on the Consolidated Statements of Financial Condition, with changes in fair value recorded either through earnings or other comprehensive income in accordance with applicable accounting principles. These include the Company’s available-for-sale debt securities, equity securities, derivatives, and servicing assets.

ASC Topic 820, Fair Value Measurement defines fair value as the price that would be received to sell a financial asset or paid to transfer a financial liability in an orderly transaction between market participants at the measurement date.

The degree of management judgment involved in determining the fair value of assets and liabilities is dependent upon the availability of quoted market prices or observable market parameters. Assets acquired, liabilities assumed, and consideration exchanged are recorded at their respective acquisition date fair values. For financial instruments that trade actively and have quoted market prices or observable market parameters, there is minimal subjectivity involved in measuring fair value. When observable market prices and parameters are not available, management judgment and the use of models are necessary to estimate fair value. Significant assumptions used in models, which include assumptions for interest rates, discount rates, prepayments, and credit losses, are independently verified against observable market data when possible. When changes in market conditions reduce the availability of quoted prices or observable data, the estimate of fair value becomes more subjective and requires a higher degree of management judgment.

Refer to Note 17 of the notes to our audited consolidated financial statements contained in Part II, Item 8 of this report for a complete discussion of our use of fair value and the related measurement practices.

Selected Financial Data.

The following table summarizes certain selected historical consolidated financial data of Byline as of or for the fiscal years ended December 31, 2025, 2024, and 2023, and is derived from our audited financial statements. It should be read in conjunction with our consolidated financial statements and related notes included in Part II, Item 8 of this report. Management uses the non-GAAP financial measures set forth herein in its analysis of our performance and believes that these non-GAAP financial measures provide useful information to management and investors; however, these disclosures should not be viewed as a substitute for results determined in accordance with GAAP financial measures.

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(1)
Represents a non-GAAP financial measure. See "GAAP Reconciliation and Management Explanation of non-GAAP Financial Measures" for a reconciliation of non-GAAP measures to the most directly comparable GAAP financial measure.

(2)
Calculation excludes impairment charges on assets held for sale and ROU assets, merger-related expenses, secondary public offering of common stock expenses, and loss on extinguishment of debt.

(3)
Calculations exclude incremental income tax benefit related to impairment charges, merger-related expenses, secondary public offering of common stock expenses, and loss on extinguishment of debt.

(4)
Represents loans and leases, net of acquisition accounting adjustments, unearned deferred fees and costs and initial indirect costs.

(5)
Represents non-interest expense less amortization of intangible assets divided by net interest income and non-interest income.

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GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures

Some of the financial measures included in the "Selected Financial Data" are not measures of financial performance in accordance with GAAP. Our management uses the non‑GAAP financial measures set forth below in its analysis of our performance.

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"Adjusted net income" and "adjusted diluted earnings per share" exclude certain significant items, which include impairment charges on assets held for sale and right-of use asset ("ROU"), merger-related expenses, secondary public offering of common stock expenses, and loss on extinguishment of debt, adjusted for applicable income tax. Management believes the significant items are not indicative of or useful to measure our operating performance on an ongoing basis.

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"Net interest income, fully taxable-equivalent" and "net interest margin, fully taxable-equivalent" are adjusted to reflect tax-exempt interest income on an equivalent before-tax basis using tax rates effective as of the end of the period. Management believes the metric provides useful comparable information to investors and that these measures may be useful for peer comparison.

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"Total revenue" is the combination of net interest income and non-interest income. Management believes the metric is an important measure of the Company's operating performance on an ongoing basis.

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"Adjusted non-interest expense" is non-interest expense excluding certain significant items, which include impairment charges on assets held for sale and ROU asset, merger-related expenses, secondary public offering of common stock expenses, and loss on extinguishment of debt. Management believes the significant items are not indicative of or useful to measure our operating performance on an ongoing basis.

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"Adjusted non-interest expense excluding amortization of intangible assets" is adjusted non-interest expense excluding amortization of intangible assets expense. Management believes the metric is an important measure of our operating performance on an ongoing basis.

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"Adjusted efficiency ratio" is adjusted non-interest expense less amortization of intangible assets divided by net interest income and non-interest income. Management believes the metric is an important measure of our operating performance on an ongoing basis.

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"Adjusted non-interest expense to average assets" is adjusted non-interest expense divided by average assets. Management believes the metric is an important measure of our operating performance on an ongoing basis.

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"Adjusted return on average stockholders’ equity" is adjusted net income divided by average stockholders’ equity. Management believes the metric is an important measure of our operating performance on an ongoing basis.

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"Adjusted return on average assets" is adjusted net income divided by average assets. Management believes the metric is an important measure of our operating performance on an ongoing basis.

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"Non-interest income to total revenues" is non-interest income divided by net interest income plus non-interest income. Management believes that it is standard practice in the industry to present non-interest income as a percentage of total revenue. Accordingly, management believes providing these measures may be useful for peer comparison.

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"Pre‑tax pre‑provision net income" is pre‑tax income plus the provision for credit losses. Management believes this metric demonstrates income excluding the tax provision or benefit and the provision for credit losses and enables investors and others to assess our ability to generate capital to cover credit losses through a credit cycle.

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"Adjusted pre-tax pre-provision net income" is pre-tax pre-provision net income excluding certain significant items, which include impairment charges on assets held for sale and ROU asset, merger-related expenses, secondary public offering of common stock expenses, and loss on extinguishment of debt. Management believes the metric is an important measure of our operating performance on an ongoing basis.

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"Pre‑tax pre‑provision return on average assets" is pre-tax income plus the provision for credit losses, divided by average assets. Management believes this ratio demonstrates profitability excluding the tax provision or benefit and excludes the provision for credit losses.

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"Adjusted pre-tax pre-provision return on average assets" excludes certain significant items, which include impairment charges on assets held for sale and ROU asset, merger-related expenses, secondary public offering of common stock expenses, and loss on extinguishment of debt.

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"Tangible common stockholders' equity" is defined as total stockholders' equity reduced by preferred stock, goodwill and other intangible assets. Management does not consider servicing assets as an intangible asset for purposes of this calculation.

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"Tangible assets" is defined as total assets reduced by goodwill and other intangible assets. Management does not consider servicing assets as an intangible asset for purposes of this calculation.

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"Tangible book value per common share" is calculated as tangible common stockholders' equity, which is stockholders’ equity reduced by preferred stock, goodwill and other intangible assets, divided by total shares of common stock outstanding. Management believes this metric is important due to the relative changes in the book value per share exclusive of changes in intangible assets.

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"Tangible common stockholders' equity to tangible assets" is calculated as tangible common stockholders' equity divided by tangible assets, which is total assets reduced by goodwill and other intangible assets. Management believes this metric is important to investors and analysts interested in relative changes in the ratio of total stockholders’ equity to total assets, each exclusive of changes in intangible assets.

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"Tangible net income" is net income excluding after-tax intangible asset amortization.

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"Adjusted tangible net income" is tangible net income excluding certain significant items. Management believes the metric is an important measure of our operating performance on an ongoing basis.

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"Return on average tangible common stockholders’ equity" is tangible net income divided by average tangible common stockholders’ equity. Management believes the metric is an important measure of our operating performance on an ongoing basis.

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"Adjusted return on average tangible common stockholders’ equity" is adjusted tangible net income divided by average tangible common stockholders’ equity. Management believes the metric is an important measure of our operating performance on an ongoing basis.

We believe that these non‑GAAP financial measures provide useful information to its management and investors that is supplementary to our financial condition, results of operations and cash flows computed in accordance with GAAP; however, we acknowledge that our non‑GAAP financial measures have a number of limitations. As such, you should not view these disclosures as a substitute for results determined in accordance with GAAP financial measures that we and other companies use. Management also uses these measures for peer comparison.

The following reconciliation tables provide a more detailed analysis of the non‑GAAP financial measures discussed herein:

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Results of Operations

Net interest income

Net interest income, representing interest income less interest expense, is a significant contributor to our revenues and earnings. We generate interest income from interest and dividends on interest-earning assets, which include loans, leases and investment securities we own. We incur interest expense from interest paid on interest-bearing liabilities, which include interest-bearing deposits, subordinated notes, junior subordinated debentures and other borrowings. To evaluate net interest income, we measure and monitor (i) yields on our loans and other interest-earning assets, (ii) the costs of our deposits and other funding sources, (iii) our net interest spread and (iv) our net interest margin. Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest margin is calculated as the net interest income divided by average interest-earning assets. Because non-interest-bearing sources of funds, such as non-interest-bearing deposits and stockholders’ equity, also fund interest-earning assets, net interest margin includes the benefit of these non-interest-bearing sources.

We also recognize income from the accretable discounts associated with the purchase of interest-earning assets. Because of our recapitalization and acquisitions, we derive a portion of our interest income from the accretable discounts on purchased credit deteriorated and acquired non-credit-deteriorated loans. The accretion is generally recognized over the life of the loan. As of December 31, 2025, purchased credit deteriorated loans accounted for under ASC Topic 326 represented 1.4% of our total loan portfolio, compared to 1.8% at December 31, 2024.

Changes in the market interest rates we earn on interest-earning assets or pay on interest-bearing liabilities, as well as the volume and types of interest-earning assets, interest-bearing and non-interest-bearing liabilities, are the largest drivers of periodic changes in net interest spread, net interest margin and net interest income. In addition, our interest income includes the accretion of the discounts on our purchased credit deteriorated and acquired non-credit-deteriorated loans, which will also affect our net interest spread, net interest margin and net interest income.

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The following tables present, for the periods indicated, information about (i) average balances, the total dollar amount of interest income from interest-earning assets and the resultant average yields; (ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rates; (iii) net interest income; (iv) the interest rate spread; and (v) the net interest margin. Yields have been calculated on a pre-tax basis (dollars in thousands):

(1)
Loan and lease balances are net of deferred origination fees and costs and initial direct costs. Fees included in loan and lease interest income were $8.8 million, $8.1 million, and $9.8 million for the years ended December 31, 2025, 2024, and 2023, respectively. Non-accrual loans and leases are included in total loan and lease balances. Interest income on non-accruing loans is reflected in the period that it is collected, to the extent it is not applied to principal. Non-accrual loans are included in the average balances.

(2)
Interest income and rates include the effects of a tax equivalent adjustment to adjust tax-exempt investment income on tax-exempt investment securities to a fully taxable basis, assuming a federal income tax rate of 21%.

(3)
Represents the average rate earned on interest-earning assets minus the average rate paid on interest-bearing liabilities.

(4)
Represents net interest income divided by total average interest-earning assets.

(5)
Average balances are average daily balances.

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Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following tables set forth the effects of changing rates and volumes on our net interest income during the periods shown. Information is provided with respect to (i) effects on interest income attributable to changes in volume (changes in volume multiplied by prior rate) and (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume). Changes applicable to both volume and rate have been allocated to volume. Yields have been calculated on a pre-tax basis. The tables below are a summary of the increases and decreases in interest income and interest expense resulting from changes in average balances (volume) and changes in average interest rates (dollars in thousands):

(1) Includes loans and leases on non-accrual status.

(2) Interest income and rates include the effects of a tax equivalent adjustment to adjust tax-exempt investment income on tax-exempt investment securities to a fully taxable basis, assuming a federal income tax rate of 21%.

Net interest income for the year ended December 31, 2025 was $385.3 million, an increase of $37.3 million, or 10.7% compared to 2024. The increase in interest income of $6.3 million was principally a result of growth in the loan and lease portfolio. The average balance of interest-earning assets was $9.1 billion for the year ended December 31, 2025, an increase of $356.2 million, or 4.1%, compared to 2024, primarily due to growth in our loan and lease portfolios and securities portfolio, offset by decreases to cash and cash equivalents. Interest expense decreased by $31.0 million or 14.2%, for the year ended December 31, 2025 compared to 2024, mostly due to lower rates paid and lower average balances on time deposits and partially offset by growth of money market accounts. Average total interest-bearing deposits increased $312.9 million, or 5.6% year over year.

Interest expense on borrowings for the year ended December 31, 2025 was $19.2 million compared to $25.5 million for the year ended December 31, 2024, a decrease of $6.4 million, or 24.9%. This decrease was driven mainly by lower rates paid on other borrowings.

The net interest margin for the year ended December 31, 2025 was 4.22%, an increase of 25 basis points compared to 3.97% for the year ended December 31, 2024. The average yield on interest-earning assets decreased 18 basis points to 6.28% for the year ended December 31, 2025 compared to 6.46% for the year ended December 31, 2024, while the average rate paid on interest-bearing liabilities decreased by 60 basis points to 2.94% from 3.54%, resulting in an increase in the interest rate spread of 42 basis points.

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Net loan accretion income was $10.4 million for the year ended December 31, 2025 compared to $13.5 million for the year ended December 31, 2024, a decrease of $3.1 million. Total net loan accretion on acquired loans contributed 11 basis points to the net interest margin for the year ended December 31, 2025 compared to 15 basis points for the year ended December 31, 2024. Assuming no additional acquisitions, we expect loan accretion income to continue to decline as acquired loans mature. Projected accretion income as of December 31, 2025 is summarized as follows:

Provision for credit losses

The provision for credit losses reflects the amount required to maintain the ACL at an appropriate level based upon management’s evaluation of collectively and individually evaluated loss reserves. The provision for credit losses represents a charge to earnings necessary to establish an allowance for credit losses that, in management’s evaluation, is appropriate to provide coverage for current expected credit losses in the loan and lease portfolio. The ACL is increased by the provision for credit losses and is decreased by charge-offs, net of recoveries on prior charge-offs.

Provision for credit losses for the year ended December 31, 2025 was $36.1 million compared to $27.0 million for the year ended December 31, 2024, an increase of $9.1 million. The increase in provision was mainly due to growth in the loan and lease portfolio and higher non-performing loans and leases. On April 1, 2025, a provision for credit losses of $864,000 was recorded on acquired non-credit-deteriorated loans related to the First Security acquisition. For the year ended December 31, 2025, the provision for credit losses is comprised of a provision for loan and lease losses of $35.8 million and a provision for unfunded commitments of $348,000. For the year ended December 31, 2024, the provision for credit losses is comprised of a provision for loan and lease losses of $28.3 million and a recapture of provision for unfunded commitments of $1.2 million.

Non-interest income

Non-interest income was $60.9 million for the year ended December 31, 2025, compared to $58.9 million for the year ended December 31, 2024, an increase of $2.1 million or 3.5%.

The following table presents the major components of our non-interest income for the periods indicated (dollars in thousands):

Fees and service charges on deposits represent amounts charged to customers for banking services, such as fees on deposit accounts, and include, but are not limited to, maintenance fees, insufficient fund fees, overdraft protection fees, wire transfer fees, treasury management fees, and other charges. Fees and service charges on deposits were $10.9 million for the year ended December 31, 2025, compared to $10.2 million for the year ended December 31, 2024, an increase of $662,000 or 6.5%. The increase was a result of growth in deposit balances and from new customers.

While portions of the loans that we originate are sold and generate gain on sale revenue, servicing rights for the majority of the loans that we sell are retained by us. In exchange for continuing to service loans that have been sold, we receive servicing revenue from a portion of the interest cash flow of the loan. We generated $12.3 million and $12.9 million in loan servicing revenue on the sold portion of U.S. government guaranteed loans for the years ended December 31, 2025 and 2024, respectively, a decrease of $644,000 or 5.0%.

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At December 31, 2025 and 2024, the outstanding balance of U.S. government guaranteed loans serviced was $1.6 billion and $1.7 billion, respectively.

Loan servicing asset revaluation represents net changes in the fair value of our servicing assets. Loan servicing asset revaluation had a downward adjustment of $5.6 million for the year ended December 31, 2025, compared to a downward adjustment of $6.7 million for the year ended December 31, 2024, a decrease of $1.1 million, or 16.4% The variance was primarily driven by the change in fair value of the servicing asset mainly as a result of lower average discount rate.

Net gains on sales of loans were $22.7 million for the year ended December 31, 2025 compared to $24.5 million for the year ended December 31, 2024, a decrease of $1.8 million, or 7.4%. The decrease in net gains on sales was primarily driven by lower market premiums for U.S. government guaranteed loans. We sold $315.0 million and $314.8 million of U.S. government guaranteed loans during the years ended December 31, 2025 and 2024, respectively.

Wealth management and trust income represents fees charged to customers for investment, trust, and wealth management services and are primarily determined by total assets under administration. Wealth management and trust income was $4.8 million for the year ended December 31, 2025 compared to $4.3 million for the year ended December 31, 2024, an increase of $536,000 or 12.4%, mainly due to increased fees. Assets under administration were $823.2 million and $746.5 million as of December 31, 2025 and 2024, respectively, and include $115.2 million and $119.7 million of money market demand accounts included in interest-bearing deposits on the Consolidated Statements of Financial Condition.

Other non-interest income was $11.0 million for the year ended December 31, 2025 compared to $8.7 million for the year ended December 31, 2024, an increase of $2.3 million or 26.1%. The increase was primarily a result of increased swap fee income from increased swap activity.

Non-interest expense

We reported non-interest expense for the year ended December 31, 2025 of $236.9 million compared to $218.8 million for the year ended December 31, 2024, an increase of $18.1 million or 8.3%.

The following table presents the components of our non-interest expense for the periods indicated (dollars in thousands):

Salaries and employee benefits, the single largest component of our non-interest expense, was $150.4 million for the year ended December 31, 2025 compared to $140.1 million for the year ended December 31, 2024, an increase of $10.3 million or 7.3%, primarily a result of merger-related expenses, merit salary increases, higher incentive compensation, and higher equity-based compensation.

Occupancy expense, net, and equipment expense for the year ended December 31, 2025 were $18.3 million compared to $18.7 million for the year ended December 31, 2024, a decrease of $439,000 or 2.3%, primarily as a result of our branch consolidation strategy.

Loan and lease related expenses for the year ended December 31, 2025 were $3.6 million compared to $2.8 million for the year ended December 31, 2024, an increase of $834,000, or 29.9%. The increase was mainly related to increased real estate taxes and insurance and increased appraisal and survey related expenses.

Legal, audit and other professional fees for the year ended December 31, 2025 were $16.1 million compared to $13.4 million for the year ended December 31, 2024, an increase of $2.6 million or 19.6%. The increase was principally driven by increased outside service fees, merger-related expenses, and fees and expenses related to the secondary public offering of our common stock.

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Data processing expense for the year ended December 31, 2025 was $19.4 million compared to $16.9 million for the year ended December 31, 2024, an increase of $2.6 million or 15.3% primarily due to increased software licensing and maintenance expenses and from higher expenses associated with the First Security acquisition and integration.

Advertising and promotions for the year ended December 31, 2025 were $5.6 million compared to $5.0 million for the year ended December 31, 2024, an increase of $666,000 or 13.4%, primarily due to higher sponsorships and advertising spent on digital marketing campaigns.

Other non-interest expense for the year ended December 31, 2025 was $11.4 million compared to $10.9 million for the year ended December 31, 2024, an increase of $537,000 or 4.9%. Other non-interest expense for the year ended December 31, 2025 includes $843,000 related to the loss on extinguishment of subordinated debt.

For the years ended December 31, 2025 and 2024, our efficiency ratio was 51.83% and 52.45%, respectively. The improvement in the efficiency ratio was mainly driven by increased revenues and lower interest expense. For the years ended December 31, 2025 and 2024, our adjusted efficiency ratio was 50.37% and 52.24%, respectively. Please refer to the "GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures" included in Item 7 of this report, for more information on how our adjusted efficiency ratio is calculated.

Income Taxes

Income tax expense was $43.2 million for the year ended December 31, 2025, compared to $40.3 million for the year ended December 31, 2024. The increase in income tax expense was primarily due to increased income before provision for income taxes during 2025.

Our effective tax rate was 24.9% for the year ended December 31, 2025 and 25.0% for the year ended December 31, 2024. The decrease in our effective tax rate was primarily driven by a decrease in our state tax rate, net of our federal benefit. We expect our effective tax rate for 2026 to be approximately 25% to 27%.

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Financial Condition

Balance sheet analysis

Our total assets increased by $156.1 million, or 1.6%, to $9.7 billion at December 31, 2025, compared to $9.5 billion at December 31, 2024.

Total liabilities decreased by $20.3 million, or 0.2%, to $8.4 billion at December 31, 2025 compared to December 31, 2024. The decrease is primarily attributed to a decrease in FHLB advances of $235.0 million, or 40.9%, due to repayments, offset by an increase in total deposits of $188.8 million, or 2.5%, primarily driven by deposits acquired through acquisition.

Investment portfolio

Our investment securities portfolio consists of securities classified as equity and other securities, at fair value, and securities available-for-sale, at fair value. There were no securities classified as trading in our investment portfolio as of or for the years ended December 31, 2025 and 2024. All available-for sale securities are carried at fair value and may be used for liquidity purposes should management consider it to be in our best interest. Securities available-for-sale consist primarily of residential mortgage-backed securities, commercial mortgage-backed securities and U.S. government agencies securities and has an average duration of 4.5 years at December 31, 2025.

Securities available-for-sale were $1.4 billion, a decrease of $10.6 million or 0.7%, compared to December 31, 2024. The decrease was primarily due to principal paydowns and sales of mortgage-backed securities, and maturities and calls of U.S. Treasury Notes and U.S. Government agency bonds, offset by purchases of residential and commercial mortgage-backed securities and lower unrealized losses.

There were no securities classified as held-to-maturity in our investment portfolio as of December 31, 2025. Securities held-to-maturity were $605,000 at December 31, 2024, which consisted of municipal securities, carried at amortized cost. We evaluated the held to maturity securities in an unrealized loss position for credit losses as of December 31, 2024 and determined there were none.

The fair value of our equity and other securities portfolio was $10.7 million at December 31, 2025, and $9.9 million at December 31, 2024.

The following tables summarize the fair value of the available-for-sale and held-to-maturity securities portfolio as of the dates presented (dollars in thousands):

Certain securities have fair values less than amortized cost and, therefore, contain unrealized losses. There were 205 investment securities with unrealized losses at December 31, 2025 totaling $121.6 million. We anticipate full recovery of amortized cost with respect to these securities by maturity, or sooner in the event of a more favorable market interest rate environment. We do not intend to sell these securities and it is not more likely than not that we will be required to sell them before recovery of their amortized cost basis, which may be at maturity.

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The following table (dollars in thousands) set forth certain information regarding contractual maturities and the weighted average yields of our debt securities as of December 31, 2025. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

(1) The weighted average yields are based on amortized cost.

Total non-taxable securities classified as obligations of states, municipalities and political subdivisions were $39.0 million at December 31, 2025, a decrease of $14.6 million from December 31, 2024.

There were no holdings of securities of any one issuer, other than U.S. government-sponsored entities and agencies, with total outstanding balances greater than 10% of our stockholders’ equity as of December 31, 2025 and 2024.

Restricted stock

As a member of the Federal Home Loan Bank system, Byline Bank is required to maintain an investment in the capital stock of the FHLB. No market exists for this stock, and it has no quoted market value. The stock is redeemable at par by the FHLB and is, therefore, carried at cost. In addition, Byline Bank owns stock of Bankers’ Bank, which is redeemable at par and carried at cost. As of December 31, 2025 and 2024, we held $21.3 million and $27.5 million, respectively, in FHLB and Bankers’ Bank stock. We evaluate impairment of our investment in FHLB and Bankers’ Bank based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value. We did not identify any indicators of impairment of FHLB and Bankers’ Bank stock as of December 31, 2025 and 2024.

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Loan and lease portfolio

Lending-related income is the most important component of our net interest income and is the main driver of the results of our operations. Total loans and leases at December 31, 2025 and 2024 were $7.5 billion and $6.9 billion, respectively, an increase of $602.5 million or 8.7%. The growth in the originated loan and lease portfolio was primarily driven by increases in commercial and industrial loans and leases, and commercial real estate. Purchased credit deteriorated loans and acquired non-credit-deteriorated loans and leases were $632.1 million at December 31, 2025, a decrease of $30.9 million, compared to $663.0 million at December 31, 2024. The decrease in the purchased credit deteriorated and acquired non-credit-deteriorated loan and lease portfolio was primarily due to renewals of loans as originated, resolutions of these loans, and charge-offs.

We strive to maintain a diversified loan and lease portfolio to help reduce the risk inherent in concentration in certain types of collateral. Our exposure to certain industries as of December 31, 2025 represents the following percentages of the portfolio: 35.9% real estate, 12.1% manufacturing, 9.5% finance and insurance, 6.5% wholesale trade, 5.0% accommodation and food services, and all other industries represent less than 5% of the portfolio or 31.0% of the total loan and lease portfolio. As of December 31, 2025, the loan portfolio included $407.3 million of unguaranteed SBA 7(a) and USDA loans with exposure to the following top three industries: 18.9% retail trade, 13.4% accommodation and food services and 8.2% manufacturing. The following table shows our allocation of originated, purchased credit deteriorated, and acquired non-credit-deteriorated loans and leases as of the dates presented (dollars in thousands):