Byline Bancorp, Inc. Reports Fourth Quarter and Full Year 2022 Financial Results

Select Fourth Quarter 2022 Financial Highlights

• Net income of $24.4 million, or $0.65 per diluted share
• Net interest margin of 4.39%; up 36 bps from the previous quarter
• Pre-tax pre-provision return on average assets of 2.05%
• Return on average assets of 1.33%; Return on tangible common equity of 17.21%¹
• Efficiency ratio of 55.53%
• Total loans and leases increased $160.0 million
• Total deposits increased $82.7 million to $5.7 billion
• Common Equity Tier 1 to risk weighted assets of 10.20%

Select Full Year 2022 Financial Highlights

• Net income of $88.0 million, or $2.34 per diluted share
• Pre-tax pre-provision return on average assets of 1.97%
• Return on average assets 1.25%; Return on tangible common equity 15.15%¹
• Efficiency ratio of 54.99%
• Adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326) as of January 1, 2022²

(1) Represents non-GAAP financial measures. See “Reconciliation of non-GAAP Financial Measures” for a reconciliation of our non-GAAP measures to the most directly comparable GAAP financial measure.

(2) The previously reported 2022 quarterly financial statements have been recast to reflect the adoption of CECL.

Byline Bancorp, Inc. ("Byline", the “Company”, "we", "our", or "us") (NYSE: BY), the parent company of Byline Bank (the “Bank”), today reported net income of $24.4 million, or $0.65 per diluted share, for the fourth quarter of 2022 compared with net income of $20.4 million, or $0.55 per diluted share, for the third quarter of 2022, and net income of $17.2 million, or $0.45 per diluted share, for the fourth quarter 2021.

Roberto R. Herencia, Executive Chairman and Chief Executive Officer of Byline Bancorp, Inc., commented, “Byline executed its strategy well throughout the year and our focus on customers allowed us to experience solid loan and deposit growth despite a slowing economic environment. We remain committed to executing our strategy of disciplined organic growth in loans and deposits in order to drive higher profitability. We believe our pending acquisition of Inland Bancorp, Inc. will further enhance our position into other attractive Chicago metropolitan markets, provide an important source of stable, low-cost deposits, and further enhance the value of the Byline franchise. I want to thank the Byline employees, who enabled our strong performance for their dedication and hard work.”

Alberto J. Paracchini, President of Byline Bancorp, Inc. added, “We reported strong results in the fourth quarter and ended 2022 on a good note as we delivered positive operating leverage as a result of increased revenues of 4% while continuing to invest in our businesses. Our results were driven by growth in net interest income supported by loan and deposit growth and the benefit of rising interest rates. Our business units performed well during the quarter, and we have good momentum in our areas of strategic focus. As we enter 2023, we remain committed to delivering on our purpose to support new and existing customers, executing our strategy, and growing the value of our franchise.”

Company Adopts ASU 2016-13 Financial Instruments - Credit Losses (Topic 326)

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13 Financial Instruments - Credit Losses (Topic 326) on the recognition of credit losses, otherwise known as the current expected credit loss standard, or "CECL", which replaces the incurred loss impairment methodology with a methodology that reflects current expected credit losses. As an emerging growth company, we elected to delay the adoption of the standard in accordance with ASU No. 2019-10, Effective Dates, which delayed the effective date of the ASU for entities not classified as Public Business Entities. The Company’s EGC status expired during 2022, requiring CECL adoption be reflected in our December 31, 2022 financial statements and Form 10-K.

The Company adopted CECL on December 31, 2022, and has applied it retroactively to the period beginning January 1, 2022 using the modified retrospective method of accounting. Adoption of CECL includes both a $10.1 million retroactive equity adjustment to January 1, 2022 (Day 1) and a $1.7 million fourth quarter adjustment to earnings (net of tax) to account for the difference in provision for credit losses between CECL and the incurred loss methodology for the first three quarters of 2022. Results for reporting periods beginning after September 30, 2022 are presented under the new standard, while prior quarters previously reported are "Recast" as if the new standard had been applied since January 1, 2022. Refer to Appendix A for recast prior quarter financial information as a result of the adoption of the new standard. Ongoing impacts of the CECL methodology will be dependent upon changes in economic conditions and forecasts, originated and acquired loan portfolio composition, credit performance trends, portfolio duration, and other factors.

Board Declares Cash Dividend of $0.09 per Share

On January 24, 2023, the Company's Board of Directors declared a cash dividend of $0.09 per share, payable on February 21, 2023, to stockholders of record of the Company's common stock as of February 7, 2023.

Board Authorizes New Stock Repurchase Program

On December 7, 2022, the Company's Board of Directors approved a new stock repurchase program that authorizes the Company to purchase up to 1.25 million shares of the Company's outstanding common stock. The new program is effective January 1, 2023 until December 31, 2023. Under the previous stock repurchase program that expired on December 31, 2022, Byline repurchased 2,139,262 shares of the 2.5 million total shares authorized for repurchase, including 689,068 shares during 2022. The Company did not repurchase any shares during the fourth quarter of 2022.

STATEMENTS OF OPERATIONS

Net Interest Income

The following table presents the average interest-earning assets and average interest-bearing liabilities for the periods indicated. Net interest income and margin are adjusted to reflect tax-exempt interest income on a tax-equivalent basis using tax rates effective as of the end of the period:

The following table presents net interest income for the periods indicated:

Net interest income for the fourth quarter of 2022 was $76.6 million, an increase of $8.0 million, or 11.6%, from the third quarter of 2022, driven mainly by the rising interest rate environment.

The increase in net interest income was primarily due to:

• An increase of $13.1 million in interest income and fees on loans and leases due to higher yields and growth in the originated loan and lease portfolio.

Partially offset by:

• An increase of $4.6 million in deposit interest expense mainly due to higher rates paid on deposits; and
• An increase of $1.4 million in interest expense on other borrowings due to increases in rates paid on FHLB advances.

Tax-equivalent net interest margin for the fourth quarter of 2022 was 4.40%, an increase of 36 basis points compared to the third quarter of 2022. Total net accretion income on acquired loans contributed two basis points to the net interest margin for the fourth quarter of 2022 compared to eight basis points for the third quarter of 2022, an increase of six basis points.

The average cost of total deposits was 0.73% for the fourth quarter of 2022, an increase of 30 basis points compared to the third quarter of 2022. Average non-interest-bearing demand deposits were 38.9% of average total deposits for the fourth quarter of 2022 compared to 39.7% during the third quarter of 2022.

Provision for Credit Losses

The provision for credit losses was $5.8 million for the fourth quarter of 2022, a decrease of $1.4 million compared to $7.2 million for the third quarter of 2022. Provision for credit losses is comprised of provision for loan and lease losses of $5.4 million and provision for unfunded commitments of $426,000. The decrease in provision during the fourth quarter of 2022 was primarily driven by changes to expected losses in the conventional loan portfolio.

Non-interest Income

The following table presents the components of non-interest income for the periods indicated:

Non-interest income for the fourth quarter of 2022 was $11.5 million, a decrease of $588,000 or 4.9%, compared to $12.0 million for the third quarter of 2022.

The decrease in total non-interest income was primarily due to:

• An increase of $1.2 million in the downward valuation adjustment to the loan servicing asset, due to unfavorable fair value adjustments due to changes in the discount rates.

Partially offset by:

• An increase of $1.3 million in the change in fair value of equity securities, due to changes in the market value of securities.

During the fourth quarter of 2022, we sold $86.0 million of U.S. government guaranteed loans compared to $75.4 million during the third quarter of 2022.

Non-interest Expense

The following table presents the components of non-interest expense for the periods indicated:

Non-interest expense for the fourth quarter of 2022 was $50.5 million, an increase of $4.5 million, or 9.7%, from $46.0 million for the third quarter of 2022.

The increase in total non-interest expense was primarily due to:

• An increase of $2.2 million in salaries and employee benefits mainly is due to increased incentive compensation and lower loan deferral costs due to lower originations during the quarter; and
• An increase of $1.2 million in other non-interest expense, which includes an increase in net losses of $480,000 in leasehold improvements, and increases in general expenses; and
• An increase of $596,000 in loan and lease related expenses mainly due to higher expenses associated with government guaranteed loans; and
• An increase of $471,000 in legal, audit and other professional fees primarily related to acquisition activities.

Partially offset by:

• A decrease of $387,000 in occupancy and equipment expense, net, mainly due to lower real estate tax expenses.

Our efficiency ratio was 55.53% for the fourth quarter of 2022 compared to 55.07% for the third quarter of 2022.

INCOME TAXES

We recorded income tax expense of $7.4 million during the fourth quarter of 2022, compared to $7.0 million during the third quarter of 2022. The effective tax rate was 23.2% and 25.6% for the fourth quarter of 2022 and third quarter of 2022, respectively. The decrease in the effective tax rate is primarily due to a decrease in the state income tax rate.

STATEMENTS OF FINANCIAL CONDITION

Total assets were $7.4 billion at December 31, 2022, an increase of $95.7 million compared to $7.3 billion at September 30, 2022.

The current quarter increase was primarily due to:

• An increase in net loans and leases of $143.9 million primarily due to growth in the loan and lease portfolio.

Partially offset by:

• A decrease in securities available-for-sale of $7.2 million primarily due to changes in market conditions.

The following table shows our allocation of the originated, acquired impaired, and acquired non-impaired loans and leases at the dates indicated:

ASSET QUALITY

Non-Performing Assets

The following table sets forth the amounts of non-performing loans and leases (excluding acquired impaired), other real estate owned, and accruing troubled debt restructured loans at the dates indicated:

Variances in non-performing assets were:

• Non-performing loans and leases were $36.0 million at December 31, 2022, a decrease of $5.9 million from $41.9 million at September 30, 2022, primarily due to charge-offs of loans previously reserved for.
• Other real estate owned was $4.7 million at December 31, 2022, an increase of $315,000 from $4.4 million at September 30, 2022, primarily due to the transfer of one property.

Allowance for Credit Losses ("ACL") - Loans and Leases

The following table presents the balance and activity within the allowance for credit losses - loans and leases for the periods indicated:

Net charge-offs of loans and leases during the fourth quarter of 2022 were $3.2 million, or 0.23% of average loans and leases, on an annualized basis, an increase of $1.4 million compared to $1.8 million, or 0.14% of average loans and leases, during the third quarter of 2022, and a decrease of $1.1 million from $4.3 million or 0.36% of average loans and leases from the comparable period a year ago.

Net charge-offs for the fourth quarter of 2022 included $1.3 million in the unguaranteed portion of U.S. government guaranteed loans, while net charge-offs for the third quarter of 2022 and fourth quarter of 2021 included $1.9 million and $1.5 million, respectively, in the unguaranteed portion of U.S. government guaranteed loans.

Deposits and Other Liabilities

The following table presents the composition of deposits at the dates indicated:

Total deposits increased to $5.7 billion at December 31, 2022 compared to $5.6 billion at September 30, 2022. Non-interest-bearing deposits were 37.6% and 38.2% of total deposits at December 31, 2022 and September 30, 2022, respectively.

The increase in deposits in the current quarter was due to:

• An increase in time deposits of $224.3 million, primarily due to promotional certificates of deposit.

Partially offset by:

• A decrease in money market demand accounts of $70.2 million, due to seasonal commercial outflows.

Total borrowings and other liabilities were $902.0 million at December 31, 2022, a decrease of $17.0 million from $919.0 million at September 30, 2022, primarily driven by decreases in Federal Home Loan Bank advances.

Stockholders’ Equity

Total stockholders’ equity was $765.8 million at December 31, 2022, an increase of $30.0 million from $735.8 million at September 30, 2022. The increase was primarily due to net income and a decrease in accumulated other comprehensive loss.

The following table presents actual regulatory capital dollar amounts and ratios of the Company and Byline Bank as of December 31, 2022:

Capital ratios for the period presented are based on the Basel III regulatory capital framework as applied to our current business and operations, and are subject to, among other things, completion and filing of our regulatory reports and ongoing regulatory review and implementation guidance. The ratios above reflect the Company’s election to opt into the regulators’ joint CECL transition provision, which allows the Company to phase in the capital impact of the adoption of CECL over the next three years beginning January 1, 2022. Accordingly, capital ratios as of December 31, 2022 reflect 25% of the CECL impact.

Conference Call, Webcast and Slide Presentation

We will host a conference call and webcast at 9:00 a.m. Central Time on Friday, January 27, 2023 to discuss our quarterly financial results. Analysts and investors may participate in the question-and-answer session. The call can be accessed via telephone at (844) 200-6205; passcode 608025. A recorded replay can be accessed through February 10, 2023 by dialing (866) 813-9403; passcode: 817934.

A slide presentation relating to our fourth quarter 2022 results will be accessible prior to the conference call. The slide presentation and webcast of the conference call can be accessed on our investor relations website at www.bylinebancorp.com.

About Byline Bancorp, Inc.

Headquartered in Chicago, Byline Bancorp, Inc. is the parent company of Byline Bank, a full service commercial bank serving small- and medium-sized businesses, financial sponsors, and consumers. Byline Bank has approximately $7.3 billion in assets and operates more than 30 full service branch locations throughout the Chicago and Milwaukee metropolitan areas. Byline Bank offers a broad range of commercial and retail banking products and services including small ticket equipment leasing solutions and is one of the top Small Business Administration lenders in the United States.

Forward-Looking Statements

This communication contains forward-looking statements within the meaning of the U.S. federal securities laws. Forward-looking statements include, without limitation, statements concerning plans, estimates, calculations, forecasts and projections with respect to the anticipated future performance of the Company. These statements are often, but not always, made through the use of words or phrases such as ‘‘may’’, ‘‘might’’, ‘‘should’’, ‘‘could’’, ‘‘predict’’, ‘‘potential’’, ‘‘believe’’, ‘‘expect’’, ‘‘continue’’, ‘‘will’’, ‘‘anticipate’’, ‘‘seek’’, ‘‘estimate’’, ‘‘intend’’, ‘‘plan’’, ‘‘projection’’, ‘‘would’’, ‘‘annualized’’, “target” and ‘‘outlook’’, or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. Forward-looking statements involve estimates and known and unknown risks, and reflect various assumptions and involve elements of subjective judgment and analysis, which may or may not prove to be correct, and which are subject to uncertainties and contingencies outside the control of Byline and its respective affiliates, directors, employees and other representatives, which could cause actual results to differ materially from those presented in this communication.

No representations, warranties or guarantees are or will be made by Byline as to the reliability, accuracy or completeness of any forward-looking statements contained in this communication or that such forward-looking statements are or will remain based on reasonable assumptions. You should not place undue reliance on any forward-looking statements contained in this communication.

Certain risks and important factors that could affect Byline’s future results are identified in our Annual Report on Form 10-K and other reports we file with the Securities and Exchange Commission, including among other things under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021. Any forward-looking statement speaks only as of the date on which it is made, and Byline undertakes no obligation to update any forward-looking statement, whether to reflect events or circumstances after the date on which the statement is made, to reflect new information or the occurrence of unanticipated events, or otherwise unless required under the federal securities laws.