KBRA Affirms Ratings for Byline Bancorp, Inc.

KBRA affirms the senior unsecured debt rating of BBB+, the subordinated debt rating of BBB, and the short-term debt rating of K2 for Chicago, Illinois-based Byline Bancorp, Inc. (NYSE: BY) ("Byline" or "the company"). In addition, KBRA affirms the deposit and senior unsecured debt ratings of A-, the subordinated debt rating of BBB+, and the short-term deposit and debt ratings of K2 for its main subsidiary, Byline Bank. The Outlook for all long-term ratings is Stable.

The ratings are supported by Byline’s strong and resilient earnings capacity across various interest rate environments, including the current cycle, where it has demonstrated top-quartile profitability within the KBRA-rated universe. While the company’s asset-sensitive balance sheet has contributed to its favorable performance in the higher interest rate environment, KBRA believes that its business model also incorporates countercyclical elements. Specifically, its Small Business Capital ("SBC") line of business provides substantial revenue tailwinds in a declining rate environment on increased gain on sale ("GoS") activity. Additionally, management has proactively shifted the balance sheet toward a more neutral IRR position to mitigate the impact of further Fed rate cuts. Given these factors, we believe Byline’s earnings should remain durable and continue to rank at the higher end of the rating group moving forward. KBRA acknowledges solid revenue diversification but notes it remains primarily driven by lending activities and GoS income from the SBC line of business. However, this business line has demonstrated resilience throughout various interest rate cycles and has proven to be less volatile than mortgage banking. While noninterest income as a percentage of total revenue appears to track below peer levels (14% in 2025), when measured relative to balance sheet size—given BY’s significantly above-peer NIM—fee income aligns closely with rated peers at just over 0.6% of average assets. Furthermore, in 2025 BY launched a commercial payments business, which we expect will contribute to noninterest income growth over time.

We also view favorably the more conservative posture with respect to capital management over the years, and note the convergence towards rated-peer levels of capitalization in recent periods (CET1 ratio of 12.3% at YE25 vs. a rated peer average of 12.5%). Overall, we view management's capital targets as suitable for the rating group and risk profile of the company, especially considering its above peer earnings capacity as the first line of defense against unexpected credit costs or other expense-related issues. Elevated organic growth or M&A activity could impact ratios, though we believe they would be rebuilt quickly given the strong ability to generate internal capital via retained earnings, supported by a modest dividend payout ratio of ~14%.

Credit quality metrics, including reported NPA and NCO ratios, have generally been slightly weaker than peers, which is reflective of a higher risk profile, in part driven by the government lending division as unguaranteed portions of SBA/USDA loans are maintained on-balance sheet at 5.4% of total loans as of YE25. However, asset quality measures have also been impacted by purchased credit deteriorated ("PCD") loans from prior acquisitions. While the government lending segments generally carry higher credit costs, appropriate loan pricing more than offsets the risk, as reflected in Byline’s strong margins and returns over the years. Excluding SBA and PCD loans, the NPA and NCO ratios for the conventional loan portfolio have remained relatively sound and in line with peers. KBRA also positively notes Byline Bank's below-average investor CRE concentration (151% of total risk-based capital as of YE25). The operating footprint is more concentrated than larger peers, primarily within the Chicago MSA. However, national lending channels provide meaningful diversification. We view this as adequate for the rating category and note that BY operates in strong and diversified economies.

Byline’s funding mix is considered adequate for the rating group, though the company reflects a modestly higher utilization of noncore funding relative to peers, partially attributable to interest rate risk management (we also note a decline in brokered deposits in recent periods). The deposit base is also more concentrated in rate-sensitive products. Combined with its presence in competitive markets, this contributes to a modestly higher cost of funds (total deposit costs of 1.97% during 4Q25). Additionally, while we view liquidity management as commensurate with the business model, the balance sheet remains more leveraged than peers, with higher ratios of loans to earning assets and loans to core deposits.

The ratings also reflect Byline’s solid strategic execution over the years, including a proven track record of integrating acquisitions and driving organic growth. This is supported by a strong management team and board of directors, with approximately 30% insider ownership—a factor we view as a credit strength. We also acknowledge the proactive steps taken in preparation for surpassing the $10 billion asset threshold, including investments in infrastructure, risk systems, and talent.

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